Amendment to Annual Report by a Foreign Non-Canadian Issuer — Form 20-F — Sect. 13 / 15(d) – SEA’34 Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: 20-F/A Amendment to Annual Report by a Foreign HTML 3.08M Non-Canadian Issuer
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3: EX-2.D Description of Rights of the Securities Registered HTML 78K
Under Section 12 of the Securities Exchange Act of
1934
4: EX-4.18 Brigadier Lopez Power Plant Transfer Contract HTML 69K
5: EX-8.1 List of Subsidiaries HTML 36K
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‘20-F/A’ — Amendment to Annual Report by a Foreign Non-Canadian Issuer
(Name,
Telephone, E-mail and/or Facsimile number and Address of Company
Contact Person)
C:
Securities
registered or to be registered pursuant to Section 12(b) of
the Act.
Title
of each class
Trading
Symbol
Name
of each exchange on which registered
American
Depositary Shares, each representing 10 common shares of Central
Puerto S.A.*
CEPU
New
York Stock Exchange*
*
Not for trading,
but only in connection with the registration of American Depositary
Shares pursuant to the requirements of the New York Stock
Exchange.
Securities
registered or to be registered pursuant to Section 12(g) of
the Act.
None
Securities for
which there is a reporting obligation pursuant to
Section 15(d) of the Act.
None
Indicate the number
of outstanding shares of each of the issuer’s classes of
capital or common stock as of the close of the period covered by
the annual report.
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.
Yes ☒ No
☐
If this report is
an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No
☒
Indicate by check
mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes ☒ No ☐
Indicate by check
mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).
Yes ☒ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or an emerging growth
company. See definition of “large accelerated filer,”“accelerated filer,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer ☒
Accelerated filer
☐
Non-accelerated
filer ☐
Emerging growth company ☐
If an emerging
growth company that prepares its financial statements in accordance
with U.S. GAAP, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange Act.
☐
† The term
“new or revised financial accounting standard” refers
to any update issued by the Financial Accounting Standards Board to
its Accounting Standards Codification after April 5,2012.
Indicate by check
mark whether the registrant has filed a report on and attestation
to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of
the Sarbanes-Oxley Act (§ 15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
☒
Indicate by check
mark which basis of accounting the registrant has used to prepare
the financial statements included in this filing:
U.S.
GAAP ☐
International Financial Reporting Standards as
issued Other ☐
by the
International Accounting Standards Board ☒
If
“Other” has been checked in response to the previous
question, indicate by check mark which financial statement item the
registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an
annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes ☐
No ☒
(APPLICABLE ONLY TO
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)
Indicate by check
mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Quantitative
and Qualitative Disclosures about Market Risk
223
Item
12.
Description
of Securities Other Than Equity Securities
228
Item
12.A
Debt
Securities
228
Item
12.B
Warrants
and Rights
228
Item
12.C
Other
Securities
228
Item
12.D
American
Depositary Shares
228
Item
13.
Defaults,
Dividend Arrearages and Delinquencies
229
Item
14.
Material
Modifications to the Rights of Security Holders and Use of
Proceeds
229
Item
15.
Controls
and Procedures
229
Item
16.A
Audit
committee financial expert
230
Item
16.B
Code
of Ethics
230
Item
16.C
Principal
Accountant Fees and Services
231
Item
16.D
Exemptions
from the Listing Standards for Audit Committees
231
Item
16.E
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
231
Item
16.F
Change
in Registrant’s Certifying Accountant
231
Item
16.G
Corporate
Governance
232
Item
16.H.
Mine
Safety Disclosure
234
Item
17.
Financial
Statements
234
Item
18.
Financial
Statements
235
Item
19.
Exhibits
235
EXPLANATORY
NOTE
This
Amendment No. 1 (“Amendment No. 1”) to the Annual Report on Form
20-F of Central Puerto S.A. (“Central Puerto”)
for the fiscal year ended December 31, 2019 submitted with
Securities and Exchange Commission on April 27, 2020 (the
“Original 20-F”) is being filed solely for the reasons
set forth below:
●
To revise the
exhibit index to include a reference to exhibit 2.(d), which
contains the Description of rights of the securities registered
under Section 12 of the Securities Exchange Act of 1934, which
exhibit was filed together with the Original 20-F;
●
to revise the
certification of the CEO and CFO filed as exhibit 13.1 of the
Original 20-F to refer to the Annual Report on Form 20-F for the
fiscal year ended December 31, 2019 and to include a date;
and
●
to file a complete
amended Original 20-F with all of the items as required by Form
20-F, along with a currently dated and signed signature page and
required certifications of the CEO and CFO filed as exhibits 12.1,
12.2 and 13.1 to this Amendment No. 1.
Except
as described above, no other changes have been made to the Original
20-F. The filing of this Amendment No. 1 does not, and does not
purport to, amend, update or restate the information in any other
item, or exhibits to, the Original 20-F as of any date subsequent
to April 27, 2020.
vi
CERTAIN DEFINITIONS
In this annual
report, except where otherwise indicated or where the context
otherwise requires:
●
“Argentine
Corporate Law” refers to Law No. 19,550, as
amended;
●
“Authorized
Generators” refers to electricity generators that do not have
contracts in the term market in any of its methods;
●
“BYMA”
refers to Bolsas y Mercados
Argentinos S.A.;
●
“CAMMESA”
refers to Compañía
Administradora del Mercado Mayorista Eléctrico Sociedad
Anónima. See “Item 4.B, Business Overview—
The Argentine Electric Power Sector—General Overview of Legal
Framework—CAMMESA;”
●
“CNV”
refers to the Comisión
Nacional de Valores, the Argentine Securities
Commission;
●
“COD”
refers to Commercial Operation Date, the day in which a generation
unit is authorized by CAMMESA (in Spanish, “Habilitación
Comercial”) to sell electric energy through the grid under
the applicable commercial conditions;
●
“CTM”
refers to Centrales Térmicas
Mendoza S.A.;
●
“CVO”
refers to the thermal plant Central Vuelta de
Obligado;
●
“CVO
Agreement” refers to the Agreement for Project Management and
Operation, Increase of Thermal Generation Availability and
Adaptation of Remuneration for Generation 2008-2011” executed
on November 25, 2010 among the Secretariat of Energy and Central
Puerto along with other electric power generators;
●
“CVOSA”
refers to Central Vuelta de
Obligado S.A.;
●
“Ecogas”
refers collectively to Distribuidora de Gas Cuyana
(“DGCU”) and Distribuidora de Gas del Centro
(“DGCE”);
●
“Energía
Base” refers to the regulatory framework established under
Resolution SE No. 95/13, as amended, and, from February 2017 to
February 2019, regulated by Resolution SEE No. 19/17, from March
2019 to January 2020, regulated by Resolution No. 1/19 of the
Secretary of Renewable Resources and Electric Market of the
National Ministry of Economy and since February 2020 regulated by
Resolution No. 31/20 of the Secretary of Energy. See “Item
4.B, Business Overview—The Argentine Electric Power
Sector;”
●
“Energía
Plus” refers to the regulatory framework established under
Resolution SE No. 1281/06, as amended. See “Item 4.B,
Business Overview—The Argentine Electric Power
Sector—Structure of the Industry—Energía
Plus;”
●
“FONINVEMEM”
or “FONI” refers to the Fondo para Inversiones Necesarias que Permitan
Incrementar la Oferta de Energía Eléctrica en el Mercado
Eléctrico Mayorista (the Fund for Investments Required
to Increase the Electric Power Supply) and similar programs,
including the CVO Agreement. See “Item 4.B, Business
Overview—The Argentine Electric Power Sector—Structure
of the Industry—The FONINVEMEM and Similar
Programs;”
●
“FONINVEMEM
Plants” refers to the plants José de San Martín,
Manuel Belgrano and Vuelta de
Obligado;
●
“HPDA”
refers Hidroeléctrica Piedra
del Águila S.A., the corporation that previously owned
the Piedra del Águila plant;
●
“IEASA”
refers to Integración
Energética Argentina S.A.;
●
“IGCE”
refers to Inversora de Gas del
Centro S.A.;
●
“IGCU”
refers to Inversora de Gas Cuyana
S.A.;
●
“La Plata
Plant Sale” refers to the sale of the La Plata plant to YPF
EE, effective as of January 5, 2018. For further information on the
La Plata Plant Sale, see “Item 4.A. History and development
of the Company—La Plata Plant Sale;”
●
“La Plata
Plant Sale Effective Date” is January 5, 2018. For more
information on the La Plata Plant Sale Effective Date, see
“Item 4.A. History and development of the Company—La
Plata Plant Sale;”
●
“LPC”
refers to La Plata
Cogeneración S.A., the corporation that owned the La
Plata plant prior to us;
●
“LVFVD”
refers to liquidaciones de venta
con fecha de vencimientos a definir, or receivables from
CAMMESA without a fixed due date. See “Item 4.B, Business
Overview—FONINVEMEM and Similar Programs;”
●
“MATER”
refers to Term Market for Renewable Energy (“MATER”)
Resolution No. 281-E/17;
●
“MULC”
refers to the foreign exchange market;
●
“PPA”
refers to Power Purchase Agreements, power capacity and energy
supply agreements for a defined period of time or energy
quantity;
●
“Resolution
SRRyME No. 1/19” refers to the resolution No. 1/19 issued on
March 1, 2019 by the Secretary of Renewable Resources and Electric
Markey of the National Ministry of Economy by which the Secretary
modified the remuneration scheme (for capacity and energy)
applicable to Authorized Generators (electricity generators which
do not have contracts in the term market in any of its modalities)
acting in the WEM;
●
“Resolution
31/20” or “Res. 31/20” refers to the resolution
No. 31/20 issued on February 27, 2020 by the Secretary of Energy of
the National Ministry of Production Development by which the
Secretary modified the remuneration scheme (for capacity and
energy) applicable from February 1, 2020, to Authorized Generators
(electricity generators which do not have contracts in the term
market in any of its modalities) acting in the WEM;
●
“SADI”
refers to the Argentine Interconnection System;
●
“sales under
contracts” refers collectively to (i) term market sales of
energy under contracts with private and public sector
counterparties, (ii) sales of energy sold under the Energía
Plus and (iii) sales of energy under the RenovAr
Program;
●
the “spot
market” refers to energy sold by generators to the WEM and
remunerated by CAMMESA pursuant to the framework in place prior to
the Energía Base. See “Item 4.B, Business
Overview—The Argentine Electric Power Sector—Structure
of the Industry—Electricity Dispatch and Spot Market Pricing
prior to Resolution SE No. 95/13;”
●
“YPF”
refers to YPF S.A., Argentina’s state-owned oil and gas
company;
●
“YPF
EE” refers to YPF Energía Eléctrica S.A., a
subsidiary of YPF; and
●
“WEM”
refers to the Argentine Mercado
Eléctrico Mayorista, the wholesale electric power
market. See “Item 4.B, Business Overview—The Argentine
Electric Power Sector—General Overview of Legal
Framework—CAMMESA.”
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Financial Statements
We maintain our
financial books and records and publish our consolidated financial
statements (as defined below) in Argentine pesos, which is our
functional currency. This annual report contains our audited
consolidated financial statements as of December 31, 2019 and 2018
and for each of the years ended December 31, 2019, 2018, and 2017
(our “audited consolidated financial statements”),
which were approved by our board of directors (our “Board of
Directors”) on April 22, 2020. Our Board of Directors
delegated to our Management the issuance of such financial
statements, once the auditor's reports have been issued. The
auditor's reports have been issued on April
24,2020.
We prepare our
audited consolidated financial statements in Argentine pesos and in
conformity with the IFRS as issued by the IASB.
In accordance with
IAS 29, the restatement of the financial statements is necessary
when the functional currency of an entity is the currency of a
hyperinflationary economy. To define a hyperinflationary state, IAS
29 provides a series of non-exclusive guidelines that consist of
(i) analyzing the behavior of the population, prices, interest
rates and wages before the evolution of price indexes and the loss
of the currency’s purchasing power, and (ii) as a
quantitative characteristic, verifying if the three-year cumulative
inflation rate approaches or exceeds 100%. Due to macroeconomic
factors, the triennial inflation was above that figure in 2018 and
Argentina has been considered hyperinflationary since July 1, 2018.
See “Risks Relating to Argentina—As of July
1st, 2018,
the Argentine Peso qualifies as a currency of a hyperinflationary
economy and we are required to restate our historical financial
statements to apply inflationary adjustments, which could adversely
affect our results of operations and financial condition and those
of our Argentine subsidiaries” and “—If the
current levels of inflation do not decrease, the Argentine economy
could be adversely affected.”
Therefore, our
audited consolidated financial statements included herein,
including the figures for the previous periods (this fact not
affecting the decisions taken on the financial information for such
periods), and, unless otherwise stated, the financial information
included elsewhere in this annual report, were restated to consider
the changes in the general purchasing power of the functional
currency of the Company (Argentine peso) pursuant to IAS 29 and
General Resolution no. 777/2018 of the CNV. Consequently, the
financial statements are stated in the current measurement unit as
of December 31, 2019. The information included in our audited
consolidated financial statements is not comparable to the
financial statements previously published by us. For more
information, see “Item 5.A. Operating Results—Factors
Affecting our Results of Operations—Inflation” and Note
2.1.2 to our audited consolidated financial
statements.
We remind investors
that we are required to file financial statements and other
periodic reports with the CNV because we are a public company in
Argentina. Investors can access our historical financial statements
published in Spanish on the CNV’s website at www.cnv.gob.ar.
The information found on the CNV’s website is not a part of
this annual report. Investors are cautioned not to place undue
reliance on our financial statements not included in this annual
report.
Currency and Rounding
All references
herein to “pesos,”“Argentine pesos” or
“Ps.” are to Argentine pesos, the legal currency of
Argentina. All references to “U.S. dollars,”“dollars” or “US$” are to U.S. dollars. All
references to “SEK$” are to Swedish krona. A
“billion” is a thousand million.
Solely for the
convenience of the reader, we have translated certain amounts
included in this annual report from pesos into U.S. dollars, unless
otherwise indicated, using the seller rate for U.S. dollars quoted
by the Banco de la Nación Argentina for wire transfers
(divisas) as of December31, 2019, of Ps.59.89 per US$1.00. The Federal Reserve Bank of New
York does not report a noon buying rate for pesos. The U.S. dollar
equivalent information presented in this annual report is provided
solely for the convenience of the reader and should not be
construed to represent that the peso amounts have been, or could
have been or could be, converted into U.S. dollars at such rates or
at any other rate. See “Item 3.A. Selected Financial
Data—Exchange Rates.”
Certain figures
included in this annual report and in the audited consolidated
financial statements contained herein have been rounded for ease of
presentation. Percentage figures included in this annual report
have in some cases been calculated on the basis of such figures
prior to rounding. For this reason, certain percentage amounts in
this annual report may vary from those obtained by performing the
same calculations using the figures in this annual report and in
the consolidated financial statements contained herein. Certain
other amounts that appear in this annual report may not sum due to
rounding.
Market Share and Other Information
The information set
forth in this annual report with respect to the market environment,
market developments, growth rates and trends in the markets in
which we operate is based on information published by the Argentine
federal and local governments through the Instituto Nacional de Estadísiticas y
Censos (the National Statistics and Census Institute, or
“INDEC”), the Ministry of Interior, the Ministry of
Energy, the Banco Central de la
República Argentina (the Argentine Central Bank, or
“Central Bank”) CAMMESA, the Dirección General de Estadística y
Censos de la Ciudad de Buenos Aires (General Directorate of
Statistics and Census of the City of Buenos Aires) and the
Dirección Provincial de
Estadística y Censos de la Provincia de San Luis
(Provincial Directorate of Statistics and Census of the Province of
San Luis), as well as on independent third-party data, statistical
information and reports produced by unaffiliated entities, as well
as on our own internal estimates. In addition, this annual report
contains information from Vaisala, Inc. (“Vaisala - 3
Tier”), a company that develops, manufactures and markets
products and services for environmental and industrial
measurement.
This annual report
also contains estimates that we have made based on third-party
market data. Market studies are frequently based on information and
assumptions that may not be exact or appropriate.
Although we have no
reason to believe any of this information or these sources are
inaccurate in any material respect, we have not verified the
figures, market data or other information on which third parties
have based their studies, nor have we confirmed that such third
parties have verified the external sources on which such estimates
are based. Therefore, we do not guarantee, nor do we assume
responsibility for, the accuracy of the information from
third-party studies presented in this annual report.
This annual report
also contains estimates of market data and information derived
therefrom which cannot be gathered from publications by market
research institutions or any other independent sources. Such
information is based on our internal estimates. In many cases there
is no publicly available information on such market data, for
example from industry associations, public authorities or other
organizations and institutions. We believe that these internal
estimates of market data and information derived therefrom are
helpful in order to give investors a better understanding of the
industry in which we operate as well as our position within this
industry. Although we believe that our internal market observations
are reliable, our estimates are not reviewed or verified by any
external sources. These may deviate from estimates made by our
competitors or future statistics provided by market research
institutes or other independent sources. We cannot assure you that
our estimates or the assumptions are accurate or correctly reflect
the state and development of, or our position in, the
industry.
FORWARD-LOOKING STATEMENTS
This annual report
contains estimates and forward-looking statements, principally in
“Item 3.D. Risk Factors,”“Item 4.B. Business
Overview” and “Item 5. Operating and Financial Review
and Prospects.”
Our estimates and
forward-looking statements are mainly based on our current beliefs,
expectations and estimates of future courses of action, events and
trends that affect or may affect our business and results of
operations. Although we believe that these estimates and
forward-looking statements are based upon reasonable assumptions,
they are subject to several risks and uncertainties and are made in
light of information currently available to us.
Many important
factors, in addition to those discussed elsewhere in this annual
report, could cause our actual results to differ substantially from
those anticipated in our forward-looking statements, including,
among other things:
●
changes in general
economic, financial, business, political, legal, social or other
conditions in Argentina;
●
changes in
conditions elsewhere in Latin America or in either developed or
emerging markets;
●
changes in capital
markets in general that may affect policies or attitudes toward
lending to or investing in Argentina or Argentine companies,
including volatility in domestic and international financial
markets;
●
the impact of
political developments and uncertainties relating to political and
economic conditions in Argentina, including the policies of the new
government in Argentina, on the demand for securities of Argentine
companies;
●
increased
inflation;
●
fluctuations in
exchange rates, including a significant devaluation of the
Argentine peso;
●
changes in the law,
norms and regulations applicable to the Argentine electric power
and energy sector, including changes to the current regulatory
frameworks, changes to programs established to incentivize
investments in new generation capacity and reductions in government
subsidies to consumers;
●
our ability to
develop our expansion projects and to win awards for new potential
projects;
●
increases in
financing costs or the inability to obtain additional debt or
equity financing on attractive terms, which may limit our ability
to fund new activities;
●
government
intervention, including measures that result in changes to the
Argentine labor market, exchange market or tax system;
●
adverse legal or
regulatory disputes or proceedings;
●
changes in the
price of energy, power and other related services;
●
changes in the
prices and supply of natural gas or liquid fuels;
●
changes in the
amount of rainfall and accumulated water;
●
changes in
environmental regulations, including exposure to risks associated
with our business activities;
●
risks inherent to
the demand for and sale of energy;
●
the operational
risks related to the generation, as well as the transmission and
distribution, of electric power;
●
ability to
implement our business strategy, including the ability to complete
our construction and expansion plans in a timely manner and
according to our budget;
●
competition in the
energy sector, including as a result of the construction of new
generation capacity;
●
exposure to credit
risk due to credit arrangements with CAMMESA;
●
our ability to
retain key members of our senior management and key technical
employees;
●
the effects of a
pandemic or epidemic and any subsequent mandatory regulatory
restrictions or containment measures;
●
our relationship
with our employees; and
●
other factors
discussed under “Item 3.D.—Risk Factors” in this
annual report.
The words
“believe,”“may,”“will,”“aim,”“estimate,”“continue,”“anticipate,”“intend,”“expect,”“forecast” and similar words are
intended to identify forward-looking statements. Forward-looking
statements include information concerning our possible or assumed
future results of operations, business strategies, financing plans,
competitive position, industry environment, potential growth
opportunities, the effects of future regulation and the effects of
competition. Forward-looking statements speak only as of the date
they were made, and we do not undertake any obligation to update
publicly or to revise any forward-looking statements after we
distribute this annual report because of new information, future
events or other factors, except as required by applicable law. In
light of the risks and uncertainties described above, the
forward-looking events and circumstances discussed in this annual
report might not occur and do not constitute guarantees of future
performance. Because of these uncertainties, you should not make
any investment decisions based on these estimates and
forward-looking statements.
PART I
Item 1.
Identity
of Directors, Senior Management and Advisors
Not
applicable.
Item 2.
Offer
Statistics and Expected Timetable
Not
applicable.
Item 3.
Key
Information
Item 3.A.
Selected
Financial Data
The following
tables present selected consolidated financial data for us as of
the dates and for the periods indicated. You should read this
information in conjunction with our audited consolidated financial
statements and related notes beginning on page F-1, and the
information under “Item 5.A Operating Results” included
elsewhere in this annual report.
The selected
consolidated financial data as of December 31, 2019 and 2018 and
for the years ended December 31, 2019, 2018 and 2017 has been
derived from our audited consolidated financial statements included
in this annual report. Prior period amounts have been restated to
reflect the La Plata plant operations as discontinued operations in
all periods presented. Please see Note 21 to our audited
consolidated financial statements for further information on how we
have accounted for the La Plata Plant Sale in our audited
consolidated financial statements. Our historical results are not
necessarily indicative of our future results. Our audited
consolidated financial statements have been audited by Pistrelli,
Henry Martin y Asociados S.R.L. (a member firm of Ernst & Young
Global), an independent registered public accounting firm, whose
audit report is included elsewhere in this annual
report.
We maintain our
financial books and records and publish our audited consolidated
financial statements in Argentine pesos, which is our functional
currency. We prepare our audited consolidated financial statements
in Argentine pesos and in conformity with IFRS as issued by the
IASB.
In accordance with
IAS 29, the restatement of the financial statements is necessary
when the functional currency of an entity is the currency of a
hyperinflationary economy. To define a hyperinflationary state, IAS
29 provides a series of non-exclusive guidelines that consist of
(i) analyzing the behavior of the population, prices, interest
rates and wages before the evolution of price indexes and the loss
of the currency’s purchasing power, and (ii) as a
quantitative characteristic, verifying if the three-year cumulative
inflation rate approaches or exceeds 100%. Due to macroeconomic
factors, the triennial inflation was above that figure in 2018 and
Argentina has been considered hyperinflationary since July 1, 2018.
See “Risks Relating to Argentina—As of July
1st, 2018,
the Argentine Peso qualifies as a currency of a hyperinflationary
economy and we are required to restate our historical financial
statements to apply inflationary adjustments, which could adversely
affect our results of operations and financial condition and those
of our Argentine subsidiaries” and “—If the
current levels of inflation do not decrease, the Argentine economy
could be adversely affected.”
Therefore, our
audited consolidated financial statements included herein,
including the figures for the previous periods (this fact not
affecting the decisions taken on the financial information for such
periods), and, unless otherwise stated, the financial information
included elsewhere in this annual report, were restated to consider
the changes in the general purchasing power of the functional
currency of the Company (Argentine peso) pursuant to IAS 29 and
General Resolution no. 777/2018 of the CNV. Consequently, the
financial statements are stated in the current measurement unit as
of December 31, 2019. The information included in our audited
consolidated financial statements, is not comparable to the
financial statements previously published by us. For more
information, see “Item 5.A. Operating Results—Factors
Affecting our Results of Operations—Inflation” and Note
2.1.2 to our audited consolidated financial
statements.
The selected
consolidated statement of comprehensive income data for the years
ended December 31, 2017 and 2016 and the selected consolidated
statement of financial position data as of December 31, 2017 have
been restated pursuant to IAS 29 to reflect the effect of
hyperinflation in Argentina. As a result of such restatement, the
selected financial information included in this annual report
differ from previously reported financial information.
The selected
consolidated statement of financial position data as of December31, 2016 and the selected consolidated statement of financial
position and statement of comprehensive income as of and for the
year ended December 31, 2015 have not been presented as they cannot
be provided on a restated basis without unreasonable effort or
expense.
Solely for
convenience of the reader, Peso amounts as of and for the year
ended December 31, 2019 have been translated into U.S.
dollars. The rate used to translate such amounts as of December 31,2019 was Ps. 59.89 to US$1.00, which was the reference exchange
rate reported by the Banco de la Nación Argentina for wire
transfers (divisas) as of
December 30, 2019.
1
The U.S. dollar
equivalent information presented in this annual report is provided
solely for the convenience of the reader and should not be
construed to represent that the Peso amounts have been, or could
have been or could be, converted into, U.S. dollars at such rates
or any other rate. See “Item 3.A. Selected Financial
Data—Exchange Rates.”
Selected Consolidated Statement of Comprehensive Income
Data
Year Ended
December 31,
(in thousands
of US$)(1)
(in thousands
of Ps.)
2019
2019
2018
2017
2016
Continuing
operations
Revenues
600,447
35,960,784
21,944,761
14,827,241
10,836,014
Cost of
sales
(316,525)
(18,956,674)
(9,978,643)
(7,997,976)
(7,661,201)
Gross
income
283,922
17,004,110
11,966,118
6,829,265
3,174,813
Administrative and
selling expenses
(43,971)
(2,633,405)
(2,137,249)
(1,624,866)
(1,373,148)
Other operating
income
306,449
18,353,204
20,341,015
1,430,737
3,575,439
Other operating
expenses
(4,521)
(270,755)
(204,414)
(215,578)
(264,518)
Impairment of
property, plant and equipment and intangible assets
(73,542)
(4,404,441)
–
–
–
CVO receivables
update
–
–
16,947,737
–
–
Operating
income
468,337
28,048,713
46,913,207
6,419,558
5,112,586
Loss on net
monetary position
(40,604)
(2,431,753)
(6,208,977)
(233,678)
(2,825,326)
Finance
income
60,122
3,600,707
3,507,676
2,397,964
1,344,364
Finance
expenses
(265,902)
(15,924,867)
(9,692,797)
(1,846,995)
(1,864,368)
Share of the profit
of associates
18,589
1,113,297
1,652,445
1,804,460
650,173
Income
before income tax from continuing operations
240,543
14,406,097
36,171,554
8,541,309
2,427,429
Income tax for the
year
(95,930)
(5,745,242)
(10,159,632)
(1,663,201)
(1,548,195)
Net
income for the year from continuing operations
144,613
8,660,855
26,011,922
6,878,108
879,234
Discontinued
operations
Income after tax
for the year from discontinued operations
-
-
424,850
1,217,236
1,241,411
Net
income for the year
144,613
8,660,855
26,436,772
8,095,344
2,120,645
Other comprehensive
income, net
(535)
(32,070)
(297,840)
(801,290)
550,583
Total
comprehensive income for the year
144,077
8,628,785
26,138,932
7,294,054
2,671,228
Number
of Outstanding Shares (basic and diluted)
1,505,170,408
1,505,170,408
1,505,170,408
1,505,170,408
1,505,170,408
Net
income per share (basic and diluted)
0.10
5.85
17.91
5.41
1.42
Net
income per share from continuing operations (Ps.)
Foreign
exchange rate as of the dividend declaration date (2)
Ps.
per US$)
59.77
20.54
17.07
15.21
Convenience
translation of cash dividend per share (US$) in nominal terms
(2)
0.011879
0.034080
0.049795
0.060815
(1)
Solely for the
convenience of the reader, peso amounts as of December 31, 2019
have been translated into U.S. dollars at the exchange rate as of
December 30, 2019 of Ps. 59.89 to US$1.00. See “Exchange
Rates” and “Presentation of Financial and Other
Information” for further information on recent fluctuations
in exchange rates.
(2)
Peso amounts have
been translated into U.S. dollars at the exchange rate quoted by
Banco de la Nación Argentina for wire transfers as of the date
of each dividend declaration date.
Selected Consolidated Statement of Financial Position
As of December
31,
(in thousands of
US$)(1)
(in thousands of
Ps.)
2019
2019
2018
2017
2016
Capital
stock
25,280
1,514,022
1,514,022
1,514,022
1,514,022
Equity
987,657
59,150,797
50,655,159
26,199,932
21,038,164
Total
Assets
1,983,569
118,795,975
88,084,228
52,839,883
46,763,175
(1)
Solely for the
convenience of the reader, peso amounts as of December 31, 2019
have been translated into U.S. dollars at the exchange rate as of
December 30, 2019 of Ps.59.89 to US$1.00. See
“—Exchange Rates” and “Presentation of
Financial and Other Information” for further information on
recent fluctuations in exchange rates.
2
As of December
31,
(in thousands of
US$)(1)
(in thousands of
Ps.)
2019
2019
2018
2017
Non-current
assets
Property, plant and
equipment
928,700
55,619,873
34,715,815
26,846,322
Intangible
assets
136,010
8,145,647
3,438,508
3,059,116
Investment in
associates
57,615
3,450,569
3,074,088
2,815,345
Trade and other
receivables (2)
404,895
24,249,144
25,646,335
5,910,324
Other non-financial
assets
11,508
689,185
343,163
28,893
Deferred tax
asset
-
-
-
4,609
Inventories
2,407
144,169
114,893
109,507
Total
non-current assets
1,541,135
92,298,587
67,332,802
38,774,116
Current
assets
Inventories
10,980
657,594
339,810
299,418
Other non-financial
assets
16,802
1,006,247
761,670
1,069,617
Trade and other
receivables(2)
261,161
15,640,947
16,273,973
8,820,661
Other financial
assets
128,548
7,698,732
3,022,238
2,522,761
Cash and cash
equivalents
24,944
1,493,868
353,735
201,310
Total
current assets
442,434
26,497,388
20,751,426
12,913,767
Assets
held for sale
-
-
-
1,151,999
Total
assets
1,983,569
118,795,975
88,084,228
52,839,882
Equity
and liabilities
Equity
Capital
stock
25,280
1,514,022
1,514,022
1,514,022
Adjustment to
capital stock
307,510
18,416,762
18,416,762
18,416,759
Legal
reserve
39,718
2,378,736
589,783
249,947
Voluntary
reserve
442,662
26,511,002
6,778,288
1,568,895
Retained
earnings
159,285
9,539,556
22,636,866
3,394,024
Accumulated other
comprehensive income
974,454
58,360,078
49,935,721
319,970
Non-controlling
interests
13,203
790,719
719,438
736,402
Total
equity
987,657
59,150,797
50,655,159
26,200,019
Non-current
liabilities
Other non-financial
liabilities
72,711
4,354,668
3,013,397
1,064,534
Other loans and
borrowings
512,394
30,687,277
8,005,484
3,358,589
Borrowings from
CAMMESA
-
-
1,544,945
2,397,455
Compensation and
employee benefits liabilities
3,828
229,279
228,395
256,874
Previsions
156
9,348
-
-
Deferred income tax
liabilities
105,363
6,310,170
7,373,778
5,917,983
Total
non-current liabilities
694,452
41,590,742
20,165,999
12,995,435
Current
liabilities
Trade and other
payables
98,505
5,899,436
2,661,249
2,310,386
Other non-financial
liabilities
28,959
1,734,349
2,555,070
1,498,283
Other loans and
borrowings
134,011
8,025,892
1,034,781
3,981,618
Borrowings from
CAMMESA
-
-
2,788,843
1,148,363
Compensation and
employee benefits liabilities
11,667
698,709
601,743
733,990
Income tax
payable
27,861
1,668,594
6,794,536
2,491,165
Provisions
458
27,456
826,848
939,110
Total
current liabilities
301,460
18,054,436
17,263,070
13,102,915
Liabilities
directly associated to the assets held for sale
-
-
-
541,513
Total
liabilities
995,912
59,645,178
37,429,069
26,639,863
Total
equity and liabilities
1,983,569
118,795,975
88,084,228
52,839,882
(1)
Solely for the
convenience of the reader, peso amounts as of December 31, 2019
have been translated into U.S. dollars at the exchange rate as of
December 30, 2019 of Ps.59.89 to US$1.00. See
“—Exchange Rates” and “Presentation of
Financial and Other Information” for further information on
recent fluctuations in exchange rates.
(2)
Trade and other
receivables include receivables from CAMMESA. See “Item 5.
Operating and Financial Review and Prospects—Liquidity and
Capital Resources,” and “—Receivables from
CAMMESA.”
Exchange Rates
From April 1, 1991
until the end of 2001, Law No. 23,928 (the “Convertibility
Law”) established a regime under which the Central Bank was
obliged to sell U.S. dollars at a fixed rate of one peso per U.S.
dollar. On January 6, 2002, the Argentine Congress enacted the
Public Emergency Law, formally ending the regime of the
Convertibility Law, abandoning over ten years of U.S. dollar-peso
parity and eliminating the requirement that the Central
Bank’s reserves in gold, foreign currency and foreign
currency denominated debt be at all times equivalent to 100% of the
monetary base.
3
The Public
Emergency Law, which was in effect until December 31, 2017, granted
the Argentine Government the power to set the exchange rate between
the peso and foreign currencies and to issue regulations related to
the MULC. Following a brief period during which the Argentine
Government established a temporary dual exchange rate system,
pursuant to the Public Emergency Law, the peso has been allowed to
float freely against other currencies since February 2002. However,
the Argentine Central Bank has had the power to intervene in the
exchange rate market by buying and selling foreign currency for its
own account, a practice in which it engaged on a regular basis.
Particularly since 2011, the Argentine Government has increased
controls on exchange rates and the transfer of funds into and out
of Argentina.
With the tightening
of exchange controls beginning in late 2011, in particular with the
introduction of measures that allowed limited access to foreign
currency by private sector companies and individuals (such as
requiring an authorization of tax authorities to access the foreign
currency exchange market), the implied exchange rate, as reflected
in the quotations for Argentine securities that trade in foreign
markets, compared to the corresponding quotations in the local
market, increased significantly over the official exchange rate.
Most of the foreign exchange restrictions were gradually lifted in
since December 2015, and on May 19, 2017, the Central Bank issued
Communication “A” 6244, which substantially modified
the applicable foreign exchange regulations and eliminated the set
of restrictions for accessing the MULC. As a result of the
elimination of the limit amount for the purchase of foreign
currency without specific allocation or need of prior approval the
substantial spread between the official exchange rate and the
implicit exchange rate derived from securities transactions has
substantially decreased. In addition, by virtue of the 2018 IMF
Agreement (see “Item 4. Information of the
Company—Recent Political and Economic Developments in
Argentina— IMF Agreement”), from October 1, 2018, the
Central Bank introduced an exchange rate band. The peso’s
exchange rate with the U.S. Dollar was allowed to fluctuate between
Ps.34.00 and Ps.44.00 per US$1.00 (range that was adjusted daily at
an annual rate of 3% until December 2018, and for the first quarter
of 2019, was adjusted daily at an annual rate of 2%) without the
Central Bank’s intervention. On April 29, 2019, the Monetary
Policy Counsel (Comité de
Política Monetaria) of the Central Bank (the
“COPOM”) decided to introduce changes to the monetary
policy, with an aim to reducing volatility in the foreign exchange
market.
After the results
in the primary elections in August 2019, the peso devalued almost
30% and the share price of listed companies collapsed 38%. The
‘Country Risks’ peaked to one of the highest levels in
Argentine history, placing itself above 2000 points on August 28,2019. As a consequence of the aforementioned effects, in order to
control the currency outflow and restrict exchange rate
fluctuations, the Central Bank re-implemented exchange controls, in
hopes of strengthening the normal functioning of the economy,
fostering a prudent administration of the exchange market, reducing
the volatility of financial variables and containing the impact of
the variations of financial flows on the real economy. For a
description of the measures adopted by the Argentine Government and
the Central Bank beginning September 1, 2019, see “Item
10.D.—Exchange Controls.”
After several years
of moderate variations in the nominal exchange rate, in 2012 the
peso depreciated approximately 14% with respect to the U.S. dollar.
This was followed in 2013 and 2014 by a depreciation of the peso
with respect to the U.S. dollar that exceeded 30%, including a loss
of approximately 23% in January 2014. In 2015, the peso depreciated
approximately 52% with respect to the U.S. dollar, including,
approximately, a 10% devaluation from January 1, 2015 to September30, 2015 and a 38% devaluation during the last quarter of the year,
mainly concentrated after December 16, 2015 when certain exchange
controls were lifted. In 2017, 2018 and 2019, the peso depreciated
approximately 17.36%, 102.16% and 58.86%, respectively, in each
case, with respect to the U.S. dollar. The peso depreciated
approximately 10.92% from December 31, 2019 through April 24, 2020
( see “Item 3.D. Risk Factors—Risk Relating to
Argentina—Significant fluctuations in the value of the peso
could adversely affect the Argentine economy and, in turn,
adversely affect our results of operations”).
The following table
sets forth the annual high, low, average and period-end exchange
rates for the periods indicated, expressed in pesos per U.S. dollar
and not adjusted for inflation. There can be no assurance that the
peso will not depreciate or appreciate again in the future. The
Federal Reserve Bank of New York does not report a buying rate for
pesos.
Exchange
Rates
High(1)
Low(1)
Average(1)(2)
Period-end(1)
2015
13.4000
8.5550
9.2653
13.0400
2016
16.0300
13.2000
14.8403
15.8900
2017
19.2000
15.1900
16.5704
18.6490
2018
41.2500
18.4100
28.1762
37.7000
2019
60.4000
36.9000
48.2802
59.8900
October
60.0000
57.6400
58.5403
59.6700
November
59.9500
59.4700
59.7315
59.9400
December
59.9900
59.8150
59.8748
59.8900
2020
January
60.3500
59.8150
60.0114
60.3500
February
62.2100
60.4700
61.3561
62.2100
March
64.4690
62.2590
63.1241
64.4690
April (3)
66.4300
64.5290
65.5290
66.4300
(1)
Pesos to U.S.
dollars exchange rate as quoted by the Banco de la Nación
Argentina for wire transfers (divisas).
(2)
Average of the
exchange rates based on working day’s averages for each
month.
You should carefully consider the risks described below, as well as
the other information in this annual report. Our business, results
of operations, financial condition or prospects could be materially
and adversely affected if any of these risks occurs, and as a
result, the market price of our common shares and ADSs could
decline. The risks described below are those known to us and that
we currently believe may materially affect us.
Risks Relating to Argentina
Substantially all of our revenues are generated in Argentina and
thus are highly dependent on economic and political conditions in
Argentina
Central Puerto is
an Argentine corporation (sociedad
anónima). All of our assets and operations are located
in Argentina. Accordingly, our financial condition and results of
operations depend to a significant extent on macroeconomic,
regulatory, social and political conditions prevailing in
Argentina, including the level of growth, inflation rates, foreign
exchange rates, interest rates and international developments and
conditions that may affect Argentina. In the past, some governments
increased direct intervention in the Argentine economy, including
the implementation of expropriation measures, price controls,
exchange controls and changes in laws and regulations affecting
foreign trade and investment. These measures had a material adverse
effect on private sector entities, including us. It is possible
that similar measures could be adopted by the current or future
Argentine Government or that economic, social and political
developments in Argentina, over which we have no control, could
have a material adverse effect on the Argentine economy and, in
turn, adversely affect our financial condition and results of
operations. See “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Factors
Affecting our Results of Operations—Argentine Economic
Conditions and the impact of COVID-19.”
The Argentine economy remains vulnerable and any significant
decline could adversely affect our results of
operations
The Argentine
economy has experienced significant volatility in recent decades,
characterized by periods of low or negative growth, high levels of
inflation and currency devaluation. Sustainable economic growth in
Argentina is dependent on a variety of factors, including the
international demand for Argentine exports, the stability and
competitiveness of the peso against foreign currencies, confidence
among consumers and foreign and domestic investors, a stable rate
of inflation, national employment levels and the circumstances of
Argentina’s regional trade partners.
Argentina’s
economy contracted during 2019 and the country’s economy
remains vulnerable and unstable, as reflected by the following
economic conditions:
●
inflation remains
high and may continue at similar levels in the future; according to
a report published by INDEC, cumulative consumer price inflation
from December 2018 to December, 2019 was 53.83%, and inflation
during January 2020 and February2020, was 2.3% and 2.0%,
respectively;
●
according to the
revised calculation of the 2004 Gross Domestic Product
(“GDP”) published by the INDEC in March 2017, which
forms the basis for the real GDP calculation for every year after
2004, GDP decreased by 2.3% in 2016 (as compared to 2015) and
increased by 2.6% in 2015, as compared to a decline of 2.5% in 2014
and growth of 2.4% in 2013. According to the INDEC GDP for 2017
increased by 2.9% while it decreased by 2.5% in 2018. According to
preliminary data published by the INDEC on March 25, 2020, GDP for
2019 decreased 2.2%. Argentina’ s GDP performance has
depended to a significant extent on high commodity prices which are
volatile in the short-term and beyond the control of the Argentine
Government and private sector;
●
Argentina’s
public debt as a percentage of GDP remains high;
●
the discretionary
increase in public expenditures has resulted, and could continue to
result, in a fiscal deficit;
●
investment as a
percentage of GDP remains low;
●
a significant
number of protests or strikes could take place, as has occurred in
the past, which could adversely affect various sectors of the
Argentine economy;
●
energy or natural
gas supply may not be sufficient to supply industrial activity
(thereby limiting industrial development) and
consumption;
●
unemployment and
informal employment remain high, according to INDEC, unemployment
rate during the fourth quarter of 2019 was 8.9%; and
●
in the climate
created by the above mentioned conditions, demand for foreign
currency could grow, generating a capital flight effect as in
recent years.
5
Argentina’s
fiscal imbalances, its dependence on foreign revenues to cover its
fiscal deficit, and material rigidities that have historically
limited the ability of the economy to absorb and adapt to external
factors, have added to the severity of the current
crisis.
As a result of the
Argentine Peso’s increased volatility, the Argentine
government and the Central Bank implemented several measures to
restore market confidence and stabilize the value of the Peso. Such
measures included, among others, a US$55.7 billion stand-by credit
agreement (“SBA”) with the International Monetary Fund
(“IMF”), from which, as of the date of this annual
report, Argentina has drawn the equivalent of US$44 billion,
measures intended to control money supply during 2018 and the first
half of 2019 that have been since relaxed, an increase of short
term interest rates and the sale by the Central Bank of foreign
currency reserves.
In addition, in
September 2019, in light of the economic instability and the
significant devaluation that followed the primary elections as
described below, the Argentine government and the Central Bank
adopted a series of measures reinstating foreign exchange controls,
which apply with respect to access to the foreign exchange market
by residents for savings and investment purposes abroad, the
payment of external financial debts, the payment of dividends in
foreign currency abroad, payments of goods and services in foreign
currencies, payments of imports of goods and services, and the
obligation to repatriate and settle for pesos the proceeds from
exports of goods and services, among others. Other financial
transactions such as derivatives and securities related operations,
were also covered by the new foreign exchange regime. Following the
change in government, the new administration extended the validity
of such measures, which were originally in effect until December31, 2019, and established further restrictions by means of the
recently enacted Solidarity Law (as defined below), including a new
tax on certain transactions involving the purchase of foreign
currency by both Argentine individuals and entities. Although the
official exchange rate has stabilized since the adoption of the
foreign exchange controls, we cannot assure you that the official
exchange rate will not fluctuate significantly in the future. There
can be no assurances regarding future modifications to exchange
controls. Exchange controls could adversely affect our financial
condition or results of operations and our ability to meet our
foreign currency obligations and execute our financing
plans.
As in the recent
past, Argentina’s economy may be adversely affected if
political and social pressures inhibit the implementation by the
Argentine Government of policies designed to control inflation,
generate growth and enhance consumer and investor confidence, or if
policies implemented by the Argentine Government that are designed
to achieve these goals are not successful. These events could
materially adversely affect our financial condition and results of
operations.
Any decline in
economic growth, increased economic instability or expansion of
economic policies and measures taken by the Argentine Government to
control inflation or address other macroeconomic developments that
affect private sector entities such as us, all developments over
which we have no control, could have an adverse effect on our
financial condition or results of operations.
Certain risks are inherent in any investment in a company operating
in a developing country such as Argentina
Argentina is
developing country and investing in developing countries generally
carries risks. These risks include political, social and economic
instability that may affect Argentina’s economic results
which can stem from many factors, including the
following:
regulations to
import equipment and other necessities relevant for
operations;
●
changes in
governmental economic, administrative or tax policies;
and
●
political and
social tensions.
Any of these
factors, as well as volatility in the capital markets, may
adversely affect our business, results of operations, financial
condition, the value of our ADSs, and our ability to meet our
financial obligations.
6
Economic and political developments in Argentina and future
policies of the Argentine Government, may affect the economy, as
well as the operations of the energy industry, including the
operations of Central Puerto
Since assuming
office on December 10, 2019, the Fernandez administration has
announced and implemented several significant economic and policy
reforms (see “Item 4. Information of the Company—Recent
Political and Economic Developments in Argentina.”),
including those related to public health concerns derived from the
COVID-19 pandemic crisis and its scale and duration discussed
elsewhere herein which remain uncertain but could impact our
earnings, cash flow and financial condition. As of the date of this
annual report, the long-term impact of these measures and any
future measures taken by the current administration on the
Argentine economy as a whole and the energy sector in particular
remains uncertain.
As of the date of
this annual report, the impact that these measures and any future
measures taken by the current administration will have on the
Argentine economy as a whole and the electric power industry in
particular cannot be predicted. In particular, we have no control
over the implementation of the reforms to the regulatory framework
that governs our operations and cannot guarantee that these reforms
will be implemented or implemented in a manner that will benefit
our business. The failure of these measures to achieve their
intended goals could adversely affect the Argentine economy, which,
in turn may have an adverse effect on our financial condition and
results of operations.
In addition, we
cannot assure you that future economic, regulatory, social and
political developments in Argentina will not impair our business,
financial condition or results of operations, or cause the market
value of our shares to decline.
In the event of any
economic, social or political crisis, companies operating in
Argentina may face the risk of strikes, expropriation,
nationalization, mandatory amendment of existing contracts, and
changes in taxation policies including tax increases and
retroactive tax claims. In addition, Argentine courts have
sanctioned modifications on rules related to labor matters,
requiring companies to assume greater responsibility for the
assumption of costs and risks associated with sub-contracted labor
and the calculation of salaries, severance payments and social
security contributions. Since we operate in a context in which the
governing law and applicable regulations change frequently, also as
a result of changes in government administrations, it is difficult
to predict if and how our activities will be affected by such
changes.
We cannot assure
you that future economic, regulatory, social and political
developments in Argentina will not adversely affect our business,
financial condition or results of operations, or cause the decrease
of the market value of our securities.
If the current levels of inflation do not decrease, the Argentine
economy could be adversely affected
Historically,
inflation has materially undermined the Argentine economy and the
Argentine government’s ability to create conditions that
permit growth. In recent years, Argentina has experienced high
inflation rates. See “—The credibility of several
Argentine economic indices has been called into question, which has
led to a lack of confidence in the Argentine economy and could
affect your evaluation of the market value of the ADSs”
below.
During 2016, the
City of Buenos Aires CPI inflation rate was 41.05%. During 2017,
the INDEC’s CPI inflation rate was recorded at 24.8%. The CPI
for 2018 was 47.64%, and it was of 53.83% in 2019. In the past, the
Argentine Government has implemented programs to control inflation
and monitor prices for essential goods and services, including the
freezing of the price of certain supermarket products and price
support arrangements agreed between the Argentine Government and
private sector companies in several industries and markets. Such
programs did not address the structural causes of inflation and
generally did not reduce inflation.
High inflation
rates affect Argentina’s foreign competitiveness, social and
economic inequality, negatively impacts employment, consumption and
the level of economic activity and undermine confidence in
Argentina’s banking system, which could further limit the
availability of and access by local companies to domestic and
international credit.
Inflation remains a
challenge for Argentina given its persistent nature in recent
years. Inflation in Argentina has contributed to a material
increase in our costs of operation, in particular labor costs, and
negatively impacted our financial condition.
Inflation rates
could escalate in the future, and there is uncertainty regarding
the effects that the measures adopted, or that may be adopted in
the future, by the Argentine Government to control inflation may
have. As of the date of this annual report, since our sales under
Energía Base are denominated in Argentine pesos, any further
increase in the rate of inflation that is not coupled with a
corresponding increase in our tariffs, or a delay in such tariff
increase, would decrease our revenues in real terms and adversely
affect our results of operations. See “—Government
intervention may adversely affect the Argentine economy and, as a
result, our business and results of operations.” Increased
inflation could adversely affect the Argentine economy, which in
turn may have an adverse effect on our financial condition and
results of operations. See “Item 5.A. Operating
Results—Factors Affecting Our Results of
Operations—Inflation.”
7
As of July 1, 2018,
the Argentine Peso qualifies as a currency of a hyperinflationary
economy and we are required to restate our historical financial
statements to apply inflationary adjustments, which could adversely
affect our results of operations and financial condition and those
of our Argentine subsidiaries.
Pursuant to the
International Accounting Standard 29, Financial Reporting in
Hyperinflationary Economies (“IAS 29”), the financial
statements of entities whose functional currency is that of a
hyperinflationary economy must be adjusted for the effects of
changes in a general price index. IAS 29 does not prescribe when
hyperinflation arises and the International Accounting Standards
Board (“IASB”) does not identify specific
hyperinflationary jurisdictions. However, IAS 29 provides a series
of non-exclusive guidelines that consist of (i) analyzing the
behavior of the population, prices, interest rates and wages before
the evolution of price indexes and the loss of the currency’s
purchasing power, and (ii) as a quantitative characteristic,
verifying if the three-year cumulative inflation rate approaches or
exceeds 100%. In June 2018, the International Practices Task Force
of the Centre for Quality (“IPTF”), which monitors
countries experiencing high inflation, categorized Argentina as a
country with projected three-year cumulative inflation rate greater
than 100%. In addition, certain qualitative macroeconomic factors
provided under IAS 29 were also identified. Therefore, Argentine
companies using IFRS, such as us, are required to apply IAS 29 to
their financial statements for periods ending on and after July 1,2018.
Adjustments to
reflect inflation, including tax indexation, such as those required
by IAS 29, were originally prohibited pursuant to Law No. 23,928
(the “Law 23,928”). In addition, Decree No. 664/03,
issued by the Argentine Government, instructed regulatory
authorities, such as the CNV, to accept only financial statements
reported in constant currency. However, on December 4, 2018, Law
27,468 (“Law 27,468”) abrogated Decree No. 664/03 and
amended Law 23,928 indicating that the prohibition of inflation
adjustments no longer applies to financial statements submitted for
regulatory purposes. Certain regulatory authorities, such as the
CNV, now require that financial statements for periods ended on and
after December 31, 2018 should be adjusted for inflation pursuant
to IAS 29. As a result, our audited consolidated financial
statements included in this annual report, including the figures
for the previous periods (this fact not affecting the decisions
taken on the financial information for such periods), and, unless
otherwise stated, the financial information included elsewhere in
this annual report, were restated to consider the changes in the
general purchasing power of the functional currency of the Company
(Argentine peso) pursuant to IAS 29 and General Resolution no.
777/2018 of the CNV.
Accordingly, we
have recognized a loss regarding the effect of adjustment by
inflation of Ps.2,432 million, Ps.6,209 million and Ps.234 million
in our financial statements for the years ended 2019, 2018 and
2017, respectively. See Note 2.1.2 to our financial
statements.
Law 27,468 also
substituted the wholesale price index (“WPI”) for the
CPI as the index to benchmark tax indexation, and modified the
standards for triggering the tax indexation procedure. In addition,
Law 27,468 provides that during the first three years beginning on
January 1, 2018, tax indexation will be required if the variation
of the CPI exceeds 55% in 2018, 30% in 2019 and 15% in 2020. On
December 23, 2019, the National Congress enacted Law No. 27,541
Ley de Solidaridad Social y
Reactivación Productiva en el Marco de la Emergencia
Pública (the “Solidarity Law”), which,
among other measures amended the periods which the tax indexation
should be allocated. According to the Solidarity Law, the positive
or negative result generated by the application of the inflation
adjustment corresponding to the first and second fiscal year
beginning on January 1, 2019, shall be charged one sixth (1/6) in
that fiscal year and the remaining five sixths (5/6), in equal
parts, in the next five fiscal years. For 2019, we recorded a net
loss of Ps.426 million in our Income Tax line item of our Statement
of Income regarding the application of the above-mentioned tax
inflation adjustment.
We
cannot predict the full future impact that any modifications in the
application of the tax indexation procedure and related adjustments
will have on our financial statements, or the effects on our
effective tax rate or on our business, results of operations and
financial condition.
The credibility of several Argentine economic indices has been
called into question, which has led to a lack of confidence in the
Argentine economy and could affect your evaluation of the market
value of the ADSs
Between 2007 and
2015, the INDEC, the Argentine Government’s principal
statistical agency, underwent institutional and methodological
reforms that gave rise to controversy regarding the reliability of
the information that it produced. Reports published by the IMF had
stated that their staff used alternative measures of inflation for
macroeconomic surveillance, including data produced by private
sources, which have shown inflation rates considerably higher than
those published by the INDEC between 2007 and 2015. The IMF also
censured Argentina for failing to make sufficient progress, as
required under the Articles of Agreement of the IMF, in adopting
remedial measures to address the quality of official data,
including inflation and GDP data.
8
On January 8, 2016,
based on its determination that the INDEC had failed to produce
reliable statistical information, particularly with respect to its
CPI, GDP, foreign trade and poverty data, the Macri administration
declared the national statistical system and the INDEC in a state
of administrative emergency through December 31, 2016, which was
not renewed. The INDEC suspended publication of certain statistical
data until it completed reorganization of its technical and
administrative structure to recover its ability to produce
sufficient and reliable statistical information. During the first
six months of this reorganization period, the INDEC published
official CPI figures published by the City of Buenos Aires and the
Province of San Luis for reference. On June 29, 2016, the INDEC
published a report that included revised GDP data for the years
2004 through 2015. Among other adjustments, in calculating GDP for
2004, the INDEC made changes to the composition of GDP that
resulted in a downward adjustment of approximately 12% for that
year. In calculating real GDP for subsequent years based on the
revised 2004 GDP, the INDEC used deflators that are consistent with
its revised methodology to calculate inflation. By understating
inflation in the past, the INDEC had overstated growth in real
terms. The adjustments made by the INDEC resulted in a
determination of real GDP growth for the period 2004-2014 of 44.8%,
as opposed to a 63% growth in real terms for the same period
resulting from the information used prior to June 29,2016.
Following the
publication of revised data and a new inflation index, on November9, 2016, the IMF lifted the censorship against Argentina, stating
that the country had resumed the publication of data in a manner
consistent with its obligations under the Articles of Agreement of
the IMF.
The Argentine
Government’s reforms seek to produce official data that meets
international standards. In order to be effective, however, reforms
require certain implementation steps and the timely collection of
data, the success of which may be outside of the Argentine
Government’s control. If these reforms cannot be successfully
implemented, such failure may adversely affect the Argentine
economy, in particular by undermining consumer and investor
confidence. The INDEC’s past or future data may be materially
revised to reveal a different economic or financial situation in
Argentina, which could affect investors’ perception of
Argentina, including the market value of the ADSs. In addition, the
failure or delays in implementing the expected changes may impair
other measures taken by the Central Bank to tackle inflation. This,
in turn, could have a negative impact on Argentina’s economy
and, as a result, could have an adverse effect on our ability to
access international capital markets to finance our operations and
growth, adversely affecting our results of operations and financial
condition.
On February 27,2020, the Secretariat of Energy issued Resolution 31/20, which
replaces the regulatory framework for Energía Base applicable
from February 1, 2020. This Resolution established that prices are
set in Argentine pesos, and adjusted monthly with the following
formula: (i) 60% of the CPI, plus (ii) 40% of the WPI. However, on
April 8, 2020, Central Puerto learned that the Secretary of Energy
may have instructed CAMMESA to postpone until further notice the
application of Annex VI of Res.31/20, related to the price update
mechanism described under “Item 4.B. Business
Overview—The Argentine Electric Power
Sector—Remuneration Scheme—The Current Remuneration
Scheme” (“Annex VI”). Accordingly, CAMMESA did
not apply the price update mechanism for the March 2020 monthly
payments under Energy Base. The Company is evaluating the effects
that the non-application of the aforementioned Annex VI would have,
as well as the steps to be followed in this regard.
Any delay on the
application of the price update mechanism described above or
deficiency in quality of official data for the CPI and WPI indexes,
that significantly underestimates the real inflation in the
country, may imply a reduction in our revenues under Energía
Base, which may grow less than our costs, affecting our results
from operations.
Significant fluctuations in the value of the peso could adversely
affect the Argentine economy and, in turn, adversely affect our
results of operations
The depreciation of
the peso may have a negative impact on the ability of certain
Argentine businesses to service their foreign currency-denominated
debt, lead to inflation, significantly reduce real wages and
jeopardize the stability of businesses, such as ours, whose success
depends on domestic market demand and adversely affect the
Argentine Government’s ability to honor its foreign debt
obligations. After several years of moderate variations in the
nominal exchange rate, the peso depreciated more than 30% with
respect to the U.S. dollar in each of 2013 and 2014. In 2015, the
peso depreciated approximately 52% with respect to the U.S. dollar,
including a 10% depreciation from January 1, 2015 to September 30,2015 and a 38% depreciation during the last quarter of the year,
mainly concentrated after December 16, 2015 once the Macri
administration eliminated exchange controls. In 2016, 2017, 2018
and 2019, the peso depreciated approximately 21.86%, 17.36%,
102.16% and 58.86% respectively, in each case, with respect to the
U.S. dollar. The peso depreciated approximately 10.92% from
December 30, 2019 through April 24, 2020. On April 24, 2020,
the exchange rate was Ps. 66.43 to US$1.00, as quoted by the Banco
de la Nación Argentina for wire transfers (divisas).
9
As a result of the
increased volatility of the Argentine peso (see “Item 3.A.
Selected Financial Data—Exchange Rates”), the previous
Argentine Government announced several measures aimed at restoring
market’s confidence and stabilize the value of the Argentine
peso. Measures implemented by the previous Argentine Government
included, among others, the 2018 IMF Agreement (see “Item 4.
Information of the Company—Recent Political and Economic
Developments in Argentina— IMF Agreement”), increase of
interest rates and sale of the Central Bank’s foreign
currency reserves. More recently, and by virtue of the 2018 IMF
Agreement, a new regime was established. This regime sets forth a
strict control of the local monetary base, in an attempt to reduce
the demand for foreign currency. As of October 1, 2018, the Central
Bank introduced an exchange rate band. The peso’s exchange
rate with the U.S. Dollar was allowed to fluctuate between Ps.34.00
and Ps.44.00 per US$1.00 (range that was adjusted daily at an
annual rate of 3% until December 2018, and for the first quarter of
2019, was adjusted daily at an annual rate of 2%) without the
Central Bank’s intervention. On April 29, 2019, the Monetary
Policy Counsel (Comité de
Política Monetaria) of the Central Bank (the
“COPOM”) decided to introduce changes to the monetary
policy, with an aim to reducing volatility in the foreign exchange
market. After the results in the primary elections in August 2019,
the peso devalued almost 30% and the share price of listed
companies collapsed 38%. The ‘Country Risks’ peaked to
one of the highest levels in Argentine history, placing itself
above 2000 points on August 28, 2019. As a consequence of the
aforementioned effects, in order to control the currency outflow
and restrict exchange rate fluctuations, the Central Bank
re-implemented exchange controls, in hopes of strengthening the
normal functioning of the economy, fostering a prudent
administration of the exchange market, reducing the volatility of
financial variables and containing the impact of the variations of
financial flows on the real economy.
Moreover, it is not
possible to predict whether the Argentine Government will be able
to comply with all the terms of under its credit with the IMF by
2020. The ability of the Argentine Government to stabilize the
exchange market, restore economic growth and comply with the terms
of the Agreement with the IMF by 2020 is uncertain. The Argentine
macroeconomic environment, in which we operate, was affected by the
depreciation referred to above, which had an effect on our
financial and economic position. If the Peso depreciates further,
all of the negative effects on the Argentine economy related to
such depreciation could recur, with adverse consequences to our
business, financial condition and results of operations. In
addition, we cannot predict whether the Argentine Government will
be able to comply with all terms of the 2018 IMF Agreement. The
ability of the Argentine Government to stabilize the foreign
exchange market, restore economic growth and meet the terms of the
2018 IMF Agreement, is uncertain.
In addition, the
Republic’s future tax revenue and fiscal results may be
insufficient to meet its debt service obligations and the Republic
may have to rely in part on additional financing from domestic and
international capital markets, the IMF and other potential
creditors, in order to meet future debt service obligations. In the
future, the Republic may not be able or willing to access
international or domestic capital markets, which could have a
material adverse effect on the Republic’s ability to make
payments on its outstanding public debt, and in turn, could
materially adversely affect our financial condition and results of
operations.
Government intervention may adversely affect the Argentine economy
and, as a result, our business and results of
operations
Previous
administrations increased state intervention in the Argentine
economy, including through expropriation and nationalization
measures, price controls and pervasive exchange
controls.
In 2008, the
national administration absorbed and replaced the former private
pension system for a public “pay as you go” pension
system. As a result, all resources administered by the private
pension funds, including significant equity interests in a wide
range of listed companies, were transferred to a separate fund
(Fondo de Garantía de
Sustentabilidad, or the “FGS”) to be
administered by the National Social Security Administration
(Administración Nacional de
la Seguridad Social, or the “ANSES”). The
dissolution of the private pension funds and the transfer of their
financial assets to the FGS have had important repercussions on the
financing of private sector companies. Debt and equity instruments
that previously could be placed with pension fund administrators
are now entirely subject to the discretion of the ANSES. Since
acquiring equity interests in privately owned companies, through
the process of replacing the pension system, the ANSES is entitled
to designate representatives of the Argentine Government to the
boards of directors of those entities. Pursuant to Decree No.
1,278/12, issued by the Executive branch on July 25, 2012, the
ANSES’s representatives must report directly to the Ministry
of Economy and are subject to a mandatory information-sharing
regime, under which, among other obligations, the representatives
must immediately inform the Ministry of Economy of the agenda for
each board of directors’ meeting and provide related
documentation.
In May 2013, the
Argentine Congress passed a law providing for the expropriation of
51% of the share capital of YPF (Yacimientos Petroliferos Fiscales
S.A.), the principal Argentine oil company, which shares
were owned by Repsol, S.A. and its affiliates. In February 2015,
the Argentine Government sent a bill to the Argentine Congress in
order to revoke certain train concessions, return the national rail
network to state control and provide authority to review all
concessions currently in effect. The bill was enacted on
May 20, 2015 as Law No. 27,132.
10
In addition, on
September 23, 2015 the Argentine Congress passed Law
No. 27,181, which limits the sale of the Argentine
Government’s shares held in Argentine companies without prior
approval of two-thirds of the members of the Argentine Congress,
with the exception of the Argentine Government’s shareholding
in YPF. That law has been abrogated by the new Administration
through Law No. 27,260, the “Ley de Sinceramiento Fiscal y
Reparación Histórica a los Jubilados”, dated
on May 26, 2016.
In the future, the
Argentine government could re-introduce regulations that result in
an increased government intervention. It is widely reported by
private sector economists that expropriations, price controls,
exchange controls and other direct involvement by previous
governments in the economy had an adverse impact on the level of
investment in Argentina, the access of Argentine companies to the
international capital markets and Argentina’s commercial and
diplomatic relations with other countries. Further actions taken by
the Argentine Government concerning the economy, including
decisions with respect to interest rates, taxes, price controls,
salary increases, provision of additional employee benefits and
foreign exchange controls could continue to have a material adverse
effect on Argentina’s economic growth and in turn affect our
financial condition and results of operations. Moreover, any
additional Argentine Government policies established to preempt, or
in response to, social unrest could adversely and materially affect
the economy, and therefore our business, results of operations and
financial condition.
Government measures, as well as pressure from labor unions, could
require salary increases or added benefits, all of which could
increase companies’ operating costs
In the past, the
Argentine Government has passed laws and regulations forcing
privately owned companies to maintain certain wage levels and
provide added benefits for their employees. Additionally, both
public and private sector employers have been subject to strong
pressure from the workforce and trade unions to grant salary
increases and certain benefits. See “—Risks Relating to
Our Business—We could be affected by material actions taken
by the trade unions.”
Labor relations in
Argentina are governed by specific legislation, such as Labor Law
No. 20,744 and Collective Bargaining Law No. 14,250, which, among
other things, dictate how salary and other labor negotiations are
to be conducted. Every industrial or commercial activity is
regulated by a specific collective bargaining agreement
(“CBA”) that groups companies together according to
industry sector and trade union. Although the process of
negotiation is standardized, each chamber of industrial or
commercial activity separately negotiates the increases of salaries
and labor benefits with the relevant trade union of such commercial
or industrial activity.
Argentine
employers, both in the public and private sectors, have experienced
significant pressure from their employees and labor organizations
to increase wages and to provide additional employee benefits. In
August 2012, the Argentine Government established a 25% increase in
minimum monthly salary to Ps.2,875, effective as of February 2013.
The Argentine Government increased the minimum salary to Ps.3,300
in August 2013, to Ps.3,600 in January 2014, to Ps.4,400 in
September 2014 and to Ps.5,588 in August 2015. It further decreed
an increase of the minimum salary to Ps.6,060 in January 2016, to
Ps.6,810 in June 2016, to Ps.7,560 in September 2016 and to
Ps.8,060 in January 2017. In June 2017, the Ministry of Labor
raised the minimum salary to Ps.10,000, effective in three
tranches: Ps.8,860 as of July 2017, Ps.9,500 as of January 2018,
and Ps.10,000 as of July 2018. In August 2018, the Ministry of
Labor raised the minimum salary to Ps. 10,700 as of September
2018, Ps. 11,300 as of December 2018, and Ps. 12,500 as of March
2019. In August 2019, the Ministry of Production and Labor raised
the minimum salary to Ps. 14,125 as of August 2019, Ps. 15,625
as of September 2019, and Ps. 16,875 as of October 2019. Due to
high levels of inflation, both public and private sector employers
are experiencing significant pressure from unions and their
employees to further increase salaries. In 2015, the INDEC
published the Coeficiente de
Variación Salarial (Salary Variation Index, or the
“CVS”), an index that shows the evolution of salaries.
The Salaries Index showed an increase of approximately 27.30%,
30.41% and 44.30% in registered private sector salaries in 2017,
2018 and 2019, respectively.
In the future, the
Argentine Government could take new measures requiring salary
increases or additional benefits for workers, and the labor force
and labor unions may apply pressure for such measures. Any such
increase in wage or worker benefit could result in added costs and
reduced results of operations for Argentine companies, including
us. Such added costs could adversely affect our business, financial
condition and result of operations.
Exchange controls and restrictions on capital inflows and outflows
could limit the availability of international credit and could
threaten the financial system, adversely affecting the Argentine
economy and, as a result, our business
In 2001 and 2002,
Argentina imposed exchange controls and transfer restrictions,
substantially limiting the ability of companies to retain foreign
currency or make payments abroad. After 2002, these restrictions,
including those requiring the Central Bank’s prior
authorization for the transfer of funds abroad to pay principal and
interest on debt obligations, were substantially eased through
2007. In addition to the foreign exchange restrictions applicable
to outflows, in June 2005 the Argentine Government adopted various
rules and regulations that established restrictive controls on
capital inflows into Argentina, including a requirement that, for
certain funds remitted into Argentina, an amount equal to 30% of
the funds must be deposited into an account with a local financial
institution as a U.S. dollar deposit for a one-year period without
any accrual of interest, benefit or other use as collateral for any
transaction.
11
From 2011 and until
December 2015, the Argentine Government increased controls on the
sale of foreign currency and the acquisition of foreign assets by
local residents, limiting the possibility of transferring funds
abroad. Furthermore, under regulations issued since 2012 certain
foreign exchange transactions were subject to prior approval by the
Federal Administration of Public Income (“AFIP”).
Through a combination of foreign exchange and tax regulations,
previous administrations significantly curtailed access to the MULC
by individuals and private-sector entities. In addition, during the
years preceding 2015, the Central Bank exercised a de facto prior approval power for
certain foreign exchange transactions otherwise authorized to be
carried out under the applicable regulations, such as dividend
payments or repayment of principal of intercompany loans as well as
the import of goods, by means of regulating the amount of foreign
currency available to companies to conduct such transactions. The
number of exchange controls introduced in the past and in
particular after gave rise to an unofficial U.S. dollar trading
market, and the peso/U.S. dollar exchange rate in such market
substantially differed from the official peso/U.S. dollar exchange
rate. See “Exchange Controls.”
Additionally, the
level of international reserves deposited with the Central Bank
significantly decreased from US$47.4 billion as of November 1, 2011
to US$25.6 billion as of December 31, 2015, resulting in a reduced
capacity of the Argentine Government to intervene in the MULC and
to provide access to such markets to private sector entities like
us. The previous administration announced a program intended to
increase the level of international reserves deposited with the
Central Bank through the execution of certain agreements with
several Argentine and foreign entities. As a result of the measures
taken under such program and due to the issuance by the Argentine
Government of US$16.5 billion and US$2.75 billion of new debt
securities in the international capital markets on April 22, 2016
and July 6, 2016, respectively, the level of international reserves
increased to US$38.8 billion as of December 31, 2016. As of
December 31, 2019, the level of international reserves of the
Central Bank totaled US$44.8 billion.
The previous
administration gradually implemented a series of reforms related to
the foreign exchange restrictions, including certain currency
controls, in order to provide greater flexibility and access to the
MULC. On August 8, 2016 the Central Bank issued Communication
“A” 6037, which substantially modified the applicable
foreign exchange regulations and eliminated the set of restrictions
for accessing the MULC. Effective as of July 1, 2017, pursuant to
Communication “A” 6244, all regulations that restricted
access to the MULC were repealed, leaving in place only the
obligation to comply with a reporting regime. Pursuant to
Communication “A” 6401, dated December 26, 2017, a new
reporting regime was created, pursuant to which the “Survey
on the issuance of foreign notes and liabilities by the financial
and private non-financial sector,” established by
Communication “A” 3602, and the “Survey on direct
investments,” established by Communication “A”
4237, were replaced by a unified report on direct investments and
debt. Moreover, by virtue of Communication “A” 6443,
which came into force as of March 1, 2018, any company from any
sector, which usually operates through the Exchange Market can act
as an exchange agency by only registering in the exchange
operators’ registry. Argentine residents must comply with the
reporting regime, even when the funds have not been sold in the
MULC and/or there is no expectation to access the MULC in the
future in relation to the funds that must be reported.
Since September
2019, with the purpose of strengthening the normal functioning of
the economy, fostering a prudent administration of the exchange
market, reducing the volatility of financial variables and
containing the impact of the variations of financial flows on the
real economy, the Argentine Government has reinstated foreign
exchange restrictions. The new controls apply with respect to
access to the foreign exchange market by residents for savings and
investment purposes abroad, the payment of dividends in foreign
currency abroad, payments of imports of goods and services, and the
obligation to repatriate and settle for pesos the proceeds from
exports of goods and services, among others. In that regard, the
Company has access to the MULC to pay dividends to non-resident
shareholders, without the prior consent of the Central Bank subject
that the total amount of transfers executed through the exchange
market regulated by the Central Bank for payment of dividends to
non-resident shareholders may not exceed 30% of the total value of
any new capital contributions made in the Company that had been
entered and settled through such exchange market. The total amount
paid to non-resident shareholders shall not exceed the
corresponding amount denominated in Argentine pesos that was
determined by the shareholders' meeting. For further information,
see “Exchange Controls.”
In the future the
Argentine Government could impose further exchange controls,
transfer restrictions or restrictions on the movement of capital
and/or take other measures in response to capital flight or a
significant depreciation of the peso, which could limit our ability
to access the international capital markets and impair our ability
to make interest, principal or dividend payments abroad. Such
measures could lead to renewed political and social tensions and
undermine the Argentine Government’s public finances, which
could adversely affect Argentina’s economy and prospects for
economic growth and, consequently, adversely affect our business
and results of operations.
12
Argentina’s ability to obtain financing from international
markets is limited, which could affect its capacity to implement
reforms and sustain economic growth, and may negatively impact our
financial condition or cash flows
After
Argentina’s default on certain debt payments in 2001, the
government successfully restructured 92% of the debt through two
debt exchange offers in 2005 and 2010. Nevertheless, holdout
creditors filed numerous lawsuits against Argentina in several
jurisdictions, including the United States, Italy, Germany and
Japan, asserting that Argentina failed to make timely payments of
interest and/or principal on their bonds, and seeking judgments for
the face value of and/or accrued interest on those bonds. Judgments
were issued in numerous proceedings in the United States, Germany
and Japan. Although creditors with favorable judgments did not
succeed, with a few minor exceptions, in enforcing on those
judgments, as a result of decisions adopted by the New York courts
in support of those creditors in 2014, Argentina was enjoined from
making payments on its bonds issued in the 2005 and 2010 exchange
offers unless it satisfied amounts due to the holders of defaulted
bonds. The Argentine government took a number of steps intended to
continue servicing the bonds issued in the 2005 and 2010 exchange
offers, which had limited success. Holdout creditors continued to
litigate and succeeded in preventing the Argentine government from
regaining market access.
Between
February and April 2016, the Argentine government entered
into agreements in principle with certain holders of defaulted debt
and put forward a proposal to other holders of defaulted debt,
including those with pending claims in U.S. courts, which resulted
in the settlement of substantially all remaining disputes and
closure to 15 years of litigation. On April 22, 2016,
Argentina issued bonds for US$16.5 billion, and applied US$9.3
billion of the proceeds to satisfy payments under the settlement
agreements reached with holders of defaulted debt. Since then,
substantially all of the remaining claims under defaulted bonds
have been settled.
As of the date of
this annual report, although litigation initiated by bondholders
that have not accepted Argentina’s settlement offer continues
in several jurisdictions, the size of the claims involved has
decreased significantly.
In addition, since
2001 foreign shareholders of some Argentine companies initiated
claims for substantial amounts before the International Centre for
Settlement of Investment Disputes (“ICSID”) against
Argentina, pursuant to the arbitration rules of the United
Nations Commission on International Trade Law. Claimants allege
that certain measures of the Argentine government issued during the
economic crisis of 2001 and 2002 were inconsistent with the norms
or standards set forth in several bilateral investment treaties by
which Argentina was bound at the time. To date, several of these
disputes have been settled, and a significant number of cases are
in process or have been temporarily suspended by the agreement of
the parties.
Between 2016 and
early 2018, Argentina regained access to the market and incurred
approximately in US$96.3 billion of additional debt. However, as a
result of various external and internal factors, during the first
half of 2018, access to the market became increasingly onerous. On
May 8, 2018, the Macri administration announced that the
Argentine government would initiate negotiations with the IMF with
a view to entering into a stand-by credit facility that would give
Argentina access to financing by the IMF. On June 7, 2018, the
Argentine government and the IMF staff reached an understanding on
the terms of the SBA for disbursements totaling approximately US$50
billion, which was approved by the IMF’s Executive Board on
June 20, 2018. The SBA was intended to provide support to the Macri
administration’s economic program, helping build confidence,
reduce uncertainties and strengthen Argentina’s economic
prospects. On June 22, 2018 the Argentine government made a first
drawing of approximately US$15 billion under the SBA. Argentina has
received disbursements under the SBA for US$44 billion.
Notwithstanding the foregoing, the current administration has
publicly announced that they will refrain from requesting
additional disbursements under the agreement, and instead vowed to
renegotiate its terms and conditions in good faith.
Following the
execution of the SBA, in August 2018, Argentina faced an unexpected
bout of volatility affecting emerging markets generally. In
September 2018, the Macri administration discussed with the IMF
staff further measures of support in the face of renewed financial
volatility and a challenging economic environment. On October 26,2018, in light of the adjustments to fiscal and monetary policies
announced by the Argentine government and the Central Bank, the
IMF’s Executive Board allowed the Argentine government to
draw the equivalent of US$5.7 billion, bringing total disbursements
since June 2018 to approximately US$20.6 billion, approved an
augmentation of the SBA increasing total assets to approximately
US$57.1 billion for the duration of the program through 2021 and
the front loading of the disbursements. Under the revised SBA, IMF
resources for Argentina in 2018-19 increased by US$18.9 billion.
IMF disbursements for the remainder of 2018 more than doubled
compared to the original IMF-supported program, to a total of
US$13.4 billion (in addition to the US$15 billion disbursed in June
2018). Disbursements in 2019 were also nearly doubled, to US$22.8
billion, with US$5.9 billion planned for 2020-21.
13
On August 28, 2019,
the Macri administration issued a decree deferring the scheduled
payment date for 85% of the amounts due on short-term notes
maturing in the fourth quarter of 2019, governed by Argentine law
and held by institutional investors. Of the deferred amounts, 30%
will be repaid 90 days after the original payment date and the
remaining 70% will be repaid 180 days after the original payment
date, except for payments under Lecaps due 2020 held domestically,
which will be repaid entirely 90 days after the original payment
date. Amounts due on short-term notes held by individual investors
will be paid as originally scheduled. In December 2019, the
Fernández administration further extended payments of a series
of short term notes denominated in U.S. dollars until the end of
August 2020, which were held by institutional
investors.
Moreover, in
December 2019, the Fernández administration further extended
by decree payments of a series of short term Argentine-law governed
treasury notes denominated in U.S. dollars held by institutional
investors through August 2020. Additionally, on February 11, 2020,
the Argentine government decreed the extension of maturity to
September 30, 2020 of a dollar-linked treasury note governed by
Argentine law, which had been originally subscribed to a large
extent with U.S. dollar remittances, to avoid a payment with
Argentine pesos that would have required significant sterilization
efforts by the monetary authority. Also in February 2020, the
Argentine Congress enacted a law enabling the government to take
all necessary steps toward rendering the Argentine sovereign debt
governed by foreign law sustainable. Additionally, an IMF team
visited Buenos Aires in February, 2020 to discuss the recent
macroeconomic developments and learn more about the Argentine
authorities’ economic plans and policies. On February 19,2020 the IMF staff issued a statement concluding that in light of
recent developments and the materialization of certain risks to
debt sustainability that were considered during the previous Debt
Sustainability Analysis (DSA) published in July 2019, the IMF staff
assesses Argentina’s debt to be unsustainable. Accordingly,
the IMF staff stated that “a definitive debt
operation—yielding a meaningful contribution from private
creditors—is required to help restore debt sustainability
with high probability”.
On April 21, 2020,
the Argentine Government announced its offer to exchange external
bonds in the aggregate of amount of approximately US$64 billion for
new bonds. The Argentine Government did not make the interest
payment due on April 22, 2020 with respect to three of its
US$-denominated bonds and availed itself of the 30-day grace period
provided under the indenture. As of the date of this annual report,
there is no certainty on the acceptance the exchange offer will
have among the bondholders or whether further negotiations and
proposals will be carried out and the consequences of such
negotiations.
Without renewed
access to the financial market the Argentine government may not
have the financial resources to implement reforms and boost growth,
which could have a significant adverse effect on the
country’s economy and, consequently, on our activities.
Likewise, Argentina’s inability to obtain credit in
international markets could have a direct impact on the
Company’s ability to access those markets to finance its
operations and its growth, including the financing of capital
investments, which would negatively affect our financial condition,
results of operations and cash flows. In addition, we cannot
predict the outcome of any future restructuring of Argentine
sovereign debt. Any new event of default by the Argentine
government could negatively affect their valuation and repayment
terms, as well as have a material adverse effect on the Argentine
economy and, consequently, our business and results of
operations.
High public expenditures could result in long-lasting adverse
consequences for the Argentine economy
In recent years,
the Argentine Government has substantially increased public
expenditures. In 2016, 2017, and 2018, national public sector
expenditures increased by 37.0%, 21.8% and 22.4% year over year,
respectively (measured in nominal Argentine pesos) and
the government reported a primary fiscal deficit of 4.6%, 3.8%
and 2.4% of GDP, according to the Argentine Ministry of Treasury.
In 2019, national public sector expenditures increased by 37.2%,
and the government reported a primary fiscal deficit of 1.0%
of GDP. During recent years, the Argentine Government has resorted
to the Central Bank and to the ANSES to alleviate part of its
funding requirements. Moreover, the primary fiscal balance could be
negatively affected in the future if public expenditures continue
to increase at a rate higher than revenues due to, for example,
social security benefits, financial assistance to provinces with
financial problems and increased spending on public works and
subsidies, including subsidies to the energy and transportation
sectors. A further deterioration in fiscal accounts could
negatively affect the government’s ability to access the
long-term financial markets and could in turn result in more
limited access to such markets by Argentine companies.
Additionally, a further deterioration in fiscal accounts could
affect the Argentine Government’s ability to continue
subsidies for consumers in the energy sector.
A decline in international prices for Argentina’s main
commodity exports could have an adverse effect on Argentina’s
economic growth
Argentina’s
financial recovery from the 2001-2002 crisis occurred in a context
of price increases for Argentina’s commodity exports, such as
soy. High commodity prices contributed to the increase in Argentine
exports since the third quarter of 2002 and to high government tax
on revenues from export withholdings. However, the reliance on the
export of certain commodities has caused the Argentine economy to
be more vulnerable to fluctuations in their prices.
14
Commodity prices,
including for soy, have declined significantly since peak prices
due in part to slower growth in China. In addition, from the end of
2017 until April 2018, rains below the average, for several months,
plunged Argentina into a severe drought that is presumed to have
been the worst drought in the country in a 50 years period. The
effects of the drought in agriculture caused important economic
problems in the country, with a fall in the soybean harvest of 31%
over the previous year, and corn, by 20%, which implied losses by
US$6 billion. A continuing decline in the international prices for
Argentina’s main commodity exports or any future climatic
conditions that may have an adverse effect in agriculture could
have a negative impact on the levels of government revenues and the
government’s ability to service its sovereign debt, and could
either generate recessionary or inflationary pressures, depending
on the government’s reaction. Either of these results would
adversely impact Argentina’s economy and, therefore, our
financial condition.
The novel coronavirus could have an adverse effect on our business
operations and financial conditions
In late December
2019 a notice of pneumonia originating from Wuhan, Hubei province
(COVID-19, caused by a novel coronavirus) was reported to the World
Health Organization, with cases soon confirmed in multiple
provinces in China, as well as in other countries. On March 11,2020, the World Health Organization characterized the COVID-19 as a
pandemic. Several measures have been undertaken by the Argentine
government and other governments around the globe, including the
use of quarantine, screening at airports and other transport hubs,
travel restrictions, suspension of visas, nation-wide lockdowns,
closing of public and private institutions, suspension of sport
events, restrictions to museums and tourist attractions and
extension of holidays, among many others. However, the virus
continues to spread globally and, as of the date of this annual
report, has affected more than 150 countries and territories around
the world, including Argentina. To date, the outbreak of the novel
coronavirus has caused significant social and market disruption.
For example, the Dow Jones declined by about 18.19% between
February 11 and April 14, 2020. The long-term effects to the global
economy and the Company of epidemics and other public health
crises, such as the on-going novel coronavirus, are difficult to
assess or predict, and may include a further decline in the market
prices of our shares and ADSs, risks to employee health and safety,
risks for the deployment of our services, reduction in the demand
of energy, and delays or suspensions in the construction of our
expansion projects, among others. Any prolonged restrictive
measures put in place in order to control an outbreak of a
contagious disease or other adverse public health development may
have a material and adverse effect on our business operations. We
may also be affected due to the need to implement policies limiting
the efficiency and effectiveness of our operations, including home
office policies. It is unclear whether these challenges and
uncertainties will be contained or resolved, and what effects they
may have on the global political and economic conditions in the
long term. Additionally, we cannot predict how the disease will
evolve in Argentina, nor anticipate what additional restrictions
the Argentine government may impose.
On March 20, 2020
the Argentine Government issued Decree No. 297/2020 establishing a
preventive and mandatory social isolation policy (“the
Quarantine”) as a public health measure to contain the
effects of the COVID-19 outbreak. Such decree established that
during the Quarantine, people must remain in their residence
beginning midnight on March 20, 2020 and must refrain from going to
their workplaces and may not travel along routes, roads or public
spaces. Since the adoption of the Quarantine, the Argentine
Government has extended it three times, and as of the date of this
annual report it has been extended until May 11, 2020 with some
additional excluded activities. We cannot exclude any further
extensions or even the restoration of excluded activities after it
is lifted.
The Quarantine is
expected to have a deep impact in the Argentine economy, including
drastic reduction in the demand and supply of goods and services,
increase in the unemployment rate and poverty levels, businesses
bankruptcies, disruption in the payment chain, among many others.
Although the Argentine government has adopted measures intended to
alleviate the situation (see “Item 4––Recent
Developments- Measures Designed to Address the Covid-19
Outbreak”), such measures are expected to significantly
increase the governments’ fiscal deficit. If that increase in
the deficit is financed with monetary emission, it is highly
possible that it will lead to an increase in the rate of inflation
and disruptions in the foreign exchange markets.
Pursuant to Decree
297/2020, the electricity generation activity was considered an
essential service and thus, exempt from the work attendance and
travel restrictions. Although our operations personnel was allowed
to continue their activities under certain health and sanitary
precautions, the rest of our staff continued working remotely. As
of the date of this annual report, these restrictions remain in
effect.
Initially, the
construction of energy infrastructure, including our ongoing
expansion projects, was not included as an exemption to the
Quarantine. On April 7, 2020, the construction of private sector
energy infrastructure was included as an essential activity, and
consequently, after taking the necessary precautions, the
construction resumed on April 9, 2020 for La Genoveva I, and on
April 27, 2020 for Terminal 6-San Lorenzo.
As additional
measures to contain the expansion of COVID-19, international travel
(except for certain specific repatriation flights) was
suspended.
15
We have identified
the following items where this crisis has and may have an impact in
the Company:
Operations – Power generation
●
Reduction in the electric energy
dispatched. Due to the Quarantine, most of the businesses in
Argentina, especially in the industrial sector, have not been able
to continue operating normally. According to information from
CAMMESA, during the first week of April, the total electric energy
demand declined by 13.4 %, compared to the same week of the prior
year. This reduction is likely to have an impact on the
Company’s thermal energy generation department, in particular
our units with higher heat rate (less efficient) under the
Energía Base Regulatory framework.
●
Increased delays in payments and/or risk of
uncollectability from our private clients. Despite the
fact that CAMMESA is paying its obligations, the reduced economic
activity due to the Quarantine may also affect the cash flows of
CAMMESA and of our private clients and increase the delays in their
payments and the risk of uncollectabilty of private clients. (See
“Item 3.D Risk Factors—Risks Relating to
Argentina—We have, in the recent past, been unable to collect
payments, or to collect them in a timely manner, from CAMMESA and
other customers in the electric power sector”).
●
Greater dependency of CAMMESA on subsidies from
the Argentine government. CAMMESA’s cash flows depend
on (i) payments from electric energy distribution companies, and
(ii) subsidies from the Argentine government. Due to the Law
27,132, tariffs that eligible end users pay to some public
utilities under federal jurisdiction, including electric energy
distribution companies, were frozen for 180 days until June 30,2019 (See Item 4. Information of the Company- Recent Political
and Economic Developments in Argentina). Furthermore, the Argentine
government established a 180-day period, beginning on March 1,2020, in which the suspension of the electric energy distribution
service is not permitted, upon the beneficiary’s failure to
pay less than three consecutive invoices, from March 1, 2020. As a
consequence, electric energy distribution companies may see a
reduction in their collections from clients, which may reduce their
payments to CAMMESA, which in turn, may increase CAMMESA’s
dependency on subsidies received from the Argentine government to
pay for electric energy generation, including payments to electric
energy generation companies, such as Central Puerto.
●
Personnel safeguard. We have set a
protocol with multiple measures to protect the health of all our
personnel. Some of those measures include: a) the isolation of the
teams that operate our different units, preventing contact between
different teams; b) the avoidance of contact between personnel from
different shifts; c) the use of extra protection, and additional
sanitary measures; d) using virtual meetings; e) identify key
personnel in order to have the necessary back-up teams should a
contingency arise and keeping all non-essential personnel for the
operation and maintenance of the units working remotely. Although
these measures have been effective for the safeguard of our
personnel, as of the date of this annual report, we cannot assure
you that none of our employees (including key personnel) will be
affected by COVID-19.
●
Lack of necessary supplies/equipment, or delays
in supplies. The Quarantine may also affect the provision of
essential supplies. Although the provision of the necessary
supplies is also considered an essential activity under the enacted
emergency framework and we usually keep a stock of spare parts, we
cannot assure you that the provision of the necessary supplies will
not be affected. Furthermore, measures taken by foreign countries
in which some of our supplies and spare parts for our units are
produced, may also affect our stock of spare parts. Any delay in
the provision of essential equipment or supplies may affect our
operations.
Projects under construction/development
The COVID-19
outbreak has had an impact on the projects currently under
construction. On February 21, 2020, Vestas Argentina S.A.
(“Vestas”) the supplier of the wind turbines of the La
Genoveva I wind project, notified the Company that the COVID-19
outbreak affected its manufacturing activities worldwide, causing
delays on the supply chain for the delivery of certain
Chinese-origin manufacturing components required for the completion
of the wind turbines. In its communication, Vestas did not specify
the specific impact this situation may have on the agreed upon
schedule. However, we reasonably expect delays on the
project’s completion. We sent a notice to CAMMESA with the
updates received from Vestas in accordance with the force majeure
clauses of the PPA to avoid potential penalties should the project
suffer unexpected and unforeseen delays. On April 7, 2020, CAMMESA
acknowledged receipt of our notice and requested a report on the
consequences that the force majeure events have had on the
schedule. We expect to experience delays in the estimated COD of
the wind farm La Genoveva I (owned by our subsidiary Vientos La
Genoveva S.A.U.) which in accordance with the PPA entered into with
CAMMESA, had to be completed in May 2020.
16
Additionally, our
subsidiary Vientos La Genoveva S.A.U., entered into a loan
agreement with the IFC for the construction of the wind farm La
Genoveva I. Under the IFC Loan (see Item 5.B. Liquidity and Capital
Resources—Indebtedness— Loan from the IFC to the
subsidiary Vientos La Genoveva S.A.U.)., Central Puerto S.A., a
guarantor, completely, unconditionally and irrevocably guarantees,
as the main debtor, all payment obligations undertaken by Vientos
La Genoveva S.A.U until the project reaches the project completion
date. Any delay in the COD could delay the project completion date,
and thus, Central Puerto would remain as the main debtor of this
facility.
Additionally,
although the Quarantine was lifted for private sector energy
infrastructure construction on April 7, 2020, we have experienced
delays on our project schedule. After taking the necessary
precautions, the construction was resumed on April 9, 2020 for La
Genoveva I. However, due to these precautionary measures (reduction
of personnel working in the project, working hours reduction, and
the establishment of a staggered shift) we expect the completion of
the project to be delayed.
The Quarantine also
affected the construction of the Terminal 6-San Lorenzo thermal
plant, that was suspended on March 20, 2020, scheduled to be
completed in September 2020. After the Quarantine was lifted, we
resumed activities on April 27, 2020 after taking the necessary
precautions. However, due to the precautionary measures mentioned
above, we expect the completion of the project to be delayed.
Additionally, travel restrictions and national borders lockdown
imposed by the Argentine Government, among others, may delay the
arrival of necessary personnel for the project, some of which were
expected to arrive from countries affected by the outbreak. We sent
a notice to CAMMESA informing about this situation to avoid
potential penalties should the project suffer unexpected and
unforeseen delays. Although we are confident that due to the
extreme circumstances that affect the projects we will be able to
obtain a waiver on the Committed COD, we cannot assure you we will
in fact secure such waiver from CAMMESA.
The effects of the
COVID-19 crisis pose challenges to our expansion plans for the
Brigadier López plant and the development of the El Puesto
solar farm, delaying the start of construction of these projects,
not only because of the restrictions to the construction mentioned
above, but also due to lower energy demand and difficulties to
obtain the necessary financing for the projects in the current
markets situation. For more information on see “Item 3D. Risk
Factors—Risks Relating to our Business— Factors beyond
our control may affect or delay the completion of the awarded
projects, or alter our plans for the expansion of our existing
plants”. In addition, the COVID-19 crisis may reduce the
possibility of new expansion projects and opportunities, for which
the company has purchased 3 gas turbines. Item 5.A Operating
Results—Factors Affecting our Results from
Operations—Proposed Expansion of Our Generating
Capacity.
The factors
mentioned above for both our operation of power generation and the
projects under construction/development, may also lead to an
impairment of property, plant and equipment and intangible assets,
related to a reduction in the assessed value-in-use of certain
assets that may exceed their previously-recorded book value, such
us our Brigadier López plant and intangible assets associated
to it, and some of the gas turbines that the Company holds for
potential new projects. Some of the factors that may influence this
reduction are the limited useful life of these assets, the current
economic uncertainties, the reduction and conversion of the
electric and power spot market tariff into Argentine pesos, and in
the particular case of the Company’s gas turbines, the
uncertainty about the feasibility of new projects that would enable
the use of the acquired turbines. For more information, see Item
5.A. Operating Results—Critical Accounting
Policies—Impairment of property, plant and equipment and
intangible assets.
Access to the Capital and Financial Markets
Due to the
Argentine sovereign debt restructuring ongoing process and to the
outbreak of COVID-19, access to the capital and financial markets
in Argentina and/or in foreign markets may also be substantially
reduced. Although we believe our cash flow and liquidity are
adequate and sufficient to meet our working capital debt service
obligations and capital expenditure requirements for the
foreseeable future, any further deterioration of the current
economic situation may result in a deterioration of the
Company’s finances, in a context of lack of access or
substantial reduction of credit availability in the financial
markets, which could affect our financial condition and results of
operation.
Additionally, the
COVID-19 pandemic crisis may also affect the results from our
natural gas distribution affiliates. Although these economic
activities were also declared essential, and exempt from the
Quarantine, the economic downturn caused by this measure is
expected to reduce volumes distributed to clients. Moreover, some
measures adopted by the Argentine Government to mitigate the
effects of the COVID-19 outbreak in the economy are also expected
to affect Ecogas’ financial performance, which had already
been affected by the 180-day tariff freeze established by Law
27,132, which was in effect until June 30, 2019 (See Item 4.
Information of the Company- Recent Political and Economic
Developments in Argentina). The Argentine Government established a
180-day period, beginning on March 1, 2020, where the suspension of
the natural gas service is not permitted, upon the
beneficiary’s failure to pay less than three consecutive
invoices, from March 1, 2020. This measure is only applicable to
certain users identified in the decree adopting it. This measure is
expected to increase the delays and or the uncollectability of
payments from such clients. Furthermore, some of the clients may
not have access to electronic payment platforms and may typically
pay in cash, which may be an obstacle for their ability to pay the
bills on time due to the mandatory Quarantine. In the year ended
December 31, 2019, IGCE (including a direct interest in DGCE)
accounted for 11.80% of our consolidated net income (see Item 4.B.
Business Overview—Our Affiliates— Ecogas Group -
Inversora de Gas del Centro S.A. (IGCE)”.
17
Finally, any
additional measure taken by Argentina or any foreign country to
mitigate the effects of the COVID-19 crisis, may directly or
indirectly affect our operations, projects under
construction/development or our results of operation and financial
condition.
For more
information see “Item 4.A.—Recent
Developments—Measures Designed to Address the Covid-19
Outbreak”.
The Argentine economy could be adversely affected by economic
developments in other markets and by more general
“contagion” effects
Weak, flat or
negative economic growth of any of Argentina’s major trading
partners, such as Brazil, China or the United States, could
have a material adverse effect on Argentina’s trade balance
and adversely affect Argentina’s economic growth. The
economic performance of other trading partners such as Chile, Spain
and Canada may also affect Argentina’s trade
balance.
The economy of
Brazil, Argentina’s largest export market and the principal
source of imports, has experienced heightened negative pressure due
to the uncertainties stemming from ongoing political crisis and
extensive corruption investigations. Although the Brazilian economy
slightly expanded by 1.1% during 2018 and 1.1% during 2019, a
deterioration of economic conditions in Brazil may reduce demand
for Argentine exports and create advantages for Brazilian imports.
In October 2018, candidate Jair Bolsonaro was elected president of
Brazil. As a result, uncertainty and expectations have increased in
relation to the future management of the president who, might
include substantial economic reforms and changes in Brazil’s
foreign policy, as stated during his campaign. A further
deterioration of economic conditions in Brazil could reduce the
demand for Argentine exports and generate advantages for Brazilian
imports. There is a possibility that continued uncertainty with
respect to Brazil’s economic and political conditions or the
occurrence of an economic and political crisis in Brazil might
result in an impact on the Argentine economy, and in turn, have a
material adverse effect on our business, financial condition and
result of operations.
The Argentine
economy may be affected by “contagion” effects.
International investors’ reactions to events occurring in one
developing country sometimes appear to follow a
“contagion” pattern, in which an entire region or
investment class is disfavored by international investors. In the
past, the Argentine economy has been adversely affected by such
contagion effects on a number of occasions, including the 1994
Mexican financial crisis, the 1997 Asian financial crisis, the 1998
Russian financial crisis, the 1999 depreciation of the Brazilian
real, the 2001 collapse of Turkey’s fixed exchange rate
regime and the global financial crisis that began in
2008.
The Argentine
economy may also be affected by conditions in developed economies,
such as the United States, that are significant trading partners of
Argentina or have influence over world economic cycles. If interest
rates increase significantly in developed economies, including the
United States, Argentina and its developing economy trading
partners, such as Brazil, could find it more difficult and
expensive to borrow capital and refinance existing debt, which
could adversely affect economic growth in those countries.
Decreased growth on the part of Argentina’s trading partners
could have a material adverse effect on the markets for
Argentina’s exports and, in turn, adversely affect economic
growth. Any of these potential risks to the Argentine economy could
have a material adverse effect on our business, financial condition
and result of operations.
On June 23, 2016,
the United Kingdom held an in-or-out referendum on the United
Kingdom’s membership of the European Union the result of
which favored the exit of the United Kingdom from the European
Union or “Brexit.” On October 2, 2016, the United
Kingdom prime minister announced that Article 50 of the Lisbon
Treaty would be triggered before the end of March 2017 and that the
Queen's speech will include a Great Repeal Bill to repeal the
European Communities Act 1972. On March 16, 2017, the European
Union (Notification of Withdrawal) Bill was enacted and a
notification under Article 50 was made on March 29, 2017. The
triggering of Article 50 initiated a two-year period of negotiation
for the United Kingdom to leave the European Union. Following a
series of extensions to this period, on January 31, 2020, the
United Kingdom left the European Union and entered into a
transition period that will end on December 31, 2020. The impact of
Brexit on our results of operations is unclear and its long-term
effects remain uncertain. Brexit could lead to additional
political, legal and economic instability in the European Union and
produce a negative impact on the commercial exchange of Argentina
with that region.
On November 8,2016, Mr. Donald J. Trump was elected president of the United
States. The results of the presidential election have created
significant uncertainty about the relationship between the United
States and other countries, including with respect to the trade
policies, treaties, government regulations and tariffs that could
apply to trade between the United States and other nations. Even
though President Trump's protectionist measures are not, for the
time being, aimed at Argentina, we cannot predict how they will
evolve, nor will the effect that the same or any other measure
taken by the Trump administration could cause on global economic
conditions and the stability of global financial markets.
Furthermore, the ongoing trade dispute between United States and
China due to tariffs placed on goods traded between them, might
have a potential impact in trade-dependent countries such as
Argentina.
18
During August 2018,
an increase in inflation and a sustained deficit in current
accounts, as well as the protectionist measures taken by the United
States, doubling the tariffs on steel and aluminum from Turkey,
caused a collapse of the Turkish lira against the Dollar that
triggered a wave of sales of assets from emerging markets and the
significant fall in the prices of shares from these markets,
generating a contagion effect in international markets and several
stock exchanges in the world, including Argentina.
These developments,
or the perception that any of them could occur, may have a material
adverse effect on global economic conditions and the stability of
global financial markets. Any of these factors could depress
economic activity and restrict our access to suppliers and have a
material adverse effect on our business, financial condition and
results of operations.
The Argentine banking system may be subject to instability which
may affect our operations
In recent years,
the Argentine financial system grew significantly with a marked
increase in loans and private deposits, showing a recovery of
credit activity. In spite of the fact that the financial
system’s deposits continue to grow in nominal terms, they are
mostly short-term deposits and the sources of medium and long-term
funding for financial institutions are currently limited. In 2019,
although nominal private deposits in pesos increased 36%
year-over-year (fueled by the growth of savings and current
accounts with a 46% increase) and nominal time deposits increased
25% year-over-year, such nominal increases did not match inflation
for the period. Peso-denominated loans increased at a slightly
higher pace than that of 2018. During the same period, loans in
foreign currency (composed mainly of corporate loans) evidenced a
decrease of 33% at the end of 2019. In 2019, private deposits in
U.S. dollars declined by 33%.
Financial
institutions are particularly subject to significant regulation
from multiple regulatory authorities, all of whom may, among other
things, establish limits on commissions and impose sanctions on the
financial institutions. The lack of a stable regulatory framework,
or changes to such regulatory framework by the government, could
impose significant limitations on the activities of the financial
institutions and could induce uncertainty with respect to the
financial system stability.
The persistence of
the current economic crisis or the instability of one or more of
the larger banks, public or private, could have a material adverse
effect on the prospects for economic growth and political stability
in Argentina, resulting in a loss of consumer confidence, lower
disposable income and fewer financing alternatives for consumers.
These conditions would have a material adverse effect on us by
resulting in lower usage of our services, lower sales of devices
and the possibility of a higher level of uncollectible accounts or
increase the credit risk of the counterparties regarding the
Company investments in local financial institutions.
Exchange controls
and restrictions on transfers abroad and capital inflows limit the
availability of international credit.
Failure to adequately address actual and perceived risks of
institutional deterioration and corruption may adversely affect
Argentina’s economy and financial condition, which in turn
could adversely affect our business, financial condition and
results of operations
A lack of a solid
institutional framework and corruption have been identified as, and
continue to be a significant problem for Argentina. In Transparency
International’s 2017 Corruption Perceptions Index survey of
180 countries, Argentina was ranked 85, improving from the previous
survey in 2016. In the World Bank’s Doing Business 2019
report, Argentina ranked 119 out of 190 countries, down from 117 in
2018.
Recognizing that
the failure to address these issues could increase the risk of
political instability, distort decision-making processes and
adversely affect Argentina’s international reputation and
ability to attract foreign investment, the Macri administration has
announced several measures aimed at strengthening Argentina’s
institutions and reducing corruption. These measures include the
reduction of criminal sentences in exchange for cooperation with
the government in corruption investigations, increased access to
public information, the seizing of assets from corrupt officials,
increasing the powers of the Anticorruption Office (Oficina Anticorrupción) and the
passing of a new public ethics law, among others. The Argentine
Government’s ability to implement these initiatives is
uncertain as it would require the involvement of the judicial
branch, which is independent, as well as legislative support from
opposition parties.
Argentina’s
political environment has historically influenced, and continues to
influence, the performance of the country’s economy.
Political crises have affected and continue to affect the
confidence of investors and the general public, which have
historically resulted in economic deceleration and heightened
volatility in the securities with underlying Argentine risk. The
recent economic instability in Argentina has contributed to a
decline in market confidence in the Argentine economy as well as to
a deteriorating political environment.
19
In addition,
various ongoing investigations into allegations of money laundering
and corruption being conducted by the Office of the Argentine
Federal Prosecutor, including the largest such investigation, known
as “Los Cuadernos de las Coimas,” or “the
Chauffeur's Books” have negatively impacted the Argentine
economy and political environment. Certain government officials of
previous administrations as well as high ranked officers of
companies holding government contracts or concessions have faced or
are currently facing allegations of corruption and money laundering
as a result of these investigations. These individuals are alleged
to have accepted or paid, as applicable, bribes by means of
kickbacks on contracts granted by the government to several
infrastructure, energy and construction companies. The proceeds
from these kickbacks allegedly financed the political campaigns of
political parties forming the government from 2011 to 2015. These
funds were unaccounted for or not publicly disclosed and were
allegedly used to personally enrich certain individuals. Several
senior politicians, including members of Congress, and high-ranking
executives and officers of major companies in Argentina (i) have
been arrested on account of various charges relating to corruption,
(ii) entered into plea agreements with prosecutors and (iii) have
resigned or been removed from their positions. The potential
outcome of the Chauffer’s Books as well as other ongoing
corruption-related investigations is uncertain, but they have
already had an adverse impact on the reputation of those companies
that have been implicated, as well as on the general market
perception of the economy, political environment and the capital
markets in Argentina. We have no control over and cannot predict
for how long the corruption investigations will continue nor
whether such investigations or allegations (or any other future
investigations or allegations) will lead to further political and
economic instability. In addition, we cannot predict the outcome of
any such allegations nor their effect on the different sectors of
the Argentine economy. See also “—We are subject to
anticorruption, anti-bribery, anti-money laundering and other laws
and regulations.”
Risks Relating to the Electric Power Sector in
Argentina
The Argentine Government has intervened in the electric power
sector in the past, and is likely to continue
intervening
Historically, the
Argentine Government has played an active role in the electric
power industry through the ownership and management of state-owned
companies engaged in the generation, transmission and distribution
of electric power. Since 1992 and the privatization of several
state-owned companies, the Argentine Government has reduced its
control over the industry. However, as is the case in most other
countries, the Argentine electric power industry remains subject to
strict regulation and government intervention. Moreover, to address
the Argentine economic crisis of 2001 and 2002, the Argentine
Government adopted Law No. 25,561 (the “Public Emergency
Law”) and other regulations, which made a number of material
changes to the regulatory framework applicable to the electric
power sector. These changes have had significant adverse effects on
electric power generation, distribution and transmission companies
and included the freezing of distribution margins, the revocation
of adjustment and inflation indexation mechanisms for tariffs, a
limitation on the ability of electric power distribution companies
to pass on to the consumer increases in costs due to regulatory
charges and the introduction of a new price-setting mechanism in
the WEM, all of which had a significant impact on electric power
generators and caused substantial price differences within the
market.
Previous
administrations intervened in the electric power industry by, for
example, granting temporary margin increases, proposing a new
tariff regime for residents of poverty-stricken areas, increasing
remunerations earned by generators for capacity, operation and
maintenance services, creating specific charges to raise funds that
are transferred to government-managed trust funds that finance
investments in generation and distribution infrastructure and
mandating investments for the construction of new generation plants
and the expansion of existing transmission and distribution
networks.
For example, in
March 2013, pursuant to Resolution No. 95/13, issued by the former
Secretariat of Energy, the Argentine Government suspended the
renewal of sales contracts in the term market and execution of new
agreements in the WEM, and ordered that any demand not satisfied by
Argentine generators must be directly supplied by CAMMESA. As a
result, Argentine generators are required to supply capacity and
energy to CAMMESA at prices fixed by the former Secretariat of
Energy.
When the previous
administration assumed office, the Argentine Government initiated
significant reforms to the Argentine electric power industry. On
December 16, 2015, the Macri administration declared a state of
emergency with respect to the national electric power system that
remained in effect until December 31, 2017. The state of emergency
allowed the Argentine Government to take actions designed to
guarantee the supply of electric power in Argentina, such as
instructing the Ministry of Energy and Mining to elaborate and
implement, with the cooperation of all federal public entities, a
coordinated program to guarantee the quality and security of the
electric power system and rationalize public entities’
consumption of energy. In addition, the Argentine Government and
certain provincial governments have approved significant price
adjustments and tariff increases applicable to certain generation
and distribution companies. Following the tariff increases,
preliminary injunctions suspending such increases were requested by
customers, politicians and non-governmental organizations that
defend customers’ rights, which preliminary injunctions were
granted by Argentine courts. Among the different rulings in this
respect, two recent rulings issued by the Second Division of the
Federal Court of Appeals for the City of La Plata and a federal
judge from the San Martín district court led to the suspension
of end-users tariff increases of electric power in the Province of
Buenos Aires and in the whole territory of Argentina,
respectively.
20
Pursuant to these
injunctions, (i) the end-user tariff increases granted as of
February 1, 2016 were suspended retroactively to that date, (ii)
end-user bills sent to customers were not to include the increase
and (iii) the amounts already collected from end-users as a
consequence of consumption recorded before these rulings had to be
reimbursed. However, on September 6, 2016, the Supreme Court denied
these injunctions that suspended end-users electric power tariff
increases, arguing formal objections and procedural defects and
therefore, as of the date of this annual report, increases of the
electric power end-users tariffs are not suspended.
Pursuant to
Resolution No. 522/16, the ENRE ordered a public hearing to be held
to evaluate the proposals for the full tariff review filed by
EDENOR and EDESUR for the period from January 1, 2017 to December31, 2021. The hearing was held on October 28, 2016. A non-binding
public hearing was conducted by the Ministry of Energy and Mining
and the ENRE to discuss tariff proposals submitted by distribution
companies covering the greater Buenos Aires area (with
approximately 15 million inhabitants), including Edenor, for the
2017-2021 period within the framework of the RTI. Following such
hearing, on January 31, 2017, the ENRE issued Resolution No. 63/17,
pursuant to which such administrative authority approved the
tariffs to be applied by EDENOR. In the same sense, Resolution No.
64/17 approved EDESUR’s tariffs.
On February 1,2017, the ENRE enacted several resolutions, which, among other
policy changes, implemented a reduction of electric power tariff
subsidies and an increase in electric power tariffs for residential
customers. Such increases ranged between 61% and 148%, depending on
to the amount of the consumer’s electric power
consumption.
Regarding
transmission tariffs, seven public hearings were held pursuant to
Resolutions Nos. 601/16, 602/16, 603/16, 604/16, 605/16, 606/16 and
607/16 of the ENRE. In such public hearings, the tariff proposals
filed by transmission companies Transener S.A., Distrocuyo S.A.,
Transcomahue S.A., Ente Provincial de Energía de Neuquén,
Transba S.A., Transnea S.A., Transnoa S.A. and Transpa S.A. for the
period from January 1, 2017 to December 31, 2021 were evaluated.
Pursuant to Resolutions Nos. 66/17, 68/17, 69/17, 71/17, 73/17,
75/17, 77/17 and 79/17, the ENRE approved the new applicable
tariffs for such companies.
Additionally, in
March 2016, the Secretariat of Electric Energy enacted Resolution
SEE No. 22/16, through which it adjusted the electric power prices
for the sale of energy by generation companies under the
Energía Base. See “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations—Factors Affecting Our Results of
Operations—Our Revenues—The Energía Base.”
The Secretariat of Electric Energy cited the fact that WEM prices
have been distorted and discourage private sector investment in
power generation and that it was necessary to raise tariffs to
partially compensate for increasing operation and maintenance costs
and to improve the cash flow generation capacity of these
companies. On February 1, 2017, the tariff revision process was
completed and the new tariff scheme for the following five-year
period was enacted.
In a change of its
criteria on policies applied in the electric power industry, on
April 17, 2019, the Macri Administration announced that the tariffs
applied by electricity distribution companies will not be increased
during the rest of 2019.
In addition, on
March 1, 2019, by means of Resolution SRRyME No. 1/19, the
Argentine Government reduced prices for power capacity and energy
under Energía Base, which had been previously increased by
Resolution SEE No. 19/17. Furthermore, on February 27, 2020, the
Secretary of Energy of the National Ministry of Production
Development issued Resolution 31/20, which abrogated Resolution No.
1/19, reducing the remuneration scheme applicable from February 1,2020 for Authorized Generators in the Wholesale Electricity Market,
establishing Energía Base prices in Argentine pesos. We cannot
assure you that further reductions of these tariffs will not occur
in the future. See “Item 4.B. Business Overview—The
Argentine Electric Power Sector—Remuneration Scheme—The
Current Remuneration Scheme.”
The Argentine
Government has also established public bidding processes for the
development of new generation projects from both thermal and
renewable sources. These measures aim not only to satisfy domestic
electric power demand, but also to promote investments in the
electric power sector and improve the economic situation of the
WEM, which, as discussed above, has faced challenges since
2001.
Notwithstanding the
recent measures adopted by the Argentine Government, we cannot
guarantee that the expected changes to the electric power sector
will happen as expected, within the anticipated timeframe or at
all. It is possible that certain measures may be adopted by the
Argentine Government that could have a material adverse effect on
our business and results of operations, or that the Argentine
Government may adopt emergency legislation similar to the Public
Emergency Law or other similar resolutions in the future that could
have a direct impact on the regulatory framework of the electric
power industry and indirectly adversely affect the electric power
generation industry, and therefore, our business, financial
condition and results of operations.
21
On December 23,2019, the Solidarity Law was passed, by which the economic,
financial, administrative, social, sanitary, tariff and energetic
emergency was declared. In connection to our business such law
provides that (i) natural gas tariffs and energy tariffs to the end
user under federal jurisdiction shall remain unchanged for one
hundred and eighty (180) days, commencing on December 23, 2019, and
(ii) empowered the Executive branch to renegotiate tariffs under
federal jurisdiction, either within the framework of the current
comprehensive tariff reviews or through an extraordinary revision,
in accordance with Law No. 24,065 (Régimen de Energía
Eléctrica). In addition, the Solidarity Law also
entitles the Executive branch to intervene the ENARGAS and the
Federal Electricity Regulatory Agency
(“ENRE”).
For further updates
on the Argentine Government role in the electric power sector,
please see “Item 4––Recent
Developments”.
Electricity generators, distributors and transmitters have been
materially and adversely affected by emergency measures adopted in
response to Argentina’s economic crisis of 2001 and 2002,
many of which remain in effect
Since the Argentine
economic crisis of 2001 and 2002, Argentina’s electric power
sector has been characterized by government regulations and
policies that have resulted in significant distortions in the
electric power market, particularly with respect to prices,
throughout the whole value chain of the sector (generation,
transmission and distribution). Historically, Argentine electric
power prices were calculated in U.S. dollars and margins were
adjusted periodically to reflect variations in relation to costs.
In January 2002, the Public Emergency Law authorized the Argentine
Government to renegotiate its public utility contracts. Under this
law, the Argentine Government revoked provisions in the public
utility contracts related to the adjustment and inflation
indexation mechanism. Instead, the tariffs on such contracts were
frozen and converted from their original U.S. dollar values to
Argentine pesos at a rate of Ps.1.00 per US$1.00. For further
information on the changes to the legal framework of the Argentine
electric power industry caused by the Public Emergency Law, see
“The Argentine Electric Power Sector.”
These measures,
coupled with the effect of high inflation and the depreciation of
the peso in recent years, led to a significant decline in revenues
and a significant increase of costs in real terms, which could no
longer be recovered through margin adjustments or market
price-setting mechanisms. This situation, in turn, led many public
utility companies to suspend payments on their financial debt
(which continued to be denominated in U.S. dollars despite the
pesification of revenues), effectively preventing these companies
from obtaining further financing in the domestic or international
credit markets and making additional investments.
After declaring a
state of emergency with respect to the national electrical system,
the Argentine Government increased electric power tariffs in the
WEM under the Energía Base. Preliminary injunctions suspending
such increases were requested by customers, politicians and
non-governmental organizations, and recent rulings suspended the
increases in the whole territory of Argentina. On September 6,2016, the Supreme Court denied these injunctions that suspended
end-users electric power tariff increases, and a public hearing to
evaluate the proposals for a full tariff review filed by EDENOR and
EDESUR was held on October 28, 2016. The tariff increases were
approved on January 31, 2017. In addition, the Argentine Government
issued Resolution SE No. 21/16 calling for a public bid process for
the installation of new generation capacity from both thermal and
renewable sources, offering generators U.S. dollar-denominated
rates linked to generation costs for newly available generation
capacity. However, tariffs under the Energía Base remain well
below historical levels, although there have been important
increases and, they are now denominated in U.S. dollars which
mitigates the effect of variations in the foreign exchange rate.
These measures, or any future measures, may not be sufficient to
address the structural problems created by the economic crisis of
2001 and 2002 and its aftermath, and measures similar to those
adopted during the economic crisis may not be enacted in the
future.
On March 1, 2019,
by means of Resolution SRRyME No. 1/19, the Argentine Government
reduced prices for power capacity and energy under Energía
Base, which had been previously increased by Resolution SEE No.
19/17. Furthermore, on February 27, 2020, the Secretary of
Energy of the National Ministry of Production Development issued
Resolution 31/20, which abrogated Resolution No. 1/19, reducing the
remuneration scheme applicable from February 1, 2020 for Authorized
Generators in the Wholesale Electricity Market, establishing
Energía Base prices in Argentine pesos. We cannot assure you
that further reductions of these tariffs will not occur in the
future. See “Item 4.B. Business Overview—The Argentine
Electric Power Sector—Remuneration Scheme—The Current
Remuneration Scheme.”
See
“—The Argentine Government has intervened in the
electric power sector in the past, and is likely to continue
intervening.”
22
We have, in the recent past, been unable to collect payments, or to
collect them in a timely manner, from CAMMESA and other customers
in the electric power sector
For the years ended
December 31, 2019 and 2018, approximately 76.14% and 88.80%,
respectively, of our total revenues came from our sales to CAMMESA.
In addition, we receive significant cash flows from CAMMESA in
connection with the FONINVEMEM and similar programs. Payments to us
by CAMMESA, depend upon payments that CAMMESA in turn receives from
other WEM agents such as electric power distributors as well as
subsidies from the Argentine Government.
Regarding the CVO
Agreement, effective as of March 20, 2018, CAMMESA granted the CVO
Commercial Approval in the WEM, as a combined cycle, of the thermal
plant Central Vuelta de Obligado, which entitled us to receive the
collection of the trade receivables under the CVO Agreement. A PPA
between the CVO Trust and CAMMESA, through which the CVO Trust
makes energy sales and, consequently, receives the cash flow to pay
the trade receivables, had to be signed in order to start the
collections.
As a result, the
original amortization schedule from the CVO Agreement is in full
force and effect.
During June and
July 2019, Central Puerto collected Ps.2,562 million, in nominal
terms (approximately US$58.41 million converted at the exchange
rate Communication A 3500 quoted by the Central Bank as of the date
of payment) and Ps.825 million, in nominal terms (approximately
US$19.70 million converted at the exchange rate Communication A
3500 quoted by the Central Bank as of the date of payment), in both
cases including VAT, related to the installments corresponding to
the March-December 2018 period of the CVO agreement.
During 2019, we
collected Ps. 8.45 billion in CVO
receivables (including installments 1 to 10), measured in current
amounts as of December 31, 2019. Subsequent installments (from
installment No. 11) have been collected on their respective due
dates.
We also receive
payments under term market contracts with CAMMESA and FONI trade
receivables, which are denominated in U.S. dollars, and converted
into Argentine pesos, at the exchange rate of the day prior to the
due date of such monthly transaction or installment.
In recent years,
due to regulatory conditions and long periods of frozen tariffs in
Argentina’s electric power sector that affected the
profitability and economic viability of power utilities, certain
WEM agents defaulted on their payments to CAMMESA, which adversely
affected CAMMESA’s ability to meet its payment obligations
with electric power generators, including us. As a consequence of
delays in payments that CAMMESA received from other WEM agents, we
also saw delays in the payments we received under the Energía
Base, receiving payments from CAMMESA within approximately 90 days
of month-end, rather than the required 42 days after the date of
billing. Such payment delays resulted in higher working capital
requirements that we would typically finance with our own financing
sources. From September 2016 to November 2017 CAMMESA has paid
without delays, and since then, there were periods in which CAMMESA
experienced delays in paying (for more information on the duration
of these delays see “Item 11. Quantitative and Qualitative
Disclosures about Market Risk—Credit Risk”). For
example, for the monthly transaction related to Energía Base
and thermal PPAs of December 2019, with due date on February 12,2020, we collected 20.40% on February 28, 2020, 45.26% on March 11,2020, 11.56% on March 19, 2020, 12.47% on March 27, 2020 and the
rest on April 8, 2020, 2020. For these delays, we received
interests from CAMMESA. Payments related to PPAs under the Renovar
Regulatory Framework have not suffered delays. CAMMESA may once
again be unable to make payments to generators both in respect of
energy dispatched and generation capacity availability on a timely
basis or in full, which may substantially and adversely affect our
financial position and the results of our operations.
In the short term,
due to the COVID-19 pandemic crisis, we expect to continue
experiencing delays in certain payments from CAMMESA.
23
Electricity demand may be affected by tariff increases, which could
lead generation companies like us to record lower
revenues
During the 2001 and
2002 economic crisis, electric power demand in Argentina decreased
due to the decline in the overall level of economic activity and
the deterioration in the ability of many consumers to pay their
electric power bills. In the years following the 2001 and 2002
economic crisis, electric power demand experienced significant
growth, increasing at an estimated average of approximately 3.86%
per annum from 2002 through 2015 (despite a decline in 2009), due
to its reduced cost as a result of certain energy subsidies,
freezing of margins and elimination of inflation adjustment
provisions in distribution concessions. In March 2016, the
Argentine Government unified and increased wholesale energy prices
for all consumption in Argentina, eliminated certain energy
subsidies and implemented an incentive plan (through discounts) for
residential customers whose electric power consumption is at least
10.00% lower than their consumption for the same month of the
previous year. These measures may have caused a reduction in energy
demand in Argentina. Demand of electric energy decreased 2.3% in
2016, increased 2.7% in 2017, and decreased 2.5% and 2.16% in 2018
and 2019, respectively. We cannot ascertain as of the date of this
annual report if such measures will have further effects on our
revenues. Any significant increase in energy prices to consumers
(whether through a tariff increase or through a cut in consumer
subsidies) could result in a decline in demand for the energy that
we generate. Any material adverse effect on electric power demand,
in turn, could lead electric power generation companies, like us,
to record lower revenues and results of operations than currently
anticipated.
Argentina has certain energy transmission and distribution
limitations that adversely affect the capacity of electric power
generators to deliver all of the energy they are able to produce,
which results in reduced sales
The energy that
generators are able to deliver to the transmission system for the
further delivery to the distribution system at all times depends on
the capacity of the transmission and distribution systems that
connects them to it. In the past, the transmission and distribution
system operated at near full capacity and both transmission and
distributors were not be able to guarantee an increased supply of
electric power to their customers. In the past years, the increase
in demand for electric power resulted in blackouts in Buenos Aires
and other cities around Argentina, which resulted in excess
capacity for generators. As a result, the amount of hydroelectric
energy and thermal energy generated was larger than what the
transmission and distribution systems are capable of transmitting
or distributing. Any transmission or distribution limitation for
generators could reduce the energy sold, which could adversely
affect our financial condition.
Our equipment, facilities and operations are subject to
environmental, health and safety regulations
Our generation
business is subject to federal and provincial laws, as well as to
the supervision of governmental agencies and regulatory authorities
in charge of enforcing environmental laws and policies. We operate
in compliance with applicable laws and in accordance with
directives issued by the relevant authorities and CAMMESA; however,
it is possible that we could be subject to controls, which could
result in penalties to be imposed on us, such as the termination of
the HPDA Concession Agreement. In addition, future environmental
regulations could require us to make investments in order to comply
with the requirements set by the authorities, instead of making
other scheduled investments and, as a result, could have a material
adverse effect on our financial condition and our results of
operations.
We operate in a heavily regulated sector that imposes significant
costs on our business, and we could be subject to fines and
liabilities that could have a material adverse effect on our
results of operations
We are subject to a
wide range of federal, provincial and municipal regulations and
supervision, including laws and regulations pertaining to tariffs,
labor, social security, public health, consumer protection, the
environment and competition. Furthermore, Argentina has 23
provinces and one autonomous city (the City of Buenos Aires), each
of which, under the Argentine National Constitution, has power to
enact legislation concerning taxes, environmental matters and the
use of public space. Within each province, municipal governments
can also have powers to regulate such matters. Although the
generation of electric power is considered an activity of general
interest (actividad de
interés general) subject to federal legislation, due to
the fact that our facilities are located throughout various
provinces, we are also subject to provincial and municipal
legislation. Future developments in the provinces and
municipalities concerning taxes (including sales, security and
health and general services taxes), environmental matters, the use
of public space or other matters could have a material adverse
effect on our business, results of operations and financial
condition. Compliance with existing or future legislation and
regulations could require us to make material expenditures and
divert funds away from planned investments in a manner that could
have a material adverse effect on our business, results of
operations and financial condition.
In addition, our
failure to comply with existing regulations and legislation, or
reinterpretations of existing regulations and new legislation or
regulations, such as those relating to fuel and other storage
facilities, volatile materials, cyber security, emissions or air
quality, hazardous and solid waste transportation and disposal and
other environmental matters, or changes in the nature of the energy
regulatory process may subject us to fines and penalties and have a
significant adverse impact on our financial results.
24
A cyberattack could adversely affect our business, balance sheet,
results of operations and cash flow
We depend on the
efficient and uninterrupted operation of our inter-plant
communication systems, for which we have all our links redundant,
providing greater security and minimizing the risks of outage.
Additionally, we have redundant links with CAMMESA. Temporary or
long-lasting failures of our inter-plant communication systems,
including their links redundant, could have a material adverse
effect on our operations. In general, information security risks
have increased in recent years as a result of the proliferation of
new and more sophisticated technologies and also due to cyberattack
activities. As part of our development and initiatives, more
equipment and systems have been connected to the Internet. We also
rely on digital technology including information systems to process
financial and operational information. Due to the critical nature
of our infrastructure and our business and the increased
accessibility allowed through the Internet connection, we could
face an increased risk of cyberattacks such as computer break-ins,
phishing, identity theft and other disruptions that could
negatively affect the security of information stored in and
transmitted through our computer systems and network
infrastructure. In the event of a cyberattack, we could experience
an interruption of our commercial operations, material damage and
loss of customer information; a substantial loss of income,
suffering response costs and other economic losses; and it could
subject us to more regulation and litigation and damage to our
reputation. Although we intend to continue to implement security
technology devices and establish operational procedures to prevent
disruption resulting from, and counteract the negative effects of
cybersecurity incidents, it is possible that not all of our current
and future systems are or will be entirely free from vulnerability
and these security measures will not be successful. Accordingly,
cybersecurity is a material risk for us and a cyber-attack could
adversely affect our business, results of operations and financial
condition.
Our power plants are subject to the risk of mechanical or
electrical failures and any resulting unavailability may affect our
ability to fulfill our contractual and other commitments and thus
adversely affect our business and financial
performance
Our power
generation units are at risk of mechanical or electrical failure
and may experience periods of unavailability affecting our ability
to generate electric power. For example, certain of our
turbogenerators at the Puerto Complex, including generators 5, 6, 7
and 8, began operating in the 1960s and are, therefore, over 50
years old. Because of their age, these generators may face a higher
risk of mechanical or electrical failure. Our combined cycle plant
located in the Puerto Complex has suffered major failures in the
past, for example in the rotor of one of the gas turbines and in
the generator. Any unplanned unavailability of our generation
facilities may adversely affect our financial condition or results
of operations.
Risks arise for our business from technological change in the
energy market
The energy market
is subject to far-reaching technological change, both on the
generation side and on the demand side. For example, with respect
to energy generation, the development of energy storage devices
(battery storage in the megawatt range) or facilities for the
temporary storage of power through conversion to gas (so-called
“power-to-gas-technology”), the increase in energy
supply due to new technological applications such as fracking or
the digitalization of generation and distribution networks should
be mentioned.
New technologies to
increase energy efficiency and improve heat insulation, for the
direct generation of power at the consumer level, or that improve
refeeding (for example, by using power storage for renewable
generation) may, on the demand side, lead to structural market
changes in favor of energy sources with low or zero carbon dioxide
emissions or in favor of decentralized power generation, (for
instance, via small-scale power plants within or close to
residential areas or industrial facilities.)
If our business is
unable to react to changes caused by new technological developments
and the associated changes in market structure, our equity,
financial or other position, or our results, operation and
business, could be materially and adversely affected.
We may face competition
The power
generation markets in which we operate are characterized by
numerous strong and capable participants, many of which may have
extensive and diversified developmental or operating experience
(including both domestic and international) and financial resources
similar to or significantly greater than ours. See “Item 4.B.
Business Overview—Competition.” An increase in
competition could cause reductions in prices and increase
acquisition prices for fuel, raw materials and existing assets and,
therefore, adversely affect our results of operations and financial
condition.
25
We compete with
other generation companies for the megawatt of capacity that are
allocated through public auction processes. On October 7, 2016, the
Ministry of Energy finalized the auction process for the
installation of new renewable energy units and granted awards in
the amount of 1,108.65 MW, including one biomass project, 12 wind
energy projects and four solar energy projects. Of these, we were
awarded one wind energy project for 99 MW of generating capacity at
the price of US$61.50 per MWh. On October 31, 2016, the Ministry of
Energy and Mining, pursuant to Resolution No. 252/16, launched
Round 1.5 of the RenovAR Program as a continuation of Round 1 and
on November 25, 2016, granted awards in the amount of 1281.5 MW,
including 10 wind energy projects and 20 solar energy projects. Of
these, we were awarded one wind energy project for 48 MW of
generating capacity at the price of US$59.38 per MWh. Following
Rounds 1 and 1.5 of the RenovAR Program, the Ministry of Energy and
Mining pursuant to Resolution No. 275/17, which launched Round 2 of
the program on August 17, 2017, granted awards in the amount of
2,043 MW of renewable power capacity. We submitted bids for Round 2
of the RenovAR Program on October 19, 2017 and, on November 29,2017, we were awarded a wind energy project called, “La
Genoveva I,” which will allow us to add an additional
capacity of 86.6 MW to our portfolio and to continue to build a
presence in the renewable energies sector.
The Secretariat of
Electric Energy, pursuant to Resolution SEE No. 287-E/17, called
for proposals for supply of electric power to be generated through
existing units, the conversion of open combined cycle units into
closed combined cycle units or the installation of co-generation
units. We submitted bids on August 9, 2017, and, on September 25,2017, we were awarded the two co-generation projects. Our Terminal
6 San Lorenzo and Luján de Cuyo projects have the following
two sources of income: (i) electric power and electric energy sales
to CAMMESA through PPAs with a 15-year term which are priced in
U.S. dollars and (ii) steam sales pursuant to separate steam supply
agreements with T6 Industrial S.A. and YPF, respectively, which are
priced in U.S. dollars.
In addition, we
have acquired four heavy-duty, highly efficient gas turbines and
130 hectares of land in the north of the Province of Buenos Aires.
We expect that these assets will potentially allow us to develop
new power capacity. For example, we are currently installing one of
the Siemens gas turbines, with a capacity of 286 MW, for the
Terminal 6 San Lorenzo co-generation project described above. Our
objective is to develop new generating capacity, through one or
more projects, using the remaining three units and the
aforementioned land, to install new generation capacity, through
one or more potential future projects. This could add 969 MW to our
installed capacity through one or more projects under a simple
cycle configuration. Because of the competition among generation
companies in these auction processes, we cannot predict whether we
will be awarded the projects and whether we will be able to utilize
these assets as intended.
