20-F 1 form20f.htm 20-F

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)

☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2017
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.
OR

☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report __________.
Commission file number: 1-13.396
TRANSPORTADORA DE GAS DEL SUR S.A.
(Exact name of Registrant as specified in its charter)
GAS TRANSPORTER OF THE SOUTH INC.
(Translation of Registrant’s name into English)
Republic of Argentina
(Jurisdiction of incorporation or organization)
Don Bosco 3672
5th Floor
C1206ABF City of Buenos Aires
Argentina
(Address of principal executive offices)
Leandro Pérez Castaño
(54-11)-4865-9077
inversores@tgs.com.ar
(Name, telephone, email and/or facsimile number of our contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class |  | Name of each exchange on which registered
American Depositary Shares (“ADS”), representing Class “B” Shares |  | New York Stock Exchange
Class “B” Shares, par value 1 peso per share |  | New York Stock Exchange*

*Not for trading, but only in connection with the registration of American Depositary Shares related to the TGS ADR Program, pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:

Class “A” Shares, par value Ps. 1 each |  |  | 405,192,594 |
Class “B” Shares, par value Ps. 1 each |  |  | 389,302,689 |
|  |  | 794,495,283 |

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes | ☒ | No | ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes | ☐ | No | ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes | ☒ | No | ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes | ☐ | No | ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b–2 of the Securities Exchange Act of 1934.

Large accelerated filer | ☒ | Accelerated filer | ☐
Non-accelerated filer | ☐ | Emerging growth company | ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Securities Exchange Act of 1934. ___
†The term ‘‘new or revised financial accounting standard’’ refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

☐ |  | U.S. GAAP
☒ |  | International Financial Reporting Standards as issued by the International Accounting Standards Board
☐ |  | Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 | ☐ | Item 18 | ☐

If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes | ☐ | No | ☒

TABLE OF CONTENTS

| Page
PRESENTATION OF FINANCIAL AND OTHER INFORMATION | i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS | iii
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 | 31
| Item 4A. | Unresolved Staff Comments | 70
| Item 5. | Operating and Financial Review and Prospects | 70
| Item 6. | Directors, Senior Management and Employees | 94
| Item 7. | Major Shareholders and Related Party Transactions | 105
| Item 8. | Financial Information | 111
| Item 9. | The Offer and Listing | 114
| Item 10. | Additional Information | 117
| Item 11. | Quantitative and Qualitative Disclosures About Market Risk | 133
| Item 12. | Description of Securities Other Than Equity Securities | 136
Part II | 138
| Item 13. | Defaults, Dividend Arrearages and Delinquencies | 138
| Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | 138
| Item 15. | Controls and Procedures. | 138
| Item 16. | [Reserved] | 138
| Item 16A. | Audit Committee Financial Expert | 139
| Item 16B. | Code of Ethics | 139
| Item 16C. | Principal Accountant Fees and Services | 138
| Item 16D. | Exemptions from the Listing Standards for Audit Committees | 140
| Item 16E. | Purchases of Registered Equity Securities of the Issuer by the Issuer and Affiliated Purchasers | 140
| Item 16F. | Change in Registrant’s Certifying Accountant | 140
| Item 16G. | Corporate Governance | 140
| Item 16H. | Mine Safety Disclosure | 141
Part III | 142
| Item 17. | Financial Statements | 142
| Item 18. | Financial Statements | 142
| Item 19. | Exhibits | 142

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Certain Defined Terms
In this annual report on Form 20-F (“Annual Report”), unless otherwise indicated or the context requires otherwise: (i) references to “we,” “us,” “our” and the “Company” mean Transportadora de Gas del Sur S.A. (“TGS”) and its consolidated subsidiaries, Telcosur S.A. (“Telcosur”) and CTG Energía S.A. (“CTG”), (ii) references to “Argentina” are to the Republic of Argentina, (iii) references to the “United States” or “U.S.” are to the United States of America, (iv) references to “pesos” or “Ps.” are to Argentine pesos, the legal currency of Argentina, (v) references to “U.S. dollars,” “dollars” or “U.S.$” are to United States dollars, the legal currency of the United States, (vi) a “billion” is a thousand million, (vii) references to “cf” are to cubic feet, (viii) references to “MMcf” are to millions of cubic feet, (ix) references to “Bcf” are to billions of cubic feet, (x) references to “m3” are to cubic meters, (xi) references to “d” are to days and (xii) references to “HP” are to horsepower.
Financial Statements
We maintain our financial books and records and publish our consolidated Financial Statements (as defined below) in Argentine pesos, which is our functional currency. This Annual Report includes our audited consolidated statements of financial position as of December 31, 2017 and 2016, and our audited consolidated statements of comprehensive income, changes in equity and cash flows, and the related explanatory notes for each of the three years in the period ended December 31, 2017 (our “Financial Statements”), all of which are stated in Argentine pesos. The Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and as in effect on the date of preparation of the Financial Statements. IFRS have been adopted by the Federación Argentina de Consejos Profesionales de Ciencias Económicas (“FACPCE”) as its professional accounting standards and are required to be adopted by certain public companies in Argentina (entidades incluidas en el régimen de oferta pública de la Ley de Mercado de Capitales) pursuant to the rules of the Comisión Nacional de Valores (“CNV”), compiled under General Resolution N° 622/2013 (as amended by General Resolution N° 668/2016 and as further amended, the “CNV Rules”).
Our consolidated statement of financial position as of December 31, 2016, and our consolidated statements of comprehensive income, changes in equity and cash flows, for each of the two years in the period ended December 31, 2016 were audited by Price Waterhouse & Co. S.R.L., Buenos Aires, Argentina (“PwC”) member firm of PricewaterhouseCoopers International Limited, whose report dated April 13, 2018 is included in this Annual Report.
Our consolidated statement of financial position as of December 31, 2017, and our consolidated statements of comprehensive income, changes in equity and cash flows, for the year then ended were jointly audited by PwC and Pistrelli, Henry Martin y Asociados S.R.L., member firm of Ernst & Young Global Ltd. (“EY”). The joint report of PwC and EY, dated April 13, 2018, is included in this Annual Report. Each of PwC and EY is an independent registered public accounting firm, as stated in their reports appearing herein.
We have determined that, as of the date of this Annual Report, the Argentine peso does not qualify as a currency of a hyperinflationary economy according to the guidelines of IAS 29, Financial Reporting in Hyperinflationary Economies, whereby financial information recorded in a hyperinflationary currency is adjusted by applying a general price index and expressed in the measuring unit (the hyperinflationary currency) current at the end of the reporting period. Therefore, our Financial Statements included herein were not restated in constant currency. For more information, see “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Consolidated Results of Operations—Consideration of the effects of inflation.” Notwithstanding the above, in recent years, certain macroeconomic variables affecting our business, such as the cost of labor, the exchange rate of the Argentine peso to the U.S. dollar and prices of inputs and services necessary to run our business that are denominated in pesos, have experienced significant annual changes, which, although they have not surpassed the levels established in the IAS 29 guidelines to qualify as a currency of a hyperinflationary economy, are significant and should be considered in the assessment and interpretation of our reported financial performance. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Argentina.” Argentine inflation could therefore affect the comparability of the different periods presented herein.
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Currency
Solely for the convenience of the reader, certain amounts presented in pesos in this Annual Report as of and for the year ended December 31, 2017, have been converted into U.S. dollars at specified exchange rates. Unless otherwise specified, all exchange rate information contained in this Annual Report has been derived from information published by Banco de la Nación Argentina S.A. (“Banco Nación”), without any independent verification by us. See “Item 3. Key Information—A. Selected Financial Data—Exchange Rate Information.”
Rounding
Certain figures included in this Annual Report have been rounded for ease of presentation. Percentage figures included in this Annual Report have not, in all cases, been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this Annual Report may vary from those obtained by performing the same calculations using the figures in our Financial Statements. Certain numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them due to rounding.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this Annual Report, including information incorporated by reference herein, may constitute estimates and forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, as amended. These estimates and forward-looking statements can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “can,” “continue,” “estimate,” “expect,” “goal” “intend,” “may,” “plan” “potential,” “predict,” “projection,” “should,” “will,” “will likely result,” “would” or other similar words. These estimates and statements appear in a number of places in this Annual Report and include statements regarding our intent, belief or current expectations, and those of our officers, with respect to (among other things) our business, financial condition and results of operations. Our estimates and forward-looking statements are based mainly on current expectations and estimates of future events and trends, which affect, or may affect, our business, financial condition and results of operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are based on information available to us as of the date of this Annual Report.
When considering forward-looking statements, you should keep in mind the factors described in “Item 3. Key Information—D. Risk Factors” and other cautionary statements appearing in “Item 5. Operating and Financial Review and Prospects.” These factors and statements, as well as other statements contained herein, describe circumstances that could cause actual results to differ materially from those expressed in or implied by any forward-looking statement.
Forward-looking statements include, but are not limited to, the following:

· | statements regarding changes in general economic, business, political or other conditions in Argentina;

· | estimates relating to future tariffs and volumes for our natural gas transportation services and future prices and volumes for our natural gas liquid products such as propane and butane (“LPG”), ethane and natural gasoline (collectively “Liquids”) and for products and services respectively produced and provided in our other non-regulated businesses;

· | statements regarding expected future political developments in Argentina and expected future developments regarding the license granted to us by the Argentine government (the “Government”) to provide natural gas transportation services through the exclusive use of the southern natural gas transportation system in Argentina (“License”), the renegotiation process of the License with the Government, including, primarily, the adoption of a new revised scheme of tariffs, regulatory actions by Ente Nacional Regulador del Gas (“ENARGAS”), the legal framework established by the Ministry of Energy and Mining (“Ministry of Energy”) (formerly known as the Federal Energy Bureau (“Federal Energy Bureau”)), and any other applicable governmental authority that may affect us and our business;

· | risks and uncertainties with respect to labor relations in Argentina;

· | statements and estimates regarding future pipeline expansion and the cost of, or return to us from, any such expansion;

· | estimates of our future level of capital expenditures, including those required by ENARGAS and other governmental authorities; and

· | the risk factors discussed under “Item 3. Key Information—D. Risk Factors.”

The following important factors could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted by us in our forward-looking statements:

· | risks and uncertainties resulting from past Government regulations that affected our business or financial condition or results of operations, such as (i) the prohibition on tariff increases related to our natural gas transportation segment, (ii) restrictions on payments abroad and exchange controls, (iii) the Public Emergency Law No. 25,561 (“Public Emergency Law”) enacted by the Government in January 2002, which among others, ended the U.S. dollar-peso parity and resulted in the amendment of the Convertibility Law No. 23,928 and Decree No. 529/01 (collectively, “Convertibility Law”);

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· | risks and uncertainties related to changes in the peso-U.S. dollar exchange rate and the Argentine domestic inflation rate, which may materially adversely affect our revenues, expenses and reported financial results;

· | risks and uncertainties associated with our non-regulated business, including those related to international and local prices of Liquids, taxes, cost and restrictions on the supply of natural gas and other restrictions imposed on Liquids exports, our ability to renegotiate our agreements with customers and possible increased Government regulation of the Liquids industry;

· | capital expenditures effectively required by ENARGAS or other governmental authorities for the expansion of our pipeline system or other purposes, including the risk that we may be forced to make investments or take other actions that are not profitable or are not as commercially attractive as other actions;

· | risks and uncertainties associated with unscheduled and unexpected expenditures for the repair and maintenance of our fixed or capital assets;

· | risks and uncertainties resulting from the prospect of additional Government regulation or other Government involvement in our business;

· | developments in legal and administrative proceedings involving us and our affiliates;

· | changes to, or revocation of, our License; and

· | risks and uncertainties impacting us as a whole, including changes in general economic conditions, changes in Argentine laws and regulations to which we are subject, including tax, environmental and employment laws and regulations, and the cost and effects of legal and administrative claims and proceedings against us.

These estimates and forward-looking statements speak only as of the date of this Annual Report and we do not undertake any obligation to update any forward-looking statement or other information contained in this Annual Report to reflect events or circumstances occurring after the date of this Annual Report or to reflect the occurrence of unanticipated events. Additional factors affecting our business emerge from time to time and it is not possible for us to predict all of those factors, nor can we assess the impact of all such factors on our business, operations or financial condition, or the extent to which any factors, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Estimates and forward-looking statements involve risks and uncertainties and do not guarantee future performance, as actual results or developments may be substantially different from the expectations described in the forward-looking statements. In light of the risks and uncertainties described above, the events referred to in the estimates and forward-looking statements included in this Annual Report may or may not occur, and our business performance, financial condition and results of operations may differ materially from those expressed in our estimates and forward-looking statements, due to factors that include but are not limited to those mentioned above. Investors are warned not to place undue reliance on any estimates or forward-looking statements in making any investment decision.
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PART I

Item 1. | Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. | Offer Statistics and Expected Timetable

Not applicable.

Item 3. | Key Information

A. Selected Financial Data
The following selected consolidated financial data is derived from our Financial Statements. This information should be read in conjunction with and is qualified in its entirety by reference to our Financial Statements and the notes related thereto, and the discussion in “Presentation of Financial and Other Information” and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this Annual Report.

|  | For the year ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |  |  | 2014 |  |  | 2013 |
|  | (in thousands of pesos)(1) |
Consolidated Statement of Comprehensive Income Data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from sales |  |  | 12,246,664 |  |  |  | 7,402,172 |  |  |  | 4,226,569 |  |  |  | 4,303,971 |  |  |  | 2,864,986 |
Gas transportation net revenues |  |  | 4,559,739 |  |  |  | 2,087,191 |  |  |  | 1,013,998 |  |  |  | 744,089 |  |  |  | 661,023 |
Liquids production and commercialization net revenues |  |  | 6,875,241 |  |  |  | 4,768,326 |  |  |  | 2,907,770 |  |  |  | 3,243,299 |  |  |  | 2,065,321 |
Other services (midstream and telecommunications) net revenues |  |  | 811,684 |  |  |  | 546,655 |  |  |  | 304,801 |  |  |  | 316,583 |  |  |  | 138,642 |
Operating profit |  |  | 4,716,066 |  |  |  | 2,231,821 |  |  |  | 688,247 |  |  |  | 932,514 |  |  |  | 706,632 |
Net financial results |  |  | (567,960 | ) |  |  | (813,361 | ) |  |  | (974,163 | ) |  |  | (765,650 | ) |  |  | (532,729 | )
Net income (loss) before income tax |  |  | 4,148,296 |  |  |  | 1,419,982 |  |  |  | (285,662 | ) |  |  | 169,754 |  |  |  | 173,387 |
Net income and total comprehensive income / (loss) for the year |  |  | 2,793,266 |  |  |  | 930,678 |  |  |  | (172,109 | ) |  |  | 104,988 |  |  |  | 107,506 |
Net income and total comprehensive income / (loss) for the year attributable to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owners of the Company |  |  | 2,793,263 |  |  |  | 930,675 |  |  |  | (172,109 | ) |  |  | 104,983 |  |  |  | 107,504 |
Non-controlling interest |  |  | 3 |  |  |  | 3 |  |  |  | - |  |  |  | 5 |  |  |  | 2 |
Per Share Data:(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income / (loss) per share |  |  | 3.52 |  |  |  | 1.17 |  |  |  | (0.22 | ) |  |  | 0.13 |  |  |  | 0.14 |
Net income / (loss) per ADS |  |  | 17.58 |  |  |  | 5.86 |  |  |  | (1.08 | ) |  |  | 0.66 |  |  |  | 0.68 |

(1) | Except per share and per ADS amounts or as otherwise indicated.

(2) | Net income (loss) per share and ADS under IFRS has been calculated using the weighted average shares outstanding. Each ADS represents five shares.

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|  | As of December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |  |  | 2014 |  |  | 2013 |
|  | (in thousands of pesos)(1) |
Consolidated Statement of Financial Position Data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total current assets |  |  | 7,153,312 |  |  |  | 3,347,071 |  |  |  | 2,230,219 |  |  |  | 1,958,963 |  |  |  | 1,803,063 |
Property, plant and equipment, net |  |  | 6,480,361 |  |  |  | 5,333,344 |  |  |  | 4,219,520 |  |  |  | 4,082,071 |  |  |  | 3,966,908 |
Total non-current assets |  |  | 6,513,588 |  |  |  | 5,584,261 |  |  |  | 4,416,358 |  |  |  | 4,215,457 |  |  |  | 4,269,847 |
Total assets |  |  | 13,666,900 |  |  |  | 8,931,332 |  |  |  | 6,646,577 |  |  |  | 6,174,420 |  |  |  | 6,072,910 |
Total current liabilities |  |  | 4,605,941 |  |  |  | 1,902,948 |  |  |  | 1,320,581 |  |  |  | 1,251,754 |  |  |  | 1,347,734 |
Total non-current liabilities |  |  | 3,741,319 |  |  |  | 4,502,006 |  |  |  | 3,630,562 |  |  |  | 3,055,123 |  |  |  | 2,702,094 |
Total liabilities |  |  | 8,347,260 |  |  |  | 6,404,954 |  |  |  | 4,951,143 |  |  |  | 4,306,877 |  |  |  | 4,049,828 |
Non-controlling interest |  |  | 8 |  |  |  | 9 |  |  |  | 6 |  |  |  | 6 |  |  |  | 3 |
Shareholders’ equity |  |  | 5,319,640 |  |  |  | 2,526,378 |  |  |  | 1,695,434 |  |  |  | 1,867,543 |  |  |  | 2,023,082 |
Other Data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock (nominal value) |  |  | 794,495 |  |  |  | 794,495 |  |  |  | 794,495 |  |  |  | 794,495 |  |  |  | 794,495 |
Additions to property, plant and equipment |  |  | 1,513,251 |  |  |  | 1,407,823 |  |  |  | 407,323 |  |  |  | 373,390 |  |  |  | 265,685 |
Depreciation |  |  | 358,420 |  |  |  | 286,798 |  |  |  | 261,393 |  |  |  | 254,311 |  |  |  | 242,917 |
Number of outstanding shares |  |  | 794,495,283 |  |  |  | 794,495,283 |  |  |  | 794,495,283 |  |  |  | 794,495,283 |  |  |  | 794,495,283 |

(1) | Except number of outstanding shares or as otherwise indicated.

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

|  | Dividends declared |
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) |
2013 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
2014(3) |  |  | 260.5 |  |  |  | 30.5 |  |  |  | 0.328 |  |  |  | 0.038 |  |  |  | 0.192 |
2015 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
2016(4) |  |  | 99.7 |  |  |  | 7.1 |  |  |  | 0.125 |  |  |  | 0.009 |  |  |  | 0.045 |
2017 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
2018 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |

(1) | Stated in Ps. as of the payment date.

