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Metrogas Inc – ‘20-F’ for 12/31/12

On:  Friday, 4/26/13, at 11:49am ET   ·   For:  12/31/12   ·   Accession #:  931069-13-7   ·   File #:  1-13442

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  As Of                Filer                Filing    For·On·As Docs:Size

 4/26/13  Metrogas Inc                      20-F       12/31/12    6:1.9M

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer           HTML   1.52M 
 2: EX-1        Underwriting Agreement                              HTML      9K 
 3: EX-2        Plan of Acquisition, Reorganization, Arrangement,   HTML      9K 
                          Liquidation or Succession                              
 4: EX-3        Articles of Incorporation/Organization or By-Laws   HTML      6K 
 5: EX-4        Instrument Defining the Rights of Security Holders  HTML      6K 
 6: EX-5        Opinion re: Legality                                HTML    487K 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2012
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of event requiring this shell company report ____________
For the transition period from ____________ to ____________

METROGAS S.A.
(Exact name of Registrant as specified in its charter)

METROGAS Inc.
(Translation of Registrant's name into English)

Republic of Argentina
(Jurisdiction of incorporation or organization)

Part I *

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS *

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE *

ITEM 3. KEY INFORMATION *

A. Selected Consolidated Financial Data *

B. Capitalization and Indebtedness *

C. Reasons for the Offer and Use of Proceeds *

D. Risk Factors *

ITEM 4. INFORMATION ON THE COMPANY *

A. History and Development of the Company *

B. Business Overview *

C. Organizational Structure *

D. Property, Plants and Equipment *

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS *

A. Operating results *

B. Liquidity and Capital Resources *

C. Research and Development, Patents and Licenses *

D. Trend Information *

E. Off-Balance Sheet Arrangements *

F. Tabular Disclosure of Contractual Obligations *

G. Safe Harbor *

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES *

A. Directors and Senior Management *

B. Compensation *

C. Board Practices *

D. Employees *

E. Share Ownership *

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS *

A. Major Shareholders *

B. Related Party Transactions *

C. Interests of Experts and Counsel *

ITEM 8. FINANCIAL INFORMATION *

A. Consolidated Statements and Other Financial Information *

B. Significant changes *

ITEM 9. THE OFFER AND LISTING *

A. Offer and Listing Details *

B. Plan of Distribution *

C. Markets *

D. Selling Shareholders *

E. Dilution *

F. Expenses of the Issue *

ITEM 10. ADDITIONAL INFORMATION *

A. Share Capital *

B. Memorandum and Articles of Association *

C. Material Contracts *

D. Exchange Controls *

E. Taxation *

F. Dividends and Paying Agents *

G. Statement by Experts *

H. Documents on Display *

I. Subsidiary Information *

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK *

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES *

A. Debt Securities *

B. Warrants and Rights *

C. Other Securities *

D. American Depositary Receipts *

Part II *

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES *

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS *

ITEM 15. CONTROLS AND PROCEDURES *

ITEM 16. [Reserved] *

ITEM 16A. Audit Committee Financial Expert 156

ITEM 16B. CODE OF ETHICS *

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES *

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES *

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS *

ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT *

ITEM 16G. CORPORATE GOVERNANCE *

 

ITEM 16H. MINE SAFETY DISCLOSURE *

Part III *

ITEM 17. FINANCIAL STATEMENTS *

ITEM 18. FINANCIAL STATEMENTS *

ITEM 19. EXHIBITS *

1.  
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

3. KEY INFORMATION
1. Selected Consolidated Financial Data

The following tables set forth our selected consolidated financial and operating data as of and for the years ended December 31, 2012, 2011, 2010, 2009 and 2008, respectively. Our financial and operating data should be read in conjunction with, and are qualified in their entirety by, our Annual Consolidated Financial Statements, the notes related thereto and the information contained in Item 5: "Operating and Financial Review and Prospects."

We maintain our financial books and records and publish our financial statements in constant Pesos as of February 28, 2003 and we prepared our consolidated financial statements in conformity with Argentine GAAP. Significant differences exist between Argentine GAAP and U.S. GAAP that might be material to the financial information contained herein. Such differences involve methods of measuring the amounts shown in our Annual Consolidated Financial Statements as well as additional disclosures required by U.S. GAAP and Regulation S-X of the Exchange Act. See Notes 17 and 18 to our Annual Consolidated Financial Statements for a description of the principal differences between Argentine GAAP and U.S. GAAP as they relate to us and reconciliation to U.S. GAAP of our net income (loss) and shareholders' equity. Beginning on January 1, 2013, we now prepare our consolidated financial statements in accordance with IFRS as issued by the IASB.

In accordance with CNV General Resolution No. 487/06, we had previously chosen not to recognize the deferred tax liability caused by inflation adjustment in the accounting valuation of our fixed assets or to state its effect in the notes to our financial statements. However, on July 1, 2010, the CNV issued General Resolution No. 576/10. As a result, we recognized a deferred tax asset amounting to Ps. 223,865 thousand with a balancing entry in retained earnings for the fiscal year ended December 31, 2012. For this reason, and in order to comply with the CNV's rulings, we have made retroactive adjustments for the years ending as of December 31, 2011, 2010, 2009 and 2008 as follows:

	As of the year ended December 31, (in thousands of Pesos)
	2011			2010			2009			2008
	As adjusted	As previously issued		As adjusted	As previously issued		As adjusted	As previously issued		As adjusted	As previously issued
Consolidated Balance Sheets
Total Non-current assets	1,938,382	2,032,981		1,902,498	1,974,336		1,868,516	1,910,787		1,836,965	1,852,759
Total Assets	2,409,075	2,503,674		2,439,062	2,510,900		2,183,464	2,225,735		2,082,778	2,098,572
Total Non-current liabilities	1,462,001	1,319,615		1,397,545	1,220,331		1,068,776	847,834		1,094,334	833,137
Total Liabilities	1,892,206	1,749,820		1,860,606	1,683,392		1,547,730	1,326,788		1,382,778	1,121,581
Shareholders' equity	515,798	752,783		576,852	825,904		634,388	897,601		698,952	975,943
	As of the year ended December 31, (in thousands of Pesos)
	2011			2010			2009			2008
	As adjusted	As previously issued		As adjusted	As previously issued		As adjusted	As previously issued		As adjusted	As previously issued
Consolidated Statements of Income
Income tax expense	3,316	(8,751)		26,986	12,825		4,386	(9,392)		12,074	(1,806)
Net income	(61,054)	(73,121)		(57,536)	(71,697)		(64,564)	(78,342)		331	(13,549)

 

The selected consolidated statement of income data for the years ended December 31, 2012, 2011 and 2010 and the selected consolidated balance sheet data as of December 31, 2012 and 2011 have been derived from our Annual Consolidated Financial Statements included in this annual report and audited by PwC.

The selected consolidated statement of income data for the years ended December 31, 2009 and 2008 and the selected consolidated balance sheet data as of December 31, 2010 and 2009 have been derived from our annual consolidated financial statements as of December 30, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008, which are not included herein.

The selected consolidated balance sheet data as of December 31, 2008 has been derived from our annual consolidated financial statements as of December 31, 2009 and 2008 and for the years ended December 31, 2009, 2008 and 2007, which are not included herein.

The selected consolidated financial and operating data includes the retroactive adjustments explained above in relation to the deferred tax liabilities.

 

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

	For the year ended December 31,
	2012 (1)	2012	2011		2010	2009	2008
	(in thousands of U.S.$)	(in thousands of Pesos, except ratios and shares)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Argentine GAAP
Gross sales(a)	245,937	1,209,519	1,161,174	1,123,884		1,075,885	901,564
Net sales(b)	235,831	1,159,819	1,114,078	1,081,868		1,041,349	871,961
Gross profit(c)	58,269	286,567	302,768	313,140		304,643	288,611
Operating (loss) income	(18,596)	(91,454)	(9,035)	56,472		94,086	117,238
Financing and holding results loss (d)	(29,273)	(143,965)	(62,378)	(149,301)		(170,786)	(130,144)
Loss (income) before income tax	(46,673)	(229,539)	(64,370)	(84,522)		(68,950)	(11,743)
Net (loss) income	(29,037)	(142,805)	(61,054)	(57,536)		(64,564)	331
Weighted average number of shares outstanding	569,171	569,171	569,171	569,171		569,171	569,171
Loss (income) per share	(0.05)	(0.25)	(0.11)	(0.10)		(0.11)	0.00
Dividends per share	-	-	-	-		-	-
Loss (income) per ADS	(0.51)	(2.51)	(1.07)	(1.01)		(1.13)	(0.01)
Dividends per ADS	-	-	-	-		-	-
U.S. GAAP
Net sales(b)	235,831	1,159,819	1,114,078	1,081,868		1,041,349	871,961
Gross profit(c)	48,163	236,867	255,672	271,124		270,107	259,008
Operating (loss) income	(18,485)	(90,908)	(7,629)	77,346		80,067	99,387
Reorganization item (loss) income	3,874	19,050	(11,961)	206,119		-	-
Financing and holding results (loss) gain (d)	(32,915)	(161,875)	(63,136)	81,835		(121,492)	(87,842)
Loss (income) before income tax	(46,330)	(227,853)	(75,683)	218,915		(33,675)	12,708
Net (loss) income	(36,355)	(178,796)	(83,513)	202,826		(188.448)	19,075
(Loss) earnings per share	(0.064)	(0.314)	(0.147)	0.356		(0.331)	0.034
(Loss) earnings per ADS	(0.639)	(3.141)	(1.467)	3.564		(3.311)	0.335
CONSOLIDATED BALANCE SHEET DATA:
Argentine GAAP
Fixed assets (net of depreciation)	363,476	1,787,576	1,752,923	1,722,877		1,688,430	1,661,201
Total assets	495,078	2,434,793	2,409,075	2,439,062		2,183,464	2,082,778
Net current liabilities(e)	(26,370)	(129,686)	40,488	73,503		(164,006)	(42,631)
Total financial debt	-	-	-	-		920,634	815,327
Short-term financial debt	-	-	-	-		82,777	2,202
Long-term financial debt	-	-	-	-		837,857	813,125
Reorganization liabilities - Financial Debt	260,732	1,282,280	1,119,331	1,034,556		-	-
Reorganization liabilities - Others	29,894	147,021	200,284	185,775		-	-
Total shareholders' equity	75,842	372,993	515,798	576,852		634,388	698,952
Number of shares	569,171	569,171	569,171	569,171		569,171	569,171
Common stock nominal value	115,732	569,171	569,171	569,171		569,171	569,171
Cumulative inflation adjustment to common stock	139,237	684,769	684,769	684,769		684,769	684,769
Adjusted common stock	254,969	1,253,940	1,253,940	1,253,940		1,253,940	1,253,940
Total capitalization(f)	336,574	1,655,273	1,635,129	1,611,408		1,555,022	1,514,279
U.S. GAAP
Total shareholders' equity	33,814	166,298	345,094	428,607		225,781	414,229
OTHER CONSOLIDATED FINANCIAL DATA:
Argentine GAAP
Acquisition of fixed assets(g)	23,725	116,678	109,128	119,111		105,756	84,169
Depreciation and amortization	15,468	76,072	71,961	74,421		71,331	69,168
Nominal gross interest(h)	697	3,430	3,242	33,632		69,717	59,184
Interest income	1,552	7,632	10,180	5,185		11,580	13,567
Net interest expense(i)	(854)	(4,202)	(6,938)	28,447		58,137	45,617
EBITDA(j)	(1,932)	(9,502)	69,969	139,200		173,167	187,569
Net cash flows provided by operating activities	12,730	62,608	5,058	302,205		251,428	172,384

__________

Notes:

(1) Solely for the convenience of the reader, we have translated Argentine Peso amounts into U.S. Dollars at the exchange rate quoted by Banco Nación for December 31, 2012, which was Ps. 4.9180 per U.S.$ 1.00. We make no representation that the Argentine Peso or U.S. Dollar amounts actually represent, could have been or could be converted into Dollars at the rates indicated, at any particular rate or at all. See Item 3: "Exchange Rates Information."

	For the year ended December 31,
	2012	2011	2010	2009	2008
	(in thousands of Pesos, except ratios and shares)
SELECTED CONSOLIDATED FINANCIAL RATIOS:
Argentine GAAP
Liquidity ratio (current assets/current liabilities)	77.3%	109.4%	115.9%	65.8%	85.2%
Solvency ratio (shareholders' equity/total liabilities)	18.1%	27.3%	31.0%	41.0%	50.5%
Fixed assets ratio (fixed assets/total assets)	73.4%	72.8%	70.6%	77.3%	79.8%
Net income margin (net income/sales)	(11.8%)	(5.3%)	(5.1%)	(6.0%)	0.0%
Total financial debt/total capitalization	77.5%	68.5%	64.2%	50.6%	45.5%
Ratio of:
EBITDA to nominal gross interest	(2.8x)	21.6x	4.1x	2.5x	3.2x
EBITDA to net interest expense(h)	2.3x	(10.1x)	4.9x	3.0x	4.1x
Operating cash flow to nominal gross interest	18.3x	1.6x	9.0x	3.6x	2.9x
Selected Operating Data:
Total number of customers	2,280,557	2,249,513	2,209,959	2,176,327	2,144,612
Residential	2,198,367	2,167,496	2,128,126	2,094,606	2,063,795
Other	82,190	82,017	81,833	81,721	80,817
Kilometers of pipeline	16,651	16,548	16,493	16,264	16,190
Total number of employees	1,148	1,059	1,039	1,052	1,021

	Year Ended December 31,
	2012		2011		2010		2009		2008
	MMCM	MMCF	MMCM	MMCF	MMCM	MMCF	MMCM	MMCF	MMCM	MMCF
Volumes Transported:(k)
Average daily firm
transportation capacity	24.6	868.7	24.6	868.7	24.6	868.7	24.6	868.7	24.6	868.7
Average daily volume	23.4	826.4	23.7	837.0	22.6	798.1	23.6	833.4	23.8	841.1
Firm (including residential)	13.1	462.6	13.2	466.2	13.0	459.1	13.1	462.6	13.4	473.2
Interruptible	10.3	363.7	10.5	370.8	9.7	342.6	10.5	370.8	10.4	367.3
Load factor(l)	95.1%		96.5%		92.1%		95.8%		96.8%
Volumes Delivered:
Average daily volume	22.3	787.5	22.6	798.1	21.6	762.8	22.6	798.1	22.9	808.7
Firm (including residential)	12.5	441.4	12.6	445.0	12.4	437.9	12.5	441.4	12.9	455.6
Interruptible	9.8	346.1	10.0	353.1	9.2	324.9	10.1	356.7	10.0	353.1

__________

Notes:

(a) Represents gross revenues.

