EDN Empresa Distribuidora Y Comercializadora Norte SA

EDENOR S.A.

CONDENSED INTERIM FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2015 AND FOR THE NINE AND THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2015

PRESENTED IN COMPARATIVE FORM

CONTENTS

Glossary of Terms

The following definitions, which are not technical ones, will help readers understand some of the terms used in the text of the notes to the Company’s Financial Statements.

Legal Information

Corporate name: Empresa Distribuidora y Comercializadora Norte S.A.

Legal address: 6363 Del Libertador Ave., City of Buenos Aires

Main business: Distribution and sale of electricity in the area and under the terms of the concession agreement by which this public service is regulated.

Date of registration with the Public Registry of Commerce:

-          of the Articles of Incorporation: August 3, 1992

-          of the last amendment to the By-laws: May 28, 2007

Term of the Corporation: August 3, 2087

Registration number with the “Inspección General de Justicia” (the Argentine governmental regulatory agency of corporations): 1,559,940

Parent company: EASA

Legal address: 3302 Ortiz de Ocampo, Building 4, City of Buenos Aires

Main business of the parent company:  Investment in Edenor S.A.’s Class “A” shares and rendering of technical advisory, management, sales, technology transfer and other services related to the distribution of electricity.

Interest held by the parent company in capital stock and votes: 51.54%

CAPITAL STRUCTURE

AS OF SEPTEMBER 30, 2015

(amounts stated in pesos)

(1)  Includes 9,412,500 treasury shares as of September 30, 2015 and December 31, 2014.

Edenor S.A.

Condensed Interim Statement of Financial Position

as of September 30, 2015 presented in comparative form

(Stated in thousands of pesos)

Edenor S.A.

Condensed Interim Statement of Financial Position

as of September 30, 2015 presented in comparative form (continued)

(Stated in thousands of pesos)

The accompanying notes are an integral part of these Financial Statements.

Edenor S.A.

Condensed Interim Statement of Comprehensive Income (Loss)

for the nine-month period ended September 30, 2015

 presented in comparative form

(Stated in thousands of pesos)

The accompanying notes are an integral part of these Financial Statements.

Edenor S.A.

Condensed Interim Statement of Changes in Equity

for the nine-month period ended September 30, 2015

presented in comparative form

(Stated in thousands of pesos)

The accompanying notes are an integral part of these Financial Statements.

Edenor S.A.

Condensed Interim Statement of Cash Flows

for the nine-month period ended September 30, 2015

presented in comparative form

(Stated in thousands of pesos)

9

Edenor S.A.

Condensed Interim Statement of Cash Flows

for the nine-month period ended September 30, 2015

presented in comparative form (continued)

(Stated in thousands of pesos)

The accompanying notes are an integral part of these Financial Statements.

1.                   General information

History and development of the Company

EDENOR S.A., or the Company, was organized on July 21, 1992 by Decree No. 714/92 in connection with the privatization and concession process of the distribution and sale of electric power carried out by SEGBA S.A.

By means of an International Public Bidding, the Federal Government awarded 51% of the Company’s capital stock, represented by the Class "A" shares, to the bid made by EASA, the parent company of Edenor S.A. The award as well as the transfer contract were approved on August 24, 1992 by Decree No. 1,507/92 of the Federal Government.

On September 1, 1992, EASA took over the operations of EDENOR S.A.

The corporate purpose of EDENOR S.A. is to engage in the distribution and sale of electricity within the concession area. Furthermore, among other activities, the Company may subscribe or acquire shares of other electricity distribution companies, subject to the approval of the regulatory agency, assign the use of the network to provide electricity transmission or other voice, data and image transmission services, and render advisory, training, maintenance, consulting, and management services and know-how related to the distribution of electricity both in Argentina and abroad. These activities may be conducted directly by EDENOR S.A. or through subsidiaries or related companies. In addition, the Company may act as trustee of trusts created under Argentine laws.

The Company’s economic and financial situation

In fiscal years 2014, 2012 and 2011, the Company recorded negative operating and net results, and both its liquidity level and working capital, even in fiscal year 2013, were severely affected. This situation is due mainly to both the continuous increase of its operating costs that are necessary to maintain the level of the service, and the delay in obtaining rate increases and/or recognition of its real higher costs (“MMC”), as stipulated in Section 4 of the Adjustment Agreement, including the review procedure in the event of deviations exceeding 5%.

