##### Table of Contents



The following item was subject of a Form 12b-25 and is included herein: Item 18   UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 20-F/A (Amendment No. 1)
 ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2003 Commission file number 333-11130 PETROBRAS ENERGÍA PARTICIPACIONES S.A.  N/A
    
    REPUBLIC OF ARGENTINA(Translation of Registrants name into English)
    
    (Jurisdiction of incorporation of organization)
 Maipú 1, 22nd Floor
(C1084ABA) Buenos Aires
Argentina
(Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act:  Title of each Class
    
    Name of Each Exchange On Which
RegisteredAmerican Depositary Shares, each representing 10 Class B shares
    
    New York Stock Exchange
 Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None The number of outstanding shares of each of the issuers classes of capital or
common stock as of December 31, 2003 was: Class B Ordinary Shares, par value Ps.1.00 per share..........2,132,043,387 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days: Yes   x                      No o Indicate by check mark which financial statement item the Registrant has elected to follow: Item 17   o                      Item 18 x




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EXPLANATORY NOTE This Amendment No. 1 to our annual report on Form 20-F for the fiscal year
ended December 31, 2003 filed on June 30, 2004, or Amendment No. 1, is being
filed solely for the purpose of amending Item 18. We did not file as part of
the original filing of our Form 20-F the portion of Item 18 containing the
financial statements of Compañía de Inversiones de Energía S.A., which we refer
to as CIESA, a company of which we held 50% of the share capital as of December
31, 2003 and over which we exercised joint control, for the fiscal years ended
December 31, 2003, 2002 and 2001. CIESAs financial statements were not
included in a timely manner with the financial statements filed as part of our
original filing because the information necessary could not be compiled in the
form and manner required within the prescribed time period without unreasonable
effort and expense. The other portions of Item 18, mainly our audited
consolidated financial statements for the fiscal years ended December 2003,
2002 and 2001 and the required audit reports thereon, were filed as part of our
original filing and are being refilled as part of this Amendment No. 1, without
change. This Amendment No. 1 consists of a cover page, this explanatory note, Item
18 (as amended), the signature page and the required certifications of our
chief executive officer and the chief financial officer. Other than for the purpose of including the financial statements of CIESA
referred to above, this Amendment No. 1 does not, and does not purport to,
amend, update or restate the information in any other item of the annual report
on Form 20-F filed on June 30, 2004 or reflect any events that have occurred
after the annual report on Form 20-F was filed on June 30, 2004.




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TABLE OF CONTENTS  Item 18. FINANCIAL STATEMENTSSIGNATURESCERTIFICATIONCERTIFICATIONCERTIFICATIONS    Table of Contents  
 Item 18. FINANCIAL STATEMENTS Reference is made to pages F-1 to F-152 of this annual report.




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SIGNATURES The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf. PETROBRAS ENERGÍA PARTICIPACIONES S.A.By:

/s/  Alberto GuimarãesName:
    Alberto GuimarãesTitle:
    Chief Executive Officer By:

/s/  Luis Miguel SasName:
    Luis Miguel SasTitle:
    Chief Financial Officer Date: July 8, 2004




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS

PETROBRAS ENERGÍA PARTICIPACIONES S.A.

|                                                                                                                            |  |  |       | 
|--------------------------------------------------------------------------------------------------------------------------- |  |  | ----- | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Report of independent registered public
    accounting firm of Petrobras Energía Participaciones
    S.A.                   |  |  | F-2   | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Report of independent registered public
    accounting firm of Distrilec Inversora S.A.                                     |  |  | F-4   | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Report of independent registered public
    accounting firm of Compañía Inversora en
    Transmisión Eléctrica Citelec S.A. |  |  | F-6   | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Report of independent registered public
    accounting firm of Transportadora de Gas del Sur
    S.A.                       |  |  | F-8   | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Consolidated statements of income and loss for
    the years ended December 31, 2003, 2002 and 2001                         |  |  | F-10  | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Consolidated balance sheets as of
    December 31, 2003 and 2002                                                            |  |  | F-11  | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Statements of changes in shareholders
    equity for the years ended December 31, 2003, 2002 and 2001                      |  |  | F-12  | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Consolidated statements of cash flows for the
    years ended December 31, 2003, 2002 and 2001                              |  |  | F-13  | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Notes to the consolidated financial statements
    for the years ended December 31, 2003, 2002 and 2001                     |  |  | F-14  | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|COMPAÑÍA DE INVERSIONES DE
    ENERGÍA S.A.                                                                                
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Report of independent registered public
    accounting firm of Compañía de Inversiones de
    Energía S.A.                  |  |  | F-99  | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Consolidated statements of income and loss for
    the years ended December 31, 2003, 2002 and 2001                         |  |  | F-101 | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Consolidated balance sheets as of
    December 31, 2003 and 2002                                                            |  |  | F-102 | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Consolidated statements of cash flows for the
    years ended December 31, 2003, 2002 and 2001                              |  |  | F-103 | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Consolidated statements of changes in
    shareholders equity for the years ended December 31,
    2003, 2002 and 2001     |  |  | F-104 | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Notes to the consolidated financial statements
    for the years ended December 31, 2003, 2002 and 2001                     |  |  | F-105 | 

F-1



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of
Petrobras Energía Participaciones S.A.:  1.
    
    We have audited the accompanying consolidated balance sheets of
Petrobras Energía Participaciones S.A. (an Argentine Corporation) and
its subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of income, changes in shareholders equity and
cash flows for each of the three years in the period ended December 31,
2003. Those financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on
those financial statements based on our audits.2.
    
    The financial statements of the affiliates Compañía Inversora en
Transmisión Eléctrica Citelec S.A., Compañía de Inversiones de Energía
S.A. and Transportadora de Gas del Sur S.A. as of and for the years ended
December 31, 2003 and 2001 and the financial statements of the
affiliate Distrilec Inversora S.A. as of and for the year ended
December 31, 2003, have been audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to
the amounts included for those affiliates, is based on the reports of
the other auditors. Those financial statements, for the affiliates
which have been proportionally consolidated, reflect assets
constituting 27% as of December 31, 2003, and net sales constituting
16% for 2003 and 12 % for 2001 of the Companys respective consolidated
totals, and the Companys investment and equity in the net income of
the other affiliates is stated at Argentine pesos 325,000,000 as of
December 31, 2003 and Argentine pesos 139,000,000 for 2003 and
29,000,000 for 2001. Certain reports of other auditors include a
paragraph referring to going concern uncertainties as explained in
paragraph 7.3.
    
    We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits and the reports of other auditors provide a reasonable
basis for our opinion.4.
    
    As described in note 3, in accordance with the regulations of the
National Securities Commission, the Company has not recognized the
effects of the variations in the purchasing power of the Argentine Peso
from March 1, 2003 to September 30, 2003, and has not discounted the
nominal values of its deferred tax assets and liabilities as required
by accounting principles generally accepted in Argentina. The effects
of such matters in the financial position as of December 31, 2003 and
results of operations for the year then ended have not been quantified
by the Company.5.
    
    In our opinion, based on our audits and on the reports of other
auditors referred to in paragraph 2, the consolidated financial
statements referred to above present fairly, in all material respects,
the consolidated financial position of Petrobras Energía
Participaciones S.A. and its subsidiaries as of December 31, 2003 and
2002 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2003, in conformity
with the Business Association Law and the pertinent regulations of the
National Securities Commission, and except for the effect of the
matters discussed in paragraph 4, with generally accepted accounting
principles in Argentina, which differ in certain respects from U.S.
generally accepted accounting principles to the extend discussed in
notes 22 through 24. F-2




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6.
    
    As discussed in note 3, effective January 1, 2003 the Company
adopted new accounting pronouncements related to certain valuation and
disclosure matters. As required by accounting principles generally
accepted in Argentina, the Company has restated prior period financial
statements presented for comparative purposes to reflect the changes in
accounting principles.7.
    
    The financial statements and the reports of the other auditors of
the affiliates Compañía Inversora en Transmisión Eléctrica Citelec
S.A., Compañía de Inversiones de Energía S.A. and Transportadora de Gas
del Sur S.A. as of and for the years ended December 31, 2003 and 2001, stated
that they have been prepared assuming that such affiliates will
continue as going concerns. Those statements, for the affiliates which
have been proportionally consolidated, reflect assets constituting 17%
as of December 31, 2003 and net sales constituting 8% for 2003 and 12 %
for 2001 of the Companys respective consolidated totals, and the
Companys investment and equity in the net income of the other
affiliates is stated at Argentine pesos 325,000,000 as of December 31,
2003 and Argentine pesos 139,000,000 for 2003 and 29,000,000 for 2001.
As discussed in note 9, such affiliates have been negatively impacted
by the Argentine Governments adoption of various economic measures
including the de-dollarization of revenue rates, the renegotiation of
License and Concession contracts and the devaluation of the Argentine
peso. In addition, such affiliates have suspended the payment of their
financial debt. These circumstances raise substantial doubt about the
affiliates ability to continue as going concerns. The affiliates
managements plans in regard of these matters are also described in
note 9. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. Buenos Aires, Argentina
      June 11, 2004 PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L.
(Member firm of Ernst & Young Global)

/s/ Daniel G. Minenna
DANIEL G. MINENNA
Partner F-3




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(English translation of the report originally issued in Spanish) To the Chairman and Directors ofDistrilec Inversora S.A. 1. We have audited:  a)
    
    The accompanying balance sheet of Distrilec Inversora S.A. as of
December 31, 2003, and the related statements of income, changes in
shareholders equity and cash flows for the year then ended.b)
    
    The accompanying consolidated balance sheet of Distrilec Inversora
S.A. and its subsidiary Empresa Distribuidora Sur Sociedad Anónima
(EDESUR S.A.) as of December 31, 2003 and the related consolidated
statements of income and cash flows for the year then ended, included
in Chart I as supplementary accounting information. These financial statements are the responsibility of the Companys Board of
Directors. Our responsibility is to express an opinion on these financial
statements based on our audit conducted with the scope described in
paragraph 2.  2.
    
    We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements, taken as a whole, are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by Companys Management, as well as
evaluating the overall financial statement presentation.  3.
    
    In our opinion:  a)
    
    The financial statements mentioned in paragraph 1.a) present
fairly, in all material respects, the financial position of Distrilec
Inversora S.A. as of December 31, 2003, the results of its operations,
the evolution of its shareholders  ́ equity and its cash flows for the
year then ended, in accordance with accounting principles generally
accepted in Argentina approved by the Professional Council of Economic
Sciences of the City of Buenos Aires. F-4




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2.  b)
    
    The financial statements mentioned in paragraph 1.b) present
fairly, in all material respects, the consolidated financial position
of Distrilec Inversora S.A. and its subsidiary Empresa Distribuidora
Sur Sociedad Anónima (EDESUR S.A.) as of December 31, 2003, the
consolidated results of their operations and their consolidated cash
flows for the year then ended, in accordance with accounting principles
generally accepted in Argentina approved by the Professional Council of
Economic Sciences of the City of Buenos Aires.  4.
    
    The financial statements as of and for the year ended December 31, 2002,
presented for comparative purposes, were audited by other independent
auditors who issued their audit report with an unqualified opinion on
February 7, 2003. The information as of and for the year ended December
31, 2002 has been modified by the Companys Management in order to comply
with the changes in the accounting principles generally accepted in
Argentina mentioned in note 2.II to the stand alone financial statements
and has been restated in constant currency up to February 2003.  5.
    
    Accounting principles generally accepted in Argentina vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Application of accounting principles generally
accepted in the United States of America would have affected the
determination of the shareholders  ́ equity as of December 31, 2003 and the
results of operations for the year then ended to the extent summarized in
note 11 to the consolidated financial statements. Certain additional
information required by the Securities and Exchange Commission (SEC),
prepared in conformity with accounting principles generally accepted in
the United States of America, was included in note 12 to the consolidated
financial statements.


Buenos Aires, February 9, 2004.DELOITTE & Co. S.R.L./s/ Carlos A. LloverasCARLOS A. LLOVERASPartner F-5




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Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of
Compañía Inversora en Transmisión Eléctrica Citelec S.A.: We have audited the accompanying consolidated balance sheets of Compañía
Inversora en Transmisión Eléctrica Citelec S.A. and its subsidiaries as of
December 31, 2003 and 2002, and the related consolidated statements of
operations, of changes in shareholders equity and of cash flows for each of
the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. As discussed in Note 3.a. to the consolidated financial statements, in order to
comply with regulations of the legal control authorities, the Company
discontinued inflation accounting as from March 1, 2003 as well as recognized
deferred income tax assets and liabilities on a non-discounted basis. The
application of these regulations represent a departure from accounting
principles generally accepted in Argentina, which require inflation accounting
be discontinued as from October 1, 2003 and the recognition of deferred income
tax assets and liabilities on a discounted basis. The Company has not
quantified the impact of such a departure. In our opinion, except for the effects of not recognizing inflation accounting
until September 30, 2003 and not discounting deferred tax assets and
liabilities as discussed in the preceding paragraph, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Compañía Inversora en Transmisión Eléctrica Citelec S.A.
and its subsidiaries at December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles generally accepted
in Argentina. The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2,
during 2002 the Company was negatively impacted by the devaluation of the
Argentine Peso and the Argentine Government adoption of various economic
measures, including the conversion of dollar-denominated tariffs to Argentine
pesos at an exchange rate of Ps.1 = US$ 1. As a result of these circumstances,
the Company did not comply with certain restrictive covenants contained in its
debt agreements and suspended the payment of its financial debts. These
circumstances raise substantial doubt about the Companys ability to continue
as a going concern. Management plans in regard to these matters are also
described in Note 2. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty. F-6




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As discussed in Note 3.d. to the consolidated financial statements, effective
January 1, 2003 the Company adopted new accounting pronouncements related to
valuation and disclosure criteria. As required by accounting principles
generally accepted in Argentina, the Company has restated its prior period
financial statements presented for comparative purposes to reflect the adopted
changes in accounting principles, except for certain valuation and disclosure
criteria that in accordance with the transition provisions have been applied
prospectively. Accounting principles generally accepted in Argentina vary in certain
significant respects from accounting principles generally accepted in the
United States of America and as allowed by Item 17 to Form 20-F. Information
relating to the nature and effect of such differences is presented in Note 15
to the consolidated financial statements. PRICE WATERHOUSE & Co. by  /s/ Miguel A. Urus (Partner)Miguel A. Urus
 Buenos Aires, Argentina.
June 11, 2004 F-7




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of
Transportadora de Gas del Sur S.A. We have audited the accompanying consolidated balance sheets of Transportadora
de Gas del Sur S.A. and its subsidiary at December 31, 2003 and 2002, and the
related consolidated statements of income, of changes in shareholders equity
and of cash flows for each of the three years in the period ended December 31,
2003. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. As indicated in Notes 2.c and 2.h, the Company has discontinued the restatement
of financial statements into constant currency as from March 1, 2003 and has
recorded deferred income tax assets and liabilities on a non-discounted basis
as required by resolutions issued by the Comisión Nacional de Valores (CNV).
Since generally accepted accounting principles in Argentina require companies
to prepare price-level restated financial statements through September 30, 2003
and to recognize deferred taxes on a discounted basis, the application of the
CNV resolutions represent a departure from generally accepted accounting
principles in Argentina. In our opinion, with the exceptions of the matters described in the preceding
paragraph, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Transportadora de
Gas del Sur S.A. and its subsidiary at December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003 in conformity with accounting principles
generally accepted in Argentina. The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As indicated in Notes 5 and
6, the Company has been negatively impacted by the deterioration of the
Argentine economy, the Argentine governments adoption of various economic
measures including the violation of the contractually-agreed License terms and
the devaluation of the Argentine peso. In view of these circumstances, the
Company has not been able to maintain the financial ratios required by its
outstanding debt agreements and in May, 2003 had announced the suspension of
payment on its financial debt. These circumstances raise substantial doubt
about the Companys ability to continue as a going concern. Managements plans
in regard to these matters are also described in Notes 5 and 6. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. F-8




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Accounting principles generally accepted in Argentina vary in certain
significant respects from the accounting principles generally accepted in the
United States of America and as allowed by Item 18 to Form 20-F. Information
relating to the nature and effect of such differences is presented in Note 11
to the consolidated financial statements. /s/ Héctor A. López
PRICE WATERHOUSE & CO.
Héctor A. López (Partner)
Buenos Aires, Argentina
June 11, 2004 F-9




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PETROBRAS ENERGÍA PARTICIPACIONES S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Stated in millions of Argentine pesos  See Note 2.c) 2003
    
    2002
    
    2001Net sales
    
    
    5,494
    
    
    
    5,106
    
    
    
    5,170Costs of sales (Note 27.c)
    
    
    (3,386
    )
    
    
    (3,284
    )
    
    
    (3,347
    )Gross profit
    
    
    2,108
    
    
    
    1,822
    
    
    
    1,823Administrative and selling expense (Note 27.e)
    
    
    (559
    )
    
    
    (609
    )
    
    
    (665
    )Exploration expenses (Note 27.e)
    
    
    (196
    )
    
    
    (58
    )
    
    
    (41
    )Other exploitation (expenses) income, net (Note 17.c)
    
    
    (121
    )
    
    
    (28
    )
    
    
    23Exploitation income
    
    
    1,232
    
    
    
    1,127
    
    
    
    1,140Equity in earnings of affiliates (Note 9.b)
    
    
    163
    
    
    
    (638
    )
    
    
    119Financial income (expense) and holding gains (losses)Generated by assets:Interest
    
    
    65
    
    
    
    88
    
    
    
    91Exchange difference
    
    
    (155
    )
    
    
    1,986
    
    
    
    82Gain from remeasurement and translation
    
    
    
    
    
    
    3,742
    
    
    
    Loss due to exposure to inflation
    
    
    (27
    )
    
    
    (2,967
    )
    
    
    Holding gains (losses) and income from sale of shares
    
    
    98
    
    
    
    (15
    )
    
    
    (1
    )Other financial income, net
    
    
    10
    
    
    
    22
    
    
    
    2(9
    )
    
    
    2,856
    
    
    
    174Generated by liabilities:Interest
    
    
    (623
    )
    
    
    (882
    )
    
    
    (612
    )Exchange difference
    
    
    554
    
    
    
    (10,402
    )
    
    
    (89
    )Loss from remeasurement and traslation
    
    
    
    
    
    
    (2,242
    )
    
    
    Gain due to exposure to inflation
    
    
    67
    
    
    
    9,472
    
    
    
    Derivatives
    
    
    (294
    )
    
    
    (524
    )
    
    
    8Other financial expense, net
    
    
    (112
    )
    
    
    (105
    )
    
    
    (54
    )(408
    )
    
    
    (4,683
    )
    
    
    (747
    )Other expenses, net (Note 17.d)
    
    
    (421
    )
    
    
    (187
    )
    
    
    (88
    )Income (loss) before income tax and minority interest in subsidiaries
    
    
    557
    
    
    
    (1,525
    )
    
    
    598Income tax provision
    
    
    (18
    )
    
    
    (82
    )
    
    
    (385
    )Minority interest in subsidiaries
    
    
    (158
    )
    
    
    28
    
    
    
    (112
    )Net income (loss)
    
    
    381
    
    
    
    (1,579
    )
    
    
    101Earnings (losses) per share  Stated in Argentine pesos
    
    
    0.179
    
    
    
    (0.744
    )
    
    
    0.048
 The accompanying notes are an integral part of these consolidated financial statements. F-10




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PETROBRAS ENERGÍA PARTICIPACIONES S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 AND 2002
(Stated in millions of Argentine pesos  See Note 2.c) 2003
    
    2002CURRENT ASSETSCash
    
    
    153
    
    
    
    93Investments (Note 9.a)
    
    
    802
    
    
    
    664Trade receivables
    
    
    886
    
    
    
    784Other receivables (Note 17.a)
    
    
    861
    
    
    
    734Inventories (Note 8)
    
    
    319
    
    
    
    356Other assets
    
    
    3
    
    
    
    178Total current assets
    
    
    3,024
    
    
    
    2,809NONCURRENT ASSETSTrade receivables
    
    
    36
    
    
    
    21Other receivables (Note 17.a)
    
    
    131
    
    
    
    220Inventories (Note 8)
    
    
    61
    
    
    
    39Investments (Note 9.a)
    
    
    1,284
    
    
    
    1,103Property, plant and equipment (Note 27.a)
    
    
    11,559
    
    
    
    10,433Other assets
    
    
    43
    
    
    
    24Total noncurrent assets
    
    
    13,114
    
    
    
    11,840Total assets
    
    
    16,138
    
    
    
    14,649CURRENT LIABILITIESAccounts payable
    
    
    860
    
    
    
    651Short-term debt (Note 12)
    
    
    3,204
    
    
    
    1,543Payroll and social security taxes
    
    
    93
    
    
    
    76Taxes payable
    
    
    172
    
    
    
    133Reserves (Note 14.f)
    
    
    44
    
    
    
    28Other liabilities (Note 17.b)
    
    
    379
    
    
    
    344Total current liabilities
    
    
    4,752
    
    
    
    2,775NONCURRENT LIABILITIESAccounts payable
    
    
    7
    
    
    
    9Long-term debt (Note 12)
    
    
    5,098
    
    
    
    6,130Payroll and social security taxes
    
    
    6
    
    
    
    25Taxes payable
    
    
    11
    
    
    
    120Other liabilities (Note 17.b)
    
    
    262
    
    
    
    496Reserves (Note 14.f)
    
    
    277
    
    
    
    86Total noncurrent liabilities
    
    
    5,661
    
    
    
    6,866Total liabilities
    
    
    10,413
    
    
    
    9,641TRANSITORY DIFFERENCESMeasurement of derivative financial instruments
determined as effective hedge
    
    
    (18
    )
    
    
    Foreign currency translation
    
    
    (56
    )
    
    
    Total transitory differences
    
    
    (74
    )
    
    
    MINORITY INTEREST IN SUBSIDIARIES
    
    
    966
    
    
    
    556SHAREHOLDERS EQUITY (Per respective statements)
    
    
    4,833
    
    
    
    4,45216,138
    
    
    
    14,649
 The accompanying notes are an integral part of these consolidated financial statements. F-11




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PETROBRAS ENERGÍA PARTICIPACIONES S.A. AND SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Stated in millions of Argentine pesos  See Note 2.c) 2003
    
    2002
    
    2001Capital stock
    
    Retained earningsCapital
    
    Adjustment to
    
    Additional
    
    Legal
    
    Unappropriated
    
    Treasurystock
    
    capital stock
    
    paid-in capital
    
    reserve
    
    retained earnings
    
    stock (a)
    
    Total
    
    Total
    
    TotalBalances at beginning of the year
    
    
    2,132
    
    
    
    2,554
    
    
    
    664
    
    
    
    37
    
    
    
    (541
    )
    
    
    (33
    )
    
    
    4,813
    
    
    
    6,014
    
    
    
    5,952Change in balances at beginning of the year due to changes
in accounting method (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (361
    )
    
    
    
    
    
    
    (361
    )
    
    
    17
    
    
    
    132Adjusted balances at beginning of the year
    
    
    2,132
    
    
    
    2,554
    
    
    
    664
    
    
    
    37
    
    
    
    (902
    )
    
    
    (33
    )
    
    
    4,452
    
    
    
    6,031
    
    
    
    6,084Special Shareholders Meeting decision of April 4, 2003 and
April 9, 2001:Distribution of unappropriated retained earnings- Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (134
    )- Negative retained earnings absortion
    
    
    
    
    
    
    
    
    
    
    (504
    )
    
    
    (37
    )
    
    
    541
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of own stock held by subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    381
    
    
    
    
    
    
    
    381
    
    
    
    (1,579
    )
    
    
    101Balances at end of the year
    
    
    2,132
    
    
    
    2,554
    
    
    
    160
    
    
    
    
    
    
    
    20
    
    
    
    (33
    )
    
    
    4,833
    
    
    
    4,452
    
    
    
    6,031
 (a) See Note 4.m). The accompanying notes are an integral part of these consolidated financial statements. F-12




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PETROBRAS ENERGÍA PARTICIPACIONES S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS
OF CASH FLOW (a)
 FOR THE YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001
 (Stated in millions of
Argentine pesos - See Note 2.c)
 2003
    
    2002
    
    2001Cash provided by (used in) operations:Net income (loss)
    
    
    381
    
    
    
    (1,579
    )
    
    
    101Reconciliation to net cash provided by (used in) operating activities:Minority interest in subsidiaries
    
    
    158
    
    
    
    (28
    )
    
    
    112Equity in earnings of affiliates
    
    
    (163
    )
    
    
    638
    
    
    
    (119
    )Financial (Income) expense, net
    
    
    (585
    )
    
    
    140
    
    
    
    Dividends collected (Note 9.c)
    
    
    26
    
    
    
    20
    
    
    
    55Depreciation and depletion of property, plant and equipment
    
    
    1,016
    
    
    
    1,051
    
    
    
    877Impairment of Ecuadorian assets
    
    
    309
    
    
    
    63
    
    
    
    Loss (income) from sale of oil and gas areas and
participation in joint ventures
    
    
    27
    
    
    
    (41
    )
    
    
    65Income from assets exchange
    
    
    
    
    
    
    
    
    
    
    (251
    )Impairment of allocated purchased price related to CIESA
    
    
    
    
    
    
    
    
    
    
    202Impairment of assets
    
    
    64
    
    
    
    96
    
    
    
    Impairment of unproved oil and gas properties
    
    
    180
    
    
    
    17
    
    
    
    Debt restructuring
    
    
    
    
    
    
    17
    
    
    
    Income tax provision
    
    
    18
    
    
    
    82
    
    
    
    385Income tax paid
    
    
    (48
    )
    
    
    (27
    )
    
    
    (196
    )Accrued interest
    
    
    598
    
    
    
    878
    
    
    
    520Interest paid
    
    
    (488
    )
    
    
    (814
    )
    
    
    (526
    )Other
    
    
    (7
    )
    
    
    87
    
    
    
    111Changes
in assets and liabilities:Trade receivables
    
    
    (115
    )
    
    
    208
    
    
    
    (13
    )Other receivables
    
    
    411
    
    
    
    44
    
    
    
    59Inventories
    
    
    (12
    )
    
    
    (70
    )
    
    
    (1
    )Other assets
    
    
    73
    
    
    
    
    
    
    
    Accounts payable
    
    
    (66
    )
    
    
    (16
    )
    
    
    150Payroll and social security taxes
    
    
    17
    
    
    
    (34
    )
    
    
    15Taxes payable
    
    
    (9
    )
    
    
    75
    
    
    
    (167
    )Other liabilities
    
    
    61
    
    
    
    362
    
    
    
    3471,846
    
    
    
    1,169
    
    
    
    1,726Payments in advance
    
    
    (493
    )
    
    
    (459
    )
    
    
    Net cash provided by operations
    
    
    1,353
    
    
    
    710
    
    
    
    1,726Cash
provided by (used in ) investing activities:Acquisition of property, plant and equipment and interest in
companies and oil and gas areas
    
    
    (829
    )
    
    
    (674
    )
    
    
    (2,009
    )Net (increase) decrease in investments other than cash and cash equivalents
    
    
    (97
    )
    
    
    32
    
    
    
    (86
    )Contributions and advances to unconsolidated affiliates
    
    
    (12
    )
    
    
    (127
    )
    
    
    (56
    )Sales of investments
    
    
    20
    
    
    
    593
    
    
    
    227Other
    
    
    3
    
    
    
    (6
    )
    
    
    Net cash used in investing activities
    
    
    (915
    )
    
    
    (182
    )
    
    
    (1,924
    )Cash
provided by (used in) financing activites:Net (decrease) increase in short-term debt
    
    
    (196
    )
    
    
    (193
    )
    
    
    1,022Payments of long-term debt
    
    
    (646
    )
    
    
    (1,762
    )
    
    
    (1,290
    )Increase in long-term debt
    
    
    591
    
    
    
    130
    
    
    
    1,408Acquisition of own stock
    
    
    
    
    
    
    
    
    
    
    (21
    )Cash dividends paid
    
    
    
    
    
    
    (2
    )
    
    
    (223
    )Net cash used in financing activities
    
    
    (251
    )
    
    
    (1,827
    )
    
    
    896Devaluation
and inflation effect on cash
    
    
    (88
    )
    
    
    755
    
    
    
    Increase (decrease) in cash
    
    
    99
    
    
    
    (544
    )
    
    
    698Cash and cash equivalents at beginningCash and cash equivalents at beginning
    
    
    725
    
    
    
    1,334
    
    
    
    565Additions (deductions) of cash and cash equivalents at beginning from proportional interest in CIESA
    
    
    103
    
    
    
    (65
    )
    
    
    71Cash and cash equivalents at end
    
    
    927
    
    
    
    725
    
    
    
    1,334
 (a) Cash and cash equivalents include highly liquid, temporary cash investments with
original maturities of three months or less
when purchased. The accompanying notes are an integral part of these consolidated financial statements. F-13




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PETROBRAS ENERGÍA PARTICIPACIONES S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in millions of Argentine pesos  see Note 2.c, unless otherwise indicated) 1. Business of the Company and change of corporate name Petrobras Energía Participaciones S.A. (hereinafter Petrobras
Participaciones or The Company) is an integrated energy company, focused on
oil and gas exploration and production, refining, petrochemical activities,
generation, transmission and distribution of electricity and sale and
transmission of hydrocarboons. It has businesses in Argentina, Bolivia, Brazil,
Ecuador, Peru and Venezuela. Petrobras Energía Participaciones has a
significant share of the regional energetic market. The Companys Special and Regular Shareholders Meeting held on April 4,
2003, approved the change of corporate name from Perez Companc S.A. to
Petrobras Energía Participaciones S.A. This change in corporate name remained
subject to the Comisión Nacional de Defensa de la Competencia (CNDC, Argentine
anti-trust authorties) approving the transaction whereby Petrobras
Participacoes SL purchased stock representing a majority interest in the
Company. In addition, the Regular and Special Shareholders Meeting of Petrobras
Energía S.A. held on April 4, 2003, approved the change of corporate name from
Pecom Energia S.A. to Petrobras Energía S.A, also subject to the approval
mentioned above. The CNDC approved the transaction on May 13, 2003. Pursuant to this
resolution, Petrobras Energía undertook to divest of all of its equity interest
in Transener S.A., in accordance with Law No. 24,065 that provides the Electric
Power Regulatory Framework; such process is subject to supervision by the ENRE
and the approval of the Federal Department of Energy. There is no period
established for the divestiture. Effective with the CNDC approval, Petrobras Participaciones became a
majority-owned subsidiary of Petroleo Brasileiro S.A.-Petrobras. On July 4, 2003, the IGJ (regulatory agency of business associations)
granted its approval for and registered both changes of corporate name, which
were also approved by the CNV on June 9, 2003. 2. Basis of presentation The Petrobras Energía Participaciones S.A. consolidated financial
statements have been prepared in accordance with the regulations of the
Argentine Securities Commission (Comisión Nacional de Valores or CNV) and
except for the matters described in Note 3, with Accounting Principles
Generally Accepted in Buenos Aires City, Argentina (Argentine GAAP). Certain disclosures related to formal legal requirements for reporting in
Argentina have been omitted for purposes of these consolidated financial
statements, since they are not required for the United States Securities and
Exchange Commission (SEC) reporting purposes. The preparation of financial statements in conformity with Argentine GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. While it is believed that
such estimates are reasonable, actual results could differ from those
estimates. a) Basis of consolidation In accordance with the procedure set forth in Technical Resolutions No. 4
and 19 of the FACPCE (Argentine Federation of Professional Councils in Economic
Sciences), Petrobras Participaciones has consolidated line by line its
financial statements with the financial statements of the companies over which
Petrobras Participaciones exercises exclusive or joint control. Joint control
exists where all the shareholders, F-14




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##### Table of Contents



or only the shareholders owning a majority of votes, have resolved, on the
basis of written agreements, to share the power to define and establish a
companys operating and financial policies. In the consolidation of controlled companies, the amount of the investment
in such subsidiaries and the interest in their income (loss) and cash flows are
replaced by the aggregate assets, liabilities, income (loss) and cash flow of
such subsidiaries, reflecting separately all minority interests in the
subsidiaries. Related party receivables, payables and transactions within the
consolidated group are eliminated. The unrealized intercompany gains (losses)
from transactions within the consolidated group have been completely
eliminated. In the consolidation of companies over which the Company exercises joint
control, the amount of the investment in the company under joint control and
the interest in its income (loss) and cash flows are replaced by the Companys
proportional interest in the companys assets, liabilities, income (loss) and
cash flows. Related party receivables, payables and transactions within the
consolidated group and companies under joint control have been eliminated in
the consolidation pro rata to the shareholding of the controlling company. The data about the companies over which the Company exercises control,
joint control or significant influence are disclosed in Note 27.f). Companies under joint control includes the interests in Distrilec
Inversora S.A., Compañía de Inversiones de Energía S.A. and Compañía Inversora
en Transmisión Eléctrica S.A. (Citelec S.A). As of December 31, 2003, 2002
and 2001, the Company has not consolidated proportionally the interests in
Citelec S.A. taking into account the commitment to divest of such equity
interest as described in Note 1. In order to preserve the informations
comparability, the Company did not proportionally consolidate line by line, in
its comparative financial statements, the assets, liabilities, income (loss)
and cash flows of Citelec S.A. As of December 31, 2002, the Company did not
proportionally consolidate on a line-by-line basis the assets, liabilities,
income (loss) and cash flows of CIESA since, as of that date, such equity
interest was stated at zero value. b) Foreign Currency translation The Company applies the translation method established by Technical Resolution
no. 18 of the FACPCE for the translation of financial statements of foreign
subsidiaries, affiliates, branches and joint ventures. In the opinion of the Companys Management, the transactions carried out abroad
have been classified as not integrated to the Companys transactions in
Argentina. Such transactions are not an extension of the Companys
transactions due to, among others, the following reasons:  a)
    
    transactions with the Company are not a high proportion of the
entitys activities abroad;b)
    
    activities of foreign businesses are partially financed with funds
from their own transactions and with local loans;c)
    
    sales, workforce, materials and other costs of goods and services
related to transactions abroad are settled mainly in a currency other
than the currency of the investors financial statements; andd)
    
    Companys cash flows are independent from the day-to-day activities
of the foreign business and are not directly affected by the size or
frequency of the activities of foreign business. Upon applying the translation method, first the foreign operations are
remeasured into US dollars (functional currency for such operations), as
follows:  
    
    Assets and liabilities stated at current value are converted at the
closing exchange rates.  
    
    Assets and liabilities measured at historical values and the income
(loss) are converted at historical exchange rates. After the operations are remeasured into US dollars, they are translated
into Argentine pesos as follows:  
    
    Assets and liabilities are translated by using the closing exchange rate.  
    
    Income (loss) is translated at the historical exchange rates. The translation effect arising from the translation of the financial statements
is disclosed in the Transitory differences -foreign currency translation
account. F-15




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The above also applies to exchange differences arising from liabilities in
foreign currency that are designated as a hedge the net investment in the
foreign entity. c) Restatement in constant money The Company presents its consolidated financial statements in constant
money following the restatement method established by Technical Resolution No.
6 of the FACPCE and in accordance with CNV General Resolutions No. 415 and 441. Under such method, the consolidated financial statements integrally
recognize the effects of the changes in the purchasing power of Argentine peso
through August 31, 1995. As from September 1, 1995, under CNV General
Resolution No. 272, the Company interrupted the use of such method maintaining
the restatements made through such date. This method has been accepted by
professional accounting standards through December 31, 2001. On March 6, 2002, the CPCECABA (Professional Council in Economic Sciences
of the City of Buenos Aires) approved Resolution MD No. 3/2002 providing, among
other things, the reinstatement of the adjustment-for-inflation method for the
interim periods or years ended as from March 31, 2002, allowing for the
accounting measurements restated based on the change in the purchasing power of
the peso through the interruption of adjustments, such as those whose original
date is within the stability period, to be stated in pesos as of December 2001.
Through General Resolution No. 415 dated July 25, 2002, the CNV required that
the information related to the financial statements to be filed after the date
on which the regulation became effective be disclosed adjusted for inflation. The restatement in constant pesos method is applied to the accounting cost
values immediately preceding the capitalization of the exchange differences
mentioned in note 4.o), which represent an anticipation of the effects of
variances in the purchasing power of the Argentine peso, which will be
subsequently absorbed by the restatement in constant pesos of the assets
indicated in such note. On March 25, 2003, the Federal Executive issued Executive Order No. 664
establishing that the financial statements for years ending as from such date
be filed in nominal currency. Consequently, and under CNV Resolution No. 441,
the Company no longer applied inflation accounting as from March 1, 2003. This
method is not in accordance with professional accounting standards effective in
the city of Buenos Aires. The CPCECABA, through Resolution N° 287/03
discontinued the application of the restatement method as from October 1,
2003. Amounts, and the income (loss) for the years ended December 31, 2002 and
2001 presented for comparative purposes result from restating the amounts in
the financial statements as of such date following the guidelines indicated in
the paragraph above. d) Accounting for the transactions of oil and gas exploration and production
joint ventures and foreign branches The Company  ́s interests in oil and gas involve exploration and production
joint ventures and have been proportionally consolidated. Under this method,
the Company recognizes its proportionate interest in the joint ventures
assets, liabilities, revenues, costs and expenses on a line-by-line basis in
each account of its financial statements. Foreign branches have been fully
consolidated. 3. New accounting standards These financial statements have been prepared in accordance with
professional Argentine GAAP and the applicable CNV regulations, except for: a) valuation of deferred tax at nominal value without applying any
discounted values, as required by CNV General Resolution No. 434. b) the non recognition of the restatement in constant money provided for
in FACPCE Technical Resolution No. 6, as described in note 2.c). F-16




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##### Table of Contents



As from January 1, 2003, FACPCE Technical Resolutions Nos. 16, 17, 18, 19,
and 20, approved as amended by the CPCECABA and adopted by the CNV through its
General Resolution No. 434. These new technical resolutions are a consequence
of the process whereby Argentine professional accounting standards are being
made consistent with the international accounting standards issued by the
International Accounting Standards Committee (IASC); in addition, they provide
clarification for certain issues which had not been provided for in past
regulations. The main changes included in the technical resolutions, that have resulted in
significant effects on the Companys financial statements, are: (i) guidelines
regarding the recognition, measurement, and disclosure of derivatives and
hedging transactions; (ii) amendment of the method to translate the financial
statements of foreign subsidiaries stated in foreign currency; (iii) the
mandatory requirement to apply the deferred tax method to recognize income tax;
(iv) measurement of asset and liability amounts on discounted bases; (v)
changes in the frequency and method to compare assets with the recoverable
values thereof; (vi) incorporation of guidelines to assess whether certain
transactions including financial instruments, irrevocable capital contributions
and preferred stock, among others, should be classified as liabilities or
shareholders equity; (vii) incorporation of new disclosure requirements
including proportional consolidation of companies under joint control, change
in the disclosure of direct sales revenues, information by segment, earnings
per share, and the comparative information to be disclosed.; viii)
disbursements for maintenance costs, which may be allocated to the income for
the period when they are made or capitalized, as appropriate. The Company amended the method used to recognize future estimated
abandonment costs in oil & gas areas. Consistently with Statement of Financial
Accounting Standards (SFAS) N° 143 guidelines, such costs discounted at a
rate estimated upon initial measurement are capitalized together with the
assets from which they originate and are depreciated by the production units
method. In addition, a liability is recognized on such account at the estimated
value of the amounts payable discounted at a rate estimated in its initial
measurement. Adopting new accounting standards has resulted in income in the amount of
74, (378) and (115) for the years ended December 31, 2003, 2002 and 2001,
respectively, and a 361 and 22 reduction to retained earnings at the beginning
of the fiscal years ended on December 31, 2002 and 2001, respectively, as
disclosed below: Gains (losses)Retainined earnings as ofIncome for
    
    December 31,2003
    
    2002
    
    2001
    
    2002
    
    2001Derivatives financial instruments (1)
    
    
    (133
    )
    
    
    (334
    )
    
    
    8
    
    
    
    (417
    )
    
    
    (83
    )Foreign currency translation (2)
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Future abandonment costs (3)
    
    
    
    
    
    
    15
    
    
    
    (1
    )
    
    
    45
    
    
    
    30Labor costs
    
    
    18
    
    
    
    19
    
    
    
    (7
    )
    
    
    (24
    )
    
    
    (43
    )Effects on affiliates
    
    
    
    
    
    
    18
    
    
    
    1
    
    
    
    (8
    )
    
    
    (26
    )Maintenance expenses (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    16Discounted effect of nominal values
of assets and liabilities (5)
    
    
    13
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )
    
    
    Deferred tax (6)
    
    
    (27
    )
    
    
    (92
    )
    
    
    (116
    )
    
    
    31
    
    
    
    123(74
    )
    
    
    (378
    )
    
    
    (115
    )
    
    
    (361
    )
    
    
    17
 (1) Previously, the fair value of such instruments was not booked but the
related income (loss) was recorded in income when losses and/or gains occurred
as a result of the hedged position. Premiums paid were capitalized and
amortized over the term of the option. (2) Previously, gains (losses) on foreign currency translation were charged to
income. (3) Previously, these costs were accrued at nominal value and charged as a
higher depreciation using the production units method. (4) Previously, maintenance costs were accrued. (5) Calculated as provided for in CPCECABA Resolution MD No. 32/2002. F-17




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(6) Previously, the Company estimated income tax applying the effective rate on
taxable income for the period regardless of any temporary differences between
book and taxable income. As established in the new accounting standards, there are certain
transition regulations enabling to apply prospectively the valuation and
disclosure method incorporated thereto. The transition standards applied by
the Company, affecting the comparability of the financial statements, are: a) The new methods for translating the financial statements of foreign
subsidiaries stated in foreign currency were not applied retroactively. b) The beginning balances resulting from the recognition, measurement, and
booking of derivative financial instruments qualified as effective hedge were
not corrected. 4. Valuation methods The main valuation methods used in the preparation of the consolidated
financial statements have been as follows: a) Accounts denominated in foreign currency: At the prevailing exchange rates at the end of each period, including
accrued interest, if applicable. The summary of accounts denominated in foreign
currency is disclosed in Note 27.d). b) Inventories: Crude oil stock: at reproduction cost. Materials: of high-turnover, at replacement cost; low-turnover, at the
last purchase price, restated in constant money, according to Note 2.c). Work in progress and finished products relating to refining, petrochemical
and electricity activities: at replacement or reproduction cost, as applicable,
proportional in the case of goods in process according to the degree of process
of the related good. Stock of liquid petroleum gases (NGL) in the gas pipeline system in excess
of the line pack and held by third parties and stock of NGL obtained from the
natural gas processing: at replacement or reproduction cost, as appropriate. The carrying amount of these assets, does not exceed their recoverable
value. c) Investments: Government securities:  Available for sale: at market value at the end of each period, less the
estimated selling expenses. Any gain or loss due to market fluctuations is
reflected currently in income in the Financial income (expense) and holding
gains (losses) account.  Held to maturity: at original value increased based on its internal rate
of return at acquisition. Interest gain is credited to income on accrual basis. Under the government-securities voluntary conversion system provided by
Federal Executive Decree No. 1387/01, the Company volunteered to swap
provincial and federal government securities for secured loans for a carrying
value of 6 and a market value of 3. Executive Decree 1579/02 established the
issuance of secured bonds, with final maturity date in 2018, monthly payable as
from 2005. The principal balance shall be adjusted by the Benchmark
Stabilization Coefficient (CER), accruing interest at an annual 2% fixed rate.
Foreign currency liabilities of the federal, provincial and municipal
public sector effective as of February 3, 2002, whose applicable law is only
Argentine law, shall be translated into pesos at the exchange rate of 1.40
pesos per US dollar and adjusted by CER, plus an annual 2% interest rate. F-18




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In addition, as of December 31, 2003, the Company carries other securities
with a market of 1, while their book value amounted to 2. Certificates of deposit and loans to affiliates over which significance
influence is exercised: at face value plus accrued interest. Unlisted Government securities: at the original value increased based on
the internal rate of return at acquisition limited by the recoverable value. Tax credit certificates: at the estimated value based on the application
of the certificates to the payment of federal taxes. Investments in mutual funds: at market prices at the end of each period. Shares  Participation in affiliates, in which the Company exercises
significant influence: By the equity method, following the procedure established by Technical
Resolution No. 5 of the FACPCE. For the determination of the Companys equity
in affiliates over which significance influence is exercised, the Company has
used financial statements from affiliates, or the best available financial
information. For the determination of the Companys equity in affiliates, consideration
has been given to the adjustments to adapt the valuation methods of some
affiliates to those of the Company, irrevocable contributions made by others,
elimination of reciprocal investments, intercompany profits and losses, the
difference between acquisition cost and book value of affiliates at the time of
the acquisition and the holding of preferred stock and dividends by the
affiliates. Cash dividends from affiliates approved by shareholders meetings
held prior to the date of issuance of these financial statements, which are
placed at the shareholders disposal within a term not exceeding one year are
deducted from the value of the investment and included in current investments. Other shares  interests in affiliates in which the Company does not
exercise significant influence: at acquisition cost restated in constant money
as shown in Note 2.c) to the consolidated financial statements. d) Trade receivables and accounts payable: Trade receivables and accounts payable have been valued at the spot cash
estimated at the time of the transaction, plus accrued financial components. Trade receivables include billed uncollected services and services
rendered but not yet billed as of each period. The services rendered but not
yet billed were estimated on the basis of series of actual historical data
billings subsequent to each period. The total amount of receivables is net of
an allowance for doubtful account, which is based on estimates of collection
carried out by the company. e) Financial receivables and payables: Financial receivables and payables have been valued according to the money
paid and collected, respectively, net of transaction costs, plus accrued
financial gains (losses) on the basis of the explicit or estimated rate at such
time. f) Other receivables and payables: Other receivables and payables have been valued on the basis of the best
possible estimate of the amount to be collected and paid, respectively,
discounted in the relevant cases, using the estimated rate at the time of
initial measurement, except for the deferred tax assets and liabilities. As
established by CNV regulations, deferred tax assets and liabilities have not
been discounted. This criterion does not comply with accounting standards
effective in the City of Buenos Aires, which required such balances to be
discounted. F-19




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g) Property, plant & equipment: Property, plant & equipment, except as indicated below, have been valued
at acquisition cost restated in constant money less related accumulated
depreciation. Property, plant & equipment related to foreign transactions were
converted into US dollars since that is the functional currency for such
transactions and they have been translated into Argentine pesos at the exchange
rate effective as of closing in accordance with the method for converting
foreign transactions described in note 2.b). The value of CIESAs PP&E transferred from the privatization of Gas del
Estado was determined based on the price paid for 70% of the capital stock of
TGS. Such price was the basic to determine the total common stock, which when
added to the initial debt assumed under the transfer contract, resulted in the
total value for PP&E. Such value, translated at the effective exchange rate as
of the date of the transfer contract, was restated in constant pesos. Petrobras Participaciones uses the successful efforts method of accounting
for its oil and gas exploration and production activities. Exploration costs, excluding exploratory well costs, are charged to
expenses for the period in which they are incurred. Drilling costs of
exploratory wells, including stratigraphic test wells, are capitalized until it
is assessed if proved reserves justifying the commercial development thereof
are discovered. If such reserves are not found, such drilling cost are charged
to expense. Occasionally, an exploratory well may determine the existence of
oil and gas reserves but they cannot be classified as proved when drilling is
complete. In these cases, one of the following would be applicable: (I)
whether the well found reserves in an area requiring a major capital
expenditures before production may start, and classification of such reserves
as proved is dependent upon whether additional reserves are found justifying
the abovementioned investment. In this case, the cost of the exploratory well
continues capitalized as long as it meets the following two conditions: (a)
reserves found are sufficient to justify completion of the well as producer if
the capital investment is made, and (b) the drilling of additional exploratory
wells is in progress or firmly planned for the near future. Otherwise,
drilling costs are charged to expense. (II) in all other cases, drilling costs
of exploratory wells do not remain capitalized for more than one year after the
completion of the drilling. If after one year found reserves may not be
classified as proved, exploratory well costs are charged to expense. The Company depreciates productive wells, as well as machinery, furniture
and fixtures and camps in the production areas according to the units of
production method, by applying the ratio of oil and gas produced to the proved
developed oil and gas reserves. The acquisition cost of property with proved
reserves is depreciated by applying the ratio of oil and gas produced to
estimated proved oil and gas reserves. Mining property related to unproved
reserves has been valued at cost and its recoverability is assessed from time
to time on the base of geological and engineering estimates of possible and
probable reserves that are expected to be proved over the life of each
concession. Estimated future restoration and abandonment costs discounted at an
estimated rate at the time of their initial measurement, are included in the
value at which the assets that gave rise to such costs are capitalized, and are
depreciated using the units of production method. Additionally, a liability is
recognized for such costs at the estimated value of the amount payable,
discounted at an estimated rate at the time of their initial measurement. The Company estimates its reserves at least once a year. Total oil and gas
reserves as of December 31, 2003, 2002, and 2001, were audited by Gaffney,
Cline & Associates Inc., independent international technical and management
advisors. Petrobras Participacioness remaining property, plant & equipment are
depreciated by the straight-line method based on their existing exploitation
concession terms and their estimated useful lives as the case may be. The cost of works in progress, whose construction will extend over time,
includes the computation of financial costs accrued on loans granted by third
parties, if applicable, and the costs related to putting the facilities into
operation that are considered net of any income obtained from the sale of
commercially valuable production during such process. The carrying value of property, plant & equipment, taken as hole, does not
exceed its recoverable value. F-20




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h) Environmental costs: The costs incurred to limit, neutralize or prevent environmental pollution
are only capitalized if at least one of the following conditions is met: (a)
such costs relate to improvements in the plants (or some other production
assets) capacity and safety; (b) environmental pollution is prevented or
limited; or (c) the costs are incurred to prepare the assets for sale and the
book values of such assets together with the additional cost do not exceed
their respective recoverable values. Liabilities related to future remediation costs are recorded when
environmental assessments are probable, and the costs can be reasonably
estimated. The timing and magnitude of these accruals are generally based on
the Company  ́s commitment to a formal plan of action, such as an approved
remediation plan or the sale or disposal of an asset. The accrual is based on
the probability that a future remediation commitment will be required. The Company records the related liabilities based on its best estimate of
future costs, using currently available technology and applying current
environmental regulations as well as the Company  ́s own internal environmental
policies. i) Income tax, tax on minimum presumed income, royalties and withholdings on
export of hydrocarbons: The Company and its affiliates estimate income tax on individual basis
under the deferred tax method. The deferred tax balance as of the end of each period has been determined
on the basis of the temporary differences generated in certain items that have
a different accounting and tax treatment. To book such differences, the Company uses the liability method, which
established the determination of net deferred tax assets and liabilities on the
basis of temporary differences determined between the accounting measurement of
assets and liabilities and the related tax measurement. Temporary differences
determine the balance of tax assets and liabilities where its future reversal
decreases or increases the taxes determined. Where there are unused Tax loss
carryforwards that may be offset against future taxable income, the Company
will recognize a deferred tax asset, only to the extent that recovery of such
asset is probable. Deferred tax assets and liabilities have been valued at their nominal
value, as established by CNVs General Resolution No. 434. The professional
accounting standards effective in the City of Buenos Aires require that such
nominal value be discounted at a current rate estimated as of each period-end. The tax on minimum presumed income is supplementary to income tax, since
while the latter is levied on the years taxable income, the tax on minimum
presumed income is a minimum tax levied on the potential income of certain
productive assets at the rate of 1%, so that the Companys final liability will
be equal to the higher of both taxes. However, should the tax on minimum
presumed income exceed the tax based on income in any given year, such excess
may be applied to reduce any excess of income tax over the tax on minimum
presumed income in any of the ten succeeding years. For the operations in Argentina, Venezuela, Brazil, Peru, Ecuador and
Bolivia the income tax accrual was calculated at the tax rates of 35%, 34%,
34%, 30%, 25% and 25%, respectively. Additionally, payment of Bolivian-source
income to beneficiaries outside Bolivia is subject to a 12.5% withholding
income tax and, a 34% income tax is levied on the dividends paid by Venezuelan
companies, in event of income in excess of taxable income. Law No. 25,239 and its Administrative Order No. 1037/2000 amended income
tax law to establish, among other things, that shareholders residing in
Argentina of companies organized or operating in countries with low or
no-taxation with non-operating income exceeding 50% of net income, are to book
accrued passive income such as interest, dividends, royalties, rents or other
similar passive income to the fiscal year, although the income was not remitted
or credited to any account. The Law and Administrative Order also establish
that such companies shall not generate Argentine tax credits for the tax paid
abroad. Royalties are paid in Argentina, Peru and Bolivia for the production of
crude oil and for effectively used volumes of natural gas. Those royalties are
12%, 24.5% and from 40% to 60%, respectively, of the wellhead F-21




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estimated price for oil and gas. The wellhead price represents the final
sales price less treatment, storage and transportation costs. Royalties are
charged to production costs in the Oil and gas royalties account. In Venezuela,
for the Acema, Mata and La Concepción (Third Round) areas, 30% royalties are
paid with respect to the excess production, calculated based on the crude
wellhead estimated price. Under contractual terms, royalties of the Third Round
areas are deducted from the sales price. In Ecuador, the exploitation agreement
for Block 18 provides for a schedule of differential royalties, that in the
case of Pata field are applied over a production volume scale and for Palo Azul
field, according to oil prices. As regards the Pichi Picún Leufú Hydroelectric Complex, as provided in the
concession agreement, the Company pays hydroelectric royalties of 1% increasing
at a rate of 1% per annum up to the maximum percentage of 12% of the amount
resulting from applying the rate for the bulk sale to the power sold under the
terms of Section No. 43 of Law No. 15,336, as amended by Law No. 23,164. In
addition, the Company is subject to a license fee payable monthly to the
Federal Government for the use of the power source equivalent to the 0.5% of
the same amount base for hydroelectric royalty calculation. The Public Emergency and Exchange System Reform Law No. 25,561 establishes
the creation of a system of withholdings on exports of hydrocarbons for five
years, since March 1, 2002. The rate of those withholdings is 5% for certain
refined products and 20% for the crude oil. j) Liabilities for labor costs and commitments that generate losses: Liabilities for labor costs are accrued in the periods in which the
employees provide the services that trigger the consideration. For purposes of determining the estimated cost of benefit pension plans
granted to employees, the Company has used actuarial calculation methods,
making estimates with respect to the applicable demographic and financial
variables. k) Contingencies: Certain conditions may exist as of the date of financial statements which
may result in a loss to the Company, but which will only be resolved when one
or more future events occur or fail to occur. Such contingent liabilities are
assessed by the Companys management based on the opinion of Petrobras
Participacioness legal counsel and the available evidence. Such contingencies include outstanding lawsuits or claims for possible
damages to third parties in the ordinary course of the Company  ́s business, as
well as third party claims arising from disputes concerning the interpretation
of legislation. If the assessment of a contingency indicates that it is probable that a
loss has been incurred and the amount can be estimated, a liability is accrued
in the Reserves account. If the assessment indicates that a potential loss
contingency is not probable, but is reasonably possible, or is probable but it
cannot be estimated, then the nature of the contingent liability, together with
an estimate of the possibility of occurrence, is disclosed in a note to the
financial statements. Loss contingencies considered remote are not disclosed
unless they involve guarantees, in which case the nature of the guarantee is
disclosed. However, in some instances in which disclosure is not otherwise required,
the Company may disclose contingent liabilities of an unusual nature which, in
the judgment of management, may be of interest to the users of the financial
statements. Significant litigations in which the Company is involved and the movements
of reserves are disclosed in Note 14. l) Earnings (losses) per share: Earnings (losses) per share for the years ended December 31, 2003, 2002 and
2001, were calculated on the basis of the number of outstanding shares in each
period. Since the Company does not have preferred assets or convertible debt
securities, the basic earnings (losses) per share is equal to the diluted
earnings (losses) per share. F-22




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##### Table of Contents



m) Shareholders  equity accounts: They were restated into constant money, according to Note 2.c), as of
year-end, except for Capital stock that represents subscribed and paid-in
capital. The adjustment arising from the restatement into constant money is
disclosed under Adjustment to capital stock. The account Treasury stock
relates to the purchases of shares of Petrobras Energía Participaciones S.A. by
Petrobras Energía, and are deducted from the shareholders equity at
acquisition cost, disclosed in a separate line in the statement of changes in
shareholders equity. n) Revenue recognition: Revenues from sales are recognized when the products are delivered or the
services are provided, the price is fixed or determinable, collection is
probable and the risk of loss has been transferred to customers. Revenues from sales resulting from the firm natural gas transportation are
recognized by the accrued reserve of the transportation capacity hired,
regardless of the volumes carried. With respect to crude oil prices, in January 2003, at the federal
executive branchs request, hydrocarbon producers and refineries executed a
temporary agreement in connection with crude oil, gasoline and diesel oil price
stability in the domestic market. After successive renewals, the term of this
agreement was extended until May 2004. This agreement provides for crude oil
deliveries to be invoiced and paid based on the West Texas Intermediate Crude
reference price, or WTI, of U.S.$28.5 per barrel instead of the actual relevant
WTI. Any positive or negative difference between the actual relevant WTI, not
exceeding U.S.$36 per barrel, and the reference price would be paid out of any
balance generated in periods where the actual WTI is below U.S.$28.5 per
barrel. Refineries, in turn, will reflect the crude oil reference price in
domestic market prices. In May 2004, hydrocarbon producers and refineries
executed a new agreement effective until June 2004, which provided that, while
the WTI per barrel ranges between U.S.$32 and U.S.$42, crude oil deliveries
will be invoiced and paid considering a reference price equal to (i) 86% of the
WTI as long as this price does not exceed U.S.$ 36 per barrel, or (ii) 80% of
the WTI, in cases where this price exceeds U.S.$36 per barrel. We did not
recognize any revenue over U$S28.5 for the WTI o) Statement of income accounts: Restated into constant money through the end of the period, according to
Note 2.c), considering the following: - Depreciation and consumption expenses related to non monetary assets were
charged to income (losses) taking into account the restated costs of such
assets. - Financial income (expense) and holding gains (losses) are broken down as
generated by assets and generated by liabilities. Financial (expense) income,
net discloses financial income and expenses, exchange differences and income
(loss) from changes in the quotation of government securities and shares, at
their restated nominal value, according to Note 2.c). Additionally, it also
discloses the effects of inflation of monetary assets and liabilities in the
balance sheet. For the years ended December 31, 2002, and 2001, Financial income
(expense) and holding gains (losses) includes net income from conversion and
translation on non monetary assets of foreign operation, in real terms. CNV General Resolution No. 398 allows, as an exceptional treatment, the
one provided for in Resolution M.D. No. 3/2002 of the CPCECABA, whereby the
exchange differences originated as from January 6, 2002, from liabilities in
foreign currency existing as of such date directly related to the acquisition,
construction, or production of property, plant & equipment, intangibles, and
long-term investments in other companies organized in the country should be
allocated at the cost values of such assets with a number of conditions
established in such professional standard. Direct financing shall mean that
granted by the supplier of the goods, billed in foreign currency, or that
obtained from financial institutions for identical purposes. In the cases in
which there is an indirect relation between the financing and the acquisition,
production, or construction of the assets, such exchange differences may also
be allocated, under certain conditions, to the cost values of such assets. The
Company has adopted the method of capitalizing exclusively the foreign exchange
differences resulting from direct financing. F-23