(2) | Stated in U.S. dollars translated from pesos at the exchange rate in effect on the payment date, except that the amount of the dividends declared but unpaid as of December 31, 2014 was translated from pesos at the selling exchange rate at such date.

(3) | Our shareholders resolved to create a future dividends payment reserve in an amount equal to Ps. 260.5 million at the General Annual Shareholders’ Meeting held on April 30, 2014, such reserve was fully released by the Board of Directors at the meeting held on November 26, 2014, which approved cash dividend payments equal to such reserve amount in the aggregate.

(4) | Our shareholders resolved to create a future dividends payment reserve in an amount equal to Ps. 99.7 million at the General Annual Shareholders’ Meeting held on April 23, 2015, such reserve was fully released by the Board of Directors at the meeting held on January 13, 2016, which approved cash dividend payments equal to such reserve amount in the aggregate.

According to Argentina’s Law No. 19,550, as amended (“General Companies Law”), 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.
To that effect, every year the 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 be held every year to approve our financial statements and determine the allocation of net income for such year. In the case of listed companies, such as us, this meeting must take place before the end of April. Pursuant to the General Companies Law, 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 on our consolidated statement of changes in equity (“Adjusted Common Stock Nominal Value”). 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. If the amount allocated for the Legal Reserve is reduced we must restore it before making any dividend payment. The Legal Reserve is not available for distribution as a dividend.
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Pursuant to our articles of association (“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 participation in earnings of employee profit-sharing certificates. 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. The dividend must be paid within ten business days from the date of declaration. For information on dividend taxation, see “Item 10. Additional Information—E. Taxation—Argentine Taxes.”
The General Annual Shareholders’ Meeting held on April 20, 2016 approved the creation of a new voluntary reserve for capital expenditures of Ps. 2.9 million. Our financial statements for the year ended December 31, 2015 showed a comprehensive loss.
The General Annual Shareholders’ Meeting held on April 26, 2017 (the “2017 Shareholders’ Meeting”) approved the creation of a voluntary reserve for a future dividend payments in an aggregate amount of Ps. 912.0 million, which has not been released.
The General Annual Shareholders’ Meeting held on April 10, 2018 (the “2018 Shareholders’ Meeting”) approved the increase of the voluntary reserve for a future dividend payments created in the 2017 Shareholders’ Meeting to an aggregate amount of Ps. 3,705.3 million, which may be applied when our Board of Directors deems appropriate at any time before the General Annual Shareholders’ Meeting that approve the financial statements for the fiscal year 2018. Under the General Companies Law, the purpose of any voluntary reserve cannot be changed without the prior approval of the shareholders. The 2018 Shareholders’ Meeting did not allocate any portion of our net income to the Legal Reserve because as of the date of this Annual Report it is fully funded.
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. Under our current debt instruments we may pay dividends as long as (i) no default exists under our debt obligations and (ii) immediately after giving effect to such dividend payment, (a) the consolidated coverage ratio (the ratio of our consolidated adjusted EBITDA to our consolidated interest expense (each as defined in the indenture for the 2014 Notes (as defined herein)) would be greater than or equal to 2.0:1; and (b) the consolidated leverage ratio (the ratio of our consolidated total indebtedness to our consolidated adjusted EBITDA (each as defined in the indenture for the 2014 Notes)) would be less than or equal to 3.75:1. See “Item 10. Additional Information—C. Material Contracts—Debt Obligations.”
Under the General Companies Law, 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 Law 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 ADS 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 December 17, 2015, the Central Bank of the Republic of Argentina (Banco Central de la República Argentina or the “BCRA”) issued Communication “A” 5850, which introduced several changes to the then existing foreign exchange control regime. For additional information, see “Item 10. Additional Information—D. Exchange Controls.”
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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 2017 |  |  | 17.6500 |  |  |  | 17.3050 |  |  |  | 17.4762 |  |  |  | 17.3050 |
December 2017 |  |  | 19.2000 |  |  |  | 17.2300 |  |  |  | 17.7342 |  |  |  | 18.6490 |
January 2018 |  |  | 19.6500 |  |  |  | 18.4100 |  |  |  | 19.0380 |  |  |  | 19.6500 |
February 2018 |  |  | 20.2000 |  |  |  | 19.3800 |  |  |  | 19.8331 |  |  |  | 20.1100 |
March 2018 |  |  | 20.4100 |  |  |  | 20.1490 |  |  |  | 20.2422 |  |  |  | 20.1490 |
April 2018 (through April 12, 2018) |  |  | 20.2100 |  |  |  | 20.1600 |  |  |  | 20.1853 |  |  |  | 20.2100 |
Year ended December 31, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2013 |  |  | 6.5210 |  |  |  | 4.9250 |  |  |  | 5.4859 |  |  |  | 6.5210 |
2014 |  |  | 8.5570 |  |  |  | 6.5450 |  |  |  | 8.1195 |  |  |  | 8.5510 |
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 |

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, 2017. 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 12, 2018, the reported selling exchange rate per U.S.$1.00 was Ps. 20.2100.
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 (48.8% of our total consolidated revenues from sales for the year ended December 31, 2017), most of our capital expenditures, all of our loans 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.
If we pay any dividends on our shares in pesos, as a result, currency fluctuations would also affect the U.S. dollar amounts received by holders of our American Depositary Shares (“ADSs”) on conversion (by us or by The Bank of New York Mellon (the “Depositary”), pursuant to the deposit agreement for the issuance of the ADSs entered into between the Depositary and us) 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 shares on the BYMA and, as a result, can also affect the market price of the ADSs.
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, financial condition, the value of our securities, and our ability to meet our financial obligations.
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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
Overview
We are a stock corporation with limited liability, or sociedad anónima, incorporated and organized under the laws of Argentina. A significant portion of our revenues (48.8% of our total consolidated revenues from sales for the year ended December 31, 2017), most of our capital expenditures, all of our liabilities 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. Accordingly, 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.
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, including the following:

| · | high interest rates;

| · | abrupt changes in currency values;

| · | high levels of inflation;

| · | exchange controls;

| · | wage and price controls;

| · | regulations to import equipment and other necessities relevant for operations;

| · | changes in governmental economic or tax policies; and

| · | political and social tensions.

Any of these factors, as well as volatility in the capital markets, may adversely affect our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations.
Economic volatility in Argentina in recent decades has adversely affected and may continue to adversely affect our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations.
Our business and financial results 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 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 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; international conflicts; civil unrest; and insecurity concerns.
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Beginning in 2001, Argentina went through a period of severe political, economic and social crisis. The crisis resulted in Argentina defaulting on its foreign debt obligations in 2002, introducing emergency measures and numerous changes in economic policies that affected utilities and many other sectors of the economy, and suffering a significant real devaluation of the peso. Many private sector companies with foreign currency exposure, including us, defaulted on their outstanding debts. Since that crisis, Argentina has substantially increased its real gross domestic product (“GDP”). However, after the 2008 global financial crisis, the Argentine economy suffered a slowdown attributable to local and external factors, including an extended drought affecting agricultural activities and the effects of the global financial crisis. According to data published by Instituto Nacional de Estadísticas y Censos (the National Statistics and Census Institute, or “INDEC”), growth in real GDP resumed in 2011, with the Argentine GDP increasing 6.1% in 2011, decreasing by 1.1% in 2012 and 2.3% in 2013. For the year 2014, Argentina GDP experienced a decrease of 2.6%. During 2015, economic activity recovered slightly, as real GDP grew 2.6% during the year. In 2016, however, GDP decreased by 2.3%. Meanwhile, in the fourth quarter of 2017, GDP grew 3.9% compared with the same period of 2016, and accumulated an increase of 2.9% in 2017.
In addition, since 2007, Argentina has confronted inflationary pressures, evidenced by significantly higher fuel, salaries 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, 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.”
In addition, other factors could adversely harm economic growth and future inflow of capitals necessary to support further economic growth in Argentina, such as:

| · | public debt continues to increase as a percentage of GDP, long-term credit is scarce and international financing remains limited;

| · | increasing public expenditures could result in fiscal deficits;

| · | the political difficulties associated with reducing the burden on businesses of taxes and social contributions, which make costs of production in Argentina higher than those in the rest of the region;

| · | the lack of necessary investments to develop oil and gas reserves and increase the production of natural gas and oil necessary to accompany the increase in economic activity;

| · | the obstacles to reducing inflation, which in the past undermined Argentina’s economy and the capacity of the Government to create conditions for economic growth; and

| · | the increased distrust of business and political classes in Argentina, caused in part by measures taken in the past.

Volatility in the Argentine economy and the measures taken by the Government have had and are expected to continue to have a significant impact on us. As in the recent past, Argentina’s economy may be adversely affected if political and social pressures inhibit the implementation by the Government of policies designed to control inflation, generate growth and enhance consumer and investor confidence, or if policies implemented by the Government that are designed to achieve these goals are not successful. 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, financial condition and results of operations.
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The impact of reforms and measures taken by the Government to reactivate the economy is uncertain.
Presidential, state and congressional elections in Argentina took place on October 25, 2015, and a runoff election (ballotage) between the two leading Presidential candidates was held on November 22, 2015, which resulted in Mr. Mauricio Macri (from the Cambiemos coalition) being elected President of Argentina. The current administration assumed office on December 10, 2015.
On October 22, 2017, mid-term legislative elections were held at the federal and provincial government levels. Macri’s Cambiemos alliance obtained the most votes in the City of Buenos Aires, and in the provinces of Buenos Aires, Chaco, Córdoba, Corrientes, Entre Ríos, Jujuy, La Rioja, Mendoza, Neuquén, Salta, Santa Cruz and Santa Fe. As a result, as of December 10, 2017, Cambiemos increased its representation in the Congress by nine senators (holding in the aggregate 24 of a total of 72 seats in the Senate) and by 21 members of the Chamber of Deputies (holding in the aggregate 108 of a total of 257 seats in such Chamber).
Since assuming office, the current administration announced and executed several significant economic and policy reforms, including, among others:

| · | Reforms in the energy system and tariff increase. Pursuant to Decree No. 134/2015, Macri administration, declared a state of emergency with respect to the national electricity system, effective until December 31, 2017. In order to reassess the then-current subsidy policy, the Ministry of Energy issued Resolution No. 28/2016 ( “Resolution 28”) and Resolution No. 31/2016 ( “Resolution 31”), pursuant to which it fixed the prices of natural gas at the supply point (“PIST”) and the tariffs of distribution and transportation of natural gas that will reach residential and commercial users throughout the country, as well as to the supply of compressed natural gas (“CNG”) to service stations and electricity generating plants and instructed ENARGAS to carry out an integral tariff review (“RTI”) process, to determine the tariffs of distribution and transportation of natural gas applicable throughout the country. The RTI concluded on March 27, 2018, and a new tariff schedule applicable to the transportation and distribution of natural gas has been published and will be in effect during the five-year period from April 2017 to March 2022.

| · | INDEC reforms. On January 8, 2016, based on its determination that the INDEC had failed to produce reliable statistical information, particularly with respect to consumer price index (“CPI”), GDP, poverty and foreign trade data, the current administration declared the national statistical system and the INDEC in a state of administrative emergency through December 31, 2016. From this declaration, the INDEC interrupted the publication of statistical information until the reorganization of its technical and administrative structure was completed. In 2016, the INDEC implemented certain methodological reforms and adjusted macroeconomic statistics based on these reforms. For additional 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, financial condition, the value of our securities, and our ability to meet our financial obligations.”

| · | Foreign exchange reforms. In the past, through a series of exchange and tax regulations, the national government significantly limited the access of both entities and individuals to the foreign exchange market. When the Macri administration took office on December 10, 2015, they announced important changes in the existing exchange regulations, with the main objective of diminishing the different restrictions imposed on the exchange market in recent years, which were gradually eliminated over the recent years. For additional information see “Item 10. Additional Information—D. Exchange Controls.”

| · | Tax reform. On December 27, 2017, the Argentine executive branch (Poder Ejecutivo Nacional, the “Executive Branch”) enacted Decree No. 1,112/2017 which introduced many changes to the tax regime in accordance with Law No. 27,430 issued by the National congress. The reforms intended to eliminate certain existing complexities and inefficiencies of the Argentine tax regime, diminish evasion, increase the coverage of income tax as applied to individuals and encourage investment while sustaining Argentina’s medium and long term efforts aimed at restoring fiscal balance. The reforms will gradually come into effect over the next five years. The reforms form part of a larger program announced by President Macri intended to increase the competitiveness of the Argentine economy (including by reducing the fiscal deficit) and employment, and diminish poverty on a sustainable basis.

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| · | Fiscal consensus. On December 22, 2017, the Chamber of Deputies passed into law the Fiscal Agreement (Ley de Consenso Fiscal, the “Pacto Fiscal”), also known as the Fiscal Consensus (Consenso Fiscal). This law was based on an agreement signed on November 16, 2017 between the Government and representatives from 23 out of Argentina’s 24 provinces, with the goal of implementing measures that favor sustained growth in economic activity, productivity and employment. The Fiscal Consensus includes a commitment to lowering distortive taxes by 1.5% of GDP over the next five years, a waiver of lawsuits against the Government and a Ps.21,000 million payment to the province of Buenos Aires for the year 2018 (which will increase over the next five years) as a partial and progressive solution to the conflict related to the Buenos Aires Metropolitan Area Fund (Fondo del Conurbano Bonaerense). The Fiscal Consensus also set the basis for other policy reforms that were implemented by the Macri Administration in December 2017, such as the tax reform, the pension system reform and the Fiscal Responsibility Law (“Ley de Responsabilidad Fiscal”). The Argentine national budget for the year 2018 is projected at a fiscal deficit of 3.2% of the GDP.

| · | Foreign trade reforms. The Kirchner and Fernández de Kirchner administrations imposed export duties and other restrictions on several sectors, particularly the agricultural sector. The current administration eliminated export duties on wheat, corn, beef, mining, oil, and regional products, and reduced the duty on soybean exports by 5%, from 35% to 30%. Further, a 5% export duty on most industrial exports was also eliminated. With respect to payments for imports of goods and services to be performed abroad, the current administration eliminated the restrictions on access to the MULC. Importers were offered short‑term debt securities issued by Argentina to be used to repay outstanding commercial debt for the import of goods. In addition, the import system was modified by the replacement of the Declaraciones Juradas Anticipadas de Importación system with a new import procedure that requires certain filings and import licenses for certain goods (including textiles, footwear, toys, domestic appliances and automobile parts), which, unlike the previous system, does not contemplate discretionary federal government approval of payments for the import of products through the MULC. By Decree No. 893/2017, published in the Official Gazette on November 2, 2017, the Government repealed article 1 of Decree No. 2581/1964, article 10 of Decree No. 1555/1986 and Decree No. 1638/2001. This action eliminated the obligation of Argentine exporters to repatriate and settle for pesos in the MULC foreign currency proceeds derived from the export of goods. On January 2, 2017, the Government enacted a further reduction of the export duties rate set for soybean and soybean products, setting a monthly 0.5% cut on the export duties rate beginning on January 2018 and until December 2019. In addition, importers were offered short-term debt securities issued by the Government to repay outstanding commercial debt for the import of goods.

| · | Correction of monetary imbalances. The current administration announced the adoption of an inflation targeting policy in parallel with the floating exchange rate regime and set inflation targets for the next four years. The Central Bank has increased efforts to reduce excess monetary imbalances and raised peso interest rates to offset inflationary pressure. Since January 2017, the Central Bank started to use the seven-day repo reference rate as the anchor of its inflation targeting policy. Short-term notes issued by the Central Bank would be used to manage liquidity. On December 28, 2017, the Central Bank announced its inflation targets for 2018, 2019 and 2020. The inflation target for 2018 is 15%, an increase from the Central Bank’s previous target range of 8%-12% for the same year. Inflation targets for 2019 and 2020 are 10% and 5%, respectively.

| · | Corporate Criminal Liability Law (Ley de Responsabilidad Penal Empresaria). On March 1, 2018, the Corporate Criminal Liability Law came into effect, providing for the criminal liability of corporate entities for offenses against the public administration and cross-border bribery committed by, among others, its shareholders, attorneys-in-fact, directors, managers, employees, or representatives. A company found liable under this law may be subject to various sanctions, including, among others, fines from two to five times the undue benefit obtained or that could have been obtained and the partial or total suspension of activities for up to ten years. In addition, this law extended the criminal liability under the Argentine Criminal Code to actions committed outside Argentina by Argentine citizens or companies domiciled in Argentina.

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| · | Bill for the development of the capital market of Argentina. On November 13, 2017, the Executive Branch presented to Congress a bill that aims to develop capital market in Argentina. The bill provides for the modification and updating of the Capital Markets Law of Argentina, the Law of Mutual Funds and the Negotiable Obligations Law, among others. Also, the bill provides for the modification of certain tax provisions, regulations related to derivative instruments and the program for the promotion of financial inclusion. The bill was initially approved by the Chamber of Deputies on November 2017, and was approved with by the Senate on March 21, 2018, subject to certain amendments. The bill is under review by the Chamber of Deputies for its definitive approval.

| · | Project to amend the labor system. The Macri administration published a project to amend the labor system. The project’s main purpose is to improve the efficiency and productivity of different productive sectors, increase employment, attract investment and reduce employment costs. This project is expected to be considered by Congress in 2018.

| · | Pension Reform Law (Ley de Reforma Previsional). On December 28, 2017, Congress passed the Pension Reform Law, with the goal of improving the sustainability and predictability of Argentina’s pension program, while still protecting the most vulnerable persons. To that effect, the Pension Reform Law modified the basic formula for the periodic adjustment of retirements, pensions and the Universal Child Allowance (Asignación Universal por Hijo).

The Pension Reform Law also modified Section 252 of the Labor Law No. 20,744 by establishing that employers may request employees who have reached 70 years of age to initiate retirement proceedings (compared to age 65 under the prior regimen). Public sector employees are excluded from the foregoing provision.

| · | Tax on financial transactions (impuesto al cheque). On December 27, 2017, the Congress extended the tax on financial transactions through 2022, and earmarked amounts collected for the Argentine Integrated Pension System.

