UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549  FORM 20-F  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2010  Commission File Number: 001- 34429 PAMPA ENERGíA S.A. (Exact name of registrant as specified in its charter) Pampa Energy Inc. (Translation of registrant’s name into English) Argentina (Jurisdiction of incorporation or organization) Ortiz de Ocampo 3302, Building #4 C1425DSR, City of Buenos Aires Argentina (Address of principal executive offices)
 Romina Benvenuti Ortiz de Ocampo 3302, Building #4 C1425DSR, City of Buenos Aires Argentina Tel.: + 54 11 4809 9500 / Fax: + 54 11 4809 9555 (Name, telephone, e-mail and/or facsimile number and address of company contact person)
  Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class
     Name of each exchangeon which registeredCommon Stock
American Depositary Shares, each representing
25 shares of common stock, par value Ps. 1.00 per share
     New York Stock Exchange, Inc.*
New York Stock Exchange, Inc.*Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
 Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as close of the period covered by the annual report: 1,314,310,895 shares of common stock, par value Ps. 1.00 per share
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ̈Yes
     xNo
 If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  ̈Yes
     xNo
 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. xYes
      ̈No
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one): Large Accelerated filer ̈
     Accelerated filerx
     Non-accelerated filer ̈
 Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ̈
     International Financial Reporting Standards as issued by the International Accounting Standards Board ̈
     Otherx
 If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.  ̈Item 17
     xItem 18
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ̈Yes
     xNo


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TABLE OF CONTENTSPART IItem 1.
     Identity of Directors, Senior Management and Advisors
     5Item 2.
     Offer Statistics and Expected Timetable
     5Item 3.
     Key Information
     5Selected Financial Data
     5Exchange Rates
     8Risk Factors
     9Item 4.
     Information on the Company
     27Our Business
     27The Argentine Electricity Sector
     68Item 4A.
     Unresolved Staff Comments
     83Item 5.
     Operating and Financial Review and Prospects
     83Item 6.
     Directors, Senior Management and Employees
     153Item 7.
     Major Shareholders and Related Party Transactions
     167Item 8.
     Financial Information
     170Consolidated Financial Statements
     170Legal Proceedings
     170Dividends
     174Item 9.
     The Offer and Listing
     175Trading History
     175The Argentine Securities Market
     177Item 10.
     Additional Information
     180Memorandum and Articles of Association
     180Material Contracts
     180Exchange Controls
     180Taxation
     182Dividends and Paying Agents
     186Documents on Display
     187Item 11.
     Quantitative and Qualitative Disclosures about Market Risk
     188Item 12.
     Description of Securities Other than Equity Securities
     191Description of American Depositary Shares
     191PART IIItem 13.
     Defaults, Dividend Arrearages and Delinquencies
     193Item 14.
     Material Modifications to the Rights of Security Holders and Use of Proceeds
     193Item 15.
     Controls and Procedures
     193Item 16A.
     Audit Committee Financial Expert
     194Item 16B.
     Code of Ethics
     194Item 16C.
     Principal Accountant Fees and Services
     194Item 16D.
     Exemptions from the Listing Standards for Audit Committees
     195Item 16E.
     Purchases of Equity Securities by the Issuer and Affiliated Purchasers
     195Item 16F.
     Change in Registrant’s Certifying Accountant
     196Item 16G.
     Corporate Governance
     196PART IIIItem 17.
     Financial Statements
     202Item 18.
     Financial Statements
     202Item 19.
     Exhibits
     202Index to the Financial Statements
     F1
  i






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PRESENTATION OF INFORMATION In this annual report, we use the terms “we,” “us,” “our,” the “registrant” and the “company” to refer to Pampa Energía S.A. Financial Information This annual report contains our audited consolidated financial statements as of December 31, 2010 and 2009 and for the fiscal years ended December 31, 2010, 2009 and 2008. The audited consolidated financial statements have been audited by Price Waterhouse & Co. S.R.L., member firm of PricewaterhouseCoopers Network, whose report is included in this annual report. Our audited financial statements have been prepared in accordance with generally accepted accounting principles in Argentina (Argentine GAAP) and the regulations of the Comisión Nacional de Valores (National Securities Commission, or CNV), which differ in certain significant respects from generally accepted accounting principles in the United States of America (U.S. GAAP). Note 20 to our audited consolidated financial statements included elsewhere in this annual report provides a description of the significant differences between Argentine GAAP and U.S. GAAP, as they relate to us, and a reconciliation to U.S. GAAP of net income and shareholders’ equity as of December 31, 2010 and 2009 and for the fiscal years ended December 31, 2010, 2009 and 2008. Change in fiscal year In October 2006, we elected to change our fiscal year end from June 30 to a new fiscal year end on December 31 of each succeeding year. As a result a six-month transition period ended on December 31, 2006, and thereafter our full fiscal years end on December 31 of each succeeding year. Significant Acquisitions We have acquired our principal generation, transmission and distribution assets starting in 2006. Before these acquisitions, we did not have any operations or engage in any activities, as our former business activities, which were limited to the ownership and operation of a cold storage warehouse building, were suspended in 2003. Accordingly, prior to the second half of 2006, we have had no relevant operating history, comparable financial statements or business track record that might constitute a basis for comparing or evaluating the performance of our operations or business prospects following our recent acquisitions. Consequently, our results of operations are not necessarily comparable between the periods presented, and are not likely to be indicative of our results of operations in future periods. Our significant acquisitions include Electricidad Argentina S.A. (EASA) in September 2007, which owns a controlling stake in our distribution subsidiary, Empresa Distribuidora y Comercializadora Norte S.A. (Edenor); Corporación Independiente de Energía S.A. (CIE) in August 2007, which owns our subsidiary Central Piedra Buena S.A. (Piedra Buena) generation facilities; the assets comprising Central Térmica Loma de la Lata in May 2007; Pampa Inversiones S.A. in January 2007, which in turn holds a controlling interest in Central Térmica Güemes S.A. (Güemes); a direct interest in Central Térmica Güemes; Inversora Nihuiles S.A. (Nihuiles) and Inversora Diamante S.A. (Diamante) in October 2006, which in turn own our two hydroelectric generation plants Hidroeléctrica Nihuiles (HINISA) and Hidroeléctrica Diamante (HIDISA), and a co-controlling interest in Compañía Inversora en Transmisión Eléctrica Citelec S.A. (Citelec) in September 2006, which owns a controlling stake in Compañía de Transporte de Energía Eléctrica en Alta Tensión S.A. (Transener). Recent Developments In January 2011, the Company agreed to acquire from certain subsidiaries of AEI, whether directly or through any of its subsidiaries, the following: (i) 77.2% of the outstanding capital stock of Empresa Distribuidora Eléctrica Regional S.A. (“EMDERSA”), a company engaged in the distribution of electricity in the Argentine provinces of San Luis, La Rioja and Salta through its subsidiaries Empresa Distribuidora San Luis S.A. (“EDESAL”), Empresa Distribuidora de Electricidad de La Rioja S.A. (“EDELAR”) and Empresa Distribuidora de Electricidad de Salta S.A. (“EDESA”), and in the generation of electricity through its subsidiary Emdersa Generación Salta S.A. (“EGSSA”), and (ii) 100% of the outstanding capital stock of AESEBA S.A. (“AESEBA”), an electric utility company, which owns 90% of the outstanding capital stock of EmpresaDistribuidora de Energía Norte S.A. (“EDEN”), an electricity distribution company with the concession area in the north region of the Province of Buenos Aires. 1






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On February 25, 2011 the Company made an offer to Edenor, which Edenor accepted on March 4, 2011, to become the purchaser of the shares described above and Edenor purchased the shares (other than shares representing approximately 0.01% of the outstanding capital stock of AESEBA, in respect of which the Company remained as purchaser) on March 4, 2011 for a total purchase price of U.S. $140.0 million. The transaction also involved the assignment to certain of our affiliates of certain rights that AEI had over AESEBA, EDEN and EMDERSA and its subsidiaries. As of the date of this annual report Edenor is exploring the possibility of divesting one or more of the newly acquired assets described above. Although Edenor has received preliminary indications of interest from third parties in respect of certain of these assets and it has engaged in preliminary discussions with several of these third parties, we cannot make assurances that Edenor will sell one or more of these assets or on what terms any such sale may be made. Upon the terms of the offer made by the Company to Edenor, as accepted by the latter, to the extent Edenor divests any of these assets on or before March 4, 2014 the Company shall have a right to receive 50% of any net consideration received by Edenor as a result of the sale of any such assets in excess of the consideration paid by Edenor to AEI subsidiaries. On January 27, 2011, we also acquired from AEI and through our subsidiary Pampa Inversiones S.A., all of the issued and outstanding capital stock of Inversiones Argentina I, a company incorporated in the Cayman Islands to which AEI had previously assigned all of its right, title and interest to U.S. $199.6 million nominal value of the floating rate notes due April 22, 2002, issued by Compañía de Inversiones de Energía S.A. (“CIESA”) on April 22, 1997 (the “CIESA Bonds”), other liabilities of CIESA arising from two derivatives transactions (together with the CIESA Bonds, the “CIESA Liabilities) and the rights over certain lawsuits related to the CIESA Bonds. The CIESA Bonds have been in default since a missed principal repayment due on April 22, 2002. Pampa acquired the capital stock of Inversiones Argentina I for U.S. $136 million, while the assets of such company, including the CIESA Bonds and accrued and unpaid interest, had a total value of approximately U.S. $322 million. CIESA is the controlling company of Transportadora de Gas del Sur (“TGS”). TGS is a leading gas transportation company in Argentina. TGS is also one of the leading natural gas liquid producers and traders, and an important provider of midstream services, including business structuring, turnkey construction and operation and maintenance of facilities used for gas storage, conditioning and transportation. On April 8, 2011, we acquired, directly and indirectly 100% of the capital stock of Enron Pipeline Company Argentina S.A., which owns 10% of the capital stock of CIESA, which in turn owns 55.3% of the share capital of TGS, for a total price of U.S. $29.0 million. In connection with the acquisition of the CIESA Bonds and the other assets related to CIESA described above, on April 28, 2011, the Company and its subsidiaries Inversiones Argentina I, Pampa Inversiones S.A. and Enron Pipeline Company Argentina S.A. entered into an “Acta Acuerdo” ( an agreement) with Petrobras Energía S.A., Petrobras Hispano S.A., and CIESA, pursuant to which the parties thereto agreed to (i) continue negotiating to reach an agreement to re-implement the restructuring of the CIESA Liabilities, (ii) cause CIESA to vote in favor of a dividend payment by TGS in an amount of approximately U.S.$239 million (the “TGS Dividend”), which was declared by the shareholders’ meeting of TGS on April 29, 2011 and (iii) to set up a trust to hold CIESA’s pro rata portion of the TGS Dividend which, to the extent the restructuring of the CIESA Liabilities is completed will be distributed as follows: (x) an amount equal to 4.3% of the TGS Dividend will be distributed to the Company (or its designee) and (y) the remainder, net of CIESA operating expenses for fiscal year 2011, to the shareholders of CIESA following the restructuring of the CIESA Liabilities pro rata to their respective holding in CIESA. To the extent the restructuring of the CIESA Liabilities is not achieved as agreed by the parties to the Acta Acuerdo, the pro rata portion of the TGS Dividend held in trust shall be distributed to CIESA. On May 10, 2011, we entered into a Memorandum of Understanding (the “MOU”) with Inversiones Argentina I, Pampa Inversiones S.A., Petrobras Energía S.A., Petrobras Hispano Argentina S.A. and CIESA, in which the parties to the MOU agreed: (i) to suspend ,until May 10, 2012, the action captioned “Compañía de Inversiones de Energía S.A. v. AEI, AEI v. Compañía de Inversiones de Energía S.A., Petrobras Energía S.A., Petrobras Hispano Argentina S.A., Héctor Daniel Casal, Claudio Fontes Nunes and Rigoberto Mejía Aravena” (the “CIESA Action”), pending before the Supreme Court of the State of New York (Index No. 600245/09E), and to make best efforts to re-implement (x) the financial restructuring set forth in the Restructuring Agreement executed on September 1, 2005 between CIESA, Petrobras Energía S.A., Petrobras Hispano Argentina S.A., Enron Pipeline Company Argentina S.A., ABN AMRO Bank N.V. Sucursal Argentina (acting in its capacity as trustee) and the financial creditors of CIESA, as amended from time to time (the “Restructuring Agreement”), regarding the CIESA Bonds and (y) two derivative transactions originally executed between CIESA and J. Aron & Company on August 3, 2000, and between CIESA and Morgan Guaranty Trust Company of New York on August 4, 2000. Following the execution of the MOU we have become a party to the Restructuring Agreement. The foregoing is subject to obtaining thenecessary governmental approvals to implement the Restructuring Agreement; and (ii) subject to obtaining the necessary governmental approvals, to timely withdraw all the claims and actions relating to the CIESA Action. 2






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On May 17, 2011, the parties to the Restructuring Agreement, including the Company, entered into a Fourth Amendment to the Restructuring Agreement pursuant to which they have agreed on the terms and conditions upon which the restructuring will be consummated. If the restructuring is achieved through the Restructuring Agreement’s implementation, the Company and/or its subsidiaries (as financial creditor of CIESA) would obtain, on the one hand, direct and indirect ownership over 50% of CIESA’s equity, which in turn would control 51% of TGS, and on the other hand, a direct 4.3% stake in TGS. The implementation of the restructuring is currently subject to the approval of the National Gas Regulating Body, or ENARGAS, and the Argentine Antitrust Commission. In addition, pursuant to an irrevocable and exclusive option offer it received on January 19, 2011, from GEB Corp. on March 11, 2011, the Company purchased an option for U.S. $ 1.0 million, exercisable at any time during a period of 18 months thereafter, to acquire either the rights over the lawsuit initiated by Ponderosa Assets L.P. and Enron Creditors Recovery Corp. against the Republic of Argentina before the International Centre for Settlement of Investment Disputes of the World Bank (the “ICSID Claim”) or, at the Company’s option, all of the issued and outstanding capital stock of Inversiones Argentina I, the entity that currently has beneficial ownership in respect of the ICSID Claim. As of the date of this annual report, we have not exercised this option. Proportionate consolidation of certain subsidiaries In accordance with the procedure set forth in Technical Resolution No. 21 of theFederación Argentina de Consejos Profesionales de Ciencias Económicas(the Argentine Federation of the Councils in Economic Science, or FACPCE), we have consolidated our financial statements line by line on a proportional basis with the companies over which we exercise joint control. In the consolidation of companies over which we exercise joint control, the amount of our investment in these companies and our interest in their net income (loss) are replaced by our proportional interest in the subsidiaries’ assets, liabilities and income (loss) and cash flows. In addition, receivables, payables and transactions between the consolidated group and companies under joint control are eliminated on a pro rata basis pursuant to our ownership share in these companies. As of December 31, 2008, we owned a co-controlling interest in Citelec and in Inversora Ingentis S.A. (Inversora Ingentis). As of December 31, 2010 and 2009, we maintained our co-controlling interest in Citelec, whereas we have fully consolidated Inversora Ingentis, as we acquired all of the remaining shares of Inversora Ingentis in January 2009. Under U.S. GAAP, we would be required to account for Citelec under the equity method, which means that, after eliminating intercompany transactions, we would generally present our share of the net income of this company on a single line of our income statement and our share of the shareholders’ equity of this company on a single line of our balance sheet. Although this difference in presentation would not affect our net income or shareholders’ equity, we would present lower revenues, operating income and cash flows if we accounted for this company under the equity method. Under U.S. GAAP, we would be required to consolidate Inversora Ingentis in 2008, which means that, after eliminating intercompany transactions, we would recognize in full its assets and liabilities, revenues and expenses with a counterpart in a minority interest line. Although this difference in presentation would not affect our net income or shareholders’ equity, we would present higher revenues, operating income and cash flows if we consolidate this company. See Note 20 to our audited consolidated financial statements included elsewhere in this annual report. Accounting for inflation In 2002, Argentina experienced a high rate of inflation and the wholesale price index increased approximately 118%. Before February 28, 2003, in accordance with Executive Decree No. 1269/2002 and Resolution No. 415/2002 of the CNV, we prepared our financial statements in conformity with the disclosure and valuation accounting principles of the FACPCE, which include a requirement to provide a restatement to constant Pesos as set forth in Technical Resolution No. 6. On March 25, 2003, Decree No. 664/2003 rescinded the requirement that financial statements be prepared in constant currency, effective for financial periods on or after March 1, 2003. As a result, we are not required to restate and have not restated our financial statements for inflation. Therefore, our results of operations and financial condition may not be directly comparable from period to period. See Note 2 to our consolidated financial statements, included elsewhere in this annual report. 3






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Rounding Certain figures included in this annual report (including percentage amounts) have been subject to rounding adjustments. Accordingly, figures shown as totals may not sum. Exchange Rate In this annual report, except as otherwise specified, references to “U.S. $” and “Dollars” are to U.S. Dollars, and references to “Ps.” and “Pesos” are to Argentine Pesos. Solely for the convenience of the reader, we have converted certain amounts included in “Item 3. Key Information” and elsewhere in this annual report from Pesos into U.S. Dollars using for the information provided as of December 31, 2010, the seller exchange rate reported by the Banco de la Nación Argentina, or Banco Nación, as of December 31, 2010 of U.S. $1.00 = Ps. 3.976, unless otherwise indicated. These conversions should not be considered representations that any such amounts have been, could have been or could be converted into U.S. Dollars at that or at any other exchange rate. The Federal Reserve Bank of New York does not report a noon buying rate for Pesos. For more information regarding historical exchange rates, see “Item 3. Key Information—Exchange Rates and Controls.” FORWARD-LOOKING STATEMENTS This annual report contains estimates and forward-looking statements, principally in “Item 3. Key Information—Risk Factors,” “Item 4. Information on the Company—Our Business” and “Item 5. Operating and Financial Review and Prospects.” Some of the matters discussed concerning our business operations and financial performance include estimates and forward-looking statements within the meaning of the U.S. Securities Act of 1933, as amended (the Securities Act) and the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act). Our estimates and forward-looking statements are mainly based on our current expectations and estimates on future events and trends that affect or may affect our businesses and results of operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. Our estimates and forward-looking statements may be influenced by the following factors, among others: our ability to arrange financing and implement our expansion plans;the outcome and timing of the tariff renegotiation process of our transmission and distribution businesses and uncertainties relating to future government approvals to increase or adjust such tariffs;changes in the laws and regulations applicable to the energy and electricity sectors in Argentina;government interventions, resulting in changes in the economy, taxes, tariffs or regulatory framework, or in the delay or withholding of governmental approvals;general economic, social and political conditions in Argentina, and other regions where we or our subsidiaries operate, such as the rate of economic growth, fluctuations in exchange rates of the Peso or inflation;competition in the electricity, public utility services and related industries;deterioration in regional and national business and economic conditions in Argentina; andother risks factors discussed under “Item 3. Key Information—Risk Factors.” The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and we undertake no obligation to update or to renew any estimates and/or forward-looking statements because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this annual report might not occur and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, inclusive, but not limited to, the factors mentioned above. 4






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PART I Item 1. Identity of Directors, Senior Management and Advisors Not applicable. Item 2. Offer Statistics and Expected Timetable Not applicable. Item 3. Key Information SELECTED FINANCIAL DATA This annual report contains our audited financial statements as of December 31, 2010 and 2009 and for the fiscal years ended December 31, 2010, 2009 and 2008. See “Presentation of Information—Financial Information.” You should read the selected financial data in conjunction with our financial statements and related notes included elsewhere in this annual report. The financial data as of December 31, 2010 and 2009 and for the fiscal years ended December 31, 2010, 2009 and 2008 are derived from our audited consolidated financial statements included elsewhere in this annual report which have been audited by Price Waterhouse & Co. S.R.L., member firm of PricewaterhouseCoopers. The financial data as of December 31, 2007 and 2006 and as of June 30, 2006 are derived from our audited consolidated financial statements that are not included in this annual report, which were audited by Price Waterhouse & Co. S.R.L., member firm of PricewaterhouseCoopers. Our audited consolidated financial statements have been prepared in accordance with Argentine GAAP, which differs in certain significant respects from U.S. GAAP. Note 20 to our audited consolidated financial statements included elsewhere in this annual report provides a description of the significant differences between Argentine GAAP and U.S. GAAP, as they relate to us, and a reconciliation to U.S. GAAP of net (loss) income and shareholders’ equity for the fiscal years ended December 31, 2010, 2009 and 2008 and as of December 31, 2010 and 2009, respectively. In October 2006, we elected to change our fiscal year end from June 30 to a new fiscal year end on December 31 of each succeeding year. As a result, we present a six-month transition period ended on December 31, 2006, and thereafter our full fiscal years end on December 31 of each succeeding year. We acquired our principal generation, transmission and distribution assets during 2006 and 2007. Before these acquisitions, we did not have any operations or engage in any activities, as our former business activities, which were limited to the ownership and operation of a cold storage warehouse building, were suspended in 2003. Accordingly, prior to the second half of 2006, we have no relevant operating history, comparable financial statements or business track record that might constitute a basis for comparing or evaluating the performance of our operations or business prospects following our recent acquisitions. Consequently, our results of operations are not necessarily comparable between periods, and are not likely to be indicative of our results of operations in future periods. See “Presentation of Information—Financial Information—Recent acquisitions.” 5








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As of December 31,
     
     As of June 30,2010
     
     2010
     
     2009
     
     2008
     
     2007
     
     2006
     
     2006(U.S. Dollars)(1)
     
     (Pesos)
     
     (Pesos)
     
     (Pesos)
     
     (Pesos)
     
     (Pesos)
     
     (Pesos)(in thousands, except per share and ADS amounts)BALANCE SHEET DATAArgentine GAAP:Current assets:Cash and banks
     
     U.S.$  52,759
     
     Ps. 208,715
     
     Ps.  158,043
     
     Ps.  121,685
     
     Ps.  187,237
     
     Ps. 23,143
     
     Ps. 3,602Investments
     
     243,058
     
     961,539
     
     467,697
     
     501,161
     
     635,595
     
     182,671
     
     31,671Trade and other receivables
     
     282,023
     
     1,115,684
     
     861,693
     
     963,741
     
     663,202
     
     106,639
     
     1,096Inventories
     
     7,502
     
     29,679
     
     44,978
     
     44,874
     
     59,811
     
     3,009
     
     3,009Other assets
     
     32,379
     
     128,092
     
     138,591
     
     163
     
     43
     
     43
     
     —Total current assets
     
     617,722
     
     2,443,709
     
     1,671,002
     
     1,631,624
     
     1,545,888
     
     315,505
     
     39,378Non-current assets:Trade and other receivables
     
     122,275
     
     483,719
     
     448,724
     
     411,921
     
     404,960
     
     89,753
     
     6,235Investments
     
     122
     
     482
     
     170,674
     
     504,008
     
     114,953
     
     67
     
     92,365Inventories
     
     162
     
     639
     
     1,144
     
     20,403
     
     25,279
     
     9,330
     
     9,529Other assets,net
     
     22,823
     
     90,286
     
     113,019
     
     135,751
     
     158,483
     
     188,214
     
     6,999Fixed assets
     
     1,659,041
     
     6,563,166
     
     6,291,155
     
     5,504,672
     
     5,173,198
     
     776,298
     
     61Intangible assets
     
     67,797
     
     268,206
     
     297,565
     
     317,118
     
     338,349
     
     330,661
     
     3Goodwill
     
     144,768
     
     572,704
     
     569,252
     
     612,681
     
     642,122
     
     (11,763)
     
     —Total non-current assets
     
     2,016,987
     
     7,979,202
     
     7,891,533
     
     7,506,554
     
     6,857,345
     
     1,382,560
     
     115,192Total assets
     
     2,634,710
     
     10,422,911
     
     9,562,535
     
     9,138,178
     
     8,403,233
     
     1,698,064
     
     154,570Current liabilities:Accounts payable
     
     164,575
     
     651,058
     
     506,807
     
     579,635
     
     552,813
     
     60,623
     
     2,649Financial debt
     
     168,933
     
     668,300
     
     412,463
     
     167,033
     
     53,634
     
     6,496
     
     —Salaries and social security payable
     
     59,946
     
     237,145
     
     165,486
     
     128,469
     
     80,467
     
     10,277
     
     167Taxes payable
     
     43,300
     
     171,296
     
     203,170
     
     153,216
     
     127,068
     
     23,998
     
     7,052Other liabilities and provisions
     
     28,155
     
     111,381
     
     140,347
     
     139,467
     
     178,300
     
     1,024
     
     —Total current liabilities
     
     464,909
     
     1,839,180
     
     1,428,273
     
     1,167,820
     
     992,283
     
     102,418
     
     9,868Non-current liabilities:Accounts payable
     
     19,739
     
     78,086
     
     80,625
     
     78,275
     
     79,993
     
     50,798
     
     —Financial debt
     
     504,189
     
     1,994,572
     
     1,703,992
     
     2,031,001
     
     1,646,109
     
     358,953
     
     —Salaries and social security payable
     
     17,862
     
     70,661
     
     56,691
     
     52,228
     
     29,946
     
     -
     
     —Taxes payable
     
     145,493
     
     575,570
     
     578,815
     
     599,180
     
     573,395
     
     146,105
     
     —Other liabilities and provisions
     
     251,880
     
     996,437
     
     649,037
     
     384,608
     
     332,858
     
     49,080
     
     —Total non-current liabilities
     
     939,162
     
     3,715,326
     
     3,069,160
     
     3,145,292
     
     2,662,301
     
     604,936
     
     —Total liabilities
     
     1,404,071
     
     5,554,506
     
     4,497,433
     
     4,313,112
     
     3,654,584
     
     707,353
     
     9,868Minority interest
     
     401,277
     
     1,587,453
     
     1,728,422
     
     1,613,784
     
     1,526,512
     
     490,710
     
     -Total shareholders equity
     
     U.S.$ 829,361
     
     Ps.  3,280,951
     
     Ps.  3,336,678
     
     Ps.  3,211,282
     
     Ps.  3,222,138
     
     Ps. 500,001
     
     Ps. 144,702U.S. GAAP:Total current assets
     
     U.S.$  592,192
     
     Ps.  2,342,713
     
     Ps. 1,632,907
     
     Ps. 1,645,599Total non-current assets
     
     2,086,923
     
     8,255,869
     
     8,166,612
     
     7,760,966Total assets
     
     2,679,116
     
     10,598,582
     
     9,799,519
     
     9,406,565Total current liabilities
     
     465,006
     
     1,839,565
     
     1,428,297
     
     1,183,847Total non-current liabilities
     
     1,003,584
     
     3,970,177
     
     3,319,885
     
     3,343,425Total liabilities
     
     1,468,590
     
     5,809,742
     
     4,748,182
     
     4,527,272Pampa Energía S.A. shareholders' equity
     
     836,018
     
     3,307,288
     
     3,394,237
     
     3,313,970Noncontrolling interest
     
     374,508
     
     1,481,552
     
     1,657,100
     
     1,565,323Total equity
     
     U.S.$  1,210,526
     
     Ps.  4,788,840
     
     Ps.  5,051,337
     
     Ps.  4,879,293


(1) Solely for the convenience of the reader, Peso amounts as of December 31, 2010 have been translated into U.S. Dollars at the average rate for U.S. Dollars quoted by Banco Nación on December 31, 2010 of Ps. 3.96 to U.S. $1.00.  The U.S. Dollar equivalent information should not be construed to imply that the Peso amounts represent, or could have been or could be converted into, U.S. Dollars at such rates or any other rate. 6




Table of Contents  Six-month transition period ended Dec 31,Fiscal year ended
     
     
     Fiscal year endedDecember 31,
     
     
     June 30,2010
     
     2010
     
     2009
     
     2008
     
     2007
     
     2006
     
     2006(U.S. Dollars)(2)
     
     (Pesos)
     
     (Pesos)
     
     (Pesos)
     
     (Pesos)
     
     (Pesos)
     
     (Pesos)(in thousands, except per share and ADS amounts)STATEMENT OF OPERATION DATAArgentine GAAP:Net sales
     
     U.S.$ 1,230,264
     
     Ps.  4,866,925
     
     Ps. 4,093,440
     
     Ps. 4,013,876
     
     Ps. 1,479,227
     
     Ps. 127,687
     
     Ps. 1,221Cost of sales
     
     (1,008,081)
     
     (3,987,968)
     
     (3,192,146)
     
     (3,082,404)
     
     (1,104,039)
     
     (79,592)
     
     (727)Gross profit
     
     222,183
     
     878,957
     
     901,294
     
     931,472
     
     375,188
     
     48,094
     
     494Selling expenses
     
     (53,095)
     
     (210,044)
     
     (154,663)
     
     (139,652)
     
     (45,750)
     
     (975)
     
     (745)Administrative expenses
     
     (92,729)
     
     (366,836)
     
     (302,749)
     
     (235,382)
     
     (117,273)
     
     (16,489)
     
     (3,044)Reversal of other assets valuation allowance
     
     —
     
     —
     
     —
     
     —
     
     —
     
     —
     
     722Goodwill amortization
     
     (5,047)
     
     (19,964)
     
     (20,005)
     
     (19,839)
     
     (7,363)
     
     270
     
     —Operating income (loss)
     
     71,313
     
     282,113
     
     423,877
     
     536,599
     
     204,801
     
     30,901
     
     (2,573)Financial and holding results, net
     
     (63,341)
     
     (250,578)
     
     48,384
     
     (208,064)
     
     56,635
     
     (17,728)
     
     4,485Other (expenses) income, net
     
     1,556
     
     6,157
     
     (2,010)
     
     (23,194)
     
     23,033
     
     92
     
     -Income before taxes and minority interest
     
     9,528
     
     37,692
     
     470,251
     
     305,341
     
     284,470
     
     13,264
     
     1,913Income tax and tax on asset (expense) benefit
     
     (18,777)
     
     (74,281)
     
     (160,202)
     
     (108,841)
     
     (36,265)
     
     (1,831)
     
     2,501Minority interest
     
     (2,521)
     
     (9,974)
     
     (95,311)
     
     (81,478)
     
     (62,152)
     
     (4,076)
     
     —Net (loss) income
     
     (11,770)
     
     (46,563)
     
     214,738
     
     115,022
     
     186,052
     
     7,357
     
     4,413Basic net (loss) earnings per share
     
     (0.0089)
     
     (0.0354)
     
     0.1544
     
     0.0765
     
     0.1688
     
     0.0237
     
     0.1191Diluted net (loss) earnings per share
     
     (0.0080)
     
     (0.0315)
     
     0.1453
     
     0.0747
     
     0.1568
     
     0.0225
     
     0.1191Dividends per share(2)
     
     0.0035
     
     0.0138
     
     0.0132
     
     0.0122
     
     0.0166
     
     —
     
     —Basic net (loss) earnings per ADS(3)
     
     (0.0004)
     
     (0.0014)
     
     0.0062
     
     0.0031
     
     0.0068
     
     0.0009
     
     0.0048Diluted net (loss) earnings per ADS(3)
     
     (0.0003)
     
     (0.0013)
     
     0.0058
     
     0.0030
     
     0.0063
     
     0.0009
     
     0.0048Dividends per ADS(2) (3)
     
     0.0001
     
     0.0006
     
     0.0005
     
     0.0005
     
     0.0007
     
     —
     
     —Weighted average number of shares outstanding
     
     1,314,310,895
     
     1,314,310,895
     
     1,390,409,146
     
     1,504,249,410
     
     1,102,364,398
     
     310,673,913
     
     37,054,996U.S.GAAP:Net sales
     
     U.S.$ 1,247,783
     
     Ps.  4,936,231
     
     Ps. 4,176,278
     
     Ps. 4,045,733
     
     Ps. 1,471,054Gross profit
     
     214,481
     
     848,486
     
     867,339
     
     859,507
     
     360,667Operating income
     
     68,679
     
     271,694
     
     292,716
     
     370,343
     
     149,216Financial and holding results, net
     
     (80,499)
     
     (318,456)
     
     (8,183)
     
     (80,093)
     
     56,340Income (loss) before taxes and noncontrolling interest
     
     (7,072)
     
     (27,978)
     
     282,523
     
     273,473
     
     214,104Income tax and tax on assets
     
     (15,064)
     
     (59,592)
     
     (119,535)
     
     (114,188)
     
     (35,531)Net (loss) income
     
     (22,136)
     
     (87,570)
     
     162,988
     
     159,285
     
     178,573Net income attributable to noncontrolling interest
     
     (1,352)
     
     (5,348)
     
     (80,769)
     
     (90,466)
     
     (52,725)Net (loss) income attributable to Pampa Energía S.A.
     
     (23,488)
     
     (92,919)
     
     82,219
     
     68,819
     
     125,849Basic net (loss) earnings per share
     
     (0.0179)
     
     (0.0707)
     
     0.0591
     
     0.0457
     
     0.1142Diluted net (loss) earnings per share
     
     (0.0159)
     
     (0.0628)
     
     0.0556
     
     0.0447
     
     0.1060Basic net (loss) earnings per ADS(3)
     
     (0.0007)
     
     (0.0028)
     
     0.0024
     
     0.0018
     
     0.0046Diluted net (loss) earnings per ADS(3)
     
     USD (0.0006)
     
     Ps.  (0.0025)
     
     Ps.  0.0022
     
     Ps.  0.0018
     
     Ps.  0.0042CASH FLOW DATANet cash flow provided by (used in) operating activities
     
     U.S.$  166,892
     
     Ps. 660,224
     
     Ps.  918,594
     
     Ps.  748,177
     
     Ps.  319,569
     
     Ps. 89,658
     
     Ps. (14,623)Net cash flow used in investing activities
     
     (130,076)
     
     (514,580)
     
     (549,151)
     
     (1,371,267)
     
     (877,752)
     
     (311,286)
     
     (115,887)Net cash flow provided by (used in) financing activities
     
     U.S.$  82,711
     
     Ps. 327,203
     
     Ps.  (328,802)
     
     Ps.  297,084
     
     Ps. 1,201,844
     
     Ps. 291,058
     
     Ps. 138,630




(1)
     Solely for the convenience of the reader, Peso amounts for the year ended December 31, 2010 have been translated into U.S. Dollars atthe average buy/sell rate for U.S. Dollars quoted by Banco Nación on December 31, 2010 of Ps. 3.96 to U.S. $1.00. The U.S. Dollarequivalent information should not be construed to imply that the Peso amounts represent, or could have been or could be converted into,U.S. Dollars at such rates or any other rate.(2)
     In the years 2010, 2009 and 2008, we declared advance dividends of Ps. 18.1 million, Ps. 18.3 million and Ps. 18.3 million, respectively,an amount sufficient to cover the Argentine personal asset tax obligations of certain of our shareholders. In each of March 2011, March2010 and March 2009 we paid those dividends and withheld the corresponding amount of personal asset tax from those shareholders whowere subject to the personal asset tax. See “Item 8. Financial Information—Dividends” and “Item 10. Additional Information—Taxation.”(3)
     Each ADS represents 25 common shares.
  7






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EXCHANGE RATES Exchange Rates The following table sets forth the annual high, low, average and period-end exchange rates for the periods indicated, expressed in Pesos per U.S. Dollar and not adjusted for inflation. There can be no assurance that the Peso will not depreciate or appreciate again in the future. The Federal Reserve Bank of New York does not report a noon buying rate for Pesos. Exchange rates(1)(in Pesos per US Dollars)High
     Low
     Average(2)
     Period endYear ended December 31,2006
     
     3.107
     3.030
     3.075
     3.0622007
     
     3.180
     3.058
     3.116
     3.1492008
     
     3.468
     3.014
     3.163
     3.4532009
     
     3.854
     3.449
     3.730
     3.8002010
     
     3.988
     3.794
     3.913
     3.976Monthjaneiro 2011
     
     4.008
     3.972
     3.983
     4.008fevereiro 2011
     
     4.030
     4.009
     4.022
     4.030março 2011
     
     4.054
     4.028
     4.037
     4.054abril 2011
     
     4.085
     4.050
     4.066
     4.080maio 2011
     
     4.090
     4.078
     4.084
     4.090June 2011(3)
     
     4.099
     4.089
     4.093
     4.099
  (1)
     Source:Banco Nación.(2)
     Average of daily closing quotes.(3)
     Represents the corresponding exchange rates from June 1 through June 22, 2011.
  In the future, any cash dividends we pay will be in Pesos, and exchange rate fluctuations affect the U.S. Dollar amounts received by holders of American Depositary Shares (ADSs), on conversion by us or by the depositary of cash dividends on the shares represented by such ADSs. Fluctuations in the exchange rate between the Peso and the U.S. Dollar will affect the U.S. Dollar equivalent of the Peso price of our shares on theBolsa de Comercio de Buenos Aires(Buenos Aires Stock Exchange) and, as a result, can also affect the market price of the ADSs. 8






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RISK FACTORS Risks Related to Argentina General We are a stock corporation (sociedad anónima) incorporated under the laws of the Republic of Argentina and substantially all of our revenues are earned in Argentina and substantially all of our operations, facilities, and customers are located in Argentina. Accordingly, our financial condition and results of operations depend to a significant extent on macroeconomic and political conditions prevailing in Argentina. For example, lower economic growth or economic recession could lead to lower demand for electricity in the service areas in which our subsidiaries operate or a decline in purchasing power of our customers, which, in turn, could lead to lower collections from our clients or growth in energy losses due to illegal use of the services provided by our power generation, transmission and distribution businesses. Argentine government actions concerning the economy, including decisions with respect to inflation, interest rates, price controls, foreign exchange controls and taxes, have had and could continue to have a material adverse effect on private sector entities, including us. We cannot provide any assurance that future economic, social and political developments in Argentina, such as the upcoming congressional and presidential elections, over which we have no control, will not impair our businesses, financial condition, or results of operations or cause the market value of our ADSs to decline. The global financial crisis and unfavorable credit and market conditions that commenced in 2007 may negatively affect our liquidity, customers, business, and results of operations. The ongoing effects of the global credit crisis and related turmoil in the global financial system may have a negative impact on our business, financial condition and results of operations, an impact that is likely to be more severe on an emerging market economy, such as Argentina. The effect of this economic crisis on our customers and on us cannot be predicted. Weak economic conditions could lead to reduced demand or lower prices for energy, which could have a negative effect on our revenues. Economic factors such as unemployment, inflation levels and the availability of credit could also have a material adverse effect on demand for energy and therefore on our financial condition and operating results. The financial and economic situation may also have a negative impact on third parties with whom we do, or may do, business. In addition, our ability to access the credit or capital markets may be restricted at a time when we would need financing, which could have an impact on our flexibility to react to changing economic and business conditions. For these reasons, any of the foregoing factors or a combination of these factors could have an adverse effect on our results of operations and financial condition and cause the market value of our ADSs to decline. Argentina’s economic recovery since the 2001 economic crisis may not be sustainable in light of current economic conditions, and any significant decline could adversely affect our financial condition During 2001 and 2002, Argentina went through a period of severe political, economic and social crisis. Although the economy has recovered significantly since the 2001 crisis, uncertainty remains as to the sustainability of economic growth and stability. After the slowdown in Argentina’s economy in 2009, which started in the last quarter of 2008 and continued into much of 2009 (impacted by the largest global crisis in decades and negative domestic factors), 2010 experienced a growth of about 9.2%, according to official public estimates. However, uncertainty about the sustainability of this growth rate remains. Sustainable economic growth is dependent on a variety of factors, including international demand for Argentine exports, the stability and competitiveness of the Peso against foreign currencies, confidence among consumers and foreign and domestic investors and a stable and relatively low rate of inflation. The Argentine economy remains fragile, as reflected by the following economic conditions: unemployment remains high;the availability of long-term credit is scarce;investment as a percentage of GDP remains too low to sustain the growth rate of recent years; 9






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the Argentine government’s fiscal surplus shows a steady decline with risk of becoming a fiscal deficit in the near term;Argentina’s public debt remains high and international financing is limited;inflation has accelerated recently and may rise to levels that threaten economic stability;the regulatory environment continues to be uncertain;the recovery has depended to some extent on high commodity prices which, despite having a favorable long-term trend, are volatile in the short term and beyond the control of the Argentine government; andthe trade surplus (and the fiscal surplus to a lesser extent) depends largely on the production of grains and soybeans, such that the risk is magnified by the possibility of a new major drought affecting the crop (as in the 2008-2009 campaign). As in the recent past, Argentina’s economy may suffer if political and social pressures inhibit the implementation by the Argentine government of policies designed to maintain price stability, generate growth and enhance consumer and investor confidence. This, in turn, could lead to lower demand for the services provided by our subsidiaries as well as lower collection rates from clients and growth in energy losses due to illegal use of the services provided by our businesses, which could materially adversely affect our financial condition and results of operations. Furthermore, as it has done in the past, the Argentine government could respond to a lack of economic growth or stability by adopting measures that affect private sector enterprises, including the tariff restrictions imposed on public utility companies such as several of our subsidiaries. We cannot provide any assurance that a decline in economic growth or increased economic instability, developments over which we have no control, would not have an adverse effect on our business, financial condition or results of operations or would not have a negative impact on the market value of our ADSs. The continuing rise in inflation may have adverse effects on the Argentine economy, which could, in turn, have a material adverse effect on our results of operations According to data published by the National Statistics and Census Institute (Instituto Nacional de Estadística y Censos, or INDEC), the rate of inflation reached 10.9% in 2010, 7.7% in 2009 and 7.2% in 2008. Over the course of the past several years, the Argentine government has implemented several programs to control inflation and monitor prices for most relevant goods and services. These government actions included price support arrangements agreed to by the Argentine government and private sector companies in several industries and markets. Uncertainty surrounding future inflation and the current economic situation could slow economic recovery. In the past, inflation has materially undermined the Argentine economy and the government’s ability to create conditions that permit growth. A return to a high inflation environment would also undermine Argentina’s foreign competitiveness by diluting the effects of the Peso devaluation, with the same negative effects on the level of economic activity. In turn, a portion of the Argentine debt is adjusted by the Stabilization Coefficient (Coeficiente de Estabilización de Referencia, or CER Index), a currency index, that is strongly related to inflation. Therefore, any significant increase in inflation would cause an increase in the external debt and consequently in Argentina’s financial obligations, which could further exacerbate the stress on the Argentine economy. A high inflation environment could also temporarily undermine our results of operations as a result of a lag in cost adjustments, and we may be unable to adjust our tariffs accordingly. In addition, a return to high inflation would undermine the confidence in Argentina’s banking system in general, which would further limit the availability of domestic and international credit to businesses, which could adversely affect our ability to finance the working capital needs of our businesses on favorable terms, and adversely affect our results of operations and cause the market value of our ADSs to decline. 10






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The credibility of several Argentine economic indices has been called into question, which may lead to a lack of confidence in the Argentine economy and may in turn limit our ability to access the credit and capital markets In January 2007, INDEC modified its methodology used to calculate the consumer price index (CPI), which is calculated as the monthly average of a weighted basket of consumer goods and services that reflects the pattern of consumption of Argentine households. Further, at the time that INDEC adopted this change in methodology, the Argentine government also replaced several key personnel at INDEC. The alleged governmental interference prompted complaints from the technical staff at INDEC, which, in turn, has led to the initiation of several judicial investigations involving members of the Argentine government and aimed at determining whether there was a breach of classified statistical information relating to the collection of data used in the calculation of the CPI. These events have affected the credibility of the CPI index published by INDEC, as well as other indexes published by INDEC that require the CPI for their own calculation, including the poverty index, the unemployment index as well as the calculation of the GDP, among others. If these investigations result in a finding that the methodologies used to calculate the CPI or other INDEC indexes derived from the CPI were manipulated by the Argentine government, or if it is determined that it is necessary to correct the CPI and the other INDEC indexes derived from the CPI as a result of the methodology used by INDEC, there could be a significant decrease in confidence in the Argentine economy. With credit to emerging market nations already tenuous as a result of the global economic crisis, our ability to access credit and capital markets to finance our operations and growth in the future could be further limited by the uncertainty relating to the accuracy of the economic indices in question which could adversely affect our results of operations and financial conditions and cause the market value of our ADSs and common shares to decline. Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth, and consequently, may affect our business, results of operations and prospects for growth In 2005, Argentina restructured part of its sovereign debt that had been in default since the end of 2001. The Argentine government announced that as a result of this restructuring, it had approximately U.S. $129.2 billion in total gross public debt as of December 31, 2005. Certain bondholders that did not participate in that restructuring, mainly from the United States, Italy and Germany, have filed legal actions against Argentina to collect on the defaulted bonds. Many of these proceedings are still pending as of this date and holdout creditors may initiate new suits in the future. On January 3, 2006, Argentina repaid in full its debt of approximately U.S. $9.8 billion with the International Monetary Fund. In September 2008, Argentina announced its intention to cancel its external public debt to Paris Club creditor nations using reserves of the Central Bank in an amount equal to approximately U.S. $6.5 billion. However, as of the date of this annual report, the National Government has not yet cancelled such debt. In late 2010, President Cristina Fernández de Kirchner announced a new round of negotiations with the Paris Club to cancel such debt, which then totaled approximately U.S. $8.0 billion, without the intervention of the IMF. As of the date of this annual report, the Minister of Economy and Public Finance, Amado Boudou, is carrying out the related negotiations and the terms of a final agreement are not yet known. If no agreement with the Paris Club creditor nations is reached, financing from multilateral financial institutions may be limited or not available, which could adversely affect economic growth in Argentina and Argentina’s public finances. 11






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Certain groups of holders that did not participate in the 2005 restructuring have filed claims against Argentina and it is possible that new claims will be filed in the future. In addition, foreign shareholders of several Argentine companies have filed claims before the ICSID (International Centre for Settlement of Investment Disputes) alleging that certain government measures adopted during the country’s 2001 crisis were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties to which Argentina is a party. Since May 2005, the ICSID tribunals have issued several awards against Argentina. Only the cases “CMS v. Argentina”, “Azurix v. Argentina” and “Vivendi v. Argentina” are currently firm, which decisions required that the Argentine government pay U.S. $133.2 million, U.S. $165.2 million and U.S. $105 million, respectively. As of the date of this annual report, Argentina has not yet paid the amounts referred to above. On April 30, 2010, Argentina launched a new debt exchange to holders of the securities issued in the 2005 debt exchange and to holders of the securities that were eligible to participate in the 2005 debt exchange (other than Brady bonds) to exchange such debt for new securities and, in certain cases, a cash payment. As a result of the 2005 and 2010 exchange offers, Argentina restructured over 91% of the defaulted debt eligible for the 2005 and 2010 exchange offers. The creditors who did not participate in the 2005 or 2010 exchange offers may continue with legal action against Argentina for the recovery of debt, which could adversely affect Argentina’s access to the international capital markets. Argentina’s past default and its failure to restructure completely its remaining sovereign debt and fully negotiate with the holdout creditors may limit Argentina’s ability to reenter the international capital markets. Litigation initiated by holdout creditors as well as ICSID claims have resulted and may continue to result in judgments and awards against the Argentine government which, if not paid, could prevent Argentina from obtaining credit from multilateral organizations. Judgment creditors have sought and may continue to seek to attach or enjoin assets of Argentina. In addition, various creditors have organized themselves into associations to engage in lobbying and public relations concerning Argentina’s default on its public indebtedness. Such groups have over the years unsuccessfully urged passage of federal and New York state legislation directed at Argentina’s defaulted debt and aimed at limiting Argentina’s access to the U.S. capital markets. Although neither the United States Congress nor the New York state legislature has taken any significant steps towards adopting such legislation, we can make no assurance that legislation or other political actions designed to limit Argentina’s access to capital markets will not take effect. As a result of Argentina’s default and the events that have followed it, the government may not have the financial resources necessary to implement reforms and foster economic growth, which, in turn, could have a material adverse effect on the country’s economy and, consequently, our businesses and results of operations. Furthermore, Argentina’s inability to obtain credit in international markets could have a direct impact on our own ability to access international credit markets to finance our operations and growth, which could adversely affect our results of operations and financial conditions and cause the market value of our ADSs and common shares to decline. Significant fluctuations in the value of the Peso against the U.S. Dollar may adversely affect the Argentine economy, which could, in turn adversely affect our results of operations Despite the positive effects the depreciation of the Peso in 2002 had on the export-oriented sectors of the Argentine economy, the depreciation has also had a far-reaching negative impact on a range of businesses and on individuals’ financial positions. The devaluation of the Peso had a negative impact on the ability of Argentine businesses to honor their foreign currency-denominated debt, led to very high inflation initially, significantly reduced real wages, had a negative impact on businesses whose success is dependent on domestic market demand, including public utilities and the financial industry, and adversely affected the government’s ability to honor its foreign debt obligations. If the Peso devalues significantly, all of the negative effects on the Argentine economy related to such devaluation could recur, with adverse consequences to our businesses, our results of operations and the market value of our ADSs. Moreover, it would likely result in a decline in the value of our shares and ADSs as measured in U.S. Dollars. Similarly, a substantial increase in the value of the Peso against the U.S. Dollar also presents risks for the Argentine economy, including, for example, a reduction in exports. This could have a negative effect on economic growth and employment and reduce the Argentine public sector’s revenues by reducing tax collection in real terms, all of which could have a material adverse effect on our business and the market value of our ADSs as a result of the weakening of the Argentine economy in general. 12






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Government measures to address social unrest may adversely affect the Argentine economy and thereby affect our business and results of operations. During the economic crisis in 2001 and 2002, Argentina experienced social and political turmoil, including civil unrest, riots, looting, nationwide protests, strikes and street demonstrations. Despite the economic recovery and relative stability since 2002, social and political tensions and high levels of poverty and unemployment continue. Future government policies to preempt, or respond to, social unrest may include expropriation, nationalization, forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights and shareholders’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims, and changes in laws, regulations and policies affecting foreign trade and investment. These policies could destabilize the country, both socially and politically, and adversely and materially affect the Argentine economy. In March 2008, the Argentine Ministry of Economy and Production announced the adoption of new taxes on exports of a number of agricultural products. The new taxes were to be calculated at incremental rates as the price for the exported products increase, and represented a significant increase in taxes on exports by the agricultural sector in Argentina. The adoption of these taxes met significant opposition from various political and economic groups with ties to the Argentine agricultural sector, including strikes by agricultural producers around the country, roadblocks to prevent the circulation of agricultural goods within Argentina and massive demonstrations in the City of Buenos Aires and other major Argentine cities. Although these measures did not pass the Argentine Congress, we cannot make assurances that the Argentine government will not seek to reintroduce the export taxes or adopt other measures affecting this or other sectors of the economy (including the electricity sector) to compensate for the lost revenues associated with these taxes. These uncertainties could lead to further social unrest that could adversely affect the Argentine economy. In addition, economic distress may lead to lower demand for energy, lower collections from our clients, as well as growth of energy losses due to illegal use of our services. We may also experience increased damages to our networks as a result of protesters or illicit activity, which may increase as a result of the decline in economic conditions, all of which, in turn may have a material adverse effect on our financial condition and results of operations and the market value of our shares and ADSs. Exchange controls and restrictions on transfers abroad and capital inflow restrictions have limited and can be expected to continue to limit the availability of international credit and could threaten the financial system and lead to renewed political and social tensions, adversely affecting the Argentine economy, and, as a result, our business In 2001 and the first half of 2002, Argentina experienced a massive withdrawal of deposits from the Argentine financial system in a short period of time, as depositors lost confidence in the Argentine government’s ability to repay its foreign debt and maintain the Convertibility regime. This precipitated a liquidity crisis within the Argentine financial system, which prompted the Argentine government to impose exchange controls and restrictions on the ability of depositors to withdraw their deposits. These restrictions have been substantially eased, including those requiring the Central Bank’s prior authorization for the transfer of funds abroad in order to pay principal and interest on debt obligations. However, Argentina may re-impose exchange controls, transfer restrictions or other measures in the future in response to capital flight or a significant depreciation of the Peso. In addition, the Argentine government adopted various rules and regulations in June 2005 that established new controls on capital inflows, requiring, among other things, that 30% of certain specified capital inflows (such as those destined for local money holdings and the acquisition of certain active or passive private sector financings) be deposited for one year in a non-assignable, non-interest bearing account in Argentina. See “—Exchange Rates and Controls.” In the event of a future shock, such as the failure of one or more banks or a crisis in depositor confidence, the Argentine government could impose further exchange controls or transfer restrictions and take other measures that could lead to renewed political and social tensions and undermine the Argentine government’s public finances, which could adversely affect Argentina’s economy and prospects for economic growth, which, in turn, could adversely affect our business and results of operations and the market value of our shares and ADSs. In addition, the Argentine government or the Central Bank may reenact certain restrictions on the transfers of funds abroad, impairing our ability to make dividend payments to holders of the ADSs, which may adversely affect the market value of our ADSs. As of the date of this annual report, however, the transfer of funds abroad to paydividends is permitted to the extent such dividend payments are made in connection with audited financial statements approved by a shareholders’ meeting. 13






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The Argentine economy could be adversely affected by economic developments in other global markets Financial and securities markets in Argentina are influenced, to varying degrees, by economic and market conditions in other global markets. Although economic conditions vary from country to country, investors’ perception of the events occurring in one country may substantially affect capital flows into and securities from issuers in other countries, including Argentina. The Argentine economy was adversely impacted by the political and economic events that occurred in several emerging economies in the 1990s, including Mexico in 1994, the collapse of several Asian economies between 1997 and 1998, the economic crisis in Russia in 1998 and the Brazilian devaluation of its currency in January 1999. In addition, Argentina continues to be affected by events in the economies of its major regional partners, including, for example, currency devaluations caused by the global economic crisis. Furthermore, the Argentine economy may be affected by events in developed economies which are trading partners or that impact the global economy. Economic conditions and credit availability in Argentina were affected by an economic and banking crisis originated in the United States in 2008 and 2009. When the crisis began, major financial institutions suffered considerable losses, investor confidence in the global financial system was shaken and various financial institutions required government bailouts or ceased operations altogether. Moreover, in recent years several European Union members have been obliged to reduce their public expenditures due to their high indebtedness rates, which has negatively impacted the Euro zone’s economy. After acknowledging difficulties to meet payment of its public debt, the accounts of Greece were put under the supervision of the European Union. Mainly due to fears of contagion and to the drastic decline in Greece’s public debt ratings, the European Union, together with the International Monetary Fund, designed a plan of aid for Greece involving the supply of approximately 110 billion Euros. This contribution was granted based on the adjustment plan approved by the European Union for Greece, which included pay cuts for civil servants, pensions and retirement reductions, and significant increases in taxes. This led to widespread rioting in the streets. Spain, Portugal, Germany and the UK similarly have made adjustments in all areas to prevent further deterioration of their accounts. More recently, Ireland has adopted similar measures. Notwithstanding these measures, it is unclear what consequences there would be in the global financial system if any of the major global financial institutions became insolvent, or what effects such a situation might have on the rest of the financial system. The current global economic condition may have significant long-term effects on Latin America and Argentina, mainly reflected in the lack of access to international credit, reduced demand for Argentine exports, and significant reductions in foreign direct investment. The realization of any or all of these risk factors, as well as events that may arise in the main regional partners, including members of Mercosur, could have a material adverse effect on the Argentine economy and, indirectly, on our business, financial condition and results of operations and the market value of our ADSs. Risks Relating to the Argentine Electricity Sector The Argentine government has intervened in the electricity sector in the past, and any further interventions may have a material adverse effect on our business and results of operations To address the Argentine economic crisis in 2001 and 2002, the Argentine government adopted a law that made a number of material changes to the regulatory framework applicable to the electricity sector (the Emergency Law). These changes, which severely affected electricity generation, distribution and transmission companies, included the freezing and “pesification” of tariffs, the revocation of adjustment and inflation indexation mechanisms, and the introduction of new price-setting mechanisms in the wholesale electricity market (“WEM”) which had a significant impact on electricity generators and has led to significant price mismatches between market participants. The Argentine government continues to intervene in this sector, including granting temporary margin increases, proposing a new social tariff regime for residents of poverty-stricken areas, creating specific charges to raise funds that are transferred to government-managed trust funds that finance investments in generation and distribution infrastructure (such as the Fondo de Inversiones Necesarias que Permitan Incrementar la Oferta de Energía Eléctrica en el Mercado Eléctrico Mayorista (Fund for Investments Required to Increase Electricity Supply in the Wholesale Electricity Market, or FONINVEMEM)) and imposing obligations on electricity companies to make certain investments in their respective areas. We cannot make assurances that these or other measures that may be adopted by the Argentine government will not have a material adverse effect on our business and results of operations or on the market value of our shares and ADSs or that the Argentine government will not adopt emergency legislation similar to the Emergency Law, or other similar resolutions, in the future that may further increase our regulatory obligations, including increased taxes, unfavorable alterations to our tariff structures and other regulatory obligations, compliance with which would increase our costs and have a direct negative impact on our results of operations and cause the market value of our ADSs to decline. 14






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Electricity distributors, generators and transmitters were adversely affected by the emergency measures adopted during the economic crisis of 2001 and 2002, many of which still remain in effect and have a severe negative impact on such businesses Distribution and transmission tariffs include a regulated margin that is intended to cover the costs of distribution or transmission, as applicable, and provide an adequate return. Generators, which mostly depend on the sales made to the spot market (the market set by supply and demand of energy available for immediate delivery), used to have stable prices and were able to reinvest their profits to become more efficient and achieve better margins. Under the Convertibility regime, distribution and transmission tariffs and electricity spot prices were denominated in U.S. Dollars and distribution and transmission margins were adjusted periodically to reflect variations in U.S. inflation indexes. Pursuant to the Emergency Law, in January 2002 the Argentine government froze all distribution and transmission margins, revoked all margin adjustment provisions in distribution and transmission concessions, converted distribution and transmission tariffs into Pesos at a rate of Ps. 1.00 per U.S. $1.00 and implemented price caps for sales of electricity to the spot market that in some cases were below costs of production. These measures, coupled with the effect of high inflation and the devaluation of the Peso, led to a decline in revenues in real terms and an increase of costs in real terms that could no longer be recovered through margin adjustments or market price-setting mechanisms. This situation, in turn, led companies in the sector to suspend payments on their financial debt (which continued to be denominated in U.S. Dollars), which effectively prevented these companies from obtaining further financing in the domestic or international credit markets. Although the Argentine government has recently granted temporary relief to certain companies in the electricity sector, including a temporary increase in transmission and distribution margins, the principal electricity companies are currently involved in discussions with the Argentine government on permanent measures needed to adapt the current regulatory framework to the current economic situation of the energy sector. We cannot assure you that these measures will be adopted or implemented or that, if adopted, they will be sufficient to address the structural problems created for our company by the policies adopted during the 2001 economic crisis and in its aftermath, including the negative impact on revenues created by the limitations we face in pricing as a result of the current tariff structure. Electricity demand has grown significantly in recent periods and may be affected by recent or future tariff increases, which could lead electricity companies, such as us, to record lower revenues During the 2001 economic crisis, electricity demand in Argentina decreased due to the decline in the overall level of economic activity and the deterioration in the ability of many consumers to pay their electricity bills. Despite the decline in electricity demand registered in 2009, in the years following the economic crisis of 2001, electricity demand has experienced significant growth, increasing an estimated average of approximately 5.1% per annum from 2003 through 2010. This increase in demand reflects renewed economic growth in Argentina and the relative low cost, in real terms, of electricity to consumers due to the freeze of margins and the elimination of the inflation adjustment provisions in distribution concessions coupled with the devaluation of the Peso and inflation. The executive branch of the Argentine government recently granted temporary increases in transmission and distribution margins, and transmission and distribution companies are currently negotiating further increases and adjustments to their tariff schemes with the Argentine government. Although the recent increases in electricity transmission and distribution margins, which increased the cost of electricity to residential customers, have not had a significant negative effect on demand, we cannot make any assurances that these increases or any future increases in the relative cost of electricity (including increases on tariffs for residential users) will not have a material adverse effect on electricity demand or a decline in collections from customers which, in turn, may lead electricity companies, such as us, to record lower revenues and results of operations than currently anticipated, and may have a material adverse effect on the market value of the ADSs. 15






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Risks Relating to our Company We operate a material portion of our business pursuant to public concessions granted by the Argentine government, the revocation or termination of which would have a material adverse effect on our business We conduct our hydroelectric generation, transmission and distribution businesses pursuant to public concessions granted by the Argentine government. These concessions contain several requirements regarding the operation of those businesses and compliance with laws and regulations. Compliance with our obligations under our concessions is typically secured by a pledge of our shares in the concessionaires in favor of the Argentine government. Accordingly, upon the occurrence of specified events of default under these concessions, the Argentine government would be entitled to foreclose on its pledge of the concessionaire and sell our shares in that concessionaire to a third party. Such sale would have a severe negative impact on our ability to operate a material portion of our business, and as a result, our results of operations would be materially adversely affected. Finally, our concessions also generally provide for termination in the case of insolvency or bankruptcy of the concessionaire. If any of our concessions are terminated or if the Argentine government forecloses its pledge over the shares we own in any of our concessionaire companies, such companies could not continue to operate as a going concern, and in turn our consolidated results of operations would be materially adversely affected and the market value of our shares and ADSs could decline. We employ a largely unionized labor force and could be subject to organized labor actions, including work stoppages that could have a material adverse effect on our business The majority of the employees in the electricity sector are affiliated with labor unions. As of December 31, 2010, approximately 71.6% of our employees were union members. Although our relations with unions are currently stable, we cannot assure you that our operating subsidiaries will not experience work disruptions or stoppages in the future, which could have a material adverse effect on our business and revenues, especially in light of the social tensions generated in Argentina by the current economic crisis. In addition, our collective bargaining agreements generally expire after a one-year term. We have completed salary negotiations for 2010, and due to inflationary pressures, we have reopened negotiations during the first months of 2011 at some of our subsidiaries. We cannot assure you that we will be able to negotiate new collective bargaining agreements on the same terms as those currently in effect, or that we will not be subject to strikes or work stoppages that could have material adverse effects on our operations and consequently on our financial results and the market value of our ADSs, before or during any negotiation process. In the event of an accident or event not covered by our insurance, we could face significant losses that could materially adversely affect our business and results of operations We carry insurance that is consistent with industry standards in each of our different business segments. See “Item 4. Information on the Company—Our Business—Insurance.” Although we believe our insurance coverage is commensurate with standards for the international electricity generation, transmission and distribution industry, no assurance can be given of the existence or sufficiency of risk coverage for any particular risk or loss. For example, two of the towers used by Transener’s transmission lines located in the Province of Buenos Aires, were damaged in 2008, from unknown causes. These damages resulted in the interruption of electricity transmission service to customers in the greater Buenos Aires region and certain areas in other provinces for several hours, which could have caused losses that may not be covered by our insurance policies, the total amount of which has not yet been determined. We cannot make any assurances that this kind of damage will not occur again in the future, which could eventually result in further losses or the imposition of sanctions on Transener by the regulatory authorities. If an accident or other event occurs that is not covered by our current insurance policies in any of our business segments, we may experience material losses or have to disburse significant amounts from our own funds, which may have a material adverse effect on our net profits and our overall financial condition and on the market value of our shares and ADSs. 16






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We conduct a portion of our operations through joint ventures, and our failure to continue such joint ventures or resolve any material disagreements with our partners could have a material adverse effect on the success of these operations We conduct a portion of our operations through joint ventures and as a result, the continuation of such joint ventures is vital to our continued success. For example, we own a co-controlling interest in Citelec, the holding company of Transener, our transmission company, where we were previously a party to significant agreements with our former partner, Petrobras Energía S.A. (Petrobras Energía), with respect to the management of Transener. Electroingeniería S.A. (Electroingeniería) and Energía Argentina S.A. (Enarsa) subsequently acquired Petrobras Energía’s interest in Citelec’s capital stock. While we were able to enter into similar agreements that we enjoyed with Petrobras Energía, any significant disagreement with our new partners could have a material adverse effect on the success of such joint venture, and thereby our business and results of operations. In addition, in the event that any of our partners were to decide to terminate its relationship with us in any of these companies or sell its interest in any of these companies, we may not be able to replace our partner or raise the necessary financing to purchase our partner’s interest. In the case of Transener, in particular, we are not able to acquire our partners’ interests under applicable Argentine regulations. See “Item 4. Information on the Company—The Argentine Electricity Sector.” As a result, the failure to continue some of our joint ventures or to resolve disagreements with our partners could adversely affect our ability to transact the business that is the subject of such joint venture, which would in turn negatively affect our financial condition and results of operations and the market value of our shares and ADSs. Risks Relating to our Generation Business There are electricity transmission constraints in Argentina that may prevent us from recovering the full marginal cost of our electricity, which could materially adversely affect the financial results of our generation business During certain times of the year, more electricity is generated than can be transmitted to the Buenos Aires node, also known as the Ezeiza node, which is the reference point for calculating the electricity load dispatch. Due to these electricity transmission constraints, many Argentine generators, including us, do not receive the full price of the system, but rather a lower local price. We cannot make any assurance that required investments will be made to increase the capacity of the system. As a result of lower electricity prices, our generation business may record lower operating profits than we anticipate, which could adversely affect our consolidated results of operations and financial condition and cause the market value of our ADSs to decline. We may be unable to collect amounts due from CAMMESA and other customers in the electricity sector, which could have a material adverse effect on our financial condition and results of operations Electricity generators, including our subsidiaries, are paid by Compañía Administradora del Mercado Mayorista Eléctrico S.A. (Electricity Market Administration Company, or CAMMESA), which collects revenue from other wholesale electricity market agents. Due to the recent economic crisis in Argentina, a significant number of wholesale electricity market agents defaulted in the payment of amounts they owed to the wholesale electricity market, which adversely affected the ability of CAMMESA to meet its payment obligations to generators. Additionally, the stabilization fund created by the Argentine Secretariat of Energy to cover the difference between the spot price and the seasonal price of electricity recorded a permanent deficit due to the constant difference between the spot price and the seasonal price. We cannot make any assurances that the difference between the spot price and the seasonal price will not increase in the future or that CAMMESA will be able to make payments to generators, both in respect of energy and capacity sold in the spot market. The inability of generators, including certain of our subsidiaries, to collect their credits from CAMMESA may have a material adverse effect on the revenues of our generation subsidiaries and accordingly, on our results of operations and financial condition and the market value of our shares and ADSs. 17






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Our ability to generate electricity at our thermal generation plants depends on the availability of natural gas, and fluctuations in the supply or price of gas could materially adversely affect our results of operations The supply or price of gas used in our generation businesses has been and may from time to time continue to be affected by, among other things, the availability of gas in Argentina, our ability to enter into contracts with local gas producers and gas transportation companies, the need to import a larger amount of gas at a higher price than the price applicable to domestic supply as a result of low domestic production, and gas redistribution mandated by the Argentine Secretariat of Energy, given the present shortage of supply. In addition, several of our generation facilities are equipped to run solely on gas and, in the event that gas becomes unavailable, these facilities will not be able to switch to other types of fuel in order to continue generating electricity. If we are unable to purchase gas at prices that are favorable to us, or if the supply of gas is reduced, our costs could increase or our ability to profitably operate our generation facilities could be impaired. Such a disruption to our generation business could in turn, materially adversely affect our results of operations and financial condition and the market value of our ADSs. Our ability to generate electricity at our hydroelectric generation plants may be negatively affected by poor hydrological conditions, which could, in turn affect our results of operations Prevailing hydrological conditions could adversely affect the operations of our two hydroelectric generation plants, HINISA and HIDISA, in a number of ways, not all of which we can predict. For example, hydrological conditions that result in a low supply of electricity in Argentina could cause, among other things, the implementation of broad electricity conservation programs, including mandatory reductions in electricity generation or consumption. Hydrological conditions in 2007, 2008, 2009 and 2010 were poor. In each of 2007, 2008, 2009 and 2010, the water intake at Nihuiles and Diamante available for electricity generation was 27%, 35%, 43% and 45% lower, respectively, as compared to 2006, the year in which our units recorded the greatest intake to date. A prolonged continuation of poor conditions could force the Argentine government to focus its generation efforts on the use of other sources of electricity generation. In the event of electricity shortages, the Argentine government could mandate the implementation of broad electricity conservation programs, including mandatory reductions in electricity generation or consumption; the government could also mandate increased production from thermal plants that use fossil fuels as their generation sources and preserve the available water resources for future electricity generation. Although such a shift in production could benefit our thermal generation plants, it would negatively affect our hydroelectric plants and any mandated reduction in electricity generation or consumption could reduce revenues in our generation business and lead to a decline in our consolidated results of operations, which may have a material adverse effect on our financial condition and the market value of our shares and ADSs. Operational difficulties could limit our ability to generate electricity, which could adversely affect our results of operations We may experience operational difficulties that could require us to temporarily suspend operations or otherwise affect our ability to generate electricity and, as a result, adversely impact our operating results. These difficulties may affect our generation equipment, electromechanical components or, in general, any of our assets required for the supply of electricity. For example, in December 2008, an inspection at one of the gas turbines of our subsidiary Central Térmica Loma de la Lata S.A. (Loma de la Lata) determined that a component of the turbine had broken off, causing minor damage to the surrounding equipment. Although our insurance policy covered the cost of repair of the broken turbine component, we were required to pay a deductible of U.S. $500,000. In addition, our business interruption insurance did not cover the first forty-five days of lost profits due to delays caused by the malfunction. The repairs were completed and the unit became operational again on June 19, 2009. We cannot make any assurances that similar events will not occur in the future. While we maintain comprehensive insurance for each of our facilities, we cannot make any assurances that the amounts for which we are insured or the amounts that we may receive under such insurance policies would cover all of our losses. If operational difficulties impede our generation of electricity, the disruption may lead to reduced revenues from our generation segment, which would have an adverse effect on our consolidated results of operations and may negatively affect the market value of our shares or ADSs. 18






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We would no longer own a controlling interest in HINISA, one of our principal generation assets, if the Province of Mendoza sells its participation in HINISA Our subsidiary, Nihuiles, currently owns a 52.4% controlling stake in HINISA, a hydroelectric generation company in the Province of Mendoza, Argentina, and the Province of Mendoza currently owns 47.6% of the capital stock of HINISA. In 2006, the Province of Mendoza publicly announced its intention to sell shares representing 37% of the capital stock of HINISA. See “Item 4. Information on the Company—Our Business—Our Generation Business—Nihuiles and Diamante—Nihuiles.” Pursuant to HINISA’s concession, if the Province of Mendoza sells these shares, Nihuiles will be required to sell 20% of HINISA’s capital stock and would no longer own a controlling 52.4% interest in HINISA. In addition, according to HINISA’s by-laws, Nihuiles would not be permitted to purchase any additional shares of HINISA. We currently consolidate the results of operations of Nihuiles. If Nihuiles loses its controlling interest in HINISA, it may have a significant adverse effect on the value of our investment in Nihuiles and on our consolidated results of operations and the market value of our ADSs. In addition, neither we nor Nihuiles has any control over the timing of the Province of Mendoza’s proposed sale or the price at which Nihuiles would be required to sell its 20% of HINISA’s shares. As a result, these shares may be sold at a time and price per share that are adverse to our interests and the return on our investment in Nihuiles. Piedra Buena could be exposed to third party claims on real property utilized for its operations that could result in the imposition of significant damages, for which we have not established a provision in our financial statements for potential losses At the time of Piedra Buena’s privatization in 1997, the Province of Buenos Aires agreed to expropriate and transfer to Piedra Buena the real property on which the plant was built and to create administrative easements in favor of Piedra Buena over the third party lands through which a gas pipeline and an electricity transmission line run. Although the Province of Buenos Aires is in the process of expropriating the property on which the plant is built, as of the date of this annual report, it has not transferred all of the real property with clear and marketable title to Piedra Buena. In addition, the Province of Buenos Aires has not created the administrative easements for Piedra Buena’s gas pipeline or the electricity transmission line. In July 2008, Piedra Buena sued the Province of Buenos Aires seeking the creation of the administrative easements in favor of Piedra Buena. Piedra Buena has received several complaint letters from third parties seeking compensation for the use of this land. See “Item 8. Financial Information—Legal Proceedings—Generation—Legal proceedings involving Piedra Buena’s real estate.” If the Province does not complete the expropriation process or the administrative easement process, Piedra Buena may be exposed to judicial claims by third parties seeking compensation or damages for which we have not established a provision in our financial statements. If Piedra Buena were required to pay material damages or compensation for the right to use this real property as a result of adverse outcomes from legal proceedings, we could be required to use cash from operations to cover such costs, which could have a materially adverse effect on our financial condition and consolidated results of operations and cause the market value of our ADSs to decline. Risks Relating to our Transmission Business If we are not able to renegotiate our transmission tariffs on more favorable terms with the Argentine government in a timely fashion, it could have a material adverse impact on our financial condition and results of operations In January 2002, pursuant to the Emergency Law, tariffs for the provision of public services, including the transmission of electricity, were converted from their original U.S. Dollar values to Pesos (at a rate of Ps. 1.00 per U.S. $1.00) and frozen at those levels. Additionally, contract clauses in Transener’s and Transba S.A. (Transba)’s concession agreements requiring adjustments to their tariffs based on foreign inflation indexes and certain other indexation mechanisms were revoked. The Emergency Law also required the renegotiation of public service concession agreements. In connection with such renegotiation process, Transener and Transba entered into agreements with the Argentine government in 2005 that provided for an average tariff increase on fixed charges of 31% for Transener and 25% for Transba. Although these companies’ operating costs have significantly increased since 2005, the Ente Nacional Regulador de la Electricidad (Argentine National Electricity Regulator, or the ENRE) has not totally adjusted tariffs accordingly. On December 21, 2010, the ENRE and the Secretariat of Energy acknowledged Transener’s and Transba ́s (see “Item 4. Information on the Company – Business Overview – Our Transmission Business”) right to collect amounts resulting from the variations of costs during the period June 2005 – November 2010, which payment would be based on CAMMESA’s availability of funds and such payments must be used for investments by us in the transmission system as instructed by the Secretariat of Energy. A mechanism for the calculation and payment of cost variations from December 1, 2010 to December 31, 2011 was also established. We cannot make any assurances that Transener and/ or Transba will receive the full amount recognized or that similar adjustments will be made in the future. If operating costs continue to increase and we do not receive any increase in revenues as a result of a tariff adjustment, our financial position and results of operations may be adversely affected, which could negatively impact the value of our shares or the ADSs. 19






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Our transmission capacity may be disrupted, which could result in material penalties being imposed on us Our electricity transmission business depends on Transener’s and Transba’s ability to transmit electricity over long distances through their transmission networks. Our financial condition and results of operations would be adversely affected if a natural disaster, accident or other disruption were to cause a material curtailment of our transmission capacity. Argentina’s transmission system has evolved in a radial pattern which, unlike a fully integrated transmission grid system, connects areas of generation to areas of demand by a single transmission line or, in some cases, two or more transmission lines in parallel. Accordingly, the outage of any single line could totally disconnect entire sections of the Sistema de Interconexión Nacional (the National Interconnection System, or NIS). The concession agreements establish a system of penalties, which Transener and Transba may incur if defined parts of their networks are not available to transmit electricity. In May 2007, a fire in the Ezeiza transformer station resulted in a temporary disruption of the services provided by that station. In response to the service disruption, the ENRE filed charges against Transener alleging certain violations of the quality standards applicable to the transmission services provided by Transener that could result in the imposition of penalties if they are not successfully appealed. Consistent with industry standards, Transener and Transba do not maintain business interruption insurance and we cannot make assurances that any future disruption in Transener’s or Transba’s transmission capacity would not result in the imposition of material penalties, the payment of which would require us to use funds from operations and could have a material adverse effect on our financial condition and consolidated results of operations and cause the market value of our ADSs to decline. The ENRE may reject our request to redetermine the revenues derived from expansion of the NIS as a result of the pesification of these revenues, which would result in a significant shortfall that could adversely affect our financial condition The Emergency Law also affected the revenues we receive in connection with Transener’s expansion of the NIS. In particular, the income from the construction, operation and maintenance of an approximately 1,300 km high-voltage electricity transmission line (500 kilovolts (kV)) from the Comahue region to the Ezeiza substation was converted into Pesos at a rate of Ps. 1.00 per U.S. $1.00 and then adjusted for inflation. Transener has asked the ENRE, in its capacity as the main party to the construction, operation and maintenance agreement relating to Transener’s construction of the transmission line, (which includes approximately 2,550 high voltage towers and the expansion of the Piedra del Águila, Choele Choel, Bahía Blanca, Olavarría and Abasto substations, which we refer to collectively as the Fourth Line), to redetermine such revenue. In December 2008, the ENRE approved the redetermination of our revenues and established that, as of October 2008, the income to be collected in connection with the Fourth Line is Ps. 75.9 million (plus taxes). However, because the ENRE has not developed an adjustment procedure, Transener has filed an administrative claim with the ENRE. We cannot predict when the ENRE will respond to our request. Notwithstanding the above, on March 30, 2011, the ENRE (Resolution 150/2011) approved a new value for the income to be collected in connection with the Fourth Line of Ps. 95.9 million (plus taxes), with effect from July 2010, and instructed CAMMESA to make the corresponding adjustments. On April 7, 2011, Transener filed a claim against Resolution No. 150/2011, as it did not include that the retroactive payment should be made in addition to late interest payments. No assurance can be made that Transener will be successful in its claim against Resolution No. 150/2011. If the ENRE fails to increase the revenues we receive under the Fourth Line contract on the terms requested, we could face significant losses on our investment in the construction of, and losses in the operation and maintenance of, such transmission line, which could have a material adverse effect on our overall financial condition and results of operations and cause the market value of our ADSs to decline. 20






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Increasing competition in our non-regulated transmission activities could lead to lower revenues We generate a material portion of our transmission revenues from non-regulated transmission activities, including the construction and installation of electrical assets and equipment, non-network line operation and maintenance, supervision of the expansion of the NIS, supervision of independent transmitters’ operation and maintenance and other services. These non-regulated revenues represented 25.7% of Transener’s revenues in 2010. We believe that these non-regulated revenues will continue to be an important part of our transmission business. Historically, Transener has not experienced significant competition in these areas of service (with the exception of its construction and international activities). However, we cannot make any assurance that competition will not substantially increase in the future or that such competition will not contribute directly to decreased revenues, which would adversely affect our financial condition and results of operations and cause the market value of our ADSs to decline. Transener is highly leveraged, which could limit its financing options or even its ability to service its debt and consequently have an adverse effect on our results of operations As of December 31, 2010, Transener’s total consolidated indebtedness, denominated in U.S. Dollars and Pesos, amounted to the equivalent of approximately U.S. $147.7 million (Ps. 587.1 million), including accrued but unpaid interest, penalties, post-default interest rate increases and the effect of the discount to net present value applied to its restructured debt under Argentine GAAP. Transener’s leverage may impair its ability to service its indebtedness and obtain additional financing in the future, withstand competitive pressure and adverse economic conditions or take advantage of significant business opportunities that may arise, each of which could adversely affect our results of operations or growth prospects and cause the market value of our ADSs to decline. Transener has not completed the legal transfer and registration of title of all of the properties transferred to it and Transba pursuant to the transmission concessions, which could result in potentially significant losses if any defect in title is later discovered Under their concessions, Transener and Transba became the owners of a large number of properties, including land and buildings associated with the substations, transformers, and other installations previously owned by the predecessor owners of Transener and Transba. Transener is in the process of finalizing certain formalities to legally perfect the transfer of title to these properties to Transener and Transba. Transener and Transba have completed the legal transfer of, and Transener and Transba have registered title to, approximately 87% and 65%, respectively, of these properties as of December 31, 2010. Transener is taking steps to establish and/or record legal title to the remaining properties. Although the concessions contain representations by the predecessor owners of Transener and Transba that they possessed good and valid title to all such properties, if Transener discovers any defects in title during such process, Transener will be liable for any payments required to cure such defects because the predecessor owners no longer exist. We cannot make assurances that any such defect in title, or the costs associated with curing such defect, will not adversely affect our financial condition or results of operations or could cause the market value of our ADSs to decline. Risks Relating to our Distribution Business The failure to negotiate further improvements to our distribution tariff structure, including increases in our distribution margin, could have a material adverse effect on our distribution business and prospects We are currently engaged in aRevisión Tarifaria Integral(Integral Tariff Review, or Edenor RTI) with the ENRE to achieve a comprehensive revision of our distribution tariff structure, including further increases in our distribution margins and periodic adjustments based on changes in our distribution cost base, to provide us with an adequate return on our distribution asset base. Although we believe the Edenor RTI will result in a new tariff structure in the near future, we cannot make assurances that the Edenor RTI will conclude in a timely manner or at all, or that the new tariff structure will effectively cover all of our distribution costs and provide us with an adequate return. Moreover, the Edenor RTI could result in the adoption of an entirely new regulatory framework for our distribution business, with additional terms and restrictions on our distribution operations and the imposition of mandatory investments. We also cannot predict whether a new regulatory framework will be implemented and what terms or restrictions could be imposed on our operations. If we are not successful in achieving a satisfactory renegotiation of our distribution tariff structure, our financial condition and results of operations may be materially adversely affected or could cause the market value of our ADSs to decline. 21






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We may not be able to adjust our distribution tariffs to reflect increases in our distribution costs in a timely manner, or at all, which may have a material adverse effect on our financial condition and results of operations In February 2006, Edenor entered into an agreement with the Argentine government relating to the adjustment and renegotiation of the terms of Edenor’s concession (Acta Acuerdo sobre la Adecuación del Contrato de Concesión del Servicio Público de Distribución y Comercialización de Energía Eléctrica, or the Adjustment Agreement). The Adjustment Agreement contemplates a cost adjustment mechanism for the transition period during which the Edenor RTI is being conducted. This mechanism, known as the Cost Monitoring Mechanism, or CMM, requires the ENRE to review Edenor’s actual distribution costs every six months (in May and November of each year) and adjust Edenor’s distribution margins to reflect variations of 5% or more in Edenor’s distribution cost base. Edenor may also request that the ENRE apply the CMM at any time that the variation in Edenor’s distribution cost base is at least 10% or more. Any adjustments, however, are subject to the ENRE’s assessment of variations in Edenor’s costs, and we cannot guarantee that the ENRE will approve adjustments that are sufficient to cover Edenor’s actual incremental costs. In addition, there likely will be a lag in time between when Edenor actually experiences increases in its distribution costs and when Edenor receives increased revenues following the corresponding adjustments, if any, to Edenor’s distribution margins pursuant to the CMM. Despite the adjustment that Edenor was granted under the CMM in October 2007 and July 2008, we cannot make assurances that Edenor will receive similar adjustments in the future. As of the date of this annual report Edenor has requested seven increases under the CMM since May 2008, which are still being reviewed by the ENRE. Under the terms of the Adjustment Agreement, these seven increases should have been approved in May 2008, November 2008, May 2009, November 2009, May 2010, November 2010 and May 2011. If Edenor is not able to recover all of these incremental costs or there is a significant lag time between when Edenor incurs the incremental costs and when Edenor receives increased revenues, we may experience a decline in our results of operations, which may have a material adverse effect on our financial condition and the market value of our shares and ADSs. Our distribution tariffs may be subject to challenge by Argentine consumer and other groups In November 2006, two Argentine consumer associations, Asociación Civil por la Igualdad y la Justicia (ACIJ) and Consumidores Libres Cooperativa Limitada de Provisión de Servicios de Acción Comunitaria, brought an action against Edenor and the Argentine government before a federal administrative court seeking to block the ratification of the Adjustment Agreement on the grounds that the approval mechanism was unconstitutional. In March 2007, the federal administrative court dismissed these claims and ruled in Edenor’s favor on the grounds that the adoption of Executive Decree No. 1957/06, which ratified the Adjustment Agreement, rendered this action moot. The ACIJ appealed this decision in April 2007, and the appeal was decided in Edenor’s favor. However, in April 2008, the ACIJ filed another complaint challenging the procedures utilized by the Argentine Congress in approving the Adjustment Agreement, to which Edenor timely replied. In addition, in 2008, thedefensor del pueblo(Public Ombudsman) filed a claim opposing the resolutions establishing the tariff schedule, effective as of October 1, 2008, and naming Edenor as defendant. On January 27, 2009, the ENRE notified Edenor of a preliminary injunction, as a result of the Ombudsman’s claim, pursuant to which Edenor was ordered to refrain from cutting the energy supply to customers challenging the October 2008 tariff increase until a decision is reached with respect to the claim. This injunction has been appealed by Edenor and the Argentine government, the resolution of which is still pending as of the date of this annual report. In addition, in December 2009, another Argentine consumer association,Unión de Usuarios y Consumidores, brought an action against Edenor and the Argentine government seeking to annul certain retroactive tariff increases. In November 2010, the relevant court upheld the claim. Edenor appealed the court’s order and requested that it be stayed pending a decision on the appeal. In December 2010, the court stayed its order pending a decision on the appeal. On June 1, 2011, the Administrative Court of Appeals (Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal – Sala V) overturned the judgment of the lower administrative court. The Argentine consumer association may file an extraordinary appeal (“Recurso Extraordinario Federal”) to have the case tried by the Argentine Supreme Court. As of the date of this annual report, to our knowledge, the Argentine consumer association has not filed such extraordinary appeal. We cannot make assurances regarding how these complaints will be resolved (nor, in the action brought byUnión de Usuarios y Consumidoresin December 2009, whether the plaintiff may decide to file an extraordinary appeal as described above) nor can we make assurances that other actions or requests for injunctive relief will not be brought by these or other groups seeking to reverse the adjustments Edenor has obtained or to block any further adjustments to our distribution tariffs. If these legal challenges are successful and prevent us from implementing tariff adjustments granted by the Argentine government, we could face a decline in collections from distribution customers, and a decline in our results of operations, which may have a material adverse effect on our financial condition and the market value of our shares and ADSs. 22






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If we experience continued energy shortages in the face of growing demand for electricity, our ability to deliver electricity to our customers could be adversely affected, which could result in customer claims, material penalties and decreased results of operations In recent years, the condition of the Argentine electricity market has provided little incentive to generators to further invest in increasing their generation capacity, which would require material long-term financial commitments. As a result, Argentine electricity generators are currently operating at near full capacity and may not be able to guarantee the supply of electricity to distribution companies which, in turn, could limit the ability of these companies, including Edenor, to provide electricity to customers, and could lead to a decline in growth of such companies. Under Argentine law, distribution companies, such as Edenor, are responsible to their customers for any disruption in the supply of electricity. To date, the Argentine authorities have not been called upon to decide under which conditions energy shortages may constitute force majeure. In the past, however, the Argentine authorities have taken a restrictive view of force majeure and have recognized the existence of force majeure only in limited circumstances, such as internal malfunctions at the customer’s facilities, extraordinary meteorological events (such as major storms) and third party work in public thoroughfares. As a result, we could face customer claims and fines and penalties for service disruptions caused by energy shortages unless the relevant Argentine authorities determine that energy shortages constitute force majeure, which could have a materially adverse effect on our financial condition and consolidated results of operations and cause the market value of our ADSs to decline. Our distribution business has been, and may continue to be, subject to fines and penalties that could have a material adverse effect on our financial condition and results of operations We operate in a highly regulated environment and our distribution business has been and in the future may continue to be subject to significant fines and penalties by regulatory authorities, including for reasons outside our control, such as service disruptions attributable to problems at generation facilities or in the transmission network that result in a lack of electricity supply. After 2001, the amount of fines and penalties imposed on our distribution business increased significantly, which we believe is mainly due to the economic and political environment in Argentina following the 2001 economic crisis. Although the Argentine government has agreed to forgive a significant portion of these accrued fines and penalties pursuant to the Adjustment Agreement and to allow Edenor to repay the remaining balance over time, this forgiveness and repayment plan is subject to a number of conditions, including compliance with quality of service standards, reporting obligations and required capital investments. As of December 31, 2010, our accrued fines and penalties totaled Ps. 455.4 million (taking into account our adjustment to fines and penalties following the ratification of the Adjustment Agreement). If our distribution business fails to comply with any of these conditions, the Argentine government may seek to obtain payment of these fines and penalties. In addition, we cannot make any assurances that our distribution business will not incur material fines in the future, which could have a material adverse effect on our financial condition and results of operations and the market value of our shares and ADSs. If we are unable to control energy losses in our distribution business, our results of operations could be adversely affected Our distribution concession does not permit our distribution business to pass through to our customers the cost of additional energy purchased to cover any energy losses that exceed the loss factor contemplated by the concession, which is, on average, 10%. As a result, if our distribution business experiences energy losses in excess of those contemplated by the concession, we may record lower operating profits than we anticipate. Prior to the 2001 economic crisis in Argentina, Edenor had been able to reduce the high level of energy losses experienced at the time of the privatization to the levels contemplated (and reimbursed) under the concession. However, during the 2001 economic crisis and during the years ended December 31, 2009 and 2010, Edenor’s level of energy losses, particularly Edenor’s non-technical losses, started to grow again, in part as a result of the increase in poverty levels and, with it, the number of delinquent accounts and fraud. Although Edenor has been able to reduce energy losses in recent periods, these losses continue to exceed the 10% average loss factor in the concession, and based on the current economic turmoil, we do not expect these losses to decrease in the near term. Energy losses in our distribution business amounted to 12.5% in 2010, 11.9% in 2009 and 10.8% in 2008. We cannot make any assurances that energy losses will not increase again in future periods, which may lead to lower margins in our distribution segment and could adversely affect our financial condition and consolidated results of operations and the market value of our shares and ADSs. 23






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We could incur material labor liabilities in connection with outsourcing in our distribution business that could have an adverse effect on our business and results of operations We outsourced a number of activities related to our distribution business to third party contractors in order to maintain a flexible cost base. We had approximately 2,682 third-party employees under contract in our distribution business as of December 31, 2010. Although we have very strict policies regarding compliance with labor and social security obligations by contractors, we are not in a position to ensure that contractors’ employees will not initiate legal actions to seek indemnification from us based upon a number of judicial rulings issued by labor courts in Argentina recognizing joint and several liability between the contractor and the entity to which it is supplying services in certain circumstances. We cannot make any assurances that such proceedings will not be brought against us or that the outcome of such proceedings would be favorable to us. If we were to incur material labor liabilities in connection with the outsourcing of our distribution business it could have an adverse effect on our financial condition and consolidated results of operations and the market value of our shares and ADSs. Our exclusive right to distribute electricity in our service area may be adversely affected by technological or other changes in the energy distribution industry, the loss of which would have a material adverse effect on our business Although our distribution concession grants us the exclusive right to distribute electricity within our service area, this exclusivity may be terminated in whole or in part if technological changes make it possible for the energy distribution industry to evolve from its present condition as a natural monopoly into a competitive business. Although, to our knowledge, there are currently no projects to introduce new technologies in the medium or long-term which could reasonably be expected to alter the current landscape of the electricity distribution business, we cannot make assurances that future developments will not introduce competition that would adversely affect the exclusivity right granted by the concession. Any total or partial loss of our exclusive right to distribute electricity within our service area would likely lead to increased competition, and result in lower revenues in our distribution segment, which could have a material adverse effect on our financial condition and consolidated results of operations and the market value of our shares and ADSs. Edenor’s acquisition of EMDERSA and AESEBA is subject to approval by the Argentine Antitrust Commission and by ENRE and Edenor may fail to realize the anticipated benefits of the acquisition, and the integration of these companies with our distribution operations may present significant challenges. In March 2011, Edenor acquired EMDERSA and AESEBA and several related companies, which are now our subsidiaries. This acquisition is subject to approval by the Argentine Antitrust Commission and by ENRE. Although we have submitted all required documentation to the Argentine Antitrust Commission and to ENRE, we cannot assure you that the Argentine Antitrust Commission or ENRE will authorize the acquisitions and, therefore, the acquisitions may be revoked if any of the approvals are not granted. Also, the success of these acquisitions will depend in part on our ability to realize the anticipated growth opportunities and cost savings from combining our existing distribution business with EMDERSA’s and AESEBA’s businesses. We may face significant challenges in consolidating these operations, integrating these organizations, and streamlining procedures in a timely and efficient manner while retaining key personnel from these companies. The integration of EMDERSA and AESEBA will be costly, complex and time consuming and will require substantial management attention. These costs could be greater than we currently anticipate, which could reduce our distribution segment ́s profitability. The integration of these businesses could also disrupt the operation of our current business and their existing businesses, or result in additional administrative procedures or regulatory oversight. It could also adversely affect Edenor ́s and their ability to maintain relationships with customers, suppliers, employees and others with whom Edenor may have business dealings. If we were to incur significant integration cost overruns or if the proposed integration would materially disrupt our existing distribution business this could have an adverse effect on our financial condition and consolidated results of operations and the market value of our shares and ADSs. 24






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Risks Relating to our Shares and ADSs Restrictions on the movement of capital out of Argentina may impair the ability of holders of ADSs to receive dividends and distributions on, and the proceeds of any sale of, the shares underlying the ADSs, which could affect the market value of the ADSs The Argentine government may impose restrictions on the conversion of Argentine currency into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Argentina. Argentine law currently permits the government to impose this kind of restrictions temporarily in circumstances where a serious imbalance develops in Argentina’s balance of payments or where there are reasons to foresee such an imbalance. Beginning in December 2001, the Argentine government implemented an unexpected number of monetary and foreign exchange control measures that included restrictions on the free disposition of funds deposited with banks and on the transfer of funds abroad, including dividends, without prior approval by the Central Bank, some of which are still in effect. Among the restrictions that are still in effect are those relating to the payment prior to maturity of the principal amount of loans, bonds or other securities owed to non-Argentine residents, the requirement for Central Bank approval prior to acquiring foreign currency for certain types of investments and the requirement that 30% of certain types of capital inflows into Argentina be deposited in a non-interest-bearing account in an Argentine bank for a period of one year. Although the transfer of funds abroad in order to pay dividends no longer requires Central Bank approval to the extent such dividend payments are made in connection with audited financial statements approved by a shareholders’ meeting, restrictions on the movement of capital to and from Argentina such as the ones which previously existed could, if reinstated, impair or prevent the conversion of dividends, distributions, or the proceeds from any sale of shares, as the case may be, from Pesos into U.S. Dollars and the remittance of the U.S. Dollars abroad. We cannot make assurances that the Argentine government will not take similar measures in the future. In such a case, the depositary for the ADSs may hold the Pesos it cannot convert for the account of the ADS holders who have not been paid. Nonetheless, the adoption by the Argentine government of restrictions on the movement of capital out of Argentina may affect the ability of our foreign shareholders and holders of ADSs to obtain the full value of their shares and ADSs and may adversely affect the market value of our shares and ADSs. ADS holders’ ability to receive cash dividends may be limited Our shareholders’ ability to receive cash dividends may be limited by the ability of the depositary to convert cash dividends paid in Pesos into U.S. Dollars. Under the terms of our deposit agreement with the depositary for the ADSs, the depositary will convert any cash dividend or other cash distribution we pay on the common shares underlying the ADSs into U.S. Dollars, if it can do so on a reasonable basis and can transfer the U.S. Dollars to the United States. If this conversion is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. If the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency, shareholders may lose some or all of the value of the dividend distribution. Under Argentine law, shareholder rights may be fewer or less well defined than in other jurisdictions Our corporate affairs are governed by our by-laws and by Argentine corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the States of Delaware or New York, or in other jurisdictions outside Argentina. In addition, the rights of holders of the ADSs or the rights of holders of our common shares under Argentine corporate law to protect their interests relative to actions by our board of directors may be fewer and less well defined than under the laws of those other jurisdictions. Although insider trading and price manipulation are illegal under Argentine law, the Argentine securities markets are not as highly regulated or supervised as the U.S. securities markets or markets in some other jurisdictions. In addition, rules and policies against self-dealing and regarding the preservation of shareholder interests may be less well-defined and enforced in Argentina that in the United States, putting holders of our common shares and ADSs at a potential disadvantage. 25






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Holders of ADSs may be unable to exercise voting rights with respect to the common shares underlying the ADSs at our shareholders’ meetings Shares underlying the ADSs are held by the depositary in the name of the holder of the ADS. As such, we will not treat holders of ADSs as one of our shareholders and holders of ADSs will not have shareholder rights. The depositary will be the holder of the shares underlying the ADSs and holders may exercise voting rights with respect to the shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are no provisions under Argentine law or under our by-laws that limit the exercise by ADS holders of their voting rights through the depositary with respect to the underlying shares. However, there are practical limitations on the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. For example, holders of our shares will receive notice of shareholders’ meetings through publication of a notice in an official gazette in Argentina, an Argentine newspaper of general circulation and the daily bulletin of the Buenos Aires Stock Exchange, and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders, by comparison, do not receive notice directly from us. Instead, in accordance with the deposit agreement, we provide the notice to the depositary. If we ask it to do so, the depositary will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the depositary as to voting the shares represented by their ADSs. Due to these procedural steps involving the depositary, the process for exercising voting rights may take longer for ADS holders than for holders of shares and shares represented by ADSs may not be voted as the holders of ADSs desire. Shares represented by ADSs for which the depositary fails to receive timely voting instructions may, if requested by us, be voted at the corresponding meeting either in favor of the proposal of the board of directors or, in the absence of such a proposal, in accordance with the majority. Our shareholders may be subject to liability for certain votes of their securities Because we are a limited liability corporation, our shareholders are not liable for our obligations. Shareholders are generally liable only for the payment of the shares they subscribe. However, shareholders who have a conflict of interest with us and who do not abstain from voting at the respective shareholders’ meeting may be liable for damages to us, but only if the transaction would not have been approved without such shareholders’ votes. Furthermore, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to the law or our by-laws may be held jointly and severally liable for damages to us or to other third parties, including other shareholders. Provisions of our by-laws could deter takeover attempts and have an adverse impact on the price of our shares and the ADSs Our by-laws contain provisions that may discourage, delay or make more difficult a change in control of our Company or the removal of our directors, such as the rules that require any shareholder to present a tender offer as a result of the acquisition of a significant participation or the acquisition of a controlling interest in the event it purchases shares representing 35% or more than 50%, respectively, of our capital stock. These provisions, as well as other provisions of our charter and by-laws, may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interest of our shareholders and may adversely affect the market value of our shares and ADSs. 26






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Item 4. Information on the Company HISTORY AND DEVELOPMENT OF THE COMPANY We were incorporated as an Argentine limited liability corporation (sociedad anónima) on February 20, 1945 under the name Frigorífico La Pampa S.A. In 2003, we suspended our former business activities, which were limited to the ownership and operation of a cold storage warehouse building. In 2005, Messrs. Damián Mindlin, Gustavo Mariani and Ricardo Torres acquired a controlling stake in us. Following this acquisition, we changed our name to Pampa Holding S.A. As a result of the acquisitions we have made since 2006, we are currently the largest fully integrated electricity company in Argentina and, through our subsidiaries and co-controlled companies, we engage in the generation, transmission and distribution of electricity in Argentina. We changed our name again to Pampa Energía S.A. in September 2008. We operate our electricity businesses in a highly regulated environment. Our hydroelectric generation activities and our transmission and distribution activities are subject to the terms of concessions granted by the Argentine government. In addition, our electricity prices and our transmission and distributions prices are subject to regulation by Federal and respective provincial governments. In addition, our electricity prices and our transmission and distribution prices are subject to regulation by the Argentine government, acting through theSecretaría de Energía(Secretariat of Energy) and the ENRE and, in connection with certain of our distribution businesses, to therelevant provincial authorities. Pampa Energía S.A. is organized as a sociedad anónima under the laws of Argentina. Our principal executive offices are located at Ortiz de Ocampo 3302, Building #4, City of Buenos Aires, Argentina (C1425DSR). Our telephone number is + 54 11 4809 9500. Our website address is www.pampaenergia.com. None of the information available on our website or elsewhere will be deemed to be included or incorporated by reference into this annual report. OUR BUSINESS Overview We are the largest fully integrated electricity company in Argentina. Our generation subsidiaries had an aggregate installed generating capacity of approximately 2,000 MW as of December 31, 2010, representing 7.1% of the installed generating capacity in Argentina at such date, and generated a total of 5,943 net GWh of electricity during the year ended December 31, 2010, representing 5.1% of total electricity generated in Argentina during such period. We are also involved in different expansion projects to increase our generating capacity. We own an indirect co-controlling interest in Transener, which operates and maintains the largest high voltage electricity transmission system in Argentina, with more than 10,000 km of high voltage transmission lines that, as of December 31, 2010, represented approximately 95% of the high voltage system in Argentina, according to the information made available by CAMMESA. We believe that our subsidiary Edenor is the largest electricity distribution company in Argentina, in terms of number of customers and electricity sold (both in terms of GWh and Pesos) in 2010, based on publicly available figures released by electricity distribution companies in Argentina. Our principal assets are divided among our electricity generation, transmission and distribution businesses, as follows: Generation. Our generation assets include:-
     HINISA and HIDISA, two hydroelectric power generation systems with an aggregate installed capacity of 653.6 MW located in the Province of Mendoza, which we acquired in October 2006;-
     Güemes, a thermal generation plant with an installed capacity of 361 MW located in the Province of Salta, which we acquired in January 2007; 27






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-
     Loma de la Lata, a thermal generation plant with an installed capacity of 375 MW located in the Province of Neuquén (close to one of Argentina’s largest gas fields bearing the same name as the plant), which we acquired in May 2007;-
     Piedra Buena, a thermal generation plant with an installed capacity of 620 MW located in Ingeniero White, Bahia Blanca, in the Province of Buenos Aires, which we acquired in August 2007; and-
     EGGSA , a thermal generation plant with an installed capacity of 30 MW located in Piquirenda, General San Martin, in the Province of Salta, which we acquired in March 2011.Transmission.We participate in the electricity transmission business through our co-controllingin Transener, which owns, operates and maintains the largest high voltage electricitysystem in Argentina, and, through its subsidiary Transba, which owns and operates ahigh voltage transmission system located within the Province of Buenos Aires. We acquiredco-controlling interest in Transener in September 2006.Distribution.We are engaged in the electricity distribution business through our subsidiary Edenor,holds a concession to distribute electricity on an exclusive basis to the northwestern zone of theBuenos Aires metropolitan area and the northern portion of the City of Buenos Aires,an area of 4,637 square kilometers and a population of approximately seven million people.acquired our controlling interest in Edenor in September 2007. In March 2011, Edenor acquired ainterest in EDEN, an electricity distribution company with a concession area in the northcenter of Buenos Aires province, and in EMDERSA, which in turn controls EDESAL, EDELAREDESA. EMDERSA provides services to approximately 530,000 clients and EDEN to334,000 clients. Please see “Item 5. Operating and Financial Review and Prospects—Overview". In addition to our principal electricity assets, we hold other non-electricity assets and investments, including our investments in Petrolera Pampa S.A. (“Petrolera Pampa”); 100% of the outstanding bonds issued on April 22, 1997 by CIESA, the controlling company of TGS, as well as other credits against CIESA and the rights over certain lawsuits related to the debt of CIESA; a 10.0% stake of the share capital of CIESA; our investments in Bodega Loma de la Lata S.A., and our investments in Pampa Real Estate S.A. Please see “Item 5. Operating and Financial Review and Prospects—Overview”. 28






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The following chart sets forth our corporate structure as of the date of this annual report.  29






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Our Strengths We believe our main strengths are the following: Leader in the Argentine Electricity Sector. We are the largest fully integrated electricity company in Argentina. Through our subsidiaries or our co-controlled companies, we own approximately 7.1% of the total installed electricity generation capacity in Argentina, we own approximately 95% of the high voltage electricity transmission lines in Argentina and our distribution network serves the largest number of electricity customers in Argentina, which at December 31, 2010 amounted to 2.7 million customers. In 2011, we added approximately 0.9 million new distribution customers through our acquisition of EDEN and EMDERSA (and its subsidiaries). By being a large consumer of natural gas for industries, we also became a relevant participant in the energy sector and have entered into investment agreements with key leading companies in theoil and gas production sectors in Argentina. As a result of our leading position in the electricity market and our participation in the energy market, we seek to maintain an ongoing dialogue with the Argentine government and regulators about issues related to the electricity and energy industries and possible improvements to the regulatory framework in which our businesses operate.Local Presence and Expertise. We believe that our senior management’s local presence and expertise are important strengths. Our management team has significant experience working in the Argentine energy sector, and understands the complexities of the Argentine business environment, including operating within a stringent regulatory framework. In addition, we have a proven track record of identifying and executing attractive investment opportunities, structuring innovative solutions and rapidly executing them. We have recently negotiated the acquisition of attractive distribution assets with additional potential for synergies and also debt and rights from the holding company of TGS that we expect could result in us becoming a co-controllers of TGS. We believe that our management team is well positioned to continue to identify and take advantage of opportunities in the Argentine electricity and energy sectors.One of the Most Seasoned Management Teams. It has been among our highest priorities to create one of the most experienced management teams in the electricity industry, based not only on the quality and experience of the executive officers that joined our business as a result of our acquisitions, but also based on the members of such management teams that we have recruited. Our generation segment has strong and stable operating management teams that have not changed significantly since our acquisition of these companies. Our distribution and transmission segments are operated entirely by their own management teams, each with significant experience and expertise in their respective sectors. We have also started to build our energy team with experienced professionals and to maximize transferable experience between sectors. We rely on them to continue to run these businesses and encourage interaction among all the teams to broaden and enhance their knowledge and understanding of the electricity and energy sectors in Argentina, which in turn creates productive and lasting synergies among the managerial teams in each of our sectors. In turn, we provide these companies with financial expertise and administrative direction, such as assistance in the sourcing and restructuring of their financial debt and the development and structuring of new projects.Attractive Client Base in a Highly Developed Area of Argentina.Through our subsidiary Edenor, we distribute electricity on an exclusive basis in the northwestern zone of the greater Buenos Aires metropolitan area and the northern portion of the City of Buenos Aires, which is one of Argentina’s largest industrial and commercial centers. Edenor has a highly concentrated, urban client base characterized by high purchasing power and low delinquency in payments of electricity (with an average of less than four days of past due bills outstanding). Edenor’s geographically concentrated and urban client base also allows it to operate more efficiently with relatively lower distribution costs.Efficient Capital Structure.We have been able to timely and successfully access the capital markets and the bank market to fund our growth and our expansions. In September 2006, we completed a Ps. 345 million capital increase, which was followed by a Ps. 1.3 billion capital increase in February 2007. We were also able to take advantage of negative global capital market conditions that started in 2008 to repurchase 39% of our outstanding debt and 14% of our then outstanding shares at asignificant discount to face and book value, respectively. Our transmission and distribution segmentshave successfully completed comprehensive debt restructuring transactions that significantly improvedtheir financial position and capital structure. During 2010 our distribution segment was able torefinance and extend its maturity profile; it issued U.S. $230.3 million of Senior Notes due 2022 and atthe same time exchange or cancelled U.S. $123.3 million of notes due in 2017. In 2011, Edenor issuedU.S. $69.7 million of Senior Notes due 2022, completing the original amount of the series of up toU.S. $300 million. During 2010 Edenor also cancelled all outstanding 2016 notes and U.S. $65.3million of notes due 2017. See “Item 5. Operating and Financial Review and Prospects—Liquidityand Capital Resources—Debt.” We believe we are well positioned to further develop our existingelectricity and energy assets and to continue to take advantage of new opportunities in both sectors. 30