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##### Table of Contents



As mentioned above, as of December 31, 2003, and 2002, the Company has
capitalized exchange differences booked with a residual value of 46 and 48,
respectively. 5. Accounting for derivative financial instruments Hedging and other derivatives: The Company uses various derivative financial instruments such as options,
swaps and others, mainly to mitigate the impact of changes in crude oil prices,
interest rates and future exchange rates. Such derivative instruments are designated as hedging specific exposures,
highly correlated to the risk exposure in question and highly effective in
offsetting changes in cash flows inherent to the covered risk. The use of derivative financial instruments exposes the Company to credit
risk. In addition, the Company uses strict policies for the approval of lines
of credit, applies several procedures to evaluate these risks and seeks to
reduce this credit exposure by means of the use of certain tools, such as
anticipated collections or payment agreements for such operations and the
offsetting of collections and payments. Derivative financial instruments are measured at their fair value,
determined as the amount of cash to be collected or paid to settle the
instrument as of the date of measurement. a) Instruments that qualify for hedge accounting Changes in the accounting measurement of derivative financial instruments
designated as cash flow hedge, which have been determined as effective hedge,
are recognized under Transitory differences-Measurement of derivative
financial instruments designated as effective hedge, and any other change is
recognized under financial income (expense) for the year. Changes in the
accounting measurement of derivate financial instruments recognized under
Transitory differences-Measurement of derivative financial instruments
determined as effective hedge are subsequently reclassified to income (loss)
for the year or years in which the hedged item affects such results. A hedge is considered to be effective when at its inception, as well as
during its life, its changes offset from eighty to one hundred and twenty five
percent the opposite changes of the hedged item. In the respect, the Company
excludes the specific component attributable to the time-value of an option
when measuring the effectiveness of instruments that qualify for hedge
accounting. Hedge accounting must cease for the future upon occurrence of any of the
following events: (a) the hedge instrument has matured or has been settled; (b)
the hedge transaction is no longer effective; (c) the projected transaction
does not have a high likelihood of occurrence. Should that be the case, the
income (loss) arising from the hedge instrument that would have been allocated
to Transitory differences-Measurement of derivative financial instruments
determined as effective hedge should remain there until the committed or
projected transactions occurs in the case of (a) and (b), and are charged to
income in the case of (c). Pursuant to the transitional standards of FACPCE Technical Resolution No.
20, the Company applied the standard of booking derivative positions at their
market value on a prospective basis. As indicated above, as of December 31,
2002 and 2001, the gains (losses) on hedge transactions related to the crude
oil price, without distinguishing between hedge and non-hedge transactions,
were deferred until the related anticipated transaction was recognized, when
they were booked as an integral part of hedged sales. Hedge of produced crude oil price These instruments use West Texas Intermediate (WTI) as reference price,
which is used mainly to determine the sale price in the market. During 2003, the Company maintained hedge transactions through flexible
option contracts, with a total covered volume of 8.3 million barrels. In
addition to the referred hedge, during 2002, the Company settled positions in
the aggregate amount of 42,500 bbls/day for 2003. This volume was realized at
market value with a discount of USD 1.11/bbl. F-24




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For the years ended December 31, 2003, 2002, and 2001, the accrued
portions of hedge instruments represented a lower sale of 81, 373 and 341,
respectively. As of year-end, the Company did not have positions in derivatives of the
crude oil price related to the future production that qualify for hedge
accounting purposes. Hedge of interest rates As of December 31, 2003, the Company has an agreement for the purpose of
hedging class C notes exposed to fluctuations with the LIBOR, fixing the rate
at 7.93% per annual. Such contract term expires in July 2005, payable in quarterly installments
as from 2004. The market value for the year amounts to 23. During the period, the changes in Transitory differences-Measurement of
derivative financial instruments determined signated as effective hedge was: 2003Price of
    
    InterestOil
    
    Rate
    
    TotalBalance at begining at yearCumulative effect of accounting change
    
    
    67
    
    
    
    42
    
    
    
    109Changes of fair value
    
    
    15
    
    
    
    
    
    
    
    15Reclasification to net income (loss)
    
    
    (81
    )
    
    
    (24
    )
    
    
    (105
    )Ineffectiveness
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Balances at end of year
    
    
    
    
    
    
    18
    
    
    
    18
 b) Instruments that do not qualify for hedge accounting Changes in the accounting measurement of derivative financial instruments
that do not qualify for hedge accounting are recognized in the statement of
income under Financial income (expense) and holding gains (losses). The
difference between the current value of such instruments and the previous value
booked by the Company in the year ended December 31, 2002, was charged to
unappropriated retained earnings recognizing a loss of 426. For the year ended
December 31, 2003, losses of derivative financial instruments that do not
qualify for hedge accounting amount to 294. The main conditions and terms by type of instrument as of December 31,
2003 are as follows: Expected maturity2004
    
    2005
    
    TotalSales price exposureCrude oil price swap (1)Contract volumes (million barrels)
    
    
    4.10
    
    
    
    
    
    
    
    4.10Average settlement prices (US$  per barrels)
    
    
    18.64
    
    
    
    
    
    
    
    Fair value before advanced payments
    
    
    
    
    
    
    
    
    
    
    (152.00
    )Swap options (2)Contract volumes (million barrels)
    
    
    6.90
    
    
    
    7.30
    
    
    
    14.20Average settlement prices (US$  per barrels)
    
    
    19.00
    
    
    
    19.00
    
    
    
    Fair value before advanced payments
    
    
    
    
    
    
    
    
    
    
    (397
    )
 1) Options on swaps exercised by the other party. 2) The transaction included herein are sold swaptions. F-25




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6. Oil and gas areas and participation in joint ventures As of December 31, 2003, Petrobras Participaciones and its subsidiaries
were part of the oil and gas consortiums, joint-ventures and areas indicated in
Note 27.g). As of that date, the aggregate joint ventures and consortia assets,
liabilities and results in which the Company is a party, included in each
account of the balance sheet and the statement of income, respectively,
utilizing the proportionate consolidation method are disclosed in Note 27.h). The production areas in Argentina, Ecuador and Peru indicated in Note
27.g) are operated pursuant to concession production agreements with free crude
oil availability. Those related to Venezuela are exploitation service
agreements, in which Petróleos de Venezuela S.A. (PDVSA) owns all the oil and
gas produced and is responsible for the payment of all royalties and taxes
related to the production and will receive, upon expiration of the agreement
term, the exclusive ownership of all operating facilities, property and
equipment used by the joint ventures to perform the activities under the
agreement. In Bolivia it is a shared-risk contract signed with Yacimientos
Petrolíferos Fiscales Bolivianos (YPFB) with free production availability. The Company is jointly and severally liable with the other joint venturers
for meeting the contractual obligations under these arrangements. As regards the Oritupano-Leona area, in Venezuela, the joint venture
awarded the area receives a variable operation fee based on production volumes,
which amounts to US$ 6.14 per barrel as of December 31, 2003, plus a capital
fee for reimbursement of certain exploration and development investments. Under
the terms of the service agreement executed with PDVSA, the total amount to be
paid may not exceed approximately US$ 28.72 per barrel, variable according to a
basket of oil market prices. In relation to the Mata, Acema and La Concepción fields, also in
Venezuela, the joint ventures awarded the areas are paid a fee for the
operation services rendered, which covers the investments and production costs
plus a gross profit. The fee has a fixed component related to contractual
baseline production and a variable component related to the incremental
production, that covers investments and production costs plus a gross profit up
to a maximum tied to a basket of international oil prices. Divestments of equity in oil and gas areas In August 2003, Petrobras Energía sold to Central International
Corporation, Argentine Branch, the 85% interest over the rights and obligations
on the concession of the Catriel Oeste area. Considering the transfer price
agreed, of US$ 7 million, Petrobras Energía recognized a loss of 28 presented
under Other expenses, net. In June 2003, Petrobras Energía sold to Geodyne Energy Inc., Argentine
branch, the 50% equity interest over the rights and obligations pertaining to
the Faro Vírgenes concession area, recognizing a loss of 11, disclosed under
Other expenses, net. This transaction shall be settled over a ten-year
period, in quarterly installments, whose value in US dollars shall be
determined as 8.8% of the total production of gas from the Faro Vírgenes area
for each quarter. Petrobras Energía has the option to receive such
consideration directly in gas. Such future revenue stream is recognized in
income for the period as natural is produced. In October 2002, Petrobras Energía signed an association agreement with
Teikoku Oil Co., Ltd., whereby it transferred 50% of its rights and obligations
to exploit gas in exploratory areas in San Carlos and Tinaco, located in th
State of Cojedes, Venezuela. The participation assignment agreement provides
the initial cash payment of US$ 1 million and a subsequent disbursement of US$
2 million, which shall finance the plan of exploratory investments of the
Tinaco area, as regards geological studies, 2D seismic and evaluations and
interpretation thereof. Also if the development of those areas is agreed,
Petrobras Energía will receive an additional payment of US$ 3 million. Considering the recoverable value as of December 31, 2002, Petrobras
Energía recognized a loss of 37, disclosed under Other expenses, net. In October 2001 the Company sold the operating rights over the Pampa del
Castillo-La Guitarra field and the 13.79% shareholding in Terminales Marítimas
Patagónicas S.A. For such the net realizable value which was fixed in 225 and
represented a loss of 65. F-26




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Assets exchange In February 2001, the Company concluded an asset exchange, which had
economic effects as from January 1, 2001. Under the exchange terms: (i) the
Company incorporated interest in the Santa Cruz I (30%) and Santa Cruz II
(62.2%) joint ventures; (ii) in contrast, the Company conveyed its 50% interest
in the Manantiales Behr and Restinga Alí areas, together with the 40.5% holding
in Andina Corporation, holder of 50% of Empresa Petrolera Andina S.A.
(Bolivia). Such transaction was approved by the Federal Anti-Trust Board in May
2001, and generated an income of 251 in the year ended December 31, 2001. Investment commitments Petrobras Energía operates oil and gas areas under several contractual
arrangements that provide for minimum investment commitments for exploration
and development of oil and gas fields. Total commitments as of December 31,
2003, are approximately US$ 7 million through 2005. 7. Credit risk Petrobras Participaciones provides credit in the normal course of business
to refiners, petrochemical companies, marketers of petroleum products, crude
oil exporting companies, electric power generation companies, retail customers,
natural gas distributors, electric power large users and power distribution
companies, among others. As a result of the business of Petrobras Participaciones and sale
locations, the portfolio of receivables is well diversified, and such
diversification makes the credit risk moderate. Thus, Petrobras Participaciones
constantly performs credit evaluations of the financial capacity of its
clients, which minimizes the potential risk of bad debt losses. Sales for the year ended December 31, 2003, were made mainly to Petróleos de
Venezuela S.A., Petroperú Petróleos del Perú S.A., Repsol  YPF Trading y
Transporte S.A. and Glencone AG and represented about 11%, 7%, 5% and 4%,
respectively, of sales for such period, before computing gain (loss) generated
by derivative financial instruments and before deducting export duties. Sales for the year ended December 31, 2002, were made mainly to Petróleos de
Venezuela S.A., Petroperú Petróleos del Perú S.A., Repsol  YPF Trading y
Transporte S.A. and Petrobras and represented about 16%, 8%, 7% and 6%,
respectively, of sales for such period, before computing gain (loss) generated
by derivative financial instruments and before deducting export duties. Sales for the year ended December 31, 2001, were made mainly to Petróleos de
Venezuela S.A., Repsol  YPF Trading y Transporte S.A., Petroperú Petróleos del
Perú S.A., Petrobras and EG3 S.A., and represented about 13%, 6%, 6%, 4% and
3%, respectively, of sales for such period, before computing gain (loss)
generated by derivative financial instruments and before deducting export
duties. 8. Inventories 2003
    
    2002Current
    
    Noncurrent
    
    Current
    
    NoncurrentCrude oil stock
    
    
    41
    
    
    
    
    
    
    
    32
    
    
    
    Materials
    
    
    125
    
    
    
    63
    
    
    
    166
    
    
    
    39Work in progress and finished products  refining and petrochemical
    
    
    122
    
    
    
    
    
    
    
    149
    
    
    
    Prepayments to vendors
    
    
    33
    
    
    
    
    
    
    
    9
    
    
    
    Other
    
    
    2
    
    
    
    
    
    
    
    3
    
    
    
    Reserve for materials  ́ obsolescence (Note 14.f)
    
    
    (4
    )
    
    
    (2
    )
    
    
    (3
    )
    
    
    319
    
    
    
    61
    
    
    
    356
    
    
    
    39
 F-27




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9. Investments, equity in earnings of affiliates and dividends collected from
affiliates The breakdown of current and noncurrent investments, the equity in
earnings of affiliates and dividends collected from affiliates as of December
31, 2003 and 2002, and for the years ended December 31, 2003, 2002 and 2001,
are as follows: a) Investments 2003
    
    2002Name and issuer
    
    Cost
    
    Book value
    
    Book valueCurrent:Government securities
    
    
    41
    
    
    
    23
    
    
    
    59Certificates of tax credits
    
    
    5
    
    
    
    5
    
    
    
    4Certificates of deposit
    
    
    146
    
    
    
    146
    
    
    
    83Mutual funds
    
    
    626
    
    
    
    626
    
    
    
    492Loans to unconsolidated affiliates (Note 18)
    
    
    
    
    
    
    
    
    
    
    19Other
    
    
    2
    
    
    
    2
    
    
    
    7820
    
    
    
    802
    
    
    
    664Noncurrent:Government securities
    
    
    2
    
    
    
    2
    
    
    
    26Advances to joint ventures
    
    
    157
    
    
    
    157
    
    
    
    245Loans to unconsolidated affiliates (Note 18)
    
    
    127
    
    
    
    127
    
    
    
    Equity in affiliates (Note 27 b.)
    
    
    1,007
    
    
    
    996
    
    
    
    832Other
    
    
    
    
    
    
    2
    
    
    
    1,293
    
    
    
    1,284
    
    
    
    1,103
 F-28




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b) Equity in earnings of affiliates 2003
    
    2002
    
    2001Cerro Vanguardia S.A.
    
    
    
    
    
    
    59
    
    
    
    16Cia. de Inversiones de Energía S.A.
    
    
    (33
    )
    
    
    (398
    )
    
    
    Citelec S.A.
    
    
    87
    
    
    
    (241
    )
    
    
    19Empresa Boliviana de Refinación S.A.
    
    
    (5
    )
    
    
    12
    
    
    
    8Enron de Inversiones de Energía S.C.A.
    
    
    
    
    
    
    (32
    )
    
    
    5Oleoducto de Crudos Pesados Ltd.
    
    
    (5
    )
    
    
    
    
    
    
    Pecom Agra S.A.
    
    
    
    
    
    
    
    
    
    
    17Inversora Mata S.A.
    
    
    4
    
    
    
    (9
    )
    
    
    (2
    )Oleoductos del Valle S.A.
    
    
    2
    
    
    
    11
    
    
    
    11Petrolera Entre Lomas S.A.
    
    
    13
    
    
    
    12
    
    
    
    8Petroquimíca Cuyo S.A.
    
    
    16
    
    
    
    (10
    )
    
    
    4Refinería del Norte S.A.
    
    
    28
    
    
    
    9
    
    
    
    6Transportadora de Gas del Sur S.A.
    
    
    52
    
    
    
    (52
    )
    
    
    10Yacylec S.A.
    
    
    2
    
    
    
    2
    
    
    
    5Other
    
    
    2
    
    
    
    (1
    )
    
    
    12163
    
    
    
    (638
    )
    
    
    119
 c) Dividends collected from affiliates 2003
    
    2002
    
    2001Citelec S.A.
    
    
    
    
    
    
    
    
    
    
    15Pecom Agra S.A.
    
    
    
    
    
    
    
    
    
    
    4Yacylec S.A.
    
    
    3
    
    
    
    1
    
    
    
    7Empresa Boliviana de Refinación S.A.
    
    
    
    
    
    
    4
    
    
    
    Petrolera Entre Lomas S.A.
    
    
    9
    
    
    
    12
    
    
    
    7Oleoductos del Valle S.A.
    
    
    7
    
    
    
    3
    
    
    
    7Transportadora de Gas del Sur S.A.
    
    
    
    
    
    
    
    
    
    
    11Refinería del Norte S.A.
    
    
    7
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    426
    
    
    
    20
    
    
    
    55
  I.
    
    Investment in companies over which joint control or significant influence
is exercised and are subject to transfer restrictions: a) Distrilec Inversora S.A. (Distrilec): Distrilec is able to change its equity interest and sell its shares of
Edesur S.A. (Edesur) only with the approval of the ENRE (Federal Power
Regulation Authority). In addition, over the entire term of the concession, the Class A shares
in Edesur shall remain posted as bond to guarantee compliance with the
obligations undertaken in the Concession Agreement. This bond in no way limits
the exercise of financial and voting rights associated with the Edesur shares. b) Cía. de Inversiones de Energía S.A. (CIESA): Shareholders of CIESA, parent company of Transportadora de Gas del Sur
S.A. (TGS), may not sell over 51% of its Class A shares representing 51% of
CIESA#s capital stock, without the prior authorization of the regulatory agency
and the approval of the shareholders of CIESA. There are certain disagreements between the Company and the Enron Group,
which jointly control CIESA, as to the actual occurrence of an event of change
of shareholders. Under the CIESA Shareholders Agreement, in the event of a
change in the ultimate parent of a shareholder, such shareholder must offer its
shares to the others. Although from opposing standpoints, both companies
interpret that such an event has taken place: the Company interprets it has
occurred with the bankruptcy of the Enron Group, while the Enron F-29




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##### Table of Contents



Group
interprets it has occurred upon the transfer of the shares of the Company. In
January 2003, the Company was notified by Enrons legal counsel that such
company would file arbitration proceedings in this regard. See note 26 for
events subsequent to December 31, 2003. c) Compañía Inversora en Transmisión Eléctrica Citelec S.A. (Citelec): The Company may not modify or sell its equity interest in Citelec in a
proportion and number of shares exceeding 49% of its shareholding without prior
approval by the ENRE. Citelec is not permitted to modify its 65% equity interest in Compañía de
Transporte de Energía en Alta Tensión Transener S.A. (Transener) nor sell its
Class A shares representing 51% of Transeners capital stock, without prior
approval by the ENRE. Transener may not modify or sell its shareholding in Empresa de Transporte
de Energía Eléctrica por Distribución Troncal de la Provincia de Buenos Aires
Transba S.A., without prior approval by the ENRE. d) Yacylec S.A. (Yacylec): Yacylecs Class A shares will remain pledged during the term of the
concession, as security for the compliance with the obligations undertaken
under the concession agreement. Any transfer of shares requires ENREs prior
authorization. II. Enecor S.A. For the entire term of the concession, the Class A shares in Enecor
shall remain posted as bond to guarantee compliance with the obligations
undertaken in the Concession Agreement. Prior authorization from the ENRE is
required for any transfer of shares. III. Assets exchange The Regular Shareholders Meeting held on April 3, 2002, approved an
agreement with economic effects as from January 1, 2002, whereby:  i)
    
    Petrobras Energía sold to IRHE (Argentine Branch) and GENTISUR
S.A. (a company wholly owned by IRHE) its 50% equity interest in Pecom
Agra S.A. in the amount of US$ 30 million, which represented a gain of
81.ii)
    
    IRHE (Argentine Branch) and GENTISUR S.A. transferred to Petrobras Energía:  
    
    0.75% interest in the Puesto Hernández joint venture in the amount of US$4.5 million;
    
    7.5% interest in Citelec, in the amount of US$15 million;
    
    9.187% interest in Hidroneuquén S.A., a company holding 59%
of Hidroeléctrica Piedra del Águila S.A. stock, in the amount of US$
5.5 million. The remaining balance, US$ 5 million, was settled through a document
maturing in October 2002, which accrues interest at six-month LIBOR plus annual
3% spread. IV. Sale of companies a) Disposal of farming, forestry and mining activity assets The agreements made in relation to the transfer of the controlling shares
of Petrobras Participaciones granted Petrobras an option, whereby if, within a
30-day term subsequent to the end of the purchase-sale of shares, Petrobras
Energía would not have sold the assets related to agricultural, forestry and
mining activities, Petrobras would be entitled to, but not required to, make
the seller acquire those assets in an amount of US$ 190 million or, if any of
those assets has been sold, the amount resulting from deducting from such
addition, the price received in consideration of the sale made. F-30




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Under these agreements, during 2002 Petrobras Energía perfomed the
following transactions:  
    
    In July 2002, Petrobras Energía sold to Anglogold its indirect ownership
interest of 46.25% in Cerro Vanguardia S.A., and the assets associated
therewith. The price of the transaction has been fixed at US$ 90 million.
The transaction represented a profit of 123. In September 2002, Petrobras Energía sold to Argentina Farmland Investors LLC
the ownership interest representing 100% of the capital stock of Pecom
Agropecuaria S.A. The price of the transaction totaled US$ 53 million, which
implied a profit of 27.  
    
    In December 2002, it concluded the disposal of the operations that form
part of the forestry business, which included the sale of the 100%
shareholding in Pecom Forestal S.A., jointly with the ownership of
forestry located in the Paraná delta region, to DRT Investments LLC. In
addition, it transferred the going concern related to forestry related
industrial activities in Misiones to Alto Paraná S.A. In January 2004, the
Company completed all the formalities needed for the transfer of the going
concern of forestry related industrial activities. The total price of the
abovementioned transactions amounted to US$ 53.16 million, resulting in a
153 loss. b) Sale of interest in Combustibles Nucleares Argentinos S.A. (CONUAR) In October 2002, the Company sold its 66.67% shareholding in CONUAR to
Sudacia S.A., a company controled by the Perez Companc Family, including the
68% interest in Fabricación de Aleaciones Especiales S.A. The transaction price
amounted to US$ 8 million, while no income (loss) was derived from such sale. V. Situation of the interests in public utility companies The new scenario after enactment of the Law on Public Emergency deeply
changed the financial equation of public utility companies. Particularly, the
tremendous effect of the devaluation, within a context where revenues remained
fixed, as a consequence of de-dollarization of rates, has affected the
financial and cash flow position of companies, as well as their ability to
comply with certain loan covenants. This situation has extremely conditioned
the financial ability to comply with obligations. Public Emergency Law provided for the conversion into Argentine pesos and
the elimination of indexation clauses on public service rates, thus fixing them
at the exchange rate of ARS 1 = US$ 1. In addition, the Executive Branch was
empowered to renegotiate those agreements entered into to provide public
services, pursuant to the following criteria: (i) rates impact on economic
competitiveness and revenue allocation, (ii) service quality and investment
plans, to the extent that they were contractually agreed upon, (iii) users
interests and access to services, (iv) the safety in the system involved, and
(v) utilities profitability. To allow for preserving the provision of public services, and
consistently the renegotiation process underway, the Executive Branch issued
Executive Order No. 146/03 authorizing to increase gas and electric power
rates. This caused a 10% increase for TGS, 9% for Edesur and 22% for
Transener. The increase in rates was objected by the ombudsman and consumer
associations. On February 25, 2003, a trial court issued an injunction and
suspended the increase in rates authorized by Executive Order No. 146/03. On October 1, 2003, Argentine Congress passed a bill that established the
extension to December 2004 of the term granted by the Federal Executive by
virtue of Public Emergency Law to renegotiate the agreements executed with
privatized public-service companies. Such law also will allow the Federal
Executive to fix public utilities rates until the completion of the
renegotiation process. It is not possible to foresee the future development of the rate
renegotiation process. In addition, it is not possible to guarantee that
regulations will not be changed and that they will not have an adverse
impact on the financial position and results of operations of such companies. CIESA, TGS and Transener have defaulted on their obligations and strive to
reschedule them (see Note 12.X). The managements of these companies have
drafted and implemented a plan of action to mitigate the adverse impact caused
by these circumstances. The Company cannot guarantee the success in
implementing it and whether it will fulfill the proposal aims. The impact
generated by the measures adopted by the Federal Government on CIESA, TGS,
Transener and Citelec financial statements was recognized based on the
evaluations and estimations carried out by the related managements. Actual
future income or losses could differ from estimates and such differences may be
significant. Consequently, these companies financial statements may not report
all the adjustments that could derive from these circumstances. F-31




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As of December 31, 2003, the valuation of the equity interests in CIESA
(which has been proportionally consolidated), TGS and Citelec amounts to 190,
167 and 158, respectively. In the opinion of the Companys Management, the
book value of such equity interests does not exceed the recoverable value. The
estimation of the respective recoverable values is subject to the significant
uncertainties described, which affect the quality of the assumptions,
estimations and evaluations inherent in such determination. Consequently, in
the current situation, the listed value of shares of stock is the most
objective guideline for determining the net realizable value of such holdings.
The reliability and the applicability of any values in use that might be
determined become relative because of the prolongation of the uncertainties and
the fact that, in projecting the future, multiple scenarios can be drawn up
while the estimation of their respective probabilities is extremely subjective,
a problem that extends to agreeing on the discount rate to be applied. As of December 31, 2002, the valuation of the equity interests in CIESA,
TGS and Citelec amounted to zero, 88 and 71, respectively. The equity interest
in CIESA valued under the equity method in conformity with accounting
principles consistent with those applied by the Company would have represented
an amount of 33 negative. However, considering that the Company has not
undertaken commitments to contributing capital or providing financial aid to
its affiliates, such equity interest has been stated at zero value, thus
restricting the recognition of losses related to the respective book value.
The value of the equity interest in Citelec was presented net of the allowance
for impairment in value of 66, determined as mentioned above. In the year ended December 31, 2001, the Company charged to expenses the
CIESA acquisition value exceeding the related book value, which implied a 202
loss. 10. Impairment of assets a) Operations in Argentine The Argentine peso devaluation, the enactment of Public Emergency Law and
the different events that took place caused a significant change in the
Companys estimation of the future income or loss evolution and the flow of
certain businesses and assets. Considering the uncertainties existing
with respect to the final breakdown of the economic and financial equation
and their recoverability, during 2002 and 2003 the Company adjusted the book
value of certain investments to their related recoverable values, booking
these allowances:  
    
    Gas areas in Argentina and shareholding in Hidroneuquén: Considering
the significant adverse impact on gas and power local prices, and the
limited possibilities of negotiating price increases within the
context of Public Emergency Law, the Company adjusted the book value
of certain investments in gas producing areas in Argentina to its
recoverable value, booking 44 and 37 losses during 2003 and 2002,
respectively. Also, during 2002, the Company adjusted the book value
of its investment in Hidroneuquén to its recoverable value, booking 10
losses.  
    
    Argentine Government public securities: as a result of the Argentine
Government declaration of its default on the payment of most its
sovereign debt and the significant uncertainties over the Argentine
economic scenario, as of December 31, 2003, the Company booked a
valuation allowance for the notional value of Argentine External Bills
in U.S. dollars, survey rate series 74, amounting to 23. As of
December 31, 2002, the above mentioned allowance amounted 30. Applying
a criterion of prudence, and recognizing the effects of applying
Federal Executive Decree No. 1,264, which allows settling tax
obligations with the principal coupons of such securities taken at
nominal value, the Company reverses the allowance as and when the
securities are actually applied. - Tax on minimum presumed income credit: considering the future income
(loss) evolution estimations, the Company carries an allowance for 72. b) Operations in Ecuador OCP is a company organized to build and operate a heavy crude oil pipeline
in Ecuador. The pipeline has a transportation capacity of 450,000 barrels per
day. During 2003, the oil pipeline construction was completed. After the
maximum flow system had been tested and the Ministry of Energy and Mining  ́s
approval had been obtained, the oil pipeline started to operate officially on
November 10, 2003. The oil pipeline passes through sensitive areas from an
ecological standpoint. Accordingly, such oil pipeline has been built under the
strictest technical and environmental protection standards. F-32




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##### Table of Contents



The total cost of the oil pipeline was about US$ 1.4 billion, which were
financed by banks, including commercial loans and debt issuance at capital
markets for an amount of US$ 900 million and capital contributions. The
original budget for investing in OCP amounted to US$ 1.2 billion. Due to the
restrictions on Petrobras Energía to make capital expenditures, Petrobras
Energía decided not to increase its ownership interest in increasing the
investments to US$ 1.4 billion. Therefore, the ownership interest decreased
from 15% to 8.96%. To secure compliance of the capital contribution commitments, and in its
capacity as shareholders, and with the corresponding OCPs financial
obligations and Petrobras Energía Ecuador commercial obligations, as of
December 31, 2003, Petrobras Energía placed letters of credit for a total
amount of about US$ 224 million. Through Petrobras Energía Ecuador, the Company operates blocks 18
(operating) and 31 (undeveloped, without proved reserves). In relation to the
exploitation of those blocks, Petrobras Energía Ecuador has executed a Ship or
Pay Transportation agreement with OCP, whereby an oil transportation capacity
of 80,000 barrels per day has been ensured for a 15-day term, as from November
10, 2003. Therefore, the Company should meet the contractual obligations for
the entire volume hired, rather than the crude oil transportation, paying, as
in the case of the other producers, a rate that covers the operating costs and
financial services of OCP, among others. Cost of transportation capacity are
billed by OCP monthly and charged to expenses as incurred. The Company estimates that during the term of the agreement there will be
successive shortages of crude oil carried due to several delays in developing
Block 31, the new term of the capital expenditures flow for the joint
development of blocks 18 and 31 and the new potentiality vision of Block 31. Consequently, as of December 31, 2003, Petrobras Energía has expensed 321 representing
impairment losses for its operations in Ecuador.
During fiscal year 2003, the company accrued losses for 309, primarily due to
the delays in block 31 developing, the increase in crude oil rate together with
the dilution of the equity interest in OCP from 15% to 8.96% and the
anticipation of the estimated date for the beginning of operations of the oil
pipeline. The book value of net assets in Ecuador, after computing the
referred allowance, does not exceed the recoverable value. The Company and Techint Internacional Construction Corp. (Tenco) signed an
agreement to exercise call and put options, whereby Tenco grants the Company
the irrevocable call option of shares and subordinated debt composing its 2.4%
equity interest, whereas the Company granted Tenco the irrevocable option to
require the purchase of shares and subordinated debt composing such equity
interest. Both options may be sold as from December 31, 2003, through December
31, 2004. The option price shall be determined in terms of the total amount
paid by Tenco, or on its behalf, plus accrued interest, considering for that
purpose that Tencos put option rate will be 7.5% per annum and the Companys
call option rate will be 18% per annum. See Note 26 for subsequent events to
December 31, 2003. 11. Pichi Picún Leufú Hydroelectric Complex (the Complex) The Company, through Petrobras Energía, has a thirty-year concession for
the generation of hydroelectric power in the Complex from August 1999. To ensure completion of works within the term of the concession and a
profitability to make the investment viable, the Energy Department granted the
Company the amount of 25, to be taken out of a Unified Fund created by section
37 of Law No. 24,065. For the purpose of determining whether or not such amount
should be repaid, a support price system was implemented for the electric power
to be generated by the Complex and sold on the Wholesale Electric Power Market. Such support price system will be applied over a ten-year term, which will
be divided into two consecutive five-year periods, as from December 1999. In
order to implement such system, an Annual Monomial Support Price (AMSP) was set
in the amounts of $/Kwh 0.021 and $/Kwh 0.023 for the first and second period,
respectively. In order to determine the amount to be reimbursed, every year of
the above mentioned term, the difference between the Annual Average Monomial
Price of the Complex bars generation, and the aforesaid AMSP, valued in terms
of the electric power generated by the Complex during such year will be
determined. F-33




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##### Table of Contents



Owing to the depressed selling prices set for the energy generated by the
Complex, and the prices estimated for the remaining term of the initial
five-year period, and considering that the above support price system entails a
profitability reassurance to make the investment practicable, as of December
31, 2003, the Company accrued an income of 15 of which 3 were recognized in
income for year then ended. 12. Financing The detail of debt as of December 31, 2003 and 2002, is as follows: 2003
    
    2002Current
    
    Noncurrent
    
    Current
    
    NoncurrentFinancial institutions
    
    
    923
    
    
    
    293
    
    
    
    710
    
    
    
    212Notes
    
    
    2,214
    
    
    
    4,474
    
    
    
    712
    
    
    
    5,427Investment agreement with IFC
    
    
    61
    
    
    
    331
    
    
    
    65
    
    
    
    193Related companies (Note 18)
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Payable for purchase of 10%
interest in Distrilec S.A.
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    2983,204
    
    
    
    5,098
    
    
    
    1,543
    
    
    
    6,130
 I. Financial debt refinancing In the course of 2002, Petrobras Energía was able to restructure
comprehensively a substantial portion of its financial debt. This allowed it
to align the principal amortization payments with the cash flows obtained
from its operations, resulting in a manageable time frame for payments. On June 10, 2002, Petrobras Energía made an offer to exchange four
series of new corporate bonds for four series of existing notes, whose
closing date was July 31, 2002. Based on the bids received by the holders of
corporate bonds, on August 1, 2002, Petrobras Energía issued Class F, G, H
and I notes, with a face value of US$ 845.2 million. Additionally, and in
line with the exchange offer conditions, Petrobras Energía simultaneously
paid US$ 70 million. As a result of the exchange offer, the remaining
outstanding amounts of corporate bonds swapped have been reduced to reflect
the amounts not exchanged. Subsequently, on October 4, 2002, Petrobras Energía issued Class J, K, L
and M notes for US$ 599.4 million and other medium-term credit instruments
for US$ 249.2 million, having simultaneously settled a debt of US$ 74
million. Credit instruments issued replace short-term letters of credit, which
cover the compliance with certain financial obligations related to hedge
agreements of crude oil prices and the investment in OCP. Long-term letters
of credit issued under this credit facility fall due annually, which may be
automatically extended to successive annual periods, with maturity dates in
December 2005, at the latest, for letters of credit related to crude oil
derivative agreements, and October 2007, for obligations related to OCP. In
case those letters of credit are not renewed on their related maturity dates,
they shall be disbursed, in which case they will constitute new loans granted
to the Company. F-34




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##### Table of Contents



II. Petrobras Energías Global Programs of nonconvertible notes a) US$ 2.5 billion program The Regular Shareholders Meeting of Petrobras Energía held on April 8,
1998, approved the establishment of a global corporate bond program for up to a
maximum principal amount outstanding at any time of US$ 1 billion or its
equivalent in other currency. Later, the Regular and Special Shareholders
Meeting held on June 20, 2002, authorized the increase of the maximum program
amount outstanding at any time during the effectiveness of the program up to
US$ 2.5 billion or its equivalent in other currency. The Regular and Special Shareholders Meeting of Petrobras Energía held on
July 8, 2003, extended the term of the Petrobras Energía Medium-Term Corporate
Bonds Program for five years counted as from May 5, 2003, or the maximum term
that may be allowed under any new regulations that might become applicable in
the future. The establishment of the Program was authorized by Certificate No. 202,
dated May 4, 1998, and Certificate No. 290, dated July 3, 2002 and Certificate
No. 296 dated September 16, 2003, of the CNV. As of December 31, 2003, there remained outstanding the following
classes of corporate bonds under the medium-term global program:  
    
    Class B, for US$ 5 million, payable in a single installment in May,
2006, at a 9% fixed annual rate.  
    
    Class C, for US$ 220 million, with the last maturity in July 2005,
which will be amortized in quarterly installments as from 2004. Class C
notes shall accrue interest at LIBOR plus 2.50% for the first year,
2.75% for the second year, and 3% for the third and fourth years. As to
this transaction, the Company arranged an interest rate swap, fixing
the annual interest rate at 7.93%. Should the Argentine Government
impose restrictions on transfers of US dollars, the Company is entitled
to meet the payment obligations arising from this transaction by
delivering oil or a combination of US dollars and oil, at the Companys
choice. In the event of payment being made in oil, the volume
delivered to the holders of the securities shall be priced at the WTI
spot price at the time; the guaranteed minimum price for such oil is 15
US$/bbl, and the volume shall not exceed 18.5 million barrels over the
whole life of the agreement. Deutsche Bank AG London undertook, if
such conditions were verified, to buy such oil while guaranteeing
holders of the securities full repayment of the debt. In this
connection, the Company executed a conditional call option that will
trigger if and when the price of WTI drops below 15 US$/bbl. As
regards the Companys exposure to the price of WTI, the effect of the
above is economically and financially neutral.  
    
    Class F, for a face value of US$64.4 million maturing in August 2005, at a 7,875% annual rate.  
    
    Class G, for a face value of US$250 million maturing in January 2007 at a 9% annual rate.  
    
    Class H, for a face value of US$181.5 million maturing in May 2009, at a 9% annual rate.  
    
    Class I, for a face value of US$349.2 million maturing in July 2010, at a 8.125% annual rate.  
    
    Class K, for a face value of US$ 286.3 million, quarterly payable
as from January 2004 and with final maturity date in October 2007,
accruing interest at three month LIBOR per annum, plus 4%.  
    
    Class M, for a face value of US$ 181.8 million, quarterly payable
as from January 2004 and with final maturity date in October 2007,
accruing interest at three month LIBOR per annum, plus 4.75%.  
    
    Class N, for a face value of USD 97 million, with principal
amortized in two installments, the first  equivalent to 9.9099% of
face value  settled on the same day of issuance, January 24,2003, and
the remaining due in June 2011, accruing interest at six-month LIBOR
plus 1%.  
    
    Class O, for a face value of USD 15,3 million, with due in March
2004, accruing interest at 7.5%. F-35




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##### Table of Contents




    
    Class P, for a face value of USD 3.6 million, with due in March
2004, accruing interest at 8.5%.  
    
    Class Q, for a face value of US$ 3.98 million, with two principal
amortization installments: the first equivalent to 10% of the face
value settled on the same day of issuance, April 25, 2003, and the
remainder in April 2008, at an interest rate of 5.625%. As of December
31, 2003, the Company is carrying US$ 760,000 of such issuance in its
own portfolio.  
    
    Class R, for a face value of USD 100 million, with due in October
2013, accruing interest at 9.375%. b) US$1.2 billion program As of December 31, 2003, under the medium-term Global Program which date
for the issuance of new notes expired in June 1998, the following classes of
general unsecured notes were outstanding, ranking pari passu in right of
payment with all other unsecured and unsubordinated obligations of the
Company: - Fourth Series, for US$ 22.8 million, payable in a single installment
in January 2004, at a 9% fixed annual rate. - Sixth Series, for US$ 32.6 million, payable in a single installment
in July 2007, at a 8.125% fixed annual rate. The proceeds from all issuances, were used to refinance liabilities,
increase working capital, for capital expenditures of fixed assets located in
Argentina or capital contributions to affiliates. The obligations arising out of issuances, are disclosed net of the
issuance discounts to be accrued. The deferred cost for such issuances are
included in Prepaid expenses and interests within Other receivables account. III. Cross default covenants Class F, G, H, I, N, O, P, Q and R notes include cross default covenants,
whereby the Trustee, as instructed by the noteholders representing at least 25%
of the related outstanding capital, shall declare all the amounts owed due and
payable, if any debt of the Company or its significant subsidiaries is not
settled upon the maturity date, provided that those due and unpaid amounts
exceed the higher of US$ 25 million or 1% of Petrobras Energías shareholders
equity upon those maturities, and that the default has not been defeated or
cured within 30 days after the Company has been served notice of the default. Class K and M notes include cross default covenants, whereby the Trustee,
as instructed by the noteholders representing at least the majority of the
respective outstanding capital, shall declare all the amounts owed due and
payable, if any debt of the Company or its significant subsidiaries is not
settled upon the maturity date, provided that those due and unpaid amounts
exceed the higher of US$ 15 million or 1% of Petrobras Energías shareholders
equity upon those maturities. Class C notes issued under the US$2.5 billion program, as well as certain
loan agreements, include cross default covenants, whereby the Trustee or the
creditor bank, as appropriate, shall declare all the amounts owed as due and
payable, if any debt of the Company is not settled upon the maturity date,
provided that those due and unpaid amounts exceed the amount of US$ 10 million
or 1% of Petrobras Energías shareholders equity in relative terms, upon those
maturities. The remaining outstanding amount of the Fourth and Sixth Series and Class
B notes does not include cross default covenants, as unanimously decided by the
special meetings held by the noteholders of those series on July 10, 2002. F-36




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IV. Covenants In relation to the issuance of Class K and M notes and medium-term credit
instruments (the refinanced financial debt), while some portion of the debt
remains unpaid, the Company shall be subject to the compliance with a series of
restrictions and obligations, which include, among others, the following:  i)
    
    Restrictions on liens: Petrobras Energía shall not create, except for limited
number exceptions, any lien upon the whole or any part of its assets and
its current or future income, including any right to earn income, unless
it grants identical security interests to the refinanced financial debt.ii)
    
    Restrictions on the payment of dividends: Petrobras
Energía shall not distribute
cash dividends prior to December 31, 2004, in cash exceeding U$S
650,000. As an exception, Petrobras Energía could make a sole payment of
extraordinary dividends to its shareholders up to US$ 19 million, based
on whether Petrobras Participaciones allocates its share of distributed
dividends to settle Petrobras Participacioness payable to Petrobras
Energía. On July 8, 2003, Special and Regular Shareholders meeting
approved the payment of an extraordinary cash dividend for an amount
equivalent in pesos to the above mentioned amount. After this date, the
aggregate amount paid shall not exceed 50% of the excess cash (cash
provided by operating activities less aggregate capital expenditures
allowed, up to the amount of actual capital expenditures, less financial
debt repaid) for the immediately preceding fiscal year, less the
extraordinary dividends paid.iii)
    
    Restrictions on capital expenditures: Petrobras Energía shall not make any
capital expenditure, including the amount of debt incurred in relation
thereto, in excess of US$ 425 million in 2003, US$ 450 million in 2004,
US$ 425 million in 2005 and US$ 475 million in 2006 and 2007. These
limits shall be increased by: (i) proceeds from the sale of capital
assets, (ii) 50% of the excess cash for the prior fiscal year, (iii)
contributed capital for capital increases, subordinated debt and project
finance, and (iv) 50% of contributed capital for new debt issuance.
Otherwise, the aggregate dividends paid shall decrease the limit of
capital expenditures.iv)
    
    Restrictions on the incurrence of financial debt: Petrobras
Energía shall not
incur any financial debt as long as, after the estimation thereof, the
ratio of: (A) consolidated financial debt, and (B) consolidated EBITDA
(defined as gross profit less administrative, selling and exploration
expenses, plus depreciation and amortization, dividends and advisory
services collected) exceeds 3.5. The referred restriction shall be not
applicable to subordinated debt, debt resulting from the investment
project finance and that incurred to settle the existing debt.v)
    
    Restrictions on the ratio of consolidated financial debt (excluding
subordinated debt) and consolidated EBITDA: the ratio of both shall not
be greater than 4.5 in 2003, 3.5 in 2004 and 3 as from 2005 through
2007. For interim periods, the restriction will be weighted considering
the period of four consecutive quarters prior to the end of the quarter.vi)
    
    Restrictions on the ratio of EBITDA to Interest: the ratio between
both shall not be lower than 2.75 in 2003 and 3 as from 2004 through
2007. For interim periods, the restriction will be weighted considering
a period of four consecutive quarters prior to the end of the quarter.vii)
    
    Restrictions on the maturity date of the financial debt: at any time,
the short-term financial debt shall not exceed an amount equal to US$
650 million.viii)
    
    Export obligation: the exports  to  total principal services
(principal repayments, plus accrued interest) ratio for Series K shall
be higher than 1.1.ix)
    
    Mandatory financial debt redemption: Within a term that shall not
exceed 120 days as from fiscal year-end, the Company shall mandatorily
redeem on a pro rata basis a portion of the refinanced financial debt of
up to 50% of the excess cash during such fiscal year. Likewise,
proceeds from the sale of assets, excluding those that constitute the
business purpose, not reinvested within 360 days, and the 50% of the
cash proceeds from new debt, shall be used to prepay the refinanced
financial debt. F-37




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V. Financing of the Genelba Electric Power Generation Plant The investment was financed through debt granted by international banks,
which are being semiannually repaid from June 1998 over a period of 10 years.
They may be settled in advance at any time, at Petrobras Energías discretion,
and the remainder with the use of cash inflows. The debt may be prepaid at any
time at Petrobras Energías option. As of December 31, 2003, the amounts
outstanding from the financing of the plant were US$ 51 million, of which US$
20 million is related to a contract which contains restrictive covenants,
including restriction on selling or leasing more than 40% of the plant during
the year in which the debt is outstanding. VI. Loan from International Finance Corporation (IFC) to Innova S.A.
(Innova) In October 1999, Innova executed a long-term loan agreement for US$80
million comprising tranches A and B of US$20 million and US$60 million,
respectively. Amortization of principal will be as from June 2002, in 16 and 12
semiannually installments for tranches A and B, respectively. The originally
applicable interest rate is LIBOR plus 3.25%. The loan was secured by a mortgage on certain real property owned by
Innova. In addition, unless certain conditions indicated in the loan agreement
occur, Petrobras Energía guarantees its timely payment. The IFC financing was completed by issuing preferred stock in the amount
of US$5 million, fully paid-in during December 1999. Certain covenants in the agreement prescribe restrictions in relation to
dividends, investments in property, plant and equipment, restrictions upon the
transfer, sale or rental of an important part of the assets, incurring
long-term debt and providing mortgages. In addition, Petrobras Energía directly
or through its subsidiaries, is committed to retain a 51% participating
interest in Innovas common stock. The funds provided by the IFC were used to construct styrene and
polystyrene plants in the Brazilian State of Rio Grande do Sul. VII. Payable for purchase of 10% interest of Distrilec In June 1999, the Company, through its subsidiary Petrobras Bolivia
International S.A., or PBI, acquired a 10% interest in Distrilec for an amount
of US$ 101 million. The related payment was documented through a promissory
note issued by PBI and secured by Petrobras Energía for the benefit of Entergy,
with a maturity date in June 2002, at a 7% annual fixed rate. The note was
later transferred to a financial trust located in Argentina through a
securitized transaction, whereby bonds denominated in US dollars were issued
and placed among Argentine investors. Upon the promissory note maturity date, the Company and holders of trust
certificates represented contrary interpretations with respect to the
application to that debt of measures related to the conversion into pesos
(dedollarization) of payable obligations stated in foreign currencies issued
under the Public Emergency and Foreign Exchange System Reform Law. At the
request of the trustee, the Company started a mediation process to reach an
agreement that documents the debt payment. This agreement expired without
fulfilling its terms and conditions. In November 2002, PBI irrevocably transferred all its rights and duties by
virtue of the promissory note issuance to Petrobras Energía. Afterwards, on
January 8, 2003, Petrobras Energía launched a Class N corporate bonds swap
offer for a face value amounting up to US$ 101 million maturing in 2011, for
all and each of the debt securities, stating that such offer was not a waiver
or release from any of the Companys rights in favor of the conversion of the
abovementioned promissory note in Argentine pesos, or an acknowledgement or
acceptance of any claim against such conversion. F-38




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Petrobras Energía has received and accepted offers from debt security
holders equivalent to 96.0594% of their outstanding face value. To offset this,
and according to the conditions of the swap offer, the Company issued class N
corporate bonds amounting to a face value of US$ 97 million. Given that the
terms and conditions of the new debt instruments differ substantially form the
original as regards both maturity and financial expense, upon refinancing, the
Company recognized a new liability that has been measured in accounts on the
basis of the best estimate of the discounted value of total amount payable.
On such a basis, the original liability was reduced to US$ 77 million, giving
rise to a gain of 34. On April 16, 2003, the Company launched an offer to exchange every and all
trust debt securities that had not been entered into the previous exchange for
Class Q Corporate Bonds for an aggregate face value of up to US$ 4 million and
maturing in 2008. Due to the offers received, the Company issued Class Q for a
face value of US$ 3.98 million. As of December 31, 2003, the Company offset in its accounts the receivable
resulting from its holding of trust debt-securities against the payable
resulting from the promissory note issued by PBI, which amounted to about US$
100.24 million, considering that it has the financial capacity to settle it in
full. VIII. Distrilec Indebtedness Certain loan agreements entered into by Edesur S.A. contain
cross-default covenants, whereby creditor banks are entitled to declare all
amounts owed to be due and payable if any debt item is not paid when due and
the outstanding past due amounts exceed the respective stipulations in the
agreements. Some of the abovementioned agreements include cross-acceleration
covenants, whereby the creditor banks are entitled to declare all amounts owed
to be due and payable in the event of Edesur S.A. being subject to the
acceleration of any other debt in circumstances provided for in such
agreements. As of the date of issuance of these financial statements, the Company is
negotiating with creditor banks the refinancing and/or the manner of repayment
of certain short-term loans. Based on the results of other refinancings
obtained by Edesur S.A. during 2002, such companys financial statements have
been prepared assuming that it will reach agreements with its creditors
allowing it to avoid the default situations mentioned above. This assumption
remained unchanged for purposes of the proportional consolidation of Distrilec
S.A. IX. Loan agreement signed between Petrobras Energía Venezuela S.A. and the IFC In July 2003, Petrobras Energía Venezuela S.A., a wholly-owned subsidiary
of Petrobras Energía, executed loan agreements in the amount of US$ 105 million
with the International Finance Corporation. In December 2003, the first principal installment was disbursed in the
amount of USD 70 million. The loan is primarily composed of Tranche A for USD 80 million, maturing
in a term of eights years and a half, including one grace period, payable
semiannually and at an annual LIBO nominal rate + 4.75%, and Tranche C for USD
25 million, maturing in a term of 9 years and a half. These loans will be used in executing the investment plan related to the
development of the Companys oil reserves in Venezuela in the Acema, Mata, La
Concepción and Oritupano Leona areas. The Company believes that the IFC will disburse the financing remainder
during 2004. X. CIESA and TGS indebtedness As of December 31, 2003, CIESAs financial debt relates to the issuance of
corporate bonds with a par value of up to USD 220 million and with original
maturity in April 2002. F-39




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In the wake of the new Argentine macroeconomic situation, as from the
enactment of Public Emergency Law (see Note 9.IV Situation of interests in
public utility companies ) ,CIESA did not pay the principal and the last
interest installment upon maturity and obligations under cap and collar
agreements. CIESAs Management is currently negotiating with the creditors to agree to
extend the term to fulfill the related payment. In relation to those
negotiations, CIESA has engaged an international prestigious financial advisor.
No pledges have been made by CIESAs shareholders to provide financial aid. On February 24, 2003, TGS started a global rescheduling process of USD
1,027 billion of its current financial indebtedness, which represents almost
the entire debt. This process is primarily intended to spread out the maturity
dates in the short term, change certain financial restrictions included in the
financial agreements and adjust the interest rate and amortization term, so as
to adjust the cash flows required for the debt repayment to the estimated cash
flows, without requiring debt principal reductions. Based on TGSs proposal to its creditors, the debt rescheduling agreement
would be implemented through the out-of-court composition agreement (APE),
recently introduced by Argentine laws, whereby the approval by two thirds of
the creditors should be required for the judges approval. As TGS could not
meet this required majority, on May 14, 2003, it withdrew the referred
rescheduling proposal and simultaneously announced the postponement of the
interest payment. As of the date of issuance of these financial statements, TGS continues to
negotiate with its main creditors in order to achieve the financial debt
rescheduling. In the wake of the withdrawal of the debt rescheduling proposal and the
postponement of the interest payment, TGSs indebtedness has been reclassified
as Short-term debt, since, according to the financial agreements executed
between TGS and its creditors, obligations may become due and payable. F-40




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XI. Detail of long-term debt Long-term debt as of December 31, 2003, are made up as follows: Type
    
    Amount
    
    Currency
    
    Annual interest rateFinancial institutions
    
    
    43
    
    
    US$
    
    Libor+0.12528
    
    
    US$
    
    Libor+0.7534
    
    
    US$
    
    Libor+2.0023
    
    
    US$
    
    6.15%81
    
    
    US$
    
    Libor+5.7511
    
    
    US$
    
    Libor+3.517
    
    
    US$
    
    5.73%20
    
    
    US$
    
    4.68%24
    
    
    US$
    
    3.54%Investment agreement with IFC
    
    
    125
    
    
    US$
    
    Libor+3.25132
    
    
    US$
    
    Libor+5.7574
    
    
    US$
    
    Libor+1.50NotesClass B
    
    
    15
    
    
    US$
    
    9.00%Class C
    
    
    277
    
    
    US$
    
    Libor+2.50/3.00Class F
    
    
    190
    
    
    US$
    
    7.875%Serie Sixth
    
    
    96
    
    
    US$
    
    8.125%Class G
    
    
    735
    
    
    US$
    
    9.00%Class H
    
    
    534
    
    
    US$
    
    9.00%Class I
    
    
    1,027
    
    
    US$
    
    8.125%Class K
    
    
    656
    
    
    US$
    
    Libor+4Class M
    
    
    417
    
    
    US$
    
    Libor+4.75Class N
    
    
    227
    
    
    US$
    
    Libor+3Class Q
    
    
    11
    
    
    US$
    
    5.625%Class R
    
    
    294
    
    
    US$
    
    9.375%Other
    
    
    75,098
 (1) The maturities of long-term debt as of December 31, 2003 and 2002, are as
follows: 2003
    
    2002From 1 to 2 years
    
    
    1,055
    
    
    
    994From 2 to 3 years
    
    
    480
    
    
    
    1,051From 3 to 4 years
    
    
    1,283
    
    
    
    514From 4 to 5 years
    
    
    48
    
    
    
    1,447Over 5 years
    
    
    2,232
    
    
    
    2,1245,098
    
    
    
    6,130
 F-41




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13.
    
    Income tax and deferred tax The Companys provision for income taxes was comprised of the following: 2003
    
    2002
    
    2001Current
    
    
    (48
    )
    
    
    (66
    )
    
    
    (268
    )Deferred tax  (loss) gain
    
    
    30
    
    
    
    (16
    )
    
    
    (117
    )Total income tax
    
    
    (18
    )
    
    
    (82
    )
    
    
    (385
    )
  The tax effect of the significant differences between the book value and the tax value of the
Companys assets and liabilities and tax loss carryforwards are as follows: 2003
    
    2002Deferred tax assetsTax loss carryforwards and
other tax losses
    
    
    1,898
    
    
    
    2,146Current investments
    
    
    6
    
    
    
    3Reserve for contingencies
    
    
    77
    
    
    
    30Pension plan obligations
    
    
    7
    
    
    
    7Derivatives
    
    
    216
    
    
    
    149Receivables
    
    
    10
    
    
    
    15Other
    
    
    66
    
    
    
    2Less-valuation allowance
    
    
    (1,786
    )
    
    
    (2,055
    )Deferred tax liabilityRevenue Recognition
    
    
    (33
    )
    
    
    (4
    )Current Investments
    
    
    (14
    )
    
    
    Property, plant and equipment
    
    
    (137
    )
    
    
    (155
    )Prepaid expenses
    
    
    (25
    )
    
    
    (32
    )Investories
    
    
    (16
    )
    
    
    (19
    )Discounted assets and liabilities
    
    
    (11
    )
    
    
    Non-current investments
    
    
    (124
    )
    
    
    (18
    )Other
    
    
    (12
    )
    
    
    (10
    )122
    
    
    
    59
 F-42




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The reconciliation of tax provision at the statutory rate to the tax provision,
(before taxes) and the minority interest in the subsidiarys earnings (losses),
is as follows: 2003
    
    2002
    
    2001Income (losses) before income tax and minority
interests in the subsidiaries income (loss)
    
    
    557
    
    
    
    (1,525
    )
    
    
    598Statutory tax rate
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Statutory tax rate applied to income (loss) for the period
    
    
    195
    
    
    
    (534
    )
    
    
    209Permanent differences at income tax rate- Equity in (earnings) losses from noncurrent investments
    
    
    (59
    )
    
    
    85
    
    
    
    37- Inflation adjustment
    
    
    116
    
    
    
    (26
    )
    
    
    34- (Decrease) increase in allowances for tax loss carryforwards
    
    
    (525
    )
    
    
    1,176
    
    
    
    - Foreign (earnings) losses
    
    
    277
    
    
    
    (639
    )
    
    
    (66
    )- Tax on minimum presumed income
    
    
    
    
    
    
    19
    
    
    
    102- Other
    
    
    14
    
    
    
    1
    
    
    
    69Income tax expense
    
    
    18
    
    
    
    82
    
    
    
    385
 Tax loss carryforwards and deferred losses include the following items and may
be used through the dates indicated below: Items
    
    2003
    
    2002
    
    2001General Tax loss carryforwards
    
    
    1,691
    
    
    
    1,867
    
    
    
    324Deferred losses
    
    
    207
    
    
    
    279
    
    
    
    1,898
    
    
    
    2,146
    
    
    
    324
 Use up to
    
    2003
    
    2002
    
    20012004
    
    
    
    
    
    
    58
    
    
    
    82005
    
    
    15
    
    
    
    27
    
    
    
    92006
    
    
    43
    
    
    
    54
    
    
    
    112007
    
    
    52
    
    
    
    100
    
    
    
    402008 and thereafter
    
    
    1,788
    
    
    
    1,907
    
    
    
    2561,898
    
    
    
    2,146
    
    
    
    324
 F-43




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14.
    