As of the date of this Annual Report, the impact that the aforementioned measures will have on the Argentine economy as a whole cannot be predicted. We cannot predict how the current administration will address certain political and economic issues that were central during the Presidential election campaign, such as the financing of public expenditure and public service subsidies, or the impact that any measures related to these issues that are implemented by the current administration will have on the Argentine economy as a whole. The inability of the current administration to properly implement measures as a result of lack of political support may adversely affect the Argentine economy and financial condition and, as a consequence, our business, financial condition or results of operations.
High levels of inflation and the lack of credibility regarding Argentina’s official inflation statistics, could negatively affect our business, results of operations, 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 wholesale price index (“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 International Monetary Fund (“IMF”) requested several times that Argentina clarify the information on inflation rates published by INDEC.
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 censorship on Argentina in connection with the 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.
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On February 13, 2014, the INDEC released a new inflation index (the “IPCNu”) that measures prices on goods across the country and replaces the previous index that only measured inflation in the urban sprawl of the City of Buenos Aires. Notwithstanding, 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.
In addition, on June 29, 2016, the INDEC published recalculated historical GDP data, modifying the previously released data. Following the publication of revised data, on November 9, 2016, the Executive Board of the IMF concluded consultation with, and lifted its censorship on, 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. 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.
As of the date of this Annual Report, however, the increase in CPI for the first four months of 2016 was not published and there have been no indications from the INDEC or any other government agency as to the timeline for their publication. 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 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%. For the year 2017, CPI registered an increase of 24.8%. The WPI for the years 2016 and 2017 increased by 34.5% and 18.8%, respectively, according to information published by the INDEC.
Notwithstanding measures taken by the INDEC to address appropriate inflation statistics, some private economists estimate 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 the credit and capital markets, which could adversely affect our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations.
High inflation rates affect Argentina’s foreign competitiveness, 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 measures to control inflation that are adopted, or that may be adopted in the future, may have. Increased inflation could adversely affect the Argentine economy, which in turn may have an adverse effect on our financial condition and results of operations.
IAS 29 “Financial reporting in hyperinflationary economies” (“IAS 29”) 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 measure at the reporting date of the reporting period. Although the current rate of inflation does not rise to the level required for Argentina to be considered a hyperinflationary economy under IAS 29, if inflation rates continue to escalate in the future, the Argentine peso may qualify as a currency of a hyperinflationary economy according to the guidelines in IAS 29, in which case our Financial Statements and other financial information may need to be adjusted by applying a general price index and expressed in the measuring unit (the hyperinflationary currency) current at the end of each reporting period. We cannot determine at this time the impact this would have on our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations.
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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 international reserves of the BCRA between 2012 and 2015. In the past, the 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.
After several years of moderate fluctuation in the exchange rate, on December 17, 2015, Macri’s administration implemented certain measures including the lifting of most of 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 Argentine 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. Therefore, we are unable to predict the future value of the peso against the U.S. dollar and how any fluctuations may affect the costs that we incur in conducting our business.
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 high inflation, reduce real wages, and adversely affect the Government’s ability to honor its foreign debt obligations. On the other hand, significant appreciation of the peso could harm the competitiveness of Argentina companies and lead to reduced exports.
As of March 31, 2018, the total amount of principal and accrued but unpaid interest under our consolidated U.S. dollar-denominated indebtedness was U.S.$232.5 million.
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.
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 or forced divestiture of assets; 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.
Prior to the Macri administration, the Government increased its direct intervention in the economy, including through the implementation of expropriation and nationalization measures, price controls and exchange controls. Although Macri’s administration has reversed some of these measures, there is no guarantee that this trend will continue.
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”). Purchases of debt and equity instruments which previously could be placed with pension fund administrators are now entirely subject to the discretion of ANSES. ANSES has been entitled to designate government representatives to the boards of directors of these companies. ANSES currently holds 23.1% of our outstanding capital stock and has two representatives in 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.
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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, Argentine Congress passed Law No. 26,741, which declared hydrocarbons self-sufficiency, 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”), formerly known as Repsol YPF S.A. (“Repsol 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, which we charge due to the imposition of price controls, those costs could negatively affect our business, results of operations, 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 in our business, results of operations, 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 addition, 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 its free access and imposing the obligation to repatriate and sell within the local foreign exchange market all foreign currency revenues obtained from exports. These regulations prevented or limited us from offsetting the risk derived from our exposure to the U.S. dollar.
In 2012 and again in 2013, the Argentine Congress established new regulations relating to domestic capital markets. The new regulations generally provide for increased intervention in the capital markets by the Government. The Macri administration, however, is working on an amendment to the Capital Markets Law, which would, among other things, limit the scope of intervention by the CNV in public companies (See “Item 3. Key Information—D. Risk Factors— The impact of reforms and measures taken by the Government to reactivate the economy is uncertain— Bill for the development of the capital market of Argentina”).
A low growth and high inflation rates scenario 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, 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 which 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.
Even though the Macri administration took several measures that had the positive effect of lifting most exchange controls in Argentina, 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 lifting 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, 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 “contagion” 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. 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, 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.
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The economy in Brazil, one of the main import and export markets for Argentina, experienced rising negative pressure because of political uncertainty, including the removal from office of the President Dilma Rousseff and the fallout from the continuing investigation into the Lava Jato corruption scandal. After two years of retreat, in 2017 the Brazilian economy grew by 1%. Additionally, during 2017 the country continued to suffer a political and institutional crisis that included new requests for impeachment of President Temer and general strikes against the reforms imposed by the government. 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 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.
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 a loss of tax 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. As of the date of this Annual Report, the actions that the United Kingdom will take to effectively exit from the European Union or the length of such process are uncertain. The results of the United Kingdom’s referendum and the initiation of the Brexit process have caused, and are 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. The United Kingdom’s general election on June 8, 2017 left the conservative party without a majority, increasing the uncertainty surrounding the Brexit and the chance to reach a deal with the European Union by 2019.
On November 8, 2016, Donald J. Trump was elected President of the United States and he took office in January 2017. President Trump has evidenced an inclination to consider greater restrictions on free trade and immigration. Changes in social, political, regulatory and economic conditions in the United States or in laws and policies governing foreign trade could create uncertainty in the international markets and could have a negative impact on emerging market economies, including the Argentine economy, which in turn could have a negative impact on our operations. In addition, on February 5, 2018, Jerome H. Powell took the oath of office as Chairman of the Board of Governors of the Federal Reserve System, succeeding Janet L. Yellen. Mr. Powell has expressed its intention to continue with the policy of the Federal Reserve System to gradually raise interest rates as the economic conditions in the U.S. improve and adjust the strategy depending on how the economy performs. If the U.S. economy continues to be perceived as gaining momentum, the recent U.S. tax overhaul by the Trump administration, which slashed the corporate income tax rate and cut personal income tax rates, could cause an economy that may be nearing full capacity and prompt the Federal Reserve System to become more aggressive than anticipated in its course of interest rate hikes. The Trump administration recently issued tariffs on certain products altering the international trade environment, which combined with the increase in the U.S. reference interest rates has created additional volatility in the U.S. and the international markets.
On October 27, 2017, the regional government of Catalonia declared independence from Spain. In response to this declaration, the Spanish national government rejected the declaration and intervened, dissolving the regional parliament and convening new elections to elect new regional authorities. These conflicts in the European Union in general, and in Spain in particular, may have political, regulatory and economic implications on the international markets.
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.
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Certain economic policies of the former government administration in Argentina, including the relationship with the IMF and the 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 the 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, financial condition, the value of our securities, and our ability to meet our financial obligations.
Argentina’s past default and litigations 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, financial condition, the value of our securities, and our ability to meet our financial obligations.
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 a significant portion of its holdout creditors. As required by the settlement, on March 31, 2016, the Argentine Congress voted to repeal Laws No. 26,017 (known as “Ley Cerrojo”) and 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 risk 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 over time economic growth 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 do 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.
Past situations, such as the lawsuits with creditors that did not accept to 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. Even financial conditions of such access could be disadvantageous to Argentine companies and, therefore, may 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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Argentine judicial, commercial and civil reforms, as well as challenges thereto, have generated uncertainty with respect to future administrative and judicial proceedings, including those involving the Government.
Law No. 26,854, which regulates injunctions in cases in which the Government is a party or has intervened, was promulgated on April 30, 2013 as part of a judicial reform bill approved by the Argentine Congress. A significant change included in the judicial reform bill is a time limitation on injunctions imposed in proceedings brought against the Government. Legal challenges to the law have resulted in rulings which for the time being have declared the law unconstitutional. If the law is ultimately upheld our ability in the future to pursue claims against the Government could be adversely affected.
On October 1, 2014, the Argentine Congress passed Law No. 26,994, which approved the new Argentine Civil and Commercial Code, abrogated several laws and modified others, including the General Companies Law and the Consumer Protection Law. The new Civil and Commercial Code, which came into effect on August 1, 2015, introduced significant changes to the Argentine private law system.
We are exposed to expropriations, nationalizations or similar risks.
Substantially all of our assets are located in Argentina. We are subject to political and economic uncertainties, including nationalizations, expropriations, the renegotiation or termination of our existing contracts, foreign exchange controls, exchange rate volatility, among others. We cannot ensure that any of these events will not occur and that any such event would not have an adverse effect on our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations
Risks Relating to Our Business
Failure or delay in the implementation of anticipated tariff increases could have a material adverse effect in our business, results of operations, 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 37.2%, 28.2% and 24.0% of total net revenues during 2017, 2016 and 2015, respectively) are attributable to contracts, which are subject to Government regulation. Prior to the enactment of the Public Emergency Law, our tariffs were stated in U.S. dollars, adjusted on a semi-annual 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. l.00 per U.S.$l.00 even if the peso was devaluating significantly against the U.S. dollar.
Consistent inflation in Argentina since 2002, without any corresponding increase in our natural gas transportation tariffs until recently, has adversely affected, and sustained 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, 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 Wholesale Price Index (“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.
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In addition, Resolution 4362 contemplates a non-automatic semiannual adjustment mechanism for the natural gas transportation tariff to reflect changes in WPI.
See “Item 4. Our Information—B. Business Overview—Natural Gas Transportation—Regulatory Framework” below for more information.
In the past, we have suffered from our inability to adjust our tariff increase, which implied the deterioration of our financial and economic condition. Our inability to bill the increases granted by ENARGAS, as it is stipulated in our License, in a timely manner, and to obtain future tariff adjustments in line with the increase in our costs could affect adversely our economic and financial condition. Moreover, the RTI process could result in the adoption of an entirely new regulatory framework for our business, with additional terms and restrictions on our operations and the imposition of mandatory investments. We also cannot predict whether a new regulatory framework will be implemented and what terms or restrictions could be imposed. It is expected that the next tariff revision will take place in 2021 and will come into effect for the five-year period from April 1, 2022 to March 31, 2027.
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, 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:

| · | 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;

| · | 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;

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

| · | 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 has declared achieving 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, financial condition, the value of our securities, and our ability to meet our financial obligations.
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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 are in the process of negotiating the collective bargaining agreements that will be in effect from April 2018 to April 2019, but the status of these negotiations is uncertain.
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 others, 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 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 wage 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.
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:

| · | 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;

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

| · | 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;

| · | our bankruptcy, dissolution or liquidation;

| · | ceasing and abandoning the provision of the licensed service, attempting to assign or unilaterally transfer our License in full or in part without the prior authorization of ENARGAS, or giving up our License, other than in the cases permitted therein; and

| · | 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.

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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, or 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.
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 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, 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 industry. After the economic crisis in 2002 and until the Macri administration took office, the Government increased its role in the energy sector implementing a strict regulation and increasing its intervention. Intervention included the expansion of our pipeline and the interruption of natural gas firm transportation services (including the diversion of natural gas supply from our liquids processing plant located at General Cerri Complex, in the Province of Buenos Aires (“Cerri Complex”)).
Since 2002, the natural gas industry has experienced a sharp increase in demand, while the supply of natural gas has not been sufficient to meet this increased demand. Accordingly, the Government imposed certain restrictions.
Specifically, 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, the lack (until 2016) of tariff adjustments for natural gas transportation companies caused transportation companies to suffer a decrease in their profitability.
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 Expansion.” 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.
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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 establish a system of priority pursuant to priority demand customers could receive natural gas in priority to other users, even those with firm transportation and firm natural gas supply contracts. Pursuant to ENARGAS Resolution No. 1,410/2010, due to the lack of sufficient natural gas provision, natural gas transportation service (including those with firm transportation contracts) may be interrupted and / or relocated in order to service priority demand customers.
On June 1, 2016, the Ministry of Energy issued Resolution No. 89/2016, which requires ENARGAS to develop a procedure to amend and supplement ENARGAS Resolution No. 1,410/2010 and establish daily operating conditions of the transportation and distribution systems. It has also established a methodology to satisfy the demand of 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 to address such shortage, considering the availability of natural gas and the demand of residential consumers and power plants.
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, 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 N° 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, financial condition, the value of our securities, and our ability to meet our financial obligations.
A significant portion of our revenues is generated under Liquids and natural gas transportation contracts that must be renegotiated and/or extended periodically.
In 2017, 80.7% of our average daily natural gas deliveries were made under long-term firm transportation contracts. As of December 31, 2017, our long-term firm natural gas transportation contracts had a remaining weighted average life of approximately 10 years; our long-term firm natural gas transportation contracts with our top five costumers had a remaining weighted average life of approximately 7 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:

| · | Argentine natural gas transportation regulations;

| · | international oil and gas prices;

| · | timing, volume and location of new market demand;

| · | competition from alternative energy sources;

| · | supply and price of natural gas in Argentina;

| · | 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.
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, 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.
A natural gas transportation service is an activity involving the investment of 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 and operating performance and improve the capabilities of it. Furthermore, capital expenditures will be required to finance the cost of our current and future expansion of our transportation capacity. If we are unable to finance any such capital expenditures in terms satisfactory to us or at all, our business and the results of our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations. Our financing ability may be limited by market restrictions on financing availability for Argentine companies. See “—Argentina’s past default and litigations with holdout bondholders may limit our ability to access international markets.”
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 fact that Argentina’s natural gas reserves are declining, in 2015 and 2016 the volume of natural gas that has been produced from the Neuquén 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 2017, 51.6% of the natural gas transported by our system originated in the Neuquén Basin with the remainder coming primarily from the Austral basin. Since 2009, the quality and the volume of natural gas injected from the Neuquén 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 Neuquén 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 that reduces 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, non-conventional natural gas was discovered in the Vaca Muerta field of the Neuquén Basin by YPF, which at that time was a subsidiary of Repsol S.A. Exploration and exploitation of this natural gas reserve involve high extraction costs. Since the expropriation of YPF, the Government has played an important role in developing the Vaca Muerta field by signing agreements with foreign and local oil companies in order to develop an investment plan aimed at extracting shale gas, which could lead to an increase of the reserves in this basin. 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 by the Government pursuant to the Public Emergency Law.
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We cannot assure you, however, that this new natural gas resource at the Neuquén Basin, or any other measures taken by the Government to increase natural gas production and supply, will be successful in increasing Argentine proved 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 our ability to increase prices in connection with international price increases 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 operations affect the viability of investments in new expansion capacity and processing facilities and, as a result, the timing and amount of our projected capital expenditures for such purposes.
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, towards priority users, including residential customers. See “—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, processing at the Cerri Complex was interrupted because of continued governmental actions to ensure natural gas supply to the domestic market. 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.
The Macri administration has taken several measures to guarantee the production of natural gas. The Ministry of Energy 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 – Business Overview – Liquids Production and Commercialization.” Any additional increase in the costs of our Liquids production and commercialization segment, or decrease in the volume of Liquids processed may adversely affect our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations.
Although our Liquids production and commercialization activities are not subject to regulation by ENARGAS, 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 Secretary of Hydrocarbon Resources (“SHR”) (formerly the Federal Energy Bureau) may establish regulations to cause LPG suppliers 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 publish 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—Business Overview—Liquids Production and Commercialization.”
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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, 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.
After the issuance of Resolution No. 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. For additional information, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Regulatory Proceedings—Tax Claims.”
On March 28, 2016, the Ministry of Energy issued Resolution 28, which instructs ENARGAS to take all the necessary measures to reduce to zero the Natural Gas Processing Charge since 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 it was in force, for which reason the judicial action is still ongoing.
We cannot provide any assurance that our Liquids production and commercialization business will not be subject to any further actions from the Government to increase the Natural Gas Processing Charge or impose any other tax affecting the cost of the natural gas we process in the Cerri Complex, which may have a material adverse impact on our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations.
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 for our own account. 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 since 2004. 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 wells 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.
High volatility in oil and liquids prices continued during 2016. In 2017, the average international prices of propane, butane and natural gasoline registered inter annual increases of 58.5%, 42.0% and 25.7%, respectively. Recently, however, oil and liquids prices have been decreasing, in particular during the fourth quarter of 2017, which trend continued during the first quarter of 2018.
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. As of the date of this Annual Report there is no withholding tax for exports (in LPG and natural gasoline).
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For further information, see: “Item 4. Our Information—B. Business Overview—Liquids Production and Commercialization.”
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 export tax scheme and export regulations (i.e. reestablishing the regime created by Law 26.732) in a manner that could adversely affect our financial condition and results of operations.
Our ethane sales depend on the capacity of PBB Polisur S.A. (“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 subsequently was renewed for the period from May 1, 2016 to May 1, 2017.
On August 1, 2017, we entered into a new agreement with PBB for the purchase and sale of ethane effective from May 1, 2017 and expiring on May 1, 2018.
Pursuant to this agreement, the ethane price is calculated in U.S. dollars and was 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.
In addition, in recent years, PBB has 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. We also cannot assure you that PBB will not decide to reduce its purchases of ethane from us in future renegotiations. These considerations, or our inability to negotiate a new long-term purchase agreement with PBB on similar terms to the agreement that will expire on May 1, 2018, may adversely affect our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations.
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, financial condition, the value of our securities, and our ability to meet our financial obligations.
The failure by our main natural gas transportation customers in renegotiating with the Government their respective licenses to provide natural gas transportation services according to the terms of the Public Emergency Law 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 or otherwise breach their obligations to us in the future, and therefore negatively impact our financial situation.
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 the Company when resources are allocated to the domestic market instead of us. Over recent years, this compensation has been paid with significant delays.
For the year 2017, we accrued government grants for Ps. 235.5 million. As of December 31, 2017, Ps. 173.3 million recorded as other current receivables remains outstanding.
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, financial condition, the value of our securities, and our ability to meet our financial obligations would be adversely affected.
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Our failure to renew firm transportation contracts, could adversely affect our business, results of operations, 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 diminishing supply of natural gas from the Neuquén 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, 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:

| · | incur or permit to exist certain liens;

| · | incur additional indebtedness;

| · | pay dividends or make other restricted payments;

| · | make capital investments and other investments;

| · | enter into sale and lease-back transactions;

| · | enter into transactions with affiliates;