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Strong Alignment of Interests between our Senior Managers and our Minority Shareholders.As a result of our compensation scheme and the warrants held by our senior managers (Marcelo Mindlin, Damián Mindlin, Gustavo Mariani and Ricardo Torres), we believe that the economic interests of our senior managers are strongly aligned with the economic interests of our minority shareholders. All of our senior managers are shareholders of our company. In addition, the warrants that they collectively hold were issued to them in consideration for their commitment under the exclusivity and non-compete clauses included in the Opportunities Assignment Agreement pursuant to which they are required to recommend and offer to us investment opportunities in the electricity and energy sectors in or outside of Argentina. See “Item 6. Directors, Senior Management and Employees—Opportunities Assignment Agreement and Warrants.” Our Strategy Our business activities are focused on the development and value-enhancement of our electricity assets and our incipient energy business, while continuing to identify, evaluate and invest in other opportunities in the electricity and energy sectors in Argentina that we believe offer significant growth potential and/or synergies with our existing businesses. Our goal is to continue to deliver value to our shareholders by becoming a leading energy company in Argentina in terms of market share, operating excellence and profitability. We are seeking to realize this goal through the following key business strategies: Becoming Argentina’s Leading Company in the Supply of Electricity under the Energía Plus Plan and Other Market-Based Pricing Frameworks.We are currently completing the conversion of our Loma de la Lata thermal plant into a combined cycle, increasing its current installed capacity by approximately 176 MW. This expansion, estimated to be completed in the second half of 2011, will position us as the Argentine company with the largest installed new capacity available for the wholesale market under market-based pricing frameworks.Seeking Improvements to our Tariff and Pricing Schemes. We remain fully committed to working with the Argentine government to negotiate a new tariff regime for our distribution and transmission businesses that will provide us a reasonable return over these assets. In addition, we continue our efforts to improve the recognition of costs and margins of our existing generation assets.Increasing our Operating Efficiency. We are committing significant resources to achieving greater operating efficiency, reducing failure-related costs in our transmission business and improving the quality of our distribution services and the safety of our public infrastructure to allow us to reduce our energy losses to an optimal level. In addition, we seek to leverage the synergies of our various businesses and continue optimizing our commercial, administrative and technical resources in our generation segment, with special emphasis on identifying and fully developing all potential synergies of our recently acquired distribution assets with the efficient Edenor platform.Consolidating our Presence in the Energy Sector.We are committed to developing and implementing our current investment agreements with Petrobras and Apache to contribute to ensure the supply of natural gas to our generation units, and at the same time to continue to explore additional related business opportunities that can contribute to increase the profitability of our business. We are pursuing the final restructuring of the CIESA Debt with the expectation that this process would result in tangiblebenefits for CIESA, TGS, the shareholders of both companies and the users of the public serviceprovided by TGS, and also in a co-controlling interest in TGS for us. 31






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Identifying and Developing New Opportunities in the Electricity and Energy Sectors.We continue to seek and develop new opportunities in the electricity and energy sectors, including renewable energy and oil production projects. Through our extensive knowledge of and expertise in the electricity and energy sectors, we believe we are uniquely positioned to pursue any advantageous opportunities that may arise in these sectors in Argentina.Continue to Optimize our Capital Structure.Our management continues working towards the most efficient capital and financing structure at every company level, thereby maximizing value to our shareholders, and providing the flexibility required to continue taking advantage of new opportunities in the electricity and energy sectors. Our Generation Business The following chart depicts our electricity generation assets and our respective shares of the Argentine power generation market as of and for the year ended December 31, 2010 and 2009. Our generation operations derive revenues from the sale of electricity in the spot market and under term contracts, includingEnergía Pluscontracts. In addition, a portion of Güemes’ revenues is derived under long-term contracts for the exportation of electricity to Uruguay. When one of our units supplying a contract is not being dispatched, we purchase the energy required to supply that contract from the spot market. A unit may not be dispatched at a particular moment due to several reasons, including programmed and unscheduled maintenance or non dispatch by CAMMESA due to a declared operating costs that is higher than that of the marginal cost at that given moment.  Hidroelectric
     
     Thermal
     
     TotalSummary of Electricity Generation Assets
     
     HINISA
     HIDISA
     
     CTG
     CTLLL
     CPBInstalled Capacity (MW)
     
     265
     388
     
     361
     369
     620
     
     2,004Maket Share (1)
     
     0.9%
     1.4%
     
     1.3%
     1.3%
     2.2%
     
     7.1%Net Generation Jan-Dec 2010 (GWh)
     
     778
     538
     
     1,533
     448
     2,646
     
     5,943Maket Share(2)
     
     0.7%
     0.5%
     
     1.4%
     0.4%
     2.3%
     
     5.3%Sales Jan-Dec 2010 (GWh)
     
     1,080
     851
     
     2,523
     527
     3,481
     
     8,463Net Generation Jan-Dec 2009 (GWh)
     
     854
     600
     
     1,699
     926
     2,390
     
     6,469Variation Net Generation 2010 - 2009
     
     -8.9%
     -10.3%
     
     -9.8%
     -51.6%
     10.7%
     
     -8.1%Sales Jan-Dec 2009 (GWh)
     
     1,162
     927
     
     2,216
     1,297
     3,199
     
     8,802Average Price Jan-Dec 2010 (AR$ / MWh)
     
     158.7
     183.2
     
     217.3
     285.2
     394.4
     
     283.5
  Sources: Pampa Energía S.A. and CAMMESA(1)
     Percentage of total installed capacity in Argentina.(2)
     Percentage of total net generation in Argentina for the relevant period.Note: CTG(Güemes)includes physical equivalent to 326.2 GWh sold under Note 6866/09 in 2010. CTLLL (Loma de la Lata)includes physical equivalent to 47.6 GWh and 345.7 GWh sold under Note 6866 and 446 in 2010 and 2009. CPB (Piedra Buena)includes physical equivalent to 61.0 GWh sold under Note 6866/09 in 2010. For description of Note 6866 and Note 446, see"Item 5. Operating and Financial Review and Prospects - Cost of Sales"
  We are involved in several projects to increase the generating capacity of our generation assets within the framework of the Argentine government’sEnergía Plusregulations and other market-based pricing frameworks. We expect that, pursuant to these regulations, we will be able to charge market prices for electricity generated through such expanded capacity (subject to maximum profit margins approved by the Argentine government) to large customers in the WEM. See “—The Argentine Electricity Sector.” 32






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OurEnergía Plusprojects include: Güemes’ New Open-Cycle: this project is the first of theEnergía Plusexpansion projects to be completed. Construction was completed on the project in July 2008, and commercial operations began in September 2008. The project consists of a new natural gas-powered turbo generator. As a result of the commencement of commercial operations, Güemes’ installed capacity increased by approximately 40%, or an additional 100 MW, reaching a total installed capacity of approximately 361 MW. The supplier of the new equipment was GE Packaged Power. The new open-cycle has an efficiency of approximately 1,998 kilocalories per kilowatt hour (Kcal/KWh), or 43%.Loma de la Lata Project: this project consists of the expansion of Loma de la Lata’s current electricity generation capacity by 176 MW of nominal capacity by means of converting the plant into a combined cycle system generator. The project will increase Loma de la Lata’s capacity by approximately 50% with no additional gas consumption, resulting in increased efficiency for the whole plant. Loma de la Lata has entered into an engineering, procurement and construction contract for the installation and construction of one Siemens steam-turbine generator of approximately 176 MW of nominal capacity, three heat-recovery steam-generators and a water cooling tower. Loma de la Lata’s current 375 MW open cycle operates at an efficiency of approximately 2,650 Kcal/KWh, or 32.4%, and we currently expect that, upon completion of the project, Loma de la Lata’s combined cycle will operate at an efficiency of approximately 1,720 Kcal / KWh or 50% for 545 MW. Completion of the project is currently targeted for the third quarter of 2011. Due to technical faults in the steam turbine unit, which is part of Loma de la Lata’s installed capacity expansion project, commissioning for the commercialization of the combined cycle system generator has been postponed from its original target date. The project contractor, a joint venture (Unión Transitoria de Empresas, or “UTE”) between Isolux Corsan Argentina S.A. and Tecna Estudios y Proyectos de Ingeniería S.A., has disclosed a schedule, which indicates that the start of commercial operations could be delayed until approximately the end of the third quarter of 2011. Loma de la Lata has begun to take the steps necessary to collect both the anticipated contractual compensations, as well as the corresponding indemnifications from the insurance companies. On March 30, 2011, Loma de la Lata accepted an offer by the UTE pursuant to which mechanisms were established to solve the technical problems discussed above, as well as the procedures to be followed for the start of commercial operation of Loma de la Lata’s generation installed capacity expansion. Additionally, under the terms and conditions of such offer, the UTE in its role of contractor grants Loma de la Lata an exceptional discount equivalent to the amounts related to the last payment milestone under the Contracts (Provisional Acceptance), including the adjustments provided under the Construction Contract, which is valued at U.S. $18.0 million. Nihuiles and Diamante History In May 2006, we entered into a stock purchase agreement with EDF International S.A. (EDFI), a wholly owned subsidiary of Electricité de France (EDF), to acquire approximately 64.9% of the voting capital stock of Nihuiles and 56.0% of the voting capital stock of Diamante. Simultaneously, we entered into an agreement with Stein Ferroaleaciones S.A. (Stein) pursuant to which Stein agreed to pay 15% of the purchase price owed to EDFI in consideration for a 9.7% equity interest in Nihuiles and an 8.4% interest in Diamante. In addition, in June 2006, we made an offer to Banco Galicia to purchase its 12.5% interest in Nihuiles and its 12.5% interest in Diamante. On that same date, we also made an offer to Nucleamiento Inversor S.A. (NISA) to purchase its 22.6% interest in Nihuiles and its 31.5% interest in Diamante. All of these offers were accepted in June 2006 and all transactions, including the purchase from EDFI and the transaction with Stein, closed in October 2006. As a result of these transactions, we acquired 90.3% of the capital stock of Nihuiles and 91.6% of the capital stock of Diamante, for a total purchase price of U.S. $55.1 million, of which U.S. $4.9 million (plus interest) remains payable and is due in April 2012. We have pledged 12.5% of the capital stock of Nihuiles and 12.5% of the capital stock of Diamante to Banco Galicia as security for the payment of the remaining balance of the purchase price. In January 2008, we acquired the shares previously held by HIDISA’s Employee Participation Program, representing 2% of the stock capital of HIDISA. Following this acquisition, all Class C shares of HIDISA were converted to Class B shares, which are freely transferable to third parties. As a result, we currently control, directly and indirectly, 56% of the capital stock and voting rights of HIDISA. On December 18, 2009, the shareholders of HINISA agreed to cancel its Class “E” shares corresponding to HINISA’s Employee Stock Option Plan, representing 2% of its capital stock for Ps.4.4 million. As a result we now indirectly own 47.2% of the shares and votes of HINISA. 33






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In October 2006, we entered into a shareholders’ agreement with Ultracore Energy S.A. (Ultracore), a company controlled by the Stein family, and Stein, which sets forth the rights and obligations of the respective parties with respect to Nihuiles and Diamante. Among other things, such agreement provides for: (1)
     a right of first refusal in our favor;(2)
     a tag along right in favor of Ultracore, by which Ultracore is entitled to include its shares in any sale by us of our own shares;(3)
     the right of Ultracore to appoint one director and one alternate director in each of HINISA, HIDISA, Nihuiles and Diamante;(4)
     a veto right in favor of Ultracore in respect of certain governance matters; and(5)
     our obligation to cause HINISA’s board of directors to consider the execution of an electric energy supply agreement with Stein. In October 2006, we entered into an option agreement with Mr. Aldo Héctor Ostropolsky pursuant to which we granted him (for a price of U.S. $30,000) an option to purchase from us shares representing 1.62% of Nihuiles’ voting capital stock and shares representing 1.4% of Diamante’s voting capital stock, which option can be exercised by Mr. Ostropolsky during a period of eight years. Below are charts depicting the corporate structures of Nihuiles and Diamante as of the date of this annual report:  34






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Nihuiles Nihuiles is a holding company that owns Class A and Class B shares representing 31% and 20%, respectively, of the voting capital stock of HINISA, a hydroelectric generation company with an installed capacity of 265.2 MW and an effective capacity of 224 MW located in the Province of Mendoza. HINISA operates under a provincial concession for the hydroelectric use of water from the Atuel River, located in the department of San Rafael in the Province of Mendoza (approximately 1,100 km southwest of Buenos Aires) and under a national concession for the generation and commercialization of hydroelectric power. In addition, HINISA owns 4.4% of the capital stock of Termoeléctrica José de San Martín S.A. and 4.4% of the capital stock of Termoeléctrica Manuel Belgrano S.A. The Province of Mendoza currently owns Class D shares representing 10% of the capital stock of HINISA and Class C shares representing 37% of the capital stock of HINISA, and publicly announced in 2006 its intention to sell its Class C shares. Pursuant to HINISA’s public concession contracts, if the Province of Mendoza sells its Class C shares in HINISA, Nihuiles would be required to sell its Class B shares of HINISA (representing 20% of HINISA’s capital stock) through a public offering promptly after the Province’s sale of its Class C shares. Assuming that the Province of Mendoza sells its 37% interest in HINISA, and consequently Nihuiles is required to sell its Class B shares (representing 20% of the capital stock of HINISA), Nihuiles would no longer own a controlling interest in HINISA and would not be permitted to purchase any additional shares (of any class) of HINISA. Neither Nihuiles nor we have any control over the timing of the Province of Mendoza’s proposed sale or the price at which Nihuiles would be required to sell its Class B shares of HINISA. As a result, such shares may be sold at a time and price per share that is adverse to our interests. As of the date of this annual report, the Province of Mendoza has expressed no intention to modify HINISA’s by-laws. See “Item 3. Key Information—Risk Factors—Risks Relating to our Generation Business—We may no longer own a controlling interest in HINISA if the Province of Mendoza sells its participation in HINISA.” We are currently monitoring circumstances with the Province of Mendoza and analyzing our situation in order to preserve all available options to us in the event of a possible sale of the capital stock of HINISA by the Province. 36






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In addition, pursuant to Decree No. 334/06 promulgated by the Province of Mendoza, HINISA’s by-laws may be amended to ensure that the Province retains certain governance rights in HINISA after disposing of its Class C shares. The proposed amendments, which would be subject to the approval of our board of directors, would include the Province of Mendoza’s right to vote in respect of any of following actions: (1) any action that may directly affect the interest of minority shareholders, such as profit distribution policy, exploitation, management and external advisory costs, etc.; (2) changes to the terms and conditions relating to Nihuiles’ electricity generation as a result of the development of the Grande River and Atuel River projects; (3) certain changes to the operational conditions of Nihuiles; and (4) any agreements within the term market of the WEM. Pursuant to the Decree No. 1651/07 of the Province of Mendoza, the Province has initiated a public bidding process in order to select a financial advisor to advise the Province in the public offering of its Class C shares and, if such offering is successful, to advise the Province in the sale of its Class D shares. As of the date of this annual report, we are not aware of the selection of any such financial advisor. In addition, Decree No. 1838/08 of the Province of Mendoza states that, notwithstanding the provisions of Decree No. 1651/07, the time period granted to HINISA to obtain the authorization for a public offering of the Class C shares, remains suspended. As a result, HINISA is not currently seeking any authorization to complete a public offering. Diamante Diamante is a holding company that owns 59% of the voting capital stock of HIDISA, a hydroelectric generation company with an installed capacity of 388.4 MW located in the Province of Mendoza. HIDISA operates under a provincial concession for the hydroelectric use of water from the Diamante River, located in the department of San Rafael in the Province of Mendoza, and under a national concession for the generation and commercialization of hydroelectric power. HIDISA owns 2.3% of the capital stock of Termoeléctrica José de San Martín S.A. and 2.3% of the capital stock of Termoeléctrica Manuel Belgrano S.A. Summary of HINISA and HIDISA concessions HINISA’s and HIDISA’s main corporate purpose is the generation, sale and bulk trading of electric power through the exploitation of hydroelectric systems pursuant to the terms and conditions of the following concessions: Provincial concessions granted by the government of the Province of Mendoza with similar terms and conditions (for HINISA and HIDISA) and at each company’s own risk for the hydroelectric exploitation of the Atuel River, in the case of HINISA, and the Diamante River, in the case of HIDISA. These concessions were granted pursuant to Provincial Law No. 6,088 dated December 21, 1993 and related provisions.National concessions granted by the Argentine national government with similar terms and conditions (for HINISA and HIDISA) and at each company’s own risk for hydroelectric power generation through HINISA’s and HIDISA’s respective hydroelectric systems. These concessions were granted pursuant to Laws No. 15,336, No. 23,696 and No. 24,065 and related provisions. Term.The term of the HINISA and HIDISA concession agreements is 30 years, starting from June 1, 1994 in the case of HINISA and October 19, 1994 in the case of HIDISA. The concessions provided for the creation of the following authorities: The Secretariat of Energy, which is the governing authority under the concession granted by the Argentine government. Pursuant to Decree No. 570/96, the authority and responsibilities of the Secretariat of Energy were transferred to the ENRE;The Ministry of Infrastructure, Housing and Transportation of the Province of Mendoza, which is the governing authority under the concession granted by the provincial authorities;The Province of Mendoza Irrigation General Department, which is the governing authority with respect to irrigation matters (in cooperation with Obras Sanitarias de Mendoza S.A.); 36






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ORSEP, which is the governing authority with respect to dam safety matters; andThe Secretariat of the Environment of the Province of Mendoza, which is the governing authority with respect to environmental matters. Royalty payments.Each of HINISA and HIDISA is required under the respective concessions to make the following monthly royalty payments: Royalties in favor of (1) the Province of Mendoza, up to 12% in the case of HIDISA and up to 6% in the case of HINISA, and (2) the Province of La Pampa, up to 6% in the case of HINISA, in each case, of the amount resulting from the application of the corresponding bulk sale rate to the electricity sold, pursuant to the provisions of Section 43 of Law No. 15,336, as amended by Law No. 23,164. Pursuant to applicable regulations, in order to establish the basis for the calculation of such royalties, the monomic price (the price of electricity that includes both the price of energy and the capacity charge) of the electricity produced resulting from the following formula should be used: the sum of the value of power generated at the hour value fixed by the wholesale market plus the amount receivable for the power rendered to the spot market if such power were sold within a certain month, divided by the total power generated during the given month;Royalties in favor of the Argentine national government of (1) up to 2.5% of the amount used as the basis for the royalties calculation in the case of HIDISA, and (2) up to 1.5%, estimated on the same basis in the case of HINISA; andRoyalties in favor of the Province of Mendoza of up to 2.5% of the amount used as the basis for the royalties calculation for both HINISA and HIDISA. Contingency fund.HINISA and HIDISA, along with the other Argentine hydroelectric generation companies, are obligated to make quarterly payments to a foundation that owns and manages a contingency fund created to cover up to 80% of the aggregate amount of potential costs relating to any repair of the hydroelectric systems at any of the hydroelectric generation companies’ plants, including those of HINISA and HIDISA, that are not covered by their respective insurance policies. As a result of the economic crisis in Argentina in 2002, the foundation’s administrative council decided that the contribution to the contingency fund in U.S. Dollars required under the concessions, the bidding terms and conditions and the relevant provisions of HINISA’s and HIDISA’s by-laws should be converted into Pesos at an exchange rate of Ps. 1.00 = U.S. $1.00. The indexation clauses contained in such concessions were also replaced with the “CER” (a benchmark stabilization coefficient). Upon the conversion from U.S. Dollars to Pesos, the Peso value of the contingency fund exceeded the required funding. As a result, HINISA and HIDISA, along with the other hydroelectric generation companies, have suspended payments to the contingency fund. However, we can make no assurance that HINISA and HIDISA will not be required to resume making payments to the contingency fund in the future. From the effective date of the concessions until the suspension of payments, HINISA and HIDISA made contributions totaling U.S. $1.3 million and U.S. $1.9 million, respectively. HINISA and HIDISA are subject to potential penalties and fines under their respective concessions that are calculated on the basis of the aggregate gross amount invoiced for the 12-month period preceding the imposition of any such penalty. Such penalties and fines range from 0.1% to 1% (in cases of breach of the terms of the agreement or regulations applicable to electric power generation, dam safety, water management, environmental protection, and non-compliance of instructions from ORSEP, CAMMESA, any of the governing authorities or the ENRE); from 0.02% to 0.2% (in cases of delays or lack of payment of contributions to the contingency fund and insurance policies and for taking action without prior authorization of the respective governing authorities), from 0.01% to 0.1% (in cases of failure to submit any requested information or failure to file mandatory reports); from 0.03% to 0.3% (in cases of failure to keep routes and roads open to traffic and free from soil, air or water pollution, and delays in the fulfillment of mandatory works) and from 1% to 10% (in cases of any actions considered by the governing authorities as termination events under the concessions). In the event that the fines levied over a 12-month period exceed 20% of the gross amount invoiced for power sales, the granting authority would be entitled to terminate the relevant concession agreement. 37






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Performance guaranties.As security for the performance of their obligations under the respective concessions, HINISA and HIDISA have each deposited Ps. 2.0 million for the benefit of the relevant granting authority under the respective concession. Absent any set off by the relevant granting authority in the event of a breach or any other event of non-compliance under the terms of the respective concession agreements, the guarantee amounts would be released to HINISA and HIDISA, respectively, upon the expiration or termination of the respective concession agreements. Termination of concessions.HIDISA and HINISA’s concession agreements may be terminated for the following reasons: Breach of material contractual and legal obligations. In such case, HINISA or HIDISA, as applicable, shall remain in charge of their concessions during a transitional period established by the granting authority, not exceeding 12 months, and shall indemnify the Argentine national government and the Province of Mendoza for any damages caused (the granting authorities may also apply the performance guarantee amounts toward the payment of any damages). Within 90 days following the receipt of the relevant termination notice, a new company must be incorporated, which would be granted a similar concession and a public bidding process would be called for the purpose of selling the shares of such newly formed company. After deducting all fines, interests and withholdings for prospective claims, the balance would be distributed to HINISA or HIDISA, as applicable, as the only compensation for the transfer of the concessions;Certain bankruptcy events in respect of HINISA or HIDISA (as applicable), including any liquidation or winding-up proceedings. In such case, the termination of the relevant concession shall be automatic;Force majeureor certain actions by third parties that prevent the compliance by HINISA and HIDISA of their respective obligations under their respective concession agreements;Termination by the granting authority due to a breach of its contractual and/or legal obligations; orExpiration of the respective terms of the concession agreements. In addition, Section 14(d) of Law No. 6088 of the Province of Mendoza provides for the termination of the concessions for reasons of public interest or expropriation for public use. After the termination of the concession agreements for any cause, any assets transferred to HINISA and HIDISA under the respective concession agreements shall be reassigned to the Province of Mendoza and the Argentine national government, as applicable. HINISA’s operations HINISA holds a concession for the generation, sale and bulk trading of electricity from Nihuiles’ hydroelectric system (the Nihuiles System). The Nihuiles System consists of three dams and three hydroelectric power generation plants (Nihuil I, Nihuil II and Nihuil III), as well as a compensator dam, which is used to manage the system’s water flow for irrigation purposes. The Nihuiles System is located in the Atuel River in the department of San Rafael in the Province of Mendoza. The City of San Rafael is located approximately 1,100 km southwest of Buenos Aires and 75 km from Nihuil I. The Nihuiles System covers a total distance of approximately 40 km with a height ranging from 440 m to 480 m. The Nihuiles System has a total nominal installed capacity of 265.2 MW and effective power of 224 MW. Since 1990, the average annual generation has totaled 908 GWh, with the highest level of generation (1,250 GWh) recorded in 2006 and the lowest level (681 GWh) recorded in 1999. HINISA sells power under 247 contracts for a total of 60 MW of contracted capacity. The current outstanding contracts were entered into between 2009 and 2010 and expire between 2011 and 2012. We currently expect that most of these contracts will be renewed. 40.1% of HINISA’s sales were into the term market under the contracts described above, and 59.9% were to the spot market. Total revenues for the year ended December 31, 2010 were Ps. 171.9 million, corresponding to a net generation of 778 GWh, 8.9% lower than in 2009, with a hydraulic contribution of 878 Hm3, 8.0% lower than in 2009. In 2010, HINISA made 60% of its sales in the spot market. 38






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The following chart shows certain relevant statistical data on HINISA: 2010
     2009
     2008
     2007
     2006
     2005Net Generation (GWh)
     778
     854
     886
     1,053
     1250
     1028Energy Purchases (GWh)
     302
     308
     370
     395
     434
     415Total Energy Sales (GWh)
     1,080
     1,162
     1,256
     1,448
     1684
     1443
  HIDISA’s operations HIDISA holds a concession for the generation, sale and bulk trading of electricity from Diamante’s hydroelectric system (the Diamante System). The Diamante System consists of three dams and three hydroelectric power generation plants (Agua del Toro, Los Reyunos and El Tigre). The Diamante System covers a total distance of approximately 55 km with a height differential between 873 m and 1,338 m. The Diamante System has a total nominal installed capacity and effective power of 388.4 MW. Since 1990, the average annual generation has totaled 612 GWh, with the highest level of generation (943 GWh) recorded in 2006 and the lowest level (375 GWh) recorded in 1997. HIDISA sells power under 188 contracts for a total of 66 MW of contracted capacity. The current outstanding contracts were entered into between 2009 and 2010 and have expiration dates between 2011 and 2012. We currently expect that most of these contracts will be renewed. In 2010, 48.3% of HIDISA’s sales were into the term market under the contracts described above, and 51.6% were to the spot market. Total revenues for the year ended December 31, 2010 were Ps. 155.9 million, corresponding to a net generation of 538 GWh, 10.3% lower than in 2009, with a hydraulic contribution of 1,005 Hm3, 1.4% higher than in 2009. In 2010, HIDISA made 52% of its sales in the spot market. The following chart shows certain relevant statistical data on HIDISA: 2010
     2009
     2008
     2007
     2006
     2005Net Generation (GWh)
     538
     600
     617
     700
     943
     666Energy Purchases (GWh)
     313
     327
     351
     356
     345
     309Total Energy Sales (GWh)
     851
     927
     968
     1,056
     1288
     975
  Central Térmica Güemes History Our subsidiary Güemes, located in the northwestern region of Argentina, in the City of General Güemes, Province of Salta, is a major generator within the WEM. Güemes was privatized in 1992 and awarded to the consortium composed of Iberdrola, Duke, TCW and certain other investors. The purchase price paid by this consortium was U.S. $86.2 million for 60% of the capital stock of Güemes, in addition to the assumption of U.S. $60 million in indebtedness. 39






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In November 2006 and December 2006, we entered into purchase agreements to acquire indirect control of Güemes for a total purchase price of U.S. $16.6 million. In January 2007, we consummated the acquisition through the purchase of (1) 100% of the voting capital stock of Dilurey S.A. (Dilurey), a corporation organized under the laws of Uruguay, which held at that time 90% of the capital stock of Powerco S.A. (Powerco), a corporation organized in the Province of Salta, which in turn owned 60% of the voting capital stock of Güemes, and (2) an additional 8% of the capital stock of Powerco. On June 9, 2010 Dilurey changed its name to Pampa Inversiones S.A. (Pampa Inversiones). In November 2006, we also entered into a one-year option agreement with Mr. Carlos Armando Peralta, the former chief executive officer of Güemes, pursuant to which Mr. Peralta and we each had an option to sell or purchase, respectively, shares of Powerco representing 2% of Powerco’s capital stock held by Mr. Peralta. In August 2007, pursuant to this option agreement, we acquired the remaining 2% of the capital stock of Powerco from Mr. Peralta for U.S. $460,000. In September 2007, Loma de la Lata, one our wholly owned subsidiaries, subscribed 180,869,600 non-voting preferred shares issued by Güemes, which were subsequently converted into ordinary shares (representing 74.19% of Güemes’ total voting capital stock). In addition, on October 3, 2008, we acquired all of the shares of the Güemes employee stock ownership program (representing 2.58% of Güemes’ total voting capital stock), and as a result we currently hold directly and indirectly 92.26% of Güemes’ total voting capital stock. Aside from our ownership interest in Güemes, the Argentine national government owns 7.74% of Güemes’ voting capital stock. Below there is a chart depicting the corporate structure of Güemes as of the date of this annual report:  Operations The following chart shows certain relevant statistical data on Güemes:  2010
     2009
     2008
     2007
     2006
     2005Net Generation (GWh)
     1,533
     1,699
     1,724
     1,643
     1666
     1617Energy Purchases (GWh)
     664
     521
     252
     123
     116
     206Total Energy Sales (GWh)
     2,523*
     2,220
     1,976
     1,766
     1782
     1823
  * Includes sales as per Note 6,866 for 326 GWh physical equivalents. For a description of Note 6,866, please see “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Results of Operations—Cost of Sales.”
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Güemes has a total installed capacity of 361 MW, comprised of 261 MW steam generation units and a 100 MW gas combustion turbine. Güemes had net production of 1,533 GWh in 2010. Güemes provides system quality assurance (frequency and voltage) to the northwestern and northern regions of Argentina and its proximity to major gas fields permits Güemes to enter into very competitive supply contracts in terms of price, quality, volume and delivery conditions throughout the year. Güemes steam turbines are open cycle generation units with a gross capacity of 261 MW (245 MW of nominal capacity) and an average availability level of net production of 1.7 million MWh per year. Güemes steam turbine equipment is comprised of two Skoda steam turbines with a gross capacity of 63 MW (60 MW of nominal capacity) each and a third Skoda steam turbine with a gross capacity of 135 MW (125 MW of nominal capacity). Güemes gas turbine equipment is comprised of a GE MW LMS100 aero-derivative gas-fired turbine generator with a gross capacity of 100 MW. Güemes mostly sells electricity to the local term market, to the Energía Plus market (see “Güemes - Expansion Project” below) and for export. During 2010 Güemes sold 617 GWh to the local term market under 40 contracts representing a total of 87 MW of contracted capacity, 573 GWh to the Energía Plus market (see “Güemes - Expansion Project” below), and 267 GWh in relation to its export contract. Güemes entered into an electricity export agreement with Comercializadora de Energía del Mercosur S.A. (“CEMSA”) for the sale of 150 MW of generation to support CEMSA’s sales to the Administración Nacional de Usinas y Transmisiones Eléctricas de la República del Uruguay (UTE). This agreement, executed in February 2003 with an original term of two years, was later extended until October 31, 2009. In November 2009, Güemes renegotiated the agreement including new pricing terms. The agreement was approved by the Secretary of Energy in December 2009 by means of Resolution No. 1076/2009. The new agreement is effective from January 2010 through November 2011. A Minimum Availability Payment (“MAP”) clause was set at U.S. $400,000 per month and the price for energy actually delivered was set at U.S. $77 per MWh from January 2010 through April 2010. This price scheme will be adjusted every six months, to take into consideration potential changes in gas prices. The MAP recovery in favor of UTE is triggered if Güemes is unable to deliver electricity for at least 37 hours during a two-month rolling period. The amount of recovery available in connection with the MAP is equal to one month’s payment for every two months during which such non-delivery occurs. If there are no export restrictions but Güemes fails to deliver electricity when requested by UTE because of its own unavailability or transmission constraints, UTE would withhold from the MAP the price of the energy not delivered for up to 80% of the MAP. In November 2010, Güemes entered into a second addendum to the UTE 150 MW Export Agreement with CEMSA for the period November 2010-November 2011, which sets the energy price at U.S. $77 per MWh and keeps the MAP at U.S. $ 400.000 per month, with the exception of the period May 2011 to September 2011, in which there is no such payment. As of the date of this annual report, we cannot assure you that this agreement will be renegotiated beyond November 2011. Güemes’ current installed generation (361 MW) has an estimated maximum gas consumption level of 2,250 dam3/day, which is a measure of the volume of gas consumed in a day. One cubic decameter per day is equal to 1,000 cubic meters per day. Güemes is currently a party to a 200 dam3/day gas supply contract with Tecpetrol S.A. (interruptible) that is scheduled to expire in April 2011 (expected to be renegotiated based on the producer’s availability of gas), and two contracts with Pan American Energy, one for 550 dam3/day (70% take or pay), which is scheduled to expire in December 2011, and another with a monthly variable volume. In September 2010, an agreement was entered into with ENARSA for the provision of gas imported from Bolivia. During 2011, Güemes will keep the agreement with ENARSA for an Agreed Daily Maximum Quantity of 500 dam3 per day. This amount will be increased to 700 dam3 per day when the Juana Azurduy gas pipeline becomes operational. As of the date of this annual report, we estimate this pipeline to be operational by the end of June 2010. With respect to gas transportation contracts, Güemes is currently a party to a 350 dam3 per day firm transportation contract with Transportadora de Gas del Norte S.A. (TGN) that is scheduled to expire in 2027, a 500 dam3 per day distribution contract with Gasnor that is scheduled to expire in May 2012, a 250 dam3 per day firm transportation contract (also with Gasnor) which expires in 2011 and finally a 440 dam3 per day non – firm gas transportation contract with Gasnor which also expires in 2011. We expect to renegotiate Gasnor’s contracts expiring in 2011. In 2011, we expect that Güemes’ generation will depend on electricity demand in the Provinces of Salta and Jujuy, on new generation capacity available in that region and on transmission restrictions. A new 132 kv transmission line linking Cobos with Salta Norte is expected to become operational in 2011 and will permit the dispatch of one of the 63 MW steam turbines as base load. Güemes will be able to dispatch its full installed capacity without restrictions when the new North West Region to North East Region (NOA-NEA) 500Kv. high voltage transmission line becomes operational, which we expect to occur by October 2011. 41






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Güemes expansion project Consistent with our strategy of enhancing the value and profitability of our generation assets by expanding the generating capacity of certain of our power generation plants within the framework of theEnergía Plusregulations, in 2008 we completed the first of these projects, which expanded Güemes’ generation capacity through the installation of a new, state-of-the-art gas-fired turbine. Construction was completed on the project in July 2008, and commercial operations commenced in September 2008. Güemes’ installed capacity increased by approximately 40%, or an additional 100 MW, reaching a total installed capacity of approximately 361 MW. The new open-cycle has an efficiency of approximately 1,961 kilocalories per kilowatt hour (Kcal/KWh), or 43.8%. Our investment in this expansion project totaled approximately U.S. $65 million. Royalty assignment agreement In June 2007, Güemes and the Province of Salta entered into a royalty assignment agreement pursuant to which the Province has agreed to assign to Güemes approximately 400,000 m3 per day of natural gas which the Province is entitled to collect as in-kind royalties in respect of natural gas produced within the provincial territory. In consideration for such assignment, Güemes will pay a 5% premium over the applicable average wellhead gas price. The term of the agreement is five years, starting from the date of the first delivery of natural gas, and is subject to an automatic renewal clause. The daily amount under the agreement can be increased to 500,000 m3 per day if the production of gas in the Province of Salta increases from its current levels. As of the date of this annual report, Güemes had not requested any deliveries under this agreement because it was able to supply the new 100 MW of generation with gas contracted with local producers. Loma de la Lata History In December 2006, Central Puerto S.A. (Central Puerto) agreed to sell and assign to us all of the property (both tangible and intangible), land, assets, equipment and personnel (including contracts relating to management personnel) that comprised Central Puerto’s thermal generation plant located at Loma de la Lata in the Province of Neuquén, for a total purchase price of U.S. $60 million. The purchase of the Loma de la Lata generation asset from Central Puerto was consummated in May 2007. Operations Loma de la Lata owns the thermal generation plant located at Loma de la Lata in the Province of Neuquén, which has an installed capacity of 375 MW, and an average effective capacity of369 MW. The Loma de la Lata plant has three gas turbines with an installed capacity of 125 MW each (123 MW average effective capacity each)and is located near one of the largest gas fields in Argentina bearing the same name. Loma de la Lata had a net production of 448 GWh in 2010. The following chart shows certain relevant statistical data on Loma de la Lata:  2010
     2009
     2008
     2007
     2006
     2005Net Generation (GWh)
     448
     926
     1,745
     1,772
     1263
     1253Energy Purchases (GWh)
     32
     26
     72
     27
     31
     43Total Energy Sales (GWh)
     527*
     1,297*
     1,817
     1,799
     1294
     1296
 *Includes sales as per Note 6,866 for 47 GWh and 345 GWh physical equivalents in 2010 and 2009, respectively. For a description of Note 6,866, please see “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Results of Operations—Cost of Sales.”
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Loma de la Lata expansion project We plan to expand the generating capacity of Loma de la Lata by building and installing within the current plant the generation facilities and equipment required to convert the plant’s existing units into a combined cycle gas-fired power plant. This development plan provides for three heat recovery steam generators and a new turbosteam electric generation unit whose operation will take advantage of the hot gas being released by the existing Loma de la Lata gas turbines. The installation of the steam turbine will provide a combined cycle system that is expected to increase the plant’s capacity by approximately 50%, or 176 MW of nominal capacity, bringing the plant’s total capacity to approximately 545 MW. The steam that will power the steam turbines is a natural by-product of the current operations at the plant, and the expansion will require no additional gas consumption. Completion of the Loma de la Lata expansion project requires the installation of: one Siemens steam-turbine generator of about 176 MW of nominal capacity;three heat-recovery steam-generators;a water-cooling tower; andother ancillary installations related to a combined cycle plant. In September 2007, Loma de la Lata entered into a construction agreement and a materials, equipment and off-shore supply agreement with the Spanish company Isolux Corsan Argentina S.A. and certain of its subsidiaries (the “UTE”). Work on the expansion project was advancing according to the terms of these agreements, and the combined cycle was expected to be tested and synchronized with the grid in the first quarter of 2011. Due to technical faults in the steam turbine unit, which is part of Loma de la Lata's installed capacity expansion project, commissioning for the commercialization of the combined cycle system generator has been postponed from its original target date. The UTE has disclosed a schedule, which indicates that the start of commercial operations could be delayed until approximately the end of the third quarter of 2011. Loma de la Lata has begun to take the steps necessary to collect both the anticipated contractual compensations, as well as the corresponding indemnifications from the insurance companies. On March 30, 2011, Loma de la Lata accepted an offer by the UTE pursuant to which mechanisms were established to solve the technical problems discussed above, as well as the procedures to be followed for the start of commercial operation of Loma de la Lata’s generation installed capacity expansion. Additionally, under the terms and conditions of such offer, the UTE in its role of contractor grants Loma de la Lata an exceptional discount equivalent to the amounts related to the last payment milestone under the Contracts (Provisional Acceptance), including the adjustments provided under the Construction Contract, which is valued at U.S. $18.0 million. The current target date for the commencement of commercial operations of the Loma de la Lata expansion project is by the third quarter of 2011. The Loma de la Lata expansion project is expected to cost an aggregate of U.S. $215.4 million (not including financing costs, VAT and other taxes but deducting the exceptional discount provided under the agreement with the UTE described above). As of the December 31, 2010, Loma de la Lata had paid U.S.$206.0 million of this amount. Loma de la Lata is financing a portion of the remaining cost of the expansion project through two facility agreements with ABN AMRO Bank N.V., Standard Bank Plc. (in their capacity as lenders), and ABN AMRO Bank N.V., Argentine Branch (in its capacity as administrative agent and valuation agent), entered into in May 2008. We provided full and unconditional guarantees for each of these facility agreements, and an additional guarantee was granted by the deposit in an escrow account of the portion of the proceeds of the September 2008 issuance, in the local Argentine market, of U.S. $178 million aggregate principal amount of 11.25% Loma de la Lata senior notes due 2015, which are also guaranteed by us until satisfaction of certain conditions, primarily related to the completion of the expansion project. Loma de la Lata plans to use the remainder of the proceeds to make payments under other agreements related to the expansion project and refinance other debt related to the expansion project. See “Item 5. Operating and Financial Review and Prospects—Debt” for a description of these new notes, including amortization and interest payment terms and mandatory repurchase offer in case of change of control in Loma de la Lata. On October 4, 2009 Loma de La Lata entered into an agreement with CAMMESA to sell part of the net capacity resulting from the expansion project and the corresponding electricity generated. This agreement covers a minimum of 50% of the Project’s net capacity, with the final percentage to be determined at the time the project starts its commercial operation and will depend on the amount of credits, from Loma de La Lata’s or third parties, arising from Resolution 406/2003 from the Secretariat of Energy of Argentina, that are allocated to the project. The agreement sets a capacity payment of U.S.$33,383 per MW-month and an energy payment of U.S.$4 per MWh. The term of the agreement is 10 years from the date the project starts its commercial operation. Loma de la Lata intends to sell the remaining electricity generated by the additional power generation capacity resulting from the Loma de la Lata expansion project under theEnergía Plusprogram. 43






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On September 8, 2008, Loma de la Lata sold an Alstom turbine for approximately Ps. 84.7 million. Loma de la Lata had acquired this turbine for its use in potential generation projects. As a result of changes in technical and economic circumstances in connection with the projects for which the turbine had been purchased, Loma de la Lata decided to sell this asset. We recorded a Ps. 61.2 million loss in our consolidated financial statements as of December 31, 2008 included elsewhere in this annual report in connection with this sale. Natural gas supply To be able to sell the electricity generated by the Loma de la Lata expansion project within theEnergía Plusmarket and under the agreement with CAMMESA rather than in the spot market (as described above), Loma de la Lata will need to have firm gas supply contracts in place at the time it begins commercial operations. Loma de la Lata is located close to the largest gas field in Argentina, which bears the same name. This gas field is 100% owned by Yacimientos Petrolíferos Fiscales S.A. (“YPF”), the largest oil and gas company in Argentina, controlled by the Spanish energy company, Repsol YPF. The Loma de la Lata gas field delivers approximately 33,000 dam3 per day. Loma de la Lata’s maximum gas consumption is estimated at approximately 2,800 dam3 per day. Loma de la Lata has also acquired from Central Puerto the gas pipeline that connects the plant to YPF’s gas field and is able to enter into gas supply agreements with gas producers other than YPF and then swap them with YPF in exchange for gas at the site. Because the Loma de la Lata’s expansion project will help reduce the consumption of fuel oil by the Argentine electric system, Loma de la Lata has been granted by the Secretariat of Energy the right to pass through, in its variable cost of production, the cost of gas that Loma de la Lata purchases through the Gas Plus scheme. Gas Plus is a program launched by Secretariat of Energy in order to stimulate natural gas production in tight sands and other new fields. As stated in Resolution 24/2008, producers of natural gas will receive a higher price for natural gas volumes sold under this program, but the profit for each development project has to be approved by the Secretariat of Energy. The authorized prices of Gas Plus as of the date of this annual report (U.S. $5.00 per MM BTU to U.S. $5.22 per MM BTU) are higher than that of the regulated gas price for thermal generation. As a result of this agreement Pampa Energía S.A., and Loma de la Lata in particular, will become an important consumer of Gas Plus in Argentina. As of the date of this annual report, Loma de la Lata is a party to the following gas agreements: Firm gas supply agreements with Apache Energía Argentina S.R.L. for up to 800 dam3 per day and 595 dam3 per day, both expiring in 2013,Firm gas supply agreements with Petrobras Argentina S.A. for up to 400 dam3 per day expiring 15 months from the commercial operations date of Loma de la Lata, and for up to 228 dam3 per day expiring 4 years from the commercial operations date of Loma de la Lata’s expansion project,Firm gas supply agreement with Pan American Energy LLC Sucursal Argentina for up to 800 dam3 per day expiring in December 2011,Firm gas supply agreements with Petrolera Pampa S.A. for up to 172 dam3 per day expiring 4 years from the commercial operations date of Loma de la Lata’s expansion project, and for up to 105 dam3 per day expiring in 2013, and 44






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Transportation agreements with TGS and Transportadora de Gas del Norte S.A. (TGN), which allows Loma de la Lata to receive natural gas from natural gas producers other than YPF and to store gas if for any reason the plant is not able to burn the gas assigned. Instead of returning the gas to the gas producer, the gas is “stored” in the pipeline. Central Piedra Buena History In July 2007, we entered into a stock purchase agreement with Albanesi S.A. and certain subsidiaries of MatlinPatterson for the acquisition of 100% of the capital stock of CIE, which in turn holds 100% of the capital stock of Central Piedra Buena S.A. (Piedra Buena), which owns a thermal generation plant located in Ingeniero White, Bahía Blanca, in the Province of Buenos Aires, approximately 600 kilometers from the City of Buenos Aires. The total purchase price for the acquisition, which closed in August 2007, was U.S. $85 million and also included the acquisition of 100% of the capital stock of IPC Operations Limited, a company organized in the United Kingdom whose Argentine subsidiary provides certain management services to Piedra Buena. Operations Piedra Buena is an open-cycle thermal generation plant with an installed capacity of 620 MW, consisting of two identical conventional units (Unit 29 and Unit 30) with a capacity of 310 MW each. Piedra Buena can be powered either by natural gas or by No. 6 fuel oil (though it was originally designed and partially equipped to burn coal as well). The plant currently stores up to 60,000 m3 of fuel oil in two separate storage tanks and owns, operates and maintains a 22-kilometer natural gas pipeline that is connected to the main pipeline of TGS. Furthermore, given Piedra Buena’s 39-hectare area, the plant’s fuel storage capacity could be expanded. Piedra Buena supplies the electricity it generates through its 27-kilometer 500 kV transmission lines, which are connected to the 500 kV transmission system. In addition, Piedra Buena has its own facilities at the Bahía Blanca port, and although Piedra Buena shares these facilities with other companies, it has a priority right to use the port’s loading facilities. Piedra Buena sells electricity to the spot market and the local term market. During 2010 Piedra Buena sold 1,000 GWh to the local term market under 176 contracts for a total contracted capacity of 175 MW. Piedra Buena has an estimated maximum fuel consumption of 3,900 dam3 per day when running on natural gas and 3,400 tons per day when running on fuel oil. Piedra Buena had a net production of 2,646 GWh in 2010. Of this amount, Piedra Buena generated 1,463 GWh of electricity using natural gas and the remaining 1,183 GWh using fuel oil, consuming a total of 150,653 dam3 of natural gas and 568,515 tons of fuel oil. The following chart shows certain relevant statistical data on Piedra Buena: 2010
     2009
     2008
     2007
     2006
     2005Net Generation (GWh)
     2,646
     2,390
     3,312
     3,035
     2192
     1958Energy Purchases (GWh)
     774
     808
     415
     10
     12
     12Total Energy Sales (GWh)
     3,481*
     3,198
     3,727
     3,045
     2204
     1970
 *Includes sales as per Note 6,866 for 61 GWh physical equivalents. For a description of Note 6,866, please see “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Results of Operations—Cost of Sales.”
 The price of the electricity generated with fuel oil is regulated by the Secretariat of Energy. In 2008, the Secretariat of Energy changed the amount paid to generators in exchange for energy generated through fuel oil and financed by the generators. The price paid by generators for the purchase of fuel oil was capped at U.S. $60.50/barrel plus an additional 10% of the total purchase cost for financial and administrative charges. In recognition of this price increase, the Secretariat of Energy instructed CAMMESA to recognize, as of April 24, 2008, the maximum capped price plus the 10% administrative cost, plus the cost of shipping the fuel oil, for the purchase of fuel oil of national origin by electricity generators. In October 2008, in reaction to significant variations in the price of crude oil and its derivatives in the international fuel market, the Secretariat of Energy again revised the calculation for the price of fuel oil. Specifically, the Secretariat of Energy instructed CAMMESA to recognize, as of November 1, 2008, a price based on a weekly average of 10 listed prices, less a differential of U.S. $2.50/barrel, plus the 10% for administrative and financial expenses, plus the shipping cost. In the event that listed prices in the international market increase, the maximum benchmark price to be recognized will be U.S. $60.50/barrel, plus the 10% for administrative costs, plus the cost of shipping. 45






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As of the date of this annual report, Piedra Buena is party to an interruptible gas supply contract with Powerco (4,000 dam3 per day) and non-firm agreements with certain producers which are dependent on the availability of gas of those producers (Pan American Sur, Total Austral) at the time Piedra Buena requires it. Piedra Buena is also party to an interruptible gas transportation contract with Camuzzi Gas Pampeana for a daily-variable capacity, and to interruptible gas transportation contracts with TGS for up to 3,600 dam3 per day. Piedra Buena also is a party in firm natural gas transportation capacity agreements for 181 dam3 per day with Powerco, and for another 181 dam3 per day with TGS. Ingentis project The Ingentis project involved the construction of a new electricity gas-fired generation plant in the Province of Chubut. As of the date of this annual report, we own 50.05% of the capital stock of the project company, Ingentis S.A. (“Ingentis”), the Province of Chubut owns 39% of the capital stock, and Petrominera Chubut S.E. owns the remaining 10.95% of the capital stock. In August 2007, Ingentis and the Province of Chubut entered into a royalty assignment agreement pursuant to which the Province of Chubut agreed to assign to Ingentis the right to receive the gas that the Province is entitled to collect from gas producers within the Province as in-kind royalties and which could be required for the implementation of the Ingentis project. We had initially commenced developing the Ingentis project in a joint venture with Emgasud S.A. (“Emgasud”). In this respect, we and Emgasud each owned 50% of Inversora Ingentis S.A. which, in turn, held 61% of the capital stock of the project company. In October 2008, pursuant to the terms of a shareholders’ agreement between us and Emgasud relating to the Ingentis project, Emgasud notified us of their decision to exercise their option to buy our stake in Inversora Ingentis. The transaction was supposed to close in January 2009, and pursuant to our arrangement with Emgasud, Emgasud assigned to a collateral trust its shareholdings in Inversora Ingentis in order to guarantee payment for our shares. On January 5, 2009, as a result of the non-compliance of Emgasud with its payment obligations, the trustee transferred to us all the shares of Inversora Ingentis held by Emgasud, and Inversora Ingentis is currently a wholly-owned subsidiary of our company. On July 16, 2010, Inversora Ingentis S.A. (“Inversora Ingentis”), the shareholder that controls Ingentis, accepted an offer from Petrominera Chubut S.E. to sell 10.95% of the equity of Ingentis, for the amount of approximately Ps. 33.4 million (U.S. $8.5 million) to be paid as follows: (i) 50% of the price at the time of the closing of the transaction, and (ii) the remaining 50% in 24 monthly installments plus interest. As a result of this transaction, Inversora Ingentis has reduced its stockholding to 50.05% in Ingentis. In addition, Inversora Ingentis and Petrominera Chubut S.E. have agreed to make their best efforts to reduce the capital stock of Ingentis by cancelling 100% of Inversora Ingentis’ stockholding. The following graph sets forth the corporate structure in connection with the Ingentis projectas of the date of this annual report:  46






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We expected that power generated by the Ingentis project would be marketed within the framework of theEnergía Plusregulations. In furtherance of this project, Ingentis entered into a contract with GE Packaged Power Inc. and General Electric International (collectively, the “Supplier”) for the purchase of two 102.3 MW natural gas turbine generators at a purchase price of U.S. $70.2 million. The completion of the first phase of the project, which consisted of the installation of those two natural gas generators, was originally targeted for early 2010 and was estimated to generate 1,600 GWh of electricity annually. Plans for next phases of the project were not finalized. Based on the national and international financial outlook of late 2008 and of 2009, the project was reviewed, specifically with regard to the capacity to be installed and the location of the project in light of natural gas supply and transportation issues. In relation to this review, Ingentis’ Board of Directors decided to put the turbines up for sale and to consider also other alternatives for the units, as it believed this decision to be the best choice given the changes to the technical and financial conditions that affected the project as originally planned. Ingentis has negotiated with the Supplier the cancelation of the contract for the sale of one of the units, which had not been paid in full as of that date, and is negotiating the sale of the other unit with a potential buyer. As of the date of this annual report, Ingentis has received: (i) from the Supplier, the reimbursement of the payments Ingentis had made for that unit, less certain commissions related to the transaction and other related costs, for a total of U.S. $26.9 million, and (ii) from the potential buyer, an advanced payment of U.S. $5.0 million. Our Transmission Business Citelec History In September 2006, we entered into a stock purchase agreement with Dolphin Opportunity LLC to acquire 68,400,462 shares of Transelec Argentina S.A. (Transelec), representing 89.76% of Transelec’s capital stock, at a purchase price of U.S. $48.5 million. Transelec owns 50% of Citelec’s capital stock, which in turn owns 52.65% of the capital stock of Transener, the largest high voltage electricity transmission company in Argentina. Transener’s Class B common shares are listed on the Buenos Aires Stock Exchange, and the remaining 47.3% of Transener is held by minority public shareholders. The remaining 50% of Citelec’s capital stock was more recently acquired by Electroingeniería S.A. (Electroingeniería) and the Argentine state-owned company, Energía Argentina S.A. (Enarsa). The remaining 10.24% of Transelec’s capital stock was acquired in January 2008 from Marcelo Mindlin, Damián Mindlin and Gustavo Mariani upon the exercise of the put option held by them at a price of Ps. 38.8 million (U.S. $12.3 million). 47






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Transener was privatized in July 1993, when Citelec was awarded the Argentine government’s controlling stake in Transener. In August 1997, the Province of Buenos Aires privatized Transba, a company organized in March 1996 to own and operate the regional electricity transmission system of the Province of Buenos Aires. Transener acquired 90% of Transba’s capital stock on August 5, 1997. Transener’s operations Transener is a leading utility company engaged in the supply of high voltage electricity transmission in Argentina. Transener operates and maintains the leading electricity transmission system in Argentina at the 500 kv level under a concession agreement under which Transener holds an exclusive 95-year concession to provide high voltage electricity transmission services throughout the Transener network spanning more than 10,000 km Transener also owns and operates one of the six regional transmission networks in Argentina, the Transba network. The Transba concession grants Transba an exclusive 95-year concession to provide electricity transmission services (from the 66 kV to the 220 kV levels) in the Province of Buenos Aires via trunk lines, which are the main transmission lines that connect to all other lower voltage transmission systems owned and maintained by distribution companies in a certain region, throughout the Transba network spanning approximately 6,000 km. Transener also generates additional revenues from, among other things, the construction, operation and maintenance of the Fourth Line, and services provided to third parties, some of which are provided outside of Argentina. From time to time, Transener conducts operations outside of Argentina in Brazil. Transener conducts these operations through its subsidiary, Transener Internacional Limitada (Brazil) (Transener Brazil). These services consist of, among other things, the operation and maintenance of assets not included in our networks, construction and installation of electrical assets of third parties and training. Transelec, Electroingeniería and Enarsa have entered into an operating agreement under which each of Transelec, Electroingeniería and Enarsa provides to Transener certain services, expertise, know-how and technical assistance in connection with Transener’s operations. In addition, Transelec, Electroingeniería and Enarsa provide advice and coordination services in the areas of human resources, general administration, information systems, quality control and consulting. The operating fee payable by Transener under such agreement is equal to 2.75% of its energy transmission revenues. Fees for operating services are included as a component of operating expenses in Transener’s consolidated statements and in 2010 represented approximately Ps. 6.9 million. The following chart depicts the organizational structure through which Transener operates:  Our transmission operations generate both regulated and non-regulated revenues. Regulated revenues are derived from tariffs for the transmission of electricity over Transener’s high voltage system. On a consolidated basis, Transener’s net regulated revenues for the year ended December 31, 2010, were Ps. 347.1 million (Ps. 173.6 million on proportional consolidated basis), representing 59.5% of Transener’s consolidated net revenues for such period. 48






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In addition, we derive non-regulated revenues from Transener’s Fourth Line operations and other businesses. Transener and a group of certain electricity generators from the Grupo de Generadores del Comahue (Comahue Generators Group) entered into an agreement for the construction, operation and maintenance of the Fourth Line project. Pursuant to this agreement, the Comahue Generators Group pays the construction price and operating and maintenance fees to Transener in U.S. Dollars in monthly, equal and consecutive installments during the 15-year period beginning in December 1999, and that ends in December 2014. Following the adoption of the Emergency Law, which requires payments to be denominated in Pesos (subject to CER adjustment on a monthly basis), Transener applied to the ENRE for the re-denomination of the payments under this agreement. In December 2008, the ENRE approved the redetermination of the payments to Ps. 75.9 million (plus taxes), effective October 2008. Because the ENRE did not set an adjustment procedure for these payments, Transener submitted an administrative claim. We cannot predict when the ENRE will respond to our request. Notwithstanding the above, on March 30, 2011 the ENRE (Resolution 150/2011) approved a new value for the income to be collected in connection with the Fourth Line of Ps. 95.9 million (plus taxes), in effect from July 2010, and instructed CAMMESA to make the corresponding adjustments. On April 7, 2011, Transener filed a claim against Resolution No. 150/2011, as it did not include that the retroactive payment should be made in addition to late interest payments. No assurance can be made that the ENRE will comply with Transener ́s requests to redetermine its revenues resulting from expansions in the future or that it will be successful in its claim against Resolution No. 150/2011. On a consolidated basis, Transener’s net Fourth Line revenues for the year ended December 31, 2010, were Ps. 86.5 million (Ps. 43.3 million on proportional consolidated basis), representing 14.8% of Transener’s consolidated net revenues for such period. Other non-regulated revenues for Transener are generated through services provided to third parties with assets not covered by its concession, such as: the participation in NIS expansion projects (other than Fourth Line Revenue) under construction, operation and maintenance contracts approved by the ENRE;supervision of independent transmission companies that perform construction, operation and maintenance operations relating to NIS expansion;priority maintenance and construction work required under Resolution No. 1/2003 of the Secretariat of Energy and its modifications and amendments;the operation and maintenance of NIS expansion projects of the Plan Federal de Transporte;the operation and maintenance of certain assets of the Transener network;operation and maintenance services provided to third parties who are not independent transmission companies;non-network line operation and maintenance;international operations; andother services (which include, among others, technical assistance, engineering services, equipment installation and training). In recent years, Transener’s international operations mainly consisted of the operation and maintenance of high voltage transmissions lines in Brazil, through the provision of contracted services to certain companies that were awarded transmission concessions in Brazil. Most of these contracts were concluded in 2007. In 2009, Transener entered into new contracts to deliver services in Brazil. In 2010, Transener wrote-down of its investment in Transener Internacional Ltda., due to the adverse situation that the subsidiary was going through. On a consolidated basis, Transener’s other net revenues for the year ended December 31, 2010, were Ps. 150.1 million (Ps. 75.0 million on proportional consolidated basis), representing 25.7% of Transener’s consolidated net revenues for such period. 49






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Tariffs The tariffs that Transener and Transba receive under their concession agreements are reviewed periodically by the ENRE in accordance with such concession agreements and Argentine Law No. 24,065 (the Electricity Law)and are subject to deductions for penalties for non-availability of the network that are calculated pursuant to a formula set forth in the concession agreements and applicable regulations. Originally, pursuant to the concession agreements, Transener’s and Transba’s tariffs were calculated in U.S. Dollars and converted into Pesos based on the exchange rate applicable at the time of invoicing. The concession agreements provided for a semiannual adjustment based on a formula related to the U.S. CPI (Consumer Price Index) and U.S. PPI (Producer Price Index). The concession agreements also provided for electricity transmission revenue to be revised every five years by the ENRE. However, the Emergency Law converted Transener’s and Transba’s revenues into Pesos at a rate of Ps. 1.00 per U.S. $1.00 and adjustments to the U.S. CPI/PPI provided for under the terms of the concession agreements were disallowed. Transener completed its first tariff review process in 1998, but as a consequence of the Emergency Law, Transener’s second tariff review process (and Transba’s first tariff review process) was replaced by the renegotiation process contemplated by the Emergency Law. In connection with this renegotiation process, Transener and Transba entered into new agreements with the Argentine government. These agreements, among other things, provide for rules for a transition period with retroactive effect from June 1, 2005 until the effectiveness of the Revisión Tarifaria Integral (Integral Tariff Review, or the Transener RTI), pursuant to which rules Transener’s tariffs were increased by an average of 31% and Transba’s tariffs were increased by an average of 25%. These agreements also provide rules for the full tariff review to be conducted by the ENRE. Transition period rules The following is a brief summary of the principal rules for the transition period: Tariffs.Transener received an average tariff increase of 31% and Transba received an average tariff increase of 25%, commencing on June 1, 2005. Penalty system.Penalties related to quality of service under the concessions, which otherwise would be payable by Transener, may be applied by Transener to investments in addition to the investments included in the Transener RTI, provided that Transener has met certain applicable service quality standards. No penalties will be applied to Transener in connection with certain outages that are not attributable to Transener. Financial projections. Transener’s current agreement with the Argentine government is based on economic and financial projections for 2005 that were submitted by Transener, including operating costs, investments, amortizations, taxes, fees and cash balance estimations. The tariff may be adjusted by the ENRE during the transition period depending on cost-variations over costs reflected in the 2005 financial projections. Transener must also comply with the investments included in these financial projections in order to use its cash balance to pay dividends and debt. Transener must report on a quarterly basis to the ENRE with respect to its financial performance. Cost increases and the Instrumental Agreements Transener and Transba requested that the ENRE readjust their respective tariffs to take into account the impact of the salary increases resulting from the application of Decrees No. 392/2003, 1347/2003, 2005/2004 and 1295/2005 and the increases in operating costs that Transener and Transba have incurred since December 2004. To this end, Transener and Transba requested the recognition of the impact of these increases on salaries and operating costs in their remuneration. On July 31, 2008, the ENRE adopted Resolutions No. 328/2008 and No. 327/2008, which grant Transener and Transba an adjustment in their tariffs to partially compensate them for these cost increases. The adjusted tariffs are effective retroactively as from July 1, 2008. Because the real tariff increases granted by the ENRE (23.4% and 28.0% for Transener and Transba, respectively) does not match the real cost increase incurred as of 2004, Transener and Transba have submitted administrative claims seeking the difference. Due to the increase in labor costs resulting from the application of National Executive Branch Decree No. 392/2004 and subsequent regulation, and the major operating costs incurred since 2004, Transener and Transba have certified the costs variations that had effectively occurred on each quarter, filing the respective claims before the ENRE, in order to readjust their regulated remuneration according to the clauses established in the Definitive Agreements for such purpose. In that way, Transener and Transba, unsuccessfully required the ENRE to recognize the cost increases in the tariff that occurred after the Definitive Agreement had been entered into, which led to the initiation of judicial claims. TheUnidad de Renegociación y Análisis de Contratos de Servicios Públicos (Renegotiation and Analysis of Public Service Contracts Unit, or UNIREN) has stated that the mechanism for monitoring of costs and regime of service quality had been set to last up to the enforcement of Transener and Transba’s RTI, respectively, and that the delay in the definition of said process is not attributable to the Concessionaires and it could not lead to undermine their rights. 50






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Finally, on December 21, 2010, an Instrumental Agreement (the “Instrumental Agreement”) related to the Definitive Agreement was entered into with the Secretariat of Energy and the ENRE, setting forth as follows: (i)
     the recognition of Transener and Transba ́s rights to collect the amounts resulting from the variations of costs during the period from June 2005 to November 2010,(ii)
     the mandatory cancellation of the financing received from CAMMESA, through the assignment of credits resulting from the recognition of the above mentioned variations of costs,(iii)
     a mechanism of cancellation of the pending balances,(iv)
     an additional financing amount to be directed to investments in the transmission system for the amount of Ps. 34.0 million for Transener and Ps. 18.4 million for Transba, to be cancelled through the mechanism described in (ii), and(v)
     a procedure for the calculation and payment of cost variations between December 1, 2010 and December 31, 2011, calculated biannually. The results arising from the recognition of the variations of costs on behalf of the Secretariat of Energy and the ENRE, have been registered in the financial statements, up to the amounts received as of December 31, 2010, through the financing of CAMMESA. Consequently, net revenues for Ps. 61.9 million and interest income for Ps. 80.7 million, have been registered by Transener. In February 2011, CAMMESA made an estimation of the amounts owed to Transener and Transba due to variations of costs during the period from June 2005 to November 2010. As of January 17, 2011 such amounts were as follows: Differences for Connection and CapacityTransba
     Transener
     Total(in millions of Pesos)Principal
     75.9
     189.3
     265.2Interest
     43.2
     104.8
     148.0Total
     119.1
     294.1
     413.2
  Pursuant to the Instrumental Agreement and subject to its fulfillment, Transener and Transba withdrew their judicial claims for delay against the ENRE requesting the recognition of the increased costs and the public hearing in order to complete the full RTI. Full Tariff Review (Transener RTI) According to the terms of the Transener’s agreement with the Argentine government, the Transener RTI will be based on the Electricity Law and tariffs will be determined based on costs, necessary investments, non-automatic tariff adjustment mechanisms, the impact of unregulated activities, rate of return and capital base. The ENRE will schedule a public hearing to analyze Transener’s and Transba’s tariff proposal before applying the new charges for the next tariff period. 51






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If the variation of Transener’s remuneration resulting from the Transener RTI is higher than the tariff increase during the transition period, then the tariff increase would be implemented in three semiannual stages. In August 2005 Transener and Transba presented their respective tariff proposals for the new tariff regime to be implemented in February 2006 and May 2006, respectively. However, on January 13, 2006, the ENRE issued Resolution No. 60, suspending the Transener RTI process. Subsequently, the ENRE issued Resolution No. 423/2006 extending the application of the tariff scheme and the other transition period rules from February 1, 2006 (in the case of Transener) and from May 2006 (in the case Transba) until, in each case, the conclusion of the Transener RTI process. On June 29, 2007, in accordance with the terms of the Transener’s agreement with the Argentine government and Law No. 24.065, the ENRE requested that Transener and Transba submit their respective tariff proposals. In September 2007, Transener and Transba again presented their respective tariff and regulation proposals to the ENRE for the five-year period from 2008 to 2013. On July 30, 2008, the Secretariat of Energy adopted Resolutions No. 869/2008 and No. 870/2008, which established that the new tariffs to be adopted pursuant to the Transener RTI will become effective in February 2009. Pursuant to such resolutions, Transener and Transba submitted their tariff proposals on December 4 and 3, 2008, respectively. However, as of the date of this annual report, the ENRE has not yet called the public hearing mandated by the Energy Secretariat in its Resolutions No. 869/08 and 870/08 whereby new tariff schedules had to be approved in February 2009. In October 2009, the two companies filed actions with the courts for the protection of their constitutional rights on grounds of the delay by ENRE to call the Public Hearing and institute the Full Tariff Review process, and to ask the court to order the ENRE to inform the reasons for the delay and to set a new deadline for establishing the new tariff schedule. On April 27, 2010 the lower court ruled in favor of the presentation by the two companies and ordered the ENRE to respond to the requests of the two companies within 20 working days. The ENRE has appealed the ruling and at the time of this annual report, the appeal is still pending resolution by the appellate court. The Transener Concession Agreement Transener entered into a concession agreement with the Secretariat of Energy on July 16, 1993. Transener’s concession grants to Transener the exclusive right (subject to certain limitations described below) to provide service of high voltage electricity transmission throughout the Transener network until July 17, 2088. The Argentine government may grant Transener an extension of the concession for up to ten years at no additional cost, provided that Transener requests such extension at least 18 months prior to the expiration of the concession. If such extension is granted, the Argentine government is entitled to terminate the exclusivity of the concession. Under the terms of the Transener concession agreement, Transener is required to, among other things, transmit high voltage electricity in compliance with certain quality standards, provide access to existing transmission capacity in the Transener network to WEM agents, comply with social security and environmental regulations and operate and maintain the transmission system in compliance with required quality standards. The 95-year term of the Transener concession is divided into nine management periods. The first management period, which began in 1993, has a 15-year term and each subsequent management period lasts ten years. At least six months prior to the commencement of each ten-year management period, the ENRE is required to call for bids for the purchase of the controlling stake in Transener (represented by Transener’s Class A shares). The then current owner(s) of the controlling stake in Transener may submit (under seal) their valuation of the controlling stake in Transener and, if their valuation is greater than or equal to the amount of the highest bid submitted by other parties, the owners of such controlling stake will retain ownership of such interest in Transener without making any payment to the Argentine government. Consequently, if the owner(s) of the controlling stake in Transener wish to retain control at the end of any management period, they may bid an amount that would ensure their continued control without incurring any additional cost as a result of such bid. In the event another bid exceeds that of the then current owners of the controlling stake in Transener, the party submitting such bid would receive the controlling stake in consideration for the submitted bid amount, which would be paid to the then current owners of the controlling stake in Transener. Transener’s rights and obligations under its concession agreements will not be affected by any change in the ownership of the controlling stake. 52






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The transmission service provided by Transener is granted on an exclusive basis because it is considered a natural monopoly. Should technological innovations make the provision of such service under competitive conditions practicable, the Argentine government reserves the right to terminate the exclusivity of Transener’s concession. Such right by the Argentine government may only be exercised at the beginning of each management period provided that notice of such exercise is given to the then current owners of the controlling stake in Transener no later than six months prior to the commencement of the following management period. The Argentine national government may terminate the Transener concession only if Transener enters into bankruptcy, and Transener may terminate the concession agreement if the government breaches the terms of the concession. In addition, Transener’s concession includes a pledge in favor of the Argentine government all of the Transener Class A Shares held by Citelec, which constitute a controlling stake in Transener. Upon the occurrence of certain events of default specified in the concession agreement (including, among others, if (1) penalties in any 12-month period exceed 5% of our total regulated revenue during such 12-month period; (2) a transmission line or connection equipment is out of service for more than 30 days; or (3) the Transener network has on average, more than 2.5 forced outages per 100km over a 12-month period), the Argentine government may enforce the pledge on the Class A Shares and sell the controlling stake in Transener in a public bidding process in which the holders of such controlling stake will not be allowed to participate. However, the enforcement of the pledge does not cause the termination of Transener’s concession. The concession could only be revoked if Transener is declared bankrupt (in which case, the Argentine government would have the right under the concession to foreclose its pledge over the Class A shares). The Transba Concession Agreement The Transba concession agreement, which is similar to Transener’s concession agreement, was signed by Transba and the Secretariat of Energy on July 31, 1997. Transba’s concession grants to Transba an exclusive right to provide service of electricity transmission throughout the Transba network until August 1, 2092. The Argentine government may grant Transba an extension of the concession for up to 10 years at no additional cost, provided that Transba requests such extension at least 18 months prior to the expiration of the concession. If such extension is granted, the Argentine government is entitled to terminate the exclusivity of the concession. Under the concession, Transba is required to, among other things, transmit electricity via trunk lines in compliance with certain quality standards, provide access to existing transmission capacity in the Transba network to WEM agents and maintain the Transba network to ensure continued provision of the services. In addition, Transba’s concession requires the monitoring of connections to the Transba network, the provision of information to CAMMESA about any new connections to the Transba network, the provision of information to CAMMESA required for the administration of the WEM and process any request for expansion in the transmission capacity of the Transba network. Transba’s concession is also similar in other material respects to Transener’s concession and provides for, among other things, nine management periods of ten years each (or, in the case of the first such management period, 15 years) commencing on the date of Transba’s concession agreement, a bidding procedure with respect to controlling stake in Transba and termination provisions similar to those included in Transener’s concession agreement. In addition, Transba’s concession agreement also provides for a pledge in favor of the Argentine government of all of Transba Class A Shares that are held by Transener, which constitute the Transener’s controlling stake in Transba. Upon the occurrence of certain events of default, specified in Transba’s concession agreement (including, among others, if (1) penalties in any 12-month period exceed 15% of Transba’s total revenues, (2) a transmission line is out of service for more or connection equipment is out of service for more than 30 days, or (3) the Transba network has on average more than seven forced outages per 100 km over a 12-month period), the Argentine government may enforce the pledge on the Class A shares of Transba held by Transener and sell such shares in a public bidding process, pursuant to which Transener would lose its controlling stake in Transba. 53






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Property, plant and equipment As of December 31, 2010, Transener operated and maintained the following assets throughout fourteen provinces in Argentina: Transmission Lines500 kV
     10,036
     km220 kV
     568
     kmConnection Equipment500 kV linkage
     35220 kV linkage
     3132 kV linkage
     91Transformation EquipmentCapacity
     12,800
     MVAReactive EquipmentCapacity
     12,530
     MVAr
  As of December 31, 2010, Transba operated and maintained the following assets in the province of Buenos Aires: Transmission Lines220 kV
     177
     km132 kV
     5,534
     km66 kV
     398
     kmConnection Equipment500 kV linkage
     2220 kV linkage
     1132 kV linkage
     5266kVlinkage
     733kVlinkage
     17913.2 kVlinkage
     294Transformation EquipmentCapacity
     5,277
     MVAReactive EquipmentCapacity
     23
     MVAr
  Our Distribution Business Electricidad Argentina (EASA) EASA is the holding company of Edenor, our distribution subsidiary. In June 2007, we agreed to acquire from EASA’s former indirect shareholders their interests in Dolphin Energía S.A. (DESA) and IEASA S.A. (IEASA), which collectively held 100% of EASA’s capital stock, in exchange for new shares of our capital stock. The total number of shares of our capital stock to be received by the indirect EASA shareholders was subsequently adjusted pursuant to the terms of a stock subscription agreement entered into in July 2007. Following the receipt of a fairness opinion and the favorable review by our audit committee, the terms of such transaction were approved by our shareholders at a meeting held on August 30, 2007. The transaction closed on September 28, 2007, on which date we issued 480,194,242 shares of our capital stock to the former indirect shareholders of EASA. On March 28, 2011, DESA and IEASA merged into IEASA. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.” 54






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Prior to its acquisition in September 2005 by, among others, DESA and IEASA, EASA’s capital stock was held by EDFI, and was engaged in certain other business activities (including holding the capital stock of other EDF affiliates). Since October 2005, EASA’s activities have been limited to the holding of its 51% controlling stake in Edenor and to providing certain financial consulting services to Edenor. In July 2006, EASA completed a comprehensive restructuring of all of its outstanding financial indebtedness, which had been in default since 2002. In connection with this restructuring, EASA issued approximately U.S. $85.3 million in new U.S. Dollar-denominated notes in exchange for the cancellation of approximately 99.94% of its outstanding financial debt. Since EASA’s activities are limited to the holding of its controlling stake in Edenor, EASA’s ability to meet its debt service obligations under these new notes depends largely on the payment by Edenor of dividends or other distributions or payments to EASA. In April 2007, Edenor completed the initial public offering of its Class B common shares, in the form of shares and ADSs. Edenor’s ADSs are listed on The New York Stock Exchange under the symbol “EDN”, and its Class B shares are listed on the Buenos Aires Stock Exchange under the same symbol. Following the initial public offering, EASA continues to hold 51% of Edenor’s common stock (in the form of Class A shares), and substantially all of the remaining 49% of Edenor’s common stock is held by the public. In accordance with the terms of Edenor’s concession, EASA has pledged its 51% stake in Edenor to the Argentine government to secure the obligations set forth in the concession. See “Empresa Distribuidora y Comercializadora Norte (Edenor)—Edenor’s Concession—Pledge of Class A Shares.” Empresa Distribuidora y Comercializadora Norte (Edenor) Edenor was the largest electricity distribution company in Argentina in terms of number of customers and electricity sold (both in GWh and in Pesos) in 2010. Edenor holds a concession to distribute electricity on an exclusive basis to the northwestern zone of the greater Buenos Aires metropolitan area and the northern portion of the City of Buenos Aires, comprising an area of 4,637 square kilometers and a population of approximately seven million people. As of December 31, 2010, Edenor served 2,662,068 customers. Edenor’s concession Edenor is a public service company incorporated on July 21, 1992 as part of the privatization of the Argentine state-owned electricity utility, SEGBA. At the time of privatization, SEGBA was divided into three electricity distribution companies, including Edenor, and four electricity generation companies, and, as part of the privatization process, in August 1992 the Argentine government granted Edenor a concession to distribute electricity on an exclusive basis within a specified area, which we refer to as Edenor’s service area, for a period of 95 years. In September 2005, Edenor entered into an agreement with the Argentine government relating to the adjustment and renegotiation of the terms of Edenor’s concession (the Adjustment Agreement). The ratification of the Adjustment Agreement by the Argentine government was completed in January 2007. Pursuant to the Adjustment Agreement, the Argentine government granted Edenor an increase of 28% in its distribution margin, subject to a cap in the increase of Edenor’s average tariff of 15%, to be allocated solely to Edenor’s non-residential customers (including large users that purchase electricity in the wheeling system). The increase is effective retroactively from November 1, 2005 and will remain in effect until the approval of a new tariff scheme under the Edenor RTI. See “—Tariffs.” Term. Edenor’s concession currently expires on August 31, 2087 and can be extended for one additional 10-year period at Edenor’s request. The concession period was initially divided into an initial management period of 15 years expiring August 31, 2007, followed by eight ten-year periods. However, in July 2007, the initial management period was extended, at Edenor’s request, for an additional five-year period from the entry into force of the new tariff structure to be adopted under the Edenor RTI. The remaining ten-year periods will run from the expiration of the extension of the initial management period. In addition, before the end of each management period under the concession, the ENRE will arrange for an international public bidding procedure to be conducted for the sale of 51% of Edenor’s capital stock and voting rights in similar conditions to those under which EASA acquired its stake. If EASA is the highest bidder or if EASA’s bid equals the highest bid, it will retain 51% of Edenor’s stock, but no funds need to be paid to the Argentine government and EASA will have no further obligation with respect to its bid. There is no restriction as to the amount EASA may bid. 55






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Obligations. Under the concession, Edenor is obligated to supply electricity upon request by the owner or occupant of any premises in its service area. Edenor is entitled to charge for the electricity supplied at rates that are established by tariffs set by the ENRE. Pursuant to its concession, Edenor must also meet specified service quality standards relating to: the time required to connect new users;voltage fluctuations;interruptions or reductions in service; andthe supply of electricity for public lighting and to certain municipalities. Edenor’s concession requires it to make the necessary investments to establish and maintain quality of service standards and to comply with stringent minimum public safety standards as specified in the concession. Edenor is also required to furnish the ENRE with all information requested by it and must obtain the ENRE’s prior consent for the disposition of assets that are assigned to the provision of electricity distribution services. The ENRE also requires Edenor to compile and periodically submit various types of reports regarding the quality of its service and other technical and commercial data. Fines and penalties. Pursuant to the concession, the ENRE may impose various fines and penalties on Edenor if it fails to comply with its obligations under the concession, including a failure to meet any of the quality and delivery standards set forth in the concession. The ENRE may also impose fines for any of network installations that it considers may pose a safety or security hazard in public spaces, including streets and sidewalks. In addition, the ENRE may impose fines for inconsistency in technical information required to be furnished to the ENRE. Pursuant to the Adjustment Agreement, the ENRE granted Edenor a payment plan in respect of a part of Edenor’s accrued fines and penalties and agreed, subject to certain conditions, to forgive the remainder upon the completion of the Edenor RTI. The amount of accrued fines and penalties subject to forgiveness and to the payment plan are adjusted from time to time to reflect any subsequent increases in Edenor’s distribution margins pursuant to the Adjustment Agreement, including CMM adjustments. For the year ended on December 31, 2008, Edenor recorded adjustments of Ps. 17.2 million, to reflect CMM adjustments. Edenor did not record any adjustments in 2009 and 2010. As of the date of this annual report, we estimate that the ENRE will forgive approximately Ps. 71.4 million of Edenor’s accrued fines and penalties upon the completion of the Edenor RTI, and that Edenor will be required to pay approximately Ps 361.6 million in accordance with the payment plan provided for in the Adjustment Agreement. This payment plan allows Edenor to repay these fines and penalties in fourteen semiannual installments commencing after a 180-day grace period from the date the Edenor RTI comes into effect. In 2010, the fines and penalties imposed on Edenor by the ENRE amounted to Ps. 80.0 million, which represented 3.6% of Edenor’s energy sales. As of December 31, 2010 Edenor’s accrued fines and penalties imposed by the ENRE amounted to Ps. 455.4 million as compared to Ps. 377.5 million as of December 31, 2009. Pledge of Class A shares. In accordance with the concession, EASA has pledged its 51% stake in Edenor to the Argentine government to secure the obligations set forth in the concession. The Adjustment Agreement extends the pledge to secure the obligations under that agreement as well. The Argentine government may foreclose its pledge over the Class A shares and sell them in an public bidding process if any of the following occur: Edenor incurs penalties in excess of 20% of its gross energy sales, net of taxes (which corresponds to our energy sales) in any given year;EASA fails to obtain the ENRE’s approval in connection with the disposition of the Class A shares; 56






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material and repeated breaches of the concession that are not remedied upon request of the ENRE;EASA creates any lien or encumbrances on the Class A shares (other than the pledge to the Argentine government);EASA or Edenor obstruct the sale of the Class A shares at the end of any management period under our concession;Edenor’s articles of incorporation or voting rights are amended in a way that modifies the voting rights of the Class A shares without the ENRE’s approval; orEdenor or any existing or former shareholder of EASA who has brought claims against the Argentine government in the ICSID does not desist from its ICSID claims against the Argentine government following completion of the Edenor RTI and the approval of a new tariff regime. Revocation of concession. The Argentine government has the right to revoke the concession if Edenor enters into bankruptcy and the government decides that it shall not continue rendering services, in which case all of its assets will be transferred to a new state-owned company that will be sold in an international public bidding process. At the conclusion of this bidding process, the purchase price will be delivered to the bankruptcy court in favor of Edenor’s creditors, net of any debt owed by Edenor to the Argentine government, and any residual proceeds will be distributed to Edenor’s shareholders. Tariffs.Under the terms of Edenor’s concession, the tariffs charged by Edenor (other than those applied to customers in the wheeling system) are composed of: the cost of electric power purchases (which Edenor passes on to its customers) and a fixed charge to cover a portion of Edenor’s energy losses in its distribution activities;Edenor’s regulated distribution margin, which is known as the value-added for distribution, or VAD, to cover its operating expenses, taxes and amortization expenses and to provide Edenor with an adequate return on its asset base; andany taxes imposed by the Province of Buenos Aires or the City of Buenos Aires. Large users are eligible to purchase their energy needs directly from generators in the WEM and acquire from Edenor only the service of delivering that electricity to them. Edenor’s tariffs for these large users (known as wheeling charges) do not include, therefore, charges for energy purchases. Accordingly, wheeling charges consist of the fixed charge for recognized energy losses (determined by reference to a fixed percentage of energy and power capacity for each respective voltage level set forth in Edenor’s concession) and Edenor’s distribution margin. According to the current regulatory framework, the ENRE is required to adjust the seasonal price charged to distributors in the wholesale electricity market every six months. However, between January 2005 and November 2008, the ENRE failed to make these adjustments. In November 2008, the ENRE issued Resolution No. 628/08, which established the new tariffs applied by Edenor as of October 1, 2008 and modified seasonal prices charged to distributors, including the consumption levels that make up the pricing ladder. The new pricing ladder sets prices according to the following levels of consumption: bimonthly consumption up to 1,000 kWh; bimonthly consumption greater than 1,000 kWh and less than or equal to 1,400 kWh; bimonthly consumption greater than 1,400 kWh and less than or equal to 2,800 kWh; and bimonthly consumption greater than 2,800 kWh. In addition, the ENRE authorized Edenor to pass through some regulatory charges associated with the electric power purchases to its customers, excluding residential customers with consumption levels below 1,000 kWh. In 2008, Edenor collected Ps. 84.6 million through PUREE funds. On August 14, 2009, ENRE adopted Resolution No. 433/2009 approving two tariff charts to be applied by Edenor. The first one applied retroactively for the period from June 1, 2009 to July 31, 2009. The second rate chart was effective for the period from August 1, 2009 to September 30, 2009. These charts were based on the new subsidized seasonal prices set forth Resolution No. 652/09 issued by the Secretary of Energy. The new price charts aimed at reducing the impact of increased winter electrical energy consumption on the invoicing of residential customers with bi-monthly consumption exceeding 1,000 kWh. The modification to the ENRE rate charts did not have any effect on Edenor’s VAD. The ENRE also instructed Edenor to break down the floating charges of all invoices into the amounts subsidized and not subsidized by the Argentine government. As of October 1, 2009, the tariff chart of October 2008 was reinstated pursuant to ENRE Resolution No. 628/2008. The floating charge of all invoices continues to be broken down into the amounts subsidized and not subsidized by the Argentine government. 57






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Edenor’s concession authorizes it to charge a distribution margin (VAD) for its services to seek to cover its operating expenses, taxes and amortization expenses and to provide Edenor with an adequate return on its asset base. Edenor’s concession originally contemplated a fixed distribution margin for each tariff parameter with semiannual adjustments based on variations in the U.S. wholesale price and U.S. consumer price indices. However, the Emergency Law, enacted in January 2002, among other measures, revoked all adjustment clauses in U.S. Dollars or other foreign currencies and indexation clauses. As a result, the adjustment provisions contained in Edenor’s concession were no longer in force and, from January 2002 through February 2007, Edenor was required to charge the same fixed distribution margin in Pesos established in 2002, without any type of currency or inflation adjustment. Pursuant to the Adjustment Agreement, which came into effect in February 2007, the Argentine government granted Edenor an increase of 28% in Edenor’s distribution margin, including a 5% increase to fund specified capital expenditures required by the Adjustment Agreement, subject to a 15% cap on the increase of Edenor’s average tariff. Although this increase applies to all of Edenor’s tariff categories, the amount of the increase was only allocated to Edenor’s non-residential customers (including wheeling customers), which customers, as a result, experienced an increase in VAD greater than 28%, while Edenor’s residential customers did not experience any increase in VAD. The increase is effective retroactively from November 1, 2005 and will remain in effect until the approval of a new tariff scheme under the integral tariff revision process described below. The Adjustment Agreement also contemplates the CMM, which requires the ENRE to review Edenor’s actual distribution costs every six months (in May and November of each year). If the variation between Edenor’s actual distribution costs and Edenor’s recognized distribution costs (as adjusted by any subsequent CMM) is 5% or more, the ENRE is required to adjust Edenor’s distribution margin to reflect Edenor’s actual distribution cost base. Edenor may also request that the CMM be applied at any time that the variation between Edenor’s actual distribution costs and Edenor’s then recognized distribution costs is 10% or more. On January 30, 2007, in addition to formally approving Edenor’s new tariff schedule reflecting the 28% increase provided by the Adjustment Agreement, the ENRE applied the CMM retroactively in each of May and November 2006, which resulted in an additional 8.032% increase in Edenor’s distribution margins effective May 1, 2006. This increase, when compounded with the 28% increase granted under the Adjustment Agreement, resulted in an overall 38.3% increase in Edenor’s distribution margins. Edenor began charging its non-residential customers the new tariffs (as adjusted by the May 2006 CMM) on February 1, 2007. The ENRE also authorized Edenor to charge its non-residential customers the retroactive portion of these tariff increases for the period from November 2005 through January 2007, which amounts in the aggregate to Ps. 218.6 million, payable in 55 monthly installments beginning in February 2007. As of December 31, 2010, Edenor had invoiced Ps. 197.2 million of this amount. In May 2007, Edenor requested an additional 11.3% increase in its distribution margins under the CMM to reflect variations in Edenor’s distribution cost base compared to the recognized distribution cost base as adjusted by the May 2006 CMM. In October 2007, the Secretariat of Energy published Resolution No. 1037/2007, which granted Edenor an increase of 9.63% to its distribution margins. However, this increase has not been incorporated into Edenor’s tariff structure. Instead, the resolution establishes that the funds that Edenor is required to collect and transfer to the PUREE may be retained by Edenor to cover this May 2007 CMM increase and future CMM increases until the new tariff structure is established pursuant to the Edenor RTI as contemplated by the Adjustment Agreement. Initially, Edenor was expected to reimburse the amounts deducted from the PUREE. In November 2007, Edenor requested an additional 7.51% increase to its distribution margins under the CMM to account for fluctuations in the distribution cost base for the period from May 1, 2007 to October 31, 2007, in comparison to the distribution cost base recognized by the CMM in May 2007. 58






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On July 31, 2008, the ENRE issued Resolution No. 324/2008, which approves new electricity tariff schedules for Edenor that partially incorporate the adjustments resulting from past applications of the CMM that had not been previously incorporated into Edenor’s tariff schedules. This new tariff schedule is retroactively effective as from July 1, 2008. The new tariff schedule provided Edenor with an overall 17.9% increase in its aggregate distribution margins, reflecting increases ranging from 10% in the average bills of medium-consumption residential customers to 30% in the average bills of very high consumption residential customers, as well as 10% in the average bills of other customers (except for public lighting). On November 26, 2008, the ENRE authorized Edenor to permanently keep the funds it withheld from the PUREE as compensation for the retroactive portion of the 7.56% CMM adjustment for the period ending in November 2007, which had not been factored into Edenor’s tariffs in previous periods. As of June 1, 2011, Edenor had submitted to the ENRE seven requests from CMM adjustments as described in the table below, since May 2008: Assessment Period
     
     Application Date
     
     CMM Adjustment RequestedNovember 2007 – April 2008
     
     May 2008
     
     5.791%May 2008 – October 2008
     
     November 2008
     
     5.684%November 2008 – April 2009
     
     May 2009
     
     5.068%May 2009 – October 2009
     
     November 2009
     
     5.041%November 2009 – April 2010
     
     May 2010
     
     7.103%May 2010 – October 2010
     
     November 2010
     
     7.240%November 2010 – April 2011
     
     May 2011
     
     6.104%Cumulative:
     
     
     
     47.829%
  As of the date of this annual report the ENRE has not yet responded to these requests (other than the request submitted in May 2008, which it authorized, but it has not approved a new tariff scheme including this tariff increase). Although we believe that these increases comply with the terms of the CMM, we cannot assure you that the ENRE will grant Edenor these increases in full, or at all, or if granted, that Edenor will be able to bill its customers or otherwise recover these increases from other sources of payment (such as PUREE). These increases, and any further increases granted under the CMM, will remain in force until the approval of a new tariff structure under the RTI. On October 31, 2008, the Secretariat of Energy issued Resolution No. 1169/08 approving the new seasonal benchmark prices for energy and power on the WEM, which did not involve the VAD portion of the distribution tariff and thus does not represent an increase in Edenor’s revenues. Consequently, the ENRE issued Resolution No. 628/08 approving the rate schedule effective as from October 1, 2008 for Edenor’s customers. The new rate schedule passed the purchase price of electricity as well as the other costs related to the WEM, including transmission to the final customer. Please see “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Results of Operations—Electricity Prices and Tariffs.” These increases, and any subsequent increases granted under the CMM, will remain in effect until the approval of a new tariff scheme pursuant to the Edenor RTI, with the ENRE under the Adjustment Agreement. The Edenor RTI will cover, among other factors, a recalculation of the compensation Edenor receives for its distribution services, including taxes that are not currently passed through to Edenor’s customers (such as taxes on financial transactions), a revised analysis of Edenor’s distribution costs, modifications to Edenor’s quality of service standards and penalty scheme and, finally, a revision of Edenor’s asset base and rate of return. Pursuant to Resolution No. 434/2007 of the Secretariat of Energy, the new tariff structure under the Edenor RTI was supposed to take effect in February 2008. On July 30, 2008, the Secretariat of Energy adopted Resolution No. 865/2008, which modifies Resolution No. 434/2007, and establishes that the new electricity tariffs to be adopted pursuant to the Edenor RTI will become effective in February 2009. In addition, Resolution No. 865/2008 stated that in the event that the Edenor RTI results in an increase in the then effective electricity tariffs, such increase would take place in three stages: one in February 2009, another in August 2009 and another in February 2010. 59






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As of the date of this annual report, no resolution has been issued concerning the application of the electricity rate schedule resulting from the RTI, which was expected to be in effect since February 1, 2009. On November 12, 2009, Edenor submitted an integral tariff proposal to the ENRE’s Board of Directors as requested by ENRE Resolution No. 467/2008. The proposal included, among other factors, a recalculation of the compensation Edenor receives for its distribution services, including taxes that are not currently passed through to their customers (such as taxes on financial transactions), a revised analysis of its distribution costs, modification to its quality of service standards and penalty scheme and, finally, a revision of its asset base and rate of return. The presentation included three different scenarios and related tariff proposals: two scenarios contemplated in Resolution No. 467/08 of the ENRE and a third one which contemplates a quality regime and cost of undelivered energy similar to the one currently in effect. Each scenario included the assumptions on which the hypothetical scenario was prepared and detailed supporting studies: projected demand, demand curve studies by client category, environmental management plan, capital base study, study of the group of facilities required to meet the demand of a certain homogeneous market in terms of consumption with the lowest costs, contemplated investment plan, operating costs analysis, profitability rate analysis, resulting revenue requirement and electricity rate adjustment criterion. However, as of the date of this annual report, the Edenor RTI has not yet been completed, and the outcome of the renegotiation of Edenor’s tariff structure is highly uncertain. We cannot make assurances that the renegotiation process will conclude in a timely manner or that the revised tariff structure will provide Edenor with an adequate return on its asset base, or that if an adjustment agreement is reached that it will not be challenged by Argentine consumer and other groups, something that, if successful, could materially adversely affect Edenor’s ability to implement any tariff adjustments granted by the Argentine government. The following chart shows the variation in Edenor’s average tariff, including taxes, in Pesos per MWh in the periods indicated:  Customers.As of December 31, 2010, Edenor served 2,662,068 customers. Edenor defines a “customer” as one meter. Edenor classifies its customers pursuant to the following tariff categories:  60






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Residential(T1-R1 to R9): residential customers whose peak capacity demand is less than 10kW. In 2010, this category accounted for approximately 40% of Edenor’s electricity sales.Small commercial(T1-G1 and T1-G2): commercial customers whose peak capacity demand is less than 10kW. In 2010, this category accounted for approximately 8% of Edenor’s electricity sales.Medium commercial(T2): customers whose peak capacity demand is equal to or greater than 10kW but less than 50kW. In 2010, this category accounted for approximately 8% of Edenor’s electricity sales.Industrial(T3): industrial customers whose peak capacity demand is equal to or greater than 50kW. In 2010, this category accounted for approximately 18% of Edenor’s electricity sales. This category does not include customers who purchase their electricity requirements directly through the wholesale electricity market under the wheeling system.Wheeling System: large users who purchase their electricity requirements directly from generation or broker companies through the wholesale electricity market. As of December 31, 2010, the total number of such large users was 643, and in 2010 this category represented approximately 20% of our electricity sales.Others: public lighting (T1-PL) and shantytown customers whose peak capacity demand is less than 10kW. In 2010, this category accounted for approximately 5% of Edenor’s electricity sales. Edenor strives to maintain an accurate categorization of its customers in order to charge the appropriate tariff to each customer. In particular, Edenor focuses on its residential tariff categorizations to both minimize the number of commercial and industrial customers who are classified as residential customers and to identify residential customers whose peak capacity demand exceeds 10kW and therefore do not qualify as residential users. Shantytowns. In accordance with the terms of its concession, Edenor supplies electricity to low-income areas and shantytowns located within its service area. In October 2003, Edenor, Edesur and Edelap entered into a framework agreement with the Argentine government and the Province of Buenos Aires to regulate their supply to low-income areas and shantytowns. Under this agreement, Edenor is compensated for the service Edenor provides to shantytowns by a commission formed in each shantytown that collects funds from residents of the shantytown. In addition, Edenor is compensated separately by the municipality in which each shantytown is located, and, if there is any payment shortfall, by a special fund to which the Argentine government contributes an amount equal to 21%, and the Province of Buenos Aires 15.5%, of the compensation, net of taxes, paid by those customers with payment problems and meter irregularities who are regularized under the framework agreement. The term of the new framework agreement was four years, commencing from January 1, 2003, which could be renewed for another four-year term if the parties agree. The Framework Agreement expired on December 31, 2006. On October 26, 2006, Edenor entered into a Payment Plan Agreement with the government of the Province of Buenos Aires that establishes the conditions pursuant to which the Province of Buenos Aires will honor its obligation to Edenor amounting to Ps. 27,114, for the period from September 2002 to June 2006, which the Province agrees to verify in accordance with the provisions of the new Framework Agreement. In addition, the Province agrees to pay the debt and resulting from this verification, in 18 equal, consecutive and monthly installments On June 23, 2008, Edenor signed an amendment to the Framework Agreement with the Argentine government, the Province of Buenos Aires and other national electric distributors agreeing to extend the Framework Agreement for four years from January 1, 2007. The Argentine government ratified the amendment on September 22, 2008 and the Province of Buenos Aires ratified the amendment on May 15, 2009. Throughout this process, Edenor continued to supply energy to shantytowns. Edenor’s receivables for amounts accrued but not yet paid for the supply of energy to shantytowns under the framework agreement amounted to Ps. 33.0 million as of December 31, 2010, Ps. 54.8 million as of December 31, 2009 and Ps. 49.4 million as of December 31, 2008. In March 2010, Edenor signed with the Government of the Province of Buenos Aires a payment plan agreement with respect to amounts owed to it by the Province of Buenos Aires under the new framework agreement. The Government of the Province of Buenos Aires agreed to pay the amount due through Cancellation Bonds (Bonos de Cancelación de Deuda), which are bonds issued by the Province of Buenos Aires for the purpose of paying outstanding obligations of the Province. The agreement was signed subject to the approval of the Provincial Executive Power and Edenor's board of directors. Edenor’s board accepted the agreement in the meeting held on April 27, 2010. In May 2010, Edenor received payments from the Government of the Province of Buenos Aires for Ps. 1.6 million in cash and Ps. 30.1 million (principal amount) of Cancellation Bonds. These Cancellation Bonds were issued by the Province of Buenos Aires on December 15, 2009, with a maturity of March 15, 2011. The Cancellation Bonds received by Edenor amortize in twelve equal and consecutive payments, have a three month grace period for capital payments and earn interest at a rate of BADLAR plus 450 base points and are freely transferable. As of December 31, 2010, we hold Ps. 8.7 million of Cancellation Bonds and all payments on these Cancellation Bonds have been made according to schedule. 61






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Energy losses. Energy losses are equivalent to the difference between energy purchased and energy sold. Technical losses represent the energy that is lost during transmission and distribution within the network as a consequence of natural heating of the conductors that transmit electricity from the generating plants to the customers. Non-technical losses are primarily due to illegal use of Edenor’s services. Energy losses require Edenor to purchase additional electricity to satisfy demand and its concession allows Edenor to recover from its customers the cost of these purchases up to a loss factor specified in the concession for each tariff category. The average loss factor under Edenor’s concession is 10%. The following table illustrates Edenor’s estimation of the approximate breakdown between technical and non-technical energy losses experienced in its service area in the last ten years: Year ended December 31,2010
     2009
     2008
     2007
     2006
     2005
     2004
     2003
     2002
     2001Technical losses
     9.8%
     9.8%
     9.8%
     9.6%
     8.6%
     8.3%
     8.1%
     8.0%
     7.8%
     7.5%Non - technical losses
     2.7%
     2.1%
     1.0%
     2.0%
     2.5%
     2.7%
     3.4%
     4.7%
     4.5%
     3.6%Total losses
     12.5%
     11.9%
     10.8%
     11.6%
     11.1%
     11.0%
     11.5%
     12.7%
     12.3%
     11.1%
  Acquisition of EMDERSA and AESEBA On January 19, 2011 we agreed to acquire, directly or through one or more designees, from certain subsidiaries of AEI the following assets: (i)
     77.2% of the outstanding capital stock of EMDERSA, a company engaged in the distribution of electricity in the Argentine provinces of San Luis, La Rioja and Salta through its subsidiaries EDESAL, EDELAR and EDESA, and in the generation of electricity through its subsidiary EGSSA; and(ii)
     100% of the outstanding capital stock of AESEBA, an electric utility company, which owns 90% of the outstanding capital stock of EDEN, an electricity distribution company with the concession area in the northern part of the Province of Buenos Aires. Pursuant to the terms of the sale of the shares described above, on February 25, 2011 the Company made an offer to Edenor, which Edenor accepted on March 4, 2011, to become the purchaser of the shares described above and Edenor purchased the shares (other than shares representing approximately 0.01% of the outstanding capital stock of AESEBA, in respect of which the Company remained as purchaser) on March 4, 2011 for a total purchase price of U.S. $140.0 million. The transaction also involved the assignment to certain of our affiliates of certain rights that AEI had over AESEBA, EDEN and EMDERSA and its subsidiaries. As of the date of this annual report Edenor is exploring the possibility of divesting one or more of the newly acquired assets described above. Although Edenor has received preliminary indications of interest from third parties in respect of certain of these assets and it has engaged in preliminary discussions with several of these third parties, we cannot make assurances that Edenor will sell one or more of these assets or on what terms any such sale may be made. Upon the terms of the offer made by the Company to Edenor, as accepted by the latter, to the extent Edenor divests any of these assets on or before March 4, 2014, the Company shall have a right to receive 50% of any net consideration received by Edenor as a result of the sale of any such assets in excess of the consideration paid by Edenor to AEI subsidiaries. 62






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Other Businesses Petrolera Pampa On January 21, 2009, we constituted Petrolera Pampa. We directly and indirectly control 100% of Petrolera Pampa’s capital stock. As of the date of this annual report, Petrolera Pampa is developing several investment projects mainly related to the development of new gas areas, Introduction to the Hydrocarbon Market - Market De-regulation Until the early 1990s, the Argentine government ran most hydrocarbon-related activities, including exploration, production and transportation. Despite the fact theLey de Hidrocarburos(the “Hydrocarbons Law”), which was passed in 1967, allowed the government to grant exploration permits and concessions to the private sector, this power was rarely exercised. Prior to 1989, private sector companies engaged in exploitation activities through services agreements with YPF. The oil thus extracted was delivered to YPF, which would then allocate it to refineries. Oil prices were fixed by the Argentine government at levels that were generally significantly below international prices. In 1989, with the enactment of theLey de Reforma del Estado y Emergencia Económica(Law for the Reform of the State and Economic Emergency), the hydrocarbon sector was de-regulated. The new regulatory framework included the following: certain exploitation concessions were to be awarded through a bidding process; partnering agreements could be made with YPF to explore and exploit certain productive areas; starting in 1991, official prices for crude and refined products would be eliminated; and starting in 1994, the price of gas at the wellhead would be de-regulated. Another development was the creation of a regulatory entity vested with powers to enforce the newly-established framework, theEnte Nacional Regulador del Gas(National Gas Regulating Body, or ENARGAS). Upon enactment of the Hydrocarbons Law, the provinces received ownership rights over the reserves of crude oil and gas situated within their territories, and the provinces themselves were empowered to grant concessions to private companies. The reform of the sector led to the free establishment of prices and a more efficient market, as a result of the participation of private sector players and competition. Total gas output rose by 83% in the period from 1992 to 2002, and oil output rose by 37% during the same period. Gas reserves increased by 23% and oil reserves increased by 40% during the same period. TheLey de Emergencia Pública(Public Emergency Law), which was passed in 2002, introduced changes to the dynamics of the hydrocarbon sector. Some of the provisions under that law include withholdings on exports of liquid hydrocarbons and their by-products, limits on price increases in the gas market and certain restrictions on exports. Gas Market Various reforms of the gas market aim to regulate the supply of gas to ensure that priority demand (i.e., households and small retailers) is met. This scheme is known as the Producers’ Agreement. In this respect, demand is divided into the following segments: Households and small retailers (“priority demand”)Compressed natural gasIndustrial/ power plants 63




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Exports Each segment pays a different price for gas, with the industrial and the export segments being the only segments that admit the free establishment of prices. The new regulatory structure, which was established by Resolution 208/04, Resolution 599/07 and Resolution 1070/2010, among others, set forth that each producer must maintain sales of gas to each sector at the same levels as in 2006, and if they do not on grounds of decreased output, there will be a re-allocation of their gas in such a manner as to ensure that priority demand should always be met. The prices in local currency of the regulated segments, except for the priority demand segment, underwent slight increases in the past years, in order to gradually move them nearer the unregulated price, which is much higher than the present-day prices in the rest of the sectors. Changes in Certain Natural Gas Prices (Neuquén Basin)  The rate of growth in investments in recent years was not the same as that experienced in the 1990s. As a result, output could not keep up with demand and, therefore, exports were reduced to a minimum, and in winter time, the industrial sector is sporadically subject to interruptions in supply. This circumstance, compounded by a decline in the volume of reserves, resulted in a strong decline in the reserves/production ratio, down from 21.6 years in 1992 to a little less than 8 years in 2009, the last year for which this information is available. In addition, in 2007, through the state-run energy company ENARSA, the government started to import gas from Bolivia and to request shipments of liquefied natural gas tankers to meet the system’s minimum demand levels, replacing part of the gas used by power plants with alternative fossil fuels such as diesel oil and fuel oil. The above-mentioned gas imports are financed through a trust that is funded through a specific charge in the bills of to non-priority users. 64






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Changes in Natural Gas Output and the Reserve/Production Ratio



In view of this trend, the government decided to introduce new resolutions seeking to incentivize investment and production. The Secretariat of Energy’s Resolution 24/2008 (subsequently amended by Resolution 1031/2008) instituted the Gas Plus Program. The main incentive to gas producers is that gas extracted within the framework of the program can be freely disposed and commercialized. To qualify for the program producers are required to submit a project of investments in new gas blocks, in blocks that have not been in production since 2004 or in blocks that are geologically complex (compact sand or with low permeability). In addition, to be eligible for this program –unless the applicant is a new company– the firm must be in compliance with its output quotas as established in the Producers’ Agreement. Petrolera Pampa was organized in 2009 with a view to taking advantage of the benefits offered by the Gas Plus Program. Crude Oil Market Also seeking to encourage investment and production, several resolutions have been issued relating to the crude oil market. The most important, Resolution 394/2007, which imposes further restrictions on exports of crude by fixing its price, had the effect of leaving producers indifferent when deciding between serving the local or the international market as the state would capture any extraordinary revenue that the producer could earn on exports. 65






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Changes in Oil Output and the Reserve/Production Ratio



The production of crude oil has shown a downward trend in recent years. Therefore, as was the case in the gas market, the government started a search for the tools and regulations that could serve to find again the path to growth. ThePetróleo Plusprogram (Resolution 1312/2008) was created with that objective. According to thePetróleo PlusProgram, oil producers able to prove an increase in their production of oil and the replenishment of their proven reserves will be entitled to a series of tax credits that they may apply to the payment of export duties on their oil, liquefied petroleum gas and other by-products that are due under Resolution 394/2007. ThePetróleo Plusprogram came into force on December 1, 2008, with retroactive effect to October 1, 2008. These tax credit certificates issued by the Secretariat of Energy are transferable. Petrolera Pampa’s Projects Investment Agreement with Apache Energía Argentina S.R.L. On December 1, 2010, Petrolera Pampa entered into an investment agreement with Apache Energía Argentina S.R.L. (“Apache”) to jointly engage in the development and exploitation of unconventional gas repositories. The partnership with Apache will allow the production of 700,000 m3per day of unconventional natural gas from reservoirs with low permeability at the Anticlinal Campamento and Estación Fernández Oro blocks, in the provinces of Neuquén and Río Negro, respectively. Petrolera Pampa would invest approximately U.S. $20 million between 2010 and 2013, representing 15% of the necessary investments for the development of such gas production, allowing it to obtain proportional participation in the production. All of this production will be assigned to the supply of Loma de la Lata. As of the date of this annual report, we have invested approximately U.S. $9.6 million, and the production has already reached the expected 700,000 m3per day production level. Investment Agreement with Petrobras Argentina S.A. On December 7, 2010, Petrolera Pampa entered into an investment agreement with Petrobras Argentina S.A. (“Petrobras”) relating to the “El Mangrullo” block located in the province of Neuquén, under which PetroleraPampa acquired 43% of the right to freely dispose at the wellhead, commercialize and process the hydrocarbons obtained from wells to be drilled in the field mentioned above. 66