In spite of the above-mentioned situation, it is worth mentioning that, in general terms, the quality of the electricity distribution service has been maintained and the constant year-on-year increase in the demand for electricity that has accompanied the economic growth and the standard of living of the last years has also been satisfied in a regular, continuous and safe manner. Due to both the continuous increase recorded in the costs associated with the provision of the service and the need for additional investments to meet the increased demand, the Company has adopted a series of measures aimed at mitigating the negative effects of this situation on its financial structure, minimizing the impact thereof on the sources of employment, the execution of the investment plan or the carrying out of the essential operation and maintenance works that are necessary to provide the public service in a satisfactory manner in terms of quality and safety.

As a consequence of that which has been previously described, the Company permanently maintained in the last four fiscal years a working capital deficit, inasmuch as it had neither the necessary nor the adequate conditions to come to the financial market to make up the deficit of both its operations and the investment plans necessary to maintain the quality of the service, object of the concession.

The Company has made a series of presentations before control agencies, regulatory authorities and courts in order to exercise the rights to which it is entitled in accordance with the Concession Agreement, the Adjustment Agreement and the general electric power regulatory framework so as to be able to provide an efficient and safe distribution service, maintain the level of investments and comply with the increased demand.

The partial recognition of higher costs (as stipulated in Section 4.2 of the Adjustment Agreement) for the period May 2007-January 2015, implemented by SE Resolution 250/13 and SE Notes 6852/13, 4012/14, 486/14, and 1136/14, represented a significant step towards the recovery of the Company’s economic and financial situation. However, such recognition was insufficient to either offset the total accumulated deficit or cover the Company’s operating costs and current investments. Therefore, when Resolution 32/15 was issued, the overdue debts with CAMMESA could not be fully settled.

In view of the above, in 2014, the Company obtained from the Federal Government the granting of loans for consumption (mutuums) in order to be able to afford specific aspects, such as: a) the salary increases granted to Company employees represented by the Sindicato de Luz y Fuerza (Electric Light and Power Labor Union) as from May 1, 2014 and other benefits, applicable also to those contractors whose employees are included in the collective bargaining agreements of the aforementioned union, not currently in effect by Resolution 32 (Note 2.c); and b) the extraordinary investment plan due to the temporary insufficiency of the funds obtained from the fixed charges established by ENRE Resolution 347/12  (Note 2.c).

Subsequently, on March 13, 2015, the Official Gazette published SE Resolution 32/15, issued by the Energy Secretariat (SE), which addresses the need for the adjustment of the economic and financial situation of distribution companies and considers it necessary that urgent and temporary measures should be adopted in order to maintain the normal provision of the public service, object of the concession (Note 2.b). As a consequence of the aforementioned Resolution, the Company recognized positive operating results for this concept, which have been recorded in the “Recognition of income on account of the RTI – SE Resolution 32/15” line item within the Statement of Comprehensive Income (Loss). Furthermore, and due to the insufficiency of the funds for the planned objectives, the Company maintains the Loan for Consumption (Mutuum) Agreement aimed at financing the investments included in the extraordinary investments plan.

Based on the cost increase estimates and financial projections made by the Company, considering the measures of SE Resolution 32/15, provided that the transfers of funds set forth therein are made, the Board of Directors believes that financial resources will be available, in the short-term, to cover not only the operating costs and debt interest payments, but also part of the investment plans, if the payment plan to be defined with CAMMESA for the settlement of the remaining debt with the MEM conforms to the generation of the surplus cash flow. Compliance with the investment plans will depend on whether the assistance received until now under the respective Loan for consumption (Mutuum) Agreement continues.

As of September 30, 2015, the working capital deficit amounts to $1.9 billion, including the amounts owed to CAMMESA for $2.3 billion as described in Note 2.a).e), about which a payment plan agreement is currently being negotiated by the Company, if viable according to the Company’s current cash flows.

Although these temporary measures help decrease the degree of uncertainty concerning the Company’s financial ability for the current 2015 fiscal year, the Board of Directors believes that the sustainable recovery of the economic and financial equation of the public service, object of the concession, will fundamentally depend on the application of an RTI that takes into consideration the permanent development of operating costs, that allows for the payment of the required investments to meet the increasing demand with the quality levels stipulated in the Concession Agreement -or those which may be defined in the future- and that makes it possible to have access to financing sources, cover the corresponding costs and, at the same time, generate a reasonable return on the investment.

The Company Board of Directors will continue to take steps before the Grantor of the Concession and the regulatory authority aimed not only at monitoring the compliance with and effectiveness of the temporary measures adopted until now but also at obtaining compliance with the provisions of both the Adjustment Agreement and SE Resolution 32/15 concerning the carrying out of the RTI.

To date, the outcome of the RTI continues to be uncertain as to both its timing and final form.