| · | sell, transfer or otherwise dispose of assets; and

| · | 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 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, 2017, our physical assets are insured for up to U.S.$2,110 million and for the loss of profit resulting from the material damages by an amount of U.S.$388.9 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, 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, 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 towards 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 by any such third party services provider. Therefore, our labor costs may increase as our indemnification responsibilities and costs expand, adversely affecting the result 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, 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 or arbitral 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 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, 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 the Argentine Republic 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 to be imposed on us. We have implemented a system of safety, occupational health, environmental and quality controls, which are documented and monitored as part of our Integrated Management System certified in accordance with ISO standards 14,001 and 9001, and OHSAS 18001. 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.
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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 were 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 MEGA. 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, there is a risk that additional gas processing facilities, such as the MEGA plant, could result in lower volumes or lesser natural gas quality 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, in the past, we 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. None of those contracts is in effect as of the date of this Annual Report and we cannot guarantee that in the future we will obtain equivalent commitments from producers.
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. The natural gas industry in Argentina is going through an expansive stage, being a commitment of the Government for energy development. However, 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 to natural gas output.
As a result of the above mentioned, an increased number of competitors could reduce prices that could make the investments not profitable. In addition, an increase 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.
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 whom both we and TGN are either directly or indirectly connected (Camuzzi Pampeana, Metrogas and BAN). We compete directly with TGN for the transportation of natural gas from the Neuquén 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, financial condition, the value of our securities, and our ability to meet our financial obligations.
Downgrades in our credit ratings could have negative effects on our funding costs and business operations.
Credit ratings are assigned to the Company. The credit ratings are 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 market 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.
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Our business has become increasingly dependent on digital technologies to conduct day-to-day operations and we may be subject to cyber-attacks or other risks related to new technologies.
As dependence on digital technologies has increased, cyber incidents, including deliberate attacks or unintentional events, have also increased worldwide. Although we have extended our security policy to the industrial systems, reinforcing the defenses in case of denial of service and increasing the monitoring of suspicious activities, our technologies, systems, networks and those of our business associates have been and may continue to be the target of cyber-attacks or information security breaches, which could lead to disruptions in critical systems (such as SCADAs, DCS Systems), the unauthorized release of confidential or protected information, corruption of data or other disruptions of our business operations. 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 cyber-attacks; however, as cyber-attacks continue to evolve, there can be no assurance that we will not suffer any cyber-attack in the future thus affecting 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, 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 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 arising from 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 non-recoverable deductible amounts, and in any event are subject to caps per event. In addition, any of these events could cause adverse effects on 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.
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.
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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 who were to leave 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.
Should we have to adopt the revaluation model for our property, plant and equipment, we may have an impact on our results of operations.
For purposes of the tariff setting process in the RTI, the ENARGAS considered a revalued amount of our property, plant and equipment (“PPE”), which is substantially higher than their book value. On April 6, 2018 we and other natural gas distribution and transportation companies regulated by ENARGAS received notice from the regulator with respect to its communication to the CNV stating that ENARGAS is evaluating whether to require regulated companies to apply certain accounting policies with respect to the valuation of PPE to conform to the criteria of valuation of fixed assets required by ENARGAS in RTI. Should we instead have to adopt the revaluation model permitted by IFRS (fair value at the date of the revaluation, less subsequent accumulated depreciation and impairment losses, if any), changes in our PPE valuation criteria may impact the depreciation of our fixed assets and ultimately our net income and also our other comprehensive income accounts.
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 American Depositary Receipts (“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 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. 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 un-invested 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.
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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 issuance of this Annual Report, our controlling shareholder is Compañía de Inversiones de Energía S.A. (“CIESA”), which holds 51% of the common stock. FGS holds 23.1% of our common stock. Local and foreign investors hold the remaining ownership of TGS’s common stock. CIESA is under co-control of: (i) Petrobras Argentina S.A. (in the process of merging with Pampa Energía S.A. (“Pampa Energía”), which holds 10% of CIESA’s common stock, (ii) CIESA Trust (whose trustee is TMF Trust Company (Argentina) S.A. and whose beneficiary is Petrobras Hispano Argentina SA, a wholly owned subsidiary of by Pampa Energía) (the “CIESA 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 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 interests of our other investors. See “Item 7. Major Shareholders and Related Party Transactions.”
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”) and the terms of the 2014 Notes, 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 ADR 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 Law and Law No. 26,831 (the “Capital Market Law”), 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 U.S. Securities Exchange Act of 1934, as amended (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.
On September 23, 2013, the Argentine income tax law was amended by Law No. 26,893. Pursuant to the amended law, the sale, exchange or other transfer of shares and other securities is subject to capital gain 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 gain 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.
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On December 29, 2017, the Macri Administration enacted, through Decree No. 1112/2017, Law No. 27,430 (the “Tax Reform”). The Tax Reform establishes that only the results from sale, transfer or disposition 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. The Decree N° 279/2018 provides that until the decree of the Income Tax Law regulates the definition of non-cooperative jurisdiction, it will be applicable the white list established in the Decree N° 589/2013 (dated 05/27/2013) to determine if a jurisdiction is non-cooperative jurisdiction.
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 and has been granted with a public offering authorization granted 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 N° 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 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 your 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 relating to the ADRs. 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 your 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 U.S. Securities Act of 1933 (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.
In addition, under the General Companies Law, 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, including voting rights. 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 IGJ, your ability to exercise your rights as a holder of our Class B Shares may be limited.
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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, whose integrated operations included natural gas transportation and distribution. GdE was divided into 10 companies: two transportation companies and eight distribution companies.
Our legal name is Transportadora de Gas del Sur S.A. We are a sociedad anónima, incorporated with limited liability under Argentine law 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, as of December 31, 2017, 57.4% of the total natural gas transported in Argentina, through 5,706 miles of pipeline, of which we own 4,745 miles. We operate the remaining 961 miles, which are owned by the Gas Trusts, for a regulated tariff. Our transportation system connects the Neuquén, San Jorge and Austral basins, located in the south and west of our country, to the greater Buenos Aires area and the major consumption centers of southern Argentina. Substantially all of our transportation capacity, approximately 2.8 Bcf/d as of December 31, 2017, 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 37.2%, 28.2% and 24.0% of our total net revenues for the years ended December 31, 2017, 2016 and 2015, 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 10-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. 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 renewal 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, should not be granted a renewal. To the extent that we were found not to have complied with the obligations described above or chose not to seek renewal of our License, we would be entitled to certain specified compensation. See “—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 natural gas pipeline system in Argentina as of December 31, 2017:
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 Galván loading and storage facility in Bahía Blanca in the Province of Buenos Aires where Liquids are separated from 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 Neuquén, San Jorge Gulf 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 56.1%, 64.4% and 68.8% of our total net revenues during the years ended December 31, 2017, 2016 and 2015, 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 telecommunication services. Aggregate net revenues from our midstream and telecommunications business segment represented 6.6%, 7.4% and 7.2% of our total net revenues during the years ended December 31, 2017, 2016 and 2015, respectively.
Controlling shareholders
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 23.1% of our common stock. CIESA is under co-control of: (i) Petrobras Argentina S.A. (under a merger process with Pampa Energía), which holds 10% of CIESA’s common stock, (ii) CIESA Trust, which has a trust shareholding of 40% of the share capital of CIESA) and (iii) GIP and PCT, which directly and together with WST indirectly through PEPCA, hold a 50% of the shareholding in CIESA.
For additional information regarding CIESA’s current organizational structure, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”
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Capital expenditures
From January 1, 2015 through December 31, 2017, our aggregate capital expenditures amounted to Ps. 3,328.5 million. Such capital expenditures include Ps. 1,763.1 million related to improvements to our gas transportation system, Ps. 393.7 million related to liquids production and commercialization activities and Ps. 1,171.7 million related to other services activities.
For the year 2016, other services capital expenditures of Ps. 750.4 million were financed through a financial leasing agreement entered into with Pampa Energía in August 2016. The objective of this agreement was to finance the acquisition of property, plant and equipment located in the Río Neuquén field, which will allow us to expand our midstream services in such area.
For the year 2017, we made capital expenditures of Ps. 781.9 million due to the execution of Five-Year Plan and the Investment Plan works. 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.
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 37.2%, 28.2% and 24.0% of our total net revenues in the years ended December 31, 2017, 2016 and 2015, respectively. In 2017, 80.7% 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 2017, the amount of net revenues derived from natural gas firm transportation contracts was Ps. 3,557.1 million, representing 78.0% 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 to whether they have natural gas firm or interruptible contracts. See “Regulatory Framework—Industry Structure” below for more information.
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, 2017, our service area contains 6.1 million end-users, including 4.0 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, BAN, Camuzzi Pampeana and Camuzzi Sur. These natural gas distribution companies serve, in the aggregate, 63.8% 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 2017, 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) |  |  | 245.3 |  |  |  | 22.2 | % |  |  | 2.4 |  |  |  | 88 | %
Camuzzi Pampeana (1) |  |  | 175.1 |  |  |  | 15.9 | % |  |  | 1.4 |  |  |  | 98 | %
Camuzzi Sur |  |  | 156.4 |  |  |  | 14.2 | % |  |  | 0.7 |  |  |  | 100 | %
BAN (1) |  |  | 127.9 |  |  |  | 11.6 | % |  |  | 1.6 |  |  |  | 64 | %
|  |  |  |  |  |  | 63.8 | % |  |  | 6.1 |  |  |  |  |

(1) | Also connected to the TGN system.

Source: ENARGAS
The firm average contracted capacity for our four largest distribution customers, Pampa Energía and for all other customers, as a group, as at December 31, 2017, 2016 and 2015, together with the corresponding net revenues derived from natural gas firm transportation services during such years and the net revenues derived from interruptible services during such years are set forth below:

|  | For the years ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
|  | 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 |  |  |  | 1,185.2 |  |  |  | 639 |  |  |  | 450.6 |  |  |  | 752 |  |  |  | 268.6 |
Camuzzi Pampeana |  |  | 558 |  |  |  | 858.3 |  |  |  | 516 |  |  |  | 285.8 |  |  |  | 470 |  |  |  | 154.2 |
BAN |  |  | 364 |  |  |  | 626.1 |  |  |  | 357 |  |  |  | 226.6 |  |  |  | 346 |  |  |  | 110.3 |
Camuzzi Sur |  |  | 388 |  |  |  | 177.6 |  |  |  | 388 |  |  |  | 51.9 |  |  |  | 381 |  |  |  | 33.4 |
Pampa Energía(1) |  |  | 49 |  |  |  | 27.2 |  |  |  | 39 |  |  |  | 21.7 |  |  |  | 78 |  |  |  | 27.7 |
Others |  |  | 844 |  |  |  | 682.7 |  |  |  | 837 |  |  |  | 448.6 |  |  |  | 805 |  |  |  | 213.5 |
Total firm |  |  | 2,793 |  |  |  | 3,557.1 |  |  |  | 2,776 |  |  |  | 1,485.2 |  |  |  | 2,832 |  |  |  | 810.9 |
Interruptible and others: |  |  |  |  |  |  | 1,002.7 |  |  |  |  |  |  |  | 602.0 |  |  |  |  |  |  |  | 203.1 |
Total |  |  | 2,793 |  |  |  | 4,559.7 |  |  |  | 2,776 |  |  |  | 2,087.2 |  |  |  | 2,832 |  |  |  | 1,014.0 |

(1) | Until July 27, 2016, includes average firm contracted capacity and net revenues to Petrobras Argentina. From that date, as a consequence of the merger between Pampa Energía and Petrobras Argentina, includes the average firm contracted capacity and net revenues corresponding to Pampa Energía.

During 2017, contracts for firm transportation capacity for an aggregate of 1,476.1 MMcf/d were renewed for an average term of twelve years. Likewise, new contracts were awarded for a total of 95.3 MMcf/d associated with capacities available in the system that will generate additional revenues from the beginning of 2018.
Pipeline Operations
Pipeline Deliveries. The following table sets forth our average daily natural gas firm and interruptible transportation deliveries for 2017, 2016 and 2015:

|  | For the year ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Firm: |  | Average daily deliveries (MMcf/d) |  |  | Average daily deliveries (MMcf/d) |  |  | Average daily deliveries (MMcf/d) |
Metrogas |  |  | 533 |  |  |  | 544 |  |  |  | 615 |
Camuzzi Pampeana |  |  | 378 |  |  |  | 371 |  |  |  | 378 |
Camuzzi Sur |  |  | 247 |  |  |  | 240 |  |  |  | 247 |
BAN |  |  | 208 |  |  |  | 229 |  |  |  | 226 |
Others |  |  | 512 |  |  |  | 505 |  |  |  | 431 |
Subtotal firm |  |  | 1,879 |  |  |  | 1,889 |  |  |  | 1,897 |
Subtotal interruptible |  |  | 448 |  |  |  | 466 |  |  |  | 434 |
Total |  |  | 2,327 |  |  |  | 2,355 |  |  |  | 2,331 |
Average annual load factor (1) |  |  | 83 | % |  |  | 76 | % |  |  | 82 | %
Average winter heating season load factor (1) |  |  | 90 | % |  |  | 93 | % |  |  | 87 | %

(1) | Average daily deliveries for the period divided by average daily firm contracted capacity for the period, expressed as a percentage

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Average daily injections from local producers to our system were 2,327 MMcf/d in 2017, very similar to the 2,355 MMcf/d volume reached in 2016. Our efficient administration of natural gas dispatch, combined with the cooperative interaction among the different industry actors and the Government, coupled with a more intensive maintenance plan, allowed us to operate the pipeline in a manner that met the higher demand. ENARGAS continued to restrict the supply of natural gas to the industrial and generation customers in order to re direct and target the fluid to the users considered to be priority, mainly residential, commercial and compressed natural gas stations. Restrictions continued to decline as a result of higher temperatures recorded during the 2017 winter as compared to the 2016 winter, and consequently lowered residential consumption.
The average daily injection of natural gas during 2016 was higher than that made during the 2015. Within the framework of the aforementioned, during winter 2016, the natural gas pipeline system responded adequately to the demands of our customers, although the intervening authority continued restricting the supply of natural gas to the industrial and generation market in order to re-direct and destine the fluid to the users considered priority, mainly residential, commercial and compressed natural gas stations. However, these restrictions were lower as a consequence of the higher average injections made into the system.
Natural Gas Transportation System Improvements. In 2017, 2016 and 2015, we made capital expenditures aimed at the enhancement of our natural gas transportation system’s safety and reliability in the aggregate amount of Ps. 597.5 million. We operate our pipeline system and the pipeline constructed pursuant to the Gas Trust in accordance with Argentine natural gas transmission safety regulations, which are substantially similar to U.S. federal regulations. We believe that, based on the pipeline inspection reports we have received to date and the pipeline repairs and/or replacements being made to the General San Martín and Neuba I and II pipelines, the current operation of the pipeline system poses no significant safety risks. However, in order to identify changes in the safety regulations that our pipeline system has to comply with, we conduct inspections for the purpose of detecting increases in the population density in the areas through which our pipeline system extends. Changes in population densities may require us to increase safety measures in certain sections of the system.
The “greater” Buenos Aires area is the surrounding area of the City of Buenos Aires, including the City of Buenos Aires. The last part of our natural gas transportation system (the “Buenos Aires ring”) is located in the greater Buenos Aires area, where we transfer natural gas to deliver natural gas to major natural gas distribution companies. At the Buenos Aires ring, in the section ranging from General Rodríguez to General Pacheco, we conducted thorough quantitative risk assessments and implemented measures designed to minimize the risk in this segment, which runs through the most densely populated part of Argentina. Among the main works undertaken toward this end are the installation of concrete tiles, the signaling of the facilities and the odorization of natural gas. In the rest of the Buenos Aires ring, works were also carried out, including the installation of optical fiber for the detection of intruders in the section from Cañuelas to Ezeiza, the testing of the adequacy of shirt pipes in intersections, the inspection of the entire power tanks of valve actuators, among others. Additionally, quantitative risk analysis was carried out on 510 miles of our natural gas transportation system complying with NAG-100 part G regulations to determine points with greater probability of failures and their potential impact on the different receivers (namely, the population, the environment, the customers, among others).
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During 2016, we experienced one rupture in the General San Martín pipeline. The rupture caused a brief disruption of services to certain customers. No casualties or significant damages to third parties were experienced as a result of the rupture. For this reason, we have implemented measures to reduce the service interruptions for any consumption center. Except for the rupture described above there has not been any other major safety related incident in our system.
During 2018, the stress corrosion cracking assessment and mitigation plan (the “SCC”) for the detection of cracks, a continuous resistivity survey was carried out on the segments of the San Martín and Neuba I gas pipelines located in the Province of Buenos Aires, which will feed the susceptibility model.
In 2017, our pipeline system satisfactorily met the demands generated by the winter season and the requirements of the regulatory entity. To that end, we carried out several maintenance, prevention and inspection tasks.
For example, in 2017 we conducted integrity assessment tasks, such as in-line inspections along 263 miles of pipeline and direct assessment through Close Interval Survey (CIS) and Direct Current Voltage Gradient Survey (DCVG) techniques (sections with no scraper traps) over 353 miles of pipelines. These tasks have been conducted to identify, assess and control threats to pipelines integrity, such as stress corrosion cracking and internal corrosion, material and geometrical defects, manufacture and/or construction anomalies, among others.
In line with our permanent recoating program, (consisting of works to replace the coating of the pipeline that allows it to be protected from external effects) we successfully conducted recoating works on 1.2 miles of the 16 Transfer Pipeline in the Province of Neuquén and 4 miles on the Southern San Martín Pipeline in the Province of Río Negro in the proximities of the town of San Antonio Oeste. Additionally, we started a 12-mile recoating section in the discharge of Bosque Petrificado Plant, which is expected to be finished by April 2018. In these works we have added non–destructive magnetic particles and ultrasound testing for the identification of anomalies and stress corrosion cracking in longitudinal weld seams. As a result of this survey, we detected anomalies that could be removed through pipe replacement.
Within the SCC, we conducted an inline inspection with “EMAT” technology to detect cracks over 445 miles of the San Martín Austral Pipeline. Based on the first report received for the Río Seco – Bosque Petrificado section, 23 sites were assessed, out of which 19 required immediate repair through the replacement of pipeline in 12 cases and installation of reinforcement sleeves in the seven remaining sites. We have also conducted 25 SCC assessment pits in the discharges of the Piedrabuena, San Julián, Río Seco and Bosque Petrificado compressor plants, not having found cracks in them. Finally, we performed a survey that applied constant strain tests on the San Martín and Neuba I pipelines (in their sections located in the Province of Neuquén, Rio Negro, Tierra del Fuego and Buenos Aires), totaling 1,186 miles. The result of this study will feed the SCC susceptibility model.
On the other hand, pursuant to an analysis and planning performed by the duct integrity team, we conducted the assessment of 51 external corrosion and/or geometrical defects.
In the area of cathodic protection, to mitigate the advance of corrosion and improve reliability, we continued strengthening the system with the installation of several new units and the renewal of old facilities. Said measures were reinforced with the execution of the remote monitoring of units, for which the number of monitoring units was increased.
To minimize risks to the pipeline in the Buenos Aires ring section from General Rodríguez to General Pacheco, the area with greatest demographic concentration, we continued with the implementation of works such as corrosion risk mitigation, the adequate signaling of facilities, the correct natural gas odorization in the section, strengthening the protection of the facilities, among others. Outside the Buenos Aires ring area we also conducted risk assessment and mitigation tasks in the areas with greatest concentration of population. All these efforts are driven by the firm goal of ensuring the safety of our community and continue extending the scope of our services.
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Pipeline Expansions. In light of the lack of expansion of the natural gas transportation system in 2002 and 2003 and of growing natural gas demand in all segments of the Argentine economy, the Government established in April 2004, through Decree No. 180/04, the framework to create the Gas Trusts to support investments in the natural gas transportation and distribution systems. In addition, Resolution No. 185/04 issued by MPFIPyS sets the specific guidelines to develop such expansions under the framework of Decree No. 180/04. These vehicles enabled the financing of the expansion works mentioned below.
In 2005, the first Gas Trust was constituted to carry out the first expansion (the “First Expansion”). The First Expansion, completed in August 2005, was achieved through the construction of approximately 316 miles of pipeline and a compression capacity increase of 30,000 HP through the construction of a new compressor plant and the revamping of some existing units. The Gas Trust invested U.S.$311 million, which was repaid by applying 20% of the revenues generated by the additional firm contracted capacity plus a surcharge, which is ultimately paid by industries, power plants and CNG suppliers for whom gas transportation supply is made under firm contracts. We invested U.S.$40 million in the First Expansion (including Value Added Tax (“VAT”) in the amount of U.S.$7 million), which was recovered through our right to collect 80% of the revenues obtained from the additional transportation capacity based on our current tariff rate (but not to the extent of certain increased rate that may apply in the future).
In addition, in April 2006, the MPFIPyS, the Federal Energy Bureau and natural gas transporters, among others, signed a letter of intent to carry out the Second Expansion (the “Second Expansion”) which is significantly larger than the First Expansion. The Second Expansion would increase the aggregate transportation capacity of our system by 378 MMcf/d. It involved the installation of over 708 miles of pipeline loops and 196,800 HP of additional power and the construction of a new pipeline in the Magellan Strait (the “New Magellan Strait Pipeline”), which permits the transportation of additional natural gas from the Austral basin. The New Magellan Strait Pipeline was completed in March 2010 and is 24 miles long.
Ownership of the works of the Second Expansion is vested in Nación Fideicomiso S.A. (“NAFISA”) and the investment is financed by other gas trust funds whose trustors are the natural gas producers and the shippers that have subscribed to the additional capacity. The works are being repaid with a new tariff charge that will ultimately be paid by the business and industrial users with firm transportation contracts, and not by the residential users. In addition, as the assets related to the Second Expansion become operational, we are in charge of their operation, maintenance (together with the assets related to the First Expansion) through an operation and maintenance agreement and the rendering of natural gas firm transportation services. In order to compensate us for the operation and maintenance services provided with respect to the incremental transportation capacity associated with the expansions carried out by the Gas Trusts and us since 2006, we are paid a monthly CAU, which currently is lower than the transportation tariff. The CAU has resulted in increased fees and revenues in our natural gas transportation segment as the expansion works have become operational.
On July 20, 2016, NAFISA notified us of the Ministry of Energy’s decision to suspend works for the Second Expansion. We took measures for the collection of the amounts owed by NAFISA to us. Subsequently, on February 2017, NAFISA resumed repayment of the promissory notes it issued to us evidencing NAFISA’s payment obligations to us for the work we completed on the Second Expansion.
In May 2011, we received debt securities (valores representativos de deuda) from the Gas Trust, issued February 2010, which cancelled the account receivable related to services rendered for the 247 MMcf/d expansion works of the Second Expansion. These debt securities were issued in an aggregate principal amount of Ps. 48.1 million, amortize principal in 85 consecutive and equal monthly installments, and bear interest at the Coeficiente de Estabilización de Referencia established by Decree No 214/2002 (“CER”), or Reference Stabilization Ratio as published by the BCRA, plus a fixed spread of 8% from their date of issue.
In October 2011, we, the Federal Energy Bureau and the trustee of the second Gas Trust agreed on the terms and conditions under which we manage the operation of the assets associated with the Second Expansion. As compensation for these additional services, we received a total of Ps. 37 million for the 131 MMcf/d expansion works remaining to complete the Second Expansion, in addition to the debt securities received in May 2011. The amendment agreement provided for an advance payment equal to the 20% of the total remuneration, which was paid, 10% in cash and 90% in the form of additional debt securities from the Gas Trust. Those debt securities valued at Ps. 21.6 million (including accrued interest) as of December 31, 2017 are recorded in the “Other financial assets at amortized cost” caption in our Financial Statements. The securities are being amortized in 96 monthly, consecutive and equal installments and bear interest at CER plus a fixed spread of 8% from their date of issue.
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In February 2017, the Ministry of Energy called for a national public tender for the purchase of pipes, with the aim of extending the natural gas network in certain areas of the province of Santa Fe, the Patagonian Andes and the country’s sea shore. These four projects will require investments totaling Ps. 4,078 million and will reach 140,500 homes. One of these projects consists of the construction of the Cordillerano natural gas pipeline, which will be connected to our pipeline system. The expansion of the capacity will be done from the two points that feed our system from the field called The Zorro. We will act as managers of the Cordillerano project. This project also includes the installation of the Río Senguerr Compressor Plant, in Neuquén. As of the date of this Annual Report, the Cordillerano pipeline continues under construction.
We have entered into a joint arrangement (“UT”) with Sociedad Argentina de Construcción y Desarrollo Estratégico S.A. (“SACDE”) 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” and the execution of the works adjudicate and their related works, among others. As a result of this bid, the Ministry of Energy has awarded the UT the construction of the Regional II - Recreo / Rafaela / Sunchales Gas Pipeline. As of the date of issuance of this Annual Report, activities related to such work have not begun.
Technical Assistance Services Agreement. As part of its bid to purchase a 70% interest in us from the Government, CIESA was required to have an investor-company with experience in natural gas transmission that would serve as our technical operator. In late 1992, we entered into a Technical Assistance Agreement with PEPCA (the “Technical Assistance Agreement”), an indirect, majority-owned subsidiary of Enron. The term of the Technical Assistance Agreement was for eight years from December 28, 1992, renewable automatically upon expiration for an additional eight-year term and was assigned to Petrobras Argentina S.A. as part of a master settlement agreement. Since July 2004, Petrobras Argentina S.A. was our technical operator and was in charge of providing assistance related to, among others, the operation and maintenance of the natural gas transportation system and related facilities and equipment in order to ensure that the performance of the system is in conformity with international natural gas transportation industry standards and in compliance with certain Argentine environmental standards.
On July 27, 2016, Petrobras Argentina S.A. was acquired by Pampa Energía. For further information see, “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”
With the prior approval of ENARGAS and our Board of Directors, in December 2017, we and Pampa Energía agreed to a technical, financial and operational assistance service agreement (the “Technical Assistance Services Agreement”) for a three-year term, expiring on December 28, 2020, which substantially contains the same terms as the Technical Assistance Agreement, as amended. Any amendment, renewal or even termination of the Technical Assistance Services Agreement has to be authorized by ENARGAS. Pursuant to the Technical Assistance Services Agreement, the currency for the technical assistance fee paid to Pampa Energía is U.S. dollars. Our Audit Committee analyzed the Technical Assistance Services Agreement and concluded that its price is on market terms.
The Technical Assistance Services Agreement sets out the services to be provided by Pampa Energía to us, at the request of our Chief Executive Officer (“CEO”), in return for payment of a technical, financial and operational assistance fee paid on a monthly basis equal to the greater of (i) a fixed annual sum of U.S.$3 million or (ii) 7% of the amount obtained after subtracting U.S.$3 million from net income before interests and income taxes of the year.
For the year ended December 31, 2017, we recorded a charge of Ps. 354.5 million for services rendered by Pampa Energía pursuant to the Technical Assistance Services Agreement.
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The services provided by Pampa Energía to us under the Technical Assistance Services Agreement include assisting us in the following matters to the extent that they arise in the ordinary course of business: (i) replacement, repair and renovation of facilities and equipment to ensure that the performance of the system is in accordance with international gas transportation industry standards; (ii) preparation of performance evaluations, operating cost analysis, construction assessments and advice related to budget control; (iii) advice regarding safety, reliability and efficiency of system operation and gas industry services; (iv) advice regarding compliance with applicable laws and regulations relating to safety and industrial hygiene, pollution and environmental protection of the system; (v) routine and preventive maintenance of the system; (vi) staff training; (vii) design and implementation of the procedures necessary to accomplish the aforesaid services; (viii) financial and insurance advice; (ix) advice on operational improvements; (x) advice on unregulated business and (xi) design and implementation of a management information and inspection system for all major aspects of natural gas transportation and liquids production.
The Argentine Natural Gas Industry
Historical Background. Prior to the privatization of GdE, the Argentine natural gas industry was effectively controlled by the Government.
In 1992, the Natural Gas Law was passed providing for the privatization of GdE. The Natural Gas Law and the related decrees provided for, among other things, the transfer of substantially all of the assets of GdE to two natural gas transportation companies and eight distribution companies. Currently there are nine authorized companies to distribute natural gas in Argentina. The ninth concession was added in 1998 and covers an area that includes the Mesopotamian provinces, Formosa, Chaco, Entre Rios and Misiones which previously had no network for natural gas service. The license for the Mesopotamian region was awarded to GasNea. The transportation assets were divided into two systems on a broadly geographical basis, the northern and southern trunk pipeline systems, designed to give both systems access to natural gas sources and to main centers of demand, including the greater Buenos Aires area. As a result of the division, our natural gas transportation system is connected to the two natural gas distribution systems serving the greater Buenos Aires area, one serving Buenos Aires Province (excluding the greater Buenos Aires area and the northeast of this province) and one serving southern Argentina. TGN is connected to five distribution systems serving northern Argentina. TGN is also connected to the natural gas distribution systems serving the greater Buenos Aires area and, to a limited extent, the natural gas distribution system serving Buenos Aires Province (excluding the greater Buenos Aires area). In the two instances where we are directly connected to a natural gas distribution system with TGN, we are the principal supplier of natural gas transportation services.
The Natural Gas Law and the related decrees granted each privatized natural gas transportation company a license to operate the transferred assets, established a regulatory framework for the privatized industry based on open, non-discriminatory access, and created ENARGAS to regulate the transportation, distribution, marketing and storage of natural gas. The Natural Gas Law also provided for the regulation of wellhead gas prices in Argentina for an interim period. Prior to deregulation, the regulated price was set at U.S.$0.97 per million British thermal units (“MMBtu”) at the wellhead, which had been the regulated price since 1991. Pursuant to Presidential Decree No. 2,731/93, gas prices at the wellhead were deregulated as of January 1, 1994 and, from that date until the year 2002, the average price of gas increased.
In spite of the devaluation of the peso in 2002, increases in wellhead natural gas prices were limited until 2004. From May 2004 until August 2005, wellhead gas prices increased in a range from 105% to 180% (depending on the gas basins) for power plants, industries and large businesses. These adjustments were complemented by lower increases in the price of natural gas for CNG vehicles.
In October 2008, the former Federal Energy Bureau through Resolution No. 1,070/2008 increased natural gas at the wellhead for residential, CNG and power station users. According to this resolution, natural gas producers agreed to transfer all of the increase in prices actually received less certain deductible amounts to a trust fund established by Law No. 26,020, to allow low-income consumers with no access to natural gas to buy LPG at a subsidized price (the “Stabilization Agreement”). With Resolution No. 73/2015, the Federal Energy Bureau, under Decree No. 470/2015, ordered the termination of the trust approved by Resolution No. 1,080/2008 with effect from April 1, 2015. Through the Stabilization Agreement, we agreed to supply LPG fractionation companies at a reference price, which is substantially below market prices, certain volumes of LPG, which are determined by the SHR. As compensation, we received a fixed fee determined by the SHR.
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Currently, the natural gas wellhead prices remain regulated in most cases for residential, power plants and CNG users.
In recent years, the Argentine natural gas industry has experienced rising demand, decreased supply, and lower investment in exploration, production, transportation and distribution of natural gas as a result of economic factors, including the economic recovery of many industries and GDP growth since 2003, and government restrictions on increases in the wellhead price of natural gas and in the transportation and distribution tariffs.
In order to address these factors, the Government played a decisive role in the natural gas industry through a set of measures designed to address the combination of rising demand and lower investment in exploration, production, transportation and distribution of natural gas, including, among others:

| · | creation of Energía Argentina S.A. (“ENARSA”) in 2004 for the purposes of restoring levels of reserves, production and supply of natural gas and meeting the infrastructure needs of the natural gas transportation and electricity industries;

| · | creation of the Gas Plus Program (the “Gas Plus Program”) in 2008, which aims to encourage producers to make further investments in natural gas infrastructure by allowing them to sell the resulting production of natural gas from new fields and fields that require more expensive extraction techniques at higher prices than the current authorized prices. In 2010, the Government increased the price paid to natural gas producers who invest in new fields, shale and tight natural gas under the Gas Plus Program;

| · | hiring of two re-gasifying LNG tankers through ENARSA, in Bahía Blanca (2008) and Escobar (2011), to inject natural gas into the pipeline. The tanker located at Bahía Blanca is connected to our pipeline, and the tanker at Escobar is connected to TGN’s pipeline;

| · | establishment of a framework for the constitution of Gas Trusts to finance natural gas pipeline expansions;

| · | the passage of Law No. 26,741, which declares that hydrocarbons self-sufficiency, as well as their production, industrialization, transport and marketing, are activities of public interest and primary goals of Argentina, empowering the Government to take the necessary measures to achieve such goals;

| · | creation of trust funds (Resolution No. 185/04 of the former MPFIPyS) in order to finance infrastructure works in transportation and distribution of natural gas.

| · | importation of natural gas from Bolivia and Chile, which has increased significantly over the past two years; and

| · | creation of tariff charges to be paid by all consumers other than residential consumers in order to finance natural gas and electricity expansions and the import of natural gas.

In January 2013, in order to encourage the production of natural gas, the Commission of Planning and Strategic Coordination of the National Hydrocarbon Investments Plan (the “Commission”) created by Decree No. 1277/12, issued Resolution No. 1/2013. This resolution creates the Natural Gas Surplus Injection Promotion Program, which aims to evaluate and approve projects contributing to the national self-supply of hydrocarbons through a natural gas production increase and its infusion into the domestic market, as well as to generate higher levels of activity, investment and employment in this sector. Projects included in the Natural Gas Surplus Injection Promotion Program will receive preferential payment terms, allowing a price on additional injection of U.S.$7.5 per MMBtu. The new price for the additional natural gas injected into the pipelines will be funded with funds from the Argentine National Treasury on a monthly basis. The Commission must approve the proposed production increase.
On March 31, 2014, the Federal Energy Bureau issued Resolution No. 226/2014 to implement a Program for the Rational Use of Natural Gas. This Resolution provides a new tariff scheme based on cubic meter consumption and the basin or region of the country. The program encourages a reduction in consumption by providing different prices for those commercial and residential users that effectively reduce consumption.
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By Decree No. 272/2015 of the Executive Branch, dated December 29, 2015, the Commission was dissolved and the functions and powers of federal jurisdiction were transferred to the Ministry of Energy. Meanwhile the provincial authorities preserve the powers that correspond to their jurisdictions.
On March 16, 2016, the Ministry of Energy enacted Resolution No. 24/2016 which delegates to the SHR the following functions, among others:

| · | resolving appeals filed against ENARGAS resolutions;

| · | acting as the enforcement authority of Laws No. 17,319 and 26,020;

| · | managing the investment projects included in the framework of the programs created under Decree No. 1,277/2012, modified by Decree No. 272/2015;

| · | acting as the enforcement authority regarding import and export of fuels; and

| · | through the Decree No. 882/2017, the merger of ENARSA and Binational Energy Enterprises S.A.

Since the beginning of the Macri administration, in December 2015, a series of measures were taken to guarantee supply to meet the growing energy demand. These measures are also aimed at encouraging private investment in the exploration and exploitation of new areas of natural gas production. Among them, the following are listed:

| · | it was taken as a priority to complete the RTI processes to provide a framework of certainty to the operation of public utility companies;

| · | there was a reorganization of the Ministry of Energy and the Unidad de Renegociación y Análisis de Contratos de Servicios Públicos (“UNIREN”) in order to streamline the aforementioned efforts; and

| · | the increase of the PIST and the tariffs of the public transport and distribution of natural gas service have been propitiated in order to correct the deterioration in the supply of this fluid and to reduce the burden that the public subsidies have on the national budget.

During 2016, the Ministry of Energy issued Resolutions 28 and 31. These resolutions: (i) increased the PIST and the tariffs for the transportation and distribution of natural gas, and (ii) instructed ENARGAS to carry out the RTI process. The new prices have been enforced since April 1, 2016. Resolution 28 also established a social tariff regime to subsidize tariffs for the poverty-stricken sectors of the community. The beneficiaries under this regime must register with the Government and meet certain criteria established by the Ministry of Energy.
In addition, on March 30, 2017 the Ministry of Energy enacted Resolution No. 74/2017 (“Resolution 74”), which increased the price of the natural gas consumed by power plants starting on April 1, 2017.
These resolutions were subject to several legal actions questioning their validity and on August 18, 2016, the National Supreme Court of Justice (hereinafter, the “Supreme Court”) issued a decision: (i) requiring compulsory public hearings prior to the establishment of new natural gas transportation and distribution tariffs, (ii) requiring compulsory public hearings prior to the establishment of a new point-of-injection gas price, and (iii) invalidating Resolutions 28 and 31 with respect to residential users, for whom the tariffs effective as of March 31, 2016 were required to be restored.
On August 19, 2016 ENARGAS issued Resolution No. 3953/2016, mandating the holding of the required public hearing, which was held from September 16 to 18 of 2016 (“September 2016 Public Hearing”) to consider the following: (i) determination of the new PIST price (ii) establishment of the transitory tariffs for transportation and distribution of natural gas, to be effective until new tariffs are set by the RTI process, (iii) establishment of new prices for the distribution of undiluted propane gas through networks (“Propane for Networks Agreement”) and (iv) rate adjustments are to be implemented in April and October of each year, until the total elimination of subsidies in 2019, at which time it is expected that prices are expected to reach market prices.
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After the September 2016 Public Hearing, the Ministry of Energy issued Resolution No. 212 – E/2016 (“Resolution 212”) through which among other things:

| · | fixes the natural gas prices in PIST;

| · | establishes that the total amount of natural gas prices in PIST shall not exceed certain limits according to the type of customer;

| · | maintains the social tariff for the protection of the socio-economically most vulnerable sectors;

| · | establishes the new propane prices for the distribution under the Propane Networks Agreement, settling at Ps. 800/Tn for Residential Users and General Service P1 and P2, and Ps. 2,100/Tn for General Service P3 users; and

| · | provides that adjustments will be implemented in the months of April and October of each year, until the total elimination of the subsidies in 2019, at which point PIST is expected to reach market prices.