(b) Represents gross revenues less turnover tax.

(c) Under Argentine GAAP, gross profit is defined as sales less operating costs, which exclude administrative, selling and other expenses.

(d) Includes mainly exchange differences from our foreign currency-denominated assets and liabilities, results of exposure to inflation, holding results, interest income from our interest-bearing assets, interest expense from our outstanding debt, gain on debt restructuring and gain on present-valuing long term financial debt.

(e) Current assets minus current liabilities.

(f) Financial debt plus total shareholders' equity. For the years ended 2010, 2011 and 2012, financial debt refers to the item "Reorganization liabilities - Financial Debt".

(g) Represents additions (excluding materials) and transfers to property, plant and equipment.

(h) Interest on financial operations (no interest was capitalized during 2008, 2009, 2010, 2011 and 2012).

(i) Nominal gross interest plus capitalized interest less interest income.

(j) EBITDA means earnings before interest, taxes, depreciation and amortization. However, we calculate EBITDA as earnings before financial and holding results, income taxes, depreciation and amortization. Financing and holding results includes but is not limited to interest expense. Financing and holding results also include interest income, exchange results, holding results, results of debt restructuring, results from the present-valuing of long term financial debt and others. We believe EBITDA provides investors with meaningful information with respect to our liquidity, our capacity to finance capital investments and accomplish with future debt payments and capital work requirements; and facilitates comparisons to our historical operating results. Our EBITDA measure has limitations as an analytical tool. Some of these limitations include:

(1) it does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

(2) it does not reflect changes in, or cash requirements for, our working capital needs;

(3) it does not reflect our interest expense, or the cash requirements to service the interest or principal payments of our debt;

(4) it does not reflect any cash income taxes or employees' profit sharing we may be required to pay;

(5) it reflects the effect of non-recurring expenses, as well as investing gains and losses;

(6) other companies in our industry may calculate this measure differently than we do which may limit its usefulness as a comparative measure.

Because of these limitations, our EBITDA measure should not be considered a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations or as an alternative to the GAAP measure of net income. EBITDA is not a recognized financial measure under Argentine GAAP or U.S. GAAP. You should compensate for these limitations by relying primarily on our Argentine GAAP results and using our EBITDA measurement as a supplement.

(k) Volumes transported exceed volumes delivered primarily due to gas losses occurring in the distribution system.

(l) Represents the daily average volume of gas transported under firm transportation contracts divided by the daily firm transportation capacity under such contracts.

RECONCILIATION OF EBITDA:	For the year ended December 31,
	(in thousands of U.S.$)	(in thousands of Pesos)
	2012 (1)	2012	2011	2010	2009	2008
Net cash provided by operating activities	12,730	62,608	5,058	302,205	251,428	172,384
Financing and holding results (not using funds)	(5,281)	(25,972)	(26,085)	34,190	63,170	50,310
Net book value of fixed assets written off	(135)	(662)	(565)	(1,574)	243	(1,271)
Allowance for doubtful accounts	(495)	(2,433)	1,856	(6,973)	(8,174)	(1,259)
Allowance for inventory obsolescence	(61)	(298)	(453)	(43)	(167)	(140)
Disposal of fixed assets	(986)	(4,851)	(6,129)	(8,581)	(7,439)	(5,767)
Contingencies reserve	(2,416)	(11,884)	(12,087)	(9,464)	(10,445)	(12,702)
Materials consumed	(929)	(4,571)	(4,926)	(3,966)	(8,009)	(2,728)
Minority interest	167	820	(206)	(258)	(298)	(245)
Changes in assets and liabilities	(4,526)	(22,259)	113,506	(166,336)	(107,142)	(11,013)
EBITDA	(1,932)	(9,502)	69,969	139,200	173,167	187,569

__________

Notes:

(1) Solely for the convenience of the reader, we have converted Argentine Peso amounts into U.S. Dollars at the exchange rate quoted by Banco Nación for December 31, 2012, which was Ps. 4.9180 per U.S.$ 1.00. We make no representation that the Argentine Peso or U.S. Dollar amounts actually represent, could have been or could be converted into Dollars at the rates indicated, at any particular rate or at all. See Item 3: "Exchange Rates Information."

1. Exchange Rates Information

The following table sets forth, for the periods indicated, the period-end, average, low and high rates for the purchase of U.S. Dollars, expressed in Pesos per U.S. Dollar. On December 31, 2012, the Peso/U.S. Dollar exchange rate was Ps. 4.9180 per U.S.$ 1.00. The Federal Reserve Bank of New York does not report a noon buying rate for Pesos.

	Observed Exchange Rates (Ps.  Per U.S.$)
Year Ended December 31,	High (a)	Low (b)	Average (c)	Period End
2008	3.4680	3.0140	3.1633	3.4530
2009	3.8540	3.4490	3.7299	3.8000
2010	3.9880	3.7940	3.9130	3.9760
2011	4.3040	3.9320	4.1311	4.3040
Month Ended October 31, 2012	4.7660	4.6990	4.7306	4.7660
Month Ended November 30, 2012	4.8310	4.7690	4.7983	4.8310
Month Ended December 31, 2012	4.9180	4.8420	4.8795	4.9180
Month Ended January 31, 2013	4.9780	4.9250	4.9495	4.9780
Month Ended February 28, 2013	5.0500	4.9830	5.0126	5.0460
Month Ended March 31, 2013	5.1220	5.0490	5.0848	5.1220
As of April 19, 2013	5.1640	5.1300	5.1451	5.1640

 

Notes:

(a) The high rate shown was the highest month-end rate during the year or any shorter period, as noted.

(b) The low rate shown was the lowest month-end rate during the year or any shorter period, as noted.

(c) Average of the daily closing rate for year-end, month-end or period-end rates, as noted.

Source: Banco Nación.

2. Capitalization and Indebtedness

Not Applicable.

3. Reasons for the Offer and Use of Proceeds

Not Applicable.

4. Risk Factors

1. INFORMATION ON THE COMPANY
1. History and Development of the Company
1. General

We were formed on November 24, 1992 as a sociedad anónima under the laws of Argentina for a duration of 99 years. Our legal name is MetroGAS S.A. and our commercial name is MetroGAS. We are domiciled in and are governed by the laws of Argentina.

Our administrative and registered office is located at Gregorio Araoz de Lamadrid 1360, (1267) Buenos Aires, Argentina. Our telephone number is (54)(11) 4309-1434. As of December 31, 2012, we employed approximately 1,148 people. We have several commercial offices in the city of Buenos Aires and in the greater Buenos Aires area. Since November 17, 1994, our Class B Shares have been listed on the BCBA and our American Depositary Shares, each representing ten Class B Shares, have been listed on the New York Stock Exchange. Our agent for service of process in the United States for matters relating to our ADSs listed on the New York Stock Exchange is CT Corporation System, 111 Eighth Ave., New York, NY 10011.

As part of our strategy, we implemented, and continued through 2001, a major capital expenditure program designed to extend and renovate pipelines, regulators, valves, and meters, to ensure the safety and reliability of our distribution system, to modernize and centralize our information systems, and to upgrade our customer service branch network. We made capital expenditures of approximately Ps. 524.9 million between 1993 and 2001. Due to the Argentine financial crisis and the pesification and freezing of our tariffs, beginning in 2002 we reduced our capital expenditures to amounts required to fulfill our license provisions and ensure safe operation of our gas distribution network. We made capital expenditures of approximately Ps. 411.7 million between 2002 and 2009. During 2012, 2011 and 2010, our capital expenditures were approximately Ps. 116.7 Ps. 109.1 and Ps. 119.1 million, respectively. See Item 3: "Key Information-Risk Factors-Risk Factors Relating to Argentina" and Item 3: "Key Information-Risk Factors Relating to Us."

2. Important Events in the Company's Development
3. Privatization of Gas del Estado and Our Creation

Prior to being privatized, Gas del Estado, a state owned corporation formed by the Argentine National Government, owned and operated virtually all natural gas transportation and distribution facilities in Argentina. Through high-pressure transportation pipelines measuring approximately 10,590 km in length, Gas del Estado transported gas from producing basins located primarily in western, northwestern and southern Argentina to distribution areas for delivery to customers.

Gas del Estado was privatized pursuant to the Gas Act, which was enacted in June 1992 and implemented through Decrees No. 1,738/92 and 1,189/92. The Gas Act established a new industry structure for natural gas transportation and distribution in Argentina. Gas del Estado's integrated functions of purchasing, processing, transporting, distributing, and selling gas were assumed by two newly created transportation companies and eight newly created distribution companies, each of which was licensed and regulated under a new regulatory framework. The Argentine National Government successfully completed the privatization of Gas del Estado in December 1992 by transferring a majority of the common stock of all the gas distribution and transportation companies to the respective holding companies that were formed by the consortia that purchased them. The Argentine National Government retained a portion of the equity in each new company ranging from 10% to 40%, including an original equity interest in us of 30%. The Argentine National Government has sold much of such retained ownership in certain privatized gas transportation and distribution companies to the public (such as the November 1994 offering of our Class B Shares) or in private transactions (such as the January 1997 private sale of our remaining Class B Shares). The remainder of the Argentine National Government's shares in us was transferred to our employees through an employee stock ownership plan known as the Programa de Propiedad Participada ("PPP"). See Item 7: "Major Shareholders and Related Party Transactions-Major Shareholders."

The Argentine National Government promulgated detailed bidding procedures governing the privatization of Gas del Estado. The Pliego contained these procedures, which required that the bidding group for a gas distribution company include, among its members, a designated technical operator with experience in operating a gas distribution company serving at least 500,000 residential customers. The technical operator was required to enter into a technical assistance agreement under which it would provide us with, among other things, certain technical and managerial assistance.

The Pliego required that each bid include a specific U.S. Dollar amount, payable partially in cash and partially in Argentine public, foreign and domestic debt securities, plus a fixed amount of U.S.$ 62 million to be paid in cash on December 28, 1992, or the "Takeover Date," representing certain liabilities of Gas del Estado to the Argentine National Government. After various rounds of bidding, a consortium, or the "Consortium," composed of British Gas plc, Perez Companc S.A., or "Perez Companc," Astra Compañia Argentina de Petroleo S.A., or "Astra" and Invertrad S.A., or "Invertrad," was successful with a bid of U.S.$ 300 million plus the mandatory amount of U.S.$ 62 million. As a result, the bidding price for the 70% majority interest in us amounted to U.S.$ 362 million.

The Consortium formed Gas Argentino, to hold its interest in us. See Item 7: "Major Shareholders and Related Party Transactions-Major Shareholders." British Gas plc, or "British Gas," qualified as the technical operator, or the "Technical Operator," of the Consortium

Pursuant to the privatization of Gas del Estado, we, along with the Argentine National Government, Gas del Estado, British Gas, Perez Companc, Astra, Invertrad, and Gas Argentino entered into a transfer agreement, or the "Transfer Agreement," on the Takeover Date. The Transfer Agreement provided that those assets of Gas del Estado that are associated with the distribution system within our service would be transferred to us.

The Transfer Agreement required that (in addition to the bidding price paid by Gas Argentino) we assume certain short- and medium-term indebtedness of Gas del Estado in the aggregate amount of approximately U.S.$ 110 million, consisting of obligations of U.S.$ 60 million due to the Argentine National Government and U.S.$ 50 million due to YPF. We also executed three, short-term notes in the aggregate amount of approximately U.S.$ 26 million to pay for certain inventory and receivables attributable to gas delivered by Gas del Estado prior to the Takeover Date. As of December 31, 1997, we had repaid the U.S.$ 60 million debt to the Argentine National Government, the U.S.$ 50 million debt to YPF and the three short-term notes totaling approximately U.S.$ 26 million. In addition, the Transfer Agreement provided that we would act as collection agent for certain overdue receivables owed to Gas del Estado. Accordingly, we were required to make a nonrefundable prepayment of U.S.$ 23.8 million, which represented a minimum payment to be received by Gas del Estado on account of the overdue receivables.

Under the Transfer Agreement, we assumed certain obligations with respect to our new employees, who previously had been employed by Gas del Estado. We were required to accept these employees at their previous salary and seniority levels and to accept responsibility for any labor claims, occupational hazard claims and retirement liabilities that arose after the Takeover Date. We were required to cooperate in implementing the PPP to enable our employees to acquire the 10% of our shares that were originally held by the Argentine National Government. In addition, our employees are entitled to participate in our annual profits by receiving an aggregate distribution equal to 0.5% of our earnings after taxes.