    Contingencies and environmental matters a) Petrobras Energía Stamp Tax Contingency In previous years, Petrobras Energía received inquiries from some
Argentine Provinces with the purpose of imposing stamp tax on instruments
which, under effective legislation, are not subject to such tax. These actions
are the consequence of a decision of the Supreme Court of the Province of
Neuquén dated October 2, 1996 (in the case SOLBA vs. the Province of Neuquén)
to the effect that an agreement that could be inferred from correspondence
exchanged between the parties that did not meet the taxability requirements
provided in the related Tax Code was, however, indeed subject to stamp tax. The
Federal Supreme Court rejected the case on the basis of Section 280 of the Code
of Procedures (considering there was no Federal issue involved or that the
issue did not merit its attention). In March and April 2001, the Federal Supreme Court changed its view and
accepted its jurisdiction to hear the declaratory judgment filed by TGS, as
described in c) below, whereby TGS expects the requests made by the Province of
Santa Cruz and Río Negro to apply stamp tax on the agreements reached by mail
and other acts related to the privatization process, to be considered
illegitimate and contrary to the Argentine Constitution. In July 2003, by virtue of the decision on the case Banco Río de la Plata
S.A. vs. Province of La Pampa, the Federal Supreme Court of Justice reasserted
the instrumentation requirement established by the Federal Revenue Sharing Law
in connection with the performance of acts, agreements and transactions levied
by stamp tax. On April 15, 2002, the Federal Supreme Court issued its judgment
regarding the declarative judgment requested by TGS, upholding the latter  ́s
position to he effect that the instruments that are autonomously executable are
not subject to the tax. Given that it is very recent, the Company is studying
consequences that such ruling will have on its operations. As of December 31, 2003, the estimated aggregate amount of claims,
including interest and fines, is 70. The Company keeps booking a provision for
the potential adverse effects of those claims amounting to 7. Setting an
allowance is a conservative measure adopted to comply with the applicable
accounting principles and, therefore, should not be considered as a recognition
of the claim made. b) Environmental matters The Company is subject to extensive environmental regulation at both the
federal and local levels in Argentina and in other countries in which it
operates. Petrobras Participaciones  ́s management believes that its current
operations are in material compliance with applicable environmental
requirements, as these are currently interpreted and enforced, including
sanitation commitments assumed. Petrobras Participaciones and its subsidiaries
have not incurred any material pollution liabilities as a result of their
operations to date. Petrobras Participaciones undertakes environmental impact
studies for new projects and investments and, to date, environmental
requirements and restrictions imposed on such new projects have not had
material adverse impact on Petrobras Participacioness business. There are no
significant lawsuits or administrative proceedings against the Company related
to environmental issues. The Companys management has produced policies, objectives and procedures
relating to environmental care and control. Through its policies, the Company
assumed the commitment to ensure product and service quality preserving the
environment in which it operates, the safety and health of its personnel,
contractor, and neighboring communities. Management believes that this policy
is an integral part of its business and, therefore, it forms the framework
within which each business area sets its annual objectives in this regard.
This policy ratifies the commitment to meeting the applicable laws and
implementing environmental management, quality, security, and occupational
health systems. The Company has over 90 Environment (ISO 14001), Quality (ISO 9001) and
Security & Occupational Health (OHSAS 18001/IRAM 3800) certifications. In view of this situation, the Company engaged an international consulting
firm to conduct the environmental audit of its operations pursuant to effective
laws, future requirements and, in light of the lack of local regulations, based
on international environmental standards. F-44




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##### Table of Contents



The final audit report confirmed the high environmental standards under
which the Companys operations are carried out and determined the necessary
actions to be taken to implement the Security, Environment and
Occupational Health Policy principles whereby the Company commits to
preserving the environment where it operates, as well as the security and
health of its personnel, contractors and neighboring communities. Being responsible therefore and as a result of an environmental study, the
Company will make investments of nearly USD 23 million in the coming years,
which include improvements of prevention systems and production facilities.
Additionally, several corrective and remediation actions will be taken, due to
incurred damages according to which the Company booked a loss of P$45 million
in the fiscal year ended December 31, 2003. c) TGS stamp tax TGS has received inquiries from the Provincial Tax Bureaus of the
Provinces of Neuquén, Río Negro, Santa Cruz and La Pampa, for an approximate
amount of 813 (including interests and penalties), with the purpose of
collecting stamp tax that, according to tax authorities, would be applicable to
the Share-Transfer Agreement executed in the privatization of Gas del Estado
(GdE) and the transportation services offers from TGS to its customers. TGS filed declarative actions with the Federal Supreme Court, seeking that
such court issue its opinion about the legitimacy of provincial claims and
requiring that provinces be ordered to refrain from conducting any actions
intended to collect the tax claimed until the Federal Supreme Court decides on
the merits of the case. In all the cases, the Federal Supreme Court granted the
precautionary measures requested by TGS. TGSs management considers that agreements predating takeover date were
not subject to provincial stamp tax as the parties to the agreement were stamp
tax exempt. Furthermore, TGSs management believes that even if the agreements
executed before takeover date had been subject to stamp tax, under the terms of
the Transfer Agreement such tax should be borne by GdE or the Argentine
government. As regards the remaining assessments, TGSs management is of the
opinion that offers to render transportation services are not subject to the
tax in question. TGS believes that, should it be determined that such offers
are taxable, this should be considered a change in interpretation of tax law
and, its impact should be reflected in the tariff according to regulations on
the subject. Ente Nacional Regulador del Gas (ENARGAS, the federal gas
regulatory agency) believes that the claims for stamp tax lack merit because it
considers the tax unlawful. d) Fixed charges for connection with Transener The ENRE authorized, by Resolution No. 1650/98, an increase in the
connection charge, in full compliance with effective rules and regulations.
Many generation companies filed administrative appeals before the Energy
Department seeking that such increase be reversed; the Energy Department
rejected such appeals. Only Central Térmica Güemes S.A. filed an appeal
directly with the Federal Administrative-Contentious Court of Appeals, which
decided in favor of the request. Transener and the ENRE filed an extraordinary
appeal before the Supreme Court of Justice of the Nation. On June 27, 2003,
the appellate court allowed the appeal before the Supreme Court. The case was
referred to the Supreme Court and is pending resolution. As reported by the legal counsel, Transener considers that the final
outcome of this issue will not give rise to any significant obligation.
Therefore, no provisions have been booked in this regard. e) Contractual commitments, warranty bond, suretyships and guarantees
granted The warranty bonds, suretyships and guarantees as of December 31, 2003,
which are not disclosed in the remaining notes, amount to 57. F-45




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##### Table of Contents



In addition, as of December 31, 2003, the Company had the following
contractual commitments: TotalUnits
    
    Total
    
    Until(In millionsof pesos)Purchase CommitmentsShip or pay agreement with OCP (in bbls/ day) (1)
    
    
    80,000
    
    
    
    3,298
    
    
    
    2018Long term service agreement (in millions of USD)
    
    
    47
    
    
    
    141
    
    
    
    2006Gas transportation agreement with TGS (in MMm3)
    
    
    11,873
    
    
    
    300
    
    
    
    2014Ethylene (in thousands of tons)
    
    
    337
    
    
    
    550
    
    
    
    2015Benzene (in thousands of tons)
    
    
    930
    
    
    
    1,233
    
    
    
    2015Sales commitmentsNatural gas (in MMm3)
    
    
    18,854
    
    
    
    
    
    
    
    2019Styrene (in thousands of tons)
    
    
    56
    
    
    
    
    
    
    
    2004Electric power (in MWh)
    
    
    329,115
    
    
    
    
    
    
    
    2004
  (1)
    
    Equivalent to about USD 200,000 per day. F-46




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##### Table of Contents



f) Reserves for contingencies The movements of reserves for contingencies were as follows: Balances at
    
    Net increase
    
    BalancesAccount
    
    beginning
    
    (decrease)
    
    at endDeducted from assets:CurrentFor investments (a)
    
    
    30
    
    
    
    (7
    )
    
    
    23For doubtful accounts
    
    
    27
    
    
    
    15
    
    
    
    42For other receivables
    
    
    72
    
    
    
    
    
    
    
    72Inventories obsolescence
    
    
    3
    
    
    
    1
    
    
    
    4132
    
    
    
    9
    
    
    
    141NoncurrentFor investments (a)
    
    
    68
    
    
    
    (58
    )
    
    
    10For property, plant & equipment (b)
    
    
    44
    
    
    
    18
    
    
    
    62Inventories obsolescence
    
    
    
    
    
    
    2
    
    
    
    2112
    
    
    
    (38
    )
    
    
    742003
    
    
    244
    
    
    
    (29
    )
    
    
    2152002
    
    
    208
    
    
    
    36
    
    
    
    244Included in liabilities:CurrentLabor and commercial contingencies
    
    
    28
    
    
    
    16
    
    
    
    4428
    
    
    
    16
    
    
    
    44NoncurrentLabor and commercial contingencies
    
    
    24
    
    
    
    51
    
    
    
    75Operations in Ecuador
    
    
    62
    
    
    
    140
    (c)
    
    
    20286
    
    
    
    191
    
    
    
    2772003
    
    
    114
    
    
    
    207
    
    
    
    3212002
    
    
    96
    
    
    
    18
    
    
    
    114
  a)
    
    See Note 9.IV and 10.b)
    
    See Note 10.c)
    
    Includes a charge for 2003 fiscal year in the amount of 269, a
transitory translation difference amounting to (10) and reclassification for
(119) to account payable  15.
    
    Contribution, benefit pension and stock option plans of Petrobras Energía a) Contribution and benefit pension plans  
    
    Defined contribution plan: The Company sponsors a defined contribution plan that applies to all
employees of Petrobras Energía with salaries above a specified level. Through
this plan, the Company matches contributions by employees which are in excess
of legally required amounts. Such contributions are charged to expenses in the
year they are paid. Due to the significant changes in the Argentine economic
scenario and the uncertainties posed by the Argentine economic conditions, as
from January 2002, Petrobras Energía has suspended, at the moment, this
benefit. Such benefit will be reestablished as soon as there is a social
security savings means considered adequate to such end.  
    
    Defined benefit pension plan: All employees of the Company, that take part without interruption in the
defined contribution plan, that have joined the Company prior to May 31, 1995,
and that qualify subject to certain years of service, are F-47




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##### Table of Contents



participants in this
plan. The employee benefit is based on the last computable salary and years of
service of the employee. The plan is of a supplemental nature, that is to say the benefit to the
employee is represented by the amount determined under the provisions of this
plan, after deducting benefits payable to the employee under the contribution
plan and the public retirement system, in order that the aggregate benefit to
each employee from the three plans equals the one stipulated in the plan. Once
retired, the employees are entitled to a fixed monthly payment. The plan calls for a contribution to a fund exclusively by the Company and
without any contribution by the employees, provided that they should make
contributions to the retirement system for their whole salary. Assets of the
fund were contributed to a trust and they are invested mainly in bonds,
corporate bonds, mutual funds, and certificates of deposits. The Bank of New
York is the trustee and Watson Wyatt is the managing agent. The Company
determines the liability related to this plan by applying actuarial calculation
methods. As of December 31, 2003, the most relevant actuarial information on
the defined-benefits pension plan is as follows: Plan assets
    
    
    47Projected benefit obligations
    
    
    (51
    )Position uncovered
    
    
    (4
    )Unrecognized actuarial gain
    
    
    (3
    )Net liability recognized
    
    
    (7
    )
 According to its By-laws, the Company contributes to the fund through a
contribution proposed to the Shareholders meeting by the Board of Directors
and can increase up to a maximum of 1.5% of the net income for the year. During
the years ended December 31, 2003, 2002, and 2001, the Board of Directors did
not make use of this power. Should there be an excess (duly certified by an independent actuary) of
the funds under the trust agreement to be used to settle the benefits granted
by the plan, the Company will be entitled to make a choice and use such excess,
in which case it would have to notify the trustee thereof. During the last quarter of 2002, Petrobras Energía admitted the advanced
collection of this plan by beneficiaries should they expressly state so. All
the individuals that exercised the abovementioned option before February 13,
2003, have lost their rights to collect their retirement supplement, thus they
are no longer plan beneficiaries. b) Stock option plan The Board of Directors of Petrobras Energía approved the application of a
long-term incentive program for the purpose of aligning the interests of
officers and shareholders. As part of this program, the Board of Directors of Petrobras Energía
approved the Plans for year 2001 (2001 Plan) and for year 2000 (2000 Plan),
focused on senior officers of Petrobras Energía. Both plans consist in granting
the right to exercise certain options to receive Petrobras Participaciones
shares or the cash equivalent at market, as described below: 2001 Plan  i.
    
    5,364,125 options to receive the value arising from the positive
difference between the average listed price of Petrobras Participaciones
shares on the New York Stock Exchange during the 20 days prior to
exercising the option and 1.64 Argentine pesos per share, for such
number of shares (appreciation rights). F-48




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##### Table of Contents



Regarding these options, 1,609,237 options may be exercised as from March
5, 2002, 1,609,238 options may be exercised as from March 5, 2003, and
2,145,650 options as from March 5, 2004. As of December 31, 2003 and
March 31, 2004 the exercised options amount to 967,152 and 2,834,550,
respectively.ii.
    
    596,014 options to receive the same number of shares at no cost for
the beneficiary. These options may be exercised as from March 5, 2005
(full value).Beneficiaries of this plan will be entitled to exercise their rights
until March 5, 2007, from the dates mentioned above. 2000 Plan  i.
    
    3,171,137 options to receive the value arising from the positive
difference between the average listed price of Petrobras Participaciones
shares on the New York Stock Exchange during the 20 days
prior to exercising the option and 1.48 Argentine pesos per share, for
such number of shares (appreciation rights).Regarding these options, 951,341 options may be exercised as from May 29,
2001, 951,341 options may be exercised as from May 29, 2002, and
1,268,455 options as from May 29, 2003. As of December 31, 2003 and
March 31, 2004, the exercised options amount to 1,232,692 and
2,275,589, respectively.ii.
    
    352,347 options to receive the same number of shares at no cost for
the beneficiary. These options may be exercised as from May 29, 2004
(full value).Beneficiaries of this plan will be entitled to exercise their rights
until May 29, 2006, from the dates mentioned above. The cost of such benefit is allocated on proportional basis to each year
within the exercise years and adjusted in accordance with the listed price of
the share. Accordingly, an amount of 8 was charged to operating expenses for
year ended December 31, 2003. 16. Capital stock and restrictions on unappropriated retained earnings As of December 31, 2003 the Companys capital stock totaled 2,132 fully
subscribed, issued, paid-in and registered. Changes in capital stock in the last three fiscal years: December, 312003
    
    2002
    
    2001Common stock  face value
    
    $
    1
    
    
    
    1
    
    
    
    1Class A: 5 votes per share
    
    
    
    
    
    
    
    
    
    
    628Class B: 1 vote per share
    
    
    2,132
    
    
    
    2,132
    
    
    
    1,5042,132
    
    
    
    2,132
    
    
    
    2,132
 Since January 26, 2000, the Company Class B shares are listed on the
Buenos Aires Stock Exchange and on the New York Stock Exchange. Based on the change in the interest control described in Note 21, on
October 17, 2002, the BCBA (Buenos Aires Stock Exchange) authorized the
conversion of class A common shares into the same number of class B common
shares and their admission into the listing system. In addition, the CNV
approved their public offer. F-49




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##### Table of Contents



17.
    
    Other receivables, other liabilities, other exploitation income, and other
expenses, net. 2003
    
    2002Current
    
    Noncurrent
    
    Current
    
    Noncurrenta) Other receivablesJoint ventures
    
    
    53
    
    
    
    
    
    
    
    74
    
    
    
    Related companies (Note 18)
    
    
    3
    
    
    
    
    
    
    
    4
    
    
    
    Tax credits
    
    
    287
    
    
    
    73
    
    
    
    251
    
    
    
    116Advisory services to other companies
    
    
    40
    
    
    
    
    
    
    
    30
    
    
    
    Receivables from the sale of companies
    
    
    89
    
    
    
    16
    
    
    
    3
    
    
    
    25Premiums and derivatives collateral payments
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    11Letters of credit advances
    
    
    175
    
    
    
    
    
    
    
    143
    
    
    
    Prepaid expenses and interest
    
    
    66
    
    
    
    22
    
    
    
    83
    
    
    
    50Gas oil supply stability agreement
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    Other collaterals
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    125
    
    
    
    20
    
    
    
    104
    
    
    
    18861
    
    
    
    131
    
    
    
    734
    
    
    
    220
 2003
    
    2002Current
    
    Noncurrent
    
    Current
    
    Noncurrentb) Other liabilitiesSale of capital fees (1)
    
    
    107
    
    
    
    
    
    
    
    126
    
    
    
    122Debt for investments in companies
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    Derivatives
    
    
    102
    
    
    
    98
    
    
    
    
    
    
    
    268Unified Fund  Basic Price of Electric Power (Note 11)
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    13Related companies (Note 18)
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    Financial advances
    
    
    34
    
    
    
    
    
    
    
    34
    
    
    
    Accrual for expenses- Environmental remediation
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    18- Other
    
    
    52
    
    
    
    
    
    
    
    71
    
    
    
    Innova preferred stock
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    17Abandonment cost in oil & gas areas
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    57Joint ventures
    
    
    7
    
    
    
    
    
    
    
    16
    
    
    
    Other
    
    
    56
    
    
    
    3
    
    
    
    49
    
    
    
    1379
    
    
    
    262
    
    
    
    344
    
    
    
    496
  (1)
    
    In December 2001, the Company, through its subsidiaries Petrobras Energía
Venezuela S.A. and Corod Producción S.A., assigned to an international
lending institution a part of the capital fees (related to investments
made by such companies) to be collected from PDVSA, as provided by the
Oritupano Leona Consortium Service Agreement (see Note 6), in the amount
of US$ 120 million. Capital fees assigned are settled by PDVSA in twelve
quarterly, equal, and consecutive installments starting February 2002.
This transaction was made net of the discount made at LIBOR plus 2.75%. In
order to guarantee the lending institution that PDVSA will meet the
obligations under this agreement, the Company assigned an additional part
of the capital fees to be collected from PDVSA in the amount of US$ 10
million. Should PDVSA not settle any amount payable on this account by the
due-date, exclusively in the event that such noncompliance stems from any
commercial challenge or claim that such company may have with respect to
billings for investments made, the Company may choose to assign the
lending institution additional capital fees in an amount equivalent to
that challenged, or else it may settle the payable in cash. This
assignment does not release Consortium members from the obligations under
the previously mentioned service agreement. F-50




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##### Table of Contents



2003
    
    2002
    
    2001c) Other exploitation (expenses) income, netAdvisory services to other companies
    
    
    36
    
    
    
    37
    
    
    
    57Idle facilities
    
    
    (7
    )
    
    
    (10
    )
    
    
    (11
    )Environmental remediation expenses
    
    
    (58
    )
    
    
    (15
    )
    
    
    Taxes on bank transactions
    
    
    (45
    )
    
    
    (37
    )
    
    
    (15
    )Contingencies
    
    
    (57
    )
    
    
    
    
    
    
    Other, net
    
    
    10
    
    
    
    (3
    )
    
    
    (8
    )(121
    )
    
    
    (28
    )
    
    
    23
 2003
    
    2002
    
    2001d) Other expenses, netIncome (loss) from sale of:- Pecom Agra S.A.
    
    
    
    
    
    
    81
    
    
    
    - Pecom Agropecuaria S.A.
    
    
    
    
    
    
    27
    
    
    
    - Cerro Vanguardia S.A.
    
    
    
    
    
    
    123
    
    
    
    - Catriel Oeste field
    
    
    (28
    )
    
    
    
    
    
    
    - Faro Vírgenes field
    
    
    (11
    )
    
    
    
    
    
    
    - San Carlos field
    
    
    
    
    
    
    (37
    )
    
    
    - Forestry activity
    
    
    12
    
    
    
    (153
    )
    
    
    - Pampa del Castillo  La Guitarra and Terminales MaritimasPatagónicas S.A.
    
    
    
    
    
    
    
    
    
    
    (65
    )- Other assets
    
    
    
    
    
    
    (5
    )
    
    
    Asset impairment of:- Operations
in Ecuador
    
    
    (309
    )
    
    
    (63
    )
    
    
    - Gas producing areas
    
    
    (37
    )
    
    
    (44
    )
    
    
    - Hidroneuquén S.A.
    
    
    
    
    
    
    (10
    )
    
    
    - Impairment of allocated purchased price related to CIESA
    
    
    
    
    
    
    
    
    
    
    (202
    )- Other assets
    
    
    (12
    )
    
    
    (8
    )
    
    
    (15
    )Projects
    
    
    
    
    
    
    (5
    )
    
    
    (4
    )Loans granted to exploitation partners in Venezuela
    
    
    (27
    )
    
    
    (42
    )
    
    
    Debt restructuring
    
    
    
    
    
    
    (17
    )
    
    
    Income from assetts exchange
    
    
    
    
    
    
    
    
    
    
    251Discounted values for assets and liabilities
    
    
    17
    
    
    
    
    
    
    
    Reversal of provision for TGS rates increase
    
    
    
    
    
    
    
    
    
    
    (64
    )Other, net
    
    
    (26
    )
    
    
    (34
    )
    
    
    11(421
    )
    
    
    (187
    )
    
    
    (88
    )
 F-51




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##### Table of Contents



18.
    
    Balances and transactions with related companies The outstanding balances from transactions with related companies are as
follows: 2003Current
    
    NoncurrentTrade
    
    Other
    
    Accounts
    
    
    
    
    
    Advances toCompany
    
    receivables
    
    receivables
    
    payable
    
    Loans
    
    InvestmentsOleoductos del Valle S.A.
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Petroquímica Cuyo S.A.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    Oleoductos de Crudos Pesados Ltd.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127EG3 S.A.
    
    
    55
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Transportadora de Gas del Sur S.A.
    
    
    9
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    Refinería del Norte S.A.
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Petrobras Petroleo Brasileiro S.A.
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    74
    
    
    
    3
    
    
    
    7
    
    
    
    6
    
    
    
    127
 2002CurrentTrade
    
    Other
    
    Accounts
    
    OtherCompany
    
    Investments
    
    receivables
    
    receivables
    
    payable
    
    liabilitiesEmpresa Boliviana de Refinación S.A.
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Oleoductos del Valle S.A.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    Petroquímica Cuyo S.A.
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    Petrobras Petroleo Brasileiro S.A.
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    Transportadora de Gas del Sur S.A.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    Refinería del Norte S.A.
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    4
    
    
    
    Coroil S.A.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Total
    
    
    19
    
    
    
    19
    
    
    
    4
    
    
    
    10
    
    
    
    48
 The principal transactions with affiliates for the years ended
December 31, 2003, 2002 and 2001, were as follows: 2003
    
    2002
    
    2001Company
    
    Purchases
    
    Sales
    
    Purchases
    
    Sales
    
    Purchases
    
    SalesOleoductos del Valle S.A.
    
    
    17
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    20
    
    
    
    Transportadora de Gas del Sur S.A.
    
    
    13
    
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    106
    
    
    
    Refinería del Norte S.A.
    
    
    55
    
    
    
    1
    
    
    
    60
    
    
    
    
    
    
    
    37
    
    
    
    Petrobras Petroleo Brasileiro S.A.
    
    
    
    
    
    
    149
    
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    EG3 S.A.
    
    
    26
    
    
    
    196
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Petroquímica Cuyo S.A.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    9Petrolera Entre Lomas S.A.
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    111
    
    
    
    346
    
    
    
    144
    
    
    
    85
    
    
    
    163
    
    
    
    9
 In addition, losses on derivatives for the crude oil price hedge made
with Petrobras International Finance Co. (PIFCO) amounted 12.  19.
    
    Business segment and geographic consolidated information Petrobras Participacioness business is mainly concentrated in the
energy sector, especially through its activities in oil and gas exploration
and production, hydrocarbons marketing and transportation, refining,
petrochemicals and electricity. The Oil and Gas Exploration and Production segment is composed of
Petrobras Energías directly held oil and gas operations and the operations
of some of its subsidiaries and affiliates. F-52




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##### Table of Contents



The Refining segment includes Petrobras Energías operations in Refinería
San Lorenzo, and its interests in Refinería del Norte S.A. and Empresa
Boliviana de Refinación S.A. The Petrochemical segment includes Petrobras Energías operations in PASA,
and its interests in Innova S.A. and Petroquímica Cuyo S.A. The Hydrocarbons Marketing and Transportation segment includes Petrobras
Energía  ́s operations of hydrocarbons trading and liquids processing and its
interest in Transportadora de Gas del Sur S.A., Oleoductos del Valle S.A. and
Oleoducto de Crudos Pesados Ltd. The Electricity segment includes Petrobras Energía  ́s operations in the
Genelba plant and Pichi Picún Leufú Hydroelectric Complex, and its interest in
Conuar S.A. (See Note 9.III), Edesur S.A., Transener S.A., Enecor S.A., Yacylec
S.A. and Hidroneuquén S.A. Assets and results of operations related to the Corporate Structure, those
not attributable to any given business segment, discontinued operations 
including mining, farming, and forestry and related activities and intercompany
eliminations are all disclosed together. The applicable valuation methods to report business segment information
are those described in Note 4 to these financial statements. The transfer
prices of inter-segment transactions are the respective market prices. The following information shows total assets, total liabilities and net
income (loss) for each of the business segments identified by Petrobras
Participacioness management: Oil and Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate,Exploration
    
    
    
    
    
    
    
    
    
    Hydrocarbons
    
    
    
    
    
    Other Discontinuedand
    
    
    
    
    
    
    
    
    
    Marketing and
    
    
    
    
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Transportation
    
    Electricity
    
    Eliminations
    
    TotalTotal assets 2003
    
    
    7,809
    
    
    
    642
    
    
    
    1,100
    
    
    
    3,096
    
    
    
    2,461
    
    
    
    1,030
    
    
    
    16,138Total liabilities 2003
    
    
    3,742
    
    
    
    179
    
    
    
    361
    
    
    
    2,078
    
    
    
    592
    
    
    
    3,461
    
    
    
    10,413Total assets 2002
    
    
    8,764
    
    
    
    592
    
    
    
    1,280
    
    
    
    258
    
    
    
    2,581
    
    
    
    1,174
    
    
    
    14,649Total liabilities 2002
    
    
    4,577
    
    
    
    192
    
    
    
    688
    
    
    
    
    
    
    
    798
    
    
    
    3,386
    
    
    
    9,641
 F-53




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##### Table of Contents



2003Oil and Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate,Exploration
    
    
    
    
    
    
    
    
    
    Hydrocarbons
    
    
    
    
    
    Other Discontinuedand
    
    
    
    
    
    
    
    
    
    Marketing and
    
    
    
    
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Transportation
    
    Electricity
    
    Eliminations
    
    TotalStatement of incomeNet salesTo third parties
    
    
    1,785
    
    
    
    1,231
    
    
    
    1,294
    
    
    
    502
    
    
    
    680
    
    
    
    2
    
    
    
    5,494Inter-segment
    
    
    944
    
    
    
    71
    
    
    
    
    
    
    
    19
    
    
    
    11
    
    
    
    (1,045
    )
    
    
    2,729
    
    
    
    1302
    
    
    
    1294
    
    
    
    521
    
    
    
    691
    
    
    
    (1,043
    )
    
    
    5,494Cost of sales
    
    
    (1,448
    )
    
    
    (1,179
    )
    
    
    (982
    )
    
    
    (281
    )
    
    
    (523
    )
    
    
    1,027
    
    
    
    (3,386
    )Gross profit
    
    
    1,281
    
    
    
    123
    
    
    
    312
    
    
    
    240
    
    
    
    168
    
    
    
    (16
    )
    
    
    2,108Administative and selling expenses
    
    
    (178
    )
    
    
    (57
    )
    
    
    (110
    )
    
    
    (34
    )
    
    
    (73
    )
    
    
    (107
    )
    
    
    (559
    )Exploration expenses
    
    
    (196
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (196
    )Other exploitation income (expense), net
    
    
    (46
    )
    
    
    (12
    )
    
    
    (17
    )
    
    
    (1
    )
    
    
    17
    
    
    
    (62
    )
    
    
    (121
    )Exploitation income (loss)
    
    
    861
    
    
    
    54
    
    
    
    185
    
    
    
    205
    
    
    
    112
    
    
    
    (185
    )
    
    
    1,232Equity earnings of affiliates
    
    
    19
    
    
    
    22
    
    
    
    16
    
    
    
    16
    
    
    
    90
    
    
    
    
    
    
    
    163Other income (expense)
    
    
    (943
    )
    
    
    10
    
    
    
    (39
    )
    
    
    26
    
    
    
    (19
    )
    
    
    (49
    )
    
    
    (1,014
    )Net income (loss)
    
    
    (63
    )
    
    
    86
    
    
    
    162
    
    
    
    247
    
    
    
    183
    
    
    
    (234
    )
    
    
    381
 2002Oil and Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate,Exploration
    
    
    
    
    
    
    
    
    
    Hydrocarbons
    
    
    
    
    
    Other Discontinuedand
    
    
    
    
    
    
    
    
    
    Marketing and
    
    
    
    
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Transportation
    
    Electricity
    
    Eliminations
    
    TotalStatement of incomeNet salesTo third parties
    
    
    2,033
    
    
    
    942
    
    
    
    1,254
    
    
    
    16
    
    
    
    755
    
    
    
    106
    
    
    
    5,106Inter-segment
    
    
    773
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    (850
    )
    
    
    2,806
    
    
    
    1008
    
    
    
    1254
    
    
    
    16
    
    
    
    766
    
    
    
    (744
    )
    
    
    5,106Cost of sales
    
    
    (1,600
    )
    
    
    (944
    )
    
    
    (892
    )
    
    
    (11
    )
    
    
    (608
    )
    
    
    771
    
    
    
    (3,284
    )Gross profit
    
    
    1,206
    
    
    
    64
    
    
    
    362
    
    
    
    5
    
    
    
    158
    
    
    
    27
    
    
    
    1,822Administative and selling expenses
    
    
    (224
    )
    
    
    (48
    )
    
    
    (122
    )
    
    
    (2
    )
    
    
    (92
    )
    
    
    (121
    )
    
    
    (609
    )Exploration expenses
    
    
    (58
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58
    )Other exploitation income (expense), net
    
    
    (22
    )
    
    
    (16
    )
    
    
    11
    
    
    
    13
    
    
    
    23
    
    
    
    (37
    )
    
    
    (28
    )Exploitation income (loss)
    
    
    902
    
    
    
    
    
    
    
    251
    
    
    
    16
    
    
    
    89
    
    
    
    (131
    )
    
    
    1,127Equity earnings (losses) of affiliates
    
    
    2
    
    
    
    20
    
    
    
    (10
    )
    
    
    (470
    )
    
    
    (239
    )
    
    
    59
    
    
    
    (638
    )Other income (expense)
    
    
    447
    
    
    
    190
    
    
    
    190
    
    
    
    
    
    
    
    271
    
    
    
    (3,166
    )
    
    
    (2,068
    )Net income (loss)
    
    
    1,351
    
    
    
    210
    
    
    
    431
    
    
    
    (454
    )
    
    
    121
    
    
    
    (3,238
    )
    
    
    (1,579
    )
 F-54




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##### Table of Contents



2001Oil and Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate,Exploration
    
    
    
    
    
    
    
    
    
    Hydrocarbons
    
    
    
    
    
    Other Discontinuedand
    
    
    
    
    
    
    
    
    
    Marketing and
    
    
    
    
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Transportation
    
    Electricity
    
    Eliminations
    
    TotalStatement of incomeNet salesTo third parties
    
    
    1,502
    
    
    
    788
    
    
    
    809
    
    
    
    695
    
    
    
    1,248
    
    
    
    128
    
    
    
    5,170Inter-segment
    
    
    473
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    38
    
    
    
    (520
    )
    
    
    1,975
    
    
    
    788
    
    
    
    818
    
    
    
    695
    
    
    
    1286
    
    
    
    (392
    )
    
    
    5,170Cost of sales
    
    
    (1,188
    )
    
    
    (711
    )
    
    
    (666
    )
    
    
    (297
    )
    
    
    (906
    )
    
    
    421
    
    
    
    (3,347
    )Gross profit
    
    
    787
    
    
    
    77
    
    
    
    152
    
    
    
    398
    
    
    
    380
    
    
    
    29
    
    
    
    1,823Administrative and selling expenses
    
    
    (167
    )
    
    
    (59
    )
    
    
    (95
    )
    
    
    (37
    )
    
    
    (137
    )
    
    
    (170
    )
    
    
    (665
    )Exploration expenses
    
    
    (41
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41
    )Other exploitation income (expense), net
    
    
    (4
    )
    
    
    (13
    )
    
    
    2
    
    
    
    17
    
    
    
    44
    
    
    
    (23
    )
    
    
    23Exploitation income (loss)
    
    
    575
    
    
    
    5
    
    
    
    59
    
    
    
    378
    
    
    
    287
    
    
    
    (164
    )
    
    
    1,140Equity earnings of affiliates
    
    
    6
    
    
    
    14
    
    
    
    4
    
    
    
    26
    
    
    
    24
    
    
    
    45
    
    
    
    119Other income (expense)
    
    
    34
    
    
    
    (7
    )
    
    
    (53
    )
    
    
    (511
    )
    
    
    (179
    )
    
    
    (442
    )
    
    
    (1,158
    )Net income (loss)
    
    
    615
    
    
    
    12
    
    
    
    10
    
    
    
    (107
    )
    
    
    132
    
    
    
    (561
    )
    
    
    101
 The following information shows total assets and net sales by geographic area. 2003Argentina
    
    Venezuela
    
    Bolivia
    
    Perú
    
    Brazil
    
    Ecuador
    
    Other
    
    Eliminations
    
    TotalTotal assets
    
    
    10,269
    
    
    
    3,544
    
    
    
    461
    
    
    
    678
    
    
    
    547
    
    
    
    586
    
    
    
    53
    
    
    
    
    
    
    
    16,138Net sales
    
    
    3,804
    
    
    
    594
    
    
    
    108
    
    
    
    374
    
    
    
    502
    
    
    
    115
    
    
    
    2
    
    
    
    (5
    )
    
    
    5,494
 2002Argentina
    
    Venezuela
    
    Bolivia
    
    Perú
    
    Brazil
    
    Ecuador
    
    Other
    
    Eliminations
    
    TotalTotal assets
    
    
    7,744
    
    
    
    3,886
    
    
    
    379
    
    
    
    908
    
    
    
    722
    
    
    
    751
    
    
    
    259
    
    
    
    
    
    
    
    14,649Net sales
    
    
    3,368
    
    
    
    700
    
    
    
    112
    
    
    
    359
    
    
    
    561
    
    
    
    28
    
    
    
    3
    
    
    
    (25
    )
    
    
    5,106
 2001Argentina
    
    Venezuela
    
    Bolivia
    
    Perú
    
    Brazil
    
    Ecuador
    
    Other
    
    Eliminations
    
    TotalNet sales
    
    
    4,122
    
    
    
    489
    
    
    
    84
    
    
    
    182
    
    
    
    297
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    5,170
  20.
    
    Argentines economic situation Argentina is under a serious economic situation that is mainly
characterized by the high foreign debt level, a financial system in crisis, a
country risk that reached unprecedented international levels and an economic
recession. This situation has generated a major fall in product and service
demand, a significant increase in unemployment levels, and has hampered the
Argentine Governments ability to meet its obligations thus declaring the
default on public debt services at the end of 2001. F-55




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##### Table of Contents



In order to address the crisis in which Argentina is enmeshed by, since
December 2001, Argentine authorities implemented a number of monetary and
exchange control measures that mainly included restrictions on the free
disposition of funds deposited with banks and the practical impossibility of
making transfers abroad, with the exception of transfers related to foreign
trade and other authorized transactions subject, in some cases, to the previous
authorization of the Central Bank of Argentina (BCRA). The obligation was established to deposit with Argentine banks foreign
currency arising from exports, as long as no prior exemption mechanisms were in
place. In this regard, Executive Decree No. 1,589/89 establishes that producers
with free availability of crude oil, natural gas and/or liquefied gases under
the terms of Law No. 17,319 and supplementary executive orders, and produces
who agree so in the future, shall have the free availability of the percentage
of funds established by the bids and/or renegotiations, or provided in the
respective agreements, in which case they shall not be required to pay and
settle the funds related to that percentage. In all cases, the freely
available maximum percentage of funds shall not exceed 70% of each transaction.
No assurance can be given whether the government will not amend the above
mentioned system in the future. Later, the Federal Government declared the official default on foreign
debt payments and, on January 6, 2002, the Argentine Congress approved Law No.
25,561 on Public Emergency and Exchange System Reform that introduced dramatic
changes to the economic model implemented until that date which resulted in a
significant devaluation of the peso with the ensuing rise in domestic prices. The government measures included the switch into pesos of certain assets
and liabilities denominated in foreign currency and held in Argentina and the
rescheduling of bank deposits, subsequently enabling the option to convert
deposits into ten-year bonds in US dollars, or three- or five-year bonds in
pesos, of fixed-term bills; the issuance of Federal Treasury bonds to
compensate the losses resulting from the asymmetrical switch into pesos of the
receivables and payables mentioned above; the switch into pesos of all private
agreements executed before January
6, 2002, at the exchange rate of US$ 1 = ARS 1 and their subsequent indexation
by the CER; the de-dollarization and elimination of indexation on public
utility service rates, with rates remaining set at the exchange rate of US$ 1 =
ARS 1; and imposing duties on the export of oil and gas and their derivatives. On March 5, 2003, the Supreme Court declared that the conversion of
deposits denominated in U.S. dollars into Argentine pesos was not
constitutional. The Supreme Court authorized the claim of the Province of San
Luis to redollarize its deposits. Although this decision does not generalize
the redollarization, it constitutes an important background for the remaining
bank deposits converted into pesos, regarding the treatment of the rest of the
actions initiated in connection with de-dollarized bank deposits. Since 2002, the Argentine federal government has implemented several
measures relaxing controls and restrictions on economic activity and fostering
the gradual normalization of the foreign exchange market and commercial and
financial flows. In this respect the measures included lifting the restrictions
on demand deposits, relaxing restrictions on principal and interest payments to
foreign creditors, increased latitude in the payment terms for capital goods
exports and imports, easier access to foreign exchange markets by entities and
individuals, and authorization for authorized foreign-exchange dealers to
channel remittances abroad of earnings and dividends from fiscal years closed
and with financial statements certified by external auditors. On September 22, 2003, the Argentine government submitted to the
bondholders a rescheduling plan related to Argentine bonds in default. By
virtue of such plan, the Argentine bonds issued prior to December 31, 2001,
would be eligible (eligible debt) for the proposed swap of bonds, maintaining
a strict equity principle among all types and classes of creditors. The
interest past due as from the default that took place in early 2002 would not
be paid and the debt principal would be reduced by 75%. Negotiations are
likely to be complicated as a result of the large number of creditors holding
over 100 different bonds denominated in different currencies. The governments
main objective is to restore the solvency by improving the debt to GDP and debt
service to tax revenues ratios in order to establish a new debt profile
consistent with the Argentine payment ability. These financial statements comprise the effects deriving from the
new political, economic and foreign exchange regulations known as of
their date of issuance. All the Companys Management estimations have
been made considering such policies. The impact deriving from the
additional measures to be implemented by Government and from putting
those previously adopted in practice shall be booked once the Companys
Management becomes aware of them. F-56




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##### Table of Contents



21.
    
    Controlling Group On October 17, 2002, Petrobras Participacoes, S.L., a wholly-owned
subsidiary of Petróleo Brasileiro S.A.  PETROBRAS (Petrobras), acquired
58.6% of Petrobras Participacioness capital stock from the Perez Companc
Family and Fundación Perez Companc. Petrobras is a Brazilian company, whose
business is concentrated on exploration, production, refining, sale and
transportation of oil and its byproducts in Brazil and abroad.  22.
    
    Summary of significant differences between accounting principles followed
by the Company and US GAAP The Companys financial statements have been prepared in conformity
with Argentine GAAP, which differ in certain respects from US GAAP. The
differences are reflected in the amounts provided in Note 23 and relate
to the items discussed in the following paragraphs. As explained in Note
3, several accounting changes were made in the year ended December 31,
2003 under Argentine GAAP on retroactive basis. As a result of such
retroactive changes, the following discussions and the reconciliations,
and other information presented in Note 23 and 24, were restated
accordingly for figures corresponding to prior years under Argentine
GAAP. a) Restatements of financial statements for general price-level changes Prior to September 1, 1995, Argentine GAAP required the restatement of
non-monetary assets and liabilities into constant Argentine pesos as of the
date of the financial statements. Effective September 1, 1995, the CNV passed
General Resolution No. 272 which provided that public companies would no
longer be permitted to present financial statements that were adjusted to
recognize the effect of inflation prevailing after such date. Therefore for
periods ending subsequent to September 1, 1995, and until December 31, 2001,
there had been no further restatement of non-monetary items or recognition of
monetary gains and losses. This resolution matched Argentine GAAP so long as
the change in the price index applicable to the restatement did not exceed 8%
per annum. Due to the new inflationary environment in Argentina in 2002, and the
conditions created by the Public Emergency Law, the Professional Council in
Economic Sciences of the City of Buenos Aires (CPCECABA) approved on March 6,
2002 Resolution MD No. 3/2002 applicable to financial statements for fiscal
years or interim periods ending on or after March 31, 2002. Resolution MD No.
3/2002 required the reinstatement of the adjustment-for-inflation method of
accounting in financial statements, which provides that all recorded amounts be
restated by changes in the general purchasing power through August 31, 1995, as
well as those arising between that date and December 31, 2001 stated in
currency as of December 31, 2001. On July 16, 2002, the Argentine government issued Decree 1,269/02,
instructing the CNV and other regulatory authorities to issue the necessary
regulations for the delivery to such authorities of balance sheets or financial
statements prepared in constant currency. On July 25, 2002, under Resolution
No. 415/02, the CNV reinstated the requirement to submit financial statements
in constant currency. As the inflation rate stabilized, on March 25, 2003,
Decree 664/03 rescinded the requirement that financial statements be prepared
in constant currency. On April 8, 2003, the CNV issued Resolution 441/03
discontinuing inflation accounting as of March 1, 2003. Through Resolution No.
287/03 the CPCECABA also discontinued inflation accounting, but as from October
1, 2003. Accordingly, inflation accounting for the period from March 1, 2003 to
September 30, 2003 is required by the CPCECABA but not allowed by the CNV. In accordance with the above, our financial statements for the fiscal
years ended December 31, 2002 and 2001 were restated in constant pesos as of
February 28, 2003 based on changes in the Argentine wholesale price index
published by the INDEC. This price index does not reflect any specific
variation in the price of products and services sold by us, and therefore,
variations in gains (losses) for both periods include positive or negative
price variations that may be higher or lower than the general price variation
or price variations for the products or services sold by us. After March 1,
2003, in accordance with the CNV standards described above, we no longer apply
adjusting-for-inflation accounting. Under US GAAP, general price level adjusted financial statements are not
required. However, pursuant to the SECs rules, these adjustments are not
removed when performing the reconciliation to US GAAP included in Note 23. F-57




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##### Table of Contents



b) Capitalization of exchange differences Under Argentine GAAP, Resolution No. 3/2002 of the CPCECABA requires that
exchange differences resulting from the peso devaluation on liabilities
denominated in foreign currencies existing as of January 6, 2002, that are
directly related to the acquisition, construction or production of property,
plant and equipment, intangibles and long-term investments in other companies
incorporated in Argentina, should be capitalized at the cost values of such
assets, subject to a number of conditions. As described in Note 4.o), as of December 31, 2003 and 2002, the Company
records capitalized negative foreign exchange differences through its
affiliates Citelec and CIESA. Under US GAAP, foreign currency exchange gains or losses are recognized
currently in income. c) Accounting for peso devaluation in January 2002 Under Argentine GAAP, assets and liabilities in foreign currency as of
December 31, 2001, have been valued at the P$1=U.S.$ 1 exchange rate that was
in effect when transactions in the foreign exchange market were suspended.
Accordingly, all the effects of the devaluation of the Argentine peso were
recognized in the 2002 fiscal year. Under US GAAP, such assets and liabilities in foreign currency should be
valued at the exchange rate effective as of the date of reopening of the
exchange market (January 11, 2002), which was P$ 1.70 to US$ 1.00. As a result,
the effects of such devaluation were recognized in 2001 fiscal year, and
included as an adjustment in the reconciliation of net income to US GAAP in
Note 23, on the following line items: On net income:  
    
    Exchange differences
    
    US GAAP adjustments applicable to equity in affiliates and to equity in earnings of affiliates. Since no difference in exchange rates is verified as of December 31, 2002,
the effects described above are reversed on 2002 fiscal year in the
reconciliation presented in Note 23. d) Income taxes Both Argentine GAAP and US GAAP, require the liability method to be used
to account for deferred income taxes. Under this method, deferred income tax
assets or liabilities are recorded for temporary differences that arise between
the financial and tax bas es of assets and liabilities at each reporting date.
The benefits of tax loss carry-forwards are recognized as deferred income tax
assets, with an appropriate valuation allowance. A valuation allowance is
provided when it is more likely than not (under US GAAP) or probable (under
Argentine GAAP) that some portion or all of the deferred tax assets will not be
realized. However, Argentine GAAP and US GAAP may differ under certain circumstances
in deferred income tax accounting. Under Argentine GAAP, differences between
accounting and tax basis generated due to the recognition of the inflation
effect on non-monetary assets, are accounted for as permanent differences for
deferred income tax purposes. Under US GAAP, pursuant to Emerging Issues Task
Force (EITF) No. 93-9, such differences are accounted for as temporary
differences for deferred income tax purposes. F-58




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e) Deferred charges Under Argentine GAAP, costs such as organization and pre-operating
expenses may be deferred and amortized over the resultant period of benefit,
under certain circumstances. For US GAAP purposes these amounts are expensed as incurred. f) Discounting of certain receivables and liabilities Under Argentine GAAP, certain receivables and liabilities which are valued
on the basis of the best possible estimate of amount to be collected and paid,
are required to be discounted using the estimated rate at the time of the
initial measurement. Under
US GAAP, receivables and liabilities arising from transactions with
customers and suppliers in the normal course of business, which are
done in customary trade terms not exceeding one year, are accounted for at nominal
value, including accrued interest, if applicable. g) Proportionate consolidation Under Argentine GAAP, an investor is required to consolidate
proportionally line by line its financial statements with the financial
statements of the companies over which it exercises joint control. Joint
control exists where all the shareholders, or only the shareholders owning a
majority of votes, share the power to define and establish a companys
operating and financial policies on the basis of written agreements. In the
consolidation of companies over which an investor exercises joint control, the
amount of the investment in the company under joint control and the interest in
its income (loss) and cash flows are replaced by the investors proportional
interest in the companys assets, liabilities, income (loss) and cash flows.
Under Argentine GAAP, participations in Distrilec and CIESA qualify for
proportionate consolidation. Under US GAAP, participation in companies over which the investor
exercises joint control is accounted for by the equity method and no
proportional consolidation is allowed. However, pursuant to the SECs rules,
differences in classification or display that result from using proportionate
consolidation in the reconciliation to US GAAP, may be omitted if certain
requirements are met. Such requirements are met by Distrilec but not by CIESA.
As a result such differences corresponding to proportional consolidation of
Distrilec are not presented. h) Accounting for business combinations In July 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations and SFAS No. 142 Goodwill and Other
Intangible Assets. These standards change the accounting for business
combinations by, among other things, prohibiting the prospective use of
pooling-of-interests accounting. In addition, SFAS No. 142 requires that,
effective January 1, 2002, goodwill included in the carrying value of
investments accounted for using the equity method of accounting, and certain
other intangible assets deemed to have an indefinite useful life, cease
amortizing. The new rules also require that goodwill and certain intangible
assets be assessed for impairment using fair value measurement techniques. The
Company has completed the annual impairment test of goodwill under the new
standard and no additional adjustment was required. Business combinations
performed before June 30, 2001 were accounted for under APB Opinion No. 16. Under this past standard, goodwill was amortized on a straight-line basis
over 40 years, resulting in an accumulated amortization of 46 through December
31, 2001. As from January 1, 2002, goodwill is no longer amortized. All
business combinations described below were performed before June 30, 2001. F-59




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1) Petrobras Energía share exchange offer Under US GAAP, the 2000 exchange offer was accounted for under the
purchase method. The purchase price of 6,766, calculated based upon the
market price of Petrobras Energía common stock, has been allocated to the
identifiable assets acquired and liabilities assumed based upon their fair
value as of the acquisition date. The excess of the purchase price over the
fair value of the net assets acquired has been reflected as goodwill, which
was amortized on a straight-line basis over 40 years until December 31, 2001.
The purchase price has been allocated as follows: Fair value of assets acquired
    
    
    10,927Goodwill
    
    
    928Fair value of liabilities assumed
    
    
    (5,089
    )Total purchase price
    
    
    6,766
 Under Argentine GAAP, the accounting practice followed in 2000 fiscal
year for nonmonetary exchange of shares was to recognized net assets at book
value. Accordingly, issued shares of Petrobras Energía Participaciones S.A.
(formerly Perez Companc S.A) were subscribed and accounted for at the book
value of Petrobras Energía shares exchanged. Therefore, the US GAAP
reconciliation of shareholders equity reflects the additional purchase
price of Petrobras Energía capital stock, and the reconciliation of net
income reflects the incremental depreciation, depletion, amortization,
effective interest rate of liabilities and the related effects on the
deferred income tax, as a result of the purchase price allocation mentioned
above and the amortization of goodwill until December 31, 2001, which
amounted to 24 for the year ended December 31, 2001. Beginning 2003 fiscal year, new Argentine GAAP pursuant to CNV
Resolution N° 434 adopted the purchase method or the pooling of interests
method, depending on the circumstances. However, such new standards are not
applied in retroactive basis. 2) Impairment of goodwill, Property, Plant and Equipment, and equity in
affiliates As described above, the purchase price of Petrobras Energía has been
allocated under US GAAP (but not under Argentine GAAP) to the identifiable
assets acquired and liabilities assumed, based upon their fair values as of
acquisition date, being the excess reflected as goodwill. In 2001 fiscal year, the US GAAP reconciliation reflected impairment
charges of goodwill of 571, impairment charges of Property, plant and
equipment of 628, and impairment charges of equity in affiliates of 411, to
reduce the book value under US GAAP to fair values as of year-end, because
such goodwill was not reflected under Argentine GAAP and book value of equity
in affiliates subject to impairment was higher under US GAAP, as explained
above. Impairment losses reflected under US GAAP in 2001 fiscal year were a
consequence of the crisis in Argentina as described in Notes 20 and 9.VI),
and included identified goodwill and equity in the affiliates: CIESA, TGS,
Enron de Inversiones de Energía S.C.A. (Edidesca), Distrilec and Citelec.
Total impairment loss adjustments from Argentine GAAP to US GAAP were 653 for
hydrocarbons, marketing and transportation segment, and 987 for electricity
segment. For purposes of determining impairment loss, fair values were
estimated based on quoted market prices and other information available. As a result of recognizing such impairment losses and the devaluation
effects on 2001 fiscal year as explained in Note 22.c), under US GAAP the
value of the Companys interest in Citelec, Transener, CIESA, TGS and
Edidesca as of December 31, 2001, accounted for under the equity method was
nil. As of December 31, 2003 and 2002, as a result of the devaluation effects
mentioned above, under US GAAP the book value of the Company  ́s interest in
Citelec, Transener and CIESA accounted for under the equity method is nil. As
of such dates, the valuation of the interest in TGS amounts to 82 and 37,
respectively, under US GAAP. F-60




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3) Negative goodwill For the Hidroeléctrica Pichi Picún Leufú S.A. (HPPL) acquisition, the
fair value of assets was substantially represented by the acquired deferred
tax assets, consisting of the tax effects of the difference between tax and
book basis of fixed assets and net operating loss carry forwards, which were
only recognized under US GAAP. To the extent of the excess of such deferred
tax assets acquired over the consideration paid, a negative goodwill was
recognized under US GAAP, which was amortized over a 30 year period beginning
at the plant start-up of operations until December 31, 2001. As the Company
adopted SFAS 142 effective January 1, 2002, such negative goodwill has been
reversed, and a cumulative effect of change in accounting principle of 179
was recognized in 2002. Neither the deferred tax assets nor the related negative goodwill and
its reversal were recognized under Argentine GAAP. 4) Deferred charges in privatized companies acquired In Argentina, it is an accepted practice for costs associated with
voluntary retirement programs incurred in the acquisition and start-up of a
privatized company to be recognized as a liability with a corresponding
deferred asset, which is amortized over the period expected to be benefited. The only difference between US and Argentine GAAP related to qualifying
liabilities assumed is that for Argentine GAAP the offsetting purchase price
is allocated to intangible assets and for US GAAP the offsetting purchase
price is allocated to the fair value of the acquired assets which, in this
case, is property, plant and equipment (PP&E). Therefore, the US GAAP
reconciliation of net income and shareholders equity reflects in this
respect, the difference between intangible asset amortization and property,
plant and equipment depreciation. i) Foreign Currency Translation Under Argentine GAAP, all foreign operations are remeasured into U.S.
dollars, their functional currency. Assets and liabilities, stated at current
values are to be converted at the closing exchange rates, assets and
liabilities measured at cost and revenues, expenses, gains and losses are to be
converted at the historical exchange rates. Once the transactions are
remeasured into U.S. dollars, assets and liabilities are translated into pesos
at current rate, and revenues, expenses, gains and losses are translated at
historical exchange rates. Resulting remeasurement and translation gain or loss
is recognized currently in earnings in the Financial income (expense) and
holding gain (losses) account for fiscal years 2002 and 2001. In accordance with new accounting standards pursuant to CNV Resolution No.
434 as from fiscal year 2003, the translation gain or losses arising from the
translation into pesos of the financial statements of all foreign operations is
presented in the Transitory differencesforeign currency translation account,
a separate component of the balance sheet. Under US GAAP, gains or losses resulting from translation of U.S. dollars
remeasured operations into pesos, are included as other comprehensive income, a
separate component of shareholders equity. A portion of the
companys foreign currency denominated debt portfolio is designated as a hedge of the volatility in stockholders equity
caused by changes in the functional currency exchange rates with respect to the
peso. Exchange differences resulting from such debt are reflected in the
Transitory differencesForeign currency translation account under Argentine GAAP (for 2003), and in the
cumulative translation adjustment account under US GAAP (for all periods presented), thereby offsetting the translation
gain or loss from hedged foreign subsidiaries net assets.
Remaining exchange differences recognized in income differ from
Argentine GAAP to US GAAP, as a result of differences in the book
value of foreign subsidiaries net assets and resulting designated debt. j) Capitalization of interest costs on certain assets Prior to January 1, 1993, Argentine GAAP did not require capitalization of
interest charges relating to the financing of major projects under
construction. Capitalization of interest as part of the acquisition cost of an
asset is required under US GAAP. However, qualifying assets and eligible
interest cost may differ under certain circumstances. Under US GAAP, foreign
currency exchange gains or losses are excluded from interest cost base. F-61




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k) Depreciation of Property, plant and equipment Under Argentine GAAP, depreciation of certain non-oil and gas fixed assets
is accounted for by the Company by applying rates established for technical
revaluation, which are based on engineering formulas. Under US GAAP depreciation of such assets is calculated primarily using
the straight-line method over the useful lives of the assets. l) Minority interest An adjustment to record the portion of all US GAAP adjustments
attributable to minority interests in consolidated subsidiaries has been
recorded. m) Accounting for derivative instruments Under US GAAP, SFAS No. 133 as amended by SFAS No. 137 and SFAS No. 138,
requires that all derivative financial instruments be recognized in the
consolidated balance sheets as either an asset or liability measured at fair
value. SFAS No. 133 requires that changes in the derivative  ́s fair value be
recognized in earnings unless specific hedge accounting criteria are met. For
derivatives accounted for as hedges, fair value adjustments are recorded to
earnings or other comprehensive income, a component of shareholders equity,
depending upon the type of hedge and the degree of hedge effectiveness. For
hedges classified as fair value hedges, adjustments are recorded through
earnings with an offsetting, partial mark to fair value of the hedged item
currently through earnings. For hedges classified as cash flow hedges,
adjustments are recorded to other comprehensive income, and the gain or loss on
the derivative is removed from equity and recognized in earnings in the same
period as the loss or gain on the hedged cash flow. Under Argentine GAAP in the fiscal year 2003, changes in the fair value or
derivatives accounted for as effective hedges are recognized in the Transitory
differencesMeasurement of derivative financial instruments determined as
effective hedge account, a separate component of the balance sheet. Prior to the adoption of new accounting standards in fiscal year 2003
pursuant to CNV Resolution No. 434, under Argentine GAAP there were no specific
requirements governing derivatives accounting and the Company used hedge
accounting for derivatives in fiscal years 2002 and 2001 in conjunction with
its risk management objectives. Pursuant to special transition standards, the balances as of December 31,
2002 resulting from the recognition, measurement and booking of financial
instruments, which qualified as effective hedges, were not adjusted
retroactively. n) Valuation of timber Under Argentine GAAP, timber was valued at current values, recognizing
their organic growth currently in income. Under US GAAP, timber is valued at historical cost. Forestry operations
were sold in 2002. o) Debt refinancing costs Under Argentine GAAP, unamortized deferred costs incurred with third
parties related to debt issuance are charged to expenses when such debt is
restructured, while such costs related to the new debt are capitalized and
amortized on a straight  line basis. Under US GAAP, SFAS No. 15 and SFAS No. 140 and related EITF issues
require for debt restructuring not considered to be an extinguishment, the
Company continues amortizing those costs related to the old debt and charge to
expenses for debt restructuring direct costs. F-62