In January 2017, the Government announced that certain new benefits will be implemented in order to increase oil and natural gas production. This announcement is aimed at attracting local and foreign investments with an emphasis in the Vaca Muerta formation of the Neuquén basin. The announcements included:

| · | an agreement with unions to amend current existing collective bargaining agreements for the sector;

| · | the elimination of the obligation of repatriation of funds due to oil and gas exports currently regulated by Decree No. 1,722/11;

| · | the creation of a program, the Investment in Natural Gas Production from Non-Conventional Reservoirs Stimulus Program, which establishes a support price for the volume of non-conventional natural gas production from concessions located in the Neuquén Basin included in the program. This program will be effective until December 31, 2021 and includes a sliding-scale schedule for the minimum price to be paid per MMBtu: U.S.$7.50 for 2018, U.S.$7.00 for 2019, U.S.$6.50 for 2020 and U.S.$6.00 for 2021; and

| · | the elimination of export duties applicable to oil and gas exports, which became effective on January 7, 2017.

Natural Gas Demand. Natural gas consumption in Argentina has played a significant role in the energy industry in recent years, reaching more than 50% of total national energy consumption, which is greater than the comparable percentage for worldwide energy consumption. The graphics below illustrate the breakdown of natural gas consumption in Argentina in 2003 and 2017 by type of consumer:
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Source: ENARGAS
Beginning in 2003, a sharp increase in natural gas demand occurred as a consequence of: (i) the recovery of certain industries in the Argentine economy since 2003, (ii) the 2002 devaluation of the peso and pesification of transportation and distribution tariffs and the elimination of both tariff and wellhead gas price adjustments, making this fuel relatively inexpensive for consumers as compared to other types of fuel the prices of which are affected by inflation, and (iii) the growth of GDP between 2003 and 2013. As a result, natural gas became, by far, the cheapest fuel in Argentina and high rates of substitution of natural gas for other fuels in industry, power plants and vehicles have been observed. Likewise, the rising demand for gas has also been based on the recovery of many industrial segments of the Argentine economy, and the lack of availability of natural gas to meet current demand represents a challenge for continued industrial growth at the rates achieved in recent years.
The following table sets forth local natural gas consumption by type of consumer since 2003:

|  | 2003 |  |  | 2013 |  |  | 2014 |  |  | 2015 |  |  | 2016 |  |  | 2017 |
Residential (2) |  |  | 704.3 |  |  |  | 1,113.0 |  |  |  | 1,074.8 |  |  |  | 1,091.0 |  |  |  | 1,153.8 |  |  |  | 1,033.4 |
Commercial |  |  | 98.8 |  |  |  | 130.0 |  |  |  | 128.3 |  |  |  | 129.1 |  |  |  | 132.4 |  |  |  | 122.2 |
Industries (3) |  |  | 1,033.6 |  |  |  | 1,198.9 |  |  |  | 1,207.2 |  |  |  | 1,222.2 |  |  |  | 1,169.2 |  |  |  | 1,209.3 |
Power plants |  |  | 846.7 |  |  |  | 1,400.2 |  |  |  | 1,407.1 |  |  |  | 1,443.2 |  |  |  | 1,548.3 |  |  |  | 1,669.7 |
CNG |  |  | 255.4 |  |  |  | 266.9 |  |  |  | 276.0 |  |  |  | 288.4 |  |  |  | 273.5 |  |  |  | 247.1 |
Others (4) |  |  | 37.7 |  |  |  | 43.1 |  |  |  | 42.7 |  |  |  | 41.7 |  |  |  | 46.3 |  |  |  | 42.8 |
Total |  |  | 2,976.5 |  |  |  | 4,152.1 |  |  |  | 4,136.1 |  |  |  | 4,215.5 |  |  |  | 4,323.4 |  |  |  | 4,324.4 |

(1) | Includes distribution users, commercial by-pass, by-pass physical and off system users.

(2) | Includes subdistributors.

(3) | Includes shrinkage natural gas from the Cerri Complex, which is included in Others.

(4) | Includes governmental bodies.

Source: ENARGAS, based on data from the Licensees and off system users.
The demand for natural gas in Argentina is highly seasonal, with natural gas consumption peaks in winter. The source of seasonal changes in demand is primarily residential consumers. In order to bridge the gap between supply and demand, especially with respect to peak-day winter demand, the Government has entered into several natural gas import agreements. The most important agreement was signed with the Bolivian government in June 2006 and amended in May 2010 and July 2012. The agreement provides for the import of natural gas from Bolivia to Argentina to be managed by ENARSA to deal with the drop in domestic natural gas production and in an effort to maintain supplies at similar levels to the previous years.
In 2017, supply from Bolivia –within the framework of the above-mentioned agreement – reached an average volume of 613 MMcf/d, higher than the 554 MMcf/d recorded in 2016. On the other hand, liquefied natural gas (“LNG”) imported by sea, regasified and injected to the natural gas transportation system at the Bahía Blanca and Escobar ports located at the Province of Buenos Aires, recorded an average supply volume of 431MMcf/d in 2017, lower than imports recorded in the year 2016 of 468 MMcf/d. ENARGAS has assigned to us the responsibility of controlling the operation and maintenance of certain new facilities constructed to connect the regasification ship at Bahía Blanca to our existing transportation pipeline.
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Additionally, between June and August 2017 re-gasified LNG was imported from Chilean terminals, which contributed with a monthly average of 105 MMcf/d to TGN transportation system in that winter season.
Gas Supply. For the most part, Argentina’s natural gas reserves were discovered as a result of exploration for oil reserves. There are 24 known sedimentary basins in the country, 12 of which are located entirely onshore, six of which are combined onshore/offshore and 8 of which are entirely offshore. Production is concentrated in five basins: Noroeste in northern Argentina, Neuquina and Cuyo in central Argentina, and Golfo San Jorge and Austral in southern Argentina. In 2017, 51.6% of the natural gas transported by our system originated in the Neuquén Basin with the remainder coming primarily from the Austral basin and the re-gasifying LNG tanker located in Bahía Blanca. Our pipeline system is connected to the Neuquina, Austral and San Jorge Gulf Basin. We are not connected to the Cuyo or Northwest Basin. Set forth in the table below is the location of the principal natural gas producing basins by province, their proved natural gas reserves estimated as of December 31, 2016 and 2015 (the most recent years for which information is available), production in 2016 and 2015 and the calculated reserve life for each basin:

Basin | Location by province |  | Proved Gas Reserves(Bcf)(1)(2) |  |  | Production (Bcf) |  |  | Reserve Life (years)(3) |
|  |  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |
Neuquén | Neuquén, Río Negro, La Pampa, Mendoza (south) |  |  | 5,507.3 |  |  |  | 5,526.2 |  |  |  | 917.1 |  |  |  | 869.8 |  |  |  | 6 |  |  |  | 6 |
Austral | Tierra del Fuego, Santa Cruz (south), and offshore |  |  | 1,625.3 |  |  |  | 4,270.1 |  |  |  | 201.4 |  |  |  | 340.9 |  |  |  | 8 |  |  |  | 13 |
San Jorge Gulf | Chubut, Santa Cruz (north) |  |  | 4,014.7 |  |  |  | 1,716.0 |  |  |  | 374.1 |  |  |  | 201.8 |  |  |  | 11 |  |  |  | 9 |
Cuyo | Mendoza (north) |  |  | 21.1 |  |  |  | 25.7 |  |  |  | 1.8 |  |  |  | 1.9 |  |  |  | 12 |  |  |  | 13 |
Northwest | Salta, Jujuy, Formosa |  |  | 715.9 |  |  |  | 839.2 |  |  |  | 94.3 |  |  |  | 100.7 |  |  |  | 8 |  |  |  | 8 |
Total |  |  |  | 11,884.2 |  |  |  | 12,377.2 |  |  |  | 1,588.7 |  |  |  | 1,515.2 |  |  |  | 7 |  |  |  | 8 |

(1) | Estimated as of December 31, 2016 and 2015, respectively. There are numerous uncertainties inherent in estimating quantities of proved natural gas reserves. The accuracy of any reserve estimate is a function of the quality of available data, and engineering and geological interpretation and judgment. Results of drilling, testing and production after the date of the estimate may require substantial upward or downward revisions. Accordingly, the reserve estimates could be materially different from the quantity of natural gas that ultimately will be recovered.

(2) | Reserve figures do not include significant reserves located in certain Bolivian basins to which TGN is connected.

(3) | Weighted average reserve life for all basins, at the 2016 or 2015 production levels, respectively.

Source: Ministry of Energy.
In 2017, total natural gas production decreased by 0.9% with respect to the previous year, going from 1,589 Bcf to 1,575 Bcf. In this period, the impulse was given mainly by the unconventional exploitation of the Neuquén Basin and the offshore production carried out in the Austral Basin.
During 2017, the average gross production of natural gas was reduced in all the basins except the Austral and Neuquén Basin where it increased 0.8% and 0.6%, respectively, compared to 2016. In the Cuyo basin, production was reduced by 5.6%, in the San Jorge Gulf basin, 6.2% and in the Northwest basin, 10.1%. In the Neuquén basin, the large-scale development of unconventional reservoirs, both tight and shale gas, continued, with the first being the most important one regarding provincial production. According to the information provided by the Ministry of Energy, the conventional production of natural gas was reduced by 6.5% compared to 2016. On the other hand, non-conventional production, as a whole, was 20.2% higher in 2017 compared to 2016.
In order to increase the existing natural gas reserves from the Neuquén Basin, in July 2013, YPF announced the execution of an agreement with Chevron to develop oil and gas shale deposits in this province. During 2014, YPF continued negotiating with oil companies to reach new partnership agreements that will provide technology and capital resources for the exploitation of new reserves. In December 2014, YPF signed agreements with Petronas to invest U.S.$550 million and in January 2015, YPF and SINOPEC signed a memorandum of understanding aimed at eventually collaborating to develop oil-and-gas projects.
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In December 2015, YPF and Dow Argentina S.A., a subsidiary of Dow Chemical Co., announced an investment of U.S.$500 million in 2016 for shale gas exploration in Argentina. Both companies, which have already invested U.S.$350 million in a joint shale gas venture, said in a statement that total investment could reach U.S.$2.5 billion in coming years.
Neuquén Basin. The largest natural gas basin and the major source of natural gas supply for our system is the Neuquén Basin, located in west central Argentina. However, in recent years, its proved natural gas reserves have been decreasing sharply as a result of exploration and exploitation, and new gas reserves have not been found in order to replace the natural gas produced. In December 2010, new non-conventional natural gas was discovered in the Neuquén Basin by YPF. This new natural gas reserve is at the early stages of its exploitation, which will require approximately three to four years, and involve high investments and extraction costs. In recent years, as mentioned above, in order to increase the existing natural gas reserves from the Neuquén Basin, YPF announced the signing of certain agreements to develop oil and natural gas shale deposits in the province of Neuquén. In addition, YPF continues negotiating with oil companies to reach new partnership agreements that will provide technology and capital resources for the exploitation of new reserves.
If brought on-line, this newly discovered reserve could potentially help offset the continued decline of the existing production of the Neuquén Basin. The TGN system also accesses the Neuquén Basin. Of the transported natural gas coming from the Neuquén Basin, approximately 61.0% was transported by us and approximately 39.0% by TGN for the year ended December 31, 2017.
Austral and San Jorge Gulf Basins. Natural gas provided by these basins, located in the southern region of Argentina, was transported mainly by us (Camuzzi Sur also transports natural gas through regional pipelines). In the Austral basin, exploration has centered in and around the basin’s existing natural gas fields and on other fields located offshore. The San Jorge Gulf Basin is primarily an oil-producing basin.
Under the framework enacted by the Government to promote investments after the issuance of Decree No. 929/2013, in 2014, a joint operation was formed by Wintershall, Total and PAE for the investment of U.S.$1,000 million in off-shore gas fields (Vega Pleyade) located in the Tierra del Fuego region. In August 2016, the companies started up production at this field which will have a production capacity of 353.1 MMcf/d.
In addition, ENAP Sipetrol Argentina S.A., YPF and ENARSA signed an agreement to explore and develop offshore fields in the continental shelf of Argentina.
The map below illustrates the distribution of the gas basins in Argentina:
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Regulatory Framework
Industry Structure. The legal framework for the transportation and distribution of natural gas in Argentina comprised of the Natural Gas Law, Decree No. 1,738/92, other regulatory decrees (primarily Decree No. 2255/92 which includes the Basic Rules for Transportation Licenses and Regulations of the Transportation Services), the Pliego, the transfer agreements and the licenses of the newly privatized companies. The Hydrocarbons Law regulates the midstream natural gas industry, under a competitive and partially deregulated system. The Public Emergency Law and related laws and regulations, which are no longer in effect, significantly altered the regulatory regime under which we operated since 2002. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business.”
Natural gas transportation and distribution companies operate in an “open access,” non-discriminatory environment under which producers and certain third parties, including distributors, are entitled to equal and open access to the transportation pipelines and distribution system in accordance with the Natural Gas Law, applicable regulations and the licenses of the privatized companies. In addition, a regime of concessions under the Hydrocarbons Law is available to holders of exploitation concessions to transport their own natural gas production.
The Natural Gas Law prohibits natural gas transportation companies (TGN and us) from also being merchants in natural gas. Also, (i) natural gas producers, storage companies, distributors, and consumers who contract directly with producers may not own a controlling interest (as defined in the Natural Gas Law) in a transportation company; (ii) natural gas producers, storage companies and transporters may not own a controlling interest in a distribution company, and (iii) merchants in natural gas may not own a controlling interest in a transportation or distribution company.
Contracts between affiliated companies engaged in different stages in the natural gas industry must be approved by ENARGAS, which may reject these contracts if it determines that they were not entered into on an arm’s-length basis.
ENARGAS, which was established by the Natural Gas Law, is an autonomous entity responsible for enforcing the provisions of the Natural Gas Law, the applicable regulations and the licenses of the privatized companies. Under the provisions of the Natural Gas Law, ENARGAS is required to be governed by a board of directors composed of five full-time directors appointed by the Executive Branch subject to confirmation by the National Congress. However, from 2004 to 2007, ENARGAS was governed by three directors who were not confirmed by the National Congress, and, since 2007, ENARGAS has been administered by an intervention inspector appointed by the Executive Branch for consecutive 180-day terms. After several renewals, the Executive Branch extended its intervention of ENARGAS and appointed a sub-inspector.
Finally, on January 31, 2018, through Decree No. 84/2018, the Executive Branch appointed Mauricio Ezequiel Roitman as ENARGAS President for a period of five years, thus terminating the intervention period.
ENARGAS has broad authority to regulate the operations of the transportation and distribution companies and has its own budget, which must be included in the Argentine national budget and submitted to the Federal Congress for approval. ENARGAS is funded primarily by annual control and inspection fees that are levied on regulated entities in an amount equal to the approved budget, net of collected penalties, allocated proportionately to each regulated entity based on its respective gross regulated revenues, excluding natural gas purchase and transportation costs in the case of distribution companies. ENARGAS also collects the fines imposed for violations of the Natural Gas Law.
Since 2004, the Government adopted a series of measures to redistribute the effects of the crisis in the energy sector caused by the natural gas shortage. Most of the electrical power stations do not have firm gas supply agreements and have increasingly used imported natural gas or alternative fuels that are more expensive than natural gas produced in Argentina. For this reason, ENARGAS and the Federal Energy Bureau (currently, the SHR) have issued a series of regulations aimed at averting a crisis in the internal system of natural gas supply.
The Executive Branch issued Decree No. 181/04, directing the Federal Energy Bureau to establish a system of priority pursuant to which power stations and natural gas distribution companies (for their residential clients) could receive natural gas in priority to other users, even those with firm transportation and firm gas supply contracts.
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On April 21, 2004, MPFIPyS issued Resolution No. 208/04 that ratified an agreement between the Federal Energy Bureau and natural gas producers to give effect to this new system.
Under certain circumstances and pursuant to the terms of our License, when ENARGAS asks us to restrict the provision of natural gas to clients who hold firm transportation contracts, we are exposed to potential claims from, among others, our customers. Therefore, we have requested that in connection with these new procedures, ENARGAS submit to us written instructions for any such natural gas firm transportation service interruption request. However, in case that ENARGAS does not submit such instruction in the way required by our petition and we do not comply with ENARGAS’s instructions, if any, in order to avoid future claims from our customers, Resolution No. 208/04 will require us to pay the price difference between natural gas and the alternative fuel used by power stations in order to offset the loss resulting from our failure to comply with the instructions.
At the end of May 2007, due to the rising demand for natural gas resulting from unusually low temperatures throughout the country, ENARGAS and the Federal Energy Bureau utilized their authority under Resolution 208/04 for the first time. ENARGAS honored our petition, and submitted written instructions to us. We complied with these instructions and do not believe that our compliance will result in legal action by any of our firm transportation clients, which legal action, if brought, could have a significant adverse economic and financial effect on us. As of the date of this Annual Report, only one client (Profertil S.A.) has brought legal actions against us, in respect of service interruptions that occurred in 2009, 2010 and 2011, which at the date of this Annual Report are in the evidentiary stage. In this action, ENARGAS ruled in our favor alleging that the interruptions were due to the shortage of natural gas.
In October 2010, ENARGAS issued Resolution No. 1,410/2010, which set new rules for natural gas dispatch applicable to all participants in the natural gas industry and imposed new and more severe priority demand gas restrictions on producers. Through this resolution, ENARGAS has the ability to redirect natural gas transportation in order to give priority to residential consumption.
On June 1, 2016, the Ministry of Energy issued Resolution No. 89/2016, which requires ENARGAS to develop a procedure to amend and supplement ENARGAS Resolution No. 1,410/2010 and establish daily operating conditions of the transportation and distribution systems. It also establishes a methodology to satisfy the demand of 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.” Pursuant 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 determines adjustments to be made to the daily natural gas deliveries to address such shortage, considering the availability of natural gas and the demand of residential consumers and power plants.
Although the natural gas supply shortage did not create a bottleneck in the transportation capacity that prevented the system from meeting increasing demand since 2008, the Government continues to impose restrictions from time to time on the consumption of natural gas by certain customers that hold firm transportation contracts with us, in an effort to redirect and target the supply to the demand regarded as top priority, mainly residential users, CNG stations and industries connected to the distribution network. Such restrictions have affected direct shippers who have firm transportation contracts with us, as well as industries in different distribution areas of the country.
We do not believe that our compliance will result in legal action by any of our natural gas firm transportation clients. However, any legal action, if brought, could have a significant adverse economic and financial effect on us. See “Item 3 Key Information—D. Risk Factors.”
Our License. Our License authorizes us to provide the public service of natural gas transportation through the exclusive utilization of the southern natural gas transportation system. Our License does not grant us an exclusive right to transport natural gas in a specified geographical area and licenses may be granted to others for the provision of gas transportation services in the same geographical area. TGN’s natural gas transportation system is operated under a license containing substantially similar terms to those described below and elsewhere herein.
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Our License has been granted by the Executive Branch by Decree No. 2451/92 for an original period of 35 years, beginning on December 28, 1992. However, the Natural Gas Law establishes that TGS may request ENARGAS to renew its License for an additional period of ten years. ENARGAS must then evaluate the performance of TGS and raise a recommendation to the PEN. At the end of the period of validity of the License, 35 or 45 years, as the case may be, the Natural Gas Law requires that a new tender be called for the granting of the license. As long as we have substantially complied with our obligations under the License, we have the option to match any offer made by a third party to the Executive Branch.
Our License also places certain other rights and obligations on us relating to the services we provide. These include:

| · | operating and safety standards;

| · | terms of service, including general service conditions such as specifications regarding the quality of gas transported, major equipment requirements, invoicing and payment procedures, imbalances and penalties, and guidelines for dispatch management;

| · | contract requirements, including the basis for the provision of service, e.g., “firm” or “interruptible”;

| · | mandatory capital investments to be made over the first five years of the license term; and

| · | applicable rates based on the type of transportation service and the area serviced.