We and our
competitors are connected to the same electrical grid that has
limited capacity for transportation, which, under certain
circumstances, may reach its capacity limits. Therefore, new
generators may connect, or existing generators may increase, their
outputs and dispatch more electric power to the same grid that
would prevent us from delivering our energy to our customers. In
addition, the Argentine Government (or any other entity on its
behalf) might not make the necessary investments to increase the
system’s capacity, which, in case there is an increase of
energy output, would allow us and existing and new generators to
efficiently dispatch our energy to the grid and to our customers.
As a result, an increase in competition could affect our ability to
deliver our product to our customers, which would adversely affect
our business, results of operations and financial
condition.
Our business is subject to risks arising from natural disasters,
catastrophic accidents and terrorist attacks
Our generation
facilities, or the third-party fuel transportation or electric
power transmission infrastructure that we rely on, may be damaged
by flooding, fires, earthquakes and other catastrophic disasters
arising from natural or accidental or intentional human causes. We
could experience severe business disruptions, significant decreases
in revenues based on lower demand arising from catastrophic events,
or significant additional costs to us not otherwise covered by
business interruption insurance clauses. There may be an important
time lag between a major accident, catastrophic event or terrorist
attack and our definitive recovery from our insurance policies,
which typically carry non-recoverable deductible amounts, and in
any event are subject to caps per event. In addition, any of these
events could cause adverse effects on the energy demand of some of
our customers and of consumers generally in the affected market.
Some of these considerations, could have a material adverse effect
on our business, financial condition and our result of
operations.
We may be subject to expropriation or similar risks
All or
substantially all of our assets are located in Argentina. We are
engaged in the business of power generation and, as such, our
business or our assets may be considered by the government to be a
public service or essential for the provision of a public service.
Therefore, our business is subject to political uncertainties,
including expropriation or nationalization of our business or
assets, loss of concessions, renegotiation or annulment of existing
contracts, and other similar risks.
In such an event,
we may be entitled to receive compensation for the transfer of our
assets. However, the price received may not be sufficient, and we
may need to take legal actions to claim appropriate compensation.
Our business, financial condition and results of our operations
could be adversely affected by the occurrence of any these
events.
26
Changes in regulatory frameworks under which we sell our
electricity may affect our financial condition and results of
operations
We currently sell
our capacity availability and electricity under various regulatory
frameworks, including the Energía Base and Energía Plus.
See “Item 4.B. Business Overview—Our Customers”
and “Item 4.B. Business Overview—The Argentine Electric
Power Sector.”
On December 16,2016, the Argentine Government declared a state of emergency with
respect to the national electrical system until December 31, 2017.
We cannot assure you what further changes the Argentine Government
may make to the Energía Base or the other regulatory
frameworks under which we sell power availability or electricity,
including whether these changes future changes will not negatively
impact our results of operations. Moreover, we cannot assure you
under what regulatory framework we will be able to sell our
generation capacity and electricity in the future.
On March 1, 2019,
by means of Resolution SRRyME No. 1/19, the Argentine Government
reduced prices for power capacity and energy under Energía
Base, which had been previously increased by Resolution SEE No.
19/17. Furthermore, on February 27, 2020, the Secretary of
Energy of the National Ministry of Production Development issued
Resolution 31/20, which abrogated Resolution No. 1/19, reducing the
remuneration scheme applicable from February 1, 2020 for Authorized
Generators in the Wholesale Electricity Market, establishing
Energía Base prices in Argentine pesos. We cannot assure you
that further reductions of these tariffs will not occur in the
future. See “Item 4.B. Business Overview—The Argentine
Electric Power Sector—Remuneration Scheme—The Current
Remuneration Scheme.”
As a result of the
enactment of the Solidarity Law and from February 1, 2020, the
establishment of a new remuneration scheme for Authorized
Generators in the Wholesale Electricity Market, setting
Energía Base prices in Argentine pesos (see “Item 4.B.
Business Overview—The Argentine Electric Power
Sector—Remuneration Scheme—The Current Remuneration
Scheme.”), we cannot assure you that changes in the current
applicable laws and regulations, or adverse judicial or
administrative interpretations of such laws and regulations, will
not adversely affect our results of operations. In addition, some
of the measures proposed by the new government may also generate
political and social opposition, which may in turn prevent the new
government from adopting such measures as proposed.
Risks Relating to Our Business
Our results depend largely on the compensation established by the
Secretariat of Electric Energy and received from
CAMMESA
Since the enactment
of Resolution SE No. 95/13, issued by the former Secretariat of
Electric Energy, as amended, our compensation has depended largely
on the compensation determined by energy output and availability.
This resolution was replaced in February 2017 by Resolution SEE No.
19/17, issued by Secretariat of Electric Energy, which in turn was
replaced by Resolution No. 1/19 of the Secretary of Renewable
Resources and Electric Markey of the National Ministry of Economy
(the “Resolution SRRyME No. 1/19”). Furthermore, on
February 27, 2020, the Secretary of Energy of the National Ministry
of Production Development issued Resolution 31/20, which abrogated
Resolution No. 1/19, reducing the remuneration scheme applicable
from February 1, 2020 for Authorized Generators in the Wholesale
Electricity Market, establishing Energía Base prices in
Argentine pesos. We cannot assure you that further reductions of
these tariffs will not occur in the future. See “Item 4.B.
Business Overview—The Argentine Electric Power
Sector—Remuneration Scheme—The Current Remuneration
Scheme.”
Except for sales
under contracts, revenues from energy production are calculated and
paid by CAMMESA pursuant to a fixed and variable prices system
arising from the Resolution 31/20, and set in Argentine pesos. See
“Item 5.A. Operating Results—Factors Affecting Our
Results of Operations—Our Revenues—The Energía
Base” and “Item 3.D. Risk Factors—Risks Relating
to the Electric Power Sector in Argentina—We have, in the
recent past, been unable to collect payments, or to collect them in
a timely manner, from CAMMESA and other customers in the electric
power sector.” The tariffs under the Energía Base had
been increased in February, May and November 2017 pursuant to
Resolution SEE No. 19/17. However, on March 1, 2019, pursuant to
Resolution SRRyME No. 1/19 the prices for power capacity and energy
under Energía Base were decreased. Further, on February 27,2020, the Secretary of Energy of the National Ministry of
Production Development issued Resolution 31/20, which abrogated
Resolution No. 1/19, reducing the remuneration scheme applicable
from February 1, 2020, for Authorized Generators in the Wholesale
Electricity Market, establishing Energía Base prices in
Argentine pesos. See “Item 4.B. Business Overview—The
Argentine Electric Power Sector—Remuneration Scheme—The
Current Remuneration Scheme.”
As a result of this
system, our revenues are highly dependent on actions taken by
regulatory authorities. The lack of regulated tariffs increases by
the Argentine Government and/or delays to implement such increases
in a timely manner could have a material adverse effect on our
revenues and, as a result, our results of operations.
27
Factors beyond our control may affect or delay the completion of
the awarded projects, or alter our plans for the expansion of our
existing plants
With regards to our
projects currently under construction, following Rounds 1 and 1.5
of the RenovAR Program, the former Ministry of Energy and Mining
pursuant to Resolution No. 275/17, launched Round 2 of the program
on August 17, 2017 and granted awards in the amount of 2,043 MW of
renewable power capacity. We submitted bids for Round 2 of the
RenovAR Program on October 19, 2017 and, on November 29, 2017, we
were awarded a wind energy project called, “La Genoveva
I,” which will allow us to add an additional capacity of
88.20 MW to our portfolio and to continue to build a presence in
the renewable energies sector. The original commitment for the COD
for this plant was scheduled for May 2020. However, due to the
effect of the COVID-19 crisis, we expect delays in the construction
of this plant. For more information see “Item 3.D Risk
Factors—Risk Relating to Our Business—The novel
coronavirus could have an adverse effect on our business operations
and financial conditions”.
Furthermore, the
Secretariat of Electric Energy, pursuant to Resolution SEE No.
287-E/17, called for proposals for supply of electric power to be
generated through existing units, the conversion of open combined
cycle units into closed combined cycle units or the installation of
co-generation units. We submitted bids on August 9, 2017, and, on
September 25, 2017, we were awarded the two co-generation projects.
The Terminal 6 San Lorenzo and Luján de Cuyo projects have the
following two sources of income: (i) electric power sales to
CAMMESA through PPAs with a 15-year term which are priced in U.S.
dollars; and (ii) steam sales pursuant to separate steam supply
agreements with T6 Industrial S.A. and YPF, respectively, which are
also priced in U.S. dollars.
The COD of the
Terminal 6 San Lorenzo project was originally scheduled for May 22,2020. On September 2, 2019, pursuant to Resolution SRRYME 25/2019,
the generation companies that had projects under construction under
Resolution SEE No. 287-E/17 were invited to confirm their expected
COD, which will become the New Committed COD (in Spanish,
Nueva Fecha de Habilitación
Comercial Comprometida or NFHCC). If a generator decided to
inform a New Committed COD, it would not have been subject to
penalties under the PPA contracts entered into with CAMMESA, unless
the actual COD exceeded the New Committed COD.
However, due to the
outbreak of COVID-19, the COD of this plant may be further delayed.
Accordingly, we sent a notice to CAMMESA informing about this
situation to avoid potential penalties. For more information see
“Item 3.D Risk Factors—Risk Relating to Our
Business—The novel coronavirus could have an adverse effect
on our business operations and financial
conditions”.
With regards to
projects currently under development or new potential projects,
several factors may affect, delay or cancel the completion of such
projects currently under development or new projects: a) the
effects of the outbreak of COVID-19, b) the economic recession in
Argentina, c) the decrease in demand of electric energy, d) the
lack of available financing, and e) the reduction in the prices of
electric energy for power units under Energía Base beginning
in February 2020 (Res. 31/20, among others.
Regarding our
projects currently under development, in June 2019, Central Puerto
was awarded the acquisition of the Brigadier Lopez Power plant from
IAESA (formerly ENARSA), pursuant to the National and International
Public Tender No. CTBL 1/2018. The Company purchased the Brigadier
López Power Plant and assumed certain assets and liabilities
relating to such plant. In 2010, ENARSA began the construction of
the plant and in 2012 reached the Commercial Operation Date (COD)
of the open cycle Gas Turbine with a capacity of 280.50 MW,
completing the first stage of the project. In accordance to the
Public Tender No. CTBL 1/2018, Central Puerto acquired the plant
with the objective of installing the existing steam turbine, which
will add a capacity of 140 MW in a combined cycle configuration,
reaching a total capacity of 420 MW. Such expansion does not have a
committed date to be completed. As of the date of this annual
report, due to the factors mentioned above, the plant’s
expansion has not begun. The capital expenditures associated to
this expansion are estimated at US$120 million and the construction
is estimated to take between 18 and 22 months.
Furthermore, in
August 2018, Central Puerto purchased the solar project El Puesto,
located in the Province of Catamarca. This solar energy project is
authorized to sell up to 12 MW of power to private purchasers under
MATER. The original committed COD for this project is August 2020.
According to the provisions of Resolution No. 281-E/17, which
regulates the MATER projects, Central Puerto has provided CAMMESA
with a first demand guarantee of US$250,000 per MW. The committed
COD may be extended for a period of up to one hundred eighty (180)
days by CAMMESA, if the following conditions are met:
28
a) the extension is
requested at least thirty (30) days before the expiration of the
original term and it is proven that one hundred and eighty (180)
days before said expiration the project reached at least a progress
in the construction of sixty percent (60%), or
b) regardless of
the progress achieved in the construction, the extension is
requested before the expiration of the term and, together with the
request, the amount of pesos equivalent to one thousand five
hundred US dollars per megawatt for every thirty (30) days of
requested extension is paid to CAMMESA. The request and payment may
be made every thirty (30) days and for each thirty (30) days
extension requested, for a maximum of one hundred eighty (180) days
of extension;
c) in the cases
contemplated in a) and b) above, with the first request for an
extension, the first demand guarantee is increased by US$62,500 per
megawatt.
Before the
expiration of the extension of up to one hundred and eighty (180)
days previously provided, the project holders may request CAMMESA
for an additional extension, for a maximum period of three hundred
sixty (360) days, regardless of the progress in the construction
achieved. Along with the request, they must pay CAMMESA the amount
of pesos equivalent to four thousand five hundred United States
dollars (USD 4,500) per megawatt for each thirty (30) days of
extension requested. The request and payment may be made every
thirty (30) days and for the period of extension requested, for a
maximum of three hundred sixty (360) days of
extension.
If Central Puerto
fails to timely achieve the committed COD, including the extensions
that Central Puerto may have requested, the Company may be subject
to penalties. However, as of the date of this annual report, due to
the factors mentioned above, the construction has not begun. In
this regard, the Association of Electric Energy Generators of the
Republic of Argentina (Asociación de Generdores de Energía
Eléctrica de la República Argentina, AGEERA), and
the chamber that groups all the electric power generators of the
country, and Wind Chamber of Argentina (Cámara Eólica Argentina), a
chamber that groups wind power generators, from which, in both
cases, Central Puerto is part of, have formally informed CAMMESA of
the consequences that the Quarantine and the rest of the measures
to contain the COVID-19 pandemic crisis, have and may potentially
have on the projects under construction and requested that such
circumstances should be taken into account in terms of the schedule
of each projects, in order to avoid penalties due to the
extraordinary circumstances. We cannot assure that the such
penalties could be effectively avoided. The estimated capital
expenditures for this project are estimated to be US$12 million and
the construction is estimated to take between 10 and 14
months.
Finally, regarding
our potential new projects we have acquired three heavy-duty,
highly efficient gas turbines and 130 hectares of land in the north
of the Province of Buenos Aires for the development of new capacity
projects. Due to the circumstances mentioned above, we cannot
predict whether we will be able to utilize these assets as
intended.
Delays in
construction or commencement of operations of expanded capacity in
our existing power plants or our new power plants could lead to an
increase in our financial needs and also cause our financial
returns on new investments to be lower than expected, which could
materially adversely affect our financial condition and results of
operations. Furthermore, delays in the commencement of operations
of these acquired three gas turbines has negatively affected its
estimated recoverability. See “Item 5.A. Operating
Results—Critical Accounting Policies—Impairment of
Property, Plant and Equipment”.
Factors that may
impact our ability to commence operations at our existing power
plants, expand their power capacity or build new power plants
include: (i) the failure of contractors to complete or commission
the facilities or auxiliary facilities by the agreed-upon date or
within budget; (ii) the unexpected delays of third parties such as
gas or electric power distributors in providing or agreeing to
project milestones in the construction or development of necessary
infrastructure linked to our generation business; (iii) the delays
or failure by our turbine suppliers in providing fully operational
turbines in a timely manner; (iv) difficulty or delays in obtaining
the necessary financing in terms satisfactory to us or at all; (v)
delays in obtaining regulatory approvals, including environmental
permits; (vi) court rulings against governmental approvals already
granted, such as environmental permits; (vii) shortages or
increases in the price of equipment reflected through change
orders, materials or labor; (viii) opposition by local and/or
international political, environmental and ethnic groups; (ix)
strikes; (x) adverse changes in the political and regulatory
environment in Argentina; (xi) unforeseen engineering,
environmental and geological problems; (xii) adverse weather
conditions, natural disasters, accidents or other unforeseen
events, and (xiii) the Covid-19 pandemic crisis (See “Item
3.D. Risk Factors—Risks Relating to Argentina”, in
particular “—the Novel Coronavirus could have an
adverse effect on our business operations and financial
conditions”, which describes the potential impact of COVID-19
over certain of our projects.”). Any cost overruns could be
material. In addition, any of these other factors may cause delays
in the completion of expanded capacity at our existing power plants
or the construction of our new power plant, which could have a
material adverse effect on our business, financial condition and
results of operations. These delays may also result in short-term
sanctions by CAMMESA and, in extreme cases, sanctions for the
duration of the contract.
29
Our business may require substantial capital expenditures for
ongoing maintenance requirements and the expansion of our installed
generation capacity
Incremental capital
expenditures may be required to fund ongoing maintenance necessary
to maintain our power generation and operating performance and
improve the capabilities of our electric power generation
facilities. Furthermore, capital expenditures will be required to
finance the cost of our current and future expansion of our
generation capacity. If we are unable to finance any such capital
expenditures in terms satisfactory to us or at all, our business
and the results of our operations and financial condition could be
adversely affected. Our financing ability may be limited by market
restrictions on financing availability for Argentine companies. See
“—Risk Relating to Argentina— Argentina’s
ability to obtain financing from international markets is limited,
which could affect its capacity to implement reforms and sustain
economic growth, and may negatively impact our financial condition
or cash flows” and “Item 4.B. Business
Overview.”
The non-renewal or early termination of the HPDA Concession
Agreement would adversely affect our results of
operations
The HPDA Concession
Agreement executed between us and the Argentine Government,
pursuant to which we are permitted to operate our Piedra del
Águila plant, expires on December 29, 2023 and does not
provide for an automatic renewal. This plant has a total installed
capacity of 1,440 MW, and it represented approximately 26.40% of
our total electric energy generation, and 12.34% of our total
revenues in 2019 (or 17.72% excluding income related to the
self-supplied fuel under Res. 70/18). We currently intend to renew
the HPDA Concession Agreement prior to its expiration. If the HPDA
Concession Agreement expires without renewal, we will be required
to revert the assets to the Argentine Government. The HPDA
Concession Agreement also contains various requirements related to
the operation of the hydroelectric plant and compliance with laws
and regulations. The non-performance of the HPDA Concession
Agreement could give rise to certain penalties and even the
termination of the concession. If the concession were terminated,
it would be granted to a new company organized by the Argentine
Government and a tender offer would be carried out for selling the
new company’s shares of stock. The proceeds to be received by
us in such tender offer would be calculated based on a formula in
which the proceeds of the tender decrease as the expiration of the
concession term comes closer. Any non-renewal or early termination
of the HPDA Concession Agreement would materially and adversely
affect our financial condition and results of
operation.
Our interests in TJSM, TMB and CVOSA will be significantly
diluted
As of December 31,2019, we had a 30.8752% interest in TJSM and a 30.9464 % interest in
TMB, both companies that are engaged in managing the purchase of
equipment, building, operating and maintaining power plants
constructed under the FONINVEMEM program. We have the right to name
two out of nine directors on the board of directors of each
company. As of the date of this annual report, we also own 56.19%
of CVOSA, the company that operates the thermal power plant in
Timbúes.
After ten years of
operations, each company is entitled to receive property rights to
such power plants from the respective trusts currently holding such
power plants. At such time, the term of the trusts expires and the
Argentine Government, that financed part of the construction,
should be incorporated as a shareholder of TJSM and TMB.
Consequently, our interests in TJSM and TMB will be significantly
diluted In the case of TMB and TJSM, the ten-year period expired on
January 7, 2020 and on February 2, 2020, respectively. From such
dates, during the following 90-days, TJSM and TMB and their
shareholders have to perform all the necessary acts to allow the
Argentine Government to receive the corresponding shares in the
equity stake of TJSM and TMB that their contributions entitle the
Argentine Government to receive. The restrictions imposed by the
Argentine Government since March 20, 2020 to address the outbreak
of COVID-19 made the performance of such acts impossible within the
90-day period. Accordingly, TJSM and TMB invoked said circumstances
as a force majeure event and postponed such acts to May
2020.
On January 3, 2020,
the Argentine Government sent a notice to the Company stating that,
in accordance with FONINVEMEM Agreement, TJSM and TMB should
perform all necessary acts to incorporate the Argentine Government
as shareholder of both companies, claiming, in each case, the
following equity interest rights: 65.006% in TMB and 68.826% in
TJSM.
On January 9, 2020,
Central Puerto, together with the other generation companies,
shareholders of TJSM and TMB, replied such notice stating that the
Argentine Government’s equity interest claims does not
correspond with the contributions made for the construction of the
power plants under the terms of the FONINVEMEM Agreement that give
rights to claim such equity interest. On March 4, 2020, the
Argentine Government reiterated its previous claim to the Company.
As of the date of this annual report, Central Puerto is evaluating
future steps, and as a consequence, we cannot estimate the exact
potential dilution of our interests in TJSM and TMB.
30
In the case of
CVOSA, the Argentine Government’s stake will be at least 70%
pursuant to FONINVEMEM arrangements for CVOSA. Any dilution of our
interest in TJSM, TMB or CVOSA could reduce our income, from these
power plants, which could adversely affect our results of
operations. See “Item 4.B. Business Overview—FONINVEMEM
and Similar Programs.”
Future changes in the rainfall amounts in the Limay River basin
could adversely affect the revenues from the Piedra del Águila
concession and, therefore, our financial results
As a hydroelectric
facility, Piedra del Águila depends on the availability of
water resources in the Limay River basin for electric power
generating purposes, which in turn depends on the rainfall amounts
in the area. In 1996, 2007 and 2012, and in particular in 1998,
1999 and 2016, the area experienced record-low rainfall levels.
Lack of water resulted in lower electric power generation and,
therefore, lower revenue. However, rainfall levels, and therefore
electric generation, were significantly higher than average during
1995, 2001, 2002, 2005 and 2006. For more information about Piedra
del Águila’s seasonality, see “Item 4.B. Business
Overview—Seasonality.”
In the event of
critically low water levels, the Intergovernmental Basin Authority,
which is in charge of managing the basin of the Limay, Neuquén
and Negro rivers, is entitled to manage the water flows according
to its flow control standards, which could result in lower water
resources for us, which in turn, would result in decreased
generation activities. Further, under the HPDA Concession
Agreement, we are not entitled to receive any compensation for
revenue losses as a result of such actions.
The Limay River
basin’s flow may not be sufficient to maintain a regular
generation level at Piedra del Águila and the enforcement
authority may implement unfavorable measures for Piedra del
Águila, and therefore, for us, which could adversely affect
our financial condition and our results of operations.
Our ability to operate wind farms profitably is highly dependent on
suitable wind and associated weather conditions
The amount of
energy generated by, and the profitability of, wind farms are
highly dependent on climate conditions, particularly wind
conditions, which can vary materially across locations, seasons and
years. Variations in wind conditions at wind farm sites occur as a
result of daily, monthly and seasonal fluctuations in wind currents
and, over the longer term, as a result of more general climate
changes and shifts. Because turbines will only operate when wind
speeds fall within certain specific ranges that vary by turbine
type and manufacturer, if wind speeds fall outside or towards the
lower end of these ranges, energy output at our wind farms would
decline.
If in the future
the wind resource in the areas where our wind farms are located is
lower than expected, electricity production at such wind farms
would be lower than expected and consequently could materially
adversely affect our results of operations.
Our insurance policies may not fully cover damage, and we may not
be able to obtain insurance against certain risks
We maintain
insurance policies intended to mitigate our losses due to customary
risks. These policies cover our assets against loss for physical
damage, loss of revenue and also third-party liability. However, we
may not have sufficient insurance to cover any particular risk or
loss. If an accident or other event occurs that is not covered by
our current insurance policies, such as cybersecurity risk, we may
experience material losses or have to disburse significant amounts
from our own funds, all of which could have a material adverse
effect on our operations and financial position. In addition, an
insufficiency in our insurance policies could have an adverse
effect on us. In such case, our financial condition and our results
of operations could be adversely affected. See “Item 4.B.
Business Overview—Insurance.”
Our generation operations require us to handle hazardous elements
such as fuels, which could potentially result in damage to our
facilities or injuries to our personnel
Although we comply
with all applicable environmental safety laws and best practices,
any accident involving the fuels with which we operate could have
adverse environmental consequences and could damage our industrial
facilities or our personnel.
Any structural
damage to the dam or any other structure located in any of our
hydroelectric plants could compromise its electric power generating
capacity. Any generation constraints resulting from structural
damage could have a material adverse effect on our financial
condition and results of operations.
31
We may be exposed to lawsuits and or administrative proceedings
that could adversely affect our financial condition and results of
operations
In the ordinary
course of our business we enter into agreements with CAMMESA and
other parties. Litigation and/or regulatory proceedings are
inherently unpredictable, and excessive verdicts do occur. Adverse
outcomes in lawsuits and investigations could result in significant
monetary damages, including indemnification payments, or injunctive
relief that could adversely affect our ability to conduct our
business and may have a material adverse effect on our financial
condition and results of operations.
Energy demand is seasonal, largely due to climate
conditions
Energy demand
fluctuates according to the season and climate conditions may
materially and adversely impact energy demand. During the summer
(December through March), energy demand may increase significantly
due to the need for air conditioning and, during winter (June
through August), energy demand may fluctuate according to the needs
for lighting and heating. As a result, seasonal changes could
materially and adversely affect the demand for energy and,
consequently, affect our results of operations and financial
condition (in particular sales derived from the Energía Plus
regulatory framework, which is dependent on demand rather than on
capacity committed under contract).
We may undertake acquisitions and investments to expand or
complement our operations that could result in operating
difficulties or otherwise adversely affect our financial conditions
and results of operations
In order to expand
our business, from time to time, we may carry out acquisitions and
investments which offer added value and are consistent with or
complementary to our business strategy.
For example, in
2015, we acquired: (i) a direct and indirect interest of 24.99% in
DGCU’s stock capital; and (ii) a direct and indirect interest
of 44.10% of DGCE’s stock capital, both of which operate in a
highly regulated industry. Following the Merger between IGCE, IGCU,
RPBC and MAGNA (See Item 4.A - Merger between IGCE, IGCU, RPBC and
MAGNA), as of the date of this annual report, we hold a 42.31%
interest in IGCE, the controlling company of DGCU and DGCE. IGCE
holds a 51.00% interest in DGCU, and therefore, we indirectly hold
a 21.5781% equity interest in DGCU. As of the date of this annual
report, we hold a 42.31% interest in IGCE and a direct 17.20%
interest in DGCE. Therefore, we hold, directly and indirectly, a
40.593199% interest in DGCE.
The results of
these companies’ operations are influenced by the applicable
regulatory framework and the interpretation and enforcement of such
regulatory framework by ENARGAS, the governmental authority created
to regulate privatized natural gas transmission and distribution
companies. Their licenses are subject to revocation under certain
circumstances. If any of these events were to occur, it could have
a material adverse effect on them and, as a result, on us. In
connection with potential acquisition and investment transactions,
we may be exposed to various risks, including those arising from:
(i) not having accurately assessed the value, future growth
potential, strengths, weaknesses and potential profitability of
potential acquisition targets; (ii) difficulties in successfully
integrating, operating, maintaining or managing newly-acquired
operations, including personnel; (iii) unexpected costs of such
transactions; (iv) difficulties in obtaining the necessary
financing and successfully reaching any required financial closing;
or (v) unexpected contingent or other liabilities or claims that
may arise from such transactions. If any of these risks were to
materialize, it could adversely affect our financial condition and
results of operations.
If we were to acquire another energy company in the future, such
acquisition could be subject to the Argentine Antitrust
Authority’s approval
The Antitrust Law
provides that any transactions involving the acquisition, transfer
or control of another company’s assets will be subject to the
Comisión Nacional de Defensa
de la Competencia (CNDC) (“Argentine Antitrust
Authority”) prior consent and approval in the event that (i)
the total revenues of the companies involved for the last fiscal
year exceeds the sum of Ps.200 million in Argentina; and (ii) the
transaction amount or the value of the transferred assets located
in Argentina exceeds Ps.20 million.
The Argentine
Antitrust Authority will determine whether any acquisition subject
to its prior approval negatively impacts competitive conditions in
the markets in which we compete or adversely affects consumers in
these markets. Although we are not contemplating any business
combination as of the date of this annual report, if the Argentine
Antitrust Authority were to reject any business combination or if
such authority were to take any action to impose conditions or
performance commitments on us as part of the approval process for
any business combination, it could adversely affect our financial
condition and results of operations and prevent us from achieving
the anticipated benefits of such acquisition.
32
We depend on senior management and other key personnel for our
current and future performance
Our current and
future performance depends to a significant degree on our qualified
senior management team, and on our ability to attract and retain
qualified management. Our future operations could be harmed if any
of our senior executives or other key personnel ceased working for
us. Competition for senior management personnel is intense, and we
may not be able to retain our personnel or attract additional
qualified personnel. The loss of a member of senior management may
require the remaining executive officers to divert immediate and
substantial attention to fulfilling his or her duties and of
seeking a replacement. Any inability to fill vacancies in our
senior executive positions on a timely basis could harm our ability
to implement our business strategy, which would harm our business
and results of operations.
We could be affected by material actions taken by the trade
unions
Although we have
stable relationships with our work force, in the past we
experienced organized work stoppages and strikes, and we may face
such work stoppages or strikes in the future. Labor claims are
common in the Argentina energy sector, and in the past, unionized
employees have blocked access and caused damages to the facilities
of various companies in the industry. Moreover, we have no
insurance coverage for business interruptions caused by
workers’ actions, which could have an adverse effect on our
results of operations.
Moreover, the
Argentine government has enacted laws and regulations requiring
private sector companies to maintain certain salary levels and
provide their employees with additional benefits. On December 13,2019, the Fernández Administration declared a labor emergency
for a 180-day term. In this context, during the labor emergency
period, payments for severances without cause double the amounts
contemplated in the labor code for such severance in normal
circumstances.
We are subject to anticorruption, anti-bribery, anti-money
laundering and other laws and regulations
We are subject to
anti-corruption, anti-bribery, anti-money laundering and other laws
and regulations. We may be subject to investigations and
proceedings by authorities for alleged infringements of these laws.
Although we perform compliance processes and maintain internal
control systems, these proceedings may result in fines or other
liabilities and could have a material adverse effect on our
reputation, business, financial conditions and result of
operations. If any such subsidiaries, employees or other persons
engage in fraudulent, corrupt or other unfair business practices or
otherwise violate applicable laws, regulations or internal
controls, we could become subject to one or more enforcement
actions or otherwise be found to be in violation of such laws,
which may result in penalties, fines and sanctions and in turn
adversely affect our reputation, business, financial condition and
result of operations.
Our ability to generate electricity at our thermal generation
plants partially depends on the availability of natural gas and, to
a lesser extent, liquid fuel
The supply and
price of natural gas and liquid fuel used in our thermal generation
plants has been in the past, and may in the future be, affected by,
among other things, the availability of natural gas and liquid fuel
in Argentina, given the current shortage of natural gas supply,
especially during the winter, and declining reserves in Argentina.
In particular, many oil and gas fields in Argentina are mature and
due to the current economic scenario have not been subject to
significant investment into development and exploration activities
and, therefore, reserves are likely to be depleted.
Pursuant to
Resolution No. 95/2013, as amended, CAMMESA is in charge of
managing and supplying all fuels required to run our thermal
plants. If in the future we were to become required to purchase our
own natural gas or liquid fuel from third parties, we cannot assure
you that we will be able to purchase natural gas or liquid fuel at
prices that are fully reimbursable by CAMMESA and, even if CAMMESA
accepted to reimburse us for such amounts, it may be uncertain when
such reimbursements would occur. In addition, natural gas delivery
depends on the infrastructure (including barge facilities, roadways
and natural gas pipelines) available to serve each generation
facility. As a result, our thermal plants are subject to the risks
of disruptions or curtailments in the fuel delivery chain and
infrastructure. Any such disruption or curtailment may result in
the unavailability, or higher prices, of natural gas or liquid
fuel. Moreover, if in the future we are required to purchase our
own natural gas or liquid fuel from third parties at prices that
are not fully reimbursable by CAMMESA, such situation may have a
material adverse effect on our financial condition and results of
operations. Resolution No. 70/2018 enabled generators to purchase
fuel in the open market. However, since the enactment of Resolution
No. 12/2019, the effectiveness of Section 8 of Resolution No.
95/2013 and Section 4 of Resolution No. 529/2014 was reinstated,
centralizing fuel purchases through CAMMESA.
33
We may be adversely affected by changes in LIBOR reporting
practices or the method in which LIBOR is determined
As of December 31,2019, we had trade receivables under the CVO Agreement for
US$459.68 million (including VAT), plus accrued interests after the
CVO Commercial Approval which were indexed to the London Interbank
Offered Rate (“LIBOR”). Furthermore, as of December 31,2019, we had the following outstanding loans with maturity dates
after 2021 indexed to LIBOR:
●
Loan with
Kreditanstalt für Wiederaufbau (“KfW”) for
US$45.52 million;
●
CP Achiras and CP
La Castellana Loans from the IIC—IFC Facilities for US$139.82
million;
●
Vientos La Genoveva
S.A.U. Loan from the IFC for US$74.33 million;
●
Loan from Banco de
Galicia y Buenos Aires S.A. to CPR Energy Solutions S.A.U. (wind
farm La Castellana II) for US$12.40 million;
●
Loan from Banco
Galicia y Buenos Aires S.A. to our subsidiary Vientos La Genoveva
II S.A.U. for US$37.45 million; and
●
the Brigadier
López Financial Trust Agreement (as defined below) for
US$128.80 million.
In an announcement
on 27 July 2017, the U.K. Financial Conduct Authority (FCA), which
is the competent authority for the regulation of benchmarks in the
UK, advocated a transition away from reliance on LIBOR to
alternative reference rates and stated that it would no longer
persuade or compel banks to submit rates for the calculation of the
LIBOR rates after 2021 (the “FCA Announcement”). The
FCA Announcement formed part of ongoing global efforts to reform
LIBOR and other major interest rate benchmarks. At this time, the
nature and overall timeframe of the transition away from LIBOR is
uncertain and no consensus exists as to what rate or rates may
become accepted alternatives to LIBOR. On 25 March 2020, the FCA
stated that although the central assumption that firms cannot rely
on LIBOR being published after the end of 2021 has not changed,
there has been impact on the timing of some of the transition
milestones due to the recent COVID-19 outbreak.
It is not possible
to predict the further effect of the rules of the FCA, any changes
in the methods by which LIBOR is determined, or any other reforms
to LIBOR that may be enacted in the United Kingdom, the European
Union or elsewhere. Any such developments may cause LIBOR to
perform differently than in the past or cease to exist. It is also
not possible to predict whether the global COVID-19 crisis will
have further effects on the LIBOR transition plans. In addition,
any other legal or regulatory changes made by the FCA, ICE
Benchmark Administration Limited, the European Money Markets
Institute (formerly Euribor-EBF), the European Commission or any
other successor governance or oversight body, or future changes
adopted by such body, in the method by which LIBOR is determined or
the transition from LIBOR to a successor benchmark may result in,
among other things, a sudden or prolonged increase or decrease in
LIBOR, a delay in the publication of LIBOR, and changes in the
rules or methodologies in LIBOR, which may discourage market
participants from continuing to administer or to participate in
LIBOR’s determination, and, in certain situations, could
result in LIBOR no longer being determined and published. If a
published U.S. Dollar LIBOR rate is unavailable after 2021,
the interest rates on our debt which is indexed to LIBOR will be
determined using various alternative methods, any of which may
result in interest obligations which are more than or do not
otherwise correlate over time with the payments that would have
been made on such debt if U.S. Dollar LIBOR was available in
its current form. Further, the same costs and risks that may lead
to the discontinuation or unavailability of U.S. Dollar LIBOR
may make one or more of the alternative methods impossible or
impracticable to determine. In addition, we may be adversely
affected or we may need to renegotiate the terms of our credit
agreement to replace LIBOR with the new standard that is
established, if any, or to otherwise agree with the trustees or
agents under such facilities or instruments on a new means of
calculating interest. Any of these proposals or consequences could
have a material adverse effect on our financing costs or in the
valuation of the trade receivables under the CVO
Agreement.
34
Risks Relating to our Shares and ADSs
It may be difficult for you to obtain or enforce judgments against
us
We are incorporated
in Argentina. All of our directors and executive officers reside
outside the United States, and substantially all of our and their
assets are located outside the United States. As a result, it may
not be possible for you to effect service of process within the
United States upon these persons or to enforce judgments against
them or us in U.S. courts. We have been advised by our special
counsel, Bruchou, Fernández Madero & Lombardi, that there
is doubt as to the enforceability in original actions in Argentine
courts of liabilities predicated solely on U.S. federal securities
laws and as to the enforceability in Argentine courts of judgments
of U.S. courts obtained in actions predicated upon the civil
liability provisions of U.S. federal securities laws. The
enforcement of such judgments will be subject to compliance with
certain requirements under Argentine law, such as Articles 517
through 519 of the Argentine Code of Civil and Commercial
Procedure, including the condition that such judgments do not
violate the principles of public policy of Argentine Law, as
determined by an Argentine court. In addition, an Argentine court
will not order an attachment on property located in Argentina and
determined by such court to be essential for the provision of a
public service.
Restrictions on transfers of foreign exchange and the repatriation
of capital from Argentina may impair your ability to receive
dividends and distributions on, and the proceeds of any sale of,
shares underlying the ADSs
In 2001 and 2002
Argentina imposed exchange controls and transfer restrictions,
substantially limiting the ability of companies to retain foreign
currency or make payments abroad, including payments of dividends.
In addition, new regulations were issued in the last quarter of
2011, which significantly curtailed access to the MULC by
individuals and private sector entities. More recently, since
December 2015 the new Argentine administration has lifted many of
the foreign exchange restrictions imposed in 2011, including the
lifting of certain restrictions for the repatriation of portfolio
investment by non-resident investors. As a consequence, with
respect to the proceeds of any sale of common shares underlying the
ADSs, as of the date of this annual report, the conversion from
pesos into U.S. dollars and the remittance of such U.S. dollars
abroad is not subject to prior approval of the Argentine Central
Bank, provided that the foreign beneficiary is either a natural or
legal person residing in or incorporated and established in
jurisdictions, territories or associated states that are considered
“cooperators for the purposes of fiscal
transparency.”
After almost four
years of unrestricted capital flows, the Argentine Government
recently reimposed restrictions on the conversion of Argentine
currency into foreign currencies and on the remittance to foreign
investors of proceeds from their investments in Argentina.
Beginning in September 2019, the Argentine Government implemented
monetary and foreign exchange control measures that included
restrictions on the transfer of funds abroad, including dividends,
without prior approval by the Central Bank or fulfillment of
certain requirements. In such a case, the Depositary for the ADSs
may hold the Argentine pesos it cannot convert for the account of
the ADS holders. In addition, any future adoption by the Argentine
Government of restrictions to the movement of capital out of
Argentina may affect the ability of our foreign shareholders and
holders of ADSs to obtain the full value of their shares and ADSs,
and may adversely affect the market value of the ADSs.
We will be traded on more than one market and this may result in
price variations; in addition, investors may not be able to easily
move shares for trading between such markets
Our common shares
are listed on the BYMA and, since February 2, 2018, our ADSs are
listed on the NYSE. Any markets that may develop for our common
shares or for the ADSs may not have liquidity and the price at
which the common shares or the ADSs may be sold is
uncertain.
Trading in the ADSs
or our common shares on these markets takes place in different
currencies (U.S. dollars on the NYSE and pesos on the BYMA), and at
different times (resulting from different time zones, different
trading days and different public holidays in the United States and
Argentina). The trading prices of the securities on these two
markets may differ due to these and other factors. Any decrease in
the price of our common shares on the BYMA could cause a decrease
in the trading price of the ADSs on the NYSE. Investors could seek
to sell or buy our shares to take advantage of any price
differences between the markets through a practice referred to as
arbitrage. Any arbitrage activity could create unexpected
volatility in both our share prices on one exchange, and the ADSs
available for trading on the other exchange. In addition, holders
of ADSs will not be immediately able to surrender their ADSs and
withdraw the underlying common shares for trading on the other
market without effecting necessary procedures with the ADS
Depositary. This could result in time delays and additional cost
for holders of ADSs.
35
Under Argentine Corporate Law, shareholder rights may be fewer or
less well defined than in other jurisdictions
Our corporate
affairs are governed by our bylaws and by Argentine Law No. 19,550,
as amended (the “Argentine Corporate Law”), which
differ from the legal principles that would apply if we were
incorporated in a jurisdiction in the United States (such as
Delaware or New York), or in other jurisdictions outside Argentina.
Thus, the rights of holders of our ADSs or holders of our common
shares under the Argentine Corporate Law to protect their interests
relative to actions by our Board of Directors may be fewer and less
well defined than under the laws of those other jurisdictions.
Although insider trading and price manipulation are illegal under
Argentine law, the Argentine securities markets may not be as
highly regulated or supervised as the U.S. securities markets or
markets in some of the other jurisdictions. In addition, rules and
policies against self-dealing and regarding the preservation of
shareholder interests may be less well defined and enforced in
Argentina than in the United States, or other jurisdictions outside
Argentina, putting holders of our common shares and the ADSs at a
potential disadvantage.
Holders of our common shares and the ADSs located in the United
States may not be able to exercise preemptive or accretion
rights
Under the Argentine
Corporate Law, if we issue new shares as part of a capital
increase, our shareholders may have the right to subscribe to a
proportional number of shares to maintain their existing ownership
percentage. Rights to subscribe for shares in these circumstances
are known as preemptive rights. In addition, shareholders are
entitled to the right to subscribe for the unsubscribed shares
remaining at the end of a preemptive rights offering on a pro rata
basis, known as accretion rights. Upon the occurrence of any future
increase in our capital stock, United States holders of common
shares or ADSs will not be able to exercise the preemptive and
related accretion rights for such common shares or ADSs unless a
registration statement under the Securities Act is effective with
respect to such common shares or ADSs or an exemption from the
registration requirements of the Securities Act is available. We
are not obligated to file a registration statement with respect to
those common shares or ADSs. We may not file such a registration
statement, or an exemption from registration may not be available.
Unless those common shares or ADSs are registered or an exemption
from registration applies, a U.S. holder of our common shares or
ADSs may receive only the net proceeds from those preemptive rights
and accretion rights if those rights can be sold by the ADS
Depositary; if they cannot be sold, they will be allowed to lapse.
Furthermore, the equity interest of holders of common shares or
ADSs located in the United States may be diluted proportionately
upon future capital increases.
Voting rights, and other rights, with respect to the ADSs are
limited by the terms of the deposit agreement
Holders may
exercise voting rights with respect to the common shares underlying
ADSs only in accordance with the provisions of the deposit
agreement. There are no provisions under Argentine law or under our
bylaws that limit ADS holders’ ability to exercise their
voting rights through the ADS Depositary with respect to the
underlying common shares, except if the ADS Depositary is a foreign
entity and it is not registered with the IGJ. The ADS Depositary is
registered with the IGJ. However, there are practical limitations
upon the ability of ADS holders to exercise their voting rights due
to the additional procedural steps involved in communicating with
such holders. For example, Law No. 26,831 requires us to notify our
shareholders by publications in certain official and private
newspapers of at least 20 and no more than 45 days in advance of
any shareholders’ meeting. ADS holders will not receive any
notice of a shareholders’ meeting directly from us. In
accordance with the deposit agreement, we will provide the notice
to the ADS Depositary, which will in turn, if we so request, as
soon as practicable thereafter provide to each ADS
holder:
●
the notice of such
meeting;
●
voting instruction
forms; and
●
a statement as to
the manner in which instructions may be given by
holders.
To exercise their
voting rights, ADS holders must then provide instructions to the
ADS Depositary how to vote the shares underlying ADSs. Because of
the additional procedural step involving the ADS Depositary, the
process for exercising voting rights will take longer for ADS
holders than for holders of our common shares. Except as described
in this annual report, holders of the ADS will not be able to
exercise voting rights attaching to the ADSs.
Also, Section 7.6
of the deposit agreement provides that each of the parties to the
deposit agreement (including, without limitation, each holder and
beneficial owner) waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal
proceeding against us and/ or the ADS Depositary. This provision
may have the effect of limiting and discouraging lawsuits against
us and/ or the ADS Depositary. Moreover, you may not be able to
exercise your right to vote and you may have no legal remedy if the
shares underlying your ADSs are not voted as you
requested.
36
The relative volatility and illiquidity of the Argentine securities
markets may substantially limit our ADS holders’ ability to
sell common shares underlying the ADSs at the price and time they
desire
Investing in
securities that trade in developing countries, such as Argentina,
often involves greater risk than investing in securities of issuers
in the United States (see “Risks Relating to
Argentina—Certain risks are inherent in any investment in a
company operating in a developing country such as
Argentina”). The Argentine securities market is substantially
smaller, less liquid, more concentrated and can be more volatile
than major securities markets in the United States and is not as
highly regulated or supervised as some of these other markets.
There is also significantly greater concentration in the Argentine
securities market than in major securities markets in the United
States. During December 2017, the ten largest Argentine companies
in terms of their weight in the MERVAL index represented
approximately 63.19% of its composition. Accordingly, although
holders of our ADSs are entitled to withdraw the common shares
underlying the ADSs from the ADS Depositary at any time, their
ability to sell such shares at a price and time at which they wish
to do so may be substantially limited. Furthermore, new capital
controls imposed by the Central Bank could have the effect of
further impairing the liquidity of the BYMA by making it
unattractive for non-Argentines to buy shares in the secondary
market in Argentina. See “Item 10.D.—Exchange
Controls.”
If there are substantial sales of our common shares or the ADSs,
the price of the common shares or of the ADSs could
decline
Sales of
substantial number of our common shares or the ADSs could cause a
decline in the market price of our common shares. In addition, if
our significant shareholders, directors and members of senior
management listed in “Item 6. Directors, Senior Management
and Employees—Senior Officers”, who, as of April 21,2020, own in aggregate 35.55% of our outstanding common shares,
sell our common shares or the ADSs or the market perceives that
they intend to sell them, the market price of our common shares or
the ADSs could drop significantly. Also, the Argentine Government
authorized the Ministry of Energy and Mining to promote the
measures necessary to proceed with the sale, assignment or transfer
of the equity interest owned by the Argentine Government in power
plants, including its interest in our Company (representing 8.25%
of our outstanding shares). See “Item 4.B. Business
Overview—The Argentine Electric Power Sector—General
Overview of Legal Framework—Changes to the Electric Power
Sector under the Macri Administration.”
Our shareholders may be subject to liability for certain votes of
their securities
Our shareholders
are not liable for our obligations. Instead, shareholders are
generally liable only for the payment of the shares they subscribe.
However, shareholders who have a conflict of interest with us and
who do not abstain from voting may be held liable for damages to
us, but only if the transaction would not have been approved
without such shareholders’ votes. Furthermore, shareholders
who willfully or negligently vote in favor of a resolution that is
subsequently declared void by a court as contrary to Argentine
Corporate Law or our bylaws may be held jointly and severally
liable for damages to us or to other third parties, including other
shareholders.
As a foreign private issuer, we are exempt from a number of rules
under the U.S. securities laws and are permitted to file less
information with the Commission than a U.S. company. This may limit
the information available to holders of our ADSs
We are a
“foreign private issuer,” as defined in the SEC’s
rules and regulations and, consequently, we are not subject to all
of the disclosure requirements applicable to companies organized
within the United States. For example, we are exempt from certain
rules under the Exchange Act that regulate disclosure obligations
and procedural requirements related to the solicitation of proxies,
consents or authorizations applicable to a security registered
under the Exchange Act. In addition, our officers and directors are
exempt from the reporting and “short-swing” profit
recovery provisions of Section 16 of the Exchange Act and related
rules with respect to their purchases and sales of our securities.
Moreover, while we expect to submit quarterly interim consolidated
financial data to the Commission under cover of the
Commission’s Form 6-K, we are not required to file periodic
reports and financial statements with the Commission as frequently
or as promptly as U.S. public companies. Accordingly, there may be
less information concerning our company publicly available than
there is for U.S. public companies.
As a foreign private issuer, we are not subject to certain NYSE
corporate governance rules applicable to U.S. listed
companies
We rely on a
provision in the NYSE Listed Company Manual that allows us to
follow Argentine law with regard to certain aspects of corporate
governance. This allows us to follow certain corporate governance
practices that differ in significant respects from the corporate
governance requirements applicable to U.S. companies listed on the
NYSE.
37
For example, we are
exempt from NYSE regulations that require a listed U.S. company,
among other things, to:
●
have a majority of
our board of directors be independent;
●
establish a
nominating and compensation composed entirely of independent
directors;
●
adopt and disclose
a code of business conduct and ethics for directors, officers and
employees; and
●
have an executive
session of solely independent directors each year.
The market price for our common shares or ADSs could be highly
volatile
The market price
for our common shares or the ADSs after the global offering is
likely to fluctuate significantly from time to time in response to
factors including:
●
fluctuations in our
periodic operating results;
●
changes in
financial estimates, recommendations or projections by securities
analysts;
●
changes in
conditions or trends in our industry;
●
changes in the
economic performance or market valuation of our
competitors;
●
announcements by
our competitors of significant acquisitions, divestitures,
strategic partnerships, joint ventures or capital
commitments;
●
events affecting
equities markets in the countries in which we operate;
●
legal or regulatory
measures affecting our financial conditions;
●
departures of
management and key personnel; or
●
potential
litigation or the adverse resolution of pending litigation against
us or our subsidiaries.
Volatility in the
price of our common shares or the ADSs may be caused by factors
outside of our control and may be unrelated or disproportionate to
our operating results. In particular, announcements of potentially
adverse developments, such as proposed regulatory changes, new
government investigations or the commencement or threat of
litigation against us, as well as announced changes in our business
plans or those of competitors, could adversely affect the trading
price of our common shares or the ADSs, regardless of the likely
outcome of those developments or proceedings. Moreover, statements
made about our Company, whether publicly or in private, may be
misconstrued, particularly if read out of context.
Broad market and
industry factors could adversely affect the market price of our
common shares or ADSs at any time, regardless of our actual
operating performance.
If we fail to maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our
financial results or prevent fraud. As a result, shareholders could
lose confidence in our financial and other public reporting, which
would harm our business and the trading price of our common
shares.
Effective internal
controls over financial reporting are necessary for us to provide
reliable financial reports and, together with adequate disclosure
controls and procedures, are designed to prevent fraud. Any failure
to achieve and maintain effective internal controls over financial
reporting, implement required new or improved controls, or
difficulties encountered in their implementation could cause us to
fail to meet our reporting obligations, which in turn could have a
material adverse effect on our business and our common shares or
the ADSs. In addition, any testing by us or any subsequent testing
by our independent registered public accounting firm conducted in
connection with Section 404 of the Sarbanes-Oxley Act of 2002, may
reveal deficiencies in our internal controls over financial
reporting that are deemed to be material weaknesses or that may
require prospective or retroactive changes to our financial
statements or identify other areas for further attention or
improvement. Matters impacting our internal controls may cause us
to be unable to report our financial information on a timely basis
and thereby subject us to adverse regulatory consequences,
including sanctions by the SEC. There also could be a negative
reaction in the financial markets due to a loss of investor
confidence in us and the reliability of our consolidated financial
statements. Confidence in the reliability of our consolidated
financial statements also could suffer if we or our independent
registered public accounting firm were to report a material
weakness in our internal controls over financial reporting. This
could in turn limit our access to capital markets and possibly,
harm our results of operations, and lead to a decline in the
trading price of our common shares or the ADSs.
We will be required
to disclose changes made in our internal controls and procedures
and our management will be required to assess the effectiveness of
these controls annually. An independent assessment of the
effectiveness of our internal controls could detect problems that
our management’s assessment might not. Undetected material
weaknesses in our internal controls could lead to financial
statement restatements and require us to incur the expense of
remediation.
38
The protections afforded to minority shareholders in Argentina are
different from and more limited than those in the United States and
may be more difficult to enforce
Under Argentine
law, the protections afforded to minority shareholders are
different from, and much more limited than, those in the United
States. For example, the legal framework with respect to
shareholder disputes, such as derivative lawsuits and class
actions, is less developed under Argentine law than under U.S. law
as a result of Argentina’s short history with these types of
claims and few successful cases. In addition, there are different
procedural requirements for bringing these types of shareholder
lawsuits. As a result, it may be more difficult for our minority
shareholders to enforce their rights against us or our directors or
controlling shareholder than it would be for shareholders of a U.S.
company.
Holders of our common shares may determine not to pay any
dividends
In accordance with
the Argentine General Corporate Law 19,550, as amended, which we
refer to as the Argentine Corporate Law, after allocating at least
5% of our annual net earnings to constitute a mandatory legal
reserve, we may pay dividends to shareholders out of net and
realized profits, if any, as set forth in our consolidated
financial statements prepared in accordance with IFRS. The
approval, amount and payment of dividends are subject to the
approval by our shareholders at our annual ordinary
shareholders’ meeting. The approval of dividends requires the
affirmative vote of a majority of the shareholders entitled to vote
at the meeting. As a result, we cannot assure you that we will be
able to generate enough net and realized profits so as to pay
dividends or that our shareholders will decide that dividends will
be paid.
We may be a passive foreign investment company for U.S. federal
income tax purposes
A non-U.S.
corporation will be considered a passive foreign investment
company, which we refer to as a PFIC, for U.S. federal income tax
purposes in any taxable year in which 75% or more of its gross
income is “passive income” or 50% or more of its assets
(determined based on a quarterly average) constitute “passive
assets.” The determination as to whether a non-U.S.
corporation is a PFIC is based upon the application of complex U.S.
federal income tax rules (which are subject to differing
interpretations), the composition of income and assets of the
non-U.S. corporation from time to time and, in certain cases, the
nature of the activities performed by its officers and
employees.
Based upon our
current and projected income, assets and activities, we do not
expect to be considered a PFIC for our current taxable year or for
future taxable years. However, because the determination of whether
we are a PFIC will be based upon the composition of our income,
assets and the nature of our business, as well as the income,
assets and business of entities in which we hold at least a 25%
interest, from time to time, and because there are uncertainties in
the application of the relevant rules, there can be no assurance
that we will not be considered a PFIC for any taxable
year.
If we are a PFIC
for any taxable year during which a U.S. Holder, as defined in
“Item 10.E. Taxation—Certain United States Federal
Income Tax Considerations,” holds the ADSs or common shares,
the U.S. Holder might be subject to increased U.S. federal income
tax liability and to additional reporting obligations. See
“Item 10.E. Taxation—Certain United States Federal
Income Tax Considerations—Passive Foreign Investment
Company.” U.S. Holders are encouraged to consult their own
tax advisors regarding the applicability of the PFIC rules to their
purchase, ownership and disposition of the ADSs or common
shares.
The requirements of being a public company may strain our resources
and distract our management, which could make it difficult to
manage our business
Since the global
offering, we are required to comply with various regulatory and
reporting requirements, including those required by the Commission
in addition to our existing reporting requirements by the CNV.
Complying with these reporting and regulatory requirements will be
time consuming, resulting in increased costs to us or other adverse
consequences. As a public company, we are subject to the reporting
requirements of the Exchange Act, and the requirements of the
Sarbanes-Oxley Act, as well as to the Argentine Capital Markets Law
and CNV rules. These requirements may place a strain on our systems
and resources. The Exchange Act applicable to us requires that we
file annual and current reports with respect to our business and
financial condition. Likewise, CNV rules require that we make
annual and quarterly filings and that we comply with disclosure
obligations including current reports. The Sarbanes-Oxley Act
requires that we maintain effective disclosure controls and
procedures and internal controls over financial reporting. To
maintain and improve the effectiveness of our disclosure controls
and procedures, we committed significant resources, hired
additional staff and provided additional management oversight.
These activities may divert management’s attention from other
business concerns, which could have a material adverse effect on
our business, results of operations and financial
condition.
Recent Political and Economic Developments in
Argentina
Mr. Alberto
Fernández was selected as the presidential candidate for the
Frente de Todos coalition
at the mandatory primary elections held in Argentina on August 11,2019, and elected president in the runoff national presidential
elections that took place in Argentina on October 27, 2019, with
the Frente de Todos
coalition earning approximately 48.24% of the votes. Mr.
Fernández took office on December 10, 2019.
On December 17,2019, the Fernandez administration submitted a bill proposing a
wide range of economic and social reforms to Congress, which passed
the Solidarity Law. On December 23, 2019, President Fernández
promulgated the Solidarity Law. The new legislation declared a
public emergency, which will remain in force until December 31,2020, in economic, financial, fiscal, administrative, pensions,
tariff, energy, health, and social matters. The Solidarity Law
sanctioned the delegation of certain legislative powers to the
Executive branch, in order to tackle social and economic distress,
as well as to adjust Argentina’s public debt profile. The
main reforms introduced by the Solidarity Law include the
following:
1.
Public Debt and its Sustainability: The
Executive branch is authorized to perform all necessary acts to
recover and ensure the sustainability of the Argentine public debt.
In addition, the Argentine Government was authorized to issue debt
securities to the Central Bank for an amount of up to US$4.517
billion in exchange for reserves to be applied solely to meet
Argentina’s foreign currency-denominated debt
obligations.
2.
Energy System: The Executive branch was
authorized to freeze electricity and gas tariffs that are under
federal jurisdiction for 180 days, starting on December 23, 2019,
and to begin an integral renegotiation of such tariffs with the
relevant utilities companies. Furthermore, the Executive branch was
authorized to intervene in the administration of the Ente Nacional Regulador de la
Electricidad (ENRE) and the Ente Nacional Regulador del Gas
(ENERGAS) for a one-year period.
3.
Tax Obligations: The income tax,
personal assets tax, credit and debit in banks tax, export and
import duties and social security tax rates were modified to
increase rates, and a new tax refund system was
approved.
Furthermore, the
new legislation introduced the Impuesto Para una Argentina Inclusiva y
Solidaria (“PAIS Tax”) a special tax applicable
to certain foreign exchange transactions.
4.
Wages: The Solidarity Law authorizes
the Executive branch to determine minimum wage increases to be
mandatorily implemented by employers in the private
sector.
5.
Pensions: Commencing on the date of
promulgation of the Solidarity Law, the use of the existing formula
for the calculation of the periodic state pension adjustments was
suspended for 180 days. Following the temporary suspension, the
Executive branch will establish a new formula to be used to
calculate the necessary pension adjustments on a trimestral
basis.
Since assuming
office, the Fernandez administration has announced and executed
other economic and policy reforms, including: (i) the extension of
exchange control measures previously enacted; (ii) the duplication
of the legal severance payment that employers must pay in case of
dismissing employees without cause; (iii) the extension of the
maturity of U.S. Dollar-denominated Letes; (iv) the reduction in,
and subsequent price freeze on, the prices of medicines until
February 1, 2020; (v) the suspension of the 2018 Fiscal Consensus
to increase the provinces’ fiscal autonomy; and (vi) a price
freeze on public transportation fares in the metropolitan area of
Buenos Aires.
Furthermore, in
response to the increasing economic uncertainty that has affected
Argentina in 2019, the Central Bank has deployed a number of
monetary measures aimed at containing the volatility of the Peso /
U.S. dollar exchange rate and the outflow of foreign reserves. In
October 2019, the Central Bank introduced new norms regulating
natural and legal persons’ access to the foreign exchange
market, including monthly limits on purchases of foreign currency
for individuals in Argentina. The October 2019 restrictions also
provided that the withdrawal of foreign currency abroad using
Argentine debit cards by Argentine residents would only be possible
if debited to Argentine foreign-currency-denominated bank accounts.
In addition, authorized financial entities executing foreign
exchange trades of a value equal to or exceeding U.S.$2 million,
whether on their own account or on behalf of their customers, were
required to notify the Central Bank two business days ahead of
completing such trades.
40
The new measures
introduced in October 2019 also affect the regime regulating the
import of goods into Argentina and payment thereof. Importers are
required to declare the entry through Customs of pre-paid imported
goods purchased form unrelated suppliers within 90 days. The
pre-payment of imports to suppliers related to the importer instead
requires prior Central Bank approval. Importers can access the
foreign exchange market in order to pay imported goods or to
satisfy foreign-currency debt obligations arising in connection
with import financing, only if certain requirements are satisfied:
these include the requirement to declare and register the import of
goods through the SEPAIMPO (“Seguimiento de Pagos de
Importaciones”) system.
On October 31,2019, the Central Bank published a further resolution limiting
financial entities’ ability to access the foreign exchange
market to satisfy payments originally made through an
Argentine-issued debit or credit card for transactions relating to
gambling and betting activities, the purchase of cryptocurrencies,
the transfer of funds to investment accounts managed by
administrators based abroad, the completion of foreign exchange
operations abroad or the transfer of funds to payment services
providers. Additionally, financial entities must comply with a
U.S.$50 per-transaction cap on cash withdrawals carried out abroad
with Argentine-issued credit cards.
On November 7,2019, the Central Bank further clarified certain aspects of the
Argentine foreign exchange regime. Financial entities may allow
Argentine residents to access the foreign exchange market for the
purposes of repaying principal and interest on
foreign-currency-denominated debt or to provide security for such
obligations if (1) these debt obligations relate to import or
export finance and foreign currency payments are contractually
stipulated; (2) the foreign-currency-denominated funds acquired are
deposited in an account opened with a local financial entity,
unless contractually stipulated by an agreement entered into before
August 31, 2019 that such funds should be deposited abroad; (3) the
amount of deposits accumulated in foreign currency for servicing
debt do not exceed the value to be paid on the next scheduled
payment date for such indebtedness; (4) the daily amount of foreign
currency to be obtained cannot exceed 20% of the amount set out
under (3); (5) the relevant financial entity must review the
underlying agreements establishing the foreign currency
indebtedness, to verify that the debtor’s access to the
foreign exchange market, as envisioned by such agreements, is in
compliance with the terms of the Central Bank’s norms.
Importantly, foreign currency funds that are not used towards debt
servicing as agreed, will need to be liquidated in the foreign
exchange market within five working days following the scheduled
payment date.
On December 5,2019, the Central Bank clarified that foreign financial
indebtedness disbursed as from September 1, 2019, will be required
to be repatriated and settled for pesos through the foreign
exchange market only if the debtor will require access to such
market with the purpose of servicing principal and interest
payments. This provision also applies in respect of issuances by
Argentine residents of securities which are publicly registered in
the country as from November 29, 2019, denominated and underwritten
in foreign currency and whose services of principal and interest
are payable locally in foreign currency.
On December 28,2019, the Fernández Administration issued Decree No. 91/2019
extending the requirement for exporters to repatriate the proceeds
of export transactions, as further regulated by the Central
Bank.
On April 21, 2020,
the Argentine Government announced its offer to exchange external
bonds in the aggregate of amount of approximately US$64 billion for
new bonds. The Argentine Government did not make the interest
payment due on April 22, 2020 with respect to three of its
US$-denominated bonds and availed itself of the 30-day grace period
provided under the indenture. As of the date of this annual report,
there is no certainty on the acceptance the exchange offer will
have among the bondholders or whether further negotiations and
proposals will be carried out and the consequences of such
negotiations.
See “Item
3.D. Risk Factors— Risks Relating to Argentina—Economic
and political developments in Argentina and future policies of the
Argentine Government, may affect the economy, as well as the
operations of the energy industry, including the operations of
Central Puerto” and “Item 10.D.—Exchange
Controls.”
41
Recent Developments
Shareholders
General Meeting
On March 10, 2020,
the Board of Directors of Central Puerto convened an ordinary
shareholders general meeting for April 30, 2020, to discuss the
following items of the agenda: (i) appointment of two shareholders
to sign the minutes; (ii) consideration of the annual report and
its exhibit, the consolidated statement of income, of comprehensive
income, of financial position, of changes in equity, of cash flow,
the notes to the consolidated financial statements and exhibits,
the separate statement of income, of comprehensive income, of
financial position, of changes in equity, of cash flow, the
reporting summary and the additional information to the notes to
the financial statements, the auditor’s report, and the
statutory auditing committee report, all of them for the period
ended December 31, 2019; (iii) consideration of the income (loss)
for the period and of the rest of the retained earnings, and of the
board of director’s proposal on assigning: (a) Ps.440,441 for
statutory reserves; and (b) Ps.8,368,374 from the period income and
Ps.730,741 from accumulated retained income to increase the
optional reserve, to be destined to: (1) already committed
investment projects, and/or (2) future investments related to the
new projects approved by the Board of Directors and/or (3) payment
of dividends according to the evolution of the financial condition
of the Company and pursuant to the Company’s Dividends
Distribution Policy, and approval of the profit-sharing bonus
payment established in the Company’s bylaws; (iv)
consideration of the Board of Directors performance during the
period ended December 31, 2019; (v) consideration of the statutory
audit committee performance during the period ended December 31,2019; (vi) consideration of (a) the remuneration of the
Company’s Board of Directors for the period ended December31, 2019, and (b) the advanced payment of fees to the Board of
Directors for the year ending December 31, 2020; (vii)
consideration of the remuneration of the members of the statutory
audit committee for the period ended December 31, 2019 and their
fee schedule for the year ending December 31, 2020; (viii)
establishing the number of deputy directors, appointment of
directors and deputy directors, and continuity of the current
chairman until the appointment by the Board of Directors; (ix)
appointment of the statutory audit committee members and deputy
members for the year ending December 31, 2020; (x) consideration of
the remuneration of the external accountant of the Company
regarding the annual accounting documents for the year ended
December 31, 2019; and (xi) appointment of the external accountant
and of the deputy external accountant the year ending December 31,2020 and establishing its remuneration.
Measures
Designed to Address the Covid-19 Outbreak
In late December
2019, a novel form of a pneumonia first noticed in Wuhan, Hubei
province (COVID-19, caused by a new strain of coronavirus) was
reported to the World Health Organization, with cases soon
confirmed in multiple provinces in China, as well as in other
countries. On March 11, 2020, the World Health Organization
characterized the COVID-19 as a pandemic. Several measures have
been undertaken by governments of the countries where the
coronavirus has affected broad swathes of the population, such as
the countries of the European Union, the United Kingdom, the United
States of America, South Korea and Japan, among others, to control
the coronavirus, including mandatory quarantines, travel
restrictions to and from the above listed countries by air carriers
and foreign governments. As of April 26, 2020, Argentina identified
3,892 confirmed cases of coronavirus, of which 192 were fatal. To
date, Argentina has adopted several measures in response to the
COVID-19 outbreak in the country aimed at preventing mass contagion
and the overcrowding of the Argentine health service, which include
(in chronological order):
●
February
26—March 12, 2020: screening of passengers at airports;
mandatory isolation for 14 days of persons with suspected or
confirmed cases of COVID-19, persons in close contact with
suspected or confirmed cases of COVID-19 and persons arriving or
recently arrived from affected zones; closure of activities with
high concentration of persons; prohibition of attendance of
audience to sporting events;
●
March
13—March 15, 2020: stronger surveillance of Argentine
borders; suspension of flights by various airlines and adoption of
regulations for the coordination of repatriation flights for
Argentine residents; closure of national parks and protected areas;
school closures (except for food assistance and administrative
purposes);
●
March
16—March 18, 2020: closure of Argentine borders; suspension
of domestic flights and long-distance trains and buses operations;
suspension of the national soccer league; temporary work leaves for
pregnant women, people older than 60 years and other persons
considered at special risk upon infection; authorization for
federal public employees to work remotely (except for employees
providing essential services); promotion of home office policies in
the private sector and beginning of construction of eight modular
hospitals
●
March 20, 2020:
imposition of a nation-wide mandatory lockdown, where transit is
restricted to certain “essential activities”.
Deployment of security forces for lockdown
enforcement;
42
●
March 20 –
April 2, 2020: assistance to Argentine residents abroad; tightening
of rules relating to closure of Argentine borders, extension of
nation-wide lockdown until April 12, 2020.
●
April 11, 2020:
extension of nation-wide lockdown until April 26,2020. Inclusion of further “essential activities”
exempt from mandatory quarantine.
●
April 26, 2020:
extension of nation-wide lockdown until May 10, 2020. Inclusion of
further “essential activities” exempt from mandatory
quarantine
Simultaneously, the
Argentine Government has announced and is implementing several
stimulus measures to limit the effects of the COVID-19 outbreak on
the economy, which includes the following:
●
A one-time Ps.3,100
cash payment to recipients of the universal child
allowance;
●
a one-time Ps.3,000
cash payment to retirees receiving minimum benefits (currently
Ps.15,892) and those that receive above the minimum but less than
Ps.18,892, which covers approximately 4.6 million
retirees;
●
a one-time Ps.
3,000 cash payment to recipients of social plans, which targets
approximately 556,000 persons;
●
a one-time
Ps.10,000 cash payment which will be granted to approximately
7,785,000 unemployed persons and persons employed informally, among
other socially vulnerable persons;
●
a capital spending
program on infrastructure, education and tourism for approximately
Ps.100 billion;
●
an exemption to
companies in vulnerable industries from payments relating to
employers’ pension contributions, an increase in unemployment
insurance and payment by the national Government of a portion of
wages for affected companies with a payroll of less than 100
employees; and
●
subsidized loans to
small- and medium-sized companies via the financial system of
approximately Ps. 30 billion for working capital;
Other measures
adopted by the Argentine Government to mitigate the effects of the
COVID-19 outbreak in the economy include the
following:
●
The prohibition of
the disconnection of electric energy, natural gas, running water,
fixed telephony, mobile telephony, internet and cable television
services due to non-payment of less than three invoices commencing
on March 1, 2020 and for a 180-day period, which applies to certain
vulnerable users identified in Decree No. 311/2020.
This decree also
sets forth that companies that provide the abovementioned services
shall grant facilities to their users to pay the debts generated
during the 180-day period established therein, following the
guidelines established by the applicable enforcement authorities
with the approval of the Ministry of Productive Development. In
addition, Resolution No. 173/2020 of the Ministry of Productive
Development (in effect since April 18, 2020) implements Decree No.
311/2020. Section 6 of such resolution establishes that electricity
distribution companies must report to the ENRE (or the
corresponding provincial regulatory agency) and the Secretary of
Energy, within a 30-day period from the enactment of such
resolution, the conditions and/or payment alternatives that will be
offered to the beneficiaries from Decree No. 311/2020. The
resolution also sets forth that electricity distribution services
shall be payable in 30 monthly, equal and consecutive installments,
beginning with the first regular invoice to be sent by the
distribution companies on September 30, 2020, irrespective of the
user’s possibility to pay the invoice before or through a
less amount of installments.
Resolution No.
173/2020 established that electricity distribution companies shall,
on a monthly basis, report to the ENRE (or the corresponding
provincial regulatory agency), and CAMMESA, the amounts billed to
their users and subject to the conditions and/or payment modalities
actually offered to them, following Decree No. 311/2010, so that
CAMMESA (with prior instruction from the Secretary of Energy)
replicates the same conditions to the electricity distribution
companies to purchase the same volumes of electricity in the
WEM.
Section 6 of
Resolution No. 173/2020 also establishes that the Secretary of
Energy will instruct CAMMESA, within 30 days from enacted such
resolution, the conditions and/or payments modalities to implement
regarding Large Users of the WEM that fall within the scope of
Section 3 of Decree No. 311/2020, considering the report to be
issued by the coordination unit established in such
resolution;
43
●
the suspension of
certain penalties and disqualifications applicable to checking
accounts with insufficient funds until April 30, 2020, and the
authorization for banks to grant loans to companies with
outstanding debts with ANSES and AFIP;
●
the price freezes
as of March 6, 2020, for certain essential goods such as food,
personal care, medicines and medical products for a 30-day
period;
●
the imposition of
maximum prices on goods and services acquired by the Government to
address the emergency;
●
the suspension of
rent increases, extension of lease contract expiration dates and
suspension of evictions due to non-payment of leases until
September 30, 2020;
●
the freezing of
mortgage payments and certain UVA-indexed loans;
●
the adoption of a
program to increase productivity (Programa de Recuperación
Productiva, or “REPRO”) by which the Government
funds a portion of the monthly wages of private sector employees
working for companies affected by the pandemic and whose revenues
have declined;
●
the prohibition of
unjusti dismissals and suspensions;
●
the reduction of
pension and tax charges to health service providers aimed at
strengthening the health sector and ensuring medical
assistance;
●
the shortening of
the term applicable to export reimbursements for industrial sector
companies;
●
requirement that
exports of medical inputs and equipment necessary to overcome the
pandemic obtain prior governmental authorization;
●
one-time Ps. 5,000
payment to public sector employees in the health, security and
national defense areas;
●
elimination of
import taxes applicable to certain essential goods such as alcohol,
laboratory or pharmaceutical items, medical gloves, disinfectants
and other health-related equipment and inputs;
●
suspension until
April 30, 2020 of tax foreclosures by AFIP for PYMES;
●
assistance by the
national Government to the provinces in an aggregate amount of
Ps,120 billion.
See “Item 3.D
Risk Factors— Risk Relating to Our Business —The novel
coronavirus could have an adverse effect on our business operations
and financial conditions”
New
Energía Base regulatory framework – Res.
31/20
On February 27,2020, the Secretariat of Energy issued Resolution 31/20, which
replaces the regulatory framework for Energía Base applicable
from February 1, 2020. The main changes were:
●
Prices are set in
Argentine pesos.
●
Initial variable
energy price although denominated in Argentine pesos, remained
almost unchanged. The applicable exchange rate between the new
price in Argentine pesos and the previous price in U.S. dollars was
Ps.60 per U.S. dollar, similar to the average exchange rate during
January 2020 of Ps. 60.01 per US dollar.
●
Initial power price
for energy from thermal units were approximately reduced by 16% and
set in Argentine pesos.
●
Generation units
with less than 30% Utilization Factor in the last twelve months
receive 60% of the price, compared to up to 70% before.
Additionally, if the Utilization Factor is between the 30-70%
threshold the generation units receive a linear proportion between
60 and 100% of the power price, and if the Utilization Factor is
70% or greater, the generation units receive 100% of the
price.
●
Initial fixed power
price for hydroelectric plants was approximately reduced by 45 %
and set in Argentine pesos.
44
●
A new remuneration
scheme for peak demand hours generation was established to
partially mitigate the fixed power price, taking into consideration
the equipment the generating company has.
●
The prices set in
pesos will have a monthly adjustment with the following formula:
(i) 60% of the CPI, plus (ii) 40% of the WPI (stated in Annex VI of
Resolution 31/20).
However, on April8, 2020, Central Puerto learned that the Secretary of Energy may
have instructed CAMMESA to postpone until further notice the
application of Annex VI, related to the price update mechanism
described under “Item 4.B. Business Overview—The
Argentine Electric Power Sector—Remuneration Scheme—The
Current Remuneration Scheme”. Accordingly, CAMMESA did not
apply the price update mechanism for the March 2020 monthly
payments under Energy Base. The Company is evaluating the effects
that the non-application of the aforementioned Annex VI would have,
as well as the steps to be followed in this regard.
Transfer
of the Termoeléctrica José de San Martín and
Termoeléctrica Manuel Belgrano Plants and dilution on TJSM and
TMB
As of December 31,2019, we had a 30.8752% interest in TJSM and a 30.9464 % interest in
TMB, both companies that are engaged in managing the purchase of
equipment, building, operating and maintaining power plants
constructed under the FONINVEMEM program. We have the right to name
two out of nine directors on the board of directors of each
company. As of the date of this annual report, we also own 56.19%
of CVOSA, the company that operates the thermal power plant in
Timbúes.
After ten years of
operations, each company is entitled to receive property rights to
such power plants from the respective trusts currently holding such
power plants. At such time, the term of the trusts expires and the
Argentine Government, that financed part of the construction,
should be incorporated as a shareholder of TJSM and TMB.
Consequently, our interests in TJSM and TMB will be significantly
diluted In the case of TMB and TJSM, the ten-year period expired on
January 7, 2020 and on February 2, 2020, respectively. From such
dates, during the following 90-days, TJSM and TMB and their
shareholders have to perform all the necessary acts to allow the
Argentine Government to receive the corresponding shares in the
equity stake of TJSM and TMB that their contributions entitle the
Argentine Government to receive. The restrictions imposed by the
Argentine Government since March 20, 2020 to address the outbreak
of COVID-19 made the performance of such acts impossible within the
90-day period. Accordingly, TJSM and TMB invoked said circumstances
as a force majeure event and postponed such acts to May
2020.
On January 3, 2020,
the Argentine Government sent a notice to the Company stating that,
in accordance with FONINVEMEN Agreement, TJSM and TMB should
perform all necessary acts to incorporate the Argentine Government
as shareholder of both companies, claiming, in each case, the
following equity interest rights: 65.006% in TMB and 68.826% in
TJSM.
On January 9, 2020,
Central Puerto, together with the other generation companies,
shareholders of TJSM and TMB, replied such notice stating that the
Argentine Government’s equity interest claims does not
correspond with the contributions made for the construction of the
power plants under the terms of the FONINVEMEM Agreement that give
rights to claim such equity interest. On March 4, 2020, the
Argentine Government reiterated its previous claim to the Company.
As of the date of this annual report, Central Puerto is evaluating
future steps.
As of the date of
this annual report we cannot estimate the exact effects that the
potential dilution of our interests in TJSM and TMB due to the fact
that the Argentine Government’s stake in these companies is
currently under discussion.
See “Item
4.B. Business Overview—FONINVEMEM and Similar
Programs.”
Central Puerto S.A.
is incorporated as a sociedad
anónima under the laws of Argentina. Our principal
executive offices are located at Avenida Thomas Edison 2701,
C1104BAB Buenos Aires, Republic of Argentina. Our telephone number
is +54 (11) 4317-5900.
We were
incorporated pursuant to Executive Decree No. 122/92 on February26, 1992. We were formed in connection with the privatization
process involving Servicios
Eléctricos del Gran Buenos Aires (“SEGBA”)
in which SEGBA’s electric power generation, transportation,
distribution and sales activities were privatized. We were
registered with the Public Registry of Commerce of the City of
Buenos Aires on March 13, 1992 and created for a term of 99 years
from the date of such registration.
45
In April 1992,
Central Puerto, the consortium-awardee, took possession over
SEGBA’s Central Nuevo Puerto (“Nuevo Puerto”) and
Central Puerto Nuevo (“Puerto Nuevo”) plants, and we
began operations. In November 1999, the Puerto combined cycle
plant, which was built on lands owned by Nuevo Puerto in the City
of Buenos Aires, started to operate. In 2001, Central Puerto was
acquired by the French company, Total S.A. At the end of 2006,
Sociedad Argentina de Energía
S.A. (“SADESA”) acquired a controlling interest
in Central Puerto.
Our shares are
listed on the Argentine stock market Bolsas y Mercados Argentinos
S.A. (the “BYMA”) and, since February 2, 2018, have
been listed on the NYSE under the symbol
“CEPU.”
The SEC maintains
an internet site that contains reports and other information
regarding issuers who, like us, file electronically with the
SEC. The
address of that website is http://www.sec.gov.
Central Puerto routinely posts important information for investors
in the Investor Relations support section on its website,
www.centralpuerto.com.
From time to time, Central Puerto may use its website as a channel
of distribution of material Company information. Accordingly,
investors should monitor Central Puerto’s Investor Support
website, in addition to following the Company’s press
releases, SEC filings, public conference calls and webcasts. The
information contained on, or that may be accessed through, the
Company’s website is not incorporated by reference into, and
is not a part of, this annual report.
The below chart
illustrates the development of our company through the years and
the important milestones for Central Puerto and for the companies
that were absorbed in the 2014 Merger and 2016 Merger:
The 2014 Merger
On October 1, 2014,
we merged with three operating companies under the common control
of SADESA: (i) HPDA, (ii) CTM and (iii) LPC. The purpose of the
merger was to optimize operations and achieve synergies among the
businesses. We refer to this merger as the “2014
Merger.” Following the 2014 Merger, each of HPDA, CTM and LPC
were dissolved.
Prior to the 2014
Merger, we owned and operated three thermal generation plants for
electric power generation located within one complex in the City of
Buenos Aires. Our Nuevo Puerto and Puerto Nuevo thermal generation
plants are equipped with five steam turbine-generator units in the
aggregate and have an installed capacity of 360 MW and 589MW,
respectively. The third plant, the Puerto combined cycle plant has
two gas turbines, two heat recovery steam generators and a steam
turbine, and it has a total installed capacity of 765 MW. Prior to
the 2014 Merger, we had a total installed capacity of 1,714 MW and
were already one of the major SADI electric power
generators.
As a result of the
2014 Merger, we added the Luján de Cuyo plant, the La Plata
plant, which, effective as of January 5, 2018, we sold to YPF EE
(for further information see “Item 4.A. History and
development of the Company—La Plata Plant Sale”), and
the Piedra del Águila hydroelectric complex.
46
As of December 31,2019, we owned and operated five thermal generation plants, one
hydroelectric generation plant and five wind farms, for the
generation of electric power in Argentina. We had a combined
installed capacity of 4,273 MW and have significantly improved our
position as a major SADI electric power generator, producing
approximately 11.3% of the energy generated by private sector SADI
generators in 2019.
Hidroeléctrica Piedra del Águila S.A. (HPDA)
HPDA was a
sociedad anónima
(corporation) incorporated in 1993 that operated the Piedra del
Águila hydroelectric complex with an installed capacity of
1,440MW since it started commercial operation in 1993. HPDA entered
into the HPDA Concession Agreement (as defined below) to operate
and maintain the Piedra del Águila hydroelectric complex, and
the HPDA Concession Agreement was assigned to us during the 2014
Merger. For more information regarding the HPDA and the HPDA
Concession Agreement, see “—Electricity Generation from
our Hydroelectric Complex—Piedra del
Águila.”
HPDA’s
controlling shareholder was Hidroneuquén S.A.
(“HNQ”), a company that was under the control of the
SADESA group, which held a 59.00% interest. The remaining
shareholders were: (i) the Argentine Government (26.00% interest),
(ii) the Province of Neuquén (13.00% interest) and (iii)
HPDA’s Employee Stock Ownership Program (2.00% interest).
HPDA held 21.00% of the shares of CVOSA, the company that operates
the thermal power plant in Timbúes. Following the 2014 Merger,
CVOSA became our subsidiary.
Centrales Térmicas Mendoza S.A. (CTM)
CTM was a
sociedad anónima
(corporation) incorporated in 1993 focused on electric power
generation and steam production. Before the 2014 merger, CTM was
focused on two primary activities: electric power generation and
steam production. CTM owned the Luján de Cuyo plant located in
Luján de Cuyo in the Province of Mendoza, which began
commercial operation in 1971. With the installation of its first
two steam turbines, had an installed capacity of 509 MW and was the
top producer of electric power in the Cuyo region. For more
information regarding CTM’s operations that were transferred
to us in the 2014 Merger, see “—Electricity Generation
from our Thermal Generation Plants—Luján de Cuyo
plant.”
CTM’s
controlling shareholder was Operating S.A. (“OSA”), a
company that was under the control of the SADESA group and which
held a 94.10% interest. The other shareholder was Empresa Mendocina
de Energía SAPEM, which held the remaining 5.89% interest. CTM
held a minority interest in CVOSA, representing 9.36% of its
capital stock.
Distribuidora de Gas Cuyana S.A. (DGCU) and Distribuidora de Gas
del Centro S.A. (DGCE)
In addition, on
January 7, 2015, acting individually, but simultaneously with other
investors, we acquired non-controlling equity interests in DGCU
(whose shares are listed on BYMA) and DGCE. Considering the direct
and indirect interests, we acquired (i) a 22.49% equity stake in
DGCU and (ii) a 39.69% equity stake in DGCE.
DGCU
DGCU was
incorporated in 1992 by the Argentine Government as part of the
privatization of Gas del Estado S.E. (“GES”). The
Executive branch enacted Executive Order No. 2,453 in December
1992, whereby it granted a utility license to DGCU to distribute
Natural gas through the networks in the provinces of Mendoza, San
Juan and San Luis, for a term of 35 years from the date of taking
possession (which occurred on December 28, 1992) with an option to
extend it for ten additional years.
In December 1992, a
transfer agreement was executed to transfer 60.00% of DGCU’s
shares. The agreement was entered into among the Argentine
Government, GES, the Province of Mendoza and IGCU, which formed the consortium that
became the successful bidder in the bidding process at such time.
On such date, GES transferred to DGCU the assets used in the
licensed utility service, net of liabilities, as an irrevocable
capital contribution pursuant to Executive Orders No. 1,189/92 and
2,453/92, and DGCU took possession of the facilities and commenced
operations.
Following the
Merger between IGCE, IGCU, RPBC and MAGNA (See Item 4.A - Merger
between IGCE, IGCU, RPBC and MAGNA), as of the date of this annual
report, IGCE holds a 51.00% interest in DGCU, and we hold a 42.31%
interest in IGCE. Therefore, we indirectly hold a 21.5781% equity
interest in DGCU.
DGCE
DGCE was
incorporated in 1992 by the Argentine Government as part of the
privatization of GES. The Executive branch enacted Executive Order
No. 2,454/92 in December 1992, whereby it granted a utility license
to DGCE to distribute natural gas through the networks in the
provinces of Córdoba, Catamarca and La Rioja for a term of 35
years from the date of taking possession (which occurred on
December 28, 1992) with an option to extend it for ten additional
years.
47
In December 1992, a
transfer agreement was executed to transfer 60.00% of DGCE’s
shares. The agreement was entered into among the Argentine
Government, GES and IGCE, which formed the consortium that became
the successful bidder in the bidding process at such time. On such
date, GES. transferred to DGCE the assets used in the licensed
utility service, net of liabilities, as an irrevocable capital
contribution pursuant to Executive Orders No. 1,189/92 and
2,454/92, and DGCE took possession of the facilities and commenced
operations.
As of the date of
this annual report, we hold a 42.31% interest in IGCE and a direct
17.20% interest in DGCE. Therefore, we hold, both directly and
indirectly, a 40.593199% in DGCE.
IGCE is the
controlling shareholder of Energía Sudamericana S.A.
(“ESSA”), which is a private company not listed in any
commercial stock exchange, and which prepares its financial
statements in accordance with Argentine GAAP. However, there are no
relevant differences between Argentine GAAP applicable to ESSA and
the IFRS that we apply to our financial statements. ESSA’s
principal activity is the sale of natural gas. We also own a 2.45%
direct equity interest in ESSA.
Ecogas had a gas
distribution network covering 33,867 km and served approximately
1,347,592 customers as of December 31, 2019. In 2019, Ecogas
distributed an average of 13.33 million cubic meters of natural gas
per day; and in 2019, Ecogas distributed an average of 13.80
million cubic meters of natural gas per day. This volume of
distribution represented approximately 14.93% and 15.70% of the gas
delivered by all the distribution companies in Argentina in 2019
and in 2018, respectively, according to data from
Ecogas.
Control Acquisition by Tender Offer of Third Parties in respect of
DGCU shares
On January 7, 2015,
the Company acquired 49% of interests in IGCU, the parent company
of DGCU and, as a result, the Company held indirectly 24.49% of
DGCU’s capital stock. Following this acquisition, Magna,
RPBC, Central Puerto and Mr. Federico Tomasevich (jointly, the
“Offerors”) resolved to participate proportionally in
the tender offer for DGCU’s shares with voting rights that
were publicly listed on the BYMA in order to acquire the remaining
outstanding shares of DGCU that the Offerors did not already own.
On October 30, 2015, the board of directors of the CNV approved the
tender offer. Upon termination of the offer in January 2016, since
no acceptances were tendered, no shares were acquired in this
tender offer. During 2019, IGCE absorbed IGCU, RPBC and MAGNA. As
of the date of this annual report, we own a 42.31% interest in IGCE
and, as a result, we indirectly hold a 21.58 % equity interest in
DGCU. For further information on the merger of IGCE and IGCU, see
“— Merger between IGCE, IGCU, RPBC and
MAGNA.”
Merger between IGCE, IGCU, RPBC and MAGNA
On March 28, 2018,
the Board of Directors of IGCE, IGCU, RPBC Gas S.A.
(“RPBC”) and Magna Inversiones S.A.
(“Magna”), approved the Preliminary Merger Agreement
(Compromiso Previo de
Fusión) of the aforementioned companies (the
“Merger”), in which IGCE will act as the surviving
company and IGCU, RPBC and Magna, as absorbed
companies.
On August 9, 2019,
ENARGAS issued resolution No.
RESFC-2019-458-APN-DIRECTORIO#ENARGAS, approving the merger in the
terms of such resolution.
On September 12,2019 the merger was registered with the Public Registry of the City
of Buenos Aires (Inspección
General de Justicia).
The 2016 Merger
On January 1, 2016,
we merged with three holding companies: (i) SADESA, (ii) HNQ and
(iii) OSA. The purpose of the merger was to reorganize and optimize
our corporate structure. As a result of the merger, we reduced our
share capital from Ps.199,742,158 to Ps.189,252,782. We refer to
this merger as the “2016 Merger.” Following the 2016
Merger, each of SADESA, HNQ and OSA were dissolved.
SADESA was a
holding company with control over Central Puerto, HNQ and OSA that,
prior to the 2016 Merger, held a 26.18% direct interest in Central
Puerto, a 63.73% interest in HNQ, a 96.79% interest in OSA and a
5.10% direct interest in Proener S.A.U. HNQ was a holding company
that prior to the 2016 Merger held a 17.74% interest in Central
Puerto. OSA was a holding company that prior to the 2016 Merger
held a 30.39% interest in Central Puerto, a 94.90% interest in
Proener S.A.U. and a 20.00% interest in TGM. TGM is dedicated to
the operation, maintenance and commercialization of an
international gas pipeline between Argentina and
Brazil.
48
La Plata Plant Sale
On December 20,2017, YPF EE accepted our offer to sell the La Plata plant for a
total sum of US$31.5 million (without VAT), subject to certain
conditions. On February 8, 2018, after such conditions were met,
the plant was transferred to YPF EE, including generation assets,
personnel and agreements related to the operation and/or
maintenance of the La Plata plant’s assets, with effective
date January 5, 2018. Consequently, as of December 31, 2017, the La
Plata plant was classified as a disposal group held for sale and
its respective results were classified for the years ended December31, 2018, and 2017 as discontinued operations. See “Item 5.A.
Operating Results—Factors Affecting our Results of
Operations—Sale of the La Plata Plant” and Note 21 to
our audited consolidated financial statements.
The contract
between us and Transportadora de Gas del Sur (“TGS”)
for the natural gas transportation capacity has remained effective
after the sale of the La Plata plant. Pursuant to the terms of our
agreement with YPF EE, we resell our gas transportation capacity to
YPF EE through the resale system established by Resolution ENARGAS
419/97. The resale under such system is open to third parties and
consequentially does not ensure that YPF EE will receive the gas
transportation capacity needed to operate the La Plata plant.
Therefore, on January 25, 2018, we requested to be registered with
the Ministry of Energy and the ENARGAS as a natural gas seller to
permit the resale of our gas transportation capacity to YPF EE
without the risk of intervention from interested third parties. On
July 20, 2018, we were effectively registered as natural gas
sellers.
New renewable energy projects - CP Renovables S.A.
In 2016, we
incorporated a subsidiary, CP Renovables S.A. (“CP
Renovables”), to develop, construct and operate renewable
energy generation projects. As of the date of this annual report,
the company participated in the Renovar Rounds 1.0, 1.5 and 2.0, in
which it was awarded with the La Castellana I, Achiras and La
Genoveva I projects with 20-year PPA contracts with CAMMESA, each
of the projects constructed or currently under construction by CP
La Castellana S.A.U. (a subsidiary of CP Renovables S.A.), CP
Achiras (a subsidiary of CP Renovables S.A.) and Vientos La
Genoveva I (a subsidiary of Central Puerto S.A.).
In August 2018 and
September 2018, respectively, the La Castellana I and Achiras wind
farms started operations. As of the date of this annual report, La
Genoveva I wind farm is currently under construction in an advanced
stage. The original COD of the plant was expected for May 2020, but
due to the outbreak of COVID-19, the construction of the plant was
temporarily suspended, which may result in delays in the COD. See
“Item 3D. Risk Factors—Risks Relating to our
Business— Factors beyond our control may affect or delay the
completion of the awarded projects, or alter our plans for the
expansion of our existing plants.”
In addition, the
Ministry of Energy and Mining through Resolution 281-E/ 2017,
established the regulatory framework that allows Large Users to
purchase renewable energy from private generating companies and the
conditions for granting “dispatch priority” that allows
such transactions to take place and ensures that the private
generating companies will not be restricted in the future in its
generation dispatch (see “Item 4.B. Business
Overview—The Argentine Electric Power Sector—Resolution
No. 281-E/17: The Renewable Energy Term Market in
Argentina”). In July 2019, September 2019, December
2019/January 2020/March 2020, and February 2020, the wind farms La
Castellana II (developed by CP Energy Solutuons S.A.U.), La
Genoveva II (developed by Vientos La Genoveva II S.A.U.), Manque
(CP Manque S.A.U.), and Los Olivos (CP Los Olivos S.A.U.),
respectively, reached their COD. As of the date of this annual
report, we have already entered into long-term PPA contracts with
private customers for 100% of the estimated energy generation
capacity of our term market renewable energy projects developed
under Resolution No. 281-E/17 regulatory framework.
New thermal cogeneration plants
In 2017, the
Secretariat of Electric Energy, pursuant to Resolution SEE No.
287-E/17, called for proposals for the supply of electric power to
be generated through the installation of co-generation units, among
others. We submitted bids on August 9, 2017, and, on September 25,2017, we were awarded two co-generation projects, the Terminal
6-San Lorenzo and the Luján de Cuyo projects, which will
represent two additional sources of income to the Company: (i)
electric power sales to CAMMESA through 15-year term PPAs which are
priced in U.S. dollars; and (ii) steam sales pursuant to separate
steam supply agreements negotiated with private
offtakers.
On October 5, 2019,
the new Luján de Cuyo cogeneration Project started
operations.
As of the date of
this annual report, the Terminal 6-San Lorenzo project is in a very
advance stage of construction, and the expected COD for the project
was scheduled for September 2020. However, due to the outbreak of
COVID-19, the project may experience delays. See “Item 3D.
Risk Factors—Risks Relating to our Business— Factors
beyond our control may affect or delay the completion of the
awarded projects, or alter our plans for the expansion of our
existing plants.”
49
Purchase of the Brigadier López Plant
On June 14, 2019
Central Puerto, in the context of a local and foreign public tender
called by IEASA, which had been awarded to the Company, purchased
the Brigadier López Plant which was transferred on that date
including: a) personal property, recordable personal property,
facilities, machines, tools, spare parts, and other assets used in
connection with the operation of the Brigadier López Plant; b)
IEASA’s contractual position in certain existing contracts
(including Turbogas and Turbosteam supplying contracts with CAMMESA
and the Brigadier López Financial Trust Agreement (as defined
below), among others); c) permits and authorizations in effect
related to the Brigadier López Plant operation; and d)
Brigadier López Plant employees.
The Brigadier
López Plant has installed a Siemens gas turbine of 280.5 MW.
According to the tender specifications and conditions, the project
already has the boiler and a steam turbine to reach the closing of
the combined cycle, which will generate 420 MW in total. The works
for the closing of the combined cycle are pending. See “Item
3D. Risk Factors—Risks Relating to our Business— The
novel coronavirus could have an adverse effect on our business
operations and financial conditions”.
Item
4.B
Business
overview
Overview
We are one of the
largest private sector power generation companies in Argentina, as
measured by generated power, according to data from CAMMESA. In the
year ended December 31, 2019, we generated a total of 14,849 net
GWh of power, representing approximately 17.51% of the power
generated by private sector generation companies in the country
during such period, according to data from CAMMESA. We had an
installed capacity of 4,273 MW as of December 31, 2019. For further
information, see “Item 4.A. History and development of the
Company—La Plata Plant Sale”).
We have a
generation asset portfolio that is geographically and
technologically diversified. Our facilities are distributed across
the City of Buenos Aires and the provinces of Buenos Aires,
Córdoba, Mendoza, Neuquén, Río Negro and Santa Fe.
We use conventional and renewable technologies (including hydro
power) to generate power, and our power generation assets include
combined cycle, gas turbine, steam turbine, co-generation,
hydroelectric, and wind turbines.
The following table
presents a brief description of the power plants we owned and
operated as of December 31, 2019.
Power
plant
Location
Installed
capacity (MW)
Technology
Puerto
Nuevo(1)
City of Buenos
Aires
589.00
Steam
turbines
Nuevo
Puerto(1)
City of Buenos
Aires
360.00
Steam
turbines
Puerto combined
cycle(1)
City of Buenos
Aires
765.00
Combined
cycle
Luján de Cuyo
plant
Province of
Mendoza
595.32
Steam turbines, gas
turbines, two cycles and mini-hydro turbine generator,
producing electric power and steam
Brigadier
López
plant
Province of Santa
Fe
280.50
Gas
turbine
Piedra del
Águila
plant
Piedra del
Águila (Limay River, bordering provinces of Neuquén and
Río Negro)
1,440.00
Hydroelectric
plant
La Castellana I
wind farm(2)
Province of Buenos
Aires
100.80
Wind
turbines
La Castellana II
wind farm(2)
Province of Buenos
Aires
14.40
Wind
turbines
La Genoveva II wind
farm
Province of Buenos
Aires
41.80
Wind
turbines
Achiras wind
farm(2)
Province of
Córdoba
48.00
Wind
turbines
Manque wind
farm
Province of
Córdoba
38.00
Wind
turbines
Total
4,272.82
MW
(1)
Part of the
“Puerto Complex” as defined in
“Business.”
(2)
La Castellana I, La
Castellana II, Achiras, Manque, and La Genoveva II wind farms are
owned by CP La Castellana S.A.U., CPR Energy Solutions S.A.U., CP
Achiras S.A.U., CP Manque S.A.U., and Vientos La Genoveva II
S.A.U., respectively, the first four of which are fully owned
subsidiaries of CP Renovables S.A. while the last one is a fully
owned subsidiary of Central Puerto S.A. As of the date of this
annual report, we own a 70% interest in CP Renovables. See
“Item 4.B. Business Overview—Our Subsidiaries”.
As of December 31, 2019, Manque wind farm had an installed capacity
of 38 MW. On January 23, 2020 the capacity of the plant was
increased to 53.20 MW, and on March 3, 2019, it was increased to 57
MW, the total power of the project. This increase in the power
capacity of the plant was not included in the table
above.
As of December 31,2019, La Castellana II wind farm had an authorized installed
capacity of 14.40 MW. On February 21, 2020 CAMMESA granted the
authorization to increase the output to the grid for up to 15.20
MW. This increase in the plant’s power capacity was not
included in the table above.
On February 21,2020, Los Olivos wind farm was granted the commercial authorization
by CAMMESA for up to a power capacity of 22.80 MW, which is not
included in the table above.
50
In addition, we
participate in two arrangements known as the FONINVEMEM and the CVO
Agreement, which are managed by CAMMESA at the instruction of the
Ministry of Energy (for more information see “Item 4.B.
Business Overview—FONINVEMEM and Similar Programs”).
The Argentine Government created the FONINVEMEM with the purpose of
repaying power generation companies, like us, the existing
receivables for electric power sales between 2004 and 2011 and
funding the expansion and development of new power capacity. As a
result of our participation in this arrangement, we receive monthly
payments for certain of our outstanding receivables with CAMMESA.
Additionally, we have an equity interest in the companies that
operate the FONINVEMEM and CVO Agreement’s new combined cycle
projects, which will be entitled to have an ownership of the
combined cycle projects.
During 2019, we
collected Ps. 1.13 billion from FONINVEMEM receivables, and Ps.
8.45 billion from CVO
receivables (including installments 1 to 10 which were due during
2018), measured in current amounts as of December 31,2019.
As of December 31,2019, we held equity interests in the companies that operate the
following FONINVEMEM thermal power plants:
Power
plant
Operating
Company
Location
Installed
capacity (MW)
Technology
% Interest in
the operating company(1)
San
Martín
Termoeléctrica
José de San Martín S.A. (TJSM)
Timbúes,
Province of Santa Fe
865
Combined cycle
plant, which became operational in 2010
30.8752%
Manuel
Belgrano
Termoeléctrica
Manuel Belgrano S.A. (TMB)
Campana, Province
of Buenos Aires
873
Combined cycle
plant, which became operational in 2010
30.9464%
Vuelta de
Obligado
Central Vuelta de
Obligado S.A.
(CVOSA)
Timbúes,
Province of Santa Fe
816
Combined cycle
plant, which became operational in March 2018
56.1900%
(1)
In each case, we
are the private sector generator with the largest ownership
stake.
After ten years
operating each company (which occurred on February 2, 2020 for
TJSM, January 7, 2020 for TMB and will occur on March 20, 2028 for
CVOSA), each company is entitled to receive property rights to such
power plants from the respective trusts currently holding such
power plants. Since the Argentine government financed part of the
construction, it will be incorporated as a shareholder of TJSM, TMB
and CVOSA, and our interests in TJSM, TMB and CVOSA significantly
diluted. See “Item 3.D. Risk Factors—Risks Relating to
Our Business—Our interests in TJSM, TMB and CVOSA will be
significantly diluted.”
On January 3, 2020,
the Argentine Government sent a notice to the Company stating that,
in accordance with FONINVEMEM Agreement, TJSM and TMB should
perform all necessary acts to incorporate the Argentine Government
as shareholder of both companies, claiming, in each case, the
following equity interest rights: 65.006% in TMB and 68.826% in
TJSM.
On January 9, 2020,
Central Puerto, together with the other generation companies,
shareholders of TJSM and TMB, replied such notice stating that the
Argentine Government’s equity interest claims does not
correspond with the contributions made for the construction of the
power plants under the terms of the FONINVEMEM Agreement that give
rights to claim such equity interest. On March 4, 2020, the
Argentine Government reiterated its previous claim to the Company.
As of the date of this annual report, Central Puerto is evaluating
future steps, and consequently, we cannot estimate the exact
potential dilution of our interests in TJSM and TMB. In the case of
CVOSA, the Argentine Government’s stake will be at least 70%
pursuant to FONINVEMEM arrangements for CVOSA. Any dilution of our
interest in TJSM, TMB or CVOSA could reduce our income, related to
those power plants, which could adversely affect our results of
operations. See “Item 4.B. Business Overview—FONINVEMEM
and Similar Programs.”
51
The following set
of graphs shows our total assets under the FONINVEMEM
program:
(1)
Ownership structure
prior to the transfer of the plant to the operating company and the
incorporation of the Argentine Government. Enel includes Enel
Generación Costanera S.A., Central Dock Sud S.A. and Enel
Generación El Chocón S.A.
Source: TJSM, TMB
and CVOSA
The following
graphic breaks down where our plants and power investments were
located in Argentina as of December 31, 2019, and their installed
capacity:
52
_____________
(1)
“Assets under
construction” refers to (a) Los Olivos wind farms which
started operations in February, 2020, La Genoveva I, which is
currently under construction, the increase of the installed
capacity of the Manque wind farm, which as of December 31, 2019 had
an installed capacity of 38 MW. As of January 23, 2020 its
installed capacity increased to 53.2 MW, and as of March 3, 2020,
to 57 MW, the total power of the project) and the output to the
grid from the La Castellana II wind farm increase from 14.40 MW as
of December 31, 2019 to 15.20 MW on February 22, 2020, the total
installed capacity of the project; (b) the Terminal 6 Plant, which
is under construction; (c) the Brigadier López plant expansion
project has not commenced as of the date of this annual report (see
Item 3D. Risk Factors—Risks Relating to our Business—
Factors beyond our control may affect or delay the completion of
the awarded projects, or alter our plans for the expansion of our
existing plants). As of the date of this annual report, we have an
aggregate installed capacity of 4,315 MW.
(2)
“FONINVEMEM
Plants” refers to the plants José de San Martín,
Manuel Belgrano and Vuelta de Obligado that we expect to be
transferred from FONINVEMEM trusts to the operating companies,
TJSM, TMB and CVOSA, respectively. For a description of when we
expect this transfer to occur and other information, see
“Item 4.B. Business Overview—FONINVEMEM and Similar
Programs.”
(3)
Power capacity
numbers have been rounded. The power capacity with respect to the
assets under construction is the expected power capacity of the
plant, which may differ from the awarded capacity.
In the year ended
December 31, 2019, we had revenues for continuing operations of
Ps.35.96 billion (or US$600.45 million).
In the year ended
December 31, 2019, we sold approximately 92.37% of our electric
energy sales (in MWh) under the Energía Base. Sales under
Energía Base accounted for 76.14% of our revenues in the year
ended December 31, 2019. In the year ended December 31, 2016,
tariffs under the Energía Base were paid by CAMMESA based on a
fixed and variable costs system which was determined by the former
Secretariat of Electric Energy pursuant to Resolution SE No. 95/13,
as amended. These tariffs were adjusted annually, denominated in
pesos, and remained unchanged throughout the year. From February
2017 to February 2019, the Energía Base was regulated by
Resolution SEE No. 19/17, which replaced Resolution SE No. 95/13,
as amended. Resolution SEE No. 19/17 increased the Energía
Base’s tariffs and denominated them in U.S. dollars. From
March 2019 to and including January 2020, Energía Base was
regulated by Resolution SRRyME No. 1/19, which abrogated Resolution
SE No. 19/17. Resolution SRRyME No. 1/19 decreased the tariffs for
the energy and power. On February 27, 2020, the Secretariat of
Energy issued Resolution 31/20, which replaces the regulatory
framework for Energía Base applicable from February 1, 2020.
The main changes were:
●
Prices are set in
Argentine pesos.
●
Initial variable
energy price although denominated in Argentine pesos, remained
almost unchanged. The applicable exchange rate between the new
price in Argentine pesos and the previous price in U.S. dollars was
Ps.60 per U.S. dollar, similar to the average exchange rate during
January, 2020 of Ps. 60.01 per US dollar.
●
Initial power price
for energy from thermal units were approximately reduced by16% and
set in Argentine pesos.
●
Generation units
with less than 30% Utilization Factor in the last twelve months
receive 60% of the price, compared to up to 70% before.
Additionally, if the Utilization Factor is between the 30-70%
threshold the generation units receive a linear proportion between
60 and 100% of the power price, and if the Utilization Factor is
70% or greater, the generation units receive 100% of the
price.
●
Initial fixed power
price for hydroelectric plants was approximately reduced by 45 %
and set in Argentine pesos.
●
A new remuneration
scheme for peak demand hours generation was established to
partially mitigate the fixed power price, taking into consideration
the equipment the generating company has.
●
The prices set in
pesos will have a monthly adjustment with the following formula:
(i) 60% of the CPI, plus (ii) 40% of the WPI.
However, on April8, 2020, Central Puerto learned that the Secretary of Energy may
have instructed CAMMESA to postpone until further notice the
application of Annex VI, related to the price update mechanism
described under “Item 4.B. Business Overview—The
Argentine Electric Power Sector—Remuneration Scheme—The
Current Remuneration Scheme”. Accordingly, CAMMESA did not
apply the price update mechanism for the March 2020 monthly
payments under Energy Base. The Company is evaluating the effects
that the non-application of the aforementioned Annex VI would have,
as well as the steps to be followed in this regard.
Under the
Energía Base, the fuel required to produce the energy we
generate is supplied by CAMMESA free of charge, and the price we
receive as generators, for sales not made under term contracts, is
determined by the Resolution SE No. 31/2020 without accounting for
the fuel CAMMESA supplies. Our compensation under the Energía
Base depends to a large extent on the availability and energy
output of our plants, and in the case of the thermal units, the
Utilization Factor of each machine.
53
On November 7,2018, pursuant to Res. SE 70/18, the Argentine Government
authorized generators to purchase their own fuel for assets under
the Energía Base Regulatory framework. If generation companies
opt to take this option, CAMMESA values and pays the generators
their respective fuel costs in accordance with the Variable Costs
of Production (CVP) declared by each generator to CAMMESA. The
agency in charge of dispatch (Organismo Encargado del Despacho or
“OED” using the Spanish acronym) -CAMMESA- continued to
supply the fuel for those generation companies that do not elect to
take this option. In accordance to Res. SEE 70/18, in November
2018, we started purchasing fuel for our Luján de Cuyo
combined cycle, and in December 2018, for all our thermal units. In
the year ended December 31, 2019, income under Res. SEE 70/18
accounted for 30.39% of our revenues.
On December 27,2019, the Ministry of Productive Development issued Resolution MDP
No. 12/2019, repealing Resolution SGE No. 70/2018 and restoring
Art. 8 of Res. SE 95/2013. Beginning January 2020, CAMMESA became
the only fuel supplier for generation companies, except for (i)
thermal units that had prior commitments with CAMMESA for energy
supply contracts with their own fuel management and (ii) thermal
units under the Energía Plus regulatory framework, authorized
under Resolution SE No.1281/05 to supply energy to large private
users.
Additionally, we
have sales under contracts, including (i) term market sales under
contract, (ii) MATER sales under contracts, (iii) Energía Plus
sales under contract; and (iii) sales of energy under the RenovAr
Program. Term market sales under contract include sales of electric
power under negotiated contracts with private and public sector
counterparties. MATER sales under contracts include sales of
electric power under negotiated contracts with private and public
sector counterparties generated exclusively from renewable energy
plants. In all cases, sales under contracts generally involve PPAs
with customers and are contracted in U.S. dollars. The prices in
term market sales under contracts from thermal units and
Energía Plus contracts include the price of fuel used for
generation, the cost of which is assumed by the generator, or
include such cost as a component of the sale that is charged to the
client. For terms longer than one year, these contracts typically
include electric power price updating mechanisms in the case of
fuel price variations or the generator being required to use liquid
fuels in the event of a shortage of natural gas. For more
information regarding our main clients for term market sales under
contract, see “Business—Our Customers.” Term
market sales under contract, and MATER sales under contracts
accounted for 2.51% and 0.76% of our electric power sales (in MWh)
and 11.04% and 1.09% of our revenues for the year ended December31, 2019, respectively. In our Luján de Cuyo plant, we are
also permitted to sell a minor portion (up to 16 MW) of our
generation capacity and electric power under negotiated contracts
with private sector counterparties under the Energía Plus, to
encourage private sector investments in new generation facilities.
Energía Plus sales under contracts accounted for 0.26% of our
electric power sales (in MWh) and 0.53% of our revenues for the
year ended December 31, 2019. These contracts typically have one to
two year terms, are denominated in U.S. dollars and are paid in
pesos at the exchange rate as of the date of payment. Under the
rules and regulations of the Energía Plus, the generator buys
the fuel to cover the committed demand of electric power and
supplies the electric power to large electric power consumers at
market prices, denominated in U.S. dollars, previously agreed
between the generator and its clients. Sales under RenovAr Program
accounted for 4.28% of our electric power sales (in MWh) and 7.38%
of our revenues for the year ended December 31, 2019. See
“Item 4.B. Business Overview—The Argentine Electric
Power Sector.”
We also produce
steam. As of December 31, 2019, we had an installed capacity of 125
tons per hour. Steam sales accounted for 1.21% of our revenues for
the year ended December 31, 2019. Our production of steam for the
year ended December 31, 2019 was 1,018 thousand metric tons. Our
Luján de Cuyo plant, supplies steam under negotiated contracts
with YPF.
Our Luján de
Cuyo plant has new a combined heat and power (CHP) unit in place,
which started operations on October 5, 2019, replacing the previous
CHP, and supplies up to 125 metric tons per hour of steam to
YPF’s refinery in Luján de Cuyo under a steam supply
agreement. This contract is denominated and invoiced in U.S.
dollars, but can be adjusted in the event of variations in U.S.
dollar-denominated prices for fuel necessary for power generation.
This new steam supply contract with YPF was entered into on
December 15, 2017 for a period of 15 years and replaced the
contract in place with YPF. For further information on the steam
supply agreements with YPF for the Luján de Cuyo plant, see
“Item 5.A. Operating Results—Factors Affecting Our
Results of Operations—Sales Under Contracts, Steam Sales and
Others —Steam supply to YPF—Luján de Cuyo
plant”.
After the La Plata
Plant Sale, the contract between us and TGS for the natural gas
transportation capacity has remained effective. Pursuant to the
terms of our agreement with YPF EE, we resell our gas
transportation capacity to YPF EE through the resale system
established by Resolution ENARGAS 419/97. The resale under such
system is open to third parties and consequentially does not ensure
that YPF EE will receive the gas transportation capacity needed to
operate the La Plata plant. Therefore, on January 25, 2018, we
requested to be registered with the Ministry of Energy and the
ENARGAS as a natural gas seller to permit the resale of our gas
transportation capacity to YPF EE without the risk of intervention
from interested third parties. On July 20, 2018, we were
effectively registered as natural gas sellers. The resell to YPF EE
of our natural gas transportation capacity accounted for 0.80% of
our revenues for the year ended December 31, 2019.
54
In addition, we
have income derived from the operating fee that we receive for the
management of the Central Vuelta de Obligado plant. The income from
the management of the Central Vuelta de Obligado plant accounted
for 1.42% of our revenues for the year ended December 31,2019.
The following graph
breaks down our revenues from continuing operations in the year
ended December 31, 2019 by regulatory framework:
Source: Central
Puerto.
(1)
Includes (i) sales
of energy and power to CAMMESA remunerated under Resolution No. 95,
Resolution No. 19/2017, and Res. SE 1/2019 (ii) spot sales of
energy and power to CAMMESA not remunerated under Resolution No. 95
(as amended), (iii) remuneration under Resolution No. 724/2008
relating to agreements with CAMMESA to improve existing Argentine
power generation capacity and (iv) income related to Res. SEE 70/18
(see “Item 4.B. Business Overview—The Argentine
Electric Power Sector—Remuneration Scheme—The Previous
Remuneration Schemes—Resolution SEE 70/18—Option to
purchase fuel for units under Energía Base Regulatory
Framework.”). See “Item 4.B. Business
Overview—The Argentine Electric Power Sector—Structure
of the Industry—Shortages in the Stabilization Fund and
Responses from the Argentine Government—The National
Program.”
Note: From February27, 2020, a new remuneration scheme for Energía Base
applicable from February 1, 2020 came into effect with Resolution
31/20. For more information see “Item 4.B. Business
Overview—The Argentine Electric Power
Sector—Remuneration Scheme—The Current Remuneration
Scheme.”
55
The following graph
breaks down our electric energy sales from continuing operations in
the year ended December 31, 2019 by regulatory framework, in
MWh:
Source: Central
Puerto.
Note: From February27, 2020, a new remuneration scheme for Energía Base
applicable from February 1, 2020 came into effect with Resolution
No. 31/2020. For more information see “Item 4.B.
Business Overview—The Argentine Electric Power
Sector—Remuneration Scheme—The Current Remuneration
Scheme.”
As of the date of
this annual report, we have plans underway to expand our generating
capacity through renewable energy projects, including one wind
energy project currently under construction with expected
generating capacity of 88.2 MW (La Genoveva I) (see Item 3D. Risk
Factors—Risks Relating to our Business— Factors beyond
our control may affect or delay the completion of the awarded
projects, or alter our plans for the expansion of our existing
plants).
In 2015 and 2016,
we acquired four heavy-duty, highly efficient gas turbines: (i) one
General Electric gas turbine with a capacity of 373 MW; (ii) two
Siemens gas turbines, each with a capacity of 298 MW; and (iii) one
Siemens gas turbine with a capacity of 286 MW, which we are
currently installing in our Terminal 6 San Lorenzo co-generation
project. Additionally, we have also acquired 130 hectares of land
in the north of the Province of Buenos Aires, in a location that
provides excellent conditions for fuel delivery and access to power
transmission lines.
We also own
long-term significant non-controlling investments in companies that
have utility licenses to distribute natural gas through their
networks in the provinces of Mendoza, San Juan, San Luis,
Córdoba, Catamarca and La Rioja. Considering our direct and
indirect interests, we hold (i) a 22.49% equity stake in DGCU and
(ii) a 36.69% equity stake in DGCE (Ecogas). Ecogas has a gas
distribution network covering 33,867 km and as of December 31,2019, served approximately 1,347,592 customers. Ecogas had a gas
distribution network covering 33,867 km and served approximately
1,347,592 customers as of December 31, 2019. In 2019, Ecogas
distributed an average of 13.33 million cubic meters of natural gas
per day; and in 2018, Ecogas distributed an average of 13.80
million cubic meters of natural gas per day. This volume of
distribution represented approximately 14.93% and 15.70% of the gas
delivered by all the distribution companies in Argentina in 2019
and in 2018, respectively, according to data from Ecogas. In the
year ended December 31, 2019 our interest in Ecogas produced Ps.
1.02 billion in share of profit of an associate, which represented
11.80% of our net income for such period.
56
At a meeting of our
shareholders on December 16, 2016, in accordance with the strategic
objective of focusing on assets within the energy industry, the
shareholders considered a potential sale of our equity interests in
Ecogas to Magna Energía S.A. but voted to postpone the
decision. We are currently assessing various strategic
opportunities regarding DGCU and DGCE, including a possible partial
or total sale of our equity interest in them. On January 26, 2018,
the shareholders of DGCE approved the admission of DGCE to the
public offering regime in Argentina. On March 14, 2018, the Company
authorized the offer of up to 10,075,952 common class B shares of
DGCE, in a potential public offering authorized by the CNV, subject
to market conditions. This authorization was encompassed within
February 23, 2018 authorization of the Board of Directors for the
sale of up to 27,597,032 common B shares of DGCE. However, due to
market conditions, DGCE shareholders decided to postpone the offer.
On October 24, 2019, the CNV notified DGCE the cancellation of the
authorization for the public offering.
Our Competitive Strengths
We believe that we
have achieved a strong competitive position in the Argentine power
generation sector primarily as a result of the following
strengths:
●
One of the largest private
sector power companies in Argentina. We are one of the largest private
sector power generation companies in Argentina, as measured by
power generated, according to data from CAMMESA. In the year ended
December 31, 2019, we generated a total of 14,849 net GWh of power
for continuing operations. As of December 31, 2019, we had an
installed generating capacity of 4,273 MW. Our leading position
allows us to develop a range of sales and marketing strategies,
without depending on any one market in particular. Additionally,
our size within the Argentine market positions us well to take
advantage of future developments as investments are made in the
electric power generation sector. Our ample installed capacity is
also an advantage, as we have enough capacity to support large,
negotiated contracts.
The following
graphs shows the SADI’s total power generation by private
companies and market share for 2019 (grouped by related companies
and subsidiaries):
Source: CAMMESA.
(i) Enel includes Enel Generación Costanera S.A., Central Dock
Sud S.A. and Enel Generación El Chocón S.A.; (ii) Pampa
Energía includes Central Térmica Güemes S.A.,
Central Térmica Loma la Lata S.A., Inversora Piedra Buena
S.A., Inversora Diamante S.A., CTG and Inversora Nihuiles, and
Petrobras Argentina S.A.; and (iii) AES Argentina Generación
includes Central Térmica San Nicolás S.A. and
Hidroeléctrica Alicurá S.A.
●
High quality assets with
strong operational performance. We have a variety of
high-quality power generation assets, including combined cycle
turbines, gas turbines, steam turbines, hydroelectric technology
and steam and power co-generation technology, with a combined
installed generating capacity of 4,315 MW, as of the date of this
annual report. Our efficiency levels compare favorably to those of
our competitors due to our efficient technologies. The following
chart shows the efficiency level for the period between November
2019 and April 2020 of each of our generating units compared to our
main competitors based on heat rate, which is the amount of energy
used by an electric power generator or power plant to generate one
kWh of electric power.
57
Source:
CAMMESA.
The following chart
shows the availability ratio of our thermal assets as compared to
the market average:
Source: Central
Puerto, CAMMESA. 1Average market
availability for thermal units.
58
We have long-term
maintenance contracts with the manufacturers of our combined cycle
units and co-generation plants with the largest capacity, namely
the Puerto combined cycle unit (CEPUCC), the LDCUDCC25 combined
cycle unit at the Luján de Cuyo plant, the Brigadier
López gas turbine (BLOPTG01) and the co-generation units at
the Luján de Cuyo plant (LDCUTG23, LDCUTG24, LDCUTG26,
LDCUTG27), under which the manufacturers provide maintenance using
best practices recommended for such units. Our remaining units
receive maintenance through our highly trained and experienced
personnel, who strictly follow the recommendations and best
practices established by the manufacturers of such units. We are
also capable of generating power from several sources of fuel,
including natural gas, diesel oil and fuel oil. In addition, in
recent years we have invested in adapting our facilities to be able
to generate power from biofuels, and we have developed business
relationships over the years with strategic companies from the oil
and gas and the biofuel sectors. Our power generation units are
also favorably positioned along the system’s power dispatch
curve (the WEM marginal cost curve) as a result of our
technologically diverse power generation assets and high level of
efficiency in terms of fuel consumption, which ensures ample
dispatch of energy to the system, even when taking into account new
capacity additions expected in the coming years that were awarded
pursuant to auctions to increase thermal generation capacity and
capacity from renewable energy sources.
●
Diversified and
strategically located power sector assets. Our business is
both geographically and technologically diverse. Our assets are
critical to the Argentine electric power network due to the
flexibility provided by the large fuel storage capacity, which
allows us to store 32,000 tons of fuel oil (enough to cover 6.3
days of consumption) and 20,000 tons of gas oil (enough to cover
5.7 days of consumption) at our thermal generation plants, in
addition to our access to deep water docks, our dam water capacity
and our ability to store energy for 45 days operating at full
capacity at Piedra del Águila. The prices for power
transmission are regulated and based on the distance from the
generating company to the user, among other factors. In this
regard, our thermal power plants are strategically located in
important city centers or near some of the system’s largest
customers, which constitutes a significant competitive advantage.
For example, approximately 38% of Argentine energy consumption was
concentrated within the metropolitan area of Buenos Aires during
2019. Because the lack of capacity in SADI limits the efficient
distribution of energy generated in other geographic areas, our
generation plants in Buenos Aires and Mendoza are essential to the
supply of energy to meet the high demand in these areas. In
addition, this need to generate energy close to a high consumption
area in Argentina means that our plants are less affected by the
installation of new capacity in other regions.
The diversification
of our fuel sources enables us to generate energy in different
contexts, as shown in the following chart:
Source: Central
Puerto
(1)
Luján de
Cuyo’s Siemens Combined Cycle unit (306 MW installed
capacity) is CEPU’s only unit relying exclusively on natural
gas.
59
●
Expansion of the current
installed capacity.
We have taken steps to improve our strategic position as a leader
among conventional power generation technologies by expanding our
thermal generation and renewable energy capacity.
Thermal
Generation. In 2015 and 2016,
we acquired four heavy-duty, highly efficient gas turbines: (i) one
General Electric gas turbine with a capacity of 373 MW; (ii) two
Siemens gas turbines, each with a capacity of 298 MW; and (iii) one
Siemens gas turbine with a capacity of 286 MW. We also acquired 130
hectares of land in the north of the Province of Buenos Aires. For
example, we are currently using a Siemens gas turbine, with a
capacity of 286 MW, for the Terminal 6 San Lorenzo co-generation
project. Given the current uncertainties in the global and
Argentina economy in connection with the outbreak of the COVID-19,
we are analyzing our plans for the remaining three
turbines.
In addition, as of
the date of this annual report, we have already paid SEK$381.37
million (which, converted at the exchange rate quoted by the
Central Bank as of the date of each payment, equals US$45.46
million) to purchase two additional Siemens gas turbines for our
Luján de Cuyo project, which started commercial operations on
October 5, 2019.
The Secretariat of
Electric Energy, pursuant to Resolution SEE No. 287-E/17, called
for proposals for supply of electric power to be generated through
existing units, the conversion of open cycle units into combined
cycle units or the installation of co-generation units. We
submitted bids on August 9, 2017, and, on September 25, 2017, we
were awarded two co-generation projects at Terminal 6 San Lorenzo
(with an awarded electric capacity of 330 MW and 317 MW for the
winter and summer, respectively) and Luján de Cuyo (with an
awarded electric capacity of 93 MW and 89 MW for the winter and
summer, respectively), which started operations on October 5, 2019,
seven weeks ahead of the committed COD.
Renewable
Generation. In addition, as of
the date of this annual report, we have one wind energy project
under construction in Argentina with the following characteristics
(the “Renewable Project”):
La Genoveva
I
Location
Province of Buenos
Aires
Original commercial
operation date
May 2020
(1)
Estimated total
capital expenditure (excluding VAT) (2)
The commercial
operation date (COD) committed with CAMMESA of La Genoveva I is 720
days after the PPA signing date, which was on July 27, 2018. Due to
the outbreak of COVID-19 and the measures adopted by the government
to contain it, the project is expected to be delayed. See
“Item 3D. Risk Factors—Risks Relating to our
Business— Factors beyond our control may affect or delay the
completion of the awarded projects, or alter our plans for the
expansion of our existing plants.”
(2)
As of December 31,2019, the executed capital expenditures for La Genoveva I were Ps.
6.02 billion, plus the applicable value added tax.
Our expansion
projects are being developed with capital contributions from
Central Puerto and its subsidiaries, and, in the case of La
Genoveva I, with a long term loan entered into between Vientos La
Genoveva S.A.U. and IFC (for further information see “Item
5.B. Liquidity and Capital Resources—Indebtedness—
Loans from the IFC Facility–Vientos La Genoveva
S.A.U.”). However, for those projects financed by Central
Puerto, we may explore alternative financing options if the market
conditions are favorable.
In connection with
the Renewable Project, we have already obtained energy production
assessments prepared by an independent expert, regulatory approvals
of the environmental impact studies, relevant municipal
qualifications and regulatory approvals of the electrical studies
in connection with access to the transmission network. In addition,
we have an usufruct over the land in the Province of Buenos Aires
to be used for La Genoveva I project. We have begun construction of
the facilities and have executed contracts with suppliers to
acquire and maintain the wind turbines.
In connection with
our renewable energy efforts, Law No. 27,191, provides that Large
Users, whose demand exceeds 300 KW of average annual power, should
comply with the obligation to purchase renewable energy by entering
into a contract with a generating company or through
self-generation. The Ministry of Energy and Mining through
Resolution 281-E/ 2017, established the regulatory framework that
allows Large Users to purchase renewable energy from private
generating companies and the conditions for granting the
“dispatch priority” that allows such transactions to
take place and ensures that the private generating companies will
not be restricted in the future in its generation dispatch (see
“Item 4.B. Business Overview—The Argentine Electric
Power Sector—Resolution No. 281-E/17: The Renewable Energy
Term Market in Argentina”). As of the date of this annual
report, we have already signed long-term PPA contracts with private
customers for 100% of the estimated energy generation capacity of
our term market renewable energy projects developed under
Resolution No. 281-E/17 regulatory framework.
60
However, we cannot
assure you that the Argentine Government will open new auction
processes, or our bids will be successful or that we will be able
to enter into PPAs in the future. See “Item 3D. Risk
Factors—Risks Relating to our Business— Factors beyond
our control may affect or delay the completion of the awarded
projects, or alter our plans for the expansion of our existing
plants”
Stable cash flow
generation, partially supported by U.S. dollar denominated cash
flows. Part of our
cash flows are denominated in US dollars mainly from (a) long term
contracts (PPAs) with CAMMESA, and (b) directly from large users as
a result of Energía Plus, MATER and Steam Sales. Such payments
principally depend on two factors: (i) the availability of power
capacity (in the case of thermal units) and (ii) the amount of
power generated. Both variables have been relatively stable in
recent years, as a result of the diversified technology and high
efficiency of our power generation units. In addition, our cash
flows have little exposure to the fuel price changes as the fuel
needed to produce the energy under the Energía Base is
supplied by CAMMESA without charge and our term market sales under
contracts typically include price adjustment mechanisms based on
fuel price variations, if applicable. During the year ended
December 31, 2019, we received Ps.1.13 billion (US$20.27 million in
U.S. dollar-denominated payments, taking into account the exchange
rate of December 31, 2019 as quoted by Banco de la Nación
Argentina for wire transfers) in principal and in interest for
these receivables (including VAT).
During 2019, we
collected Ps. 1.13 billion from FONINVEMEM receivables, and Ps.
8.45 billion from the
CVO receivables (including installments 1 to 10 which were due
during 2018), measured in current amounts as of December 31,2019.
●
Adequate financial
position. We benefit from an adequate financial position,
operating efficiency and a relative low level of indebtedness,
allowing us to deliver on our business growth strategy and create
value for our shareholders. In terms of our financial position, our
total cash and cash equivalents and current other financial assets
was Ps.9.19 billion as of December 31, 2019 (approximately US$153
million). As of the date of this annual report, we also have
uncommitted lines of credit with commercial banks, totaling
approximately Ps. 8.50 billion.
●
Solid and experienced
management team with a successful track record in delivering
growth. Our executive officers have vast experience and a
long track record in corporate management with, on average, 18
years of experience in the industry. Our management has diverse
experience navigating different business cycles, markets and
sectors, as evidenced by the growth and expansion we have undergone
since the early 1990s. They also have a proven track record in
acquisitions and accessing financial markets. On June 14, 2019
Central Puerto, in the context of a local and foreign public tender
called by IEASA, which had been awarded to the Company, purchased
the Brigadier López Plant. In order to consummate the
acquisition, our management successfully obtained US$180 million
Loan from Citibank N.A., JP Morgan Chase Bank N.A. and Morgan
Stanley Senior Funding INC. “See Item 5.B. Liquidity and
Capital Resources—Indebtedness- Loan from Citibank N.A., JP
Morgan Chase Bank N.A. and Morgan Stanley Senior Funding
INC”.
Additionally,
during 2018 and 2019, our management also obtained financing for
the expansion of our installed capacity from multilateral credit
agencies, export credit agencies and commercial banks, as described
in “Item 5.B. Liquidity and Capital
Resources—Indebtedness”.
In addition, in
2015, jointly with an investment consortium, we acquired
non-controlling equity interests in Ecogas, which distributes
natural gas through its network covering 33,867 km and serving
approximately 1,347,592 customers as of December 31, 2019, further
diversifying our interest in the sector. We believe that our
management team has been successful in identifying attractive
investment opportunities, structuring innovative business plans and
completing complex transactions efficiently.
Our management has
significant in-country know-how, with professionals who have taken
an active role in project development and construction, developing
private and public investment plans with both Argentine and
international partners. In addition, our management team has
business experience at the international and national level, are
familiar with the operation of our assets in a constantly changing
business environment and are strongly committed to our day-to-day
decision-making process.
Finally, our
executive officers have a solid understanding of Argentina’s
historically volatile business environment. They have built and
maintained mutually beneficial and long-lasting relationships with
a diversified group of suppliers and customers and have cultivated
relationships with regulatory authorities.
61
●
Strong corporate
governance. We have adopted a corporate governance code to
put into effect corporate governance best practices, which are
based on strict standards regarding transparency, efficiency,
ethics, investor protection and equal treatment of investors. The
corporate governance code follows the guidelines established by the
CNV. We have also adopted a code of ethics and an internal conduct
code designed to establish guidelines with respect to professional
conduct, morals and employee performance. In addition, the majority
of our Board of Directors qualifies as “independent” in
accordance with the criteria established by the CNV, which may
differ from the independence criteria of the NYSE and
NASDAQ.
Our Business Strategy
We seek to
consolidate and grow our position in the Argentine energy industry
by maintaining our existing asset base and by acquiring and
developing new assets related to the sector. The key components of
our strategy are as follows:
●
Consolidating our leading
position in the energy sector. We seek to consolidate our
position in the energy sector by analyzing value-generating
alternatives through investments with a balanced approach to
profitability and risk exposure. We are committed to maintaining
our high operating standards and availability levels. To this end,
we follow a strict maintenance strategy for our units based on
recommendations from their manufacturers, and we perform periodic
preventive and predictive maintenance tasks. We plan to focus our
efforts on optimizing our current resources from a business,
administrative and technological perspective, in addition to
capitalizing on operating synergies from the plants currently under
construction that rely on similar systems, know-how, customers and
suppliers.