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p) Guarantors Accounting for Guarantees Under US GAAP, FASB Interpretation No. 45, Guarantors Accounting and
Disclosure requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, clarifies that at the time a company issues a
guarantee, the company must recognize an initial liability for the fair value,
or market value, of the obligations it assumes under that guarantee. Under
Argentine GAAP, guarantees issued are generally not recognized as
liabilities. q) Accounting for stock option plans Under Argentine GAAP, the Company has accounted for stock option plans
consistently with Accounting Principles Board (APB) Opinion No. 25,
Accounting for stock issued to employees, in accounting for its employee
stock option plan. Since Petrobras Energías stock option plan is a liability
award, there is no differences in the reported net income and earning per share
for the years 2003, 2002 and 2001 based on SFAS No. 123, Accounting for stock
based compensation, amended by SFAS No. 148. r) Classification of sale of future revenues Under Argentine GAAP, net proceeds from an assignment of future capital
fees to be earned in Venezuela are presented in the Balance Sheet as current
and noncurrent other liabilities for US$ 36 million and US$ 73 million as of
December 31, 2003 and 2002, respectively. Under US GAAP, a sale of future revenues of this nature is classified as
debt. Therefore, a reclassification was made for purposes of US GAAP
consolidated balance sheet data presented in Note 23. s) Classification of impairment losses Under Argentine GAAP, impairment losses for fixed assets, if any, are
generally presented in the income statement as non-operating expenses. US GAAP requires such losses to be presented as operating. Therefore,
impairment losses recognized under Argentine GAAP and additional impairment
losses recognized under US GAAP, are included in the Operating income (loss)
subtotal of the US GAAP Consolidated income data presented in Note 23. t) Accounting for discontinued operations Under Argentine GAAP, the gain or loss on sales of a business segment is
presented in the Other expenses, net account. According to US GAAP, the results of continuing operations should be
presented separately from discontinued operations and any gain or loss from
disposal of a component of business segment should be reported in conjunction
with the result of discontinued operations. Therefore, required
reclassifications have been made for purposes of US GAAP consolidated income
data presented in Note 23. u) Accounting for changes in accounting principles  Asset retirement
obligations Under Argentine GAAP, changes in accounting principles are generally
accounted for on retroactive basis. Under US GAAP, such changes are generally recognized as a cumulative
effect in current earnings for the period the change is effective. In connection with the adoption of SFAS No. 143 Accounting for Asset
Retirement Obligations for both US GAAP and Argentine GAAP as from January 1,
2003, the reconciliation of net income presented in Note 23 reflects the
difference described above in recognizing such change in accounting principle. F-63




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v) New accounting standards under US GAAP 1) Derivative Instruments In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 149 did not impact the
Companys consolidated financial statements. 2) Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.
This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as
equity. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of non-public entities. SFAS
No. 150 did not impact the Companys consolidated financial statements. 3) Employers Disclosures about Pensions and Other Postretirement
Benefits On December 23, 2003 the Financial Accounting Standards Board released
revised FASB Statement No. 132, Employers Disclosures about Pensions and
Other Postretirement Benefits (SFAS No. 132). The revised standard
provides required disclosures for pensions and other postretirement benefit
plans and is designed to improve disclosure transparency in financial
statements. The revised standard replaces existing pension disclosure
requirements. The requirements of the standard are effective for public
entities for fiscal years ending after December 15, 2003. The adoption of
SFAS No. 132 did not have a material impact on the Companys consolidated
financial statements. 4) Revenue recognition On December 17, 2003, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 104 (SAB No. 104), which revises or rescinds
portions of the interpretative guidance included in Staff Accounting
Bulletin No. 101, Revenue Recognition (SAB No. 101). The main
modifications introduced by SAB No. 104 are aimed at making this
interpretive guidance consistent with current authoritative accounting and
auditing guidance and SEC rules and regulations. The principal revisions
relate to the rescission of material no longer necessary because of private
sector developments in the US generally accepted accounting principles. The
adoption of SAB No. 104 did not have a material impact on the Companys
consolidated financial statements. F-64




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23. Reconciliation of net income and shareholders equity to US GAAP The following is a summary of the significant adjustments to net income
for the years ended December 31, 2003, 2002 and 2001, and the shareholders
equity as of December 31, 2003 and 2002, which would be required if US GAAP had
been applied instead of Argentine GAAP in the Companys financial statements. Reconciliation of net income to US GAAP 2003
    
    2002
    
    2001Net income (loss) in accordance with Argentine GAAP
    
    
    381
    
    
    
    (1,579
    )
    
    
    101US GAAP adjustments:Exchange differences from devaluation of the Argentine peso
    
    
    
    
    
    
    218
    
    
    
    (218
    )Foreign currency translation adjustment
    
    
    (108
    )
    
    
    87
    
    
    
    Valuation of timber
    
    
    
    
    
    
    (2
    )
    
    
    2Deferred charges
    
    
    
    
    
    
    1
    
    
    
    2Amortization of deferred charges
    
    
    3
    
    
    
    5
    
    
    
    4Debt refinancing costs
    
    
    24
    
    
    
    (64
    )
    
    
    Deferred income taxes
    
    
    66
    
    
    
    (1,123
    )
    
    
    34Derivatives
    
    
    88
    
    
    
    91
    
    
    
    138Depreciation of PP&E
    
    
    (168
    )
    
    
    (252
    )
    
    
    (168
    )Impairment of PP&E
    
    
    
    
    
    
    
    
    
    
    (628
    )Fair value of liabilities
    
    
    (36
    )
    
    
    12
    
    
    
    (46
    )Negative goodwill
    
    
    
    
    
    
    179
    
    
    
    7Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    (24
    )Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    (571
    )Discounted value of assets and liabilities
    
    
    17
    
    
    
    
    
    
    
    Difference in accounting basis for assets sold
    
    
    (29
    )
    
    
    (92
    )
    
    
    (207
    )Asset retirement obligations
    
    
    45
    
    
    
    (15
    )
    
    
    1Minority Interest
    
    
    (4
    )
    
    
    46
    
    
    
    54Other
    
    
    41
    
    
    
    20
    
    
    
    25Deferred income taxes on US GAAP adjustments
    
    
    97
    
    
    
    148
    
    
    
    582US GAAP adjustments applicable to equity in earnings of affiliatesImpairment of equity in affiliates
    
    
    
    
    
    
    
    
    
    
    (441
    )Exchange differences from devaluation of Argentine peso
    
    
    
    
    
    
    803
    
    
    
    (803
    )Other differences
    
    
    (317
    )
    
    
    (37
    )
    
    
    (110
    )Total US GAAP adjustments
    
    
    (281
    )
    
    
    25
    
    
    
    (2,367
    )Reclasification of discontinued operations and cumulative effect of
changes in accounting principles, net of income tax
    
    
    9
    
    
    
    (314
    )
    
    
    12Income (loss) from continuing operations
    
    
    109
    
    
    
    (1,868
    )
    
    
    (2,254
    )Discontinued operations:Income (loss) from operations (1)
    
    
    7
    
    
    
    72
    
    
    
    (12
    )Income (loss) from disposal (2)
    
    
    (46
    )
    
    
    63
    
    
    
    Income (loss) before cumulative effect of changes
in accounting principles
    
    
    70
    
    
    
    (1,733
    )
    
    
    (2,266
    )Cumulative effect of changes in accounting principles, net of tax
(3)
    
    
    30
    
    
    
    179
    
    
    
    Net income (loss) under US GAAP
    
    
    100
    
    
    
    (1,554
    )
    
    
    (2,266
    )
 F-65




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2003
    
    2002
    
    2001Basic net income (loss) per share under US GAAPClass A
    
    
    
    
    
    
    
    
    
    
    (0.786
    )Class B
    
    
    0.047
    
    
    
    (0.729
    )
    
    
    (1.179
    )Diluted net income (loss) per share under US GAAP
    
    
    0.047
    
    
    
    (0.729
    )
    
    
    (1.063
    )Basic net income (loss) per share under US GAAPClass AContinuing operations
    
    
    
    
    
    
    
    
    
    
    (0.782
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.004
    )Class BContinuing operations
    
    
    0.051
    
    
    
    (0.876
    )
    
    
    (1.172
    )Discontinued operations
    
    
    (0.018
    )
    
    
    0.063
    
    
    
    (0.006
    )Cumulative effect of changes in accounting principles
    
    
    0.014
    
    
    
    0.084
    
    
    
    Diluted net loss per share under US GAAPContinuing operations
    
    
    0.051
    
    
    
    (0.876
    )
    
    
    (1.057
    )Discontinued operations
    
    
    (0.018
    )
    
    
    0.063
    
    
    
    (0.006
    )Cumulative effect of changes in accounting principles
    
    
    0.014
    
    
    
    0.084
    
    
    
    Basic net income (loss) per share under Argentine GAAPClass A
    
    
    
    
    
    
    
    
    
    
    0.035Class B
    
    
    0.179
    
    
    
    (0.744
    )
    
    
    0.053Diluted net income per share under Argentine GAAP
    
    
    0.179
    
    
    
    (0.744
    )
    
    
    0.047Number of shares -in millions (4)
    
    
    2,132
    
    
    
    2,132
    
    
    
    2,132
  (1)
    
    Net of applicable income tax expenses of 26 and 27 for the years ended
December 31, 2002 and 2001.(2)
    
    Including applicable income tax benefit of 10 and 3 for the years
ended December 31, 2003 and 2002.(3)
    
    Net of applicable income tax expense of 15 for the year ended
December 31, 2003.(4)
    
    Earnings per share are calculated based on the weighted average
number of shares outstanding during the year. Consolidated pro forma income data As mentioned in Note 22, SFAS No. 142 and SFAS No. 143 were effective from
January 1, 2002 and January 1, 2003, respectively. If the new standards had
been effective before January 1, 2001, net income for the years ended December
31, 2003, 2002 and 2001, would have been as follows: 2003
    
    2002
    
    2001Net income (loss) under US GAAP
    
    
    100
    
    
    
    (1,554
    )
    
    
    (2,266
    )Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    9Reversal of negative goodwill
    
    
    
    
    
    
    (179
    )
    
    
    (7
    )Accounting for asset retirement obligation, net of tax
    
    
    (30
    )
    
    
    10
    
    
    
    (1
    )Proforma net income (loss) under US GAAP
    
    
    70
    
    
    
    (1,723
    )
    
    
    (2,265
    )Proforma basic net income (loss) per share under US GAAPClass A
    
    
    
    
    
    
    
    
    
    
    (0.785
    )Class B
    
    
    0.033
    
    
    
    (0.808
    )
    
    
    (1.178
    )Proforma diluted net income (loss) per share under US GAAP
    
    
    0.033
    
    
    
    (0.808
    )
    
    
    (1.062
    )
 F-66




---



##### Table of Contents



Consolidated statement of comprehensive income 2003
    
    2002
    
    2001Net income (loss) under US GAAP
    
    
    100
    
    
    
    (1,554
    )
    
    
    (2,266
    )Foreign currency translation adjustment:Net change during period, net of tax
    
    
    (78
    )
    
    
    (374
    )
    
    
    455Deferred hedge gains and losses, net of tax:Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    (228
    )Reclassification to net income
    
    
    (15
    )
    
    
    78
    
    
    
    162Deferred hedge (loss) gains
    
    
    17
    
    
    
    (54
    )
    
    
    26Total Comprehensive Income
    
    
    24
    
    
    
    (1,904
    )
    
    
    (1,851
    )Cumulative Other Comprehensive Income:Foreign currency translation adjustment
    
    
    (48
    )
    
    
    30
    
    
    
    404Deferred hedge gains and losses, net of tax
    
    
    (12
    )
    
    
    (14
    )
    
    
    (38
    )Total Cumulative Other Comprehensive Income
    
    
    (60
    )
    
    
    16
    
    
    
    366
 Reconciliation of shareholders  ́ equity to US GAAP 2003
    
    2002Shareholders equity in accordance with Argentine GAAP
    
    
    4,833
    
    
    
    4,452US GAAP adjustments:Deferred charges
    
    
    (29
    )
    
    
    (37
    )Debt refinancing costs
    
    
    (41
    )
    
    
    (65
    )Deferred income taxes
    
    
    (1,242
    )
    
    
    (1,308
    )Minority interest
    
    
    132
    
    
    
    136Derivatives
    
    
    (18
    )
    
    
    (109
    )Foreign currency translation adjustment
    
    
    (161
    )
    
    
    (123
    )PP&E
    
    
    1,513
    
    
    
    1,909Goodwill
    
    
    155
    
    
    
    155Fair value of liabilities
    
    
    86
    
    
    
    140Discounted value of assets and liabilities
    
    
    17
    
    
    
    Asset retirement obligations
    
    
    
    
    
    
    (45
    )Other
    
    
    11
    
    
    
    6Deferred income taxes on U.S. GAAP adjustments
    
    
    (360
    )
    
    
    (543
    )US GAAP adjustments applicable to equity in affiliates
    
    
    (373
    )
    
    
    (69
    )Total US GAAP adjustments
    
    
    (310
    )
    
    
    47Shareholders equity in accordance with US GAAP
    
    
    4,523
    
    
    
    4,499
 F-67




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##### Table of Contents



Description of changes in shareholders ́ equity under US GAAP 2003
    
    2002
    
    2001Shareholders ́ equity under US GAAP as of beginning of the year
    
    
    4,499
    
    
    
    6,403
    
    
    
    8,408Cash dividends
    
    
    
    
    
    
    
    
    
    
    (134
    )Acquisition of own stock held by subsidiary
    
    
    
    
    
    
    
    
    
    
    (20
    )Other comprehensive income
    
    
    (76
    )
    
    
    (350
    )
    
    
    415Net income (loss) under US GAAP
    
    
    100
    
    
    
    (1,554
    )
    
    
    (2,266
    )Shareholders ́ equity under US GAAP as of the end of the year
    
    
    4,523
    
    
    
    4,499
    
    
    
    6,403
 US GAAP Summarized Consolidated Data The consolidated income data and the consolidated cash flow data for the
years ended December 31, 2003, 2002 and 2001, and the consolidated balance
sheets data as of December 31, 2003 and 2002, presented below have been
adjusted to reflect the differences between US GAAP and Argentine GAAP
discussed above: Year ended December 31,US GAAP consolidated income and loss data
    
    2003
    
    2002
    
    2001Sales
    
    
    5,192
    
    
    
    5,321
    
    
    
    4,658Less  taxes on sales and services
    
    
    (114
    )
    
    
    (139
    )
    
    
    (28
    )Net sales
    
    
    5,078
    
    
    
    5,182
    
    
    
    4,630Cost of sales
    
    
    (3,282
    )
    
    
    (3,374
    )
    
    
    (3,084
    )Gross profit
    
    
    1,796
    
    
    
    1,808
    
    
    
    1,546Administrative and selling expenses
    
    
    (529
    )
    
    
    (645
    )
    
    
    (629
    )Exploration expenses
    
    
    (196
    )
    
    
    (58
    )
    
    
    (41
    )Other operating income (expense), net
    
    
    (449
    )
    
    
    (275
    )
    
    
    (23
    )Operating income
    
    
    622
    
    
    
    830
    
    
    
    853Equity in earnings of affiliates
    
    
    65
    
    
    
    (125
    )
    
    
    (2,713
    )Financial income (expense) and holding gains (losses)
    
    
    (663
    )
    
    
    (1,564
    )
    
    
    (911
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    185Income (loss) before income taxes, minority interest,
discontinued operations and cumulative effect of
changes in accounting principles
    
    
    24
    
    
    
    (859
    )
    
    
    (2,586
    )Income tax (expense) benefit
    
    
    92
    
    
    
    (1,089
    )
    
    
    326Minority interest in subsidiaries
    
    
    (7
    )
    
    
    80
    
    
    
    6Discontinued operationsIncome (loss) from discontinued operations, net
of income taxes (1)
    
    
    7
    
    
    
    72
    
    
    
    (12
    )Income (loss) from disposal, net of income taxes (2)
    
    
    (46
    )
    
    
    63
    
    
    
    Cumulative effect of changes in accounting
principles (3)
    
    
    30
    
    
    
    179
    
    
    
    Net income (loss) for the year
    
    
    100
    
    
    
    (1,554
    )
    
    
    (2,266
    )
  (1)
    
    Net of income tax expense of 26 and 27 for the years ended December
31, 2002 and 2001.  (2)
    
    Net of income tax benefit of 10 and 3 for the years ended December
31, 2003 and 2002.  (3)
    
    Net of income tax expense of 15 for the year ended December 31, 2003. F-68




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##### Table of Contents



Year ended December 31,US GAAP condensed consolidated balance sheet data
    
    2003
    
    2002Current assets
    
    
    2,614
    
    
    
    2,750Investments
    
    
    1,071
    
    
    
    1,055Property, plant and equipment
    
    
    10,522
    
    
    
    12,105Other non current assets
    
    
    301
    
    
    
    198Total non current assets
    
    
    11,894
    
    
    
    13,358Total assets
    
    
    14,508
    
    
    
    16,108Short-term debt
    
    
    1,304
    
    
    
    1,624Other liabilities
    
    
    1,282
    
    
    
    1,155Total current liabilities
    
    
    2,586
    
    
    
    2,779Long-term debt
    
    
    5,027
    
    
    
    6,152Other non current liabilities
    
    
    1,967
    
    
    
    2,238Total
noncurrent liabilities
    
    
    6,994
    
    
    
    8,390Total liabilities
    
    
    9,580
    
    
    
    11,169Minority interest in subsidiaries
    
    
    405
    
    
    
    440Shareholders equity
    
    
    4,523
    
    
    
    4,49914,508
    
    
    
    16,108
 Year ended December 31,US GAAP condensed consolidated cash flow data
    
    2003
    
    2002
    
    2001Net cash provided by operations
    
    
    1,209
    
    
    
    826
    
    
    
    1,415Net cash used in investing activities
    
    
    (886
    )
    
    
    (172
    )
    
    
    (1,746
    )Net cash (used in) provided by financing activities
    
    
    (369
    )
    
    
    (1,953
    )
    
    
    986(Decrease) Increase in cash
    
    
    (46
    )
    
    
    (1,299
    )
    
    
    655Effect of the exchange rate on cash
    
    
    (88
    )
    
    
    (63
    )
    
    
    818Cash and cash equivalent at beginning
    
    
    725
    
    
    
    2,087
    
    
    
    614Cash and cash equivalent at end
    
    
    591
    
    
    
    725
    
    
    
    2,087
 F-69




---



##### Table of Contents



24.
    
    Additional financial statements disclosures required by US GAAP and the
SEC a) Income taxes The tax effect of the significant differences between the book value and
the tax value of the Companys assets and liabilities and tax loss carryfowards
are as follows: 2003
    
    2002Deferred tax assetsTax loss carryforwards
    
    
    1,399
    
    
    
    1,867Other tax losses
    
    
    207
    
    
    
    279Property, plant and equipment
    
    
    62
    
    
    
    58Reserve for contingencies
    
    
    76
    
    
    
    29Non-current investments
    
    
    82
    
    
    
    86Pension plan obligations
    
    
    7
    
    
    
    7Derivatives
    
    
    216
    
    
    
    187Receivables
    
    
    10
    
    
    
    22Accounts payable
    
    
    12
    
    
    
    5Other deferred tax assets, not significant individually
    
    
    68
    
    
    
    17Less-Valuation allowance
    
    
    (1,619
    )
    
    
    (2,071
    )Deferred tax liabilitiesRevenue recognition
    
    
    (40
    )
    
    
    (21
    )Current investments
    
    
    (16
    )
    
    
    Fair value of liabilities
    
    
    (30
    )
    
    
    (49
    )Prepaid
expenses
    
    
    (29
    )
    
    
    (8
    )Property, plant and equipment
    
    
    (1,551
    )
    
    
    (1,827
    )Non-current investments
    
    
    (351
    )
    
    
    (352
    )Other deferred tax liabilities, not significant individually
    
    
    (41
    )
    
    
    (21
    )Net deferred tax liabilities
    
    
    (1,538
    )
    
    
    (1,792
    )
 The tax loss carryforwards as of December 31, 2003 expire as follows: 2005
    
    
    152006
    
    
    432007
    
    
    52Beyond 2008
    
    
    1,4961,606Valuation allowance on tax loss carryforwards
    
    
    (1,516
    )
 F-70




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##### Table of Contents



The reconciliation of tax provision at the statutory rate to the tax
provision for the years ended December 31, 2003, 2002 and 2001, computed in
accordance with US GAAP, is as follows: 2003
    
    2002
    
    2001Pre-tax income (loss) in accordance with U.S. GAAP
    
    
    6
    
    
    
    (523
    )
    
    
    (2,574
    )Statutory tax rate
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Statutory tax rate applied to pre-tax income (loss)
    
    
    2
    
    
    
    (183
    )
    
    
    (901
    )Equity in
(earnings) losses and dividends from affiliates
    
    
    (56)
    
    
    
    (97
    )
    
    
    20Inflation
adjustment on nonmonetary assets and liabilities
    
    
    13
    
    
    
    973
    
    
    
    Inflation adjustment, remeasurement and foreign earnings
    
    
    332
    
    
    
    1
    
    
    
    4Increase (decrease) in valuation allowances
    
    
    (422
    )
    
    
    333
    
    
    
    279Tax on minimum presumed income
    
    
    11
    
    
    
    19
    
    
    
    104Impairment,
amortization and other decreases of goodwill
    
    
    13
    
    
    
    39
    
    
    
    218Tax adjustments and other,
net
    
    
    20
    
    
    
    27
    
    
    
    (23)Tax (benefit) expense
    
    
    (87
    )
    
    
    1,112
    
    
    
    (299
    )
 The Companys provision for income taxes under US GAAP was comprised of
the following: 2003
    
    2002
    
    2001CurrentArgentina
    
    
    
    
    
    
    44
    
    
    
    180Foreign
    
    
    48
    
    
    
    22
    
    
    
    2048
    (1)
    
    
    66
    
    
    
    200DeferredArgentina
    
    
    (74
    )
    
    
    1,118
    
    
    
    (585
    )Foreign
    
    
    (61
    )
    
    
    (72
    )
    
    
    86(135
    )
    
    
    1,046
    
    
    
    (499
    )Total tax (benefit)
expense
    
    
    (87
    )
    
    
    1,112
    
    
    
    (299
    )
 
  b) Fair value of financial instruments US GAAP requires disclosure of the estimated fair value of the Companys
financial instruments. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments. The carrying amounts of cash, cash equivalents, accounts receivables and
short-term obligations approximate its fair value, because of the short-term
maturities of these instruments. Fair value of trading and held-to-maturity investments is based on quoted
market prices. The fair value of publicly traded long-term debt is based on
quoted market prices, and for the remaining long-term debt was estimated based
on the current rates available to the Company for debt of similar remaining
maturities. Fair values of derivative financial instruments represent the
estimated amount that would have been required to terminate the contracts. The
fair value of performance bonds and other guarantees approximate the notional
amount of these instruments. F-71




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##### Table of Contents



The estimated fair values of financial instruments are as follows, except
for those financial instruments noted above for which the carrying values
approximate fair values: 2003
    
    2002Carrying
    
    
    
    
    
    Carryingamount
    
    
    
    
    
    amountunder
    
    Fair
    
    under
    
    FairUS GAAP
    
    Value
    
    US GAAP
    
    ValueFinancial assets:Held-to-maturity securities
    
    
    2
    
    
    
    1
    
    
    
    14
    
    
    
    5Financial liabilities:Long-term debt
    
    
    5,027
    
    
    
    5,161
    
    
    
    6,152
    
    
    
    5,324Derivative financial instruments:Energy commodities price swaps and options:Accounted for as a hedge:· Unfavorable
    
    
    
    
    
    
    
    
    
    
    (67
    )
    
    
    (67
    )Accounted for as non-hedge:· Favorable
    
    
    
    
    
    
    
    
    
    
    105
    
    
    
    105· Unfavorable
    
    
    (583
    )
    
    
    (583
    )
    
    
    (507
    )
    
    
    (507
    )Foreign currency and interest rate:Accounted for as a hedge:· Unfavorable
    
    
    (23
    )
    
    
    (23
    )
    
    
    (47
    )
    
    
    (47
    )
 c) Held-to-maturity securities Held-to-maturity securities: The change in the carrying amount of held-to-maturity securities has been
as follows: 2003
    
    2002Balance at beginning of the year
    
    
    14
    
    
    
    13· Increase for securities to held to
maturity
    
    
    
    
    
    
    2· Inflation and remeasurement effect
    
    
    (2
    )
    
    
    (1
    )· Decrease for securities to held to
maturity
    
    
    (2
    )
    
    
    · Redemption and interest collection
    
    
    (8
    )
    
    
    Balance at end of year
    
    
    2
    
    
    
    14
 At December 31, 2003 and 2002 the outstanding held-to-maturity securities
are scheduled to mature in one to sixteen years. F-72




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##### Table of Contents



d) Summarized financial information of unconsolidated affiliates The following table provides summarized financial information on a 100%
basis, for the main affiliates accounted for by the equity method, combined per
business unit, under Argentine GAAP. Each business unit includes the following companies as of December 31,
2003 and 2002:  
    
    Oil and Gas Exploration and Production: Petrolera Entre Lomas S.A.,
Inversora Mata S.A. and Coroil S.A.
    
    Refining: Refinería del Norte S.A. and Empresa Boliviana de Refinación S.A.
    
    Petrochemical: Petroquímica Cuyo S.A.
    
    Hydrocarbons marketing and Transportation: TGS S.A., Oleoductos del
Valle S.A. and Oleoducto de Crudos Pesados Ltd.
    
    Electricity: Citelec S.A., Yacylec S.A. and Urugua-í S.A. As of December 31, 2001, the Other Investments business unit includes
the following companies: Pecom Agra S.A. and Cerro Vanguardia S.A. (see Note
9.IV and 9.V) 2003Oil and Gas
    
    
    
    
    
    
    
    
    
    HydrocarbonsExploration
    
    
    
    
    
    
    
    
    
    marketing andand Production
    
    Refining
    
    Petrochemical
    
    Transportation
    
    ElectricityCurrent Assets
    
    
    115
    
    
    
    893
    
    
    
    105
    
    
    
    1,221
    
    
    
    263Noncurrent Assets
    
    
    517
    
    
    
    524
    
    
    
    115
    
    
    
    8,864
    
    
    
    2,209Current Liabilities
    
    
    49
    
    
    
    848
    
    
    
    60
    
    
    
    3,862
    
    
    
    1,208Noncurrent Liabilities
    
    
    32
    
    
    
    17
    
    
    
    34
    
    
    
    3,739
    
    
    
    614Shareholders Equity
    
    
    551
    
    
    
    552
    
    
    
    126
    
    
    
    2,484
    
    
    
    430Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    220Sales
    
    
    278
    
    
    
    1,988
    
    
    
    225
    
    
    
    1,196
    
    
    
    324Gross profit
    
    
    150
    
    
    
    350
    
    
    
    68
    
    
    
    582
    
    
    
    96Income ( loss) from continuing operations
before extraordinary items and Cumulative
effectof changes in accounting principles
    
    
    78
    
    
    
    87
    
    
    
    21
    
    
    
    236
    
    
    
    50Net income
    
    
    78
    
    
    
    87
    
    
    
    21
    
    
    
    236
    
    
    
    50
 2002Oil and Gas
    
    
    
    
    
    
    
    
    
    HydrocarbonsExploration
    
    
    
    
    
    
    
    
    
    marketing andand Production
    
    Refining
    
    Petrochemical
    
    Transportation
    
    ElectricityCurrent Assets
    
    
    130
    
    
    
    878
    
    
    
    110
    
    
    
    1,182
    
    
    
    172Noncurrent Assets
    
    
    575
    
    
    
    535
    
    
    
    121
    
    
    
    13,728
    
    
    
    2,391Current Liabilities
    
    
    73
    
    
    
    819
    
    
    
    114
    
    
    
    8,428
    
    
    
    1,252Noncurrent Liabilities
    
    
    22
    
    
    
    42
    
    
    
    12
    
    
    
    3,086
    
    
    
    715Shareholders Equity
    
    
    610
    
    
    
    552
    
    
    
    105
    
    
    
    2,603
    
    
    
    398Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    793
    
    
    
    198Sales
    
    
    272
    
    
    
    2,145
    
    
    
    211
    
    
    
    2,000
    
    
    
    343Gross profit
    
    
    143
    
    
    
    340
    
    
    
    69
    
    
    
    1,070
    
    
    
    131Income ( loss) from continuing operations
before extraordinary items and Cumulative
effectof changes in accounting principles
    
    
    46
    
    
    
    151
    
    
    
    (2
    )
    
    
    (1,154
    )
    
    
    (319
    )Net income
    
    
    46
    
    
    
    151
    
    
    
    (2
    )
    
    
    (1,154
    )
    
    
    (319
    )
 F-73




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##### Table of Contents



2001Oil and Gas
    
    
    
    
    
    
    
    
    
    HydrocarbonsExploration
    
    
    
    
    
    
    
    
    
    marketing and
    
    
    
    
    
    Otherand Production
    
    Refining
    
    Petrochemical
    
    Transportation
    
    Electricity
    
    InvestmentsCurrent Assets
    
    
    90
    
    
    
    514
    
    
    
    110
    
    
    
    581
    
    
    
    150
    
    
    
    285Noncurrent Assets
    
    
    433
    
    
    
    539
    
    
    
    131
    
    
    
    5,371
    
    
    
    2,362
    
    
    
    661Current Liabilities
    
    
    61
    
    
    
    590
    
    
    
    110
    
    
    
    852
    
    
    
    574
    
    
    
    266Noncurrent Liabilities
    
    
    8
    
    
    
    12
    
    
    
    12
    
    
    
    2,206
    
    
    
    762
    
    
    
    286Shareholders Equity
    
    
    454
    
    
    
    451
    
    
    
    119
    
    
    
    2,894
    
    
    
    776
    
    
    
    394Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400
    
    
    
    Sales
    
    
    212
    
    
    
    1,409
    
    
    
    132
    
    
    
    1,357
    
    
    
    527
    
    
    
    956Gross profit
    
    
    104
    
    
    
    200
    
    
    
    24
    
    
    
    862
    
    
    
    281
    
    
    
    166Income (loss) from continuing operations
before extraordinary items and Cumulative
effectof changes in accounting principles
    
    
    50
    
    
    
    39
    
    
    
    
    
    
    
    284
    
    
    
    75
    
    
    
    82Net income
    
    
    50
    
    
    
    39
    
    
    
    
    
    
    
    284
    
    
    
    75
    
    
    
    82
 e) Summarized financial information of proportionally consolidated jointly
controlled companies The following table provides summarized financial information on a
proportional basis, for jointly controlled companies, which are proportionally
consolidated under Argentine GAAP: 2003
    
    2002 (a)
    
    2001CIESA
    
    Distrilec
    
    Total
    
    Distrilec
    
    CIESA
    
    Distrilec
    
    TotalCurrent Assets
    
    
    406
    
    
    
    129
    
    
    
    535
    
    
    
    115Noncurrent Assets
    
    
    2,348
    
    
    
    1,372
    
    
    
    3,720
    
    
    
    1,488Current Liabilities
    
    
    2,053
    
    
    
    348
    
    
    
    2,401
    
    
    
    481Noncurrent Liabilities
    
    
    7
    
    
    
    103
    
    
    
    110
    
    
    
    63Shareholders Equity
    
    
    234
    
    
    
    600
    
    
    
    834
    
    
    
    606Minority Interest
    
    
    460
    
    
    
    450
    
    
    
    910
    
    
    
    453Sales
    
    
    432
    
    
    
    447
    
    
    
    879
    
    
    
    519
    
    
    
    595
    
    
    
    946
    
    
    
    1,541Gross Profit
    
    
    232
    
    
    
    74
    
    
    
    306
    
    
    
    113
    
    
    
    376
    
    
    
    292
    
    
    
    668Income (loss) from
continuing operations
before extraordinary items
and cumulative effect of
changes in accounting
principles
    
    
    110
    
    
    
    (6
    )
    
    
    104
    
    
    
    (9
    )
    
    
    36
    
    
    
    49
    
    
    
    85Net Income (loss)
    
    
    110
    
    
    
    (6
    )
    
    
    104
    
    
    
    (9
    )
    
    
    36
    
    
    
    49
    
    
    
    85Cash provided by (used in):Operating activities
    
    
    261
    
    
    
    90
    
    
    
    351
    
    
    
    177
    
    
    
    213
    
    
    
    141
    
    
    
    354Investing activities
    
    
    (31
    )
    
    
    (28
    )
    
    
    (59
    )
    
    
    (69
    )
    
    
    (236
    )
    
    
    (96
    )
    
    
    (332
    )Financing activities
    
    
    1
    
    
    
    (46
    )
    
    
    (45
    )
    
    
    (74
    )
    
    
    65
    
    
    
    (83
    )
    
    
    (18
    )
  (a)
    
    As mentioned in Note 2.a, as of December 31, 2002, CIESA was not
proportionally consolidated since such equity interest was stated at zero
value. F-74




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##### Table of Contents



f) Supplemental cash flow information Cash and cash equivalents include: 2003
    
    2002
    
    2001Cash
    
    
    200
    
    
    
    93
    
    
    
    93Time deposits and Mutual Funds
    
    
    388
    
    
    
    582
    
    
    
    1,994Securities
    
    
    3
    
    
    
    50
    
    
    
    591
    
    
    
    725
    
    
    
    2,087
 Non-cash investing and financing activities for the years ended December
31, 2003, 2002 and 2001, include an increase in accounts payable for the
acquisition of property, plant and equipment in the amount of 141, 50 and 192,
respectively. Additionally, an increase in the Other receivables account is
included for the sale of subsidiaries and other business in the amount of 106
for the year ended December 31, 2002. g) Pension plan: Defined contribution plan: Contributions expensed under this plan amounted to 1 for the year ended
December 31, 2001. During 2003 and 2002 fiscal years, no contributions were
made under this plan (see Note 15.a). Defined benefit pension plan: Information for the Companys major defined benefit plan is as follows: 2003
    
    2002Change in benefit obligationBenefit obligation at beginning
    
    
    78
    
    
    
    128Service cost
    
    
    1
    
    
    
    2Interest cost
    
    
    2
    
    
    
    4Actuarial gain
    
    
    9
    
    
    
    45Effect of remeasurement in constant money
    
    
    (1
    )
    
    
    (70
    )Benefits paid
    
    
    (5
    )
    
    
    (5
    )Curtailment effect
    
    
    (33
    )
    
    
    (26
    )Benefit obligation at end of year
    
    
    51
    
    
    
    78Change in plan assetsFair value of plan assets at beginning
    
    
    97
    
    
    
    130Actual return on plan assets
    
    
    (11
    )
    
    
    67Effect of remeasurement in constant money
    
    
    (1
    )
    
    
    (69
    )Benefits paid
    
    
    (5
    )
    
    
    (5
    )Settlement payments
    
    
    (33
    )
    
    
    (26
    )Fair value of plan assets at end of year
    
    
    47
    
    
    
    97
 F-75




---



##### Table of Contents



2003
    
    2002Reconciliation of funded (unfunded) statusFunded status, end of year
    
    
    (4
    )
    
    
    19Unrecognized net actuarial gain
    
    
    (3
    )
    
    
    (40
    )Net amount recognized
    
    
    (7
    )
    
    
    (21
    )Amounts recognized in the statement of financial position
consist of:Accrued benefit liability
    
    
    (7
    )
    
    
    (21
    )Projected benefit obligation
    
    
    51
    
    
    
    78Accumulated benefit obligation
    
    
    51
    
    
    
    77Fair value of plan assets
    
    
    47
    
    
    
    97Components of net periodic benefit costService cost
    
    
    1
    
    
    
    2Interest cost
    
    
    2
    
    
    
    4Expected return on plan assets
    
    
    (3
    )
    
    
    (4
    )Amortization of unrecognized transition obligation
    
    
    
    
    
    
    1Amortization of unrecognized gains
    
    
    (1
    )
    
    
    (2
    )Gains from settlements
    
    
    (14
    )
    
    
    Effect of remeasurement in constant money
    
    
    1
    
    
    
    (24
    )Net periodic benefit (gain) cost
    
    
    (14
    )
    
    
    (23
    )Weighted-average assumptionsDiscount rate
    
    
    4
    %
    
    
    4
    %Expected return on plan assets
    
    
    4
    %
    
    
    4
    %Rate of compensation increase
    
    
    2
    %
    
    
    2
    %
 As
of December 31, 2003 and 2002, pension plan assets are
investments in
mutual funds. The Company expects to contribute approximately 1 to its pension
plan fund in 2004,
which will be subject to Board of Directors approval. Benefit
obligations are expected to be paid as follows: Pension Benefits2004
    
    
    32005
    
    
    32006
    
    
    32007
    
    
    32008
    
    
    32009 - 1013
    
    
    18
 F-76




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##### Table of Contents



h) Business segment consolidated information The Company determines operating segments based on differences in the
nature of their operations, consistent with the measure of profit and the basis
used by its management in making strategic decisions. The Company applies the
same accounting policies to each of the segments that are used in the
preparation of the consolidated financial statements under Argentine GAAP.
Intersegment revenues are generally representative of market prices or
arms-length negotiated transactions. Likewise, affiliated sales are not
segregated because they are generally made at market prices. Managements
measure of segment profit does not include interest, income taxes and other
non-operating income and expenses. Other non-cash items in segment income are
principally comprised of undistributed earnings of affiliates. The following information shows additional disclosures under Argentine
GAAP about the Companys business segments as defined by its management. 2003Oil and Gas
    
    
    
    
    
    
    
    
    
    Hydrocarbons
    
    
    
    
    
    Corporate, otherExploration and
    
    
    
    
    
    
    
    
    
    marketing and
    
    
    
    
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Transportation
    
    Electricity
    
    Eliminations
    
    TotalUnaffiliated
revenues
    
    
    1,785
    
    
    
    1,231
    
    
    
    1,294
    
    
    
    502
    
    
    
    680
    
    
    
    2
    
    
    
    5,494Intersegment
revenues
    
    
    944
    
    
    
    71
    
    
    
    
    
    
    
    19
    
    
    
    11
    
    
    
    (1,045
    )
    
    
    Total revenues
    
    
    2,729
    
    
    
    1,302
    
    
    
    1,294
    
    
    
    521
    
    
    
    691
    
    
    
    (1,043
    )
    
    
    5,494Depreciation,
depletion
and amortization
    
    
    653
    
    
    
    20
    
    
    
    77
    
    
    
    86
    
    
    
    147
    
    
    
    33
    
    
    
    1,016Equity in earnings
of
unconsolidated
affiliates
    
    
    19
    
    
    
    22
    
    
    
    16
    
    
    
    16
    
    
    
    90
    
    
    
    
    
    
    
    163Interest expense
    
    
    (267
    )
    
    
    (1
    )
    
    
    (30
    )
    
    
    (134
    )
    
    
    (23
    )
    
    
    (168
    )
    
    
    (623
    )Interest revenue
    
    
    28
    
    
    
    1
    
    
    
    5
    
    
    
    9
    
    
    
    12
    
    
    
    10
    
    
    
    65Dividends received
from unconsolidated
affiliates
    
    
    9
    
    
    
    7
    
    
    
    
    
    
    
    7
    
    
    
    3
    
    
    
    
    
    
    
    26Additions to
property,
plant and equipment
    
    
    508
    
    
    
    23
    
    
    
    37
    
    
    
    12
    
    
    
    40
    
    
    
    33
    
    
    
    653Identifiable assets
    
    
    7,610
    
    
    
    419
    
    
    
    1,054
    
    
    
    2,768
    
    
    
    2,261
    
    
    
    1,030
    
    
    
    15,142Investments in and
advances to
unconsolidated
affiliates
    
    
    199
    
    
    
    223
    
    
    
    46
    
    
    
    328
    
    
    
    200
    
    
    
    
    
    
    
    996Total assets
    
    
    7,809
    
    
    
    642
    
    
    
    1,100
    
    
    
    3,096
    
    
    
    2,461
    
    
    
    1,030
    
    
    
    16,138
 F-77




---



##### Table of Contents



2002Oil and Gas
    
    
    
    
    
    
    
    
    
    Hydrocarbons
    
    
    
    
    
    Corporate, otherExploration and
    
    
    
    
    
    
    
    
    
    marketing and
    
    
    
    
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Transportation
    
    Electricity
    
    Eliminations
    
    TotalUnaffiliated revenues
    
    
    2,033
    
    
    
    942
    
    
    
    1,254
    
    
    
    16
    
    
    
    755
    
    
    
    106
    
    
    
    5,106Intersegment revenues
    
    
    773
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    (850
    )
    
    
    Total revenues
    
    
    2,806
    
    
    
    1,008
    
    
    
    1,254
    
    
    
    16
    
    
    
    766
    
    
    
    (744
    )
    
    
    5,106Depreciation, depletion
and amortization
    
    
    749
    
    
    
    18
    
    
    
    94
    
    
    
    
    
    
    
    150
    
    
    
    40
    
    
    
    1,051Equity in earnings of
unconsolidated affiliates
    
    
    2
    
    
    
    20
    
    
    
    (10
    )
    
    
    (470
    )
    
    
    (239
    )
    
    
    59
    
    
    
    (638
    )Interest expense
    
    
    (350
    )
    
    
    
    
    
    
    (42
    )
    
    
    
    
    
    
    (52
    )
    
    
    (439
    )
    
    
    (883
    )Interest revenue
    
    
    12
    
    
    
    1
    
    
    
    11
    
    
    
    
    
    
    
    33
    
    
    
    31
    
    
    
    88Dividends received from
unconsolidated affiliates
    
    
    12
    
    
    
    4
    
    
    
    
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    20Additions to property,
plant and equipment
    
    
    366
    
    
    
    5
    
    
    
    30
    
    
    
    
    
    
    
    37
    
    
    
    (264
    )
    
    
    174Identifiable assets
    
    
    8,575
    
    
    
    367
    
    
    
    1,251
    
    
    
    (17
    )
    
    
    2,467
    
    
    
    1,174
    
    
    
    13,817Investments in and
advances to
unconsolidated affiliates
    
    
    189
    
    
    
    225
    
    
    
    29
    
    
    
    275
    
    
    
    114
    
    
    
    
    
    
    
    832Total assets
    
    
    8,764
    
    
    
    592
    
    
    
    1,280
    
    
    
    258
    
    
    
    2,581
    
    
    
    1,174
    
    
    
    14,649
 2001Oil and Gas
    
    
    
    
    
    
    
    
    
    Hydrocarbons
    
    
    
    
    
    Corporate, otherExploration and
    
    
    
    
    
    
    
    
    
    marketing and
    
    
    
    
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Transportation
    
    Electricity
    
    Eliminations
    
    TotalUnaffiliated revenues
    
    
    1,502
    
    
    
    788
    
    
    
    809
    
    
    
    695
    
    
    
    1,248
    
    
    
    128
    
    
    
    5,170Intersegment revenues
    
    
    473
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    38
    
    
    
    (520
    )
    
    
    Total revenues
    
    
    1,975
    
    
    
    788
    
    
    
    818
    
    
    
    695
    
    
    
    1,286
    
    
    
    (392
    )
    
    
    5,170Depreciation, depletion
and amortization
    
    
    514
    
    
    
    15
    
    
    
    64
    
    
    
    88
    
    
    
    164
    
    
    
    32
    
    
    
    877Equity in earnings of
unconsolidated affiliates
    
    
    6
    
    
    
    14
    
    
    
    4
    
    
    
    26
    
    
    
    24
    
    
    
    45
    
    
    
    119Interest expense
    
    
    (227
    )
    
    
    
    
    
    
    (28
    )
    
    
    (116
    )
    
    
    (23
    )
    
    
    (218
    )
    
    
    (612
    )Interest revenue
    
    
    20
    
    
    
    2
    
    
    
    13
    
    
    
    6
    
    
    
    25
    
    
    
    25
    
    
    
    91Dividends received from
unconsolidated
affiliates
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    22
    
    
    
    8
    
    
    
    55Additions to property,
plant and equipment
    
    
    1,891
    
    
    
    26
    
    
    
    13
    
    
    
    226
    
    
    
    159
    
    
    
    49
    
    
    
    2,364Identifiable assets
    
    
    6,903
    
    
    
    433
    
    
    
    1,132
    
    
    
    2,483
    
    
    
    2,648
    
    
    
    2,204
    
    
    
    15,803Investments in and
advances to
unconsolidated affiliates
    
    
    160
    
    
    
    132
    
    
    
    39
    
    
    
    285
    
    
    
    271
    
    
    
    180
    
    
    
    1,067Total assets
    
    
    7,063
    
    
    
    565
    
    
    
    1,171
    
    
    
    2,768
    
    
    
    2,919
    
    
    
    2,384
    
    
    
    16,870
 F-78




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##### Table of Contents



i) Derivative financial instruments As described in Note 5, the Company holds several derivative financial
instruments to reduce exposure to crude oil price fluctuations and changes in
interest rates. Changes in the accounting measurement of derivative financial
instruments designated as cash flow hedge, which have been determined as
effective hedge, are recognized under US GAAP in the other comprehensive income
account. The following information refers to the other comprehensive income
accounted for the years ended December 31, 2003, 2002 and 2001: Commodity Price Risk As of December 31, 2003, there are no unrealized gains or losses in the
accumulated other comprehensive income. As of December 31, 2002 and 2001, the
Company has a net unrealized gain of 14 after taxes and a net unrealized loss
of 22 after taxes, respectively, on derivative instruments entered into to
hedge production recorded in accumulated other comprehensive income. Net income
(loss) under US GAAP for 2002 and 2001 fiscal years includes 99 of net loss,
and 44 of net gain, respectively, due to recognition of unrealized gains and
losses related to hedge ineffectiveness. Interest rate risk As of December 31, 2003, 2002 and 2001, the Company has an after taxes net
unrealized loss of 12, 28 and 16, respectively, on a derivative instrument
entered into to hedge interest rate recorded in accumulated other comprehensive
income. Approximately, 9 of net loss in the accumulated other comprehensive
income balance as of December 31, 2003, is expected to be reclassified into
financial expenses during 2004 as hedged transaction occurs. 25. Oil and Gas Supplementary Disclosures (unaudited) The following information for the oil and gas producing activities has
been prepared in accordance with the methodology prescribed by Statement of
Financial Accounting Standards N° 69 Disclosures about Oil and Gas Producing
Activities and includes the Company and its subsidiaries oil and gas
production activities as well as the equity shares in its affiliates valued by
the equity method. The Company has oil and gas properties in the Argentina and
other countries of Latin America; the respective detail is disclosed in Note
27.g. to the financial statements. The amounts derived from minority interest in consolidated subsidiaries
are not significant, therefore, they have not been included. Amounts in millions of pesos are stated as mentioned in Note 2.c. to the
financial statements. F-79




---



##### Table of Contents



Capitalized costs The following table presents the capitalized costs as of December 31, 2003
and 2002, for proved and unproved oil and gas properties, and the related
accumulated depreciation, depletion and amortization. 2003
    
    2002Argentine
    
    
    
    
    
    ArgentineGAAP
    
    US GAAP
    
    GAAP
    
    US GAAP(In millions of constant pesos  note 2.c)Consolidated companies:Proved properties:Equipment, camps and other facilities
    
    
    2,036
    
    
    
    1,926
    
    
    
    2,527
    
    
    
    2,354Producing properties and wells
    
    
    7,372
    
    
    
    8,192
    
    
    
    7,012
    
    
    
    7,921Unproved properties
    
    
    569
    
    
    
    569
    
    
    
    950
    
    
    
    950Total capitalized costs
    
    
    9,977
    
    
    
    10,687
    
    
    
    10,489
    
    
    
    11,225Accumulated depreciation, depletion and amortization, and
allowances which reduce the value of assets
    
    
    (3,528
    )
    
    
    (2,913
    )
    
    
    (3,264
    )
    
    
    (2,447
    )Subtotal of consolidated companies
    
    
    6,449
    
    
    
    7,774
    
    
    
    7,225
    
    
    
    8,778Companys share in capitalized costs by unconsolidated
affiliates
    
    
    198
    
    
    
    285
    
    
    
    206
    
    
    
    300Total net capitalized costs
    
    
    6,647
    
    
    
    8,059
    
    
    
    7,431
    
    
    
    9,078
 F-80




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##### Table of Contents



Costs incurred The following table presents those costs capitalized as well as expensed
that were incurred during each of the years ended as of December 31, 2003, 2002
and 2001. The acquisition of properties includes the cost of acquisition of
proved or unproved oil and gas properties. Exploration costs include geological
and geophysical costs, costs necessary for retaining undeveloped properties,
and drilling costs and exploratory well equipment. Development costs include
drilling costs and equipment for developmental wells, costs incurred in
improved recovery, the construction of facilities for extraction, treatment and
storage of hydrocarbons and all necessary costs to maintain facilities for the
existing developed reserves. 2003
    
    2002Argentine and US GAAP
    
    Argentine and US GAAPRest of Latin
    
    
    
    
    
    
    
    
    
    Rest of LatinArgentina
    
    América
    
    Total
    
    Argentina
    
    América
    
    Total(In millions of constant pesos - note 2.c)Consolidated CompaniesAcquisition
of propertiesProved
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    26Unproved
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exploration Costs
    
    
    
    
    
    
    103
    
    
    
    103
    
    
    
    22
    
    
    
    67
    
    
    
    89Development Costs
    
    
    343
    
    
    
    346
    
    
    
    689
    
    
    
    222
    
    
    
    262
    
    
    
    484Total Costs incurred by
consolidated companies
    
    
    343
    
    
    
    449
    
    
    
    792
    
    
    
    270
    
    
    
    329
    
    
    
    599Companys share in
costs incurred by
unconsolidated
companies
    
    
    9
    
    
    
    5
    
    
    
    14
    
    
    
    7
    
    
    
    10
    
    
    
    17Total costs incurred
    
    
    352
    
    
    
    454
    
    
    
    806
    
    
    
    277
    
    
    
    339
    
    
    
    616
 2001Argentine and US GAAPRest of LatinArgentina
    
    América
    
    Total(In millions of constant pesos - note 2.c)Consolidated CompaniesAcquisition
of propertiesProved
    
    
    468
    
    
    
    71
    
    
    
    539Unproved
    
    
    173
    
    
    
    132
    
    
    
    305Exploration Costs
    
    
    35
    
    
    
    22
    
    
    
    57Development Costs
    
    
    497
    
    
    
    736
    
    
    
    1,233Total Costs incurred by
consolidated companies
    
    
    1,173
    
    
    
    961
    
    
    
    2,134Companys share in
costs incurred by
unconsolidated
companies
    
    
    7
    
    
    
    46
    
    
    
    53Total costs incurred
    
    
    1,180
    
    
    
    1,007
    
    
    
    2,187
 F-81




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##### Table of Contents



Results of operations The breakdown of results of the operations shown below summarizes revenues
and expenses directly associated with oil and gas producing activities for the
years ended December 31, 2003, 2002 and 2001. These activities are a part of
the Oil and Gas Exploration and Production segment. This breakdown does not
include any allocation of financial costs or expenses from Corporate and
therefore it is not necessarily an indicator of the contribution in operations
for oil and gas producing activities to the net income of the Company. Income
tax for the years presented was calculated utilizing the deferred income tax
criteria. 2003Argentine GAAP
    
    US GAAPRest of
    
    
    
    
    
    
    
    
    
    Rest ofLatin
    
    
    
    
    
    
    
    
    
    LatinArgentina
    
    América
    
    Total
    
    Argentina
    
    América
    
    Total(In millions of constant pesos - note 2.c)Results of operations of consolidated
companies:Net sales:- to third parties
    
    
    594
    
    
    
    1,191
    
    
    
    1,785
    
    
    
    681
    
    
    
    1,191
    
    
    
    1,872- transfers to other operations
    
    
    944
    
    
    
    
    
    
    
    944
    
    
    
    944
    
    
    
    
    
    
    
    944Total net sales
    
    
    1,538
    
    
    
    1,191
    
    
    
    2,729
    
    
    
    1,625
    
    
    
    1,191
    
    
    
    2,816Production costs:- Operating Costs
    
    
    (242
    )
    
    
    (247
    )
    
    
    (489
    )
    
    
    (242
    )
    
    
    (247
    )
    
    
    (489
    )- Royalties and other
    
    
    (245
    )
    
    
    (161
    )
    
    
    (406
    )
    
    
    (245
    )
    
    
    (161
    )
    
    
    (406
    )Total production costs
    
    
    (487
    )
    
    
    (408
    )
    
    
    (895
    )
    
    
    (487
    )
    
    
    (408
    )
    
    
    (895
    )Exploration costs
    
    
    (11
    )
    
    
    (185
    )
    
    
    (196
    )
    
    
    (11
    )
    
    
    (185
    )
    
    
    (196
    )Depreciation, depletion, amortization
and allowances which reduce the value
of assets
    
    
    (368
    )
    
    
    (593
    )
    
    
    (961
    )
    
    
    (388
    )
    
    
    (726
    )
    
    
    (1,114
    )Results of operations before income tax
    
    
    672
    
    
    
    5
    
    
    
    677
    
    
    
    739
    
    
    
    (128
    )
    
    
    611Income tax
    
    
    (235
    )
    
    
    (1
    )
    
    
    (236
    )
    
    
    (228
    )
    
    
    46
    
    
    
    (182
    )Results of
operations - consolidated companies
    
    
    437
    
    
    
    4
    
    
    
    441
    
    
    
    511
    
    
    
    (82
    )
    
    
    429Companys share in results of
operations by unconsolidated affiliates
    
    
    13
    
    
    
    5
    
    
    
    18
    
    
    
    9
    
    
    
    2
    
    
    
    11Total
    
    
    450
    
    
    
    9
    
    
    
    459
    
    
    
    520
    
    
    
    (80
    )
    
    
    440
 F-82




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##### Table of Contents



2002Argentine GAAP
    
    US GAAPRest of
    
    
    
    
    
    
    
    
    
    Rest ofLatin
    
    
    
    
    
    
    
    
    
    LatinArgentina
    
    América
    
    Total
    
    Argentina
    
    América
    
    Total(In millions of constant pesos - note 2.c)Results of operations of consolidated
companies:Net sales:- to third parties
    
    
    849
    
    
    
    1,184
    
    
    
    2,033
    
    
    
    1,006
    
    
    
    1,292
    
    
    
    2,298- transfers to other operations
    
    
    773
    
    
    
    
    
    
    
    773
    
    
    
    777
    
    
    
    
    
    
    
    777Total net sales
    
    
    1,622
    
    
    
    1,184
    
    
    
    2,806
    
    
    
    1,783
    
    
    
    1,292
    
    
    
    3,075Production costs:- Operating Costs
    
    
    (257
    )
    
    
    (267
    )
    
    
    (524
    )
    
    
    (236
    )
    
    
    (267
    )
    
    
    (503
    )- Royalties and other
    
    
    (238
    )
    
    
    (159
    )
    
    
    (397
    )
    
    
    (238
    )
    
    
    (159
    )
    
    
    (397
    )Total production costs
    
    
    (495
    )
    
    
    (426
    )
    
    
    (921
    )
    
    
    (474
    )
    
    
    (426
    )
    
    
    (900
    )Exploration costs
    
    
    (21
    )
    
    
    (37
    )
    
    
    (58
    )
    
    
    (21
    )
    
    
    (37
    )
    
    
    (58
    )Depreciation, depletion, amortization
and allowances which reduce the value
of assets
    
    
    (356
    )
    
    
    (391
    )
    
    
    (747
    )
    
    
    (395
    )
    
    
    (593
    )
    
    
    (988
    )Results of operations before income tax
    
    
    750
    
    
    
    330
    
    
    
    1,080
    
    
    
    893
    
    
    
    236
    
    
    
    1,129Income tax
    
    
    (280
    )
    
    
    (32
    )
    
    
    (312
    )
    
    
    (519
    )
    
    
    102
    
    
    
    (417
    )Results of operations  consolidated
companies
    
    
    470
    
    
    
    298
    
    
    
    768
    
    
    
    374
    
    
    
    338
    
    
    
    712Companys share in results of
operations by unconsolidated affiliates
    
    
    23
    
    
    
    8
    
    
    
    31
    
    
    
    20
    
    
    
    
    
    
    
    20Total
    
    
    493
    
    
    
    306
    
    
    
    799
    
    
    
    394
    
    
    
    338
    
    
    
    732
 F-83




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##### Table of Contents



2001Argentine GAAP
    
    US GAAPRest of
    
    
    
    
    
    
    
    
    
    Rest ofLatin
    
    
    
    
    
    
    
    
    