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As a consideration for said acquisition, Petrolera Pampa has committed to invest up to U.S. $16 million on the drilling of those wells. The parties have estimated to obtain a total natural gas production of 400,000 m3per day from the wells under theGas Plusprogram, which will be allocated to the supply of Loma de la Lata. As one of the conditions to this investment agreement, the parties entered into a 400,000 m3per dayGas Pluscontract. As of the date of this annual report ,the other conditions, including the competent authorities’ approval for theGas Plusprogram for this block, have been satisfied and the agreement is in force. Association Agreement with Rovella, Gas y Petróleo de Neuquén Petrolera Pampa has received from Rovella Carranza S.A. an assignment offer whereby Petrolera Pampa would be in a position to obtain a 50% of the interest in the Senillosa exploration block, situated in the Province of Neuquén, where oil and gas exploration activities will be undertaken. Petrolera Pampa has agreed to invest up to U.S. $3.3 million to comply with the first working and investment plan for the period granted for block exploration. Agreement for Block Assignment with Petrolera Piedra del Águila S.A. During 2010, Petrolera Pampa advanced in the negotiation of a block assignment agreement with Petrolera Piedra del Águila S.A., whereby the latter would assign 100% of the ownership and rights to the blocks Los Leones, Picún Leufú Sur, Ramos Mexia and Umbral, including, principally: (i) the rights to the relevant exploration permits and/or concession for exploitation to all the blocks; (ii) information in terms of geophysical, geological, commercial, technical and operational data, and, in general, any other information or knowledge about the blocks; (iii) the movable and real property situated and used in the blocks. The agreement is subject to the fulfillment of certain conditions before it can come into force, including the approval by the Government of the Province of Neuquén. In exchange, Petrolera Pampa is obligated to undertake seismic work for approximately U.S. $1.2 million and, at a later stage, to undertake the drilling work. Furthermore, Petrolera Pampa would covenant to make a payment to the assignor contingent upon the success of the activities mentioned above as well as to pay a percentage of the future production. Agreement with YPF S.A. In November 2009, our subsidiary Petrolera Pampa accepted an offer from YPF S.A. ("YPF") to enter into an investment agreement regarding the exploitation of a block known as "Rincón del Mangrullo" (the "Area"), located in the Province of Neuquén and over which YPF held an exploitation concession. Subject to the fulfillment of certain conditions precedent and to the terms and conditions of the investment agreement, Petrolera Pampa would carry out investments in the Area up to a maximum of U.S. $29 million in exchange for the assignment by YPF of certain rights and obligations, including the right over 50% of the hydrocarbon production obtained from the geological formations in the Area subject to the investment agreement. One of the Company’s objectives in connection with this agreement was to contribute to the supply of natural gas to Loma de la Lata as Petrolera Pampa would be able to sell the natural gas produced under this agreement to Loma de la Lata at Gas Plus prices. As there was no response to our request to extend the term for fulfilling the conditions precedent, the investment agreement was terminated in November 2010. 67






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Capital Expenditures For a discussion of our capital expenditures, see “Item 5. Operating and Financial Review and Prospects—Capital Expenditures.” Property, Plants and Equipment We maintain our headquarters at Ortiz de Ocampo 3302, Building #4, City of Buenos Aires, Argentina (C1425DSR). For lease of the office space, our payments averaged U.S. $80,120 per month in 2010 (approximately U.S. $24.2 per m2). For building expenses, our monthly payments in 2010 averaged approximately Ps. 37,500. We moved to this brand-new single location in the Barrio Parque area of the City of Buenos Aires during the second half of 2009. The following table sets forth our total property, plant and equipment for the periods indicated: At December 31,
     At December 31,2010
     2009(in millions of pesos)Generation
     Ps.
     1,729.1
     Ps.               1,654.8Transmission
     
     746.0
     766.5Distribution
     
     4,053.5
     3,868.8Holding
     
     34.6
     1.1Total
     Ps.
     6,563.2
     Ps.             6,291.2
  Insurance In our generation business, we carry full insurance for each of our generation assets, including business interruption and general liability insurance. The total generation assets covered under these policies are valued at U.S. $1,365.5 million. In the case of our generation expansion projects, we currently carry full liability construction insurance, including advance loss of profit insurance, for assets valued up to U.S. $205.0 million. In our transmission business we are insured for damage to property including damages due to electrical malfunction, tornados, hurricanes and earthquakes for losses up to U.S.$1,842.0 million for Transener and U.S.$452.8 million for Transba. As is standard in the electricity transmission sector, electricity towers and transmission lines are not covered by these policies, nor is the loss of our concession. However, Transba has insured its towers and transmission lines for up to U.S. $1 million. In our distribution business, our physical assets are insured for up to U.S. $665.5 million; however, we do not carry insurance coverage for losses caused by network or business interruption, including loss of our concession. THE ARGENTINE ELECTRICITY SECTOR History Electricity was first made available in Argentina in 1887 with the first public street lighting in Buenos Aires. The Argentine government’s involvement in the electricity sector began in 1946 with the creation of theDirección General de Centrales Eléctricas del Estado(General Directorate of Electric Power Plants of the State) to construct and operate electricity generation plants. In 1947, the Argentine government createdAgua y Energía Eléctrica S.A.(Water and Electricity, or AyEE) to develop a system of hydroelectric generation, transmission and distribution for Argentina. In 1961, the Argentine government granted a concession toCompañía Italo Argentina de Electricidad(Italian-Argentine Electricity Company, or CIADE) for the distribution of electricity in a part of the City of Buenos Aires. In 1962, the Argentine government granted a concession formerly held by theCompañía Argentina de Electricidad(Argentine Electricity Company, or CADE) toServicios Eléctricos del Gran Buenos Aires(Electricity Services of Greater Buenos Aires, or SEGBA) for the generation and distribution of electricity to parts of Buenos Aires. In 1967, the Argentine government granted a concession to Hidroeléctrica Norpatagónica S.A. (Hidronor) tobuild and operate a series of hydroelectric generation facilities. In 1978, CIADE transferred all of its assets to the Argentine government, following which CIADE’s business became government-owned and operated. 68






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By 1990, virtually all of the electricity supply in Argentina was controlled by the public sector (97% of total generation). The Argentine government had assumed responsibility for the regulation of the industry at the national level and controlled all of the national electricity companies, AyEE, SEGBA and Hidronor. The Argentine government also represented Argentine interests in generation facilities developed or operated jointly with Uruguay, Paraguay and Brazil. In addition, several of the Argentine provinces operated their own electricity companies. Inefficient management and inadequate capital spending, which prevailed under national and provincial government control, were in large measure responsible for the deterioration of physical equipment, decline in quality of service and proliferation of financial losses that occurred during this period. In 1991, as part of the economic plan adopted by then President Carlos Menem, the Argentine government undertook an extensive privatization program of all major state-owned industries, including within the electricity generation, transmission and distribution sectors. In 1992, the Argentine Congress adopted Law No. 24,065, the Electricity Regulation Framework (a supplement to Law No. 15,336, Federal Electricity Law, and its Administrative Order No. 1,398/92), which was the keystone for the reform and privatization of the sector. The goal of the law was to modernize the electricity sector by promoting efficiency, competition, improved service and private investment. It restructured and reorganized the sector, and provided for the privatization of virtually all business activities that had been carried out by Argentine state-owned enterprises. The law established the basis for the ENRE and other institutional authorities in the sector, the administration of the wholesale electricity market, or WEM, pricing at the spot, tariff-setting in regulated areas and for evaluating assets to be privatized. This law also had a profound, albeit indirect, impact at the provincial level, as virtually all of the provinces followed the regulatory and institutional guidelines of this law. Finally, this law, which continues to provide the framework for regulation of the electricity sector since the privatization of this sector, divided generation, transmission and distribution of electricity into separate businesses, each subject to segment-specific regulation. Under Law No. 24,065, distribution and transmission activities are considered public services and defined as natural monopolies. These activities are completely regulated by the government and require a concession. Although the concessions granted to distributors do not impose specific investment parameters, distributors are obligated to connect new customers and meet any increased demand. The expansion of existing transmission facilities by the respective concessionaires is not restricted. In contrast, generation, although regulated by the government, is not deemed a monopoly activity and is subject to free competition by new market entrants. Operation of hydroelectric power plants requires a concession from the government. New generation projects do not require concessions but must be registered with the Secretariat of Energy. Many of the provincial governments, following the privatization path in the sector, have established their own politically and financially independent regulatory bodies at the provincial level. Previously, the utilities themselves had played a major role in making sector policies and setting tariffs for the provinces. At the end of 2001 and beginning of 2002, Argentina experienced an unprecedented crisis that virtually paralyzed the country’s economy through most of 2002 and led to radical changes in government policies. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Results of Operations—Argentine economic conditions and inflation.” The crisis and the government’s policies during this period severely affected the electricity sector. Pursuant to the Emergency Law, the Argentine government, among other measures: converted electricity prices and transmission and distribution tariffs from their original U.S. Dollar values to Pesos at a rate of Ps. 1.00 per U.S. $1.00;froze all regulated transmission and distribution tariffs, revoked all price adjustment provisions and inflation indexation mechanisms in public utility concessions (including electricity transmission and distribution concessions), and empowered the Executive Branch to conduct a renegotiation of these concessions, including the tariffs for electricity transmission and distribution services; and 69






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required that spot prices on the wholesale electricity market be calculated based on the price of natural gas (which is also regulated by the Argentine government), regardless of the alternative fuels actually used in generation activities, even if gas is unavailable. These measures created a huge structural deficit in the operation of the wholesale electricity market and, combined with the devaluation of the Peso and high rates of inflation, had a severe effect on the electricity sector in Argentina, as electricity companies experienced a decline in revenues in real terms and a deterioration of their operating performance and financial condition. Most electricity companies had also incurred large amounts of foreign currency indebtedness under the Convertibility regime. Following the elimination of the Convertibility regime and the resulting devaluation of the Peso, the debt service burden of these companies increased sharply, leading many of these companies to suspend payments on their foreign currency debt in 2002. This situation caused many Argentine electricity generators, transmission companies and distributors to defer further investments in their networks. As a result, Argentine electricity market participants, particularly generators, are currently operating at near full capacity, which could lead to insufficient supply to meet a growing national energy demand. In addition, the economic crisis and the resulting emergency measures had a material adverse effect on other energy sectors, including oil and gas companies, which has led to a significant reduction in natural gas supplies to generation companies that use this commodity in their generation activities. To address the electricity crisis, in December 2004 the Argentine government adopted new rules to readapt or readjust the marketplace, but these rules were not to come into effect until the construction of two new 800 MW combined cycle generators were completed. These generators commenced operations at full capacity in the first half of 2010. The costs of construction were primarily financed with net revenues of generators derived from energy sales in the spot market, with special charges to non-residential consumers per MWh of energy billed and with specific charges from CAMMESA applicable to large users that were deposited in the FONINVEMEM. See “Price Behavior in the WEM—FONINVEMEM.” The construction of these new generators reflects a recent trend by the Argentine government to take a more active role in promoting energy investments in Argentina. In addition to these projects, in April 2006 the Argentine Congress enacted a law that authorized the Executive Branch to create a special fund to finance infrastructure improvements in the Argentine energy sector through the expansion of generation, distribution and transmission infrastructure relating to natural gas, propane and electricity. The special fund would obtain funds throughcargos específicos(specific charges) passed on to customers as an itemization on their energy bills, but it has not yet been implemented. We cannot make any assurances that the Argentine government will complete the implementation of these new projects in a timely manner, if at all. Finally, in September 2006 the Argentine government, in an effort to respond to the sustained increase in energy demand following Argentina’s economic recovery after the crisis, adopted new measures that seek to ensure that energy available in the market is used primarily to service residential users and industrial and commercial users whose energy demand is at or below 300 kW and who do not have access to other viable energy alternatives. In addition, these measures seek to create incentives for generation plants to meet increasing energy needs by allowing them to sell new energy generation into theEnergía Plus(Energy Plus) system at unregulated market prices. See “Price Behavior in the WEM —Energía Plus.” The Wholesale Electricity Market Transactions among different participants in the electricity industry take place through the wholesale electricity market, or WEM, which was organized concurrently with the privatization process as a competitive market in which generators, distributors and certain large users of electricity can buy and sell electricity at prices determined by supply and demand, and are allowed to enter into long-term electricity supply contracts. The WEM consists of: a term market where quantities, prices and contractual conditions are agreed upon directly between sellers and buyers; 70






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a spot market where prices are established on an hourly basis as a function of economic production cost; anda stabilized pricing system of spot prices, which we refer to as the seasonal price, set on a semi-annual basis and designed to mitigate the volatility of spot prices for purchases of electricity by distributors. The following chart shows the relationships among the various actors in the WEM.  CAMMESA The creation of the WEM made it necessary to create an entity in charge of the management of the WEM and the dispatch of electricity into the NIS. The duties were entrusted to CAMMESA, a private company created for this purpose. CAMMESA is in charge of: the dispatch of electricity into the NIS, maximizing the NIS’s safety and the quality of electricity supplied and minimizing wholesale prices in the spot market;planning energy capacity needs and optimizing energy use in accordance with the rules set forth from time to time by the Secretariat of Energy;monitoring the operation of the term market and administering the technical dispatch of electricity under agreements entered into in that market;acting as agent of the various WEM agents and carrying out the duties entrusted to it in connection with the electricity industry, including billing and collecting payments for transactions between WEM agents;purchasing and/or selling electric power from abroad or to other countries by performing the relevant import/export transactions; and 71






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providing consulting and other related services. Five groups of entities each hold 20% of the capital stock of CAMMESA. The five groups are the Argentine government, the associations that represent the generation companies, transmission companies, distribution companies and large users. CAMMESA is managed by a board formed by representatives of its shareholders. The board of CAMMESA is composed of ten regular and ten alternate directors. Each of the associations that represent generation companies, transmission companies, distribution companies and large users are entitled to appoint two regular and two alternate directors of CAMMESA. The other directors of CAMMESA are the Secretariat of Energy, who is the board chairman, and an independent member, who acts as vice chairman. The decisions adopted by the board of directors require the affirmative vote of the board chairman. CAMMESA’s operating costs are financed through mandatory contributions by the WEM agents. Key Participants Generators Generators are companies with electricity generating plants that sell output either partially or wholly through the NIS. Generators are subjected to the scheduling and dispatch rules set out in the regulations. Privately owned generators may also enter into direct contracts with distributors or large users. As of December 31, 2010, Argentina had a nominal installed capacity as reported by CAMMESA of approximately 28,143 MW. As of the same date, there were approximately 58 generating companies connected to the wholesale electricity market in Argentina, most of them operating more than one generation plant. Broken down by type of generation, the Argentine generators include 35 thermal generation companies, 20 hydroelectric generation companies, 2 bi-national hydroelectric generation companies and 1 national nuclear generation company. For a discussion of the increase in capacity of the electricity generation sector during 2010, see “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Results of Operations Electricity Demand.” The following table sets forth the primary participants in the Argentine electricity generation sector as of December 31, 2010, including the total capacity of each: 72








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Company
     Steam Turbine
     Gas Turbine
     Combined Cycle
     Diesel Engine
     Total Thermal Generation
     Total Nuclear Generation
     Total Hydro-electric Generation
     Total
     %(all values in MW, except percentages)YACYRETA
     
     
     
     
     
     
     2280
     2,280
     8.1%COSTANERA
     1131
     
     1173
     
     2304
     
     
     2,304
     8.2%C.PUERTO
     979
     
     798
     
     1777
     
     
     1,777
     6.3%EPEC
     200
     627
     
     3
     830
     
     918
     1,748
     6.2%P.D.AGUILA
     
     
     
     
     
     
     1400
     1,400
     5.0%TOTAL
     
     
     
     
     
     
     1380
     1,380
     4.9%ALICURA
     
     
     
     
     
     
     1050
     1,050
     3.7%S.GRANDE(ARG)
     
     
     
     
     
     
     945
     945
     3.4%DOCK SUD
     
     72
     798
     
     870
     
     
     870
     3.1%C.T BELGRANO
     
     
     848
     
     848
     
     
     848
     3.0%C.T. TIMBUES
     
     
     848
     
     848
     
     
     848
     3.0%AES PARANA
     
     
     845
     
     845
     
     
     845
     3.0%GENELBA
     
     165
     674
     
     838
     
     
     838
     3.0%PP. ENERGY
     
     
     828
     
     828
     
     
     828
     2.9%S.NICOLAS
     650
     25
     
     
     675
     
     
     675
     2.4%A.CAJON
     
     
     661
     
     661
     
     
     661
     2.3%C.N.EMBALSE
     
     
     
     
     
     648
     
     648
     2.3%PIEDRABUENA (*)
     620
     
     
     
     620
     
     
     620
     2.2%CT.MENDOZA
     120
     14
     374
     
     508
     
     
     508
     1.8%H FUTALEUFU
     
     
     
     
     
     
     472
     472
     1.7%P.BANDERITA
     
     
     
     
     
     
     472
     472
     1.7%C.COSTA ATLANTICA
     260
     170
     
     
     430
     
     
     430
     1.5%TERMOANDES
     
     411
     
     
     411
     
     
     411
     1.5%HIDISA (*)
     
     
     
     
     
     
     388
     388
     1.4%ENARSA GBA
     
     191
     
     190
     381
     
     
     381
     1.4%LOMA.LATA (*)
     
     375
     
     
     375
     
     
     375
     1.3%GUEMES (*)
     261
     100
     
     
     361
     
     
     361
     1.3%C.N.ATUCHA
     
     
     
     
     
     357
     
     357
     1.3%P.P. LEUFU
     
     
     
     
     
     
     285
     285
     1.0%M.MARANZANA
     
     180
     68
     
     248
     
     
     248
     0.9%PLUSP. NORTE
     
     232
     
     
     232
     
     
     232
     0.8%HINISA (*)
     
     
     
     
     
     
     224
     224
     0.8%SORRENTO
     217
     
     
     
     217
     
     
     217
     0.8%ENARSA NEA
     
     
     
     179
     179
     
     
     179
     0.6%SIDERCA
     
     163
     
     
     163
     
     
     163
     0.6%CTPAT
     
     160
     
     
     160
     
     
     160
     0.6%CONSORCIO POTRERILLOS
     
     
     
     
     
     
     146
     146
     0.5%ENSENADA
     
     128
     
     
     128
     
     
     128
     0.5%C.T.PATAGONIA
     
     
     125
     
     125
     
     
     125
     0.4%C.G.ROCA
     
     124
     
     
     124
     
     
     124
     0.4%LOS CARACOLES
     
     
     
     
     
     
     121
     121
     0.4%C.T. NOA
     
     112
     
     4
     116
     
     
     116
     0.4%C. CORRAL
     
     
     
     
     
     
     101
     101
     0.4%OTHERS
     0
     274
     143
     104
     522
     0
     332
     854
     3.0%Total
     4,438
     3,523
     8,183
     480
     16,624
     1,005
     10,514
     28,143
     100.0%




(*)
     Pampa Energía S.A.’s generation assets.(1)
     Loma de la Lata has an installed capacity of 375 MW and an average effective capacity of 369 MW.(2)
     HINISA has an installed capacity of 265 MW and an effective capacity of 224 MW.Source: CAMMESA
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Transmitters Transmission companies hold a concession to transmit electric energy from the bulk supply point to electricity distributors. The transmission activity in Argentina is subdivided into two systems: the High Voltage Transmission System (STEEAT), which operates at 500 kV and transports electricity between regions, and the regional distribution system (STEEDT) which operates at 132/220 kV and connects generators, distributors and large users within the same region. Transener is the only company in charge of the STEEAT, and six regional companies are located within the STEEDT (Litsa, Transnoa, Transnea, Transpa, Transba and Distrocuyo). In addition to these companies, there are also independent transmission companies that operate under a technical license provided by the STEEAT or STEEDT companies. Transmission and distribution services are carried out through concessions. These concessions are redistributed periodically based on a re-bidding process. Transmission companies are responsible for the operation and maintenance of their networks, but not for the expansion of the system. The transmission concessions operate under the technical, safety and reliability standards established by the ENRE. Penalties are applied whenever a transmission concessionaire fails to meet these criteria, particularly those regarding outages and grid downtime. Generators can only build lines to connect to the grid, or directly to customers. Users pay for new transmission capacity undertaken by them or on their behalf. A public hearing process for these projects is conducted by the ENRE, which issues a “Certificate of Public Convenience and Necessity.” Transmission or distribution networks connected to an integrated system must provide open access to third parties under a regulated toll system unless there is a capacity constraint. Distributors Distributors are companies holding a concession to distribute electricity to consumers. Distributors are required to supply any and all demand of electricity in their exclusive areas of concession, at prices (tariffs) and conditions set in regulation. Penalties for non-supply are included in the concessions agreements. The three distribution companies divested from SEGBA (Edenor, Edesur and Edelap) represent more than 45% of the electricity market in Argentina. Only a few distribution companies (i.e., Empresa Provincial de Energía de Córdoba, Empresa de Energía de Santa Fé, and Energía de Misiones) remain in the hands of the provincial governments and cooperatives. Concessions were issued for distribution and retail sale, with specific terms for the concessionaire stated in the contract. The concession periods are divided into “management periods” that allow the concessionaire to give up the concession at certain intervals. Large users The wholesale electricity market classifies large users of energy into three categories: (1)Grandes Usuarios Mayores(Major Large Users, or GUMAs), (2)Grandes Usuarios Menores(Minor Large Users, or GUMEs) and (3)Grandes Usuarios Particulares(Particular Large Users, or GUPAs). Each of these categories of users has different requirements with respect to purchases of their energy demand. For example, GUMAs are required to purchase 50% of their demand through supply contracts and the remainder in the spot market, while GUMEs and GUPAs are required to purchase all of their demand through supply contracts. Large users participate in CAMMESA by appointing two acting and two alternate directors through theAsociación de Grandes Usuarios de Energía Eléctrica de la República Argentina(Argentine Association of Electric Power Large Users, or AGUEERA). 75


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Regulatory and Legal Framework Role of the government The national government restricted its participation in the electricity market to regulatory oversight and policy-making activities. These activities were assigned to agencies that have a close working relationship with one another and occasionally even overlap in their responsibilities. The national government has limited its holding in the commercial sector to the operation of the international hydropower projects and to the nuclear power plants. Provincial authorities followed the national government by divesting of commercial interests and creating separate policy-making and regulatory entities for the provincial sector. Entities and jurisdiction The Secretariat of Energy is the principal national regulatory authority for the electricity sector. The Federal Board of Electric Energy, composed of representatives from each of Argentina’s 24 provinces, advises the Secretariat of Energy on policies related to the coordination and harmonization of these policies. The Secretariat of Energy is also in charge of overseeing the electricity sector and proposing any changes needed in the market. The ENRE is an autonomous supervisory body that operates under the Secretariat of Energy. The ENRE supervises the compliance of regulated transmission and distribution entities with established laws, regulations and operating criteria, including quality of service and environmental standards and guidelines against monopolistic behavior in the market. The ENRE also undertakes or resolves disputes among the different players of the sector and protects consumer interests. According to Law No. 24,065, the board of the ENRE is composed of five members, selected through a competitive process, after which the Secretariat of Energy and the Federal Board of Electric Energy nominate them for the approval by the Congress. At least a portion of the ENRE’s budgetary requirements is funded through fees from sector enterprises, and its professional staff is competitively hired. Limits and restrictions To preserve competition in the electricity market, participants in the electricity sector are subject to vertical and horizontal restrictions, depending on the market segment in which they operate. Vertical restrictions The vertical restrictions apply to companies that intend to participate simultaneously in different sub-sectors of the electricity market. These vertical restrictions were imposed by Law No. 24,065, and apply differently depending on each sub-sector as follows: Generators Under Section 31 of Law No. 24,065, neither a generation company, nor any of its controlled companies or its controlling company, can be an owner or a majority shareholder of a transmitter company or the controlling entity of a transmitter company; andUnder Section 9 of Decree No. 1398/1992, since a distribution company cannot own generation units, a holder of generation units cannot own distributions concessions. However, the shareholders of the electricity generator may own an entity that holds distribution units, either by themselves or through any other entity created with the purpose of owning or controlling distribution units. Transmitters Under Section 31 of Law No. 24,065, neither a transmission company nor any of its controlled companies or its controlling entity, can be owner or majority shareholder or the controlling company of a generation company; 76


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Under Section 31 of Law No. 24,065, neither a transmission company nor any of its controlled companies nor its controlling company, can be owner or majority shareholder or the controlling company of a distribution company; andUnder Section 30 of Law No. 24,065, transmission companies cannot buy or sell electric energy. Distributors Under provision 31 of Law No. 24,065, neither a distribution company, nor any of its controlled companies or its controlling company, can be owner or majority shareholder or the controlling company of a transmission company; andUnder Section 9 of Decree No. 1398/1992, a distribution company cannot own generation units. However, the shareholders of the electricity distributor may own generation units, either by themselves or through any other entity created with the purpose of owning or controlling generation units. Definition of control The term “control” referred to in Section 31 of Law No. 24,065 (which establishes vertical restrictions), is not defined in the Electricity Regulation Framework. Section 33 of the Argentine Companies Law states that “companies are considered as controlled by others when the holding company, either directly or through another company: (1) holds an interest, under any circumstance, that grants the necessary votes to control the corporate will in board meetings or ordinary shareholders’ meetings; or (2) exercises a dominant influence as a consequence of holding shares, quotas or equity interest or due to special linkage between the companies.” We cannot assure you, however, that the electricity regulators will apply this standard of control in implementing the restrictions described above. The regulatory framework outlined above prohibits the concurrent ownership or control of (1) generation and transmission companies, and (2) distribution and transmission companies. Although we are a fully integrated electricity company engaged in the generation, transmission and distribution of electricity in Argentina, we are in compliance with these legal restrictions, as we do not hold a controlling interest, either directly or indirectly, in Transener. Horizontal restrictions In addition to the vertical restrictions described above, distribution and transmission companies are subject to horizontal restrictions, as described below. Transmitters According to Section 32 of Law No. 24,065, two or more transmission companies can merge or be part of a same economic group only if they obtain an express approval from the ENRE. Such approval is also necessary when a transmission company intends to acquire shares of another electricity transmission company;Pursuant to the concession agreements that govern the services rendered by private companies operating transmission lines above 132Kw and below 140Kw, the service is rendered by the concessionaire on an exclusive basis over certain areas indicated in the concession agreement; andPursuant to the concession agreements that govern the services rendered by the private company operating the high-tension transmission services equal to or higher than 220Kw, the company must render the service on an exclusive basis and is entitled to render the service throughout the entire country, without territorial limitations. 77


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Distributors Two or more distribution companies can merge or be part of a same economic group only if they obtain an express approval from the ENRE. Such approval is necessary when a distribution company intends to acquire shares of another electricity transmission or distribution company; andPursuant to the concession agreements that govern the services rendered by private companies operating distribution networks, the service is rendered by the concessionaire on an exclusive basis over certain areas indicated in the concession agreement. Electricity Prices Spot prices The emergency regulations enacted after the Argentine crisis in 2001 had a significant impact on energy prices. Among the measures implemented pursuant to the emergency regulations were the pesification of prices in the wholesale electricity market, known as the spot market, and the requirement that all spot prices be calculated based on the price of natural gas, even in circumstances where alternative fuel such as diesel is purchased to meet demand due to the lack of supply of natural gas. Prior to the crisis, energy prices in the spot market were set by CAMMESA, which determined the price charged by generators for energy sold in the spot market of the wholesale electricity market on an hourly basis. The spot price reflected supply and demand in the wholesale electricity market at any given time, which CAMMESA determined using different supply and demand scenarios that dispatched the optimum amount of available supply, taking into account the restrictions of the transmission grid, in such a way as to meet demand requirements while seeking to minimize the production cost and the cost associated with reducing risk of system failure. The spot price set by CAMMESA compensated generators according to the cost of the last unit to be dispatched as measured at the Ezeiza 500 kV substation, which is the system’s load center and is in close proximity to the City of Buenos Aires. Dispatch order was determined by plant efficiency and the marginal cost of providing energy. In determining the spot price, CAMMESA also would consider the different costs incurred by generators not in the vicinity of Buenos Aires. In addition to energy payments for actual output at the prevailing spot market prices, generators would receive compensation for capacity placed at the disposal of the spot market, including stand-by capacity, additional stand-by capacity (for system capacity shortages) and ancillary services (such as frequency regulation and voltage control). Capacity payments were originally established and set in U.S. Dollars to allow generators to cover their foreign-denominated costs that were not covered by the spot price. However, in 2002, the Argentine government set capacity payments in reference to the Peso thereby limiting the purpose for which capacity payments were established. In 2003, the Secretariat of Energy adopted a resolution that set the spot price in the WEM based on the cost of natural gas as declared by gas-fired power stations, even if gas was not available to these power stations. This pricing policy, which continues to govern the establishment of prices in the spot market, does not depend on the marginal cost of the last power station dispatched. Rather, the spot price as recognized is equal to the marginal cost of the last gas-fired power station dispatched, regardless of whether that station has gas availability. As a result, if the power station dispatched last is fuel-oil-fed, the remaining power stations dispatched are not granted recognition of that fuel-oil-fed power station’s cut-off price. Rather, the remaining power stations are granted recognition for the cost that would have resulted if natural gas had been available and utilized. In 2008, as was the case in 2007, despite an initiative, known as theProjecto de Inyeccion Adicional Permanente(The Permanent Additional Injection Project, IAP Project), of theSub Secretaria de Combustibles(Under-Secretariat of Fuels) to increase the volume of gas channeled into electricity generation, the supply of gas was insufficient to meet electricity generation needs. Consequently, in 2008, the use of liquid fuels in the generation of electricity increased. The Argentine electricity sector consumed more gas oil and fuel oil in 2008 (718,000 tons and 2.3 million tons, respectively) than in any prior year. The high demand for gas, coupled with record high nominal oil prices in the international market, resulted in an increase in the costs of producing energy in 2008. 78


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The regulatory framework governing payment for generation capacity continued to be the same that governed in 2002, with generators receiving compensation for available capacity at Ps. 12 per MW until December 2010. On November 25, 2010, the Secretariat of Energy entered into an agreement with all private generators in order to increase the installed capacity during 2011. The agreement provides that the government will recognize Ps. 35 per MW-hrp (hrp stands for hours in which capacity is being paid) for available capacity of units greater than 100 MW and Ps. 42 per MW-hrp of units smaller than 100 Mw, to generators that present projects to increase capacity and can provide capacity with adequate availability, as defined in the agreement. Furthermore, the remuneration to cover operation and maintenance costs will also increase from Ps. 7.96 per MWh to Ps. 11.96 per MWh for natural gas generation and from Ps. 12.96 per MWh to Ps. 20.96 per MWh for alternative fuel generation. In addition, all hydroelectric units with an installed capacity greater than 250 MW will receive 100% of their energy spot markets sales. In 2008, the Secretariat of Energy changed the amount paid to generators in exchange for energy generated through fuel oil. The price paid by generators for the purchase of fuel oil was capped at U.S. $60.50 per barrel plus an additional 10% of the total purchase cost for financial and administrative charges. In recognition of this price increase, the Secretariat of Energy instructed CAMMESA to recognize, as of April 24, 2008, the maximum capped price plus the 10% administrative cost, plus the cost of shipping the fuel oil, for the purchase of fuel oil of national origin by electricity generators. In October 2008, in reaction to significant variations in the price of crude oil and its derivatives in the international fuel market, the Secretariat of Energy again revised the calculation for the price of fuel oil. Specifically, the Secretariat of Energy instructed CAMMESA to recognize, as of November 1, 2008, a price based on a weekly average of 10 listed prices, less a differential of U.S. $2.50 per barrel, plus the 10% for administrative and financial expenses, plus the shipping cost. In the event that listed prices in the international market increase, the maximum benchmark price to be recognized will be U.S. $60.50 per barrel, plus the 10% for administrative costs, plus the cost of shipping. Seasonal prices The emergency regulations also made significant changes to the seasonal prices charged to distributors in the wholesale electricity market, including the implementation of a cap (which varies depending on the category of customer) on the cost of electricity charged by CAMMESA to distributors at a price significantly below the spot price charged by generators. These prices did not change from since January 2005 until November 2008. See “Item 5. Operating and Financial Review and Prospects—Electricity Prices and Tariffs.” Prior to implementation of the emergency regulations, seasonal prices were regulated by CAMMESA as follows: prices charged by CAMMESA to distributors changed only twice per year (in summer and winter), withinterim quarterly revisions in case of significant changes in the spot energy price, despite priceschargedby generators in the wholesale electricity market fluctuating constantly;prices were determined by CAMMESA based on the average cost of providing one MWh of additional energy(its marginal cost), as well as the costs associated with the failure of the system and several otherfactors; andCAMMESA would use seasonal database and optimization models in determining the seasonal prices andwould consider both anticipated energy supplies and demand as follows:-
     in determining supply, CAMMESA would consider energy supplies provided by generators based on their expected availability, committed imports of electricity and the availability declared by generators; and-
     in determining demand, CAMMESA included the requirements of distributors and large users purchasing in the wholesale electricity market as well as committed exports. 79


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Stabilization fund The stabilization fund, managed by CAMMESA, was created to absorb the difference between purchases by distributors at seasonal prices and payments to generators for energy sales at the spot price. When the spot price was lower than the seasonal price, the stabilization fund increased, and when the spot price was higher than the seasonal price, the stabilization fund decreased. The outstanding balance of this fund at any given time reflected the accumulation of differences between the seasonal price and the hourly energy price in the spot market. The stabilization fund was required to maintain a minimum amount to cover payments to generators if prices in the spot market during the quarter exceeded the seasonal price. Billing of all wholesale electricity market transactions is performed monthly through CAMMESA, which acts as the clearing agent for all purchases between participants in the market. Payments are made approximately 40 days after the end of each month. The stabilization fund was adversely affected as a result of the modifications to the spot price and the seasonal price made by the emergency regulations, pursuant to which seasonal prices were set below spot prices resulting in large deficits in the stabilization fund. As of December 31, 2010, the stabilization fund deficit totaled Ps. 10,242.9 million. This deficit has been financed by the Argentine government through loans to CAMMESA and with FONINVEMEM funds, but these continue to be insufficient to cover the differences between the spot price and the seasonal price. Term market Generators may also enter into agreements in the term market to supply energy and capacity to distributors and large users. Distributors are able to purchase energy through agreements in the term market instead of purchasing energy in the spot market. Term agreements typically stipulate a price based on the spot price plus a margin. Prices in the term market have at times been lower than the seasonal price that distributors are required to pay in the spot market. However, as a result of the emergency regulations, prices in the term market are currently higher than seasonal prices, particularly with respect to residential tariffs, making it unattractive to distributors to purchase energy under term contracts while prices remain at their current levels. FONINVEMEM In 2004, the Argentine government, seeking to increase thermal generation capacity, created a fund called FONINVEMEM to be administered by CAMMESA and to provide funds for investment in thermal generation. To provide capital for the FONINVEMEM, the Secretariat of Energy invited all WEM participants holding interest-bearing receivable credits against CAMMESA, also known as LVFVDs (Sales Settlements with Due Date to be Determined), that originated from January 2004 to December 2006 to contribute these credits to the FONINVEMEM. In exchange, generators were entitled to participate in the construction of two new 800 MW combined cycle generators to be financed with funds from the FONINVEMEM. Consequently, on December 13, 2005, the generating companies “Sociedad Termoeléctrica Manuel Belgrano S.A.” and “Sociedad Termoeléctrica José de San Martín S.A.” were created. Generators that opted to participate in these projects received ten-year take-or-pay supply contracts of electricity and an equity interest in the two new power projects, which were scheduled to commence operations at full capacity in the first half of 2010. As of the date of this annual report, both combined cycle generators had started operations as closed-cycle generations units. In addition, the Argentine government required generators to contribute 65% of their profits (in the case of hydroelectric generators) or variable margins (in the case of thermal generators) to the FONINVEMEM, to be repaid in 120 installments or, at each generator’s option, capitalized in the new power projects. However, because total investment in these two projects was expected to exceed available financing from the FONINVEMEM, in 2005 the Argentine government created special charges to non-residential consumers per MWh of energy billed and specific charges applicable to large users, in each case to be deposited in the FONINVEMEM. Our outstanding balance for long term receivables related to the years 2004 through 2006 under FONINVEMEM, plus accrued interest through December 31, 2010 is approximately Ps. 99 million. Since March 2010, CAMMESA has started paying the corresponding installments as stated in the FONINVEMEM conditions. As of the date of this annual report, we have received the first installment payments related to receivables of our hydroelectric units and of Piedra Buena. 80


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In 2007, the Argentine government amended the terms of the FONINVEMEM by reducing mandatory contributions from generators to 50% of profits or variable margins. Repayment of these contributions will also be made in 120 installments at the London Interbank Offered Rate (“LIBOR”) plus a percentage to be determined, which we expect will range from 1% to 2%. However, generators will no longer be permitted to capitalize their contributions. In addition, on May 31, 2007, the Secretariat of Energy offered generators the opportunity to allocate credits contributed to the FONINVEMEN in 2007 to new electricity investments, so long as these investments were at least four times higher than the amount of the credits. In addition, the following conditions must be met: the investment project had to consist of the construction of a new generation plant or the installation of a new generation unit in an existing plant, or must involve an increase in the height of hydroelectric plants that produces an increase in generation;the reserved energy and capacity may be sold in the term market (includingEnergía Plus), and no exports are allowed during the first ten years;the project had to be submitted within 45 days from the date of publication of the resolution of the Secretariat of Energy approving this regime; andthe construction must have commenced before March 2008. In accordance with this resolution, we submitted all of our installed capacity expansion projects against our FONINVEMEN credits for 2007. These projects include HINISA, HIDISA, Piedra Buena, Güemes and Loma de la Lata, for an aggregate amount of approximately U.S. $13 million as of December 2007. On June 20, 2008 the Secretariat of Energy verified the Company’s proposal and instructed CAMMESA to pay the 2007 LVFVDs, which as of December 31, 2008, had been duly collected. On July 24, 2008, the Secretariat of Energy issued Resolution No. 724/08 authorizing the execution of WEM committed supply agreements with generation agents, related to the repair and/or repowering of generation units and/or related equipment. This Resolution applies to those WEM generation agents filing plans to repair and/or repower their generating equipment and for which costs would exceed 50% of the revenues that they expect to receive on the spot market. Pursuant to the terms of the Resolution, the Secretariat of Energy evaluates the proposals filed by generation agents and determines which ones are eligible to enter a committed supply agreement. The Secretariat of Energy also determines whether the generation agent is eligible to receive financing for the difference between the costs of repairs and the compensation to be received under the proposed agreement. Under this Resolution, Piedra Buena and Loma de La Lata have each signed agreements that permit them to recover receivables from CAMMESSA up to 50% of the cost of any repairs or repowering of generation units and related equipment. Under such agreements, in connection with Loma de la Lata ́s expansion project, the generation subsidiaries have assigned to this project their consolidated receivables accrued during 2009 and 2010. As of December 31, 2010, the generation subsidiaries partially collected from CAMMESA their consolidated receivables accrued during 2008. The outstanding balance of 2008 and 2009 LVFVD and those accrued during 2010, plus interest accrued, added up to approximately Ps. 204.7 million as of December 31, 2010. In addition under such agreements Loma de la Lata has issued several credit assignment agreements with other WEM generators (related companies and third parties) in connection with their LVFVDs accumulated between January 1, 2008 and December 31, 2010 by virtue of Subsection c) of Resolution No. 406/03, as well as the LVFVDs accumulated for the Procedure to Dispatch Natural Gas for the Generation of Electricity. Said assignment may be total and/or partial depending on CAMMESA’s cash and cash equivalents. Such agreements establish the terms and conditions of each assignment, which will be carried out fully or partially as CAMMESA settles the respective receivables, upon which Loma de la Lata will settle the unpaid amounts to the counterparties, according to the conditions established in every agreement. Due to the assignments carried out during the year ended December 31, 2010, the Company has recorded income for Ps. 5.5 million under financial and holding results. Energía Plus In September 2006, the Secretariat of Energy issued Resolution No. 1281/06 in an effort to respond to the sustained increase in energy demand following Argentina’s economic recovery after the crisis. This resolution seeks to create incentives for energy generation plants in order to meet increasing energy needs. The resolution’s principal 81


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objective is to ensure that energy available in the market is used primarily to service residential users and industrial and commercial users whose energy demand is at or below 300 kW and who do not have access to other viable energy alternatives. To achieve this, the resolution provides that: large users in the wholesale electricity market and large customers of distribution companies (in both cases above 300 kilowatts), will be authorized to secure energy supply up to their “base demand” (equal to their demand in 2005) by entering into term contracts; andlarge users in the wholesale electricity market and large customers of distribution companies (in both cases above 300 kilowatts) must satisfy any consumption in excess of their base demand with energy from theEnergía Plussystem at unregulated market prices. TheEnergía Plussystem consists of the supply of additional energy generation from new generation and/or generating agents, co-generators or auto-generators that are not agents of the electricity market or who as of the date of the resolution were not part of the WEM. Large users in the wholesale electricity market and large customers of distribution companies can also enter into contracts directly with these new generators or purchase energy at unregulated market prices through CAMMESA. The resolution also established the price large users are required to pay for excess demand, if not previously contracted underEnergía Plus, which is equal to the marginal cost of operations. This marginal cost is equal to the generation cost of the last generation unit transmitted to supply the incremental demand for electricity at any given time. The Secretariat of Energy established certain temporary price caps to be paid by large users for any excess demand (as of the date of this annual report, Ps. 370 per MWh for GUDIs and Ps. 270 per Mwh for GUMEs and GUMAs). Under this standard, Güemes increased its generation capacity by 100 MW with the commencement of operations of its new LMS 100 generation unit. Güemes is the first WEM generator to provide services under theEnergía Plussystem. Service agreements will be executed under theEnergía Plusplan for the entire net effective capacity of the expansion (98 MW) with various agents in the term market. Together with the approval from the Ministerio de Planificacion Federal, Inversion Publica y Servicios(Federal Planning, Public Investment and Services Ministry) of the profit margin presented by Güemes, the Secretariat of Energy authorized Güemes’ agreements with 108 term market agents for approximately 96.2 MW of contracted capacity. During 2010, Güemes sold 573 GWh under theEnergía Plusprogram. As of the date of this annual report, we have other expansion projects aimed at taking advantage of theEnergía Plusplan. See “—Our Business—Our Generation Business.” 82


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Item 4A. Unresolved Staff Comments Not applicable. Item 5. Operating and Financial Review and Prospects This section contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth in “Forward-Looking Statements,” and “Item 3. Key Information—Risk Factors” and the matters set forth in this annual report generally. The following discussion is based on, and should be read in conjunction with our financial statements and related notes contained in this annual report, as well as “Item 3. Key Information—Selected Financial Data.” Overview We acquired all of our principal generation, transmission and distribution assets relatively recently, commencing in the second half of 2006 and, in each case, after Messrs. Damián Mindlin, Gustavo Mariani, and Ricardo Torres acquired a majority stake in us in November 2005. At the time of our acquisition by these individuals, we did not have any operations or engage in any activities, as our former business activities, which were limited to the ownership and operation of a cold storage warehouse building, were suspended in 2003. After November 2005, our business activities consisted principally of identifying and executing investments in the Argentine electricity sector. As a result of the acquisitions we have consummated since the second half of 2006, we have become the largest fully integrated electricity company in Argentina. Accordingly, prior to the second half of 2006, we have no relevant operating history, comparable financial statements or business track record that might constitute a basis for comparing or evaluating the performance of our operations or business prospects following the recent acquisitions of our principal generation, transmission and distribution assets. Consequently, our financial results for the periods following the first half of 2006 are not comparable with the results for the periods preceding June 30, 2006 (the end of our former fiscal year), and the historical financial information contained in this annual report and in our audited financial statements as of and for the fiscal years ended June 30, 2006 is not likely to be relevant for purposes of evaluating the performance of our current businesses and operations. Below is a summary of our principal generation, transmission and distribution assets, including the respective acquisition date and price for each asset: Generation:-
     90.3% of the capital stock of Nihuiles and 91.6% of the capital stock of Diamante (each a holding company that owns a majority interest in HINISA and HIDISA, respectively, each a hydroelectric power generation company), acquired for a combined purchase price of approximately U. S. $55.7 million, of which US $50.8 million were paid at closing on October 18, 2006 and U. S. $4.9 million (plus interest) are to be paid on June 7, 2012. On January 8 and 9, 2008, we acquired for Ps. 3.4 million the shares previously held by HIDISA’s Employee Participation Program, representing 2% of the stock capital of HIDISA. Following such acquisition, all Class C shares of HIDISA were converted to Class B shares, which are freely transferable to third parties. Therefore, we currently control, directly and indirectly, 56% of the stock capital and voting rights of HIDISA. On December 18, 2009, the shareholders of HINISA agreed to cancel its Class “E” shares corresponding to HINISA’s Employee Stock Option Plan, representing 2% of its capital stock, as a result we now indirectly own 47.0% of the shares and votes of HINISA;-
     100% of the capital stock of CIE, which in turn holds 100% of the capital stock of Piedra Buena, a thermal generation plant located at Ingeniero White, Bahia Blanca in the Province of Buenos Aires, acquired on August 3, 2007 for a total purchase price of U.S. $85.0 million; 83


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-
     100% of the capital stock of Powerco, the owner of 15.48% of the voting capital stock of Güemes; we acquired an indirect stake in Powerco through the acquisition of 100% of Pampa Inversiones’ capital stock (which was at that time known as Dilurey and held 90% of Powerco’s capital stock) and a direct 8% stake in Powerco on January 4, 2007 for a total purchase price of U. S. $16.7 million and the remaining 2% of Powerco’s capital stock on August 24, 2007 for U. S. $460,000 pursuant to an option agreement between us and Güemes’ former chief executive officer; and-
     100% of the capital stock of Loma de la Lata, which owns the thermal generation plant located at Loma de la Lata in the Province of Neuquén, which plant was acquired from Central Puerto on May 17, 2007 for a purchase price of U.S. $60 million (Loma de la Lata also holds 180,869,600 ordinary shares of Güemes, representing 74.19% of Güemes’ voting capital stock).Transmission:100% of the capital stock of Transelec, which holds 50% of the capital stock of Citelec, owner of 52.65% of the capital stock of Transener (the largest electricity transmission company in . We acquired from Dolphin Opportunity LLC on September 15, 2006, 89.76% of capital stock for a purchase price of U.S. $48.5 million; the remaining 10.24% of capital stock was collectively held by Messrs. Marcelo Mindlin, Damián Mindlin and Mariani, who had a right to sell those shares to us after January 1, 2008. This right was on January 2, 2008 for a total purchase price of Ps. 38.8 million (U.S. $12.3 million).Distribution:100% of the capital stock of IEASA, which holds 100% of the capital stock of EASA, the ownerof 51% of the capital stock of Edenor (the largest electricity distribution company in Argentina), on September 28, 2007 from the former indirect shareholders of EASA in exchange for shares of our common stock (of which 436,745,975 were issued in the form of Global Receipts (GDSs). On March 4, 2011, Edenor acquired 99.99% of the equity of AESEBA, owns 90% of the equity and voting rights of EDEN, for a purchase price of U.S.$49.5 million; 77.2% of the equity of EMDERSA, which owns 100% of the equity of EDESAL, EDELAR and and 90% of the equity of EDESA, for a purchase price of U.S.$90 million. In addition, as of 31, 2010, we had acquired through open market transactions carried out by our subsidiary Inversiones a total of 19,449,074 of the publicly listed Class B shares and 839,279 ADSs to 16,785,580 shares) of Edenor for an aggregate price of approximately Ps. 58.2 million. of the date of this annual report the total number of Class B shares of Edenor that we have acquired open market transactions carried out by our subsidiary Pampa Inversiones is 42,845,650 (in form of 1,713,826 ADSs) for which we have paid an aggregate price of Ps. 51.0 million. In addition to our principal businesses, below is a summary of certain non-electricity assets and investments we hold in our holding and others segment, directly or indirectly, including the respective acquisition date and price for each asset: Approximately 13.3% of the capital stock (representing 4.1% of the voting rights) of Cerámica San Lorenzo S.A. (Cerámica San Lorenzo), a leading Argentine producer of ceramic floor coverings and tiles, acquired between February 2007 and March 2008 for an aggregate purchase price of approximately U.S. $8.3 million and having a market value of approximately Ps. 17.9 million (U.S. $4.5 million) based on a trading price of Ps. 1.88 per share on the Buenos Aires Stock Exchange as of December 31, 2010. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions.”0.53% of the capital stock of San Antonio Internacional Ltd. (“San Antonio”), a company that indirectly owns certain on-shore drilling and well treatment businesses, which shares were acquired on October 30, 2007, on May 30, 2008 and on June 26, 2008, by Pampa Inversiones, one of our wholly- owned subsidiaries, for a total purchase price of approximately Ps. 81.7 million (U.S. $25.8 million).As of December 31, 2009, these shares had been accounted for at their estimated realizable value amounting to Ps. 77.9 million. In August 2010, as a result of the decision made by the Board of Directors of Pampa Inversiones to refrain from participating in the capital increase requested by San Antonio, Pampa 84


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Inversiones re-assessed the estimated recoverable value of its investment in San Antonio and, as a result, recorded a write-off for the total amount of the investment.
8 lots at the Benquerencia Exclusive Club, a real estate development located in San Miguel del Monte, approximately 80 miles from the City of Buenos Aires, acquired in January 2006 and with a book value of approximately Ps. 0.9 million (approximately U.S. $0.2 million) as of December 31, 2010.100% of the outstanding bonds issued on April 22, 1997 by CIESA, the controlling company of TGS as well as other credits against CIESA together with the rights over certain current lawsuits related to these bonds, certain CIESA’s debt restructuring agreements and civil responsibility of diverse parties, acquired on January 27, 2011 for a total purchase price of U.S. $136 million. The acquisition of the CIESA debt and the aforementioned rights was done with the intention to re-implement the restructuring agreement signed on September 1, 2005 between CIESA, Petrobras Argentina S.A., Petrobras Hispano Argentina S.A., Enron Pipeline Company Argentina S.A. (“EPCA”), ABN AMROBank N. V. Sucursal Argentina and the financial creditors, under which the latter, now substituted by Pampa, would obtain 50% of CIESA’s equity, which would control 51% of TGS. To the extent the restructuring agreement is finally implemented, Pampa, directly or through subsidiaries, would obtain a 50% equity stake in CIESA, a 4.3% equity stake in TGS, the right to receive its pro rata portion of a dividend to be declared by CIESA upon completion of the restructuring of the CIESA Debt and its portion of the TGS Dividend.On April 8, 2011, we acquired 100% of the shares issued by EPCA, a company which owns 10% of the share capital of CIESA, for a total purchase price of U.S. $29 million. Sources of Revenues Generation Our generation operations derive revenues from the sale of electricity in the spot market and under term contracts, includingEnergía Pluscontracts. In addition, a portion of Güemes’ revenues is derived under long-term contracts for the exportation of electricity to Uruguay. We expect that as ourEnergía Plusexpansion projects come on line, the proportion of our sales made under term contracts will increase, subject to securing long-term fuel and natural gas contracts for additional electricity generation from these projects. See “Item 4. Information on the Company—The Argentine Electricity Sector—Energía Plus.” Transmission Our transmission operations generate both regulated and non-regulated revenues. Regulated revenues are derived from tariffs for the transmission of electricity over Transener’s high voltage system. In addition, we derive non-regulated revenues from Transener’s Fourth Line operations and other businesses. Other non-regulated revenues for Transener are generated through services provided to third parties with assets not covered by its concession and Transener’s international operations. Distribution Our distribution operations generate revenues mainly from net energy sales to users in our distribution service area. Net energy sales reflect the distribution tariffs Edenor charges its customers (which include Edenor’s energy purchase costs) and reflect deductions for fines and penalties incurred in our distribution operations during the year. In addition, our distribution revenues include late payment charges charged to customers for delays in payment of our bills, connection and reconnection charges and leases of poles and other network equipment. Factors Affecting Our Results of Operations Our results of operations are principally affected by economic conditions and inflation in Argentina, changes in prices for our electricity sold and in our regulated transmission and distribution tariffs, fluctuations in demand for electricity in Argentina and our costs of sales and operating expenses. 85


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Argentine economic conditions and inflation Because a substantial portion of our operations, facilities and customers are located in Argentina, we are affected by general economic conditions in the country. In particular, the general performance of the Argentine economy affects demand for electricity, and inflation and fluctuations in currency exchange rates affect our costs and our margins. Inflation primarily affects our business by increasing operating costs, and reducing our revenues in real terms. In December 2001, Argentina experienced an unprecedented crisis that virtually paralyzed the country’s economy through most of 2002 and led to radical changes in government policies. The crisis and the government’s policies during this period severely affected the electricity sector, as described below. Although over the past years the Argentine economy has recovered significantly from the crisis and the business and political environment has been largely stabilized, the Argentine government has only recently begun to address the difficulties experienced by the Argentine electricity sector as a result of the crisis and its aftermath. However, we believe that the current recovery and measures adopted by the Argentine government in favor of the electricity sector, such as incentives for the construction of additional generation facilities and the creation of fiduciary funds to further enhance generation, transmission and distribution of electricity throughout the country, have set the stage for growth opportunities in our industry. The following table sets forth key economic indicators in Argentina during the years indicated: Year endedDecember 31,2010
     2009
     2008
     2007
     2006
     2005
     2004
     2003Real GDP (% change).
     9.2
     0.9
     6.8
     8.7
     8.5
     9.2
     9
     8.8Nominal GDP (in millions of Pesos)
     1,442,655
     1,145,458
     1,032,758
     812,456
     654,413
     532,268
     447,643
     375,909Real Consumption (% change)
     9.0
     0.5
     6.5
     8.8
     7.4
     8.5
     8.3
     7.0Real Investment (% change)
     21.2
     (10.2)
     9.1
     13.6
     18.2
     22.7
     34.4
     38.2Industrial Production (% change)
     9.7
     0.4
     4.9
     7.5
     8.3
     7.7
     10.7
     16.3Consumer Price Index
     10.9
     7.7
     7.2
     8.5
     9.8
     12.3
     6.1
     3.7Nominal Exchange Rate (in Ps. /U.S.$ at periodend)
     3.98
     3.80
     3.45
     3.15
     3.06
     3.03
     2.98
     2.93Exports (in millions of U.S.$)
     68,500
     55,750
     70,021
     55,933
     46,569
     40,013
     34,550
     29,939Imports (in millions of U.S.$)
     56,443
     38,771
     57,423
     44,780
     34,159
     28,692
     22,445
     13,851Trade Balance (in millions of U.S.$)
     12,057
     16,979
     12,598
     11,153
     12,410
     11,321
     12,105
     16,088Current Account (% of GDP)
     1.0
     3.7
     2.2
     2.7
     3.8
     3.0
     2.2
     6.3Reserves (in millions of U.S.$)
     52,190
     47,967
     46,386
     46,176
     32,037
     28,077
     19,650
     14,120Tax Collection (in millions of Pesos)
     409,900
     304,930
     269,375
     199,781
     150,008
     119,252
     98,285
     72,275Primary Surplus (in millions of Pesos)
     26,063
     17,286
     32,529
     25,719
     23,156
     19,661
     17,360
     8,688Public Debt (% of GDP at December 31) *
     45.8
     48.8
     48.8
     56.1
     64.0
     73.9
     127.3
     138.7Public Debt Service (% of GDP)
     5.4
     7.5
     5.5
     5.8
     5.1
     5.4
     5.8
     3.2External Debt (% of GDP at December 31) *
     35.7
     38.5
     39.4
     47.6
     51.3
     64.4
     112.4
     129.5Sources:INDEC; Central Bank; Ministry of Economy and Production.* Does not include hold outs
  Following years of hyperinflation and economic recession, in 1991, the Argentine government adopted an economic program that sought to liberalize the economy and impose monetary discipline. The economic program, which came to be known as the convertibility regime, was centered on theLey de Convertabilidad del Austral(Austral Convertibility Law, or the “Convertibility Law”) of 1991 and a number of measures intended to liberalize the economy, including the privatization of a significant number of public sector companies (including certain of our subsidiaries and co-controlled companies). The Convertibility Law established a fixed exchange rate based on a currency board. The goal of this system was to stabilize the inflation rate by requiring that Argentina’s monetary base be fully backed by the Central Bank’s gross international reserves. This restrained the Central Bank’s ability to effect changes in the monetary supply by issuing additional Pesos and fixed the exchange rate of the Peso with the U.S. Dollar at Ps. 1.00 = U.S. $1.00. 86


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The convertibility regime achieved price stability which, coupled with other political and economic measures, increased the efficiency and productivity of the Argentine economy and attracted significant foreign investment to Argentina. At the same time, Argentina’s monetary policy was tied to the flow of foreign capital into the Argentine economy, which increased the vulnerability of the economy to external shocks and led to increased reliance on the services sector of the economy, with the manufacturing, agricultural and industrial sectors lagging behind due to the relative high cost of Peso-denominated products in international markets as a result of the Peso’s peg to the U.S. Dollar. In addition, related measures restricted the Central Bank’s ability to provide credit, particularly to the public sector. Following the enactment of the Convertibility Law, inflation declined steadily and the economy experienced growth through most of the period from 1991 through 1997. This growth slowed from 1998 on, however, as a result of the Asian financial crisis in 1997, the Russian financial crisis in 1998 and the devaluation of Brazil’s currency in 1999, which led to the widespread withdrawal of investors’ funds from emerging markets, increased interest rates and a decline in exports to Brazil, Argentina’s principal export market at the time. According to INDEC, in the fourth quarter of 1998, the Argentine economy entered into a recession that caused the gross domestic product to decrease by 3.4% in 1999, 0.8% in 2000 and 4.4% in 2001. In the second half of 2001, Argentina’s recession worsened significantly, precipitating a political and economic crisis at the end of 2001. 2001 economic crisis Beginning in December 2001, the Argentine government implemented an unexpected number of monetary and foreign exchange control measures that included restrictions on the free disposition of funds deposited with banks and on the transfer of funds abroad without prior approval by the Central Bank, some of which are still in effect. On December 21, 2001, the Central Bank decided to close the foreign exchange market, which amounted to ade factodevaluation of the Peso. On December 24, 2001, the Argentine government suspended payment on most of Argentina’s foreign debt. The economic crisis led to an unprecedented social and political crisis, including the resignation of President Fernando De la Rúa and his entire administration in December 2001. After a series of interim governments, in January 2002 the Argentine Congress appointed Senator Eduardo Duhalde, a former vice-president and former governor of the Province of Buenos Aires, to complete De la Rúa’s term through December 2003. On January 6, 2002, the Argentine Congress enacted the Emergency Law, which introduced dramatic changes to Argentina’s economic model, empowered the Argentine government to implement, among other things, additional monetary, financial and foreign exchange measures to overcome the economic crisis in the short term and brought to an end the convertibility regime, including the fixed parity of the U.S. Dollar and the Peso. Following the adoption of the Emergency Law, the Peso devalued dramatically, reaching its lowest level on June 25, 2002, at which time it had devalued from Ps. 1.00 to Ps. 3.90 per U.S. Dollar according to Banco Nación. The devaluation of the Peso had a substantial negative effect on the Argentine economy and on the financial condition of individuals and businesses. The devaluation caused many Argentine businesses (including certain of our subsidiaries and co-controlled companies) to default on their foreign currency debt obligations, significantly reduced real wages and crippled businesses that depended on domestic demand, such as public utilities and the financial services industry. The devaluation of the Peso created pressure on the domestic pricing system and triggered very high rates of inflation. According to INDEC, during 2002, the Argentine wholesale price index increased by approximately 118% and the Argentine consumer price index rose approximately 41%. Following the adoption of the Emergency Law, the Argentine government implemented measures, via executive decree, Central Bank regulation and federal legislation, attempting to address the effects of the collapse of the convertibility regime, recover access to financial markets, reduce government spending, restore liquidity to the financial system, reduce unemployment and generally stimulate the economy. Pursuant to the Emergency Law, the Argentine government, among other measures: converted public utility tariffs from their original U.S. Dollar values to Pesos at a rate of Ps. 1.00 per U.S. $1.00; 87


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froze all regulated distribution margins relating to the provision of public utility services (including the margins of certain of our subsidiaries and co-controlled companies);revoked all price adjustment provisions and inflation indexation mechanisms in public utility concessions (including the concessions of certain of our subsidiaries and co-controlled companies); andempowered the Executive Branch to conduct a renegotiation of public utility contracts (including the concessions of certain of our subsidiaries and co-controlled companies) and the tariffs set therein (including the tariffs of certain of our subsidiaries and co-controlled companies). These measures, combined with the devaluation of the Peso and high rates of inflation, had a severe effect on public utilities in Argentina (including certain of our subsidiaries and co-controlled companies). Because public utilities were no longer able to increase tariffs at a rate consistent with the increased costs they were incurring, increases in the rate of inflation led to decreases in their revenues in real terms and a deterioration of their operating performance and financial condition. Most public utilities had also incurred large amounts of foreign currency indebtedness to finance the capital improvement and expenditure programs. At the time of these privatizations, the capital structure of each privatized company was determined by taking into account the convertibility regime and included material levels of U.S. Dollar-denominated debt. Following the elimination of the convertibility regime and the resulting devaluation of the Peso, the debt service burden of these utilities significantly increased, which when combined with the margin freeze and conversion of tariffs from U.S. Dollars to Pesos, led many of these utilities (including certain of our subsidiaries and co-controlled companies) to suspend payments on their foreign currency debt in 2002. Economic recovery Beginning in the second half of 2002, Argentina experienced economic growth driven primarily by exports and import-substitution, both facilitated by the lasting effect of the devaluation of the Peso in January 2002. While this devaluation had significant adverse consequences, it also fostered a reactivation of domestic production in Argentina as the sharp decline in the Peso’s value against foreign currencies made Argentine products relatively inexpensive in the export markets. At the same time, the cost of imported goods increased significantly due to the lower value of the Peso, forcing Argentine consumers to substitute their purchase of foreign goods with domestic products, substantially boosting domestic demand for domestic products. In April 2003, Dr. Néstor Kirchner, the former governor of the province of Santa Cruz, was elected as president for a four-year term, and he took office in May 2003. During 2003, Argentina moved towards normalizing its relationship with the IMF, withdrew all the national and provincial governments’ quasi-money securities from circulation and eliminated all deposit restrictions. The trade balance experienced a sustained surplus, aided by the rise in commodity prices and export volumes. At the same time, social indicators improved, with the unemployment rate decreasing to 17.3%, and real wages began to recover, according to INDEC. In June 2005, the Argentine government completed a restructuring of Argentina’s public external debt, which had been in default since December 2001. Argentina reduced the outstanding principal amount of its public debt from U.S. $191.3 billion to U.S. $126.6 billion and extended payment terms. In April 2010, the Argentine government launched a new exchange offer for the outstanding sovereign bonds that did not participate in the 2005 restructuring. On January 3, 2006, Argentina completed an early repayment of all of its outstanding indebtedness with the IMF, for an amount totaling approximately U.S. $10.0 billion owed under credit lines. On December 10, 2007, Cristina Fernández de Kirchner, wife of the ex-President Dr. Néstor Kirchner, was inaugurated as President of Argentina for a four-year term. From 2003 to 2008, the economy continued recovering from the 2001-2002 economic crisis. Argentina’s real GDP grew by 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006, 8.7% in 2007 and 6.8% in 2008, led by private sector consumption and public expenditure, with a strong impact from exports (especially commodities exports). Growth in public expenditures, however, consistently exceeded the rate of increase in revenue and nominal GDP growth, eroding the fiscal surplus and reaching historically high levels in terms of GDP. From a supply perspective, the tradable sector benefited from a depressed real exchange rate, which was supported by the 88


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intervention of the Central Bank in the foreign exchange market. Exports improved in terms of quantities and also in terms of prices due to an exceptional global context (demand and prices of Argentine exports). The current account improved significantly, registering surpluses every year since 2002. International economic crisis and domestic economic performance in 2009 According to official figures (provided by the INDEC), real GDP grew by 0.9% during 2009. While this represents a clear deceleration compared to the average annual growth registered between 2003 and 2008 of 8.5%, it reflects the continuation of economic growth even in light of the global financial and economic crisis. The decrease in domestic economic activity started at the end of 2008, when uncertainties related to the global financial and economic crisis affected both industrial managers and the general public, negatively affecting private consumption and industrial investment decisions. However, as a result of a recovery in the global economy as of the second quarter of 2009, and also because of the relative stability of local financial markets (in part due to an effective foreign exchange policy) the local economy started to recover by mid 2009. Real investment was also negatively affected during 2009, registering a decrease of 10.2%, as compared to a 9.1% increase in 2008, according to official figures. This negative performance also implied reduced real investments as a share of GDP. In 2008, real investment represented 23.1% of GDP, while in 2009 it represented 20.6%. Regarding fiscal policy, primary expenditure growth in 2009 remained at similar levels (30.2% in 2009, as compared to 34.9% in 2008), while revenue growth was lower than in 2008 (19.3% in 2009, as compared to 39.6% in 2008). As a result, the primary surplus deteriorated from 2008 to 2009, with federal government savings of 1.5% of GDP in 2009 compared to 3.2% of GDP in 2008. The Central Bank worked towards mitigating the impact of the global and local financial situation by stabilizing the exchange market. As a result, there was no significant pressure on the local banking system and, while there were peaks at certain points in time, local rates were stable throughout the year and the foreign exchange market remained stable in 2009. 2010: a year of recovery from the global crisis According to official data, real GDP in Argentina increased by 9.2% in 2010, an outstanding increase with respect to its 2009 performance, in which the real GDP had increased by 0.9%. The principal factors that account for this economic recovery are the following: (i) an agricultural boom, with a record harvest (mainly in soybeans) observed in 2010; (ii) a favorable international context (with the Brazilian economy growing at an elevated rate and supporting the local industrial sector, and China driving the demand for commodities in a high price environment); (iii) a climate of financial stability that successfully insulated the economy from short-term shocks (explained, in part, by an excess private supply of dollars and low chances of sovereign default in the near future); and (iv) various expansionary economic policies (including fiscal, monetary and revenue-related policies) undertaken by the government. Primary spending increased by 33.9% in 2010. However, due to a strong recovery in revenue collections (which increased by 35.2% in 2010), primarily due to the growth in economic activity, higher exports, a relatively high inflation rate, and an increase in non-tax resources (which increased by 31.5%), the Federal Government’s primary surplus showed an improvement during 2010 as compared to 2009, accounting for 1.7% of GDP, as compared to 1.5% of GDP during 2009. The Central Bank played a key role as a funding source for the National Treasury during this period, providing financing to the National Treasury in an amount equivalent to 4.1% of GDP during 2010, when the use of international reserves and the increase in the stock of Temporary Loans are included. Monetary aggregates experienced significant growth during 2010. As of December 2010, M2 (currency in circulation plus demand deposits) had increased by 27.9% for the year, whereas Private M2 (equal to M2 but excluding the public sector) increased at a rate of 32.9%, consolidating a significant increase since June 2010 (in which month both aggregates had risen by 18.0% and 23.1%, respectively, as compared to the same period of 2009). 89


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This increase in monetary aggregates is closely related to the Central Bank’s strong participation in the foreign exchange market, given its purpose of sustaining the nominal exchange rate vis-à-vis the dollar and the ongoing role of the public sector as a promoter of monetary supply. There has been a rise in inflation since late 2009. Official data provided by INDEC reflect this acceleration in retail inflation. According to INDEC, the Consumer Price Index recorded an annual increase of 10.9% as of December 2010, as compared to 7.7% in 2009 (and a minimum of 5.3% in June 2009). According to official data, gross fixed investment would have recorded an annual increase of 21.2% in 2010, resuming its positive trend after a decrease of 10.2% in 2009. As a result, investment would have regained ground in terms of GDP, reaching 22.6% (measured in real terms) as compared to 20.6% in 2009. In turn, according to private estimates, the unemployment rate would have dropped by 1.5 percentage points in 2010, standing at around 8.5% of the economically active population (EAP) in the last quarter of the year, reversing the increase in unemployment in 2009 as a result of the global economic crisis. On the contrary, official data show an unemployment rate of 7.3% of the EAP by the end of the year. Outlook for 2011 Forecasts regarding 2011 are optimistic, with an estimated expansion of around 6.0% to 6.5%, as the factors that drove the economy in 2010 would remain unchanged in the short term. The deceleration expected for 2011 relate to a harvest that will continue to be high, but which would not repeat last year’s outstanding increase (after the previous year’s historical drought), with international prices that will also remain high but which would not repeat this year’s elevated trend. The expected growth rate is one of the highest in the region, due to positive factors such as improved economic performance in Brazil and China and domestic economic policies aimed mainly at promoting domestic economic activity. This favorable scenario for 2011 is not free from uncertainty. At the domestic level, inflation will continue to be the main macroeconomic problem, against a backdrop in which the margins of supply (in terms of physical and human capital) necessary to continue growing at an accelerated pace become narrower. Another noteworthy factor is the uncertainty that often underlies presidential elections in Argentina. At the international level, doubts are focused on the dynamics of economic growth in the United States on the one hand, and the small- and medium-sized economies of Europe on the other. Although it is unlikely that economic conditions in developed countries will generate a new global crisis (such as the one that occurred during 2008-2009), problems in those economies will remain relevant for an extended period. During the first weeks of 2011, the uncertain international scenario was aggravated by political instability in several Middle Eastern countries that started in Tunisia and Egypt and then spread to the rest of the region (Bahrain, Libya etc.). These events took a toll on the international markets, especially the international commodities market, given the strategic nature of many of these countries as sources for the supply of oil. This situation could affect the global economy if it endures over time and spreads to other oil-exporting countries. If developed economies experience a recovery that is not sufficiently robust, a significant increase in energy prices could accelerate global inflation rates, adversely affecting levels of economic activity. In addition, should this increase be important, it would place increased pressure on central banks, requiring them to counteract escalating prices, thus reducing the freedom with which they currently act. Despite the weakness of the recovery, the U.S. Federal Reserve or the European Central Bank could be forced to raise their benchmark interest rates, which could severely inhibit economic growth. 90


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Electricity prices and tariffs Our revenues and margins are substantially dependent on the prices we are able to charge for the electricity sold by our generation plants, as well as the composition of our transmission and distribution tariffs (including the tariff setting and adjustment process contemplated by our transmission and distribution concessions). Our management is currently focused on improving the prices we are able to charge for electricity generated, including by expanding our generation capacity to increase our sales to the unregulated market under theEnergía Plusregulatory framework, and renegotiating our transmission and distribution tariff structures, which, if successful, would have a significant impact on our results of operations. Electricity prices Our generation operations derive revenues from the sale of electricity in the spot market and under term contracts, includingEnergía Pluscontracts. In addition, a portion of Güemes’ revenues is derived under long-term contracts for the exportation of electricity to Uruguay. During 2010, the authorities responsible for the energy sector have continued with the policy adopted in 2003, which consists of having the spot price in the WEM determined on the basis of the maximum variable production costs recognized to power stations that are either gas-fed or available with natural gas, even if these cannot avail themselves of gas (Resolution SE No. 240/03). Therefore, this price, as recognized, does not stem from the application of the marginal cost of the least efficient power plant dispatched. Rather, the assumption used is that gas is freely available and therefore, the spot price determined is equal to the marginal cost of the last gas-fed power station dispatched, even if it does not have gas availability. Therefore, when the least efficient power plant that has been dispatched is, for example, fuel-oil-fed, its cut-off price is not determined as the spot price, but rather, the WEM spot price is recognized as the cost that would have resulted if natural gas had been used instead and the additional cost incurred when using liquid fuels is recognized outside the determined WEM price, as a temporary dispatch surcharge. The relevant authorities have resorted to a number of procurement mechanisms for the supply of fuels for electricity generation, including an agreement with the principal electricity generators, which provides that natural gas volumes will be managed by CAMMESA with a view to optimizing the following: natural gas consumption in the most efficient generation units,contracts for liquefied natural gas and its re-gasification, andnatural gas imported from Bolivia, among others. All this notwithstanding, the supply of natural gas continues to be insufficient to meet the needs of electricity generation, which explains why electricity generation has had to continue relying on the consumption of liquid fuels. The consumption of natural gas in 2010 was slightly lower than in 2009 (11,573,394 m3, as compared to 12,616,393 m3in 2009). This decline, combined with the increase in electricity demand, caused liquid fuel consumption to be much higher in 2010 than in 2009. Gas oil consumption was 71.3% higher than that recorded in 2009 (1,670,909 m3, as compared to 975,393 m3in 2009). Likewise, fuel oil consumption was 41.2% higher than in 2009 (2,262,663 tn, as compared to 1,602,534 tn in 2009) while mineral coal consumption remained almost unchanged (873,896 tn, as compared to 795,738 tn in 2009). As a result, generation costs were in excess of the ordered market spot price during a major portion of the year. The regulatory framework in force as of the date of this annual report regarding the amounts paid for generation capacity continues to be the same as that enacted in 2002, which limits the establishment of the short-term marginal cost and freezes the compensation for the capacity made available at Ps.12 per MW through November 2010. From December 2010 onwards, electricity generators have executed an agreement with the Secretariat of Energy to increase the prices of capacity and of compensation for operation and maintenance. 91


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In addition, the amounts paid for energy generated with fuel oil bought by electricity generators was subject to the same regulatory framework in force in 2008, recognizing the price paid for purchasing fuel oil and adding a further 10% for financial and administrative charges, with a maximum regulated price of U.S. $60.5 per bbl. The following chart illustrates the average monthly price of electricity paid to generators during 2010. Monthly Average Price of 
Electricity in the Spot Market (Ps. Per MWh) **** ****  *Source*: CAMMESA The chart below shows the monthly average cost during 2010 that electricity consumers should pay for the system not to be deficient, compared to the prices paid by residential, commercial and large users to Edenor. This cost includes, in addition to the price of energy, the capacity charge, the increased generation cost resulting from using fuel oil or diesel oil, and other minor items. Monthly Average Monomic Cost (Ps. Per MWh)   *Source*: CAMMESA 92


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We expect that as ourEnergía Plusexpansion projects continue to come online, the proportion of our sales made under term contracts will continue to increase, subject to securing long-term fuel and natural gas contracts for additional electricity generation from these projects. New Scheme for Recognizing Costs and Remuneration On November 25, 2010, the Secretariat of Energy and representatives from several conglomerates in the electricity generation sector (including AES Argentina, SADESA, Endesa Costanera, Central Dock Sud, Grupo Albanesi, Petrobras Argentina, Hidroeléctrica Chocón, Centrales de la Costa Atlántica, Hidroeléctrica Futaleufú and Energía del Sur S.A. in addition to Pampa Energía S.A.), signed the “Agreement for Managing and Operating Projects, Increasing Thermal Generation Availability and Adapting the 2008-2011 Remuneration due to Generation”. This agreement seeks to accomplish the following: continue with the adaptation process of the WEM,enable the incorporation of new generation to meet the increased demand for energy and power in the WEM,determine a mechanism to pay the generators’ Sales Settlements with Maturity Dates To Be Determined (“LVFVDs,” per the initials in Spanish), which represent the generators’ claims spanning the period from January 1, 2008 through December 31, 2011, anddefine how to recognize the global remuneration due to generators. With a view to increasing the WEM’s installed power, plans were made to analyze generation projects whose execution would be financed with the funds raised through the “Temporary Fee towards the Formation of the 2008-2011 Agreement Fund” that the Secretariat of Energy is expected to implement and through the total repayment of the contributions paid in conformity with the “Final Agreement for Managing and Operating the Projects for Readapting the WEM as per the Secretariat of Energy’s Resolution No. 1427/2004” Section 4, Sub- 93


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section d), Paragraph 2. The generators will be in charge of constructing those projects based on the availability of funding. On January 13, 2011, the Secretariat of Energy issued Resolution No. 3/2011 whereby it established a 120-month extension beginning on January 1, 2011, in the temporary enforcement of the Ps.3.60 per MWh fee established by the Secretariat of Energy’s Resolution No. 1866 dated November 29, 2005, subject to approval by the Ministry of Federal Planning, Public Investment and Utilities. To proceed with the repayment of the generators’ LVFVDs corresponding to the period from January 1, 2008 to December 31, 2011, it has been agreed that they will be paid through a Supply Agreement within the framework of the Secretariat of Energy’s Resolution No. 220/2007 to be executed by the new generation power plants constructed as previously described. The interest stipulated in Section 3 of the Secretariat of Energy’s Resolution No. 406/2003 will be added to the LVFVDs that the generators include under the agreement and they will be converted into U.S. Dollars at the exchange rate prevailing on the date of execution of the agreement. The amount resulting from this calculation will then accrue an annual interest rate equivalent to LIBOR at 30 days plus 5% as from the execution of the agreement. The amounts due on the LVFVDs will be reimbursed in 120 monthly, equal and consecutive installments as from the commissioning of the projects constructed in the framework of the agreement through the above-mentioned Supply Agreements. Regarding the remuneration payable to the generators who are parties to the agreement pending recognition, the increase foreseen in the remuneration for capacity made available ranges from Ps. 30 per MWh to Ps. 42 per MWh of remunerated capacity according to the relevant technology (i.e., gas turbine, steam turbine or combined cycle), insofar as the availability is equal to or higher than a target availability. Therefore, if the target availability were delivered, the remuneration for the capacity made available at Central Térmica Piedra Buena would be Ps. 35 per MWh of remunerated capacity, at Central Térmica Güemes it would be Ps. 38.5 per MWh of remunerated capacity and at Central Térmica Loma de la Lata it would be Ps. 35 per MWh of remunerated capacity. In addition, it has been agreed that generators will be granted an increase in the maximum values up for recognition to thermal units as maintenance and fuel costs, for the months in which the average availability exceeded the target availability. When generation relies on liquid fuels, Ps. 8 per MWh will be added, while natural gas-powered generation will receive an increase of Ps. 4 per MWh. Prior to the execution of the agreement, the maximum amount recognized in favor of generation with liquid fuels was Ps. 12.96 per MWh and in favor of natural-gas fed generation it ranged from Ps. 7.96 per MWh to Ps. 10.81 per MWh, according to the type of technology and size. These values will be treated as “Temporary Dispatch Cost Overruns” and will not be taken into consideration in determining Dispatch Variable Production Costs. The will also not take part in the calculation of the spot price. Both the increase in the remuneration for capacity and the recognition of additional maintenance and fuel costs would come into force as from the execution of the agreement dated November 25, 2010. As of December 31, 2010, we and our generation subsidiaries had recognized revenues associated to that agreement for Ps.8.8 million. This notwithstanding, on February 3, 2011, through its Note No. 924, the Secretariat of Energy instructed CAMMESA to consider the remuneration items stipulated in the agreement as LVFVDs in the WEM’s monetary transactions until the execution of the supplementary addenda. Finally, as a consequence of the agreement, the claims held by HINISA, which were a part of the amounts paid as mandated by Resolution 406/2003, Sub-section c) prior to the agreement, will now be treated as a part of the amounts paid as mandated by Resolution 406/2003, Section 4, Sub-section e). Therefore, the order of priority for payment of such claims has changed in favor of HINISA: as from the modification, HINISA’s claims are paid together with the Variable Production Costs. 94


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Tariffs Transmission. Our transmission tariffs have four components: (1)
     electricity transmission revenue;(2)
     capacity charges;(3)
     connection charges; and(4)
     reactive equipment charges. The tariffs are paid on a monthly basis by CAMMESA, which payments are made by CAMMESA out of the amounts it collects from local electricity distribution companies, generators and large users of electricity. The tariffs that Transener and Transba receive under their concession agreements are reviewed periodically by the ENRE and are subject to deductions for penalties for non-availability of the network that are calculated pursuant to a formula set forth in the concession agreements and applicable regulations. Originally, pursuant to the concession agreements, Transener’s and Transba’s tariffs were calculated in U.S. Dollars and converted into Pesos based on the exchange rate applicable at the time of invoicing. The concession agreements provided for a semiannual adjustment based on a formula related to the U.S. CPI (Consumer Price Index) and U.S. PPI (Producer Price Index). The concession agreements also provided for electricity transmission revenue to be revised every five years by the ENRE. However, the Emergency Law converted Transener’s and Transba’s revenues into Pesos at a rate of Ps. 1.00 per U.S. $1.00 and adjustments to the U.S. CPI/PPI provided for under the terms of the concession agreements were disallowed. Transener completed its first tariff review process in 1998, but as a consequence of the Emergency Law, Transener’s second tariff review process (and Transba’s first tariff review process) was replaced by the renegotiation process contemplated by the Emergency Law. In connection with this renegotiation process, Transener and Transba entered into new agreements with the Argentine government. These agreements, among other things, provide for rules for a transition period with retroactive effect from June 1, 2005 until the effectiveness of the Transener RTI. Under the transition period rules, Transener’s tariffs were increased by an average of 31% and Transba’s tariffs were increased by an average of 25%. According to the terms of the Transener’s agreement with the Argentine government, the Transener RTI will be based on the Electricity Law and tariffs will be determined based on costs, necessary investments, non-automatic tariff adjustment mechanisms, the impact of unregulated activities, rate of return and capital base. The ENRE will schedule a public hearing to analyze Transener’s and Transba’s tariff proposal before applying the new charges for the next tariff period. If the variation of Transener’s remuneration resulting from the Transener RTI is higher than the tariff increase during the transition period, then the tariff increase would be implemented in three semiannual stages. On August 5, 2008, the Secretariat of Energy adopted Resolutions No. 869/2008 and No. 870/2008, which establish that the new tariffs to be adopted pursuant to the Transener RTI will become effective in February 2009. However, as of the date of this annual report, the ENRE has not yet called the public hearing mandated by the Secretariat of Energy in its Resolutions No. 869/08 and No. 870/08. Due to the increase in labor costs resulting from the application of National Executive Branch Decree No. 392/2004 and subsequent regulation, and the major operating costs incurred since 2004, Transener and Transba have certified the costs variations that had effectively occurred on each quarter, filing the respective claims before the ENRE, in order to readjust their regulated remuneration according to the clauses established in the Definitive Agreements for such purpose. In that way, Transener and Transba, unsuccessfully required the ENRE to recognize the cost increases in the tariff that occurred after the Definitive Agreement had been entered into, which led to the initiation of judicial claims. TheUnidad de Renegociación y Análisis de Contratos de Servicios Públicos(Renegotiation and Analysis of Public Service Contracts Unit, or UNIREN) has stated that the mechanism for monitoring of costs and regime of service quality had been set to last up to the enforcement of Transener and Transba’s RTI, respectively, and that the delay in the definition of said process is not attributable to the Concessionaires and it could not lead to undermine their rights. 95


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Finally, on December 21, 2010, an Instrumental Agreement (the “Instrumental Agreement”) related to the Definitive Agreement was entered into with the Secretariat of Energy and the ENRE, setting forth as follows: (i)
     the recognition of Transener and Transba ́s rights to collect the amounts resulting from the variations of costs during the period from June 2005 to November 2010,(ii)
     the mandatory cancellation of the financing received from CAMMESA, through the assignment of credits resulting from the recognition of the above mentioned variations of costs,(iii)
     a mechanism of cancellation of the pending balances,(iv)
     an additional financing amount to be directed to investments in the transmission system for the amount of Ps. 34.0 million for Transener and Ps. 18.4 million for Transba, to be cancelled through the mechanism described in (ii), and(v)
     a procedure for the calculation and payment of cost variations between December 1, 2010 and December 31, 2011, calculated biannually. The results arising from the recognition of the variations of costs on behalf of the Secretariat of Energy and the ENRE have been registered in the financial statements, up to the amounts received as of December 31, 2010, through the financing of CAMMESA. Consequently, net revenues for Ps. 61.9 million and interest income for Ps. 80.7 million, have been registered by Transener. In February 2011, CAMMESA made an estimation of the amounts owed to Transener and Transba due to variations of costs during the period from June 2005 to November 2010. As of January 17, 2011 such amounts were as follows: Differences for Connection and CapacityTransba
     Transener
     Total(in millions of Pesos)Principal
     75.9
     189.3
     265.2Interest
     43.2
     104.8
     148.0Total
     119.1
     294.1
     413.2
  Pursuant to the Instrumental Agreement and subject to its fulfillment, Transener and Transba withdrew their judicial claims for delay against the ENRE requesting the recognition of the increased costs and the public hearing in order to complete the full RTI. The outcome of the Transener RTI, however, is highly uncertain as to both its timing and final result. We cannot assure you that the renegotiation process will conclude in a timely manner or that the revised tariff structure will cover our costs and compensate us for inflation and currency devaluations in the future and provide us with an adequate return on our transmission assets. Distribution.Under the terms of Edenor’s concession, the tariffs charged by Edenor (other than those applied to customers in the wheeling system, described below) are composed of: the cost of electric power purchases (which Edenor passes on to its customers) and a fixed charge to cover a portion of Edenor’s energy losses in its distribution activities;Edenor’s regulated distribution margin, which is known as the value-added for distribution, or VAD, to cover its operating expenses, taxes and amortization expenses and to provide Edenor with an adequate return on its asset base; andany taxes imposed by the Province of Buenos Aires or the City of Buenos Aires. 96


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Large users are eligible to purchase their energy needs directly from generators in the WEM and acquire from Edenor only the service of delivering that electricity to them. Edenor’s tariffs for these large users (known as wheeling charges), therefore, do not include charges for energy purchases. Accordingly, wheeling charges consist of the fixed charge for recognized energy losses (determined by reference to a fixed percentage of energy and power capacity for each respective voltage level set forth in Edenor’s concession) and Edenor’s distribution margin. Edenor’s concession originally contemplated a fixed distribution margin for each tariff parameter with semiannual adjustments based on variations in the U.S. wholesale price and U.S. consumer price indices. However, the Emergency Law, enacted in January 2002, among other measures, revoked all adjustment clauses in U.S. Dollars or other foreign currencies and indexation clauses. As a result, the adjustment provisions contained in Edenor’s concession were no longer in force and, from January 2002 through February 2007, Edenor was required to charge the same fixed distribution margin in Pesos established in 2002, without any type of currency or inflation adjustment. Pursuant to the Adjustment Agreement, which came into effect in February 2007, the Argentine government granted Edenor an increase in Edenor’s distribution margin. Although this increase applied to all of Edenor’s tariff categories, the amount of the increase was only allocated to Edenor’s non-residential customers (including wheeling customers), while Edenor’s residential customers did not experience any increase in VAD. The increase is effective retroactively from November 1, 2005 and will remain in effect until the approval of a new tariff scheme under the integral tariff revision process described below. The Adjustment Agreement also contemplates a cost adjustment mechanism, known as the Cost Monitoring Mechanism, or CMM, which requires the ENRE to review Edenor’s actual distribution costs every six months (in May and November of each year). Pursuant to the Adjustment Agreement, Edenor is currently engaged in an integral tariff revision process with the ENRE. As of the date of this annual report, the Edenor RTI has not yet been completed, and the outcome of the renegotiation of Edenor’s tariff structure is highly uncertain. We cannot make assurances that the renegotiation process will conclude in a timely manner or that the revised tariff structure will provide Edenor with an adequate return on its asset base, or that if an adjustment agreement is reached that it will not be challenged by Argentine consumer and other groups, something that, if successful, could materially adversely affect Edenor’s ability to implement any tariff adjustments granted by the Argentine government. For a more detailed review of our distribution tariff adjustment process and history please see “Item 4. Information on the Company – Our Business –Our Distribution Business”. On August 14, 2009, ENRE adopted Resolution No. 433/2009 approving two tariff charts to be applied by Edenor. The first one applied retroactively for the period from June 1, 2009 to July 31, 2009. The second rate chart was effective for the period from August 1, 2009 to September 30, 2009. These charts were based on the new subsidized seasonal prices set forth in Resolution No. 652/09 issued by the Secretary of Energy. The new price charts aimed at reducing the impact of increased winter electrical energy consumption on the invoicing of residential customers with bi-monthly consumption exceeding 1,000 kWh. The modification to the ENRE rate charts did not have any effect on Edenor’s VAD. The ENRE also instructed Edenor to break down the floating charges of all invoices into the amounts subsidized and not subsidized by the Argentine government. As of October 1, 2009, the tariff chart of October 2008 was reinstated pursuant to ENRE Resolution No. 628/2008. The floating charge of all invoices continues to be broken down into the amounts subsidized and not subsidized by the Argentine government. The following chart shows the variation in Edenor’s average tariff, including taxes, (in Pesos per MWh) in the periods indicated: 97


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The increases to Edenor’s tariffs, and any subsequent increases granted under the CMM, will remain in effect until the approval of a new tariff scheme pursuant to the Edenor RTI. The Edenor RTI will cover, among other factors, a recalculation of the compensation Edenor receives for its distribution services, including taxes that are not currently passed through to Edenor’s customers (such as taxes on financial transactions), a revised analysis of Edenor’s distribution costs, modifications to Edenor’s quality of service standards and penalty scheme and, finally, a revision of Edenor’s asset base and rate of return. On July 30, 2008, the Secretariat of Energy adopted Resolution No. 865/2008, which establishes that the new electricity tariffs to be adopted pursuant to the Edenor RTI will become effective in February 2009. In addition, Resolution No. 865/2008 states that in the event that the Edenor RTI results in an increase in the then effective electricity tariffs, such increase will take place in three stages: in February 2009, August 2009 and February 2010. On November 12, 2009, Edenor submitted an integral tariff proposal to the ENRE’s Board of Directors as requested by ENRE Resolution No. 467/2008. The proposal included, among other factors, a recalculation of the compensation Edenor receives for its distribution services, including taxes that are not currently passed through to their customers (such as taxes on financial transactions), a revised analysis of its distribution costs, modification to its quality of service standards and penalty scheme and, finally, a revision of its asset base and rate of return. The presentation included three different scenarios and related tariff proposals: two scenarios contemplated in Resolution No. 467/08 of the ENRE and a third one which contemplates a quality regime and cost of undelivered energy similar to the one currently in effect. Each scenario included the assumptions on which the hypothetical scenario was prepared and detailed supporting studies, including the following: projected demand, demand curve studies by client category, environmental management plan, capital base study, study of the group of facilities required to meet the demand of a certain homogeneous market in terms of consumption with the lowest costs, contemplated investment plan, operating costs analysis, profitability rate analysis, resulting revenue requirement and electricity rate adjustment criterion. However, as of the date of this annual report, the Edenor RTI has not yet been completed, and the outcome of the renegotiation of Edenor’s tariff structure is highly uncertain. We cannot make assurances that the renegotiation process will conclude in a timely manner or that the revised tariff structure will provide Edenor with an adequate return on its asset base, or that if an adjustment agreement is reached that it will not be challenged by Argentine consumer and other groups, something that, if successful, could materially adversely affect Edenor’s ability to implement any tariff adjustments granted by the Argentine government. 98


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Electricity demand and supply Electricity demand depends to a significant extent on economic and political conditions prevailing from time to time in Argentina, as well as seasonal factors. In general, the demand for electricity varies depending on the performance of the Argentine economy, as businesses and individuals generally consume more energy and are better able to pay their bills during periods of economic stability or growth. As a result, energy demand is affected by Argentine governmental actions concerning the economy, including with respect to inflation, interest rates, price controls, foreign exchange controls, taxes and energy tariffs. Following the economic crisis in 2001, the demand for electricity in Argentina grew consistently each year driven by the economic recovery. In contrast to this trend, demand for electricity fell by 1.3% in 2009 when compared to 2008, from 105,934 GWh in 2008 to 104,592 GWh in 2009. During 2010, demand for electricity grew by 5.9% when compared to 2009, from 104,592 GWh in 2009 to 110,767 GWh in 2010. The following chart provides a breakdown of the demand for energy in 2010 by type of customer: Demand by Customer100% = 110,767 GWh  Source: CAMMESA and Pampa Energía S.A.' s ows analyses. In turn, a new 20,843 MW record of capacity load was registered on August 3, 2010, which was 6.5% above the peak for 2009.On March 10, 2011 a new record of capacity load was registered with a load of 20,913 MW. **Peak Demand Records** Summer
     Winter
     Summer
     Winter
     Summer
     Winter
     Summer2008
     2008
     2009
     2009
     2010
     2010
     2011Capacity (MW)
     17,930
     19,126
     18,596
     19,566
     19,370
     20,843
     20,913Date
     02/20/2008
     06/23/2008
     02/19/2009
     07/24/2009
     01/29/2010
     8/3/2010
     3/10/2011Temperature (°C)
     28.1
     8.4
     29.2
     5.1
     34
     1.6
     27.7Time
     10:01 PM
     7:37 PM
     10:00 PM
     7:59 PM
     2:52 PM
     7:45 PM
     8:31 PM
 Source: CAMMESA. 99


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Generation of electricity increased by 3.8% in 2010, from 108,559 GWh in 2009 to 112,721 GWh in 2010. Thermal generation continued to be the main resource to supply demand as it contributed 66,349 GWh (58.9%), followed by hydroelectric generation net of pumping, which contributed 39,680 GWh (35.2%) and nuclear generation, which contributed 6,692 GWh (5.9%). There were also imports, for 2,352 GWh (15.3% in excess of 2009), exports for 361 GWh (78.7% lower than in 2009) and losses for 3,944 GWh (7.9% lower than in 2009). Hydroelectric generation in 2010 was similar to that recorded in 2009 (0.3% lower). In this way, thermal generation continued to be the main source for the supply of electricity, fueled both by natural gas and by liquid fuels (diesel oil and fuel oil), and mineral coal mainly during the winter months. The following chart shows the development of electricity demand by type of generation (thermal, hydro, nuclear) since 2005: Electricity Generation by Generation Type (thousands of GWh)     Source: CAMMESA.Note: Includes WEM and WEM plus theSistema Interconectado Patagónico(Patagonic Interconnected System, or SIP). In May 2005, the Argentine government implemented thePlan de Uso Racional de la Energía Eléctrica(Rational Use of Electric Energy Plan, or PUREE) in an attempt to curb increases in energy demand by offering rewards to residential and small commercial customers who reduce their energy consumption in comparison to their consumption in 2003. Later that same year, the Argentine government implemented a second version of the PUREE (PUREE II), which rewards residential and small commercial customers who reduce their energy consumption in comparison to their consumption in 2003 and industrial customers based on their consumption in 2004. The PUREE II also penalizes industrial customers whose consumption exceeds 90% of 2004 consumption levels and penalizes residential customers with bi-monthly consumption levels at or above 300 KWh and small commercial customers whose consumption exceeds 90% of their consumption levels for 2003. Residential customers with consumption levels below 300 KWh are exempt from penalty. In spite of the PUREE, energy demand has continued to increase during the three years it has been in effect. 100


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During 2010 generation facilities increased thier installed capacity by 1,100 MW compared to 2009, increasing to a total of 28,143 MW in 2010. New capacity additions are mainly attributed to the commercial commissioning of the FONINVEMEN’s Timbués and Belgrano combined cycles for a total of 551 MW, and to the start-up in August 2010 of the Central Térmica Pilar units that total 330 MW. During 2010, capacity in the electricity generation sector increased as follows, for a total increase of 1,100 MW: Company
     Type
     Location
     Installed Capacity(MW)January
     FONINVEMEM
     CC
     Buenos Aires
     267Enarsa
     Diesel
     Corrientes
     3Enarsa
     Diesel
     Buenos Aires
     5EPEC
     Diesel
     Córdoba
     3February
     FONINVEMEM
     CC
     Santa Fe
     284Enarsa
     Diesel
     Formosa
     7March
     Enarsa
     Diesel
     Chaco
     8April
     Enarsa
     Diesel
     Chaco
     15June
     Enarsa
     Diesel
     Chaco
     15July
     Enarsa
     Diesel
     Misiones
     9August
     EPEC
     Gas Turbine
     Córdoba
     330Enarsa
     Diesel
     Formosa
     4September
     Albanesi Group
     Gas Turbine
     Córdoba
     100Enarsa
     Diesel
     Misiones
     5Enarsa
     Diesel
     Chaco
     3Medanito
     Diesel
     Neuquén
     25December
     Enarsa
     Diesel
     Corrientes
     5Enarsa
     Diesel
     Entre Ríos
     12Total
     
     
     
     1,100
  Source: CAMMESA. The chart below shows the composition of installed capacity in Argentina as of December 31, 2010: Argentine Installed Capacity 
100% = 28.1 GW   Source: CAMMESA 101


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Seasonality Seasonality also has a significant impact on the demand for electricity, with electricity consumption peaks in summer and winter. The impact of seasonal changes in demand is registered primarily among the residential and small commercial customers of Edenor. The seasonal changes in demand are attributable to the impact of various climatological factors, including weather and the amount of daylight time, on the usage of lights, heating systems and air conditioners. The impact of seasonality on industrial demand for electricity is less pronounced than on the residential and commercial sectors for several reasons. First, different types of industrial activity by their nature have different seasonal peaks, such that the effect on them of climate factors is more varied. Second, industrial activity levels tend to be more significantly affected by the economy, and with different intensity levels depending on the industrial sector. Cost of sales Our most significant costs of sales in our generation business are fuel consumption by our thermal generation facilities, royalty payments by our hydroelectric generation facilities and energy purchases by our hydroelectric and thermal generation facilities. We purchase energy from the spot market for our generation plants as back up for our long-term contracts with third parties. We also record personnel costs, royalty payments and depreciation and amortization charges related to electricity generation as part our costs of sales. The cost of energy purchases and fuel consumption varies according to fluctuations in fuel prices, as well as, in the case of energy purchases, variations in the regulated seasonal price of energy. In October 2007, the Secretariat of Energy announced that that the variable cost attributed to electricity generators, which was set at Ps.7.96 per MW at that time, would be increased in accordance with the consumption of liquid fuel, as follows: Gas-oil/Diesel Oil Generation: Ps. 8.61 perMW; andFuel Oil Generation: Ps.5.00 per MW. In addition, thermal generation units utilizing their own natural gas would be compensated in the amount of the difference between the maximum recognized variable production cost and the node price, if such amount is less than Ps. 5 perMW. 102


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On November 25, 2010, the Secretariat of Energy entered into another agreement with all private generators in order to increase the installed capacity during 2011. The agreement included new amounts for capacity payments and, in addition, that the remuneration to cover operation and maintenance costs would also increase from Ps. 7.96 per MWh to Ps. 11.96 per MWh for natural gas generation and from Ps. 12.96 per MWh to Ps. 20.96 per MWh for alternative fuel generation. In June 2007, the ENRE approved an agreement among natural gas producers for the period from 2007 through 2011, aimed at meeting domestic demand for natural gas. Under the terms of the agreement, each of the natural gas producers agrees to provide an assigned daily volume of natural gas to gas consumers. These volumes are calculated based on established proportions. The total demand covered by the agreement was established on the basis of Argentine internal natural gas consumption in 2006. In October 2008, the Secretariat of Energy announced a supplement to the 2007 agreement among natural gas producers that governs contributions by the producers to the stabilization fund related to residential liquefied gas consumption. The new agreement also established new benchmark prices for natural gas for the energy sector and, in particular, the electricity generation sector. In May 2008, the Secretariat of Energy instructed CAMMESA (Notes 446 and 527) to dispose of available natural gas with the objective of maximizing the electricity production, regardless of which power plants originally held contracts for such gas. The Secretariat of Energy also instructed CAMMESA to request generation companies to voluntarily accept such mechanism and to give their natural gas volumes to CAMMESA to allocate. In return, the generator would receive the electricity revenue and the cost of natural gas as if the generator had burned the gas by itself. During 2009, Loma de la Lata sold 345.7 GWh pursuant to this scheme. In October 2009, the Secretariat of Energy (Note 6866) offered generation companies to participate in a “Temporary Centralized Dispatch” of natural gas volumes owned by thermal power plants in order to consume those volumes in a more efficient way. Pursuant to this program every participating power plant gives its available volumes of natural gas to CAMMESA, which in turns gives them to the most efficient units. In return, generators will receive: U.S. $2.5 for each MWh equivalent to the natural gas volume given to CAMMESA,Every cost that the company has related to the provision of gas made available to CAMMESA pursuant to this program (take or pay, ship or pay, etc.) Loma de la Lata, Güemes and Piedra Buena had agreed to participate in the Temporary Centralized Dispatch program. Pursuant to this program during 2010 Loma de la Lata sold 47.6 GWh, Güemes sold 326.2 GWh, and Piedra Buena sold 61.0 GWh. We have entered into contracts or royalty assignment agreements to provide for most of our current needs for the fuel consumed in our thermal generation plants (natural gas and fuel oil). These contracts vary in their terms and some are subject to interruptions of delivery (or transportation), depending on the supply/demand conditions of the system. Gas supply to the industry in general and to the electricity generation industry in particular can be affected by availability limitations, especially during the winter months, as natural gas is also used in Argentine households for cooking and heating and, because the total gas supply has not increased significantly in recent years due to a slow down in the development of new gas fields in Argentina and a decline in expected imports from Bolivia. When the fuel supply to our plants is not available, either as a result of supply constraints or transmission constraints, we are not able to generate electricity during those periods. We do not have storage capabilities at our plants, other than our fuel oil tanks at the Piedra Buena facility, which can supply that plant’s fuel requirements for approximately two weeks. Our exposure to fuel prices is partially offset by the way such prices are incorporated into the price of the electricity we sell. The Secretariat of Energy periodically publishes the cost of the different fuels used in thermal generation units that is recognized (recovered) in the price paid to generators that sell electricity to the spot market. We are currently entering into contracts for the sale of electricity under theEnergía Plusprogram that includes adjustment clauses linked to the price of fuel. See “Item 4. Information on the Company—Our Business.” 103


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Our most significant costs of sales in our transmission business are personnel costs, depreciation and amortization charges and cost of material for works and maintenance. Our cost of sales in our distribution activities are mainly comprised of purchases of energy for distribution and personnel costs. Operating expenses Our most significant operating expenses are our administrative and selling expenses in our distribution activities, which include related salaries and social security charges, third party expenses and taxes. In our transmission business, we do not record selling expenses, and the main administrative expenses are salaries and social security charges. In our generation business, our selling expenses relate mainly to fees for third-party services and salaries and social security charges. Critical Accounting Policies In the preparation of the financial statements included in this annual report, we have relied on variables and assumptions derived from historical experience and various other factors that we deemed reasonable and relevant. Although we review these estimates and assumptions in the ordinary course of business, the presentation of our financial condition and results of operation often requires our management to make judgments regarding the effects of matters that are inherently uncertain on the carrying value of our assets and liabilities and, consequently, our results of operation. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. In order to provide an understanding about how management forms its judgments about future events, including the variables and assumptions underlying the estimates, and the sensitivity of those judgments to different variables and conditions, we have included comments related to each critical accounting policy described as follows: Impairment of non-current assets We review long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Impairment of long-lived assets and goodwill Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to its discounted future net cash flows expected to be generated by such asset. If the assets are considered to be impaired on this basis, the impairment loss to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Goodwill is reviewed at least annually for impairment. Impairment of goodwill is tested at the reporting unit level (considering each business segment of the Company as a reporting unit) by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using the discounted cash flows approach. Cash flow projections used are based on financial budgets approved by management. The growth rates applied do not exceed the long-term average growth rate for the business in which the reporting unit operates. Key drivers in the analysis also include profit margins, which are substantially dependent on the prices we are able to charge for the electricity sold by our generation plants, as well as the composition of our transmission and distribution tariffs. An increase of 45.3% in the average discount rate and a decrease of 11.9% in our profit margins would cause the projected cash flows to equal the carrying amount of the reporting units. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any. No impairments were recognized during the reporting periods, other than the impairment losses of Ps. 18.5 million and Ps. 12.3 million 104


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recorded in 2009 and 2008, respectively, over certain fixed assets that are part of power generation projects due to changes in circumstances that affected their recoverability. Currently, as our management is focused on improving the prices we are able to charge for electricity generated, including by expanding our generation capacity to increase our sales to the unregulated market under theEnergía Plusregulatory framework, and renegotiating our transmission and distribution tariff structures, we do not foresee circumstances in the near future that would result in the recognition of an impairment of long-lived assets or goodwill. We believe that the accounting estimate related to impairment of long lived assets and goodwill is a critical accounting estimate because it is highly susceptible to change from period to period. This is because: (1) it requires management to make assumptions about future interest rates, sales and costs; and (2) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our net income would be material. Management’s assumptions about future sales and future costs require significant judgment. As of the date of this annual report, based on our current management’s assumptions and estimations, we are not aware of any further material events or circumstances that could require a material impairment charge. Impairment of investments carried at cost Recoverability of investments carried at cost is measured by a comparison of the carrying amount of an asset to its expected future net cash flows based on available information or marketable value, when available. In 2010, an impairment loss of Ps. 77.9 million was accounted for due to the decision made by Pampa Inversiones’ Board not to take part in the capital increase requested by San Antonio, Pampa Inversiones re-assessed the estimated recoverable value of its investment in San Antonio and, as a result, recorded a write-off for the total of the investment. As of the date of this annual report, based on our current management’s assumptions and estimations, we are not aware of any further material events or circumstances that could require a material impairment charge of investments carried at cost. Accounting for acquisitions We account for acquisitions under the purchase method of accounting. We allocate the total value of consideration paid to the underlying net assets acquired, based on their respective estimated fair values determined by using primarily internal valuations. We use various methods to determine the fair value of assets and liabilities acquired, including discounted cash flows, external market values and others. We believe that the valuation assumptions underlying each of these valuation methods are based on the current information available including discount rates, cash flow assumptions, market risk rates and others. The purchase price allocation is subject to change during the twelve-month period subsequent to the acquisition date, with the adjustments reflected prospectively. As there were no acquisitions since January 2009 and as of December 31, 2010, there are no balances related to purchase accounting subject to change. We consider our accounting policy for valuation of acquisitions critical because the judgments made in determining the estimated fair value and expected useful lives assigned to each class of assets and liabilities acquired can impact the value of the asset or liability, including the impact on deferred taxes, the respective amortization periods and ultimately net income. Therefore, the use of other valuation methods, as well as other assumptions underlying these valuation methods, could impact the determination of our financial position and results of operations. Allowance for doubtful accounts We are exposed to losses due to uncollectible accounts. The allowance for doubtful accounts corresponding to our receivables from energy distribution is assessed based on the historical levels of collections for services billed through the end of each period and subsequent collections. The allowance for doubtful accounts related to distribution as of December 31, 2010 is Ps. 9.6 million higher as compared to December 31, 2009, due to additions accounted for in 2010 which amounted to Ps. 16.3 million resulting from the application of a ratio calculated on the basis of the 105


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historical series of collections for services billed through the end of each year and collections subsequent thereto, net of retirements of Ps. 6.7 million. In order to estimate collections related to our generation business we mainly consider the ability of CAMMESA to meet its payment obligations to generators, and the resolutions issued by Secretariat of Energy, which allow the Company to collect its credits with CAMMESA through different mechanisms. Future adjustments to the allowance may be necessary if future economic conditions differ substantially from the assumptions used in the assessment for each period. The allowance for doubtful accounts related to generation as of December 31, 2010 is Ps. 4.6 million lower as compared to December 31, 2009, due to the recovery of an impaired credit under litigation. For more information regarding the balances of the allowance for doubtful accounts see Note 21.f) to our audited consolidated financial statements. Accrued litigation In the normal course of business, we are a party to lawsuits of various types related to our generation, transmission and distribution businesses. We recognize contingent liabilities with respect to existing or potential claims, lawsuits and other legal proceedings and record an accrual for litigation when it is probable that future costs will be incurred and these costs can be reasonably estimated. These accruals are based on the most recent developments, our evaluation of the merit of each claim and our assessment of the likely outcome of the litigation and our counsel’s advice in dealing with, litigating and settling this and other similar legal matters. Changes to the accrual may be necessary if future events differ substantially from the assumptions used in the assessment for each period. There were no changes to assumptions or methods used to established accruals from year to year. In 2010, we recorded a net decrease to our accrual for litigation of Ps. 11.2 million. This amount is net from the increase generated by new litigation and changes in our evaluation of existing litigation. For more information regarding the balances for provision for contingencies see Note 21.f) to our audited consolidated financial statements. Deferred income tax We record income tax using the liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recorded or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Technical Resolution No. 17 of the Federación Argentina de Consejos Profesionales de Ciencias Económicas (FACPCE) requires companies not to record a deferred tax asset when uncertainties indicate it is not recoverable. Accordingly, we evaluate a valuation allowance due to uncertainties related to our ability to utilize certain deferred tax assets, primarily consisting of tax losses carryforwards, before they expire. We have considered the reversal of the deferred income tax liabilities, tax planning and taxable income projections based on our best estimates in assessing the need for the valuation allowance. However, in the event we determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, we would be required to adjust the deferred tax asset at the time and for the period such determination was made. The increase in tax loss carryforwards for 2010 is mainly attributed to net losses from the generation segment. Our tax loss carryforwards as of December 31, 2010 were mainly registered in our generation segment for about 65% of the total amount. We expect to utilize most of those tax loss carryforwards before expiration mainly within the following three and four years. The total amount of valuation allowance for tax loss carryforwards at each reporting period is disclosed in Note 20.II.f) to our audited consolidated financial statements. 106


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We believe that the accounting estimate related to deferred income tax is a “critical accounting estimate” because it is highly susceptible to change from period to period because it requires company management to make assumptions, such as future revenues and expenses, exchange rates and inflation among others; and the impact that calculating income tax using this method would have on assets or liabilities reported on our consolidated balance sheet as well as on the income tax result reported in our consolidated statement of income could be material. Asset tax credits We calculate the asset tax provision by applying the current 1% rate on computable assets at the end of the year. This tax complements income tax. Our tax obligation in each year will coincide with the higher of the two taxes. However, if asset tax provision exceeds income tax in a given year, that amount in excess can be offset against income tax arising in any of the following ten years. We have recognized the asset tax provision paid in previous years as a credit, as we estimate that it will offset future years’ income tax. However, since as of December 31, 2010, we have determined that certain asset tax credits will not be realizable, we recorded an accumulated valuation allowance for Ps. 29.5 million mainly related to our holding business, considering that these amounts will not be realized under the Company’s current business plan, since no taxable income is expected to be generated. The average expiration term of this asset as of December 31, 2010 is 7.1 years. We believe that the accounting policy relating to the asset tax credits is a “critical accounting policy” because it requires management to make estimates and assumptions with respect to our future results that are highly susceptible to change from period to period, and as such the impact on our financial position and results of operations could be material. Adoption of IFRS On December 29, 2009, the CNV issued Resolution No. 562 "Adoption of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB)" (“Resolution No. 562”) which requires that companies under the supervision of the CNV, such as us, prepare their financial statements in accordance with IFRS as published by the IASB for fiscal periods beginning on or after January 1, 2012 including comparative information for earlier periods. IFRS 1, First Time Adoption of International Financial Reporting Standards, is the guidance that is applied during preparation of a company’s first IFRS-based financial statements. IFRS 1 was created to help companies transition to IFRS and provides practical accommodations intended to make first-time adoption cost-effective. It also provides application guidance for addressing difficult conversion topics. The key principle of IFRS 1 is full retrospective application of all IFRS standards that are effective as of the closing balance sheet or reporting date of the first IFRS financial statements. IFRS 1 requires companies to (i) identify the first IFRS financial statements; (ii) prepare an opening balance sheet at the date of transition to IFRS; (iii) select accounting policies that comply with IFRS and to apply those policies retrospectively to all of the periods presented in the first IFRS financial statements; (iv) consider whether to apply any of the optional exemptions from retrospective application; (v) apply the mandatory exceptions from retrospective application; and (vi) make extensive disclosures to explain the transition to IFRS. Exemptions provide limited relief for first-time adopters, mainly in areas where the information needed to apply IFRS retrospectively may be most challenging to obtain. The Company is currently assessing the impact that this change would have on their respective financial statements, and will continue to monitor the development of the implementation of IFRS. Results of Operations The table below provides a summary of our operations for the years ended December 31, 2010, 2009 and 2008. 107


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Fiscal years ended December 31,2010
     
     2009
     
     2008(in millions of pesos)Sales
     Ps.
     4,866.9
     
     Ps.
     4,093.4
     
     Ps.
     4,013.9Cost of sales
     
     (3,988.0)
     
     
     (3,192.1)
     
     
     (3,082.4)Gross profit
     
     878.9
     
     
     901.3
     
     
     931.5Selling expenses
     
     (210.0)
     
     
     (154.7)
     
     
     (139.7)Administrative expenses
     
     (366.8)
     
     
     (302.7)
     
     
     (235.4)Goodwill amortization
     
     (20.0)
     
     
     (20.0)
     
     
     (19.8)Operating income (loss)
     
     282.1
     
     
     423.9
     
     
     536.6Financial and holding results, net
     
     (250.6)
     
     
     48.4
     
     
     (208.1)Other (expenses) income, net
     
     6.2
     
     
     (2.0)
     
     
     (23.2)Income (loss) before taxes and minority interest
     
     37.7
     
     
     470.3
     
     
     305.3Income tax and tax on assets (expense) benefit
     
     (74.3)
     
     
     (160.2)
     
     
     (108.8)Minority interest
     
     (10.0)
     
     
     (95.3)
     
     
     (81.5)Net income
     Ps.
     (46.6)
     
     Ps.
     214.8
     
     Ps.
     115.0SalesGeneration
     Ps.
     2,410.0
     
     Ps.
     1,723.3
     
     Ps.
     1,780.7Transmission
     
     291.9
     
     
     291.3
     
     
     228.5Distribution
     
     2,173.6
     
     
     2,077.9
     
     
     2,000.2Holding and others
     
     0.9
     
     
     15.1
     
     
     34.7Eliminations
     
     (9.5)
     
     
     (14.0)
     
     
     (30.3)Total Sales
     
     4,866.9
     
     
     4,093.4
     
     
     4,013.9Gross profit (loss)Generation
     
     350.3
     
     
     327.7
     
     
     326.5Transmission
     
     93.2
     
     
     71.2
     
     
     50.4Distribution
     
     442.2
     
     
     508.1
     
     
     548.8Holding and others
     
     0.1
     
     
     6.9
     
     
     29.9Eliminations
     
     (6.9)
     
     
     (12.6)
     
     
     (24.2)Total Gross profit
     
     878.9
     
     
     901.3
     
     
     931.5Operating income (loss)Generation
     
     207.6
     
     
     214.0
     
     
     244.0Transmission
     
     49.4
     
     
     34.5
     
     
     21.6Distribution
     
     61.5
     
     
     218.7
     
     
     303.4Holding and others
     
     (36.0)
     
     
     (42.2)
     
     
     (32.4)Eliminations
     
     (0.4)
     
     
     (1.1)
     
     
     -Total Operating income
     
     282.1
     
     
     423.9
     
     
     536.6Net income (loss)Generation
     
     58.1
     
     
     57.9
     
     
     62.1Transmission
     
     11.3
     
     
     17.4
     
     
     (12.4)Distribution
     
     (92.6)
     
     
     (14.8)
     
     
     10.7Holding and others
     
     (23.4)
     
     
     154.2
     
     
     54.6Total Net income (loss)
     Ps.
     (46.6)
     
     Ps.
     214.7
     
     Ps.
     115.0_____________________________________________Note
     Each of our segments operates independently, in particular, our distribution and transmission businesses where we holdinterests in public companies in Argentina and the United States. Accordingly, the table reflects the allocation ofresults and costs between those companies.
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The segment holding and others consists of our own operations at the holding level, including advisory services, financial investments, investments in real estate and other companies not related to the electricity sector. Eliminations consist of the adjustments to our consolidated income statement for intercompany transactions and the companies in which we have direct and indirect equity interests. Year ended December 31, 2010 compared to year ended December 31, 2009 We had consolidated sales revenues of Ps. 4,866.9 million for the fiscal year ended December 31, 2010, 18.9% higher than the Ps. 4,093.4 million for the same period of 2009, explained mainly by an increase of 39.9% (Ps. 686.7 million), of 4.6% (Ps. 95.8 million) and 0.2% (Ps. 0.6 million) in the generation, distribution and transmission segments, respectively, which offset a reduction of 94.3% (Ps. 14.2 million) in the sales revenues of the holding and others segment. The following table sets forth our net sales by segment for the years ended December 31, 2010 and 2009: For the year ended December 31,Net Sales
     
     2010
     
     2009(in millions of pesos)Generation
     
     Ps.              2,410.0
     
     Ps.              1,723.3Transmission
     
     291.9
     
     291.3Distribution
     
     2,173.6
     
     2,077.9Holding
     
     0.9
     
     15.1Eliminations
     
     (9.5)
     
     (14.0)Total
     
     Ps.            4,866.9
     
     Ps.            4,093.4
  We had consolidated cost of sales of Ps. 3,988.0 million for the fiscal year ended December 31, 2010, 24.9% higher than the Ps. 3,192.1 million for the same period of 2009, explained mainly by an increase of 47.6% (Ps. 664.1 million) and 10.3% (Ps. 161.7 million) in the cost of sales of our generation and distribution segments, respectively, partially offset by a reduction of 9.7% (Ps. 21.4 million) and 90.7% (Ps. 7.5 million) in the transmission and holding and others segments, respectively. The following table sets forth our cost of sales by segment for the years ended December 31, 2010 and 2009: For the year ended December 31,Cost of Sales
     
     2010
     
     2009(in millions of pesos)Generation
     
     Ps.            (2,059.7)
     
     Ps.            (1,395.6)Transmission
     
     (198.6)
     
     (220.1)Distribution
     
     (1,731.5)
     
     (1,569.7)Holding
     
     (0.8)
     
     (8.2)Eliminations
     
     2.5
     
     1.5Total
     
     Ps.          (3,988.0)
     
     Ps.          (3,192.1)
  We had consolidated gross profit of Ps. 878.9 million for the fiscal year ended December 31, 2010, 2.5% lower than the Ps. 901.3 million for the same period of 2009, explained mainly by the increase in the gross profit from our generation segment (Ps. 22.7 million) and transmission segment (Ps. 22.0 million) that were partially offset by a reduction in gross profit for the fiscal year ended December 31, 2010 in our distribution and holding and others segments (Ps. 65.9 million and Ps. 6.8 million, respectively).
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The following table sets forth our gross profit by segment for the years ended December 31, 2010 and 2009: For the year ended December 31,Gross Profit
     
     2010
     
     2009(in millions of pesos)Generation
     
     Ps.                 350.3
     
     Ps.                 327.7Transmission
     
     93.2
     
     71.2Distribution
     
     442.2
     
     508.1Holding
     
     0.1
     
     6.9Eliminations
     
     (6.9)
     
     (12.6)Total
     
     Ps.               878.9
     
     Ps.               901.3
  We had consolidated gross margin of 18.1% for the fiscal year ended December 31, 2010, 18.0% lower than the 22.0% margin for the same period of 2009, explained mainly by the reduction in gross margin from our generation, distribution and holding and others segments which were offset by an increase in gross margin in our transmission segment.
 We had consolidated selling expenses of Ps. 210.0 million in the fiscal year ended December 31, 2010, 35.8% higher than the Ps. 154.7 million recorded in 2009, explained mainly by the increase in selling expenses at our distribution segment (increase of Ps. 56.5 million) which were partially offset by a decreases in selling expenses at our generation and holding and others segments (decrease of Ps. 0.3 million and Ps. 0.9 million, respectively). The following table sets forth our selling expenses by segment for the years ended December 31, 2010 and 2009: For the year ended December 31,Selling Expenses
     
     2010
     
     2009(in millions of pesos)Generation
     
     Ps.                 (15.4)
     
     Ps.                 (15.7)Transmission
     
     -
     
     -Distribution
     
     (194.5)
     
     (138.0)Holding
     
     (0.1)
     
     (1.0)Eliminations
     
     -
     
     -Total
     
     Ps.              (210.0)
     
     Ps.              (154.7)
  We had consolidated administrative expenses of Ps. 366.8 million in the fiscal year ended December 31, 2010, 21.2% higher than the Ps. 302.7 million recorded in 2009, explained mainly by the increase in administrative expenses at our generation, transmission and distribution segments (increases of Ps. 29.4 million, Ps. 7.2 million and Ps. 34.7 million, respectively) which were partially offset by a decrease in administrative expenses of Ps. 12.0 million in our holding and others segment.
 The following table sets forth our administrative expenses by segment for the years ended December 31, 2010 and 2009: 110


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Table of Contents  For the year ended December 31,Administrative Expenses
     
     2010
     
     2009(in millions of pesos)Generation
     
     Ps.               (112.1)
     
     Ps.                 (82.8)Transmission
     
     (44.7)
     
     (37.5)Distribution
     
     (180.6)
     
     (145.9)Holding
     
     (36.0)
     
     (48.0)Eliminations
     
     6.6
     
     11.4Total
     
     Ps.              (366.8)
     
     Ps.              (302.7)






We recorded consolidated goodwill amortization charges of Ps. 20.0 million in the fiscal year ended December 31, 2010, the same level as the Ps. 20.0 million recorded in 2009.
 The following table sets forth our goodwill amortization by segment for the years ended December 31, 2010 and 2009: For the year ended December 31,Goodwill Amortization
     
     2010
     
     2009(in millions of pesos)Generation
     
     Ps.                 (15.2)
     
     Ps.                 (15.2)Transmission
     
     0.8
     
     0.8Distribution
     
     (5.5)
     
     (5.5)Holding
     
     -
     
     -Eliminations
     
     -
     
     -Total
     
     Ps.                (20.0)
     
     Ps.                (20.0)
  We had consolidated operating income of Ps. 282.1 million in the fiscal year ended December 31, 2010, 33.4% lower than the Ps. 423.9 million recorded in the same period of 2009, explained mainly by the reduction in operating income from our generation and distribution segments (reductions of Ps. 6.4 million and Ps. 157.2 million, respectively) which were partially offset by an increase in operating income of Ps. 14.9 million in our transmission segment and a 14.5% reduction in the operating loss of our holding and others segment, which amounted to a loss of Ps. 36.0 million in 2010, as compared to a loss of Ps.42.2 million in 2009.
 The following table sets forth our operating income by segment for the years ended December 31, 2010 and 2009: For the year ended December 31,Operating Income (loss)
     
     2010
     
     2009(in millions of pesos)Generation
     
     Ps.                 207.6
     
     Ps.                 214.0Transmission
     
     49.4
     
     34.5Distribution
     
     61.5
     
     218.7Holding
     
     (36.0)
     
     (42.2)Eliminations
     
     (0.3)
     
     (1.1)Total
     
     Ps.               282.1
     
     Ps.               423.9
  Our consolidated net financial and holding results registered a loss of Ps. 250.6 million in the fiscal year ended December 31, 2010, compared to a gain of Ps. 48.4 million for the same period of 2009, explained mainly by the increase in consolidated net financial losses from our generation, transmission and distribution segments (increases of Ps. 16.8 million, Ps. 2.4 million and Ps. 74.9 million, respectively) and a decrease of Ps. 203.8 million 111


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in the income from the holding and others segment for the fiscal year ended December 31, 2010 compared to the same period of 2009. We had consolidated gain on repurchases of notes from our subsidiaries of Ps. 5.5 million in 2010, added to the Ps. 435.8 million cumulative gain as of December 31, 2009, totaling Ps. 441.3 million. The following table sets forth our financial and holding results, net, by segment for the years ended December 31, 2010 and 2009: For the year ended December 31,Financial and Holding Results, net
     
     2010
     
     2009(in millions of pesos)Generation
     
     Ps.                 (63.1)
     
     Ps.                 (46.3)Transmission
     
     (6.6)
     
     (4.2)Distribution
     
     (205.4)
     
     (130.5)Holding
     
     24.5
     
     228.3Eliminations
     
     0.0
     
     1.1Total
     
     Ps.              (250.6)
     
     Ps.                  48.4
  We recorded a consolidated gain in other income (expenses), net, of Ps. 6.2 million for the year ended December 31, 2010 compared to a loss of Ps. 2.0 million for the year ended December 31, 2009.
 The following table sets forth our other (expenses) income, net, by segment for the years ended December 31, 2010 and 2009: For the year ended December 31,Other Income (expenses), net
     
     2010
     
     2009(in millions of pesos)Generation
     
     Ps.                   17.0
     
     Ps.                   (2.7)Transmission
     
     (3.8)
     
     4.7Distribution
     
     (9.8)
     
     2.0Holding
     
     2.5
     
     (6.1)Eliminations
     
     0.3
     
     -Total
     
     Ps.                    6.2
     
     Ps.                  (2.0)
  We recorded a consolidated income tax charge of Ps. 74.3 million for the year ended December 31, 2010 compared to a charge of Ps. 160.2 million for the year ended December 31, 2009.
 The following table sets forth our income tax and tax on assets by segment for the years ended December 31, 2010 and 2009: For the year ended December 31,Income Tax
     
     2010
     
     2009(in millions of pesos)Generation
     
     Ps.                 (63.4)
     
     Ps.                 (68.5)Transmission
     
     (21.8)
     
     (4.8)Distribution
     
     25.3
     
     (61.1)Holding
     
     (14.4)
     
     (25.8)Eliminations
     
     -
     
     -Total
     
     Ps.                (74.3)
     
     Ps.              (160.2)
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We recorded a consolidated charge for minority interests in our subsidiaries of Ps. 10.0 million for the year ended December 31, 2010 compared to a charge of Ps. 95.3 million for 2009. The following table sets forth our minority interests by segment for the years ended December 31, 2010 and 2009: For the year ended December 31,Minority Interests
     
     2010
     
     2009(in millions of pesos)Generation
     
     Ps.                 (39.9)
     
     Ps.                 (38.6)Transmission
     
     (5.9)
     
     (12.7)Distribution
     
     35.9
     
     (43.9)Holding
     
     -
     
     -Eliminations
     
     -
     
     -Total
     
     Ps.                (10.0)
     
     Ps.                (95.3)
  We had a consolidated net loss of Ps. 46.6 million in the fiscal year ended December 31, 2010, compared to a Ps. 214.8 million of consolidated net income recorded in the same period of 2009, explained mainly by the losses from our distribution and holding and others segments (Ps. 92.5 million and Ps. 23.4 million, respectively) which were offset by income from our generation and transmission segments (Ps. 58.1 million and Ps. 11.3 million, respectively).
 The following table sets forth our net income by segment for the years ended December 31, 2010 and 2009: For the year ended December 31,Net Income (loss)
     
     2010
     
     2009(in millions of pesos)Generation
     
     Ps.                   58.1
     
     Ps.                   57.9Transmission
     
     11.3
     
     17.4Distribution
     
     (92.5)
     
     (14.8)Holding
     
     (23.4)
     
     154.2Eliminations
     
     -
     
     -Total
     
     Ps.                (46.6)
     
     Ps.               214.8
  Electricity Generation Segment
 Net sales from our generation business increased 39.9% to Ps. 2,410.0 million in the fiscal year ended December 31, 2010 from Ps. 1,723.3 million for the same period of 2009, mainly due to an increase in average electricity prices which was partially compensated by a decrease in the amount of electricity sold during 2010. Net consolidated sales of the segment include sales of energy and services to other companies, and we eliminate the intercompany sales within the segment. In the fiscal years ended December 31, 2010 and 2009, energy sales were Ps. 2,399.1 million and Ps. 1,714.5 million, respectively; sales of services (by Pampa Generación) were Ps. 74.7 million and Ps. 49.0 million, respectively; and intercompany eliminations for sales of services within this segment were Ps. 63.8 million and Ps. 40.2 million, respectively. The Ps. 684.6 million increase in net electricity sales was mainly due to an increase in the average electricity prices calculated for our subsidiaries (Ps. 283.5 per MWh for the fiscal year ended December 31, 2010, compared to Ps. 194.8 per MWh for the same period of 2009, representing an increase in sales of Ps. 780.7 million), and was partially offset by a decrease in the quantity of electricity sold (8,462.9 GWh in the fiscal year ended December 31, 2010, compared to 8,802.1GWh for the same period in 2009, representing a reduction in sales of Ps. 96.2 million). In addition, by virtue of the “Agreement for Managing and Operating Projects, Increasing Thermal Generation Availability and Adapting the 2008-2011 Remuneration due to 113


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Generation” executed on November 25, 2010, as of December 31, 2010, we and our generation subsidiaries had recognized income arising from said agreement in the amount of Ps. 8.8 million. Average electricity prices increases reflect the higher fuel costs, the increased generation with fuel oil in Piedra Buena, the higher participation in the average cost of electricity sold at higher prices of the term electricity contracts of our units and the export and Energía Plus contracts of Central Térmica Güemes. The reduction in electricity sold is mainly explained by the unavailability of certain of our units (maintenance in Güemes and Loma de la Lata), fuel restrictions (Loma de la Lata) and the lower dispatch of our hydro units (especially in Nihuiles), during 2010 compared to the same period of 2009. Our generation operations derive revenues from the sale of electricity in the spot market and under term contracts, includingEnergía Pluscontracts. In addition, a portion of Güemes’ revenues is derived under long-term contracts for the exportation of electricity to Uruguay. When one of our units supplying a contract is not being dispatched, we would purchase the energy required to supply that contract from the spot market. The following table shows net electricity sales (in GWh) from our generation plants: Total Sales by Generation Unit (in GWh)Twelve-Month Periods ended December 31,2010
     
     2009Net Generation
     Purchases
     Total Sales
     
     Net Generation
     Purchases
     Total SalesHydroelectricHINISA
     778.0
     301.6
     1,079.6
     
     854.1
     308.1
     1,162.2HIDISA
     538.1
     312.9
     850.9
     
     599.9
     327.2
     927.0ThermalCTG*
     1,532.8
     664.4
     2,523.4
     
     1,699.0
     521.0
     2,216.3CTLLL*
     447.7
     32.2
     527.5
     
     925.8
     25.9
     1,297.4CPB*
     2,646.3
     774.2
     3,481.5
     
     2,390.0
     808.6
     3,199.2Total
     5,942.9
     2,085.2
     8,462.9
     
     6,468.8
     1,990.7
     8,802.1* CTG includes physical equivalent to 326.2 GWh sold under Note 6866/09 in 2010
* CTLLL includes physical equivalent to 47.6 GWh and 345.7 GWh sold under Note 6866 and 446 in 2010 and 2009
* CPB includes physical equivalent to 61.0 GWh sold under Note 6866/09 in 2010
* Note 6866 and Note 446, see "Item 5.Operating and Financial Review and Prospects - Cost of Sales"Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  The cost of sales increased by 47.6% to Ps. 2,059.7 million in the fiscal year ended December 31, 2010 from Ps. 1,395.6 million in the same period of 2009, primarily due to the increase in fuel expenses due to the higher cost of natural gas consumption recorded in 2010 and the increased incidence of consumption and cost of fuel oil used in Piedra Buena (increases of 14.1% and 104.0%, respectively), the increase in the cost of energy purchases at our hydro unit of 16.0% and at our thermal units of 48.0%, the increases in personnel costs and third party service fees at our hydro units of 38.9% and at our thermal units of 15.3%. The increase in personnel costs mainly reflects the increase in wages amongst the periods compared, which also include in both years personnel and fees related to the Loma de la Lata expansion project. The following table illustrates main components of the cost of sales from our generation segment for the periods shown:
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Table of Contents  Cost of SalesFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Hydroelectric facilities:Energy purchases
     133.6
     60.3%
     
     115.2
     59.3%Royalties
     26.9
     12.1%
     
     25.6
     13.2%Salaries and third party fees
     26.8
     12.1%
     
     19.3
     9.9%Depreciation of and amortization
     20.2
     9.1%
     
     20.7
     10.6%Spares and maintenance
     6.3
     2.8%
     
     8.2
     4.2%Others
     7.9
     3.6%
     
     5.3
     2.7%Total hydroelectric
     221.6
     100.0%
     
     194.3
     100.0%Thermal facilities:Liquid fuel consumption
     962.6
     52.4%
     
     472.0
     39.3%Gas consumption
     404.3
     22.0%
     
     354.5
     29.5%Energy purchases
     286.1
     15.6%
     
     193.4
     16.1%Salaries and third party fees
     78.3
     4.3%
     
     67.9
     5.7%Depreciation and amortization
     39.9
     2.2%
     
     38.5
     3.2%Others
     66.8
     3.6%
     
     75.1
     6.2%Total thermal
     1,838.0
     100.0%
     
     1,201.3
     100.0%Total
     2,059.7
     100.0%
     
     1,395.6
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.




Gross profit related to our generation segment increased by 6.9% to Ps. 350.3 million in the fiscal year ended December 31, 2010 from Ps. 327.7 million in the same period of 2009, mainly due to the higher income from electricity sales in all of our units (except Loma de la Lata), which offset the increased cost of sales described above. The gross margin related to our generation activities decreased by 23.6% to 14.5% over sales for the fiscal year ended December 31, 2010 from 19.0% over sales for the same period in 2009, primarily due to the fact that the higher average electricity prices did not offset the increase in the average costs of the period of our units, including the increase in personnel costs and third party service fees.

The selling expenses related to our generation segment decreased to Ps. 15.4 million in the fiscal year ended December 31, 2010 from Ps. 15.7 million in the same period of 2009. Selling expenses from our hydro units were Ps. 2.4 million and Ps. 4.2 million, whereas selling expenses from our thermal units were Ps. 12.9 million and Ps. 11.5 million for the fiscal years ended December 31, 2010 and 2009, respectively. The following table illustrates the main components of selling expenses from our generation segment for the periods shown: 115


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Selling ExpensesFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Taxes, rates and contributions
     5.7
     36.9%
     
     5.7
     36.4%Salaries and third party fees
     8.5
     55.5%
     
     6.9
     44.1%Doubtful accounts
     0.4
     2.7%
     
     1.4
     8.9%Others
     0.8
     4.9%
     
     1.7
     10.6%Total
     15.4
     100.0%
     
     15.7
     100.0%Of which:Hydroelectric
     2.4
     15.8%
     
     4.2
     26.6%Thermal
     12.9
     84.2%
     
     11.5
     73.4%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  In addition, administrative expenses increased to Ps. 112.1 million for the fiscal year ended December 31, 2010 from Ps. 82.8 million for the same period of 2009, mainly due to an increase in personnel costs and social security charges due to the reallocation of personnel in March 2009 from our holding and others segment to the generation segment. Administrative expenses from our hydro units were Ps. 9.8 million and Ps. 11.6 million, whereas administrative expenses from our thermal units were Ps. 102.3 million and Ps. 71.2 million for the fiscal years ended December 31, 2010 and 2009, respectively. The following table illustrates the main components of administrative expenses from our generation segment for the periods shown:
 Administrative ExpensesFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Fees for third-party services
     14.9
     13.3%
     
     16.2
     19.6%Salaries and social security charges
     53.4
     47.6%
     
     39.4
     47.6%Directors' and Syndics' Fees
     7.7
     6.9%
     
     6.8
     8.2%Taxes, rates and contributions
     8.5
     7.6%
     
     4.0
     4.8%Rental, insurance and transport
     9.7
     8.7%
     
     8.1
     9.8%Others
     17.9
     15.9%
     
     8.3
     10.0%Total
     112.1
     100.0%
     
     82.8
     100.0%Of which:Hydroelectric
     9.8
     8.8%
     
     11.6
     14.0%Thermal
     102.3
     91.2%
     
     71.2
     86.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Operating income related to our generation activities decreased by 3.0% to Ps. 207.6 million for the fiscal year ended December 31, 2010 from Ps. 214.0 million in the same period of 2009, mainly due to the increase in administrative expenses of our thermal units described above, partially offset by an increase in their gross profits. The operating margin related to our generation activities decreased by 30.6% to 8.6% over sales for the fiscal year ended December 31, 2010, from 12.4% over sales for the same period in 2009, for the same reasons as those described in connection with operating income. 116


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Financial and holding results, net, related to our generation activities represented a loss of Ps. 63.1 million for the fiscal year ended December 31, 2010 compared to a loss of Ps. 46.3 million for the same period of 2009, primarily due to losses generated by net interest expenses (Ps. 74.7 million), losses generated by foreign exchange differences of liabilities (Ps. 26.5 million) and losses for banking taxes and expenses (Ps. 24.1 million), which were partially offset by gains of Ps. 35.6 million from interest generated by assets, Ps. 20.0 million from foreign exchange differences generated by assets and Ps. 13.4 million from holdings of financial assets. In the same period of 2009, our generation segment recorded losses from impairment of fixed assets and other assets (Ps. 18.5 million), and net gains from foreign exchange differences of Ps. 12.0 million. The following table illustrates the main components of financial and holding results from our generation segment for the periods shown: Financial and Holding ResultsFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Interest income generated by assets
     35.6
     -56.4%
     
     25.7
     -55.4%Impairment of assets and investments
     0.0
     0.0%
     
     (18.5)
     39.9%Foreign exchange differences on assets
     20.0
     -31.6%
     
     64.4
     -138.9%Generated by financial instruments holding results
     13.4
     -21.2%
     
     19.5
     -42.1%Generated by taxes and bank commissions
     (24.1)
     38.2%
     
     (36.5)
     78.7%Other results generated by assets
     (2.7)
     4.3%
     
     15.5
     -33.5%Interest  expense generated by liabilities
     (74.7)
     118.3%
     
     (63.2)
     136.5%Foreign exchange differences on liabilities
     (26.5)
     41.9%
     
     (52.3)
     112.9%Generated by repurchases of financial debt
     0.0
     0.0%
     
     4.1
     -8.9%Other results generated by liabilities
     (4.2)
     6.6%
     
     (5.0)
     10.8%Total
     (63.1)
     100.0%
     
     (46.3)
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Our generation activities recorded other income, net of Ps. 17.0 million for the fiscal year ended December 31, 2010 compared to expenses, net of Ps. 2.7 million for the same period of 2009. Additionally, our generation activities recorded a charge for income tax of Ps. 63.4 million for the fiscal year ended December 31, 2010 compared to Ps. 68.5 million for the same period of 2009 and a charge for minority interests of Ps. 39.9 million for the fiscal year ended December 31, 2010 compared to Ps. 38.6 million for the same period of 2009.
 Finally, our generation activities recorded net income of Ps. 58.1 million for the fiscal year ended December 31, 2010, compared to Ps. 57.9 million for the same period in 2009. Transmission Segment Net sales related to our transmission activities increased by 0.2% to Ps. 291.9 million for the fiscal year ended December 31, 2010, compared to Ps. 291.3 million for the same period in 2009. Net regulated sales increased by 17.6% to Ps. 173.6 million for the fiscal year ended December 31, 2010 compared to Ps. 147.5 million for the same period in 2009, mainly as a result of the recognition of cost variations for Ps. 30.9 million during the period June 2005-November 2010, due to the application of the Instrumental Agreement (dated December 21, 2010 executed by Transener, Transba, the Secretariat of Energy and the ENRE), which redetermined connection charges, transmission capacity and operation and maintenance charges. See “Item 4. Information on the Company—Business Overview—Our Transmission Business—Citelec—Transition Period Rules.” Net revenues from royalties for the Fourth Line remained almost constant reflecting an increase of 0.8% to Ps. 43.3 million for the fiscal year 117


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ended December 31, 2010 from Ps. 42.9 million for the same period in 2009; mainly due to the recognition of the new royalty values as from October 2009. Other sales, net decreased 25.6% to Ps. 75.0 million for the fiscal year ended December 31, 2010 from Ps. 100.8 million for the same period of 2009, mainly due to the completion of the installation works of reactors in the substations of Bahía Blanca and Chocón for which we recorded sales in 2009. In addition, the other net sales in 2009 included revenues from works, operation and maintenance services, revenues from supervision services, also related to the substations of Bahía Blanca, Chocón and El Recreo and unregulated revenues from Transba and Transener’s international operations, which was not included in 2010. Net SalesFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Net Regulated Sales
     173.6
     59.5%
     
     147.5
     50.7%Net Fourth Line Revenues
     43.3
     14.8%
     
     42.9
     14.7%Other Sales
     75.0
     25.7%
     
     100.8
     34.6%Total
     291.9
     100.0%
     
     291.3
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Cost of sales decreased by 9.7% to Ps. 198.6 million in the fiscal year ended December 31, 2010 compared to Ps. 220.1 million for the same period of 2009, mainly due to the decrease in the consumption of materials relates to the completion of works in the substations mentioned above, which mitigated wage increases agreed to during 2010. The following table illustrates the main components of cost of sales from our transmission segment for the periods shown:
 
 Cost of SalesFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Salaries and social security charges
     92.6
     46.6%
     
     79.2
     36.0%Materials for works
     7.5
     3.8%
     
     32.0
     14.5%Repairs and Maintenance
     11.4
     5.7%
     
     15.9
     7.2%Depreciation and amortization
     57.2
     28.8%
     
     57.6
     26.2%Others
     30.0
     15.1%
     
     35.4
     16.1%Total
     198.6
     100.0%
     
     220.1
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Gross profit related to our transmission activities increased by 31.0% to Ps. 93.2 million for the fiscal year ended December 31, 2010 from Ps. 71.2 million for the same period in 2009, primarily due to the increase in regulated revenues described above and the reduction in the cost of sales. The gross margin related to our transmission activities increased by 30.7% to 31.9% over net sales for the fiscal year ended December 31, 2010 from 24.4% over sales for the same period in 2009, reflecting mainly higher regulated revenues due to the Instrumental Agreement with the Secretariat of Energy and the ENRE. We do not record selling expenses related to our transmission activities. Administrative expenses increased by 19.1% to Ps. 44.7 million for the fiscal year ended December 31, 2010 from Ps. 37.5 million for the same period in 2009, mainly due to the higher salary expenses related to wage increases. The following table illustrates the main components of administrative expenses from our transmission segment for the periods shown: 118


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Table of Contents  Administrative ExpensesFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Salaries and social security charges
     19.8
     44.3%
     
     16.1
     42.8%Fees for third-party services
     2.5
     5.5%
     
     2.2
     5.9%Depreciation of fixed assets
     3.8
     8.6%
     
     3.8
     10.2%Insurance and rentals
     11.1
     24.9%
     
     9.1
     24.4%Directors' and Syndics' Fees
     1.5
     3.3%
     
     1.3
     3.5%Others
     6.0
     13.5%
     
     5.0
     13.2%Total
     44.7
     100.0%
     
     37.5
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.






Operating income increased by 43.3% to Ps. 49.4 million for the fiscal year ended December 31, 2010 from Ps. 34.5 million in the same period of 2009. The total operating margin increased by 43.0% to 16.9% over net sales for the fiscal year ended December 31, 2010 from 11.8% over net sales for the same period in 2009. In both cases the increases are explained by an increase in regulated revenues as described above.
 Financial and holding results, net, represented a loss of Ps. 6.6 million for the fiscal year ended December 31, 2010 compared to a loss of Ps. 4.2 million for the same period of 2009, primarily due to the losses generated by net interest expenses (Ps. 37.1 million) and losses generated by foreign exchange differences generated by liabilities (Ps. 10.8 million), which were partially offset by gains generated by interest generated by assets (Ps. 43.4 million) mainly due to the recognition of financial gains from the Instrumental Agreements (for Ps. 40.4 million) mentioned above. In 2009, our transmission segment recorded gains generated by the repurchase of Transener’s own financial debt (Ps. 63.5 million). The following table illustrates the main components of financial and holding results from our transmission segment for the periods shown: Financial and Holding ResultsFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Interest income generated by assets
     43.4
     -652.7%
     
     7.1
     -168.3%Gains on foreign exchange differences on assets
     0.7
     -10.6%
     
     1.7
     -40.7%Generated by taxes and bank commissions
     (2.9)
     44.0%
     
     (4.2)
     99.5%Generated by financial instruments holding results
     0.0
     0.0%
     
     0.0
     0.0%Other results generated by assets
     (0.0)
     0.3%
     
     0.9
     -21.2%Interest  expense generated by liabilities
     (37.1)
     558.3%
     
     (36.2)
     854.9%Generated by taxes and bank commissions
     0.0
     0.0%
     
     0.0
     0.0%Losses on foreign exchange differences on liabilities
     (10.8)
     163.0%
     
     (36.6)
     862.9%Generated by repurchases of financial debt
     1.7
     -25.2%
     
     63.5
     -1498.7%Other results generated by liabilities
     (1.5)
     23.1%
     
     (0.5)
     11.6%Total
     (6.6)
     100.0%
     
     (4.2)
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Transmission activities recorded other expenses, net of Ps. 3.8 million for the fiscal year ended December 31, 2010 compared to a Ps. 4.7 million income for the same period of 2009.
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Additionally, the transmission segment recorded a charge for income tax of Ps. 21.8 million for the fiscal year ended December 31, 2010 compared to a charge of Ps. 4.8 million for the same period of 2009 and a charge for minority interests of Ps. 5.9 million for the fiscal year ended December 31, 2010 compared to a charge of Ps. 12.7 million for the same period of 2009. Finally, our transmission activities recorded a net income of Ps. 11.3 million for the fiscal year ended December 31, 2010, compared to a net income of Ps. 17.4 million for the same period in 2009. Distribution Segment Net sales from our distribution activities rose by 4.6% to Ps. 2,173.6 million for the fiscal year ended December 31, 2010 from Ps. 2,077.9 million for the same period in 2009, mainly due to a 5.9% increase in the quantity of energy sold in the fiscal year ended December 31, 2010 (19,292 GWh) compared to the same period of 2009 (18,220 GWh), partially offset by the reduction in the average annual sales price of energy that we pass through to certain customers (the average price in 2010 was Ps. 0.1143 per KWh, and Ps. 0.1149 per KWh in 2009), and the increase of fines and penalties (Ps. 80.0 million in 2010 and Ps. 58.5 million in 2009), which are deducted from sales. The increase in the quantity of energy sold was mainly due to a 3.4% increase in the average consumption per customer and a 2.2% increase in the number of customers. Net energy sales represented approximately 98% of net sales in 2010 and 2009. Late payment charges, pole leases, and connection and reconnection charges accounted for the remaining balance in 2010 and 2009. Cost of sales increased by 10.3% to Ps. 1,731.5 million for the fiscal year ended December 31, 2010 compared to Ps. 1,569.7 million for the same period of 2009, mainly due to a 34.4% increase in salaries and social security contributions and a 6.6% increase in the cost of energy purchases, mainly associated with the 6.5% increase in demand by large customers in 2010 and an increase in energy losses (12.5% in 2010 as compared to 11.9% in 2009), and therefore, there was a 6.7% increase in the amount of energy purchased (22,053 GWh in 2010 as compared to 20,676 GWh in 2009). The following table illustrates the main components of cost of sales from our distribution segment for the periods shown: Cost of SalesFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Energy Purchases
     1,069.7
     61.8%
     
     1,003.4
     63.9%Derpreciation and Amortization
     192.9
     11.1%
     
     185.7
     11.8%Salaries and social security charges
     296.3
     17.1%
     
     220.4
     14.0%Fees for third-party services
     119.6
     6.9%
     
     111.9
     7.1%Other
     52.8
     3.0%
     
     48.3
     3.1%Total
     1,731.5
     100.0%
     
     1,569.7
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Therefore, gross profit related to our distribution activities decreased by 13.0% to Ps. 442.2 million for the fiscal year ended December 31, 2010 compared to Ps. 508.1 million for the same period of 2009, mainly as a result of an increase in salaries and social security charges and higher energy losses in 2010. The increase in net revenues, due to the higher purchase price of energy that was passed through to certain customers of Edenor during part of 2010, was offset by a similar increase in the cost of energy purchased by Edenor to supply those customers. The gross margin related to our distribution activities decreased by 16.8% to 20.3% over sales for the fiscal year ended December 31, 2010 from 24.5% over sales for the same period in 2009.
 Selling expenses increased 41.0% to Ps. 194.5 million for the fiscal year ended December 31, 2010 compared to Ps. 138.0 million for the same period of 2009, primarily due to an increase in salaries and social 120


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security charges resulting from wage increases granted in 2010 and to the increase in third party fees and compensation in 2010. In the fiscal year ended December 31, 2009, Edenor recorded a recovery of Ps. 21.2 million due to a reduction in the allowance for doubtful accounts as a result of the approval of the master agreement between Edenor, the Federal Government and the City of Buenos Aires in connection with underprivileged neighborhoods. The following table illustrates the main components of selling expenses from our distribution segment for the periods shown: Selling ExpensesFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Fees for third-party services
     54.8
     28.2%
     
     47.1
     34.1%Salaries and social security charges
     69.5
     35.7%
     
     52.0
     37.7%Doubtful accounts
     21.2
     10.9%
     
     (2.7)
     -1.9%Taxes, rates and contributions
     20.9
     10.7%
     
     18.2
     13.2%Other
     28.1
     14.4%
     
     23.4
     17.0%Total
     194.5
     100.0%
     
     138.0
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Administrative expenses increased by 23.8% to Ps. 180.6 million for the fiscal year ended December 31, 2010 compared to Ps. 145.9 million for the same period of 2009, primarily due to increases in salaries due to wage increases. The following table illustrates the main components of administrative expenses from our distribution segment for the periods shown:
 
 Administrative ExpensesFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Salaries and social security charges
     79.4
     43.9%
     
     60.5
     41.5%Fees for third-party services
     46.6
     25.8%
     
     43.8
     30.0%Insurance and rentals
     14.3
     7.9%
     
     6.2
     4.2%Advertising and promotion
     18.4
     10.2%
     
     16.8
     11.5%Others
     22.0
     12.2%
     
     18.6
     12.8%Total
     180.6
     100.0%
     
     145.9
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Operating income of our distribution activities decreased by 71.9% to Ps. 61.5 million for the fiscal year ended December 31, 2010 compared to Ps. 218.7 million for the same period of 2009, mainly due to the higher selling and administration expenses described above. The total operating margin decreased by 73.1% to 2.8% over sales for the fiscal year ended December 31, 2010 from 10.5% over sales for the same period in 2009.
 Financial and holding results, net, related to our distribution activities represented a loss of Ps. 205.4 million for the fiscal year ended December 31, 2010, compared to a loss of Ps. 130.5 million for the same period of 2009, primarily due to losses related to net interest expenses (Ps. 128.0 million), the appreciation of the U.S. Dollar on the outstanding debt incurred in U.S. Dollars (Ps. 57.3 million) and the holding of financial assets (Ps. 14.4 million), which were partially offset by gains from interest generated by assets, and foreign exchange differences on financial assets (Ps. 28.4 million and Ps. 7.4 million, respectively). In 2010, our distribution segment recorded a loss from repurchase of debt in the fourth quarter due to the repurchase of notes at a price above par, within the 121


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framework of the restructuring process aimed at obtaining a longer maturity debt profile (from 2017 to 2022). In 2009, our distribution segment recorded gains from repurchase of financial debt (Ps. 81.5 million). The following table illustrates the main components of financial and holding results from our distribution segment for the periods shown: Financial and Holding ResultsFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Interest income generated by assets
     28.4
     -13.8%
     
     16.2
     -12.4%Gains on foreign exchange differences on assets
     7.4
     -3.6%
     
     21.4
     -16.4%Generated by taxes and bank commissions
     (37.3)
     18.2%
     
     (34.9)
     26.8%Generated by financial instruments holding results
     (14.4)
     7.0%
     
     37.7
     -28.9%Other results generated by assets
     11.5
     -5.6%
     
     3.4
     -2.6%Interest  expense generated by liabilities
     (128.0)
     62.3%
     
     (120.9)
     92.6%Losses on foreign exchange differences on liabilities
     (57.3)
     27.9%
     
     (129.2)
     99.0%Generated by repurchases of financial debt
     (7.1)
     3.4%
     
     81.5
     -62.4%Other results generated by liabilities
     (8.7)
     4.2%
     
     (5.7)
     4.4%Total
     (205.4)
     100.0%
     
     (130.5)
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  The distribution segment recorded other expenses of Ps. 9.8 million for the fiscal year ended December 31, 2010, compared to other income for Ps. 2.0 million in the same period of 2009.
 In turn, our distribution operations recorded an income tax benefit of Ps. 25.3 million in the fiscal year ended December 31, 2010, compared to a Ps. 61.1 million charge in the same period of 2009, and a recovery for minority interests of Ps. 35.9 million in the fiscal year ended December 31, 2010 compared to a charge for minority interests of Ps. 43.9 million in the same period of 2009. Finally, our distribution activities registered a net loss of Ps. 92.5 million for the fiscal year ended December 31, 2010, compared to a net loss of Ps. 14.8 million for the same period in 2009. Holding and others segment Net sales related to our holding and others segment were Ps. 0.9 million for the fiscal year ended December 31, 2010 compared to Ps. 15.1 million in the same period of 2009, mostly related to sales at our real estate business (Ps. 0.9 million and Ps. 9.2 million for the periods ended December 31, 2010 and 2009, respectively) and services that we provided to our subsidiaries (Ps. 0.1 million and Ps. 5.8 million for the periods ended December 31, 2010 and 2009, respectively). Cost of sales related to our holding and others segment decreased to Ps. 0.8 million in the fiscal year ended December 31, 2010 compared to Ps. 8.2 million for the same period of 2009, reflecting the lower cost of sales of our real estate business due to lack of activity. The following table illustrates the main components of cost of sales from our holding and others segment for the periods shown: 122


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Table of Contents  Cost of SalesFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Cost of Benquerencia lots
     0.7
     93.9%
     
     8.0
     97.3%Other
     0.0
     6.1%
     
     0.2
     2.7%Total
     0.8
     100.0%
     
     8.2
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.






Gross profit related to our holding and others segment was Ps. 0.1 million for the fiscal year ended December 31, 2010 compared to Ps. 6.9 million for the same period of 2009, mainly due to a decrease in the real estate business and a decrease in revenues and costs for services rendered to our subsidiaries as a result of the personnel and operations’ transfers from Pampa Generación to our generation segment in 2009.
 Selling expenses related to our holding and others segment decreased to Ps. 0.1 million for the fiscal year ended December 31, 2010 compared to Ps. 1.0 million for the same period of 2009, reflecting mainly the selling expenses of our real estate business. The following table illustrates the main components of selling expenses from our holding and others segment for the periods shown: Selling ExpensesFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Fees for third-party services
     0.0
     3.4%
     
     0.0
     0.4%Salaries and social security charges
     0.0
     0.0%
     
     0.5
     46.5%Taxes, rates and contributions
     0.1
     96.6%
     
     0.5
     53.0%Other
     0.0
     0.0%
     
     0.0
     0.0%Total
     0.1
     100.0%
     
     1.0
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Administrative expenses amounted to Ps. 36.0 million for the fiscal year ended December 31, 2010 compared to Ps. 48.0 million for the same period of 2009, mainly due to a decrease in the real estate business and the reduction in Pampa Energía’s administrative expenses due to the reallocation of personnel and other expenses in March 2009 to our generation segment. The following table illustrates the main components of administrative expenses from our holding and others segment for the periods shown:
 123


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Table of Contents  Administrative ExpensesFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Salaries and social security charges
     1.5
     4.1%
     
     4.4
     9.3%Fees for third-party services
     13.9
     38.7%
     
     16.4
     34.1%Rental and insurance
     1.3
     3.7%
     
     2.8
     5.9%Directors' and syndics' fees and options reserve
     15.8
     43.9%
     
     17.0
     35.3%Others
     3.4
     9.6%
     
     7.4
     15.3%Total
     36.0
     100.0%
     
     48.0
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.






Operating losses related to our holding and others segment amounted to Ps. 36.0 million for the fiscal year ended December 31, 2010 compared to an operating loss of Ps. 42.2 million for the same period of 2009, primarily explained because net sales for the period did not offset the administrative expenses described above.
 Financial and holding results, net, related to our holding and others activities represented a gain of Ps. 24.5 million for the fiscal year ended December 31, 2010 compared to a gain of Ps. 228.3 million for the same period of 2009, primarily due to gains generated by the repurchase of debt from our subsidiaries (Ps. 10.9 million), gains from holdings of financial assets (Ps. 55.5 million) and net interest income (Ps. 17.0 million) and foreign exchange differences (Ps. 19.5 million) generated by assets and liabilities, which were partially offset by the loss resulting from the full impairment recorded in the second quarter of 2010 over San Antonio Global Ltd.’s shares, which our subsidiary Pampa Inversiones held in its portfolio (Ps. 77.9 million). In August 2010, and as a result of the decision made by the Board of Directors of Pampa Inversiones to refrain from participating in the capital increase requested by San Antonio, Pampa Inversiones re-assessed the estimated recoverable value of its investment in San Antonio and, as a result, recorded a write-off for the total amount of the investment. During the same period of 2009, our holding and others segment recorded gains generated by the repurchase of debt from our subsidiaries (Ps. 96.3 million) and net interest income (Ps. 20.5 million) and foreign exchange differences (Ps. 32.2 million) generated by assets and liabilities. The following table illustrates the main components of financial and holding results from our holding and others segment for the periods shown: 124


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Table of Contents  Financial and Holding ResultsFiscal years ended December 31,2010
     
     2009(in millions of Pesos, except percentages)Interest income generated by assets
     (6.5)
     -26.5%
     
     (2.9)
     -1.3%Impairment of assets and investments
     (77.9)
     -317.7%
     
     0.0
     0.0%Gains on foreign exchange differences on assets
     8.9
     36.2%
     
     2.3
     1.0%Generated by taxes and bank commissions
     (2.8)
     -11.5%
     
     (2.4)
     -1.0%Generated by financial instruments holding results
     55.5
     226.3%
     
     71.2
     31.2%Other results generated by assets
     0.0
     0.0%
     
     8.4
     3.7%Interest  expense generated by liabilities
     23.5
     95.9%
     
     23.4
     10.3%Gain on foreign exchange differences on liabilities
     10.6
     43.3%
     
     29.9
     13.1%Generated by repurchases of financial debt
     10.9
     44.3%
     
     96.3
     42.2%Other results generated by liabilities
     2.4
     9.7%
     
     2.0
     0.9%Total
     24.5
     100.0%
     
     228.3
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.






Our holding and others segment recorded other income, net for Ps. 2.5 million in the fiscal year ended December 31, 2010 compared to other expenses, net for Ps. 6.1 million for the same period of 2009.
 Also, our holding and others segment recorded an income tax charge of Ps. 14.4 million for the fiscal year ended December 31, 2010, compared to a charge of Ps. 25.8 million for the same period of 2009. Finally, our holding and others segment registered a net loss of Ps. 23.4 million for the fiscal year ended December 31, 2010 compared to a net income of Ps. 154.2 million recorded in the same period of 2009. Year ended December 31, 2009 compared to year ended December 31, 2008 We had consolidated sales of Ps. 4,093.4 million for the fiscal year ended December 31, 2009, 2.0% higher than the Ps. 4,013.8 million for the same period of 2008, explained mainly by the increase of 27.5% (Ps. 62.8 million) and 3.9% (Ps. 77.7 million) in the transmission and distribution segments, respectively, which offset a reduction of 3.2% (Ps. 57.5 million) and 56.6% (19.7 million) in the sales revenues of the generation and holding and others segments, respectively. The following table sets forth our net sales by segment for the year ended December 31, 2009 and 2008: For the year ended December 31,Net Sales
     
     2009
     
     2008(in millions of pesos)Generation
     
     Ps.              1,723.3
     
     Ps.              1,780.7Transmission
     
     291.3
     
     228.5Distribution
     
     2,077.9
     
     2,000.2Holding
     
     15.1
     
     34.7Eliminations
     
     (14.0)
     
     (30.3)Total
     
     Ps.            4,093.4
     
     Ps.            4,013.9
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We had consolidated cost of sales of Ps. 3,192.1 million for the fiscal year ended December 31, 2009, 3.6% higher than the Ps. 3,082.4 million for 2008, explained mainly by an increase of 23.6% (Ps. 42.0 million), 8.2% (Ps. 118.4 million) and 70.2% (Ps. 3.4 million) in the cost of sales of our transmission, distribution and holding and others segments, respectively, partially offset by a reduction of 4.0% (Ps. 58.6 million) in the generation segment. The following table sets forth our cost of sales by segment for the year ended December 31, 2009 and 2008: For the year ended December 31,Cost of Sales
     
     2009
     
     2008(in millions of pesos)Generation
     
     Ps.            (1,395.6)
     
     Ps.            (1,454.2)Transmission
     
     (220.1)
     
     (178.1)Distribution
     
     (1,569.7)
     
     (1,451.4)Holding
     
     (8.2)
     
     (4.8)Eliminations
     
     1.5
     
     6.1Total
     
     Ps.          (3,192.1)
     
     Ps.          (3,082.4)
  We had consolidated gross profit of Ps. 901.3 million for the fiscal year ended December 31, 2009, 3.2% lower than the Ps. 931.5 million for 2008, explained mainly by the increases in the gross profit from our transmission segment (Ps. 20.8 million) and our generation segment (Ps. 1.2 million) that was more than offset by a reduction in gross profit for the fiscal year ended December 31, 2009 in our distribution and holding and others segments (Ps. 40.7 million and Ps. 23.0 million, respectively).
 The following table sets forth our gross profit by segment for the year ended December 31, 2009 and 2008: For the year ended December 31,Gross Profit
     
     2009
     
     2008(in millions of pesos)Generation
     
     Ps.                 327.7
     
     Ps.                 326.5Transmission
     
     71.2
     
     50.4Distribution
     
     508.1
     
     548.8Holding
     
     6.9
     
     29.9Eliminations
     
     (12.6)
     
     (24.2)Total
     
     Ps.               901.3
     
     Ps.               931.5
  We had consolidated gross margin of 22.0% for the fiscal year ended December 31, 2009, 5.1% lower than the 23.2% margin for 2008, explained mainly by the reduction in gross margin from our distribution and holding and others segments (to 24.5% from 27.4% and to 45.5% from 86.1%, respectively) which more than offset the increase in gross margin from our generation and transmission segments (to 19.0% from 18.3% and to 24.4% from 22.1%, respectively).
 We had consolidated selling expenses of Ps. 154.7 million in the fiscal year ended December 31, 2009, 10.7% higher than the Ps. 139.7 million recorded in 2008, explained mainly by the increase in selling expenses at our generation and distribution segments (increases of Ps. 5.8 million and Ps. 11.7 million, respectively) which were partially offset by a decrease in selling expenses of Ps. 2.5 million in our holding and others segment. The following table sets forth our selling expenses by segment for the year ended December 31, 2009 and 2008: 126


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Table of Contents  For the year ended December 31,Selling Expenses
     
     2009
     
     2008(in millions of pesos)Generation
     
     Ps.                 (15.7)
     
     Ps.                   (9.8)Transmission
     
     -
     
     -Distribution
     
     (138.0)
     
     (126.3)Holding
     
     (1.0)
     
     (3.5)Eliminations
     
     -
     
     -Total
     
     Ps.              (154.7)
     
     Ps.              (139.7)






We had consolidated administrative expenses of Ps. 302.7 million in the fiscal year ended December 31, 2009, 28.6% higher than the Ps. 235.4 million recorded in 2008, explained mainly by the increase in administrative expenses at our generation, transmission and distribution segments (increases of Ps. 24.8 million, Ps. 7.9 million and Ps. 32.3 million, respectively) which were partially offset by a decrease in administrative expenses of Ps. 10.4 million in our holding and others segment.
 The following table sets forth our selling expenses by segment for the year ended December 31, 2009 and 2008: For the year ended December 31,Administrative Expenses
     
     2009
     
     2008(in millions of pesos)Generation
     
     Ps.                 (82.8)
     
     Ps.                 (57.9)Transmission
     
     (37.5)
     
     (29.6)Distribution
     
     (145.9)
     
     (113.6)Holding
     
     (48.0)
     
     (58.5)Eliminations
     
     11.4
     
     24.2Total
     
     Ps.              (302.7)
     
     Ps.              (235.4)
  We recorded consolidated goodwill amortization charges of Ps. 20.0 million in the fiscal year ended December 31, 2009, 0.8% higher than the Ps. 19.8 million recorded in 2008.
 The following table sets forth our goodwill amortization by segment for the year ended December 31, 2009 and 2008: For the year ended December 31,Goodwill Amortization
     
     2009
     
     2008(in millions of pesos)Generation
     
     Ps.                 (15.2)
     
     Ps.                 (14.7)Transmission
     
     0.8
     
     0.8Distribution
     
     (5.5)
     
     (5.6)Holding
     
     -
     
     (0.3)Eliminations
     
     -
     
     -Total
     
     Ps.                (20.0)
     
     Ps.                (19.8)
  We had consolidated operating income of Ps. 423.9 million in the fiscal year ended December 31, 2009, 21.0% lower than the Ps. 536.6 million recorded in 2008, explained mainly by the reduction in operating income from our generation, distribution and holding and others segments (reductions of Ps. 30.0 million, Ps. 84.7 million and Ps. 9.8 million, respectively) which were partially offset by an increase in operating income of Ps. 12,9 million in our transmission segment. 127






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The following table sets forth our operating income by segment for the year ended December 31, 2009 and 2008: For the year ended December 31,Operating Income
     
     2009
     
     2008(in millions of pesos)Generation
     
     Ps.                 214.0
     
     Ps.                 244.0Transmission
     
     34.5
     
     21.6Distribution
     
     218.7
     
     303.4Holding
     
     (42.2)
     
     (32.4)Eliminations
     
     (1.1)
     
     -Total
     
     Ps.               423.9
     
     Ps.               536.6
  We had consolidated net financial and holding results of Ps. 48.4 million in the fiscal year ended December 31, 2009, compared to a loss of Ps. 208.1 million for2008, explained mainly by the reduction in consolidated net financial losses from our generation, transmission and distribution segments (a reduction of Ps. 33.8 million, Ps. 48.3 million and Ps. 29.3 million, respectively) and an increase of Ps. 143.8 million in the income from the holding and others segment for the fiscal year ended December 31, 2009 compared to the same period of 2008.
 We had consolidated gain on repurchases of notes from our subsidiaries, included in financial and holding results, of Ps. 245.5 million, added to the Ps. 190.3 million gain as of December 31, 2008, totaling Ps. 435.8 million. The following table sets forth our financial and holding results, net, by segment for the year ended December 31, 2009 and 2008: For the year ended December 31,Financial and Holding Results, net
     
     2009
     
     2008(in millions of pesos)Generation
     
     Ps.                 (46.3)
     
     Ps.                 (80.2)Transmission
     
     (4.2)
     
     (52.5)Distribution
     
     (130.5)
     
     (159.8)Holding
     
     228.3
     
     84.5Eliminations
     
     1.1
     
     -Total
     
     Ps.                  48.4
     
     Ps.              (208.1)
  128


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We recorded a consolidated loss in other (expenses) income, net, of Ps. 2.0 million for the year ended December 31, 2009 compared to a loss of Ps. 23.2 million for 2008. The following table sets forth our other (expenses) income, net, by segment for the year ended December 31, 2009 and 2008: For the year ended December 31,Other Income (expenses), net
     
     2009
     
     2008(in millions of pesos)Generation
     
     Ps.                   (2.7)
     
     Ps.                   (1.4)Transmission
     
     4.7
     
     9.8Distribution
     
     2.0
     
     (29.4)Holding
     
     (6.1)
     
     (2.3)Eliminations
     
     -
     
     -Total
     
     Ps.                  (2.0)
     
     Ps.                (23.2)
  We recorded a consolidated income tax charge of Ps. 160.2 million for the year ended December 31, 2009 compared to a charge of Ps. 108.8 million for 2008. The following table sets forth our income tax and tax on assets by segment for the year ended December 31, 2009 and 2008: For the year ended December 31,Income Tax
     
     2009
     
     2008(in millions of pesos)Generation
     
     Ps.                 (68.5)
     
     Ps.                 (62.7)Transmission
     
     (4.8)
     
     (7.3)Distribution
     
     (61.1)
     
     (43.5)Holding
     
     (25.8)
     
     4.7Eliminations
     
     -
     
     -Total
     
     Ps.              (160.2)
     
     Ps.              (108.8)
  We recorded a consolidated charge for minority interests in our subsidiaries of Ps. 95.3 million for the year ended December 31, 2009 compared to a charge of Ps. 81.5 million for 2008. The following table sets forth our minority interests by segment for the year ended December 31, 2009 and 2008: For the year ended December 31,Minority Interests
     
     2009
     
     2008(in millions of pesos)Generation
     
     Ps.                 (38.6)
     
     Ps.                 (37.7)Transmission
     
     (12.7)
     
     16.1Distribution
     
     (43.9)
     
     (59.9)Holding
     
     -
     
     -Eliminations
     
     -
     
     -Total
     
     Ps.                (95.3)
     
     Ps.                (81.5)
  We had consolidated net income of Ps. 214.7 million in the fiscal year ended December 31, 2009, 86.7% higher than the Ps. 115.0 million recorded in 2008, explained mainly by the income from our generation, 129






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transmission and holding and others segments (Ps. 57.9 million, Ps. 17.4 million and Ps. 154.2 million, respectively) which more than offset the losses form our distribution segments (Ps. 14.8 million). The following table sets forth our net income by segment for the year ended December 31, 2009 and 2008: For the year ended December 31,Net Income
     
     2009
     
     2008(in millions of pesos)Generation
     
     Ps.                   57.9
     
     Ps.                   62.1Transmission
     
     17.4
     
     (12.4)Distribution
     
     (14.8)
     
     10.7Holding
     
     154.2
     
     54.6Eliminations
     
     -
     
     -Total
     
     Ps.               214.7
     
     Ps.               115.0
  Electricity Generation Segment
 Net sales from our generation business decreased 3.2% to Ps. 1,723.3 million in the fiscal year ended December 31, 2009 from Ps. 1,780.7 million for the same period of 2008, mainly due to a decrease in the amount of electricity sold during the period, which more than offset an increase in the average electricity prices. Net consolidated sales of the segment include sales of energy and services to other companies, and we eliminate the intercompany sales within the segment. In the fiscal years ended December 31, 2009 and 2008 energy sales were Ps. 1,714.5 million and Ps. 1,788.8 million, respectively, sales of services (by Pampa Generación) were Ps. 49.0 million and Ps. 29.7 million, respectively, and intercompany eliminations within the segment were Ps. 40.2 million and Ps. 37.8 million, respectively. The Ps. 74.3 million decrease in net electricity sales was mainly due to the fact that the increase in the average electricity prices calculated for our subsidiaries (Ps. 184.8 per MWh for the fiscal year ended December 31, 2009, compared to Ps. 183.6 per MWh for the same period of 2008, representing an increase of Ps. 109.3 million), was more than offset by a decrease in the quantity of electricity sold (8,802.1 GWh in the fiscal year ended December 31, 2009, compared to 9,744.6 GWh for the same period in 2008, representing a reduction of Ps. 183.6 million). Average electricity prices increases reflect the higher fuel costs and increased price of electricity of the term electricity contracts of our units and the export and Energía Plus contracts of Central Térmica Güemes. The reduction in generation is mainly explained by the unavailability due to maintenance of certain of our units, in particular during the first months of 2009 when compared to the same period of 2008 and the lower dispatch of our generation units due to lower dispatch of thermal units in general in the Argentine system because of greater availability of hydro-based generation, especially during the last months of 2009, compared to the same period of 2008. Our generation operations derive revenues from the sale of electricity in the spot market and under term contracts, includingEnergía Pluscontracts. In addition, a portion of Güemes’ revenues is derived under long-term contracts for the exportation of electricity to Uruguay. When one of our units supplying a contract is not being dispatched, we would purchase the energy required to supply that contract from the spot market. The following table shows net electricity sales (in GWh) from our generation plants: Total Sales by Generation Unit (in GWh)Fiscal year ended December 31,2009
     
     2008Net Generation
     Purchases
     Total Sales
     
     Net Generation
     Purchases
     Total SalesHydroelectricHINISA
     854.1
     308.1
     1,162.2
     
     886.0
     370.4
     1,256.4HIDISA
     599.9
     327.2
     927.0
     
     617.4
     350.8
     968.2ThermalGüemes
     1,695.2
     521.0
     2,216.3
     
     1,724.4
     251.2
     1,975.6Loma de la Lata *
     925.8
     25.9
     1,297.4
     
     1,744.5
     72.4
     1,817.0Piedra Buena
     2,390.6
     808.6
     3,199.2
     
     3,311.6
     415.8
     3,727.4Total
     6,465.6
     1,990.7
     8,802.1
     
     8,283.9
     1,460.7
     9,744.6* includes 345,7GWh sold in 2009 under Note 446. See “Item 5. Operating and Financial Review and Prospects – Cost of sales"
  130


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The cost of sales decreased by 4.0% to Ps. 1,395.6 million in the fiscal year ended December 31, 2009 from Ps. 1,454.2 million in the same period of 2008, primarily due to a 17.6% decrease in fuel expenses due to the lower thermal generation recorded in 2009 in general and in particular to the lower incidence of the consumption of the more expensive fuel oil in Piedra Buena and a decrease in the cost of energy purchases at our hydro units (4.9%), which more than offset increases in the cost of energy purchases at our thermal units (75.2%) and in personnel costs and third party service fees at our hydro units (60.4%) and at our thermal units (32.6%). The increase in personnel costs and third party service fees is mainly due to the hiring of new employees for supplying services in our generation segment and the increase in wages and costs of third party services amongst periods, which also include in both cases personnel and fees related to the Loma de la Lata expansion project. The following table illustrates main components of the cost of sales from our generation segment for the periods shown:  Cost of SalesFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Hydroelectric facilities:Energy purchases
     115.2
     59.3%
     
     121.1
     64.5%Royalties
     25.6
     13.2%
     
     23.7
     12.6%Salaries and third party fees
     19.3
     9.9%
     
     12.0
     6.4%Depreciation of and amortization
     20.7
     10.6%
     
     20.5
     10.9%Spares and maintenance
     8.2
     4.2%
     
     7.4
     3.9%Others
     5.3
     2.7%
     
     3.2
     1.7%Total hydroelectric
     194.3
     100.0%
     
     188.0
     100.0%Thermal facilities:Fuel consumption
     826.4
     68.8%
     
     1,003.3
     79.2%Energy purchases
     193.4
     16.1%
     
     110.3
     8.7%Salaries and third party fees
     67.9
     5.7%
     
     51.2
     4.0%Depreciation and amortization
     38.5
     3.2%
     
     38.7
     3.1%Others
     75.1
     6.2%
     
     62.7
     5.0%Total thermal
     1,201.3
     100.0%
     
     1,266.3
     100.0%Total
     1,395.6
     100.0%
     
     1,454.2
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Gross profit related to our generation segment decreased by 0.4% to Ps. 327.7 million in the fiscal year ended December 31, 2009 from Ps. 326.5 million in the same period of 2008, mainly due to the lower electricity sales of our thermal units, which more than offset the lower cost of sales described above. The gross margin related to our generation activities increased by 3.7% to 19.0% over sales for the fiscal year ended December 31, 2009 from 18.3% over sales for the same period in 2008, primarily due to lower electricity sales of our units during the period, which were more than offset by the higher average electricity prices and lower costs of sales.
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The selling expenses related to our generation segment increased to Ps. 15.7 million in the fiscal year ended December 31, 2009 from Ps. 9.8 million in the same period of 2008, mainly due to an increase in salaries and service fees and higher taxes, rates and contributions. Selling expenses from our hydro units were Ps. 4.2 million and Ps. 2.1 million, whereas selling expenses from our thermal units were Ps. 11.5 million and Ps. 7.7 million for the fiscal years ended December 31, 2009 and 2008, respectively. During 2009 we performed a review of past-due accounts at our generation units and as a result we recorded Ps. 1.4 million as doubtful accounts. The following table illustrates the main components of selling expenses from our generation segment for the periods shown: Selling ExpensesFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Taxes, rates and contributions
     5.7
     36.4%
     
     4.0
     40.7%Salaries and third party fees
     6.9
     44.1%
     
     5.0
     50.7%Doubtful accounts
     1.4
     8.9%
     
     0.0
     0.0%Others
     1.7
     10.6%
     
     0.8
     8.6%Total
     15.7
     100.0%
     
     9.8
     100.0%Of which:Hydroelectric
     4.2
     26.6%
     
     2.1
     21.8%Thermal
     11.5
     73.4%
     
     7.7
     78.2%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Administrative expenses increased to Ps. 82.8 million for the fiscal year ended December 31, 2009 from Ps. 57.9 million for the same period of 2008. Administrative expenses from our hydro units were Ps. 11.6 million and Ps. 10.5 million, whereas administrative expenses from our thermal units were Ps. 71.2 million and Ps. 47.4 million for the fiscal years ended December 31, 2009 and 2008, respectively. The following table illustrates the main components of administrative expenses from our generation segment for the periods shown:
 
 Administrative ExpensesFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Fees for third-party services
     16.2
     19.6%
     
     32.2
     55.5%Salaries and social security charges
     39.4
     47.6%
     
     13.7
     23.7%Directors' and Syndics' Fees
     6.8
     8.2%
     
     1.8
     3.1%Taxes, rates and contributions
     4.0
     4.8%
     
     2.6
     4.6%Maintenance
     1.8
     2.2%
     
     1.4
     2.4%Others
     14.6
     17.6%
     
     6.2
     10.7%Total
     82.8
     100.0%
     
     57.9
     100.0%Of which:Hydroelectric
     11.6
     14.0%
     
     10.5
     18.2%Thermal
     71.2
     86.0%
     
     47.4
     81.8%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Operating income related to our generation activities decreased by 12.3% to Ps. 214.0 million for the fiscal year ended December 31, 2009 from Ps. 244.0 million in the same period of 2008, mainly due to the reduction in the gross profit from our thermal units described above and the increase in commercial and administrative expenses. The operating margin related to our generation activities decreased by 9.4% to 12.4% over sales for the fiscal year ended December 31, 2009 from 13.7% over sales for the same period in 2008, for the same reasons as those described in connection with operating income.
 Financial and holding results, net, related to our generation activities represented a loss of Ps. 46.3 million for the fiscal year ended December 31, 2009 compared to a loss of Ps. 80.2 million for the same period of 2008, 132


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primarily due to gains of Ps. 25.7 million from interest income generated by assets, gains of Ps. 64.4 million from foreign exchange differences generated by assets, and gains of Ps. 19.5 million from holdings of financial assets, that were more than offset by losses generated by net interest expenses (Ps. 63.2 million), losses generated by foreign exchange differences of liabilities (Ps. 52.3 million) and losses from impairment of assets and investments (Ps. 18.5 million). In the same period of 2008, our generation segment recorded losses from impairment of fixed assets and other assets (Ps. 73.6 million), which included the result from the sale of an Alstom turbine (Ps. 61.2 million). The following table illustrates the main components of financial and holding results from our generation segment for the periods shown: Financial and Holding ResultsFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Interest income generated by assets
     25.7
     (55.4%)
     
     27.1
     (33.8%)Impairment of assets and investments
     (18.5)
     39.9%
     
     (73.6)
     91.8%Gains on foreign exchange differences on assets
     64.4
     (138.9%)
     
     71.8
     (89.6%)Generated by financial instruments holding results
     19.5
     (42.1%)
     
     4.5
     (5.6%)Other results generated by assets
     (20.9)
     45.2%
     
     (21.8)
     27.1%Interest  expense generated by liabilities
     (63.2)
     136.5%
     
     (33.2)
     41.4%Generated by taxes and bank commissions
     0.0
     0.0%
     
     0.0
     0.0%Losses on foreign exchange differences on liabilities
     (52.3)
     112.9%
     
     (54.4)
     67.8%Generated by repurchases of financial debt
     4.1
     (8.9%)
     
     0.0
     0.0%Other results generated by liabilities
     (5.0)
     10.8%
     
     (0.7)
     0.8%Total
     (46.3)
     100.0%
     
     (80.2)
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Our generation activities recorded other expenses, net of Ps. 2.7 million for the fiscal year ended December 31, 2009 compared to Ps. 1.4 million for the same period of 2008. Additionally, our generation activities recorded a charge for income tax of Ps. 68.5 million for the fiscal year ended December 31, 2009 compared to Ps. 62.7 million for the same period of 2008 and a charge for minority interests of Ps. 38.6 million for the fiscal year ended December 31, 2009 compared to Ps. 37.7 million for the same period of 2008.
 Finally, our generation activities recorded net income of Ps. 57.9 million for the fiscal year ended December 31, 2009, compared to Ps. 62.1 million for the same period in 2008. Transmission Segment Net sales related to our transmission activities increased by 27.5% to Ps. 291.3 million for the fiscal year ended December 31, 2009, compared to Ps. 228.5 million for the same period in 2008. Net regulated sales increased by 12.9% to Ps. 147.5 million for the fiscal year ended December 31, 2009 compared to Ps. 130.7 million for the same period in 2008, mainly as a result of the increase in Transener’s and Transba’s compensation pursuant to ENRE Resolutions No. 328/08 and 327/08, respectively. Net revenues from royalties for the Fourth Line increased 16.2% to Ps. 42.9 million for the fiscal year ended December 31, 2009 from Ps. 36.9 million for the same period in 2008, mainly due to the recognition of the new royalty values as from October 2008. Other sales, net increased 65.7% to Ps. 100.8 million for the fiscal year ended December 31, 2009 from Ps. 60.9 million for the same period of 2008 mainly due to the higher revenues from works, operation and maintenance services, revenues from supervision services and unregulated revenues from Transba and from Transener’s international operations. Cost of sales increased by 23.6% to Ps. 220.1 million in the fiscal year ended December 31, 2009 compared to Ps. 178.1 million for the same period of 2008, mainly due to agreed wage increases and higher costs of materials 133


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used in the period due to increased works in the unregulated segment. The following table illustrates the main components of cost of sales from our transmission segment for the periods shown: Cost of SalesFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Salaries and social security charges
     79.2
     36.0%
     
     61.0
     34.2%Materials for works
     32.0
     14.5%
     
     19.2
     10.8%Repairs and Maintenance
     15.9
     7.2%
     
     12.3
     6.9%Depreciation and amortization
     57.6
     26.2%
     
     53.7
     30.2%Others
     35.4
     16.1%
     
     32.0
     18.0%Total
     220.1
     100.0%
     
     178.1
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Gross profit related to our transmission activities increased by 41.2% to Ps. 71.2 million for the fiscal year ended December 31, 2009 from Ps. 50.4 million for the same period in 2008, primarily due to the increase in regulated revenues, royalties from the Fourth Line and revenues from the unregulated segment, which more than offset the wage increases and costs of materials during the period. The gross margin related to our transmission activities increased by 10.8% to 24.4% over net sales for the fiscal year ended December 31, 2009 from 22.1% over sales for the same period in 2008, reflecting mainly the higher rates and royalties and the higher margin of unregulated revenues.
 We do not record selling expenses related to our transmission activities. Administrative expenses increased by 26.5% to Ps. 37.5 million for the fiscal year ended December 31, 2009 from Ps. 29.6 million for the same period in 2008, mainly due to the higher salary expenses related to wage increases and an increase in insurance costs due to the renegotiation of contracts. The following table illustrates the main components of administrative expenses from our transmission segment for the periods shown: Administrative ExpensesFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Salaries and social security charges
     16.1
     42.8%
     
     12.6
     42.6%Fees for third-party services
     2.2
     5.9%
     
     2.0
     6.6%Depreciation of fixed assets
     3.8
     10.2%
     
     3.4
     11.5%Insurance
     9.1
     24.4%
     
     5.2
     17.6%Directors' and Syndics' Fees
     1.3
     3.5%
     
     1.2
     4.1%Others
     5.0
     13.2%
     
     5.2
     17.6%Total
     37.5
     100.0%
     
     29.6
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Operating income increased by 59.6% to Ps. 34.5 million for the fiscal year ended December 31, 2009 from Ps. 21.6 million in the same period of 2008. The total operating margin increased by 25.2% to 11.8% over net sales for the fiscal year ended December 31, 2009 from 9.4% over sales for the same period in 2008. In both cases the increases are explained by higher rates, royalties from the Fourth Line and higher unregulated revenues.
 Financial and holding results, net, represented a loss of Ps. 4.2 million for the fiscal year ended December 31, 2009 compared to a loss of Ps. 52.5 million for the same period of 2008, primarily due to the losses generated by net interest expenses (Ps. 36.2 million) and losses generated by foreign exchange differences generated by liabilities (Ps. 36.6 million) that were partially offset by gains generated by the repurchase of Transener’s own financial debt (Ps. 63.5 million). In the fiscal year ended December 31, 2008 our transmission segment recorded gains from the 134


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repurchase of Transener’s own financial debt for Ps. 16.5 million. The following table illustrates the main components of financial and holding results from our transmission segment for the periods shown:  Financial and Holding ResultsFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Interest income generated by assets
     7.1
     (168.3%)
     
     4.0
     (7.7%)Gains on foreign exchange differences on assets
     1.7
     (40.7%)
     
     (0.5)
     1.0%Generated by financial instruments holding results
     0.0
     0.0%
     
     0.0
     0.0%Other results generated by assets
     (3.3)
     78.3%
     
     (2.8)
     5.3%Interest  expense generated by liabilities
     (36.2)
     854.9%
     
     (35.8)
     68.2%Generated by taxes and bank commissions
     0.0
     0.0%
     
     0.0
     0.0%Losses on foreign exchange differences on liabilities
     (36.6)
     862.9%
     
     (33.9)
     64.5%Generated by repurchases of financial debt
     63.5
     (1498.7%)
     
     16.5
     (31.4%)Other results generated by liabilities
     (0.5)
     11.6%
     
     0.0
     0.0%Total
     (4.2)
     100.0%
     
     (52.5)
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Transmission activities recorded other income, net of Ps. 4.7 million for the fiscal year ended December 31, 2009 compared to Ps. 9.8 million for the same period of 2008. Additionally, the transmission segment recorded a charge for income tax of Ps. 4.8 million for the fiscal year ended December 31, 2009 compared to a charge of Ps. 7.3 million for the same period of 2008 and a charge for minority interests of Ps. 12.7 million for the fiscal year ended December 31, 2009 compared to a benefit of Ps. 16.1 million for the same period of 2008. Finally, our transmission activities recorded a net income of Ps. 17.4 million for the fiscal year ended December 31, 2009, compared to a net loss of Ps. 12.4 million for the same period in 2008. Distribution Segment Net sales from our distribution activities rose by 3.9% to Ps. 2,077.9 million for the fiscal year ended December 31, 2008 from Ps. 2,002.2 million for the same period in 2008, mainly due to the increase in the average annual sales price of energy that we pass through to certain customers (the average price in 2009 was Ps. 0.1140 per KWh, and Ps. 0.1074 per KWh in 2008), which more than offset the decrease in the quantity of energy sold in the fiscal year ended December 31, 2009 (18,220 GWh) compared to the same period of 2008 (18,616 GWh) due to the contraction in demand. Cost of sales increased by 8.2% to Ps. 1,569.7 million for the fiscal year ended December 31, 2009 compared to Ps. 1,451.4 million for the same period of 2008, mainly due to a 21.6% increase in salaries and social security contributions and a 7.4% increase in the cost of energy purchases, mainly associated with the increase in the purchase price of energy passed through to certain customers of Edenor and the increase in energy losses (11.9% in 2009 and 10.8% in 2008), which more than offset the reduction in the amount of energy purchased (20,676 GWh in 2009 and 20,863 GWh in 2008), when we compare the periods ended December 31, 2009 and 2008. The following table illustrates the main components of cost of sales from our distribution segment for the periods shown: 135


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Cost of SalesFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Energy Purchases
     1,003.4
     63.9%
     
     934.7
     64.4%Derpreciation and Amortization
     185.7
     11.8%
     
     183.4
     12.6%Salaries and social security charges
     220.4
     14.0%
     
     181.3
     12.5%Fees for third-party services
     111.9
     7.1%
     
     111.7
     7.7%Other
     48.3
     3.1%
     
     40.4
     2.8%Total
     1,569.7
     100.0%
     
     1,451.4
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Gross profit related to our distribution activities decreased by 7.4% to Ps. 508.1 million for the fiscal year ended December 31, 2009 compared to Ps. 548.8 million for the same period of 2008, explained mainly by the increase in salaries and social security charges and higher energy losses (defined asthe difference between energy purchased and energy sold and that requires Edenor to purchase additional energy to satisfy its demand)between the periods under review. The increase in net revenues associated to the higher purchase price of energy passed through to certain customers of Edenor during part of 2009 was offset by a similar increase in the cost of energy purchased to supply those customers. The gross margin related to our distribution activities decreased by 10.9% to 24.5% over sales for the fiscal year ended December 31, 2009 from 27.4% over sales for the same period in 2008.
 Selling expenses increased 9.3% to Ps. 138.0 million for the fiscal year ended December 31, 2009 compared to Ps. 126.3 million for the same period of 2008, primarily due to an increase in salaries and social security charges resulting from wage increases granted and to the increase in third party fees between both periods. Also in the fiscal year ended December 31, 2009, Edenor recorded a recovery due to a reduction in the allowance for doubtful accounts as a result of the approval of the new framework agreement between Edenor, the Federal Government and the City of Buenos Aires in connection with shanty towns. The following table illustrates the main components of selling expenses from our distribution segment for the periods shown:  Selling ExpensesFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Fees for third-party services
     47.1
     34.1%
     
     40.5
     32.1%Salaries and social security charges
     52.0
     37.7%
     
     36.4
     28.8%Doubtful accounts
     (2.7)
     (1.9%)
     
     15.3
     12.1%Taxes, rates and contributions
     18.2
     13.2%
     
     14.9
     11.8%Other
     23.4
     17.0%
     
     19.1
     15.2%Total
     138.0
     100.0%
     
     126.3
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Administrative expenses increased by 28.5% to Ps. 145.9 million for the fiscal year ended December 31, 2009 compared to Ps. 113.6 million for the same period of 2008, primarily due to increases in salaries due to wage increases granted and higher third party fees. The following table illustrates the main components of administrative expenses from our distribution segment for the periods shown: 136


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Table of Contents  Administrative ExpensesFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Salaries and social security charges
     60.5
     41.5%
     
     49.0
     43.2%Fees for third-party services
     43.8
     30.0%
     
     32.9
     29.0%Taxes, rates and contributions
     2.1
     1.4%
     
     1.8
     1.6%Advertising and promotion
     16.8
     11.5%
     
     12.8
     11.3%Others
     22.7
     15.6%
     
     17.0
     14.9%Total
     145.9
     100.0%
     
     113.6
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.




Operating income of our distribution activities decreased by 27.9% to Ps. 218.7 million for the fiscal year ended December 31, 2009 compared to Ps. 303.4 million for the same period of 2008, mainly due to the increase in energy losses and higher selling and administration expenses described above. The total operating margin decreased by 30.6% to 10.5% over sales for the fiscal year ended December 31, 2009 from 15.2% over sales for the same period in 2008.

Financial and holding results, net, related to our distribution activities represented a loss of Ps. 130.5 million for the fiscal year ended December 31, 2009 compared to a loss of Ps. 159.8 million for the same period of 2008, primarily due to losses related to net interest expenses (Ps. 120.9 million) and the appreciation of the U.S. Dollar on the outstanding debt incurred in U.S. Dollars (Ps. 129.2 million), which more than offset the income from interest generated by assets, holding results and foreign exchange differences on financial assets (Ps. 16.2 million, Ps. 37.7 million and Ps. 21.4 million, respectively) and gains from repurchase of financial debt (Ps. 81.5 million). In the same period of 2008, our distribution segment recorded losses generated by holdings of financial instruments for Ps. 7.3 million. The following table illustrates the main components of financial and holding results from our distribution segment for the periods shown: Financial and Holding ResultsFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Interest income generated by assets
     16.2
     (12.4%)
     
     9.9
     (6.2%)Gains on foreign exchange differences on assets
     21.4
     (16.4%)
     
     8.1
     (5.1%)Generated by financial instruments holding results
     37.7
     (28.9%)
     
     (7.3)
     4.6%Other results generated by assets
     (31.6)
     24.2%
     
     (15.6)
     9.8%Interest  expense generated by liabilities
     (120.9)
     92.6%
     
     (127.1)
     79.5%Generated by taxes and bank commissions
     0.0
     0.0%
     
     0.0
     0.0%Losses on foreign exchange differences on liabilities
     (129.2)
     99.0%
     
     (121.5)
     76.0%Generated by repurchases of financial debt
     81.5
     (62.4%)
     
     93.7
     (58.6%)Other results generated by liabilities
     (5.7)
     4.4%
     
     0.0
     0.0%Total
     (130.5)
     100.0%
     
     (159.8)
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  The distribution segment recorded other income, net of Ps. 2.0 million for the fiscal year ended December 31, 2009, compared to other expenses for Ps. 29.4 million in the same period of 2008.
 In turn, our distribution operations recorded an income tax charge of Ps. 61.1 million in the fiscal year ended December 31, 2009, compared to a Ps. 43.5 million charge in the same period of 2008, and a charge for minority interests of Ps. 43.9 million in the fiscal year ended December 31, 2009 compared to a charge of Ps. 59.9 million in the same period of 2008. 137


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Finally, our distribution activities registered a net loss of Ps. 14.8 million for the fiscal year ended December 31, 2009, compared to a net income of Ps. 10.7 million for the same period in 2008. Holding and others segment Net sales related to our holdingand otherssegment were Ps. 15.1 million for the fiscal year ended December 31, 2009 compared to Ps. 34.7 million in the same period of 2008, mostly related to sales at our real estate business (Ps. 9.2 million and Ps. 4.3 million for the periods ended December 31, 2009 and 2008, respectively) and services that we provided to our subsidiaries (Ps. 5.8 million and Ps. 30.4 million for the periods ended December 31, 2009 and 2008, respectively). In the fourth quarter of 2008, the holdingand otherssegment recorded sales for cumulative services rendered to the generation segment of Ps. 24.2 million. These inter-segment sales were eliminated from our consolidated net sales in the elimination segment. Cost of sales related to our holdingand otherssegment increased to Ps. 8.2 million in the fiscal year ended December 31, 2009 compared to Ps. 4.8 million for the same period of 2008, reflecting the higher cost of sales of our real estate business. The following table illustrates the main components of cost of sales from our holdingand otherssegment for the periods shown: Cost of SalesFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Cost of Benquerencia lots
     8.0
     97.3%
     
     4.1
     84.1%Other
     0.2
     2.7%
     
     0.8
     15.9%Total
     8.2
     100.0%
     
     4.8
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Therefore, gross profit related to our holdingand otherssegment was Ps. 6.9 million for the fiscal year ended December 31, 2009 compared to Ps. 29.9 million for the same period of 2008, mainly due to the increase in sales for the fourth quarter of 2008 described above.
 Selling expenses related to our holdingand otherssegment amounted to Ps. 1.0 million for the fiscal year ended December 31, 2009 compared to Ps. 3.5 million for the same period of 2008, reflecting mainly the selling expenses of our real estate business. In the 2008 period, Ps. 2.4 million of selling expenses incurred by our subsidiary Pampa Inversiones are also included. The following table illustrates the main components of selling expenses from our holdingand otherssegment for the periods shown: Selling ExpensesFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Fees for third-party services
     0.0
     0.4%
     
     2.5
     71.2%Salaries and social security charges
     0.5
     46.5%
     
     0.5
     12.9%Taxes, rates and contributions
     0.5
     53.0%
     
     0.3
     8.8%Other
     0.0
     0.0%
     
     0.3
     7.1%Total
     1.0
     100.0%
     
     3.5
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Administrative expenses amounted to Ps. 48.0 million for the fiscal year ended December 31, 2009 compared to Ps. 58.5 million for the same period of 2008, mainly due to the transfer of personnel from our holding
 138


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and otherssegment to our generation segment described above. The following table illustrates the main components of administrative expenses from our holdingand otherssegment for the periods shown: Administrative ExpensesFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Salaries and social security charges
     4.4
     9.3%
     
     16.4
     28.1%Fees for third-party services
     16.4
     34.1%
     
     10.6
     18.1%Rental and insurance
     2.8
     5.9%
     
     2.6
     4.5%Directors' and Syndics' Fees
     5.9
     12.3%
     
     20.3
     34.7%Others
     18.4
     38.4%
     
     8.5
     14.6%Total
     48.0
     100.0%
     
     58.5
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.
  Operating losses related to our holdingand otherssegment amounted to Ps. 42.1 million for the fiscal year ended December 31, 2009 compared to an operating loss of Ps. 32.4 million for the same period of 2008, primarily explained by the difference in net sales between both periods, which were not offset by the reduction in administrative expenses described above.
 Financial and holding results, net, related to our holding activities represented a gain of Ps. 228.3 million for the fiscal year ended December 31, 2009 compared to a gain of Ps. 84.5 million for the same period of 2008, primarily due to gains generated by the repurchase of debt from our subsidiaries (Ps. 96.3 million), gains from holdings of financial assets (Ps. 71.2 million) and net interest income (Ps. 20.5 million) and foreign exchange differences (Ps. 32.2 million) generated by assets and liabilities. During the same period of 2008, the gain generated by the repurchase of debt from our subsidiaries (Ps. 80.1 million) and net foreign exchange differences (Ps. 19.8 million) were partially offset by losses generated by holdings of assets (Ps. 16.5 million). The following table illustrates the main components of financial and holding results from our holdingand otherssegment for the periods shown: 139


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Table of Contents  Financial and Holding ResultsFiscal year ended December 31,2009
     
     2008(in millions of Pesos, except percentages)Interest income generated by assets
     (2.9)
     (1.3%)
     
     6.5
     7.6%Impairment of assets and investments
     0.0
     0.0%
     
     (0.7)
     (0.9%)Gains on foreign exchange differences on assets
     2.3
     1.0%
     
     15.1
     17.9%Generated by financial instruments holding results
     71.2
     31.2%
     
     (16.5)
     (19.5%)Other results generated by assets
     6.1
     2.7%
     
     (4.1)
     (4.9%)Interest  expense generated by liabilities
     23.4
     10.3%
     
     (0.5)
     (0.6%)Generated by taxes and bank commissions
     0.0
     0.0%
     
     0.0
     0.0%Gain on foreign exchange differences on liabilities
     29.9
     13.1%
     
     4.6
     5.5%Generated by repurchases of financial debt
     96.3
     42.2%
     
     80.1
     94.9%Other results generated by liabilities
     2.0
     0.9%
     
     0.0
     0.0%Total
     228.3
     100.0%
     
     84.5
     100.0%Note: All figures have been subject to rounding, so figures shown as totals may not sum.








Our holding and others segment recorded other expenses, net for Ps. 6.1 million in the fiscal year ended December 31, 2009 compared to Ps. 2.3 million for the same period of 2008.




Also, our holdingand otherssegment recorded an income tax charge of Ps. 25.8 million for the fiscal year ended December 31, 2009, compared to a benefit of Ps. 4.7 million for the same period of 2008.





Finally, our holdingand otherssegment registered a net income of Ps. 154.3 million for the fiscal year ended December 31, 2009 compared to a net income of Ps. 54.6 million recorded in the same period of 2008.