●
Becoming a leading company
in renewable energy in Argentina. Several research studies
from organizations such as the Cámara Argentina de Energías
Renovables suggest that Argentina has a significant
potential in renewable energy (mainly in wind and solar energy). We
also believe that renewable energy will become a larger part of the
installed capacity in Argentina. The Ministry of Energy and Mining,
through Law No. 27,191, has established a target for renewable
energy sources to account for 20% of Argentina’s electric
power consumption by December 31, 2025. We intend to capitalize on
this opportunity by expanding our investments into renewable energy
generation. In order to achieve this goal, we are strengthening our
renewable energy portfolio. In August 2018, September 2018, July
2019, September 2019, December 2019/January 2020, and February 2020
our wind farms La Castellana I, Achiras, La Castellana II, La
Genoveva II, Manque, and Los Olivos started operations,
respectively. Additionally, we are also expanding our portfolio
with one wind energy project, La Genoveva I (88.2 MW), currently
under construction, and one solar project, El Puesto (12 MW),
currently under development and exploring several other options to
diversify our generation assets to include sustainable power
generation sources (see Item 3D. Risk Factors—Risks Relating
to our Business— Factors beyond our control may affect or
delay the completion of the awarded projects, or alter our plans
for the expansion of our existing plants). In 2016, we formed our
subsidiary, CP Renovables, to develop, construct and operate
renewable energy generation projects.
●
Maintaining an adequate
financial position and sound cash flow levels. We have a
relatively low level of debt, which reflects our adequate financial
position and additional debt capacity. We believe our adequate
financial position is the result of our responsible financial
policies and stable cash flows. We seek to preserve our current
cash flow levels in the coming years by, among other things,
keeping a rigorous maintenance program for our production units,
which we expect will help us continue the positive operational
results we have experienced, particularly with regard to our
electric power dispatch availability. We intend to fund our
expansion plans primarily with loan arrangements, such as credit
facilities and project financing in the case of our renewable
energy projects. Each of CP La Castellana, CP Achiras, CPR Energy
Solutions, Vientos La Genoveva I, Vientos La Genoveva II, entered
into long term loans to fund the development of renewable energy
projects they were awarded and to purchase wind turbines. We also
obtained a long term loan from Kreditanstalt für Wiederaufbau
(“KfW”) to support the construction of the new
Luján de Cuyo cogeneration project, and a loan from Citibank
N.A., JP Morgan Chase Bank N.A. and Morgan Stanley Senior Funding
INC. to purchase the Brigadier López plant. Additionally, we
expect that the new capacity from these projects will allow us to
further increase our cash flow, while enhancing our financial
position.
CVOSA is a private,
unlisted company, engaged in managing the purchase of equipment and
building, operating and maintaining the CVOSA power plant that was
constructed and began operations in March 20, 2018 under a program
substantially similar to the FONINVEMEM program. In the year ended
December 31, 2019, CVOSA accounted for 0.91% of our consolidated
net income.
We have 56.19 % of
the voting rights in CVOSA, which grants us the power to
unilaterally approve resolutions for which a majority is required
at the relevant shareholders meeting. However, pursuant to a
shareholders’ agreement entered into among Endesa Costanera
S.A., Hidroeléctrica El Chocon S.A., Central Dock Sud S.A.
(the “Other CVOSA Shareholders”) and us, we will only
be able to approve the following decisions with the affirmative
vote of the Other CVOSA Shareholders: (i) entering into a merger,
spin-off, transformation or liquidation; (ii) increasing or
decreasing the capital stock; (iii) receiving capital
contributions; (iv) entering into transactions with related
parties; (v) amending the bylaws; (vi) entering into an operating
and maintenance agreement for the Vuelta de Obligado power plant;
(vii) approving the trust agreement in connection with the Vuelta
de Obligado power plant and its amendments; (viii) filing any
lawsuit against any governmental authorities, CAMMESA and/or the
FONINVEMEM trust fund currently holding the Vuelta de Obligado
power plant; (ix) entering into engineering services, gas supply
and transportation agreements; and (x) entering into a power
purchase agreement with CAMMESA for the Vuelta de Obligado power
plant. If such decisions are to be decided at a board of
directors’ meeting, they can only be approved with the
affirmative vote of at least one member of the board of directors
appointed by the Other CVOSA Shareholders.
The board of
directors of CVOSA consists of four members, two of which are
appointed by us and the remaining two, by the Other CVOSA
Shareholders. In addition, we have the right to appoint the
chairman of the board of directors of CVOSA, who has double vote in
case of a tie. In addition, we have the right to appoint one member
of the supervisory committee of CVOSA.
Pursuant to the
terms of the FONINVEMEM agreement relating to the Vuelta de
Obligado power plant, on the tenth anniversary of the start of
operations of the Vuelta de Obligado power plant, which occurred on
March 20, 2018, all governmental entities that financed the
construction of the Vuelta de Obligado power plant have the right
to be incorporated as shareholders of CVOSA, which in turn may
dilute our interest in CVOSA. See “Item 3.D. Risk
Factors—Risks Relating to Our Business—Our interests in
TJSM, TMB and CVOSA will be significantly diluted.” If such
dilution were to occur, we may no longer control
CVOSA.
Proener S.A.U.
Proener S.A.U. is a
private, unlisted company. We hold a 100.00% interest in Proener
S.A.U., a company engaged in the commercialization and
transportation of fuels, both domestically in Argentina and
internationally, and providing consulting and technical assistance
services to the energy industry. In the year ended December 31,2019, Proener S.A.U. accounted for a loss equaling 0.18% of our
consolidated net income.
Central Aimé Painé S.A.
Central Aimé
Painé S.A. is a private, unlisted company. We hold a 97.00%
interest in Central Aimé Painé S.A., a company engaged in
managing the purchase of equipment and building, operating, and
maintaining power plants, both domestically in Argentina and
internationally. In the year ended December 31, 2019, Central
Aimé Painé S.A. did not account for any of our
consolidated net income.
CP Renovables S.A.
In 2016, we formed
a subsidiary, CP Renovables S.A. (“CP Renovables”), to
develop, construct and operate renewable energy generation
projects. As of the date of this annual report, we own a 70.00%
interest in CP Renovables. The remaining 30.00% interest is owned
by Guillermo Pablo Reca.
CP Renovables S.A.
is a private, unlisted company, in which we hold a 70.00% interest
in the capital stock. CP Renovables S.A. invests in renewable
energy assets. In the year ended December 31, 2019, CP Renovables
S.A. accounted for a gain, without taking into account the results
of its subsidiaries, mainly CP Achiras and CP La Castellana,
equaling 1.94% of our consolidated net income.
On January 18,2017, we entered into a shareholders agreement with the minority
shareholder of CP Renovables, Guillermo Pablo Reca. The
shareholders agreement was amended and restated on November 28,2018. For further information, see “Item 7.B. Related Party
Transactions—CP Renovables Shareholders
Agreement.”
63
CP Achiras S.A.U.
CP Achiras S.A.U.
is a private, unlisted company. CP Renovables S.A. holds a 100%
interest in the capital stock of CP Achiras S.A.U., a company
engaged in the generation and commercialization of electric power
through renewable sources. In the year ended December 31, 2019, CP
Achiras accounted for a loss equaling 2.57% of our consolidated net
income.
CPR Energy Solutions S.A.U. (previously known as “CP Achiras
S.A.U.”)
CPR Energy
Solutions S.A.U. is a private, unlisted company. CP Renovables
holds a 100% interest in the capital stock of CPR Energy Solutions
S.A.U., a company engaged in generation and commercialization of
electric power through renewable sources. In the year ended
December 31, 2019, CPR Energy Solutions S.A.U. account for a gain
of 0.49% of our consolidated net income.
CP Patagones S.A.U.
CP Patagones S.A.U.
is a private, unlisted company. CP Renovables holds a 100% interest
in the capital stock of CP Patagones S.A.U., a company engaged in
generation and commercialization of electric power through
renewable sources. In the year ended December 31, 2019, CP
Patagones S.A.U. did not account for any of our consolidated net
income.
CP La Castellana S.A.U.
CP La Castellana is
a private, unlisted company. CP Renovables holds a 100% interest in
the capital stock of CP La Castellana, a company engaged in
generation and commercialization of electric power through
renewable sources. In the year ended December 31, 2019, CP La
Castellana accounted for a loss equaling 4.31% of our consolidated
net income.
Vientos La Genoveva S.A.U.
Vientos La Genoveva
S.A.U. is a private, unlisted company. On March 7, 2018, our
subsidiary CP Renovables S.A. acquired 100% of the equity interests
in Vientos La Genoveva S.A. and, on that same date, transformed it
into a S.A.U. On August 6, 2018, we purchased from our subsidiary,
CP Renovables S.A., 100% of the equity interests in Vientos La
Genoveva S.A.U. Vientos La Genoveva is a company engaged in
generation and commercialization of electric power through
renewable sources. In the year ended December 31, 2019, Vientos La
Genoveva accounted for a loss equaling 1.66% of our consolidated
net income.
Vientos La Genoveva II S.A.U.
Vientos La Genoveva
II S.A.U. is a private, unlisted company. On June 28, 2018, our
subsidiary CP Renovables S.A. acquired 100% of the equity interests
in Vientos La Genoveva II S.A. and, and was later transformed it
into a S.A.U. On August 6, 2018, we purchased from our subsidiary,
CP Renovables S.A., 100% of the equity interests in Vientos La
Genoveva II S.A.U. In the year ended December 31, 2019, Vientos La
Genoveva accounted for a loss equaling 1.66% of our consolidated
net income.
CP Manque S.A.U.
CP Manque S.A.U. is
a private, unlisted company. CP Renovables holds a 100% interest in
the capital stock of CP Manque S.A.U., a company engaged in
generation and commercialization of electric power through
renewable sources. In the year ended December 31, 2019, CP Manque
S.A.U. accounted for a loss of 0.99% of our consolidated net
income.
CP Los Olivos S.A.U.
CP Los Olivos
S.A.U. is a private, unlisted company. CP Renovables holds a 100%
interest in the capital stock of CP Los Olivos S.A.U., a company
engaged in generation and commercialization of electric power
through renewable sources. In the year ended December 31, 2019, CP
Los Olivos S.A.U. accounted for a loss of 0.35% of our consolidated
net income.
Our Affiliates
Termoeléctrica José de San Martín S.A. (TJSM) and
Termoeléctrica Manuel Belgrano S.A. (TMB)
TJSM and TMB are
private, unlisted companies, which are engaged in managing the
purchase of equipment, and building, operating and maintaining the
San Martín and Belgrano power plants, respectively, each
constructed under the FONINVEMEM program. In the year ended
December 31, 2019, TJSM and TMB accounted for 0.53% and 0.52% of
our consolidated net income, respectively.
64
As of the date of
this annual report we have 30.8752% of the voting rights in TJSM
and 30.9464% of the voting rights in TMB, while we do not have
control over these companies, pursuant to a shareholders’
agreement entered into among Endesa Costanera S.A.,
Hidroeléctrica El Chocón S.A. Central Dock Sud S.A, AES
Argentina Generación S.A., Central Dique S.A. and us, certain
material actions can only be approved with our affirmative vote,
such as, among others, entering into power purchase agreements with
CAMMESA, engineering services agreements, gas supply and
transportation agreements, and transactions with related
parties.
The board of
directors of each of TJSM and TMB consists of nine members, two of
which are appointed by us. In addition, we have the right to
appoint one alternate member of the supervisory committee of each
company.
After ten years of
operations, each company is entitled to receive property rights to
such power plants from the respective trusts currently holding such
power plants. At such time, the term of the trusts expires and the
Argentine Government, that financed part of the construction,
should be incorporated as a shareholder of TJSM and TMB.
Consequently, our interests in TJSM and TMB will be significantly
diluted In the case of TMB and TJSM, the ten-year period expired on
January 7, 2020 and on February 2, 2020, respectively. From such
dates, during the following 90-days, TJSM and TMB and their
shareholders have to perform all the necessary acts to allow the
Argentine Government to receive the corresponding shares in the
equity stake of TJSM and TMB that their contributions entitle the
Argentine Government to receive. The restrictions imposed by the
Argentine Government since March 20, 2020 to address the outbreak
of COVID-19 made the performance of such acts impossible within the
90-day period. Accordingly, TJSM and TMB invoked said circumstances
as a force majeure event and postponed such acts to May
2020.
On January 3, 2020,
the Argentine Government sent a notice to the Company stating that,
in accordance with FONINVEMEN Agreement, TJSM and TMB should
perform all necessary acts to incorporate the Argentine Government
as shareholder of both companies, claiming, in each case, the
following equity interest rights: 65.006% in TMB and 68.826% in
TJSM.
On January 9, 2020,
Central Puerto, together with the other generation companies,
shareholders of TJSM and TMB, replied such notice stating that the
Argentine Government’s equity interest claims does not
correspond with the contributions made for the construction of the
power plants under the terms of the FONINVEMEM Agreement that give
rights to claim such equity interest. On March 4, 2020, the
Argentine Government reiterated its previous claim to the Company.
As of the date of this annual report, Central Puerto is evaluating
future steps.
As of the date of
this annual report we cannot estimate the exact effects that the
potential dilution of our interests in TJSM and TMB due to the fact
that the Argentine Government’s stake in these companies is
currently under discussion.
See “Item
3.D. Risk Factors—Risks Relating to Our Business—Our
interests in TJSM, TMB and CVOSA will be significantly
diluted.” If such dilution were to occur, we may no longer
have veto rights nor the right to appoint any members of the board
of directors and supervisory committee pursuant to the terms of the
TJSM and TMB shareholders agreements.
In addition, the
bylaws of TJSM and TMB provide that shareholders of such companies
(including the Argentine Government once it becomes a shareholder
to TJSM and TMB) have a right of first refusal in connection with
any transfer of shares other than to persons controlled by, or
controlling, such shareholders. The right of first refusal shall
not be applicable upon the transfer of shares to the Argentine
Government, pursuant to the San Martín and Manuel Belgrano
FONINVEMEM arrangements (See “Item 4.B. Business
Overview—FONINVEMEM and Similar
Programs.”)
Ecogas Group - Inversora de Gas del Centro S.A. (IGCE)
IGCE is a private,
unlisted company. Its only significant assets are a 55.29% interest
in DGCE, a company engaged in the distribution of natural gas in
the provinces of Córdoba, La Rioja and Catamarca. and a 51.00%
interest in DGCU, a company engaged in the distribution of natural
gas in the provinces of Mendoza, San Juan and San Luis. During
2019, IGCE absorbed IGCU, RPBC and MAGNA. For further information
on the merger of IGCE and IGCU, see “Item 4.A—Merger
between IGCE, IGCU, RPBC and MAGNA.”
As of the date of
this annual report, we hold a 42.21% interest in IGCE and a direct
17.20% interest in DGCE. Therefore, we hold, both directly and
indirectly, a 40.59% of DGCE’s capital stock and indirectly
have a 21.58% interest in DGCU’s capital stock.
In the year ended
December 31, 2019, IGCE (including a direct interest in DGCE)
accounted for 11.80% of our consolidated net income (see
“Item 4.A. History and development of the
Company—Distribuidora de Gas Cuyana S.A. (DGCU) and
Distribuidora de Gas del Centro S.A. (DGCE)” and “Item
4.A. History and development of the Company—Preliminary
Merger Agreement between IGCE, IGCU, RPBC and
MAGNA”).
65
Transportadora de Gas del Mercosur S.A. (TGM)
TGM is a private,
unlisted company. We hold a 20.00% interest in the capital stock of
TGM, which owns a natural gas pipeline extending from Aldea
Brasilera (in the Province of Entre Rios) to Paso de los Libres (in
the Province of Corrientes). In the year ended December 31, 2019,
TGM accounted for a loss equaling 0.08% of our consolidated net
income.
The remaining
80.00% is owned by Total Gas y Electricidad Argentina S.A.
(32.68%), Tecpetrol S.A. (21.79)%, RPM Gas S.A. (14.63%) and
Compañía General de Combustibles S.A.
(10.90%).
The pipeline is
approximately 450 km long and its transportation capacity reaches
up to 15 million cubic meters per day. In 2009, TGM terminated its
contract with YPF, TGM’s only customer at the time, as a
result of YPF’s repeated breaches. On December 22, 2017, YPF
agreed to pay TGM, without recognizing any facts or rights, US$114
million in order to end TGM’s claim against YPF. On April 16,2018, TGM distributed dividends in the amount of Ps1,153.20 million
(US$57.03 million), from which we received Ps.230.64 million
(approximately U.S.$11,4 million as of such date).
Energía Sudamericana S.A.
Energía
Sudamericana S.A. is a private, unlisted company, engaged in
natural gas commercialization. We hold a 2.45% direct interest in
the capital stock of Energía Sudamericana S.A., plus a 41.06%
indirect interest in its capital stock, through our equity interest
in IGCE. In the year ended December 31, 2019, Energía
Sudamericana S.A. did not account for a material portion of our net
income.
COySERV S.A.
COySERV S.A. is a
private, unlisted company, engaged in services and constructions
related to the gas industry. We hold a 32.21% indirect interest in
the capital stock of COySERV S.A., through our equity interests in
IGCE, DGCE and DGCU. In the year ended December 31, 2019, COySERV
S.A. did not account for a material portion of our net
income.
The breakdown for
the Company’s total net income for the year ended December31, 2019 is as follows: (i) Proener S.A.U. accounted for a gain
equaling 0.18% of our consolidated net income; (ii) CP Renovables
accounted for a gain, without taking into account the results of
its subsidiaries, mainly CP Achiras and CP La Castellana, equaling
1.94% of our consolidated net income; (iii) CP Achiras accounted
for a loss equaling 2.57% of our consolidated net income; (iv) CP
La Castellana accounted for a loss equaling 4.31% of our
consolidated net income; (v) TJSM accounted for 0.53% of our
consolidated net income; (vi) TMB accounted for 0.52% of our
consolidated net income; (vii) the Ecogas Group, which includes
IGCE (including a direct interest in DGCE) accounted for 11.50% of
our consolidated net income; (viii) Vientos La Genoveva accounted
for a loss equaling 1.66% of our consolidated net income; (ix)
Vientos la Genoveva II accounted for a loss equaling 0.30% of our
consolidated net income; (x) TGM accounted for a loss equaling
0.08% of our consolidated net income; (xi) CVOSA accounted for
0.91% of our consolidated net income; and (xii) Central Puerto (on
an unconsolidated basis, excluding profits from associates and
subsidiaries) accounted for 93.81% of our consolidated net
income.
Business Overview
All of our
operations are concentrated in eleven plants in Argentina, and our
portfolio can be divided into two types of electric power
generation plants: (i) electric power generation from conventional
sources and (ii) electric power generation from renewable
sources.
The table below
details certain operating features regarding our power generation
assets for the periods indicated:
Sales
under the Energía Base and electric power sales on the spot
market—GWh/year
Puerto
Complex
7,073
7,027
8,679
Luján de Cuyo
plant
2,722
2,923
3,158
Brigadier
López plant (3)
-
Piedra del
Águila plant
3,920
4,209
3,719
La Castellana I
wind farm (2)
-
-
-
la Castellana II
wind farm (2)
-
-
-
Achiras wind farm
(2)
-
-
-
Manque wind farm
(2)
-
-
-
La Genoveva II wind
farm (2)
-
-
-
Total
13,715
14,159
15,557
Sales
under contracts and Power Purchase
Agreements—GWh/year
Puerto
Complex
38
30
61
Luján de Cuyo
plant
237
86
101
Brigadier
López plant (3)
127
-
-
Piedra del
Águila plant
-
-
-
La Castellana I
Achiras(2)
418
148
-
la Castellana II
(2)
33
-
-
Achiras
(2)
202
73
-
Manque
(2)
18
-
-
La Genoveva II
(2)
58
-
-
Total
1,133
344
162
Energy
purchases—GWh/year
Puerto
Complex
2
3
3
Luján de Cuyo
plant
-
14
90
Brigadier
López plant (3)
-
-
-
Piedra del
Águila plant
-
-
-
La Castellana I
(2)
-
-
-
La Catellana II
(2)
-
-
-
Achiras
(2)
-
-
-
Manque
(2)
-
-
-
La Genoveva II
(2)
-
-
-
Total
2
17
93
Steam
production (metric tons/year)
Luján de Cuyo
plant
1,031,044
1,102,515
1,177,661
Total
1,031,044
1,102,515
1,177,661
Natural
gas consumption—MMm3/year
Puerto
Complex
1,417
1,301
1,132
Luján de Cuyo
plant
587
599
605
Brigadier
López plant (3)
30
-
-
Total
2,034
1,900
1,737
Gas
oil consumption—thousands of m3/year
Puerto
Complex
48
84
218
Luján de Cuyo
plant
-
-
-
Brigadier
López plant (3)
9
-
-
Total
57
84
218
Fuel
oil consumption—thousands of tons/year
Puerto
Complex
80
288
643
Luján de Cuyo
plant
6
33
41
Brigadier
López plant (3)
-
-
-
Total
86
321
684
Availability—%
per year(1)
Puerto
Complex
93.90%
87.90%
91.00%
Luján de Cuyo
plant
89.38%
89.77%
93.00%
Brigadier
López plant (3)
97.25%
N/A
N/A
Piedra del
Águila plant
96.68%
100%
100.00%
Weighted
average for thermal units(1)
93.22%
88.77%
91.70%
Weighted
average for thermal and hydro plants(1)
94.46%
92.76%
94.97%
67
Source:
CAMMESA.
(1)
Weighted average
based on the power capacity of each unit without considering
renewable energy units, which do not receive payments tied to their
availability.
(2)
La Castellana I, La
Castellana II, Achiras, Manque, and La Genoveva II wind farms are
owned by CP La Castellana S.A.U., CPR Energy Solutions S.A.U., CP
Achiras S.A.U., CP Manque S.A.U., and Vientos La Genoveva II
S.A.U., respectively, the first four of which are fully owned
subsidiaries of CP Renovables S.A. while the last one is a fully
owned subsidiary of Central Puerto S.A. As of the date of this
annual report, we own a 70% interest in CP Renovables. See
“Item 4.B. Business Overview—Our Subsidiaries”.
As of December 31, 2019, Manque wind farm had an installed capacity
of 38 MW. On January 23, 2020 the capacity of the plant was
increased to 53.20 MW, and on March 3, 2019, it was increased to 57
MW, the total power of the project. This increase in the power
capacity of the plant was not included in the table
above.
As of December 31,2019, La Castellana II wind farm had an authorized installed
capacity of 14.40 MW. On February 21, 2020 CAMMESA granted the
authorization to increase the output to the grid for up to 15.20
MW. This increase in the plant’s power capacity was not
included in the table above.
On February 21,2020, Los Olivos wind farm was granted the commercial authorization
by CAMMESA for up to a power capacity of 22.80 MW, which is not
included in the table above.
(3)
Includes
information from April 1, 2019, the date from which the legal,
economic, and technical effects were deemed as produced under the
acquisition agreement. However, to comply with IFRS 3, the Company
considered the acquisition date to be June 14, 2019 for accounting
purposes; thus, the Company recognized the business combination
from that date in its Financial Statements.
Effective as of
January 5, 2018, we sold the La Plata plant to YPF EE. For further
information, see “Item 4.A. History and development of the
Company—La Plata Plant Sale”. Figures only include
information through January 5, 2018.
Additionally, the
table below details shows the availability features regarding the
three FONINVEMEM Plants for 2018:
Source: Central
Puerto, CAMMESA
The following graph
shows the evolution of Central Puerto’s electric power
generation for the period 2014-2019:
Source: CAMMESA.
The graph (i) includes generation of companies that were absorbed
by Central Puerto in 2014 (see Business Section—The 2014
merger) and (ii) excludes the La Plata plant, which effective as of
January 5, 2018, we sold to YPF EE. For further information, see
“Item 4.A. History and development of the Company—La
Plata Plant Sale”.) The reduction of the year 2018, was
influenced by (i) the sale of the La Plata Plant, and (ii) a
3-months long-term maintenance in our Puerto Combined Cycle
(765MW).
Electricity Generation from our Thermal Generation
Plants
As of December 31,2019, we owned five thermal generation plants across three
complexes: Puerto Complex, Brigadier Lopez and Luján de
Cuyo.
69
Puerto Complex
Our Puerto Complex
is composed of two facilities, Nuevo Puerto, including the Puerto
combined cycle plant, and Puerto Nuevo (collectively, the
“Puerto Complex”), located in the port of the City of
Buenos Aires on the bank of the Río de la Plata. The two
facilities are close to one another inside a complex of 246,475
square meters with a total installed capacity of 1,714MW. Nuevo
Puerto’s facilities (which includes both the Nuevo Puerto
plant and the Puerto combined cycle plant) has 70,518 square
meters. Puerto Nuevo has approximately 92,370 square
meters.
Nuevo
Puerto’s facilities were completed in 1926 and Puerto
Nuevo’s facilities were completed in 1930. The two facilities
were merged into a single company in the 1980s within SEGBA, which
was later converted to Central Puerto after the privatization in
1992.
Nuevo Puerto is
located at Av. Thomas Edison 2001/2151 in the City of Buenos Aires
in the northern part of the complex and has two conventional steam
turbine generator sets (steam turbine units 5 and 6). The plant is
capable of running on natural gas and fuel oil and has a current
installed capacity of 360 MW.
The Puerto combined
cycle plant was built at Nuevo Puerto’s facilities and
commenced commercial operations in 2000. The Puerto combined cycle
plant has an installed capacity of 765 MW and is composed of two
General Electric 9FA gas turbines, two heat recovery steam
generators and a General Electric D11 steam turbine. The Puerto
combined cycle plant is one of the most modern and efficient plants
in Argentina and is capable of running on natural gas and gas oil.
In addition, since 2011, the facilities were modified to allow for
the use of a blend of up to 20.00% gas oil and biodiesel when
running on liquid fuel.
Puerto Nuevo is
located at Av. Thomas Edison 2701 in the City of Buenos Aires in
the southern part of the complex and has three conventional steam
turbine generator sets (steam turbine units 7, 8 and 9). The plant
is capable of running on natural gas and fuel oil and has an
installed capacity of 589 MW.
Technology. The steam turbine
generators at both facilities include turbines with high, medium
and low-pressure stages that run on superheated steam from a
dedicated conventional heat generator. The steam turbine generator
works on a cycle. Water flows towards a heat generator that creates
steam. The expansion of the steam makes the turbine
rotate, triggering
an electric power producing generator. Once the steam has been used
in the turbine, it is collected in condensers where it returns to
its liquid form, and the water flows again towards the heat
generator to produce more steam and feed the turbine
again.
The combined cycle
technology is one of the most efficient fossil fuel-based electric
power generation technologies available. It works by first feeding
each gas turbine with a mix of fuel and air. The gas that is
produced from this process expands rapidly due to combustion and
the generator and turbine ultimately convert the resulting
rotational energy into electric power. The exhaust gas from each
turbine is collected and channeled to a heat recovery steam
generator that uses the heat energy contained in the gas turbine
exhaust gas to produce steam. The steam that is produced is
injected into a steam turbine where it expands and transmits energy
to the turbine, which converts the energy into electric power
through a generator. Similar to the case of a conventional steam
turbine, the steam is condensed and sent back to the circuit to
produce more steam.
Location. The Puerto Complex is
located inside the port of the City of Buenos Aires and has a
right-of-way to use the port facilities, allowing it to receive and
store fuel on a large scale. The liquid fuel (gas oil, fuel oil and
biodiesel) is delivered by ships that dock near the premises, where
the fuel is directly unloaded at the complex. To provide operating
flexibility, the Puerto Nuevo and Nuevo Puerto facilities have
underground connection systems, which are used to move fuel between
plants based on each plant’s delivery needs.
The Puerto
Complex’s location on the bank of the Río de la Plata is
also convenient in terms of water supply, which is a basic input
for our plants. Water is integral both for creating steam and
cooling the generation units. Puerto Nuevo and Nuevo Puerto have
water treatment facilities that are capable of taking water from
the river and delivering it at the quality required for each stage
of the electric power generation process.
We currently own
the property where the Nuevo Puerto, Puerto combined cycle and
Puerto Nuevo plants are located.
Supply. The electric power
produced at each plant is delivered to the SADI through a
transformer belonging to our generation units. The transformer
adjusts the generator output voltage to the voltage required by the
network. The electric power is delivered at 132 KV sub-stations
neighboring the plants, which are currently operated by Edenor S.A.
(the holder of the electric power distribution concession in the
area where the Puerto Complex is located).
70
Luján de Cuyo Plant
The Luján de
Cuyo plant is located in Luján de Cuyo, Mendoza and has an
installed capacity of 595.32 MW. The plant began operating in
1971.
Technology. The Luján de
Cuyo plant has eleven generating units, six gas turbines, four
steam turbines and a mini-hydroelectric turbine (which began
operating in 2013). The plant has a total installed capacity of
595.32 MW.
The main generator
is a combined cycle unit composed of a Siemens gas turbine (TG25)
and a Sköda steam turbine (TV15). We believe this is
state-of-the-art technology is and our combined cycle unit is
highly efficient.
The plant also has
a combined heat and power (CHP) unit in place, which commenced
operations on October 5, 2019. This unit supplies up to 125 tons
per hour of steam to YPF’s refinery in Luján de Cuyo
under a steam provision contract. The plant has two Siemens gas
turbines (TG26 and TG27) and two heat recovery steam generators.
The steam flows into YPF’s facilities through a steam duct
that connects the plant to the refinery. Both gas turbines can
operate on natural gas or gas oil.
The Luján de
Cuyo plant also has two Alstom-branded Frame5-type gas turbines
(TG23 and TG24). Prior to the commencement of operation of units
TG26 and TG 27 described above, TG23 and TG24 supplied steam to the
YPF Luján de Cuyo refinery in a combined heat and power
(cogeneration) configuration. Beginning October 5, 2019, TG23 and
TG24 have been set up to work in an open cycle configuration Both
gas turbines can operate on natural gas or gas oil.
The Luján de
Cuyo plant also had a ABB combined cycle unit in place composed of
two gas turbines (TG21, TG22) and a steam turbine (TV14), which
operates on natural gas or gas oil, or on blends of gas oil and
biodiesel (up to 30.00%). Since TG21 had been out of service since
2014, we petitioned CAMMESA an authorization to disconnect this
unit from the WEM, which was granted in April 2019. Additionally,
we requested the disconnection of the steam turbine unit TV14, due
to the low power output capacity of the unit, which was granted in
October 2019. The technical characteristics of TG22 allow it to
operate as an open cycle gas turbine. As a result, only the power
capacity of TG22 was taken into account for the purpose of
describing the total capacity of the Luján de Cuyo plant in
this annual report.
In 2013, a mini
hydroelectric turbine began operations under the GENREN program, a
renewable energy program sponsored by the Ministerio de Planificación
(Planning Ministry), (currently the Ministry of Energy). The
operation consists of a turbine and a 1 MW Ossberger generator and
relies on the waterfall inside the Luján de Cuyo plant’s
premises to generate energy. The waterfall is connected to the
Mendoza River, and the water from the waterfall is channeled
towards the plant to cool the steam turbine
condensers.
In 2013, we also
made the necessary investments to generate and sell electric power
in the Energía Plus. To such end, we augmented the
combined-cycle facilities (TG25-TV15) to increase the power of the
generator assembly by 16 MW. Under the rules and regulations of the
Energía Plus, the generator buys the fuel to cover the
committed demand of electric power and supplies the energy to large
electric power consumers at market prices, denominated in U.S.
dollars, previously agreed between the generator and its clients.
Under these agreements, the generator needs to have a contract for
the supply of fuel for generation purposes to cover the committed
demand.
Location. The plant is located
inside the Provincial Industrial park in Luján de Cuyo,
Mendoza. The plant is close to other industrial facilities,
including YPF’s Luján de Cuyo refinery.
The premises on
which the Luján de Cuyo plant is located are on the banks of
the Mendoza River, a major river in the Mendoza province. The
Luján de Cuyo plant’s access to water from the Mendoza
River provides it with a source of water to supply the generation
process and to cool the condensers. The facility has a water
treatment plant with production levels suitable to meet its
requirements.
Supply. The electric power
generated by the units installed in the Luján de Cuyo plant is
delivered to the SADI through a connection between the network and
the Luján de Cuyo 132 KV sub-station, which is adjacent to the
plant. The sub-station is operated by Distrocuyo, an operator of
the trunk pipeline system from the Cuyo region. Steam is delivered
to YPF pursuant to separate contract (apart from the La Plata plant
YPF agreement) through a short pipeline that connects our
Luján de Cuyo plant with YPF’s adjacent Luján de
Cuyo refinery.
Because the
Luján de Cuyo plant is land-locked, liquid fuels must be
transported by land, typically by truck. To accommodate the fuel
supply chain, the plant has an unloading area for trucks with
facilities equipped to receive gas oil, fuel oil and biodiesel. YPF
is required to supply natural gas to be used on-site, and, in the
event of a shortage, YPF is required to supply gas oil for up to 45
days per year. The location of the YPF-owned Luján de Cuyo
refinery makes the logistics process easier due to the proximity of
the Luján de Cuyo refinery to the Luján de Cuyo
plant.
71
Maintenance
The plants have
repair shops, warehouses and facilities suitable for the operation
and maintenance of the units. Maintenance of the plants is
coordinated with CAMMESA in order to avoid shortage in the power
grid. Repair and maintenance procedures are key to the success of
our business and are conducted according to unit type by either our
own staff or under long-term service agreements executed with
leading global companies in the construction and maintenance of
thermal generation plants, such as (i) General Electric, which is
in charge of the maintenance of the Puerto combined cycle plant and
part of the Luján de Cuyo-based units, and (ii) Siemens, which
is in charge of the maintenance of the combined cycle and the new
cogeneration unit based in Luján de Cuyo, under a contract
that includes the provision of parts and labor.
Under long-term
service agreements, suppliers provide materials, spare parts, labor
and on-site engineering guidance in connection with scheduled
maintenance activities, in accordance with the applicable technical
recommendations.
Our own staff is in
charge of the maintenance of the steam turbine generator sets. We
maintain an inventory of the necessary spare parts on-site, which
ensures the immediate availability of parts when needed. This
reduces the time it takes to replace the spare parts while ensuring
a supply of spare parts that may no longer be available in the
market.
Our accurate
planning of in-house maintenance and outsourced maintenance by
General Electric and Siemens under the long-term service agreements
allows us to minimize downtime and reduce the government-imposed
outage rate of the units, thus maximizing their
efficiency.
Brigadier López Plant
Brigadier
López power plant is located in the Sauce Viejo Industrial
Park, in the city of Sauce Viejo, Santa Fe. The plant has an
installed capacity of 280.5 MW and has been in operation since
August 2012.
In 2010, the public
sector power generation company IAESA (formerly named ENARSA) began
the construction of the plant. In 2012, ENARSA set the COD of the
open cycle Gas Turbine, completing the first stage of the project.
In June 2019, Central Puerto acquired the plant, with the objective
to install a steam turbine, which was already acquired, with an
installed capacity of up to 140 MW in a combined cycle
configuration together with the existing gas turbine. As of the
date of this annual report, the facilities construction of the
combined cycle plant is pending (see Item 3D. Risk
Factors—Risks Relating to our Business— Factors beyond
our control may affect or delay the completion of the project, or
alter our plans for the expansion of our existing
plants)
Technology: The Brigadier Lopez
Power Plant has one operating power generation unit, with 280.5 MW
of installed capacity (which could reach up to 420 MW of total
capacity, operating as a combined cycle unit). This generating unit
is composed of a modern Siemens Gas Turbine (TG01) model SGT5-4000
F and an air-cooled Siemens power generator, model SG 1000A. The
Gas Turbine can operate both on natural gas and gas oil (diesel
oil).
In addition, the
plant has at its location a 140 MW Steam Turbine model SST-900 RH
Dual Casing and a Heat Recovery Steam Generator, installation of
which has not been completed as of the date of this annual report.
Under a combined cycle configuration, the Brigadier Lopez plant
would operate as a highly efficient combined cycle, increasing both
its efficiency and total power capacity.
Location: The plant is located
in the Sauce Viejo Industrial Park, nearby many other industrial
facilities. Sauce Viejo industrial park is located on the National
Highway N° 11, 20 km from Santa Fe City, capital of the
province of Santa Fe. This location is highly convenient due to its
accessibility and logistic advantages.
Furthermore, the
Brigadier López power plant is located on the banks of the
Coronda River, one of the major branches of the Paraná River.
Such access from the Coronda River provides a source of water
supply for the generation process and the steam turbine’s
condenser. The facility has a water treatment plant with production
levels suitable to meet its requirements.
Supply: The electric power
generated by the units installed in the Brigadier Lopez power plant
is delivered to the SADI, first through a high voltage power
transformer, and then through the Brigadier Lopez 132 kV power
sub-station. While the transformer is property of Central Puerto,
the sub-station is operated by EPE Santa Fe (holder of the electric
distribution and transmission concession in the Province of Santa
Fe). The transformer changes the generator’s voltage output
to meet the required voltage of the electrical grid, and the
sub-station serves as an interface between the Brigadier Lopez
plant and the overhead transmission lines connected to the
SADI.
72
The plant operates
most of the time using natural gas. It is connected to the main gas
pipeline (GNEA) through a 19 km dedicated pipeline that guarantees
supply of natural gas. Alternatively, the plant can also be
operated using liquid fuels which must be transported by land,
typically by truck. To accommodate the fuel supply chain, the plant
has an unloading area for trucks with facilities equipped to
receive and deliver gas oil. Alternatively, the plant also has a
dock (operation not available yet), that will be capable of
receiving liquid fuels transported by ship.
Fuel and Water Supply for Thermal Generation
Our conventional
resource plants operate on three different types of fuel: (i)
natural gas in all units, (ii) fuel oil in the steam turbines
exclusively and (iii) gas oil in the gas turbines and combined
cycle units. In addition, a mix of bio-diesel and gas oil may be
used in certain percentages in our dual combined cycle
units.
The table below
shows the potential consumption (calculated as the standard
consumption declared by CAMMESA based on the unit
manufacturer’s specifications, assuming the unit produces
energy throughout the entire day) of fossil fuel by the units in
the conventional resource plants we owned as of December 31,2019:
Plant
Unit
Natural gas
(thousands of m3/day)
Gas oil
(m3/day)
Fuel oil
(tons/day)
Puerto combined
cycle
CEPUCC11
1,720
1,821
-
Puerto combined
cycle
CEPUCC12
1,720
1,821
-
Nuevo
Puerto
NPUETV05
794
-
710
Nuevo
Puerto
NPUETV06
1,610
-
1,445
Puerto
Nuevo
PNUETV07
980
-
867
Puerto
Nuevo
PNUETV08
1,337
-
1,174
Puerto
Nuevo
PNUETV09
1,601
-
1,432
Subtotal
Puerto Complex
9,763
3,643
5,628
Luján de
Cuyo
LDCUCC25
1,418
-
-
Luján de
Cuyo
LDCUTV11
447
-
411
Luján de
Cuyo
LDCUTV12
457
-
409
Luján de
Cuyo
LDCUTG22
282
286
-
Luján de
Cuyo
LDCUTG23
70
68
-
Luján de
Cuyo
LDCUTG24
70
68
-
Luján de
Cuyo
LDCUTG25
203
198
-
Luján de
Cuyo
LDCUTG26
203
198
-
Subtotal
Luján de Cuyo plant
3,150
818
820
Brigadier
López
1,758
1,811
0
Subtotal
Brigadier López
1,758
1,811
0
Total
Central Puerto
14,671
6,272
6,449
Source: CAMMESA.
Definitive Seasonal Programming November 2019 – April
2020
Our exposure to
changes in fuel prices is limited because, under the existing
regulations, the necessary fuel to produce our base energy is
supplied by CAMMESA without any charge. In the case of our PPA
contracts, variations in the cost of fuel are taken into account to
determine the price of the electric power sold. The price that the
generators receive for this energy is determined by the Secretariat
of Electric Energy, without provisions for the price of the fuel
supplied.
With respect to
water consumption, water has an associated cost only in certain
specific cases since we produce the necessary water with our own
facilities. In the case of the supply of steam to YPF’s
Luján de Cuyo plant in Mendoza, we pay for the water when the
water consumption thresholds set forth in the contract with YPF are
exceeded.
Electricity Generation from our Hydroelectric Complex
Piedra del Águila
The Piedra del
Águila hydroelectric complex is the largest private sector
hydroelectric generation complex in Argentina. It was completed in
1994 and is located approximately 1,200 kilometers to the southwest
of Buenos Aires at the edge of Limay River and on the border of the
Neuquén and Río Negro provinces. Piedra del Águila
has an installed capacity of 1,440 MW from four 360 MW generating
units.
73
Piedra del
Águila has a gravity dam made of concrete, with a maximum
height of 170 meters from its foundation, a power plant with four
generating turbines of 360 MW each, intake and pipeline works, a
spillway with an unloading capacity of 10,000 cubic meters per
second, river diversion works, unloading equipment with a capacity
of 1,500 cubic meters per second, and construction facilities,
including access roads, a bridge and electric power supply. The dam
is designed to be able to accommodate two additional turbines of
360 MW, although, as of the date of this annual report, we do not
plan to have them installed (they would provide the plant with
increased power to supply demand peaks, but would not change the
electric power generated per year since such generation depends on
river water levels).
Water resources
allow Piedra del Águila to generate an average of 4,631 GWh
per year (based on historical operations between 1994 and 2019,
exclusive of electric power generated for internal use). During
this period, the maximum generation in a single year was 7,333 GWh
in 2006 and the lowest was 2,351 GWh in 2016.
The following table
shows the electric power generated by Piedra del Águila during
the period 1994-2019:
Source:
CAMMESA
The Dam. The Piedra del
Águila dam is composed of approximately 2.8 million cubic
meters of waterproof concrete. It is 860 meters long and
approximately 170 meters high (from its foundation). The storage
capacity of the dam totals 12 billion cubic meters, out of which
six billion cubic meters are usable, which would allow for 45
days’ generation at a capacity of 1,440 MW on a 24-hour
basis.
Safety of the Paleochannel. On
the left bank of the dam there is a fluvial valley filled with
basalt, which we refer to as the “paleochannel.” This
natural structure consists of the second part of the river closing,
which was made waterproof to ensure stability. The paleochannel
contained a potential leakage zone on the left bank. To mitigate
risks associated with this potential leakage zone, a number of
works were performed to reduce drainage gradients and ensure
stability prior to the initial filling of the dam:
●
Cutoff Curtain: To make the alluvial
fill between the bedrock and the basalt contact area watertight, a
cutoff curtain was created through grouting and chemical injections
from horizontal tunnels of about 1,200 meters in length that were
dug into the massif.
●
Diaphragm Wall: This is a transition
concrete structure of about 150 meters in length that connects the
cutoff curtain to the dam.
●
Drainage Curtain: This is a horizontal
tunnel of over 400 meters in length dug in the rock massif that
covers the entire transversal section of the paleochannel, from
which drillings were performed to capture the leakage water that
passes the cutoff curtain.
●
Drainage Wells: These consist of five
vertical wells of about 40 meters in depth and five meters in
diameter located in a downstream area of the drainage curtain, from
which sub-horizontal holes were drilled directed towards the
basalt-alluvium contact to capture the water draining through such
highly permeable zone.
●
Pumping System: This consists of ten
electric pumps installed in a gallery located in the amphitheater
(the area at the bottom of the paleochannel massif) intended to
maintain piezometric levels of one of the existing aquifers in the
alluvium at predetermined levels to ensure the zone
stability.
The Power plant. The
hydroelectric generation plant is located at the foot of the dam
and has four Francis-type turbines with corresponding generators,
transformers for each generator and operating, control and
auxiliary equipment. The turbines are hydraulic turbines composed
of vertical axes with a spiral steel casing. Each turbine has a
rated capacity of 360 MW and a rated hydraulic load of 350 cubic
meters per second and is designed to rotate at 125
rpm.
74
Each generator has
a corresponding set-up transformer of 500 kV, which consists of a
dual guide rod system, with a single SF-6 iron-isolated switch, to
which all generating units are connected. The switch is connected
to the SADI’s transformer substation through two transmission
lines. Energy is delivered at Piedra del Águila’s 500 KV
plant, which is operated by Compañía de Transporte de
Energía Eléctrica en Alta Tensión S.A.
(“Transener”), which owns, operates and maintains the
largest high voltage electric power transmission system in
Argentina.
During the
shutdowns and start-ups of the power plant, there are two 13.2 kV
lines in place that serve as auxiliary service related to the local
distribution network operated by Neuquén’s energy
regulatory authorities, two back-up generators, and two 110V
stationary batteries, each of which is capable of supplying
electric power.
The operation and
maintenance of a hydroelectric plant are relatively simple compared
to the labor-intensive requirements of thermal plants. To operate
the plant, we mainly monitor the water flow, the electric power
generation and the related equipment. The plant’s operations
staff is organized into several departments: (i) civil engineering
(in charge of monitoring the equipment and the dam structure); (ii)
operations (in charge of monitoring the delivery of the electric
power); (iii) special services and technical support; and (iv)
administration. Our employees are in charge of plant
maintenance.
Operation and
maintenance of the hydroelectric plant are managed in accordance
with manufacturers’ recommendations and industry standards.
To monitor management of the plant, we use performance metrics
specified in Standard 762 of the Institute of Electrical and
Electronics Engineers (IEEE).
All ordinary
operation and maintenance tasks are performed by company personnel.
Electromechanical maintenance of generators and auxiliary equipment
focuses on fault prediction and prevention and is intended to
minimize corrective maintenance and maximize availability of the
generators.
Generators are
operated in accordance with the requirements of the Organismo Encargado del Despacho (OED)
(the “Dispatching Agency”) and in compliance with the
Normas de Manejo de Aguas
(NMA) (Water Management
Standards). Water management and dam operation are overseen by the
Autoridad Interjurisdiccional de
Cuencas (Intergovernmental Basin Authority).
The status of the
dam and paleochannel is audited every five years by an independent
expert panel under the supervision of the Organismo Regulador de Seguridad de
Presas (ORSEP) (Dam Safety Regulator). Fish and water
quality are also monitored in the dam and tributaries at least four
times per year.
The HPDA Concession Agreement.
We entered into a concession agreement with the Argentine
Government that expires on December 29, 2023 (the “HPDA
Concession Agreement”). Under the HPDA Concession Agreement,
we are entitled to generate and sell electric power and use certain
state-owned property, including the plant and its water resources.
We can use the plant solely for the purpose of generating electric
power. The Argentine Government and the Intergovernmental Basin
Authority are entitled to allocate or use in any other manner the
current or future water resources without any obligation to
compensate us. The HPDA Concession Agreement and the rights granted
therein may not be assigned without the Argentine
Government’s prior consent. Upon the expiration of the
concession term, the Argentine Government will recover possession
of the plant without any obligation to compensate us. We currently
intend to seek the renewal of the HPDA Concession Agreement prior
to its expiration.
Below we summarize
certain terms of the HPDA Concession Agreement:
●
Operations: We are required to comply
with certain standards and conduct certain activities, including
maintaining Ps.2.7 million as a guarantee, maintaining the plant
and complying with certain safety and environmental obligations,
contributing to a repair fund, maintaining books and maintaining
insurance, among others.
●
Mandatory works: The Argentine
Government may require us to carry out works jointly funded by it
and us.
●
Fees and royalties: The
Intergovernmental Basin Authority is entitled to a fee of 2.50% of
the plant’s revenues, and the provinces of Río Negro and
Neuquén are entitled to royalties of 12.00% of such
revenues.
●
Indemnity: The Argentine Government
indemnifies us in certain circumstances, including, among others,
for damages or repairs that are not attributable to us or our
agents and damages caused by downstream waters, in each case
subject to certain conditions. We also indemnify the Argentine
Government in certain circumstances.
●
Fines: Any delay or failure by us to
comply with the provisions of the HPDA Concession Agreement or the
regulations concerning the generation and sale of electric power
may result in fines imposed by the applicable regulatory
authorities, calculated as a percentage of the plant annual
revenues, depending on the type of breach. The Argentine Government
may require that CAMMESA make payment of the fines directly to the
Argentine Government out of proceeds from the electric power sold
in the WEM.
●
Termination: We and the Argentine
Government may terminate the HPDA Concession Agreement in certain
circumstances in which we fail to perform our obligations under the
agreement and in which we are subject to fines or do not comply
with the certain laws and regulations, among others.
75
Supply. Substantially all of
the electric power produced by Piedra del Águila and other
generators in the Comahue area is transported to locations where
demand is higher. Demand is highest primarily in the Buenos Aires
metropolitan area, which is located some 1,200 kilometers away from
the plant. The distribution system from the Comahue region
comprises two corridors with a total of four 500 kV transmission
lines (the last of them started to operate in December 1999), in
addition to a fifth line that connects Comahue to the Cuyo region,
which started to operate in September 2011. Since the end of the
construction of these last two lines, the plants in the Comahue
region have been able to use the entire generation
capacity.
Relationship with Provincial
Governments. As members of the governing body of the
Intergovernmental Basin Authority, the governments of Neuquén
and Río Negro are involved in the regulatory oversight of the
water resources used by Piedra del Águila. In accordance with
the HPDA Concession Agreement and Section 43 of Law No. 15,336, we
are required to pay a 12.00% royalty on the revenues derived from
electric power generation. This royalty is distributed between the
provinces of Neuquén and Río Negro in equal parts. The
government of Neuquén owns a 4.13% stake in us.
Electricity Generation from our Wind Generation Plants
As of the date of
this annual report we operate five wind farms: La Castellana I and
II and Achiras, Manque, Los Olivos and La Genoveva II.
La Castellana I Wind Farm
La Castellana I is
a wind farm operated by CP La Castellana S.A.U., a wholly-owned
subsidiary of CP Renovables, in which we have a majority interest.
The wind farm is located in the south of the province of Buenos
Aires, near the cities of Villarino and Bahía Blanca, and
started its operations in August 2018.
It has a total
installed capacity of 100.80 MW, from 32 wind turbines, supplied
from Nordex-Acciona, of 3.15 MW each.
Achiras Wind Farm
Achiras is a wind
farm operated by CP Achiras S.A.U., a wholly-owned subsidiary of CP
Renovables, in which we have a majority interest. The wind farm is
located in the east of the province of Córdoba, near the city
of Achiras, and started its operations in September
2018.
It has a total
installed capacity of 48 MW, from 15 wind turbines, supplied from
Nordex-Acciona, of 3.2 MW each.
La Castellana II Wind Farm
La Castellana II is
a wind farm operated by CPR Energy Solutions S.A.U., a wholly-owned
subsidiary of CP Renovables, in which we have a majority interest.
The wind farm is located in the south of the province of Buenos
Aires, near the cities of Villarino and Bahía Blanca, and
started its operations in July 2019.
It has a total
installed capacity of 15.20 MW, from 4 wind turbines, supplied by
Vestas, of 3.6 MW each.
Manque Wind Farm
Manque is a wind
farm operated by CP Manque S.A.U., a wholly-owned subsidiary of CP
Renovables, in which we have a majority interest. The wind farm is
located in the east of the province of Córdoba, near the city
of Achiras, and started its operations partially in December 2019
(38MW), in January 2020 (15.2 MW), and fully in March 2020
(3.8MW).
It has a total
installed capacity of 57 MW, from 15 wind turbines, supplied by
Vestas, of 3.80 MW each.
Los Olivos Wind Farm
Los Olivos is a
wind farm operated by CP Los Olivos S.A.U., a wholly-owned
subsidiary of CP Renovables, in which we have a majority interest.
The wind farm is located in the east of the province of
Córdoba, near the city of Achiras, and started its operations
in February 2020.
It has a total
installed capacity of 22.8 MW, from 6 wind turbines, supplied from
Vestas-Acciona, of 3.8 MW each.
76
La Genoveva II Wind Farm
La Genoveva II is a
wind farm operated by Vientos La Genoveva II S.A.U., a wholly-owned
subsidiary of CP Renovables, in which we have a majority interest.
The wind farm is located in the south of the province of Buenos
Aires, near the town of Cabildo and 30 km to the northwest of the
city of Bahía Blanca, and started its operations in September
2019.
It has a total
installed capacity of 41.80 MW, from 11 wind turbines, supplied by
Vestas, of 3.8 MW each.
FONINVEMEM and Similar Programs
Following
Argentina’s economic crisis in 2001 and 2002 and the
subsequent devaluation of the peso, there were significant
imbalances between the electric power prices generators received
and their operating costs. As resources in the country’s
Stabilization Fund, a fund administered by CAMMESA intended to make
up for fluctuations between the seasonal price paid by distributors
and the spot price in the WEM, became scarce due to the Argentine
Government’s decision to maintain seasonal prices (the energy
prices paid by distributors) below the spot price paid to
generators, the Argentine Government, through a series of
resolutions, fixed a set of priorities with respect to payments
made from this fund. This resulted in a system under which
generators collected payment for only variable generation costs and
power capacity, while the resulting monthly obligations to
generators for the unpaid balance were to be considered
LVFVD.
In 2004, through
Resolution SE No. 826/2004, generators with receivables due to the
lack of funds in the Stabilization Fund (including us) were invited
to participate in forming the FONINVEMEM, created by Resolution SE
No. 712/04. The FONINVEMEM allowed electric energy generators to
link the collection of their outstanding receivables relating to
electric power sales to CAMMESA from January 2004 through December
2006 to one or more combined cycle projects, with a right to
receive payment of their receivables once the new combined cycle
plants built with FONINVEMEM financing become
operational.
In December 2004,
we agreed to participate in the creation of the FONINVEMEM. We
entered into an agreement on October 17, 2005, which stated that
generators would receive (i) their receivables relating to sales of
electric power from January 2004 through December 2006, amounting
to US$157 million in our case, plus an interest rate of 360-day LIBOR
(which as of December 31, 2019 was 1.996%) plus 1.00% in 120 equal, consecutive
monthly installments and (ii) their proportional equity interest in
the generating companies formed for such projects, TJSM and TMB,
which are in charge of managing the purchase of equipment, and of
building, operating and maintaining each of the new power plants,
and after ten years of operation would receive the property of
these plants. The generation plants are not owned by TJSM and TMB
but rather owned by two trusts, created by the Argentine
Government, that receive revenue from the sale of electric power
generated by the plants, among others, to repay the LVFVD
receivables.
On October 16,2006, we entered into two pledge agreements with the former
Secretariat of Electric Energy to guarantee our performance
obligations in favor of the two trusts under certain construction
management and operation management agreements and provided as
collateral: (a) 100% of our shares in TJSM and TMB and (b) 50% of
the rights conferred by our LVFVD receivables for the duration of
the construction management agreement and the operation management
agreement.
On July 13, 2007,
we agreed to include 50.00% of our total receivables relating to
the sale of electric power to CAMMESA from January through December
2007 in the FONINVEMEM arrangement, which totaled US$30.3 million.
These receivables are also reimbursed in 120 equal, consecutive
monthly installments starting from the commercial launch date of
the plants, converted into U.S. dollars at the applicable exchange
rate pursuant to the FONINVEMEM arrangement, with an interest rate
of 360-day LIBOR (which as of December 31, 2019 was 1.996%)
plus 2.00%. We received no
additional equity interest in TJSM and TMB as a result of the
inclusion of these additional receivables in the FONINVEMEM
arrangement.
After the
commercial authorization was granted to the Manuel Belgrano power
plant (on January 7, 2010) and the San Martín power plant (on
February 2, 2010), we started to collect monthly payments of the
receivables. As of December 31, 2019, the balance owed to us under
the FONINVEMEM arrangement relating to the sale of electric power
to CAMMESA from January 2004 through December 2007 totaled US$4.08
million. During the year ended December 31, 2019, we received
Ps.1.13 billion (US$20.27 million in U.S. dollar-denominated
payments) in principal and interests for these receivables
(including VAT).
As of December 31,2019, we owned 30.8752 % of TJSM and 30.9464 % of TMB. The
operating companies have a variable revenue (US$1.00 per MW
generated) and a fixed revenue to compensate for their operating
costs. In 2019, we received dividends from our equity interests in
TJSM and TMB in the amount of Ps.117 million and Ps.84 million,
respectively.
77
After 10 years of
operation the termination of the PPAs of TJSM and TMB on February2, 2020 and January 7, 2020, respectively, and as of the date of
this annual report, we have collected the full amount of our
receivables related with these two power plants. At such time, the
term of the trusts expires and the Argentine Government, that
financed part of the construction, should be incorporated as a
shareholder of TJSM and TMB. Consequently, our interests in TJSM
and TMB will be significantly diluted. Furthermore, each company is
entitled to receive property rights to such power plants from the
respective trusts currently holding such power plants.
From such dates,
during the following 90-days, TJSM and TMB and their shareholders
have to perform all the necessary acts to allow the Argentine
Government to receive the corresponding shares in the equity stake
of TJSM and TMB that their contributions entitle the Argentine
Government to receive. The restrictions imposed by the Argentine
Government since March 20, 2020 to address the outbreak of COVID-19
made the performance of such acts impossible within the 90-day
period. Accordingly, TJSM and TMB invoked said circumstances as a
force majeure event and postponed such acts to May
2020.
On January 3, 2020,
the Argentine Government sent a notice to the Company stating that,
in accordance with FONINVEMEN Agreement, TJSM and TMB should
perform all necessary acts to incorporate the Argentine Government
as shareholder of both companies, claiming, in each case, the
following equity interest rights: 65.006% in TMB and 68.826% in
TJSM.
On January 9, 2020,
Central Puerto, together with the other generation companies,
shareholders of TJSM and TMB, replied such notice stating that the
Argentine Government’s equity interest claims does not
correspond with the contributions made for the construction of the
power plants under the terms of the FONINVEMEM Agreement that give
rights to claim such equity interest. On March 4, 2020, the
Argentine Government reiterated its previous claim to the Company.
As of the date of this annual report, Central Puerto is evaluating
future steps.
As of the date of
this annual report we cannot estimate the exact effects that the
potential dilution of our interests in TJSM and TMB due to the fact
that the Argentine Government’s stake in these companies is
currently under discussion. On March 4, 2020, the Argentine
Government reiterated its previous claim to the Company. As of the
date of this annual report, Central Puerto is evaluating future
steps.
Additionally, on
January 7, 2020 and on January 9, 2020 Central Puerto, together
with the other shareholders of TJSM and TMB (as guarantor within
the framework and the limits stated by the FONINVEMEM Agreement,
the Note SE no. 1368/05 and the trust agreements), BICE, TJSM, TMB
and the Energy Secretariat entered into amendments to the Operation
and Maintenance (“OMA”) of Manuel Belgrano Thermal
Facility, and to the Operation and Maintenance Agreement
(“OMA”) of San Martín Thermal Facility,
respectively, by which the TMB and TJSM OMA was extended until the
trust’s liquidation effective date.
With respect to the
LVFVD corresponding to the sales of electric power to CAMMESA from
2008 to 2011, on December 28, 2010, our Board of Directors approved
an agreement with the former Secretariat of Electric Energy that
established, among other agreements, a framework to determine a
mechanism to settle receivables accrued by generators over the
2008-2011 period. For that purpose, (i) the construction of the new
generation plant, CVOSA, was agreed upon, with receivables earned
from January 1, 2008 through December 31, 2011 to be paid starting
as of the commercial launch date of the CVOSA plant’s
combined cycle unit; (ii) a managing company for this project,
CVOSA, was created in which we hold a controlling interest and
(iii) a trust was created by the Argentine Government to hold the
property of the plant under construction. The combined cycle unit
commenced operations on March 20, 2018.
After the CVOSA
power plant became operational, in the case of receivables accrued
between 2008 and September 2010, the amount due was converted into
U.S. dollars at the exchange rate effective at the date of the CVO
agreement (i.e., November 25, 2010), which was Ps.3.97 per U.S.
dollar. Additionally, certain receivables that accrued after
September 2010 and that were also included in the CVO Agreement,
were converted into U.S. dollars at the exchange rate effective at
the due date of each monthly sale transaction. The total estimated
amount due to us under the Agreement for the LVFVD 2008-2011 is
US$548 million (including VAT), plus the accrued interest after the
CVO Commercial Approval. As a result of the conversion of the LVFVD
into U.S. dollars detailed in the previous paragraph, we had a
one-time gain, before income tax, of Ps.16,948 million, measured in
current unit as of December 31, 2019 (or Ps.7.959 million,
expressed in nominal terms), which was recognized by us in the
consolidated income statement for the year ended December 31, 2018.
under “CVO receivables update”. Under the CVO
Agreement, we are entitled to receive payment for the LVFVD
2008-2011 receivables in the form of 120 equal, consecutive monthly
installments, starting from March 20, 2018, the date of
commencement of commercial operations of the combined cycle plant,
bearing interest at a nominal annual rate of 30-day LIBOR (which as
of December 31, 2019 was 1.763%) plus 5.00%. The U.S. denominated
monthly payments under the CVO Agreement are payable in pesos,
converted at the applicable exchange rate in place at the time of
each monthly payment.
78
As of March 20,2018, CAMMESA granted the CVO Commercial Approval in the WEM, as a
combined cycle, of the thermal plant Central Vuelta de Obligado. A
PPA between the CVO Trust and CAMMESA, through which the CVO Trust
makes energy sales and, consequently, receives the cash flow to pay
the trade receivables, had to be signed in order to start the
collections.
As a result, the
original amortization schedule from the CVO Agreement is in full
force and effect.
The installments
corresponding to the March 2018-December 2018 period amounted to
US$78.15 million (including VAT, corresponding to installments 1 to
10) as of May 31, 2019. During June and July 2019, Central Puerto
collected Ps.2,562 million, in nominal terms (approximately
US$58.41 million converted at the exchange rate Communication A
3500 quoted by the Central Bank as of the date of payment) and
Ps.825 million, in nominal terms (approximately US$19.70 million
converted at the exchange rate Communication A 3500 quoted by the
Central Bank as of the date of payment), in both cases including
VAT, related to the installments corresponding to the
March-December 2018 period of the CVO agreement.
During 2019, we
collected Ps. 8.45 billion in CVO
receivables (including installments 1 to 10), measured in current
amounts as of December 31, 2019. Subsequent installments (from
installment No. 11) have been collected on their respective due
dates.
In accordance with
the CVO agreements, after the first ten years of operation,
ownership of the combined cycle plants will be transferred from the
trust to the operating companies, and the operating companies will
begin to receive revenues from the sale of electric power generated
by the plants. At such time, since the Argentine government
financed part of the construction, it will be incorporated as
shareholder of CVOSA, and our interests in CVOSA will be
significantly diluted. Although the effect of the potential
dilution has also not yet been defined for the same reasons, the
Argentine government’s stake in CVOSA will be at least 70%
due to an agreement between the parties.
Any dilution of our
interest in TJSM, TMB or CVOSA could reduce our income, which could
adversely affect our results of operations. See “Item 4.B.
Business Overview—FONINVEMEM and Similar Programs.” See
“Item 3.D. Risk Factors—Our interests in TJSM, TMB and
CVOSA will be significantly diluted.”
Market Area and Distribution Network
Market Area
Our plants are
located at various locations in Argentina. All of them are
connected to the SADI, enabling coverage for residential and
industrial users nationwide.
Puerto plants: The Puerto Nuevo, Nuevo
Puerto and Puerto combined cycle plants are situated in a unique
location within the port of the City of Buenos Aires, one of the
most populated metropolitan areas in the world, which reduces costs
arising from lost power during transmission. In addition, the
plants have three docks for unloading liquid fuels from large
vessels, thus facilitating the supply of fuel.
Piedra del Águila Hydroelectric
Complex: the Piedra del Águila hydroelectric complex is
located on the Limay river, which serves as the border between the
Provinces of Río Negro and Neuquén. The dam is close to
the city of Neuquén and is able to supply energy to cities far
from the complex through existing transmission lines.
Brigadier López plant: The
Brigadier López Plant is located in the province of Santa Fe,
near the City of Sauce Viejo.
Terminal 6-San Lorenzo plant: The
Terminal 6 San Lorenzo Plant is located in the province of Santa
Fe, near the City of San Lorenzo.
Luján de Cuyo plant: The
Luján de Cuyo plant is located within YPF’s Luján
de Cuyo refinery and supplies steam to such refinery. This location
enables it to obtain gas oil supplies from the refinery itself in
case of natural gas shortages.
La Castellana I and II Wind Farms: La
Castellana I and II wind farms are located in the province of
Buenos Aires, near the cities of Villarino and Bahía
Blanca.
La Genoveva I and II Wind Farms: La
Genoveva I and II wind farms are located in the province of Buenos
Aires, near the town of Cabildo and the city of Bahía
Blanca.
Achiras Wind Farm: Achiras wind farm is
located in the province of Córdoba, near the City of
Achiras.
79
Manque Wind Farm: Manque wind farm is
located in the province of Córdoba, near the City of
Achiras.
Los Olivos Wind Farm: Los Olivos wind
farm is located in the province of Córdoba, near the City of
Achiras.
El Puesto Solar Farm Project: El Puesto
Project solar farm is located in the province of Catamarca, near
the City of Santa María.
Manuel Belgrano plant: The Manuel
Belgrano plant is located in the province of Buenos Aires, near the
City of Campana.
San Martín plant: The San
Martín Plant is located in the province of Santa Fe, near the
City of Timbúes.
Vuelta de Obligado plant: The Vuelta de
Obligado Plant is located in the province of Santa Fe, near the
City of Timbúes.
Distribution Network
All of our plants
are connected to the SADI, which allows us to reach almost all the
users in the country. The SADI permits interaction among all agents
in the Argentine WEM and allows generating companies to dispatch
power to Large Users and distributors through the transmission
companies. The system is regulated and allows participation of all
WEM agents (generators, transmission companies, distributors, Large
Users and the Argentine Government through CAMMESA), thus
preventing discrimination among any involved
participants.
The prices for
power transmission are regulated and based on the distance from the
generating company to the user, among other factors. In this
regard, our thermal power plants are strategically located in
important city centers or near some of the system’s largest
customers (e.g.,
YPF’s refineries), which constitutes a significant
competitive advantage.
Our Customers
For the year ended
December 31,
Modality
continuing operations
Main
clients
2019
(in thousands of
Ps.)
percentage of
revenues
Energía
Base(1)
(Resolution SRRyME 1/19; Res. SE No. 19/2017, SGE 70 and
95/2013, as amended)(2) (3)
Cervecería y
Maltería Quilmes (subsidiary of AB Inbev); San Miguel
A.G.I.C.I y F.; Banco de Galicia y Buenos Aires S.A.; Minera
Alumbrera Limited (subsidiary of Glencore in Argentina); Banco
Supervielle S.A.
Pirelli
Neumáticos S.A., Banco de Galicia y Buenos Aires S.A.,
PBBPolisur S.A., Metrive S.A., Pet Food Saladillo S.A., Banco
Supervielle S.A.
189,821
0.53%
Steam
sales
YPF
434,648
1.21%
Other
YPF
286,282
0.80%
Revenues from CVO
thermal plant management
Fideicomiso Central
Vuelta de Obligado
510,239
1.42%
(1)
From February 27,2020, a new remuneration scheme for Energía Base applicable
from February 1, 2020 came into force with Resolution 31/20. For
more information see “Item 4.B. Business Overview—The
Argentine Electric Power Sector—Remuneration Scheme—The
Current Remuneration Scheme.”
(2)
Includes income
under Res. SEE 70/18. See “Item 4.B. Business
Overview—The Argentine Electric Power
Sector—Remuneration Scheme—The Previous Remuneration
Schemes—Resolution SEE 70/18—Option to purchase fuel
for units under Energía Base Regulatory
Framework.”
(3)
Includes sales of
energy and power not remunerated under Resolution No. 95 and, See
“Item 4.B. Business Overview—The Argentine Electric
Power Sector—Structure of the Industry—Shortages in the
Stabilization Fund and Responses from the Argentine
Government—The National Program” and “Item 5.A.
Operating Results—Our Revenues—The Energía
Base.”
For a discussion of
the different regulatory regimes under which we sell our electric
power, see “Operating and Financial Review and
Prospects—Factors Affecting our Results of
Operation—Our Revenues” and “Item 4.B. Business
Overview—The Argentine Electric Power Sector—Structure
of the Industry.”
80
Seasonality
Seasonality of Electricity Generation by Thermal
Facilities
The following
graphic breaks down our average thermal energy production from our
continuing operations over the last three years on a month-by-month
basis:
Source:
CAMMESA
Seasonality of Water Resources and Electricity Generation of Piedra
del Águila
The availability of
water is the key factor for determining Piedra de
Águila’s electric power generation capacity and is tied
to annual and seasonal changes in rains in the upstream mountain
area of Piedra del Águila. Water levels generally increase
between May and December due to the winter rains and the spring
thaw, and we are able to produce more energy over such
periods.
The following
graphic breaks down our average hydroelectric energy production
over the last three years on a month-by-month basis:
Source:
CAMMESA
81
Seasonality of Wind Resources and Electricity Generation of Achiras
La Castellana I, La Castellana II, Manque and La Genoveva II wind
farms
The availability of
wind resources is the key factor for determining Achiras I and La
Castellana I wind farms electric power generation capacity and is
tied to annual and seasonal changes in wind speed in the areas
where each farm is located. Wind speed is generally higher between
May and September and we are able to produce more energy over such
periods.
The following
graphic shows the energy production of our wind farms on a
month-by-month since inception and until December
2019:
Source:
CAMMESA
Competition
The demand for
electric power in Argentina is served by a variety of generation
companies, both state-owned and private-owned. These companies
pursue the right to supply generation capacity and electric power
and to develop projects to serve the demand for electric power in
Argentina. Some of our foreign competitors are substantially larger
and have substantially greater resources than our company. Because
of the significant gap between the demand and supply of electric
power in Argentina, voluntary and forced blackouts at times of
seasonal peak consumption have occurred. During 2018 (and
particularly, on February 28, 2018 pursuant to CAMMESA’s
records), there was a historic demand peak recorded totaling 26.3
GW, which was supplied by 24.6 GW of capacity domestically (out of
a total installed capacity of 36.9 GW) without energy imports from
neighboring countries. In 2019, 2,746 GWh of energy were imported,
representing a 699 % increase in energy imports as compared to
2018.
Our primary
competitors in the electric power generation market are the Enel
group, AES Argentina Generación S.A. (an affiliate of the AES
Corporation), Pampa Energía S.A, and YPF EE S.A.
Below we detail the
installed capacity of the main private sector generators in
Argentina, as of December 31 2019:
Sources: (1) Based
on the documentation officially declared to CAMMESA by Central
Puerto for continuing operations (2) Based on company’s
financial statements as of and for the year ended December 31, 2019
and data from CAMMESA. (3) Based on data form CAMMESA. Accounts for
only assets located in Argentina, operated by any of the following
subsidiaries: AES Argentina Generación S.A., AES Juramento
S.A., AES Alicura S.A., AES Parana S.A. and Termoandes S.A. (4)
Based on data from CAMMESA. Includes Enel Generación Costanera
S.A., Enel Generación El Chocón S.A. and a 40.00% stake
of Grupo Enel in Central Dock Sud S.A. (5) Based on company’s
financial statements as of and for the year ended on December 31,2019. (6) Based on data from CMMESA.
82
The following
graphs break down the market share of electric power generation
supplied by private sector companies in Argentina as of December31, 2019, based on data published by CAMMESA:
Source:
CAMMESA
The following
graphs break down total market share of electric power generation
supply and the market share from thermal units (from both private
and public sector generators) in Argentina as of December 31, 2019,
based on data published by CAMMESA:
Source:
CAMMESA
83
Source:
CAMMESA
The following table
shows the installed capacity in terms of MW assigned to each
regulatory framework (Energía Base, Energía Plus,
Resolution No. 220/07) for us and each of our main competitors as
of December 31, 2019:
In
MW
Energía
Base
Energía
Plus (Res. 1281/06)
Power Purchase Agreements Under Res.
220/07
Power Purchase
Agreements Under Res. 21/16
Power Purchase
Agreements Under Res. 287/16
Term market for
renewable energy (MATER)
RenovAr
Total
Central
Puerto(1)
3,098
321
-
-
-
-
-
4,273
AES Argentina
Group
3,637
16
282
-
95
94
149
3,419
ENEL
Group
4,105
-
-
-
-
-
-
4,105
Pampa Energía
S.A.(2)
3,241
298
419
305
99
100
4,463
YPF
EE
1,680
-
-
365
-
99
-
2,144
84
Our efficiency
levels compare favorably to those of our competitors due to our
efficient technologies. The following chart shows the efficiency
level of our most important generating units compared to the units
of the rest of the market based on heat rate, which is the amount
of energy used by an electrical generator or power plant to
generate one kWh of electric power:
Source:
CAMMESA’s seasonal programing for the period Nov-19 to
April-20.
We are also one of
the largest consumers of natural gas in Argentina’s electric
power sector, as well as the one of the largest consumers of fuel
oil, gas oil and biodiesel. Although CAMMESA is our current
supplier of biodiesel, we have developed business relationships
over the years with strategic companies from the oil and gas and
the biofuel sectors, and in the past have participated in certain
joint ventures with some of them.
Insurance
We carry commercial
and personal insurance coverage for all power generation plants,
placed at different geographical locations within Argentina. The
following list includes all the insurance risk
covered:
●
Comprehensive operational
risk (physical property) and Loss of Profits: Our coverage
extends to comprehensive operational risk, buildings, machinery
damages and breakdown, fire and acts of nature, among others, due
to sudden or accidental cause, directly or indirectly attributable
to any cause (including damages as a result of earthquakes at the
Piedra del Águila and Luján de Cuyo plants, in which case
there is a deductible of the greater of 5.00% of the damages or
US$1 million), including consequential lost profits due to
breakdown or damages to fixed assets for a maximum period of 18
months.
●
Primary liability:
Our coverage extends to third party liability against property
damages, personal injuries or death resulting from the development
of the insured party’s activities up to US$10,000,000 per
generation plant.
●
Excess liability:
Our coverage extends to third party liability against property
damages, personal injuries or death resulting from the development
of activities at any of the four locations of the generation plants
for up to US$50,000,000 in excess of the primary liability coverage
described in the previous bullet point.
●
Port liability: In
our capacity as port terminal operator, we carry insurance covering
our fuel loading and unloading operations conducted at the port
terminal, including consequential losses and sudden and accidental
pollution.
●
Directors and
officer’s liability: We carry directors and officers
liability insurance against potential claims against such directors
and officers.
●
Vehicle insurance:
Our insurance covers third party liability for claims against the
insured party for personal injuries or property damages and
physical damages to the insured vehicle as a result of an accident,
fire, robbery of theft.
●
Worker’s
compensation: This policy provides coverage against any
accident occurring at work and such accidents occurring while
employees are commuting to the workplace.
●
Mandatory life
insurance: This policy covers the death of
employees.
85
●
Optional life
insurance: This policy covers total or permanent disability
due to disease or accident and partial losses due to
accident.
●
Transportation: This
policy covers losses or damages resulting from collision, overturn,
fall or derailment of the carrier and other
catastrophes.
●
Combined and
comprehensive: This policy covers the offices and warehouses
in the city of Neuquén. It provides coverage against certain
catastrophes.
●
Compulsory Environmental
Pollution Insurance: This coverage protects against third
party personal injury; third party property losses; ecological
damage and costs incurred in provision of emergency services and
environmental clean-up.
In addition, we
intend to obtain customary insurance coverage for our electric
power generation plants currently under construction, as
appropriate.
We believe the
level of insurance and reinsurance coverage we maintain is
reasonably adequate in the light of the risks we are exposed to,
and is comparable to the level of insurance and reinsurance
coverage maintained by other similar companies doing business in
the same industry.
Environment
As of the date of
this annual report, we are not involved in pending or threatened
judicial proceedings in connection with environmental
issues.
As of the date of
this annual report, we have obtained or have applied for the
environmental permits required by the applicable environmental
regulations and our environmental management plans have been
approved by the applicable regulatory authorities. To maintain high
environmental standards, we carry out periodic controls in
accordance with applicable legislation.
We have developed a
broad environmental compliance and management program, which is
subject to periodic internal and external audits by TÜV
Rheinland.
In order to comply
with these policies, we routinely obtain quality certifications. In
July 2019, TÜV Rheinland completed a series of ISO
recertification audits, after which we were awarded the following
certificates:
●
Puerto
Complex:
●
ISO 14001/2015:
Certificate No. 01 10406 1629668 good through July 12, 2022 (Nuevo
Puerto, Puerto Nuevo and Puerto combined cycle plants)
●
Luján de Cuyo
plant:
●
ISO 14001/2015:
Certificate No. 01 10406 1629668 good through July 12,2022
●
Piedra del
Águila plant:
●
ISO 14001/2015:
Certificate No. 01 10406 1629668 good through July 12,2022
●
Brigadier
López plant:
●
ISO 14001/2015:
Certificate No. 01 10406 1629668 good through July 12.
2022
●
Eolic power plants
(Achiras, Castellana I & II, Genoveva II)
●
ISO 14001/2015:
Certificate No. 01 10406 1629668 good through July 12.
2022
Additionally,
pursuant to Section 22 of Argentina’s Environmental Policy
Law No. 25,675, any individual or legal entity, whether public or
private, engaged in activities that endanger the environment,
ecosystems and their constituent elements, including us, must carry
insurance for an amount sufficient to cover the cost of repairing
the damages such individual or legal entity may cause. We fully
comply with this regulation.
86
Security and Health
In managing
occupational safety and health we seek to protect people and our
own and third parties’ property, assuming that:
●
all accidents and
occupational diseases can be prevented;
●
compliance with
applicable occupational and health standards is the responsibility
of all individuals participating in activities in our facilities;
and
●
raising awareness
among individuals contributes to the welfare at the workplace and
to the improved individual and collective development of the
members of the work community.
Our commitment to
ongoing improvement compels us to review the sufficiency of our
current policy and its stated goals on an ongoing basis to ensure
conformance to the changes required by the market and the
applicable laws.
In order to comply
with these policies, we routinely pursue quality certifications. In
May 2016, TÜV Rheinland completed a series of ISO
recertification audits, after which we were awarded the following
certificates:
●
Puerto
Complex:
●
ISO 9001/2015:
Certificate No. 01 10006 1629668 good through July 12,2022
●
Luján de Cuyo
plant:
●
ISO 9001/2015:
Certificate No. 01 10006 1629668 good through July 12,2022
●
Piedra del
Águila plant:
●
ISO 9001/2015:
Certificate No. 01 10006 1629668 good through July 12,2022
●
OHSAS 18001/2007:
Certificate No. 01 11306 1629669 good through March
11,2021
●
Brigadier
López plant:
●
ISO 9001/2015:
Certificate No. 01 10406 1629668 good through July 12.
2022
●
OHSAS 18001/2007:
Certificate No. 01 11306 1629669 good through March 11,2021
●
Wind farms Achiras,
La Castellana I, La Castellana II and La Genoveva II
●
ISO 9001/2015:
Certificate No. 01 10406 1629668 good through July 12.
2022
Integrated Management System with ISO Certifications
Our management has
put an integrated management system (“IMS”) in place
for its electric power and steam generation plants in order to meet
the needs and requirements of our internal policies and goals, as
well as the needs and requirements of our clients, the applicable
laws and regulations and ISO standards, namely, ISO 9001/2015
(quality), ISO 14001/2005 (environment) and OHSAS (Occupational
Health and Safety Assessment Series) 18001/2007 (occupational
safety and health). Our IMS is certified by renowned international
entities and audited from time to time, as required by the
aforementioned standards.
The IMS seeks to
achieve the following goals:
●
equip the plants
with useful and proactive management tools;
●
ensure process
quality;
●
satisfy
clients’ requirements;
●
pursue ongoing
improvement in processes;
●
safeguard people
and our own and third party’s property;
●
prevent
pollution;
●
make efficient use
of resources;
●
preserve the
ecological balance; and
●
improve life
quality.
87
We identify the
processes and the necessary support for the accurate operation of a
sustainable, participatory and bureaucracy-free IMS that is useful
for implementing the principles established by management with
respect to environmental, quality, and occupational safety and
health policies and for ensuring the availability of human,
material and financial resources. We have used a management model
based on planning-doing-checking-acting in order to guarantee the
maintenance and ongoing improvement of the IMS in our facilities,
which involves one or several of the following
systems:
●
Quality Management
System
●
Environmental
Management System
●
Occupational Safety
and Health Management System
The individual
scope of the IMS at each plant is as follows:
●
Puerto
Complex:
●
Nuevo Puerto plant:
Environmental Management System with ISO 14001/2015 certificate and
Quality Management System with ISO 9001/2015
certificate
●
Puerto Nuevo plant:
Environmental Management System with ISO 14001/20015 certificate
and Quality Management System with ISO 9001/2015
certificate
●
Puerto combined
cycle plant: Environmental Management System with ISO 14001/2015
certificate and Quality Management System with ISO 9001/2015
certificate
Certification
body:
From 2004 through
2015: IRAM
From 2016-2022:
TÜV Rheinland
●
Luján de Cuyo
plant: Environmental Management System with ISO 14001/2015
certificate and Quality Management System with ISO 9001/2015
certificate
Certification
body:
From 2004 through
2015: SGS
From 2016 through
2022: TÜV Rheinland
●
Piedra del
Águila plant: Environmental Management System with ISO
14001/2004 certificate, Quality Management System with ISO
9001/2008 certificate and Occupation Safety and Health Management
System with OHSAS 18001/2007(through March, 2021)
certificate
Certification
body:
From 2004 through
2015: IRAM
From 2016 through
2022: TÜV Rheinland
●
Brigadier
López plant: Environmental Management System with ISO
14001/2004 certificate, Quality Management System with ISO
9001/2008 certificate and Occupation Safety and Health Management
System with OHSAS 18001/2007 (through March 2021)
certificate
Certification
body:
From 2019 through
2022: TÜV Rheinland
●
Wind Farms Achiras,
La Castellana I, La Castellana II and La Genoveva II: Environmental
Management System with ISO 14001/2004 certificate, Quality
Management System with ISO 9001/2008 certificate.
Certification
body:
88
From 2019 through
2022: TÜV Rheinland
It is our policy
that the IMS be reviewed upon a change to our organizational
structure, operating procedures, processes or facilities and that
it be updated as applicable. Once updated, the IMS is subject to a
comprehensive review considering the existing interrelations to
avoid overlap or omissions. Where no changes have occurred, the IMS
is reviewed every five years, unless a new version of the reference
ISO or OHSAS standards is released during that period, in which
case the IMS is adjusted to conform to the new
standards.
The Argentine Electric Power Sector
The following is a summary of certain matters relating to the
electric power industry in Argentina, including provisions of
Argentine laws and regulations applicable to the electric power
industry and to us. This summary is not intended to constitute a
complete analysis of all laws and regulations applicable to the
electric power industry. Investors are advised to review the
summary of such laws and regulations published by the Ministry of
Energy and Mining (former Secretariat of Electric Energy)
(www.minem.gob.ar),
CAMMESA (www.cammesa.com.ar)
and the Ente Nacional Regulador de la Electricidad (Argentine
Electricity Regulatory Entity, or “ENRE”) (www.enre.gob.ar)
and to consult their respective business and legal advisors for a
more detailed analysis. None of the information on such websites is
incorporated by reference into this annual report.
History
During the majority
of the second half of the 20th century, the assets and operation of
the Argentine electric power sector were controlled by the
Argentine Government. By 1990, virtually all of the electric power
supply in Argentina was controlled by the public sector (97% of
total generation). The Argentine Government had assumed
responsibility for the regulation of the industry at the national
level and controlled all of the national electric power companies.
In addition, several Argentine provinces operated their own
electric power companies. As part of the economic plan adopted by
former President Carlos Menem, the Argentine Government undertook
an extensive privatization program of all major state-owned
industries, including those in the electric power generation,
transmission and distribution sectors. Argentine Law No. 23,696
passed in 1989 (the “Federal Reform Law”) declared a
state of emergency for all public services and authorized the
Argentine Government to reorganize and privatize public companies.
The privatization had two ultimate objectives: first, to reduce
tariffs and improve service quality through free competition in the
market, and second, to avoid the concentration of control of each
of the three subsectors of the market in a small group of
participants and thereby reduce their ability to fix prices.
Separate limitations and restrictions for each subsector were
imposed in order to reach these goals. In accordance with the
Federal Reform Law, Decree No. 634/1991 established guidelines for
the decentralization of the electric power industry, for the basic
structure of the electric power market, and for the participation
of private sector companies in the generation, transmission,
distribution and administration sub-sectors.
General Overview of Legal Framework
Key Statutes and Complementary Regulations
The body of rules
that constitutes the basic regulatory framework of the Argentine
electric power sector currently in force are the following: (i) Law
No. 15,336, enacted on September 20, 1960, as amended by Law No.
24,065, passed on December 19, 1991, partially promulgated by
Decree No. 13/92, and regulated by Decree No. 1398/92 and Decree
No. 186/95 (collectively, the “Regulatory Framework”),
(ii) Law 24,065 implemented privatizations of government-owned
companies in the electric power sector and separated the industry
vertically into four categories: generation, transmission,
distribution and demand, and it also provided for the organization
of the WEM (described in greater detail below) based on the
guidelines set forth in Decree No. 634/91; and (iii) Decree No.
186/95 also created the notion of “participant,” among
which it is worth mentioning the “trader,” which is
defined as a company that is not a WEM agent but trades electric
power in bulk.
ENRE
Law No. 24,065 also
created the Ente Nacional de
Regulador de la Electricidad (Argentine National Electricity
Regulator) (ENRE) as an autonomous entity within the scope of the
former Secretariat of Electric Energy (currently, the Ministry of
Productive Development), the main duties of which are as follows:
(a) enforcing the Regulatory Framework and controlling the
rendering of public services and the performance of the obligations
set forth in the concession contracts at a national level; (b)
issuing the regulations applicable to the WEM agents; (c) setting
forth the basis for calculation of tariffs and approving the tariff
schedules of transmission and distribution companies holding
national concessions; (d) authorizing electrical conduit easements;
and (e) authorizing the construction of new facilities. Besides,
Law No. 24,065 has entrusted ENRE with a jurisdictional activity.
Any dispute arising between WEM agents should be subject to prior
compulsory jurisdiction of ENRE (subject to further judicial
review).
89
Pursuant to Decree
No. 258/16, the Executive branch appointed four interim members of
the ENRE’s board of directors, and ordered the Ministry of
Energy and Mining to put in place an open call (convocatoria abierta) to select the
members of the ENRE’s board of directors.
Section 6 of the
Solidarity Law, authorizes the Executive branch to intervene the
ENRE’s board for one year. On March 17, 2020, the controller
in charge of carrying out such administrative intervention was
appointed.
The Secretary of Energy
In addition to the
ENRE, another of the main regulatory entities in Argentina is the
Secretary of Energy, -under the jurisdiction of the Ministry of
Productive Development, the successor entity of the formers
Secretariat of Electric Energy, Secretariat of Energy and Ministry
of Energy and Mining and Government Secretary of Energy. Its role
is defined in Law No. 24,065 and Decree No. 50/19. Its main duties
are:
●
to participate in
the drafting and implementation of national energy
policies;
●
to enforce the laws
governing the development of the activities within its scope of
competence;
●
to participate in
the drafting of policies and regulations governing public services
within the scope of its competence;
●
to oversee the
entities and agencies governing works and public service
concessionaries;
●
to engage in
drafting regulations concerning licenses issued by the federal
government or the provinces for public services within the scope of
its competence;
●
to oversee the
regulatory entities and agencies of privatized areas or areas
operating under concessions within the scope of its competence;
and
●
to enforce the
Regulatory Framework and to oversee the regulations governing
tariffs, fees, duties and taxes.
Pursuant to
Resolution No. 64/18, the former Ministry of Energy and Mining
delegated some of its duties to the Undersecretariat of Electric
Energy. Such delegated duties include:
●
amending the Rules
to Access the Electricity Transportation System Existing Capacity
and Enlargement;
●
regulating the
International Interconnection Transmission System (the
“IITS”);
●
amending the rules
governing the Procedures;
●
defining power and
energy amounts and other technical parameters that distributors and
Large Users are required to meet to access the WEM and authorizing
the entry of new players to the WEM;
●
authorizing
electric power imports and exports;
●
rendering final
administrative decisions with respect to appeals brought against
the ENRE’s resolutions, which are the last administrative
remedies that can be filed in order to review the ENRE’s
resolutions (the next step is a judicial appeal);
●
exercising the
duties of the Ministry of Energy and Mining within the Federal
Electricity Council; and
●
administering the
Provinces’ Special Fund for Electricity Development created
by Section 33 of Law No. 15,336.
Moreover, the
former Ministry of Energy and Mining delegated to the
Undersecretariat of Electric Energy the duties of the former
Secretariat of Electric Energy pursuant to Sections 35, 36 and 37
of Law No. 24,065, through Resolution No. 64/18. These duties
include:
●
representing the
state-owned equity interest in CAMMESA;
●
defining the rules
governing CAMMESA;
●
ensuring
transparency and equity;
●
determining the
overall operating and maintenance costs that would allow fully or
partially state-owned generation and transportation companies to
maintain service quality, continuity and safety; and
●
administering the
Stabilization Fund.
Pursuant to Law
22,520 as modified by Decree 532/2019 and Resolution 50/2019, this
duties are now carried out by the Secretary of Energy, under the
jurisdiction of the Productive Development Ministry.
WEM (Wholesale Electricity Market)
Pursuant to Section
35 of Law No. 24,065 and other regulations, the Despacho Nacional de Cargas (National
Dispatch Board) must be structured as a corporation. CAMMESA was
created for such purpose (Decree No. 1192/92) and to coordinate the
technical and administrative supply and demand of electric power
within a real-time operation system, centralizing and processing
information produced by the WEM agents. CAMMESA also acts as a
collection entity for all WEM agents.
90
The WEM consists
of:
1.
a term market,
where contractual quantities, prices and conditions are freely
agreed upon among sellers and buyers;
2.
a spot market,
where prices are established on an hourly basis based on the
economic production cost, represented by the short-term marginal
cost measured at the system’s load center (market node);
and
3.
a quarterly
stabilization system of spot market prices, intended for the
purchases of electric power by distributors.
The following chart
shows the relationships among the various actors in the
WEM:
Procedures for the Programming of Operation, Dispatch and Price
Calculation
For the purposes of
implementing the provisions set forth in the Regulatory Framework,
a set of regulatory provisions were issued, through former
Secretariat of Electric Energy Resolution No. 61 of April 29, 1992,
which are referred to as the “Procedures for the Programming
of Operation, Dispatch and Price Calculation” (the
“Procedures”). The Procedures have been amended,
supplemented and extended by subsequent resolutions issued by the
former Secretariat of Electric Energy.
CAMMESA
CAMMESA is a
not-for-profit corporation. The shareholders of CAMMESA each hold
twenty percent stakes and are as follows: the Argentine Government
(represented by the Secretariat of Energy) and the four
associations representing the different segments of the electric
power sector (generation, transmission, distribution and Large
Users).
CAMMESA is managed
by a board of directors composed of ten regular directors and up to
ten alternate directors, which are appointed by its shareholders.
Each of the associations that represent the different segments of
the electric power sector is entitled to appoint two regular
directors and two alternate directors. The two remaining regular
directors of CAMMESA are the Secretariat of Electric Energy, who
serves as chairman of the board and an independent member who acts
as vice chairman, appointed at a meeting of the shareholders. The
decisions adopted by the board of directors of CAMMESA require the
affirmative vote of a majority of the directors present at the
meeting, including the affirmative vote of the chairman of the
board.
CAMMESA is in
charge of:
●
managing the SADI
in accordance with the Regulatory Framework, which
includes:
●
determining the
technical and economic dispatch of electric power (including
determining the schedule of production of all generation plants of
a power system to balance the production with the demand) at the
SADI;
●
maximizing system
security and the quality of electric power supplied;
●
minimizing
wholesale prices in the spot market;
●
planning energy
capacity requirements and optimizing energy use in accordance with
the rules set forth periodically by the Secretariat of Electric
Energy; and
●
monitoring the
operation of the term market and administering the technical
dispatch of electric power under the agreements entered into in
that market.
91
●
acting as agent of
the various WEM participants;
●
purchasing and
selling electric power from or to other countries by performing the
relevant import/export transactions within the framework of
existing agreements between Argentina and bordering countries
and/or among WEM agents and third parties from bordering countries;
and
●
carrying out the
commercial administration and dispatch of fuels for the WEM
generation plants.
In addition to the
responsibilities mentioned above, under current applicable
regulations, CAMMESA has been tasked with the role of acquiring and
supplying the fuel for the electric power sold under the
Energía Base free of cost to the generators.
CAMMESA’s
operating costs are funded by means of the mandatory contributions
of all WEM participants. Regulations in force as of the date of
this annual report have fixed a maximum amount for CAMMESA’s
annual budget, equal to 0.85% of the total WEM transactions planned
for each year.
Provincial Regulatory Powers
Provinces can (and
do) regulate the electrical system within their territories, and
are enforcement authorities in charge of granting and controlling
electric power distribution concessions within their territories.
Nonetheless, if a provincial electric power market participant is
connected to the SADI, it must also comply with federal
regulations. In general terms, provinces have followed federal
regulatory guidelines and have established similar regulatory
institutions. In addition, isolated provincial electric power
systems are very rare, and most provincial market participants are
connected to the SADI and buy and sell electric power in the WEM,
which falls within the regulatory powers of the Argentine
Government.
Pursuant to
Sections 6 and subsequent Sections of Law No. 15,336, electric
power generation, whatever its source, transformation or
transmission, is subject to exclusive federal jurisdiction
when:
1.
it is related to
national security;
2.
it is aimed to be
used in the trade of electric power between different jurisdictions
and districts inside the country (e.g., between two different provinces
or between the City of Buenos Aires and a province);
3.
it is correlated to
a place that is exclusively under jurisdiction of the Argentine
Congress;
4.
it is related to
hydroelectric or tidal energy facilities that need to be connected
between them or with others of the same or different source for a
rational and economic use of them;
5.
it is connected to
the SADI in any spot of the
country;
6.
it is related with
the trade of electric power with a foreign nation; or
7.
it is related to
electric power plants that use or transform nuclear or atomic
energy.
This exclusive
federal jurisdiction implies, among other things, that provinces
have limited taxing and police powers when generation,
transformation and transmission facilities of electric power are
involved.
Structure of the Industry
Generation and the WEM
According to Law
No. 24,065, electric power generation is classified as an activity
of public interest associated with the provision of the public
service of transmission and distribution of electric power, but
conducted within the framework of a competitive market. As a result
of the privatization and incorporation of new market players, the
generation sector, even after a consolidation process that took
place over the past few years, has a competitive structure with at
least five major companies of similar size: (i) Central Puerto;
(ii) Endesa Argentina S.A. (which includes Endesa Costanera S.A.,
Central Dock Sud S.A. and Hidroeléctrica el Colochón
S.A.); (iii) Pampa Energía S.A. (which includes Central
Térmica Güemes S.A., Central Térmica Loma la Lata
S.A., Inversora Piedra Buena S.A., Inversora Diamante S.A., CTG and
Inversora Nihuiles, and the plants formerly owned by Petrobras
Argentina S.A., which were merged into Pamos Energía S.A.) and
(iv) AES Argentina Generación S.A. (which includes Central
Térmica San Nicolás S.A. and Hidroeléctrica
Alicurá S.A.). In addition, a significant portion of the
generation sector is controlled by state-owned and state-controlled
companies (e.g.,
Yacyretá, Salto Grande, Atucha and Embalse and YPF) and other
private sector generators (e.g., Orazul, Albanesi and
Capex).
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Thermal electric
power generators (i.e.,
generation using natural gas, liquid fuels derived from oil, such
as gas oil and fuel oil or coal) do not need a concession granted
by the government to operate, whereas hydroelectric power
generators do need a concession granted by the government to be
able to use water sources. Typical terms included in concession
agreements include the right to use water resources and facilities
for a fixed amount of time (e.g., thirty years), in cases where the
dam is owned by the Argentine Government or an Argentine provincial
government, and the option to extend or renew the concession period
for a fixed number of years. Usually, the concessionaire must make
a one-time initial payment to the Argentine Government or an
Argentina provincial government in exchange for the rights granted
in the concession and periodically must pay a fee and/or royalties
to the respective provincial government where the river is located
in exchange for the use of this water resource. Normally, these
periodic fees vary according to the amount of energy
generated.
As of the date of
this annual report, following the enactment of Resolution SE No.
95/2013, Large Users operating in the term market purchase electric
power through agreements with CAMMESA, except for those power
purchase agreements executed under the scope of Resolution No.
281/2017 –which created the Renewable Energy Term Market-.
See “Item 4.B. Business Overview— The Argentine
Electric Power Sector—Remuneration Scheme—The Previous
Remuneration Scheme” below.
Electricity Dispatch and Spot Market Pricing prior to Resolution SE
No. 95/13
According to the
Regulatory Framework, an electric power generators’
remuneration is a function of two components: (1) a variable
component, based on quantity of energy sold in the market, and (2)
a fixed component that aims to remunerate the generator for each MW
of capacity of its units available per hour in the WEM, regardless
of the consumption of the electric power generated by such units.
The value of the fixed component depends on, among other things,
the connection node to which the unit connects to the
SADI.
In accordance with
the spot market that was in place prior to Energía Base,
electric power is traded at prices reflecting supply and demand.
CAMMESA dispatches the available power units based on the variable
costs of production determined by the generation agents, either
based on the cost of fuel or the price of water determined,
dispatching the most efficient power units first. The spot market
price is determined by CAMMESA on an hourly basis at a specific
geographic location, referred to as the “market node,”
which is located in the system’s load center at Ezeiza,
Province of Buenos Aires. The energy price consists of a value
referred to as the “marginal system price” or
“market price,” and represents the economic cost of
generating the next MWh to satisfy an increase in demand at the
same value. The seasonal price fixing system is directly related to
the quarterly average prices of the spot market.
CAMMESA is
regulated in a manner that is intended to keep operating costs low
and to optimize prices. Pursuant to the regulations and procedures
enforced by the Ministry of Energy and Mining, CAMMESA applies
optimization models in accordance with applicable regulations,
based on weather estimates, dam levels, rain forecasts for the
following months and the availability of nuclear plants and thermal
machines. These optimization models are aimed at keeping operating
costs at the lowest possible level while satisfying the expected
daily demand for electric power.
To meet electric
power demand, CAMMESA organizes and coordinates the electric power
dispatch of generators by prioritizing power units with a lower
variable production cost, followed by those with a higher variable
production cost, until all electric power demand has been
satisfied. Generators must inform CAMMESA of the thermal generation
plants’ variable production costs, which depend on the
availability of different types of fuels provided by CAMMESA
(e.g., natural gas, fuel
oil and gas oil).
With respect to
demand, CAMMESA calculates the typical hourly consumption curves
taking into account the limitations of the transmission grid, the
needs of distributors, Large Users and self-generators that
purchase energy in the WEM, and demand from interconnected
importing countries that only receive energy if there is excess
supply in Argentina.
As a result of this
process, CAMMESA defines an optimal market price, which results
from adding the variable cost of transmission from the
generator’s connection point to the market node to the
accepted variable production cost.
The procedure
described above is used to project the future needs of the SADI and
WEM. However, often projections and actual market conditions
differ, which creates differences between purchases by distributors
at seasonal prices and payments to generators for energy sales at
the spot price.
93
The Stabilization Fund
Energy prices are
passed on to end-users through the public utility distribution
companies. To fix prices for end-users, CAMMESA analyzes electric
power supply and demand for the period for which the price is being
calculated. The seasonal price is a fixed quarterly price. The
Regulatory Framework created the Stabilization Fund that absorbs
the differences between the seasonal price and the spot price in
the WEM. When the seasonal price is higher than the spot price,
there is an accumulated surplus in the Stabilization Fund. Any
surplus is used to offset
any losses resulting from periods during which the spot price have
been higher than the seasonal price.
Through the enacted
Resolution No. 7/16, the former Ministry of Energy and Mining
suspended any transfer of funds from the Stabilization Fund to
EDENOR and EDESUR intended to fund these companies’ planned
works, which would have been implemented through financing
agreements with CAMMESA and funded by the Stabilization
Fund.
Developments since the Public Emergency Law No. 25,561
Since the approval
of the Public Emergency Law on January 6, 2002, a series of
temporary provisions amended the original mechanism for the
determination of prices in the WEM. The measures adopted pursuant
to the Public Emergency Law also distorted this mechanism: in spite
of an increase in the spot price, the seasonal price remained
frozen for all users until 2004, when a partial adjustment was
adopted that did not affect residential demand. As a result, the
amounts collected based on seasonal prices have been lower than the
amounts based on spot prices, therefore increasing the
Stabilization Fund deficit.
Resolution No. 6/16
issued by the Ministry of Energy and Mining on January 27, 2016
sought to gradually implement a standardization program of several
macroeconomic variables, foster the efficient and rational use of
electric power and ensure that the appropriate conditions are in
place to benefit from private sector investments in the
sector’s activities and segments. Pursuant to this
resolution, the Ministry of Energy and Mining acknowledged the gap
between actual costs and prevailing prices. However, on the basis
of social policy, the Ministry of Energy and Mining had fixed a new
seasonal price for the WEM that is still below actual supply
costs.
The former Ministry
of Energy and Mining also created incentives for residential
customers to save electric power, which consist of lower tariffs
for users who reduce their consumption over a given period compared
to the same period during the previous year and fixed a social
tariff to be applied to certain sectors of demand.
Import and Export Transactions
Pursuant to Decree
No. 974/97, import and export transactions are conducted through
the IITS, a public service subject to the concession granted by the
former Secretariat of Electric Energy. Under such system, through
Resolution No. 348/99, the former Secretariat of Electric Energy
granted Interandes Sociedad
Anónima a concession for the IITS through the
Güemes Transmission System, which connects the Central de
Salta Thermal Generation plant located in Güemes, Salta, with
the Sico Border Crossing, on the border with the Republic of
Chile.
All import and
export transactions conducted through the term market require the
prior authorization of the Secretariat of Electric Energy and
CAMMESA.
Transmission and Distribution
Pursuant to Law No.
24,065, transmission and distribution activities are regulated as
public services due to the fact that they are natural monopolies.
The Argentine Government has granted concessions to private
entities conducting these activities, subject to certain
conditions, such as service quality standards and fixing the
tariffs they are entitled to collect for their
services.
Electricity
transmission is comprised of (i) a high-voltage transmission system
(operated by the company Transener, which is currently
co-controlled by the Eling Group, Transelec and Integración
Energética Argentina S.A. -formerly known as IEASA), which
connects the main electric power production and consumption areas
allowing the transmission of electric power between different
Argentine regions and (ii) several regional trunk systems, which
transmit electric power within a particular region and connect the
generators, distributors and Large Users that operate in such
region.
94
Electricity
distribution is regulated only at the federal level for the City of
Buenos Aires and the districts in the metropolitan areas of Greater
Buenos Aires. EDENOR operates in the northern area of both the City
of Buenos Aires and Greater Buenos Aires, and EDESUR operates in
the southern area of both the City of Buenos Aires and Greater
Buenos Aires. In the rest of the country, the electric power
distribution service is regulated at the provincial level and
subject to concession granted by provincial authorities. Section
124 of Law No. 27,467 established that both EDENOR and EDESUR would
be transferred to the regulatory jurisdiction of the Province of
Buenos Aires and the City of Buenos Aires, as applicable. However,
such transfer was not implemented, and was later suspended by the
Solidarity Law that established that until December 31, 2020, the
ENRE will retain its regulatory powers over such
companies.
Transmission
services are rendered by concessionaires that operate and use high
and medium voltage transmission lines. Transmission services
consist of the transformation and transmission of electric power
from generators’ delivery points to distributors’ or
Large Users’ reception points. Law No. 24,065 provides that
energy transmission companies must be independent from other WEM
participants and prohibits them from purchasing or selling electric
energy.
Distribution
companies are in charge of supplying electric power to end-users
who cannot contract with an independent electric power supply
source due to their consumption levels, such as residential
end-users.
The main
characteristics of concession contracts for the transmission and
distribution of electric power are: (i) service quality standards
with penalties that are applied in case of breach; (ii) a
concession term of 95 years for the monopoly of the supply service
in a supply area or network, divided into “management
periods,” with an initial term of 15 years and subsequent
terms of ten years (at the end of each management period, the
Argentine Government must call for bids to sell the majority stake
of the corresponding transmission or distribution company); and
(iii) tariffs fixed based on economic criteria with a price cap
system and predefined processes regarding their calculation and
adjustment.
Tariffs
The tariffs charged
by electric power transmission companies include: (i) a connection
charge, (ii) a transmission capacity charge and (iii) a charge for
actually transmitted energy. In addition, transmission companies
may receive income derived from the expansion of the system.
Transmission tariffs are passed on to final users through the
distributors.
The amounts that
distribution companies charge to end-users include: (i) the price
for the purchase of energy in the WEM (the seasonal price as
described above), (ii) transmission costs, (iii) the value-added
for distribution (“VAD”), which compensates the
distributor, and (iv) taxes. The VAD is the marginal cost of
providing services, including the network development and
investment costs, operation maintenance and commercialization
costs, as well as depreciation and a reasonable return on the
invested capital. The tariffs determined as set forth above must
enable an efficient distributor to cover its operating costs,
finance the renovation and improvement of its facilities, satisfy
increasing demand, comply with established quality standards and
obtain a reasonable return, while also enabling such distributor to
comply with certain operating efficiency standards and operate in a
manner consistent with the amounts it has invested and the national
and international risks inherent in its operations.
Pursuant to
Resolution No. 7/16, issued by the Ministry of Energy and Mining,
the ENRE must complete a full tariff review and adjust the VAD in
EDENOR’s and EDESUR’s tariff schedules. To such end, it
must apply the social tariff scheme (the “Transition Tariff
Scheme”) set forth in the renegotiation agreements ratified
by Decrees Nos. 1957/06 and 1959/06 and executed by EDENOR and
EDESUR (the “Renegotiation Agreements”), on the one
hand, and the Unidad de
Renegociación y Análisis de Contratos de Servicios
Públicos (Renegotiation and Analysis of Public Services
Contracts Unit, “UNIREN”), on the other
hand.
Pursuant to
Resolution No. 1/16, the ENRE approved EDENOR and EDESUR’s
tariff schedules in accordance with the Transition Tariff Scheme,
subject to a subsequent full tariff review, which has been
applicable since February 1, 2016. The new tariff schedules include
differential tariffs based on consumption and the social tariff.
Following the tariff increases, preliminary injunctions suspending
such increases were requested by customers, politicians and
non-governmental organizations that defend customers’ rights,
being granted by Argentine courts. Among the different rulings in
this respect, two rulings issued by the Second Division of the
Federal Courts of Appeals for the City of La Plata and a federal
judge from the San Martín district court led to the suspension
of end-users tariff increases of electric power in the Province of
Buenos Aires and in the whole territory of Argentina, respectively.
Pursuant to these injunctions, (i) the end-user tariff increases
granted as of February 1, 2016 were suspended retroactively to that
date, (ii) end-user bills sent to customers were not to include the
increase and (iii) the amounts already collected from end-users as
a consequence of consumption recorded before these rulings had to
be reimbursed. However, on September 6, 2016, the Supreme Court
denied these injunctions that suspended end-users electric power
tariff increases, arguing formal objections and procedural defects
and therefore.
95
Pursuant to
Resolution No. 522/16, the ENRE ordered a public hearing to be held
to evaluate the proposals for the full tariff review filed by
EDENOR and EDESUR for the period January 1, 2017 – December31, 2021. The hearing was held on October 28, 2016.
Following such
hearing, on January 31, 2017, the ENRE issued Resolution No. 63/17,
by virtue of which such administrative authority approved the
tariffs to be applied by EDENOR. In the same sense, Resolution No.
64/17 approved EDESUR’s tariffs.
Regarding
transmission tariffs, seven public hearings were held pursuant to
Resolutions Nos. 601/16, 602/16, 603/16, 604/16, 605/16, 606/16,
607/16 of the ENRE. In such public hearings, the tariff proposals
filed by transmission companies Transener S.A, Distrocuyo S.A.,
Transcomahue S.A., Ente Provincial de Energía de Neuquén,
Transba S.A., Transnea S.A., Transnoa S.A., and Transpa S.A. for
the period January 1, 2017 – December 31, 2021 were
evaluated. Pursuant to Resolutions Nos. 66/17, 68/17, 69/17, 71/17,
73/17, 75/17, 77/17 and 79/17, the ENRE approved the new applicable
tariffs of such companies.
In April 2019, the
Argentine Government announced that tariffs would not be increased
for the rest of the year, suspending increases projected for May
and August 2019. The Government absorbed the cost of such delays on
tariffs updates.
The Solidarity Law
froze tariffs applied by distribution and transmission companies
under federal jurisdiction for a 180-day period, at the values
effective as of December 23, 2019. In addition, the Solidarity Law
empowered the Executive branch to renegotiate tariffs effective as
of such date aiming to reduce the tariff burden placed on
households, stores and industrial facilities for the year
2020.
Through the
Solidarity Law, the Argentine Government also invited provinces to
freeze and review tariffs applied by distribution and transmission
companies under provincial jurisdiction.
Large Users
The WEM classifies
Large Users of energy into three categories: (i) Grandes Usuarios Mayores (Major Large
Users, or “GUMAs”), (ii) Grandes Usuarios Menores (Minor Large
Users, or “GUMEs”) and (iii) Grandes Usuarios Particulares
(Particular Large Users, or “GUPAs”).
GUMAs are users
with a maximum capacity equal to or greater than 1 MW and a minimum
annual energy consumption of 4,380 MWh. These users are required to
contract at least 50.00% of their demand and purchase the rest from
the spot market. Their transactions in the spot market are invoiced
by CAMMESA.
GUMEs are users
with a maximum capacity ranging from 0.03 to 2 MW. They are not
required to have any minimum annual demand. These users are
required to contract all of their demand and do not affect any
transactions in the spot market.
GUPAs are users
with a minimum capacity of 0.030 MW and a maximum of 0.1 MW. They
are not required to have any minimum annual demand. These users are
required to contract all of their demand and do not operate in the
spot market.
Traders
Since 1997, traders
have been authorized to participate in the WEM by intermediating
block sales of energy. Currently, there are thirty one authorized
traders in the WEM.
Vertical and Horizontal Restrictions
The WEM agents are
subject to vertical restrictions, pursuant to Law No. 24,065 and
Decree No. 1398/92, according to which:
1.
neither a
generation or distribution company nor a Large User or any of its
controlled companies or its controlling company, can be an owner or
a majority shareholder of a transmission company or the controlling
entity of a transmission company. Nevertheless, the Executive
branch may authorize a generation or distribution company or a
Large User to build, at its own cost and for its own need, a
transport network for which it will establish the modality and form
of operation.
2.
the holder of a
distribution concession cannot be the owner of generation units;
however, the shareholders of the electric power distributor may own
generation units, either by themselves or through any other entity
created with the purpose of owning or controlling generation units;
and
96
3.
no transmission
company may purchase or sell electric energy.
Section 33 of the
Argentine Corporate Law states that “companies are considered
as controlled by others when the holding company, either directly
or through another company: (1) holds an interest, under any
circumstance, that grants the necessary votes to control the
corporate will in board meetings or ordinary shareholders’
meetings; or (2) exercises a dominant influence as a consequence of
holding shares, quotas or equity interest or due to special linkage
between the companies.” However, we cannot assure you that
the electric power regulators will apply this standard of control
in implementing the restrictions described above. According to the
ENRE resolutions, a company controlled by or controlling an
electric power transmission company is a company that owns more
than 51% of the voting shares of the controlled company and
exercises a majority control.
Both electric power
transmitters and distributors are also subject to horizontal
restrictions. The horizontal restrictions applicable to
transmission companies are the following:
1.
two or more
transmission companies can merge into or be part of a same economic
group only if they obtain an express approval from the ENRE; such
approval is also necessary when a transmission company intends to
acquire shares in another electric power transmission
company;
2.
pursuant to the
terms of the concession agreement that govern the transmission of
electric power through transmission lines above 132 kv and below
140 kv, the transmission service is rendered exclusively in the
specific areas indicated in such agreement; and
3.
pursuant to the
terms of the concession agreement of the company that renders
electric power transmission services through lines with voltage
equal to or higher than 220 kv, the service must be rendered
exclusively and without territorial restrictions, throughout
Argentina.
The horizontal
restrictions applicable to electric power distribution companies
are the following:
1.
two or more
distribution companies can merge into or be part of a same economic
group only if they obtain an express approval from the ENRE; such
approval is also be necessary when a distribution company intends
to acquire shares in another electric power distribution company;
and
2.
the distribution
service is rendered within the areas specified in the respective
concession contracts.
The Impact of the Public Emergency Law No. 25,561 of 2001 and its
Implementation
The electric power
sector has been significantly affected by the Public Emergency Law
and the measures adopted as a consequence thereof. As a result of
the law, electric power transmission and distribution tariffs were
converted into pesos and frozen for more than six years. They were
only subject to limited and small-scale increases.
The contract
renegotiation process provided for by the Public Emergency Law for
public contracts subject to federal jurisdiction, including the
concessions granted for electric power transmission and
distribution in the City of Buenos Aires and La Plata, progressed
very slowly. After more than five years of negotiations, electric
power transmission and distribution companies have reached an
agreement with the Argentine Government with the participation of
the UNIREN, which was created within the scope of the Ministries of
Economy and Federal Planning, Public Investment and Services. As a
result of these negotiations, transmission tariffs were subject to
the abovementioned limited and small-scale increases.
In the distribution
sector, the Renegotiation Agreements provided for limited increases
in income and to a portion of the tariffs (namely, the VAD). Such
increases were generally applied to commercial and industrial
users, while a comprehensive review of tariffs that would include
residential users has been proposed on several occasions. This
delay in updating rates caused an imbalance in the payments that
distributors made to CAMMESA and those charged by the generators to
CAMMESA, which resulted in shortages in the stabilization fund and
delays in payments to generators. See “—Shortages in
the Stabilization Fund and Responses from the Argentine
Government.”
The UNIREN was
dissolved through Decree No. 367/16, dated February 17, 2016, which
provided that the procedures for renegotiating works and public
service contracts should take place within the scope of the
ministries governing such contracts. Furthermore, this decree
empowers the competent ministries, jointly with the Ministry of
Economy and Public Finance, to execute partial contractual
Renegotiation Agreements and apply interim tariff and price
adjustments as necessary to ensure the continuity of the respective
ordinary services until full contractual Renegotiation Agreements
are entered into, which must take into account the outcomes of the
full tariff review.
97
Shortages in the Stabilization Fund and Responses from the
Argentine Government
The shortage in the
supply of natural gas has also had a significant impact on the
industry. Because Resolution SE No. 240/03 provides that the spot
price must be calculated as if there were no natural gas supply
shortage, electric power generators have not been able to pass
increases in the price of fuel on to buyers. This situation has led
to the depletion of the Stabilization Fund, which has resulted in
the inability to pay the electric power generators’
bills.
As a result of the
deficit in funds required to pay WEM agents, the Secretariat of
Electric Energy issued Resolution No. 406/03. Section 4 of such
resolution provides that if there are insufficient resources, the
order of priority to settle debts owed to WEM creditors should be
the following: (i) the amounts due as receivables payable to the
unified fund created by Section 37 of Law No. 24,065; (ii) the
monthly income to be allocated to the WEM funds and accounts; (iii)
the amount necessary to pay for the receivables of WEM agents once
the remuneration items set forth in subsections (iv), (v) and (vi)
have been paid; (iv) the items related to the payment of
remuneration for the capacity and services rendered to the WEM; (v)
the amounts pertaining to: (a) the energy produced and delivered in
the hourly spot market valued at its operating cost based on the
variable production costs declared and approved for thermal
generation plus all the
relevant transmission charges, (b) the energy produced and
delivered at the hourly spot market by hydroelectric plants, valued
at the representative average operation and maintenance cost of a
hydroelectric power plant established in Annex 26 to the Procedures
plus the total amount of
the relevant transmission charges (Ps.2 per MW per hour), (c) the
remuneration payable to electric power transmission companies and
(d) the additional providers of technical transmission services
that are not distributors and have receivables in the WEM in
connection with the transactions of Large Users in the market; and
(vi) the commitments assumed in relation to Annexes II, III, IV of
Resolution SE No. 01/03.
To overcome these
problems and take into account the forecasts of the future increase
in demand, the Argentine Executive branch launched different
programs and policies promoting the availability of new generation
capacity. For example, the Energía Plus and Energía
Distribuida programs were implemented to encourage private sector
investments in new generation facilities, allowing owners to sell
the energy produced at prices sufficient to cover the cost of the
projects plus a reasonable
profit. The purpose of these measures is not only to overcome the
energy shortage situation but also to add installed capacity to
satisfy the steady growth in demand that is expected in the short
and medium term.
The FONINVEMEM and Similar Programs
In 2004, the
Argentine Government, seeking to increase generation capacity,
created the FONINVEMEM (Resolution SE No. 712/2004), a fund to be
administered by CAMMESA. Its purpose is to raise funds to be
invested in energy generation projects. To provide capital for the
FONINVEMEM, the former Secretariat of Electric Energy invited all
WEM participants holding LVFVDs that originated from January 2004
to December 2006 to contribute these credits to the FONINVEMEM. In
the initial stages of the FONINVEMEM, generators were entitled to
participate in the construction of two new 800 MW combined cycle
thermal generation plants. Consequently, on December 13, 2005, the
generation companies TMB and TJSM were created.
The FONINVEMEM
reimburses the private sector contributors the amount of their
contributed receivables in 120 equal, consecutive monthly
installments starting from the commercial launch date of the
plants, converted into U.S. dollars at the rate effective as of the
date of the applicable agreement, with interest at the interest
rate specified in the applicable agreement for each project. For
more information, see “Item 4.B. Business Overview
—FONINVEMEM and Similar Programs.”
Subsequently, in
2010, a new agreement with WEM generators was entered into to
promote new electric power generation to satisfy the increase in
the energy and capacity demand and also to facilitate the
settlement of the generators’ receivables from CAMMESA for
electric power sales. Within the framework of such agreement,
Central Puerto and the Endesa and Duke groups submitted a project
for the construction of a thermal combined cycle plant named
Central Vuelta de Obligado, in Timbúes, Province of Santa Fe,
and, in turn, The AES Group submitted a project for the
construction of Central Guillermo Brown, located in Bahía
Blanca, Province of Buenos Aires. In connection with the former,
the generation company CVOSA was created.
Resolution SE No. 146/2002
Resolution SE No.
146 of October 23, 2002 provides that any generator that needs to
perform major or extraordinary maintenance works and needs
resources for such works may request financing, subject to the
availability of funds and the performance of the conditions set
forth by such rule.
98
Energía Plus
In September 2006,
the former Secretariat of Electric Energy issued Resolution No.
1281/06 which created the Energía Plus Service, in an effort
to respond to the sustained increase in energy demand and to foster
new private sector interested parties to invest fresh capital into
the energy sector in order to generate new energy
sources.
The resolution
provided that:
1.
The energy
available in the market will be used primarily to serve residential
customers, public lighting, public entities and industrial and
commercial users whose energy demand is at or below 300 kW and that
have not entered into term contracts.
2.
GUMAs, GUMEs and
large customers of distribution companies (in all cases with
consumption equal or higher than 300 kilowatts) must satisfy any
consumption in excess of their base demand (equal to their demand
in 2005) with energy from the Energía Plus service, consisting
of the supply of additional energy generation from new generators
and generation agents, co-generators or self-generators that are
not agents of the WEM or who, as of the date of publication of the
resolution, were not interconnected with the WEM. The price
required to pay for excess demand, if not previously contracted for
under the Energía Plus, was originally fixed to be equal to
the marginal cost of operation. The marginal cost is equal to the
generation cost of the last generation unit transmitted to supply
the incremental demand from electric power at any given time. With
the Energía Plus, the price has been amended to for GUMAs and
GUMEs and has been maintained for large customers of distribution
companies for their excess demand (Note No. 111/16 issued by the
Secretariat of Electric Energy).
Distributed Energy (Energía Distribuida)
Resolution 220/07
Pursuant to
Resolution No. 220/07, the Secretariat of Energy authorized the
execution of Electricity Supply Agreements (“ESAs”)
between the WEM (represented by CAMMESA) and companies that offer
additional generation to the system (i.e., the so-called offer of additional
generation and associated energy from generation, co-generation and
self-generation agents that, as of the date of publication of the
resolution, were not WEM agents or did not have the generation
facilities to commit to such supply). ESAs are applicable to all
such projects for additional energy generation that involved the
participation of the Argentine Government or IEASA or those that be
determined by the former Ministry of Federal Planning, Public
Investment and Services (currently, the Ministry of Productive
Development).
Resolution No.
220/07 sets forth the standard terms of ESAs,
including:
1.
Effective Term: Maximum of ten
years.
2.
Parties: The company whose offer has been
approved by the former Secretariat of Electric Energy, as seller,
and the WEM as a whole, represented by CAMMESA, as
buyer.
3.
Remuneration: To be determined based on the
costs accepted by the former Secretariat of Electric Energy and
approved by the former Ministry of Planning.
4.
Delivery Point: The connection node of the plant
with the SADI.
5.
Remedies: The ESAs must include remedies
for breach based on the effect that the unavailability of the units
committed under the ESAs may have on the proper supply of the
electric power demand in the SADI.
6.
Dispatch: The machines and plants assigned
to the ESAs will generate electric power to the extent they are
dispatched by CAMMESA.
Furthermore, such
resolution details the requirements that the additional generation
offers must meet for an ESA to be executed. The respective
investment projects must be submitted to the Secretariat of
Electric Energy and include the following information: (i) the
units to be approved that will assume the commitment; (ii)
guaranteed availability of the units; (iii) the offered duration of
the ESAs; (iv) the effective term of the offer; (v) the
availability of capacity committed for the period offered in MW;
the former Secretariat of Electric Energy may establish committed
capacity value limits; and (vi) a breakdown of fixed and variable
costs, in particular, those related to the funding used for the
installation of the new capacity offered and supporting documents
of such breakdown, along with backing documentation.
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Based on the
information provided, the Secretariat of Electric Energy must
evaluate the submitted offers and inform CAMMESA of those that are
accepted for contracts, expressly stating the annual payment amount
for the installation costs to be considered and/or the calculation
method to be applied for such purposes, as well as the fixed or
variable costs associated with the ESAs. The Secretariat of
Electric Energy then must send CAMMESA the text of the contract to
be executed and the methodology that should be used for its
inclusion in the economic transactions of the WEM.
The capacity
assigned and the energy supplied in connection with the ESAs will
be compensated by means of a monthly payment calculated based on
the annual installation costs to be considered, and the fixed and
variable costs required for the proper operation of the committed
equipment, based on a method that must be defined in the relevant
agreement.
The generation
agents that are parties to the ESAs must meet all the requirements
set forth in the Procedures, including determining the variable
production costs and water costs of the units committed in
accordance with the methods in force and the maximum costs
acknowledged pursuant to Resolution No. 220/07.
As long as
Resolution SE No. 406/2003 is applicable, the payment obligations
under the ESAs will have the payment priority provided in
subsection (e) of Section 4 of Resolution SE No.
220/07.
To reduce the risk
arising from payment for sales under the ESAs, the costs associated
with such agreements must have payment priority over the
receivables of other agents in the market. In this context, the
order of priority to be applied for the settlement of payment
obligations derived from such contracts must be equal to or higher
than thermal generators’ obligations in respect of operating
costs. In other words, the recovery of costs associated with the
ESAs must have at least the same priority level as the recovery,
for instance, of the costs of fuel used for the generation of
electric power that is already installed.
Pursuant to
Resolution SE No. 1836/07, the former Secretariat of Energy
instructed CAMMESA to execute with IEASA the ESAs pertaining to
energy projects located in specific sites communicated in each case
by such secretariat, approving, as Annex I, the sample contract to
be executed and providing for the specific conditions of each ESA
that should be approved by the former Secretariat of Electric
Energy.
Law No. 27,424 (and related Decree No. 986/2018).
Law No. 27,424,
enacted in 2017, established the “Régimen de Fomento a la Generación
Distribuida de Energía Renovable Integrada a la Red
Eléctrica Pública” (i.e. Promotion of
Distributed Energy from Renewable Sources Regime). Law No. 27,424
was later implemented through Decree No. 986/18 (both Law No.
27,424 and Decree No. 986/2018, its amendments and its
complementary regulations, the “Promotion
Regime”).
The Promotion
Regime sets forth the policies and contractual terms for the
generation of electricity from renewable sources by users of the
electricity distribution service, either for self-consumption or,
eventually, for the supply of additional energy to the
grid.
It also established
the obligation of the electricity distribution companies to allow
such energy supply by the abovementioned user-generators, securing
free access to the distribution grid. Distributed generation of
electricity from renewable sources was declared of national
interest.
The goal of the
Promotion Regime is to achieve 1.000 MW of installed capacity
within twelve (12) years as of the day in which Decree No. 986/2018
came into force (November 3, 2018).
Every user of the
distribution service has the right to install equipment to generate
power from renewable energy sources to a capacity equal to the one
contracted and demanded to its own distributor, provided such
user-generator falls within the scope of section 6 of Law No.
27,424 and subject to the distributor’s previous
authorization. In the event the user-generator intends to install a
larger capacity, a special authorization shall be requested to the
corresponding distributor.
After obtaining the
abovementioned authorization, the user-generator and the
distributor shall execute a Distributed Electricity Generation
Agreement, under the terms of the Promotion Regime. Pursuant to it,
the distributor shall enable the user-generator’s facilities
to supply energy to the grid.
In case of
controversies among the distributor and the user-generator, Law No.
27,424 establishes that the latter can bring its claim before the
competent regulatory entity.
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The compensation
and remuneration scheme for the supplied energy shall be
administered by the distributor in the following
terms:
(a)
The user-generator
shall receive a tariff for the supply of each kilowatt per hour
(KW/h) delivered to the grid, as of the moment the measuring
equipment is installed by the distributor. The pricing shall be in
Argentine pesos. The applicable tariff scheme was approved by ENRE
Resolution No. 189/2019 (see “Tariff Scheme – ENRE
Resolution No. 189/2019” below).
(b)
In the usual bills
for the provision of electricity, the distributor shall reflect the
energy provided to the user-generator, and the energy supplied by
the user-generator to the grid, with the price for each KW/h. The
user-generator shall pay the net value before taxes. No additional
tax charges can be made over the energy supplied by the
user-generator. In the event there is a surplus amount in favor of
the user-generator, a credit against the distributor will be
accounted for further periods. If such surplus amounts accrue for a
certain period of time, a retribution can be requested to the
distributor.
(c)
Profits from
supplying electricity to the grid by user-generators with up to
300kw of contracted capacity, in compliance with the regulations,
will be exempt from income taxes and value added
taxes.
The current
enforcement authority of the Promotion Regime is the Secretary of
Energy. Among other things, such authority is empowered to: (i)
establish the technical and administrative standards for the
approval of distributed energy projects; (ii) establish the
requirements to be fulfilled to authorize the connection to the
grid requested to distributors by user-generators; (iii) establish
the value of the tariff for the supply of electricity through
distributed energy projects; (iv) establish the general guidelines
of the Distributed Electricity Generation Agreements to be executed
among distributors and users-generators.
Any breach of the
distributors obligations under the Promotion Regimen will be
subject to sanctions, and the user-generator will have a right for
compensation.
The Promotion
Regime also created the “Fondo Fiduciario para el Desarrollo de la
Generación Distribuida de Energías
Renoables” (“FODIS”), with the purpose of
granting loans, incentive, guarantees, capital contributions and
acquisition of other financial instruments, destined to the
implementation of systems of distributed generation from renewable
resources.
The Federal
Government (through the enforcement authority of the Promotion
Regime) would be the FODIS Trustor, while the selected public bank
would be the Trustee. The Beneficiaries would be all the people
domiciled in Argentina and businesses incorporated in Argentina,
whose projects of distributed generation have obtained approval
from the FODIS authorities, pursuant to the applicable
regulations.
The FODIS model
agreement was approved by means of Disposition No. 62/2019 of the
former Undersecretariat of Renewable Energy and Energetic
Efficiency. Such disposition also named Banco de Inversión y
Comercio Exterior (BICE) as the FODIS Trustee.
Activities
performed within the FODIS are subject to tax
benefits.
Finally, the
Promotion Regime also sets forth the “Régimen de Fomento para la
Fabricación Nacional de Sistemas, Equipos e insumos para la
Generación Distribuida a partir de fuentes
renovables” (“FANSIGED”), currently under
the orbit of the Ministry of Productive Development.
FANSIGED will be
applicable for ten (10) years as of the enactment of the Promotion
Regime (2017). The National Executive Branch can extend it for an
additional 10-year term.
The activities
falling within the scope of the FANSIGED are research, design,
development, investment in capital goods, production, certification
and installation services for the distributed generation of energy
from renewable sources.
A series of tax
benefits are applicable under the FANSIGED.
Micro, small and
medium size companies incorporated in Argentina, who develop any of
the activities falling within the scope of the FANSIGED can adhere
to the regime.
Resolution No.
314/2018 also created the Registro
Nacional de Usuarios-Generadores de Energías Renovables
(RENUGER), applicable to projects who obtained the Certificate of
User-Generator and are included in the Promotion
Regime.
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Resolution No.
314/2018 approved further regulations to the Promotion Regime,
which include, among others:
(i)
The distinction
between Small User-Generators (up to 3 kW of capacity), Medium
User-Generators (from 3 KW up to 300 kW of capacity) and Large
User-Generators (from 300 KW up to 2 MW of capacity).
(ii)
The procedure to
follow for the connection of user-generators, and technical
criteria.
(iii)
The guidelines for
the execution of Distributed Electricity Generation Agreements,
setting forth the parties’ rights and obligations, causes for
suspension, and causes for termination.
(iv)
Specifications for
the measurement systems.
(v)
Billing and
compensation mechanisms.
(vi)
Further regulations
for the promotional benefits regime.
The former
Undersecretariat of Renewable Energy and Energetic Efficiency
issued Disposition No. 28/2019 to complement the provisions of
Resolution No. 314/2018.
Tariff Scheme – ENRE Resolution No. 189/2019
ENRE Resolution No.