    LatinArgentina
    
    América
    
    Total
    
    Argentina
    
    América
    
    Total(In millions of constant pesos - note 2.c)Results of operations of consolidated
companies:Net sales:- to third parties
    
    
    714
    
    
    
    787
    
    
    
    1,501
    
    
    
    827
    
    
    
    796
    
    
    
    1,623- transfers to other operations
    
    
    475
    
    
    
    
    
    
    
    475
    
    
    
    475
    
    
    
    
    
    
    
    475Total net sales
    
    
    1,189
    
    
    
    787
    
    
    
    1,976
    
    
    
    1,302
    
    
    
    796
    
    
    
    2,098Production costs:- Operating Costs
    
    
    (272
    )
    
    
    (162
    )
    
    
    (434
    )
    
    
    (264
    )
    
    
    (154
    )
    
    
    (418
    )- Royalties and other
    
    
    (218
    )
    
    
    (97
    )
    
    
    (315
    )
    
    
    (218
    )
    
    
    (97
    )
    
    
    (315
    )Total production costs
    
    
    (490
    )
    
    
    (259
    )
    
    
    (749
    )
    
    
    (482
    )
    
    
    (251
    )
    
    
    (733
    )Exploration costs
    
    
    (20
    )
    
    
    (21
    )
    
    
    (41
    )
    
    
    (20
    )
    
    
    (22
    )
    
    
    (42
    )Depreciation, depletion, amortization
and allowances which reduce the value
of assets
    
    
    (332
    )
    
    
    (181
    )
    
    
    (513
    )
    
    
    (376
    )
    
    
    (301
    )
    
    
    (677
    )Results of operations before income tax
    
    
    347
    
    
    
    326
    
    
    
    673
    
    
    
    424
    
    
    
    222
    
    
    
    646Income tax
    
    
    (125
    )
    
    
    (57
    )
    
    
    (182
    )
    
    
    (231
    )
    
    
    (103
    )
    
    
    (334
    )Results of operations  consolidated
companies
    
    
    222
    
    
    
    269
    
    
    
    491
    
    
    
    193
    
    
    
    119
    
    
    
    312Companys share in results of
operations by unconsolidated
affiliates
    
    
    9
    
    
    
    4
    
    
    
    13
    
    
    
    4
    
    
    
    2
    
    
    
    6Total
    
    
    231
    
    
    
    273
    
    
    
    504
    
    
    
    197
    
    
    
    121
    
    
    
    318
 F-84




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##### Table of Contents



Estimated oil and gas reserves Proved reserves represent estimated quantities of oil (including crude
oil, condensate and natural gas liquids) and natural gas, which available
geological and engineering data demonstrates with reasonable certainty to be
recoverable in the future from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves that can
reasonably be expected to be recovered through existing wells with existing
equipment and operating methods. The Company believes that its estimates of remaining proved recoverable
oil and gas reserve volumes are reasonable and such estimates have been
prepared in accordance with Rule 4-10 of Regulation S-X, the Companys reserve
estimates as of December 31, 2003, 2002 and 2001, were audited by Gaffney,
Cline & Associates Inc., international technical advisors. The choice of method
or combination of methods employed in the analysis of each reservoir was
determined by the stage of development, quality and reliability of basic data,
and production history. Reserves engineering is a subjective process of estimation of hydrocarbon
accumulation, which cannot be accurately measured, and the reserve estimation
depends on the quality of available information and the interpretation and
judgment of the engineers and geologists. Therefore, the reserves estimations,
as well as future production profiles, are often different than the quantities
of hydrocarbons which are finally recovered. The accuracy of such estimations
depends, in general, on the assumptions on which they are based. The following table sets forth the estimated proved reserves of oil
(includes crude oil, condensate and natural gas liquids) and natural gas as of
December 31, 2003, 2002 and 2001: F-85




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##### Table of Contents



CRUDE OIL, CONDENSATE ANDNATURAL GAS LIQUIDS INTHOUSAND OF BARRELSCONSOLIDATED
    
    UNCONSOLIDATEDCOMPANIES
    
    COMPANIESProved reserves
    
    
    
    
    
    REST OF
    
    
    
    
    
    REST OF(developed and
    
    
    
    
    
    LATIN-
    
    
    
    
    
    LATIN-undeveloped)
    
    ARGENTINA
    
    AMERICA
    
    ARGENTINA
    
    AMERICA
    
    TOTALReserves as of
December 31,2000
    
    
    286,321
    
    
    
    474,794
    
    
    
    8,270
    
    
    
    44,779
    
    
    
    814,164Increase(Decrease)
originated in:Revisions of
previous
estimates
    
    
    (31,960
    )
    
    
    (17,103
    )
    
    
    (2,519
    )
    
    
    (956
    )
    
    
    (52,538
    )Improved recovery
    
    
    12,596
    
    
    
    17,913
    
    
    
    1,670
    
    
    
    177
    
    
    
    32,356Extensions and
discoveries
    
    
    14,303
    
    
    
    17,769
    
    
    
    
    
    
    
    830
    
    
    
    32,902Purchase of
proved reserves
in place
    
    
    24,115
    
    
    
    18,398
    
    
    
    
    
    
    
    
    
    
    
    42,513Sale of proved
reserves in place
    
    
    (50,816
    )
    
    
    
    
    
    
    
    
    
    
    (32,632
    )
    
    
    (83,448
    )Years production
    
    
    (24,122
    )
    
    
    (21,645
    )
    
    
    (578
    )
    
    
    (432
    )
    
    
    (46,777
    )Reserves as of
December 31,2001
    
    
    230,437
    
    
    
    490,126
    
    
    
    6,843
    
    
    
    11,766
    
    
    
    739,172Increase (Decrease)
originated in:Revisions of
previous
estimates
    
    
    (14,493
    )
    
    
    (112,545
    )
    
    
    (375
    )
    
    
    (880
    )
    
    
    (128,293
    )Improved recovery
    
    
    4,027
    
    
    
    3,510
    
    
    
    168
    
    
    
    
    
    
    
    7,705Extensions and
discoveries
    
    
    6,839
    
    
    
    9,596
    
    
    
    99
    
    
    
    461
    
    
    
    16,995Purchase of
proved reserves
in place
    
    
    516
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    516Sale of proved
reserves in place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Years production
    
    
    (20,225
    )
    
    
    (21,029
    )
    
    
    (494
    )
    
    
    (469
    )
    
    
    (42,217
    )Reserves as of
December 31,2002
    
    
    207,101
    
    
    
    369,658
    
    
    
    6,241
    
    
    
    10,878
    
    
    
    593,878Increase (Decrease)
originated in:Revisions of
previous
estimates
    
    
    (18,987
    )
    
    
    (3,215
    )
    
    
    (39
    )
    
    
    (63
    )
    
    
    (22,304
    )Improved recovery
    
    
    9,292
    
    
    
    15,045
    
    
    
    790
    
    
    
    347
    
    
    
    25,474Extensions and
discoveries
    
    
    3,174
    
    
    
    18,303
    
    
    
    84
    
    
    
    
    
    
    
    21,561Purchase of
proved reserves
in place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sale of proved
reserves in place
    
    
    (7,707
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,707
    )Years production
    
    
    (20,538
    )
    
    
    (20,367
    )
    
    
    (559
    )
    
    
    (376
    )
    
    
    (41,840
    )Reserves as of
December 31,2003
    
    
    172,335
    
    
    
    379,424
    
    
    
    6,517
    
    
    
    10,786
    
    
    
    569,062Proved developed reserves:As of December 31, 2000
    
    
    178,844
    
    
    
    172,702
    
    
    
    6,278
    
    
    
    17,245
    
    
    
    375,069As of December 31, 2001
    
    
    147,560
    
    
    
    198,964
    
    
    
    4,364
    
    
    
    4,844
    
    
    
    355,732As of December 31, 2002
    
    
    141,891
    
    
    
    173,820
    
    
    
    4,428
    
    
    
    4,056
    
    
    
    324,195As of December 31, 2003
    
    
    117,765
    
    
    
    166,349
    
    
    
    4,320
    
    
    
    3,576
    
    
    
    292,010
   [Continued from above table, first column(s) repeated] NATURAL GAS IN MILLIONOF CUBIC FEETSCONSOLIDATED
    
    UNCONSOLIDATEDCOMPANIES
    
    COMPANIESProved reserves
    
    
    
    
    
    REST OF
    
    
    
    
    
    REST OF(developed and
    
    
    
    
    
    LATIN-
    
    
    
    
    
    LATIN-undeveloped)
    
    ARGENTINA
    
    AMERICA
    
    ARGENTINA
    
    AMERICA
    
    TOTALReserves as of
December 31,2000
    
    
    1,162,028
    
    
    
    421,810
    
    
    
    24,975
    
    
    
    1,162,492
    
    
    
    2,771,305Increase(Decrease)
originated in:Revisions of
previous
estimates
    
    
    (402,740
    )
    
    
    48,114
    
    
    
    (7,054
    )
    
    
    
    
    
    
    (361,680
    )Improved recovery
    
    
    20,605
    
    
    
    18,605
    
    
    
    1,798
    
    
    
    
    
    
    
    41,008Extensions and
discoveries
    
    
    71,307
    

    
    
    30,582
    
    
    
    
    
    
    
    
    
    
    
    101,889Purchase of
proved reserves
in place
    
    
    376,365
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    376,365Sale of proved
reserves in place
    
    
    (18,002
    )
    
    
    
    
    
    
    
    
    
    
    (1,162,492
    )
    
    
    (1,180,494
    )Years production
    
    
    (98,206
    )
    
    
    (24,058
    )
    
    
    (1,590
    )
    
    
    
    
    
    
    (123,854
    )Reserves as of
December 31,2001
    
    
    1,111,357
    
    
    
    495,053
    
    
    
    18,129
    
    
    
    
    
    
    
    1,624,539Increase (Decrease)
originated in:Revisions of
previous
estimates
    
    
    (247,448
    )
    
    
    (123,594
    )
    
    
    (10,702
    )
    
    
    
    
    
    
    (381,744
    )Improved recovery
    
    
    64,550
    
    
    
    9,687
    
    
    
    11,821
    
    
    
    
    
    
    
    86,058Extensions and
discoveries
    
    
    88,265
    
    
    
    10,662
    
    
    
    
    
    
    
    
    
    
    
    98,927Purchase of
proved reserves
in place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sale of proved
reserves in place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Years production
    
    
    (90,860
    )
    
    
    (22,352
    )
    
    
    (1,324
    )
    
    
    
    
    
    
    (114,536
    )Reserves as of
December 31,2002
    
    
    925,864
    
    
    
    369,456
    
    
    
    17,924
    
    
    
    
    
    
    
    1,313,244Increase (Decrease)
originated in:Revisions of
previous
estimates
    
    
    (127,415
    )
    
    
    23,110
    
    
    
    (4,549
    )
    
    
    
    
    
    
    (108,854
    )Improved recovery
    
    
    
    
    
    
    7,261
    
    
    
    
    
    
    
    
    
    
    
    7,261Extensions and
discoveries
    
    
    60,416
    
    
    
    7,571
    
    
    
    954
    
    
    
    
    
    
    
    68,941Purchase of
proved reserves
in place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sale of proved
reserves in place
    
    
    (49,450
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,450
    )Years production
    
    
    (72,819
    )
    
    
    (22,517
    )
    
    
    (1,006
    )
    
    
    
    
    
    
    (96,342
    )Reserves as of
December 31,2003
    
    
    736,596
    
    
    
    384,881
    
    
    
    13,323
    
    
    
    
    
    
    
    1,134,800Proved developed reserves:As of December 31, 2000
    
    
    495,936
    
    
    
    241,754
    
    
    
    19,793
    
    
    
    473,684
    
    
    
    1,080,125As of December 31, 2001
    
    
    548,526
    
    
    
    290,638
    
    
    
    13,308
    
    
    
    
    
    
    
    852,472As of December 31, 2002
    
    
    539,731
    
    
    
    209,854
    
    
    
    14,373
    
    
    
    
    
    
    
    763,958As of December 31, 2003
    
    
    444,951
    
    
    
    207,144
    
    
    
    10,514
    
    
    
    
    
    
    
    662,609
 F-86




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##### Table of Contents



The estimated reserves were subjected to economic tests to determine
economic limits. Such estimated reserves in Argentina, Perú and Bolivia, are
stated prior to the payment of any royalties as they have the same attributes
as taxes on production and, therefore, are treated as operating costs. In
Ecuador, due to the type of contract in which the Government has the right to a
percentage of production and takes it in kind, the reserves are stated after
such percentage. In Venezuela, the Company receives, for its interest in the
Oritupano-Leona Block, a fee per barrel delivered to the Government of
Venezuela. Additionally, the Company receives a fee for reimbursement of
certain capital expenditures. In the Mata, Acema and La Concepción areas, the
Company collects a variable fee per barrel delivered that contemplates
production costs plus a mark-up. Under these contracts, the Venezuelan
government maintains full ownership of all hydrocarbons in fields. The reserve
volumes in Venezuela are computed by multiplying the Companys working interest
by the gross proved recoverable volumes for the contract area, In accordance
with the agreement governing current petroleum operations in Venezuela. The
Company is exempt from production royalty payments. Had the economic method of calculating proved reserves (future expected
cash flows of each field divided by the oil market prices at year end) been
used, the reported amounts of crude oil, condensate and natural gas liquids
proved reserves for consolidated companies in Rest of Latin America would
have decreased by approximately 22.9 %, 28.4 % and 14.6 % , and the reported
crude oil, condensate and natural gas liquids proved reserves for
unconsolidated companies in Rest of Latin America would have decreased by
approximately 37.3 %, 42 % and 30.1 % as of December 31, 2003, 2002 and 2001,
respectively. The information in this paragraph was not audited by Gaffney,
Cline & Associates. Standardized measure of discounted future net cash flows The following table discloses estimated future net cash flows from future
production of proved developed and undeveloped reserves of crude oil,
condensate, natural gas liquids and natural gas. As prescribed by Statement of
Financial Accounting Standards N° 69, such future net cash flows were estimated
using each year-end prices and costs held constant for the life of the reserves
(except in such circumstances in which the sale of hydrocarbons is governed by
contracts fixing the sale price or its escalation) and using a 10% annual
discount factor. Future development costs include estimated drilling costs,
exploitation installations and abandonment costs. These future development
costs were estimated based on evaluations made by the Company and the operators
of the fields in which the Company has an interest. The future income tax was
calculated by applying the tax rate in effect as of the date this supplementary
information was filed. This standardized measure is not intended to be and should not be
interpreted as an estimate of the market value of the Companys reserves. The
purpose of this information is to give standardized data to help the users of
the financial statements to compare different companies and make certain
projections. It is important to point out that this information does not
include, among other items, the effect of future changes in prices, costs and
tax rates, which past experience indicates that are likely to occur, as well as
the effect of future cash flows from reserves which have not yet been
classified as proved reserves, of a discount factor more representative of the
value of money over the lapse of time and of the risks inherent to the
production of oil and gas. These future changes may have a significant impact
on the future net cash flows disclosed below. For all these reasons, this
information does not necessarily indicate the perception the Company has on the
discounted future net cash flows derived from the reserves of hydrocarbons. F-87




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##### Table of Contents



2003
    
    2002
    
    2001Rest of
    
    
    
    
    
    
    
    
    
    Rest of
    
    
    
    
    
    
    
    
    
    Rest ofLatin-
    
    
    
    
    
    
    
    
    
    Latin-
    
    
    
    
    
    
    
    
    
    Latin-Argentina
    
    America
    
    Total
    
    Argentina
    
    America
    
    Total
    
    Argentina
    
    America
    
    Total(in millions of constant pesos  note 2.c.)Consolidated companies:Future cash flows
    
    
    15,158
    
    
    
    22,513
    
    
    
    37,671
    
    
    
    19,873
    
    
    
    25,149
    
    
    
    45,022
    
    
    
    18,715
    
    
    
    25,951
    
    
    
    44,666Future production costs
    
    
    (3,522
    )
    
    
    (6,653
    )
    
    
    (10,175
    )
    
    
    (3,793
    )
    
    
    (6,994
    )
    
    
    (10,787
    )
    
    
    (5,122
    )
    
    
    (8,945
    )
    
    
    (14,067
    )Future development and
abandonment costs
    
    
    (1,379
    )
    
    
    (2,875
    )
    
    
    (4,254
    )
    
    
    (1,389
    )
    
    
    (3,023
    )
    
    
    (4,412
    )
    
    
    (1,837
    )
    
    
    (4,184
    )
    
    
    (6,021
    )Future income tax
    
    
    (3,158
    )
    
    
    (3,308
    )
    
    
    (6,466
    )
    
    
    (4,794
    )
    
    
    (3,868
    )
    
    
    (8,662
    )
    
    
    (3,431
    )
    
    
    (2,849
    )
    
    
    (6,280
    )Future net cash flows
    
    
    7,099
    
    
    
    9,677
    
    
    
    16,776
    
    
    
    9,897
    
    
    
    11,264
    
    
    
    21,161
    
    
    
    8,325
    
    
    
    9,973
    
    
    
    18,29810% annual discount
    
    
    (2,784
    )
    
    
    (4,466
    )
    
    
    (7,250
    )
    
    
    (4,079
    )
    
    
    (5,268
    )
    
    
    (9,347
    )
    
    
    (3,359
    )
    
    
    (4,957
    )
    
    
    (8,316
    )Subtotal of
consolidated companies
    
    
    4,315
    
    
    
    5,211
    
    
    
    9,526
    
    
    
    5,818
    
    
    
    5,996
    
    
    
    11,814
    
    
    
    4,966
    
    
    
    5,016
    
    
    
    9,982Companys share in
standardized measure
by unconsolidated
affiliates
    
    
    150
    
    
    
    117
    
    
    
    267
    
    
    
    156
    
    
    
    143
    
    
    
    299
    
    
    
    117
    
    
    
    136
    
    
    
    253Total
    
    
    4,465
    
    
    
    5,328
    
    
    
    9,793
    
    
    
    5,974
    
    
    
    6,139
    
    
    
    12,113
    
    
    
    5,083
    
    
    
    5,152
    
    
    
    10,235
 As described in Note 5, the Company uses various derivative financial
instruments to mitigate the impact of changes in crude oil prices. Had such
instruments been considered, the effects on (a) Future cash flows and (b) Total
would have been as follows: 2003
    
    2002
    
    2001Rest of
    
    
    
    
    
    
    
    
    
    Rest of
    
    
    
    
    
    
    
    
    
    Rest ofLatin-
    
    
    
    
    
    
    
    
    
    Latin-
    
    
    
    
    
    
    
    
    
    Latin-Argentina
    
    America
    
    Total
    
    Argentina
    
    America
    
    Total
    
    Argentina
    
    America
    
    TotalEffect on  increase (decrease):(a) Future cash flows
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38
    )
    
    
    
    
    
    
    (38
    )
    
    
    (9
    )
    
    
    20
    
    
    
    11(b) Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    (22
    )
    
    
    (7
    )
    
    
    11
    
    
    
    4
 F-88




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##### Table of Contents



Changes in the standardized measure of discounted future net cash flows The following table discloses the changes in the standardized measure of
discounted future net cash flows for the years ended December 31, 2003, 2002
and 2001: Consolidated and unconsolidated Companies2003
    
    2002
    
    2001Rest of
    
    
    
    
    
    
    
    
    
    Rest of
    
    
    
    
    
    
    
    
    
    Rest ofLatin-
    
    
    
    
    
    
    
    
    
    Latin-
    
    
    
    
    
    
    
    
    
    Latin-Argentina
    
    America
    
    Total
    
    Argentina
    
    America
    
    Total
    
    Argentina
    
    America
    
    Total(in millions of constant pesos - note 2.c.)Standardized measure at beginning of year
    
    
    5,974
    
    
    
    6,139
    
    
    
    12,113
    
    
    
    5,083
    
    
    
    5,152
    
    
    
    10,235
    
    
    
    3,697
    
    
    
    4,109
    
    
    
    7,806Changes related to oil & gas activities:Sales net of production costs
    
    
    (1,161
    )
    
    
    (805
    )
    
    
    (1,966
    )
    
    
    (1,396
    )
    
    
    (900
    )
    
    
    (2,296
    )
    
    
    (989
    )
    
    
    (574
    )
    
    
    (1,563
    )Net change in sales prices, net of future production costs
    
    
    (1,520
    )
    
    
    (2,015
    )
    
    
    (3,535
    )
    
    
    2,675
    
    
    
    3,245
    
    
    
    5,920
    
    
    
    1,815
    
    
    
    2,429
    
    
    
    4,244Changes in future development costs
    
    
    (325
    )
    
    
    (112
    )
    
    
    (437
    )
    
    
    192
    
    
    
    793
    
    
    
    985
    
    
    
    (710
    )
    
    
    (1,845
    )
    
    
    (2,555
    )Extensions, discoveries and improved recovery, net of
futures production and associated costs
    
    
    444
    
    
    
    800
    
    
    
    1,244
    
    
    
    905
    
    
    
    256
    
    
    
    1,161
    
    
    
    802
    
    
    
    736
    
    
    
    1,538Development costs incurred
    
    
    351
    
    
    
    352
    
    
    
    703
    
    
    
    229
    
    
    
    272
    
    
    
    501
    
    
    
    504
    
    
    
    783
    
    
    
    1,287Revisions of quantity estimates
    
    
    (1,003
    )
    
    
    (56
    )
    
    
    (1,059
    )
    
    
    (1,072
    )
    
    
    (2,774
    )
    
    
    (3,846
    )
    
    
    (1,785
    )
    
    
    (182
    )
    
    
    (1,967
    )Purchase of reserves in place
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15
    
    
    
    1,036
    
    
    
    145
    
    
    
    1,181Sale of reserves in place
    
    
    (164
    )
    
    
    
    
    
    
    (164
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (466
    )
    
    
    (805
    )
    
    
    (1,271
    )Net change in income taxes
    
    
    944
    
    
    
    230
    
    
    
    1,174
    
    
    
    (792
    )
    
    
    (673
    )
    
    
    (1,465
    )
    
    
    (480
    )
    
    
    (156
    )
    
    
    (636
    )Accretion of discount
    
    
    899
    
    
    
    835
    
    
    
    1,734
    
    
    
    730
    
    
    
    669
    
    
    
    1,399
    
    
    
    461
    
    
    
    472
    
    
    
    933Changes in production rates
    
    
    (30
    )
    
    
    (181
    )
    
    
    (211
    )
    
    
    (578
    )
    
    
    353
    
    
    
    (225
    )
    
    
    1,125
    
    
    
    (257
    )
    
    
    868Other changes
    
    
    56
    
    
    
    141
    
    
    
    197
    
    
    
    (17
    )
    
    
    (254
    )
    
    
    (271
    )
    
    
    73
    
    
    
    297
    
    
    
    370Standardized measure at end of year
    
    
    4,465
    
    
    
    5,328
    
    
    
    9,793
    
    
    
    5,974
    
    
    
    6,139
    
    
    
    12,113
    
    
    
    5,083
    
    
    
    5,152
    
    
    
    10,235
 F-89




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##### Table of Contents



26. Subsequent events  a)
    
    Master settlement and mutual release agreement for CIESA In April 2004, the shareholders of CIESA reached a framework agreement
whereby Petrobras Energía and Enron will reciprocally waive any right to make
claims arising from or related to certain agreements executed by such groups in
connection with their interests in CIESA and TGS. In addition, and in order to
provide the flexibility necessary to make progress in restructuring CIESAs
financial debt, the framework agreement also provides for the transfer in two
phases of certain shares issued by TGS and CIESA. During the first phase (a)
Enron will transfer 40% of the shares issued by CIESA to a trust to be
organized or an alternative entity; and (b) Petrobras Energía will transfer
common class B            shares issued by TGS (representing 7.35% of the capital stock
of TGS) to Enron. During the second phase, Enron will transfer its remaining
interest in CIESA to the abovementioned trust or to an alternative institution
while CIESA will simultaneously transfer common class B            shares issued by TGS
(representing about 4.3 % of the capital stock of TGS) to Enron. In no case
shall Petrobras Energía hold (directly or indirectly) more than 50% of the
capital stock currently held in CIESA or any controlling interest in CIESA. The
transfers are subject to certain conditions, one of which is the approval by
the ENARGAS (Argentine gas regulatory agency), which is pending. The framework
agreement was subject to the definitive and unappealable approval by the
Bankruptcy Court competent in the Enron bankruptcy, which has already been
obtained.  b)
    
    Corporate bond issuance On April 30, 2004, Petrobras Energía issued the second series of Class R
medium-term corporate bonds for a total face value amounting to US$ 100 million
(the New Class R Corporate Bonds) which make up a single and fungible class
with medium-term corporate bonds for a face value of US$ 100 million issued on
October 31, 2003. The New Class R Corporate Bonds will mature on October 30,
2013, and accrue interest at 9.375% p.a. The funds were used to settle
existing liabilities.  c)
    
    Increase in our share in OCP: The Company and Tenco entered into a put and call option agreement whereby
Tenco granted the Company the irrevocable option to require Tenco to sell to
the Company the shares and subordinated debt comprising its 2.46% ownership
interest, and the Company granted to Tenco the irrevocable option to require
the Company to purchase from Tenco the shares and subordinated debt comprising
its ownership interest. On May 2004, the option was exercised by Tenco,
causing the Company to pay U$S 14 million. Consequently, the Companys current
interest in OCP increased to 11.42%. 27. Other consolidated information The following tables present additional consolidated financial statement
disclosures required under Argentine GAAP.  a)
    
    Property, plant and equipment.b)
    
    Equity in affiliatesc)
    
    Costs of sales.d)
    
    Foreign currency assets and liabilities.e)
    
    Consolidated detail of expenses incurred and depreciation.f)
    
    Information about ownership in subsidiaries and affiliates.g)
    
    Oil and gas areas and participation in joint ventures.h)
    
    Combined joint ventures and consortia assets, liabilities and results. F-90




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##### Table of Contents



a)
    
    Property, plant and equipment as of December 31, 2003, 2002 and 2001
(Stated in millions of Argentine Pesos  See Note 2.c) 2003Oil and Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hidrocarbons
    
    Corporate,Exploration
    
    
    
    
    
    
    
    
    
    
    
    
    
    Marketing
    
    Other Discontinuedand
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Electricity
    
    Transportation
    
    Eliminations
    
    TotalNet book value at beginning of the year
    
    
    7,225
    
    
    
    178
    
    
    
    770
    
    
    
    2,123
    
    
    
    
    
    
    
    137
    
    
    
    10,433Net book
value at beginning from
proportional interest in CIESA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,198
    
    
    
    
    
    
    
    2,198Effect of translation
    
    
    (631
    )
    
    
    
    
    
    
    (78
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (709
    )Net increase
    
    
    508
    
    
    
    23
    
    
    
    37
    
    
    
    40
    
    
    
    12
    
    
    
    33
    
    
    
    653Depreciation
    
    
    653
    
    
    
    20
    
    
    
    77
    
    
    
    147
    
    
    
    86
    
    
    
    33
    
    
    
    1,016Net book value at end of year
    
    
    6,449
    
    
    
    181
    
    
    
    652
    
    
    
    2,016
    
    
    
    2,124
    
    
    
    137
    
    
    
    11,559
 2002Oil and Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hidrocarbons
    
    Corporate,Exploration
    
    
    
    
    
    
    
    
    
    
    
    
    
    Marketing
    
    Other Discontinuedand
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Electricity
    
    Transportation
    
    Eliminations
    
    TotalNet book value at beginning of the year
    
    
    5,888
    
    
    
    191
    
    
    
    633
    
    
    
    2,236
    
    
    
    2,244
    
    
    
    441
    
    
    
    11,633CIESA decolsolidation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,244
    )
    
    
    
    
    
    
    (2,244
    )Effect of translation
    
    
    1,720
    
    
    
    
    
    
    
    201
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,921Net increase
    
    
    366
    
    
    
    5
    
    
    
    30
    
    
    
    37
    
    
    
    
    
    
    
    (264
    )
    
    
    174Depreciation
    
    
    749
    
    
    
    18
    
    
    
    94
    
    
    
    150
    
    
    
    
    
    
    
    40
    
    
    
    1,051Net book value at end of year
    
    
    7,225
    
    
    
    178
    
    
    
    770
    
    
    
    2,123
    
    
    
    
    
    
    
    137
    
    
    
    10,433
 2001Oil and Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hidrocarbons
    
    Corporate,Exploration
    
    
    
    
    
    
    
    
    
    
    
    
    
    Marketing
    
    Other Discontinuedand
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Electricity
    
    Transportation
    
    Eliminations
    
    TotalNet book value at beginning of the year
    
    
    4,511
    
    
    
    180
    
    
    
    684
    
    
    
    774
    
    
    
    
    
    
    
    424
    
    
    
    6,573Net book
value at beginning from
proportional interest in CIESA and
DISTRILEC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,467
    
    
    
    2,106
    
    
    
    
    
    
    
    3,573Net increase
    
    
    1,891
    
    
    
    26
    
    
    
    13
    
    
    
    159
    
    
    
    226
    
    
    
    49
    
    
    
    2,364Depreciation
    
    
    514
    
    
    
    15
    
    
    
    64
    
    
    
    164
    
    
    
    88
    
    
    
    32
    
    
    
    877Net book value at end of year
    
    
    5,888
    
    
    
    191
    
    
    
    633
    
    
    
    2,236
    
    
    
    2,244
    
    
    
    441
    
    
    
    11,633
 F-91




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##### Table of Contents



b)
    
    Equity in affiliates
(Stated in millions of Argentine Pesos - See Note 2.c) 2003Description of securitiesFaceCompany
    
    value
    
    Amount
    
    Cost
    
    Book valueSharesCitelec S.A.
    
    $
    1
    
    
    
    73,154,437
    
    
    
    298
    
    
    
    158Coroil S.A.
    
    Bs
    1.000
    
    
    
    490
    
    
    
    47
    
    
    
    56Empresa Boliviana de Refinación S.A.
    
    $Bl
    1.000
    
    
    
    178,752
    
    
    
    103
    
    
    
    114Enron de inversiones de Energía S.C.A.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hidroneuquén S.A.
    
    $
    10
    
    
    
    25,744,097
    
    
    
    26
    
    
    
    16Inversora Mata S.A.
    
    Bs
    1.000
    
    
    
    490
    
    
    
    72
    
    
    
    98Oleoducto de Crudos Pesados Ltd.
    
    U$S
    0,01
    
    
    
    31,500
    
    
    
    98
    
    

    
    81Oleoductos del Valle S.A.
    
    $
    10
    
    
    
    2,542,716
    
    
    
    61
    
    
    
    80Petrolera Entre Lomas S.A.
    
    $
    1
    
    
    
    96,050
    
    
    
    2
    
    
    
    45Petroquímica Cuyo S.A.
    
    $
    0,083
    
    
    
    240,000,000
    
    
    
    43
    
    
    
    46Refinería del Norte S.A.
    
    $
    10
    
    
    
    2,610,809
    
    
    
    63
    
    
    
    109Transportadora de Gas del Sur S.A.
    
    $
    1
    
    
    
    58,408,751
    
    
    
    169
    
    
    
    167Yacylec S.A.
    
    $
    0,1
    
    
    
    100,000,000
    
    
    
    25
    
    
    
    26Total
    
    
    
    
    
    
    
    
    
    
    1,007
    
    
    
    996
   [Continued from above table, first column(s) repeated] 2003
    
    2002Last available financial statementsNet incomeMain
    
    
    
    
    
    Capital
    
    for theCompany
    
    business
    
    Date
    
    stock
    
    year
    
    Equity
    
    Book valueSharesCitelec S.A.
    
    Investor in Transener S.A.
    
    
    30/09/2003
    
    
    
    249
    
    
    
    61
    
    
    
    333
    
    
    
    71Coroil S.A.
    
    Investor in Acema consortium
    
    
    30/09/2003
    
    
    
    
    
    
    
    (3
    )
    
    
    109
    
    
    
    37Empresa Boliviana de Refinación S.A.
    
    Refining
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    136Enron de inversiones de Energía S.C.A.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hidroneuquén S.A.
    
    Electric transmission
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Inversora Mata S.A.
    
    Investor in Mata consortium
    
    
    30/09/2003
    
    
    
    
    
    
    
    6
    
    
    
    200
    
    
    
    112Oleoducto de Crudos Pesados Ltd.
    
    Oil storage and shipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98Oleoductos del Valle S.A.
    
    Oil storage and shipment
    
    
    31/12/2003
    
    
    
    110
    
    
    
    9
    
    
    
    346
    
    
    
    89Petrolera Entre Lomas S.A.
    
    Oil & Gas
    
    
    31/12/2003
    
    
    
    1
    
    
    
    69
    
    
    
    234
    
    
    
    40Petroquímica Cuyo S.A.
    
    Petrochemical
    
    
    30/09/2003
    
    
    
    50
    
    
    
    16
    
    
    
    142
    
    
    
    29Refinería del Norte S.A.
    
    Refining
    
    
    30/06/2003
    
    
    
    92
    
    
    
    56
    
    
    
    341
    
    
    
    89Transportadora de Gas del Sur S.A.
    
    Oil transportation
    
    
    30/09/2003
    
    
    
    794
    
    
    
    244
    
    
    
    2,016
    
    
    
    88Yacylec S.A.
    
    Electric transmission
    
    
    30/09/2003
    
    
    
    45
    
    
    
    8
    
    
    
    118
    
    
    
    27Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    832
 F-92




---



##### Table of Contents



c)
    
    Costs of sales for the years ended December 31, 2003, 2002 and 2001
(Stated in millions of Argentine Pesos - See Note 2.c) 2003Oil and Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hydrocarbons
    
    Corporate,Exploration
    
    
    
    
    
    
    
    
    
    
    
    
    
    Marketing
    
    Other Discontinuedand
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Electricity
    
    Transportation
    
    Eliminations
    
    TotalInventories at beginning
    
    
    129
    
    
    
    97
    
    
    
    169
    
    
    
    38
    
    
    
    
    
    
    
    (38
    )
    
    
    395Effect of traslation
    
    
    (10
    )
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )Investores at begining from
proportional interest in CIESA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Costs (Section e)
    
    
    1,383
    
    
    
    54
    
    
    
    149
    
    
    
    283
    
    
    
    156
    
    
    
    1
    
    
    
    2,026Holding gain (losses)
    
    
    2
    
    
    
    12
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (6
    )
    
    
    9Purchases, consumption and other
    
    
    54
    
    
    
    1,146
    
    
    
    824
    
    
    
    236
    
    
    
    133
    
    
    
    (1,044
    )
    
    
    1,349Inventories at end
    
    
    (110
    )
    
    
    (129
    )
    
    
    (155
    )
    
    
    (35
    )
    
    
    (8
    )
    
    
    57
    
    
    
    (380
    )Costs of sales
    
    
    1,448
    
    
    
    1,180
    
    
    
    981
    
    
    
    523
    
    
    
    284
    
    
    
    (1,030
    )
    
    
    3,386
 2002Oil and Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hydrocarbons
    
    Corporate,Exploration
    
    
    
    
    
    
    
    
    
    
    
    
    
    Marketing
    
    Other Discontinuedand
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Electricity
    
    Transportation
    
    Eliminations
    
    TotalInventories at beginning
    
    
    92
    
    
    
    75
    
    
    
    130
    
    
    
    28
    
    
    
    2
    
    
    
    231
    
    
    
    558Effect of traslation
    
    
    4
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Costs (Section e)
    
    
    1,538
    
    
    
    40
    
    
    
    157
    
    
    
    337
    
    
    
    3
    
    
    
    55
    
    
    
    2,130Holding gain (losses)
    
    
    16
    
    
    
    (43
    )
    
    
    (4
    )
    
    
    5
    
    
    
    
    
    
    
    21
    
    
    
    (5
    )Purchases, consumption and other
    
    
    79
    
    
    
    969
    
    
    
    775
    
    
    
    299
    
    
    
    6
    
    
    
    (939
    )
    
    
    1,189Assets for sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    (177
    )
    
    
    (200
    )Inventories at end
    
    
    (129
    )
    
    
    (97
    )
    
    
    (169
    )
    
    
    (38
    )
    
    
    
    
    
    
    38
    
    
    
    (395
    )Costs of sales
    
    
    1,600
    
    
    
    944
    
    
    
    892
    
    
    
    608
    
    
    
    11
    
    
    
    (771
    )
    
    
    3,284
 2001Oil and Gas
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hydrocarbons
    
    Corporate,Exploration
    
    
    
    
    
    
    
    
    
    
    
    
    
    Marketing
    
    Other Discontinuedand
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    Investments andProduction
    
    Refining
    
    Petrochemical
    
    Electricity
    
    Transportation
    
    Eliminations
    
    TotalInventories at beginning
    
    
    75
    
    
    
    95
    
    
    
    132
    
    
    
    37
    
    
    
    
    
    
    
    240
    
    
    
    579Costs (Section e)
    
    
    1,139
    
    
    
    49
    
    
    
    145
    
    
    
    384
    
    
    
    239
    
    
    
    63
    
    
    
    2,019Purchases, consumption and other
    
    
    66
    
    
    
    642
    
    
    
    519
    
    
    
    539
    
    
    
    63
    
    
    
    (493
    )
    
    
    1,336Inventories at end
    
    
    (92
    )
    
    
    (75
    )
    
    
    (130
    )
    
    
    (28
    )
    
    
    (2
    )
    
    
    (231
    )
    
    
    (558
    )Investores at end from
proportional interest in CIESA
and DISTRILEC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    (3
    )
    
    
    
    
    
    
    (29
    )Costs of sales
    
    
    1,188
    
    
    
    711
    
    
    
    666
    
    
    
    906
    
    
    
    297
    
    
    
    (421
    )
    
    
    3,347
 F-93




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##### Table of Contents



d)   Foreign currency assets and liabilities as of December 31, 2003 and 2002
      (Stated in millions of Argentine Pesos  See Note 2.c) Foreign currency
    
    
    
    
    
    Book amount inand amount
    
    Exchange rate
    
    local currencyCURRENT ASSETSCash
    
    US$
    
    
    30
    
    
    
    2.9400
    
    
    
    88BS
    
    
    575
    
    
    
    0.0018
    
    
    
    290Investments
    
    US$
    
    
    248
    
    
    
    2.9400
    
    
    
    729Rs
    
    
    3
    
    
    
    1.0177
    
    
    
    3732Trade receivables
    
    US$
    
    
    167
    
    
    
    2.9400
    
    
    
    491Rs
    
    
    74
    
    
    
    1.0177
    
    
    
    75BS
    
    
    4,948
    
    
    
    0.0018
    
    
    
    9575Other receivables
    
    US$
    
    
    132
    
    
    
    2.9400
    
    
    
    389BS
    
    
    56,075
    
    
    
    0.0018
    
    
    
    102$Bol
    
    
    24
    
    
    
    0.3750
    
    
    
    9Rs
    
    
    12
    
    
    
    1.0177
    
    
    
    12512TOTAL 2003
    
    
    
    
    
    
    1,909TOTAL 2002
    
    
    
    
    
    
    1,908NONCURRENT ASSETSTrade receivables
    
    US$
    
    
    11
    
    
    
    2.9400
    
    
    
    32Other receivables
    
    US$
    
    
    15
    
    
    
    2.9400
    
    
    
    45BS
    
    
    43,980
    
    
    
    0.0018
    
    
    
    80125Investments
    
    US$
    
    
    97
    
    
    
    2.9400
    
    
    
    284TOTAL 2003
    
    
    
    
    
    
    441TOTAL 2002
    
    
    
    
    
    
    282TOTAL ASSETS 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,350TOTAL ASSETS 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,190
 Foreign currency
    
    
    
    
    
    Book amount inand amount
    
    Exchange rate
    
    local currencyCURRENT LIABILITIESAccounts payable
    
    US$
    
    
    182
    
    
    
    2.9400
    
    
    
    535Rs
    
    
    4
    
    
    
    1.0177
    
    
    
    4BS
    
    
    17,592
    
    
    
    0.0018
    
    
    
    32571Short-term debt
    
    US$
    
    
    1,072
    
    
    
    2.9400
    
    
    
    3,1523,152Payroll and social security taxes
    
    US$
    
    
    2
    
    
    
    2.9400
    
    
    
    5BS
    
    

    1,100
    
    
    
    0.0018
    
    
    
    2Sol
    
    
    2
    
    
    
    0.8487
    
    
    
    2Rs
    
    
    3
    
    
    
    1.0177
    
    
    
    312Taxes payable
    
    US$
    
    
    1
    
    
    
    2.9400
    
    
    
    2Rs
    
    
    12
    
    
    
    1.0177
    
    
    
    12BS
    
    
    23,090
    
    
    
    0.0018
    
    
    
    4256Other liabilities
    
    Rs
    
    
    2
    
    
    
    1.0177
    
    
    
    2US$
    
    
    94
    
    
    
    2.9400
    
    
    
    276278TOTAL 2003
    
    
    
    
    
    
    4,069TOTAL 2002
    
    
    
    
    
    
    1,898NONCURRENT LIABILITIESAccounts payable
    
    US$
    
    
    1
    
    
    
    2.9400
    
    
    
    2Long-term debit
    
    US$
    
    
    1734
    
    
    
    2.9400
    
    
    
    5,098Taxes payable
    
    US$
    
    
    
    
    
    
    2.9400
    
    
    
    1BS
    
    
    1,100
    
    
    
    0.0018
    
    
    
    2Rs
    
    
    3
    
    
    
    1.0177
    
    
    
    36Other liabilities
    
    US$
    
    
    69
    
    
    
    2.9400
    
    
    
    204BS
    
    
    12644
    
    
    
    0.001819
    
    
    
    23227Reserves
    
    
    U$S
    
    
    
    68
    
    
    
    2.9400
    
    
    
    201TOTAL 2003
    
    
    
    
    
    
    5,534TOTAL 2002
    
    
    
    
    
    
    6,315TOTAL LIABILITIES 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,603TOTAL LIABILITIES 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,213
 US$
    
    Millions of United States DollarsBS
    
    Millions of BolívaresRs
    
    Millions of Reales$Bol
    
    Millions of Pesos BolivianosSol
    
    Millions of Nuevos Soles Peruanos
 F-94




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##### Table of Contents



e) Consolidated detail of expenses incurred and depreciation for the years ended
      December 31, 2003, 2002 and 2001
(Stated in millions of Argentine Pesos  See Note 2.c) 2001
    
    2002
    
    2003Administrativeand selling
    
    ExplorationTotal
    
    Total
    
    Total
    
    Costs
    
    expenses
    
    expensesSalaries and wages
    
    
    413
    
    
    
    268
    
    
    
    266
    
    
    
    110
    
    
    
    152
    
    
    
    4Social security taxes
    
    
    55
    
    
    
    32
    
    
    
    37
    
    
    
    17
    
    
    
    19
    
    
    
    1Other benefits to personnel
    
    
    70
    
    
    
    58
    
    
    
    100
    
    
    
    30
    
    
    
    69
    
    
    
    1Taxes, charges and contributions
    
    
    67
    
    
    
    51
    
    
    
    47
    
    
    
    28
    
    
    
    18
    
    
    
    1Fees and professional advisory
    
    
    140
    
    
    
    81
    
    
    
    80
    
    
    
    37
    
    
    
    42
    
    
    
    1Depreciation of property, plant and
equipment
    
    
    877
    
    
    
    1,051
    
    
    
    1,016
    
    
    
    940
    
    
    
    76
    
    
    
    Amortization of other assets
    
    
    17
    
    
    
    8
    
    
    
    14
    
    
    
    11
    
    
    
    3
    
    
    
    Oil and gas royalties
    
    
    264
    
    
    
    348
    
    
    
    332
    
    
    
    331
    
    
    
    
    
    
    
    1Spares and repairs
    
    
    99
    
    
    
    103
    
    
    
    110
    
    
    
    109
    
    
    
    1
    
    
    
    Geological and geophysical expenses
    
    
    31
    
    
    
    28
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6Transportation and freights
    
    
    148
    
    
    
    156
    
    
    
    178
    
    
    
    35
    
    
    
    143
    
    
    
    Construction contracts and other services
    
    
    291
    
    
    
    328
    
    
    
    309
    
    
    
    252
    
    
    
    56
    
    
    
    1Impairment of unproved oil and gas properties
    
    
    
    
    
    
    17
    
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    180Fuel, gas, energy and other
    
    
    44
    
    
    
    37
    
    
    
    35
    
    
    
    34
    
    
    
    1
    
    
    
    Other operating costs and consumption
    
    
    282
    
    
    
    260
    
    
    
    139
    
    
    
    96
    
    
    
    43
    
    
    
    Allowances for doubful accounts
    
    
    34
    
    
    
    30
    
    
    
    31
    
    
    
    21
    
    
    
    10
    
    
    
    Recovery of administrative expenses
    
    
    (107
    )
    
    
    (59
    )
    
    
    (99
    )
    
    
    (25
    )
    
    
    (74
    )
    
    
    Total 2003
    
    
    
    
    
    
    
    
    
    
    2,781
    
    
    
    2,026
    
    
    
    559
    
    
    
    196Total 2002
    
    
    
    
    
    
    2,797
    
    
    
    
    
    
    
    2,130
    
    
    
    609
    
    
    
    58Total 2001
    
    
    2,725
    
    
    
    
    
    
    
    
    
    
    
    2,019
    
    
    
    665
    
    
    
    41
 F-95




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##### Table of Contents



f) Information about ownership in subsidiaries and affiliates as of December 31, 2003 % OF OWNERSHIP AND VOTESDIRECT
    
    INDIRECT
    
    BUSINESS SEGMENTSubsidiariesCorod Producción S.A. (Venezuela)
    
    
    
    
    
    
    98.21
    
    
    Oil and Gas Exploration and ProductionEcuadortlc S.A. (Ecuador)
    
    
    
    
    
    
    98.21
    
    
    Oil and Gas Exploration and ProductionEnecor S.A.
    
    
    
    
    
    
    68.74
    
    
    ElectricityInnova S.A. (Brasil)
    
    
    
    
    
    
    98.21
    
    
    PetrochemicalPCI Power Edesur Holding Ltd. (Islas Bermudas)
    
    
    
    
    
    
    98.21
    
    
    ElectricityPetrobras Holding Austria AG (Austria)
    
    
    
    
    
    
    98.21
    
    
    CorporatePecom de Valores Internacional de España S.A. (España)
    
    
    
    
    
    
    98.21
    
    
    CorporatePecom Forestal S.A. (1)
    
    
    
    
    
    
    98.21
    
    
    Other investmentPetrobras Energia S.A.
    
    
    98.21
    
    
    
    
    
    
    CorporatePecom Energía Internacional S.A.
    
    
    
    
    
    
    98.21
    
    
    CorporatePetrobras Energía Operaciones S.A. (Ecuador)
    
    
    
    
    
    
    98.21
    
    
    Oil and Gas Exploration and ProductionPetrobras Financial Services (Gran Cayman)
    
    
    
    
    
    
    98.21
    
    
    CorporatePetrobras Financial Services GMBH (Austria)
    
    
    
    
    
    
    98.21
    
    
    CorporatePecom Hispano Argentina S.A. (España)
    
    
    
    
    
    
    98.21
    
    
    CorporatePetrobras Bolivia International S.A. (Bolivia)
    
    
    
    
    
    
    98.21
    
    
    CorporatePetrobras Energía Ecuador (Gran Cayman)
    
    
    
    
    
    
    98.21
    
    
    Oil and Gas Exploration and ProductionPetrobras Energia Perú S.A. (Perú)
    
    
    
    
    
    
    98.21
    
    
    Oil and Gas Exploration and ProductionPetrobras Energia Venezuela S.A. (Venezuela)
    
    
    
    
    
    
    98.21
    
    
    Oil and Gas Exploration and ProductionPetrolera San Carlos S.A. (Venezuela)
    
    
    
    
    
    
    98.21
    
    
    Oil and Gas Exploration and ProductionPetroleum Commercial Supply, Inc. (EEUU)
    
    
    
    
    
    
    98.21
    
    
    Other investmentWorld Energy Business S.A.
    
    
    
    
    
    
    99.21
    
    
    Hydrocarbons Marketing and TransportationWorld Fund Global Investment (Gran Cayman)
    
    
    
    
    
    
    98.21
    
    
    CorporateWorld Fund Investment S.A. (Bolivia)
    
    
    
    
    
    
    98.21
    
    
    CorporateWorld Fund Financial Services (Gran Cayman)
    
    
    
    
    
    
    98.21
    
    
    CorporateMain affiliates  join controlCía. de Inversiones de Energía S.A.
    
    
    
    
    
    
    49.10
    
    
    Hydrocarbons Marketing and TransportationCitelec S.A.
    
    
    
    
    
    
    49.10
    
    
    ElectricityDistrilec Inversora S.A.
    
    
    
    
    
    
    47.63
    
    
    ElectricityEdesur S.A.
    
    
    
    
    
    
    26.84
    
    
    ElectricityTransba S.A.
    
    
    
    
    
    
    28.72
    
    
    ElectricityTransener S.A.
    
    
    
    
    
    
    32.50
    
    
    ElectricityTransportadora de Gas del Sur S.A.
    
    
    
    
    
    
    34.37
    
    
    Hydrocarbons Marketing and TransportationMain affiliates  significance influenceCoroil S.A. (Venezuela)
    
    
    
    
    
    
    48.12
    
    
    Oil and Gas Exploration and ProductionEmpresa Boliviana de Refinación S.A. (Bolivia)
    
    
    
    
    
    
    48.10
    
    
    RefiningHidroneuquén S.A.
    
    
    
    
    
    
    9.02
    
    
    ElectricityInversora Mata S.A. (Venezuela)
    
    
    
    
    
    
    48.12
    
    
    Oil and Gas Exploration and ProductionOleoducto de Crudos Pesados Ltd. (Gran Cayman)
    
    
    
    
    
    
    8.80
    
    
    Hydrocarbons Marketing and TransportationOleoducto de Crudos Pesados S.A. (Ecuador)
    
    
    
    
    
    
    8.80
    
    
    Hydrocarbons Marketing and TransportationOleoductos del Valle S.A.
    
    
    
    
    
    
    22.69
    
    
    Hydrocarbons Marketing and TransportationPropyme S.G.R
    
    
    
    
    
    
    49.08
    
    
    CorporatePetrolera Entre Lomas S.A.
    
    
    
    
    
    
    18.87
    
    
    Oil and Gas Exploration and ProductionPetroquímica Cuyo S.A.
    
    
    
    
    
    
    39.28
    
    
    PetrochemicalRefinería del Norte S.A.
    
    
    
    
    
    
    27.99
    
    
    RefiningUrugua-í S.A.
    
    
    
    
    
    
    28.80
    
    
    ElectricityYacylec S.A.
    
    
    
    
    
    
    21.82
    
    
    Electricity
 (1) See Vote 9.V.a) F-96




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##### Table of Contents



g) Oil and gas areas and participation in joint ventures as of December 31,
2003 WORKING
    
    
    
    DURATIONNAME
    
    LOCATION
    
    INTEREST (2)
    
    OPERATOR
    
    THROUGHProductionArgentina25 de Mayo  Medanito S.E.
    
    La Pampa and Río Negro
    
    
    100.00
    %
    
    Petrobras Energía
    
    
    2016Jagüel de los Machos
    
    Río Negro and La Pampa
    
    
    100.00
    %
    
    Petrobras Energía
    
    
    2015Puesto Hernández  U.T.E.
    
    Mendoza and Neuquén
    
    
    38.45
    %
    
    Petrobras Energía
    
    
    2016Bajada del Palo  La Amarga Chica  U.T.E.
    
    Neuquén
    
    
    80.00
    %
    
    Petrobras Energía
    
    
    2015Santa Cruz II  U.T.E.
    
    Santa Cruz
    
    
    100.00
    %
    
    Petrobras Energía
    
    
    2017Río Neuquén
    
    Neuquén and Río Negro
    
    
    100.00
    %
    
    Petrobras Energía
    
    
    2019Entre Lomas
    
    Neuquén and Río Negro
    
    
    17.90
    %
    
    Petrolera Entre Lomas S.A.
    
    
    2016Aguada de la Arena
    
    Neuquén
    
    
    80.00
    %
    
    Petrobras Energía
    
    
    2022Veta Escondida y Rincón de Aranda  U.T.E.
    
    Neuquén
    
    
    55.00
    %
    
    Petrobras Energía
    
    
    2016Santa Cruz I  U.T.E.
    
    Santa Cruz
    
    
    71.00
    %
    
    Petrobras Energía
    
    
    2016ForeignColpa  Caranda
    
    Bolivia
    
    
    100.00
    %
    
    Petrobras Energía
    
    
    2029Oritupano  Leona
    
    Venezuela
    
    
    55.00
    %
    
    PE Venezuela
    
    
    2014Acema
    
    Venezuela
    
    
    86.23
    %
    
    Petrolera Coroil
    
    
    2017La Concepción
    
    Venezuela
    
    
    90.00
    %
    
    PE Venezuela
    
    
    2017Mata
    
    Venezuela
    
    
    86.23
    %
    
    Petrolera Mata
    
    
    2018Lote X
    
    Perú
    
    
    100.00
    %
    
    PE Perú
    
    
    2024Bloque 18
    
    Ecuador
    
    
    70.00
    %
    
    Ecuadortlc
    
    
    2021ExplorationArgentinaGlencross (1)
    
    Santa Cruz
    
    
    96.68
    %
    
    Petrobras Energía
    
    
    1999Santa Cruz I  Oeste
    
    Santa Cruz
    
    
    100.00
    %
    
    Petrobras Energía
    
    
    2006Santa Cruz II  Oeste
    
    Santa Cruz
    
    
    100.00
    %
    
    Petrobras Energía
    
    
    2005Cuenca Marina 2A Norte-U.T.E.
    