Furthermore, although the conditions of uncertainty existing in previous fiscal years have been mitigated as compared to short-term projections by the temporary measures adopted by the Federal Government, it cannot be assured that such measures will continue to be effective in the medium and long-term inasmuch as the effectiveness thereof will depend on the increase of costs in subsequent periods and the availability of resources of the Federal Government to absorb them and, at the same time, continue with the assistance provided through the Loans for consumption (Mutuums), until the RTI is resolved in a satisfactory manner.

2.                  Regulatory framework

At the date of issuance of these condensed interim financial statements, there are no significant changes with respect to the situation reported by the Company as of December 31, 2014, except for the following:

a)           Resolution 32/15

At the date of issuance of these condensed interim financial statements, the changes with respect to the situation reported by the Company in the financial statements as of December 31, 2014, are as follow:

The SE issued SE Resolution 32/15, whereby it:

a)       Grants a temporary increase in income to Edenor effective as from February 1, 2015, and on account of the RTI, in order for the Company to cover the expenses and afford the investments associated with the normal provision of the public service, object of the concession.

The additional income will arise from the difference between the “Theoretical electricity rate schedule” included in the resolution and the electricity rate schedule currently applied to each customer category, according to the ENRE’s calculations, which are to be informed to the SE and CAMMESA on a monthly basis. The above-mentioned funds will be contributed by the Federal Government and transferred to the Company by CAMMESA.

b)     Establishes that, as from February 1, 2015, the funds relating to the PUREE to which SE Resolution 745/05 refers will be regarded as part of the Company’s income on account of the RTI and earmarked to cover the higher costs of the provision of the public service, object of the concession.

c)     Authorizes the Company to offset, until January 31, 2015, the PUREE-related debts against and up to the amount of the MMC established receivables, including interest, if any, on both concepts.

d)     Instructs CAMMESA to issue LVFVD in favor of the Company for the surplus amounts in favor of the Company, resulting from the offsetting process indicated in the preceding paragraph, and for the amounts owed by the Company under the Loans for consumption (Mutuums) granted for higher salary costs.

e)     Instructs CAMMESA to implement a payment plan to be defined with the Company, with the prior approval of the SE, for the settlement of the remaining balances in favor of the MEM.

f)      Establishes that the Company will neither distribute dividends nor use the income deriving from that which has been detailed in caption a) to repay loans to financial entities, restructure financial debts, acquire other companies, grant loans, or carry out other transactions that are not strictly related to the payment of its obligations with the MEM, the payment of salaries of the Company’s own or hired personnel or the making of payments to suppliers of goods and/or services related to the provision of the public service of electricity distribution.

g)     Establishes that the Company shall observe the provisions of clause 22.1 of the Adjustment Agreement and suspend any administrative claim and/or judicial action it may have brought against the Federal Government, the SE and/or the ENRE in relation to the compliance with clause 4.2 of the Adjustment Agreement and the provisions of the resolution’s clauses.

The impacts of SE Resolution 32/2015 on the Statement of Comprehensive Income (Loss) are summarized below:

(1) As of September 30, 2015, the balance pending collection amounts to $ 842.8 million.

Additionally, and as established by the Energy Secretariat through SE Note No. 1208 dated June 29, 2015, the amounts owed to CAMMESA have been recalculated based on the new adopted criteria.  In that regard, on July 22, 2015, the new owed amounts were agreed upon, and CAMMESA issued the LVFVD established in captions c) and d) and the documents supporting that which had been agreed. The net result of this agreement generated a profit of $ 254.4 million that has been recorded in the “Financial expenses” line item within the Statement of Comprehensive Income (Loss).

At the date of issuance of these financial statements, the Company Management is analyzing the steps to be followed as indicated in section 14 of SE Resolution 32/15 in relation to that which has been detailed in the preceding caption g).

b)         Loans for consumption (mutuums) and assignments of secured receivables

At the date of issuance of these condensed interim financial statements, there are no significant changes with respect to the situation reported by the Company as of December 31, 2014, except for the following:

1) Extraordinary Investment Plan - Temporary insufficiency of the revenue deriving from the FOCEDE

In the current fiscal year, the loan for consumption (mutuum) agreement was extended, as instructed by the SE to CAMMESA, for an additional amount of $ 1.9 billion.

As of September 30, 2015, the debt related to this concept amounts to $ 956.8 million (comprised of $ 831.6 million principal and $ 125.2 million in accrued interest) which is disclosed in the Other non-current payables account.