189/2019 approved the applicable tariffs to User-Generators for the
supply of energy to the grid as of May 2019, valued in Argentine
pesos per hourly kilowatt ($/kwh):
User-Generator
$/kwh
Residential
2.062
General
2.206
T2
2.206
Tariff
3 - BT < 300 kW contracted
capacity
Variable Fee
“Pico”
2.311
Variable Fee
“Resto”
2.206
Variable Fee
“Valle”
2.103
Tariff 3 - MT < 300 kW contracted capacity
Variable Fee
“Pico”
2.197
Variable Fee
“Resto”
2.097
Variable Fee
“Valle”
1.998
Tariff 3 - AT < 300 kW contracted capacity
Variable Fee
“Pico”
2.106
Variable Fee
“Resto”
2.011
Variable Fee
“Valle”
1.916
Tariff 3 - BT >= 300 kW contracted capacity
Variable Fee
“Pico”
3.346
Variable Fee
“Resto”
3.198
Variable Fee
“Valle”
3.049
Tariff 3 - MT >= 300 kW contracted capacity
Variable Fee
“Pico”
3.18
Variable Fee
“Resto”
3.039
Variable Fee
“Valle”
2.898
Tariff 3 - AT >= 300 kW contracted capacity
Variable Fee
“Pico”
3.049
Variable Fee
“Resto”
2.914
Variable Fee
“Valle”
2.779
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The National Program
In this context,
the former Secretariat of Electric Energy issued Resolution No.
724/2008, which authorized the execution of WEM committed supply
agreements associated with the repair or repowering of diesel
generation groups and related equipment with WEM generation agents.
The compensation to be received by the seller will be paid
according to the payment priority provided in subsection (e) of
Section 4 of Resolution SE No. 406/03.
On November 11,2009, Resolution SE No. 762/2009, which created the National
Hydroelectric Works Program (the “National Program”),
was published in the Official Gazette.
The purpose of the
National Program is to promote and support the construction of
hydroelectric plants within Argentina through the creation of
funding sufficient to assure the repayment of investments made and
loans provided in such framework.
Within this
framework, the Argentine Government has provided that CAMMESA and
the WEM generation agents to be determined by the Ministry of
Energy and Mining may enter into electric power supply agreements
in respect of the energy generated by the hydroelectric works that
are part of the National Program. One of the purposes of the supply
agreements for hydroelectric works is to repay the investments made
and the loans used to complete all hydroelectric works included in
the National Program.
The standard term
of such agreements may be of up to 15 years, but such agreements
may be extended by the Ministry of Energy and Mining. Upon
expiration of such term, each hydroelectric plant that is part of
the National Program may sell the energy generated by it at the
price then specified by the WEM.
The terms and
conditions of the agreements were determined by the former
Secretariat of Electric Energy taking into account principles of
economic reasonableness, equity and operating benefits for the
electric power system as a whole, according to which it will
qualify the hydroelectric works to be executed within the scope of
the National Program.
ESAs with IEASA
Resolution SE No.
712/09 approved the sample contracts to be executed between CAMMESA
and ENARSA –now IEASA for the supply of electric power
derived from renewable sources generated under the contracts
awarded in ENARSA’s Bidding Process No. 1/09.
Resolution SE No.
712/09 also added Annex 39 and replaced Annex 40 of the Procedures.
In this regard, the new Annex 39 sets forth the guidelines for
renewable energy generation, excluding hydroelectric and wind
energy, while Annex 40 set forth the guidelines for wind power
generation.
Regarding the
contracts to be awarded, prior to their execution, ENARSA had to
carry out certain efforts with the former Secretariat of Electric
Energy to obtain approval for the generation availability offer
pursuant to which it intends to execute each agreement with
CAMMESA.
Based on the
assessment of the requests received, the former Secretariat of
Electric Energy will consider the merits of contracting for the
availability of generation and related energy, instruct CAMMESA to
execute a contract with those parties whose requests have been
accepted and send the text of the contract to be executed with the
specific provisions for each contract.
The main
characteristics of these sample contracts approved by Resolution SE
No. 712/09 are the following:
1.
The energy supplied
must be generated by designated machines in conformity with
CAMMESA’s dispatch requirements and must be adequate for the
generator’s capacity.
2.
The term of the
contracts must be for a maximum of 15 years, which may be extended
for a maximum term of 18 additional months.
3.
In cases of
contracts for energy generated from renewable sources other than
biofuels (such as wind and solar energy), no capacity payment is
provided. In these cases, the consideration shall consist of the
payment for the energy supplied, a management charge and the
payment of a portion of fixed costs (charges for transport,
expenses, fees and other charges specifically provided for). The
price of the energy supplied shall remain constant throughout the
term of the specific contract.
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4.
A guarantee fund
will be established to ensure the performance of the obligations
under the ESAs, which shall be set up by CAMMESA, until reaching a
limit of 10.00% of the future obligations assumed under each of the
contracts at which point the fund ceases to accumulate
funds
Resolution SE No.
108/2011, dated April 13, 2011, authorized the execution of new
ESAs between CAMMESA, on behalf of the WEM, and certain parties
offering availability of electric power generation using the
renewable sources set forth in Law No. 26,190 that meet the
following requirements:
1.
at the time of the
publication of Resolution No. 108/2011, such parties do not have
the generation facilities to be committed under such offers or,
having completed the interconnection to the WEM, have not committed
their availability of generation and related energy under any form
of contract; and
2.
they present
projects where the Argentine Government, IEASA or other generation
agents have an interest.
The remuneration is
paid on a monthly basis in U.S. dollars and is determined based on
the costs and annual income acknowledged by the former Secretariat
of Electric Energy. For such purposes, the fixed and variable
installation costs required for the proper operation of the
committed equipment shall be considered based on the method
determined in each ESA.
Both SE Resolutions
712/2009 (except Annex 39 and 40) and 108/2011 were abolished by
Ministry of Energy and Mining.
Renewable Energy Program
In recent years,
Argentina has prioritized the generation of electric power from
renewable sources. In such regard, it has not only issued
regulations intended to regulate and incorporate this type of
energy into the WEM, but it has also promoted it by granting
incentives in the form of tax benefits and preferential or
subsidized tariffs.
To promote
renewable energy, Law No. 26,190 was enacted in December 2006 and
approved the National Promotional Regime for the Use of Sources of
Renewable Energy destined to Electric Production (the
“Promotional Regime”). The renewable energy sources
provided for in this system include wind, solar, geothermal, tidal,
hydraulic (hydroelectric power plants up to 30 MW), biomass,
landfill gas, sewage-treatment plant gas and biogas (except for the
uses provided for in Law No. 26,093 on biofuels). The purpose of
Law No. 26,190 is to increase the proportion of energy provided by
renewable energy sources to 8% of the national electric power
consumption within ten years from its effective date. Law No.
26,190 also established a system of investments for the
construction of new works intended to generate electric power from
renewable energy sources, which will remain in force for a term of
ten years. The system set forth by Law No. 26,190 has been excluded
from the general remuneration scheme regulated by Resolution No. 95
(as described below).
The beneficiaries
of this system are individuals and legal entities that hold
investments and concessions for new renewable energy generation
works in Argentina that have been approved by the enforcement
authority. The energy must be intended for the WEM and the project
must be related to the rendering of public services.
On September 23,2015, Law No. 26,190 was amended by Law No. 27,191. The amendments
seek to establish a legal framework to increase investments in
renewable energies and foster the diversification of the electric
power generation mix, increasing the participation of renewable
sources. To such end, the law, among other things:
1.
sets renewable
energies consumption targets for all of Argentina’s electric
power consumers, as minimum percentages of renewable energies
electric power that they are required to consume as of December 31
of the following years: 8% for 2017, 12% for 2019, 16% for 2021,
18% for 2023, and 20% for 2025;
2.
amends and expands
the tax benefits for eligible projects;
3.
establishes the
Fondo para el Desarrollo de
Energías Renovables (Fund for the Development of
Renewable Energies, or the “FODER”) as a trust fund for
which the Argentine Government serves as the trustor, Banco de
Inversión y Comercio Exterior (BICE) serves as the trustee and
the owners of the approved investment projects are the
beneficiaries. The trust fund must allocate the trust assets to
extend credit, make capital contributions and acquire all such
other financial instruments as required for the execution and
financing of eligible projects involving electric power generation
from renewable sources; and
4.
establishes
obligations for Large Users and large demand: clients of electric
power distribution providers or distribution agents with capacity
demand equal to or higher than 300 KW must meet gradual goals
through self-generation or otherwise purchase such electric power
from generators (directly or through electric power distributors or
brokers or from the wholesale market operator CAMMESA), at a price
which may not exceed an average of US$113/MWh until March 30, 2018,
and thereafter at a price determined by Ministry of Energy and
Mining. In this respect the Ministry of Energy and Mining by means
of Resolution 281-E/2017, established the regulatory framework that
allows Large Users to purchase renewable energy from private
generating companies.
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Pursuant to Decree
No. 531/16, the Argentine Government set forth general guidelines
and principles for the development of energy projects, by
delegating the procedures for compliance with energy goals, bids or
auctions for the implementation of the FODER to the Ministry of
Energy and Mining, particularly to the Undersecretary of Renewable
Energies. The most important aspects of these regulations are as
follows:
1.
The former Ministry
of Energy and Mining must be the enforcement authority of the law.
(currently the Secretary of Energy)
2.
The system is
applicable to projects for the construction of new facilities or
for expanding or upgrading existing ones, the acquisition of new or
second-hand equipment, to the extent new assets, works and other
services are used for the project and are directly connected to the
project. Access to the system is allowed for projects for which,
after having been selected under Resolutions Nos. 220/2007,
712/2009 and 108/2011 set forth by the former Secretariat of
Electric Energy, construction has not yet begun and that have been
selected by the enforcement authority and the executed agreement is
terminated. Projects for which construction has begun may also be
eligible to the extent amendments to the executed contracts are
allowed, as required by the enforcement authority. The enforcement
authority must establish the merit order for projects that have
been approved and determine the granting of the promotional
benefits for each project.
3.
The goals
established by the law must be audited annually commencing on
December 31, 2018. Users are allowed a 10% margin of error per year
for achieving the goals related to energy consumption from
renewable sources established by the law.
4.
The enforcement
authority must establish the terms and conditions under which it
will allocate a portion of the funds of FODER’s financing
account to finance the development projects of the value chain of
local production of power generating equipment, using renewable
energy sources, parts or components.
Tax Benefits Under Law No. 26,190
The former regime
includes the following tax benefits:
●
Early refund of the
VAT on the project’s new depreciable assets: the VAT as
invoiced to the beneficiaries on the purchase, production,
manufacture or final import of capital goods or the execution of
infrastructure works shall be credited against other taxes by the
AFIP as soon as at least three fiscal periods have elapsed, as
counted from the fiscal period in which the investments were made,
or it shall be recoverable in the term provided upon approving the
project, under conditions and with the guarantees set forth in that
respect.
●
Accelerated asset
depreciation for purposes of income tax: the beneficiaries may
apply depreciations on the investments associated with the projects
subsequent to their approval and under the terms set forth therein.
These depreciations are subject to a differential treatment
depending on their timing, within the first, second or third
twelve-month period after project approval. This alternative is
subject to the condition that the assets are to remain as property
of the project holder for at least three years.
●
Non-calculation of
the minimum presumed income tax provided by Law No. 25,063 on the
assets allocated to the projects initiated under the system created
by the renewable energy law: this benefit applies to the three
fiscal periods preceding the completion of the relevant project.
The assets must be connected to the relevant project and must be
acquired by the company after the approval of the
project.
The regime also
provides for certain additional compensation. In that regard, the
projects will be entitled to an additional compensation equivalent
to US$0.015 per KW/h payable to the generators that produce
electric power from renewable sources, except in the case of
solar-based electric power, for which generators will collect
US$0.9 per KW/h. Such additional compensation will be paid
according to: (i) fuel substitution, (ii) the involvement of
Argentine industries and job creation opportunities and (iii) the
amount of time it takes to launch the project.
Tax benefits under Law No. 27,191
The Promotional
Regime includes the following tax benefits:
1.
Early refund of VAT
and accelerated depreciation of assets for income tax purposes,
with beneficiaries being able to apply for both benefits
simultaneously, subject to reduced benefits based on the actual
commencement date of the project’s execution.
2.
Extension to ten
years of the tax loss carry forward term. Tax loss carry forwards
arising from the promoted activity may only be set off against net
income arising from the same activity.
105
3.
Exclusion of assets
connected to the activity subject to the Promotional Regime from
the taxable base related to the minimum presumed income tax until
the eighth fiscal year following the project’s commencement
(inclusive of the first year). Excluded assets are those connected
to the project subject to the Promotional Regime and included in
the owner’s net worth after the approval of such
project.
4.
A 10% exemption on
tax on the dividends distributed by the companies that own the
projects subject to the Promotional Regime, which are reinvested in
new infrastructure projects within Argentina.
5.
Tax certificate
applicable to the payment of income tax, VAT, minimum presumed
income tax and excise taxes for an amount equal to 20% of the value
of components of electromechanical facilities made in Argentina,
provided that at least 60% of the components (excluding civil
works) are made in Argentina. Where there is insufficient or a lack
of production in Argentina, the percentage is reduced to 30%. The
assignment of the tax certificate is conditioned upon the fact that
the taxpayer cannot have liquidated debts due and payable to the
AFIP.
6.
Other benefits,
including the possibility of shifting increased costs arising from
tax increases to the price of the renewable energy sold; exemption
from import duties and the statistical rate for the import of new
capital assets, special equipment and related parts and components
that are necessary for, among other things, the execution of the
project; and the exemption from special taxes, fees and royalties
of any jurisdiction imposed on the access to and use of renewable
sources of energy within participating jurisdictions until December31, 2025, excluding potential fees payable on the use of the
state-owned land where the projects are based.
7.
Those who wish to
participate in the Promotional Regime must waive the benefits
afforded by previous systems under Laws No. 25,019 and 26,360, and
the projects that benefitted from such systems may only have access
to the Promotional Regime if the works committed under the
contracts executed thereunder have not commenced as of the date of
the application.
Changes to the Electric Power Sector under the Macri
Administration
On December 15,2015, the Executive branch declared a state of emergency with
respect to the Argentine electric power sector until December 31,2017. Pursuant to Decree No. 134/2015, the Ministry of Energy and
Mining (as well as its successors) must:
1.
prepare and put in
place a plan of action addressing the issues affecting the electric
power generation, transportation and distribution sectors within
its jurisdiction in order to adjust the quality and safety of the
electric power supply and ensure the supply of electric power under
suitable technical and economic conditions; and
2.
work in
coordination with other agencies of the Argentine Government to
develop a program for the efficient use of energy.
The Ministry of
Energy and Mining set forth Resolutions No. 6 and No. 7 under this
scheme.
Additionally, on
October 31, 2017, the Executive branch issued Decree No. 882/2017
ordering the restructuring of the Argentine Government’s
energy sector assets aimed at the reduction of government
participation.
Pursuant to the
Decree 882/2017, the Ministry of Energy and Mining was mandated to
execute the merger of ENARSA and Emprendimientos Energéticos
Binacionales S.A (EBISA). EBISA is a company responsible for
selling the electricity generated by certain binational energy
projects in which the Argentine Government is a party. In
accordance with the provisions of such decree, ENARSA would absorb
EBISA and would change its name to IEASA. Through Resolution
11-E/2018, the Ministry of Energy and Mining instructed the boards
of directors of the aforementioned companies to carry out all
diligences necessary to perform the merger.
According to Decree
No. 882/2017, IEASA will also be responsible for continuing certain
energy infrastructure public work projects previously performed by
the Ministry of Energy and Mining (acting as a contracting entity).
Pursuant to such decree, the Ministry of Energy and Mining can also
assign to IEASA with any other public work project to be performed
by such ministry.
Through Decree No.
882/2017, the Executive branch granted IEASA a concession to
develop the Condor Cliff and La Barrancosa hydroelectric power
plants.
Decree No. 882/2017
also instructed the Ministry of Energy and Mining (acting as a
shareholder of IEASA), to implement the necessary measures so that
IEASA sells, assigns or transfers its assets, rights and/or shares
(as the case may be) related to Ensenada Barragan, Brigadier
López and Manuel Belgrano II thermal power plants and
Compañía Inversora de Transmisión Eléctrica
CITELEC S.A.
106
Pursuant to Decree
No. 882/2017, the Ministry of Energy and Mining was also instructed
to implement the necessary measures and procedures to execute the
sale, assignment or transfer (as the case may be) of (i) the
Argentine Government’s shares in Central Puerto S.A equity
and the equity of other energy companies (Central Dique S.A,
Central Térmica Güemes S.A, Centrales Térmicas
Patagónicas S.A, TRANSPA and Dioxitek S.A), (ii) the rights
held by the Argentine Government regarding the following power
plants, companies and shares: Termoeléctrica Manuel Belgrano,
Termoeléctrica José de San Martín (Central
Timbúes), Termoeléctrica Vuelta de Obligado and
Termoeléctrica Guillermo Brown.
The subsequent
sales and transfers, must contemplate public and competitive
procedures which must protect the rights established in the
companies’ bylaws and related corporate and contractual
documentation.
The bidding terms
and conditions of the bidding contest to transfer Ensenada Barragan
and Brigadier Lopez power plants were approved by means of
Resolution No. 289/2018 of the Ministry of Energy. We submitted
offers for both power plants, and on February 27, 2019, and we were
notified that we had been awarded Brigadier López Power Plant,
which was effectively transferred on June 14, 2019.
On June 14, 2019
the transfer agreement for the production unit part of Brigadier
López Plant and for the premises on which the Brigadier
López Plant is located, was executed, also including: a)
personal property, recordable personal property, facilities,
machines, tools, spare parts, and other assets used in connection
with the operation of the Brigadier López Plant; b)
IEASA’s contractual position in the following contracts: (i)
Turbogas and Turbosteam supplying contracts with CAMMESA, (ii) the
Brigadier López Financial Trust Agreement (as defined below),
(iii) the long term maintenance agreement with Siemens, (iv) the
spare part sales agreement with Siemens, (iv) insurance contracts.
and the, among others); c) permits and authorizations in effect
related to the Brigadier López Plant operation; and d)
Brigadier López Plant employees.
The Brigadier
López Plant has a 280.50 MW Siemens gas turbine installed. It
is expected that such gas turbines will be supplemented with a
boiler and a steam turbine to complete the combined cycle, which
will allow the Brigadier López Plant to generate 420 MW in the
aggregate. The installation of all necessary items for the
completion of the combined cycle have not been finalized as of the
date of this annual report (see Item 3D. Risk Factors—Risks
Relating to our Business— Factors beyond our control may
affect or delay the completion of the project, or alter our plans
for the expansion of our existing plant)
Under the
above-mentioned trust agreement (the “Brigadier López
Financial Trust Agreement”), Central Puerto replaced IEASA as
the trustor of the Brigadier López Financial Trust Agreement,
and BICE Fideicomisos is the trustee. The financial debt balance of
the trust as of June 14, 2019 was US$154,662,725. The amount paid
on June 14, 2019 amounted to US$165,432,500, formed by a cash
amount of US$155,332,500, plus an amount of US$10,100,000 settled
through the assignment of LVFVD to IEASA.
Under the terms of
the trust agreement, the financial debt accrues interest at an
annual rate equal to the greater of (i) LIBOR plus 5% or (ii) 6.25%
and amortizes principal on a monthly basis. BICE Fideicomisos as
the trustee, is in charge of the administration, and pays such
debt, using for that purpose the proceeds from certain components
of the sales of Brigadier Lopez power plant that were assigned to
the Brigadier López Financial Trust Agreement and are paid
monthly directly from CAMMESA to the Brigadier López Financial
Trust Agreement. Additionally, there is a reserve account founded,
for a total amount of two monthly debt services. In case of
insolvency by the Brigadier López Financial Trust Agreement,
creditors have no recourse against other assets of Central Puerto.
As of March 25, 2020, there are 29 instalments remaining to
amortize and the financial debt balance amounts to US$117.64
million.
Changes to the Electric Power Sector under the Fernández
Administration
As of the date of
this annual report, the following measures have been adopted in the
electric power sector since the elected administration took office
on December 10, 2019:
●
The Governmental
Secretariat of Energy –under the jurisdiction of the former
Ministry of Treasury- was reorganized as the Secretariat of Energy
–within the scope of the Ministry of Productive
Development-.
●
Tariff increases
that were to be implemented pursuant to current regulations, were
suspended.
●
By means of the
Solidarity Law, tariffs applied by distribution and transmission
companies under federal jurisdiction were frozen for 180 days, at
the values in force as of the day in which the law came into force
(December 21st, 2019).
●
The Executive
branch was empowered to renegotiate tariffs effective as of
December 21, 2019 with the aim of reducing the tariff burden placed
on households, stores and industrial facilities for
2020.
●
The transfer of
EDENOR and EDESUR to the jurisdictions of the City of Buenos Aires
and the Province of Buenos Aires, as applicable, was suspended.
Therefore, such companies still remain under the regulatory power
of the national government
107
●
On December 27,2019, the Ministry of Productive Development issued Resolution MDP
No. 12/2019, repealing Resolution SGE No. 70/2018 and restoring
Art. 8 of Res. SE 95/2013. Beginning in January 2020, CAMMESA
became the only fuel supplier for generation companies, except for
(i) thermal units that had prior commitments with CAMMESA for
energy supply contracts with their own fuel management and (ii)
thermal units under the Energía Plus regulatory framework,
authorized under Resolution SE No.1281/05 to supply energy to large
private users.
●
On February 27,2020, the Secretariat of Energy issued Resolution 31/20 applicable
from February 1, 2020, which replaces the regulatory framework for
Energía Base, changing the energy and power capacity prices
for the units under this regulatory framework. For the details of
this regulation see “Item 4.B. Business Overview—The
Argentine Electric Power Sector—Remuneration Scheme—The
Current Remuneration Scheme.”
Call for Bids for New Thermal Generation Capacity and Associated
Electricity Generation
Pursuant to Decree
No. 134/15 and Resolution No. 6/16 set forth by the Ministry of
Energy and Mining, the Secretariat of Electric Energy issued
Resolution No. 21/16 (“Resolution No. 21”) calling for
bids for thermal generation capacity and associated electric power
generation. The energy was to be made available in the WEM to meet
essential demand requirements beginning with the following seasons:
summer 2016/2017, winter 2017 and summer 2017/2018.
Resolution No. 21
provided for the following bid specifications:
1.
Bids may only be
submitted to CAMMESA by such parties that already were, or had
simultaneously submitted an application to the Secretariat of
Electric Energy to become, generation, co-generation or
self-generation agents of the WEM under the terms of the
Procedures.
2.
Bids had to be for
projects to install new generation capacity, in addition to the
expected capacity for the period in which commercial operation of
the project was committed.
3.
Bidders did not
have to offer pre-existing generation units that were connected to
the SADI or units in which the power capacity being offered was
already committed and partially performed under agreements approved
by the former Secretariat of Electric Energy. If, in the case of
the latter, there was no partial performance of the agreements and
bidders submitted bids under Resolution No. 21, CAMMESA had to
submit the matter to the former Secretariat of Electric
Energy.
4.
Bids did not have
to commit, at each proposed connection point, a generation capacity
lower than 40 MW and the net power of each generating unit for such
location did not have to be lower than 10 MW.
5.
The committed
equipment had to be capable of running on two types of fuel and be
able to operate on either of them as needed by the WEM economic
dispatch. If there was ongoing and unlimited availability of a
given fuel or if deemed logistically beneficial by the bidder,
bidders had to submit an alternative offer with generating
equipment capable of running on a single type of fuel.
6.
There was no
pre-established ceiling for the capacity of power that could be
offered and the location of the projects could be freely chosen,
but both the capacity and the location of the projects was limited
by the capacity of the transmission system and the supply of
fuel.
7.
For each generating
unit at the proposed interconnection spot, bidders had to offer a
price for power availability (expressed in U.S. dollars per month)
and a price for the electric power generated (expressed in U.S.
dollars per hour), estimating the value of non-fuel related
variables for each type of fuel on which the power plant was able
to run and the related committed maximum specific consumption
stated in kilocalories per kilowatt-hour.
8.
Bidders were
required to submit evidence of full compliance with applicable
environmental laws, including but not limited to the related
statement of Environmental Impact and Environmental Impact
Study.
9.
Bids had to be
submitted in two envelopes. One envelope had to include technical
information in connection with the availability of the power being
offered. The other envelope had to include the bid price for the
committed power availability and the electric power generated, the
maximum specific consumption being offered, the committed due date
by which the generation capacity being offered would have been
commercially available for service, the requested term for the
contract, the bid bond and the pro
forma guarantee of compliance with the committed due
date.
10.
Before submitting
the bids, the Secretariat of Electric Energy could specify or
supplement the contents of Resolution No. 21 and the information
and documents to be submitted.
108
The agent whose bid
was finally accepted was required to enter into a contract for the
sale of electric power generation capacity availability and the
related generated electric power in the WEM (a “wholesale
demand contract”) with the distribution agents and Large
Users of the WEM represented by CAMMESA.
Resolution No. 21
sets forth the guidelines for wholesale demand contracts, which
included, among other things, the following terms: (i) the
contractual term is required to be between five and ten years; (ii)
the maximum specific consumption of each generating unit by type of
fuel used is required to be lower than 2,500 kilocalories per
kilowatt-hour; (iii) a set of remedies are required to be defined
for failures to comply with the committed availability of
generation capacity; (iv) the supply of and recognition of the cost
of fuel used by the machines and power plants involved is required
to be included in accordance with applicable regulations; (v)
contracts are required to have first priority in payment and rank
equally with existing supply agreements with the Banco de
Inversión y Comercio Exterior (BICE) in its role as trustee of
the trusts “Central Termoeléctrica Manuel
Belgrano” and “Central Termoeléctrica
Timbúes” since January and February 2010, respectively,
and priority in payment must rank equally with payment obligations
in respect of liquid fuel purchases for electric power generation;
and (vi) the contracts are required to include other features
stemming from the provisions of Resolution No. 21.
The bids submitted
are required to be reviewed by CAMMESA following the methodology
established by the Secretariat of Electric Energy. This methodology
included following a streamlined simulation model of the expected
operation of the generation units committed in each bid, taking
into account certain requirements set forth by Resolution No. 21.
The bid assessment process is required to consider the risks of
undelivered electric power expected for the summer 2016/2017,
winter 2017 and summer 2017/2018, estimating the value the early
incorporation of the generation capacity being offered would have
for the electric power system. Bids are required to be ordered and
selected based on the increasing costs each of them would have on
the electric power system. CAMMESA is required to assess and report
to the Secretariat of Electric Energy the costs that each of the
bids deemed acceptable under the approved methodology would
represent for the system and, if applicable, the bids that have
been excluded at such stage for their failure to meet the bid
specifications.
CAMMESA was
required to issue the commercial documentation deemed necessary for
making payments to selling agents under such wholesale demand
contracts during the term of the emergency declared under Decree
No. 134/15 or until the enactment of regulations governing the
transfer to the selling agents of the responsibility to issue such
commercial documentation.
As long as such
duty is performed by CAMMESA, it must document and certify to the
selling agent the proportional part that Large Users and
distributors must pay for the electric power they consume to
initiate summary collection proceedings.
As required by
Resolution No. 21, CAMMESA prepared the terms of reference that
govern the call for bids under Resolution No. 21, with such terms
of reference having been approved by Note 161/16 set forth by the
Secretariat of Electric Energy.
In accordance to
Resolution No.21, the Secretariat of Electric Energy received bids
for 6,611 MW and awarded an aggregate amount of 2,871
MW.
Pursuant to
Resolution No. 155/16 and Resolution No. 216/16, the Secretariat of
Electric Energy authorized CAMMESA to subscribe the wholesale
demand contracts with every winning bidder, for 1,915 MW with an
average price of US$21.833/MW-month, and for 956 MW with an average
price of US$19.907/MW-month, respectively. In addition, through
Resolution No. 387/16, the Secretary of Electric Energy authorized
CAMMESA to execute additional wholesale demand contracts for two
generation projects (one for 100 MW and the other for 137
MW).
Resolution 287/2017 of the Secretary of Electricity
Through Resolution
No. 287/2017, of May 11, 2017, the Secretariat of Energy called for
a new thermal power tender for the execution of long-term power
purchase agreements. The tender focuses on combined cycle
conversion projects and co-generation project.
The main features
of the tender were as follows (further requirements and conditions
apply):
a)
Combined cycle
conversion projects had to be related to thermal power plants (i)
existing at that time or near to reach commercial operation in
simple cycle mode; (ii) with low specific consumption; (iii) with
the possibility of improving its efficiency once converted into a
combined cycle; (iv) that its conversion did not affect the current
grid transmission capacity (being any required expansion to be
borne by the bidder); (v) which had the appropriate fuel
infrastructure system to guarantee permanent operation of the
combined cycle; and (vi) with, in principle, a maximum construction
term of 30 months.
109
b)
Co-generation
projects (i) had to be efficient, (ii) did not affect the current
grid transmission capacity, (iii) had to guarantee its own
principal and alternative permanent fuel supply, and (iv) had to
entail, in principle, a maximum construction term of 30
months.
c)
15 year PPAs
extension.
d)
CAMMESA-as the
offtaker, acting on behalf of distributors and large users of the
Argentine Wholesale Electricity Market. The PPAs might be
proportionally assigned to large users and distributors at a later
stage.
e)
The generator would
receive both a fixed capacity payment (subject to power
availability) and a variable payment for actual power supplied to
the grid.
f)
Prices under the
PPAs should be established in US dollars. However, CAMMESA should
make payment in Argentine pesos at the prevailing exchange rate on
the business day immediately before the payment date established in
the sales liquidation document issued by CAMMESA.
g)
Payments under the
PPAs will benefit from a priority payment mechanism (equal to the
one established for the payment of fuel costs for power
generation).
h)
Within three months
after execution of the PPAs, CAMMESA had to constitute a Payment
Guarantee Fund to guarantee the obligations undertaken under each
PPA. It should cover six months of the estimated capacity payments
under each PPA. The Secretariat of Electricity should provide the
specifics with respect to the Fund’s constitution and
administration.
PPA’s were
awarded to different projects, by means of Resolutions No. 820/2017
and 926/2017 of the Secretary of Electricity.
RenovAR (Round 1, Round 1.5 and Round 2): Bidding Process for
Renewable Energy Generation Projects
After carrying out
a public consultation period to submit comments and suggestions to
the preliminary version of the bidding terms and PPAs and due to
the proximity of the period for submitting bids to the “Round
1” from the RenovAR Program, Presidential Decree No. 882/16,
published on July 22, 2016 in the Official Gazette on the grounds
of “necessity or urgency,” which decree has modified
and established different precisions regarding the legal framework
for the Promotional Regime.
Below are the main
measures introduced by the Decree No. 882/16:
1.
Fiscal Quota: For
the year ended December 31, 2016, a budget of US$1,700,000,000 was
approved in order to be allocated to the promotional benefits under
the Promotional Regime. In case the specified budget is not
allocated in full in 2016, it will be automatically transferred to
the following year.
2.
PPAs term: In order
to recover the investment and obtain a reasonable return, the PPAs
will have a maximum term of 30 years.
3.
Put and Call
Options: The PPAs may grant rights to: (a) the Argentine Government
to purchase the power generation or their assets upon material
breaches of the contract that constitute ground for termination;
the purchase price will be lower than the unamortized investment at
the time the option is exercised; and (b) the owner of the project
to sell the power generation or their assets upon the occurrence of
any of the “grounds for put option” for a price, which
in no case may exceed the unamortized investment at the time the
option is exercised.
4.
PPAs are subject to
Argentine private law.
5.
Choice of Forum: In
the event of any dispute concerning the interpretation or execution
of the PPAs for disputes arising out of the contracts signed
between the Argentine Government or the FODER with the
beneficiaries of the Promotional Regime, alternative dispute
resolution methods from Argentina or abroad can be included in the
PPAs.
110
6.
FODER: As a result
of the Decree No. 13/2015 in which the Ministry of Energy and
Mining was established, the Decree No. 882/16 replaced paragraphs
2, 3, 7, 8 and 9 of Section 7 of Law 27,191 and proceeded to modify
the Argentine Government’s role in the FODER, establishing
the Ministry of Energy and Mining as trustor and trustee of the
FODER. It also granted power to the Minister of Energy and Mining
(or his designee or replacement) to approve the trust agreement of
the FODER and sign the trust agreement with the
trustee.
7.
Guarantee of
payment for put option: The decree empowers the Ministry of
Treasury and Public Finance to issue and deliver treasury bills to
the FODER (up to a maximum nominal value of US$3,000,000,000 or its
equivalent in other currencies) for and on behalf of the Ministry
of Energy and Mining and to guarantee the payment in the event that
the owner exercises the put option and sells the generation
plant.
Resolution No.
136/16, issued by the Ministry of Energy and Mining and published
in the Official Gazette on July 26, 2016, launched the public
auction process for submitting bids for Round 1 of the RenovAR
Program. Resolution No. 136/16 also approved both the bidding terms
and conditions of the above-mentioned auction and the PPAs with
CAMMESA.
According to the
terms and conditions of such bid, the relevant PPAs shall include
the following features and provisions:
1.
Purpose: The
purpose of the agreement must be to supply the amount of electric
power associated with the new equipment for electric power
generation from renewable sources to the WEM beginning on the date
on which the power plant is permitted to operate in the WEM until
the termination of the contractual term.
2.
Seller: The
generation, co-generation or self-generation agent of the WEM whose
bid is accepted pursuant to the provisions of this resolution and
supplementary regulations set forth by the Secretariat of Electric
Energy.
3.
Buyer: CAMMESA, on
behalf of the distribution agents and Large Users of the WEM (until
such role is reassigned among distribution agents or Large Users of
the WEM), in order to meet the goals of renewable energy source
contribution set since December 31, 2017 for the demand of electric
power in the WEM.
4.
Term: Up to twenty
years from the date on which operations commence.
5.
Type and technology
of the energy to be supplied.
6.
Electricity
committed to be delivered per year.
7.
Generation capacity
of each unit and total installed capacity committed.
8.
Remuneration to be
received by the seller and paid by the buyer for the electric power
to be supplied, determined on the basis of the bid price in U.S.
dollars per megawatt/hour (US$/MWh).
9.
The terms and
conditions of the seller’s contractual performance
guarantee.
10.
The point of
delivery of the electric power purchased shall be the connection
node to the SADI.
11.
The remedies for
contractual breach.
12.
The enforcement of
the guarantee for payment through FODER’s escrow
account.
13.
Contracts for the
purchase of electric power shall have first priority in payment and
rank equally with payments to the WEM.
On September 5,2016, after concluding the period for submitting bids to the first
round of the RenovAr Program, the Minister of Energy and Mining,
Juan José Aranguren, and the Undersecretary of Renewable
Energies, Sebastián Kind, pursuant to Resolution No. E 205/16
signed by the Minister of Energy and Mining, announced that 123
bids were submitted, requesting 6,346 MW (six times more than
1,000MW originally tendered), of which 105, a total of
approximately 5,209 MW, were technically qualified. This consisted
of 42 wind projects with a total installed capacity of
approximately 2,780 MW, 50 solar projects with a total installed
capacity of approximately 2,304 MW and 13 biomass, biogas and small
hydroelectric power projects with a total installed capacity of
approximately 35 MW.
111
Pursuant to
Resolution No. 213-E/16 of the Minister of Energy and Mining, the
results of the tender were published on October 7, 2016. A total of
29 projects with a total installed capacity of 1,141.51 MW, located
in nine different provinces were awarded:
●
12 wind projects
for a total installed capacity of 707 MW, with a weighted average
price of US$59.39/MWh, a minimum price of US$49.10/MWh and a
maximum price of US$67.20/MWh;
●
four solar projects
for total installed capacity of approximately 400 MW, with a
weighted average price of US$59.75/MWh, a minimum price of
US$59.00/MWh and a maximum price of US$60.00/MWh;
●
five small hydro
projects for total installed capacity of 11.37 MW, all at a price
of US$105/MWh;
●
six biogas projects
with a total installed capacity of approximately 8.64 MW, with a
weighted average price of US$154 /MWh, a minimum price of
US$118/MWh and a maximum price of US$160/MWh; and
●
two biomass
projects, for a total installed capacity of 14.5 MW, both at a
price of US$110/MWh.
Round 1.5 of the RenovAr Program: Public Bid Process for New
Renewable Energy Generation Units
In October 2016,
the Ministry of Energy and Mining also issued Resolution No.
252-E/16, calling for national and international bids under round
1.5 of the RenovAr Program to auction an additional 600 MW of
renewable energy (400 MW of wind and 200 MW of solar). On November11, 2016, CAMMESA began analyzing the technical aspects of the bids
that were filed, which included 47 projects totaling 2,486.4
MW.
Pursuant to
Resolution No. 281-E/16 of the Minister of Energy and Mining, the
results of the tender were published on November 25, 2016. A total
of 30 projects with a total installed capacity of 1,281.53 MW,
located in 12 different provinces were awarded:
●
ten wind projects
for a total installed capacity of 765.35 MW, with a weighted
average price of US$53.34/MWh, a minimum price of US$46/MWh and a
maximum price of US$59.38/MWh; and
●
20 solar projects
for total installed capacity of approximately 516.18 MW, with a
weighted average price of US$54.94/MWh, a minimum price of
US$48.00/MWh and a maximum price of US$59.20/MWh.
Round 2 of the RenovAr Program: Public Bid Process for New
Renewable Energy Generation Units
Following Rounds 1
and 1.5 of the RenovAR Program, the Ministry of Energy and Mining
pursuant to Resolution No. 275/17, launched Round 2 of the program
on August 17, 2017 and granted awards in the amount of 2,043 MW of
renewable power capacity.
We submitted bids
for Round 2 of the RenovAR Program on October 19, 2017 and, on
November 29, 2017, we were awarded a wind energy project called,
“La Genoveva I,” which will allow us to add an
additional capacity of 86.6 MW to our portfolio and to continue to
build a presence in the renewable energies sector. On January 11,2018 and February 21, 2018, Vientos La Genoveva, acquired an
usufruct over the land where La Genoveva I is located. In addition,
on March 23, 2018, our subsidiary CP Renovables S.A. acquired 100%
of the equity interests in Vientos La Genoveva S.A and, on that
same date, transformed it into a S.A.U.
Round 2.5 of the RenovAr Program: Public Bid Process for New
Renewable Energy Generation Units
After Round 2.0,
the Ministry of Energy and Mining issued Resolution No. 473/2017 of
November 30, 2017, which launched Round 2.5. The companies invited
to participate in this new round were those companies that filed
bids in Round 2.0 and were unsuccessful due to a small
margin.
As a result of
Round 2.5 by means of Resolution 488-E/2017 of the Ministry of
Energy and Mining, issued on December 19, 2017, 22 additional
projects (totaling 634.3 MW of projected power) were
awarded.
Round 3.0 of the RenovAr Program: Public Bid Process for New
Renewable Energy Generation Units
Through Resolution
No. 100/2018, dated November 14, 2018, the Government Secretary of
Energy launched Round 3.0 of the RenovAr program and issued the
bidding terms and conditions ruling such bidding
contest.
In this new round,
participants can submit bids with respect to electricity projects
of no more than 10MW of capacity each, regardless of the applicable
technology (wind, solar, etc.). The total capacity to be awarded in
this round is 400MW of renewable energy.
On August 2, 2019,
pursuant to Disposition SSERyEE 91/2019 the awarding of the PPAs
was decided for a total of 259 MW
112
Pursuant to the
RenovAR regulatory framework, we were awarded with 3 wind projects:
La Castellana I in Round 1, Achiras in Round 1.5 and La Genoveva I
in Round 2.0. The wind farm La Castellana I reached commercial
operation date (COD), in August 2018, and Achiras reached
commercial operation date on September 2018. The following table
shows the main characteristics of each of the wind
farms:
La Castellana
I
Achiras
La Genoveva
I
Location
Province of Buenos
Aires
Province of
Córdoba
Province of Buenos
Aires
Status
In
operation
In
operation
Under
construction
Commercial
operation date / Expected commercial operation date
The commercial
operation date (COD) committed with CAMMESA of La Genoveva I is 720
days after the PPA signing date, which was on July 26,2018. Due to the outbreak of COVID-19 and the measures adopted
by the government to contain it, the project is expected to be
delayed. See “Item 3D. Risk Factors—Risks Relating to
our Business— Factors beyond our control may affect or delay
the completion of the awarded projects, or alter our plans for the
expansion of our existing plants.”
(2)
The companies that
were awarded with project during the bidding process were
authorized pursuant to the conditions of such bidding process to
introduce minor changes in the power capacity of the
project
Remuneration Scheme
The Current Remuneration Scheme
On February 27,2020, the Secretary of Energy of the National Ministry of
Production Development issued Resolution 31/20, which abrogated
Resolution No. 1/19, reducing the remuneration scheme applicable
from February 1, 2020 for Authorized Generators in the Wholesale
Electricity Market.
Remuneration of thermal generators
Resolution 31/20
sets forth, regarding generation from thermal sources, that
authorized thermal generators will be remunerated for (i) monthly
available capacity and (ii) energy.
Remuneration for
available capacity is comprised of (i) a minimum price associated
to the real available capacity (DRP) and (ii) a price for
guaranteed capacity according to the fulfilment of an offered
guaranteed capacity availability (DIGO). DIGO is the capacity
availability offered by an authorized thermal generator for each
“g” generation unit for each DIGO period (which are:
(a) summer period: December-January-February, (b) winter period:
June-July-August, (c) remaining periods: (c1) March-April-May, (c2)
September-October-November). The power remuneration will be
affected according to the Utilization Factor (FU) of the generation
unit.
Remuneration for
energy will be the sum of two items: (i) Generated Energy and (ii)
Operated Energy (associated to the rotating power in each hour).
The hourly volume of Operated Energy must correspond with the
optimal dispatch for the fulfilment of energy and reserves
assigned. Remuneration for energy is determined at the connection
node of the generator.
In addition,
Resolution 31/20 introduced a new remuneration criteria, concerning
the first 25 (HMRT-1) and second 25 (HMRT-2) hours of maximum
thermal dispatch (“HMRT”) in the month, also
establishing a distinction between the summer period, the winter
period and the remaining periods.
113
All remuneration
prices are set in Argentine pesos with a monthly adjustment
parameter, considering IPIM and IPC indices, according with the
following formula:
where
“IPIM”:
WPI, published by INDEC
“IPC”:
CPI, published by INDEC
However, on April8, 2020, Central Puerto learned that the Secretary of Energy may
have instructed CAMMESA to postpone until further notice the
application of Annex VI, related to the price update mechanism
described under “Item 4.B. Business Overview—The
Argentine Electric Power Sector—Remuneration Scheme—The
Current Remuneration Scheme”. Accordingly, CAMMESA did not
apply the price update mechanism for the March 2020 monthly
payments under Energy Base. The Company is evaluating the effects
that the non-application of the aforementioned Annex VI would have,
as well as the steps to be followed in this regard.
Remuneration for Available Capacity: the
base price to remunerate capacity from thermal sources will be
determined pursuant to the following values of capacity base price
(PrecBasePot), price of guaranteed capacity (PrecPotDIGO) and
Utilization Factor (FU):
Technology /
Scale
PrecBasePot
(Ps./MW-month)
Combined-cycle
Large > 150 MW
100,650
Combined-cycle
Small <= 150 MW
112,200
Steam Turbine Large
> 100 MW
143,550
Steam Turbine Small
<= 100 MW
171,600
Gas Turbine Large
> 50 MW
117,150
Gas Turbine Small
<= 50 MW
151,800
Internal Combustion
Engines<=42MW
171,600
Technology/Scale
PrecPotDIGO
(Ps./MW-month)
Winter and
Summer
Remaining
periods
Combined-cycle
Large > 150 MW
360,000
270,000
Combined-cycle
Small <= 150 MW
360,000
270,000
Steam Turbine Large
> 100 MW
360,000
270,000
Steam Turbine Small
<= 100 MW
360,000
270,000
Gas Turbine Large
> 50 MW
360,000
270,000
Gas Turbine Small
<= 50 MW
360,000
270,000
Internal Combustion
Engines<=42MW
420,000
330,000
Utilization Factor (FU):
In each
“n” month of economic transactions a FU will be
calculated for each generation unit (“g”), which is
defined as:
FUgn =
GenAñoMóvn / (DRPg.n.prom x hs año
móvil)
Being DRPg.n.prom:
the average real available capacity of the generation unit
“g” in the mobile year prior to the “n”
month in which the declaration of economic transaction (DTE) is
issued.
Being mes =
month.
Being kFM = hours
of the month outside the agreed maintenance, divided by the hours
of the month.
Being Hs año
móvil: the total hours of the mobile year prior to the
“n” month in which the DTE is issued.
Being
GenAñoMovn: the total generation of the generation unit
“g” in the mobile year prior to the “n2”
month in which the DTE is issued.
114
In addition to the
abovementioned, the remuneration for available capacity will also
depend on the real available capacity (DRP), which is the average
monthly availability corresponding to the “m” month of
each generation unit (“g”) that is not under programmed
and agreed maintenance and that will be calculated for thermal
authorized generators considering the hourly values registered
during the month. The application in the calculation for the
“m” month will be made taking into consideration the
values registered during the month.
Following the
abovementioned, Resolution No. 31/20 sets forth that the monthly
remunerating for available capacity shall be proportional to the
monthly availability, the Utilization Factor of the generation unit
and a price that will vary periodically.
In that sense, the
resolution under comment differences remuneration of generators
that do not declare DIGO from generators that do declare
it.
In case of
generators that do not declare DIGO, the remuneration is the DRP of
the month valued at the capacity base price mentioned above.
Availability is calculated detracting forced unavailable capacity
and unavailable power due to agreed or programmed maintenance
works.
REM BASE
(Ps./month) = PrecBasePot * DRP (MW) * kFM
Being kFM: hours of
the month outside agreed maintenance/hours of the
month
In case of
generators that declare DIGO, their remuneration for offered
guaranteed capacity is a remuneration of available capacity (with
cap as physical magnitude to be computed in the DIGO) that is
valued as PrecPotDIGO (Ps./MW-month) according to
following:
REM DIGO
(Ps./month) = MAX {REM BASE; DRP (MW) * kFM * PrecPotDIGO * DRP /
DIGO}
Being kFM = hours
of the month outside of agreed maintenance/hours of the
month
The total
remuneration for available capacity of generators will depend on
whether they declared DIGO or not.
Total Remuneration
for Available Capacity for Generators that do not declare
DIGO: Total
remuneration for available capacity will be calculated, for
generators that do not declare DIGO, exclusively pursuant to the
concepts explained above and its application will be made
considering the Utilization Factor (FU):
●
If FU < 30% REM
TOT (Ps./month) = REM BASE * 0.6
●
If 30 %<= FU
< 70% REM TOT (Ps./month) = REM BASE * (FU * 0.3)
●
If FU >= 70% REM
TOT (Ps./month) = REM BASE
Total Remuneration
for Available Capacity for Generators that declare
DIGO: The sum of the
remunerations mentioned above and its application will be made
considering the Utilization Factor (FU):
●
If FU < 30% REM
TOT (Ps./month) = REM DIGO * 0.6
●
If 30 %<= FU
< 70% REM TOT (Ps./month) = REM DIGO * (FU * 0.3)
●
If FU >=
70% REM TOT (Ps./month) = REM DIGO
115
The following
picture show the effect of FU on Available Capacity
Remuneration:
Energy Remuneration
Energy remuneration
is comprised of two items: (i) generated energy and (ii) operated
energy. This remuneration is determined at the connection node of
the generator.
Remuneration for Generated Energy
For conventional
thermal generation, a maximum value (depending on the kind of fuel
used by the generation unit “g”) will be considered in
concept of non-fuel variable costs (CostoOYMxComb), as indicated in the
below chart, for the energy delivered in each hour:
CostoOYMxComb
Technology/Scale
Natural
Gas (Ps./MWh)
FuelOil/GasOil
(Ps./MWh)
BioComb
(Ps./MWh)
Mineral
Coal (Ps./MWh)
Combined-cycle
Large > 150 MW
240
420
600
–
Combined-cycle
Small <= 150 MW
240
420
600
–
Steam Turbine Large
> 100 MW
240
420
600
720
Steam Turbine Small
<= 100 MW
240
420
600
720
Gas Turbine Large
> 50 MW
240
420
600
–
Gas Turbine Small
<= 50 MW
240
420
600
–
Internal Combustion
Engines<=42MW
240
420
720
–
Remuneration for Operated Energy
Operated Energy
remuneration is 84 $/MWh and applies to the addition of rotating
capacity along the month. When a generating unit is operating under
forced condition, requested by the generator, Operated Energy
remuneration will be determined considering only 60% of its
installed capacity.
Maximum
Thermal Dispatch Hours
Maximum Thermal
Dispatch Hours (HMRT) applies to the average delivered capacity
during the 25 hours of HMRT in the relevant month, earlier
described as HMRT-1 and HMRT-2.
Remuneration price
“PrecPHMRT” is 37,500 Ps./MW, and is affected by
seasonal factor FRPHMRT, as indicated in the following
chart:
FRPHMRT
HMRT
Summer
Autumn
Winter
Spring
HMRT-1
1.2
0.2
1.2
0.2
HMRT-2
0.6
–
0.6
–
116
Remunertion during
HMRT (RemPHMRT) for thermal plants is determined as:
Being Potgemhrt1:
average generated capacity during HMRT-1.
Being Potgemhrt2:
average generated capacity during HMRT-2.
Remuneration of hydroelectrical generators
Remuneration of
authorized hydroelectrical generators is comprised of (i) a payment
for monthly available capacity and (ii) a payment for energy (which
is comprised of two items: (a) generated energy and (b) operated
energy).
Remuneration for Available Capacity
This remuneration
will depend on the DRP and a capacity base price. The latter will
be determined pursuant to the following values considering the
technology of the generation unit and its size.
Technology/Scale
Capacity
Base Price (PrecBasePot) (Ps./MW-month)
Large HI Units with
P > 300 MW
99,000
Medium size HI
Units with P > 120 and < 300 MW
132,000
Small HI Units with
P > 50 and < 120 MW
181,500
Renewable HI Units
with P < 50 MW
297,000
Large HB pumping
Units with P > 300 MW
99,000
Medium size HB
pumping Units with P > 120 and < 300 MW
132,000
DRP is the average
monthly available capacity corresponding to the “m”
month of each generation unit (“g”) that is not under
programed and agreed maintenance and that will be calculated for
hydroelectrical authorized generators considering the monthly
average real availability determined independently from the real
level of the dam or the inputs and expenditures. The application in
the calculations for month “m” is made taking into
consideration the values registered in the month. In the case of
hydroelectrical pumping units (HB), it must be considered, for the
evaluation of its availability, both the corresponding to its
operation as a turbine in all the hours of the period, as well as
its availability as pump in all the hours of the
period.
Following the
abovementioned, remuneration of availability capacity (REM PBASE
Ps./month) is calculated pursuant to the following
formula:
REM PBASE
(Ps./month) = PrecBasePot * DRP (MW) * kFM
Being kFM: hours of
the month outside agreed maintenance/hours of the
month
Remuneration for Energy
This remuneration,
which is determined at the connection node of the generator, is
comprised of two items (i) remuneration for generated energy and
(ii) remuneration for operated energy.
With respect to the
remuneration for generated energy, in each hour, the price of the
energy generated will be 210 Ps./MWh.
Regarding
remuneration for operated energy, generators will receive a monthly
remuneration, represented by the integration of hourly powers in
the period, equal to 84 Ps./MWh. The hourly volume of operated
energy must correspond to the optimal dispatch for the fulfilment
of energy and reservoirs assigned.
With relation to
hydroelectrical pumping plants operating as a synchronic
compensator, the price of the energy generated will be 60 Ps./MVAr
and 84 Ps-/MWh for its operated energy.
117
Maximum
Thermal Dispatch Hours
This remuneration
is applicable to the average operated available capacity of a
hydroelectrical power plants during the 25 HMRT indicated as HMRT1
and HMRT2.
HMRT
Remunaration
Technology/Scale
PrecPOHMRT
Ps./MW-HMRT
Hydro >300
MW
25.700
Hydro >120 and
<= 300 MW
32.500
Hydro > 50 and
<= 120 MW
32.500
Renewable Hydro
< 50 MW
32.500
Pump > 300
MW
32.500
Pump > 120 and
<= 300 MW
32.500
Remuneration price
“PrecPOHMRT”, is affected by seasonal factor FRPHMRT,
as indicated in the following chart:
FRPHMRT
HMRT
Summer
Autumn
Winter
Spring
HMRT-1
1.2
0.2
1.2
0.2
HMRT-2
0.6
–
0.6
–
Remuneration during
HMRT “RemPOHMRT” for hydroelectrical power plants is
determined as follows:
Being Potopmhrt1:
average operated capacity during HMRT-1.
Being Potgemhrt2:
average operated capacity during HMRT-2.
Other generating technologies in the spot market
Resolution 31/20
sets forth that energy generated form non-conventional resources
(solar, eolic, biomass, biogas) will be priced at 1680 Ps./MWh for
its generated energy.
Following this, the
Non-Conventional Energy Remuneration will be calculated by the
hourly integration in the month of the energy generated by
generation unit “g” in each hour “h”
(EGengh) by PENC in that hour:
REM ENC ($/month) =
∑h.month (PENC * EGengh)
Generation coming
from units that are in a stage prior to commercial authorization
will be granted 50% of the corresponding remuneration until
reaching such authorization.
The Previous Remuneration Schemes
Resolution SE No. 1/19
On February 28,2019, the Secretary of Renewable Resources and Electric Market of
the National Ministry of Economy issued Resolution No. 1/2019
(published in the Official Gazette on March 1, 2019, day in which
it came into force), which abrogated Resolution No. 19/17, reducing
the remuneration scheme for Authorized Generators in the Wholesale
Electricity Market (“Resolution SRRyME No. 1/19”).
Resolution SRRyME No. 1/19 establishes that Authorized Generators
are those who do not have contracts in the term market in any of
its modalities.
Remuneration of thermal generators
The Resolution
SRRyME No. 1/19 sets forth, regarding generation from thermal
sources, that authorized thermal generators were remunerated for
(i) monthly available capacity and (ii) energy.
118
Remuneration for
available capacity was comprised of (i) a minimum price associated
to the real available capacity (DRP) and (ii) a price for
guaranteed capacity according to the fulfilment of an offered
guaranteed capacity availability (DIGO). DIGO is the capacity
availability offered by an authorized thermal generator for each
“g” generation unit for each DIGO period (which are:
(a) summer period: December-January-February, (b) winter period:
June-July-August, (c) remaining periods: (c1) March-April-May, (c2)
September-October-November). The power remuneration was affected
according to the Utilization Factor (FU) of the generation
unit.
Remuneration for
energy was the sum of two items: (i) Generated Energy and (ii)
Operated Energy (associated to the rotating power in each hour).
The hourly volume of Operated Energy had to correspond with the
optimal dispatch for the fulfilment of energy and reserves
assigned. Remuneration for energy is determined at the connection
node of the generator.
Remuneration for Available Capacity: the
base price to remunerate capacity from thermal sources was
determined pursuant to the following values of capacity base price
(PrecBasePot), price of guaranteed capacity (PrecPotDIGO) and
Utilization Factor (FU):
Technology
/ Scale
PrecBasePot
(US$/MW-month)
CC big P > 150
MW
3,050
CC small P ≤
150 MW
3,400
ST big P > 100
MW
4,350
ST small P >50
MW
5,200
GT big P> 50
MW
3,550
GT small P ≤
50 MW
4,600
Internal Combustion
Engines
5,200
Period
PrecPotDIGO
(US$/MW-month)
Summer:
December-January-February
7,000
Winter: June
– July – August
7,000
Remaining
periods
5,500
Utilization Factor (FU):
In each
“n” month of economic transactions a FU was calculated
for each generation unit (“g”), which was defined
as:
FUgn =
GenAñoMóvn / (DRPg.n.prom x hs año
móvil)
Being DRPg.n.prom:
the average real available capacity of the generation unit
“g” in the mobile year prior to the “n”
month in which the declaration of economic transaction (DTE) is
issued.
Being mes =
month.
Being kFM = hours
of the month outside the agreed maintenance, divided by the hours
of the month.
Being Hs año
móvil: the total hours of the mobile year prior to the
“n” month in which the DTE is issued.
Being
GenAñoMovn: the total generation of the generation unit
“g” in the mobile year prior to the “n2 month in
which the DTE is issued.
In addition to the
abovementioned, the remuneration for available capacity was also
depend on the real available capacity (DRP), which was the average
monthly availability corresponding to the “m” month of
each generation unit (“g”) that was not under
programmed and agreed maintenance and that was calculated for
thermal authorized generators considering the hourly values
registered during the month. The application in the calculation for
the “m” month will be made taking into consideration
the values registered during the month.
Following the
abovementioned, Resolution No. 1/19 sets forth that the monthly
remunerating for available capacity shall be proportional to the
monthly availability, the Utilization Factor of the generation unit
and a price that will vary periodically.
In that sense, the
resolution under comment differenced remuneration of generators
that do not declare DIGO from generators that do declare
it.
119
In case of
generators that did not declare DIGO, the remuneration was the DRP
of the month valued at the capacity base price mentioned above.
Availability was calculated detracting forced unavailable capacity
and unavailable power due to agreed or programmed maintenance
works.
REM BASE ($/month)
= PrecBasePot * DRP (MW) * kFM
Being kFM: hours of
the month outside agreed maintenance/hours of the
month
In case of
generators that declared DIGO, their remuneration for offered
guaranteed capacity was a remuneration of available capacity (with
cap as physical magnitude to be computed in the DIGO) that was
valued as PrecPotDIGO ($/MW-month) according to
following:
REM DIGO ($/month)
= MAX {REM BASE; DRP (MW) * kFM * PrecPotDIGO * DRP /
DIGO}
Being kFM = hours
of the month outside of agreed maintenance/hours of the
month
The total
remuneration for available capacity of generators will depend on
whether they declared DIGO or not.
Total Remuneration
for Available Capacity for Generators that do not declare
DIGO: Total
remuneration for available capacity will be calculated, for
generators that do not declare DIGO, exclusively pursuant to the
concepts explained above and its application was made considering
the Utilization Factor (FU):
●
If FU < 30% REM
TOT ($/month) = REM BASE * 0.7
●
If 30 %<= FU
< 70% REM TOT ($/month) = REM BASE * (FU * 0.75 +
0.475)
●
If FU >= 70% REM
TOT ($/month) = REM BASE
Total Remuneration
for Available Capacity for Generators that declare
DIGO: The sum of the
remunerations mentioned above and its application was made
considering the Utilization Factor (FU):
●
If FU < 30% REM
TOT ($/mes) = REM DIGO * 0.7
●
If 30 %<= FU
< 70% REM TOT ($/mes) = REM DIGO * (FU * 0.75 +
0.475)
●
If FU >=
70% REM TOT ($/mes) = REM DIGO
Energy Remuneration
Energy remuneration
was comprised of two items: (i) generated energy and (ii) operated
energy. This remuneration is determined at the connection node of
the generator.
Remuneration for Generated Energy
For conventional
thermal generation, a maximum value (depending on the kind of fuel
used by the generation unit “g”) was considered in
concept of non-fuel variable costs (CostoOYMxComb), as indicated in the
below chart, for the energy delivered in each hour:
Technology/Scale
CostoOYMxComb
Natural
Gas (US$/MWh)
FuelOil/GasOil
(US$/MWh)
BioComb
(US$/MWh)
Mineral
Coal (US$/MWh)
CC big P > 150
MW
4
7
10
-
CC small P < 150
MW
4
7
10
-
TV big P > 100
MW
4
7
10
12
TV small P < 100
MW
4
7
10
12
TG big P > 50
MW
4
7
10
-
TG small P < 50
MW
4
7
10
-
Internal Combustion
Engines
4
7
10
-
120
The values
expressed in the above chart was the maximum that should be
recognized as non-fuel variable cost (CVNC) in the production
variable cost (CVP) declarations for generators that operate with
their own fuel. For each generation unit that was subject to its
own supply of fuel, which is being required to dispatch and did not
have the fuel pursuant to which it was requested to dispatch, such
generation unit loosed its dispatch ranking until (in case of being
necessary) CAMMESA provided the necessary fuel for its operation.
In this last case, the generator was only remunerated for Generated
Energy, 50% of the corresponding CVNC.
Remuneration for Operated Energy
Generators received
a monthly remuneration for Operated Energy, represented by the
integration of the hourly powers in the period, valued at 1.4
US$/MWh for each kind of fuel used by the generation unit. For each
generation unit subject to its own supply of fuel, which was
required to dispatch and does not have the fuel pursuant to which
was requested to dispatch, such generation unit lose its dispatch
ranking until (in case of being necessary) CAMMESA provided the
necessary fuel for its operation. In this last case, Operated
Energy was acknowledged up to the Generated Energy of the
generation unit and the valorization price of such Operated Energy
was reduced in 50%.
Remuneration of hydroelectrical generators
Remuneration of
authorized hydroelectrical generators was comprised of (i) a
payment for monthly available capacity and (ii) a payment for
energy (which was comprised of two items: (a) generated energy and
(b) operated energy).
Remuneration for Available Capacity
This remuneration
depended on the DRP and a capacity base price. The latter will be
determined pursuant to the following values considering the
technology of the generation unit and its size.
Technology/Scale
Capacity
Base Price (PrecBasePot) (US$/MW-month)
Large HI Units with
P > 300 MW
3,000
Medium size HI
Units with P > 120 and < 300 MW
4,000
Small HI Units with
P > 50 and < 120 MW
5,500
Renewable HI Units
with P < 50 MW
9,000
Large HB pumping
Units with P > 300 MW
1,500
Medium size HB
pumping Units with P > 120 and < 300 MW
2,500
DRP was the average
monthly available capacity corresponding to the “m”
month of each generation unit (“g”) that was not under
programed and agreed maintenance and that was calculated for
hydroelectrical authorized generators considering the monthly
average real availability determined independently from the real
level of the dam or the inputs and expenditures. The application in
the calculations for month “m” is made taking into
consideration the values registered in the month. In the case of
hydroelectrical pumping units (HB), it was considered, for the
evaluation of its availability, both the corresponding to its
operation as a turbine in all the hours of the period, as well as
its availability as pump in all the hours of the
period.
Following the
abovementioned, remuneration of availability capacity (REM PBASE
($/month)) was calculated pursuant to the following
formula:
REM PBASE ($/month)
= PrecBasePot * DRP (MW) * kFM
Being kFM: hours of
the month outside agreed maintenance/hours of the
month
Remuneration for Energy
This remuneration,
which was determined at the connection node of the generator, was
comprised of two items (i) remuneration for generated energy and
(ii) remuneration for operated energy.
With respect to the
remuneration for generated energy, in each hour, the price of the
energy generated was 3.5 US$/MWh.
Regarding
remuneration for operated energy, generators received a monthly
remuneration, represented by the integration of hourly powers in
the period, equal to 1.4 US$/MWh. The hourly volume of operated
energy corresponded to the optimal dispatch for the fulfilment of
energy and reserves assigned.
With relation to
hydroelectrical pumping plants operating as a synchronic
compensator, they were granted a 1.0 US$/MVAr for the MVAr
exchanged with the grid in required hours.
121
Generators using alternative sources
Generators using
alternative sources will be remunerated for the energy supplied
(Non-Conventional Energy Remuneration, REM ENC).
Resolution SRRyME
No. 1/19 set forth that energy generated form non-conventional
resources (solar, eolic, biomass, biogas) was priced at US$28/MWh
(Non-Conventional Energy Price, PENC).
Following this, the
Non-Conventional Energy Remuneration was calculated by the hourly
integration in the month of the energy generated by generation unit
“g” in each hour “h” (EGengh) by PENC in
that hour:
REM ENC ($/month) =
∑h.month (PENC * EGengh)
Generation coming
from units that were in a stage prior to commercial authorization
were granted 50% of the corresponding remuneration until reaching
such authorization.
Resolution
SEE 70/18 - Option to purchase fuel for units under Energía
Base Regulatory Framework
On November 7,2018, pursuant to Res. SE 70/18, the Argentine Government
authorized generators to purchase their own fuel for assets under
the Energía Base Regulatory framework. If generation companies
opt to take this option, CAMMESA values and pays the generators
their respective fuel costs in accordance with the Variable Costs
of Production (CVP) declared by each generator to CAMMESA. The
agency in charge of dispatch (Organismo Encargado del Despacho or
“OED” using the Spanish acronym) -CAMMESA- continued to
supply the fuel for those generation companies that do not elect to
take this option. In accordance to Res. SEE 70/18, in November
2018, we started purchasing fuel for our Luján de Cuyo
combined cycle, and in December 2018, for all our thermal units. In
the year ended December 31, 2019, income under Res. SEE 70/18
accounted for 30.39% of our revenues.
On December 27,2019, the Ministry of Productive Development issued Resolution MDP
No. 12/2019, repealing Resolution SGE No. 70/2018 and restoring
Art. 8 of Res. SE 95/2013. Beginning January 2020, CAMMESA became
the only fuel supplier for generation companies, except for (i)
thermal units that had prior commitments with CAMMESA for energy
supply contracts with their own fuel management and (ii) thermal
units under the Energía Plus regulatory framework, authorized
under Resolution SE No.1281/05 to supply energy to large private
users.
Resolution SEE No. 19/17
On January 27,2017, the Secretariat of Electric Energy issued Resolution SEE No.
19/17 (published in the Official Gazette on February 2, 2017),
replacing Resolution SE No. 95/13, as amended. As explained above,
Resolution SEE No. 19/17 was abrogated by Resolution SRRyME No.
1/19.
Pursuant to
Resolution SEE No. 19/17, the Secretariat of Electric Energy
established that electric power generators, co-generators and
self-generators acting as agents in the WEM operating conventional
thermal power plants, might submit guaranteed availability offers
(ofertas de disponibilidad
garantizada) in the WEM. Pursuant to these offers, these
generation companies might commit specific capacity and power
output, provided that such capacity and energy had not been
committed under PPAs entered into in accordance with Resolutions
Nos. 1193/05, 1281/06, 220/07, 1836/07 and 200/09 of the former
Secretary of Energy, Resolution No. 21 of the Secretariat of
Electric Energy, and Resolutions Nos. 136/16 and 213/16 of the
Ministry of Energy and Mining, as well as PPAs subject to a
differential remuneration scheme established or authorized by the
Ministry of Energy and Mining. Offers had to be accepted by CAMMESA
(acting on behalf of the WEM agents demanding electric power),
acting as the purchaser of the power under the guaranteed
availability agreements (compromisos de disponibilidad
garantizada). Resolution SEE No. 19/17 established that such
agreements may be assigned to electricity distribution companies
and Large Users of the WEM once the state of emergency of the
electric power sector in Argentina elapses (according to Decree No.
134/2015, such emergency expired on December 31, 2017). Generator
agents fully or wholly-owned by the Argentine Government were
excluded from the scope of Resolution SEE No. 19/17.
The term of the
guaranteed availability agreements were 3 years, and their general
terms and conditions were established in Resolution SEE No.
19/17.
According to such
regulation, the remuneration in favor of the generator was
calculated in U.S. dollars pursuant to the formulas and values set
forth in the aforementioned resolution and comprised (i) a price
for the monthly capacity availability, and (ii) a price for the
power generated and operated.
122
Resolution SEE No.
19/17 also established that WEM agents that operate conventional
hydroelectric power plants, pumped hydroelectric power plants and
power plants using other energy resources shall be remunerated for
the energy and capacity of their generation units in accordance
with the values set forth in such resolution, and provided that
such energy and capacity that had not been committed under PPAs
entered into in accordance to Resolutions Nos. 1193/05, 1281/06,
220/07, 1836/07 and 200/09 of the former Secretary of Energy,
Resolution No. 21/16 of the Secretariat of Electric Energy, and
Resolutions Nos. 136/16 and 213/16 of the Ministry of Energy and
Mining.
The abrogated
remuneration scheme established by Resolution SEE No. 19/17
included the following items:
(1) Price for
Available Capacity
The price for
capacity availability was divided into a minimum price associated
with Actual Available Capacity (“DispReal,” in
Spanish), a Base Price tied to the achievement of the Guaranteed
Bid Capacity (“DIGO”, in Spanish), and an additional
maximum price tied to the achievement of an Allocated Capacity
(“DIGOasig,” in Spanish), plus an additional increase in the unit
price to deal with situations of maximum thermal demand from the
system. Below is a detail of the tariffs applicable to these
technologies:
Unit
Power
(MW)
Minimum capacity
price
(US$/MW per
month)
Base capacity
price May-Oct 2017
(US$/MW per
month)
Base capacity
price after Nov 2017
(US$/MW per
month)
Additional
capacity price May-Oct 2017
(US$/MW per
month)
Additional
capacity price after Nov 2017
(US$/ MW per
month)
TG
P<50
4,600
6,000
7,000
1,000
2,000
TV
P<100
5,700
6,000
7,000
1,000
2,000
P>100
4,350
6,000
7,000
1,000
2,000
CC
P<150
3,400
6,000
7,000
1,000
2,000
P>150
3,050
6,000
7,000
1,000
2,000
HI
P>300
N/A
2,000
2,000
500
1,000
Thermal Generation:
For thermal units,
the price for Available Capacity was calculated as
follows:
If a generator did
not submit the DIGO or DIGOasig, the price for available capacity
was equal to the Minimum Price (“REM MIN” in
Spanish):
REM MIN (US$/month)
= Minimum Capacity Price * DispReal (MW) * kM
where:
kM = accounts for
hours of the month minus scheduled maintenance hours of the
month.
For thermal units
that report the DIGO and DIGOasig, the Price for Total Available
Capacity = Base Price + Additional Price, where:
●
Base
Price:
●
If DispReal
DIGO, then Base Price was equal to (DispReal – DIGO) * kM *
Minimum Capacity Price + DIGO * Base Capacity Price *
kM.
●
If DispReal <
DIGO, then Base Price was equal to the greater of (i) REM MIN or
(ii) DispReal * Base Capacity Price * kM *
DispReal/DIGO.
●
Additional Price
(REM ADC):
●
If DispReal –
DIGO DIGOasig, Additional Price was equal to DIGOasig *
Additional Capacity Price * kM.
●
If DispReal –
DIGO < DIGOasig, then Additional Price was equal to
0.
where:
kM = accounts for
hours of the month minus scheduled maintenance hours of the
month.
123
Hydroelectric Generation
For hydroelectric
units, the price for Available Capacity was calculated as
follows:
●
Base Price was
equal to Base Capacity Price * (DispReal + scheduled maintenance),
and
●
Additional Price
was equal to Additional Capacity Price * DispReal
Unlike thermal
units, hydroelectric units charge for these items, either
dispatched or not (regardless of the reservoir level), to the
extent they were not under forced unavailability.
(2) Price for
Generated and Operated Power
Generated
power
Operated
power
Unit
Natural
gas
Liquids
Biodiesel
Hydro
Natural
gas
Liquids
Biodiesel
Hydro
US$/MWh
US$/MWh
US$/MWh
US$/MWh
US$/MWh
US$/MWh
US$/MWh
US$/MWh
GT
5.0
8.0
11.0
2.0
2.0
2.0
ST
5.0
8.0
11.0
2.0
2.0
2.0
CC
5.0
8.0
11.0
2.0
2.0
2.0
HI
P>300MW
3.5
1.4
Operated Power
means the integral function of the hourly power capacity dispatched
during the period, including all power and reserves allocated to
that generator. The hourly energy of Operated Power was consistent
with the optimal dispatch for the achievement of the allocated
power and reserves.
Efficiency Incentives
On a quarterly
basis, actual fuel consumption was compared to reference
consumption for each unit and fuel type. The percentage difference
was added to increase the value of Generated Power from the
respective fuel plus the
fuel related to Operated Power and was recognized as an additional
amount only in the case of power generated with the fuel supplied.
The base price was not affected by increased consumption. Reference
values for specific consumption were as follows:
Natural
gas
Alternative
fuels
Unit
kcal/kWh
kcal/kWh
GT
2,400
2,600
ST
2,600
2,600
Large CC (>180
MW)
1,680
1,820
Other
CC
1,880
2,000
Resolutions SE Nos. 95/13 and 529/14 and Amending
Regulations
On March 26, 2013,
the Official Gazette published Resolution No. 95/2013 issued by the
former Secretariat of Electric Energy (“Resolution No.
95”), which established a contracting and remuneration scheme
for all generation, co-generation and self-generation agents of the
WEM, except for the binational hydroelectric power plants and
nuclear generators, as well as the capacity and electric power
produced by the generation, co-generation and self-generation
agents of the WEM that had been committed within the framework of
contracts regulated by the former Secretariat of Electric Energy
through Resolutions SE No. 1193 of October 7, 2005, No. 1281 of
September 4, 2006, No. 220 of January 18, 2007, No. 1836 of
November 27, 2007, No. 200 of March 16, 2009, No. 712 of October 9,2009, No. 762 of November 5, 2009, No. 208 of March 29, 2011 and
No. 137 of April 25, 2011, Law No. 27,191, as well as any other
type of electric power supply agreements with a differential price
scheme established by the former Secretariat of Electric
Energy.
In addition, to
optimize and minimize the costs of the supply of fuels to the WEM
generation plants, the dispatch agency (CAMMESA) centralized the
commercial management and dispatch of fuels. As from the date of
publication of Resolution No. 95, and upon termination of the
contractual relationships between the WEM agents and their
providers of fuels and related supplies, such operation costs shall
no longer be recognized by CAMMESA.
This remuneration
scheme governed the economic transactions conducted between
February 2013 and January 2017, when it was replaced by Resolution
SEE No. 19/17. However, the effective application of such system to
each particular generator required that the generator waive each
court or administrative claim brought by it against the Argentine
Government, the former Secretariat of Electric Energy (now the
Ministry of Energy and Mining) and CAMMESA, in connection with the
2008-2011 Agreement and/or Resolution SE No. 406/03. If such
requirements had not been met, generators would not have access to
the above referenced remuneration scheme, or to the previous
scheme, which remains in effect.
124
This remuneration
scheme was comprised of three items: (i) fixed costs remuneration,
(ii) variable costs remuneration and (iii) additional remuneration.
Additional remuneration was composed of two items: (i) additional
remuneration allocated to the generator, which was settled and paid
to the generator, and (ii) additional remuneration allocated to the
trust, which was included in a trust fund that provides financing
to new infrastructure projects in the electric power
sector.
Furthermore,
Resolution No. 95 temporarily suspended the inclusion of new
contracts in the term market and determined that once those
existing prior to the issuance of such resolution have been
terminated, the Large Users of the WEM had the obligation to
acquire their electric power demand from CAMMESA, subject to the
conditions set forth by the former Secretariat of Electric Energy
to that effect. The generators received remuneration based on the
method set forth by Resolution No. 95. On August 20, 2013, the
former Secretariat of Electric Energy implemented a payment
priority mechanism whereby CAMMESA distributed the amounts it
received directly from WEM Large Users for the supply of their
demand among the generators included in Resolution No. 95. Such
amounts were allocated primarily to pay the remuneration of the
generators according to the following scheme: first to cover fixed
costs, then variable costs and finally the direct additional
remuneration.
As it concerns the
generation of electric power from renewable sources, Law No. 27,191
excluded the enforcement of regulations that limit the execution of
contracts in the term market.
Pursuant to
Resolution SE No. 2053/13, the new remuneration scheme was
established in a particular way for each of the agents as from the
day on which the corresponding generators withdraw all of the
administrative and judicial claims against the Argentine Government
and CAMMESA regarding (i) the “Acuerdo Para La Gestión Y Operación
De Proyectos, Aumento De La Disponibilidad De Generacion
Térmica Y Adaptación De La Remuneración De La
Generación 2008-2011 (Acuerdo 2008-2011)” issued
by the former Secretariat of Electric
Energy and
generators from the WEM, on November 25, 2010 and (ii) Resolution
No. 406/03 of the former Secretariat of Electric
Energy.
On May 31, 2013,
Central Puerto, HPDA and CTM complied with the terms of Resolution
No. 95. LPC informed the former Secretariat of Electric Energy of
its intention to comply with the scheme described above with
amendments to certain sections. However, as of the date of this
annual report, the former Secretariat of Electric Energy has not
given an answer to these amendments. Therefore, the new
remuneration scheme described above is not applicable to LPC and,
consequently, the previous regulation remains in force. As of
December 31, 2017, the La Plata plant was classified as a disposal
group held for sale and its respective results for years ended
December 31, 2018 and 2017 as discontinued operations in our
audited consolidated financial statements. Effective as of January5, 2018, we sold the La Plata plant to YPF EE. For further
information, see “Item 4.A. History and development of the
Company—La Plata Plant Sale”.
On May 23, 2014,
the Official Gazette published Resolution SE No. 529 issued by the
former Secretariat of Electric Energy, which updated the
remuneration amounts fixed in Resolution No. 95 for all generation,
co-generation and self-generation agents of the WEM included in
such resolution.
In addition,
Resolution No. 529 included a new scheme of non-recurring
maintenance remuneration, which shall become effective once major
maintenance costs are incurred related to the equipment of such
thermal power plants, and subject to approval by the Secretariat of
Electric Energy. Until such non-recurring maintenance works are
carried out and approved by the Secretariat of Electric Energy, the
non-recurring maintenance remuneration shall be documented as a
sale settlement with a maturity date to be determined.
On July 17, 2015,
the Secretariat of Electric Energy set forth Resolution SE No. 482
whereby: (i) it replaced Annexes I, II, III, IV and V to Resolution
SE No. 529 (which amended Resolution No. 95), updating the
remuneration amounts fixed therein; (ii) amended the calculation of
transmission variable charges applicable to hydroelectric and
renewable generators; (iii) incorporated an additional item
referred to as “Funds for FONINVEMEM 2015- 2018’s
Investments” (“FONINVEMEM 2015-2018 Funds”); (iv)
included a remuneration item referred to as “FONINVEMEM
2015-2018 Direct Remuneration” applicable to units installed
within the framework of FONINVEMEM 2015-2018; (v) new specific
contributions scheme for generators involved in investment projects
approved by the former Secretariat of Electric Energy and a new
incentive scheme for energy production and operational efficiency
for a certain group of generators; and (vi) amended the payment
method of the fixed costs remuneration and the non-recurring
maintenance remuneration.
The Secretariat of
Electric Energy amended the remuneration scheme established by
Resolution No. 482 through Resolution SEE No. 22/16.
125
Resolution SE No. 95/13 Remuneration Scheme
The remuneration
scheme of Resolution SE No. 95/13, as amended by Resolution SEE No.
22/16, included the following items:
(1) Fixed Costs
Remuneration
The fixed costs
remuneration was determined on a monthly basis assuming the
following prices (applicable as of
February 2016):
Technology
and scale
Pesos/MW-hrp(1)
Gas turbine units
with power (P) < 50 Mw (small)
152.3
Gas turbine units
with power (P) > 50 Mw (large)
108.8
Steam turbine units
with power (P) < 100 Mw (small)
180.9
Steam turbine units
with power (P) > 100 Mw (large)
129.2
Combined cycle
units with power (P) < 150 Mw (small)
101.2
Combined cycle
units with power (P) > 150 Mw (large)
84.3
Hydroelectric units
with power (P) < 30 Mw (renewable)
299.2
Hydroelectric units
with power (P) 30 to 120 Mw (small)
227.5
Hydroelectric units
with power (P) 120 Mw to 300 Mw (medium)
107.8
Hydroelectric units
with power (P) > 300 Mw (large)
59.8
Internal combustion
motors
180.9
Wind
farms
-
Solar photovoltaic
power plants
-
Biomass and
biogas—solid urban waste
-
(1)
MW-hrp means the
power available during the time of the day defined in advance by
the authorities in the seasonal programing.
The calculation
methodology to determine the fixed costs remunerations for the
relevant generation agents with conventional thermal generation
equipment (gas turbine, steam turbine and combined cycle) varied
depending on the Registered Availability (A), Target Availability
(TA) of the technology, Historical Availability (HA) and the season
of the year.
126
The formula defined
a base percentage to be applied to the fixed costs remuneration,
based on the following values:
Combined cycle
units
June –
July – August – December – January –
February
March –
April – May – September – October –
November
A >
95.00%
110.00%
100.00%
85.00% < A
95.00%
105.00%
100.00%
75.00% < A
85.00%
85.00%
85.00%
A
75.00%
70.00%
70.00%
Steam turbine
units
June –
July – August – December – January –
February
March –
April – May – September – October –
November
A >
90.00%
110.00%
100.00%
80.00% < A
90.00%
105.00%
100.00%
70.00% < A
80.00%
85.00%
85.00%
Combined cycle
units
June –
July – August – December – January –
February
March –
April – May – September – October –
November
A
70.00%
70.00%
70.00%
Internal
combustion motors
June –
July – August – December – January –
February
March –
April –May – September – October –
November
A >
90.00%
110.00%
100.00%
80.00% < A
90.00%
105.00%
100.00%
70.00% < A
80.00%
85.00%
85.00%
A
70.00%
70.00%
70.00%
Fifty percent of
the difference between the generator’s Registered
Availability (A) and Historical Availability (HA) is added to or
subtracted from the base percentage. In other words, for each
percentage point of variation in the generator’s A vis-a-vis
its HA, the fixed costs remuneration percentage would vary by half
a percentage point. The percentages had to be between those
expected for each period (110.00/110.00% for the highest and 70.00%
for the lowest).
Pursuant to
Resolution No. 482, the Target Availability value was determined in
relation to the available power typically available under normal
temperature conditions.
127
Historical
Availability values for each group was determined on the basis of
the registered availability in the period from 2011 to 2015. At the
end of each year, the resulting amount was added to the base until
there are five years. In the case of the units incorporated since
February 2016, the minimum value of each technology was taken as a
Target Availability value.
(2) Variable Costs
Remuneration
A new variable
costs remuneration scheme (excluding fuel costs) was established in
lieu of the variable maintenance costs and other non-fuel related
variable costs defined under Resolution SE No. 1/2003. It was
calculated on a monthly basis and was a function of the energy
generated by type of fuel:
Operates
on:
Liquid
fuels
Classification
Natural
gas
Oil
and gas FO/GO
Biofuel
(BD)
Carbon
(C)
Pesos/MWh
Gas turbine units
with power (P) < 50 Mw (small)
46.3
81.1
154.3
-
Gas turbine units
with power (P) > 50 Mw (large)
46.3
81.1
154.3
-
Steam turbine units
with power (P) < 100 Mw (small)
46.3
81.1
154.3
139.0
Steam turbine units
with power (P) > 100 Mw (large)
46.3
81.1
154.3
139.0
Combined cycle
units with power (P) < 150 Mw (small)
46.3
81.1
154.3
-
Combined cycle
units with power (P) > 150 Mw (large)
46.3
81.1
154.3
-
Hydroelectric units
with power (P) < 30 Mw (renewable)
-
36.7
-
-
Hydroelectric units
with power (P) 30 to 120 Mw (small)
-
36.7
-
-
Hydroelectric units
with power (P) 120 Mw to 300 Mw (medium)
-
36.7
-
-
Hydroelectric units
with power (P) > 300 Mw (large)
-
36.7
-
-
Internal combustion
motors
74.1
111.2
148.3
-
Wind
farms
-
112.0
-
-
Solar photovoltaic
power plants
-
126.0
-
-
Biomass and
biogas—solid urban waste
Equal to the
applicable thermal technology and scale provided above
The calculation of
the remuneration applicable to pump hydroelectric power plants took
into account both the electric power generated and the electric
power used for pumping.
(3) Additional
Remuneration
A portion of the
remuneration was paid directly to the relevant generation agents,
while the other portion was to be set aside for a trust fund and
reinvested in new infrastructure projects in the electric power
sectors as defined by the Secretariat of Electric
Energy.
Additional
remuneration was calculated on a monthly basis and was a function
of total electric power generated.
Allocated
to:
Technology
and scale
Relevant
generation agent Pesos/MWh
Trust
fund Pesos/MWh
Gas turbine units
with power (P) < 50 Mw (small)
13.7
5.9
Gas turbine units
with power (P) > 50 Mw (large)
11.7
7.8
Steam turbine units
with power (P) < 100 Mw (small)
13.7
5.9
Steam turbine units
with power (P) > 100 Mw (large)
11.7
7.8
Combined cycle
units with power (P) < 150 Mw (small)
13.7
5.9
Combined cycle
units with power (P) > 150 Mw (large)
11.7
7.8
Hydroelectric units
with power (P) = 50 Mw (renewable)
84.2
14.9
Hydroelectric units
with power (P) 50 to 120 Mw (small)
84.2
14.9
Hydroelectric units
with power (P) 120 Mw to 300 Mw (medium)
59.4
39.6
Hydroelectric units
with power (P) > 300 Mw (large)
54.0
36.0
Internal combustion
motors
13.7
5.9
Wind
farms
-
-
Solar photovoltaic
power plants
-
-
Biomass and biogas
– solid urban waste
-
-
The remuneration
detailed above was the total remuneration receivable by the
relevant generation agents, minus the electric power and power
committed in the term market or under other similar agreements, at
market value, except for the specific contracts referred to above
and the deduction of any other fee or service to be borne by such
agents.
For the purposes of
the above paragraph, the relevant generation agents are required to
submit, for each transaction month, an affidavit with supporting
documents duly certified by an external auditor, where they shall
report all invoices issued for their commitments in the term
market, to be compared to the deductions made in the economic
transactions completed by CAMMESA. If any difference arouse from
such comparison in the sums of money invoiced by any relevant
generation agent in favor of such agent, CAMMESA invoiced the
difference to such agent.
128
(4) Non-recurring
Maintenance Remuneration
In addition to the
remuneration items indicated above, Resolution SE No. 529 created a
new category named non-recurring maintenance remuneration for
relevant generation agents to be applied to economic transactions
carried out since February 2014 and calculated on a monthly basis,
based on the total electric power generated. Such remuneration
shall be documented as a sale settlement with a maturity date to be
determined and paid to a fund administered by CAMMESA and was
exclusively allocated to finance major maintenance activities
subject to approval by the Secretariat of Electric
Energy.
Technology
and scale
Maintenance
remuneration
(Pesos/MWh)
Gas turbine units
with power (P) < 50 Mw
45.1
Gas turbine units
with power (P) > 50 Mw
45.1
Steam turbine units
with power (P) = 100 Mw
45.1
Steam turbine units
with power (P) > 100 Mw
45.1
Combined cycle
units with power (P) = 150 Mw
39.5
Combined cycle
units with power (P) > 150 Mw
39.5
Hydroelectric units
with power (P) = 50 Mw
16.0
Hydroelectric units
with power (P) 50 to 120 Mw
16.0
Hydroelectric units
with power (P) 120 Mw to 300 Mw
16.0
Hydroelectric units
with power (P) > 300 Mw
10.0
Internal combustion
motors
45.1
Wind
farms
-
Solar photovoltaic
power plants
-
Biomass and
biogas—solid urban waste
-
Pursuant to
Resolution No. 482 and Resolution No. 22, the non-recurring
maintenance remuneration was calculated taking into consideration
(i) the accumulated energy generated in the preceding year and (ii)
the number of times that the applicable units starts as per the
request of CAMMESA.
(5)
“Production” and “Operational Efficiency”
Incentives
The incentive
scheme consisted of an increase in the variable costs remuneration,
upon compliance with certain conditions.
The
“Production” incentive consisted of an increase of 15%
or 10% in the variable costs remuneration of thermal units
operating with liquid fuels or coal, respectively, when their
aggregate production in the calendar year exceeded 25% to 50%,
respectively, of their production capacity with liquid fuel or
coal, as applicable.
The
“Operational Efficiency” incentive consisted of an
additional remuneration equal to the variable costs remuneration
and corresponds to the difference in percentage terms between
actual consumption and reference consumption fixed for each type of
technology unit and fuel. These values were compared on a quarterly
basis. Increased consumption does not affect the base remuneration
for variable costs.
The reference
values of specific consumption are as follows:
Technology
Natural
gas Kcal/kWh
Alternative
fuels (FO/GO/C) Kcal/kWh
Gas
turbine
2,400
2,600
Steam
turbine
2,600
2,600
Internal combustion
motors
2,150
2,300
Combined cycles (GT
> 180 MW)
1,680
1,820
Other combined
cycles
1,880
2,000
(6) FONINVEMEM
2015-2019 Funds
Pursuant to the
“Acuerdo para la Gestión y Operación de Proyectos,
Aumento de la Disponibilidad de Generación Térmica y
Adaptación de la Remuneración de la Generación
2015-2018” (the “2015-2018 Generators
Agreement”), Resolution No. 482 included a specific
contribution referred to as “Funds for FONINVEMEM
2015-2018’s Investments” to be allocated to the
execution of works under such framework. The FONINVEMEM 2015-2018
Funds will be allocated to generators with projects approved by the
Secretariat of Electric Energy and will automatically and
retroactively be distributed by CAMMESA upon the execution of the
related supply and construction contracts. Pursuant to Resolution
SE No. 482, the FONINVEMEM 2015-2018 Funds do not vest rights for
the generator and may be reallocated by the Secretariat of Electric
Energy in the event of failures to comply with the supply or
construction contracts, with no claim rights
whatsoever.
129
The following table
shows a detail of the FONINVEMEM 2015-2018 Funds:
Technology
and scale
Funds
for investments 2015-2018
(Pesos/MWh)
Gas turbine units
with power (P) = 50 Mw (small)
15.8
Gas turbine units
with power (P) > 50 Mw (large)
15.8
Steam turbine units
with power (P) = 100 Mw (small)
15.8
Steam turbine units
with power (P) > 100 Mw (large)
15.8
Combined cycle
units with power (P) = 150 Mw (small)
15.8
Combined cycle
units with power (P) > 150 Mw (large)
15.8
Hydroelectric units
with power (P) = 50 Mw (renewable)
6.3
Hydroelectric units
with power (P) 50 to 120 Mw (small)
6.3
Hydroelectric units
with power (P) 120 Mw to 300 Mw (medium)
6.3
Hydroelectric units
with power (P) > 300 Mw (large)
6.3
Internal combustion
motors
15.8
Wind
farms
-
Solar photovoltaic
power plants
-
Biomass and
biogas—solid urban waste
-
(7) FONINVEMEM
2015-2018 Direct Remuneration
The FONINVEMEM
2015-2018 Direct Remuneration consisted of an additional
remuneration to units being installed within the framework of
FONINVEMEM 2015-2018 and is equal to 50% of the generators’
direct additional remuneration. This remuneration will start to be
paid from the commercial launch date of the unit for up to ten
years since such date.
Resolution No. 281-E/17: The Renewable Energy Term Market in
Argentina
On August 22, 2017,
the Ministry of Energy and Mining published Resolution No. 281-E/17
(“Resolution No. 281”) for the Renewable Energy Term
Market (private PPAs between generators and Large Users,
self-generation, co-generation and traders).
Resolution No. 281
seeks to promote and encourage a dynamic participation in the term
market and to foster the increase of private agreements between the
WEM’s agents and participants. Its aim is to provide a
feasible alternative for the purchase of energy to tenders by
CAMMESA.
Resolution No. 281
makes it possible for Large Users to comply with their renewable
energy consumption quotas through either (i) the joint purchase
system (i.e., through
CAMMESA), (ii) the execution of a private PPA or (iii) the
development of a self-generation project or a co-generation
project.
As a general
principle, PPAs executed in the term market (outside the joint
purchase system) may be freely negotiated between the parties with
respect to term, priorities, prices and other contractual
conditions.
Section 7 of
Resolution No. 281 provides that, in the case of curtailment, the
following power generation plants will have (i) equal dispatch
priority between them and (ii) first dispatch priority over
renewable generation projects operating in the term market without
an assigned dispatch priority:
1.
run-of-the-river
hydropower plants and renewable power plants having commenced
commercial operation prior to January 1, 2017;
2.
power plants
supplying energy pursuant to PPAs executed in connection with
Resolutions No. 712/2009 or No. 108/2011 having commenced
commercial operation prior to January 1, 2017;
3.
renewable power
plants supplying energy pursuant to PPAs executed with CAMMESA
through the RenovAr Program (e.g., the La Castellana Project and the
Achiras Project);
4.
renewable power
plants supplying energy pursuant to Resolution MINEM No. 202/2016;
and
5.
renewable power
plants operating in the term market (e.g., private PPAs) which have obtained
dispatch priority in accordance with the regime established
pursuant to Resolution No. 281.
Only the expansion
of the abovementioned projects need to file the request for
dispatch priority with CAMMESA, who will then evaluate submissions
on a quarterly basis and prepare a list of granted dispatch
priorities in interconnection points or transmission corridors with
restrictions to the transmission capacity.
130
Evolution of Supply and Demand in the Argentine Energy Sector
Structure
Structural Characteristics of the Energy Sector
The evolution of
the demand and the energy consumption in Argentina is correlated
with the evolution of the GDP, which implies that the higher the
economic growth, the higher the energy demand. For example, the
historical growth of energy consumption was of 2.89% annually over
the past 60 years, with an annual average of 2.9% since 2002,
although between 2002 and 2019 the economic growth rose to an
average of 3.73% annually.
The growth of
energy consumption during the last decade is similar to the
historical average, since it was not driven by a large increase in
consumption of the industrial sector, but predominantly by that of
the residential and commercial sectors, as noted in the consumption
parameters of gas, gasoline and especially electric
power.
The elasticity of
energy consumption in relation to the GDP during the last two
decades is lower than in earlier decades, so restrictions on energy
demand or the need for energy imports, if domestic supply is
insufficient, could increase if the industrial sector expands in
the future.
The restrictions on
the supply of certain energy products such as natural gas in the
last cycle of high economic growth and the relatively moderate
growth in energy demand in broad terms, are based primarily on
problems related to the supply of these energy products and also on
a significant growth of the demand of the residential and
commercial segments in a context of weak industrial activity with
few new expansions of greater productive capacity for large energy
consumers.
The structure of
electric energy consumption in Argentina is strongly dependent on
hydrocarbons, at approximately 61.06% in 2019. This percentage has
decreased slightly in the last four years from 63.8% in 2018,
64.87% in 2017 and 65.96% in 2016.
Large amounts of
natural gas, liquefied natural gas and gas oil are imported in
order to try to satisfy demand. During 2019 such imports decreased,
mainly due to an increase in the domestic production of natural
gas. However, demand for natural gas is usually unsatisfied during
the winter in the industrial segment and in the thermoelectric
generation segment. In certain circumstances, the Argentine
Government has imposed restrictions on consumption because of the
lack of adequate supply of gas to supply other segments that do not
have the capacity to replace natural gas with other fuels (among
others, propane, butane and fuel).
Although current
energy consumption in Argentina signals a dependence on
hydrocarbons, we believe that Argentina is currently undergoing an
important shift to a more modern and diversified energy mix arising
from the inclusion of renewable energy into the mix, in accordance
with the requirements set forth in Law No. 27,191 of
2015.
Source: Secretariat
of Energy
131
As a summary, the
following characteristics are specific to energy demand and supply
in Argentina:
●
Atypical structure,
with a bias towards oil and gas, which is a characteristic of
countries with large reserves of hydrocarbons such as Middle
Eastern countries, Russia, African oil-producing countries and
Venezuela.
●
53.24% of the
energy supply is dependent on natural gas, which is higher than in
most countries that have a large surplus production of natural
gas.
●
Stagnation in the
local energy supply since investments in recent years in the oil
and gas sector have been insufficient to effectively increase
domestic supply enough to satisfy the demand.
●
Enhanced demand due
to the abnormally low prices of gas and electric power in the
residential and commercial sectors during the 2012-2016 period,
which caused the growth rate of residential energy consumption to
be higher than the usual trend, which was partially reverted during
the 2017-2019 period.
Structure of the Electric Power Supply in Argentina
The nominal
installed capacity in Argentina was reported by CAMMESA to be
39,704 MW as of December 31, 2019. However, the operational
electric power generation capacity effectively available at any
given time could be estimated at around 32,244 MW as an average of
2019. Availability estimated by CAMMESA for thermal units is
approximately 80% due to the lack of proper fuel supply,
difficulties in achieving nominal efficiency and unavailability of
several generating units under maintenance. Moreover, the
generation supply depends heavily on liquid fuel use that
diminishes capacity availability and there are certain transmission
restrictions.
Over recent
decades, the Argentine government (spanning administrations with
different ideological orientation) has favored the deployment of
thermoelectric generating units. One reason for this is that these
units require smaller capital investments and take less time to
deploy compared to other types of generating units. The increased
dependency on hydrocarbons for these new power plants was not
considered a disadvantage, since the required fuels have always
been produced in Argentina and the production has always been
predictable and growing. However, the constant deployment of
thermoelectric generation has increased the demand for fossil
fuels, particularly those based on natural gas, and has led to
shortages and the imposition of certain restrictions on the
provision to thermal generators of locally produced
fuels.
During the 1990s,
private sector investors also concentrated their investments in
thermoelectric generation, almost without exception. The economic
crisis of 2002 accelerated even more the tendency to invest in
thermoelectric plants, given their lower cost of startup. After the
crisis of 2002, investments in the electrical sector continued
mainly with state intervention, expanding the installed capacity
based on thermoelectric generation but without meeting the
increasing demand. The financial constraints of the Argentine
Government in the last decades, the high amount of capital needed
and the long periods necessary to develop the projects have
negatively impacted on the decision of the Argentine Government to
invest and deploy hydroelectric and nuclear power plants. In
addition, the recurrent fiscal crises of the recent past have
forced the Argentine Government to delay or cancel major projects
that would have increased and diversified Argentina’s
generation capacity.
Nominal Power Generation Capacity
Nominal power
generation capacity is dominated by thermoelectric generation. A
considerable number of thermoelectric power units experience high
levels of unavailability, especially during the winter, due to fuel
provision restrictions.
In the summer of
2018, the maximum power consumed reached 26,320 MW on February 8.
The local power availability amounted to 27,123 MW plus a reduced spinning reserve (which
consists of a pool of rotating machines that could dispatch 1,895
MW, if needed).
There are three
main centers of electric power supply in Argentina:
●
Buenos
Aires-Greater Buenos Aires-Coastline
●
Comahue
●
Northeast
Argentina
Electric power
supply and demand were linked in the past by a radial system to
Buenos Aires. This system presented risks of instability in various
regions whose demand had grown but had insufficient local
generation (e.g., Cuyo,
Northwest Argentina in Salta, Central and Greater Buenos Aires).
For this reason, the Argentine Government changed the system and
now is using a peripheral system. The Argentine Government has made
very large investments in a substantial expansion of electric
transmission, totaling 500 kV. Such investments include laying
peripheral high voltage lines totaling 550 kV (that may not have an
immediate economic impact but will have positive effects on the
system in the long-term) in the following locations:
132
●
Northeast and
northwest Argentina
●
Comahue-Cuyo
●
Southern
Patagonia
The following chart
shows the development of electric power generation by type of
source:
Source:
CAMMESA
The following chart
shows the development of electric power generation capacity by type
of source:
Source:
CAMMESA
133
Renewable Energy Generation in Argentina
Certain regions of
Argentina benefit from levels of wind or sunlight that provide a
strong potential for renewable energy generation. The maps below
show the mean wind speed at 80 meters of elevation and the average
global horizontal irradiance in Argentina,
respectively.
Average
Wind Speeds
Source: We
understand that you will inform the average exchange -
3Tier
Average
Global Horizontal Solar Irradiance (GHI)
Source: Vaisala -
3Tier
The Structure of Electric Power Demand in Argentina
Electric power
demand depends to a significant extent on economic and political
conditions prevailing from time to time in Argentina, as well as
seasonal factors. In general, the demand for electric power varies
depending on the performance of the Argentine economy, as
businesses and individuals generally consume more energy and are
better able to pay their bills during periods of economic stability
or growth. As a result, electric power demand is affected by
Argentine Governmental actions concerning the economy, including
with respect to inflation, interest rates, price controls, foreign
exchange controls, taxes and energy tariffs.
134
The following chart
shows the demand for electric power in 2019 by customer
type:
Source:
CAMMESA
The following chart
shows the evolution of the demand for electric power over the last
several years:
Source:
CAMMESA
135
The following chart
shows the power demand from November 2006 to February
2019:
Source:
CAMMESA
The correlation
between the evolution of GDP and electric power demand is strong,
although when there is a strong reduction of the GDP, electric
power demand falls relatively little. It should also be noted that,
in an environment of low economic growth, electric power demand
grows at rates higher than the GDP, as shown below:
Source: CAMMESA,
INDEC
CAMMESA divides
Argentina into regions that have similar characteristics in terms
of demand, socio-economic characteristics and electric subsystems.
Such regions are: (i) the City of Buenos Aires and its suburbs,
(ii) the Province of Buenos Aires, (iii) Santa Fe and Northwest
Buenos Aires, (iv) the Center, (v) the Northwest, (vi) Cuyo, (vii)
the Northeast, (viii) Comahue and (ix) Patagonia.
Demand is
significantly concentrated in the areas of the City of Buenos
Aires, the Province of Buenos Aires, Santa Fe and Northwest Buenos
Aires, which comprises approximately 61 % of the demand.
Changes to the concentration of the demand structure are not
substantial over the period of measurement.
136
The chart below
shows electricity demand by region for 2019:
Source:
CAMMESA
Seasonality also
has a significant impact on the demand for electric power, with
electric power consumption peaks in summer and winter. The impact
of seasonal changes in demand is registered primarily among
residential and small commercial customers. The seasonal changes in
demand are attributable to the impact of various climatological
factors, including weather and the amount of daylight time, on the
usage of lights, heating systems and air conditioners.
The impact of
seasonality on industrial demand for electric power is less
pronounced than on the residential and commercial sectors for
several reasons. First, different types of industrial activity by
their nature have different seasonal peaks, such that the effect of
climate factors on them is more varied. Second, industrial activity
levels tend to be more significantly affected by the economy, and
with different intensity levels depending on the industrial
sector.
Energy demand
throughout the hours of each month grew in 2006, reflecting a sharp
increase in industrial activity and mass consumption in the
economy. Such demand declined due to restrictions on industrial
power consumption in the winter of 2007, and the international
crisis at the end of 2008 and early 2009. However, such decline in
consumption reversed between mid-2011 and 2016 due to a growth in
demand. Between 2016 and 2018, electricity demand remained stable,
and decreased in 2019 due to a general decrease of the economic
activity in Argentina.
A direct annual
analysis—as opposed to a twelve-month moving average, which
is useful to show inertial trend changes (i.e., the underlying trend that
includes only a few months and therefore better shows gradual
changes to stability)—shows growth rates in energy demand
during 2010 and early 2011, with an abrupt slowdown (including
negative values) in 2012 and, after the winter of 2012, an increase
in energy demand during 2013. In December 2013 and January 2014,
there was exponential growth in demand by residential and
commercial consumers due to the heat wave that hit the central
region of Argentina during those periods. In December 2014, the
demand growth trend was reversed with a sharp drop in demand with
the return of normal temperatures.
The demand for
electric power in the residential sector resumed a high growth
trend in 2015. In 2015, residential consumers demand increased
4.5%, despite moderate increases in rates to a small portion of
consumers. During 2017, 2018 and 2019, residential demand decreased
2.03%, increased 1.99%, and decreased 2.80%, respectively, as
compared to the same period the previous year, in this last case,
due to a GRP drop of 2.20% in 2019.
137
During 2017, 2018
and 2019 total demand of electricity of WEM agents decreased 0.6%,
increased 0.40% and decreased 3.1%, respectively, as compared to
the same period the previous year, while the GDP increased 2.7%,
decreased 2.5%, and decreased 2.20%, respectively.
In addition to the
growth of energy demand during the 2011-2016, which placed pressure
on the supply of fuels to thermal plants, demand also affects the
availability of generation plants to meet peak demand for power at
nighttime during the winter or during the afternoon in the
summer.
To minimize the
risks of sudden interruptions to the residential and commercial
segment in 2013, there were scheduled supply interruptions in
December 2013 and January 2014, which was similar to what occurred
in the winter of 2010 and 2011, but did not reach the extraordinary
levels of the winter of 2007. No interruptions were necessary in
2012. During the summer and winter of 2015, it was not necessary to
apply restrictions to industrial consumers to supply residential
electric power demand, although there were some forced
interruptions due to certain problems with electrical distribution.
However, during February 2016, certain restrictions to consumption
of an approximate amount of 1,000 MW were applied by CAMMESA and
the Ministry of Energy and Mining due to the above average
temperatures recorded in February 2016.
During January and
February 2016 there were successive high peaks of consumption of
electric power for a business day, after two years of not
surpassing the previous record reached in January 23, 2014. A peak
of consumption of 25,380 MW was reached on February 12, 2016, but
restrictions were implemented to the demand of the distributors of
Buenos Aires, Greater Buenos Aires and La Plata. A new peak of
consumption of 26,320 MW was reached on February 8, 2018, without
major demand restrictions.
In addition, on
January 29, 2019 a new electric energy consumption record was
reached with a total of 544,4 GWh consumed, but no restrictions on
demand, as the ones mentioned above, were implemented.
Power
and energy consumption records
Previous
records
New
records
Variation
(%)
Variation
(MW)
Peak
of electric power capacity (MW)
Working
day
Feb 24,
2017
25,628
Feb 8,
2018
26,320
2.7
692
Saturday
Feb 25,
2017
22,390
Dec 30,
2017
22,543
0.7
153
Sunday
Jan,
2015
21,024
Dec 27,
2015
21,973
4.5
949
Energy
(GWh)
Variation
(%)
Variation
(GWh)
Working
day
Feb 8,
2018
543.0
Jan 29,
2019
544.4
0.3
1.4
Saturday
Jan 18,
2014
477.9
Dec 30,
2017
478.4
0.1
0.5
Sunday
Dec 27,
2015
432.9
Feb 26,
2017
437.6
1.1
4.7
Source:
CAMMESA
The peak demand of
power of February 8, 2018 was covered with a thermal supply of
17,023 MW, a hydroelectric supply of 8,335 MW, nuclear supply of
912 MW, and renewable energy supply of 50 MW.
As with the case of
natural gas, the strong seasonality of electric power demand in
Argentina—both in terms of energy and power—influences
the needs for investment since investments are made to meet the
maximum peak winter demand, which generates significant
surpluses at other times of
the year that cause lower costs and competition in those periods.
The maximum demand for electric power is during the afternoon or
evening hours in summer. In the case of winter, the maximum demand
is generally during the evening, due to the high use of electric
heaters that are preferred by consumers because of the differential
cost and simplicity in comparison with natural gas
heaters.
It is important to
note that not all the generation capacity is actually available at
times of peak demand. Both in summer and especially in winter,
there is an effective generation capacity to meet the demand. The
effective capacity available (which means the capacity actually
available) is significantly lower than the nominal installed
capacity.
Despite all
efforts, it is unlikely for there to be complete nominal capacity
available at any given time. Instead, the power generation capacity
industry generally anticipates and takes into account a percentage
of unavailability that can range between approximately 20% and
25%.
138
This critical
variable is central to the efforts made by CAMMESA and the
generators to invest in the proper maintenance of the units.
Although the unavailability factor over the long-term in the
thermal plants in Argentina has historically been approximately
30%, it fell below 20% for a period in the early 2000s. In general,
the unavailability factor of the hydroelectric plants in Argentina
is not significant, except for the existing damage in the turbo
groups of Yacyretá. In the nuclear sector, historical
unavailability has been important because of the periodic
maintenance that units have to go through. In particular, the
Embalse nuclear plant commenced, starting in January 1, 2016, a
two-year period in which it was not in operation. Additionally, the
Atucha II nuclear plant, which was generating energy on a trial
basis since 2015, received its commercial authorization during the
first half of 2016, adding a nominal capacity of 745 MW to the
SADI.
Energy generation
may be influenced by the physical and economic capacity to provide
fuel to thermoelectric generators. In recent years and until 2014
fuel prices increased the generating cost, although the fall in oil
and fuel prices significantly reduced such cost in 2015 and 2016.
The lack of local production of natural gas led to an increased use
of fuel oil and gas oil in those generating plants with TS and TG
units, in addition to imports of gas and LNG. Most of the TS units
are shipped with fuel oil, and only the Central Térmica San
Nicolas can burn coal, in addition to fuel oil or natural gas. TS
or TG groups that operate in combined-cycle are included in this
area in previous tables.
Fuel availability
is a factor that contributes to technical unavailability. The costs
and logistics for importing and supplying fuel oil, gas oil, and
coal instead of natural gas are key to the future availability of
thermal units, and will continue to be important if the current
international conditions are maintained. Since 2007 the limited
supply of natural gas in winter caused a large increase in
consumption of fuel oil and gas oil, with record prices in the
first half of 2008. Prices of liquid fuels decreased in 2009 due to
the international crisis and then increased between 2010 and
mid-2014 from the third quarter of 2014 until the first quarter of
2016, liquid fuel prices decreased sharply, with moderate increases
since then (while remaining lower than the first half of
2014).
Fuel Consumption for Commercial Electric Power
Generation
Source: CAMMESA,
Company analysis
After the winter of
2014, there was a sharp drop in international oil prices that led
to reduced thermoelectric generation costs. Due to the shortage of
gas, there was an increase in the amount of alternative fuels used
to generate electric power, which since 2016, has been almost
completely reverted, as shown in the chart above, mainly due to
higher natural gas production from non-conventional oil fields.
Thermoelectric generation is expected to continue to make up a
larger portion of the energy mix in the coming six years as a
result of the 2.9 GW of new electric generation
capacity.
The price for
generation of CAMMESA constitutes an effective price only to
certain segments of the electric power market, especially
industrial consumers, with the exception of those that are
commercially supplied by electric power distributors.
139
Anti-Money Laundering
Anti-Money Laundering/Combating the Financing of Terrorism
(“AML/CFT”)
The concept of
money laundering is generally used to denote transactions intended
to introduce criminal proceeds into the institutional system and
thus to transform profits from illegal activities into assets of a
seemingly legitimate origin.
Terrorist financing
is the act of providing funds for terrorist activities. This may
involve funds raised from legitimate sources, such as personal
donations and profits from businesses and charitable organizations,
as well as from criminal sources, such as drug trade, weapons and
other goods smuggling, fraud, kidnapping and
extortion.
On April 13,2000, the Argentine Congress passed Law No. 25,246, as
amended, including Laws No. 26,087; 26,119; 26,268, 26,683,
26,734, the Argentine Capital Markets Law and 26,860 (the
“Anti-Money Laundering Law”), which defines money
laundering as a type of crime. In addition, the law, which
supersedes several sections of the Argentine criminal code
established severe penalties for anyone participating in any such
criminal activity and created the UIF, establishing an
administrative criminal system. Following the enactment of Law
No. 27,260 and its complementary Decree No. 895/2016, the
UIF is now under the supervision of the Ministry of Economy and
Public Finance (currently the Ministry of Treasury).
On June 1,2011, the Argentine Congress passed Law No. 26,683, amending
several sections of the Argentine Criminal Code and Law
No. 25,246. This law included money laundering as an
autonomous crime separating it from the crime of concealment. It
also modified the integration of the UIF, establishing more
restrictive rules for the appointment of its agents; expanded the
UIF’s powers by allowing its agents to request reports from
both private and public entities; and provided that the UIF may
seize unlawfully obtained funds and property without a court
order.
The main purpose of
the Anti-Money Laundering Law is to prevent money laundering. In
line with internationally accepted practice, it does not attribute
responsibility for controlling these criminal transactions only to
government agencies, but also assigns certain information-gathering
duties to diverse private sector entities such as banks,
stockbrokers, brokerage houses and insurance
companies.
On
December 22, 2011, the Argentine Congress passed Law
No. 26,734 (the “Countering Financing of Terrorism
Law”), which includes terrorism financing as a
crime.
Below is a summary
of certain provisions regarding the provisions of the AML/CFT
regime set forth by the Anti-Money Laundering and Combating
Financing of Terrorism Laws, as amended and supplemented by other
rules and regulations, including regulations issued by the UIF, the
Central Bank, the CNV and other regulatory entities. Investors are
advised to consult their own legal counsel and to read the
Anti-Money Laundering and Combating Financing of Terrorism Laws and
its statutory regulations. The UIF is the agency responsible for
the analysis, treatment and transmission of information, with the
aim of preventing money laundering resulting from different crimes
and the financing of terrorism. The Argentine Criminal Code defines
money laundering as a crime committed by any person who exchanges,
transfers, manages, sells, levies, disguises or in any other way
commercializes goods obtained through a crime, with the possible
consequence that the original assets or the substitute thereof
appear to come from a lawful source, provided that their value
exceeds Ps.300,000, whether such amount results from one or more
related transactions. The penalties established are the
following:
(i) imprisonment
for three (3) to ten (10) years and fines of two
(2) to ten (10) times the amount of the
transaction;
(ii) the penalty
provided in section (i) shall be increased by one third of the
maximum and a half of the minimum, when (a) the person carries
out the act on a regular basis or as a member of an association or
gang organized with the aim of continuously committing acts of a
similar nature, and (b) the person is a governmental officer
who carries out the act in the course of his duties;
(iii) if the value
of the assets does not exceed Ps.300,000, the penalty shall be
imprisonment for six (6) months to three
(3) years.
The Argentine
Criminal Code also punishes any person who receives money or other
assets from a criminal source with the purpose of applying them to
a transaction, making them appear to be from a lawful
source.
Section 306 of
the Argentine Criminal Code (as amended by Law No. 26,734)
defines terrorism financing as a crime committed by any person who,
directly or indirectly, collects or provides property or money,
with the intention that they be used, or knowing that they will be
used, in whole or in part: (a) to finance the commission of
the crime established in Section 41 quinquies; (b) by an
organization that commits or attempts to commit the crimes
established in Section 41 quinquies; (c) by a person who
commits, attempts to commit or participates in any way in the
commission of the crimes established in Section 41 quinquies.
The penalty is imprisonment for five to fifteen years and fines
from two to ten times the amount of the transaction.
140
In line with
internationally accepted practices, the Anti-Money Laundering Law
does not merely assign responsibility for controlling these
criminal transactions to government agencies, but also assigns
certain duties to various private sector entities such as banks,
stockbrokers, brokerage houses and insurance companies, which
become legally bound reporting parties. These duties basically
consist of information-capturing functions.
According to the
Anti-Money Laundering Law, the following persons, among others, are
subject to report to the UIF: (i) financial institutions and
insurance companies; (ii) exchange agencies and individuals or
legal entities authorized by the Argentine Central Bank to operate
in the purchase and sale of foreign currency in the form of cash or
checks drawn in foreign currency or by means of credit or debit
cards or in the transfer of funds within Argentina or abroad;
(iii) broker-dealers, companies managing investment funds,
over-the-counter market agents, and intermediaries engaged in the
purchase, lease, or borrowing of securities; (iv) armored
transportation services companies and companies or concessionaires
rendering postal services that carry out foreign currency transfers
or remittance of different types of currency or notes;
(v) governmental organizations, such as the Central Bank, the
Argentine Tax Authority, the National Superintendency of Insurance
(Superintendencia de Seguros de la
Nación), the CNV and the IGJ; (vi) professionals
in economics sciences and notaries public; and
(vii) individuals and legal entities acting as trustees of any
kind and individuals or legal entities related directly or
indirectly to trust accounts, trustees and trustors under trust
agreements.
Individuals and
entities subject to the Anti-Money Laundering Law must comply with
some duties that include: (i) obtaining documentation from
their customers that irrefutably evidences their identity, legal
status, domicile, and other data stipulated in each case (know your
customer policy); (ii) reporting any suspicious event or
transaction (which according to the customary practices of the
field involved, as well as to the experience and competence of the
parties who have the duty to inform, are those transactions
attempted or consummated that, having been previously identified as
unusual transactions by the legally bound reporting party, or have
no economic or legal justification or are unusually or
unjustifiably complex, whether performed on a single occasion or
repeatedly (regardless its amount); and (iii) abstaining from
disclosing to customers or third parties any act performed in
compliance with the Anti-Money Laundering Law. Within the framework
of analysis of a suspicious transaction report, the aforementioned
individuals and entities cannot refrain from disclosing to the UIF
any information required from it by claiming that such information
is subject to bank, stock market or professional secret, or legal
or contractual confidentiality agreements. The AFIP shall only
disclose to UIF the information in its possession when the
suspicious transaction report has been made by such entity and
refers to the individuals or entities involved directly with the
reported transaction. In all other cases the UIF shall request that
the federal judge holding authority in a criminal matter order the
AFIP to disclose the information in its possession.
Argentine financial
institutions must comply with all applicable anti-money laundering
regulations as provided by the Central Bank, the UIF, and, if
applicable, the CNV. In this regard, in accordance with Resolution
No. 229/2014 of the UIF, both the Central Bank and the CNV are
considered “Specific Control Organs.” In such capacity,
they must cooperate with the UIF in the evaluation of the
compliance with the anti–money laundering proceedings by the
legally bound reporting parties subject to their control. In that
respect, they are entitled to supervise, monitor and inspect such
entities, and if necessary, to implement certain corrective
measures and actions.
On January 11,2017, the UIF published Resolution No. 4/17 (“Resolution
4/17”), which allows the legally bound reporting parties
detailed in subsections 1, 4 and 5 of section 20 of Law
No. 25,246, as amended (i.e., financial entities subject to
the FIL, brokers and brokerage firms, companies managing common
investment funds, agents of the over-the-counter market,
intermediaries in the purchase or leasing of securities affiliated
with stock exchange entities with or without associated markets,
and intermediary agents registered on forwards or option markets),
to apply special due diligence identification measures to foreign
and national investors (which must comply with the requirements
established by Resolution 4/17 to qualify) to Argentina when
at-distance opening special investment accounts. The special due
diligence regime shall not exempt the legally bound reporting
parties of Resolution 4/17 from monitoring and supervising the
transactions performed during the course of the commercial
relationship, according to a risk-based approach.
Resolution 4/17
also regulates the due diligence measures between legally bound
financial reporting parties. It requires that when the opening of
the accounts is requested by settlement and clearing agents, or the
“ALyCs,” the local financial entity will have complied
with current anti-money laundering and counter terrorist financing
regulations after performing due diligence with respect to the
ALyCs. The ALyCs shall be responsible for performing due diligence
with respect to its customers. Resolution 4/17 expressly
establishes that, even though the financial entities are not
responsible for performing due diligence with respect to the
ALyCs’ customers, they are not exempt from monitoring and
supervising the transactions performed by their clients (the ALyCs)
during the course of the commercial relationship, according to a
risk-based approach.
141
The Central Bank
and the CNV must also comply with anti-money laundering regulations
set forth by the UIF, including reporting suspicious transactions.
In particular, the Central Bank must comply with UIF Resolution
No. 12/2011, as supplemented by, among other resolutions,
Resolutions No. 1/2012 and No 92/2012, which, among other
things, sets forth the Central Bank’s obligation to evaluate
the anti-money laundering controls implemented by Argentine
financial institutions (with the limitation of access to the
reports and records of suspicious operations, which are, as
explained above, confidential and subject only to the UIF’s
supervision), and lists examples of what circumstances should be
specifically considered in order to establish whether a particular
transaction may be considered unusual and eventually qualified as
suspicious.
Central Bank
regulations require Argentine banks to take certain minimum
precautions to prevent money laundering and terrorism financing.
Each institution must have an anti-money laundering committee,
formed by a member of the Board of Directors, the officer
responsible for AML/CFT matters (Oficial de Cumplimiento) and an
upper-level officer for financial intermediation and foreign
exchange matters (i.e.,
with sufficient experience and knowledge on such matters and
decision-making powers). Additionally, as mentioned, each financial
institution must appoint a member of the Board of Directors as the
person responsible for money laundering prevention, in charge of
centralizing any information the Central Bank may require on its
own initiative or at the request of any competent authority and
reporting any suspicious transactions to the UIF. Notwithstanding
the officer’s role as a liaison with the UIF, all board
members have personal, joint, several and unlimited responsibility
for the entity’s compliance with its reporting duties with
the UIF. In addition, this officer will be responsible for the
implementation, tracking and control of internal procedures to
ensure compliance with the regulations in financial institutions
and its subsidiaries.
In this regard, the
guidelines issued by the Central Bank to detect unusual, suspicious
or terrorist financing money laundering transactions require
reporting suspicious transactions, based on the legally bound
reporting party’s resources and the type of analysis carried
out. In particular, the following circumstances, among others,
should be considered: (a) the amounts, types, frequency and
nature of the operations carried out by the clients that are not
related to their economic background and activity;
(b) unusually high amounts, the complexity and the unusual
modalities of the operations carried out by the clients;
(c) when clients refuse to provide data or documents required
by the entities or when the information supplied by them is
detected to be altered; (d) when the client does not comply
with the applicable rules in the matter; (e) when the client
exhibits an unusual disregard for the risks assumed and/or the
costs of the transactions are inconsistent with the economic
profile of the transaction; (f) when the transactions involve
domains, jurisdictions, territories or associated states that are
considered “cooperators for the purpose of fiscal
transparency” according to the provisions of Article 1 of
Decree 589/2013, (g) when several different entities report the
same address, or when the same persons represent or are authorized
signatories of several different entities, without any economic or
legal reason, with special consideration for any of the companies
or organizations included in the list contained in section 2(b) of
Decree No. 589/2013 whose main activity involved offshore
transactions; (h) when the transactions involved are of
similar nature, amount, modality or simultaneity, implying that
they could have been fragmented into several small-volume
transactions, in order to evade the procedures for detecting and/or
reporting operations; (i) continued gains or losses on
repeated transactions between the same parties; or (j) when
there is evidence of the illegal origin, management or destination
of funds used in operations, for which the legally bound reporting
party does not have an explanation.
Furthermore,
pursuant to Communication “A” 5738 (as amended and
supplemented, including, without limitation, by Communication
“A” 6060 and Communication “A” 6399) of the
Central Bank, Argentine financial institutions must comply with
certain additional “know your customer policies.” In
this sense, pursuant to such Communication, under no circumstance
may new commercial relationships be initiated if the “know
your customer policies” and the risk management legal
standards have not been complied with. In addition, in respect of
the existing clients: if the “know your customer
policies” could not be complied with, the Argentine financial
institution must carry out an analysis based on risk, in order to
assess the continuation of operations with such client. The
criteria and procedure must be described in the financial
entity’s risk management internal handbook regarding money
laundering regulations. If the Argentine financial institution must
discontinue operations with such client, it must do it in
accordance with Central Bank’s regulations for each type of
product. Furthermore, pursuant to this Communication, Argentine
financial entities must keep the documentation related to the
discontinuance for 10 years and include in their prevention manuals
the detailed procedures to initiate and discontinue operations with
clients in accordance with the above-mentioned additional
“know your customer policies” implemented.
142
The CNV Rules
include a specific chapter regarding “Prevention of Money
Laundering and the Financing of Terrorism” and state that the
persons set forth therein (Negotiation Agents, Clearing and
Settlement Agents (which are stockbrokers), Distribution and
Placement Agents, Manager and Custody Agents of Collective
Investment Funds, Brokerage Agents, Collective Depositary Agents,
issuers with respect to capital contributions, irrevocable capital
contributions for future capital increases or significant loans
that have been made in its benefit, specifically with respect to
the identity of contributors and/or creditors and the origin and
legality of the funds so contributed or loaned) are to be
considered legally bound to report under the Anti-Money Laundering
Law, and therefore must comply with all the laws and regulations in
force in connection with anti-money laundering and terrorism
financing, including resolutions issued by the UIF, presidential
decrees referring to resolutions issued by the United Nations
Security Council in connection with the fight against terrorism and
the resolutions (and its annexes) issued by the Ministry of Foreign
Affairs. In addition, CNV Rules impose certain restrictions in
connection with payment arrangements (limiting, among other things,
the cash amount that the entities set forth therein could receive
or pay per day and per client, to Ps.1,000) and impose certain
reporting obligations.
In addition, the
CNV Rules establish that the above-mentioned entities shall only be
able to carry out any transactions contemplated under the public
offering system, when such transactions are carried out or ordered
by persons organized, domiciled or resident in dominions,
jurisdictions, territories or associated States included in the
cooperating countries list contained in Executive Decree
No. 589/2013, section 2(b). When such persons are not included
in such list and in their home jurisdiction qualify as registered
intermediaries in an entity under control and supervision of a body
that carries out similar functions to those carried out by the CNV,
they will only be allowed to carry out such transactions if they
provide evidence indicating that the relevant securities and
exchange commission in their home jurisdiction has signed a
memorandum of understanding for cooperation and exchange of
information with the CNV.
Regarding terrorism
financing, Decree No. 918/2012 established the procedures for
the freezing of assets linked to terrorism financing (including
automatic freezing), and the creation and maintenance procedures
(including the inclusion and removal of suspected persons) for
registries created in accordance with the relevant United Nations
Security Council’s resolutions.
On
February 17, 2016, the “National Coordination Program
for the Prevention of Asset Laundering and the Financing of
Terrorism” was created by Executive Decree No. 360/2016
as an instrument of the Ministry of Justice and Human Rights. This
Program was assigned the duty to reorganize, coordinate and
strengthen the national system for the prevention of money
laundering and the financing of terrorism, taking in consideration
the specific risks that might have an impact on Argentine territory
and the global demand for a more effective compliance with
international obligations and recommendations established under
United Nations Conventions and the standards of the Financial
Action Task Force (FATF). These duties will be performed and
implemented through a National Coordinator appointed for this
purpose. Also, applicable statutory rules were modified, and it was
established that the Ministry of Justice and Human Rights will be
the Argentine government’s central authority in charge of the
inter-institutional coordination among all public and private
agencies and entities with competent jurisdiction on this matter,
while the UIF will retain the ability to perform operating
coordination activities at the national, provincial and municipal
levels in relation to matters strictly inherent in its jurisdiction
as a financial intelligence agency.
Additionally,
through the enactment of Law No. 27,260 and its supplemental
Decree No. 895/2016, the UIF was granted the right to provide
information to other public entities who also have intelligence or
investigation rights, insofar as the sharing of this information
has been previously authorized by the president of the UIF as long
as there is reasonable, precise and serious evidence of the
commission of any of the crimes contemplated under the Anti-Money
Laundering Law. The entities receiving the communications of the
UIF providing this information will be subject to the
confidentiality obligations of Section 22 of the Anti-Money
Laundering Law, and will be subject to the criminal penalties of
such law if they breach their duty of confidentiality and reveal
secret information.
In June 2017, the
UIF published Resolution No. 30-E/17, which abrogated Resolution
121/2011 and set the new guidelines that financial and foreign
exchange entities must follow as legally bound financial reporting
parties under the Anti-Money Laundering Law, based on the revised
FATF recommendations of 2012, in order to adopt a risk-based
approach. Resolution No. 30-E/17, effective as of
September 15, 2017 (except for a few provisions, which are set
to become effective on March and June 2018), determines the minimum
compliance elements that must be included in a system for the
prevention of money laundering and terrorist financing, such as the
process of customer due diligence, training programs, operations
monitoring, reporting of suspicious operations and non-compliance
normative, among others.
Resolution
No. 30 provides that financial entities, such as us, are
required to take certain actions embracing a Risk-Based Approach,
aimed at identifying and assessing their respective risk exposure
to money laundering and terrorism financing, in respect of their
customers, countries and geographic areas, products and services,
operations or distribution channels, including without limitation,
reporting to the UIF the operations it considers suspicious of
Money Laundering / Financing of Terrorism within 15 calendar days,
as of the date on which the entity qualifies the transaction as
suspicious. Likewise, the reporting date may not exceed 150
calendar days as of the date of the suspected or attempted
operation. The term for the report of a suspicious operation of
financing of terrorism will be 48 hours, computed from the date of
the operation performed or attempted.
143
Recently, the
Resolution No. 21/2018 (“Resolution 21”) was
published which replaces the regime imposed by Resolution 229/2014
and amends the Resolution No. 140/2012 regarding publicly
offered financial trusts, their trustees, trustors and individuals
or legal entities directly or indirectly related to them, in order
to adjust to the recommendations of the FATF and implement a
risk-based approach. Resolution 21 is applicable to the parties
indicated in Section 20 of the Anti-Money Laundering Law,
subsection 4): Broker-dealers and stockbrokers, mutual fund
management companies, electronic open market agents, and all those
intermediaries in the purchase, lease or loan of securities that
operate under scope of stock exchanges with or without attached
markets; and subsection 5); the intermediary agents enrolled in the
markets, futures and options whatever their purpose, including the
liquidation and compensation agents, the negotiation agents and the
collective investment products management agents of mutual funds.
The legal entities referred to in subsection 22) of Section 20
of the Anti-Money Laundering Law that act as financial fiduciaries
whose fiduciary securities have authorization of public offering of
the CNV are also included under the scope of Resolution
21.
Under Resolution
21, the clients will be categorized according to the risk implied
(low, medium or high), which will allow for the application of
differentiated due diligence measures while permitting that
simplified due diligence measures are executed with respect to
clients and stockholders of foreign funds (to the extent they
comply with the applicable conditions of their country of origin),
thus easing the identification process without weakening the
prevention system. Within this framework, individuals are enabled
to implement reputable technological platforms that allow carrying
out long-distance procedures, without the need to file
documentation in person, without it affecting the fulfillment of
the applicable requirements.
In August 2018, by
means of Resolution 97/2018, the UIF approved the regulation for
the Central Bank’s collaboration duty with the UIF, in order
to adapt it to the new parameters established in resolution 30/2017
for supervisory procedures of financial and exchange
entities.
In November 2018,
the UIF issued Resolution 134/2018, which updates the list of
persons that should be considered “politically exposed”
(PEP) in Argentina, taking into account the functions in which they
perform or have performed, as well as its relationship of closeness
or affinity with third parties who perform or have performed in
such functions.
On
December 26, 2018, the UIF issued resolution 154/2018
modifying the existing supervision procedures, for new designs that
are adapted and according to the international standards promoted
by the FATF, which must be applied on compliance with risk-based
approach. As a result, the UIF approved its “Risk Based
Supervision Procedure of the Financial Information Unit”,
repealing the provisions of Annexes II, III and IV of Resolution
104/2010, article 7 and the provisions of the Annexes V and VI of
Resolution 165/2011 and of Annex III of Resolution
229/2014.
Finally, on
December 28, 2018, by means of Resolution 156/2018, the
amended and restated texts of Resolutions 30/2017, Resolution 21
and Resolution 28/2018, according to the terms of Decree 891/2017
of Good Practices with regard to Simplification. By virtue of
Resolution 156/18, the measures, procedures and controls that the
reporting parties listed in those resolutions must adopt and
re-apply to manage the risk of being used by third parties with
criminal purposes of money laundering and financing of the
terrorism. It is also established that those reporting parties must
establish a chronogram of digitization of the bundles of
pre-existing clients, taking into account the risk they
present.
For an extensive
analysis of the money laundering regime in effect as of the date of
this annual report, investors should consult legal counsel and read
Title XIII, Book 2 of the Argentine Criminal Code and any
regulations issued by the UIF, the CNV and the Central Bank in
their entirety. For such purposes, interested parties may visit the
websites of the Argentine Ministry of Economy, at www.minhacienda.gob.ar, the
Argentine Ministry of Public Finance, at www.minfinanzas.gob.ar, the
UIF, at www.uif.gov.ar, the CNV, at
www.cnv.gob.ar, or
the Central Bank, at www.bcra.gob.ar. The
information found on such websites is not a part of this annual
report.