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Liquidity and Capital Resources Sources and uses of funds We acquired our principal generation, transmission and distribution assets relatively recently, beginning in the second half of 2006. Our principal source of liquidity for these acquisitions was capital contributions from our shareholders, particularly our September 2006 and February 2007 equity offerings. We have also used a combination of funds from operations and short-term borrowings to make certain recent acquisitions. In September 2006, we consummated a capital increase of 300 million shares of our common stock, including shares issued in the form of GDSs, which was subscribed by Argentine and international investors and generated aggregate cash proceeds to us of approximately Ps. 345 million. In February 2007 we consummated an additional capital increase of 600 million shares of our common stock, including shares issued in the form of GDSs in an underwritten offering to Argentine and international investors, which generated aggregate cash proceeds to us of approximately Ps. 1.3 billion. In addition, we acquired our indirect controlling interest in EASA in September 2007 through an exchange of newly-issued shares of our company for the shares of DESA and IEASA held by EASA’s former indirect shareholders. In connection with this acquisition, in September 2007 we issued 480,194,242 additional shares of our common stock to the former indirect shareholders of EASA, including shares issued in the form of GDSs. In 2011, we acquired: a controlling interest in EMDERSA and AESEBA, the CIESA Bonds and other liabilities of CIESA, and Enron Pipeline Company Argentina S.A. through a combination of funds from operations, and short-term borrowings, part of which we have refinanced in the capital markets. As a result of all of these acquisitions, we have become the largest fully integrated electricity company in Argentina. Our business activities are now focused on the development and value-enhancement of our electricity assets, while continuing to identify, evaluate and invest in other opportunities in the Argentine energy industry that offer significant growth potential and/or synergies with our electricity businesses such as our recent investments in the oil and gas sector and our acquisition of certain distribution assets. Historically, our operating subsidiaries have relied on their respective cash flows from operations and on short-term and long-term borrowings to finance their operations, including capital expenditures. We expect that our principal sources of liquidity for any future acquisitions by us will include capital contributions from our shareholders and short-term and long-term borrowings, while our operating subsidiaries will continue to rely on cash flow from operations and short-term and long-term borrowings to finance their capital requirements in the near term. We currently expect to generate sufficient working capital through cash flow generated from operations, short- and long-term borrowings and other additional financing activities. Each of our segments operates as a separate entity and all funding and treasury policies are controlled at the segment level. While we do not have a centralized funding and treasury policy among segments, we maintain our cash and cash equivalents in Pesos, and in U.S. Dollars depending on medium term requirements and availability, at all levels of operations. We and our subsidiaries conduct financing at both variable and fixed rates. We and our subsidiaries use derivative financial instruments in the form of foreign currency forward exchange contracts to manage its foreign currency risks. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Exchange Rate and Interest Rate Risks.” We record a portion of our trade receivables in our generation and distribution segments as non-current assets, as we do not expect to collect payment on these receivables within the following year in accordance with the terms of such receivables. In our generation segment, our non-current trade receivables relate to (i) amounts owed us by FONINVEMEN, which are payable in 120 monthly installments, and (ii) credits against CAMMESA that we expect to collect through different mechanisms under the regulatory framework. See “Item 4. Information on the Company—The Argentine Electricity Sector—FONINVEMEN.” In our distribution segment, our non-current trade receivables relate to the retroactive portion of the distribution margin increase granted in February 2007, which we are entitled to invoice to our distribution customers in 55 monthly installments. Our total non-current trade receivables amounted to Ps. 237.1 million at December 31, 2010. The table below reflects our cash position at the dates indicated and the net cash provided by (used in) operating, investing and financing activities during the years indicated: 141


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Year ended December 31,2010
     
     2009
     
     2008(in million of Pesos)Cash at the beginning of the year
     Ps.             435.8
     
     Ps.             395.2
     
     Ps.             721.2Net cash provided by operating activities
     660.2
     
     918.6
     
     748.2Net cash used in investing activities
     (514.6)
     
     (549.2)
     
     (1,371.3)Net cash (used in) provided by financing activities
     327.2
     
     (328.8)
     
     297.1Cash at the end of the year
     Ps.             908.7
     
     Ps.             435.8
     
     Ps.             395.2
  Net cash provided by operating activities
 Net cash provided by operating activities amounted to Ps. 660.2 million for the year ended December 31, 2010, attributable principally to positive adjustments to net income for non-cash charges in this period, including Ps. 350.0 million for depreciation and amortization of assets and goodwill, Ps. 74.3 million for income tax, Ps. 33.8 million for accrued interest, Ps. 77.9 million for the loss on the impairment of investments (relating to the impairment recorded in the second quarter of 2010 over San Antonio Global Ltd.’s shares, which our subsidiary Pampa Inversiones held in its portfolio), Ps. 37.8 million for foreign exchange difference loses on loans and other financial results, net, Ps. 10.0 million for minority interest in subsidiaries and Ps. 23.5 million for setting up of provisions, which were partially offset by the negative adjustment of Ps. 5.5 million for the results from the repurchase of financial debt of our subsidiaries. Positive adjustments in assets and liabilities amounted to Ps. 83.4 million for the year ended December 31, 2010. These positive adjustments in operating assets and liabilities were primarily due to: a Ps. 362.0 million increase in other liabilities, mainly due to a Ps. 370.3 million increase in other liabilities at our distribution segment mostly related to an increase in Edenor ́s long term PUREE liabilities (Ps.295.8 million) and ENRE penalties and discounts (Ps. 74.5 million) and at our Holding and others segment (Ps. 8.1 million), which was partially offset by decreases in other liabilities at our generation (Ps. 6.2 million) and transmission (Ps. 4.3 million) segments,a Ps. 144.9 million increase in accounts payable attributable mainly to our generation segment (Ps. 104.9 million, including a Ps. 67.7 million increase in payables at Loma de la Lata for payables related to agreements with fuel suppliers and project contractors, a Ps. 66.6 million increase in accounts payable related to our Güemes operations mostly related to payables related to agreements with fuel suppliers and electricity spot purchases and a Ps. 27.9 million reduction in accounts payable at our Piedra Buena unit), and a Ps. 34.9 million increase at our distribution segment mostly related to electricity purchases, andan Ps. 85.2 million increase in salaries and social security payables, which reflect wages increases granted in 2010 through our subsidiaries. The positive impact of these adjustments was partially offset by: a Ps. 262.4 million increase in trade receivables attributable mainly to a Ps. 171.0 million net increase in account receivables within our generation business (including a Ps. 117.8 million increase at our Piedra Buena unit due to its increased production during the last quarter of 2010, and increases at Nihuiles, Güemes and Loma de la Lata, which were partially offset by decreases at Diamante and Pampa Generación), a Ps. 86.5 million increase in receivables at our transmission segment (including Ps. 71.3 million for the recognition of revenues as a consequence of the Instrumental Agreements, Ps.30.9 million of which were recognized as net sales and Ps. 40.4 million as interest income) and a Ps. 11.3 million increase at our distribution segment which were partially offset by a Ps. 6.3 million decrease in receivables at our Holding and others segment, 142


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a Ps. 96.4 million increase in other receivables, attributable mainly to increases in other receivables at our generation segment (Ps. 82.8 million) and at our Holding and others segment (Ps. 24.6 million), which were partially offset by a decrease in receivables at our transmission segment (Ps. 10.2 million),a Ps. 131.8 million decrease in taxes payables, mainly attributable to our generation segment (Ps. 63.3 million), to our transmission segment (Ps. 24.2 million) and to our distribution segment (Ps.46.4 million), anda Ps. 26.6 million dividend payment to the shareholders of certain of our subsidiaries. Net cash provided by operating activities amounted to Ps. 918.6 million for the year ended December 31, 2009, attributable principally to a positive adjustments to net income for non-cash charges in this period, including Ps. 338.6 million for depreciation and amortization of assets and goodwill, Ps. 160.2 million for income tax, Ps. 84.6 million for accrued interest, Ps. 18.5 million for the loss on the impairment of fixed assets (relating to the Man generation engines at Güemes), Ps. 231.7 million for foreign exchange difference loses on loans and other financial results, net and Ps. 95.3 million for minority interest in subsidiaries, which were partially offset by the negative adjustment of Ps. 245.5 million for the results from the repurchase of financial debt of our subsidiaries and Ps. 43.2 million for recovery of provisions, net. Positive adjustments in assets and liabilities amounted to Ps. 415.4 million for the year ended December 31, 2009. These positive adjustments in operating assets and liabilities were primarily due to: a Ps. 193.6 million decrease in trade receivables attributable mainly to a net decrease in account receivables within our generation business due to improved collection from term contracts that resulted in a Ps. 186.3 million decrease in receivables at our thermal units which was partially offset by a Ps. 58.0 million increase in receivables at our hydro units; a Ps. 48.1 million decrease in receivables at our distribution segment; a Ps. 21.8 million decrease in receivables at our holding and others segment and a Ps. 6.5 decrease in receivables at our transmission segment,a Ps. 162.9 million increase in other liabilities, mainly due to a Ps. 239.1 million increase in other liabilities at our distribution segment mostly related to an increase in Edenor ́s long term PUREE liabilities which was partially offset by a Ps. 58.8 million decrease in other liabilities at our holding and others segment, anda Ps. 40.9 million increase in salaries and social security payables, which reflect wages increases granted in the year throughout our subsidiaries. The positive impact of these adjustments was partially offset by: a Ps. 119.4 million decrease in accounts payable attributable mainly to our generation segment, including a Ps. 53.7 million decrease in payables at our Piedra Buena facility related to the repayment of accounts payables (including debt with other of our subsidiaries and payables related to agreements with fuel suppliers), a Ps. 45.2 million decrease in accounts payable at our Loma de la Lata unit (including payables related to agreements with fuel suppliers and project contractors), and a Ps. 36.6 million decrease in accounts payable related to our Güemes operations (mostly related to payables related to agreements with fuel suppliers),a Ps. 81.3 million increase in other receivables, attributable mainly to increases in other receivables at our generation segment where decreases at our Loma de la Lata and Ingentis subsidiaries (Ps. 95.3 million and Ps. 16.2 million, respectively) where partially compensated by decreases in receivables at Piedra Buena and Güemes (Ps. 24.9 million and Ps. 13.6 million, respectively), and to a Ps. 9.8 million increase in other receivables at our holding and others segment,a Ps. 139.9 million decrease in taxes payables, mainly attributable to our distribution segment (Ps. 65.6 million) and to payments of income tax including payments related to a tax liability settlement program (Ps. 40.3 million), and 143


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a Ps. 18.1 million dividend payment to the shareholders of certain of our subsidiaries. Net cash provided by operating activities amounted to Ps. 748.2 million for the year ended December 31, 2008, attributable principally to positive adjustments to net income for non-cash charges in this period, including: Ps. 325.0.5 million for depreciation and amortization of assets and goodwill, Ps. 108.8 million for income tax, Ps. 71.3 million for accrued interest, Ps. 61.2 million for the loss on the sale of certain assets and investments of Loma de la Lata, Ps. 288.2 million for foreign exchange difference gains on loans (mainly related to our distribution segment) and Ps. 81.5 million for minority interest in subsidiaries, which were partially offset by the negative adjustment or Ps. 190.3 million for the results from the repurchase of financial debt of our subsidiaries. Negative adjustments in assets and liabilities amounted to Ps. 532.0 million in the year ended December 31, 2008. These negative adjustments in operating assets and liabilities were primarily due to: a Ps. 290.0 million increase in trade receivables, attributable mainly to: a net Ps. 23.7 million increase in our distribution segment due to an Ps. 118.8 million increase in receivables from an agreement entered into with the government that more than offset a decrease of Ps. 95.1 million decrease in receivables due to improved collection at our subsidiary; a Ps. 210.1 million increase in our generation business due to the increase in receivables from our electricity sales to CAMMESA and other customers, which reflect both an increase in the volume of electricity sold and an increase in the average price of the electricity sold in the period (a portion of these receivables are classified as non-current according to their contracted terms), and Ps. 49.1 million increase in receivables at our holding and others segment reflecting the increase in advisory activities of the segment;a Ps. 187.9 million increase in other receivables, attributable mainly to a Ps. 114.4 million increase in our generation business due primarily to an increase of other receivables at Piedra Buena, Loma de la Lata and Güemes, and an increase of other receivables at our holding and distribution segments of Ps.33.8 million and Ps. 33.1 million, respectively; anda decrease in our tax charges (Ps. 38.7 million) and dividend payments to the shareholders of certain of our subsidiaries (Ps. 15.4 million). The negative impact of these charges was partially offset by: a Ps. 191.0 million increase in accounts payable, attributable mainly to a Ps. 146.8 million increase in our generation business due to increased fuel usage, and Ps. 27.9 million and Ps. 26.0 million increase in our distribution operations and our holding and others segment, respectively;a Ps. 121.9 million increase in other liabilities, attributable mainly to a Ps. 78.1 million increase in other liabilities for our distribution segment and an increase in fines and bonuses from the ENRE, a Ps. 35.8 million increase for our holding and others segment and a Ps. 7.9 million increase for our transmission segment; anda Ps. 68.4 million increase in salaries and social security payables, attributable mainly to a Ps. 50.2 million increase for our distribution segment and smaller increases in all of our other segments. Net cash used in investing activities Net cash used in investing activities amounted to Ps. 514.6 million for the year ended December 31, 2010, principally due to Ps. 568.3million in capital expenditures, including Ps. 388.8 million at our distribution segment, Ps. 23.4 million at our transmission segment and Ps. 154.2 million at our generation segment ( including Ps. 126.2 million related to expansion work at Loma de la Lata, and capital expenditures at Güemes and Piedra Buena of Ps. 10.0 million and Ps.14.7 million, respectively), Ps. 12.4 million as payment to minority shareholders of Güemes for a capital redemption,, and Ps.114.3 million paid for the purchase of short term investments, mostly at our holding and others segment (including debt and other securities from our subsidiaries). These uses of cash were partially offset by net cash generated by our investing activities, including Ps. 75.6 million from net decreases in restricted cash and equivalents, mostly from a Ps. 74.2 million partial liberation of restricted cash at our generation segment, Ps. 93.3 million from the proceeds of the sale of short term investments mainly carried out by our holding and others 144


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segment, Ps. 7.6 million from cash generated by the sale of assets, and Ps. 16.7 million related to cash generated in relation to investments in our subsidiaries. Net cash used in investing activities amounted to Ps. 549.2 million for the year ended December 31, 2009, principally due to Ps. 974.9 million in capital expenditures, including Ps. 404.2 million at our distribution segment, Ps. 37.8 million at our transmission segment and Ps. 532.5 million at our generation segment ( including Ps. 420.2 million related to expansion work at Loma de la Lata, and capital expenditures at Güemes , Piedra Buena and Ingentis of Ps. 46.5 million, Ps. 24.9 million and Ps. 26.2 million, respectively), and Ps. 85.8 million paid for the purchase of short term investments, mostly at our holding and others segment (including debt and other securities from our subsidiaries). These uses of cash were partially offset by net cash generated by our investing activities, including Ps. 339.8 million from net decreases in restricted cash and equivalents, mostly from a Ps. 353.5 million partial liberation of restricted cash at our Loma de la Lata subsidiary for its use in the expansion work at that unit, Ps. 118.1 million for collections from short term investments mainly carried out by our holding and others segment and Ps. 52.8 million related to cash generated in relation to investments in our subsidiaries. Net cash used in investing activities amounted to Ps. 1,371.3 million for the year ended December 31, 2008, principally due to Ps. 741.0 million for capital expenditures at our distribution segment (Ps. 325.4 million), our generation segment (Ps. 356.8 million) and our transmission segment (Ps. 53.8 million); Ps. 395.4 million paid for the purchase of short term investments at our holding and others segment (Ps. 321.4 million, including debt and other securities from our subsidiaries) and our distribution segment (Ps. 67.9 million); Ps. 460.7 million in restricted cash which is used as collateral to, and to fund, our expansion project at Loma de la Lata (collateral for outstanding letters of credit with EPC contractor); and Ps. 68.7 million in payments for acquisition of companies (net of cash acquired) related to our acquisition of the shares from the employee participation program at Güemes (Ps. 9.5 million) and Diamante (Ps. 3.4 million), the acquisition from the minority shareholders of the remaining shares of Transelec that we did not own (Ps. 38.8 million), and the acquisition of additional shares of Armadillo Holdings Inc. (Ps. 17.3 million). These uses of cash were partially offset by net cash generated by our investing activities, including Ps. 202.5 million for collections from short term investments mainly done by our holding and others segment (Ps. 200.7 million); and Ps. 91.9 million from the sale of fixed assets, mostly composed of the sale at Loma de la Lata of a heavy duty 178 MW Alstom model GT13E2 gas turbine for about Ps. 84.7 million. Net cash provided by financing activities Net cash provided by our financing activities amounted to Ps. 327.2 million for the year ended December 31, 2010, principally due to Ps. 868.1 million of net cash provided by borrowings at our different segments. These sources of cash were partially offset by Ps. 525.1 million used to pay bank and financial borrowings (including principal, interest and repurchase costs for the repurchase of debt) by all of our segments, and Ps. 15.8 million used for net payment of dividends. Net cash used in financing activities amounted to Ps. 328.8 million for the year ended December 31, 2009, principally due to Ps. 410.9 million used to pay bank and financial borrowings (including principal, interest and repurchase costs for the repurchase of debt) by all of our segments, and Ps. 84.6 million used to repurchase our own stock, and Ps. 16.8 million used for net payment of dividends. These uses of cash were partially offset by Ps. 183.6 million of net cash provided by borrowings at our different segments. Net cash provided by financing activities amounted to Ps. 297.1 million for the year ended December 31, 2008, principally due to Ps. 825.1 million in borrowings mainly related to our generation business (including Ps. 620.0 million from a bond offering at Loma de la Lata and Ps. 184.5 million of short term borrowings at Piedra Buena, and Ps. 92.2 million short term borrowing at holding) and Ps. 13.5 million in net capital contributions by third parties in our subsidiaries related to our investment in Inversora Ingentis (including contributions of Emgasud, Inversora Ingentis and the Province of Chubut to Ingentis net of our own contributions to Inversora Ingentis), which were partially offset by Ps. 402.3 in debt repayments (principal and interests) from our distribution segment (Ps. 191.6 million), from our generation segment (Ps. 115.3 million, mostly principal repayment of short term borrowings at Piedra Buena) and our transmission segment (Ps. 51.2 million) and holding (Ps. 51.4 million), Ps. 145


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120.8 millions used to repurchase our shares in the different repurchase programs of 2008, and Ps. 18.3 millions used to pay dividends. Capital Expenditures The following table sets forth, our capital expenditures for the years ended December 31, 2010 and 2009: Year ended December 31,2010
     
     2009(in millions of Pesos)Generation
     Ps.
     280.3
     
     Ps.
     761.4Transmission
     
     23.4
     
     
     37.8Distribution
     
     393.4
     
     
     422.9Holding
     
     27.2
     
     
     0.4Total
     Ps.
     724.3
     
     Ps.
     1,222.5
  In January 2009, we acquired the remaining 50% of Inversora Ingentis and began to fully consolidate this subsidiary. The effect of this acquisition was not included in the table above as a capital expenditure in our generation segment for the year ended December 31, 2009. In 2009, our capital expenditures in our generation segment were substantially comprised of expenditures in connection with our generation expansion project in Loma de La Lata for approximately Ps. 513.4 million. Besides the expansion project, our capital expenditures in our generation segment were mainly due to advances to suppliers (Ps. 142.5 million) in connection with Ingentis project and investments for major maintenance and expansion of our generation facilities (Ps. 88.5 million). Our capital expenditures in our transmission segment were substantially comprised of investments for replacement and upgrades to our transmission networks (Ps. 26.5 million), spare parts replacement (Ps. 1.7 million), and advances to suppliers (Ps. 5.1 million). Our capital expenditures in our transmission segment for Ps. 37.8 million were substantially comprised of investments for replacement and upgrade of our transmission networks. In our distribution segment we invested Ps. 404.3 million to increase and improve our grid in order to keep pace with the growth in our customer’s base (our customer base increased 2.7% in 2009). In addition, we made investments in order to meet our quality standards levels and to maintain the level of past due receivables. In 2010, our capital expenditures in our generation segment were substantially comprised of expenditures in connection with our generation expansion project in Loma de La Lata for approximately Ps. 237.7 million. Besides the expansion project, our capital expenditures in our generation segment were mainly due to advances to suppliers (Ps. 7.0 million). Our capital expenditures in our transmission segment were substantially comprised of investments for replacement and upgrades to our transmission networks (Ps. 16.3 million), spare parts replacement (Ps. 3.0 million), and advances to suppliers (Ps. 2.2 million). In our distribution segment we invested Ps. 393.4 million to increase and improve our grid in order to keep pace with the growth in our customer’s base. In addition, we made investments in order to meet our quality standards levels and to maintain the level of past due receivables. We currently expect our capital expenditures in 2011 to remain in line with our capital expenditures in 2010 as it relates to maintenance and capital expenditures in our generation, transmission and distribution operations, and to be lower in relation to the investments required in our generation expansion project in Loma de La Lata which is expected to be completed in the third quarter of 2011. We currently expect that our capital expenditures in our holding and others segment may increase in line with our capital expenditures required by our oil and gas business. We expect to meet our commitments with our cash on hand, anticipated cash flow from operations and, to the extent necessary, short- and long-term borrowings. See “Item 4. Information on the Company—Our Business—Our Generation Business.” Debt The economic crisis in Argentina, and the measures adopted by the Argentine crisis to address this crisis, had a material adverse effect on the generation, transmission and distribution companies and operations that are now 146


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part of our group. See “Item 4. Information on the Company—The Argentine Electricity Sector—History.” As a result of these developments, several of these companies were forced to suspend principal and interest payments on their debt and have gone through one or more financial debt restructurings, including Güemes, Transener and Edenor. Given the ongoing changes in the Argentine electricity regulatory framework, including the current uncertainties regarding transmission and distribution tariffs, we cannot assure you that one or more of our subsidiaries or operations will not have to undergo another debt restructuring in the future, or whether any such debt restructuring will be successful. Our total consolidated financial debt as of December 31, 2010 was Ps. 2,662.9 million, of which 74.9% was long-term debt. Approximately 69.8% of our consolidated debt outstanding at December 31, 2010 was denominated in foreign currencies, mainly in U.S. Dollars. Our consolidated indebtedness at December 31, 2010 consisted primarily of the following corporate bonds and short-term notes: Subsidiarycompany
     Corporate bonds
     Issuancedate
     Currency
     NotionalAmount
     
     Repurchased 
amount
     Remaining 
amount
     **Repurchase****result****(1)**
     Agreed rate
     Finalmaturityin thousands
     in thousandsof Ps.Transener(2)
     At par at fixed rate
     Dec-20-06
     US$
     220,000
     
     97,200
     122,800
     3,371
     8.88%
     2016At par at variable rate
     Dec-20-05
     US$
     12,397
     (7)
     9,322
     3,075
     3% to 7% 
 (incremental)
     2016Edenor
     At par at variable rate (5)
     Apr-24-06
     US$
     12,656
     
     -
     12,656
     (7,054)
     Libor + 0% to 2%  (incremental)
     2019At par at fixed rate (5)
     Apr-24-06
     US$
     80,048
     
     80,048
     -
     3% to 10%
 (incremental)
     2016At par at fixed rate
     Oct-09-07
     US$
     220,000
     
     195,243
     24,757
     10.50%
     2017At par at fixed rate
     Oct-25-10
     US$
     230,301
     
     -
     230,301
     -
     9.75%
     2022EASA(3)
     At par at fixed rate
     Jul-19-06
     US$
     12,874
     (8)
     419
     12,455
     214
     3% to 5% (incremental)
     2017At discount atfixed rate(4)
     Jul-19-06
     US$
     84,867
     (8)
     83,659
     1,208
     11%
     2016CTG
     At par at fixedrate
     Oct-03-03
     US$
     6,069
     
     1,887
     4,182
     46
     2%
     2013At par at fixed rate
     Jul-20-07
     US$
     22,030
     
     18,196
     3,834
     10.50%
     2017Loma de laLata
     At discount at fixed rate
     Sep-08-08
     US$
     189,299
     (8)
     24,264
     165,035
     8,920
     11.25%
     2015Edenor
     At par at variablerate
     May-07-09
     Ps.
     58,236
     (8)
     -
     58,236
     -
     Badlar private (6)+ 
 6.75%
     2013CentralPiedrabuena
     Short-term note
     May-11-10
     Ps.
     66,295
     
     -
     66,295
     -
     Badlar private (6)+ 3.00%
     2011Short-term note
     Oct-22-10
     Ps.
     80,000
     
     -
     80,000
     -
     Badlar private (6)+ 3.00%
     2011______________________(1)
     During the year ended December 31, 2010, the Company and its subsidiaries acquired its own corporate bonds or corporate bonds ofvarious subsidiaries at their respective market value for a total face value of U.S. $ 176 million, out of which U.S. $ 123.9 corresponds tothe result of the exchange and repurchase offer of Edenor ́s corporate bonds. Due to these debt-repurchase transactions, the Company andits subsidiaries recorded a gain of Ps. 5.5 million disclosed under the line “Result of repurchase of financial debt” within financial andholding results generated by liabilities. From the initial transactions in 2008 and up to December 31, 2010, the Company and itssubsidiaries have repurchased corporate bonds for a total nominal value of U.S. $510.2 million, including U.S. $123.9 million of thementioned Edenor transaction, of which as of December 31, 2010, U.S. $ 244.2 million were still maintained in treasury, whilethe remaining amount has been redeemed.(2)
     Reflects the full amount of Transener’s outstanding debt. We record our proportionate share (50%) of Transener’s debt as part of our consolidated indebtedness.(3)
     EASA’s Par Notes due 2017 and Discount Notes due 2016 also require EASA to make mandatory prepayments of principal with EASA’s “excess cash” (as defined in the instruments governing such debt).(4)
     Under EASA’s Discount Notes due 2016, EASA may elect to capitalize a specified portion of the interest payable on these notes on any interest payment date if it lacks sufficient funds to make such interest payment in full in cash.(5)
     Edenor’s Fixed Rate Par Notes due 2016 and Floating Rate Par Notes due 2019 also require Edenor to make mandatory prepayments of principal with Edenor’s “excess cash” (as defined in the instruments governing such debt).(6)
     The Badlar rate is a wholesale rate, an average of the interest rates for time deposits above one million pesos offered by commercial banks, based on BCRA survey.(7)
     Corresponds to the remaining amount as of December 31, 2008.(8)
     Includes interests capitalized after the issue. The repurchased amounts were adjusted for interests capitalized, if correspond.147


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Under the terms of their respective outstanding debt, these companies are subject to a number of restrictive covenants, including the limitations on incurrence of new indebtedness, capital expenditures and dividend payments, among others. As of December 31, 2010, all of these companies were in compliance with the covenants under their respective outstanding indebtedness. In addition to the outstanding indebtedness described above, Piedra Buena has entered into short-term borrowings for working capital purposes. In July 2008, Piedra Buena established a program for the issuance of valores representativos de deuda de corto plazo (short term notes, or VCPs), which authorized Piedra Buena to issue up to Ps. 200 million in short term non-convertible VCPs. During the years ended December 31, 2010 and 2009, Piedra Buena issued five VCP series under this program, for a total amount of Ps.241.6 million. Series 4 and 5 issued for a total nominal value of Ps. 146.3 million were outstanding as of December 31, 2010. On May 9, 2011, Piedra Buena issued Series 6 for a total nominal value of Ps. 70.2 million at an interest rate equal to the private Badlar rate plus 3%. Principal is due 360 calendar days after the issuance date, and interest is payable on a quarterly basis. The proceeds of these notes were utilized to refinance certain indebtedness of Piedra Buena and to cover working capital needs. Also, on September 28, 2010, the Secretariat of Energy instructed CAMMESA through Note 6157/10 to convene WEM’s Generating Agents with steam turbine generators to propose works deemed indispensable to increase the power generated by their units, which would be available before the winter of 2011. In October 2010, Piedra Buena formalized its proposal to increase its power generation capacity to CAMMESA. The Secretariat of Energy informed of the project’s approval through Note 7375/10 dated November 6, 2010 and instructed CAMMESA to grant the required financing pursuant to the guidelines set forth in the Secretariat of Energy Resolution No. 146/02 and Notes 6157/10 and 7375/10. The amount of the work proposal submitted by Piedra Buena amounted to Ps. 63,240,808. As of December 31, 2010, Piedra Buena has received from CAMMESA partial advances amounting to Ps. 21 million. On March 21, 2011, Piedra Buena entered into a loan agreement with CAMMESA perfecting such financing. As of March 31, 2011, Piedra Buena has received from CAMMESA partial advances amounting to Ps. 37.6 million. In addition, on July 21, 2008, the shareholders of Güemes approved the creation of a new short-term note program not to exceed Ps. 200 million. The shareholders of Güemes also vested Güemes’ board of directors with the power to establish the terms of any debt under the Güemes short-term note program and the time of the issuance of such debt. As of the date of this annual report, Güemes has not issued any notes under this program. In addition, on December 28, 2009, the shareholders of Loma de La Lata approved the creation of a medium-term note program not to exceed U.S. $ 50 million. The terms of any debt under this program will be determined by its board of directors at the time that such debt is issued. As of the date of this annual report, Loma de La Lata has not issued any notes under this program. On November 5, 2009, Transener’s shareholders’ meeting resolved to create a global program for the issuance of registered, nonconvertible, simple corporate bonds denominated in Argentine pesos or in any other currency, with unsecured, special, floating and/or any other guarantee, either subordinated or not, for a maximum outstanding amount at any time that may not exceed Ps. 200 million or equivalent amount in other currencies. The program was authorized by CNV, however, no debt has been issued. On May 12, 2009, Transener and Transba entered into a financing agreement with CAMMESA (as lender) for an amount of up to Ps. 59.7 million and Ps. 30.7 million, respectively. On January 5, 2010, an extension to the previously mentioned financing agreement was executed to increase the borrowed amount to up to Ps. 107.7 million and Ps. 42.7 million, respectively. As of March 31, 2011 the financing amount approved by the Secretariat of Energy for both companies amounted to Ps. 150.4 million, and the disbursements received amounted to Ps. 145.6 million. The interests accrued at year-end 2010 amounted to Ps. 11 million. Transener and Transba will apply the receivables acknowledged by the Secretariat of Energy and ENRE on account of cost variations (pursuant to the Instrumental Agreement) to the cancellation, up to such amounts, of the financing granted by CAMMESA. On May 2, 2011, Transener and Transba executed with CAMMESA amendments to the financing agreements, which provided for: i) the cancellation of the amounts received as of January 17, 2011 by both companies pursuant to the financing granted by the agreements executed on 148


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May 12, 2009, ii) the granting to Transener and Transba of new loans for the amounts of Ps. 289.7 million and Ps. 134.1 million, respectively, and iii) the assignment as collateral of the balances of receivables acknowledged as higher costs as of November 30, 2010 pursuant to the Complementary Agreement aiming to cancel the amounts due under the amendments to the financing agreements. The funds arising from the new loans will be used for operation and maintenance operations and to the investment plan for the year 2011, and will be disbursed through partial advances based on the availability of cash and cash equivalents by CAMMESA and as instructed by the Secretariat of Energy. On October 25, 2010, under the conditions set forth in its corporate bonds issuance programme, and as a result of the cash subscription offer, Edenor issued Fixed Rate at Par notes due 2022 for a nominal value of U.S. $140 million. Furthermore, as a result of the exchange offer, Edenor cancelled Fixed Rate Par notes due 2017 for a nominal value of U.S. $123.9 million as follows: exchanged Fixed Rate at Par notes due 2017 for U.S. $90.3 million for Fixed Rate at Par notes due 2022 for a equivalent nominal value plus a cash payment amounting to U.S. $9.5 million including interests accrued and unpaid, and; acquired Fixed Rate at Par notes due 2017 for a U.S. $33.6 million, paying in cash U.S. $35.8 million, including interest accrued and unpaid. As a result new Fixed Rate at Par notes due 2022 amounting to U.S. $230.3 million were issued with the first payment of interest taking place on April 25, 2011 and with an amortization of principal in a single payment in 2022. On April 26, 2011, Edenor issued Fixed Rate at Par notes due 2022 for a face value of U.S. $69.7 million, thus completing the original amount of the series of up to U.S. $300 million. Edenor will use the net proceeds to refinance in whole or in part its short-term debt, and/or finance the capital expenditures plan and/or increase working capital. On October 18, 2010, Edenor cancelled the Fixed Rate at Par notes due 2017 in its portfolio having a nominal value of U.S. $65.3 million. On March 4, 2011, Edenor redeemed all outstanding at par variable rate notes due 2019 at a price equivalent to face value (U.S. $12.7 million) plus accrued interest. Also, in February 2011, Edenor was granted a series of short-term loans with local entities (JPMorgan Chase Bank N.A., Sucursal Argentina, Deutsche Bank S.A., Banco Macro S.A., Banco de la Nación Argentina and Standard Bank Argentina S.A.). These loans were obtained for a total of Ps. 280 million, at an average annual interest rate of 14.5% and the average term of the loans was 90 days. The proceeds from these loans were in turn applied to grant short-term loans to EDEN, EDELAR, EDESA and EDESAL which applied them to repay certain overdrafts and certain outstanding loans. In April 2011, Edenor agreed with EDEN, EDESAL, EDELAR y EDESA on the terms for these loans. The new agreement sets the financial maturity date on April 30, 2012 and interest semiannual maturities on October 31, 2011 and April 30, 2012. All of these loans have been agreed in line with usual market terms for this kind of operations. In relation to the acquisition of the CIESA Bonds executed in January 2011, Pampa Inversiones signed a credit agreement with Citibank N.A. and Standard Bank PLC, which allowed it to obtain financing for a total amount of U.S. $ 60.0 million. To secure these loans, Pampa Inversiones pledged 40,000,000 corporate bonds issued by EASA. On January 4, 2011, Pampa Inversiones received additional financing from Citibank N.A. and Standard Bank PLC for U. S. $30.0 million. To secure this additional financing, Pampa Inversiones pledged 5,000,000 corporate bonds issued by EASA and 1,713,826 ADRs from Edenor. On June 25, 2010, Banco Hipotecario S.A. and Standard Bank Argentina S.A granted Güemes a two-tranche financing for an aggregate amount of Ps. 100.0 million, one for Ps. 50.0 million which accrues interest at a floating rate equal to the adjusted Badlar rate plus a nominal spread of 3% per annum, and another one for Ps. 50.0 million, which accrues interest at a fixed nominal rate equivalent to 17% per annum. Interest is payable quarterly and the principal amount is be amortized in three consecutive quarterly installments, with the first one due in September 2011. On August 19, 2010, Piedra Buena received from Banco Provincia a loan amounting to Ps. 20.0 million, which accrues interest at a 14% nominal annual fixed rate. Interests is payable on a monthly basis and the principal is repaid as a lump sum in November 2011. As of March 31, 2011, the balance of such loan plus accrued interest amounted to Ps. 20.1 million. Also, on February 4, 2011, Banco de la Nación Argentina granted Piedra Buena a loan amounting to Ps. 60.0 million, which accrues interest at the BADLAR rate plus 4.5%. Interest is payable on a monthly basis, and the principal will be repaid in 18 monthly, equal and consecutive installments, with a six-month grace period. As of March 31, 2011, the balance of such loan plus accrued interest amounts to Ps. 61.4 million. 149


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Contractual Obligations In the tables below, we set forth certain contractual obligations as of December 31, 2010 and the period in which the contractual obligations come due. Peso amounts have been translated from U.S. Dollar amounts at the seller rate for U.S. Dollars quoted by Banco Nación on December 31, 2010 of Ps. 3.976 to U.S. $1.00. Payments due by period**Total**
     
     **Less than****1 year**
     ****
     **1-3****years**
     ****
     **4-5****years**
     ****
     **After****5 years**(in millions of Pesos)Payment ObligationsLong-term debt obligations(1)
     2,464.6
     
     220.7
     
     362.0
     
     716.5
     
     1,165.4Capital expenditures(2)
     127.6
     
     122.4
     
     3.5
     
     1.7
     
     —Royalty payments(3)
     170.1
     
     26.9
     
     56.2
     
     58.0
     
     29.0Operating leases(4)
     35.3
     
     6.7
     
     25.6
     
     3.0
     
     —Accrued litigation(5)
     10.3
     
     1.4
     
     3.4
     
     2.3
     
     3.2Total payment obligations
     2,807.9
     
     378.1
     
     450.7
     
     781.5
     
     1,197.6Purchase ObligationsFuel-oil purchase agreements for electricity generation(6)
     654.4
     
     654.4
     
     —
     
     —
     
     —Natural gas purchase agreements for electricity generation(7)
     1,152.9
     
     298.1
     
     680.2
     
     174.6
     
     —Natural gas transportation agreement(8)
     93.7
     
     6.2
     
     11.1
     
     6.2
     
     70.2Total purchase obligations
     1,901.0
     
     958.7
     
     691.3
     
     180.8
     
     70.2OthersAccrued fines and penalties(9)
     463.0Total
     5,171.9
     
     1,336.8
     
     1,142.0
     
     962.3
     
     1,267.8(1)
     We expected to pay approximately U.S. $57.2 million in interest on our consolidated indebtedness in 2011. Interestpayments for years following 2011 have not been estimated, however, because we cannot accurately predict future interestrates, including those resulting from future refinancing activities, or our future cash generation, which could significantlyaffect our debt levels to the extent we are required to use our excess cash to repurchase or prepay our debt or we elect tocapitalize interest on our debt, in each case, pursuant to the terms of our debt. Part of EASA’s, Edenor’s and Transener’soutstanding debt includes mandatory prepayments with excess cash while EASA’s outstanding debt allows for thecapitalization of interest under specific circumstances. See “—Debt” for a description of these new notes, includingamortization and interest payment terms and mandatory prepayment with excess cash provisions. We record our debtobligations on our balance sheet at their net present value in accordance with Argentine GAAP. As a result, the amountsshown in balance sheet do not reflect the nominal amount owed under our debt instruments.(2)
     Includes executed contractual obligations relating to our generation expansion projects. Transener’s and Edenor’s concessions do not require them to make any specified amount of capital expenditures, but Edenor’s concession requires Edenor to meet certain quality and other service standards. Several of these obligations are denominated in currencies other than Pesos or the U.S. Dollar (such as Swiss Francs and Euros) and have been converted into Pesos for purposes of this table at the then prevailing exchange rate.(3)
     Based on estimated payments included in our annual budget through 2015; we cannot reasonably estimate beyond 2014 since royalty payments are calculated based on the amount of energy actually sold.(4)
     Minimum required lease payments.(5)
     Represents a contingent liability for the tax claim that Edenor has with the Argentine Tax Authority related to the income tax deduction of the allowance for bad debts for the three fiscal years ended December 31, 1996, December 31, 1997 and December 31, 1998. See “Item 8. Financial Information—Legal Proceedings—Distribution—Edenor tax claims.”(6)
     Based on the estimated price of U.S. $60.50 per barrel.(7)
     Based on the estimated average price of Ps. 687.01 per dam3.(8)
     Based on the estimated average price of Ps. 8.27 per dam3.(9)
     Includes accrued fines and penalties for Edenor, Transener and Transba. In the case of Edenor, amounts include adjustments made to reflect the ratification of the Adjustment Agreement. Edenor was required to make an adjustment to a portion of its accrued fines and penalties totaling (i) Ps. 47.0 million to reflect the increase to its VAD pursuant to the Adjustment Agreement and the May 2006 CMM and (ii) Ps. 17.2 million and Ps. 18.1 million to reflect the CMM adjustment for the years ending December 31, 2008 and 2007, respectively. In addition, pursuant to the terms of the Adjustment Agreement, the Argentine government agreed, subject to the fulfillment of certain conditions, to forgive, upon the completion of the RTI, approximately Ps. 71.4 million of Edenor’s accrued fines and penalties and allowed Edenor to pay the remaining Ps. 361.6 million of these fines and penalties in semi-annual installments over a 7-year period commencing 180 days after the RTI comes into effect. Because the Adjustment Agreement was not ratified until January 2007, Edenor has recalculated the amounts of accrued fines and penalties subject to the payment plan under the terms of the Adjustment Agreement as well as the amounts subject to forgiveness. In the case of Transener and Transba, pursuant to the terms of the respective agreements each Transener and Transba entered into with theUnidad de Renegociación y Análisis de Contratos de Servicios Públicos(UNIREN), subject to the fulfillment of certain conditions, penalties related to quality of service under the concession agreements that otherwise would be payable by Transener and Transba, may be applied by those companies, as of June 2005, to capital expenditures, upon the completion of the Transener RTI. We cannot reasonably estimate when these fines and penalties will be paid.150


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Payments/ Delivery Obligations due by periodTotal
     
     ******Less than****1 year**
     ********
     ******1-3****years**
     ********
     **4-5****years**
     ****
     **After****5 years**(in millions of Pesos)Sales Obligations:Electric power(1)
     
     421.7
     
     
     304.4
     
     
     112.1
     
     
     5.2
     
     
     -Total
     Ps.
     421.7
     
     Ps.
     304.4
     
     Ps.
     112.1
     
     Ps.
     5.2
     
     Ps.
     -(1)
     Prices are generally determined by formulas based on future market prices. Estimated prices used to calculate the monetaryequivalent of these purchase or sales obligations for purposes of this table are based on current market prices as ofDecember 31, 2010 and may not reflect actual future prices of these commodities. Accordingly, the Peso amountsprovided in this table with respect to these obligations are provided for illustrative purpose only.
  Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements of the type that we are required to disclose under Item 5.E. of Form 20-F. Principal Differences Between Argentine and U.S. GAAP Our consolidated financial statements are prepared in accordance with Argentine GAAP and the regulations of the CNV, which differ in certain significant respects from U.S. GAAP. Note 20 to our audited consolidated financial statements included elsewhere in this annual report provides a description of the significant differences between Argentine GAAP and U.S. GAAP, as they relate to us, and a reconciliation to U.S. GAAP of net income and shareholders’ equity as of December 31, 2010 and 2009 and for the fiscal years ended December 31, 2010, 2009 and 2008. The principal differences between Argentine GAAP and U.S. GAAP as they relate to us, other than inflation accounting, are the following: the measurement of the compensation expense associated with options granted to certain directors;the accounting for certain pre-operating and organizational costs;the accounting for certain investments in marketable securities;the capitalization of foreign currency exchange differences;the accounting for warehouse impairment and holding results; 151


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the recognition of holding results in inventories;differences in the accounting for business combinations;differences in the accounting for repurchase of debt;the accounting for purchases of Edenor ADRs;the accounting for deferred income taxes;the accounting for amortization of certain Transmission intangible assets;the accounting for depreciation of certain Transmission fixed assets;the accounting for impairment of investments in subsidiaries;the recognition of holding results in other assets; andthe effect on non-controlling interest of the foregoing reconciling items. Net income (loss) attributable to us under Argentine GAAP for the fiscal years ended December 31, 2010, 2009 and 2008, was approximately Ps. (46.6) million, Ps. 214.7 million and Ps. 115.0 million, respectively, as compared to net income (loss) of approximately Ps. (92.9) million, Ps. 82.2 million and Ps. 68.8 million, respectively, under U.S. GAAP. Shareholders’ equity attributable to us under Argentine GAAP as of December 31, 2010 and 2009 was Ps. 3,280.9 million and Ps. 3,336.7 million, respectively, as compared to Ps. 3,307.2 million and Ps. 3,394.2 million, respectively, under U.S. GAAP. See Note 20 to our audited consolidated financial statements included elsewhere in this annual report for a discussion of these differences, the effect on our results of operations and financial position and certain other disclosures required under U.S. GAAP. 152


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Item 6. Directors, Senior Management and Employees General We are managed by our board of directors, which is composed of nine directors and seven alternate directors. Four of our nine directors are independent according to the criteria and requirements for independent directors under applicable Argentine law. Two of our alternate directors are independent. The directors are elected on a staggered basis each year (three directors at a time). Our directors are elected for a three-fiscal-year term and can be reelected except for our independent directors, who cannot be reelected for successive terms. Section 41 of our by-laws provides that, as an exception to the provisions related to the regulations of the Audit Committee, the independent directors appointed at the shareholders’ meeting held on June 16, 2006 (only Ms. Diana Mondino) may be reelected for consecutive periods until they have completed a term of three fiscal years. Pursuant to section 12 of our by-laws, any shareholder or group of shareholders who holds more than 3% of our capital stock (each, a Proposing Shareholder) may require our board of directors to give notice to our other shareholders of the candidate or candidates to be nominated by such shareholder or group of shareholders at our shareholders’ meeting for election of our board of directors. To such end, the relevant slate executed by the Proposing Shareholder or its representatives, as applicable, will be sent to the chairman of our board of directors, no less than five business days prior to the date of the relevant shareholders’ meeting, to be published in the Bulletin of the Buenos Aires Stock Exchange at least two days prior to the date of our shareholders’ meeting. To facilitate the formation of the slates and the record of the candidates’ names, as of the date of the first notice calling for the relevant meeting, a special book will be made available to our shareholders at our registered office in which the names of the candidates proposed by any proposing shareholder shall be recorded. Similarly, our board of directors will propose to the shareholders’ meeting the candidates for election by slate or, if election by slate is objected to, individually. The names of the candidates proposed by the board will be made known to all our shareholders together with the slates proposed by the Proposing Shareholder. In addition, no proposal for the election of directors may be made, either before or during the shareholders’ meeting, unless written evidence of acceptance of office by the proposed candidates is submitted to us. Such slate or person, as the case may be, who obtains the vote of a majority of the shares present at the meeting will be declared elected. If no slate obtains such majority, a new vote will be taken in which the two slates or persons that obtained the largest number of votes will take part, and the slate or person who obtains the largest number of votes will be declared elected. The preceding rules will not prevent a shareholder who is present at the shareholders’ meeting from proposing candidates not included in the proposals from our board of directors. Duties and Liabilities of Directors Pursuant to section 59 of the Argentine Corporate Law, directors have the obligation to perform their duties with the loyalty and the diligence of a prudent business person. Directors are jointly and severally liable to the company, the shareholders and third parties for the improper performance of their duties, for violating the law, the company’s by-laws or regulations, if any, and for any damage caused by fraud, abuse of authority or negligence, as provided for in Section 274 of the Argentine Corporate Law. The following are considered integral to a director’s duty of loyalty: (1) the prohibition on using corporate assets and confidential information for private purposes; (2) the prohibition on taking advantage, or to allow another to take advantage, by action or omission, of the business opportunities of the company; (3) the obligation to exercise board powers only for the purposes for which the law, the company’s by-laws or the shareholders’ or the board of directors’ resolution have intended; and (4) the obligation to take strict care so that acts of the board are not contrary, directly or indirectly, to the company’s interests. A director must inform the board of directors and the supervisory committee of any conflicting interest he or she may have in a proposed transaction and must abstain from voting thereon. A director shall not be responsible for the decisions taken in a board of directors’ meeting as long as he or she states his or her opposition in writing and informs the supervisory committee before any claim arises. A director’s decision approved by the company’s shareholders releases that director of any responsibility for his decision, unless shareholders representing 5% or more of the company’s capital stock object to that approval, or the decision was taken in violation of applicable law or the company’s by-laws. The company is entitled to file judicial actions against a director if a majority of the company’s shareholders at a shareholders’ meeting request that action. 153


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Under the Argentine Corporate Law, the board of directors is in charge of the administration of the company and, therefore, makes any and all decisions in connection therewith, as well as those decisions expressly provided for in the Argentine Corporate Law, the company’s by-laws and other applicable regulations. Furthermore, the board is generally responsible for the execution of the resolutions passed by shareholders’ meetings and for the performance of any particular task expressly delegated by the shareholders. In general, our board of directors may be more involved in operating decision-making than might be customary in other jurisdictions. Under the Argentine Corporate Law, the duties and responsibilities of an alternate director, when acting in the place of a director on a temporary or permanent basis, are the same as those discussed above for directors. They have no other duties or responsibilities as alternate directors. Board of Directors The following table sets forth information about the members and alternate members of our board of directors, a third of whom have terms that expire in December 2011, another third in December 2012 and the remaining third in December 2013. In accordance with Argentine law, each member maintains his or her position on the board until a new shareholders’ meeting elects new directors. Our board must be renewed by thirds each year (such thirds initially determined by lot): Full Name
     Age
     Position
     **Appointment****Date**
     **Termination****Date**Marcos Marcelo Mindlin
     47
     Chairman
     08/04/2009
     31/12/2011Gustavo Mariani
     40
     Vice Chairman
     14/04/2011
     31/12/2013Ricardo Alejandro Torres
     53
     Vice-Chairman
     25/04/2008
     31/12/2010Damián Miguel Mindlin
     45
     Director
     08/04/2009
     31/12/2011Diego Martín Salaverri
     46
     Director
     23/04/2010
     31/12/2012Pablo Adrián Grigio Campana (1)
     55
     Director
     23/04/2010
     31/12/2012Diana Elena Mondino (1)
     52
     Director
     08/04/2009
     31/12/2011Pablo Ferrero (1)
     49
     Director
     14/04/2011
     31/12/2013Luis Andrés Caputo (1)
     46
     Director
     23/04/2010
     31/12/2012Pablo Diaz
     54
     Alternate Director
     23/04/2010
     31/12/2012Alejandro Mindlin
     35
     Alternate Director
     23/04/2010
     31/12/2012Roberto Luis Maestretti
     53
     Alternate Director
     14/04/2011
     31/12/2013Gabriel Cohen
     46
     Alternate Director
     23/04/2010
     31/12/2012Carlos Tovagliari (1)
     51
     Alternate Director
     23/04/2010
     31/12/2012Brian Henderson
     65
     Alternate Director
     13/05/2009
     31/12/2011Silvestre Hernán Bisquert (1)
     34
     Alternate Director
     13/05/2009
     31/12/2011(1) Independent Directors under Argentine law and under Rule 10A-3 under the Securities Exchange Act of 1934, as amended.
  Marcos Marcelo Mindlin, Damián Miguel Mindlin and Alejandro Mindlin are brothers. There are no other family relationships between the other members of our board of directors. 154


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Senior Management The table below sets forth certain information concerning our senior management: Name
     
     Position
     
     AgeMarcos Marcelo Mindlin
     
     Chairman
     
     47Ricardo Alejandro Torres
     
     Chief Executive Officer and Chief Generation Manager
     
     53Damián Miguel Mindlin
     
     Chief Investment Portfolio Manager
     
     45Gustavo Mariani
     
     Chief Business Development Manager
     
     40Alejandro Macfarlane
     
     Chief Distribution Manager
     
     44Roberto Luis Maestretti
     
     Finance and Administrative Manager
     
     53Horacio Turri
     
     Oil & Gas Manager
     
     50Gabriel Cohen
     
     Corporate Financing Manager
     
     46
  The business address of each of our current directors and executive officers is Ortiz de Ocampo 3302, Building #4, City of Buenos Aires, Argentina (C1425DSR). Set forth below are brief biographical descriptions of the members of our board of directors and our senior management. Marcos Marcelo Mindlinwas born on January 19, 1964. He has been Chairman of our board of directors since June 16, 2006, and was reelected as Chairman in 2009. From 1989 to 2004, Mr. Mindlin served as the founder, Senior Portfolio Manager and a shareholder of Grupo Dolphin. From 1991 to 2003, Mr. Mindlin was also a shareholder, Vice-Chairman and Chief Financial Officer of Inversiones y Representaciones S.A. (IRSA), a leading Argentine real estate company listed on the New York Stock Exchange. In November 2003, Mr. Mindlin resigned from IRSA to focus his work on Grupo Dolphin. Mr. Mindlin has extensive expertise in Latin America through his role as Chairman of the board of directors of Grupo Dolphin and several of its affiliates. From 1999 to 2004, Mr. Mindlin also served as Vice President of Alto Palermo S.A. (a leading owner and operator of shopping centers in Buenos Aires), Vice President at Cresud S.A.I.C. (one of the largest listed agricultural companies in Argentina) and as Director and member of the Executive Committee of Banco Hipotecario, the leading mortgage bank in Argentina. Mr. Mindlin also serves as director of Edenor, Grupo Dolphin S.A., Dolphin Energía S.A., Electricidad Argentina S.A., IEASA S.A., Citelec, Transba, HINISA, HIDISA, Transelec Argentina S.A., CTLLL, Comunicaciones y Consumos S.A., Préstamos y Servicios S.A., Powerco S.A., CTG, Inversora Diamante S.A., Inversora Nihuiles S.A., Dolphin Créditos S.A., Dolphin Créditos Holding S.A., Dolphin Inversora S.A., Grupo ST S.A., Inversora Ingentis S.A., CPB, Corporación Independiente de Energía S.A., Petrolera Pampa S.A., Pampa Participaciones II S.A., Energía Distribuida S.A., Pampa Generación S.A., Central Hidroeléctrica Lago Escondido S.A., Pampa Participaciones S.A., Bodega Loma de la Lata S.A., Pampa Real Estate S.A., Enron Pipeline Company Argentina S.A. and Ingentis S.A. In 2008, Mr. Mindlin founded and since that time has directed a charity foundation called “Fundación Todo X los Chicos,” whose purpose is to improve childhood development and education. Mr. Mindlin is also a member and was Chairman of the Board of the Executive Committee of Tzedaka, a leading Jewish-Argentine foundation. He is a member of the Council of the Americas. Mr. Mindlin received a Master of Science in Business Administration from the Universidad del CEMA (Center of Macroeconomic Studies). He also holds a degree in Economics from the Universidad de Buenos Aires. Damián Miguel Mindlinwas born on January 3, 1966. He has been a member of our board of directors since November 2005 and was reelected as a director in 2009. Mr. Mindlin joined Grupo Dolphin in 1991 as a shareholder and a director. Since November 2003, Mr. Mindlin has served as Investment Portfolio Manager of Grupo Dolphin. Additionally, he currently serves as director of Edenor, Grupo Dolphin S.A., Dolphin Energía S.A., Dolphin Finance S.A., Electricidad Argentina S.A., IEASA S.A., CAM S.A., HINISA, HIDISA, Transelec Argentina S.A., Pampa Participaciones S.A., Pampa Real Estate S.A., Comunicaciones y Consumos S.A., Préstamos y Servicios S.A., Powerco S.A., CTG, Inversora Diamante S.A., Inversora Nihuiles S.A., CPB, Corporación Independiente de Energía S.A., Compañía Buenos Aires S.A., Dolphin Créditos S.A., Dolphin Créditos Holding.S.A., Dolphin Inversora S.A., Ingentis S.A., Petrolera Pampa S.A, Pampa Participaciones II S.A., Energía Distribuida S.A., Pampa Generación S.A., Pampa Inversiones S.A., Central Hidroeléctrica Lago Escondido S.A., 155


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Bodega Loma de la Lata S.A., Emdersa S.A., Empresa Distribuidora de Salta S.A., Empresa Distribuidora de La Rioja S.A., Empresa Distribuidora de San Luis S.A. and Esed S.A. Gustavo Marianiwas born on September 9, 1970. He has been a member of our board of directors since November 2005 and was reelected as a director in 2008. Mr. Mariani joined Grupo Dolphin in 1993 as an analyst and also served as an investment portfolio manager. He currently serves as Director of Grupo Dolphin S.A., Dolphin Energía S.A., Dolphin Finance S.A, Electricidad Argentina S.A., Edenor, HINISA, HIDISA, Inversora Nihuiles S.A, Inversora Diamante SA, Enron Pipeline Company Argentina S.A., TGS, Compañía de Inversiones de Energía S.A. CTG, IEASA S.A., Transelec Argentina S.A., CTLLL, Pampa Participaciones S.A., Pampa Real Estate S.A., Comunicaciones y Consumos S.A., Compañía Buenos Aires S.A., Dolphin Créditos S.A., Dolphin Créditos Holding S.A., Dolphin Inversora S.A., Inversora Ingentis S.A., Ingentis S.A., CPB, Corporación Independiente de Energía S.A., Petrolera Pampa S.A., Pampa Participaciones II S.A., Energía Distribuida S.A., Pampa Generación S.A., Central Hidroeléctrica Lago Escondido S.A., and Bodega Loma de la Lata S.A.,and he also servesas alternate director of Citelec, Transba, Préstamos y Servicios S.A. y Grupo ST S.A.. Mr. Mariani holds a degree in Economics from the Universidad de Belgrano and a Masters degree in Business Administration from the Universidad del CEMA. Ricardo Alejandro Torreswas born on March 26, 1958. He has been a member of our board of directors since November 2005 and was reelected as a director in 2008. From 1993 and 2001 Mr. Torres served as Financial Director of Inversiones y Representaciones S.A. and as a director of Alto Palermo, Brazil Realty, Emprendimentos e Participacoes S.A., Abril S.A. and Inversora Bolivar S.A. Mr. Torres has also held a post as a professor of Tax and Finance at the School of Economics of the Universidad de Buenos Aires. He currently serves as director of Pampa Real Estate S.A., Pampa Participaciones II S.A., HINISA, HIDISA, Inversora Nihuiles S.A, Inversora Diamante S.A, Darwin Chile Inversora Inmobiliaria S.A., Veredit S.A., Edenor, CTG, Powerco S.A. Darwin Chile II Inversora Inmobiliaria S.A., CTLLL, CPB, Corporación Independiente de Energía S.A., Dolphin Energía S.A, IEASA S.A, Inversora Ingentis S.A., Energía Distribuida S.A., Pampa Generación S.A., Petrolera Pampa S.A., Pampa Participaciones S.A., Central Hidroeléctrica Lago Escondido S.A., Empresa Distribuidora de Salta S.A., Inversora Ingentis S.A., Empresa Distribuidora de La Rioja S.A., Esed S.A. and Bodega Loma de la Lata S.A., and he also serves as alternate director of Emdersa, Citelec, Transba, Transener and Inversora Ingentis S.A. Mr. Torres holds a degree in Public Accounting from the Universidad de Buenos Aires and a Masters degree in Business Administration from the Instituto de Altos Estudios Empresariales—Escuela de Negocios de la Universidad Austral. Diego Martín Salaverriwas born on August 7, 1964. He has been a member of our board of directors since June 2006. He is a founding partner of the Argentine law firm of Errecondo, Salaverri, Dellatorre, González & Burgio. He earned a degree in law in 1988 from the Universidad Católica Argentina, Buenos Aires. He is member of the board of directors of Edenor, Laboratorios Northia SACIFIA, Dico S.A. a Formosa Refrescos S.A. and Estancia Maria S.A. He is also a member of the supervisory committee of Dolphin Créditos S.A, Dolphin Créditos Holding S.A., Grupo Dolphin Holding S.A., Dolphin Inversora S.A., Grupo ST S.A. and Orígenes Seguros de Retiro S.A. Until 2007, he was a member of the board of directors of EASA. Mr. Salaverri resigned from his position as director of EASA at the November 14, 2007 meeting of the board of directors of EASA. Mr. Salaverri is also an alternate member of the statutory audit committee of Compañía Buenos Aires S.A. and GSF S.A. Pablo Adrian Grigio Campanawas born on May 12, 1956. He has been a member of our board of directors since May 2009. From 1977 to 1993, he served as Human Resources Manager in different companies, including SOMISA, KasDorf S.A., SanCor C.U.L., HIPSAM, ECOCONSULT, and acted as an advisor in ENACE and CANAL 13, among others. Since 1993, Mr. Grigio Campana has served as Human Resources Director for the local branch of W.M. Mercer Inc. and as Chairman of Emprendimientos Forestales La Carolina S.A. Mr. Grigio Campana holds a degree in Personnel Administration and in Human Resources Management, both from the Universidad del Salvador. Luis Andrés Caputowas born on April 21, 1965. He has been a member of the board of directors since 2010. During 2009 he was Director of Edenor. Between 2003 and 2008, he was CEO and country manager at Deutsche Bank Argentina. He joined Deutsche Bank in September of 1997, and was transferred to London as managing director and head of emerging markets trading for Latin America, East Europe and Asia. Previously, between 1994 and 1998, he was head of fixed income and derivatives trading for Latin America at J.P. Morgan New York. In 1993 he served as head of asset and liabilities management, foreign exchange and equity trading at J.P. Morgan Argentina. He holds a degree in business administration from the Universidad de Buenos Aires. 156


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Diana Elena Mondinowas born on August 8, 1958. Ms. Mondino has been a member of our board of directors since June 2006 and was reelected as a director in 2009. She is also a director of ISE, an agribusiness company based in Argentina. Previously, she was based in New York, as Regional Head for Latin America for Standard & Poor’s Credit Market Services, reporting to the executive vice president. Before joining Standard & Poor’s, she was one of the principal and founding members of the leading credit rating agency in Argentina which Standard & Poor’s acquired in 1997. Previously, Ms. Mondino held various advisory positions in finance, marketing and strategic planning for various companies and was Dean of Studies for the MBA program at CEMA-Buenos Aires. Ms. Mondino holds an MBA from IESE in Spain. She received a B.A. in Economics from the University of Cordoba, Argentina. Pablo Ferrerowas born on December 30, 1962. Mr. Ferrero received an engineering degree from the Universidad Católica Argentina and obtained a MBA at the University of Washington. He joined Perez Companc in 1991 and in 1993 he was assigned to TGS as Transportation and Business Development Manager. From 1997 to 1998 he was theMarketing and Tariffs Vice President. In 1998 he returned to Perez Companc (now Petrobras Energía) as Vice President in charge of the Oil and Gas Marketing and Transportation Business Unit, and in 2001 he was appointed Vice President of Planning and Business Development, aposition he held until June 2004, when he became CEO of TGS. Between 2006 and 2011, Mr. Ferrero was theExecutive Vice President responsible for the Southern Cone activities for AEI energy. Mr. Ferrero has served as director and chairman of the board of several Latin American energy corporations, including TGS, Transener, Edesur, Petrobras Energía, Emdersa, EDEN, Promigas (Colombia), Chilquinta (Chile) and Luz del Sur (Perú). Pablo Díazwas born on June 26, 1957. Mr. Díaz has been an alternate director of our company since June 2006. Previously, he was an advisor to the federalSubsecretaría de Energía Eléctrica(the Sub-Secretariat for Electrical Energy). Alejandro Mindlinwas born on August 30, 1975. Mr. Mindlin has been an alternate director of Pampa since June 2006. Mr. Mindlin has a B.A. in Middle Eastern History and Languages from Tel Aviv University, as well as a film director’s degree. Brian Hendersonwas born on September 23, 1945 and is currently a technical advisor to Grupo Dolphin S.A. Previously, Mr. Henderson served as a director of Latin American Region at National Grid (United Kingdom), Silica Networks and Manquehue Net telecomunicaciones (Chile) and as Vice-Chairman of Commercial Operations at Charter Oak Energy for the Americas, Africa and Europe. Prior to joining Charter Oak Energy, Mr. Henderson served as Vice Chairman and General Manager at Deutsche Babcock Riley, Canada Inc., a subsidiary controlled by Deutsche Babcock, Germany. Previously, Mr. Henderson worked in Germany and in Argentina for Deutsche Babcock and studied in the United Kingdom where he obtained a degree in Electrical Engineering from Heburn College. Silvestre Hernán Bisquertwas born on July 9, 1976. Mr. Bisquert has been a member of our board of directors since May 2009. Since 2006, he has served as the Economic and Financial Advisor for the Federal Planning, Public Investment and Services Ministry. Mr. Bisquert holds a degree in Public Accounting from the Universidad de Buenos Aires. Gabriel Cohenwas born on September 11, 1964. Mr. Cohen has been an alternate director of Pampa since June 2006. In addition, he worked at Citibank, N.A., serving at the bank’s offices in Buenos Aires and Paris, where he focused on debt restructuring processes. Mr. Cohen holds a degree in Business Administration from the Universidad de Buenos Aires. Carlos Tovagliariwas born on December 27, 1959. Mr. Tovagliari has been an alternate director of Pampa since June 2006. He also serves as the managing partner and the general manager of Pop Argentina S.R.L. Previously, he worked at Inversiones y Representaciones S.A. and at Petersen Thiele y Cruz S.A. Mr. Tovagliari holds a degree in Industrial Engineering from the Universidad de Buenos Aires. Roberto Luis Maestrettiwas born on November 29, 1957. Mr. Maestretti has been an alternate director of Pampa since 2007. Since April 2007, he has served as our Finance and Administrative Manager. Prior to joining Pampa, Mr. Maestretti held various positions, including Comptroller of Latin America, Europe and Africa for Baker 157


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Hugues, Manager of Planning and Management Control of Grupo Perez Companc, Executive Director of Supermercados Norte (Grupo Exxel) and Chief Executive Officer of Pearson-Recoletos and Barugel Azulay. Mr. Maestretti studied Marketing and International Business at UCLA and obtained a Masters degree in Business Administration (MBA) at the IAE. Alejandro Macfarlanewas born on August 16, 1965. Mr. Macfarlane has been the chairman of the board of directors and CEO of our subsidiary Edenor since 2005. He serves as president of ADEERA, the pre-eminent electricity distributors association of Argentina, since September 2005. He was a board member of YPF S.A. and has been a member of YPF Foundation since 1999. He is the president of Grupo AM S.A., a corporate and institutional relationships consulting firm. He is member and director of theInstituto para el Desarrollo Empresarial Argentino(Argentinean Business Development Institute, or IDEA) and a member of theConsejo Argentino para las Relaciones Internacionales(Argentinean Council for International Relationships, or CARI). Horacio Turriwas born on March 19, 1961. From March 2000 to June 2008 Mr. Turri served as theChief Executive Officer of Central Puerto S.A. Since August 1997 to March 2000, he was theChief Executive Officer of Hidroeléctrica Piedra del Águila. From 1994 to 1997 he was theChief Executive Officer of Gener Argentina S.A. Prior to 1994, he was theDevelopment Assistant Manager at Central Puerto S.A. He worked as an analyst of investment projects in the oil, gas and electricity sectors at SACEIF Luis Dreyfus from 1990 to 1992. He also worked at Arthur Andersen & Co. and Schlumberger Wireline from 1987 to 1990 and 1985 to 1987, respectively. Mr. Turri is an industrial engineer and received his degree at Instituto Tecnológico Buenos Aires. Independence of the Members of Our Board of Directors Pursuant to CNV regulations, a director shall not be considered independent in certain situations, including where a director: (1)
     owns a 35% equity interest in the relevant company, or a lesser interest if such director has the right to appoint one or more directors of the company (hereinafter, a significant participation) or has a significant participation in a corporation having a significant participation in the company or a significant influence on the company;(2)
     is a member of the board or depends on shareholders, or is otherwise related to shareholders, having a significant participation in the company or of other corporations in which these shareholders have directly or indirectly a significant participation or significant influence;(3)
     is or has been in the previous three years an employee of the company;(4)
     has a professional relationship or is a member of a corporation that maintains professional relationships with, or receives remuneration (other than the one received in consideration of his performance as a director) from the company or its shareholders having a direct or indirect significant participation or significant influence on the same, or with corporations in which the shareholders also have a direct or indirect significant participation or a significance influence;(5)
     directly or indirectly sells or provides goods or services to the company or to the shareholders of the same who have a direct or indirect significant participation or significant influence, for higher amounts than his remuneration as a member of the administrative body; or(6)
     is the spouse or parent (up to the second level of affinity or up to the fourth level of consanguinity) of persons who, if they were members of the administrative body, would not be independent, according to the above listed rules. The following directors, including alternate directors, do not qualify as independent members of our board of directors in accordance with the CNV criteria: Marcos Marcelo Mindlin, Ricardo Alejandro Torres, Damián Miguel Mindlin, Gustavo Mariani, Diego Martín Salaverri, Pablo Diaz, Alejandro Mindlin, Roberto Luis Maestretti, Gabriel Cohen and Brian Henderson. On the other hand, the following directors, including alternate directors, qualify as independent members of our board of directors according to the above mentioned criteria: Pablo Adrián 158


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Grigio Campana, Diana Elena Mondino, Miguel Alberto Kiguel, Luis Andrés Caputo, Carlos Tovagliari and Silvestre Hernán Bisquert. The Argentine independence standards under CNV rules differ in many ways from the NYSE, NASDAQ or the U.S. federal securities law standards. Audit Committee During the extraordinary shareholders’ meeting held on January 24, 2006, our shareholders approved the creation of an audit committee. The charter for the audit committee operations, which contains the structure and functions of the audit committee, was also approved by our shareholders’ at a meeting held on January 24, 2006 and was modified by our shareholders’ at meetings held on June 16, 2006 and on April 8, 2009. Composition Our audit committee is comprised of three members of the board. All the members of our audit committee must be independent according to the audit charter and must have professional experience in finance, accounting, law or management. Budget Our audit committee will have an annual budget approved by the ordinary annual shareholders’ meeting based on available funds from, without limitation, our revenues, investments and cost savings. Duties and authority Our audit committee is responsible for the performance of the duties that fall within its scope of authority pursuant to the provisions of the Public Offering Transparency Decree No. 677/2001 (the Transparency Decree). These duties include, among other things, the following: approving transactions with related parties in the cases required by law and delivering an opinion regarding compliance with law whenever there is an actual or apparent conflict of interest;providing the market with complete information regarding transactions that give rise to conflicts of interest between us and the members of our corporate bodies or controlling shareholders;nominating two independent director candidates each time a renewal of directors must take place so that the board of directors includes one of such independent candidates in the slate to be presented to the shareholders’ meeting for election as members of the audit committee;delivering an opinion with respect to the actions taken by our executives pursuant to the Opportunities Assignment Agreement approved in the shareholders’ meeting held on June 16, 2006 and executed on September 27, 2006, at least ten days in advance of the date on which each series of warrants vests and within twenty days of receiving notice from one of the executives of an event of acceleration, if applicable;approving any proposal related to the remuneration and compensation of our directors, before any such proposal is submitted to shareholders for consideration. In reviewing such proposals the audit committee may consult with internationally recognized experts in the matter to make sure that our directors and executive officers earn compensation similar to the compensation received by other persons holding similar positions;advising our board of directors with respect to the nomination of independent director candidates to be members of the audit committee; andrendering an opinion on the proposal presented by the board of directors for the appointment of the external auditors to be hired by us and overseeing independence-related issues. 159


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Compensation policy Our audit committee charter provides that, in approving any proposal for remuneration or compensation, the audit committee shall seek to ensure that directors are compensated in a manner similar to other similarly situated persons engaged in the private equity and investment management business in Argentina or abroad, taking into account the contribution made by each individual and our overall financial condition and results of operations. Any proposal for remuneration or compensation that is not approved by our audit committee cannot be presented by the board of directors for consideration by our shareholders at any shareholders’ meeting. Nomination policy The members of our audit committee are responsible for nominating two independent director candidates (based on the criteria and requirements for independent directors under applicable Argentine law) each time a renewal of directors must take place, so that the board of directors includes one of such independent directors on the list to be presented to the shareholders’ meeting for election as members of the audit committee. All members of our audit committee are independent under Argentine law and under Rule 10A-3 of the Securities Exchange Act of 1934, as amended. The following table sets forth certain relevant information of the members of our audit committee: Name
     AgeDiana Elena Mondino
     52Pablo Ferrero
     49Pablo Grigio Campana
     55
  For biographical information on the members of the audit committee see their respective biographies under “—Board of Directors”. Supervisory Committee Our current by-laws provide for a supervisory committee that consists of three statutory auditors and three alternate statutory auditors appointed by our shareholders, who serve for a term of three fiscal years. Pursuant to the Argentine Corporate Law, only lawyers and accountants admitted to practice in Argentina may serve as statutory auditors of an Argentinesociedad anónima,or limited liability corporation. The primary responsibilities of the supervisory committee are to monitor the management’s compliance with the Argentine Corporate Law, the by-laws, its regulations, if any, and the shareholders’ resolutions, and to perform other functions, including, but not limited to: (1)
     attending meetings of the board of directors, executive committee, audit committee and shareholders;(2)
     calling extraordinary shareholders’ meetings when deemed necessary and ordinary and special shareholders’ meetings when not called by the board of directors; and(3)
     investigating written complaints of shareholders. In performing these functions, the supervisory committee does not control our operations or assess the merits of the decisions made by the directors. The duties and responsibilities of an alternate statutory auditor, when acting in the place of a statutory auditor on a temporary or permanent basis, are the same as those discussed above for statutory auditors. They have no other duties or responsibilities as alternate statutory auditors. 160


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The following table sets forth certain relevant information of the members of our supervisory committee*. Name
     
     Position
     
     AgeJosé Daniel Abelovich
     
     Statutory Auditor
     
     53Damián Burgio
     
     Statutory Auditor
     
     46Walter Antonio Pardi
     
     Statutory Auditor
     
     48Marcelo Fuxman
     
     Alternate Statutory Auditor
     
     54German Wetzler Malbran
     
     Alternate Statutory Auditor
     
     42Silvia Alejandra Rodriguez
     
     Alternate Statutory Auditor
     
     38* On April 23, 2010, the Board of Directors approved the resignation of Mr. Guillermo Stok as alternate statutory auditor. Anordinary shareholders’ meeting shall appoint a new alternate statutory auditor.
  Set forth below are brief biographical descriptions of the members of our supervisory committee: José Daniel Abelovichwas born on July 30, 1956. He has been a member of our supervisory committee since June 2006. Mr. Abelovich is a founding partner of Abelovich, Polano & Asociados/SC Internacional, an auditing firm, and managing partner of Real Estate Investments S.R.L. Previously, he served as Manager of Coopers & Lybrand and as Senior Consultant to the World Bank in Argentina. He currently serves as Director of Agencia Marítima Bluemar S.A. and Agra Argentina S.A., and as a statutory auditor of BHH Sociedad de Inversión S.A., Compañía Buenos Aires S.A., Dolphin Créditos Holding S.A., Dolphin Créditos S.A., Energía Distribuida S.A., Powerco S.A., Electricidad Argentina S.A., HINISA, HIDISA, Pampa Generación S.A., Ingentis S.A., Pampa Real Estate S.A., Petrolera Pampa S.A., Agropoly S.A., Agropecuaria Cervera S.A., Alto Palermo S.A., BHN Seguros Generales S.A., BHN Vida S.A., Cactus Argentina S.A., Comercializadora Los Altos S.A., Cresud SACIF y A, Cyrsa S.A., Dolphin Inversora S.A., E-Commerce Latina S.A., Empalme S.A., Emprendimiento Recoleta S.A., Exportaciones Agroindustriales Argentinas S.A., Fibesa S.A., Futuros y opciones.Com S.A., FYO Trading S.A., Grupo Dolphin S.A., Hexagon Argentina S.A. Sociedad de Bolsa, Inversiones Ganaderas S.A., Inversora Bolívar S.A., IRSA Inversiones y Representaciones S.A., Llao – Llao resorts S.A., Mendoza Plaza Shopping S.A., Nuevas Fronteras S.A., Palermo Invest S.A., Panamerican Mall S.A., Patagonian Investment S.A., Pereiraola S.A.I.C., Quality Invest S.A., Rummaala S.A., Alto Palermo S.A. (SAPSA), Shopping Neuquén S.A., Solares de Santa María S.A., and Tarshop S.A.. Mr. Abelovich holds a degree in Public Accounting from the Universidad de Buenos Aires. Damián Burgiowas born on December 13, 1963. He has been a member of our supervisory committee since June 2006. Mr. Burgio is a founding partner of Errecondo, Salaverri, Dellatorre, Gonzalez & Burgio law firm. He is member of the board of directors of Urbanizadora del Sur S.A., and an alternate director of AEI Servicios Argentina S.A. He is a member of the statutory audit committee of AESEBA S.A., Dico S.A., Dolphin Créditos Holding S.A., Dolphin Créditos S.A., Formosa Refrescos S.A., GSF S.A., IEASA S.A., Partners I S.A., Grupo Dolphin Holding S.A., Dolphin Inversora S.A., Electricidad Argentina S.A., Cablevisión S.A., Central Térmica Loma de la Lata S.A., Corporación Independiente de Energía S.A., Dolphin Energia S.A., IEASA S.A., Inversora Diamante S.A., Inversora Ingentis S.A., Inversora Nihuiles S.A., Pampa Generación S.A., Pampa Energía S.A., Pampa Participaciones S.A., Pampa Participaciones II S.A., Petrolera Pampa S.A., Transelec Argentina S.A., Bodega Loma de la Lata S.A. and Central Hidroeléctrica Lago Escondido S.A. He is also an alternate member of the statutory audit committee of CIT Leasing Argentina S.R.L., , Embotelladoras Arca Argentina S.A., Inversora Nihuiles S.A., Envases Plásticos S.A., Salta Refrescos S.A., Pampa Renovables S.A. and Pegasus Realty S.A. Mr. Burgio holds a law degree from the Universidad Católica Argentina. Walter Antonio Pardiwas born on April 14, 1961. He has been a member of our supervisory committee since April 2009. Since 1998, Mr. Pardi has served in the internal audit body of the Federal Government (Sindicatura General de Empresas Públicas-Sindicatura General de la Nación). He also serves as Statutory Auditor for several Argentine companies, including ATC S.A., Telam S.A. and Nación Leasing S.A., among others. Mr. Pardi holds a degree in Public Accounting from the Universidad de Buenos Aires. Marcelo Fuxmanwas born on November 30, 1955. He has been a member of our supervisory committee since June 2006. Mr. Fuxman is a partner of Abelovich, Polano & Asociados/SC Internacional, an auditing firm, and managing partner of Real Estate Investments S.R.L. He currently serves as Director of Agencia Marítima 161


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Bluemar S.A. and Agra Argentina S.A., and as a statutory auditor of Agro Investment S.A., as statutory auditor of BHN Sociedad de Inversión S.A., Pampa Real Estate S.A , Agropoly S.A., Agropecuaria Cervera S.A., BHN Seguros Generales S.A., BHN Vida S.A., Comercializadora Los Altos S.A., Credud SACIF y A, Cyrsa S.A., E-Commerce Latina S.A., Empalme S.A., Emprendimiento Recoleta S.A., Fibesa S.A., Financel Communications S.A., Futuros y Opciones.Com S.A., FYO Trading S.A., Inversiones Ganaderas S.A., Inversora Bolívar S.A., IRSA Inversiones y Reparaciones S.A., Llao-Llao Resorts S.A., Nuevas Fronteras S.A., Palermo Invest S.A., Panamerican Mall S.A., Patagonian Investment S.A., Pereiraola S.A.I.C., Quality Invest S.A., Shopping Alto Palermo S.A., Shopping Neuquén S.A., Solares de Santa María S.A. y Tarshop S.A. and as alternate statutory auditor of, Compañía Buenos Aires S.A., Dolphin Créditos S.A., Dolphin Créditos Holding S.A., Myland S.A., Pampa Generación S.A., Petrolera Pampa S.A., Alto Palermo S.A., Cactus Argentina S.A., Dolphin Inversora S.A., Grupo Dolphin S.A., Hexagon Argentina S.A. Sociedad de Bolsa, Mendoza Plaza Shopping S.A., Rummaala S.A. and S.R.K. Italia Hotel S.A.. Mr. Fuxman holds a degree in Public Accounting from the Universidad de Buenos Aires. Germán Wetzler Malbránwas born on April 25, 1970. He has been a member of our supervisory committee since April 2010, as well as member the supervisory committee of many of our subsidiaries. He is a member of the statutory audit committee of Central Termica Loma de la Lata S.A., Corporacion Independiente de Energia S.A., Dolphin Energia S.A., IEASA S.A., Pampa Energia S.A., Pampa Participaciones S.A., Pampa Participaciones II S.A., Petrolera Pampa S.A., Bodega Loma de la Lata S.A., Central Hidroeléctrica Lago Escondido S.A., Transelec Argentina S.A., Energía Distribuida S.A., Inversora Ingentis S.A., Pampa Generación S.A., Pampa Renovables S.A., Inversora Diamante S.A., Inversora Nihuiles S.A. and Emgasud S.A. Mr. Wetzler Malbrán is a partner of Errecondo, Salaverri, Dellatorre, Gonzalez & Burgio law firm. He currently serves as alternate director of Cablevisión S.A., and Royal Group Argentina S.A. Additionally, Mr. Wetzler Malbrán serves as statutory auditor of AESEBA S.A. andEstancia María S.A., among others. Mr. Wetzler Malbrán holds a law degree from the Universidad Católica Argentina. Silvia Alejandra Rodríguezwas born on December 15, 1972. She has been a member of our supervisory committee since April 2011. Ms. Rodriguez holds a law degree from the Universidad of Buenos Aires Corporate Governance In 2007, we enacted a comprehensive code of trading as well as a business code of conduct. Code of Trading: the code applies to our—and some of our subsidiaries’— employees, directors, members of the statutory audit committee and their relatives, as well as to some of our suppliers, was approved by our board of directors on June 14, 2007. The code of trading deals with possession of confidential information, rules to avoid insider trading in connection with our corporate stock, the stock of our subsidiaries and the stock of certain other companies in the energy sector, and sanctions applicable to those violating such rules, including termination of employment. Our compliance officer, with advice of our general counsel, is responsible for overseeing compliance with these policies, for authorizing the acquisition and sales of restricted securities, as they are defined under the code of trading, and for the imposition of sanctions, if required.Business Code of Conduct:the code was approved by our board of directors on December 10, 2007 and applies to our—and our subsidiaries’—employees, directors and members of the statutory audit committee. The business code of conduct covers multiple topics related to business ethics and conduct including, relationships with suppliers, clients and governmental officers, personal relationships and behavior at work, integration with the community, maintenance of quality standards, safety and the environment, use of corporate assets and standards for accounting records and reports. Our compliance officer, together with our director of human resources, oversees the administration and application of the business code of conduct. During 2008, we adopted the following policies and practices: 162


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Self-Assessment Questionnaire for the Board of Directors: following the recommendations included in General Resolution No. 516/2007 issued by the CNV, our board of directors approved the implementation of a self-assessment questionnaire, which enables it to analyze annually and assess its own performance and management. Our compliance officer, with advice of our general counsel, is responsible for the distribution and analysis of the questionnaire, which is answered individually by each member of the board of directors. Based on the responses, relevant measures suggested by the questionnaire will be put before the board for its review in order to improve its overall performance.Internal Policy on Transactions with Related Parties:the policy requires that all operations involving a significant amount of money that are carried out by us with any individual and/or legal entity who, pursuant to the provisions of the regulations then in force, is considered a “related party” be subject to a prior and specific authorization and control procedure, which is implemented under the supervision of our compliance officer, with advice of our general counsel and would involve both our board of directors and the audit committee, as applicable. In 2009 we adopted the following polices: Pre-approval of Principal Accountant Services: the policy applies to all services to be rendered by the Principal Accountant and requires the pre-approval by the audit committee of related services and fees.Fraud Prevention Procedures: the purpose of this policy is to prevent and investigate any act in violation of our Business Code of Conduct. To such end we launched a telephone line to receive, in a confidential manner, any information from our employees related to violations to the above mentioned code.Relevant Information Disclosure Policy: the policy regulates the basic principles that guide the operation of the processes to be followed when publishing relevant information about Pampa in accordance with the regulatory requirements imposed by the securities markets where Pampa’s securities are traded or those in which Pampa is a registered issuer. During 2010 we adopted the following policies and practices: Ethics Committee: the committee isentrusted with the mission of reviewing every case and making a decision concerning the actions to be implemented vis-á-vis behaviors, acts or events which, having been analyzed in the light of the procedures prescribed by each one of Pampa’s corporate governance policies in place, represent a severe policy violation. Compensation of Directors and Officers The Argentine Corporate Law provides that the compensation payable to all directors (including those directors who are also members of senior management) in a fiscal year may not exceed 5% of net income for such fiscal year, if the company is not paying dividends in respect of such net income. The Argentine Corporate Law increases the annual limitation on director compensation to up to 25% of net income if all the net income for such year is distributed as dividend. The percentage decreases proportionally based on the relation between the net income and the dividends distributed. The Argentine Corporate Law also provides that the shareholders’ meeting may approve the remuneration of the directors in excess of the limits set by the Argentine Corporate Law in case the company has no net income or the net income is low, if the relevant directors performed during such fiscal year special commitments or technical-administrative functions. The audit committee approves proposals presented by our board of directors with respect to the compensation of our directors who are also executive officers. See “Audit Committee—Compensation Policy.” The compensation of all directors and members of the supervisory committee requires shareholders’ approval at an ordinary shareholders’ meeting. During the fiscal year ended December 31, 2010, the aggregate compensation we paid our directors and executive officers who are also members of our Board of Directors was approximately U.S. $1.4 million, which 163


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were approved by our audit committee. We do not currently have any pension plan in place for our directors and executive officers. Share Ownership As of May 31, 2010, Marcos Marcelo Mindlin owns shares representing, in aggregate, 2.04% of our capital stock. Gustavo Mariani, Ricardo Alejandro Torres and Diego Martín Salaverri each own shares representing, in the aggregate, less than one percent of our capital stock. No other member of our board of directors or our senior management beneficially owns any shares of our capital stock. See “Item 7. Major Shareholders and Related Party Transactions.” Opportunities Assignment Agreement and Warrants On September 27, 2006, we executed the Opportunities Assignment Agreement with Marcelo Mindlin, Damián Mindlin, Gustavo Mariani and Ricardo Torres. As amended, the Opportunities Assignment Agreement provides that, until September 28, 2014, these four individuals are obliged to offer to us on a priority basis any investment opportunity relating to assets and opportunities in the energy sector (including electricity, oil and gas and alternative energies) in all the stages of its production and commercialization in or outside Argentina that each of these four individuals or all of them as a group may identify, provided that such investment is within our financial possibilities. As consideration for the agreement by Marcelo Mindlin, Damián Mindlin, Gustavo Mariani and Ricardo Torres to offer to us the investment opportunities mentioned above, our shareholders approved the issuance of certain warrants to these four individuals on June 16, 2006. Such warrants were issued to these individuals on September 27, 2006 in connection with the September 2006 capital increase. As amended, the warrants agreements provide that the warrants shall confer to Marcelo Mindlin, Damián Mindlin, Gustavo Mariani and Ricardo Torres (or any company controlled by any of them that holds such warrants), on their respective exercise date, the right to subscribe for shares of our common stock representing as of the date of this annual report 20% of our outstanding capital. The warrants are issued in three series divided into three equal parts (Series I, II and III). Series I, Series II and Series III warrants will vest by fifths on each of September 28, 2010, September 28, 2011, September 28, 2012, September 28, 2013, and September 28, 2014. The exercise period for the warrants is 15 years, commencing on their issuance date on September 27, 2006. The exercise price of the warrants is U.S. $0.27. Both the exercise price and the number of shares that may be subscribed for by exercising the warrants are subject to certain adjustments that are aimed at preserving the value of the warrants throughout their term. Events that would trigger the adjustment of the exercise price and/or the number of underlying shares that the warrants give the right to purchase include, among others, stock dividends or capitalization of reserves, corporate reorganizations such as mergers (excluding a merger in which the company is the surviving company), reclassifications of securities, splits, subdivisions or combinations of shares, distributions of dividends, which in the aggregate and in the respective fiscal year exceed in relation to each share 5% of the market price corresponding to such fiscal year and any event of acceleration under the terms of the warrants. Following our acquisition of Edenor in September 2007, the warrants and the Opportunities Assignment Agreement were amended to provide, among other things, that the warrants will no longer be adjusted in connection with future capital increases, following the September 2007 capital increase, but excluding stock dividends or capitalization of reserves. Additionally, in August 2006, the CNV authorized, on a general basis and subject to the satisfaction of certain conditions, which conditions were fulfilled in October 2006, the making of a public offer of these warrants. Under the terms of the Opportunities Assignment Agreement, if any of Marcelo Mindlin, Damián Mindlin, Gustavo Mariani or Ricardo Torres defaults in his respective obligation to offer to us the investment opportunities mentioned above (subject to the terms and conditions of the Opportunities Assignment Agreement), such individual stands to lose his right to exercise any warrants that have not vested as of the date of such default. Conversely, the removal of any of them without cause from their position as directors of the company constitutes an event that triggers the acceleration of the warrants held by the removed executives that were not then vested. In addition, under the terms of the Opportunities Assignment Agreement, in the event of the death or incapacity of any of the 164


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executives, among other situations that may affect, on a permanent basis, their ability to perform their obligations under the Agreement, the non-vested warrants that correspond to the affected executive will be redistributed among the remaining managers, on apro ratabasis. The table below sets forth the number of shares that are subject to the warrants held directly or indirectly by each of Marcelo Mindlin, Damián Mindlin, Gustavo Mariani and Ricardo Torres as of the date of this annual report: Warrant Holder
     Total number ofshares subject towarrantsMarcos Marcelo Mindlin
     242,283,336Damián Miguel Mindlin
     52,462,928Gustavo Mariani
     52,462,928Ricardo Alejandro Torres
     34,339,371Total
     381,548,563
  On August 3, 2009, we received a communication from the executives in which they stated that aiming to emphasizing even more their commitment with our sustained growth, each of them has personally and irrevocably waived their right to exercise any option accrued in their favor (or their transferees) and to receive our shares of common stock underlying such options before September 28, 2013. Consequently, none of the executives will exercise options accrued and received through September 28, 2012, before September 28, 2013. Employees Excluding those employed by us on a temporary basis, at December 31, 2010, we, together with our co-controlled companies, had 4,665 full time employees. The following table sets forth the number of our full-time employees by segment for the periods indicated: At December 31, 2010
     
     At December 31, 2009
     
     At December 31, 2008Union
     Non-Union
     Total
     
     Union
     Non-Union
     Total
     
     Union
     Non-Union
     TotalGeneration
     335
     310
     645
     
     316
     295
     611
     
     306
     163
     469Transmission(1)
     841
     496
     1,337
     
     809
     492
     1,301
     
     793
     431
     1,224Distribution
     2,162
     509
     2,671
     
     2,179
     513
     2,692
     
     2,000
     489
     2,489Holding  and Others
     -
     12
     12
     
     -
     9
     9
     
     -
     119
     119Total
     3,338
     1,327
     4,665
     
     3,304
     1,309
     4,613
     
     3,099
     1,202
     4,301
  (1)
     Includes the total number of employees of each company in which we have a co-controlling interest. We proportionally consolidate our share of the associated costs related to these employees. See “Presentation ofInformation—Financial Information—Proportionate consolidation of certain subsidiaries.”
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Approximately 71.6% of our work force is affiliated with a union and/or is a party to a collective bargaining agreement. We have completed salary negotiations for 2010, but due to inflationary pressures, we reopened negotiations during the first months of 2011. We maintain a positive relationship with each of the employee unions at our subsidiary companies. To date, we have experienced no labor strikes or work stoppages.





We offer a variety of benefits beyond those required by the Argentine Labor Contract Law, but make no payments to retirees or terminated employees. In accordance with the agreements we have entered with the unions at some of our subsidiaries, we are required to pay certain seniority premiums to retiring employees as a one time payment upon retirement.







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Item 7. Major Shareholders and Related Party Transactions Major Shareholders Prior to May 31, 2006, we had 6 million outstanding common shares, with a par value of Ps. 1.00 per share. On May 31, 2006, September 28, 2006 and February 1, 2007, we consummated capital increases of 140 million, 300 million and 600 million additional shares, respectively. Also, on September 28, 2007, we issued an additional 480,194,242 shares to the former indirect shareholders of EASA (including shares in the form of GDSs) in connection with our acquisition of Edenor. Due to the recent international economic crisis and the fluctuation in the price of our shares, on September 8, 2008, and again on April 16, 2009, our board of directors approved a share repurchase program, through which we acquired 211,883,347 shares, or 13.9%, of our then outstanding capital stock, through transactions in the local market. In the meeting held on April 23, 2010, our shareholders decided to reduce our capital stock in an amount equal to the shares acquired under our share repurchase program. On March 8, 2010, the Buenos Aires Stock Exchange authorized the share capital reduction approved by our shareholders. On September 13, 2010, the Argentine Securities Commission proceeded with the reduction of capital. As a result, as of the date of this annual report, our share capital authorized for public trading is Ps. 1,314,310,895, represented by 1,314,310,895 common shares of par value Ps. 1 and with right to one vote per share. The ADS Depositary has informed us that, as of June 22, 2011, there were approximately 28.2 million outstanding ADSs. In addition, as of the date of this annual report, Marcelo Mindlin, Damián Mindlin, Gustavo Mariani and Ricardo Torres collectively hold, directly or indirectly, an aggregate of 381,548,563 warrants. See “—Related Party Transactions—Opportunities Assignment Agreement and Warrants.” Through our share repurchase programs, we owned 211,883,347 shares of our common stock as of May 31, 2010. See “Item 9. The Offer and Listing—Share Repurchase Program.” The table below sets forth information concerning the ownership of our common shares as of May 31, 2011: Number
     Percentage
     Percentage ofName of Shareholder
     of shares
     of capital
     voting powerPampa Holdings LLC(1)(2)
     171,788,457
     13.07%
     13.07%ANSES(3)
     295,765,953
     22.50%
     22.50%Marcos Marcelo Mindlin(4)
     22,183,840
     1,69%
     1,69%Gustavo Mariani(4)
     461,432
     0.04%
     0.04%Ricardo Alejandro Torres(4)
     785,000
     0.06%
     0.06%_____________(1)
     Pampa Holdings LLC and Dolphin Fund Management S.A. are companies indirectly controlled by Messrs. Marcelo Mindlin, Damián Mindlin and Gustavo Mariani, subject to the limitations set forth in note (2) below.(2)
     Pampa Holdings LLC, a Delaware limited liability company, currently has two members with equal economic participations: Pampa F&F LLC and Labmex International S.ar.L. Pampa F&F LLC is a Delaware limited liability company that serves as an investment vehicle for a group of institutional investors, none of which exercises control over Pampa F&F LLC. The managing member of Pampa F&F LLC is Dolphin Fund Management S.A., a Uruguayan corporation controlled by Messrs. Mindlin, Mindlin and Mariani. Labmex International S.ar.L., a Luxembourg limited liability company, is controlled by Tavistock Group, an international private investment group unrelated to Messrs. Mindlin, Mindlin and Mariani. Pampa F&F LLC is the managing member of Pampa Holdings LLC. Labmex International S.ar.L. does not have any veto or other governance rights in Pampa Holdings LLC, except in the case of a conflict of interest arising as a result of Pampa F&F making any decisions or taking any actions on behalf of Pampa Holdings LLC, in its capacity as managing member, in which case such powers are exercised by Labmex International S.ar.L,, pursuant to the terms of the Operating Agreement.(3)
     On November 20, 2008, the Argentine Congress passed a law unifying the Argentine pension and retirement system into a system publicly administered by the Administración Nacional de la Seguridad Social(National Social Security Agency, or ANSES) and eliminating the retirement savings system previously administered by private pension funds under the supervision of a governmental agency. In accordance with the new law, private pension funds transferred all of the assets administered by them under the retirement savings system to the ANSES. These transferred assets included 295,765,953 common shares of the Company, representing 20.50% of our capital stock. The ANSES is subject to the same investment rules, prohibitions and restrictions that were applicable to the Argentine private pension funds under the retirement savings system, except as described in the following sentence. On April 12, 2011, the Executive Power issued Emergency Decree No. 441, which annulled the restrictions under Section 76(f) of Law No. 24,241on the exercise of more than 5% of the voting power in any local or foreign company, such as the Company, in any meeting of shareholders, irrespective of the actual interest held in the relevant company's capital stock. The annulment of the restrictions under Section 76(f) of Law No. 24,241 came into effect on April 14, 2011. As of such date, ANSES may exercise its voting power in any local or foreign company, such as the Company, based on the actual interest held in the relevant company’s capital stock.(4)
     Figures for Messrs. Marcelo Mindlin, Damián Mindlin, Gustavo Mariani and Ricardo Torres do not include the warrants they hold. Assuming the full exercise of the vested warrants held by these individuals, Marcelo Mindlin would then hold 70,640,507 shares, or 5.37% of our capital stock, Damián Mindlin would hold 10,492,586 shares, or 0.80%, Gustavo Mariani would hold 10,954,018, or 0.83%, and Ricardo Torres would hold 7,652,874, or 0.58%. In addition, assuming the vesting and the full exercise of both the vested and unvested warrants held by these individuals, Marcelo Mindlin would then hold 264,467,176 shares, or 20.12% of our capital stock, Damián Mindlin would hold 52,462,928 shares, or 3.99%, Gustavo Mariani would hold 52,924,360, or 4.03%, and Ricardo Torres would hold 35,124,371, or 2.67%. See “Item 6. Directors, Senior Management and Employees—Opportunities Assignment Agreement and Warrants.”167


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Related Party Transactions Argentine corporate law permits directors of a corporation to enter into transactions with that corporation provided that any such transactions are consistent with prevailing market practice. The Transparency Decree provides that corporations whose shares are subject to public offering must submit to their respective audit committees the approval of any transaction with a related party involving an amount that exceeds 1% of the corporation’s net worth. Except as set forth below and as otherwise permitted under applicable law, we are currently not party to any transactions with, and have not made any significant loans to, any of our directors, key management personnel or other related persons, and have not provided any guarantees for the benefit of such persons, nor are there any such transactions contemplated with any such persons. Acquisition of EASA (Edenor) On June 22, 2007, following successful negotiations between a special ad hoc committee of our company and the former indirect shareholders of EASA (which included Messrs. Marcelo Mindlin, Damián Mindlin and Gustavo Mariani, as well as a private equity fund managed by these individuals), we and such former shareholders entered into a memorandum of understanding (MOU) pursuant to which we agreed to acquire from the indirect EASA shareholders their interests in DESA and IEASA, which collectively hold 100% of EASA’s capital stock, in exchange for new shares of our capital stock. On July 31, 2007, we entered into a stock subscription agreement with these indirect EASA shareholders, which ratified the MOU and provided for certain other customary purchase and sale provisions, including representations and warranties and closing conditions. We consummated the acquisition of EASA on September 28, 2007 and issued 480,194,242 shares of our capital stock to the former indirect EASA shareholders pursuant to the terms of the stock subscription agreement, including an aggregate 98,103,717 shares, or 6.43% of our share capital, to Messrs. Marcelo Mindlin, Damián Mindlin and Gustavo Mariani and a private equity fund managed by these individuals. The terms of our acquisition of Edenor from the indirect EASA shareholders (including the related parties described above) were as favorable to us as would be available from an unaffiliated party, and accordingly, received a favorable review by our audit committee following the receipt of a fairness opinion by an established financial institution. The terms were approved by our shareholders’ meeting on August 30, 2007. Acquisition of Transelec (Transener) On September 15, 2006, we executed a purchase and sale agreement with Dolphin Opportunity LLC, a Delaware limited liability company wholly-owned by Dolphin Opportunity Fund LP, a private equity fund managed by Messrs. Marcelo Mindlin, Damián Mindlin and Gustavo Mariani. Pursuant to this agreement, we agreed to acquire 68,400,462 non-voting preferred shares of Transelec, subject to the successful consummation of our September 2006 capital increase. These non-voting preferred shares were convertible at any time at the option of 168


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the holder (and without payment of additional consideration) into common shares representing 89.76% of Transelec’s capital stock. The purchase price for these non-voting preferred shares was U.S. $48.5 million. On September 15, 2006, we consummated our acquisition of Transelec. On December 5, 2006, we exercised our option to convert such non-voting preferred shares into 68,400,462 shares of common stock of Transelec. The remaining 10.24% of Transelec’s capital stock was acquired in January 2008 from Messrs. Marcelo Mindlin, Damián Mindlin and Gustavo Mariani upon the exercise of the put option held by them at a price of Ps. 38.8 million (U.S. $12.3 million). The terms of these transactions were as favorable to us as would be available from an unaffiliated party, and accordingly, our audit committee found that they were consistent with prevailing market practice following its receipt of favorable opinions by two independent firms, Pistrelli, Henry Martin y Asociados S.R.L. and Raymond James Argentina Sociedad de Bolsa S.A. Legal Services During the years ended December 31, 2010, 2009 and 2008, we have engaged the services of the Argentine law firm Errecondo, Salaverri, Dellatorre, González & Burgio. One of our directors, Diego Salaverri, and two members of the supervisory committee, Damián Burgio and German Wetzler Malbran, are partners of this law firm. 169


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Item 8. Financial Information CONSOLIDATED FINANCIAL STATEMENTS See “Item 18. Financial Statements” beginning on page F-1. LEGAL PROCEEDINGS In the normal course of business, we are a party to lawsuits of various types. Our management evaluates the merit of each claim and assesses the likely outcome, recording an accrual in our financial statements for the related contingent liability when an unfavorable decision is probable and the amount may be reasonably estimated. At December 31, 2010, we had established accruals in the aggregate amount of Ps. 69.3 million to cover potential losses from such claims and legal proceedings. Except as disclosed below, we are not a party to any legal proceedings or claims that may have a material adverse effect on our financial position or results of operations. Generation Legal proceedings involving Piedra Buena’s real estate Pursuant to the contracts relating to Piedra Buena’s privatization in 1997, the Province of Buenos Aires transferred all the assets comprising the Piedra Buena facilities to Piedra Buena. Although the real property on which the plant was built was not registered in the name of the Province of Buenos Aires, the Province assumed the obligation to transfer the real property with clear and marketable title to Piedra Buena. As of the date of this annual report, the Province of Buenos Aires has not transferred the real property with clear and marketable title to Piedra Buena but did initiate the expropriation process required to begin the transfer process. Nonetheless, Piedra Buena initiated legal action against the Province of Buenos Aires in order to avoid an expiration of the statute of limitation for an action claiming the transfer of real property. In addition, the Province of Buenos Aires transferred the rights to a 22-kilometer gas pipeline, which runs from Transportadora del Gas del Sur’s General Cerri Plant to Piedra Buena’s Plant in Ingeniero White, Province of Buenos Aires, and the rights over a 27-kilometer electricity transmission line, which runs from Piedra Buena’s Plant in Ingeniero White, Province of Buenos Aires to Estación Transformadora Bahía Blanca. Both the pipeline and the transmission line were built on third party land. Therefore, the Province of Buenos Aires agreed to create administrative easements on the third party land in order to transfer good title for the use of the pipeline and transmission line. The Province of Buenos Aires has not yet created the administrative easements, and in July 2008, Piedra Buena sued the Province of Buenos Aires seeking the creation of the administrative easements in favor of Piedra Buena. Piedra Buena has received several complaint letters from owners of the land through which the pipeline and the electricity transmission line of Piedra Buena run seeking compensation for the use of their land. As of the date of this annual report, these complaints have been limited to such letters and no judicial or administrative action has been filed. As a result, no reserve has been established in Piedra Buena’s financial statements in connection with these real property issues. Transmission Transener legal proceedings On August 8, 2003, the Argentine Federal Tax Bureau notified Transener of an income tax assessment based on various intercompany loans made between 1998 and 2000. The assessment alleged that the intercompany loans included interest rates below standards established under income tax law. Transener appealed the assessment to the Argentine National Tax Court. The claim amounted to Ps. 7.8 million, including principal, interest and penalties. To date, and based on external legal advice, Transener has made no provisions for this contingency in its financial statements. On May 17, 2007, a fire in the Ezeiza transformer station resulted in a disruption of the services provided by that station. Service was partially restored shortly thereafter. In response to the disruption, the ENRE filed charges against Transener alleging certain violations of the quality standards applicable to the transmission services 170


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provided by Transener. In response to the charges, Transener has established a reserve of approximately Ps. 14.0 million to cover the contingent liabilities that could result from penalties in connection with these charges. As of March 23, 2008, the service was fully restored. In addition, Transener is party to several civil, tax, commercial, easement and labor proceedings in the ordinary course of business. As of December 31, 2010, Transener had established reserves in the aggregate amount of approximately Ps. 19.1 million to cover potential losses related to such claims. Distribution Edenor tax claims On December 1, 2003, the Provincial Board of Electric Power of the Province of Buenos Aires initiated a claim against Edenor in the amount of Ps. 51.2 million, which does not include surcharges, interest or penalties accrued in respect of this amount after the date of the claim. At December 31, 2003, the amount of surcharges and interest accrued on the claim, including applied penalties, was Ps. 310 million. In addition, on April 23, 2007, the Board notified Edenor of an additional claim for Ps. 4.0 million, without including surcharges, interest or penalties accrued. The claims are based on an alleged failure to collect, as collection agent, in respect of certain taxes established by Decree Nos. 7290/67 and 9038/78 between July 1997 and June 2001 and between July 2001 and June 2002, respectively. On December 23, 2003, Edenor filed an appeal of the Provincial Board’s decision with the provincial Tax Court of Appeals of La Plata, and enforcement of the judgment was suspended pending the outcome of the appeal. On June 14, 2007, the Court granted Edenor’s appeal and rejected the Provincial Board’s tax claim against Edenor. On June 27, 2007 the provincial Tax Court of Appeals of Buenos Aires rendered a favorable decision in relation to Edenor’s appeal. This decision reaffirms a recent decision by the Supreme Court of the Republic of Argentina in an unrelated case that held that the regulations were unconstitutional due to the commitment assumed by the Province of Buenos Aires to not tax the transfer of electric power. Edenor has not established any provision in its financial statements for this claim. The Argentine federal tax authorities have challenged certain income tax deductions for allowance for doubtful accounts on Edenor’s income tax returns for fiscal years 1996, 1997 and 1998, and have assessed additional taxes of approximately Ps. 9.3 million. Tax related contingencies are subject to interest charges and, in some cases, fines. Edenor has appealed the tax authorities’ ruling before the Argentine federal tax court. During the appeal process payment for such claim is suspended. As of December 31, 2008, Edenor had established a provision for contingencies of Ps. 38.3 million, which includes principal and interest, in relation to this claim. In April 2009, Edenor decided to participate in the federal tax amnesty program. Under the terms of the amnesty, Edenor agreed to the following: The Argentine federal tax authorities forgive any punitive interest in excess of 30% and any fines and penalties that are not yet definitive at the time of Edenor’s agreement to accept the amnesty;Edenor pays 6% of its total tax liability at the time it agrees to accept the amnesty and the remaining balance is payable in 120 monthly installments, plus interest at a rate of 0.75% per month; andEdenor receives a 30% to 50% reduction in fees owed to tax agents. In accordance with the assessment of the tax regularization plan, Edenor’s debt amounts to Ps. 12.1 million plus interest amounting to Ps. 5.2 million. As of December 31, 2010, Edenor had paid Ps. 2.6 million of this amount, thus the remaining balance of its debt totals Ps. 10.4 million, excluding the interest amount. Although Edenor expects that all federal tax claims against them will be dropped upon their payment of these amounts, there are no assurances that this will be the case or that new tax claims will not be brought against Edenor in the future. 171


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Edenor environmental claims On May 24, 2005, three of Edenor’s employees were indicted on charges of PCB-related environmental contamination dangerous to human health, which is a crime under Argentine law. In connection with this alleged infraction, the judge sought a pre-judgment attachment of Edenor’s assets in the amount of Ps. 150 million to cover the potential cost of environmental damages and estimated clean-up costs. On May 30, 2005, Edenor appealed the charges against its employees as well as the attachment order. On December 15, 2005, the court of appeals dismissed the charges against all three defendants for lack of evidence and, accordingly, vacated the attachment order. The decision by the court of appeals also stated that the trial judge should order the acquittal of two public officers of the ENRE, who had been indicted on related charges. This decision was appealed to theTribunal de Casación(National Criminal Appellate Court), the highest appellate body for this matter, which on April 5, 2006 ruled that the appeal of the decision relating to Edenor’s employees and Edenor was not admissible because decisions rendered on grounds of lack of evidence are not reviewable. On July 16, 2007, Edenor was notified that on July 11, 2007, the trial judge issued acquittals for all of the Edenor’s officials and employees that had been indicted. On appeal on March 25, 2008, theSala I de la Cámara Federal de San Martín(First Court of the Federal Circuit of San Martín) upheld the acquittals and confirmed the finding that there had been insufficient evidence to prove any PCB contamination. This decision was appealed on April 18, 2008 by theMinisterio Público(Attorney General) before the First Court of the Federal Circuit of San Martín. The court confirmed the decision that the existence of PCB contamination was inconclusive. The Attorney General appealed the court’s decision before the National Appellate Court, which rejected the appeal in December 2008. The Attorney General then presented an “extraordinary federal appeal” before the same National Appellate Court, which was rejected on May 27, 2009. The Attorney General filed an appeal (“Recurso de Queja”) to the Argentine Supreme Court requesting that the appeal dismissed by the National Criminal Appellate Court be sustained. As of the date of this annual report, the appeal is being analyzed by the Supreme Court. This appeal was dismissed by the Supreme Court on May 26, 2010. There are no instances and/or potential appeals that may be brought against such decision. Proceedings challenging the renegotiation of Edenor’s concession In November 2006, two Argentine consumer associations,Asociación Civil por la Igualdad y la Justicia(ACIJ) and Consumidores Libres Cooperativa Limitada de Provisión de Servicios de Acción Comunitaria, brought an action against Edenor and the Argentine government before a federal administrative court seeking to block the ratification of the Adjustment Agreement on the grounds that the approval mechanism was unconstitutional. On March 26, 2007, the federal administrative court dismissed these claims and ruled in Edenor’s favor on the grounds that the adoption of Executive Decree No. 1957/06, which ratified the Adjustment Agreement, rendered the action moot. ACIJ appealed this decision on April 12, 2007, and the appeal was decided in Edenor’s favor. However, on April 14, 2008, ACIJ filed another complaint challenging the procedures utilized by the Argentine Congress in approving the Adjustment Agreement. Specifically, the claim alleges that Article 4 of Law No. 24,790, which authorized the Congress to tacitly approve agreements negotiated between the Argentine government and public service companies, such as Edenor, violated the Congressional procedures established in the Argentine Constitution. ACIJ has requested that the Adjustment Agreement be renegotiated and submitted to Congress for its express approval. Edenor has responded to this complaint, which is in the sentencing period. In December 2009, an Argentine consumer association,Unión de Usuarios y Consumidores,brought an action against Edenor and the Argentine government before a federal administrative court seeking to (i) abrogate Clause 4.6 of Annex I of the Adjustment Agreement, which provides that the rate increase has retroactive effects; (ii) annul ENRE Resolution No. 51/07, which authorizes the retroactive increase of rates in Edenor’s favor; (iii) obtain an order that requires that Edenor reimburses its users the full amounts paid by them based on the retroactive rate increase and that such reimbursement be made by crediting the users’ accounts. On November 11, 2010, the judge upheld the claim and ordered that (i) Clause 4.1 of Annex I of Decree No. 1957/06 and Articles 2, 3 and 4 of ENRE Resolution 51/07, which had authorized the retroactive rate increase for the period between 11/1/2005 and 1/31/2007, be annulled; (ii) the fees collected retroactively during such period be repaid to the users; (iii) the ENRE be instructed to control Edenor’s distribution of refunds and to report the results to the court; and (iv) each party bear its own court-related costs. On November 25, 2010, Edenor appealed the court’s order and requested that the court’s order be stayed pending a decision on the appeal. On December 2, 2010, the court stayed its order pending a decision on the appeal. On June 1, 2011, the Administrative Court of Appeals (Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal – Sala V) overturned the judgment of the lower administrative court. 172


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We cannot make assurances regarding how these complaints will be resolved nor can we make assurances that other actions or requests for injunctive relief will not be brought by these or other groups seeking to reverse the adjustments Edenor has obtained or to block any further adjustments to its tariffs. The Preliminary Injunction of the Public Ombudsman On October 31, 2008, the Secretary of Energy approved the new seasonal reference prices of power and energy in the WEM. Consequently, the ENRE applied the new rate schedule as of October 1, 2008. The new rate schedule passed the purchase price of electricity as well as the other costs related to the WEM, including transmission, to the final customer. In response to the new tariff schedule, thedefensor del pueblo(Public Ombudsman) filed a claim opposing the resolutions establishing the October 1, 2008 tariff schedule and naming Edenor as defendant. On January 27, 2009, the ENRE notified Edenor of a preliminary injunction, as a result of the Ombudsman’s claim, pursuant to which Edenor was ordered to refrain from cutting the energy supply to customers challenging the October 2008 tariff increase until a decision is reached with respect to the claim. This injunction has been appealed by Edenor and the Argentine government, the resolution of which is still pending as of the date of this annual report. On August 14, 2009, the Secretary of Energy issued Resolution No. 652/09, which ordered the suspension of the certain reference market prices of energy, and established new reference prices for the periods from June to July 2009 and from August to September 2009, reinstating partial government subsidies to the electricity generation sector. Furthermore, the resolution also established the unsubsidized reference market prices of energy for the months of June and July 2009 and August to October 2009. On October 26, 2009, Edenor received notice of a complaint filed by two consumer associations, Consumer’s Cooperative for Community Action and the Unión de Usuarios y Consumidores against the Argentine government, the ENRE, Edesur, Edelap and Edenor. In accordance with the terms of the complaint, two additional associations for the defense of consumer rights, Asociación de Defensa de los Derechos de los Usuarios y Consumidores (Association for the Legal Defense of Consumers) and Unión de Usuarios y Consumidores en Defensa de sus Derechos (Consumers Union Legal Defense), have joined the complaint. The remedies sought in the complaint are as follow: that all the most recent resolutions concerning electricity rates issued by the ENRE and the Secretary of Energy be declared null and unconstitutional, and, as a consequence that the amounts billed by virtue of these resolutions be refunded.that all the defendants be required to carry out the RTI.that the resolutions issued by the Secretary of Energy that extend the transition period of the Adjustment Agreement be declared null and unconstitutional.that the defendants be ordered to carry out the sale process, through an international public bidding, of their respective class "A" shares, due to the fact that the management period of the respective concessions has ended.that the resolutions as well as any act performed by a governmental authority that modify contractual renegotiations be declared null and unconstitutional.that the resolutions that extend the management periods contemplated in the defendant’s respective concessions be declared null and unconstitutional.Alternatively, should the main claim be rejected, that the defendants be ordered to bill all customers on a bimonthly basis. Additionally, the plaintiffs requested that the court issue a preliminary injunction suspending the rate hikes established in the resolutions questioned by the plaintiff. Alternatively, the plaintiffs requested that the application of the resolutions be partially suspended. Finally, the plaintiffs also requested that the application authority be ordered not to issue new increases other than within the framework of the RTI process. As of the date of this annual report, the court has neither granted nor rejected these requests. 173


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Breach of Contract Claims In March, 2010Consumidores Financieros, Asociación Civil Para Su Defensa,a consumers’ association, instituted an action against Edenor andEdesurin the National Court of First Instance in Federal Administrative Claims Tribunal No. 2, Secretariat 3 (Juzgado Nacional de Primera Instancia en lo Contencioso Administrativo Federal No2, Secretería 3) seeking repayment to users for alleged excess charges over the course of the past 10 years. The action is based on three claims. First, the plaintiffs claim a refund for the percentage payment of VAT over a taxable base they allege was inappropriately increased to include an amount that exceeded Edenor’s and Edesur’s own payments to the wholesale electricity market. Second, the plaintiffs claim a refund for charges relating to interest on payments by customers that the plaintiffs claim Edenor and Edesur failed to adjust to reflect the actual number of days the payment was outstanding. Finally, the plaintiffs claim a refund for late payment charges from 2008 onwards calculated at the rate of thetasa pasiva(the interest rate thatBanco de la Nación Argentinapays on deposits) in alleged contravention of the Law of Consumer Defense (Ley de Defensa del Consumidor) in April 2008. Edenor has given express directions to its legal advisors to contest the suit and April 22, 2010, Edenor answered the complaint and filed a motion to dismiss for lack of standing on the part of the plaintiffs. We can give no assurance that these actions or other potential future actions or requests for injunctive relief will not reverse the adjustments Edenor has obtained or block any further adjustments to its tariffs. DIVIDENDS In accordance with the provisions of the Argentine Personal Asset Tax Law, we are required to pay the personal asset tax, payable by all of our shareholders who are subject to the tax to theAdministración Federal de Ingresos Públicos(Argentine Tax Authority, or AFIP) as of December 31 of each year. Although the law permits companies to recover the amounts paid, recovery can be burdensome. In practice, companies usually bear the cost of this tax, which adversely affects their results and does not generate any income tax deduction. After review and analysis of the alternatives for public companies in Argentina to recover such tax payments, we established a policy in December 2007 to pay a dividend in advance of the tax payment in an offsetting amount. In December 2008, we declared an advance dividend of Ps. 18.3 million. As of the first business day of 2009, a new security was created to represent this advance dividend, in the form of a book-entry coupon. The payment of the book-entry coupon was deferred to March 19, 2009, the date when the final amount payable to the AFIP would be assessed. The book-entry coupon could not be transferred before such payment date. Accordingly, our shares began trading with this coupon as of the first business day of 2009. In December 2009, we declared an advance dividend of Ps. 18.3 million. As of the first business day of 2010, a new security was created to represent this advance dividend, in the form of a book-entry coupon. The payment of the book-entry coupon was deferred to March 26, 2010, the date when the final amount payable to the AFIP would be assessed. The book-entry coupon could not be transferred before such payment date. Accordingly, our shares began trading with this coupon as of the first business day of 2010 In December 2010, we declared an advance dividend of Ps. 18.1 million. As of the first business day of 2011, a new security was created to represent this advance dividend, in the form of a book-entry coupon. The payment of the book-entry coupon was deferred to March 28, 2011, the date when the final amount payable to the AFIP would be assessed. The book-entry coupon could not be transferred before such payment date. Accordingly, our shares began trading with this coupon as of the first business day of 2011. We have paid no other dividends over the past three years. Although we do not have a formal dividend policy, we could decide to pay dividends in the future in accordance with applicable law and based on various factors then existing. See “Item 10. Additional Information—Share Capital—Dividends.” 174


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Item 9. The Offer and Listing TRADING HISTORY Our capital stock is comprised of common shares, with a par value of Ps. 1.00 each. For a summary of the number of outstanding shares of each series, see “Item 10. Additional Information—Share Capital.” Each share entitles the holder thereof to one vote at shareholders’ meetings. All outstanding shares are fully paid in and our common shares have been listed on the Buenos Aires Stock Exchange since 1947. Since October 9, 2009, our ADSs have been listed on the New York Stock Exchange (NYSE). The ADSs have been issued by the Bank of New York as depositary. Each ADS represents 25 common shares. Shares Our common shares are currently traded on the Buenos Aires Stock Exchange under the symbol “PAMP”, and our ADSs are traded on the NYSE under the symbol “PAM”. The following table sets forth, for the years indicated, the reported high and low sales prices as well as the average daily trading volume of our shares traded on the Buenos Aires Stock Exchange, and of our ADSs traded on the NYSE: Buenos Aires Stock Exchange
     
     New York Stock ExchangeAverage Daily
     
     
     
     
     
     Average DailyPesos per Share
     
     Trading Volume
     
     U.S. dollars per ADS
     
     Trading VolumeHigh
     
     Low
     
     Pesos
     
     High
     
     Low
     
     U.S. dollars2006
     Ps.         3.85
     
     Ps.         1.09
     
     Ps.        1,487,333
     
     N.A.
     
     N.A.
     
     N.A.2007
     3.02
     
     2.12
     
     9,018,180
     
     N.A.
     
     N.A.
     
     N.A.2008(1)
     2.55
     
     0.72
     
     5,450,027
     
     N.A.
     
     N.A.
     
     N.A.2009(1)(2)
     2.00
     
     0.90
     
     3,547,851
     
     13.83
     
     9.33
     
     773,8822010(1)
     Ps.         2.88
     
     Ps.         1.55
     
     Ps.        3,585,038
     
     U.S.$   17.99
     
     U.S.$     9.80
     
     U.S.$    1,020,614
  The following table sets forth, for the periods indicated, the reported high and low sales prices as well as the average daily trading volume of our shares traded on the Buenos Aires Stock Exchange, and of our ADSs traded on the NYSE:
 175


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Table of Contents  Buenos Aires Stock Exchange
     
     New York Stock ExchangeAverage Daily
     
     
     
     
     
     Average DailyPesos per Share
     
     Trading Volume
     
     U.S. dollars per ADS
     
     Trading VolumeHigh
     
     Low
     
     Pesos
     
     High
     
     Low
     
     U.S. dollars2009(1)First Quarter
     Ps.         1.07
     
     Ps.         0.90
     
     Ps.        1,311,671
     
     N.A.
     
     N.A.
     
     N.A.Second Quarter
     1.22
     
     0.94
     
     1,723,851
     
     N.A.
     
     N.A.
     
     N.A.Third Quarter
     1.93
     
     1.15
     
     5,316,457
     
     N.A.
     
     N.A.
     
     N.A.Fourth Quarter(2)
     2.00
     
     1.58
     
     5,795,135
     
     13.83
     
     9.33
     
     773,8822010(1)First Quarter
     1.83
     
     1.59
     
     2,790,596
     
     12.00
     
     10.24
     
     550,242Second Quarter
     1.85
     
     1.55
     
     2,455,590
     
     11.88
     
     9.80
     
     555,662Third Quarter
     1.81
     
     1.60
     
     1,758,471
     
     11.56
     
     10.09
     
     385,489Fourth Quarter
     2.88
     
     1.79
     
     7,483,747
     
     17.99
     
     11.25
     
     2,561,7522011(1)First Quarter
     Ps.         3.03
     
     Ps.         2.34
     
     Ps.        4,157,534
     
     U.S.$   18.70
     
     U.S.$   13.93
     
     U.S.$    1,103,808




The following table sets forth, for the months indicated, the reported high and low sales prices as well as the average daily trading volume of our shares traded on the Buenos Aires Stock Exchange, and of our ADSs traded on the NYSE:

Buenos Aires Stock Exchange
     
     New York Stock ExchangeAverage Daily
     
     
     
     
     
     Average DailyPesos per Share
     
     Trading Volume
     
     U.S. dollars per ADS
     
     Trading VolumeHigh
     
     Low
     
     Pesos
     
     High
     
     Low
     
     U.S. dollars2010(1)November
     Ps.         2.75
     
     Ps.         2.21
     
     Ps.      10,071,929
     
     U.S.$   17.12
     
     U.S.$   13.75
     
     U.S.$    3,230,726December
     2.88
     
     2.58
     
     6,154,301
     
     17.99
     
     16.10
     
     1,896,2492011(1)January
     3.03
     
     2.64
     
     5,756,718
     
     18.70
     
     16.47
     
     1,283,776February
     2.84
     
     2.60
     
     3,610,977
     
     17.20
     
     15.50
     
     777,810March
     2.55
     
     2.34
     
     2,965,337
     
     15.31
     
     13.93
     
     1,216,617April
     2.55
     
     2.35
     
     2,855,225
     
     15.13
     
     13.88
     
     1,082,423May
     2.68
     
     2.54
     
     2,603,519
     
     15.52
     
     14.70
     
     1,153,710June(3)
     Ps.         2.63
     
     Ps.         2.51
     
     Ps.        3,378,772
     
     U.S.$   15.19
     
     U.S.$   14.49
     
     U.S.$       867,069
 (1)
     
     2008, 2009 and 2010 values as provided by Bloomberg.(2)
     
     Values available for our ADSs from October 9, 2010, the first trading date on the NYSE.(3)
     
     From June 1 through June 22, 2011.
  Share Repurchase Program Due to the recent international economic crisis and the fluctuation in the price of our shares, on September 8, 2008, our board of directors approved a share repurchase program, through which we have acquired shares through transactions in the local market. In addition, we have launched three local tender offers for the acquisition of our ordinary shares in recent months. After each of our tender offers were completed, we resumed open market repurchases. In first local tender offer, launched on October 21, 2008, we acquired 70,000,000 shares of our common stock. In the second local tender offer, launched on November 7, 2008, we acquired 15,384,730 shares of our common stock. In the third local tender offer, launched on January 30, 2009, we acquired 46,689,578 shares of our common stock. With this third tender offer our total holdings of our common stock reached 10% of our total 176


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capital stock, the maximum amount that listed companies are permitted to acquire under applicable Argentine regulations. However, due to the current instability in stock prices, the CNV waived this 10% limit until June 2009. On April 16, 2009, our board renewed the share repurchase authorization, and we continued repurchasing shares in the open market until June 30, 2009. As of May 31, 2010, we held 211,883,347 shares, or 13.9%, of our capital stock. In the meeting held on April 23, 2010, our shareholders decided to reduce our capital stock in the amount equal to the shares acquired under our share repurchase program. On March 8, 2010, the Buenos Aires Stock Exchange authorized the share capital reduction approved by our shareholders. On September 13, 2010, the Argentine Securities Commission proceeded with the reduction of capital, which means that our share capital authorized for public trading as of the date of this annual report is Ps. 1,314,310,895, represented by 1,314,310,895 common shares of par value Ps. 1 and with right to one vote per share. Global Depositary Receipts (GDRs) From December21, 2006, to October 9, 2009 our GDRs were listed on the Luxembourg Stock Exchange and traded on the Euro MTF Market, the exchange-regulated market operated by the Luxembourg Stock Exchange. Each GDR represented 25 common shares. There was practically no trading activity on the Euro MTF Market of our shares. The last trade occurred on March 5, 2007. On August 5, 2009 the U.S. Securities and Exchange Commission declared effective the registration of our common shares and our American Depositary Shares (“ADSs”) under the U.S. Securities Exchange Act of 1934. On August 14, 2009 we converted all of our outstanding GDRs into ADSs. We delisted our ADSs from the Luxembourg Stock Exchange on October 9, 2009, upon the listing of our ADSs on the New York Stock Exchange. American Depositary Shares (ADSs) Since October 9, 2009, our ADSs have been listed on the New York Stock Exchange (NYSE) and trade under the ticker PAM. Each ADS represents 25 common shares (or a right to receive 25 common shares). Each ADS will also represent any other securities, cash or other property which may be held by the ADS Depositary, the Bank of New York Mellon. The ADS Depositary’s office at which the ADRs are administered is located at 101 Barclay Street, 22W, New York, NY 10280. See “Item 12. Description of Securities Other than Equity Securities—Description of American Depositary Shares.” The Designated Market Maker on the trading floor of the NYSE for our ADSs is Barclays Capital. The ADS Depositary has informed us that, as of June 22, 2011, there are approximately 28.5 million outstanding ADSs. THE ARGENTINE SECURITIES MARKET Trading on the Buenos Aires Stock Exchange Trading in the Argentine securities market The securities market in Argentina is comprised of 10 stock exchanges consisting of the Buenos Aires Stock Exchange, Bahía Blanca, Córdoba, La Plata, La Rioja, Mendoza, Rosario, Santa Fe, Tucumán and Confederada. Six of these exchanges (Buenos Aires, Rosario, Córdoba, Mendoza, Santa Fe, and La Rioja) have affiliated stock markets and, accordingly, are authorized to quote publicly offered securities. Securities listed on these exchanges include corporate equity and bonds and government securities. The Buenos Aires Stock Exchange is the principal and longest-established exchange in Argentina and is currently the fourth largest exchange in Latin America in terms of market capitalization. The Buenos Aires Stock Exchange began operating in 1854 and accounts for approximately 95% of all equity trading in Argentina. Bonds listed on the Buenos Aires Stock Exchange may simultaneously be listed on theMercado Abierto Electrónico(Electronic Open Market), the Argentine over-the-counter market, or MAE, pursuant to an agreement between Buenos Aires Stock Exchange and MAE which stipulates that equity securities are to be traded exclusively on the Buenos Aires Stock Exchange while debt securities (both public and private) may be traded on both the MAE and 177


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the Buenos Aires Stock Exchange. In addition, through separate agreements with the Buenos Aires Stock Exchange, all of the securities listed on the Buenos Aires Stock Exchange may be listed and subsequently traded on the Córdoba, Rosario, Mendoza, La Plata and Santa Fé exchanges, by virtue of which many transactions originating on these exchanges relate to Buenos Aires Stock Exchange-listed companies and are subsequently settled in Buenos Aires. Although companies may list all of their capital stock on the Buenos Aires Stock Exchange, controlling shareholders in Argentina typically retain the majority of a company’s capital stock, resulting in a relatively small percentage of active trading of the companies’ stock by the public on the Buenos Aires Stock Exchange. Argentina’s equity markets have historically been comprised of individual investors, though in the past years, there has been an increase in the level of investment by institutional investors in these markets. The participation of theAdministración Nacional de la Seguridad Social(ANSES) as equity holder in Argentine publicly traded companies after the elimination of the Argentine pension funds resulted in a decrease in the trading of equity in the Buenos Aires Stock Exchange market; however, Argentinefondos comunes de inversión(mutual funds), insurance companies and other institutional investor continue sustaining the Buenos Aires Stock Exchange trading. During the year ended December 31, 2010, 89 companies traded shares on the Buenos Aires Stock Exchange, for a total value traded of Ps. 14,955 million. The ten most traded companies accounted for 81.3% of that volume. Pampa Energía S.A. was the fourth most traded stock on the Buenos Aires Stock Exchange in 2010, with 6.7% of the total value traded during 2010. TheMercado de Valores de Buenos Aires(Buenos Aires Stock Market, or MERVAL) is the largest stock market in Argentina and is affiliated with the Buenos Aires Stock Exchange. MERVAL is a corporation consisting of 135 shareholder members who are the sole individuals or entities authorized to trade, either as principals or agents, in the securities listed on the Buenos Aires Stock Exchange. Trading on the Buenos Aires Stock Exchange is conducted either through the traditional auction system from 11:00 a.m. to 5:00 p.m. on trading days, or through theSistema Integrado de Negociación Asistida por Computación(Computer-Assisted Integrated Negotiation System, or SINAC). SINAC is a computer trading system that permits trading in both debt and equity securities and is accessed by brokers directly from workstations located in their offices. Currently, all transactions relating to listed negotiable obligations and listed government securities can be effectuated through SINAC. In order to control price volatility, MERVAL imposes a 15-minute suspension on trading when the price of a security registers a variation in price between 10% and 15% and between 15% and 20%. Any additional 5% variation in the price of a security will result in additional 10-minute successive suspension periods. Regulation of the Argentine securities market The Argentine securities market is regulated and overseen by the CNV, pursuant to Law No. 17,811, as amended, which in addition to having created the CNV governs the regulation of security exchanges, as well as stockbroker transactions, market operations, the public offering of securities, corporate governance matters relating to public companies and the trading of futures and options. Argentine insurance companies are regulated by a government agency, theSuperintendencia de Seguros de la Nación, whereas financial institutions are regulated primarily by the Central Bank. In Argentina, debt and equity securities traded on an exchange or the over-the-counter market must, unless otherwise instructed by their shareholders, be deposited with Caja de Valores S.A. (Caja de Valores), a corporation owned by the Buenos Aires Stock Exchange, MERVAL and certain provincial exchanges. Caja de Valores S.A. is the central securities depositary of Argentina and provides central depositary facilities, as well as acting as a clearinghouse for securities trading and as a transfer and paying agent for securities transactions. Additionally, Caja de Valores S.A. handles the settlement of securities transactions carried out by the Buenos Aires Stock Exchange and operates the computerized exchange information system mentioned above. Despite a change in the legal framework of Argentine securities trading in the early 1990s, which permitted the issuance and trading of new financial products in the Argentine capital markets, including commercial paper, new types of corporate bonds and futures and options, and significant corporate governance regulations introduced in 2001 as further described below, there is still a relatively low level of regulation of the market for Argentine securities and investors’ activities in such markets and enforcement of them has been extremely limited. Because of the limited exposure and regulation in these markets, there may be less publicly available information about Argentine companies than is regularly published by or about companies in the United States and certain other 178


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countries. However, the CNV has taken significant steps to strengthen disclosure and regulatory standards for the Argentine securities market, including the issuance of regulations prohibiting insider trading and requiring insiders to report on their ownership of securities, with associated penalties for noncompliance. In order to improve Argentine securities market regulation, the Argentine government issued Decree No. 677/01 on June 1, 2001, which provided certain guidelines and provisions relating to capital markets transparency and best practices. Decree No. 677/01 applies to individuals and entities that participate in the public offering of securities, as well as to stock exchanges. Among its key provisions, the decree broadens the definition of a “security,” governs the treatment of negotiable securities, regulates mandatory and voluntary tender offers, authorizes market stabilization transactions under certain circumstances, governs insider trading, market manipulation and securities fraud, regulates going-private transactions and acquisitions of voting shares, including controlling stakes in public companies and set forth a number of corporate governance standards including regulations regarding treatment of related party transactions and establishment of independent audit committees in publicly traded companies. Before offering securities to the public in Argentina, an issuer must meet certain requirements established by the CNV with regard to the issuer’s assets, operating history and management, among others, and only securities for which an application for a public offering has been approved by the CNV may be listed on a stock exchange. Despite these requirements imposed by the CNV, CNV approval does not imply any kind of certification as to the quality of the securities or the solvency of the issuer, although issuers of listed securities are required to file unaudited quarterly financial statements and audited annual financial statements and various other periodic reports with the CNV and the stock exchange on which their securities are listed, as well as to report to the CNV and the relevant stock exchange any event related to the issuer and its shareholders that may affect materially the value or trading volume of the securities traded. 179


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Item 10. Additional Information MEMORANDUM AND ARTICLES OF ASSOCIATION Please see our registration statement under the Securities Act filed on Form 20-F on August 5, 2009. MATERIAL CONTRACTS The Opportunities Assignment Agreement that we entered into with Marcelo Mindlin, Damian Mindlin, Gustavo Mariani and Ricardo Torres is described in “Item 6. Directors, Senior Management and Employees—Opportunities Assignment Agreement and Warrants.” EXCHANGE CONTROLS Prior to December 1989, the Argentine foreign exchange market was subject to exchange controls. From December 1989 until April 1991, Argentina had a freely floating exchange rate for all foreign currency transactions, and the transfer of dividend payments in foreign currency abroad and the repatriation of capital were permitted without prior approval of theBanco Central de la República Argentina(the Argentine Central Bank, or the Central Bank). From April 1, 1991, when the law that established the fixed exchange rate (the Convertibility Law) became effective, until December 21, 2001, when the Central Bank decided to close the foreign exchange market, the Argentine currency was freely convertible into U.S. Dollars. On December 3, 2001, the Argentine government imposed a number of monetary and currency exchange control measures through Decree No. 1570/01, which included restrictions on transferring funds abroad (including the transfer of funds to pay dividends) without the Central Bank’s prior authorization subject to specific exceptions for transfers related to foreign trade. Beginning in January 2003, the Central Bank has gradually eased these restrictions and expanded the list of transfers of funds abroad that do not require its prior authorization. However, in June 2003, the Argentine government instituted restrictions on capital flows into Argentina, which mainly consisted of a prohibition against the transfer abroad of any funds until 180 days after their entry into the country. In June 2005, the Argentine government issued Decree No. 616/05, which established additional restrictions on capital flows. Pursuant to the decree, all indebtedness of Argentine residents within the private sector is required to be agreed upon and repaid not prior to 365 days from the date of entry of the funds into Argentina, regardless of the form of repayment. The decree outlines several types of transactions that are exempt from its requirements, including foreign trade financings, foreign trade balances of those entities authorized to carry out foreign exchange, and primary offerings of debt securities issued pursuant to a public offering and listed on a self-regulated market. In addition, the decree, as supplemented by subsequent regulations, stipulates that all capital inflows of residents exceeding U.S. $2 million per month, as well as all capital inflows of non-residents settled in the local exchange market destined for local money holdings, acquisition of active or passive private sector financings and investments in securities issued by the public sector that are acquired in secondary markets (excluding foreign direct investment, which includes capital contributions to local companies of direct investments (namely, a company in which the foreign direct investor holds at least 10% of ordinary shares or voting rights, or its equivalent), and primary offerings of debt securities and shares issued pursuant to a public offering and listed on a self-regulated market), must comply with the following restrictions: minimum stay period of 365 days for the incoming funds;any Pesos resulting from exchange transaction must be credited to an account within the Argentine banking system; and 180


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a non-transferable, non-interest-bearing U.S. Dollar-denominated mandatory deposit must be maintained for a term of 365 calendar days, in an amount equal to 30% of any inflow of funds to the local foreign exchange market arising from certain enumerated transactions (which mandatory deposit may not be used as collateral or guaranty for any transaction). The transfer abroad of dividend payments is currently authorized by applicable regulations to the extent such dividend payments are made in connection with audited financial statements approved by a shareholders’ meeting. Any breach of the provisions of Decree No. 616/05 or any other foreign exchange regulation is subject to criminal penalties of the laws governing the Argentine exchange market. Money laundering On April 13, 2000, the Argentine Congress passed Law No. 25,246, as amended by Laws No. 26,118 and 26,268 (the Money Laundering Law), which establishes an administrative criminal system and supersedes various sections of the Argentine Penal Code relating to money laundering. This law defines money laundering as crime , stating that a crime is committed whenever a person converts, transfers, manages, sells, encumbers, or otherwise uses money, or any other assets, connected with a crime in which that person has not participated, with the possible result that the original or substituted assets may appear to be of a legitimate origin, provided the value of the assets exceeds Ps. 50,000, whether such amount results from one or more transactions. In addition, the Money Laundering Law created the Financial Information Unit, which is charged with the handling and the transmission of information in order to prevent the laundering of assets originating from: Crimes related to illegal trafficking and commercialization of narcotics (Law No. 23,737);Crimes related to arms trafficking (Law No. 22,415);Crimes related to the activities of an illegal association as defined in Article 210 bis of the Penal Code;Illegal acts committed by illegal associations (Article 210 of the Penal Code) organized to commit crimes for with political or racial objectives;Crimes of fraud against the Public Administration (Article 174, Section 5 of the Penal Code);Crime against the Public Administration under Chapters VI, VII, IX and IX bis of Title XI of Book Two of the Penal Code;Crimes of underage prostitution and child pornography under Articles 125, 125 bis, 127 bis and 128 of the Penal Code; andCrimes related to terrorism financing (Article 213quarterof the Penal Code). Argentina’s Money Laundering Law, like other international money laundering laws, does not designate sole responsibility to the Argentine government for the monitoring of these criminal activities, but rather also delegates certain obligations to various private sector entities such as banks, stockbrokers, stock market entities and insurance companies. These obligations essentially consist of information gathering functions, such as: obtaining from clients documents that indisputably prove the identity, legal status, domicile and other information, to accomplish any type of activity intended;reporting any suspicious activity or operation; andkeeping any monitoring activities in connection with a proceeding pursuant to the Money Laundering Law confidential from both clients and third parties. 181


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In addition, Central Bank regulations require that Argentine banks undertake certain minimum procedures to prevent money laundering. CNV regulations also require that the issuers and traders of publicly traded securities in Argentina and those persons participating in financial trusts and common investment funds subject to the CNV's control comply with certain obligations and requirements relating to money laundering prevention and to the suppression of the financing of terrorism. Financial entities must inform theUnidad de Información Financiera(“UIF”) about any suspicious or unusual transaction, or transactions lacking economical or legal justification, or being unnecessarily complex. The Central Bank publishes a list of “non-cooperating” jurisdictions. The UIF has regulated the duty to report through Resolutions 37/2001 and 33/2011. In addition, it has established guidelines and internal procedures for unusual or suspicious transactions which must be implemented by financial institutions and other entities. CNV regulations provide that entities involved in the public offering of securities (other than issuers), including, among others, underwriters of any primary issuance of securities, must comply with the standards set by the UIF. In particular, they must comply with the obligation regarding customer identification and required information, record-keeping, precautions to be taken to report suspicious operations, policies and procedures to prevent money laundering and terrorist financing. With respect to issuers (such as the Company), CNV regulations provide that any entity performing significant capital contributions or loans must be identified, whether or not a shareholder at the time of the contributions, and must meet the requirements for general participants in the public offering of securities, provided in the CNV regulations and the UIF regulations, especially with regards to the identification of such persons and to the origin and legality of the funds and loans provided. On June 1, 2011 the Argentine Congress adopted law 26,683. Pursuant to such law, money laundering is now an autonomous crime and self-money laundering is also punished. This law also extended the reporting obligations to certain private sector parties that were not previously required to report, and also extended from 30 to 150 days the lapse of time within whichcertain private entities are required to report suspicious activities or operations, in order to permit those entities to analize transactions and operations in more detail before reporting them to the relevant authorities. TAXATION The following summary contains a description of the principal Argentine and U.S. federal income tax consequences of the acquisition, ownership and disposition of common shares or ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase common shares or ADSs. The summary is based upon the tax laws of Argentina and regulations thereunder and on the tax laws of the United States and regulations thereunder as in effect on the date hereof, which are subject to change. Investors should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of common shares or ADSs. Although there is at present no income tax treaty between Argentina and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. holders of common shares or ADSs. Argentine Tax Considerations Dividends tax Dividends paid on our common shares or ADSs, whether in cash, property or other equity securities, are not subject to income tax withholding, except for dividends paid in excess of our taxable accumulated income at the previous fiscal period that are subject to withholding at the rate of 35% in respect of the excess portion of the dividends paid. 182


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Capital gains tax Due to certain amendments made to the Argentine Income Tax Law by Law 25,414, Decree No. 493/2001 (the AITL) and the abrogation of Law 25,414 by Law 25,556, it is not clear whether certain amendments concerning payment of capital gain taxes are in effect or not. Although Opinion No. 351 of the National Treasury General Attorney Office clarified the legal status of certain matters affecting the tax treatment of capital gains certain issues still remain unclear. Resident individuals Under what we believe to be a reasonable interpretation of the AITL: (1) income obtained from the sale, exchange or other disposition of our common shares or ADSs by resident individuals who do not sell or dispose of Argentine shares on a regular basis would not be subject to Argentine income tax, and (2) although there still exists uncertainty regarding this issue, income obtained from the sale, exchange or other disposition of our common shares or ADSs by resident individuals who sell or dispose of Argentine shares on a regular basis should be exempt from Argentine income tax. Foreign beneficiaries Capital gains obtained by non residents or foreign entities from the sale, exchange or other disposition of our common shares or ADSs are exempt from income tax. Pursuant to a reasonable construction of the AITL, and although the matter is not completely free from doubt, such treatment should also apply to those foreign beneficiaries that qualify as offshore entities for purposes of Argentine tax laws. For this purpose, an “offshore entity” is any foreign legal entity if pursuant to its by-laws or to the applicable regulatory framework: (1) its principal activity is to invest outside of its jurisdiction of incorporation and/or (2) it cannot perform in such jurisdiction certain transactions. Local entities Capital gains obtained by Argentine entities in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of non Argentine entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina derived from the sale, exchange or other disposition of our common shares or ADSs are subject to income tax at the rate of 35%. Losses arising from the sale of our common shares or ADSs can be applied to offset such income. Personal assets tax Argentine entities, such as us, have to pay the personal assets tax corresponding to Argentine and foreign individuals and foreign entities for the holding of our shares at December 31 of each year. The applicable tax rate is 0.5% and is levied on thevalor patrimonial proporcional, or the book value, of the shares arising from the last balance sheet. Pursuant to the Personal Assets Tax Law, an Argentine company is entitled to seek reimbursement of such paid tax from the applicable Argentine individuals and/or foreign shareholders or by withholding dividend payments. Value added tax The sale, exchange or other disposition of our common shares or ADSs and the distribution of dividends are exempted from the value added tax. Transfer taxes The sale, exchange or other disposition of our common shares or ADSs is not subject to transfer taxes. 183


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Stamp taxes Stamp taxes may apply in the City of Buenos Aires and in certain Argentine provinces in case transfer of our common shares or ADSs is performed or executed in such jurisdictions by means of written agreements. No stamps taxes are levied on the transfer of our common shares in the City of Buenos Aires. Other taxes There are no Argentine inheritance or succession taxes applicable to the ownership, transfer or disposition of our common shares or ADSs. In addition, neither the minimum presumed income tax nor any local gross turnover tax is applicable to the ownership, transfer or disposition of our common shares or ADSs. Tax treaties Argentina has signed tax treaties for the avoidance of double taxation with Australia, Belgium, Bolivia, Brazil, Canada, Chile, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland and the United Kingdom. There is currently no tax treaty or convention in effect between Argentina and the United States. It is not clear when, if ever, a treaty will be ratified or entered into effect. As a result, the Argentine tax consequences described in this section will apply, without modification, to a holder of our common shares or ADSs that is a U.S. resident. Foreign shareholders located in certain jurisdictions with a tax treaty in force with Argentina may be exempted from the payment of the personal asset tax. United States Federal Income Tax Considerations This summary describes certain U.S. federal income tax consequences for a U.S. holder (as defined below) of acquiring, owning, and disposing of ADSs. This summary applies to a holder only if such holder holds the ADSs as capital assets for tax purposes. This summary does not apply to investors that are members of a class of holders subject to special rules, such as: a dealer in securities or currencies;a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;a bank;a life insurance company;a tax-exempt organization;a person that holds ADSs that are a hedge or that are hedged against interest rate or currency risks;a person that holds ADSs as part of a straddle or conversion transaction for tax purposes;a person who is liable for the alternative minimum tax;a person whose functional currency for U.S. tax purposes is not the U.S. Dollar; ora person that owns or is deemed to own 10% or more of any class of our stock. 184


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This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations promulgated thereunder, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. Investors should consult their own tax advisors concerning the consequences of purchasing, owning, and disposing of ADSs in their particular circumstances, including the possible application of state, local, non-U.S. or other tax laws. For purposes of this summary, an investor is a “U.S. holder” if such investor is a beneficial owner of an ADS and is: a citizen or resident of the United States;a U.S. domestic corporation; orotherwise subject to U.S. federal income tax on a net income basis with respect to income from the ADS. If a partnership holds our ADSs, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. An investor who is a partner of a partnership holding our ADSs should consult its own tax advisor. In general, if an investor is the beneficial owner of ADSs, such investor will be treated as the beneficial owner of the common stock represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if such investor exchanges an ADS for the common stock represented by that ADS. Dividends The gross amount of distributions that investors receive (prior to deduction of Argentine taxes) generally will be subject to U.S. federal income taxation as foreign source dividend income, to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Dividends paid in Argentine Pesos will be included in an investor’s income in a U.S. Dollar amount calculated by reference to the exchange rate in effect on the date of the depositary’s receipt of the dividend, regardless of whether the payment is in fact converted into U.S. Dollars. A U.S. holder will have a tax basis in such Pesos for U.S. federal income tax purposes equal to the U.S. Dollar value on the date of such receipt. Any subsequent gain or loss in respect of such Pesos arising from exchange rate fluctuations will be ordinary income or loss and will be treated as income from U.S. sources for foreign tax credit purposes. If such a dividend is converted into U.S. Dollars on the date of receipt, investors generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. Subject to certain exceptions for short-term (60 days or less) and hedged positions, the U.S. Dollar amount of dividends received by an individual U.S. holder in respect of ADSs before January 1, 2013 generally will be subject to taxation at a maximum rate of 15% if the dividends are “qualified dividends.” Dividends paid on the ADSs will be treated as qualified dividends if (1) the ADSs are readily tradable on an established securities market in the United States and (2) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (PFIC). The ADSs are listed on the New York Stock Exchange and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2010 taxable year. In addition, based on our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2011 taxable year. Based on existing guidance, it is not entirely clear whether dividends received with respect to the common shares will be treated as qualified dividends, because the common shares are not themselves listed on a U.S. exchange. In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. U.S. holders of ADSs should consult their own tax advisors regarding the availability of the reduced dividend tax rate in the light of their own particular circumstances. 185


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Distributions of additional shares in respect of ADSs that are made as part of a pro-rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax. Sale or other disposition Upon a sale or other disposition of ADSs, an investor will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the U.S. Dollar value of the amount realized and such investor’s tax basis, determined in U.S. Dollars, in the ADSs. Generally, such gain or loss realized on the sale or other disposition of ADSs will be treated as U.S. source capital gain or loss, and will be long-term capital gain or loss if the ADSs were held for more than one year. The ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder before January, 2013, generally is subject to taxation at a reduced rate. Foreign tax credit considerations Investors should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to make effective use of foreign tax credits. If no such rules apply, investors may claim a credit against their U.S. federal income tax liability for Argentine taxes withheld from cash dividends on the ADSs, so long as they have owned the ADSs (and not entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, investors may, at their election, deduct such Argentine taxes in computing their taxable income, subject to generally applicable limitations under U.S. tax law. It is unclear whether the Argentine personal assets tax (as described in “—Argentine Tax Considerations”) is treated as an income tax for U.S. federal income tax purposes. If the Argentine personal asset tax is not treated as an income tax for U.S. federal income tax purposes, a U.S. holder would be unable to claim a foreign tax credit for any Argentine personal property tax withheld. A U.S. holder may be able to deduct such tax in computing its U.S. federal income tax liability, subject to applicable limitations. The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions, involve the application of complex rules that depend on a U.S. holder’s particular circumstances. Investors should consult their own tax advisors regarding the creditability or deductibility of such taxes. U.S. information reporting and backup withholding rules Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Investors may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim or refund with the Internal Revenue Service and filing any required information. DIVIDENDS AND PAYING AGENTS The holders of ADSs are entitled to receive dividends to the same extent as the owners of our common shares. We have not paid any dividends in the last three fiscal years other than an Ps. 18.3 million cash dividend paid to shareholders in March 2009, an Ps. 18.3 million advanced dividend paid in March 2010 and an Ps. 18.1 million advanced dividend paid in March 2011; in all cases we withheld the amount of the Argentine personal asset tax from those shareholders who were subject to the personal asset tax, and for whom we were substitute obligors for the payment of such tax. See “Item 8. Financial Information—Dividends.” However, we could decide to pay dividends in the future in accordance with applicable law and based on various factors then existing, including: our financial condition, operating results and current and anticipated cash needs;general economic and business conditions;our strategic plans and business prospects;legal, contractual and regulatory restrictions on our ability to pay dividends; and 186


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other factors that our board of directors may consider to be relevant. Under the Argentine Corporate Law, the declaration and payment of annual dividends, to the extent that the company presents retained earnings in accordance with Argentine GAAP and CNV regulations, are determined by shareholders at the annual ordinary shareholders’ meeting. In addition, under the Argentine Corporate Law, 5% of the net income for the fiscal year calculated in accordance with Argentine GAAP and CNV regulations must be appropriated by resolution adopted at shareholders’ meetings to a legal reserve until such reserve equals 20% of the capital stock. This legal reserve is not available for distribution. Amount Available for Distribution Dividends may be lawfully declared and paid only out of our earnings stated in our annual financial statements prepared in accordance with Argentine GAAP and CNV regulations and approved by the annual ordinary shareholders’ meeting. Under the Argentine Corporate Law, listed companies (such as us) may distribute provisional dividends or dividends in advance resulting from interim audited financial statements. Under the Argentine Corporate Law and our by-laws, our annual net income (as adjusted to reflect changes in prior years’ results) is allocated in the following order: (1) to comply with our legal reserve requirement of 5% of our net income until such reserve equals 20% of the capital stock; (2) for voluntary or contingent reserves, as may be resolved from time to time by our shareholders at the annual ordinary shareholders’ meeting; (3) the remainder of the net income for the year may be distributed as dividends on common shares, and/or (4) as otherwise decided by our shareholders at the annual ordinary shareholders’ meeting. The board of directors submits our financial statements for the preceding fiscal year, together with reports thereon by the supervisory committee and the independent accountants, at the annual ordinary shareholders’ meeting for approval. Within four months of the end of each fiscal year, an ordinary shareholders’ meeting must be held to approve our annual financial statements and determine the appropriation of our net income for such year. Under applicable CNV regulations, cash dividends must be paid to shareholders within 30 days of the shareholders’ meeting approving such dividends. In the case of stock dividends, shares are required to be delivered within three months of our receipt of notice of the authorization by the CNV for the public offering of the shares relating to such dividends. The statute of limitations in respect of the right of any shareholder to receive dividends declared by the shareholders’ meeting is three years from the date on which it has been made available to the shareholder. DOCUMENTS ON DISPLAY The materials included in this annual report in Form F-20, and exhibits therein, may be inspected and copied at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Any filings we make are also available to the public over the Internet at the SEC’s website at www.sec.gov. 187


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Item 11. Quantitative and Qualitative Disclosures about Market Risk Qualitative Disclosure Market risk generally represents the risk that losses may occur in the value of financial instruments as a result of movements in interest rates, foreign currency exchange rates or commodity prices. We are exposed to changes in financial market conditions in the normal course of our business due to our use of certain financial instruments as well as transactions incurred in various foreign currencies. In the normal course of business, we are exposed to interest rate and exchange rates risks, primarily related to changes in exchanges rates and interest rates. We manage our exposure to these risks through the use of various financial instruments. Interest Rate Risks With regards to our current investment activities, their primary objective is to preserve capital while maximizing yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and investments in a variety of securities, mainly including both government and corporate obligations, stocks and money market funds. Investments in both fixed rate and floating rate interest earning instruments carry varying degrees of interest rate risk. Fixed rate securities may have their fair market value adversely impacted as a result of a rise in interest rates. In general, securities with longer maturities are subject to greater interest rate risk than those with shorter maturities. While floating rate securities are generally subject to less interest rate risk than fixed rate securities, floating rate securities may produce less income than expected if interest rates decrease. Due in part to these factors, our investment income may fall short of expectations or we may suffer losses in principal if securities that have declined in market value due to changes in interest rates are sold. With regards to our debt obligations, as of December 31, 2010, we have no material exposure to interest risk because only approximately 17.4% of our outstanding financial debt bears interest at variable rates. During 2010 and the first six months of 2011, we have utilized derivative financial instruments to hedge interest rate risk; and we may continue with hedging strategies in the future. We are also exposed to changes in interest rates primarily as a result of our borrowing activities used to maintain liquidity and fund our business operations. Exchange Rate Risks Our results of operations and financial condition are sensitive to changes in the exchange rate between the Peso and other foreign currencies, primarily the U.S. Dollar. We are exposed to exchange rate risk related to our indebtedness. Exchange rate risk exists principally with respect to our indebtedness denominated in currencies other than the currencies of the primary operating environments for each of our subsidiaries. As of December 31, 2010, financial indebtedness denominated in foreign currencies was Ps. 1,858.3 million, which was all denominated in U.S. Dollars. We and our subsidiaries use derivative financial instruments in the form of foreign currency forward exchange contracts to manage our foreign currency risks. During the year ended December 31, 2010, we and our subsidiaries have executed transactions with derivative financial instruments seeking to use them as economic instruments to mitigate the risk generated by changes in the U.S. Dollar exchange rate. As of December 31, 2010, the Company maintains a consolidated purchasing position of U.S. $38.0 million at the average exercise price of Ps. 4.38 per U.S. Dollar. We and our subsidiaries recognize the fair value of all derivative instruments as either assets or liabilities at fair value on its balance sheet. Changes in fair value are reported in the financial and holding results in the statement of income. On February 11, 2010, the Company obtained the authorization to operate as agent and compensating member of Mercado a Término de Rosario S.A. (hereinafter, "Mercado"). As of the date of this annual report, the Company is operating contracts for the purchase of U.S. Dollars at future dates either for its own portfolio or for its 188


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subsidiaries Central Piedra Buena, Central Térmica Güemes, Central Térmica Loma de la Lata and Transener (the “Constituents”). Whenever a non-delivery forward operation is arranged, a guarantee margin, determined by the Mercado, should be placed with the Mercado. When done on behalf of the Constituents, the Company receives funds from them and uses those funds to place the guarantees of said operation. Also every time losses are generated, the Company receives funds from the Constituents and uses those funds as guarantees of said operations or to cover those losses. Likewise, every time gains are generated, the Company receives funds from the Mercado and makes those funds available to the Constituents. As a result, the Company records a credit (debit) with the Mercado and a liability (asset) with the Constituents in its accounting books. Likewise, the changes in the measurements of such contracts valued at their net realizable value or termination cost, as appropriate, produce the acknowledgement of a credit or liability with the Mercado and simultaneously a liability or credit with the principal. As of December 31, 2010, we have no debt that is indexed to inflation. Sensitivity Analysis Disclosures As of December 31, 2010, the potential loss that would result from a hypothetical 10% change in currency exchange rates, after giving effect to the impact of the change on our assets and liabilities denominated in foreign currency as of such date, would be approximately Ps. 99.5 million. This sensitivity analysis assumes an instantaneous unfavorable 10% change in exchange rates affecting the foreign currencies in which our financial assets and indebtedness are denominated. Fluctuations in the exchange rate between the Peso and the U.S. Dollar may adversely affect the U.S. Dollar equivalent of the Peso price of our common shares on the Buenos Aires Stock Exchange, and as a result would likely affect the market price of our GDSs in the United States. Foreign currency exchange rate fluctuations could also effect our cash flow in Pesos, since some of our products and inputs are payable in U.S. Dollars. Quantitative Disclosure The chart below provides quantitative information about our financial debt as of December 31, 2010, that is sensitive to changes in interest rates and foreign exchange rates. Foreign Currency Exchange Rate Risk and Interest Rate Risk 189


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Table of Contents  Estimaded2011
     2012
     2013
     2014
     2015
     Thereafter
     Total
     
     Fair Value(in million of Ps.)Short and Long Term DebtDenominated in US$:Fixed Rate
     
     73.5
     0.3
     131.8
     115.8
     115.8
     1,759.4
     2,196.6
     
     2,271.5Average interest rate (%)
     
     
     
     
     
     
     
     9.7%Variable rate
     
     131.2
     1.6
     1.6
     1.6
     1.6
     24.4
     162.1
     
     153.7Average interest rate (%)
     
     
     
     
     
     
     
     4.9%Total
     
     204.7
     1.9
     133.5
     117.4
     117.4
     1,783.9
     2,358.8
     
     2,425.3Estimaded2010
     2011
     2012
     2013
     2014
     Thereafter
     Total
     
     Fair ValueShort and Long Term DebtDenominated in Ps.:Fixed Rate
     
     228.8
     16.7
     -
     -
     -
     -
     245.4
     
     245.4Average interest rate (%)
     
     
     
     
     
     
     
     14.5%Variable rate
     
     261.2
     66.2
     16.9
     5.3
     2.6
     -
     352.2
     
     353.4Average interest rate (%)
     
     
     
     
     
     
     -
     13.6%Total
     
     490.0
     82.9
     16.9
     5.3
     2.6
     -
     597.6
     
     598.8








Short Term Debt
     
     Long Term Debt
     
     Total(in million of Ps.)US$ Denominated Debt Obligations(1) without proportional consolidation
     204.7
     
     2,154.0
     
     2,358.8Ps. Denominated Debt Obligations without proportional consolidation
     490.0
     
     107.7
     
     597.6PESA's interest in Citelec ́s debt obligations
     (26.4)
     
     (267.0)
     
     (293.5)Debt Obligations (with proportional consolidation)
     668.3
     
     1,994.7
     
     2,662.9
  (1)As reported in tabular presentation.(2)As reported in the consolidated balance sheet of our financial statements.
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Item 12. Description of Securities Other than Equity Securities DESCRIPTION OF AMERICAN DEPOSITARY SHARES Payment of Taxes You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented by your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your American Depositary Shares to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders any property, remaining after it has paid the taxes. Fees and Expenses for Holders of ADRsPersons depositing or withdrawing shares or ADS holders must pay:
     
     For:•
     U.S. $5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
     
     •
     Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property; and•
     Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates•
     U.S. $0.02 (or less) per ADS
     
     •
     Any cash distribution to ADS holders•
     A fee equivalent to the fee that would be payable by you if the Company distributes shares and you deposit the shares with the depositary for issuance of ADSs
     
     •
     Distribution of securities to holders of deposited securities which are distributed by the depositary to ADS holders•
     U.S. $0.02 (or less) per ADSs per calendar year
     
     •
     Depositary services•
     Registration or transfer fees
     
     •
     Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares•
     Expenses of the depositary
     
     •
     Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement); and•
     Converting foreign currency to U.S. Dollars•
     Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes
     
     •
     As necessary•
     Any charges incurred by the depositary or its agents for servicing the deposited securities
     
     •
     As necessary
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The depositary collects fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees related to making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. Depositary Payments to the Company The Bank of New York Mellon, as depositary, has agreed to reimburse us for expenses they incur that are related to establishment and maintenance expenses of the ADS program. The depositary has agreed to reimburse us for its continuing annual stock exchange listing fees. The depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consist of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls. It has also agreed to reimburse us annually for certain investor relationship programs or special investor relations promotional activities. In certain instances, the depositary has agreed to provide additional payments to the Company based on any applicable performance indicators relating to the ADR facility. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available us is not necessarily tied to the amount of fees the depositary collects from investors. The depositary collects fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees related to making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. From January 1, 2010 to the date of this annual report, the Company received from the depositary U.S. $257,007 for continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (consisting of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls), any applicable performance indicators relating to the ADR facility, underwriting fees and legal fees. 192


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PART II Item 13. Defaults, Dividend Arrearages and Delinquencies Not applicable. Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds Not applicable. Item 15. Controls and Procedures (a) Disclosure Controls and Procedures We have evaluated, with the participation of our chief executive officer and chief financial officer, the design and operation of our disclosure controls and procedures as of December 31, 2010. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that as of December 31, 2010, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. (b) Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of 193


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Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, management believes that the company maintained effective internal control over financial reporting as of December 31, 2010. The effectiveness of the Company ́s internal control over financial reporting as of December 31, 2010 has been audited by Price Waterhouse & Co. S.R.L., an independent public accounting firm, as stated in their Report which appears here in. (c) Attestation Report of the Registered Public Accounting Firm Reference is made to the report of the Price Waterhouse & Co. S.R.L. on page F-3 of this annual report. (d) Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting during 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 16A. Audit Committee Financial Expert Our board of directors has determined that Diana Elena Mondino, an independent member of our board of directors, under Argentine law and Rule 10A-3, is an “audit committee financial expert” as defined in Item 16A of Form 20F under the Securities and Exchange Act of 1934 and pursuant to section 407 of Sarbanes Oxley Act. Item 16B. Code of Ethics We adopted a Business Code of Conduct in 2007, which applies to all of our employees, including our principal executive, financial and accounting officers, as well as other corporate governance policies (see “Item 6 –Directors, Senior Management and Employees – Corporate Governance”). Our Business Code of Conduct is posted, in both English and Spanish, on our website at http://www.pampaenergia.com.ar. Item 16C. Principal Accountant Fees and Services Fees Paid to the Principal Accountant Price Waterhouse & Co. S.R.L. (member firm of PricewaterhouseCoopers ) acted as our independent registered public accounting for the fiscal years ended December 31, 2010 and 2009. The following table discloses the services rendered to Pampa Energía S.A. and its consolidated companies by Price Waterhouse & Co S.R.L and the fees billed for those services: Year ended December 31,2010
     
     2009(in thousands of Ps.)Audit Fees (1)
     5,741.8
     
     5,277.1Audit-related Fees (2)
     577.2
     
     285.8Tax Fees (3)
     160.6
     
     136.4Other non-audit Fees (4)
     1,155.7
     
     57.5Total
     7,635.3
     
     5,756.7
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(1) Audit Fees comprised of audit of the financial statements of the Company and its subsidiaries, the review of the interim financial statements, review of the Company’s annual report on Form 20-F, work to comply with the requirements of the Sarbanes Oxley – Section 404 and other services rendered by the external auditor in connection with statutory or regulatory filings or engagements. (2) Audit-related Fees comprised of those outside the normal scope of the services included in an audit but are reasonably related to the performance of the audit or review of financial statements of the Company or its subsidiaries and may effectively and efficiently rendered by the external auditor because of his knowledge of the financial information of the Company and they preserve the independence of the external auditor. (3) Tax Fees comprised of services rendered by the external auditor for tax compliance, tax advice and tax planning. (4) Services included under this heading include permissible advisory services consisting in the review and comment on gaps between existing non-financial controls and good practices. For a description of the permissible services included under these headings, please see the description of the categories of services of the “Audit Committee’s Pre-approval Policy” described below. All of our audit fees, and audit-related fees, contained in the above table were billed by Price Waterhouse & Co. S.R.L., independent registered public accounting firm. Audit Committee’s Pre-approval Policy The Audit Committee has developed a Pre-approval Policy regarding the engagement of services by the external auditor, establishing the obligation to obtain prior approval from the audit committee for any service to be rendered by the external auditor to the Company or any of it subsidiaries. The policy ensures that the external auditor preserves it independence and is applicable to the Company and its subsidiaries. Services pre-approved by the audit committee of Edenor do not require pre-approval by the audit committee of Pampa Energía S.A., but are reported to the latter. The Audit Committee has delegated to one of its members the authority to grant pre-approvals to auditors. The decision of that member to pre-approve a service is presented to the full audit committee at each of its scheduled meetings. Pre-approval is required for all services rendered by the external auditor. Item 16D. Exemptions from the Listing Standards for Audit Committees Not applicable. Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers There were no shares purchased during 2010 by us or on our behalf, or by or on behalf of an affiliated purchaser. 195


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Item 16F. Change in Registrant’s Certifying Accountant Not applicable. Item 16G. Corporate Governance Among the corporate governance principles that are applicable at Pampa Energía S.A. are several provisions of Argentine law, including, but without limitation: (i) the Argentine Business Companies Law, No. 19,550, as amended (“BCL”); (ii) the regulations of the Argentine Securities Commission (“CNV”) approved by the CNV’s General Resolution No. 570/2001 (“Regulations”), (iii) the Public Offering Transparency Regime, Executive Decree No. 677/2001 (“RTOP”); and (iv) the Corporate Governance Code, CNV’s General Resolution No. 516/2007 (“CGC”). In addition, we follow certain corporate governance guidelines and practices that prevail in the international markets and in international regulations applicable to us (sometimes mandatory), including United States law. On August 27, 2009, we registered with the Securities and Exchange Commission (“SEC”) as a “foreign private issuer” and began to trade its American Depositary Shares on the New York Securities Exchange (“NYSE”). Thus, we are subject to the provisions of Section 303A.11 of the NYSE’s Listed Company Manual (“LCM”) and item 16.G of form 20F of the SEC, which require foreign issuers to disclose the differences existing between their corporate governance practices and the corporate governance requirements for U.S. domestic companies under their applicable listing standards. The following table provides the comparison required under the aforementioned Section 303A.11 of the NYSE LCM and item 16.G of the SEC’s form 20F: CORPORATE GOVERNANCE PRACTICES COMPARATIVE TABLENYSE REQUIREMENTS for DOMESTIC COMPANIES
     REQUIREMENTS AND OUR PRACTICESNYSE LCM
     DESCRIPTION
     DESCRIPTIONSection 303A.01
     Independent directors must constitute the majority of a listed company’s board of directors.
     Under Argentine law, the board of directors of a listed company need not be composed of a majority of independent directors. Nonetheless, the CNV’s Regulations and the RTOP require listed companies to have a sufficient number of independent directors to form the Audit committee, which must be composed of a majority of independent members.

Although not required by Argentine law, and in accordance with our audit committee’s regulations, all the members of our audit committee must qualify as independent.
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|CORPORATE GOVERNANCE PRACTICES COMPARATIVE TABLE
|------------------------------------------------
|NYSE REQUIREMENTS for DOMESTIC COMPANIES        
|NYSE LCM                                        
|Section 303A.02                                 
|Section 303A.03                                 

_____________________________1Under Argentine law, a “material holding” is defined as any shareholding equivalent to at least 35% of a company’s capital stock.197


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|CORPORATE GOVERNANCE PRACTICES COMPARATIVE TABLE
|------------------------------------------------
|NYSE REQUIREMENTS for DOMESTIC COMPANIES        
|NYSE LCM                                        
|Section 303A.04                                 
|Section 303A.05                                 
|Section 303A.06                                 
|Section
303A.07                                 



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|CORPORATE GOVERNANCE PRACTICES COMPARATIVE TABLE
|------------------------------------------------
|NYSE REQUIREMENTS for DOMESTIC COMPANIES        
|NYSE LCM                                        
|Section 303A.08                                 
|Section 303A.09                                 



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|CORPORATE GOVERNANCE PRACTICES COMPARATIVE TABLE
|------------------------------------------------
|NYSE REQUIREMENTS for DOMESTIC COMPANIES        
|NYSE LCM                                        
|Section 303A.10                                 

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|CORPORATE GOVERNANCE PRACTICES COMPARATIVE TABLE
|------------------------------------------------
|NYSE REQUIREMENTS for DOMESTIC COMPANIES        
|NYSE LCM                                        
|Section 303A.12                                 

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PART III Item 17. Financial Statements Not applicable. Item 18. Financial Statements Our consolidated financial statements are included in this annual report beginning on page F-1. Item 19. Exhibits Documents filed as exhibits to this annual report: 1.1
     Amended and Restated By-laws (estatutos sociales) of the Registrant (English translation)(previously filed as Exhibit 1.1 to our Registration Statement on Form 20-F (File No.001-34429) on August 3, 2009 and incorporated by reference herein.)2.1
     Form of Amended and Restated Deposit Agreement among the Registrant, the Bank of New York, as depositary, and Holders from time to time of American Depositary Shares issued thereunder (previously filed as Exhibit 2.1 to our Registration Statement on Form 20-F (File No. 001-34429) on August 3, 2009 and incorporated by reference herein.)4.1
     Opportunities Assignment Agreement among Marcelo Mindlin, Damián Mindlin, Gustavo Mariani, Ricardo Torres and the Registrant, dated as of September 28, 2006 and its subsequent amendments dated September 28, 2007 and April 16, 2009 (English translation) (previously filed as Exhibit 2.2 to our Registration Statement on Form 20-F (File No. 001-34429) on August 3, 2009 and incorporated by reference herein.)4.2
     Amended and Restated Warrant Agreement, among Marcelo Mindlin and the Registrant, dated as of September 28, 2007 (English translation) (previously filed as Exhibit 2.3 to our Registration Statement on Form 20-F (File No. 001-34429) on August 3, 2009 and incorporated by reference herein.)4.3
     Amended and Restated Warrant Agreement, among Damián Mindlin and the Registrant, dated as of September 28, 2007 (English translation) (previously filed as Exhibit 2.4 to our Registration Statement on Form 20-F (File No. 001-34429) on August 3, 2009 and incorporated by reference herein.)4.4
     Amended and Restated Warrant Agreement, among Gustavo Mariani and the Registrant, dated as of September 28, 2007 (English translation) (previously filed as Exhibit 2.5 to our Registration Statement on Form 20-F (File No. 001-34429) on August 3, 2009 and incorporated by reference herein.)4.5
     Amended and Restated Warrant Agreement, among Ricardo Torres and the Registrant, dated as of September 28, 2007 (English translation)(previously filed as Exhibit 2.6 to our Registration Statement on Form 20-F (File No. 001-34429) on August 3, 2009 and incorporated by reference herein.)4.6
     Stock Subscription Agreement among Marcelo Mindlin, Damián Mindlin, Gustavo Mariani, Latin American Energy LLC, New Equity Ventures LLC, Deutsche Bank AG, London branch and theRegistrant,dated as of July 31, 2007 (previously filed as Exhibit 2.7 to our Registration StatementonForm 20-F (File No. 001-34429) on August 3, 2009 and incorporated by reference herein.)8.1
     List of significant subsidiaries of Pampa Energía S.A. 202


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12.1

   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.2

   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.13.1

   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 203


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SIGNATURE 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. Pampa Energía S.A.By:

   /s/ Ricardo Alejandro TorresName: Ricardo Alejandro TorresTitle: Chief Executive Officer
  Date: June 28, 2011


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Table of Contents
 INDEX TO FINANCIAL STATEMENTS Pampa Energía S.A.
 Consolidated Financial Statements As of December 31, 2010 and 2009, and for the Years Ended December 31, 2010 2009, and 2008  Report of Independent Registered Public Accounting Firm

   F-3Consolidated Balance Sheet

   F-4Consolidated Statement of Operations

   F-5Consolidated Statement of Shareholders’ Equity

   F-6Consolidated Statement of Cash Flows

   F-7Notes to the Consolidated Financial Statements

   F-8
 F-1


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CONSOLIDATED FINANCIAL STATEMENTS  As of December 31, 2010 and 2009, and for the years ended December 31, 2010, 2009 and 2008         F-2


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Table of Contents   Report of Independent Registered Public Accounting Firm To the Shareholders, President and Directors of

Pampa Energía S.A.





In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Pampa Energía S.A. at December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in Argentina. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 15 to the Form 20-F.  Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our audits (which was an integrated audit in 2010).  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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.



Accounting principles generally accepted in Argentina vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 20 to the consolidated financial statements.



A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Autonomous City of Buenos Aires, Argentina

June 28, 2011  PRICE WATERHOUSE & CO. S.R.L.

   

   

   

   /s/Carlos Martín BarbafinaCarlos Martín Barbafina(Partner)
   F-3


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Table of Contents
 CONSOLIDATED BALANCE SHEET As of December 31, 2010 and 2009 (In Argentine Pesos (“Ps.”) – unless otherwise stated)  As ofDecember 31, 2010

   

   As ofDecember 31, 2009AssetsCurrent AssetsCash and banks

   

   208,715,476

   

   158,043,109Investments

   

   961,538,811

   

   467,697,236Trade receivables

   

   793,417,597

   

   579,618,129Other receivables

   

   322,266,583

   

   282,074,636Inventories

   

   29,678,642

   

   44,977,523Other assets

   

   128,091,604

   

   138,591,381Total Current Assets

   

   2,443,708,713

   

   1,671,002,014Non-Current AssetsTrade receivables

   

   237,091,115

   

   263,057,717Investments

   

   481,680

   

   170,674,025Other receivables

   

   246,627,684

   

   185,666,194Inventories

   

   638,632

   

   1,143,736Fixed assets

   

   6,563,165,793

   

   6,291,154,701Intangible assets

   

   268,206,304

   

   297,564,513Other assets

   

   90,286,475

   

   113,018,681Goodwill

   

   572,704,466

   

   569,252,345Total Non- Current Assets

   

   7,979,202,149

   

   7,891,531,912Total Assets

   

   10,422,910,862

   

   9,562,533,926LiabilitiesCurrent LiabilitiesAccounts payable

   

   651,057,807

   

   506,806,736Financial debt

   

   668,299,691

   

   412,462,950Salaries and social security payable

   

   237,145,443

   

   165,486,337Taxes payable

   

   171,295,524

   

   203,170,182Other liabilities

   

   53,404,585

   

   77,534,218Provisions

   

   57,976,586

   

   62,813,000Total Current Liabilities

   

   1,839,179,636

   

   1,428,273,423Non- Current LiabilitiesAccounts payable

   

   78,086,367

   

   80,625,236Financial debt

   

   1,994,572,167

   

   1,703,992,392Salaries and social security payable

   

   70,661,349

   

   56,691,091Taxes payable

   

   575,570,054

   

   578,815,215Other liabilities

   

   985,110,326

   

   631,307,457Provisions

   

   11,326,505

   

   17,729,148Total Non-Current Liabilities

   

   3,715,326,768

   

   3,069,160,539Total Liabilities

   

   5,554,506,404

   

   4,497,433,962Minority Interest

   

   1,587,453,391

   

   1,728,422,005Shareholders ́ Equity

   

   3,280,951,067

   

   3,336,677,959Total Liabilities and Shareholders ́ Equity

   

   10,422,910,862

   

   9,562,533,926
   The accompanying notes are an integral part of these consolidated financial statements.  F-4


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Table of Contents
 CONSOLIDATED STATEMENT OF OPERATIONS For the years ended December 31, 2010, 2009 and 2008 (In Argentine Pesos (“Ps.”) – unless otherwise stated)   For the years
ended December 31,2010
     
     2009
     
     2008Sales
     
     4,866,925,429
     
     4,093,439,873
     
     4,013,876,286Cost of sales
     
     (3,987,967,830)
     
     (3,192,146,239)
     
     (3,082,403,684)Gross profit
     
     878,957,599
     
     901,293,634
     
     931,472,602Selling expenses
     
     (210,043,525)
     
     (154,663,071)
     
     (139,651,639)Administrative expenses
     
     (366,835,721)
     
     (302,748,889)
     
     (235,381,978)Goodwill amortization
     
     (19,964,093)
     
     (20,004,543)
     
     (19,839,155)Operating income
     
     282,114,260
     
     423,877,131
     
     536,599,830Financial and holding resultsGenerated by assetsInterest income
     
     90,179,841
     
     38,654,815
     
     45,636,644Taxes and bank commissions
     
     (67,112,504)
     
     (78,035,607)
     
     (64,165,603)Foreign currency exchange difference
     
     24,857,026
     
     80,313,136
     
     90,568,216Result of receivables measured at present value
     
     7,373,095
     
     11,765,722
     
     19,464,608Holding results on financial assets
     
     54,456,618
     
     128,453,780
     
     (19,330,941)Impairment of investments
     
     (77,946,474)
     
     -
     
     -Impairment of fixed assets and other assets
     
     -
     
     (18,502,059)
     
     (73,576,352)Holding results on other assets
     
     -
     
     12,196,568
     
     -Other financial results
     
     1,468,984
     
     5,434,015
     
     (341,394)Generated by liabilitiesInterest expense
     
     (205,594,144)
     
     (189,474,815)
     
     (194,838,841)Foreign currency exchange difference
     
     (71,795,803)
     
     (178,701,629)
     
     (201,122,752)Result from repurchase of financial debt
     
     5,496,554
     
     245,462,895
     
     190,294,189Other financial results
     
     (11,960,937)
     
     (9,183,303)
     
     (651,547)Total financial and holding results
     
     (250,577,744)
     
     48,383,518
     
     (208,063,773)Other income (expenses), net
     
     6,157,329
     
     (2,010,213)
     
     (23,193,694)Income before taxes and minority interest
     
     37,693,845
     
     470,250,436
     
     305,342,363Income tax
     
     (74,280,606)
     
     (160,202,472)
     
     (108,841,126)Minority interest
     
     (9,974,279)
     
     (95,311,143)
     
     (81,477,509)Net (loss) income for the year
     
     (46,561,040)
     
     214,736,821
     
     115,023,728(Loss) Earning per share (Note 3):Basic
     
     (0.0354)
     
     0.1544
     
     0.0765Diluted
     
     (0.0315)
     
     0.1453
     
     0.0747
   The accompanying notes are an integral part of these consolidated financial statements. F-5


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Table of Contents   CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY For the years ended December 31, 2010, 2009 and 2008 (In Argentine Pesos (“Ps.”) – unless otherwise stated)   Common StockShares
     
     Amount
     
     Additional Paid-In Capital
     
     Treasury Stock
     
     Total
     
     Reserve for Directors’ options
     
     Legal Reserve
     
     Voluntary Reserve
     
     Retained earnings
     
     Total Shareholders’ EquityBalance as of December 31, 2007
     
     1,526,194,242
     
     1,526,194,242
     
     1,507,437,729
     
     -
     
     3,033,631,971
     
     14,708,338
     
     896,129
     
     5,163,169
     
     167,738,076
     
     3,222,137,683Setting up of reserves
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     10,012,637
     
     -
     
     (10,012,637)
     
     -Reserve for  Directors’ options
     
     -
     
     -
     
     -
     
     -
     
     -
     
     11,766,672
     
     -
     
     -
     
     -
     
     11,766,672Acquisition of Company ́s own shares
     
     (126,426,196)
     
     (126,426,196)
     
     -
     
     126,426,196
     
     -
     
     -
     
     -
     
     -
     
     (120,848,801)
     
     (120,848,801)Distribution of dividends in advance
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     (16,797,217)
     
     (16,797,217)Net income for the year
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     115,023,728
     
     115,023,728Balance as of December 31, 2008
     
     1,399,768,046
     
     1,399,768,046
     
     1,507,437,729
     
     126,426,196
     
     3,033,631,971
     
     26,475,010
     
     10,908,766
     
     5,163,169
     
     135,103,149
     
     3,211,282,065Setting up (Reversal) of reserves
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     5,751,186
     
     (5,163,169)
     
     (588,017)
     
     -Reserve for  Directors’ options
     
     -
     
     -
     
     -
     
     -
     
     -
     
     11,061,342
     
     -
     
     -
     
     -
     
     11,061,342Acquisition of Company ́s own shares
     
     (85,457,151)
     
     (85,457,151)
     
     -
     
     85,457,151
     
     -
     
     -
     
     -
     
     -
     
     (84,630,538)
     
     (84,630,538)Distribution of dividends in advance
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     (15,771,731)
     
     (15,771,731)Net income for the year
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     214,736,821
     
     214,736,821Balance as of December 31, 2009
     
     1,314,310,895
     
     1,314,310,895
     
     1,507,437,729
     
     211,883,347
     
     3,033,631,971
     
     37,536,352
     
     16,659,952
     
     -
     
     248,849,684
     
     3,336,677,959Setting up of reserves
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     10,736,841
     
     -
     
     (10,736,841)
     
     -Capital redemption
     
     -
     
     -
     
     -
     
     (211,883,347)
     
     (211,883,347)
     
     -
     
     -
     
     -
     
     211,883,347
     
     -Reserve for  Directors’ options
     
     -
     
     -
     
     -
     
     -
     
     -
     
     8,945,352
     
     -
     
     -
     
     -
     
     8,945,352Distribution of dividends in advance
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     (18,111,204)
     
     (18,111,204)Net loss for the year
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     (46,561,040)
     
     (46,561,040)Balance as of December 31, 2010
     
     1,314,310,895
     
     1,314,310,895
     
     1,507,437,729
     
     -
     
     2,821,748,624
     
     46,481,704
     
     27,396,793
     
     -
     
     385,323,946
     
     3,280,951,067
   The accompanying notes are an integral part of these consolidated financial statements.  F-6


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Table of Contents
 CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2010, 2009 and 2008 (In Argentine Pesos (“Ps.”) – unless otherwise stated)   For the years
ended December 31,2010
     
     2009
     
     2008OPERATING ACTIVITIESNet (loss) income for the year
     
     (46,561,040)
     
     214,736,821
     
     115,023,728Income tax
     
     74,280,606
     
     160,202,472
     
     108,841,126Interests accrued
     
     33,763,586
     
     84,583,922
     
     71,265,610Adjustments to reconcile net (loss) income to cash flows provided by (used in) operating activitiesDepreciation of fixed assets
     
     284,915,076
     
     273,069,865
     
     261,238,423Amortization of intangible assets
     
     22,901,004
     
     22,802,651
     
     21,235,945Depreciation of other assets
     
     22,732,206
     
     22,732,206
     
     22,732,206Amortization of goodwill
     
     19,964,093
     
     20,004,543
     
     19,839,155Reserve for Directors’ options
     
     8,945,352
     
     11,061,342
     
     11,766,672Setting up (Recovery) of provisions
     
     23,468,581
     
     (43,237,557)
     
     (24,612,812)Result from repurchase of financial debt
     
     (5,496,554)
     
     (245,462,895)
     
     (190,294,189)Foreign currency exchange differences and other financial results
     
     37,816,221
     
     231,668,306
     
     288,171,871Impairment of investments
     
     77,946,474
     
     -
     
     -Impairment of fixed assets and other assets
     
     -
     
     18,502,059
     
     73,576,352Minority interest
     
     9,974,279
     
     95,311,143
     
     81,477,509Other
     
     12,210,266
     
     (4,012,862)
     
     719,881Changes in operating assets and liabilities(Increase) Decrease in trade receivables
     
     (262,428,893)
     
     193,620,626
     
     (290,031,408)Increase in other receivables
     
     (96,409,683)
     
     (81,267,022)
     
     (187,909,470)Decrease in inventories
     
     7,107,130
     
     7,423,306
     
     23,007,536Decrease (Increase) in intangible assets
     
     29,628
     
     (29,628)
     
     -Decrease (Increase) in other assets
     
     10,490,295
     
     (36,120)
     
     4,885Increase (Decrease) in accounts payable
     
     144,894,790
     
     (119,415,842)
     
     190,965,423Increase in salaries and social security payable
     
     85,228,857
     
     40,901,724
     
     68,429,533Decrease in taxes payable
     
     (131,756,100)
     
     (139,932,497)
     
     (38,653,072)Increase in other liabilities
     
     361,972,725
     
     162,873,487
     
     121,933,949(Decrease) Increase in provisions
     
     (9,127,498)
     
     10,616,000
     
     14,836,250Dividend paid to third parties by subsidiaries
     
     (26,637,634)
     
     (18,121,896)
     
     (15,388,337)Net cash provided by operating activities
     
     660,223,767
     
     918,594,154
     
     748,176,766INVESTING ACTIVITIESPayment for the acquisition of fixed assets
     
     (568,260,070)
     
     (974,895,108)
     
     (740,966,502)Payment for acquisition of companies, net of cash acquired
     
     -
     
     -
     
     (68,661,857)Incorporation of additional interest in subsidiaries
     
     -
     
     52,773,389
     
     -Decrease in cash for desconsolidation of subsidiaries
     
     (12,946,605)
     
     -
     
     -Payment to minority shareholders for subsidiary capital redemption
     
     (12,391,027)
     
     -
     
     -Proceeds from sale of short-term investments
     
     93,313,103
     
     118,145,401
     
     202,512,850Payment for acquisition of investments
     
     (114,253,259)
     
     (85,797,736)
     
     (395,386,927)Increase (Decrease) in restricted financial assets
     
     75,639,470
     
     339,765,396
     
     (460,669,346)Proceeds from the sale of investments in subsidiaries
     
     16,762,037
     
     -
     
     -Proceeds from the sale of fixed assets and other assets
     
     7,556,613
     
     857,487
     
     91,904,516Net cash used in investing activities
     
     (514,579,738)
     
     (549,151,171)
     
     (1,371,267,266)FINANCING ACTIVITIESDividends paid
     
     (15,771,731)
     
     (16,797,217)
     
     (18,314,331)Proceeds from bank and financial borrowings
     
     868,122,280
     
     183,565,419
     
     825,078,919Payment of bank and financial debt
     
     (525,147,730)
     
     (410,939,267)
     
     (402,317,850)Acquisition of Company ́s own shares
     
     -
     
     (84,630,538)
     
     (120,848,801)Capital contributions in subsidiaries by third parties
     
     -
     
     -
     
     13,485,652Net cash provided by (used in) financing activities
     
     327,202,819
     
     (328,801,603)
     
     297,083,589Net increase (decrease) in cash and cash equivalents
     
     472,846,848
     
     40,641,380
     
     (326,006,911)Cash and cash equivalents at the beginning of the year (Note 4)
     
     435,851,011
     
     395,209,631
     
     721,216,542Cash and cash equivalents at the end of the year (Note 4)
     
     908,697,859
     
     435,851,011
     
     395,209,631
    The accompanying notes are an integral part of these consolidated financial statements. F-7


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 1.  business of the company  Pampa Energía S.A. (“the Company”) is an integrated electricity company which, through its subsidiaries, is engaged in of the electricity generation, transmission and distribution market in Argentina.  In the generation business, the Company has an installed capacity of approximately 2,187 MW, which accounts for approximately 7.8% of the installed capacity in Argentina.  In the transmission business, the Company through Compañía de Transporte de Energía Eléctrica de Alta Tensión Transener S.A. (“Transener”) joint-controls the operation and maintenance of the high-tension transmission network in Argentina which covers 10,613 km of lines of its own, as well as 6,110 km of high-tension lines belonging to Empresa de Transporte de Energía Eléctrica por Distribución Troncal de la Provincia de Buenos Aires Sociedad Anónima Transba S.A. (“Transba”). Transener carries 95% of the electricity in Argentina.  In the distribution business, through Empresa Distribuidora y Comercializadora Norte S.A (“Edenor”), the Company distributes electricity among over 2,7 million customers throughout the northern region of Buenos Aires and the Northwest of Greater Buenos Aires, which is covered by the concession.  The Company ́s shares are listed for trading on the Buenos Aires Stock Exchange, forming part of the Merval Index and on the New York Stock Exchange (“NYSE”).  Listing on the New York Stock Exchange On 5 August 2009, the Securities and Exchange Commission (“SEC”), supervisory agency of the United States, authorized the Company for the registration of American Depositary Shares ("ADSs"), representing 25 common shares each, which allow the public availability of such instruments in the foreign jurisdiction. On 27 August 2009, the Company converted its Global Depositary Shares ("GDSs") in ADSs. On 9 October 2009 the Company started to market its ADSs on the NYSE while canceled the listing of GDSs on the Euro MTF Market of the Luxembourg Stock Exchange. The registration of the ADSs with the NYSE is part of the strategic plan of the Company to obtain an increase in liquidity and volume of shares.  NOTE 2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Basis of presentation  These consolidated financial statements are stated in Argentine pesos (“Ps.”), and have been prepared in accordance with generally accepted accounting principles used in Argentina (“Argentine GAAP”) and the regulations of theComisión Nacional de Valores(the Argentine National Securities Commission or “CNV”), which 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 the Regulation S-X of the Securities and Exchange Commission (“SEC”). A description of the significant differences between Argentine GAAP and US GAAP as they relate to the Company is set forth in Note 20 to these consolidated financial statements.  Pursuant to its General Resolution No. 562/09, the CNV incorporated FACPCE’s Technical Resolution No. 26 into the CNV Regulations on December 30, 2009 Technical Resolution No. 26 prescribes that certain entities subject to public offering are under an obligation to adopt the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).  In July 2010, the CNV passed its General Resolution No. 576, which introduces certain changes to its previous General Resolution No. 562. In December 2010, the FACPCE issued its Technical Resolution No. 29 whereby it made some changes in its Technical Resolution No. 26 in connection with entities whose securities are admitted to the public offering system seeking to harmonize its provisions with the requirements imposed by CNV’s General Resolution No. 562.  The Company is obligated to adopt the IFRS as from the fiscal year beginning on January 1, 2012. On April 9, 2010, the Company’s Board of Directors approved a specific Implementation Plan as set forth in the CNV’s General Resolution No. 562.  F-8


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 2.  (CONTINUED)  As of the date of these financial statements, the implementation process is proceeding as foreseen in the above-mentioned plan.  On the basis of the results yielded by the process to monitor the specific IFRS implementation plan, the Board of Directors of Pampa Energía has not become aware of any circumstance calling for modifying the plan or indicative of any deviation from the established objectives and dates.  Basis of consolidation  The consolidated financial statements include the accounts of the Company and of Inversora Nihuiles S.A. (“Inversora Nihuiles”), Inversora Diamante S.A. (“Inversora Diamante”),Pampa Inversiones S.A. (“Pampa Inversiones”, formerly “Dilurey S.A.”),Powerco S.A. (“Powerco”), Corporación Independiente de Energía S.A. (“CIE”), Central Térmica Loma de la Lata S.A. (“Loma de la Lata”), Transelec Argentina S.A. (“Transelec”), Dolphin Energía S.A. (“DESA”), IEASA S.A. (“IEASA”),Bodega Loma La Lata S.A. (“Bodega Loma La Lata”, formerly “Pampa Renovables S.A.”),Pampa Real Estate S.A. (“PRESA”), Pampa Participaciones S.A. (“Pampa Participaciones”), Pampa Participaciones II S.A. (“Pampa Participaciones II”), Pampa Generación S.A. (“Pampa Generación”), Petrolera Pampa S.A. (“Petrolera Pampa”), Central Hidroeléctrica Lago Escondido S.A. (“Lago Escondido”) and Inversora Ingentis S.A. (“Inversora Ingentis”) on a line-by-line basis, as stated by Technical Resolution No. 21.All significant intercompany balances and transactions have been eliminated in consolidation.  Data reflecting consolidated corporate control are as follows: Companies under direct control
     Ownership interest and voting stock percentage
     
     Companies under indirect control / Companies jointly controlled
     Ownership interest and voting stock percentage12.31.10
     12.31.09
     
     
     12.31.10
     12.31.09GenerationInversora Nihuiles
     90.27
     90.27
     
     Hidroeléctrica Los Nihuiles S.A.
     52.04
     52.04Inversora Diamante
     91.60
     91.60
     
     Hidroeléctrica Diamante S.A.
     59.00(4)
     59.00(4)Loma de la Lata / Powerco(1)
     100.00
     100.00
     
     Central Térmica Güemes S.A.
     89.68(5)
     89.68(5)Energía Distribuida S.A.
     100.00(6)
     100.00(6)CIE
     100.00
     100.00
     
     Central Piedra Buena S.A.
     100.00
     100.00Loma de la Lata
     100.00
     100.00Inversora Ingentis
     100.00
     100.00
     
     Ingentis S.A.
     50.05(7)
     61.00Pampa Generación
     100.00
     100.00Lago Escondido
     100.00
     100.00TransmissionTranselec(2)
     100.00
     100.00
     
     Compañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A.
     52.65
     52.65DistributionDESA(3)
     100.00
     100.00
     
     Empresa Distribuidora y Comercializadora Norte S.A.
     51.54(7)
     51.54IEASA(3)
     100.00
     100.00Others
Pampa Inversiones
     100.00
     100.00Pampa Real Estate
     100.00
     100.00Pampa Participaciones
     100.00
     100.00Pampa Participaciones II
     100.00
     100.00Petrolera Pampa
     100.00
     100.00Bodega Loma La Lata
     100.00
     100.00
 F-9


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 2.  (CONTINUED)  (1)Loma de la Lata and Powerco have control over Central Térmica Güemes S.A. (“CTG”) as a result of its 74.20% and 15.48% ownership interest, respectively, in its capital and voting stock. Loma de la Lata and Powerco are  fully owned subsidiaries of the Company. (2)Transelec owns and co-controls 50% of Compañía Inversora en Transmisión Eléctrica Citelec S.A. (“Citelec”), which in turn controls Transener with a 52.65% ownership interest in its capital and voting stock. (3)DESA and IEASA control Edenor through Electricidad Argentina S.A. (“EASA”) as a result of its 100% ownership interest in its capital and voting stock. (4)As of December 31, 2009, additionally to the 59% equity interest in Hidroeléctrica Diamante S.A. through Inversora Diamante, the Company carries an additional 2% interest in such company through Pampa Participaciones. (5)In addition the Company holds a direct 2.58% interest in CTG. (6)Energía Distribuida S.A. (“Energía Distribuida”) is a company controlled by CTG with 99.99 % of its equity and votes. (7)See Note 10 to these financial statements.  In accordance with Argentine GAAP, the presentation of the parent company’s individual financial statements is mandatory. Consolidated financial statements are to be included as supplementary information to the individual financial statements. For the purpose of these financial statements, parent company’s individual financial statements have been omitted.  Presentation of consolidated financial statements in constant Argentine Pesos  The consolidated financial statements have been prepared in constant monetary units, reflecting the overall effects of inflation through August 31, 1995. As from that date, in accordance with Argentine GAAP and for requirements of the control authorities, restatement of the financial statements was discontinued until December 31, 2001. As from January 1, 2002, in accordance with Argentine GAAP recognition of the effects of inflation has been resumed.  In accordance with CNV Resolution 441/03, inflation accounting was discontinued as from March 1, 2003.  Use of estimates  The preparation of financial statements in conformity with generally accepted accounting standards requires management of the Company 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 financial statements, as well as the recorded amounts of revenues and expenses during the reported periods. Significant estimates include those required for the accounting of depreciation and amortization, the recoverable value of assets, the income tax charge and provisions for contingencies, among others. Actual results could differ from those estimates.  Comparative information  Balances as of December 31, 2009 and 2008 as set out in these financial statements for comparative purposes are derived from the financial statements at these dates. Certain reclassifications have been made to those financial statements to present them in comparative form to conform to current period presentation.  Cash and cash equivalents  Cash has been stated at its face value.  The Company considers all highly liquid temporary investments with an original maturity of three months or less at the time of purchase to be cash equivalent, net of restricted cash if any.  Investments  Short-term  Time deposits have been valued at cost plus accrued interest at each year-end. Investments in corporate and government securities, shares in other companies and mutual funds with an active market have been valued at their market price at each year-end. Other corporate and public securities have been valued at their face value plus accrued interests at each reporting date.  F-10


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Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 2.  (CONTINUED)  Changes in market values of such instruments are included under the line of the statement of operation “Financial and holding results”.  Financial trusts with an active market have been valued at their market price at each year end.  Guarantee bank accounts: they secure future payments for the project works to expand the electric power generation capacity of Loma de La Lata.  As of December 31, 2009 deposits from purchasing or selling US$ Dollars at a future date are included as financial placements at the prevailing exchange rate. Results from these transactions are included in “Financial and holding results”.  Long-term  Investments in equity securities in which the Company does not exercise control or significant influence (less than 20%) are accounted for at cost.  As of December 31, 2010 the subsidiary Pampa Inversiones held 2,436,010 common shares of San Antonio International Ltd.’s capital (“San Antonio”), a leader company engaged in the provision of comprehensive drilling solutions, services and management in the oil and gas industry. As a consequence of the restructuring of part of its financial debt, San Antonio requested approximately US$112 million to its shareholders or interested third parties for a capital increase, in which the Board of Pampa Inversiones decided not to participate. As a result of this, Pampa Inversiones has reevaluated the estimated recoverable value of its investment in San Antonio and has recognized an impairment loss of Ps. 77,946,474 which is included in the statements of operations within “Financial and holding results generated by assets”.  Receivables and liabilities  Accounts receivable and payable are stated at their nominal value plus financial results accrued at each balance sheet date. Non-current trade receivables include receivables from the generation and distribution segments which, according to its contractual terms, are expected to be realized beyond one year.  Financial receivables and debt have been valued at the amount deposited or collected, respectively, plus accrued interest based on the interest rate estimated at the time of the transaction.  Non-current financial receivables and debt have been stated at their nominal value plus financial results accrued at year end, if applicable. The values thus obtained do not significantly differ from those that would result from application of the prevailing accounting standards, which establish that they must be valued at the amount receivable and payable, respectively, discounted applying a rate reflecting the time value of money and the risks specific to the transaction estimated at the time of their addition to assets and liabilities, respectively.  Bank and financial debts of the acquired companies have been valued considering its market value at the moment of the acquisition plus financial results accrued on the basis of the internal return determined in each acquisition.  Foreign currency assets and liabilities  Assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rates at year end. Transactions denominated in foreign currencies are translated into local currency at the prevailing exchange rates on the date of transaction settlement.  Inventories, materials and spare parts  Inventories, materials and spare parts which are stated at its acquisition or replacement cost. Their values do not exceed their net realizable value at year end.  Land acquired for their development and subsequent sale and fuel oil stocks were classified as inventories.  The Company classified inventories as current or non-current on the basis of the management estimate of when they will be sold or consumed.   F-11


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 2.  (CONTINUED)  Fixed assets  Fixed assets have been valued at cost less accumulated depreciation. Depreciation charges are generally computed under the straight-line method over the estimated useful lives assigned to the assets. Depreciation of Central Térmica Güemes and Loma de la Lata turbines and related equipment are calculated following the unit of production method. Depreciation of certain Transener assets has been calculated using technical formulas other than the straight-line method.  The cost of maintenance and repairs is charged to expense as incurred. The cost of significant renewals and improvements are added to the carrying amount of the respective assets. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operation.  Financial costs, which include interest and foreign currency exchange differences, generated by building, assembling and finishing fixed assets, when such processes extend over time are capitalized as asset cost. Capitalizing financial costs generated by third-parties ́ capital during the years ended December 31, 2010 and 2009, amounted to Ps. 142.7 million and Ps.117.3 million, respectively, mainly related to works to expand the electric power generation plant located in Loma de la Lata and Edenor’s investments.  The recorded values of fixed assets do not exceed their estimated recoverable value.  Intangible assets  Concession contract: corresponds to the total value assigned to the concessions of Hidroeléctrica Los Nihuiles S.A. (“HINISA”) and Hidroeléctrica Diamante S.A. (“HIDISA”) and they are amortized under the straight-line method based on the duration of the concession agreement. Concession agreements are recognized as intangible assets upon being purchased, irrespective of the goodwill that could be identified, when the intangible asset has been previously recognized by the acquired company.  Other intangible assets: corresponds to the intangible assets identified in the acquisition of companies of the distribution segment which are amortized under the straight-line method over the period the benefits derived from each asset are obtained.  Pre-operating and organization costs: As of December 31, 2009, they relate to general administration, study, evaluation and other costs related to the Ingentis and Petrolera Pampa projects. They were valued at their acquisition cost.  Other assets  Current  As at December 31, 2010, other current assets include the Company's indirect equity interest in Ingentis S.A. (“Ingentis”), considering the decision adopted by the Board of Directors of the holding company, Inversora Ingentis, of cancelling its equity interest in this company by following a capital reduction process (See Note 10). Pursuant to that decision, the Company has valued its investment in Ingentis according to the equity method of accounting, net of the recognized negative goodwill associated with this interest, since this value is lower than the estimated recoverable value.  As of December 31, 2009, other current assets include:  - Advances to suppliers for the acquisition of a turbine: the indirectly controlled company Ingentis had decided the disposition of the contract for the acquisition of a turbine, and certain associated related equipment, for considering this to be the best available alternative under the technical and financial conditions that affected the original project. Therefore the advances related to the turbine and their related equipment were classified as other current assets. Such assets have been valued at their original cost, which do not exceed their estimated recoverable value.  - Real property: during the year ended December 31, 2009 the subsidiary Pampa Real Estate decided to sell Frigorífico La Pampa property and signed a sale agreement for a total consideration of US$ 6,050,000. As of December 31, 2009 the Company valued this property at its net realizable value and recognized a holding gain of Ps. 12,196,568. Additionally, in February 2010, the sale was effective by conveying the ownership, generating an additional gain of Ps. 896,132 during year ended December 31, 2010. On November 15, 2010, the corresponding title deed was executed and the agreed price balance was collected.   F-12


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 2.  (CONTINUED)  Non - Current  Costs incurred in relation with Transener “Fourth Line” project are included under other non-current assets. These costs are amortized under the straight-line method over the term of the operating contract, consisting in 15 years.  Goodwill  Goodwill represents the excess or shortfall in the fair value of identifiable net assets acquired compared with their acquisition cost. Positive goodwill amortization charges are calculated on a regular basis throughout their useful life, representing the best estimate for the period during which the Company expects to receive economic benefits from them. Negative goodwill is amortized on a regular basis throughout a period equal to the weighted average remaining useful life of the issuer’s assets subject to depreciation and amortization.  Impairment of long-lived assets  The Company periodically evaluates the carrying value of its long-lived assets and certain intangible assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying value of a long-lived asset is considered impaired by the Company when the expected cash flows, discounted and without interest cost, from such an asset, is 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 value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Previously recognized impairment loss should only be reversed when there is a subsequent change in estimates used to compute the fair value of the asset. In that event, the new carrying amount of the asset should be the lower of its fair value or the net carrying amount the asset would have had if no impairment had been recognized.  Financial derivative instruments  The Company uses financial derivative instruments in the form of foreign currency forward exchange contracts to manage foreign currency risks. These instruments, designated or not as hedge instruments, are measured at their fair value at year end.  Changes in the fair value of instruments not designated as hedge instruments, at each measurement date, are charged to the statement of operation under the line “Financial and holding results”.  On February 11, 2010, the Company obtained the authorization to operate as agent and compensating member of Mercado a Término de Rosario S.A. (hereinafter, "Mercado"). Currently, the Company is operating contracts for the purchase of U.S. Dollars at a future date through its subsidiaries Central Piedra Buena, Central Térmica Güemes, Central Térmica Loma de la Lata and Transener (the “Constituents”). Whenever a future operation is arranged and every time losses are generated, the Company receives funds from its principals and uses those funds as guarantees of such operations. As a consequence of that, the Company records a credit with the Mercado and a liability with the principal in its accounting books. Likewise, the changes in the measurements of such contracts valued at their net realizable value or termination cost, as appropriate, produce the acknowledgement of a credit or liability with the Mercado and simultaneously a liability or credit with the principal.  Allowances and provisions  The allowance for doubtful accounts has been registered at the estimated recoverable value in order to correct and adapt the valuation of trade receivables and other doubtful accounts. Depending on the customer portfolio, the allowance is registered based on an individual recoverability analysis of the receivable portfolio (Generation and Transmission segments) or it is calculated based on the historical collection of services billed through each year end and subsequent collections (Distribution segment).  Deducted from assets: for unrecoverable tax credits. These provisions have been set based on the recoverability estimation of the Management, considering the current business plan of the Company and the statutory prescription periods.  The Company has certain contingent liabilities with respect to existing or potential complaints, lawsuits and other proceedings. The Company accrues liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated.   F-13


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 2.  (CONTINUED)  Revenue recognition  Revenue is recognized when it is realized or realizable and earned when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered; the prices are fixed or determinable; and collectability is reasonably assured or delivered to the spot market.  Revenues for each of the business segments identified by the Company are recognized when the following conditions are met:  Generation  Revenues from generation are recognized under the accrual method, including power and energy effectively consumed by customers or delivered to spot market.  Transmission  Revenues from transmission services include the following items: (i) connection to the system, (ii) energy transmission, (iii) transmission capacity and (iv) reactive equipment. Revenue is recognized as income as services are provided. As stated in the concession agreements, Transener and Transba receive bonus payments when certain quality thresholds are met. Bonuses are recognized as income when earned. The Company derives additional revenues related to the transmission services from the supervision of the construction and operation of certain assets and other services provided to third parties. These revenues are recognized as income as services are rendered.  Distribution  Revenues for distribution services include electricity supplied, whether billed or unbilled. Unbilled revenue is determined based on electricity effectively delivered to customers and valued on basis of applicable tariffs. Unbilled revenue is classified as current trade receivables. The Company also recognizes revenues from other concepts included in distribution services, such as new connections, pole rental and transportation of electricity to other distribution companies. All revenues are recognized when the Company’s revenue earning process has been substantially completed, the amount of revenues may be reasonably measured, and the economic benefits associated with the transaction will flow to the Company.  Holding  Income from the sale of plots of land is recognized upon granting possession.  Financial and holding results  Financial and holding results are segregated into those generated by assets and those generated by liabilities.  Impairment of investments, fixed and other assets includes those losses arising from the evaluation of recoverability over those assets where indicators of impairment have been detected.  Impairment of investments  During the year ended December 31 2010, the Company recorded an impairment loss amounting to Ps. 77,946,474 as a result of the recoverability evaluation performed over its ownership interest in San Antonio International Ltd. (See Note 2).  Impairment of fixed and other assets  During the year ended December 31, 2009 the Company recognized certain impairment losses amounting to Ps.18,502,059, resulting from evaluating the recoverability of certain fixed assets earmarked for electric power generation projects that were affected by the international financial crisis.   F-14


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 2.  (CONTINUED)  Taxes  Income tax  The Company records income taxes using the liability method, thus recognizing the effects of temporary differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be reversed and settled, considering the regulations in effect at the time of issuance of these financial statements.  The Company recognizes tax assets on its balance sheet only when their realization is deemed to be probable. A valuation allowance is recognized for that component of net deferred tax asset which is not recoverable.  Tax on assets  The Company calculates tax on assets by applying the current 1% rate on computable assets at the end of the year. This tax complements income tax. The Company’s tax obligation for each year will agree with the higher of the two taxes. If in a fiscal year, however, tax on asset obligation exceeds income tax liability, the surplus will be computable as a down payment of income tax through the next ten years.  During the year ended December 31, 2010, the Company recognized a valuation allowance over certain tax on assets credits classified as Other Receivables for a total amount of Ps. 29,475,183, considering that these amounts will not be realized under the Company’s current business plans.   NOTE 3.  (LOSS) earning per share  The Company has calculated basic (loss) earning per share on the basis of the weighted average amount of outstanding common stock at December 31, 2010, 2009 and 2008, as follows:  For the years
ended December 31,2010
     
     2009
     
     2008Net (loss) income for the year
     
     (46,561,040)
     
     214,736,821
     
     115,023,728Weighted average amount of outstanding shares
     
     1,314,310,895
     
     1,390,409,146
     
     1,504,249,410Basic (loss) earning per share
     
     (0.0354)
     
     0.1544
     
     0.0765
   Furthermore, the Company has calculated diluted (loss) earning per share on the basis of the possible dilutive effect of the options granted, as described in Note 14. Whether the dilutive effect increases the (loss) earning per share, such dilutions will not be considered in calculations.  For the years
ended December 31,2010
     
     2009
     
     2008Net (loss) income for the year
     
     (46,561,040)
     
     214,736,821
     
     115,023,728Weighted average amount of outstanding shares
     
     1,478,581,122
     
     1,478,256,443
     
     1,538,814,785Diluted (loss) earning per share
     
     (0.0315)
     
     0.1453
     
     0.0747
    F-15


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 3.  (CONTINUED)  The reconciliation of the weighted average number of outstanding shares for basic and diluted (loss) earning per share is as follows:  For the years
ended December 31,2010
     
     2009
     
     2008Weighted average amount of outstanding shares for basic earning per share
     
     1,314,310,895
     
     1,390,409,146
     
     1,504,249,410Number of shares to be added if all the options granted are exercised
     
     164,270,227
     
     87,847,297
     
     34,565,375Weighted average amount of outstanding shares for diluted earning per share
     
     1,478,581,122
     
     1,478,256,443
     
     1,538,814,785
   NOTE 4.  BREAKDOWN OF main BALANCE SHEET ACCOUNTS   As of
December 31, 2010
     
     As of
December 31, 2009Trade receivablesCurrentReceivables from energy distribution
     
     435,771,000
     
     398,109,000Receivables from Argentine Wholesale Electric Market ("WEM")
     
     78,113,330
     
     68,799,504Compañía Administradora del Mercado Mayorista Eléctrico S.A. 
("CAMMESA"):- Generation
     
     150,653,416
     
     16,647,547- Transmission
     
     39,518,005
     
     38,671,355Res. No. 406/03 and FONINVEMEM (1) consolidated receivables
     
     74,179,781
     
     53,538,852Debtors in litigation
     
     15,619,719
     
     15,596,694Related parties
     
     843,882
     
     345,256Other
     
     30,948,903
     
     15,137,581Subtotal
     
     825,648,036
     
     606,845,789Allowance for doubtful accounts
     
     (32,230,439)
     
     (27,227,660)793,417,597
     
     579,618,129Non-currentReceivables from energy distribution
     
     45,531,000
     
     87,047,000CAMMESA - Generation
     
     404,795
     
     616,083Res. No. 406/03 and FONINVEMEM (1) consolidated receivables
     
     191,458,800
     
     175,511,766Other
     
     101,315
     
     287,663Subtotal
     
     237,495,910
     
     263,462,512Allowance for doubtful accounts
     
     (404,795)
     
     (404,795)237,091,115
     
     263,057,717
   (1)Fund for Investments required to increase the electric power supply in the Wholesale Electric Market (WEM).   F-16


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 4.  (continued)   As of
December 31, 2010
     
     As of
December 31, 2009Other receivablesCurrentTax credits:- Value added tax
     
     159,832,822
     
     149,887,452- Tax on gross sales
     
     1,154,827
     
     7,060,165- Income tax
     
     4,881,567
     
     10,151,096- Tax on assets
     
     3,435,734
     
     -- Other tax credits
     
     7,025,702
     
     4,466,697Advances to suppliers
     
     58,196,801
     
     26,468,078Advances to employees
     
     6,878,737
     
     6,975,882Prepaid expenses
     
     20,521,369
     
     19,877,528Other debtors from energy distribution
     
     23,321,000
     
     18,544,000Deposits in guarantee on financial derivative instruments
     
     20,146,671
     
     -Judicial deposits
     
     110,701
     
     14,332,568Other
     
     31,077,143
     
     32,288,547Subtotal
     
     336,583,074
     
     290,052,013Valuation allowance on other receivables
     
     (14,316,491)
     
     (7,977,377)322,266,583
     
     282,074,636Non-currentTax credits:- Tax on assets
     
     82,810,469
     
     55,222,884- Deferred tax asset
     
     146,159,704
     
     111,187,025- Other tax credits
     
     42,161,726
     
     40,955,677Advances to suppliers
     
     3,653,335
     
     3,653,335Employee stock ownership programme
     
     2,513,540
     
     3,496,519Prepaid expenses
     
     1,199,000
     
     1,444,041Other
     
     11,388,125
     
     543,818Subtotal
     
     289,885,899
     
     216,503,299Valuation allowance on other receivables
     
     (43,258,215)
     
     (30,837,105)246,627,684
     
     185,666,194InventoriesCurrentMaterials and spare parts
     
     24,708,213
     
     26,211,814Fuels
     
     4,690,687
     
     18,276,382Lots
     
     279,742
     
     489,32729,678,642
     
     44,977,523Non-currentLots
     
     638,632
     
     1,143,736638,632
     
     1,143,736Other assetsAssets to be disposed
     
     128,091,604
     
     138,591,381128,091,604
     
     138,591,381
    F-17


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 4.  (continued)   As of
December 31, 2010
     
     As of
December 31, 2009Accounts payableCurrentSuppliers
     
     584,064,708
     
     433,373,825CAMMESA
     
     24,694,558
     
     19,553,967Fees and royalties
     
     3,317,761
     
     2,099,074Related parties
     
     69,364
     
     467,754Deferred income
     
     547,147
     
     4,321,336Customer advances
     
     37,664,534
     
     46,016,761Other
     
     699,735
     
     974,019651,057,807
     
     506,806,736Non-currentSuppliers
     
     1,855,000
     
     2,675,000Deferred income
     
     2,745,483
     
     2,930,737Customer guarantees
     
     49,129,000
     
     44,179,000Customer advances
     
     24,356,884
     
     30,840,49978,086,367
     
     80,625,236Financial debtCurrentFinancial loans
     
     288,175,300
     
     116,440,379Bank overdrafts
     
     146,424,783
     
     144,141,103Corporate bonds
     
     27,474,072
     
     18,538,216Short-term notes
     
     149,272,446
     
     74,946,044Accrued interest
     
     49,584,957
     
     45,012,680Financial derivative instruments
     
     7,253,000
     
     6,001,000Related parties
     
     115,133
     
     7,383,528668,299,691
     
     412,462,950Non-currentFinancial loans
     
     72,815,560
     
     62,361,103Corporate bonds
     
     1,921,756,607
     
     1,641,516,156Related parties
     
     -
     
     115,1331,994,572,167
     
     1,703,992,392Salaries and social security payableCurrentSalaries and social security contributions
     
     99,743,031
     
     50,649,371Provision for vacations
     
     80,356,459
     
     65,776,226Provision for gratifications
     
     16,567,383
     
     12,128,249Provision for annual bonus for efficiency
     
     31,523,344
     
     28,558,859Pension plan
     
     2,790,226
     
     2,188,632Retirement anticipated
     
     6,165,000
     
     6,185,000237,145,443
     
     165,486,337Non-currentProvision for annual bonus for efficiency
     
     -
     
     9,064,000Pension plan
     
     51,384,349
     
     37,838,091Bonus for antiquity
     
     12,432,000
     
     -Retirement anticipated
     
     6,845,000
     
     9,789,00070,661,349
     
     56,691,091
    F-18


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 4.  (continued)   As of
December 31, 2010
     
     As of
December 31, 2009Taxes payableCurrentProvision for income tax, net of witholdings and advances
     
     36,479,296
     
     67,048,008Provision for tax on assets, net of witholdings and advances
     
     7,006,544
     
     6,297,019Value added tax
     
     38,732,713
     
     52,155,874Municipal, provincial and national contributions
     
     32,024,000
     
     30,296,316Municipal taxes
     
     27,231,902
     
     24,733,000Income tax withholdings to be deposited
     
     7,777,211
     
     3,762,171Other
     
     22,043,858
     
     18,877,794171,295,524
     
     203,170,182Non-currentDeferred tax liabilities
     
     528,905,850
     
     542,096,387Value added tax
     
     35,129,901
     
     16,201,106Other
     
     11,534,303
     
     20,517,722575,570,054
     
     578,815,215Other liabilitiesCurrentExpenses accrued
     
     15,376,072
     
     26,275,640Related parties
     
     201,539
     
     -Dividends payable
     
     26,357,604
     
     30,989,588Other
     
     11,469,370
     
     20,268,99053,404,585
     
     77,534,218Non-currentENRE fines and bonuses (1)
     
     455,421,000
     
     377,456,000Programme of rational use of energy
     
     529,097,000
     
     233,319,000CAMMESA financing - Transmission
     
     592,326
     
     20,532,457985,110,326
     
     631,307,457
 (1)Corresponds to sanctions imposed by theEnte Regulador de la Electricidad("ENRE") in the Company’s distribution business due to non-compliance of certain service quality indexes established by the respective concession contract.   For the years 
ended December 31,2010
     
     2009
     
     2008SalesGeneration
     
     2,399,083,844
     
     1,714,496,751
     
     1,780,727,650Transmission
     
     291,040,193
     
     290,483,423
     
     228,522,916Distribution
     
     2,173,644,000
     
     2,077,860,000
     
     2,000,198,000Other
     
     3,157,392
     
     10,599,699
     
     4,427,7204,866,925,429
     
     4,093,439,873
     
     4,013,876,286
   F-19


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 4.  (continued)   As of
December 31, 2010
     
     As of
December 31, 2009
     
     As of
December 31, 2008Conciliation of cash and cash equivalentsCash and banks and current investments
     
     1,170,254,287
     
     625,740,345
     
     622,846,411Non cash equivalent investmentsTime deposits
     
     (5,911,977)
     
     (100,945,728)
     
     (124,422,888)Government securities
     
     (4,100,820)
     
     -
     
     (42,718,617)Corporate securities
     
     (41,662,574)
     
     -
     
     (16,555,295)Shares in other companies
     
     (122,115,939)
     
     (69,235,994)
     
     (29,450,489)Trusts
     
     (18,621,566)
     
     (19,707,612)
     
     (14,489,491)Bank accounts in guarantee
     
     (69,143,552)
     
     -
     
     -Cash and cash equivalents
     
     908,697,859
     
     435,851,011
     
     395,209,631
    NOTE 5.  income tax  The breakdown of deferred tax assets and liabilities is as follows:  As of
December 31, 2010
     
     As of
December 31, 2009Tax loss-carryforwards
     
     157,271,334
     
     95,806,701Investments
     
     567,572
     
     8,547,297Trade receivables
     
     (56,730,946)
     
     (31,943,548)Fixed assets
     
     (617,882,700)
     
     (578,689,220)Intangible assets
     
     (30,270,184)
     
     (35,285,299)Other assets
     
     (2,346,126)
     
     (7,201,456)Financial debt
     
     (23,963,246)
     
     (27,166,899)Salaries and social security payable
     
     7,957,104
     
     4,159,453Other liabilities and provisions
     
     181,504,170
     
     139,138,841Other
     
     1,146,876
     
     1,724,768Net deferred tax liability
     
     (382,746,146)
     
     (430,909,362)
   Below is a reconciliation between income tax expense and the amount resulting from application of the tax rate on the income before taxes:   For the years
ended December 31,2010
     
     2009
     
     2008Income before taxes and minority interest
     
     37,693,845
     
     470,250,436
     
     305,342,363Current tax rate
     
     35%
     
     35%
     
     35%Result at the tax rate
     
     (13,192,846)
     
     (164,587,653)
     
     (106,869,827)Goodwill amortization
     
     (6,987,433)
     
     (7,001,590)
     
     (6,943,704)Reserve for Director ́s options
     
     (3,130,873)
     
     (3,871,470)
     
     (4,118,335)Non-taxable income / Non-deductible loss
     
     (10,101,218)
     
     39,886,288
     
     39,107,515Other
     
     (6,937,219)
     
     5,997,545
     
     7,853,026Subtotal
     
     (40,349,589)
     
     (129,576,880)
     
     (70,971,325)Expiration of tax loss-carryforwards
     
     (21,255,107)
     
     (12,552,240)
     
     (141,150,363)Valuation allowance of tax on assets credit
     
     (7,608,785)
     
     (21,868,399)
     
     -Change in valuation allowance for tax loss carryforwards
     
     (5,067,125)
     
     3,795,047
     
     103,280,562Total income tax expense
     
     (74,280,606)
     
     (160,202,472)
     
     (108,841,126)
   F-20


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 6.  subsidiaries FINANCING STRUCTURE  The indebtedness structure of the Company's subsidiaries as of December 31, 2010 is mainly made up of the following corporate bonds and short-term notes:   Subsidiary company
     Corporate bonds
     Issuance date
     Currency
     Notional Amount
     Repurchased amount
     Remaining amount
     Repurchase result
     Agreed rate
     Final maturityin thousands
     in thousands of Ps.Transener
     At par at fixed rate
     Dec-20-06
     US$
     220,000
     
     97,200
     122,800
     3,371
     8.88%
     2016At par at variable rate
     Dec-20-05
     US$
     12,397
     (1)
     9,322
     3,075
     3% a 7% (incremental)
     2016Edenor
     At par at variable rate
     Apr-24-06
     US$
     12,656
     
     -
     12,656
     (7,054)
     Libor + 0% a 2% (incremental)
     2019At par at fixed rate
     Apr-24-06
     US$
     80,048
     
     80,048
     -
     3% a 10% (incremental)
     2016At par at fixed rate
     Oct-09-07
     US$
     220,000
     
     195,243
     24,757
     10.50%
     2017At par at fixed rate
     Oct-25-10
     US$
     230,301
     
     -
     230,301
     -
     9.75%
     2022EASA
     At par at fixed rate
     Jul-19-06
     US$
     12,874
     (2)
     419
     12,455
     214
     3% a 5% (incremental)
     2017At discount at fixed rate
     Jul-19-06
     US$
     84,867
     (2)
     83,659
     1,208
     11%
     2016CTG
     At par at fixed rate
     Oct-03-03
     US$
     6,069
     
     1,887
     4,182
     46
     2%
     2013At par at fixed rate
     Jul-20-07
     US$
     22,030
     
     18,196
     3,834
     10.50%
     2017Loma de la Lata
     At discount at fixed rate
     Sep-08-08
     US$
     189,299
     (2)
     24,264
     165,035
     8,920
     11.25%
     2015Edenor
     At par at variable rate
     May-07-09
     Ps.
     58,236
     (2)
     -
     58,236
     -
     Badlar private + 6.75%
     2013Central Piedrabuena
     Short-term note
     May-11-10
     Ps.
     66,295
     
     -
     66,295
     -
     Badlar private + 3.00%
     2011Short-term note
     Oct-22-10
     Ps.
     80,000
     
     -
     80,000
     -
     Badlar private + 3.00%
     2011(1) Corresponds to the remaining amount as of December 31, 2008.(2) Include interests capitalized after the issuance. The repurchased amounts were adjusted for interests capitalized, if any.(3) Corresponds to the remaining amount as of December 31, 2010.
   During the year ended December 31, 2010, the Company and its subsidiaries acquired its own corporate bonds or corporate bonds of various subsidiaries at their respective market value for a total face value of US$ 176 million, out of which US$ 123.9 corresponds to the result of the exchange and repurchase offer of Edenor ́s corporate bonds. Due to these debt-repurchase transactions, the Company and its subsidiaries recorded a gain of Ps. 5.5 million disclosed under the line “Result of repurchase of financial debt” within financial and holding results generated by liabilities. From the initial transactions in 2008 and up to December 31, 2010, the Company and its subsidiaries have repurchased corporate bonds for a total nominal value of US$ 510.2 million, including US$123.9 million of the mentioned Edenor ́s operation, of which as of December 31, 2010, US$ 244.2 million were still maintained in treasury, while the remaining amount has been redeemed.  Below are described the main characteristics of the indebtedness of each of the subsidiaries:  Transener  In October 2006 Transener started a process for refinancing its outstanding financial debt, offering to the bondholders the repurchase of Class 6 and Class 8 Corporate Bonds at par value in cash, and to fully redeem Class 7 and Class 9 Corporate Bonds issued at a discount, obtaining the approval of approximately 76% of them.  F-21


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 6.  (continued)  To finance the purchase offer and the redemption of the mentioned bonds, Class 1 Corporate Bonds for US$ 220 million were issued. These new securities with a final maturity on December 15, 2016 bear interest at an annual rate of 8.875% and shall be repaid in four equal installments on December 15, 2013, 2014, 2015 and 2016. Class 1 Corporate Bonds have been authorized for public offering in Argentina.  The settlement of the purchase offer in cash of the Class 6 and Class 8 Corporate Bonds at Par, the full redemption of the Class 7 and Class 9 Corporate Bonds at a discount, and the issuance of the new Class 1 Corporate Bonds took place on December 20, 2006.  Under the refinancing terms, Transener and its restricted subsidiaries are subject to complying with a series of restrictions, among which we may highlight limitations to indebtedness, sale of assets, transactions with shareholders and subsidiaries and making control change in under certain circumstances.At the date of issuance of these financial statements Transener and its subsidiaries had fulfilled these obligations.  Corporate Bonds Programme  On November 5, 2009, Transener ́s Shareholders’ Meeting resolved to create a global programme for the issuance of registered, nonconvertible, simple corporate bonds denominated in Argentine pesos or in any other currency, with unsecured, special, floating and/or any other guarantee, either subordinated or not, for a maximum outstanding amount at any time that may not exceed Ps. 200 million or equivalent amount in other currencies. The programme was authorized by CNV on December 19, 2009. On July 5, 2010, Transener submitted the update of the prospectus together with the financial statements at March 31, 2010.  CAMMESA’s financing to Transener and Transba  On May 12, 2009, Transener and Transba executed with CAMMESA, based on the terms of the resolution 146/02 of theEnergy Secretariat(“ES”), a financing agreement for an amount of up to Ps. 59.7 million and Ps. 30.7 million, respectively. On January 5, 2010, an extension to the previously mentioned financing agreement was executed for up to an amount of Ps. 107.7 million and Ps. 42.7 million, respectively.  As of December 31, 2010 the financing amount requested by both companies amounted to Ps. 150.4 million, whereas the disbursements received amounted to Ps. 132.6 million. The interests unpaid at year-end amount to Ps. 10 million. The cancellation of this debt is subject to the conditions arising from the agreement mentioned in Note 7.  On September 27, 2010, Transener entered into a new financing agreement with CAMMESA, under the same disbursement and cancellation conditions and for up to US$ 2.3 million, to afford maintenance tasks in the 500 kV breakers in Alicurá. As of December 31, 2010, the amount certified by Transener amounted to Ps.1.2 million, the whole amount of which has been paid by CAMMESA. Pursuant to this Agreement, no continuity of disbursements by CAMMESA is expected, the received amounts pending refund being payable in 18 installments due as from January 2012, with the accrual of interest at a rate equivalent to the mean monthly yield obtained by CAMMESA from its WEM’s financial placements.  Edenor  Corporate Bonds Programme  On October 9, 2007, Class 7 Corporate Bonds for US$ 220 million were issued under the public offering regime for a term of ten years, at par value, accruing interest at an annual fixed rate of 10.5%, payable on April 9 and October 9 of each year, the first service of which was on April 9, 2008, the principal being amortized in a down payment on October 9, 2017.  Proceeds from the issuance of these Corporate Bonds were used to repay existing outstanding Corporate Bonds with maturity in 2014.  Edenor Debt Issuance and Cancellation  On April 13, 2009, the Board of Directors of Edenor approved the issuance and listing of Floating Rates Notes due 2013 for a principal amount of up to Ps. 150 million, within the framework of the global medium term corporate notes issuance program.  F-22


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 6.  (continued)  On May 7, 2009, Edenor issued Ps. 75.7 million Class No. 8 Notes, with a four year maturity, priced at 100% of principal, accruing interest as of the date of issuance at a floating rate equal to the BADLAR private rate plus a spread of 6.75% per annum. The Notes pay interest quarterly, with the first interest payment date on August 7, 2009. The principal amount is amortized in 13 consecutive quarterly installments, with the first principal payment date on May 7, 2010.  Net proceeds from placing the notes are used to finance the capital expenditures plan of Edenor.  Moreover, Edenor’s Board of Directors approved the issuance and placement by public offering or exchange of fixed-rate corporate bonds maturing in 2022 for a nominal value of up to US$ 300 million. Pursuant to the Price Supplement dated September 28, 2010, corporate bonds may be subscribed:  i.In cash, at the issuance price determined by Edenor based on the placement and award proceeding, or ii.In kind, through the delivery of fixed-rate Class 7 Corporate bonds maturing in 2017 in exchange for the corporate bonds and based on an exchange ratio. Simultaneously with the subscription offer and the exchange offer, Edenor made a public offering for the repurchase of Class 7 Corporate bonds at cash repurchase price.  On October 25, 2010 and as a result of the cash subscription offer, Edenor issued corporate bonds for a nominal value of US$ 140 million. Furthermore, as a result of the exchange offer, Edenor has accepted and exchanged Class 7 Corporate bonds for a nominal value of US$ 90.3 million for corporate bonds maturing in 2022, at a fixed rate of 9.75% and for a nominal value of US$ 90.3 million, plus a cash payment amounting to US$ 9.5 million, including the payment of accrued and unpaid interest on the Class 7 Corporate bonds, and has accepted and purchased Class 7 Corporate bonds for a nominal value of US$ 33.6 million, having already paid US$ 35.8 million, including the payment of accrued and unpaid interest on Class 7 Corporate bonds. As a result of the repurchase offer and the Class 7 Corporate bonds exchange, Edenor has cancelled corporate bonds for a nominal value of US$ 123.9 million, representing approximately 83.3% of the currently outstanding corporate bonds.  New Class 9 Corporate bonds amounting to US$ 230.3 million have been issued at par and accrue interest at a fixed rate of 9.75%, payable on a semester basis on October 25 and April 25 each year, the first payment of interest taking place on April 25, 2011 and with an amortization of principal in a single payment in 2022. Edenor requested that the Corporate bonds should be listed on the Buenos Aires Stock Exchange, its admission to the trading system in Mercado Abierto Electrónico S.A., its listing on the Luxembourg Stock Exchange and its admission to the MTF Euro Market, an alternative market to the Luxembourg Stock Exchange.  Edenor destined the founds received from the placement of the corporate bonds to refinance all or part of its outstanding indebtedness, to afford a capital investment plan and/ or to the payment of working capital.  On October 18, 2010, Edenor cancelled the Class 7 Corporate bonds in its portfolio having a nominal value of US$ 65.3 million.  The approximate total nominal value of Class 7 Corporate bonds still outstanding after the purchase offer amounts to US$ 24.8 million.   EASA  Financial debt renegotiation – Main obligations  As established in the issuance prospectus of its corporate bonds, the main obligations assumed by EASA consist in limitations to:  (i) indebtedness; (ii) certain transactions with shareholders; (iii) level of operating expenses; and, (iv) restricted payments (payments of dividends, fees to shareholders, banned investments, among others).  At the date of the issuance of the Company’s financial statements, EASA complies with its obligations as established in the trust agreement relating to the Corporate Bonds issued after having completed the restructuring process of its financial debt.  On the dates provided in the issuance conditions, EASA paid interest related to the New Corporate Bonds, capitalizing the portion of interest accrued from the coupon in kind. F-23


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 6.  (continued)  Central Térmica Güemes  Exchange of Corporate Bonds  On June 12, 2007 CTG launched an exchange offer of all outstanding Series A Corporate Bonds amounting to US$ 31.7 million and Series B Corporate Bonds amounting to US$ 21.9 million with maturity in 2013 (“Bonds 2013”). The exchange offer was authorized by resolutions adopted by the Shareholders ́ Meeting held on June 28, 2007 and by the Board of Directors Meetings held on June 12, 2007, June 21, 2007 and June 28, 2007.  The above mentioned Shareholders ́ Meeting approved the issuance of unsecured and unsubordinated non-convertible US$ dollar-denominated Corporate Bonds up to US$ 34.8 million. CTG received the acceptance of 88.7% of the holders of the total debt subject to restructuring, due to this. On July 25, 2007, it has been consumed the exchange for which CTG, under the conditions offered to and accepted by the participating bondholders:  -  Issued US$ 22.0 million Corporate Bonds accruing interest at a rate of 10.5%, falling due on September 11, 2017 (“Bonds 2017”); -  Paid US$ 8.9 million in cash to the holders that exercised this option; and -  Paid US$ 0.3 million in cash of accrued and unpaid interest at the date of the exchange, plus a cash payment of US$ 0,1 million for holders that accepted the offering in advance.  The Corporate Bonds were authorized by the CNV on July 11, 2007 and has been also authorized for trading on the Buenos Aires Stock Exchange and the Mercado Abierto Electrónico.  Amendments to covenants of Corporate Bonds  On December 23, 2008, and on January 20, 2009, CTG completed the process to amend certain restrictive covenants of its Bonds 2017 and Bonds 2013, respectively. The main objective of the approved amendments to the restrictive covenants is to reflect the current financial position and business prospects of CTG and to grant CTG the ability of assuming debt and encumbrances that are reasonable considering its EBITDA and its debt service capacity.  The approved amendments allow CTG, among others to:  -Incur in additional debt for up to US$ 30 million for any purpose, irrespective of its indebtedness. -Incur in additional debt as long as the debt ratio of its outstanding debt and EBITDA does not exceed the 3 to 1 ratio (excluding up to US$ 30 million of additional permitted debt). -Incur in additional debt or guarantee incurred debt to finance or refinance the acquisition, construction, improvement or development of any other asset, including the new generation unit at CTG.   Global programme of securities representing short–term debt  On July 21, 2008, the Ordinary and Extraordinary Shareholders’ Meeting of CTG approved the creation of a Global Programme of Securities Representing short-term debt up to a maximum amount outstanding at any time that may not exceed Ps. 200 million or the equivalent amount in other currencies, under which CTG may issue corporate bonds in various classes and/or series, each one of them with an amortization term of up to 365 days or a shorter or longer term that in the future applicable regulations may contemplate. Such Meeting delegated to CTG’s Board of Directors the power to establish certain conditions of the Programme and the opportunity of issuance and other terms and conditions of each class and/or series of corporate bonds to be issued under the Programme.  Up to the issue of these financial statements, CTG has not issued any class and/or series of corporate bonds under this Programme.  Bank loans  On June 25, 2010, Banco Hipotecario S.A. and Standard Bank Argentina S.A granted to CTG a two-tranche financing for an aggregate amount of Ps. 100,000,000, one for Ps. 50,000,000 accruing interest at a floating rate equal to the private Badlar rate plus a nominal spread of 3% per annum, and another one for Ps. 50,000,000 accruing interest at a fixed nominal rate equivalent to 17% per annum. Interest are be payable quarterly as from the granting date and the principal amount is be amortized in three consecutive quarterly installments, with the first one due 15 months on September 2011. F-24


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 6.  (continued)  Central Piedra Buena  Global Short-Term Debt Securities Program  On June 18, 2008, the Ordinary and Extraordinary Shareholders’ Meeting of CPB approved the creation of a global programme for the issuance of securities representing short–term debt (the “VCP”) in the form of simple corporate bonds non-convertible into shares, denominated in pesos, US dollars or any other currency with or without guarantee, either subordinated or not, for a maximum outstanding amount at any time that may not exceed Ps. 200 million, with an amortization term of up to 365 days, or at a longer term that applicable rules may contemplate (the “Programme”). Such Meeting delegated to CPB’s Board of Directors the power to establish certain conditions of the Programme and the opportunity to issue and other terms and conditions of each class and/or series of corporate bonds to be issued under the Programme.  Additionally, on February 26, 2009, the General Ordinary and Extraordinary Shareholders’ Meeting of CPB approved an amendment to the Programme in order to give CPB the alternative of issuing VCPs. under the form of serial promissory notes, giving more flexibility for the placement of VCP among institutional investors in the corporate debt market.  During the year ended December 31, 2010 and 2009, CPB issued five VCP series under this program, for a total amount of Ps.241.6 million. Series 4 and 5 issued for a total nominal value of Ps. 146.3 million are in force as of December 31, 2010.  CAMMESA Financing  On September 28, 2010, the ES instructed CAMMESA through Note 6157/10 to convene WEM’s Generating Agents with steam turbine generators to propose works deemed indispensable to increase the power generated by their units, which will have be available before the winter of 2011.  In October 2010, CPB formalized its proposal to increase its power generation capacity to CAMMESA. On October 28, 2010 CAMMESA informed the ES of the result of the call, pointing out that CPB’s project was one of the most appropriate ones and defining the works approved for execution.  The ES informed of the project’s approval through Note 7375/10 dated November 6, 2010 and instructed CAMMESA to grant the required financing pursuant to the guidelines set forth in ES Resolution No. 146/02 and Notes 6157/10 and 7375/10. The amount of the work  proposal submitted by CPB amounts to Ps. 63,240,808.  The funds allocated by the agreement are destined to afford part of the works and/or maintenance tasks allowing for an increase in the power generated by the Company’s steam turbine units; such funds are disbursed through an advance payment and partial advances based on the work’s progress, which will be certified through documents issued by CPB and which will be subject to the availability of cash by CAMMESA and as instructed by the ES. As of December 31, 2010, CPB has received from CAMMESA partial advances amounting to Ps. 21 million.  Bank loans  On January 15, 2009, Banco Nación granted to CPB a loan amounting to Ps. 60,000,000, which accrues interest at the BAIBOR rate plus a 5% margin. The repayment of principal is to be made in 18 equal and consecutive monthly installments payable as from August 18, 2009; interest are paid on a monthly basis. As of December 31, 2010, the balance of this loan plus accrued interest amounts to Ps. 3,367,335.  On August 19, 2010, CPB received from Banco Provincia a loan amounting to Ps. 20,000,000, which accrues interest at a 14% nominal annual fixed rate. Interests are paid on a monthly basis and the principal is repaid as a lump sum in November, 2011. As of December 31, 2010, the balance of this loan plus accrued interest amounts to Ps. 20,099,726.   F-25


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 6.  (continued)  Loma de La Lata  Financing for Loma de La Lata s’ Project  On May 30, 2008, Loma de la Lata entered into two facility agreements with ABN AMRO Bank N.V. and Standard Bank Plc., as lenders, and ABN AMRO Bank N.V., Argentine Branch, for financing a part of the costs to be incurred in connection with Loma de la Lata’s current expansion project (converting such plant’s existing generation units into a combined cycle-gas fired power plant which has a total cost of approximately US$ 225 million). The facility agreements provided for the issuance of letters of credit for an aggregate amount of US$ 88.2 million (in addition to other fully collateralized letters of credits issued by ABN AMRO Bank N.V. for an aggregate amount of US$ 66,5 million), and set forth the financial commitments granted by such banks to make loans in favor of Loma de la Lata for an aggregate amount of up to US$ 80 million, which loans would mature in March 2013 (except as extended pursuant to the terms of the facility agreements).  Fees on such letters of credit accrue at an annual rate ranging from 2% to 2.5% (this fee was reduced since Loma de La Lata collateralized such letters of credit with funds from de issuance of corporate bonds, as defined below).  Due to the issuance of the corporate bonds, Loma de La Lata has made guaranteed deposit securing the funds to be disbursed under the previously mentioned letters of credit (and their related payable fees), thus replacing the obligation of making reimbursements by joint arrangers under the financing agreements and reducing, among others, the fees payables under such letters of credit.  Issuance of Corporate Bonds of Loma de La Lata  Loma de la Lata approved by means of the Extraordinary Shareholders’ Meeting held on June 24, 2008 and the Ordinary and Extraordinary Shareholders’ Meeting held on July 24, 2008, the issuance of corporate bonds up to the amount of US$ 200 million (the “Corporate Bonds”) for, among other purposes, finance the Project, replacing the disbursement of the joint organizers, under the financing agreements. Such Meetings also approved the admission of Loma de La Lata into the public offering system and the application to the CNV of the respective public offering authorization of Corporate Bonds.  On September 8, 2008, Loma de Lata issued simple Corporate Bonds for a face value of US$ 178 million at 11.25%, maturing in 2015 and with a subscription price of 93.34% implying a yield through maturity of 12.95%. The capital will be amortized in five semiannual consecutive payments, the first of which will be sixty months as from the issuance and settlement date. The first four amortization payments will be for an amount equivalent to 12.5% of capital, while the fifth and last amortization payment and full settlement will be made upon maturity for an amount equivalent to 50% of the issued capital. Interest will accrue on the outstanding capital as from the issuance and settlement date and until settling all the amounts owed under the Corporate Bonds at a fixed rate equivalent to a nominal 11.25% interest rate. The interest rate will be comprised of (i) one fixed interest rate portion equivalent to a fixed nominal rate of 5% and (ii) an interest portion capitalizable at a nominal fixed 6.25% (the "Capitalizable Interest Portion”).  Loma de La Lata is obliged to cancel the amounts related to all interest, however it is stated that: (i) the Capitalizable Interest Portion related to interest payable on the first two Interest Payment Date (as defined in the Prospectus for the issuance of Corporate Bonds) will be automatically capitalizable, and (ii) provided no Event of Default occurred for failing to pay any amount owed under the Corporate Bonds or they were declared due and payable either fully or partially, Loma de La Lata may choose, at its sole discretion, to defer paying interest exclusively as regards the Portion of Capitalizable Interest and capitalize accrued interest related to such portion payable on the following three Interest Payment Dates (the “Option to Capitalize”). The Option to Capitalize may be exercised by Loma de La Lata only on the third, fourth and/or fifth Interest Payment Date. The option to capitalize interest could only be exercised by Loma de la Lata in the first four semiannual interest payments.  The Corporate Bonds are guaranteed by credit rights against such company and fiduciary assignment of: (a) rights to receive payments and/or complaint damages arising from (i) sales of electricity (energy and/or power) resulting from the additional capacity arising from the extension project, (ii) agreements to supply natural gas, (iii) project agreements, and (iv) insurance agreements; and (b) funds deposited in guarantee to cover the amount of the fixed interest portion until the provisional reception date of the expansion works. Additionally, the corporate bonds issued are secured by Pampa Energia (shareholder controlling Loma de La Lata) as direct and main obligor.  On December 29, 2008, Pampa Inversiones executed an option agreement by which it grants an irrevocable put option on the corporate bonds issued by Loma de la Lata for a face value of US$ 10 million, and such option may be exercised within 30 days as from September 8, 2011. This option is no longer effective since those bonds were sold by the counterparty in January 2010.  F-26


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 6.  (continued)  Amendments to covenants of Corporate Bonds  At the Extraordinary Corporate Bond Holders ́ Meeting held On March 23, 2010, CTLL completed the process to amend certain   restrictive corporate bonds covenants. The main amendments are described below:  -Any present or future equity interest of any CTLL subsidiary may be allowed to be set as excluded asset. New excluded assets may be only acquired if it applies as an Allowed Investment. -Allowed indebtedness is increased from US$ 25 million to US$ 60 million. -Subsidiaries may be purchased by applying funds from capital contributions, allowed indebtedness and/or allowed transfers. -Merger, consolidation or disposition of assets is allowed provided the issuer’s consolidated debt to EBITDA ratio is maintained after implementing the transaction. -Certain agreements were amended to avoid being applied to the Company’s subsidiaries.  Creation of a new corporate bond program of Loma de La Lata  On December 28, 2009, the Ordinary Shareholders’ Meeting resolved to approve the creation of a corporate bond program not convertible into shares for a face value of up to US$ 50,000,000, or equivalent amount in other currencies. The program has been authorized for its public offer by the CNV on July 8, 2010. As of December 31, 2010, no corporate bonds have been issued under such program.  Pampa Inversiones  Financing Agreements in Pampa Inversiones  On October 21, 2010, Pampa Inversiones entered into a Structured Repurchase Transaction with Deutsche Bank, which provided it with financing amounting to US$ 30 million, maturing on April 21, 2011 and with interest payable on a quarterly basis at a LIBOR rate plus a 5.50% margin. Regarding this transaction, Pampa Inversiones transferred 78,224,000 Corporate bonds issued by EASA. and 22,137,320 Corporate bonds issued by Loma de La Lata, both belonging to its investment portfolio, which it undertakes to repurchase at the above mentioned maturity date. After the closing of the fiscal year, Pampa Inversiones cancelled that transaction, the guarantee on the investment of the Negotiable Obligations mentioned being thus released.  Structured Repurchase Transaction in Pampa Inversiones  As regards Pampa Inversiones’s financing agreement mentioned in the consolidated financial statements, the Company has been appointed as guarantor of that transaction before the Deutsche Bank AG, in order to make the payments due in case of breach of Pampa Inversiones. This guarantee allows the counterparty to execute it through the disposal of the assets that the Company could have in any of the entity ́s branches  Inversora Nihuiles and Inversora Diamante  Financing of the acquisition of participation in Inversora Nihuiles and Inversora Diamante  In October 2006, the Company acquired shares of Inversora Nihuiles and Inversora Diamante, which were partially financed by the seller, Banco de Galicia y Buenos Aires S.A. (“Banco Galicia”) for US$ 4,900,000. This loan accrues interest at 3% and matures on June 7, 2011.  Due to such financing, the Company created a first pledge in favor of Banco de Galicia on the shares of Inversora Nihuiles and Inversora Diamante that were acquired from Banco de Galicia.    F-27


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 7.  SUBSIDIARIES regulatory framework  Generation  The Company and its subsidiaries generate energy which, through the SADI (“Interconnected System”) is directly sold to the “WEM” at the prices approved by CAMMESA. Such prices arise from supplying the WEM’s electric demand with electric supply whose variable production cost is related to the less efficient machine that is currently generating power with natural gas. Revenues from the sale of power result from the sales on the WEM’s spot market and sales to large client on the WEM’s Forward Market through agreements executed by the parties and in accordance with the regulations established by the Energy Secretariat (“ES”).  The regulatory provisions affecting the electricity market and the activities of controlled power generation companies are stated below.  The future evolution of the power generation activity could call for the Government to modify some of the measures adopted or issue additional regulations. Impacts generated by the whole set of measures adopted as at the date hereof by the Federal Government on the Company and its subsidiaries ́ economic and financial situation as at December 31, 2010 were calculated according to evaluations and estimates carried out by management when preparing these consolidated financial statements and should be read considering such circumstances.  Restrictions on spot prices Energy - Secretariat Resolution 240/03  By means of this resolution the ES amends the methodology to set the prices on the WEM and determines that the maximum variable production cost (“CVP”) recognized to set the prices is that of the most inefficient unit operating or available using natural gas.  Spot prices are fixed based on the assumption that all available machines have the gas necessary to meet the demand. Units powered by liquid or mixed fuels will not set prices, and the difference between the CVP and the Node Price of the thermal machine in operation will be included as a Temporary Dispatch Surcharge (Stabilization Fund Sub-account). The maximum Spot Price recognized is Ps. 120 per MW.  As the seasonal price had not followed the evolution of the WEM’s spot price approved by CAMMESA, the resources from the Stabilization Fund were used to meet production costs, for which during the last few years this fund underwent an ongoing definancing.  Receivables from WEM generators  In September 2003, the ES issued Resolution No. 406/03 by which it was established that, based on the depletion of available resources in the WEM’s Stabilization Fund, amounts pending payments in each month are consolidated, accruing interest at an interest rate equivalent to the mean monthly yield obtained by OED-CAMMESA (agency in charge of dispatch) in its financial placements, to be paid when the Fund will have sufficient funds according to a priority order of payment to agents.  This situation directly affects the Company and its subsidiaries ́ financial position, since they only collect on the sales made to the Spot Market, the declared variable production cost (CVP) and power payments. The balance resulting from sales in the Spot Market and constituting its variable margins represent a credit generators have against the WEM, documented by CAMMESA under Sales Liquidations with Maturity Date to be Defined (“LVFVDs”).  Fund for Investments required to increase the electric power supply in the WEM (FONINVEMEM)  ES Resolution No. 712/04 created the FONINVEMEM to increase the available electric generation by investments in thermal generation.  By means of Resolutions No. 826/04, 1,427/04, 622/05 and 633/05, the ES invited all WEM agents creditors with LVFVD to express their decision to convert (or not) 65% of their receivables accumulated from January 2004 and through December 2006, in an interest in two combined cycle projects.  The LVFVD contributed to FONINVEMEM will be converted into US$ and will have an annual yield at LIBOR + 1% and will be received in 120 equal, monthly and consecutive installments as from the commercial authorization of the combined cycle of electric plants mentioned above.  F-28


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 7.  (continued)  Consequently, on December 13, 2005, the agreements to organize the generating companies “Sociedad Termoeléctrica Manuel Belgrano S.A.” and “Sociedad Termoeléctrica José de San Martín S.A.” were executed. Both companies with the object to produce electric power and its commercialization in block and specifically, the management to purchase the equipment, construction, operation and maintenance of a thermal power station. The Company through some of its subsidiaries executed the respective minutes accepting the subscription of shares for both generating companies. Both generators were cleared to operate in open cycle during 2008.  During the months of January and February of the year 2010, the Manuel Belgrano and Timbúes power plants were respectively cleared for operation; therefore, as from the months of March and April 2010 respectively, the Company and its controlled companies started collecting the first of the 120 stated installments.  Although on May 31, 2010, CAMMESA informed through a note of the amount of the LVFVDs in pesos and in equivalent US$. pursuant to the procedures set forth in the Agreement, these amounts are deemed provisional. Therefore, and considering that as at the issuance hereof the Company and its power generation subsidiaries have received no confirmation of their conversion into US$, the Company has decided to keep such receivables at their original value in pesos, any exchange differences being registered in each monthly settlement.  Accumulated balances originated by the LVFVD related to the years 2004 through 2006 under FONINVEMEM, plus accrued interest through December 31, 2010, net of the realized collections if applicable and without giving effect to the hereinbefore mentioned conversion into US$, add up to Ps. 99 million approximately.  Likewise and in regards to receivables generated during 2007, on May 31, 2007, the ES issued Resolution No. 564, convoking again those private WEM creditors to extend their interest in the FONINVEMEM by contributing 50% of such receivables. Although such resolution establishes various alternatives to recover funds contributed to FONINVEMEM, the Company and its generation subsidiaries chose to allocate such receivables to alternative projects to invest in new electric generation equipment.  Therefore, the required conditions were duly complied with: (a) the investment should be equivalent to three times the value of the receivables; (b) the project should consist of a contribution of a new generating plant or the installation of new generating unit within an already-existing plant; and (c) power and reserved capacity should be sold on the forward market (including Energy Plus) while exports are not allowed for the first 10 years.  Based on the investment projects presented by Loma de la Lata, on June 20, 2008 by means of Brief No. 615, the ES considered verified the Company and its subsidiaries ́ proposal and instructed the OED to pay the 2007 LVFVD, which as of December 31, 2008, had been duly collected.  Committed Supply Agreements  ES Resolution No. 724/08 empowers CAMMESA to execute “WEM Supply Commitment Agreements” with WEM generating agents. Pursuant to these agreements, generating agents may receive from CAMMESA the LVFVDs’ amount as from the beginning of 2008 and during the life of the agreement, as long as such funds are allocated to the repair and/or repowering of generating groups and/or associated equipment, provided its cost surpasses 50% of the la remuneration for the items encompassed by Section 4, subsection c) of ES Resolution No. 406/03, under certain conditions, including, but not limited to, its approval by CAMMESA.  The procedure consists in the ES evaluating the proposals filed, instructing CAMMESA as to those authorized to enter into a contract, even indicating, if convenient, the granting of loans to the Generation Agent in the event they are required to finance the disbursement to be made to meet the cost of repairs exceeding the compensation to be received for the agreement.  Under this resolution, Central Piedra Buena and Loma de La Lata have executed agreements that will allow them to recover consolidated receivables from subsection (c), ES Resolution No. 406/03, either of their own or from third parties, by applying them to improvement or expansion works for up to a maximum 50% of their costs.  Under such agreements, in connection with Loma de la Lata ́s expansion project, the generation subsidiaries have assigned to this project their consolidated receivables accrued during 2009 and 2010. As of December 31, 2010, the generation subsidiaries partially collected from CAMMESA its consolidated receivables accrued during 2008. The outstanding balance of 2008 and 2009 LVFVD and those accrued during 2010, plus interest accrued as of December 31, 2010 add up to approximately Ps. 204.7 million.  F-29


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 7.  (continued)  Under such agreements, Loma de la Lata has issued several credit assignment agreements with other WEM generators (related companies and third parties) in connection with their LVFVDs accumulated between January 1, 2008 and December 31, 2010 by virtue of Subsection c) of Resolution No. 406/03, as well as the LVFVDs accumulated for the Procedure to Dispatch Natural Gas for the Generation of Electricity mentioned in this Note. Such assignment may be total and/or partial depending on CAMMESA’s cash and cash equivalents.  Such agreements establish the terms and conditions of each assignment, which will be carried out fully or partially as CAMMESA settles the respective receivables, upon which Loma de la Lata will settle the unpaid amounts to the counterparties, according to the conditions established in every agreement. Due to the assignments carried out during the year ended December 31, 2010, the Company has recorded income for Ps. 5.5 under financial and holding results.  Energy Plus - ES Resolution No. 1,281/06  The ES approved Resolution No. 1,281/06, in which it is established that the existing energy commercialized in the Spot market will have the following priorities: (1) Demands below 300 KW; (2) Demands over 300 KW with contracts; and (3) Demands over 300 KW without contracts.  It also establishes certain restrictions to the commercialization of electricity, and implements the Energy Plus service, which consist in the offering of additional generation availability by the generating agents. These measures imply the following: -Hydroelectric and thermal generators without fuel contracts are not allowed to execute any new contract. -Large Users with a demand over 300 KW (“LU300”) will be only allowed to contract their energy demand in the forward market for the electrical consumption made during the year 2005 (“Base Demand”) with the thermoelectric plants existing in the WEM. -The new energy consumed by LU300 over the Base Demand must be contracted with new generation at a price freely negotiated between the parties (Energy Plus). -The New Agents joining the system must contract their whole demand under the Energy Plus service. -      For the new generation plants to be included within the Energy Plus service, they must have fuel supply and transportation contracts.  Under such standard, CTG possess LMS 100 generation unit with a capacity of 98.8 MWISO. CTG was the first WEM generator that provided the service to Energía Plus, for which executed several service agreements with Energía Plus that cover for the entire Net Effective Power of the extension with various agents from the Forward Market (“MAT”).  ES Resolutions No. 599/07 and 1,070/08: Natural gas supply  Resolution No. 599/07, dated June 14, 2007, approves the proposal for the agreement with the producers of Natural Gas 2007 - 2011, aiming at supplying the domestic demand of that fuel.  Each of the signing producers undertakes to make available to the gas consumers, whose consumptions are a part of the Agreement Demand, the daily volumes which are set forth for such Signing Producer, which have been calculated according to established proportions. The Agreement Demand has been established on the basis of the gas consumption of the natural gas Internal Market of Argentina during 2006.  For the purposes of supplying the Priority Demand and performing a useful and efficient contracting of the corresponding part of the Agreement Volumes, the Signing Producers must satisfy at least the consumption profile verified in each of the supply arrangements to be renewed and corresponding to the consumption of each month of 2006.  Additionally, on October 1, 2008, the ES issued Resolution No. 1,070/08 setting forth a supplementary agreement with natural gas producers, and which purpose was to establish a contribution by the producers to the trust fund for subsidizing residential liquefied gas consumptions, created by Law No. 26,020. This agreement brought about new benchmark prices for natural gas for the energy sectors including that of generating electricity.  The resolutions mentioned above were in effect until June 30, 2009. Since July 17, 2009, a new agreement was signed among other gas producers and the Ministry of Federal Planning, Public Investment and Services, seeking to find the appropriate tools to resolve the issues affecting the sector’s balance, the situation of regional economies and national interests. This agreement established a new price for natural gas used by electric power plants, applicable as from the second semester of 2009. The natural gas prices established for December 2009 has not as yet been changed during the current year. F-30


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 7.  (continued)  Recognition of variable costs  On October 29, 2007 the National Energy Secretariat informed that the current variable cost to be recognized to the generators of Ps.7.96/MW, shall be increased in accordance with the consumed liquid fuel, by:  •  Gas-oil/Diesel Oil Generation: Ps. 8.61/MW •  Fuel Oil Generation: Ps. 5.00/MW  In addition, if a thermal unit generated with natural gas of the company’s own receives a remuneration in which the difference between the maximum recognized variable production cost and the node price is below 5 Ps./MW, the latter value must be recognized.  These values were later modified as from the execution of the Generators’ Agreement dated November 25, 2010.  Benchmark fuel oil price  By means of Brief No. 483/08, the ES instructed CAMMESA to recognize to generators a maximum price of 60.50 US$/barrel plus a 10% related to administrative cost plus freight, for purchases of fuel oil of national origin to generate electric power as from April 24, 2008.  Afterwards, and due to significant variations in the International fuel market as regards to listed prices of crude and its derivatives, the ES issued Brief No. 1,381/08 in October 2008, instructing CAMMESA to recognize as from November 1, 2008, to generators acquiring fuel oil with proprietary resources, a weekly price resulting from considering the average of 10 listed prices (based on the benchmark listed price of Base Platts as defined in the resolution) prior to the calculation closing date, less a differential of 2.50 US$/barrel, under FOB La Plata plus 10% of the total purchase cost of fuel, for administrative and financial expenses plus freight cost.  In the case that listed prices on the International market increase, the maximum benchmark price to be recognized will be 60.50US$/barrel plus 10% (ten percent) of the total purchase cost of fuel for administrative costs plus the freight cost.  Procedure regarding the dispatch of natural gas for electricity generation  On October 7, 2009, the ES instructed CAMMESA to summon all WEM thermal generators to formally express their decision to adhere to the “Procedure to dispatch natural gas for the generation of electricity” (the “Procedure”).  The Procedure basically consists in acknowledging that CAMMESA, upon operating restrictions in the natural gas system can assume the rights over the volumes and transportation of natural gas that the generators may have in order to try to maximize the thermal supply from the power generation sector. In exchange for such voluntary assignment of volume and transportation of natural gas, the generator will receive, during the life of the Agreement, the higher value of: the positive difference between the approved spot price and the variable generation cost with natural gas recognized by CAMMESA or 2.5 US$/MWh. If the unit was operational, such value shall apply to the maximum value between the power actually produced, irrespective of the fuel used and that which would have been produced if natural gas were available, as long as its recognized variable generation cost was lower than the Operated Marginal Cost (“CMO”) on the WEM. If the unit was not available, the power that would have been produce had the natural gas been available and actually assigned to CAMMESA, as long as its recognized variable generation cost were lower than the CMO on the WEM.  The Procedure was originally effective for winter seasons from 2009 to 2011. However, through Note No. 6.169 dated September 29, 2010, the ES instructed CAMMESA to convene generating agents having thermal generators to formally announce their decision to adhere to the Program for the Dispatch of Gas for its application from October 2010 to May 2011 and from September through December 2011.  The Procedure was finally perfected in March 2010. The Company formally adhered to both calls.  As of December 31, 2010, the three thermal generators controlled by the Company issued LVFVDs corresponding to the application of the Procedure during the fiscal years 2009 and 2010 for an amount of Ps. 15,000,387 and Ps. 31,708,541, respectively, which are disclosed under “Sales” in the consolidated statement of operation. F-31


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 7.  (continued)  Agreement for the Management and Operation of Projects, Thermal Generation Availability Increase and Adjustment of the Generation Remuneration 2008-2011 (the “Agreement”)  On November 25, 2010, the controlled power generation companies together with other Generating Agents entered into the Agreement for the following purposes:(i) to continue with the WEM’s adaptation process; (ii) to permit the entry of new generation to meet the increase in the power and energy demand; (iii) to define a mechanism for the cancellation of the LVFVDs corresponding to receivables for the period comprised between January 1, 2008 and December 31, 2011, and; (iv) to acknowledge the global remuneration corresponding to the adhering WEM Generating Agents.  The main conditions of the Agreement are as follows:  ·An increase in the remuneration for the provided power which, subject to the meeting of certain agreed availability conditions, will increase from Ps. 12/MW-hrp to Ps. 35/MW-hrp (in the case of Central Piedra Buena and Central Térmica Loma de La Lata) and to an average Ps. 38.5/MW-hrp (in the case of Central Térmica Güemes). This condition will not apply to Generators covered by ES Resolutions No. 1,281/06, 220/07, 1,836/07 and 1,427/04. ·An increase in the maximum recognized values for the operation and maintenance remuneration which, subject to the meeting of certain agreed availability conditions, will increase by Ps. 8/MWh for the generation of liquid fuels (from the current Ps. 12.96/MWh) and by Ps. 4/MWh for the generation of natural gas (from the current Ps. 7,96/MWh – Ps. 10,81/MWh). ·The maximum value is increased to 250 MW, up to which the hydroelectric generator’s receivables will be considered within the amounts set forth by Section 4, subsection e) of ES Resolution No. 406/03.In this manner, receivables accrued by the subsidiary Hidroeléctrica Los Nihuiles will no longer be deemed LVFVDs or receivables under subsection c) and will become comprised by subsection e), with the same payment priority that the production variable cost.This condition will not apply to the subsidiary Hidroeléctrica Diamante S.A., since its installed power surpasses 250 MW. ·In consideration of the foregoing, subsidiary companies have agreed to contribute the LVFVDs to be generated during the year 2011 for the construction of new plants, which will be made jointly by the ES and the generators executing the Agreement.Such contribution will be paid back in US$ as from the commercial commissioning of said power plants in 120 monthly installments at a LIBOR rate + 5%.  Finally, the Agreement sets forth a term of 90 days for its instrumentation through the execution of the supplementary addendums.If this term elapses without the parties reaching an agreement on the implementation of the different processes stipulated therein, the contracting parties may terminate it.  In order to fulfill their obligations arising from the Agreement, the Company and its subsidiary generating companies have submitted to the ES’ consideration a project for the installation and expansion of a new power generation plant, together with a proposal for the inclusion of an addendum to the agreement in order to contemplate modifications allowing for the earning of a fair and reasonable income from the additional capital invested in the project.  In this context and in order to instrument the Agreement, on April 1, 2011, the Company and its subsidiary generating  segment companies entered into an agreement with the ES pursuant to which they undertook to conduct the electric power generation project specified in the previous paragraph (the “Instrumentation Agreement”). This project, which will be developed in two stages, will result in a total installed power of 45 MW.  The Instrumentation Agreement provides for the payment of the LVFVDs accrued and to be accrued in favor of the signatory generators in the 2008 – 2011 period, which are not included in ES Resolution No. 724/08, up to a total amount which may not surpass 30% of the project’s amount.  Balances accumulated by LVFVDs corresponding to the three-month period ended on March 31, 2011 and allocated to this project, plus all accrued interest, amount to Ps. 11.5 million.  F-32


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 7.  (continued)  Transmission  Tariff situation  Within the framework of the renegotiation of Utility contracts, in May 2005 Transener and Transba signed the Memorandum of Agreement with the UNIREN, including the terms and conditions to adjust the Concession Contracts, which were ratified by Decrees 1,460/05 and 1,462/05 of the Executive Branch dated November 28, 2005.  Based on the guidelines established in the above Memorandum of Agreement, (i) a RTI (“Comprehensive Tariff Review) was scheduled to be performed to determine a new tariff system for Transener and Transba. However, the ENRE continued with the suspension of the Public Hearing to deal with the tariff proposals submitted by both Companies, which should have become effective for Transener and Transba in February 2006 and May 2006, respectively; and (ii) the recognition of increased operating costs incurred until the tariff structure resulting from the previously mentioned RTI becomes effective.  Thus, since 2006, Transener and Transba requested to the ENRE the fulfillment of the obligations assumed in the Memorandum of Agreement, stating the on-compliance by such agency with the commitments established in the Memorandum of Agreement, the serious situation resulting from such noncompliance, and the decision to continue with the RTI, provided that the remaining obligations assumed by the parties continue to be in force and the new system resulting from the RTI process becomes effective. Transba submitted a note to the ENRE similar to that submitted by Transener, although adapted to the provisions of its Memorandum of Agreement as regards the terms and investments to be made.  In turn, by means of Resolutions Nos. 869/08 and 870/08 of July 30, 2008, the ES extended the contractual transition period of Transener and Transba, respectively, through the actual effective date of the tariff schedule resulting from the RTI, establishing also such date for February 2009. In this sense, both companies have timely filed their rates claims pursuant to the provisions of the respective Memorandum of Agreement and Section 45 and similar ones of Act No. 24,065 so that the claims may be discussed, a Public Hearing may be held and a new rates chart may be defined.  However, as of December 31, 2010, ENRE had not yet summoned any Public Hearing and did not give treatment to the requested tariff requirements by Transener and Transba under the RTI.  Lastly, as a result of the increase in labor costs arising from the application of Decree No. 392/04 of the Executive Branch and subsequent decrees, which have been translated into higher operating costs as from 2004, during 2007 Transener and Transba credited the cost changes actually taking place on a quarterly basis, filing the corresponding complaints with the ENRE to proceed to readjust remuneration regulated of both companies, pursuant to the terms established in the Memorandum of Agreement.  Thus, both Transener and Transba have unsuccessfully requested ENRE to conduct the necessary administrative acts so that the cost increases resulting from the execution of the Agreement be recognized in rates, which led to the bringing of legal claims. It should be noted that UNIREN has stated by means of a brief that the mechanism to monitor costs and the service quality system was stated when the RTIs of Transener and Transba, respectively, became effective and that upon defining such process it may not be attributed to Concessionaires and could not derive in an impairment of their rights.  Finally, on December 21, 2010, an Agreement Complementary to the UNIREN Memorandum of Agreement (the Complementary Agreement) was executed with the ES and ENRE, which sets forth as follows:  i)the recognition of a credit in favor of Transener and Transba resulting from cost variations during the June 2005 – November 2010 period; ii)the cancellation of the debt taken on with CAMMESA due to financing under ES Resolution 146/02; iii)a mechanism for the payment of favorable balances during the year 2011; iv)the disbursement of an additional amount which will be allotted to investments in the system and amounting to Ps. 34 million in Transener and Ps 18.4 million in Transba.  During the month of February 2011, CAMMESA has estimated the amounts owed to Transener and Transba resulting from cost variations taking place in the June 2005 – November 2010 period. As of January 17, 2011 (date on which figures were updated), such figures amounted to Ps. 265.2 million as principal and Ps. 148 million as interest.  F-33


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 7.  (continued)  As of December 31, 2010 both companies recorded the results generated by the recognition of cost variations by the ES and ENRE, up to the amounts collected as at that date, through CAMMESA’s financing previously described. Consequently, revenues from sales amounting to Ps. 61.9 million and Financial Interest amounting to Ps. 80.7 million were accounted for.  On December 31, 2010, all business and procedures aiming to perfect the Complementary Agreement through an addendum to the Loan and Credit Assignment Agreement executed with CAMMESA on May 12, 2009 were initiated.  Pursuant to the Complementary Agreement and subject to its compliance, Transener y Transba have waived their right to exercise their right of amparo on account of the default, thus requesting the recognition of higher costs and the call for a public hearing in order to conduct the RTI.  Distribution  Tariff situation  The Executive Branch, in the exercise of the powers granted by Section 99 of the Argentine Constitution and Law No. 25,561 and yours modify and complementary, proceeded to ratify the Memorandum of Agreement signed on February 13, 2006 within the framework of the renegotiation of the Utility contracts through Decree No. 1,957/06 published in the Official Gazette on January 8, 2007.  The above Memorandum of Agreement contain the terms and conditions which, once the other procedures provided for in that instrument has been performed, constitute the basis that will allow the Comprehensive Renegotiation of the Concession Utility Contract between the Executive Branch and this concessionaire for the distribution and selling of electricity in federal jurisdiction.  The execution of the agreement begins the process of adjustment of the concession agreement as a means of overcoming the effects of the public emergency status, freezing and “pesification” of tariffs established by Law No. 25,561. The Agreement establishes a transitional period and the later comprehensive renegotiation of the agreement through a Comprehensive Tariff Review process. The agreement contemplates in the immediate, within the transitional period: 1) an increase of the added distribution value (“VAD”) of 23%, retroactive at November 1, 2005, which will not apply to household customers; 2) an additional amount of 5% destined to certain works; 3) a system of installment settlement of unpaid fines; 4) the beginning of the Comprehensive Tariff Review process, in charge of the ENRE. This review will be the one that finally restructures the Concession Contract of Edenor; 5) the coming into force of a differential service quality regime for the duration of the transitional period; 6) the suspension of the complaints filed before the International Centre for Settlement of Investment Disputes (ICSID) during the “transitional period” and the final waiving of these once the comprehensive tariff review is finished. This suspension also includes that of any proceedings before national or international courts, filed by the company and/or its shareholders against the Argentine National Government as a consequence of the public emergency declared by Law No. 25,561, as well as the commitment not to start any proceedings before national or foreign courts against the National Government as a consequence of that emergency. Regarding EASA, it establishes the obligation to extend the surety for the foreclosure of the pledge to the class A shares it has in Edenor in favor of the National Government for any non-fulfillment of the Memorandum of Agreement by EASA or by Edenor itself.   F-34


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 7.  (continued)  The new tariff system resulting from the comprehensive tariff review process will be effective for five years and its final determination will be the responsibility of the ENRE pursuant to the provisions of Law No. 24,065.  On April 30, 2007, Resolution No. 434/07 of the Secretariat of Energy was published in the Official Gazette, through which a new contract transition period was established under the terms of the Renegotiation Memorandum of Agreement signed on February 13, 2006. This period covers from January 6, 2002 and the date the tariff schedule resulting from the RTI becomes effective.  On July 30, 2008, the ES issued Resolution No. 865/08 amending Resolution No. 434/07 designating February 2009 as the date on which the tariff schedule resulting from the RTI shall become effective. As of the issuance date of these financial statements, there has been no definition as to when the tariff schedule resulting from the RTI would become effective, scheduled for February 1, 2009.  On October 4, 2007, Resolution No. 1,037/2007 of the Secretariat of Energy was published in the Official Gazette, which establishes that the amounts paid by Edenor for the Quarterly Adjustment Index (“CAT”) sets forth by Section 1 of Law No.25,957 and the amounts corresponding to the Cost Monitoring Mechanism (“MMC”) be deducted from the funds resulting from the difference between collection of the additional charges derived from the application of the Good Use of Electricity Programme (PUREE) and the payment of bonuses to users under such Programme, until their transfer to the tariff is approved. In addition, the above Resolution sets forth that the adjustment for the MMC for the May 2006 – April 2007 period effective as from May 1, 2007 amounts to 9.63%.  Additionally, on October 25, 2007, Resolution No. 710/07 of the ENRE was passed, which approves the MMC compensatory procedure sets forth by Resolution No. 1,037/07.  The MMC rate adjustment related to the period May 2006 through April 2007 together with that related to period May 2007 through October 2007 became effective as from July 1, 2008 as provided by Resolution No. 324/08.  By means of Brief No. 1,383 of November 26, 2008, the ES instructed ENRE to consider using funds pending recognition from applying the MMC for the enforcement period May 2007 through October 2007, and to allow that they be deducted from surplus funds derived from applying the PUREE, as previously regulated by Resolution ES No. 1,037/07. The adjustment by MMC for the period May 2007 through October 2007, applicable as from November 1, 2007 is 7.56%.  On the other hand, on December 31, 2010, Edenor has filed with ENRE MMC adjustment requests, as detailed below:  Period
     MMC AdjustmentNovember 2007 – April 2008
     5.791%May 2008 – October 2008
     5.684%November 2008 – April 2009
     5.068%May 2009 – October 2009
     5.041%November 2009 – April 2010
     7.103%May 2010 – October 2010
     7.240%November 2010 – April 2011
     6.104%
  As of the date of issuance of these financial statements, the approval of the aforementioned adjustments is still pending.  In addition, as of December 31, 2010 and 2009 liabilities generated by the excess funds deriving from the application of the PUREE, amount to Ps. 529.1 and Ps. 233.3, respectively, and have been disclosed in other non-current liabilities. The increase in liabilities is due to the fact that Edenor was allowed to keep such funds in order to cover the MMC increases not transferred to the tariff.  On the other hand, on July 31, 2008, the ENRE issued Resolution No. 324/08 approving the values of Edenor’s new tariff schedule that contemplates the partial enforcement of adjustments by MMC and passing them on to the rates. Such tariff schedule increases the distribution added value of such company by 17.9% and has been applied to consumption as from July 1, 2008.  As described above, on average, tariffs for final users, depending on their consumption, will be increased by percentages ranging from 0% to 30%.   F-35


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 7.(CONTINUED)  Furthermore, on October 31, 2008, the ES issued Resolution No. 1,169/08 approving the new seasonal reference prices for energy and power in the WEM. Consequently, ENRE issued Resolution No. 628/08 approving the values of the electricity rate to be applied as from October 1, 2008. Apart from the new seasonal reference prices for energy and power, the aforementioned mentioned rate schedule established passing the ex-post pending adjustments as well as the other items related to WEM. The increase provided by this Resolution is aimed at reducing the Federal State subsidies to the electric sector, and not at increasing Edenor’s value added of distribution.  Regarding those resolutions that implemented the new rate schedule as from October 1, 2008, the Argentine Ombudsman sponsored a complaint against them as well as against enforcing the PUREE. Consequently, on January 27, 2009, ENRE notified Edenor of a preliminary injunction issued by the Court hearing the case, by which it is ordered to refrain from cutting the electric power supply as a result of nonpayment of bills issued with the rate hike challenged by the Argentine Ombudsman, until a final ruling is issued on the case. The injunction has been appealed by Edenor and the Federal Government. On September 1, 2009, Court Room V of the National Appellate Court in Federal Administrative Matters resolved to confirm the appealed resolution, consequently, the preliminary injunction entered by the trial court remains in place. Edenor filed an “Extraordinary Appeal” against this decision, which was also rejected by the appellate court hearing the case. As a final recourse, on December 7, 2009, Edenor filed with the Argentine Supreme Court a “Complaint for a disallowed appeal”; thus far, the highest court has not entered any ruling on this matter. On July1, 2009, Edenor was serviced notice of the action under the proceedings by the ombudsman “Defensor del Pueblo de la Nación c/ E.N Res. N° 1,169 y Otros s/ proceso de conocimiento” [ombudsman vs. E.N Res. No. 1,169 et al in re: test case] which was answered in due time and manner. On November 27, 2009, and within the framework of this case, the hearing court resolved to reject the summons of the CAMMESA as a third-party defendant, requested by Edenor and Edelap S.A., resolution that was questioned by an appeal against it, which as of the date of these financial statements, has not been granted. Court No. 10, Clerk’s Office No. 20 has ruled for the consolidation of this proceeding with “Carbonel Silvia Cristina c/EN – Ministerio de Planificación SE Resol 1,169/08 y otros s/amparo ley 16,986” on both claims being analogous.  On August 14, 2009, the ES issued Resolution No. 652/09 establishing the suspension of reference market prices of energy set forth in sections 6, 7 and 8, Resolution No. 1,169/08 and established new values for the periods June-July 2009 and August-September 2009, reinstating the partial grants to the electricity generation sector.Furthermore, reference market prices of energy remained unsubsidized on the market for June and July 2009 and for the quarter August-October 2009.  Consequently, on August 18, 2009, Edenor was notified of ENRE Resolution No. 433/09, by which the Rate Schedule values were approved and became effective as from billing those periods starting as from June 1 and August 1, 2009. Additionally, the values of the Rate Schedule with unsubsidized full tariffs were approved to become effective as from July 1, 2009. Such resolution instructed the distributors to issue new bills consumption of users subject to this last act under ENRE Resolution No. 628/08.  On September 29, 2009, Edenor was notified of ENRE Resolution No. 469/09, by which ENRE approved the values of the electricity rate schedule, with unsubsidized full tariffs effective as provided by section 7, ES Resolution No. 652/09.  Furthermore, by Resolution No. 347/10, the ES approved the winter scheduling for the WEM for the period May 1 – October 31, 2010. In the reasons supporting such resolution, the ES also stated that it considered it necessary that the seasonal prices to be paid by the customers of distribution companies should take into account not only the situation existing in such seasonal period but also the payment capacity of the different social classes included in the residential category of the electricity rate schedules of the referred to distribution companies. Therefore, considering the level of electricity consumption during winter and with the aim of not negatively affecting user payment capacity, the ES resolved to suspend the application of sections 6, 7, and 8 of its Resolution No. 1,169/08 from June 1, 2010 to September 30, 2010. It must be pointed out that this situation had already been contemplated by the ES in 2009 in its Resolution No. 652/09, which gave rise to the issuance of Resolution No. 433/09 of the ENRE.  As a consequence of the aforementioned Resolution No. 347/10 of the ES, on May 21, 2010 Edenor was notified of Resolution No. 294/10 of the ENRE, which approved the values of the Edenor’s Electricity Rate Schedule included in Appendix I of such Regulatory Authority’s Resolution No. 433/09, applicable to consumption recorded from midnight June 1, 2010.  Furthermore, on July 23, 2010, Edenor was notified of Resolution No. 421/10 of the ENRE, which approved the values of the Edenor’s Electricity Rate Schedule included in Appendix IV of such Regulatory Authority’s Resolution No. 433/09, applicable to consumption recorded from midnight August 1, 2010.    F-36


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 7.  (continued)  On October 26, 2009, Edenor was notified of the complaint “CONSUMIDORES LIBRES COOP.LTADA. DE PROVISIÓN DE SERVICIOS DE ACCIÓN COMUNITARIA c/ e.n. - Secretaria de Energía de la Nación - ENRE. s/ proceso de conocimiento” filed with the consumers’ associations, by which the Federal State, ENRE, Edesur, Edelap and Edenor are sued.Such complaint is lodged at the Federal Trial Court for Contentious and Administrative Matters No. 8.  The complaint hinges among others, on these main points: a) declaring null and unconstitutional the last rate resolutions issued by ENRE and the ES and refund of amounts billed thereunder; b) obligation of defendants to carry out the RTI; c) null and unconstitutional of ES resolutions extending the transition term of the Memorandum of Agreement; d) order the defendants to carry out the sale process through an international public bidding of class “A” shares for considering the Concession agreement management period ended; and e) null and unconstitutional of the resolutions extending the managements periods contemplated in the Concession Agreement.  It was also requested that a preliminary injunction be issued with the aim of suspending the rate hikes established by the challenged resolutions and in a subsidiary manner, issuing new hikes outside the framework of the RTI process. The complaint was answered by Edenor and to date, the hearing court has entered no ruling in such connection.  As indicated above, challenged rate hikes except for that granted by ENRE  Resolution No. 324/08, do not have a direct impact on the added value distribution, but there are hikes that are passed on the rate those increased generation costs provided by the concession awarding authority. These generation hikes work for Edenor within the pass-throughmechanism in the tariff.  As regards to the beginning of the RTI process, ENRE has started it and on November 12, 2009, Edenor submitted a revenues requirement proposal for the new period justifying the grounds and criteria of such request.  In turn, the share selling process should take place once the five-yearly rate period beginning after completing the RTI has concluded as provided by ENRE Resolution No. 467/07. Additionally, Edenor’s controlling shareholder, Electricidad Argentina S.A., is authorized to present as bidder in such process and should it be a winning bid, it shall not be necessary that this company makes any disbursement to maintain Edenor’s control.  Within the contemplated legal time period, Edenor answered the complaint rejecting all its terms and requesting that a summons be served upon CAMMESA as a third-party defendant. The remaining co-defendants, except the National State, have already answered the notice of the complaint served upon them. As at this financial statements' closing date, the hearing Court has not issued a decision on the motion for issuing of summons as a third party to CAMMESA requested by Edenor.  Furthermore, on March 31, 2010, notice of the complaint “CONSUMIDORES FINANCIEROS ASOCIACIÓN CIVIL PARA SU DEFENSA vs. EDENOR S.A – EDESUR S.A for BREACH OF CONTRACT” – National Court of Original Jurisdiction in Federal Administrative Matters No. 2 – Clerk’s Office No. 15, was served upon Edenor.  The remedies sought in the complaint are as follow: a) Reimbursement of the VAT percentage paid on the illegally “widened” taxable basis due to the incorporation of a concept (National Fund of Electricity - FNEE) on which no VAT had been paid by the defendants when CAMMESA invoiced them the electricity purchased for distribution purposes; b) reimbursement of part of the administrative surcharge on “second due date”, in those cases in which payment was made within the time period authorized for such second deadline (14 days) but without distinguishing the effective day of payment; and c) application of the “borrowing rate” in case of customer delay in complying with payment obligation, in accordance with the provisions of Law No. 26,361.  On April 22, 2010, the Company answered the complaint and filed a motion to dismiss for lack of standing, requesting, at such opportunity, that a summons be served upon the Federal Government, the Argentine tax authorities (“AFIP”) and the ENRE as third-party defendants. These pleadings were made available to the plaintiff. Having this procedural step been complied with, as from June 16, 2010 the proceedings are yet to be resolved.  On December 9, 2009, Edenor was notified of the institution of the complaint “UNION DE USUARIOS Y CONSUMIDORES C/ E.N. DTO. 1,957/06 (RESOL. ENRE 51/07 EDENOR ) Y OTROS S/ PROCESO DE CONOCIMIENTO” by consumer associations against the National Government and Edenor, which is heard before National First Instance Court in Administrative Litigation No. 12.   F-37


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 7.(CONTINUED)  This complaint seeks the following: a) to provide for the abrogation of Subsection 4.6 and consecutive ones of Schedule I to the Agreement, which set forth that the rates increase will have retroactive effects; b) to render ENRE Resolution No. 51/07, which authorizes a retroactive rates increase in favor of Edenor, ineffective; c) to demand Edenor to refund all amounts paid as retroactive rates increases for the period November 2005 – January 2007 through a credit mechanism payable to users.  Edenor answered the complaint on December 9, 2009. On November 11, 2010, a ruling was issued sustaining the complaint. This ruling was appealed on November 25, 2010. On December 2, 2010, the Court granted the right of appeal with a suspensive effect, which means that the execution of the judgment will only become effective when the Higher Courts hearing the case render a decision.  On December 13, 2010, Edenor filed the written bases of appeal regarding the substance of the action subject-matter of the judgment before the First Instance Court and is currently awaiting the intervention by Panel D of the National Administrative Litigation Jurisdiction.  Even though the upholding by Courts of Appeal of the judgment rendered in the first instance would have a considerable economic impact on Edenor, no economic effect has been recognized since Edenor’s legal counselors understand there is a high probability that the decision will be reversed in appeal, based on precedents set both by the National Administrative Litigation Chamber and the National Supreme Court of Justice for analogous cases.  Edenor’s position is grounded on the lack of legal standing by consumer associations to file this kind of claims. Regarding the substance of the action stated in the complaint (an alleged retroactivity of the increase), Edenor understands that Executive Order No. 1,957/06 does not really have a retroactive effect since it is not the source of Edenor’s right to increase its rates, but it is just a declarative order recognizing that the National Government had seriously altered the balance in the Concession Contract’s financial economic equation and that, on entering into the Agreement in September 2005, Edenor acquired the right to apply the transition rates system aiming to reestablish, although partially and temporarily, that balance.  As a result of the events taking place on December 20 and 31, 2010 in Edenor's concession area, on February 8, 2011, ENRE passed Resolution No. 32/11 bringing a punitive proceeding for the breach of the provisions of Section 25, subsections a), b), d), f), g), m), ñ) and y) of the Concession Agreement and Section 27 of Act No. 24.065, as well as provisions set forth in ENRE Resolution No. 905/99.  On February 9, 2011, Edenor was served notice of the passing of ENRE Resolution No. 32/11 which sanctions Edenor with a fine of Ps. 1.1 million and the obligation to indemnify users affected by service interruptions for an amount of Ps. 22.4 million. Such amount have been accounted for under “Other Non-Current Liabilities”. As of the issuance date of these financial statements, Edenor has decided to file an administrative and/or judicial claim it is entitled to against that resolution.   NOTE 8.  RESTRICTED ASSETS, LIMITATION ON THE TRANSFERABILITY OF SHARES AND OBLIGATIONS ASSUMED  Inversora Nihuiles  Pursuant to point 12.13 of Chapter XII of the Terms and Conditions for the sale of 51% of Hidroeléctrica Nihuiles capital stock, Class B shares are of free availability and their transfer by public offering shall be mandatory once the Government of the Province of Mendoza has transferred its Class C shares to retail investors resident of the Province of Mendoza. The Government of the Province of Mendoza has not performed any transfer of the Class C shares to retail investors resident in the Province of Mendoza.  Furthermore, it is established that the concessionaire should take the necessary measures for the Company to list its securities on the Stock Exchange.  Transener and Transba  Restricted assets  The concession contract prohibits the concessionaire from placing a lien, mortgage or any other collateral in favor of third parties on assets destined to the rendering of the National High-Voltage Electricity Public Transmission Service in the case of Transener and the Provincial Electricity Public Transmission Service in the case of Transba, notwithstanding the free availability of those assets becoming unsuitable for that purpose in the future according to the ENRE criteria.   F-38


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 8.(CONTINUED)  Limitation on the transferability of shares  Citelec may not modify its interest or sell its Class A shares in Transener without the prior authorization of the ENRE. Also, Transener may not modify or sell its interest in Transba without the prior authorization of that agency.  As set forth in the concession contract, Citelec with respect to Transener, and Transener with respect to Transba, have created a pledge in favor of the National State on all the Class A shares, as security for compliance with obligations assumed. The awardees Citelec and Transener shall increase the amount of the guarantee by creating a pledge on the Class A shares they purchase in the future as a result of new capital contributions made by them or the capitalization of profits and/or capital adjustment balances, and any successive transfers of the majority Class A shares shall be made with those pledges.  In addition, the corporate by-laws of those companies also forbid the creation of pledges or any other lien on those Class A shares, except in the cases mentioned in the concession contract.  Edenor  Limitation on the transferability of shares  In accordance with the corporate by-laws, the holders of Class A shares may transfer their shares with the prior approval of the ENRE, which will adopt a resolution within 90 days. Otherwise, the request will be deemed to have been approved.  Furthermore, Caja de Valores S.A., responsible for keeping a record of these shares, is entitled (as set forth in the corporate by-laws) to reject all such entries which are not, at its discretion, in compliance with the regulations on transfers of ordinary shares included in (i) the Argentine Business Organizations Law, (ii) the concession contract and (iii) the corporate by-laws.  In turn, Class A shares shall be pledged over the life of the concession, as security for compliance with the obligations assumed under the concession contract.  In addition, the Company must be the beneficial owner of the Class 2 Corporate Bonds and, as stated in the register, of at least 51% of the voting and outstanding shares in Edenor.  Section ten of the Adjustment Agreement executed with the Grantor of the Concession and ratified by Decree 1,957/06 provides that from its effective date to the expiration of the Contractual Transition period, the shareholders who own the Majority Shares may not modify their equity interests or sell their shares.  Restrictions on the distribution of retained earnings  As from the restructuring of the financial debt, Edenor was not allowed to distribute dividends until April 24, 2008, or the Leverage Ratio is lower than 2.5. As from that moment, it may distribute dividends only in certain circumstances depending on its indebtedness ratio.  Loma de La Lata  As of December 31, 2010 and 2009, short-term investments balances include current bank accounts and guarantee trusts for a total amount of Ps. 87,765,118 and Ps. 111,960,474, respectively, which are restricted by virtue of certain guarantees of the payments of interests of obligations, both in relation with the construction agreements in connection with the Project.  Pampa Inversiones  As of December 31, 2010, the short-term investments includes private debt securities pledged to secure financial loans granted to Pampa Inversiones for an aggregate amount equivalent to Ps. 20,530,827.   F-39


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 9.  FINANCIAL TRUST AGREEMENT  On September 30, 2008, Edenor executed an irrevocable and discretional trust agreement with Macro Bank Limited. By organizing the trust, Edenor assigns the management of certain liquid assets for an initial amount of up to US$ 24 million, which will be subject to the trust. Such agreement was executed for 20 years.  On September 3, 2009, the financial trust was dissolved, giving rise to its liquidation and transferring its assets to Edenor.   NOTE 10.  ACQUISITIONS and DISPOSITIONS  Acquisition of own shares from Edenor  As a result of the two own share acquisition processes, Edenor acquired, in the fiscal year 2008, 9,412,500 Class B shares with a face value of Ps. 1 per share, at an acquisition cost of Ps. 6,1 million. On March 17, 2009, concluded the process established to repurchase its own shares on the market under the terms and conditions filed by Edenor.  Acquisition of an additional interest in Edenor  As of December 31, 2010, Pampa Inversiones holds 19,449,074 ordinary class B shares issued by Edenor and 839,279 ADRs (equivalent to 16,785,580 shares), acquired in various market transactions, equivalent to 4.04% interest in Edenor ́s common stock. The Company has considered such interest as current temporary investments and consequently it was classified as short-term investments in the consolidated balance sheet.  Sale of interest in Ingentis  On July 16, 2010, the controlled company Inversora Ingentis accepted an irrevocable offer for the purchase of shares whereby it sold to Petrominera Chubut S.E., 33,397,500 Ingentis shares representing 10.95% of its capital stock and voting rights.  The price amounted to Ps. 33.4 million. 50% of the price was paid by the purchaser upon the transaction’s closing date; the balance, amounting to US$ 4.2 million, will be paid in 24 monthly installments bearing the agreed interest, with an initial six-month grace period. Said financing is guaranteed with a pledge on all shares subject-matter of the transaction.  Furthermore, the offer sets forth that Ingentis S.A. shareholders participating in the purchase will use their best efforts to agree on a capital decrease in Ingentis S.A. with the Province of Chubut aiming to cancel Inversora Ingentis interest in that company. Such capital decrease would result in the distribution of certain assets held by Ingentis S.A., allowing each of the shareholders to develop their own projects on an independent basis.  Investment project for oil and gas production  On January 21, 2009, the Company constituted Petrolera Pampa, and directly and indirectly controls 100% of the capital stock of Petrolera Pampa.  At present, the Company is developing several investment projects mainly related to the development of new gas areas, among which we can highlight the following:  i. On December 1, 2010, Petrolera Pampa entered into an investment agreement with Apache Energía Argentina S.R.L. (“Apache”) to conduct the joint exploitation of the Anticlinal Campamento and Estación Fernandez Oro areas (provinces of Neuquén and Río Negro) with an estimated investment by Petrolera Pampa of US$ 20 million during the next 3 years (15% of the total investment amount), in consideration of which it will obtain a proportional part of the production, which is estimated at 700,000 m3/day of non-conventional natural gas.  Additionally, Petrolera Pampa has executed an irrevocable offer for the purchase of 800,000 m3/day of Gas Plus to Apache for a three-year period at a price of US$ 5.00/MMBtu   F-40


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 10.(CONTINUED)  ii. On December 7, 2010, Petrolera Pampa executed an investment agreement with Petrobras Argentina S.A. (“Petrobras”) on the “El Mangrullo” area whereby Petrolera Pampa will acquire, subject to the fulfillment of certain conditions precedent, 43% of the right to freely dispose of —at wellhead—, market and industrialize the hydrocarbons extracted from certain wells to be drilled in that area.  In consideration of the foregoing, Petrolera Pampa has undertaken to invest up to US$ 16 million in the drilling of wells, and it estimates it will obtain a total production of 400,000 m3/day of natural gas under the Gas Plus Program.  Additionally, Petrolera Pampa is negotiating with Petrobras a contract for the purchase of 400,000 m3/day of Gas Plus, the execution of which is one of the conditions precedent for the investment agreement.  iii. On September 14, 2010 Petrolera Pampa entered into an agreement with Rovella Carranza S.A. whereby it would become the assignee of a 50% share in the Senillosa (Province of Neuquén) prospecting area, and under which it undertook to make investments for up to US$ 3.3 million in order to fulfill the first work and investment plan during the Area prospecting period.  The fulfillment of these agreements and the prospective exercise of the options mentioned ut-supra will allow for the supply of approximately 90% of the natural gas consumption of Central Térmica Loma de la Lata.  Additionally, Petrolera Pampa is considering another investment project in oil and gas, namely:  iv. an agreement with Petrolera Piedra del Aguila S.A. for the assignment of 100% of the ownership and certain rights over the Los Leones, Picún Leufu Sur, Ramos Mexia and Umbral areas and whereby Petrolera Pampa undertook to conduct seismic studies for an approximate value of US$ 1.2 million and, at a later state, drilling works; furthermore, subject to the success of the previously mentioned activities, the assignor will receive a payment and a percentage of the future production.  On November 19, 2009 Petrolera Pampa accepted an offer to execute an investment agreement on an exploitation lot licensed to YPF S.A. (“YPF”) and called “Rincón del Mangrullo” (Province of Neuquén), under which, subject to the fulfillment of certain conditions precedent during the term of one year as from the execution of the Agreement, Petrolera Pampa would have invested a maximum amount of US$ 29 million in consideration of the assignment by YPF of certain rights and obligations, including a right over 50% of the production of hydrocarbons extracted from the area formations covered by the Agreement. Since no answer was given to Petrolera Pampa’s request to extend the term for the fulfillment of the conditions precedent, the agreement was rendered ineffective. The agreement with YPF did not preview any kind of penalty for Petrolera Pampa.  Incorporation of Inversora Ingentis  On August 6, 2007 the Company signed an agreement with Emgasud S.A. (“Emgasud”) for the construction of a power plant fueled by natural gas through the installation of two natural gas turbine-generators with a capacity combined of approximately 205.8 MW of power. This project will be carried out by Ingentis whose capital was comprised 39% by the Province of Chubut and 61% by Inversora Ingentis.  On October 2, 2008, the Company and Pampa Inversiones executed a share purchase agreement by which they would transfer and sell to Emgasud all their shares (the “Shares”) in Inversora Ingentis for a price of US$ 51,000,000 (the “Price”), with all the rights and obligations that holding such shares implied, as well as the rights to receive shares from Inversora Ingentis, or any asset, money or right, resulting from capitalizing, converting or returning revocable or irrevocable contributions, loans or any type of capital contribution in cash or in kind, made by the Company or Pampa Inversiones (the “Purchase Agreement”).  To secure compliance with their obligations, the parties executed a trust and security deposit agreement (the “Trust Agreement”) with Deutsche Bank S.A. (the “Trustee”) transferring the trust property of all its shares in Inversora Ingentis. Likewise, Emgasud transferred as a deposit to the Trustee a promissory note issued in favor of the Company for US$ 3,000,000 (the “Promissory Note”). As established in the Trust Agreement the parties should have complied with their respective obligations under the Purchase agreement by January 5, 2009. However, Emgasud did not pay the price of the Shares as provided in the Purchase Agreement, the Trustee: (i) transferred Inversora Ingentis shares held by Emgasud to the Company, (ii) transferred the Shares to the Company, and (iii) delivered the Promissory Note to the Company.  Consequently, the Company directly and indirectly controls 100% of the capital stock of Inversora Ingentis S.A.   F-41


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 10.(CONTINUED)  For this transaction, the Company has discontinued the consolidation proportional to the investment in such company to consolidate it line by line in its consolidated financial statements.  Considering that the acquisition cost was lower than the amount of net assets identified upon the purchase, the Company recognized a negative goodwill of Ps. 23,422,864 related to the portion attributable to identified nonmonetary assets.  On December 30, 2009, the Company entered into an agreement to purchase Inversora Ingentis’s shares by which the latter transfers the ownership of 9,515,000 book entry shares of preferred stock of Inversora Ingentis for a face value of Ps. 1 each, without voting rights. The purchase price was agreed upon at US$ 2,500,000 and it is related to the estimated market value for such shares.  Acquisition of controlling interest in Edenor  On September 28, 2007, the Company purchased 100% of the capital stock of DESA and IEASA, companies that jointly hold 100% of the capital stock of EASA, a company holding 51% of the capital stock and voting rights of Edenor, issuing 480,194,242 shares of common stock with Ps. 1 face value at Ps. 1.61 (US$ 0.83) per share.  As part of the agreement, each of DESA and IEASA selling shareholders agreed not to sell, directly or indirectly, more than 10% per month of the Company’s shares received as a result of the transaction during 120 days after its closing. The selling shareholders might also have the right to partly or fully sell the Company’s shares received as a result of the transaction, together with future share issues by the Company, and request the Company’s support to place those shares through a public or private offering, provided that in both cases the selling shareholders sell at least 60 million shares in the Company.   NOTE 11. RECOVERY OF THE STREET LIGHTING AND CLEANING AND WASTE REMOVAL ASSESSMENT (“ABL”)  The Company carried a current liability for the unpaid ABL generated by a property that the Company transferred to its affiliate PRESA in December 2007 and that was originated due to a tax valuation carried out by the Buenos Aires City (“GCBA”) that the Company challenged in court.  In September 2003, the Company filed a case seeking to: i) challenge the tax valuation, ii) seek the annulment of this valuation and iii) establish by a court-ordered procedure the property valuation to apply it retroactively to October 30, 2001, date on which the tax valuation was challenged in administrative courts.  The court hearing the case allowed the tax valuation challenge brought forward by the Company and declared the annulment of the DGR’s (Buenos Aires tax office) that established the new tax valuation.  In March 2010, once the various court stages concluded, the Buenos Aires City determined a new tax valuation complying with the court resolution and issued debt slips for 1998 through 2010 which were settled in time and manner.  As regards the installments related to the 1994-1997 period, Buenos Aires City reported to the court case that such period compensated because upon booking a valuation lower than that issued before, payments made by the taxpayer for ABL for those years were computed as credits.  As a result of this determination, the Company registered an income of Ps. 7,574,873 included in “Other expenses, net” in the Statement of Operation.    F-42


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 12.  Common stock  At December 31, 2010 the Company had 1,314,310,895 of book-entry shares with a par value of Ps. 1 each and entitled to 1 vote per share.  On September 8, 2008, the Company’s Board of Directors resolved to establish the terms and conditions to acquire shares issued by the Company for up to US$ 30,000,000, for 120 running days, up to a maximum amount to be invested of 10% of the Company’s common stock and at a price between Ps. 1.10 and Ps. 1.70 per share. The Company’s Board of Directors considered that this transaction guarded over the shareholders’ best interests given the strong impact underwent by the listed price of local shares due to the international macroeconomic context, which by the repurchase would increase their interests in the Company's strategic assets.  Considering the approved OPAs, the Company has acquired 211,883,347 Class A shares, with a face value of Ps. 1 per share, at an acquisition average cost of Ps. 0.97 per share totalizing Ps. 205,479,339, which is net in the retained earnings.  Due to the previously mentioned acquisitions, the Company exceeded the limit of treasury stock, established at 10% of its capital stock as provided by Section 68, Law No. 17,811 (as revised by Decree No. 677/01). This limit has been temporarily suspended by CNV considering the gravity and exceptionality of the current situation upon issuing General Resolutions Nos. 535/08, 546/08, 550/09 and 553/09 until June 30, 2009. Under that circumstance, as from June 30, 2009, the Company has not acquired additional shares of its own.  Regarding to treasury stock, the Company’s Board of Directors resolved to request to regulators the authorization to reduce its common stock by up to the amount of 211,883,347 registered shares, which was granted on March 8, 2010.  On April 23, 2010, the Ordinary Shareholders’ Meeting approved to reduce the capital stock by cancelling the previously mentioned treasury stock. This decision has been reflected accordingly in the Statement of Shareholder’s Equity, which has been approved by the CNV on September 13, 2010.   NOTE 13.  profit distributions  Legal Reserve  In accordance with the Argentine Commercial Companies Law, 5% of the net profit for the year calculated in accordance with Argentine GAAP must be appropriated to a legal reserve until such reserve equals 20% of the Company’s outstanding capital.  Dividends  In accordance with Law No. 25,063, dividends distributed in cash or in kind, in excess of accumulated tax profits at the end of the year immediately before the date of payment or distribution, will be subject to a 35% income tax withholding in a single and final payment. The balance of accumulated accounting profits at December 31, 1997, less dividends paid plus tax profits calculated as from January 1, 1998 are considered accumulated tax profits for the purposes of this tax.  Dividends in advance  To preserve the Company’s equity and mainly guard over the equitable treatment among shareholders, the Company has decided to implement a mechanism considered to be effective and efficient consisting in anticipating dividends which will compensate personal assets tax required to pay over tax authorities in its capacity of substitute taxpayer for such tax.  Therefore, on December 3, 2010, the Company’s Board of Directors resolved to anticipate dividends in cash under the terms of Argentine Commercial Companies Law for Ps. 18,111,204, which is equivalent to 0.0137% to the face value of each outstanding share and whose ratification will be submitted to the next Shareholders’ Meeting. Additionally, it has been decided to defer the dividend payment until May 28, 2011, date on which the value obtained by the equity method will be known and based on which personal assets tax should be paid.  As of December 31, 2009, the Company’s Board of Directors had resolved upon early dividends for Ps. 18,314,331 (which, net of the dividends related to own treasury shares stand at Ps. 15,771,731) following the previously mentioned objective.   F-43


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 14.  OPPORTUNITIES ASSIGNMENT AGREEMENT - PURCHASE OPTIONS  As approved by the Shareholders’ Meeting of September 16, 2006, on September 27, 2006 the Company signed an Opportunities Assignment Agreement, whereby certain executives were committed to provide the Company with potential business opportunities encompassed by the Company’s investment guidelines, exceeding US$ 5 million. In consideration, the Company granted to those executives purchase options for up to 20% of capital, by virtue of the purchase option agreements signed with such executives.  CNV, through Resolution No. 15,447 dated August 17, 2006, approved the issuance of the purchase options representing 20% of the Company’s capital stock, conditioning that authorization to certain actions that were fulfilled on October 9, 2006.  The Opportunities Assignment and Purchase Option agreements were modified by means of the agreements of September 28, 2007 and June 6, 2008, to the effects of: (i) reduce the rights of the executives under the purchase options, waiving their right to subscribe whenever the Company’s capital is increased an additional number of common stock which allows them at any time hold 20% of the capital stock of the Company, as established in the purchase option agreements; and (ii) provide that the 20% limit, applicable to the transfer of purchase options that had not become exercisable stock options in favor of transferees of unexercised stock options shall not apply with respect to any legal entity that is controlled in a 100% by an executive.  For the original agreement and subsequent amendments, the Company issued stock options that grant the right to subscribe a 381,548,560 at different exercise prices. Regarding these options, a compensation expense is recognized ratably over the effective term of the Opportunities Assignment Agreement (consistent with the vesting period), with a credit to an equity reserve. As of September 30, 2009  the equity reserve amounts to Ps. 35,3 million.  On April 16, 2009, in accordance with the resolution of the Ordinary and Extraordinary Shareholders Meeting of April 8, 2009 and the report of the Company’s Audit Committee, the Company and certain of its Executives executed an amendment to the Opportunities Assignment Agreement, which extended the term of the Agreement by five years until September 27, 2014.  In addition, the Company signed a Restated Warrant Agreement with each of the relevant executives amending certain terms of the Warrant Agreements, including the exercise date of the Warrants and the exercise price, which was set at US$ 0.27 per warrant. In accordance with the amendment, one-fifth of each of the Series I, Series II and Series III Warrants may be exercised as from September 28, 2010, 2011, 2012, 2013 and 2014, and will remain in effect for fifteen years from the date of issuance.  Considering that Argentine GAAP does not set forth how the effects of the amendments made to the contracts mentioned above should be recognized in the financial statements, the Company has used the provisions set forth in IFRS and United States Generally Accepted Accounting Principles as a reference framework. To this effect, and according to the provisions of both accounting frameworks, when the amendments increase the market value of the contract, this increase should be recognized in profit and loss in the remaining effective period. The increase in the market value of the contracts should be determined as the difference between the market value of the contract prior and immediately after the amendment. Therefore, this calculation has been carried out following the Black-Scholes valuation model and resulted in Ps. 44.7 million of additional compensation expense.  Since the amendments extended the effective term of the contract to five years, the Company decided to recognize the original cost until September 28, 2009 and as from that moment recognize the additional cost mentioned before in the five-year term from September 29, 2009 to September 28, 2014.  Additionally, on August 3, 2009, the Company received a communication from the Executives by which they stated that aiming to emphasizing even more their commitment with the Company’s sustained growth, each of them has personally and irrevocably waived their right to exercise any option accrued in their favor (or their transferees) and to receive Company shares of common stock underlying such options before September 28, 2013. Consequently, none of the Executives will exercise options accrued and received through September 28, 2012, before September 28, 2013.  As of December 31, 2010 the equity reserve amounts to Ps. 46,481,704.   F-44


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 15.  commitments and contingencies  CTG tax dispute  Pursuant to Decree No. 571/00, the Argentine government decreed that companies in the process of privatization would be exempt from the asset tax. Accordingly, a resolution by the Argentine tax authority was issued in favor of CTG recognizing that it was entitled to such exemption. However, on May 9, 2005, the Argentine tax authority revoked such resolution claiming that CTG was no longer in the process of privatization. On June 9, 2005, as per CTG’s request, the relevant court in Argentina granted a suspension of the resolution revoking the exemption. Although the Argentine tax authority contested such suspension, the suspension of the revocation of CTG’ tax exemption was upheld on November 9, 2005. On July 31, 2007, the Argentine tax authority issued a new decision rejecting Güemes’s appeal and confirming the resolution of the revoking exemption. On August 22, 2007, CTG filed a judicial action challenging this tax resolution and requesting that the court suspend the resolution, thereby preventing the Argentine tax authority from carrying out any attachment or other executive measures until a final judgment has been entered. The Argentine tax authority has appealed such suspension and the litigation proceeding is still ongoing as of the date of this registration statement. In the event that this matter is resolved against CTG, CTG could be forced to pay the unpaid tax amounts claimed by the Argentine tax authority, plus accrued interest, penalties and other costs and expenses (including legal fees).  The Company based on its legal and tax advisors considers that there are solid grounds to defend its original position as to the exemption to pay asset tax. The Company has however decided to adhere to the new Tax Regularization System – Law No. 26,476, which will allow among other the following benefits: (i) rebating interest; (ii) remitting fines; (iii) exonerating from any criminal tax case that may derive from periods that have been settled; (iv) taking capital that has been settled for payments towards the next income tax return, reducing the financial tie-up, and; (v) deducting compensatory interest arising from adhering to the income tax amnesty related to the 2009 fiscal year.  Law No. 26,476 established a tax regularization program whose general terms are: -  Remission of fines and sanctions not already imposed upon adhering to the program; -  Remission of compensatory and punitive interest on the amount exceeding by 30% the capital owed; -  6% payment towards the amount owed upon adhering to the program; -  The resulting amount in up to 120 monthly installments bearing interest at 0.75% per month. -  30% to 50% reduction in tax agents' and tax authority representatives’ fees.  CTG has decided to adhere to such program recognizing a liability of Ps. 17,1 million, which was paid in May 2009. In this relation, CTG recorded a tax on asset credit of Ps.11,9 million and an interest expense of Ps. 5,2.million As of December 31, 2009, Ps. 10,2 million of this credit was used compensating 2008 income tax obligations and the remaining Ps. 1,6 million is included in other current receivables.  Edenor tax complaints  On December 1, 2003, the Provincial Board of Electric Power of the Province of Buenos Aires initiated a complaint against Edenor in the amount of Ps. 51,2 million, which does not include surcharges, interest or penalties accrued in respect of this amount after the date of the complaint. At December 31, 2003, the amount of surcharges and interest accrued on the complaint, including applied penalties, was Ps. 310 million. In addition, on April 23, 2007, the Board notified Edenor of an additional complaint for Ps. 4,0 million, without including surcharges, interest or penalties accrued. The complaints are based on an alleged failure to collect, as collection agent, in respect of certain taxes established by Decree Nos. 7,290/67 and 9,038/78 between July 1997 and June 2001 and between July 2001 and June 2002, respectively. On December 23, 2003, Edenor filed an appeal of the Board’s decision with the provincial Tax Court of Appeals of La Plata, and enforcement of the judgment was suspended pending the outcome of the appeal. On June 14, 2007, the Court granted Edenor’s appeal and rejected the Board’s tax complaint against Edenor. On June 27, 2007 the provincial Tax Court of Appeals of Buenos Aires rendered a favorable decision in relation to Edenor’s appeal. This decision reaffirms a recent decision by the Supreme Court of the Republic of Argentina in an unrelated case that held that the regulations were unconstitutional due to the commitment assumed by the Province of Buenos Aires to not tax the transfer of electric power. No provision has been recognized in this connection.   F-45


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 15.(CONTINUED)  The Argentine federal tax authorities have challenged certain income tax deductions for allowance for doubtful accounts on Edenor’s income tax returns for fiscal years 1996, 1997 and 1998, and have assessed additional taxes of approximately Ps. 9,3 million. Tax related contingencies are subject to interest charges and, in some cases, fines.  Edenor has appealed the tax authorities’ ruling before the Argentine federal tax court. During the appeal process payment for such complaint is suspended. Edenor has established a provision for contingencies of Ps. 38,8 million, which includes principal and interest, in relation to this complaint. However, during April 2009 and in this connection, Edenor decided to adhere to Law No. 26,476, which reduced the obligation to Ps. 12,1 million and recognized a gain, during the fiscal year 2009, of Ps. 23,4 million, net of fees and costs for the process of withdrawal of the original cause.  Transener legal proceedings  On August 8, 2003, the Argentine Federal Tax Bureau notified Transener of an income tax assessment based on various intercompany loans made between 1998 and 2000, which assessment alleged that such loans included interest rates below standards established under income tax law. Transener appealed the assessment to the Argentine National Tax Court. The complaint amounted to Ps. 7 million, including principal, interest and penalties. No provision has been recognized for this contingency in the financial statements.  On May 17, 2007, a fire in the Ezeiza transformer station resulted in a disruption of the services provided by that station. The services were partially resumed shortly thereafter. In response to that disruption, the ENRE filed charges against Transener alleging certain violations of the quality standards applicable to the transmission services provided by Transener. In response to such charges, Transener has raised a force majeure event defense. Transener recognized a provision for contingencies of approximately Ps. 14,0 million to cover penalties that could derive from such charges. As of December 31, 2009, the service was totally restored.  Edenor environmental complaints  On May 24, 2005, three of Edenor’s employees were indicted on charges of PCB-related environmental contamination dangerous to human health, which is a crime under Argentine law. In connection with this alleged infraction, the judge ordered a preliminary attachment of Edenor’s assets in the amount of Ps. 150 million to cover the potential cost of damage repair, environmental restoration and court costs. On May 30, 2005, Edenor appealed the charges against its employees as well as the attachment order. On December 15, 2005, the court of appeals dismissed the charges against all three defendants for lack of evidence and, accordingly, vacated the attachment order. The decision by the court of appeals also stated that the trial judge should order the acquittal of two public officers of the ENRE, who had been indicted on related charges. This decision was appealed to the National Criminal Appellate Court (Tribunal de Casación), the highest appellate body for this matter, which on April 5, 2006 ruled that the appeal was not admissible because decisions rendered on grounds of lack of evidence are not reviewable.  On July 16, 2007, Edenor was notified that on July 11, 2007, the trial judge ruled the definitive acquittal for all of the Edenor’s officials and employees that had been indicted. On appeal on March 25, 2008, the First Court of the Federal Circuit of San Martín (Sala I de la Cámara Federal de San Martín) upheld the acquittals and confirmed the finding that there had been insufficient evidence to prove any PCB contamination. This decision was appealed on April 18, 2008 by the Prosecutor’s Office (Ministerio Público) before the First Court of the Federal Circuit of San Martín, which rejected the appeal as well.  The resolution in question was notified to the Prosecutor’s Office on December 29, 2008. Within the contemplated legal time period, the Prosecutor’s Office’s Office filed with National Criminal Appellate Court an “Extraordinary appeal”. The defense has duly answered the notice served. On May 27, 2009, such Court “dismissed the extraordinary appeal filed by the Prosecutor’s Office’s Office” on the grounds that it failed to specifically and reasonably refute the arguments that supported the resolution being appealed, and proved neither the alleged arbitrariness nor the violation of constitutional guaranties. The Prosecutor’s Office’s Office filed an appeal to the Federal Supreme Court requesting that the appeal dismissed by the National Criminal Appellate Court be sustained.On May 26, 2010, the Supreme Court expressly dismissed the appeal. It is worth mentioning that this decision is final and conclusive, accordingly, as soon as notice thereof has been given to all the parties involved, the proceedings will be sent to the court of original jurisdiction (Federal Court of Campana – Criminal Proceedings) for their filing.   F-46


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
 NOTE 15.(CONTINUED)  Proceedings challenging the renegotiation of Edenor’s concession  In November 2006, two Argentine consumer associations, Asociación Civil por la Igualdad y la Justicia (ACIJ) and Consumidores Libres Cooperativa Limitada de Provisión de Servicios de Acción Comunitaria, brought an action against Edenor and the Argentine government before a federal administrative court seeking to block the ratification of the Adjustment Agreement on the grounds that the approval mechanism was unconstitutional. On March 26, 2007, the federal administrative court dismissed these complaints and ruled in Edenor’s favor on the grounds that the adoption of Executive Decree No. 1,957/06, which ratified the Adjustment Agreement, rendered the action moot. ACIJ appealed this decision on April 12, 2007, and the appeal was decided in Edenor’s favor.  However, on April 14, 2008, ACIJ filed another complaint challenging the procedures utilized by the Argentine Congress in approving the Adjustment Agreement. Specifically, the complaint alleges that Article 4 of Law No. 24,790, which authorized the Congress to tacitly approve agreements negotiated between the Argentine government and public service companies, such as Edenor, violated the congressional procedures established in the Argentine Constitution. ACIJ has requested that the Adjustment Agreement be renegotiated and submitted to Congress for its express approval. Edenor’s response to this complaint is due on or before 2008.  No provision has been accounted for in this connection as the possibility of loss is considered remote.   NOTE 16.  segment information  The Company is engaged on the electricity sector, with a participation in the electricity generation, transmission and distribution segments through different legal entities. Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally for management. Accordingly, the following business segments have been identified by means of its subsidiaries and based on the nature, customers and risks involved:  Generation:Made up of the direct and indirect equity interest in Central Térmica Loma de la Lata, Hidroeléctrica Los Nihuiles, Hidroeléctrica Diamante, Central Térmica Güemes, Central Piedra Buena, Powerco, Energía Distribuida, Pampa Generación and Lago Escondido and investments in shares in other companies related to the electricity generation sector.  Transmission:Made up of the indirect equity interest in Transener and its subsidiaries.  Distribution:Made up of the indirect equity interest in Edenor.  Holding and others:Made up of own operations, such as advisory services and financial investments, and investments in real estate and other companies not related to the electricity sector.  The Company manages its segments to the net income (loss) level of reporting.  Below is a table with the information for each segment identified by the Company as of and for the years ended December 31, 2010 and 2009: F-47


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Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 16.  segment information (continued)   Consolidated Statement of Operation information at December 31, 2010Generation
     
     Transmission
     
     Distribution
     
     Holding and Others
     
     Eliminations
     
     ConsolidatedSales
     
     2,399,083,844
     
     291,040,193
     
     2,173,644,000
     
     808,012
     
     -
     
     4,864,576,049Intersegment sales
     
     10,916,283
     
     839,560
     
     -
     
     52,968
     
     (9,459,431)
     
     2,349,380Total sales
     
     2,410,000,127
     
     291,879,753
     
     2,173,644,000
     
     860,980
     
     (9,459,431)
     
     4,866,925,429Cost of sales
     
     (2,059,668,633)
     
     (198,630,524)
     
     (1,731,452,313)
     
     (762,900)
     
     2,546,540
     
     (3,987,967,830)Gross profit
     
     350,331,494
     
     93,249,229
     
     442,191,687
     
     98,080
     
     (6,912,891)
     
     878,957,599Administrative expenses
     
     (112,114,152)
     
     (44,662,513)
     
     (180,643,794)
     
     (35,997,714)
     
     6,582,452
     
     (366,835,721)Selling expenses
     
     (15,360,358)
     
     -
     
     (194,536,285)
     
     (146,882)
     
     -
     
     (210,043,525)Amortization of goodwill
     
     (15,239,480)
     
     809,846
     
     (5,534,459)
     
     -
     
     -
     
     (19,964,093)Operating income (loss)
     
     207,617,504
     
     49,396,562
     
     61,477,149
     
     (36,046,516)
     
     (330,439)
     
     282,114,260Financial and holding resultsGenerated by assets
     
     42,184,842
     
     41,163,525
     
     (4,371,600)
     
     (22,875,937)
     
     (22,824,244)
     
     33,276,586Generated by liabilities
     
     (105,316,547)
     
     (47,812,771)
     
     (200,999,344)
     
     47,409,527
     
     22,864,805
     
     (283,854,330)Other income and expenses, net
     
     16,991,899
     
     (3,760,724)
     
     (9,814,450)
     
     2,450,726
     
     289,878
     
     6,157,329Income (loss) before taxes and minority interest
     
     161,477,698
     
     38,986,592
     
     (153,708,245)
     
     (9,062,200)
     
     -
     
     37,693,845Income tax
     
     (63,384,450)
     
     (21,816,945)
     
     25,306,100
     
     (14,385,311)
     
     -
     
     (74,280,606)Minority interest
     
     (39,948,823)
     
     (5,904,480)
     
     35,879,024
     
     -
     
     -
     
     (9,974,279)Net income (loss) for the year
     
     58,144,425
     
     11,265,167
     
     (92,523,121)
     
     (23,447,511)
     
     -
     
     (46,561,040)Amortization (1)
     
     82,313,533
     
     60,221,125
     
     207,447,087
     
     9,475,986
     
     -
     
     359,457,731Consolidated information as of December 31, 2010Total Assets
     
     3,560,194,892
     
     982,315,401
     
     5,394,816,975
     
     1,503,664,020
     
     (1,018,080,426)
     
     10,422,910,862Total Liabilities
     
     2,051,353,302
     
     482,282,165
     
     3,631,496,056
     
     407,455,307
     
     (1,018,080,426)
     
     5,554,506,404
  (1) Includes amortizations and depreciation of fixed assets, intangible assets and other assets (recognized in cost of sales, administrative expenses and selling expenses), charge for reserve for Directors' options (recognized in administrative expenses) and goodwill amortization.  F-48


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Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 16.  segment information (continued)   Consolidated Statement of Operation information at December 31, 2009Generation
     
     Transmission
     
     Distribution
     
     Holding and Others
     
     Eliminations
     
     ConsolidatedSales
     
     1,714,496,751
     
     290,483,423
     
     2,077,860,000
     
     9,227,266
     
     -
     
     4,092,067,440Intersegment sales
     
     8,768,086
     
     790,788
     
     -
     
     5,841,502
     
     (14,027,943)
     
     1,372,433Total sales
     
     1,723,264,837
     
     291,274,211
     
     2,077,860,000
     
     15,068,768
     
     (14,027,943)
     
     4,093,439,873Cost of sales
     
     (1,395,586,397)
     
     (220,068,440)
     
     (1,569,740,606)
     
     (8,215,896)
     
     1,465,100
     
     (3,192,146,239)Gross profit
     
     327,678,440
     
     71,205,771
     
     508,119,394
     
     6,852,872
     
     (12,562,843)
     
     901,293,634Administrative expenses
     
     (82,752,522)
     
     (37,503,814)
     
     (145,898,008)
     
     (48,007,888)
     
     11,413,343
     
     (302,748,889)Selling expenses
     
     (15,651,136)
     
     -
     
     (137,999,000)
     
     (1,012,935)
     
     -
     
     (154,663,071)Amortization of goodwill
     
     (15,233,986)
     
     763,398
     
     (5,533,955)
     
     -
     
     -
     
     (20,004,543)Operating income (loss)
     
     214,040,796
     
     34,465,355
     
     218,688,431
     
     (42,167,951)
     
     (1,149,500)
     
     423,877,131Financial and holding resultsGenerated by assets
     
     70,097,750
     
     5,541,724
     
     43,741,362
     
     76,671,074
     
     (15,771,540)
     
     180,280,370Generated by liabilities
     
     (116,445,484)
     
     (9,780,695)
     
     (174,242,112)
     
     151,650,399
     
     16,921,040
     
     (131,896,852)Other income and expenses, net
     
     (2,690,431)
     
     4,737,915
     
     2,044,000
     
     (6,101,697)
     
     -
     
     (2,010,213)Income before taxes and minority interest
     
     165,002,631
     
     34,964,299
     
     90,231,681
     
     180,051,825
     
     -
     
     470,250,436Income tax
     
     (68,458,621)
     
     (4,792,909)
     
     (61,143,001)
     
     (25,807,941)
     
     -
     
     (160,202,472)Minority interest
     
     (38,631,222)
     
     (12,749,921)
     
     (43,930,000)
     
     -
     
     -
     
     (95,311,143)Net income (loss) for the year
     
     57,912,788
     
     17,421,469
     
     (14,841,320)
     
     154,243,884
     
     -
     
     214,736,821Amortization (1)
     
     77,228,978
     
     60,605,926
     
     199,836,136
     
     11,999,567
     
     -
     
     349,670,607Consolidated information as of December 31, 2009Total Assets
     
     3,282,258,220
     
     990,542,752
     
     5,232,764,443
     
     877,591,880
     
     (820,623,369)
     
     9,562,533,926Total Liabilities
     
     1,592,783,820
     
     520,352,778
     
     2,863,963,479
     
     340,957,254
     
     (820,623,369)
     
     4,497,433,962
    (1) Includes amortizations and depreciation of fixed assets, intangible assets and other assets (recognized in cost of sales, administrative expenses and selling expenses), charge for reserve for Directors' options (recognized in administrative expenses) and goodwill amortization. F-49


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 16.  segment information (continued)   Consolidated Statement of Operation information at December 31, 2008Generation
     
     Transmission
     
     Distribution
     
     Holding and Others
     
     Eliminations
     
     ConsolidatedSales
     
     1,780,727,650
     
     228,522,916
     
     2,000,198,000
     
     4,301,627
     
     -
     
     4,013,750,193Intersegment sales
     
     -
     
     -
     
     -
     
     30,424,401
     
     (30,298,308)
     
     126,093Total sales
     
     1,780,727,650
     
     228,522,916
     
     2,000,198,000
     
     34,726,028
     
     (30,298,308)
     
     4,013,876,286Cost of sales
     
     (1,454,212,288)
     
     (178,082,466)
     
     (1,451,379,217)
     
     (4,827,522)
     
     6,097,809
     
     (3,082,403,684)Gross profit
     
     326,515,362
     
     50,440,450
     
     548,818,783
     
     29,898,506
     
     (24,200,499)
     
     931,472,602Administrative expenses
     
     (57,905,218)
     
     (29,645,910)
     
     (113,574,000)
     
     (58,457,349)
     
     24,200,499
     
     (235,381,978)Selling expenses
     
     (9,846,227)
     
     -
     
     (126,260,000)
     
     (3,545,412)
     
     -
     
     (139,651,639)Amortization of goodwill
     
     (14,733,121)
     
     800,550
     
     (5,631,950)
     
     (274,634)
     
     -
     
     (19,839,155)Operating income (loss)
     
     244,030,796
     
     21,595,090
     
     303,352,833
     
     (32,378,889)
     
     -
     
     536,599,830Financial and holding resultsGenerated by assets
     
     8,018,252
     
     698,116
     
     (4,914,000)
     
     241,861
     
     (5,789,051)
     
     (1,744,822)Generated by liabilities
     
     (88,208,779)
     
     (53,224,325)
     
     (154,927,000)
     
     84,252,102
     
     5,789,051
     
     (206,318,951)Other income and expenses, net
     
     (1,361,312)
     
     9,782,738
     
     (29,359,211)
     
     (2,255,909)
     
     -
     
     (23,193,694)Income before taxes and minority interest
     
     162,478,957
     
     (21,148,381)
     
     114,152,622
     
     49,859,165
     
     -
     
     305,342,363Income tax
     
     (62,720,678)
     
     (7,346,920)
     
     (43,498,382)
     
     4,724,854
     
     -
     
     (108,841,126)Minority interest
     
     (37,652,814)
     
     16,090,305
     
     (59,915,000)
     
     -
     
     -
     
     (81,477,509)Net income (loss) for the year
     
     62,105,465
     
     (12,404,996)
     
     10,739,240
     
     54,584,019
     
     -
     
     115,023,728Amortization (1)
     
     74,587,823
     
     56,290,902
     
     193,280,243
     
     12,653,433
     
     -
     
     336,812,401Consolidated information as of December 31, 2008Total Assets
     
     3,040,003,991
     
     998,976,381
     
     5,008,266,941
     
     670,929,001
     
     (579,997,774)
     
     9,138,178,540Total Liabilities
     
     1,495,664,266
     
     556,245,297
     
     2,698,438,204
     
     142,762,261
     
     (579,997,774)
     
     4,313,112,254
    F-50


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 17.DERIVATIVE FINANCIAL INSTRUMENTS  The Company and its subsidiaries have executed transactions with derivative financial instruments seeking to use them as economic instruments to mitigate the risk generated by changes in the US$ exchange rate.  As of December 31, 2010, the Company maintains a consolidated purchasing position of US$ 82,9 million at the average exercise price of Ps. 4.47 per US$ and with maturities between January 2011and October 2012. Following the terms of the contracts, the Company and its affiliates have constituted guarantees for Ps. 32,156,849, which are included under “Other receivables” in the balance sheet, net of the resulting balance on account of the valuation of the corresponding derivative financial instruments.   Contracted amount in
thousands of US$
     Average rate of exchange
     Settlement date1.000.000
     4,260
     1/31/111.000.000
     4,250
     1/31/111.000.000
     4,223
     1/31/111.000.000
     4,220
     1/31/111.000.000
     4,230
     3/31/112.000.000
     4,305
     3/31/115.000.000
     4,310
     3/31/1111.227.174
     4,569
     4/25/119.000.000
     4,340
     4/30/112.000.000
     4,348
     4/30/115.000.000
     4,400
     5/31/1111.227.174
     4,594
     10/25/1110.000.000
     4,340
     11/30/1111.227.174
     4,594
     4/25/1211.227.174
     4,594
     10/25/12
 NOTE 18.  LABOR LIABILITIES  The following are the benefits that the Company granted to certain  employees under the existing collective union agreements:  a)seniority bonus to be granted to personnel with certain number of years of service; b)a bonus for all workers having accumulated years of services with contributions to obtain the regular retirement.  Liabilities related to these benefits were determined contemplating all rights accrued by the beneficiaries to the plan until the years ended December 31, 2010 and 2009, respectively, based on actuarial studies carried out by independent professionals. Such liabilities are included  in “Salaries and social security payable” under current and non-current liabilities.   F-51


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
   NOTE 18.(CONTINUED)  Variations in the consolidated labor liabilities as of December 31, 2010, 2009 and 2008 are as follows:   For the year ended 31,2010
     
     2009
     
     2008Cost for services
     
     3,481,736
     
     2,981,994
     
     2,286,204Cost for interest
     
     12,235,165
     
     8,640,035
     
     6,825,520Amortization of actuarial losses
     
     2,461,469
     
     1,499,719
     
     1,364,499Amortization of past service cost
     
     2,893,152
     
     776,078
     
     732,786Net cost of the year
     
     21,071,522
     
     13,897,825
     
     11,209,009
    The breakdown of benefit obligations as of December 31, 2010 and 2009 is as follows:   As of
December 31, 2010
     
     As of
December 31, 2009Benefit obligations at the beginning of the year
     
     62,973,820
     
     48,857,503Cost
     
     3,481,736
     
     2,891,554Interest
     
     12,235,165
     
     8,376,764Actuarial losses
     
     15,050,084
     
     5,665,036Benefit payments
     
     (8,807,355)
     
     (2,817,038)Benefit obligations at the end of the year
     
     84,933,450
     
     62,973,820Benefit obligations at the end of the year
     
     84,933,450
     
     62,973,820Unrecognized actuarial losses
     
     (22,057,097)
     
     (19,246,528)Unamortized cost for past services
     
     (8,701,778)
     
     (3,700,569)Total benefits to the personnel plans
     
     54,174,575
     
     40,026,723
    The actuarial assumptions used were as follows:   2010
     
     2009Discount rate
     
     19%
     
     19%Salaries increase
     
     12%
     
     11%Inflation
     
     13%
     
     9%
    As of December 31,2010 and 2009, the company and its subsidiaries carried no assets related to pension plans or benefits later to the retirement.    F-52


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
   NOTE 19.  subsequent events  Sale of Edenor ́s ordinary shares  From January 1, 2011 and up to the date of issuance of these financial statements Pampa Inversiones has sold 97,906 ADRs (equivalents to 1,958,120 shares) in different market transactions. As a consequence of the abovementioned operations, and considering the mentioned in the above paragraph, Pampa Inversiones has decreased to 3.82% its participation in Edenor ́s common stock.  Repurchase and sale of corporate bonds  From January 1, 2011 and up to the date of issuance of these financial statements, the Company and/or its subsidiaries and have acquired its own corporate bonds or corporate bonds of various subsidiaries, for a total amount of US$ 18 million, equivalent to Ps. 18.2 million at nominal value.  From January 1, 2011 and up to the date of issuance of these financial statements, the Company and/or its subsidiaries and have sold certain holdings of corporate bonds of the repurchased at the year-end representing US$ 55.1 million of nominal value for a total consideration of US$ 56.1 million.  Acquisition of assets from AEI Group  On January 19, 2011, the Company accepted an offer from a group of subsidiaries of AEI to, hold to the fulfillment of certain previous conditions, acquire whether directly or through its subsidiaries:  -              Distribution Assets: 100% of the equity of AESEBA, a company which owns 90% of the equity and voting rights of EDEN, an electricity distribution company with a concession area in the north and center of Buenos Aires province, and 77.2% of the equity and voting rights of EMDERSA, the controlling company of EDESAL, EDELAR, EDESA and EGGSA, among other companies, for a total amount of US$ 140 million, corresponding to US$ 90 million for the equity of EMDERSA and US$ 50 million for the equity of AESEBA.  -              Other Rights and Assets: i) 100% of the outstanding bonds issued on April 22, 1997 by Compañía de Inversiones de Energía S.A ("CIESA"), the controlling company of Transportadora de Gas del Sur (“TGS”) and other credits against CIESA (“CIESA ́s debt”), together with the rights over certain current lawsuits related to the bonds and certain CIESA ́s debt restructuring agreements, for a total amount of US$ 136 million; ii) an option to acquire the rights over the claim that Ponderosa Assets L.P. and Enron Creditors Recovery Corp (the “Applicants”) have initiated against the Argentine Republic to the World Bank CIADI, with a total cost for the option of US$ 1 million, and; iii) other rights that AEI maintained over AESEBA, EDEN and EMDERSA and its subsidiaries, without economic consideration.  On January 27, 2011, Pampa Inversiones acquired the 100% of the shares of Inversiones Argentina I Ltda, a company which owns CIESA  ́s debt together with the rights over certain current lawsuits related to the bonds and certain CIESA ́s  debt restructuring agreements. Related to these agreements, Pampa Inversiones is undergoing a process of negotiation with the debtor and its shareholders, aimed at the realization of a cancellation agreement of the due and unpaid liabilities, in satisfactory terms to the parties. Through this agreement, the principal financial creditor would obtain the 50 % of the shares of CIESA, and would control the 51 % of TGS, while CIESA would end definitively the default process in which is subsumed in the last 8 years.  On March 4, 2011, Edenor accepted the gratuitous offer from the Company to appoint Edenor as an acquiring part of the distribution assets for the agreed prices. The agreement mentioned that in the event that within 3 years of the date of the acquisition of the shares of EMDERSA and the shares of AESEBA Edenor would partially or completely sell any of said shares, the Company will have the right to receive from Edenor a payment equivalent to 50% of the value to be received by Edenor in excess of the price paid for any of those shares. In the same date, the acquisition of such shares was consumed by the Company and Edenor. As of the issuance of theses financial statements, had begun the relevant procedures to the control authorities.    F-53


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 19.(CONTINUED)  In compliance with current regulations, Edenor has formally consulted the CNV about the steps to be followed with regard to the public offering for the acquisition of EMDERSA’s shares that Edenor must make to EMDERSA’s minority shareholders due to the change in that company’s control and in accordance with the provisions of Decree No. 677/01 and the CNV’s regulations. The aforementioned consultation was made due to the fact that the authorization and carrying out of the public acquisition offering that for the same reasons is to be carried out by AEIU at a price of US$ 0.68 per EMDERSA’s common share, is still pending. Therefore, the situation generated by the potential coexistence of two public offerings must, in the Company’s opinion, be clarified.  Edenor has fully assumed its obligation to carry out the public acquisition offering it is required to make due to the new change in EMDERSA’s control, which will be carried out at the same price per EMDERSA’s common share that Edenor paid to AEIU, i.e. US$ 0.49 per EMDERSA’s common share, in the manner and time period established by the control authority. The carrying out of that public acquisition offering was approved by the Edenor’s Board of Directors on March 4, 2011, and constitutes an irrevocable commitment with EMDERSA’s shareholders.  Acquisitions have been registered following the purchase method of accounting based on preliminary figures result in a determination of a negative goodwill amounting to Ps. 545.7 million and the recognition of a Ps. 63.8 million gain.  Acquisition of Shares of Enron Pipeline Company Argentina S.A. (“EPCA”)  On January 31, 2011, the Company accepted an offer to acquire, hold to the fulfillment of certain previous conditions and to the obtaining of the regulatory approbations, all of the shares issued by EPCA, a company which owns 10% of the share capital of CIESA, which in turn owns 55.3% of the share capital of TGS. The total agreed price is US$29 million. The transaction was consumed on April 8, 2011.  Edenor Bank loans  On February 16, 2011, Edenor took a series of financial loans and bank overdrafts with local financial entities (JPMorgan, Deutsche Bank, Banco Macro, Banco Nación y Standard Bank), in order to settle future needs of capital. The capital amounts to Ps. 280 million with an average maturity of 90 days and with an interest rate of 14.5 % nominal annual.  Technical defects in Loma de la Lata’s Steam Turbine Unit  As a result of to certain technical defects in the Steam Turbine unit making up the works for the expansion of Loma de la Lata’s generation installed capacity, the combined cycle start-up has been postponed. The contractor of the work, Isolux Corsan Argentina S.A. and Tecna Estudios and Projects of Engineering S.A. - Transitory Union of Companies (the "UTE"), have informed a chronogram which Loma de la Lata has requested major precisions and the best efforts to reduce the involved times, being thought that the putting in commercial march will be able to be delayed up to the end of the second quarter of 2011 approximately.  Loma de la Lata had conducted all applicable business and procedures for the collection of the compensations stipulated by contract and those payable by the insurance companies.  On March 30, 2011, Loma de la Lata accepted a proposal by the Contractor setting forth the mechanisms for the repair of the defects indicated above, as well as the procedures to be observed for the Combined Cycle start-up. Within the terms and conditions of the proposal indicated above, an exceptional recognition in favor of Loma de la Lata should be pointed out, which may be offset with pending payments corresponding to the last payment milestone under the agreements. Pursuant to the described agreement, the recognized amount was valued at US$ 18 million. Such recognition is conditional upon the Provisional Reception of the expansion work by Loma de la Lata; therefore, its recognition in earnings has been postponed up to the occurrence of this event. As a consequence of the agreement, Loma de la Lata requested the participating banks to release the funds held in escrow for the payment of the contractual milestones.     F-54


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 19.(CONTINUED)  General Ordinary and Extraordinary Shareholders ́ Meeting  On April 14, 2011, the Company’s General Ordinary and Extraordinary Shareholders’ Meeting resolved, among other issues, to approve the following: (i) the financial statements for the fiscal year ended on December 31, 2010; (ii) the dividends paid in advance declared by the Company’s Board of Directors and amounting to Ps.  18,111,204; (iii) the bearing of losses for Ps. 45,561,040 for the fiscal year ended on December 31, 2010 against the accumulated retained earnings as at that date, and the carry-forward of the balance to the new fiscal year.  Edenor Corporate Bonds Programme. Relaunching of the Issuance of Class 9 Corporate Bonds  On April 26, 2011, Edenor issued Corporate Bonds for a face value of US$ 69,7 million, thus completing the original amount of the series of up to US$ 300 million.  The new Corporate Bonds were issued under the same conditions applicable to previous issuance stated in Note 6, with an issuance price amounting to 101.25% of the principal plus the interest accrued between April 25, 2011 and the issuance date, the first payment of interest being due on October 25, 2011.  Edenor used the net proceeds to cancel its short-term debt.  VCP Issuance  On May 9, 2011, CPB issued a new class of VCP for an amount of Ps. 70,160,500 having a Private Badlar interest rate plus a 3% margin. Principal will be repaid in a lump sum 360 calendar days after the issuance date, and interest will be payable on a quarterly basis. Net funds resulting from the placement of the VCPs will be destined to investments in physical assets, the payment or working capital and/ or the refinancing of liabilities.  Memorandum of Understanding  On May 10, 2011, and regarding the facts mentioned above related with de acquisition of assets from AEI Group, the Company and its subsidiaries Pampa Inversiones and Inversiones Argentina I Ltd. (“IAI”) (jointly referred to as “Pampa”) signed a Memorandum of Understanding with Petrobras Energía S.A. and Petrobras Hispano Argentina S.A.  (jointly referred to as “Petrobras”) and CIESA, whereby the parties agreed to suspend the lawsuit titled “Compañía de Inversiones de Energía S.A. v. AEI, AEI v. Compañía de Inversiones de Energía S.A., Petrobras Energía S.A., Petrobras Hispano Argentina S.A., Héctor Daniel Casal, Claudio Fontes Nunes y Rigoberto Mejía Aravena” currently pending before the Supreme Court of the State of New York with the purpose of putting forth their best efforts to reestablish the financial restructuring stipulated in the Restructuring Agreement executed on September 1, 2005 by and among CIESA, Petrobras, EPCA, ABN AMRO BANK N.V, Sucursal Argentina (acting in its capacity as trustee and not on its own behalf) and CIESA’s Financial Creditors (the “Restructuring Agreement”), regarding the Corporate Bonds issued on April 22, 1997 by CIESA and the two derivative transactions originally executed between CIESA and J. Aron & Company on August 3, 2000, and between CIESA and Morgan Guaranty Trust Company of New York on August 4, 2000 (the “Lawsuit”); and to include Pampa as a party to the Restructuring Agreement, all of this subject to obtaining the required governmental approvals to implement the Restructuring Agreement and secondly, subject to obtaining such governmental approvals, to timely withdraw all claims and actions initiated by the Parties and third parties in the Lawsuit, thus ending all disputes among them.  This Memorandum of Understanding, executed on the date hereof, represents an important milestone in the process towards the cancellation of CIESA’s overdue and unpaid liabilities. F-55


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP  These consolidated financial statements have been prepared in accordance with Argentine GAAP and the regulations of the CNV, which differs 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.  I. Differences in measurement methods  As indicated in Note 2, as from March 1, 2003, inflation accounting was discontinued.  The following reconciliation does not include the reversal of the adjustments to the consolidated financial statements for the effects of inflation, because, as permitted by the SEC, it represents a comprehensive measure of the effects of price-level changes in the Argentine economy, and as such, is considered a more meaningful presentation than historical cost-based financial reporting for both Argentine GAAP and US GAAP.  The main 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.  References below to “ASC” are to Accounting Standard Codification issued by the Financial Accounting Standards Board in the United States of America.  The following tables summarize the main reconciling items between Argentine GAAP and US GAAP:    For the year ended December 31,2010
     
     
     2009
     
     
     2008Reconciliation of net (loss) income:Net (loss) income under Argentine GAAP
     Ps.
     (46,561,040)
     
     Ps.
     214,736,821
     
     Ps.
     115,023,728US GAAP adjustments:Reserve for Directors’ options (a)
     
     -
     
     
     (62,080,886)
     
     
     (82,774,517)Pre-operating and organizational costs (b)
     
     6,457,205
     
     
     (18,925)
     
     
     10,347Investments in marketable securities (c)
     
     (12,206,967)
     
     
     (40,318)
     
     
     699,401Capitalization of foreign currency exchange rate differences (d)
     
     (38,817,235)
     
     
     (31,092,333)
     
     
     (25,857,664)Warehouse impairment and holding results (e)
     
     17,367,551
     
     
     (12,307,767)
     
     
     (333,597)Inventory holding results (f)
     
     (173,020)
     
     
     (8,662,941)
     
     
     17,981,556Accounting for business combination (g)
     
     9,741,274
     
     
     9,044,715
     
     
     9,572,821Results on repurchase of debt (h)
     
     -
     
     
     (49,015,879)
     
     
     49,015,879Purchase of Edenor's ADRs (i)
     
     (32,625,193)
     
     
     (14,552,191)
     
     
     (2,990,792)Deferred income taxes (j)
     
     14,688,575
     
     
     40,667,107
     
     
     (5,346,500)Noncontrolling interest (k)
     
     4,626,062
     
     
     15,632,157
     
     
     (8,988,443)Amortization of certain Transmission intangible assets (l)
     
     1,207,005
     
     
     1,207,005
     
     
     1,207,005Depreciation of certain Transmission fixed assets (m)
     
     (9,152,842)
     
     
     (8,965,812)
     
     
     (10,673,835)Impairment of investments in subsidiaries (n)
     
     -
     
     
     (12,332,109)
     
     
     12,332,109Other assets holding results (o)
     
     (7,527,973)
     
     
     -
     
     
     -Other
     
     58,000
     
     
     -
     
     
     (58,000)Net (loss) income attributable to Pampa Energía under US GAAP
     Ps.
     (92,918,598)
     
     Ps.
     82,218,644
     
     Ps.
     68,819,498Noncontrolling interest under US GAAP (k)
     
     5,348,217
     
     
     80,769,243
     
     
     90,465,953Net (loss) income for the year under US GAAP
     Ps.
     (87,570,381)
     
     Ps.
     162,987,887
     
     Ps.
     159,285,451
   F-56


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Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)   As of December 31,2010
     
     
     2009Reconciliation of shareholders’ equity:Shareholders' equity under Argentine GAAP
     Ps.
     3,280,951,067
     
     Ps.
     3,336,677,959US GAAP adjustments:Pre-operating and organizational costs (b)
     
     -
     
     
     (6,457,205)Capitalization of foreign currency exchange rate differences (d)
     
     (100,844,551)
     
     
     (62,027,316)Warehouse impairment and holding results (e)
     
     -
     
     
     (17,367,551)Inventory holding results (f)
     
     (105,654)
     
     
     67,366Accounting for business combination (g)
     
     155,642,735
     
     
     145,484,832Purchase of Edenor's ADRs (i)
     
     (65,012,446)
     
     
     (36,016,566)Deferred income taxes (j)
     
     77,381,661
     
     
     63,809,672Noncontrolling interest (k)
     
     18,691,308
     
     
     14,065,246Amortization of certain Transmission intangible assets (l)
     
     (4,828,024)
     
     
     (6,035,029)Depreciation of certain Transmission fixed assets (m)
     
     (47,059,658)
     
     
     (37,906,816)Other assets holding results (o)
     
     (7,527,973)
     
     
     -Other
     
     -
     
     
     (58,000)Pampa Energía Shareholders' equity under US GAAP
     Ps.
     3,307,288,465
     
     Ps.
     3,394,236,592Noncontrolling interest under US GAAP (k)
     
     1,481,551,703
     
     
     1,657,099,949Equity under US GAAP
     Ps.
     4,788,840,168
     
     Ps.
     5,051,336,541
    Description of changes in shareholders’ equity under US GAAP:   For the year ended December 31,2010
     
     
     2009
     
     
     2008Equity under US GAAP as of the beginning of the  year
     Ps.
     5,051,336,541
     
     Ps.
     4,879,292,224
     
     Ps.
     4,885,247,107Additional paid-in capital
     
     4,045,942
     
     
     23,827,815
     
     
     -Treasury Stock
     
     -
     
     
     (84,630,538)
     
     
     (120,848,801)Reserve for Directors’ option
     
     8,945,352
     
     
     73,142,228
     
     
     94,541,189Distribution of dividends in advance
     
     (18,111,204)
     
     
     (15,771,731)
     
     
     (16,797,217)Other comprehensive income
     
     11,090,381
     
     
     1,480,609
     
     
     (3,497,131)Net (loss) income attributable to Pampa Energía under US GAAP
     
     (92,918,598)
     
     
     82,218,644
     
     
     68,819,498Changes attributable to noncontrolling interest under US GAAP (k)
     
     (175,548,246)
     
     
     91,777,290
     
     
     (28,172,421)Equity under US GAAP as of the end of the year
     Ps.
     4,788,840,168
     
     Ps.
     5,051,336,541
     
     Ps.
     4,879,292,224
   F-57


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  a)  Reserve for Directors’ options  As discussed in Note 14, in consideration for the Opportunities Assignment Agreement signed, the Company granted to certain executives purchase options for up to 20% of capital, to be exercised at the same price per ordinary share in US$ that shareholders have subscribed at each capital increase, adjusted in accordance with the purchase option agreements.  Under Argentine GAAP purchase options were valued at the grant date following the Black-Scholes model at an amount of Ps. 35.3 million. A compensation expense is recognized ratably over the effective term of the Opportunities Assignment Agreement (consistent with the vesting period), with a credit to an equity reserve.  Under US GAAP following Topic ASC 718-20 “Awards Classified as Equity” (“718-20”) the Company accounted for an additional compensation expense of Ps. 186.0 million as the application of antidilution provisions contained in the purchase option agreements resulted in an incremental value transferred to the beneficiaries. This additional compensation was amortized through the original vesting period, which ended in September 2009.  On April 8, 2009 the Company signed with the beneficiaries an amendment to the Opportunities Assignment and Purchase Option agreements by virtue of which the service period was extended until September 28, 2014 and the options’ exercise price was reduced to US$ 0.27.  Options would vest on fifths per year since September 28, 2010 until September 28, 2014.  Under Argentine GAAP, the incremental fair value of the award as a result of the modifications of Ps. 44.7 million is to be recognized ratably over the five-year modified requisite service period. The accounting treatment of the modification followed under Argentine GAAP does not differ from US GAAP, as defined in Topic 718-20.  b)  Pre-operating and organizational costs  Under Argentine GAAP the Company recognized certain pre-operating and organizational costs related to the Ingentis and Petrolera Pampa projects as intangible assets.  Under US GAAP all costs of start-up activities must be expensed as incurred.  As of December 31, 2009 the effect of not recognizing pre-operating and organizational costs as intangible assets represents a decrease in shareholders’ equity of Ps. 6,457,205, that includes the elimination of Ps. 3,219,140 as a result of the acquisition of the remaining non-controlling interest in Inversora Ingentis, as further described in Note 20.I.k).  During the years ended December 31, 2009 and 2008, the effect of this adjustment in net income is Ps. 18,925 (loss) and Ps. 10.347 gain, respectively, corresponding to the net effect of expensing under US GAAP pre-operating and organizational costs capitalized under Argentine GAAP for Ps. 29,628 (loss) in 2009, and the reversal of the amortization recognized under Argentine GAAP for Ps. 10,703 and Ps. 10,347 in 2009 and 2008, respectively.  During the year ended December 31, 2010, as a result of the impairment of the related intangible assets under Argentine GAAP, the US GAAP reconciling item to shareholders ́ equity does not longer exists.  c)  Investments in marketable securities  Under Argentine GAAP, unrealized gains and losses corresponding to investments in debt and equity securities carried at market value are included in the statement of income under the line “Financial and Holding results generated by assets”.  Under US GAAP, the Company classifies these investments as available-for-sale securities and carries these investments at fair value with unrealized gains and losses, if any, included in other comprehensive income in the shareholders’ equity in accordance with ASC 320 “Investments – Debt and Equity Securities” (“ASC 320”) (See Note 20. II. c)).  Specific identification was used to determine cost in computing realized gain or loss.  The Company’s investments are considered available-for-sale securities as these securities could potentially be sold in response to needs for liquidity, changes in the availability of and the yield on alternative instruments or changes in funding sources or terms.  F-58


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date.  ASC 320 also states that for individual securities classified as available-for-sale an enterprise shall determine whether a decline in fair value below the amortized cost basis is other than temporary.  For the years ended December 31, 2010, 2009 and 2008, unrealized gain (loss) of available-for-sale securities amounted to Ps. 12,206,967, Ps. 40,318 and Ps. (699,401). For the years ended December 31, 2010, 2009 and 2008, unrealized loss amounting to Ps. (2,086,789), Ps. (10,822,984) and Ps. (22,721,793) were reclassified into the statement of operations because the decline in value of this investment was considered an other-than-temporary impairment.  Gross UnrealizedCost
     Fair Value
     Gain
     LossDecember 31, 2008Money market funds
     2,473,117
     2,473,117
     -
     -Mutual Funds
     141,966,409
     142,281,880
     320,551
     5,081Trust
     13,860,813
     14,489,491
     628,678
     -Corporate Debt Securities
     20,544,708
     23,876,181
     5,443,735
     -Public Debt Securities
     119,991,308
     123,467,136
     859,694
     -Equity Securities
     57,155,264
     34,504,909
     775,311
     -355,991,619
     341,092,714
     8,027,969
     5,081December 31, 2009Money market funds
     99,886,435
     99,886,435
     -
     -Mutual Funds
     66,136,359
     67,670,586
     1,534,226
     -Trust
     17,376,715
     19,707,602
     2,330,887
     -Corporate Debt Securities
     57,137,445
     57,093,641
     303,208
     347,012Public Debt Securities
     70,345,710
     70,462,605
     137,301
     20,406Equity Securities
     40,499,788
     33,801,805
     4,125,001
     -351,382,452
     348,622,674
     8,430,624
     367,418December 31, 2010Money market funds
     184,855,545
     186,697,722
     1,842,177
     -Mutual Funds
     40,467,769
     40,680,055
     212,286
     -Trust
     18,263,595
     18,621,566
     357,971
     -Corporate Debt Securities
     128,989,099
     143,805,429
     15,120,897
     304,568Public Debt Securities
     315,248,641
     315,267,295
     18,653
     -Equity Securities
     127,029,524
     127,965,490
     3,246,741
     223,985814,854,173
     833,037,557
     20,798,726
     528,553
  As of December 31, 2010 the difference between fair value and cost is comprised of unrealized net gains of Ps. 20,270,173 and other than temporary impairment of Ps. 2,086,789 already recorded in net income under Argentine GAAP.  Other-than-temporary impairment for the year ended December 31, 2010, corresponds to securities acquired during 2008 for which a significant decline in value below its amortized cost basis occurred during the fourth quarter of the year ended December 31, 2008 and it is not expected that a recovery in value will occur in the near term.  As of December 31, 2009 the difference between fair value and cost is comprised of unrealized net gains of Ps. 8,063,206 and other than temporary impairment of Ps. 10,822,984 already recorded in net income under Argentine GAAP.  Other-than-temporary impairment for the year ended December 31, 2009, corresponds to securities acquired during 2008 for which a significant decline in value below its amortized cost basis occurred during the fourth quarter of the year ended December 31, 2008, which has been partially offset during 2009 due to recovery in their value or sold stocks. F-59


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Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  As of December 31, 2008, the difference between fair value and cost is comprised of unrealized net gains of Ps. 8,022,888 and other-than-temporary impairment of Ps. 22,921,793 already recorded in net income under Argentine GAAP.  Other-than-temporary impairment for the year ended December 31, 2008, corresponds to securities acquired during 2008 for which a significant decline in value below its amortized cost basis occurred during the fourth quarter of the year ended December 31, 2008 and it is not expected that a recovery in value will occur in the near term.  The maturities as of December 31, 2010, of the available-for-sale, Corporate debt securities included in the balance sheet were as follows:  Carrying Value
     
     Maturing within 1 year
     
     Maturing after 1 year but within 5 years
     
     Maturing after 5 years but within 10 years
     
     Maturing after 10 yearsCorporate Debt Securities
     
     143,805,429
     
     98,042,035
     
     20,530,827
     
     25,232,566
     
     -Public Debt Securities
     
     315,267,295
     
     315,267,295
     
     -
     
     -
     
     -Total
     
     459,072,723
     
     413,309,330
     
     20,530,827
     
     25,232,566
     
     -
  d) Capitalization of foreign currency exchange rate differences  Under Argentine GAAP the advances to foreign suppliers made by the Company in connection with a fixed-price contract for the purchase of a turbine were considered as receivables in foreign currency.  For the fiscal year ended December 31, 2007, changes in the exchange rates from the payment date through the year-end amounting to Ps. 5,077,319 were reported as foreign currency exchange differences and included in net income. Under US GAAP following ASC Topic ASC 830 “Foreign Currency Matters”, advances paid on fixed-price contracts related to fixed assets projects are stated at historical cost and they are not revalued for currency adjustments. This adjustment has been reversed during 2008 because the above mentioned turbine was sold.  During the years ended December 31, 2010, 2009 and 2008, under Argentine GAAP the Company capitalized financial costs including interest and exchange rate differences. Under US GAAP, the Company applied the provisions of Topic ASC 835-20 “Capitalization of Interest” (“ASC 835-20”), which requires interest capitalization on assets which have a period of time to get them ready for their intended use. Capitalization of foreign exchange differences is not allowed under ASC 835-20.  The US GAAP reconciling item represents the elimination of capitalized exchange rate differences included under advances to suppliers and on work in progress, corresponding to the expansion project Loma de La Lata.  e) Warehouse impairment and holding results  Under Argentine GAAP, the Company classified Frigorifico La Pampa warehouse building as a held for sale asset on June 30, 2003, ceasing the computation of its depreciation on the same date. Also on June 30, 2003 the Company recognized an impairment over this asset of Ps. 3.2 million which was partially reversed during the years ended June 30, 2004, 2005 and 2006. No impairment over this asset exists as from June 30, 2006.  Under US GAAP, a long-lived asset to be sold is classified as held for sale only if all of the conditions set forth in ASC 360-10-45-9 are met. As some of these conditions were not met on that date, this asset continued under the classification of asset to be held and used and was depreciated over its useful life. Also, under US GAAP the reversal of impairment previously recognized of long-lived assets to be held and use is not permitted.  As discussed in Note 2, during the year ended December 31, 2009 the Company signed an agreement for the sale of Frigorífico La Pampa warehouse. Under Argentine GAAP, the Company valued this property at its net realizable value, recognizing a holding gain of Ps. 12,196,568 which is included under the line “Financial and holding results generated by assets”.    F-60


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  Under US GAAP, following ASC 360-10-45-9 the Company classified the property as an asset held for sale in April 2009, as all conditions were met, ceasing its depreciation and valuing it at the lower of its carrying amount or its fair value less cost to sale. Thus, the holding gain recognized as of December 31,2009 under Argentine GAAP was reversed under US GAAP.  As of December 31, 2009, the US GAAP reconciling item over shareholders’ equity represents the effect of not accounting the reversal of the impairment recognized under Argentine GAAP for Ps. 3,225,000, the recognition of the corresponding depreciation of Ps. 333,597 per year since July 1, 2008 until April 2009 for a total amount of Ps. 1,945,983 and the the reversal of the holding gain recognized under Argentine GAAP amounting to Ps. 12,196,568. No US GAAP reconciling item exists as of December 31, 2010 as Frigorífico La Pampa building was sold, as such existing the adjustment as of December 31, 2009 was reversed into income during 2010.  f) Inventory holding results  Under Argentine GAAP inventories are carried at replacement cost. Holding gains and losses measured by comparing original cost and replacement cost, are recognized in the statement of operations. During the years ended December 31, 2010, 2009 and 2008 the Company recognized inventory holding gains (losses) associated with the valuation at replacement cost of fuel oil stocks for Ps. 105,654, Ps. (67,366) and Ps. (8,730,307), respectively.  Under US GAAP, the Company followed Topic ASC 330-10-35 which prescribes that if evidence indicates that cost will be recovered with an approximately normal profit upon sale in the ordinary course of business, no loss shall be recognized even though replacement or reproduction costs are lower. Thus, as of December 31, 2010 and 2009, the holding gains and losses related to fuel oil stock recognized under Argentine GAAP were reversed since the evidence indicates that cost will be recovered with an approximately normal profit upon sale in the ordinary course of business.  The net (loss) income US GAAP reconciling item for the years ended December 31, 2010 and 2009 represents the reversal of holding gain (loss) on the closing balance of fuel oil for Ps. 105,654 and Ps. (67,366), respectively and a higher cost of Ps. 67,366 and 8,730,307, respectively corresponding to fuel oil stock at the beginning of these years. The net income US GAAP reconciling item for the year ended December 31, 2008 represents the reversal of holding loss on the closing balance of fuel oil for Ps. 8,730,307 and realization of holding gain recorded during 2007 for Ps. 7,912,070 corresponding to fuel oil and Ps. 1,339,179 corresponding to lots of land.  g) Accounting for business combinations  The following tables summarizes the adjustments to net (loss) income for the years ended December 31, 2010, 2009 and 2008:   For the year ended December 31,2010
     
     2009
     
     2008Differences in basis relating to purchase accounting
     
     (5,172,513)
     
     (5,172,513)
     
     (5,172,521)Amortization of goodwill
     
     14,910,708
     
     14,898,154
     
     14,745,342Repurchase of Edenor own shares
     
     419,708
     
     409,331
     
     -HINISA ́s capital reduction
     
     -
     
     (1,090,257)
     
     -Sale of noncontrolling interest in Ingentis
     
     (416,629)
     
     -
     
     -9,741,274
     
     9,044,715
     
     9,572,821
   F-61


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  As of December 31, 2010 y 2009 the adjustments to shareholder's equity are as follows:   As of December 31,2010
     
     2009Valuation of shares issued in Edenor adquisition
     101,801,179
     
     101,801,179Differences in basis relating to purchase accounting
     (17,100,226)
     
     (11,927,713)Amortization of goodwill
     50,759,033
     
     35,848,325Repurchase of Edenor own shares
     (3,240,115)
     
     (3,659,823)Acquisition of aditional interest in Inversora Ingentis
     23,422,864
     
     23,422,864155,642,735
     
     145,484,832
   •               Valuation of shares issued in Edenor acquisition  As discussed in Note 10, on September 28, 2007, the Company purchased 100% of the capital stock of DESA and IEASA – companies that jointly hold 100% of the capital stock of EASA, a company holding 51% of the capital stock and voting rights of Edenor, issuing 480,194,242 shares of common stock at Ps. 2.61 per share.  Under Argentine GAAP, shares issued to acquire DESA and IEASA were valued at the price approved by the Company’s shareholders meeting held on August 30, 2007, based on a formula that considered the fair market value of the shares.  Under US GAAP, the market price from July 4 through July 11, 2007, representing a reasonable period before and after the date that the terms of the acquisition were agreed to and announced was considered in determining the fair value of securities issued.  The Company has determined that the measurement date for this transaction was July 6, 2007 which was the first date on which the number of shares to be issued became fixed without subsequent revision. As such, under US GAAP shares issued should be valued at Ps. 2.822. The increase in the fair value of stock issued give rise to an increase of shareholders’ equity amounting to Ps. 101,801,179.  •               Differences in basis relating to purchase accounting  Under Argentine GAAP and US GAAP, the Company applies the purchase method of accounting to its business acquisitions.  Accordingly, the fair market value of assets acquired and liabilities assumed is estimated and the excess of the purchase price over the fair value, if any, is considered as goodwill.  In the event the fair value of the net assets acquired exceeds the consideration paid, the excess is amortized on a straight-line basis over the weighted-average of the remaining useful lives of the long-lived assets acquired.  Under Argentine GAAP, the excess of the purchase price over the fair value of net assets acquired in Edenor and Inversora Diamante acquisitions was considered goodwill and being amortized over the best estimate for the period which the Company expects to receive economic benefits from them.  No concession intangible asset has been recognized under Argentine GAAP if this intangible has not been previously recognized by the acquired entity.  Under US GAAP, concession contracts were identified as intangible assets and valued under the direct method using projected cash flows related to each business. These intangible assets are amortized under the straight-line method over the respective concession term. Also, for US GAAP purposes the difference in the valuation of shares issued in Edenor acquisition previously described give rise to an increase of the value of the concession recognized in the acquisition.  For US GAAP purposes no amount of goodwill was recognized since the purchase price paid equals the fair value of net assets acquired, including the above mentioned intangible assets.  As a result, for the years ended December 31, 2010, 2009 and 2008, under US GAAP, amortization is increased by Ps. 5,172,513, Ps. 5,172,513 and Ps. 5,172,521, respectively.  As of December 31, 2010 and 2009, the effect on shareholders’ equity results in a decrease of Ps. 17,100,226 and Ps. 11,927,713, respectively. F-62


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  •               Amortization of goodwill  Under Argentine GAAP, goodwill recognized in Central Térmica Güemes and Central Piedra Buena acquisitions is amortized on a regular basis over their useful life, representing the best estimate for the period which the Company expects to receive economic benefits from them. Under US GAAP goodwill is not subject to amortization, but is subject to at least an annual assessment for impairment, applying a fair-value based test.  No impairment on goodwill is recognized as of December 31, 2010 and 2009.  As of December 31, 2010 and 2009, under US GAAP, there is no goodwill amount related to Central Térmica Guemes as a consequence of a release of the valuation allowance corresponding to tax loss carryforwards of Central Térmica Guemes used during year 2008.  For the years ended December 31, 2010, 2009 and 2008, the effect of not amortizing goodwill of Central Térmica Guemes and Central Piedra Buena is an increase in net income of Ps. 14,910,708, Ps. 14,898,154 and Ps. 14,745,342, respectively, and the effect on shareholders’ equity as of December 31, 2010 and 2009 is an increase of Ps. 50,759,033 and Ps. 35,848,325, respectively.  •               Repurchase of Edenor own shares  During the fourth quarter of 2008 Edenor acquired 9,412,500 of own shares in the open market at a total cost of Ps. 6,130,345.  Argentine GAAP requires the application of purchase accounting which resulted in negative goodwill amounting to Ps. 7,654,000. Under US GAAP, the Company also applied purchase accounting since, according to Topic  805, the acquisition of some or all of the noncontrolling equity interests in a subsidiary – whether acquired by the parent, the subsidiary itself, or another affiliate – shall be accounted for using the purchase method.  However, a difference exist in the allocation of the purchase price since US GAAP requires that any excess of amounts assigned to assets acquired and liabilities assumed over cost be allocated as a pro-rata reduction of the amounts that otherwise would have been assigned to all of the acquired assets. Consequently, the negative goodwill recorded under Argentine GAAP has been reassigned after considering the related tax effects to reduce fixed assets and intangible assets on a pro-rata basis.  As the transaction was held in the last quarter of 2008, no US GAAP net income reconciling item has been recognized.  As of December 31, 2010 and 2009 the US GAAP shareholders’ equity reconciling item represents the additional reduction on a pro­-rata basis of intangible assets and fixed assets as a consequence of the grossing up of the Argentine GAAP negative goodwill.  For the year ended December 31, 2010 and 2009, the US GAAP reconciling item to net income amounted to Ps. 419,708 and Ps. 409,331, respectively, represents the decrease in the charges of amortization of intangible assets and of depreciation of fixed assets.  •               Acquisition of additional interest in Inversora Ingentis  During 2009 the Company acquired the remaining interest in Inversora Ingentis obtaining 100% controlling interest. See further description in Note 20.I.k).  •               Hidroeléctrica Los Nihuiles S.A. (HINISA) ’s capital reduction  During 2009 HINISA reduced its 2% of capital by Ps. 4,415,961.  Under Argentine GAAP the Company recorded a gain as a result of such capital reduction.  Under US GAAP, following Topic 810 the Company accounted for this interest increase as an equity transaction.  As such, the US GAAP net income reconciling item amounting to Ps. 1,090,257 represents the reversal of the gain recognized under Argentine GAAP with the corresponding effect of increase in additional paid-in capital.  The effect of this equity transaction is shown in the chart disclosed in Note 20.I.k).  •               Sale of noncontrolling interest in Ingentis  During 2010 Inversora Ingentis sold 10.95% of its participation in Ingentis.  Under Argentine GAAP the Company recorded a gain as a result of such sale of non controlling interest. F-63


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  Under US GAAP, following Topic 810 the Company accounted for this interest decrease as an equity transaction. As such, the US GAAP net income reconciling item amounting to Ps. 416,629 represents the reversal of the gain recognized under Argentine GAAP with the corresponding effect of increase in additional paid-in capital. The effect of this equity transaction is shown in the chart disclosed in Note 20.I.k).  h) Result on repurchase of debt  As described in Note 9, during the year ended December 31, 2008 Edenor had executed an irrevocable and discretional trust agreement (the “Trust”) with Macro Bank Limited assigning the trustee the management of certain financial liquid assets.  On September 3, 2009, the Trust was dissolved and the Trust property was liquidated and transferred to Edenor.  As of and for the year ended December 31, 2008, under Argentine GAAP, the participation in the Trust has been valued considering the market value of the securities held by the trustee.  Under US GAAP, the Company followed the principles of Topic ASC 810 “Consolidation” (ASC 810).  The Trust was determined to be a Variable Interest Entity since, as stated in the Edenor’s Financial Trust Agreement, Edenor has the ability to make decisions about the Trust’s activities, is obligated to absorb the expected loss of the Trust if they occur, and has the right to receive the expected residual returns of the Trust if they occur. Based on these facts, as Edenor is the primary beneficiary of the Trust, it had been consolidated in the Company’s consolidated financial statements as of December 31, 2008.  In addition, under Argentine GAAP Edenor’s 2017 Corporate Bonds held by the Trust were accounted for at market value and, as such, no extinguishment of debt had been recognized in the consolidated financial statements.  US GAAP states that the reacquisition by the debtor of its outstanding debt securities whether the securities are canceled or held as so-called treasury bonds constitutes an extinguishment of the liability. Therefore, the Company considered that the repurchase made by the Trust should be treated as treasury bonds and, a gain on the transaction was recognized together with the elimination of the related short-term investment and liability recorded under Argentine GAAP.  As of and for the year ended December 31, 2008, the total US GAAP reconciling item amounted to Ps. 49,015,879 and comprises of (i) Ps. 32,049,404, gain corresponding to the difference between the cost incurred in the acquisition of the bonds and its respective book value at the acquisition date, and (ii) Ps. 16,966,475, gain, corresponding to the reversal of the loss for the mark to market adjustment and interest income recorded by the financial trust under Argentine GAAP.  Due to the liquidation of the Trust and the transfer of the Trust property to Edenor on September 3, 2009 this adjustment has been reversed during the year ended December 31, 2009.  i) Purchase of Edenor’s ADRs  During the last quarter of 2008, the Company acquired in various market transactions 1,025,893 of Edenor’s ADRs, equivalent to 20,517,860 Class B shares of common stock which represents 2.26% interest in its common stock, at a total acquisition cost of Ps. 11,014,699. During the years ended December 31, 2009 and 2010, the Company has increased by 1,75% and 1,42%, respectively, its interest held in Edenor at a total acquisition cost of Ps. 4,694,502 and Ps. 26,324,258 for 2009 and 2010, respectively.  Under Argentine GAAP, the Company accounted for these ADRs at their market price at year-end as are held for trading purposes.  Under US GAAP, for those transactions carried out during 2008, the Company applied purchase accounting, as prescribed by Topic 805. Since an excess of fair value over acquisition cost existed, the Company after grossing up the income tax effect amounting to Ps. 21,007,417, reduced its fixed assets and intangible assets on a pro-rata basis in Ps. 52,585,917 and Ps. 7,435,274, respectively. For those transactions carried out during 2009 and 2010, the Company applied the provisions set-out in Note 20.l.k), for changes in non-controlling interest.  The net loss US GAAP reconciling item for the years ended December 31, 2010, 2009 and 2008 represents (i) the reversal of holding gain on short-term investments for Ps. 34,806,970, Ps. 16,733,968 and Ps. 2,990,792, respectively, and (ii) the reversal of the loss as a reduction in the amortization of the concession for Ps. 91,794 and in the depreciation of fixed assets for Ps. 2,089,983 each year in 2010 and 2009, as a result of the pro-rata reduction.  F-64


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Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  As of December 31, 2010 and 2009 the US GAAP shareholders’ equity reconciling item represents (i) the reversal of holding gain on the Edenor’s ADRs held in the Company’s trading portfolio at each year end, included within current investments amounting to Ps. 54,531,730 and Ps. 19,724,760, respectively, (ii) the additional reduction on a pro­-rata basis of intangible assets and fixed assets as a consequence of the grossing up of the excess of fair value over acquisition cost amounting to Ps. 21,007,417 and the decrease in the amortization of intangible assets and in the depreciation of fixed assets for Ps. 4,363,554 and Ps. 2,181,777, respectively, and (iii) as of December 31, 2010 and 2009 the shareholder’s equity accumulated reconciling item also includes Ps. 6,163,147 and Ps. 2,533,834, respectively, representing the increase in additional paid-in capital due to the acquisition of additional non-controlling  interest in Edenor as described in Note 20.I.k).  j) Deferred income taxes  As discussed in Note 2, the Company records income taxes using the liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recognized for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recorded or settled. The effect of a change in tax rates is recognized in income in the period when enacted. This standard is similar to the principles of US GAAP set forth in Topic 740 “ Income Taxes”.  Under Argentine GAAP, the Company has treated the differences between the price-level restated amounts of assets and liabilities and their historical basis as permanent differences for deferred income tax calculation purposes. Under US GAAP such differences should be treated as temporary differences in calculating deferred income taxes.  Under Argentine GAAP, the realization of deferred income tax assets depends on the generation of future taxable income when temporary differences would be deductible. Accordingly, the Company has considered the reversal of the deferred income tax liabilities and taxable income projections based on its estimates. US GAAP provides more robust rules and it requires that a valuation allowance must be established for deferred tax assets when it is more likely than not (a probability level of more than 50 percent) that they will not be realized. Under this pronouncement, an enterprise must use judgment in considering the relative impact of negative and positive evidence to determine if a valuation allowance is needed or not.  Therefore, for the years ended December 31, 2010, 2009 and 2008, the US GAAP reconciling items related to deferred income tax in net (loss) income are as follows:   For the year ended December 31,2010
     
     2009
     
     2008Investments in marketable securities
     
     1,116,586
     
     (1,440,291)
     
     2,797,730Capitalization of foreign currency exchange rate differences
     
     13,586,032
     
     10,882,316
     
     9,050,182Warehouse impairment and holding results
     
     (6,078,643)
     
     4,307,718
     
     116,759Inventory holding resuls
     
     60,557
     
     3,032,029
     
     (6,293,545)Accounting for business combination
     
     3,986,622
     
     6,325,362
     
     1,813,314Results on repurchase of debt
     
     -
     
     17,155,558
     
     (17,155,558)Purchase of Edenor's ADRs
     
     (763,622)
     
     (763,622)
     
     -Amortization of certain Transmission intangible assets
     
     (422,452)
     
     (2,005,012)
     
     483,730Depreciation of certain Transmission fixed assets
     
     3,203,495
     
     3,138,034
     
     3,735,842Inflation adjustment
     
     -
     
     35,015
     
     105,046Total effect of deferred income tax on net income
     
     14,688,575
     
     40,667,107
     
     (5,346,500)
    F-65


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Table of Contents  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
   NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  As of December 31, 2010 and 2009, the US GAAP reconciling items in shareholder’s equity are as follows:   As of December 31,2010
     
     2009Capitalization of foreign currency exchange rate differences
     35,295,592
     
     21,709,560Warehouse impairment and holding results
     -
     
     6,078,643Inventory holding results
     (431,734)
     
     (492,291)Accounting for business combination
     17,488,329
     
     13,501,707Purchase of Edenor's ADRs
     19,480,173
     
     20,243,795Amortization of certain Transmission intangible assets
     (1,943,734)
     
     (1,521,282)Depreciation of certain Transmission fixed assets
     16,470,880
     
     13,267,385Inflation adjustment
     (822,929)
     
     (822,929)Valuation allowance
     (8,154,916)
     
     (8,154,916)Total effect of deferred income tax on shareholders’ equity
     77,381,661
     
     63,809,672
   k) Noncontrolling interest  Changes in noncontrolling interest  The Company adopted in 2009, the provisions of ASC 810 regarding accounting and reporting standards for the noncontrolling interest in subsidiaries requiring that: (i) noncontrolling interest to be presented in the consolidated statement of financial position within equity; and (ii) consolidated net income attributable to the noncontrolling interest to be presented on the face of the consolidated statement of income. As a result of the adoption of these standards, a reconciling item for the Noncontrolling interest is included in the Total equity and Net income under US GAAP.  The following chart disclose the effect of changes in the Company’s ownership interest in its subsidiaries on the Company’s equity, as required by Topic ASC-810-10-50-1A(d).   For the year ended December 31,2010
     
     2009
     
     2008Net (loss) income for the year attributable to Pampa Energía
     
     (92,918,598)
     
     82,218,644
     
     68,819,498Increase in Pampa Energía ́s additional paid-in capital for:- Acquisition of aditional interest in Inversora Ingentis
     
     -
     
     20,203,724
     
     -- Sale of noncontrolling interest in Ingentis
     
     416,629
     
     -
     
     -- Acquisition of additional interest in Edenor
     
     3,629,313
     
     2,533,834
     
     -- HINISA ́s capital reduction
     
     -
     
     1,090,257
     
     -Net transfers from non controlling interest
     
     4,045,942
     
     23,827,815
     
     -Change from net (loss) income attributable to Pampa Energía and transfer from non controlling interest
     
     (88,872,656)
     
     106,046,459
     
     68,819,498
    -Acquisition of additional interest in Inversora Ingentis  As discussed in Note 10, as from January 2009 the Company obtained 100% of control over Inversora Ingentis and has fully consolidated its accounts under Argentine GAAP.  F-66


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  Under US GAAP, the increase in the interest held in Inversora Ingentis is accounted for as an equity transaction, in accordance with Topic 810. The shareholders’ reconciling item includes (i) an increase in additional paid-in capital amounting to Ps. 20,203,724, (ii) a decrease in negative goodwill amounting to Ps. 23,422,864, and (iii) a decrease in intangible assets amounting to Ps. 3,219,140.  -Sale of noncontrolling interest in Ingentis  Inversora Ingentis sold 10.95% of its participation in Ingentis as it is further explained in Note 10. As such, the noncontrolling interest reconciling item represents the increase in additional paid-in capital by Ps. 416,629 related to the interest decrease of the Company over Ingentis.  -   Acquisition of additional interest in Edenor  During the years ended December 31, 2010 and 2009, the Company increased by 1.42% and 1.75%, respectively, its interest held in Edenor.  Under Argentine GAAP, this additional interest was accounted for as an increase in “current investment” as the Company considers this investment as held for trading and is carried at market value.  Under Argentine GAAP the Company accounted for this additional interest at their market price at year end as are held for trading purposes.  Under US GAAP, the Company accounted for this transaction in accordance with Topic 810, which prescribes that when an entity has control over an investee, while it keeps control, any change in the noncontrolling interest should be accounted for as an equity transaction.  Thus, the shareholders’ equity reconciling item includes (i) a decrease of the noncontrolling interest amounting to Ps 37,181,907, (ii) a decrease in current investment amounting to Ps. 31,018,760, and (iii) an increase in additional paid-in capital amounting to Ps. 6,163,147.  Holding gains recognized under Argentine GAAP as a result of this ownership are eliminated as part of the adjustment described in Note 20.I.i).  -Change in indirect interest in HINISA  HINISA reduced 2% of its capital as it is further explained in Note 20.I.g). As such, the noncontrolling interest reconciling item represents the increase in additional paid-in capital by Ps. 1,090,257 related to the indirect interest increase of the Company over HINISA.  Impact of US GAAP adjustment on noncontrolling interest  It represents the effect in noncontrolling interest of US GAAP adjustments, where applicable.  The following tables summarizes the adjustments to net (loss) income for the years ended December 31, 2010, 2009 and 2008:   For the year ended December 31,2010
     
     2009
     
     2008Pre-operating and organizational costs
     
     (1,255,465)
     
     -
     
     (4,035)Investments in marketable securities
     
     2,775,556
     
     (7,576)
     
     36,466Capitalization of foreign currency exchange rate differences
     
     -
     
     (1,210,300)
     
     1,210,300Results on repurchase of debt
     
     -
     
     13,811,312
     
     (13,811,312)Depreciation of certain Transmission fixed assets
     
     3,105,971
     
     3,038,721
     
     3,580,1384,626,062
     
     15,632,157
     
     (8,988,443)
   F-67


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Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  As of December 31, 2010 y 2009 the adjustments to shareholder's equity are as follows:  As of December 31,2010
     
     2009Pre-operating and organizational costs
     -
     
     1,255,465Investments in marketable securities
     2,785,100
     
     9,544Depreciation of certain Transmission fixed assets
     15,906,208
     
     12,800,23718,691,308
     
     14,065,246
  l) Amortization of certain Transmission intangible assets  Under Argentine GAAP the Company classified the fourth line project identified in the purchase price allocation of Transener as “Other assets”, within non current assets.  Under US GAAP, the Company recorded an intangible asset related to the fourth line project as a consequence of the acquisition of Transener. Also, in the purchase price allocation the Company recorded tax loss carryforwards with a corresponding valuation allowance. During the year 2007 the Company used tax loss carryforwards of Transener. In accordance with Topic 740, when valuation allowance, after the acquisition, is used by the acquiring entity, it shall be applied to (a) reduce goodwill related to the acquisition  (b) second to reduce to zero other noncurrent intangible assets related to the acquisition. As there was no goodwill associated with this acquisition, the Company reduced the value of the intangible asset of Transener. The US GAAP reconciling item for the years ended December 31, 2010, 2009 and 2008 represents a decrease in amortization expense amounting to Ps. 1,207,005 for each year. As of December 31, 2010 and 2009, the effect of such adjustments represents a decrease in shareholders' equity of Ps. 4,828,024 and Ps. 6,035,029, respectively.  m) Depreciation of certain Transmission fixed assets  Under Argentine GAAP, depreciation of certain transmission fixed assets have been calculated using technical formulas.  Under US GAAP, the Company depreciated those fixed assets on a straight-line basis.  The effect of such adjustment represents a decrease in net income for the years ended December 31, 2010, 2009 and 2008 of Ps. 9,152,842, Ps. 8,965,812 and Ps. 10,673,835, respectively.  As of December 31, 2010 and 2009, the effect of such adjustments represents a decrease in shareholders' equity of Ps. 47,059,658 and Ps. 37,906,816 , respectively.  n) Impairment of investment in subsidiaries  Energía Distribuida was incorporated in 2008 by the Company to engage in two new power projects.  Its shares are not publicly traded.  The initial investment in the subsidiary consisted of power generation motors included in fixed assets.  In order to develop the power project and to maximize the benefits of the related assets, on December 22, 2008, the Company entered into an agreement with a third party, Operating S.A.  As part of this agreement, the Company granted a call option to purchase 50% of the equity interest in Energía Distribuida. The call option was exercisable by Operating S.A. at any time as from December 22, 2008 and for the term of one year expiring on December 22, 2009.  If exercised, the option would be physically settled through payment of the strike price by Operating S.A. and delivery of the shares by the Company.  There were no net settlement provisions.  The strike price of the option was set as the amount of US dollars at which the shares had been originally subscribed by the Company, plus an annual interest of 11%, less any dividends or distributions received by the shares until the date the option was exercised.  As of December 31, 2008, as described in Note 2, under Argentine GAAP, although the Company held the majority of the equity interest in Energía Distribuida, this subsidiary was proportionally consolidated. This accounting treatment given was based on a call option agreement above mentioned. This portion of the equity interest subject to the call option was classified as non-current investments on the balance sheet.  Since the strike price of the call option was below the book value of the investment, the Company recognized an impairment loss amounting to Ps. 12.3 million in the statement of income under the line “Impairment of fixed assets and other assets”.  During the year ended December 31, 2009, Operating S.A. communicated its waiver to use the above mentioned purchase option.  F-68


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  Under US GAAP no additional adjustments were made in connection with the call option since this embedded derivative does not meet the conditions for bifurcation and separate accounting.  The risks of the embedded option are clearly and closely related to the host contract.  The host contract, which is the agreement of December 22, 2008, encompasses a residual interest in an entity, and its economic characteristics and risks are those of an equity instrument (the shares of Energía Distribuida).  The embedded option, which consisted of a claim by Operating S.A. to residual interest in Energía Distribuida, also possesses equity characteristics.  Based on the above, under US GAAP, the call option granted to Operating S.A. did not prevent the Company from fully consolidating its investment in Energía Distribuida. Consequently, there were no assets related to this investment that were classified as non-current investments and no related impairment charge.  Under US GAAP, the Company’s net income for the year ended December 31, 2008 was increased by Ps. 12.3 million.  During the year ended December 31, 2009, as a result of Operating S.A. election this loss has been reversed under Argentine GAAP.  As such, US GAAP reconciling item does not longer exists.  o) Other assets holding results  As stated in Note 2, during the year ended December 31, 2010, the Company decided to cancel its ownership in Ingentis Project. Under Argentine GAAP, the Company recognized its investment in such project following the equity method of accounting, which includes an unrealized holding gain of Ps. 7,527,973, related to the sale of turbines, net of the negative goodwill associated with this interest.  Under US GAAP, the holding gain recognized under Argentine GAAP was reversed. Furthermore, following ASC 360-10-45-9 the Company classified its investment in Ingentis as an asset held for sale, as all conditions were met, valuing it at the lower of its carrying amount or its fair value less cost to sale.  II. Additional disclosure requirement:  a)Balance sheet classification differences  Fourth line project  As of December 31, 2010 and 2009, under Argentine GAAP, costs incurred, net of its corresponding depreciation, in relation with Transener “Fourth Line” project amounting to Ps.  90,3 million and Ps. 113.0 million, respectively, are included under the caption “Other non-current assets”. Under US GAAP, this asset was identified as an intangible asset in the acquisition of Transener based on the contract for the operation and maintenance of the “Fourth Line” project.  Under Argentine GAAP, the application of purchase accounting resulted in the recognition of a negative goodwill.  Under US GAAP, since an excess of fair value over acquisition cost existed, the Company reduce its intangible asset related to the fourth line project.  F-69


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Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)   b)Statements of operations classification differences  Sales  Under Argentine GAAP, penalties have been deducted from sales. For US GAAP purposes, penalties for Ps. 80,0 million, Ps. 58.5 million and Ps. 34.8 million for the years ended December 31, 2010, 2009 and 2008, respectively are included as cost of sales.  Under Argentine GAAP, the electricity distributed to shantytowns is accounted for as sales and an allowance for doubtful accounts is recorded if its collection is not ratified by the authorities. In this circumstances, under US GAAP the conditions to recognize revenue are not met, thus, such sales should be eliminated in the Statement of Income. During the year ended December 31, 2009, since the Addendum to the New Framework agreed with the Government of the Province of Buenos Aires was ratified by Decree, the allowance for doubtful accounts was partially recovered under Argentine GAAP. Under US GAAP, these sales are recognized since the conditions required are met amounting to Ps. 26,9 million for the year ended December 31, 2009.  Under Argentine GAAP, revenue that gave rise to the outstanding receivables related to FONINVEMEM was recognized under the accrual method at market prices fixed by the WEM prevailing at the time delivered has occurred. Also, the Company reflected a discount to present value in its statements of operations for the years ended December 31, 2010, 2009 and 2008, within financial results amounting to, Ps. 10,7 million, Ps. 3.2 million and Ps. 2.9 million,, respectively. Under US GAAP, revenue derived from these transactions is measured and recognized considering the present value of the transaction and the effect of discounting is netted from revenues.  Inventory holding results  Under Argentine GAAP holding gains and losses measured by comparing original cost and replacement cost, are recognized as financial and holding results. For US GAAP purposes, the following inventory holding results are included as cost of sales for Ps. (4,133,077), Ps. 1,838,938 and Ps. 1,796,129 for the years ended December 31, 2010, 2009 and 2008, respectively.  Impairment losses  Under Argtentine GAAP impairment losses over assets are recognized within “Financial and holding results generated by assets” in the statements of operations. For US GAAP purposes these impairment losses are classified as operating results.  c)Comprehensive income  US GAAP 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 shareholders’ equity of the Company during the year 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 and distributions to owners.  F-70


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Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  The following table summarizes the components of comprehensive (loss) income for the years ended December 31, 2010, 2009 and 2008:   For the year ended December 31,2010

   

   

   2009

   

   

   2008Net (loss) income for the year

   

   Ps.

   (87,570,381)

   

   Ps.

   162,987,887

   

   Ps.

   159,285,451Other comprehensive income:Gross unrealized gain (loss), net

   

   

   12,206,967

   

   

   40,318

   

   

   (699,401)Estimated tax (loss) benefit on unrealized gain (loss) on available for sale securities

   

   

   (1,116,586)

   

   

   1,440,291

   

   

   (2,797,730)Unrealized gain (loss), net of tax

   

   

   11,090,381

   

   

   1,480,609

   

   

   (3,497,131)Comprehensive (loss) income

   

   

   (76,480,000)

   

   

   164,468,496

   

   

   155,788,320Less: Other comprehensive income attributable to noncontrolling interest

   

   

   2,775,556

   

   

   (7,576)

   

   

   36,466Less: Comprehensive income attributable to noncontrolling interest

   

   

   (8,123,773)

   

   

   (80,761,667)

   

   

   (90,502,419)Comprehensive (loss) income attributable to Pampa Energía

   

   Ps.

   (81,828,217)

   

   Ps.

   83,699,253

   

   Ps.

   65,322,367
   Accumulated other comprehensive income at December 31, 2010, 2009 and 2008 was as follows:   For the year ended December 31,2010

   

   

   2009

   

   

   2008Unrealized net gains - Available for sale securities

   

   Ps.

   20,270,173

   

   Ps.

   8,063,206

   

   Ps.

   8,022,888Estimated tax loss on unrealized net gains on available for sale securities

   

   

   (2,353,176)

   

   

   (1,236,590)

   

   

   (2,676,881)Accumulated other comprehensive income

   

   Ps.

   17,916,997

   

   Ps.

   6,826,616

   

   Ps.

   5,346,007
   Differences in Equity  Repurchase of own shares  During the years ended December 31, 2009 and 2008, the Company acquired treasury stock through market transactions.  Under Argentine GAAP the Company followed CNV standards and accounted for the repurchase of own shares by deducting from the shareholders’ equity accounts ‘Nominal Value’ and ‘Adjustment to Capital’ the face value of the shares reacquired in the open market, and credited the accounts ‘Nominal Value Treasury Stock’ and ‘Adjustment to Capital Treasury Stock’. Additionally, ‘Retained Earnings’ and ‘Cash and banks’ were deducted by the amount effectively paid by the Company to the holders of its shares.  Under US GAAP, the Company followed Topic ASC 505 “Treasury Stock” and accounted for the repurchase of own shares by deducting the shareholders’ equity account ‘Nominal Value Treasury Stock’ and ‘Cash and banks’ by the amount effectively paid.  Under US GAAP, such transaction does not constitute a GAAP difference in measurement, but a disclosure difference exist, since the account ‘Nominal Value Treasury Stock’ should represent the amount effectively paid for the shares repurchased, no impact on capital accounts or retained earnings exist. F-71


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  d)Additional information on the Statement of Cash Flows  For the preparation of the Statement of Cash Flows, the Company considers as cash equivalents all highly liquid investments with original maturities of three months or less since acquisition.    For the year ended December 31,2010

   

   2009

   

   2008Cash

   

   208,715,476

   

   158,043,109

   

   121,685,278Time Deposits

   

   26,208,541

   

   30,314,937

   

   36,051,058Mutual Funds

   

   158,138,052

   

   119,936,719

   

   144,754,997Debt Securities

   

   515,635,790

   

   127,556,246

   

   92,718,298Total cash and cash equivalents in the Statement of Cash Flows under Argentine GAAP

   

   908,697,859

   

   435,851,011

   

   395,209,631Effect of consolidation of Edenor’s financial trust:Cash

   

   -

   

   -

   

   4,023,676Debt Securities – third parties debt

   

   -

   

   -

   

   7,320,885Debt Securities – non cash

   

   (430,836,031)

   

   (63,638,803)

   

   (71,681,815)Cash and cash equivalents in the Statement of Cash Flows under US GAAP

   

   477,861,828

   

   372,212,208

   

   334,872,377
  The Company considers all highly liquid investments with maturities of three months or less at the time of acquisition, consisting of time deposits, equity securities, foreign bonds, Corporate  and Government bonds, other short-term investments and mutual funds, to be cash equivalents.  As of December 31, 2008, under Argentine GAAP Cash and cash equivalent held by the Edenor’s financial trust is not considered part of cash and cash equivalent of the Company. These balances are recorded as long term investments, as described in Note 20.I.h), the accounts of the Edenor’s financial trust are consolidated and cash and certain debt securities for Ps. 4.0 million and Ps. 7.3 million, respectively, were added to cash and cash equivalents.  The following table presents the reconciliation of the condensed consolidated statements of cash flows between Argentine GAAP and US GAAP:  For the year ended December 31,2010

   

   2009

   

   2008Reconciliation of cash flows under Argentine GAAP and US GAAPNet cash flow provided by operating activities under Argentine GAAP and US GAAP

   

   660,223,767

   

   918,594,154

   

   750,062,755Net cash flow used in investing activities under Argentine GAAP

   

   (514,579,738)

   

   (549,151,171)

   

   (1,373,153,255)Effect of consolidation of Edenor’s financial trust:Result from repurchase of financial debt

   

   -

   

   (11,344,561)

   

   11,344,561(Increase) Decrease in non-cash investments

   

   (367,197,228)

   

   8,043,012

   

   (71,681,815)Net cash flow used in investing activities under US GAAP

   

   (881,776,966)

   

   (552,452,720)

   

   (1,433,490,509)Net cash flow provided by (used in) financing activities under Argentine GAAP and US GAAP

   

   327,202,819

   

   (328,801,603)

   

   297,083,589Cash and cash equivalents at the beginning of the year

   

   372,212,208

   

   334,872,377

   

   721,216,542Cash and cash equivalents at the end of the year

   

   477,861,828

   

   372,212,208

   

   334,872,377Net increase (decrease) in cash and cash equivalents under US GAAP

   

   105,649,620

   

   37,339,831

   

   (386,344,165)
   F-72


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  e)Disclosures about fair value of financial instruments  Under Argentine GAAP, there are no specific rules regarding disclosure of fair value of financial instruments.  US GAAP 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 to cash and cash equivalents and accounts receivable and other instruments. US GAAP excludes from its disclosure requirements lease contracts and various significant assets and liabilities that are not considered to be financial instruments. US GAAP also requires reporting entities to disclose certain information for derivative financial instruments and to include disclosure requirements about financial instruments with off-balance sheet risk of accounting loss.  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 judgments 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 US GAAP, 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 necessarily represent the underlying value of the Company. For certain assets and liabilities, the information required under the accounting guidance is supplemental with additional information relevant to an understanding of the fair value.  The methods and assumptions used to estimate the fair values of each class of financial instrument as of December 31, 2010 and 2009 are as follows:  Cash and banks  The carrying amount reported in the balance sheet approximates their fair value.  Accounts receivable, net  Carrying amounts are considered to approximate fair value due to the short term nature of these accounts receivables and no significant changes in interest rates. All amounts that are assumed to be uncollectible within a reasonable time are written off and/or reserved.  Long term accounts receivable are valued using the present value technique using a market rate.  The values so obtained do not significantly differ from their fair values at each year-end.  Accounts payable  The carrying amount of accounts payable reported in the balance sheet approximates its fair value due to the short term nature of accounts payable and no significant changes in interest rates.  Debt  The fair value of the Company’s financial debt is based on quoted market prices or discounted cash flow analyses. As of December 31, 2010 and 2009, the fair value of financial debt totaled Ps. 3,024.1 million and Ps. 2,269.5 million, respectively.  Other receivables and other liabilities  The carrying amount of other receivables and other liabilities reported in the balance sheet approximates fair value due to their short-term nature. F-73


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  Topic ASC 820 provides for the following:  §Defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework for measuring fair value; §Establishes a three-level hierarchy for fair value measurements based upon the observable inputs to the valuation of an asset or liability at the measurement date; §Requires consideration of our nonperformance risk when valuing liabilities; and §Expands disclosures about instruments measured at fair value.  The three-level valuation hierarchy for fair value measurements is based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Company’s market assumptions. These two types of inputs create the following fair value hierarchy:  §Level 1: quoted prices for identical instruments in active markets; §Level 2: quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable; and, §Level 3: instruments whose significant inputs are unobservable.   In accordance with the fair value hierarchy, the following table shows the fair value as of December 31, 2010, of those financial assets and liabilities that must be measured at fair value:   Fair value measurements as of December 31, 2010Description

   

   Total

   

   Level 1

   

   Level 2

   

   Level 3AssetsCorporate debt securities publicly traded

   

   143,805,429

   

   143,805,429

   

   -

   

   -Public debt securities publicly traded

   

   315,267,295

   

   315,267,295Mutual funds

   

   40,680,055

   

   40,680,055

   

   -

   

   -Money market funds

   

   186,697,722

   

   186,697,722

   

   -

   

   -Shares of other companies publicly traded

   

   127,965,490

   

   127,965,490

   

   -

   

   -Trust

   

   18,621,566

   

   18,621,566

   

   -

   

   -833,037,557

   

   833,037,557

   

   -

   

   -LiabilitiesDerivative financial instruments

   

   (9,251,771)

   

   

   

   (9,251,771)

   

   -(9,251,771)

   

   -

   

   (9,251,771)

   

   -
    Company’s financial assets and liabilities valued using market prices on active markets are classified as level 1. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Derivative instruments valued at fair value obtained from readily-available pricing sources for comparable instruments are classified as level 2.  The unrealized net gains on short term investments are reported as a component of accumulated other comprehensive income.   F-74


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  The following chart shows the reconciliation of beginning and ending balances of fair value measurement with significant unobservable inputs:  Level 3 as of December 31, 2010Beginning Balance

   

   77,946,474Impairment of investments included in earnings

   

   (77,946,474)Ending Balance

   

   -
    g)             Deferred income taxes  The income tax expense included in the statement of income and accounted for in accordance with US GAAP is as follows:   For the year ended December 31,2010

   

   2009

   

   2008Total income tax expense under Argentine GAAP

   

   (74,280,606)

   

   (160,202,472)

   

   (108,841,126)US GAAP adjustments (Note 20.I.j)

   

   14,688,575

   

   40,667,107

   

   (5,346,500)Income tax expense under US GAAP

   

   (59,592,031)

   

   (119,535,365)

   

   (114,187,626)
    Deferred tax assets (liabilities) are summarized as follows:   As of December 31, 2010Argentine GAAP balance

   

   US GAAP adjustment

   

   US GAAP balanceTax loss-carry forwards

   

   223,639,460

   

   -

   

   223,639,460Investments

   

   567,572

   

   -

   

   567,572Trade receivables

   

   (56,730,946)

   

   -

   

   (56,730,946)Inventories

   

   (34,429)

   

   36,979

   

   2,550Fixed assets and intangible assets

   

   (648,152,884)

   

   (224,894,260)

   

   (873,047,144)Other assets

   

   (574,502)

   

   -

   

   (574,502)Financial Debt

   

   (23,963,246)

   

   -

   

   (23,963,246)Salaries and social security payable

   

   7,957,104

   

   -

   

   7,957,104Other liabilities and provisions

   

   181,504,170

   

   -

   

   181,504,170Other

   

   (590,319)

   

   -

   

   (590,319)Subtotal

   

   (316,378,020)

   

   (224,857,281)

   

   (541,235,301)Valuation allowance of tax loss carryforwards

   

   (66,368,126)

   

   (3,306,696)

   

   (69,674,822)Net deferred income tax liability

   

   (382,746,146)

   

   (228,163,977)

   

   (610,910,123)
   F-75


---



Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)   As of December 31, 2009Argentine GAAP balance

   

   US GAAP adjustment

   

   US GAAP balanceTax loss-carry forwards

   

   163,023,482

   

   -

   

   163,023,482Investments

   

   8,547,297

   

   -

   

   8,547,297Trade receivables

   

   (31,943,548)

   

   -

   

   (31,943,548)Inventories

   

   73,407

   

   (23,578)

   

   49,829Fixed assets and intangible assets

   

   (613,974,519)

   

   (247,364,269)

   

   (861,338,788)Other assets

   

   (7,201,456)

   

   9,011,300

   

   1,809,844Financial Debt

   

   (27,166,899)

   

   -

   

   (27,166,899)Salaries and social security payable

   

   4,159,453

   

   -

   

   4,159,453Other liabilities and provisions

   

   139,138,841

   

   -

   

   139,138,841Other

   

   1,651,361

   

   -

   

   1,651,361Subtotal

   

   (363,692,581)

   

   (238,376,547)

   

   (602,069,128)Valuation allowance of tax loss carryforwards

   

   (67,216,781)

   

   (3,306,696)

   

   (70,523,477)Net deferred income tax liability

   

   (430,909,362)

   

   (241,683,243)

   

   (672,592,605)
    Legal entities in Argentina file their individual tax returns with the tax authority and consolidation of tax returns are not permitted. Consequently, deferred tax assets, deferred tax liabilities, and valuation allowances are determined based on the individual positions of each legal entity. The valuation allowance as of December 31, 2010 and 2009 corresponds mainly to companies within the distribution and transmission business segment, while companies within the generation business segment produce taxable income. Release of valuation allowance is mainly attributable to expiration of tax loss carryforwards.  A reconciliation of the Argentine Statutory Income Tax rate to the Company’s effective tax rate on net income is as follows:   For the year ended December 31,2010

   

   2009

   

   2008(Loss) Income before taxes and noncontrolling interest:

   

   (27,978,350)

   

   282,523,252

   

   273,473,077Current tax rate

   

   35%

   

   35%

   

   35%Result for the year at the tax rate

   

   9,792,423

   

   (98,883,138)

   

   (95,715,577)Permanent differences:Reserve for Directors options

   

   (3,130,873)

   

   (25,599,780)

   

   (33,089,415)Gain (loss) on tax exempt investments

   

   (15,338,292)

   

   (7,311,290)

   

   3,042,980Non-taxable income

   

   (15,141,851)

   

   39,879,664

   

   39,054,825Valuation allowance of tax on assets credit (a)

   

   (7,608,785)

   

   (21,868,399)

   

   -Variation of valuation allowance

   

   (5,067,125)

   

   3,795,047

   

   103,280,562Expiration of tax loss carryforwards

   

   (21,255,107)

   

   (12,552,240)

   

   (141,150,363)Other

   

   (1,842,421)

   

   3,004,771

   

   10,389,362Total income tax expense

   

   (59,592,031)

   

   (119,535,365)

   

   (114,187,626)
   (a) See Note 2, tax on assets. F-76


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  h)             Earnings per share  Under Argentine GAAP, the Company computes net (loss) income per common share and dividends per share by dividing the net (loss) income for the year by the weighted average number of common shares outstanding during the year.  Also diluted earnings per share is calculated on the basis of the possible dilutive effect of the purchase options granted to the Company’s directors.  Under US GAAP, basic and diluted net (loss) income per share is presented in conformity with ASC 260 “Earnings Per Share” for all years presented.  Basic net (loss) income per share is computed by dividing the net (loss) income available to common shareholders for the year by the weighted average shares of common stock outstanding during the year. Diluted net (loss) income per share is computed by dividing the net (loss) income for the year by the weighted average number of common and dilutive potential common shares outstanding during the year.    For the year ended December 31,2010

   

   

   2009

   

   

   2008Basic (losses) earnings per share under US GAAP:Numerator:Net (loss) income for the year attributable to Pampa Energía under US GAAP

   

   Ps.

   (92,918,598)

   

   Ps.

   82,218,644

   

   Ps.

   68,819,498Denominator:Average number of shares outstanding

   

   

   1,314,310,895

   

   

   1,390,409,146

   

   

   1,504,249,410Net (loss) income per common share:Basic

   

   Ps.

   (0.07)

   

   Ps.

   0.06

   

   Ps.

   0.05For the year ended December 31,2010

   

   

   2009

   

   

   2008Diluted (losses) earnings per share under US GAAP:Numerator:Net (loss) income for the year attributable to Pampa Energía under US GAAP

   

   Ps.

   (92,918,598)

   

   Ps.

   82,218,644

   

   Ps.

   68,819,498Denominator:Weighted average number of shares outstanding

   

   

   1,478,581,122

   

   

   1,478,256,443

   

   

   1,538,814,785Net (loss) income per common share:Diluted

   

   Ps.

   (0.06)

   

   Ps.

   0.06

   

   Ps.

   0.04
     F-77


---



Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
   NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  The reconciliation of the weighted average number of outstanding shares for basic and diluted (loss) earnings per share is as included in Note 3.   For the year ended December 31, 2010, 2009 and 2008 there are no anti-dilutive shares.  i)              Summarized financial information under US GAAP  Presented below is the summarized consolidated balance sheets as of December 31, 2010 and 2009 and statements of operations and shareholders equity for the years ended December 31, 2010, 2009 and 2008 prepared in accordance with US GAAP, giving effect to differences in measurement methods and classifications as previously discussed.   As of December 31,2010

   

   2009Summary of Consolidated Balance Sheets in accordance with USGAAPCurrent assets

   2,342,713,391

   

   1,632,905,873Non-current assets

   8,255,869,305

   

   8,166,612,350Total assets

   10,598,582,696

   

   9,799,518,223Current liabilities

   1,839,565,109

   

   1,428,297,001Non-current liabilities

   3,970,177,419

   

   3,319,884,681Total liabilities

   5,809,742,528

   

   4,748,181,682Pampa Energía shareholders' equity

   3,307,288,465

   

   3,394,236,592Noncontrolling interest

   1,481,551,703

   

   1,657,099,949Total equity

   4,788,840,168

   

   5,051,336,541Total liabilities and equity

   10,598,582,696

   

   9,799,518,223
  F-78


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)   For the year ended December 31,2010

   

   2009

   

   2008Summary of Consolidated Statements of  Operations in accordance with US GAAPSales

   

   4,936,230,958

   

   4,176,277,528

   

   4,045,732,647Cost of sales

   

   (4,087,744,894)

   

   (3,308,938,125)

   

   (3,186,225,482)Gross Profit

   

   848,486,064

   

   867,339,403

   

   859,507,165Selling expenses

   

   (210,043,525)

   

   (183,956,752)

   

   (139,651,639)Administrative expenses

   

   (366,748,093)

   

   (390,666,568)

   

   (349,512,637)Operating income

   

   271,694,446

   

   292,716,083

   

   370,342,889Financial and holding results, net

   

   (318,455,651)

   

   (8,182,618)

   

   (80,092,616)Other income (expenses) , net

   

   18,782,855

   

   (2,010,213)

   

   (16,777,196)(Loss) Income before taxes and noncontrolling interest

   

   (27,978,350)

   

   282,523,252

   

   273,473,077Income tax

   

   (59,592,031)

   

   (119,535,365)

   

   (114,187,626)Net (loss) income for the year

   

   (87,570,381)

   

   162,987,887

   

   159,285,451Less: Noncontrolling interest

   

   (5,348,217)

   

   (80,769,243)

   

   (90,465,953)Net (loss) income for the year attributable to Pampa Energía

   

   (92,918,598)

   

   82,218,644

   

   68,819,498
     For the year ended December 31,2010

   

   2009

   

   2008Summary of Consolidated Equity in accordance with US GAAPCommon stock

   

   1,314,310,895

   

   1,526,194,242

   

   1,526,194,242Additional paid-in capital

   

   1,637,112,665

   

   1,633,066,723

   

   1,609,238,908Treasury stock

   

   -

   

   (205,479,339)

   

   (120,848,801)Reserve for Directors’ option

   

   232,514,997

   

   223,569,645

   

   150,427,417Legal Reserve

   

   27,396,793

   

   16,659,952

   

   10,908,766Voluntary Reserve

   

   -

   

   -

   

   5,163,169Retained earnings

   

   170,954,716

   

   111,180,109

   

   58,720,359Net (loss) income attributable to Pampa Energía

   

   (92,918,598)

   

   82,218,644

   

   68,819,498Accumulated other comprehensive income

   

   17,916,997

   

   6,826,616

   

   5,346,007Total Pampa Energía Shareholders’ equity

   

   3,307,288,465

   

   3,394,236,592

   

   3,313,969,565Noncontrolling interest

   

   1,481,551,703

   

   1,657,099,949

   

   1,565,322,659Total Equity

   

   4,788,840,168

   

   5,051,336,541

   

   4,879,292,224
    F-79


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  j) Segment information  US GAAP establishes standards for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports issued to shareholders. Operating segments are components of a company about which separate financial information is available that is regularly evaluated by the chief operating decision maker(s) in deciding how to allocate resources and assess performance.  Disclosure requirements established under US GAAP do not differ from the ones required under Argentine GAAP (See Note 16).  k)   Concentration of credit risk  Financial instruments which potentially expose the Company to a significant concentration of credit risk consist primarily of cash, short-term investments, trade and other receivables and financial debt. The Company places its cash in high quality financial institutions that are located in Argentina and the United States of America and invest in low risk private and public securities. The Company’s policy is designed to limit exposure to any one institution.  The Company’s trade receivable derived primarily from the sale of electricity.  No single customer accounted for more than 10% of revenues for the years ended December 31, 2010, 2009 and 2008.  l)  Uncertainty in income taxes  Topic 740-10 clarifies the accounting for uncertain tax positions recognized in a company’s financial statements. This Topic defines the criteria an individual tax position must meet for any part of the benefit of such position to be recognized in the financial statements. This Topic establishes “a more-likely-than-not” recognition threshold that must be met before a tax benefit can be recognized in the financial statements. This Topic also provides guidance, among other things, on the measurement of the income tax benefit associated with uncertain tax positions, de-recognition, classification, interest and penalties and financial statement disclosures.  As it is defined in this Topic, the Company has reassessed whether the “more-likely-than-not” recognition threshold has been met before a tax benefit can be recognized. There were no unrecognized tax benefits as of December 31, 2010 and 2009.  The reconciliation of the beginning and ending balances of recognized uncertain tax position as of December 31, 2010 and 2009, is the following:  In thousands of pesos2010

   2009Recognized uncertain tax position, opening balance

   7,761

   78,129Gross increase due to interest on prior year uncertain tax position

   -

   522Increase in uncertain tax position

   522

   -Decrease due to settlement of a tax regularization plan (a)

   -

   (70,890)Recognized uncertain tax position, ending balance

   8,263

   7,761
  (a)See Note 15.  The Company is subject to taxation in Argentina and Uruguay. The jurisdictions are subject to examination by tax authorities for tax years after 2005.  The Company classifies interest and penalties, if any, in the statements of operations under the line “Financial and holding results, net”. F-80


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  m) Pro rata consolidation  As discussed in Note 2, under Argentine GAAP Transelec consolidated the accounts of Citelec on a pro rata basis. Under US GAAP consolidation is not appropriate since the Company does not exercise control over this subsidiary.  Presented below is the consolidated condensed information of Citelec as of December 31, 2010 and 2009:   As of December 31,2010

   

   2009Current assets

   251,275,264

   

   184,917,642Non-Current assets

   1,712,908,293

   

   1,824,814,606Total assets

   1,964,183,557

   

   2,009,732,248Current liabilities

   198,415,432

   

   219,081,931Non-Current liabilities

   642,519,809

   

   688,571,890Total liabilities

   840,935,241

   

   907,653,821Noncontrolling interest

   556,021,326

   

   546,406,390Citelec S.A. shareholders ́ equity

   567,226,990

   

   555,672,037Total equity

   1,123,248,316

   

   1,102,078,427Sales

   583,759,512

   

   582,548,420Gross income

   186,498,436

   

   142,411,540Net income

   11,554,953

   

   24,162,308
      For the years ended December 31,2010

   

   2009

   

   2008Net cash provided by operating activities

   235,260,534

   

   216,819,221

   

   157,075,584Net cash used in investment activities

   (194,871,199)

   

   (74,896,936)

   

   (101,880,828)Net cash provided by (used in) financing activities

   4,326,618

   

   (101,593,431)

   

   (102,569,700)Net increase (decrease) in cash and cash equivalents

   44,715,953

   

   40,328,854

   

   (47,374,944)Cash and cash equivalents at the beginning of the year

   60,085,043

   

   19,756,189

   

   67,131,133Cash and cash equivalents at the end of the year

   104,800,996

   

   60,085,043

   

   19,756,189
     F-81


---



Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  n)    Reserve for Directors’ option  As discussed in Note 14, in consideration for the opportunities assignment agreement signed, the Company granted to certain executives purchase options for up to 20% of capital, to be exercised at the same price per ordinary share in US$ that shareholders have subscribed at each capital increase, adjusted in accordance with the purchase option agreements.  Under Argentine GAAP purchase options were valued at the grant date following the Black-Scholes model at an amount of Ps. 35.3 million. The Black-Scholes model requires the input of highly subjective assumptions including volatility, expected term, risk-free interest rate and dividend yield. The assumptions used were as follows: 27% volatility, based on the historical volatility of the company, 3% dividends and 4.63% risk free US dollar interest rate. A compensation expense is recognized ratably over the effective term of the opportunities assignment agreement (consistent with the vesting period), with a credit to an equity reserve.  Following Topic 718-20 “Awards Classified as Equity” the Company should account for an additional compensation expense as the application of antidilution provisions contained in the purchase option agreements resulted in an incremental value transferred to the beneficiaries. The total compensation cost before and after the application of the antidilution provisions amounted to Ps. 35.3 and Ps. 221.3 million, respectively. Consequently, additional compensation expense of Ps. 62.1 and Ps. 82.8 million was recorded for the year ended December 31, 2009 and 2008, respectively.  The total compensation cost recognized in income for the years 2010, 2009 and 2008 were Ps. 8.9 million, Ps. 73.1 million and Ps. 94.5 million, respectively. Amendments to Opportunities Assignment and Purchase Option Agreements mentioned in Note 14 apply to all three executives to which the purchase options were granted.  As of December 31, 2010 and 2009, due to the modification of the awards the total compensation expense related to the non-vested purchase options not yet recognized amounts to Ps. 33.6 million and Ps. 42.5 million, respectively, and it is expected to be recognized until 2014.  The following table summarizes purchase options activity under the agreement for the years ended December 31, 2010 and 2009: There are no purchase options forfeited, expired, lapsed or exercised during any of the years.  As of December 31, 2010

   

   As of December 31, 2009Number of shares to be subscribed

   

   Weighted-average exercise price (US$)

   

   Number of shares to be subscribed

   

   Weighted-average exercise price (US$)Outstanding, beginning of year

   111,500,000

   

   -

   

   111,500,000

   

   -150,000,000

   

   -

   

   150,000,000

   

   -120,048,560

   

   -

   

   120,048,560

   

   -Granted during the year

   -

   

   -

   

   -

   

   --

   

   -

   

   -

   

   --

   

   -

   

   -

   

   -Outstanding, end of year

   111,500,000

   

   0.27

   

   111,500,000

   

   0.27150,000,000

   

   0.27

   

   150,000,000

   

   0.27120,048,560

   

   0.27

   

   120,048,560

   

   0.27Exercisable, end of year

   -

   

   -

   

   -

   

   --

   

   -

   

   -

   

   --

   

   -

   

   -

   

   -
  F-82


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  The weighted-average grant date fair value of options granted during the years ended December 31, 2008 was US$ 0.22.  The following table summarizes information about purchase options outstanding and exercisable at December 31, 2010:  Outstanding

   

   ExercisableExercise price (US$)

   

   Number of options

   Weighted-average remaining contractual life

   

   Number of options

   Weighted-average remaining contractual life0.27

   

   111,500,000

   12

   

   -

   -0.27

   

   150,000,000

   12

   

   -

   -0.27

   

   120,048,560

   12

   

   -

   -381,548,560

   

   

   -
  Weighted-average exercise price: -Options outstanding:  US$ 0.27 -Exercisable:                US$     -   o) Intangible assets  The following tables summarize the balances comprising intangibles assets as of December 31, 2010 and 2009:   As of December 31, 2010Gross carrying amount

   

   Amortization expense

   

   Accumulated amortization

   

   Net carrying amountConcession contract

   

   1,202,460,931

   

   (29,851,510)

   

   (102,631,616)

   

   1,099,829,315Trademarks and patents

   

   -

   

   -

   

   -

   

   -Intangible identificable in distribution

   

   24,508,397

   

   (4,154,954)

   

   (11,912,601)

   

   12,595,796Fourth line project

   

   163,718,265

   

   (20,715,355)

   

   (92,030,472)

   

   71,687,793Total

   

   1,390,687,593

   

   (54,721,819)

   

   (206,574,689)

   

   1,184,112,904As of December 31, 2009Gross carrying amount

   

   Amortization expense

   

   Accumulated amortization

   

   Net carrying amountConcession contract

   

   1,202,460,931

   

   (23,812,582)

   

   (72,780,106)

   

   1,129,680,825Trademarks and patents

   

   5,000

   

   -

   

   -

   

   5,000Intangible identificable in distribution

   

   24,508,397

   

   (4,050,897)

   

   (7,757,647)

   

   16,750,750Fourth line project

   

   163,718,265

   

   (21,525,201)

   

   (71,315,117)

   

   92,403,148Total

   

   1,390,692,593

   

   (49,388,680)

   

   (151,852,870)

   

   1,238,839,723
    The estimated amortization expense of intangible assets for each of the five succeeding years is Ps. 49.5 million.  F-83


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  p) Goodwill  The following table summarizes the changes in the carrying amount of goodwill as of December 31, 2010 and 2009:  As of December 31,2010

   

   2009Beginning Balance

   

   183,519,704

   

   183,519,704Hidroeléctrica Diamante

   

   (139,289)

   

   -Ending Balance

   

   183,380,415

   

   183,519,704
  q)  Fair Value Option for Financial Assets and Financial Liabilities  On January 1, 2008 the Company adopted ASC 825 “Financial Instruments” which permits a company to measure certain financial assets and financial liabilities at fair value that were not previously required to be measured at fair value. The Company has not elected to measure any financial assets and financial liabilities at fair value which were not previously required to be measured at fair value. Therefore, the adoption of this standard has had no effect on the Company’s results of operations.  r) Pension Plan  The Company has pension plans for benefits to personnel in various subsidiaries (employee pension plan). Employee pension costs are recognized in accordance with ASC 715-30 “Compensation – Retirement Benefit - Defined Benefit Plans”. US GAAP requires the use of an actuarial method for determining defined benefit pension costs and provides for the deferral of actuarial gains and losses (in excess of a specific corridor) that result from changes in assumptions or actual experience differing from assumed. This Topic also provides for the prospective amortization of costs related to changes in the benefit plan, as well as the obligation resulting from transition and requires disclosure of the components of periodic pension costs and the funded status of pension plans.  In accordance with US GAAP, actual results that differ from Company’s assumptions are accumulated and amortized over future periods and generally affect Company’s recognized expenses and recorded obligations in such future periods. While the Company believes that these assumptions are appropriate, significant differences in actual results or significant changes in Company’s assumptions may materially affect the Company’s pension and other postretirement obligations.  The components of net periodic benefit cost under Argentine GAAP and US GAAP for the years ended December 31, 2010, 2009 and 2008 are as follows:   2010

   

   2009

   

   2008Cost for services

   

   3.481.736

   

   2.981.994

   

   2.286.204Cost for interest

   

   12.235.165

   

   8.640.035

   

   6.825.520Amortization of past service cost

   

   2.893.152

   

   776.078

   

   732.786Amortization of actuarial losses

   

   2.461.469

   

   1.499.719

   

   1.364.499Net benefit cost for the year

   

   21.071.522

   

   13.897.825

   

   11.209.009
   F-84


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  The changes in benefit obligations for the years ended December 31, 2010, 2009 and 2008 are as follows:  2010

   

   2009

   

   2008Benefit obligation at the beginning of year

   62.973.820

   

   48.857.503

   

   33.032.753Cost

   3.481.736

   

   2.891.554

   

   2.286.204Interest

   12.235.165

   

   8.376.764

   

   6.825.520Actuarial losses

   15.050.084

   

   5.665.036

   

   9.549.816Benefit payments

   (8.807.355)

   

   (2.817.038)

   

   (2.836.790)Benefit obligations at the end of the year

   84.933.450

   

   62.973.820

   

   48.857.503Benefit obligations at the end of the year

   84.933.450

   

   62.973.820

   

   48.857.503Unamortized cost for past services

   (8.701.778)

   

   (3.700.569)

   

   (9.116.122)Unrecognized actuarial losses

   (22.057.097)

   

   (19.246.528)

   

   (9.604.838)Total benefits to the personnel plans

   54.174.575

   

   40.026.723

   

   30.136.543
   The following table shows weighted-average assumptions used in calculating benefit obligation for the years ended December 31, 2010, 2009 and 2008:   2010

   

   2009

   

   2008Discount rate

   19%

   

   19%

   

   17%Salary increases

   12%

   

   11%

   

   13%Inflation

   13%

   

   9%

   

   11%
    The Company does not make plan contributions or maintain separate assets to fund the benefits at retirement. The net periodic pension costs are recognized as employees render the services necessary to earn pension benefits.  The following yearly pension benefits payments are expected to be made:   Year

   

   Ps.2011

   

   9.955.5892012

   

   9.255.9932013

   

   8.879.5512014

   

   9.579.9482015

   

   10.233.9592016-2020

   

   63.990.070
   The components of the projected net periodic pension benefit costs for 2011 are as follows:   Ps.Cost for services

   

   4.224.390Cost for interest

   

   17.438.643Amortization of past service cost

   

   1.115.078Amortization of actuarial losses

   

   1.477.951
   F-85


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 20.  Differences between Argentine GAAP and US GAAP (continued)  The following table shows the effect of a 1% change in discount rate on the projected benefit obligation for the years indicated   2010

   

   2009

   

   2008Projeted benefit obligation

   

   84.933.450

   

   40.026.723

   

   30.136.542Effect of a one-percentage-point increase

   

   80.246.528

   

   51.185.034

   

   28.546.119Effect of a one-percentage-point decrease

   

   90.249.735

   

   57.565.553

   

   31.952.228
   s)  Business combination occurred after the balance sheet date but before the issuance of the financial statements Under US GAAP, ASC 805-10-50 prescribes that when a business combination took place after the balance sheet date but before the issuance of the financial statements, the acquirer shall disclose supplemental pro forma financial information, unless it’s impracticable. The acquisitions described in Note 19 were carried out between January and March 2011; as such, the Company considers that the disclosure requirements results impracticable as it has limited information in order to report pro forma financial information under US GAAP.  t)   Recently issued accounting pronouncements  In December 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-29, Business Combinations (Topic 805), Disclosure of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force). ASU 2010-29 specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. Additionally, this update also expand the supplemental pro forma disclosures under ASC 805  to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  Early adoption is permitted. The Company is currently assessing the impact it will have on its financial statements.  In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRS (“ASU 2011-04”). ASU 2011-04 generally represents clarifications to the current fair value measurement standard under US GAAP and hence many of its amendments are not intended to result in a change in the application of the requirements of the current standard. However, ASU 2011-04 does include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. The Company will adopt ASU 2011-04 in the fourth quarter of fiscal year 2012. The Company is currently assessing the impact it will have on its financial statements.      F-86


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  NOTE 21. Other financial statement information  The following tables present additional financial statement disclosures:  a.Fixed assets, net b.Investments c.Intangible assets d.Other non-current assets e.Goodwill f.Allowances and provisions g.Cost of sales h.Foreign currency assets and liabilities i.Other expenses  F-87


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
  a. Fixed assets, net   Account

   

   Original valuesAt the beginning of the year

   

   Increases for the year

   

   Increases / Disposals (1)

   

   Disposals

   

   Transfers

   

   At the end of the yearLand

   

   11,168,272

   

   3,500

   

   (1,173,761)

   

   -

   

   -

   

   9,998,011Properties

   

   196,317,781

   

   10,399

   

   -

   

   (2,634,000)

   

   14,405,914

   

   208,100,094High, medium and low voltage lines

   

   2,018,019,063

   

   -

   

   -

   

   (2,334,000)

   

   143,422,000

   

   2,159,107,063Substations

   

   821,009,153

   

   -

   

   -

   

   -

   

   111,931,000

   

   932,940,153Transforming chamber and platforms

   

   479,885,433

   

   -

   

   -

   

   (543,000)

   

   45,774,000

   

   525,116,433Meters

   

   450,820,000

   

   -

   

   -

   

   -

   

   66,029,000

   

   516,849,000High-voltage lines

   

   371,349,773

   

   490,716

   

   -

   

   -

   

   899,673

   

   372,740,162Electricity equipment of transmission

   

   316,574,351

   

   469,820

   

   -

   

   -

   

   13,835,766

   

   330,879,937Aerial and semi-heavy equipment

   

   10,855,559

   

   31,250

   

   -

   

   -

   

   212,060

   

   11,098,869Laboratory and maintenance

   

   3,870,938

   

   280,693

   

   -

   

   -

   

   42,720

   

   4,194,351Generation equipment and machinery

   

   583,204,262

   

   7,459,076

   

   (2,990,281)

   

   (705,412)

   

   17,820,030

   

   604,787,675Vehicles

   

   23,446,403

   

   5,867,507

   

   (72,498)

   

   (4,056,098)

   

   86,097

   

   25,271,411Furniture and fixtures and software equipment

   

   53,136,172

   

   12,084,417

   

   (28,231)

   

   (3,484,469)

   

   101,695

   

   61,809,584Communication equipments

   

   81,447,038

   

   133,827

   

   -

   

   -

   

   8,319,126

   

   89,899,991Materials and spare parts

   

   91,358,910

   

   20,723,125

   

   -

   

   (7,928,204)

   

   (969,867)

   

   103,183,964Tools

   

   14,347,209

   

   2,571,848

   

   -

   

   (4,109,885)

   

   222,784

   

   13,031,956Work in progress

   

   947,411,267

   

   664,333,480

   

   -

   

   (29,586,255)

   

   (171,557,138)

   

   1,410,601,354Work and compulsory work performed

   

   7,533,912

   

   -

   

   -

   

   -

   

   -

   

   7,533,912Advances to suppliers

   

   436,238,312

   

   9,886,610

   

   -

   

   (116,254,049)

   

   (250,574,860)

   

   79,296,013Total as of 12.31.10

   

   6,917,993,808

   

   724,346,268

   

   (4,264,771)

   

   (171,635,372)

   

   -

   

   7,466,439,933Total as of 12.31.09

   

   5,865,316,882

   

   1,091,860,126

   

   130,654,158

   

   (169,837,358)

   

   -

   

   6,917,993,808Total as of 12.31.08

   

   5,277,742,601

   

   806,000,270

   

   -

   

   (218,425,989)

   

   -

   

   5,865,316,882Account

   

   Depreciation

   

   12.31.10

   

   12.31.09At the beginning of the year

   

   Disposals (2)

   

   Amount for the year

   

   Accumulated at the end of the year

   

   Net book value

   

   Net book valueLand

   

   -

   

   -

   

   -

   

   -

   

   9,998,011

   

   11,168,272Properties

   

   (21,273,387)

   

   465,000

   

   (8,326,348)

   

   (29,134,735)

   

   178,965,359

   

   175,044,394High, medium and low voltage lines

   

   (209,195,374)

   

   1,548,000

   

   (93,274,585)

   

   (300,921,959)

   

   1,858,185,104

   

   1,808,823,689Substations

   

   (65,549,901)

   

   -

   

   (33,834,737)

   

   (99,384,638)

   

   833,555,515

   

   755,459,252Transforming chamber and platforms

   

   (41,621,697)

   

   237,000

   

   (21,216,087)

   

   (62,600,784)

   

   462,515,649

   

   438,263,736Meters

   

   (59,121,664)

   

   -

   

   (30,871,251)

   

   (89,992,915)

   

   426,856,085

   

   391,698,336High-voltage lines

   

   (47,653,852)

   

   -

   

   (17,782,782)

   

   (65,436,634)

   

   307,303,528

   

   323,695,921Electricity equipment of transmission

   

   (36,656,057)

   

   -

   

   (14,647,092)

   

   (51,303,149)

   

   279,576,788

   

   279,918,294Aerial and semi-heavy equipment

   

   (2,433,414)

   

   -

   

   (452,436)

   

   (2,885,850)

   

   8,213,019

   

   8,422,145Laboratory and maintenance

   

   (1,612,772)

   

   -

   

   (296,077)

   

   (1,908,849)

   

   2,285,502

   

   2,258,166Generation equipment and machinery

   

   (81,072,688)

   

   58,316

   

   (36,173,767)

   

   (117,188,139)

   

   487,599,536

   

   502,131,574Vehicles

   

   (5,964,775)

   

   2,207,012

   

   (4,824,904)

   

   (8,582,667)

   

   16,688,744

   

   17,481,628Furniture and fixtures and software equipment

   

   (29,706,091)

   

   2,546,496

   

   (13,274,326)

   

   (40,433,921)

   

   21,375,663

   

   23,430,081Communication equipments

   

   (17,071,827)

   

   -

   

   (7,706,337)

   

   (24,778,164)

   

   65,121,827

   

   64,375,211Materials and spare parts

   

   -

   

   -

   

   -

   

   -

   

   103,183,964

   

   91,358,910Tools

   

   (6,370,587)

   

   1,418,219

   

   (1,819,198)

   

   (6,771,566)

   

   6,260,390

   

   7,976,622Work in progress

   

   -

   

   -

   

   -

   

   -

   

   1,410,601,354

   

   947,411,267Work and compulsory work performed

   

   (1,535,021)

   

   -

   

   (415,149)

   

   (1,950,170)

   

   5,583,742

   

   5,998,891Advances to suppliers

   

   -

   

   -

   

   -

   

   -

   

   79,296,013

   

   436,238,312Total as of 12.31.10

   

   (626,839,107)

   

   8,480,043

   

   (284,915,076)

   

   (903,274,140)

   

   6,563,165,793

   

   6,291,154,701Total as of 12.31.09

   

   (360,644,794)

   

   6,875,552

   

   (273,069,865)

   

   (626,839,107)

   

   6,291,154,701Total as of 12.31.08

   

   (104,544,409)

   

   5,138,038

   

   (261,238,423)

   

   (360,644,794)

   

   5,504,672,088
   (1)As of December 31, 2010, correspond to disposals of fixed assets for the discontinuation of consolidation of Ingentis. As of December 31, 2009, corresponds to increases of fixed assets for the consolidation of Inversora Ingentis and Endisa. (2)As of December 31, 2010, include $ 29,660 for the discontinuation of consolidation of Ingentis.  F-88


---



Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
    b. Investments   As ofDecember 31, 2010

   

   As ofDecember 31, 2009Short-term InvestmentsTime deposits (1)

   

   32,120,518

   

   151,093,231Government securities

   

   319,368,115

   

   118,986,605Corporate securities (2)

   

   139,616,231

   

   8,569,652Mutual funds

   

   158,138,052

   

   100,104,152Shares in other companies

   

   224,530,777

   

   69,235,994Trusts (3)

   

   18,621,566

   

   19,707,602Restricted bank accounts (4)

   

   69,143,552

   

   -Total short-term investments

   

   961,538,811

   

   467,697,236Long-term InvestmentsShares in other companies

   

   66,680

   

   78,013,153Restricted bank accounts (4)

   

   -

   

   92,252,872Trusts

   

   415,000

   

   408,000Total long-term investments

   

   481,680

   

   170,674,025
     (1) Include restricted availability assets for Ps. 100,945,728, as ofDecember 31, 2009. (2) Include restricted availability assets for Ps. 20,530,827 as ofDecember 31, 2010. (3) Include restricted availability assets for Ps. 18,621,566 and Ps. 19,707,602 as ofDecember 31, 2010 and 2009, respectively. (4) Include restricted availability assets for Ps. 69,143,552 and Ps. 92,252,872 as ofDecember 31, 2010 and 2009, respectively.     F-89


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
    c. Intangible assets  Main Account

   

   Original valuesAt the begining of the year

   

   Increases for the year

   

   Increases / Disposals(1)

   

   Disposals(1)

   

   Transfers

   

   At the end of the yearConcession contract

   

   335,368,056

   

   -

   

   -

   

   -

   

   -

   

   335,368,056Organization expenses

   

   6,467,908

   

   -

   

   (6,427,576)

   

   (29,629)

   

   -

   

   10,703Trademarks and patents

   

   5,000

   

   -

   

   -

   

   (5,000)

   

   -

   

   -Intangibles identificable in acquisitions

   

   24,524,452

   

   -

   

   -

   

   -

   

   -

   

   24,524,452Total as of 12.31.10

   

   366,365,416

   

   -

   

   (6,427,576)

   

   (34,629)

   

   -

   

   359,903,211Total as of 12.31.09

   

   363,116,648

   

   29,628

   

   3,219,140

   

   -

   

   -

   

   366,365,416Total as of 12.31.08

   

   363,110,940

   

   5,708

   

   -

   

   -

   

   -

   

   363,116,648Main Account

   

   Accumulated depreciationAt the begining of the year

   

   Disposals

   

   Amount for the year

   

   At the end of the year

   

   Net book value as of 12.31.10

   

   Net book value as of 12.31.09Concession contract

   

   (61,016,498)

   

   -

   

   (18,741,050)

   

   (79,757,548)

   

   255,610,508

   

   274,351,558Organization expenses

   

   (10,703)

   

   -

   

   -

   

   (10,703)

   

   -

   

   6,457,205Trademarks and patents

   

   -

   

   5,000

   

   (5,000)

   

   -

   

   -

   

   5,000Intangibles identificable in acquisitions

   

   (7,773,702)

   

   -

   

   (4,154,954)

   

   (11,928,656)

   

   12,595,796

   

   16,750,750Total as of 12.31.10

   

   (68,800,903)

   

   5,000

   

   (22,901,004)

   

   (91,696,907)

   

   268,206,304

   

   297,564,513Total as of 12.31.09

   

   (45,998,252)

   

   -

   

   (22,802,651)

   

   (68,800,903)

   

   297,564,513Total as of 12.31.08

   

   (24,762,307)

   

   -

   

   (21,235,945)

   

   (45,998,252)

   

   317,118,396
   (1)As of December 31, 2010, correspond to disposals of intangible assets for the discontinuation of consolidation of Ingentis. As of December 31, 2009, corresponds to increases of intangible assets for the consolidation of Inversora Ingentis.   F-90


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
    d. Other non-current assets   Main Account

   

   Original valuesAt the begining of the year

   

   Increases for the year

   

   Increases for acquisition

   

   Disposals

   

   Transfers

   

   At the end of the yearFourth line proyect

   

   186,898,350

   

   -

   

   -

   

   -

   

   -

   

   186,898,350Total as of 12.31.10

   

   186,898,350

   

   -

   

   -

   

   -

   

   -

   

   186,898,350Total as of 12.31.09

   

   186,898,350

   

   -

   

   -

   

   -

   

   -

   

   186,898,350Total as of 12.31.08

   

   186,898,350

   

   -

   

   -

   

   -

   

   -

   

   186,898,350Main Account

   

   Accumulated depreciationAt the begining of the year

   

   Disposals

   

   Amount for the year

   

   At the end of the year

   

   Net book value as of 12.31.10

   

   Net book value as of 12.31.09Fourth line proyect

   

   (73,879,669)

   

   -

   

   (22,732,206)

   

   (96,611,875)

   

   90,286,475

   

   113,018,681Total as of 12.31.10

   

   (73,879,669)

   

   -

   

   (22,732,206)

   

   (96,611,875)

   

   90,286,475

   

   113,018,681Total as of 12.31.09

   

   (51,147,463)

   

   -

   

   (22,732,206)

   

   (73,879,669)

   

   113,018,681Total as of 12.31.08

   

   (28,415,257)

   

   -

   

   (22,732,206)

   

   (51,147,463)

   

   135,750,887
        F-91


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
    e.goodwill   Main account

   

   Original values

   

   Accumulated amortization

   

   Net book value as of

   

   Net book value as of12.31.10

   

   12.31.09CIE (1)

   

   183,380,415

   

   (49,450,023)

   

   133,930,392

   

   148,513,848CTG (7)

   

   (2,171,469)

   

   869,579

   

   (1,301,890)

   

   (1,539,334)DESA (3)

   

   444,667,068

   

   (17,411,667)

   

   427,255,401

   

   432,612,836Edenor (8)

   

   (7,654,093)

   

   195,009

   

   (7,459,084)

   

   (7,557,000)IEASA (3)

   

   22,784,530

   

   (892,190)

   

   21,892,340

   

   22,166,870Inversora Ingentis (5)

   

   -

   

   -

   

   -

   

   (23,422,864)Inversora Diamante(4)

   

   10,999,115

   

   (2,607,193)

   

   8,391,922

   

   9,007,846Inversora Nihuiles  (4)

   

   (745,689)

   

   181,243

   

   (564,446)

   

   (607,094)Powerco (2)

   

   5,639,499

   

   (1,309,009)

   

   4,330,490

   

   4,657,742Transelec(6)

   

   (16,657,506)

   

   2,886,847

   

   (13,770,659)

   

   (14,580,505)Total as of 12.31.10

   

   640,241,870

   

   (67,537,404)

   

   572,704,466Total as of 12.31.09

   

   616,106,915

   

   (46,854,570)

   

   

   

   569,252,345
    (1) Useful life has been estimated at 13 years based on the average weighted remaining useful life of the assets subject to depreciation of Central Piedra Buena, CIE’s subsidiary. (2) Useful life has been estimated at 17 years based on the average weighted remaining useful life of the assets subject to depreciation of CTG, subsidiary of Powerco at acquisition date. (3) Useful life has been estimated at 83 years based on the remaining useful life of Edenor concession contract. (4) Useful lives have been estimated at 17 years based on the remaining term of the concession contracts of Hidroeléctrica Los Nihuiles and Hidroeléctrica Diamante, subsidiaries of Inversora Nihuiles and Inversora Diamante, respectively. (5) As of December 31, 2009, it includes the negative goodwill related to the portion attributable to nonmonetary assets identified upon acquiring an additional interest. As of December 31, 2010, such goodwill was reversed as mentioned Note 2 to the consolidated financial statements. (6) Useful life has been estimated at 21 years based on the average weighted remaining useful life of the assets subject to depreciation of the acquired companies. (7) Principally corresponds to the negative goodwill recognized by Loma de la Lata under the acquisition of CTG ́s shares. Useful life has been estimated at 11 years based on the remaining useful life of the assets subject to depreciation of CTG. (8) Corresponds to a negative goodwill registered by EASA related to the acquisition of own shares from Edenor.   F-92


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Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
    f. Allowances and provisions    Balances at the beginning of the year

   

   Increases

   

   Decreases

   

   Balances at the end of the yearDeducted from current assetsAllowance for doubtful accounts

   

   27,227,660

   

   16,728,424

   

   (11,725,645)

   

   32,230,439Allowance for other receivables

   

   7,977,377

   

   6,339,114

   

   -

   

   14,316,491Total allowances deducted from current assets as of 12.31.10

   

   35,205,037

   

   23,067,538

   

   (11,725,645)

   

   46,546,930Total allowances deducted from current assets as of 12.31.09

   

   43,820,629

   

   25,765,809

   

   (34,381,401)

   

   35,205,037Deducted from non-current assetsAllowance for doubtful accounts

   

   404,795

   

   -

   

   -

   

   404,795Allowance for other receivables

   

   30,837,105

   

   12,426,178

   

   (5,068)

   

   43,258,215Total allowances deducted from non-current assets as of 12.31.10

   

   31,241,900

   

   12,426,178

   

   (5,068)

   

   43,663,010Total allowances deducted from non-current assets as of 12.31.09

   

   4,438,900

   

   26,803,000

   

   -

   

   31,241,900Included in current liabilitiesProvision for contingencies

   

   62,813,000

   

   3,756,586

   

   (8,593,000)

   

   57,976,586Total provision included in current liabilities as of 12.31.10

   

   62,813,000

   

   3,756,586

   

   (8,593,000)

   

   57,976,586Total provision included in current liabilities as of 12.31.09

   

   52,756,000

   

   15,500,000

   

   (5,443,000)

   

   62,813,000Included in non-current liabilitiesProvision for contingencies

   

   17,729,148

   

   1,122,690

   

   (7,525,333)

   

   11,326,505Total provision included in non-current liabilities as of 12.31.10

   

   17,729,148

   

   1,122,690

   

   (7,525,333)

   

   11,326,505Total provision included in non-current liabilities as of 12.31.09

   

   51,710,559

   

   2,556,589

   

   (36,538,000)

   

   17,729,148
      F-93


---



Table of Contents   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
    g.Cost of sales   For the yearsended December 31,2010

   

   2009

   

   2008Inventory at the beginning of the year

   

   46,121,259

   

   48,468,279

   

   41,905,190Purchase of fuel and energy

   

   1,780,624,898

   

   1,386,884,485

   

   1,359,958,136Expenses for generation, transmission and distribution

   

   2,195,581,985

   

   1,801,143,162

   

   1,704,554,674Holding (loss) gain on inventory

   

   (4,043,038)

   

   1,771,572

   

   1,796,129Inventory at the end of the year

   

   (30,317,274)

   

   (46,121,259)

   

   (25,810,445)Cost of sales

   

   3,987,967,830

   

   3,192,146,239

   

   3,082,403,684
           F-94


---



Table of Contents    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
    h. Foreign currency assets and liabilities   12.31.10

   

   12.31.09Foreign currency class and amounts

   

   Exchange rate

   

   Amount in Ps.

   

   Amount in Ps.AssetsCurrent assetsCash and banks

   

   US$

   

   29,891,010

   

   3.936

   

   117,651,015

   

   133,744,948EUR

   

   46,021

   

   5.219

   

   240,189

   

   238,851CHF

   

   -

   

   -

   

   -

   

   128R$

   

   -

   

   -

   

   -

   

   829,297US

   

   37,678

   

   0.196

   

   7,377

   

   5,737Investments

   

   US$

   

   179,534,745

   

   3.936

   

   706,648,755

   

   208,431,257EUR

   

   -

   

   -

   

   -

   

   59,910R$

   

   -

   

   -

   

   -

   

   3,450Trade receivables

   

   US$

   

   6,285,155

   

   3.936

   

   24,738,369

   

   24,528,920R$

   

   -

   

   -

   

   -

   

   3,461,200Other receivables

   

   US$

   

   5,827,344

   

   3.936

   

   22,936,427

   

   51,143,500EUR

   

   1,963,021

   

   5.219

   

   10,245,203

   

   585,268R$

   

   -

   

   -

   

   -

   

   1,339,291US

   

   11,737

   

   0.196

   

   2,298

   

   -Total Current assets

   

   

   

   

   

   

   

   882,469,633

   

   424,371,757Non-current assetsTrade receivables

   

   US$

   

   25,741

   

   3.936

   

   101,315

   

   368,766Other receivables

   

   US$

   

   2,557,247

   

   3.936

   

   10,065,326

   

   295,818R$

   

   -

   

   -

   

   -

   

   938,188Fixed assets

   

   US$

   

   3,496,427

   

   3.936

   

   13,761,936

   

   6,947,011Investments

   

   US$

   

   -

   

   -

   

   -

   

   92,252,872Total Non-current assets

   

   

   

   

   

   

   

   23,928,577

   

   100,802,655Total Assets

   

   

   

   

   

   

   

   906,398,210

   

   525,174,412
     US$: U.S. Dollars EUR: Euros R$: Brazilian Reais US: Uruguayan Pesos CHF: Swiss Francs     F-95


---



Table of Contents NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)
    h. Foreign currency assets and liabilities (continued)   12.31.10

   

   12.31.09Foreign currency class and amounts

   

   Exchange rate

   

   Amount in Ps.

   

   Amount in Ps.LiabilitiesCurrent liabilitiesAccounts payable

   

   US$

   

   9,093,791

   

   3.976

   

   36,156,915

   

   86,905,238EUR

   

   751,580

   

   5.273

   

   3,962,781

   

   5,593,852CHF

   

   317,185

   

   -

   

   1,346,691

   

   400,000R$

   

   -

   

   -

   

   -

   

   1,375,490US

   

   960

   

   0.196

   

   188

   

   -Financial debt

   

   US$

   

   50,936,300

   

   3.976

   

   202,522,729

   

   51,685,782R$

   

   -

   

   -

   

   -

   

   63,572Salaries and social security payable

   

   R$

   

   -

   

   -

   

   -

   

   1,235,963US

   

   715,102

   

   0.196

   

   140,011

   

   99,424Taxes payable

   

   R$

   

   -

   

   -

   

   -

   

   513,123Other liabilities

   

   US$

   

   340,308

   

   3.976

   

   1,353,066

   

   7,636,847EUR

   

   -

   

   -

   

   -

   

   49,000R$

   

   -

   

   -

   

   -

   

   787,746US

   

   -

   

   -

   

   -

   

   1,802Total Current liabilities

   

   

   

   

   

   

   

   245,482,381

   

   156,347,839Non-current liabilitiesAccounts payable

   

   US$

   

   78,631

   

   3.976

   

   312,637

   

   356,129Financial debt

   

   US$

   

   416,448,047

   

   3.976

   

   1,655,797,436

   

   1,684,239,787Taxes payable

   

   R$

   

   -

   

   -

   

   -

   

   656,899Provisions

   

   US$

   

   -

   

   -

   

   -

   

   238,313Total Non-current liabilities

   

   

   

   

   

   

   

   1,656,110,073

   

   1,685,491,128Total Liabilities

   

   

   

   

   

   

   

   1,901,592,454

   

   1,841,838,967
    US$: U.S. Dollars EUR: Euros R$: Brazilian Reais US: Uruguayan Pesos CHF : Swiss Francs     F-96


---





Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (in Argentine Pesos (“Ps.”) – unless otherwise stated)


i. Other expenses   Generation/ Transmission/ Distribution

   

   Selling

   

   Administration

   

   For the yearsended December 31,2010

   

   2009

   

   2008Salaries and social security

   

   482,431,767

   

   72,308,862

   

   153,967,509

   

   708,708,138

   

   550,230,962

   

   425,276,155Fees and compensation for services

   

   137,004,737

   

   60,591,267

   

   71,334,903

   

   268,930,907

   

   246,903,030

   

   220,285,335Directors and Sindycs' fees

   

   -

   

   -

   

   19,746,780

   

   19,746,780

   

   16,829,097

   

   14,468,287Reserve for Directors' options

   

   -

   

   -

   

   8,945,352

   

   8,945,352

   

   11,061,342

   

   11,766,672Depreciation of fixed assets

   

   264,561,858

   

   4,343,803

   

   16,009,415

   

   284,915,076

   

   273,069,865

   

   261,238,423Amortization of intangible assets

   

   22,896,004

   

   -

   

   5,000

   

   22,901,004

   

   22,802,651

   

   21,235,945Depreciation of other non-current assets

   

   22,732,206

   

   -

   

   -

   

   22,732,206

   

   22,732,206

   

   22,732,206Transport of energy

   

   17,512,813

   

   -

   

   -

   

   17,512,813

   

   22,742,332

   

   18,537,404Gas consumption

   

   404,255,623

   

   -

   

   -

   

   404,255,623

   

   354,485,466

   

   337,228,539Purchase of energy

   

   420,623,125

   

   -

   

   -

   

   420,623,125

   

   308,563,670

   

   231,489,767Fuel consumption

   

   243,436,728

   

   -

   

   152,769

   

   243,589,497

   

   94,937,708

   

   228,856,507Material and spare parts consumption

   

   63,738,998

   

   662,000

   

   2,815,247

   

   67,216,245

   

   95,605,491

   

   72,598,860Maintenance

   

   25,300,358

   

   -

   

   1,300,934

   

   26,601,292

   

   35,170,963

   

   35,171,105Royalties and fees

   

   26,878,106

   

   -

   

   -

   

   26,878,106

   

   25,630,430

   

   23,680,005Doubtful accounts

   

   -

   

   21,619,424

   

   -

   

   21,619,424

   

   (1,243,193)

   

   15,507,136Transport and per diem

   

   8,540,266

   

   51,067

   

   4,521,926

   

   13,113,259

   

   12,201,878

   

   8,889,369Rental and insurance

   

   23,829,541

   

   664,620

   

   32,633,867

   

   57,128,028

   

   47,896,238

   

   26,925,259Surveillance and security

   

   11,898,809

   

   491,000

   

   4,009,083

   

   16,398,892

   

   10,093,303

   

   7,880,985Taxes, rates and contributions

   

   5,657,712

   

   26,659,315

   

   12,752,455

   

   45,069,482

   

   38,467,979

   

   34,577,361Communication

   

   7,128,763

   

   11,534,038

   

   4,876,294

   

   23,539,095

   

   18,368,716

   

   15,809,849Advertising and promotion

   

   -

   

   205,174

   

   18,910,388

   

   19,115,562

   

   17,811,790

   

   14,059,730Office expenses

   

   474,394

   

   115,127

   

   2,156,161

   

   2,745,682

   

   1,714,232

   

   1,894,340Other

   

   6,680,177

   

   10,797,828

   

   12,697,638

   

   30,175,643

   

   32,478,966

   

   29,479,052Total as of 12.31.10

   

   2,195,581,985

   

   210,043,525

   

   366,835,721

   

   2,772,461,231Total as of 12.31.09

   

   1,801,143,162

   

   154,663,071

   

   302,748,889

   

   

   

   2,258,555,122Total as of 12.31.08

   

   1,704,554,674

   

   139,651,639

   

   235,381,978

   

   

   

   

   

   2,079,588,291
    F-97


---