On January 20, 1993, Invertrad assigned its interest in the Consortium to Argentina Private Development Trust Co., Ltd., currently known as Argentina Private Development Co., Ltd., or "APDC." On November 12, 1993, British Gas transferred its interest in the Consortium and in Gas Argentino to British Gas Netherlands Holding B.V., or "BGNH," a wholly owned subsidiary of BG Group. On September 24, 1997, Astra acquired 100% of the shares of APDC. On August 11, 1998, Perez Companc transferred its interest in Gas Argentino to BGNH, Astra, and APDC on a pro rata basis based on their respective holdings. On August 30, 1999, BGNH transferred its interest in the Consortium and in Gas Argentino to British Gas International B.V., or "BGI," an entity ultimately controlled by BG Group. Astra merged with YPF effective January 1, 2001. On December 21, 2001, APDC transferred its interest in Gas Argentino to YPF. During fiscal year 2005, Gas Argentino shares were transferred as follows: (i) on October 31, 2005, YPF S.A. notified us of the transfer of all its shares in Gas Argentino to YPF Inversorsa Energética S.A.; and (ii) on November 30, 2005, BGI notified us of the transfer of all its shares in Gas Argentino to BG Inversiones Argentinas S.A. On the date of this annual report, BG Group indirectly owns 54.67% of Gas Argentino, and YPF directly owns 45.33% of Gas Argentino.

On November 14, 2012, Gas Argentino received a notification from BG Inversiones Argentinas S.A. ("BGIA") stating that BGIA had entered into an agreement with Integra Gas Distribution LLC to sell its 40,793,136 Class A shares in Gas Argentino to said company. The transferability of the shares was subject, among other conditions, to obtaining the necessary regulatory approvals and YPF Inversora Energètica S.A declining its preferential right to exercise the purchase option. The agreement also included a requirement that BG Gas International B.V. sell 38,941,720 Class B shares that it has in us.

On November 30, 2012, Gas Argentino was notified by BGIA that YPF Inversora Energetica S.A. would exercise its preferential right regarding Integra Gas Distribution LLC's purchase offer as follows: (i) purchase of 40,793,136 Class A shares belonging to BGIA in Gas Argentino, representing 100% of the share capital and BGIA's votes in Gas Argentino, (ii) purchase of 6,279 shares belonging to BG Argentina S.A. in MetroENERGIA S.A.", representing 2.73% of its Common Stock and (iii) eventually, subject to other additional conditions, purchase of 38,941,720 Class B shares belonging to BG International B.V. in MetroGAS. The transferability of shares depends on, among other things, obtaining the corresponding regulatory approvals.

If the purchase option is completed, YPF Inversora Energetica S.A., a subsidiary of YPF S.A. who is currently controlled by the Argentine government, would be the owner of 100% of Gas Argentino's shares and votes. Gas Argentino currently controls 70% of our capital and votes. Thus, our controlling shareholder and we would in turn be controlled by the National Government.

Reorganization Proceeding (Concurso Preventivo)

As a consequence of various scenarios that significantly affected our ability to generate enough fund flows to satisfy payments to suppliers and financial creditors, on June 17, 2010, MetroGAS' Board of Directors requested a reorganization proceeding, which was filed before the National Court for Commercial Matters No. 26, Secretariat No.51, case record No. 056,999. The Shareholders' Assembly ratified the Board's decision on August 2, 2010.

The debts included in the reorganization procedure are set forth in our 2012 and 2011 Balance Sheets in the current financial statements under the line-item "Reorganization Liabilities." These liabilities are considered long-term liabilities and include commercial, tax, financial and social debts, among others.

On June 18, 2012 we proposed a restructuring of our admitted debt and of all of our other liabilities ranking pari passu therewith (including any other unsecured debt that might be additionally admitted in our reorganization proceeding, such as those admitted pursuant to revision motions or late filings, as substantially set forth in the reorganization proceeding). The reorganization plan was approved unanimously by our creditors on that date and by the presiding bankruptcy court on September 6, 2012. We thus requested the public offering of Series A and Series B Notes to be issued as a consequence of the reorganization proceeding. The notes were issued on January 11, 2013, for a total amount of US $314,553,452, and structured through two new U.S. Dollar denominated notes: the Series A Notes which amount for 53.2% of the admitted debt and the Series B Notes which amount for 46.8% of the admitted debt. In addition, both the Series A Notes and the Series B Notes were divided into L Series A Notes, L Series B Notes, U Series A Notes and U Series B Notes in order to differentiate holders who receive the new notes in exchange for then outstanding notes issued by the Company (the L Series Notes) and holders who receive the new notes in exchange for commercial debt (the U Series Notes).

The Series B Notes will be due by us only if (A) the maturity of all Series A Notes shall have been accelerated or (B) an event of default shall have occurred under the Series A Notes and holders of at least 25% of the principal amount of the Listed Series A Notes then outstanding shall have requested in writing to us and to The Bank of New York Mellon (in its capacity as trustee) that the acceleration of the Series A Notes be declared as a result thereof (items in (A) and (B) each a "Triggering Event") before (x) the first anniversary of the issuance date or (y) June 30^th, 2014, whichever occurs first (the "Cut-Off Date"). In addition, the Series A Notes and the Series B Notes were initially issued as part of a Unit. The Series A Notes and the Series B Notes may not be independently offered, transferred or sold until the date of the Triggering Event or the Cut-Off Date, whichever occurs first. See "- Liquidity and Capital Resources - Debt Restructuring" for more details on our issuance of new negotiable bonds.

On February 1^st and 13^th, 2013 we confirmed in the legal proceeding files that the debt swap was fulfilled, the New Negotiable Bonds were released and the capitalization and payment of interests in order to remove all general prohibitions and obtain the legal declaration of the accomplishment of the preventive agreement proposal under the terms of Section 59 of the LCQ.

We are also currently negotiating with privileged creditors in order to ensure they pay off their corresponding debts.

4. The Argentine Natural Gas Industry

The information concerning the Argentine natural gas industry set forth below has been prepared through the use of public sources, including Gas del Estado, the Energy Secretariat, public laws, decrees and regulations and other sources identified below. The information has not been independently verified by us or by our advisors.

1. Historical Background

Prior to the privatization of Gas del Estado, the Argentine gas industry was effectively controlled by the Argentine National Government. From January 1944 to December 1992, Gas del Estado and its predecessors had exclusive control over the integrated system of transportation and distribution of natural gas. In addition, until 1990, YPF (formerly the state owned, Argentine oil company), directly or through contractors, was the only natural gas producer in Argentina.

The distribution assets of Gas del Estado were divided into nine systems on a geographical basis as specified in the license of each of the nine distribution companies. The Buenos Aires metropolitan area, the principal gas market in Argentina, was divided between two distribution companies, us and Gas Natural BAN S.A., or "BAN." We are the largest distribution company in Argentina (in terms of number of customers and volume of gas deliveries), with approximately 20.4% of the total deliveries made by all gas distribution companies in 2012. We serve a market area generally covering the southern and eastern portions of greater Buenos Aires, including the city of Buenos Aires. Camuzzi Gas Pampeana S.A. is the second largest distribution company in Argentina (in terms of volume of gas deliveries) with approximately 17.2% of the total deliveries made by all gas distribution companies in 2012. It serves the area covering the Province of Buenos Aires (excluding greater Buenos Aires). Camuzzi Gas del Sur S.A. is the third largest distribution company in Argentina (in terms of volume of gas deliveries) with approximately 15.3% of the total deliveries made by all gas distribution companies in 2012. It serves the market area generally covering southern Argentina. Litoral Gas S.A. and Gas BAN are the fourth and fifth largest distribution company in Argentina (in terms of volume of gas deliveries), with approximately 12.1% of total deliveries made by all gas distribution companies in 2012, respectively. Litoral Gas S.A. and Gas BAN cover the northwest part of the Province of Buenos Aires. The remaining gas distribution companies in Argentina are Gasnor S.A., Distribuidora de Gas del Centro S.A., Distribuidora de Gas Cuyana S.A. (whose respective service areas are located in northwestern and west-central Argentina), and Gasnea S.A. (serving northeastern Argentina).

Gas del Estado's transportation assets were divided on a broad geographical basis into a northern and a southern trunk pipeline system designed to give both systems access to gas sources and to main centers of demand, including the greater Buenos Aires area. As a result of the division, our distribution system is directly connected to the southern trunk pipeline system operated by TGS, our primary gas transportation supplier. In addition, we are connected indirectly to the northern trunk pipeline system operated by TGN, through a large diameter, high pressure ringmain around Buenos Aires and through a pipeline of a neighboring distribution company.

Pursuant to the Gas Act and related decrees, each privatized company was granted a license to operate the transferred assets. Moreover, a regulatory framework for the privatized industry was established based on open, nondiscriminatory access. A regulatory agency named ENARGAS was created to regulate the transportation, distribution, marketing, and storage of natural gas in Argentina. The Gas Act also provided for the regulation of wellhead prices of gas in Argentina for a temporary period of one to two years beginning in June 1992, with prices to be deregulated no later than June 1994. Prior to deregulation, the regulated price was set at U.S.$ 0.97 per MMBTU at wellhead, which had been the regulated price since 1991. In accordance with the Gas Act, the price of gas was deregulated as of January 1, 1994 and, from that date until the year 2002, the average price of gas we paid increased. However, the enactment of the Emergency Law in 2002 (See Item 4: "Information on the Company- Regulatory Framework-ENARGAS-Current Tariffs") negatively impacted the natural wellhead prices of gas. Since mid-2004, the wellhead prices of gas for industrial consumers, thermal power generators and CNG stations have been gradually adjusted. On the other hand, it was not until 2008 that natural gas wellhead prices for residential and small commercial consumers were increased (which marked the first increase since 2002 for these consumers). Currently, the natural gas wellhead prices remain regulated in most cases.

5. Supply of and Demand for Natural Gas
1. Natural Gas Consumption and Demand

World demand for natural gas has increased significantly in recent years. Natural gas is distributed worldwide and is the only fossil fuel to have experienced reserve estimate increases in nearly every region of the world over the past decade. Due to lower alternate fuel and operating costs, natural gas has distinct economic advantages over other sources of energy such as coal and nuclear power. Furthermore, natural gas provides substantial environmental advantages compared to other energy sources because of its lower by product discharges. A 2011 United States Energy Information Administration international energy outlook forecasted a 53% increase in worldwide energy requirements from 2008 to 2035 and a 52% increase in worldwide natural gas consumption for the same period.

Argentina has a well-developed natural gas market, where natural gas constitutes approximately 51% of the total primary energy consumed. Since 1980, natural gas consumption in Argentina has increased approximately threefold, from approximately 9.3 BCM (328 BCF) in 1980 to 38.4 BCM (1,357 BCF) in 2012. These increases reflect energy substitution by end users, low prices relative to those for competing energy sources, and an increase in gas pipeline capacity. Also, in recent years, natural gas has experienced a significant rise in its share of the energy market. Demand for gas in Argentina is subject to significant seasonal variations with peak residential demand for heating occurring in the winter. Despite a relatively high market share of natural gas in Argentina, compared with other countries, we believe that additional market opportunities for natural gas exist in Argentina and that demand for natural gas will increase in conjunction with any growth of the Argentine economy.

The following table sets forth the total Argentine consumption of natural gas by class of user as of December 31 for the calendar years indicated:

	Consumption of Natural Gas
	1990	2000	2005	2009	2010	2011	2012
Residential
MMCM	4,346	6,967	7,432	8,481	9,244	9,248	9,690
BCF	153	246	262	300	326	327	342
Commercial
MMCM	521	1,053	1,109	1,277	1,254	1,189	1,285
BCF	18	37	39	45	44	42	45
Industrial
MMCM	6,114	8,055	9,169	9,326	9,613	11,433	10,730
BCF	216	284	324	329	339	404	379
Electric power plants
MMCM	5,319	7,141	7,213	7,578	6,672	11,400	12,856
BCF	188	252	255	268	236	403	454
National Government entities
MMCM	1,054	340	403	406	427	412	431
BCF	37	12	14	14	15	15	15
CNG(a)
MMCM	218	1,677	3,167	2,633	2,652	2,514	2,546
BCF	8	59	112	93	94	89	90
Others
MMCM	207	293	454	593	645	725	893
BCF	7	10	16	21	23	26	32
Total
MMCM	17,779	25,526	28,947	30,294	30,507	36,921	38,431
BCF	627	901	1,022	1,070	1,077	1,304	1,357

__________

Notes:

(a) Primarily used for automobiles.

Sources: 1990 Yearbooks of Gas del Estado. Data 2000, 2005, 2009, 2010, 2011 and 2012 were compiled from information provided by CAMMESA and ENARGAS.

2. Gas Supplies

In 2011, Argentina had proven natural gas reserves of approximately 393,996 MMCM (13,914 BCF), with an estimated reserve life of nine years. In 2010, Argentina had proven natural gas reserves estimated at 358,726 MMCM (12,668 BCF) with an estimated reserve life of eight years. Most of the reserves have been discovered as a result of oil exploration activities. Total domestic natural gas production was 44,124 MMCM (1,558 BCF) in 2012, 46,313 MMCM (1,636 BCF) in 2011 and 43,295 MMCM (1,529 BCF) in 2010. There are 19 known sedimentary basins in Argentina, ten of which are located entirely onshore, six of which are combined onshore/offshore and three of which are entirely offshore. Oil and natural gas production is concentrated in five basins: Noroeste in northern Argentina, Neuquén and Cuyana in west central Argentina and Austral, and Golfo San Jorge in the south of Argentina (which includes onshore and offshore fields). The major natural gas-producing basins are Neuquén, Austral and Noroeste, which together account for approximately 88.0% of Argentina's natural gas production in 2012. In 2012, Golfo San Jorge and Neuquen basins contained approximately 87.0% of Argentina's proven natural gas reserves. In certain basins, the availability of natural gas is limited by production, transportation, and processing constraints. See Item 4: "Business Overview-Commercial Contracts-Gas Transportation Contracts." TGS transports natural gas from the Neuquén, the Austral, and the Golfo San Jorge basins. Natural gas transported by TGN is extracted from the Neuquén, the Noroeste, and other natural gas basins in Bolivia. Neither TGS nor TGN is directly connected to the Cuyana gas basin. Approximately 58.0% of the natural gas we purchased during 2012 originated in the Neuquén basin. The remaining 42.0% originated in the Austral and Golfo San Jorge basins.

Argentine natural gas reserve data is estimated as of December 31, 2011 and production data is estimated as of December 31, 2012. The following table sets forth the location of the principal natural gas-producing basins supplying the Argentine natural gas market.

	Gas Producing Basins
Basin	Location by Province	Proven Gas Reserves(a)		Production		Estimated Reserve Life(b)
		(MMCM)	(BCF)	(MMCM)	(BCF)	(years)
Neuquén	Neuquén,RioNegro,LaPampa,Mendoza(west-central)	84,912	2,999	23,858	843	4
Noroeste	Salta,Jujuy,Formosa(northwest)	5,116	181	3,853	136	1
Austral	TierradelFuego,SantaCruz(south)	12,943	457	11,135	393	1
Golfo San Jorge	Chubut,SantaCruz(south)	257,968	9,110	5,219	184	49
Other Areas		33,057	1,167	58	2	567
Total		393,996	13,914	44,124	1,558	9

__________

Notes:

(a) There are numerous uncertainties inherent in estimating quantities of proven reserves and in projecting future rates of production. The reserve data set forth in this annual report represents only estimates. Reserve engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. The results of drilling, testing and production after the date of an estimate may cause a substantial upward or downward revision of such estimate. Accordingly, reserve estimates may be materially different from the quantities of natural gas that ultimately will be recovered.\

(b) In addition to the uncertainties inherent in estimating quantities of proven reserves, estimates of reserve life are based in part on certain assumptions of production and demand, which due to many uncertainties inherent in the domestic and world energy markets, may not accurately reflect future levels.

Source: Argentine Energy Secretariat 2012 and 2011 annual report.

Total Domestic Production. Total Argentine natural gas production during 2012 was 44,124 MMCM (1,558 BCF), a decrease of 4.7% over 2011. As of December 31, 2011, total Argentine natural gas proven reserves were 393,996 MMCM (13,914 BCF).

Neuquén Basin. The Neuquén basin is the largest of the Argentine basins. The Neuquén basin is located in west central Argentina and is strategically located in relation to Buenos Aires, Argentina's principal natural gas market. It has an exploitable surface area of more than 100,000 km² and is one of our major supply sources. As of December 31, 2011, the Neuquén basin accounted for approximately 21.6% of the Argentina's proven natural gas reserves. In 2012, the Neuquén basin produced an aggregate average of 65.4 MMCM (2.3 BCF) of natural gas per day, or 54.1% of the total Argentine natural gas production.

Noroeste Basin. As of December 31, 2012, the Noroeste basin in northwestern Argentina produced an average of 10.6 MMCM (0.4 BCF) of natural gas per day, or 8.7 % of total Argentine natural gas production. As of December 31, 2011, this basin accounted for approximately 1.3 % of Argentina's proven natural gas reserves.

Austral and Golfo San Jorge Basins. As of December 31, 2012, the Austral and Golfo San Jorge basins, located in the southernmost region of Argentina, produced an average of 44.8 MMCM (1.6 BCF) of natural gas per day, or 37.1% of the total Argentine natural gas production. In the Austral basin, which at December 31, 2011 accounted for approximately 68.8% of Argentina's proven natural gas reserves, exploration has centered in and around the basin's existing gas fields and other fields located offshore. The Golfo San Jorge basin is primarily an oil-producing basin.

Natural gas imports. Since 2004, Argentina has undergone a natural gas shortage as the production of natural gas has stagnated due to the lack of incentives and price signals and, in turn, has not been able to accommodate the substantial increase in demand. The gap between gas supply and demand has been covered by natural gas imports from Bolivia beginning in 2004, and also by imports of liquefied natural gas (LNG) transported in vessels. The cost of the imported natural gas substantially exceeds the price levels the National Government has set in the domestic market.

2. Business Overview
1. General

We are Argentina's largest natural gas distribution company (in terms of number of customers and volume of gas deliveries) according to ENARGAS' 2012 annual report. We have approximately 2.2 million customers in our service area (the city of Buenos Aires and southern and eastern greater metropolitan Buenos Aires). This area is densely populated with major dual-fuel electric power plants and industrial and commercial customers of natural gas. We are one of nine natural gas distribution companies formed in connection with the privatization of Gas del Estado.

The results of operations vary significantly from season to season, with our sales and operating income being significantly higher during the winter months (March through September). During 2012, sales of natural gas to residential customers accounted for approximately 46.2% of our total sales. The remainder of our sales of natural gas and transportation and distribution services was to industrial and commercial customers and governmental entities, power plants and suppliers of, and dealers in CNG, which is used as vehicle fuel. For a further description of the principal markets in which we compete, see Item 4: "Information on the Company-History and Development of the Company-The Argentine Natural Gas Industry" and Item 5: "Operating and Financial Review and Prospects."

Our distribution system consists of approximately 16,651 km of mains. We purchase natural gas primarily from producers in southern and western Argentina. Gas purchased is transported through Argentina's two trunk pipeline systems, one of which is operated by TGS and the other by TGN.

In the 1992 privatization of Gas del Estado, the Argentine National Government granted us a 35-year license, extendable for ten years under certain conditions, giving us the exclusive right to distribute natural gas within our designated service area. We are regulated by ENARGAS, an agency of the Argentine National Government, which has broad authority over the gas distribution and transportation industries, including their tariffs. The Gas Act provides that the tariffs for natural gas that we charge to end users shall consist of the sum of three components: (i) the price of gas purchased; (ii) the transportation tariff for transporting gas from the production area to the distribution system; and (iii) the distribution tariff established by ENARGAS. Our license provides for the semiannual adjustment of our tariffs as a result of changes in the U.S. PPI and in certain other circumstances. The Gas Act and our license provide that these tariffs will be adjusted every five years pursuant to a "price cap with periodic review" methodology, a type of incentive regulation that allows regulated companies (i) to retain a portion of the economic benefits arising from efficiency gains and (ii) to recover the cost of and reasonable return any investments made by them. The Public Emergency Law converted our U.S. Dollar-denominated tariffs into Pesos at an exchange rate of Ps. 1.00 per U.S.$ 1.00, and superseded and suspended a number of these provisions. See Item 4: "Regulatory Framework."

2. Business Strategy

1. MetroENERGÍA

In February 2004, the Executive Power issued Decree No. 180/04 which authorized natural gas distributors to hold a controlling participating interest in gas marketing companies. See "Item 3: Key Information - Risk Factors - Risk Factors Relating to our Subsidiary - MetroENERGÍA was constituted within the framework of Decree No. 180/04 issued by Executive Power, which authorized the natural gas distributors to have a controlling stake in natural gas markets. Changes in the legislation applicable to us may have a material adverse effect on our financial performance." Pursuant to Decree No. 180/04, the Energy Secretariat reserved the right to limit the market share of such gas marketing companies. These market share restrictions have not been imposed yet. However, no assurance can be given either that a limitation on the participation of gas distributors in gas marketing companies or on the market share of these marketing companies may not be put into place in the future.

Following Executive Orders No. 180 and No. 181 of February 13, 2004, the Energy Secretariat issued Resolutions No. 752/05 and 2,020/05, which established a schedule by which power plants, large customers, General Service "G" users, General Service "P" users, and CNG stations could start to purchase natural gas directly. This process was called "gas unbundling".

Consequently, with the goal of servicing large users of gas and gas transporters that were prohibited by law to be serviced by the licensed natural gas distribution companies, we constituted MetroENERGÍA S.A. On July 2005, ENARGAS granted us approval to operate MetroENERGÍA as a natural gas trading company. We currently have a 95% ownership interest in MetroENERGÍA, with BG Argentina S.A. ("BG Argentina") and YPF Inversora Energética S.A. ("YPF Inversora Energética") holding the remaining 2.73% and 2.27% ownership interests, respectively.

One of the main objectives of MetroENERGÍA is to attract those industrial and commercial customers who must purchase natural gas in a deregulated market.

During 2007, MetroENERGÍA entered into contracts with different gas producers for the supply of natural gas to those customers who must purchase gas from third-party suppliers. These contracts are renegotiated annually. MetroENERGÍA's current contracts expired on December 31, 2012 and as of the date of issuance of this annual report new contracts have not been renegotiated.

These gas supply agreements are specifically aimed at large customers, electric power plants, General Service "G" users and General Service "P" users, who are located not only in our distribution area but also in the rest of the country.

Additionally, MetroENERGÍA signed invoicing and collection agreements, until April 2013, with some gas producers for selling natural gas to CNG stations pursuant to the Mechanism of Natural Gas Allocation established under Resolutions No. 752/05, No. 2,020/05, 1,070/08 and No. 275/06. These agreements can be renewed annually. As of the date of the issuance of this annual report, the renegotiations have not yet concluded.

On June 14, 2007, Resolution No. 599/07 of the Energy Secretariat was published in the Official Gazette (and further extended on January 5, 2012 through Resolution No. 172/2012), approving the draft Agreement with Gas Producers 2007-2011 (the "Agreement 2007-2011"). It was subsequently ratified by the gas producers and came into effect on August 1, 2007. The Agreement 2007-2011 governs and regulates the supply of natural gas by gas producers to gas distribution companies (who in turn distribute gas to residential users, small businesses, industries, CNG refueling stations and power plants) for the period between August 1, 2007 and December 31, 2011. The Agreement 2007-2011 sets forth regulations depending on the type of consumer and indicates the volumes, basins and point of entry to the transportation system to be observed by each gas producer. Gas producers, however, are free to decide whether to channel their gas supply directly or through third parties. Since MetroENERGÍA has entered into gas purchase contracts with the gas producers, the Company, through MetroENERGÍA, was able to sign gas supply agreements with industrial and commercial customers both within and outside of our distribution area at the renewed prices and volumes set forth in the Agreement 2007-2011.

2. Revenues

Our consolidated sales during the year ending December 31, 2012 increased by 4.2% to Ps. 1,209.5 million, compared with Ps. 1,161.2 million in the previous year. The increase in sales during the year ended December 31, 2012 was mainly due to increased processed natural gas sales, increased sales to residential customers and increased transportation and distribution sales, partially offset by lower MetroENERGÍA'sales.

MetroENERGÍA's trading of natural gas on its own behalf amounted to 45.9% of its operations; trading natural gas on behalf of third parties amounted to 54.1%. MetroENERGÍA receives a fee for its third-party trading activities, which is included under "Sales" in the Statement of Operations.

The following table illustrates certain information regarding our services to our customers during 2012:

	Information Regarding Services to Customers in 2012
	Volume (MMCM)	Volume (MMCF)	Percentage of Volume (a)	Sales (in millions Pesos)	Percentage of Sales	Number of Customers (b)
Category of Customer
MetroGAS
Gas Sales
Residential	2,062.3	72,829.2	25.4	559.0	46.2	2,198,367
Industrial, commercial and
National Governmental	457.2	16,146.6	5.6	86.9	7.2	81,352
Transportation and Distribution Services
Electric power plants	3,576.7	126,308.8	44.0	90.3	7.5	5
Industrial, commercial and
National Governmental	809.2	28,577.0	10.0	75.8	6.3	466
Compressed natural gas	546.3	19,290.6	6.7	35.8	2.9	354
Processed natural gas	131.2	4,634.5	1.6	115.8	9.6	2
Other Gas Sales and Transportation and Distribution Services	543.5	19,193.0	100.0	43.1	3.6	11
Subtotal MetroGAS	8,126.4	286,979.7	100.0	1,006.7	83.3	2,280,557
MetroENERGÍA
Sales on own behalf	469.9	16,593.0	100.0	157.8	13.0	750
Selling commission	-	-	-	45.0	3.7	-
Subtotal MetroENERGÌA	469.9	16,593.0	100.0	202.8	16.7	750
Total				1,209.5	100.0	-

__________

Notes:

(a) Percentages of all gas delivered.

(b) Some of our users have multiple facilities. As a result, the number of facilities to which we supply gas is greater than the number of our customers.

The following is a brief description of the principal categories of our users and the class of service most often provided to users in each category.

1. Residential Customers

We provide service to approximately 2.2 million residential customers within our service area, approximately 63% of whom are located in the city of Buenos Aires. In 2011, sales to residential customers accounted for 24.3% and 46.4% of the volume of natural gas we delivered and our sales, respectively. During 2012, sales to residential customers accounted for 25.4% and 46.2% of the volume of natural gas we delivered and our sales, respectively. Our volume of sales to residential customers increased from approximately 2.0 BCM (71 BCF) in 2011 to approximately 2.1 BCM (73 BCF) in 2012. We added 31,009 and 36,838 (net) new residential customers in 2012 and 2011, respectively. Residential customers receive residential service and pay the tariff for that class of service. Our tariff schedule is structured so that residential customers pay a higher tariff per unit of consumption than other groups due to the lower load factor and higher operating costs associated with these customers. Under our license, we generally are required to provide continuous uninterrupted service to residential customers. No written contracts are required to obtain residential service. The tariff for residential customers consists of a fixed charge per invoice and a charge per unit of consumption.

On September 1, 2008, residential service tariffs were divided into 8 new sub-categories (R1, R2-1^st, R2-2^nd, R2-3^rd, R3-1^st, R3-2^nd, R3-3^rd y R3-4^th), according to each sub-category's annual natural gas consumption.

On October 10, 2008, through Resolution No. I/446, ENARGAS established new tariffs for customers applicable from September 1, 2008, except for compressed natural gas or CNG, for which the new tariffs were to be applied from October 1, 2008. On December 23, 2008, we were notified, through Resolution No. I/556, that new tariff charts would be applied from November 1, 2008. However, the new tariff charts do not provide for making up for the distribution service tariffs.

On December 23, 2008, ENARGAS, through Resolution No. 566/08, approved new tariffs for the following categories: R3-1^st, R3-2^nd, R3-3^rd and R3-4^th as a result of an additional increase in the price of natural gas at wellhead.

On November 27, 2008, the Executive Power approved Decree No. 2,067/08 (published in the Official Gazette on December 3, 2008) which created the Fondo Fiduciario para Atender a las Importaciones de Gas (Trust Fund for Gas Imports), a fiduciary fund established for the purpose of importing natural gas. This fund aims to complement the domestic gas production in order to decrease the number of "cut days" and thus guarantee the supply of natural gas in the domestic market. The charge is applied to industrial customers and residential customers in the following sub-categories: R3-1^st, R3-2^nd, R3-3^rd, R3-4^th. During 2009, as a consequence of several complaints from customers about considerable increases in their invoices, the National Government implemented the following solutions: from May 1 to September 30, residential customers categorized as R3-1^st and R3-2^nd were not charged with the Trust Fund for Gas Imports; from June 1 to July 31, residential customers categorized as R3-3^rd and R3-4^th were not charged with the Trust Fund for Gas Imports; from August 1 to September 30, only 30% of the Trust Fund for Gas Imports was applied to residents categorized as R3-1^st, R3-2^nd, R3-3^rd and R3-4^th; and only from October 1 onwards was the full tariff applied to all R3 customers. The general application of the full tariff to all R3 customers was reaffirmed in 2010 by ENARGAS Resolution No. 1,179/10 and in 2011 by ENARGAS Resolution No. 1,707/11. During 2009, ENARGAS and the Energy Secretariat also agreed not to apply the Pure Program due to similar complaints from customers about increases in their invoices. This Program was discontinued in 2009.

On November 21, 2012, we, along with the other gas distribution companies, except for Litoral Gas, subscribed an agreement with the ENARGAS (the "Act"), which is in full force under the ENARGAS' note ENRG/SD/I 13,352 received on November 29, 2012 in order to confirm the tariff adjustment previously established in Decree No. 234/08.

On November 27, 2012, ENARGAS issued Resolution I/2407/12 (published in the Official Gazette on November 29, 2012) authorizing the application of new tariffs to all customer categories in order to finance investments regarding infrastructure, service connection, and expansion of the gas distribution system. In order to comply with the mentioned resolution, an annual investment plan must be presented by the distribution companies and must be submitted to an executive committee for its corresponding approval. The amounts collected must be deposited monthly in a trust fund supported by an affidavit. Once the executive committee analyzes and approves the information sent by the companies, the trustee (in this case Nación Fideicomisos S.A.), on behalf and to the order of the Trustor (in this case us), will pay the obligations contracted as a consequence of the investments that were accomplished. The trust agreement between Nación Fideicomisos S.A. and us was signed on December 12, 2012 and the operative manual specifying the methodology to be applied was signed on January 16, 2013. However, we currently estimate that the funds to be received by us from this tariff increase (after the required investments are paid) will allow us to cover some expenses that we would otherwise have to finance but will be insufficient to remedy our economic and financial situation. We have been invoicing this new tariff since December 3, 2012.

2. Power Plants

Sales of transportation and distribution services to power plants increased by 3.8% during the year ended December 31, 2012 as compared to 2011, mainly due to an increase in average prices charged for said services, partially offset by a 2.0% decrease in gas volumes delivered to power plants.

Our contracts with electric power plants usually contain provisions, known as ship-or-pay provisions, which require the power plant to pay for reserved transportation capacity whether or not used. The ship-or-pay provisions guarantee us a minimum income.

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

Our generating plant customers have installed combined cycle technology. While electric generating plants with combined cycle technology require less natural gas than open cycle generating plants to generate the same amount of electricity, we estimate that the combined cycle generating plants greater operating efficiency will increase their dispatch under the rules of CAMMESA. The combined cycle technology uses diesel as an alternative fuel instead of fuel oil. For that reason, and as a consequence of the lower cost of natural gas compared to the cost of an energy equivalent amount of diesel, we believe that demand for natural gas from our electric generating customers has remained at a steady rate. The following combined cycle plants located in our service area have been our customers since the following dates: Central Térmica Buenos Aires ("CTBA")-1995; Central Costanera-1998; Central Puerto-1999; and Dock Sud-2001. Since 2001, we have also provided transportation services to the marketer supplying natural gas to A.E.S. Parana, a combined cycle plant located outside of our service area. In the course of 2008, we signed a contract with Petrobras to provide transportation services to GENELBA Plus from June 1, 2009 through December 31, 2019.

The combined cycle power plants contract for firm transportation and distribution service with a peaking arrangement that allows us to interrupt service during periods of high demand and insufficient transportation capacity or gas supply in order to ensure uninterrupted service to our residential customers. The power plants pay lower tariffs than those permitted by our license, which encourages development of new central power stations in our service area. See Item 3: "Key Information-Risk Factors-Risk Factors Relating to Us-Our revenues may be adversely affected by the right of our clients to bypass our services."

Our lower margin provision of transportation and distribution services to power plants during spring and summer, when demand for residential service becomes lower, covers a portion of our annual firm transportation costs. See Item 4: "Commercial Contracts-Gas Transportation Contracts."

Until 2005, most of our power plants and industrial customers purchase gas directly from gas suppliers. This gas was delivered using our firm transportation capacity and our distribution services, thereby allowing us (a) to avoid incurring gas purchase costs (and possible take-or-pay charges) and (b) to collect a tariff from these customers, thereby defraying all or part of the cost of our firm transportation capacity. These arrangements also allowed us to achieve savings by avoiding (i) the cost of purchasing the gas that was used as compression fuel, which, pursuant to the regulatory framework, cannot be passed on to customers and (ii) certain gross turnover taxes imposed on our sales of gas. Under such arrangements, all these customers purchased our distribution and transportation services. See Item 4: "Business Overview-Bypass Rights and Competition."

Due to the new National Government-approved regulatory system, we have not been allowed to make gas sales to power plants since September 2005. During 2005 and 2006, natural gas was provided partly by MetroENERGÍA S.A.

Under the regulatory system governing the Argentine electricity industry, electricity-generating plants are dispatched in ascending order of marginal cost of generation to enable the national electricity system to operate at the lowest possible cost. Hydroelectric generating plants have the lowest marginal cost of generation in the national electricity system. Therefore, higher marginal cost power plants, such as thermoelectric plants (including our power plant customers), will not have their output dispatched to the extent hydroelectric power is available. In addition, above average rain or snowfall, which permits relatively greater dispatch of power by hydroelectric generating stations, will tend to decrease the dispatch of our power plant customers and therefore, their consumption of gas; the result is less delivery of our gas to them. Conversely, any event that increases the demand for natural gas for electric power generation, such as below average rainfall or snowfall which limits hydroelectric power generation, will increase the dispatch of our power plant customers and benefit us. The consumption of electricity in Argentina increased by 3.9% between 2009 and 2010, by 4.7% between 2010 and 2011 and by 3.69% between 2011 and 2012.

According to CAMMESA, of Argentina's total electricity consumption during 2012, about 65.77% was generated by thermal power plants; approximately 29.19% was generated by hydroelectric power plants; approximately 4.71% was generated by nuclear power plants; and about 0.33% was imported.

Two new combined cycle electric power stations were completed in December of 2009. These power plants are highly efficient and are located outside of our service area and therefore do not form part of our customer base. Consequently, the presence of these new plants could result in a decrease of our sales.

In October 2009, the Energy Secretariat, through Note No. 6,866, established a voluntary program for generation companies who wanted to participate in a "Temporary Centralized Dispatch" ("Procedimiento para el despacho de gas natural para la generación eléctrica"). Pursuant to this program, participating natural gas producers give their available natural gas production to CAMMESA, which in turn selects the central electrical power plants which will receive this natural gas. Consequently, it would impact our sales, which would increase if CAMMESA chooses power plants inside MetroGAS' service area and decrease if CAMMESA chooses plants outside of MetroGAS' service area. It would also impact our penalties, depending upon whether MetroGAS complies with those deliveries or not. Although this program is voluntary, all of our power plant customers participate.

3. Industrial and Commercial Users and Government Entities

Our sales to industrial, commercial, and governmental customers increased by 6.4% during the year ending December 31, 2012 compared to the previous year, mainly due to an increase in average prices for said services, partially offset by a decrease of 3.2% in gas volume delivered. Our customers include major industries such as glass, food, chemical, and paper producers. Some use natural gas as a raw material or have continuous specialized processes that depend on a constant supply of natural gas in support thereof. Industrial customers that consume at least 10.0 MCM (353 MCF) per day are permitted, subject to the availability of firm capacity, to contract for large volume firm service. The tariff for such service includes a transportation charge per unit consumed, a distribution charge per unit consumed, a fixed charge per invoice, and a demand charge. Our demand charges allow us to recover the demand charges levied by transportation companies for specific amounts of firm transportation capacity reserved by us. Industrial customers are billed monthly.

Smaller industrial users that consume a minimum of 1.0 MCM (35 MCF) per day may contract for large volume general service ("SGG"). The related tariff includes a demand charge, a distribution charge, transportation charge and a charge per unit of consumption from one of two rate blocks, as well as a fixed charge per invoice.

Customers with a minimum consumption of 3.0 MMCM (106 MMCF) per year and whose operating processes are interruptible or whose natural gas can be substituted with other sources of energy, have the right to contract for large volume interruptible service. We have the right to interrupt service under these contracts. We currently operate a program that combines firm and interruptible service for large industrial customers, which includes agreements that allow us to ask for interruptions on firm services during 30 days in the winter. The interruptions generally are due to insufficient transportation capacity or gas supply at times of peak demand and are imposed to assure the provision of services to non-interruptible customers, such as residential customers. See Item 4: "Bypass Rights and Competition."

In light of Resolution No. 752/05, modified by Resolution No. 2,020/05 and 275/06 and enacted to regulate the Executive Power Decree No. 181 that prohibits us from selling natural gas to specified industrial, commercial, and large-user clients, it was possible for MetroENERGÍA to capture power plants, large customers, General Service "G" users, and General Service "P" users to maintain a market share in sales (including consumption in our distribution area) among these categories of clients. Several client meetings and discussions took place extending our sales up to the end of April 2013. These contracts are renegotiated annually. As of the date of the issuance of this annual report, the renegotiations have not yet concluded.

We also supply gas to minor commercial and industrial users (e.g., restaurants, hotels and small industries) that consume less than 0.18 MMCM (6 MMCF) per year. These users receive small volume general service which is available to any nonresidential user. The tariff for this distribution and transportation service consists of a charge per unit of consumption, with three different rate categories based on the customer's usage, as well as a fixed charge per invoice.

As in the case of residential customers, Decree No. 181/04 established the division of minor commercial and industrial users into three categories (SGP 1, SGP 2, and SGP 3) according to their consumption levels. The same tariffs will apply to transportation and distribution services for the three categories until completion of the process of renegotiation of public services tariffs, at which time different tariffs are to be established on the basis of these users' consumption. We do not supply natural gas to SGP 3 clients with annual consumption over 0.18 MMCM (6MMCF) per year as they purchase it directly from third parties.

On November 21, 2012, we, along with the other gas distribution companies, except for Litoral Gas, subscribed an agreement with the ENARGAS (the "Act"), which is in full force under the ENARGAS' note ENRG/SD/I 13,352 received on November 29, 2012 in order to confirm the tariff adjustment previously established in Decree No. 234/08.

On November 27, 2012, ENARGAS issued Resolution I/2407/12 (published in the Official Gazette on November 29, 2012) authorizing the application of new tariffs to all customer categories in order to finance investments regarding infrastructure, service connection, and expansion of the gas distribution system. In order to comply with the mentioned resolution, an annual investment plan must be presented by the distribution companies and must be submitted to an executive committee for its corresponding approval. The amounts collected must be deposited monthly in a trust fund supported by an affidavit. Once the executive committee analyzes and approves the information sent by the companies, the trustee (in this case Nación Fideicomisos S.A.), on behalf and to the order of the Trustor (in this case us), will pay the obligations contracted as a consequence of the investments that were accomplished. The trust agreement between Nación Fideicomisos S.A. and us was signed on December 12, 2012 and the operative manual specifying the methodology to be applied was signed on January 16, 2013. However, we currently estimate that the funds to be received by us from this tariff increase (after the required investments are paid) will allow us to cover some expenses that we would otherwise have to finance but will be insufficient to remedy our economic and financial situation. The Company has been invoicing this new tariff since December 3, 2012.

4. Compressed natural gas ("CNG") Service

Beginning in April 2006, as a consequence of the "unbundling," we started to provide only transportation and distribution services ("trading" services) to CNG stations.

Beginning in 2004, CNG customers have been required to contract for firm or interruptible capacity, according to service categories created by Decree No. 180/04. The tariff for CNG users consists of a fixed charge per invoice, a transportation charge per unit consumed, a distribution charge per unit consumed and a demand charge. The volume of transportation firm capacity of the segment decreased by 1.4% in 2012 with respect to the volumes contracted for in December 2011 (from 2.35 MMCM to 2.28 MMCM per day).

Our transportation and distribution sales to CNG stations decreased by 0.7% during the year ending December 31, 2012 compared to the previous year, mainly due to a decrease in average prices for said services as a consequence of the lower capacity contracted in 2012 compared to 2011.

During 2011, a new auction for providing natural gas to a CNG refueling station was held. ENARGAS Resolution No. 1,722/11 extended the effects of ENARGAS Resolution No. 3,569/06, by which the Regulator ordered the distribution companies to ensure that those CNG stations who contracted for interruptible service capacity receives a minimum firm capacity of 5,000 CM per day until April 30, 2012. The aforesaid resolution was not extended during 2012.

During 2012, gas distribution companies had to again represent CNG filling stations in their natural gas applications before the Electronic Gas Market ("EGM"). This auction for the purchase of natural gas by CNG filling stations within EGM occurred in April 2012. In this opportunity, EGM, following instructions of the Energy Secretariat, extended the 2011 auction results until April 2013. The total amount of natural gas assigned to CNG was 1.72 MMCM per day.

5. Processed Natural Gas Service

We were party to a contract with TGS from 1996 through 2000 under which TGS produced and sold in exchange for our account liquids extracted from gas that we delivered to the TGS processing plant at Bahía Blanca, Province of Buenos Aires. During 2001, some natural gas producers began operating a new gas processing plant in southern Argentina. As a result of the extraction by the new plant of natural gas liquids from gas subsequently delivered to us, beginning in 2001, we have delivered gas to the TGS processing plant containing lower volumes of associated liquids than were contained in the gas we delivered in prior years; in turn, TGS has extracted lower volumes of liquids from this gas than in the past. We have negotiated with TGS a reduced fee for processing the gas we deliver to its processing plant. Sales of gas for processing during the year ending December 31, 2012 increased by 111.5% compared to the previous year, mainly due to the incorporation of the trust fund charge for financing imported gas, imposed by ENARGAS Resolutions No. I/1,982 and I/1,988, which has applied to processed natural gas activity since November 1, 2011.

MetroENERGÍA sales

MetroENERGÍA's natural gas and transportation sales decreased from Ps. 231.2 million for the year ending December 31, 2011, to Ps. 157.8 million for the year ending December 31, 2012, mainly as a result of a partial change in operations from selling on its own behalf to operating on behalf of third parties for certain customers. During 2012, gas volumes delivered by MetroENERGÍA corresponding to sales on its own behalf amounted to 469.9 MMCM, compared to the 716.6 MMCM delivered in 2011; meanwhile, gas volumes corresponding to sales on behalf of third parties reached 552.8 MMCM, compared to the 480.7 MMCM delivered during 2011. Commissions for MetroENERGÍA's operations on behalf of third parties increased from Ps. 16.8 million during 2011 to Ps. 45.0 million during 2012.

6. Throughput Experience

Gas distribution companies are required to pay for all contracted firm transportation capacity regardless of whether it is utilized. They are prohibited from passing on to customers, via tariffs, the cost of unused firm transportation capacity. Therefore, we strive to achieve the highest possible load factor, meaning the highest possible percentage of the firm transportation capacity for which we have contracted. Our management believes that the large number of our residential customers, who account for most of our sales during the peak winter months, and our large base of industrial and power plant customers, which can be served on an interruptible basis throughout the winter months and to which we can make increased sales during the warmer months, constitute a favorable market profile. In 2008, 2009, 2010, 2011 and 2012, our load factors were 96.8%, 95.8%, 92.1%, 96.5% and 95.1%, respectively.

As of December 2012, we had firm transportation contract volumes with the concession ring zone of 23.66 MMMC per day. The volume of firm transportation contracted to Bahía Blanca, which is used to recover the heat after the generation of sub products, amounted to 0.41 MMMC per day. In addition, we have 0.55 MMMC of firm transportation contracts for Tierra del Fuego per day.

Furthermore, on May 31, 2011, pursuant to an irrevocable offer made by TGS to us in the open season bid No. 01/07, ENARGAS assigned us 35,000 m3 of firm transportation capacity corresponding to the Chubut - GBA route, from June 1, 2011 to December 28, 2027.

Since August 2008, a propane injection air plant ("PIPA") has been connected to our network. It will allow for the injection of additional volumes of a natural gas equivalent up to 1.5 MMm3/day. It will serve as an alternative supply of natural gas should demand during the winter months require it. During 2009, PIPA was only used in test mode. During 2010, 2011 and 2012, PIPA injected 32.7 MMm3, 31.8 MMm3 and 19.7 MMm3, respectively (with a maximum of 1.12 MMm3 per day ).

Since 2005, the production of gas has been insufficient to meet local demand as a result of the gas and electricity supply bottleneck that Argentina has faced since 2002. In order to prevent shortages, the Energy Secretariat and ENARGAS issued resolutions that allowed distributors gas that was originally destined for exports and electric generation to use for their clients. These resources were utilized by all distributors (except us), which triggered the increase in the costs of fuel-oil use and affected gas sales to Chile and Brazil. The strategy that we implemented, (of buying gas for the long-term, spot prices, and long-term for transportation), allowed us, through 2007, to avoid using emergency mechanisms while offering our industrial clients services without significant restrictions. At the end of May 2007, the Argentine energy system entered into a state of emergency as a result of low temperatures throughout Argentina, the decline in hydroelectric power, a reduced availability of fuel oil for combined cycle power plants, and insufficient injection of gas at wellheads. The state of emergency continued during 2008, 2009, 2010 and 2011.

Since 2006, we have had an aggregate firm transportation capacity for distribution and liquids processing of 24.61 MMCM (869 MMCF) per day. Our decision to secure significantly more firm transportation capacity was based in part on our experience during the winter months of 1993, when we struggled to meet non-interruptible residential demand; this legal obligation under our license, if not fulfilled, could result in significant penalties on us, including, in certain circumstances, revocation of our license. See Item 4: "Regulatory Framework-The Gas Act and Our License-Penalties and Revocation." Since we have no gas storage facilities available, we strategically decided to increase our access to firm transportation capacity to meet expected growth in demand by increasing our firm transportation capacity with TGS and TGN.

In July 2012, the ENARGAS granted us 174,343 m3 of firm transportation, in force from May 1, 2013 through April 30, 2014, of the Neuquen-GBA route; and 233,333 m3 of firm transportation, in force from May 1, 2014 through April 30, 2017 of the same route. This was the result of an irrevocable offer we submitted to Transportadora de Gas del Norte (TGN) during the capacity open bid No. 01/2012.

7. Slow Paying Accounts and Overdue Receivables

Past due receivables (owed mainly by residential customers and small volume general service commercial clients) totaled Ps.  48.9 million at December 31, 2012, Ps.  80.9 million at December 31, 2011, and Ps.  67.6 million at December 31, 2010. As of December 31, 2012, we had a reserve of Ps. 15.4 million against past due receivables.

Under our license, we may terminate gas services to delinquent customers provided such customers receive prior notice of termination. No minimum period between notice to delinquent customers and the termination of service is specified in our license or required by ENARGAS. We currently provide customers with at least ten working days' notice. Our management expects, based on industry experience and the lack of economic alternatives to gas for residential customers, that our practice will avoid increases in the number of unpaid accounts.

8. Mandatory Investments

Our license requires us to maintain our operating system in good order. Safety, design, maintenance and operations standards, required to be met by Argentine gas distribution systems, were governed by Gas del Estado's technical regulations, which were based primarily on the 1976 United States Code of Federal Regulations, Title 49, Sections 190-192 and modified for local conditions and with a variety of European standards. After the privatization of Gas del Estado, the Argentine National Government required that Argentine gas distribution systems, including ours, be brought up to current (1991) United States Federal Standards No. 49. Pursuant to our license, we, like the other privatized natural gas transportation and distribution companies, were required during 1993 through 1997 to make certain initial capital investments, or the "Mandatory Investments," to meet these requirements during our first five years of operations. ENARGAS has ruled that we have complied with the Mandatory Investment program.

9. Distribution System

We acquired from Gas del Estado approximately 11,182 km of distribution mains and service pipes supplying approximately 2 million customers in our service area. We acquired pipelines operating in four pressure regimes: 286 km of high-pressure system operating at 22 times normal barometric pressure, or "Bar," 548 km of 10 Bar intermediate-pressure system, 6,101 km of 1.5 Bar medium-pressure system and 4,246 km of 0.022 Bar low-pressure system. The records and maps of the distribution system transferred by Gas del Estado generally have been found accurate. Upon our commencement of operations in December 1992, we conducted a survey of the assets received from Gas del Estado and began a survey of the distribution pipelines, as described below. We found the assets and the distribution system in relatively good condition and adequate for performance of its intended functions.

Our high-pressure system is made of welded steel construction, approximately 79% of which is under 50 years old. Approximately 44% of the medium-pressure system is constructed of welded steel and approximately 56% is constructed of polyethylene. Approximately 75% of the polyethylene medium-pressure system is less than 15 years old, and over 94% of the entire medium-pressure system is less than 35 years old. The low-pressure system is almost completely made of cast iron and is approximately 58 years old. Our current policy is to replace cast iron pipes with medium-pressure or low-pressure polyethylene pipe depending on which is the most cost-effective solution. Polyethylene pipe has various operational advantages, the most important being its lack of vulnerability to corrosion.

Since the Takeover Date, we have increased the length of our distribution system from 11,182 km to approximately 16.651 km. This increase is primarily a result of system expansion, with the majority of such expansion being undertaken with medium-pressure polyethylene pipes. In addition to the distribution mains, the distribution network includes 349 pressure reduction stations. There are no material capacity constraints within the distribution system that would affect the present customer base.

The gas injected into the system at the city gates is odorized by means of a proportional injection system, comprised principally of flow controllers and pumps. The system has back-up streams that come into operation in case of malfunctions in the main stream. Samples of gas are taken at around 60 points on the system to monitor odorant concentration and to verify equipment performance.

To ensure that the demands on the system are met according to standards, an on-line Supervisory Control and Data Acquisition system, or "SCADA," monitors pressure and flow at the city gates and at certain large customers. SCADA also monitors pressure at different regulator stations on the network, allowing us to monitor and regulate the flows on the system in order to guarantee supply of natural gas to all our customers.

10. Metering System

Our metering system consists of approximately 2.2 million meters. New metering systems with temperature and pressure correctors were introduced for large customers to enable remote monitoring and control of distribution, and to include the ability to monitor the interruption of supplies to users with interruptible supply contracts during the periods of peak winter demand.

11. Maintenance

On account of the current economic situation in Argentina, we will continue carrying out the minimum maintenance activities necessary to ensure a safe and reliable gas distribution system. Due to this situation, activities related to corrective maintenance have been increased.

We classify and prioritize gas leaks reported by the public according to the risk involved in each leak. During 2012, we handled all gas leaks reported by the public that were classified as high priority within the first two hours they were reported. We handled 98% of those high priority leaks within an hour of their being reported.

Preventive maintenance activities seek to minimize the risk of supply failure and are responsible for the system's scheduled and unscheduled maintenance activities. In recent years, we have not been able to mitigate the risk of supply failure due to restrictions on resources that impact these preventative maintenance activities.

We continue replacing older, mainly cast iron, mains. We continue with our maintenance program of pressure regulator stations, which allow us to reduce our operative risk while at the same time increase our network's reliability. Replacement priority is given on the basis of the level of the associated risk.

We have introduced a pressure management program consisting of placing profilers in most of the district governors that feed the low-pressure system. These profilers allow us to maintain even pressures in the system in spite of demand fluctuation, avoiding over-pressurization at night and ensuring proper supply during periods of peak demand. We have installed remote control equipment on 82 key district governors, which enable us to adjust pressure settings more rapidly.

As a consequence of incidents that took place in August 2007 (related to a manufacturing defect) and in August 2009 (related to a failure in the circumferential weld of the pipe) to a 24" steel main operating at 22 bar, several assessments and evaluation tests were performed. Based on the results of these assessments, we defined a strategy that will allow us, in the next three to five years, to: (a) restore the reliability of the 22 bar system in certain parts of the main in which pressure has been preventively reduced by 15% to 20%; (b) replace certain parts of the main that the assessments recommended; and (c) continue to perform confirmatory evaluations in the rest of the distribution system.

3. Commercial Contracts
1. Natural Gas Purchase Contracts
1. Deregulation of the Price of Gas

The price of natural gas at wellhead was deregulated in accordance with the Gas Act by Executive Decree No. 2731/93 as of January 1, 1994. As a result, the price of gas under our new and renegotiated supply contracts increased, in dollars, from the previously regulated price of U.S.$ 0.97 (Ps. 0.97) per MMBTU to a weighted average of U.S.$ 0.59 (Ps. 1.83) per MMBTU at December 2005.

The cost of gas, before and after deregulation, is passed through to our customers, subject to ENARGAS' approval. ENARGAS may limit the portion of our gas costs that we pass through to our users to the extent it determines that the price we paid exceeds the price paid by other distributors in similar conditions and for equivalent volumes. See Item 4: "Regulatory Framework-Tariffs-Semiannual Adjustments to Tariffs Contemplated by Our license." Our license provides that ENARGAS may review whether the price increases were incurred prudently. In August 1994, the Argentine National Government enacted Decree No. 1,411/94, which empowers ENARGAS to limit the pass-through of the price of gas to prices that are no higher than the lowest price for similar quantities of gas purchased under similar conditions from the same field. This empowerment arises when ENARGAS finds that the contracts under which we purchased gas were not the product of a transparent, open, and competitive process.

The Gas Act and our license contemplate that tariffs will be adjusted semiannually to reflect changes in the cost of purchasing gas and purchasing transportation services. See Item 4: "Regulatory Framework-Tariffs-Semiannual Adjustments to Tariffs Contemplated by Our license." Tariff adjustments based on price of gas changes occur in May and October. We must submit our gas purchase contracts to ENARGAS to support a request for a tariff adjustment that is based on estimated quantities to be purchased at contractual prices under each such contract during the upcoming tariff period. We have disagreed with ENARGAS on the adjustment of tariffs to reflect increases in the price of gas on a number of occasions; ENARGAS had partially denied or delayed tariff increases that we requested based upon price increases that we contracted with our gas suppliers for. See Item 3: "Key Information-Risk Factors-Risk Factors Relating to Us-We have been, and continue to be, dependent on the regulatory action and interpretation of regulatory authority of ENARGAS, which could have a material adverse effect on our financial conditional and results of operations."

2. Current Gas Purchase Contracts

In late 2003, we reached agreements with our gas suppliers ("Revised Purchase Contracts"). As part of these agreements, we were relieved of any take-or-pay obligations we might have had under the natural gas contracts in effect in 2002 ("the Existing Contracts"). As a result of these negotiations, our contracts with Total Austral S.A., Pan American Energy LLC, Sucursal Argentina, Wintershall S.R.L. (collectively, the "Total/Pan American Energy/Wintershall Contract") and our contract with YPF (the "YPF Contract") were amended. The Public Emergency Law and Decree No. 214/02, which converted all U.S. Dollar-denominated obligations existing as of January 6, 2002 into Peso-denominated obligations at a rate of exchange of one Peso per U.S. Dollar have affected all of our U.S. Dollar-denominated contracts governed by Argentine law, including our gas supply agreements, which are essential to provide our licensed service. Subject to the continuing compliance of the National Government with the obligations it has assumed, under the provisions of the Agreement for the Implementation of the Schedule for the Normalization of Gas Prices ("2004 Agreement") and as a result of the renegotiations of contracts with most of our gas suppliers, gas producers whose contracts were renegotiated have committed themselves to suspending actions and procedures brought against the gas distributors for claims resulting from the above-mentioned law. As of August 1, 2007, this suspension is considered a permanent waiver in accordance with Resolution No. 599/07.

The Wintershall Energia S.A. contract, expired on January 1, 2011, provided us with 1.20 MMCM (42 MMCF). Since August 2007, pursuant to Res. SE 599/07, the contracted volume was modified up to an average daily of 0.32 MMCM.

As a consequence of gas unbundling in the Argentine gas market, during 2006 we decreased our daily aggregate amount of natural gas purchased under our long-term contracts. See "Item 4: Information on the Company - Business Overview - MetroENERGÍA" above.

All of our other contracts provided for in Resolution No. 208/04, expired on December 31, 2006. However, these agreements were extended until April 30, 2007 and subsequently until July 2007 as the natural gas suppliers were allotted more time to reply to the National Government's proposed agreement with them.

On June 14, 2007, Resolution No. 599/07 of the Energy Secretariat was published in the Official Gazette, approving the draft Agreement with Gas Producers 2007-2011 (the "Agreement 2007-2011"). It was subsequently ratified by the gas producers and came into effect on August 1, 2007. The Agreement 2007-2011 governs and regulates the supply of natural gas by gas producers to gas distribution companies (who in turn distribute gas to residential users, small businesses, industries, CNG refueling stations and power plants) for the years ended December 31, 2008 through 2011. The Agreement 2007-2011 sets forth regulations depending on the type of consumer and indicates the volumes, basins and point of entry to the transportation system to be observed by each gas producer. As a result of factors not attributable to us (e.g., lack of compliance of certain producers, lack of transportation capacity, increased demand for natural gas, etc.), the volumes made available to us under the Agreement 2007-2011 do not cover the demand for natural gas from our non-interruptible customers.

Although the Agreement 2007-2011 foresees the execution of ancillary GSAs between gas distribution companies and natural gas suppliers, we have not yet entered into any GSAs because the terms and conditions offered by the natural gas suppliers have not been acceptable to us. In fact, we believe their offers are in breach of their obligations under the Agreement 2007-2011.

Due to our understanding that the volumes, basins and points of entry to transportation set forth in the Agreement 2007-2011 would prevent us from fully supplying our non-interruptible demand, we have made reports to ENARGAS, the Energy Secretariat and the Fuel Subsecretariat to raise awareness of this situation and to request its remediation.

In September 2008, the Energy Secretariat reached an agreement with natural gas producers, and issued Resolution SE No. 1,070/08, which (i) increased the price of gas and consequently the margin of gas producers, especially the margin to come from gas distribution sales to residential customers and (ii) established new segment prices (some of which have been modified since November 2008 by means of Resolution SE No. 1,417/08).

Additionally, in relation to the natural gas market, the Committee of Strategic Planning and Coordination of the National Plan of Hydrocarbons Investments ("Comisión de Planificación y Coordinación Estratégica del Plan Nacional de Inversiones Hidrocarburíferas ") recently issued Resolution No. 1/2013, aimed at setting up an incentive scheme for excess injection of natural gas. This agreement sets forth that excess injection (defined as all gas injected by producers above the injection base, according to Resolution No. 1/2013 by the Committee of Strategic Planning and Coordination of the National Plan of Hydrocarbons Investments) will have an excess price of 7.5 USD/MBTU ("The Excess Price"). If certain conditions in the said agreement are complied with, it will be in force for five years. Although the resolution mentioned above does not directly affect the prices we receive, it represents a fundamental change in the incentive to natural gas producers to raise their investments in order to increase their reserves and their hydrocarbons production. Consequently, this may affect our activity in a positive way.

Because we understood that the volumes, basins of injection and routes of transportation foreseen in the Agreement 2007-2011 would prevent the normal supplying of non-interruptible demand, we carried out presentations to the ENARGAS, the ES and the Fuel Sub secretariat raising this situation and requesting its remediation.

On October 4, 2010 ENARGAS issued new dispatch rules named "Procedure for Gas Applications, Confirmations and Control" governing inter alia natural gas injection by producers and natural gas nominations by distributors. The aim of this supplemental regulation is to determine the minimum consumption levels of large users in order to manage natural gas dispatch and curtailments during periods of shortages of natural gas. Among its rules, the Procedure establishes that natural gas distributors are free to determine the volumes of gas they require for their non-interruptible demand (comprised basically of residential and small commercial users) to be supplied by the producers, regardless of the estimated volumes committed by producers under the Agreement 2007-2011. Since October 1, 2010, when such Procedure entered into force, we have tallied, on a daily basis, the total volume of natural gas needed to supply its uninterruptible demand. Additionally, we have decided to modify our producers' payment conditions and it is not possible to assure that they will not be further modified in the future.

On January 5, 2012, ES Resolution No. 172/12 was published in the Official Gazette. It extended the effects of ES Resolution No. 599/07 with regard to the allocation of natural gas volumes by routes and basins based on the different customer categories, until new resolutions are stipulated to that respect.

On March 8, 2012, Resolution SE No. 55/2012 was published. This resolution approves the third extension of the Complementary Agreement with Natural Gas Producers, requiring that a specific treatment should be considered for those producers who are not signatories of the mentioned extension to prevent collection of the increases under Resolutions ES ENARGAS No. 1,070/2008 and 1,417/2008.

On March 23, 2012, Resolution ENARGAS No. 2,087/2012 was published, which establishes the natural gas assignment instructions for non-signatory producers to residential customers and small commercial customers without increases under the mentioned resolutions from 2008. The resolution created a Compensating Fund Liquefied Natural Gas to hold the amounts distribution companies receive from customers for natural gas.

In addition, distribution and transportation licensees are required to obtain some information from Large Users, other Direct Shippers and General P and General G clients with a daily consumption in excess of 5,000m3 of natural gas. The data to be provided by these users includes (i) a basic description of their production processes; (ii) the type and characteristics of transportation and distribution contracts; (iii) the maximum daily consumption levels during the winter season and average daily consumption (in cubic meters); (iv) a description of main equipment and auxiliary facilities; (b) regular consumption needs for each piece of equipment; (vi) consumption levels for minimum production needs; (vii) the minimum consumption needs in order to avoid damages in equipment or auxiliary facilities;(viii) descriptions of available alternative sources of fuel; (ix) any environmental concerns related to supply interruptions; and (x) the annual maintenance outage.

3. Take-or-Pay Obligations

Our gas purchase contracts generally allow us to recover any amounts paid as a result of incurring take-or-pay liabilities to gas suppliers within periods of three to twelve months by taking additional gas in amounts in excess of daily contract minimum volumes. We believe that it is unlikely that the take-or-pay provisions in our gas supply contracts will result in any significant liability for gas not taken. Since 1993, we incurred no take-or-pay liability under our gas purchase contracts that we were not able to recover by taking gas supply at a later time at no additional cost to us.

Our exposure to take-or-pay liability is affected by a number of factors that are not within our control. In late 2003, we reached agreements with our gas suppliers on the Revised Purchase Contracts. As part of such agreements, we were relieved of any take-or-pay obligations we might have had under the Existing Contracts. As a result of the 2004 Agreement, we renegotiated our gas supply contracts. See Item 4: "Current Gas Purchase Contracts." Our take-or-pay commitments through 2010 under those gas purchase contracts required us to pay an average 90% of the cost of gas that we are entitled to purchase under such contracts. No payments have been made under these take-or-pay commitments.

ENARGAS Resolution No. 1,410/10, published in the Official Gazette on October 4, 2010, established the new Procedure for Gas Applications, Confirmations and Control applicable to all parties within the natural gas industry, including natural gas distributors. This resolution made an impact on daily nominations, transportation and distribution of natural gas. Since October 1, 2010, when such procedures entered into force, we have tallied, on a daily basis, the total natural gas volume that is necessary to supply its uninterruptible demand.

4. Limitations on Short-Term Gas Purchase Contracts

Executive Decree No. 2,731/93 established a system whereby all gas purchases and sales made under contracts having duration of more than six months are deemed to be made in the long-term natural gas market. All other gas purchases and sales are deemed to be made in the short-term natural gas market. This decree requires that sellers and buyers of natural gas register in a special registry and establishes several reporting obligations regarding volumes, prices, shipping and delivery points, and the absence of clauses that restrict or distort competition. All information furnished pursuant to these requirements is to be treated by the Energy Secretariat as confidential. Pursuant to these regulations, distribution companies (including us) are allowed to purchase no more than 20% of their gas supply in the short-term natural gas market. The ceiling on purchases in the short-term natural gas market may be waived by the Energy Secretariat in the event of force majeure and may be increased to 40% upon development of increased competitiveness in the short-term natural gas market.

From 1999 to 2005, we purchased gas in the spot market, taking advantage of Executive Decree No. 1,020/95, under which we share with our customers 50% of the profit or loss resulting from differences between our purchase prices of gas in the spot market and reference prices posted by ENARGAS. The volume we purchased in the spot market accounted for an average of 0.5% during the summer months and 7% during the winter months of our gas purchases for each summer and winter period of 2005 compared to an average of 1.5% during the summer months and 10.4% during the winter months of our gas purchases for each summer and winter period of 2004. From 2006 to 2012, we did not make any gas purchases in the spot market.

2. Gas Transportation Contracts
1. General

Two gas transportation companies, TGS and TGN, were created in connection with the privatization of Gas del Estado. They are regulated by ENARGAS and must provide transportation service to customers pursuant to the terms of their licenses, the Gas Act, and other regulations. See Item 4: "History and Development of the Company-The Argentine Natural Gas Industry." Transportation companies are prohibited from buying gas for resale; we and the other distribution companies purchase gas directly from producers for resale to customers.

The TGS system consists of three main pipelines: the San Martín, Oeste-Neuba I and Oeste-Neuba II pipelines. The TGN system consists of two main transmission pipelines: the Norte line and the Centro-Oeste line. In addition, the TGN system is connected to the Bolivian gas transportation system. The TGS system includes the Buenos Aires ring connecting it to the TGN system. Our contracts with TGS (see Item 4: "TGS Transportation Rights") provide for service over the San Martín, Oeste-Neuba I and Oeste-Neuba II pipelines. We also have contracts with TGN (see Item 4: "TGN Transportation Rights") providing transportation of natural gas by use of an indirect connection via the Buenos Aires ring.

The transportation tariff for firm transportation consists of a capacity reservation charge and is expressed as a maximum monthly charge based on the cubic meters per day of reserved transportation capacity. Firm transportation capacity contracted by distribution companies must be paid for whether or not the capacity is actually used. The cost of any unused transportation capacity may not be passed onto customers. Accordingly, it is important that distribution companies achieve a balance between their firm transportation commitments and demand for gas in their service areas. In contrast, interruptible transportation services are provided on the basis that the transportation company will be used to transport gas when and if capacity is available in the system. Tariffs for interruptible transportation service are equivalent to the unit tariff of the reservation charge for the firm service using a load factor of 100%. For both firm and interruptible transportation services, we are obligated to provide the transportation company with a "natural gas in-kind allowance," which accounts for the gas consumed as compressor fuel or lost in transportation. From 1993 through 2012, approximately 7% of all gas purchased by us was provided to the transportation companies as in-kind allowances.

In the past, the expanded gas transportation capacity of the transportation companies in Argentina has generally been adequate to allow us to meet peak-day demands of all our non-interruptible customers. Nevertheless, we, like other distribution companies, normally will interrupt service to power plants and other industrial users at peak periods in order to meet core non-interruptible demand. We met all demand for non-interruptible service during the winter months from 1995 through 2006 and all priority demand for non-interruptible service during 2007 through 2012. See Item 4: "Final Transportation Balance."

Decree No. 180 and the regulations issued thereunder to date establish an investment system for basic infrastructure works through the creation of a trust fund to deal with gas transportation and distribution investments proposed within the scope of activities carried out by the transportation and distribution companies. Additional regulations were imposed by the Ministry of Planning Resolution No. 185/04 (published in the Official Gazette on April 20, 2004), which created a global program for the issuance of debt securities and/or equity securities in financial trusts with a view to natural gas distribution and transportation expansion and/or extension works. Meetings were carried out to consider a project proposed by the Energy Secretariat and the possible impact of such proposal on the current transportation and distribution system. Each of TGS and TGN were involved in an open bidding process under the terms of Resolution No. 185/04 to expand their transportation capacity by approximately 5% of their current total transportation capacity. This bid to expand their transportation capacity was approved by ENARGAS on June 16, 2004. As a result of the bidding process, TGS awarded us a firm transportation capacity of 159,459 CM/day from the Tierra del Fuego basin to the Province of Santa Cruz, which is to be used to supply our firm customers. This award became available in the second half of 2005. Furthermore, on May 31, 2011, pursuant to an irrevocable offer made by TGS to us in the open season bid No. 01/07, ENARGAS assigned to us 35,000 m3 of firm transportation capacity corresponding to the Chubut - GBA route, from June 1, 2011 to December 28, 2027.

Overall Transportation Rights

As of December 31, 2012, we had contracted for aggregate firm transportation capacity of 24.61 MMCM (869 MMCF) per day, an increase of 37.9% from January 1, 1993. While we transport gas primarily with TGS, we began to transport gas with TGN in 1994. We increased our rights to firm transportation capacity, primarily by acquiring a significant portion of newly constructed transportation capacity from TGS and TGN and through supplementary arrangements with other holders of transportation capacity rights. In addition, we have entered into several exchange and displacement agreements with TGS that allow us to improve our utilization of existing transportation capacity. We also have acquired the right to use the firm transportation capacity of others on an interruptible basis, thereby facilitating an increase in overall annual sales and the ability to better meet the demands of non-interruptible customers during peak periods.

2. TGS Transportation Rights

As of December 31, 2012, we had available firm transportation capacity with TGS of 22.07 MMCM (780 MMCF) of gas per day through nine transportation agreements containing similar terms. Unless otherwise indicated, all of these contracts with TGS expire in May 2014. The largest transportation agreement provides us with aggregate firm transportation capacity for distribution of 17.02 MMCM (601 MMCF) of gas per day from the following producing areas: Province of Tierra del Fuego, 3.40 MMCM (120 MMCF); Province of Santa Cruz, 1.07 MMCM (38 MMCF); and the Province of Neuquén, 12.15 MMCM (429 MMCF). This contract includes 0.40 MMCM (14 MMCF) per day of firm capacity for the transportation of natural gas to the liquid gas separating complex owned by TGS near the city of Bahía Blanca in the Province of Buenos Aires. We are entitled under this contract to a 30% step-down right exercisable on May 1, 2004, but due to the increase in demand, we have not exercised this right. See Item 4: "Business Overview-Revenues-Processed Natural Gas Service."

Our other contracts with TGS provide us with firm transportation capacity of 1.65 MMCM (58 MMCF) of gas per day from the Neuquén basin, 0.54 MMCM (19 MMCF) of gas per day from the Neuquén basin, 1.50 MMCM (53 MMCF) of gas per day from the Tierra del Fuego basin; 0.10 MMCM (3 MMCF) of gas per day from the Neuquén basin; 0.51 MMCM (18 MMCF) of gas per day from the Neuquén basin; 0.035 MMCM (1.2 MMCF) of gas per day from the Province of Chubut; 0.55 MMCM (19 MMCF) from Tierra del Fuego basin to the province of Santa Cruz; 0.01 MMCM (0.2 MMCF) from Neuquén basin to the city of Bahía Blanca in the province of Buenos Aires that expires in December 2009 but remains in effect pursuant to an automatic annual renewal clause; and 0.16 MMCM (6 MMCF) from Tierra del Fuego to the province of Buenos Aires that expires in June 2020.

In addition, we have six interruptible transportation contracts with TGS for a total of approximately 16.5 MMCM (583 MMCF) of gas per day. The first contract provides for interruptible transportation capacity of up to 6.5 MMCM (230 MMCF) of gas per day on the Neuba II pipeline. That contract expired on August 31, 1997, but it remains in effect pursuant to our exercise of an annual renewal clause. The second contract provides for interruptible transportation service for 3.0 MMCM (106 MMCF) of gas per day. This contract became effective in May 1997 and expires in May 2014. The third contract provides for interruptible transportation capacity of up 1.0 MMCM (35 MMCF) of gas per day. This contract became effective in June 1996 and expired in June 1997, but it remains effective pursuant to an automatic annual renewal clause. The fourth contract allows interruptible transportation service for 2.0 MMCM (70.6 MMCF) of gas per day. This contract became effective on June 1, 1999 and expired on June 1, 2000, but it remains in effect pursuant to an automatic annual renewal clause. The fifth contract provides for interruptible transportation service for 1.0 MMCM (35 MMCF) of gas per day. This contract became effective on May 2, 2000 and expired on May 2, 2001, but it remains effective pursuant to an automatic annual renewal clause. The sixth contract provides for interruptible transportation service of up to 3.0 MMCM (105.94 MMCF) of gas per day. This contract became effective on April 25, 2005, but it remains effective pursuant to an automatic annual renewal clause.

TGN Transportation Rights

As of December 31, 2012, we had available firm transportation capacity with TGN of 2.54 MMCM (90 MMCF) of gas per day.

On September 9, 1993, we entered into a contract with TGN, or the "TGN Contract" for 1.50 MMCM (53 MMCF) per day of firm transportation capacity to be constructed by TGN. The TGN Contract became effective on June 1, 1994. The TGN Contract expired on May 31, 2006 but remains in effect pursuant to automatic annual renewal clauses. On June 1, 2007, we recovered 1.03 MMCM (36.37 MMCF) per day of firm transportation capacity pursuant to this contract, which had been transferred in June 1997 by several agreements with certain industrial companies.

On June 1, 1996, we contracted with TGN for 0.50 MMCM (18 MMCF) per day of firm transportation. The arrangement with TGN provides for two contracts, one being for 0.40 MMCM (14 MMCF) per day of firm transportation capacity for distribution and the other for 0.10 MMCM (4 MMCF). Both contracts expired in May 2006, but remain in effect pursuant to automatic annual renewal clauses.

During 2001, we entered into an agreement for 0.54 MMCM (19 MMCF) per day of our firm transportation capacity with TGN. The contract became effective in May 2001 and expires in May 2016.

In addition, we have five interruptible transportation contracts with TGN for a total of approximately 10.65 MMCM (376 MMCF) of gas per day. The first contract provides for interruptible transportation capacity of up to 0.45 MMCM (16 MMCF) of gas per day. That contract expired on July 29, 2008, but it remains in effect pursuant to an annual renewal clause. The second contract provides for interruptible transportation service for 5.0 MMCM (177 MMCF) of gas per day. This contract became effective on July 1, 2003 and expired on July 1st 2004, but it remains in effect pursuant to an annual renewal clause. The third contract provides for interruptible transportation service of up to 4.0 MMCM (141 MMCF) of gas per day. This contract became effective in March 26, 2007 and expired on April 2008, but it remains effective pursuant to an automatic annual renewal clause. The fourth and fifth contracts provide for interruptible transportation service of up to 0.6 MMCM (21 MMCF) of gas per day, respectively. These contracts became effective on December 28, 2007 and expired on April 30, 2009, but they remain in effect pursuant to automatic annual renewal clauses.

3. In July 2012, the ENARGAS granted us 174,343 m3 of firm transportation, in force as from May 1, 2013 through April 30, 2014, of the Neuquen-GBA route; and 233,333 m3 of firm transportation, in force from May 1, 2014 through April 30, 2017 of the same route. This was the result of an irrevocable offer we submitted to Transportadora de Gas del Norte (TGN) during the capacity open bid No. 01/2012.
4. Other Transportation Rights

We entered into an agreement with a gas distribution company for interruptible capacity from the Neuquén basin for a period of seven years beginning November 1, 1994. This agreement assures us of a minimum of 2.5 MMCM (88.3 MMCF) of gas per day. The agreement was renewed on May 2001 for a period of fifteen years and at 3.0 MMCM (106 MMCF) of gas per day. Pursuant to this contract, we have agreed to certain "ship-or-pay" obligations at a reduced rate. In January 2009, the agreement was further modified, assuring us a minimum of 1.5 MMCM (53 MMCF) of gas per day.

5. Final Transportation Balance

In order to face an estimated peak demand for non-interruptible service of approximately 23.66 MMCM (833 MMCF) per day, since 2006 we have contracted for an aggregate firm transportation capacity of 24.61 MMCM (869 MMCF) of gas per day, which was generally adequate to satisfy demand during winter periods. Except for 2007 winter months, peak-day deliveries did not exceed firm transportation capacity. Our load factors were 95.1%, 96.5% and 92.1% for 2012, 2011 and 2010, respectively.

Agreement with YPF S.A.

3. Personnel Supply Agreement

We entered into a Personnel Supply Agreement with YPF S.A. on January 16, 2009 which is automatically renewable every three years. Pursuant to this agreement, YPF S.A. is required to provide highly trained personnel to our management. YPF S.A. is paid monthly for the costs it incurs while providing these services.

Bypass Rights and Competition

As discussed under Item 3: "Key Information-Risk Factors-Our revenues may be adversely affected by the right of our clients to bypass our transportation services," large users of natural gas within our service area are permitted to contract directly with other parties for the sale of natural gas (provided they provide us and ENARGAS with three months' notice) as well as supply of natural gas. However, if such users utilize our distribution system, they must pay us a tariff. These users may also build their own transmission systems and thereby completely bypass our services, in which case we would not be entitled to any fees. Users wishing to completely bypass our system face significant impediments to doing so, including significant expenses in building and maintaining connection lines and limited access to firm transportation capacity.

We have built strong working relationships with many of our major customers and we are implementing appropriate contracting and pricing policies that discourage the construction of direct connecting pipelines between our major users and the transportation systems that would completely bypass our system and avoid the use of our firm transportation capacity. However, some of our users may still completely bypass our services or require us to further unbundle our services in a manner that could adversely affect our margins. See Item 4: "Regulatory Framework." Our management believes that the effect of any such situations could, however, be partially mitigated by provisions in certain of our firm transportation contracts with TGS which provide that, if any of our users enters into a firm transportation agreement with TGS (either directly with TGS or with a third party such as a producer or gas broker), we would have the right to reduce our firm transportation commitment with TGS by up to the amount of the lost service between us and such customer. Our firm transportation contracts with TGN contain similar provisions.

On June 1, 2000, ENARGAS issued Resolution No. 1,748/00, which introduced amendments to the Service Regulation for "Small" and "Large" General Service Users. The Resolution permits users of 5,000 CM (176.6 MCF) per day of gas instead of 10,000 CM (353.1 MCF) of gas per day to contract for transportation capacity on a firm commitment basis; it also allows users of 1.5 MMCM/year (52.9 MMCF) per year of gas instead of 3.0 MMCM (105.9 MMCF) of gas per year to contract for transportation capacity on an interruptible basis. Additionally, the period to notify ENARGAS and the distribution companies of any proposed bypass was reduced from six to three months. On December 15, 2000, we objected to these changes by filing for an administrative proceeding. This matter has not yet been resolved.

Alternative energy sources, primarily fuel oil or gas oil for power plants and LPG for residential users and smaller commercial users, are currently substitutes for natural gas. For many years now, the abundance of natural gas in Argentina has historically provided natural gas with a large cost advantage over fuel oil. In order to enable us to achieve a higher load factor during the warmer months when residential demand is weaker, certain power plant users have agreed to take a minimum amount of gas transportation at discounts from maximum tariffs. Conversely, during the colder months, we and certain dual-fuel power plants in our service area agreed that we would deliver to such power plants a minimum volume of gas transportation on an interruptible basis. If we fail to meet our commitments, we will be required to refund a portion of the excess cost of fuel oil over the price of undelivered gas on an energy-equivalent basis.

In the past, CAMMESA has lobbied aggressively to secure gas and transportation capacity for power plants. CAMMESA also recently obtained its own gas transportation capacity from the expansion of the gas transportation system. This new position of CAMMESA in the gas market and its lobbying effort, may pose a risk for our services. We may be bypassed or otherwise materially and adversely affected. See Item 3: "Key Information-Risk Factors Relating to Us-Our revenues may be adversely affected by the right of our clients to bypass our services."

In October 2009, the Energy Secretariat, through Note No. 6,866, established a voluntary program for generation companies who wanted to participate in a "Temporary Centralized Dispatch" ("Procedimiento para el despacho de gas natural para la generación eléctrica"). Pursuant to this program, participating natural gas producers give their available natural gas production to CAMMESA, which in turn selects the central electrical power plants which will receive this natural gas. Consequently, it would impact our sales, which would increase if CAMMESA chooses power plants inside our service area and decrease if CAMMESA chooses plants outside of our service area. It would also impact our penalties, depending upon whether we comply with those deliveries or not. Although this program is voluntary, all of our power plant customers participate.

4. Environmental and Safety Matters

Our current operations are in substantial compliance with applicable laws and regulations related to health and safety, and to environmental protection. Aligned with this, and to ensure continuous improvement and compliance with legal, regulatory, and corporate requirements, we are committed to complying with ISO 14001 (Environmental Management) and OHSAS 18001 (Occupational Health and Safety Assessment Series) standards. We were successfully audited in November 2012 given once again the HSE Management System's certification. We are also constantly discussing ways in which we can reduce our greenhouse gas emissions and thus minimize our impact on climate change.

We were invited to be a speaker at the Congress of Engineering for Climate Change, organized by the COPIME (Professional Association of Mechanical and Electrical Engineering), which was held in September 2012.

5. Insurance

As of December 31, 2012, we maintained insurance coverage for third-party loss and casualty for up to U.S.$ 50 million. Our physical assets were insured for up to U.S.$ 76.4 million. We believe that our insurance coverage corresponds to standards for the international gas distribution industry. We do not carry business interruption insurance. There is no assurance that insurance coverage will be available or adequate for any particular risk or loss.

6. Regulatory Framework

Below is a description of the regulatory framework applicable to gas transportation and distribution companies, including ours. However, and as noted below and elsewhere in our annual report, the Public Emergency Law has altered this framework significantly and to our detriment. These changes also create uncertainty as to our future business.

We have taken all necessary steps to reserve our legal rights under our license and the applicable regulatory framework.

1. The Argentine Constitution

In 1994, the Argentine Constitution was amended with respect to public utilities. The amendments include grants of certain rights to users of public utility services, antidiscrimination provisions, and provisions requiring regulation of legal and natural monopolies and for user representation on public utility regulatory agencies, including ENARGAS. Although the effect of these amendments on the Argentine natural gas regulatory regime cannot be ascertained at present, the present regulatory framework generally is consistent with the Argentine Constitution, as amended.

2. The Gas Act and Our License