For an extensive
analysis of the money laundering regime in effect as of the date of
this annual report, investors should consult legal counsel and read
Title XIII, Book 2 of the Argentine Criminal Code and any
regulations issued by the UIF, the CNV and the Central Bank in
their entirety. For such purposes, interested parties may visit the
websites of the Argentine Ministry of Treasury and Public Finance,
at www.infoleg.gov.ar,
the UIF, at www.uif.gov.ar,
the CNV, at www.cnv.gob.ar,
or the Central Bank, at www.bcra.gov.ar.
The information found on such websites is not a part of this annual
report.
144
Item 4.C Organizational
structure
The following
diagram illustrates our organizational structure as of the date of
this annual report. Percentages indicate the ownership interest
held.
(1)
Percentages reflect our equity interests in the operating companies
TJSM, TMB and CVO. After the plants have been operational for ten
years, their ownership will be transferred to the operating
companies. For more information, see “Item 4.B. Business
Overview—FONINVEMEM and Similar Programs.”
(2)
Percentages indicate direct and, through Inversora de Gas del
Centro S.A. -IGCE-, indirect investments of the Company in DGCU,
DGCE.
(3) The
percentage for Energía Sudamericana S.A., includes a 2.45%
direct interest plus a 41.06% indirect interest in its capital
stock, through our equity interest in IGCE. The percentage for
Coyserv S.A. includes a 32.21% indirect interest in its capital
stock, through our equity interest in IGCE, DGCE and
DGCU.
(4) See
“Item 4.B. Business overview—Our
Subsidiaries”
Most of our
property, plant and equipment is intended to be used in the
generation of electric power and 100.00% of it is located in
Argentina.
We have no
significant assets under capital lease or lease
agreements.
145
The following table
provides certain information regarding the operation of our power
plants that we owned as of December 31, 2019:
Site
Plant
Unit
Installed capacity
Type
Fuel type(if any)
Puerto
Complex
1,714
MW
Puerto
Nuevo plant
589
MW
PNUETV07
145
MW
Thermal
NG /
FO
PNUETV08
194
MW
Thermal
NG /
FO
PNUETV09
250
MW
Thermal
NG /
FO
Nuevo
Puerto plant
360
MW
NPUETV05
110
MW
Thermal
NG /
FO
NPUETV06
250
MW
Thermal
NG /
FO
Puerto
combinedcycle plant
765
MW
CEPUCC
GE
765
MW
Thermal
NG /
GO
Piedra
del Águila
1,440
MW
Piedra
del Águila plant
1,440
MW
PAGUHI
1,440
MW
Hydroelectric
Luján
de Cuyo
595.32
MW
Luján
de Cuyo plant
595.32
MW
LDCUCC25
306.40
MW
Thermal
NG
LDCUTG23
22.80
MW
Thermal
NG /
GO
LDCUTG24
22.80
MW
Thermal
NG /
GO
LDCUTV11
60
MW
Thermal
NG /
FO
LDCUTV12
60
MW
Thermal
NG /
FO
LDCUTG22
27
MW
Thermal
NG /
GO
LDCUTG26
47.25
MW
Thermal
NG /
GO
LDCUTG27
48.07
MW
Thermal
NG /
GO
LDCUHI
1
MW
Hydroelectric
Brigadier
López
280.5
MW
Brigadier
López plant
BLOPTG01
280.5
MW
Thermal
NG /
GO
La
Genoveva
41.80
MW
La Genoveva II wind
farm
GNV2EO
41.80
MW
Wind
La
Castellana
La
Castellana I wind farm
LCASEO
100.80
MW
Wind
La
Castellana II wind farm
LCA2EO
14.40
MW
Wind
Achiras
86
MW
Achiras
wind farm
ACHIEO
48
MW
Wind
Manque
wind farm
MANQEO
38
MW
Wind
Reference: NG:
natural gas; FO: fuel oil; GO: gas oil
La Castellana I, La
Castellana II, Achiras, Manque, and La Genoveva II wind farms are
owned by CP La Castellana S.A.U., CPR Energy Solutions S.A.U., CP
Achiras S.A.U., CP Manque S.A.U., and Vientos La Genoveva II
S.A.U., respectively, the first four of which are fully owned
subsidiaries of CP Renovables S.A. while the last one is a fully
owned subsidiary of Central Puerto S.A. As of the date of this
annual report, we own a 70% interest in CP Renovables. See
“Item 4.B. Business Overview—Our Subsidiaries”.
As of December 31, 2019, Manque wind farm had an installed capacity
of 38 MW. On January 23, 2020 the capacity of the plant was
increased to 53.20 MW, and on March 3, 2019, it was increased to 57
MW, the total power of the project. This increase in the power
capacity of the plant was not included in the table
above.
As of December 31,2019, La Castellana II wind farm had an authorized installed
capacity of 14.40 MW. On February 21, 2020 CAMMESA granted the
authorization to increase the output to the grid for up to 15.20
MW. This increase in the plant’s power capacity was not
included in the table above.
On February 21,2020, Los Olivos wind farm was granted the commercial authorization
by CAMMESA for up to a power capacity of 22.80 MW, which is not
included in the table above.
We believe that all
of our production facilities are in good operating condition. We
believe that we have satisfactory title to our plants and that our
facilities are in accordance with standards generally accepted in
the electric power industry. As of December 31, 2019, the
consolidated net book value of our property, plant and equipment
was Ps.56.70 billion.
146
The following table
lists the value of our property, plant and equipment as of December31, 2019:
For information on
our plants under construction, see “Item 5.A Operating
Results—Proposed Expansion of Our Generating
Capacity.”
Item
5. Operating and Financial Review and Prospects
Item
5.A Operating Results
This section
contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those
discussed in the forward-looking statements as a result of various
factors, including, without limitation, those set forth in
“Forward-looking Statements,”“Item 3.D Risk
Factors,” and the matters set forth in this annual report
generally.
This discussion
should be read in conjunction with our audited consolidated
financial statements which are included elsewhere in this annual
report.
Financial Presentation
We maintain our
financial books and records and publish our consolidated financial
statements in Argentine pesos, which is our functional currency.
Our audited consolidated financial statements are prepared in
Argentine pesos and in accordance with the IFRS as issued by the
IASB.
Factors Affecting Our Results of Operations
Argentine Economic Conditions and the impact of
COVID-19
We are an Argentine
sociedad anónima
(corporation). Substantially all of our assets and operations and
our customers are located in Argentina. Accordingly, our financial
condition and results of operations depend to a significant extent
on macroeconomic and political conditions prevailing from time to
time in Argentina.
As Central Puerto
is affected by the conditions of Argentina’s economy, which
have historically been volatile, and have negatively and materially
affected the financial condition and prospects of multiple
industries, including the electric power sector, the following
discussion may not be indicative of our future results of
operations, liquidity or capital resources.
The following table
sets forth information about certain economic indicators in
Argentina for the periods indicated. For information regarding the
reliability of this data and why we present three measurements of
inflation, see “Item 3.D. Risk Factors—Risks Relating
to Argentina—The credibility of several Argentine economic
indices has been called into question, which has led to a lack of
confidence in the Argentine economy and could affect your
evaluation of the market value of the ADSs.”
147
2014
2015
2016
2017
2018(1)
2019(1)
Economic
activity
Nominal GDP in
current US$(2) (in millions of
US$)
563,955
642,665
554,448
642,413
516,981
448,431
Real gross domestic
investment(3) (pesos of 2004) (%
change) as % of GDP
(4.35)%
0.71%
(3.78)%
9.30%
(3.39)%
14.04%
Price
indexes and exchange rate information
INDEC CPI (%
change)(4)
24.0%
11.9%
16.9%
24.8%
47.6%
53.8%
Economic
activity
Inflation (as
measured by the City of Buenos Aires CPI) (% change)(5)
38.0%
26.9%
41.0%
26.1%
45.50%
50.60%
Inflation (as
measured by the Province of San Luis CPI) (% change)(5)
39.4%
31.6%
31.5%
24.3%
50.00%
57.60%
Wholesale price
index (WPI) (% change)
28.3%
10.6%(5)
34.5%(5)
18.8%
73.50%
58.50%
Nominal exchange
rate(6)
(in Ps./US$at period end)
8.55
13.00
15.89
18.65
37.70
58.89
Sources: Ministry
of Public Works of Argentina, Banco de la Nación Argentina and
Instituto Nacional de Censos y Estadísticas
(INDEC).
(1) Variation
provided by INDEC as of December 2019. Real GDP data of 2011-2014
was restated by INDEC.
(2)
Calculations based on the nominal GDP in pesos as reported by INDEC
in December 2018, divided by the average nominal Ps./US$ exchange
rate for each period as reported by the Banco de la Nación
Argentina.
(3)
Calculations for years 2014 through 2019 based on real gross
domestic investment (pesos of 2004) and GDP as reported by INDEC in
March 2020.
(4) For 2015,
data available until October 2015 (last published data). The INDEC
authorities, that took office in December 2015, declared an
emergency with respect to Argentina’s statistics system. In
this respect, the INDEC’s website warns that the statistical
information published from January 2007 through December 2015
should be considered with caution, except for that information
which has been revised in 2016, as expressly stated in by the INDEC
on its website. The INDEC, pursuant to the authority conferred by
Regulations 181/15 and 55/16, initiated the research required in
order to restore the regularity of procedures for data collection,
its processing, the development of economic indicators and their
dissemination. The CPI for 2016 contains the data from April to
December 2016 (the only published data).
(5) On
January 8, 2016, based on its determination that the INDEC had
failed to produce reliable statistical information, including with
respect to CPI, the Macri administration declared the national
statistical system and the INDEC in a state of administrative
emergency through December 31, 2016. The INDEC implemented certain
methodological reforms and adjusted certain macroeconomic
statistics on the basis of these reforms. See “Item 3.D. Risk
Factors—The credibility of several Argentine economic indices
has been called into question, which has led to a lack of
confidence in the Argentine economy and could affect your
evaluation of the market value of the ADSs.” During the first
six months of this reorganization period, the INDEC published
official CPI figures published by the City of Buenos Aires and the
Province of San Luis for reference, which we include
here.
(6) Pesos to
U.S. dollars exchange rate as quoted by the Banco de la Nación
Argentina for wire transfers (divisas).
According to the
revised data published by the INDEC on March 21, 2017, in 2012,
Argentina’s real GDP dropped 1.0%. This economic contraction
was attributed to local and external factors, primarily the
deceleration of growth in developing economies, including
Argentina’s principal trading partners, and an extended
drought affecting agricultural production. Following the
contraction in 2012, Argentina’s real GDP recovered in 2013,
growing 2.4% as compared to 2012, as domestic demand in 2013 helped
to offset weak demand from the rest of the world. In 2014,
Argentina’s real GDP decreased 2.5%, compared to 2013,
reflecting the impact of the deceleration of growth in developing
economies on Argentina’s exports, growing uncertainty in the
financial sector and fluctuations in foreign exchange
rates.
In 2015,
Argentina’s real GDP increased by 2.7%, primarily as a result
of (i) a 3.5% increase in gross investment, mainly due to a 5.9%
increase in gross investments and a 2.5% increase in construction
investments; and (ii) a 6.9% increase in public sector consumption
and a 3.7% increase in private sector consumption. These factors
were partially offset by a 4.7% increase in imports, driven by the
expansion of economic activity, which resulted in a negative trade
balance.
During 2016,
Argentina’s GDP decreased 2.1%, primarily as the result of
(i) an increase of 5.8% in imports of goods and services rather
than consumption of internal production and (ii) a decrease of 5.8%
in gross investments. These factors were partially offset by an
increase of 5.3% in exported goods and services.
During 2017, as
compared to 2016, Argentina’s GDP increased 2.7%, primarily
as the result of (i) an increase of a 12.2% in gross investments,
(ii) a 4% increase in private consumption and (iii) a 2.7% increase
in public consumption (iv) a 1.7% increase in exports. These
factors were partially offset by an increase of 15.4% in
imports.
During 2018, as
compared to 2017, Argentina’s GDP decreased 2.5%, primarily
as the result of (i) a decrease of a 5.8% in gross investments,
(ii) a 2.4% decrease in private consumption and (iii) a 3.3%
decrease in public. These factors were partially offset by a
decrease of 5.1% in imports.
During 2019, as
compared to 2018, Argentina’s GDP decreased 2.2%, primarily
as the result of a 15.9% decrease in capital goods investments, a
6.4% decrease in private sector consumption, and a 1.5% decrease in
public consumption. These factors were partially offset by a 9.4%
increase in exports and a 18.7% decrease in imports.
148
As of the date of
this annual report, the country faces significant challenges,
including the need to attract investments in capital goods that
will permit sustainable growth and reduce inflationary pressures,
as well as renegotiate utility contracts and resolve the current
energy crisis. See “Item 3.D. Risk Factors—Risks
Relating to Argentina”, in particular “—the Novel
Coronavirus could have an adverse effect on our business operations
and financial conditions”, which describes the potential
impact of COVID-19 over certain of our projects, which could have a
material adverse impact on our financial condition and results of
operations, “Item 3.D. Risk Factors—Risks relating to
our business— Factors beyond our control may affect or delay
the completion of the awarded projects, or alter our plans for the
expansion of our existing plants” and “Item
5.B—Liquidity and Capital Resources”.
In light of these
uncertainties, the long-term evolution of the Argentine economy
remains uncertain. The real GDP growth rate decreased in 2018, and
the inflation rate was 47.64%. In 2019, the real GDP growth rate
decreased, and the inflation rate was 53.83%.
During 2019,
aggregate economic activity in Argentina was mainly affected by
periods of volatility in the exchange rate and financial
indicators, which increased after the primary elections held in
August. After a modest economic recovery registered through the
second quarter of the year, the financial turmoil in the third
quarter generated a double dip in the activity. In general terms,
most economic sectors were adversely affected by the general
macroeconomic context to different degrees (with the exception of
the agricultural sector that outperformed
significantly).
Inflation
Argentina has faced
and continues to face inflationary pressures. From 2012 to date,
Argentina experienced increases in inflation as measured by CPI and
WPI that reflected the continued growth in the levels of private
consumption and economic activity (including exports and public and
private sector investment), which applied upward pressure on the
demand for goods and services.
During periods of
high inflation, effective wages and salaries tend to fall and
consumers adjust their consumption patterns to eliminate
unnecessary expenses. The increase in inflationary risk may erode
macroeconomic growth and further limit the availability of
financing, causing a negative impact on our operations. See
“Item 3.D. Risk Factors—Risks Relating to
Argentina—If the current levels of inflation do not decrease,
the Argentine economy could be adversely
affected.”
Inflation increases
also have a negative impact on our cost of sales, selling expenses
and administrative expenses, in particular our payroll and social
security charges. We cannot give any assurance that increased costs
as a result of inflation will be offset in whole or in part with
increases in prices for the energy we produce.
IAS 29,
Financial Reporting in
Hyperinflationary Economies, requires that financial
statements of any entity whose functional currency is the currency
of a hyperinflationary economy, whether based on the historical
cost method or on the current cost method, be stated in terms of
the measuring unit current at the end of the reporting period. Even
though the standard does not establish an absolute rate at which
hyperinflation is deemed to arise, it is common practice to
consider there is hyperinflation where changes in price levels are
close to or exceed 100% on a cumulative basis over the last three
years, along with other several macroeconomic-related qualitative
factors.
Due to
macroeconomic factors, the triennial inflation was above that
figure in 2018 and Argentina has been considered hyperinflationary
since July 1, 2018. See “Risks Relating to Argentina—As
of July 1st, 2018, the
Argentine Peso qualifies as a currency of a hyperinflationary
economy and we are required to restate our historical financial
statements to apply inflationary adjustments, which could adversely
affect our results of operations and financial condition and those
of our Argentine subsidiaries” and “—If the
current levels of inflation do not decrease, the Argentine economy
could be adversely affected.”
Therefore, our
financial statements as of and for the year ended December 31,2019, including the figures for the previous periods (this fact not
affecting the decisions taken on the financial information for such
periods), and unless otherwise stated, the financial information
included elsewhere in this annual report, have been restated to
consider the changes in the general purchasing power of the
functional currency of the Company (Argentine peso) pursuant to IAS
29 and General Resolution no. 777/2018 of the CNV.
Furthermore, as a
consequence of the application of IAS 29, maintaining net monetary
assets generates loss of purchasing power, provided that such items
are not subject to an adjustment mechanism that compensates to some
extent such loss. This loss is booked in the statement of
comprehensive income.
Accordingly, we
have recognized a loss regarding the effect of adjustment by
inflation of Ps. 2,432 million, Ps.6,209 million and Ps.234 million
in our financial statements for the years ended 2019, 2018 and
2017, respectively. See Note 2.1.2 to our financial
statements.
149
Law 27,468 also
substituted the wholesale price index (“WPI”) for the
CPI as the index to benchmark tax indexation and modified the
standards for triggering the tax indexation procedure. In addition,
Law 27,468 provides that during the first three years beginning on
January 1, 2018, tax indexation will be required if the variation
of the CPI exceeds 55% in 2018, 30% in 2019 and 15% in 2020. The
Solidarity Law amended the periods which the tax indexation should
be allocated. According to the Solidarity Law, the positive or
negative result generated by the application of the inflation
adjustment corresponding to the first and second fiscal year
beginning on January 1, 2019, shall be charged one sixth (1/6) in
that fiscal year and the remaining five sixths (5/6), in equal
parts, in the next five fiscal years. For 2019, we recorded a net
loss of Ps.426 million in our Income Tax line item of our Statement
of Income regarding the application of the above-mentioned tax
inflation adjustment.
Foreign Currency Fluctuations
We are exposed to
exchange rate risk in connection with the U.S. dollar to the
Argentine peso exchange rate, as part of our capital expenditures,
financial obligations and operating expenditures are denominated in
U.S. dollars. See “Item 3.D. Risk Factors—Risks
Relating to Argentina—Significant fluctuations in the value
of the peso could adversely affect the Argentine economy and, in
turn, adversely affect our results of operations” and
“Item 10.D. Exchange Controls.”
The depreciation of
the peso with respect to the U.S. dollar exceeded 32.6% in 2013 and
31.2% in 2014. In 2015, the peso depreciated approximately 52% with
respect to the U.S. dollar, including an approximately 10%
devaluation from January 1, 2015 to September 30, 2015 and a 38%
devaluation during the last quarter of the year, primarily
concentrated after December 16, 2015 as a consequence of the Macri
administration’s elimination of a significant portion of
foreign exchange controls. The devaluation of the peso with respect
to the U.S. dollar totaled 21.86% in 2016, 17.36% in 2017, 102.16%
in 2018, and 58.86% in 2019.
As of December 31,2019, we did not have derivatives that met the requirements
established by IFRS to be designated as an effective hedge for this
particular risk. However, as of December 31, 2019, we had trade
receivable, financial assets available-for-sale, financial assets
at fair value through profit or loss, cash and short-term
investments denominated in foreign currency totaling US$620
million, while at the same time we had liabilities denominated in
foreign currency totaling US$666 million and, hence, as of such
date, our exposure to changes in foreign currency was substantially
mitigated. For more information, see “—Market Risk
Analysis.”
Any significant
depreciation of the peso would result in an increase in the cost of
servicing our debt and in the cost of imported supplies or
equipment and, therefore, may have a material adverse effect on our
results of operations. With respect to fuels used in connection
with the energy we sell under the Energía Base (which
represented around 76.14% of our energy sales in terms of output in
2019), the exposure to changes in fuel prices is not material
since, under current applicable regulation, the fuel for the
electric power sold under the Energía Base is required to be
acquired from and supplied by CAMMESA, free of any cost to us;
hence, it is not currently an integral part of the price charged by
the generator.
The Argentine
Government has taken measures to stabilize the foreign exchange
situation, restrictions to the purchase of foreign currency, and in
some cases, an additional tax. For more information, see
“Item 10.D. Exchange Controls.”
Our Revenues
The following chart
shows a breakdown of our revenues from continuing operations for
the periods indicated:
2019
2018
2017
(in thousands
of Ps.)
Percentage of
revenues
(in thousands
of Ps.)
Percentage of
revenues
(in thousands
of Ps.)
Percentage of
revenues
Energía Base
(Resolution SE No. 19/2017, SGE 70 and 95/2013, as
amended)(1)
(1) Includes
(i) sales of energy and power to CAMMESA remunerated under
Resolution No. 95, Resolution No. 19/2017, and Res. SE 1/2019 (ii)
spot sales of energy and power to CAMMESA not remunerated under
Resolution No. 95 (as amended), (iii) remuneration under Resolution
No. 724/2008 relating to agreements with CAMMESA to improve
existing Argentine power generation capacity and (iv) income
related to Res. SEE 70/18. See “Item 4.B. Business
Overview—The Argentine Electric Power Sector—Structure
of the Industry—Shortages in the Stabilization Fund and
Responses from the Argentine Government—The National
Program.”
(2) Includes
(i) term market sales under contracts, (ii) energy sold
under the Energía Plus and (iii) RenovAr Program sales under
contracts (for more information regarding term market sales under
contract, see “Item 4.B. Business Overview—Our
Customers”).
(3) Includes
steam sold under steam sale contract with YPF from the Luján
de Cuyo Plant.
Beginning in
February 2020, sales under contracts are regulated by Resolution
31/20. From February 2019 to January, 2020, sales under the
Energía Base were regulated by Resolution SRRyME No. 1/19,
from February 2017 to February 28, 2019, sales under the
Energía Base were regulated by the Resolution SEE No. 19/17,
which replaced Resolution SE No. 95/13, as modified by Resolution
SE No. 529/14, Resolution SE No. 482/15 (the “Resolution No.
482”) and Resolution SEE No. 22/16, and denominated the
relevant rates in U.S. dollars. In the year ended December 31,2018, we sold over 97.68% of the electric power we generated and
derived 88.80% of our revenues under the Energía Base. In the
year ended December 31, 2019, we sold over 92.37% of the electric
power we generated and derived 76.14% of our revenues under the
Energía Base. We also continue to sell a portion of electric
power in the spot market under the regulatory framework established
prior to the Energía Base. For more information see
“Item 4.B. Business Overview—The Argentine Electric
Power Sector—Remuneration Scheme—The Current
Remuneration Scheme.”
In addition, we
sell generation capacity and electric power under negotiated
contracts with private sector counterparties under the Energía
Plus and other outstanding contracts with private sector
counterparties that were entered into prior to the implementation
of the Energía Base (both shown under the line item
“Sales under contracts”). Sales under contracts
generally involve PPAs with customers and are contracted in U.S.
dollars. The prices in these contracts include the price of fuel
used for generation, the cost of which is assumed by the generator.
For terms longer than one year, these contracts typically include
electric power price updating mechanisms in the case of fuel price
variations or if the generator is required to use liquid fuels in
the event of a shortage of natural gas.
Below we summarize
key aspects of our most significant sources of revenue, which
include: (i) the Energía Base, (ii) contracts with YPF for
energy and steam, and (iii) electric power sold on the spot
market.
The Energía Base
The Energía
Base accounts for our largest source of revenue. Resolution SE No.
95/13, which was enacted in February 2013, changed the manner in
which electric power was remunerated in the spot market and
established the Energía Base. From February 2017 to February28, 2019 (included), sales under the Energía Base were
regulated by Resolution SEE No. 19/17. Since March 1, 2019, the
Energía Base sales have been regulated by Resolution SRRyME
No. 1/19.
Under Resolution SE
No. 95/13, as amended, the applicable regulatory entity (as of the
date of this annual report, the Secretariat of Electric Energy and
in prior years the former Secretariat of Electric Energy) set
electric power prices that were updated annually.
Effective February
2014 and 2015, prices were increased by the enforcement authority
through Resolution SE No. 529/14 (“Resolution No. 529”)
and Resolution SE No. 482/15, respectively. These increases were
intended to allow generators to cover, at least in part, increases
in business costs resulting from inflation and the currency
devaluation. However, in light of the fact that the resolutions
failed to provide a pricing mechanism with a pre-established
frequency, the adjustments were discretionary.
Within this
framework, in March 2016, the Secretariat of Electric Energy
enacted Resolution SEE No. 22/16, whereby it adjusted the electric
power prices established through Resolution SE No. 95/13. These
adjustments became effective as of February 2016. In reference to
the rationale for this resolution, the Secretariat of Electric
Energy noted that it was enacted “for the sole purpose of
supporting the operation and maintenance of affected equipment and
power plants on a provisional basis, until the regulatory measures
being considered by the Executive branch come into force
progressively with the aim of returning the WEM to
normal.”
On January 27,2017, the Secretariat of Electric Energy issued Resolution SEE No.
19/17 (published in the Official Gazette on February 2, 2017),
which replaced Resolution SE No. 95/13, as amended.
151
Pursuant to this
resolution, which was in effect until February 28, 2019 (included),
the Secretariat of Electric Energy established that electric power
generators, co-generators and self-generators acting as agents in
the WEM and which operate conventional thermal power plants, may
make guaranteed availability offers (ofertas de disponibilidad garantizada)
in the WEM. Pursuant to these offers, these generation companies
may commit specific capacity and power output of the generation,
provided that such capacity and energy had not been committed under
PPAs entered into in accordance with (i) Resolutions Nos. 1193/05,
1281/06, 220/07, 1836/07 and 200/09 of the former Secretary of
Energy, (ii) Resolution No. 21/16 of the Secretariat of Electric
Energy and (iii) Resolutions Nos. 136/16 and 213/16 of the Ministry
of Energy and Mining, as well as PPAs subject to a differential
remuneration scheme established or authorized by the Ministry of
Energy and Mining. The offers must be accepted by CAMMESA (acting
on behalf of the WEM agents demanding electric power), which entity
will be the purchaser of the power under the guaranteed
availability agreements (compromisos de disponibilidad
garantizada). Resolution SEE No. 19/17 established that such
agreements may be assigned to electricity distribution companies
and Large Users of the WEM once the state of emergency of the
electric power sector in Argentina has ended (according to Decree
No. 134/1995, such emergency was declared until December 31, 2017).
Generator agents fully or wholly-owned by the Argentine government
were excluded from the scope of Resolution SEE No.
19/17.
The term of the
guaranteed availability agreements in Resolution SEE No. 19/17 was
3 years, and their general terms and conditions were established in
Resolution SEE No. 19/17.
The remuneration in
favor of the generator was calculated in U.S. dollars pursuant to
the formulas and values set forth in the aforementioned resolution,
and comprises of (i) a price for the monthly capacity availability
and (ii) a price for the power generated and operated. See
“Item 4.B. Business Overview—The Argentine Electric
Power Sector—Remuneration Scheme—The Previous
Remuneration Scheme—Resolution SEE No.
19/17.”
Resolution SEE No.
19/17 also established that WEM agents that operate conventional
hydroelectric power plants, pumped hydroelectric power plants and
power plants using other energy resources shall be remunerated for
the energy and capacity of their generation units in accordance
with the values set forth in such resolution, and provided that
such energy and capacity has not been committed under PPAs entered
into in accordance to Resolutions Nos. 1193/05, 1281/06, 220/07,
1836/07 and 200/09 of the former Secretary of Energy, Resolution
No. 21/16 of the Secretariat of Electric Energy, and Resolutions
Nos. 136/16 and 213/16 of the Ministry of Energy and
Mining.
On November 11,2018, the Secretariat of Energy issued Resolution SGE No. 70/2018,
which substitutes Art. 8 of Res. SE 95/2013. This new resolution
allows electric energy generators, self-generators, and
cogenerators acting in the WEM to purchase their own fuel. However,
prior commitments assumed by generators with CAMMESA for energy
supply contracts are not altered by this new regulation. If
generation companies opt to take this option, CAMMESSA will value
and pay the generators their respective fuel costs in accordance
with the Variable Costs of Production (CVP) declared by each
generator to CAMMESA. According to CAMMESA’s procedure, the
machines with the lower CVPs are dispatched first, and
consequently, may produce more electric energy. The Agency in
Charge of Dispatch (Organismo Encargado del Despacho or
“OED” using the Spanish acronym) -CAMMESA- will
continue to supply the fuel for those generation companies that do
not elect to take this option.
On December 27,2019, the Ministry of Productive Development issued Resolution MDP
No. 12/2019, repealing Resolution SGE No. 70/2018 and restoring
Art. 8 of Res. SE 95/2013. Beginning January 2020, CAMMESA became
the only fuel supplier for generation companies, except for (i)
thermal units that had prior commitments with CAMMESA for energy
supply contracts with their own fuel management and (ii) thermal
units under the Energía Plus regulatory framework, authorized
under Resolution SE No.1281/05 to supply energy to large private
users.
During 2019,
Central Puerto purchased the necessary fuel (natural gas) for the
operation of some of its thermal units, as shown
below:
Month (of 2019)
m3
m3
m3
ene-19
57,738,667
129,311,174
187,049,841
feb-19
49,195,525
99,378,355
148,573,880
mar-19
55,703,130
93,962,355
149,665,485
abr-19
41,323,743
125,897,219
167,220,962
may-19
45,126,615
86,879,731
132,006,346
jun-19
23,251,170
6,300,000
29,551,170
jul-19
1,183,000
0
1,183,000
ago-19
35,521,872
8,875,000
44,396,872
sep-19
44,932,188
62,316,850
107,249,038
oct-19
55,461,812
125,410,098
180,871,910
nov-19
41,883,285
118,397,704
160,280,989
dic-19
56,638,951
151,415,450
208,054,401
Total
2019
507,959,958
1,008,143,936
1,516,103,894
Prices for sales of
energy under Resolution SE No. 95/13 framework were set and paid in
pesos, while prices under Resolution SEE No. 19/17 were set in U.S.
dollars and paid in pesos at the exchange rate as of day prior to
the due date of each monthly sale of energy under Resolution SEE
No. 19/17. In both cases, prices do not include the cost of fuel
as, under these regulations, they are provided to the applicable
generation company by CAMMESA free of charge.
Payments by CAMMESA
to generators related to the sale of energy under the Energía
Base during each month are due 42 days following the end of such
month. As a result of delays in payments from distributors due to
frozen tariffs, since 2012 we have seen a delay in the full payment
for the monthly transactions by CAMMESA, which completes their
monthly payment on average 68 days following the end of the
relevant month, and on occasion as many as 101 days following the
end of the month. However, from September 2016 to November 2017
CAMMESA has paid without delays, and since then, there were short
periods in which CAMMESA experienced delays in paying. (for more
information on the duration of these delays see “Item 11.
Quantitative and Qualitative Disclosures about Market
Risk—Credit Risk”).
From March 1, 2019,
a new remuneration scheme for Energía Base came into force
with Resolution SRRyME No. 1/19, which decreased the prices
for power capacity and energy sold for these units.
On February 27,2020, the Secretariat of Energy issued Resolution 31/20 applicable
from February 1, 2020, which replaces the regulatory framework for
Energía Base. The main changes were:
●
Prices are set in
Argentine pesos.
●
Initial variable
energy price although denominated in Argentine pesos, remained
almost unchanged. The applicable exchange rate between the new
price in Argentine pesos and the previous price in U.S. dollars was
Ps.60 per U.S. dollar, similar to the average exchange rate during
January 2020, of Ps. 60.01 per US dollar.
●
Initial power price
for energy from thermal units were approximately reduced by16% and
set in Argentine pesos.
●
Generation units
with less than 30% Utilization Factor in the last twelve months
receive 60% of the price, compared to up to 70% before.
Additionally, if the Utilization Factor is between the 30-70%
threshold the generation units receive a linear proportion between
60 and 100% of the power price, and if the Utilization factor is
70% or greater, the generation units receive 100% of the
price.
●
Initial fixed power
price for hydroelectric plants was approximately reduced by 45 %
and set in Argentine pesos.
●
A new remuneration
scheme for peak demand hours generation was established to
partially mitigate the fixed power price, taking into consideration
the equipment the generating company has.
●
The prices set in
pesos will have a monthly adjustment with the following formula:
(i) 60% of the CPI, plus (ii) 40% of the WPI (Stated in Annex VI of
the Resolution 31).
However, on April8, 2020, Central Puerto learned that the Secretary of Energy may
have instructed CAMMESA to postpone until further notice the
application of Annex VI, related to the price update mechanism
described under “Item 4.B. Business Overview—The
Argentine Electric Power Sector—Remuneration Scheme—The
Current Remuneration Scheme”. Accordingly, CAMMESA did not
apply the price update mechanism for the March 2020 monthly
payments under Energy Base. The Company is evaluating the effects
that the non-application of the aforementioned Annex VI would have,
as well as the steps to be followed in this regard.
For more
information see “Item 4.B. Business Overview—The
Argentine Electric Power Sector—Remuneration Scheme—The
Current Remuneration Scheme” and “—The Previous
Remuneration Scheme.”
Electric Power Sold on the Spot Market
Until October 31,2017, when our contract with YPF for the purchase of electric power
expired, in the La Plata plant we sold the energy in excess of
YPF’s demand on the spot market under the regulatory
framework in place prior to Resolution SE No. 95/13. See
“Item 4.B. Business Overview—The Argentine Electric
Power Sector—Structure of the Industry—Generation and
the WEM—Electricity Dispatch and Spot Market Pricing prior to
Resolution SE No. 95/13.”
152
The remuneration
that generators receive for electric power sales in the spot market
under such prior framework is determined on an hourly basis by
CAMMESA (pursuant to Resolutions Nos. 1/2003 and 240/2003 of the
Secretary of Energy and Annex 5 of the Procedures), and it is
comprised of (i) the price for the electric power sold (which price
varies according to the technology of the generation unit and its
power capacity and the connection node in which the generator is
connected to the grid and the generation costs in which they incur)
and (ii) a price for the power capacity of the generations units
made available by the generator in order to supply the electric
power. Both prices are determined by CAMMESA. In order to determine
such electric power prices, CAMMESA takes into account certain
costs, mainly: (i) fuel costs (applying, according to Resolution
No. 240/2003, the cost of the acquisition of natural gas,
regardless of whether or not the generation units run on natural
gas or another kind of fuel, and assuming full availability of
natural gas) and (ii) maintenance and operation costs.
According to the
abovementioned Resolution No. 240/2003, if CAMMESA has to impose
restrictions on the electric power demand, the maximum applicable
spot price of the electric power would be Ps.120 per MWh. Because
most generators use other types of fuel, not just natural gas, the
spot price they receive for the electric power sold, pursuant to
the abovementioned regulations, usually does not cover the variable
costs incurred in order to generate and supply electric power. To
make up such difference, those generators are further compensated
by a stabilization fund (“Stabilization Fund”), which
was created to absorb the differences between the seasonal price
and the spot price in the WEM. However, because of shortages in the
Stabilization Fund, payments out of the fund for such compensation
is subject to the application of the payment priorities set forth
in Resolution No. 406/03 by the Secretary of Energy. For more
information, see “Item 4.B. Business Overview—The
Argentine Electric Power Sector—Structure of the
Industry—Shortages in the Stabilization Fund and Responses
from the Argentine Government.”
Within our
financial line item for electric power sold in the spot market, we
also include the revenues that we receive from CAMMESA under
Resolution No. 724/2008, relating to agreements with CAMMESA to
improve existing power generation capacity. Under agreements
entered into with CAMMESA under Resolution No. 724/2008, we
committed to maintain certain minimum levels of monthly
availability for each unit specified in the agreements for a period
of seven years, during which time we are entitled to receive
monthly U.S. dollar-denominated payments. In the event a particular
unit falls below the minimum level of monthly availability, the
monthly payment for that unit is reduced accordingly.
Following the La
Plata Plant Sale Effective Date, we no longer sell electric power
on the spot market in the La Plata plant.
As of December 31,2017, the La Plata plant was classified as a disposal group held
for sale and its respective results for years ended December 31,2018, and 2017 as discontinued operations in our audited
consolidated financial statements. Effective as of January 5, 2018,
we sold the La Plata plant to YPF EE. For further information, see
“Item 4.A. History and development of the Company—La
Plata Plant Sale”.
Agreement for supplying energy and steam to YPF and purchasing fuel
from YPF—La Plata plant
We had an agreement
with YPF for supplying energy and steam that expired on October 31,2017, with respect to energy supply, and terminated on the La Plata
Plant Sale Effective Date, with respect to steam supply. Pursuant
to this agreement, YPF (i) purchased, until October 31, 2017,
electric power produced by the La Plata plant, and until La Plata
Plant Sale Effective Date, (ii) purchased all the steam produced by
the La Plata plant and (iii) supplied the La Plata plant with all
the necessary gas oil and natural gas for the operation of the
plant. YPF also supplied the water in the conditions required to be
converted into steam, which was then delivered to YPF through a
connecting steam duct. We were in charge of maintaining and
operating the co-generation plant.
The power supplied
to YPF was 73 MW (out of a total installed capacity of the La Plata
plant of 128 MW) throughout the contract term, under take-or-pay
(TOP) conditions with respect to the energy produced. This power
was delivered to three different YPF plants through the SADI: (i)
41 MW for the La Plata refinery, (ii) 22 MW for the Luján de
Cuyo refinery and (iii) 10 MW for the Ensenada petrochemical
complex. This contract is denominated and invoiced in U.S. dollars,
but can be adjusted in the event of variations in U.S.
dollar-denominated fuel prices for fuel necessary for power
generation.
As of December 31,2017, the La Plata plant was classified as a disposal group held
for sale and its respective results for years ended December 31,2018 and 2017 as discontinued operations in our audited
consolidated financial statements. Effective as of January 5, 2018,
we sold the La Plata plant to YPF EE. For further information, see
“Item 4.A. History and development of the Company—La
Plata Plant Sale”.
153
Steam supply to YPF—Luján de Cuyo plant
Under a 20-year
contract signed in 1999, we supplied YPF the steam generated at our
Luján de Cuyo plant by the “Alstom” units with
inputs provided by YPF under a take-or-pay contract. On February 8,2018, we entered into an agreement to extend this steam supply
agreement with YPF for a period of up to 24 months from January 1,2019 under the same terms and conditions or until the new
co-generation unit begins operations, whatever happened first. On
December 15, 2017, we also executed a new steam supply contract
with YPF for a period of 15 years in order to replace our existing
contract with YPF after the commencement of operations of the new
co-generation unit, which started operations on October 5, 2019,
replacing the previous combined heat and power (CHP), and supplies
up to 125 metric tons per hour of steam to YPF’s refinery in
Luján de Cuyo under a steam supply agreement. This contract is
denominated and invoiced in U.S. dollars, but can be adjusted in
the event of variations in U.S. dollar-denominated prices for fuel
necessary for power generation. For further information on the
steam supply agreements with YPF for the Luján de Cuyo plant,
see “Item 5.A. Operating Results—Factors Affecting Our
Results of Operations—Sales Under Contracts, Steam Sales and
Others —Steam supply to YPF—Luján de Cuyo
plant”.
Steam supply to T6 Industrial S.A.—Terminal 6 San Lorenzo
plant
On December 27,2017, we entered into a steam supply agreement with T6 Industrial
S.A. for the new co-generation unit at our Terminal 6 San Lorenzo
plant.
Resale of natural gas transportation capacity
The contract
between us and TGS for the natural gas transportation capacity has
remained effective after the La Plata Plant Sale. Pursuant to the
terms of our agreement with YPF EE, we resell our gas
transportation capacity to YPF EE through the resale system
established by Resolution ENARGAS 419/97. The resale under such
system is open to third parties and consequentially does not ensure
that YPF EE will receive the gas transportation capacity needed to
operate the La Plata plant. Therefore, on January 25, 2018, we
requested to be registered with the Ministry of Energy and the
ENARGAS as a natural gas seller to permit the resale of our gas
transportation capacity to YPF EE without the risk of intervention
from interested third parties. On July 20, 2018, we were
effectively registered as natural gas sellers.
Electric Power Demand and Supply
Demand for electric
power depends, to a significant extent, on economic and political
conditions prevailing from time to time in Argentina, as well as
seasonal factors. In general, the demand for electric power varies
depending on the performance of the Argentine economy, as
businesses and individuals generally consume more energy and are
better able to pay their bills during periods of economic stability
or growth. As a result, electric power demand is affected by
Argentine Governmental actions concerning the economy, including
with respect to inflation, interest rates, price controls, taxes
and energy tariffs.
Following the
2001-2002 economic crisis, demand for electric power in Argentina
grew consistently each year driven by the economic recovery and
frozen tariffs. During 2014, electric power demand grew 0.98%
compared to 2013, from 125,239 GWh to 126,467 GWh. During 2015,
electric power demand grew 4.45% compared to 2014, from 126,467 GWh
to 132,110 GWh, while during 2016, electric power demand grew 0.65%
to 132,970 GWh. A new 26,320 MW record of capacity load was
registered on February 8, 2018, which was 3.7% above the peak for
2016.
Electricity
generation decreased by 2.78% in 2019, from 137,482 GWh in 2018 to
133,993 GWh in 2019. Electricity generation increased by 0.75% in
2018, from 136,465 GWh in 2017 to 137,482 in 2018. For the year
ended December 31,2017, electric power generation decreased by 0.1%
in 2016, from 136,600 GWh in 2016 to 136,465 in 2017.
154
The chart below
shows the supply of electric power in Argentina by source,
including generation within Argentina from hydroelectric, thermal,
nuclear, renewables, as well as electric power imported from
neighboring countries (net of exports):
Source:
CAMMESA.
The following chart
shows the demand of energy for the year ended December 31,2019:
Demand by region
for year 2019
Total Energy Demand
(1)
Generation of Central Puerto plants(2)(3)
Puerto
Complex
Luján de
Cuyo Plant
Brigadier
López Plant
Piedra del
Águila Plant
La
Castellana
La Castellana
II
Achiras
Manque
La Genoveva
II
MWh
%
MWh
%
MWh
%
MWh
%
MWh
%
MWh
%
MWh
%
MWh
%
MWh
%
Great
Buenos Aires Area
48,552,665
7,108,434
14.64%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Litoral
15,638,206
-
-
-
-
127,401
0.81%
-
-
-
-
-
-
-
-
-
-
-
-
Province
of Buenos Aires
14,880,075
-
-
-
-
-
-
-
-
418,171
2.81%
32,966
0.22%
-
-
-
-
58,441
0.39%
Center
11,239,663
-
-
-
-
-
-
-
-
-
-
-
-
202,314
1.8%
18,430
0.16%
-
-
Northwest
10,206,001
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Northeast
9,291,721
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Cuyo
8,050,302
-
-
2,958,663
36.75%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Patagonia
6,077,989
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Comahue
4,943,443
-
-
-
-
-
-
3,919,798
79.29%
-
-
-
-
-
-
-
-
-
-
(1) Demand
data for 2019.
(2) Generation
data for 2019.
(3) Generation
by Central Puerto plants.
During 2019,
thermal generation continued to be the main source of electricity
supply, contributing 80,138 GWh (61.06 %), followed by
hydroelectric generation net of pumping, which contributed 35,370
GWh (26,95% %), nuclear generation, which contributed 7,927 GWh
(6.04 %) and photovoltaic and wind generation, which contributed
7,812 GWh (5.95%). There were also imports to cover domestic
demand, in the amount of 2,746 GWh (2.0% of the total energy
supplied, 699% higher than in 2018) from Uruguay, Paraguay and
Brazil, and exports to Brazil in the amount of 261 GWh (6.82% lower
than in 2018) and transmission losses in the amount of 4,852GWh
(6.99% higher than in 2018).
Hydroelectric
generation in 2019 registered a 11.47% decrease when compared to
2018, mainly due to a decrease of water levels, while thermal
generation registered a decrease of 9.65% mainly due to lower
domestic demand, and the introduction of new renewable energy
units. Nuclear generation registered a 22.84% increase when
compared to 2018, due to higher generation availability in 2019, as
compared to 2018. In this sense, thermal generation continued to be
the main source for the supply of electric power, fueled both by
natural gas and by liquid fuels (diesel oil and fuel oil), as well
as mineral coal, mainly during the winter months. Finally,
renewable energy generation increased 133.18% as compared to 2018,
mainly due to the introduction of new wind and solar
farms.
155
During 2019,
generation facilities increased their installed capacity from
38,538 MW in 2018 to 39,704 MW. This increase was caused mainly by
the commencement of operations of new thermal and renewable energy
units.
The State of Emergency of the Argentine Electric Power
Sector
In December 2015,
the prior administration enacted Decree No. 134/2015 declaring the
state of emergency of the Argentine electric power sector until
December 31, 2017. Pursuant to such decree, the Ministry of Energy
was entrusted with the duties of developing and putting in place an
action plan in connection with the electric power generation,
transportation and distribution segments in order to improve the
quality and security of electric power supply and guarantee the
provision of this public service under suitable technical and
economic conditions. These goals required additional investments in
the several sectors of the productive chain in order to accommodate
Argentina’s electric power supply and demand, which represent
both a challenge and an opportunity for the sector’s
players.
With respect to
electric power generation, the Ministry of Energy publicly noted in
2016 the need for new generating capacity, which it stated should
be addressed by the expansion of thermal and renewable energy
sources by private sector companies, and, consequently, it took
measures to boost generation capacity in order to ensure the supply
of electric power and reduce the need for imports from neighboring
countries. In this respect, the Ministry of Energy stressed that
the country needed to incorporate 10 GW of generating capacity from
conventional energy sources and 10 GW of generating capacity from
renewable sources in order to meet increasing demand over the next
ten years. Due to the situation of the industrial sector and the
macroeconomic situation in Argentina, which led to a decrease in
the demand of electric energy generation, it is unclear if the
current administration will continue to pursue that
goal.
Public Bid Process for Thermal Energy Generation Units
Pursuant to
Resolution SEE No. 21/16, the Secretariat of Electric Energy called
for bids to install new thermal generation units to become
operational between Summer 2016/2017 (some of which are now
operational) and Summer 2017/2018. The power generation companies
awarded the bids entered into a PPA with CAMMESA, denominated in
U.S. dollars, and electric power and capacity from these units will
be remunerated at the price indicated in the bid and under the
terms established in Resolution SEE No. 21/16.
Pursuant to
Resolution SEE No. 287-E/17, the Argentine Government called for
proposals for the supply of electric power to be generated through
existing units, the conversion of open combined cycle units into
closed combined cycle units or the installation of co-generation
units. The main objectives behind this process were to (i) increase
the supply of electric power generation from thermal generation
units and (ii) strengthen the reliability of the Argentine electric
power system with efficient generation units that have their own
permanent and guaranteed fuel supply thus reducing the need for
electric transportation and lowering the costs of the Argentine
Government and the WEM.
Public Bid Process for New Renewable Energy Generation
Units
On March 22, 2016,
the Secretariat of Electric Energy called for bids to install 1,000
MW of new renewable energy units (the “RenovAR
Program”). This bid process is governed by Law No. 27,191 and
Decree No. 531/16, which encouraged the increase of energy
generation from renewable sources by providing, among other things,
significant tax benefits. See “Item 4.B. Business
Overview—The Argentine Electric Power Sector—Structure
of the Industry—RenovAR (Round 1, Round 1.5 and Round 2):
Bidding Process for Renewable Energy Generation
Projects.”
During 2015,
electric power generation from renewable sources was 0.4% of the
total supply of electric power in Argentina. As established in
Section 2 of the Law referenced above, the purpose of this law is
to have these renewable energy sources account for, at least, 8% of
Argentina’s electric power consumption by December 31, 2017.
During the second stage of the “National System for the
Promotion of the Use of Renewable Energy Sources for Electricity
Production,” the goal is to have renewable energy sources
account for 12% of Argentina’s electric power consumption by
December 31, 2019, 16% by December 31, 2021, 18% by December 31,2023 and 20% by December 31, 2025, pursuant to Law No.
27,191.
The above framework
provides a significant growth opportunity in the field of clean and
renewable energies, especially considering that Large Users will be
required to purchase energy from renewable sources in the same
percentages mentioned above, and will be subject to penalties if
they do not comply with these requirements.
Resolution No.
136/16, issued by the Ministry of Energy and Mining and published
in the Official Gazette on July 26, 2016, launched the public
auction process for submitting bids for Round 1 of the RenovAR
Program. On October 7, 2016, the Ministry of Energy and Mining
finalized the auction process for the installation of new renewable
energy units and, under Resolution No. 136/16, granted awards in
the amount of 1,108.65 MW, with an average price of US$59.58,
including one biomass project, 12 wind energy projects and four
solar energy projects. Of these, we were awarded one wind energy
project for 99 MW of generating capacity at the price of US$61.50
per MWh, as further explained below in “Proposed Expansion of
Our Generating Capacity.”
156
On October 31, 2016
the Ministry of Energy and Mining, pursuant to Resolution No.
252/16, launched Round 1.5 of the RenovAR Program as a continuation
of Round 1. On November 25, 2016, the Ministry of Energy and Mining
finalized the auction process for the installation of new renewable
energy units and, under Resolution No. 281/16, granted awards in
the amount of 1281.5 MW, with an average price of US$53.98 per MWh,
including 10 wind energy projects and 20 solar energy projects. Of
these, we were awarded one wind energy project for 48 MW of
generating capacity at the price of US$59.38 per MWh, as further
explained below in “Proposed Expansion of Our Generation
Capacity.”
Following Rounds 1
and 1.5 of the RenovAR Program, the Ministry of Energy and Mining
pursuant to Resolution No. 275/17, launched Round 2 of the program
on August 17, 2017 and granted awards in the amount of 2,043 MW of
renewable power capacity.
We submitted bids
for Round 2 of the RenovAR Program on October 19, 2017 and, on
November 29, 2017, we were awarded a wind energy project called,
“La Genoveva I,” which will allow us to add an
additional capacity of 86.6 MW to our portfolio and to continue to
build a presence in the renewable energies sector. On January 11,2018 and February 21, 2018, Vientos La Genoveva S.A. acquired a
usufruct over the land where La Genoveva I is located. On March 23,2018, CP Renovables acquired Vientos La Genoveva S.A. and, on the
same date, transformed it into a S.A.U. On August 6, 2018, Central
Puerto acquired Vientos La Genoveva I from its subsidiary CP
Renovables.
Proposed Expansion of Our Generating Capacity
The chart below
shows the evolution of our power generating capacity since
2016:
Source: Central
Puerto
(1) Effective
as of January 5, 2018, we sold the La Plata plant to YPF EE. For
further information, see “Item 4.A. History and development
of the Company—La Plata Plant Sale.”
(2) On June14, 2019 we purchased the Brigadier López plant-
As of the date of
this annual report, we have an aggregate installed capacity of
4,315 MW.
Currently, although
power capacity is considered to be enough to supply the demand,
there is a need for the incorporation of new efficient capacity in
Argentina, from both conventional and renewable sources, in order
to replace old inefficient units.
157
In the recent years
we acquired four heavy-duty, highly efficient gas turbines (one
General Electric gas turbine with capacity of 373 MW, two Siemens
gas turbines, each with capacity of 298 MW, and one Siemens gas
turbine with capacity of 286 MW). Additionally, we have also
acquired 130 hectares of land in the north of the Province of
Buenos Aires, in a convenient location for fuel delivery and future
potential connection to power transmission lines. These assets will
potentially allow us to develop new power capacity. We are
currently installing one of these Siemens gas turbine of 286 MW,
for the Terminal 6 San Lorenzo co-generation project described
below.
We are able to
install new generation capacity, through one or more projects,
using the remaining three mentioned units and the aforementioned
land. However, we cannot predict if or when the Argentine
Government will open new auctions of new capacity and because of
the competition among generation companies in these auction
processes, we cannot predict whether we will be awarded the
projects and whether we will be able to utilize these assets as
intended.
Moreover, as of
December 31, 2019, we assessed the recoverability of these three
turbines. For more information, please see Note 2.2.8 to our
audited consolidated financial statements, “Item 3D. Risk
Factors—Risks Relating to our Business— Factors beyond
our control may affect or delay the completion of the awarded
projects, or alter our plans for the expansion of our existing
plants” and “Item 5.A. Operating Results—Critical
Accounting Policies—Impairment of Property, Plant and
Equipment”.
Pursuant to
Resolution SEE No. 287-E/17, the Argentine Government called for
proposals for the supply of electric power to be generated through
existing units, the conversion of open combined cycle units into
closed combined cycle units or the installation of co-generation
units. The main objectives behind this process were to (i) increase
the supply of electric power generation from thermal generation
units and (ii) strengthen the reliability of the Argentine electric
power system with efficient generation units that have their own
permanent and guaranteed fuel supply thus reducing the need for
electric transportation and lowering the costs of the Argentine
Government and the WEM.
We submitted bids
on August 9, 2017, and, on September 25, 2017, and as a result, we
were awarded two co-generation projects. The Terminal 6 San Lorenzo
and Luján de Cuyo projects have the following two potential
sources of income: (i) electric power sales to CAMMESA through PPAs
with a 15-year term which are priced in U.S. dollars; and (ii)
steam sales pursuant to separate steam supply agreements, which are
priced in U.S. dollars. We executed the PPAs with CAMMESA on
January 4, 2018. We executed the steam supply agreements with T6
Industrial S.A. and YPF on December 27, 2017 and December 15, 2017,
respectively.
Terminal 6 San
Lorenzo
Luján de
Cuyo
Location
San Lorenzo,
Province of Santa Fe (within the Terminal 6 agroindustrial
complex)
Luján de Cuyo,
Province of Mendoza(within our Luján de Cuyo
plant)
Committed
Commercial operation date(1)
September
2020
In operation since
October 2019
Estimated total
capital expenditure (excluding VAT)(2)
US$284
million
In
operation
Awarded power
capacity
330 MW (for the
winter)317 MW (for the summer)
93 MW (for the
winter)89 MW (for the summer)
Expected/current
power capacity(2)
391 MW
95.32
MW
Technical
configuration
Co-generation
system with one gas turbine and one steam turbine
Co-generation
system with two gas turbines
Electric energy
segment:
Awarded electric
capacity price per MW of installed capacity
US$17,000 per
month
US$17,100 per
month
Awarded generated
energy price (without fuel cost recognition)
US$8.00 per MWh for
natural gas operation and US$10.00 per MWh for gas oil
operation
(1) The
original commercial operation date (COD) committed with CAMMESA for
Terminal 6 San Lorenzo and Luján de Cuyo were May 22, 2020 and
November 22, 2019, respectively. Luján de Cuyo started
operations on October 5, 2019. On December 18, 2019, CAMMESA and
Central Puerto entered into an amendment to the Terminal 6 San
Lorenzo PPA, establishing a New Committed COD, for September 1,2020 (see more information in this section). Due to uncertainties
mentioned in this annual report (see Item 3D. Risk
Factors—Risks Relating to our Business Factors beyond our
control may affect or delay the completion of the awarded projects,
or alter our plans for the expansion of our existing plants) we
cannot estimate if the New Committed COD would be timely met. On
March 27, 2020, we informed CAMMESA of this circumstance in order
to avoid potential penalties should the project suffer unexpected
and unforeseen delays.
(2) As of
December 31, 2019, the executed capital expenditures for the
Terminal 6 San Lorenzo project was Ps. 10.143 million, plus the
applicable value added tax.
(3) The
companies that were awarded projects during the bidding process
were authorized pursuant to the conditions of such bidding process
to exceed the power capacity of the contracts. The excess of power
generated, if any, is remunerated under the Energía Base
provisions.
158
On October 5, 2019,
the new Luján de Cuyo cogeneration unit reached the commercial
operation date (COD).
The COD of the
Terminal 6 San Lorenzo project was originally scheduled for May 22,2020. On September 2, 2019, pursuant to Resolution SRRYME 25/2019,
the generation companies that had projects under construction under
Resolution SEE No. 287-E/17 were invited to confirm their expected
COD, which will become the New Committed COD (in Spanish,
Nueva Fecha de Habilitación
Comercial Comprometida or NFHCC). If generator decided to
inform a New Committed COD, they would not have been subject to
penalties under the PPA contracts entered into with CAMMESA, unless
the actual COD exceeded the New Committed COD.
However, due to the
outbreak of COVID-19, the COD of this plant may be further delayed.
(see Item 3D. Risk Factors—Risks Relating to our
Business— Factors beyond our control may affect or delay the
completion of the awarded projects, or alter our plans for the
expansion of our existing plants).
In addition, have a
wind project under construction in Argentina with the following
characteristics (the “Renewable Project”):
La
Genoveva I
Location
Province of Buenos
Aires
Expected commercial
operation date
May 2020
(1)
Estimated total
capital expenditure (excluding VAT) (2)
(1) The
commercial operation date (COD) committed with CAMMESA of La
Genoveva I is 720 days after the PPA signing date, which was on
July 27, 2018. However, due to the uncertainties mentioned in this
annual report regarding the effects of the COVID-19 outbreak (see
Item 3D. Risk Factors—Risks Relating to our Business—
Factors beyond our control may affect or delay the completion of
the awarded projects, or alter our plans for the expansion of our
existing plants) we estimate that the COD will be delayed. As of
the date of this report we’ve notified CAMMESA (the offtaker)
of this circumstance, who, on April 7, 2020 send us a note
acknowledging the reception of our note and asking for additional
information.
(2) As of
December 31, 2019, the executed capital expenditures for La
Genoveva I were Ps. 6.02 billion, plus the applicable value added
tax.
The Luján de
Cuyo project was partially funded with a borrowing from KFW
described in this annual report (see “Item 5.B. Liquidity and
Capital Resources—Recent Developments—Borrowing from
KFW”) and the La Genoveva I project is being developed
partially with a borrowing from IFC also described in this annual
report (“Item 5.B Liquidity and Capital Resources—Indebtedness—Loan
from the IFC to the subsidiary Vientos La Genoveva S.A.U.). All our
expansion projects are also being developed with equity from
Central Puerto and its subsidiaries. We may explore alternative
financing options if the conditions are favorable.
In connection with
the Renewable Projects, we have already obtained energy production
assessments prepared by an independent expert, regulatory approvals
of the environmental impact studies, relevant municipal
qualifications and regulatory approvals of the electrical studies
in connection with access to the transmission network. In addition,
we have three usufructs over the land in the Province of Buenos
Aires to be used for our La Genoveva I project. We have begun
construction of the facilities and have executed contracts with
suppliers to acquire and maintain the wind turbines of La Genoveva
I project.
We are also
currently exploring several other options to diversify our
generation assets to include sustainable power generation sources.
As of the date of this annual report, CAMMESA granted the energy
dispatch priority for La Castellana II (15.20 MW), for Manque
(previously a part of Achiras II) (57 MW), Los Olivos (22.82 MW)
((previously a part of Achiras II), La Genoveva II (41.80MW). As of
the date of this annual report, we have already signed long-term
PPA contracts with private customers for 100.00% % of the
estimated energy generation capacity of our wind farm term market
projects (considering the median -Percentile 50%- of the expected
energy production) developed under Resolution No. 281-E/17
regulatory framework.
We believe we are
well-positioned to identify and execute new growth opportunities.
However, we cannot assure you that the Argentine Government will
open new auction processes or that our bids will be successful or
that we will be able to enter into new PPAs in the future. See
“Item 3D. Risk Factors—Risks Relating to our
Business— Factors beyond our control may affect or delay the
completion of the awarded projects, or alter our plans for the
expansion of our existing plants.”
159
Sale of the La Plata Plant
On December 20,2017, YPF EE accepted our offer to sell the La Plata plant for a
total sum of US$31.5 million (without VAT), subject to certain
conditions. On February 8, 2018, after such conditions were met,
the plant was transferred to YPF EE, including generation assets,
personnel and agreements related to the operation and/or
maintenance of La Plata plant’s assets, with effective date
January 5, 2018. Consequently, as of December 31, 2017, the La
Plata plant was classified as a disposal group held for sale and
its respective results were classified for the years ended December31, 2018 and 2017 as a discontinued operation.
Presentation of Financial Statements in Pesos
Critical Accounting Policies
This discussion and
analysis of our financial condition and results of operations is
based upon our audited consolidated financial statements, which
have been prepared in accordance with IFRS. The preparation of our
audited consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of
contingent liabilities.
Critical accounting
policies are those that reflect significant judgments, estimates or
uncertainties and could potentially lead to materially different
results under different assumptions and conditions. We base our
estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Existing circumstances and assumptions
about future developments, however, may change due to market
changes or circumstances arising beyond our control. Such changes
are reflected in the assumptions when they occur. Therefore, actual
results may differ from these estimates under different assumptions
or conditions. These assumptions are reviewed at the end of each
reporting period.
We have described
below what we believe are our most critical accounting policies
that involve a high degree of judgment and/or estimates and the
methods of their application. For more information on the
accounting policies and the methods used in the preparation of the
audited consolidated financial statements, see Note 2.2 to our
audited consolidated financial statements.
Revenue Recognition
We recognize our
sales revenue in accordance with the availability of our
machines’ effective power, the power and steam supplied; and
as balancing entry, a sales receivable is recognized, which
represents our unconditional right to consideration owed by the
customer. Billing for the service is monthly made by CAMMESA in
accordance with the guidelines established by SEE; and compensation
is usually received in a maximum term of 90 days. Therefore, no
implicit financing components are recognized. The satisfaction of
the performance obligation is done throughout time since the
customer simultaneously receives and consumes the benefits given by
the performance of the entity as the entity does it.
Revenues from
energy, power and steam sales are calculated at the prices
established in the respective contracts or at the prices prevailing
in the electricity market, according to the regulations in force.
These include revenues from the sale of steam, energy and power
supplied and not billed until the closing date of the reported
period, valued at the prices defined in the contracts or in the
respective regulations.
Additionally, we
recognize the sales from contracts regarding the supplied energy
and the prices established in such contracts, and as balancing
entry we recognize a sale credit. Such credit represents the
unconditional right we have to receive the consideration owed by
the customer. Billing for the service is monthly made by CAMMESA in
the case of the contracts of the wind farms La Castellana and
Achiras and for the Energía Plus contract in accordance with
the guidelines established by SEE; and compensation is received in
a maximum term of 90 days. Therefore, no implicit financing
components are recognized. For the rest of the clients, billing is
also monthly and done by us; and compensation is received in a
maximum term of 90 days. Therefore, no implicit financing
components are recognized. The satisfaction of the performance
obligation is done throughout time since the customer
simultaneously receives and consumes the benefits given by the
performance of the entity as the entity does it.
We recognize
revenues from resale and distribution of gas and revenues for the
monthly management of the thermal power plant CVO in accordance
with the monthly fees established in the respective contracts and
as balancing entry, we recognize a sale credit. Such credit
represents the unconditional right we have to receive the
consideration owed by the customer. Billing for the service is also
monthly made by us and compensation is generally received in a
maximum term of 90 days. Therefore, no implicit financing
components are recognized.
160
Management is
required to make assumptions about timing of collection for those
receivables without a fixed date of collection, which is subject to
change from period to period. Collection of the principal and
interest on these receivables is subject to various business risks
and uncertainties including, but not limited to, the completion and
operation of power plants which generate cash for payments of these
receivables, regulatory changes that could impact the timing and
amount of collections and economic conditions in Argentina. Our
collection estimates are based on assumptions that we believe to be
reasonable, but are inherently uncertain. We accrue interest on the
accounts receivable with CAMMESA once the recognition criteria have
been met.
In 2010, we entered
into the CVO Agreement with the Secretariat of Electric Energy. The
CVO Agreement established, among other agreements, a framework to
determine a mechanism to settle unpaid trade receivables as per
Resolution SE No. 406/03 accrued over the 2008-2011 period by the
generators (the “LVFVD 2008-2011 receivables”), and for
that purpose, enabling the construction of a thermal combined cycle
plant named CVOSA. The CVO Agreement established that the CVO LVFVD
2008-2011 receivables will be paid by CAMMESA in 120 equal and
consecutive monthly installments. For the determination of the
novation of CVO LVFVD 2008-2011 receivables, the following
mechanism was applied: the cumulative LVFVD (sale settlements with
due date to be defined) were converted to US$ at the exchange rate
established in the agreement (ARS 3.97 per US$ for the cumulative
LVFVD until the execution date of the CVO Agreement and the closing
exchange rate corresponding to each month for the LVFVD
subsequently accumulated), the LIBOR rate was applied plus a 5%
margin.
Effective as of
March 20, 2018, CAMMESA granted the Commercial Approval to the
thermal plant Central Vuelta de Obligado. As a consequence of the
Commercial Approval and in accordance with the CVO Agreement, we
recognized a onetime estimated income (before income tax) in
relation to the interest and the effect of the adjustment of the
CVO receivables to US dollars as of March 20, 2018 that reaches
approximately Ps. 11,017 million and such amount was recognized in
the consolidated income statement for the year ended December 31,2018 under “CVO receivables update”.
Impairment of Property, Plant and Equipment and Intangible
Assets
We assess at each
reporting period-end whether an existing event or one that took
place after year end and provides additional evidence of conditions
that existed at the end of the reporting period, indicates that an
individual component or a group of property, plant and equipment
and/or intangible assets with finite useful lives may be impaired.
If any indication exists, we estimate the asset’s recoverable
amount. An asset’s recoverable amount is the higher of the
fair value less costs to sell that asset, and its value-in-use.
That amount is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of
those from other assets or groups of assets; in which case, the
cash flows of the group of assets that form part of the
cash-generating unit (“CGU”) to which they belong are
taken.
Where the carrying
amount of an individual asset or CGU exceeds its recoverable
amount, the individual asset or CGU, as the case may be, is
considered impaired and is written down to its recoverable
amount.
In assessing value
in use of an individual asset or CGU, the estimated future cash
flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the individual asset or
CGU, as the case may be.
In determining fair
value less costs to sell, recent market transactions are taken into
account, if available. If no such transactions can be identified,
an appropriate valuation model is used. These calculations are
verified by valuation multiples, quoted values for similar assets
on active markets and other available fair value indicators, if
any.
We base the
impairment calculation on detailed budgets and forecast
calculations which are prepared separately for each of our CGU to
which the individual assets are allocated. These detailed budgets
and forecast calculations generally cover a five-year period. For
longer periods, a long-term growth rate is calculated and applied
to project future cash flows after the fifth year. Budgets and
calculations related to Complejo Hidroeléctrico Piedra del
Águila are limited to the term of the concession
contract.
Impairment losses
of continuing operations are recognized in a specific line of the
consolidated statement of income.
In addition, for
the assets for which an impairment loss had been booked, as of each
reporting period-end, an assessment is made whether there is any
indication that previously recognized impairment losses may no
longer exist or may have decreased. If a triggering event or
impairment exists, we make an estimate of the recoverable amount of
the individual asset or of the cash generating unit, as the case
may be.
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A previously
recognized impairment loss is reversed only if there has been a
change in the assumptions used to determine the individual assets
or CGU’s recoverable amount since the last impairment loss
was recognized. The reversal is limited so that the carrying amount
of the asset or CGU does not exceed its recoverable amount, nor
exceed the carrying amount that would have been determined, net of
the related depreciation or amortization, had no impairment loss
been recognized for the asset or CGU in prior periods. Such
reversal is recognized in the statement of income in the same line
in which the related impairment charge was previously recognized
(generally under the cost of sales or other operating expenses),
unless the asset is carried at a revalued amount, in which case,
the reversal is treated as a revaluation increase.
During the period
ended December 31, 2019, we have identified as indicators of
potential impairment of its property, plant and equipment and/or
its intangible assets with a limited useful life, the drop in the
Company’s stock price, the current economic uncertainties,
the conversion of the electric and power spot market tariff into
Argentine pesos, and in the particular case of the Company’s
gas turbines, the uncertainty about the feasibility of new projects
that would enable the use of the acquired turbines.
In order to measure
the recoverability of its property, plant and equipment and its
intangible assets with a limited useful life, with the exception of
the generating groups classified as “Turbines”, we have
estimated their value-in-use. As a result of the recoverability
analysis, the book value of the assets form the cash-generating
units of the renewable electric energy generation segment and the
book value applicable to the thermal power plants Puerto Nuevo and
Nuevo Puerto, the thermal power plants in Luján de Cuyo, and
the hydroelectric power plant Piedra del Águila, did not
exceed their recoverable value as of December 31,2019.
The estimated
recoverable values are sensitive to the significant variation of
the assumptions applied, including the determination of future
tariffs by the Argentine Government. In any case, we cannot assure
with certainty that future tariff adjustments will be in line with
the assumptions applied. Therefore, significant differences could
arise in the future in relation to the estimated
values-in-use.
CGU Thermal Plant Brigadier López
In addition, we
estimated that the book value of the assets of the cash-generating
unit of the Thermal Plant Brigadier López exceeded its
recoverable asset by Ps.3,159 million. Therefore, an impairment
charge was determined and allocated on a pro-rata basis to
property, plant and equipment (Ps.968 million under the item
“Electric power facilities” and Ps.1,114 million under
the item “Construction in progress”) and to intangible
assets in the amount of Ps.1,077 million under the item
“Impairment of property, plant and equipment and intangible
assets” of our consolidated statement of income for the year
ended December 31, 2019. After recording this impairment, the book
value of the electric power facilities and the construction of the
Plant Brigadier López, amounted to Ps. 3,747 million and
Ps.4,309 million, respectively, and the book value of the
intangible assets amounted to Ps. 4,167 million.
The key assumptions
to estimate the value-in-use are as follows:
●
Gross margin: the margin has
been determined for the budgeted period (5 years) based on the
prices of the electric energy and power included in Resolution
31/20 and PPAs entered into by the Company, whereas the costs have
been determined based on the costs incurred during the first six
months of operations for each the power plant. The most relevant
cost was thermal plant maintenance, which was estimated with the
provisions from the agreement with Siemens S.A.
●
Discount rate: it represents
the current market assessment of the specific risks of the Company,
taking into consideration the time-value of money. The discount
rate calculation is based on the market participants’
circumstances and it is derived from the weighted average cost of
capital (“WACC”). The WACC takes into account both debt
and equity. The cost of equity is derived from the expected return
on investment by the market participant’s investors, whereas
the cost of debt is based on the debt conditions to which the
market participants could access to. Segment-specific risk is
incorporated by applying individual beta factors, which are
evaluated annually based on the available market data.
The after-tax
discount rates considered in the determination of the value-in-use
as of December 31, 2019, were 12.3% for year 2020 cash flows and
12.6% for the following years cash flows.
Any increase in the
discount rate would result in an additional impairment of the CGU
Thermal Station Brigadier López.
162
●
Macroeconomic variables: the
estimated inflation and devaluation rates, as well as the exchange
rates used, were obtained from well-known consulting firms,
dedicated to the local and global economic analysis, widely
experienced in the market. An increase in the inflation rates over
the devaluation rates in relation to the macroeconomic variables
considered in the determination of the value-in-use would result in
an additional impairment of the CGU Thermal Station Brigadier
López.
●
Growth rate used in the cashflows
after the budgeted period: in accordance with IAS 36, no
growth rates were considered from the fifth-year cash
flows.
Turbines
We have revised the
recoverability of turbines acquired, included under
“Turbines” in property, plant and equipment, as
individual assets. As of December 31, 2019, we have estimated that
the book value of the General Electric generating unit stored in
the Nuevo Puerto power plant, and the two Siemens generating units
stored in the supplier’s facilities, exceed their recoverable
amount by Ps.765 million and Ps.481 million, respectively. In order
to determine the recoverable amount of such generating units, we
have considered the fair value less costs of sell approach, basing
the estimate in the valuation performed by an independent
specialist. In the case of the General Electric generating unit,
costs for the sale of the asset in the international market
pursuant to customs and tax duties usually applicable to the
purchase and sale of a similar asset were also
considered.
The turbines fair
value was determined using the market approach technique, which
should be categorized within the Level 3 of the fair value
measurement hierarchy. The key assumptions which the estimation of
the turbines fair value is more sensitive to the reference values
of transactions involving similar gas turbines, considering the
value per kW of generating power as of the valuation date of
comparable equipment, taking into account technical
characteristics, brand and model, geographic location, preservation
status, usage, year of construction, among others.
The impairment
charge of the above-mentioned turbines was recorded in the item
“Impairment of property, plant and equipment and intangible
assets” of the consolidated statement of income for the year
ended December 31, 2019. After recording the impairment, the book
value of the General Electric and Siemens generation groups amounts
to Ps. 1,091 million and Ps. 2,507 million,
respectively.
No
impairment indicators were identified during the years ended
December 31, 2018 and 2017.
Provision for Legal Claims
In the ordinary
course of business, we are exposed to claims of different natures
(e.g., commercial, labor,
tax, social security, foreign exchange or customs claims) and other
contingent situations arising from the interpretation of current
legislation, which could result in a loss, the materialization of
which depends on whether one more events occur or not. In assessing
these situations, management uses its own judgment and advice of
its legal counsel, both internal and external, as well as the
evidence available as of the related dates. If the assessment of
the contingency reveals that the likelihood of the materialization
of a loss is probable and the amount can be reliably estimated, a
provision for lawsuits and claims is recorded as of the end of the
reporting period.
The provision for
legal claims reflects a reasonable estimation that losses will be
incurred, based on information available to management at the date
of the financial statements, and taking into account our litigation
and resolution/settlement strategies. Existing circumstances and
assumptions, however, may change due to changes in circumstances
arising beyond our control.
New
standards and interpretations adopted
As from the fiscal
year beginning January 1, 2019, we have applied for the first time
certain new and/or amended standards and interpretations as issued
by the IASB. A brief description of the new and/or amended
standards and interpretations adopted by us and their impact on
these consolidated financial statements, are presented
below.
163
IFRS 16 Leases
In January 2016,
the IASB issued the final version of IFRS 16 and it replaces IAS 17
Leases, IFRIC 4 Determining whether an arrangement contains a
lease, SIC-15 Operating leases-incentives and SIC-27 Evaluating the
substance of transactions involving the legal form of a lease. IFRS
16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under IAS 17. The
standard includes two recognition exemptions leases of
“low-value” assets (e.g., personal computers) and
short-term leases (i.e., leases with a lease term of 12 months or
less). At the commencement date of a lease, a lessee will recognize
a liability to make lease payments (i.e., the lease liability) and
an asset representing
the right to use
the underlying asset during the lease term (i.e., the right to-use
asset). Lessees will be required to separately recognize the
interest expense on the lease liability and the depreciation
expense on the right of use asset. Lessor accounting under IFRS 16
is substantially unchanged from today’s accounting under IAS
17. Lessors will continue to classify all leases using the same
classification principle as in IAS 17 and distinguish between two
types of leases: operating and finance leases. IFRS 16 also
requires lessees and lessors to make more extensive disclosures
than under IAS 17. IFRS 16 is effective for annual periods
beginning on or after January 1, 2019. Early adoption is permitted,
but not before the entity applies IFRS 15. A lessee can choose to
apply the standard using either a full retrospective or modifies
retrospective approach.
As of December 31,2019, these changes did not have a significant impact on the
consolidated financial statements of Central Puerto.
IFRIC Interpretation 23 - Uncertainty over Income Tax
Treatments
In June 2017, the
IASB issued IFRIC Interpretation 23 - Uncertainty over Income Tax
Treatments. Interpretation 23 clarifies application of recognition
and measurement requirements in IAS 12 Income Taxes when there is
uncertainty over income tax treatments. Interpretation 23
specifically addresses the following: (a) whether an entity
considers uncertain tax treatments separately, (b) the assumptions
an entity makes about the examination of tax treatments by taxation
authorities, (c) how an entity determines taxable profit (tax
loss), tax bases, unused tax losses, unused tax credits and tax
rates and (d) how an entity considers changes in facts and
circumstances. IFRIC 23 is effective for annual periods beginning
on or after January 1, 2019. Central Puerto determines whether each
tax treatment should be considered independently or whether some
tax treatments should be considered together, and uses an approach
that provides better predictions of the resolution of the
uncertainty.
Central Puerto
applies significant judgment when identifying uncertainties on the
income tax treatment. We evaluated whether Interpretation 23 had an
impact on the consolidated financial statements, especially within
the framework of tax inflation adjustment in determining the tax
income of mentioned periods. Based on the opinion of its legal
advisors and considering the new guidelines introduced by IFRIC 23,
we considered: 1) regarding the income tax 2014 determination
stated in a), that it is probable that tax authorities will accept
the Company’s position and, therefore, it is not required to
record a liability under such item, and 2) regarding actions for
recovery of income tax, except for the case of the action for
recovery filed by HPDA for the fiscal period 2011, that it is also
probable that tax authorities will accept the Company’s
positions; therefore, an asset has been recognized for such
actions.
Consequently, the
Company has recognized an income for Ps.756,526 regarding the
adoption of IFRIC 23, with an impact on retained earnings at the
beginning of this fiscal year, as it is established by the
Interpretation, and an asset for Ps.127,441 included in the item
“Other non-financial assets” of Current Assets under
“Income Tax Credits”.
See “Item
8.A. Consolidated Statements and Other Financial
Information—Legal Proceedings”.
IFRS Standards and Interpretations Issued but not yet
Effective
The following new
and/or amended standards and interpretations have been issued but
were not effective as of the date of issuance of our audited
consolidated financial statements. In this sense, only the new
and/or amended standards and interpretations that the Company
expects to be applicable in the future are indicated. In general,
the Company intends to adopt these standards, as applicable, when
they become effective.
Amendments to IFRS 3: Definition of a business
In October 2018,
the IASB issued amendments to the definition of a business through
IFRS 3 “Business combinations” to make it easier for
companies to decide whether activities and assets they acquire are
a business or not. The standard clarifies the minimum requirements
for the existence of a business, removes the test on whether market
participants can replace the missing elements; it adds a guide to
help companies evaluate if an acquired process is significant; it
reduces the definitions of a business and results, and it
introduces an optional concentration test of reasonable value. New
examples were provided together with the amendments.
164
Since amendments
are applied prospectively to the transactions or other events that
occur on the date of the first application or later, the Company
shall not be affected by these amendments on the transition
date.
Amendments to IAS 1 and to IAS 8: Definition of
material
In October 2018,
IASB issued amendments to IAS 1 “Presentation of Financial
Statements” and to IAS 8 “Accounting Policies, Changes
in Accounting Estimates and Errors” to align the definition
of “material” through the standards and to clarify
certain aspects of the definition. The new definition establishes
that: “Information is material if omitting, misstating or
obscuring it could reasonably be expected to influence decisions
that the primary users of general purpose financial statements make
on the basis of those financial statements, which provide financial
information about a specific reporting entity.”
The amendment to
the definition of material is not expected to have a significant
impact on the consolidated financial statements of the
Company.
We discuss below:
(i) our results of operations for the year ended December 31, 2019
as compared with our results of operations for the year ended
December 31, 2018; and (ii) our results of operations for the year
ended December 31, 2018 as compared with our results of operations
for the year ended December 31, 2017.
On February 8,2018, we transferred the La Plata plant to YPF EE, with an
effective date as of January 5, 2018. Consequently, as of December31, 2017 the La Plata plant was classified as a disposal group held
for sale and we present its respective results for the years ended
December 31, 2019, 2018 and 2017, as discontinued operations. See
Note 21 to our audited consolidated financial statements and
“Item 4.A. History and development of the Company—La
Plata Plant Sale.”
(1) Includes
(i) sales of energy and power to CAMMESA remunerated under
Resolution No. 95, Resolution No. 19/2017, and Res. SE 1/2019 (ii)
spot sales of energy and power to CAMMESA not remunerated under
Resolution No. 95 (as amended), (iii) remuneration under Resolution
No. 724/2008 relating to agreements with CAMMESA to improve
existing Argentine power generation capacity and (iv) income under
Res. SEE 70/18 (see “Item 4.B. Business Overview—The
Argentine Electric Power Sector—Remuneration Scheme—The
Previous Remuneration Schemes—Resolution SEE
70/18—Option to purchase fuel for units under Energía
Base Regulatory Framework.”).
(2) Includes
(i) term market sales under contracts and, (ii) energy sold under
the Energía Plus and (iii) RenovAr Program sales under
contracts (for more information regarding term market sales under
contract, see “Item 4.B. Business Overview—Our
Customers”) (for more information regarding term market sales
under contract, see “Item 4.B. Business Overview—Our
Customers”).
(3) Includes
steam sold under steam sale contract with YPF from the Luján
de Cuyo Plant.
2019 Compared to 2018
Revenues from
continuing operations in 2019 totaled Ps.35.96 billion, a 63.87%
increase from Ps. 21.94 billion in 2018. This increase was
primarily attributable to:
1.
A 40.50% increase
in our revenues from electric power sold under Energía Base,
which amounted to Ps.27.38 billion during the year ended December31, 2019, compared to Ps.19.49 billion during the year ended
December 31, 2018, mainly explained by (i) an increase in the
exchange rate for 2019 higher than the inflation for the period,
which impacted directly on tariffs set in U.S. dollars, in terms of
Argentine pesos current at the end of the reporting period. As a
reference, during 2019, the foreign exchange rate increased 58.86%
and the inflation rate was 53.83%, while during 2018 the foreign
exchange rate increased 102.2% and the inflation rate was 47.64%,
(ii) an increase in fuel remuneration for units under
Energía Base regulatory framework (and other related
concepts), which amounted to Ps.10.93 billion during the year ended
December 31, 2019 (see “—Factors Affecting Our Results
of Operations—Our Revenues—The Energía
Base”), compared to Ps.2.99 billion during the year ended
December 31, 2018. The increase in our revenues from electric power
sold under Energía Base was partially offset by the tariff
decrease established by Res. 1/19, which set lower prices for
energy generation and generation availability than from that
applied during 2018.
2.
a 432.83% increase
in our revenues from sales under contracts (including the
Energía Plus contracts, which are denominated in U.S.
dollars), which amounted to Ps.7.35 billion during the year ended
December 31, 2019, compared to Ps.1.38 billion during the year
ended December 31, 2018, primarily attributable to (a) Ps.3.48
billion in revenues from the Brigadier Lopez plant, which we
acquired in 2019, (b) the commencement of operations during 2019 of
the co-generation project Luján de Cuyo, which generated
revenues totaling Ps.585.88 million, (c) the commencement of
operations during 2019 of the wind farm projects La Castellana II,
La Genoveva II and Manque, which generated Ps. 391.84 million
in revenues, in the aggregate, and (d) a 58.86% devaluation of the
peso with respect to the U.S. dollar in 2019, offset by an
inflation rate of 53.83% during 2019, while during 2018 the foreign
exchange rate increased 102.2% and the inflation rate was
47.64%;
3.
a 14.88% increase
in our revenues from steam sales to YPF from our Luján de Cuyo
Plant, which amounted to Ps.434.65 million during the year ended
December 31, 2019, compared to Ps.378.35 million during the year
ended December 31, 2018, primarily attributable to a 58.86%
devaluation of the peso with respect to the U.S. dollar in 2019,
offset by an inflation rate of 53.83% during 2019, while during
2018 the foreign exchange rate increased 102.2% and the inflation
rate was 47.64%, and by a 6.48% decrease in the quantity of steam
sold (1,031,044 tons in 2019 as compared to 1,102,515 tons in
2018).
166
2018 Compared to 2017
Revenues from
continuing operations in 2018 totaled Ps.21.94 billion, a 48%
increase from Ps.14.83 billion in 2017. This increase was primarily
attributable to:
1.
a 38.68% increase
in our revenues from electric power sold under Energía Base,
which amounted to Ps.19.49 billion during the year ended December31, 2018, compared to Ps.14.04 billion during the year ended
December 31, 2017, primarily attributable to (i) the tariff
increase established by Res. 19/17, which set higher prices for
energy generation and machine availability and set them in US
dollars (2018 was fully-impacted by the November 2017 tariff
increase), (ii) an increase in the exchange rate for 2018 higher
than the inflation for the period, which impacted tariffs set in
U.S. dollars, in terms of Argentine pesos current at the end of the
reporting period. As a reference, during 2018, the foreign exchange
rate increased 102.2% and the inflation rate was 47.64%, while
during 2017 the foreign exchange rate increased 17.4% and the
inflation rate was 24.80%, and (iii) an increase in fuel
remuneration for units under Energía Base regulatory framework
(and other related concepts), which amounted to Ps.3.00 billion
during the year ended December 31, 2018, mainly because of income
in accordance to Res. 70/18, during November and December 2018, in
some of the units under the Energía Base regulatory framework
(see “—Factors Affecting Our Results of
Operations—Our Revenues—The Energía Base”),
compared to Ps.609.85 million during the year ended December 31,2017.
2.
a 228.16% increase
in our revenues from sales under contracts (including the
Energía Plus contracts, which are denominated in U.S.
dollars), which amounted to Ps. 1379.57 million during the year
ended December 31, 2018, compared to Ps.420.42 million during the
year ended December 31, 2017, primarily attributable to (a) the
commencement of operations of the projects Achiras and La
Castellana I, which generated revenues totaling Ps. 921.92
million and (b) 102.16% devaluation of the peso with respect to the
U.S. dollar in 2018, which was offset by an inflation rate of 47.6%
during 2018, while during 2017 the foreign exchange rate increased
17.4% and the inflation rate was 24.80%;
3.
a 6.71% increase in
our revenues from steam sales to YPF from our Luján de Cuyo
Plant, which amounted to Ps.378.35 million during the year ended
December 31, 2018, compared to Ps.354.55 million during the year
ended December 31, 2017, primarily attributable to (a) a 102.16%
devaluation of the peso with respect to the U.S. dollar in 2018
(the price per unit in U.S. dollars for our steam sales has not
changed), offset by an inflation rate of 47.64% during 2018, while
during 2017 the foreign exchange rate increased 17.4% and the
inflation rate was 24.80%, which was partially offset by (b) a
6.38% decrease in the quantity of steam sold (1,102,515 tons
in 2018 as compared to 1,177,661 tons during the year ended
December 31, 2017).
Cost of sales from
continuing operations during the year ended December 31, 2019
totaled Ps.18.96 billion, a 89.97% increase from Ps.9.98 billion
during the year ended December 31, 2018. This increase was
primarily the result of:
1.
a Ps.6.56 billion,
or 383.72%, increase in purchase of gas by Central
Puerto;
2.
a Ps.0.88 billion,
or 164.20%, increase in amortization of intangible assets mainly
due to the amortization of intangible assets associated to the
acquisition of the Brigadier Lopez plant; and
3.
a Ps.41.19 million,
or 12.00%, increase in levies and royalties associated to the
increase in revenues from the Piedra del Águila Plant mainly
due to the increases in the quantity of energy sold.
2018 Compared to 2017
Cost of sales from
continuing operations during the year ended December 31, 2018
totaled Ps.9.98 billion, a 24.76% increase from Ps.8.00 billion
during the year ended December 31, 2017. This increase was
primarily the result of:
1.
a Ps.2.51 billion,
or 291.88%, increase in purchase of gas by Central Puerto;
and
2.
a Ps. 15.81
million, or 4.83%, increase in levies and royalties associated to
the increase in revenues from the Piedra del Águila Plant due
to increases in the energy and power prices, and in the quantity of
energy generated.
This was partially
offset by a Ps.101.02 million, or 4.57%, decrease in compensation
to employees, primarily related to CBAs.
Gross Income from continuing operations
2019 Compared to 2018
Gross income from
continuing operations during the year ended December 31, 2019
totaled Ps.17.00 billion, a 42.10% increase from Ps.11.97 billion
during the year ended December 31, 2018, due to the reasons
mentioned above. Gross margin for the year ended December 31, 2019
was 47.29%, compared to a gross margin of 54.53% during the same
period in 2018.
2018 Compared to 2017
Gross income from
continuing operations during the year ended December 31, 2018
totaled Ps.11.97 billion, a 75.22% increase from Ps.6.83 billion
during the year ended December 31, 2017, due to the reasons above
mentioned. Gross margin for the year ended December 31, 2018 was
54.53%, compared to a gross margin of 46.06% during the same period
in 2017.
Administrative and Selling Expenses from continuing
operations
2019 Compared to 2018
Administrative and
selling expenses from continuing operations during the year ended
December 31, 2019 totaled Ps.2,633 million, a 23.21% increase from
Ps.2,137 million during the year ended December 31, 2018. This
increase was primarily the result of:
1.
a Ps.234.04
million, or 59.35%, increase in taxes on bank account transactions
as a result of the revenue increase during the year ended December31, 2019; and
2.
a Ps.214.57
million, or 40.68%, increase in fees and compensation for services
mainly due to (a) a Ps. 56.75 million increase in employee
transportation, meal expenses and security services, among others,
due to a price increase for such services, and (b) a Ps. 98.23
million increase in professional services related to financing
activities.
168
2018 Compared to 2017
Administrative and
selling expenses from continuing operations during the year ended
December 31, 2018 totaled Ps.2.14 billion, a 31.53% increase from
Ps.1,62 billion during the year ended December 31, 2017. This
increase was primarily the result of:
1.
a Ps.182.88
million, or 86.49%, increase in taxes on bank account transactions
as a result of the revenue increase during the year ended December31, 2018; and
2.
a Ps.281.44
million, or 58.13%, increase in fees and compensation for services,
plus maintenance expenses, mainly due to (a) a Ps. 21.66 million
increase in employee transportation, meal expenses and security
services, among others, due to a price increase for such services,
(b) a Ps. 86.02 million increase in professional services related
to financing activities and (c) a Ps.173.77 million increase in
maintenance expenses.
Impairment of property, plant and equipment and intangible
assets
2019 Compared to 2018
In 2019, we
recorded a Ps. 4.4 billion impairment of property, plant and
equipment and intangible assets charge, mainly related to a
reduction in the assessed value-in-use of certain assets that
exceeded their previously recorded book value, mainly related to
our Brigadier López plant and intangible assets associated to
it and some of the gas turbines that the company holds for
potential new projects. Some of the factors that influenced this
reduction were the limited useful life of these assets, the drop in
the Company’s stock price, the current economic
uncertainties, the conversion of the electric and power spot market
tariff into Argentine pesos, and in the particular case of the
Company’s gas turbines, the uncertainty about the feasibility
of new projects that would enable the use of the acquired turbines.
For more information, see Item 5.A. Operating Results - Critical
Accounting Policies - Impairment of property, plant and equipment
and intangible assets.
In 2018, we did not
record any Impairment of property, plant and equipment and
intangible assets charge.
2018 Compared to 2017
In 2018 and 2017,
we did not record any Impairment of property, plant and equipment
and intangible assets charge.
Other Operating Income from continuing operations
2019 Compared to 2018
Other operating
income from continuing operations in the year ended December 31,2019 totaled Ps.18.35 billion, a 9.77% decrease from Ps.20.34
billion in the year ended December 31, 2018. This decrease was
primarily the result of:
1.
a Ps.5.63 billion,
or 32.09%, decrease in foreign exchange gains from trade payables
and receivables, net denominated in U.S. dollars mainly as a result
of: (a) a 58.86% devaluation of the peso with respect to the U.S.
dollar in 2019, which was offset by an inflation rate of 53.83%
during 2019, while during 2018 the foreign exchange rate increased
102.2% and the inflation rate was 47.64%, and (b) a decrease in
trade payables and receivables, net denominated in U.S. dollars
(which totaled US$492.70 million as of December 31, 2019, as
compared to US$562.54 million of net trade payables and receivables
as of December 31, 2018).
2.
A Ps.3.94 billion,
or 157.69%, increase in interests from trade payables and
receivables, mainly as a result of the increase in our revenues
from continuing operations due to the reasons mentioned
above.
169
2018 compared to 2017
Other operating
income from continuing operations in the year ended December 31,2018 totaled Ps.20.34 billion, a 1,321.72% increase from Ps.1.43
billion in the year ended December 31, 2017. This increase was
primarily the result of:
1.
a Ps.17.37 billion
or 9,671.80% increase in foreign exchange gains from trade payables
and receivables, net denominated in U.S. dollars mainly as a result
of: (a) a 102.16% devaluation of the peso against the U.S. dollar
in the year ended December 31, 2018 (calculated at the exchange
rate as of December 31, 2018 compared to the exchange rate as of
December 31, 2017), while the inflation rate during 2018 was
47.64%, compared to a 17.36% devaluation of the peso against the
U.S. dollar in the year ended December 31, 2017 (calculated at the
exchange rate as to December 31, 2017 compared to the exchange rate
as of December 31, 2016) while the inflation rate during 2017 was
24.80%, and (b) an increase in trade payables and receivables, net
denominated in U.S. dollars (which totaled US$547.86 million as of
December 31, 2018, as compared to US$35.30 million of net
receivables as of December 31, 2017).
Other Operating Expenses from continuing operation
2019 Compared to 2018
Other operating
expenses from continuing operations in the year ended December 31,2019 totaled Ps.270.75 million, a 32.45% increase from Ps.204.41
million in the year ended December 31, 2018. This increase was
primarily the result of an increase of Ps. 223.89 million in
charges related to the discount on tax credits, which was partially
offset by a Ps.131.68 million decrease in charges related to the
provision for lawsuits and claims.
2018 Compared to 2017
Other operating
expenses from continuing operations in the year ended December 31,2018 totaled Ps.204.41 million, a 5.18% decrease from Ps.215.58
million in the year ended December 31, 2017. This decrease was
primarily the result of a decrease of Ps.20.26 million in provision
for lawsuits and claims, and was partially offset by an increase of
the result of Ps. 5.38 million for impairment of material and spare
parts.
Operating Income from continuing operations
2019 Compared to 2018
For the reasons
explained above, operating income from continuing operations in the
year ended December 31, 2019 totaled Ps.28.05 billion, a 40.21%
decrease from Ps.46.91 billion in the year ended December 31, 2018.
This is mainly explained by a Ps.4.04 billion increase in
impairment of property, plant and equipment and intangible assets
and due to a decrease in CVO receivables registered as of December31, 2018.
2018 Compared to 2017
For the reasons
explained above, operating income from continuing operations in the
year ended December 31, 2018 totaled Ps.46.92 billion, a 630.79%
increase from Ps.6.41 billion in the year ended December 31, 2017.
This is mainly explained by net foreign exchange
difference.
Finance Income from continuing operations
2019 Compared to 2018
Finance income from
continuing operations in the year ended December 31, 2019 totaled
Ps.3.60 billion, a 2.65% increase from Ps.3.51 billion in the year
ended December 31, 2018. This increase was primarily the result
of:
1.
a foreign exchange
difference totaling Ps.2.31 billion in the year ended December 31,2019, compared to Ps.2.05 billion in the year ended December 31,2018; and
2.
an increase in net
income on financial assets at fair value through profit or loss,
totaling Ps.1.26 billion in the year ended December 31, 2019,
compared to Ps.785.70 million in the year ended December 31, 2018,
due to an increase in financial assets bearing
interest;
3.
which was partially
offset by a Ps.594.37 million decrease in net income on disposal of
financial assets at fair value through other comprehensive income
(net of amounts corresponding to turnover tax).
170
2018 Compared to 2017
Finance income from
continuing operations in the year ended December 31, 2018 totaled
Ps.3.51 billion, a 46.28% increase from Ps.2.40 billion in the year
ended December 31, 2017. This increase was primarily the result
of:
1.
a foreign exchange
difference totaling Ps.2.05 billion in the year ended December 31,2018, compared to Ps.103.04 million in the year ended December 31,2017; and
2.
an increase in net
income on financial assets at fair value through profit or loss,
totaling Ps.785.70 million in the December 31, 2018, compared to
Ps.171.54 million in the year ended December 31, 2017, due to an
increase in financial assets bearing interest;
3.
which was partially
offset by:
a Ps.1162.39
million, or 66.17%, decrease in net income on disposal of financial
assets at fair value through other comprehensive income (net of
amounts corresponding to turnover tax).
Finance Expenses from continuing operations
2019 Compared to 2018
Finance expenses
from continuing operations in the year ended December 31, 2019
totaled Ps.15.92 billion, a 64.30% increase from Ps.9.69 billion in
the year ended December 31, 2018. This increase was primarily the
result of foreign exchange differences on loans and borrowings
which amounted Ps.12.03 billion in the year ended December 31,2019, a 64.14% increase compared to Ps.7.33 billion in the year
ended December 2018, and an increase in interest on loans, totaling
Ps.3.21 billion in the year ended December 31, 2019, compared to
Ps.2.27 billion in the year ended December 31, 2018, driven by an
increase in financial loans.
2018 Compared to 2017
Finance expenses
from continuing operations in the year ended December 31, 2018
totaled Ps.9.69 billion, a 424.79% increase from Ps.1.85 billion in
the year ended December 31, 2017. This increase was primarily the
result of foreign exchange differences on loans and borrowing which
amounted Ps.7.32 billion in 2018, a 5,806.43% increase compared to
Ps. 124.07 million in 2017.
Share of the Profit of Associates from continuing
operations
2019 Compared to 2018
Share of the profit
of associates from continuing operations in the year ended December31, 2019 totaled Ps.1.11 billion, a 32.63% decrease from Ps.1.65
billion in the year ended December 31, 2018. This decrease was
primarily the result of (a) a profit of Ps.1.02 billion from our
interest in Ecogas through IGCE, DGCE and IGCU in the year ended
December 31, 2019, as compared to Ps.1.56 billion in the year ended
December 31, 2018 and (b) a loss of Ps.6.70 million from our
interest in TGM in the year ended December 31, 2019, due to weak
demand for its natural gas transportation services, as compared to
a loss of Ps.4.04 million in the year ended December 31,2018.
2018 Compared to 2017
Share of the profit
of associates from continuing operations in the year ended December31, 2018 totaled Ps.1.65 billion, a 8.42% decrease from Ps.1.80
billion in the year ended December 31, 2017. This decrease was
primarily the result of (a) a profit of Ps.1.55 billion from our
interest in Ecogas through IGCE, DGCE and IGCU in the year ended
December 31, 2018, as compared to Ps.1117.93 million in the year
ended December 31, 2017, due to an increase in these
companies’ revenues from increases in tariffs effective
October 2016 and April 2017, and (b) a loss of Ps.4.05 million from
our interest in TGM in the year ended December 31, 2018, due to
weak demand for its natural gas transportation services, as
compared to a profit of Ps.582.12 million in the year ended
December 31, 2017, due to the settlement by which YPF agreed to pay
TGM, without recognizing any facts or rights, US$114 million in
order to end TGM’s claim against YPF (for further
information, see “Item 4.B. Business Overview—Our
Affiliates—Transportadora de Gas del Mercosur S.A.
(TGM)”).
171
Income Tax from continuing operations
2019 Compared to 2018
Income tax from
continuing operations in the year ended December 31, 2019 totaled
Ps.5.75 billion, a 43.45% decrease from Ps.10.16 billion in the
year ended December 31, 2018. This decrease was primarily the
result of decreased taxable income in the year ended December 31,2019. Our effective tax rate for 2019 and 2018 was 39.88% and
28.09%, respectively.
Law 27,468 also
substituted the wholesale price index (“WPI”) for the
CPI as the index to benchmark tax indexation, and modified the
standards for triggering the tax indexation procedure. In addition,
Law 27,468 provides that during the first three years beginning on
January 1, 2018, tax indexation will be required if the variation
of the CPI exceeds 55% in 2018, 30% in 2019 and 15% in 2020. The
Solidarity Law amended the periods which the tax indexation should
be allocated. According to the Solidarity Law, the positive or
negative result generated by the application of the inflation
adjustment corresponding to the first and second fiscal year
beginning on January 1, 2019, shall be charged one sixth (1/6) in
that fiscal year and the remaining five sixths (5/6), in equal
parts, in the next five fiscal years. For 2019, we recorded a net
loss of Ps.426 million in our Income Tax line item of our Statement
of Income regarding the application of the above-mentioned tax
inflation adjustment.
2018 Compared to 2017
Income tax from
continuing operations in the year ended December 31, 2018 totaled
Ps.10.15 billion, a 510.85% increase from Ps.1.66 billion in the
year ended December 31, 2017. This increase was primarily the
result of increased taxable income for the period. Our effective
tax rate for 2018 and 2017 was 28.09% and 19.47%,
respectively.
Net Income for the Year from continuing operations
2019 Compared to 2018
For the reasons
described above, net income from continuing operations for the year
ended December 31, 2019 totaled Ps.8.66 billion, a 66.70% decrease
from Ps. 26.01 billion in the year ended December 31,2018.
2018 Compared to 2017
For the reasons
described above, net income from continuing operations for the year
ended December 31, 2018 totaled Ps.26.01 billion, a 278.18%
increase from Ps.6.88 billion in the year ended December 31,2017.
Income after tax for the year from discontinued
operations
On December 20,2017, YPF EE accepted our offer to sell the La Plata plant for a
total sum of US$31.5 million (without VAT), subject to certain
conditions. On February 8, 2018, and effective as of January 5,2018, Central Puerto transferred to YPF EE ownership of La Plata
plant, including generation assets, personnel and agreements
related to the operation and/or maintenance of La Plata
plant’s assets. See “Item 4.A. History and development
of the Company—La Plata Plant Sale” and Note 21 to our
audited consolidated financial statements. Consequently, as of
December 31, 2017, the La Plata plant was classified as a disposal
group held for sale and its respective results for the years ended
December 31, 2018, 2017 and 2016, as discontinued
operations.
2019 Compared to 2018
There was no income
after tax for the year from discontinued operations in the year
ended December 31, 2019.
2018 Compared to 2017
Income after tax
for the year from discontinued operations in the year ended
December 31, 2018 totaled Ps.424.85 million, a 65.10% decrease from
Ps.1.22 million in the year ended December 31, 2016. This decrease
was primarily the result of. the La Plata Plant Sale to YPF EE,
effective as of January 5, 2018.
See “Item
4.A. History and development of the Company—La Plata Plant
Sale” and Note 21 to our audited consolidated financial
statements.
172
Net Income for the Year
2019 Compared to 2018
For the reasons
described above, net income for the year ended December 31, 2019
totaled Ps.8.66 billion, a 67.24% decrease from Ps.26.44 billion in
the year ended December 31, 2018.
2018 Compared to 2017
For the reasons
described above, net income for the year ended December 31, 2018
totaled Ps 26.44 billion, a 226.57% increase from Ps.8.09 billion
in the year ended December 31, 2017.
Item
5.B Liquidity and Capital Resources
As of December 31,2019, we had cash and cash equivalents of Ps.1.49 billion, and
other current financial assets of Ps.7.70 billion. See Note 16 and
14.8 to our audited consolidated financial statements.
Our primary sources
of liquidity have been cash flows from operating activities, cash
flows from the proceeds of the sale of our temporary investments,
cash flows from loans and other financing agreements (mainly with
CAMMESA) and financing provided by equipment suppliers or service
providers.
Our receivables
from CAMMESA also are an important source of liquidity for us. As
of December 31, 2019, our receivables from CAMMESA totaled Ps.38.05
billion.
Our primary cash
requirements have been in connection with payments under loans and
other financing agreements (mainly with CAMMESA), employees’
salaries, operating and maintenance expenses and fixed assets
acquisitions, payment of dividends, taxes and other overhead
expenses. In the future, we may, as is the case as of the date of
this annual report, have to increase cash requirements as a result
of projects to expand our generating capacity. See
“—The State of Emergency of the Argentine Electricity
Sector—Proposed Expansion of our Generating
Capacity.”
Our loans and other
borrowings contain customary covenants for facilities of each type,
including: (i) certain limitations on consolidations, mergers and
sales of assets; (ii) restrictions on incurring additional
indebtedness; (iii) restrictions on paying dividends; (iv)
limitations on making capital expenditures and (v) restrictions on
the incurrence of liens. Certain events of default and covenants
are subject to certain thresholds and exceptions. For the
description on the covenants and more information about each of the
loans, please see Item 5.B Liquidity and Capital Resources -
Indebtedness. We do not expect these restrictions to have a
material impact on our ability to meet our cash obligations. As of
the date of this annual report, we are in compliance with all of
our debt covenants.
Our projects under
construction are being developed with equity from Central Puerto
and its subsidiaries, and, in the case of the wind farm La Genoveva
II, the unused proceeds from the IFC loan, totaled approximately
US$59.72 million as of December 31, 2019.
The Company does
not discard the option to pursue potential financing alternatives,
if the conditions are favorable.
As of the date of
this annual report, we also have uncommitted lines of credit with
commercial banks, totaling approximately Ps. 8.50
billion.
We believe that our
sources of liquidity, will be sufficient to meet our working
capital, debt service and capital expenditure requirements for the
foreseeable future. However, any further deterioration of the
current economic situation may result in a deterioration of the
Company’s finances, in a context of lack of access or
substantial reduction of credit availability in the financial
markets, which could affect our financial condition and results of
operation. See “Item 3.D Risk Factors— Risk Relating to
Our Business —The novel coronavirus could have an adverse
effect on our business operations and financial
conditions”
173
Receivables from CAMMESA
We hold receivables
in the form of LVFVD for the unpaid balances from CAMMESA relating
to the sale of electric power to CAMMESA from 2004 to 2011. For
more information, see “Item 4.B. Business
Overview—FONINVEMEM and Similar Programs.” Under the
FONINVEMEM and similar arrangements, we are entitled to collect our
receivables, including interest, in monthly installments over ten
years starting from, (i) in the case of receivables relating to the
sale of electric power to CAMMESA from January 2004 through
December 2007, the commercial launch date of the FONINVEMEM’s
Manuel Belgrano power plant and San Martín power plant and,
(ii) in the case of receivables relating to the sale of electric
power to CAMMESA from January 2008 through December 2011, the
commercial launch date of the CVOSA combined cycle. For more
information, see “Item 4.B. Business
Overview—FONINVEMEM and Similar Programs.”
Following the
commercial authorizations granted to the Manuel Belgrano power
plant (on January 7, 2010) and the San Martín power plant (on
February 2, 2010), we started to collect monthly payments of the
receivables relating to the sale of electric power to CAMMESA from
January 2004 through December 2007. As of December 31, 2019, the
balance owed to us under the FONINVEMEM arrangement relating to the
sale of electric power to CAMMESA from 2004 through 2007 totaled
US$4.08 million. During the year ended December 31, 2019, we
received Ps. 1.13 billion (US$20.27 million in U.S.
dollar-denominated payments) in principal and interest for these
receivables (including VAT).
The CVO combined
cycle plant became operational on March 20, 2018. As of December31, 2019, the CVO “LVFVD 2008-2011 receivables” totaled
Ps.24.249 billion.
After the CVOSA
power plant became operational, in the case of receivables accrued
between 2008 and September 2010, the amount due was converted into
U.S. dollars at the exchange rate effective at the date of the CVO
Agreement (i.e., November 25, 2010), which was Ps.3.97 per U.S.
dollar. Additionally, certain receivables that accrued after
September 2010 and that were also included in the CVO Agreement,
were converted into U.S. dollars at the exchange rate effective at
the due date of each monthly sale transaction. The total estimated
amount due is US$548 million plus accrued interests after the CVO
Commercial Approval. As a result of the conversion of the LVFVD
into U.S. dollars detailed in the previous paragraph, we had a
one-time income, before income tax, in relation to the interest and
the effect of the adjustment of the LVFVD 2008-2011 receivables to
US dollars as of March 20, 2018, of Ps.16,948 million, measured in
current unit as of December 31, 2019 (or Ps. 7,959 million,
expressed in nominal terms), which was recognized by us in the
consolidated income statement for the year ended December 31, 2018.
under “CVO receivables update”. The U.S. denominated
monthly payments under the CVO Agreement are payable in pesos,
converted at the applicable exchange rate in place at the time of
each monthly payment.
As of March 20,2018, CAMMESA granted the CVO Commercial Approval in the WEM, as a
combined cycle, of the thermal plant Central Vuelta de Obligado,
which entitled us to receive the collection of the trade
receivables under the CVO Agreement. A PPA between the CVO Trust
and CAMMESA, through which the CVO Trust makes energy sales and,
consequently, receives the cash flow to pay the trade receivables,
had to be signed in order to start the collections.
As a result, the
original amortization schedule from the CVO Agreement is in full
force and effect.
The installments
corresponding to the March 2018-December 2018 period amounted to
US$78.15 million (including VAT, corresponding to installments 1 to
10) as of May 31, 2019. During June and July 2019, Central Puerto
collected Ps. 2,562 million, in nominal terms (approximately
US$58.41 million converted at the exchange rate Communication A
3500 quoted by the Central Bank as of the date of payment) and
Ps.825 million, in nominal terms (approximately US$19.70 million
converted at the exchange rate Communication A 3500 quoted by the
Central Bank as of the date of payment), in both cases including
VAT, related to the installments corresponding to the
March-December 2018 period of the CVO agreement.
During 2019, we
collected Ps. 8.45 billion in CVO
receivables (including installments 1 to 10), measured in current
amounts as of December 31, 2019. Subsequent installments (from
installment No. 11) have been collected on their respective due
dates.
Additionally, we
held receivables in the form of LVFVD for the unpaid balances from
CAMMESA relating to the sale of electric power to CAMMESA under the
additional trust remuneration concept since 2012. On September 3,2019, CAMMESA and Central Puerto (in accordance with a general
offer made to all generators) entered into a final agreement to
settle the LVFVD receivables balance. As a result, a 18% reduction
of principal amount and accrued interest as of such date was
achieved. Moreover, the Company waived any complaint related to
such receivables. Pursuant to the agreement, during September 2019,
the Company collected Ps. 1,815 million and booked a net profit of
Ps. 3,912 million, which was recognized in “Interest earned
from customers” under the item “Other operating
income” of the 2019 annual consolidated income
statement.
174
For more
information regarding sales relating to additional trust
remuneration and non-recurring maintenance, see “—Our
Revenues—The Energía Base” and “Item 4.B.
Business Overview—The Argentine Electric Power
Sector—Remuneration Scheme—The Previous Remuneration
Scheme.” For more
information regarding financings from CAMMESA, see
“—Indebtedness—Borrowings and Prepayments by
CAMMESA.”
Cash Flows
The following table
sets forth our cash flows from our operating, investing and
financing activities for the periods indicated:
Year ended
December 31,
(in thousands of
Ps.)
2019
2018
2017
Net cash flows
provided by operating activities
11,973,825
5,701,068
5,634,370
Net cash flows used
in investing activities
(27,904,309)
(7,799,802)
(5,047,600)
Net cash provided
by (used in) financing activities
17,132,293
1,057,463
(525,780)
Increase
(Decrease) in cash and cash equivalents, net
1,201,809
(1,041,271)
60,988
Net Cash Provided by Operating Activities
2019 Compared to 2018
Net cash provided
by operating activities increased by 110.03% to Ps.11.97 billion
for the year ended December 31, 2019, from Ps.5.70 billion for the
year ended December 31, 2018. The increase was primarily driven by
(i) increased revenues as a result of an increase in the exchange
rate for 2019, which impacted directly on tariffs set in U.S.
dollars, an increase in our revenues from sales under contracts and
an increase in our revenues from steam sales; and (ii) an increase
in interest collected from clients which amounted to Ps.4.83
billion in 2019 as compared to Ps.68.24 million in 2018. This was
partially offset by an increase in the income tax paid in 2019,
which amounted to Ps.9.68 billion, as compared to Ps.6.52 billion
in 2018.
2018 Compared to 2017
Net cash provided
by operating activities increased by 1.18% to Ps.5.71 billion for
the year ended December 31, 2018 (which includes a net cash
decrease of Ps.10.31 million from the La Plata plant, which was
sold on February 8, 2018, with an effective date of January 5,2018), from Ps.5.63 billion for the year ended December 31, 2017
(which includes Ps.1.21 billion from the La Plata plant, which was
sold). The increase was primarily driven by increased revenues and
other operating income, as a result of a higher average price per
unit in our sales of energy and steam, mainly due to the price
increases explained above in the section “Results of
Operations—Results of Operations for the Years Ended December31, 2018, 2017 and 2016—Revenues—2017 Compared to
2016,”. This was partially offset by (a) an increase in the
income tax paid in 2018, which amounted to Ps. 6.46 billion, as
compared to Ps. 1.85 billion in 2017, a non-cash increase in CVO
receivables update (for more information see Note 14.1 of our
audited consolidated financial statements) of Ps. 16.95 billion in
2018, and a non-cash gain in foreign exchange difference for trade
receivables of Ps.17.54 billion in 2018 compared to a decrease of
Ps. 179.52 million in 2017.
Net Cash Used in Investing Activities
2019 Compared to 2018
Net cash used in
investing activities increased by 257.76% to Ps.27.90 billion for
the year ended December 31, 2019, from Ps.7.79 billion for the year
ended December 31, 2018. The increase was primarily driven by (i)
an increase in payments for purchases of property, plant and
equipment which amounted to Ps.17.50 billion primarily for the
construction of the wind farms La Genoveva I, La Genoveva II,
Manque, Los Olivos and La Castellana II and for the construction of
the Luján de Cuyo and Terminal 6 San Lorenzo cogeneration
plants as compared to payments and upfront payments of Ps.10.71
billion in 2018 primarily for the construction of the wind farms
Achiras and La Castellana and for the construction of the
Luján de Cuyo and Terminal 6 San Lorenzo cogeneration plants;
and (ii) the acquisition of the Thermal Plant Brigadier López
which amounted to Ps.8.47 billion.
2018 Compared to 2017
Net cash used in
investing activities increased by 54.52% to Ps.7.80 billion for the
year ended December 31, 2018, from Ps.5.05 billion for the year
ended December 31, 2017. The increase was primarily driven by (i)
an increase in payments for the purchases of property, plant and
equipment which amounted to Ps.10.71 billion, primarily for the
construction of the wind farms Achiras and La Castellana and for
the construction of the Luján de Cuyo and Terminal 6 San
Lorenzo cogeneration plants, as compared to payments and upfront
payments of Ps.8.81 billion in 2017, primarily for the construction
of the wind farms Achiras and La Castellana and a gas turbine for
Luján de Cuyo, which was partially offset by (ii) proceeds
from La Plata Plant Sale in the amount of Ps.962.85
million.
175
Net Cash provided by (Used in) Financing Activities
2019 Compared to 2018
Net cash provided
by financing activities totaled Ps.17.13 billion for the year ended
December 31, 2019, compared to Ps. 1.06 billion in net cash
provided by financing activities during the year ended December 31,2018. This variation was primarily driven by long-term loans
received in the amount of Ps.20.73 billion in 2019, as compared to
Ps.6.73 billion received in 2018. This was partially offset by an
increase in interest and other financial costs paid in 2019, which
amounted to Ps. 1.99 billion, as compared to Ps. 0.71 billion in
2018.
2018 Compared to 2017
Net cash provided
by financing activities totaled Ps.1057.46 million for the year
ended December 31, 2018, compared to Ps.525.78 million in net cash
used in financing activities during the year ended December 31,2017. This variation was primarily driven by (i) Ps.476.51 million
contributions from non-controlling interests to CP Renovables in
2018, compared to Ps.765.72 million in 2017, (ii) dividends paid in
the amount of Ps.2.18 billion in 2018 compared to a dividend of
Ps.2.91 billion in 2017, (iii) Ps.1.58 billion received in 2017
from borrowings from CAMMESA for the maintenance of our units (in
2018 we have not received borrowings from CAMMESA), (iv) Ps.35.60
million short term loans paid in 2018, as compared to Ps.1.68
billion received in 2017 and (v) long-term loans received in the
amount of Ps.6.73 billion in 2018, as compared to Ps.4.37 billion
received in 2017.
Capital Expenditures
The following table
sets forth our capital expenditures for the years ended December31, 2019, 2018 and 2017.
Year ended
December 31,
(in thousands
of Ps.)
2019
2018
2017
Land and
buildings
1,058,393
9,979
7,002
Electric power
facilities
8,475,993
1,251,903
545,844
Gas
turbines
–
295,286
2,087,255
Construction in
progress
17,715,225
9,114,104
6,125,780
Other
62,547
33,899
56,118
Total
27,312,158
10,705,171
8,821,999
In the year ended
December 31, 2019, we made total capital expenditures of Ps.27.31
billion, compared to Ps.10.71 billion in 2018. During these years,
the main additions to fixed assets and land were in connection with
proposed projects for the expansion of our installed capacity and
the purchase of the Brigadier López plant. During the year
ended December 31, 2019, our main capital expenditure was the
acquisition of the Brigadier López plant, and the construction
of the Luján de Cuyo and Terminal 6-San Lorenzo thermal
projects, and the renewable projects La Castellana II, La Genoveva
II, Manque and Los Olivos.
In the year ended
December 31, 2018, we made total capital expenditures of Ps.10.71
billion, compared to Ps.8.82 billion in 2017. During these years,
the main additions to fixed assets and land were in connection with
proposed projects for the expansion of our installed capacity.
During the year ended December 31, 2018, our main capital
expenditure was for the construction of the Luján de Cuyo and
Terminal 6 San Lorenzo cogeneration plants, while during the year
ended December 31, 2017 our main capital expenditure was for the
construction of the wind farms Achiras and La Castellana. See
“—The State of Emergency of the Argentine Electricity
Sector—Proposed Expansion of our Generating
Capacity.”
We have funded our
capital expenditures with proceeds from debt issuances and cash
generated from our operations.
We expect to incur
substantial expenses and capital expenditures as we continue to
expand our installed capacity. We anticipate that our capital
expenditures related to the projects under construction, Terminal
6-San Lorenzo thermal plant and La Genoveva I wind farm, will be
approximately US$124 million to be disbursed during 2020. Other
than the Loan Agreement from IFC for La Genoveva I described in
this annual report (see “Item 5.B. Information of the
Company—Indebtedness— Loan from the IFC to the subsidiary Vientos La
Genoveva S.A.U.”), our expansion projects are being
developed with equity from Central Puerto and its subsidiaries.
However, we may explore alternative financing options if the
conditions are favorable.
Additionally,
capital expenditures estimated for our projects under development
are approximately US$120 million for the expansion of the Brigadier
López plant and US$12 million for the expansion of the El
Puesto solar farm. However, due to the uncertainties mentioned in
this report we cannot estimate when these capital expenditures will
be made. Depending on the timing for the construction of these
projects, we may finance these capital expenditures using cash
flows from our operations and/or using external financing sources.
See “Item 3D. Risk Factors—Risks Relating to our
Business— Factors beyond our control may affect or delay the
completion of the awarded projects, or alter our plans for the
expansion of our existing plants.”
176
In the recent years
we acquired four heavy-duty gas turbines, which are compatible with
single-cycle or combined cycle installations. We are currently
using one of them for the construction of the Terminal 6 San
Lorenzo cogeneration plant. Additionally, we also acquired land in
the Province of Buenos Aires, in a convenient location for fuel
delivery and future potential connection to power transmission
lines.
Equity interests in DGCU and DGCE
In addition to the
expenditures on physical assets, on July 23, 2014, we executed
agreements to purchase, directly and indirectly, subject to certain
conditions, equity interests in DGCU and DGCE, jointly with an
investment consortium. On January 7, 2015, all acquisition-related
conditions established in the agreement were met, and the shares
were transferred to us.
Taking into account
both direct and indirect interests involved, we acquired (i) an
interest equivalent to 21.58% of DGCU’s capital stock and
(ii) an interest equivalent to 40.59% of DGCE’s capital
stock.
In addition, as
provided for by Capital Markets Law and CNV regulations, and given
our controlling interest in DGCU shared with the consortium of
buyers described above, our Board of Directors decided to
proportionally participate in a tender offer by the consortium of
buyers for all of DGCU’s outstanding shares issued and not
owned, directly or indirectly, by us or by of any of the members of
the consortium of buyers. On October 30, 2015, the board of
directors of the CNV approved the tender offer. Upon termination of
the tender offer in January 2016, since no acceptances were
tendered, no shares were acquired in this tender
offer.
At a meeting of our
shareholders on December 16, 2016, in accordance with the strategic
objective of focusing on assets within the energy industry, the
shareholders considered a potential sale of our equity interests in
Ecogas, but voted to postpone the decision. We are currently
assessing various strategic opportunities regarding DGCU and DGCE,
including a possible partial or total sale of our equity interest
in them. On January 26, 2018, the shareholders of DGCE approved the
admission of DGCE to the public offering regime in Argentina. On
March 14, 2018, the Company authorized the offer of up to
10,075,952 common class B shares of DGCE, in a potential public
offering authorized by the CNV, subject to market conditions. This
authorization was encompassed within the February 23, 2018
authorization of the Board of Directors for the sale of up to
27,597,032 common B shares of DGCE. However, due to market
conditions, DGCE shareholders decided to postpone the offer. On
October 24, 2019, the CNV notified DGCE the cancellation of the
authorization for the public offering.
Indebtedness
As of December 31,2019, our total indebtedness was Ps.38.71 billion of which
approximately 99.51% was denominated in U.S. dollars and the
balance in pesos. The following table shows our indebtedness as of
such dates:
Borrowing from Kreditanstalt für Wiederaufbau
(“KfW”)
On March 26, 2019the Company entered into a loan agreement with KfW for an amount of
US$56 million in relation to the acquisition of two gas turbines,
equipment and related services relating to the Luján de Cuyo
project described in Note 22.7 to our audited consolidated
financial statements. In accordance with the terms of the
agreement, the loan accrues an annual interest equal to LIBOR plus
1.15% and it is amortizable quarterly in 47 equal and consecutive
installments as from the day falling six months after the
commissioning of the gas turbines and equipment, which occurred on
October 5, 2019.
Pursuant to the
loan agreement, among other obligations, Central Puerto has agreed
to maintain a debt ratio of (a) as of December 31, 2019 of no more
than 4.00:1.00 and (b) as from that date, no more than 3.5:1.00. As
of December 31, 2019, the Company has complied with that
requirement.
On May 23, 2019 a
first disbursement for the amount of US$43.7 million was received,
and on July 26, 2019, a second disbursement for the amount of US$
4.9 million was received. On August 23, 2019, interest was
capitalized for US$0.3 million. On November 15, 2019, a third
disbursement for the amount of US$4.3 million was received.
Finally, on December 4 and 30, 2019, the fourth and fifth
disbursements were received: for the amount of US$1.3 million and
US$0.7 million, respectively. The expected disbursements for this
loan were received for a total amount of US$ 55.2 million. As of
December 31, 2019, the balance of this loan amounts to US$45.53
million, approximately equivalent to Ps. 2.73 billion.
177
Loan from Citibank N.A., JP Morgan Chase Bank N.A. and Morgan
Stanley Senior Funding INC.
On September 12,2019, the Company entered into a loan agreement with Citibank N.A.,
JP Morgan Chase Bank N.A. and Morgan Stanley Senior Funding INC.
for US$180 million to fund the acquisition of the Thermal Plant
Brigadier López (See Note 19.10 to our audited consolidated
financial statements), as well as to fund future capital
expenditures and other expenses. Pursuant to the agreement, this
loan accrues an adjustable annual interest rate based on LIBOR plus
a (i) 5.50% from June 12, 2019 to, but excluding June 12, 2020;
(ii) 6.0% from June 12, 2020 to, but excluding December 12, 2020;
(iii) 6.5% from December 12, 2020 to, but excluding June 12, 2021;
and (iv) 7.25% from June 12, 2021 to, but excluding December 12,2021, and it is amortizable quarterly in 5 equal and consecutive
installments beginning 18 months from the execution of the loan
agreement.
Pursuant to the
loan agreement, among other obligations, Central Puerto has agreed
to maintain (i) a debt ratio of no more than 2.25:1.00; (ii) an
interest coverage ratio of no more than 3.50:1.00 and (iii) and a
minimum equity of US$500 million. As of December 31, 2019, the
Company has complied with such obligations.
On June 14, 2019
the loan funds were fully disbursed. As of December 31, 2019, the
balance of the loan amounts to US$178.17 million, approximately
Ps.10.68 billion.
Brigadier López Financial Trust
On June 14, 2019 we
purchased the Brigadier López Plant from IEASA. As part of the
deal, Central Puerto replaced IEASA as the trustor of the Brigadier
López Financial Trust Agreement. The trustee of the Brigadier
López Financial Trust Agreement is BICE
Fideicomisos.
Under the terms of
the trust agreement, the financial debt accrues interest at an
annual rate equal to the greater of (i) LIBOR plus 5% or (ii)
6.25%. BICE Fideicomisos as the trustee, is in charge of the
administration, and pays such debt, using for that purpose the
proceeds from certain components of the sales of Brigadier Lopez
power plant that were assigned to the Brigadier López
Financial Trust Agreement and are paid monthly directly by CAMMESA
to the Brigadier López Financial Trust Agreement.
Additionally, there is a reserve account, for a total amount
equivalent to two monthly debt services. In case of insolvency of
the Brigadier López Financial Trust, creditors have no
recourse against the assets of Central Puerto other than the
components of the sales of Brigadier Lopez power plant that were
assigned to the Trust.
The financial debt
balance of the trust as of March 25, 2020 (the last amortization
date ) there are 29 instalments remaining to amortize and the
financial debt balance amounts to US$117.64 million.
Loans from the IIC—IFC Facilities
CP La Castellana
On October 20,2017, CP La Castellana entered into a common terms agreement with
(i) the Inter-American Investment Corporation, (ii) the
Inter-American Investment Corporation, acting as agent for the
Inter-American Development Bank, (iii) the Inter-American
Investment Corporation, as agent of the Inter-American Development
Bank, in its capacity as administrator of the Canadian Climate Fund
for the Private Sector of the Americas, and (iv) the International
Finance Corporation (collectively, the “senior
lenders”) to provide loans for a total amount of up to
US$100,050,000 (the “IIC—IFC Facility I”), from
which US$5 million will accrue interest at an annual rate equal to
LIBOR plus 3.5% and the rest at LIBOR plus 5.25%, and shall be
repaid in 52 quarterly equal installments. Several other agreements
and related documents, such as the guarantee and sponsor support
agreement, where we will fully, unconditionally and irrevocably
guarantee, as primary obligor, all payment obligations assumed
and/or to be assumed by CP La Castellana until the project reaches
the commercial operation date (the “Guarantee and Sponsor
Support Agreement I”), hedge agreements, guarantee trust
agreements, a share pledge agreement, an asset pledge agreement
over the wind turbines, direct agreements and promissory notes have
been executed. On January 9, 2018, CP La Castellana received the
first disbursement from the IIC—IFC Facility I for a total
amount of US$80,000,000.
Pursuant to the
Guarantee and Sponsor Support Agreement I, among other customary
covenants for this type of facilities, we committed, until the La
Castellana project completion date, to maintain (i) a leverage
ratio of (a) until (and including) December 31, 2018, not more than
4.00:1.00; and (b) thereafter, not more than 3.5:1.00; and (ii) an
interest coverage ratio of not less than 2.00:1.00. In addition,
our subsidiary, CP Renovables, and we, upon certain conditions,
agreed to make certain equity contributions to CP La
Castellana.
178
We also agreed to
maintain, unless otherwise consented to in writing by each senior
lender, ownership and control of the CP La Castellana as follows:
(i) until the La Castellana project completion date, (a) we shall
maintain (x) directly or indirectly, at least seventy percent (70%)
beneficial ownership of CP La Castellana; and (y) control of CP La
Castellana; and (b) CP Renovables shall maintain (x) directly,
ninety-five percent (95%) beneficial ownership of CP La Castellana;
and (y) control of CP La Castellana. In addition, (ii) after La
Castellana project completion date, (a) we shall maintain (x)
directly or indirectly, at least fifty and one tenth percent
(50.1%) beneficial ownership of each of CP La Castellana and CP
Renovables; and (y) control of each of CP La Castellana and CP
Renovables; and (b) CP Renovables shall maintain control of CP La
Castellana.
On August 18, 2018,
La Castellana I wind farm reached the commercial operation date. La
Castellana “project completion date” is defined in the
common terms agreement as the date in which the commercial
operation date has occurred and certain other conditions have been
met, which is expected to occur nine months after the commercial
operation date. For further information on La Castellana project
see “Item 5.A. Operating Results—Factors Affecting Our
Results of Operations—Proposed Expansion of Our Generating
Capacity.”
On January 9, 2018
CP, La Castellana received the first disbursement from the IIC-IFC
Facility I for a total amount of US$80 million and paid in full the
three-short-term bridge - loans entered into with Banco de Galicia
y Buenos Aires for an aggregate amount of US$50.5 million with the
proceeds of the ICC - IFC Facility.
On June 4, 2018, CP
La Castellana received a second disbursement for the remaining
amount of US$20.050.000.
CP Achiras
On January 17,2018, CP Achiras entered into a common terms agreement with (i) the
Inter-American Investment Corporation, (ii) the Inter-American
Investment Corporation, acting as agent for the Inter-American
Development Bank, (iii) the Inter-American Investment Corporation,
as agent of the Inter-American Development Bank, in its capacity as
administrator of the Canadian Climate Fund for the Private Sector
of the Americas, and (iv) the International Finance Corporation
(collectively, the “senior lenders”) to provide loans
for a total amount of up to US$50,700,000 (the “IIC—IFC
Facility II” and together with the IIC—IFC Facility I,
the “IIC—IFC Facilities”), from which
US$10,000,000 will accrue interest at an annual rate equal to LIBOR
plus 4.0%, US$20,000,000 will accrue interest at an annual rate
equal to LIBOR plus 5.25% and the remaining amount at a rate
reflecting the cost at which the International Finance Corporation
can provide U.S. dollar funding at a fixed interest rate plus
5.25%, and shall be repaid in 52 quarterly installments. Several
other agreements and related documents, such as the guarantee and
sponsor support agreement, where we will fully, unconditionally and
irrevocably guarantee, as primary obligor, all payment obligations
assumed and/or to be assumed by CP Achiras until the project
reaches the commercial operation date (the “Guarantee and
Sponsor Support Agreement II” and together with Guarantee and
Sponsor Support Agreement I, the “Guarantor and Sponsor
Support Agreements”), guarantee trust agreements, a share
pledge agreement, a mortgage, an asset pledge agreement over the
wind turbines, direct agreements and promissory notes have been
executed. On April 9, 2018 and April 10, 2018, CP Achiras received
two disbursements from the IIC—IFC Facility II for a total
amount of US$50,700,000.
Pursuant to the
Guarantee and Sponsor Support Agreement II, among other customary
covenants for this type of facilities, we committed, until the
Achiras project completion date, to maintain (i) a leverage ratio
of (a) until (and including) December 31, 2018, not more than
4.00:1.00; and (b) thereafter, not more than 3.5:1.00; and (ii) an
interest coverage ratio of not less than 2.00:1.00. In addition,
our subsidiary, CP Renovables, and we, upon certain conditions,
agreed to make certain equity contributions to CP
Achiras.
We also agreed to
maintain, unless otherwise consented to in writing by each senior
lender, ownership and control of the CP Achiras as follows: (i)
until the Achiras project completion date, (a) we shall maintain
(x) directly or indirectly, at least seventy percent (70%)
beneficial ownership of CP Achiras; and (y) control of CP Achiras;
and (b) CP Renovables shall maintain (x) directly, ninety-five
percent (95%) beneficial ownership of CP Achiras; and (y) control
of CP Achiras. In addition, (ii) after Achiras project completion
date, (a) we shall maintain (x) directly or indirectly, at least
fifty and one tenth percent (50.1%) beneficial ownership of each of
CP Achiras and CP Renovables; and (y) control of each of CP Achiras
and CP Renovables; and (b) CP Renovables shall maintain control of
CP Achiras.
On September 20,2018, the Achiras wind farm reached the commercial operation date.
The Achiras “project completion date” is defined in the
common terms agreement as the date in which the commercial
operation date has occurred and certain other conditions have been
met, which is expected to occur nine months after the commercial
operation date. For further information on the Achiras project see
“Item 5.A. Operating Results—Factors Affecting Our
Results of Operations—Proposed Expansion of Our Generating
Capacity.”
179
On April 9, 2018,
CP Achiras received a disbursement of US$50.700.000 for the total
amount of the loan.
Our loans under the
IIC—IFC Facilities (see “—Loans from the
IIC—IFC Facilities”) contain customary covenants for
facilities of this type, including: (i) certain limitations on
consolidations, mergers and sales of assets; (ii) restrictions on
incurring additional indebtedness; (iii) restrictions on paying
dividends; (iv) limitations on making capital expenditures and (v)
restrictions on the incurrence of liens. Certain events of default
and covenants in the IIC—IFC Facilities are subject to
certain thresholds and exceptions described in the agreements
relating to the IIC—IFC Facilities. We do not expect these
restrictions to have a material impact on our ability to meet our
cash obligations. As of the date of this annual report, we are in
compliance with all of our debt covenants.
As of December 31,2019, the balance under the CP Achiras and CP La Castellana Loans
from the IIC—IFC Facilities was US$139.82 million,
approximately equivalent to Ps. 8.37 billion as of that
date.
Loan from the IFC to the subsidiary Vientos La Genoveva
S.A.U.
On June 21, 2019,
Vientos La Genoveva S.A.U., a subsidiary of the Company, entered
into a loan agreement with IFC on its own behalf, as Eligible Hedge
Provider and as an implementation entity of the Managed Co-Lending
Portfolio Program (MCPP) administered by IFC, for the construction
of the wind Farm La Genoveva I, for a principal amount of US$76.1
million.
Pursuant to the
terms of the agreement, the loan accrues interest at an annual rate
equal to LIBOR plus 6.50%, and amortizes quarterly in 55
installments from November 15, 2020.
Other related
agreements and documents, such as the Guarantee and Sponsor Support
Agreement (the “Guarantee Agreement” by which Central
Puerto completely, unconditionally and irrevocably guarantees, as
the main debtor, all payment obligations undertaken by Vientos La
Genoveva S.A.U until the project reaches the project completion
date) hedging agreements, guarantee trusts, guarantee agreements on
shares, guarantee agreements on wind turbines, direct agreements
and promissory notes have been signed.
Pursuant to the
Guarantee Agreement, among other customary covenants for this type
of facilities, Central Puerto has committed, until the project
completion date, to maintain (i) a leverage ratio of not more than
3.5:1.00; and (ii) an interest coverage ratio of not less than
2.00:1.00. In addition, Central Puerto, upon certain conditions,
agreed to make certain equity contributions to Vientos La Genoveva
S.A.U.
On November 22,2019, Vientos La Genoveva S.A.U. received a disbursement of US$76.1
million for the total amount of the loan.
As of December 31,2019, the principal amount outstanding under such loan was US$74.33
million, approximately equivalent to Ps. 4.45 billion.
Loan from Banco de Galicia y Buenos Aires S.A. to CPR Energy
Solutions S.A.U. (wind farm La Castellana II)
On May 24, 2019,
CPR Energy Solutions S.A.U. (subsidiary of the Company) entered
into a loan agreement with Banco de Galicia y Buenos Aires S.A. to
fund the construction of the wind farm “La Castellana
II” for a principal amount of US$12.5 million.
According to the
agreement, the loan accrues interest at an annual fixed rate equal
to 8.5% during the first twelve months, and has a 0.5% step-up each
year, up to 11% on the 61st monthly interest
payment date, where it remains until maturity, and it is
amortizable in 25 quarterly installments as from May 24, 2020.
Other agreements and related documents, like the Collateral (in
which Central Puerto totally, unconditionally and irrevocably
guarantees, as main debtor, all the payment obligations assumed by
CPR Energy Solutions S.A.U. until total fulfillment of the
guaranteed obligations or until the project reaches the commercial
operation date, what happens first), guarantee agreements on
shares, guarantee agreements on wind turbines, promissory notes and
other agreements have been executed.
Pursuant to the
Collateral, among other obligations, Central Puerto has agreed to
maintain a debt ratio of no more than 3.75:1.00 until the date of
completion of the project. In addition, Central Puerto, under
certain conditions, agreed to make capital contributions, directly
or indirectly, to subsidiary CPR Energy Solutions S.A.U. Moreover,
Central Puerto has agreed to maintain, unless otherwise consented
to in writing by the lender, the ownership (directly or indirectly)
and control over CPR Energy Solutions S.A.U. As of December 31,2019, the Company has complied with such obligations.
180
On May 24, 2019 the
loan was fully disbursed. As of December 31, 2019, the principal
amount outstanding under such loan was US$12.40 million,
approximately equivalent to Ps.742 million.
Loan from Banco Galicia y Buenos Aires S.A. to subsidiary Vientos
La Genoveva II S.A.U.
On July 23, 2019,
subsidiary Vientos La Genoveva II S.A.U. entered into a loan
agreement with Banco de Galicia y Buenos Aires S.A. for the
construction of the La Genoveva II wind farm for a principal amount
of US$37.5 million.
According to the
agreement, the loan accrues interest at an annual rate of LIBOR
plus 5.95%, and amortizes in 26 quarterly installments beginning on
April 23, 2020.
Other agreements
and related documents, like the Collateral (in which Central Puerto
totally, unconditionally and irrevocably guarantees, as main
debtor, all the payment obligations assumed by Vientos La Genoveva
II S.A.U.
until total
fulfillment of the guaranteed obligations or until the project
reaches the commercial operation date, what happens first),
guarantee agreements on shares and promissory notes have been
signed, while guarantee agreements on wind turbines and direct
agreements are in the process of being issued, as per the terms
defined by the loan agreement.
Pursuant to the
Collateral, among other obligations, Central Puerto has agreed,
until the project termination date, to maintain a debt ratio of no
more than 3.75:1.00. Moreover, Central Puerto, under certain
conditions, agreed to make capital contributions to subsidiary
Vientos La Genoveva II S.A.U. Moreover, Central Puerto has agreed
to maintain, unless otherwise consented to in writing by the
lender, the ownership (directly or indirectly) and control over
Vientos La Genoveva II S.A.U. As of December 31, 2019, the Company
has complied with such obligations.
On July 23, 2019,
the loan was fully disbursed. As of December 31, 2019, the
principal amount outstanding under such loan was US$37.45 million,
approximately equivalent to Ps.2.24 billion.
Banco Macro S.A. short-term loan
On October 25 and
28, the Company entered into a loan agreement with Banco Macro S.A.
for an amount of Ps. 1 billion to be used in the commercial
business of the Company.
Under the terms of
the agreement, this loan accrues a variable three-month interest
rate of “pure BADLAR” rate (in Spanish
“BADLAR pura o sin
corrección”), plus 10%; and has a bullet
amortization in one year.
On October 28,2019, the loan funds were completely disbursed. As of December 31,2019, the balance of this loan amounts was Ps.1.12
billion.
Item
5.C Research and Development, patents and licenses,
etc.
We do not have any
significant policies or projects relating to research and
development, and we own no patents or licenses.
Item
5.D Trend Information
The following
discussion includes forward-looking statements based on our
management’s current beliefs, expectations and estimations.
Forward-looking statements involve inherent risks and
uncertainties. Our future operating and financial performance may
differ materially from these forward-looking statements, including
due to many factors outside of our control. We do not undertake any
obligation to update forward-looking statements in the event of
changed circumstances or otherwise. For more information, see
“Forward-Looking Statements” and “Item
3.D.—Risk Factors” in this annual report.
181
We expect that our
operating and financial performance in the future will benefit from
the increases we expect in our power generation capacity. We have
been awarded three wind farm projects under the RenovAr Program
(Achiras with 48 MW of awarded electric capacity, La Castellana
with 99 MW of awarded electric capacity and La Genoveva I with 86.6
MW of awarded electric capacity) and two co-generation projects
(Terminal 6 San Lorenzo with an awarded electric capacity of 330 MW
and 317 MW for the winter and summer, respectively, and Luján
de Cuyo with an awarded electric capacity of 93 MW and 89 MW for
the winter and summer, respectively). Two of our wind farms,
Achiras and La Castellana, commenced their operations in September
and August 2018, respectively and the Luján de Cuyo
cogeneration project commenced operations during October 2019. As
of the date of this annual report, due to the uncertainties
mentioned in this report (see Item 3D. Risk Factors—Risks
Relating to our Business— Factors beyond our control may
affect or delay the completion of the awarded projects, or alter
our plans for the expansion of our existing plants) the CODs for
the Terminal 6 San Lorenzo cogeneration project (scheduled for
September 2020) and La Genoveva I wind farm (scheduled for May
2020) are expected to be delayed. The development of new projects
involves risks and we cannot assure you that these projects will
commence operations on time and on budget, nor can we assure you
that these projects will perform as expected. For a description of
these awarded projects and of our expected capital expenditures in
connection with them, see “Item 5.A. Operating
Results—Factors Affecting Our Results of
Operations—Proposed Expansion of Our Generating
Capacity”. Additionally, on July 2019, September 2019,
December 2019/January 2020/March 2020, and February 2020, the wind
farms La Castellana II (developed by CP Energy Solutuons S.A.U.),
La Genoveva II (developed by Vientos La Genoveva II S.A.U.), Manque
(CP Manque S.A.U.), and Los Olivos (CP Los Olivos S.A.U.),
respectively, reached their COD. As of the date of this annual
report, we have already entered into long-term PPA contracts with
private customers for 100% of the estimated energy generation
capacity of our term market renewable energy projects developed
under Resolution No. 281-E/17 regulatory framework. (see
“Item 4.B. Business Overview—The Argentine Electric
Power Sector—Resolution No. 281-E/17: The Renewable Energy
Term Market in Argentina”). On June 14, 2019, Central Puerto,
in the context of a local and foreign public tender called by
IEASA, which had been awarded to the Company, purchased the
Brigadier López Plant which was transferred on that date. The
Brigadier López Plant currently has a Siemens gas turbine of
280.5 MW. According to the tender specifications and conditions, it
is expected to supplement the gas turbine with a boiler and a steam
turbine to reach the closing of the combined cycle, which will
generate 420 MW in total. The works for the closing of the combined
cycle are pending.
The following new
projects have their prices set in US dollars, providing a
protection against the depreciation of the argentine currency: a)
plants under RenovAR regulatory framework, La Castellana I,
Achiras, and La Genoveva I (currently under construction), b),
Terminal 6-San Lorenzo (currently under construction) and the new
cogeneration of the Luján de Cuyo plant under Res. 287/17, and
c) the Brigadier López plant, have PPAs with CAMMESA. The
steam sales from the units, Terminal 6-San Lorenzo (currently under
construction) and the new cogeneration of the Luján de Cuyo
plant under Res. 287/17, have long term contracts with private
offtakers. Furthermore, the PPAs under the MATER regulatory
framework, La Castellana II, Manque, Los Olivos, and La Genoveva
II, also have PPAs with private offtakers.
However, due to the
effects of the COVID-19 outbreak, we expect delays in the COD of
our projects currently under construction (Terminal 6-San Lorenzo
and La Genoveva I). For more information see “Item 3.D Risk
Factors— Risk Relating to Our Business —The novel
coronavirus could have an adverse effect on our business operations
and financial conditions”. Furthermore, several factors have
affected our plans for the projects currently under development,
Brigadier López and El Puesto: a) the effects of the outbreak
of COVID-19, b) the economic recession in Argentina, c) the
decrease in demand of electric energy, d) the lack of available
financing, and e) the reduction in the prices of electric energy
for power units under Energía Base beginning in February 2020
(Res. 31/20, among others. The same factors may reduce the
possibility of new expansion projects and opportunities, for which
the company has purchased three gas turbines and 130 hectares of
land in the north of the Province of Buenos Aires. Item 5.A
Operating Results—Factors Affecting our Results from
Operations— Proposed Expansion of Our Generating
Capacity.
In terms of energy
tariffs, the Argentine Government has announced that it will
maintain the energy tariffs without changes until June 2020. We
believe that the possibility to see changes in these tariffs in
order to cut off subsidies and narrow the gap between the whole
price of generating electric energy and the price paid by the
demand after that date is highly dependent on the outcome of the
COVID-19 pandemic crisis, and the path of the recovery of economic
activity after the Quarantine measures are lifted. In February
2020, Energía Base tariffs were reduced significantly by Res.
31/20 compared to the tariffs in effect at the beginning of the
year, and prices for this segment were set in Argentine pesos.
Although Res. 31/20 included a monthly update mechanism taking into
account a mix between CPI and WPI, on April 8, 2020, we’ve
learned that the Secretary of Energy may have instructed CAMMESA to
postpone until further notice the application of Annex VI, related
to the price update mechanism described under “Item 4.B.
Business Overview—The Argentine Electric Power
Sector—Remuneration Scheme—The Current Remuneration
Scheme”. Accordingly, CAMMESA did not apply the price update
mechanism for the March 2020 monthly payments under Energy
Base.
182
The changes made to
the Enegía Base Regulatory Framework may help the Argentine
Government’s fiscal deficit reduction, since it may reduce
the subsidies needed for the sector. We have no control over these
tariffs and cannot assure that the Argentine Government will
restore term market sales under contracts for conventional energy.
See “Item 3.D. Risk Factors—Risks Relating to the
Electric Power Sector in Argentina—The Argentine Government
has intervened in the electric power sector in the past, and is
likely to continue intervening” and “Item
3.D.—Risk Factors—Risks Relating to Our
Business—Our results depend largely on the compensation
established by the Secretariat of Electric Energy and received from
CAMMESA”.
In terms of the
performance of our plants, we estimate that our existing plants
will achieve availability factors consistent with their average
historical performances over the past ten years and in the case of
our expansion co-generation and potential combined cycle projects
that the plants will achieve availability factors consistent with
the assurances provided by our vendors. We also estimate that the
capacity factor of our hydro plant will be consistent with its
historical average performance since the plant was awarded its
concession in 1994 and that the capacity factor of our wind farm
projects will be consistent with our wind studies that have been
certified by renowned international experts. However, we cannot
assure you that the expected availability factors and capacity
factor will be consistent with past performance or with the
assurances provided by vendors.
A substantial
portion of our remuneration is currently based on fixed capacity
and not generation levels. For 2020 CAMMESA expects that
electricity demand in Argentina will decrease due to the COVID-19
pandemic crisis and the Quarantine, following a 3.1% decrease in
2019. The operation of our various units involves risks and we
cannot assure you that we will achieve the same performance
achieved in the past, in the future. See “Item 3D. Risk
Factors—Risks Relating to our Business— Factors beyond
our control may affect or delay the completion of the awarded
projects, or alter our plans for the expansion of our existing
plants.” and “Item 3.D.—Risk Factors—Risks
Relating to the Electric Power Sector in Argentina—Our power
plants are subject to the risk of mechanical or electrical failures
and any resulting unavailability may affect our ability to fulfill
our contractual and other commitments and thus adversely affect our
business and financial performance”.
Additionally, we
expect that our steam production, which was affected by the La
Plata Plant Sale, and may be affected by Terminal 6-San Lorenzo COD
delays, originally scheduled for September 2020, will recover in
2020, given that our Lujan de Cuyo plant started operations in
October 2019.
The concession for
our hydro plant expires in December 2023 and we believe that we are
well-positioned to achieve the extension of this concession.
However, since the HPDA Concession Agreement does not contain a
clause for an automatic renewal, we cannot assure you that we will
achieve the extension of the concession or be awarded with a new
concession, for our operation of the Piedra del Águila plant
(“Item 3.D.—Risk Factors—Risks Relating to Our
Business—The non-renewal or early termination of the HPDA
Concession Agreement would adversely affect our results of
operations”).
Regarding the
collections from CAMMESA, from September 2016 to November 2017
CAMMESA has paid without delays, and since then, there were periods
in which CAMMESA experienced delays in paying (for more information
on the duration of these delays see “Item 11. Quantitative
and Qualitative Disclosures about Market Risk—Credit
Risk”). For example, for the monthly transaction related to
Energía Base and thermal PPAs of December 2019, with due date
on February 12, 2019, we collected 20.40% on February 28, 2020,
45.26% on March 11, 2020, 11.56% on March 19, 2020, 12.47% on March27, 2020 and the rest on April 8, 2020. For these delays, we are
entitled to receive interests from CAMMESA. Payments related to
PPAs under the Renovar Regulatory Framework have not suffered
delays. CAMMESA may once again be unable to make payments to
generators both in respect of energy dispatched and generation
capacity availability on a timely basis or in full, which may
substantially and adversely affect our financial position and the
results of our operations.
As of March 20,2018, CAMMESA granted the CVO Commercial Approval in the WEM, as a
combined cycle, of the thermal plant Central Vuelta de Obligado,
which entitled us to receive the collection of the trade
receivables under the CVO Agreement. A PPA between the CVO Trust
and CAMMESA, through which the CVO Trust makes energy sales and,
consequently, receives the cash flow to pay the trade receivables,
had to be signed in order to start the collections.
During June and
July 2019, Central Puerto collected Ps.2,562 million, in nominal
terms (approximately US$58.41 million converted at the exchange
rate Communication A 3500 quoted by the Central Bank as of the date
of payment) and Ps.825 million, in nominal terms (approximately
US$19.70 million converted at the exchange rate Communication A
3500 quoted by the Central Bank as of the date of payment), in both
cases including VAT, related to the installments corresponding to
the March-December 2018 period of the CVO agreement.
183
During 2019, we
collected Ps. 8.45 billion in CVO
receivables (including installments 1 to 10), measured in current
amounts as of December 31, 2019. Subsequent installments (from
installment No. 11) have been collected on their respective due
dates.
In terms of our
main costs, on November 7, 2018, pursuant to Res. SEE 70/18, the
Argentine Government authorized generators to purchase their own
fuel for assets under the Energía Base Regulatory framework.
However, prior commitments assumed by generators with CAMMESA for
energy supply contracts are not altered by this new regulation. If
generation companies opted to take this option, CAMMESSA will value
and pay the generators their respective fuel costs in accordance
with the Variable Costs of Production (CVP) declared by each
generator to CAMMESA.
In accordance to
Res. SEE 70/18, in November 2018, we started purchasing fuel for
our Luján de Cuyo combined cycle, and in December 2018, for
all our thermal units. During 2019 we were able to obtain a
positive gross margin on these fuel purchases since we were able to
benefit from better fuel prices than the reference pass-through
values provided by CAMMESA, given our scale as one of the largest
private sector power companies in Argentina, as measured by
generated power, according to data from CAMMESA, and the diverse
and strategic location of our power sector assets (see “Item
4.A. History and development of the Company—Our Competitive
Strengths”).
On December 27,2019, the Ministry of Productive Development issued Resolution MDP
No. 12/2019, repealing Resolution SGE No. 70/2018 and restoring
Art. 8 of Res. SE 95/2013. Beginning January 2020, CAMMESA became
the only fuel supplier for generation companies, except for (i)
thermal units that had prior commitments with CAMMESA for energy
supply contracts with their own fuel management and (ii) thermal
units under the Energía Plus regulatory framework, authorized
under Resolution SE No.1281/05 to supply energy to large private
users.
We also assume an
increase in our number of employees related to our new projects,
but we believe that salaries will remain in line with current
levels. We cannot assure you that our operating or other costs will
not increase at higher rates. See “Item 3.D. Risk
Factors—Risks Relating to Argentina—Government
measures, as well as pressure from labor unions, could require
salary increases or added benefits, all of which could increase
companies’ operating costs”, “Item
3.D.—Risk Factors—Risks Relating to the Electric Power
Sector in Argentina—We operate in a heavily regulated sector
that imposes significant costs on our business, and we could be
subject to fines and liabilities that could have a material adverse
effect on our results of operations” and “Item
3.D.—Risk Factors—Risks Relating to Our
Business—Our ability to generate electricity at our thermal
generation plants partially depends on the availability of natural
gas and, to a lesser extent, liquid fuel.”
Item
5.E Off-balance sheet arrangements
As of December 31,2019, we did not have any off-balance sheet arrangement as defined
in Form 20-F not disclosed in our audited consolidated financial
statements.
Item
5.F Contractual Obligations
Contractual Obligations
The table below
identifies the principal amounts of our main contractual
obligations from continuing operations, their currency of
denomination, remaining maturity and interest rate and the
breakdown of payments due, as of December 31, 2019. Peso amounts
have been translated from U.S. dollar amounts at the seller rate
for U.S. dollars quoted by the Banco de la Nación Argentina
for wire transfers (divisas) on December 30, 2019 of Ps.
59.89 to US$1.00.
Construction of San
Lorenzo Terminal 6 and Luján de Cuyo plants
U.S.
dollars
Varies
16,393,494
4,867,821
11,525,674
–
–
Long-term benefits
to employees
Pesos
Varies
229,279
55,949
27,357
23,347
122,625
(1) Mainly
short-term loan with Banco Macro that amounts to Ps. 1,526 million
in principal and interest.
(2) The
General Electric combined cycle maintenance contract expires on
December 31, 2024; the Siemens combined cycle (Luján de Cuyo)
maintenance contract expires on September 30, 2024; the new
Luján
de Cuyo cogeneration unit maintenance contract expires on October31, 2034, the Terminal 6 San Lorenzo cogeneration unit maintenance
contract expires 15 years after the start of the commercial
operation, which was expected to occur in May 2020 the Achiras and
La Castellana maintenance contract expires in September 2028; the
La Genoveva II maintenance contract expires in October 2024; the La
Genoveva I, La Castellana II, Manque and Los Olivos maintenance
contract expires after 5 years of the provisional acceptance
certificate. Due to the outbreak of COVID-19, and the measures
adopted by the government to contain it, the project is expected to
be delayed. See “Item 3D. Risk Factors—Risks Relating
to our Business— Factors beyond our control may affect or
delay the completion of the awarded projects, or alter our plans
for the expansion of our existing plants. The amounts listed above
depend, in part, on the generation of the applicable machinery and
the type of fuel used, and we have made certain assumptions with
respect to these factors, among others, utilizing models and
software provided by CAMMESA, for purposes of estimating the
amounts included in the table above.
(3) We have a
contract for the purchase of natural gas for the new Luján de
Cuyo cogeneration unit that expires in October, 2034, and a
contract for the purchase of natural gas for the Terminal 6 San
Lorenzo that expires in September 2035. The amounts listed above
depend, in part, on the generation of the applicable machinery and
the type of fuel used, and we have made certain assumptions with
respect to these factors, among others, utilizing models and
software provided by CAMMESA, for purposes of estimating the
amounts included in the table above.
(4) The
amounts listed above depend, in part, on the generation of the
applicable machinery, and we have made assumptions with respect to
this factor, among others, utilizing models and software provided
by CAMMESA, for purposes of estimating the amounts included in the
table above.
(5) Based on
our internal estimates of the electric power generated by the
Piedra del Águila plant, with expected future water
flows.
Sales Obligations
The table below
identifies the principal amounts of our main sales obligations from
continuing operations and corresponding payments due to us as of
December 31, 2019 and the breakdown of when payments are due. The
below obligations are not derived from the Energía Base. With
respect to electric power sales, we agree to supply power to
customers or purchase the energy for the customer. With respect to
steam sales, we agree to provide a certain volume of energy
production per hour (except during scheduled maintenance). In the
event we cannot offer the agreed upon volume of energy in
connection with our steam sales, we must pay penalties. Electric
power sales and steam sales are denominated in U.S. dollars and
were converted into pesos below at Ps.59.89 to US$1.00, which was
the exchange rate quoted by the Banco de la Nación Argentina
for U.S. dollars for wire transfers (divisas) as of December 30,2019.
(1) Prices
are generally determined by agreements or formulas based on future
market prices. Estimated prices used to calculate the monetary
equivalent of these sales obligations for purposes of the table are
based on current market prices as of December 31, 2019, and
expected generation and demand estimated at that date, and may not
reflect actual future prices of these commodities, or the real
demand. Accordingly, the peso amounts provided in this table with
respect to these obligations are provided for illustrative purpose
only, and are fixed for the entire period. The amounts above are
based on internal estimates of demand from our customers, based on
prior years, and they do not include the agreements for the sale of
energy entered into after December 31, 2019.
Item
5.G Safe Harbor
See the discussion
at the beginning of this annual report under the heading
“Forward-Looking Statements” for forward-looking
statement safe harbor provisions.
Item 6. Directors,
Senior Management and Employees
Board of Directors
We are managed by
our Board of Directors in accordance with the Argentine Corporate
Law. Our Board of Directors makes management decisions, as well as
those expressly set forth in the Argentine Corporate Law, our
bylaws and other applicable regulations. In addition, our Board of
Directors is responsible for carrying out shareholders’
resolutions and fulfilling particular tasks expressly delegated by
the shareholders.
According to our
bylaws, our Board of Directors must be composed of 11 directors,
and our shareholders may also appoint an equal or lesser number of
alternate directors. As of the date of this annual report, our
Board of Directors is composed of 11 directors and 11 alternate
directors. All of our directors reside in Argentina.
Directors and their
alternates are appointed for a term of one year by our shareholders
during our annual shareholders’ meetings. Directors may be
reelected. Shareholders are entitled to elect up to one-third of
the vacant seats by cumulative voting pursuant to Section 263 of
the Argentine Corporate Law. Pursuant to Section 257 of the
Argentine Corporate Law, the directors maintain their positions
until the following annual ordinary shareholders’ meeting
where directors are appointed.
The latest election
relating to our Board of Directors took place at the ordinary
shareholders’ meeting held on April 30, 2019.
During the first
board meeting after directors have been appointed, they must
appoint a chairman and vice-chairman of the board. The
vice-chairman would automatically and temporarily replace the
chairman in the event that the chairman is absent, resigns, dies,
is incapacitated or disabled, removed or faces any other impediment
to serve as chairman. A new chairman must be elected within ten
days from the seat becoming vacant. The election of a new chairman
must take place only if the situation that gives rise to the
re-election is expected to be irreversible during the remaining
term of office.
According to
Section 26 of our bylaws, our Board of Directors has the broadest
powers and authorities in connection with our direction,
organization and administration, with no limitations other than
those set forth by the applicable laws and regulations. The
chairman is our legal representative.
186
The following table
sets forth the current composition of our Board of
Directors:
* Independent
directors according to CNV rules, which differ from NYSE
requirements for U.S. issuers.
Note:
Notwithstanding expiration of current term, under the company,
bylaws, directors continue to serve in their capacity until the
next shareholders’ meeting.
The following are
the academic and professional backgrounds of the members of our
Board of Directors. The business address of each of the members of
our Board of Directors is Avda. Thomas Edison 2701, Buenos Aires,
Argentina.
Osvaldo Arturo Reca holds a degree in
Engineering from the Universidad Católica Argentina. He also
received an advanced degree in 1977 from North Carolina State
University in the United States. He has been a member of our Board
of Directors since 2011. From 1980 to 1984, he was a shareholder
and director of Ingeniería de Avanzada S.A., a company engaged
in the deployment of sanitary and gas facilities for housing
developments. From 1984 to 1989, he served as general manager of
Dufalp S.A., a leading company within the clothing industry
(“Dufour” was its principal brand). From 1989 to 2002,
Mr. Reca served as commercial, operating and planning manager of
Alpargatas S.A., a leading company in the clothing and footwear
industry. He then developed an agricultural project for cereal and
oilseeds production. He also served as vice chairman of HPDA from
2012 to 2015 and as a director of Transportadora de Gas del Norte
S.A., Edesur S.A. and PB Distribución S.A. In addition, he
currently serves as chairman of the board of directors of DGCE,
DGCU, IGCE and Energía Sudamericana S.A. He also serves as
director of Coyserv S.A.
Jorge Anibal Rauber holds a degree in
Electrical Engineering from the Universidad Nacional de la Plata
and post-graduate degrees in Electrical Market Management from the
Instituto Tecnológico de Buenos Aires (ITBA) and in Business
from the Universidad Di Tella. From 2006 to 2012, Mr. Rauber worked
as general manager of AES Argentina Generación S.A. From 2016
to 2017, he served as general manager of Subterráneos
de Buenos Aires Sociedad del Estado.
Miguel Dodero holds a degree in
Business Administration from the Universidad de Buenos Aires. He
has been a member of our Board of Directors since 2015. He has
previous work experience at Agencia Marítima Dodero S.A. and
Compañía Argentina de Navegación Intercontinental
S.A. He served as chairman of Dodero Inmobiliaria y Mandataria S.A.
from 1990 to September 2014. Mr. Dodero has been chairman of M.
Dodero Compañía de Servicios S.A. since 1989 and of Full
Logistics S.A. since 2008, as well as a shareholder of both
companies. In addition, he currently serves as a director of IGCE,
DGCU and DGCE.
187
José Luis Morea holds a degree in
Political Science from the Universidad Católica Argentina. He
completed postgraduate studies in SME Management at IAE. Between
1980 and 1990 he held executive positions in communication
companies, mainly in Editorial Atlántida
and Videomega. From 1990 to 1995 he served as Executive Director in
San Ciriaco, with operations in the agricultural sector, and later
as General Manager of Espro S.A., a company dedicated to the
production and export of agriculture products. From 1999 to 2001 he
became General Manager of Tecnovital S.A., a fruit export company.
In 2001, he founded North Bay Argentina S.A., a company in which he
serves as Chairman and General Manager. North Bay S.A. has become
one of the main blueberry exporters and producers in Argentina.
Together with other partners, he created Servifrío Ezeiza SA,
a logistics and cold storage company in which he serves as
Director. He is also Director of North Bay Peru S.A. and of North
Bay Produce Inc in the United States. He served in this group until
2013. In 2014 he joins La Gloriosa SA as Blueberries Project
Manager, developing a high-tech enterprise in Virasoro, Corrientes,
until December 2018. Between 2016 and 2018 he served as Director of
Transportadora de Gas Cuyana. He has been a member of our Board of
Directors since 2019.
Juan José Salas holds
a degree in Engineering from the Universidad de La Plata. He has
been a member of our Board of Directors since 2015. From 1983 to
1984, he completed postgraduate studies at the Instituto de Altos
Estudios Empresariales. From 2010 to 2015, Mr. Salas has also
served as operations and information systems manager of Autopistas
del Sol S.A. Since 2016, he is a director of Transener S.A., and
since 2017 he serves as highways’ operations director of
Autopistas Urbanas S.A.
Diego Gustavo Petracchi holds a degree
in Economics from the Universidad Católica Argentina and a
Master in Science of Management (Sloan Program) from Stanford
University. He is currently developing a project in the senior
living (residences for adults) business. He is the founder and
currently serves as Chief Executive Officer of Yugen S.A. From 2006
to 2015, he was a director of NDM Holding (Valle de las Leñas
S.A.), a Company engaged in tourism, real state and agribusiness.
He has also served as a director of Nieves de Mendoza S.A., Santa
Rosa del Monte S.A., Rio Lobo S.A., Valles Mendocinos S.A. In
addition, from 1995 to 2006, he worked in different positions,
including Vice President, in Prefinex S.A., a company that provides
financial advisory services.
Tomas Peres holds a degree in Business
Administration from the Universidad de San Andrés. From
2007 to 2009 he worked in the audit department of KPMG. From
2009 to 2015 he worked at Ultrapetrol American Barge Line, first as
bunker responsible, and then as chief of commercial
planning. He currently serves as an advisor of the Ministry of
Transport of the Republic of Argentina Director of Inversora de Gas
del Centro S.A. and Energía Sudamericana S.A.
Tomás José White holds
a degree in Accounting from the Universidad Católica
Argentina. From 1977 to 1984 he served as director in several
private companies in the construction industry, such as Bemba S.A.,
Sumarge S.A. and Din S.A. From 1996 to 1998 he also served as a
director of Empresa Amanco SA. Since 2000 he is the chairman of
Celestal SAIC. Since 2019 he owns interests and is the chairman of
BEP SRL, a company involved in the plastic industry.
Cristian López Saubidet holds a
degree in Industrial Engineering from the Instituto
Tecnológico de Buenos Aires (ITBA) and a Master’s degree
in Business Administration from the University of California, Los
Angeles. He has been a member of our Board of Directors since 2009.
From 2005 to 2008, he worked for HSBC USA Inc. within the consumer
loans and mortgages group. From 1998 to 2005, Mr. Saubidet worked
as a consultant at Mckinsey & Co. Currently, he serves as
director in many companies, including Patagonia Gold Corp,
Agropecuaria Cantomi S.A., Plusener S.A., and San Miguel S.A., in
which he has been member of the Executive Committee since
2014.
Jorge Eduardo Villegas holds a degree
in law from the Universidad de Buenos Aires. Since his graduation,
he has worked as a lawyer in the private sector, independently
through his own law firm, Estudio Jorge Villegas & Asociados.
Mr. Villegas also currently serves as the chairman of Agropecuaria
Los Potros S.A.
Marcelo Suvá holds a degree in
Economics from the Universidad Católica Argentina. He has
served as alternate director of our Board of Directors since 2008.
He was shareholder of Coinvest SA, a private equity company, as
well as of MBA Banco de Inversiones S.A. (currently known as Lazard
Argentina SA), a leading Argentine investment bank, where he was
also member of its Board of Directors and took part in various
M&A transactions. He also served as Director of HNQ. In
addition, he serves as a manager and Director of RMPE, as an
Alternate Director of IGCE SA, DGCU SA, DGCE SA, and as Chairman of
the Board of RPM Gas SA, RPE Distribución SA and Hidro
Distribución SA. He is also Chairman of the Governing Board at
Universidad Austral.
Oscar Luis Gosio holds a degree in
Accounting from the Universidad de Buenos Aires. He has served as
alternate director of our Board of Directors since 2007. He is
currently the principal partner at Gosio, Medina & Asociados, a
company that provides audit, accounting and tax services. He is
also the chairman and partner of Agropecuaria Huen Loo S.A. since
2008, a company engaged in the agriculture business, as well as the
President of the Instituto de Hermanos Cristianos, which is focused
on education (Colegio Cardenal Newman) since 2014. Mr. Gosio also
serves as a director of Asociación Argentina de Criadores de
Corriedale. In addition, he is syndic in several companies of the
agriculture industry.
188
Justo Pedro Sáenz completed the
“Advanced Management Program” at The Wharton School,
University of Pennsylvania in the United States. He has served as
alternate director of our Board of Directors since 2008. From 2007
to 2016, he served as administration and human resources manager of
Central Puerto, and since 2016 he serves as administration manager
of Central Puerto. From 2005 to 2007, he worked at Cima Investments
in the new business area. From 2003 to 2005, he served as Chief
Financial Officer of Banco de Servicios y Transacciones S.A. In
2002, he co-founded Idun Inversiones S.A. From 2000 to 2001, he
held the position of partner and finance manager of Softbank Latin
America Ventures, Venture Capital Fund. From 1984 to 2000, he
worked at Merchant Bankers Asociados, MBA Banco de Inversiones and
MBA Sociedad de Bolsa. He has been a partner of Merchant Bankers
Asociados since 1992, which was affiliated with Salomon Brothers
and the investment company of Nicholas Brady, former U.S. Secretary
of Treasury. In addition, he currently serves as a director of
Proener S.A.U., and as an alternate director of IGCE, DGCU, DGCE,
CP Renovables S.A., CP Patagones S.A.U., CP Achiras S.A.U., CP La
Castellana S.A.U., CPR Energy Solutions S.A.U., Vientos La Genoveva
S.A.U., Vientos La Genoveva II S.A.U., CP Manque S.A.U. y CP Los
Olivos S.A.U.
Adrián Gustavo
Salvatore holds a degree
in law from the Universidad de Buenos Aires and an MBA in a joint
degree from the Universidad del Salvador (Argentina) and the
Universidad de Deusto (Spain). From 1993 to 1997 he worked at the
legal and regulatory department of ESEBA, where he was in charge of
the process of privatizing the company. From 1997 to 2003, he
worked as legal manager at COMESA, Comercializadora de
Energía, and in 2003 he joined the law firm Bruchou,
Fernández Madero, Lombardi & Mitrani, as part of their
regulatory and public services department. He has worked in the
regulatory department of Central Puerto since 2008, and he
currently serves as Institutional Relations Director, also serves
as a director in several companies such as Termoeléctrica
Manuel Belgrano S.A. and Inversora de Gas del Centro S.A., as well
as alternate director of Distribuidora de Gas Cuyana S.A. and
Distribuidora de Gas del Centro S.A. He is also the chairman of
Proener S.A.U., and vice-chairman of Termoeléctrica José
de San Martín S.A., Central Vuelta de Obligado S.A. and
Central Aimé Painé S.A.
Javier Alejandro Torre holds a degree
in Human Resources from the University of Buenos Aires and a Master
in Business Administration from the University of Buenos Aires.
From 2011 to 2016, he was human resources manager of Argentine
operations in LyondellBasell. He has been our human resources
manager since 2016. He previously worked at ExxonMobil for almost
20 years, where he held different positions in the commercial and
human resources areas.
Rubén Omar López holds a
degree in Electrical Engineering from the Universidad
Tecnológica Nacional. He also holds a postgraduate degree in
Business Management from Universidad de Buenos Aires. From 2013 to
2019, he was our planning and regulation manager, from 2019 to
April 2020 he was our Strategic Planning Director. Since April
2020, he is our Renewable Energy Manager. He has more than 30 years
of experience in the utilities sector, where he has held different
positions both in technical and commercial areas. In addition, he
currently serves as director of EDESUR S.A. and Distrilec Inversora
S.A. In addition, he has been a director in Compañía
Administradora del Mercado Mayorista Eléctrico (CAMMESA) since
2015 to August 2019.
José Manuel Pazos holds a degree
in law from the Universidad Católica Argentina. He also holds
a postgraduate degree in Utilities’ Economic Regulation from
the Universidad Austral. He has served as General Counsel, Head of
Legal Area and alternate director of our Board of Directors since
2015. From 1997 to 2002, he served as lawyer of the Argentine
Secretariat of Energy and Emprendimientos Binacionales S.A.
(EBISA), and, from 2003 to 2014, he worked for the law firm,
Bruchou, Fernández Madero & Lombardi. Between 2007 and
2008, he worked for Simpson Thacher & Bartlett LLP in New York.
Currently he served as director of Termoleéctrica Manuel
Belgrano S.A. and alternate director of Distrilec Inversora S.A.,
CP Renovables S.A., CP Achiras S.A.U., CPR Energy Solutions S.A.U.,
CP La Castellana S.A.U., CP Patagones S.A.U., Vientos La Genoveva
S.A.U., Vientos La Genoveva II S.A.U., CP Manques S.A.U. y CP Los
Olivos S.A.U.
Enrique Gonzalo Ballester holds a
degree in Economics from the Universidad Católica Argentina
and a Master of Science (MSc) of the University of London. From
1995 to 2016, he served as senior operator in the department of
finance of Banco de Galicia y Buenos Aires S.A. Since 1990, he has
served as director of various companies. He currently serves as an
alternate director of Quenuma S.A., Lanceros Civicos S.A. and
Guardia Cívica S.A.
Juan Pablo Gauna Otero holds a degree
in Accounting from the Universidad Argentina JF Kennedy. In
addition, he took graduate level courses in Executive Business
Administration in IAE Business School, GIP program in strategy at
Harvard Business School, GIP program in innovation (IESE
University, New York) and holds a post-graduate degree from the
University of Buenos Aires in administration and management of SMEs
(small and medium-sized enterprises). From 1997 to 2002, he served
as senior accountant of Banco Privado de Inversiones. From 2003 to
2009, he served as finance manager of Big Bloom SA (Wanama and John
L Cook). From 2010 to 2012, he served as finance manager of BTM
Argentina. He is currently a member of the boards of directors of
the following companies: Patagonia Gold S.A. (mining), Minera
Minamalu S.A. (mining), Cheyenne S.A. (air taxi services), Plusener
S.A. (energy) and MB Holding S.A., Huemeles SA (mining), Leleque
Explotación (mining), Agropecuaria Cantomi SA (Agriculture),
Enter Bar Sa (polo club), Motion Ventures SAS (innovation &
technology), as well as a syndic of Minera Aquiline Argentina S.A.
and Delta del Plata S.A. In addition, Mr. Otero currently serves as
accountant of Agropecuaria Cantomi S.A.
189
Diego Federico Cerdeiro holds a
degree in Business Administration from the Universidad de San
Andrés, a post-graduate degree in Finance of the same
university and a MBA from the Wharton School of the University of
Pennsylvania. From 1998 to 2005, he worked as senior credit officer
at the branch of Bayerische Vereinsbank AG (now Unicredit) in
Argentina. From 2007 to 2017 he worked in the United States at
Morgan Stanley, McKinsey & Co., and served as CFO and Board
Member of ChenMed, a fast-growing healthcare company. In 2017,
Federico returned to Argentina as CFO of Biosidus and since 2018,
he serves as CEO of a Family Office where he manages a portfolio of
companies and investments.
Pablo Javier Vega holds a degree in
Industrial Engineering from the Universidad Católica
Argentina. He has served as alternate director of our Board of
Directors since 2015. He has previous work experience at Empresa
Provincial de Energía de Neuquén (EPEN) and the
Planification and Action for Development Council (COPADE). In
addition, from January 2004 to April 2005, he served as mining
executive manager of the Mining and Electricity Provincial Agency
of Neuquén Province. From 2015 to 2017, he served as technical
coordinator in the Ministry of Energy, Natural Resources and Public
Services of the Province of Neuquén, and he is currently the
Coordinator of the Public Services department of the General and
Public Services Secretariat of the Province of
Neuquén.
Duties and Liabilities of Directors
Directors have the
obligation to perform their duties with the loyalty and the
diligence of a prudent businessperson. Under Section 274 of the
Argentine Corporate Law, directors are jointly and severally liable
to the company, the shareholders and third parties for the improper
performance of their duties, for violating any law or the bylaws or
regulations, if any, and for any damage to these parties caused by
fraud, abuse of authority or gross negligence. The following are
considered integral to a director’s duty of loyalty: (i) the
prohibition on using corporate assets and confidential information
for private purposes; (ii) the prohibition on taking advantage, or
allowing another to take advantage, by action or omission, of the
business opportunities of the corporation; (iii) the obligation to
exercise board powers only for the purposes for which the law, the
corporation’s bylaws or the shareholders’ or the board
of directors’ resolutions were intended; and (iv) the
obligation to take strict care so that acts of the board do not go,
directly or indirectly, against the corporation’s interests.
A director must inform the board of directors and the Supervisory
Committee of any conflicting interest he or she may have in a
proposed transaction and must abstain from voting
thereon.
In general, a
director will not be held liable for a decision of the board of
directors, even if that director participated in the decision or
had knowledge of the decision, if (i) there is written evidence of
the director’s opposition to the decision and (ii) the
director notifies the Supervisory Committee of that opposition.
However, both conditions must be satisfied before the liability of
the director can be contested before the board of directors, the
Supervisory Committee or the shareholders or relevant authority or
the commercial courts.
Section 271 of the
Argentine Corporate Law allows directors to enter into agreements
with the company that relate to such director’s activity and
under arms’ length conditions. Agreements that do not satisfy
any of the foregoing conditions must have prior approval of the
board of directors (or the Supervisory Committee in the absence of
board quorum), and must be notified to the shareholders at a
shareholders’ meeting. If the shareholders reject the
agreement, the directors or the members of the supervisory
committee, as the case may be, shall be jointly and severally
liable for any damages to the company that may result from such
agreement. Agreements that do not satisfy the conditions described
above and are rejected by the shareholders are null and void,
without prejudice to the liability of the directors or members of
the Supervisory Committee for any damages to the
company.
The acts or
agreements that a company enters into with a related party
involving a relevant amount shall fulfill the requirements set
forth in Section 72 and 73 of Law No. 26,831. Under Section 72, the
directors and syndics (as well as their ascendants, descendants,
spouses, brothers or sisters and the companies in which any of such
persons may have a direct or indirect ownership interest) are
deemed to be a related party. A relevant amount is considered to be
an that which exceeds 1.00% of the net worth of the company as per
the latest balance sheet. The board of directors or any of its
members shall require from the audit committee a report stating if
the terms of the transaction may be reasonably considered adequate
in relation to normal market conditions. The company may proceed
with the report of two independent evaluating firms that shall have
informed them about the same matter and about the other terms of
the transaction. The board of directors shall make available to the
shareholders the report of the audit committee or of the
independent evaluating firms, as the case may be, at the main
office on the business day after the board’s resolution was
adopted and shall communicate such fact to the shareholders of the
company in the respective market bulletin. The vote of each
director shall be stated in the minutes of the board of directors
approving the transaction. The transaction shall be submitted to
the approval of the shareholders of the company when the audit
committee or both evaluating firms have not considered the terms of
the transaction to be reasonably adequate in relation to normal
market conditions. In the case where a shareholder demands
compensation for damages caused by a violation of Section 73, the
burden of proof shall be placed on the defendant to prove that the
act or agreement was in accordance market conditions or that the
transaction did not cause any damage to the company. The transfer
of the burden of proof shall not be applicable when the transaction
has been approved by the board of directors with the favorable
opinion of the audit committee or the two evaluating
firms.
190
We may initiate
causes of action against directors if so decided at a meeting of
the shareholders. If a cause of action has not been initiated
within three months of a shareholders’ resolution approving
its initiation, any shareholder may start the action on behalf of
and on the company’s account. A cause of action against the
directors may be also initiated by shareholders who object to the
approval of the performance of such directors if such shareholders
represent, individually or in the aggregate, at least 5.00% of the
company’s capital stock.
Except in the event
of our mandatory liquidation or bankruptcy, shareholder approval of
a director’s performance, or express waiver or settlement
approved by the shareholders’ meeting, terminates any
liability of a director vis-à-vis the company, provided that
shareholders representing at least 5.00% of the company’s
capital stock do not object and provided further that such
liability does not result from a violation of law or the
company’s bylaws.
Under Argentine
law, the board of directors is in charge of the company’s
management and administration and, therefore, makes any and all
decisions in connection therewith, as well as those decisions
expressly provided for in the Argentine Corporate Law, the
company’s bylaws and other applicable regulations.
Furthermore, the board of directors is responsible for the
execution of the resolutions passed in shareholders’ meetings
and for the performance of any particular task expressly delegated
by the shareholders.
Meetings, Quorum, Majorities
Pursuant to Section
23 of our bylaws, our Board of Directors’ meetings require a
quorum of an absolute majority of its members. Our Board of
Directors functions and acts upon the majority vote of its members
present at its meetings either physically or via
videoconferencing.
Our Board of
Directors’ minutes must be drafted and signed by directors
and syndics who are present at the meeting within five days from
the date on which it was held. Members of our Supervisory Committee
must register in the minutes the names of the directors who have
participated in the meeting remotely and that the decisions made
therein were made in accordance with the law. The minutes must
include the statements from directors participating in person and
remotely and must state their respective votes on each decision
made.
The chairman, or
the individual acting in lieu of the chairman pursuant to
applicable law, may call meetings when deemed convenient, or when
so required by any director or the supervisory committee. The
meeting must be called within five days from the request;
otherwise, the meeting may be called by any of the directors. Our
Board of Directors’ meetings must be called in writing and
notice thereof must be given to the address reported by each
director. The notice must indicate the date, time and place of the
meeting and the meeting agenda. Business that is not included in
the notice may be discussed at the meeting only to the extent all
permanent directors are present and have cast their unanimous
vote.
Compensation
Our shareholders
fix our directors’ compensation, including their salaries and
any additional wages arising from the directors’ permanent
performance of any administrative or technical activity.
Compensation of our directors is regulated by the Argentine
Corporate Law and the CNV regulations. Any compensation paid to our
directors must have been previously approved at an ordinary
shareholders’ meeting. Article 261 of the Argentine Corporate
Law provides that the compensation paid to all directors and
syndics in a year may not exceed 5.00% of net income for such year,
if the company is not paying dividends in respect of such net
income. The Argentine Corporate Law increases the annual limitation
on director compensation to up to 25.00% of net income based on the
amount of dividends, if any, that are paid. In the case of
directors that perform duties at special commissions or perform
administrative or technical tasks, the aforementioned limits may be
exceeded if a shareholders’ meeting so approves, such issue
is included in the agenda, and is in accordance with the
regulations of the CNV. In any case, the compensation of all
directors and members of the Supervisory Committee requires
shareholders’ ratification at an ordinary shareholders’
meeting.
Certain of our
directors perform managerial, technical and administrative
functions. We compensate directors who perform such functions for
their roles both as directors and as executive
officers.
During the annual
ordinary shareholders’ meeting convened for April 30, 2020,
the shareholders will consider the approval of the directors’
fees that amounted to a total of Ps.12,350,000 for services
rendered in 2019, which were paid in 2019.
As of the date of
this annual report, neither we, nor any of our affiliates, have
entered into any agreement that provides for any benefit or
compensation to any director after expiration of his or her
term.
191
Independence Criteria of Directors
In accordance with
the provisions of Section 4, Chapter I, Title XII
“Transparencia en el
Ámbito de la Oferta Pública” and Section 11,
Chapter III, Title II “Órganos de Administración y
Fiscalización, Auditoría Externa” of the CNV
rules, we are required to report to the shareholders’
meeting, prior to vote the appointment of any director, the status
of such director as either “independent” or
“non-independent.” At present José Luis Morea,
Juan José Salas, Tomas José White, Jorge Eduardo
Villegas, Gonzalo Ballester, Pablo Javier Vega, Juan Pablo Gauna
Otero and Federico Cerdeiro are independent members of our Board of
Directors according to the criteria established by the CNV, which
may differ from the independence criteria of the NYSE and NASDAQ.
See “—Audit Committee” for further details about
independence requirements of the members of our Audit Committee at
the time of the offering.
Corporate Governance
We have adopted a
corporate governance code to put into effect corporate governance
best practices, which are based on strict standards regarding
transparency, efficiency, ethics, investor protection and equal
treatment of investors. The corporate governance code follows the
guidelines established by the CNV. We have also adopted a Code of
Business Conduct designed to establish guidelines with respect to
professional conduct, morals and employee performance.
Senior Officers
The following table
sets forth the current composition of our management
team:
Name
Title
Date of
first
appointment
to
position
Date of
Birth
Jorge Aníbal
Rauber
CEO
2017
July 18,
1969
Fernando Roberto
Bonnet(1)
COO
2010
March 23,
1977
Eduardo
Nitardi
Engineering
Director
2016
July 18,
1955
Alberto Francisco
Minnici
Production and
Combined Cycle Plant Manager
2015
April 14,
1965
José
María Saldungaray
Fuel Supply
Planning Manager
2014
February 18,
1967
Justo Pedro
Sáenz(2)
Administration
Manager
2007
May 2,
1958
José Manuel
Pazos
General Counsel,
Head of Legal Area
2015
September 14,
1971
Rubén Omar
López
Renewable Energy
Manager
2019
April 17,
1964
Gabriel Omar
Ures
Commercial
Manager
2018
December 31,
1978
Leonardo
Marinaro
Legal Affairs
Manager
2007
April 25,
1963
Javier Alejandro
Torre
Human Resources
Manager
2016
April 19,
1967
Adrián
Gustavo Salvatore
Institutional
Relations Director
2019
April 26,
1967
Martín
Fernández Barbiero
Compliance and
Internal Audit Manager
2009
April 28,
1971
(1) Mr. Bonnet
continues to serve as the Company’s CFO until his replacement
is appointed.
(2) From 2007
to 2016, he served as administration and human resources manager of
Central Puerto, and since 2016 he serves as administration manager
of Central Puerto.
The following are
the academic and professional backgrounds of our senior management.
The business address of each of the members of our senior
management team is Avda. Thomas Edison 2701, Buenos Aires,
Argentina.
Fernando Roberto Bonnet holds a degree
in Accounting from the Universidad Nacional de Buenos Aires. In
addition, from 2009 to 2010, he took a graduate level course in
Executive Business Administration in IAE Business School,
Universidad Austral. Since March 2020, he serves as the Chief
Operating Officer of the company. He has served as CFO of our
company since 2010 (position that he continues to hold until his
replacement is appointed) and, from 2008 to 2010, he also served as
tax manager. He served as tax manager of Ernst & Young
Argentina. Mr. Bonnet currently serves as vice-chairman of Proener
S.A.U. He currently serves as an alternate director of CP
Renovables S.A., CP Achiras S.A.U., CPR Energy Solutions S.A.U., CP
La Castellana S.A.U., CP Patagones S.A.U., Vientos La Genoveva
S.A.U., Vientos La Genoveva II S.A.U., Central Aimé Painé
S.A., CP Manques S.A.U. and CP Los Olivos S.A.U.
192
Eduardo Luis Nitardi holds a degree in
Mechanical-Electric Engineering from the Universidad Nacional de
Córdoba. In addition, from March 1999 to November 2000, he
took a graduate level course of Master in Administration of the WEM
in Instituto Tecnológico de Buenos Aires. From March 2002 to
November 2002, Mr. Nitardi took a graduate level course in
Direction Development in IAE Business School, Universidad Austral.
Mr. Nitardi has 39 years of experience in the electric power
industry both in the transmission and electric power generation
segments. He has served as Central Puerto’s Engineering
Director since 2016. Previously, he served as CEO of CVOSA from
2012 to 2015, planning and works manager of Central Puerto since
2011 to 2012, and Technical Director in Transener S.A. since 2008
to 2011. He served as technical manager in the same company since
1997 to 2008.
Alberto Francisco Minnici holds a
degree in Electrical Engineering from the Universidad
Tecnológica Nacional. Mr. Minnici has 31 years of experience
in the electric power industry. He has served as Central
Puerto’s Production and Combined Cycle Plant Manager since
2015. Previously, he served as Plant Operations Manager of the
Puerto Complex from 2012 to 2015 and as Plant Operations Manager of
the combined cycle plant of the Puerto Complex located in the City
of Buenos Aires from 2008 to 2012, among other positions within
Central Puerto.
José María Saldungaray holds
a degree in Electrical Engineering from the Universidad Nacional
del Sur, Bahía Blanca, Argentina. He has been our planning
manager since 2014. He currently serves as alternate director of
Proener S.A.U. He also served as commercial manager of HPDA and was
a member of the board of directors of Centrales Térmicas
Mendoza S.A. and La Plata Cogeneración S.A.
Gabriel Omar Ures holds a degree in
Systems Engineering from the Universidad Abierta Interamericana. He
also holds a Postgraduate degree in Gas and Electricity
Administration in Instituto Tecnológico de Buenos Aires (ITBA)
and a Management Program from the Darden Business School of the
University of Virginia, United States. He started his professional
career in 1997 and has over 21 years of experience working in the
Argentine power sector. Among other positions, he held managerial
positions in Hidroeléctrica Alicura, was commercial director
of AES Argentina Generación, General Manager of
Termoeléctrica Manuel Belgrano (from 2013 to 2018), Commercial
Manager in Central Dock Sud (YPF EE). Additionally, he was a
director of various companies and industry chambers, including
AGEERA (Asociación de
Generadores de Energía Eléctrica de la República
Argentina) where he has been elected as President for 5
consecutive terms (2012/2017) after holding the Vice Presidency. He
currently serves as director of CAMMESA.
Leonardo Marinaro holds a degree in law
from the Universidad Católica Argentina. He has been our legal
affairs manager since 2007. Mr. Marinaro has served as director of
La Plata Cogeneración S.A., CTM and Edesur S.A. He is
currently a director of CP Renovables S.A., Vientos La Genoveva
S.A.U. and Vientos La Genoveva II S.A.U., and alternate director of
Proener S.A.U., Central Vuelta de Obligado S.A., TMB, TJSM, Central
Aimé Painé S.A., DGCE, IGCE, IGCU and Energía
Sudamericana S.A.
Martín Fernández Barbiero
holds a degree in Accounting from the Universidad Nacional de
Buenos Aires and a Master in Business Administration (MBA) from
Universidad de San Andrés. He also completed an international
certification program in Compliance from the Universidad Austral
(IAE). He has served as Internal Auditor Manager of Central Puerto
since 2008 and since 2018, he was also appointed as Compliance
Officer. Before Central Puerto he worked for CMS Energy as
Internal Auditor Manager and SOX Compliance Manager among other
positions between 1999 and 2007.
For the biography
of Mr. Jorge Rauber, Justo Pedro Sáenz, José Manuel
Pazos, Rubén Omar López, Javier Alejandro Torre and
Adrián
Salvatore see “—Board of Directors.”
Compensation
In 2019, our
management received compensation and fees totaling Ps. 106.00
million (in nominal values), of which Ps. 16.63 million consisted
of an annual bonus. The annual bonus to management is normally
between three and four times their salaries and is based on certain
performance thresholds related to the amount of work performed and
the importance of such work to our business. We also compensate
directors who perform managerial, technical and administrative
functions for their roles both as directors and as executive
officers.
Audit Committee
Under the SEC rules
applicable to corporate governance, we are required to maintain an
audit committee.
Pursuant to Law No.
26,831 and its implementing regulations, we are required to have an
audit committee consisting of at least three members of our Board
of Directors with experience in business, finance, accounting,
banking and audit matters. Under CNV regulations, at least a
majority of the members of the audit committee must be independent
directors under CNV standards.
193
On April 16, 2017,
CNV issued Resolution No. 730/2018, which modified the criteria and
requirements applicable for directors of companies admitted to the
public offering regime of its shares. The main changes introduced
by Resolution No. 730/2018 are as follows:
●
Independent
directors will cease to be independent after 10 years of holding a
position of director but will be eligible to return to their
independent status three years after leaving office.
●
The threshold
constituting a “significant participation” has been
reduced from a 15% holding of capital stock to a 5% holding of
capital stock;
●
The following
criteria preclude a person from being considered
“independent”: (i) being connected with the company or
the company’s shareholders that have (direct or indirect)
significant participations, or being connected with companies in
which the aforementioned shareholders have (direct or indirect)
significant participations; (ii) maintaining a frequent
professional relation, of relevant nature and volume, with, or
receiving remuneration or fees from, the company, its shareholders
who have a (direct or indirect) significant participation, or
companies in which the aforementioned shareholders have (direct or
indirect) significant participations; (iii) maintaining a
significant participation, through the possession of shares of the
capital stock and/or the votes, in the company and/or in another
company in which the company has a significant participation; (iv)
on a regular basis, selling and/or providing goods and/or services
of relevant nature and volume (directly or indirectly) to the
company or to shareholders that have (direct or indirect)
significant participations; (v) being the director, CEO,
administrator or principal executive for a non-profit organization
which has received funds in amounts exceeding those established by
Resolution No. 30/2011 of the UIF (currently equivalent to
Ps.300,000) from the company or its parent company; (vi) receiving
any payments from the company or companies of the same group other
than fees as a director or dividends as shareholder; and (vii)
being a member of the administrative or supervisory committee
and/or holding a significant participation (directly or indirectly)
with respect to one or more companies that are registered as Agente
de Negociación, Agente de Liquidación y Compensación
y/o Agente de Corretaje de Valores Negociables.
It is necessary to
comply with all the conditions of independence set forth above for
at least three years before the appointment. Our Audit Committee is
composed of three members designated by our Board of Directors. Mr.
Juan José Salas, Mr. José Luis Morea and Mr. Tomas White
are independent under Rule 10A-3 of the Exchange Act (“Rule
10A-3”) and applicable NYSE standards, which are different
from the general test for independence of board and committee
members. Our board of directors has determined that Mr. Tomas White
qualifies as a financial expert within the meaning of the rules
adopted by the Commission relating to the disclosure of financial
experts on audit committees in periodic filings pursuant to the
Exchange Act.
Independence Requirements under Commission Rule 10-A3
Pursuant to NYSE
Rule 303A.06, we are required to have an audit committee that
complies with Rule 10-A3. Under rule 10-A3, we are required to
comply with certain independent standards. Each member of the audit
committee must be independent and a member of the board of
directors. Pursuant to Rule 10-A3, in order to be considered
“independent”, a member of an audit committee of a
listed issuer may not, other than in his or her capacity as a
member of the audit committee, the board of directors, or any other
board committee:
●
accept directly or
indirectly any consulting, advisory, or other compensatory fee from
the issuer or any subsidiary thereof. Compensatory fees do not
include the receipt of fixed amounts of compensation under a
retirement plan (including deferred compensation) for prior service
with the listed issuer (provided that such compensation is not
contingent in any way on continued service); or
●
be an affiliated
person of the issuer or any subsidiary thereof.
Additionally, as of
the date of this annual report, all members of our Audit Committee
satisfy the independence requirements of the Commission and NYSE
applicable to the audit committees of foreign private issuers. The
members of our Audit Committee are entitled to annual compensation
in the form of a fixed salary. Our Audit Committee also has two
alternate members, and both are independent under Rule 10A-3 and
applicable NYSE standards.
A quorum for a
decision by the Audit Committee will require the presence of a
majority of its members and matters will be decided by the vote of
a majority of those present at the meeting. A chairman of the
committee must be appointed during the first meeting after members
of the committee have been appointed. The chairman of the committee
may cast two votes in the case of a tie. Pursuant to our bylaws,
the committee will pass resolutions by the affirmative vote of the
majority of members present. Decisions of the Audit Committee will
be recorded in a special corporate book and will be signed by all
members of the committee who were present at the meeting. Pursuant
to Section 17 Chapter III Title II of the CNV rules, the Audit
Committee must hold at least one regularly scheduled meeting every
three months.
194
Pursuant to Law No.
26,831, the Audit Committee, among other things:
●
advises on the
Board of Directors’ proposal for the designation of external
independent accountants and ensure their independence;
●
oversees our
internal control mechanisms and administrative and accounting
procedures and assesses the reliability of all financial and other
relevant information filed with the CNV and other entities to which
we report;
●
oversees our
information policies concerning risk management;
●
provides the market
with complete information on transactions in which there may be a
conflict of interest with members of our various corporate bodies
or controlling shareholders;
●
advises on the
reasonableness of fees or stock option plans for our directors and
managers proposed by the Board of Directors;
●
advises on our
fulfillment of legal requirements and the reasonableness of the
terms of the issuance of shares or other instruments that are
convertible into shares in cases of capital increase in which
pre-emptive rights are excluded or limited;
●
verifies the
fulfillment of any applicable rules of conduct; and
●
issues opinions on
related-party transactions under certain circumstances and files
such opinions with regulatory agencies as required by the CNV in
the case of possible conflicts of interest.
Additionally, the
Audit Committee is required to prepare an annual working plan and
present it to the Board of Directors and the Supervisory Committee.
Members of the Board of Directors, members of the Supervisory
Committee and external independent accountants are required to
attend the meetings of the Audit Committee if the Audit Committee
so requests it, and are required to grant the Audit Committee full
cooperation and information. The Audit Committee is entitled to
hire experts and counsel to assist it in its tasks and has full
access to all of our information and documentation.
The following chart
shows the members of our Audit Committee according to the
resolution passed at the Board of Directors’ meeting held on
May 13, 2019:
(1) Status
based on rules of the CNV and the Commission.
For the biographies
of the members of our Audit Committee, see “—Board of
Directors.”
Supervisory Committee
We have a
monitoring body called the supervisory committee
(“Supervisory Committee”). Our Supervisory Committee
consists of three syndics and three alternate syndics appointed by
shareholders at our annual ordinary shareholders’ meeting.
The syndics and their alternates are elected for a period of one
year, and are vested with the powers set forth by Law No. 19,550
and other applicable legal provisions. Any compensation paid to our
syndics must have been previously approved at an ordinary
shareholders’ meeting. The term of office of the members of
the Supervisory Committee expires on December 31,2019.
Members of our
Supervisory Committee are also authorized to attend Board of
Directors’ and shareholders’ meetings, call
extraordinary shareholders’ meetings and investigate claims
brought in writing by shareholders who own more than 2.00% of our
outstanding shares. Pursuant to the Argentine Corporate Law, only
lawyers and accountants admitted to practice in Argentina and
domiciled in Argentina or civil partnerships composed of such
persons may serve as syndics in an Argentine sociedad anónima, or limited
liability corporation. Following the registration of the 2016
Merger, members of our Supervisory Committee may call for an
ordinary shareholders’ meeting, in the specific cases
provided by law, as deemed necessary by any of them, or otherwise
when so required by shareholders representing no less than 5.00% of
our capital stock. Pursuant to Section 294 of the Argentine
Corporate Law, our Supervisory Committee must review our books and
records, when deemed convenient and at a minimum on a quarterly
basis.
195
Following the
registration of the amendment to our bylaws dated June 3, 2015, our
Supervisory Committee holds meetings and makes decisions with the
presence and affirmative vote of at least two of its members,
notwithstanding the rights granted by law to the dissenting syndic.
Before the registration of the 2016 Merger, meetings of the
Supervisory Committee could be called by any of its members, its
meetings were held with the attendance of all of its members and
decisions were adopted by a majority of votes, notwithstanding the
rights granted by law to the dissenting syndic.
Our Supervisory
Committee must hold meetings at least once a month. Meetings may
also be called at the request of any of its members within five
days from the date the request is submitted to the chairman of our
Supervisory Committee or our Board of Directors, as the case may
be. Notice of all meetings must be given in writing to the address
indicated by each syndic at the time of holding
office.
Our Supervisory
Committee must be presided over by one of its members, elected by a
majority of votes, at the first meeting held every year. At that
time, the member who will act in lieu of the chairman in his or her
absence shall also be elected. The chairman represents our
Supervisory Committee before our Board of Directors.
The following chart
shows the members of our Supervisory Committee according to the
resolution passed at the annual ordinary shareholders’
meeting held on April 30, 2019. According to Technical Resolution
No. 15 of the Argentine Federation of Professional Counsel of
Economic Sciences and Section III, Chapter III of Title II of the
CNV rules, all of our syndics and alternate syndics are
independent.
The following are
the academic and professional backgrounds of our Supervisory
Committee members:
Eduardo Antonio Erosa holds a degree in
Accounting from the Universidad Católica Argentina in 1985. He
has served as a syndic of our Supervisory Committee since 2013. He
currently is President of the Board of Directors of
Compañía Argentina de Navegación de Ultramar S.A. In
addition, he is an alternate syndic of LE Capital S.R.L and Central
Aimé Painé S.A.
Carlos C. Adolfo Halladjian holds a
degree in Accounting, magna cum
laude, from the Universidad de Buenos Aires. He has served
as a syndic of our Supervisory Committee since 2013. He has been a
partner of the Halladjian y Asociados accounting firm since 2010.
He serves as syndic of the following companies: Proener S.A.U.,
CVOSA, TJSM, Empresa Distribuidora Sur Sociedad Anónima
(EDESUR S.A), RPBC Gas S.A., CP Renovables, Magna Asset Management
S.A., Central Aimé Painé S.A, CP La Castellana S.A.U., CP
Achiras S.A.U., PB Distribución S.A, RPE Distribución
S.A., CP Patagones S.A.U., Central Aimé Painé S.A.,
Vientos La Genoveva S.A.U. and Vientos La Genoveva II S.A.U., as
well as an alternate syndic of the following companies: IGCE, DGCU,
DGCE, Energía Sudamericana S.A., COYSERV S.A., CP Manque
S.A.U. and CP Los Olivos S.A.U.
Juan Antonio Nicholson holds a degree
in law from the Universidad de Buenos Aires, where he also was
adjunct professor of Commercial Law. He is partner at the law firm
Nicholson y Cano Abogados. He served as a director and syndic of
several companies. Since 2005 he has been a syndic of HSBC Bank
Argentina. He is also president of Pilará Golf Tenis Polo AC
and el Tunalito S.A. Since 2018 he serves as a member of our
Supervisory Committee.
Horacio Ricardo Erosa holds a degree in
Accounting from the Universidad de Buenos Aires. He has served as
an alternate syndic of our Supervisory Committee since 2013. He is
currently Chairman of the board of directors of Compañía
Argentina de Navegación de Ultramar S.A. and also serves as
syndic of LE Capital S.R.L. and Central Aimé Painé
S.A.
Carlos Adolfo Zlotnitzky holds a degree
in Accounting from the Universidad de Buenos Aires. He has served
as an alternate syndic of our Supervisory Committee since 2015. He
works as an independent accountant and tax and accounting advisor
for both legal entities and individuals. He currently serves as
alternate syndic of DGCE, DGCU, IGCE, Central Aime Painé S.A.
ESSA, CP Manques S.A.U. and CP Los Olivos S.A.U.
196
Lucas Nicholson holds
a degree in law from the Universidad del Salvador. In addition, he
took a graduate level course in legal framework of agribusiness in
the Universidad Austral. From 2011 to 2016, he worked at the law
firm Nicholson & Cano in their corporate and competition law
departments. In 2016, together with Santiago Williams and
Agustín Ibarzábal, he founded WIN Abogados. In addition,
he currently serves as syndic of IGCE, Energía Sudamericana
S.A., DGCE, COyServ S.A., and, since 2018, alternate syndic of
Central Puerto S.A.
Compensation
During the annual
ordinary shareholders’ meeting convened for April 30, 2020,
the shareholders will consider the approval of the Supervisory
Committee’s fees of Ps.862,500 (in nominal terms) for
services rendered in 2019.
Family Relationships
Mr. Eduardo Antonio
Erosa and Mr. Horacio Ricardo Erosa are brothers, and serve as
Syndic and Alternative Syndic, respectively, on our Supervisory
Committee. Mr. Juan Antonio Nicholson is the father of Lucas
Nicholson, and serve as Syndic and Alternate Syndic, respectively,
on our Supervisory Committee.
Share Ownership
The table below
sets forth information concerning the share ownership of our
directors and members of our administrative, supervisory or
management bodies as of April 21, 2020.
The following table
breaks down the number of our employees and their affiliation with
unions for the periods indicated:
Year
Union
Puerto
Complex
La
Plata
Luján
de Cuyo
Piedra
del Águila
Brigadier
López
Terminal
6-San Lorenzo
CP
Renovables
CP
La Castellana
CP
Achiras
CVOSA
2016
Subtotal
outside CBA
69
1
9
4
—
—
—
—
—
—
APSEE
106
3
—
—
—
—
—
—
—
—
LYF
359
23
—
—
—
—
—
—
—
—
FATLYF
—
—
91
47
—
—
—
—
—
—
APUAYE
—
—
16
5
—
—
—
—
—
—
Subtotal
under CBA
465
26
107
52
—
—
—
—
—
—
Total
534
27
116
56
—
—
—
—
—
—
2017
Subtotal
outside CBA
68
3
10
4
—
—
1
3
3
—
—
—
APSEE
104
2
—
—
—
—
—
—
—
—
LYF
360
23
—
—
—
—
—
—
—
—
FATLYF
—
—
89
47
—
—
—
—
—
—
APUAYE
—
—
16
5
—
—
—
—
—
—
Subtotal
under CBA
464
25
105
52
—
—
1
5
5
40
Total
532
28
115
56
—
—
1
5
5
78
197
2018
Subtotal
outside CBA
116
—
11
4
—
—
1
5
5
38
APJAE
—
—
—
—
—
—
—
—
—
6
APSEE
100
—
—
—
—
—
—
—
—
—
LYF
336
—
—
—
—
—
—
—
—
—
FATLYF
—
—
83
43
—
—
—
—
—
34
APUAYE
—
—
16
5
—
—
—
—
—
—
Subtotal
under CBA
436
—
99
48
—
—
1
5
5
40
Total
552
—
110
52
—
—
1
3
5
78
2019
Subtotal
outside CBA
119
—
9
4
0
11
1
6
4
31
—
6
APJAE
—
—
—
—
—
—
—
—
—
6
APSEE
91
—
—
—
—
—
—
—
—
—
LYF
327
—
—
—
—
—
—
—
—
—
FATLYF
—
—
81
41
71
21
—
—
—
34
APUAYE
—
—
16
5
—
2
—
—
—
8
Subtotal
under CBA
418
—
97
46
71
29
0
0
0
48
Total
537
—
106
50
71
40
1
6
4
79
Note: APSEE:
Asociación del Personal Superior de Empresas de
Energía
LYF: Luz y Fuerza
FATLYF:
Federación Argentina de
Trabajadores de Luz y Fuerza
APUAYE:
Asociación de Profesionales
del Agua y la Energía Eléctrica
The collective
bargaining agreements (CBAs) entered into with the several unions
that have members working at our sites include the terms and
conditions that govern the employment contracts of the workers
affiliated with each of these unions. Some of the most relevant
terms and conditions of these agreements include the positions that
are included in and excluded from bargaining, work schedules,
salary levels and additional amounts payable on the basis of the
worker’s job, working days and leaves, among other
things.
Matters that are
not specifically agreed upon in collective bargaining are governed
by the applicable labor laws in Argentina.
The collective
bargaining agreements (CBAs) are entered into for a specific term
and may be renewed by the parties. If not renewed, they may remain
in place under the principle of survival of repealed laws set forth
in the CBA Law No. 14,250.
Item 7. Shareholders
and Related Party Transactions
Item
7.A. Major Shareholders
As of April 23,2020, we had 1,514,022,256 outstanding shares of common stock with
a par value of Ps.1.00 per share. Each share of common stock is
entitled to one vote. We do not have any preferred shares
outstanding and only have one class of common shares outstanding.
8,851,848, or 0.58%, of our common shares are held by our
subsidiary, Proener S.A.U.
198
The following table
sets forth certain information known to us concerning the
beneficial ownership over 5% or more of our common shares as of
April 21, 2020 (except as set forth below).
Beneficial Owner
Shares
% of
shares
Plusener
S.A.(4)
158,073,984
10.44%
Argentine
Government
124,949,112
8.25%
Guillermo Pablo
Reca(1)
(3)
176,225,624
11.64%
Eduardo José
Escasany(3)
77,471,913
5.12%
Senior Management
and Directors**
1,500,285
0.10%
Other
Shareholders(2)
975,801,338
64.45%
Total
1,514,022,256
100.00%
** Marcelo
Suvá and Martín Fernández Barbiero each own less
than 1% of the outstanding common stock.
(1) Guillermo
Pablo Reca also owns 993,993,952 ordinary class B shares in our
subsidiary, CP Renovables, which represents 30.00% of CP
Renovables’ shares.
(2) No other
shareholder has beneficial ownership of more than 5% of our common
shares. None of our senior officers own any of our common
shares.
(3) According
to Schedules 13G filed with the Commission by each of the
beneficial owners on February 14, 2019.
(4) According
to Schedules 13G filed with the Commission by Plusener S.A. on
February 6, 2020.
On February 6,2018, we completed our initial public offering on the NYSE.
The table below sets forth information regarding the changes in the
percentage ownership held by our major shareholders during the past
three years.
(1) Guillermo
Pablo Reca also owns 993,993,952 ordinary class B shares in our
subsidiary, CP Renovables, which represents 30.00% of CP
Renovables’ shares.
As of April 21,2020, we had approximately 34,366,434 ADSs
outstanding.
We are not able to
determine the number of record holders of our ADSs as of such date,
as we are only aware of the Depositary Trust Company and its
nominee as record holders. In addition, it is not practicable for
us to determine the number of our ADSs or common shares
beneficially owned in the United States. Likewise, we cannot
readily ascertain the domicile of the final beneficial holders
represented by ADS record holders in the United States or the
domicile of any of our foreign shareholders who hold our common
shares, either directly or indirectly.
As of the date of
this annual report, there are no agreements in place which, if
enforced on a subsequent date, may result in a change of
control.
On December 16,2016, at a meeting of our shareholders, our shareholders decided to
reduce the voluntary reserve by Ps.1,324,769,474 and capitalize
such funds through the payment of a dividend in shares of seven new
shares of common stock with a par value of Ps.1.00 per share for
each outstanding share of common stock. Following such
capitalization and dividend of shares, and as of the date of this
annual report, we have 1,514,022,256 outstanding shares of common
stock with a par value of Ps.1.00 per share.
The table below
represents the evolution of our capital stock since January 1,2015:
Argentine corporate
law permits directors of a corporation to enter into transactions
with such corporation provided that any such transactions are
consistent with prevailing market practice. The Argentine
Securities Law provides that corporations whose shares are publicly
listed in Argentina must submit to their respective audit
committees for approval of any transaction with a related party
involving an amount that exceeds 1.00% of the corporation’s
net worth.
Except as set forth
below and as otherwise permitted under applicable law, we are
currently not party to any transactions with, and have not made any
significant loans to, any of our directors, key management
personnel or other related persons, and have not provided any
guarantees for the benefit of such persons, nor are there any such
transactions contemplated with any such persons.
199
Management Assistance Agreement
A member of our
Board of Directors, Marcelo Suvá, is also a manager and
director of RMPE. In addition, Guillermo Pablo Reca holds a 70.65%
interest in RMPE and currently serves as regular director and
chairman of RMPE. RMPE (formerly known as SADESA Servicios S.A.)
provides certain administrative, financial, commercial, human
resources and general management services to us under the terms of
the management assistance proposal dated November 30, 2007, as
amended and assigned (the “Assistance Proposal”). The
Assistance Proposal was valid for five years as of December 1,2007, was automatically extended for another five-year period until
December 1, 2017 and has been extended recently for another
five-year period until December 1, 2022. We must pay a fee equal to
one and a half percent (1.50%) of our annual gross sales revenues
carried out as a result of our main activities. The amounts accrued
under this agreement in years ended December 31, 2019, 2018 and
2017 were Ps. 359.28 million, Ps. 245.97 million and Ps. 218.84
million, respectively. Other than the management assistance
services we receive from RMPE, a lease between us, as lessor, and
RMPE, as lessee, involving monthly payment of Ps.12,000, and the
directorship of three members of our Board of Directors, we have no
related party relationship with RMPE.
For more
information on the related party transactions, with RMPE, see Note
19 to our audited consolidated financial statements.
CP Renovables Shareholders Agreement
On January 18,2017, we entered into a shareholders agreement with the minority
shareholder of CP Renovables (the “CPR Minority
Shareholder”), which was amended and restated in its entirety
on November 28, 2018 (such shareholders agreement, as amended and
restated, the “CPR Shareholders Agreement”). As of the
date of this annual report, we directly hold a 70% equity interest
in CP Renovables (class A shares), while the CPR Minority
Shareholder directly holds the remaining 30.00% equity interest
(class B shares). The board of directors of CP Renovables consists
of three members, two of which are appointed by us and one by the
CPR Minority Shareholder, and decisions are approved by a simple
majority of its members, with certain exceptions, as set forth
below.
The CPR
Shareholders Agreement regulates, among other things, the
governance of CP Renovables and its subsidiaries, the way that the
parties will evaluate and conduct new projects for investment in
electricity generation from renewable sources, and the transfer of
shares of CP Renovables (including a right of first offer, right of
first refusal and tag-along right). The CPR Shareholders Agreement
is also binding on future holders of CP Renovables class A and
class B shares.
The CPR
Shareholders Agreement grants protective minority rights to the
holders of class B shares, including (i) the right to designate at
least one director in CP Renovables and its subsidiaries and one
member of the Supervisory Committee of CP Renovables, and (ii) the
requirement of an affirmative vote from holders of class B shares
or the director elected by holders of class B shares, as
applicable, to take certain actions in CP Renovables and its
subsidiaries, including, to amend CP Renovables’ bylaws,
receive capital contributions, undertake mergers or similar
transactions, undertake a public offering, distribute dividends,
create liens, enter into transactions with related parties,
execute, terminate or amend the material provisions of certain
agreements, and entering into certain debt and equity
transactions.
The CPR
Shareholders Agreement also grants (i) class B holders a
registration right with respect to their shares in CP Renovables,
pursuant to which we are obliged (upon their request, at any time)
to cause the commencement of a secondary public offering of such
shares, including a penalty on us if we default on such obligation,
and (ii) the CPR Minority Shareholder purchase or sale options in
the event of (y) a “change of control” (as defined in
the CPR Shareholders Agreement) or (z) any person is required to
launch a mandatory tender offer with respect to Central
Puerto’s shares (see “Item 10.B. Memorandum and
articles of association—Mandatory Tender Offer
Regime”), including the method for the calculation of the
share price under such options, through independent valuation
firms.
On December 22,2017, we entered into a Guarantee and Sponsor Support Agreements,
as part of the facility documents of the IIC—IFC Facilities
for CP La Castellana and CP Achiras. If the holders of class B
shares elect to exercise the call option in accordance with the CPR
Shareholders Agreement, such action could result in a breach of our
obligation to maintain certain equity stakes in CP Renovables, CP
La Castellana and CP Achiras under such agreement (for further
information see “Item 5.B. Liquidity and Capital
Resources—Indebtedness—Loans from the IIC—IFC
Facilities”).
The foregoing
description of CPR Shareholders Agreement and the rights contained
therein is qualified in its entirety by reference to the terms and
conditions of CPR Shareholders Agreement, which is filed as an
exhibit to this annual report.
200
CP Renovables Stock Option Agreement
On January 18,2017, CP Renovables entered into a stock option agreement with its
chairman and general manager (or CEO), Guillermo Pablo Reca,
pursuant to a stock option plan approved by CP Renovables’
shareholders on April 28, 2016. Under the stock option agreement,
Guillermo Pablo Reca has (a) the obligation, for a three-year term,
to (i) develop the CP Renovables business by, among other things,
facilitating investments, proposing acquisitions and business
opportunities for the expansion of renewable energy projects and
(ii) lead the development of the existing projects of CP
Renovables; and (b) the right to purchase up to 63,058,342 class B
shares of CP Renovables (the “initial option shares”)
and an additional number of class B shares equal to 10% of any
increase in capital stock made after the date of the stock option
agreement (the “additional option shares”), in whole or
in part, at any time prior to the seventh anniversary of the date
of the stock option agreement. The total number of CP
Renovables’ shares that Mr. Reca is entitled to purchase
represents 10% of the fully diluted capital stock of CP Renovables.
The aggregate price for the initial option shares (assuming all are
purchased) is of US$3,963,690. The price of any additional option
shares will be the U.S. dollar equivalent (based on the exchange
rate at the time of the relevant capital increase) of the
subscription price paid per share for the shares of CP Renovables
issued pursuant to such capital increase. The stock option
agreement includes adjustments and anti-dilution protections
including with respect to in-kind capital increases and dividend
distributions by CP Renovables and other transactions such as stock
splits and redenomination of par value. In addition, Mr. Reca can
assign his rights under the stock option agreement without the
consent of CP Renovables. In case the stock option agreement is
terminated by CP Renovables due to a breach by Mr. Reca of his
obligations during the three years following its execution, Mr.
Reca’s right to purchase the initial option shares and the
additional option shares will vest proportionally based on the time
that Mr. Reca served as general manager (or CEO) of CP Renovables
from January 18, 2017 to January 18, 2020. As of the date of this
annual report, the option has neither been exercised nor
assigned.
Item
7.C Interests of experts and counsel
Not
applicable.
Item 8. Financial
Information
Item
8.A. Consolidated Statements and Other Financial
Information.
See Item 18 and our
audited consolidated financial statements as of December 31, 2019
and for the years ended December 31, 2019, 2018 and 2017 included
in this annual report.
Legal Proceedings
Income Tax for Fiscal Year 2014
In February 2015
Central Puerto, for itself and as the successor company of
Hidroeléctrica Piedra del Águila (HPDA) (the merged
company) filed income tax returns for the nine-month period ended
September 30, 2014, applying the adjustment for inflation mechanism
established by the Argentine Income Tax Law. In addition, the
Company filed its income tax return for the three-month period
ended December 31, 2014, applying the same adjustment for inflation
mechanism established by the Argentine Income Tax Law. Based on the
opinion of legal counsel and on the new guidelines introduced by
IFRIC 23, we concluded that it is probable that the Argentine tax
authority may accept the Company’s interpretation, thus not
requiring to register a liability under such item with respect to
income tax determination for fiscal year 2014.
Action for Recovery—Income Tax Refund for Fiscal Period
2010
In December 2014,
Central Puerto, as merging company and continuing company of HPDA,
filed action for recovery with the tax authorities regarding the
income tax for the fiscal period 2010 that amounted to Ps. 67,383
thousand at historical values (Ps. 537,681 thousand adjusted for
inflation), which was incorrectly entered by HPDA. This recourse
action seeks to recover the income tax entered by HPDA in
accordance with the lack of application of the inflation -
adjustment mechanism established by the Income Tax Law. In December
2015, the term stated by Law no. 11 683 elapsed, Central Puerto
brought a contentious-administrative claim before the National
Court to ask for its right to recourse for an amount of Ps. 67,612
thousand at historical values (Ps. 539,508 thousand adjusted for
inflation).
In October 2018,
Central Puerto was served notice of the judgment issued by the
Federal Contentious-Administrative Court No. 5, which granted the
right to recourse. The judgment ordered tax authorities to return
the amount of Ps. 67,612 thousand (at historical values) to the
Company plus the interest stated in the Central Bank Communication
14290 and ordered that legal cost must be borne by the defendant.
Such judgment was appealed by the National Tax Administration, and
on September 9, 2019, Division I of the National Court of Appeals
of the Federal Contentious- Administrative Court
(“CNACAF”) confirmed the appealed judgment. On
September 24, 2019, the National Tax Administration raised Federal
Extraordinary Appeal (“REF”) against CNACAF judgment,
which was replied by the Company. On October 29, 2019, CNACAF
granted the REF and sent the file to the Argentine Supreme Court,
where remains under analysis as of the date of this annual
report.
201
Action for recovery - Income Tax Refund for Fiscal Years 2009 and
2012
In December 2015,
the Company filed an action for recovery with the Argentine Tax
Authorities in relation to income tax for the fiscal year 2009, in
the amount of Ps. 20,395 thousand at historical values (Ps. 183,240
thousand adjusted for inflation) which had been incorrectly paid by
the Company in excess of our income tax liability. By filling such
action, we seek to recover the excess income tax paid by Central
Puerto due to the failure to apply the adjustment for inflation set
forth in the Argentine Income Tax Law. On April 22, 2016, after the
term required by Law No. 11,683 expired, the Company filed an
action for recovery for the amount claimed with the Argentinean Tax
Court. On September 27, 2019, the judge entered judgment rejecting
the complaint filed by the Company. Such judgment was appealed by
the Company last October 4, 2019 and as of the date of this annual
report, remains under analysis.
In December 2018,
the Company filed two administrative actions for recovery with
AFIP: the first one was filed by the Company, as merging company
and continuing company of HPDA, regarding the income tax for the
fiscal period 2012 that amounted to Ps. 62,331 thousand at
historical values (Ps. 389,131 thousand adjusted for inflation),
which was entered in excess by HPDA. The second action for recovery
was filed by the Company regarding the income tax for the same
fiscal period that amounted to Ps. 33,265 thousand at historical
value (Ps. 207,673 thousand adjusted for inflation), which was
entered in excess by the Company. These actions seek to recover the
income tax entered by HPDA and the Company in accordance with the
lack of application of the inflation-adjustment mechanism
aforementioned.
On September 12,2019, the Company filed both actions with the Federal Contentious-
Administrative Court against AFIP-DGI. in accordance with Section
82, paragraph “c” of Law no. 11,683 (restated text 1998
as amended), as the term established in the second paragraph of
Section 81 of such law had elapsed.
Action for recovery - Income Tax Refund for Fiscal Year
2011
In December 2017,
Central Puerto filed a petition with the Argentine tax authorities
for the recovery of Ps. 242,371 thousand paid in excess by Central
Puerto for payment of Income Tax for 2011 fiscal period, according
to the Central Puerto’s estimates. The purpose of such action
is to recover the income tax paid by Central Puerto due to the
failure to apply the adjustment for inflation set forth in the
Argentine Income Tax Law.
Dividends and Dividend Policy
The holders of ADSs
are entitled to receive dividends to the same extent as the owners
of our common shares. In August 2017, we declared dividends of Ps.
0.85 per ordinary share in cash. In April 2018, we declared
dividends of Ps. 0.70 per ordinary share in cash. In November 2019,
we paid Ps. 0.71 per ordinary share in dividends in
cash.
In the future, we
could decide to pay dividends in accordance with applicable law and
based on various factors then existing, including:
●
our financial
condition, operating results and current and anticipated cash
needs;
●
our strategic
plans, business prospects and expansion capital
expenditures;
●
general economic
and business conditions;
●
our strategic plans
and business prospects;
●
legal, contractual
and regulatory restrictions on our ability to pay dividends;
and
●
other factors that
our Board of Directors may consider to be relevant.
Under the Argentine
Corporate Law, the declaration and payment of annual dividends, to
the extent that the company presents retained earnings in
accordance with IFRS and CNV regulations, are determined by
shareholders at the annual ordinary shareholders’ meeting. In
addition, under the Argentine Corporate Law, 5% of the net income
for the fiscal year calculated in accordance with IFRS and CNV
regulations must be appropriated by resolution adopted at
shareholders’ meetings to a legal reserve until such reserve
equals 20% of the capital stock. This legal reserve is not
available for distribution.
According to
Argentine tax laws, any dividend distributed in cash for the net
results obtained during tax periods starting after January 1, 2018
and up to December 31, 2019 (when the applicable corporate income
tax is 30%), is subject to a withholding dividend tax of 7% when
distributed to Argentine resident individuals or to non-Argentine
residents, while the net result obtained for the years starting
after January 1, 2020 and onwards (when the applicable corporate
income tax is 25%) will be subject to a withholding dividend tax of
13% when distributed to Argentine resident individuals or to
non-Argentine residents. In case of dividend distributions to
non-Argentine residents, a lower dividend withholding rate could
apply in case a treaty to avoid double taxation applies and to the
extent certain conditions are met.
202
As of the date of
this report, in accordance to the Central Bank regulations, we are
required to obtain a prior authorization in order to have access to
the MULC to purchase the foreign currency (a step necessary to make
international transfers) to pay dividends. However, as of the date
of this annual report, there are no restriction to use the cash and
equivalents in foreign currency that the company may hold in order
to pay dividends to its shareholders.
Furthermore, as
from January 17, 2020, in accordance with Central Bank regulations,
access is granted to the MULC exchange market to pay dividends to
non-resident shareholders, subject to the requirement that the
total amount of transfers executed through the MULC for payment of
dividends to non-resident shareholders may not exceed 30% of the
total value of any new capital contributions made in the Company
that had been entered and settled through such exchange market. The
total amount paid to non-resident shareholders may not exceed the
corresponding amount denominated in Argentine Pesos that was
determined by the related shareholders' meeting.
Amount Available for Distribution
Dividends may be
lawfully declared and paid only out of our earnings stated in our
annual financial statements approved by the annual ordinary
shareholders’ meeting. Under the Argentine Corporate Law,
listed companies (such as ourselves) may distribute provisional
dividends or dividends in advance resulting from interim financial
statements.
Under the Argentine
Corporate Law and our bylaws, our annual net income (as adjusted to
reflect changes in prior years’ results) is allocated in the
following order: (i) to comply with our legal reserve requirement
of 5% of our net income until such reserve equals 20% of the
capital stock; (ii) for voluntary or contingent reserves, as may be
resolved from time to time by our shareholders at the annual
ordinary shareholders’ meeting; (iii) the remainder of the
net income for the year may be distributed as dividends on common
shares; and/or (iv) as otherwise decided by our shareholders at the
annual ordinary shareholders’ meeting.
Our Board of
Directors submits our financial statements for the preceding fiscal
year, together with reports thereon by our Supervisory Committee
and the independent accountants, at the annual ordinary
shareholders’ meeting for approval. Within four months of the
end of each fiscal year, an ordinary shareholders’ meeting
must be held to approve our annual financial statements and
determine the appropriation of our net income for such
year.
Under applicable
CNV regulations, cash dividends must be paid to shareholders within
30 days of the shareholders’ meeting approving such
dividends. In the case of stock dividends, shares are required to
be delivered within three months of our receipt of notice of the
authorization by the CNV for the public offering of the shares
relating to such dividends. The statute of limitations in respect
of the right of any shareholder to receive dividends declared by
the shareholders’ meeting is three years from the date on
which it has been made available to the shareholder.
Item
8.B Significant Changes
The main subsequent
events occurred after the closing date of the annual financial
statements (December 31, 2019) are the following:
Resolution 31/20
On February 27,2020, the Secretariat of Energy issued Resolution 31/20, applicable
from February 1, 2020, which replaces the regulatory framework for
Energía Base. The main changes were:
●
Prices are set in
Argentine pesos.
●
Initial variable
energy price although denominated in Argentine pesos, remained
almost unchanged. The applicable exchange rate between the new
price in Argentine pesos and the previous price in U.S. dollars was
Ps.60 per U.S. dollar, similar to the average exchange rate as of
January 2020, of Ps. 60.01 per US dollar.
●
Initial power price
for energy from thermal units were approximately reduced by16% and
set in Argentine pesos.
●
Generation units
with less than 30% Utilization Factor in the last twelve months
receive 60% of the price, compared to up to 70% before.
Additionally, if the Utilization Factor is between the 30-70%
threshold the generation units receive a linear proportion between
60 and 100% of the power price, and if the Utilization factor is
70% or greater, the generation units receive 100% of the
price.
●
Initial fixed power
price for hydroelectric plants was approximately reduced by 45 %
and set in Argentine pesos.
●
A new remuneration
scheme for peak demand hours generation was established to
partially mitigate the fixed power price, taking into consideration
the equipment the generating company has.
203
●
The prices set in
pesos will have a monthly adjustment with the following formula:
(i) 60% of the CPI, plus (ii) 40% of the WPI.
However, on April8, 2020, Central Puerto learned that the Secretary of Energy may
have instructed CAMMESA to postpone until further notice the
application of Annex VI, related to the price update mechanism
described under “Item 4.B. Business Overview—The
Argentine Electric Power Sector—Remuneration Scheme—The
Current Remuneration Scheme”. Accordingly, CAMMESA did not
apply the price update mechanism for the March 2020 monthly
payments under Energy Base. The Company is evaluating the effects
that the non-application of the aforementioned Annex VI would have,
as well as the steps to be followed in this regard.
See “Item
4.B. Business Overview—The Argentine Electric Power
Sector—Remuneration Scheme—The Current Remuneration
Scheme.”
Item 9. The
Offer and Listing
Item
9.A. Offer and listing details
Our shares are
listed on the Argentine stock market Bolsas y Mercados Argentinos
S.A. (the “BYMA”) and, since February 2, 2018, have
been listed on the NYSE under the symbol
“CEPU.”
Item
9.B. Plan of Distribution
Not
applicable.
Item
9.C. Markets
Our common shares
are listed on the BYMA under the symbol “CEPU.” During
2019, the volume traded on the BYMA amounted to 181,658,490 shares.
The total number of shares subscribed and integrated on December31, 2019 was 1,514,022,256, of which 100% were listed and available
to trade on the Buenos Ares Stock Exchange.
On February 1,2018, we completed our IPO and on February 2, 2018, our ADSs
representing our common shares began to trade on the NYSE under the
symbol “CEPU.” From January 1, 2019 to December 31,2019 the volume of ADRs traded on the NYSE amounted to 90,998,100,
equivalent to 909,981,000 common shares.
Consequently, the
total trading volume of our common shares during 2019 was
1,091,639,490.
Below we provide certain information on our capital stock and a
brief summary of certain significant provisions of our bylaws and
the applicable laws and regulations in Argentina. This summary is
not intended to be comprehensive and is qualified in its entirety
by our bylaws and the applicable laws and regulations in force in
Argentina.
204
Capital Stock
As of the date of
this annual report, our capital stock amounts to Ps.1,514,022,256
and is represented by 1,514,022,256 common shares with a par value
of Ps.1.00 and one voting right each, all of them having been fully
paid in and admitted to public offering.
On December 16,2016, at a meeting of our shareholders, our shareholders decided to
reduce the voluntary reserve by Ps.1,324,769,474 and capitalize
such funds through the payment of a dividend in shares of seven new
shares of common stock with a par value of Ps.1.00 per share for
each outstanding share of common stock. Following such
capitalization and dividend of shares, and as of the date of this
annual report, we have 1,514,022,256 outstanding shares of common
stock with a par value of Ps.1.00 per share.
As of the date of
this annual report, one of our subsidiaries holds 8,851,848 of our
common stock.
As of the date of
this annual report, we are not aware of any individuals who hold,
or who have agreed to hold, conditionally or otherwise, stock
options, with respect to our common shares. Our subsidiary, CP
Renovables, granted a stock option to Guillermo Pablo Reca with
respect to its class B shares. For further information on the stock
option agreement entered into between CP Renovables and Guillermo
P. Reca see “Certain Relationships and Related Party
Transactions—CP Renovables Stock Option
Agreement.”
We are a
corporation (sociedad
anónima) organized and existing pursuant to the laws of
Argentina. Our registered offices are domiciled in the City of
Buenos Aires, Argentina. Central Puerto was created through
Executive Decree No. 1222/92 dated February 26, 1992, in connection
with the privatization process of SEGBA, and was registered with
the Public Registry of Commerce on March 13, 1992 under No. 1,855
of Book 110, Volume A (Sociedades
Anónimas). Central Puerto was created for a term of
ninety-nine years as from its registration with the Public Registry
of Commerce.
Corporate Purpose
Pursuant to Section
4 of our bylaws, Central Puerto was created to be engaged in any of
the following activities, either on its own account, or through or
in association with third parties, in Argentina or
abroad:
(a) producing,
transforming, carrying, distributing and selling electric power in
any of its forms, including, but not limited to, thermoelectric
power from non-renewable sources (coal, oil derivatives, natural
gas, uranium) and renewable sources, or from usable waste,
hydroelectric power (including mini and micro power plants),
thermonuclear power, wind power, geothermal power, offshore energy
(tidal power, wave power, ocean currents, ocean-thermal energy,
osmosis energy), solar energy (photovoltaic and thermal power) and
bioenergy (plant and animal biomass);
(b) producing,
storing and using hydrogen technologies in any of its available
forms of energy;
(c) engaging in the
exploration, exploitation, processing, purification,
transformation, refining, industrialization, storage, sale,
transportation, distribution, import and export of liquid (such as
oil) and/or gaseous hydrocarbons (such as natural gas), minerals
(such as mineral coal) and metals (such as uranium and lithium,
among others) and their respective direct or indirect
derivatives;
(d) engaging in the
production and exploitation of raw materials for biofuel production
(biodiesel and bioethanol), including their manufacturing, storage,
sale, distribution and transportation;
(e) engaging in the
processing, storage, sale, distribution and transportation and/or
use of: (i) agricultural waste and urban solid waste as a renewable
energy source and (ii) ordinary and special waste (solid, semisolid
and liquid) as a source of energy;
(f) obtaining,
storing, selling, distributing, carrying and/or using biogas as a
renewable energy source;
(g) processing raw
materials from fossil fuels (natural gas, raw gasoline) to obtain
basic (synthesis gas, benzene, toluene, etc.), intermediate
(ammoniac, ethanol, methanol, ethyl-benzene, etc.) and final
petrochemicals (fertilizers, resins, polyurethanes, detergents,
PET, etc.;) and
(h) engaging in the
research and development of energy technologies.
205
With respect to the
activities described in (a), (b), (c), (d), (e), (f), (g) and h)
above, and within the limitations set forth in our corporate
purpose, we have full legal capacity to (i) acquire rights, assume
obligations, and carry out any kind of acts that are not otherwise
prohibited by the applicable laws or by our bylaws; (ii) establish,
incorporate, partner with, or hold interests in legal entities of
whatsoever nature incorporated in Argentina or abroad (we may do so
by any available means, including but not limited to, capital
contributions, purchase of shares, bonds, debentures, notes or
other debt or equity securities, whether publicly or privately
held); and (iii) render services and/or undertake representations,
commissions, consignments, services and/or agencies for our benefit
or for the benefit of third parties, always within the scope of the
permitted activities under our corporate purpose as described in
(a), (b), (c), (d), (e), (f), (g) and (h) above.
Statutory Provisions concerning our Board of Directors
Our board of
directors is comprised by eleven permanent directors, and an equal
or lower number of alternate directors. Directors will hold office
for one fiscal year and will be appointed at the
shareholders’ meeting. Shareholders are entitled to elect up
to one third of vacant seats on the board of directors by
cumulative voting as set forth in Section 263 of the Argentine
Corporate Law. The outcome of such voting will be computed per
candidate, specifying the number of votes for each of
them.
At the first
meeting held following the shareholders’ meeting at which the
members of the Board of Directors are renewed, the Board of
Directors will elect a chairman and a vice-chairman from among its
members. The vice-chairman will act in lieu of the chairman upon
the latter’s resignation, death, incapacity, disability,
removal or temporary or definitive absence, with a new chairman
having to be elected within ten days from the seat becoming vacant.
The election of a new chairman will take place only if the
situation that gives rise to the reelection is expected to be
irreversible during the remaining term of office. Pursuant to
Section 23 of our bylaws, Board of Directors’ meetings will
be held with the presence of an absolute majority of its members
and decisions will be made by majority of present votes. Board of
Directors’ meetings may also be held by videoconferencing, in
which case directors participating in person and remotely will be
computed in the calculation of the required quorum. Minutes of
Board of Director’s meetings will be drafted and signed by
directors and statutory auditors who were present at the meeting
within five days from the date in which it was held. Members of our
Supervisory Committee will register in the minutes the names of the
directors who have participated in the meeting remotely, and that
the decisions made therein were passed in accordance with the law.
The minutes will include the statements from directors
participating in person and remotely and will state their
respective votes on each decision made. If a Board of
Director’s meeting cannot be validly held because of the
number of vacant seats, even with the attendance of all deputy
directors of the same class, the Supervisory Committee will
designate substitutes to hold office until the election of
permanent members takes place, to which end an ordinary or class
shareholders’ meeting will be called for, as the case may be,
within ten days from the Supervisory Committee having made the
designations.
There are no
requirements as to the minimum number of meetings to be held by the
Board of Directors.
The chairman, or
the individual acting in lieu of the chairman pursuant to the law,
may call for meetings when so deemed convenient, or when so
required by any director or the supervisory committee. The meeting
will be called for within five days from the request; otherwise,
the meeting may be called for by any of the directors. The Board of
Director’s meetings will be called for in writing and notice
thereof must be given to the address reported by each director. The
notice will indicate the date, time and place of the meeting and
the meeting agenda. Business that is not included in the notice may
be discussed at the meeting only to the extent all permanent
directors are present and have cast their unanimous
vote.
Our Board of
Directors may hold meetings with the attendance of its members in
person or by videoconference or other simultaneous sound, imaging
or voice broadcasting media. The Board of Directors may hold
meetings with the attendance of its chairman or its substitute. Our
Board of Directors’ meetings will be held with the presence
of an absolute majority of its members and decisions will be made
by majority of present votes.
According to
Section 26 of our bylaws, our Board of Directors has the broadest
powers and authority in connection with the Company’s
direction, organization and administration, with no limitations
other than those set forth in the applicable laws and regulations.
The chairman is the legal representative of the
Company.
The Company’s
oversight shall be in charge of a Supervisory Committee to be
comprised by three (3) permanent and three (3) alternate statutory
auditors. Statutory auditors will be elected for one (1) fiscal
year and will be vested with the powers set forth by Law No. 19,550
and other applicable legal provisions.
206
Our Supervisory
Committee holds meetings and adopts decisions with the presence and
favorable vote of, at least, two of its members, notwithstanding
the rights granted by law to the dissenting statutory auditor.
Meetings of our Supervisory Committee may be called for by any of
its members. Prior to the registration of the amendments to the
bylaws of June 3, 2015, meetings of our Supervisory Committee were
held with the attendance of all of its members, and decisions were
adopted by majority of votes, notwithstanding the rights granted by
law to the dissenting statutory auditor.
Members of our
Supervisory Committee are also authorized to attend Board of
Director’s and shareholders’ meetings, call for
extraordinary shareholders’ meetings and investigate written
claims brought by shareholders who own more than two percent (2%)
of our outstanding shares. In accordance with the applicable laws,
members of the Supervisory Committee are required to be certified
public accountants or lawyers. Members of our Supervisory Committee
may call for an ordinary shareholders’ meeting, in the
specific cases provided by law, at any time at their discretion, or
otherwise when so required by shareholders representing no less
than five percent (5%) of our capital stock.
Members of our
Supervisory Committee are designated at the annual ordinary
shareholders’ meeting and will remain in office for one (1)
year. Pursuant to Section 294 of the Argentine Corporate Law, our
Supervisory Committee is required to review our books and records,
when deemed convenient and, at least, on a quarterly
basis.
Our Supervisory
Committee will hold meetings at least once a month; meetings may be
also called for at the request of any of its members, within five
(5) days from the date the request is submitted to the Chairman of
the Supervisory Committee or the Board of Directors, as the case
may be. Notice of all meetings shall be given in writing to the
address indicated by each Statutory Auditor at the time of holding
office.
Our Supervisory
Committee shall be presided over by one of its members, elected by
majority of votes, at the first meeting held every year. At that
time, the member who will act in lieu of the chairman in his/her
absence will also be elected. The chairman represents our
Supervisory Committee before the Board of Directors.
Rights, Preferences and Restrictions attached to our
Shares
According to our
bylaws, realized and liquid profits will be allocated in the
following order: (i) 5% to the legal reserve until reaching at
least 20% of our subscribed capital; (ii) Directors’ fees,
within the amounts set forth by Section 261 of Law No. 19,550,
which may not be exceeded, and Statutory Auditors’ fees;
(iii) payment of dividends in connection with the employee stock
ownership plan; (iv) optional reserves and provisions, at the
discretion of the shareholders’ meeting; and (v) the
remaining balance shall be distributed as dividends among
shareholders, regardless of their class.
Shareholders’ Meetings
Shareholders’
meetings will be called for by publishing notices in the Official
Gazette and in one of Argentina’s major newspapers for five
(5) days, no less than twenty (20) and no more than forty five (45)
days in advance of the scheduled date for the meeting. The notice
will include the type of meeting, as well as the date, time and
place where it will be held and the agenda. Ordinary and
extraordinary shareholders’ meetings are subject to the
quorum and majorities required by Section 79 of the Capital Market
Law and Sections 243 and 244 of the Argentine Corporate
Law.
Shareholders’ Liability
In conformity with
Argentine law, shareholders’ liability for a company’s
losses is limited to the payment of their subscribed equity
holdings. However, shareholders who voted for a decision that was
then rendered null by a court for its being inconsistent with the
Argentine laws or the corporate bylaws (or operating agreement, if
any) might be held personally and jointly and severally liable for
the damages that may arise from such decision.
Conflicts of Interest
Under the Argentine
laws, if a shareholder casts a vote in connection with a matter in
which it may have, directly or indirectly, interests that are
contrary to ours, such shareholder will be liable for damages, but
only to the extent such matter had not been approved but for the
vote of such shareholder. The Argentine laws also set forth that if
a member of our Board of Directors has interests in a business
operation that are contrary to our interests, such director will
report so to the Board of Directors and the Supervisory Committee
and will refrain from engaging in the discussion of that issue. If
that director acts in a manner that is contrary to the law, it will
be held personally and jointly and severally liable for the damages
that may arise from such director’s acts or
omissions.
207
Preemptive and Accretion Rights
Pursuant to Section
194 of the Argentine Corporate Law, upon a potential capital
increase, each holder of common shares will be entitled to
preemptive rights in respect of the newly issued common shares on a
proportional basis to the number of shares already held. Preemptive
rights can be exercised beginning on the last notice posted in the
Official Gazette and in a major Argentine newspaper thirty (30)
days; provided, however, that such 30-day period may be reduced to
no less than ten (10) days, if so approved at an extraordinary
shareholders’ meeting.
Liquidation
Pursuant to our
bylaws, liquidation will be carried out by our Board of Directors
or the liquidators appointed at the shareholders’ meeting,
under the oversight of the Supervisory Committee.
Once liabilities
have been settled, including the expenses incurred in the
liquidation, the remaining balance will be distributed among
shareholders on a proportional basis to their respective holdings,
without regard to classes or categories.
Neither Argentine
law, our bylaws nor other corporate documents provide limitations
as to share ownership that might apply to us.
Term
According to our
bylaws, our company was created for a term of ninety-nine (99)
years since the registration date with the Public Registry of
Commerce. Such term may be extended by a decision made at an
extraordinary shareholders’ meeting.
Mandatory Tender Offer Regime
We are subject to
the mandatory tender offer rules set forth in Law No. 26,831, which
provide that in certain circumstances a mandatory tender offer
(“OPA”) must be launched with respect to some or all of
a company’s outstanding shares. Such circumstances giving
rise to an OPA include instances where a person intends to
purchase, either directly or indirectly, for cash, either
individually or collectively, either in one act or in a series of
successive acts during a period of 90 consecutive days, a number of
voting shares, subscription rights or stock options, convertible
negotiable securities or similar securities which together with
that person’s existing holdings could, directly or
indirectly, entitle such person to subscribe, purchase or convert
voting shares, shares entitled to or that once exercised grant the
right to a “significant share” in the voting capital
stock of a publicly traded company.
In such
circumstances, the OPA must be launched by the prospective
purchaser within 10 days of having made the decision to participate
in such purchase.
Such obligation is
not applicable in cases where the acquisition would not trigger a
change of control of the company. It also does not apply in cases
where there is a change of control as a consequence of a corporate
reorganization or as a consequence of mere redistributions of
shares among companies of the same group.
Concept of a “Significant Share”
The regulations
establish a duty to effect an offer with respect to part or all of
the outstanding shares of the company depending on the percentage
of the voting capital stock to be acquired. The regulations provide
for the following duties relating to the OPA:
●
Whenever the goal
is to acquire a holding equal to or greater than 35% of the voting
capital stock or of the company votes, the offer must be made for a
number of securities that would enable the purchaser to acquire at
least 50% of the voting capital stock of the affected
company.
●
Whenever a holding
equal to or greater than 50% of the voting capital stock or the
votes of the company is sought, the offer shall be made for the
number of securities that would enable the purchaser to obtain 100%
of the voting capital stock of the affected company. The
application of this stipulation shall have priority over the
stipulation discussed in the preceding paragraph.
208
Determination of the OPA Price in the Case of a Change in
Control
The price shall be
a fair price determined by the offeror.
In order to
determine the fair price, the following criteria must be
considered, according to the CNV Rules: (i) book value of the
shares; (ii) valuation of the target company according to
discounted cash flows (DCF) or other applicable valuation criteria
applicable to comparable business; and (iii) average price of the
shares for the last six months before the “offer.”
Based on certain interpretations of Law No. 26,831 and the CNV
Rules, the average price of the shares for the last six months
before the “offer” should be considered as a minimum
price. The price could be challenged by both the CNV and any
offeree shareholder.
Penalties for Breach
Without prejudice
to the penalties established by the CNV, Law No. 26,831 provides
that purchases in violation of such regime will be declared
irregular and ineffective for administrative purposes by the CNV
and cause the auction of the shares acquired in violation of the
applicable regulation, without prejudice to the penalties that may
correspond.
Tender Offer Regime in the Case of a Voluntary Withdrawal from the
Public Offering and Listing System in Argentina
Law 26,831 and CNV
regulations also established that when a company whose shares are
publicly offered and listed in Argentina agrees to withdraw
voluntarily from the public offering and listing system in
Argentina, it must follow the procedures provided for in the
CNV’s regulations and it must likewise launch an OPA for its
aggregate shares or subscription rights or securities convertible
into shares of stock options under the terms provided for in such
regulation. It is not necessary to extend the public offering to
those shareholders that voted for the withdrawal at the
shareholders’ meeting.
The acquisition of
one’s own shares must be made with liquid and realized
profits or with free reserves, whenever paid up in full, and for
the amortization or disposition thereof, within the term set forth
in Section 221 of the Argentine Corporate Law and the company must
present the CNV with evidence that it has the necessary solvency to
effect such purchase and that the payment for the shares will not
affect its solvency.
According to
Section 98 of Law No. 26,831 the price offered in the case of a
voluntary withdrawal from the public offering and listing system in
Argentina should be equitable and take into account the following
relevant criteria:
●
The equity value of
the shares, taking into account a special financial statement for
the withdrawal from the public offering system or
listing;
●
The value of the
company, in accordance with discounted cash flow criteria and
ratios applicable to comparable businesses or
companies;
Average quotation
prices on the stock exchange where the shares are listed during the
six month period immediately preceding the withdrawal application,
regardless of the number of sessions necessary for such
negotiation; and
●
The consideration
offered before, or the placement of the new shares, in the event
that a public offering has been made with regard to the same shares
or if new shares have been issued, if applicable, during the last
year, to be counted as of the date of the agreement for the
withdrawal application.
Under no
circumstances can the fair price offered be lower than the price
indicated in the fourth bullet above.
Mandatory or Voluntary Tender Offer in the Case of Near-total
Control
If a shareholder or
group of shareholders holds, directly or indirectly, 95% or more of
the outstanding capital stock of a publicly traded Argentine
company, any minority shareholder may request that the controlling
shareholder launch an OPA for all outstanding shares of such
company. In addition, a person that holds, directly or indirectly,
95% or more of the outstanding capital stock of a publicly traded
Argentine company may issue a unilateral declaration of its
intention to purchase all outstanding shares of such company within
six months following the date of acquisition of near-total control
and withdraw the company from public offering and its shares from
listing and trading. The price offered should be an equitable
price, following the criteria set forth in Law 26,831, but in no
case may it be lower than the average trading price of such shares
during the six-month period preceding the OPA
application.
For information
concerning our material contracts, see “Item 4. Information
of the Company,”“Item 7.B. Related Party
Transactions” and “Item 5. B. Liquidity and Capital
Resources.”
209
Item 10.D Exchange
Controls
On September 1,2019, the Argentine government issued Decree No. 609/2019 (as
subsequently amended and extended, the “FX Decree”) by
which foreign exchange controls were temporarily reinstated until
December 31, 2019, which were subsequently extended by the new
administration, not providing for a specific expiration date. The
FX Decree: (i) reinstated exporters’ obligation to repatriate
proceeds from exports of goods and services in the terms and
conditions set forth by the Central Bank and liquidate such foreign
currency-denominated proceeds to Argentine Pesos through the MULC;
and (ii) authorized the Central Bank to (a) regulate the access to
the foreign exchange market for the purchase of foreign currency
and outward remittances; and (b) establish regulations to prevent
practices and/or transactions aimed to bypass the measures adopted
on the FX Decree.
Currently, foreign
exchange regulations have been consolidated in a single regulation,
Communication “A” 6844 (as amended). Below is a
description of the main exchange control measures in effect as of
the date of this Annual Report:
Reporting
Regime
On December 28,2017, the Central Bank replaced the reporting regimes set forth on
Communications “A” 3602 and “A” 4237 with
Communication “A” 6401 (and supplemental Communication
“A” 6795), a unified regime applicable from December31, 2017 (the “External Assets and Liabilities Reporting
Regime”). Under such regime, Argentine residents (both legal
entities or natural persons) whose foreign assets or debts flow or
balance during the previous calendar year equal to or in excess of
the equivalent of US$1 million in Argentine Pesos are required to
report foreign holdings of (i) shares and other capital
participations; (ii) debt; (iii) financial derivatives; and (iv)
real estate, on an annual basis. Argentine residents whose foreign
assets or debts flow or balance during the previous calendar year
equal to or in excess of US$50 million in Argentine Pesos, are
required to comply with these reporting obligations on a quarterly
basis. From March 31, 2020, all residents with external liabilities
at the end of any quarter, or residents who have cancelled any of
its external liabilities during such period, must file the report
within 45 calendar days from the end of the quarter.
Residents whose
foreign assets or debts flow or balance equal to or in excess of
the equivalent of US$50 million in Argentine Pesos at the end of
each calendar year, are required to file within 180 calendar days
from December 31, an annual report where supplements, amendments or
confirmation of information contained in previously quarterly
filings can be included.
Access to the
foreign exchange market for repayment of external financial
indebtedness and other transactions are conditioned to the
debtor’s compliance with the External Assets and Liabilities
Reporting Regime.
Specific
provisions for inward remittances
Repatriation and settlement of the proceeds of exports of
goods.
In accordance the
with applicable foreign exchange regulations in force, exporters
must repatriate, and settle for Argentine Pesos through the MULC,
the proceeds of their exports of goods cleared through customs as
from September 2, 2019.
Although the
applicable foreign exchange regulations in force maintain the
obligation to bring export proceeds to Argentina through the MULC,
exporters are authorized to avoid the settlement for Argentine
Pesos to the extent all of the following conditions are met: (a)
funds are credited to foreign-denominated accounts in the name of
the exporter, opened at local financial entities; (b) the proceeds
are repatriated to Argentina within the applicable time period
established by the Central Bank; (c) funds are simultaneously
applied to conduct payments for which regulations allow access to
the MULC, subject to applicable limitations; (d) if funds are
proceeds of new foreign financial indebtedness and are applied to
prepay foreign currency-denominated debt with local financial
entities, such new foreign financial indebtedness must have a
weighted average life greater than the prepaid local indebtedness,
and (e) the application of this exception mechanism is
tax-neutral.
Amounts collected
in foreign currency for insurance claims related to the exported
goods must also be repatriated and settled in Argentine Pesos in
the MULC, up to the amount of the insured exported
goods.
Moreover, the
foreign exchange regulations reinstated the export proceeds
monitoring system, setting forth rules governing such monitoring
process and exceptions thereof. Exporters will need to appoint a
financial entity in charge of monitoring compliance with the
aforementioned obligations. Decree No. 661/2019 clarified that the
collection of the export benefits set forth under the Argentine
Customs Code shall be subject to the exporter complying with the
repatriation and Argentine Peso settlement obligations imposed by
the new regulations.
210
Finally, the
regulations authorize the application of export proceeds to the
repayment of: (i) pre-export financings and export financings
granted or guaranteed by local financial entities; (ii) foreign
pre-export financings and export advances settled in the MULC,
provided that the relevant transactions were entered into through
public deeds or public registries; (iii) financings granted by
local financial entities to foreign importers; and (iv) financial
indebtedness under contracts executed prior to August 31, 2019
providing for cancellation thereof through the application abroad
of export proceeds. The application of export proceeds to the
repayment of other indebtedness shall be subject to Central Bank
approval.
Obligation to repatriate
and settle in Argentine Pesos the proceeds from exports
of services
Article 2.2 of
Communication “A” 6844 imposes to exporters the
obligation to repatriate, and settle in the MULC, the proceeds from
exports of services within 5 business days following either
the perception of
funds in the country or abroad, or their accreditation in foreign
accounts.
Sale of non-financial non-produced assets
Pursuant of article
2.3 of Communication “A” 6844, the proceeds in foreign
currency of the sale of non-financial non-produced assets must be
repatriated and settled in Argentine Pesos in the MULC within 5
business days following either the perception of funds in the
country or abroad, or their accreditation in foreign
accounts.
External financial indebtedness
Pursuant to the new
regulations, servicing of foreign financial debt (disbursed after
September 1, 2019) with access to the foreign exchange market for
the payment of principal and interest thereunder, is subject to
prior compliance with the requirement that the proceeds of such
foreign financial debt must be transferred to the Argentine
financial system and liquidated through the foreign exchange
market. However, such requirement will not apply to the extent all
of the following conditions are met: (a) funds are credited to
foreign-denominated accounts in the name of the borrower, opened at
local banks; (b) proceeds are repatriated to Argentina within the
applicable time period established by the Central Bank; (c) funds
are simultaneously applied to conduct payments for which
regulations allow access to the foreign exchange market, subject to
applicable limitations; (d) if funds are proceeds of new foreign
financial indebtedness and are applied to prepay foreign
currency-denominated debt with local banks, such new foreign
financial indebtedness must have a weighted average life greater
than the prepaid local indebtedness, and (e) the application of
this exception mechanism is tax-neutral.
Furthermore, access
to the foreign exchange market for the prepayment of foreign
financial indebtedness requires prior approval of the Central Bank
for prepayments taking place more than three business days prior to
the scheduled repayment date, except if all of the following
conditions are met: (i) the prepayment takes place simultaneously
with the liquidation on the foreign exchange market of the proceeds
of the new indebtedness denominated in foreign currency to
Argentine Pesos; (ii) the new indebtedness has a weighted average
life greater than the outstanding debt being prepaid; and (iii) the
new indebtedness’s first principal payment shall (a) take
place on or after the original maturity date; and (b) the principal
amount of the new indebtedness shall not be greater than the
original principal amount.
Duly registered securities that are denominated and payable in
foreign currency in Argentina
As of November 29,2019, in accordance with article 2.5 of the Communication
“A” 6844 issued by the Central Bank, resident issuers
are granted access to the MULC for the payment at maturity of
principal and interest under new duly registered issuances of debt
securities that are denominated and payable in foreign currency in
Argentina, to the extent they (i) are fully subscribed in foreign
currency, and (ii) the proceeds from the issuance are settled
through the MULC. However, regarding the settlement of the proceeds
from the issuance shall not constitute a condition for future
access to the MULC for repayment of domestic issuances as provided
in (ii) above, to the extent the conditions set forth in Central
Bank Communication “A” 6814 are met (i.e., the proceeds
are deposited in a local foreign currency-denominated bank accounts
and are simultaneously applied to transactions having access to the
MULC, and the deal has no tax impact, among others).
Payments of local debt securities denominated in foreign currency
among residents
In accordance with
article 3.6 of Communication “A” 6844, access to the
MULC for the payment of foreign currency denominated obligations
between Argentine residents executed from September 1, 2019 is
prohibited. With regard to preexisting transactions, access is
authorized, provided that the relevant transactions were entered
into through public deeds or public registries. This prohibition
does not apply to loans in foreign currency granted by local
financial entities, including payments of credit
cards.
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Moreover, in
accordance with article 2.5 of the Communication “A”
6844 Bank, resident issuers are granted access to the MULC for the
payment at maturity of principal and interest under new duly
registered issuances of debt securities that are denominated and
payable in foreign currency in Argentina, to the extent they (i)
are fully subscribed in foreign currency, and (ii) the proceeds
from the issuance are settled through the MULC. However, regarding
the settlement of the proceeds from the issuance shall not
constitute a condition for future access to the MULC for repayment
of domestic issuances as provided in (ii) above, to the extent the
conditions set forth in Central Bank Communication “A”
6814 are met (i.e., the proceeds are deposited in a local foreign
currency-denominated bank accounts and are simultaneously applied
to transactions having access to the MULC, and the deal has no tax
impact, among others).
Access to the foreign exchange market by security trusts for
principal and interest payments
As imposed by
article 3.7 of Communication “A” 6844, local trusts
created to guarantee principal and interest payments by resident
debtors may access the MULC in order to make such payments at their
scheduled maturity, to the extent that, pursuant to the current
applicable regulations, the debtor would have had access to the
MULC to make such payments directly. Also, subject to certain
conditions, a fiduciary may access the MULC to guarantee certain
capital payments and interest on financial debt abroad and
anticipate access to it.
Specific Provisions Regarding Access to the Exchange
Market
Residents are
authorized to access the MULC for the payment of import of goods in
accordance with article 3.4 of Communication “A” 6844.
This regulation sets forth different requirements depending on
whether it relates to the payment of imports of goods with customs
clearance or the payments of import of goods pending customs
clearance. Moreover the imports and import payments monitoring
system (SEPAIMPO) has been reinstated, setting forth rules
governing such monitoring process and exceptions thereof. Importers
will need to appoint a financial entity in charge of monitoring
compliance with the aforementioned obligations.
Likewise, the local
importer must designate a local financial entity to act as a
monitoring bank, which will be responsible for verifying compliance
with the applicable regulations, including, among others, the
liquidation of import financing and the entry of imported
goods.
Prior authorization
by the Central Bank is required for access to the MULC for payments
of overdue or due to payment debts for imports of goods with
related companies abroad when it exceeds the equivalent of US$2
million per month per resident customer, as stated by article 3.13
of Communication “A” 6844.
It should be noted
that all outstanding debts as of August 31, 2019, either those
whose maturity had operated prior to said date or those that did
not have a stipulated expiration date, are considered to be overdue
or due to payment debts.
Payment of services provided by non-residents
Pursuant of article
3.2 of Communication “A” 6844, residents may access the
foreign exchange market for payment of services provided by
non-residents (provided they are, unless expressly admitted,
unrelated entities), for so long as such transaction has been
reported, if applicable, pursuant to the External Assets and
Liabilities Reporting Regime. Prior authorization from the Central
Bank is required for residents to access to the foreign exchange
market for the repayment of debts or other liabilities in foreign
currency to other residents.
Repayment of principal and interest of imports of goods and
services
Access to the
foreign exchange market for the repayment of principal and interest
of imports of goods and services shall be granted, provided that
the operation has been declared, if applicable, in the last overdue
presentation of the External Assets and Liabilities
Reporting.
Additionally,
article 3.3 of Communication “A” 6844 states that
Central Bank’s prior approval will be required to access the
MULC for the repayment of debts for imports of goods and services
prior to the maturity of such indebtedness.
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Payment of dividends and corporate profits
In accordance with
article 3.4 of Communication “A” 6844, access is
granted to the local foreign exchange market to pay dividends to
non-resident shareholders, subject to the following
conditions:
●
Maximum amounts:
The total amount of transfers executed through the MULC as of
January 17, 2020 for payment of dividends to non-resident
shareholders may not exceed 30% of the total value of the new
capital contributions made in the local company that had been
entered and settled through the MULC as of the above mentioned
date. The total amount paid to non-resident shareholders shall not
exceed the corresponding amount denominated in Argentine Pesos that
was determined by the shareholders' meeting.
●
Minimum Period:
Access to the MULC will only be granted after a period of not less
than thirty (30) calendar days has elapsed as from the date of the
settlement of the last capital contribution that is taken into
account for determining the 30% cap aforementioned.
●
Documentation
requirements: Dividends must be the result of closed and audited
balance sheets. When requesting access to the MULC for this
purpose, evidence of the definitive capitalization of the capital
contribution must be provided or, in lack thereof, evidence of the
initiation of the process of registration of the capital
contribution before the IGJ shall be provided. In this case,
evidence of the definitive capitalization shall be provided within
365 calendar days from the date of the initial filing with the
Public Registry of Commerce. If applicable, the Information Regime
on Foreign Assets and Liabilities shall have been complied with.
Also, it be verified that the operation has been declared, if
applicable, in the last overdue presentation of the External Assets
and Liabilities Reporting.
Access to the MULC by other residents -excluding entities- for the
formation of external assets and for derivatives
transactions
Article 3.10 of
Communication “A” 6844, authorizes local governments,
Common Investment Funds, trusts, other entities established in the
country and legal persons access to the MULC for the build-up of
foreign assets and for derivatives transactions requires prior
authorization by the Central Bank.
Derivatives transactions
Article 4.4 of
Communication “A” 6844 imposes to derivatives
transactions, including payment of premium, constitution of
guarantees and settlement of futures, forwards, options and other
derivatives, held in the country -as of September 11, 2019- the
obligation to be made in local currency
Likewise, Access to
the MULC for the payment premiums and settlements, margins and
other collateral in connection with interest rate hedge agreements
for foreign debt declared and validated, if applicable, in the
External Assets and Liabilities Reporting Regime, as long as such
agreements do not cover higher risks than external liabilities of
the recorded debtor’s interest rate risk being
covered.
An entity
authorized to operate in the MULC must be designated by the debtor
to track the operation and an affidavit must be provided in which
the debtor undertakes to repatriate and settled the funds into
Argentine Pesos that are in favor of the local client as a result
of such operation, or as a result of the release of the funds of
the constituted as collateral, within the following 5 business
days.
Other
Specific Provisions
Access to the MULC for savings or investments purposes of
individuals
Per article 3.8 of
Communication “A” 6844, Argentine residents may access
the MULC for the purposes of external assets’ formation,
family assistance or derivative operations (with some exceptions
expressly mentioned) for up to US$200 (through debits to local bank
accounts) or US$100 (in cash) per person per month through all
authorized exchange entities. If the access entails a transfer of
the funds abroad, the destination account must be an account owned
by the same client.
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In all cases, the
client shall be obligated to submit a sworn statement expressing
that the funds shall not be used for the secondary purchase of
securities within the following 5 business days. In addition, if an
individual purchases securities through payment in foreign
currency, the same must have been held by the client for at least 5
business days since the settlement of the transaction before their
subsequent sale or transfer to another depositary. This minimum
holding period shall not apply if the sale of the securities is
carried out in the same jurisdiction and the settlement of the
transactions is made in the same foreign currency.
Access to the MULC by non-residents
In accordance with
article 3.8 of Communication “A” 6844, Central Bank
prior approval will be required for access to the foreign exchange
market by non-residents for the purchase of foreign currency. The
operations of: (a) International organizations and institutions
that perform functions of official export credit agencies, (b)
Diplomatic representations and consular and diplomatic personnel
accredited in the country for transfers made in the exercise of
their functions, (c) Representatives in the country of Courts,
Authorities or Offices, Special Missions, Commissions or Bilateral
Bodies established by Treaties or International Agreements, in
which the Argentine Republic is part, to the extent that transfers
are made in the exercise of their functions, and (d) foreign
transfers in the name of individuals who are beneficiaries of
retirement and / or pensions paid by the Argentine
Administración Nacional de la Seguridad Social (ANSES), for up
to the amount paid by said agency in the calendar month and to the
extent that the transfer is made to a bank account owned by the
beneficiary in your registered country of residence.
Exchanges and arbitrage. Transactions involving
securities
Pursuant of article
4.2 of Communication “A” 6844, entities are allowed to
carry out exchange and arbitrage operations with their clients in
the following cases: (i) said operation is not subject to the MULC
settlement obligation; (ii) an individual transfers funds from
their local accounts in foreign currency to own bank accounts
abroad, (iii) when foreign currency transfers by local central
collective deposit securities for funds received in foreign
currency for principal and interest services from National Treasury
securities, (iv) arbitration operations not originated in foreign
transfers provided that said funds are debited from an account in
foreign currency of the client in a local entity and (v) may be
carried out without the need to obtain prior Central Bank approval,
provided that if structured as separate transactions through the
Peso, the same would have access to the MULC without Central Bank
authorization.
Securities related Operations
As per article 4.5
of Communication “A”6844, if an individual purchases
securities through payment in foreign currency, the same must have
been held by the client for at least 5 business days since the
settlement of the transaction before their subsequent sale or
transfer to another depositary. This minimum holding period shall
not apply if the sale of the securities is carried out in the same
jurisdiction and the settlement of the transactions is made in the
same foreign currency. In all cases, the client shall be obligated
to submit a sworn statement expressing that the funds shall not be
used for the secondary purchase of securities within the following
5 business days.
Moreover, when a
mere transfer of foreign currency deposited in a local account of a
resident individual to a foreign account of the same individual is
done, a sworn statement must be submitted expressing that there has
not been any sale of securities with local settlement in foreign
currency within the last 5 business days.
Blue Chip Swap Transactions
Entities authorized
to operate on exchanges may not purchase securities in the
secondary market with settlement in foreign currency or use
holdings of their general exchange position for payments to local
suppliers.
Foreign Exchange Criminal Regime
Any operation that
does not comply with the provisions of the foreign exchange
regulations is reached by the Foreign Exchange Criminal
Regime.
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For more information regarding
Argentina’s foreign exchange policies, you should seek advice
from your legal counsel and read the applicable rules mentioned
herein, including their amendments, which can be found at the
following websites: www.boletinoficial.gob.ar/, www.infoleg.gov.ar and the Central Bank’s website:
www.bcra.gov.ar.
Item 10.E Taxation
Certain United States Federal Income Tax
Considerations
The following is a
summary of certain U.S. federal income tax considerations that may
be relevant to the purchase, ownership and disposition of common
shares or ADSs by a U.S. Holder (as defined below).
This summary is
based on provisions of the Internal Revenue Code of 1986, as
amended (the “Code”), and regulations, rulings
and judicial interpretations thereof, in force as of the date
hereof. Those authorities may be changed at any time, perhaps
retroactively, so as to result in U.S. federal income tax
consequences different from those summarized below. In addition,
this summary assumes that the deposit agreement, and all other
related agreements, will be performed in accordance with their
terms.
This summary is not
a comprehensive discussion of all of the tax considerations that
may be relevant to a particular investor’s decision to
purchase, hold, or dispose of common shares or ADSs. In particular,
this summary is directed only to U.S. Holders that hold common
shares or ADSs as capital assets and does not address tax
consequences to U.S. Holders who may be subject to special tax
rules, such as banks, brokers or dealers in securities or
currencies, traders in securities electing to mark to market,
financial institutions, insurance companies, tax exempt entities,
entities and arrangements treated as partnerships and the partners
therein, holders that own or are treated as owning 10% or more of
our shares by vote or value, persons holding common shares or ADSs
as part of a hedging or conversion transaction or a straddle,
nonresident alien individuals present in the United States for more
than 182 days in a taxable year, or persons whose functional
currency is not the U.S. dollar. Moreover, this summary does not
address state, local or foreign taxes, the U.S. federal estate and
gift taxes, or the Medicare contribution tax applicable to net
investment income of certain non-corporate U.S. Holders, or
alternative minimum tax consequences of acquiring, holding or
disposing of common shares or ADSs.
For purposes of
this summary, a “U.S.
Holder” is a beneficial owner of common shares or ADSs
that is an individual citizen or resident of the United States or a
U.S. domestic corporation or that otherwise is subject to U.S.
federal income taxation on a net income basis in respect of such
common shares or ADSs.
You
should consult your own tax advisors about the consequences of the
acquisition, ownership, and disposition of the common shares or
ADSs, including the relevance to your particular situation of the
considerations discussed below and any consequences arising under
foreign, state, local or other tax laws.
ADSs
In general, if you
are a U.S. Holder of ADSs, you will be treated, for U.S. federal
income tax purposes, as the beneficial owner of the underlying
common shares that are represented by those ADSs. Accordingly,
deposits or withdrawals of common shares for ADSs will not be
subject to U.S. federal income tax.
Taxation of Dividends
Subject to the
discussion below under “—Passive Foreign Investment
Company,” the gross amount of any distribution of cash
or property with respect to common shares or ADSs (including any
amount withheld in respect of Argentine withholding taxes) that is
paid out of our current or accumulated earnings and profits (as
determined for U.S. federal income tax purposes) will generally be
includible in a U.S Holder’s taxable income as ordinary
dividend income on the day on which the holder receives the
dividend, in the case of common shares, or the date the ADS
Depositary receives the dividends, in the case of ADSs, and will
not be eligible for the dividends-received deduction allowed to
corporations under the Code. To the extent that the amount of any
distribution exceeds our current and accumulated earnings and
profits for a taxable year, the distribution will first be treated
as a tax-free return of capital, causing a reduction in the tax
basis of the common shares or ADSs, and to the extent the amount of
the distribution exceeds your tax basis, the excess will generally
be taxed as capital gain recognized on a sale or
exchange.
We do not expect to
maintain calculations of our earnings and profits in accordance
with U.S. federal income tax principles. U.S. Holders therefore
should expect that distributions generally will be treated as
dividends for U.S. federal income tax purposes.
215
Dividends paid in a
currency other than U.S. dollars generally will be includible in a
U.S. Holder’s income in a U.S. dollar amount calculated by
reference to the exchange rate in effect on the day the holder
receives the dividends, in the case of common shares, or the date
the ADS Depositary receives the dividends, in the case of ADSs. Any
gain or loss on a subsequent sale, conversion or other disposition
of such non-U.S. currency by such U.S. Holder generally will be
treated as ordinary income or loss and generally will be income or
loss from sources within the United States. U.S. Holders should
consult their own tax advisors regarding the treatment of foreign
currency gain or loss, if any, on any foreign currency received
that is converted into U.S. dollars after it is
received.
Subject to certain
exceptions for short-term and hedged positions, the U.S. dollar
amount of dividends received by a non-corporate U.S. Holder with
respect to the common shares or ADSs will be subject to taxation at
a preferential rate if the dividends are “qualified
dividends” and certain other requirements are met. Dividends
paid on the common shares or ADSs will be treated as qualified
dividends if:
●
the common shares
or ADSs are readily tradable on an established securities market in
the United States and
●
we were not, for
the year prior to the year in which the dividend was paid, and are
not, for the year in which the dividend is paid, a passive foreign
investment company (a “PFIC”).
Our ADSs are listed
on the NYSE, and our ADSs will qualify as readily tradable on an
established securities market in the United States so long as they
are so listed and remain so listed. Based on our audited financial
statements and relevant market and shareholder data, we believe
that we were not treated as a PFIC for U.S. federal income tax
purposes with respect to our 2018 or 2019 taxable years. In
addition, based on our audited financial statements and our current
expectations regarding the value and nature of our assets, the
sources and nature of our income, and relevant market and
shareholder data, we do not anticipate becoming a PFIC for our
current taxable year or in the foreseeable future. U.S. Holders
should consult their own tax advisors regarding the availability of
the reduced dividend tax rate in light of their own particular
circumstances.
Because the common
shares are not themselves listed on a U.S. exchange, dividends
received with respect to common shares that are not represented by
ADSs may not be treated as qualified dividends. U.S. Holders should
consult their own tax advisors regarding the potential availability
of the reduced dividend tax rate in respect of common
shares.
U.S. Holders that
receive distributions of additional common shares or ADSs or rights
to subscribe for common shares or ADSs as part of a pro rata
distribution to all of our shareholders generally will not be
subject to U.S. federal income tax in respect of the
distributions.
Taxation of Dispositions of Common Shares or ADSs
Subject to the
discussion below under “—Passive Foreign Investment
Company,” if a U.S. Holder realizes gain or loss on
the sale, exchange or other disposition of common shares or ADSs,
that gain or loss will be capital gain or loss and generally will
be long-term capital gain or loss if the common shares or ADSs have
been held for more than one year. Long-term capital gain realized
by a non-corporate U.S. Holder generally is subject to taxation at
a preferential rate. The deductibility of capital losses is subject
to limitations.
Foreign Tax Credit Considerations
Dividend
distributions with respect to the common shares or ADSs generally
will be treated as “passive category” income from
sources outside the United States for purposes of determining a
U.S. Holder’s U.S. foreign tax credit limitation. Subject to
the limitations and conditions provided in the Code and the
applicable U.S. Treasury regulations, a U.S. Holder may be able to
claim a U.S. foreign tax credit against its U.S. federal income tax
liability in respect of any Argentine taxes withheld (to the extent
not exceeding the withholding rate applicable to the U.S. Holder)
from a dividend paid to such U.S. Holder if the tax is treated for
U.S. federal income tax purposes as imposed on the U.S. Holder.
Alternatively, the U.S. Holder may deduct such Argentine taxes from
its U.S. federal taxable income, provided that the U.S. Holder
elects to deduct rather than credit all foreign income taxes for
the relevant taxable year.
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Any gain realized
on the sale or other disposition of common shares or ADSs will be
treated as income from U.S. sources for purposes of determining a
U.S. Holder’s U.S. foreign tax credit limitation. Therefore,
an investor generally would not be able to use the foreign tax
credit arising from any Argentine tax imposed on such disposition
unless such credit can be applied (subject to applicable
limitations) against tax due on other income treated as derived
from foreign sources. Taxes are only eligible for the foreign tax
credit if they are income taxes (or a tax paid in lieu of an income
tax). The Argentine capital gains tax will generally be treated as
an income tax (or a tax paid in lieu of an income tax) and thus
potentially eligible for the foreign tax credit, provided the U.S.
Holder has other income derived from foreign sources against which
the credit can be used (as discussed above). Asset taxes, such as
the Argentine personal assets tax (as described in
“—Material Argentine Tax Considerations—Personal
Assets Tax”), generally will not be treated as income taxes
for U.S. federal income tax purposes. If the Argentine personal
assets tax is not treated as an income tax for U.S. federal income
tax purposes, a U.S. Holder generally would be unable to claim a
foreign tax credit for any Argentine personal assets tax paid. A
U.S. Holder may be able to deduct the Argentine taxes discussed in
this paragraph in computing its U.S. federal income tax liability,
subject to applicable limitations (including, in the case of income
taxes, that the U.S. Holder elects to deduct rather than credit all
foreign income taxes for the relevant taxable year).
The rules with
respect to U.S. foreign tax credits are complex and involve the
application of rules that depend on a U.S. Holder’s
particular circumstances. Accordingly, U.S. Holders are urged to
consult their tax advisors regarding the availability of the U.S.
foreign tax credit under their particular
circumstances.
Passive Foreign Investment Company
Special tax rules
apply to U.S. Holders if we are a PFIC. In general, we will be a
PFIC in a particular taxable year if, after applying certain
look-through rules, either 75 percent or more of our gross income
for the taxable year is passive income, or 50 percent or more of
the value of our assets (determined on the basis of a quarterly
average) is attributable to assets that produce or are held for the
production of passive income. As discussed above, we believe that
we were not treated as a PFIC for U.S. federal income tax purposes
with respect to our 2018 taxable year, and we do not anticipate
becoming a PFIC for our current taxable year or in the foreseeable
future. The determination of whether we are a PFIC for any taxable
year depends on the classification of our income and assets, our
cash position and the nature of the activities performed by our
officers and employees. Because this determination is made
annually, it is possible that we may become a PFIC for the current
taxable year or for any future taxable year due to changes in the
composition of our income or assets.
If we are a PFIC
for the current taxable year or for a future taxable year during
which a U.S. Holder owns common shares or ADSs, the U.S. Holder
will be subject to a special tax at ordinary income rates on
certain “excess distributions” and on gain recognized
on the sale or other disposition of such holder’s common
shares or ADSs. For these purposes, distributions received in a
taxable year will be treated as excess distributions to the extent
that they are greater than 125% of the average annual distributions
received during the shorter of the three preceding taxable years or
the U.S. Holder’s holding period for the common shares or
ADSs. In addition, the amount of income tax on any excess
distributions or gains will be increased by an interest charge to
compensate for tax deferral, calculated as if the excess
distributions or gains were earned ratably over the period the U.S.
Holder held the common shares or ADSs. Classification as a PFIC may
also have other adverse tax consequences and subject a U.S. Holder
to certain reporting requirements. If we are a PFIC for our current
taxable year or in future taxable years, U.S. Holders may be able
to make certain elections that would mitigate the consequences of
our status as a PFIC, including by electing to mark common shares
or ADSs to market annually. U.S. Holders should consult their own
tax advisor regarding the U.S. federal income tax considerations
discussed above.
Specified Foreign Financial Assets
Certain individual
U.S. Holders that own “specified foreign financial
assets” with an aggregate value in excess of US$50,000 on the
last day of the taxable year or $75,000 at any time during the
taxable year are generally required to file an information
statement along with their tax returns, currently on Form 8938,
with respect to such assets. “Specified foreign financial
assets” include any financial accounts held at a non-U.S.
financial institution, as well as securities issued by a non-U.S.
issuer (which would include the common shares or ADSs) that are not
held in accounts maintained by financial institutions. Higher
reporting thresholds apply to certain individuals living abroad and
to certain married individuals. Regulations extend this reporting
requirement to certain entities that are treated as formed or
availed of to hold direct or indirect interests in specified
foreign financial assets based on certain objective criteria. U.S.
Holders who fail to report the required information could be
subject to substantial penalties. In addition, the statute of
limitations for assessment of tax would be suspended, in whole or
part. Prospective investors should consult their own tax advisors
concerning the application of these rules to their investment in
the common shares or ADSs, including the application of the rules
to their particular circumstances.
217
Backup Withholding and Information Reporting
Dividends paid on,
and proceeds from the sale, exchange or other disposition of, the
common shares or ADSs to a U.S. Holder generally will be subject to
the information reporting requirements of the Code and may be
subject to backup withholding unless the U.S. Holder provides an
accurate taxpayer identification number and makes any other
required certification or otherwise establishes an exemption.
Backup withholding is not an additional tax. The amount of any
backup withholding from a payment to a U.S. Holder will be allowed
as a refund or credit against the U.S. Holder’s U.S. federal
income tax liability, provided the required information is
furnished to the U.S. Internal Revenue Service in a timely
manner.
Material Argentine Tax Considerations
The following
discussion is a summary of the material Argentine tax
considerations relating to the purchase, ownership and disposition
of our ADSs or common shares. It is based upon the tax laws of
Argentina and regulations thereunder as of the date of this annual
report, and is subject to any subsequent changes in Argentine laws
and regulations which may come into effect after such date. This
summary does not purport to be a comprehensive description of all
the tax considerations that may be relevant to a holder of such
securities. No assurance can be given that the courts or tax
authorities responsible for the administration of the laws and
regulations described in this annual report will agree with this
interpretation. Holders are encouraged to consult their tax
advisors regarding the tax treatment of our ADSs or common shares
as it relates to their particular situation.
Taxation on Dividends
According to the
recent amendments introduced to the Income Tax Law by virtue of the
Tax Reform Law, as of fiscal year 2018, the taxation applicable on
the distribution of dividends from Argentine companies would be as
follows:
(i) Dividends originated in profits
obtained during fiscal years initiated after January 1, 2018
and up to December 31, 2019: dividends on Argentine shares
paid to Argentine resident individuals and/or non-Argentine
residents would be subject to a 7% income tax withholding on the
amount of such dividends (“Dividend Tax”). However, if
dividends are distributed to Argentine Entities (in general,
entities organized or incorporated under Argentine law, certain
traders and intermediaries, local branches of non-Argentine
entities, sole proprietorships and individuals carrying on certain
commercial activities in Argentina), no Dividend Tax should apply.
Equalization Tax (as defined below) is not applicable.
Argentine
individuals and undivided estates are not allowed to offset income
arising from the distribution of dividends on Argentine shares with
other losses arisen in other type of operations.
(ii) Dividends originated in profits
obtained during fiscal years initiated after January 1, 2020
onward: dividends on Argentine shares paid to Argentine resident
individuals and/or non-Argentine residents would be subject to a
13% income tax withholding on the amount of such dividends. In the
case of non-Argentine residents, said 13% rate could be reduced
pursuant to applicable treaties to avoid double taxation if certain
conditions are met, as the case may be. However, if dividends are
distributed to Argentine Entities, no Dividend Tax should apply.
Equalization Tax is not applicable.
(iii) Dividends originated in profits
obtained during tax periods before those contemplated above: no
Argentine income tax withholding would apply on dividend
distributions except for the application of the Equalization
Tax.
The equalization
tax (the “Equalization Tax”) is applicable when the
dividends distributed are higher than the “net accumulated
taxable income” of the immediate previous fiscal period from
when the distribution is made. In order to assess the “net
accumulated taxable income” from the income calculated by the
Income Tax Law, the income tax paid in the same fiscal period
should be subtracted and the local dividends received in the
previous fiscal period should be added to such income. The
Equalization Tax would be imposed as a 35% withholding tax on the
shareholder receiving the dividend. Dividend distributions made in
property (other than cash) would be subject to the same tax rules
as cash dividends. Stock dividends on fully paid shares
(“acciones
liberadas”) are not subject to Equalization
Tax.
For Argentine
resident individuals and undivided estates not registered before
the Argentine tax authorities as taxpayers for income tax purposes
as well as for non-Argentine residents, the Dividend Tax
withholding will be considered a final payment. Argentine
individuals and undivided estates are not allowed to offset income
arising from the distribution of dividends on Argentine shares with
losses from other types of operations.
The income tax law
provides a first in-first out rule pursuant to which distributed
dividends correspond to the former accumulated profits of the
distributing company.
Holders are
encouraged to consult a tax advisor as to the particular Argentine
income tax consequences derived from profit distributions made on
Class B shares and ADSs.
218
Capital gains
According to Income
Tax Law regulations, the results derived from the transfer of
shares, quotas and other equity interests, titles, bonds and other
securities, are subject to Argentine income tax (unless an
exemption applies), regardless of the type of beneficiary who
realizes the gain.
Capital gains
obtained by Argentine corporate entities (in general, entities
organized or incorporated under Argentine law, certain traders and
intermediaries, local branches of non-Argentine entities, sole
proprietorships and individuals carrying on certain commercial
activities in Argentina) derived from the sale, exchange or other
disposition of shares in Argentine entities are subject to income
tax on the net income at the rate of 30% for fiscal years initiated
after January 1, 2018 and up to December 31, 2019 and at
the rate of 25% for tax periods initiated after January 1,2020 and onwards. Losses arising from the sale of shares can only
be offset against income derived from the same type of operations,
for a five-year carryover period.
Starting in 2018,
income obtained by Argentine resident individuals and undivided
estates from the sale of shares and other securities are exempt
from capital gains tax in the following cases: (i) when the
shares are placed through a public offering authorized by the CNV;
(ii) when the shares are traded in stock markets authorized by
the CNV, under segments that ensure priority of price-time and
interference of offers; or (iii) when the sale, exchange or
other disposition of shares is made through an initial public
offering and/or exchange of shares authorized by the CNV. ADSs do
not qualify for the exemption applicable to Argentine resident
individuals since the referred conditions would not apply. If the
exemption does not apply, the income derived by Argentine resident
individuals and undivided estates from the sale, exchange or other
disposition of shares is subject to income capital gains tax at a
15% rate on net income. Losses arising from the sale of non-exempt
Argentine shares can only be offset by Argentine individuals and
undivided estates against income derived from the same type of
operations, for a five-year carryover period.
If Argentine
resident individuals and undivided estates perform a conversion
procedure of securities representing shares, that do not meet the
exemption requirements stated in the paragraph above, to hold
instead the underlying shares that do comply with said
requirements, such conversion would be considered a taxable
transfer of the securities representing shares for which the fair
market value by the time the conversion takes place should be
considered. The same tax treatment will apply if the conversion
process involves shares that do not meet the exemption requirements
stated above that are converted into securities representing shares
to which the exemption is applicable. Once the underlying shares or
securities representing shares are converted, the results obtained
from the sale, exchange, swap or any other disposition thereof
would be exempt from income tax provided that the conditions
mentioned in points (i), (ii) or (iii) of the paragraph above
are met. Due to the amendments introduced to the Income Tax Law, as
from 2018, non-Argentine resident individuals or legal entities
(“Foreign Beneficiaries”) are also exempt from income
tax derived from the sale of Argentine shares in the following
cases: (i) when the shares are placed through a public
offering authorized by the CNV; (ii) when the shares were
traded in stock markets authorized by the CNV, under segments that
ensure priority of price-time and interference of offers; or
(iii) when the sale, exchange or other disposition of shares
is made through an initial public offering and/or exchange of
shares authorized by the CNV. The exemption applies to the extent
the Foreign Beneficiaries reside in a cooperative jurisdiction and,
in accordance with the amendments introduced by Decree
N°1170/2018, if their funds come from cooperative
jurisdictions.
In addition, income
derived from the sale of ADSs gives rise to Argentine source
income. However, capital gains obtained from the sale, exchange or
other disposition of ADSs by Foreign Beneficiaries that reside in a
cooperative jurisdiction and, in accordance with the amendments
introduced by Decree N°1170/2018, their funds come from
cooperative jurisdictions, are exempt from income tax on capital
gains to the extent the underlying shares are issued by an
Argentine company and they are authorized for public offering by
the CNV.
In case Foreign
Beneficiaries conduct a conversion process of shares that do not
meet the exemption requirements into securities representing shares
that are exempt from income tax pursuant to the conditions stated
above, such conversion would be considered a taxable transfer of
the securities representing shares for which the fair market value
by the time the conversion takes place should be
considered.
In case the
exemption is not applicable and the Foreign Beneficiaries are not
domiciled in non-cooperative jurisdictions and whose funds were not
channeled through non-cooperative jurisdictions, the gain derived
from the disposition of ADSs would be subject to Argentine income
tax at a 15% rate on the net capital gain or at a 13.5% effective
rate on the gross price.
219
For Foreign
Beneficiaries domiciled in or whose funds come from jurisdictions
considered as non-cooperative for purposes of fiscal transparency,
the tax rate applicable to the sales of shares and/or ADSs is
assessed at 35%. Pursuant to General Resolution AFIP 4227, the
presumed net basis on which the 35% rate should apply in the case
of sale or disposition of securities is assessed at 90%. The list
of non-cooperative jurisdictions shall be published by the
Executive Branch. However, Decree 279/2018 provides that until the
Executive Branch issues the non-cooperative list, taxpayers should
consider the list of “cooperative jurisdictions”
published by the Argentine tax authorities to determine whether a
jurisdiction is deemed cooperative or not.
Holders are
encouraged to consult a tax advisor as to the particular Argentine
income tax consequences derived from holding and disposing of our
Class B shares and ADSs and whether any different treatment
under a treaty to avoid double taxation could apply.
Personal assets tax
Argentine entities,
like us, have to pay the personal assets tax corresponding to
Argentine and foreign domiciled individuals and foreign domiciled
entities for the holding of company shares at December 31 of
each year. The applicable tax rate is 0.25% and is levied on the
proportional net worth value (“valor patrimonial
proporcional”) by December 31st of each year, of
the shares arising from the last financial statements. Pursuant to
the Personal Assets Tax Law, the Argentine company is entitled to
seek reimbursement of such paid tax from the applicable Argentine
domiciled individuals and/or foreign domiciled shareholders. The
Argentine company may seek this reimbursement of Personal Assets
Tax by setting off the applicable tax against any amount due to its
shareholders or in any other way or, under certain circumstances,
waive its right under Argentine law to seek reimbursement from the
shareholders.
It is unclear
whether non-Argentine domiciled parties are subject to personal
assets tax on ADSs. Holders are encouraged to consult a tax advisor
as to the particular Argentine personal assets tax consequences
derived from the holding of Class B shares and
ADSs.
Value added tax
The sale, exchange
or other disposition of our Class B shares and ADSs, and the
distribution of dividends in connection therewith, are exempted
from the value added tax.
Tax on debits and credits on Argentine bank accounts
(“TDC”)
All credits and
debits originated in bank accounts held at Argentine financial
institutions, as well as certain cash payments, are subject to this
tax, which is assessed at a general rate of 0.6%. There are also
increased rates of 1.2% and reduced rates of 0.075%. Owners of bank
accounts subject to the general 0.6% rate may consider 33% of the
tax paid as a tax credit against specific taxes. The taxpayers that
are subject to the 1.2% rate may consider 33% of all tax paid as a
credit against specific taxes. Such amounts can be utilized as a
credit for income tax, tax on presumed minimum income or special
contributions on cooperatives capital. If lower rates were applied,
the available credit would be reduced to 20%.
The TDC has certain
exemptions. Debits and credits in special checking accounts
(created under Communication “A” 3250 of the Argentine
Central Bank) are exempted from this tax if the accounts are held
by foreign legal entities and if they are exclusively used for
financial investments in Argentina.
According to Law
No. 27,432, the Executive may increase up to 20% per year the
percentage of the TDC payments that can be accounted for as payment
on account of the income tax. Additionally, the Tax Reform Law
enables the Executive to establish that starting in 2022 the
amounts paid as TDC may be totally accounted for as payment on
account of the income tax. Whenever financial institutions governed
by Law No. 21,526 make payments acting in their own name and
behalf, the application of this tax is restricted to certain
specific transactions. Such specific transactions include, among
others, dividends or profits distributions.
220
Tax on minimum presumed income
Entities domiciled
in Argentina are subject to this tax at the rate of 1% applicable
over the total value of their assets, above an aggregate amount of
Ps.200,000. Specifically, the law establishes that banks, other
financial institutions and insurance companies will consider a
taxable base equal to 20% of the value of taxable assets. This tax
shall be payable only to the extent the income tax determined for
any fiscal year does not equal or exceed the amount owed under the
tax on minimum presumed income. In such case, only the difference
between the tax on minimum presumed income determined for such
fiscal year and the income tax determined for that fiscal year
shall be paid. Any tax on minimum presumed income paid will be
applied as a credit toward income tax owed in the
immediately-following ten fiscal years. Please note that shares and
other equity participations in entities subject to tax on minimum
presumed income are exempt from this tax.
Holders are
encouraged to consult a tax advisor as to the particular Argentine
tax on minimum presumed income consequences derived from the
holding of Class B shares and ADSs.
Pursuant to Law
No. 27,260, passed by the Argentine Congress on June 29,2016, the tax on minimum presumed income is eliminated for tax
periods beginning as of January 1, 2019.
Turnover tax
In addition, gross
turnover tax could be applicable on the transfer of Class B
shares or ADSs and on the perception of dividends to the extent
such activity is conducted on a regular basis within an Argentine
province or within the City of Buenos Aires. However, under the Tax
Code of the City of Buenos Aires, any transaction with shares as
well as the perception of dividends are exempt from gross turnover
tax. Holders of Class B shares and ADSs are encouraged to
consult a tax advisor as to the particular gross turnover tax
consequences of holding and disposing of Class B shares and
ADSs in the involved jurisdictions.
Regimes for the Collection of Provincial Tax Revenues on the
Amounts Credited to Bank Accounts
Different tax
authorities (i.e., City of Buenos Aires, Corrientes, Córdoba,
Tucumán, Province of Buenos Aires and Salta, among others)
have established collection regimes for gross turnover tax purposes
applicable to those credits verified in accounts opened at
financial entities, of any type and/or nature and including all
branch offices, irrespective of territorial location. These regimes
apply to those taxpayers included in the lists provided monthly by
the tax authorities of each jurisdiction. The applicable rates may
vary depending on the jurisdiction involved. Collections made under
these regimes shall be considered as a payment on account of the
turnover tax. Note that certain jurisdictions have excluded
the application of these regimes on certain financial transactions.
Holders shall corroborate the existence of any exclusions to these
regimes in accordance with the jurisdiction involved.
Stamp taxes
Stamp tax is a
provincial tax, which is also levied in the City of Buenos Aires,
applicable to the execution of onerous transactions within a
provincial jurisdiction or the City of Buenos Aires or outside a
provincial jurisdiction or the City of Buenos Aires but with
effects in such jurisdiction.
In the City of
Buenos Aires, acts or instruments related to the negotiation of
shares and other securities duly authorized for its public offering
by the CNV are exempt from stamp tax.
Holders of
Class B shares and ADSs are encouraged to consult a tax
advisor as to the particular stamp tax consequences arising in the
involved jurisdictions.
Prospective
investors should consider the tax consequences in force in the
above mentioned jurisdictions at the time the concerned document is
executed and/or becomes effective.
Other taxes
There are no
Federal inheritance or succession taxes applicable to the
ownership, transfer or disposition of our Class B shares or
ADSs. At the provincial level, the province of Buenos Aires imposes
a tax on free transmission of assets, including inheritance,
legacies, donations, etc. Any gratuitous transfer of property lower
than or equal to Ps.269,000 is exempt. This amount is increased to
Ps.1,120,000 in the case of transfers among parents, sons,
daughters and spouses. The amount to be taxed, which includes a
fixed component and a variable component that is based on
differential rates (which range from 1.6026% to 8.7840%), varies
according to the property value to be transferred and the degree of
kinship of the parties involved. Free transmission of Class B
shares or ADSs could be subject to this tax. Holders of
Class B shares and ADSs are encouraged to consult a tax
advisor as to the particular tax consequences arising in the
involved jurisdictions.
221
Court tax
In the event that
it becomes necessary to institute enforcement proceedings in
relation to our Class B shares and ADSs in the federal courts
of Argentina or the courts sitting in the City of Buenos Aires, a
court tax (currently at a rate of 3.0%) will be imposed on the
amount of any claim brought before such courts. Certain court and
other taxes could be imposed on the amount of any claim brought
before the Province courts.
Incoming Funds Arising from Non-Cooperative or Low or Nil Tax
Jurisdictions
As defined under
Argentine Income Tax Law, non-cooperative jurisdictions are those
countries or jurisdictions that do not have an agreement in force
with the Argentine government for the exchange of information on
tax matters or a treaty to avoid international double taxation with
a broad clause for the exchange of information. Likewise, those
countries that, having an agreement of this type in force, do not
effectively comply with the exchange of information will also be
considered as non-cooperative. The aforementioned treaties and
agreements must comply with international standards of transparency
and exchange of information on fiscal matters to which the
Argentine Republic has committed. The Executive Branch shall
publish a list of the non-cooperative jurisdictions based on the
criteria above. According to Decree N° 279/2018, until the new
list to be issued by the Executive Power is published,
non-cooperative jurisdictions would be deemed as those not included
in the “cooperative jurisdictions” list currently
published in AFIP’s website, created in accordance with the
Decree N°589/2013.
In turn, low or nil
tax jurisdictions are defined as those countries, territories,
associated states or special tax regimes that foresee a maximum
corporate tax rate below 15%. Pursuant to Decree 1170/2018, the 15%
threshold rate should be assessed considering the aggregate
corporate tax rate in each jurisdiction, regardless of the
governmental level in which the taxes were levied. In turn,
“special tax regime” is understood as any regulation or
specific scheme that departs from the general corporate tax regime
applicable in said country and results in an effective rate below
that stated under the general regime.
According to the
legal presumption under Section 18.2 of Law No. 11,683,
as amended, incoming funds from non-cooperative or low or nil
jurisdictions could be deemed unjustified net worth increases for
the Argentine party, no matter the nature of the operation
involved. Unjustified net worth increases are subject to the
following taxes:
● income
tax would be assessed at 110% of the amount of funds
transferred.
● VAT
would be assessed at 110% of the amount of funds
transferred.
Although the
concept of “incoming funds” is not clear, it should be
construed as any transfer of funds:
(i) from an account
in a non-cooperative/low or nil tax jurisdiction or from a bank
account opened outside of a non-cooperative or low or nil tax
jurisdiction but owned by an entity located in a non-cooperative or
low or nil tax jurisdiction;
(ii) to a bank
account located in Argentina or to a bank account opened outside of
Argentina but owned by an Argentine party.
The Argentine party
may rebut such legal presumption by duly evidencing before the
Argentine tax authority that the funds arise from activities
effectively performed by the Argentine party or by a third party in
such jurisdiction, or that such funds have been previously
declared.
Tax treaties
Argentina has
signed tax treaties for the avoidance of double taxation with
Australia, Belgium, Bolivia, Brazil, Canada, Chile, Denmark,
Finland, France, Germany, Italy, Mexico, the Netherlands, Norway,
Russia, Spain, Sweden, Switzerland and the UK. The treaties signed
with China, Qatar, Turkey and the United Arab Emirates are still
undergoing the respective ratification procedures. There is
currently no tax treaty for the avoidance of double taxation in
effect between Argentina and the United States. Holders are
encouraged to consult a tax advisor as to the potential application
of the provisions of a treaty in their specific
circumstances.
THE
ABOVE SUMMARY IS NOT INTENDED TO BE A COMPLETE ANALYSIS OF ALL TAX
CONSEQUENCES RELATING TO THE OWNERSHIP OR DISPOSITION OF CLASS B
SHARES OR ADSs. HOLDERS ARE ENCOURAGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE TAX CONSEQUENCES ARISING IN EACH PARTICULAR
CASE.
222
Item
10.F Dividends and paying agents
Not
applicable.
Item
10.G Statement by experts
Not
applicable.
Item
10.H Documents on display
We are subject to
the information requirements of the Securities Exchange Act of
1934, as amended, or the Exchange Act. In accordance with these
requirements, we file reports and other information with the SEC.
These materials, including this annual report and the accompanying
exhibits, may be inspected and copied at the SEC’s Public
Reference Room at 100 F Street, N.E., Room 1580, Washington, D,C,
20549. Copies of the materials may be obtained from the SEC’s
Public Reference Room at prescribed rates. The public may obtain
information on the operation of the SEC’s Public Reference
Room by calling the SEC in the United States at 1-800-SEC-0330. In
addition, the SEC maintains an internet website that contains
filings, reports and other information regarding issuers who, like
us, file electronically with the SEC. The address of that website
is http://www.sec.gov.
We remind investors
that we are required to file financial statements and other
periodic reports with the CNV because we are a public company in
Argentina. Investors can access our historical financial statements
published in Spanish on the CNV’s website at www.cnv.gob.ar.
The information found on the CNV’s website is not a part of
this annual report. Investors are cautioned not to place undue
reliance on our financial statements or other information not
included in this annual report.
Item
10.I. Subsidiary Information
Not
applicable
Item
11. Quantitative and Qualitative Disclosures about Market
Risk
Financial Risk Management Goals and Policies
Our principal
financial liabilities comprise of bank loans and borrowings from
CAMMESA and trade and other payables. The main purpose of these
financial liabilities is to finance our operations. We have trade
and other receivables, and cash and cash equivalents that result
directly from our operations. We also have financial assets at fair
value through profit and loss.
Due to our business
activity, we are exposed to the following financial risks: market
risk, credit risk and liquidity risk. We continuously monitor these
risks to minimize the potential negative impact they could have on
our finances.
Market Risk
Market risk is the
risk of changes in the fair value or the future cash flows of
financial instruments due to fluctuations in market prices. The
market risks affecting our business include interest rate risk,
foreign currency risk and price risk.
Interest Rate Risk
Interest rate
variations affect the value of assets and liabilities accruing a
fixed interest rate, as well as the flow of financial assets and
liabilities with floating interest rates.
As mentioned in
Note 14.3 to our audited consolidated financial statements,
short-term bank loans accrue interest at a fixed interest
rate.
The company’s
risk management policy was designed for the purposes of reducing
the effect the loss of purchasing power may have. Net monetary
positions during most of fiscal years 2019, 2018 and 2017 appeared
as assets; hence, the Company seeks to mitigate the risk by
implementing adjustment mechanisms through interest and exchange
differences. In consequence, during 2019, 2018 and 2017, item loss
on net monetary position showed net loss caused by monetary
accounts inflation.
223
Interest rate sensitivity
The following table
shows the sensitivity of income before income tax for the year
ended December 31, 2019, to a reasonably possible change in
interest rates over the portion of loans bearing interest at a
variable interest rate, with all other variables held
constant:
Increase in
percentage
Effect on income
before income tax in thousands of Ps. (Loss)
5%
(1,944,427)
Foreign Currency Risk
Foreign currency
risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in foreign
exchange rates. The Company is exposed to the foreign currency risk
at an Ps./US$ ratio, mainly due to its operating activities, the
investment projects defined by the Company and the financial debt
related to the bank loans mentioned in Note 14.3 to our audited
consolidated financial statements. The Company does not use
derivative financial instruments to hedge such risk. As of December31, 2019, the net balance exposed to this risk amounts to US$ 46
million, since existing liabilities in foreign currency for US$666
million exceed receivables and cash and short-term deposits in
foreign currency for US$619 million
Foreign currency sensitivity
The following table
shows the sensitivity to a reasonably possible change in the US
dollar exchange rate, with all other variables held constant, of
income before income tax as of December 31, 2019 (due to changes in
the fair value of monetary assets and liabilities).
Change in the
U.S. dollar exchange rate
Effect on income
before income tax in thousands of Ps. (Loss)
10%
(276,652)
Price Risk
The Company’s
revenues depend on the electric power price in the spot market and
the production cost paid by CAMMESA. The Company has no power to
set prices in the market where it operates, except for the income
from agreements entered into in the Term Market, where the price
risk is reduced since normally prices are negotiated above the spot
market price. See “Item 4.B. Business Overview—The
Argentine Electric Power Sector” and “Item
3.D.—Risk Factors—Electricity demand may be affected by
tariff increases, which could lead generation companies like us to
record lower revenues.”
Credit Risk
Credit risk is the
risk that a counterparty will not meet its obligations under a
financial instrument or customer contract, leading to a financial
loss. The Company is exposed to credit risk from its operating
activities (primarily for trade receivables) and from its financing
activities, including holdings of government
securities.
Trade and other receivables
The Finance
Department is in charge of managing customer credit risk subject to
policies, procedures and controls relating to the Company’s
credit risk management. Customer receivables are regularly
monitored.
Although the
Company has received no guarantees, it is entitled to request
interruption of electric power flow if customers fail to comply
with their credit obligations. In regard to credit concentration,
see Note 14.1 to our audited consolidated financial statements. The
need to book impairment is analyzed at the end of each reporting
period on an individual basis for major clients. The allowance
recorded as of December 31, 2019, is deemed sufficient to cover the
potential impairment in the value of trade
receivables.
Cash and cash equivalents
Credit risk from
balances with banks and financial institutions is managed by the
Company’s treasury department in accordance with corporate
policy. Investments of surplus funds are made only with approved
counterparties; in this case, the risk is limited because
high-credit-rating banks are involved.
224
Public and corporate securities
This risk is
managed by the Company’s finance management according to
corporate policies, whereby these types of investments may only be
made in first-class companies and in instruments issued by the
federal or provincial governments. See “Item 3.D.—Risk
Factors—Risks Relating to Our Business—Our results
depend largely on the compensation established by the Secretariat
of Electric Energy and received from CAMMESA” and “Item
3.D.—Risk Factors—Risks Relating to the Electric Power
Sector in Argentina—We have, in the recent past, been unable
to collect payments, or to collect them in a timely manner, from
CAMMESA and other customers in the electric power
sector.”
We are entitled to
receive payments from CAMMESA under the Energía Base within 42
days after the date of billing. In recent years, due to regulatory
conditions in Argentina’s electric power sector that affected
the profitability and economic viability of power utilities,
certain WEM agents defaulted on their payments to CAMMESA, which
adversely affected CAMMESA’s ability to meet its payment
obligations to electric power generators, including us. As a
consequence, in the past, we have seen CAMMESA pay within 92 days
of month-end, rather than the required 42 days after the date of
billing. Such payment delays would result in higher working capital
requirements than we would typically have to finance with our own
financing sources. However, this delay has been decreasing since
April 2016. From September 2016 to November 2017, CAMMESA has paid
without delays, and since then, there were short periods in which
CAMMESA experienced delays in paying.
For example, for
the monthly transaction related to Energía Base and thermal
PPAs of December 2019, with due date on February 12, 2019, we
collected 20.40% on February 28, 2020, 45.26% on March 11, 2020,
11.56% on March 19, 2020, 12.47% on March 27, 2020 and the rest on
April 8, 2020. For these delays, we are entitled to receive
interests from CAMMESA. Payments related to PPAs under the Renovar
Regulatory Framework have not suffered delays. CAMMESA may once
again be unable to make payments to generators both in respect of
energy dispatched and generation capacity availability on a timely
basis or in full, which may substantially and adversely affect our
financial position and the results of our operations.
The chart below
shows the payment cycle of CAMMESA (for sales under the
Energía Base) in terms of number of days after the due date
that CAMMESA took to pay the balances each month from September
2015 to December 2019:
Source: Central
Puerto
We are also
entitled to receive the foreign exchange difference accrued for the
term market contracts and FONI trade receivables, which are
denominated in U.S. dollars, between the last date of the month of
each monthly transaction of the term market contracts with CAMMESA
or FONI installments, and the day prior to the due date of such
monthly transaction or installment. These amounts should be paid
one day after the due date of the payment of each monthly
transaction or FONI installment. However, for the installments
corresponding to the January 2019–December 2019 period
CAMMESA had delays on such foreign exchange difference payments.
The foreign exchange difference on the January 2020 and February
2020 monthly transactions of the trade receivables for the term
market contracts from thermal units and FONI installments have not
been collected as of the date of this annual report.
225
In the short term,
due to the COVID-19 pandemic crisis, we expect to continue
experiencing delays in certain payments from CAMMESA.
Under our contracts
with YPF, we typically issue monthly invoices and YPF pays them
within 35 to 45 days after they are issued. Our invoices are issued
in U.S. dollars) and payments are made in pesos at the exchange
rate as of the date of the payment.
Under our PPAs
pursuant to Energía Plus, we typically issue monthly invoices
and the off-taker pays them within 20 to 30 days after they are
issued. The tariff for the energy sold is set in U.S. dollars. Our
invoices can be issued in U.S. dollars or pesos converted into U.S.
dollars, and are payable in pesos at the exchange rate as of the
date of the payment, with the off-taker in this second case
typically covering any exchange rate fluctuations as a result of
any payment delay through credit or debit payments.
With respect to the
FONINVEMEM program, after commercial authorization was granted to
the Manuel Belgrano power plant (on January 7, 2010) and the San
Martín power plant (on February 2, 2010), we started to
collect monthly partial payments of our outstanding receivables
from electric power sales from January 2004 through December 2007.
These receivables are denominated in U.S. dollars bearing interest
at LIBOR plus 1% (for
receivables paid from the proceeds of the Manuel Belgrano plant)
and 2% (for receivables paid from the proceeds of the “San
Martín” power plant), and payments are made in pesos at
the exchange rate as of the date of the payment.
Regarding the CVO
Agreement, effective as of March 20, 2018, CAMMESA granted the CVO
Commercial Approval in the WEM, as a combined cycle, of the thermal
plant Central Vuelta de Obligado, which entitled us to receive the
collection of the trade receivables under the CVO Agreement. A PPA
between the CVO Trust and CAMMESA, through which the CVO Trust
makes energy sales and, consequently, receives the cash flow to pay
the trade receivables, had to be signed in order to start the
collections.
As a result, the
original amortization schedule from the CVO Agreement is in full
force and effect.
The installments
corresponding to the March 2018-December 2018 period amounted to
US$78.15 million (including VAT, corresponding to installments 1 to
10) as of May 31, 2019. During June and July 2019, Central Puerto
collected Ps.2,562 million, in nominal terms (approximately
US$58.41 million converted at the exchange rate Communication A
3500 quoted by the Central Bank as of the date of payment) and
Ps.825 million, in nominal terms (approximately US$19.70 million
converted at the exchange rate Communication A 3500 quoted by the
Central Bank as of the date of payment), in both cases including
VAT, related to the installments corresponding to the
March-December 2018 period of the CVO agreement.
During 2019, we
collected Ps. 8.45 billion in CVO
receivables (including installments 1 to 10), measured in current
amounts as of December 31, 2019. Subsequent installments (from
installment No. 11) have been collected on their respective due
dates.
Trade Receivables and Other Receivables
Our finance
department is in charge of managing customer credit risk subject to
policies, procedures and controls relating to ours credit risk
management. Accounts receivable are regularly monitored. Even
though we have not received guarantees, we have the authority to
cause the power supply to be interrupted if clients fail to meet
their credit obligations. For information on credit concentration,
see Note 14.1 to our audited consolidated financial statements. The
need to book impairment is analyzed at the end of each reporting
period on an individual basis for major clients. The allowance
recorded as of December 31, 2019 is deemed sufficient to cover the
potential impairment in the value of our receivables.
Cash and Short-Term Investments
Our treasury
department manages the credit risk inherent to balances held in
banks and financial institutions, pursuant to our corporate policy.
Excess funds are invested with approved counterparts only, which
are limited to banks with high credit ratings, thereby mitigating
risk.
226
Public and Corporate Securities
Our finance
department manages this risk based on our corporate policies,
pursuant to which we are only allowed to invest in first-class
companies and in instruments issued by the federal or provincial
governments.
Liquidity Risk
We manage liquidity
with the aim of guaranteeing that the necessary funds are available
to support our business strategy. Short-term financing needs
related to seasonal increases in working capital are covered
through short- and medium-term bank credit lines. The following
tables show the maturity profile of our financial
liabilities.
Item
12. Description of Securities Other Than Equity
Securities
Item
12.A Debt Securities
Not
applicable.
Item
12.B Warrants and Rights
Not
applicable.
Item
12.C Other Securities
Not
applicable.
Item
12.D American Depositary Shares
Fees and Charges
As an ADS holder,
you will be required to pay the following fees under the terms of
the deposit agreement:
Service
Fees
Issuance of ADSs
(e.g., an issuance of ADS upon a deposit of common shares, upon a
change in the ADS(s)-to-common share(s) ratio, or for any other
reason), excluding ADS issuances as a result of distributions of
common shares)
Up to U.S. 5¢
per ADS issued
Cancellation of
ADSs (e.g., a cancellation of ADSs for delivery of deposited
property, upon a change in the ADS(s)-to-common share(s) ratio, or
for any other reason)
Up to U.S. 5¢
per ADS cancelled
Service
Fees
Distribution of
cash dividends or other cash distributions (e.g., upon a sale of
rights and other entitlements)
Up to U.S. 5¢
per ADS held
Distribution of
ADSs pursuant to (i) stock dividends or other free stock
distributions, or (ii) exercise of rights to purchase additional
ADSs
Up to U.S. 5¢
per ADS held
Distribution of
securities other than ADSs or rights to purchase additional ADSs
(e.g., upon a spin-off)
Up to U.S. 5¢
per ADS held
ADS
Services
Up to U.S. 5¢
per ADS held on the applicable record date(s) established by the
depositary bank
228
As an ADS holder
you will also be responsible to pay certain charges such
as:
●
taxes (including
applicable interest and penalties) and other governmental
charges;
●
the registration
fees as may from time to time be in effect for the registration of
common shares on the share register and applicable to transfers of
common shares to or from the name of the custodian, the depositary
bank or any nominees upon the making of deposits and withdrawals,
respectively;
●
certain cable,
telex and facsimile transmission and delivery
expenses;
●
the expenses and
charges incurred by the depositary bank in the conversion of
foreign currency;
●
the fees and
expenses incurred by the depositary bank in connection with
compliance with exchange control regulations and other regulatory
requirements applicable to common shares, ADSs and ADRs;
and
●
the fees and
expenses incurred by the depositary bank, the custodian, or any
nominee in connection with the servicing or delivery of deposited
property.
ADS fees and
charges for (i) the issuance of ADSs, and (ii) the cancellation of
ADSs are charged to the person for whom the ADSs are issued (in the
case of ADS issuances) and to the person for whom ADSs are
cancelled (in the case of ADS cancellations). In the case of ADSs
issued by the depositary bank into DTC, the ADS issuance and
cancellation fees and charges may be deducted from distributions
made through DTC, and may be charged to the DTC participant(s)
receiving the ADSs being issued or the DTC participant(s) holding
the ADSs being cancelled, as the case may be, on behalf of the
beneficial owner(s) and will be charged by the DTC participant(s)
to the account of the applicable beneficial owner(s) in accordance
with the procedures and practices of the DTC participants as in
effect at the time. ADS fees and charges in respect of
distributions and the ADS service fee are charged to the holders as
of the applicable ADS record date. In the case of distributions of
cash, the amount of the applicable ADS fees and charges is deducted
from the funds being distributed. In the case of (i) distributions
other than cash and (ii) the ADS service fee, holders as of the ADS
record date will be invoiced for the amount of the ADS fees and
charges and such ADS fees and charges may be deducted from
distributions made to holders of ADSs. For ADSs held through DTC,
the ADS fees and charges for distributions other than cash and the
ADS service fee may be deducted from distributions made through
DTC, and may be charged to the DTC participants in accordance with
the procedures and practices prescribed by DTC and the DTC
participants in turn charge the amount of such ADS fees and charges
to the beneficial owners for whom they hold ADSs.
In the event of
refusal to pay the depositary bank fees, the depositary bank may,
under the terms of the deposit agreement, refuse the requested
service until payment is received or may set off the amount of the
depositary bank fees from any distribution to be made to the ADS
holder. Certain of the depositary fees and charges (such as the ADS
services fee) may become payable shortly after the closing of the
ADS offering. Note that the fees and charges you may be required to
pay may vary over time and may be changed by us and by the
depositary bank. You will receive prior notice of such changes. The
depositary bank may reimburse us for certain expenses incurred by
us in respect of the ADR program, by making available a portion of
the ADS fees charged in respect of the ADR program or otherwise,
upon such terms and conditions as we and the depositary bank agree
from time to time. Accordingly, on January 18, 2019, we received
US$1,066,706.10 from the depositary bank.
Item
13. Defaults, Dividend Arrearages and
Delinquencies
None.
Item
14. Material Modifications to the Rights of Security Holders
and Use of Proceeds
None.
Item
15. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
(a) Evaluation of
Disclosure Controls and Procedures
Our company, under
the supervision and with the participation of our chief executive
officer and chief financial officer, has evaluated the
effectiveness of the design and operation of the Company’s
disclosure controls and procedures pursuant to 13a-15(e) of the
Exchange Act, as of December 31, 2019.
229
There are inherent
limitations to the effectiveness of any system of disclosure
controls and procedures, including the possibility of human error
and the circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can
only provide reasonable assurance of achieving their control
objectives. Based upon their evaluation, our company’s Chief
Executive Officer and Chief Financial Officer concluded that as of
December 31, 2019, our disclosure controls and procedures were
effective to provide reasonable assurance of achieving their
control objectives.
(b) Management’s Report on Internal Control
over Financial Reporting
Our management is
responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934. The
company’s internal control over financial reporting was
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board. The company’s
internal control over financial reporting includes those policies
and procedures that:
(i)
pertain to the
maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of
the company;
(ii)
provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with IFRS, and
that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of
the company; and
(iii)
provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company’s assets that
could have a material effect on the financial
statements.
Because of its
inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management assessed
the effectiveness of the company’s internal control over
financial reporting as of December 31, 2019. In making this
assessment, management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework (2013). Based on our
assessment and those criteria, management believes that the company
maintained effective internal control over financial reporting as
of December 31, 2019
(c) Attestation
report of the registered public
accounting firm
Reference is made
to the report of Pistrelli, Henry Martin y Asociados S.R.L. (a
member firm of Ernst & Young Global) on page F-1 of this annual
report.
(d) Changes
in internal controls over
financial reporting
There was no change
in our internal control over financial reporting that occurred
during the period covered by this annual report that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Item
16.A Audit committee financial expert
Mr. Tomás
José White is our audit committee’s financial expert. He
is an independent member of the audit committee under Rule 10A-3
and applicable NYSE standards.
Item
16.B Code of Ethics
We have adopted a
“Code of Business Conduct” (the “code”)
designed to establish guidelines with respect to professional
conduct, morals and employee performance. This code applies to all
directors, managers, heads and employees of the Company. The code
is posted on our website at http://investors.centralpuerto.com/govdocs.
In 2018, the code was amended to comply with the
requirements set forth in Argentine Law No. 27.401 (the
“Corporate Criminal Liability Law”), which include that
the Company’s employees while dealing with public sector
officers or agencies on behalf of the Company shall act with due
care and shall avoid, at all times, circumstances that may be
considered contrary to the public duties of such public sector
officers, illicit enrichment of such public sector officers,
bribery and influence-peddling, extortion and preparation of false
balance sheets and reports. On March 9, 2018, our Audit Committee
approved the amendment. In addition, we did not grant any waivers
to the code during the year ended December 31, 2019.
230
Item
16.C Principal Accountant Fees and Services
Pistrelli, Henry
Martin y Asociados S.R.L. (a member firm of Ernst & Young
Global) acted as our independent registered public accounting firm
for the fiscal years ended December 31, 2019 and 2018. The
following tables sets forth the total amount billed to us and our
subsidiaries for the indicated fiscal years (stated in the current
measurement unit as of December 31, 2019):
2019
2018
(in thousands of Ps.)
Audit
Fees
25,527
16,414
Tax
Fees
1,134
1,781
All other
fees
–
3,907
Total
26,661
22,102
Audit fees are fees billed for
professional services rendered by the principal accountant for the
audit of the registrant’s annual consolidated financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. It includes the audit of our annual
consolidated financial statements, the reviews of our quarterly
consolidated financial statements submitted to CNV and other
services that generally only the independent accountant reasonably
can provide, such as comfort letters, statutory audits, attestation
services, consents and assistance with and review of documents
filed with the SEC.
Tax fees are billed for professional
services related to tax compliance and tax advice for fiscal years
2019 and 2018, respectively.
All other fees are
billed for professional services related to assistance and training
on the implementation of certain internal control
procedures.
Audit
Committee Pre-Approval Policies and Procedures
Consistent with SEC
requirements regarding auditor independence, the Audit Committee
pre-approves services prior to commencement of the specified
service. Before any accountant is engaged to render audit or
non-audit services, the engagement must be approved by the Audit
Committee and the Audit Committee must pre-approve the provision of
services by our principal auditor prior to commencement of the
specified service. The Audit Committee has delegated the authority
to grant pre-approvals to auditors’ services to its
president. The decision of the president to pre-approve a service
is presented to the full Audit Committee at each of its scheduled
meetings.
All audit fees,
audit-related fees, tax fees and other fees, if any, are submitted
to our Audit Committee for prior approval. The Audit Committee
evaluates the scope of the work to be performed by our accountants
and the fees for such work prior to their engagement.
Consequently, 100% of the services and fees rendered by our
principal accountants in 2019 were approved by the Audit Committee
prior to their engagement to perform such work.
Item
16.D Exemptions from the Listing Standards for Audit
Committees
Not
applicable.
Item
16.E Purchases of Equity Securities by the Issuer and
Affiliated Purchasers
None.
Item
16.F Change in Registrant’s Certifying
Accountant
Not
applicable.
231
Item
16.G Corporate Governance
NYSE Corporate Governance Rules
Under NYSE rules,
foreign private issuers are subject to more limited corporate
governance requirements than U.S. domestic issuers. As a foreign
private issuer, we must comply with Sections 303A.06, 303A.11 and
303A.12(b) and (c) of the NYSE Listed Company Manual which set
forth the following corporate governance rules: (i) we must satisfy
the requirements of Rule 10A-3 of the Exchange Act relating to
audit committees; (ii) our CEO must promptly notify the NYSE in
writing after any executive officer becomes aware of any
non-compliance with the applicable NYSE corporate governance rules;
(iii) we must provide a brief description of any significant
differences between our corporate governance practices and those
followed by U.S. companies under NYSE listing standards; and (iv)
we must provide the NYSE with annual and interim written
affirmations as required under the NYSE corporate governance
rules.
The table below
briefly describes the significant differences between our Argentine
corporate governance rules and the NYSE corporate governance
rules:
Section
NYSE corporate
governance rule for U.S. domestic issuers
Argentine
corporate governance rules
303A.01
A listed company
must have a majority of independent directors. “Controlled
companies” are not required to comply with this
requirement.
A listed company
must have at least two independent directors who form a majority of
the Audit Committee.
303A.
02
No director
qualifies as “independent” unless the board of
directors affirmatively determines that the director has no
material relationship with the listed company (whether directly or
as a partner, shareholder, or officer of an organization that has a
relationship with the company), and emphasizes that the concern is
independence from management. The board is also required, on a case
by case basis, to express an opinion with regard to the
independence or lack of independence, of each individual
director.
Pursuant to CNV
Rules, a director is not independent if such director
is:
(a) a
member of management or an employee of shareholders who hold
material holdings in the listed company or of other entities in
which these shareholders have material holdings or over which these
shareholders exercise a material influence;
(b) is
currently an employee or has, in the last three years, been an
employee of the listed company;
(c) a
person who has a professional relationship or is part of a company
or professional association that maintains professional relations
with, or that receives remunerations or fees (other than
directors’ fees) from, the listed company or from
shareholders that have material holdings in the listed company, or
with a company in which such shareholders have material holdings or
exercise a material influence;
(d) a
person who has material holdings in the listed company or in an
entity that has material holdings in, or exercises a material
influence over, the listed company;
(e) a
person who directly or indirectly provides goods or services to the
listed company or to shareholders that have material holdings in or
exercise a material influence over the listed company and receives
compensation for such services that is substantially higher than
that received as director of the listed company;
(f) the
member is married or is a family member to an individual who would
not qualify as independent.
(g) the member is
the director, CEO, administrator or principal executive from a
non-profit organization which had received funds for amounts
exceeding those established by Resolution No. 30/2011
of the UIF
(currently equivalent to Ps.300,000), coming from the company, or a
parent company;
(h) a person who
receive any payments from the company or group companies other than
fees as a director or dividends as shareholder; or
(i) a member of the
administrative or supervisory committee and/or hold a significant
participation (directly or indirectly) with respect to one or more
companies that are registered as Agente de Negociación, Agente
de Liquidación y Compensación y/o Agente de Corretaje de
Valores Negociables.
It is necessary to
comply with the conditions of independence for at least three years
before the designation as a director.
The independent
directors will cease to be independent after 10 years of holding
its position of directors, and will be restored with its status of
independent three years after leaving office.
“Material
holdings” are shareholdings, either directly or indirectly,
that represent at least 5% of the capital stock of the relevant
entity, or a smaller percentage when the person has the right to
elect one or more directors per class of shares or by having
entered into agreements with other shareholders relating to the
governance and the management of the relevant entity or of its
controlling shareholders.
232
303A.03
The non-management
directors of a listed company must meet at regularly scheduled
executive sessions without management.
Neither Argentine
law nor our bylaws require the holding of such meetings and we do
not hold non-management directors meetings.
The Argentine
Corporate Law provides, however, that the board shall meet at least
once every three months, and according to our bylaws, whenever the
chairman considers necessary to convene for a meeting.
303A.04
A listed company
must have a nominating/corporate governance committee composed
entirely of independent directors, with a written charter that
covers certain minimum specified duties. “Controlled
companies” are not required to comply with this
requirement.
Neither Argentine
law nor our bylaws require the establishment of a
nominating/corporate governance committee. We do not have a
nominating/corporate governance committee.
Directors are
nominated and appointed by the shareholders.
303A.05
A listed company
must have a compensation committee composed entirely of independent
directors, with a written charter that covers certain minimum
specified duties. “Controlled companies” are not
required to comply with this requirement.
Neither Argentine
law nor our bylaws require the establishment of a compensation
committee. We do not have a compensation committee.
The compensation of
our directors is determined at the annual ordinary
shareholders’ meeting. Additionally, the audit committee must
issue an opinion regarding the reasonableness and adequacy of such
compensation.
303A.06*
A listed company
must have an audit committee with a minimum of three independent
directors who satisfy the independence requirements of Rule 10A-3,
with a written charter that covers certain minimum specified
duties.
Argentine law
requires the audit committee be composed of three or more members
from the board of directors (with a majority of independent
directors), all of whom must be well-versed in business, financial
or accounting matters. In addition, we are required to satisfy the
audit committee requirements of Rule 10A-3.
The
responsibilities of an audit committee, as provided in Law No.
26,831 and the CNV standards, are essentially the same as those
provided for under Rule 10A-3, including, but not limited to, the
following:
(a) advise
on the board of directors’ proposal for the designation of
external independent accountants and to ensure their
independence;
(b) oversee
our internal control mechanisms and administrative and accounting
procedures and assess the reliability of all financial and other
relevant information filed with the CNV and other entities to which
we report;
(c) oversee
our information policies concerning risk management;
(d) provide
the market with complete information on transactions in which there
may be a conflict of interest with members of our various corporate
bodies or controlling shareholders;
(e) advise
on the reasonableness of fees or stock option plans for our
directors and managers proposed by the board of
directors;
(f) advise
on our fulfillment of legal requirements and the reasonableness of
the terms of the issuance of shares or other instruments that are
convertible into shares in cases of capital increase in which
pre-emptive rights are excluded or limited;
(g) verify
the fulfillment of any applicable rules of conduct;
and
(h) issue
grounded opinions on related-party transactions under certain
circumstances and file such opinions with regulatory agencies as
required by the CNV in the case of possible conflicts of
interest.
233
303A.08
Shareholders must
be given the opportunity to vote on all equity-compensation plans
and material revisions thereto, with limited exemptions set forth
in the NYSE rules.
The basic terms for
any equity-based compensation plan should be considered by the
general shareholders’ meeting, notwithstanding its power to
delegate any decision to the board of directors. We do not
currently offer equity-based compensation to our directors,
executive officers or employees, and have no policy on this
matter.
303A.09
A listed company
must adopt and disclose corporate governance guidelines that cover
certain minimum specified subjects.
Neither Argentine
law nor our bylaws require the adoption or disclosure of corporate
governance guidelines. The CNV Rules contain a recommended Code of
Corporate Governance for listed companies and the board of
directors must include on its annual report, the degree of
compliance of such code. We have adopted, as of May 26, 2011, a
corporate governance manual.
303A.10
A listed company
must adopt and disclose a code of business conduct and ethics for
directors, officers and employees, and promptly disclose any
waivers of the code for directors or executive
officers.
Neither Argentine
law nor our bylaws require the adoption or disclosure of a code of
business conduct. We, however, have adopted a code of business
conduct and ethics that applies to all of our
employees.
303A.12
a) Each listed
company CEO must certify to the NYSE each year that he or she is
not aware of any violation by the company of NYSE corporate
governance listing standards.
b)* Each listed
company CEO must promptly notify the NYSE in writing after any
executive officer of the listed company becomes aware of any
non-compliance with any applicable provisions of this Section
303A.
c)* Each listed
company must submit an executed Written Affirmation annually to the
NYSE. In addition, each listed company must submit an interim
Written Affirmation as and when required by the interim Written
Affirmation form specified by the NYSE.
The CNV Rules
provide that each year the board of directors shall include in the
annual report included in the financial statement, a report on the
degree of compliance with the code of corporate governance for
listed companies included in the CNV Rules. In such report, which
shall be submitted to the CNV and published for the general public,
the board of directors must: (i) inform if it fully complies with
the guidelines and recommendations of the aforementioned code of
corporate governance; or (ii) explain the reasons for which it
complies only partially or it does not comply with such principles
and recommendations, and indicate if the company intends to
incorporate the principles and guidelines it failed to adopt. To
such end, the company must (a) adopt the principles as general
corporate governance guidelines and the recommendations as a
framework to adopt the principles within the company; (b) notify
compliance with each of the recommendations included in the
Corporate Governance Manual; (c) in case of compliance include the
required information in accordance with CNV Rules; and (d) in case
of partial or non-compliance, justify such event and indicate the
action plan for future years, or an indication of the reasons for
which the board of directors does not consider appropriate or
applicable to follow the recommendations and guidelines provided in
the CNV Rules.
* We are
required to comply with these rules under the NYSE Listed Company
Manual
* We are
required to conform the structure of the Board of Directors to the
independence criteria established in article 11, Chapter III, Title
II of the CNV Rules by the first shareholders meeting held after
December 31, 2018.
Item
16.H. Mine Safety Disclosure
Not
applicable.
Item
17. Financial Statements
The Company has
responded to Item 18 in lieu of responding to this Item
17.
234
Item
18. Financial Statements
Our audited
consolidated financial statements are included in this annual
report beginning at Page F-1.
Form of deposit
agreement among Central Puerto S.A., Citibank, N.A. and the holders
and beneficial owners of ADSs issued thereunder (incorporated by
reference to our registration statement on Form F-6 (File No.
333-222584) filed with the Commission on January 17,2018).
English translation
of the Shareholders Agreement of CP Renovables S.A., dated as of
January 18, 2017, among Central Puerto S.A. and Guillermo Pablo
Reca (incorporated by reference to Exhibit 10.1 of our registration
statement on Form F-1 (File No. 333-222402), as amended, filed with
the Commission on January 3, 2018).
Guarantee and
Sponsor Support Agreement, dated as of December 22, 2017, among CP
La Castellana S.A.U., as Borrower, CP Renovables S.A., as Sponsor
and Shareholder, Central Puerto S.A., as Sponsor Guarantor and
Shareholder, the Inter-American Investment Corporation, the
Inter-American Investment Corporation, acting as agent for the
Inter-American Development Bank, the Inter-American Investment
Corporation, in its capacity as administrator of the Canadian
Climate Fund for the Private Sector of the Americas, the
International Finance Corporation, as Senior Lenders, The Eligible
Hedge Providers Listed Therein, and Citibank, N.A., as Offshore
Collateral Agent (incorporated by reference to Exhibit 10.2 of our
registration statement on Form F-1 (File No. 333-222402), as
amended, filed with the Commission on January 3,2018).
Common Terms
Agreement (the “Common Terms Agreement”), dated as of
October 20, 2017, among CP La Castellana S.A.U., the Inter-American
Investment Corporation, the Inter-American Investment Corporation,
acting as agent for the Inter-American Development Bank, the
Inter-American Investment Corporation, as agent of the
Inter-American Development Bank, in its capacity as administrator
of the Canadian Climate Fund for the Private Sector of the
Americas, and the International Finance Corporation (incorporated
by reference to Exhibit 10.3 of our registration statement on Form
F-1 (File No. 333-222402), as amended, filed with the Commission on
January 3, 2018).
Loan Agreement,
dated as of October 20, 2017, among CP La Castellana S.A.U., the
Inter-American Investment Corporation, the Inter-American
Investment Corporation, acting as agent for the Inter-American
Development Bank, and the Inter-American Investment Corporation, as
agent of the Inter-American Development Bank, in its capacity as
administrator of the Canadian Climate Fund for the Private Sector
of the Americas (incorporated by reference to Exhibit 10.5 of our
registration statement on Form F-1 (File No. 333-222402), as
amended, filed with the Commission on January 3,2018).
Loan Agreement,
dated as of October 20, 2017, among CP La Castellana S.A.U. and the
International Finance Corporation (incorporated by reference to
Exhibit 10.6 of our registration statement on Form F-1 (File No.
333-222402), as amended, filed with the Commission on January 3,2018).
English translation
of Agreement for Project Management and Operation, Increase of
Thermal Generation Availability and Adaptation of Remuneration for
Generation 2008-2011, dated as of November 25, 2010, among the
Secretary of Energy of the Ministry of Federal Planification,
Public Investment and Services, and the generators named therein
(the “FONINVEMEM Arrangement for CVOSA”) (incorporated
by reference to Exhibit 10.7 of our registration statement on Form
F-1 (File No. 333-222402), as amended, filed with the Commission on
January 3, 2018).
English translation
of Addendum No. 1 to the Agreement for Project Management and
Operation, Increase of Thermal Generation Availability and
Adaptation of Remuneration for Generation 2008-2011, dated as of
April 12, 2011, among the Secretary of Energy of the Ministry of
Federal Planification, Public Investment and Services, and the
generators named therein (incorporated by reference to Exhibit 10.8
of our registration statement on Form F-1 (File No. 333-222402), as
amended, filed with the Commission on January 3,2018).
English translation
of Addendum No. 2 to the Agreement for Project Management and
Operation, Increase of Thermal Generation Availability and
Adaptation of Remuneration for Generation 2008-2011, dated as of
June 25, 2012, among the Secretary of Energy of the Ministry of
Federal Planification, Public Investment and Services, and the
generators named therein (incorporated by reference to Exhibit 10.9
of our registration statement on Form F-1 (File No. 333-222402), as
amended, filed with the Commission on January 3,2018).
English translation
of Final Agreement for the Management and Operation of Projects for
the Reconversion of the MEM Under the Scope of Resolution 1427/2004
Issued by the Secretariat of Energy, as dated October 17, 2005,
among the Argentine Secretary of Energy and the generators named
therein (the “FONINVEMEM Arrangement for TJSM and TMB”)
(incorporated by reference to Exhibit 10.10 of our registration
statement on Form F-1 (File No. 333-222402), as amended, filed with
the Commission on January 3, 2018).
English translation
of the Offer to Transfer the La Plata Steam and Electric Power
Cogeneration Plant, dated as of December 15, 2017, from Central
Puerto S.A. to YPF Energía Eléctrica S.A. (incorporated
by reference to Exhibit 10.11 of our registration statement on Form
F-1 (File No. 333-222402), as amended, filed with the Commission on
January 3, 2018).
Common Terms
Agreement, dated as of January 17, 2018, among CP Achiras S.A.U.,
the Inter-American Investment Corporation, the Inter-American
Investment Corporation, acting as agent for the Inter-American
Development Bank, the Inter-American Investment Corporation, as
agent of the Inter-American Development Bank, in its capacity as
administrator of the Canadian Climate Fund for the Private Sector
of the Americas, and the International Finance Corporation
(incorporated by reference to Exhibit 10.12 of our registration
statement on Form F-1 (File No. 333-222402), as amended, filed with
the Commission on January 3, 2018).
Loan Agreement,
dated as of January 17, 2018, among CP Achiras S.A.U., the
Inter-American Investment Corporation, the Inter-American
Investment Corporation, acting as agent for the Inter-American
Development Bank, and the Inter-American Investment Corporation, as
agent of the Inter-American Development Bank, in its capacity as
administrator of the Canadian Climate Fund for the Private Sector
of the Americas (incorporated by reference to Exhibit 10.13 of our
registration statement on Form F-1 (File No. 333-222402), as
amended, filed with the Commission on January 3,2018).
Loan Agreement,
dated as of January 17, 2018, among CP Achiras S.A.U. and the
International Finance Corporation (incorporated by reference to
Exhibit 10.14 of our registration statement on Form F-1 (File No.
333-222402), as amended, filed with the Commission on January 3,2018).
Guarantee and
Sponsor Support Agreement, dated as of February 22, 2018, among CP
Achiras S.A.U., as Borrower, CP Renovables S.A., as Sponsor and
Shareholder, Central Puerto S.A., as Sponsor Guarantor and
Shareholder, the Inter-American Investment Corporation, the
Inter-American Investment Corporation, acting as agent for the
Inter-American Development Bank, the Inter-American Investment
Corporation, in its capacity as administrator of the Canadian
Climate Fund for the Private Sector of the Americas, the
International Finance Corporation, as Senior Lenders, and Citibank,
N.A., as Offshore Collateral Agent (incorporated by reference to
Exhibit 4.15 of our annual report on Form 20-F (File No.
001-38376), filed with the Commission on April 27,2018).
Wind Farm Omnibus
Amendment and Agreement, dated March 16, 2018, among CP Achiras
S.A.U., the Inter-American Investment Corporation, the
Inter-American Investment Corporation, acting as agent for the
Inter-American Development Bank, the Inter-American Investment
Corporation, as agent of the Inter-American Development Bank, in
its capacity as administrator of the Canadian Climate Fund for the
Private Sector of the Americas, and the International Finance
Corporation (incorporated by reference to Exhibit 4.16 of our
annual report on Form 20-F (File No. 001-38376), filed with the
Commission on April 27, 2018).
English translation
of the terms and conditions of the amended and restated
Shareholders Agreement of CP Renovables S.A., dated as of November28, 2018, among Central Puerto S.A. and Guillermo Pablo Reca
(incorporated by reference to Exhibit 2 of our current report on
Form 6-K furnished with the Commission on November 28,2018).
Code of Ethics of
Central Puerto S.A., as amended (incorporated by reference to
Exhibit 11.1 of our annual report on Form 20-F (File No.
001-38376), filed with the Commission on April 27,2018)
The registrant
hereby certifies that it meets all of the requirements for filing
on Form 20-F/A and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Shareholders and Board of Directors of Central Puerto
S.A.:
Opinion on the Financial Statements
We have
audited the accompanying consolidated statements of financial
position of Central Puerto S.A. (the “Company”) as of
December 31, 2019 and 2018, the related consolidated statements of
income, comprehensive income, changes in equity and cash flows for
each of the three years in the period ended December 31, 2019, and
the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 2019 and 2018, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 2019, in conformity with International Financial
Reporting Standards as issued by the International Accounting
Standards Board.
We also
have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States)
(“PCAOB”), the Company's internal control over
financial reporting as of December 31, 2019, based on criteria
established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated April 24, 2020 expressed an
unqualified opinion thereon.
Basis for Opinion
These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matter
The
critical audit matter communicated below is a matter arising from
the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit
committee and that relates to accounts or disclosures that are
material to the financial statements, and involved our especially
challenging, subjective, or complex judgments. The communication of
the critical audit matter does not alter in any way our opinion on
the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
●
Impairment of property, plant and equipment and intangible
assets
Description
of the Matter
As
reflected in the Company´s consolidated financial statements,
at December 31, 2019, the Company´s property, plant and
equipment (“PP&E”) and intangible assets were
Argentine pesos (“Ps.”) 56,697 million and Ps. 7,069
million, respectively. As further described in Note 2.2.8 to the
consolidated financial statements, PP&E and intangible assets
are tested for impairment when an existing event or one that took
place after year end, and provides additional evidence of
conditions that existed at the end of the reporting period,
indicates than the recoverable value of the PP&E and/or
intangible assets amounts may be affected. For each individual
asset or cash generating unit (“CGU”) for which
impairment indicators are identified, management estimates the
recoverable amount for the asset or CGU, which is the higher of the
fair value less costs to sell and its value in use, and compares it
to the respective carrying amount. The Company estimated the fair
value less cost to sell of Turbines based on external
specialists’ valuations. The value in use for the
Company´s CGUs was estimated based on discounted future cash
flows. During 2019, the Company recorded a Ps. 3,328 million
impairment loss on PP&E related to Brigadier López Thermal
Generation Station and certain Turbines and a Ps. 1,077 million
impairment loss on its intangible assets related to the Brigadier
López Thermal Generation Station.
Auditing this area
is especially challenging because involves a high degree of auditor
judgment in performing procedures to evaluate management
assumptions to determine the fair value less cost to sell and value
in use, such as prospective financial information (including market
inputs used in the determination of certain assets fair value ,
expected inflation and exchange rates, the estimated growth in
energy market, future electricity prices and developments in the
regulatory framework) and the discount rate, which are
forward-looking and based upon expectations about future economic
and market conditions.
F-1
How
We Addressed the Matter in Our Audit
We
obtained an understanding, evaluated the design, and tested the
operating effectiveness of controls over the Group’s
impairment assessment process, including controls over
management’s review of the significant assumptions described
above, the completeness and accuracy of the underlying data and
over the consistency of the discounted cash flow model used by the
Group.
To test
the management impairment evaluation our audit procedures included,
among others, assessing the methodologies used by management and
involving our internal valuation specialists to assist in testing
the significant assumptions discussed above and testing the
valuations in which the Company based its determination of fair
value less cost to sell and testing the accuracy of the underlying
data used by the Company in the value in use analysis. For example,
we compared the significant assumptions used by management, such as
expected inflation and exchange rates, future energy prices to
current available economic trends data and known regulatory
framework, and evaluated whether changes to the Group’s
estimation model or other factors affected the significant
assumptions. We also assessed the historical accuracy of
management’s estimates and performed sensitivity analyses to
evaluate the changes in the value in use that would result from
changes in the underlying assumptions and tested the arithmetical
accuracy and internal logic of the discounted cash flows model. We
also assessed the completeness of the related disclosures in the
consolidated financial statements.
/s/
PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L.
Member
of Ernst & Young Global
We have
served as the Company’s auditor since 2002.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Shareholders and the Board of Directors of Central Puerto
S.A.
Opinion on Internal Control Over Financial Reporting
We have audited Central Puerto S.A. internal
control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework), (the COSO criteria). In our opinion, Central
Puerto S.A. (the Company) maintained, in all material respects,
effective internal control over financial reporting as of December31, 2019, based on the COSO criteria.
We
also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States) (PCAOB), the
consolidated statements of financial position of Central Puerto
S.A. as of December 31, 2019 and 2018, the related consolidated
statements of income, comprehensive income, changes in equity and
cash flows for each of the three years in the period ended December31, 2019, and the related notes, and our report dated April 24,2020 expressed an unqualified opinion thereon.
Basis for Opinion
The
Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material
respects.
Our
audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control Over Financial
Reporting
A
company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with
authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Income for the year
before income tax from continuing operations
14,406,097
36,171,554
8,541,309
Income for the year
before income tax from discontinued operations
-
505,823
1,817,207
Income for the year
before income tax
14,406,097
36,677,377
10,358,516
Adjustments
to reconcile income for the year before income tax to net cash
flows:
Depreciation of
property, plant and equipment
1,969,717
1,757,620
1,849,230
Loss (gain) on
replacement/disposal of property, plant and equipment
-
160,567
2,078
Impairment of
property, plant and equipment and intangible assets
4,404,442
-
-
Amortization of
intangible assets
1,421,176
537,912
635,385
Discount of
accounts receivables and payables, net
223,885
-
-
CVO receivables
update
-
(16,947,737)
-
Interest earned
from customers
(6,435,008)
(2,497,175)
(673,144)
Finance
income
(3,600,707)
(3,507,676)
(2,397,964)
Finance
expenses
15,924,867
9,692,797
1,846,995
Share of the profit
of associates
(1,113,297)
(1,652,445)
(1,804,460)
Material and spare
parts impairments
31,568
(3,780)
7,930
Share-based
payments
48,557
20,566
-
Movements in
provisions, and long-term employee benefit plan
expense
81,098
-
239,642
Foreign exchange
difference for trade receivables
(11,912,288)
(17,542,426)
(179,521)
Income from the
sale of La Plata plant
-
(720,705)
-
Loss on net
monetary position
(11,925,746)
(4,533,355)
(1,179,750)
Working
capital adjustments:
Decrease (Increase)
in trade and other receivables
12,768,727
7,979,436
(854,648)
(Increase) Decrease
in other non-financial assets and inventories
(1,193,298)
(47,303)
(528,437)
Increase (Decrease)
in trade and other payables, other non-financial liabilities and
liabilities from employee benefits
1,717,860
2,781,707
(83,817)
16,817,650
12,155,380
7,238,035
Interest received
from customers
4,831,912
68,237
183,511
Income tax
paid
(9,675,737)
(6,522,549)
(1,787,177)
Net
cash flows provided by operating activities
11,973,825
5,701,068
5,634,369
Investing
activities
Purchase of
property, plant and equipment
(17,504,542)
(10,705,125)
(8,821,999)
Acquisition of
thermal Station Brigadier López
(8,466,454)
-
-
Cash flows
generated from the sale of the La Plata plant
-
962,845
-
Dividends
received
737,068
1,492,304
91,484
Sale of financial
assets, net
(2,670,381)
450,174
3,682,929
(Purchase) Sale of
investments in associates
-
-
(14)
Net
cash flows used in investing activities
(27,904,309)
(7,799,802)
(5,047,600)
Financing
activities
Bank and investment
accounts overdrafts received (paid), net
1,468,059
(35,595)
(1,675,341)
Loans
received
20,726,175
6,730,134
4,370,123
Loans
paid
(1,157,931)
(3,222,956)
(2,545,609)
Borrowings received
from CAMMESA
-
-
1,574,572
Interest and other
financial costs paid
(2,965,780)
(709,849)
(109,308)
Dividends
paid
(1,132,143)
(2,180,788)
(2,905,937)
Contributions from
non-controlling interests
193,913
476,517
765,719
Net
cash flows provided by (used in) financing activities
17,132,293
1,057,463
(525,781)
Increase
(Decrease) in cash and cash equivalents
1,201,809
(1,041,271)
60,988
Exchange difference
and other financial results
634,961
2,048,075
103,034
Monetary results
effect on cash and cash equivalents
(696,637)
(854,379)
(47,774)
Cash and cash
equivalents as of January 1
353,735
201,310
85,062
Cash
and cash equivalents as of December 31
1,493,868
353,735
201,310
F-8
CENTRAL PUERTO S.A.
1.
Corporate
information and main business
Central
Puerto S.A. (hereinafter the “Company”,
”we”, “us” or “CEPU”) and the
companies that make up the business group (hereinafter the
“Group”) form an integrated group of companies
pertaining to the energy sector. The Group is mainly engaged in
electric power generation and commercialization.
CEPU
was incorporated pursuant to Executive Order No. 122/92. We were
formed in connection with privatization process involving Servicios
Eléctricos del Gran Buenos Aires S.A. (“SEGBA”) in
which SEGBA’s electricity generation, transportation,
distribution and sales activities were privatized.
On
April 1, 1992, Central Puerto S.A., the consortium-awardee, took
possession over SEGBA’s Nuevo Puerto and Puerto Nuevo plants,
and we began operations.
The
Company's shares are listed on the BCBA (“Buenos Aires Stock
Exchange”), and, since February 2, 2018, they are listed on
the NYSE (“New York Stock Exchange”), both under the
symbol “CEPU”.
In
order to carry out its electric energy generation activity the
Group owns the following assets:
–
Our Puerto complex
is composed of two facilities, Central Nuevo Puerto (“Nuevo
Puerto”) and Central Puerto Nuevo (“Puerto
Nuevo”), located in the port of the City of Buenos Aires. Our
Puerto complex’s facilities include steam turbines plants and
a Combined Cycle plant and has a current installed capacity of
1,714 MW.
–
Our Luján de
Cuyo plant is located in Luján de Cuyo, Province of Mendoza
and has an installed capacity of 595 MW and a steam generating
capacity of 125 tons per hour.
–
The Group also owns
the concession right of the Piedra del Águila hydroelectric
power plant located at the edge of Limay river in Neuquén
province. Piedra del Águila has four 360 MW generating
units.
–
The Group is
engaged in the management and operations of the thermal plants
José de San Martín and Manuel Belgrano through its equity
investees Termoeléctrica José de San Martín S.A.
(“TJSM”) and Termoeléctrica General Belgrano S.A.
(“TMB”). Those entities operate the two thermal
generation plants with an installed capacity of 865 MW and 873 MW,
respectively. Additionally, through its subsidiary Central Vuelta
de Obligado S.A. (“CVO”) the Group is engaged in the
operation of the thermal plant Central Vuelta de Obligado, with an
installed capacity of 816 MW.
–
The thermal station
Brigadier López located in Sauce Viejo, Province of Santa Fe,
with an installed power of 280.5 MW (open-cycle operation). See
Note 22.10.
The
Group is also engaged in the natural gas distribution public sector
service in the Cuyo and Centro regions in Argentina, through its
equity investees belonging to ECOGAS Group.
Through
its subsidiary Proener S.A., the Group sells and transports any
type of fuels both in the country and abroad. Moreover, on July 19,2018, the National Gas Regulation Entity (Enargas) filed the
Company with the Registry of Traders and Trade Agreements of
Enargas.
Moreover,
as of the incorporation of CP Renovables S.A. (“CPR”)
and its subsidiaries, Vientos La Genoveva S.A.U. and Vientos La
Genoveva II S.A.U. the Group takes part on the development and
performance of energy projects based on the use of renewable energy
sources.
During
2018, the wind farms belonging to CP La Castellana S.A.U. and CP
Achiras S.A.U. (CPR subsidiaries) were commissioned, with a
capacity of 100.8 MW and 48 MW, respectively. In this sense, on
July 17, 2019 the wind farm “La Castellana II”
belonging to CPR Energy Solutions S.A.U. (a CPR subsidiary)
was commissioned, with
a capacity of 14.4 MW. Also, on September 14, 2019 the wind farm
belonging to the subsidiary Vientos La Genoveva II S.A.U. was
commissioned, with a capacity of 41.8 MW. Finally, on December 7,2019 the wind farm belonging to CP Manque S.A.U. (a CPR subsidiary)
was commissioned, with a capacity of 38 MW being the total
projected capacity of 57 MW; then, on January 23, 2020 the
commissioned capacity was extended to 53.2 MW; and finally, on
March 3, 2020 the remaining capacity was commissioned completing
the total 57 MW.
F-9
CENTRAL PUERTO S.A.
Subsequent
to fiscal year end, during February 2020 the wind farm belonging to
CP Los Olivos S.A.U. (a CPR subsidiary) was commissioned, with a
capacity of 22.8 MW.
1.1.
Overview
of Argentine Electricity Market
Transactions
among different participants in the electricity industry take place
through the wholesale electricity market (“WEM”) which
is a market in which generators, distributors and certain large
users of electricity buy and sell electricity at prices determined
by supply and demand (“Term market”) and also, where
prices are established on an hourly basis based on the economic
production cost, represented by the short term marginal cost
measured at the system’s load center (“Spot
market”). CAMMESA (Compañía Administradora del
Mercado Mayorista Eléctrico Sociedad Anónima) is a
quasi-government organization that was established to administer
the WEM and functions as a clearing house for the different market
participants operating in the WEM. Its main functions include the
operation of the WEM and dispatch of generation and price
calculation in the Spot market, the real-time operation of the
electricity system and the administration of the commercial
transactions in the electricity market.
Following
Argentina’s economic crisis in 2001 and 2002 the costs of
generators were increasing as a result of the devaluation of the
Argentine peso and increasing fuel prices. As a result of the
freeze in end user tariffs combined with the higher generation
costs, CAMMESA began experiencing deficits as it was not able to
collect from the end users (via distributors) the full price of
electricity it owed to the generators. Given this structural
deficit, CAMMESA passed a series of regulations to keep the
electrical system operating despite the structural
deficit.
1.2.
Amendments
to WEM regulations
a)
Resolution
SE No. 406/03 and other regulations related to WEM
generators’ receivables
Resolution
406/03 issued in September 2003 enforced priority payments of
generator’s balances. Under the priority payment plan,
generators only collected the variable generation costs declared
and the payments for power capacity and the remaining payments on
these plants were delayed as there were not sufficient funds as a
result of the structural deficit. Resolution 406/03 established
that the resulting monthly obligations to generators for the unpaid
balance were to be considered payments without a fixed due date, or
“LVFVD receivables” using the Spanish acronym. Although
these obligations did not have a specified due date, the Resolution
provided that they would earn interest at an equivalent rate to the
one received by CAMMESA on its own cash investments, hereafter
“the CAMMESA rate”.
As a
result of this regulation, a portion of the invoices issued by
Company’s plants were not paid in full beginning in
2004.
Between
2004 and 2007, the Argentine government issued a series of
resolutions aimed at increasing thermal generation capacity while
at the same time providing a mechanism for generators to collect
their LVFVD receivables. These resolutions created funds called the
“FONINVEMEM” which were administered by trusts
(“the FONINVEMEM trust”) and made investments in two
thermal generation plants within Argentina. All WEM creditor agents
with LVFVD (including the Company) were invited to state formally
their decision to participate in forming the FONINVEMEM. The
Company, as most LVFVD generators, stated its decision to
participate in the creation of the FONINVEMEM with the
abovementioned receivables.
F-10
CENTRAL PUERTO S.A.
Within
this framework, generators created the companies
Termoeléctrica José de San Martín S.A.
(“TSM”) and Termoeléctrica Manuel Belgrano S.A.
(“TMB”), which are engaged in managing the purchase of
equipment, and building, operating and maintaining each new power
plant.
Under
these Resolutions, the FONINVEMEM trusts are the owner of the
Central Termoeléctrica San Martin and Central
Termoeléctrica Belgrano plants during the first ten years of
operations. Trusts are aimed at administrating, each of them, 50%
of the resources accrued under FONINVEMEM and other funds for the
purpose of financing the power stations. Under these agreements,
CAMMESA acts as a Trustor, Banco de Inversión y Comercio
Exterior (“BICE”) as Trustee, the Secretariat of Energy
as regulatory authority and TSM and TMB as Trust Beneficiaries and
the Company, with the remaining shareholders of TSM and TMB, as
guarantors of the obligations of the latter.
The
trust agreements had to remain in force until the termination date
of the supply agreement that the Trustee - in representation of the
Trust - entered into with CAMMESA - as the purchasing party - that
had to remain valid for 10 years as from the date of the commercial
authorization of the power stations. Upon the termination of that
term, the trust assets must be transferred to TSM and TMB provided
that, prior to such transference, TSM and TMB and their
shareholders perform all the corporate acts necessary to allow
private contributors and/or the Argentine Government to receive
their correspondent shares in the capital of the power stations
pursuant to the terms of the agreement. Failure to comply with this
condition, holders of interest certificates (Argentine Government)
and the generators who are the current shareholders of TSM and TMB
shall be deemed as trust beneficiaries.
The
FONINVEMEM agreements established that the receivables mentioned
above will be paid by CAMMESA in 120 equal, consecutive monthly
installments commencing on the commercial operation date of the
plants. Also, the agreements established that the LVFVD receivables
would be collected converted to US dollar and began earning
interest at LIBOR plus a spread of 1% and 2%.
Once
Manuel Belgrano and San Martin plants were commissioned (on January7, 2010 and February 2, 2010, respectively), CAMMESA began paying
the LVFVD receivables. On May 2010, CAMMESA informed the Company of
the payment plan, including the amount of accrued interest at the
CAMMESA rate which was added to the principal to be repaid in
monthly installments over a ten-year period. Upon receipt of the
payment schedule, the Company recognized accrued interest (related
to the CAMMESA rate). The Company also began recognizing LIBOR
interest income based on the contractual rate provided in the
Resolution and the conversion of the receivables into US dollar.
Since achieving commercial operations in 2010, CAMMESA have made
all scheduled contractual principal and interest payments in
accordance with the installment plan.
On
January 7, 2020, the supply agreement with TMB was terminated and
on February 2, 2020, the supply agreement with TSM was terminated,
therefore payments of the final installment of the 120 established
in the agreement for each power stations ceased. As a result, the
reimbursement for the LVFVD receivables is deemed completed. In
Note 3.1, the events that occurred after the termination of the
supply agreements with TMB and TSM are included.
Additionally,
in 2010 the Company approved a new agreement with the former
Secretariat of Energy (Central Vuelta Obligado, the “CVO
agreement”). This agreement established, among other
agreements, a framework to determine a mechanism to settle unpaid
trade receivables as per Resolution 406/03 accrued over the 2008 -
2011 period by the generators (“CVO receivables”) and
for that purpose, enabling the construction of a thermal combined
cycle plant named Central Vuelta de Obligado. The CVO agreement
established that the CVO receivables will be paid by CAMMESA in 120
equal and consecutive monthly installments. For the determination
of the novation of CVO credits, the following mechanism was
applied: the cumulative LVFVD (sale settlements with due date to be
defined) were converted to USD at the exchange rate established in
the agreement (ARS 3.97 per USD for the cumulative LVFVD until the
execution date of the CVO Agreement and the closing exchange rate
corresponding to each month for the LVFVD subsequently
accumulated), the LIBOR rate was applied plus a 5%
margin.
F-11
CENTRAL PUERTO S.A.
As from
March 20, 2018, CAMMESA granted the commercial operations as a
combined cycle of Central Vuelta de Obligado thermal power plant
(the “Commercial Approval”). The financial impact of
the Commercial Approval is described in Note 14.1.
Under
the agreement mentioned above, generators created the company
Central Vuelta de Obligado S.A., which is in charge of managing the
purchase of equipment, construction, operation and maintenance of
the Central Vuelta de Obligado thermal power plant.
On
March 26, 2013, the former Secretariat of Energy released
Resolution No. 95/2013 (“Resolution 95”), which affects
the remuneration of generators whose sales prices had been frozen
since 2003. This new regulation, which modified the current
regulatory framework for the electricity industry, is applicable to
generators with certain exceptions. It defined a new compensation
system based on compensating for fixed costs, non-fuel variable
costs and an additional remuneration. Resolution 95 converted the
Argentine electric market towards an “average cost”
compensation scheme. Resolution 95 applied to all Company’s
plants, excluding La Plata plant, which also sells energy in excess
of YPF’s demand on the Spot market pursuant to the framework
in place prior to Resolution 95.
In
addition, Resolution 95 addressed LVFVD receivables not already
included in any one of the FONINVEMEM trusts.
Thermal
units must achieve an availability target which varies by
technology in order to receive full fixed cost revenues. The
availability of all Company’s plants exceeds this market
average. As a result of Resolution 95, revenues to Company’s
thermal units increased, but the impact on hydroelectric plant
Piedra del Águila is dependent on hydrology. The new
Resolution also established that all fuels, except coal, are to be
provided by CAMMESA.
The
resolution also established that part of the additional
remuneration shall be not collected in cash rather it is
implemented through LVFDV and will be directed to a “New
Infrastructure Projects in the Energy Sector” which need to
be approved by the former Secretariat of the Energy.
Finally,
Resolution 95 suspended the inclusion of new contracts in the Term
market as well as their extension or renewal. Notwithstanding the
foregoing, contracts in force as at the effective date of
Resolution 95 will continue being managed by CAMMESA upon their
termination. As from such termination, large users should acquire
their supplies directly from CAMMESA. Also, Resolution 95
temporarily suspended the acquisition of fuel by the generation
agents. All fuel purchases for the generation of electric power are
centralized through CAMMESA.
On May23, 2014, the Official Gazzette published Resolution No. 529/2014
issued by the former Secretariat of Energy (“Resolution
529”) which retroactively updated the prices of Resolution 95
to February 1, 2014, changed target availability and added a
remuneration for non-recurrence maintenance. This remuneration is
implemented through LVFDV and is aimed to cover the expenses that
the generator incurs when performing major maintenances in its
units.
On July17, 2015, the Secretariat of Electric Energy set forth Resolution
No. 482/2015 (“Resolution 482”) which retroactively
updated the prices of Resolution 529 to February 1, 2015, and
created a new trust called “Recursos para las inversiones del
FONINVEMEM 2015-2018” in order to invest in new generation
plants. Company’s plants would receive compensation under
this program.
Finally,
on March 30, 2016, through Resolution No. 22/2016
(“Resolution 22”), the values set by Resolution 482
were updated to become effective as from the transactions of
February 2016.
F-12
CENTRAL PUERTO S.A.
c)
Resolution
No. 19/2017
On
January 27, 2017, the Secretariat of Electric Energy
(“SEE”) issued Resolution SEE No. 19/17 (published in
the Official Gazette on February 2, 2017) (Resolution 19), which
replaced Resolution 95, as amended. This resolution changes
electric energy generators remuneration methodology for
transactions operated since February 1, 2017.
Resolution
19 substantially amended the tariff scheme applicable, which was
previously governed by Resolution 22. Among its most significant
provisions, such resolution established: (a) that generation
companies would receive a remuneration of electric power generated
and available capacity, (b) gradual increases in tariffs effective
as of February, May and November 2017, (c) that the new tariffs
would be denominated in U.S. dollars, instead of Argentine pesos,
thus protecting generation companies from potential fluctuations in
the value of the Argentine peso and (d) 100% of the energy sales
are collected in cash by generators, eliminating the creation of
additional LVFVD receivables.
Pursuant
to this resolution, the Secretariat of Electric Energy established
that electricity generators, co- generators and self-generators
acting as agents in the WEM and which operate conventional thermal
power plants, may make guaranteed availability offers (ofertas de
disponibilidad garantizada) in the WEM. Pursuant to these offers,
these generation companies may commit specific capacity and power
output of the generation, provided that such capacity and energy
had not been committed under other power purchase agreements. The
offers must be accepted by CAMMESA (acting on behalf of the
electricity demanding agents of the WEM), who will be the purchaser
of the power under the guaranteed availability agreements
(compromisos de disponibilidad garantizada). The term of the
guaranteed availability agreements is 3 years, and their general
terms and conditions are established in Resolution 19.
Resolution
19 also establishes that WEM agents that operate hydroelectric
power plants shall be remunerated for the energy and capacity of
their generation units in accordance with the values set forth in
such resolution.
d)
SGE
(Secretaría de Gobierno de Energía) Resolution No.
70/2018 and Ministry of Productive Development Resolution No.
12/2019
On
November 6, 2018, Resolution no. 70/2018 of the SGE was published,
which resolution replaces Article 8 of Resolution issued by former
SE no. 95/2013. The new article allows MEM Generators,
Autogenerators and Cogenerators to obtain their own fuel. This does
not alter the commitments assumed by Generation Agents within the
context of MEM supply agreements with CAMMESA. It is established
that generation costs with their own fuel will be valued according
to the recognition mechanism of Average Variable Costs
(“CVP”) recognized by CAMMESA. The Resolution also
establishes that regarding those Generators not purchasing their
own fuel, CAMMESA will continue the commercial management and the
fuel supply.
Finally,
under Resolution No. 12/2019 by the Ministry of Productive
Development (published in the Official Gazette on December 30,2019) fuel purchase for the generation of electric power is once
again centralized through CAMMESA, therefore repealing the effect
of Resolution No. 70/2018 of the former Secretariat of Energy, and
Section 8 of Resolution No. 95/2013 of the former Secretariat of
Energy and Section 4 of Resolution No. 529/2014 of the former
Secretariat of Energy are back in force.
e)
Resolution
of the Secretariat of Renewable Resources and Electricity Market
no. 1/2019
On
March 1, 2019 Resolution no. 1/2019 (“Resolution 1”) of
the Secretariat of Renewable Resources and Electricity Market was
published in the Official Gazette by virtue of which Resolution 19
was abolished. It establishes the new remuneration values of
energy, power and associated services for the affected generators,
as well as their application methodology. Its validity commences on
the date of its publication in the Official Gazette.
F-13
CENTRAL PUERTO S.A.
According
to Resolution 1, the approved remuneration system will be of
transitional application and until the following are defined and
gradually implemented: regulatory mechanisms aimed at reaching an
autonomous, competitive and sustainable operation that allows for
freedom of contract between supply and demand; and a technical,
economical and operative functioning for the integration of
different generation technologies so as to guarantee a reliable and
cost effective system.
The
following are the main changes introduced by Resolution 1 in
connection with Resolution 19:
Energy
Sale:
–
The price of energy
generated by thermal power stations is reduced. Therefore, the
price for energy generated with natural gas is of 4 USD/MWh and 7
USD/MWh for energy generated with liquid fuel.
–
The price of energy
operated by thermal power stations is reduced. Therefore, the price
for energy operated with any fuel is of 1.4 USD/MW.
–
The price for
energy generated from non-conventional energy sources (renewable
energies) is fixed at 28 USD/MWh.
Power
Sale:
–
DIGO price
(established by Resolution 19) goes from 7,000 USD/MW-month during
the twelve months of the year to 7,000 USD/MW-month the six months
of higher seasonal demand for electrical energy (December, January,
February, June, July and August) and to 5,500 USD/MW-month the
remaining months of the year (March, April, May, September, October
and November).
–
Some minimum values
of offered availability are reduced. Its compliance is subject to
the foregoing prices.
–
A weighting factor
is fixed for the foregoing prices, between 1 and 0.7, depending on
the use factor of the twelve months previous to each month of the
transaction.
The
energy purchase agreements entered into by the Group with CAMMESA
are not affected by the provisions of Resolution 1.
f)
Subsequent
event - Resolution No. 31/2020 of the Secretariat of
Energy
On
February 27, 2020, the Secretariat of Energy published in the
Official Gazette Resolution No. 31 (“Resolution 31”)
which sets forth the criteria to calculate the economic
transactions of energy and power that the generating parties
commercialize in the spot market, which is in force as from
February 1, 2020.
This
new regulation, contrary to Resolution 1, establishes all prices
for the remuneration of energy and power in Argentine pesos, and it
sets forth that the prices shall be adjusted on a monthly basis
with a formula based on the evolution of Consumer Price Index (IPC)
and the Domestic Wholesale Price Index (IPIM). New power prices are
generally reduced in relation to the current prices as at January
2020, and the energy prices remain equivalent, expressed in
Argentine pesos instead of US dollars. Finally, this regulation
introduces a new remuneration component which applies to the energy
generated during the first 50 hours of maximum thermal requirement
of the month (MTR, which is determined by the sum of the hours of
all the thermal generation of the system), it determines different
remuneration prices based on the season of the year and the energy
delivered during the first and second 25 hours of MTR.
F-14
CENTRAL PUERTO S.A.
Prices
established by Resolution 31 are listed below:
Energy
sale:
–
The price of the
energy generated by thermal power stations with natural gas is 240
ARS/MWh and with liquid fuel is 420 ARS/MWh. For hydraulic plants,
the price is 210 ARS/MWh.
–
The price of energy
operated by thermal power stations is 84 ARS/MWh for the energy
generate from any type of fuel, and the same applies for hydraulic
plants.
–
The price of energy
generated from non-conventional energy sources (renewable energies)
is 1,680 ARS/MWh.
–
The remuneration
price in MTR hours for thermal power stations is 37,500 ARS/MWh -
month, and in hydraulic power stations with power lower than 300 MW
is 32,500 ARS/MWh - month and in hydraulic power stations with
power higher than 300 MW, it is 27,500 ARS/MWh - month. The prices
aforementioned shall apply to the energy generated during the first
25 hours of MTR (HMRT-1) and to the next 25 hours of MTR (HMRT-2)
multiplied by the FRPHMRT factor, as indicated in the following
table:
FRPHMRT
Hours
of maximum thermal requirement
Summer
Autumn
Winter
Spring
HMRT-1
1.2
0.2
1.2
0.2
HMRT-2
0.6
0.0
0.6
0.0
Power
sale:
–
DIGO prices for
thermal generators will be 360,000 ARS/MW - month for the six
months of highest seasonal demand of electric energy (December,
January, February, June, July and August) and 270,000 ARS/MWh -
month for the remaining six months of the year (March, April, May,
September, October and November).
–
The Power Base
Price for hydraulic generators is:
Hidro
scale
PowerBasePrice
[ARS/MW-month]
Power > 300
MW
99,000
Power > 120 MW
and <= 300 MW
132,000
Power > 50 MW
and <= 120 MW
181,500
CPSA is
making a detailed analysis of the application and impact that
Resolution 31 has on the operations of the Company. Even though
Resolution 31 implies a reduction in the energy sale income in the
spot market, there are no doubts regarding the ability of the
Company to continue as a going concern. Supply agreements entered
into by the Group with CAMMESA up to date and the collection of CVO
credits in US dollars shall remain unaffected by the dispositions
of Resolution 31.
On April 8, 2020, the Company learned that the Secretariat of
Energy may have instructed CAMMESA to postpone until further notice
the application of the price update mechanism described in the
second paragraph of this Note 1.2.f). Accordingly, CAMMESA did not
apply the price update mechanism to the energy and power sold on
March 2020. The Company is evaluating the effects that the
non-application of such mechanism would have, as well as the steps
to be followed in this regard.
2.
Basis
of preparation of the consolidated financial
statements
2.1.
Basis
of preparation
The
consolidated financial statements of the Group have been prepared
in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board
(IASB).
F-15
CENTRAL PUERTO S.A.
The
attached financial statements have been prepared in order to be
included in a Securities and Exchange Commission
(“SEC”) filing.
These
consolidated financial statements provide comparative information
in respect of the previous years.
In
preparing these consolidated financial statements, the Group
applied the significant accounting policies, estimates and
assumptions described in Notes 2.2 and 2.3, respectively. Moreover,
the Group has adopted the changes in accounting policies described
in Note 2.4.
The
Group’s consolidated financial statements are presented in
Argentine pesos, which is the Group’s functional currency,
and all values have been rounded to the nearest thousand (ARS 000),
except when otherwise indicated.
2.1.1.
Basis
of consolidation
The
consolidated financial statements as of December 31, 2019 and 2018
and for each of the years ended December 31, 2019, 2018 and 2017,
include the financial statements of the Group formed by the parent
company and its subsidiaries: Central Vuelta de Obligado S.A.,
Vientos La Genoveva S.A.U., Vientos La Genoveva II S.A.U., Proener
S.A.U., CP Renovables S.A. and its subsidiaries.
Control
is achieved when the investor is exposed or entitled to variable
returns arising from its ownership interest in the investee, and
has the ability to affect such returns through its power over the
investee. Specifically, the investor controls an investee, if and
only if it has:
–
Power over the
investee (i.e. the investor has rights that entitle it to direct
the relevant activities of the investee).
–
Exposure or right
to variable returns arising from its ownership interest in the
investee.
–
Ability to exercise
its power over the investee to significantly affect its
returns.
Consolidation
of a subsidiary begins when the parent company obtains control over
the subsidiary and ends when the parent company loses control over
the subsidiary. The assets, liabilities, income and expenses of a
subsidiary acquired or sold during the fiscal year are included in
the consolidated financial statements from the date on which the
parent company acquired control of the subsidiary to the date on
which the parent company ceased to control the
subsidiary.
The
result for the fiscal year and each component of the other
comprehensive income (loss) are assigned to the owners of the
parent company and non-controlling interests, even if the results
of the non-controlling interests give rise to a debit balance. If
necessary, appropriate adjustments are made to the
subsidiaries’ financial statements so that their accounting
policies are in accordance with the Group’s accounting
policies. All assets and liabilities, equity, income, expenses and
cash flows within the Group that relate to transactions among the
members of the Group are completely eliminated in the consolidation
process.
A
change in ownership interest in a subsidiary, without loss of
control, is accounted for as an equity transaction. If the Group
loses control of a subsidiary, it cancels the carrying amount of
the assets (including goodwill) and related liabilities,
non-controlling interests and other equity components, while
recognizing the profit or loss resulting from the transaction in
the relevant income statement. Any retained residual interest is
recognized at its fair value.
F-16
CENTRAL PUERTO S.A.
2.1.2.
Measuring
unit
The
financial statements as at December 31, 2019, including the figures
for the previous periods (this fact not affecting the decisions
taken on the financial information for such periods) were restated
to consider the changes in the general purchasing power of the
functional currency of the Company (Argentine peso) pursuant to IAS
29. Consequently, the financial statements are stated in the
current measurement unit at the end of the reported
period.
In
accordance with IAS 29, the restatement of the financial statements
is necessary when the functional currency of an entity is the
currency of a hyperinflationary economy. To define a
hyperinflationary state, the IAS 29 provides a series of
non-exclusive guidelines that consist on (i) analyzing the behavior
of the population, prices, interest rates and wages before the
evolution of price indexes and the loss of the currency’s
purchasing power, and (ii) as a quantitative characteristic, which
is the most considered condition in practice, verifying if the
three-year cumulative inflation rate approaches or exceeds
100%.
Due to
different macroeconomic factors, the triennial inflation in 2019
was higher than such figure, as the goals of the Argentine
government, and other available projections, indicate that this
trend will not revert in the short term.
So as
to evaluate the mentioned quantitative condition and to restate the
financial statements, the Argentine Securities Commission
established that the series of indexes to be used in the IAS 29
application is the one established by the Argentine Federation of
Professional Councils in Economic Sciences.
Considering
the before mentioned index, the inflation was of 53.83%, 47.64% and
24.79% in the years ended December 31, 2019, 2018 and 2017,
respectively.
As at
January 1, 2017, the Board of Directors of the Company adopted,
subject to the Annual General Meeting’s approval, the option
stated in RG no. 777/18 of the CNV and absorbed the accumulated
negative unappropriated retained earnings resulting from the
inflation-adjustment, following the absorption order established in
Section 11, Chapter III, Title IV “REGULAR INFORMATION
PROCEDURE” of the CNV Regulations (N.T. 2013), affecting to
that purpose the balances of the accounts Voluntary reserve, Legal
and other reserves, Merger premium and the balance of the account
Adjustment to Capital Stock in the amount necessary for such
purpose.
Pursuant
to section 70 of the General Legal Entities Law No. 19,550, profit
cannot be distributed as long as the legal reserve is established.
Therefore, the General Shareholders’ Meeting on April 30,2019, as described in Note 17, decided to restore the legal
reserve.
The
following is a summary of the effects of the IAS 29
application:
Restatement of the Balance Sheet
(i)
The monetary items
(those with a fixed face value in local currency) are not restated
since they are stated in the current measurement unit at the
closing date of the reported period. In an inflationary period,
keeping monetary assets causes the loss of purchasing power, and
keeping monetary liabilities causes gain in purchasing power as
long as those items are not tied to an adjustment mechanism
compensating those effects. The monetary loss or gain is included
in the income (loss) for the reported period.
(ii)
The assets and
liabilities subject to changes established in specific agreements
are adjusted in accordance with those agreements.
F-17
CENTRAL PUERTO S.A.
(iii)
Non-monetary items
measured at their current values at the end of the reported period
are not restated to be included in the balance sheet; however, the
adjustment process must be completed to determine the income (loss)
produced for having those non-monetary items in the terms of a
uniform measurement unit.
As at
December 31, 2019, 2018 and 2017, the Company counted with the
following items measured with the current value method: the share
kept in foreign currency of the items Trade and other receivables,
Cash and cash equivalents, Loans and borrowings that accrue
interest, and Trade and other payables.
(iv)
Non-monetary items
at historical cost or at current value of a date previous to the
closing of the reported period are restated at rates reflecting the
variation occurred at the general level of prices from the
acquisition or revaluation date until the closing date; then the
amounts restated for those assets are compared with the
corresponding recoverable values. Charges to the income (loss) for
the period due to property, plant and equipment depreciation and
intangible assets amortization, as well as other non- monetary
assets consumption are determined in accordance with the new
restated amounts.
As at
December 31, 2019, 2018 and 2017, the items subject to this
restatement process were the following:
–
Monetary items at
current values for a date previous to the closing of the period:
certain machines, equipment, turbogroups and auxiliary equipment of
the Property, Plant and Equipment item, which were measured at
their fair value as at January 1, 2011.
–
Non-monetary items
at historical cost: the remaining items of Property, Plant and
Equipment, Intangible assets, Investment in associates, Inventories
and Deferred income tax liabilities.
(v)
When borrowing
costs in non-monetary assets are capitalized in accordance with IAS
23, the share of those cost compensating the creditor for the
effects of inflation is not capitalized.
The
Company proceeded to the activation of borrowing costs as stated in
Note 2.2.6.
(vi)
The restatement of
the non-monetary assets in the terms of a current measurement unit
at the end of the reported period without an equivalent adjustment
for tax purposes leads to a temporary taxable difference and to the
recognition of a deferred-tax liability whose balancing entry is
recognized in the income (loss) for the period. For the next
closing of the period, the deferred-tax items are restated for
inflation to determine the item on income (loss) for such period.
In Note 9 the effects of this process are detailed.
Restatement of the statement of income (loss) and other
comprehensive income
(i)
The expenses and
income are restated as from the date of accountable entry,
including interest and currency exchange differences, except for
those items not reflecting or including in their determination the
consumption of assets measured in currency of purchasing power
previous to the consumption entry, which are restated taking into
account the origin date of the asset related to the item (for
example, depreciation, devaluation and other consumptions of assets
valued at historical cost); and except for income (loss) emerging
from comparing two measurements expressed in currency of purchasing
power of different dates. For such purpose, it is necessary to
identify the compared amounts, separately restate them and compare
them again, but with amounts already restated.
(ii)
The income (loss)
for exposure to change in purchasing power of currency (income
(loss) on net monetary position), originated by the keeping of
monetary assets and liabilities, is shown in a separate item of the
income (loss) for the period.
F-18
CENTRAL PUERTO S.A.
Restatement of the Statement of Changes in Equity
All the
components of equity are restated by applying the general prices
index as from the beginning of the period, and each variation of
such components is re-expressed as from the contribution date or as
from the moment in which such contribution was made through any
other form, with the exception of the account “Capital stock
-face value” which has been maintained for its nominal value
and the effects of their restatement can be found in the account
“Adjustment to capital stock”.
Restatement of the Statement of Cash Flows
IAS 29
sets forth that all the items of this section shall be restated in
terms of the current measurement unit at the closing date of the
reported period.
The
monetary result generated by cash and equivalents to cash are
stated in the Statement of Cash Flows separately from the cash
flows resulting from operation, investment and financing activities
as a specific item of the conciliation between the existence of
cash and cash equivalents at the beginning and at the end of the
period.
2.2.
Summary
of significant accounting policies
The
following are the significant accounting policies applied by the
Group in preparing its consolidated financial
statements.
2.2.1.
Classification
of items as current and non-current
The
Group classifies assets and liabilities in the consolidated
statement of financial position as current and non-current. An
entity shall classify an asset as current when:
–
it expects to
realize the asset, or intends to sell or consume it, in its normal
operating cycle;
–
it holds the asset
primarily for the purpose of trading;
–
it expects to
realize the asset within twelve months after the reporting period;
or
–
the asset is cash
or a cash equivalent unless the asset is restricted from being
exchanged or used to settle a liability for at least twelve months
after the reporting period.
All
other assets are classified as non-current.
An
entity shall classify a liability as current when:
–
it is expected to
be settled in normal operating cycle;
–
It is held
primarily for the purpose of trading;
–
it is due to be
settled within twelve months after the reporting period;
or
–
there is no
unconditional right to defer the settlement of the liability for at
least twelve months after the reporting period.
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CENTRAL PUERTO S.A.
All
other liabilities are classified as non-current.
Deferred
tax assets and liabilities are classified as non-current assets and
liabilities, in all cases.
2.2.2.
Fair
value measurement
The
Group measures certain financial instruments at their fair value at
each reporting date. In addition, the fair value of financial
instruments measured at amortized cost is disclosed in Note
14.6.
Fair
value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is
based on the presumption that the transaction to sell the asset or
transfer the liability takes place either:
–
in the principal
market for the asset or liability, or
–
in the absence of a
principal market, in the most advantageous market for the asset or
liability.
The
principal or the most advantageous market must be accessible to the
Group. The fair value of an asset or a liability is measured using
the assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
A fair
value measurement of a non-financial asset takes into account a
market participant’s ability to generate economic benefits by
using the asset in its highest and best use or by selling it to
another market participant that would use the asset in its highest
and best use.
The
Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
All
assets and liabilities for which fair value is measured or
disclosed in the consolidated financial statements are categorized
within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value
measurement as a whole:
–
Level 1 input data:
quoted (unadjusted) prices in active markets for identical assets
or liabilities.
–
Level 2 input data:
valuation techniques with input data other than the quoted prices
included in Level 1, but which are observable for assets or
liabilities, either directly or indirectly.
–
Level 3 input data:
valuation techniques for which input data are not observable for
assets or liabilities.
2.2.3.
Transactions
and balances in foreign currency
Transactions
in foreign currencies are recorded by the Group at the related
functional currency rates prevailing at the date of the
transaction.
Monetary
assets and liabilities denominated in foreign currencies are
translated at the functional currency spot rate of exchange ruling
at the reporting period-end.
All
differences are taken to consolidated statement of income under
other operating income or expenses, or under finance income or
expenses, depending on the nature of assets or liabilities
generating those differences.
F-20
CENTRAL PUERTO S.A.
Non-monetary
items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates as at the dates of
the initial transactions. Non-monetary items measured by their fair
value in foreign currency are converted using exchange rates at the
date in which such fair value is determined.
2.2.4.
Revenue
recognition
2.2.4.1.
Revenue
from ordinary activities
IFRS 15
presents a five-step detailed model to explain revenue from
contracts with customers. Its fundamental principal lies on the
fact that an entity has to recognize revenue to represent the
transference of goods or services promised to the customers, in an
amount reflecting the consideration the entity expects to receive
in exchange for those goods or services at the moment of executing
the performance obligation. An asset is transferred when (or while)
the client gets control over such asset, defined as the ability to
direct the use and substantially obtain all the remaining benefits
of the asset. IFRS 15 requires the analysis of the
following:
–
If the contract (or
the combination of contracts) contains more than one promised good
or service, when and how such goods or services should be
granted.
–
If the price of the
transaction distributed to each performance obligation should be
recognized as revenue throughout time or at a specific moment.
According to IFRS 15, an entity recognizes revenue when the
performance obligation is satisfied, i.e. every time control over
those goods and services is transferred to the customer. The new
model does not include separate guidelines for the “sale of
goods” and the “rendering of services”; instead,
it requires that entities should evaluate whether revenue should be
recognized throughout time or at a specific moment, regardless of
the fact that it includes “the sale of goods” or
“the rendering of services”.
–
When the price
includes an estimation element of variable payments, how that will
affect the amount and the time to recognize such revenue. The
concept of variable payment estimation is broad. A transaction
price is considered as variable due to discounts, reimbursement,
credits, price concessions, incentives, performance bonus,
penalties and contingency agreements. The new model introduces a
big condition for a variable consideration to be considered as
revenue: only as long as it is very unlikely for a significant
change to occur in the cumulative revenue amount, when the
uncertainties inherent to the variable payment estimation are
solved.
–
When the incurred
cost to close an agreement and the costs to comply with it can be
recognized as an asset.
The
Company has a main revenue source, which consists on the
commercialization of energy produced in the spot market and under
the energy supply agreements, CAMMESA being its main
customer.
The
Company recognizes its sales revenue in accordance with the
availability of its machines’ effective power, the energy and
steam supplied; and as balancing entry, a sales receivable is
recognized, which represents the Company’s unconditional
right to consideration owed by the customer. Billing for the
service is monthly made by CAMMESA in accordance with the
guidelines established by SEE; and compensation is usually received
in a maximum term of 90 days. Therefore, no implicit financing
components are recognized. The satisfaction of the performance
obligation is done throughout time since the customer
simultaneously receives and consumes the benefits given by the
performance of the entity as the entity does it.
Revenues
from energy, power and steam sales are calculated at the prices
established in the respective contracts or at the prices prevailing
in the electricity market, according to the regulations in force.
These include revenues from the sale of steam, energy and power
supplied and not billed until the closing date of the reported
period, valued at the prices defined in the contracts or in the
respective regulations.
F-21
CENTRAL PUERTO S.A.
Additionally,
the Group recognizes the sales from contracts regarding the
supplied energy and the prices established in such contracts, and
as balancing entry it recognizes an account receivable. Such credit
represents the unconditional right the Company has to receive the
consideration owed by the customer. Billing for the service is
monthly made by CAMMESA in the case of the contracts of the wind
farms La Castellana and Achiras and for the Energía plus
contract in accordance with the guidelines established by SEE; and
compensation is received in a maximum term of 90 days. Therefore,
no implicit financing components are recognized. For the rest of
the clients, billing is also monthly and done by the Company; and
compensation is received in a maximum term of 90 days. Therefore,
no implicit financing components are recognized. The satisfaction
of the performance obligation is done throughout time since the
customer simultaneously receives and consumes the benefits given by
the performance of the entity as the entity does it.
The
Group recognizes revenues from resale and distribution of gas and
revenues for the monthly management of the thermal power plant CVO
in accordance with the monthly fees established in the respective
contracts and as balancing entry, it recognizes a sale credit. Such
credit represents the unconditional right the Company has to
receive the consideration owed by the customer. Billing for the
service is also monthly made by the Company and compensation is
generally received in a maximum term of 90 days. Therefore, no
implicit financing components are recognized.
The
detail of revenues from ordinary activities of the Group is
included in Note 5 to these consolidated financial
statements.
2.2.4.2.
Other
income and expenses - Interest
For all
financial assets and liabilities measured at amortized cost and
interest bearing financial assets classified as available for sale,
interest income or expense is recorded using the effective interest
rate method, which is the rate that exactly discounts the estimated
future cash payments or receipts through the expected life of the
financial instrument or a shorter period, where appropriate, to the
net carrying amount of the financial asset or liability. In
general, interest income and expense are included in finance income
and expenses in the consolidated statement of income, respectively,
unless they derive from operating items (such as trade and other
receivables or trade and other payables); in that case, they are
booked under other operating income and expenses, as the case may
be.
2.2.5.
Taxes
Current income tax
Current
income tax assets and liabilities for the year are measured at the
amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute those
amounts are those that are enacted or substantively enacted, at the
end of the reporting period. The statutory tax rate for the Group
for the fiscal year 2019 is 30%.
Current
income tax relating to items recognized directly in equity is
recognized in equity and not in the consolidated statement of
income.
Management
periodically assesses the positions taken in each tax report
regarding the situations in which the applicable tax regulations
are subject to interpretation, and it determines whether they must
be treated as uncertain tax treatment, and in such case, whether it
must be treated independently or collectively with one or more tax
treatments, pursuant to IFRIC 23. For these cases, we use the
approach which better predicts uncertainty and applies criteria to
identify and quantify uncertainties.
F-22
CENTRAL PUERTO S.A.
Deferred income tax
Deferred
income tax is provided using the liability method on temporary
differences at the end of the reporting period between the tax
bases of assets and liabilities and their related carrying
amounts.
Deferred
income tax liabilities are recognized for all taxable temporary
differences, except:
–
where the deferred
income tax liability arises from the initial recognition of
goodwill or of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or
loss;
–
in respect of
taxable temporary differences associated with investments in
subsidiaries and associates, where the timing of the reversal of
the temporary differences can be controlled and it is probable that
the temporary differences will not reverse in the foreseeable
future.
Deferred
income tax assets are recognized for all deductible temporary
differences and tax carry forwards losses, to the extent that it is
probable that taxable profit will be available against which the
deductible temporary differences, and/or the tax losses carry
forward can be utilized, except:
–
where the deferred
income tax asset arises from the initial recognition of an asset or
liability in a transaction that is not a business combination and,
at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss;
–
in respect of
deductible temporary differences associated with investments in
subsidiaries, associates and interests in joint ventures, deferred
income tax assets are recognized only to the extent that it is
probable that the deductible temporary differences will reverse in
the foreseeable future and taxable profit will be available against
which those differences can be utilized.
The
carrying amount of deferred income tax assets is reviewed at each
reporting period date and reduced against income or loss for the
period or other comprehensive income, as the case may be, to the
extent that it is no longer probable that sufficient taxable profit
will be available to allow all or part of the deferred income tax
asset to be utilized (recovered). Unrecognized deferred income tax
assets are reassessed at each reporting period date and are
recognized with a charge to income or other comprehensive income
for the period, as the case may be, to the extent that it has
become probable that future taxable profits will allow the deferred
income tax asset not previously recognized to be
recovered.
Deferred
income tax assets and liabilities are measured at undiscounted
nominal value at the tax rates that are expected to apply in the
year when the asset is realized or the liability is settled, based
on tax rates and tax laws that have been enacted or substantively
enacted at the reporting period date.
Deferred
income tax relating to items recognized outside profit or loss is
recognized outside profit or loss. Deferred income tax items are
recognized in correlation to the underlying transactions either in
other comprehensive income or directly in equity.
Deferred
income tax assets and deferred income tax liabilities are offset if
a legally enforceable right exists to set off current income tax
assets and liabilities and the deferred income taxes relate to the
same taxable entity and the same taxation authority.
F-23
CENTRAL PUERTO S.A.
Other taxes related to sales and to bank account
transactions
Expenses
incurred and assets are recognized excluding the amount of sales
tax, as in the case of value-added tax or turnover tax, or the tax
on bank account transactions, except:
–
where the tax
incurred on a sale or on a purchase of assets or services is not
recoverable from the taxation authority, in which case the sales
tax is recognized as part of the cost of acquisition of the asset
or as part of the expense item as the case may be;
–
receivables and
payables are stated including value-added tax.
The
charge for the tax on bank account transactions is presented in the
administrative and selling expenses line within the consolidated
statement of income.
The net
amount of the tax related to sales and to bank account transactions
recoverable from, or payable to, the taxation authority is included
as a non-financial asset or liability, as the case may
be.
2.2.6.
Property,
plant and equipment
Property,
plant and equipment are measured at the acquisition cost restated
according to Note 2.1.2, net of the cumulative depreciation and/or
the cumulative losses due to impairment, if any. This cost includes
the cost of replacing components of property, plant and equipment
and the cost for borrowings related to long-term construction
projects, as long as the requirements for their recognition as
assets are fulfilled.
When
significant parts of property, plant and equipment are required to
be replaced at intervals, the Group derecognizes the replaced part
at its restated cost according to Note 2.1.2 and recognizes the new
part with its own associated useful life and depreciation.
Likewise, when a major maintenance is performed, its cost is
recognized as a replacement if the conditions for the recognition
thereof as an asset are met. All other regular repair and
maintenance costs are recognized in the consolidated statement of
income as incurred.
Electric
power facilities and materials and spare parts related to the
Puerto Combined Cycle plant are depreciated on a unit-of-production
basis.
Electric
power facilities related to the Luján de Cuyo plant are
depreciated on a straight-line basis over the total useful lives
estimated.
Electric
power facilities and auxiliary equipment of Piedra del Águila
hydroelectric power plant are depreciated on a straight-line basis
over the remaining life of the concession agreement of the
mentioned power plant.
The
depreciation of the remaining property, plant and equipment is
calculated on a straight-line basis over the total estimated useful
lives of the assets as follows:
–
Buildings: 5 to 50
years.
–
Wind turbines: 20
years.
–
Lands are not
depreciated.
–
Material and spare
parts: based on the useful life of related machinery and equipment
to be replaced.
F-24
CENTRAL PUERTO S.A.
–
Furniture, fixtures
and equipment: 5 to 10 years.
–
Others:3 to 5
years.
–
Turbines and
Construction in progress: they are not depreciated until they are
not in conditions of being used.
An item
of property, plant and equipment and any significant part initially
recognized is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss
arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the
asset) is included in the consolidated statement of income when the
asset is derecognized.
The
residual values, useful lives and methods of depreciation are
reviewed at each reporting period end and adjusted prospectively,
if appropriate.
During
periods ended December 31, 2019, 2018 and 2017, the Group
capitalized interest for an amount of 169,850, 212,387 and 16,520,
respectively. The rate used to capitalize interest corresponds to
the effective rate of specific loans used to finance the projects,
net of the share compensating the creditor for the effects of
inflation.
2.2.7.
Intangible
assets
Intangible
assets acquired separately are measured on initial recognition at
acquisition cost restated according to Note 2.1.2. The cost of the
intangible assets acquired in a business combination is their fair
value at the date of the acquisition. Following initial
recognition, intangible assets are carried at cost less accumulated
amortization (if they are considered as having finite useful lives)
and accumulated impairment losses, if any.
The
useful lives of intangible assets are assessed as either finite or
indefinite. The useful lives of the intangible assets recognized by
the Group are finite.
Intangible
assets with finite useful lives are amortized over their useful
economic lives. The amortization period and the amortization method
for an intangible asset with a finite useful life are reviewed at
least at the end of each reporting period. Changes in the expected
useful life or the expected pattern of consumption of the asset is
accounted for by changing the amortization period or method, as
appropriate, and are treated prospectively as changes in accounting
estimates. The amortization expense on intangible assets with
finite lives is recognized in the consolidated statement of income
in the expense category consistent with the function of the
intangible assets.
During
fiscal year 2018, the Group finished the construction of wind farms
La Castellana and Achiras, whereby it was agreed to construct high
and medium tension lines and the electrical substation to connect
the wind farms to the Argentine Interconnection System
(“SADI”), a part of which were given to the companies
transporting the energy in accordance with the respective
contracts; therefore, such companies are in charge of the
maintenance of such transferred installations. Consequently, the
Group transferred 917,304 from property, plant and equipment to
intangible assets.
Also,
during fiscal year 2019, the Group finished the construction of
wind farm La Genoveva II, whereby it was agreed to construct the
electrical substation that feeds the connection of the wind farm to
the SADI, a part of which were given to the company transporting
the energy; therefore, such companies are in charge of the
maintenance of such transferred installations. Consequently, the
Group transferred 24,770 from property, plant and equipment to
intangible assets.
F-25
CENTRAL PUERTO S.A.
Moreover,
as a result of the business combination described in Note 2.2.20,
the Group recognized an intangible asset of 6,094,377 corresponding
to the turbogas and turbosteam supply agreements entered into with
CAMMESA for the Thermal Station Brigadier López.
The
Group’s intangible assets are described in Note
13.
2.2.8.
Impairment
of property, plant and equipment and intangible assets
The
Group assesses at each reporting period-end whether an existing
event or one that took place after year end and provides additional
evidence of conditions that existed at the end of the reporting
period, indicates that an individual component or a group of
property, plant and equipment and/or intangible assets with finite
useful lives may be impaired. If any indication exists, the Group
estimates the asset’s recoverable amount. An asset’s
recoverable amount is the higher of the fair value less costs to
sell that asset, and its value-in-use. That amount is determined
for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or
groups of assets; in which case, the cash flows of the group of
assets that form part of the cash-generating unit
(“CGU”) to which they belong are taken.
Where
the carrying amount of an individual asset or CGU exceeds its
recoverable amount, the individual asset or CGU, as the case may
be, is considered impaired and is written down to its recoverable
amount.
In
assessing value in use of an individual asset or CGU, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the individual
asset or CGU, as the case may be.
In
determining fair value less costs to sell, recent market
transactions aretaken into account, if available. If no such
transactions can be identified, an appropriate valuation model is
used including obtaining appraisals from valuation specialists.
These calculations are verified by valuation multiples, quoted
values for similar assets on active markets and other available
fair value indicators, if any.
The
Group bases its impairment calculation on detailed budgets and
forecast calculations which are prepared separately for each of the
Group’s CGU to which the individual assets are allocated.
These detailed budgets and forecast calculations generally cover a
five-year period. For longer periods, a long-term growth rate is
calculated and applied to project future cash flows after the fifth
year. Budgets and calculations related to Complejo
Hidroeléctrico Piedra del Águila are limited to the term
of the concession contract.
Impairment
losses of continuing operations are recognized in a specific line
of the consolidated statement of income.
In
addition, for the assets for which an impairment loss had been
booked, as of each reporting period-end, an assessment is made
whether there is any indication that previously recognized
impairment losses may no longer exist or may have
decreased.
Should
there be such triggering event, the Group makes an estimate of the
recoverable amount of the individual asset or of the cash
generating unit, as the case may be.
A
previously recognized impairment loss is reversed only if there has
been a change in the assumptions used to determine the individual
assets or CGU’s recoverable amount since the last impairment
loss was recognized. The reversal is limited so that the carrying
amount of the asset or CGU does not exceed its recoverable amount,
nor exceed the carrying amount that would have been determined, net
of the related depreciation or amortization, had no impairment loss
been recognized for the asset or CGU in prior periods. Such
reversal is recognized in the statement of income in the same line
in which the related impairment charge was previously recognized
(generally under the cost of sales or other operating expenses),
unless the asset is carried at a revalued amount, in which case,
the reversal is treated as a revaluation increase.
F-26
CENTRAL PUERTO S.A.
The
Group has identified as indicators of potential impairment of its
property, plant and equipment and/or its intangible assets with a
limited useful life, the drop in the Company´s share price,
the current economic uncertainties, the conversion of the electric
energy and power spot market tariff into Argentine pesos, and in
the particular case of the Company’s gas turbines, the
uncertainty about the feasibility of new projects that would enable
the use of the acquired turbines.
In
order to measure the recoverability of its property, plant and
equipment and its intangible assets with a limited useful life,
with the exception of the generating groups classified as
“Turbines”, the Group has estimated their value-in-use.
As a result of the recoverability analysis, the Group determined
that the net book value of the assets included in the
cash-generating units within the electric power generation from
renewable sources operating segment, and the thermal power stations
Puerto Nuevo and Nuevo Puerto, the thermal power stations in
Luján de Cuyo, and the hydroelectric power station Piedra del
Águila, did not exceed their recoverable value as of December31, 2019.
CGU
Thermal Station Brigadier López
In
addition, as of December 31, 2019, the Group estimated that the
book value of the assets of Thermal Station Brigadier López
exceeded its recoverable value by 3,158,799. Therefore, an
impairment charge was determined and allocated on a pro-rata basis
to property, plant and equipment (968,314 under the item
“Electric power facilities” and 1,113,622 under the
item “Construction in progress”) and to intangible
assets by 1,076,863 under the item “Impairment of property,
plant and equipment and intangible assets” of the
consolidated statement of income for the year ended December 31,2019. After recording this impairment, the book value of the
Electric power facilities and the Construction in progress for the
Thermal Station Brigadier López, amounted to 3,747,096 and
4,309,395, respectively, and the book value of the intangible
assets amounted to 4,167,138.
The key
assumptions to estimate the value-in-use are as
follows:
-
Gross margin: the
margin has been determined for the budgeted period (5 years) based
on the electric energy and power spot market tariffs in Resolution
31 and energy supply agreements subscribed, whereas the costs have
been determined based on the costs incurred during the first six
months of operations in the power station. The most relevant cost
was the thermal plant maintenance, which was estimated with the
provisions from the agreement with Siemens S.A.
-
Discount rate: it
represents the current market assessment of the specific risks of
the Company, taking into consideration the time-value of money. The
discount rate calculation is based on the circumstances of the
market participants and it is derived from the weighted average
cost of capital (WACC). The WACC takes into account both debt and
equity. The cost of equity is derived from the expected return on
investment by the market participant´s investors, whereas the
cost of debt is based on the conditions of the debt to which the
market participants could access to. Segment-specific risk is
incorporated by applying individual beta factors, which are
evaluated annually based on the publicly available market
data.
The
after-tax discount rates considered in the determination of the
value-in-use as of December 31, 2019, were 12.3% for year 2020
cashflows and 12.6% for the following years cashflows.
Any
increase in the discount rate would result in an additional
impairment of the CGU Thermal Station Brigadier
López.
F-27
CENTRAL PUERTO S.A.
–
Macroeconomic
variables: the estimated inflation and devaluation rates, as well
as the exchange rates used, were obtained from well-known
consulting firms, dedicated to the local and global economic
analysis, widely experienced in the market. An increase in the
inflation rates over the devaluation rates in relation to the
macroeconomic variables considered in the determination of the
value-in-use would result in an additional impairment of the CGU
Thermal Station Brigadier López.
–
Growth rate used in
the cashflows after the budgeted period: according to IAS 36, no
growth rates were considered as from the fifth year
cashflows.
Turbines
As of
December 31, 2019, the Group assessed the recoverability of its
turbines within property, plant and equipment, as individual assets
and estimated that the book value of the generating group General
Electric, which is stored in the facilities of Nuevo Puerto power
station in Argentina, and the two generating groups Siemens, which
are stored in the supplier’s facilities in Germany, all of
them classified under the item “Turbines”, exceeded
their recoverable amount by 764,780 and 480,863,
respectively.
In
order to determine the recoverable amount of such generating
groups, the Group has considered the fair value less costs of sell
approach, basing their estimation in an independent valuation
performed by an external specialist. In the case of the General
Electric generating unit, costs for the sale of the asset in the
international market pursuant to customs and tax duties usually
applicable to the purchase and sale of a similar asset were also
considered.
The
turbines fair value was determined using the market approach
technique, which should be categorized within the Level 3 of the
fair value measurement hierarchy. The key assumptions which the
estimation of the turbines fair value is more sensitive to are the
reference values of transactions involving similar gas turbines,
considering the value per kW of power at the date of the
valuations, of comparable generating groups, taking into account
technical characteristics, brand and model, geographic location,
preservation status, use, year of construction, among
others.
The
impairment charge of the above-mentioned turbines was recorded in
the item “Impairment of property, plant and equipment and
intangible assets” of the consolidated statement of income
for the year ended December 31, 2019. After recording the
impairment, the book value of the General Electric and Siemens
generation groups amounts to 1,090,604 and 2,506,980,
respectively.
Turbines and
Thermal Station Brigadier López belong to the electric power
generation from conventional sources operating
segment.
2.2.9.
Financial
instruments. Presentation, recognition and measurement
A
financial instrument is any contract that gives rise to a financial
asset of one entity and a financial liability or equity instrument
of another entity.
2.2.9.1.
Financial
assets
Classification
According
to IFRS 9 “Financial instruments”, the Group classifies
its financial assets in three categories:
–
Financial assets at
amortized cost
A
financial asset is measured at amortized cost if both of the
following conditions are met: (i) the asset is held within a
business model whose objective is to hold assets in order to
collect contractual cash flows; and (ii) the contractual terms of
the financial asset give rise on specified dates to solely payments
of principal and interest.
F-28
CENTRAL PUERTO S.A.
Additionally,
and for those assets complying with the above-mentioned conditions,
IFRS 9 provides for the option of determining, at initial
recognition, an asset measured at fair value if doing so would
eliminate or significantly reduce a measurement or recognition
inconsistency, which would appear if the assets or liabilities
valuation or the recognition of their profits or losses are made on
different grounds. The Group has not classified a financial asset
at fair value using this option.
At the
closing of these consolidated financial statements, the financial
assets at amortized cost of the Group include certain cash elements
and cash equivalents and trade and other receivables.
–
Financial assets at
fair value through other comprehensive income
Financial
assets are measured at fair value through other comprehensive
income if they are held in a business model whose objective is
achieved by both collecting contractual cash flows and selling
financial assets.
At the
closing of these consolidated financial statements, the Group has
not financial assets at fair value through other comprehensive
income.
–
Financial assets at
fair value through profit or loss
Any
financial assets at fair value through profit or loss belong to a
residual category that includes the financial assets that are not
held in one of the two business models mentioned, including those
kept to negotiate and those classified at fair value at initial
recognition.
At the
closing of these consolidated financial statements, the financial
assets of the Group at fair value through profit or loss include
mutual funds accounted under other financial assets.
Recognition and measurement
The
purchase and sale of financial assets are recognized at the date on
which the Group commits to purchase or sale the asset.
Financial
assets valued at amortized cost are initially recognized at their
fair value plus cost of transaction. These assets accrue interest
according to the effective interest rate method.
Financial
assets valued at fair value through profit or loss and other
comprehensive income are initially recognized at fair value, and
transaction costs are recognized as expenses in the comprehensive
income statement. Subsequently, they are valued at fair value.
Changes in fair value and income from the sale of financial assets
at fair value through profit or loss and other comprehensive income
are recorded in Finance Income or Finance Expenses and Other
comprehensive income, respectively, in the consolidated statement
of income and comprehensive income, respectively.
In
general, the Group uses the transaction price to determine the fair
value of a financial instrument at the initial recognition. In the
rest of the cases, the Group only records revenue or loss at
initial recognition if the fair value of the instrument is
evidenced with other comparable and visible transactions of the
market for the same instrument or if it is based on a valuation
technique that only includes visible market data. Revenue or loss
not recognized at the initial recognition of a financial asset is
later recognized as long as they derive from a change in factors
(including time) in which the market participants consider
establishing the price.
The
profit or loss of debt instruments are measured at amortized cost
and are not determined in a hedge relationship. They are recognized
in profit or loss when the financial assets are removed or when
impairment is recognized; and during the amortization process using
the effective interest rate method. The Group only reclassifies all
investments in debt instruments when it changes the business model
used to manage those assets.
F-29
CENTRAL PUERTO S.A.
Derecognition of financial assets
A
financial asset (or, where applicable, a part of a financial asset
or part of a group of similar financial assets) is derecognized;
that is to say, it is deleted from the statement of financial
position, when:
–
the contractual
rights to receive cash flows from the asset have
expired;
–
the contractual
rights to receive cash flows from the asset have been transferred
or an obligation has been assumed to pay the received cash flows in
full without material delay to a third party under a
‘pass-through’ arrangement; and either (a) all the
risks and rewards of the asset have been transferred substantially,
or (b) all the risks and rewards of the asset have neither been
transferred nor retained substantially, but control of the asset
has been transferred.
When
the contractual rights to receive cash flows from an asset have
been transferred or a pass-through arrangement has been entered
into, but all of the risks and rewards of the asset have neither
transferred nor retained substantially and no control of it has
been transferred, such asset shall continue to be recognized to the
extent of the Group’s continuing involvement in it. In this
case, the Group shall also recognize the associated liability. The
transferred asset and the associated liability are measured on a
basis that reflects the rights and obligations that the Group has
retained.
Impairment of financial assets
IFRS 9
establishes an “expected credit loss” model
(“ECL”). This requires the application of considerable
judgment with regard to how changes in economic factors affect ECL,
which is determined over a weighted average base. ECL results from
the difference between contractual cash flows and cash flows at
current value that the Group expects to receive.
The
impairment model set forth by IFRS 9 is applicable to the financial
assets measured at amortized value or at fair value through changes
in other comprehensive income, except for the investment in equity
securities and assets from the contracts recognized under IFRS
15.
Pursuant
to IFRS 9, loss allowances are measured using one of the following
bases:
–
The 12-month ECL:
these are expected credit losses that result from those default
events on the financial instrument that are possible within 12
months after the reporting date; and
–
Full lifetime
expected credit losses: these are expected credit losses that
result from all possible default events over the life of the
financial instrument.
Given
the nature of the clients with which the Group operates and its
history of uncollectibility, the Group did not identify expected
credit losses.
With
regard to financial placements and according to the placement
policies in force, the Group monitors the credit rate and the
credit risk of these instruments. Pursuant to the analysis, the
Group did not identify the need to record impairment of these types
of instruments.
2.2.9.2.
Financial
liabilities
Initial recognition and subsequent measurement
Financial
liabilities are classified, at initial recognition, as financial
liabilities at fair value through profit or loss, loans and
borrowings, or as derivatives designated as hedging instruments in
an effective hedge ratio, as appropriate.
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CENTRAL PUERTO S.A.
Financial
liabilities are initially recognized at their fair value, net of
the incurred transaction costs. Since the Group has no financial
assets whose characteristics require the fair value accounting
according to IFRS, after the initial recognition, the financial
assets are valued at amortized cost. Any difference between the
amount received as financing (net of transaction costs) and the
reimbursement value is recognized in comprehensive income
throughout the life of the debt financial instrument using the
method of effective interest rate.
At the
closing of these consolidated financial statements, the financial
liabilities classified as loans and borrowings of the Group include
Trade and other payables, overdrafts in bank accounts, Borrowings
from CAMMESA and Loans and borrowings that accrue
interest.
Derecognition of financial liabilities
A
financial liability is derecognized when the obligation under the
liability is discharged or cancelled or expires.
When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognized as
finance income or costs in the statement of income, as the case may
be.
2.2.9.3.
Offsetting
financial assets and financial liabilities
Financial
assets and financial liabilities are offset, and the net amount
presented in the statement of financial position if, and only if,
there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on a net
basis, or to realize the assets and settle the liabilities
simultaneously.
2.2.9.4.
Financial
assets and liabilities with related parties
Assets
and liabilities with related parties are recognized initially at
fair value plus directly attributable transaction costs. As long as
credits and debts with related parties do not derive from
arms-length transactions, any difference arising at the initial
recognition between such fair value and the consideration given or
received in return shall be considered as an equity transaction
(capital contribution or payment of dividends, which will depend on
whether it is positive or negative).
Following
initial recognition, these receivables and payables are measured at
their amortized cost through the EIR method. The EIR amortization
is included in finance income or costs or other operating income or
expenses in the statement of income, depending on the nature of the
liability giving rise to it.
2.2.9.5.
Derivative
financial instruments and hedge accounting
Initial recognition and subsequent
measurement
The
derivative financial instruments used by the Group are initially
recognized through their fair values at the date on which the
contract is entered into, and they are subsequently measured again
at their fair value. The derivative financial instruments are
accounted as financial assets when their fair value is positive and
as financial liabilities when their fair value is
negative.
The
method to recognize the loss or income from the change in fair
value depends on whether the derivative was determined as a hedge
instrument; in such case, on the nature of the item it is covering.
The Company can determine certain derivative as:
–
Fair value
hedge;
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CENTRAL PUERTO S.A.
–
Cash flow
hedge;
At the
beginning of the transaction, the Group records the relationship
between the hedge instruments and items covered, as well as its
objectives for risk management and the strategy to make different
hedge operations. It also records its assessment, both at the
beginning and on a continuous base, on whether the derivatives used
in the hedge transactions are highly effective to compensate
changes in fair value or in the cash flows of the items
covered.
Fair value hedge
Changes
in fair value of derivatives determined and classified as fair
value hedge are recorded in the statement of comprehensive income
together with any change in the fair value of the covered asset or
liability attributable to the covered risk.
Cash flow hedge
The
effective part of changes in fair value of the derivatives
determined and classified as cash flow hedge are recognized in
Other comprehensive income. The loss or income related to the
non-effective part is immediately recognized in the statement of
comprehensive income within the Finance Expenses or Finance Income,
respectively.
The
cumulative amounts in Other comprehensive income are recorded in
the statement of comprehensive income in the periods in which the
item covered affects the comprehensive income. In the case of
interest rates hedge, this means the amounts recognized in equity
are reclassified as net finance income as interest is accrued on
associated debts.
Swap
contracts of interest rate are measured at their current value at
the closing of each period or fiscal year and are stated as assets
or liabilities depending on the rights and obligations emerging
from the respective contracts. Swap contracts were classified as
efficient hedge of cash flows risk. Changes in the accounting
measure of swap contracts are recognized in equity in the account
Other comprehensive income. These changes recognized in equity are
reclassified at the loss or income for the period or fiscal year in
which the interest of variable rate loans object of the hedge, are
recognized in the statement of comprehensive income.
If the
hedge instrument expires or is sold, it is expired or executed
without a replacement or successive renewal (as part of the hedging
strategy), or if its appointment as hedge is revoked, or if the
hedge no longer complies with the requirements to apply hedge
accountability, any cumulative revenue or loss previously
recognized in the other comprehensive income will stay separate in
equity until the expected transaction takes place. If in the future
transaction it is not expected to have the amount included in the
cash flow hedge reserve, it must be immediately reclassified to the
consolidated comprehensive income.
2.2.10.
Inventories
Inventories
are valued at the lower of acquisition cost restated according to
Note 2.1.2 and net realizable value. In the estimation of
recoverable values, the purpose of the asset to be measured and the
movements of items of slow or scarce rotation are taken into
account. Inventories balance is not higher than its net realizable
value at the corresponding dates.
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CENTRAL PUERTO S.A.
2.2.11.
Cash
and cash equivalents
Cash is
deemed to include both cash fund and freely-available bank deposits
on demand. Short-term deposits are deemed to include short-term
investments with significant liquidity and free availability that,
subject to no previous notice or material cost, may be easily
converted into a specific cash amount that is known with a high
degree of certainty upon the acquisition, are subject to an
insignificant risk of changes in value, maturing up to three months
after the date of the related acquisitions, and whose main purpose
is not investment or any other similar purpose, but settling
short-term commitments.
For the
purpose of the consolidated statement of financial position and the
consolidated statement of cash flows, cash and cash equivalents
comprise cash at banks and on hand and short-term investments
meeting the abovementioned conditions.
2.2.12.
Provisions
Provisions
are recognized when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required
to settle the obligation and a reliable estimate can be made of the
amount of the obligation. Where the Group expects some or all of a
provision to be reimbursed, for example under an insurance
contract, the reimbursement is recognized as a separate asset but
only when the reimbursement is virtually certain. The expense
relating to any provision is presented in the statement of income
under the item that better reflects the nature of the provision net
of any reimbursement to the extent that the latter is virtually
certain.
If the
effect of the time value of money is material, provisions are
discounted using a current pre-tax market rate that reflects, where
appropriate, the risks specific to the liability. Where discounting
is used, the increase in the provision due to the passage of time
is recognized as a finance cost in the statement of
income.
–
Provision for
lawsuits and claims
In the
ordinary course of business, the Group is exposed to claims of
different natures (e.g., commercial, labor, tax, social security,
foreign exchange or customs claims) and other contingent situations
derived from the interpretation of current legislation, which
result in a loss, the materialization of which depends on whether
one more events occur or not. In assessing these situations,
Management uses its own judgment and advice of its legal counsel,
both internal and external, as well as the evidence available as of
the related dates. If the assessment of the contingency reveals the
likelihood of the materialization of a loss and the amount can be
reliably estimated, a provision for lawsuits and claims is recorded
as of the end of the reporting period.
2.2.13.
Contingent
liabilities
A
contingent liability is: (i) a possible obligation that arises from
past events and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events
not wholly within the control of the entity; or (ii) a present
obligation that arises from past events but is not recognized
because:
(a) it
is not probable that an outflow of resources embodying economic
benefits will be required to settle the obligation; or (2) the
amount of the obligation cannot be measured with sufficient
reliability.
A
contingent liability is not recognized in financial statements; it
is reported in notes, unless the possibility of an outflow of
resources to settle such liability is remote. For each type of
contingent liability as of the relevant reporting period-end dates,
the Group shall disclose (i) a brief description of the nature of
the obligation and, if possible, (ii) an estimate of its financial
impact; (iii) an indication of the uncertainties about the amount
or timing of those outflows; and (iv) the possibility of obtaining
potential reimbursements.
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CENTRAL PUERTO S.A.
2.2.14.
Contingent
assets
A
contingent asset is a possible asset that arises from past events
and whose existence will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly
within the control of the Group.
A
contingent asset is not recognized in financial statements; it is
reported in notes only where an inflow of economic benefits is
probable. For each type of contingent asset as of the relevant
reporting period-end dates, the Group shall disclose (i) a brief
description of the nature thereof and, if possible, (ii) an
estimate of its financial impact.
2.2.15.
Employee
benefits
Employee
short-term benefits:
The
Group recognizes short-term benefits to employees, such as salary,
vacation pay, bonuses, among others, on an accrued basis and
includes the benefits arising from collective bargaining
agreements.
Post-employment
employee long-term benefits:
The
Group grants benefits to all trade-union employees when obtaining
the ordinary retirement benefit under the Argentine Integrated
Pension Fund System, based on multiples of the relevant
employees’ salaries.
The
amount recognized as a liability for such benefits includes the
present value of the liability at the end of the reporting period,
and it is determined through actuarial valuations using the
projected unit credit method.
Actuarial
gains and losses are fully recognized in other comprehensive income
in the period when they occur and immediately allocated to
unappropriated retained earnings (accumulated losses), and not
reclassified to income in subsequent periods.
The
Group recognizes the net amount of the following amounts as expense
or income in the statement of income for the reporting year: (a)
the cost of service for the current period; (b) the cost of
interest; (c) the past service cost, and (d) the effect of any
curtailment or settlement.
Other
long-term employee benefits:
The
Group grants seniority-based benefits to all trade-union employees
when reaching a specific seniority, based on their normal
salaries.
The
amount recognized as liabilities for other long-term benefits to
employees is the present value of the liability at the end of the
reporting period. The Group recognizes the net amount of the
following amounts as expense or income: (a) the cost of service for
the current period; (b) the cost of interest; (c) actuarial income
and loss, which shall be recognized immediately and in full; (d)
the past service cost, which shall be recognized immediately and in
full; and (e) the effect of any curtailment or
settlement.
2.2.16.
Share-based
payments
The
cost of share-based payments transactions that are settled with
equity instruments of one of our subsidiaries is determined by the
fair value at the date when the grant is made using an appropriate
valuation model.
This
cost is recognized in the consolidated financial statements under
employee benefits expense, together with a corresponding total
increase in non-controlling interest.
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CENTRAL PUERTO S.A.
During
the years ended December 31, 2019, 2018 and 2017 the expense booked
in the consolidated financial statements under employee benefits
expense amounts to 48,557, 20,566 and 7,930,
respectively.
2.2.17.
Investment
in associates
The
Group’s investments in associates are accounted for using the
equity method. An associate is an entity over which the Group has
significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the
investee, but is neither control nor joint control.
According
to the equity method, investments in associates are originally
booked in the statement of financial position at cost, plus (less)
the changes in the Group’s ownership interests in the
associates’ net assets subsequent to the acquisition date. If
any, goodwill relating to the associate is included in the carrying
amount of the investment and is neither amortized nor individually
tested for impairment.
If the
cost of the investments is lower than the proportional share as of
the date of acquisition on the fair value of the associate’s
assets and liabilities, a gain is recognized in the period in which
the investment was acquired.
The
statement of income reflects the share of the results of operations
of the associates adjusted on the basis of the fair values
estimated as of the date on which the investment was incorporated.
When there has been a change recognized directly in the equity of
the associates, the Group recognizes its share of any changes and
includes them, when applicable, in the statement of changes in
equity.
The
Group’s share of profit of an associate is shown in a single
line on the main body of the consolidated statement of income. This
share of profit includes income or loss after taxes of the
associates.
The
financial information of the associates is prepared for the same
reporting period as the Group. When necessary, adjustments are made
to bring the accounting policies of the associates in line with
those of the Group.
After
application of the equity method, the Group determines whether it
is necessary to recognize impairment losses on its investment in
its associates. At each reporting date, the Group determines
whether there is objective evidence that the value of investment in
the associates has been impaired. If such was the case, the Group
calculates the amount of impairment as the difference between the
recoverable amount of the investment in the associates and its
carrying value, and recognizes the loss as “Share of losses
of an associate” in the statement of income.
Upon
loss of significant influence over the associate, the Group
measures and recognizes any retained investment at its fair value.
If such was the case, any difference between the carrying amounts
of the investment in the associate and the fair value on any
retained investment, as well as the disposal proceeds, are
recognized in the statement of income.
The
information related to associates is included in Note
3.
2.2.18.
Information
on operating segments
For
management purposes, the Group is organized in four different
business units to carry out its activities, as
follows:
–
Electric power
generation from conventional sources: the Group is engaged in the
production of electric power from conventional sources and its
sale. This business unit does not include La Plata plant operations
due to the sale of such facility (See Note 22.8).
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CENTRAL PUERTO S.A.
–
Electric power
generation from renewable sources: the Group also is engaged in the
production of electric power from renewable sources and its
sale.
–
Natural gas
transport and distribution: through its equity investees companies
Distribuidora de Gas del Centro S.A. and Distribuidora de Gas
Cuyana S.A. the Group is engaged in the natural gas distribution
public sector service in the Cuyo and Centro regions of Argentina
and it is also engaged in the natural gas transport sector service
through its equity investee Company Transportadora de Gas del
Mercosur S.A. Also, the Company resells certain gas transport and
distribution capacity that was previously contracted by the
Company.
–
Management and
operations of thermal plants: through its equity investees
Termoeléctrica José de San Martín S.A. and
Termoeléctrica Manuel Belgrano S.A. and its subsidiary Central
Vuelta de Obligado S.A. the Group is engaged in the management and
operations of these thermal plants.
The
Group has three reporting segments: production of electric power
from conventional sources, production of electric power from
renewable sources and natural gas transport and distribution.
Management and operations activities are included in others,
because the information is not material.
The
financial performance of segments is evaluated based on net income
and measured consistently with the net income disclosed in the
financial statements (Note 4).
2.2.19.
Non-current
assets held for sale and discontinued operations
The
Group classifies non-current assets and disposal groups as held for
sale if their carrying amounts will be recovered principally
through a sale transaction or its distribution to the shareholders
rather than through continuing use. Such assets are measured at the
lower of their carrying amount and fair value less costs to sell.
Costs to sell are the incremental costs directly attributable to
the disposal of an asset (disposal group), excluding finance costs
and income tax expense.
The
criteria for held for sale classification is regarded as met only
when the sale is highly probable and the asset or disposal group is
available for immediate sale in its present condition. Actions
required to complete the sale should indicate that it is unlikely
that significant changes to the sale will be made or that the
decision to sale will be withdrawn. Management must be committed to
the plan to sell the asset and the sale expected to be completed
within one year from the date of the classification.
Property,
plant and equipment and intangible assets are not depreciated or
amortized once classified as held for sale.
Assets
and liabilities classified as held for sale are presented
separately as current items in the consolidated statement of
financial position.
A
disposal group qualifies as discontinued operation if:
–
It is a component
of the Group that represents a cash generating unit or a group of
cash generating units,
–
it is classified as
held for sale or as for distribution to equity holders, or it has
already been disposed for distribution to the shareholders,
and;
–
it represents a
separate major line of business or geographical area of operations
or it is a subsidiary acquired exclusively with a view to
resale.
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CENTRAL PUERTO S.A.
Discontinued
operations are excluded from the results of continuing operations
and are presented as a single amount as income or loss after tax
from discontinued operations in the consolidated statement of
income.
Additional
disclosures are provided in Note 21. All other notes to the
consolidated financial statements include amounts for continuing
operations, unless indicated otherwise.
2.2.20.
Business
combinations
Business
combinations are accounted for using the acquisition method when
the Group takes effective control of the acquired
business.
The
Group will recognize in its financial statements the acquired
identifiable assets, the liabilities assumed, any non-controlling
interest and, if any, goodwill according to IFRS 3.
The
cost of an acquisition is measured as the aggregate of the
consideration transferred, which is measured at acquisition date
fair value, and the amount of any non-controlling interest in the
acquiree. The Group elects whether to measure the non-controlling
interest in the acquiree at fair value or at the proportionate
share of the acquiree´s identifiable net assets.
If the
business combination is made in stages, the Group will measure
again its previous holding at fair value at the acquisition date
and will recognize income or loss in the consolidated statement of
comprehensive income.
Goodwill is
initially measured at cost, being the excess of the aggregate of
the consideration transferred and the amount recognized for
non-controlling interests and any previous interest held over the
net identifiable assets and the liabilities assumed. If this
consideration transferred is lower than the fair value of the
identifiable assets and the liabilities assumed, the gain is
recognized in the consolidated statement of comprehensive
income.
As
described in Note 22.10, on June 14, 2019, the Company acquired the
Thermal Station Brigadier López (“the Station”)
and the land on which the Station is located. The fair value of the
identifiable assets and liabilities transferred at the date of the
acquisition, which was determined in accordance with IFRS 3, is as
follows:
ARS
000
Assets
Property, plant and
equipment
10,490,386
Intangible
assets
6,094,377
Other non-financial
assets
37,177
Trade and other
receivables, net
751,875
17,373,815
Liabilities
Other loans and
borrowings
(8,429,947)
Compensation and
employee benefits liabilities
(9,028)
(8,438,975)
Total
identifiable net assets measured at fair value
8,934,840
The
business combination was accounted for using the “acquisition
method” set forth in IFRS 3. Even though the legal,
economic-financial, tax, technical effects and any other effects
produced after the execution of the transference agreement, were
deemed as produced as from April 1, 2019, the Company considered,
in order to comply with IFRS 3, that the acquisition date was June14, 2019; thus, the Company has recognized the business combination
as from that date. As a result of the application of such method,
the Company considers that the consideration transferred is similar
to the fair value of the assets acquired and liabilities assumed at
the acquisition date.
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CENTRAL PUERTO S.A.
The
Company has made the purchase price allocation and the valuation at
fair value of the identifiable assets and the liabilities assumed
based on an independent assessment made by a
specialist.
The
results from the operation of the Station and the results related
to the associated financial debt, that were both accrued after the
acquisition date, amounted to: 3,413,265 for revenues; 3,071,360
for financial costs of the financial debt; and 119,047 loss before
income tax (without considering impairment of property, plant and
equipment and intangible assets for 3,158,799 described in Note
2.2.8). These results have been included in the consolidated
statement of income for the year ended December 31,2019.
The
Company does not have the necessary information to disclose the
foregoing figures as if the acquisition of the Station took place
at the beginning of this fiscal year.
2.3.
Significant
accounting estimates and assumptions
The
preparation of the Group’s financial statements requires
management to make significant estimates and assumptions that
affect the recorded amounts of revenues, expenses, assets and
liabilities, and the disclosure of contingent liabilities, at the
end of the reporting period. In this sense, the uncertainties
related to the estimates and assumptions adopted could give rise in
the future to final results that could differ from those estimates
and require significant adjustments to the amounts of the assets
and liabilities affected.
The key
assumptions concerning the future and other key sources of
estimation uncertainty at the end of the reporting period, that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year, are described below. The Group based its accounting
assumptions and significant estimates on parameters available when
the financial statements were prepared. Existing circumstances and
assumptions about future developments, however, may change due to
market changes or circumstances arising beyond the control of the
Group. Such changes are reflected in the assumptions when they
occur.
The terms for collection and the valuation of accumulated amounts
related to receivables under Resolution 95 and receivables under
Resolution 406 (from 2008 and thereafter).
Collection
of the principal and interest on these receivables is subject to
various business risks and uncertainties including, but not limited
to, regulatory changes that could impact the timing and amount of
collections, and economic conditions in Argentina. These
assumptions are reviewed at the end of each reporting period.
Actual future cash flows could differ from these
estimates.
Recoverability of property, plant and equipment and intangible
assets:
At each
closing date of the reported period, the Group evaluates if there
is any sign that the property, plant and equipment and/or
intangible assets with finite useful lives may have their value
impaired. Impairment exists when the book value of assets related
to the Cash Generating Unit (CGU) exceeds its recoverable value,
which is the higher between its fair value loss costs of sale of
such asset and value in use. The value in use is calculated through
the estimation of future cash flows discounted at their present
value through a discount rate that reflects the current assessments
of the market over the temporal value of money and the specific
risks of each CGU. Projection calculations cover a five-year
period. The recoverable value is sensitive to the used discount
rate, as well as the estimated inflows and the growth
rate.
The probability of occurrence and the amount of liabilities related
to lawsuits and claims:
The
Group based its estimates on the opinions of its legal counsel
available when the consolidated financial statements were prepared.
Existing circumstances and assumptions, however, may change due to
changes in circumstances arising beyond the control of the
Group.
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CENTRAL PUERTO S.A.
Long-term employee benefit plan
The
plan costs are determined by actuarial valuations. Actuarial
valuations involve several assumptions that might differ from the
results that will actually occur in the future.
These
assumptions include the assessment of the discount rate, future
salary increases and mortality rates. Due to the complexity of the
valuation, the underlying assumptions and its long-term nature, the
benefit obligations are sensitive to changes in these assumptions.
These assumptions are reviewed at the end of each reporting
period.
2.4.
New
standards and interpretations adopted
As from
the fiscal year beginning January 1, 2019, the Group has applied
for the first time certain new and/or amended standards and
interpretations as issued by the IASB.
A brief
description of the new and/or amended standards and interpretations
adopted by the Group and their impact on these consolidated
financial statements, are presented below.
IFRS 16 Leases
In
January 2016, the IASB issued the final version of IFRS 16 and it
replaces IAS 17 Leases, IFRIC 4 Determining whether an arrangement
contains a lease, SIC-15 Operating leases-incentives and SIC-27
Evaluating the substance of transactions involving the legal form
of a lease. IFRS 16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases and requires
lessees to account for all leases under a single on-balance sheet
model similar to the accounting for finance leases under IAS 17.
The standard includes two recognition exemptions leases of
“low-value” assets (e.g., personal computers) and
short-term leases (i.e., leases with a lease term of 12 months or
less). At the commencement date of a lease, a lessee will recognize
a liability to make lease payments (i.e., the lease liability) and
an asset representing the right to use the underlying asset during
the lease term (i.e., the right to-use asset). Lessees will be
required to separately recognize the interest expense on the lease
liability and the depreciation expense on the rightof - use
asset.
Lessor
accounting under IFRS 16 is substantially unchanged from
today’s accounting under IAS 17. Lessors will continue to
classify all leases using the same classification principle as in
IAS 17 and distinguish between two types of leases: operating and
finance leases. IFRS 16 also requires lessees and lessors to make
more extensive disclosures than under IAS 17. IFRS 16 is effective
for annual periods beginning on or after January 1, 2019. Early
adoption is permitted, but not before the entity applies IFRS 15. A
lessee can choose to apply the standard using either a full
retrospective or modifies retrospective approach.
As of December 31,2019, these changes did not have significant impact on the
consolidated financial statements of the Group.
IFRIC Interpretation 23 - Uncertainty over Income Tax
Treatments
In June
2017, the IASB issued IFRIC Interpretation 23 - Uncertainty over
Income Tax Treatments. The Interpretation clarifies application of
recognition and measurement requirements in IAS 12 Income Taxes
when there is uncertainty over income tax treatments. The
Interpretation specifically addresses the following: (a) whether an
entity considers uncertain tax treatments separately, (b) the
assumptions an entity makes about the examination of tax treatments
by taxation authorities, (c) how an entity determines taxable
profit (tax loss), tax bases, unused tax losses, unused tax credits
and tax rates and (d) how an entity considers changes in facts and
circumstances. IFRIC 23 is effective for annual periods beginning
on or after January 1, 2019.
F-39
CENTRAL PUERTO S.A.
The
Group determines whether each tax treatment should be considered
independently or whether some tax treatments should be considered
together, and uses an approach that provides better predictions of
the resolution of the uncertainty.
The
Group applies significant judgment when identifying uncertainties
on the income tax treatment. The Group evaluated whether the
Interpretation had an impact on its consolidated financial
statements, especially within the framework of tax inflation
adjustment in determining the tax income of mentioned
periods:
a)
Income tax return
for fiscal year 2014
In
February 2015 CPSA, for itself and as the successor company of
Hidroeléctrica Piedra del Águila (HPDA) (the merged
company) filed income tax returns for the nine-month period ended
September 30, 2014, applying the adjustment for inflation mechanism
established by the Argentine Income Tax Law. In addition, the
Company filed its income tax return for the three-month period
ended December 31, 2014, applying the same adjustment for inflation
mechanism established by the Argentine Income Tax Law.
b)
Action for recovery
- Income tax refund for fiscal period 2010
In
December 2014, the Company, as merging company and continuing
company of HPDA, filed an action for recovery with the tax
authorities regarding the income tax for the fiscal period 2010
that amounted to 67,383 at historical values (537,681 adjusted for
inflation), which was incorrectly entered by HPDA. This recourse
action seeks to recover the income tax entered by HPDA in
accordance with the lack of application of the inflation -
adjustment mechanism established by the Income Tax Law. In December
2015, the term stated by Law no. 11 683 elapsed, the Company
brought a contentious-administrative claim before the National
Court to ask for its right to recourse for an amount of 67,612 at
historical values (539,508 adjusted for inflation).
In
October 2018, the Company was served notice of the judgment issued
by the Federal Contentious- Administrative Court No. 5, which
granted the right to recourse. The judgment ordered tax authorities
to return the amount of 67,612 (at historical values) to the
Company plus the interest stated in the BCRA Communication 14290
and ordered that legal cost must be borne by the defendant. Such
judgment was appealed by the National Tax Administration, and on
September 9, 2019, Division I of the National Court of Appeals of
the Federal Contentious- Administrative Court
(“CNACAF”) confirmed the appealed judgment. On
September 24, 2019, the National Tax Administration raised Federal
Extraordinary Appeal (“REF”) against CNACAF judgment,
which was replied by the Company. On October 29, 2019, CNACAF
granted the REF and sent the file to the Argentine Supreme
Court.
c)
Action for recovery
- income tax refund for fiscal years 2009, 2011 and
2012
In
December 2015, the Company filed an action for recovery with the
Argentine Tax Authorities in relation to income tax for the fiscal
year 2009, in the amount of 20,395 at historical values (183,240
adjusted for inflation) which had been incorrectly paid by the
Company in excess of our income tax liability. By filling such
action, we seek to recover the excess income tax paid by CPSA due
to the failure to apply the adjustment for inflation set forth in
the Argentine Income Tax Law. On April 22, 2016, after the term
required by Law No. 11,683 expired, the Company filed an action for
recovery for the amount claimed with the Argentinean Tax Court. On
September 27, 2019, the judge entered judgment rejecting the
complaint filed by the Company. Such judgment was appealed by the
Company last October 4, 2019.
In December 2018, the Company filed two administrative actions
for recovery with AFIP: the first one was filed by the Company, as
merging company and continuing company of HPDA, regarding the
income tax for the
fiscal period 2012 that amounted to 62,331 at historical values (389,131 adjusted for inflation),
F-40
CENTRAL PUERTO S.A.
which
was entered in excess by HPDA. The second action for recovery was
filed by the Company regarding the income tax for the same fiscal
period that amounted to 33,265 at historical value (207,673
adjusted for inflation), which was entered in excess by the
Company. These actions seek to recover the income tax entered by
HPDA and the Company in accordance with the lack of application of
the inflation-adjustment mechanism aforementioned. On September 12,2019, the Company filed both actions with the Federal Contentious-
Administrative Court against AFIP-DGI in accordance with Section
82, paragraph “c” of Law no. 11,683 (restated text 1998
as amended), as the term established in the second paragraph of
Section 81 of such law had elapsed.
After
adopting the Interpretation, the Group considered, based on the
opinion of its legal advisors and considering the new guidelines
introduced by IFRIC 23: 1) regarding the income tax 2014
determination stated in a), that it is probable that tax
authorities will accept the Company’s position and,
therefore, it is not required to record a liability under such
item, and 2) regarding actions for recovery of income tax, except
for the case of the action for recovery filed by HPDA for the
fiscal period 2011, that it is also probable that tax authorities
will accept the Company’s positions; therefore, an asset has
been recognized for such actions.
Consequently, the
Company has recognized an income for 756,526 regarding the adoption
of IFRIC 23, with an impact on retained earnings at the beginning
of this fiscal year, as it is established by the Interpretation,
and an asset for 127,441 included in the item “Other
non-financial assets” of Current Assets under “Income
Tax Credits”.
2.5.
IFRS
issued but not yet effective
The
following new and/or amended standards and interpretations have
been issued but were not effective as of the date of issuance of
these consolidated financial statements of the Group. In this
sense, only the new and/or amended standards and interpretations
that the Group expects to be applicable in the future are
indicated. In general, the Group intends to adopt these standards,
as applicable, when they become effective.
Amendments to IFRS 3: Definition of a business
In
October 2018, IASB issued amendments to the definition of a
business through IFRS 3 “Business combinations” to make
it easier for companies to decide whether activities and assets
they acquire are a business or not. The standard clarifies the
minimum requirements for the existence of a business, removes the
test on whether market participants can replace the missing
elements; it adds a guide to help companies evaluate if an acquired
process is significant; it reduces the definitions of a business
and results, and it introduces an optional concentration test of
reasonable value. New examples were provided together with the
amendments.
Since
amendments are applied prospectively to the transactions or other
events that occur on the date of the first application or later,
the Group shall not be affected by these amendments on the
transition date.
Amendments to IAS 1 and to IAS 8: Definition of
material
In
October 2018, IASB issued amendments to IAS 1 “Presentation
of Financial Statements” and to IAS 8 “Accounting
Policies, Changes in Accounting Estimates and Errors” to
align the definition of “material” through the
standards and to clarify certain aspects of the definition. The new
definition establishes that: “Information is material if
omitting, misstating or obscuring it could reasonably be expected
to influence decisions that the primary users of general purpose
financial statements make on the basis of those financial
statements, which provide financial information about a specific
reporting entity.”
F-41
CENTRAL PUERTO S.A.
The
amendment to the definition of material is not expected to have a
significant impact on the consolidated financial statements of the
Group.
3.
Investment
in associates
The
book value of investment in associates as of December 31, 2019 and
2018 amounts to:
12-31-2019
12-31-2018
ARS
000
ARS
000
Termoeléctrica
José de San Martin S.A.
64,947
85,365
Termoeléctrica
Manuel Belgrano S.A.
69,836
75,590
ECOGAS Group (Note
3.2)
3,219,803
2,810,346
Transportadora de
Gas del Mercosur S.A.
95,879
102,574
Others
104
213
3,450,569
3,074,088
The
share of the profit of associates for the years ended December 31,2019, 2018 and 2017 amounts to
2019
2018
2017
ARS
000
ARS
000
ARS
000
Termoeléctrica
José de San Martin S.A.
45,936
55,244
50,463
Termoeléctrica
Manuel Belgrano S.A.
44,762
44,958
53,506
ECOGAS Group (Note
3.2)
1,021,975
1,555,590
1,117,929
Transportadora de
Gas del Mercosur S.A.
(6,695)
(4,040)
582,119
Others
7,319
693
443
1,113,297
1,652,445
1,804,460
3.1.
TJSM
and TMB
As of
December 31, 2019, the Group has a 30.8752% interest in TSM and
30.9464% interest in TMB, which are engaged in managing the
purchase of equipment, and building, operating and maintaining the
power plants. TSM and TMB are private, unlisted
companies.
After
termination of the supply agreements with TSM and TMB dated
February 2, 2020 and January 7, 2020, respectively, as described in
Note 1.2 a), trust agreements also terminated. As from those dates,
a 90-workingday period commenced in which TSM and TMB and their
shareholders had to perform all the company acts necessary to allow
the Argentine Government to receive the corresponding shares in the
capital of TSM and TMB that their contributions give them rights
to.
On
January 3, 2020, i.e. before the aforementioned 90-day period
commenced, the Argentine Government (through the Ministry of
Productive Development) served notice to the Company (together with
TSM, TMB and their other shareholders and BICE, among others)
stating that, according to the Final Agreement for the
Re-adaptation of WEM, TSM and TMB shall perform the necessary acts
to incorporate the Argentine Government as shareholder of both
companies, acknowledging the same equity interest rights: 65.006%
in TMB and 68.826% in TSM. On January 9, 2020, the Company,
together with the other generation shareholders of TSM and TMB,
rejected such act understanding that the equity interest the
Government claims does not correspond with the contributions made
for the construction of power stations and that gave it right to
claim such equity interest. On March 4, 2020, we were notified on
two notes sent by the Minister of Productive Development whereby
they answered the one sent by the Company on January 9, 2020 -
mentioned above -, ratifying the terms of the note notified to the
Company on January 3, 2020. At the issue date of these financial
statements, the Company is evaluating future steps.
F-42
CENTRAL PUERTO S.A.
On the
other hand, the Company, together with the other shareholders of
TSM and TMB (as guarantor within the framework and the limits
stated by the Final Agreement for the Re-adaptation of WEM, Note SE
no. 1368/05 and trust agreements), BICE, TSM, TMB and SE signed: a)
on January 7, 2020 an amendment addenda of the Operation and
Maintenance (“OMA”) of Thermal Manuel Belgrano and b)
on January 9, 2020 an amendment addenda of the Operation and
Maintenance Agreement (“OMA”) of Thermal San
Martín, for which the validity of TMB and TSM OMA was extended
until the effective transference of the trust’s liquidation
equity.
The
values recorded in these financial statements for the investments
in TMB and TSM are detailed in Note 3.
During
the years ended December 31, 2019 and 2018, the Company received
cash dividends from TMB and TSM for 117,227 and 84,337,
respectively.
3.2.
Investments
in gas distribution
The
Group holds ownership interests of 42.31% in Inversora de Gas del
Centro S.A. (“IGCE”, the controlling company of
Distribuidora de Gas del Centro S.A. “DGCE” and
Distribuidora de Gas Cuyana S.A. “DGCU”) and 17.20% in
DGCE (from now on, “ECOGAS Group”). Consequently, the
Group holds, both directly and indirectly, a 40.59% of the capital
stock of DGCE, and, indirectly, a 21.58% interest in DGCU, both of
which are engaged in the distribution of natural gas. The Company
does not control such companies.
IGCE is
a private, unlisted company which holds a 51% equity interest in
DGCE, a company engaged in the distribution of natural gas in the
provinces of Cordoba, La Rioja and Catamarca, Argentine, and a 51%
equity interest in DGCU, a company engaged in the distribution of
natural gas in the provinces of Mendoza, San Juan and San
Luis.
During
September 2019, the Group received dividends of 278,868 from ECOGAS
Group. On October 31, 2019 the Group received dividends of 333,653
from ECOGAS Group.
On
February 23, 2018, the Company´s Board of Directors approved
the sale process of up to 27,597,032 DGCE shares, which represent
17,20% of its capital stock, through a potential initial public
offering of DGCE in the Argentine Republic. On March 14, 2018, the
Company authorized the offer of up to 10,075,952 shares of DGCE,
subject to market conditions. However, due to market reasons, DGCE
shareholders decided to postpone the offer. On October 24, 2019,
CNV notified DGCE on the resolution whereby it decided to cancel,
as of that date, the authorization given to DGCE to make a public
offer of its shares due to an absence of negotiable instruments
placing.
3.3.
Transportadora
de Gas del Mercosur S.A.
The
Group has a 20% interest in Transportadora de Gas del Mercosur S.A.
(“TGM”). This Company has a gas pipeline that covers
the area from Aldea Brasilera (in the Province of Entre Ríos)
to Paso de los Libres (in the Province of Corrientes). In 2009, TGM
terminated its contract with YPF, which was its only client to
date, on the grounds of consecutive non-compliances. On December22, 2017, YPF agreed to pay TGM USD 114,000,000 as full and final
settlement to cover all the complaints TGM claims against YPF. TGM
is a private unlisted company.
F-43
CENTRAL PUERTO S.A.
4.
Operating
segments
The
following provides summarized information of the operating segments
for the years ended December 31, 2019, 2018 and 2017:
2019
Electric Power
Generation from conventional sources
Electric Power
Generation from renewable sources
Natural Gas
Transport and Distribution (1) (2)
Others
(1)
Adjustmentsand
Eliminations
Total
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
Revenues
32,118,483
3,045,780
30,024,854
1,674,019
(30,902,352)
35,960,784
Cost of
sales
(17,637,834)
(728,031)
(22,336,691)
(1,090,658)
22,836,540
(18,956,674)
Administrative and
selling expenses
(2,363,535)
(269,870)
(3,925,748)
-
3,925,748
(2,633,405)
Other operating
income
18,246,996
84,528
1,147,076
21,680
(1,147,076)
18,353,204
Other operating
expenses
(13,676)
(253,440)
(37,761)
(3,638)
37,761
(270,754)
Impairment of
property, plant and equipment and intangible assets
(4,404,442)
-
-
-
-
(4,404,442)
Operating
income
25,945,992
1,878,967
4,871,730
601,403
(5,249,379)
28,048,713
Other (expenses)
income
(17,701,140)
(2,756,412)
(1,938,960)
(161,921)
3,170,575
(19,387,858)
Net income for the
segment
8,244,852
(877,445)
2,932,770
439,482
(2,078,804)
8,660,855
Share
in the net income for the segment
8,244,852
(877,445)
1,047,213
246,235
-
8,660,855
2018
Electric Power
Generation from conventional sources
Electric Power
Generation from renewable sources
Natural Gas
Transport and Distribution (1) (2)
Others
(1)
Adjustmentsand
Eliminations
Total
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
Revenues
20,323,323
921,939
26,306,641
1,697,151
(27,304,293)
21,944,761
Cost of
sales
(9,208,981)
(271,617)
(17,463,403)
(1,020,126)
17,985,484
(9,978,643)
Administrative and
selling expenses
(1,981,869)
(155,380)
(3,113,691)
-
3,113,691
(2,137,249)
Other operating
income
20,202,668
115,074
354,251
23,273
(354,251)
20,341,015
Other operating
expenses
(92,676)
(109,556)
(86,149)
(2,182)
86,149
(204,414)
CVO receivables
update
16,947,737
-
-
-
-
16,947,737
Operating
income
46,190,202
500,460
5,997,649
698,116
(6,473,220)
46,913,207
Other (expenses)
income
(18,591,109)
(2,680,494)
(1,766,571)
(223,892)
2,360,781
(20,901,285)
Net income for the
segment
27,599,093
(2,180,034)
4,231,078
474,224
(4,112,439)
26,011,922
Share
in the net income for the segment
27,599,093
(2,180,034)
392,480
200,383
-
26,011,922
2017
Electric Power
Generation from conventional sources
Electric Power
Generation from renewable sources
Natural Gas
Transport and Distribution (1)
Others
(1)
Adjustmentsand
Eliminations
Total
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
Revenues
14,827,241
-
16,276,782
1,140,257
(17,417,039)
14,827,241
Cost of
sales
(7,997,976)
-
(11,477,562)
(731,478)
12,209,040
(7,997,976)
Administrative and
selling expenses
(1,576,650)
(48,216)
(2,634,414)
-
2,634,414
(1,624,866)
Other operating
income
1,415,872
14,865
5,289,224
-
(5,289,224)
1,430,737
Other operating
expenses
(199,642)
(15,936)
(72,944)
-
72,944
(215,578)
Operating
income
6,468,845
(49,287)
7,381,086
408,779
(7,789,865)
6,419,558
Other (expenses)
income
(1,212,375)
(133,091)
(879,511)
(80,307)
2,763,834
458,550
Net income for the
segment
5,256,470
(182,378)
6,501,575
328,472
(5,026,031)
6,878,108
Share
in the net income for the segment
5,256,470
(182,378)
1,700,048
103,968
-
6,878,108
(1)
Includes
information from associates.
(2)
Includes income
(expenses) related to resale of gas transport and distribution
capacity.
F-44
CENTRAL PUERTO S.A.
Major customers
During
the years ended December 31, 2019, 2018 and 2017 revenues from
CAMMESA amounted to 96%, 93% and 95%, respectively, from total
Group revenues.
5.
Revenues
2019
2018
2017
ARS
000
ARS
000
ARS
000
Revenues from
Resolution 1, SEE 19, SGE Resolution 70/2018, and
amendments
Includes 23,686,
52,908 and 53,489 related to receivables under FONINVEMEM I and II
Agreements for the years ended December 31, 2019, 2018 and
2017, respectively. It also includes 2,425,779 and 1,707,897
related to CVO receivables for the years ended December 31, 2019
and 2018, respectively.
(2)
Includes 450,546,
1,019,092 and 261,589 related to receivables under FONINVEMEM I and
II Agreements for the years ended December 31, 2019, 2018 and
2017, respectively. It also includes 10,775,554 and 15,567,267
related to CVO receivables for the years ended December 31, 2019
and 2018.
7.2.
Other
operating expenses
2019
2018
2017
ARS
000
ARS
000
ARS
000
Charge related to
the provision for lawsuits and claims
(5,282)
(136,959)
(157,223)
Impairment of
material and spare parts
(31,568)
(58,295)
(52,920)
Charge related to
the allowance for doubtful accounts
(9,667)
-
-
Charge related to
discount tax credits
(223,885)
-
-
Others
(352)
(9,160)
(5,435)
(270,754)
(204,414)
(215,578)
7.3.
Finance
income
2019
2018
2017
ARS
000
ARS
000
ARS
000
Interest
earned
29,483
79,534
366,630
Net income on
financial assets at fair value through profit or loss
(1)
1,261,304
785,696
171,545
Foreign exchange
differences
2,309,920
2,048,075
103,034
Net income on
disposal of financial assets at fair value through other
comprehensive income (1)
-
594,371
1,756,755
3,600,707
3,507,676
2,397,964
(1)
Net of 96,035,
55,524 and 139,001 corresponding to turnover tax for the years
ended December 31, 2019, 2018 and 2017.
7.4.
Finance
expenses
2019
2018
2017
ARS
000
ARS
000
ARS
000
Interest on loans
and borrowings from CAMMESA
(3,211,221)
(2,274,567)
(1,709,009)
Foreign exchange
differences
(12,028,829)
(7,328,225)
(124,072)
Bank commissions
for loans and others
(160,134)
(90,005)
(13,914)
Others
(524,683)
-
-
(15,924,867)
(9,692,797)
(1,846,995)
F-46
CENTRAL PUERTO S.A.
8.
Movements
from financial assets at fair value through other comprehensive
income
2019
2018
2017
ARS
000
ARS
000
ARS
000
Financial
assets at fair value through other comprehensive
income
Gain for the
year
-
98,727
693,767
Reclassification
adjustments to income
-
(631,953)
(1,875,808)
Loss
for financial assets at fair value through other comprehensive
income
-
(533,226)
(1,182,041)
9.
Income
tax
The
major components of income tax during the years ended December 31,2019, 2018 and 2017, are the following:
Consolidated statements of income and comprehensive
income
Consolidated statement of income
2019
2018
2017
ARS
000
ARS
000
ARS
000
Current
income tax
Income tax charge
for the year
(6,955,388)
(8,486,629)
(2,911,706)
Adjustment related
to current income tax for the prior year
27,900
(8,130)
75,019
Deferred
income tax
Related to the net
variation in temporary differences
1,182,246
(1,664,873)
1,173,486
Income
tax
(5,745,242)
(10,159,632)
(1,663,201)
Consolidated statement of comprehensive income
2019
2018
2017
ARS
000
ARS
000
ARS
000
Income
tax for the year related to items charged or credited directly to
equity
Deferred income tax
income (expense)
11,563
203,772
420,226
Income
tax credited charged to other comprehensive income
11,563
203,772
420,226
F-47
CENTRAL PUERTO S.A.
The
reconciliation between income tax in the consolidated statement of
income and the accounting income multiplied by the statutory income
tax rate for the years ended December 31, 2019, 2018 and 2017, is
as follows:
2019
2018
2017
ARS
000
ARS
000
ARS
000
Income before
income tax from continuing operations
14,406,097
36,171,554
8,541,310
Income before
income tax from discontinued operations
-
505,823
1,817,207
Income
before income tax
14,406,097
36,677,377
10,358,517
At statutory income
tax rate of 30%
(4,321,830)
(11,003,212)
-
At statutory income
tax rate of 35%
-
-
(3,625,481)
Share of the profit
of associates
175,163
(23,313)
240,131
Adjustment related
to current income tax for the prior year
27,900
(8,130)
73,943
Effect related to
statutory income tax rate change
82,096
282,393
2,103,769
Effect of IFRIC 23
adoption
63,751
-
-
Effect related to
the discount of income tax payable
(560,260)
1,122,483
130,070
Loss on net
monetary position
(920,182)
(605,627)
(1,236,983)
Business
combination tax effects
(194,965)
-
-
Others
(96,915)
(5,199)
51,380
(5,745,242)
(10,240,605)
(2,263,171)
Income tax
attributable to continuing operations
(5,745,242)
(10,159,632)
(1,663,201)
Income tax
attributable to discontinued operations
-
(80,973)
(599,970)
(5,745,242)
(10,240,605)
(2,263,171)
Deferred income tax
Deferred
income tax relates to the following:
Consolidated
statement of financial position
Consolidated
statement of income from continuing operations and statement of
other comprehensive income
12-31-2019
12-31-2018
2019
2018
2017
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
Trade
receivables
3,589
995
2,594
15,105
(674)
Provision for plant
dismantling
-
-
-
(89,283)
(34,923)
Other financial
assets
(275,414)
(224,629)
(50,785)
(135,569)
454,261
Employee benefit
liability
80,022
66,857
13,165
(6,335)
(15,799)
Provisions and
others
45,729
147,316(1)
28,614
22,303
14,143
Investments in
associates
(765,806)
(642,370)
(123,436)
(189,080)
(319,961)
Receivables
and other non-financial liabilities
-
-
-
-
2,321
Property,
plant and equipment - Material & spare parts - Intangible
assets
(4,574,935)
(5,356,873)
781,938
(809,037)
584,277
Deferred
income
(2,106,027)
(2,801,660)
695,633
(1,836,310)
910,065
Tax loss
carry-forward
1,653,837
1,436,586
217,251
1,363,333
-
Tax inflation
adjustment - Asset
449,144
-
449,144
-
-
Tax inflation
adjustment - Liability
(820,309)
-
(820,309)
-
-
Deferred
income tax (expense) income
1,193,809
(1,664,873)
1,593,710
Deferred
income tax liabilities, net
(6,310,170)
(7,373,778)
(1)
Includes 130,201 charged to retained earnings as effect of IFRIC 23
adoption.
F-48
CENTRAL PUERTO S.A.
As of
December 31, 2019, the Group holds tax loss carry-forward in its
subsidiaries for 1,653,838 that can be utilized against future
taxable profit from such entities as described below:
Expiration
year
2021
2022
2023
2024
Total
CP Achiras
S.A.U.
-
-
279,906
141,824
421,730
CP La Castellana
S.A.U.
313
22,742
576,312
240,785
840,152
CPR Energy
Solutions S.A.U.
-
4
1,086
62,386
63,476
CP Manque
S.A.U.
-
-
-
86,410
86,410
CP Los Olivos
S.A.U.
-
-
-
2,639
2,639
Vientos La Genoveva
S.A.U.
-
-
1,734
21,959
23,693
Vientos La Genoveva
II S.A.U.
-
-
49,888
165,786
215,674
Proener
S.A.U.
3
6
14
41
64
316
22,752
908,940
721,830
1,653,838
Deferred income tax liability, net, disclosed in the consolidated
statement of financial position
Consolidated
statement of financial position
2019
2018
ARS
000
ARS
000
Deferred income tax
asset
1,134,060
1,609,682
Deferred income tax
liability
(7,444,230)
(8,983,460)
Deferred
income tax liability, net
(6,310,170)
(7,373,778)
10.
Earnings
per share
Earnings
per share amounts are calculated by dividing net income for the
year attributable to equity holders of the parent by the weighted
average number of ordinary shares during the year, net number of
treasury shares.
There
are no transactions or items generating an effect of
dilution.
The
following reflects information on income and the number of shares
used in the earnings per share computations:
2019
2018
2017
ARS
000
ARS
000
ARS
000
Income
attributable to equity holders of the parent
Continuing
operations
8,808,815
26,525,968
6,922,583
Discontinued
operations
-
424,850
1,217,236
8,808,815
26,950,818
8,139,819
Weighted average
number of ordinary shares
1,505,170,408
1,505,170,408
1,505,170,408
There
have been no transactions involving ordinary shares or potential
ordinary shares between the reporting date and the date of issuance
of these consolidated financial statements that may produce a
dilution effect.
F-49
CENTRAL PUERTO S.A.
11.
Inventories
2019
2018
ARS
000
ARS
000
Non-current:
Materials and spare
parts
267,813
256,536
Provision for
obsolete inventory
(123,644)
(141,643)
144,169
114,893
Current:
Materials and spare
parts
648,343
325,579
Fuel
oil
7,461
11,477
Diesel
oil
1,790
2,754
657,594
339,810
12.
Property,
plant and equipment
Lands and
buildings
Electric power
facilities
Wind
turbines
Gas turbines
(1)
Construction in
progress (2)
Other
Total
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
Cost
01-01-2018
2,934,036
32,913,705
-
8,749,994
6,541,142
2,365,227
53,504,104
Additions
9,979
1,251,903
-
295,286
9,114,104
33,899
10,705,171
Transfers
1,273,272
969,761
5,414,664
(873,794)
(7,701,207)(3)
-
(917,304)
Disposals
-
(238,751)
-
-
(76,898)
(15,265)
(330,914)
12-31-2018
4,217,287
34,896,618
5,414,664
8,171,486
7,877,141
2,383,861
62,961,057
Additions
1,058,393(4)
8,475,993(4)
-
-
17,715,225(4)
62,547(4)
27,312,158
Transfers
1,037,544
606,026
4,461,649
(3,328,259)
(2,810,967)(3)
66
(33,941)
Disposals
-
-
-
-
-
(2,385)
(2,385)
12-31-2019
6,313,224
43,978,637
9,876,313
4,843,227
22,781,399
2,444,089
90,236,889
Lands and
buildings
Electric power
facilities
Wind
turbines
Gas
turbines
Construction in
progress
Other
Total
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
Depreciation
and impairment
01-01-2018
694,019
23,951,101
-
-
-
2,012,848
26,657,968
Depreciation for
the year
60,979
1,500,126
119,993
-
-
76,522
1,757,620
Disposals
-
(157,841)
-
-
-
(12,505)
(170,346)
12-31-2018
754,998
25,293,386
119,993
-
-
2,076,865
28,245,242
Depreciation for
the year
125,489
1,476,645
327,858
-
-
39,725
1,969,717
Disposals and
impairment
-
968,314
-
1,245,643
1,113,622
(2,382)
3,325,197
12-31-2019
880,487
27,738,345
447,851
1,245,643
1,113,622
2,114,208
33,540,156
Net
book value:
12-31-2019
5,432,737
16,240,292
9,428,462
3,597,584
21,667,777
329,881
56,696,733
12-31-2018
3,462,289
9,603,232
5,294,671
8,171,486
7,877,141
306,996
34,715,815
(1)
As of December 31,2019, 2018 and 2017, the Company held gas turbines, one of which
was transferred to construction in progress because it is being
used for new generation capacity in the project called
“Terminal 6 San Lorenzo”.
(2)
The Group has
capitalized borrowing costs for a total amount of 169,850, 212,387
and 16,520 during the years ended December 31, 2019, 2018 and
2017.
(3)
Includes 33,941 and
917,304 transferred during 2019 and 2018, respectively, to
intangible assets related to transmission lines and electrical
substations that were transferred to electric energy transportation
companies See Note 2.2.7.
(4)
Includes 1,041,387
belonging to real estate, 4,021,541 belonging to electric power
facilities, 5,423,017 belonging to construction progress and 4,441
belonging to other, that were added to the Company’s equity
through the business combination described in Note
2.2.20.
F-50
CENTRAL PUERTO S.A.
13.
Intangible
assets
Concession
right
Transmission
lines for Achiras and La Castellana wind farms
Electrical
substation for La Genoveva II wind farm
Turbogas and
turbosteam supply agreements for thermal station Brigadier
López
Other
Total
Cost
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
01-01-2018
12,160,063
-
-
-
1,095,324
13,255,387
Transfers
-
917,304(1)
-
-
-
917,304
12-31-2018
12,160,063
917,304
-
-
1,095,324
14,172,691
Additions
-
-
-
6,094,377
-
6,094,377
Transfers
-
9,171(1)
24,770(1)
-
-
33,941
12-31-2019
12,160,063
926,475
24,770
6,094,377
1,095,324
20,301,009
Amortization
and impairment
01-01-2018sss
9,118,079
-
-
-
1,078,192
10,196,271
Amortization for
the year
506,998
30,914
-
-
-
537,912
12-31-2018sss
9,625,077
30,914
-
-
1,078,192
10,734,183
Amortization for
the year
506,997
46,264
407
850,376
17,132
1,421,176
Impairment
-
-
-
1,076,863
-
1,076,863
12-31-2019
10,132,074
77,178
407
1,927,239
1,095,324
13,232,222
Net
book value
12-31-2018
2,534,986
886,390
-
-
17,132
3,438,508
12-31-2019
2,027,989
849,297
24,363
4,167,138
-
7,068,787
(1)
Transferred from property, plant and equipment. See Note
2.2.7.
Concession right of Piedra del Águila hydroelectric power
plant
Includes
the amounts paid as consideration for rights relating to the
concession of Piedra del Águila hydroelectric power plant
awarded by the Argentine government for a 30-year term, until
December 29, 2023. The Group amortizes such intangible asset based
on straight-line basis over the remaining life of the concession
agreement.
For a
concession arrangement to fall within the scope of IFRIC 12, usage
of the infrastructure must be controlled by the concession grantor.
This requirement is met when the following two conditions are
met:
–
the grantor
controls or regulates what services the operator must provide with
the infrastructure, to whom it must provide them, and at what
price; and
–
the grantor
controls the infrastructure, i.e., retains the right to take back
the infrastructure at the end of the concession.
Upon
Resolution 95 passed by Argentine government the Company´s
concession right of Piedra del Águila hydroelectric power
plant met both conditions above.
The
main features of the concession contract are as
follows:
Control and regulation of prices by concession grantor:
Pricing schedule approved by grantor;
Remuneration paid by: CAMMESA;
Grant or guarantee from concession grantor:
None;
Residual value: Infrastructure returned to grantor for no
consideration at end of concession;
Fees and royalties: the Intergovernmental Basin Authority is
entitled to a fee of 2.5% of the plant’s revenues, and the
provinces of Rio Negro and Neuquén are entitled to royalties
of 12% of such revenues. For the years ended December 31, 2019,
2018 and 2017, the fees and royalties amounted 367,787, 329,714 and
312,291, respectively and they were shown in operating expenses in
the consolidated statement of income.
Contractual
capital investment obligations and obligations relating to
maintenance expenditure on infrastructure under concession are not
significant.
Transmission lines of wind farms Achiras and La
Castellana
As
mentioned in Note 2.2.7, the Group finished the construction of
wind farms La Castellana and Achiras, whereby it was agreed to
construct high and medium tension lines and the electrical
substation to connect the wind farms to SADI, a part of which were
given to the companies transporting the energy in accordance with
the respective contracts; therefore, such companies are in charge
of the maintenance of such transferred installations. Consequently,
the Group recognized intangible assets for an amount of 917,304,
which were transferred from property, plant and equipment to
intangible assets.
Electrical substation of wind farm La Genoveva II
As
mentioned in Note 2.2.7, during 2019 the Group finished the
construction of wind farms La Genoveva II, whereby it was agreed to
construct the electrical substation that feeds the connection of
the wind farm to the SADI, a part of which were given to the
company transporting the energy; therefore, such company is in
charge of the maintenance of such transferred installations.
Consequently, the Group recognized intangible assets for an amount
of 24,770, which were transferred from property, plant and
equipment.
Turbogas and turbosteam supply agreements for Thermal Station
Brigadier López
During
fiscal year 2019, as a result of the business combination described
in Note 2.2.20, the Group recognized an intangible asset for
6,094,377 related to turbogas and turbosteam supply agreements
entered into with CAMMESA regarding Thermal Station Brigadier
López.
14.
Financial
assets and liabilities
14.1. Trade and other receivables
12-31-2019
12-31-2018
ARS
000
ARS
000
Non-current:
Trade receivables -
CAMMESA
24,249,101
25,646,269
Guarantee
deposits
43
66
24,249,144
25,646,335
Current:
Trade receivables -
CAMMESA
13,797,625
15,852,314
Trade receivables -
YPF SA and YPF Energía Eléctrica SA
316,194
116,693
Trade receivables -
Large users
399,328
135,368
Receivables from
associates and other related parties
816
1,324
Other
receivables
1,139,532
173,970
15,653,495
16,279,669
Allowance for
doubtful accounts - Note 14.1.1.
(12,548)
(5,696)
15,640,947
16,273,973
F-52
CENTRAL PUERTO S.A.
For the
terms and conditions of receivables from related parties, refer to
Note 19.
Trade
receivables from CAMMESA accrue interest, once they become due. The
Group accrues interest on receivables from CAMMESA according to the
nature of the receivables, as follows:
FONINVEMEN I and II: The Company accrues interests according
to the explicit rate agreed in the corresponding agreements for the
passage of time.
CVO receivables: The Company accrues interests since the
Commercial Approval date and according to the rate agreed in the
CVO agreement, as described in Note 1.2.a).
LVFVD (Sales Liquidations with Maturity Dates to be
Defined): The Company recognized interest on the LVFVDs when
CAMMESA determined the amount of interest and notified the Company
through a billing document.
Trade
receivables related to YPF and large users accrue interest as
stipulated in each individual agreement. The average collection
term is generally from 30 to 90 days.
FONINVEMEM I and II: The receivables under FONINVEMEM I and
II Agreements are included under “Trade receivables -
CAMMESA”. Such receivables are collected in 120 equal,
consecutive monthly installments beginning in February and January
2010, when Thermal Jose de San Martin and Thermal Manuel Belgrano
plants, commenced operations, respectively. Since those dates,
CAMMESA has made all payments of principal and interest in
accordance with the above-mentioned contractual
agreements.
During
the years ended December 31, 2019, 2018 and 2017 collections of
these receivables amounted to 1,126,122, 1,006,172 and 881,624,
respectively.
As
mentioned in Note 1.2.a), during January and February 2020 we
collected the last installments from the total 120 installments
that were established by TMB and TSM agreements,
respectively.
CVO receivables
As
described in note 1.2.a), in 2010 the Company approved the
“CVO agreement” and as from March 20, 2018, CAMMESA
granted the “Commercial Approval”.
Receivables
under CVO agreement are disclosed under “Trade receivables -
CAMMESA”.
As a
consequence of the Commercial Approval and in accordance with the
CVO agreement, the Company collects the CVO receivables converted
in US dollars in 120 equal and consecutive installments. The
onetime estimated income (before income tax) in relation to the
increase in value due to the novation of CVO receivables to US
dollars as of March 20, 2018 (due to the combined effect of
exchange rate variation and the application of LIBOR rate plus a 5%
margin) reaches approximately 16,947,737and it was recognized in
the consolidated income statement for the year ended December 31,2018 under “CVO receivables update”.
CVO
receivables are expressed in USD and they accrue LIBOR interest at
a 5% rate.
During
the year ended December 31, 2019, we collected 8,446,410 as payment
for the installments 1 to 20 of the CVO receivables.
F-53
CENTRAL PUERTO S.A.
LVFVD receivables:
On
September 3, 2019, CAMMESA and the Company entered into a final
agreement to settle the LVFVD receivables balance, once the
balances owed by the Company corresponding to the loans and
prepayments granted by CAMMESA, which were classified under the
item “Borrowings from CAMMESA” (Note 14.4), were
offsetted. As a result of such agreement, an 18% reduction was
fixed on the balance of capital plus interest accrued as at that
date. Moreover, the Company waived any complaint related to such
receivables. Pursuant to the executed agreement, during September
2019, the Company collected 1,815,251 and booked a net profit of
3,912,232, which was recognized in “Interest earned from
customers” under the item “Other operating
income” of the consolidated income statement for the year
ended December 31, 2019.
The
information on the Group’s objectives and credit risk
management policies is included in Note 20.
The
breakdown by due date of trade and other receivables due as of the
related dates is as follows:
Past
due
Total
To
due
<90
days
90-180
days
180-270
days
270-360
days
>360
days
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
12-31-2019
39,890,091
36,869,904
2,998,181
4,284
3,598
-
14,124
14.1.1. Allowance for doubtful accounts
12-31-2019
12-31-2018
Item
At
beginning
Increases
Decreases
At
end
At
end
Allowance for doubtful accounts -
Trade and other receivables
5,696
8,983
(2,131)(1)
12,548
5,696
Total
12-31-2019
5,696
8,983
(2,131)
12,548
Total
12-31-2018
3,977
3,390
(1,671)(1)
5,696
(1)
Income (loss) on net monetary position.
14.2.
Trade
and other payables
12-31-2019
12-31-2018
ARS
000
ARS
000
Current:
Trade
payables
5,562,582
2,618,769
Insurance
payable
316,858
4,663
Payables to
associates
19,996
37,817
5,899,436
2,661,249
Trade
payables are non-interest bearing and are normally settled on
60-day terms.
The
information on the Group’s objectives and financial risk
management policies is included in Note 20.
For the
terms and conditions of payables to related parties, refer to Note
19.
F-54
CENTRAL PUERTO S.A.
14.3.
Other
loans and borrowings
12-31-2019
12-31-2018
ARS
000
ARS
000
Non-current
Long-term loans for
project financing (Notes 14.3.1, 14.3.2, 14.3.3, 14.3.4, 14.3.5,
14.3.6 and 22.10)
30,389,083
7,979,240
Derivative
financial liabilities not designated as hedging instrument -
Interest rate swap
298,194
26,244
30,687,277
8,005,484
12-31-2019
12-31-2018
ARS
000
ARS
000
Current
Long-term loans for
project financing (Notes 14.3.1,14.3.2, 14.3.3, 14.3.4, 14.3.5,
14.3.6 and 22.10)
6,541,964
690,229
Short-term loans -
Banco Macro S.A. (Note 14.3.7)
1,117,926
-
Banco Galicia y
Buenos Aires S.A. loan
-
331,638
Bank and investment
accounts overdrafts
366,002
12,914
8,025,892
1,034,781
14.3.1. Loans from the IIC-IFC Facility
On
October 20, 2017 and January 17, 2018, CP La Castellana S.A.U. and
CP Achiras S.A.U. (both of which are subsidiaries of CPR),
respectively, agreed on the structuring of a series of loan
agreements in favor of CP La Castellana S.A.U. and CP Achiras
S.A.U., for a total amount of USD 100,050,000 and USD 50,700,000,
respectively, with: (i) International Finance Corporation (IFC) on
its own behalf, as Eligible Hedge Provider and as an implementation
entity of the Intercreditor Agreement Managed Program; (ii)
Inter-American Investment Corporation (“IIC”), as
lender on its behalf, acting as agent for the Inter-American
Development Bank (“IDB”) and on behalf of IDB as
administrator of the Canadian Climate Fund for the Private Sector
in the Americas (“C2F”, and together with IIC and IDB,
“Group IDB”, and together with IFC, “Senior
Creditors”).
As of
the date of these financial statements, the loans disbursements
have been fully received by the Group.
In
accordance with the terms of the agreement subscribed by CP La
Castellana, USD 5 million accrue an interest rate equal to LIBOR
plus 3.5%, and the rest at LIBOR plus 5.25% and the loan is
amortizable quarterly in 52 equal and consecutive installments as
from February 15, 2019.
In
accordance with the terms of the agreement subscribed by CP
Achiras, USD 40.7 million accrue an interest rate equal to LIBOR
plus 5.25%, and the rest at LIBOR plus 4% and the loan is
amortizable quarterly in 52 equal and consecutive installments as
from May 15, 2019.
Other
related agreements and documents, such as the Guarantee and Sponsor
Support Agreement (the “Guarantee Agreement” by which
CPSA completely, unconditionally and irrevocably guarantees, as the
main debtor, all payment obligations undertaken by CP La Castellana
and CP Achiras until the projects reach the commercial operations
date) hedging agreements, guarantee trusts, a mortgage, guarantee
agreements on shares, guarantee agreements on wind turbines, direct
agreements and promissory notes have been signed.
F-55
CENTRAL PUERTO S.A.
Pursuant
to the Guarantee and Sponsor Support Agreement, among other
customary covenants for this type of facilities, we committed,
until each project completion date, to maintain (i) a leverage
ratio of (a) until (and including) December 31, 2018, not more than
4.00:1.00; and (b) thereafter, not more than 3.5:1.00; and (ii) an
interest coverage ratio of not less than 2.00:1.00. In addition,
our subsidiary, CPR, and we, upon certain conditions, agreed to
make certain equity contributions to CP La Castellana and CP
Achiras.
As of
December 31, 2019, the Group has met the requirements described in
(i) and (ii) above.
We also
agreed to maintain, unless otherwise consented to in writing by
each senior lender, ownership and control of the CP La Castellana
and CP Achiras as follows: (i) until each project completion date,
(a) we shall maintain (x) directly or indirectly, at least seventy
percent (70%) beneficial ownership of CP La Castellana and CP
Achiras; and (y) control of the CP La Castellana and CP Achiras;
and (b) CP Renovables shall maintain (x) directly, ninety-five
percent (95%) beneficial ownership of CP La Castellana and CP
Achiras; and (y) control of CP La Castellana and CP Achiras. In
addition, (ii) after each project completion date, (a) we shall
maintain (x) directly or indirectly, at least fifty and one tenth
percent (50.1%) beneficial ownership of each of CP La Castellana,
CP Achiras and CP Renovables; and (y) control of each of CP La
Castellana, CP Achiras and CP Renovables; and (b) CP Renovables
shall maintain control of CP La Castellana and CP Achiras. As of
December 31, 2018, the Group has met such obligations.
Under
the subscribed trust guarantee agreement, as at December 31, 2019
and 2018, there are commercial liabilities with specific assignment
for the amount of 578,715 and 622,135.
As of
December 31, 2019 and 2018, the balance of these loans amounts to
8,374,017 and 9,690,574, respectively.
14.3.2.
Borrowing
from Kreditanstalt für Wiederaufbau
(“KfW”)
On
March 26, 2019the Company entered into a loan agreement with KfW
for an amount of USD 56 million in relation to the acquisition of
two gas turbines, equipment and related services relating to the
Luján de Cuyo project described in Note 22.7.
In
accordance with the terms of the agreement, the loan accrues an
interest equal to LIBOR plus 1.15% and it is amortizable quarterly
in 47 equal and consecutive installments as from the day falling
six months after the commissioning of the gas turbines and
equipment.
Pursuant
to the loan agreement, among other obligations, CPSA has agreed to
maintain a debt ratio of (a) as at December 31, 2019 of no more
than 4.00:1.00 and (b) as from that date, no more than 3.5:1.00. As
at December 31, 2019, the Company has complied with that
requirement.
On May23, 2019 a first reimbursement for the amount of USD 43.7 million
was received, and on July 26, 2019, a second reimbursement for the
amount of USD 4.9 million was received. On August 23, 2019,
interest was capitalized for USD 0.3 million. On November 15, 2019,
a third reimbursement for the amount of USD 4.3 million was
received. Finally, on December 4 and 30, 2019, the fourth and fifth
reimbursements were received: for the amount of USD 1.3 million and
USD 0.7 million, respectively. This way, the expected
reimbursements were completed for this loan for a total amount of
USD 55.2 million.
As at
December 31, 2019, the balance of this loan amounts to
2,725,937.
14.3.3.
Loan
from Citibank N.A., JP Morgan Chase Bank N.A. and Morgan Stanley
Senior Funding INC.
On
September 12, 2019, the Company entered into a loan agreement with
Citibank N.A., JP Morgan Chase Bank N.A. and Morgan Stanley Senior
Funding INC. for USD 180 million to fund the acquisition of the
Thermal Station Brigadier López (See Note 22.10), as well as
to fund future capital expenses and other expenses.
F-56
CENTRAL PUERTO S.A.
Pursuant
to the agreement, this loan accrues an adjustable interest rate
based on LIBOR plus a margin and it is amortizable quarterly in 5
equal and consecutive installments as from 18 months from the
execution of the loan agreement.
Pursuant
to the loan agreement, among other obligations, CPSA has agreed to
maintain (i) a debt ratio of no more than 2.25:1.00; (ii) an
interest coverage ratio of no more than 3.50:1.00 and (iii) and a
minimum equity of USD 500 million. As at December 31, 2019, the
Company has complied with such obligations.
On June14, 2019 the loan funds were fully disbursed. As at December 31,2019, the balance of the loan amounts to 10,679,761.
14.3.4.
Loan
from the IFC to the subsidiary Vientos La Genoveva
S.A.U.
On June21, 2019, Vientos La Genoveva S.A.U., a CPSA subsidiary, entered
into a loan agreement with IFC on its own behalf, as Eligible Hedge
Provider and as an implementation entity of the Managed Co-Lending
Portfolio Program (MCPP) administered by IFC, for an amount of USD
76.1 million.
Pursuant
to the terms of the agreement subscribed with Vientos La Genoveva
S.A.U., this loan accrues an interest rate equal to LIBOR plus
6.50% and it is amortizable quarterly in 55 installments as from
November 15, 2020.
Other
related agreements and documents, such as the Guarantee and Sponsor
Support Agreement (the “Guarantee Agreement” by which
CPSA completely, unconditionally and irrevocably guarantees, as the
main debtor, all payment obligations undertaken by Vientos La
Genoveva S.A.U until the project reaches the commercial operations
date) hedging agreements, guarantee trusts, guarantee agreements on
shares, guarantee agreements on wind turbines, direct agreements
and promissory notes have been signed.
Pursuant
to the Guarantee Agreement, among other customary covenants for
this type of facilities, CPSA has committed, until the project
completion date, to maintain (i) a leverage ratio of not more than
3.5:1.00; and (ii) an interest coverage ratio of not less than
2.00:1.00. In addition, CPSA, upon certain conditions, agreed to
make certain equity contributions to Vientos La Genoveva
S.A.U.
As of
December 31, 2019, the Group has met the requirements described in
(i) and (ii) above.
Loan
from Banco de Galicia y Buenos Aires S.A. to CPR Energy Solutions
S.A.U.
On May24, 2019, CPR Energy Solutions S.A.U. (subsidiary of CPR) entered
into a loan agreement with Banco de Galicia y Buenos Aires S.A. for
an amount of USD 12.5 million to fund the construction of the wind
farm “La Castellana II”.
According
to the executed agreement, this loan accrues a fixed interest rate
equal to 8.5% during the first year and it is amortizable quarterly
in 25 installments as from May 24, 2020.
Other
agreements and related documents, like the Collateral (in which
CPSA totally, unconditionally and irrevocably guarantees, as main
debtor, all the payment obligations assumed by CPR Energy Solutions
S.A.U. until total fulfillment of the guaranteed obligations or
until the project reaches the commercial operation date, what it
happens first) -, guarantee agreements on shares, guarantee
agreements on wind turbines, promissory notes and other agreements
have been executed.
F-57
CENTRAL PUERTO S.A.
Pursuant
to the Collateral, among other obligations, CPSA has agreed to
maintain a debt ratio of no more than 3.75:1.00 until the date of
completion of the project. In addition, CPSA, under certain
conditions, agreed to make capital contributions, directly or
indirectly, to subsidiary CPR Energy Solutions S.A.U. Moreover,
CPSA has agreed to maintain, unless otherwise consented to in
writing by the lender, the ownership (directly or indirectly) and
control over CPR Energy Solutions S.A.U. As at December 31, 2019,
the Company has complied with such obligations.
On May24, 2019 the loan funds were fully disbursed. As at December 31,2019, the balance of this loan amounts to 742,827.
14.3.6.
Loan
from Banco Galicia y Buenos Aires S.A. to subsidiary Vientos La
Genoveva II S.A.U.
On July23, 2019, subsidiary Vientos La Genoveva II S.A.U. entered into a
loan agreement with Banco de Galicia y Buenos Aires S.A. for an
amount of USD 37.5 million.
According
to the executed agreement, this loan accrues LIBOR plus 5.95% and
it is amortizable quarterly in 26 installments starting on the
ninth calendar month counted from the disbursement
date.
Other
agreements and related documents, like the Collateral (in which
CPSA totally, unconditionally and irrevocably guarantees, as main
debtor, all the payment obligations assumed by Vientos La Genoveva
II S.A.U. until total fulfillment of the guaranteed obligations or
until the project reaches the commercial operation date, what it
happens first) -, guarantee agreements on shares and promissory
notes have been signed, while guarantee agreements on wind turbines
and direct agreements are in process of being issued, under the
terms defined by the loan agreement.
Pursuant
to the Collateral, among other obligations, CPSA has agreed, until
the project termination date, to maintain a debt ratio of no more
than 3.75:1.00. Moreover, CPSA, under certain conditions, agreed to
make capital contributions to subsidiary Vientos La Genoveva II
S.A.U. Moreover, CPSA has agreed to maintain, unless otherwise
consented to in writing by the lender, the ownership (directly or
indirectly) and control over Vientos La Genoveva II S.A.U. As at
December 31, 2019, the Company has complied with such
obligations.
On July23, 2019, the loan funds were fully disbursed. As of December 31,2019, the balance of this loan amounts to 2,242,902.
14.3.7.
Banco
Macro S.A. short-term loan
On
October 25 and 28, the Company entered into a loan agreement with
Banco Macro S.A. for an amount of 1,000,000 to be used in the
commercial business of the Company.
Under
the terms of the agreement, this loan accrues a variable
three-month interest rate based on pure BADLAR rate, plus a margin;
and it is completely amortized in a year.
On
October 28, 2019, the loan funds were completely disbursed. As of
December 31, 2019, the balance of this loan amounts to
1,117,926.
14.3.8.
Loans
from Banco de Galicia y Buenos Aires S.A. to CP La Castellana and
CP Achiras S.A.U.
On
October 26, 2017 and October 30, 2017, CP La Castellana and CP
Achiras S.A.U. (“CP Achiras”) entered into loans with
Banco de Galicia y Buenos Aires S.A. in the amount of 330,000 and
175,000, respectively (the “Castellana and Achiras
Loans”). The Castellana and Achiras Loans accrue interest at
an interest rate equal to BADLAR private banks plus a 3.10% margin
and shall mature on the dates that are two years from the
execution and
disbursement. The proceeds from these loans were used to finance
the Achiras Project and the La Castellana Project. We have fully,
unconditionally and irrevocably guaranteed, as primary obligor, all
payment obligations assumed and/or to be assumed by CP La
Castellana and CP Achiras under these loans and any other ancillary
document related to them.
F-58
CENTRAL PUERTO S.A.
As of
December 31, 2019 CP La Castellana and CP Achiras have fully paid
the outstanding principal of these loans.
14.3.9.
Medium
Term Note Program
The
Regular General Shareholders’ Meeting held on November 20,2014, approved a Medium Term Note Program for a maximum amount
outstanding at any time of up to USD 1,000,000,000 (or its
equivalent in other currencies) to be issued in short, medium,
long-term negotiable obligations convertible into shares, in the
terms of the Law No. 23.576 (negotiable obligations law)
(“The program”). In addition, the Board of Directors
was empowered to determine and establish the conditions of the
Program and of the notes to be issued under such Program which were
not expressly determined by the Shareholders’ Meeting. The
CNV authorized the Program on September 9, 2015.
The
information on the Group’s objectives and financial risk
management policies is included in Note 20.
14.4.
Borrowings
from CAMMESA
12-31-2019
12-31-2018
ARS
000
ARS
000
Non-current:
CAMMESA
loans
-
1,544,945
Current:
CAMMESA
loans
-
1,142,321
CAMMESA
prepayments
-
1,646,522
-
2,788,843
On
October 23, 2002, former Secretariat of Energy issued Resolution
No. 146/2002 (“Resolution 146”), which specifies a
funding mechanism for the generators based upon the performance of
major maintenance to their existing facilities.
Under
Resolution 146, the Group entered into several loan agreements with
CAMMESA.
Such
loans accrue interest at a rate equivalent to the one received by
CAMMESA on its own cash investments and shall be repaid in 48
monthly installments beginning on the completion date of the
relevant major maintenance. The Group has the option to repay the
loans, through cash or net settlement of receivables from CAMMESA
related with remuneration for non-recurring maintenance created by
Resolution 529, Article 2.
As of
December 31, 2019, the balances of CAMMESA loans were compensated
with LVFVD receivables as described in Note 14.1.
The
information on the Group’s objectives and financial risk
management policies is included in Note 20.
F-59
CENTRAL PUERTO S.A.
14.5.
Changes
in liabilities arising from financing activities
01-01-2019
Payments
Non-cash
transactions
Disbursements
Other
12-31-2019
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
Non-current
liabilities
Other loans and
borrowings
8,005,484
-
(8,655,320)
19,020,294
12,316,819
30,687,277
Borrowings from
CAMMESA
1,544,945
-
(540,641)
-
(1,004,304)
-
Current
liabilities
Other loans and
borrowings
1,034,781
(974,409)
(3,216,050)
4,860,841
6,320,729
8,025,892
Borrowings from
CAMMESA
2,788,843
-
(5,158,861)
-
2,370,018
-
01-01-2018
Payments
Non-cash
transactions
Disbursements
Other
12-31-2018
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
Non-current
liabilities
Other loans and
borrowings
3,358,589
(1,485,161)
(2,383,450)
6,060,381
2,455,125
8,005,484
Borrowings from
CAMMESA
2,397,455
-
(773,664)
-
(78,846)
1,544,945
Current
liabilities
Other loans and
borrowings
1,148,363
(1,737,796)
(874,680)
669,907
1,828,987
1,034,781
Borrowings from
CAMMESA
3,981,618
-
(1,987,858)
-
795,083
2,788,843
The
“Non-cash transactions” column includes: i) the effect
to cancel borrowings from CAMMESA under Resolution 146 with trade
receivables from CAMMESA related with remuneration from
non-recurring maintenance and ii) the income (loss) for exposure to
change in purchasing power of currency (Income (loss) on net
monetary position), which amounted to 12,224,728 and 4,402,374 as
of December 31, 2019 and 2018, respectively. The
“Other” column includes the effect of reclassification
of non-current portion to current due to the passage of time, the
foreign exchange movement and the effect of accrued but not yet
paid interest. The Group classifies interest paid as cash flows
from financing activities.
14.6.
Quantitative
and qualitative information on fair values
Information on the fair value of financial assets and liabilities
by category
The
following tables is a comparison by category of the carrying
amounts and the relevant fair values of financial assets and
liabilities.
Carrying
amount
Fair
value
12-31-2019
12-31-2018
12-31-2019
12-31-2018
ARS
000
ARS
000
ARS
000
ARS
000
Financial
assets
Trade and other
receivables
39,890,091
41,920,308
39,890,091
41,920,308
Other financial
assets
7,698,732
3,022,238
7,698,732
3,022,238
Cash and cash
equivalents
1,493,868
353,735
1,493,868
353,735
Total
49,082,691
45,296,281
49,082,691
45,296,281
Carrying
amount
Fair
value
12-31-2019
12-31-2018
12-31-2019
12-31-2018
ARS
000
ARS
000
ARS
000
ARS
000
Financial
liabilities
Borrowings from
CAMMESA
-
4,333,788
-
4,333,788
Other loans and
borrowings
38,713,169
9,040,265
38,713,169
9,040,265
Total
38,713,169
13,374,053
38,713,169
13,374,053
F-60
CENTRAL PUERTO S.A.
Valuation techniques
The
fair value reported in connection with the abovementioned financial
assets and liabilities is the amount at which the instrument could
be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. The following methods
and assumptions were used to estimate the fair values:
Management
assessed that the fair values of current trade receivables and
current loans and borrowings approximate their carrying amounts
largely due to the short-term maturities of these
instruments.
The
Group measures long-terms receivables at fixed and variable rates
based on discounted cash flows. The valuation requires that the
Group adopt certain assumptions such as interest rates, specific
risk factors of each transaction and the creditworthiness of the
customer.
Fair
value of quoted debt securities, mutual funds and corporate bonds
is based on price quotations at the end of each reporting
period.
The
fair value of the foreign currency forward contracts is calculated
based on appropriate valuation techniques that use market
observable data.
Fair value hierarchy
The
following tables provides, by level within the fair value
measurement hierarchy, as described in Note 2.2.2, the
Company’s financial assets, that were measured at fair value
on recurring basis as of December 31, 2019 and 2018:
Fair value
measurement using:
12-31-2019
Total
Level
1
Level
2
Level
3
ARS
000
ARS
000
ARS
000
ARS
000
Assets
measured at fair value
Financial assets at
fair value through profit or loss
Mutual
funds
4,235,563
4,235,563
-
-
Public debt
securities
3,463,169
3,463,169
-
-
Total
financial assets measured at fair value
7,698,732
7,698,732
-
-
Liabilities
measured at fair value
Derivative
financial liabilities not designated as hedging
instruments
Interest rate
swap
298,194
-
298,194
-
Total
financial liabilities measured at fair value
298,194
-
298,194
-
Fair value
measurement using:
12-31-2018
Total
Level
1
Level
2
Level
3
ARS
000
ARS
000
ARS
000
ARS
000
Assets
measured at fair value
Financial assets at
fair value through profit or loss
Mutual
funds
3,022,238
3,022,238
-
-
Total
financial assets measured at fair value
3,022,238
3,022,238
-
-
Liabilities
measured at fair value
Derivative
financial liabilities not designated as hedging
instruments
Interest rate
swap
26,244
-
26,244
-
Total
financial liabilities measured at fair value
26,244
-
26,244
-
F-61
CENTRAL PUERTO S.A.
There
were no transfers between hierarchies and there were not
significant variations in assets values.
The
information on the Group’s objectives and financial risk
management policies is included in Note 20.
14.7.
Other
financial assets
12-31-2019
12-31-2018
Book
value
Book
value
ARS
000
ARS
000
Financial
assets at fair value through profit or loss
Public debt
securities
3,463,169
-
Mutual
funds
4,148,409
3,022,238
Time
deposits
87,154
-
7,698,732
3,022,238
The
information on the objectives and financial risk management
policies is included in Note 20.
14.8.
Financial
assets and liabilities in foreign currency
12-31-2019
12-31-2018
Account
Currency and
amount(in thousands)
Effective
exchange rate (1)
Bookvalue
Currency and
amount(in thousands)
Bookvalue
ARS
000
ARS
000
NON-CURRENT
ASSETS
Trade and other
receivables
USD
404,860
59.8950(2)
24,249,101
USD
421,112
24,492,452
24,249,101
24,492,452
CURRENT
ASSETS
Cash and cash
equivalents
USD
29,834
59.6900
1,780,791
USD
4,720
272,283
EUR
1
66.8530
67
EUR
1
66
Other financial
assets
USD
97,220
59.6900
5,803,043
USD
-
-
Trade and other
receivables
USD
79,002
59.8950
4,731,829
USD
138,051
8,029,170
USD
8,837
59.6900(2)
527,481
USD
3,381
195,041
12,843,211
8,496,560
37,092,312
32,989,012
NON-CURRENT
LIABILITIES
Other loans and
borrowings
USD
532,441
59.8900
31,887,891
USD
140,581
8,152,970
31,887,891
8,152,970
CURRENT
LIABILITIES
Other loans and
borrowings
USD
110,804
59.8900
6,636,052
USD
12,124
703,129
Trade and other
payables
USD
22,537
59.8900
1,349,741
USD
14,686
851,712
EUR
291
67.2265
19,563
EUR
465
30,876
8,005,356
1,585,717
39,893,247
9,738,687
USD: US
dollar. EUR: Euro.
(1)
At the exchange
rate prevailing as of December 31, 2019 as per Banco de la
Nación Argentina.
(2)
At the exchange
rate according to Communication “A” 3500 (wholesale)
prevailing as of December 31, 2019 as per the Argentine Central
Bank.
F-62
CENTRAL PUERTO S.A.
15.
Non-financial
assets and liabilities
15.1.
Other
non-financial assets
12-31-2019
12-31-2018
ARS
000
ARS
000
Non-current:
Tax
credits
557,329
336,333
Income tax credits
(Note 2.4)
127,441
-
Prepayments to
vendors
4,415
6,830
689,185
343,163
Current:
Upfront payments of
inventories purchases
212,852
87,292
Prepayment
insurance
436,303
290,471
Tax
credits
289,283
360,905
Other
67,809
23,002
1,006,247
761,670
15.2.
Other
non-financial liabilities
12-31-2019
12-31-2018
ARS
000
ARS
000
Non-current:
VAT
payable
4,166,486
2,891,157
Tax on bank account
transactions payable
188,182
122,240
4,354,668
3,013,397
Current:
VAT
payable
1,387,336
2,037,629
Turnover tax
payable
58,734
9,815
Income tax
withholdings payable
45,692
55,423
Concession fees and
royalties
62,883
42,165
Tax on bank account
transactions payable
135,589
112,292
Other
44,115
297,746
1,734,349
2,555,070
15.3.
Compensation
and employee benefits liabilities
12-31-2019
12-31-2018
ARS
000
ARS
000
Non-current:
Employee long-term
benefits
229,279
228,395
F-63
CENTRAL PUERTO S.A.
The
following tables summarize the components of net benefit expense
recognized in the consolidated statement of income as long-term
employee benefit plans and the changes in the long-term employee
benefit liabilities recognized in the consolidated statement of
financial position.
12-31-2019
12-31-2018
ARS
000
ARS
000
Benefit
plan expenses
Cost of
interest
13,041
34,240
Cost of service for
the current year
34,994
14,714
Past service
cost
27,706
(5,575)
Expense
recognized during the year
75,741
43,379
Defined
benefit obligation at beginning of year
148,470
256,874
Cost of
interest
28,383
34,240
Cost of service for
the current year
10,577
14,713
Past service
cost
27,706
(5,575)
Actuarial (gains)
losses
47,121
(31,614)
Benefits
paid
(32,978)
(40,243)
Defined
benefit obligation at end of year
229,279
228,395
The
main key assumptions used to determine the obligations as of
year-end are as follows:
Main key
assumptions used
2019
2018
Discount
rate
5.50%
5.50%
Increase in the
real annual salary
2.00%
2.00%
Turn over of
participants
0.73%
0.73%
A one
percentage point change in the discount rate applied would have the
following effect:
Increase
Decrease
ARS
000
ARS
000
Effect on the
benefit obligation as of the 2019 year-end
(18,604)
21,925
Effect on the
benefit obligation as of the 2018 year-end
(16,249)
20,295
A one
percentage point change in the annual salary assumed would have the
following effect:
Increase
Decrease
ARS
000
ARS
000
Effect on the
benefit obligation as of the 2019 year-end
20,473
(17,694)
Effect on the
benefit obligation as of the 2018 year-end
18,721
(17,237)
As of
December 31, 2019 and 2018, the Group had no assets in connection
with employee benefit plans.
12-31-2019
12-31-2018
ARS
000
ARS
000
Current:
Vacation and
statutory bonus
242,427
232,205
Contributions
payable
95,867
98,184
Bonus
accrual
355,747
266,558
Other
4,668
4,796
698,709
601,743
F-64
CENTRAL PUERTO S.A.
16.
Cash
and cash equivalents
For the
purpose of the consolidated statement of financial position and the
consolidated statement of cash flow, cash and short-term deposits
comprise the following items:
12-31-2019
12-31-2018
ARS
000
ARS
000
Cash at banks and
on hand
1,493,868
353,735
Bank
balances accrue interest at variable rates based on the bank
deposits daily rates. Short-term deposits are made for varying
periods of between one day and three months, depending on the
immediate cash requirements of the Group, and earn interest at the
respective fixed short-term deposit rates.
17.
Equity
reserves and dividends
Pursuant
to the Argentine Companies Act (Ley General de Sociedades) and the
bylaws, 5% of the income for the year must be allocated to the
legal reserve until such reserve reaches 20% of the capital
stock.
On
April 28, 2017, the Shareholders’ Meeting of the Company
approved the increase of the legal reserve in the amount of 249,947
and the allocation of the remaining unallocated results as of
December 31, 2016 to increase the voluntary reserve by 4,730,308 in
order to improve the solvency of the Company.
On
August 15, 2017, the Shareholders’ Meeting of the Company
approved the distribution of dividends in cash amounting to ARS
0.85 per share which were paid on August 30, 2017.
On
April 27, 2018, the Shareholders’ Meeting of the Company
approved the increase of the legal reserve in the amount of 339,836
and approved the distribution of dividends in cash amounting to ARS
0.70 per share, which were paid on May 11, 2018, allocating the
remaining unallocated results as of December 31, 2017 to increase
the voluntary reserve by 5,209,393 in order to improve the solvency
of the Company.
The
Company absorbed all cumulative negative unappropriated retaining
earnings existing as at January 1, 2017 which were a consequence of
the inflation adjustment. Such negative results were absorbed with
the balances of the accounts Voluntary Reserve, Special Reserve RG
CNV 609, Special Reserve Resolution IGJ 7/05, Legal Reserve,
Premiums, and with part of the balance of the account Adjustment to
Capital Stock.
On
April 30, 2019, the Shareholders’ Meeting of the Company
approved i) to restore the legal reserve balance to its value prior
to the absorption of the accumulated negative earnings resulting
from the inflation-adjustment, which had been carried out according
to the terms of RG no. 777/18 of the CNV for an amount of
2,378,736, ii) to increase the legal reserve in the amount of
1,788,955 and iii) to allocate the remaining unappropriated
earnings as of December 31, 2018 to increase the voluntary reserve
by 20,847,912 in order to increase the solvency of the
Company.
On
November 22, 2019, the Shareholders’ Meeting of the Company
decided to partially deallocate the voluntary reserve and to
destine the deallocated amount to the distribution of a cash
dividend for an amount equivalent to ARS 0.71 per share, which was
paid on December 5, 2019.
The
Company has access to the foreign exchange market to pay dividends
to non-resident shareholders, without the prior consent of the BCRA
only to the extent that the total amount of transfers executed
through the exchange market regulated by the BCRA for payment of
dividends to non-resident shareholders may not exceed 30% of the
total value of any new capital contributions made in the Company
that had been entered and settled through such exchange market. The
total amount paid to non-resident shareholders shall not exceed the
corresponding amount denominated in Argentine Pesos that was
determined by the related shareholders' meeting. However, as of the
date of these financial statements, there are no restriction to use
the cash and cash equivalents in foreign currency that the Company
may pose in order to pay dividends to its
shareholders.
F-65
CENTRAL PUERTO S.A.
18.
Provisions
2019
2018
Item
At
beginning
Increases
Decreases
At
end
At
end
ARS
000
ARS
000
ARS
000
ARS
000
ARS
000
Provisions
Current
Provision for lawsuits and
claims
826,848
5,282
(804,674)(1)
27,456
826,848
12-31-2019
826,848
5,282
(804,674)
27,456
12-31-2018
939,110
163,467
(275,729)(2)
826,848
(1)
788.579 as of
December 31, 2019, relates to the adoption of IFRIC 23 (see note
2.4). The remaining effect relates to the effect of the inflation
for the year.
(2)
Relates to the
effect of the inflation for the year.
19.
Information
on related parties
The
following table provides the transactions performed for the years
ended December 31, 2019, 2018 and 2017, and the accounts payable
to/receivable from related parties as of December 31, 2019 and
2018:
Income
Expenses
Receivables
Payables
ARS
000
ARS
000
ARS
000
ARS
000
Associates:
Termoeléctrica
José de San Martín S.A.
12-31-2019
473
-
269
-
12-31-2018
342
-
1,288
-
12-31-2017
409
-
43
-
Distribuidora de
Gas Cuyana S.A.
12-31-2019
-
433,743
-
19,296
12-31-2018
-
361,997
-
37,817
12-31-2017
-
106,280
-
16,469
Energía
Sudamericana S.A.
12-31-2019
-
-
-
548
12-31-2018
-
-
-
-
12-31-2017
-
-
591
4,380
Transportadora de
Gas del Mercosur S.A.
12-31-2019
-
-
-
-
12-31-2018
11,764
-
36
-
12-31-2017
7,427
-
39,167
-
Related
companies:
RMPE
Asociados S.A.
12-31-2019
178
359,281
-
-
12-31-2018
274
245,970
-
-
12-31-2017
311
218,840
-
-
Coyserv
S.A.
12-31-2019
-
30,937
547
150
12-31-2018
-
-
-
-
12-31-2017
-
-
-
-
Total
12-31-2019
651
823,961
816
19,994
12-31-2018
12,380
607,967
1,324
37,817
12-31-2017
8,147
325,120
39,801
20,849
F-66
CENTRAL PUERTO S.A.
Terms and conditions of transactions with related
parties
Balances
at the related reporting period-ends are unsecured and interest
free. There have been no guarantees provided or received for any
related party receivables or payables.
For the
years ended December 31, 2019, 2018 and 2017, the Group has not
recorded any impairment of receivables relating to amounts owed by
related parties. This assessment is undertaken at the end of each
reporting period by examining the financial position of the related
party and the market in which the related party
operates.
20.
Financial
risk management objectives and policies
–
Interest rate
risk
Interest
rate variations affect the value of assets and liabilities accruing
a fixed interest rate, as well as the flow of financial assets and
liabilities with floating interest rates.
As
mentioned in Note 14.3, short-term bank loans accrue interest at a
fixed interest rate.
The
company’s risk management policy was designed for the
purposes of reducing the effect the loss of purchasing power may
have. Net monetary positions during most of fiscal years 2019, 2018
and 2017 appeared as assets; hence, the Company seeks to mitigate
the risk by implementing adjustment mechanisms through interest and
exchange differences. In consequence, during 2019, 2018 and 2017,
item loss on net monetary position showed net loss caused by
monetary accounts inflation.
Interest rate sensitivity
The
following table shows the sensitivity of income before income tax
for the year ended December 31, 2019, to a reasonably possible
change in interest rates over the portion of loans bearing interest
at a variable interest rate, with all other variables held
constant:
Increase in
percentage
Effect on income
before income tax (Loss)
ARS
000
5%
(1,944,427)
–
Foreign currency
risk
Foreign
currency risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
foreign exchange rates.
The
Company is exposed to the foreign currency risk at an ARS/USD
ratio, mainly due to its operating activities, the investment
projects defined by the Company and the financial debt related to
the bank loans mentioned in note 14.3. The Company does not use
derivative financial instruments to hedge such risk. As of December31, 2019, the net balance exposed to this risk amounts to USD
46,348 thousand, since existing liabilities in foreign currency for
USD 666,102 thousand exceed receivables and cash and short-term
deposits in foreign currency for USD 619,754 thousand.
F-67
CENTRAL PUERTO S.A.
Foreign currency sensitivity
The
following table shows the sensitivity to a reasonably possible
change in the US dollar exchange rate, with all other variables
held constant, of income before income tax as of December 31, 2019
(due to changes in the fair value of monetary assets and
liabilities).
Change in
USD rate
Effect on income
before income tax (Loss)
ARS
000
10%
(276,652)
–
Price
risk
The
Company’s revenues depend on the electric power price in the
spot market and the production cost paid by CAMMESA. The Company
has no power to set prices in the market where it operates, except
for the income from agreements entered into in the Term Market,
where the price risk is reduced since normally prices are
negotiated above the spot market price.
Credit risk
Credit
risk is the risk that a counterparty will not meet its obligations
under a financial instrument or customer contract, leading to a
financial loss. The Company is exposed to credit risk from its
operating activities (primarily for trade receivables) and from its
financing activities, including holdings of government
securities.
–
Trade and other
receivables
The
Finance Department is in charge of managing customer credit risk
subject to policies, procedures and controls relating to the
Group’s credit risk management. Customer receivables are
regularly monitored. Although the Group has received no guarantees,
it is entitled to request interruption of electric power flow if
customers fail to comply with their credit obligations. In regard
to credit concentration, see Note 14.1. The need to book impairment
is analyzed at the end of each reporting period on an individual
basis for major clients. The allowance recorded as of December 31,2019, is deemed sufficient to cover the potential impairment in the
value of trade receivables.
–
Cash and cash
equivalents
Credit
risk from balances with banks and financial institutions is managed
by the Group’s treasury department in accordance with
corporate policy. Investments of surplus funds are made only with
approved counterparties; in this case, the risk is limited because
high-credit-rating banks are involved.
–
Public and
corporate securities
This
risk is managed by the Company’s finance management according
to corporate policies, whereby these types of investments may only
be made in first-class companies and in instruments issued by the
federal or provincial governments.
Liquidity risk
The
Group manages its liquidity to guarantee the funds required to
support its business strategy. Short-term financing needs related
to seasonal increases in working capital are covered through
short-and medium-term bank credit lines.
F-68
CENTRAL PUERTO S.A.
The
table below summarizes the maturity profile of the Company’s
financial liabilities.
Less than 3
months
3 to 12
months
1 to
5
years
Total
ARS
000
ARS
000
ARS
000
ARS
000
12-31-2019
Other loans and
borrowings
-
8,025,892
30,687,277
38,713,169
Trade and other
payables
5,899,436
-
-
5,899,436
5,899,436
8,025,892
30,687,277
44,612,605
12-31-2018
CAMMESA borrowings
and other loans and borrowings
12,914
2,803,994
10,557,145
13,374,053
Trade and other
payables
2,661,249
-
-
2,661,249
2,674,163
2,803,994
10,557,145
16,035,302
Guarantees
In
connection with the concession right agreement described in Note
13, the Group granted a bank security to provide performance
assurance of its obligations in the amount of 6,716.
On
October 16, 2006, the Group entered into two pledge agreements with
the Secretariat of Energy to guarantee our performance obligations
in favor of the FONINVEMEM trusts under certain construction
management and operation management agreements and provided as
collateral: (a) 100% of our shares in TSM and TMB, and (b) 50% of
the rights conferred by our LVFVD receivables for the duration of
the construction management agreement and the operation management
agreement.
Likewise,
the Group entered into various guarantee agreements to provide
performance assurance of its obligations arising from the
agreements described in Notes 1.2.a), 14.3.1, 14.3.4, 14.3.5,
14.3.6, 14.3.8, 14.4 and 22.6.
21.
Discontinued
operations
As
mentioned in Note 22.8, on December 20, 2017 YPF Energía
Eléctrica S.A. (“YPF EE”) accepted the
Company´s offer to sell the La Plata plant. On February 8,2018, the plant results were transferred to YPF EE effective as of
January 5, 2018. Consequently, the La Plata plant results were
classified as a discontinued operation as of December 31, 2018 and
2017. The results of La Plata plant for the years ended December31, 2018 and 2017 are presented below:
2018
2017
ARS
000
ARS
000
Revenues
26,384
5,532,505
Cost of
sales
(36,726)
(3,575,956)
Gross
(loss) income
(10,342)
1,956,549
Administrative and
selling expenses
-
(21,456)
Other operating
income
722,397
-
Other operating
expenses
-
(27,914)
Operating
income
712,055
1,907,179
(Loss) on net
monetary position
(206,232)
(89,134)
Finance
expense
-
(838)
Income
before tax from discontinued operations
505,823
1,817,207
Income tax for the
year
(80,973)
(599,971)
Income
for the year from discontinued operations
424,850
1,217,236
F-69
CENTRAL PUERTO S.A.
The net
cash flows of La Plata plant operation, are as
follows:
2018
2017
ARS
000
ARS
000
Operating
activities
(10,342)
1,864,609
Earnings
per share:
2018
2017
– Basic
and diluted income per share from discontinued
operations
The
Group entered into long-term service agreements executed with
leading global companies in the construction and maintenance of
thermal generation plants, such as (i) General Electric, which is
in charge of the maintenance of the Puerto Combined Cycle plant,
the La Plata plant’s gas turbine, and part of the Mendoza
based units, and (ii) Siemens, which is in charge of the
maintenance of the combined cycle unit based in Mendoza
site.
Under
long-term service agreements, suppliers provide materials, spare
parts, labor and on-site engineering guidance in connection with
scheduled maintenance activities, in accordance with the applicable
technical recommendations.
22.2.
Agreement
for supplying electricity and steam to YPF
As from
January 1999 and for a 20-year term, our Luján de Cuyo plant
supplies 150 tons per hour of steam to YPF’s refinery in
Luján de Cuyo under a steam supply agreement. Under this
agreement YPF supplies the Luján de Cuyo plant with the fuel
and water needed for operation of the plant.
On
February 8, 2018, we signed an agreement to extend the
aforementioned agreement with YPF for a period of up to 24 months
or up to the start of commercial operation of the new Luján de
Cuyo co-generation unit, which is described in Note 22.7, whatever
occurs first. This way, this agreement was valid up to September24, 2019 since the new cogeneration commenced supplying steam to
YPF on September 25, 2019.
22.3.
Acquisition
of Siemens gas turbine
On
December 18, 2014, the Company acquired from Siemens a gas turbine
for electric power generation composed by a turbine and a generator
with 286 MW output power, and the proper ancillary equipment and
maintenance and assistance services. This equipment will be used in
the cogeneration project called "Terminal 6 San Lorenzo", which is
described in Note 22.7.
22.4.
Acquisition
of General Electric gas turbine
On
March 13th, 2015, the Company acquired a gas turbine from General
Electric and hired their specialized technical support services.
The unit is a gas turbine with 373 MW output power.
F-70
CENTRAL PUERTO S.A.
22.5.
Acquisition
of two Siemens gas turbines
On May
27th, 2016, the Company acquired from Siemens two gas turbines for
electric power generation composed by a turbine and a generator
with 298 MW output power, and the proper ancillary equipment and
maintenance and assistance services.
22.6.
Awarding
of Renewable Energy Projects
In
October 2016, the Company and its subsidiary CPR were awarded of a
wind project called “La Castellana” with a capacity of
99 MW.
In
January 2017, CP La Castellana S.A.U. entered into a power purchase
agreement with CAMMESA for La Castellana project for a 20-year term
as from the launch of the commercial operations.
In
November 2016, the Company and its subsidiary CPR were awarded of a
wind project called “Achiras” with a capacity of 48
MW.
In May
2017, CP Achiras S.A.U. entered into a power purchase agreement
with CAMMESA for Achiras project for a 20-year term as from the
launch of the commercial operations.
In
November 2017, the Company was awarded a project of wind power
generation called “La Genoveva I” with an installed
capacity of 86.6 MW. The Company participated on the tender by
virtue of its call option on 100% of the shares of Vientos La
Genoveva S.A., a special purpose vehicle, through which the
aforementioned project will be developed. In this context, the
Company assigned the exercise of the call option to its subsidiary
CPR and on March 23, 2018, CPR acquired 100% of the shares of
Vientos La Genoveva S.A.U.
In
addition, on January 2018 and May 2018, CAMMESA assigned to the
Group the priority on power dispatch for the projects “La
Castellana II”, “Achiras II” and “La
Genoveva II”, with an installed capacity of 15.75 MW,
79.80
MW and 41.8 MW, respectively.
Consequently,
CPR exercised the call option on the special purpose vehicle
through which La Genoveva II project will be developed, and on June28, 2018 acquired 100% of the shares of Vientos La Genoveva II
S.A.U.
On
August 6, 2018, CPR transferred to the Company its total
shareholding at Vientos La Genoveva S.A.U. (3,740,500
non-endorsable registered common shares at Ps. 1 each) and at
Vientos La Genoveva II S.A.U. (5,578,543 non-endorsable registered
common shares at Ps. 1 each), including all the political and
economical rights inherent in them.
On July26, 2018, the Group entered into an Agreement on the Supply of
Renewable Electrical Energy with CAMMESA for the wind farm La
Genoveva, whose term is of 20 years counted as from the commercial
authorization date of the wind farm.
Also,
the Group entered into a supply agreement with Aguas y Saneamiento
S.A. (AYSA) for a 10-year term from the beginning of operations
date of the wind farm La Genoveva II. The agreement is on the
supply of approximately 14% of its plants’ consumption
reaching 87.6 GWh/year. In addition, another supply agreement was
executed with PBB Polisur S.R.L. (Dow Chemical) for the same wind
farm, with a term of 6 years and an estimated volume of 80
GWh/year.
On
December 28, 2018, a decision was made at the Special
Shareholders’ Meeting of CPR Energy Solutions S.A.U.
(”CPRES”), an special purposes vehicle, subsidiary of
CPR, which developed projects La Castellana II and Achiras II; the
decision made implied a spin off, by means of which CPRES’s
equity would be divided and wind farm project La Castellana II was
part of its equity, while 79.8-MW wind farm Project Achiras II was
divided from it into two parts: (i) a part consisting on 57-MW wind
farm Manque; therefore, a new company named
CP MANQUE S.A.U. (“CPM”) was incorporated for this wind
farm, and (ii) another part consisting on 22.8-MW wind farm called
Los Olivos; therefore, a new company named CP LOS OLIVOS S.A.U.
(“CPLO”) was incorporated for this wind farm
(hereinafter, the “spinning-off companies”.) As
resolved at the Shareholders’ Meeting, the spin off was
effective in legal and tax terms as at February 1, 2019, on which
date, the spinning-off companies were incorporated with the equity
that was divided from CPRES. As from such date, the spinning-off
companies commenced their independent activities and all operating,
accounting, and tax effects were triggered.
F-71
CENTRAL PUERTO S.A.
Regarding
wind farm Manque, the Group entered into a power purchase agreement
with Cervecería y Maltería Quilmes SAICAyG
(“Quilmes”) for a 20-year term as from the launch of
the commercial operations of the wind farm. The agreement comprises
power supply to all Quilmes plants reaching about 235 GWh per
year.
Regarding
the wind farm Los Olivos, the Group entered into a power purchase
agreement with S.A. San Miguel A.G.I.C.I. y F. for a 10-year term
to supply them 8.7 GWh/year as from the operation commencement day
of the wind farm. Also, the Group entered into a power purchase
agreement with Minera Alumbrera Limited (a Glencore subsidiary) for
a 10-year term to supply them 27.4 GWh/year.
On
August 17, 2018, CPSA acquired from Ledesma Renovables S.A., a
12-MW photovoltaic power generation project (extensible in
additional 6 MW), located at Santa María, Province of
Catamarca.
Acquisition and operation of wind turbines
The
Group has entered into agreements with Nordex Windpower S.A. for
the operation and maintenance of Achiras and La Castellana wind
farms for a 10-year term.
Moreover,
the Group has entered into agreements with Vestas Argentina S.A.
for the supply, transport, setup, assembly, commissioning and tests
of wind turbines for La Genoveva I, La Genoveva II, La Castellana
II, Manque and Los Olivos wind farms. The Group also entered into
contracts with Vestas Argentina S.A. for the operation and
maintenance of the wind farms for a 5-year term.
Additionally,
the Group has also entered into agreements with Constructora
Sudamericana S.A. for the execution of the civil works and the
medium voltage grid in such wind farms. Also, the Group has entered
into agreements with Ventus Energía Renovables S.A. for
supervision and inspection tasks on the works in such wind
farms.
22.7.
Awarding
of co-generation projects
On
September 25, 2017, the Company was awarded through Resolution SEE
820/2017 with two co-generation projects called “Terminal 6
San Lorenzo” with a capacity of 330 MW and Luján de Cuyo
(within our Luján de Cuyo plant) with a capacity of 93
MW.
On
December 15, 2017, we executed a new steam supply contract with YPF
for a 15-year term that began when the new co-generation unit at
our Luján de Cuyo plant started operations.
Also,
on December 27, 2017, we entered into a final steam supply
agreement with T6 Industrial S.A. for the new co-generation unit at
our Terminal 6 San Lorenzo plant for a 15 year-term.
On
January 4, 2018, the Company entered into power purchase agreements
with CAMMESA for each of the mentioned projects for a 15-year term
as from the launch of commercial operations.
On
October 5, 2019 the commercial approval of the co-generation
station Luján de Cuyo took place within the framework of SEE
Resolution 820/2017. It is important to highlight the fact that the
operations are launched under the method “Anticipated COD to
the committed date”, which implies paying 70% of the agreed
power charge until November 21, 2019. After that date, power
remuneration is being paid in full.
F-72
CENTRAL PUERTO S.A.
22.8.
Sale
of the La Plata plant
On
December 20, 2017, YPF EE, an YPF S.A. subsidiary, accepted the
Company´s offer to sell the La Plata plant, for a total sum of
USD 31.5 million, subject to closing customary conditions. On
February 8, 2018, after the conditions were met, the plant was
transferred to YPF EE effective as of January 5, 2018.
Consequently, during fiscal year ending December 31, 2018 the
Company has booked an income, before income tax, from discontinued
operations for 722,397, due to the sale of the mentioned
plant.
22.9.
Purchase
of natural gas for generation
As
accepted under Regulation SGE No. 70/2018 described in Note 1.2.d),
the Company reinstated its activities towards purchasing natural
gas as from late November 2018, in order to supply its generation
stations. As from December 2018, all natural gas used by the
Company was purchased to producers and distributors directly, as
well as the transported associated to those consumptions. The
Company’s main natural gas providers were YPF, Tecpetrol,
Total, Metroenergía and Pluspetrol, among others.
As from
December 30, 2019, as stated in Note 1.2.d), the Ministry of
Productive Development decided to centralize the purchase of fuel
to generate electrical energy through CAMMESA, repealing Resolution
No. 70/2018 of the former Secretariat of Energy. The scope of this
new measure is for the WEM generation units that commercialize
their energy and power in the spot market.
22.10.
Acquisition
of Thermal Station Brigadier López
In the
context of a local and foreign public tender called by
Integración Energética Argentina S.A.
(“IEASA”), which has been awarded to the Company, on
June 14, 2019 the transfer agreement of the production unit that is
part of Brigadier López Thermal Station and of the premises on
which the Station is located, was signed, including: a) production
unit for the Station, which includes personal property, recordable
personal property, facilities, machines, tools, spare parts, and
other assets used for the Station operation and use; b)
IEASA’s contractual position in executed contracts (including
turbogas and turbosteam supplying contracts with CAMMESA and the
financial trust agreement signed by IEASA as trustor, among
others); c) permits and authorizations in effect related to the
Station operation; and d) the labor relationship with the
transferred employees.
The
Station currently has a Siemens gas turbine of 280.5 MW. According
to the tender specifications and conditions, we have to supplement
the gas turbine with a boiler and a steam turbine to reach the
closing of the combined cycle, which will generate 420 MW in total.
The works for the closing of the combined cycle are
pending.
Regarding
the trust agreement, CPSA adopted the trustor capacity. The
financial debt balance as at June 14, 2019 was USD 154,662,725.
Under the terms of the trust agreement, the financial debt accrues
an interest rate equal to LIBOR plus 5% or equal to 6.25%,
whichever is higher, and it is monthly amortized. As at December31, 2019 there are 32 installments to amortize and the financial
debt balance amounts to 7,714,106.
Under
the trust agreement, as at December 31, 2019, there are trade
receivables with specific assignment for the amount of
557,806.
The
amount paid on June 14, 2019 amounted to USD 165,432,500, formed by
a cash amount of USD 155,332,500, plus an amount of USD 10,100,000
settled through the assignment of LVFVD to IEASA.
23.
Tax
integral inflation adjustment
Pursuant
to Law no. 27468, modified by Law no. 27430 as described in Note
24, to determine the amount of taxable net profits for fiscal years
commencing January 1, 2018, the inflation adjustment calculated on
the basis of the provisions set forth in the income tax law will
have to be added to or deducted from the fiscal year’s
tax
result. This adjustment will only be applicable (a) if the variance
percentage of the consumers price index (“IPC”) during
the 36 months prior to fiscal year closing is higher than 100%, and
(b) for the first, second, and third fiscal year as from January 1,2018, if the accumulated IPC variance is higher than 55%, 30% or
15% of such 100%, respectively. The positive or negative tax
inflation adjustment, depending on the case, corresponding to the
first, second and third period commenced as from January 1, 2018,
which must be calculated in case of verifying the statements on the
foregoing paragraphs (a) y (b), shall be charged in a sixth for
that fiscal period and the remaining five sixths, equally, in the
immediately following fiscal periods.
F-73
CENTRAL PUERTO S.A.
At
December 31, 2019, such conditions have been already met.
Consequently, the current and deferred income tax have been booked
in the fiscal year ended December 31, 2019, including the effects
derived from the application of the tax inflation adjustment under
the terms established by the income tax law.
24.
Measures
in the Argentine economy
During
December 2019, the Central Bank of Argentina (“BCRA”)
issued Communication “A” 6854 and “A” 6856
whereby the regulations on Abroad and Exchange Rate issued by BCRA
were extended, which included regulations on exports, imports and,
especially, the previous BCRA’s authorization to access the
foreign Exchange market for the transference of profits and
dividends. It is important to highlight the fact that these
regulations do not prevent settlement of commercial obligations of
the Company or the obtaining and/or settlement of financial debt
abroad.
Moreover,
on December 23, 2019, Law no. 27541 on “Social Solidarity and
Production Reactivation within the Public Emergency
framework” was published in the Official Gazette; and on
December 28, Decree no. 99/2019 was issued with the regulations for
the implementation of such law. The main measures in the law and
its regulations affecting the tax regime and the energy market are
the following:
Tax obligations
a)
Income
tax
Law no.
27430 had established that for the fiscal period commenced as from
January 1, 2020, the corporate rate of income statement would be
reduced from 30% to 25% and that the additional tax on dividends or
profits distributed to human persons of Argentina and abroad would
increase from 7% to 13%. Law no. 27541 cancels that rate change and
keeps the original 30% and 7%, up to the fiscal periods commencing
January 1, 2021 inclusive.
b)
Tax
on an inclusive and supportive Argentina (“impuesto
PAIS” [Country tax])
With
emergency character and for the term of five fiscal periods, a tax
with a 30% rate is established on the operations related to the
acquisition of foreign currency for saving, purchase of goods and
services in foreign currency and international transport of
passengers. Such tax extends to all residents of Argentina, whether
human persons or business entities. The tax does not have the
character of payment on account of any tax.
The
operations under this tax that may impact on the operation of the
Company are the following:
–
Purchase of foreign
notes and currency for saving or with no specific purpose (with a
monthly limit of USD 200).
–
Foreign currency
Exchange by financial entities on behalf and to the order of
purchaser or borrower with the purpose of paying acquisitions of
goods or services abroad, regardless of the method of
payment.
–
Foreign currency
Exchange by financial entities on behalf and to the order of
purchaser or borrower living in Argentina with the purpose of
paying services rendered by persons not residing in Argentina,
regardless of the method of payment.
F-74
CENTRAL PUERTO S.A.
Energy Market
The Law
enables the Executive Branch to keep electricity and natural gas
rates under federal jurisdiction and to commence a re-negotiation
process for the revision of the integral rate in force or to start
an extraordinary revision as from the Law’s entering into
force date and for a maximum term of 180 days tending to a
reduction in the rate charge on homestead, stores and industries
for year 2020. Exercising delegated powers, the Argentine
Government announced the cancellation of all electricity and
natural gas rate update for the 180 days stated in the Law. In that
sense, on February 27, 2020, Resolution no. 31 issued by the
Secretariat of Energy was published, which resolution is described
in Note 1.2.f).
It is
important to highlight the fact that these measures affect sales on
the spot market, but do not affect the agreements signed by the
Group with CAMMESA or other companies, which establish the
applicable rate table.
25.
Subsequent
event: COVID-19
In late
December 2019, a notice of pneumonia originating from Wuhan, Hubei
province (COVID-19, caused by a novel coronavirus) was reported to
the World Health Organization. On March 11, 2020, the World Health
Organization characterized the COVID-19 as a pandemic. Several
measures have been undertaken by the Argentine government and other
governments around the globe; however, the virus continues to
spread globally and, as of the date of these financial statements,
it has affected more than 150 countries and territories around the
world, including Argentina. To date, the outbreak of the novel
coronavirus has caused significant social and market disruption.
Any prolonged restrictive measures put in place in order to control
an outbreak of a contagious disease or other adverse public health
development may have a material and adverse effect on the
Group’s business operations. It is unclear whether these
challenges and uncertainties will be contained or resolved, and
what effects they may have on the global political and economic
conditions in the long term. Additionally, how the disease will
evolve in Argentina cannot be predicted, nor what additional
restrictions the Argentine government may impose can be
anticipated.
In this
sense, on March 20, 2020 the Argentine government issued Decree
297/2020 establishing a preventive and mandatory social isolation
policy (“the Quarantine”), as a public health measure
to contain the effects of the Covid-19 outbreak. Such decree
established that during the Quarantine people must remain in their
residence beginning midnight on March 20, 2020 and must refrain
from going to their workplaces and may not travel along routes,
roads or public spaces. Since the adoption of the Quarantine, the
government has extended it twice, and as of the date of these
financial statements the Quarantine is expected to end on April 26,2020.
Pursuant to Decree
297/2020, the electricity generation activity was considered an
essential service and thus, exempt from the work attendance and
travel restrictions. Although operations personnel were allowed to
continue their activities, under certain health and sanitary
precautions, the rest of the personnel continued working remotely.
As of the date of these financial statements, these restrictions
remain in place.
Initially, the
construction of new energy infrastructure was not included as an
exception. On April 7, 2020, pursuant to Administrative Decision
468/2020, the construction of private sector energy infrastructure
was included as an essential activity. As additional measures to
contain the virus in Argentina, international travel (except for
certain specific repatriation flights) was suspended.
Some of
the main identified impacts that this crisis has and may have in
the future for the Company are the following:
Operations
- Power generation
-
Reduction in the electric energy
dispatched. Due to the Quarantine, most of the businesses in
Argentina, especially in the industrial sector, have not been able
to continue operating normally. According to information from
CAMMESA, during the first week of April 2020, the total electric
energy demand declined 13.4 %, compared to the same week of the
prior year. This reduction is likely to have an impact in the
Group´s thermal energy generation, in particular our units
with higher heat rate (less efficient).
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-
Increased delays in payments and/or risk of
uncollectability from the Group’s private clients.
Despite the fact that CAMMESA is paying its obligations, the
reduced economic activity due to the Quarantine may also affect the
cash flow of CAMMESA and our private clients and it may increase
the delays in their payments and the risk of uncollectability of
private clients.
-
Personnel safeguard. Multiple measures
to protect the health of all the Group’s operations personnel
units have been taken. Some of those measures include: a) the
isolation of the teams that operate the Group’s different
units preventing contact between different teams, b) the avoidance
of contact between personnel of different shifts, c) the use of
extra protection, and additional sanitary measures, d) using
virtual meetings, e) identify key personnel in order to have the
necessary back up teams should a contingency arise, and keeping all
non-essential personnel working remotely. Although these measures
have been effective for the safeguard of the Group’s
personnel, as of the date of these financial statements, the Group
cannot assure that none of its employees (including key personnel)
will be affected by the Covid-19.
-
Lack of necessary supplies/equipment, or delays
in supplies. The Quarantine may also affect the provision of
essential supplies. Although the provision of the necessary
supplies is also considered an essential activity under the enacted
emergency framework and usually a stock of spare parts is kept as
backup, the Company cannot assure that the provision of the
necessary supplies will not be affected. Furthermore, the measures
taken by foreign countries in which some of the Group’s
supplies and spare parts are produced, may also affect the
Group’s stock of spare parts. Any delay in the provision of
essential equipment or supplies may affect the Group’s
operations.
Projects
under construction/development
The
COVID-19 outbreak has had an impact on the projects currently under
construction. Delays in the project completion date of the wind
farm La Genoveva I are expected to be experienced. On February 21,2020, Vestas Argentina S.A. notified the Group that the COVID-19
outbreak affected its manufacturing activities worldwide, causing
delays on the supply chain for the delivery of certain
Chinese-origin manufacturing components required for the completion
of the wind turbines. In its communication, Vestas Argentina S.A.
did not specify the specific impact this situation may have on the
agreed upon schedule. However, delays on the project’s
completion are reasonably expected. The Group sent a notice to
CAMMESA reporting the updates received from Vestas Argentina S.A.,
in accordance with the force majeure clauses of the Supply of
Renewable Electrical Energy entered into with CAMMESA, in order to
avoid potential penalties should the project suffer unexpected and
unforeseen delays. On April 7, 2020, CAMMESA acknowledged receipt
of that notice and asked for a report on the consequences that the
force majeure events have had on the schedule of the project. The
construction of the wind farm has been resumed on April 9,2020.
The
Quarantine also affected the construction of the Terminal 6-San
Lorenzo thermal plant. After the Quarantine was lifted according to
Administrative Decision 468/2020, construction is expected to be
resumed on April 27, 2020. Additionally, as mentioned above, travel
restrictions and national borders lockdown imposed by the
government, among others, may delay the arrival of necessary
personnel for the project, some of which were expected to arrive
from countries affected by the outbreak. The Company sent a notice
to CAMMESA informing about this situation in accordance with the
force majeure clauses of the power purchase agreement, in order to
avoid potential penalties should the project suffer unexpected and
unforeseen delays.
The
effects of the Covid-19 crisis pose challenges to the closing of
the combined cycle at the Brigadier López plant and to the
development of
the El Puesto solar farm, delaying the start of construction of
such projects, not only because of
the restrictions to the construction mentioned above, but also due
to lower energy demand and difficulties to obtain the necessary
financing for the projects in the current market situation. In
addition, the Covid-19 crisis may reduce the possibility of new
projects that would enable the use of the acquired gas
turbines.
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Access
to Capital Markets
Due to
the outbreak of COVID-19, access to the capital and financial
markets in Argentina and/or in foreign markets may also be substantially
reduced. Although cash flow and liquidity of the Group is deemed
sufficient to meet the working capital, debt service obligations
and capital expenditure requirements, any further deterioration of
the current economic situation may result in a deterioration of the
Company’s finances, in a context of lack of access or
substantial reduction of credit availability in the financial
markets.
Additionally, the
Covid-19 pandemic crisis may also affect the natural gas
distribution associate’s income. Although these economic
activities were also declared essential, and exempt from the
Quarantine, the economic downturn as a consequence of this measure
is expected to reduce the volumes distributed to the clients.
Moreover, some measures adopted by the Argentine government to
mitigate the effects of the Covid-19 outbreak in the economy are
also expected to affect ECOGAS Group financial performance. For
example, the government has ruled a 180-day period, starting on
March 1, 2020, where the suspension of the natural gas service is
not permitted, upon the beneficiary’s failure to pay less
than three consecutive invoices, from March 1, 2020. This measure
is only applicable to certain users. This measure is expected to
increase the payment delays and/or the uncollectability from such
clients.
The
Group will continue taking all the available measures to mitigate
the effects that the Covid-19 pandemic crisis has or may have on the operations, the
projects undergoing and the Group’s financial
position.
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Dates Referenced Herein and Documents Incorporated by Reference