2) Higher salary costs

The aforementioned SE Resolution 32/15 resolves that LVFVD be issued in favor of the Company for the amounts generated by the salary increases deriving from the application of Resolution 836/14 of the Ministry of Labor, Employment and Social Security for whose payment the Company received this Loan for consumption (Mutuum); allowing for the offsetting thereof against the outstanding balances for this concept. The LVFVD were issued on July 16, 2015.

In this regard, the Company made the pertinent recordings, fully canceling the $476.7 million liability for this concept, thus generating a positive result of $ 447.4 million relating to the principal received, which has been disclosed in the “Recognition of income on account of the RTI – SE Resolution 32/15” line item of the income statement, and a positive result of $ 29.3 million, relating to interest accrued, which has been disclosed in the “Financial expenses” line item of the income statement.

c)            Framework Agreement

At the date of issuance of these condensed interim financial statements, the changes with respect to the situation reported by the Company as of December 31, 2014, are as follow:

In June 2015, the Company, together with EDESUR S.A., the Federal Government and the Government of the Province of Buenos Aires signed an Addendum pursuant to which the New Framework Agreement was renewed for a period of four years, from January 1, 2015 to December 31, 2018.

Therefore, the Company has recognized the revenue relating to this concept, which amounts to $ 25.6 and has been disclosed in the “Revenue from sales” line item of the Condensed Interim Statement of Comprehensive Income (Loss).

3.                  Basis of preparation

These condensed interim financial statements for the nine and three-month periods ended September 30, 2015 and 2014 have been prepared in accordance with the provisions of IAS 34 “Interim Financial Reporting”.

This condensed interim financial information must be read together with the Company’s financial statements as of December 31, 2014, which have been prepared in accordance with IFRS. These condensed interim financial statements are stated in thousands of Argentine pesos, unless specifically indicated otherwise. They have been prepared under the historical cost convention, as modified by the measurement of financial assets at fair value through profit or loss.

The condensed interim financial statements for the nine-month periods ended September 30, 2015 and 2014 have not been audited. The Company Management estimates that they include all the necessary adjustments to fairly present the results of operations for each period. The results of operations for the nine-month periods ended September 30, 2015 and 2014 do not necessarily reflect the Company’s results in proportion to the full fiscal years.

These condensed interim financial statements were approved for issue by the Company Board of Directors on November 9, 2015.

Comparative information

The balances as of December 31, 2014 and for the nine-month period ended September 30, 2014, disclosed in these condensed interim financial statements for comparative purposes, arise from the financial statements as of those dates.

4.                  Accounting policies

The accounting policies adopted for these condensed interim financial statements are consistent with those used in the preparation of the consolidated financial statements for the last financial year, which ended December 31, 2014, except for those mentioned below.

There are no new IFRS or IFRIC applicable as from the current period that have a material impact on the Company’s condensed interim financial statements.

These condensed interim financial statements must be read together with the audited consolidated financial statements as of December 31, 2014 prepared under IFRS.

·       Recognition of income on account of the RTI - SE Resolution 32/15

The recognition established by SE Resolution 32/15 falls within the scope of IAS 20, inasmuch as it implies a compensation to cover the expenses and afford the investments associated with the normal provision of the public service, object of the concession.

It is recognized at fair value when there is reasonable assurance that it will be collected and the Company has complied with the provision of the service.

Moreover, the income deriving from the funds to which SE Resolution 745/05 (Note 2.a.b) refers is recognized on the basis of amounts billed.

Such concepts have been disclosed in the “Recognition of income on account of the RTI - SE Resolution 32/15” line item of the Condensed Interim Statement of Comprehensive Income (Loss).

5.                   Financial risk management

The Company’s activities and the market in which it operates expose the Company to a series of financial risks: market risk (including currency risk, cash flows interest rate risk, fair value interest rate risk and price risk), credit risk and liquidity risk.

There have been no significant changes in the Company’s risk management policies since the last fiscal year end.

Financial risk factors

·         Currency risk

As of September 30, 2015 and December 31, 2014, the Company’s balances in foreign currency are as follow:

(1)       The exchange rates used are those of Banco Nación in effect as of September 30, 2015 for US Dollars (USD), Euros (EUR), Swiss Francs (CHF) and Norwegian Krones (NOK).  An average exchange rate is used for balances with related parties.

As of September 30, 2015, the Company has Argentine sovereign debt bonds it has acquired in order to hedge this financial risk.

·         Financial instruments

The Company classifies the measurements of financial instruments at fair value using a fair value hierarchy that reflects the relevance of the variables used to carry out such measurements. The fair value hierarchy has the following levels:

-          Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

-          Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from the prices).

-          Level 3: inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).

The table below shows the Company’s financial assets and liabilities measured at fair value as of September 30, 2015 and December 31, 2014: