Annual and Transition Report (foreign Private Issuer) (20-f)

	As of December 31,
	2019		2018⁽³⁾		2017⁽³⁾		2016
	(in thousands of pesos)⁽¹⁾
Consolidated Statement of Financial Position Data:
Total current assets		20,939,930		35,632,685		16,288,999		n/a
Property, plant and equipment, net		74,552,728		59,510,863		52,550,238		n/a
Total non-current assets		74,661,395		59,655,761		52,710,105		n/a

Total assets		95,601,325		95,288,446		68,999,104		n/a
Total current liabilities		7,952,199		10,993,418		10,610,885		n/a
Total non-current liabilities		39,565,657		36,691,122		19,500,020		n/a
Total liabilities		47,517,856		47,684,540		30,110,905		n/a
Non-controlling interest		28		15		12		n/a
Shareholders’ equity		48,083,469		47,603,906		38,888,199		n/a
Other Data:
Common stock (nominal value)		784,608		780,894		794,495		n/a
Additions to property, plant and equipment		18,838,338		10,624,291		3,532,978		n/a
Depreciation		3,695,615		3,419,820		3,107,747		n/a
Number of outstanding shares⁽²⁾		784,608,528		780,894,503		794,495,283		n/a

(1)

Except number of outstanding shares or as otherwise indicated.

(2)

Number of ordinary shares outstanding at year-end (excludes 9,886,755 and 13,600,780 treasury shares, representing 1.24% and 1.71% of the total share capital for the years ended on December 31, 2019 and 2018, respectively).

(3)

Comparatives figures as of December 31, 2018 and 2017 have been restated for hyperinflation accounting and are presented in terms of Current Currency.

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Dividends

A summary of the dividends declared and paid during the five most recent fiscal years is set forth below:

	Dividends declared and paid
Year ended December 31,	(in millions of Ps.)⁽¹⁾		(in millions of U.S.$)⁽²⁾		(Ps. per share)⁽¹⁾		(U.S.$ per share)⁽²⁾		(U.S.$ per ADS)⁽²⁾
2015		-		-		-		-		-
2016⁽³⁾		349.0		7.1		0.440		0.009		0.045
2017		-		-		-		-		-
2018⁽⁴⁾		6,659.7		114.6		8.382		0.142		0.708
2019⁽⁵⁾⁽⁶⁾		12,988.9		222.4		16.730		0.286		1.432

(1)	Stated in Ps. at Current Currency.

(2)	Stated in U.S. dollars translated from pesos at the exchange rate in effect on the payment date.

(3)

At a General Annual Shareholders’ Meeting held on April 23, 2015, our shareholders resolved to create a future dividends payment reserve in an amount equal to Ps. 380.4 million. At its meeting held on January 13, 2016, our Board of Directors approved to release such reserve in full to our shareholders in the form of cash dividend payments up to an amount equal to the aggregate amount of such reserve.

(4)

At the General and Special Annual Shareholders’ Meeting held on April 10, 2018, our shareholders resolved to create a future dividends payment reserve in an amount equal to Ps. 5,789.6 million. At its meetings held on July 6, August 8 and September 6, 2018, our Board of Directors approved to release such reserve in full to our shareholders in the form of cash dividend payments up to an amount equal to the aggregate amount of such reserve.

(5)

At the General Annual Shareholders’ Meeting held on April 11, 2019, our shareholders resolved to create a voluntary reserve for capital expenditures, stock buyback and/or dividends in an amount equal to Ps. 9,154.2 million and a cash dividend payment of Ps. 9,185.8 million. At its meetings held on April 11 and October 31, 2019, our Board of Directors approved the partial distribution of such reserve to our shareholders in an amount equal to Ps. 575.1 million the form of a cash dividend.

(6)

Includes the dividend in kind approved by the General and Special Shareholders´ Meeting held on October 17, 2019 and our Board of Directors´ meeting held on October 31, 2019 consisting in 29,444,795 shares (0.0385 shares per share or 0.1925 per ADS) at a price of Ps. 102.25, calculated by reference to the closing price of our shares in BYMA as of November 12, 2019, the day immediately preceding the date of distribution of such shares to our shareholders.

According to Argentina’s General Companies Act, dividends may be lawfully declared and paid only out of retained earnings reflected in the financial statements that have been approved by shareholders, if losses for prior fiscal years have been absorbed, if the applicable payment has been expressly approved by our shareholders and applicable legal reserves have been created, as described below.

For additional information regarding dividend payment restrictions see “Item 3. Key Information – D. Risk Factors - Risks Relating to Our Shares and ADSs - Shareholders outside Argentina may face additional investment risk from currency exchange rate fluctuations in connection with their holding of our shares or ADSs represented by ADRs. Exchange controls imposed by the Government may limit our ability to make payments to the Depositary in U.S. dollars, and thereby limit ADR holders’ ability to receive cash dividends in U.S. dollars.”

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To that effect, every year our Board of Directors must submit our financial statements for the immediately preceding fiscal year, together with reports thereon by our statutory committee (“Statutory Committee”), for the consideration and approval of the shareholders at the General Annual Shareholders’ Meeting which must approve our annual financial statements and determine the allocation of net income for such year, within four months of the close of the fiscal year, that is, for TGS before April 30 of each year. Pursuant to the General Companies Act and the CNV Rules, we are required to allocate a legal reserve (“Legal Reserve”) equal to at least 5% of each year’s net income (as long as there are no losses for prior fiscal years pending to be absorbed) until the aggregate amount of such Legal Reserve equals 20% of the sum of (i) “common stock nominal value” plus (ii) “inflation adjustment to common stock,” as shown in our consolidated statement of changes in equity. If there are any losses pending to be absorbed from prior fiscal years, such 5% should be calculated on any excess of the net income over such losses, if any. Dividends may not be paid if the Legal Reserve has been impaired, nor until it has been fully replenished. The Legal Reserve is not available for distribution as a dividend.

Pursuant to our by-laws (“By-laws”), after the allocation to the Legal Reserve has been made, an amount will be allocated to pay dividends on preferred stock, if any, and an amount equal to 0.25% of the net income for the year will be allocated to pay the statutory employee profit-sharing. The balance of the retained earnings for the year may be distributed as dividends on common stock or retained as a voluntary reserve, as determined at the General Annual Shareholders’ Meeting. For information on dividend taxation, see “Item 10. Additional Information—E. Taxation—Argentine Taxes.”

In addition, under the General Companies Act, our shareholders may establish additional voluntary reserves from time to time and for different purposes. Once established, the terms and conditions of any voluntary reserve cannot be changed without the prior approval of the shareholders.

Further, our ability to make dividend payments may be limited by covenants in our existing debt instruments or in debt instruments we enter into in the future, and by our subsidiaries’ ability to generate income and cash flows to pay dividends to us. In particular, under the indenture dated May 2, 2018 (the “2018 Notes Indenture”), entered into with Delaware Trust Company as trustee, co-registrar, paying agent and transfer agent, and Banco Santander Rio S.A., as registrar, Argentine paying agent, Argentine transfer agent and representative of the trustee in Argentina, relating to the issuance of our class 2, 6.750% senior notes due 2025 (the “2018 Notes”), we may pay dividends as long as immediately after giving effect to such dividend payment we are able to incur at least U.S.$ 1.00 (other than “Permitted Indebtedness” as defined in the 2018 Notes Indenture) under the limitation of debt covenant of the 2018 Notes Indenture. To incur debt (other than Permitted Indebtedness), the 2018 Notes Indenture requires that (i) no default exists under the 2018 Notes Indenture at the time of such incurrence and (ii) (a) the Consolidated Coverage Ratio (as defined in the 2018 Notes Indenture, which is the ratio of our consolidated adjusted EBITDA to our consolidated interest expense) would be greater than or equal to 2.0:1.0; and (b) the Consolidated Debt Ratio (as defined in the 2018 Notes Indenture, which is the ratio of our consolidated total indebtedness to our consolidated adjusted EBITDA) would be less than or equal to 3.50:1.0. See “Item 10. Additional Information—C. Material Contracts—Debt Obligations.”

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Moreover, per CNV Rules the amounts subject to distribution are restricted up to the acquisition cost of treasury shares and the additional paid-up capital accounts balance as discussed elsewhere herein.

The General Annual Shareholders’ Meeting held on April 26, 2017 (the “2017 Shareholders’ Meeting”), approved the creation of a voluntary reserve for future dividend payments in an aggregate amount of Ps. 2,364.1 million, which was subsequently increased by Ps. 5,789.6 million pursuant to a resolution passed by our shareholders at the General and Special Annual Shareholders’ Meeting held on April 10, 2018 (the “2018 Shareholders’ Meeting”). The 2018 Shareholders’ Meeting did not allocate any portion of our net income to the Legal Reserve because as of the date of such meeting it was fully funded. During the year 2018, our Board of Directors resolved to distribute (and we paid) a total amount of Ps. 6,659.7 million in cash dividends.

The General Annual Shareholders’ Meeting held on April 11, 2019 (the “2019 Shareholders’ Meeting”), approved: (i) to allocate Ps. 922.2 million to the Legal Reserve, (ii) to make a cash dividend payment of Ps. 9,185.8 million (Ps. 11.77 per share), and (iii) to allocate Ps. 9,154.2 million to the “Reserve for capital expenditures, acquisition of treasury shares and/or dividends” (the “Reserve”) and to delegate to the Board of Directors the decision to distribute cash dividends up to an amount equal to 80% of the Reserve, which will be restated in constant pesos at any given time pursuant to CNV Resolution No. 777/2018. To determine such maximum distributable amount, or to allocate such Reserve to future investments, the restated amount of the stock that has actually been repurchased must be determined in advance, since an amount equal to such stock already repurchased cannot be released to shareholders pursuant to the provisions of the CNV Rules. Such resolutions were made by the 2019 Shareholders’ Meeting taking into consideration current CNV regulations (Resolution No. 777/2018) which state that accumulated results have to be adjusted for inflation using the rates as of the month before the meeting was held. In case of the 2019 Shareholders’ Meeting, we used the inflation rate as of February 28, 2019.

During the year 2019, our Board of Directors resolved to distribute (and we paid) a total amount of Ps. 575.1 million (Ps. 11.77 per share) in cash dividends. In addition, the General and Special Shareholders’ Meeting held on October 31, 2019 resolved to distribute (and we paid) a dividend in kind (of Ps. 3,228.0 million) in the form of 29,444,795 shares then held in treasury at a price per share of Ps. 102.25, calculated by reference to the closing price of our shares in BYMA as of November 12, 2019, the day immediately preceding the date of distribution of such shares to our shareholders,

The General Annual Shareholders’ Meeting held on April 21, 2020 (the “2020 Shareholders’ Meeting”) approved to allocate Ps. 690.2 million to the Legal Reserve and (iii) to allocate Ps. 19,759.7 million to the “Reserve for capital expenditures, acquisition of treasury shares and/or dividends” (the “New Reserve”) and to delegate to the Board of Directors the decision to distribute dividends, which will be restated in constant pesos at any given time pursuant to CNV Resolution No. 777/2018. To determine such maximum distributable amount, or to allocate such New Reserve to future investments, the restated amount of the stock that has actually been repurchased and the additional paid-up capital must be determined in advance, since an amount equal to such stock already repurchased cannot be released to shareholders pursuant to the provisions of the CNV Rules.

All the figures mentioned before, according to the CNV Resolution No. 777/2018, were restated by inflation by using the price index corresponding to the month prior to the meeting.

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Under the General Companies Act, during a given fiscal year, interim dividends may be declared by the Board of Directors, in which case the members of the Board of Directors and the members of our Statutory Committee (“Syndics”) are jointly and severally liable for such distribution, if such declaration is not in accordance with the General Companies Act and the By-laws.

Exchange Rate Information

Fluctuations in the exchange rate between pesos and U.S. dollars would affect the U.S. dollar equivalent of the peso price of our Class “B” shares, par value Ps. 1 each (the “Class B Shares”), on the Buenos Aires Stock Exchange (Bolsas y Mercados Argentinos (“BYMA”)) and, as a result, would likely affect the market price of our American Depositary Shares (“ADSs”) on the New York Stock Exchange (“NYSE”) as well. In addition, such fluctuations will affect the U.S. dollar equivalent of peso amounts included in this Annual Report.

Historically, Argentina has been subject to several restrictions imposed on the foreign exchange market. On September 1, 2019, the Central Bank of the Republic of Argentina (Banco Central de la República Argentina or the “BCRA”) issued Communication “A” 6770, which introduced several changes to the then existing foreign exchange control regime. For additional information, see “Item 10. Additional Information—D. Exchange Controls.”

The following table sets forth, for the periods indicated, high, low, average and period-end exchange rates between the peso and the U.S. dollar, as reported by Banco Nación. The Federal Reserve Bank of New York does not publish a buying rate for the peso. The average rate is calculated by using the average of Banco Nación reported exchange rates on each day during the relevant monthly period and on the last day of each month during the relevant annual period.

	Pesos per U.S. dollar
	High		Low		Average		Period end
Most recent six months:
November 2019		59.9500		59.5000		59.7453		59.9400
December 2019		59.9900		59.8150		59.8748		59.8900
January 2020		60.3500		59.8150		60.0326		60.3500
February 2020		62.2100		60.4700		61.3561		62.2100
March 2020		64.4690		62.2590		63.1241		64.4690
April 2020 (through April 28, 2020)		66.6300		64.5290		65.6493		66.6300

Year ended December 31,
2015		13.4000		8.5550		9.2485		13.0400
2016		16.0300		13.2000		14.7807		15.8900
2017		19.2000		15.1900		16.5717		18.6490
2018		41.2500		18.4100		28.1313		37.7000
2019		60.4000		36.9000		48.234		59.8900

For your convenience and except as we specify otherwise, this Annual Report contains translations of certain peso-denominated amounts to U.S. dollars at the exchange rate reported by Banco Nación on December 31, 2019. These translations should not be construed as representations that the amounts actually represent such U.S. dollar amounts or could be or have been converted into U.S. dollars at the rates indicated, or at any other rates. On April 28, 2020, the reported selling exchange rate per U.S.$ 1.00 was Ps. 66.6300.

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Our results of operations and financial condition are highly sensitive to changes in the peso-U.S. dollar exchange rate because a significant portion of our revenues (46.6% of our total consolidated revenues from sales for the year ended December 31, 2019), most of our capital expenditures, almost all of our debt obligations and the cost of natural gas used in our Liquids business are denominated in U.S. dollars, but substantially all of our assets are located in Argentina and our functional currency is the peso.

Currency fluctuations would also affect the U.S. dollar amounts received by holders of our ADSs upon conversion (by us or by Citibank N.A. (the “Depositary”), pursuant to the deposit agreement for the issuance of the ADSs entered into between the Depositary and us (the “Deposit Agreement”)) of the cash dividends paid in pesos on the underlying Class “B” Shares. Fluctuations in the exchange rate between the peso and the U.S. dollar will also affect the U.S. dollar equivalent of the peso price of our Class “B” Shares on the BYMA and, as a result, the market price of the ADSs.

In 2018 and 2019, the peso experienced a rapid devaluation against major foreign currencies, particularly against the U.S. dollar. See “D. Risk Factors—Risks Relating to Argentina—Economic volatility in Argentina has adversely affected and may continue to adversely affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations” and “—Fluctuations in the value of the peso may also adversely affect the Argentine economy, our financial condition and results of operations.”

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

You should carefully consider the following risks and uncertainties, and any other information appearing elsewhere in this Annual Report. The risks and uncertainties described below are intended to highlight risks and uncertainties that are specific to us. Additional risks and uncertainties, including those generally affecting Argentina and the industry in which we operate, risks and uncertainties that we currently consider immaterial or risks and uncertainties generally applicable to similar companies in Argentina may also impair our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations.

The information in this Risk Factors section includes forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of numerous factors, including those described in “Cautionary Statement Regarding Forward-Looking Statements” above.

Risks Relating to Argentina

We are a stock corporation with limited liability (sociedad anónima) incorporated and organized under the laws of Argentina. Our financial condition and results of operations depend to a significant extent on economic, regulatory and political conditions prevailing in Argentina, the exchange rate between the peso and the U.S. dollar and the reference international prices of Liquids because a significant portion of our revenues (46.6% of our total consolidated revenues from sales for the year ended December 31, 2019), most of our capital expenditures, almost all of our debt obligations and the cost of natural gas used in our Liquids business are denominated in U.S. dollars, but substantially all of our assets are located in Argentina, and our functional currency is the peso.

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Argentina’s public debt may not be sustainable in the near future.

After the primary elections results of August 2019, the international markets casted doubt on Argentina’s debt sustainability. In view of this, the country risk indicator raised to 2,200 basis points, topping-off a depreciation of bond prices. Also, on August 29, 2019 by Decree No. 596/2019 the Government announced a debt profiling consisting of (i) an extension on the payment term for short-term local bonds, only for institutional investors that will receive the full payment over terms of three and six months (15% on the original maturity date, 25% and 60% at 3rd and 6th month of the original maturity date, respectively), but not for natural persons who acquired the bonds before July 31, 2019, who will receive full payment on the maturity date; (ii) a proposal to the Argentine Congress of a bill to extend maturity dates of other local bonds, without reduction on the capital or interest; (iii) a proposal to extend the maturity dates of foreign bonds; and (iv) after achieving fiscal goals, the start of talks with the International Monetary Fund (the “IMF”) in order to reprofile the deadlines to reduce the default risk in 2020 and 2023.

As a result of the foregoing, Argentina’s credit rating was downgraded in August 2019 and further downgraded in December 2019 to near-default status by both Fitch and S&P after the Government publicly stated that it would delay payments on its short-term dollar-denominated local debt.

Fitch cut Argentina’s long-term issuer rating two notches to “restricted default” from CC, after the Government announced by decree that it would extend payments on U.S.$ 9.1 billion in dollar-denominated Treasury bills until August 31, 2020. According to Fitch’s criteria, Argentina has defaulted on its sovereign obligations, and this development constitutes a “distressed debt exchange.” S&P also downgraded Argentina’s credit rating to “selective default” from CCC-, while Moody’s foreign issuer rating for Argentina is Caa2.

The government’s decision to extend payments on its short-term notes constitutes the second such delay of payments in five months. In February 2020, the IMF has also publicly stated its concerns about the sustainability of Argentina’s public debt and suggested that a definitive debt operation—yielding a meaningful contribution from private creditors—is required to help restore debt sustainability with high probability. As of the date of this Annual Report, Argentina’s public debt load stands at U.S.$ 323 billion, including loans from the IMF. Outstanding debt with private bondholders is approximately U.S.$ 121 billion.

Without access to the international financial markets the Government may not have the financial resources to implement reforms and boost growth, which could have a significant adverse effect on the country’s economy and, consequently, on our activities. Failure of Argentina to restructure its debt could cause Argentina to default in the payment of its public debt, which could materially and adversely affect our business, financial condition and results of operation, and our ability to meet our financial obligations, as it could have a direct impact on our customers’ ability to pay for our products and services, the demand for energy and our ability to access local and international markets to finance our operations and our growth. In addition, we cannot predict the outcome of any future restructuring of Argentine sovereign debt.

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High levels of public spending in Argentina could generate long-lasting adverse consequences for the Argentine economy.

During recent years, the Government has substantially increased public spending. In 2015, government spending increased by 34.4% as compared to 2014, resulting in a primary fiscal deficit of 3.8% of GDP for 2015. In 2016, government spending increased by 42.8% as compared to 2015, resulting in a primary fiscal deficit of 4.2% of GDP for 2015. In 2017, government spending increased by 25.9% as compared to 2016, resulting in a primary fiscal deficit of 3.8% of GDP for 2017. In 2018, government spending increased by 13.1% as compared to 2017 resulting in a primary fiscal deficit of 2.4% of GDP for 2018, but while the primary fiscal deficit decreased compared to 2017, the financial deficit (interest rates of the international debt with IMF) increased to 2.8%, resulting in a total deficit of 5.2% for the year 2018. In 2019, government spending increased by 36.2% as compared to 2018 resulting in a primary fiscal deficit. If government spending continues to outpace fiscal revenues, the fiscal deficit is likely to increase, and the utilization of past sources of funding to address such deficit may be required.

The Government’s ability to access the long-term financial markets to finance such deficit is limited given the high levels of public sector indebtedness. The inability to access the capital markets to fund its deficit or the use of other sources of financing may have a negative impact on the economy and could limit the access to such capital markets for Argentine companies, which could adversely affect our business, financial condition and results of operations.

Adoption of hyperinflation accounting in Argentina

Argentina has confronted and continues to confront inflationary pressures. According to inflation data published by the INDEC, in 2019 the CPI and the WPI increased by 53.8% and 58.5%, respectively, and the three-year cumulative inflation rate has exceeded 100%, causing Argentina to be considered a hyperinflationary economy.

IAS 29 requires financial statements of an entity whose functional currency is the currency of a hyperinflationary country to be restated into their current purchasing power at the end of the reporting period. Therefore, transactions in 2019 and non-monetary balances at the end of the period should be restated to reflect a price index that is current at the balance sheet date. The comparatives and the opening statement of financial position at the beginning of the earliest period presented should also be restated to reflect a price index that is current at the balance sheet date. Consequently, in this Annual Report we are presenting our financial information applying hyperinflation accounting.

Adjustments to reflect inflation, such as those required by IAS 29, were initially prohibited by the Argentine Convertibility Act. Decree No. 664/03, issued by the Government (the “664/03 Decree”), instructed regulatory authorities, such as public registries of commerce, the Superintendency of Corporations of the City of Buenos Aires and the CNV, to accept only financial statements that comply with the prohibition set forth by the Convertibility Act. However, on December 4, 2018, Act 27,468 abrogated the 664/03 Decree and amended the Convertibility Act to that effect. Certain authorities, such as the CNV, have required that financial statements for periods ended on and after December 31, 2018, be restated for inflation, following the guidelines set forth in IAS 29.

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In order to restate financial statements, the CNV has established that the series of indexes to be used for the application of IAS 29 is determined by the FACPCE. This series of indexes combines the CPI as of January 2018 (base month: December 2017) with the WPI, both published by INDEC until that date. For the months of November and December 2015, for which there is no information from the INDEC on the evolution of the WPI, the variation in the CPI of the Autonomous City of Buenos Aires was applied. In the past, official inflation statistics in Argentina have been challenged by supranational organizations and deemed not to be reliable. Also, there are no consistent statistics on inflation for periods prior to 2016. As a result, inflation adjustments may affect the comparability of our historical financial information. See “—High levels of inflation and the lack of credibility regarding Argentina’s official inflation statistics, could negatively affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations.”

In addition, inflation may negatively affect income tax payable. For example, under hyperinflationary contexts, the existence of higher monetary liabilities over monetary assets will mean an increase in income tax payable. Act 27,468 substituted the WPI for the CPI for the calculation of the indexation adjustments for tax purposes, and modified the standards for triggering the tax indexation procedure. During the three periods commencing on January 1, 2018, tax indexation will apply if the variation of the CPI exceeds 55% in 2018, 30% in 2019 and 15% in 2020.

For the year ended December 31, 2019, the CPI exceeded the 30% threshold mentioned above, so we measured the tax charge to earnings for the year ended December 31, 2019, considering the application of the tax inflation adjustment. On December 23, 2019, the National Congress enacted Law No. 27,541 - Social Solidarity and Productive Reactivation Law (the “Solidarity Law”), which, among other things, amends the years during which the tax indexation should be allocated. According to the Solidarity Law, one sixth of the positive or negative result generated by the application of the inflation adjustment corresponding to the first and second fiscal year beginning on January 1, 2019, will be charged in such fiscal period and the remaining five-sixths will be charged equally in the following five fiscal periods.

In 2019, we recorded a loss of Ps. 1,998,487 in income tax as a result of the application of this inflation adjustment.

We cannot predict the full future impact that changes in the application of the tax indexation procedure and related adjustments will have on our financial statements, or the effects on our effective tax rate or on our business, results of operations and financial condition.

Certain risks are inherent in any investment in a company operating in an emerging market such as Argentina.

Argentina is an emerging market economy, and investing in emerging markets generally carries risks. These risks include political, social and economic instability that may affect Argentina’s economic results, which can stem from many factors. In general, Argentine economic conditions are dependent on a variety of factors, including, but not limited to, the following: (i) domestic production, international demand and prices for Argentina’s principal export commodities, (ii) the competitiveness and efficiency of domestic industries and services, (iii) the stability and competitiveness of the peso against foreign currencies and exchange controls, (iv) high interest and inflation rates, (v) Argentina’s fiscal and trade deficits, (vi) Argentina’s public debt level, (vii) foreign and domestic investment and financing, (viii) governmental policies and the legal and regulatory environment, including import and export contracts and tax provisions, (ix) levels of consumer consumption, (x) wage and price controls and (xi) political uncertainty and social unrest.

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Any of these factors, as well as volatility in the capital markets, may adversely affect our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations.

Economic volatility in Argentina has adversely affected and may continue to adversely affect our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations.

Our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations depend to a significant degree on macroeconomic, political, regulatory and social conditions in Argentina. The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high and variable levels of inflation and interest rates and currency devaluation. As a consequence, our business and operations have been, and could in the future be, affected from time to time, to varying degrees, by the high volatility in Argentina, which primarily results from economic and political developments and other material events affecting the Argentine economy, such as: inflation, price controls, fluctuations in foreign currency exchange rates and interest rates; currency devaluation; governmental policies regarding tariffs, spending and investment, and other regulatory initiatives increasing government involvement with economic activity and international conflicts, social unrest and insecurity concerns.

In 2018 and 2019, the peso experienced a rapid devaluation against major foreign currencies, particularly against the U.S. dollar. In particular, in 2019, immediately after the preliminary presidential elections (elecciones primarias, abiertas, simultáneas y obligatorias), the peso suffered a significant devaluation. According to the exchange rate information published by the Banco Nación, the peso depreciated by 58.9% against the U.S. dollar during the year ended December 31, 2019 (compared to 102.2% and 17.4% in the years ended December 31, 2018 and 2017, respectively). As a result of the peso’s increased volatility, in 2019, the Government announced several measures to control and restrict the ability of companies and individuals to exchange pesos for foreign currencies. Those measures include the requirement to obtain prior approval from the BCRA, which could eventually restrict the ability to exchange pesos for other currencies. Moreover, restrictions also apply to the acquisition of any foreign currency for holding as cash within Argentina. Additionally, the Government implemented a new tax at a rate of 30% on certain transactions involving the acquisition of foreign currency. For additional information see “Item 10. - C. Additional Information. - Exchange Controls.”

The ability of the Government to stabilize the foreign exchange market and restore economic growth is subject to uncertainty. The continued depreciation of the peso and the failure to meet its obligations with IMF could have a material adverse effect on Argentina’s economy and, consequently, our business, results of operations and financial condition.

In addition, this rapid devaluation has confronted inflationary pressures, evidenced by significantly higher fuel and food prices, among other indicators. Inflation in Argentina has contributed to a material increase in our operating costs, in particular labor costs, and negatively affected our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations. There can be no assurance that inflation rates will not escalate in the future, and the effects of measures adopted or that may be adopted in the future by the Government to control inflation are uncertain. See “—Government intervention in the Argentine economy could adversely affect our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations” and “-High levels of inflation and the lack of credibility regarding Argentina’s official inflation statistics, could negatively affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations.”

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The Argentine economy remains vulnerable, as reflected by the following economic conditions:

•

inflation, which remains high, and may continue to be high in the future;

•

volatility in real GDP, which according to the restated information released by INDEC decreased by 2.5% in 2014, grew by 2.7% in 2015, decreased by 2.1% in 2016, grew by 2.7% in 2017, decreased by 2.5% in 2018 and decreased by 2.2% in 2019;

•

Argentina’s public debt as a percentage of GDP, which remains high, and as of September 30, 2019, represented approximately 90% of the GDP;

•

the discretionary increase in public expenditures that has resulted (and continues to result) in a fiscal deficit;

•

high unemployment and informal employment rates;

•

high exchange rate volatility;

•

high fiscal and trade deficits;

•

an inability to pay public debt and the reperfilation of debt maturities;

•

limited access to funding in the local and international capital markets;

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agricultural exports, which fueled the economic recovery, have been affected by drought and lower prices than in prior years;

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fluctuations in international oil prices;

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unavailability of long-term credit to the private sector;

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the effects of a restrictive U.S. monetary policy, which could generate an increase in financial costs for Argentina;

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fluctuations in the BCRA’s foreign currency reserves;

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uncertainty with respect to the imposition of exchange and capital controls;

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the abrupt fall in the value of sovereign bonds and a decline in consumer confidence or foreign direct investment;

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the public health concerns derived from COVID and its scale and duration discussed below, which remain uncertain, but could impact our earnings, cash flow, liquidity, and financial condition; and

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other political, social and economic events abroad that adversely affect the current growth of the Argentine economy.

After assuming office in December 2019, President Alberto Fernández announced that his administration would continue with the BCRA’s zero currency issuance policy and increased taxes to finance the fiscal deficit. However, after COVID and the emergency measures taken by Fernandez’s administration, it is, as yet, uncertain if these policies can be sustained and the effects that these measures will have on the fiscal deficit and on the economy in general.

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As of the date of this Annual Report, the impact of the policies and measures adopted by the Government on the Argentine economy as a whole cannot be predicted. The factors described above, among other factors, may materially and adversely affect the development of the Argentine economy, which could adversely affect our business and financial condition and results of operations.

The ongoing political instability in Argentina may adversely affect the Argentine economy.

Argentina’s political and social environment has historically influenced, and continues to influence, the performance of the country’s economy. Political and social crises have affected and continue to affect the confidence of investors and the general public, which has historically resulted in economic deceleration and heightened volatility in securities with underlying Argentine risk. The recent political instability in Argentina has contributed to a decline in market confidence in the Argentine economy. Weak macroeconomic conditions in Argentina may continue in the upcoming years.

In March 2020, as a consequence of the COVID, the Government has taken several measures in order to reduce its impact on public health. These measures intensified the slowdown in the Argentine economy. In the current context of recession and considering the weak financial situation of the country that is renegotiating the terms of its financial indebtedness with creditors, these measures could mean a further deterioration in Argentina’s public accounts and its macroeconomic and financial situation.

We cannot provide any assurance that future economic, social and political developments in Argentina, over which we have no control, will not impair our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations.

The impact of reforms and measures taken or to be taken as a result of the change of administration are uncertain.

Similar to the primary elections held in August 2019, following the announcement of the result of the elections held in October 2019, in which the coalition of the Frente para Todos party was elected over the coalition in which Mauricio Macri was a part, the peso suffered a significant depreciation against the U.S. dollar, and Argentine companies’ shares listed on the BYMA fell on the order of 38%. There was also an abrupt escalation of the country default risk above 2000 basis points. All the above-mentioned events set off a critical, negative shockwave in Argentine financial markets and generated economic instability which resulted in the adoption of several measures, taken not only by the former administration but also by the ruling party:

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Alleviation measures. On August 14, 2019, in order to reduce the effects of the worsening economic situation, the Government took the following measures: (i) a minimum wage increase of 20% and a special deduction for retirees and formal employees, together with an increase in the minimum income amount for federal income taxes, now at Ps. 55,376 for single filing status and Ps. 70,274 for “married with children”; (ii) a deduction of 50% in taxable fees for self-employed workers; (iii) an exemption from employee contributions for salaried employees with a net salary below Ps. 60,000 (personal contributions 11% of net salary) during September and October with a maximum of Ps. 2,000 monthly; (iv) an exemption from tax contributions for simplified filers (Monotributistas) during September; (v) an increase of Ps. 1,000 per child during September and October, for beneficiaries of the universal child allowance (asignación universal por hijo); (vi) the establishment by the Administración Federal de Ingresos Públicos, of a 10-year moratorium for small- and medium-sized companies (as well as for self-employed workers and simplified filers); and (vii) a 90-day freeze on gas prices. The fiscal cost of these measures reaches Ps. 40,000 million.

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Rate of 0% on the value-added tax of “basic food basket. ” By Decree No. 567/2019 published in the Official Gazette on August 16, 2019, the Government enacted that the sale of items in the “basic food basket” (canasta básica de alimentos) would be exempt from value added tax to final consumers. The products that are part of this basic food basket are: sunflower oil, corn and mix, rice, sugar, preserved fruits, vegetables and beans, corn flour, wheat flour, eggs, whole milk, skim milk, bread, bread-crumbs, dry pasta, yerba mate, mate cocido, tea, whole yoghurt and non-fat yoghurt. The exemption was in place until December 31, 2019.

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Public Debt Reprofiling. On August 29, 2019, the Executive Branch published Decree No. 598/2019, pursuant to which certain exceptional measures were adopted to relieve tension in the financial and foreign exchange markets. The measures consist of (i) an extension on the payment term for short-term local bonds, only for institutional investors that will receive the full payments in terms of three and six months (15% on original maturity date, 25% and 60% at 3rd and 6th month of the original maturity date, respectively) and not for natural persons who acquired the bonds before July 31, 2019, who will receive full payment on the maturity date; (ii) a proposal to the Argentine Congress of a bill to extend the maturity dates of other local bonds, without reduction on the capital or interest; (iii) proposal to extend of the maturity dates of foreign bonds; and (iv) after achieving fiscal goals, the start of talks with the IMF in order to reprofile the deadlines to reduce the default risk in 2020 and 2023.

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Exchange control restrictions. The Executive Branch reinstated restrictions on the foreign exchange market through the Emergency Decree No. 609/2019 (“Decree 609”), published in the Official Gazette on September 1, 2019, stating that until December 31, 2019, foreign currency proceeds from the export of goods and services must be transferred and sold in the Argentine foreign exchange market and the purchase of foreign currency in the Argentine foreign exchange market and its transfer abroad will require prior approval, distinguishing between individuals and legal entities and empowering the BCRA to enact the relevant regulations in connection thereto. These exchange control restrictions remain in place, because of Emergency Decree No. 91/2019. For additional information see “Item 10.C. Additional Information. Exchange Controls.”

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Occupational Emergency. Through Executive Order No. 34/2019, on December 13, 2019, the Government of Alberto Fernández declared a public emergency in occupational matters for a term of 180 days. In case of dismissal without cause during said period, the affected worker will have the right to receive double compensation in accordance with current legislation.

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Solidarity Law. On December 23, 2019, the National Congress enacted the Solidarity Law. This law declared a public emergency in economic, financial, fiscal, administrative, pension, tariff, energy health and social matters, and pursuant to the Argentine Constitution, the Solidarity Law delegates legislative powers to the Executive Branch. For additional information see “Item 5. Operating and Financial Review and Prospects. A. Operating Results. Factors affecting our consolidated results and operations.”

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The current administration also took several other measures to reduce the impact of public service tariffs on the economy. These measures included: the freezing of tariffs, the pesification of electricity generation rates, and defferal of the payment of natural gas bills for certain consumers, among others. For additional information see “Item 4. Our information. B. Business overview. Natural gas transportation.”

As of the date of this Annual Report, the impact that the aforementioned measures have had or will have on the Argentine economy and on our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations as a whole cannot be fully assessed or predicted. In addition, we cannot predict how the current administration will address certain political and economic issues that were central during the Macri administration, or the impact that any measures taken or to be taken by the Fernández administration in connection with these issues will have on the Argentine economy as a whole. Also, we cannot assure that the Government or any of its political divisions will not adopt additional changes and reforms in tax matters, or that these reforms and those that may be adopted in the future will not adversely affect our business, results of operations or financial condition.

The Solidarity Law and the measures that the new administration has implemented could adversely affect our results of operations and financial condition.

The Solidarity Law declares, among other issues, the tariff and energy emergency, delegates to the Executive Branch broad legislative powers to ensure the sustainability of the public debt, regulates the tariff restructuring of the energy system through a renegotiation of the current Integral Tariff Renegotiation (“RTI”) and reorders the regulators of the energy system, among others. Likewise, the rates of public utilities for natural gas will remain unchanged for a maximum period of 180 days (since December 23, 2019).

This law also modified certain tax aspects previously modified by the administration of Mauricio Macri. As a result, the tax rate on personal property has been increased, a new 30% currency purchase tax has been created, and the previous changes in the income tax rates have been reversed, suspending the 25% reduction for the next years and providing that the result of the tax inflation adjustment must be paid in six installments, instead of three installments, as previously established. Additionally, and in order to meet the fiscal deficit, the pension adjustment system has been suspended for 180 days.

It is not possible to foresee the impact of this law or the measures that could be taken by the new administration at the national or provincial level, and the effect that such measures could have on the Argentine economy and on Argentina’s ability to meet its financial obligations, which could negatively affect our business, financial condition and results of operations. In addition, we cannot assure you that economic, regulatory, social and political events in Argentina will not affect business, financial condition or the results of our operations.

Failure to comply with the terms of the agreement with the IMF may adversely affect the Argentine economy and, as a result, our business.

In June 2018, the Government agreed with the IMF to implement a stand-by program for U.S.$50,000 million for a period of 36 months.

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The economic plan presented by the former administration to access this program sought to strengthen the country’s economy by restoring market confidence through a coherent macroeconomic program that would reduce financing needs, place Argentina’s public debt on a firm downward trajectory and strengthen the plan of inflation reduction through more realistic inflation targets and the strengthening of the BCRA’s independence. The main parts of the economic plan were: (i) the restoration of market confidence, (ii) protection of the most vulnerable segments of society by adjusting the national budget for social protection, (iii) a strengthening of the credibility of the BCRA inflation targeting framework, and (iv) a progressive reduction of the impossibility of payment.

In February 2020, the IMF held a round of meetings with the Government to discuss the recent macroeconomic developments and learn more about the economic plans and policies of the Fernandez Administration. The Argentine authorities are moving to address the difficult economic and social situation facing the country and have implemented a set of policies to address the rise in poverty, while also taking steps to stabilize the economy and secure a sustainable and orderly resolution of Argentina’s debt situation.

The staff of the IMF have stated that Argentina’s debt and debt service capacity have deteriorated decidedly compared to the IMF’s last debt sustainability analysis published in July 2019, in the context of the fourth review of Argentina’s economic performance under the 36 month stand-by arrangement with the IMF. Since July 2019, the peso has depreciated by over 40.0% against the U.S. dollar, sovereign spreads have suffered a significant increase, international reserves have declined by about U.S.$20 billion, and real GDP has contracted more than previously projected. As a result, gross public debt rose to nearly 90.0% of GDP by the end of 2019, which is 13 percentage points higher than the projection at the time of such fourth review.

In light of these developments, the IMF staff has assessed Argentina’s debt as unsustainable. Accordingly, a definitive debt operation—yielding a meaningful contribution from private creditors—is required to help restore debt sustainability with high probability.

The outcome of negotiations with the IMF and Argentina’s private creditors is uncertain and could have a material adverse effect in our business, results of operation and financial condition. The IMF and the authorities have stated that they will continue to engage closely, and further discussions are planned as the authorities continue defining their economic plans and policies.

As of the date of this Annual Report, we cannot predict exactly the outcome of such negotiations, what measures will be adopted to comply with the directives of the IMF or the consequences of these measures on the Argentine economy in general, or on our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations. Furthermore, we cannot predict that the measures that will be adopted in the future will enable Argentina to have sufficient funds to comply with its commitments to the IMF.

Public health threats could have an adverse effect on the Argentine economy and on our business, financial condition or results of operations.

Argentina could be adversely affected by the effects of a widespread outbreak of contagious diseases, including the recent outbreak of respiratory illness caused by the COVID. The COVID is currently impacting countries, communities, supply chains and markets. As the outbreak is still evolving, much of its impact remains unknown. The extent to which the COVID may impact Argentina, or our business, financial condition, results of operations, liquidity and prospects, will depend on future developments, which are highly uncertain and cannot be predicted, including new information concerning the severity of the COVID, its continued spread, fear of its continued spread, and the actions taken to contain it or mitigate its impact, among others. As of the date of this Annual Report, COVID has caused significant volatility in global markets, including the market prices of securities issued by Argentina and of our securities. As a result, access to capital markets has been adversely affected by COVID. Measures implemented by the Government to control the spread of the COVID include quarantines or closures of office spaces, travel and transportation restrictions and/or import and export restrictions, all of which has contributed to a general slowdown in the Argentine economy, and may adversely impact our ability to operate our business and the businesses of our customers and counterparties. The global and local recession scenario due to the effect of COVID has caused a rapid drop in the price of the main commodities exported by Argentina, which has considerably affected the country’s tax collection and economic activity, generating a high degree of uncertainty regarding its economic development and the possibility of renegotiating its financial indebtedness.

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In addition, governmental authorities may recommend or impose additional measures that could cause further significant disruptions to business activity in general. We have also modified certain of our business activities by changing our cleaning procedures, implementing remote work capabilities and suspending certain business activities. The impact of the COVID on the financial markets has also adversely affected the cost of borrowing, hedging activities, liquidity and access to capital in general, which could limit our ability to obtain financing to fund our operations in a timely manner, on acceptable terms or at all. For additional information regarding the impact of COVID on our results and financial situation see “Item 5. –Operating and Financial Results Review and Prospects - A. Operating Results.”

In addition, the slowdown in economic activity caused by the COVID and other internal factors and permanent changes in customer habits may result in a decrease in the demand for energy even after any governmental measures have been lifted.

While the impact on our business from the recent outbreak of the COVID is unknown at this time and difficult to predict, any of the foregoing events or other unforeseen consequences of public health problems could materially adversely affect Argentina and various aspects of our business, financial condition, results of operations and liquidity.

We will continue to monitor the situation and adjust our current policies and practices as more information and guidance become available.

High levels of inflation and the lack of credibility regarding Argentina’s official inflation statistics could negatively affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations.

Pursuant to Argentine law, the INDEC is the only institution in Argentina entitled to publish official nationwide statistics. In addition, inflation has undermined the Argentine economy and the Government’s ability to stimulate economic growth. In the past, there have been concerns regarding the accuracy of the INDEC statistics. In 2007, the INDEC changed the way it calculated inflation statistics such as CPI and WPI. Several economists, as well as the international and Argentine press, have suggested that this change in methodology was related to the policy of the Government intended to curb the increase of inflation. In addition, the IMF has requested several times that Argentina clarify the information on inflation rates published by the INDEC.

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Despite consultations between the Government and the IMF regarding the reliability of the INDEC’s statistics, in February 2013, the IMF Executive Board issued a declaration of censure against on Argentina in connection with Argentina’s breach of its obligations to provide information to the IMF under the Articles of Agreement and called on Argentina to adopt remedial measures to address the inaccuracy of inflation and GDP data without further delay.

On February 13, 2014, the INDEC released a new inflation index (the “IPCNu”) that measured prices on goods across the country, replacing the previous index that only measured inflation in the urban sprawl of the City of Buenos Aires. The IPCNu, together with the GDP calculation, was reviewed by the IMF. During 2015, the IMF ruled that these indicators did not comply with its statutes, so it maintained an ongoing review process. Concerns regarding statistics in Argentina remained until January 8, 2016, when Decree No. 55/2016 and the declaration of a state of administrative emergency in the national statistical system and in the INDEC until December 31, 2016, was issued. Following this declaration, the INDEC ceased publishing statistical data until a rearrangement of its technical and administrative structure was finalized on December 31, 2016.

On June 29, 2016, the INDEC published recalculated historical GDP data, modifying the previously released data and substituting the IPCNu. Following the publication of revised data, on November 9, 2016, the Executive Board of the IMF concluded consultation with, and lifted its censure of, Argentina.

According to inflation data published by the INDEC, in 2013 and 2014, the CPI increased 10.9% and 23.9%, respectively. In 2013 and 2014, the WPI increased 14.7% and 28.3%, respectively, and further increased 10.6% in the ten-month period ended October 31, 2015. The INDEC discontinued the publication of data from November 2015 through May 2016 following the declaration of a state of administrative emergency in the national statistical system. During that period, the INDEC released alternative CPI figures based on data published by the Province of San Luis and the City of Buenos Aires. These indexes reflected an increase in CPI of 31.6% and 26.9%, respectively, for 2015. For the first four months of 2016, these same alternative indexes showed an increase in CPI of 13.9% and 19.2%, respectively.

In June 2016, the INDEC resumed publication of monthly data. The reported increase in CPI for the period from May through December 2016 was 16.9%. In 2018 and 2017, CPI registered an increase of 47.6% and 24.8%, respectively. In 2018, 2017 and 2016, the WPI increased by 73.5%, 34.5% and 18.8%, respectively, according to information published by the INDEC.

Certain private economists have estimated significantly higher inflation rates than those published by the INDEC for the period from 2007 to 2015. The uncertainty relating to the inaccuracy of the economic indexes and rates may lead to a lack of confidence in the Argentine economy and may, in turn, limit our ability to access credit and capital markets, which could adversely affect our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations.

The INDEC in 2019 reported that the CPI increased 53.8% compared to 2018, while the WPI increased 58.5% compared to 2018. Additionally, in 2019, the CPI increased, 2.8%, 3.8%, 4.8%, 3.2%, 3.0%, 2.6%, 2.1%, 3.9%, 5.8%, 3.2%, 4.1% and 3.8% in January, February, March, April, May, June, July, August, September, October, November and December, respectively, and the WPI increased 0.6%, 3.4%, 4.1%, 4.6%, 4.9%, 1.7%, 0.1%, 11.2%, 4.2%, 3.6%, 5.4% and 3.7% during the same months. During January, February and March 2020, inflation remained at high levels, where the CPI increased by 1.9%, 1.8% and 3.3%, respectively, on a month-to-month basis.

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High inflation rates affect Argentina’s foreign competitiveness and social and economic inequality; negatively impact employment, consumption and the level of economic activity; and undermine confidence in Argentina’s banking system, which could further limit the availability of and access by local companies to domestic and international credit. Inflation rates could escalate in the future, and there is uncertainty regarding the effects that the Government´s measures to control inflation may have. Increased inflation could adversely affect the Argentine economy, which in turn may have an adverse effect on our business, financial condition and results of operations.

Inflation has, in the past, materially undermined the Argentine economy and the government’s ability to foster conditions that would permit stable growth. Currently, Argentina faces inflationary pressures, evidenced by significantly higher fuel, energy and food prices, among other factors. Increases in inflation rates could accelerate in the future, and there is uncertainty regarding the effects that the measures adopted, or that may be adopted in the future, by Argentina to control inflation may have.

As discussed elsewhere in this Annual Report, given that the Argentine economy has been considered as hyperinflationary, since July 1, 2018, we have applied IAS 29 in our Financial Statements, which requires that the financial statements of an entity whose functional currency is that of a hyperinflationary economy, regardless of whether they are based on the historical cost method or the current cost method, be expressed in terms of the current unit of measurement at the reporting date of the reporting period. See “—Presentation of Financial and Other Information Financial—Statements and Basis of Preparation.”

Because Natural Gas Transportation business segment sales represented 46.6% of our total revenues during the year 2019, and are denominated in pesos, any further increase in the rate of inflation not accompanied by a parallel increase in our tariffs would decrease our revenues in real terms and adversely affect our results of operations. Further, as a consequence of the application of IAS 29, maintaining monetary assets generates loss of purchasing power; provided that such items are not subject to an adjustment mechanism that compensates to some extent such loss. This loss is booked in the statement of comprehensive income.

The implementation of exchange controls, the tightening of restrictions on transfers abroad or capital inflow restrictions could limit the availability of international credit and could threaten the financial system, which may adversely affect the Argentine economy.

From 2011 until the Macri administration assumed office in December 2015, Argentina increased controls on the sale of foreign currency, limiting transfers of funds abroad. Together with regulations established in 2012 that subjected certain foreign exchange transactions to prior approval by Argentine tax authorities or the BCRA, the measures taken by the previous administration significantly curtailed access to the foreign exchange market by individuals and private sector entities. These measures included informal restrictions, which consisted of de facto measures restricting local residents and companies from purchasing foreign currency through the foreign exchange market to make payment abroad, such as dividends and payment for the importation of goods and services. Since assuming office, the Macri administration has gradually implemented a series of reforms related to these foreign exchange restrictions in order to provide greater flexibility and access to the foreign exchange market.

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In September 2018, the BCRA established a new monetary policy with the aim of reducing the inflation rate. The BCRA committed not to increase the monetary base until June 2019 and defined the ranges for an intervention zone and a non-intervention zone applicable to the exchange rate through the end of 2018. On December 5, 2018, BCRA announced that the limits of the non-intervention zone would be updated daily at a monthly rate of 2% between January 1 and March 31, 2019. On April 29, 2019, the BCRA’s Monetary Policy Committee (Comité de Política Monetaria del Banco Central) introduced changes in monetary policy, aiming to reduce the volatility of the foreign exchange market.

In the context of the economic and social emergency declared by the Solidarity Law, and of a critical situation regarding access to voluntary foreign debt, the BCRA considers it necessary to exceptionally assist the Treasury, in regard to both foreign debt payments and financing in domestic currency. Considering that the Government is focused on reestablishing public debt sustainability, the Executive Branch delayed the presentation of the National Budget for the 2019 fiscal year, until progress can be made on those issues. Thus, according to the BCRA, it is not possible to devise a monetary policy strategy with specific objectives about the expansion of monetary aggregates or inflation.

Additionally, due to the sudden devaluation of the peso since August 15, 2019, and in order to preserve the foreign exchange market in Argentina, the Executive Branch issued Decree 609 which provides that exporting companies must sell their proceeds in the local market. Decree 609 states that the BCRA shall issue all necessary rules to organize the foreign exchange market. These exchange control restrictions remain in place, because of Emergency Decree No. 91/2019.

Through communications “A” 6770, 6765, 6768, 6776, 6780, 6844, 6869 and 6915, the BCRA established new exchange controls for companies and individuals, which limit their ability to access the foreign exchange market, requiring BCRA’s consent for all purchases of foreign currency. These measures restrict the movement of capital, in response to capital flight and a significant depreciation of the peso.

Such measures could undermine Argentina’s public finances, which could limit access to the international capital markets. This could adversely affect Argentina’s economy, which, in turn, could adversely affect our business. Any restrictions on transferring funds abroad imposed by the Government could undermine our ability to pay dividends on our ADSs or make payments (of principal or interest) under our outstanding indebtedness in U.S. dollars, as well as to comply with any other obligations denominated in foreign currency. As of the date of this Annual Report, it is uncertain whether these measures will be temporary, or if the Government will take further measures to restrict the foreign exchange market, which could adversely affect Argentina’s economy.

Fluctuations in the value of the peso may also adversely affect the Argentine economy, our financial condition and results of operations.

Since January 2002, the peso has fluctuated significantly in value and generally depreciated against the U.S. dollar, with adverse consequences to our business. A substantial increase in the value of the peso against the U.S. dollar could also present risks for the Argentine economy since it may lead to a deterioration of the country’s current account balance and the balance of payments. Between 2011 and December 2015, the Government strengthened exchange controls in response to an increase of capital outflows as compared to inflows and to a drop in the commercial surplus. However, these controls were not able to prevent the decrease of the international reserves of the BCRA between 2012 and 2015. In the past, a decrease in the BCRA’s reserves resulted in Argentina being vulnerable to inflation and external shocks, affecting the country’s capacity to overcome the effects of an external crisis.

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After several years of moderate fluctuations in the exchange rate, on December 17, 2015, Macri’s administration implemented certain measures including the lifting of most of the foreign exchange controls. As a result, the official exchange rate published by Banco Nación increased from Ps. 9.83 per U.S. dollar on December 16, 2015, to Ps. 13.95 per U.S. dollar on December 17, 2015. After these measures were taken, the value of the peso could freely fluctuate against the U.S. dollar. The period-end exchange rate published by Banco Nación for the years 2016 and 2017 was Ps. 15.8900 and Ps. 18.6490 per U.S.$ 1.00, respectively.

Subsequently, in May 2018, the peso experienced a rapid devaluation against the main foreign currencies, particularly the U.S. dollar. As a result of the greater volatility of the peso, the Government announced several measures to restore market confidence and stabilize the value of the peso. In this regard, on December 31, 2018, the exchange rate of the U.S. dollar increased by 102.1%, from Ps. 18.649 to Ps. 37.7.

After the primary elections (elecciones primarias, abiertas, simultáneas y obligatorias) held in August 2019, the peso experienced again a rapid devaluation against the main foreign currencies, particularly the U.S. dollar. Between August 9, 2019 and August 16, 2019, the exchange rate increased by 21.5%. Since the Government imposed several restrictions on the foreign exchange market on September 1, 2019, the official exchange rate depreciated only 1.7% between such date and December 31, 2019. Since then, an unofficial U.S. dollar trading market has developed in which the peso/U.S. dollar exchange rate is significantly higher than the rate in the foreign exchange market.

As of December 31, 2019, the total amount of principal and accrued but unpaid interest under our consolidated U.S. dollar-denominated indebtedness was U.S.$ 560.7 million.

We cannot predict the future exchange rate between peso and the U.S. dollar, or how any fluctuation may affect our operational costs denominated in U.S. dollars.

Further depreciation of the peso against the U.S. dollar would likely result in a material adverse effect on our business because of our exposure to financial debt in U.S. dollars. In addition, future devaluations could result in higher inflation, reduce real wages and adversely affect the Government’s ability to honor its foreign debt obligations. Conversely, a significant appreciation of the peso could harm the competitiveness of companies domiciled in Argentina and lead to reduced exports.

A lack of a transparent and rigorous framework for awarding and managing public contracts in Argentina and corruption allegations have affected and continue to affect Argentina.

Argentina is ranked 85 out of 180 in Transparency International’s 2018 Corruption Perceptions Index and 117 of 190 in the World Bank’s Doing Business 2018 report. As of the date of this Annual Report, there are various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Argentine Federal Prosecutor, including one of the largest investigations known as the Notebooks Investigation (Los Cuadernos de las Coimas) (the “Notebooks Investigation”). Numerous former members of different agencies of Argentina as well as senior officers and owners of companies holding government contracts or concessions have confessed to committing allegedly prohibited acts or have faced or are currently facing allegations of corruption and money laundering as a result of the Notebooks Investigation. Certain former government officials have confessed or are alleged to have accepted bribes by means of kickbacks on contracts granted by the government to several infrastructures, energy and construction companies. The proceeds from these kickbacks allegedly financed the political campaigns of political parties forming the previous government led by former Presidents Nestor Kirchner and Cristina Fernandez de Kirchner. In addition, these funds were unaccounted for or not publicly disclosed and were allegedly used to personally enrich certain individuals. Several senior politicians, including former members of the Argentine Congress, the former Vice President of Argentina and high-ranking executives and officers and owners of major companies in Argentina have been arrested on account of various charges relating to corruption, have entered into agreements with prosecutors (Acuerdos de Colaboración) to confess and/or provide sensitive information in exchange for a possible reduction of sentences upon conviction, and have resigned or been removed from their positions. The potential outcome of the Notebooks Investigation as well as other ongoing corruption and money laundering investigations is uncertain, but the Notebooks Investigation has already had an adverse impact on the image and reputation of those companies whose owners or officers have been implicated, and more generally on international investors’ perception of the Argentine economy, political environment, capital markets and the infrastructure sector in Argentina.

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Recognizing that the failure to address these issues could increase the risk of political instability, distort decision making processes and adversely affect Argentina’s international reputation and ability to attract foreign investment, the Macri administration announced several measures aimed at strengthening Argentina’s institutions, enhancing the integrity of public officials and reducing corruption. These measures include the reduction of criminal sentences in exchange for cooperation with the government in corruption investigations, increased access to public information, the seizing of assets from corrupt officials, increasing the powers of the Anticorruption Office (Oficina Anticorrupción) and the passing of a new public ethics law, among others. The government’s ability to implement these initiatives is uncertain as they would be subject to legislative support or resistance from certain parties, as well as independent review by the judicial branch.

There can no be any assurance that the implementation of these measures by Argentina will be successful or even sufficient in strengthening Argentina’s institutions, enhancing the integrity of public officials, stopping institutional deterioration and preventing corruption. We cannot control or predict whether such investigations or allegations will lead to further political or economic instability or whether new allegations against government officials, members of the Argentine Congress, judges or owners or officers of other companies will arise, nor can we predict the outcome of any such allegations and their effect on the Argentine economy, which may be adverse.

Government intervention in the Argentine economy could adversely affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations.

In addition to the economic factors described above, our business and operations have been, are and could in the future be affected by actions taken by the Government through the implementation of new or amended laws and regulations, such as nationalizations, expropriations, forced divestiture of assets, amendments to or renegotiation or revocation of a license, restrictions on production, imports and exports, exchange and/or transfer restrictions, including those relating to dividend payments, direct and indirect price controls, tax increases, changes in the interpretation or application of tax laws and other retroactive tax claims or challenges, cancellation of contractual rights and delays or denials of governmental approvals.

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There have been examples of government intervention in the economy, including through the implementation of expropriation and nationalization measures, price controls and exchange controls.

In 2008, the Government absorbed and replaced the former private pension system with a public “pay as you go” pension system. As a result, all resources administered by the private pension funds, including significant equity interests in a wide range of listed companies, were transferred to a separate fund (Fondo de Garantía de Sustentabilidad or “FGS”) to be managed by the Administración Nacional de la Seguridad Social (“ANSES”). ANSES is entitled to designate government representatives to the boards of directors of these companies. ANSES currently holds 24.0% of our outstanding capital stock and has two representatives on our Board of Directors. On July 25, 2012, the Executive Branch issued Decree No. 1,278/12, which governed FGS representatives’ role in companies in which FGS had participation. For additional information regarding rules and regulations that govern our relationship with FGS see “Item 7. Major Shareholders and Related Party Transactions.”

In May 2012, the Argentine Congress passed Law No. 26,741, which declared hydrocarbons, production, industrialization, transport and marketing to be activities of public interest and primary goals of Argentina, and empowered the Government to take the necessary measures to achieve such goals. Law No. 26,741 expropriated 51% of the shares of YPF S.A. (“YPF”). Our business and operations in Argentina may also be adversely affected by measures adopted by the Government to address inflation and promote sustainable growth. For example, if we are not permitted to pass increases in the costs of our services and labor along to customers through the tariffs we charge due to the imposition of price controls, those costs could negatively affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations. See “—Risks Relating to Our Business— Failure or delay in the implementation of anticipated tariff increases could have a material adverse effect on our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations. In addition, our inability to obtain tariff adjustments reflecting the increase in operating cost could harm the development of our Natural gas transportation business segment.”

In the past the Government has also adopted numerous measures to directly or indirectly control the access by private companies and individuals to foreign trade and foreign exchange markets, such as restricting free access to these markets and imposing the obligation to repatriate and sell within the local foreign exchange market all foreign currency revenues obtained from exports. These regulations have been recently reinstated preventing or limiting us from offsetting the risk derived from our exposure to the U.S. dollar and the access to foreign exchange market.

In 2012 and again in 2013, the Argentine Congress established new regulations providing for increased intervention in the capital markets by the Government. On May 9, 2018, the Macri administration approved an amendment to the Law of Productive Financing, including amendments to the Capital Markets Law of Argentina No. 26,831 (the “Capital Markets Law”), which would, among other things, limit the scope of intervention by the CNV in public companies.

More recently, due to the economic and political instability in Argentina, the Government took certain measures, for example, it issued Decree No. 566/2019, which affects fuel prices for a period of 90 days. As of the date of this Annual Report, we cannot predict the results of such measures or the impact of these measures on the hydrocarbons development in Argentina. We are also unable to predict whether the Government will take any additional measures that may negatively affect Argentina’s hydrocarbons market.

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A low-growth and high-inflation rates scenario continues and is likely going forward, as a result of the accumulation of macroeconomic imbalances over recent years, the actions of the Government in regulatory matters and challenging conditions in the international economy. We can offer no assurance that policies implemented by the Government will not adversely affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations.

Argentina is an emerging market economy that is highly sensitive to local political developments that have had an adverse impact on the level of investment in Argentina and the access of Argentine companies to the international capital markets. Future developments may adversely affect Argentina’s economy and, in turn, our business, results of operations, financial condition, the value of our securities and our ability to meet our financial obligations.

We cannot provide any assurance that we will be able to access foreign exchange markets or that these measures will not cause fluctuations in the value of the peso. The setting of certain exchange controls and other future economic, social and political developments in Argentina, over which we have no control, may adversely affect our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations. For additional information on developments relating to exchange controls, see “Item 10 –Additional Information— D. Exchange Controls.”

The Argentine economy may be adversely affected by economic developments in other markets and by more general effects, which could have a material adverse effect on Argentina’s economic growth.

Argentina’s economy is vulnerable to external shocks that could be caused by adverse developments affecting its principal trading partners and emerging markets. A significant decline in the economic growth of any of Argentina’s major trading partners could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economic growth. For example, economic slowdowns, especially in Argentina’s major trading partners, have led to declines in Argentine exports in the last few years. Specifically, fluctuations in the price of the commodities sold by Argentina and a significant revaluation of the peso against the U.S. dollar could harm Argentina’s competitiveness and affect its exports.

The economy in Brazil, one of the main import and export markets for Argentina, has experienced rising negative pressure because of political uncertainty. After two years of retreat, in 2017, 2018 and 2019, the Brazilian economy grew by 1.1%, 1.3% and 1.1%, respectively. Since January 1, 2020, the Brazilian real depreciated against the U.S. dollar by approximately 17.5%, putting pressure on the products that Argentina exports to that country and its competitiveness. Argentine foreign trade is highly dependent on the Brazilian economy; thus, a poor performance of Brazil’s economy could lead to the deterioration of Argentina’s trade balance. Additional Brazilian political and economic crises could negatively affect the Argentine economy.

Financial and securities markets in Argentina are also influenced by economic and market conditions in other markets worldwide. U.S. monetary policy has significant effects on capital inflows and asset price movements in emerging market economies. Increases in U.S. interest rates result in the appreciation of the U.S. dollar and decreases in prices for raw materials, which can adversely affect commodity-dependent emerging economies.

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Additionally, a slowing of China’s GDP growth has led to a reduction in exports to this Asian country, which in turn has caused oversupply and price declines in certain commodities. Decreases in exports have a material adverse effect on Argentina’s public finances due to the loss of taxes on exports, causing an imbalance in the country’s exchange market.

On June 23, 2016, the United Kingdom voted in favor of exiting the European Union. On March 29, 2017, UK Prime Minister Theresa May triggered the Brexit process. The United Kingdom left the European Union on January 31, 2020, on the terms of the withdrawal agreement concluded between the United Kingdom and the EU Council. The withdrawal agreement allows for a transition period during which the United Kingdom’s trading relationship with the European Union will remain largely unchanged. This transition period is due to end on December 31, 2020. As of the date of this Annual Report, uncertainty remains over the United Kingdom’s future relationship with the European Union after 2020. The continued uncertainty over the Brexit process has caused, and is anticipated to continue to cause, volatility in the financial markets, which may in turn have a material adverse effect on our business, financial condition and results of operations.

At the end of 2015, the U.S. Federal Reserve began increasing its reference interest rate following more than five years of an interest rate close to zero, moving away from its post-2008 crisis stimulus campaign. In September 2018, the U.S. Federal Reserve increased the federal funds interest rate by a quarter point (it set the repo rate at 2.0% and the interest on excess reserves at 2.25%, the highest range in more than a decade) and indicated that this is part of a broader plan to increase rates in order to control inflation in the United States. This substantially increased the cost of financing in international markets, while motivating the migration of investors from risk and emerging economies to central economies (fly to quality). Although the U.S. Federal Reserve reduced the reference rate three times in 2019 lowering the benchmark rate to 1.5% to 1.75%, if the U.S. Federal Reserve reverses its policy and resolves to continue with its policy of increasing the reference rate, this could have a profound impact on the sovereign and corporate financing of Argentina.

In addition, the current United States presidential administration has created uncertainty regarding United States policies related to trade, tariffs, immigration and foreign affairs. This uncertainty has generated instability and adversely affected Argentina’s economy. Any changes in United States trade policy could trigger retaliatory actions by affected countries and trading blocs, including China and the European Union, resulting in “trade wars,” increased costs for goods exported to the United States and additional volatility and instability globally.

Commercial disputes between the U.S. and China have negatively affected international trade, commodities prices and financial markets, generating uncertainty and volatility, which mainly affect emerging countries. China is the main importer of Argentine commodities, and the slowdown of the Chinese economy, the adoption and expansion of trade restrictions, changes in the state of China‑U.S. relations, including the current trade tensions, or other governmental actions related to tariffs or trade agreements or policies are difficult to predict, and could adversely affect our business, our costs, our customers, our suppliers, and the Chinese and U.S. economies, which in turn could have a material adverse effect on our cash flows, competitive position, financial condition or results of operations.

Since October 18, 2019, protests and unrest have unfolded in Chile, sparked by a metro fare hike, and fueled by anger over rising living costs and inequality. The military and police quelled protesters who took to the streets, and a curfew was imposed in major cities in Chile. As of the date of this Annual Report, the curfew had been suspended but the unrest and protests remain latent and we cannot anticipate what the consequences and results of these protests will be.

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On January 3, 2020, a United States drone strike near Baghdad International Airport targeted and killed Iranian major general Qasem Soleimani. This decision represented a grave escalation in hostilities between the United States and Iran. While both sides have signaled a desire to pull back since these strikes, there is no assurance that future hostilities will not have an adverse effect on the global economy.

Besides, in March 2020, after a failure to reach an agreement between the members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia to stabilize the oil market, Saudi Arabia decided to increase its oil production. This decision, at a time when oil demand is falling due to the impact of COVID in the global trading and economy, has triggered the most important decline in the oil price since 1991, of around 30%. This fall in the international prices of oil and its derivatives has added to the fragile macroeconomic situation in Argentina, generating uncertainty regarding the production and development of natural gas in the country, especially in the Vaca Muerta area. On April 12, 2020 Saudi Arabia, Russia and the members of the OPEC agreed to decrease oil production production by 9.7 million barrels a day in May and June 2020, the deepest cut ever agreed to by the world’s oil producers. After that, the group will steadily ramp up production until the agreement expires in April 2022. There can be no assurances about the impact of this agreement or about measures that the Government may take in response to key macroeconomic variables and particularly on the energy sector.

Although economic conditions vary from country to country, investors’ perceptions of events occurring in other countries have in the past substantially affected, and may continue to substantially affect, capital flows into and investments in securities from issuers in other countries, including Argentina. International investors’ reactions to events occurring in one market sometimes demonstrate a “contagion” effect in which an entire region or class of investment is disfavored by international investors. Argentina could be adversely affected by negative economic or financial developments in other countries, which in turn may have an adverse effect on our financial condition and results of operations.

Certain economic policies of the former government administration in Argentina, including foreign exchange restrictions, led in the past to a reduction in exports and foreign direct investments, to a decline in national tax revenues and to an inability to access international capital markets. There can be no assurance that the Argentine financial system and securities markets will not be adversely affected by policies that may be adopted by the government in the future or by events in the economies of developed countries or in other emerging markets. A slowdown in economic activity in Argentina would adversely affect our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations.

Argentina’s past default and litigation with holdout bondholders may limit our ability to access international markets.

Argentina’s history of defaults on its external debt and the protracted litigation with holdout creditors, summarized below, may reoccur in the future and prevent Argentine companies such as us from accessing the international capital markets readily or may result in higher costs and more onerous terms for such financing, and may therefore negatively affect our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations.

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Following the default on its external debt in 2001, Argentina sought to restructure its outstanding debt by offering holders of the defaulted bonds two opportunities to exchange them for newly issued debt securities, in 2005 and again in 2010. Holders of approximately 93% of Argentina’s defaulted debt participated in the exchanges. Nonetheless, a number of bondholders held out from the exchange offers and pursued legal actions against Argentina in the courts of the United States and several other countries.

After almost 15 years of litigation, and following the beginning of Mr. Macri’s administration, in February 2016, Argentina negotiated and reached settlement agreements with almost all of its holdout creditors. As required by the settlement, on March 31, 2016, the Argentine Congress voted to repeal Law No. 26,017 (known as Ley Cerrojo) and Law No. 26,984 (known as Ley de Pago Soberano), which prohibited Argentina from offering to the holdouts better conditions than those offered in the debt swaps of 2005 and 2010. On April 13, 2016, Argentina announced that it would proceed with a new bond offering of up to U.S.$12.5 billion to repay the holdouts. After issuing U.S.$16.5 billion of new bonds to international investors, on April 22, 2016, Argentina notified the competent U.S. court that it had made full payment under the settlement agreements with the holdout creditors. Although the size of the claims involved has decreased significantly, litigation initiated by bondholders that have not accepted Argentina’s settlement offer continues in several jurisdictions.

However, even though Argentina has successfully accessed the international capital markets since the settlement, there continues to be a risk that the country will not attract the foreign direct investment and financing needed to restart the investment cycle and achieve sustainable rates of economic growth. If that occurs, Argentina’s fiscal condition could be adversely affected, which could lead to more inflation and undermine the government’s ability to implement economic policies designed to promote growth. The difficulty of sustaining economic growth over time with reasonable price stability could result in a renewed episode of economic instability.

In addition, the foreign shareholders of several Argentine companies (including us), together with public utilities and certain bondholders that did not participate in the exchange offers described above, filed claims with the International Centre for Settlement of Investment Disputes (“ICSID”), alleging that the emergency measures adopted by the Government in 2002 did not meet the just and equal treatment requirements of several bilateral investment treaties to which Argentina is a party. Several of these claims have been resolved against Argentina. Claimants have also filed claims before arbitral tribunals under the rules of the United Nations Commission on International Trade Law (UNCITRAL) and under the rules of the International Chamber of Commerce. Several awards have been issued against Argentina and several cases are still ongoing.

As of December 31, 2019, Argentina’s public debt amounted to U.S.$ 323 billion. The Solidarity Law, among other things, delegates to the Executive Branch legislative powers to create conditions to ensure the sustainability of public debt. On February 12, 2020, the Argentine Congress enacted the Law No. 27,544 for the Restoration of the Sustainability of the Public Debt issued under Foreign Law, which granted the Ministry of Economy the power to restructure the Government external public debt.

On February 13, 2020, U.S.$1.6 billion of dual currency bonds issued by Argentina’s government matured. During February 2020, the Government launched an offer to exchange the dual currency bonds with new peso-denominated bonds due in 2021, but only about 10% of the aggregate principal amount of the dual currency bonds was tendered. Following the failure of the exchange offer, the Government sought to sell another peso-denominated bond, but ultimately terminated that plan. The Government then issued Decree No. 141/2020, pursuant to which it postponed the payment of principal and suspended the accrual of interest under the dual currency bonds until September 30, 2020.

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On March 10, 2020, Decree No. 250/2020 was issued. It confirms the proposal of the Government to restructure approximately U.S.$ 69 billion of public debt. Issued on April 6, 2020, Decree No. 349/2020 postpones until December 31, 2020 principal and interest payments of certain Argentine public local debt. Finally, on April 17, 2020 the Government made a proposal for the debt restructuring to foreign bondholders. As of the issuance of this Annual Report, the outcome of Argentine debt restructuring is uncertain.

If the Government does not restructure its sovereign bonds with the required majority of holders (at least 75% in principal amount) Argentina may default on its sovereign debt again. Also, ongoing situations, such as the lawsuits with creditors that did not accept the debt exchange, the claims before the ICSID, and the economic policy measures adopted by the Government, or any future default of Argentina regarding its financial obligations may harm Argentine companies’ ability to obtain financing. Financial conditions of such access could be disadvantageous to Argentine companies and, therefore, may adversely affect our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations.

A sustained deterioration in the terms of trade given a decline in the global prices for Argentina’s main commodity exports or an increase in the global prices for Argentina’s main commodity imports, as well as adverse weather conditions affecting the production of Argentina’s main commodity exports, could have an adverse effect on Argentina’s economic growth.

High commodity prices have contributed significantly to an increase in Argentine exports, which has in turn led to an increase in government revenues received from export taxes. However, the reliance on the export of certain commodities, such as soybeans, has made the Argentine economy vulnerable to fluctuations in commodity prices, and, consequently, the Argentine economy could be adversely affected if trading conditions decline.

In addition, adverse weather conditions, such as floods or droughts, could affect the production of the main agricultural commodities produced by Argentina, which account for a significant portion of its export revenues. Moreover, higher oil prices could lead to an increase in government expenditures. The drought experienced during the summer months of 2018 dramatically reduced the yield from Argentina’s soybean crop. Most recently, after the outbreak of the COVID and the slowdown in the demand for and supply of products around the globe, stock markets and the prices of the main commodities have declined dramatically.

On March 7, 2020, Saudi Arabia, the world’s largest oil exporter drastically reduced the price of its crude. At the same time, Saudi Arabia has decided to increase its production, reaching a record of 12 million barrels per day. These decisions were taken after the talks between the OPEC participants and Russia had failed. On March 9, 2020, oil markets opened showing significant reductions, for example, the reference oil for the local market (Brent) had lost 35% so far this year and collapsed U.S.$11 more per barrel. On April 12, 2020 Saudi Arabia, Russia and the members of OPEC reached an agreement on oil production.

Decisions relating to international oil prices could have a negative impact on Argentina’s economy as, to achieve a fiscal surplus, the country should develop new production projects, such as Vaca Muerta formation, increase its revenues and maintain its ability to service its sovereign debt. Either of these results would adversely impact Argentina’s economic growth and, therefore, our financial condition and results of operations.

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High public expenditures could result in long-standing adverse consequences for the Argentine economy.

In recent years, Argentina has substantially increased public expenditure. The Government’s primary fiscal balance could be negatively affected in the future if public expenditure continues to increase at a rate higher than revenues due to, for example, social security benefits, financial assistance to provinces with financial problems and increased spending on public works and subsidies, including subsidies to the energy and transportation sectors. Further deterioration in fiscal accounts could negatively affect the government’s ability to access the long-term financial markets.

In connection with the agreement entered into with the IMF in 2018, the Macri administration committed to address fiscal solvency and, thus, undertook steps to curb the fiscal deficit by reducing gas and transport subsidies and other expenses. However, these policies have led to higher prices and thus had a negative impact on consumer purchasing power. After assuming office, the new government authorities, within the framework of the Solidarity Law, taking care of the most vulnerable sectors, have taken a series of measures that have halted the reduction in public spending.

The implementation of new measures in the future could also have negative effects. Furthermore, the federal government’s primary fiscal balance could be negatively affected if public expenditure increases faster than revenues in the future. Moreover, weaker fiscal results in Argentina than those envisaged could have a material adverse effect on Argentina’s economy.

Further downgrades in the credit rating or rating outlook of Argentina could impact the rating of our securities or adversely affect the market price of our securities.

In August 2018, Moody’s revised its outlook of Argentina’s long-term and short-term sovereign credit rating to Caa2, primarily as a result of the sharply weaker economic activity and uncertain prospects for multiyear fiscal consolidation and market financing availability as IMF funds are used up, posing risks to sovereign debt sustainability. In addition, on August 29, 2019, S&P downgraded Argentina’s long-term and short-term sovereign credit ratings from “B” to “SD,” primarily as a result of an erosion of the Argentine debt profile, the economic growth trajectory and the dynamics of inflation against the backdrop of the implementation of a challenging economic adjustment program. There can be no assurance that Argentina’s credit rating or rating outlook will not be downgraded in the future, which could have an adverse effect on the rating of our securities or adversely affect the market price of our securities.

Risks Relating to Our Business

Failure or delay in the implementation of tariff increases could have a material adverse effect on our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations. In addition, our inability to obtain tariff adjustments reflecting the increase in operating cost could harm the development of our Natural Gas Transportation business segment.

All of our net revenues from the Natural Gas Transportation public service (which represented 46.6% of total net revenues during 2019) are attributable to contracts, which are subject to Government regulation. Prior to the enactment of the Public Emergency and Foreign Exchange System Reform Law No. 25,561 (the “Public Emergency Law”), our tariffs were stated in U.S. dollars, adjusted on a semiannual basis by reference to the U.S. Producer Price Index (“PPI”), and further adjusted every five years, based on the efficiency of, and investments in, our gas transportation business. The Public Emergency Law, however, eliminated tariff indexation, and public service tariffs were converted into pesos and fixed at an exchange rate of Ps. 1.00 per U.S.$1.00, even though the peso was devaluating significantly against the U.S. dollar.

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Sustained inflation in Argentina since 2002, without any corresponding increase in our natural gas transportation tariffs until recently, has adversely affected, and continued inflation would continue to adversely affect, our Natural Gas Transportation revenues, net revenues and financial condition.

In addition, since 2002, the peso has fluctuated in value and generally depreciated against the U.S. dollar, adversely affecting our results and financial position. In particular, because all of our debt is denominated in U.S. dollars, significant devaluations of the peso may adversely affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations.

On March 30, 2017, ENARGAS issued Resolution No. 4362/2017 (“Resolution 4362”), which approved a staged tariff increase which contemplates an aggregate transportation tariff increase of 214.2% and an aggregate access and use charge (“CAU”) increase of 37%. This staged increase is structured to provide the same economic benefits to us as if the increases had been fully effective on April 1, 2017. Pursuant to this resolution, we must also execute a capital expenditures program for a five-year period (from April 1, 2017, to March 31, 2022), which contemplates investments of Ps. 6,786.5 million (in nominal value at December 31, 2016, adjustable by the WPI) to improve the operation and maintenance of the pipeline system (the “Five-Year Plan”). If we do not execute the Five-Year Plan in accordance with ENARGAS’s regulations, we will be subject to fines to be calculated on the value of the work pending execution.

On March 27, 2018, through Decree No. 250/2018 (the “Decree 250”), the Executive Branch ratified the tariff structure under Resolution 4362, following the approval of several governmental authorities, including the Argentine Congress. Decree 250 concludes the renegotiation process of our License with the Government which lasted more than 17 years.

In addition, Resolution 4362 contemplates a non-automatic semiannual adjustment mechanism for the natural gas transportation tariff to reflect changes in WPI, which must be approved by ENARGAS evaluating the evolution of the economic circumstances. On April 1, 2019, ENARGAS analyzed the evolution of the WPI adjustment index for the period August 2018–February 2019 in order to establish the biannual adjustments applicable to our tariffs.

As a consequence of Argentina’s economic condition, and together with other measures taken by the Government, on September 3, 2019, the Secretary of Hydrocarbon Resources (“SHR”) (formerly the Federal Energy Bureau) issued Resolution No. 521/2019 (“Resolution 521”), which defers the semiannual adjustment corresponding to October 1, 2019, to January 1, 2020. During 2019, and according to the RTI, we were entitled to receive two tariff increases in order to compensate us for inflation, which affects our operating costs.

In addition, the Solidarity Law froze our natural gas transportation tariffs and authorized the Executive Branch to initiate a renegotiation process of the current RTI or to initiate an extraordinary review, under the terms of the current regulatory framework, for a maximum period of up to 180 days.

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Also, on June 21, 2019, the Energy Secretariat (”SGE”) issued Resolution No. 336/2019 (“Resolution 336”), which ordered the deferral of payment of 22% on invoices issued between July 1, 2019, and October 31, 2019, for services provided to residential users of natural gas. The deferrals described are recovered from the invoices issued since December 1, 2019, in five equal and consecutive monthly installments.

See “Item 4. Our Information—B. Business Overview—Natural Gas Transportation—Regulatory Framework” below for more information.

Moreover, as of the date of this Annual Report, we are unable to predict which measures will be taken by the Fernández administration in connection with the tariff system, or if such system will be amended, adversely affecting our financial situation and our results of operations.

In the past, we have suffered from our inability to receive tariff increases, which meant the deterioration of our financial and economic condition. Also, we have received insufficient tariff increases to compensate for the increases in our operating costs due to inflation. Our inability to bill these increases, as stipulated in our License, in a timely manner, and to obtain future tariff adjustments in line with the increase in our costs could adversely affect our economic and financial condition. Moreover, we cannot assure you that the current negotiations with the Government under the framework of the Solidarity Law will provide us with a tariff schedule that permits us to compensate the increases in our operating costs. Failure by the Government to timely comply with agreements resulting from the RTI process could negatively affect our results of operations and financial condition.

Further, we cannot predict whether additional operating restrictions or mandatory investments could be imposed on us in the future nor the outcome from the renegotiation process of the current RTI stated by the Solidarity Law. If such outcome is adverse to us, our results of operations and financial condition could be negatively affected.

Our operations are subject to extensive regulation.

The Argentine oil and gas industry is subject to extensive government regulation and control. As a result, our business is to a large extent dependent upon regulatory and political conditions prevailing in Argentina and our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations may be adversely affected by regulatory and political changes in Argentina. Therefore, we face risks and challenges relating to government regulation and control of the energy sector, including those set forth below and elsewhere in these risk factors:

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limitations on our ability to increase prices or to reflect the effects of higher domestic taxes, increases in operating costs or increases in international prices of natural gas and other hydrocarbon fuels and exchange rate fluctuations on our domestic prices;

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risks in connection with the former and current incentive programs established by the Government for the oil and gas industry, such as the natural gas additional injection stimulus program and cash collection of balances with the Government;

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legislation and regulatory initiatives relating to hydraulic stimulation and other drilling activities for non-conventional oil and gas hydrocarbons, which could increase our cost of doing business or cause delays and adversely affect our operations; and

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the implementation or imposition of stricter quality requirements for hydrocarbon products in Argentina.

In recent years, the Government has made certain changes in regulations and policies governing the energy sector to give absolute priority to domestic supply at stable prices in order to sustain economic recovery. As a result of the above-mentioned changes, for example, on days during which a gas shortage occurs, exports of natural gas (which are also affected by other government curtailment orders) and the provision of gas supplies to industries, electricity generation plants and service stations selling compressed natural gas are interrupted for priority to be given to residential consumers at lower prices. The Expropriation Law of Argentina has declared the achievement of self-sufficiency in the supply of hydrocarbons as well as in the exploitation, industrialization, transportation and sale of hydrocarbons, a national public interest and a priority for Argentina. In addition, its stated goal is to guarantee socially equitable economic development, the creation of jobs, the increase of the competitiveness of various economic sectors and the equitable and sustainable growth of the Argentine provinces and regions. Moreover, we cannot assure you that changes in applicable laws and regulations, or adverse judicial or administrative interpretations of such laws and regulations, will not adversely affect our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations.

Failure to maintain our relationships with labor unions may have an adverse effect on our business, financial condition, results of operations and prospects.

A significant portion of our workforce is represented by labor unions and the majority of our non-unionized employees have the same employment benefits as unionized employees. While we believe we have enjoyed satisfactory relationships with all of the labor organizations that represent our associates and we believe our relationships with labor organizations will continue to be satisfactory, labor-related disputes may still arise. In particular, labor lawsuits are common in the energy sector in Argentina, and industry-wide organized actions by unionized employees in the industry, such as blockages in the access to facilities and route cuts have occurred in the past. We have suffered interruptions as a result of our employees joining such organized activities. We cannot assure you that future business interruptions resulting from strikes and other organized activities by our employees would not have a significant adverse effect on our business, financial condition, results of operations and prospects.

The collective bargaining agreements with our unions are valid for one year. Currently, we have a collective bargaining agreement in effect for the period from April 2020 to October 2020.

However, we cannot assure you that we will not suffer business interruptions or strikes in the future as a result of collective actions by our employees. We have insurance that covers terrorism and organized actions against our assets, among other items, for a total insured amount of U.S.$. 50,000,000 with a deductible per event of U.S.$. 500,000, but we cannot assure you that our insurance coverage will be sufficient to cover damages and losses caused by the organized actions of our employees.

In addition, in the past, the Government has enacted laws and regulations forcing private companies to maintain certain wage levels and to provide additional benefits to their employees. We cannot assure you that in the future the Government will not increase wages or require additional benefits for workers or employees or that unions will not pressure the Government to demand such measures. All wage increases, as well as any additional benefits, could result in increased costs and adversely affect our results of operations.

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Our regulated business is dependent on our ability to maintain our License, which is subject to revocation under some circumstances.

We conduct our Natural Gas Transportation business pursuant to the License, which authorizes us to provide natural gas transportation services through the exclusive use of the southern natural gas transportation system in Argentina. Our License may be revoked in certain circumstances based on the recommendation of ENARGAS. Revocation of our license would require an administrative proceeding, which would be subject to judicial review. Reasons for which our License may be revoked include:

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repeated failure to comply with the obligations of our License and failure to remedy a significant breach of an obligation in accordance with specified procedures;

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total or partial interruption of service for reasons attributable to us that affects transportation capacity during the periods stipulated in our License;

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sale, assignment or transfer of our essential assets or the placing of encumbrances thereon without ENARGAS’ prior authorization, unless such encumbrances serve to finance extensions and improvements to the gas pipeline system;

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our bankruptcy, dissolution or liquidation;

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cessation and abandonment of the provision of the licensed service, an attempt to assign or unilaterally transfer our License in full or in part without the prior authorization of ENARGAS, or relinquishing our License, other than in the cases permitted therein; and

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delegation of the functions granted in such contract without the prior authorization of ENARGAS, or the termination of such agreement without regulatory approval of a new contract.

If our License were revoked, we would be required to cease providing natural gas transportation services. The impact of a loss of our License on our business, financial condition and results of operations would be material and adverse. Additionally, certain changes to the License could result in a default under our outstanding debt instruments.

Our creditors may not be able to enforce their claims against us in Argentina.

We are a stock corporation with limited liability (sociedad anónima), incorporated and organized under the laws of Argentina. Substantially all of our assets are located in Argentina.

Under Argentine law, foreign judgments may be enforced by Argentine courts; provided that the requirements of Articles 517 through 519 of the Federal Code of Civil and Commercial Procedure are met. Foreign judgments cannot violate principles of public policy (orden público) of Argentine law, as determined by Argentine courts. It is possible that an Argentine court would deem the enforcement of foreign judgments ordering us to make a payment in a foreign currency outside of Argentina to be contrary to Argentine public policy if at that time there are legal restrictions prohibiting Argentine debtors from transferring foreign currency outside of Argentina. Although currently there are no legal restrictions prohibiting Argentine debtors from transferring foreign currency outside of Argentina to satisfy principal or interest payments on outstanding debt that has been previously reported to the BCRA, we cannot assure you that the Government or an Argentine court will not impose such restrictions in the future.

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In addition, under Argentine law, attachment prior to execution and attachment in aid of execution will not be ordered by an Argentine court with respect to property located in Argentina and determined by such courts to be utilized for the provision of essential public services. A significant portion of our assets may be considered by Argentine courts to be dedicated to the provision of an essential public service. If an Argentine court were to make such a determination with respect to any of our assets, unless the Government ordered the release of such assets, such assets would not be subject to attachment, execution or other legal process as long as such determination stands, and the ability of any of our creditors to realize a judgment against such assets may be adversely affected.

The Government’s strategies, measures and programs with respect to the natural gas transportation industry could materially adversely affect our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations.

Since 1992 and after the privatization of several state companies until the economic crisis in 2002, the Government reduced its control over the natural gas transportation industry. After the economic crisis in 2002 and until the Macri administration took office, the Government increased its role in the energy sector implementing strict regulations and increasing its intervention. Intervention included the expansion of our pipeline through the creation of trust funds and the interruption and redirection of natural gas firm transportation services (including the diversification of natural gas supply from our liquids processing plant located at General Cerri Complex, in the Province of Buenos Aires (“Cerri Complex”)).

In the past, natural gas distribution companies, including the Company, were prohibited from passing through price increases to consumers. Producers of natural gas, therefore, had difficulty implementing wellhead natural gas price adjustments that would increase the costs of distribution companies, which caused such producers to suffer a sharp decline in their rate of return on investment activities. As a result, natural gas production was not sufficient to meet the increasing demand. Likewise, until 2016, the lack of tariff adjustments for natural gas transportation companies caused a decrease in the profitability of such companies.

In light of these events, the Government implemented a number of strategies, measures and programs aimed at mitigating the energy crisis and supporting the recovery of the Argentine economy generally. With respect to the natural gas industry, these strategies, measures and programs included, among others, the expansion of our pipeline through the creation of financial trust funds used as vehicles to facilitate financing of those investments (“Gas Trusts”). For more information on the pipeline expansions, please see “Item 4. Our Information—B. Business Overview—Natural Gas Transportation—Pipeline Operations—Pipeline Expansions.” Although the expansion projects described above have not adversely affected our results of operations or financial condition, we cannot assure you that future, or even present, expansion projects will not have such adverse effects.

Government-mandated interruption of contracted firm transportation services.

In 2004, the Executive Branch issued Presidential Decree No. 181/04, directing the Federal Energy Bureau to have a system of priority pursuant to the demand of natural gas customers, regardless of whether those customers have contracted under a firm transportation contract or a firm natural gas supply contract. Pursuant to ENARGAS Resolution No. 1,410/2010, due to the lack of sufficient natural gas provision, natural gas transportation service (including to those with firm transportation contracts) may be interrupted and/or relocated in order to service priority demand customers.

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On June 1, 2016, the former Ministry of Energy issued Resolution No. 89/2016, which required ENARGAS to develop a procedure to amend and supplement ENARGAS Resolution No. 1,410/2010 and establish daily operating conditions for the transportation and distribution systems. It also established a methodology to satisfy the demand for natural gas of those customers classified as “high-priority.”

On June 5, 2016, ENARGAS issued Resolution No. I/3833/2016, creating the “Supplementary Procedure for Gas Requests, Confirmations and Control.” According to this resolution, if any gas transportation and distribution company finds that the transportation capacity is not sufficient to supply priority demand customers, such company shall summon an emergency committee composed of company and ENARGAS representatives. This emergency committee shall determine adjustments to be made to the daily natural gas deliveries in order to address such shortage, considering the availability of natural gas and the demands of residential consumers and power plants.

On June 26, 2018, ENARGAS issued Resolution No. 124/2018, which replaced Resolution No. 716/1998 and incorporated content from the repealed Resolution No. 1,410/2010 and Resolution No. 3,833/2016. Additionally, this resolution established the Internal Rules of Dispatch Centers (Reglamento Interno de los Centros de Despacho).

Although neither our results of operations nor our financial condition have been materially adversely affected by transportation service interruptions in recent years, we cannot assure you that similar interruptions will not materially adversely affect our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations. As of the date of this Annual Report there are some unresolved disputes with one of our clients (Profertil S.A.), in respect of service interruptions between 2007 and 2013. In that action, through Resolution No. 306/2009, ENARGAS ruled in our favor, finding that there was a shortage in the supply of natural gas. However, we cannot assure you that future interruptions of supply to our firm natural gas transportation clients will not lead to further legal action, which could have a significant adverse effect on our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations.

Additionally, we cannot predict whether new measures requiring the interruption or relocation of the natural gas transportation service will be taken. If such measures are implemented, we could be subject to legal actions initiated by those affected by such measures.

A significant portion of our revenues is generated under natural gas transportation contracts that must be renegotiated and/or extended periodically.

In 2019, 79% of our average daily natural gas deliveries were made under long-term firm transportation contracts. As of December 31, 2019, our long-term firm natural gas transportation contracts had a remaining weighted average life of approximately 11 years; our long-term firm natural gas transportation contracts with our top five costumers had a remaining weighted average life of approximately eight years. We cannot assure you that we will be able to extend or replace these contracts when they expire or that the terms of any renegotiated contracts will be as favorable as the existing contracts. In particular, our ability to extend and/or replace contracts could be adversely affected by factors we cannot control, including:

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Argentine natural gas transportation regulations;

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international oil and gas prices;

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timing, volume and location of new market demand;

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competition from alternative energy sources;

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supply and price of natural gas in Argentina;

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demand for natural gas in the markets we serve; and

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availability and competitiveness of alternative gas transportation infrastructure in the markets we serve.

Additionally, most of our transportation contracts include a clause allowing for the termination of the relevant contract before the expiration of its term by any of the parties, in case of (i) breach of the other party, or (ii) an extended event of force majeure.

We commercialize ethane through a long-term agreement recently concluded with PBB Polisur S.A. (”PBB”) for a ten-year period. We have short-term contracts with international traders for LPG and natural gasoline sales.

If we are unable to renew, extend and/or replace these contracts, if we renew them on less favorable terms or if any such contract is terminated before the expiration of its term, our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations may be negatively affected.

Our business may require substantial capital expenditures for ongoing maintenance requirements and the expansion of our installed transportation capacity; we could be unable to make such expenditures due to the lack of financing.

Resolution 4362 states that we must execute the Five-Year Plan involving capital expenditures of Ps. 6,786.5 million (in nominal value at December 31, 2016, adjustable by WPI) for the period from April 2017 to March 2022.

According to Resolution 521, which postpones until February 1, 2020 the tariff increase that we should have received since October 1, 2019 to compensate us for the deferral of the adjustment, established the revision and adjustment of the mandatory investments included in the Five-Year plan. For this reason, we should file to the ENARGAS the proposals for adaptation of the investment plan to be evaluated by the ENARGAS. At the time of this Annual Report, we have presented the relevant documentation that supports the adjustments to the mandatory investment plan.

In addition, as part of the measures adopted to reduce the impact of COVID and in order to adapt our business plan to the economic expectations of Argentina, we have implemented a reduction in the current investment plans, without affecting those security measures, which allows us to guarantee continuity in the development of our activities.

The natural gas transportation service is an activity involving significant amounts of capital expenditures in order to improve the operation and maintenance of the pipeline system. Incremental capital expenditures may be required to fund maintenance of our pipeline system. Furthermore, capital expenditures will be required to finance current and future expansions of our transportation capacity. If we are unable to finance any such capital expenditures in terms satisfactory to us or at all, our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations may be adversely affected. In addition, our financing ability may be limited by market restrictions on financing availability for Argentine companies. See “—Argentina’s past default and litigation with holdout bondholders may limit our ability to access international markets.”

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In the past, expansion projects by the Government have not had adverse effects over our results of operations and financial condition. However, we cannot assure you that future expansion projects will not adversely affect our business.

Our Liquids production depends on the natural gas that arrives at the Cerri Complex through three main pipelines from the Neuquina, Austral and San Jorge natural gas basins. The flow and caloric power of this natural gas are subject to risks that could materially adversely affect our Liquids and midstream business segment.

Argentina relies heavily on natural gas. However, its natural gas reserves are declining. Despite the decline in 2015 and 2016, the volume of natural gas that has been produced from the Neuquina basin has increased. Although production volume increased in recent years, it had previously decreased between 2009 and 2013 and it is possible that natural gas production will again decrease in the future, which would adversely affect our Liquids business segment by reducing the amount of natural gas flowing to the Cerri Complex and, therefore, the amount of Liquids we produce. In addition, the reduction in the production of natural gas could affect the flow of natural gas provided for our midstream services.

In 2019, 51.8% of the natural gas transported by our system originated in the Neuquina basin with the remainder primarily from the Austral basin. Since 2009, the quality and volume of natural gas injected from the Neuquina basin has been lower (as a consequence of the reduction of natural gas production in this basin) and not appropriate for processing in the Cerri Complex, negatively impacting our level of output from this facility. As a consequence of this lower output of natural gas from the Neuquina basin, we have had to buy natural gas at higher prices causing an increase in the cost of Liquids production and commercialization activities for our own account reducing our profit from these activities. In addition, competition might affect the volume and quality (i.e., gas with lower liquids content) of natural gas arriving at the Cerri Complex.

In 2009, nonconventional natural gas was discovered in the Vaca Muerta field of the Neuquina basin by YPF. Exploration and exploitation of this natural gas reserve involved high extraction costs. Argentina’s national natural gas production has steadily increased over the past three years, largely due to the increased production of shale from the Vaca Muerta formation. Because of the measures taken by the Government to ensure production levels throughout the country, during 2016 and 2015, natural gas production increased approximately 4.9% and 3.4%, respectively. However, in 2017 natural gas production slightly declined by 0.9% primarily as a result of the termination of certain incentive programs implemented. In 2018 natural gas production increased by 5.3% with respect to 2017, and on December 31, 2019 it reached its peak production compared to the last 10 years.

However, after the freezing of fuel prices and the current economic situation that Argentina is experiencing, there is uncertainty regarding the investments that natural gas producers can make in that area. In the same way, the recent fall in the price of oil to below U.S.$30 per barrel raises certain doubts regarding the possibility of recovery of the investments that they can make.

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We cannot assure you, however, that this new natural gas resource at the Neuquina basin, or any other measures taken by the Government to increase natural gas production and supply, will be successful in increasing Argentine natural gas reserves or production and if unsuccessful our midstream or Liquids Production and Commercialization businesses could be adversely affected.

Measures taken by the Government may have an adverse effect on the supply of natural gas to the Cerri Complex and the margins we are able to obtain from our Liquids business, which may adversely affect the results in our Liquids Production and Commercialization segment and, as a result, our overall business and results of operations.

Due to regulatory, economic and government policy factors, our domestic gasoline, diesel, natural gas and other fuel prices and related services have differed substantially from prevailing international and regional market prices for such products and services. Our ability to increase prices in connection with international price or domestic cost increases, including those resulting from the peso devaluation, has been limited from time to time. The prices that we are able to obtain for our products and services affect the viability of investments in expansion capacity and processing facilities and, as a result, the timing and amount of our capital expenditures for such purposes.

Although our Liquids production and commercialization activities are not subject to regulation by ENARGAS, with the aim to give priority to domestic supply, the Government has taken certain regulatory actions in recent years that have affected our Liquids business. For example, in April 2005, the Government enacted Law No. 26,020, which set the framework by which the SHR may establish regulations to cause LPG suppliers to guarantee sufficient supply of LPG in the domestic market at low prices. Law No. 26,020 creates a price regime pursuant to which the SHR periodically publishes reference prices for LPG sold in the local market. It also sets forth LPG volumes to be sold in the local market.

We participate in two programs created by the Government under this framework, which provide for the payment of compensation based on the difference between the price set by the Government and the export parity price. Over recent years, this compensation has been paid to us with significant delays. For further information, see “Item 4. Our Information—B. Business Overview—Liquids Production and Commercialization.”

On March 24, 2020, after COVID outbreak, the Executive Branch issued Decree No. 311/2020, which determines that the maximum reference price for LPG sold in the domestic market will remain at their values in force at such date for a 180-day period.

Also, we cannot assure you that we will be able to maintain or increase the domestic prices of our products, and limitations on our ability to do so would adversely affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations. Similarly, we cannot assure you that LPG prices in Argentina will track increases or decreases in the international or regional markets.

Our Liquids business is highly dependent on the supply of natural gas to the Cerri Complex at reasonable prices that allow for reasonable profit margins. In past years, the Federal Energy Bureau increased the natural gas price paid by industrial users and increased the price at which we purchase natural gas to be processed in the Cerri Complex. For further information, see, “Item 4. Our Information–B. Business Overview–Liquids Production and Commercialization.”

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During 2017, the Government initiated a process to converge natural gas prices with those in the international market, which finally occurred in October 2017 when prices were liberalized. However, during 2018, due to a combination of internal and external factors, the increase in natural gas and fuel prices was significant which meant that the intended liberalization was unsuccessful.

During 2018, the Government introduced several changes to the process by which the natural gas is acquired for the electric energy generators. Among them, modifications were introduced to the regulations through which Compañía Administradora del Mercado Mayorista Eléctrico S.A. (“CAMMESA”), a government-controlled company, had to provide this supply to the power plants. Finally, on November 6, 2018, the Secretary of Energy issued Resolution No. 70/2018, which returned to power generators the ability to purchase their own natural gas supply. Most of the power generators recovered the ability to do so, therefore, the price of natural gas purchased under the bidding processes decreased further because of the competition for demand in the low consumption season and in an environment with oversupply and economic recession.

Since December 2018, the government again decreased the natural gas price reference for power generation based on the supply basin of origin. As a result, during 2019, CAMMESA called for several bidding processes under the same conditions which resulted in even lower natural gas prices for generation.

The prices at which power plants or CAMMESA acquire natural gas can be considered a reference to determine the price of natural gas acquired as shrinkage gas (“RTP”) by us, which is why any additional increase in the costs of our Liquids Production and Commercialization segment may adversely affect our business, results of operations and financial condition, the value of our securities and our ability to meet our financial obligations.

As described above, actions taken by the Government during winter periods of recent years resulted in natural gas being redirected away from certain users, including the Cerri Complex, toward priority users, including residential customers. See “—The Government’s strategies, measures and programs with respect to the natural gas transportation industry, could materially adversely affect our business, results of operations, financial condition, the value of our securities and our ability to meet our financial obligations.” To a lesser extent, during the winter of 2016 and 2017, processing at the Cerri Complex was interrupted because of continued governmental actions to ensure natural gas supply to the domestic market, but thanks to the development of Vaca Muerta formation, during 2018 and 2019, we did not register any interruption in the supply of natural gas in the Cerri Complex.

In addition, regarding natural gas producers, the Government has recently introduced measures to moderate the impact of fuel prices in the economy. The prices that natural gas producers are able to obtain for oil and natural gas affect the viability of investments in new exploration, development and refining and, as a result, the timing and amount of our projected capital expenditures for such purposes. Any diversion of the supply of natural gas from the Cerri Complex may require us to purchase natural gas from third parties to supply our Liquids business, which may result in increased costs. If we are unable to purchase natural gas from other sources, the volume of our Liquids productions may decrease.

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It is uncertain whether in the future measures taken by the Government or other measures that could adversely affect our business, results of operations and ability to meet our financial obligations will be implemented. It is also uncertain the impact of the Solidarity Law, regulations to be issued under its framework or whether our regulatory obligations may be increased, which could result in higher taxes, amendments to the tariff structure, or any other obligations that could increase our costs and adversely affect our financial situation.

Fluctuations in market prices and the enactment of new taxes or regulations limiting the sales price of LPG and natural gasoline may affect our Liquids business.

We extract LPG and natural gasoline from natural gas delivered to the Cerri Complex and sell LPG and natural gasoline. As a result of the deterioration of our Natural Gas Transportation segment, operations relating to our Liquids production and commercialization have represented more than 50% of our total net revenues between 2004 and 2017. Since 2009, the international market for Liquids generally has been favorable, driven by strong international prices for LPG and natural gasoline. However, in 2015, as a consequence of weaker demand from emerging markets as well as higher production levels and export capacity due to the development of shale gas fields in the United States of America, our average liquids sales prices were lower than the ones recorded previously.

Regarding the price of energy, during 2019, the price of oil (WTI) remained volatile, recovering from the minimum levels of U.S.$45 per barrel in the month of January until reaching the peak of U.S.$65 per barrel in April. From that moment the price decreased by 13% mainly due to record production in the United States and the fall in demand, which managed to mitigate the impact of the shortage of supply linked to the sanctions imposed by the United States on Iran, the production cuts from the OPEC and conflicts in Venezuela and Libya.

This meant that the international average price of natural gasoline suffered a fall of approximately 16%. Given the stock of propane and butane registered in the United States, the average international prices (Mont Belvieu) of propane and butane were reduced by approximately 39% and 35%, respectively, compared to the year 2018.

Most recently after the disagreement between OPEC members and Russia and the COVID outbreak, in March 2020 the price of oil suffered a sharp decrease, reaching the WTI U.S.$30 per barrel. As of March 31, 2020, the price of natural gasoline, propane and butane declined 74.2%, 41.6% and 56.2%, from December 2019´s prices, respectively. Although this situation is temporary, it is uncertain to predict how long it will extend and the impact it would have on the results of our operations and financial situation.

In recent years, the Government issued a series of measures, which significantly affected our Liquids Production and Commercialization segment. Since 2002, LPG and natural gasoline exports have been subject to a withholding tax on exports. After several regulatory modifications, in March 2008, the Government introduced a “sliding-scale” regime for LPG and natural gasoline, where the withholding tax rate applicable to exports of LPG and natural gasoline (as a percentage) would vary in the same proportion as the variation in the international reference prices.

At the beginning of 2015, to reduce the impact of the sharp decrease in the international reference prices for LPG and natural gasoline, the Government reduced to 1% the applicable rate of withholding tax for exports, maintaining the “sliding-scale” regime in case international prices were higher than a certain level set by the Federal Energy Bureau. This regime was in effect until January 7, 2017. Finally, on September 3, 2018, the Executive Branch issued Decree No. 793/2018, which set a new tax on exports framework.

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For further information, see “Item 4. Our Information—B. Business Overview—Liquids Production and Commercialization.”

In addition, after the issuance of Resolutions Nos. 1,982/11 and 1,991/11 (the “Gas Charge Resolutions”), the natural gas processing charge created by Decree No. 2,067/08 (the “Natural Gas Processing Charge”) increased from Ps. 0.049 to Ps. 0.405 per cubic meter of natural gas effective from December 1, 2011, representing a significant increase in our variable costs of natural gas processing.

In order to avoid an adverse effect on our Liquids business, we initiated legal proceedings against Decree No. 2,067/08 and the Gas Charge Resolutions, including the Government, ENARGAS and the former Ministerio de Producción y de Planificación Federal, Inversión Pública y Servicios (the “MPFIPyS”) as defendants.

On March 28, 2016, the former Ministry of Energy issued Resolution No. 28 (“Resolution 28”), which instructs ENARGAS to take all the necessary measures to reduce to zero the Natural Gas Processing Charge starting April 1, 2016. Since that date, we have not been required to pay for the Natural Gas Processing Charge. However, Resolution 28 did not invalidate the Natural Gas Processing Charge or Gas Charge Resolutions for the period in which they were in force, for which reason the judicial action is still ongoing. On March 26, 2019, we were served notice of the first instance judgment rendered in the proceedings, which upholds the legal action filed by us and declares the unconstitutionality of Executive Decree No. 2,067/08, MPFIPyS Resolution No. 1451/08 and the Gas Charge Resolutions and Section 53 and 54 of Act No. 26,784 (General budget of the National Public Administration for the fiscal year 2013), as well as of any other act aimed at enforcing Executive Decree No. 2,067/08, and therefore declares invalid said regulations. On March 29, 2019 the National Secretariat of Energy appealed the judgment, which appeal was granted on April 3, 2019. On October 29, 2019, the judge resolved to extend the injunction (medida cautelar) for six months, or until the award becomes final. For additional information, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Regulatory Proceedings—Tax Claims.”

Any new regulations regarding the cost and availability of the natural gas used in the production of Liquids and the effect of the continuing decline or volatility in international prices of LPG or natural gasoline could cause our operating margins to drop significantly and materially adversely affect our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations. In addition, the Government could modify the current taxes and export/import regulations in a manner that could adversely affect our financial condition and results of operations.

The continued spread of the COVID may continue to negatively affect the global economy, energy demand and our business.

The recent COVID outbreak has introduced uncertainty in a number of areas of our business, including our operational, commercial and financial activities. It has also impacted negatively, and may continue to impact negatively, global economic activity, demand for energy including LNG and funds flows and sentiment in the global financial markets. The long-term effects to the global economy and the Company of the COVID pandemic are difficult to assess or predict, and may include a further decline in the market prices of our Shares and ADSs, risks to employee health and safety, risks for the deployment and logistic of our services and reduced sales mainly in the Liquids business segment. Our share price has recently declined significantly, due in part to the impact of the COVID. The ongoing spread of the COVID may continue to negatively affect our business, our operations, including the development of natural gas in Argentina, and our financial position and prospects which will depend on the severity of the health emergency and the success of the measures taken and those that will be taken in the future.

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We also could not assure the duration and consequences of COVID or any other disruptions that may arise in government intervention or other measures, or the possibility of other economic effects on the stock market, foreign exchange rates and otherwise. Any such negative impact could result in a material adverse effect on our business, liquidity, financial conditions, results of operations and trading price of our common shares and ADSs.

Our ethane sales depend on the capacity of PBB, as the sole purchaser of our ethane production.

Between 2005 and 2015, we sold all our ethane to PBB under a long-term agreement that expired on December 31, 2015, which was subsequently renewed on an annual basis until May 1, 2018, and then on a monthly basis until September 6, 2018, the date on which we entered into a new agreement with PBB. The agreement is retroactive as of May 1, 2018, and will expire on December 27, 2027.

Pursuant to this agreement, the ethane price is calculated in U.S. dollars and is subject to adjustments, including for changes in the U.S. PPI, the natural gas price, the quality of the ethane shipped by us and transportation tariffs and charges, among others. This agreement also includes take or pay (“TOP”) and deliver or pay (“DOP”) commitments for minimum annual quantities. Under these terms, if one party does not comply with the applicable TOP or DOP condition, that party will be required to compensate the other party.

During 2019, PBB suffered several adverse operational conditions that affected its capacity to purchase our ethane production. We cannot assure you that these adverse conditions affecting PBB will not recur in the future or that PBB will be able to satisfy its obligations under the new purchase agreement.

The delay in the collection of our sales receivables with customers and/ or subsidies owed by the Government for the supply of LPG in the domestic market could adversely affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations.

Our main natural gas transportation customers are natural gas distribution companies whose tariff increases are set in accordance with the renegotiation processes of their licenses. Also, in some cases, their collections may depend on governmental regulations requiring them to finance the collections of their customers or even to recover their receivables from the Government.

Through Resolution No. 336, the payment of 22% of the bills issued from July 1, 2019 to October 31, 2019 to residential customers of natural gas was deferred. Also, with the issuance of the Solidarity Law, which suspended for a maximum period of 180 days the increase of rates, natural gas distribution companies could have difficulties complying with the increase in their operational costs, including the natural gas transportation services provided by us.

The failure of our clients to recover their receivables may cause them to incur delays or default in their payment obligations with us under our natural gas firm transportation contracts. In the future, we may be subject to delays in collections and payment obligations. We cannot assure you that our natural gas distribution customers in Argentina will not default on or otherwise breach their obligations to us in the future, and therefore negatively impact our financial situation.

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In addition, we participate in the programs created by the Government to guarantee the supply of LPG at reasonable prices in the domestic market. Participation in these programs implies that the Government must compensate us when resources are allocated to the domestic market instead of us. Over recent years, this compensation has been paid with significant delays and there is no certainty about the continuance of such programs under the Fernandez administration.

During the fiscal years 2018 and 2019, we received the amount of Ps. 625.7 million and Ps. 468.5 million, respectively, as subsidies of the programs mentioned above. Pursuant to the programs referred to above, as of December 31, 2019, the Government is required to pay to us Ps. 143.8 million.

If the SHR were (i) not able to pay or redeem such accrued compensation in cash or cash equivalents, or (ii) not able to make such payments or redemptions according to our estimated schedule, our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations would be adversely affected.

More recently, as a consequence of COVID and the measures adopted by the Government to lessen its impact, we have suffered delays in the collection of our credit receivables, either due to the stoppage of activities, or to the measures adopted by the BCRA regarding the making of bank payments and compensations. Although these circumstances may be temporary, as of the date of issuance of this annual report, it is not possible to predict when they will normalize and their real impact on our financial situation and results of operations. If the cash flow generated by operations significantly declines, we may face difficulties in achieving our capital expenditures plans and projects, or may experience delays in the payments to our suppliers or financial debt which could negatively impact our financial condition and result of operations.

Our failure to renew firm transportation contracts could adversely affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations.

We cannot assure you that our natural gas firm transportation contracts will be renewed in whole or in part in our existing routes or by our current customers. We may not be able to renew some natural gas transportation contracts in light of the changes in the supply of natural gas from the Neuquina basin. The terms of our gas firm transportation contracts vary based on different factors. If we are unable to renew our natural gas firm transportation contracts as they mature, our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations would be adversely affected. See “—Our Liquids production depends on the natural gas that arrives at the Cerri Complex through three main pipelines from the Neuquina, Austral and San Jorge natural gas basins. The flow and caloric power of this natural gas are subject to risks that could materially adversely affect our Liquids and midstream business segment.”

The affirmative and restrictive covenants in our currently outstanding indebtedness could adversely restrict our financial and operating flexibility and subject us to other risks.

The terms of our outstanding indebtedness provide for numerous affirmative and restrictive covenants that limit our ability to, among other things:

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incur or permit to exist certain liens;

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incur additional indebtedness;

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pay dividends or make other restricted payments;

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make capital investments and other investments;

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enter into sale and lease-back transactions;

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enter into transactions with affiliates;

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sell, transfer or otherwise dispose of assets; and

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consolidate, amalgamate, merge or sell all or substantially all of our assets.

These restrictions may limit our ability to operate our businesses and may prohibit or limit our ability to enhance our operations or take advantage of potential business opportunities as they arise. The breach of any of these covenants by us or the failure by us to meet any of these conditions could result in a default under any or all of such indebtedness. Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions and the renegotiation of the public works and licenses process. In addition, if we are unable to generate sufficient cash flow from operations, we may be required to refinance outstanding debt or to obtain additional financing. We cannot assure you that a refinancing would be possible or that any additional financing would be available or obtained on acceptable terms.

Our insurance policies may not fully cover damage or we may not be able to obtain insurance against certain risks.

As of December 31, 2019, our physical assets are insured for up to U.S.$. 2,162.9 million and for the loss of profit resulting from the material damages by an amount of U.S.$ 528.4 million, these coverages being subject to certain deductibles for both material damages and loss of profit.

We maintain insurance policies intended to mitigate our losses due to customary risks. These policies cover our assets against loss for physical damage and loss of revenue, and also third-party liability. However, we cannot assure you that the scope of damages suffered in the event of a natural disaster or catastrophic event would not exceed the policy limits of our insurance coverage. We maintain all-risk physical damage coverage for losses resulting from, but not limited to, earthquakes, fire, explosions, floods, windstorms, strikes, riots, mechanical breakdowns and business interruption. Our level of insurance may not be sufficient to fully cover all losses that may arise in the course of our business or insurance covering our various risks may not continue to be available in the future. In addition, we may not be able to obtain insurance on comparable terms in the future. We may be materially and adversely affected if we incur losses that are not fully covered by our insurance policies or if we are required to disburse significant amounts from our own funds to cover such losses.

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Changes in the interpretation by the courts of labor laws that tend to favor employees could adversely affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations.

In addition to our employees, we rely on a number of third-party service providers to outsource certain services. We follow very strict policies to control the compliance by such third-party service providers with their labor and social security obligations. However, due to changes in the interpretation by the courts of labor laws that tend to favor employees in Argentina, companies’ labor and social security obligations toward their own employees and employees of third-party service providers have significantly increased. As a result of the foregoing, potential severance payment liabilities have significantly increased, and in the event any third-party service provider fails to duly comply with its labor and social security obligations towards its employees, we may be faced with litigation by employees of such third-party service provider to hold us liable for the payment of any labor and social security obligations defaulted on by any such third-party service provider. Therefore, our labor costs may increase as our indemnification responsibilities and costs expand, adversely affecting the results of our operations.

We may be exposed to risks related to litigation and administrative proceedings that could materially and adversely affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations in the event of an unfavorable ruling.

We are part of administrative proceedings and judicial claims, some of which have been pending resolution for several years. Our business may expose us to litigation relating to labor, environmental, health and safety matters, regulatory, tax and administrative proceedings, governmental investigations, tort claims and contract disputes and criminal prosecution, among other matters. In the context of these proceedings, we may be required to pay fines or money damages and we also may be subject to complementary sanctions or injunctions affecting our ability to continue our operations. While we may contest these matters vigorously and make insurance claims when appropriate, litigation and other proceedings are inherently costly and unpredictable, making it difficult to estimate accurately the outcome of actual or potential litigation or proceedings. Although we may establish provisions, as we deem necessary, the amounts that we reserve could vary significantly from any amounts we actually pay due to the inherent uncertainties in the estimation process.

For additional information on the material proceedings in which we are involved, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Regulatory Proceedings.”

Our operations are subject to environmental, occupational health and safety regulations.

We operate an extensive network of natural gas pipelines, including numerous compressor plants, the Cerri Complex and the logistic and storage facilities of Puerto Galván. All these facilities are located throughout the territory of Argentina and are subject to federal and provincial laws, as well as to the supervision of governmental agencies and regulatory authorities in charge of enforcing environmental laws and policies. We operate in compliance with applicable laws and in accordance with directives issued by ENARGAS. For this reason, it is possible that we could be subject to controls, which could result in penalties imposed on us.

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We utilize a certified safety, occupational health, environment and quality management system in accordance with international standards ISO 14001, ISO 9001 and OHSAS 18001. It includes operational controls that are documented and monitored regularly. However, we cannot assure you that these controls will be effective or that our time of response to incidents will be adequate.

In addition, future regulation may require us to comply with additional safety, occupational health, environmental and quality controls or standards. We cannot assure you that, in the future, additional regulation could be issued requiring us to make new investments in order to comply with such safety, health and environmental laws and regulations.

We may face competition.

Historically, the construction and operation of natural gas processing plants located in the Province of Neuquén has increased competition in our Liquids sector as our customers could satisfy their product demand with alternative suppliers. In the past, we have been able to mitigate this competition by entering into agreements with natural gas producers that limited their ability to make investments in natural gas processing plants. For example, at the end of 2000, Compañía MEGA S.A. (“MEGA”), a sociedad anónima owned by YPF, Petrobras International Braspetro B.V. and Dow Investment Argentina S.A., finished building and began operation of a gas processing plant with a capacity of approximately 1.3 Bcf/d, located in the Province of Neuquén. Although the construction of this gas processing plant initially resulted in lower volumes of gas arriving at the Cerri Complex, we have been able to undertake measures to substantially mitigate any negative impact of the MEGA plant. However, there is a risk that additional gas processing at the MEGA plant could result in lower volumes or lesser quality gas arriving at the Cerri Complex in the future, or that other projects that may be developed upstream of the Cerri Complex could adversely affect our revenues from Liquids production and commercialization services.

Although the construction of gas processing plants upstream of the Cerri Complex requires significant investments, additional gas processing facilities may be constructed that similar to the MEGA plant, could result in lower volumes or inferior natural gas quality of the natural gas arriving at the Cerri Complex in the future. Therefore, the development of these new projects could adversely affect our revenues from Liquids production and commercialization services. In order to guarantee access to natural gas to be processed in the Cerri Complex we have obtained the commitment of natural gas producers to not build natural gas processing plants upstream of the Cerri Complex during the term of such long-term agreements.

Regarding our other services business segment, we operate in a market with strong participants, many of which may have extensive and diversified know-how or operating experience and financial resources similar to or significantly greater than ours. While it is still unclear the future measures to be taken by the current administration regarding its energetic policy, the development of the natural gas industry in Argentina is essential for the country’s economic growth. All future business that our competitors or we can develop will depend on the production of natural gas. The Government (or any other entity on its behalf) might not issue the necessary regulations to encourage natural gas producers to develop new projects involving natural gas output.

As a result of the above, an increased number of competitors could reduce their prices which could make our investments not profitable. In addition, an increase in competition could affect our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations. This would adversely affect our business, results of operations and financial condition.

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Additionally, our principal competitor in the gas transportation business is Transportadora de Gas del Norte S.A. (“TGN”). We compete with TGN on a day-to-day basis for natural gas interruptible transportation services and from time-to-time for new natural gas firm transportation services made available as a result of expansion projects to the natural gas distribution companies to which both we and TGN are either directly or indirectly connected (Camuzzi Gas Pampeana S.A., Metrogas S.A. and Naturgy Argentina S.A.). We compete directly with TGN for the transportation of natural gas from the Neuquina basin to the greater Buenos Aires area. In addition, in the future other participants may successfully penetrate our market and connect with our main customers which could affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations.

The Secretary of Energy published, on March 7, 2019, Resolution No. 82/2019 (“Resolution 82”), which sets the terms and conditions for future tenders that aim to increase the transportation capacity of natural gas. Additionally, through Resolution 437, the Federal Energy Bureau started a public tender process to grant a new license for the construction of a pipeline and all necessary facilities to provide natural gas services between the Neuquén Province and Argentina’s coastline. The construction of a new pipeline by a third party could affect our results of operations as the interruptible natural gas transport volumes and the availability of natural gas that arrives at the Cerri Complex for processing could be diminished.

Downgrades in our credit ratings could have negative effects on our funding costs and business operations.

Our credit ratings are assigned to us based on information furnished by us or obtained by the credit rating agencies from independent sources and are also influenced by the credit ratings of Government bonds and general views regarding the Argentine financial system as a whole. The credit ratings are subject to revision, suspension or withdrawal by the credit rating agencies at any time. A downgrade, suspension or withdrawal in our credit ratings could result in, among other things, the following: (i) increased funding costs and other difficulties in raising funds, (ii) the need to provide additional collateral in connection with financial transactions, and (iii) the termination or cancellation of existing agreements. As a result, our business, financial condition and results of operations could be materially and adversely affected.

Our business has become increasingly dependent on digital technologies to conduct day-to-day operations and we may be subject to cyberattacks or other risks related to new technologies.

We depend on a variety of internet-based data processing, communication, and information exchange platforms and networks. Although we have extended our security policy to cover industrial systems, reinforcing our defenses in case of denial of service and increasing the monitoring of suspicious activities, our technologies, systems and networks and those of our business associates are exposed to cyberattacks and other cybersecurity incidents in the normal course of business, which could lead to disruptions in critical systems (such as our electronic flow measurement (“SCADA/EFM”) system and distributed control systems), the unauthorized release of confidential or protected information, corruption of data or other disruptions of our business operations.

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Additionally, we enter into contracts with several third parties to provide our customers with data processing and communication services. Therefore, if information security is breached, or if one of our employees or external service providers’ breaches compliance procedures, information could be lost or misappropriated, which may affect us, damage others or result in potential litigation.

There has recently been an increased level of attention focused on cyberattacks against large corporations that include, but are not limited to, obtaining unauthorized access to digital systems for purposes of misappropriating cash, other assets or sensitive information, corrupting data, or causing operational disruption. Cybersecurity incidents, such as computer break-ins, “phishing,” identity theft and other disruptions, could negatively affect the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us in excess of insurance coverage and may cause existing and potential customers to refrain from doing business with us.

In addition, the methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving and may be difficult to anticipate or to detect. Thus certain cyber incidents, such as surveillance, may remain undetected for an extended period. To our knowledge, we have not experienced any material losses relating to cyberattacks; however, as cyberattacks continue to evolve, there can be no assurance that we will not suffer any cyberattack in the future that could affect our operations and/or our financial condition.

Our information technology infrastructure is critical to the efficient operation of our business and is essential to our ability to perform day-to-day operations. Breaches in our information technology infrastructure or physical facilities, or unauthorized access or other loss of information or other disruptions, could result in damage to our assets, safety incidents, legal claims, potential liability or the loss of contracts, damage of reputation, and could have a material adverse effect on our operations, financial position and results of operations.

Our natural gas transportation systems and processing facilities are subject to the risk of mechanical or electrical failures and any resulting unavailability may affect our ability to fulfill our contractual and other commitments and thus adversely affect our business, results of operations and financial condition, the value of our securities, and our ability to meet our financial obligations.

Our natural gas transportation systems and processing facilities are at risk of mechanical or electrical failures and may experience periods of unavailability affecting our ability to comply with our contracts with customers. Any unplanned unavailability of our natural gas transportation systems and processing facilities may adversely affect our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations, as we may be subject to fines or penalties under our contracts with customers.

Our business is subject to risks arising from natural disasters, catastrophic accidents and terrorist attacks.

Our transportation systems and processing facilities or the third-party infrastructure that we rely on may be damaged by flooding, fires and other catastrophic disasters arising from natural or accidental or intentional human causes. We could experience severe business disruptions, significant decreases in revenues based on lower demand as a result of catastrophic events, or significant additional costs to us not otherwise covered by business interruption insurance clauses. There may be a significant time lag between a major accident, catastrophic event or terrorist attack and our definitive recovery from our insurance policies, which typically carry nonrecoverable deductible amounts, and in any event are subject to caps per event. In addition, any of these events could adversely affect the demand of natural gas by some of our customers and of consumers generally in the affected market. Some of these considerations, among others, could materially and adversely affect our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations.

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We are subject to anti-trust, anti-corruption, anti-bribery and anti-money laundering laws. Failure to comply with these laws could result in penalties, which could harm our reputation and have an adverse effect on our business.

We are subject to anti-trust, anti-corruption, anti-bribery and anti-money laundering laws. Although we maintain policies and processes intended to comply with these laws, including a review of our internal control over financial reporting, we cannot ensure that these compliance policies and processes will prevent intentional, reckless or negligent acts committed by our officers or employees. If our officers or employees fail to comply with any applicable anti-trust, anti-corruption, anti-bribery or anti-money laundering laws, they may be subject to criminal, administrative or civil penalties and other remedial measures, which could have material adverse effects on our business, financial condition, results of operations and prospects.

In addition, we are subject to economic sanctions regulations that restrict our dealings with certain sanctioned countries, individuals and entities. There can be no assurance that our internal policies and procedures will be sufficient to prevent or detect all inappropriate practices, fraud or violations of law by our affiliates, employees, directors, officers, partners, agents and service providers or that any such persons will not take actions in violation of our policies and procedures. Any violations by us of anti-bribery and anti-corruption laws or sanctions regulations could have a material adverse effect on our reputation, business, financial condition, results of operations and prospects.

Our ability to operate our business may suffer if we are unable to retain our employees or attract other skilled employees or contractors.

Our current and future performance and the operation of our business are dependent upon the contributions of our senior management and our skilled team of engineers and other employees. We depend on our ability to attract, train, motivate and retain key management and specialized personnel with the necessary skills and experience. There is no guarantee that we will be successful in retaining and attracting key personnel and the replacement of any key personnel could be difficult and time-consuming. The loss of the experience and services of key personnel or the inability to recruit suitable replacements and additional staff could have a material adverse effect on our business, financial condition and results of operations.

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Risks Relating to Our Shares and ADSs

Shareholders outside Argentina may face additional investment risk from currency exchange rate fluctuations in connection with their holding of our shares or ADSs represented by ADRs. Exchange controls imposed by the Government may limit our ability to make payments to the Depositary in U.S. dollars, and thereby limit ADR holders’ ability to receive cash dividends in U.S. dollars.

We are an Argentine company and any future payments of dividends on our shares will be denominated in pesos. The peso has historically fluctuated significantly against many major world currencies, including the U.S. dollar. A depreciation of the peso would likely adversely affect the U.S. dollar or other currency equivalent amount of any dividends paid on our shares and could result in a decline in the value of our shares and ADRs as measured in U.S. dollars.

From 2011 to December 2015, Argentine companies were required to obtain prior approval from BCRA and Argentine tax authorities in order to engage in certain foreign exchange transactions. In September 2019 the Government reinstalled the above previous measures. Thus, our shareholders’ ability to receive cash dividends in U.S. dollars was limited by the ability of the Depositary for our ADR program to convert cash dividends paid in pesos into U.S. dollars. Under the terms of our Deposit Agreement for the ADRs, to the extent that the Depositary can in its judgment, and in accordance with local exchange regulations, convert pesos (or any other foreign currency) into U.S. dollars on a reasonable basis and transfer the resulting U.S. dollars abroad, the Depositary will as promptly as practicable convert or cause to be converted all cash dividends received by it in pesos on the deposited securities into U.S. dollars. If in the judgment of the Depositary this conversion is not possible on a reasonable basis (or is not permitted by applicable Argentine laws, regulations and approval requirements), the Depositary may distribute the pesos received or in its discretion hold such currency uninvested without liability for interest thereon for the respective accounts of the owners entitled to receive the same. As a result, if the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency, you may lose some of the value of the dividend distribution.

In the event that the BCRA does not grant the requested authorization, we reserve the right to agree with the Depositary to arbitrate the reasonable legal measures that allow effective payment of dividends to ADR holders who reside abroad. As a result, the ADR holder may lose part of the value of the dividend distribution.

Our principal shareholders exercise significant control over matters affecting us, and may have interests that differ from those of our other shareholders.

As of the date of this Annual Report, our controlling shareholder is CIESA, which holds 51% of our common stock. FGS holds 24.0% of our common stock. Local and foreign investors hold the remaining ownership of our common stock. CIESA is under co-control of: (i) Pampa Energía S.A. (“Pampa Energía”), which holds 10% of CIESA’s common stock, (ii) PHA S.A.U., a wholly-owned company by Pampa Energia, (“PHA”) which holds 40% of the share capital of CIESA, and (iii) Grupo Inversor Petroquímica S.L. (member of GIP Group, headed by the Sielecki family; “GIP”), and PCT L.L.C. (“PCT”), which directly and together with WST S.A. (member of Werthein Group “WST”) indirectly through PEPCA S.A. (“PEPCA”) hold a 50% of the shareholding in CIESA.

We cannot assure you that the interests of our principal shareholders will not diverge from the interests of our other investors. See “Item 7. Major Shareholders and Related Party Transactions.”

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Sales of a substantial number of shares could decrease the market prices of our shares and the ADRs.

CIESA holds 51% of our Class “A” shares. Pursuant to the Pliego de Bases y Condiciones para la Privatización de Gas del Estado S.E. (the “Pliego”), CIESA may not reduce its shareholding below 51% of our share capital without the competent authorities’ approval. The market prices of our common shares and ADRs could decline as a result of sales by our existing shareholders, such as the ANSES, or of any other significant shareholder of common shares or ADRs in the market, or the perception that these sales could occur.

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, the General Companies Act and Law No. 26,831, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in other jurisdictions outside Argentina. In addition, rules governing the Argentine securities markets are different and may be subject to different enforcement in Argentina than in other jurisdictions.

As a foreign private issuer we are exempt from certain rules that apply to domestic U.S. issuers.

We are subject to the informational requirements of the Exchange Act applicable to foreign private issuers. Under U.S. securities laws, as a foreign private issuer we are exempt from certain rules that apply to domestic U.S. issuers with equity securities registered under the Exchange Act, including rules regarding proxy statements and short-swing profits. We are also exempt from many of the corporate governance requirements of the New York Stock Exchange.

Changes in Argentine tax laws may adversely affect the tax treatment of our Class B Shares or ADSs.

Pursuant to Law No. 26,893, the sale, exchange or other transfer of shares and other securities is subject to capital gains tax at a rate of 15% when the purchaser and the seller are not Argentine residents. When both the purchaser and the seller of our Class B Shares or ADRs are non-residents, the purchaser is required to pay the capital gains tax in addition to the purchase price of the Class B Shares or ADSs. In addition, if the purchaser is legally liable for capital gains taxes in Argentina, then the purchaser will likely not be entitled to receive any tax credit in the United States in respect of the payment of any such taxes.

On December 29, 2017, the Macri Administration enacted, through Decree No. 1112/2017, a tax reform (the “Tax Reform”). The Tax Reform provides that only the results from sales, transfers or dispositions of shares, securities representing shares and certificates of deposit of shares that are carried out through stock exchanges or stock markets authorized by the CNV under conditions that guarantee the principle of price/time priority of the offers obtained by individuals and undivided estates resident in Argentina shall be exempted.

The foregoing exemption shall also be applicable to foreign beneficiaries to the extent that said beneficiaries do not reside in and the funds do not come from non-cooperative jurisdictions. Decree No. 279/2018 provides that until the decree of the Income Tax Law of Argentina regulates the definition of non-cooperative jurisdiction, the white list established in Decree No. 589/2013 (dated 05/27/2013) will be applicable to determine if a jurisdiction is non-cooperative jurisdiction.

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The Tax Reform also establishes an exemption for such foreign beneficiaries on the sale of share certificates issued abroad that represent shares issued by Argentine companies which have been granted with a public offering authorization by the CNV (i.e., ADRs). The exemptions will only apply if the foreign beneficiaries do not reside in and the funds do not arise from “non-cooperating” jurisdictions.

Pursuant to Decree No. 279/2018, if the foreign beneficiary resides in a non-cooperative jurisdiction or the funds come from a non-cooperative jurisdiction, the capital gains tax rate is 35%.

Whereas, previously, if the sale was carried out between non-Argentine residents the non-Argentine resident purchaser was responsible for paying the tax when the seller was a non-resident, currently it is the seller, through their legal representative domiciled in Argentina, who is responsible for paying the tax, except when the purchaser is a resident individual or legal entity. If the seller does not have a legal representative, the tax should be paid by the seller according to Decree No. 279/2018.

Further rulemaking or interpretation of the amended income tax law by the Argentine tax authority may adversely affect the tax treatment of our Class B Shares or ADSs.

Holders of ADRs may be unable to exercise voting rights with respect to our Class B Shares underlying the ADRs at our shareholders’ meetings.

We will treat the Depositary for all purposes as the shareholder with respect to the shares underlying the ADRs. As a holder of ADRs representing the ADRs being held by the Depositary in your name, you will not have direct shareholder rights and may exercise voting rights with respect to our Class B Shares represented by the ADRs only in accordance with the Deposit Agreement. There are no provisions under Argentine law or under our By-laws that limit the exercise by ADR holders of their voting rights through the Depositary with respect to the underlying Class B Shares. However, there are practical limitations on the ability of ADR holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. ADR holders may be unable to exercise voting rights with respect to our Class B Shares underlying the ADRs as a result of these practical limitations.

Holders of ADRs may be unable to exercise preemptive, accretion or other rights with respect to the Class B shares underlying the ADSs.

Holders of ADSs may not be able to exercise the preemptive or accretion rights relating to the shares underlying the ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration statement or an exemption from registration is available, holders may receive only the net proceeds from the sale of their preemptive rights by the depositary or, if the preemptive rights cannot be sold, they will be allowed to lapse. As a result, U.S. holders of Class B Shares or ADSs may suffer dilution of their interest in our company upon future capital increases.

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In addition, under the General Companies Act, foreign companies that own shares in an Argentine corporation are required to register with the Superintendency of Corporations (Inspección General de Justicia or the “IGJ”) in order to exercise certain shareholder rights. Voting rights in a Shareholder meeting can be exercised through duly instituted agents, as is regulated by Law No. 26,831. If you own our Class B Shares directly (rather than in the form of ADSs) and you are a non-Argentine company and you fail to register with the IGJ, your ability to exercise your rights as a holder of our Class B Shares may be limited.

The NYSE and/or the Buenos Aires Stock Exchange (by delegated authority of BYMA) may suspend trading and/or delist our ADSs and common shares, respectively, upon occurrence of certain events relating to our financial situation.

The NYSE and/or the BYMA may suspend and/or cancel the listing of our ADSs and common shares, respectively, in certain circumstances, including upon the occurrence of certain events relating to our financial situation.

The NYSE may in its sole discretion determine on an individual basis the suitability for continued listing of an issue in the light of all pertinent facts. Some of the factors mentioned in the NYSE Listed Company Manual, which may subject a company to suspension and delisting procedures, include: “unsatisfactory financial conditions and/or operating results,” “inability to meet current debt obligations or to adequately finance operations,” and “any other event or condition which may exist or occur that makes further dealings or listing of the securities on the NYSE inadvisable or unwarranted in the opinion of NYSE.”

We cannot assure you that the NYSE and/or BYMA will not commence any suspension or delisting procedures. A delisting or suspension of trading of our ADSs or common shares by the NYSE and/or BYMA, respectively, could adversely affect our results of operations and financial conditions and cause the market value of our ADSs and common shares to decline.

The price of our Class B Shares and the ADSs may fluctuate substantially, and your investment may decline in value.

The trading price of our Class B Shares is likely to be highly volatile and may be subject to wide fluctuations in response to factors, many of which are beyond our control. Such factors include:

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fluctuations in our periodic operating results;

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changes in financial estimates, recommendations or projections by securities analysts;

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changes in conditions or trends in our industry;

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events affecting equities markets in Argentina;

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legal or regulatory measures affecting our financial conditions;

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departures of management and key personnel; or

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potential litigation or the adverse resolution of pending litigation against us or our subsidiaries.

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The stock markets in general have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the companies involved. We cannot assure you that trading prices and valuations will be sustained. These broad market and industry factors may materially adversely affect the market price of our Class B Shares and the ADSs, regardless of our operating performance. Market fluctuations, as well as general political and economic conditions in Argentina, such as recession or currency exchange rate fluctuations, may also adversely affect the market price of our Class B Shares and the ADSs. In particular, currency fluctuations could impact the value of an investment in Argentina. Although our ADSs listed on the NYSE are U.S. dollar-denominated securities, they do not eliminate the currency risk associated with an investment in an Argentine company.

For example, due to various factors (including, but not limited to, the abrupt variation in the exchange rate in Argentina) prices of equity securities in Argentina decreased substantially in 2018, which prompted investors to dispose of their investments in Argentina resulting on further downward pressure on the price of equity securities. Future sales of substantial amounts of our Class B Shares and ADSs, or the perception that such future sales may occur, may result in additional pressure to the price of our Class B Shares and ADSs. Also, future sales of treasury shares, may also have a negative impact on the price of our Class B Shares and ADSs.

Following periods of volatility in the market price of a company’s securities, that company may often be subject to securities class-action litigation. This kind of litigation may result in substantial costs and a diversion of management’s attention and resources, which would have a material adverse effect on our business, results of operations and financial condition.

The relative volatility and illiquidity of the Argentine securities markets may substantially limit the ability to sell the Class B Shares underlying the ADSs on the BYMA at the price and time desired by the shareholder.

Investing in securities that trade in emerging markets, such as Argentina, often involves greater risk than investing in securities of issuers in the United States, and such investments are generally considered to be more speculative in nature. The Argentine securities market is substantially smaller, less liquid and more concentrated and can be more volatile than major securities markets in the United States, and is not as highly regulated or supervised as some of these other markets. There is also significantly greater concentration in the Argentine securities market than in major securities markets in the United States. The ten largest companies in terms of market capitalization represented approximately 92.1% of the aggregate market capitalization of the BYMA as of December 31, 2019. Accordingly, although shareholders are entitled to withdraw the Class B Shares underlying the ADSs from the depositary at any time, the ability to sell such shares on the BYMA at a price and time shareholders might want may be substantially limited.

Item 4.

Our Information

A. Our History and Development

General

Operations

We commenced commercial operations on December 29, 1992, as the largest company created in connection with the privatization of Gas del Estado S.E. (“GdE”), the Argentine state-owned natural gas company, the integrated operations of which included natural gas transportation and distribution. GdE was divided into ten companies: two transportation companies and eight distribution companies.

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Our legal name is Transportadora de Gas del Sur S.A. We are a limited liability company (sociedad anónima), incorporated under the laws of Argentina on December 1, 1992. Our registered offices are located at Don Bosco 3672, 5th Floor, Buenos Aires (C1206ABF), Argentina, our telephone number is (54 11) 4865-9050 and our web address is www.tgs.com.ar.

We are currently the largest transporter of natural gas in Argentina and operate the most extensive pipeline system in Latin America in terms of length, delivering approximately, as of December 31, 2019, 60% of the total natural gas transported in Argentina, through 5,736 miles of pipeline, of which we operate 4,775 miles on an exclusive basis pursuant to the License (the “Natural Gas Transportation”). We operate the remaining 961 miles, which are owned by the Gas Trusts, and receive compensation based on a regulated tariff. Our transportation system connects the Neuquén, San Jorge and Austral basins, the major natural gas fields located in the south and west of Argentina, to the greater Buenos Aires area and the major consumption centers of southern Argentina. Substantially all of our transportation capacity, approximately 79% of our aggregate transportation capacity as of December 31, 2019, is subscribed for under firm long-term natural gas transportation contracts. Natural gas transportation customers with firm contracts pay for the contracted pipeline capacity regardless of actual usage. Our Natural Gas Transportation business is regulated by ENARGAS, and revenues from this business represented 46.6%, 45.4% and 37.4% of our total net revenues for the years ended December 31, 2019, 2018 and 2017, respectively.

We conduct our Natural Gas Transportation business pursuant to the License, which is currently scheduled to expire in 2027 and which is extendable for an additional ten-year period at our option if certain technical conditions described in the License are met. ENARGAS is required at that time to evaluate our performance and make a recommendation to the Executive Branch for the extension of our License. If ENARGAS determines that we are in substantial compliance with all our obligations arising under the Natural Gas Law No. 24,076 (the “Natural Gas Law”), related regulations and our License, the extension should be granted by the Executive Branch. ENARGAS would bear the burden of proving that we had not met the technical conditions referred to above and, therefore, that the extension of the License should not be granted. To the extent that we were found not to have satisfied the conditions described above or chose not to seek the extension of our License, we would be entitled to certain specified compensation. See “—B. Business Overview—Natural Gas Transportation—Regulatory Framework Certain Restrictions with Respect to Essential Assets” below.

The License gives us the exclusive right to operate the existing southern Argentine natural gas transportation pipeline system. Our natural gas transportation system connects major natural gas fields in southern and western Argentina with both distributors and large consumers of natural gas in those regions as well as in the greater Buenos Aires area, the principal population center of Argentina.

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The map below illustrates the natural gas pipeline system in Argentina as of December 31, 2019:

For additional information regarding our property, plant and equipment, see “—D. Property, Plant and Equipment” below.

We are also one of the largest processors of natural gas and one of the largest marketers of Liquids in Argentina. We operate the Cerri Complex and the associated logistics and storage facilities of Puerto Galván located in Bahía Blanca in the Province of Buenos Aires where Liquids are separated from the natural gas transported through our pipeline system and stored for delivery. Due to its strategic location within the Argentine natural gas transportation system, our Cerri Complex can process gas proceeding from the Neuquén, San Jorge and Austral basins. This provides the plant with great versatility in terms of natural gas availability, and the possibility to select the gas that is processed according to its quality (liquid contents). Revenues from our Liquids Production and Commercialization business represented 47.6%, 48.8% and 56.0% of our total net revenues during the years ended December 31, 2019, 2018 and 2017, respectively.

We also provide midstream integral solutions related to natural gas production, from the wellhead up to the transportation systems. In addition, through our subsidiary Telcosur, we provide telecommunications services. Aggregate net revenues from our midstream and telecommunications business segment represented 5.8%, 5.8% and 6.6% of our total net revenues during the years ended December 31, 2019, 2018 and 2017, respectively.

Within the framework of the agreements signed with the former Ministry of Energy, Mining and Hydrocarbons of the Province of Neuquén and Gas y Petróleo de Neuquén S.A. in April and November 2018, we timely completed the construction of a catchment and gathering pipeline and a natural gas conditioning plant in the Vaca Muerta field that will allow the gathering of non-conventional gas from the Neuquina basin and its subsequent injection into the main gas pipeline systems, ensuring its supply to all of Argentina’s regions.

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The Vaca Muerta system has two gathering pipes: the first has a length of 71 miles, a 36” diameter and a 1.2Bcf/d transportation capacity (the “Northern Section”) and the second has a 20 mile extension, a 30” diameter and a 882.3 MMcf/d transportation capacity (the “Southern Section”). The gas transported through this pipeline system will be treated at a new conditioning plant that we built at Tratayén, Province of Neuquén with an initial capacity of 176.6 MMcf/d, which is foreseen to be expanded as the volumes of gas transported in the Vaca Muerta system increase. This project consolidates our position as the first midstream services provider in the Vaca Muerta field and required an investment of approximately U.S.$260 million in the aggregate. On April 29, 2019, the assembly and pressurization works on the connection of the Vaca Muerta pipeline to Neuba II were completed, which led to revenues from the month of May 2019 derived from firm natural gas transportation contracts of 28.2 MMcf/d in the aggregate. On August 22, 2019, the SHR issued Resolution No. 491/2019, which declared this project as “critical” on the terms of Law No. 26,360. This will allow us to obtain certain tax benefits from the investments in this project.

Controlling shareholders

As of the date of issuance of this Annual Report, our controlling shareholder is CIESA, which holds 51% of our common stock. Other local and foreign investors hold the remaining shares of our common stock, including FGS, which holds 24% of our common stock. CIESA is under co-control of Pampa Energía, which directly and indirectly through PHA hold 50% of the share capital of CIESA, and GIP and PCT, which directly and together with WST and indirectly through PEPCA hold 50% of the share capital of CIESA.

For additional information regarding CIESA’s current organizational structure, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”

Capital expenditures

From January 1, 2017, through December 31, 2019, our aggregate capital expenditures, in Current Currency, amounted to Ps. 32,995.6 million. Such capital expenditures include Ps. 15,447.7 million related to improvements to our gas transportation system, Ps. 2,147.2 million related to liquids production and commercialization activities and Ps. 15,400.7 million related to other services activities.

For the years 2019, 2018 and 2017, capital expenditures mostly include works performed for the execution of the Five-Year Plan and the construction and ramping-up of the Northern Section and Southern Section of the Vaca Muerta pipeline. Information relating to the size and financing of future investments is included in “Item 5. Operating and Financial Review and Prospects.”

B. Business Overview

NATURAL GAS TRANSPORTATION

As a transporter of natural gas, we receive natural gas owned by a shipper, usually a natural gas distributor, at one or more intake points on our pipeline system for transportation and delivery to the shipper at specified delivery points along the pipeline system. Under applicable law and our License, we are not permitted to buy or sell natural gas except for our own consumption and to operate the pipeline system. See “—Regulatory Framework” below for more information.

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Our pipeline system connects major natural gas fields in southern and western Argentina with distributors and other users of gas in those areas and the greater Buenos Aires area. TGN, the only other natural gas transportation operating company that supplies the Argentine market, holds a similar license with respect to the northern pipeline system, which also provides natural gas transportation services to the greater Buenos Aires area.

Natural gas transportation services accounted for 46.6%, 45.4% and 37.4% of our total net revenues in the years ended December 31, 2019, 2018 and 2017, respectively. In 2019, 79% of our average daily natural gas deliveries were made under long-term firm transportation contracts. See “—Customers and Marketing” below. Natural gas firm transportation contracts are those under which capacity is reserved and paid for regardless of actual usage by the customer. Almost all of our natural gas firm contracted capacity is currently subscribed for at the maximum tariffs allowed by ENARGAS. During 2019, the amount of net revenues derived from natural gas firm transportation contracts was Ps. 18,521.2 million, representing 81.9% of the total net revenues for the Natural Gas Transportation segment. Substantially all of our remaining natural gas deliveries were made under natural gas interruptible transportation contracts entered into predominantly with four natural gas distribution companies, power plants and industrial customers. Interruptible contracts provide for the transportation of natural gas subject to available pipeline capacity. The Government has at times directed us to interrupt supply to certain customers and make deliveries to others without regard as to whether they have natural gas firm or interruptible contracts. See “Regulatory Framework—Industry Structure” below for more information.

Expansions of the system. In February 2017, the Ministry of Mines and Energy called for a national public tender for the purchase of pipelines to extend the natural gas network in some areas of the Province of Santa Fe, the Patagonian Andes and the coast of the Province of Buenos Aires. This tender consists of four projects that will benefit 140,500 households. One of these projects is the extension of the Cordillerano gas pipeline, which will be connected to our natural gas pipeline system. The capacity expansion will be carried out from the two points that feed our system from the area called El Zorro and we will assume the role to audit the works executed. This project also includes the installation of the Río Senguer compressor plant in Neuquén. Due to the current macroeconomic environment, as of the date of issuance of this Annual Report the execution of these works is uncertain.

Within this framework, we entered into a Transitional Union Agreement (“UT”) with SACDE Sociedad Argentina de Construcción y Desarrollo Estratégico S.A. (“SACDE”), a related company, for the purpose of participating jointly in the National Public Bid No. 452-0004-LPU17: Assembly of Pipes for the Construction of the Project “Expansion of the Natural Gas Transportation and Distribution System.” In this regard, the Ministry of Mines and Energy awarded to the aforementioned UT the construction of the Regional II-Recreo/Rafaela/Sunchales Regional Gas Pipeline. As of the date of issuance of this Annual Report, the construction work is almost completed, and the project will finally be put into service after the UT and the Government agree the final terms of the project.

On September 5, 2018, through Resolution No. 125/2018 of the former Ministry of Energy, such Ministry resolved to discontinue the execution of works under the “Northern Work Trust 2006-2008” and the “Southern Work Trust 2006-2008,” formed on December 6, 2006, under the regime of Decree No. 180/2004 of February 13, 2004 and Resolution No. 185/2004 of April 19, 2004, of the former MPFIPyS. Likewise, such resolution instructed Nación Fideicomiso (“NAFISA”) and TGN, as trustees, respectively, of the “Northern Work Trust 2006-2008” and of the “Ampliación Norte 2004-2005 Trust” to consolidate the assets of both, in the “Northern Work Trust 2006-2008,” to continue with the repayment of the contributions and pending investments, without prejudice to the rights of third parties. Also, such resolution instructed NAFISA and us, as trustees, respectively of the “Trust of South Work 2006-2008” and the “Trust Expansion South 2004-2005” to consolidate the assets of both in the “South Work Trust 2006-2008,” which will continue with the repayment of contributions and pending investments, without prejudice to the rights of third parties. Furthermore, the resolution entrusts NAFISA to carry out the residual projects of the “Northern Work Trust 2006-2008” and of the “Southern Work Trust 2006-2008” and to carry out the timely liquidation of the “Ampliación Norte 2004-2005 Trust” and the “Fideicomiso Ampliación Sur 2004-2005,” giving the former Ministry of Energy the appropriate authority in accordance with the provisions of Decree No. 180/2004 and Resolution No. 185/2004.

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Additionally, since April 2019, the Government has been developing a regulatory framework to replace the current LNG and liquid fuels imports with nonconventional natural gas from the Vaca Muerta area, which requires to be transported to urban areas. For this purpose, on July 30, 2019, the SHR issued Resolution 437, which includes the rules for a public tender process to grant a new license, including the design and construction of a pipeline, for the operation of a new natural gas transport system, which will be completed in two stages: (i) first, by connecting the area of Tratayén in the Neuquén Province with the area of Salliqueló in the Buenos Aires Province, and (ii) second, by connecting the area of Salliqueló with the city of San Nicolás de los Arroyos in the Buenos Aires Province. The first stage of the project is expected to be working in part within 18 months from the date the license is granted, and should be fully operational within 24 months from the date of the license. The second phase of the project shall be operative within 60 months from the date the license is granted.

The license will be granted for a period of 35 years, renewable for ten years according to the Natural Gas Law. Additionally, during the first 17 years of license a special temporary registry (Régimen Especial Temporario or “Special Temporary Registry”) will be created, which will allow the holder of such license to negotiate the compensation payable to the carriers without restrictions. Such compensation cannot be transferred to the final tariffs of residential clients. The regime of the Natural Gas Law will become effective after such 17-year period.

Before granting the license, the winning bidder should incorporate a special purpose company (sociedad anónima) pursuant to the General Companies Act, under the name “Transportadora de Gas del Centro S.A.”.

The open bidding for this new natural gas transportation license was issued by the SGE on July 30, 2019. On April 2, 2020, the Secretary of Energy postponed the opening until December 30, 2020. As of the date of the issuance of this Annual Report we are currently analyzing our participation in it.

Customers and Marketing

Our principal service area is the greater Buenos Aires region in central-eastern Argentina. We also serve the more rural provinces of western and southern Argentina. As of December 31, 2019, our service area contains 6.2 million end users, including 4.1 million customers in the greater Buenos Aires area. Direct service to residential, commercial, industrial and electric power generation end users is mostly provided by four gas distribution companies in the area, all of which are connected to our pipeline system: Metrogas S.A., Naturgy Argentina S.A., Camuzzi Gas Pampeana S.A. and Camuzzi Gas del Sur S.A. These natural gas distribution companies serve, in the aggregate, 68.0% of the natural gas distribution market in Argentina. The other five Argentine distribution companies are located in and serve northern Argentina and are not connected directly to our pipeline system.

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The table below contains certain information for 2019, as it relates to the distribution companies that are connected to our pipeline system:

Company	Annual deliveries (Bcf)		Volume of market served (in %)			No. of end- users (in millions)		Deliveries received from us (in %)
Metrogas ⁽¹⁾		245.4		22.6	%		2.4		87	%
Camuzzi Pampeana ⁽¹⁾		208.0		19.1	%		1.4		96	%
Camuzzi Sur		165.8		15.2	%		0.7		100	%
Naturgy Argentina ⁽¹⁾		120.4		11.1	%		1.7		62	%
				68.0	%		6.2

Hernán Diego Flores Gómez received a Law degree from the Universidad de Buenos Aires. He is a co-founder and is professor of the Hydrocarbons and Energy Industry Law post-graduate course at Universidad Católica Argentina, and he is also a co-founder and professor of the Petroleum and Natural Gas Law post-graduate course at Universidad de Buenos Aires, and professor of the Energy Master’s Degree at the Energy Regulatory Activity Studies Center (“CEARE”). Additionally, Dr. Flores Gómez has a Master’s Degree in Business Law from the Escuela Superior de Economía y Administración de Empresas (ESEADE), a Master’s Degree in Finance from the Universidad del CEMA and a Postgraduate Degree in Damage Law from Universidad Católica Argentina. He began his career in the National Judicial Branch. Throughout his career, he held various relevant positions on legal matters, institutional and management relationship in companies such as Capsa / Capex S.A., Pluspetrol S.A. and ENAP Sipetrol Argentina S.A. He was born on June 10, 1966.

Néstor Hugo Martín obtained a degree in Chemical Engineering from the Universidad Nacional del Sur, Bahía Blanca. Mr. Martín has wide experience in the oil and gas industry. Between 1976 and 2002, he held different positions in companies such as ESSO S.A.P.A., YPF, Isaura S.A. and EG3. In 2002, he joined Petrobras Argentina where he served in many managerial positions especially related to planning, business, supply and trading. In 2013, he was designated as our Business Vice President. He holds the position of Director and Vice President of Link, Telcosur and TGU and of Director and President of CTG Energía SAU. He was born on April 17, 1953.

Rubén De Muria received a Public Accountant degree from the Universidad de Buenos Aires. He obtained a Master in Regulations of Gas and Electricity Industries from CEARE. He worked for Chase Manhattan Bank Argentina and Perez Companc S.A. between 1985 and December 1992. In December 1992, he joined us as member of the Regulatory Matters and Rates Department. In August 2006, he was promoted to Regulatory Matters and Rates Manager. In December 2015 he was appointed as Institutional and Regulatory Affairs Executive Manager, and, finally in January 2018 as Institutional and Regulatory Affairs Vice President. He was born on January 31, 1964.

For additional information regarding the provisions included in the Shareholders’ Agreement for the election of our CEO, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders—Shareholders’ Agreement.”

Indemnification of Officers and Directors. Under the Shareholders’ Agreement, the shareholders of CIESA require us to: (i) limit the liability of each of our officers, syndics and directors for all consequences of their acts or omissions, excluding acts or omissions where there is evidence of fraud or gross negligence and (ii) enter into agreements obligating us to defend, indemnify and hold harmless each of our officers, syndics and directors from and against all liabilities, losses, and other expenses incurred by each such officer, syndic or director in connection with a pending, threatened or completed civil, criminal, administrative or other proceeding, or any investigation that could lead to such a proceeding, by reason of the fact that such officer, syndic or director is or was one of our officers, syndics or directors, including claims alleged to be due to the negligence of such person, but excluding acts or omissions that involve fraud or gross negligence towards us.

B. Compensation

The remuneration, in Current Currency, paid by us during the year 2019 to the members of our Board of Directors and executive officers amounted to Ps. 24.6 million and Ps. 110.9 million, respectively. We do not grant pension or retirement plans or other benefits to members of our Board of Directors or to our executive officers.

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Executive officers are subject to a goal-directed management system with a variable remuneration program. Consensual objectives are in line with our global objectives, as the variable remuneration program links a portion of its compensation to the performance thereof and our performance. Total compensation of executive officers consists of a fixed portion (normal and usual remuneration) and a variable portion. The variable portion depends on the level of achievement of the “Outcome” objectives, which consist of economic and financial targets, and “Performance Results,” including business objectives that do not have an associated economic result. We measure achievement of these objectives annually, based on performance during the fiscal period.

C. Board Practices

For information on the term of office of our directors and executive officers, see “—A. Directors and Senior Management” above. The information in that section is incorporated herein by reference.

None of the members of our Board of Directors are party to any service contract with us or any of our subsidiaries providing for benefits upon termination of employment.

Audit Committee

According to the Capital Markets Law, publicly listed companies must have an Audit Committee “that will function on a collegiate basis with three or more members of the Board of Directors, the majority of whom must be independent under CNV regulations.” The Audit Committee operates under its Rules of Procedure, which was approved in its meeting held in 2013 in accordance with the requirements of the Capital Markets Law. The Rules of Procedure require that the majority of the members that form the Audit Committee must be independent according to the CNV’s standards. Audit Committee members are designated by a simple majority of the Board of Directors, at the first meeting following designation of the members of the Board of Directors, and they hold office until their successors are designated. The Audit Committee adopts its own regulations and must prepare a working plan for each fiscal year.

The Board of Directors meeting held on April 27, 2020 appointed the current members of the Audit Committee, who as of the date of this Annual Report are Carlos Alberto Di Brico, Carlos Alberto Olivieri and Luis Rodolfo Secco and their respective alternates, Pablo Fabián Waisberg, Santiago Alberto Fumo and Enrique Llerena. All of Audit Committee members meet the independence criteria set forth under Rule 10 A-3 of the Exchange Act, SEC regulations and NYSE Standards, but according to CNV rules Mr. Carlos Olivieri does not qualify as independent since he has served as director for ten years.

The Audit Committee’s mandatory duties are to:

•

supervise the internal control and accounting systems as well as the reliability of the latter and all the financial information and other significant issues that are to be submitted to the SEC, CNV and BYMA in compliance with the applicable disclosure policies;

•

supervise the application of information policies regarding our risk management;

•

ensure that the market is informed about those operations where there may be a conflict of interest with one or more members of the Board of Directors, controlling shareholders or other parties as defined by the applicable regulations;

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•

express its view on the reasonableness of fees and stock option plans for directors submitted by the Board of Directors;

•

express its view as to compliance with laws and regulations and the reasonableness of the conditions of an issuance of shares (or convertible securities), in the case of a capital increase excluding or limiting preferential rights;

•

oversee compliance with the Code of Ethics (see “Item 16.B. Code of Ethics”); and other relevant rules;

•

issue a well-founded opinion on whether the terms and conditions of relevant transactions with related parties are according to market practice, within five business days from the receipt of a petition issued by the Board of Directors, and at any other time at which a conflict of interest exists or might exist;

•

prepare an annual working plan for the fiscal year and notify the Board of Directors and the Statutory Committee within 60 days from the beginning of the period;

•

fulfill all the obligations stated in our By-laws and applicable laws and regulations;

•

express its view on the Board of Directors’ proposals on whether to appoint the external auditors to be hired and monitor the auditors’ independence; and

•

establish procedures for: (i) the receipt, treatment, investigation and administration of the complaints received by us regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.

Also, regarding the internal and external auditors, the Audit Committee must:

•

review their plans; and

•

evaluate their performance, and give an opinion on their performance when issuing the annual Financial Statements.

In evaluating the external auditors’ performance, the Audit Committee must:

•

analyze the different services rendered by the external auditors as well as their independence, according to Technical Resolution (“TR”) No. 34 of the FACPCE, any other related regulations issued by professional councils;

•

report separately the fees billed as follows: (i) fees for external audit and other related services meant to provide reliability to third parties (e.g., special reports about internal controls, shareholding prospectuses, certifications and special reports requested by regulators, etc.); and (ii) fees related to other special services different from those mentioned above; and

•

review independence policies of the external auditors in order to verify their fulfillment.

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Additionally, the Audit Committee must perform the following mandatory duties contained in the regulatory framework:

•

Give a prior assessment, that shall be used by the CNV to require us to designate an external auditor as requested by minority shareholders, as long as such shareholders represent at least 5% of our common stock and provide a justified request (in those cases in which the minority shareholders’ rights might be affected) and if CNV understands the credibility of the damage invoked by said shareholders in order to carry out one or more specific reviews. The charges of such reviews shall be borne by the petitioning shareholders (Act No. 26,381, article 108.f);

•

provide a well-founded assessment about an acquiring tender offer if by withdrawing the public offering we would cease to be a public company or our stock cease to be traded (Act No. 26,381, article 98); and

•

issue a report supporting a Board of Directors’ resolution to buy back our shares (Act No. 26,381, article 64).

Once a year, the Audit Committee is required to prepare a plan for the fiscal year to be presented to the Board of Directors and to the Statutory Committee. The directors, members of the Statutory Committee, managers and external auditors must, when requested by the Audit Committee, attend its meetings, provide the Audit Committee with information and otherwise assist the Audit Committee in the performance of its functions. In order to better perform its functions, the Audit Committee may seek the advice of legal counsel and other independent professionals at our expense, pursuant to a budget approved by the shareholders, and we must provide the Audit Committee with access to the information and documents it may deem necessary to perform its duties.

According to CNV Rules, at least once a year and upon the filing of the annual Financial Statements, the Audit Committee shall issue a report to the shareholders, addressing how such committee performed its duties and the results of its work.

The aggregate compensation paid by us for the fiscal year 2019 to the members of the Audit Committee was Ps. 8.5 million. We do not provide pension, retirement or similar benefits to any member of the Audit Committee.

Statutory Committee

The Statutory Committee is our monitoring body as stipulated in Section No. 284 of the General Companies Act. Our By-laws provide for a Statutory Committee consisting of three syndics and three alternate members (“Alternate Syndics”). In accordance with our By-laws, two syndics and the corresponding Alternate Syndics are elected by a majority vote of the holders of our Class “A” shares. The remaining syndic and corresponding alternate syndic are elected by the majority vote of the remaining holders of our common stock. Each member of the Statutory Committee is elected at the General Annual Shareholders’ Meeting and serves for a one-year renewable term. Members of the Statutory Committee must be lawyers or accountants qualified under Argentine law and, for the accountants, TR No. 15. Our directors, officers and employees may not be members of the Statutory Committee, all members must be independent. Our By-laws require the Statutory Committee to hold meetings at least once per month.

The primary responsibilities of the Statutory Committee consist of monitoring our management’s compliance with the General Companies Act, our By-laws and the shareholders’ resolutions, and without prejudice to the role of external auditors, reporting to the shareholders at the General Annual Shareholders’ Meeting regarding the reasonableness of our financial information. Furthermore, the members of the Statutory Committee are entitled to: (i) attend Board of Directors, Executive Committee and shareholders’ meetings, (ii) call Special Shareholders’ Meetings when deemed necessary and General Annual Shareholders’ Meetings when the Board of Directors fails to do so, and (iii) investigate written inquires initiated by the shareholders. The Statutory Committee does not control our operations or evaluate management’s decisions, which are the exclusive responsibility of the Board of Directors.

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The aggregate compensation paid, in Currrent Currency, by us for the fiscal year 2019 to the members of the Statutory Committee was Ps. 4.5 million. We do not provide pension, retirement or similar benefits for syndics and alternate syndics.

The following table sets forth the current membership of our Statutory Committee, each of whom was appointed at the 2020 Shareholders’ Meeting, the year when each member was initially appointed and the year when their term expires:

Name	Member since	Term Expires	Position
José Daniel Abelovich	4/21/2020	2021	Syndic
Valeria Fortti	4/21/2020	2021	Syndic
Gustavo Herman Isaack	4/21/2020	2021	Syndic
Marcelo Héctor Fuxman	4/21/2020	2021	Alternate Syndic
Francisco José Carrega	4/21/2020	2021	Alternate Syndic
Sandra Auditore	4/21/2020	2021	Alternate Syndic

The present principal occupations and employment history of our syndics are set forth below:

José Daniel Abelovich. Mr. Abelovich obtained a degree in Accounting from the Universidad de Buenos Aires. He is a founding member and partner of Abelovich, Polano & Asociados S.R.L., a member firm of Nexia International. Formerly, he was Manager of Harteneck, López y Cía/Coopers & Lybrand and has served as a Senior Advisor in Argentina for the United Nations and the World Bank. He is a member, among others, of the supervisory committees of Cresud, IRSA, Hoteles Argentinos, Inversora Bolívar and Banco Hipotecario S.A. He was born on July 20, 1956.

Valeria Fortti obtained a degree in Accounting and a bacheor in Administration form the Universidad de Buenos Aires. She also holds a Master in Business Administration from the same university. Since 1994, she has been a trustee in the Argentine National Auditing Commission. She is also a member of the supervisory committees of Emprendimientos Energéticos Binacionales S.A., Nucleoeléctrica Argentina S.A. and TELAM S.E. She was born on December 20, 1973.

Gustavo Herman Isaack obtained a Law degree from the Universidad Nacional de Rosario. He is currently partner in Isaack Winter & Asociados Law firm. Previously he acted as legal counsel in several private companies. He was born on May 24, 1961.

Marcelo Héctor Fuxman. Mr. Fuxman obtained a degree in Accounting from the Universidad de Buenos Aires. He is a partner of Abelovich, Polano & Asociados S.R.L., a member firm of Nexia International. He is also a member, among others, of the supervisory committees of Cresud, IRSA, Inversora Bolívar and Banco Hipotecario S.A. He was born on November 30, 1955.

Francisco José Carrega. Mr. Carrega obtained a Law degree from the Universidad de Buenos Aires. He also holds a Master degree in Business Law from the ESEADE and a Postgraduate degree in Competition Law from the Universidad de Salamanca. He is currently as consultant in Mitrani Caballero Ruiz Moreno in conflict prevention and in civil and commercial contentious matters. He has previously acted in the Federal Judicial Power holding different positions in the commercial court. Between 2005 and 2017 he acted as partner in Brochou, Fernández Madero and Lombardi Law Firm. He has worked as a judicial controller in highly relevant conflicts, collaborating as an auxiliary to Justice. He was born on May 10, 1972.

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Sandra Auditore obtained a degree in Accounting from the Universidad de Buenos Aires. Since 1995, she has been a trustee in the Argentine National Auditing Commission. She was born on November 3, 1967.

Compensation Committee

We do not have a compensation committee. Compensation decisions are made by our senior management.

Corporate Governance Practices; NYSE Requirements

See “Item 16.G. Corporate Governance.”

D. Employees

The following table sets out the number of employees per department as of December 31, 2019, 2018 and 2017:

	Number of Employees as of December 31,
Department	2019		2018		2017
General		3		2		2
Administration, Finance and Services		106		103		98
Human Resources		23		23		22
Legal Affairs		10		10		9
Public and Regulatory Affairs		10		8		7
Safety and Environmental		29		28		27
Business		76		72		69
Internal Audit		4		4		3
Operations		786		747		688
Trainees program		13		7		7
Total		1,060		1,004		932

The following table sets out the number of employees according to geographical location as of December 31, 2019, 2018 and 2017:

	Number of Employees as of December 31,
Location	2019		2018		2017
City of Buenos Aires		245		239		237
Province of Buenos Aires		448		427		406
Province of Chubut		64		61		53
Province of La Pampa		14		14		12
Province of Neuquén		133		114		91
Province of Río Negro		60		58		49
Province of Santa Cruz		94		88		82
Province of Tierra del Fuego		2		3		2
Total		1,060		1,004		932

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As of December 31, 2019, 2018 and 2017, the number of temporary employees working for us was 58, 57 and 31, respectively.

Under Argentine law, in the event of a dismissal of an employee without cause, the employer is required to pay the terminated employee severance, the amount of which is regulated by the Argentine Labor Law (Section 245). The severance consists of payment of one month’s wages for each year of employment. The Argentine Labor Law stipulates limits to the severance payment; these limits affect only employees who earn high wages. However, the Supreme Court has ruled this severance payment limitation unconstitutional when it results in a loss of more than 33% for a terminated employee as compared to the unlimited amount.

On December 13, 2019, the Executive Branch issued Decree No. 34/2019 which for a 180-days term doubles the amount of compensation mentioned above. However, in the context of the crisis unleashed by COVID, said regulations are limited in their application.

The Supreme Court held the Law of Occupational Hazard Prevention unconstitutional as applied to contractors whose employees are injured in the course of employment, extending liability to the company that contracted with the contractor for the services.

Some courts have held that a company that contracts with a contractor for services is jointly liable for a contractor’s obligations to provide its workers and third-party service providers with social security benefits, wages, insurance, etc., even if the service for which the company contracts is not part of the company’s usual business.

The year 2019 presented an inflationary scenario that required numerous meetings with union representatives. We maintain a positive relationship with each of the employee unions with representation before our company. The fruits of this work were the agreements reached with each such union, which have been submitted to the national labor authority for approval and inclusion in existing collective bargaining agreements. Those agreements effectively prevented trade union conflicts and work stoppages.

Our collective bargaining agreements with our unions were approved by the competent Argentine authority and maintain their ultra-activity as established by current legislation. Regarding the salary corresponding to 2019, we have signed agreements for the period of April 1, 2019 to March 31, 2020. This is a consequence of the fact that TGS salary period comprises from the month of April of each year to the month of March of the following year. We are currently in negotiations with trade unions to conclude bargaining agreements for the period April 1, 2020 – March 31, 2021, but the status of this negotiation remains uncertain.

As of December 31, 2019, 80.2% of our workforce is under trade union representation, having the same employment benefits. The unions that represent such employees are Unión del Personal Superior del Gas, Federación Argentina del Gas Natural de la República Argentina (which groups the unions of the capital, Bahía Blanca and Patagonia Sur) and Sindicato de Trabajadores de la Industria del Gas Natural Derivados y Afines of Neuquén and Río Negro.

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E. Share Ownership

The total amount of our Class B Shares held by our directors, Syndics and executive officers as of December 31, 2019, is 109,180 shares. Class B shares held by directors and trustees do not have different voting rights than the other shareholders holding Class B Shares. The directors, trustees and senior executives of the Company do not have options regarding the Company’s shares. There are no agreements that grant participation to employees in the assets of the Company, including the issuance or granting of options, shares or any other negotiable value.

Item 7.

Major Shareholders and Related Party Transactions

A. Major Shareholders

The following table sets forth certain information with respect to each shareholder known to us to beneficially own more than five percent of our common stock as of March 31, 2020:

Name of Beneficial Owner	Number of Shares⁽¹⁾			Percent of Total Common Shares			Class
CIESA		405,192,594			51.00	%		A
FGS		190,685,633			24.00	%		B
Holders through BYMA		64,640,514			8.14	%		B
Treasury shares		28,775,540			3.62	%		B
ADRs through Citi		105,201,002	⁽¹⁾		13.24	%		B
Total		794,495,283			100.00	%		--

(1)	Equivalent to 21,040,200 ADRs.

Our controlling shareholder is CIESA, which holds 51% of our common stock and all of our Class A shares and local and foreign investors hold the remaining shares of our common stock, distributed among minority holders with 25.89% and the FGS/ANSES with 24%. CIESA is under co-control of: (i) Pampa Energía, which holds 10% of CIESA’s common stock, (ii) PHA, which has a shareholding of 40%, and (iii) GIP, WST and PCT, who in the aggregate hold a combined 50% indirect ownership interest in the outstanding capital stock of CIESA, as follows: GIP holds 27.1%, WST holds 4.58% and PCT holds 18.32%.

The current ownership of CIESA is the result of the acquisition of CIESA which encompassed the following steps:

•

On July 27, 2016, Pampa Energía acquired from Petrobras Internacional Braspetro B.V. all the stock and voting rights of Petrobras Participaciones S.L., the holder of the 67.1933% of the capital stock and voting rights of Petrobras Argentina and, consequently, the indirect control of Petrobras Hispano Argentina.

•

On the same day, (i) Pampa Energía and its subsidiary Pampa Participaciones S.A. sold all of the capital stock and voting rights of PEPCA to GIP by 51%, WST by 45.8% and PCT L.L.C. by 3.2% and (ii) Pampa Inversiones S.A. transferred its status as beneficiary of the Trust to GIP and PCT, in a proportion of 55% and 45%, respectively. This transaction was authorized by ENARGAS on August 9, 2016, through Resolution No. I / 3939.

•

On January 17, 2017, CIESA was informed of the exercise of the swap option agreed among Pampa Energía, GIP, WST and PCT. Pursuant to such option, (i) GIP and PCT transferred to PHA (formerly Petrobras Hispano Argentina) their position as beneficiary of the CIESA Trust owning of 40% of the stock and voting rights of CIESA; and (ii) Pampa Energía and PHA (formerly Petrobras Hispano Argentina) transferred to GIP and PCT shares representative of 40% of the capital and voting rights of CIESA, while Pampa Energía kept a direct participation in CIESA of 10% of its capital and voting rights.

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•

On March 24, 2020, CIESA was informed of the transfer of the 40% capital stock owned by the CIESA Trust to PHA.

Pursuant to the Pliego and the terms of the 2014 Notes, CIESA may not reduce its shareholding below 51% of our share capital.

FGS owns 24% of our common stock. On October 5, 2015, the Argentine Congress passed Law No. 27,181, declaring the protection of the Government’s shareholdings, including those forming part of the portfolio of the FGS, to be in the public interest, and creating the Argentine Agency of Government Investments in Companies as an enforcement authority. This agency was later replaced by the Secretary of Economic Policy and Development Planning of the Ministry of Finance. This agency is in charge of implementing any policies and actions related to the exercise by the Government of any rights arising out of the shares it holds.

In June 2016, the Argentine Congress passed Law No. 27,260, repealing or modifying earlier laws relating to the FGS. Among other things, Law No. 27,260 established that ANSES’ shareholding in public companies may not be sold, in most cases, without the prior authorization of the Argentine Congress if this sale represents a reduction in the FGS’s aggregate shareholding in public companies to below 7%.

Decree No 894/2016, which regulates Law No. 27,260, created the Secretary of Economic Policy and Development Planning. This new agency is responsible for executing policies relating to the exercise of rights corresponding to shareholdings of companies where the Government holds a minority interest. Decree No. 897/2016 states that the directors appointed by ANSES shall have the functions, duties and powers established by General Companies Act.

According to applicable regulations, any transfer or other action that limits, alters, cancels or modifies the destination, ownership, possession or nature of the shares held by the FGS which results in a decrease or the FGS’s holdings in a manner inconsistent with applicable law, shall not be conducted without prior express authorization of the Argentine Congress, with the following exceptions:

•

Public takeover bids addressed to all holders of such shares at a fair price authorized by the CNV, under the terms of Chapters II, III and IV of Title III of the Capital Markets Law.

•

Exchange of shares for other shares of the same or another company in the context of a merger, split or corporate reorganization processes.

All outstanding shares are entitled to one vote each and there are no preferred shares or any privilege.

On February 16, 2017, the Special Shareholders’ Meetings of Pampa Energía and Petrobras Argentina approved the prior merger commitment, under which Pampa Energía will be the surviving entity and Petrobras Argentina will be dissolved without liquidation. The merger is effective as of November 1, 2016. Subsequently, on April 26, 2018, the CNV notified the Board of Directors, the approval of the merger, which was recorded in the Argentine commercial public registry on May 2, 2018.

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Shareholders’ Agreement

As a result of changes in the shareholding of our controlling company, CIESA, a shareholders’ agreement was signed on August 29, 2005 (the “Shareholders’ Agreement”). This agreement governs certain matters relating to shareholder participation in CIESA and in us. This agreement divides the CIESA shares into five classes that grant the shareholders different rights and obligations with respect to us and CIESA, mainly regarding the designation of the members of our Board of Directors and our Statutory Committee.

The following table shows the current CIESA’s shareholding:

Shareholder	Number of shares	Class of shares	Ownership (%)	Group
Pampa Energía	63,881,869	B1	10%	Pampa Group
	0.5	A1
	0.5	A2
PHA	0.5	A1	40%
	0.5	A2
	162,898,766	A2
	92,628,711	B2
PEPCA S.A. (WST, GIP y PCT)	63,881,870	B3	10%	GIP/PCT/WST Group
GIP	89,594,322	A1	22%
GIP	50,945,792	B1	22%
PCT	73,304,444	A1	18%
PCT	41,682,920	B1	18%
Total	638,818,696		100%

As reported in “Item 4. Our Information A. Our History and Development. Controlling Shareholders,” the control of CIESA / TGS is divided into two groups, on the one hand Pampa Energía, directly and indirectly through PHA, and GIP, WST and PCT. Thus, CIESA is under joint control between Pampa Group and GIP/PCT/WST Group.

Transfers of Our Shares. Sales or transfer of our Class A shares must be approved by the affirmative vote of the shareholders representing at least sixty percent (60%) of the ordinary voting shares issued by CIESA.

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Acts that require special approval of the Board of Directors. The Shareholders’ Agreement determines which decisions must be approved by an absolute majority of our Directors, including, among others: (i) the approval of the sale of assets outside the ordinary course of business; (ii) the approval of the annual budget and any modification thereof; (iii) approval to borrow or incur operating expenses in an amount that exceeds, in both cases, more than 10% of the amount approved in the annual budget; (iv) the approval to make investments that exceed U.S.$0.5 million; (v) the approval to establish or modify wage and compensation policies and (vi) the termination or extension of the SATFO.

Changes in the shareholders’ structure of CIESA

For more information to respect of the changes in the shareholding composition of CIESA see above. On its behalf, the mentioned share changes were duly authorized by ENARGAS and by the National Commission of Defense of Competition of Argentina.

On August 9, 2016, ENARGAS authorized the transaction through Resolution No. I-3939/2016. Later, the exchange option was authorized by ENARGAS on December 29, 2016. Similarly, on January 10, 2018, the National Commission of Defense of Competition of Argentina, and subsequently on February 8, 2018, the Secretary of Commerce, approved the mentioned share changes as described above.

On March 24, 2020, CIESA was informed of the transfer of the 40% holding owned by the CIESA Trust to PHA.

In addition, on March 26, 2020, Pampa Energía informed to CIESA of the beginning of the reorganization process by means of a merger through absorption process between Pampa Energía, as absorbing company, and Pampa Cogeneración S.A. and PHA, as absorbed companies. This reorganization process, effective since April 1, 2020, will result in Pampa Energía holding the 40% stake of CIESA currently owned by PHA.

Mandatory tender

In accordance with the provisions of the Capital Markets Law and the rules of the CNV on mandatory tender offers for change of control and acquisition of significant indirect interest, on July 27, 2016, we were notified by GIP, WST and PCT of their intention to launch a tender offer to purchase up to a total of 194,651,345 outstanding Class B Shares of common stock, including Class B Shares represented by American Depositary Shares, representing up to 24.5% of our common stock, in cash at a price of Ps. 18.39 per Class B Share (payable in U.S. dollars) and Ps. 91.95 per ADS (payable in U.S. dollars) (the “Offer”).

The Offer was authorized in Argentina by the CNV on December 22, 2016. Subsequently, on December 30, 2016, GIP, PCT and WST launched the Offer in the United States. The Offer was made concurrently in both the Buenos Aires and US stock markets. Following a number of extensions, the Offer expired on March 15, 2017. On that date, GIP, PCT and WST informed us that a total of 4,003 Class B Shares had been validly tendered in Argentina (representing approximately 0.0005% of our capital stock). With respect to the U.S. Offer, a total of (i) 42,117.542762 Class B Shares underlying ADSs were validly tendered and (ii) no Class B Shares were validly tendered, representing approximately 0.0053% of our share capital. All conditions to the Offer in the U.S. having been satisfied, including the completion of the Offer in Argentina, GIP, PCT and WST accepted for purchase all ADSs and Class B Shares validly tendered and not withdrawn pursuant to the Offer.

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Repurchase of Shares

On May 9, 2018, our Board of Directors approved a program for the acquisition of our Shares in the market (the “First Share Repurchase Program”).

Subsequently, on September 6, 2018, our Board of Directors approved a new share repurchase program with a maximum amount to invest of Ps. 1,800,000,000 stated at its original value (the “Second Share Repurchase Program”).

For additional information see “Item 16.E Purchases of Registered Equity Securities of the Issuer by the Issuer and Affiliated Purchasers.”

On March 27, 2019, our Board of Directors approved a new share repurchase program with a maximum amount to invest of Ps. 1,500,000,000 stated at its original value (the “Third Share Repurchase Program”). On August 26, 2019 the Third Share Repurchase Program was canceled and replaced by a new share repurchase program with a maximum amount to invest of Ps. 3,200,000,000 (the “Fourth Share Repurchase Program”). Finally, on November 19, 2019, a fifth program of acquisition of treasury shares was approved (the “Fifth Share Repurchase Program”) for a total of Ps. 4,000 million (at the time of its creation). This program was valid for 120 days from its creation.

On March 6, 2020 our Board of Directors approved a new share repurchase program with a maximum amount to invest of Ps. 2,500 million stated at its original value (the “Sixth Share Repurchase Program”). This program was valid for 180 days from its creation.

As of March 31, 2020, we have 28,775,540 treasury shares, representing 3.62% of the total share capital. The acquisition cost of the same in the market amounted to Ps. 2,157.0 million which, in accordance with the provisions of Title IV, Chapter III, article 3.11.c) and e) of the CNV’s Rules, restricts the amount of the realized and liquid gains mentioned above that we may distribute to our shareholders.

B. Related Party Transactions

Transactions with related parties are carried out in the ordinary course of business according to common practices and in accordance with applicable laws and regulations.

SATFO

Pampa Energía is our technical operator, according to the approval of ENARGAS in June 2004, and subject to the terms and conditions of the SATFO which provides that Pampa Energía is in charge of providing services related to the operation and maintenance of the natural gas transportation system and related facilities and equipment, to ensure that the performance of the system is in conformity with international standards and in compliance with certain environmental standards. Pursuant to this agreement, Pampa Energía, also provides financial advice to us. For these services, we pay fixed annual amount or a monthly fee based on a percentage of our operating income, the higher of the before mentioned. In the Shareholders Meeting held on October 17, 2019 certain modifications to the amount and term of this agreement were approved. For additional information see “Item 4. Our Information—B. Business Overview—Natural Gas Transportation—Pipeline Operations—Technical Assistance Services Agreement.”

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Commercial transactions

In the normal course of business, we carry out transactions with related parties of the following nature:

•

agreements for the purchase of natural gas used as RTP;

•

natural gas transportation services;

•

liquids sales; and

•

compression and treatment of natural gas services. On November 1, 2016, Pampa Energía assigned the operation of the Río Neuquén area and its related contracts to YPF. Until that date, our transactions under those contracts were reported as transactions with related parties of our other services business segment.

In addition, we have entered into a UT operation with SACDE through which work related to the construction of the Regional II - Recreo / Rafaela / Sunchales Gas Pipeline will be carried out. Construction works are still in progress.

Leasing with Pampa Energía

On August 11, 2016, we entered into a financial lease with Pampa Energía. The term of the agreement is for 10 years and it determines that during 9 years and 11 months we will pay Pampa Energía a monthly fee of U.S.$623,457, before taxes. A purchase option is established on the leased property in our favor to be exercised within 30 days prior to the termination of the agreement.

The objective of this financial lease was to finance the acquisition of property, plant and equipment located in the Río Neuquén hydrocarbon area for a total value of Ps. 2,501.2 million, which allowed us to expand our midstream services provided in that area.

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The details of significant transactions with related parties as of December 31, 2019, are as follows:

Revenues													Financial results

Company	Natural Gas Transportation		Production and commercialization of Liquids		Other services		Gas purchase and others		Compensation for technical assistance		Revenues for administrative services		Interests expenses
Company	(in thousands of pesos)
Controlling shareholder:
CIESA		-		-		-		-		-		146		-
Associate which exercises joint control on the controlling shareholder:		803,610		269,511		268,991		575,857		1,144,777		-		194,944
Pampa Energía
Associate with significant influence:
Link		-		-		14,073		-		-		-		-
Other related companies:
Oleoductos del Valle S.A.		5,469		-		-		-		-		-		-
Pampa Comercializadora S.A.		52,051		-		-		-		-		-		-
Central Piedra Buena S.A.		121,367		-		-		-		-		-		-
Experta ART		-		-		-		20,080		-		-		-
Total		982,497		269,511		283,064		595,937		1,144,777		146		194,944

Additionally, during the year ended December 31, 2019, we received from SACDE Sociedad Argentina de Construcción, construction engineering services for Ps. 1,726,356, which are capitalized within the facilities related to the Vaca Muerta Projects.

For additional information regarding revenues, costs, and outstanding balances relating to transactions with related parties as of and for the year ended December 31, 2019, see Note 21 to our Financial Statements included in this Annual Report on Form 20-F.

C. Interests of Experts and Counsel

Not applicable.

Item 8.

Financial Information

A. Consolidated Statements and Other Financial Information

Our Financial Statements, which are set forth in the index to Financial Statements in Item 18, are filed as part of this Annual Report.

Exports

For additional information regarding our exports see “Item 4. Our Information—B. Business Overview—Liquids Production and Commercialization.”

Legal and Regulatory Proceedings

In addition to the matters discussed below, we are a party to certain lawsuits and administrative proceedings arising in the ordinary course of business. Although no assurances can be given, we believe we have meritorious defenses, which we will assert vigorously to challenge all claims, and that possible liabilities from these claims will not have a material adverse effect on our consolidated financial position or results of operations.

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Tax Claims

Turnover tax calculated on the natural gas price consumed by us as fuel

We have interpretative differences with several provinces regarding the liquidation of the turnover tax calculated on the natural gas used by us as fuel to render our transportation services. Several lawsuits have been initiated against us, which were concluded in a manner adverse to us.

During fiscal year 2017 and 2016, we continued receiving several claims from different provinces. As a consequence of those claims, we paid Ps. 148.5 million and Ps. 27.6 million to provincial agencies, respectively (stated at their original values).

On May 24, 2017, ENARGAS issued Resolution No. 5,041/2017, which approved the billing methodology for turnover tax on gas withheld from those determinations or liquidations that the Company receives as of its date of issue.

As of December 31, 2019 and 2018, we recorded a provision of Ps. 515.1 million and Ps. 474.4 million, respectively, in respect of this claim under the line item “Provisions,” which amounts were determined in accordance with the estimations of tax and interests, that would be payable as of such date.

If our position regarding the turnover tax claims mentioned above fails and the turnover tax has to be paid, we are entitled to recover this amount by a transportation tariff increase as set forth in the License. However, there can be no guarantee that such tariff increase would be granted, notwithstanding the terms of the License.

Action for annulment of ENARGAS Resolutions

On April 11, 2012, we filed a judicial action before the National Court of First Instance in the Federal Administrative Litigation Court No. 1 (the “Court”) in order to obtain the declaration of invalidity of Decree No. 2,067/08 and the Gas Charge Resolutions as well as the declaration of unconstitutionality of the Natural Gas Processing Charge. As of the date of this Annual Report, the case is pending judgment.

On July 5, 2012, the Court issued in our favor a precautionary measure that suspended the charge on the terms set forth in the Gas Charge Resolutions. This decision was appealed in different opportunities by the Government and as a result the term of the precautionary measure was limited to six months. However, at the end of such term, we were entitled to obtain a new precautionary measure for a similar period.

The National Court of Appeals in Contentious Administrative rejected the extraordinary appeal filed by the Government against the judgment of that court that confirmed the rejection made by the Court at the request of ENARGAS to declare abstract the legal action initiated by us in accordance with the precedent “Alliance” issued by the Supreme Court in December 2014.

On March 26, 2019, we were served notice of the first instance judgment rendered in the proceedings, which upholds the legal action filed by us and declares the unconstitutionality of Executive Decree No. 2,067/08, MPFIPyS Resolution No. 1451/08 and the Gas Charge Resolutions, as well as of any other act aimed at enforcing the Executive Decree No. 2067/08, and therefore declare invalid said regulations. On March 29, 2019, the National Secretariat of Energy appealed the judgment, which was granted on April 3, 2019. On October 29, 2019, the judge resolved to extend the injunction (“medida cautelar”) (which prevents the Government from requiring us to pay the charges for the period between November 2011 and March 2016) until April 29, 2020 or until the award becomes final, whichever occurs first. As of the date of this Annual Report, the case is pending judgment by the National Court of Appeals in Contentious Administrative.

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Our management believes we have sufficient valid arguments to defend our position, and thus, we have not recorded any liability from the charge for natural gas consumptions from the date of obtaining the injunction until April 1, 2016, and of the effective date of Resolution 28.

Recovery action of VAT and income tax

On October 9, 2008, we signed the 2008 Transitional Agreement with UNIREN that contemplated a tariff increase of 20%, applicable as of September 1, 2008. On December 3, 2009, the Executive Branch ratified this transitional agreement through Decree No. 1,918/09. By means of this decree, we were able to bill the tariff increase to our clients as long as ENARGAS published the new tariffs schedule and set the methodology to bill retroactively. Ultimately, this administrative act did not become effective and therefore in September 2010, we filed an acción de amparo (a summary proceeding to guarantee constitutional rights). Due to the passage of time since the enactment of Decree No. 1,918/09, on December 16, 2010, our Board of Directors resolved to discontinue the recognition of the tariff increase revenue and to reverse the receivable of the tariff increase revenue already accrued in the year ended December 31, 2009. The reversal of the tariff increase does not imply any waiver of our rights resulting from Decree No. 1,918/09.

On May 24, 2013, we filed a tax recovery appeal with respect to the income tax and VAT credits generated by the reversal of the tariff increase credit mentioned above. The total amount claimed by us amounted to Ps. 433.3 million plus compensatory interests. Our claim was not heard after three months, so on October 9, 2013, we filed an appeal before the Federal Tax Bureau. On June 6, 2017, the Tax Court of the Nation rejected the claim for recovery filed by us. This resolution was appealed by us before the Appellate Court for Administrative Proceedings (Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal).

On May 7, 2019, the National Court of Appeals for Federal Administrative Disputes made the appeal filed by us and revoked the judgment of first instance, with costs to the defeated defendant. On May 23, 2019, the Treasury filed an extraordinary appeal - which was granted on September 26, 2019, in relation to the interpretation of the federal norms at stake in the case, but was denied as to the arbitrariness of judgment - and then complaint appeal. As of the date of issuance of this Annual Report, the case is being resolved by the Supreme Court of Justice of the Nation.

At December 31, 2019 and 2018, there are no account receivables booked per this recovery action.

Turnover tax withholding in the Province of Buenos Aires

Collections Agency of Buenos Aires (Agencia de Recaudación de la Provincia de Buenos Aires or the “ARBA”) claimed a total of Ps. 4.9 million (without fine or interest) for our alleged omissions as withholding and collection agent of the turnover tax corresponding to the period July 2009 - June 2011. We submitted to ARBA various elements of evidence that support our claim of reducing the amount claimed substantially. As of the date of this Annual Report, the Tax Court has not resolved the issue.

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In March 2017, we partially canceled the debt claimed by ARBA, paying Ps. 2.9 million by adhering to the payment plans offered by the Province of Buenos Aires through Law No. 14,890. Adherence to these payment plans allowed partial cancellation of compensatory interest and all fines and charges claimed by ARBA.

As of the date of this Annual Report, only two files remain pending resolution in relation to our alleged failure to act as withholding and collection agent during 2009 and 2010. Our management considers that it has sufficient arguments to assert its defense and no provisions have been recorded in our financial statements in connection with this proceeding.

Other Litigation

Below is a description of certain other litigation in which we are involved. No assurances can be provided as to the outcome of these proceedings.

Environmental matters

We are subject to extensive environmental regulations in Argentina. Our management believes that our current operations are in material compliance with applicable environmental requirements, as currently interpreted and enforced. We have not incurred in material environmental liabilities as a result of our operations to date.

Others

In addition to the matters discussed above, we are a party to certain lawsuits and administrative proceedings which involve taxation, labor claims, social security, administrative and others arising in the ordinary course of business. Our management and our legal advisors estimate that the outcome of these differences will not have significant adverse effects on our financial position or results of operations. As of December 31, 2019 and 2018, the total amount of these provisions amounted to Ps. 74.0 million and Ps. 91.9 million, respectively.

Dividend Distribution Policy

In our Board of Directors meeting held on December 18, 2019, the Board approved a written dividend policy. This policy provides that in making its evaluation, our Board of Directors should consider our financial results, our liquidity, our future financing needs and other information, including economic and financial projections for both our and the economy as a whole. Each year, our Board evaluates whether to submit a distribution proposal to the shareholders’ meeting.

Nevertheless, there are a number of restrictions that limit our ability to distribute dividends, including:

•

Per the Tax Reform, for fiscal periods beginning on January 1, 2018, distribution of dividends made to human persons and foreign beneficiaries are subject to a tax withholding which we must withhold and enter to the tax authority as a single and definitive payment when the dividends are paid. This additional tax will be 7% or 13%, depending on whether the dividends distributed correspond to earnings of a fiscal period at the enacted income tax rate of 30% or 25%, respectively. For these purposes it is considered, without admitting proof to the contrary, that the dividends that are made available correspond, firstly, to the oldest accumulated earnings.

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•

The acquisition of treasury shares and the additional paid-up capital for the distribution of treasury shares in accordance with CNV Rules, restricts the amount of the retained earnings that the Company may distribute. See “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders—Repurchase of Shares.”

•

Furthermore, we are subject to certain restrictions for the payment of dividends, which were contemplated in the outstanding debt agreements (“Item 10. Additional Information—C. Material Contracts”).

•

According to the BCRA regulations, under certain conditions, we have to obtain its previous authorization before transferring dividend payments abroad. For additional information see “Item 10. Additional Information – D. Exchange Controls.”

For additional information regarding dividend payments during 2019, see “Item 3. Key Information—A. Selected Financial Data—Dividends.”

B. Significant Changes

No undisclosed significant change has occurred since the date of our Financial Statements.

Item 9.

The Offer and Listing

A. Offer and Listing Details

Not Applicable.

B. Plan of Distribution

Not Applicable.

C. Markets

The Argentine Securities Market. In Argentina, the oldest and largest exchange is the Buenos Aires Stock Exchange (“BASE”), founded in 1854. The BASE was the exchange on which the majority of equity trades in Argentina were executed. BYMA is the result of an alliance between BASE and Mercado de Valores de Buenos Aires S.A. (“MERVAL”), dated 2013. From April 17, 2017 all the shares previously listed in the MERVAL were transferred to BYMA without any further consequence for listed companies.

As of December 31, 2019, the market capitalization of shares of the 95 companies (excluding mutual funds) listed on the BASE was U.S.$ 179.3 billion. At the same time, the market capitalization of the domestic companies totaled U.S.$ 36.5 billion.

Securities may also be listed and traded through over-the-counter market brokers who are linked to an electronic reporting system. The activities of such brokers are controlled and regulated by the Mercado Abierto Electrónico S.A. (the “MAE”), an electronic over-the-counter market reporting system that functions independently from the BYMA. Under an agreement between the BASE and the MAE, trading in equity and equity-related securities is conducted exclusively on the BASE (now BYMA) and trading in corporate debt securities is conducted on both the MERVAL/BASE (now BYMA) and the MAE. Trading in Government securities, which are not covered by the agreement, may be conducted on either or both of the BYMA and the MAE. The agreement does not extend to other Argentine exchanges.

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Changes to the legal framework of securities trading have been introduced, permitting issuance and trading of new, non-bank financial products in the Argentine capital markets, including commercial paper, new types of corporate bonds, futures and options. The Government deregulated brokerage fees and eliminated transfer and stamp taxes on securities transactions in November 1991.

The Capital Markets Law, enacted in December 2012, sets out the rules to govern capital markets, its players, and the securities traded therein subject to the CNV regulation and monitoring. On May 9, 2018, the Argentine Congress approved the Act on Productive Financing No. 27,440, which introduces significant reforms to the Capital Markets Law, the Law on Common Investment Funds No. 24,083, the Argentine Law No. 23,576, as amended by Argentine Law No. 23,962 (the “Negotiable Obligations Law”), and other regulations, with the objective of promoting the development of the local capital market. Among other items, the new law seeks to broaden the base of investors and companies that can participate in the capital market, promoting productive financing, especially with respect to micro, small and medium enterprises, creating a regime that promotes and facilitates their access to financing. Likewise, this law provides for the modification of certain tax provisions, tax regulations, regulations related to derivative instruments and a program for the promotion of financial inclusion. The reforms also establish some limitations to the powers granted to the CNV by the Capital Markets Law.

The Capital Markets Law provides rules and provisions guided by the following goals and principles:

•

Promoting the participation of small investors, union associations, industry groups and trade associations, professional associations and all public savings entities in the capital market, particularly encouraging mechanisms designed to promote domestic savings and channel such funds towards the development of production;

•

Strengthening mechanisms for the protection of and prevention of abuses against small investors and for the protection of consumers’ rights;

•

Promoting access of small and medium-sized companies to the capital market;

•

Fostering the creation of a federally integrated capital market through mechanisms designed to achieve an interconnection of computer systems from different trading markets, with the use of state-of-the-art technology; and

•

Encouraging simpler trading procedures available to users to attain greater liquidity and competitiveness in order to provide the most favorable conditions for the implementation of transactions.

The CNV is a self-administered agency of the Government with jurisdiction covering the territory of Argentina, governed by the provisions contained in the Capital Markets Law and the CNV Rules, among other related statutory regulations. The relationship of the CNV and the Argentine Executive Branch is maintained through the Ministry of Finance, which shall hear any appeals filed against decisions made by the CNV, notwithstanding any other legal actions and remedies contemplated in the Capital Markets Law.

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The CNV supervises and regulates the authorized markets in which the securities and the collective investment products are traded, the corporations authorized in the public offer regime, and all the other players authorized to operate in the public offer regime, as the registered agents, the trading agents, the financial advisors, the underwriters and distributors, the brokers, the settlement and clearing agents, the managers of collective investment products, the custodians of collective investment products, the collective depositories, and the risk rating agencies, among others.

The BYMA. Pursuant to the Capital Markets Law, the CNV has authorized nine stock markets since September 2014. BYMA is a private entity whose stock capital is composed of publicly traded shares. On December 29, 2016, BYMA was authorized by CNV as a market, Registry No. 639. BYMA’s main functions comprise trading as well as performing as a Clearing House and Central Counterparty (CCP) in the settlement and monitoring of transactions carried out through its trading systems.

BYMA’s main functions under the Capital Markets Law are as follows:

issue regulations that allow stock brokers and brokerage firms authorized by the CNV to perform their duties;

authorize, suspend and cancel the listing and/or trading of negotiable securities pursuant to the provisions set forth in its by-laws;

issue regulations that ensure veracity in the record of prices and trades;

issue the regulations and policies deemed necessary to ensure transparency in the trades conducted by member stock brokers;

fix the margins that member brokers are to comply with for each type of trade BYMA guarantees; and

set up arbitration tribunals.

These powers may be exercised by BYMA or delegated, in whole or in part, to other qualified entities. Accordingly, BYMA has entered into an agreement with BASE to enforce items b) and f), due to the fact that BASE has been authorized to operate as a qualified entity, pursuant to Capital Markets Law.

New York Stock Exchange. The ADSs, each representing five Class B Shares, are listed on the NYSE under the trading symbol “TGS.” The ADSs began trading on the NYSE in November 1994, and have been issued by the Depositary.

According to data provided by the Depositary, as of March 31, 2020, there were 133,976,542 ADSs outstanding. Such ADSs represented approximately 16.68% of the total number of issued and outstanding Class B Shares as of such date.

Market Capitalization. Investors in the Argentine securities market are primarily individuals, companies and institutional investors consisting of a limited number of mutual funds. The last information available to us regarding the Argentine stock market is set forth in the table below:

	2015		2016		2017		2018		2019
Market capitalization (U.S.$ in billions)		336.8		282.9		356.9		279.2		179.3
Number of listed companies		99		99		97		95		90

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Source: Data published by the Instituto Argentino de Mercado de Capitales.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

Item 10.

Additional Information

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Information contained in Item 14 of TGS’s Registration Statement on Form F-1 (Registration No. 33-85178) is hereby incorporated by reference.

2014 By-laws amendments

The Ordinary and Special Shareholders Meeting held on April 30, 2014, approved certain amendments of our by-laws. The purpose of these amendments was to provide our administration with greater flexibility to manage as well as adapt the By-laws to the requirements of the Capital Markets Law. Below you will find a description of the amendments to our By-laws:

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Subject to the approval of the annual shareholders meeting, the number of members of the Board of Directors may vary between nine and eleven directors and an equal number of alternate directors.

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The Board of Directors meetings may be held not only with the members present, but also with the members communicating remotely. Under our By-laws, all members will have the same power to vote on a proposal and will be considered to constitute a quorum.

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The Audit Committee duties, which are in line with those requirements stipulated in the Capital Markets Law, were incorporated to our By-laws. For additional information regarding Audit Committee duties, see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Audit Committee.”

The amended By-laws approved by the 2014 Shareholders Meeting held on April 30, 2014, were filed with our Annual Report on Form 20-F for the fiscal year ended December 31, 2015, and are incorporated by reference in this Annual Report as Exhibit 1.2.

The 2017 Shareholders’ Meeting amended our By-laws in order to: (i) expand our corporate purpose in order to incorporate the development of complementary, accessory, related and / or derived activities of natural gas transportation, such as the generation and sale of electricity and the provision of other services for the hydrocarbons sector in general, and (ii) allow the creation of an Executive Committee of the Board of Directors under the terms of Article 269 of the General Companies Act. The purpose of these amendments is to provide management with greater flexibility in decision-making. In relation to compliance with the regulatory requirements, this modification has not received comments from ENARGAS, as informed by a note from ENARGAS dated April 25, 2017, nor from the CNV, which has accepted this amendment through a note dated April 18, 2017.

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On July 14, 2017, through the issuance of Resolution No. 18,852, the CNV approved the amendment, which was approved by the General Inspection of Justice on July, 25, 2017.

C. Material Contracts

Debt Obligations

2018 Notes

On May 2, 2018, we issued the 2018 Notes in the aggregate principal amount of U.S.$500 million, the proceeds of which were used to redeem all of our then outstanding 9.625% of the 2014 Notes pursuant to (i) a tender offer to purchase for cash (the “Tender Offer”) any and all of our 2014 Notes launched on April 19, 2018, which expired on April 26, 2018, and (ii) the optional redemption provisions of the 2014 Indenture. On April 27, 2018, U.S.$80,083,898.25 in aggregate principal amount of the 2014 Notes (or approximately 41.80% of the 2014 Notes then outstanding), were redeemed pursuant to the Tender Offer and the remaining 2014 Notes were redeemed on May 2, 2018 pursuant to the provisions of the 2014 Indenture.

The 2018 Notes were issued pursuant to the program, which provides for the issuance of up to a maximum principal amount of U.S.$700 million in notes, and was authorized by resolutions of an Extraordinary Shareholders’ Meeting dated April 25, 2013 and April 13, 2017, and by resolutions of our Board of Directors adopted on July 23, 2013, December 23, 2013 and June 29, 2017. The program was also authorized by the CNV by Resolution No. 17,262 dated January 3, 2014 and Resolution No. 18,938 dated September 15, 2017.

The scheduled maturity date of the 2018 Notes is May 2, 2025. The 2018 Notes accrue interest at an annual fixed rate of 6.750%, payable semiannually.

We are also permitted to redeem the 2018 Notes in whole, but not in part, at a price equal to 100% of the principal amount outstanding if, as a result of any change in, or amendment to, the laws or regulations of Argentina or any governmental authority thereof or therein having power to tax or as a result of any change in the application or official interpretation of such laws or regulations, we become obligated to pay additional amounts with respect to the 2018 Notes and cannot avoid such obligation by taking reasonable measures available to us.

In the event that the Republic of Argentina, directly or indirectly, through any one or more controlled entities, as a result of a condemnation, nationalization, confiscation, seizure, compulsory acquisition, expropriation or otherwise under power of eminent domain becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of at least 51% of our outstanding shares with voting power, holders of the 2018 Notes are entitled to require us to purchase all or a portion of the 2018 Notes at a price in cash equal to 101% of the principal amount of the 2018 Notes so purchased. The 2018 Notes are general, direct, unsecured and unsubordinated obligations and rank at all times pari passu in all respects, without any preference among themselves, with all of our other present and future unsecured and unsubordinated obligations, other than obligations preferred by statute or by operation of law.

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Covenants

We are subject to several restrictive covenants under the terms of the 2018 Notes, which include, among others, the following:

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limitations on our ability to terminate our License or take any action that, in our reasonable opinion, would result in the termination of the License. We may not agree to amend or waive any terms of the License unless such amendment or waiver would not, in our reasonable opinion, adversely affect (i) our ability to meet our obligations under the 2018 Notes on a timely basis or (ii) any material rights or interest of the trustee or the holders under the indenture or the 2018 Notes;

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a requirement that we not enter into or consent to any amendment, restatement or modification of the SATFO or any successor agreement thereto, other than an amendment, restatement or modification that is not materially adverse to us and our subsidiaries, taken as a whole;

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a limitation on our and our subsidiaries’ ability to create liens on our property, assets or revenues, other than certain permitted liens;

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a limitation on our and our subsidiaries’ ability to incur additional indebtedness unless we meet certain financial ratios and no event of default exists, other than certain permitted indebtedness;

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a limitation on our and our subsidiaries’ ability to pay dividends and make certain other restricted payments and investments with respect to any fiscal year or fiscal semester unless: (i) no event of default or potential event of default shall have occurred and be continuing and (ii) immediately after giving effect to such restricted payment, we would be able to incur at least U.S.$1.00 of additional indebtedness pursuant to the limitation on indebtedness covenant;

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limitations on our and our subsidiaries’ ability to enter into sale-leaseback transactions;

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limitations on our and our subsidiaries’ ability to enter into a transaction with an affiliate, unless such transaction is on terms that are not materially less favorable to us or our subsidiary than we or such subsidiary would obtain in a comparable arm’s-length transaction with a non-affiliate;

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a limitation on our and our subsidiaries’ ability to sell our assets; and

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a limitation on our and our subsidiaries’ ability to enter into a merger, consolidation or similar transaction.

Events of Default

The 2018 Notes include the following events of default, among others:

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default in the payment of principal, interest or any other amount due under the terms of the 2018 Notes after a specified grace period with respect to payments other than principal;

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breach of obligations contained in the 2018 Notes after a specified cure period;

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cross-default and cross-acceleration with respect to other debt obligations with an aggregate principal amount equal to or exceeding U.S.$50 million;

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the occurrence of certain bankruptcy events or enforcement proceedings;

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enforcement of monetary judgments exceeding U.S.$50 million; and

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the occurrence of certain material adverse events with respect to our License, such as the revocation, suspension for a period of greater than 180 days or termination of the License.

Financial lease with Pampa Energía

On August 11, 2016, we entered into a financial lease agreement with Pampa Energía. Starting on such date and for a term of nine years and 11 months (the “Leasing Payment Term”), Pampa Energía is leasing to us certain assets for an aggregate value of Ps. 2,501.2 million, which we utilize in our other services business segment. Monthly lease payments to Pampa Energía amount to U.S.$0.6 million, before taxes.

Within 30 days of the expiration date of the Leasing Payment Term, we may exercise the option to purchase the assets leased to us under the agreement. The purchase option price will be equivalent to U.S.$0.6 million before taxes.

For additional information, see Note 13 to our Financial Statements included under “Item 18. Financial Statements.”

D. Exchange Controls

The following is a description of the main BCRA regulations concerning inflows and outflows of funds in Argentina. For further information regarding the full scope of current foreign exchange restrictions and control regulations, investors should seek advice from their legal advisors and refer to the applicable rules mentioned in the Annual Report, which are available at the website of the Argentine Ministry of Economy and Public Finance: https://www.argentina.gob.ar/hacienda and https://www.minfinanzas.gob.ar/, or the website of the BCRA: www.bcra.gov.ar. None of the information contained on either website is deemed to be incorporated by reference into this Annual Report.

Executive Order No. 609/19 (published in the Official Gazette on September 1, 2019), as amended by Executive Order No. 91/19 (published in the Official Gazette on December 28, 2019) and communication “A” 6770 of the BCRA, provide that foreign exchange proceeds from exports of goods and services shall be transferred to Argentina’s financial system and/or exchanged in the market under the terms and conditions that the BCRA may establish.

In addition, it vests the BCRA with powers to regulate the cases of transfers abroad, as well as purchases of foreign currency and precious metal coins which require its authorization before having access to the market. The BCRA is also empowered to lay down regulations to avoid practices and transactions intended to circumvent the provisions of the executive order through sovereign bonds or other instruments.

Pursuant to these measures, as further amended and complemented, and other additional measures adopted by the BCRA, as of the date of this annual report, among others:

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The prior authorization of the BCRA is required to access to the foreign exchange market for the purchase of foreign currency:

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For portfolio investment purposes for more than $200 per calendar month by individuals;

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For portfolio investment purposes by legal entities, local governments, funds and trusts;

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By non-Argentine residents, except for certain exemptions;

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For the payment of dividends and transfer of earnings out of Argentina, except that no such prior authorization is required for the payment of profits and dividends as from January 17, 2020 in an amount that (including the amount of the payment being made at the time of the access) does not exceed 30% of the value of new capital contributions of foreign direct investments made to the Argentine company duly capitalized and registered before the Registry of Commerce (or pending such registration) and the proceeds of which have been transferred to Argentina and sold for pesos through the foreign exchange market;

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For the pre-payment of principal and interest on foreign financial indebtedness with an anticipation of more than three business days in advance to the scheduled maturity dates, unless certain conditions are met;

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For the pre-payment of indebtedness for the import of goods and services, except for certain exemptions;

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For the payment of indebtedness for the import of goods past due before August 31, 2019 or at sight with related foreign parties in excess of $2,000,000 per calendar month; and

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For the payment of services with related foreign parties, except for certain exemptions.

Any proceeds from exports of goods and services, and from the sale of non-produced non-financial assets shall be transferred to Argentina’s financial system and exchanged in the market within the required periods.

The transfer and exchange of foreign currency obtained from financial borrowings is a prerequisite for the subsequent access to the foreign exchange market for the repayment of principal and interest.

As a general rule, Argentine residents may access the foreign exchange market for the payment of imports of goods. Different requirements apply for goods with customs entry registration and goods with pending customs entry registration. The Argentine importer may access the foreign exchange market to pay imports of goods with customs entry registration registered in the import payment tracking system (“SEPAIMPO”, after its Spanish acronym), provided that certain requirements are met, including, among others, the payment is not made before the scheduled maturity date. Payments must be made to the foreign supplier. Goods with pending customs entry registration are subject to a special follow-up regime.

It is prohibited to access the foreign exchange market for the purchase of foreign currency for the payment of local debts and other obligations incurred in foreign currency between Argentine residents originated as from September 1, 2019, except, among others, in the case of obligations contained in public registries or deeds as of August 30, 2019.

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Law No. 19,359 (revised text pursuant to Decree No. 480/95 and complementary regulations) establishes penalties for the infringement of any foreign exchange regulations. Penalties include fines of up to a tenfold increase in the amount of the infringing transaction, temporary suspensions, disqualification for up to ten years preventing the infringing party from acting as importer, exporter and/or as foreign exchange institution, or even prison in event of recidivism.

Money Laundering

Law No. 25,246, as amended, categorizes money laundering as a crime, defining it as the exchange, transfer, management, sale or any other use of money or other assets obtained through a crime, by a person who did not take part in such original crime, with the potential result that such original assets (or new assets resulting from such original assets) appear as if obtained through legitimate means; provided that the aggregate value of the assets involved exceeds in the aggregate (through one or more related transactions) Ps. 50,000.

In addition, Law No. 25,246 created a financial information unit (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:

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Crimes related to illegal trafficking and commercialization of narcotics;

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Crimes related to arms trafficking;

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Crimes related to the activities of an illegal association as defined in Article 210 bis of the Penal Code;

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Illegal acts committed by illegal associations organized to commit crimes with political or racial objectives;

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Crimes of fraud against the Public Administration;

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Crimes against the Public Administration;

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Crimes of underage prostitution and child pornography; and

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Crimes related to terrorism financing.

Law No. 25,246 assigns information and control duties to certain private sector entities, such as banks, agents, stock exchanges and insurance companies, according to the regulations of the Financial Information Unit, and for financial entities, the BCRA. These regulations apply to many Argentine companies. These obligations consist mainly of maintaining internal policies and procedures aimed at preventing money laundering and financing of terrorism, especially through the application of “know your customer” policies.

On May 8, 2005, the CNV enacted Resolution No. 554, which provides that broker-dealers and other intermediaries that are subject to its supervision can only take part in securities transactions if they are ordered or executed by parties that are registered or domiciled in jurisdictions that are not included in the list of tax havens included in Decree No. 1,344/98. Furthermore, the Resolution provides that securities transactions made by parties registered or domiciled in jurisdictions that are not included in such list, but that act as intermediaries of securities markets under the supervision of an agency similar to the CNV, are allowed only if such agency has signed a memorandum of mutual understanding with the CNV. Regarding the listed companies under the supervision of the CNV, Resolution No. 554 states that they shall identify any entity or individual (whether or not a shareholder at that time) that makes a capital contribution or a significant loan, and comply with the same obligations established in the previous paragraph for the brokers-dealers and other intermediaries.

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Pursuant to Decree 360/2016, dated February 16, 2016, the Government created the “National Coordination Program for Combating Money Laundering and Terrorist Financing” within the purview of the Ministry of Justice and Human Rights. Its purpose is to rearrange, coordinate and strengthen the anti-money laundering and anti-terrorist financing system at the national level, in light of the actual risks that could impact the Argentine territory and the global requirements to be met under the scope of the obligations and international recommendations of the United Nations and Financial Action Task Force standards.

Moreover, Law No. 27,260 introduced certain tax modifications and a new regime for residents to disclose undeclared assets, and also established that the Financial Information Unit would now be within the purview of the Ministry of Economy and Finance.

On December 22, 2017, the BCRA enacted Communication “A” 6399 by means of which it abrogated item 1.3 of the regulations regarding “Anti-Money Laundering, Terrorism Financing and other illegal activities” which regulated the obligation of financial institutions and foreign exchange agencies to maintain certain databases, as of January 1, 2018.

The abrogated regulations established the obligation for financial institutions and foreign exchange agencies subject to the BCRA’s regulation to maintain databases regarding client operations.

In turn, Decree No. 27/2018, dated January 10, 2018, amended Law No. 25,246 related to the requirements imposed upon obliged subjects (“Obliged Subjects”), the management of their client’s information and the information required for “know your client” purposes. Such decree now requires Obliged Subjects to refrain from revealing any investigations carried out in compliance with Law No. 25,246 to their clients and/or any third parties.

On January 11, 2017, the Financial Information Unit published Resolution No. 4/2017, which established that special due diligence measures must be applied for identifying foreign and domestic investors (who shall comply with the requirements therein set forth to qualify as such) in the Republic of Argentina upon requesting the opening of special investment accounts. Since October 2018, the BCRA established an exchange rate band. The band in which the BCRA would not intervene was initially defined between Ps. 34 and 44 per US dollar, which will be adjusted upwards on a monthly basis. The BCRA will allow the free floating of the currency within this band. The intention of the BCRA is to avoid excessive fluctuations of the exchange rate.

Subsequently, the Financial Information Unit published Resolution No. 30-E/17, effective as of September 15, 2017, which repealed Resolution No. 121 and established new guidelines to be followed by financial and securities institutions in their capacity as parties legally obliged to provide financial information under the Anti-Money Laundering Law, based on the revised recommendations of the Financial Action Task Force for 2012.

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These amendments facilitate compliance of the requirements imposed upon the Obliged Subjects and continue the migration of the system towards a risk-based approach.

Resolution No. 30-E/17 determines the minimum compliance elements that must be included in a system for the prevention of money laundering and terrorist financing, such as the process of customer due diligence, training programs, operations monitoring, reporting of suspicious operations and rules applicable in cases of non-compliance, among others.

The Financial Information Unit published Resolution No. 21/2018 which states that reporting parties under Resolution No. 229/2014 of the Financial Information Unit (mainly the BCRA and the CNV) must evaluate their risks and adopt measures to mitigate them, in order to prevent money laundering as efficiently as possible. Within this framework, individuals are enabled to implement reputable technological platforms which allow carrying out long-distance procedures without the need to present documentation in person.

E. Taxation

General

The following general summary of the main tax consequences in Argentina and the United States relating to the, ownership and disposition of securities issued by us is based on the tax laws of Argentina the United States and regulations thereunder (as applicable) as in effect on the date hereof, each subject to any changes that may come into effect after such date under the Argentine and United States laws and regulations (as applicable) as may become effective subsequently to such date, possibly with retroactive effect.

Even though this summary is considered to constitute an appropriate interpretation of the effective Argentine tax laws and United States federal income tax laws as of the date hereof, no assurance may be given that the courts or tax authorities in charge of application of such laws will agree to this interpretation. Furthermore, it should be noted that there have been many changes in Argentine tax laws and United States tax laws in the past and in particular in recent years, and that such laws may be subject to restatements, revocation of exemptions, reestablishment of taxes and other changes.

Prospective investors should consult their own tax advisors as to the Argentine tax consequences and United States federal income tax consequences of the purchase, ownership and disposition of our securities, including, the effect of any foreign, state or local tax laws.

Argentine Taxes

Income Tax

Taxation on Dividends

In view of the last amendments introduced to the Income Tax Law by virtue of the Tax Reform, as of fiscal years beginning on January 1, 2018, the taxation applicable to dividends distributed from Argentine companies would be as follows, as amended by the Solidarity Law:

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Dividends originated from profits obtained during fiscal years 2018, 2019 and 2020: dividends on Argentine shares paid to Argentine individuals and/or non-residents (“Foreign Beneficiaries”) are subject to a 7% income tax withholding on the amount of such dividends (“Dividend Tax”).

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Dividends originated from profits obtained during fiscal year 2021 onward: the tax rate is raised to 13%.

For Argentine individuals not registered before the Federal Administration of Public Revenues (Administración Federal de Ingresos Públicos) as payers of income tax and foreign beneficiaries, the Dividend Tax withholding will be considered as a unique and final payment. In addition, under the Tax Reform, rules are created that regulate and limit the possibility to offset gains derived from the distribution of dividends with losses generated in other operations.

If dividends are distributed to Argentine Entities as defined below, no Dividend Tax should apply.

However, Law No. 27,451, published in the Official Gazette on December 23, 2019, suspended, until fiscal years starting on January 1st, 2021, the application of the withholding tax at a 13% rate on payment of dividends and profit distribution, and reestablished the 7% rate for this withholding tax.

Capital Gains Tax

According to current regulations, the results derived from the transfer of shares, quotas and other equity interests, titles, bonds and other securities, are subject to Argentine income tax, regardless of the type of beneficiary who realizes the gain.

Capital gains obtained by Argentine corporate entities (in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of foreign entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina) (the “Argentine Entities”) derived from the sale, exchange or other disposition of shares are subject to income tax at the corporate rate on net income.

Beginning in 2018, it is clear that income obtained by individuals residents from the sale of shares and other securities are exempt from capital gains tax in the following cases: (i) when the shares are placed through a public offering authorized by the CNV, (ii) when the shares were traded in stock markets authorized by the CNV, under segments that ensure priority of price-time and interference of offers, or (iii) when the sale, exchange or other disposition of shares is made through an initial public offering and/or exchange of shares authorized by the CNV.

It should be noted that for periods prior to 2018, it is currently under discussion if the exemption (introduced by Law No. 26,893 and its implementing decree 2334/2013) applicable on the sale of shares and other securities, only included the sale of securities made through a stock exchange market duly authorized by the CNV or if the implementing decree’s added provisions were just by way of example.

Pursuant Income Tax Regulatory Decree (O.T 2019), the conversion process by which individual residents change ADRs by excepted shares, will be considered a levied transaction at its value market price.

In turn, Law No. 27,430 and the income tax regulatory Decree (O.T 2019), maintain the 15% capital gains tax (calculated on the actual net gain or a presumed net gain equal to 90% of the sale price) on the disposal of shares or securities by nonresidents. However, Nonresidents are also exempt from income tax on income derived from the sale of Argentine shares in the following cases: (i) when the shares are placed through a public offering authorized by the CNV, (ii) when the shares were traded in stock markets authorized by the CNV, under segments that ensure priority of price-time and interference of offers, or (iii) when the sale, exchange or other disposition of shares is made through an initial public offering and/or exchange of shares authorized by the CNV.

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In addition, it was finally clarified that, from 2018 onward, the income derived from the sale of ADSs will be treated as coming from an Argentine source.

The exemption on the sale of Argentine shares and/or ADSs would only apply to the extent that the Foreign Beneficiaries do not reside in, or the funds do not derive from, jurisdictions not considered as cooperative for purposes of fiscal transparency. In addition, according to the last amendment introduced by the Tax Reform, no taxes would be claimed to the abovementioned Foreign Beneficiaries on past sales of Argentine shares or other securities traded in CNV’s authorized markets (such as ADSs) as long as the cause of the non-payment was the absence of a method for collection.

In case the exemption is not applicable, the gain derived from the disposition of shares would be subject to Argentine income tax at a 15% rate on the net capital gain or at a 13.5% effective rate on the gross price. In such scenario, the income tax should be paid to the Argentine Tax Bureau under the following procedures: (i) in case the securities were sold by a Foreign Beneficiary, but not through an Argentine stock exchange market and there is an Argentine buyer involved, the Argentine buyer should withhold the income tax; and (ii) when both the seller and the buyer are Foreign Beneficiaries and the sale is not performed through an Argentine stock exchange market, the person liable for the tax shall be the legal representative of the seller of the shares or securities being transferred.

In case such foreign beneficiaries reside in, or the funds arise from, jurisdictions not considered as cooperative for purposes of fiscal transparency, a 35% tax rate on the net capital gain or at a 31.5% effective rate on the gross price should apply On December 9, 2019, the official list of “non-cooperating” jurisdictions for tax purposes was published by means of Decree No. 682/2019.

Value Added Tax (“VAT”)

The sale, exchange or other disposition of our ADSs or common shares and the distribution of dividends are exempted from VAT.

Personal Assets Tax

Argentine entities, like us, are subject to the personal assets tax corresponding to Argentine individuals and Foreign Beneficiaries (be they legal entities or individuals) for the holding of company shares at December 31 of each year.

Pursuant to Law No. 27,541, as of December 31, 2019, the rate is 0.50% and is levied on the proportional net worth value (“valor patrimonial proporcional”), of the shares as per the Argentine entity’s last financial statements prepared under Argentine GAAP.

Pursuant to the Personal Assets Tax Law, the Argentine company is entitled to seek reimbursement of such paid tax from the applicable Argentine domiciled individuals and/or foreign domiciled shareholders.

Tax on Credits and Debits on Bank Accounts

Law No. 25,413, as amended and regulated by Law No. 25,453, established a tax, with certain exceptions, levied on debits and credits of any nature on bank accounts held at Argentine financial institutions, except for those specifically exempted pursuant to legal provisions and regulations thereof. The general tax rate is 0.6% for each debit and credit (although in certain cases an increased rate of 1.2% and a reduced rate of 0.075% may apply).

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Certain transfers of money or cash movements through other mechanisms may also trigger application of this tax. In general, the financial institutions involved act as tax collection and tax calculation agents.

Decree No. 409/2018 established that as of January 1st, 2018, 33% of the tax paid on credits and debits levied at the 0.6% general tax rate and 1.2% tax rate, and 20% of the tax paid on transactions levied at the lesser tax rate, will be considered as a payment on account of income tax, taxes on presumed minimum income or the special contribution on cooperatives capital by the bank account holders. The exceeding amount will not be subject to compensation with other taxes or transfer in favor of third parties; however, it can be carried forward to other fiscal periods of the above-mentioned taxes.

This tax has certain exemptions; as an example, debits and credits in banking accounts opened by foreign legal entities in accordance with BCRA Communication “A” 3250 and used exclusively for the purpose of making financial investments in Argentina are exempted from this tax is accordance with section 10, paragraph s) of Decree No. 380/2001. Likewise, Law No.27,264 established that the Tax on Credits and Debits on Bank Accounts that had actually been deposited may be computed in a 100% as payment on account of the income tax by companies that are considered “micro” and “small” and in 50% by manufacturing industries considered “medium -trench 1-” under the terms of article 1 of Law No. 25,300 and its complementary regulations. In case securities’ holders receive payments in local bank checking accounts, such tax may apply.

Pursuant to Law No. 27,432, dated December 29, 2017, this tax will be applied until December 31, 2022. Moreover, according to this law, the Government may provide that the percentage of this tax that on the effective date of this law (i.e. December 30, 2017) is not computable as payment on account of income tax, it is progressively reduced by up to 20% per year as of January 1, 2018, and it can be established that, in 2022, it can be completely calculated as a payment on account of the income tax.

Turnover Tax

Turnover tax is a local tax levied on gross income earned from an activity during the year and it is applied by each provincial jurisdiction or the City of Buenos Aires. Any investors regularly engaged in activities, or presumed to be engaged in activities, in any provincial jurisdiction or in the City of Buenos Aires where they receive revenues from interest arising from holding notes, or from their sale or conveyance, could be subject to the turnover tax at rates that vary according to the specific laws of each Argentine province and of the City of Buenos Aires, unless an exemption applies.

There is a system of Collection and Control over Credits on Bank Accounts (“SIRCREB”) that enables the compliance of the turnover tax collection’s regimes, applicable over the amounts credited in Argentine bank accounts. The regimes vary according to the specific laws of each Argentine province. The aliquots to apply depend on each one of the treasuries with a range that can currently reach 5%.

Buenos Aires Tax Code, Section 180(1), third paragraph, sets forth that revenues from any transaction on notes issued in accordance with Law No. 23,576, the interest collected and updates accrued and the selling price in case of a transfer, shall be exempt provided the income tax exemption is applicable.

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The Province of Buenos Aires Tax Code sets forth a similar exemption in Section 207 (c), second paragraph.

Considering the autonomous authority vested in each provincial jurisdiction in connection with tax matters, any potential effects derived from these transactions must be analyzed, in addition to the tax treatment established by other provincial jurisdictions. Potential investors must consider the effects of the turnover tax and the SIRCREB regime depending on the local jurisdictions involved. Also, as certain jurisdictions have excluded the application of these regimes on certain financial transactions, holders shall verify the existence of any exclusion to these regimes in accordance with the jurisdiction involved.

Stamp Tax

The stamp tax is a local tax that is generally levied on the consummation of onerous transactions executed within a certain provincial jurisdiction or outside a certain provincial jurisdiction but with effects in such jurisdiction.

Notwithstanding the fact that the stamp tax is a local tax, for Buenos Aires City, the acts, contracts and transactions, including money delivery or receipt transactions, related to the issuance, subscription, placement and transfer of notes, issued pursuant to the Negotiable Obligations Law regime are exempted from application of this tax. This exemption shall include the creation of any real or personal guarantees in favor of investors or third-parties guaranteeing the issuance, either prior to, simultaneous with or subsequently to such issuance.

This exemption also covers security rights related to issuances. However, this exemption is forfeited if, within a 90-calendar days term, the relevant authorization is not requested for the public offering of such securities before the CNV.

The acts and/or instruments related to the trading of shares and other securities duly authorized for public offering by the CNV are exempted from application of stamp tax in the City of Buenos Aires. This exemption is also ineffective if the circumstances mentioned in the last sentence of the previous paragraph occur.

In turn, in the Province of Buenos Aires, any acts, contracts, transactions, including money delivery or receipt transactions, related to the issuance, subscription, placement and transfer of notes issued pursuant to the Negotiable Obligations Law regime and Law No. 23,962 are exempted from application of this tax. This exemption shall include the creation of any real or personal guarantees in favor of investors or third-parties guaranteeing the issuance, either prior to, simultaneous with or subsequently to such issuance.

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Transfer Taxes

The Province of Buenos Aires passed Law No. 14,044, approved on September 23, 2009 and published in the Argentine Official Gazette on October 16, 2009, whereby it imposed a Tax on Gratuitous Transfer of Assets (“TGTA”), effective as of January 1, 2011.

The basic aspects of the TGTA are:

TGTA is applicable to any enrichment resulting from gratuitous transfers, including: inheritances, legacies, donations anticipated, or any other event that implies a gratuitous monetary enrichment.

The tax is payable by individuals and legal entities that are beneficiaries of a gratuitous transfer of assets.

For taxpayers domiciled in the Province of Buenos Aires, the tax is levied on the total amount of the gratuitous enrichment, in respect of property situated both in and outside of the Province of Buenos Aires. Instead, for taxpayers domiciled outside of the Province of Buenos Aires, the tax is levied only on the gratuitous enrichment resulting from the transmission of assets located within the Province of Buenos Aires.

The following types of property, which may be freely transferred, are deemed situated in the Province of Buenos Aires (i) securities and shares of stock, notes, membership or equity interests and other negotiable instruments representing capital stock, issued by governmental or private entities and companies domiciled in the Province of Buenos Aires; (ii) securities, shares of stock and other negotiable instruments issued by private entities or companies domiciled in a different jurisdiction that were physically situated in the Province of Buenos Aires at the time of their transmission; and (iii) securities, shares of stock and other negotiable instruments representing capital stock or its equivalent issued by entities or companies domiciled in another jurisdiction which are also physically situated in another jurisdiction, in proportion to the issuer´s assets situated in the Province of Buenos Aires.

The gratuitous transfer of assets is exempt from tax when their aggregate value, excluding deductions, exemptions and exclusions, is equal to or lower than Ps. 269,000 and it rises to Ps. 1,120,000 when the transfer is done between parents, children and spouses.

Step‑up rates from 1.6026% to 8.7840% have been established, based on the degree of kinship and taxable base involved.

The Province of Entre Ríos, pursuant to provincial Law No. 10,553, dated December 13, 2017, has revoked its provincial TGTA stated by virtue of Law No. 10,197.

As for the existence of the TGTA in other provinces, potential investors must analyze the tax consequences according to the jurisdictions involved in the specific case.

Court Taxes

In the event that it becomes necessary to institute legal actions in relation to our securities before a federal court in Argentina or the courts sitting in the City of Buenos Aires, a court tax will be imposed on the amount of any claim (currently at a rate of 3.0%). Certain court and other taxes could be imposed on the amount of any claim brought before the courts of the relevant province.

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Treaties to avoid Double Taxation

Argentina has entered into tax treaties to avoid the double taxation with several countries (Australia, Belgium, Bolivia, Brazil, Canada, Chile, Denmark, Finland, France, Germany, Italy, México, Netherlands, Norway, Russia, Spain, Sweden, Switzerland, United Kingdom and Uruguay). The agreement signed with United Arab Emirates is still undergoing the relevant ratification procedure. There is currently no tax treaty in force between Argentina and the United States.

Inflow of funds from Non‑Cooperative Jurisdictions

Non-cooperative jurisdictions are those countries or jurisdictions that do not have in force with the Government an agreement for the exchange of information on tax matters or a treaty to avoid international double taxation with a broad clause for the exchange of information. Likewise, those countries that, having an agreement of this type in force, do not effectively comply with the exchange of information will be considered non-cooperative. The aforementioned treaties and agreements must comply with international standards of transparency and exchange of information on fiscal matters to which the Argentine Republic has committed itself. After the tax reform the white list system in force was replaced by a black list system. In this system, the Executive Branch would have to prepare and update a list of the countries considered as non-cooperative based on the aforementioned criteria. As of today, the United States is considered a cooperating country.

According to the legal assumption established by Law No. 11,683 Section 18.1 as it is amended, incoming funds from non-cooperative jurisdictions are considered unjustified net worth increases for the local receiver.

Unjustified net worth increases are subject to the following taxes:

•

Income tax would be assessed on 110% of the amount of funds transferred;

•

VAT would be assessed on 110% of the amount of funds transferred. Even though the concept “income arising from” is not clear, it could be construed as any fund transfer;

•

from an account in a non-cooperative jurisdiction, or from a bank account opened outside of a non-cooperative jurisdiction but owned by an entity located in a non-cooperative jurisdiction; or

•

to a bank account located in Argentina or to a bank account opened outside of Argentina but owned by an Argentina tax resident.

Notwithstanding the above, the Law provides that the Federal Administration of Public Revenues can accept those funds that derived from activities genuinely performed by an Argentine taxpayer, or by a third party in said jurisdiction.

With respect to the application of the abovementioned legal presumption on incoming funds from jurisdictions considered as low or null tax jurisdictions (defined under section 15.3 of the Argentine Income Tax Law) further clarifications are expected to be issued by the implementing decree of the Tax Reform.

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THE ABOVE SUMMARY DOES NOT REPRESENT A FULL ANALYSIS OF ALL THE TAX CONSEQUENCES AND DOES NOT ADDRESS ALL OF THE ARGENTINE TAX CONSEQUENCES THAT MAY BE APPLICABLE DERIVED FROM THE OWNERSHIP OF NEGOTIABLE OBLIGATIONS. POTENTIAL HOLDERS AND BUYERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THEIR PARTICULAR TAX CONSEQUENCES. IT DOES NOT PURPORT TO BE A COMPREHENSIVE DESCRIPTION OF ALL THE ARGENTINE TAX CONSIDERATIONS THAT MAY BE RELEVANT TO A DECISION TO PURCHASE, OWN OR DISPOSE OUR SHARES. IN PARTICULAR, THIS SUMMARY DOES NOT DESCRIBE ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY, MUNICIPALITY OR TAXING JURISDICTION OTHER THAN CERTAIN FEDERAL LAWS OF ARGENTINA.

United States Taxes

General. This following discussion is a summary of U.S. federal income tax consequences generally applicable to a U.S. holder (as defined below) who holds our Class B Shares or ADSs. It applies to a U.S. holder only if such holder holds our Class B Shares or ADSs as “capital assets” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”) and is not a member of a special class of holders subject to special rules, including: a dealer in securities; a trader in securities that elects to use a mark-to-market method of accounting for his or her securities holdings; a tax-exempt organization; a life insurance company; a person liable for alternative minimum tax; a person that actually or constructively owns 10% or more of the voting power or value of our aggregate shares outstanding; a person that holds Class B Shares or ADSs as part of a hedging or straddle or conversion transaction; a person that purchases or sells Class B Shares or ADSs as part of a wash sale for tax purposes; a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) and partners or members therein; or a person whose functional currency is not the U.S. dollar.

This discussion is based on the Code, its legislative history, existing and proposed regulations, published rulings and court decisions, and the laws of Argentina all as currently in effect. These laws are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.

If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Class B Shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding Class B Shares or ADSs should consult its tax advisor with regard to the U.S. federal income tax treatment of an investment in Class B Shares or ADSs.

A holder is a U.S. holder if such holder is a beneficial owner of Class B Shares or ADSs and such holder is: a citizen or resident of the United States; a domestic corporation or other entity taxable as such; an estate whose income is subject to U.S. federal income tax regardless of its source; or a trust, if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.

In general, and taking into account the earlier assumptions, for U.S. federal income tax purposes, a holder of ADRs evidencing ADSs will be treated as the owner of the underlying Class B Shares represented by those ADSs, and exchanges of Class B Shares for ADRs, and ADRs for Class B Shares, will not be subject to U.S. federal income tax.

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This discussion does not generally address any aspects of U.S. taxation other than federal income taxation. Holders of Class B Shares or ADSs are urged to consult their tax advisors regarding the U.S. federal, state and local tax consequences of owning and disposing of the Class B Shares or ADSs in their particular circumstances.

Taxation of Dividends. Under the United States federal income tax laws, and subject to the passive foreign investment company (“PFIC”) rules discussed below, a U.S. holder must include in his or her gross income the gross amount of any dividend that we pay out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). If the holder is a non-corporate U.S. holder, dividends that constitute qualified dividend income will be taxable at the preferential rates applicable to long-term capital gains; provided that the Class B Shares or ADSs are held for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and certain other holding period requirements are met. Provided that we are not a PFIC, for the year in which a dividend is paid or the preceding taxable year, dividends that are paid with respect to the ADSs that are readily tradable on an established securities market in the United States are qualified dividend income. Under this rule, we expect that the dividends we pay with respect to the ADSs will be qualified dividend income. Because the Class B Shares are not readily tradable on an established securities market in the United States, it is unclear whether dividends paid with respect to the Class B Shares will also be qualified dividend income.

The holder must include any Argentine tax withheld from the dividend payment in this gross amount even though the holder does not in fact receive it. The holder must include the gross amount of dividends in income when the holder, in the case of Class B Shares, or the depositary, in the case of ADSs, receives the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of a holder’s basis in the Class B Shares or ADSs and thereafter as capital gain.

The amount of the dividend distribution that a holder must include in his or her income will be the U.S. dollar value of the peso payments made, determined at the spot peso/U.S. dollar rate on the date such dividend distribution is includible in such holder’s income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date a holder includes the dividend payment in income to the date such payment is converted into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. Such gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

For foreign tax credit purposes, the dividend will generally be income from sources outside the United States. Dividends will, depending on the holder’s circumstances, generally be either “passive” or “general” income, for purposes of computing the foreign tax credit allowable to the holder. Subject to certain limitations, the Argentine tax withheld and paid over to Argentina will generally be creditable or deductible against your U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates.

However, it is likely that no U.S. foreign tax credit will be allowed to U.S. holders of Class B Shares or ADSs in respect of any personal property or similar tax imposed by Argentina (or any taxing authority thereof or therein) (for example, if such tax is not treated as an income tax for U.S. federal income tax purposes). 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. All U.S. holders should consult their own tax advisors regarding the creditability or deductibility of such taxes.

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Taxation of Capital Gains. Subject to the PFIC rules discussed below, a U.S. holder that sells or otherwise disposes of Class B Shares or ADSs 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 his or her tax basis (determined in U.S. dollars) in such Class B Shares or ADSs. Capital gain of a non-corporate U.S. holder is generally taxed at preferential rates where the holder has a holding period greater than one year. The gain or loss generally will be income or loss from sources within the U.S. for foreign tax credit limitation purposes.

As discussed in the previous paragraph, it is possible that a U.S. holder who sells or purchases the Class B Shares or ADSs may be subject to Argentine tax upon such sale or acquisition. If the seller is legally lible for the tax and the seller pays this tax, then the seller should be able to claim a foreign tax credit for U.S. federal income tax purposes in an amount equal to the amount of the tax, subject to generally applicable limitations. However, because the gain from a sale or other disposition of Class B Shares or ADSs will be U.S. source income, such seller would need a sufficient amount of other foreign source income that is untaxed, or that is taxed at a tax rate that is sufficiently lower than the U.S. tax rate applicable to such seller, in order to be able to claim this foreign tax credit. Additionally, if an Argentine tax is withheld on the sale or other disposition of Class B Shares or ADSs, then the seller must include the amount of such tax withheld in the amount realized upon the sale or disposition, even though the seller does not in fact receive it. If the purchaser is legally liable for the tax, then the purchaser will likely not be entitled to receive any tax credit in the United States in respect of the payment of any such taxes.

PFIC Rules. In general, a non-U.S. corporation will be classified as a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes, if either (i) 75% or more of its gross income consists of certain types of “passive” income or (ii) 50% or more of the fair market value of its assets (determined on the basis of a quarterly average) produce or are held for the production of passive income. For this purpose, cash is categorized as a passive asset. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the shares. We do not believe that we were a PFIC for the taxable year ended December 31, 2017. We do not anticipate being a PFIC for our current taxable year, although we can make no assurances in this regard. Our status as a PFIC in any year depends on our assets and activities in that year. We have no reason to believe that our assets or activities will change in a manner that would cause us to be classified as a PFIC for the current taxable year or for any future year, however this is a factual determination that is made annually and thus may be subject to change.

If we were to be treated as a PFIC, unless a U.S. holder makes a valid election to be taxed annually on a mark-to-market basis with respect to the Class B Shares or ADSs, gain realized on the sale or other disposition of the shares or ADSs would in general not be treated as capital gain. Instead, the U.S. holder would be treated as if he had realized such gain and certain “excess distributions” ratably over the holding period for the shares or ADSs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, Class B Shares or ADSs will be treated as stock in a PFIC if we were a PFIC at any time during the holding period of a U.S. holder. In addition, dividends received from us will not be eligible for the special tax rates applicable to qualified dividend income if we are treated as a PFIC (or are treated as a PFIC with respect to a U.S. holder) either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income. Additionally, U.S. holders owning our ADSs or Class B Shares may be subject to certain reporting obligations with respect to our ADSs or Class B Shares for years in which we were a PFIC.

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If we were to be treated as a PFIC, we do not intend to provide the information necessary for U.S. holders of our ADSs or Class B Shares to make “qualified electing fund,” or QEF, elections, which, if available, would result in tax treatment different from the general tax treatment for PFICs described above.

Each U.S. holder should consult its own tax advisors concerning the U.S. federal income tax consequences of holding and disposing of our ADSs or Class B Shares if we were, are or become classified as a PFIC, including the possibility of making a mark-to-market election.

Information Reporting and Backup Withholding. Dividend payments with respect to ADSs or Class B Shares and proceeds from the sale, exchange or redemption of ADSs or Class B Shares may be subject to information reporting to the IRS and possible U.S. backup withholding. Backup withholding will not apply to you, however, if you furnish a correct taxpayer identification number and make any other required certification or that are otherwise exempt from backup withholding. U.S. holders that are required to establish their exempt status generally must provide such certification on IRS Form W-9. You should consult your tax advisor regarding the application of the U.S. information reporting and backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld as backup withholding can be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the IRS and furnishing any required information in a timely manner.

Individual U.S. holders and certain entities may be required to submit to the IRS certain information with respect to his or her beneficial ownership of the ADSs or Class B Shares, if such ADSs or Class B Shares are not held on his or her behalf by a financial institution. This law also imposes penalties if an individual U.S. holder is required to submit such information to the IRS and fails to do so. All U.S. holders are urged to consult their tax advisors regarding the application of information reporting rules to them.

THE DISCUSSION OF U.S. FEDERAL INCOME TAX CONSEQUENCES ABOVE IS NOT TAX ADVICE AND IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE OWNERSHIP OR DISPOSITION OF ADSS OR CLASS B SHARES. ALL U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF OWNERSHIP AND DISPOSITION OF ADSS OR CLASS B SHARES.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

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H. Documents on Display

We are subject to the informational requirements of the CNV and BYMA and file reports and other information relating to our business, financial condition and other matters with the CNV and BYMA. You may read such reports, statements and other information, including our publicly filed Financial Statements, at the public reference facilities of the CNV and BYMA maintained in Buenos Aires. We are also required to file annual and special reports and other information with the SEC. You may read and copy any documents filed by us at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings with the SEC will also be available to the public at the offices of the NYSE, 11 Wall Street, New York, New York 10005.

We have appointed Citibank NA to act as depositary for our ADRs. For so long as our ADRs are deposited with the depositary, we will furnish the depositary with our annual reports and summaries of all notices of general meetings of shareholders and other reports and communications that are made generally available to our shareholders.

The depositary will, as provided in the Deposit Agreement, arrange for the mailing of summaries in English of such reports and communications to all record holders of our ADRs. Any record holder of ADRs may read such reports, notices, or summaries thereof, and communications at the depositary’s office. The depositary’s office is located at 388 Greenwich Street – 6th Floor New York, NY 10013.

Whenever a reference is made in this Annual Report to a contract or other document of ours, please be aware that such reference is not necessarily complete and that you should refer to the exhibits that are a part of the Annual Report for a copy of the contract or other document. You may review a copy of the Annual Report at the SEC’s public reference room in Washington, D.C.

I. Subsidiary Information

Not applicable.

Item 11.

Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our consolidated financial position, results of operations or cash flows due to adverse changes in financial market prices and interest rates. We are exposed to market risk in the areas of interest rates, foreign currency exchange and commodity prices. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors. Uncertainties that are either non-financial or non-quantifiable, such as political, economic, tax, or other regulatory or credit risks, are not included in the following assessment of our market risks.

Interest Rate Risk

Our interest rate risk arises mainly from long-term borrowings. Borrowings issued at floating rates expose us to cash flow interest rate risk. Borrowings issued at fixed rates expose us to fair value interest rate risk.

As of the date of this Annual Report, our exposure to cash flow interest rate risk is limited due to the fact that 100% of our outstanding financial indebtedness bears fixed interest rates. Therefore, our exposure to market risk associated with changes in interest rates is limited to our financial assets which bear variable interest rate. Most of our financial assets bear fixed-rate interests.

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We place our cash and current investments in high quality financial institutions in Argentina, and the United States of America. Our policy is to limit exposure with any one institution. Our temporary investments primarily consist of money market mutual funds, fixed-term deposits and public and private notes. The risk of these instruments is low given the short-term nature and high liquidity in well-known financial institutions.

The following table provides information regarding our assets and liabilities as of December 31, 2019, according to its interest rate:

	Financial assets ⁽¹⁾		Financial liabilities ⁽²⁾
	(in thousands of pesos)
Fixed interest rate		8,650,353		30,184,039
Variable interest rate		1,038,402		1,021,325
Total		9,688,755		31,205,364

(1)	Includes short-term investments, fixed-term investments and bank accounts. Most of our trade receivables do not accrue interest.

(2)	Includes loans, excluding issuance expenses and lease liabilities.

As a consequence of the application of IAS 29, maintaining monetary assets generates loss of purchasing power, provided that such items are not subject to an adjustment mechanism that compensates to some extent the loss of purchasing power. This loss of purchasing power is included in the result of the period under gain on the net monetary position. On the contrary, maintaining monetary liabilities generates a gain in purchasing power, which are also included in such line item.

Our risk management policy is defined with the objective of reducing the impact of the loss of purchasing power. During the 2017, 2018 and 2019 fiscal years we have maintained a liability monetary position. As a consequence, we have recorded a net gain from exposure to inflation in the monetary items.

Foreign Exchange Exposure

Due to the fact that our entire financial indebtedness is denominated in U.S. dollars, any significant devaluation of the peso would result in an increase in the cost of paying our debt, and therefore, may have a material adverse effect on our results of operations. Our results of operations and financial condition are also sensitive to changes in the peso-U.S. dollar exchange rate because most of our capital expenditures, and the cost of natural gas used in our Liquids business are denominated in U.S. dollars.

Regarding the revenue derived from the Natural Gas Transportation segment, the tariffs charged by the Company are currently denominated in pesos. On the other hand, revenues in US dollars derived from the Liquids Production and Commercialization segment accounted for approximately 87%, 77% and 76% of the segment’s total revenues for the years ended December 31, 2019, 2018 and 2017, respectively. Total revenues denominated in Argentine Pesos accounted for 53%, 59% and 51% for the years ended December 31, 2019, 2018 and 2017, respectively.

Our financial risk management policies are defined with the objective of mitigating the impact that the variation in the exchange rate has on our position in foreign currency. For this purpose, alternative investment evaluations are regularly carried out to diversify investments in financial instruments portfolio between US dollar-denominated instruments or, although denominated in pesos, to obtain positive returns in real terms.

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Additionally, in the event that it is considered appropriate, we contract derivative financial instruments that allow us to hedge the fluctuation of the US dollar over long-term positions in such currency. During the years 2019, 2018 and 2017, we did not contract derivative financial instruments to cover this risk.

However, we managed to mitigate the impact on the exchange rate variation by placing funds in assets denominated in US dollars. As of December 31, 2019, for mitigating this foreign exchange risk, 88% of our fund placements are denominated in U.S. dollars.

Our financial debt obligations denominated in foreign currency as of December 31, 2019, amounted to U.S.$ 560.7 million (Ps. 33,582.8 million). As of December 31, 2019, we also had the equivalent of U.S.$ 74.3 million (Ps. 4,448.4 million) of trade and other payables denominated in U.S. dollars. Finally, U.S.$ 209.4 million (Ps. 12,496.7 million) of our assets are denominated in U.S. dollars at such date. Therefore, our net liability position in U.S. dollars amounted to U.S.$ 425.7 million as of December 31, 2019.

Sensitivity Analysis Disclosure to Interest Rates and Exchange Rates

In view of the nature of our financial assets that bear variable interest, an immediate decrease of 100 basis points in the interest rate curve would not have a significant impact on their total value.

The potential financial expense loss (before income tax) in our net monetary liability position held as of December 31, 2019, that would have resulted from a hypothetical, instantaneous and unfavorable 10% change in the peso/U.S. dollar exchange rates, would have been Ps. 2,564.9 million. This sensitivity analysis provides only a limited view of the market risk sensitivity of certain of our financial instruments. The actual impact of market foreign exchange rate changes on our financial instruments may differ significantly from the impact shown in the sensitivity analysis.

Our indebtedness accrues interest at a fixed rate. Therefore, we do not currently have an exposure to changes in interest rates, except as noted above with respect to the financial assets at variable interest rate. The following table provides information presented in our reporting currency, pesos, with respect to our foreign exchange exposure. For debt obligations, the table presents principal cash flows and interest rates by expected maturity dates. For further information, see “Item 10. Additional Information—C. Material Contracts—Debt Obligations.”

			Expected maturity date													Fair value⁽²⁾
	Overdue		2020			2021			2022			Thereafter		Total⁽⁶⁾		Fair value⁽²⁾
	(in millions of pesos) ⁽¹⁾
Debt denominated in U.S. dollars⁽¹⁾ ⁽⁴⁾ ⁽⁵⁾
Fixed rate		-		2,021.3			2,021.3			2,021.3			34,998.2		41,062.1		26,266.9
Interest rate ⁽³⁾				6.875	%		6.875	%		6.875	%

Variable rate		-		1,027.5			-			-			-		1,027.5		1,021.3
Interest rate ⁽⁶⁾			LIBOR + 1.95

Financial lease in U.S. dollars⁽¹⁾ ⁽⁴⁾⁽⁵⁾
Fixed rate		90.4		447.9			448.0			448.0			1,611.8		3,046.1		2,377.4

(1)	Converted at the exchange rate as of December 31, 2019: Ps. 59.89 per U.S.$1.00.

(2)	For a detailed description of 2018 Notes, see “Item 10. Additional Information—C. Material contracts—Debt Obligations.”

(3)

For further information about limitations on our ability to make payments on our debt denominated in U.S. dollars see “Item 3. Key Information. - D. Risk Factors. – Risk Related to Argentina - The Argentine economy may be adversely affected by economic developments in other markets and by more general effects, which could have a material adverse effect on Argentina’s economic growth.”

(4)	Includes future interest payments not accrued as of December 31, 2019.

(5)	Contracted undiscounted cash flows. Thus, they do not reconcile to the amount disclosed on the statement of financial position.

(6)	Corresponds to the pre-export finance totally paid as of the issuance of this Annual Report.

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See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Currency and Exchange Rates” and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Derivative Financial Instruments” for more information.

Commodity Price Risk

In the liquids production and commercialization segment, we are exposed to market risk in relation to price volatility of LPG and natural gasoline since they are subject to international prices (Mont Belvieu for LPG and NWE ARA for natural gasoline). Their prices have fluctuated in response to changing market forces. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Exports.”

Ethane is sold to PBB under a contract dated September 6, 2018, which will expire on December 27, 2027. The price under the contract is adjusted for several factors including the cost of natural gas, the natural gas price and transportation charges. The decrease in the international price of ethane has increased the gap between our sale price and the price offered by the alternative supplier of PBB.

For any given period, the liquids sales will be dependent on the international price of LPG and natural gasoline, taxes and other government tax impacts and production volumes. Accordingly, changes in international prices for the mentioned products only provide a broad indicator of changes in the net income of any fiscal year.

Based on the volume of sales for the year ended December 31, 2019, the Company estimated that, other factors being constant, a decrease of U.S.$50/ton in the international price of LPG and natural gasoline, respectively, would have decreased the 2019 Company’s net comprehensive income in its Liquids Production and Commercialization segment in Ps. 1,153.1 million. An increase of U.S.$50/ton in the international price would have had the opposite effect.

Item 12.

Description of Securities Other than Equity Securities

American Depositary Shares

Fees and Charges Payable by a Holder of ADRs

Our ADSs are listed on the NYSE under the symbol “TGS.” Citibank NA is the Depositary of our ADSs pursuant to the Deposit Agreement. Each ADS represents the right to receive five shares.

Under the terms of the Deposit Agreement, as of the date of this Annual Report, an ADS holder may have to pay to the Depositary the fees specified in the table below.

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The charges of the Depositary payable by investors are as follows:

Service	Rate	By Whom Paid
Issuance of ADSs (e.g., an issuance upon a deposit of Shares, upon a change in the ADS(s)-to-Share(s) ratio, or for any other reason), excluding issuances as a result of distributions described in the Deposit Agreement.	Up to U.S. $5.00 per 100 ADSs (or fraction thereof) issued.	Person receiving ADSs.
Cancellation of ADSs (e.g., a cancellation of ADSs for delivery of deposited Shares, upon a change in the ADS(s)-to-Share(s) ratio, or for any other reason).	Up to U.S. $5.00 per 100 ADSs (or fraction thereof) canceled.	Person whose ADSs are being canceled.
Distribution of cash dividends or other cash distributions (e.g., upon a sale of rights and other entitlements).	Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held.	Person to whom the distribution is made.
Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) an exercise of rights to purchase additional ADSs.	Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held.	Person to whom the distribution is made.
Distribution of securities other than ADSs or rights to purchase additional ADSs (e.g., spin-off shares).	Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held.	Person to whom the distribution is made.
ADS Services.	Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held on the applicable record date(s) established by the Depositary.	Person holding ADSs on the applicable record date(s) established by the Depositary.

Disclosure for Fees Incurred in Past Annual Period. From January 1, 2019, to April 27, 2020, we received from the Depositary U.S.$. 0.9 million for the expenses incurred by us related to the administration and maintenance of the ADR program and investor relation activities.

PART II

Item 13.

Defaults, Dividend Arrearages and Delinquencies

No events required to be reported have occurred that materially affect TGS.

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

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Item 15.

Controls and Procedures.

A. Disclosure Controls and Procedures

We carried out an assessment under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2019. 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 this assessment, our CEO and CFO concluded that our disclosure controls and procedures were effective in providing 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 CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

B. Management’s Annual Report on Internal Control Over Financial Reporting

Our management, including our CEO and CFO, 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 Exchange Act. Our 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 applicable IFRS as issued by the IASB.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on this assessment, management concluded that, as of the end of fiscal year 2019, our internal control over the financial reporting was effective.

C. Attestation Report of the Registered Public Accounting Firm

PwC and EY have jointly audited and reported on the effectiveness of our internal controls over financial reporting as of December 31, 2019, as stated in their reports appearing herein.

D. Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting during 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 16.

[Reserved]

Item 16A.

Audit Committee Financial Expert

We have one audit committee financial expert serving on our Audit Committee. Our Board of Directors has identified Mr. Carlos Olivieri as an audit committee financial expert. Mr. Olivieri is an independent director within the meaning of Rule 10A-3 under the Exchange Act.

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Item 16B.

Code of Ethics

We have adopted a code of ethics (the “Code of Ethics”), applicable to all employees, including our principal executive, accounting and financial officers, and all directors. We will provide our Code of Ethics to any person without charge. Our Code of Ethics is available both on our website at http://www.tgs.com.ar/gobierno-corporativo/codigo-de-conducta and as an Exhibit to this Annual Report and is part of our Integrity Programe. The information on our website is not incorporated into this Annual Report.

Any waivers to the Code of Ethics for directors or executive officers requiring disclosure under the NYSE Standards will be disclosed on our website. For more information, see, “Item 16G. Corporate Governance.”

Item 16C.

Principal Accountant Fees and Services

Audit and Non-Audit Fees

Fees billed, in Current Currency, for professional services provided to us by PwC and EY, in each of the following categories are:

	PwC				EY
	2019		2018		2019		2018
	(in thousands of pesos)
Audit fees		12,078.7		13,362.0		12,842.0		14,306.7
Audit-related fees		385.9		5,700.6		403.2		3,342.9
Tax fees		1,315.8		644.1		-		-
All other fees		863.3		2,222.0		4,538.9		6,888.5
Total fees		14,643.7		21,928.7		17,784.1		24,538.1

Audit fees. Audit fees in the above table represent services rendered for the audit of our annual Financial Statements for Form 20-F, the review of our quarterly reports, and services provided by PwC and EY in connection with statutory and regulatory filings or engagements.

Audit-related fees. Audit-related fees in the above table represent services in connection for its review of the regulatory presentations made to the CNV with respect to the global program issued in the CNV related to the issuance of our debt in Argentina and stock buyback.

Tax fees. Tax fees in the above table represent services rendered by PwC in connection with the Tax Reform.

All other fees. All other fees in the above table represents fees related to advisory services on IT risk and compliance rendered by PwC, and on facilitating process improvement rendered by EY.

Audit Committee Pre-Approval Policies and Procedures

Consistent with SEC requirements regarding auditor independence, the Audit Committee pre-approves services prior to commencement of the specified service. Before the accountant is engaged to render audit or non-audit services, the engagement must be approved by the Audit Committee and the Audit Committee must pre-approve the provision of services by our principal auditors prior to commencement of the specified service. The Audit Committee has delegated to its President the authority to grant pre-approvals to auditors’ services. The decision of the President to pre-approve a service is presented to the full Audit Committee at each of its scheduled meetings.

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All audit fees, audit-related fees, tax fees and other fees, if any, are submitted to our Audit Committee for prior approval. The Audit Committee evaluates the scope of the work to be performed by our accountants and the fees for such work prior to their engagement.

Consequently, 100% of the services and fees rendered by our principal auditors in 2019 were approved by the Audit Committee prior to their engagement to perform such work.

Item 16D.

Exemptions from the Listing Standards for Audit Committees

None.

Item 16E.

Purchases of Registered Equity Securities of the Issuer by the Issuer and Affiliated Purchasers

Issuer Purchases of Equity Securities

On May 9, 2018, our Board of Directors approved the First Share Repurchase Program. Considering our solid cash and investment position, this share repurchase program was approved due to the distortion evidenced by our economic value and its current business and those derived from projects under development, and the price of the quotation of its shares in the market.

Considering the realized gains that arose from our condensed interim financial statements for the three-month period ended in March 31, 2018, our Board determined the maximum amount to be invested in Ps. 1,700,000,000 stated at its original value. The deadline within which the acquisitions were carried out expired on September 10, 2018.

Period	Total number of ADRs purchased		Average price paid per ADRs (U.S.$)		Total Number of Shares Purchased as Part of the Publicly Announced Plan⁽¹⁾		Maximum Number of Shares that may yet be purchased under the plan
5/11/2018 – 5/31/2018		811,624		17.19		4,058,120		6,043,022
6/1/2018 – 6/30/2018		550,175		15.45		2,750,875		8,441,031
7/1/2018 – 7/31/2018		359,536		13.69		1,797,680		5,726,035
8/1/2018 – 8/31/2018		316,347		13.18		1,581,735		4,926,463
9/1/2018 – 9/10/2018		65,400		12.07		327,000		8,708,255
		2,103,082				10,515,140

⁽¹⁾	Correspond to the sum of common shares and ADRs purchased. Each ADR represents 5 common shares.

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The Second Share Repurchase Program was made with realized gains, as shown in the condensed interim financial statements as of September 30, 2018. The deadline within which the acquisitions were carried out expired on March 5, 2019.

Period	Total number of ADRs purchased		Average price paid per ADRs (U.S.$)		Total Number of Shares Purchased as Part of the Publicly Announced Plan⁽¹⁾		Maximum Number of Shares that may yet be purchased under the plan
10/1/2018 – 10/31/2018		610,974		13.64		3,054,870		8,095,486
12/1/2018 – 12/31/2018		6,100		13.43		30,500		4,123,872
		617,074				3,085,370

(1)	Correspond to the sum of common shares and ADRs purchased. Each ADR represents 5 common shares.

The Third Share Repurchase Program for a total amount up to Ps. 1,500,000,000 stated at its original value was approved by our Board of Directors on March 27, 2019. It expired and was replaced by the Fourth Share Repurchase Program on August 26, 2019.

Period	Total number of ADRs purchased		Average price paid per ADRs (U.S.$)		Total Number of Shares Purchased as Part of the Publicly Announced Plan⁽¹⁾		Maximum Number of Shares that may yet be purchased under the plan
04/1/2019 – 04/30/2019		724,275		10.73		3,621,375		7,244,077
05/1/2019 – 05/31/2019		636,037		11.08		3,180,185		16,803,442
08/1/2019 – 08/26/2019		1,063,706		9.06		5,318,530		14,857,953
		2,424,018				12,120,090

⁽¹⁾	Correspond to the sum of common shares and ADRs purchased. Each ADR represents 5 common shares.

On August 26, 2019, our Board of Directors approved the Fourth Share Repurchase Program for a total amount up to Ps. 3,200,000,000 stated at its original value. On November 19, 2019 the Fourth Share Repurchase Program was canceled and replaced by the Fifth Share Repurchase Program with a maximum amount to invest of Ps. 4,000,000,000.

Period	Total number of ADRs purchased		Average price paid per ADRs (U.S.$)		Total Number of Shares Purchased as Part of the Publicly Announced Plan⁽¹⁾		Maximum Number of Shares that may yet be purchased under the plan
08/28/2019 – 08/31/2019		460,000		7.81		2,300,000		4,266,259
09/01/2019 – 09/30/2019		284,785		7.94		1,423,925		22,954,729
11/01/2019 – 11/20/2019		644,120		6.27		3,220,600		10,800,521
		1,388,905				6,944,525

⁽¹⁾	Correspond to the sum of common shares and ADRs purchased. Each ADR represents 5 common shares.

On November 19, 2019, our Board of Directors approved the Fifth Share Repurchase Program for a total amount up to Ps. 4,000,000,000 stated at its original value. On March 6, 2020 the Fifth Share Repurchase Program was canceled and replaced by the Sixth Share Repurchase Program with a maximum amount to invest of Ps. 2,500,000,000.

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Period	Total number of ADRs purchased		Average price paid per ADRs (U.S.$)		Total Number of Shares Purchased as Part of the Publicly Announced Plan⁽¹⁾		Maximum Number of Shares that may yet be purchased under the plan
11/21/2019 – 11/30/2019		401,000		6.04		2,005,000		18,105,419
12/01/2019 – 12/31/2019		932,231		5.97		4,661,155		34,274,490
01/01/2020 – 01/31/2020		1,455,121		6.56		7,275,605		14,310,693
02/01/2020 – 02/28/2020		555,098		6.21		2,775,490		9,913,620
		3,343,450				16,717,250

⁽¹⁾	Correspond to the sum of common shares and ADRs purchased. Each ADR represents 5 common shares.

On March 6, 2020, the Sixth Share Repurchase Program was approved with a maximum amount to invest of Ps. 2,500,000,000.

Period	Total number of ADRs purchased		Average price paid per ADRs (U.S.$)		Total Number of Shares Purchased as Part of the Publicly Announced Plan⁽¹⁾		Maximum Number of Shares that may yet be purchased under the plan
03/09/2020 – 03/31/2020		1,087,375		4.53		5,436,875		11,967,981
04/01/2020 – 04/22/2020		391,918		4.43		1,959,590		11,838,846
		1,479,293				7,396,465

⁽¹⁾	Correspond to the sum of common shares and ADRs purchased. Each ADR represents 5 common shares.

Item 16F.

Change in Registrant’s Certifying Accountant

None.

Item 16G.

Corporate Governance

Our corporate governance practices are governed by:

•

applicable Argentine law (particularly, the General Companies Act),

•

the standards of BYMA,

•

Capital Markets Law and Decree No. 1,023/2013,

•

the standards of the CNV,

•

our By-laws,

•

our integrity program and other internal control policies and procedures, and

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•

certain rules of the NYSE applicable to listed foreign private issuers.

We have securities that are registered with the SEC and listed on the NYSE and, consequently, we are subject to the rules and regulations of the NYSE.

Under the Corporate Governance Standards issued by the NYSE Standards, non-U.S. companies are permitted, in general, to follow their home country corporate governance practices in lieu of the provisions included in such standards. However, non-U.S. companies must comply with sections 303A.06, 303A.11 and 303A.12(b) and (c).

Our Corporate Governance Guidelines are available on our website www.tgs.com.ar.

According to Section 303A.11 of the NYSE Standards, foreign private issuers must disclose any significant ways in which their corporate governance practices differ from those followed by U.S. issuers. Accordingly, the following list reflects such differences:

Directors

According to NYSE Standards, listed companies must have a majority of independent directors. Argentine law does not require a majority of independent directors, but does require at least two independent directors on the Audit Committee. At our Board of Directors meeting held on April 27, 2020, three independent directors, meeting the independence criteria set forth under SEC regulations and NYSE Standards (but under CNV regulations, two qualify as independents) were appointed to the Audit Committee. We also have three alternate directors who qualify as independent.

Meeting of Non-Management Directors

According to NYSE requirements, non-management directors must meet at regularly scheduled executive sessions without management. None of Argentine law, the CNV Rules or our By-laws requires that any such meetings be held. Under Argentine law, a board of directors must meet at least once every three months.

Nominating/Corporate Governance Committee

U.S. listed companies must have a nominating/corporate governance committee composed entirely of independent directors. Argentine law and regulations do not require us to have a nominating or corporate governance committee.

Compensation Committee

U.S. listed companies must have a compensation committee composed entirely of independent directors. Argentine law and regulations do not require this committee. However, our Audit Committee is required to give an opinion about the reasonableness of directors’ fees and stock option plans (if applicable), as proposed by our Board of Directors, and the fee paid to members of our Board of Directors is approved by our shareholders at their ordinary annual meeting.

Audit Committee

According to SEC regulations and NYSE Standards, listed companies must have an audit committee consisting of a minimum of three independent members. The members of the Audit Committee must be financially literate or must acquire such financial knowledge within a reasonable period and at least one of its members shall have expertise in accounting or financial management. Also, if a member of the Audit Committee is simultaneously a member of the Audit Committee of more than three public companies, and the listed company does not limit the number of Audit Committees on which its members may serve, then, in each case the Board of Directors shall determine whether the simultaneous service would prevent such member from effectively serving on the listed company’s Audit Committee, and shall disclose its decision in the annual proxy statement of the company or in the company’s annual report filed with the SEC.

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Argentine law requires an Audit Committee to be comprised of at least three members with a majority of independent members. Pursuant to CNV standards, Audit Committee members are required to have knowledge in business, financial or accounting matters and issues. In addition, CNV standards require the training of Audit Committee members in the practice areas that would permit them to carry out their duties on the Audit Committee. Messrs. Carlos Olivieri, Carlos Alberto Di Brico and Luis Rodolfo Secco are independent directors under SEC regulations and NYSE standards. Mr. Carlos Alberto Di Brico and Luis Rodolfo Secco are independent directors under CNV regulations.

Mr. Carlos Olivieri qualifies as a “financial expert” within the meaning of Item 16A of Form 20-F. See “Item 16A. Audit Committee Financial Expert.” The Audit Committee’s functions and duties are similar to those required by the NYSE. Furthermore, Argentine law does not limit the number of audit committees on which a member of its Audit Committee may serve.

Code of Conduct

According to Section 303A.10 of the NYSE Standards, listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. In October 2005, our Board of Directors approved a “Code of Conduct” with the purpose of introducing SEC rules applicable to foreign registrants. Such code applies to all Board of Directors’ members, Audit Committee members, senior management, and employees, with no exceptions. Our Code of Conduct is available to the public on our website and as an Exhibit to this Annual Report. Our Code of Conduct is currently an annex of the integrity program.

CEO’s Certification

Each listed company’s CEO must annually certify to the NYSE that he or she is not aware of any violation by the company of the NYSE’s corporate governance listing standards. There is no such requirement under Argentine law.

Item 16H.

Mine Safety Disclosure

Not applicable.

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PART III

Item 17.

Financial Statements

The registrant has responded to Item 18 in lieu of responding to this Item.

Item 18.

Financial Statements

The following Financial Statements are filed as part of this Form 20-F:

Transportadora de Gas del Sur S.A.

	Page
Reports of independent registered public accounting firms	F-1
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017	F-5
Consolidated Statements of Financial Position as of December 31, 2019, 2018 and 2017	F-6
Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 2018 and 2017	F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017	F-8
Notes to Consolidated Financial Statements for the year ended December 31, 2019 and comparative information	F-9

Item 19.

Exhibits

Exhibit No.
1.1	Corporate Charter and By-laws.
1.2	By-laws Amendments.⁽¹⁾
2.4	Indenture dated May 2, 2018, entered into among TGS, Delaware Trust Company as trustee, co-registrar, paying agent and transfer agent, and Banco Santander Rio S.A., as registrar, Argentine paying agent, Argentine transfer agent and representative of the trustee in Argentina, relating to the issuance of TGS’s Class 2, 6.750% senior notes due 2025.⁽²⁾
2.5	Officers’ Certificate establishing the terms of TGS’ 6.750% Notes Due 2025.⁽²⁾
2.6	Description of Securities Registered under Section 12 of the Exchange Act.
3.1	CIESA Shareholders’ Agreement.⁽³⁾
3.2	CIESA’s Fourth Amendment to the Restructuring Agreement.⁽⁵⁾
3.3	CIESA’s Settlement Agreement.⁽⁴⁾
4.1	Technical Assistance Service Agreement between TGS and Pampa Energía, dated December 26, 2017.⁽²⁾
5.1	Financial lease agreement between Petrobras Argentina and TGS, dated July 25, 2016.⁽⁹⁾
8.1	List of TGS’s Subsidiaries.
11.1	Code of Ethics.⁽³⁾
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.

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13.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1	Audit Committee Charter.⁽⁷⁾

(1)

Amendment incorporated by reference to our Annual Report on Form 20-F filed with the Securities and Exchange Commission for the year ended December 31, 2014 (Commission File No. 1-13396), and (ii) amendment previously filed with the Securities and Exchange Commission pursuant to current report on Form 6-K, dated April 12, 2017 (Commission File No. 1-13.396).

(2)	Incorporated by reference to our Annual Report on Form 20-F filed with the Securities and Exchange Commission for the year ended December 31, 2018 (Commission File No. 1-13396).

(3)	Incorporated by reference to our Annual Report on Form 20-F filed with the Securities and Exchange Commission for the year ended December 31, 2005 (Commission File No. 1-13396).

(4)	Incorporated by reference to our Annual Report on Form 20-F filed with the Securities and Exchange Commission for the year ended December 31, 2012 (Commission File No. 1-13396).

(5)	Incorporated by reference to our Annual Report on Form 20-F filed with the Securities and Exchange Commission for the year ended December 31, 2010 (Commission File No. 1-13396).

(6)	Incorporated by reference to our Annual Report on Form 20-F filed with the Securities and Exchange Commission for the year ended December 31, 2017 (Commission File No. 1-13396).

(7)	Incorporated by reference to our Annual Report on Form 20-F filed with the Securities and Exchange Commission for the year ended December 31, 2003 (Commission File No. 1-13396).

We agree to furnish to the SEC upon request any instrument with respect to long-term debt that we have not filed as an exhibit pursuant to the exemption provided by instruction 2(b)(i) to Item 19 of Form 20-F.

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SIGNATURE

Pursuant to the requirements of Section 12 of the U.S. Securities Exchange Act of 1934, as amended, the registrant hereby certifies that it meets all of the requirements for filing this Annual Report on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

TRANSPORTADORA DE GAS DEL SUR S.A.
(Registrant)
By:

	/s/ Oscar José Sardi
	Name:	Oscar José Sardi
	Title:	Chief Executive Officer

	/s/ Alejandro M. Basso
	Name:	Alejandro M. Basso
	Title:	Chief Financial Officer and Services Vice President

Dated: April 29, 2020

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

To the Board of Directors and Shareholders of

Transportadora de Gas del Sur S.A.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of Transportadora de Gas del Sur S.A. and its subsidiaries (together the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in the Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 29, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firms registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Impairment of long-lived assets related to Property, Plant & Equipment

At December 31, 2019, the Company’s book value of Property, Plant & Equipment (“PPE”) was Argentine Pesos 74,552.7 million. As discussed in Note 5 (c) to the consolidated financial statements, PPE is tested for impairment when an existing event or one that will take place in the near future indicates that the recoverable value of the PPE amounts may be affected. An asset’s recoverable amount is the higher of the fair value less costs to sell that asset, and its value-in-use. The value in use is calculated based on discounted future cash flows, which are prepared for each cash generating unit considering, among others, significant assumptions relating to projections of liquified petroleum gas prices, purchase cost of natural gas, future tariff adjustments based on negotiations, future expectation of the need of Vaca Muerta fields gas producers to evacuate untreated natural gas, discount rates and expected future macroeconomic variables such as inflation and foreign exchange rates.

The principal considerations for our determination that performing procedures relating to the impairment of long-lived assets related to PPE is a critical audit matter are there was significant judgment by management in estimating the value in use of the cash generating unit. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate the significant assumptions in the value in use estimate, including projections of liquified petroleum gas prices, purchase cost of natural gas, future tariff adjustments, future expectation of the need of Vaca Muerta fields gas producers to evacuate untreated natural gas, discount rate and expected future macroeconomic variables such as inflation and foreign exchange rates. In addition, the audit effort involved professionals with specialized skill and knowledge to assist in performing the audit procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These audit procedures included obtaining an understanding, evaluating the design and testing the operating effectiveness of controls over the management’s impairment review process, including controls over the review of the significant assumptions. These audit procedures also included, among others, evaluating the estimation methodology and testing the aforementioned significant assumptions and the completeness, accuracy, and relevance of underlying data used. The significant assumptions were compared to current available economic trends data and known regulatory changes and evaluations were made of how changes to such assumptions, and other factors would affect the outcomes. It was also assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the value in use that would result from changes in the assumptions; the arithmetical correctness of the discounted cash flows model and the completeness of disclosures in the consolidated financial statements. Professionals with specialized skill and knowledge were used to assist in the evaluation of the methodology and the significant assumptions used in the future cash flows estimated by management.

/s/ Price Waterhouse & Co. S.R.L.		/s/ Pistrelli, Henry Martin y Asociados S.R.L
		PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L
/s/Fernando Alberto Rodriguez		Member of Ernst & Young Global

Price Waterhouse & Co. S.R.L (“PwC”) has served as the Company’s sole auditor since 2012. PwC and Pistrelli, Henry Martin y Asociados S.R.L have served as the Company’s joint auditors since 2017.

Buenos Aires, Argentina

April 29, 2020

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

To the Board of Directors and Shareholders of

Transportadora de Gas del Sur S.A.

Opinion on the Internal Control over Financial Reporting

We have audited Transportadora de Gas del Sur S.A. and its subsidiaries (together the “Company”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America) (“PCAOB”), the consolidated statements of financial position of the Company as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes, and our report dated April 29, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the Management’s Annual Report on Internal Control over Financial Reporting under Item 15. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are public accounting firms registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (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.

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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.

/s/ Price Waterhouse & Co. S.R.L.		/s/ Pistrelli, Henry Martin y Asociados S.R.L
		PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L
/s/Fernando Alberto Rodriguez		Member of Ernst & Young Global

Buenos Aires, Argentina

April 29, 2020

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TRANSPORTADORA DE GAS DEL SUR S.A.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(Stated in thousands of pesos as described in Note 3 and 4.d. except for share and per share information)

	Notes		2019			2018			2017

Revenues		8.h.		48,561,494			52,399,423			30,694,588
Cost of sales		8.i.		(24,375,503	)		(24,902,866	)		(18,360,946	)
Gross profit				24,185,991			27,496,557			12,333,642

Administrative expenses		8.j.		(1,260,300	)		(1,479,580	)		(1,128,936	)
Selling expenses		8.j.		(3,039,557	)		(2,714,682	)		(1,241,883	)
Other operating expenses		8.l.		(127,526	)		(1,370,319	)		(417,803	)
Operating profit				19,758,608			21,931,976			9,545,020

Net financial results
Financial income		8.k.		8,535,154			14,628,724			1,068,656
Financial expenses		8.k.		(17,700,134	)		(22,763,300	)		(3,020,602	)
Other financial results		8.k.		113,387			1,900,589			422,363
Gain on net monetary position		8.k.		6,154,172			1,855,519			716,821
Total				(2,897,421	)		(4,378,468	)		(812,762	)
Share of (loss) / profit from associates		11		(31,858	)		28,008			33,291

Net income before income tax				16,829,329			17,581,516			8,765,549

Income tax (expense) / benefit		14		(4,024,211	)		(20,261	)		81,650

Total comprehensive income for the year				12,805,118			17,561,255			8,847,199

Total comprehensive income attributable to:
Owners of the Company				12,805,105			17,561,249			8,847,196
Non-controlling interests				13			6			3
				12,805,118			17,561,255			8,847,199

Weighted average of outstanding ordinary shares *				776,121,341			788,405,563			794,495,283
Basic and diluted earnings per share				16.50			22.27			11.14

*The weighted average of the number of shares considers the effect of the weighted average of the changes originated in the transactions with treasury shares made during the year.

The accompanying notes are an integral part of these consolidated financial statements.

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TRANSPORTADORA DE GAS DEL SUR S.A.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2019 AND 2018

(Stated in thousands of pesos as described in Note 3 and 4.d.)

	Notes		2019			2018
ASSETS

Non-current assets
Property, plant and equipment		12		74,552,728			59,510,863
Investments in associates		9		78,660			111,790
Other financial assets at amortised cost		8.m.		5,403			13,476
Deferred income tax asset		14		15,600			6,967
Other receivables		8.a.		9,004			12,665
Total non-current assets				74,661,395			59,655,761

Current assets
Other receivables		8.a.		2,898,077			4,096,646
Inventories				307,640			554,218
Trade receivables		8.b.		6,473,759			4,791,109
Contract assets				177,269			241,012
Derivative financial instruments				274,024			335,773
Other financial assets at amortised cost		8.m.		1,043,960			8,790
Cash and cash equivalents		8.c.		9,765,201			25,605,137
Total current assets				20,939,930			35,632,685
Total Assets				95,601,325			95,288,446

EQUITY
Common stock				28,349,861			28,224,365
Treasury shares				366,086			491,582
Cost of adquisition of treasury shares				(730,764	)		(2,185,845	)
Additional paid-up capital				(791,712	)		-
Legal reserve				1,922,444			1,000,251
Future capital expenditures reserve				-			107,453
Future dividends reserve				-			1,525,444
Reserve for capital expenditures, acquisition of treasury shares and/or dividends				5,351,123			-
Accumulated retained earnings				13,616,403			18,440,641
Non-controlling interests				28			15
Total equity				48,083,469			47,603,906

LIABILITES

Non-current liabilities
Deferred tax liabilities		14		4,778,114			3,427,531
Contract liabilities		8.d.		2,926,826			2,259,876
Loans		13		31,860,717			31,003,715
Total non-current liabilities				39,565,657			36,691,122

Current liabilities
Provisions		15		589,118			570,977
Contract liabilities		8.d.		219,801			199,333
Other payables		8.e.		287,659			124,103
Taxes payables		8.f.		353,183			311,083
Income tax payable				18,329			3,759,987
Payroll and social security taxes payable		8.n.		648,451			590,156
Loans		13		1,722,087			681,225
Trade payables		8.g.		4,113,571			4,756,554
Total current liabilities				7,952,199			10,993,418
Total liabilities				47,517,856			47,684,540

Total equity and liabilities				95,601,325			95,288,446

The accompanying notes are an integral part of these consolidated financial statements.

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TRANSPORTADORA DE GAS DEL SUR S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(Stated in thousands of pesos as described in Note 3 and 4.d.)

	Shareholders Contributions																					Retained Earnings
	Outstanding shares						Treasury shares																							Reserve for
	Common stock			Inflation adjustment to common stock			Common stock ⁽¹⁾			Inflation adjustment to common stock ⁽¹⁾			Acquisition cost of treasury shares⁽¹⁾			Additional paid-up capital⁽¹⁾			Total common stock			Legal reserve		Future dividends Reserve			Future capital expenditures reserve			capital expenditures, acquisition of treasury shares and/or dividends			Accumulated retained earnings			Subtotal			Total			Non-Controlling interests			Total


Balances at December 31, 2016*		794,495			27,921,452			-			-			-			-			28,715,947			944,177		31,414			115,648			-			233,799			1,325,038			30,040,985			26			30,041,011


Resolutions of the Ordinary and Extraordinay Shareholders´
Meeting held on April 26, 2017
- Legal reserve		-			-			-			-			-			-			-			56,074		-			-			-			(56,074	)		-			-			-			-
- Future dividends reserve		-			-			-			-			-			-			-			-		2,364,126			-			-			(2,364,126	)		-			-			-			-
- Derecognition of reserves		-			-			-			-			-			-			-			-		-			(8,195	)		-			8,195			-			-			-			-
																																					-			-
Dividends payment to non-controlling interest		-			-			-			-			-			-			-			-		-			-			-			-			-			-			(11	)		(11	)

Comprehensive income for the year		-			-			-			-			-			-			-			-		-			-			-			8,847,196			8,847,196			8,847,196			3			8,847,199
Balances at December 31, 2017 *		794,495			27,921,452			-			-			-			-			28,715,947			1,000,251		2,395,540			107,453			-			6,668,990			10,172,234			38,888,181			18			38,888,199


Resolutions of the Ordinary and Extraordinay Shareholders´
Meeting held on April 10, 2018
- Future Dividends reserve		-			-			-			-			-			-			-			-		5,789,598			-			-			(5,789,598	)		-			-			-			-
Cash dividends distribution		-			-			-			-			-			-			-			-		(6,659,694	)		-			-			-			(6,659,694	)		(6,659,694	)		-			(6,659,694	)
Treasury shares purchase		(13,601	)		(477,981	)		13,601			477,981			(2,185,845	)		-			(2,185,845	)		-		-			-			-			-			-			(2,185,845	)		-			(2,185,845	)
Cash dividends distribution to non-controlling interest		-			-			-			-			-			-			-			-		-			-			-			-			-			-			(9	)		(9	)

Comprehensive income for the year		-			-			-			-			-			-			-			-		-			-						17,561,249			17,561,249			17,561,249			6			17,561,255

Balances at December 31, 2018		780,894			27,443,471			13,601			477,981			(2,185,845	)		-			26,530,102			1,000,251		1,525,444			107,453			-			18,440,641			21,073,789			47,603,891			15			47,603,906

Resolutions of the Ordinary Shareholders
Meeting held on April 11, 2019
Legal Reserve		-			-			-			-			-			-			-			922,193		-			-			-			(922,193	)		-			-			-			-
Dividends payment⁽²⁾		-			-			-			-			-			-			-			-		-			-			-			(9,185,852	)		(9,185,852	)		(9,185,852	)		-			(9,185,852	)
Reserve for capital expenditures, acquisition of treasury shares and/or dividends		-			-			-			-			-			-			-			-		-			-			9,154,195			(9,154,195	)		-			-			-			-
Derecognition of reserves		-			-			-			-			-			-			-			-		(1,525,444	)		(107,453	)		-			1,632,897			-			-			-			-

Treasury shares distribution ⁽²⁾		29,445			860,761			(29,445	)		(860,761	)		4,045,739			(791,712	)		3,254,027			-		-			-			(3,228,002	)		-			(3,228,002	)		26,025			-			26,025
Dividends payment ⁽²⁾		-			-			-			-			-			-			-			-		-			-			(575,070	)		-			(575,070	)		(575,070	)		-			(575,070	)
Treasury shares purchase		(25,731	)		(738,979	)		25,731			738,979			(2,590,658	)		-			(2,590,658	)		-		-			-			-			-			-			(2,590,658	)		-			(2,590,658	)
Comprehensive income for the year		-			-			-			-			-			-			-			-		-			-			-			12,805,105			12,805,105			12,805,105			13			12,805,118

Balances at December 31, 2019		784,608			27,565,253			9,887			356,199			(730,764	)		(791,712	)		27,193,471			1,922,444		-			-			5,351,123			13,616,403			20,889,970			48,083,441			28			48,083,469

* The Company has applied IFRS 15 and IFRS 9 for the first time on January 1, 2018. In accordance with the transition methods chosen, the comparative information has not been modified. See Note 4.a)

⁽¹⁾ As of December 31, 2019 and 2018 corresponds to 9,886,755 and 13,600,780 shares of par value Ps. 1 each, equivalent to 1.24% and 1,71% of the share capital, respectively. The acquisition cost of these shares amounted to Ps. 730,764 and 2,185,845, respectively. See Note 19.b) to the consolidated financial statements.

⁽²⁾ See Note 19.c).

The accompanying notes are an integral part of these consolidated financial statements.

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TRANSPORTADORA DE GAS DEL SUR S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

(Stated in thousands of pesos as described in Note 3 and 4.d.)

	2019			2018			2017
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES

Total comprehensive income for the year		12,805,118			17,561,255			8,847,199

Reconciliation of total comprehensive income to cash flows provided by operating activities:

Depreciation of property, plant and equipment		3,695,615			3,419,820			3,107,746
Derivative financial instrument results		19,172			(163,192	)		-
Disposal of property, plant and equipment		100,858			243,851			202,165
Share of profit / (loss) from associates		31,858			(28,008	)		(33,291	)
Increase in provisions		266,775			299,656			333,693
Interest expense accrual, net		1,908,169			2,444,361			1,120,891
Interest income on other financial assets other than cash and cash equivalents		(100,489	)		(694,566	)		(147,228	)
Income tax		4,024,211			20,261			(81,650	)
Doubtful accounts		2,435			203,860			(35,989	)
Foreign exchange loss, net		8,887,732			8,734,823			730,004
Gain on net monetary position		(6,606,675	)		(5,926,962	)		(1,332,478	)

Changes in assets and liabilities:
Trade receivables		(3,733,961	)		(2,286,449	)		(2,158,024	)
Other receivables		(1,838,443	)		(1,205,780	)		(576,187	)
Inventories		52,634			(362,774	)		14,996
Trade payables		140,873			2,479,008			554,773
Contract assets		(20,597	)		(241,012	)		-
Payroll and social security taxes		264,815			228,332			150,694
Taxes payables		(132,169	)		76,873			16,798
Other payables		206,985			72,497			67,528
Provisions		(7,590	)		1,211			(392,054	)
Interest paid		(2,039,877	)		(1,393,331	)		(464,817	)
Derivative financial instruments		21,929			(159,661	)		-
Income tax paid		(4,881,195	)		(4,273,266	)		(1,282,282	)
Contract liabilities		430,781			634,525			-
Advances from customers		-			-			(94,376	)

Cash flows provided by operating activities		13,498,964			19,685,332			8,548,111

CASH FLOWS USED IN INVESTING ACTIVITIES

Additions to property, plant and equipment		(15,932,000	)		(12,496,827	)		(2,986,295	)
Financial assets not considered cash equivalents		(711,899	)		5,218,620			(2,978,848	)

Cash flows used in investing activities		(16,643,899	)		(7,278,207	)		(5,965,143	)

CASH FLOWS (USED IN) / PROVIDED BY FINANCING ACTIVITIES

Payment of loans		-			(1,886,079	)		(92,109	)
Precancellation of loans		-			(7,378,176	)		-
Payment of leases		(18,751	)		-			-
Loans receive		1,051,809			21,261,978			-
Payment of acquisition of treasury shares		(2,590,658	)		(2,185,845	)		-
Dividends paid		(9,760,922	)		(6,659,694	)		(9	)

Cash flows (used in) / provided by financing activities		(11,318,522	)		3,152,184			(92,118	)

NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS		(14,463,457	)		15,559,309			2,490,850

Cash and cash equivalents at the beginning of the year		25,605,137			6,025,226			4,415,596

Foreign exchange gain on Cash and cash equivalents		3,721,043			10,287,800			346,132

Monetary results effect on Cash and cash equivalents		(5,097,522	)		(6,267,198	)		(1,227,352	)

Cash and cash equivalents at the end of the year		9,765,201			25,605,137			6,025,226

The accompanying notes are an integral part of these consolidated financial statements.

For further information, see Note 6.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

1.	BUSINESS DESCRIPTION

Business Overview

Transportadora de Gas del Sur S.A. (“TGS” or the “Company”) is one of the companies created as a result of the privatization of Gas del Estado S.E. (“GdE”). TGS commenced operations on December 29, 1992 and it is mainly engaged in the Transportation of Natural Gas, and Production and Commercialization of natural gas Liquids (“Liquids”). TGS’s pipeline system connects major natural gas fields in southern and western Argentina with natural gas distributors and industries in those areas and in the greater Buenos Aires area. The natural gas transportation license to operate this system was exclusively granted to TGS for a period of thirty-five years (“the License”). TGS is entitled to a one-time extension of ten years provided that it has essentially met the obligations imposed by the License and by the Ente Nacional Regulador del Gas (National Gas Regulatory Body or “ENARGAS”). The General Cerri Gas Processing Complex (the “Cerri Complex”), where TGS processes natural gas by extracting liquids, was transferred from GdE along with the gas transmission assets. TGS also provides midstream services, which mainly consist of gas treatment, removal of impurities from the natural gas stream, gas compression, wellhead gas gathering and pipeline construction, operation and maintenance services. Also, telecommunications services are provided through the subsidiary Telcosur S.A. (“Telcosur”). These services consist of data transmission services through a network of digital terrestrial radio relay.

Subsequently, the corporate purpose of the Company was modified to incorporate the development of complementary activities, incidental, linked and / or derived from natural gas transportation, such as the generation and commercialization of electric power and the provision of other services for the hydrocarbon sector in general.

Major Shareholders

TGS’s controlling shareholder is Compañía de Inversiones de Energía S.A. (“CIESA”), which holds 51% of the common stock. Local and foreign investors hold the remaining ownership of TGS’s common stock. CIESA is under co-control of: (i) Pampa Energía S.A. (“Pampa Energía”), which holds 10% of CIESA’s common stock, (ii) CIESA Trust (whose trustee is Pampa Energía and whose beneficiary is PHA SAU, a wholly owned subsidiary of by Pampa Energía) (the “Trust”), who has a trust shareholding of 40% of the share capital of CIESA and (iii) Grupo Inversor Petroquímica S.L. (member of GIP Group, headed by Sielecki´s family; “GIP”), and PCT L.L.C. (“PCT”), which directly and together with WST S.A. (Member of Werthein Group, “WST”) indirectly through PEPCA S.A. (“PEPCA”), hold a 50% of the shareholding in CIESA in the following shares: GIP 27.10%, WST 4.58% and PCT 18.32%.

Macroeconomic context

The Company operates in an economic context whose main variables have recently had strong volatility as a result of political and economic events both nationally and internationally.

In the domestic market, particularly, the shares of the main contributing companies, sovereign bonds and the Argentine peso experienced a sharp drop in their value.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

In this context and after the mandate of President Alberto Fernández began, on December 23, 2019, the National Congress passed Law No. 27,541 - “Law of social solidarity and productive reactivation” (the “Solidarity Law”). This law, based on the public emergency, grants the Executive Branch broad legislative powers to create the necessary conditions for economic recovery and achieve fiscal sustainability.

Among the measures adopted by this law are, among others:

1.	Provisions regarding sovereign debt through which the Executive Branch is empowered to carry out the negotiations and make the necessary decisions to achieve the renegotiation of the Argentine public debt.

2.	Freezing and tariff review of transportation and distribution services of natural gas and electric power (for more information, see Note 17.a).

3.	Establishment of a cap on the export rights of hydrocarbons (for more information see Note 17.b).

4.	Establishment of a regime of regularization of tax, social security and customs obligations.

5.	Tax modifications concerning taxes on: personal property, financial income, income (for more information, see Note 14 and 19.c), on bank and internal credits and debits.

6.	Creation of the Tax for an Inclusive and Solidarity Argentina that taxes foreign currency acquisition operations for treasury, acquisition of goods and services and tourism.

7.	Modifications to customs taxes.

The Company’s Management permanently monitors the evolution of the situations that affect its business, in order to determine the possible actions to be taken and identify the possible impact financial situation and results of its operation. The financial statements of the Company must be read considering these circumstances.

2.	CONSOLIDATED FINANCIAL STATEMENTS

TGS presents its consolidated financial statements including Telcosur S.A. (“Telcosur”) and CTG Energía S.A. (“CTG”), its consolidated subsidiaries, which are jointly referred to as “the Company”.

3.	BASIS OF PRESENTATION

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (“IASB”) and the International Financial Interpretations Committee (“IFRIC”), jointly the “IFRS”.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

The preparation of the consolidated financial statements in conformity with IFRS requires management to make accounting estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting fiscal year. Estimates are used when accounting for the allowance for doubtful accounts, income taxes, provisions for legal claims and others, depreciation and recoverable value of assets. Actual results could be significantly different from such estimates.

The presentation in the statement of financial position distinguishes between current and non-current assets and liabilities. The assets and liabilities are those expected to be realized or settled within twelve months after the end of the reporting period under review, and those held for sale. The fiscal year begins on January 1 and ends on December 31 of each year. The economic and financial results are presented on a fiscal year basis.

The consolidated financial statements are stated in thousands of Argentine pesos (“Ps.” or “pesos”), which is the functional currency of the Company and its subsidiaries, unless otherwise stated. For further information, see Note 4.c.

4.	SIGNIFICANT ACCOUNTING POLICIES

a)	New accounting standards

New standards and interpretations issued by the IASB effective for the periods beginning on or after January 1, 2019 adopted by the Company

IFRS 16 – “Leases”

The Company has adopted IFRS 16 under the modified retrospective approach, from January 1, 2019, and accordingly has not modified comparatives for the 2018 and 2017 reporting periods as permitted under the specific transition provisions in the standard.

After the analysis performed by Management, no significant adjustments were made to the accumulated results or significant reclassifications were made.

Practical expedients applied

In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard:

•

Accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019 as short-term leases.

•

The Company has elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date (January 1, 2019), the Company relied on its assessment made applying IAS 17 – Leases and IFRIC 4 – Determining whether an arrangement contains a lease.

•

This standard does not apply for those leases classified as low value contracts.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Accounting policies applied

Until the year ended December 31, 2018, by application of IAS 17 and IFRIC 4, leases of property, plant and equipment were classified as financial leases (only if substantially all the risks and benefits of ownership of leased asset were assumed by the Company) or operating leases. Payments made under operating leases were charged to the Statement of Comprehensive Income in a straight line over the period of the lease.

As from January 1, 2019, leases are recognized as a right of use asset and a corresponding liability at the date at which the leased asset is available for use by the Company. Each lease payment is allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic interest rate on the remaining balance of the liability for each period.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

Fixed payments less any lease incentive receivable;

Variable lease payments that depend on an index;

Amounts expected to be payable by the Company under residual value guarantees;

The exercise price of a purchase option; and

Payments of penalties for terminating the lease.

As of December 31, 2019, the Company has not recognized any lease liability including variable payments.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Company’s incremental borrowing rate is used, being the rate that TGS would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment.

Right-of-use assets are measured at cost comprising the following:

The amount of the initial measurement of lease liability.

Any lease payment made at or before the commencement date less any lease incentives received.

Any initial direct cost, and

Restoration costs.

Leased assets, which are subject to the risk of impairment, are depreciated in a straight line over the shorter of the asset’s useful life and the lease term.

Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line base as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment, vehicles, small items of office furniture and rented offices.

The Company recognized right-of-use assets under the line item “Property, plant and equipment” of its balance sheet (see Note 12). The corresponding liability has been recognized under current and non-current Loans (see Note 13). For more information regarding the expense related to short-term and low-value leases and the interest expense of lease liabilities, see Note 8.j) and 8.k), respectively.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

In addition to the aforementioned, on January 1, 2019, the following standards and interpretations, described in the consolidated financial statements as of December 31, 2018, were adopted without having a significant impact on the Company’s financial statements:

•

IFRIC Interpretation 23 “Uncertainty over income tax treatments.”

•

Annual improvements to IFRS Standards 2015 – 2017 Cycle.

•

Amendments to IFRS 9 – Financial instruments.

New standards and interpretations issued by the IASB not yet effective for the period beginning on or after January 1, 2019

Below is a description of the standards, amendments and interpretations to existing standards that might impact the Company and are not mandatory for the Company’s fiscal years beginning on January 1, 2019 and which have not been early adopted by the Company:

Amendments to IAS 1 and IAS 8 regarding the definition of materiality

In October 2018 the IASB included certain amendments to IAS 1 “Presentation of financial statements” and IAS 8 “Accounting policies, changes in accounting estimates and errors” with the objective of clarifying the concept of materiality and aligning that definition with the amendments introduced in the Conceptual Framework.

Additionally, these amendments incorporate new concepts that helped both financial statement preparers and their users to prepare and interpret the financial information included in them.

These amendments are applied on prospective basis and are effective for annual periods beginning on or after January 1, 2020. Modifications to the concept of materiality are not expected to have a significant impact on the Company’s financial statements.

b)	Consolidation

Subsidiaries

Subsidiaries are all entities over which the Company has control. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. For this purpose and unless there are specific requirements, it is generally considered that TGS has control, when it has a participation equal to or greater than 50% of the available voting rights.

The accounting policies of the subsidiaries are consistent with the accounting policies adopted by the Company.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Inter-company transactions, balances and gain/losses from transactions between group companies are eliminated. Unrealized gain/losses are also eliminated.

Detailed data reflecting subsidiary control as of December 31, 2019 and 2018 is as follows:

Company	% of shareholding and votes		Country	Closing date	Main activity

Telcosur		99.98	Argentina	December 31	Telecommunication Services
CTG ⁽¹⁾		100.00	Argentina	December 31	Electricity related services

⁽¹⁾ 100% of the shares of this company were acquired on August 8, 2017. At present, it is in the process of being transformed into S.A.U.

For consolidation purposes for the year ended December 31, 2019 and 2018, the financial statements of Telcosur have been used at those dates. The subsidiary CTG does not record operations or significant assets and liabilities as of December 31, 2019 and 2018.

Associates

Associates are entities over which the group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition.

The Company accounted for the investments in its associates, under the equity method on the basis on the financial statements as of September 30, 2019 of Gas Link S.A. (“Link”), Transporte y Servicios de Gas en Uruguay SA (“TGU”) and Emprendimientos de Gas del Sur S.A. (“EGS”), under liquidation. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Company. The Company’s management is not aware of any significant subsequent events which affected the financial statements as of September 30, 2019 of Link, TGU and EGS (in liquidation) from this date to December 31, 2019.

Associates with negative equity are disclosed under “Other liabilities” to the extent that the Company has incurred legal or constructive obligations, or made payments on behalf of the associate, as of the date of the financial statements. Unrealized gains and losses resulting from transactions between TGS and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

In the table below, associates are disclosed, together with the percentage of shareholding and voting as of December 31, 2019 and 2018:

Company	% of shareholding and voting		Country	Main activity	Closing date

TGU		49.00	Uruguay	Pipeline maintenance	December 31
EGS (“in liquidation”)		49.00	Argentina	Pipeline exploitation and construction	December 31
Link		49.00	Argentina	Pipeline exploitation and construction	December 31

Joint arrangement

As indicated in “Note 23 – Associates and Joint Arrangement”, on August 7, 2017, the Company proceeded to create a UT (similar to a joint operation) with SACDE Sociedad Argentina de Construcción y Desarrollo Estratégico S.A. (“SACDE”) (“UT”). This operation is evaluated as a joint agreement under the provisions included in “IFRS 11 - Joint Arrangements” since the parties have joint control of the operation, meaning that the decisions of the relevant activities are taken under the unanimous consent of the parties.

The Company has defined that the UT constitutes a joint operation given that it grants its participants a percentage of the rights over the assets and liabilities arising from each contract. Accordingly, the Company recognizes its share in the jointly operated assets, liabilities, revenues, costs and expenses.

Accounting policies applicable to the UT have been modified and adapted, if applicable, to ensure consistency with the policies adopted by the Company.

For further information regarding the UT, see Note 23.

c)	Foreign currency translation

Functional and presentation currency

The consolidated financial statements are presented in thousands of Argentine Pesos, which is the Company’s functional currency. Each subsidiary or associate determines its own functional currency based on the currency of the primary economic environment in which these entities operate.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the profit or loss for the year.

Foreign exchange gains and losses are presented in the statement of comprehensive income within financial income and financial expenses, as appropriate.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Associates

The functional currency of the associate company located abroad, TGU, is the US dollar, because it is the currency in which it substantially generates its income and incur its expenses. Assets and liabilities were converted into Argentine pesos using the exchange rate prevailing at the end of each year, their common stock and retained earnings at their historical exchange rates and results at average exchange rates.

d)	Restatement to constant currency - Comparative Information

Regulatory framework

The consolidated financial statements as of December 31, 2019, including comparative figures, have been restated to take into account changes in the general purchasing power of the Company’s functional currency (the Argentine peso) in accordance with IAS 29 “Financial Reporting in hyperinflationary economies” (“IAS 29”) and CNV General Resolution No. 777/2018. As a result, the financial statements are stated in terms of the current unit of measurement at the 2019 balance sheet date.

IAS 29 requires that the financial statements of an entity that reports in the currency of a hyperinflationary economy, regardless of whether they are based on the historical cost method or the current cost method, are expressed in terms of the current unit of measurement at the closing date of the reporting period. In order to conclude on the existence of a hyperinflationary economy, the standard details a series of factors to be considered, among which is a cumulative inflation rate over three years that approaches or exceeds 100%.

The accumulated inflation in three years is over 100%. Likewise, both the National Government projections and other available projections indicate that this trend will not be reversed in the short term.

To evaluate the aforementioned quantitative condition, and also to restate the financial statements, the CNV has established that the series of indexes to be used for the application of IAS 29 is determined by the FACPCE. This series of indexes combines the National Consumer Price Index (“CPI”) as of January 2017 (base month: December 2016) with the Domestic Wholesale Price Index (“IPIM”), both published by the Institute National Statistics and Census (“INDEC”) until that date. For the months of November and December 2015, for which there is no information from the INDEC on the evolution of the IPIM, the variation in the CPI of the Autonomous City of Buenos Aires was applied.

Considering the aforementioned index, inflation was 53.83%, 47.64% and 24.79% in the years ended December 31, 2019, 2018 and 2017 respectively.

Restatement mechanism

The financial statements must be adjusted to consider changes in the general purchasing power of the currency, so that they are expressed in the current unit of measurement at the end of the reporting period. Said requirements also include all the comparative information of the financial statements, without modifying the decisions made based on the financial information corresponding to those financial years.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

The figures as of December 31, 2018 and 2017, which are presented in these Consolidated Financial Statements for comparative purposes, arise from the restatement to the current unit of measure of the Financial Statements as of said dates, in accordance with IAS 29.

Restatement of the balance sheet

i. Monetary items (those with a fixed nominal value in local currency) are not restated, since they are already expressed in the current unit of measurement at the closing date of the reporting period. In an inflationary period, maintaining monetary assets generates loss of purchasing power and maintaining monetary liabilities generates a gain in purchasing power, provided that such items are not subject to an adjustment mechanism that compensates to some extent for these effects. The monetary loss or gain is included in the result of the period in which it is reported.

ii. The non-monetary items measured at their current values at the end of the reporting period are not restated for the purpose of their presentation in the balance sheet, but the adjustment process must be completed to determine in terms of a homogeneous unit of measurement the results produced by the holding of these non-monetary items.

iii. Non-monetary items measured at historical cost or at a fair value as of a date prior to the closing date of the reporting period are restated by coefficients that reflect the variation in the general price level from the date of acquisition or revaluation to the closing date, proceeding then to compare the restated amounts of those assets with the corresponding recoverable values.

iv. The restatement of non-monetary assets in the terms of the current unit of measurement at the end of the reporting period without an equivalent adjustment for tax purposes, results in a temporary taxable difference and the recognition of a deferred tax liability whose counterparty is recognized in the result of the period. For the closing of the subsequent period, the deferred tax items are restated for inflation to re-determine the charge to the result of the next period.

v. When the capitalization of costs for loans in non-monetary assets in accordance with IAS 23 is applicable, the portion of those costs that compensate the lender for the effects of inflation is not capitalized

Restatement of the Comprehensive Income Statement

Revenues and expenses (including interest and foreign exchange differences) are restated from the date of their booking, except for those items of the result that reflect or include in their determination the consumption of assets measured in purchasing power of a date before the consumption booked, which are restated based on the date of origin of the asset to which the item is related (for example, depreciation and other consumption of assets valued at historical cost); and also those results that arise from comparing two measurements expressed in purchasing power currency of different dates, for which it is necessary to identify the amounts compared, restate them separately, and make the comparison, but with the amounts already restated.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

The result of the exposure to the change in the purchasing power of the currency (monetary results) is presented in a separate line and reflects the effect of inflation on the monetary items.

Restatement of the statement of changes in equity

As of the transition date (January 1, 2016), the Company applied the following special rules:

i. The components of the capital stock were restated from the dates they were contributed.

ii. Reserved earnings were maintained at the date of transition at their nominal value (legal amount without restatement).

iii. The restated unallocated results were determined by the difference between the net assets restated at the transition date and the rest of the initial equity components expressed as indicated in the preceding sections.

iv. After the restatement at the transition date, all the components of the equity are restated by applying the general price index from the beginning of the period, and each variation of those components is restated from the date of contribution or from the moment in which is added by any other means.

Restatement of the statement of cash flows

IAS 29 requires that all items in this statement should be restated in terms of the current unit of measurement as of the closing date of the period for which it is reported.

The monetary result generated by cash and cash equivalents is presented in the statement of cash flows separately from cash flows from operating, investing and financing activities, as a specific item of the reconciliation between cash and cash equivalents at the beginning and at the end of the year.

e)	Financial instruments

Financial assets

Recognition and initial measurement

Financial assets are classified, at the time of initial recognition, as:

ii.

Financial assets subsequently measured at amortized cost, and

iii.

Financial assets subsequently measured at fair value (either with changes in other comprehensive income or with changes in results).

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them. For additional information, see Note 16.2.1.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Subsequent measurement

After initial recognition, financial assets are measured according to their initial classification according to the following categories:

Financial assets at amortized cost

It is the most relevant category used by the Company, financial assets are classified and measure at amortized cost if both of the following conditions are met:

•	The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and

•	The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortized cost are subsequently measured using the effective interest method.

Gains and losses are recognized in the Statement of Comprehensive Income under financial results when the asset is derecognized, modified or impaired.

Financial assets at fair value through OCI (Debt instruments)

Corresponds to financial assets that are maintained in a business model whose objective is achieved by obtaining contractual cash flows and selling them.

Unrealized gains or losses arising from changes in fair value are recognized as other comprehensive income, except for the accrual of interest, exchange rate difference and the impairment of such assets that are recognized as financial results in the Statement of Comprehensive Income. At the time the asset is written off, the accumulated gain or loss is recognized as a financial result and it is eliminated from the respective reserve.

As of December 31, 2019 and 2018, the Company has not regonize any financial assets under this category.

Financial assets designated at fair value through OCI (equity instruments)

Upon initial recognition, the Company can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in the Statement of Comprehensive Income when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.

As of December 31, 2019 and 2018, the Company has not regonize any financial assets under this category.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Financial assets at fair value through profit or loss

In the event that financial assets are not classified according to the aforementioned categories, they will be subsequently measured at fair value, presenting gains or losses arising from changes in fair value in the income statement within financial results in the year in which they are originated.

Impairment of financial assets

The Company applies the Expected Credit loss (“ECL”) model for those financial assets accounted for at amortized cost or at fair value through OCI. The ECL is based on the difference between the contractual cash flows due in accordance with the contract and the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. To this end, the Company evaluates various factors, including credit risk, historical trends and other available information.

The application of this model implies recognition of:

•

Expected credit losses within of 12 months: these are expected credit losses that result from possible default events within 12 months after the filing date; and

•

Expected credit losses during the life of the asset: these are expected credit losses that result from possible events of default during the expected life of a financial instrument.

In case a loss allowance is recognized, the carrying amount of the asset is reduced through an impairment account and the amount of the loss is presented in the Statement of Comprehensive Income at the time it occurs. Subsequent recoveries of amounts previously written off are credited in the same line item.

The impairment tests performed on accounts receivable are described in Note 4.h.

Financial liabilities

Includes trade payables, loans, other payables and certain payroll and social security taxes payable.

Recognition and initial measurement

Financial liabilities are classified, at initial recognition, as subsequently measured at amortized cost or at fair value through profit or loss, as appropriate.

All financial liabilities are recognized initially at fair value and, in case of measured at amortized cost, net of transaction costs.

They are classified in current liabilities, except those whose maturity exceeds twelve months, which are classified as non-current liabilities.

Subsequent measurement

Financial liabilities at fair value through profit or loss

Includes financial liabilities held for trading. As of December 31, 2019 and 2018, there are no instruments classified in this category.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Financial liabilities at amortized cost

The Company includes financial liabilities with fixed or determinable payments that are not quoted in an active market. Current liabilities are included, except those whose maturity exceeds twelve months including premiums, discounts and direct expenses, which are included as non-current liabilities. They are measured using the effective interest method. As of December 31, 2019 and 2018, all of the Company’s financial liabilities were classified in this category.

Offsetting of financial instruments

Financial assets and liabilities are offset when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

f)	Derivative financial instruments

Derivative financial instruments are recognized at their fair value at inception and subsequently measured at their fair value and disclosed as assets or liabilities depending if it is gain or loss. The results of derivative financial instruments are classified under “Financial gain / expenses” in the statement of comprehensive income, or in the other comprehensive income if hedge accounting is applied.

Derivative financial instruments are measured in accordance with IFRS 13 “Fair value measurement”.

The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument or not and, according to the nature of the item being hedged.

As of December 31, 2019 and 2018, the Company maintained derivative financial instruments that are mentioned in Note 16.1.3 to these consolidated financial statements for which the application of hedge accounting has not been opted for as defined by IFRS 9.

g)	Inventories

Inventories consist of natural gas (in excess of the “Line Pack”) classified as property, plant and equipment in the Company’s pipeline system, and the liquids stored obtained from natural gas processing at the Cerri Complex.

Inventories are measured at the lower of cost restated for the inflation effects as mentioned in Note 4.d. or net realizable value. Cost is determined using the weighted average cost method. The cost of inventories includes expenditure incurred in purchasing and production and other necessary costs to bring them to their existing location and condition.

The net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs to make the sale.

The assessment of the recoverable value of these assets is made at each reporting date, and the resulting loss is recognized in the statement of comprehensive income when the inventories are overstated.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

h)	Trade receivables and other receivables

Trade receivables are amounts due from customers for goods and services performed in the ordinary course of business. Contract assets are unbilled amounts due to customers related to works in progress.

Trade receivables, contract assets and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less allowance for trade receivables.

The Company applies the simplified approach to measuring expected credit losses for trade receivables, contract assets and other receivables. For this purpose, customers have been grouped based on shared credit risk characteristics, the existence of guarantees, historical credit losses experienced and the existence of judicial proceedings aimed at obtaining payment. Once each group was defined, an expected uncollectibility rate calculated based on historic default rates adjusted to future economic conditions was defined.

Impairment losses on trade receivables and contract assets are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.

i)	Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits with banking institutions and other short-term, highly liquid investments with original maturities not exceeding three months and without being subject to a risk of a significant change of value.

j)	Property, plant and equipment (“PPE”)

Assets transferred from the privatization of GdE: The value of these assets was determined based on the price paid for the acquisition of 70% of the Company’s common stock, which amounted to U.S.$ 561.2 million. This price was the basis to determine a total value of common stock of U.S.$ 801.7 million, which, when added to the debt assumed under the Company’s privatization agreement (the “Transfer Agreement”) of U.S.$ 395.0 million, resulted in a total value for PPE of U.S.$ 1,196.7 million. Such value, converted at the exchange rate in effect as of the date of the Transfer Agreement, has been restated for the effects of inflation as mentioned in Note 4.d, and less accumulated depreciation.

-	Line pack: It represents the natural gas in the transportation system that is necessary to keep the system at operating capacity, valued at acquisition cost and restated for the effects of inflation as mentioned in Note 4.d.

Other items of PPE: have been valued at acquisition cost restated for the effects of inflation as mentioned in Note 4.d, and net of accumulated depreciation. They include, mainly, all the investments made to achieve system integrity and public safety equal to those required by international standards. Such investments included, among others, the costs of survey programs related to internal and external pipeline inspection, cathodic protection, pipeline replacement and recoating, and the facilities affected to the Production and Commercialization of Liquids and Other Services segment.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

PPE additions are recorded at acquisition or construction cost less accumulated depreciation and impairment losses (if applicable), except land, which is recorded at historical cost acquisition minus any impairment (if applicable), all this restated for the effects of inflation as mentioned in Note 4.d. The cost includes the cost of replacing significant components and the borrowing costs derived from loans that finance its construction to the extent that the requirements for recognition as assets are met.

Subsequent costs restated for the effects of inflation as mentioned in Note 4.d. are included in the carrying amount of the asset or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be reliably measured. The carrying amount of a replaced component is written off. In the same way, when a major maintenance is carried out, they are added to the cost of the equipment if the recognition criteria are satisfied, eliminating any remaining non-depreciated remaining value restated for the effects of inflation as mentioned in Note 4.d, if any, of previous overhaul.

In this sense, Resolutions No. 1660/2000 (“Resolution 1660”) and No. 1903/2000 (“Resolution 1903”) issued by ENARGAS include definitions about the costs that should be considered as improvements or maintenance expenses. All other repairs and maintenance are charged to the statement of comprehensive income when incurred.

In accordance with IAS 23, the Company capitalizes financial expense on long term construction projects, until the moment in which the asset is in conditions for its use. Capitalization of borrowing costs is carried out considering the provisions of IAS 29, recording as an expense in the Statement of Comprehensive Income the part of the borrowing costs that compensates for inflation during the same period. For the year ended December 31, 2019, the Company capitalized Ps. 446,195 as borrowing costs. For the years ended December 31, 2018 and 2017, there have not been capitalized borrowing costs.

Depreciation related to natural gas transportation assets is computed under the straight-line method over the estimated useful lives of the specific assets, which are not exceeding the maximum useful lives established by ENARGAS through Resolutions 1660 and 1903.

For depreciation of all other PPE, the Company uses the straight-line method of depreciation based on the useful life assigned to each item.

Major maintenance costs are depreciated according to the estimated time until the next major maintenance planned. Regarding the capitalized financial costs, they are depreciated based on the remaining useful lives of those components of PPE that originated such capitalization.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. For further information, see Note 12.

The result generated by the disposal of PPE components is recognized in the year in which it is generated.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

-	Impairment of non-financial assets: The Company assesses at each reporting period whether there is an indication that an individual component or a group of PPE may be impaired.

If any indication exists, the Company estimates the asset´s recoverable amount. An asset´s recoverable amount is the higher of the fair value less costs to sell that asset, and its value-in-use.

That amount is determined for and individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets; in which case, the cash flows of the group of assets that form part of the cash-generating unit (“CGU”) to which the belong are taken.

Where the carrying amount of an individual asset or CGU exceeds its recoverable amount, the individual asset or CGU, as the case may be, is considered impaired and is written down to its recoverable amount. Impairment losses are recognized in the consolidated statement of comprehensive income.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. To such end, the Company makes estimates and assumptions of the economic conditions that will prevail throughout the useful life of the assets.

As a result of the factors mentioned above, actual cash flows and values could vary significantly from projected cash flows and the values derived from the discounting techniques used.

Impairment losses, if any, are recognized in the statement of comprehensive income.

As of December 31, 2019 and 2018, the carrying value of PPE does not exceed their recoverable value.

Infrastructure used in the natural gas transportation service: for its measurement and disclosure, the Company has evaluated the application of Interpretation No. 12 “Service Concession Agreements” (IFRIC 12) that sets the guidelines for the accounting of private entities that provide public services through a service concession agreement or a contract of a similar nature.

Considering the current terms and conditions of the License, TGS concluded that the License is outside the scope of IFRIC 12, as it is considered in substance to provide for an indefinite term because the infrastructure will never revert to the grantor and due to the characteristics of renewal of the License that give a similar result to what which would result from having obtained a perpetual right to operate the infrastructure.

The evaluation carried out and the conclusions reached by TGS are consistent with those of other transportation and natural gas distribution companies in Argentina that are subject to the similar regulations and license agreements. The evaluation was carried out jointly, when the transportation and distribution companies adopted the IFRS in Argentina in 2012, together with the FACPCE, the Buenos Aires Stock Exchange (Bolsas y Mercados Argentinos -“BYMA”) and the CNV, considering the contributions of ENARGAS with respect to the regulatory aspects of the License agreements. In this regard, the CNV issued General Resolution No. 613/2012, ratifying that IFRIC 12 does not apply to natural gas transportation and distribution licenses established under the regulatory framework described in Note 17.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Leases

As mentioned in note 4.a), from January 1, 2019, the Company has adopted IFRS 16 to recognize the leases in which it participates. For more information regarding the new accounting policy adopted, see Note 4.a).

Until December 31, 2018, leases in which TGS assumed substantially all the risks and rewards of ownership of leased assets were classified as financial. To that purpose, an asset and a liability are recognized at the beginning for the same amount that corresponds to the lower value that results from comparing the fair value of the leased asset and the present value of the minimum lease payments.

Subsequently, each finance lease payment should be apportioned between the finance charge and the reduction of the outstanding liability (the finance charge to be allocated so as to produce a constant periodic rate of interest on the remaining balance of the liability). The corresponding lease payments, net of financial charges, are included in “Financial leases” in the current and non-current loans caption of the Statement of Financial Position. Interest on the financial cost is charged to the Statement of Comprehensive Income in the period of the lease in order to obtain a constant periodic interest rate on the debt pending amortization in each period.

Assets acquired through finance leases are restated for the effects of inflation as mentioned in Note 4.d. and are depreciated over the useful life of the assets received in accordance with current depreciation policies.

Until December 31, 2018, the remaining leases were classified as operating leases, so their charge was directly recognized in the Statement of Comprehensive Income.

IFRS 16 provides, for the so-called operating leases, the recognition of an asset, for the right to use the assets included in the lease contracts from the date they are available for use, and an equal liability at the present value of the payments to be made during the term of the contract, considering the discount rate implicit in the lease agreement, if it can be determined, or an incremental reference indebtedness rate.

Loans

Loans have been initially recorded at fair value net of direct attributable transaction costs. Subsequently, loans are valued at their amortized cost. Liabilities are disclosed as non-current when their maturity exceeds twelve months.

m)	Trade payables

Trade payable are initially recognized at fair value. Subsequently they are measured at amortized cost using the effective tax method.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

n)	Income tax and deferred income tax

Income tax includes current tax and deferred income tax. Income tax is presented in the Statement of Comprehensive Income.

The current income tax is calculated on the basis of tax regulations in force at each reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which tax regulations are subject to interpretation and establishes provisions if applicable. As of December 31, 2019 and 2018, there are no provisions booked for this concept.

The Company has calculated income tax charges using the deferred tax method, which considers the effect of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred income tax assets and liabilities are measured at undiscounted nominal value at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting period rate (See note 14).

A deferred tax is recognized on the temporary differences arising from investments in subsidiaries and associates, except for deferred tax liabilities where the Company is able to control the timing of the reversal of the temporary difference and it is probable that the reversal will not occur in the foreseeable future.

Deferred tax assets and liabilities are offset if the Company has a legally enforceable right to offset recognized amounts and when deferred tax assets and liabilities relate to income tax levied by the same tax authority on the same taxable entity or different taxable entities that intend to settle tax assets and liabilities on a net basis. Deferred tax assets are recognized to the extent that it is probable that future taxable income will be generated against which the temporary differences can be used.

The assets and liabilities generated by the application of the deferred tax were valued at their nominal amount considering the restatements for inflation mentioned in Note 4.d) and are classified as non-current assets or liabilities.

o)	Provisions

The Company has recorded provisions related to legal actions, judicial court, claims and administrative proceedings, including interpretive questions of the current legislation and those of regulatory nature.

Provisions for legal claims and/or claims by third parties (“legal claims and others”) are recorded at the expected cancellation value when the Company has a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Estimates are reviewed and adjusted, as the Company obtains additional information to be received.

p)	Revenue recognition from contract with customers

Revenue is measured at the fair value of the consideration received or to be received, and represents amounts receivable for goods and/or services supplied. Revenue is recognized when the control of goods or services is transferred to the customer and the consideration is determined by an amount that reflects the consideration that the Company expects to receive.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Tax on exports and turnover tax are disclosed as Selling Expenses.

The following are the accounting policies of the Company for the recognition of revenue of each of the business segments defined by our management:

Natural Gas Transportation

Natural Gas transportation services includes: (i) firm natural gas transportation, whose revenues are recognized when the capacity is reserved and paid for regardless of actual usage by the customer, (ii) interruptible natural gas transportation and exchange and displacement services whose revenues are recognized when services are rendered and (iii) the operation and maintenance service of the assets affected by the natural gas transportation service corresponding to the expansions promoted by the National Government and whose ownership corresponds to the trusts created for such purpose whose revenues are recognized when services are rendered.

The applicable rates arise from the tariff tables published by ENARGAS. Thus Company’s revenues are recognized by the amount for which it will be entitled to receive as consideration.

At the end of each month, TGS recognizes, over the time, its revenues from sales equivalent to the firm reserved capacity, the volumes of natural gas transported under the modalities of interruptible and exchange and displacement and by the operation and maintenance services. In return, a trade receivable is recognized which represents an unconditional right that the Company has to receive the consideration owed by the customer. On the other hand, the billing of the service is done monthly and according to the guidelines established by ENARGAS, the consideration is received within said calendar month.

Liquids Production and Commercialization

This business segment includes: (i) production and commercialization of liquids on our own account which revenues are recognized in a point in time, and (ii) other liquid services which revenues are recognized over the time.

Domestic Market

In the domestic market, TGS sells the production of propane and butane to LPG retailers in the framework of the programs created by the National Government to supply the domestic market. The sale prices are determined by the ex-Secretary of Hydrocarbon Resources (“SHR”). For more information, see Note 17 - Regulatory framework – b) Regulatory framework for non-regulated segments - to these consolidated financial statements.

The price of those tons of propane and butane that are not sold within the framework of the aforementioned programs is determined by the ex-Ministry of Energy and Mining (“ex MINEM”) based on the international reference prices.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Regarding ethane sales, they are made to PBB Polisur S.R.L. (“PBB”), the only customer to whom this product is sold. To estimate transaction price, the Company uses the most probable amount method. In this regard, the Company only recognizes those transactions where it is highly probable that they will not be reversed in the future.

Foreign Market

In the foreign market, the Company markets propane, butane and natural gasoline to international traders (“traders”) and other clients of worldwide renown, some of them through trucks.

These sales are made under short-term contracts (less than one year), with the price determined as reference to international prices plus / minus a fixed amount per ton sold. There are no variable consideration components in these contracts.

For both domestic and foreign market sales, TGS transfers control and recognizes revenues when the products are delivered to the customer and therefore the product has been accepted and there is no evidence of the existence of pending obligations by the Company. It is at that moment when a trade receivable is recognized given that the receipt of the consideration is unconditional and only the passage of time is the only requirement for receiving the consideration owed by the customer.

Other liquids services

The Liquids production and commercialization segment also comprises reception, storage and dispatch of the liquids from the facilities located in Puerto Galván.

Revenues from sales are recognized when the service is effectively rendered, that is, after the dispatch to each vessel. The price is agreed by the parties being a fixed amount per ton of product dispatched, there being no variable components in them. These services are billed monthly, at which time an unconditional right to receive the consideration from the client arises.

Subsidies

As part of its participation in propane and butane supply programs in the local market carried out by the National Government, (for more information see “Note 17 - Regulatory Framework - b) Regulatory framework for non-regulated segments”), the Company receives from the Secretary of Energy a series of subsidies that are recognized in accordance with the provisions of IAS 20 “Accounting for government grants and disclosures of government assistance” because they correspond to economic compensations calculated as the difference between the sale prices of the products determined in accordance with the legislation in force and the reference prices calculated by the Secretary of Energy.

Subsidies are recognized at fair value whenever there is reasonable assurance that will be received and that the product has been delivered. They are presented within the caption “Revenue from sales” of the statement of comprehensive income.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Other services

The services included in the Other Services segment consist mainly in (i) treatment, removal of impurities and natural gas compression, including the collection and transport of natural gas (ii) inspection and maintenance of pipelines and compressor plants, (iii) services of steam generation for electricity production and management services for expansion works and steam generation for the production of electricity and (iv) natural gas transportation services in Vaca Muerta.

Revenues from sales of this business segment are recognized over the time in the period in which the service is provided. The sale price is determined according to what arises from the contractual conditions agreed between TGS and its customers. In all cases, the recognition and billing of sales income is made on a monthly basis so that at that time a sales credit is recorded.

Revenue from the Company’s participation in the joint operation with SACDE which correspond to the construction activities provided by it, are recognized based on the physical progress of the work. To calculate the costs associated with such income, the UT adopts the criterion of applying the estimated final margin for the work to the accrued revenue in each period. The costs incurred in excess of the costs associated with the revenues are recognized in the Contract Assets caption.

Telecommunications

Revenues from the provision of Telecommunications services are recognized in the statement of comprehensive income at the time of effective performance of the service. The sale price is determined according to what arises from the contractual conditions agreed between TGS and its customers. The consideration is determined as a fixed monthly amount. In all cases, the recognition and billing of sales income is made on a monthly basis so that at that time a sales receivable is recorded.

Financial components

The Company does not have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Company does not adjust any of the transaction prices for the time value of money.

q)	Contract liabilities

Mainly consist of pre-payments for services made by customers in order to finance the works to render the service. Contract liabilities are recognized initially at their fair value. Subsequent to initial recognition, advances from customers are measured at their amortized cost based on the projections of the services to be provided that cancel the advances, restated for the inflation effects as mentioned in Note 4.d.

In case of prepayments received from customers to finance part of the works corresponding to the construction of an evacuation pipeline in Vaca Muerta, they are denominated in US dollars. The initial recognition of the contract liabilities is made at fair value. Subsequently, they are valued at their amortized cost based on the projections for the provision of the agreed services that cancel them and are measured using the selling exchange rate published by the Banco de la Nación Argentina at the date of the period reported.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Additionally, it includes the advance received by the UT from the Argentine Government as payment on account of the gas pipeline construction project. For more information, see “Note 23 - Associates and joint arrangements.”

r)	Equity accounts

The activity in the Equity accounts reflects resolutions adopted by Shareholders in their meetings, or the effects of the laws or regulations in force. The equity accounts are restated for the inflation effects according to what is mentioned in Note 4.d, except the account Capital stock which is maintained at its original value.

Common stock and adjustment to common stock

The common stock consists of contributions made by shareholders represented by shares and comprises outstanding shares at their face value, net of treasury shares mentioned below.

Common stock accounts were restated in constant currency as mentioned in Note 4.d. Common stock account was kept at original value and the adjustment arising from such restatement is shown under “Inflation Adjustment to common stock”.

Common stock adjustment is not distributable in cash or in kind but may be capitalized through issuance of shares. In addition, this balance may be used to compensate accumulated losses.

Treasury shares and adjustments to treasury shares

Corresponds to the reclassification of the nominal value and corresponding restatement in constant peso (Inflation Adjustment to Common Stock) of shares issued and repurchased by the Company in market transactions, as required by the current regulations of the CNV.

Own equity instruments that are reacquired (treasury shares) are recognized at cost restated for the inflation effects as mentioned in Note 4.d., and deducted from equity. No gain or loss is recognized on the purchase, sale or cancellation of the Company’s treasury shares. Any difference between the carrying amount and the consideration, if reissued, is recognized as a premium on common stock or additional paid-up capital.

Additional paid-up capital

Corresponds to the difference between the carrying value of the treasury shares and the quoted value at the time were distributed (for more information see Note 19.b). It is restated according to what is mentioned in Note 4.d).

Legal Reserve

Pursuant to the provisions of the Argentine Business Association Law and the CNV, the Company is required to set up a legal reserve by providing at least 5% of the aggregate amount of net income for the year, prior year adjustments, transfers of other comprehensive income to retained earnings and accumulated losses of prior years, when this aggregate amount exceeds zero until the legal reserve equals 20% of the sum of Capital stock and Adjustment to capital stock balances.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Distribution of dividends

The cash dividend is recognized as a liability in the Company’s financial statements in the year in which they are approved by the shareholders of the Company or the Board of Directors according to the powers delegated by the Shareholders’ Meeting, as appropriate.

Retained earnings

The outstanding balance of retained earnings includes accumulated gains or losses which were not allocated to a specific purpose reserve and, when positive, may be distributed pursuant to the decision of the Shareholders provided these retained earnings are not subject to legal restrictions, as mentioned above “Legal reserve”.

s)	Basic and diluted earnings per share

Earnings per share as of December 31, 2019, 2018 and 2017 were calculated as follows:

	2019		2018		2017
Net income attributable to owners of the Company		12,805,105		17,561,249		8,847,196
Average number of outstanding shares ⁽¹⁾		776,121,341		788,405,563		794,495,283
Basic and diluited earnings per share		16.50		22.27		11.14

⁽¹⁾ The weighted average number of shares considers the effect of the weighted average of the changes originated in the transactions with the treasury shares made during the year.

As of the date of the issuance of these consolidated financial statements, there are no TGS instruments outstanding that imply the existence of potential ordinary shares, thus the basic net income per share for the years ended on December 31, 2019, 2018 and 2017 matches the diluted net income per share.

5.	CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of the condensed interim consolidated financial statements in accordance with generally accepted accounting principles requires management to make accounting estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. These estimates require management to make difficult, subjective or complex judgments and estimates about matters that are inherently uncertain. Management bases its estimates on various factors, including past trends, expectation of future events regarding the outcome of events and results and other assumptions that it believes are reasonable.

(a) Provisions for legal claims and others

The Company has certain liabilities with respect to existing court or out-of-court claims, lawsuits and other proceedings, including those involving legal and regulatory matters. The Company records liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Such provisions are based on developments known at the date of the issuance of these consolidated financial statements, estimates of the outcome of these matters and the experience of its legal counsel in contesting, litigating and settling other matters. As the scope of the liabilities become better defined, there will be changes in the estimates of future costs, which could have a material effect on the Company’s future results of operations and financial condition or liquidity.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

(b) Income Tax

Deferred tax assets are recognized for all tax losses to the extent that it is probable that there will be a tax benefit against which these losses can be utilized. Determining the amount of deferred tax assets that can be booked requires a considerable judgment by our management, based on the probable term and level of future taxable profits together with future tax planning strategies and macroeconomic variables affecting the business.

On December 29, 2017, the PEN promulgated and put into effect through Decree 1112/2017 a tax reform enacted in the National Congress through Law No. 27,430 (the “Tax Reform”). This reform establishes a gradual reduction of the applicable rate for the calculation of income tax. Subsequently, through the enactment of the Solidarity Law, the Argentine Government defined the postponement of the current tax rate for fiscal years that began on January 1, 2020.

Note 14 “Income tax and deferred tax” includes more detailed information on Income Tax.

As mentioned in Note 4.j, the Company periodically evaluates the existence of events or significant changes that could have adverse effects on the Company or will take place in the near future that could affect the recoverable value of the PPE amounts. An asset’s recoverable amount is the higher of the fair value less costs to sell that asset, and its value-in-use These evaluations are carried out at the lowest level for which there are identifiable cash flows, that is, for each single cash generating unit or CGU. TGS considers each of its business segments to be a CGU.

When assessing whether an impairment indicator may exist, TGS evaluates both internal and external sources of information, such as the following:

•

Whether significant decreases in the market values of PPE elements took place.

•

Whether prices of the main products and services that are marketed decreased.

•

Whether significant changes in the regulatory framework were introduced.

•

Whether operating costs suffered a materially increase.

•

Whether evidence of obsolescence or physical damage has occurred.

•

Whether the macroeconomic situation in which TGS carries out its activities, including significant variations in the sale prices of products, raw materials, interest rates, etc, has worsen.

Since August 2019, the main macroeconomic and business variables of Argentina suffered a significant deterioration which led the Argentine Government to take measures accordingly even affecting the regulatory framework of the Natural Gas Transportation segment (see Notes 1 and 17). Given these indicators of impairment of the recorded amounts of PPE, the recoverable value of each of the CGUs has been calculated based on its value in use.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

The value in use is calculated on the basis of discounted future cash flows. The projected cash flows are prepared taking into account: (i) for assets associated with the Liquids and Commercialization segment, projections of the prices of liquids and purchase cost of natural gas used as raw material; (ii) for assets associated with the Natural Gas Transportation segment, estimates of future tariff adjustments and the recognition of cost adjustments; (iii) for assets associated with the Other Services segment, future expectation of the need of Vaca Muerta gas producers to evacuate untreated natural gas; (iv) projections of the future costs to be incurred, (iv) expected macroeconomic variables such as interest rates, inflation, foreign exchange rates. The discount rate is based on a weighted average cost of capital (“WACC”).

In performing the analysis for the Natural Gas Transportation segment, the Company considered among others: (i) the status of negotiations with the Argentine Government, (ii) the contractual rights derived from the License, (iii) Management´s expectations regarding the procedures and actions initiated, (iv) the Company´s expectations regarding the new RTI process required by the Argentine Government and (v) the impact of a cost monitoring scheme that allows the realization of semiannual adjustments to current tariffs.

The Company has prepared three different estimates of expected cash flows by sensitizing its main variables and thus determining a baseline scenario that allows its comparison with the book value of the Natural Gas Transportation segment. In addition, the Company performed a sensitivity analysis of the probability of occurrence of each scenario and concluded that an increase of up to 70 percentage points in the weighted probability of the pessimistic case (from 30% to 100%) and a reduction in the probability of occurrence of the optimistic scenario and in the probability of occurrence of the base scenario (reducing each to zero) would not generate a value that would require an adjustment in carrying amount for impairment.

In performing the analysis for the Production and Commercialization of Liquids segment, the Company based it on, among others, future evolution of international liquid prices based on available public information, and projections of the future costs to be incurred to acquire natural gas for gas processing.

In performing the analysis for the Other Services segment, the Company based it on future expectation of the need of Vaca Muerta gas producers to evacuate untreated natural gas to extend the current firm shipping contracts, and projections of the contractual tariffs based on international inflation index.

Based on the analysis performed the Company did not identify the need for recording any impairment of the PPE amounts as of December 31, 2019.

The estimated recoverable values are sensitive to the significant variation of the assumptions applied, including the determination of future tariffs by the Argentine Government on the Natural Gas Transportation business segment, and the expectation of the development of Vaca Muerta gas fields on our Other Services business segment. In any case, we cannot assure with certainty that actual cash flows will be in line with the assumptions applied. Therefore, significant differences could arise in the future in relation to the estimated values in use.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

No impairment indicators were identified during the years ended December 31, 2018 and 2017.

6.	SUPPLEMENTAL CASH FLOW INFORMATION

For purposes of the consolidated statement of cash flows, 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 equivalents. The cash flow statement has been prepared using the indirect method, which requires a series of adjustments to reconcile net income for the period to net cash flows from operating activities.

Non-cash investing and financing activities for the years ended December 31, 2019, 2018 and 2017 are presented below:

	2019		2018		2017
Unpaid acquisition of PPE		1,331,105		473,413		460,879
Principal payment of financial lease ⁽¹⁾		149,238		156,861		101,645
Capitalization of finance costs		446,195		-		-

⁽¹⁾ Cancelled through compensation with trade receivables with the creditor. See Note 13.

Note 13 to these consolidated financial statements includes a reconciliation between the initial and final balance of the financial liabilities arising from financing activities.

For additional information regarding dividend distribution made in treasury shares for an amount of Ps. 3,228,002, see Note 19.c. to these consolidated financial statements.

7.	CONSOLIDATED BUSINESS SEGMENT INFORMATION

IFRS 8 “Operating Segments” requires an entity to report financial and descriptive information about its reportable segments, which are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the CODM in deciding how to allocate resources and in assessing performance. The Company’s CODM is the Board of Directors.

The Company analyzes its businesses into four segments: (i) Natural Gas Transportation Services, subject to ENARGAS regulations, (ii) Liquids Production and Commercialization, (iii) Other Services including midstream, among others, and (iv) Telecommunications. These last three business segments are not regulated by ENARGAS. Production and Commercialization of Liquids segment is regulated by the SE.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Detailed information on each business segment for the years ended December 31, 2019, 2018 and 2017 is disclosed below:

Year ended December 31, 2019
	Natural Gas Transportation			Production and Commercialization of Liquids			Other Services			Telecommunications			Eliminations			Total
Revenues from sales		22,620,423			23,138,182			2,526,643			276,246			-			48,561,494
Intersegment revenues		615,993			-			-			-			(615,993	)		-
Cost of sales		(8,667,640	)		(14,661,541	)		(1,524,445	)		(137,870	)		615,993			(24,375,503	)
Administrative expenses		(1,043,519	)		(144,313	)		(61,021	)		(11,447	)		-			(1,260,300	)
Selling expenses		(1,343,560	)		(1,390,215	)		(264,396	)		(41,386	)		-			(3,039,557	)
Other operating (expenses) / income		(136,926	)		3,200			3,576			2,624			-			(127,526	)
Operating profit		12,044,771			6,945,313			680,357			88,167			-			19,758,608
Depreciation of property, plant and equipment		(2,998,224	)		(246,720	)		(450,671	)		-			-			(3,695,615	)

	Natural Gas Transportation		Commercialization of Liquids		Other Services		Telecommunications		Total
Identifiable assets		64,431,193		10,865,257		20,090,627		214,248		95,601,325
Identifiable liabilities		29,338,859		3,093,226		15,020,159		65,612		47,517,856

Year ended December 31, 2018
	Natural Gas Transportation			Production and Commercialization of Liquids			Other Services			Telecommunications			Eliminations			Total
Revenue from sales		23,785,660			25,578,373			2,784,534			250,856			-			52,399,423
Intersegment revenues		920,555			-			-			-			(920,555	)		-
Cost of sales		(7,944,333	)		(16,130,863	)		(1,621,770	)		(126,455	)		920,555			(24,902,866	)
Administrative expenses		(1,284,707	)		(129,315	)		(55,348	)		(10,210	)		-			(1,479,580	)
Selling expenses		(1,467,144	)		(984,794	)		(220,674	)		(42,070	)		-			(2,714,682	)
Other operating (expenses) / income		(240,414	)		(1,117,949	)		(8,375	)		(3,581	)		-			(1,370,319	)
Operating profit		13,769,617			7,215,452			878,367			68,540			-			21,931,976
Depreciation of property, plant and equipment		(2,892,621	)		(174,964	)		(352,235	)		-			-			(3,419,820	)

	Natural Gas Transportation		Production and Commercialization of Liquids		Other Services		Telecommunications		Total
Identifiable assets		69,603,664		13,907,967		11,621,495		155,320		95,288,446
Identifiable liabilities		25,748,537		2,301,679		19,563,528		70,796		47,684,540

Year ended December 31, 2017
	Natural Gas Transportation			Production and Commercialization of Liquids			Other Services			Telecommunications			Eliminations			Total
Revenue from sales		11,469,824			17,189,194			1,844,712			190,858			-			30,694,588
Intersegment revenues		377,137			-			-			-			(377,137	)		-
Cost of sales		(6,428,448	)		(11,186,009	)		(1,008,879	)		(114,747	)		377,137			(18,360,946	)
Administrative expenses		(918,567	)		(144,172	)		(56,110	)		(10,087	)		-			(1,128,936	)
Selling expenses		(645,435	)		(408,173	)		(164,471	)		(23,804	)		-			(1,241,883	)
Other operating (expenses) / income		(503,409	)		99,520			(14,150	)		236			-			(417,803	)
Operating profit		3,351,102			5,550,360			601,102			42,456			-			9,545,020
Depreciation of property, plant and equipment		(2,607,632	)		(146,630	)		(353,484	)		-			-			(3,107,746	)

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

8.	DETAIL OF SIGNIFICANT STATEMENT OF FINANCIAL POSITION AND STATEMENT OF COMPREHENSIVE INCOME CAPTIONS

a)	Other receivables

	2019				2018
	Current		Non Current		Current		Non Current
Turnover tax balance		50,711		-		-		-
Income tax credit balance ⁽¹⁾		42,607		-		-		-
VAT credit balance		1,018,621		-		461,916		-
Other tax receivables		1,227		1,401		15,365		3,144
Prepaid expenses		90,714		-		73,464		-
Advances to suppliers		1,181,972		-		2,847,433		-
Subsidies receivables		143,829		-		450,523		-
Other Receivables UT		39,009		-		45,697		-
Others		329,387		7,603		202,248		9,521
Total		2,898,077		9,004		4,096,646		12,665

⁽¹⁾ Provision, net of advances paid, withholdings and perceptions.

b)	Trade receivables

	2019					2018
	Current			Non Current		Current			Non Current
Commons		6,329,258			-		4,788,890			-
UT		13,813			-		31,446			-
Natural Gas Transportation		3,774,497			-		2,549,704			-
Production and Commercialization of Liquids		1,903,005			-		1,680,674			-
Other services		637,943			-		527,066			-
Related parties (Note 21)		279,457			-		206,079
Natural Gas Transportation		154,009			-		112,671			-
Production and Commercialization of Liquids		53,744			-		12,497			-
Other services		71,704			-		80,911			-
Allowance for doubtful accounts		(134,956	)		-		(203,860	)		-
Total		6,473,759			-		4,791,109			-

The movement of the allowance for doubtful accounts is as follows:

Balances as of December 31, 2017	-
Additions ⁽¹⁾	203,860
Applications	-
Reversals	-
Balances as of December 31, 2018	203,860
Inflation adjustment restatement	(71,339	)
Additions ⁽¹⁾	2,435
Applications	-
Reversals	-
Balances as of December 31, 2019	134,956

⁽¹⁾ The total amount is recorded in Selling Expenses

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

c)	Cash and cash equivalents

	2019		2018
Cash and banks		1,123,051		9,174,577
UT Cash and banks		2,758		235
Time deposits		-		938,544
Mutual funds in Argentine Pesos		1,029,644		3,302,476
Interest-bearing accounts		7,609,748		12,167,206
UT Mutual funds		-		22,099
Total		9,765,201		25,605,137

d)	Contract liabilities

	2019				2018
	Current		Non Current		Current		Non Current
Natural Gas Transportation		98,460		1,744,944		104,572		1,844,227
Production and Commercialization of Liquids		38,387		341,698		39,249		392,388
Other services		62,386		840,184		3,104		23,261
UT		20,568		-		52,408		-
Total		219,801		2,926,826		199,333		2,259,876

During 2019 and 2018 financial years, the Company recognized Ps. 139,207 and Ps. 182,784, respectively, in revenues for sales from contracts with clients in the Statement of Comprehensive Income, which had been included in the balance at the beginning of each year.

e)	Other payables

	2019				2018
	Current		Non Current		Current		Non Current
Payable for compensation for the Board of Directors and Supervisory Committee		8,498		-		8,321		-
Others		1,744		-		2,529		-
UT Other liabilities		277,417		-		113,253		-
Total		287,659		-		124,103		-

f)	Taxes payables

	2019				2018
	Current		Non Current		Current		Non Current
Health and safety tax		12,989		-		13,522		-
Withholdings and perceptions made to third parties		148,052		-		170,174		-
Turnover Tax		85,283		-		96,474		-
Withholding Tax		71,998		-		-		-
UT Others		341		-		4,233		-
Others		34,520		-		26,680		-
Total		353,183		-		311,083		-

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

g)	Trade payables

	2019				2018
	Current		Non Current		Current		Non Current
Suppliers		3,875,928		-		4,304,927		-
UT Suppliers		109,876		-		138,837		-
Customers (credit balances)		6,164		-		3,438		-
Related companies		121,603		-		309,352		-
Total		4,113,571		-		4,756,554		-

Revenues

	2019		2018		2017
Sales of goods and services		48,359,045		51,773,746		30,159,782
Subsidies		202,449		625,677		534,806
Total		48,561,494		52,399,423		30,694,588

Disaggregation of revenues

Below is a table in which revenues are disaggregated considering the type of market and the opportunity to satisfy performance obligations:

Year ended December 31, 2019
	Natural Gas Transportation		Production and Commercialization of Liquids		Other Services		Telecommunications		Total
Primary geographical market:
External market		-		9,144,860		-		-		9,144,860
Local market		22,620,423		13,993,322		2,526,643		276,246		39,416,634
Total		22,620,423		23,138,182		2,526,643		276,246		48,561,494
Timing of revenue recognition:
Over the time		22,620,423		1,226,814		2,526,643		276,246		26,650,126
At a point in time		-		21,911,368		-		-		21,911,368
Total		22,620,423		23,138,182		2,526,643		276,246		48,561,494

Year ended December 31, 2018
	Natural Gas Transportation		Production and Commercialization of Liquids		Other Services		Telecommunications		Total
Primary geographical market:
External market		-		9,269,086		-		-		9,269,086
Local market		23,785,660		16,309,287		2,784,534		250,856		43,130,337
Total		23,785,660		25,578,373		2,784,534		250,856		52,399,423
Timing of revenue recognition:
Over the time		23,785,660		1,084,994		2,784,534		250,856		27,906,044
At a point in time		-		24,493,379		-		-		24,493,379
Total		23,785,660		25,578,373		2,784,534		250,856		52,399,423

Year ended December 31, 2017
	Natural Gas Transportation		Production and Commercialization of Liquids		Other Services		Telecommunications		Total
Primary geographical market:
External market		-		6,664,863		-		-		6,664,863
Local market		11,469,824		10,524,331		1,844,712		190,858		24,029,725
Total		11,469,824		17,189,194		1,844,712		190,858		30,694,588
Timing of revenue recognition:
Over the time		11,469,824		822,760		1,844,712		190,858		14,328,154
At a point in time		-		16,366,434		-		-		16,366,434
Total		11,469,824		17,189,194		1,844,712		190,858		30,694,588

Detailed information of revenues on each business segment for the years ended December 31, 2019, 2018 and 2017 is disclosed below:

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Natural Gas Transportation:

	2019		2018		2017
Firm		18,521,215		18,834,776		8,971,393
Access and Charge		835,721		870,398		666,979
Interruptible and Others		3,263,487		4,080,486		1,831,452
Total		22,620,423		23,785,660		11,469,824

ii.

Production and Commercialization of Liquids:

	2019		2018		2017
Product		21,708,919		23,867,702		15,776,153
Services		1,226,814		1,084,994		878,235
Government grants		202,449		625,677		534,806
Total		23,138,182		25,578,373		17,189,194

iv.

Other services:

	2019		2018		2017
Conditioning and treatment		1,273,070		1,130,820		841,091
Operation and maintenance		651,665		738,568		637,752
Steam sales		231,565		210,387		148,582
Construction		11,899		32,799		213,270
UT Construction		187,686		666,402		-
Transportation and conditioning of Naural Gas in Vaca Muerta		165,725		-		-
Others		5,033		5,558		4,017
Total		2,526,643		2,784,534		1,844,712

i)	Cost of sales

	2019			2018			2017
Inventories at the beginning of the year		554,218			282,659			371,470
Purchases		12,052,590			13,630,238			9,250,971
Operating costs (Note 8.i.)		12,076,335			11,544,187			9,021,164
Inventories at the end of the year		(307,640	)		(554,218	)		(282,659	)
Total		24,375,503			24,902,866			18,360,946

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

j)	Expenses by nature – Information required under art. 64 paragraph I, clause B) Commercial Companies Law

	2019
				Operating expenses
Accounts	Total			Regulated Activities		Non Regulated Activities		Administrative expenses		Selling expenses			Financial expenses

Salaries, wages and other compensations		3,193,390			1,463,206		953,222		604,578		172,384			-
Social security taxes		595,112			271,610		170,506		117,055		35,941			-
Compensation to Directors and Supervisory Committee		32,528			-		-		32,528		-			-
Professional services fees		483,128			15,383		248,648		186,970		32,127			-
Technical operator assistance fees		1,144,777			776,200		368,577		-		-			-
Materials		387,772			169,415		218,357		-		-			-
Third parties services		435,870			180,037		222,864		24,485		8,484			-
Telecommunications and post expenses		44,810			12,956		6,097		23,952		1,805			-
Rents		43,758			12,717		21,141		8,888		1,012			-
Transports and freight		115,986			73,000		40,551		2,435		-			-
Easements		91,941			87,367		4,574		-		-			-
Offices supplies		13,332			4,019		2,310		5,183		1,820			-
Travels expenses		132,485			65,497		35,936		27,340		3,712			-
Insurance		96,399			47,111		38,101		6,391		4,796			-
Property, plant and equipment maintenance		2,566,969			2,233,041		298,406		35,522		-			-
Depreciation of property, plant and equipment		3,695,615			2,842,666		697,391		155,558		-			-
Taxes and contributions		3,044,070			334,176		24,473		3,903		2,681,518	⁽¹⁾		-
Advertising		90,137			-		-		-		90,137			-
Doubtful accounts		2,435			-		-		-		2,435			-
Banks expenses		19,308			-		-		19,308		-			-
Interests expense		2,509,815			-		-		-		-			2,509,815
Foreign exchange loss		15,636,514			-		-		-		-			15,636,514
Capitalized financial costs		(446,195	)		-		-		-		-			(446,195	)
Costs of services rendered to third parties		13,664			-		13,664		-		-			-
Other expenses		132,706			79,239		43,877		6,204		3,386			-

Total 2019		34,076,326			8,667,640		3,408,695		1,260,300		3,039,557			17,700,134

(1) Includes tax on exports for Ps. 843,418 for the year ended December 31, 2019.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

	2018
			Operating expenses
Accounts	Total		Regulated Activities		Non Regulated Activities		Administrative expenses		Selling expenses			Financial expenses

Salaries, wages and other contributions		2,942,737		1,370,862		873,457		549,048		149,370			-
Social security taxes		492,620		222,669		130,665		107,092		32,194			-
Compensation to Directors and Supervisory Committee		39,718		-		-		39,718		-			-
Professional services fees		422,573		10,841		208,637		192,647		10,448			-
Technical operator assistance fees		2,026,244		1,289,165		737,079		-		-			-
Materials		344,492		105,664		238,828		-		-			-
Third parties services		402,701		157,394		200,379		30,443		14,485			-
Telecommunications and post expenses		33,498		6,455		4,395		21,933		715			-
Rents		38,129		11,779		15,846		9,147		1,357			-
Transports and freight		104,751		64,965		35,357		4,429		-			-
Easements		83,186		83,186		-		-		-			-
Offices supplies		10,763		3,647		1,324		4,815		977			-
Travels expenses		131,177		58,722		41,135		25,222		6,098			-
Insurance		101,944		58,713		36,451		6,775		5			-
Property, plant and equipment maintenance		1,946,371		1,700,665		221,697		24,009		-			-
Depreciation of property, plant and equipment		3,419,820		2,481,136		527,193		411,491		-			-
Taxes and contributions		2,578,080		262,317		30,893		3,274		2,281,596	⁽¹⁾		-
Advertising		7,470		-		-		-		7,470			-
Doubtful accounts		203,860		-		-		-		203,860			-
Banks expenses		18,691		-		-		18,691		-			-
Interests expense		2,577,365		-		-		-		-			2,577,365
Foreign exchange loss		20,185,935		-		-		-		-			20,185,935
Costs of services rendered to third parties		254,250		-		254,250		-		-			-
Other expenses		135,374		56,152		42,269		30,846		6,107			-

Year ended Deccember 31, 2018		38,501,749		7,944,332		3,599,855		1,479,580		2,714,682			22,763,300

⁽¹⁾ Includes tax on exports of Ps. 382,863 for the year ended December 31, 2018.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

	2017
				Operating expenses
Accounts	Total			Regulated Activities		Non Regulated Activities		Administrative expenses		Selling expenses			Financial expenses

Salaries, wages and other compensations		2,755,821			1,329,370		721,780		550,569		154,102			-
Social security taxes		474,525			208,944		123,835		108,080		33,666			-
Compensation to Directors and Supervisory Committee		21,253			-		-		21,253		-			-
Professional services fees		153,215			3,706		7,585		129,187		12,737			-
Technical operator assistance fees		887,901			400,020		487,881		-		-			-
Materials		149,305			46,117		103,188		-		-			-
Third parties services		317,596			132,233		159,075		26,288		-			-
Telecommunications and post expenses		24,756			3,307		3,034		17,223		1,192			-
Rents		16,828			4,863		2,432		8,372		1,161			-
Transports and freight		89,022			52,995		30,416		5,560		51			-
Easements		54,249			54,249		-		-		-			-
Offices supplies		8,633			2,561		900		4,027		1,145			-
Travels expenses		47,741			21,350		7,865		13,831		4,695			-
Insurance		81,007			47,294		26,962		6,013		738			-
Property, plant and equipment maintenance		1,546,413			1,331,530		198,875		13,290		2,718			-
Depreciation of property, plant and equipment		3,107,746			2,414,921		500,115		192,710		-			-
Taxes and contributions		1,413,444			327,852		20,606		1,824		1,063,162	⁽¹⁾		-
Advertising		1,180			-		5		-		1,175			-
Doubtful accounts		(35,989	)		-		-		-		(35,989	)		-
Banks expenses		11,102			-		-		11,102		-			-
Interests expense		1,301,985			-		-		-		-			1,301,985
Foreign exchange loss		1,718,617			-		-		-		-			1,718,617
Other financial charges		258,315			-		-		-		-			258,315
Costs of services rendered to third parties		177,326			-		177,326		-		-			-
Other expenses		88,909			47,134		20,838		19,607		1,330			-

Total 2017		14,670,900			6,428,446		2,592,718		1,128,936		1,241,883			3,278,917

(1) Includes tax on exports for Ps. 1,978 for the year ended December 31, 2017

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

k)	Net financial results

	2019			2018			2017
Financial income
Interest income		719,559			2,069,473			204,776
Foreign exchange gain		7,815,595			12,559,251			863,880
Subtotal		8,535,154			14,628,724			1,068,656
Financial expenses
Interest expense		(2,509,815	)		(2,577,365	)		(1,301,985	)
Foreign exchange loss		(15,636,514	)		(20,185,935	)		(1,718,617	)
less: Capitalized finance costs		446,195			-			-
Subtotal		(17,700,134	)		(22,763,300	)		(3,020,602	)
Other financial results
Derivative financial instruments results		(19,172	)		163,192			-
Fair value gains on financial instruments through profit or loss		542,218			2,112,016			680,678
Others		(409,659	)		(374,619	)		(258,315	)
Subtotal		113,387			1,900,589			422,363
Gain on net monetary position		6,154,172			1,855,519			716,821
Total		(2,897,421	)		(4,378,468	)		(812,762	)

In accordance with the provisions of IAS 29, the Company opted to present the gain on the monetary position in a single line included in the financial results. This exposure implies that the nominal magnitudes of the financial results have been adjusted for inflation. The real magnitudes of financial results are different from the components of financial results presented above. For additional information see Note 4.d., to these consolidated financial statements.

l)	Other operating expenses

	2019			2018			2017
Net increase in provisions ⁽¹⁾		(156,124	)		(1,185,743	)		(351,039	)
Recovery of insurance		-			36,726			299,495
Write off of other receivables		-			-			(161,596	)
Others		28,598			(221,302	)		(204,663	)
Total		(127,526	)		(1,370,319	)		(417,803	)

⁽¹⁾ Including interest and legal expenses

m)	Other financial assets at amortized cost

	2019				2018
	Current		Non Current		Current		Non Current
VRD bonds		3,355		5,403		8,790		13,476
US Treasury Bills		1,040,605		-		-		-
Total		1,043,960		5,403		8,790		13,476

n)	Payroll and social security taxes payable

	2019				2018
	Current		Non Current		Current		Non Current
Vacation benefit payable		305,847		-		262,577		-
Annual bonus payable		205,541		-		205,159		-
Social security taxes payable		130,942		-		103,654		-
UT		6,121				18,766
Total		648,451		-		590,156		-

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

9.	INVESTMENTS IN ASSOCIATES

	2019																			2018
									Issuer Information
	Description of securities								Last financial statemets issued
Name and issuer	Face value		Amount		Cost		Book value		Main business	Date	Common stock		Net (loss) / income for the year / period			Shareholders equity		% of Common Stock		Book value

Transporte y Servicios de Gas en Uruguay S.A.	Ps. Uru. 1			196,000		182		6,627	Pipeline maintenance	09/30/2019		28		(783	)		14,308		49.00		8,919

Emprendimientos de Gas del Sur S.A. (in liquidation)	$	1		116,130		2,025		418	Pipeline constructionand operation services	09/30/2019		237		(186	)		854		49.00		498

Gas Link S.A.	$	1		502,962		8,595		71,615	Pipeline construction and operation services	09/30/2019		1,026		6,990			396,461		49.00		102,373

Total								78,660													111,790

10.	JOINT ARRANGEMENTS

TGS jointly with SACDE applied for the public tender launched by the Argentine Government for the construction of a connection pipeline in the province of Santa Fe. This tender was finally obtained by the UT whose sole purpose is the execution of such works. For further information, see Note 23.

The Company participates in the UT in a percentage of 51% on the rights of the assets and on the obligations related to them. TGS consolidates line by line assets, liabilities and results of the UT based on the aforementioned percentage of participation.

The breakdown of the amounts included in the statements of financial position related to the Company’s participation in the UT and its results is the following:

	2019		2018
Consolidated Statements of financial position
Non Current assets		-		-
Current Assets		232,849		300,649
Total		232,849		300,649
Non Current Liabilities		-		-
Current Liabilities		414,323		261,274
Total		414,323		261,274

	2019			2018		2017
Consolidated Statements of comprehensive income
Gross (loss) / profit		(154,303	)		52,112		1,226
Operating (loss) / profit		(172,298	)		37,517		(38	)
Net Financial results		(21,069	)		1,611		348
Comprehensive (loss) / income		(193,367	)		39,128		310

11.	PROFIT FROM ASSOCIATES

	2019			2018			2017
EGS (in liquidation)		(80	)		4,770			32
TGU		(664	)		(68	)		438
Link		(31,114	)		23,306			32,821
Total		(31,858	)		28,008			33,291

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

12.	PROPERTY, PLANT AND EQUIPMENT

	2019
	Cost											Depreciation
Account	Beginning of the year		Additions		Retirements		Transfers			End of the year		Accumulated at the beginning of the year		Retirements		For the year		rate %		Accumulated at the end of the year		Net book value

Pipelines		61,419,814		-		13,330		1,933,215			63,339,699		29,732,526		7,747		1,518,032		2.2		31,242,811		32,096,888

Compressor plants		23,468,780		399,897		179,885		2,033,984			25,722,776		16,260,945		108,445		1,067,625	3.3 to 25			17,220,125		8,502,651

Other plants		26,488		-		-		-			26,488		8,039		-		899		3.3		8,938		17,550

Stations of regulation and/or measurement of pressure		2,091,798		-		-		76,900			2,168,698		1,668,370		-		57,681		4.0		1,726,051		442,647

Other technical installations		413,717		-		-		7,440			421,157		353,051		-		9,250		6.7		362,301		58,856

Subtotal assets related to natural gas transportation service		87,420,597		399,897		193,215		4,051,539			91,678,818		48,022,931		116,192		2,653,487				50,560,226		41,118,592

Non-regulated segment Pipelines		124,829		-		-		10,109,995			10,234,824		63,362		-		62,977		2.2		126,339		10,108,485

Non-regulated segment Compressor plants		1,910,728		-		-		145,605			2,056,333		582,695		-		217,431	3.3 to 25			800,126		1,256,207

Non-regulated segment Other plants		13,326,401		-		-		4,726,393			18,052,794		9,976,456		-		312,521		3.3		10,288,977		7,763,817

Non-regulated segment Stations of regulation and/or measurement of pressure		160,534		11,284		-		457,977			629,795		32,186		-		11,582		4.0		43,768		586,027

Non-regulated segment Other technical installations		254,016		-		-		-			254,016		75,525		-		22,868		6.7		98,393		155,623

Subtotal assets related to Other Services and

Production and Commercialization of Liquids		15,776,508		11,284		-		15,439,970			31,227,762		10,730,224		-		627,379				11,357,603		19,870,159

Lands		165,136		189,003		-		-			354,139		-		-		-		-		-		354,139

Buildings and constructions		3,119,619		-		948		428,387			3,547,058		1,761,692		11		58,976		2.0		1,820,657		1,726,401

Facilities and features in building		263,700		-		-		97			263,797		105,381		-		10,927		4.0		116,308		147,489

Machinery, equipment and tools		933,683		172,586		7,758		6,207			1,104,718		578,196		7,758		80,007	6.7 to 10			650,445		454,273

UT Machinery, equipment and tools		909		-		-		-			909		686		-		223	6.7 to 10			909		-

Computers and Telecommunication systems		4,177,609		3,440		-		662,582			4,843,631		3,420,768		-		221,927	6.7 to 20			3,642,695		1,200,936

Vehicles		455,370		80,860		24,497		-			511,733		320,725		23,144		41,452		20		339,033		172,700

Furniture		228,540		-		-		-			228,540		221,308		-		1,237		10		222,545		5,995

Materials		2,363,440		2,259,125		21,545		(1,458,699	)		3,142,321		-		-		-		-		-		3,142,321

Line pack		578,707		-		-		(84,156	)		494,551		27,646		-		-		-		27,646		466,905

Works in progress		9,216,602		15,722,143		-		(19,045,927	)		5,892,818		-		-		-		-		-		5,892,818

Total		124,700,420		18,838,338		247,963		-			143,290,795		65,189,557		147,105		3,695,615				68,738,067		74,552,728

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

	2018
	Cost											Depreciation
Account	Beginning of the year		Additions		Retirements		Transfers			End of the year		Accumulated at the beginning of the year		Retirements		For the year		rate %		Accumulated at the end of the year		Net book value

Pipelines		60,167,955		-		27,845		1,279,704			61,419,814		28,257,137		461		1,475,850		2.2		29,732,526		31,687,288

Compressor plants		22,369,570		-		474,819		1,574,029			23,468,780		15,721,120		429,105		968,930	3.3 to 25			16,260,945		7,207,835

Other plants		26,488		-		-		-			26,488		7,141		-		898		3.3		8,039		18,449

Stations of regulation and/or measurement of pressure		2,093,130		1,663		9,150		6,155			2,091,798		1,620,632		7,942		55,680		4.0		1,668,370		423,428

Other technical installations		407,598		-		2,046		8,165			413,717		346,264		2,046		8,833		6.7		353,051		60,666

Subtotal assets related to

natural gas transportation service		85,064,741		1,663		513,860		2,868,053			87,420,597		45,952,294		439,554		2,510,191				48,022,931		39,397,666

Non-regulated segment Pipelines		124,829		-		-		-			124,829		61,868		-		1,494		2.2		63,362		61,467

Non-regulated segment Compressor plants		1,898,166		-		4,330		16,892			1,910,728		395,448		808		188,055	3.3 to 25			582,695		1,328,033

Non-regulated segment Other plants		13,744,847		9,207		1,029,228		601,575			13,326,401		10,676,085		950,340		250,711		3.3		9,976,456		3,349,945

Non-regulated segment Stations of regulation and/or

measurement of pressure		160,534		-		-		-			160,534		25,765		-		6,421		4.0		32,186		128,348

Non-regulated segment Other technical installations		254,016		-		-		-			254,016		52,658		-		22,867		6.7		75,525		178,491

Subtotal assets related to Other Services and Production and Commercialization of Liquids		16,182,392		9,207		1,033,558		618,467			15,776,508		11,211,824		951,148		469,548				10,730,224		5,046,284

Lands		110,509		54,627		-		-			165,136		-		-		-		-		-		165,136

Buildings and constructions		3,053,615		-		73,980		139,984			3,119,619		1,765,318		58,701		55,075		2.0		1,761,692		1,357,927

Facilities and features in building		255,239		-		18,078		26,539			263,700		103,710		9,419		11,090		4.0		105,381		158,319

Machinery, equipment and tools		790,333		199,925		73,467		16,892			933,683		609,507		73,206		41,895	6.7 to 10			578,196		355,487

UT Machinery, equipment and tools		-		909		-		-			909		-		-		686	6.7 to 10			686		223

Computers and Telecommunication systems		5,762,314		258		2,085,323		500,360			4,177,609		5,203,218		2,078,177		295,727	6.7 to 20			3,420,768		756,841

Vehicles		405,725		58,593		8,948		-			455,370		294,870		8,465		34,320		20		320,725		134,645

Furniture		228,380		-		-		160			228,540		220,020		-		1,288		10		221,308		7,232

Materials		2,419,633		880,423		55,307		(881,309	)		2,363,440		-		-		-		-		-		2,363,440

Line pack		236,471		-		-		342,236			578,707		27,646		-		-		-		27,646		551,061

Works in progress		3,429,298		9,418,686		-		(3,631,382	)		9,216,602		-		-		-		-		-		9,216,602

Total		117,938,650		10,624,291		3,862,521		-			124,700,420		65,388,407		3,618,670		3,419,820				65,189,557		59,510,863

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

As of December 31, 2018, the assets allocated to the natural gas treatment and compression service include the following amounts in which the Company is a financial lease under the terms of leasing contracts:

	2018
Capitalized financial lease		2,501,165
Accumulated depreciaton		(560,091	)
Total		1,941,074

As of December 31, 2019 and January 1, 2019, date of the first application of IFRS 16, the assets related to the Other Services and Production and Commercialization of Liquids segments contains the following assets for right of use:

	12/31/2019		1/1/2019
Other plants		448,306		515,552
Compressor plants		1,113,024		1,279,978
Other technical installations		126,560		145,544
Total		1,687,890		1,941,074

The book value variation of the rights-of use accounted during the year ended on December 31, 2019 corresponds to its depreciation:

	12/31/2019
Other plants		(67,246	)
Compressor plants		(166,954	)
Other technical installations		(18,984	)
Total		(253,184	)

13.

LOANS

Short-term and long-term loans as of December 31, 2019 and 2018 comprise the following:

	2019		2018
Current Loans
2018 Notes Interest		336,881		349,375
Pre-export finance		1,021,325		-
Leasing (Note 22)		363,881		331,850
Total Current loans		1,722,087		681,225
Non Current Loans
2018 Notes		29,847,160		28,789,009
Leasing (Note 22)		2,013,557		2,214,706
Total non current loans		31,860,717		31,003,715
Total ⁽¹⁾		33,582,804		31,684,940

⁽¹⁾Net of issuance expenses of Ps. 97,840 and Ps. 185,243 as of December 31, 2019 and 2018, respectively.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

The activity of the loans as of December 31, 2019 and 2018 is the following:

	2019
	Leases liabilities			Other payables			2018
Beggining balance		2,546,556			29,138,384			10,218,503
Inflation adjustment restatement		(891,146	)		(13,298,217	)		(10,931,986	)
Accrued interest		194,944			2,061,631			2,305,265
Effect of foreign exchange rate change		1,178,710			13,935,368			19,765,612
VAT unpaid installments		15,988			-			29,388
Procceds from loans		-			1,051,809			21,261,978
Payment of loans ⁽¹⁾		(167,989	)		-			(2,042,940	)
Payment of redemption of loans		-			-			(7,378,176	)
Interest paid ⁽²⁾		(159,164	)		(2,024,070	)		(1,542,704	)
Ending balance		2,717,899			30,864,905			31,684,940

⁽¹⁾ For the years ended on December 31, 2019 and 2018, Ps. 149,238 and Ps. 156,861 respectively were cancelled through the offseting of debit balances maintained with the creditor (Pampa Energía).

⁽²⁾ For the years ended on December 31, 2019 and 2018, Ps. 143,357 and Ps. 149,373, respectively, were cancelled through the offseting of debit balances maintained with the creditor (Pampa Energía).

The maturities of the current and non-current loans as of December 31, 2019 are as follows, not including issuance expenses:

			To due
	Due at 12/31/2019		From 1/01/2020 to 12/31/2020		From 1/01/2021 to 12/31/2021		From 1/01/2022 to 12/31/2022		From 1/01/2023 to 12/31/2023		From 1/01/2024 onwards		Total
2018 Notes		-		336,881		-		-		-		29,847,160		30,184,041
Financial Leasing		90,363		273,518		296,515		321,370		348,380		1,047,292		2,377,438
Pre-export finance		-		1,021,325		-		-		-		-		1,021,325
Total		90,363		1,631,724		296,515		321,370		348,380		30,894,452		33,582,804

The following table sets reconciliation between the total of future minimum lease payments as of December 31, 2019, and their present book value:

	12/31/2019
As of 12/31/2020		538,339
From 1/01/2021 to 12/31/2021		448,037
From 1/01/2022 to 12/31/2022		448,037
From 1/01/2023 to 12/31/2023		448,037
From 1/01/2024 onwards		1,163,723
Total minimum future payments		3,046,173
Future financial charges on financial leases		(668,735	)
Book Value financial leases		2,377,438

Description of the indebtedness of the Company

Class 2 Notes (“2018 Notes”)

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

The Ordinary General Shareholders’ Meeting held on April 26, 2017, ordered the increase of up to US$ 700,000,000 (or its equivalent in other currencies) of the 2017 Program authorized by the CNV by Resolution No. 17,262 dated January 3, 2014, whose amount until the Shareholders´ Meeting was held was US$ 400,000,000 (the “2017 Program”).

On May 2, 2018, within the framework of the 2017 Program, the Company issued the 2018 Notes according to the following characteristics:

	2018 Notes
Amount in U.S.$	500,000,000
Interest Rate	6.75% annual
Issuance price	99.725%

	Scheduled payment date	Percentage of the principal to be paid
Amortization	May 2, 2025	100%
Frequency of interest payment	Semiannual, payable on May 2 and November 2 of each year.
Guarantor	None

The authorization for the public offering of the 2017 Program was granted by the CNV through Resolutions No. 17,262 and 18,938 dated January 3, 2014 and September 15, 2017, respectively. On October 31, 2018, through Disposition No. DI-2018-55-APN-GE#CNV, the CNV granted the extension of the 2017 Program until January 3, 2024.

The Ordinary General Shareholders´ Meeting held on August 15, 2019 decided to increase the 2017 Program from US$ 700 million to US$ 1.2 billion. This increase was authorized by the CNV on October 9, 2019 through Resolution RESFC-2019-20486-APN-DIR # CNV.

Funds obtained by the Company are applied to:

i. The repurchase of the Class 1 Notes (the “2014 Notes”) for U.S.$ 86,511,165;

ii. the cancellation and total redemption of the 2014 Notes for U.S.$ 120,786,581;

iii. the balance of net funds to make investments in capital expenditures.

The value of the financial debt is based on its amortized cost calculated as cash flows discounted at an effective rate of 7.088%.

Covenants

As of the date of issuance of these consolidated financial statements, the Company has complied with a series of restrictions derived from its current financial agreements, which include, among others, those related to obtaining new loans, payment of dividends, granting of guarantees, disposal of certain assets and make certain transactions with related parties.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

The Company may contract new debts under the following conditions, among others:

a. To the extent that after the new debt has been incurred (i) the consolidated coverage ratio (calculated as the quotient of the consolidated adjusted EBITDA -earnings before financial results, income tax, depreciation and amortization- and the consolidated interest expense) is equal or higher than 2.0:1; and (ii) the consolidated debt ratio (calculated as the quotient of the consolidated debt and the consolidated EBITDA) is equal to or lower than 3.5:1.

b. For the refinancing of the outstanding financial debt.

c. Originated by customer advances.

The Company may pay dividends under the following conditions: (i) the Company is not in default under 2018 Notes, and (ii) immediately after any dividend payment, the Company may incur new debts according to the provisions in point a. of the preceding paragraph.

Lease liability

Corresponds to the financing obtained for the acquisition of the corresponding assets to the treatment and compression plant located in the area of Río Neuquén. Said agreement was concluded on August 11, 2016 with Petrobras (currently Pampa Energía) and consists of the payment of 119 consecutive monthly installments of U.S.$ 623,457 without taxes and an option to purchase for the same amount payable at the end of the 120th month of the effectiveness of the contract.

Pre-export finance

On November 5, 2019, the Company agreed with Itaú Unibanco S.A. the granting of a loan for US $ 17 million in order to pre-finance the exports of propane, butane and natural gasoline made. The characteristics of this loan are as follows:

Amount in US$	17,000,000
Interest Rate	LIBOR + 1.95%

	Scheduled payment date	Percentage of the principal to be paid
Amortization	March 4, 2020	100%
Frecuency of interest payment	Monthly, payable on December 4,2019, January 6, 2020, February 4, 2020 and March 4, 2020
Guarantor	US Treasury bills *
* Included in “Other financial assets at amortized cost.”

As of the date of issuance of these Financial Statements, this loan is fully paid.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

14.	INCOME TAX AND DEFERRED TAX

Tax Reform

The Tax Reform sanctioned in Argentina in 2017, with some amendments introduced in December 2018 after the issuance of Law No. 27,468, brought with it a series of modifications in the taxation and calculation of the income tax to which the Company is subject in the normal course of its activities. Subsequently, on the occasion of the enactment of the Solidarity Law, new modifications were introduced with impact as of the fiscal year beginning on January 1, 2019. The main changes are the following:

Reduction in the applicable rate

Until the fiscal year ended on December 31, 2017, the income tax rate remained at 35%. The tax reform establishes a gradual reduction of the applicable rate for the calculation of income tax, being 30% and 25% for fiscal periods beginning on January 1, 2018 and 2019 and January 1, 2020 onwards, respectively.

The reduction in the applicable rate is complemented by the application of a tax on the distribution of dividends made to human persons and foreign beneficiaries, which the Company must withhold and enter the Tax authority as a single and definitive payment when the dividends are paid. This additional tax will be 7% or 13%, depending on whether the dividends distributed correspond to earnings of a fiscal period in which the Company was reached at the rate of 30% or 25%, respectively. For these purposes it is considered, without admitting proof to the contrary, that the dividends that are made available correspond, firstly, to the oldest accumulated earnings.

Solidarity Law suspended until fiscal years starting from 1st January 2021 inclusive, reduced to 25% of the applicable rate and retention of 13% on dividends.

Tax adjustment for inflation

This section was subsequently modified by Law No. 27,468, which establishes that in the net taxable income of the periods beginning on or after January 1, 2018, the adjustment for inflation obtained by the application of the income tax law may be deducted or incorporated into the tax result for the fiscal year. This adjustment will proceed only if the percentage variation in the IPC, will accumulate (a) a percentage higher than 100% in the 36 months prior to the end of the year, or (b) regarding the first, second and third fiscal year that starts from its effective date, an accumulated variation of the IPC that exceeds 55%, 30% or 15% of said 100%, respectively.

For the fiscal year ended December 31, 2019, the CPI has exceeded the 30% threshold mentioned above, so the Company has measured the tax charge to earnings for the year ended December 31, 2019 considering the application of the adjustment for fiscal inflation.

According to the Solidarity Law, the positive or negative result generated by the application of the inflation adjustment corresponding to the first and second fiscal year beginning on January 1, 2019 will be charged in a sixth in that fiscal period and the five sixths remaining in equal parts in the following 5 fiscal periods.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Adjustment of acquisitions and investments made in fiscal years beginning on or after January 1, 2018

A cost adjustment mechanism is established for assets acquired or investments made in fiscal years beginning on or after January 1, 2018. The adjustment will be made based on the percentage variations of the WPI. This adjustment mechanism will have a significant impact on the calculation of future taxable profits on which the Company must pay the income tax.

Tax revaluation

It established the possibility of carrying out a tax revaluation, for a single time, of certain assets that are part of the assets as of December 31, 2017, in order to adjust their value.

This revaluation was optional, and to carry out the tax revaluation, a special tax must be paid. The special tax varied between 8% and 15%, depending on the type of asset to be re-evaluated between the difference of the residual revalued tax value and the residual tax value of origin.

Once the option for a certain good is exercised, all other goods in the same category must be revalued.

This tax is not deductible from income tax, and the asset increase that originates the revaluation is neither taxable for income tax nor taxable for the purposes of the TOMPI liquidation.

The taxpayers that exercised the revaluation option has waived to promote any judicial or administrative process for which the adjustment for tax inflation is claimed.

The Board of Directors decided to make use of this option, which implies a one-time payment of Ps. 1,612,164. Said tax paid and the tax revaluation benefit of Ps. 6,447,872, were recorded under the line “Income Tax” of the Statement of Financial Position for the year ended December 31, 2018.

Deferred Tax

The reconciliation between the charge computed for tax purposes and the income tax expense charged to the statement of comprehensive income in the years ended December 31, 2019, 2018 and 2017 is as follows:

	2019			2018			2017
Current income tax		(2,682,261	)		(4,920,109	)		(3,757,523	)
Special revaluation tax		-			(1,612,164	)		-
Deferred income tax		(1,341,950	)		6,512,012			3,839,173
Total income tax		(4,024,211	)		(20,261	)		81,650

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

The analysis of the net deferred tax assets and liabilities is as follows:

	2019			2018
Deferred tax assets:
Deferred tax assets to be recovered after more than 12 months		996,567			1,044,262
Deferred tax assets to be recovered after less than 12 months		273,287			231,200
Deferred tax liabilities:
Deferred tax liabilities to be recovered after more than 12 months		(6,002,822	)		(4,527,584	)
Deferred tax liabilities to be recovered after less than 12 months		(29,546	)		(168,442	)
Deferred tax liabilities, net		(4,762,514	)		(3,420,564	)

The components of the net deferred tax assets and liabilities as of December 31, 2019, 2018 and 2017 are the following:

Deferred tax assets	Allowance for doubtful accounts		Tax credits discounted value loss			Account receivables discounted value			Provisions for legal claims and other provisions			Financial lease			Contract liabilities		Tax inflation adjustment		Total
As of December 31, 2017		-		-			-			173,575			516,052			436,324		-		1,125,951
Charge in results		-		596			3,497			(18,349	)		110,929			52,838		-		149,511
As of December 31, 2018		-		596			3,497			155,226			626,981			489,162		-		1,275,462
Charge in results		731		(240	)		(2,766	)		(375	)		(26,711	)		14,925		8,828		(5,608	)
As of December 31, 2019		731		356			731			154,851			600,270			504,087		8,828		1,269,854

Deferred tax liabilities	Deferred sales			Loans			Property, Plant and Equipment			Cash and cash equivalents			Inventaries			Other financial assets at amortized cost			Tax inflation adjustment			Total
As of December 31, 2017		-			(5,633	)		(11,016,028	)		(25,325	)		(11,541	)		-			-			(11,058,527	)
Charge in results		4,367			(42,180	)		6,527,245			(120,683	)		(6,248	)		-			-			6,362,501
As of December 31, 2018		4,367			(47,813	)		(4,488,783	)		(146,008	)		(17,789	)		-			-			(4,696,026	)
Charge in results		(4,367	)		21,547			139,697			143,880			(2,346	)		(1,864	)		(1,632,889	)		(1,336,342	)
As of December 31, 2019		-			(26,266	)		(4,349,086	)		(2,128	)		(20,135	)		(1,864	)		(1,632,889	)		(6,032,368	)

Income tax expense computed at the statutory tax rate on pre-tax income differs from the income tax expense for the years ended December 31, 2019, 2018 and 2017 as follows:

	2019			2018			2017
Pre tax income		16,829,329			17,581,516			8,765,549
Statutory income tax rate		30	%		30	%		35	%
Pre tax income at statutory income tax rate
		(5,048,799	)		(5,274,455	)		(3,067,942	)
Tax effects due to:
- Restatement by inflation		2,039,603			371,340			(287,676	)
- Tax revalution benefit		-			6,447,872			-
- Special revalution tax		-			(1,612,164	)		-
- Adjustment affidavit previous year		136,641			(464	)		-
- Change in the taxe rate		-			-			3,437,625
- Tax inflation adjustment		(1,998,487	)		-			-
- Others		846,831			47,610			(357	)
Total income tax		(4,024,211	)		(20,261	)		81,650

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

15.	PROVISIONS

The total amount of the Provisions are included in current liabilities.

	For legal claims and others
Balances as of 12/31/2017		445,962
Inflation adjustment restatement		(173,430	)
Additions		300,213		⁽¹⁾
Uses		(1,211	)
Decreases		(557	)	⁽²⁾
Balances as of 12/31/2018		570,977
Inflation adjustment restatement		(241,044	)
Additions		272,477		⁽³⁾
Uses		(7,590	)
Decreases		(5,702	)	⁽²⁾
Balances as of 12/31/2019		589,118

⁽¹⁾ Ps. 185,473 are included in “Other operating expenses” and Ps. 114,740 in “Financial expenses”.

⁽²⁾ The total are included in “Other operating expenses”.

⁽³⁾ Ps. 161,826 are included in “Other operating expenses” and Ps. 110,651 in “Financial expenses”.

16.	FINANCIAL RISK MANAGEMENT

1.	Financial risk factors

The Company’s activities and the market in which it operates expose it to a series of financial risks: market risk (including foreign exchange risk, interest rate risk, and commodity price risk), credit risk and liquidity risk.

The Company’s risk management framework establishes that a risk map is determined that measures the potential impact of each of them on the financial situation and results of operations. Based on this, the Executive Officers are responsible for defining the policies, procedures, limits and measures aimed at mitigating the impact of said risks.

The sensitivity analyzes included below are based on the change in one of the factors while all others remain constant. In practice, this is unlikely to happen, and changes in several factors can be correlated, for example, in variations in the interest rate and variations in the foreign currency exchange rate.

Sensitivity analysis only provides limited vision, at one point in time. The actual impact on the Company’s financial instruments could vary significantly with respect to the impact shown in the sensitivity analysis.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

2.	Foreign exchange risk

The Company is primarily exposed to the fluctuation of the exchange rate of the U.S. dollar against the Argentine Peso due to the fact that almost its entire financial indebtedness is denominated in U.S. dollars. The exposure to other currencies is not significant.

As regards to the revenue derived from the Natural Gas Transportation segment, the tariffs charged by the Company are currently denominated in Argentine pesos. On the other hand, revenues in US dollars derived from the Liquids Production and Commercialization segment accounted for approximately 87%, 77% and 76% of the segment’s total revenues for the years ended December 31, 2019, 2018 and 2017, respectively. Total revenues denominated in Argentine Pesos accounted for 53%, 59% and 51% for the years ended December 31, 2019, 2018 and 2017, respectively.

TGS’s financial risk management policies are defined with the objective of mitigating the impact that the variation in the exchange rate has on the Company’s position in foreign currency. For this purpose, alternative investment evaluations are regularly carried out to diversify investments in financial instruments portfolio between US dollar-denominated instruments or, although denominated in Argentine pesos, to obtain positive returns in real terms.

Additionally, in the event that it is considered appropriate, the Company contracts derivative financial instruments that allow TGS to hedge the fluctuation of the US dollar over long-term positions in such currency. During the years 2019, 2018 and 2017, the Company did not contract derivative financial instruments to cover this risk.

However, the Company managed to mitigate the impact on the exchange rate variation by placing funds in assets denominated in US dollars. As of December 31, 2019, for mitigating this foreign exchange risk, 88% of the Company’s fund placements are denominated in US dollars.

Considering the net liability financial position described in the table below, the Company estimated that, other factors being constant, a 10% appreciation of the US dollar against the Argentine Peso for the years ended December 31, 2019, 2018 and 2017 would have decreased the Company’s pretax income for the year in approximately Ps. 2,564,896, Ps. 1,138,128, and Ps. 399,846, respectively. A 10% depreciation of the US dollar against the Argentine Peso would have an equal and opposite effect on the pre-tax income. Actual results may differ significantly from these theoretical sensitivity scenarios.

1.2 Interest rate risk

The management of interest rate risk seeks to reduce financial costs and limit the Company’s exposure to an increase in interest rates. Currently, the Company’s exposure to interest rate risk is limited due to the fact that 100% of its outstanding financial indebtedness bears fixed interest rates. The interest rate profile of the Company’s borrowings is set out in Note 13.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

The main objective of the Company’s financial investment activities is to obtain the highest return by investing in low risk and high liquidity instruments. The Company maintains a short-term portfolio of cash equivalents and investments made up of investments in mutual funds and deposits in remunerated bank accounts, public and private securities. The risk of these instruments is low given the short-term nature and high liquidity in well-known financial institutions.

The Company’s risk management policy is defined with the objective of reducing the impact of the loss of purchasing power. During the 2017, 2018 and 2019 fiscal years the Company has maintained a liability monetary position. As a consequence, TGS has recorded a net gain from exposure to inflation in the monetary items.

The following table shows a breakdown of the Company’s fixed-rate and floating-rate financial assets and liabilities as of December 31, 2019 and 2018:

	Financial assets⁽¹⁾				Financial liabilities⁽²⁾
	2019		2018		2019		2018
Fix interest rate		8,650,353		13,114,538		30,184,039		29,138,384
Variable interest rate		1,038,402		22,264		1,021,325		-
Total		9,688,755		13,136,802		31,205,364		29,138,384

⁽¹⁾ Includes mutual funds, Letes, Lebacs and bank accounts. Trade receivables do no bear interests, except for Ps. 8,758 and Ps. 22,264, which bears CER plus a spread of 8% as of December 31, 2019 and 2018, respectively.

⁽²⁾ Includes loans, issuance expenses and financial leasing

In view of the nature of the Company’s financial assets which bear variable interest, an immediate 100 basis points decrease in the interest rate would not have a significant impact on the total value of the financial assets.

1.3 Commodity price risk

Commercial operations performed by the Company in its Liquids Production and Commercialization segment are affected by a number of factors beyond its control, including changes in the international prices of the products sold, and government regulations on prices, taxes and other charges, among others.

The sale prices of propane and butane (“LPG”) and natural gasoline the Company exports in its Liquids Production and Commercialization segment are referenced to international prices (Mont Belvieu for the LPG and NWE ARA for the natural gasoline). Additionally, approximately 59% of the total sales of propane and butane that are made in the domestic market are made at prices fixed by the Hydrocarbon Resources Secretariat (“SRH” for its acronym in Spanish) based on export parity prices.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

These prices have historically been cyclical, reflecting overall economic conditions and changes in capacity within the industry, which may affect the profitability of TGS.

Based on the volume of sales for the years ended December 31, 2019, 2018 and 2017, the Company estimated that, other factors being constant, a decrease of U.S.$50/ton in the international price of LPG and natural gasoline, respectively, would have decreased the Company’s net comprehensive income in its Liquids Production and Commercialization segment in Ps. 1,153,105, Ps.849,161 and Ps. 233,323 respectively. On the other hand, an increase of U.S.$50/ton in the international price would have had the opposite effect.

Derivated financial instruments

On July 23, 2018, TGS entered into an agreement with a recognized financial institution to hedge export prices for propane, butane and natural gasoline (put contracts), in order to offset potential losses that could arise if export prices fall below breakeven prices (those that balance costs). This agreement is valid between October 2018 and April 2020, according to the following monthly short tons:

Period	Propane		Butane		Natural gasoline
October 2018 – April 2019		6,663		4,967		2,976
May 2019 – September 2019		-		-		4,519
October 2019		9,996		7,727		4,630
November 2019 – April 2020		14,438		11,038		6,614

In order to arrange such operation, the Company paid a premium of U.S.$ 3 million, which was classified as a financial asset measured at fair value through profit or loss, being recorded under “Derivative financial instruments”. The Company has not designated those instruments for the application of hedge accounting in accordance with the provisions of IFRS 9.

As of December 31, 2019 and 2018, the balance is Ps. 274,024 and Ps. 335,773, respectively, and is recorded under the item “Derivative Financial instruments”.

1.4 Credit risk

The Company’s exposures to credit risk takes the form of a loss that would be recognized if counterparties failed to, or were unable to, meet their payment obligations. These risks may arise in certain agreements in relation to amounts owed for physical product sales, the use of derivative instruments, and the investment of surplus cash balances. This risk mainly results from economic and financial factors or from a possible default of counterparty.

The Company is subject to credit risk arising from outstanding receivables, cash and cash equivalents and deposits with banks and financial institutions, and from the use of derivative financial instruments. The Company’s policy is to manage credit exposure to trading counterparties within defined trading limits.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Trade and Other Receivables

If any of the Company’s customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, the Company assesses the credit quality of the customer taking into account its financial position, past experience and other factors. The Company may seek cash collateral, letter of credit or parent company guarantees, as considered appropriate.

As of December 31, 2019 and 2018, the balance of current and non-current trade receivables, net of allowances of doubtful accounts are as follows:

	2019			2018
Current trade receivables		6,608,715			4,994,969
Allowances for doubful accounts		(134,956	)		(203,860	)
Total		6,473,759			4,791,109

The Company, in the normal course of business, renders natural gas transportation services, principally to gas distribution companies, CAMMESA and to Pampa Energía. Significant customers in terms of revenues and trade receivables (net of allowances of doubtful accounts) from natural gas transportation for the years ended December 31, 2019, 2018 and 2017 are as follows:

	2019				2018				2017
	Revenues		Trade receivables		Revenues		Trade receivables		Revenues
MetroGas		5,849,138		1,459,410		4,957,415		577,764		2,948,056
Camuzzi Gas Pampeana S.A.		4,353,024		729,137		3,682,320		430,212		2,167,208
Naturgy Argentina		3,496,055		567,429		2,971,396		368,782		1,556,829
CAMMESA		1,337,997		206,403		2,057,838		281,896		1,368,671
Pampa Energía		803,610		258,007		676,180		141,040		68,737
Camuzzi Gas del Sur S.A.		1,075,744		150,838		822,176		87,574		477,222

Revenues from Liquids Production and Commercialization customers net of allowances of doubtful accounts) for the years ended December 31, 2019, 2018 and 2017 are as follows:

	2019				2018				2017
	Revenues		Trade receivables		Revenues		Trade receivables		Revenues
PBB Polisur		6,338,222		841,338		8,102,817		1,090,359		5,667,118
Petredec		1,003,264		-		1,321,183		-		2,119,267
Geogas Trading S.A.		1,691,910		375,723		1,695,707		-		878,783
Shell Trading (US) Company		-		-		138,246		-		2,192,301
YPF		1,239,102		26,501		729,113		30,968		-
Petrobras Global Trading BV		4,446,241		397,172		2,682,539		211,387		-

Cash and financial placements

The Company is exposed to counterparty credit risk on cash and cash equivalent balances. The Company holds cash on deposit with a number of financial institutions. The Company manages its credit risk exposure by limiting individual deposits to clearly defined limits in various financial institutions. The Company considers that this risk is limited because it has short-term funds policies whose main objective is to obtain an adequate return in terms of market characteristics and minimizing exposure. The Company only deposits with high quality banks and financial institutions with a high credit rating. The maximum exposure to credit risk is represented by the carrying amount of cash and cash equivalents in the statement of financial position.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Below is a detail of the maturities of the financial assets included in: (i) cash and cash equivalents, (ii) other financial assets, (iii) trade receivables, (iv) other receivables and (v) derivate financial instruments, as of December 31, 2019 and 2018:

December 31, 2019
	Cash and cash equivalents		Other financial assets		Credits ^{(1) (2)}
Without specified maturity		9,650,787		-		21,607
With specified maturity
Overdue
Until 12-31-2018		-		-		144,596
From 01-01-19 to 03-31-19		-		-		1,538
From 04-01-19 to 06-30-19		-		-		4,245
From 07-01-19 to 09-30-19		-		-		343,827
From 10-01-19 to 12-31-19		-		-		791,533
Total overdue		-		-		1,285,739

Non-due
From 01-01-20 to 03-31-20		114,414		1,315,640		5,271,983
From 04-01-20 to 06-30-20		-		796		482,630
From 07-01-20 to 09-30-20		-		775		8,105
From 10-01-20 to 12-31-20		-		773		10,092
During 2021		-		3,043		6,943
During 2022		-		1,911		-
During 2023		-		449		-
During 2024		-		-		-
From 2025 onwards		-		-		-
Total non-due		114,414		1,323,387		5,779,753
Total with specified maturity		114,414		1,323,387		7,065,492
Total		9,765,201		1,323,387		7,087,099

⁽¹⁾ The total amount of the receivables without specified maturity is recorded in Non-current assets.

⁽²⁾ Includes financial assets recorded in trade receivables and other receivables, excluding allowance for doubtful accounts.

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

December 31, 2018
	Cash and cash equivalents		Other financial assets		Credits ^{(1) (2)}
Without specified maturity		22,283,431		-		718
With specified maturity
Overdue
Until 12-31-2017		-		-		205,783
From 01-01-18 to 03-31-18		-		-		477
From 04-01-18 to 06-30-18		-		-		6,184
From 07-01-18 to 09-30-18		-		-		17,537
From 10-01-18 to 12-31-18		-		-		823,940
Total overdue		-		-		1,053,921

Non-due
From 01-01-19 to 03-31-19		3,321,706		338,073		4,530,803
From 04-01-19 to 06-30-19		-		2,300		63,313
From 07-01-19 to 09-30-19		-		2,300		-
From 10-01-19 to 12-31-19		-		1,894		-
During 2020		-		5,161		8,505
During 2021		-		4,683		-
During 2022		-		2,940		-
During 2023		-		688		-
From 2024 onwards		-		-		-
Total non-due		3,321,706		358,039		4,602,621
Total with specified maturity		3,321,706		358,039		5,656,542
Total		25,605,137		358,039		5,657,260

⁽¹⁾ The total amount of the receivables without specified maturity is recorded in Non-current assets.

⁽²⁾ Includes financial assets recorded in trade receivables and other receivables, excluding allowance for doubtful accounts.

1.5 Liquidity risk

This risk implies the difficulties that TGS may have in fulfilling its commercial and financial obligations. To this purpose, the expected flow of funds is regularly monitored.

The Company has funding policies whose main objectives are to meet the financing needs at the lowest cost possible according to market conditions. The main objective of the Company is its financial solvency. Given the current financial market conditions, the Company believes that the availability of resources (including available credit lines) and the positive cash flow from operations are sufficient to meet its current obligations.

Additionally, TGS applies a methodology for analyzing and assigning credit limits to individual financial institutions in order to minimize the associated credit risk. In line with this, the Company invests its liquid funds in certain financial institutions with an appropriate credit rating.

The tables below include a detail of the maturities of the obligations corresponding to financial liabilities corresponding to: trade payables, payroll payables, other payables and loans as of December 31, 2019 and 2018. The amounts disclosed in the table are the contractual undiscounted cash flows and as a result, they do not reconcile to the amounts disclosed on the statement of financial position. These tables are made based on available information at the end of each year and may not reflect the actual amounts in the future. Therefore, the amounts disclosed are provided for illustrative purposes only:

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

December 31, 2019
	Loans		Other financial liabilities		Leases liabilities
Without specified maturity		-		-		-
With specified maturity
Overdue
Until 12-31-2018		-		130,829		-
From 01-01-19 to 03-31-19		-		311		-
From 04-01-19 to 06-30-19		-		311		-
From 07-01-19 to 09-30-19		-		311		-
From 10-01-19 to 12-31-19		-		311		90,363
Total overdue		-		132,073		90,363

Non-due
From 01-01-20 to 03-31-20		1,027,502		3,745,057		111,994
From 04-01-20 to 06-30-20		1,010,644		32,769		111,994
From 07-01-20 to 09-30-20		-		-		111,994
From 10-01-20 to 12-31-20		1,010,644		-		111,994
During 2021		2,021,288		-		448,037
During 2022		2,021,288		-		448,037
During 2023		2,021,288		-		448,037
During 2024		2,021,288		-		448,037
From 2025 onwards		30,955,641		-		715,686
Total non-due		42,089,583		3,777,826		2,955,810
Total with specified maturity		42,089,583		3,909,899		3,046,173
Total		42,089,583		3,909,899		3,046,173

December 31, 2018
	Loans		Other financial liabilities		Financial leases
Without specified maturity		-		-		-
With specified maturity
Overdue
Until 12-31-2017		-		159,366		-
From 01-01-18 to 03-31-18		-		478		-
From 04-01-18 to 06-30-18		-		478		-
From 07-01-18 to 09-30-18		-		478		-
From 10-01-18 to 12-31-18		-		478		87,517
Total overdue		-		161,278		87,517

Non-due
From 01-01-19 to 03-31-19		-		5,157,610		108,450
From 04-01-19 to 06-30-19		978,663		33,442		108,450
From 07-01-19 to 09-30-19		-		-		108,450
From 10-01-19 to 12-31-19		978,663		-		108,450
During 2020		1,957,325		-		433,860
During 2021		1,957,325		-		433,860
During 2022		1,957,325		-		433,860
During 2023		1,957,325		-		433,860
From 2024 onwards		31,933,396		-		1,126,898
Total non-due		41,720,022		5,191,052		3,296,138
Total with specified maturity		41,720,022		5,352,330		3,383,655
Total		41,720,022		5,352,330		3,383,655

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Capital risk management

The objective of the Company in capital management are to safeguard the ability to continue as a going concern, achieve an optimal cost of capital structure and support the capital expenditures process in order to provide returns to the shareholders and benefits for other stakeholders.

The Company seeks to maintain a level of cash generation from operating activities, which may allow it to meet all of its commitments.

The Company monitors capital on the basis of the gearing ratio. This ratio is calculated as total financial debt (including current and non-current loans as shown in the consolidated statement of financial position, if applicable) divided by total capital. Total capital is calculated as equity, as shown in the consolidated statement of financial position, plus total debt.

During the year ended December 31, 2019 and 2018, the gearing ratio was as follows:

	2019		2018
Total debt (Note 13)		33,582,804		31,684,940
Total Equity		48,083,469		47,603,906
Total Capital		81,666,273		79,288,846
Gearing Ratio		0.41		0.4

2.	FINANCIAL INSTRUMENTS BY CATEGORY AND HIERARCHY

2.1 Financial instrument categories

Accounting policies for the categorization of financial instruments are explained in Note 4.e. According to the provisions of IFRS 7, IAS 32 and IFRS 9 (IAS 39 as of December 31, 2017), non-financial assets and liabilities such as PPE, investments in associates, inventories, advances from customers, deferred income tax, taxes and social taxes payables and provisions are not included.

The categories of financial assets and liabilities as of December 31, 2019 and 2018 are as follows:

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

	December 31, 2019
	Financial assets at fair value		Financial assets at amortizef cost		Total
CURRENT ASSETS
Trade receivables		-		6,473,759		6,473,759
Other receivables		-		473,216		473,216
Derivative financial instruments		274,024		-		274,024
Other financial assets at amortized cost		-		1,043,960		1,043,960
Cash and cash equivalents		1,029,644		8,735,557		9,765,201
Total current assets		1,303,668		16,726,492		18,030,160

NON-CURRENT ASSETS
Other receivables		-		7,603		7,603
Other financial assets at amortized cost		-		5,403		5,403
Total non-current assets		-		13,006		13,006
Total assets		1,303,668		16,739,498		18,043,166

	Financial liabilities at fair value		Other financial liabilities		Total
CURRENT LIABILITIES
Trade payables		-		4,113,571		4,113,571
Loans		-		1,722,087		1,722,087
Payroll and social security taxes payables		-		533,497		533,497
Other payables		-		287,659		287,659

NON-CURRENT LIABILITIES
Loans		-		31,860,717		31,860,717
Total non-current liabilities		-		31,860,717		31,860,717
Total liabilities		-		38,517,531		38,517,531

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TRANSPORTADORA DE GAS DEL SUR S.A.

Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

	2018
	Financial assets at fair value		Financial assets at amortirzed cost		Total
CURRENT ASSETS
Trade receivables		-		4,791,109		4,791,109
Other receivables		-		652,771		652,771
Derivative financial instruments		335,773		-		335,773
Other financial assets at amortized cost		-		8,790		8,790
Cash and cash equivalents		3,324,575		22,280,562		25,605,137
Total current assets		3,660,348		27,733,232		31,393,580

NON-CURRENT ASSETS
Other receivables		-		9,521		9,521
Other financial assets at amortized cost		-		13,476		13,476
Total non-current assets		-		22,997		22,997
Total assets		3,660,348		27,756,229		31,416,577

	Financial liabilities at fair value		Other financial liabilities		Total
CURRENT LIABILITIES
Trade payables		-		4,756,554		4,756,554
Loans		-		681,225		681,225
Payroll and social security taxes payables		-		475,882		475,882
Other payables		-		124,103		124,103
Total current liabilities		-		6,037,764		6,037,764

NON-CURRENT LIABILITIES
Loans		-		31,003,715		31,003,715
Total non-current liabilities		-		31,003,715		31,003,715
Total liabilities		-		37,041,479		37,041,479

2.2 Fair value measurement hierarchy and estimates

According to IFRS 13, the fair value hierarchy introduces three levels of inputs. These levels are:

•

Level 1: includes financial assets and liabilities whose fair values are estimated using quoted prices (unadjusted) in active markets for identical assets and liabilities. The instruments included in this level primarily include balances in mutual funds and public or private bonds listed on the BYMA. The mutual funds mainly carry out their placements in bonds issued by the Central Bank of the Argentine Republic (“BCRA”).

•

Level 2: includes financial assets and liabilities whose fair value is estimated using different assumptions quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (for example, derived from prices). Within this level, the Company includes those derivate financial instruments for which it was not able to find an active market.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

•

Level 3: includes financial instruments for which the assumptions used in estimating fair value are not based on observable market information.

During 2019 and 2018, there were neither transfers between the different hierarchies of fair values nor reclassifications between financial instruments categories.

The table below shows different assets and liabilities at their fair value classified by hierarchy as of December 31, 2019 and 2018:

	As of December 31, 2019
	Level 1		Level 2		Level 3		Total
Financial assets at fair value
Cash and cash equivalents		1,029,644		-		-		1,029,644
Derivative financial instruments		-		274,024		-		274,024
Total		1,029,644		274,024		-		1,303,668

	As of December 31, 2018
	Level 1		Level 2		Level 3		Total
Financial assets at fair value
Cash and cash equivalents		3,324,575		-		-		3,324,575
Derivative financial instruments		-		335,773		-		335,773
Total		3,324,575		335,773		-		3,660,348

The fair value of the financial assets and liabilities is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As of December 31, 2019, the carrying amount of certain financial instruments used by the Company including cash, cash equivalents, other investments, receivables, payables and short-term loans are representative of fair value because of the short-term nature of these instruments.

The following table reflects the carrying amount and estimated fair value of the 2018 Notes as of December 31, 2019, based on their quoted market price:

	As of December 31, 2019
	Carrying amount		Fair value
2018 Notes		30,184,039		26,266,856

17.	REGULATORY FRAMEWORK

a)	General framework of the natural gas transportation segment:

General aspects

Regarding TGS’ Natural Gas Transportation business, it is regulated by Law No. 24,076 (“the Natural Gas Act”), its regulatory Decree No. 1,738/92 and the Regulatory framework for the transportation and distribution of natural gas in Argentina. The Natural Gas Act created ENARGAS, which is entitled, among other things, to set the basis for the calculation, monitoring, approval of tariffs and the power to verify compliance with the Natural Gas Law and its regulations. On January 28, 2016, Resolution No. 7 of the MINEM of Argentina repealed the Resolution 2000/2005 of the former Ministry of MPFIPyS which provided that all tariff increases should have the prior intervention of the Undersecretary of Coordination and Management Control.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

TGS License has been granted for an original period of 35 years beginning on December 28, 1992. However, the Natural Gas Act provides that TGS may apply to ENARGAS for a renewal of its license for an additional period of ten years. ENARGAS should evaluate at that time the performance of TGS and raise a recommendation to the Executive Branch. At the end of the period of validity of the license, 35 or 45, as appropriate, the Natural Gas Act requires a call for a new tender for the granting of a new license, in which TGS, provided the Company fulfilled substantially with the obligations resulting from the license, would have the option of matching the best offer that the Government received in this bidding process.

Tariff situation

Prior the enactment of the Public Emergency Law, and according to the Regulatory Framework, transportation tariffs were to be calculated in US dollars and converted into Argentine pesos at the time the customer was billed using the exchange rate prevailing at the date of the billing. The basic natural gas transportation tariffs charged by TGS had been established at the time of the privatization of GdE and were to be adjusted, subject to prior authorization, in the following cases: (i) semiannually to reflect changes in the US producer price index (“PPI”) and (ii) every five years according to efficiency and investment factors determined by ENARGAS. The “efficiency factor” was a reduction to the base tariff resulting from future efficiency programs while the “investment factor” increased the tariffs to compensate the licensees for future investments which were not repaid through tariffs. Also, subject to ENARGAS approval, tariffs were to be adjusted to reflect non-recurrent circumstances or tax changes, other than income tax.

The terms and conditions as described in the precedent paragraph in connection with tariff adjustments contemplated within the Regulatory Framework are no longer effective since the enactment of the Public Emergency Law in early 2002, which, among other provisions, eliminated tariff increases based on US dollar exchange rate fluctuations, foreign price indexes or any other indexing procedure and established a conversion rate of one peso to one US dollar for tariffs. The Public Emergency Law also granted the Executive Branch power to renegotiate contracts entered into with private utility companies, pursuant to the framework included in such law as long as it is in force, which expired on December 31, 2017, after several extensions.

Between July 2003 and March 2018, the Company received a series of temporary tariff increases under the framework of the Integral Tariff Review (“RTI” for its acronym in Spanish) process initiated after the Public Emergency Law was passed.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

On March 27, 2018, the Executive Branch of the Argentine Government issued the Decree No. 250/2018 (the “Decree 250”) ratifying the 2017 Integral Agreement. This decree represents the conclusion of the RTI process and the completion of the 2017 Transitional Agreement, and thus, the final renegotiation of the license after seventeen years of negotiations.

The 2017 Integral Agreement sets the guidelines for the provision of the natural gas transportation service until the end of the License. Among these guidelines:

•

The RTI Process, which will culminate in the signing of the integral agreement, was approved. As a result of this RTI, a new tariff schedule was also approved. This new tariff schedule applicable to the Company determined a total tariff increase of 214.2% and 37%, in the event that it had been granted in a single installment as of April 1, 2017, on the tariff of the natural gas transportation service and the CAU, respectively.

•

The Five-Year Investment Plan was approved. Resolution 4362 obliged TGS for the execution of the Five-Year Plan, which requires a high level of essential investments for the operation and maintenance of the pipeline system, to provide quality, safe and reliable service. The Five-Year Plan shall be for the period from April 1, 2017 to March 31, 2022 and will amount to Ps. 6,786,543, expressed in December 31, 2016 currency terms.

•

A non-automatic six-month adjustment mechanism for the natural gas transportation tariff and the investment commitments were approved. This adjustment must be approved by ENARGAS and for its calculation, the evolution of the WPI published by INDEC will be considered.

•

TGS and its shareholders must withdraw any claim against the Government related to the natural gas transportation business, including the arbitration proceedings before the ICSID. The Company desisted from it on June 26, 2018.

As it is mentioned above the tariff increase was granted in 3 installments according to the following resolutions:

•

Effective as of April 1, 2017, 64.2% of the tariff for the natural gas transport service, the CAU not being adjusted, in accordance with the provisions of Resolution No. 4362/2017 (“Resolution 4362”).

•

Effective as of December 1, 2017, after the issuance of Resolution 120, 81.1% on the tariff for the natural gas transport service and 29.7% on the CAU, which includes the first adjustment by WPI.

•

Effective as of April 1, 2018, an increase of 50% over the tariff for the natural gas transport service and the CAU within the framework of the provisions of Resolution No. 310/2018 issued by ENARGAS.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Semiannual tariff increase

This increase is granted within the framework of the semi-annual tariff adjustment of the natural gas transportation service in accordance with the provisions of the RTI process.

In the public hearing held on September 4, 2018, in which the Company requested, based on the variation of the WPI recorded for the period February - August 2018, a tariff increase of approximately 30%. Considering the hearing, on September 27, 2018, ENARGAS issued Resolution No. 265/2018 which determined a 19.7% tariff increase effective as of October 1, 2018.

This increase was determined by ENARGAS based on the simple average of the WPI, the Construction Cost Index for the period February and August 2018 and the Salary Variation Index between December 2017 and June 2018.

It is noteworthy that ENARGAS supported the determination of the aforementioned tariff increase in the provisions of Resolution 4362, which, among other issues, provided that under certain circumstances and macroeconomic conditions, such as the significant devaluation occurred after April 2018, ENARGAS may use other indexes than the WPI to determine the tariff increase. TGS notified ENARGAS its disagreement with respect to the methodology for calculating the semi-annual adjustment.

On March 29, 2019, ENARGAS issued Resolution No. 192/2019 (“Resolution 192”) that approved, effective as of April 1, 2019, a 26% increase in the tariff chart applicable to the public service of natural gas transportation by TGS in force as of March 31, 2019.

In accordance with current regulations, ENARGAS has considered the evolution of the wholesale price index update index (“WPI”) between the months of August 2018 and February 2019, in order to define the semi-annual adjustments applicable to TGS tariffs.

Regarding the semi-annual tariff adjustment that was to be enforced as from October 1, 2019, on September 3, 2019, the SE issued Resolution No. 521/2019 (“Resolution 521”) postponing it to February 1, 2020.

The deferral also meant that the Company reviewed and fit, in equal proportion to the revenue that is no longer received, the execution of the Five-Year Investment Plan. As of the date of the issuance of these Consolidated Financial Statements, TGS made the proposal to ENARGAS and the corresponding approval resolution have not yet been issued.

Nevertheless, the Solidarity Law establishes that natural gas transportation and distribution tariffs will remain unadjusted for a maximum period of 180 days from December 23, 2019. In this sense, the Executive Branch is authorized to renegotiate them, either within the framework of the current RTI or through an extraordinary review in accordance with the provisions of the Natural Gas Law.

At the date of issuance of these financial statements, the administrative steps to normalize the Company’s tariff situation have not occurred.

Additionally, the Solidarity Law provides for the administrative intervention of ENARGAS.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Deferral of collections

On June 21, 2019, the Secretary of Energy issued Resolution N° 336/2019, which ordered the deferral of payment of 22% of the invoices issued between July 1, 2019 and October 31, 2019 corresponding to residential natural gas users.

The deferrals are recovered from the invoices issued from December 1, 2019 in five consecutive monthly installments in equal amount. As compensation, the National Government will pay the licensees, as a subsidy, an economic compensation for the financial cost involved in the deferral.

On August 22, 2019, the SE issued Resolution No. 488/2019 establishing the procedure for the calculation to be carried out by the distribution and sub-distribution companies of natural gas of the deferral provided by Resolution 336. Likewise, this resolution instructs the Undersecretariat of Hydrocarbons and Fuels of the Secretariat of Non-renewable Resources and Fuel Market of the SE to implement the procedure by which the compensation mentioned above will be calculated and paid. As of the date of the issuance of these consolidated financial statements, the regulations for the calculation and payment methodology of the economic compensation mentioned above were not issued.

As of December 31, 2019, the Company has trade receivables with natural gas distribution companies for Ps. 1,206,030 for such concepts.

b) General Framework for non-regulated segments

Domestic market

The Production and Commercialization of Liquids segment is not subject to regulation by ENARGAS, and as it is provided in the Transfer Agreement, is organized as a separate business unit within TGS, keeping accounting information separately. However, over recent years, the Argentine Government enacted regulations which significantly impacted on it.

In April 2005, the Argentine Government enacted Law No. 26,020 which sets forth the regulatory framework for the industry and commercialization of LPG. Among other things, the Law No. 26,020 creates the framework through which the Secretary of Hydrocarbon Resources (“SHR”) (formerly the Federal Energy Bureau) establishes regulations meant to cause LPG suppliers to guarantee sufficient supply of LPG in the domestic market at low prices. Law No. 26,020 creates a price regime pursuant to which the SRH periodically publish reference prices for LPG sold in the domestic market. It also sets forth LPG volumes to be sold in the domestic market.

On March 30, 2015, the Executive Branch issued Decree No. 470/2015, regulated by Resolution No. 49/2015 issued by the Federal Energy Bureau, which created the Programa Hogares con Garrafa (the “Households with Bottles Program”) which replaced the programs in force until that time. The Households with Bottles Program was implemented through Resolutions No. 49/2015 and No. 470/2015 issued by the Federal Energy Bureau.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Within the framework of the Households with Bottles Program, a maximum reference price was determined for the members of the commercialization chain in order to guarantee the supply to low-income residential users, forcing producers to supply with LPG at a certain price and at a certain quantity defined for each of them. Additionally, the payment of compensation to the participating producers of the Households with Bottles Program was established.

The current price of butane and propane marketed under this program, after successive modifications and according to Provision No. 104/2019 issued by the SHR and Fuels, is $ 9,895 and $ 9,656 per ton, respectively. No compensation has been set for these products.

In this context, the Company has filed various administrative and judicial claims challenging the general regulations of the program, as well as the administrative acts that determine the volumes of butane that must be sold in the domestic market, in order to safeguard its economic-financial situation and thus, preventing that this situation does not extend over time.

In addition, the Company is a party of the Propane Gas Supply Agreement for Induced Propane Gas Distribution Networks (“Propane for Networks Agreement”) entered into with the Argentine Government by which it undertakes to supply propane to the domestic market at a lower price to the market. In compensation, the Company receives an economic compensation calculated as the difference between the sales price and the export parity determined by the ex-MINEM.

On March 31, 2017, the MINEM issued Resolutions No. 74 and 474-E/2017 (“Resolution 474”) that stipulate increases in the price of undiluted propane gas destined to the Propane for Networks Agreement as of April 1 and December 1, 2017, respectively. From those dates onwards, the price of undiluted propane gas has been set at Ps. 1,267/ton and Ps. 2,832/ton (in accordance with Resolution 74) and Ps. 1,941.20/ton and Ps. 3,694/ton (in accordance with Resolution 474), respectively, depending on the client to whom the undiluted propane gas is delivered.

Finally, in May 2018, the Company signed the sixteenth extension by which the methodology for determining the price and volumes for the period April 1, 2018 - December 31, 2019 is established. Additionally, this last extension set the price for which the propane destined for this program was marketed to the client. At the date of issuance of these Financial Statements, a new agreement has not been concluded. Notwithstanding the foregoing, on January 14, 2020 TGS received the instruction issued by the Ministry of Energy to continue with propane deliveries in accordance with the conditions of the sixteenth extension of the Propane Agreement for Networks.

During 2019 and 2018, the Company received the amount of Ps. 468,494 and Ps. 625,678, for subsidies for the programs mentioned above, respectively.

As mentioned earlier, participation in the Households with Bottles Program implies economic and financial damages for the Company, because under certain circumstances the sale of the products would be carried out at prices that are below the production costs.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

As of December 31, 2019, the Argentine Government owes the Company Ps. 143,829 for these concepts.

Foreign market

On September 3, 2018, the Executive Branch issued Decree No. 793/2018, which, between September 4, 2018 and December 31, 2020, sets an export duty of 12% on the exported amount of propane, butane and natural gasoline. This withholding is capped at $4 for each dollar of the tax base or the official FOB price.

Subsequently, on the occasion of the enactment of the Solidarity Law, an 8% cap was established for the rate applicable to hydrocarbons as of December 23, 2019.

Decree No. 2,067 / 08

Through Presidential Decree No. 2,067/08, the Executive Branch created a tariff charge to be paid by (i) the users of regulated services of transportation and / or distribution, (ii) natural gas consumers receiving natural gas directly from producers without making use of transportation systems or natural gas distribution, (iii) the natural gas processing companies in order to finance the import of natural gas. The tariff charge sets forth in this decree finance the higher price of the natural gas imports required to compensate the injection of natural gas necessary to meet national requirements (the “Charge”). When the Charge was created, TGS paid it in accordance with the provisions of Resolution I-563/2008, at Ps. 0.0492/m3.

The payment of the natural gas processing tariff charge was selectively subsidized from 2008 according to the destination of the natural gas. In November 2011, however, ENARGAS issued Resolution No. 1,982/11 and 1,991/11 (the “Subsidy Beneficiaries Resolutions”) which modified the list of the subsidy beneficiaries, and thus, involved a cost increase for many of our clients and for us (for certain of our consumption for our own account). The natural gas processing tariff charge increased from Ps. 0.0492 to Ps. 0.405 per cubic meter of natural gas effective from December 1, 2011, representing a significant increase in our variable costs of natural gas processing.

In order to avoid this damage, TGS appealed against the Presidential Decree and the Resolutions including National Government, ENARGAS and ex MPFIPyS as defendants.

For further information regarding the legal action filed the Company, see Note 20.b).

On March 28, 2016, the MINEM issued Resolution No. 28/16 (“Resolution 28”), which instructs ENARGAS to take all the necessary measures to derogate the tariff charge created by Decree No. 2,067/08 as from April 1, 2016. However, such Resolution does not repeal or declare illegitimate this decree and the Subsidy Beneficiaries Resolutions for which the judicial action is still ongoing.

c) Essential assets

A substantial portion of the assets transferred by GdE has been defined as essential for the performance of the natural gas transportation service. Therefore, TGS is required to keep separated and maintain these assets, together with any future improvements, in accordance with certain standards defined in the License.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

TGS may not, for any reason, dispose of, encumber, lease, sublease or loan essential assets nor use such assets for purposes other than the provision of the licensed service without ENARGAS´s prior authorization. Any expansion or improvements that it makes to the gas pipeline system may only be encumbered to secure loans that have a term of more than one year to finance such extensions or improvements.

Upon expiration of the License, TGS will be required to transfer to the Argentine government or its designee, the essential assets listed in an updated inventory as of the expiration date, free of any debt, encumbrances or attachments. If the Company decides not to continue with the license, TGS will receive a compensation equal to the lower of the following two amounts:

the net book value of the essential assets determined on the basis of the price paid by the acquiring joint arrangements, and the original cost of subsequent investments carried in US dollars and adjusted by the PPI, net of accumulated depreciation according to the calculation rules to be determined by ENARGAS; or

ii)

the net proceeds of a new competitive bidding (the “New Bidding”).

Once the period of the extension of the License expires, TGS will be entitled to participate in the New Bidding, and thus, it shall be entitled to:

(i)

that its bid in the New Bidding be computed at an equal to the appraisal value to be determined by an investment bank selected by ENARGAS, which represents the value of the business of providing the licensed service as it is driven by the Licensee at the valuation date, as a going concern and without regard to the debts;

(ii)

to obtain the new License, without payment, in the event that any bid submitted in the New Bidding exceeds the appraised value;

(iii)

to match the best bid submitted by third parties in the New Bidding, if it would be higher than its bid mentioned in (i) paying the difference between both values to obtain the new License;

(iv)

if the Company is unwilling to match the best bid made by a third party, to receive the appraisal value mentioned in (i) as compensation for the transfer of the Essential Assets to the new licensee.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

18.	ASSETS AND LIABILITIES IN FORREIGN CURRENCY

The balances in foreign currency as of December 31, 2019 and 2018 are detailed below:

	2019							2018
	Foreign currency and amount (in thousands)		Exchange rate			Amount in local currency		Foreign currency and amount (in thousands)		Amount in local currency

CURRENT ASSETS

Cash and cash equivalents	US$	143,920		59.690	⁽¹⁾		8,590,585	US$	361,017		20,826,043

Derivative financial instruments	US$	4,591		59.690	⁽¹⁾		274,024	US$	5,821		335,773

Other financial assets at amortized cost	US$	17,433		59.690	⁽¹⁾		1,040,605		-		-

Trade receivables	US$	43,091		59.690	⁽¹⁾		2,572,102	US$	30,380		1,752,536

Other receivables	US$	325		59.690	⁽¹⁾		19,399	US$	1,693		97,665

Total current assets	US$	209,360					12,496,715	US$	398,911		23,012,017

CURRENT LIABILITIES

Trade payables	US$	59,595		59.890	⁽²⁾		3,569,145	US$	42,184		2,446,454

Loans	US$	28,754		59.890	⁽²⁾		1,722,087	US$	11,746		681,225

Contract liabilities	US$	990		59.890	⁽²⁾		59,283		-		-

Total current liabilities	US$	89,339					5,350,515	US$	53,930		3,127,679

NON CURRENT LIABILITIES

Loans	US$	531,987		59.890	⁽²⁾		31,860,717	US$	534,595		31,003,715

Contract liabilities	US$	13,692		59.890	⁽²⁾		820,025		-		-

Total non current liabilities	US$	545,679					32,680,742	US$	534,595		31,003,715

TOTAL LIABILITIES	US$	635,018					38,031,257	US$	588,525		34,131,394

⁽¹⁾ Buy exchange rate at the end of fiscal year

⁽²⁾ Sell exchange rate at the end of fiscal year

US$: United States of America dollars

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

19.	COMMON STOCK AND DIVIDENDS

a)	Common stock structure and shares’ public offer

As of December 31, 2019 and 2018, TGS’ common stock was as follows:

Common Stock structure as of December 31, 2018
Shares Class	Amount of common stock, subscribed, issued, paid in, and authorized for
	public offer
Common Shares Class
(Face value $ 1, 1 vote)	Outstandings shares		Treasury Shares		Common Stock
Class “A”		405,192,594		-		405,192,594
Class “B”		375,701,909		13,600,780		389,302,689
Total		780,894,503		13,600,780		794,495,283

Common Stock structure as of December 31, 2019
Shares Class	Amount of common stock, subscribed, issued, paid in, and authorized for
	public offer
Common Shares Class
(Face value $ 1, 1 vote)	Outstandings shares		Treasury Shares		Common Stock
Class “A”		405,192,594		-		405,192,594
Class “B”		379,415,934		9,886,755		389,302,689
Total		784,608,528		9,886,755		794,495,283

TGS’s shares are traded on the BYMA and under the form of the American Depositary Receipts (“ADS”) (registered in the SEC and representing 5 shares each) on the New York Stock Exchange.

b)	Acquisition of treasury shares

During fiscal year 2018, the Board of Directors of the Company approved two programs for the acquisition of treasury shares, on May 9 and September 6, which were executed in accordance with the conditions established therein. For the definition of these programs, the Board of Directors considered the solid cash position and investments that the Company has. This program was approved by virtue of the distortion evidenced between the economic value of the Company, measured by its current businesses and derivatives of projects under development, and the price of the price of their shares in the market.

Subsequently, on March 27, 2019, the Board of Directors of the Company approved a third Program for the acquisition of treasury shares in the markets where TGS makes a public offering (the “Third Share Repurchase Program”) for a maximum amount to be invested in Ps. 1,500 million (at the moment of its creation).

On August 26, 2019, after concluding the Third Buy Program, the Board of Directors of the Company approved a new program for the acquisition of treasury shares for a total of Ps. 3,200 million (at the moment of its creation).

As mentioned in “c. Distribution of dividends”, the treasury shares acquired as of October 31, 2019 were used to pay a dividend in shares.

Finally, on November 19, 2019, a fifth program of acquisition of treasury shares was approved (the “Fifth Share Repurchase Program”) for a total of Ps. 4,000 million (at the time of its creation). This program is valid for 120 days from its creation.

As of December 31, 2019, the Company has 9,886,755 treasury shares, representing 1.24% of the total share capital. The acquisition cost of the treasury shares in the market amounted to Ps. 730,764 which, in accordance with the provisions of Title IV, Chapter III, Article 3.11.c of the Rules, restricts the amount of the realized and liquid gains mentioned above that the Company may distribute.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

c)	Dividends distribution

Cash dividends

During the year ended December 31, 2019, the Company paid dividends as follows:

•

The Ordinary General Shareholders´ Meeting of the Company at its meeting held on April 11, 2019 approved the payment of Ps. 9,185,584 (Ps. 11,7671 per share).

•

The Board of Directors of the Company at its meeting held on April 11, 2019 approved the payment of Ps. 318,732 (Ps. 0,4083 per share).

•

On October 31, 2019, the Board of Directors of the Company approved, together with the distribution mentioned below, to make available to the shareholders as of November 13, 2019 a cash dividend amounting to Ps. 256,338 (Ps. 0,3351 per share). This dividend was compensated -in the corresponding cases- with the withholding of income tax by virtue of the distribution of treasury shares (article 46 of the Income Tax Law and article 66.2 of the Regulatory Decree), in the case that it should be done.

Treasury shares distribution

On October 17, 2019, the Ordinary and Extraordinary General Shareholders´ Meeting of the Company decided to distribute among all shareholders in proportion to their holdings, in the terms provided in Article 67 of Law No. 26,831 all of the treasury shares in the portfolio for 29,444,795 class B shares and also delegated to the Board of Directors the broadest powers to effect the distribution of the shares indicated in accordance with current regulations, including the determination of the timing of such payment.

Subsequently, on October 31, 2019, the Board of Directors of TGS decided to make available to shareholders, as of November 13, 2019, the treasury shares, making it known that said distribution constitutes 0.0385 shares per ordinary share and 0.192 shares per ADR, both outstanding, representing approximately 3.706% of the share capital of TGS, which amounts to Ps. 794,495.

The market value of these shares amounted to Ps. 3,228,002 being its acquisition cost of Ps. 4,045,739. This transaction was accounted for as an equity transaction generating a decrease of Ps. 791,712, which was charged to the heading “Additional paid-up capital” of the shareholders´ equity of the Company.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

d)	Restrictions on distribution of retained earnings

Pursuant to the General Companies Act and CNV Rules, we are required to allocate a legal reserve (“Legal Reserve”) equal to at least 5% of each year’s net income (as long as there are no losses for prior fiscal years pending to be absorbed) until the aggregate amount of such reserve equals 20% of the sum of (i) “common stock nominal value” plus (ii) “inflation adjustment to common stock,” as shown in our consolidated statement of changes in equity. If there are any losses pending to be absorbed from prior fiscal years, such 5% should be calculated on any excess of the net income over such losses, if any. Dividends may not be paid if the legal reserve has been impaired, nor until it has been fully replenished. The Legal Reserve is not available for distribution as a dividend.

The General Shareholders´ Meeting held on April 11, 2019, which decided to create the “Reserve for capital expenditures, acquisition of treasury shares and/or dividends” and delegated to the Board of Directors of the Company the decision of the distribution of dividends, provided as maximum limit for such distribution up to 80% of said reserve restated according to the General Resolution N° 777/2018 of the CNV.

The Company has access to the foreign exchange market to pay dividends to non-resident shareholders, without the prior consent of the BCRA only to the extent that the total amount of transfers executed through the exchange market regulated by the BCRA for payment of dividends to non-resident shareholders may not exceed 30% of the total value of any new capital contributions made in the Company that had been entered and settled through such exchange market. The total amount paid to non-resident shareholders shall not exceed the corresponding amount denominated in Argentine Pesos that was determined by the related shareholders’ meeting.

Finally, and as mentioned in subsection b of this note, the amounts subject to distribution are restricted up to the acquisition cost of treasury shares and the additional paid-up capital.

20.	LEGAL CLAIMS AND OTHER MATTERS

a)	Turnover tax calculated on the natural gas price consumed by TGS

The Company has interpretative differences with several provinces regarding the liquidation of the turnover tax calculated on the natural gas used by TGS as fuel to render its transportation services. In this framework there have been initiated several lawsuits against TGS, which have adversely concluded by the Company.

During fiscal year 2017 and 2016, the Company continued to receive several claims from different provinces, which meant that TGS paid Ps. 148.5 million and Ps. 27.6 million to provincial agencies (stated at their original values), respectively.

On May 24, 2017, ENARGAS issued Resolution No. 5041/2017, which approved the tariff methodology for turnover tax on gas withheld from those determinations or liquidations that the Company receives as of its date of issue.

As of December 31, 2019 and 2018, the Company recorded a provision of Ps. 515.1 million and Ps. 474.4 million, respectively, in respect of this contingency under the line item “Provisions.” Those amounts were determined in accordance with the estimations of tax and interests, that would be payable as of such date.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

b)	Action for annulment of ENARGAS Resolutions No. I-1,982/11 and No. I-1,991/11 (the “Resolutions”)

After the issuance of the Resolutions, TGS filed a judicial action before the National Court of First Instance in Federal Administrative Litigation No. 1 (the “Court”) in order to obtain the declaration of nullity of the Executive Decree No. 2067/08 and the Resolutions as well as the unconstitutionality of the administrative acts that created the Charge. The probative stage of these proceedings was concluded and the allegations are currently being carried out.

On July 5, 2012, the Court issued in favor of TGS a precautionary measure by which the suspension of the Charge was ordered in the terms set forth in the Resolutions. This decision was appealed in different opportunities by the National Government, by virtue of which the dictating of the precautionary measure was limited to the validity of six months. However, at maturity, the Company is entitled to obtain a new precautionary measure for a similar period.

As a result, on September 19, 2017, a new extension of the injunction was obtained (which prevented the Government to claim TGS of the payment of the amounts resulting from the new value of the Charge for the period between the November 2011 and March 2016), thus extending the validity until March 2018.

On the other hand, the National Court of Appeals in Contentious Administrative Dismissal rejected the extraordinary appeal filed by the National Government against the judgment of that court that confirmed the rejection made by the Court at the request of ENARGAS to declare abstract the legal action initiated by TGS in accordance with the precedent “Alliance” issued by the Supreme Court in December 2014.

On March 26, 2019, TGS was notified of the judgment of first instance issued by the Federal Contentious-Administrative Court No. 1 in its claim initiated by which TGS requested the unconstitutionality of Decree No. 2,067/08; Resolutions and of any other rule or act issued or to be issued, that is caused by the mentioned rules (the “Cause”).

The first instance judgment declares the unconstitutionality of both Articles 53 and 54 of Law 26,784, as well as the aforementioned rules and of any other act tending to execute said provision, and consequently, the nullity of said rules (the “sentence”).

The Judgment was appealed by the National Government on March 29, 2019, and the appeal was granted on April 3, 2019, which has not been resolved as of the closing date of the year.

On October 29, 2019, the intervening judge decided, considering what was decided in the judgment and attending to the reasons invoked by TGS, to extend the validity of the precautionary measure issued for six more months of processing in said ordinary process and / or until the sentence passed is firm.

TGS’s Management believes it has sufficient valid arguments to defend its position, and thus, the Company has not recorded the increase of the charge for natural gas consumptions from the date of obtaining the injunction until April 1, 2016, effective date of Resolution 28.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

c)	Recovery action of VAT and income tax

On October 9, 2008, TGS signed the 2008 Transitional Agreement with ex UNIREN that contemplated a tariff increase of 20%, applicable as from September 1, 2008. On December 3, 2009, the Executive Branch ratified this transitional agreement through the Presidential Decree No. 1,918/09. By means of this decree, TGS was able to bill the tariff increase to its clients as soon as ENARGAS would have published the new tariffs schedule and set the methodology to bill the retroactive effect. Finally, this administrative act did not become effective and therefore in September 2010 TGS filed an acción de amparo (a summary proceeding to guarantee constitutional rights). Due to the passing of time since the enactment of Decree No. 1918/09, on December 16, 2010, the Board of Directors of the Company resolved to discontinue the recognition of the tariff increase revenue and to reverse the receivable of the tariff increase revenue already accrued. The reversal of the tariff increase did not imply any resignation to the Company´s rights resulting from the Decree No. 1,918/09.

On May 24, 2013, TGS filed a tax recovery appeal with respect to the income tax and VAT credits generated by the reversal of the tariff increase credit mentioned above. The total amount claimed by TGS amounted to Ps. 433.3 million plus compensatory interests. After the omission to pass judgment on the claim within the three months of the filing of the tax recovery appeal, on October 9, 2013, TGS filed an appeal before the Federal Tax Bureau. On June 6, 2017, the Tax Court of the Nation rejected the claim for recovery filed by the Company. This resolution was appealed by TGS.

On May 7, 2019, the National Court of Appeals for Federal Administrative Disputes made the appeal filed by TGS and revoked the judgment of first instance, with costs to the defeated defendant. On May 23, 2019, the Treasury filed an Extraordinary Appeal - which was granted on September 26, 2019 in relation to the interpretation of the federal norms at stake in the case, but was denied as to the arbitrariness of judgment - and then Complaint Appeal. As of the date of issuance of these financial statements, the case is being resolved by the Supreme Court of Justice of the Nation.

At December 31, 2019 and 2018 there are no account receivables booked per this recovery action.

d)	Turnover tax withholding in the Province of Buenos Aires

The Company was notified by ARBA regarding the initiation of various determinative procedures in which TGS is claimed for a total of Ps. 4.9 million (without fine or interest) for the omission as agent of withholding and collection of the turnover tax corresponding to the period July 2009 - June 2011. Given this determination, the Company presented to ARBA various elements of evidence that allow reducing substantially the amount claimed. As of the date of issuance of these consolidated financial statements, the Tax Court has not resolved the issue.

In March 2017, TGS partially canceled the debt claimed by ARBA, paying Ps. 2.9 million (stated in its original value) through the adhesion to the payment plans offered by the Province of Buenos Aires through Law 14,890. Adherence to these payment plans allowed partial cancellation of compensatory interest and all fines and charges claimed by ARBA.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

As of the date of the issuance of these Consolidated Financial Statements, only two files remain in relation to the alleged failure of TGS to act as withholding and collection agent during 2009 and 2010. The Company’s Management considers that it has sufficient arguments to assert its defense so at December 31, 2019 and 2018 it has no recorded any provision for this concept.

e)	Environmental matters

The Company is subject to extensive environmental regulations in Argentina. TGS’ management believes that its current operations are in material compliance with applicable environmental requirements, as currently interpreted and enforced. The Company has not incurred in any material environmental liabilities as a result of its operations to date.

Others

In addition to the matters discussed above, the Company is a party to certain lawsuits and administrative proceedings which involve taxation, labor claims, social security, administrative and others arising in the ordinary course of business. The Company’s Management and its legal advisors estimate that the outcome of these differences will not have significant adverse effects on the Company’s financial position or results of operations. As of December 31, 2019 and 2018, the total amount of these provisions amounted Ps. 74.0 million and Ps. 91.9 million, respectively.

21.	BALANCES AND TRANSACTIONS WITH RELATED COMPANIES

Technical, Financial and Operational Assistance Agreement

Pampa Energía is TGS’s technical operator, according to the approval of ENARGAS in June 2004, and subject to the terms and conditions of the Technical Assistance Agreement which provides that Pampa Energía is in charge of providing services related to the operation and maintenance of the natural gas transportation system and related facilities and equipment, to ensure that the performance of the system is in conformity with international standards and in compliance with certain environmental standards. For these services, the Company pays a monthly fee based on a percentage of the operating income of the Company.

The Ordinary and Extraordinary General Shareholders´ Meeting held on October 17, 2019 ratified the proposal approved by the Board of Directors at its meeting on September 17, 2019 made to Pampa Energía that implies an extension in the contract and a modification in the determination of the remuneration received by Pampa Energía.

Such modifications, without implying a modification in the scope of the tasks performed, will mean a progressive reduction over the years in the remuneration that Pampa Energía will receive in its role of Technical Operator.

According to the modifications made, TGS will pay Pampa Energía the greater of: (i) an annual fixed sum of US$ 0.5 million or (ii) the variable compensation that arises from applying to comprehensive income before results and income taxes for the year but after deducting also the above fixed amount) the following scheme:

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

From 12/28/2019 to 12/27/2020: 6.5%

• From 12/28/2020 to 12/27/2021: 6%

• From 12/28/2021 to 12/27/2022: 5.5%

• From 12/28/2022 to 12/27/2023: 5%

• From 12/28/2023 to 12/27/2024 and onwards: 4.5%

Commercial transactions

In the normal course of its activity, TGS celebrated with Pampa Energía and other companies related to it, agreements to transfer natural gas and its richness. The price, which is denominated in US dollars, is determined according to common market practices.

In addition, in the normal course of business, TGS carries out liquid sales, natural gas transportation services and other services with its associated companies, Pampa Energía and related companies.

Financial lease agreement with Pampa Energía

As mentioned in Note 13 to these Consolidated Financial Statements, on August 11, 2016, the Company entered into a finance lease agreement with Pampa Energía (formerly Petrobras Argentina).

Key management compensation

The accrued amounts corresponding to the compensation of the members of the Board of Directors, the Statutory Committee and the Executive Committee for the years ended December 31, 2019, 2018 and 2017 were Ps. 142,116, Ps. 128,942 and Ps. 79,094, respectively.

Balances and transactions with related parties

The detail of significant outstanding balances for transactions entered into by TGS and its related parties as of December 31, 2019, 2018 and 2017 is as follows:

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

	2019				2018
Company	Accounts receivable		Accounts payable		Accounts receivable		Accounts payable
Controlling shareholder:
CIESA		37		-		-		-
Associate which exercises joint control on the controlling shareholder:
Pampa Energía ⁽¹⁾		210,126		2,489,507		141,040		2,846,676
Associate which exercises significant influence on the controlling shareholder:
Link		668		-		9,971		-
EGS		-		-		-		-
TGU		-		9,534		-		9,232
Other related companies:
SACDE Sociedad Argentina de Construcción ⁽²⁾		23,344		-		329,429		-
Pampa Comercializadora S.A.		43,843		-		10,942		-
CT Barragán S.A.		8,131		-		-		-
Oleoductos del Valle S.A.		3,348		-		4,816		-
Central Piedra Buena S.A.		13,304		-		39,170		-
Transener S.A.		-		-		140		-
Total		302,801		2,499,041		535,508		2,855,908

⁽¹⁾ Accounts payable includes Ps. 2,377,438 and Ps. 2,546,556 corresponding to the financial leasing recorded as “Loans” as of December 31, 2019 and 2018, respectively.

⁽²⁾ Corresponds to advance payments delivered to the supplier recorded as “Other credits”.

The detail of significant transactions with related parties for the years ended December 31, 2019, 2018 and 2017 is as follows:

Year ended December 31, 2019:

	Revenues						Costs						Financial results
Company	Natural Gas Transportation		Production and commercialization of liquids		Other services		Gas purchase and others		Compensation for technical assistance		Revenues for administrative services		Interest expense
Controlling shareholder:
CIESA		-		-		-		-		-		146		-
Associate which exercises joint control on the controlling shareholder:
Pampa Energía		803,610		269,511		268,991		575,857		1,144,777		-		194,944
Associates with significant influence:
Link		-		-		14,073		-		-		-		-
Other related companies:
Oleoductos del Valle S.A.		5,469		-		-		-		-		-		-
Pampa Comercializadora S.A.		52,051		-		-		-		-		-		-
Central Piedra Buena S.A.		121,367		-		-		-		-		-		-
Experta ART		-		-		-		20,080		-		-		-
Total		982,497		269,511		283,064		595,937		1,144,777		146		194,944

Additionally, during the year ended December 31, 2019, the Company received from SACDE Sociedad Argentina de Construcción, construction engineering services for Ps. 1,726,356, which are capitalised within the facilities related to the Vaca Muerta Projects.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

Year ended December 31, 2018:

	Revenues						Costs						Financial results
Company	Natural Gas Transportation		Production and commercialization of liquids		Other services		Gas purchase and others		Compensation for technical assistance		Revenues for administrative services		Interest expense
Controlling shareholder:
CIESA		-		-		-		-		-		225		-
Associate which exercises joint control on the controlling shareholder:
Pampa Energía		676,180		2,035		355,245		949,283		2,026,244		-		193,009
Associates with significant influence:
Link		-		-		13,213		-		-		-		-
Other related companies:
Oleoductos del Valle S.A.		9,459		-		12,733		-		-		-		-
Transener S.A.		-		-		18,481		-		-		-		-
Petrolera Entre Lomas S.A.		-		-		-		3,103		-		-		-
Pampa Comercializadora S.A.		41,333		-		-		-		-		-		-
Central Térmica Piedrabuena S.A.		103,337		-		-		-		-		-		-
Experta ART		-		-		-		18,321		-		-		-
Total		830,309		2,035		399,672		970,707		2,026,244		225		193,009

Additionally, during 2018, the Company received from SACDE S.A. Construcciones engineering services for Ps 263,580 which are capitalized in the caption Work in progress.

Year ended December 31, 2017:

Revenues							Costs						Financial results
Company	Natural Gas Transportation		Production and commercialization of liquids		Other services		Gas purchase and others		Compensation for technical assistance		Revenues for administrative services		Interest expense
Controlling shareholder:
CIESA		-		-		-		-		-		238		-
Associate which exercises joint control on the controlling shareholder:
Pampa Energía		68,736		143,945		178,731		349,268		887,901		-		165,726
Jointly control entity:
UT		-		-		-		-		-		3,253		-
Associates with significant influence:
Link		-		-		11,516		-		-		-		-
Other related companies:
Oleoductos del Valle S.A.		11,476		-		2,616		-		-		-		-
Refinor S.A.		-		-		-		8,230		-		-		-
Petrolera Pampa S.A.		-		-		-		62,062		-		-		-
Petrolera Entre Lomas S.A.		-		-		-		27,384		-		-		-
Pampa Comercializadora S.A.		16,575		-		-		-		-		-		-
Central Piedra Buena S.A.		20,245		-		-		-		-		-		-
Central Térmica Loma La Lata S.A.		-		-		598		-		-		-		-
Experta ART		-		-		-		18,381		-		-		-
Total		117,032		143,945		193,462		465,325		887,901		3,491		165,726

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

22.	CONTRACTUAL OBLIGATIONS

As of December 31, 2019, the Company had the following contractual commitments:

	Estimated maturity date
	Total		Due less than one year		Less than one year		1-2 years		3-5 years		More than 5 years
Financial indebtedness ⁽¹⁾		42,089,583		-		3,048,790		6,063,863		32,976,930		-
Purchase obligations ⁽²⁾		7,358,968		-		842,255		6,516,713		-		-
Financial Leases		3,046,173		90,363		447,976		896,074		896,074		715,686
Total		52,494,724		90,363		4,339,021		13,476,650		33,873,004		715,686

⁽¹⁾ Corresponds to the cancellation of principal and interest of the financial indebtedness. For further information, see Note 13.

⁽²⁾ Corresponds to purchase of natural gas contracts for the processing of liquids.

The totality of the financial indebtedness of TGS and the obligations corresponding to gas purchases are denominated in U.S. dollars which have been translated into Argentine pesos at the exchange rate as of December 31, 2019 (US$ 1.00 = Ps. 59.89). The amounts to be paid in pesos could vary depending on the actual fluctuations in the exchange rate.

For further information, see Note 17.a).

23.	ASSOCIATES AND JOINT ARRANGEMENTS

Link:

Link was created in February 2001, with the purpose of the operation of a natural gas transportation system, which links TGS’s natural gas transportation system with the Cruz del Sur S.A. pipeline. The connection pipeline extends from Buchanan, located in the high-pressure ring that surrounds the city of Buenos Aires, which is part of TGS’s pipeline system, to Punta Lara. TGS’s ownership interest in such company is 49% and Dinarel S.A. holds the remaining 51%.

TGU:

TGU is a company incorporated in Uruguay. This company rendered operation and maintenance services to Gasoducto Cruz del Sur S.A. and its contract terminated in 2010. TGS holds 49% of its common stock and Pampa Energía holds the remaining 51%.

EGS (in liquidation):

In September 2003, EGS, a company registered in Argentina, was incorporated. The ownership is distributed between TGS (49%) and TGU (51%).

EGS operates its own pipeline, which connects TGS’s main pipeline system in the Province of Santa Cruz with a delivery point on the border with Chile.

In October 2012, ENARGAS issued a resolution which authorizes EGS to transfer the connection pipeline and service offerings in operation to TGS. On November 13, 2013, the sale of all the fixed assets of EGS to TGS for an amount of US$ 350,000 was made, the existing natural gas transportation contracts were transferred and the procedures to dissolve the Company were initiated.

The Board of Directors Meeting held on January 13, 2016, approved to initiate the necessary steps for the dissolution of EGS. The Special Shareholders Meeting held on March 10, 2016 appointed EGS’ liquidator.

UT:

The Board of Directors of TGS approved the agreement to set up the UT together with SACDE. The objective of the UT is the assembly of pipes for the construction of the project of “Expansion of the System of Transportation and Distribution of Natural Gas” in the Province of Santa Fe, called by National Public Bid No. 452-0004-LPU17 by the MINEM (the “Work”).

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

On October 27, 2017, TGS - SACDE UT signed the corresponding work contract with the MINEM.

The validity of the UT will be until it has fulfilled its purpose, once the Work is completed and until the end of the guarantee period, set at 18 months from the provisional reception.

As of December 31, 2019, works are in progress.

24.	SUBSEQUENT EVENTS

The financial statements were authorized for issuance by the Board of Directors on April 29, 2020.

There are no subsequent events between the closing date of the annual period and the approval (issuance) of these financial statements, other than the ones already disclosed and those mentioned below:

Buyback program

On March 6, 2020, the Board of Directors of the Company approved a sixth treasury shares repurchase program for a maximum amount of up Ps. 2,500,000 stated at its original value and for the term of 180 calendar days.

As of April 24, 2020, the Company held 30,856,815 treasury shares, representing 3.88% of the total common stock.

Coronavirus (Covid-19) outbreak

During the first quarter of 2020 the spread of the Covid-19 has impacted several countries with increasing severity. In March 2020, the World Health Organization declared Covid-19 a global pandemic. During this period countries and organizations have taken considerable measures to mitigate risk for communities, employees and business operations. This situation and the measures adopted have created macro-economic uncertainties with regards, among others, to international prices and demand for oil, natural gas and LPG products.

Regarding the Argentine energy situation, given the compulsory social quarantine as from March 20, 2020, allowing circulation only of those people linked to the provision / production of essential products and services, the demand for hydrocarbons has decreased significantly and it is uncertain how it will evolve in the near future. Current well-head natural gas prices have shown a sustained downward trend, compared to the prices of the end of 2019, as well as industrial and commercial gas consumption. Local oil prices, which use international values as a reference, have fallen sharply and their future is uncertain. The Argentine Government stated that this quarantine could be extendable in light of the outbreak situation.

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Notes to the Consolidated Financial Statements as of December 31, 2019 and comparative information

(Stated in thousands of pesos as described in Note 3 and 4.d., unless otherwise stated)

In view of these circumstances, the Company has adopted a series of short-term measures aimed at guaranteeing the continuity of its operations, the health of its employees, and preserving its financial situation.

Although there are negative effects in the short term: (i) in the Production and Commercialization of Liquids segment, as this business is suffering the sharp reduction of the international prices of propane, butane and natural gasoline, and (ii) certain delays in collections of receivables in the Natural Gas Transportation segment; they are not currently expected to affect business continuity. Given the current financial position of the Company, although there are negative economic impacts in the short term, it is estimated that the Company will be able to continue meeting its financial commitments during the year 2020.

The Company is in process of adapting its business projections as new information arises.

The estimated values in use of our PPE are sensitive to the significant variation of the assumptions applied, including the determination of future tariffs by the Argentine Government on the Natural Gas Transportation business segment, and the expectation of the development of Vaca Muerta gas fields on our Other Services business segment.

In the Natural Gas Transportation segment, a less favorable scenario is being considered taking into account the current regulatory framework and the measures taken by the Argentine Government subsequent to year-end, which implied that the current tariffs would not be adjusted in line with the estimated future inflation during 2020.

In the Production and Commercialization of Liquids segment, we are considering the current drop of future international liquid prices based on available public information.

In any case, we cannot assure with certainty that actual cash flows will be in line with the assumptions applied. Therefore, significant differences could arise in the future in relation to the estimated values in use.

The full extent, consequences, and duration of the Covid-19 pandemic and the resulting operational and economic impact for TGS cannot be reasonably predicted at the time of issuance of these Financial Statements, but could impact our earnings, cash flow and financial condition which will depend on the severity of the health emergency and the success of the measures taken and those that will be taken in the future. The Company will continue to monitor events that may have an impact on its business or the recoverability of assets which would be recognized as they arise.

Annual Ordinary Shareholders’ Meeting

On April 21, 2020, the Annual Ordinary Shareholders’ Meeting (the “2020 Shareholders´ Meeting”) approved the increase in the legal reserve of Ps. 690,192 and the allocation of Ps. 19,756,710 to the reserve for capital expenditures, acquisition of treasury shares and/or dividends (the “Reserve”). The Board of Directors can release the Reserve to TGS’ shareholders in the form of dividend payments.

It is noteworthy that the above mentioned decisions made by the 2020 Shareholders’ Meeting were taken considering current CNV regulations (Resolution No. 777/2018) which states accumulated results have to be adjusted by inflation using the rates as of the month before the meeting was held. In case of 2020 Shareholders’ Meeting, TGS used the inflation rate as of March 31, 2020.

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered

American Depositary Shares (“ADS”), representing Class “B” Shares	TGS	New York Stock Exchange
Class “B” Shares, par value Ps. 1.00 per share	n/a	New York Stock Exchange*

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Emerging growth company	☐

☐		U.S. GAAP
☒		International Financial Reporting Standards as issued by the International Accounting Standards Board
☐		Other

	For the years ended December 31,
	2019				2018				2017
	Average firm contracted capacity (MMcf/d)		Net revenues (millions of pesos)		Average firm contracted capacity (MMcf/d)		Net revenues (millions of pesos)		Average firm contracted capacity (MMcf/d)		Net revenues (millions of pesos)
Firm:
Metrogas		590		5,847.3		590		5,991.0		590		2,942.4
Camuzzi Pampeana		558		4,277.3		558		4,365.8		558		2,129.7
Naturgy Argentina…		417		3,484.0		417		3,574.9		364		1,553.6
Camuzzi Sur		388		878.0		388		895.6		388		443.3
Pampa Energía		162		792.9		92		652.6		49		51.4
Others		802		3,241.7		840		3,354.9		844		1,851.0
Total firm		2,917		18,521.2		2,885.0		18,834.8		2,793		8,971.4
Interruptible and others:		-		4,099.2		-		4,950.9		-		2,498.4
Total		2,917		22,620.4		2,885.0		23,785.7		2,793		11,469.8

	2003		2015		2016		2017		2018		2019
Residential ⁽¹⁾		704.3		1,091.0		1,153.8		1,030.4		1,026.8		987.9
Commercial		98.8		129.1		132.4		123.0		121.6		140.9
Industries ⁽²⁾		1,033.6		1,222.2		1,169.2		1,210.9		1,276.5		1,330.6
Power plants		846.7		1,443.2		1,548.3		1,671.7		1,663.1		1,461.5
CNG		255.4		288.4		273.5		246.9		232.3		238.2
Others ⁽³⁾		37.7		41.7		46.3		43.1		41.8		41.5
Total		2,976.5		4,215.5		4,323.4		4,326.0		4,362.0		4,200.5

Class “A” Shares, par value Ps. 1.00 each			405,192,594
Class “B” Shares, par value Ps. 1.00 each			389,302,689
Total⁽¹⁾			784,608,528

			Page

PRESENTATION OF FINANCIAL AND OTHER INFORMATION			i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			iv
PART I			1
	Item 1.	Identity of Directors, Senior Management and Advisers	1
	Item 2.	Offer Statistics and Expected Timetable	1
	Item 3.	Key Information	1
	Item 4.	Our Information	54
	Item 4A.	Unresolved Staff Comments	113
	Item 5.	Operating and Financial Review and Prospects	113
	Item 6.	Directors, Senior Management and Employees	151
	Item 7.	Major Shareholders and Related Party Transactions	166
	Item 8.	Financial Information	172
	Item 9.	The Offer and Listing	176
	Item 10.	Additional Information	179
	Item 11.	Quantitative and Qualitative Disclosures About Market Risk	197
	Item 12.	Description of Securities Other than Equity Securities	200
Part II			201
	Item 13.	Defaults, Dividend Arrearages and Delinquencies	201
	Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	201
	Item 15.	Controls and Procedures.	202
	Item 16.	[Reserved]	202
	Item 16A.	Audit Committee Financial Expert	202
	Item 16B.	Code of Ethics	203
	Item 16C.	Principal Accountant Fees and Services	203
	Item 16D.	Exemptions from the Listing Standards for Audit Committees	204
	Item 16E.	Purchases of Registered Equity Securities of the Issuer by the Issuer and Affiliated Purchasers	204
	Item 16F.	Change in Registrant’s Certifying Accountant	206
	Item 16G.	Corporate Governance	206
	Item 16H.	Mine Safety Disclosure	208
Part III			209
	Item 17.	Financial Statements	209
	Item 18.	Financial Statements	209
	[Item 19.	Exhibits	209

	For the year ended December 31,
	2019			2018⁽³⁾			2017⁽³⁾			2016⁽³⁾
	(in thousands of pesos)⁽¹⁾
Consolidated Statement of Comprehensive Income Data:
Revenues		48,561,494			52,399,423			30,694,588			22,529,540
Gas transportation net revenues		22,620,423			23,785,660			11,469,824			6,402,843
Liquids production and commercialization net revenues		23,138,182			25,578,373			17,189,194			14,467,619
Other services (midstream and telecommunications) net revenues		2,802,889			3,035,390			2,035,570			1,659,078
Operating profit		19,758,608			21,931,976			9,545,020			4,480,856
Net financial results		(2,897,421	)		(4,378,468	)		(812,762	)		(1,091,186	)
Net income before income tax		16,829,329			17,581,516			8,765,549			3,397,499
Net income and total comprehensive income for the year		12,805,118			17,561,255			8,847,199			1,701,840
Net income and total comprehensive for the year attributable to:
Owners of the Company		12,805,105			17,561,249			8,847,196			1,701,837
Non-controlling interest		13			6			3			3
Per Share Data:⁽²⁾
Net income per share		16.50			22.27			11.14			2.00
Net income per ADS		82.49			111.37			55.70			11.00

Basin	Location by province	Proved Gas Reserves(Bcf)⁽¹⁾⁽²⁾				Production (Bcf)				Reserve Life (years)⁽³⁾
		2018		2017		2018		2017		2018		2017
Neuquina	Neuquén, Río Negro, La Pampa, Mendoza (south)		7,001.2		5,826.7		1,002.7		924.4		7		6
Austral	Tierra del Fuego, Santa Cruz (south), and offshore		3,545.9		3,871.8		406.9		377.2		9		11
San Jorge Gulf	Chubut, Santa Cruz (north)		1,496.6		1,501.9		174.7		188.9		9		8
Cuyo	Mendoza (north)		10.6		8.2		1.7		1.7		6		5
Northwest	Salta, Jujuy, Formosa		452.6		539.6		74.5		84.8		6		6
Total			12,506.9		11,748.2		1,660.5		1,577.0		8		7

Between April 1, 2016 and March 31,2017
		Firm		Interruptible
Rate Zones		Reservation Charge⁽¹⁾ (Ps. m3/d)		Minimum Charge⁽²⁾ (Ps. 1,000 m3)		Compression Fuel and Losses⁽³⁾ (%)
Receipt	Delivery

From Tierra del Fuego to:	Tierra del Fuego		0.396058		13.201800		0.49
	Santa Cruz Sur		0.798666		26.622484		0.98
	Chubut Sur		2.037282		67.909449		3.38
	Buenos Aires Sur		2.400200		80.006630		5.60
	Bahía Blanca		3.676537		122.551231		8.40
	La Pampa Norte		3.663501		122.116622		8.60
	Buenos Aires		4.301588		143.386234		10.35
	Greater Buenos Aires		4.826380		160.879368		11.27
From Santa Cruz Sur to:	Santa Cruz Sur		0.401399		13.379866		0.49
	Chubut Sur		1.638228		54.607597		2.89
	Buenos Aires Sur		2.001922		66.730682		5.11
	Bahía Blanca		3.284880		109.495948		7.91
	La Pampa Norte		3.284290		109.476235		8.11
	Buenos Aires		3.911976		130.399113		9.86
	Greater Buenos Aires		4.438382		147.946205		10.78
From Chubut to:	Chubut Sur		0.398098		13.269851		0.49
	Buenos Aires Sur		0.746441		24.880963		2.71
	Bahía Blanca		1.990488		66.349237		5.51
	La Pampa Norte		2.090013		69.666693		5.71
	Buenos Aires		2.587629		86.254000		7.46
	Greater Buenos Aires		3.085246		102.841307		8.38
From Neuquén to:	Neuquén		0.353737		12.128076		0.49
	Bahía Blanca		1.718143		57.254592		2.80
	La Pampa Norte		1.850629		61.671103		3.15
	Buenos Aires		2.326864		77.545340		3.91
	Greater Buenos Aires		2.850076		95.172312		4.86
From Bahía Blanca to:	Bahía Blanca		0.398096		13.269853		0.49
	La Pampa Norte		0.099524		3.317455		0.20
	Buenos Aires		0.597139		19.904763		1.95
	Greater Buenos Aires		1.094759		36.492072		2.87

Between April 1, 2017 and November 30, 2017
		Firm		Interruptible
Rate Zones		Reservation Charge⁽¹⁾ (Ps. m3/d)		Minimum Charge⁽²⁾ (Ps. 1,000 m3)		Compression Fuel and Losses⁽³⁾ (%)
Receipt	Delivery

From Tierra del Fuego to:	Tierra del Fuego		0.650525		21.683927		0.49
	Santa Cruz Sur		1.311808		43.727372		0.98
	Chubut Sur		3.346231		111.541121		3.38
	Buenos Aires Sur		3.942323		131.410716		5.60
	Bahía Blanca		6.038705		201.290128		8.40
	La Pampa Norte		6.017293		200.576284		8.60
	Buenos Aires		7.065348		235.511576		10.35
	Greater Buenos Aires		7.927318		264.244011		11.27
From Santa Cruz Sur to:	Santa Cruz Sur		0.659297		21.976401		0.49
	Chubut Sur		2.690787		89.692859		2.89
	Buenos Aires Sur		3.288153		109.605000		5.11
	Bahía Blanca		5.395408		179,846855		7.91
	La Pampa Norte		5.394439		179.814476		8.11
	Buenos Aires		6.425412		214.180259		9.86
	Greater Buenos Aires		7.290033		243.001319		10.78
From Chubut to:	Chubut Sur		0.653875		21.795701		0.49
	Buenos Aires Sur		1.226027		40.866927		2.71
	Bahía Blanca		3.269373		108.978477		5.51
	La Pampa Norte		3.432841		114.427392		5.71
	Buenos Aires		4.250176		141.672007		7.46
	Greater Buenos Aires		5.067510		168.916622		8.38
From Neuquén to:	Neuquén		0.581012		19.920338		0.49
	Bahía Blanca		2.822047		94.040542		2.80
	La Pampa Norte		3.039654		101.294653		3.15
	Buenos Aires		3.821870		127.368051		3.91
	Greater Buenos Aires		4.681244		156.320314		4.86
From Bahía Blanca to:	Bahía Blanca		0.653875		21.795701		0.49
	La Pampa Norte		0.163469		5.448915		0.20
	Buenos Aires		0.980803		32.693530		1.95
	Greater Buenos Aires		1.798138		59.938145		2.87

Between December 1, 2017 and March 31, 2018
		Firm		Interruptible
Rate Zones		Reservation Charge⁽¹⁾ (Ps. m3/d)		Minimum Charge⁽²⁾ (Ps. 1,000 m3)		Compression Fuel and Losses⁽³⁾ (%)
Receipt	Delivery

From Tierra del Fuego to:	Tierra del Fuego		1.178272		39.275298		0.49
	Santa Cruz Sur		2.376029		79.201776		0.98
	Chubut Sur		6.060905		202.030320		3.38
	Buenos Aires Sur		7.140583		238.019383		5.60
	Bahía Blanca		10.937683		364.589386		8.40
	La Pampa Norte		10.898901		363.296426		8.60
	Buenos Aires		12.797205		426.573433		10.35
	Greater Buenos Aires		14.358459		478.615432		11.27
From Santa Cruz Sur to:	Santa Cruz Sur		1.194161		39.805045		0.49
	Chubut Sur		4.873723		162.457367		2.89
	Buenos Aires Sur		5.955710		198.523493		5.11
	Bahía Blanca		9.772503		325.749975		7.91
	La Pampa Norte		9.770749		325.691329		8.11
	Buenos Aires		11.638111		387.936804		9.86
	Greater Buenos Aires		13.204167		440.139326		10.78
From Chubut to:	Chubut Sur		1.184339		39.477749		0.49
	Buenos Aires Sur		2.220658		74.020757		2.71
	Bahía Blanca		5.921694		197.388697		5.51
	La Pampa Norte		6.217779		207.258114		5.71
	Buenos Aires		7.698187		256.605281		7.46
	Greater Buenos Aires		9.178595		305.952447		8.38
From Neuquén to:	Neuquén		1.052366		36.080973		0.49
	Bahía Blanca		5.111469		170.332165		2.80
	La Pampa Norte		5.505614		183.471269		3.15
	Buenos Aires		6.922412		230.697053		3.91
	Greater Buenos Aires		8.478965		283.137219		4.86
From Bahía Blanca to:	Bahía Blanca		1.184334		39.477755		0.49
	La Pampa Norte		0.296083		9.869416		0.20
	Buenos Aires		1.776485		59.216586		1.95
	Greater Buenos Aires		3.256902		108.563756		2.87

Between April 1, 2018 and September 30, 2018
		Firm		Interruptible
Rate Zones		Reservation Charge⁽¹⁾ (Ps. m3/d)		Minimum Charge⁽²⁾ (Ps. 1,000 m3)		Compression Fuel and Losses⁽³⁾ (%)
Receipt	Delivery

From Tierra del Fuego to:	Tierra del Fuego		1.767514		58.916471		0.49
	Santa Cruz Sur		3.564256		118.809770		0.98
	Chubut Sur		9.091901		303.063605		3.38
	Buenos Aires Sur		10.711516		357.050429		5.60
	Bahía Blanca		16.407506		546.916789		8.40
	La Pampa Norte		16.349329		544.977233		8.60
	Buenos Aires		19.196955		639.898420		10.35
	Greater Buenos Aires		21.538977		717.966088		11.27
From Santa Cruz Sur to:	Santa Cruz Sur		1.791349		59.711139		0.49
	Chubut Sur		7.311021		243.700626		2.89
	Buenos Aires Sur		8.934100		297.803051		5.11
	Bahía Blanca		14.659632		488.654189		7.91
	La Pampa Norte		14.657000		488.566215		8.11
	Buenos Aires		17.458211		581.940011		9.86
	Greater Buenos Aires		19.807436		660.248478		10.78
From Chubut to:	Chubut Sur		1.776614		59.220165		0.49
	Buenos Aires Sur		3.331187		111.037777		2.71
	Bahía Blanca		8.883072		296.100754		5.51
	La Pampa Norte		9.327226		310.905767		5.71
	Buenos Aires		11.547971		384.930944		7.46
	Greater Buenos Aires		13.768715		458.956121		8.38
From Neuquén to:	Neuquén		1.578643		54.124697		0.49
	Bahía Blanca		7.667662		255.513529		2.80
	La Pampa Norte		8.258915		275.223364		3.15
	Buenos Aires		10.384239		346.066277		3.91
	Greater Buenos Aires		12.719209		424.731232		4.86
From Bahía Blanca to:	Bahía Blanca		1.776607		59.220174		0.49
	La Pampa Norte		0.444152		14.805009		0.20
	Buenos Aires		2.664887		88.830192		1.95
	Greater Buenos Aires		4.885645		162.855375		2.87

Between October 1, 2018 and March 31, 2019
		Firm		Interruptible
Rate Zones		Reservation Charge⁽¹⁾ (Ps. m3/d)		Minimum Charge⁽²⁾ (Ps. 1,000 m3)		Compression Fuel and Losses⁽³⁾ (%)
Receipt	Delivery

From Tierra del Fuego to:	Tierra del Fuego		2.115187		70.505443		0.49
	Santa Cruz Sur		4.265351		142.179858		0.98
	Chubut Sur		10.880293		362.676743		3.38
	Buenos Aires Sur		12.818489		427.282869		5.60
	Bahía Blanca		19.634891		654.496272		8.40
	La Pampa Norte		19.565270		652.175202		8.60
	Buenos Aires		22.973029		765.767552		10.35
	Greater Buenos Aires		25.775731		859.191266		11.27
From Santa Cruz Sur to:	Santa Cruz Sur		2.143710		71.456424		0.49
	Chubut Sur		8.749112		291.636962		2.89
	Buenos Aires Sur		10.691453		356.381429		5.11
	Bahía Blanca		17.543207		584.773317		7.91
	La Pampa Norte		17.540057		584.668038		8.11
	Buenos Aires		20.892272		696.408622		9.86
	Greater Buenos Aires		23.703593		790.120501		10.78
From Chubut to:	Chubut Sur		2.126078		70.868874		0.49
	Buenos Aires Sur		3.986437		132.879101		2.71
	Bahía Blanca		10.630388		354.344287		5.51
	La Pampa Norte		11.161907		372.061471		5.71
	Buenos Aires		13.819476		460.647529		7.46
	Greater Buenos Aires		16.477046		549.233587		8.38
From Neuquén to:	Neuquén		1.889165		64.771119		0.49
	Bahía Blanca		9.175905		305.773484		2.80
	La Pampa Norte		9.883458		329.360278		3.15
	Buenos Aires		12.426836		414.138116		3.91
	Greater Buenos Aires		15.221099		508.276603		4.86
From Bahía Blanca to:	Bahía Blanca		2.126068		70.868885		0.49
	La Pampa Norte		0.531517		17.717180		0.20
	Buenos Aires		3.189075		106.303245		1.95
	Greater Buenos Aires		5.846660		194.889310		2.87

Between April 1, 2019 and March 31, 2020
		Firm		Interruptible
Rate Zones		Reservation Charge⁽¹⁾ (Ps. m3/d)		Minimum Charge⁽²⁾ (Ps. 1,000 m3)		Compression Fuel and Losses⁽³⁾ (%)
Receipt	Delivery

From Tierra del Fuego to:	Tierra del Fuego		2.665144		88.837143		0.49
	Santa Cruz Sur		5.374436		179.147196		0.98
	Chubut Sur		13.709213		456.974163		3.38
	Buenos Aires Sur		16.151349		538.378143		5.60
	Bahía Blanca		24.740042		824.667950		8.40
	La Pampa Norte		24.652320		821.743392		8.60
	Buenos Aires		28.946110		964.870213		10.35
	Greater Buenos Aires		32.477525		1,082.584470		11.27
From Santa Cruz Sur to:	Santa Cruz Sur		2.701084		90.035383		0.49
	Chubut Sur		11.023917		367.463752		2.89
	Buenos Aires Sur		13.471273		449.042042		5.11
	Bahía Blanca		22.104511		736.816745		7.91
	La Pampa Norte		22.100543		736.684093		8.11
	Buenos Aires		26.324347		877.477681		9.86
	Greater Buenos Aires		29.866623		995.555027		10.78
From Chubut to:	Chubut Sur		2.678866		89.295068		0.49
	Buenos Aires Sur		5.022927		167.428204		2.71
	Bahía Blanca		13.394433		446.475235		5.51
	La Pampa Norte		14.064048		468.798959		5.71
	Buenos Aires		17.412596		580.417750		7.46
	Greater Buenos Aires		20.761144		692.036541		8.38
From Neuquén to:	Neuquén		2.380356		81.611872		0.49
	Bahía Blanca		11.561677		385.275827		2.80
	La Pampa Norte		12.453197		414.995282		3.15
	Buenos Aires		15.657864		521.815701		3.91
	Greater Buenos Aires		19.178646		640.430576		4.86
From Bahía Blanca to:	Bahía Blanca		2.678855		89.295082		0.49
	La Pampa Norte		0.669714		22.323718		0.20
	Buenos Aires		4.018247		133.942519		1.95
	Greater Buenos Aires		7.366815		245.561319		2.87

Major Pipeline	Length (miles)		Diameter (inches)		Maximum Pressure (pound/inch)		Compressor Units		Operative Compressor Plants		HP Output
General San Martín		2,939		24/30		853/995		59		17		512,800
Neuba I/Loop Sur		1,217		24/30		853		18		6		65,800
Neuba II		1,307		30/36		975/995		21		7		194,000
Other ⁽¹⁾		273	Various		Various			6		3		7,500
Total		5,736						104		33		780,100

	Year ended December 31,						Year ended December 31, 2019, compared to year ended December 31, 2018
	2019			2018			Variation			Percentage Change
Natural Gas Transportation
Revenues from sales ⁽¹⁾		23,236.4			24,706.2			(1,469.8	)		(6.0	%)
Cost of sales		(8,667.6	)		(7,944.3	)		(723.3	)		9.1	%
Gross profit		14,568.8			16,761.9			(2,193.1	)		(13.1	%)
Administrative and selling expenses		(2,387.1	)		(2,751.9	)		364.8			(13.3	%)
Other operating expense		(136.9	)		(240.4	)		103.5			(43.1	%)
Operating profit		12,044.8			13,769.6			(1,724.8	)		(12.5	%)

Liquids Production and Commercialization
Revenues from sales		23,138.2			25,578.4			(2,440.2	)		(9,5	%)
Cost of sales		(14,661.5	)		(16,130.9	)		1,469.3			(9.1	%)
Gross profit		8,476.6			9,447.5			(970.9	)		(10.3	%)
Administrative and selling expenses		(1,534.5	)		(1,114.1	)		(420.4	)		37.7	%
Other operating expense		3.2			(1,117.9	)		1,121.1			n/a
Operating profit		6,945.3			7,215.5			(270.1	)		(3.7	%)

Other services
Revenues from sales		2,526.6			2,784.5			(257.9	)		(9,3	%)
Cost of sales		(1,524.4	)		(1,621.8	)		97.3			(6.0	%)
Gross profit		1,002.2			1,162.8			(160.6	)		(13.8	%)
Administrative and selling expenses		(325.4	)		(276.0	)		(49.4	)		17.9	%
Other operating (expense) / income		3.6			(8.4	)		12.0			n/a
Operating profit		680.4			878.4			(198.0	)		(22.5	%)

Telecommunications
Revenues from sales		276.2			250.9			25.4			10.1	%
Cost of sales		(137.9	)		(126.5	)		(11.4	)		9.0	%
Gross profit		138.4			124.4			14.0			11.3	%
Administrative and selling expenses		(52.8	)		(52.3	)		(0.6	)		1.2	%
Other operating expense		2.6			(3.6	)		6.2			n/a
Operating profit		88.2			68.5			19.6			28.6	%

	Years ended December 31,				Year ended December 31, 2019 compared to year ended December 31, 2018
	(volumes in short tons)				(volumes in short tons)
	2019		2018		Increase/ (Decrease)			Percentage Change
Local Market
Ethane		312,651		437,362		(124,711	)		(28.5	)
Propane		234,125		172,834		61,291			35.5
Butane		160,399		171,889		(11,490	)		(6.7	)
Subtotal		707,175		782,085		(74,910	)		(9.6	)

Exports
Propane		182,394		162,018		20,376			12.6
Butane		126,684		88,872		37,812			42.5
Natural Gasoline		130,572		132,311		(1,738	)		(1.3	)
Subtotal		439,650		383,201		56,450			14.7
Total Liquids		1,146,825		1,165,286		(18,460	)		(1.6	)

	Year ended December 31,						Year ended December 31, 2018 compared to year ended December 31, 2017
	2018			2017			Variation			Percentage Change
Natural Gas Transportation
Revenues (1)		24,706.2			11,846.9			12,859.3			108.6	%
Cost of sales		(7,944.3	)		(6,428.5	)		(1,515.8	)		23.6	%
Gross profit		16,761.9			418.4			11,343.5			209.4	%
Administrative and selling expenses		(2,751.9	)		(1,564.0	)		(1,187.9	)		76.0	%
Other operating expense		(240.4	)		(503.3	)		262.9			(52.3	%)
Operating profit		13,769.6			3,351.1			10,418.5			310.9	%

Liquids Production and Commercialization
Revenues		25,578.4			17,189.2			8,389.2			48.8	%
Cost of sales		(16,130.9	)		(11,186.1	)		(4,944.8	)		44.2	%
Gross profit		9,447.5			6,003.1			3,444.4			57.4	%
Administrative and selling expenses		(1,114.1	)		(552.4	)		(561.7	)		101.7	%
Other operating (expense) / income		(1,117.9	)		99.5			(1,217.4	)		n/a
Operating profit		7,215.5			5,550.2			1,665.3			30.0	%

Other services
Revenues		2,784.5			1,844.8			1,844.8			50.9	%
Cost of sales		(1,621.8	)		(1,008.8	)		(1,008.8	)		60.8	%
Gross profit		1,162.8			836.0			836.0			39.1	%
Administrative and selling expenses		(276.0	)		(220.6	)		(220.6	)		25.1	%
Other operating expense		(8,4	)		(14.2	)		(14.2	)		(41.3	%)
Operating profit		878.4			601.2			601.2			46.1	%

Telecommunications
Revenues		250,9			190.9			60.0			31.4	%
Cost of sales		(126,5	)		(114.8	)		(11.7	)		10.5	%
Gross profit		124.4			76.1			48.3			62.9	%
Administrative and selling expenses		(52.3	)		(33.8	)		(18.5	)		54.6	%
Other operating (expense) / income		(3.6	)		0.3			(3.9	)		-n/	a
Operating profit		68.5			42.6			25.9			60.4	%

Amount in U.S.$		500.000.000
Interest Rate	6,75% annual
Pricing		99,725	%

	Date of Payment	Percentage on the Principal Amount to be Paid
Amortization.	May 2, 2025		100	%
Frequency of Interest Payment	Biannual, payable on May 2 and November 2 of each year.
Guarantor	None.

			Payment due by period (in millions of pesos)
	Total		Due less than 1 year		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-Term Debt Obligations⁽¹⁾⁽²⁾		42,089.6		-		3,048.8		6,063.9		32,976.9		-
Purchase Obligations⁽³⁾		7,359.0		-		842.3		6,516.7		-		-
Leasing⁽⁴⁾		3,046.2		90.4		448.0		896.1		896.1		715.7
Total		52,494.7		90.4		4,339.0		13,476.7		33,873.0		715.7

Name	Date of Appointment	Term Expires	Position	Position in Other Company
Gustavo Mariani	4/21/2020	2021	Chairman	Executive Vicepresident and Chief Executive Officer at Pampa Energía
Luis Alberto Fallo	4/21/2020	2021	Vice Chairman	Director of Sagua Argentina S.A.
Mariano Batistella	4/21/2020	2021	Director	Executive director of planning, strategy, downstream and affiliates at Pampa Energía
Pablo Viñals Blake	4/21/2020	2021	Director	Partner at Marval O’Farrell Mairal Law Firm
Luis Rodolfo Secco	4/21/2020	2021	Independent Director	Economist
Carlos Alberto Olivieri	4/21/2020	2021	Independent Director	Independent Consultant
Carlos Alberto Di Brico	4/21/2020	2021	Independent Director	Public Accountant
Gustavo Graziano	4/21/2020	2021	Independent Director	Business consultant
Federico Basualdo Richards	4/21/2020	2021	Independent Director	Comptroller at Ente Nacional Regulador de la Electricidad (“ENRE”)
Jorge Romualdo Sampietro	4/21/2020	2021	Alternate Director	Senior Director at Petroquímica Cuyo
Nicolás Mindlin	4/21/2020	2021	Alternate Director	Executive vice president, procurement, assets security and marketing director at Pampa Energia
Horacio Jorge Tomás Turri	4/21/2020	2021	Alternate Director	Executive director oil and gas at Pampa Energía
Francisco Macías	4/21/2020	2021	Alternate Director	Partner at Marval O’Farrell Mairal Law Firm
Enrique Llerena	4/21/2020	2021	Independent Alternate Director	Partner at Llerena – Amadeo law firm
Santiago Alberto Fumo	4/21/2020	2021	Independent Alternate Director	Independent consultant
Pablo Fabiam Waisberg	4/21/2020	2021	Independent Alternate Director	Accounting and tax advisor
Ignacio Gustavo Álvarez Pizzo	4/21/2020	2021	Independent Alternate Director	Lawyer at the Directors and Corporate Affairs department in the FGS
Andrea del Valle Polizoto	4/21/2020	2021	Independent Alternate Director	National Directorate for hydroelectric generation and renewable energy

Name	Year of Appointment	Position
Oscar Jose Sardi	2019	CEO
Claudia Trichilo	2019	Operations Vice President
Carlos Hector Sidero	2013	Human Resources Director
Alejandro Mario Basso	2016	CFO and Services Director
Hernan Diego Flores Gomez	2017	Legal Affairs Director
Néstor Hugo Martín	2013	Business Director
Rubén De Muria	2018	Institutional and Regulatory Affairs Director