    Santa Cruz
    
    
    50.00
    %
    
    Petrobras Energía
    
    
    2006ForeignSan Carlos
    
    Venezuela
    
    
    50.00
    %
    
    Pet. San Carlos
    
    
    2005Tinaco
    
    Venezuela
    
    
    50.00
    %
    
    PE Venezuela
    
    
    2005Bloque 31
    
    Ecuador
    
    
    100.00
    %
    
    Petrobras Energía
    
    
    2004
  (1)
    
    Pecom Energía has requested that the lot be declared operational with commercial operation held in suspense.(2)
    
    Indirect interest through Pecom Energía and its subsidiaries. F-97




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##### Table of Contents



h) Combined joint ventures and consortia assets and liabilities as of
December 31, 2003 and 2002 and results for the years as of December
2003, 2002 and 2001 then ended.  2003
    
    2002Assets and liabilitiesCurrent assets
    
    
    687
    
    
    
    705Noncurrent assets
    
    
    2,726
    
    
    
    2,909Total assets
    
    
    3,413
    
    
    
    3,614Current liabilities
    
    
    353
    
    
    
    206Noncurrent liabilities
    
    
    25
    
    
    
    Total liabilities
    
    
    378
    
    
    
    206
 2003
    
    2002
    
    2001Statements of incomeNet sales
    
    
    1,071
    
    
    
    1,224
    
    
    
    881Costs of sales
    
    
    (536
    )
    
    
    (661
    )
    
    
    (426
    )Gross profit
    
    
    535
    
    
    
    563
    
    
    
    455Administrative and selling expenses
    
    
    (40
    )
    
    
    (66
    )
    
    
    (52
    )Exploration expenses
    
    
    (6
    )
    
    
    (25
    )
    
    
    (11
    )Other exploitation income, net
    
    
    18
    
    
    
    (13
    )
    
    
    4Financial income (expense) and holding gains (losses)
    
    
    2
    
    
    
    1,195
    
    
    
    2Income tax provision
    
    
    13
    
    
    
    (14
    )
    
    
    (15
    )Net income
    
    
    522
    
    
    
    1,640
    
    
    
    383
 2003
    
    2002
    
    2001Net cash provided by operating activities
    
    
    164
    
    
    
    48
    
    
    
    580Net cash used in investing activities
    
    
    (407
    )
    
    
    (378
    )
    
    
    (850
    )Net cash provided by financing activities
    
    
    249
    
    
    
    354
    
    
    
    273
 F-98




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of
Compañía de Inversiones de Energía S.A. We have audited the accompanying consolidated balance sheets of Compañía de
Inversiones de Energía S.A. and its subsidiaries at December 31, 2003 and 2002,
and the related consolidated statements of income, of changes in shareholders
equity and of cash flows for each of the three years in the period ended
December 31, 2003. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. As indicated in Notes 2.c. and 2.h., the Company has discontinued the
restatement of financial statements into constant currency as from March 1,
2003 and has recorded deferred income tax assets and liabilities on a
non-discounted basis as required by resolutions issued by the Comisión Nacional
de Valores(CNV). Since generally accepted accounting principles in Argentina
require companies to prepare price-level restated financial statements through
September 30, 2003 and to recognize deferred taxes on a discounted basis, the
application of the CNV resolutions represent a departure from generally
accepted accounting principles in Argentina. In our opinion, except for the effects of the matters described in the
preceding paragraph, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Compañía de
Inversiones de Energía S.A. and its subsidiaries at December 31, 2003 and 2002,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in Argentina. The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As indicated in Notes 5 and
6, the Company has been negatively impacted by the deterioration of the
Argentine economy, the devaluation of the Argentine peso and the Argentine
governments adoption of various economic measures including the violation of
the contractually-agreed License terms. In view of these circumstances, the
Company has not been able to maintain the financial ratios required by its
outstanding debt agreements and in May, 2003 had announced the suspension of
payment on its financial debt. These circumstances raise substantial doubt
about the Companys ability to continue as a going concern. Managements plans
in regard to these matters are also described in Notes 5 and 6. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. F-99




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##### Table of Contents



Accounting principles generally accepted in Argentina vary in certain
significant respects from the accounting principles generally accepted in the
United States of America and as allowed by Item 18 to Form 20-F. Information
relating to the nature and effect of such differences is presented in Note 11
to the consolidated financial statements. /s/ Héctor A. López
PRICE WATERHOUSE & CO.
Héctor A. López (Partner)
Buenos Aires, Argentina
June 11, 2004 F-100




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND LOSS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Stated in thousands of constant Argentine pesos as described in Note 2.c.
except for per share amounts in constant Argentine pesos) 2003
    
    2002
    
    2001Net revenues (Note 3)
    
    
    892,795
    
    
    
    939,457
    
    
    
    1,220,256Cost of sales (Note 12.f)
    
    
    (427,251
    )
    
    
    (435,722
    )
    
    
    (426,847
    )GROSS PROFIT
    
    
    465,544
    
    
    
    503,735
    
    
    
    793,409Administrative expenses (Note 12.h)
    
    
    (26,594
    )
    
    
    (34,030
    )
    
    
    (54,943
    )Selling expenses (Note 12.h)
    
    
    (32,695
    )
    
    
    (34,244
    )
    
    
    (40,123
    )OPERATING INCOME
    
    
    406,255
    
    
    
    435,461
    
    
    
    698,343Other expenses, net
    
    
    (26,438
    )
    
    
    (11,493
    )
    
    
    (126,996
    )Equity in earnings/(losses) of affiliates
    
    
    1,782
    
    
    
    (6,862
    )
    
    
    (95
    )Net financial expense (Note 2.q)
    
    
    (149,309
    )
    
    
    (1,323,441
    )
    
    
    (244,879
    )NET INCOME (LOSS) BEFORE INCOME TAX AND
MINORITY INTEREST
    
    
    232,290
    
    
    
    (906,335
    )
    
    
    326,373Income tax benefit (expense) (Notes 2.l and 2.m)
    
    
    116,164
    
    
    
    43,230
    
    
    
    (134,196
    )Minority interest
    
    
    (127,931
    )
    
    
    271,979
    
    
    
    (107,256
    )NET INCOME (LOSS) FOR THE YEAR
    
    
    220,523
    
    
    
    (591,126
    )
    
    
    84,921Net income (loss) per share (Note 2.r)
    
    
    0.85
    
    
    
    (2.28
    )
    
    
    0.33
 The accompanying notes are integral part of these consolidated financial statements. F-101




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 AND 2002
(Stated in thousands of constant Argentine pesos as described in Note 2.c) 2003
    
    2002CURRENT ASSETSCash and deposits in banks
    
    
    12,234
    
    
    
    6,779Investments, net (Note 12.d)
    
    
    664,149
    
    
    
    202,703Trade receivables, net (Note 3)
    
    
    101,290
    
    
    
    116,140Other receivables
    
    
    28,181
    
    
    
    23,242Inventories
    
    
    5,454
    
    
    
    6,771Total current assets
    
    
    811,308
    
    
    
    355,635NON CURRENT ASSETSTrade receivables
    
    
    27,547
    
    
    
    43,817Other receivables
    
    
    153,177
    
    
    
    23,826Investments, net (Note 12.c)
    
    
    54,903
    
    
    
    59,363Property, plant and equipment, net (Note 12.a)
    
    
    4,408,468
    
    
    
    4,960,579Intangible assets, net (Note 12.b)
    
    
    52,566
    
    
    
    65,622Total non-current assets
    
    
    4,696,661
    
    
    
    5,153,207Total assets
    
    
    5,507,969
    
    
    
    5,508,842CURRENT LIABILITIESAccounts payable
    
    
    78,569
    
    
    
    85,951Loans (Note 5)
    
    
    3,967,842
    
    
    
    4,330,694Payroll and social security taxes payable
    
    
    9,002
    
    
    
    4,846Taxes payable
    
    
    17,533
    
    
    
    12,269Other liabilities
    
    
    33,400
    
    
    
    14,754Total current liabilities
    
    
    4,106,346
    
    
    
    4,448,514NON CURRENT LIABILITIESAccounts payable
    
    
    3,516
    
    
    
    10,802Taxes payable
    
    
    2,338
    
    
    
    8,175Loans (Note 5)
    
    
    7,548
    
    
    
    2,445Total non-current liabilities
    
    
    13,402
    
    
    
    21,422Total liabilities
    
    
    4,119,748
    
    
    
    4,469,936MINORITY INTEREST
    
    
    920,305
    
    
    
    792,374SHAREHOLDERS EQUITY
    
    
    467,916
    
    
    
    246,532Total liabilities and
shareholders equity
    
    
    5,507,969
    
    
    
    5,508,842
 The accompanying notes are integral part of these consolidated financial statements. F-102




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COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Stated in thousands of constant Argentine pesos as described in Note 2.c) 2003
    
    2002
    
    2001CASH FLOWS PROVIDED BY OPERATING ACTIVITIESNet Income / (loss)
    
    
    220,523
    
    
    
    (591,126
    )
    
    
    84,921Reconciliation of net income (loss) to cash flows
provided by operating activitiesDepreciation of property, plant and equipment
    
    
    180,559
    
    
    
    201,411
    
    
    
    167,863Amortization of intangible assets
    
    
    19,895
    
    
    
    27,743
    
    
    
    25,478Write off of Property, plant and equipment retired
    
    
    20,088
    
    
    
    33,298
    
    
    
    3,891Write off of intangible assets retired
    
    
    3,485
    
    
    
    
    
    
    
    (Decrease) increase in allowances and provisions
    
    
    (22,422
    )
    
    
    40,817
    
    
    
    3,579Equity in (earnings) losses of affiliates
    
    
    (1,782
    )
    
    
    6,862
    
    
    
    95Minority interest
    
    
    127,931
    
    
    
    (271,979
    )
    
    
    107,256PPI Adjustment Effect
    
    
    
    
    
    
    
    
    
    
    38,513Interest expense
    
    
    266,994
    
    
    
    349,293
    
    
    
    232,825Income tax (benefit) expense
    
    
    (116,164
    )
    
    
    (43,230
    )
    
    
    134,196Results for inflation and foreign exchange rate (earnings) losses
    
    
    (162,510
    )
    
    
    840,593
    
    
    
    Changes in assets and liabilities:Trade receivables
    
    
    33,840
    
    
    
    (88,454
    )
    
    
    1,519Other receivables
    
    
    (6,592
    )
    
    
    (12,730
    )
    
    
    (10,435
    )Inventories
    
    
    1,267
    
    
    
    (3,853
    )
    
    
    (3,889
    )Accounts payable
    
    
    (5,578
    )
    
    
    31,442
    
    
    
    16,941Payroll and social security taxes payable
    
    
    4,192
    
    
    
    (758
    )
    
    
    2,442Taxes payable
    
    
    16,609
    
    
    
    26,075
    
    
    
    (11,503
    )Other liabilities
    
    
    22,348
    
    
    
    561
    
    
    
    (216
    )Others
    
    
    (10,253
    )
    
    
    17,067
    
    
    
    31,025Interest paid
    
    
    (51,785
    )
    
    
    (305,726
    )
    
    
    (255,704
    )Income and asset tax paid
    
    
    (14,194
    )
    
    
    (22,033
    )
    
    
    (152,479
    )Cash provided by operating activities
    
    
    526,451
    
    
    
    235,273
    
    
    
    416,318CASH FLOWS USED IN INVESTING ACTIVITIESAcquisition of government bonds
    
    
    
    
    
    
    
    
    
    
    (21,982
    )Capital contributions in affiliated company
    
    
    (577
    )
    
    
    (1,407
    )
    
    
    (1,493
    )Purchases of property, plant and equipment
    
    
    (60,888
    )
    
    
    (95,290
    )
    
    
    (443,997
    )Cash used in investing activities
    
    
    (61,465
    )
    
    
    (96,697
    )
    
    
    (467,472
    )CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIESAdvance payments from clients
    
    
    3,516
    
    
    
    
    
    
    
    Proceeds from loans
    
    
    
    
    
    
    30,614
    
    
    
    633,542Payment of loans
    
    
    (1,557
    )
    
    
    (175,759
    )
    
    
    (422,908
    )Net increase in short-term debt
    
    
    
    
    
    
    82,496
    
    
    
    80,322Settlement of hedges of anticipated transactions
    
    
    
    
    
    
    
    
    
    
    (7,892
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    (148,651
    )Shareholders capital contributions
    
    
    861
    
    
    
    
    
    
    
    Cash provided by (used in) financing activities
    
    
    2,820
    
    
    
    (62,649
    )
    
    
    134,413NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    467,806
    
    
    
    75,927
    
    
    
    83,259Cash and cash equivalents at the beginning of year
    
    
    204,962
    
    
    
    129,035
    
    
    
    45,776Cash and cash equivalents at the end of year
    
    
    672,768
    
    
    
    204,962
    
    
    
    129,035
 For supplemental cash flow information, see Note 4.
The accompanying notes are integral part of these consolidated financial statements. F-103




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##### Table of Contents



COMPAÑÍA DE
INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Stated in thousands of constant Argentine pesos as described in Note 2.c) Shareholders contributions
    
    Retained earningsCumulativeCommon
    
    inflationstock
    
    adjustment
    
    Irrevocable
    
    
    
    
    
    
    
    
    
    Voluntary
    
    Unappropriated
    
    Totalnominal
    
    to common
    
    capital
    
    
    
    
    
    Legal
    
    reserves for
    
    retained
    
    Shareholdersvalue
    
    stock
    
    contribution
    
    Subtotal
    
    reserve
    
    future dividends
    
    earnings (deficit)
    
    EquityBalances at December 31, 2000
    
    
    258,858
    
    
    
    375,247
    
    
    
    
    
    
    
    634,105
    
    
    
    57,191
    
    
    
    
    
    
    
    142,329
    
    
    
    833,625Prior year adjustments (Note 2.b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,831
    )
    
    
    (24,831
    )Modified balance at December 31, 2000
    
    
    258,858
    
    
    
    375,247
    
    
    
    
    
    
    
    634,105
    
    
    
    57,191
    
    
    
    
    
    
    
    117,498
    
    
    
    808,794Resolutions of the Ordinary Shareholders Meeting held on March 2, 2001Appropriation to legal reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,017
    
    
    
    
    
    
    
    (5,017
    )
    
    
    Voluntary reserve for future dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,216
    
    
    
    (31,216
    )
    
    
    Approved by the Board of Directors meeting held on April 3, 2001
and December 27, 2001:Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,216
    )
    
    
    (24,841
    )
    
    
    (56,057
    )Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,921
    
    
    
    84,921Balances at December 31, 2001
    
    
    258,858
    
    
    
    375,247
    
    
    
    
    
    
    
    634,105
    
    
    
    62,208
    
    
    
    
    
    
    
    141,345
    
    
    
    837,658Resolutions of the Ordinary Shareholders Meeting held on May 14, 2002:Appropriation to legal reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,323
    
    
    
    
    
    
    
    (2,323
    )
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (591,126
    )
    
    
    (591,126
    )Balances at December 31, 2002
    
    
    258,858
    
    
    
    375,247
    
    
    
    
    
    
    
    634,105
    
    
    
    64,531
    
    
    
    
    
    
    
    (452,104
    )
    
    
    246,532Approved by the Board of Directors meeting held on May 26, 2003:Irrevocable capital contribution against future issuance of shares
    
    
    
    
    
    
    
    
    
    
    861
    
    
    
    861
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    861Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    220,523
    
    
    
    220,523Balances at December 31, 2003
    
    
    258,858
    
    
    
    375,247
    
    
    
    861
    
    
    
    634,966
    
    
    
    64,531
    
    
    
    
    
    
    
    (231,581
    )
    
    
    467,916
 The accompanying notes are an integral part of these consolidated financial statements. F-104




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  1.
    
    ORGANIZATION AND START-UP OF THE COMPANY Compañía de Inversiones de Energía S.A. (CIESA or the Company) was created
on December 14, 1992. CIESA is currently owned 50% by Petrobras Energía S.A. (Petrobras Energía)
and a subsidiary of Petrobras Energía and 50% by subsidiaries of Enron Corp.
(Enron). CIESA, together with Petrobras Energía and Enron, hold approximately 70% of
Transportadora de Gas del Sur S.A. (TGS), one of the companies created as a
result of the privatization of Gas del Estado S. E. (GdE) engaged in the
transportation of natural gas and production and commercialization of natural
gas liquids (NGL) and other services in Argentina. TGSs pipeline system
connects major gas fields in southern and western Argentina with distributors
of gas in those areas and in the greater Buenos Aires area. The gas
transportation license to operate this system for a period of thirty-five
years (the License) was exclusively granted to TGS, which is entitled to a
one-time extension of ten years provided that TGS has essentially met the
obligations imposed by the License and by Ente Nacional Regulador del Gas
(ENARGAS). The General Cerri Gas Processing Complex (the Cerri Complex),
where TGS processes natural gas by extracting NGL, was transferred along with
the gas transmission assets. On January 19, 2001 CIESA Shareholders Meeting approved an amendment to its
corporate by-laws, related to the expansion of its corporate purpose. This
enabled the Company to render all services, commercial and industrial, related
to the industry of hydrocarbons and electric power, both locally and abroad. On April 16, 2004, the shareholders of CIESA entered into a Master Settlement
and Mutual Release Agreement (the Settlement Agreement). The Settlement
Agreement provides for, among other things, the transfer, in two stages, of
certain shares issued by TGS and by CIESA. In the first stage: (a) Enron
holding will transfer 40% of the outstanding share capital of CIESA to a trust
to be formed or to an alternative entity; and (b) the Petrobras holding will
transfer their TGS class B common shares (representing 7.35% of the
outstanding share capital of TGS) to Enron holding. In the second stage, Enron
holding will transfer their remaining outstanding share capital of CIESA to the
trust mentioned above or to an alternative entity, subject to the simultaneous
transfer of the TGS class B common shares held by CIESA (representing
approximately 4.3% of the outstanding shares of TGS) to Enron holding. CIESAs Shareholders Agreement will be terminated and replaced by a new
Shareholders Agreement addressing the ownership change following consummation
of the first stage. At no time will the Petrobras holding hold, directly or
indirectly, more than their current 50% shareholding in CIESA or hold a
controlling interest in CIESA. In May 2004, the bankruptcy court having jurisdiction over the bankruptcy of
Enron approved the Settlement Agreement. In addition, the transfers referred to
above are subject to several conditions, one of which is the approval from
ENARGAS.  2.
    
    BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Companys consolidated financial statements have been prepared in
accordance with generally accepted accounting principles used in Argentina
(Argentine GAAP), (except for what is mentioned in c) and h) to this note)
and the regulations of the Comisión Nacional de Valores (CNV), the National
Securities Commission in Argentina. Argentine GAAP differs in certain
significant respects from generally accepted accounting principles in the
United States of America (US GAAP). Such differences involve methods of
measuring the amounts shown in the financial statements, as well as additional
disclosures required by US GAAP and Regulation S-X of the Securities and
Exchange Commission (SEC). A description of the significant differences
between Argentine GAAP and US GAAP and a reconciliation of consolidated net
income (loss) and shareholders equity to US GAAP are disclosed in Note 11 to
these consolidated financial statements. These consolidated financial statements are intended solely for the use of
Petrobras Energía in the filing of its Form 20-F with the SEC, and should not
be used, circulated, quoted or referred to for any other purpose. The consolidated financial statements include the accounts of CIESA and its
subsidiaries TGS and TELCOSUR S.A. (TELCOSUR) which have been consolidated
following the methodology established in Technical Resolution (TR) No. 4 of
the Argentine Federation of Professional Councils in Economic Sciences
(Argentine Federation). The accounting policies used F-105




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) by TGS and TELCOSUR are consistent with those applied by CIESA. All significant intercompany
transactions have been eliminated in consolidation. Detailed data reflecting subsidiaries direct control as of December 31,
2003, 2002 and 2001 is as follows: Percentage of shareholding and votes2003
    
    2002
    
    2001Company
    
    Direct
    
    Indirect
    
    Direct
    
    Indirect
    
    Direct
    
    Indirect
    
    Closing Date
    
    Legal AddressTGS
    
    
    55.30
    
    
    
    
    
    
    
    55.30
    
    
    
    
    
    
    
    55.30
    
    
    
    
    
    
    December 31
    
    Don Bosco 3672, 5th
Floor, Buenos AiresTelcosur S.A.
    
    
    
    
    
    
    55.29
    
    
    
    
    
    
    
    55.29
    
    
    
    
    
    
    
    55.29
    
    
    December 31
    
    Don Bosco 3672, 6th
Floor, Buenos Aires
 For consolidation purposes for the years ended December 31, 2003, 2002 and
2001, audited consolidated financial statements of TGS as of those dates have
been used.  a)
    
    Use of estimatesThe preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements, as well as the reported
amounts of revenues and expenses during the reporting year. Estimates are
used when accounting for the allowance for doubtful accounts, depreciation,
amortization, impairment of long-lived assets, income taxes and
contingencies. Actual results could materially differ from such estimates.Such estimates and assumptions include the financial impact on the
consolidated financial statements of the Company as of December 31, 2003
caused by the measures adopted by the Argentine Government (relating to the
economic crisis that started in December 2001). The projections, which
include those related to the fair value of non-current assets and tax loss
carryforwards accumulated at year end, contemplate alternative scenarios
based on macroeconomic, financial, market and regulatory assumptions which
are considered probable, and are aimed at restoring the financial condition
of the Company. Actual results could materially differ from such evaluations
and estimates, and such differences might be significant. Therefore, the
Companys financial statements may not include all adjustments that could
result from, or otherwise reflect, the impact of these conditions.
Furthermore, at the time of the issuance of these financial statements it is
not possible to foresee the future development of the countrys economy, the
results of the License renegotiation (see Note 6) or the global debt
restructuring processes of TGS and CIESA (see Note 5), nor their consequences
on the Companys financial condition and the results of its operations.
Consequently, any decision taken on the basis of these consolidated financial
statements must consider the effects of these events and conditions and their
future development. Therefore, the Companys financial statements must be
read in the light of these uncertain circumstances.b)
    
    New Accounting StandardsOn December 21, 2001, the Professional Council in Economic Sciences of the
Autonomous City of Buenos Aires (CPCECABA) approved new accounting rules
(Technical Resolutions (TR) 16 to 19 issued by the Argentine Federation,
with certain amendments). The new accounting rules have modified the
valuation principles for assets and liabilities, introduced new valuation
techniques for certain issues not addressed by the previous accounting rules
and also incorporated additional disclosure requirements for the preparation
of financial statements. In addition, TR No. 20 Valuation of Derivative
Financial Instruments and Hedging Operations became effective as from
January 1, 2003. Also, CNV issued Resolution No. 434/03 which adopted such
new accounting rules with certain amendments effective January 1, 2003. F-106




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  The principal amendments introduced by the new accounting rules which have
impacted CIESAs consolidated financial statements are: (i) the adoption of
an accounting model which enhances the utilization of the Companys intention
as valuation principle (such as the discounted value of receivables and
liabilities); (ii) the incorporation of strict standards to make comparisons
with fair values; (iii) the creation of standards to account for labor costs,
derivative financial instruments and hedging operations; (iv) the mandatory
adoption of the deferred income tax method to account for income taxes; and
(v) new disclosure requirements relating to, among other things, segment and
per share information and the information included for comparative purposes.At December 31, 2003, the adoption of these new valuation and disclosure
rules, in accordance with the transition period rules, generated adjustment
for previous years as follows: Prior year adjustments as of December 31,Changes in valuation of assets and liabilities
    
    2003
    
    2002
    
    2001
    
    20001. Discount of receivables and liabilities
    
    
    (1,205
    )
    
    
    
    
    
    
    
    
    
    
    2. Labor costs
    
    
    (1,578
    )
    
    
    
    
    
    
    
    
    
    
    3. Valuation of derivative
instruments(a)
    
    
    (1,825
    )
    
    
    
    
    
    
    
    
    
    
    4. Application of deferred tax method
    
    
    61,835
    
    
    
    2,354
    
    
    
    (23,973
    )
    
    
    (24,831
    )
 (a) In accordance with the applicable transition rule, the balance at the
beginning of the year has not been modified pursuant to the new accounting
standards for derivative instruments.  c)
    
    Presentation of consolidated financial statements in constant Argentine
pesosThe consolidated financial statements have been prepared in constant
Argentine pesos, recognizing the overall effects of inflation up to August
31, 1995. As from that date, in line with professional accounting standards
and the requirements of the control authorities, the Company discontinued
the restatement of its financial statements until December 31, 2001. As
established by Resolution No.3/2002 of the CPCECABA and Resolution No. 415
of the CNV, as from January 1, 2002 the Company resumed the recognition of
the effects of inflation in these financial statements, following the
provisions of TR No. 6, as amended by TR. No.19, both issued by the
Argentine Federation. Accounting measurements restated due to the change in
the purchasing power of the currency up to August 31, 1995, as well as those
which have been originated between that date and December 31, 2001, are
considered to be stated in the currency value as of the later date.On March 25, 2003 the Executive Branch issued Decree No. 664, which provides
that financial statements for periods ending after such date shall be stated
in historical Argentine pesos. As a consequence and in accordance with
Resolution No. 441, issued by the CNV, the Company suspended inflation
accounting effective March 1, 2003. This criterion is not in line with
effective accounting standards, which stipulate that financial statements
should be restated as of September 30, 2003. If the Company had applied
inflation accounting for the period from March 1 to September 30, 2003, net
assets would have decreased by Ps. 41 million and net income for the year
would have decreased by Ps. 36 million.The restatement methodology is computed at each balance sheet date, using
the Argentine Wholesale Price Index (WPI) published by the INDEC, as
follows:  -
    
    Non-monetary items and consolidated statement of income amounts
are adjusted to reflect the then-current general purchasing power;-
    
    Monetary items are not adjusted as such items are, by their
nature, stated in terms of current general purchasing power in the
financial statements; and-
    
    Monetary gains or losses are recognized in the consolidated
statement of income, reflecting the effect of holding monetary items.
This gain or loss on exposure to inflation (monetary gain or loss) is
included in the consolidated statement of income within Net financial
expense.  Information presented for comparative purposes has been restated in
constant currency as of February 28, 2003.d)
    
    Short term receivables and liabilities in currency F-107




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  Short term receivables and liabilities, including accrued interest if
applicable at the end of each fiscal year, have been valued at their
respective notional amount, which does not materially differ from the
present value of the future cash flow that the receivables and liabilities
will generate, using the internal rate of return estimated at inception.e)
    
    Foreign currency assets and liabilitiesAssets and liabilities denominated in foreign currencies, including accrued
interest if applicable, are translated at the prevailing exchange rates at
the relevant year-end.In accordance with Resolution MD No. 1/2002 of the CPCECABA and Resolution
No. 392 of the CNV, assets and liabilities denominated in foreign
currencies as of December 31, 2001 were valued using the exchange rate of
one Argentine peso per U.S. dollar, or its equivalent in other currencies
(the exchange rate in effect when the exchange market was suspended in
December 2001).Assets and liabilities denominated in foreign currencies are disclosed in
Note 12.g).f)
    
    InventoriesInventories consist of natural gas in the pipeline system owned by TGS in
excess of line pack, which is classified as property, plant and equipment,
and NGL obtained from natural gas processing at the Cerri Complex. TGS
values these inventories at replacement or reproduction cost, as applicable,
at the end of each year. The carrying value of inventories does not exceed
its recoverable value.g)
    
    InvestmentsOvernight accounts are valued at their face value plus accrued interest,
which do not materially differ from their discounted value using the
internal rate of return effective at inception.Money market funds have been valued at their respective fair value.Investments in Sovereign Bonds to be held to maturity (Notes 12.c) and
12.d)) have been valued based on the best estimate of the present value of
the cash to be received, using the discount rate estimated at the time of
acquisition of the assets. The book value of these investments, net of
corresponding impairment, does not exceed their respective recoverable value
at December 31, 2003 and 2002.Equity investments in companies in which the Companys ownership interest
ranges between 20% and 50%, such as Gas Link S.A. (LINK) and
Emprendimientos de Gas del Sur S.A. (EGS), have been accounted for under
the equity method. These investments have been valued based on the
financial statements at the dates specified in Note 12.c), which have been
prepared applying similar criteria to that used by the Company to prepare
its consolidated financial statements. As of December 31, 2003, 2002 and
2001 the investment in LINK has been adjusted by Ps. 6,085, Ps. 6,255 and
Ps. 1,794, respectively, due to the elimination of intercompany profits, as
required by Argentine GAAP. Due to these adjustments, as of December 31,
2002, the Companys equity interest in LINK was negative. Such balance is
disclosed under the caption Other liabilities.TGS considers its foreign subsidiary Transporte y Servicios de Gas en
Uruguay S.A. (TGU, formerly Isonil S.A.) to be a non-integrated
subsidiary. Consequently, TGUs assets, liabilities and results of
operations have been translated into Argentine pesos using the exchange rate
in effect at year-end, while its common stock and retained earnings
accounts have been translated using historical exchange rates. The
investment in this company has been accounted for under the equity method.According to Resolution No. 3/2002 and 87/03 issued by the CPCECABA and
Resolution N° 398 of CNV, the Company has capitalized an exchange loss (up
to the recoverable value of the investment) amounting to Ps. 53,957 (net of
accumulated amortization) originated on the exchange loss arising from the
peso devaluation from January 6, 2002 to July 28, 2003 on the Companys
outstanding dollar denominated Negotiable Obligations debt as of the first
date, associated to the direct F-108




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  financing of the investment in TGS. This
remaining balance is amortized over a 26  year term, the remaining term of
the License.h)
    
    Long term receivables and liabilities in currencyAs required by the CPCECABA, long term receivables and liabilities (except
for deferred tax assets and liabilities as described below) have been valued
based on the best estimate of the discounted value of the amounts expected
to be collected or paid, as applicable, using the interest rate effective at
the time of initial measurement. However, Resolution MD 32/02 of the
CPCECABA permits the use of the interest rate for savings accounts of Banco
de la Nación Argentina, in effect at the moment of the acquisition or
incurrence of such assets or liabilities.Assets and liabilities generated as a result of the application of the
deferred tax method have been calculated at their nominal value in
accordance with Resolution No. 434 of CNV (which is not in accordance with
CPCECABA rules), net of valuation allowances for non-recoverable tax loss
carryforward.i)
    
    Property, plant and equipment, net  -
    
    Assets transferred from the privatization of GdE: The value of
these assets was determined based on the price paid for the
acquisition of 70% of TGSs common stock, which amounted to US$ 561.2
million. This price was the basis to determine a total value of common
stock of US$ 801.7 million, which, when added to the debt assumed
under the Companys privatization agreement (the Transfer Contract)
of US$ 395.0 million, resulted in a total value for property, plant
and equipment of US$ 1,196.7 million. Such value, converted at the
exchange rate in effect as of the date of the Transfer Contract, has
been restated for the effects of inflation as described in Note 2.c).-
    
    Line pack: It represents the natural gas in the transportation
system that is necessary to keep the system at operating capacity,
valued at acquisition cost and restated for the effects of inflation
as described in Note 2.c).-
    
    Capitalization of exchange loss: In accordance with Resolution No.
1/2002 of the CPCECABA and Resolution No. 392 of the CNV, TGS has
recognized the effects of the devaluation of the peso as from January
1, 2002. Resolutions No. 3/2002 and 87/03 issued by the CPCECABA and
Resolution No. 398 of the CNV established that exchange losses arising
from the devaluation of the peso from January 6, 2002 to July 28,
2003, to the extent that they were related to foreign currency
liabilities existing at the first date, are to be added to the cost
basis of assets acquired or constructed with direct financing by such
foreign currency liabilities. Similar accounting treatment is
permitted, but not required, for exchange losses arising from indirect
financing. It was assumed that the proceeds from such financings were
used, firstly, to cover working capital requirements and secondly to
finance the assets that do not qualify for capitalization. The
remainder was assumed to relate to assets for which capitalization is
permitted.-
    
    Additions: They are valued at acquisition cost restated for the
effects of inflation as described in Note 2.c). TGS capitalizes the
net cost of debt used to finance work in progress until such assets
are ready for their intended use. TGS has capitalized all the
investments stipulated as mandatory in the License during the first
five-year period, in order to achieve system integrity and public
safety equal to those required by international standards. Such
investments included, among others, the costs of survey programs
related to internal and external pipeline inspection, cathodic
protection and pipeline replacement and recoating. Additionally,
Resolutions No. 1,660 and No. 1,903 issued by ENARGAS include
definitions prescribing which costs should be considered improvements
and which costs should be considered maintenance expenses. F-109




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  -
    
    Depreciation: TGS applied the straight-line method with a
composite depreciation rate for all assets allocated to
transportation service and to the NGL production and
commercialization until December 31, 1999.  
    
    Assets allocated to natural gas transportation service:
Resolutions No. 1,660 and No. 1,903 issued by ENARGAS established
maximum useful lives applicable to each component of such assets
to be applied effective January 1, 2000, which levels are lower
than the useful lives applied by TGS through December 31, 1999.
The new useful lives applied by TGS do not exceed the maximum
useful lives determined in such resolutions. The above-mentioned
resolutions also outline specific criteria for assets retirements.
During fiscal year 2000, in compliance with the ENARGAS
requirements in the mentioned resolutions and in order to maintain
the straight-line method of depreciation, TGS changed from using a
composite depreciation rate to using individual depreciation rates
for each component of the assets allocated to the gas
transportation service.
    
    Assets allocated to NGL production and
commercialization: While TGS maintains the straight-line method,
during fiscal year 2000, it changed from using a composite
depreciation rate to using individual depreciation rates for each
component of the assets allocated to the NGL production and
commercialization.
    
    For depreciation of all other property, plant and
equipment, TGS uses the straight-line method of depreciation and
applies the annual depreciation rates disclosed in Note 12.a).
Gain or loss on retirement of these assets is recognized in income
in the year in which such retirement occurs.
    
    Capitalized exchange loss is depreciated over the
remaining useful lives of the assets that led to such
capitalization.  -
    
    Interest capitalization: The net cost of external financing used
to fund the construction of long-lived assets is capitalized within
Property, plant and equipment, net until the corresponding asset is
ready for its intended use. As mentioned in Note 2.q), interest
capitalized during the years ended December 31, 2003, 2002 and 2001
amounted to Ps. nil, Ps. nil and Ps. 12,486, respectively.-
    
    Repair and maintenance costs: These costs are expensed in
accordance with Resolution No. 1660 and Resolution No. 1903 issued by
the ENARGAS. Accordingly, TGS expenses the repair and maintenance
costs incurred in the main components of the gas transportation system
based on the following criteria:  -
    
    For transmission pipelines and high pressure branches,
maintenance costs include main replacements performed in pipeline
sections shorter than 100 continuous meters, recoating works in
less than or equal to 2,000 continuous meters of main, smart-pig
inspection works, hydrostatic tests, conditioning works in
water-crossings, reinforcements and nipple installations.-
    
    For compressor plants, overhauls when the supplies
replacement costs of the turbine compressors is less than 50% of
the cost of a new similar unit and does not exceed Ps. 150. This
excludes the dismantling and/or repair of the supplies restored.-
    
    For measurement instruments, costs of repairs or
replacements made on them.-
    
    For measurement and regulation stations, TGS capitalizes
costs that represent improvements in accordance with pre-defined
criteria. All other costs are deemed to be maintenance costs and,
accordingly, expensed as incurred.-
    
    All expenditures related to supplies which value do not
exceed 50% of the replacement cost of similar units are expensed
as incurred. If such value exceeds 50% of the replacement cost of
similar units but is under Ps. 10,000, the related amount is also
charged to income. Based on the projections made as discussed in Note 2.a), TGSs management
believes that the recorded value of property, plant and equipment does not
exceed its recoverable value. F-110




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  j)
    
    Intangible assetsIntangible assets are valued at their historical cost, restated to account
for the effects of inflation as described in Note 2.c), less accumulated
amortization. The amortization of pre-operating costs, organization costs,
cancellation costs of commitments assumed under the Transfer Contract and
other costs was calculated over a period of primarily thirty-five years
through December 31, 2000. Starting January 1, 2001, the net book value of
these costs as of December 31, 2000 is being amortized over a five-year
period, as well as the acquisition cost of the license. The costs of
hedging interest rates are deferred over the term of the related loans.
Arrangement costs for the issuance of debt associated with Global Programs,
as well as debt issuance costs, are deferred over the term of the related
debt.k)
    
    Derivative financial instrumentThe Company and TGS use derivative financial instruments as part of its
overall strategy to manage its exposure to market risks associated with
fluctuations in interest rates and exchange rates. Currently, TGS has one
interest rate cap agreement outstanding. In the past, the Company has
entered into rate cap and collar agreements and TGS has entered into cross
currency swaps, foreign currency forward-exchange contracts and interest
rate lock agreements. As a matter of policy, the Company and TGS does not
use derivatives for trading or speculative purposes. See Note 5 for details
about the Company and TGSs derivative instrument activity.Gains or losses from derivative financial instruments that qualify for hedge
accounting are deferred and recognized together with the gains or losses
associated to the hedged item and included in Net Financial Expense. In
case the financial instrument has been arranged to cover the impact of a
future transaction, the gains or losses are deferred and recorded together
with the gains or losses of the hedged item.Assets associated with derivative financial instruments have been valued at
their fair value. Liabilities associated with derivative financial
instruments have been valued at their estimated cancellation cost.
Differences generated as a consequence of the application of the
above-mentioned principle have been recognized in results of operations of
the year.l)
    
    Income tax provisionThe Company and its subsidiaries have calculated their respective income
taxes using the deferred tax method, which considers the effect of temporary
differences between the financial reporting and income tax bases of
accounting.To estimate deferred tax assets and liabilities, the tax rate expected to be
in effect at the time of utilization was applied to identified temporary
differences and tax loss carryforwards based on the legal requirements
effective at the time of preparation of these consolidated financial
statements.As of December 31, 2003 the Company has not recorded asset or liabilities
temporary differences related to non-current investments, since it is
unlikely that such differences are reversed in the foreseeable future, based
on projected future taxable income determined in line with what is mentioned
in Note 2.b).Income tax (benefit) expense for the years ended December 31, 2003, 2002 and
2001 consist of the following: 2003
    
    2002
    
    2001Estimated current income tax expense
/ (tax loss carryforward)
    
    
    85
    
    
    
    (822,378
    )
    
    
    135,748Deferred income tax expense (benefit)
    
    
    107,591
    
    
    
    57,859
    
    
    
    (1,552
    )Change in valuation allowance
    
    
    (223,840
    )
    
    
    721,281
    
    
    
    Income tax (benefit) expense
    
    
    (116,164
    )
    
    
    (43,238
    )
    
    
    134,196Asset tax expense
    
    
    
    
    
    
    8
    
    
    
    Total
    
    
    (116,164
    )
    
    
    (43,230
    )
    
    
    134,196
 F-111




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) The components of the net deferred tax asset (liability) as of December 31,
2003 and 2002, are the following: 2003
    
    2002Deferred tax assetsExchange difference (1)
    
    
    87,003
    
    
    
    116,860Allowance for doubtful account
    
    
    316
    
    
    
    1,691Investments, net
    
    
    4,581
    
    
    
    14,864Present value other receivables
    
    
    801
    
    
    
    Suppliers provisions
    
    
    40
    
    
    
    15Provision for tax contingencies
    
    
    121
    
    
    
    166Provision for contingencies
    
    
    11,414
    
    
    
    3,595Tax loss carryforwards
    
    
    603,036
    
    
    
    830,079Valuation allowance
    
    
    (499,743
    )
    
    
    (728,937
    )207,569
    
    
    
    238,333Deferred tax liabilitiesDeferred revenues
    
    
    (744
    )
    
    
    (786
    )Property, plant and equipment, net
    
    
    (87,316
    )
    
    
    (232,190
    )Intangible assets, net
    
    
    (3,373
    )
    
    
    (5,472
    )(91,433
    )
    
    
    (238,448
    )Net deferred tax asset (liability)
    
    
    116,136
    
    
    
    (115
    )
 (1) Corresponds to the negative results caused by the devaluation of the
Argentine Peso as of December 31, 2002 which according to Decree No.
2,568/02, will be deductible for income tax purposes in five years between
2002 and 2006. Income tax expense computed at the statutory tax rate (35%) on pre-tax
(loss) income differs from the income tax (benefit) expense for the years
ended December 31, 2003, 2002 and 2001 as follows: 2003
    
    2002
    
    2001Pre-tax income (loss)
    
    
    232,290
    
    
    
    (906,335
    )
    
    
    326,373Statutory income tax rate
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Income tax expense (benefit) at statutory income tax rate
    
    
    81,302
    
    
    
    (317,219
    )
    
    
    114,230Permanent differences at statutory income tax rate- Inflation adjustment
    
    
    30,129
    
    
    
    (455,655
    )
    
    
    3,510- Equity in earnings of affiliates
    
    
    778
    
    
    
    1,300
    
    
    
    465- Change in valuation allowance
    
    
    (223,840
    )
    
    
    721,281
    
    
    
    16,706- Other, not individually significant
    
    
    (4,533
    )
    
    
    7,055
    
    
    
    (715
    )Total net income tax (benefit) expense
    
    
    (116,164
    )
    
    
    (43,238
    )
    
    
    134,196
 TGSs accumulated tax loss carryforwards on a consolidated basis that are
available to offset future taxable income are the following: Description
    
    Amount
    
    Year of expirationTax loss carryforward 2002
    
    
    1,834,440
    
    
    
    2007Utilization in 2003
    
    
    (584,103
    )Accumulated tax loss carryforward
    
    
    1,250,337
 CIESAs accumulated tax loss carryforwards that are available to offset
future taxable income are the following: 2003
    
    Pending
    
    Year ofDescription
    
    Amount
    
    Utilization
    
    Amount
    
    expirationTax loss carryforward 2001
    
    
    21,713
    
    
    
    (21,713
    )
    
    
    
    
    
    
    2006Tax loss carryforward 2002
    
    
    498,084
    
    
    
    (25,458
    )
    
    
    472,626
    
    
    
    2007Total
    
    
    519,797
    
    
    
    (47,171
    )
    
    
    472,626
 In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the F-112




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  generation of future taxable income during the
periods in which those temporary differences become recoverable. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning in making these assessments. The
Company and TGS are required to continuously evaluate the recoverability of
their deferred
tax assets. This evaluation is made based on internal projections made as
discussed in Note 2.a), which are routinely updated to reflect more recent
trends in the Companys results of operations. As of December 31, 2003 and
2002, based on current financial information, the Company and TGS are
uncertain that they will recover their entire deferred tax assets through
future taxable income. Accordingly, at December 31, 2003 and 2002, the
Company has recognized a valuation allowance of Ps. 499.7 million and Ps.
728.9 million against its deferred tax assets, respectively.m)
    
    Asset tax provisionThe Company and its subsidiaries are subject to the Asset Tax Law
(Impuesto a la Ganancia Mínima Presunta), which became effective for
fiscal periods ending after December 30, 1998. The asset tax is calculated
on an individual entity basis at the statutory tax rate of 1%, and is based
upon the taxable assets of each Argentinean entity as of the end of the
year. Pursuant to this law, the Company is required to pay the greater of
the income tax or the asset tax. Any excess of the asset tax over the
income tax may be carried forward and recognized as a payment on account of
any excess of income tax over asset tax occurring within the subsequent ten
years.The asset tax provision determined by the Company, is recorded as expense
because it is estimated that such tax may not be utilized against future
income tax charges.At December 31, 2003 and 2002, TGS accrued approximately Ps. 20.8 million
and Ps. 10.5 million in consolidated asset tax liability, respectively,
which is included in Taxes payable in the accompanying consolidated
balance sheet. In the opinion of management it is more likely than not that
TGS will utilize such asset against future income tax charges within the
next ten years, and, as a result, TGS has recognized the accumulated asset
tax charge within Other non-current receivables in the accompanying
consolidated balance sheet.n)
    
    Allowances and provision for contingenciesTGS provides for losses relating to its accounts receivable and government
bonds. The allowance for losses is based on managements evaluation of
various factors, including the credit risk of customers, historical trends
and other information. While management uses the information available to
make evaluations, future adjustments to the allowance may be necessary if
future economic conditions differ substantially from the assumptions used
in making the evaluations. Management has considered all events and/or
transactions that are subject to reasonable and normal methods of
estimation, and the consolidated financial statements reflect that
consideration.In addition, the Company and TGS have recognized a valuation allowance to
adjust the remaining balance of the tax loss carryforward included in the
tax return for fiscal year 2002 which, based on the most recent income
projections, is expected to be utilized before its prescription.The Company has certain contingent liabilities with respect to existing or
potential claims, lawsuits and other proceedings, including those involving
legal and regulatory matters. The Company and TGS record liabilities when
it is probable that future costs will be incurred and such costs can be
reasonably estimated. Such accruals are based on developments to date,
their estimates of the outcome of these matters and the experience of their
legal counsel in contesting, litigating and settling other matters. As the
scope of the liabilities becomes better defined, there will be changes in
the estimates of future costs, which could have a material effect on the
Companys future results of operations and financial condition or
liquidity.Contingencies and allowances are disclosed in Notes 8 and 12.e). F-113




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  o)
    
    Shareholders equity accountsThese accounts have been restated to account for the effects of inflation
as described in Note 2.c), except for Common stock nominal value which is
stated at original cost. The adjustment derived from its restatements has
been disclosed in the account Cumulative inflation adjustment to common
stock.p)
    
    Revenue recognitionFirm transportation revenues are recognized based on the accrued contracted
capacity reserved regardless of actual usage. For interruptible
transportation services and certain NGL production and commercialization
contracts, revenues are recognized upon the delivery of natural gas or gas
liquids to customers, respectively. For other NGL production and other
services contracts, revenues are recognized when services are rendered.q)
    
    Statement of income accountsAccounts relating to the statement of income have been restated to reflect the
effects of inflation as described in Note 2.c).The breakdown of Net financial
expense line item for the years ended December 31, 2003, 2002 and 2001 is as
follows: 2003
    
    2002
    
    2001Generated by assetsInterest income
    
    
    18,209
    
    
    
    15,456
    
    
    
    12,872Loss on exposure to inflation
    
    
    (7,228
    )
    
    
    (211,471
    )
    
    
    Foreign exchange (loss) / gain 
net of inflation
    
    
    (33,019
    )
    
    
    78,930
    
    
    
    Holding losses
    
    
    
    
    
    
    (37,425
    )
    
    
    Total
    
    
    (22,038
    )
    
    
    (154,510
    )
    
    
    12,872Generated by liabilitiesInterest expense (i)
    
    
    (266,994
    )
    
    
    (349,293
    )
    
    
    (232,825
    )Gain from exposure to inflation
    
    
    8,699
    
    
    
    116,589
    
    
    
    Foreign exchange gain / (loss) 
net of inflation (ii)
    
    
    160,727
    
    
    
    (904,061
    )
    
    
    (4,820
    )Amortization of intangible assets
    
    
    (9,610
    )
    
    
    (16,705
    )
    
    
    (14,439
    )Other expenses and financial charges
    
    
    (20,093
    )
    
    
    (15,461
    )
    
    
    (5,667
    )Total
    
    
    (127,271
    )
    
    
    (1,168,931
    )
    
    
    (257,751
    )Total net financial expense
    
    
    (149,309
    )
    
    
    (1,323,441
    )
    
    
    (244,879
    )
  (i)
    
    Interest expense is disclosed net of capitalized interest.
Capitalized interest amounted to Ps. nil, Ps. nil and Ps. 12,486 for
the years ended December 31, 2003, 2002 and 2001, respectively.(ii)
    
    Foreign exchange gains (losses) for fiscal years 2003 and 2002
are disclosed net of exchange losses that were capitalized in
investments and property, plant and equipment as described in Notes
2.g) and 2.i).  r)
    
    Earnings per shareEarnings per share for the years ended December 31, 2003, 2002 and 2001
have been calculated based on 258,858,095 outstanding shares during each
year. As the Company does not have preferred stock or convertible debt, the
amount of basic earnings per share is the same as the amount of diluted
earnings per share. F-114




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.AND ITS SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)   3. CONSOLIDATED BUSINESS SEGMENT INFORMATION The Companys business segments are as follows: (i) natural gas transportation
services through its pipeline system; (ii) NGL production and
commercialization and (iii) other services, which include midstream and
telecommunication services (the latter rendered by its subsidiary, Telcosur). Operating income consists of net revenues less operating expenses. In the
calculation of operating income, the following items have not been included:
other expenses, net, equity in earnings / (losses) of affiliates, net
financial expense and income tax benefit (expense). Assets and liabilities allocated to each segment are those used by TGS and
TELCOSUR to develop each business. Assets and liabilities that cannot be
allocated to a specific segment have been grouped under Corporate and
include investments and loans, among others. There were no revenues among the business segments during the reported years. As of and for the
    
    
    
    
    
    NGL Production andyear ended December 31, 2003
    
    Gas Transportation
    
    commercialization
    
    Other services
    
    Corporate
    
    TotalNet revenues
    
    
    422,093
    
    
    
    428,361
    
    
    
    42,341
    
    
    
    
    
    
    
    892,795Operating income (loss)
    
    
    192,408
    
    
    
    240,047
    
    
    
    5,846
    
    
    
    (32,046
    )
    
    
    406,255Depreciation of property, plant and equipment
    
    
    134,904
    
    
    
    26,371
    
    
    
    13,397
    
    
    
    5,887
    
    
    
    180,559Additions to property, plant and equipment
(includes work in progress)
    
    
    28,946
    
    
    
    11,172
    
    
    
    2,438
    
    
    
    1,689
    
    
    
    44,245Identifiable assets
    
    
    4,002,960
    
    
    
    450,713
    
    
    
    218,280
    
    
    
    836,016
    
    
    
    5,507,969Identifiable liabilities
    
    
    37,872
    
    
    
    39,005
    
    
    
    8,116
    
    
    
    4,034,755
    
    
    
    4,119,748
 As of and for the
    
    
    
    
    
    NGL Production andyear ended December 31, 2002
    
    Gas Transportation
    
    commercialization
    
    Other services
    
    Corporate
    
    TotalNet revenues
    
    
    532,051
    
    
    
    347,398
    
    
    
    60,008
    
    
    
    
    
    
    
    939,457Operating income (loss)
    
    
    255,122
    
    
    
    208,886
    
    
    
    13,558
    
    
    
    (42,105
    )
    
    
    435,461Depreciation of property, plant and equipment
    
    
    147,345
    
    
    
    28,923
    
    
    
    15,549
    
    
    
    9,594
    
    
    
    201,411Additions to property, plant and equipment (include work in progress)
    
    
    97,461
    
    
    
    2,664
    
    
    
    3,823
    
    
    
    1,435
    
    
    
    105,383Identifiable assets
    
    
    4,489,658
    
    
    
    472,652
    
    
    
    248,474
    
    
    
    298,058
    
    
    
    5,508,842Identifiable liabilities
    
    
    49,604
    
    
    
    30,264
    
    
    
    14,649
    
    
    
    4,375,419
    
    
    
    4,469,936
 As of and for the
    
    
    
    
    
    NGL Production andyear ended December 31, 2001
    
    Gas Transportation
    
    commercialization
    
    Other services
    
    Corporate
    
    TotalNet revenues
    
    
    954,230
    
    
    
    228,105
    
    
    
    37,921
    
    
    
    
    
    
    
    1,220,256Operating income (loss)
    
    
    671,039
    
    
    
    87,242
    
    
    
    5,552
    
    
    
    (65,490
    )
    
    
    698,343Depreciation of property, plant and equipment
    
    
    124,489
    
    
    
    23,723
    
    
    
    8,199
    
    
    
    11,452
    
    
    
    167,863Additions to property, plant and equipment (include work in progress)
    
    
    336,646
    
    
    
    9,992
    
    
    
    73,492
    
    
    
    2,914
    
    
    
    423,044Identifiable assets
    
    
    4,175,901
    
    
    
    395,199
    
    
    
    193,738
    
    
    
    220,490
    
    
    
    4,985,328Identifiable liabilities
    
    
    83,177
    
    
    
    25,468
    
    
    
    3,641
    
    
    
    2,971,030
    
    
    
    3,083,316
 TGS provides credit in the normal course of its gas transportation business
principally to gas distribution companies, Petrobras Energía, Profertil S.A.
(Profertil) and Repsol-YPF S.A. (Repsol-YPF). Concentration of credit and
principal customers net revenues from gas transportation for the years ended
December 31, 2003, 2002 and 2001 are as follows: F-115




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.AND ITS SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)   Trade receivables
    
    Net revenuesGas Transportation:
    
    2003
    
    2002
    
    2003
    
    2002
    
    2001MetroGas S.A.
    
    
    16,411
    
    
    
    18,192
    
    
    
    172,205
    
    
    
    222,765
    
    
    
    379,266Camuzzi Gas Pampeana S.A.
    
    
    7,421
    
    
    
    8,055
    
    
    
    76,741
    
    
    
    98,139
    
    
    
    167,484Gas Natural BAN S.A.
    
    
    6,293
    
    
    
    12,740
    
    
    
    61,162
    
    
    
    78,015
    
    
    
    123,599Petrobras Energía
    
    
    2,841
    
    
    
    6,363
    
    
    
    25,127
    
    
    
    30,661
    
    
    
    46,256Camuzzi Gas del Sur S.A.
    
    
    1,622
    
    
    
    12,444
    
    
    
    16,855
    
    
    
    21,397
    
    
    
    34,418Profertil
    
    
    1,188
    
    
    
    1,249
    
    
    
    11,466
    
    
    
    14,804
    
    
    
    28,964Repsol-YPF
    
    
    1,131
    
    
    
    1,072
    
    
    
    10,735
    
    
    
    14,979
    
    
    
    18,834
 The principal customers in the NGL production and commercialization segment
are Polisur S.A., Petrobras International Finance Company (Petrobras) and
Repsol-YPF. The amounts of trade receivables as of December 31, 2003 and 2002,
and net revenues to these customers for the years ended December 31, 2003,
2002 and 2001 are as follows: Trade receivables
    
    Net revenuesNGL Production andCommercialization:
    
    2003
    
    2002
    
    2003
    
    2002
    
    2001Petrobras
    
    
    16,222
    
    
    
    22,832
    
    
    
    286,105
    
    
    
    212,603
    
    
    
    19,659Polisur S.A.
    
    
    12,257
    
    
    
    12,926
    
    
    
    141,111
    
    
    
    59,200
    
    
    
    67,429Repsol- YPF
    
    
    3,036
    
    
    
    3,243
    
    
    
    17,106
    
    
    
    26,900
    
    
    
    17,505RYTTSA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,915
  4.
    
    SUPPLEMENTAL CASH FLOW INFORMATIONIn the preparation of the consolidated statements of cash flows, cash and cash
equivalents include investments with original maturities of three months or
less. The Company uses the indirect method, which requires a series of
adjustments to reconcile net income (loss) for the year to net cash flows from
operating activities.Cash and cash equivalents at the end of the year are as follows: At December 31,2003
    
    2002
    
    2001Cash and deposits in banks
    
    
    12,234
    
    
    
    6,779
    
    
    
    11,820Current investments, net
    
    
    664,149
    
    
    
    202,703
    
    
    
    117,215Current investments with original maturity longer than three months
    
    
    (3,615
    )
    
    
    (4,520
    )
    
    
    Total
    
    
    672,768
    
    
    
    204,962
    
    
    
    129,035
 Non-cash transactions are as follows: At December 31,2003
    
    2002
    
    2001Supplier financing
    
    
    7,767
    
    
    
    24,615
    
    
    
    14,977Compensation of tax debt with tax credits
    
    
    47
    
    
    
    989
    
    
    
    Capitalization of exchange loss
    
    
    (391,318
    )
    
    
    646,842
    
    
    
    
 F-116




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) 5. LOANS As a consequence of the withdrawal of the Restructuring Proposal (described
below) and the postponement of interest payments, both announced by TGS on May
14, 2003, its outstanding indebtedness is no longer classified according to its
original maturities. A substantial portion of TGSs indebtedness has been
re-classified as current loans in its balance sheets as December 31, 2003 and
2002 since, deriving from the financial agreements entered into between TGS and
its creditors, such obligations might become callable. Detailed information of the
Companys consolidated debt profile as of December
31, 2003 and 2002 is as follows: 2003
    
    2002Current Loans:CIESA US$220 million notes , Negotiable Obligations due in 2002 (interest rates 5.54 %)
    
    
    722,600
    
    
    
    793,860Inter-American Development Bank (IDB) Loans due through 2011 (interest rates between
5.15% and 10.19%)
    
    
    1,062,871
    
    
    
    1,106,7501999 EMTN Program: Series 1 Floating rate notes due 2003, (current interest rate of 4.4%)
    
    
    468,527
    
    
    
    509,5491999 EMTN Program: Series 2 Floating rate notes due 2003, (current interest rate of 10.38%)
    
    
    472,559
    
    
    
    520,3952000 EMTN Program: Series 1 Floating rate notes due 2006, (current interest rate of 3.33%)
    
    
    618,837
    
    
    
    687,0981993 EMTN Program: Series 3 Floating rate notes due 2002,( current interest rate of 3.41%)
    
    
    300,993
    
    
    
    339,912Leases (rates from 7.65% and 9.00%)
    
    
    2,818
    
    
    
    1,668Other bank borrowings (average rate of 7.29%)
    
    
    318,637
    
    
    
    371,462Total current loans
    
    
    3,967,842
    
    
    
    4,330,694Non-current loans:Leases (rates from 7.65% and 9.00%), due through 2008
    
    
    7,548
    
    
    
    2,445Total non-current loans
    
    
    7,548
    
    
    
    2,445Total loans
    
    
    3,975,390
    
    
    
    4,333,139
 A description of the most significant financial agreements outstanding at
December 31, 2003 is included below:  
    
    Debt issuances under Global Programs:1997 CIESAs Floating Rate NotesAt CIESA Shareholders Meeting held on December 13, 1996, the issuance of
US$ 220 million notes (under the form of Negotiable Obligations in
Argentina) was approved. Notes were issued on April 22, 1997. As the debt is
due, interest is calculated based on a monthly LIBOR plus an annual rate of
4.40%. The CNV and the Bolsa de Comercio de Buenos Aires (BCBA) have
authorized the trading of the notes. Proceeds from this issuance were used
to cancel a US$ 220 million loan granted on May 20, 1996 by a group of banks
led by Société Générale, Supervielle Société Générale and Goldman, Sachs &
Co. The amortization of the notes should have been made in a single
installment on April 22, 2002.As a result of the negative impact that the recent economic events in
Argentina have produced on CIESAs financial condition, discussed in Note
2.a , CIESA defaulted the payment of principal and interest due to under the
above mentioned agreement, as well as the cap and collar agreements
described below. CIESAs management continues with negotiations with its
creditors with the purpose of obtaining an extension of the payment terms.
In connection with these renegotiations, the Settlement Agreement (see Note
1) is expected to enhance corporate and operations restructuring and will
provide greater flexibility for the progress of debt restructuring.1993 EMTN ProgramAt TGS Shareholders Meeting held on August 27, 1993, the establishment of a
Global Program for the issuance of short and medium Term Notes
(Eurocommercial Papers (ECP) and Euro Medium-Term Notes (EMTN),
respectively) was approved (the 1993 EMTN Program). The 1993 EMTN Program
allowed an aggregate notional outstanding amount at any given time of US$
350 million. At TGSs Shareholders Meeting held on March 6, 1996, the
maximum amount of the 1993 EMTN Program was increased to US$ 500 million.
The 1993 EMTN Program had been approved by the Bolsa de Comercio de Buenos
Aires (BCBA) and the CNV. F-117




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COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.AND ITS SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  The outstanding Series 3 Notes under the 1993 EMTN Program as of December
31, 2003 consist of five-year registered notes for an aggregate amount of
US$ 100 million bearing interest at six-month LIBOR plus 0.65% through the
first year, stepping up to 0.85% in the fifth year. The notes were
authorized for trading in the BCBA. Net proceeds from the placement were
used for debt refinancing, to finance capital expenditures and for working
capital needs. The original maturity of debt principal
was scheduled for December 18, 2002. As agreed between TGS and its
creditors, the maturity date was extended until March 18, 2003 at a 3.41%
cost per annum. At such date, TGS paid accrued interest. Since that date, no
principal or interest has been paid on the Series 3 Notes, which principal
due under the agreement was included in the Restructuring Proposal, as
described below.1999 EMTN Program:TGS  ́s Shareholders Meeting held on February 17, 1999 ratified the
authorization given at the TGS Shareholders Meeting held on February 17,
1998 for the creation of a new US$ 500 million Global Program (the 1999
EMTN Program), to replace the 1993 EMTN Program which expired at the end of
1998. The CNV, the BCBA and the Luxembourg Stock Exchange have authorized
the 1999 EMTN Program. The outstanding notes under the 1999 EMTN Program as
of December 31, 2003 consist of the following:Series 1: Medium-term (3 years) registered notes in an aggregate principal
amount of US$ 150 million that were scheduled to mature in a single payment
on March 27, 2003. The notes bore interest at 30, 60, 90 or 180-day LIBOR,
at TGSs choice, plus 2.25% through the first year, stepping up to 3% in the
third year. Net proceeds from this transaction were applied to refinance the
issuance under the 1997 Global Program, created in February 1997 for a term
of 36 months and whose last issuance was cancelled on March 27, 2000. On the
maturity date of the Series 1 Notes, TGS paid accrued interest and included
the principal in the Restructuring Proposal, as described below.Series 2:Medium-term (3 years) registered notes in an aggregate principal
amount of US$ 150 million, issued at a price of 99.694%, that were scheduled
to mature in a single payment on April 15, 2003. The notes bore interest at
an annual fixed rate of 10.38%, payable semi-annually. The Luxembourg Stock
Exchange, the BCBA and the Mercado Abierto Electrónico authorized the public
trading of this issuance. Net proceeds from this transaction were
exclusively used to prepay and partially refinance the second issuance under
the 1996 Global Program, which matured in June 2000. On April 15, 2003, the
date of the maturity of the notes, TGS paid accrued interest and the
principal was included in the Restructuring Proposal, as described below.2000 EMTN Program:TGS Shareholders Meeting held on February 22, 2000, approved the creation
of a new Global Euro Medium- Term Note Program (the 2000 EMTN Program)
for the issuance of short and medium-term notes up to an aggregate
outstanding amount of US$ 300 million, in order to replace the Global
Program created in 1997. The CNV, the BCBA and the Luxembourg Stock
Exchange have authorized this program.The outstanding note under the 2000 EMTN Program as of December 31, 2003,
is a medium-term (5 years) registered note in an aggregate principal amount
of US$ 200 million with final maturity on April 24, 2006, which was
privately placed (the OPIC Note). Debt would be paid in five equal
semi-annual installments with a 36-month grace period. The note bears
interest at LIBOR, plus 1.955% annual, payable quarterly. The note was
acquired by the financial trust Titan TGS 2001 and is the underlying
asset of the Class A and B notes issued by such trust. The class A
notes are covered by an insurance provided by the Overseas Private
Investment Corporation (OPIC) that covers risk of non-convertibility of
local currency, transfer restrictions imposed by the government and
expropriation, in each case, if certain conditions are met. Proceeds from
this transaction were applied to finance the investment plan for the period
2001-2003.TGS paid interest accrued until April 24, 2003. Since that date, no interest
has been paid on the OPIC Note. The accrued and unpaid interest and the
principal of the OPIC Note have been included in the Restructuring Proposal,
as described below. F-118




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COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.AND ITS SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  
    
    IDB loans:In April 1999, TGS received funds from an IDB loan agreement, for a total
amount of US$ 226 million (the April IDB Loan Agreement). The April IDB
Loan Agreement matures in 12 years, with a five-year grace period that
results in an eight and a half-year average life. The April IDB Loan
Agreement is structured through an A loan disbursement of US$ 50 million
which is funded by the IDB and a B loan disbursement totaling US$ 176
million which was raised through a private placement to foreign investors.
IDB is the lender of record and administrator for both A and B loans
disbursements. The transaction was priced at 450 basis points over an
average US Treasury bond interest rate settled at 5.15% (for US$ 200
million) and at 375 basis points over LIBOR (for the remaining US$ 26
million). Proceeds from the transaction were utilized in financing part of
the capital expenditures over the period 1998-2002 associated with
expansions and enhancements of the gas transportation, NGL production and
commercialization and other services activities.Additionally, in November 1999, TGS received a loan which totals US$ 100
million pursuant to another IDB loan agreement (the November IDB Loan
Agreement). The November IDB Loan Agreement matures in eleven and a half
years, with a four and a half-year grace period and an eight-year average
life. The November IDB Loan Agreement is structured through an A loan
disbursement of US$ 25 million which is funded directly by the IDB and a B
loan disbursement of US$ 75 million which was raised through a private
placement to foreign investors. The transaction was priced at 420 basis
points over an average US Treasury bond interest rate settled at 5.99%.
Proceeds from the transaction were utilized in financing part of the capital
expenditures over the period 1999-2002 associated with expansions and
enhancements of the gas transportation, NGL production and commercialization
and other services activities.TGS did not pay accrued interest on both loan agreements due on May 15,
2003. Both accrued and unpaid interest and principal were included in the
Restructuring Proposal, as described below.  
    
    Other bank borrowings:Other bank borrowings include credit lines granted by the Export Import
Bank of the USA (Eximbank) payable over five years in semi-annual
installments accruing interest at 180-day LIBOR plus 0.20% or 0.40%
annually depending on the credit line. As of December 31, 2003 and
2002 the current principal outstanding amounted to Ps. 23,580 and Ps.
27,880, respectively.TGS included unpaid principal and interest payments in the
Restructuring Proposal, as described below.  
    
    Covenants:According to the conditions of the 1997 CIESAs Floating Rate Notes issuance
mentioned above, the Company was obliged to comply with restrictive
covenants, which include, among others , the following:  i)
    
    Restrictions to create liens: as long as any note issued remained
outstanding, the Company was not allowed to create any lien securing
debt assumed after April 22, 1997, which in the aggregate exceeded US$
10 million unless the lien was confined solely to finance, in full or
in part, the purchase or construction of the assets so encumbered.ii)
    
    Restrictions on the level of indebtedness: CIESAs consolidated
debt may not exceed 60% of the sum of such consolidated debt plus the
difference between its consolidated assets and liabilities.iii)
    
    Interest coverage ratio: consolidated net income before interest
expense, income tax, depreciation and amortization could not be lower
than 2.5 times consolidated interest and rental expenses.iv)
    
    CIESA was bound to maintain the direct control of at least 51% of
TGSs voting shares.  Additionally, TGSs debt agreements described above included certain
covenants, which as a result of the devaluation of the Argentine peso and
TGSs current financial condition, were breached and are proposed to be
amended in the Restructuring Proposal described below. Such covenants
included, among others, the following:i)
    
    restrictions to create liens: as long as any note issued remained
outstanding, TGS could not encumber its assets or its present or
future revenues with debt incurred which in the aggregate exceeds US$
10 million or US$ 20 million F-119




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COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.AND ITS SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  depending of each global program, unless
the TGS financed, in full or in part, the purchase or construction of
the assets so encumbered.ii)
    
    restrictions on the level of indebtedness: as of the closing date
of annual and/or interim financial statements, debt assumed by TGS
could not exceed 60% or 65% (as applicable, according to the
respective TGSs Global Program) of the sum of total debt plus
shareholders equity. Additionally, under the IDB loan agreement, debt
assumed by TGS could not exceed 65% of the sum of total debt plus
shareholders equity, minus intangible assets, deferred issuance
discounts and other similar to them.iii)
    
    restrictions on the EBITDA (defined as earnings before net
financial expense, income tax, depreciation and amortization) to Net
financial expense ratio: this ratio could not be less than 2.5 in any
moment.  
    
    TGSs Global Debt Restructuring ProposalOn February 24, 2003, TGS initiated a restructuring proposal, which was
aimed at restructuring substantially all of its outstanding indebtedness,
amounting to approximately US$ 1,027 million (the Restructuring
Proposal). The Restructuring Proposal was a consequence of the negative
impact on TGSs financial condition and results of operations caused by the
significant changes in the Argentine economy in late 2001 and early 2002.
Such changes jeopardized TGSs ability to generate cash required to service
and pay its outstanding debt obligations, including US$ 492 million due in
2003.The primary goals of the Restructuring Proposal are to eliminate the
concentration of maturities over the short term, to amend and/or renegotiate
certain covenants of TGSs existing debt obligations, which were breached as
discussed above, and to adjust the interest rate and amortization schedule
to align TGSs debt service to its expected future operating cash flow.The Restructuring Proposal would be implemented by means of an out-of-court
renegotiation agreement, or Acuerdo Preventivo Extrajudicial (APE), a
new feature introduced under the Argentine law in 2002, which permits TGS
to implement a restructuring of its debt obligations with respect to all
creditors included in the Restructuring Proposal if, among other
requirements, creditors representing two-thirds of the agreement principal
amount of such debt obligations agree to the terms of the Restructuring
Proposal and such agreement is endorsed by a court.Pursuant to the Restructuring Proposal, TGS called a note holders meeting
held (on second call) on April 11, 2003 at which TGS sought the approval of
the Restructuring Proposal, which in aggregate represented approximately US$
600 million of TGSs debt. The Restructuring Proposal presented by TGS was
consented to by holders of notes representing the following amounts: (i) US$
73 million at the meeting of the Series 1 Notes under the 1999 EMTN Program,
the outstanding principal amount of which is US$ 150 million, (ii) US$ 81
million at the meeting of the Series 2 Notes under the 1999 EMTN Program,
the outstanding principal amount of which is US$ 150 million and (iii) US$
65 million at the meeting of the Series 3 Notes under the 1993 EMTN Program,
the outstanding principal amount of which is US$ 100 million. The meeting
in respect to the OPIC Note, the outstanding principal amount of which is
US$ 200 million, was not held due to lack of quorum.Despite the consent received at the note holders meeting, TGS nonetheless
failed to achieve the Requisite Majorities as required by Argentine Law in
order to file the APE for endorsement. Therefore, on May 14, 2003 TGS
decided to withdraw the Restructuring Proposal and simultaneously announced
the postponement of interest payments. If TGS does not agree to a
restructuring with its creditors, certain long-term debt obligations, which
have not otherwise previously matured may become due upon acceleration. Such
an event will further deteriorate TGSs financial condition. As a
consequence of the withdrawal of the Restructuring Proposal, TGS has
reclassified its outstanding long-term debt obligations as Current Loans in
its consolidated balance sheet as of December 31, 2003 and 2002. In
addition to this reclassification of a significant portion of its long-term
debt, TGS has made an accrual of default interest on its debt obligations
that require a demand for payment of such default interest, which demand has
not been made, in order for such interest to be due and payable.At the date of issuance of these consolidated financial statements, TGS is
still negotiating the Restructuring Proposal with its major creditors to
achieve the restructuring of its indebtedness and to align TGS debt service
to its expected operating cash flow.
    
    Derivative financial instruments:Interest rate caps F-120




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COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.AND ITS SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  As of December 31, 2003, TGS had outstanding interest rate cap agreements
with major financial institutions to manage the impact of the floating
interest rate changes on the US$ 200 million OPIC Note issued under the
2000 EMTN Program.In July 2001, TGS entered into interest rate cap with knock-out agreements
associated with the OPIC Note issued under the 2000 EMTN Program, pursuant
to which TGS set the 3-month LIBOR at an annual cost of 5.25%, in the event
that such rate fluctuates between 5.25% and 8% annually. However, in the
event LIBOR at the beginning of any interest period is equal to or greater
than 8%, TGS will pay LIBOR that is in effect for such interest period.
These agreements have an aggregate notional amount of US$ 200 million and
mature on April 24, 2006. Amortization of the above mentioned issuance is in
five semi-annual installments starting April 24, 2004 and matches the
amortization schedule of the interest rate agreements. Premiums paid by TGS
amounted to US$ 2.9 million. As of December 31, 2003 the fair value of the
investments amounted to US$ 64 thousand based on information provided by the
financial institutions with which the hedging agreements were entered.The cost of the derivative financial instruments described above was
recorded as an intangible asset and until December 31, 2002 was amortized in
line with the remaining term of the OPIC Note. During the year ended
December 31, 2003, the mentioned agreements have not generated results due
to the fact that the LIBOR remained below an annual rate of 5.25%. Based on
the current and future expected level of LIBOR, TGS decided that the
derivative is no longer effective to cover the risk of interest rate
fluctuation and, consequently, the difference between the unamortized
portion of the premium paid at inception and its fair value (included in
Other Current Receivables) was charged to expense during the year ended
December 31, 2003. Such difference amounted to Ps. 3.4 million and was
included within the Net Financial Expense line item in the consolidated
statement of income.In August 2000, the Company entered into interest rate cap and collar
agreements with major financial institutions to set the three-month
LIBOR applicable to the US$ 220 million Negotiable Obligations
mentioned above. Through the cap agreement, the Company set the
three-month LIBOR at an annual cost of 7% for US$ 66 million.
Therefore, if during any three-month period the level of the mentioned
rate is lower than 7% per annum, the Company will pay the effective
three-month LIBOR of the period. On the other hand, through the collar
agreements, the Company set the three-month LIBOR at an annual cost of
7.35% for US$ 154 million if in any three-month period the level of
this rate is higher than 7.35%. However, if during any period the
average level of the mentioned rate is lower than 6.64% per annum, the
Company will have to pay 6.64% for such period. These agreements were
effective from October 18, 2000, to April 22, 2002.Currency and interest-rate swap to hedge foreign currency debtOn January 26, 2000, TGS entered into a currency and interest-rate swap
agreement with Bank of America to effectively convert its 0.6 billion
Yen-denominated six-month LIBOR plus 1.125%-interest-rate debt (included in
other bank borrowings) to U.S. dollar-denominated six-month LIBOR plus
1.36%-interest-rate debt for a notional amount of US$ 6.1 million which
matured on January 28, 2002. The notional amount of this derivative
instrument did not represent an asset or liability to TGS, but rather, was
the basis for the settlements under the contract terms. Although, this
agreement was denominated in U.S. dollars, it was intended to protect TGS
from the fluctuations in the exchange rate between the Argentine Peso and
the Yen, considering the Convertibility Law in effect at the inception
date.Foreign currency forward-exchange contractsDuring the year ended December 31, 2001, in order to provide a protection
against the effects of foreign currency fluctuations on Yen-denominated
short-term debts (included in other bank borrowings), TGS entered into two
foreign currency forward-exchange contracts with Banco Bilbao Vizcaya
Argentaria to buy an aggregate amount of 1.8 billion Yen maturing in June
and September 2002. Although these agreements were denominated in U.S.
dollars, they were intended to protect TGS from the fluctuations in the
exchange rate between the Argentine Peso and the Yen, considering the
Convertibility Law in effect at the inception date.Interest rate lock agreementsIn 1998, TGS entered into two treasury interest rate lock agreements with a
notional amount of US$ 200 million associated with the IDB loan, pursuant
to which TGS locked in the rate on the US Treasury Bond at a cost between
5.66% and 5.89%. TGS settled one of the agreements in February 1999 for an
amount of US$ 100 million and the other for US$ 100 million in F-121




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COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.AND ITS SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  two
installments in March and April 1999. In settlement of these agreements,
TGS made payments totaling US$ 11 million in March and April 1999. The
settlement cost of these agreements was recorded as intangible assets in
the accompanying consolidated balance sheets and is being amortized over
the term of the loan agreement.In addition, TGS entered into a hedge transaction, which locked in the rate
on the 5-year US Treasury Bond at 5.62%. The hedge transaction was entered
into in contemplation of a US$ 200 million debt issuance based on the
5-year US Treasury rate to refinance the first issuance of notes under the
1993 EMTN Program. Given the instability in the capital markets, TGS
made the second issuance under the 1996 Global Program amounting to US$ 200
million and with an 18-month maturity. Consequently, the approximate US$ 8
million cost of the hedge agreement settled in January 1999 (recorded as
financing cost in intangible assets) was amortized over such period. 6. REGULATORY FRAMEWORK  a)
    
    General framework and current tariff context:TGSs natural gas transportation business is regulated by Law No. 24,076
(the Natural Gas Act), its regulatory decree No. 1738/92 and by
regulations issued by ENARGAS, which is entitled, among other things, to
set the basis for the calculation of, monitor and approve tariffs.
According to such regulatory framework, the transportation tariffs should
be calculated in US dollars and converted into Argentine pesos as of the
billing date. The basic gas transportation tariffs charged by TGS were
established at the privatization and could be adjusted, with prior
authorization, in the following cases: (i) semi-annually to reflect
changes in the US producer price index (PPI) and (ii) every five years
according to efficiency and investment factors determined by ENARGAS. The
efficiency factor is a reduction to the base tariff resulting from future
efficiency programs while the investment factor increases the tariffs to
compensate for future investments. Also, subject to ENARGAS approval,
tariffs could be adjusted to reflect non-recurrent circumstances or tax
changes, other than income tax.The terms mentioned above in connection with tariff adjustments
contemplated within the regulatory framework are no longer effective
since the approval of the Public Emergency Law in early 2002 (the
Emergency Law), which among other provisions eliminated tariff
increases based on US dollar exchange rate fluctuations, foreign price
indexes or any other indexing procedure and established a conversion rate
of one peso to one US dollar for tariffs. The Emergency Law also granted
the Executive Branch power to renegotiate contracts entered into with
private utility companies, pursuant to the framework included in the
Emergency Law. However, since early 2002 and so far up to the date of
issuance of these consolidated financial statements no progress has been
made in the renegotiation of the contracts  nor have tariffs been
readjusted  in spite of several attempts by the Executive Branch to grant
partial tariff increases. These tariff increases were suspended by Court
decisions on legal actions filed by consumer organizations and the
Ombudsman, on the grounds that tariff increases were illegal until the
contract renegotiation process was completed.In July 2003, the Unit for Renegotiation and Assessment of Utilities
Contracts (UNIREN) was created under the joint jurisdiction of the
Ministries of Economy, Production, Federal Planning, Public Investment and
Utilities. This new unit will conduct the renegotiation process of the
contracts related to utilities and public works, and is entitled to reach
total or partial agreements with the licensees and submit projects
regulating the transitory adjustment of tariffs and prices, among other
things. No progress was made in the renegotiation process until December
2003, when the UNIREN and TGS discussed preliminary documents, including
(i) the renegotiation guidelines, which determined the preparation of an
agenda and a schedule for its discussions, (ii) a draft agenda was
outlined in order to deal with main issues such as costs, investment
programs and financing, rates of return and tariffs, etc. and (iii) a
schedule was settled for the renegotiation of the regulatory framework.
The deadline for the adjustment of the regulatory framework with the
approval of the National Congress was set for the end of 2004.The Executive Branch , through Decree No 180/04, among other measures,
established the creation of a Gas Electronic Market (MEG) with the
purpose of improving the transparency of financial and operating
performance, the coordination of daily transactions both of the gas spot
and the transportation and distribution secondary markets along with the
shaping of efficient prices through offer and demand free interaction. To
that purpose, all firm transportation capacity non-allocated for the
following day shall be marketed through the MEG and the proceeds from that
capacity sale will be used at the Energy Bureaus criteria. Non-allocated
capacity includes remaining capacity not used in any of the transportation
systems or pipelines. This implies that TGS is bound to offer daily
non-allocated capacity that complies with this condition in the MEG, which
might have a material impact on TGS  ́s interruptible transportation
revenues. F-122




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COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.AND ITS SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  The NGL production and commercialization and other services segment are
not regulated by ENARGAS, and as provided in the Transfer Contract, are
organized as divisions within TGS and maintain separate accounting
information.The License stipulates, among other restrictions, that TGS may not assume
debts of CIESA, or grant credit, encumber its assets or grant any other
benefit to CIESAs creditors.b)
    
    PPI adjustment suspensionAs from January 1, 2000 adjustments to tariffs to reflect PPI variations
were suspended, firstly through an agreement with the Federal Executive
Branch and later by a Court decision arising from a lawsuit started to
determine the illegality of tariff adjustment through indexes. In light of
this situation, TGS continued recording the higher incomes derived from
semi-annual PPI increases until December 31, 2001. However, since the
approval of the Emergency Law, TGS deemed that tariff adjustment to
reflect PPI  which was legitimate according to the Regulatory Framework
agreed upon the privatization  had turned out unlikely, as the possibility
of its recovery was subject to future events beyond the control of TGS.
Therefore, in 2001, TGS recorded a loss of Ps. 126,705 related to the
deferral of semi-annual PPI adjustments accrued during 2000 and 2001, and
as from 2002 discontinued the mentioned accrual. This does not mean that
TGS waives the rights and the actions it is entitled to under the
regulatory framework. Such rights and actions will be maintained and
exercised in every legal and administrative instance including the
renegotiation process under the Law N° 25,561.c)
    
    Essential assets:A substantial portion of the assets transferred by GdE has been defined
as essential for the performance of the gas transportation service.
Therefore, TGS is required to segregate and maintain these assets,
together with any future improvements, in accordance with certain
standards defined in the License.TGS may not, for any reason, dispose of, encumber, lease, sublease or
loan essential assets nor use such assets for purposes other than
providing the licensed service without the prior authorization of
ENARGAS. Any expansion and improvement that TGS may make to the gas
pipeline system after the takeover may only be encumbered to secure loans
that have a term of more than one year to finance new expansions and
improvements to the licensed service.Upon expiration of the License, TGS will be required to transfer to the
Argentine Federal Government or its designee, the essential assets listed
in the updated inventory as of the expiration date, free of any debt,
encumbrance or attachment, receiving compensation equal to the lower of
the following two amounts:  i)
    
    the net book value of the essential assets determined on the
basis of the price paid by the acquiring joint venture, and the
original cost of subsequent investments carried in US dollars and
adjusted by the PPI, net of accumulated depreciation according to
the calculation rules to be determined by ENARGAS; orii)
    
    the net proceeds of a new competitive bidding. F-123




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COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) 7. COMMON STOCK AND DIVIDENDS  a)
    
    GeneralThe Company was incorporated on December 14, 1992 with a common stock of
Ps. 12, and was registered with the Public Register of Commerce on
December 21, 1992.Capital contributions made by the owners to acquire 70% of TGS common
stock, was initially recorded as an irrevocable capital contribution
against future share subscriptions. As disposed by an Extraordinary
Shareholders Meeting held on December 20, 1993, such contribution was
thereafter capitalized as ordinary and preferred shares for 286,511 and
204,846 shares, respectively. The capital increase and the amendments to
TGSs by-laws were registered with the Public Register of Commerce on May
2, 1994.
On February 24, 1994, the Extraordinary Shareholders Meeting approved the
capitalization into ordinary shares of an irrevocable capital contribution
against future share subscription amounting to Ps. 21,900 (face value) and
the partial conversion into ordinary shares of Ps. 1 nominal value and
right to one vote per share of 65,700 preferred shares, effective January
24, 1994. The capitalization was registered with the Public Register of
Commerce on October 26, 1994.The Companys Extraordinary Shareholders Meeting held on November 16,
1994 approved the redemption of the remaining 139,146 outstanding
preferred shares. Such redemption was registered with the Public Register
of Commerce on May 10, 1995.The Companys Extraordinary Shareholders Meeting held on November 26,
1999 approved a voluntary common stock reduction up to a nominal value of
Ps. 75,203, in proportion to each shareholders interest in TGS,
representing 75,203,177 shares of Ps, 1 nominal value each (38,353,619
class A common shares and 36,849,558 class Bcommon shares). In such
meeting a reimbursement amount of Ps. 101,066 was settled based on book
value (equity method) as of September 30, 1999 payable through the 100%
transfer of TGSs shareholdings in CIESA Inversora S.A. and Enron de
Inversiones de Energía S.A. and the remainder, through a partial transfer
of TGS Class B shares. In addition, TGS shareholders authorized the
Board of Directors to decrease the amount of such common stock reduction.On December 28, 1999, considering the decision adopted in such
Extraordinary Shareholders Meeting, CIESAs Board of Directors decreased
the amount of the common stock reduction to a nominal value of Ps. 61,954
representing 61,954,364 shares of Ps. 1 nominal value each (31,596,726
class A common shares and 30,357,638 class B common shares) effective
October 1, 1999. A reimbursement amount of Ps. 83,261 was settled based on
book value (equity method) as of September 30, 1999, payable through the
100% transfer of TGSs shareholdings in CIESA Inversora S.A. and Enron de
Inversiones de Energía S.A. and the remainder, through a transfer of
34,750,616 TGS class B common shares, in proportion to each
shareholders interest in TGS. The mentioned common stock reduction and
the amendments to TGSs by-laws were registered with the Public Registry
of Commerce on March 2, 2000. After this TGS shares transfer, CIESA held a
shareholding interest in TGS of approximately 62.35%.In addition, the Extraordinary Shareholders Meeting held on January 12,
2000, approved a new voluntary common stock reduction amounting to a
nominal value of Ps. 86,193, representing 86,193,406 shares of Ps. 1
nominal value each, in proportion to each shareholders interest in TGS. A
reimbursement amount of Ps. 115,836 was setted based on book value (equity
method) as of September 30, 1999. In such meeting, the shareholders
resolved to perform the reduction in various stages: the first one up to a
nominal value of Ps. 79,088, in proportion to each shareholders interest
in TGS, representing 79,087,983 shares of Ps. 1 nominal value each. A
reimbursement amount of Ps. 106,287 was settled based on book value
(equity method) as of September 30, 1999, payable through the transfer of
up to 82,767,490 TGS class B common shares. Also, in such Shareholders
Meeting the Board of Directors was authorized to: (i) reduce the nominal
value of the first stage of the common stock reduction, (ii) define the
amount and time of future stages, in proportion to each shareholders
interest in TGS, provided that the total amount of the common stock
reduction do not exceed the Ps. 86,193 face value, as approved by TGSs
shareholders.On February 7, 2000, considering the decision adopted by the Extraordinary
Shareholders Meeting held on January 12, 2000, CIESA  ́s Board of Directors
approved, effective January 1, 2000, the first stage of the second
voluntary common stock reduction for a nominal amount of Ps. 53,310,
representing 53,310,421 shares of Ps. 1 nominal value each (27,188,315
class A common shares and 26,122,106 class B common shares) in
proportion to each shareholders interest in TGS, a reimbursement amount
of Ps. 74,629 was settled based on book value (equity method) as of
December F-124




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  31, 1999, payable through the transfer of 56,070,288 TGS class B common shares. The common stock reduction represented an approximately 17%
decrease thus reducing in equal proportion the rest of the accounts of
TGSs shareholders equity. The mentioned common stock reduction and the
amendments to TGSs by-laws were registered with the Public Registry of
Commerce on March 23, 2000. After the latter TGS shares transfer, CIESA
reduced its shareholding interest in its controlled company to
approximately 55.30%.On May 26, 2003, CIESAs Board of Directors approved an irrevocable
capital contribution in cash against future shares subscriptions,
amounting to Ps. 861 in proportion to the stock owned by each shareholder,
which was totally paid in. This contribution was ratified by CIESAs
Shareholders Meeting held on April 2, 2004.Furthermore, CIESAs Shareholders Meeting held on April 2, 2004 also
approved an irrevocable capital contribution in cash against future shares
subscriptions amounting to Ps. 1,170 in proportion to the stock owned by
each shareholder, which was totally paid in March 2004.As of December 31, 2003, CIESAs common stock subscribed, paid in and
issued is composed of: Classes of stock Common stock, nominal value Ps. 1 per share, one vote per share Class A common shares
    
    
    132,017,627Class B common shares
    
    
    126,840,468Total common shares
    
    
    258,858,095
  b)
    
    Limitation on the transfer of CIESAs sharesThe Bid Package for the privatization of GdE (the Bid Package)stipulates that prior authorization of ENARGAS shall be required in the
following instances:  
    
    Transfer of class A common shares representing 51% of the
common stock unless such transfer is made within companies
belonging to the same economic group.
    
    When any shareholder of TGS has qualified due to the
shareholders equity, guarantee and/or technical background of its
parent company and the latter sells its shares to other
shareholders, or the current management is discontinued.
    
    Any other corporate action implying a reduction in ownership
interest.  c)
    
    Limitation on the transfer of TGS sharesIn case TGS wishes to reduce its common stock, redeem its shares or
distribute any part of its equity, except for the dividends payment in
accordance with the provisions of the Argentine Business Associations Law,
it should require prior authorization from ENARGAS.Prior approval of ENARGAS and the unanimous approval of CIESAs
shareholders under subscribed agreements among them must be obtained for
the transfer of TGS common shares if such sale reduces CIESAs
shareholding below 51% of TGS capital stock (Class
A shares). The Bid
Package states that ENARGASs approval will be granted, provided that:  
    
    The sale covers 51% of TGS common stock or, if the proposed
transaction is not a sale, the act of reducing the shareholding will
result in the acquisition of a shareholding of not less than 51% by
another investor company (the applicant).
    
    The applicant provides evidence to the effect that the
transaction will not impair the operating quality of the licensed
service.  The breach of any of the restrictions mentioned above shall result in the
termination of the License. F-125




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  TGS is obligated to maintain the authorization to offer its common stock
to the public and the corresponding authorization for the shares to be
listed on the Argentine Republics authorized securities markets for a
minimum period of fifteen years from the respective dates on which such
authorizations were granted.The Argentine Government initially held a 27% shareholding in TGS
represented solely by Class B shares. A substantial part of such shares
was sold in 1994 through a local and international public offering.
Outside Argentina, the shares were offered under the form of American
Depositary Shares (ADSs) representing five shares each. The ADSs issued
in the United States of America are SEC registered and traded on the New
York Stock Exchange. The Governments remaining TGS shares, representing
approximately a 2% shareholding in TGS, was sold to local and foreign
investors during 1996.d)
    
    Dividend distributionThe Companys Annual Ordinary Shareholders Meeting, held on March 2, 2001
constituted a Voluntary Reserve of Ps. 31,216 for future dividends  the
distribution, timing and amount of which was entrusted to the Board of
Directors. Thus, on April 3, 2001 the Board of Directors approved a
dividend distribution amounting to Ps. 31,216, which was paid in April
2001.For the fiscal year ended December 31, 2001, the Board of Directors meeting
held on December 27, 2001, approved a cash dividend amounting to Ps. 24,841,
which was paid in advance in October 2001, based mainly on 2001 first half
earnings. The Annual Ordinary Shareholders Meeting held on May 14, 2002
approved the distribution mentioned above.e)
    
    Restrictions on retained earningsUnder current Argentine legal requirements and CNV standards, 5% of each
fiscal year  ́s net income must be appropriated into a legal reserve, provided
that there is no unappropriated retained deficit. In such case, the 5% should
be calculated on any excess of the net income over the unappropriated
retained deficit. This appropriation is legally binding until such reserve
equals 20% of the amount which results from the sum of the Common stock
nominal value and the balance of Cumulative inflation adjustment to common
stock.TGS by-laws provide for the issuance of Profit Sharing Vouchers, as defined
in Article 230 of the Argentine Business Associations Law, payable to all
regular employees so as to distribute 0.25% of the net income of each year
among them. An accrual for this expense has been recorded in the account
Payroll and social security taxes payable. 8. LEGAL AND REGULATORY MATTERS  a)
    
    In April 1996, GdE filed a legal action against TGS for Ps. 23 million,
which is the amount GdE claims as a reimbursement for the cost of
construction of two compressor plants currently in operation on TGSs
pipeline. TGS had denied such claim on the grounds that it owes no money
to GdE as it acquired rights to these compressor plants as a part of its
overall purchase of the pipeline assets in the 1992 privatization. At the
end of February 2000, a first judgment was pronounced upholding GdEs
claim for Ps. 23 million plus interest (calculated at the passive rate
set by the Argentine Central Bank Circular 14,290 from the date GdE paid
the above-mentioned purchase orders) and litigation expenses. In August
2001, the Chamber of Appeals partially confirmed the first judgment and
ordered TGS to pay the fair value of such plants based on an expert
assessment to be performed. TGS has recorded such plants as Property
plant and equipment, net, valued at Ps. 4.3 million based on the
replacement cost of similar compressor equipment. The Chamber of Appeals
has decided to defer the payment of the litigation expenses until the
compressor plants fair value resulting from the expert assessment is
determined. In October 2001, TGS filed an ordinary and extraordinary
appeal before the Supreme Court of Justice (SCJ) against such judgment.
In August 2003, the SCJ sustained GdEs claim and ordered TGS to pay the
market price of the compressor plants at the date in which they were
added to TGS assets (amount to be determined by a court appointed expert)
plus interest and litigation expenses. At the date of issuance of these
consolidated financial statements, TGS has recorded an accrual based on
its own best estimates until the final assessment is prepared.On January 14, 2004, TGS signed an agreement with ENARGAS, the Energy
Bureau and UNIREN through which TGS will carry out the expansion of the
Cordillerano Pipeline. The cost of the expansion will be recorded on
account of the final amount to be paid as determined by the experts
assessment. The Argentine Government will own such assets, and an F-126




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  agreement will be entered into to grant the right of use of the assets to
TGS, that will have to operate and maintain such assets until expiration of
the License.b)
    
    As of the date of issuance of these consolidated financial statements,
GdE directly or through ENARGAS, has not fulfilled the obligations set
forth in the Transfer Agreement and in the License in accordance to which
it is responsible, during the five-year period ending on December 31,
1997, for the registering of the easements relating to the transferred
pipeline system which have not yet been properly registered, and for
related payments to property owners of any required easements. In order
to fulfill its capital expenditures program related to the system
integrity and public safety required by the License, TGS has entered into
easement agreements with certain landowners and paid related amounts.
Consequently, TGS filed a claim against GdE to recover the amounts paid.On October 7, 1996, the Executive Branch, through Decree No. 1,136/96,
created a contribution fund, as specified in the License, to assume GdEs
obligations for paying easements and any other compensation to land owners
for an initial five-year period, beginning with the privatization and
ending on December 28, 1997. ENARGAS manages the above-mentioned fund,
which is financed by a special charge included in the transportation rates
and reimbursed to ENARGAS. TGS has filed against GdE-ENARGAS an
administrative claim requesting reimbursement for the amounts paid in
connection with easements related to facilities existing prior to December
28, 1992. In December 1997, ENARGAS declared that it would allow the
reimbursement of the useful expenses, as determined by the Government,
derived from easements. As of December 31, 2003 the amount of such
reimbursement (approximately Ps. 4.2 million) was recorded within Other
non-current receivables. TGS expects to fully recover the amounts paid,
based on its rights derived from the License.In connection with the easements payable starting January 1, 1998, TGS is
negotiating with ENARGAS for the recovery of amounts paid through increases
in the transportation rates. TGS expects, based on its rights, to fully
recover the amounts recorded in this connection.c)
    
    TGS received claims from the Tax Bureau of the Neuquén, Río Negro, La
Pampa, Chubut and Santa Cruz Provinces, for the collection of stamp tax,
according to the interpretation of such Provinces, on gas transportation
contracts and services offer letters between TGS and its shippers and
other contracts subscribed during the privatization of GdE.Regarding the claim received from the Río Negro Province, in September
1999, the Tax Bureau of such Province formalized the claim through a
liability assessment. TGS notified the Argentine Government of its position
and filed an appeal before such Tax Bureau, which was overruled in January
2001. Against such action, on February 1, 2001, TGS filed an appeal before
the Minister of Economy of the Río Negro Province, which was rejected in
early April 2001. Such Province urged TGS to pay the assessment, which
amounted to approximately Ps. 438 million (including interest and penalties
as of April 30, 2001). On March 21, 2001, TGS filed a declaratory action of
certainty before the SCJ, requesting the court to issue a judgement
regarding the legitimacy of the Tax Bureau claim. TGS also asked the SCJ to
enjoin the Río Negro Province from attempting to collect the aforementioned
tax, until the SCJ granted the injunction. In April 2001, SCJ granted the
requested injunction.Regarding the claim received from the Neuquén Province in December 1999,
the Tax Bureau of such Province formalized the claim through a liability
assessment for approximately Ps. 97 million (which includes its related
interest as of December 31, 1999). Such assessment was appealed before such
Tax Bureau. In April 2001, TGS received a re-assessment, which amounted to
approximately Ps. 210 million including interest and penalties. On April
17, 2001, TGS filed an administrative motion before such Tax Bureau, on the
grounds of the inadmissibility of such re-assessment while the resolution
of the appeal previously filed against the assessment received in December
1999, was still pending. Also, TGS appealed against the application of
penalties, which were determined disregarding the right of due process. In
addition, in September 2001, the Tax Bureau of the Neuquén Province
notified TGS about liability assessments related to the stamp tax arising
from the Transfer Agreement subscribed by TGS in the privatization of GdE
and from the Technical Assistance Agreement for amounts of Ps. 44 million
and Ps. 6 million, respectively (including accrued interest as of August
31, 2001). Against such resolutions, TGS has filed appeals before such Tax
Bureau, who rejected the appeal for the Transfer Agreement. Consequently,
TGS has filed an appeal before the Minister of Economy of the Province. At
the end of December 2001, TGS filed a declaratory action of certainty
before the SCJ for all Neuquén Provinces claims, with the same purposes
and effects of that presented for the Rio Negro Provinces claim. In April
2002, the SCJ granted the injunction requested and enjoined the Neuquén
Province from attempting to collect the aforementioned tax, until that
court arrives at a final decision on the matter. F-127




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  Regarding the claim received from the La Pampa Province in July 2002, the
Tax Bureau of such Province formalized the claim through a liability
assessment, for approximately Ps. 68 million (including penalties and
interest as of July 31, 2002). Such determination was appealed before such
Bureau at the beginning of August 2002. At the date of issuance of these
consolidated financial statements no answer has been received in response
to this appeal. In late August 2002, TGS filed a declaratory action of
certainty before the SCJ. In November 2002, the SCJ granted the injunction
requested and enjoined the La Pampa Province from attempting to collect the
aforementioned tax, until that court arrives at a final decision on the
matter.In May 2002, the Tax Bureau of the Province of Chubut filed administrative
actions in order to determine a stamp tax debt for contracts and gas
transportation offers amounting to Ps. 5.4 million (together with its
respective fines and interest calculated at April 30, 2002). TGS made the
respective discharge in July 2002 refuting the basis of such proceedings,
and has not received at the date of issuance of these consolidated financial
statements any reply from such Bureau. At the end of October 2002, TGS filed
before the SCJ a declarative action of certainty, so that it can be
expedited on the legitimacy of the claim for such tax. In April 2003, the
SCJ did not grant the injunction requested and consequently TGS asked the
Supreme Court for the revocation of such petition through the filing of a
reposition action. In June 2003, the Supreme Court modified its first
judgement, granting the injunction.Regarding the claim received from the Santa Cruz Province, the Tax Bureau
of such Province notified TGS about a preliminary assessment, amounting to
approximately Ps. 41 million (which includes its related interest as of
December 31, 2000). In respect of this assessment, TGS presented a
discharge and filed its appeal before such Tax Bureau, which resolution is
pending as of the date of issuance of these consolidated financial
statements. In addition, TGS filed a declaratory action of certainty before
the SCJ with the same purposes and effects of that presented in respect of
the Río Negro Provinces claim. In March 2001, the SCJ granted the
requested injunction and enjoined the Santa Cruz Province from attempting
to collect the aforementioned tax, until that court arrives at a final
decision on the matter. In April 2004, the SCJ declared inadmissible the
Province of Santa Cruzs tax claims. This decision by the Supreme Court
sets a material judicial precedent for the resolution of the rest of the
claims filed by the Neuquén, Río Negro, La Pampa and Chubut Provinces,
which are similar to the one filed by the Santa Cruz Province.TGSs management believes that contracts entered into before its take-over
were not subject to provincial stamp taxes because the parties to the
contracts at the time they were signed were governmental entities that were
exempt from the tax. Moreover, even if the contracts were subject to
provincial stamp taxes, management believes that GdE would bear
responsibility for this tax under the Transfer Agreement. However, if TGS
were forced to pay any amount, it would have the right to be reimbursed
from GdE or the Argentine Government. Accordingly, TGS has not recorded any
liabilities in this connection. In the case of the Technical Assistance
Agreement, TGS has alleged the irrelevance of the tax mainly due to the
fact that this agreement was entered into the jurisdiction of the city of
Buenos Aires and took effect there instead of the Neuquén Province or any
other province.With respect to the other assessments, TGSs management believes that gas
transportation service offer letters are not subject to the tax mentioned
above. Should they be taxable, TGS believes that such event must be
considered a change in the interpretation of the tax law, and its impact
should be reflected in the tariff according to the relevant regulations.
ENARGAS believes that the claims for stamp tax lack merit because it
considers the tax to be unlawful. F-128




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  d)
    
    In addition to the matters discussed above, TGS is a party to certain
lawsuits and administrative proceedings arising in the ordinary course of
business.Although no assurances can be given, TGS believes there are meritorious
defenses, which will be asserted vigorously to challenge all claims and that
possible liabilities from these claims will not have a material adverse
effect on TGSs consolidated financial position or results of operations. 9. BALANCES AND TRANSACTIONS WITH RELATED COMPANIES In late 1992, TGS entered the Technical Assistance Agreement with Enron
Pipeline Company Argentina S.A. (EPCA), in compliance with the provisions of
the Bid Package and the Transfer Contract, whereby EPCA is to provide
technical advisory services. The Technical Assistance Agreement establishes
that the technical operator will provide services related to, among others,
the operation and maintenance of the gas transportation system and related
facilities and equipment, to ensure that the performance of the system is in
conformity with international standards and in compliance with certain
environmental standards. For these services, TGS pays a monthly fee based on
the higher of: a percentage of certain defined income of TGS or a specified
fixed annual amount. The term of the current contract with EPCA is for eight
years from December 28, 1992, renewable automatically upon expiration for
additional eight-year periods. The Settlement Agreement mentioned in Note 1
includes a term which provides for the assignment of the Technical Assistance
Agreement to Petrobras Energía. The detail of significant outstanding balances for transactions entered into
by TGS and its related parties as of December 31, 2003 and 2002 is as follows: 2003
    
    2002Company
    
    Accounts receivable
    
    Accounts payable
    
    Accounts receivable
    
    Accounts payableEPCA
    
    
    
    
    
    
    2,650
    
    
    
    
    
    
    
    4,023Petrobras Energía
    
    
    4,707
    
    
    
    7,414
    
    
    
    8,066
    
    
    
    10,469Petrobras
    
    
    16,222
    
    
    
    
    
    
    
    22,832
    
    
    
    LINK
    
    
    167
    
    
    
    
    
    
    
    264
    
    
    
    4TGU
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    EGS
    
    
    
    
    
    
    297
    
    
    
    
    
    
    
    Enron América del Sur S.A.
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    Area Santa Cruz II UTE (1)
    
    
    127
    
    
    
    
    
    
    
    366
    
    
    
    Total
    
    
    21,300
    
    
    
    10,361
    
    
    
    31,560
    
    
    
    14,496
   (1)
    
    As of December 31, 2003, Petrobras Energía had 100% of this
joint venture. The detail of significant transactions with related parties for the years ended
December 31, 2003, 2002 and 2001 is as follows: RevenuesNGL production and
    
    
    
    
    
    Compensation for
    
    RevenueGas
    
    commercialization
    
    Salaries and
    
    technical
    
    for administrativeCompany
    
    Transportation
    
    and other services
    
    wages
    
    assistance
    
    ServicesEPCA
    
    
    
    
    
    
    
    
    
    
    554
    
    
    
    29,043
    
    
    
    84Petrobras Energía
    
    
    25,127
    
    
    
    45,367
    
    
    
    
    
    
    
    
    
    
    
    Petrobras
    
    
    
    
    
    
    286,105
    
    
    
    
    
    
    
    
    
    
    
    LINK
    
    
    
    
    
    
    818
    
    
    
    
    
    
    
    
    
    
    
    TGU
    
    
    
    
    
    
    1,379
    
    
    
    
    
    
    
    
    
    
    
    Enron América del Sur SA.
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Area Santa Cruz II UTE(1)
    
    
    
    
    
    
    1,402
    
    
    
    
    
    
    
    
    
    
    
    Total 2003
    
    
    25,151
    
    
    
    335,071
    
    
    
    554
    
    
    
    29,043
    
    
    
    84Total 2002
    
    
    32,825
    
    
    
    294,908
    
    
    
    1,378
    
    
    
    31,274
    
    
    
    101Total 2001
    
    
    60,971
    
    
    
    50,817
    
    
    
    1,835
    
    
    
    42,475
    
    
    
    154
   (1)
    
    As of December 31, 2003, Petrobras Energía had 100% of this
joint venture. F-129




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) 10. SUBSIDIARIES AND AFFILIATES TELCOSUR: In September 1998, TGSs Board of Directors approved the creation of TELCOSUR,
whose purpose is the rendering of telecommunication services, assuring the
optimal utilization of TGSs telecommunication system. TGSs equity interest
in such company is 99.98% and the remaining 0.02% is held by EPCA. On October
22, 1998, the Governmental Regulatory Agency of Corporations approved the
incorporation of this company. On February 16, 1999, the regulatory agency (The Federal Communication
Bureau), through Resolution No. 3,468, granted a license to TELCOSUR to
provide data transmission and value added telecommunication services in
Argentina. By the end of 1999, TELCOSUR obtained from the National
Communication Commission the rights for most of the frequencies necessary for
its operations. On July 1, 2000, TELCOSUR began operations. LINK: LINK was created in February 2001, with the purpose of the ownership,
construction, and operation of a natural gas transportation system, which will
link TGSs gas transportation system with Cruz del Sur S.A.s pipeline. The connection pipeline will be extended from Buchanan, located in the
high-pressure ring that surrounds the city of Buenos Aires, which is part of
TGSs pipeline system, to Punta Lara. TGSs ownership interest in such company is 49% and DINAREL S.A. holds the
remaining 51%. Total common stock amounts to Ps. 12. TGU (formerly Isonil): In September 2002, TGS invested Ps. 5 in the acquisition of a 49% equity
interest in TGU, a company incorporated in Uruguay. The companys corporate
purpose is the rendering of services of operation, inspection and assistance
in case of emergencies in gas transportation or distribution systems, as well
as the construction of pipelines and other services related to natural gas and
its associated products. This company renders operation and maintenance
services to Cruz del Sur Pipeline S.A in the Uruguayan pipeline tranche. On October 3, 2003 the corporate name of the subsidiary company was changed
from Isonil to Transportes y Servicios de Gas en Uruguay S.A, which was
registered with the Uruguayan National Board of Trade. EGS In September 2003, EGS, a company registered in Argentina, was incorporated.
The common stock of EGS amounts to Ps. 12, and the ownership is distributed
between TGS (49%) and TGU (51%). The main business of EGS is the
construction, ownership and operation of the pipeline which will connect TGSs
main pipeline system in the Province of Santa Cruz with a delivery point on
the border with Chile. 11. DIFFERENCES BETWEEN ARGENTINE GAAP AND US GAAP The accompanying consolidated financial statements have been prepared in
accordance with Argentine GAAP, which differ in certain significant respects
from US GAAP. Such differences involve methods of measuring the amounts shown
in the consolidated financial statements, as well as additional disclosures
required by US GAAP and Regulation S-X of the SEC. F-130




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) I. Differences in measurement methods The following reconciliation to US GAAP does not include an elimination of the
adjustments to the consolidated financial statements to account for the effects
of inflation required under Argentine TR No. 6, (as amended by TR No. 19), as
permitted by Item 18 to Form 20-F. The principal differences, other than inflation accounting, between Argentine
GAAP and US GAAP as they relate to the Company are described below, together
with an explanation, where appropriate, of the method used in the determination
of the necessary adjustments. Year ended December 31,2003
    
    2002
    
    2001Reconciliation of net income (loss):Net income (loss) under Argentine GAAP
    
    
    220,523
    
    
    
    (591,126
    )
    
    
    84,921US GAAP adjustments:Capitalization of interest cost (Note 11.a)
    
    
    3,632
    
    
    
    7,677
    
    
    
    Intangible assets (Note 11.b)
    
    
    (10,606
    )
    
    
    
    
    
    
    Accrual for vacation (Note 11.c)
    
    
    2,539
    
    
    
    1,979
    
    
    
    (93
    )Hedge of anticipated transactions (Note 11.d)
    
    
    596
    
    
    
    1,783
    
    
    
    1,783Accounting for derivative instruments and hedging activities (Note 11.e)
    
    
    3,657
    
    
    
    4,796
    
    
    
    (8,453
    )Exchange difference (Note 11.f)
    
    
    
    
    
    
    1,625,102
    
    
    
    (1,625,102
    )Non-current investment in unconsolidated affiliated companies (Note
11.g)
    
    
    5,695
    
    
    
    (2,954
    )
    
    
    (3,968
    )Capitalized exchange difference (Note 11.h)
    
    
    406,191
    
    
    
    (621,397
    )
    
    
    Discounted value of certain receivables (Note 11.i)
    
    
    2,180
    
    
    
    
    
    
    
    Deferred income tax under Argentine GAAP (Note 11.j)
    
    
    (116,251
    )
    
    
    (43,238
    )
    
    
    (1,552
    )Deferred income tax under US GAAP (Note 11.j)
    
    
    (44,832
    )
    
    
    (629,934
    )
    
    
    (4,902
    )Valuation of property plant and equipment (Note 11.k)
    
    
    11,327
    
    
    
    12,077
    
    
    
    12,075Minority interest (Note 11.l)
    
    
    (138,412
    )
    
    
    (119,965
    )
    
    
    594,322Net income (loss) under US GAAP
    
    
    346,239
    
    
    
    (355,200
    )
    
    
    (950,969
    )
 As of December 31,2003
    
    2002Reconciliation of shareholders equity:Shareholders equity under Argentine GAAP
    
    
    467,916
    
    
    
    246,532US GAAP adjustments:Capitalization of interest cost (Note 11.a)
    
    
    11,309
    
    
    
    7,677Intangible assets (Note 11.b)
    
    
    (10,606
    )
    
    
    Accrual for vacation (Note 11.c)
    
    
    
    
    
    
    (2,539
    )Hedge of anticipated transactions (Note 11.d)
    
    
    (11,031
    )
    
    
    (14,486
    )Accounting for derivative instruments and hedging activities (Note 11.e)
    
    
    
    
    
    
    (3,657
    )Non-current investment in unconsolidated affiliated companies (Note 11.g)
    
    
    (1,227
    )
    
    
    (6,922
    )Capitalized exchange difference (Note 11.h)
    
    
    (215,206
    )
    
    
    (621,397
    )Discounted value of certain receivables (Note 11.i)
    
    
    2,180
    
    
    
    Deferred income tax under Argentine GAAP (Note 11.j)
    
    
    (116,136
    )
    
    
    115Deferred income tax under US GAAP (Note 11.j)
    
    
    (891,952
    )
    
    
    (846,119
    )Valuation of property plant and equipment (Note 11.k)
    
    
    (46,278
    )
    
    
    (57,605
    )Minority interest (Note 11.l)
    
    
    405,650
    
    
    
    544,893Shareholders deficit under US GAAP
    
    
    (405,381
    )
    
    
    (753,508
    )
 F-131




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) Description of changes in shareholders deficit under US GAAP: For the years endedDecember 31,2003
    
    2002Shareholders deficit under US GAAP as of the beginning of the year
    
    
    (753,508
    )
    
    
    (399,916
    )Owners contributions
    
    
    861
    
    
    
    Other comprehensive income
    
    
    1,027
    
    
    
    1,608Net income (loss) under US GAAP
    
    
    346,239
    
    
    
    (355,200
    )Shareholders deficit under US GAAP as of the end of the year
    
    
    (405,381
    )
    
    
    (753,508
    )
 a) Capitalization of interest cost During the years ended December 31, 2003 and 2002, and as allowed by Argentine
GAAP, TGS decided not to capitalize interest cost over the value of its fixed
assets. Under US GAAP the Company applied the provisions contained in Statement
of Financial Accounting Standards No. 34, Capitalization of Interest Cost,
which requires interest capitalization on assets which have a period of time to
get them ready for their intended use. b) Intangible assets As described in Note 2.j), under Argentine GAAP, TGS capitalized costs incurred
during the year ended December 31, 2003 associated with the Restructuring
Proposal. Under US GAAP, the Company applied the provisions contained in
Statement of Financial Accounting Standards No. 15 Accounting by Debtors and
Creditors for Troubled Debt Restructurings (SFAS No. 15), which states that
legal fees and other direct costs that a debtor incurs to effect a troubled
debt restructuring shall be deducted in measuring gain on restructuring of
payables or shall be included in expense for the period if no gain on
restructuring is recognized. Accordingly, these costs were expensed as
incurred. c) Accrual for vacation During the years ended December 31, 2002 and 2001, under Argentine GAAP, there
were no specific requirements governing the recognition of the accrual for
vacation. The acceptable practice in Argentina was to charge vacations to
expense when taken and to accrue only the amount of vacation in excess of the
normal remuneration. Under new accounting standards in force in Argentina
(Note 2.b) and under US GAAP, vacation expense is fully accrued in the period
the employee renders service to earn such vacation. d) Hedge of anticipated transactions As discussed in Note 2.k), in the past TGS entered into interest rate lock
agreements for the purpose of hedging the interest rates of fixed interest
rate indebtedness to be subsequently incurred. Under Argentine GAAP, gains and losses related to interest rate lock
agreements were deferred and are being amortized as an adjustment to interest
expense over the same period in which the related interest costs of the debt
are being recognized in earnings. Under US GAAP, TGS accounted for these agreements under Statement of Financial
Accounting Standards No. 80, Accounting for Futures Contracts (SFAS No.
80) through December 31, 2000, and Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities and its corresponding amendments (SFAS No. 133), subsequent to
that date. According to SFAS No. 80, results generated by the hedges of
anticipated transactions can be deferred over the term of such transactions
provided that all of the following conditions are met: (i) the item to be
hedged exposes the company to interest rate risk, (ii) the derivative reduces
that risk and is designated as a hedge at the inception, (iii) the significant
characteristics and expected terms of the anticipated transaction are
identified, including the expected date of the transaction, and (iv) it is
probable that the anticipated transaction will occur. F-132




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) As described in Note 5, TGS entered into a hedge transaction, which locked in
the rate of an anticipated 5-year maturity debt incurred to refinance the
first issuance of US$ 200 million under the 1993 EMTN Program. TGS failed to
make the 5-year debt issuance at the expected date. Accordingly, under the
restrictive criteria of SFAS No. 80, hedge accounting was terminated and
mark-to-market accounting was applied at December 31, 1998. Therefore, the US
GAAP adjustments reflect the reversal of (i) the unamortized deferred costs
recognized as intangible assets in the accompanying consolidated balance
sheets under Argentine GAAP, and (ii) amortization cost recorded under
Argentine GAAP. Unamortized deferred costs amounted to Ps. nil and Ps. 0.6
million as of December 31, 2003 and 2002, respectively. Amortization costs
recorded under Argentine GAAP for the years ended December 31, 2003, 2002 and
2001 amounted to Ps. 0.6 million, Ps. 1.8 million and Ps. 1.8 million,
respectively. In addition, upon adoption of SFAS No. 133 in January 2001, the Company
recorded a net transition loss of Ps. 19.6 million (Ps. 7.0 million net of
income taxes and minority interest) in accumulated other comprehensive loss
related to the unamortized deferred costs recognized as intangible assets
under Argentine GAAP with respect to the interest rate lock agreements
associated with the IDB loan. These costs are being amortized under both
Argentine GAAP and US GAAP as an adjustment to interest expense over the same
period in which the related costs of the new debt issuance are recognized in
earnings. Amortization costs during the years ended December 31, 2003, 2002
and 2001 amounted to Ps. 2.9 million, Ps. 2.9 million and Ps. 2.9 million,
respectively. e) Accounting for derivative instruments and hedging activities As discussed in Note 2.k), the Company and TGS use derivative instruments as
part of their overall strategy to manage their exposure to market risks
associated with fluctuations in interest rates and exchange rates. As of
December 31, 2003, these instruments include interest rate cap agreements. At
December 31, 2001, TGS also had outstanding a cross currency swap and foreign
currency forward-exchange contracts. See Note 5 for details of the Company and
TGSs derivative instrument activity. During the years ended December 31, 2002 and 2001, under Argentine GAAP,
premiums on foreign currency forward-exchange contracts were amortized over
the life of the respective contracts. Interest rate swap and cap agreements
were accounted for on an accrual basis, with the net receivable or payable
recognized as an adjustment to interest expense. The related accrued
receivable or payable was included as an adjustment to interest payable. The
fair value of the derivative instruments was not recognized in the
consolidated financial statements. As mentioned in Note 2.b, effective January
1, 2003, TGS adopted TR No. 20 Valuation of Derivative Financial Instruments
and Hedging Operations. Until the adoption of this new accounting standard,
there were no specific rules under Argentine GAAP dealing with the accounting
for derivative financial instruments. Accordingly, upon the adoption of TR No.
20, and based on the current and future expected level of the variables
affecting the interest rate swap and cap agreements entered into by TGS, the
Companys management decided that these derivatives are not effective to cover
the associated risk and consequently the difference between the unamortized
portion of the premium paid at inception and its fair value (included in
Other Current Receivables) was charged to expense in the year ended December
31, 2003 under Argentine GAAP. Such difference amounted to Ps. 3.4 million and
was included in net financial expense. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, which establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) must be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS No. 133 requires that changes in
the derivatives fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivatives gains and losses to offset related results on the
hedged item in the statement of income, and requires that a company must
formally document, designate, and assess the effectiveness of transactions
that qualify for hedge accounting. Under US GAAP, the Company adopted these standards effective January 1, 2001.
SFAS No. 133 cannot be applied retroactively. In accordance with the
transition provisions of SFAS No. 133, the Company recorded a net of tax
cumulative effect type adjustment of Ps. (3.1) million loss in earnings to
reflect the impact of the adoption of this standard. Under US GAAP, the Company has determined that certain interest rate caps held
at December 31, 2001 were effective cash flow hedges under SFAS No. 133. In
order to qualify for hedge accounting, certain criteria must be met including
a requirement that both at inception of the hedge, and on an ongoing basis,
the hedging relationship is expected to be highly effective in offsetting cash
flows attributable to the hedged risk during the term of the hedge. Hedge
accounting treatment permits certain changes in the fair value of the
Companys qualifying derivatives to be deferred in other comprehensive income
and subsequently reclassified to earnings to offset the impact of the related
hedged interest rate. Changes in the fair value of non-qualifying derivatives
and the ineffective portion of changes in fair value of qualifying derivatives
must be recorded immediately through earnings. TGS measures effectiveness of
its stand alone caps by comparing the changes in fair value of its stand-alone
caps to a hypothetical F-133




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) derivative that would be perfectly effective in offsetting changes in fair
value of the hedged cash flows. Due to the change in certain market
conditions, TGS expects ineffectiveness relative to its stand-alone caps at
December 31, 2002 and as such, changes in the fair value of the stand-alone
caps have been recorded in earnings during 2002. An aftertax loss amounting
to Ps. 1.6 million was reclassified from Other comprehensive loss to the
consolidated statement of income during 2002 in connection with these
derivative instruments. The Company and TGSs policy require that contracts used as hedges must be
effective at reducing the risk associated with the exposure being hedged and
must be designated as a hedge at the inception of the contract. Hedging
effectiveness is assessed periodically. Any contract that is either not
designated as a hedge, or is so designated but is ineffective, is
marked-to-market and recognized in earnings immediately. Both companies will
discontinue hedge accounting prospectively (i) if it is determined that the
derivative is no longer effective in offsetting changes in the fair value or
cash flows of a hedged item; (ii) when the derivative expires or is sold,
terminated, or exercised; (iii) when the derivative is designated as a hedge
instrument, because it is probable that the forecasted transaction will not
occur; or (iv) when management determines that designation of the derivative
as a hedge instrument is no longer appropriate. The Company and TGS formally document all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. In this documentation,
both companies specifically identify the asset, liability, firm commitment, or
forecasted transaction that has been designated as a hedged item and states
how the hedging instrument is expected to hedge the risks related to the
hedged item. The Company and TGS formally measure effectiveness of their
hedging relationships both at the hedge inception and on an ongoing basis in
accordance with their risk management policy. When hedge accounting is discontinued because it is probable that a forecasted
transaction will not occur, the derivative will continue to be carried on the
balance sheet at its fair value, and gains and losses that were accumulated in
other comprehensive income will be recognized immediately in earnings. When
the hedged forecasted transaction is no longer probable, but is reasonably
possible, the accumulated gain or loss remains in other comprehensive income
and will be recognized when the transaction affects earnings; however,
prospective hedge accounting for this transaction is terminated. In all other
situations in which hedge accounting is discontinued, the derivative will be
carried at its fair value on the balance sheet, with changes in its fair value
recognized in current-period earnings. f) Exchange differences Due to the economic crisis affecting Argentina, all working days between
December 21, 2001 and December 31, 2001 were declared exchange holidays by the
Argentine Government. On January 11, 2002, when the exchange market first
opened, the exchange rate was Ps. 1.4 per US$ 1 (buying rate) and Ps. 1.6 per
US$ 1 (selling rate). Under Argentine GAAP, the Company accounted for its
foreign currency assets and liabilities using the exchange rate at December 21,
2001 (Ps. 1 per US$ 1). Under US GAAP, the Company applied the guidance set
forth in EITF D-12 Foreign Currency Translation-Selection of Exchange Rate
When Trading is Temporarily Suspended, that states that when exchangeability
between two currencies is temporarily lacking at the balance sheet date, the
first subsequent rate at which exchanges could be made shall be used.
Accordingly, the Company and TGS recorded a Ps. 1,625.1 million loss for the
year ended December 31, 2001. g) Non-current investment in unconsolidated affiliated companies The Company has assessed the impact of US GAAP adjustments for its equity
investees. As a consequence of this assessment, the Company recognized a net
gain (loss) of Ps. 5.7 million, Ps. (3.0) million and Ps. (4.0) million for the
years ended December 31, 2003, 2002 and 2001, respectively. This adjustment
relates to the reversal, under US GAAP, of capitalized exchange differences, as
well as the application of SFAS No. 109 for the recognition of income taxes. F-134




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) h) Capitalized exchange difference As discussed in Notes 2.g) and 2.i), under Argentine GAAP, the Company and its
subsidiary capitalized exchange losses derived from the devaluation of the peso
as from January 6, 2002 to July 28, 2003, amounting to Ps. 215.2 million as of
December 31, 2003 and Ps. 621.4 million. Under US GAAP, such exchange loss was
charged to income. i) Discounted value of certain receivables As further described in Note 2.b, effective January 1, 2003, the Company and
its subsidiaries applied the provisions contained in Argentine new accounting
standards, which require that long term receivables and liabilities (except for
deferred tax assets and liabilities) be valued based on the best estimate of
the discounted value of amounts expected to be collected or paid, as
applicable. Accordingly, TGS recorded a Ps. 2.2 million adjustment over the
nominal value of long term tax credits which was included in net financial
expense. Such adjustment was reversed for US GAAP purposes. j) Deferred income tax During the years ended December 31, 2002 and 2001, under Argentine GAAP, income
taxes were recognized on the basis of amounts currently due in accordance with
Argentine tax regulations. Temporary differences between the financial
reporting and income tax bases of accounting were therefore not considered in
recognizing income taxes. During the year ended December 31, 2003, under
Argentine new accounting standards (Note 2.b), the Company has calculated
income taxes using the deferred tax method, which requires the recognition of
the tax consequences of temporary differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities. As per
the transition rules established by Argentine new accounting standards, the
application of the deferred tax method shall be made on a retroactive basis.
Accordingly, the Company recorded an adjustment to prior years shareholders
equity amounting to Ps. 2.4 million at December 31, 2002 and Ps. (24.0) million
at December 31, 2001. Under US GAAP, the Company applies the principles of Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes,
which requires a comprehensive liability method of accounting for income taxes.
Under the comprehensive liability method, deferred income taxes are recognized
for the tax consequences of temporary differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities. Under current Argentine tax regulations, the effects of inflation
are not included in the determination of taxable income nor in the tax basis of
assets or liabilities. Accordingly, the net deferred tax liability included in
the US GAAP reconciliation includes the effects of inflation on non-monetary
assets. Deferred tax assets are also recognized for tax loss carryforwards. Under SFAS
No. 109, the effect on deferred tax assets or liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning in making these assessments. In accordance with SFAS
No. 109, the Company is required to continuously evaluate the recoverability of
deferred tax assets. This evaluation is made based on internal projections,
which are routinely updated to reflect more recent operating trends. As of
December 31, 2003, based on current financial information, the Company is
uncertain that it will recover its entire deferred tax asset through future
taxable income. Accordingly, at December 31, 2003, the Company and TGS have
recognized a valuation allowance of Ps. 499.7 million against its deferred tax
assets. F-135




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) k) Valuation of property, plant and equipment TGS (the Operating Company) was privatized when the Company purchased 70
percent of its stock (the Shares) from the Argentine government. Part of the
consideration paid by the Company for the Shares was in the form of Argentine
government bonds (the Bonds). Under both Argentine GAAP and US GAAP, the
initial carrying value of the Operating Companys assets and liabilities were
based on the purchase price paid for the Shares. Under Argentine GAAP, the Company based its computation of the purchase price
of the Shares on the value set by the Argentine government for the Bonds.
Under US GAAP, the Company based its computation of the purchase price of the
Shares on the price paid for the Bonds by the Company, which was substantially
less than the value set by the Argentine government. Accordingly, the initial
carrying value of the Companys net assets determined under US GAAP was less
than that determined under Argentine GAAP. This difference gives raise to
differences in depreciation expense. In addition, under Argentine GAAP, TGS capitalized cancellation costs of
assumed commitments, organization and pre-operating costs incurred in its
start-up. These costs had been amortized under the straight-line basis over 35
years until December 31, 2000. As from January 1, 2001, the unamortized
deferred costs are being amortized under the straight-line basis over a 5-year
period. Under US GAAP, these costs were considered as an adjustment to the
purchase price paid for the Shares and, accordingly, the initial carrying value
of the property, plant and equipment determined under US GAAP was higher than
that determined under Argentine GAAP. This balance sheet classification
difference gives rise to differences in depreciation and amortization expense. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company periodically evaluates the carrying value of
its long-lived assets for impairment. The carrying value of a long-lived asset
is considered impaired by the Company when the expected undiscounted cash flows
from such asset is separately identifiable and less than its carrying value.
In that event, a loss would be recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived asset. Fair
market value is determined primarily using the anticipated cash flows
discounted at a rate commensurate with the risk involved or based on
independent appraisals. No impairment losses have been recognized for any of
the periods presented. l) Minority interest This adjustment represents the effect on minority interest of certain of
the foregoing reconciling items. m) Severance indemnities As prescribed by Argentine law, the Company is required to pay a minimum
severance indemnity based on the employees years of service when an employee
is dismissed involuntarily without proper cause. Under US GAAP, SFAS No. 112,
Employers Accounting for Postemployment Benefits, and SFAS No. 43,
Accounting for Compensated Absences, requires the accrual of severance costs
if they relate to services already rendered, are related to rights that
accumulate or vest, are probable of payment and reasonably estimable. While
the Company expects to make severance payments in the future, it is impossible
to estimate the number of employees, if any, that will be dismissed without
proper cause in the future, and accordingly the Company has not recorded such
liability. Accordingly, no adjustment has been made in the US GAAP
reconciliation. Under Argentine GAAP, the Company expenses severance
indemnities incurred in the normal course of business when paid. II.Additional disclosure requirements a) Balance sheet classification differences: As described in Note 2.b, upon the adoption of the Argentine new accounting
standards, the Company began applying the deferred tax method to account for
income taxes. In accordance with the provisions contained in TR No. 9, net
deferred tax assets (liabilities) are to be classified as non-current assets
(liabilities). Under US GAAP, the Company applied the provisions contained in
SFAS No. 109, which states that in a classified statement of financial
position, an enterprise shall separate deferred tax liabilities and assets into
a current amount and a non-current amount. Deferred tax liabilities and assets
shall be classified as current or non-current based on the classification of
the related asset or liability for financial reporting. F-136




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) b) Statement of income classification differences: 1. Gross revenue tax As indicated in Note 2.b), the Company adopted the provisions of TR No. 19
effective January 1, 2003. TR No. 19 provides that only returns and other
allowances should be deducted from net revenues, while direct taxes and other
costs directly associated with revenues should now be presented as operating
costs, i.e. gross revenue taxes. Under US GAAP, direct taxes and other costs
directly associated with revenues should be deducted from revenues. 2. Operating income The PPI adjustment recorded in TGS during the year ended December 31, 2001 was
included in other expenses, net in the Argentine GAAP financial statements,
whereas under US GAAP, such item would be included in the determination of
operating income. The amount of this reclassification totals Ps. (126.6)
million. c) Comprehensive loss: On July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS No. 130), Reporting Comprehensive Income. SFAS No.
130 establishes guidelines for the reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. Comprehensive income represents the change in shareholders equity
of the Company during the period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during
a period except those resulting from investments by owners and distributions to
owners. The adoption of SFAS No. 130 had no impact on total shareholders
equity. The following table summarizes the components of comprehensive income
(loss) for the years ended December 31, 2003 and 2002. 2003
    
    2002Net income (loss) under US GAAP
    
    
    346,239
    
    
    
    (355,200
    )Other comprehensive income:Amortization of costs on interest rate
lock agreements accounted for as cash
flow hedges (net of income taxes of Ps.
1,001 and Ps1,001, and minority interest
of Ps. 831 and Ps. 831 at December 31,
2003 and 2002, respectively)
    
    
    1,027
    
    
    
    1,027Net change in fair values of interest
rate cap agreements accounted for as cash
flow hedges (net of income taxes of Ps.
565 and minority interest Ps. 470 at
December 31, 2002 )
    
    
    
    
    
    
    581Comprehensive income (loss)
    
    
    347,266
    
    
    
    (353,592
    )
 Accumulated non-owner changes in equity (accumulated other comprehensive loss)
at December 31, 2003 and 2002 were as follows: 2003
    
    2002Deferred costs on interest rate lock
agreements accounted for as cash flow hedges.
    
    
    (3,965
    )
    
    
    (4,992
    )Accumulated other comprehensive loss
    
    
    (3,965
    )
    
    
    (4,992
    )
 F-137




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated)  d)
    
    Deferred income taxes:The components of the net deferred tax liability under US GAAP as of
December 31, 2003 and 2002, are the following: 2003
    
    2002Deferred tax assetsExchange differences (i)
    
    
    87,003
    
    
    
    116,860Debt restructuring cost
    
    
    3,712
    
    
    
    Accrual for vacation
    
    
    
    
    
    
    889Derivative instruments and hedging activities
    
    
    
    
    
    
    1,280Allowance for doubtful accounts
    
    
    316
    
    
    
    1,691Current investments
    
    
    4,581
    
    
    
    5,768Non current investments
    
    
    
    
    
    
    3,689Provisions for contingencies
    
    
    11,414
    
    
    
    3,526Others
    
    
    199
    
    
    
    249Hedge of anticipated transactions
    
    
    3,861
    
    
    
    5,070Tax loss carryforwards (ii)
    
    
    603,036
    
    
    
    830,171Valuation allowance
    
    
    (499,743
    )
    
    
    (729,027
    )214,379
    
    
    
    240,166Deferred tax liabilitiesInvestment in TGS
    
    
    244,681
    
    
    
    188,154Property, plant and equipment, net
    
    
    856,909
    
    
    
    890,386Debt issuance costs
    
    
    3,997
    
    
    
    6,959Deferred revenues
    
    
    744
    
    
    
    7861,106,331
    
    
    
    1,086,285Net deferred tax liability
    
    
    (891,952
    )
    
    
    (846,119
    )
  (i)
    
    The Company recognized a deferred tax asset for the net negative
results caused by the devaluation of the Argentine peso that will be
deductible for income tax purposes between 2003 and 2006.(ii)
    
    Tax loss carryforwards, are available to offset future taxable
income and expire between 2005 and 2007. As of December 31, 2003 and 2002, Ps. 103,513 and Ps. 125,391, respectively,
have been classified as current assets, and Ps. 995,465 and Ps. 971,510,
respectively, have been classified as non-current liabilities. Income tax expense for the years ended December 31, 2003, 2002 and 2001
consist of the following: 2003
    
    2002
    
    2001Current income tax expense
    
    
    85
    
    
    
    
    
    
    
    135,748Deferred income tax expense.
    
    
    44,832
    
    
    
    629,934
    
    
    
    4,902Total income tax expense
    
    
    44,917
    
    
    
    629,934
    
    
    
    140,650Asset tax expense
    
    
    
    
    
    
    8
    
    
    
    Total
    
    
    44,917
    
    
    
    629,942
    
    
    
    140,650
 F-138




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) Income tax expense computed at the statutory tax rate (35%) on pre-tax (loss)
income differs from the income tax expense for the years ended December 31,
2003, 2002 and 2001 computed in accordance with US GAAP as follows: 2003
    
    2002
    
    2001Income tax expense (benefit) at
statutory tax rate on pre-tax income
(loss) in accordance with US GAAP
    
    
    230,125
    
    
    
    42,955
    
    
    
    (454,085
    )Permanent differences:Change in valuation allowance
    
    
    (229,284
    )
    
    
    143,538
    
    
    
    585,489Inflation adjustment
    
    
    (4,589
    )
    
    
    278,749
    
    
    
    Book vs tax basis difference of the
Companys investment in TGS
    
    
    56,527
    
    
    
    121,021
    
    
    
    7,668Others, not individually significant
    
    
    (7,862
    )
    
    
    43,671
    
    
    
    1,578Income tax expense
    
    
    44,917
    
    
    
    629,934
    
    
    
    140,650
 e) Summarized financial information under US GAAP: Presented below is the summarized consolidated balance sheet and consolidated
statement of income information of the Company as of and for the year ended
December 31, 2003 and 2002 prepared in accordance with U.S. GAAP, giving effect
to differences in measurement methods and disclosures as previously discussed. As of December 31,2003
    
    As of December 31,2002Current assets
    
    
    914,821
    
    
    
    481,026Non-current assets
    
    
    4,309,666
    
    
    
    4,451,365Total assets
    
    
    5,224,487
    
    
    
    4,932,391Current liabilities
    
    
    4,106,346
    
    
    
    4,451,053Non-current liabilities
    
    
    1,008,867
    
    
    
    987,365Total liabilities
    
    
    5,115,213
    
    
    
    5,438,418Minority interest
    
    
    514,655
    
    
    
    247,481Shareholders deficit under US GAAP
    
    
    (405,381
    )
    
    
    (753,508
    )
 For the year ended
    
    For the year endedDecember 31, 2003
    
    December 31, 2002Net revenues
    
    
    873,186
    
    
    
    913,289Gross profit
    
    
    465,321
    
    
    
    513,257Operating income
    
    
    428,180
    
    
    
    473,131Other expenses, net
    
    
    (26,438
    )
    
    
    (11,493
    )Equity in earnings (losses) of affiliate company
    
    
    9,725
    
    
    
    (7,551
    )Net Financial results
    
    
    246,032
    
    
    
    (331,359
    )Net Income before income tax and minority interest
    
    
    657,499
    
    
    
    122,728Income tax
    
    
    (44,917
    )
    
    
    (629,942
    )Minority interest
    
    
    (266,343
    )
    
    
    152,014Net income (loss) under US GAAP
    
    
    346,239
    
    
    
    (355,200
    )
 F-139




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) f) Disclosure about fair value of financial instruments Statement of Financial Accounting Standards No. 107 (SFAS No. 107),
Disclosures About Fair Value of Financial Instruments, requires disclosure of
fair value information about financial instruments whether or not recognized in
the balance sheet, for which it is practicable to estimate fair value.
Financial instruments include such items as cash and cash equivalents and
accounts receivable and other instruments. SFAS No. 107 excludes from its
disclosure requirements certain significant assets and liabilities that are not
considered to be financial instruments. SFAS No. 133, which is effective
January 1, 2001, amends SFAS No. 107 to include within the scope of such
statement certain disclosure requirements regarding credit risk concentrations. Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and the relevant market
information. Where available, quoted market prices are used. In other cases,
fair values are based on estimates using other valuation techniques, such as
discounting estimated future cash flows using a rate commensurate with the
risks involved or other acceptable methods. These techniques involve
uncertainties and are significantly affected by the assumptions used and the
judgements made regarding risk characteristics of various financial
instruments, prepayments, discount rates, estimates of future cash flows,
future expected loss experience, and other factors. Changes in assumptions
could significantly affect these estimates. Derived fair value estimates cannot
be substantiated by comparison to independent markets and, in many cases, could
not be realized in an immediate sale of the instrument. Also, because of
differences in methodologies and assumptions used to estimate fair value, the
Companys fair values should not be compared to those of other companies. Under SFAS No. 107, fair value estimates are based on existing financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Accordingly, the aggregate fair value amount presented
does not represent the underlying value of the Company. For certain assets and
liabilities, the information required under the SFAS No. 107 is supplemental
with additional information relevant to an understanding of the fair value. As of December 31, 2003 and 2002, the carrying amounts of certain financial
instruments used by the Company including cash, cash equivalents, receivables,
payables and short term loans are representative of fair value because of the
short-term nature of these instruments. The estimated fair value of other
non-current assets does not differ significantly from the carrying amount. The
fair value of the derivative financial instruments is the estimated amount at
which management believes they could be liquidated based on current market
conditions or other estimates as quoted market prices obtained from third-party
dealers. Credit risk relates to the risk of loss that the Company would incur as a
result of non-performance by counterparties. Parties associated with the
Companys derivative instruments are investment grade financial institutions.
Accordingly, the Company does not anticipate non-performance by such third
parties. g) Disclosure of capital lease information TGS leases telecommunication equipment, valves and hardware under capital lease
agreements with lease terms of 60, 48 and 18 months, respectively. Following is
a summary of the assets under capital leases: As of December 31, 2003Original cost
    
    
    25,068Less:Accumulated depreciation
    
    
    (7,525
    )Net leased property
    
    
    17,543
 F-140




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) Future minimum lease payments for the above assets under capital leases
as of December 31, 2003 are as follows: As of December 31, 20032004
    
    
    2,9352005
    
    
    2,9912006
    
    
    2,7722007
    
    
    2,7472008
    
    
    687Total minimum obligations
    
    
    12,132Interest
    
    
    (1,766
    )Present value of minimum obligations
    
    
    10,366Current portion
    
    
    (2,818
    )Non-current portions as of December 31, 2003
    
    
    7,548
 h) Statement of cash flows presentation The Company has presented the statements of cash flows in the primary financial
statements using the guidance set forth in the Argentine new accounting
standards, which are consistent with that established by Statement of Financial
Accounting Standards No. 95 Statement of Cash Flows (SFAS No. 95).
Nevertheless, this presentation has been made using Argentine GAAP numbers. As
further described in Note 4, the Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents. Under US GAAP, the total amounts of cash and cash equivalents at the beginning
and end of the periods shown in the statements of cash flows are required to be
the same amounts as similarly titled line items shown in the balance sheets, as
of those dates. Note 4 includes a reconciliation of the balances included as
cash and deposits in banks and current investments in the consolidated balance
sheet to the total amounts of cash and cash equivalents at the beginning and
end of the periods shown in the statements of cash flows: Under Argentine GAAP, the effect of inflation on cash and cash equivalents and
the effect of exchange rate changes on cash and cash equivalents were not
disclosed by presenting additional cash flow statement categories as required
by US GAAP. The following table presents the cash flows from operating,
investing and financing activities and the effect of inflation accounting and
of exchange rates changes on cash and cash equivalents that would be reported
in the statement of cash flows, which contemplate classification differences
under US GAAP. For the year ended December 31,2003
    
    2002
    
    2001Net cash provided by operating activities
    
    
    550,173
    
    
    
    224,963
    
    
    
    416,318Net cash used in investing activities
    
    
    (61,465
    )
    
    
    (96,697
    )
    
    
    (467,472
    )Net cash provided by (used in) financing activities
    
    
    2,820
    
    
    
    (62,649
    )
    
    
    134,413Effect of exchange rate changes on cash and cash
equivalents
    
    
    (21,443
    )
    
    
    72,162
    
    
    
    Effect of inflation accounting on cash and cash
equivalents
    
    
    (2,279
    )
    
    
    (61,852
    )
    
    
    Net increase in cash and cash
equivalents
    
    
    467,806
    
    
    
    75,927
    
    
    
    83,259
 F-141




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) i) Recent accounting pronouncements: 1. Accounting for Asset Retirement Obligations In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period for which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. An entity shall measure changes in the liability for an
asset retirement obligation due to passage of time by applying an interest
method of allocation to the amount of the liability at the beginning of the
period. The interest rate used to measure that change shall be the
credit-adjusted risk-free rate that existed when the liability was initially
measured. That amount shall be recognized as an increase in the carrying
amount of the liability and as an expense classified as an operating item in
the statement of income. SFAS No. 143, which became effective for fiscal years
beginning after June 15, 2002 did not have a material impact on the Companys
consolidated financial statements. 2. Accounting for Costs Associated with Exit or Disposal Activities In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and other Costs to Exit
an Activity (Including Certain Costs Incurred in a Restructuring). The
provisions of this statement are effective for exit or disposal activities that
are initiated after December 31, 2002. SFAS No. 146 did not impact the
Companys consolidated financial statements. 3. Accounting for Stock -Based Compensation In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
CompensationTransition and DisclosureAn Amendment of SFAS No. 123. SFAS No.
148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. SFAS No. 148 is effective for financial
statements for fiscal years ending after December 15, 2002, except for certain
provisions that are effective for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002.
SFAS No. 148 did not impact the Companys consolidated financial statements. 4. Consolidation of Variable Interest Entities In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). Interpretation No. 46 requires a
variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entitys
activities or entitled to receive a majority of the entitys residual returns
or both. Interpretation No. 46 also requires disclosures about variable
interest entities that the company is not required to consolidate but in which
it has a significant variable interest. Furthermore, in December 2003, the FASB
released a revised version of FIN 46 (hereafter referred to as FIN 46R)
clarifying certain aspects of FIN 46 and providing certain entities with
exemptions from the requirements of FIN 46. FIN 46R requires the application of
either FIN 46 or FIN 46R by Public Entities (as defined in paragraph 395 of
FASB Statement No. 123, Accounting for Stock-Based Compensation) to all Special
Purpose Entities (SPEs) created prior to February 1, 2003 at the end of the
first interim or annual reporting period ending after December 15, 2003. All
entities created after January 31, 2003 by Public Entities were already
required to be analyzed under FIN 46, and they must continue to do so, unless
FIN 46R is adopted early. The adoption of FIN 46 and FIN 46R did not have a
significant impact on the Companys consolidated financial statements. F-142




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Amounts stated in thousands of constant Argentine pesos as described in Note 2.c.,
except for per share amounts in constant Argentine pesos or where otherwise indicated) 5. Derivative Instruments In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 149 did not impact the Companys
consolidated financial statements. 6. Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003, except for mandatorily redeemable financial
instruments of non-public entities. SFAS No. 150 did not impact the Companys
consolidated financial statements. 7. Employers Disclosures about Pensions and Other Postretirement
Benefits In December 2003 the Financial Accounting Standards Board released revised FASB
Statement No. 132, Employers Disclosures about Pensions and Other
Postretirement Benefits (Revised) (SFAS No. 132 (Revised)). The revised
standard provides required disclosures for pensions and other postretirement
benefit plans and is designed to improve disclosure transparency in financial
statements. The revised standard replaces existing pension disclosure
requirements. The requirements of the standard are effective for public
entities for fiscal years ending after December 15, 2003. The adoption of SFAS
No. 132 (Revised) did not have a material impact on the Companys consolidated
financial statements. 8. Revenue recognition On December 17, 2003, the SEC issued Staff Accounting Bulletin No. 104 (SAB
No. 104), which revises or rescinds portions of the interpretative guidance
included in Staff Accounting Bulletin No. 101, Revenue Recognition (SAB No.
101). The main modifications introduced by SAB No. 104 are aimed at making
this interpretive guidance consistent with current authoritative accounting and
auditing guidance and SEC rules and regulations. The principal revisions relate
to the rescission of material no longer necessary because of private sector
developments in the US GAAP. The adoption of SAB No. 104 did not have a
material impact on the Companys consolidated financial statements. 12. OTHER CONSOLIDATED FINANCIAL STATEMENTS INFORMATION The following tables present additional consolidated financial statement
disclosures required by Argentine GAAP:  a)
    
    Property, plant and equipment, netb)
    
    Intangible assets, netc)
    
    Non-current investmentsd)
    
    Current investmentse)
    
    Allowances and provisionsf)
    
    Cost of salesg)
    
    Foreign currency assets and liabilitiesh)
    
    Expense incurredi)
    
    Detail of maturities of investments, receivables and liabilities. F-143




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##### Table of Contents



COMPAÑÍA DE
INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES Note 12. OTHER CONSOLIDATED FINANCIAL INFORMATION a) Property, Plant and equipment, net. (Stated in thousands of constant Argentine pesos as described in Note 2.c) 2003Original CostEnd ofMain Account
    
    
    
    Additions
    
    Retirements
    
    Transfers
    
    the yearPipelines
    
    
    3,179,319
    
    
    
    
    
    
    
    
    
    
    
    747
    
    
    
    3,180,066Compressor plants
    
    
    1,006,327
    
    
    
    
    
    
    
    
    
    
    
    9,009
    
    
    
    1,015,336Other industrial plants
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85Stations of regulations and/or
measurement of pressure
    
    
    107,397
    
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    107,466Other technical installations
    
    
    16,324
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    16,319Subtotal assets related to
the gas transportation service
    
    
    4,309,452
    
    
    
    
    
    
    
    
    
    
    
    9,820
    
    
    
    4,319,272Assets related to gas upstream service
    
    
    115,260
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    115,278Assets related to NGL
production and commercialization    service
    
    
    442,813
    
    
    
    
    
    
    
    
    
    
    
    1,735
    
    
    
    444,548Lands
    
    
    5,642
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,642Buildings and civil constructions
    
    
    130,062
    
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    130,156Installations in buildings
    
    
    4,645
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,645Machinery, equipment and tools
    
    
    28,722
    
    
    
    50
    
    
    
    
    
    
    
    45
    
    
    
    28,817Computers and Telecommunication systems
    
    
    214,819
    
    
    
    520
    
    
    
    
    
    
    
    831
    
    
    
    216,170Vehicles
    
    
    12,704
    
    
    
    185
    
    
    
    
    
    
    
    
    
    
    
    12,889Furniture
    
    
    12,520
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    12,541Capitalizations of exchange loss (1)
    
    
    588,389
    
    
    
    
    
    
    
    411,117
    (2)
    
    
    
    
    
    
    177,272Materials
    
    
    113,533
    
    
    
    9,055
    
    
    
    15,821
    
    
    
    (3,595
    )
    
    
    103,172Line pack
    
    
    13,679
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,679Works in progress
    
    
    28,116
    
    
    
    34,435
    
    
    
    4,267
    
    
    
    (8,969
    )
    
    
    49,315Advances to suppliers of property,
plant and equipment
    
    
    4,940
    
    
    
    
    
    
    
    241
    (4)
    
    
    
    
    
    
    4,699Total 2003
    
    
    6,025,296
    
    
    
    44,245
    
    
    
    431,446
    
    
    
    
    
    
    
    5,638,095Total 2002
    
    
    5,406,512
    
    
    
    693,773
    
    
    
    74,989
    
    
    
    
    
    
    
    6,025,296Total 2001
    
    
    4,992,991
    
    
    
    423,044
    
    
    
    9,523
    
    
    
    
    
    
    
    5,406,512
   [Continued from above table, first column(s) repeated] 2003DepreciationAccumulated at
    
    
    
    
    
    Expense for the year
    
    Accumulated atthe beginning
    
    
    
    
    
    
    
    the beginningMain Account
    
    of the year
    
    Retirements
    
    Amount
    
    Rate %
    
    of the yearPipelines
    
    
    413,734
    
    
    
    
    
    
    
    76,612
    
    
    
    2,2
    (1)
    
    
    490,346Compressor plants
    
    
    238,769
    
    
    
    
    
    
    
    37,282
    
    
    
    3,3 a 25
    (1)
    
    
    276,051Other industrial plants
    
    
    10
    
    
    
    
    
    
    
    3
    
    
    
    3,3
    (1)
    
    
    13Stations of regulations and/or
measurement of pressure
    
    
    25,517
    
    
    
    
    
    
    
    4,224
    
    
    
    4
    (1)
    
    
    29,741Other technical installations
    
    
    5,453
    
    
    
    
    
    
    
    1,477
    
    
    
    6,7
    (1)
    
    
    6,930Subtotal assets related to
the gas transportation service
    
    
    683,483
    
    
    
    
    
    
    
    119,598
    
    
    
    
    
    
    
    803,081Assets related to gas
upstream service
    
    
    32,662
    
    
    
    
    
    
    
    7,791
    
    
    
    2,2 a 25
    
    
    
    40,453Assets related to NGL
production and commercialization    service
    
    
    162,778
    
    
    
    
    
    
    
    22,054
    
    
    
    5,9
    (1)
    
    
    184,832Lands
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Buildings and civil constructions
    
    
    29,305
    
    
    
    
    
    
    
    3,385
    
    
    
    2.0
    
    
    
    32,690Installations in buildings
    
    
    1,000
    
    
    
    
    
    
    
    216
    
    
    
    4.0
    
    
    
    1,216Machinery, equipment and tools
    
    
    17,643
    
    
    
    
    
    
    
    2,023
    
    
    
    6,7 a 20
    
    
    
    19,666Computers and Telecommunication systems
    
    
    92,242
    
    
    
    
    
    
    
    16,259
    
    
    
    6,7 y 20
    
    
    
    108,501Vehicles
    
    
    9,678
    
    
    
    
    
    
    
    1,001
    
    
    
    10 y 20
    
    
    
    10,679Furniture
    
    
    10,441
    
    
    
    
    
    
    
    172
    
    
    
    10
    
    
    
    10,613Capitalizations of exchange loss (1)
    
    
    23,612
    
    
    
    15,649
    (3)
    
    
    8,060
    
    
    
    4,6
    (1)
    
    
    16,023Materials
    
    
    259
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259Line pack
    
    
    1,614
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,614Works in progress
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Advances to suppliers of property,
plant and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total 2003
    
    
    1,064,717
    
    
    
    15,649
    
    
    
    180,559
    
    
    
    
    
    
    
    1,229,627Total 2002
    
    
    895,935
    
    
    
    32,629
    
    
    
    201,411
    
    
    
    
    
    
    
    1,064,717Total 2001
    
    
    733,704
    
    
    
    5,632
    
    
    
    167,863
    
    
    
    
    
    
    
    895,935
   [Continued from above table, first column(s) repeated] 2003
    
    2002
    
    2001Net
    
    Net
    
    NetMain Account
    
    book value
    
    book value
    
    book valuePipelines
    
    
    2,689,720
    
    
    
    2,765,585
    
    
    
    2,789,224Compressor plants
    
    
    739,285
    
    
    
    767,558
    
    
    
    782,670Other industrial plants
    
    
    72
    
    
    
    75
    
    
    
    71Stations of regulations and/or
measurement of pressure
    
    
    77,725
    
    
    
    81,880
    
    
    
    77,661Other technical installations
    
    
    9,389
    
    
    
    10,871
    
    
    
    13,471Subtotal assets related to
the gas transportation service
    
    
    3,516,191
    
    
    
    3,625,969
    
    
    
    3,663,097Assets related to gas
upstream service
    
    
    74,825
    
    
    
    82,598
    
    
    
    102,263Assets related to NGL
production and commercialization service
    
    
    259,716
    
    
    
    280,035
    
    
    
    325,419Lands
    
    
    5,642
    
    
    
    5,642
    
    
    
    6,316Buildings and civil constructions
    
    
    97,466
    
    
    
    100,757
    
    
    
    94,608Installations in buildings
    
    
    3,429
    
    
    
    3,645
    
    
    
    3,713Machinery, equipment and tools
    
    
    9,151
    
    
    
    11,079
    
    
    
    12,610Computers and Telecommunication systems
    
    
    107,669
    
    
    
    122,577
    
    
    
    138,251Vehicles
    
    
    2,210
    
    
    
    3,026
    
    
    
    3,759Furniture
    
    
    1,928
    
    
    
    2,079
    
    
    
    684Capitalizations of exchange loss (1)
    
    
    161,249
    
    
    
    564,776
    
    
    
    Materials
    
    
    102,913
    
    
    
    113,275
    
    
    
    66,678Line pack
    
    
    12,065
    
    
    
    12,065
    
    
    
    12,067Works in progress
    
    
    49,315
    
    
    
    28,116
    
    
    
    64,582Advances to suppliers of property,
plant and equipment
    
    
    4,699
    
    
    
    4,940
    
    
    
    16,530Total 2003
    
    
    4,408,468Total 2002
    
    
    
    
    
    
    4,960,579Total 2001
    
    
    
    
    
    
    
    
    
    
    4,510,577
 (1)
    
    See Note 2.1).(2)
    
    Ps. 4,322 corresponds to the elimination of the
inflation adjustment applied to balance at the beginning of the
fiscal year and Ps. 406,795 corresponds to the decrease in the
exchange rate from Ps. 3.37 at the beginning of the year to
Ps. 2.835 at July 28, 2003 (Note 2.1).(3)
    
    Ps. 173 corresponds to the elimination of the
inflation adjustment applied to balance at the beginning of the
fiscal year and Ps. 15,477 corresponds to the decrease in the
exchange rate from Ps. 3.37 at the beginning of the year to
Ps. 2.835 at July 28, 2003 (Note 2.1).(4)
    
    Ps. 36 corresponds to the elimination of the
inflation adjustment applied to balance at the beginning of the
fiscal year.
 F-144




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##### Table of Contents



Note 12. OTHER CONSOLIDATED FINANCIAL INFORMATION
b) Intangible assets, net. (stated in thousands of constant Argentine pesos as described in Note 2.c) 2003Original costBeginning
    
    
    
    
    
    
    
    
    
    End ofDeferred charges
    
    
    
    
    
    of the year
    
    Additions
    
    Decreases
    
    the yearOrganization, pre-operating costs,
cancellation costs of commitments
assumed under the Transfer Contract
and other costs
    
    
    (1
    )
    
    
    70,540
    
    
    
    
    
    
    
    3,566
    
    
    
    66,974Settlement costs of hedges of
anticipated transactions
    
    
    (2
    )
    
    
    50,101
    
    
    
    
    
    
    
    25,726
    
    
    
    24,375Global Programs and notes
issuances costs
    
    
    
    
    
    
    55,517
    
    
    
    9,151
    
    
    
    31,719
    
    
    
    32,949License acquisition costs
    
    
    
    
    
    
    
    
    
    
    1,173
    
    
    
    
    
    
    
    1,173Total 2003
    
    
    
    
    
    
    176,158
    
    
    
    10,324
    
    
    
    61,011
    
    
    
    125,471Total 2002
    
    
    
    
    
    
    172,336
    
    
    
    3,822
    
    
    
    
    
    
    
    176,158Total 2001
    
    
    
    
    
    
    156,855
    
    
    
    15,481
    
    
    
    
    
    
    
    172,336
   [Continued from above table, first column(s) repeated] 2003A m o r t i z a t i o nAccumulated
    
    
    
    
    
    Expense for the year
    
    Accumulated atat beginning
    
    
    
    
    
    
    
    the end
    
    NetDeferred charges
    
    of the year
    
    Decreases
    
    Amount
    
    Rate %
    
    of the year
    
    book valueOrganization, pre-operating costs,
cancellation costs of commitments
assumed under the Transfer Contract
and other costs        (1)
    
    
    39,564
    
    
    
    3,566
    
    
    
    10,285
    (3)
    
    
    (4
    )
    
    
    46,283
    
    
    
    20,691Settlement costs of hedges of
anticipated
transactions        (2)
    
    
    31,461
    
    
    
    22,241
    
    
    
    4,114
    (5)
    
    
    (4
    )
    
    
    13,334
    
    
    
    11,041Global Programs and notes
issuances costs
    
    
    39,511
    
    
    
    31,719
    
    
    
    5,496
    (5)
    
    
    (4
    )
    
    
    13,288
    
    
    
    19,661License acquisition costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    1,173Total 2003
    
    
    110,536
    
    
    
    57,526
    
    
    
    19,895
    
    
    
    
    
    
    
    72,905
    
    
    
    52,566Total 2002
    
    
    82,793
    
    
    
    
    
    
    
    27,743
    
    
    
    
    
    
    
    110,536Total 2001
    
    
    57,315
    
    
    
    
    
    
    
    25,478
    
    
    
    
    
    
    
    82,793
   [Continued from above table, first column(s) repeated] 2002
    
    2001Net
    
    NetDeferred charges
    
    book value
    
    book valueOrganization, pre-operating costs,
cancellation costs of commitments
assumed under the Transfer Contract
and other costs        (1)
    
    
    30,976
    
    
    
    42,016Settlement costs of hedges of
anticipated
transactions        (2)
    
    
    18,640
    
    
    
    25,925Global Programs and notes
issuances costs
    
    
    16,006
    
    
    
    21,602License acquisition costs
    
    
    
    
    
    
    Total 2003Total 2002
    
    
    65,622Total 2001
    
    
    
    
    
    
    89,543
   (1)
    
    Includes the cost of the Voluntary Retirement Program of 1993, accepted by 463 employees, for approximately Ps. 26,647.(2)
    
    See Note 5.(3)
    
    Included in Operating costs. See Note 12.h).(4)
    
    See Note 2.j).(5)
    
    Included in Financial expenses. See Note 12.h). F-145




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##### Table of Contents

(unaudited)

COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBDIARIES Note 12. OTHER CONSOLIDATED FINANCIAL INFORMATION c) Non-current investments (Stated in thousands of constant Argentine pesos, as described in Note 2.c) 2003
    
    2002Issuer informationDescription of securitiesLast financial statements issuedFace
    
    
    
    
    
    
    
    
    
    
    
    
    
    Main
    
    
    
    
    
    Common
    
    Net income (loss)
    
    Shareholders
    
    % of CommonName and issuer
    
    value
    
    Amount
    
    Cost
    
    Book value
    
    business
    
    Date
    
    stock
    
    for the year
    
    equity
    
    Stock
    
    Book valueGovernment bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,640$
    1
    
    
    
    5,880
    
    
    
    3,315
    
    
    
    767
    
    
    Pipelines
    
    
    09/30/2003
    
    
    
    6.683
    (2)
    
    
    5,166
    
    
    
    13,984
    
    
    
    49.00
    
    
    
    (3,696
    )(3)Gas Link S.A.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    constructionand operation servicesTransporte y
Serviciosde Gas en
    
    Ps Uru. 1
    
    
    
    
    196,000
    
    
    
    5
    
    
    
    179
    
    
    Maintenance
    
    
    12/31/2003
    
    
    
    28
    
    
    
    174
    
    
    
    312
    
    
    
    49.00
    
    
    
    102Uruguay S.A. (formerly Isonil S.A.)Emprendimientos de Gas
    
    
    1
    
    
    
    5,880
    
    
    
    6
    
    
    
    (3
    )(3)
    
    Pipeline s
    
    
    12/31/2003
    
    
    
    12
    
    
    
    (19
    )
    
    
    (7
    )
    
    
    49.00
    
    
    
    del Sur S.A.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    constructionand operation servicesTGS Goodwill (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,453
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,886Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,496
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,265
    )54,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,667
   (1)
    
    Corresponds to Argentine Government Foreign Notes  Survey Rates Serie 74. Includes an allowance for write down amounting to Ps. 10,536.(2)
    
    Organized with a common stock amounting to Ps. 26. It includes irrevocable capital contributions of Ps. 6,657 against future shares issuance.(3)
    
    Disclosed in Other Liabilities.(4)
    
    Corresponds to exchange rate loss capitalization. For further information see Note 2.g). F-146




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBDIARIES Note 12. OTHER CONSOLIDATED FINANCIAL INFORMATION d) Current investments (Stated in thousands of constant Argentine pesos as described in Note 2.c) 2003
    
    2002CURRENT INVESTMENTSGovernment bonds in local currency
    
    
    96
    
    
    
    95Government bonds in foreign currency (1)
    
    
    3,519
    
    
    
    4,425Mutual funds in local currency
    
    
    46,765
    
    
    
    9Bank account paid in foreign currency
    
    
    6,566
    
    
    
    6,588Mutual funds in foreign currency
    
    
    607,203
    
    
    
    191,586Total current investments
    
    
    664,149
    
    
    
    202,703
   (1)
    
    Corresponds to Argentine Government Foreign Notes  Survey Rate
Series 74 for US$ 4 and US$ 6 million plus accrued interests,
net of valuation allowance amounting to
8,294 and 16,483, as of December 31,
2003 and 2002. F-147




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES Note 12. OTHER CONSOLIDATED FINANCIAL INFORMATION e) Allowances and provisions (Stated in thousands of constant Argentine pesos as described in Note 2.c) Effect ofinflationBeginning
    
    adjustment on
    
    
    
    
    
    
    
    
    
    End ofMain account
    
    
    
    
    
    of the year
    
    initial balances
    
    Additions
    
    Decreases
    
    the yearDeducted from assetsAllowance for write-down of government bonds
    
    
    2003
    
    
    
    27,019
    
    
    
    (198
    )
    
    
    
    
    
    
    (18,527
    )
    
    
    8,2942002
    
    
    
    
    
    
    
    
    
    
    
    27,019
    
    
    
    
    
    
    
    27,0192001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Allowance for doubtful account
    
    
    2003
    
    
    
    5,477
    
    
    
    (40
    )
    
    
    1,081
    
    
    
    (4,976
    )
    
    
    1,5422002
    
    
    
    3,159
    
    
    
    (1,731
    )
    
    
    4,049
    
    
    
    
    
    
    
    5,4772001
    
    
    
    703
    
    
    
    
    
    
    
    2,810
    
    
    
    (354
    )
    
    
    3,159Allowance for deferred tax assets
    
    
    2003
    
    
    
    728,937
    
    
    
    (5,354
    )
    
    
    
    
    
    
    (223,840
    )
    
    
    499,7432002
    
    
    
    16,706
    
    
    
    (9,050
    )
    
    
    721,281
    
    
    
    
    
    
    
    728,9372001
    
    
    
    
    
    
    
    
    
    
    
    16,706
    
    
    
    
    
    
    
    16,706Included in liabilitiesProvision for contingencies (1)
    
    
    2003
    
    
    
    10,074
    
    
    
    (74
    )
    
    
    
    
    
    
    (1,489
    )
    
    
    8,5112002
    
    
    
    745
    
    
    
    (408
    )
    
    
    9,772
    
    
    
    (35
    )
    
    
    10,0742001
    
    
    
    
    
    
    
    
    
    
    
    770
    
    
    
    (25
    )
    
    
    745
   (1)
    
    Such allowance is included under Other
liabilities. F-148




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES Note 12. OTHER CONSOLIDATED FINANCIAL INFORMATION f) Cost of sales (Stated in thousands of constant Argentine pesos as described in Note 2.c.) 2003
    
    2002
    
    2001Inventories at the beginning of the year
    
    
    6,771
    
    
    
    6,366
    
    
    
    2,477Inflation adjustment
    
    
    (50
    )
    
    
    (3,448
    )
    
    
    Natural gas purchases (1)
    
    
    117,460
    
    
    
    94,376
    
    
    
    81,428Operating costs (Note 12.h.)
    
    
    308,524
    
    
    
    345,199
    
    
    
    349,308Inventories at the end of the year (1)
    
    
    (5,454
    )
    
    
    (6,771
    )
    
    
    (6,366
    )Cost of sales
    
    
    427,251
    
    
    
    435,722
    
    
    
    426,847
 (1) Includes natural gas used in the NGL production. F-149




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES g) Foreing currency assets and liabilities (Stated in thousands of constant Argentine pesos as described in Note 2.c) 2003
    
    
    
    
    
    
    
    
    
    2002Foreign currency
    
    Exchange
    
    Amount
    
    Foreign currency
    
    Amountand amount
    
    rate
    
    in local
    
    and amount
    
    in local(in thousands)
    
    
    
    currency
    
    (in thousands)
    
    currencyCURRENT ASSETSCash and deposits in
banks
    
    US$
    
    
    512
    
    
    
    2.88
    (1)
    
    
    1,475
    
    
    US$
    
    
    411
    
    
    
    1,354Investments, net
    
    US$
    
    
    214,336
    
    
    
    2.88
    (1)
    
    
    617,288
    
    
    US$
    
    
    61,502
    
    
    
    202,599Trade receivables, net
    
    US$
    
    
    12,855
    
    
    
    2.88
    (1)
    
    
    37,022
    
    
    US$
    
    
    11,802
    
    
    
    38,879Other receivables
    
    US$
    
    
    7,376
    
    
    
    2.88
    (1)
    
    
    21,243
    
    
    US$
    
    
    67
    
    
    
    221XEU
    
    
    8
    
    
    
    3.6204
    (1)
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    XEU
    
    
    8
    
    
    
    3.6204
    (1)
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    677,057
    
    
    
    
    
    
    
    
    
    
    
    243,053NON CURRENT ASSETSTrade receivables
    
    US$
    
    
    9,565
    
    
    
    2.88
    (1)
    
    
    27,547
    
    
    US$
    
    
    13,301
    
    
    
    43,817Other receivables
    
    US$
    
    
    64
    
    
    
    2.88
    (1)
    
    
    184
    
    
    
    
    
    
    
    
    
    
    
    Investments, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US$
    
    
    801
    
    
    
    2,640Property, Plant and
Equipment, net
    
    US$
    
    
    947
    
    
    
    2.88
    (1)
    
    
    2,727
    
    
    
    
    
    
    
    
    
    
    
    Advance to suppliers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,458
    
    
    
    
    
    
    
    
    
    
    
    46,457707,515
    
    
    
    
    
    
    
    
    
    
    
    289,510CURRENT LIABILITIESAccounts payable
    
    US$
    
    
    4,540
    
    
    
    2.93
    (2)
    
    
    13,302
    
    
    US$
    
    
    6,253
    
    
    
    21,229XEU
    
    
    18
    
    
    
    3.6836
    (2)
    
    
    66
    
    
    XEU
    
    
    1
    
    
    
    4Loans
    
    US$
    
    
    1,343,370
    
    
    
    2.93
    (2)
    
    
    3,936,074
    
    
    US$
    
    
    1,266,990
    
    
    
    4,301,352Other liabilities
    
    US$
    
    
    238
    
    
    
    2.93
    (2)
    
    
    697
    
    
    US$
    
    
    225
    
    
    
    7643,950,139
    
    
    
    
    
    
    
    
    
    
    
    4,323,349NON CURRENT LIABILITIESAccounts payable
    
    US$
    
    
    1,200
    
    
    
    2.93
    (2)
    
    
    3,516
    
    
    US$
    
    
    2,107
    
    
    
    7,155Loans
    
    US$
    
    
    2,490
    
    
    
    2.93
    (2)
    
    
    7,296
    
    
    
    
    
    
    
    
    
    
    
    10,812
    
    
    
    
    
    
    
    
    
    
    
    7,15510,812
    
    
    
    
    
    
    
    
    
    
    
    7,1553,960,951
    
    
    
    
    
    
    
    
    
    
    
    4,330,504
   (1)
    
    Buying exchange
rate as of December
31, 2003.(2)
    
    Selling exchange
rate as of December
31, 2003.US$: United States of
America dollarsXEU: Euros F-150




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##### Table of Contents



COMPAÑÍA DE INVERSIONES DE ENERGÍA S.A.
AND ITS SUBSIDIARIES (Stated in thousands of constant Argentine pesos as described in Note 2.c.) Note 12. OTHER CONSOLIDATED
INFORMATION h) Expenses incurred 2003
    
    2002
    
    2001Operating
    
    Administrative
    
    Selling
    
    FinancialAccounts
    
    Total
    
    costs
    
    expenses
    
    expenses
    
    expenses
    
    Total
    
    TotalSalaries, wages and other contributions
    
    
    39,495
    
    
    
    27,483
    
    
    
    9,238
    
    
    
    2,774
    
    
    
    
    
    
    
    41,015
    
    
    
    70,507Social security taxes
    
    
    7,453
    
    
    
    4,996
    
    
    
    1,969
    
    
    
    488
    
    
    
    
    
    
    
    7,693
    
    
    
    10,466Compensation to Directors and Statutory Audit Committee
    
    
    190
    
    
    
    
    
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    244
    
    
    
    396Professional services fees
    
    
    4,320
    
    
    
    349
    
    
    
    3,574
    
    
    
    397
    
    
    
    
    
    
    
    4,595
    
    
    
    14,076Technical operator assistance fees
    
    
    29,043
    
    
    
    29,043
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,274
    
    
    
    42,475Materials
    
    
    4,004
    
    
    
    4,004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,263
    
    
    
    3,825Third parties services
    
    
    2,890
    
    
    
    2,291
    
    
    
    599
    
    
    
    
    
    
    
    
    
    
    
    3,053
    
    
    
    5,667Telecommunications and post expenses
    
    
    1,510
    
    
    
    476
    
    
    
    971
    
    
    
    63
    
    
    
    
    
    
    
    2,012
    
    
    
    3,355Rents
    
    
    528
    
    
    
    385
    
    
    
    139
    
    
    
    4
    
    
    
    
    
    
    
    922
    
    
    
    1,407Transports and Freight
    
    
    1,474
    
    
    
    1,371
    
    
    
    100
    
    
    
    3
    
    
    
    
    
    
    
    1,183
    
    
    
    2,111Easements
    
    
    6,598
    
    
    
    6,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,787
    
    
    
    25,280Offices supplies
    
    
    435
    
    
    
    117
    
    
    
    281
    
    
    
    37
    
    
    
    
    
    
    
    534
    
    
    
    1,082Travels
    
    
    844
    
    
    
    452
    
    
    
    196
    
    
    
    196
    
    
    
    
    
    
    
    738
    
    
    
    1,404Insurance
    
    
    12,181
    
    
    
    10,287
    
    
    
    1,892
    
    
    
    2
    
    
    
    
    
    
    
    10,724
    
    
    
    4,670Property, plant and equipment maintenance
    
    
    23,258
    
    
    
    22,904
    
    
    
    289
    
    
    
    65
    
    
    
    
    
    
    
    19,097
    
    
    
    26,494Depreciation of property, plant and equipment
    
    
    180,559
    
    
    
    174,672
    
    
    
    5,887
    
    
    
    
    
    
    
    
    
    
    
    201,411
    
    
    
    167,863Amortization of intangible assets
    
    
    19,895
    
    
    
    10,285
    
    
    
    
    
    
    
    
    
    
    
    9,610
    
    
    
    27,743
    
    
    
    25,478Taxes and contributions
    
    
    31,143
    
    
    
    3,846
    
    
    
    54
    
    
    
    27,243
    
    
    
    
    
    
    
    31,378
    
    
    
    40,135Advertising
    
    
    87
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    
    
    
    
    93
    
    
    
    233Allowance for doubtful account
    
    
    1,081
    
    
    
    
    
    
    
    
    
    
    
    1,081
    
    
    
    
    
    
    
    4,013
    
    
    
    2,810Banks expenses
    
    
    208
    
    
    
    
    
    
    
    185
    
    
    
    23
    
    
    
    
    
    
    
    185
    
    
    
    307Interests expense
    
    
    266,994
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266,994
    
    
    
    349,293
    
    
    
    232,825Foreign exchange loss, net of inflation
    
    
    (160,727
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (160,727
    )
    
    
    904,061
    
    
    
    4,820Other financial expenses
    
    
    20,093
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,093
    
    
    
    15,461
    
    
    
    5,667Gain on exposure to inflation
    
    
    (8,699
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,699
    )
    
    
    (116,589
    )
    
    
    Other expenses
    
    
    10,227
    
    
    
    8,965
    
    
    
    1,030
    
    
    
    232
    
    
    
    
    
    
    
    30,221
    
    
    
    8,772Total 2003
    
    
    495,084
    
    
    
    308,524
    
    
    
    26,594
    
    
    
    32,695
    
    
    
    127,271Total 2002
    
    
    
    
    
    
    345,199
    
    
    
    34,030
    
    
    
    34,244
    
    
    
    1,168,931
    
    
    
    1,582,404Total 2001
    
    
    
    
    
    
    349,308
    
    
    
    54,943
    
    
    
    40,123
    
    
    
    257,751
    
    
    
    
    
    
    
    702,125
 F-151




---



##### Table of Contents





(Stated in thousands of constant Argentine pesos as described in Note 2.c.)



|                             |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           |  |  |       |         | 
|---------------------------- |  |  | ------- |  |  | --------------- | ------- | --------------- |  | -------- | --------- | --------------- |  |  | --------- |  |  | ----- | ------- | 
|                             |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           |  |  | Other
|                             |  |  |         |  |  | Investments (1) |         | Receivables (2) |  | Debt (3) |           | liabilities (4)
|Without specified maturity   |  |  |         |  |  |                 |        |                 |  |          | 152,994   |                 |  |  |          |  |  |       | 38,052  | 
|                             |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           |  |  |       |         | 
|With specified maturity      |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           |  |  |       |         | 
|* Past due:                  |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           |  |  |       |         | 
|Until
12-31-02               |  |  |        |  |  |                 | 1,461   |                 |  |          | 657,457   |                 |  |  |          | 
|From 01-1-03 to 03-31-03     |  |  |        |  |  |                 | 6       |                 |  |          |          |                 |  |  |          | 
|From 04-1-03 to 06-30-03     |  |  |        |  |  |                 | 17      |                 |  |          | 3,242,424 |                 |  |  |          | 
|From 07-1-03 to 09-30-03     |  |  |        |  |  |                 |        |                 |  |          |          |                 |  |  |          | 
|From 10-1-03 to 12-31-03     |  |  |        |  |  |                 | 6,954   |                 |  |          | 65,143    |                 |  |  |          | 
|                             |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           |  |  |       |         | 
|Total past due               |  |  |        |  |  |                 | 8,438   |                 |  |          | 3,965,024 |                 |  |  |          | 
|                             |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           |  |  |       |         | 
|* Non-due:                   |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           |  |  |       |         | 
|From 01-1-04 to 03-31-04     |  |  | 666,683 |  |  |                 | 113,167 |                 |  |          | 563       |                 |  |  | 90,760    | 
|From 04-1-04 to 06-30-04     |  |  | 5,760   |  |  |                 | 4,697   |                 |  |          | 777       |                 |  |  | 1,054     | 
|From 07-1-04 to 09-30-04     |  |  |        |  |  |                 | 1,114   |                 |  |          | 763       |                 |  |  | 63        | 
|From 10-1-04 to 12-31-04     |  |  |        |  |  |                 | 3,515   |                 |  |          | 715       |                 |  |  | 64        | 
|During 2005                  |  |  |        |  |  |                 | 8,930   |                 |  |          | 2,657     |                 |  |  | 536       | 
|During 2006                  |  |  |        |  |  |                 | 6,690   |                 |  |          | 2,292     |                 |  |  | 585       | 
|During 2007                  |  |  |        |  |  |                 | 2,245   |                 |  |          | 2,098     |                 |  |  | 639       | 
|During 2008                  |  |  |        |  |  |                 | 2,016   |                 |  |          | 501       |                 |  |  | 698       | 
|From 2009 onwards            |  |  |        |  |  |                 | 7,931   |                 |  |          |          |                 |  |  | 3,396     | 
|Total non-due                |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           | 
|                             |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           |  |  |       |         | 
|Total with specific maturity |  |  | 672,443 |  |  |                 | 150,305 |                 |  |          | 10,366    |                 |  |  | 97,795    | 
|                             |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           |  |  |       |         | 
|Total                        |  |  | 672,443 |  |  |                 | 158,743 |                 |  |          | 3,975,390 |                 |  |  | 97,795    | 
|                             |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           |  |  |       |         | 
|                             |  |  |         |  |  |                 | 672,443 |                 |  |          | 311,737   |                 |  |  | 3,975,390 |  |  |       | 135,847 | 
|                             |  |  |         |  |  |                 |         |                 |  |          |           |                 |  |  |           |  |  |       |         | 



---

|(1) |  | Includes mutual funds, government bonds and bank accounts, without the allowance for write down of government bonds. Such investments bear floating interest rates.                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes trade receivables and other receivables, without the allowance for doubtful accounts. Said credits do not bear interests, except for Ps. 21,143 which bear interests
at 5.52% semi annually rate. From the total credits without specific maturity, Ps. 82 correspond to current assets and Ps. 152,912 to non current assets.
|   
|(3) |  | Corresponds to financial loans subject to the global restructuring process. The resulting interest rates will be defined from that process. Non-due loans bear annual interests
between 7.65% and 9.00%.                                                                                                                               
|   
|(4) |  | Corresponds to the total non financial liabilities, except for provisions for contingencies. Other liabilities without specified maturity correspod to current liabilities.                                                                                                                                                            

F-152