Our License establishes a system of penalties in the event of a breach of our obligations thereunder, including warnings, fines and revocation of our License. These penalties may be assessed by ENARGAS based, among other considerations, upon the severity of the breach or its effect on the public interest. Fines of up to Ps. 500,000 may be levied for any breaches. Revocation of our License may only be declared by the Executive Branch upon the recommendation of ENARGAS. Our License specifies several grounds for revocation, including the following:

| · | 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;

| · | total or partial interruption of the service for reasons attributable to us, affecting completely or partially transportation capacity during the periods stipulated in our License;

| · | sale, assignment or transfer of our essential assets or otherwise encumbering such assets without ENARGAS’s prior authorization, unless such encumbrances serve to finance expansions and improvements to the gas pipeline system;

| · | bankruptcy, dissolution or liquidation; and

| · | ceasing and abandoning the provision of the licensed service, attempting to assign or unilaterally transfer our License in full or in part without the prior authorization of ENARGAS, or giving up our License, other than in the cases permitted therein.

Our License also prohibits us from assuming debt of, or granting credit to, CIESA, and creating security interests in favor of, or granting any other benefit to, creditors of CIESA.
Generally, our License may not be amended without our consent. As part of the renegotiation of our license under the Public Emergency Law, however, the terms of our License may be changed or our License may be revoked. In addition, ENARGAS may alter the terms of service annexed to our License. If any such alteration were to have an economic effect on us, ENARGAS should modify our rates to compensate for such effect or we could request a change in the applicable rates.
In addition, as licensee for the provision of gas transportation services, we are subject to Law 25,551 (“Compre de Trabajo Argentino”), which is regulated by Decree No. 1600/2002. This law provides a regime for purchases from the Government and other concessionaires of public services in Argentina. Pursuant to Article 1 of this law, all public officers, including private companies providing public services under licenses and concessions are required to give preference to purchases from the Government.
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Regulation of Transportation Rates—Actual Rates. The natural gas transportation rates established for each transportation company must be calculated in U.S. dollars and converted into pesos at the time of billing. However, the Public Emergency Law eliminated tariff indexing covenants based on U.S. dollar exchange rate fluctuations and established a conversion rate of one peso equal to one U.S. dollar for tariffs.
The rate for natural gas firm transportation services consists of a capacity reservation charge and is expressed as a maximum monthly charge based on the cubic meters per day of reserved transportation capacity. The rate for natural gas interruptible transportation service, which is expressed as a minimum (from which no discounts are permitted) and a maximum rate per cubic meter of natural gas transported, is equivalent to the unit rate of the reservation charge for the firm service based on a load factor of 100%. For both firm and interruptible transportation services, customers are obligated to provide a natural gas in-kind allowance, expressed as a maximum percentage of gas received, equivalent to the natural gas consumed or lost in rendering the transportation service. The rates for all services reflect the rate zone(s) traversed from the point of receipt to the point of delivery.
The tables below shows our local natural gas firm and interruptible rates by pipeline and zones, in effect between May 1, 2015 and March 31, 2016 after the issuance of Resolution No. 3347/15 and since April 1, 2016 (applicable for all kind of users except for residential) and October 7, 2016 (applicable for all of our customers) after the issuance of Resolution 3724 and No. 4054/2016 (“Resolution 4054”):

From May 1, 2015 to March 31, 2016
| 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 | 0.131975 |  | 4.399134 |  | 0.49
|  | Santa Cruz Sur | 0.266133 |  | 8.871204 |  | 0.98
|  | Chubut Sur | 0.678868 |  | 22.628940 |  | 3.38
|  | Buenos Aires Sur | 0.799800 |  | 26.659990 |  | 5.60
|  | Bahía Blanca | 1.225104 |  | 40.836798 |  | 8.40
|  | La Pampa Norte | 1.220760 |  | 40.691977 |  | 8.60
|  | Buenos Aires | 1.433385 |  | 47.779485 |  | 10.35
|  | Greater Buenos Aires | 1.608257 |  | 53.608587 |  | 11.27
From Santa Cruz Sur to: |  | Santa Cruz Sur | 0.133755 |  | 4.458469 |  | 0.49
|  | Chubut Sur | 0.545894 |  | 18.196467 |  | 2.89
|  | Buenos Aires Sur | 0.667085 |  | 22.236149 |  | 5.11
|  | Bahía Blanca | 1.094595 |  | 36.486487 |  | 7.91
|  | La Pampa Norte | 1.094399 |  | 36.479918 |  | 8.11
|  | Buenos Aires | 1.303557 |  | 43.451887 |  | 9.86
|  | Greater Buenos Aires | 1.478968 |  | 49.298969 |  | 10.78
From Chubut to: |  | Chubut Sur | 0.132655 |  | 4.421810 |  | 0.49
|  | Buenos Aires Sur | 0.248731 |  | 8.290891 |  | 2.71
|  | Bahía Blanca | 0.663275 |  | 22.109043 |  | 5.51
|  | La Pampa Norte | 0.696439 |  | 23.214493 |  | 5.71 |
|  | Buenos Aires | 0.862256 |  | 28.741753 |  | 7.46 |
|  | Greater Buenos Aires | 1.028073 |  | 34.269013 |  | 8.38 |
From Neuquén to: |  | Neuquén | 0.117873 |  | 4.041345 |  | 0.49
|  | Bahía Blanca | 0.572524 |  | 19.078504 |  | 2.80
|  | La Pampa Norte | 0.616671 |  | 20.550184 |  | 3.15
|  | Buenos Aires | 0.775363 |  | 25.839833 |  | 3.91
|  | Greater Buenos Aires | 0.949709 |  | 31.713533 |  | 4.86
From Bahía Blanca to: |  | Bahía Blanca | 0.132654 |  | 4.421810 |  | 0.49
|  | La Pampa Norte | 0.033164 |  | 1.105450 |  | 0.20
|  | Buenos Aires | 0.198980 |  | 6.632710 |  | 1.95
|  | Greater Buenos Aires | 0.364798 |  | 12.159971 |  | 2.87

(1) | Monthly charge for every cubic meter per day of reserved transportation capacity.

(2) | Minimum charge equal to the unit rate of the firm reservation charge at a 100% load factor.

(3) | Maximum percentage of total transported gas which customers are required to replace in-kind to make up for gas used by us for compressor fuel or losses in rendering transportation services.

Note: The gross receipts tax is not included in such transportation rates
Source: ENARGAS Resolution No. 3347
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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

(1) | Monthly charge for every cubic meter per day of reserved transportation capacity.

(2) | Minimum charge equal to the unit rate of the firm reservation charge at a 100% load factor.

(3) | Maximum percentage of total transported gas which customers are required to replace in-kind to make up for gas used by us for compressor fuel or losses in rendering transportation services.

Note: The gross receipts tax is not included in such transportation rates
Source: ENARGAS Resolution. 3724
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The table below shows our local natural gas firm and interruptible rates by pipeline and zones, in effect since April 1, 2017 following the issuance of Resolution 4362:

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

(1) | Monthly charge for every cubic meter per day of reserved transportation capacity.

(2) | Minimum charge equal to the unit rate of the firm reservation charge at a 100% load factor.

(3) | Maximum percentage of total transported gas which customers are required to replace in-kind to make up for gas used by us for compressor fuel or losses in rendering transportation services.

Note: The gross receipts tax is not included in such transportation rates
Source: ENARGAS Resolution. 4362
51
The table below shows our local natural gas firm and interruptible rates by pipeline and zones, in effect since December 1, 2017 following the issuance by ENARGAS of Resolution No. 120/2017 (“Resolution 120”):

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

(1) | Monthly charge for every cubic meter per day of reserved transportation capacity.

(2) | Minimum charge equal to the unit rate of the firm reservation charge at a 100% load factor.

(3) | Maximum percentage of total transported gas which customers are required to replace in-kind to make up for gas used by us for compressor fuel or losses in rendering transportation services.

Note: The gross receipts tax is not included in such transportation rates
Source: ENARGAS Resolution. 120
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The table below shows our local natural gas firm and interruptible rates by pipeline and zones, in effect since April 1, 2018 following the issuance of Resolution No. 310/2018 (the “Resolution 310”):

Since April 1, 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

(1) | Monthly charge for every cubic meter per day of reserved transportation capacity.

(2) | Minimum charge equal to the unit rate of the firm reservation charge at a 100% load factor.

(3) | Maximum percentage of total transported gas which customers are required to replace in-kind to make up for gas used by us for compressor fuel or losses in rendering transportation services.

Note: The gross receipts tax is not included in such transportation rates
Source: ENARGAS Resolution 310
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In addition to the tariffs above, we are entitled to a CAU. Since its inception in 2005, the CAU was increased, by 73.2% on May 1, 2015, and by 200.1% on April 1, 2016 by ENARGAS. The CAU represented approximately 58% of the tariff in force until March 31, 2017 and the 25% of the tariff in force since December 1, 2017, is paid by clients that required the additional transportation capacity or who financed their expansions by means of advance payments, and is set by ENARGAS. In 2017, we recognized revenues of Ps. 265.2 as a result of the CAU. The first installment of the tariff increase granted by Resolution 4362 did not include any adjustment of the CAU. Given the permanent increase of operational and maintenance costs throughout the years, which might exceed the amount of the CAU, we filed a claim against the Government to obtain the adjustment of the values and ensure a fair compensation for the service it renders. We received an additional 50% increase in the CAU in effect since April 1, 2018. See “Item 4. Our Information—B. Business Overview—Natural Gas Transportation—Pipeline Operations—Pipeline Expansions.”
We expect that once the renegotiation of our License is concluded, we, CIESA and its former and current shareholders, will be required to withdraw all the legal claims filed against the Government in order to obtain the adjustment of the CAU.
The Public Emergency Law and Renegotiation Agreement.
Background and Renegotiation Process
On January 6, 2002, the Argentine congress enacted the Public Emergency Law which introduced dramatic changes to Argentina’s economic model, empowering the Government to implement, among other things, additional monetary, financial and foreign exchange measures to overcome the economic crisis in the short term and brought to an end the Convertibility Regime, including the fixed parity of the U.S. Dollar and the Peso. Among others, the Public Emergency Law granted the Executive Branch the power to conduct a renegotiation of public utility contracts and the tariffs set therein. The Public Emergency Law expired on December 31, 2017.
In July 2003, UNIREN was created in order to reach total or partial agreements with the licensees and/or concessionaires of public services and submit proposals regulating the transitory adjustment of tariffs and prices, among other things. Under this framework, we signed with UNIREN (i) the agreement dated October 9, 2008, between TGS and ex UNIREN (the “2008 Transitional Agreement”) that contemplated a tariff increase of 20% and (ii) the 2015 Integral Renegotiation Agreement, which incorporated ENARGAS Resolution No. 3347, including, as of May 1, 2015, a transitional increase of 44.3% in the price of the natural gas transportation service and a 73.2% increase in the CAU. Following UNIREN’s failure to comply with certain of its obligations under different renegotiation agreements, we took legal actions against UNIREN. As of the date of this Annual Report we still have two ongoing administrative claims in connection with UNIREN: (i) on December 19, 2014, we filed an action seeking damages for the failure to implement the retroactive increase provisions of the 2008 Transitional Agreement for the period between September 1, 2008 and March 31, 2014 and the lack of adjustment of the CAU; and (ii) on December 29, 2014, we filed a second claim seeking damages for the failure to implement the 2011 Integral Renegotiation Agreement proposed by UNIREN and accepted by us.
On February 16, 2016, the Executive Branch issued Decree No. 367/2016, establishing the dissolution of UNIREN and transferring to each ministry the responsibility to renegotiate public service contracts. Decree No. 367/2016 also conditioned the finalization of the new tariff scheme provided in the respective Integral Renegotiation Agreement approved by the Executive Branch to completion of the RTI and provided that transitional adjustment of prices and tariffs are necessary to ensure the continuity of the normal provision of services.
Under the framework of the 2016 Transitional Agreement, on March 31, 2016 ENARGAS issued Resolution 3724, which approved revised tariffs as of April 1, 2016, including the CAU, for the Natural Gas Transportation business segment, providing for a 200.1% increase. Additionally, among other things, Resolution 3724 required us to not distribute dividends without the prior authorization of ENARGAS after reviewing our compliance with the 2016 Investment Plan. As of the date of issuance of this Annual Report, the 2016 Investment Plan is fully executed and pending of approval by ENARGAS.
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As several legal proceedings were initiated against Resolution 3724 in order to obtain the annulment of the increase of the PIST and the tariff increases for the natural gas transportation and distribution licensees approved by ENARGAS, we were not able to bill the 200.1% increase in full. On August 18, 2016, the Supreme Court order issued its final decision mandating the Government to: (i) implement compulsory public hearings prior to the establishment of natural gas transportation and distribution tariffs, (ii) implement compulsory public hearings prior to the establishment of the point-of-injection gas price, and (iii) declare the invalidity of Resolutions 28 and 31 with respect to residential users, for whom tariffs had to be returned to tariff rates effective as of March 31, 2016.
On the other hand, on August 19, 2016 ENARGAS issued Resolution No. 3953/2016, which implemented the decisions arising out of a public hearing before the Supreme Court. For additional information regarding the public hearing’s agenda, see “Item 4. Our Company—B. Business Overview—Natural Gas Transportation—The Argentine Natural Gas Industry.”
As a result of this public hearing, since October 7, 2016, we were able to collect the revised tariffs at the levels provided for in Resolution 3724, allowing us, as of the date of this Annual Report, to complete in full our 2016 Investment Plan.
ICSID Claim
In 2003, Enron Corp. (“Enron”), a former indirect shareholder of CIESA, which is our controlling shareholder, and Ponderosa Assets L.P. (“Ponderosa” and, together with Enron, the “Claimants”) filed a claim with the ICSID against the Government under the Bilateral Investment Treaty between the United States and Argentina (the “ICSID Claim”). The ICSID Claim argues that the redenomination of tariffs in pesos (pesificación) and other unilateral changes to our regulatory structure effected by the Public Emergency Law and related laws and decrees violated the requirement of fair and equitable treatment under the treaty. On May 22, 2007, ICSID decided in favor of Enron and ordered the Government to pay U.S.$106.2 million to the Claimants. In July 2010, an ICSID committee annulled the 2007 ICSID resolution. This annulment did not prevent the plaintiff from filing a new claim before the ICSID. On October 18, 2010, Enron Creditors Recovery Corp. (Enron’s new corporate name) and Ponderosa filed a new claim against the Government before the ICSID. In June 2011, a tribunal to hear the case was created.
In January 2011, Pampa Energía acquired, among other assets: (i) PEPCA along with Enron’s and Ponderosa’s economic rights to monitor, suspend and withdraw the ICSID Claim and (ii) from Ashmore Energy International Limited (“AEI”), the CIESA Notes and the two derivative transactions originally executed between CIESA and J. Aron & Company on August 3, 2000 and between CIESA and Morgan Guaranty Trust Company of New York on August 4, 2000.
On March 11, 2011, Pampa Energía entered into a call option agreement with the Claimants in order to acquire the rights to monitor, suspend and withdraw the ICSID Claim. On October 6, 2011, we granted a loan for U.S.$26 million to Pampa Energía to enable it to purchase the rights to monitor, suspend and withdraw the ICSID Claim. In 2015, we acquired Pampa Energía’s rights over the ICSID Claim (the “Rights of the Arbitration Proceeding”) from Pampa Energía after certain conditions set forth in the loan agreement were met.
We acquired rights over the ICSID Claim pursuant to a provision in our loan agreement with Pampa Energía, which entitled us to receive the rights as prepayment of the loan if we verified that the 2008 Transitional Agreement had been adequately put into effect. This condition was met with the enactment of Resolutions No. I-2852 and No. 3347. Our rights over the ICSID Claim include the powers to suspend, monitor and withdraw from arbitration proceedings.
The acquisition of the rights of the Arbitration Proceeding was implemented through the transfer to a trust established abroad, of which we are the beneficiary.
The Arbitration Proceeding is suspended until April 15, 2018.
However, on March 27, 2018, the Executive Branch of the Argentine Government issued the Decree No. 250/2018 which ratified the 2017 Integral Renegotiation Agreement. This decree represents the conclusion of the RTI process and the finalization of the 2017 Transitional Agreement, and thus, the final renegotiation of our License. Therefore, we and our former and present shareholders are required to abandon any claim, including the ICSID Claim, before June 30, 2018.
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Resolution 74 Tariff Increases
On March 30, 2017, we entered into the Integral Renegotiation Agreement (the “2017 Integral Agreement”) and the related 2017 Transitional Agreement. On the same day and consistent with the 2017 Transitional Agreement, ENARGAS issued Resolution 4362 by which a new transitional tariff schedule applicable to us determined a total tariff increase of 214.2% and 37%, on the tariff of the natural gas transportation service and the CAU, respectively.
However Resolution 74 provides for a limitation on the full effectiveness of the tariff increase arising from the RTI process until the approvals of the 2017 Integral Agreement were completed. This meant that the tariff increase was granted in three stages on: April 1, 2017, December 1, 2017 and April 1, 2018. This staged increase is structured to provide the same economic benefits to us as if the increases had been fully effective since April 1, 2017.
As required by Resolution 74, the first of the tariff increases was granted by Resolution 4362 since April 1, 2017, amounting the 64.2% of our natural gas transportation service tariff. In this opportunity, the CAU was not increased.
In addition, Resolution 4362 requires us to comply with the Five-Year Plan and approved a non-automatic six-month adjustment mechanism for the natural gas transportation tariff and the CAU.
On October 20, 2017 ENARGAS issued Resolution N° 62/2017 by means of which a public hearing was called for November 14, 2017, to address a transitory tariff adjustment on account of the increase foreseen in the Tariff Review. The public hearing resulted in a transitory tariff adjustment authorized through Resolution 120, which determined an 80.8% increase for the natural gas transportation tariff and 29.7% for the CAU. These new tariff schemes came into effect beginning on December 1, 2017.
A further public hearing in connection with the integral renegotiation was conducted on February 20, 2018 to address: (i) a tariff adjustment and, (ii) an incremental tariff resulting from the pipeline system expansion project presented by us to ENARGAS on December 19, 2017, involving the building of 47 miles of pipeline extending from the towns of Mercedes and Los Cardales in the province of Buenos Aires and the installation of a compressor plant at the wellhead. Said project would require an initial investment of U.S.$150 million and would allow the incremental transportation of 388MMcf/d of natural gas, with financing through an investment factor (“k” factor).
As a consequence of the public hearing mentioned above, on March 27, 2018, ENARGAS issued Resolution 310 which stated a tariff increase of 50% for the natural gas transportation tariff and the CAU effective as of April 1, 2018.
On March 27, 2018 through Decree No. 250/2018 (the “Decree 250”), the Executive Branch ratified the 2017 Integral Agreement, following the approval of several governmental authorities, including the Congress. Decree 250 concludes the RTI process and terminates the 2017 Transitional Agreement, representing the final renegotiation of our License with the Government after 17 years of negotiations. As a result of the foregoing (i) we are entitled to the final tariff increase contemplated in Resolution 4362 (finally granted by Resolution 310 mentioned above), and (ii) we and our current and former shareholders must withdraw any claim against the Government related to our business resulting from the Public Emergency Law, including the ICSID Claim, before June 30, 2018.
Semi-annual Adjustment of Tariffs. Under our License, we may be permitted to adjust tariffs semi-annually to reflect changes in PPI and every five years in accordance with efficiency and investment factors to be determined by ENARGAS and, subject to ENARGAS’s approval, from time to time to reflect cost variations resulting from changes in the tax regulations (other than income tax) applicable to us, and for objective, justifiable and non-recurring circumstances.
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The Natural Gas Law requires that in formulating the rules that apply to the setting of future tariffs, ENARGAS must provide the transportation companies with (i) an opportunity to collect revenues sufficient to recover all future proper operating costs reasonably applicable to service, as well as future taxes and depreciation, and (ii) a reasonable rate of return, determined in relation to the rate of return of businesses having comparable risk and taking into account the degree of efficiency achieved and the performance of the company in providing the service. No assurances can be given that the rules to be promulgated by ENARGAS will result in rates that will enable us to achieve specific earnings levels in the future.
However, since January 1, 2000, adjustments to tariffs to reflect PPI variations were suspended, first through an agreement with the Executive Branch and later by a court decision arising from a lawsuit to determine the legality of tariff adjustments through indexes.
Resolution 4362 provides for a semiannual adjustment mechanism based on changes in the WPI. The increase is not automatic, however, as it requires the prior approval of ENARGAS.
Certain Restrictions with Respect to Essential Assets. A substantial portion of the assets transferred by GdE were defined in our License as essential to the performance of the licensed natural gas transportation service. Pursuant to our License, we are required to segregate and maintain the essential assets, together with any future improvements thereon, in accordance with certain standards defined in our License.
We may not for any reason dispose of, encumber, lease, sublease or lend essential assets for purposes other than the provision of the licensed service without ENARGAS’s prior authorization. Any extensions or improvements that we make to the natural 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 our License, we will be required to transfer to the Government or its designee the essential assets specified in our License as of the expiration date, free of any debt, encumbrance or attachment. If we decide not to participate in a new bidding for a new License term, we will receive 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 CIESA for shares of our common stock plus the original cost of subsequent investments carried in U.S. dollars in each case adjusted by the PPI, net of accumulated depreciation in accordance with the calculation rules to be determined by ENARGAS (since the enactment of the Public Emergency Law, this provision may no longer be valid); or

| · | the net proceeds of a new competitive bidding (the “New Bidding”).

Once the period of the extension of the License expires, we will be entitled to participate in the New Bidding, and thus, we shall be entitled to:

| · | submit a bid computed at an equal and not lower price than the appraisal value determined by an investment bank selected by ENARGAS, which represents the value of the business providing the licensed service at the valuation date, as a going concern and without regard to the debts;

| · | obtain a new license, without payment, in the event that any bid submitted in the New Bidding exceeds the appraisal value;

| · | match the best bid submitted by third parties in the New Bidding, if it would be higher than our bid mentioned above, paying the difference between both values to obtain a new license;

| · | if we have participated in the New Bidding but are unwilling to match the best bid made by a third party, receive the appraisal value as compensation for the transfer of the essential assets to the new licensee, with any excess paid by the third party remaining for the grantor.

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Under Argentine law, an Argentine court will not permit the enforcement of a judgment on any of our property located in Argentina which is determined by the courts to provide essential public services. This may adversely affect the ability of a creditor to realize a judgment against our assets.
Under a transfer agreement we entered into in connection with the privatization of GdE in the 1990s (the “Transfer Agreement”), liabilities for damages caused by or arising from the GdE assets are allocated to either GdE or us depending on whether any such damage arose or arises from the operation of the assets prior to or following the commencement of our operations. Also, pursuant to the Transfer Agreement, we are responsible for any defects in title to such assets, although any such defects are not expected to be material. The Transfer Agreement further provided that GdE was responsible for five years until December 1997 for the registration of easements related to the system, which were not properly recorded, and for the payment to property owners of any royalties or fees in respect thereof. Since 1998, we have been responsible for properly recording any remaining easement agreements and for making payments of royalties or fees related to such easements. See “Item 8. Financial Information.”
Environment
In environmental matters, the natural gas transportation business is governed by regulation NAG153 issued by ENARGAS, which sets the guidelines for the implementation of an environmental management system and for the obligation to evaluate the environmental impact of projects.
In addition to this sector-specific regulation, we must comply with the environmental legislation set by each of the seven provinces where the high-pressure trunk gas pipeline system has been installed.
Our production and liquid storage facilities are subject to Law No. 11.459 of industrial establishment of Buenos Aires. Additionally, we must comply with all environmental legislation issued by the province, which tend to include issues like gas emissions, generated waster emissions, use of public waters and return of effluents, among others. Both facilities in the Cerri Complex and Puerto Galván have valid environmental aptitude certificates.
Competition
Our natural gas transportation business, which provides an essential public service in Argentina in accordance with Article No. 1 of the Natural Gas Law No. 24,076 (the “Natural Gas Law”), faces only limited direct competition. Although there are no regulatory limitations on entry into the business of providing natural gas transportation services in Argentina, the construction of a competing pipeline system would require substantial capital investment and the approval of ENARGAS. Moreover, as a practical matter, a direct competitor would have to enter into agreements with natural gas distribution companies or end-users to transport a sufficient quantity of gas to justify the capital investment. In view of our current firm transportation contracts with our distribution company customers, and the other characteristics of the markets in which we operate, management believes that it would be very difficult for a new entrant to the natural gas transportation market to pose a significant competitive threat to us, at least in the short to intermediate term. In the longer term, the ability of new entrants to successfully penetrate our market would depend on a favorable regulatory environment, an increasing and unsatisfied demand for gas by end-users, sufficient investment in downstream facilities to accommodate increased delivery capacity from the natural gas transportation systems and the finding of significant natural gas reserves.
To a limited extent, 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 whom both we and TGN are either directly or indirectly connected (Camuzzi Pampeana, Metrogas and BAN). We compete directly with TGN for the transportation of natural gas from the Neuquén basin to the greater Buenos Aires area.
The cost of natural gas relative to competing fuels may also affect the demand for transportation services in the long term. The delivered cost of gas to end-users in Argentina, based on energy content, is currently significantly lower than other alternative fuels, except for hydroelectric power.
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In addition, the Government has implemented a number of projects to encourage the exploration and development of new natural gas reserves, or secure alternative supplies of natural gas, in recent years. See “Item 4. Our Information—B. Business Overview—Natural Gas Transportation—The Argentine Natural Gas Industry.” For example, the Northeast pipeline is a project, led by the Government, which will connect the Bolivian natural gas basins with the northeastern region of Argentina and the greater Buenos Aires region. In recent years, the Government has carried out, albeit with some delays, the development of the expansion works.
In 2008 and 2010, the Government, through ENARSA, finalized the construction of liquefied natural gas regasification ports in Bahía Blanca and Escobar, respectively, which are intended to supplement the natural gas supply deficit.
In March 2010, the governments of Argentina and Bolivia signed an addendum to the agreement entered into by both countries in 2006, with the purpose of achieving a 706 MMcf/d increase in natural gas imports, which has been implemented in stages since 2010. This agreement is expected to expire in 2026.
LIQUIDS PRODUCTION AND COMMERCIALIZATION
Our Liquids production and commercialization activities are conducted at our Cerri Complex, which is located near the city of Bahía Blanca in the Province of Buenos Aires. In the Cerri Complex, ethane, LPG and natural gasoline are extracted from natural gas, which arrives through our three main pipelines from the Neuquina and Austral natural gas basins. The owners of the extracted Liquids are required to make in-kind deliveries of additional natural gas to replace their attributable share of natural gas shrinkage, fuel and losses associated with the extraction of liquids from natural gas. The results of our Liquids production and commercialization segment are subject to risks associated with commodity price changes. We do not currently hedge against commodity price risk.
Historically, we have operated our Liquids business under two different types of contractual arrangements:

| · | Liquids production and commercialization for our own account: Under this type of arrangement, we own the Liquids products obtained at our Cerri Complex. We purchase natural gas in order to replace thermal units consumed in the liquids production process. These natural gas purchases are negotiated with certain natural gas distributors, traders and producers. This category of our liquids business is most important in terms of revenue, percentage of transactions and profit.

| · | Liquids production and commercialization on behalf of third parties: We also process natural gas and market the Liquids products in exchange for a commission based on a percentage of the sale price. In some cases, we process the natural gas and deliver the Liquids products to the natural gas producers who pay us a percentage of the average monthly sale price obtained from our sales in the domestic and/or international markets (depending on the contract).

During 2017 and 2016, we sold approximately 100% and 96.4%, respectively, of the total volume of Liquids for our own account.
Our sales of Liquids in the domestic market are regulated through the Households with Bottles Program of the Ministry of Energy in order to guarantee the supply at reasonable prices. For more information, see “—Regulation—Domestic Market” below.
From time to time, during winter we export our LPG products not allocated to the domestic market. For the period from October 1, 2017 to April 30, 2018 we entered into an agreement with Petredec (Europe) Limited. That agreement stipulates monthly sales by us of approximately 16,534 short tons of propane and 16,534 short tons of butane at the international reference price plus a fixed charge per ton sold. This price mechanism is an improvement in the prices obtained in spot sales and brings short-term certainty in the commercialization of our LPG products.
Regarding natural gasoline exports, on July 10, 2017, we entered with Shell Trading U.S. Company an agreement in effect as of January 31, 2018. Within the period ranging from January to July 2017, we conducted spot sales to Shell Trading U.S. Company, taking as basis the reference international price less a discount per metric ton.
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For the period ranging from February 1, 2018 to January 31, 2019, we entered into an agreement with Petrobras – Petróleo Brasileiro S.A., the sale price is calculated based on the NWE ARA price minus a fixed discount per ton sold.
Truck exports to neighboring countries have also grown. The countries with which we operate under this scheme are Chile and Paraguay. Although volumes exported using this modality are lower than exports by sea, they allow us to obtain a larger profit margin.
In spite of unfavorable international prices and higher competition in ethane sales, in 2017 we entered into an agreement with PBB for a one-year term from May 1, 2017 to May 1, 2018, after having operated under short-term agreements from January through April at the beginning of that year. The new agreement creates a certainty scenario during its term of effectiveness, as PBB is our only ethane client. The current agreement includes, among other conditions, TOP and DOP commitments for minimum annual quantities of 308,644 short tons per year, which is a lower than the TOP quantities included in the 2015 ethane agreement with PBB. If either of the parties does not comply with the TOP or DOP conditions, as applicable, that party is required to compensate the other party for the breach of the minimum annual quantities commitment. Pursuant to the current contract with PBB, in case of a default by PBB with respect to its TOP commitments, PBB will be required to compensate us.
Our Liquids production and commercialization segment also comprises storage and dispatch by truck and subsequent shipment of the liquids extracted at the Cerri Complex to facilities located in Puerto Galván. LPG and natural gasoline are transported via two eight-inch pipelines to the loading terminal at Puerto Galván. Ethane is piped via an eight-inch pipeline to the PBB olefins plant, which is the sole outlet for ethane from the Cerri Complex. Any ethane extracted at the Cerri Complex that cannot be sold to PBB is reinjected into the pipeline.
Our Liquids production and commercialization segment has increased as a percentage of our total revenues from 19.0% in 2001 to 56.1% in 2017, as a consequence of the adverse change in the regulated natural gas transportation segment, and the increases in the international prices of LPG and natural gasoline, which generated higher revenues primarily from exports. Since the last quarter of 2014, international prices of LPG have declined significantly, in tandem with the decline in oil prices. However, as mentioned below, in December 2014 and February 2015, the export tax regime was modified to mitigate such decline in international prices. Since January 7, 2017, due to the fact that the Government did not extend the validity of the retentions tax regime, the exports we make are not subject to any retention.
In 2017 propane, butane and natural gasoline average prices recorded year-over-year increases of 58.5%, 42.0% and 25.7%, respectively. This growth was followed by a downward trend, in particular during the end of the fourth quarter of 2017 and in the first months of 2018.
In 2017, our export revenues from the Liquids production and commercialization segment were Ps. 2,676.8 million and represented 21.9% (19.4% for 2016) of our total net revenues and 38.9% (30.2% for 2016) of our liquids production and commercialization revenues. Additionally, the total volume of sales from Liquids was 1,059,319 short tons, and the volume of sales from Liquids exports was 395,956 short tons, representing 37.4% of our total liquids sales volumes. These export volume also include sales made on behalf of third parties. Export revenues from our liquids production and commercialization segment command a price premium, which has declined after the decrease in international prices, as compared to our domestic market sales, primarily as a result of government regulation of domestic prices and high prices and demand for Liquids on the international markets.
The annual sales of our Cerri Complex for 2017, 2016 and 2015 in short tons were as follows:

|  | 2017 |  |  | 2016 |  |  | 2015 |
Ethane |  |  | 311,786 |  |  |  | 305,861 |  |  |  | 306,097 |
Propane |  |  | 353,561 |  |  |  | 345,577 |  |  |  | 346,910 |
Butane |  |  | 260,171 |  |  |  | 244,814 |  |  |  | 261,872 |
Natural Gasoline |  |  | 133,802 |  |  |  | 108,741 |  |  |  | 118,229 |
Total |  |  | 1,059,319 |  |  |  | 1,004,992 |  |  |  | 1,033,109 |

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We anticipate that new oil and natural gas developments in Argentina will provide new opportunities in the liquids production and commercialization business and lead to related increases in revenues from our natural gas transportation and Liquids production and commercialization businesses.
Regulation
Liquids production and commercialization activities are not subject to regulation by ENARGAS. However, in recent years, the Government has enacted regulations that significantly affect our Liquids production activities.
Domestic market
We are not able to freely select the markets to which we will allocate LPG production. As we are effectively required to meet the minimum domestic demand before exporting significant amounts of LPG, we forego sales to foreign markets, where the prices for some products are higher than those established for local consumers in Argentina.
On March 9, 2005, the Government enacted Law No. 26,020, which set forth the regulatory framework for LPG industry and commercialization. After its issuance, the Ministry of Energy established, through several subsequent resolutions, reference prices applicable to sales of LPG bottles.
On March 30, 2015, the Executive Branch issued Decree No. 470/2015, regulated by Resolution No. 49/2015 issued by the former Federal Energy Bureau, both creating the framework for selling LPG bottles (the “Households with Bottles Program”) which replaced the programs in force until that time.
The provisions of Law 26,020 set the sale prices of LPG for the local market and the SHR is the body that periodically determines the minimum volume of product that each producer must allocate for commercialization in order to ensure domestic supply. The former Federal Energy Bureau established, through several resolutions, reference prices applicable to sales of LPG containers of less than 45 kilograms and to wholesale LPG sales exclusively to LPG retailers (fraccionadores).
Under the Households with Bottles Program the Ministry of Energy regulates the price and the quantity of LPG sold in the domestic market by each LPG producer. During 2017, the Ministry of Energy issued Resolutions No. 56-E/2017 and No. 287-E/2017, setting the prices at Ps. 2,568 per ton of butane and Ps. 2,410 per ton of propane as of April 2017 and at Ps. 4,302 per ton of butane and Ps. 4,290 per ton of propane as of December 1, 2017. For the year 2016 and the first quarter of 2017, the price for butane was established by Resolution No. 70/2015 at Ps. 650 per ton. The compensation received from the Ministry of Energy was Ps. 550 per ton of butane from April 2015 through March 2018.
Finally, on March 27, 2018 the SHR issued Resolution No. 5/2018 increasing the price paid under the Households with Bottles Program to Ps. 5,416 per ton of butane and Ps. 5,502 per ton of propane, effective as of April 1, 2018.
The Households with Bottles Program requires us to produce and market the LPG volumes required by the Ministry of Energy at prices significantly below the market. This requirement might prevent us from covering production costs, even after giving effect to the subsidy payments that we receive under the agreement, creating a negative operating margin. We have initiated several actions with the Government in order to enjoin the requirement that we sell products with negative operating margins for an extended period. On June 3, 2015, we filed a motion for reconsideration regarding the volumes of LPG that we were required to provide in 2015 under the Households with Bottles Program. In addition, on August 18, 2015 we filed a lawsuit to overturn Resolutions No. 49/15 and 70/15 which implemented the Households with Bottles Program and required us to sell products below their international reference prices. Since the Macri administration took office, prices of products sold under the Households with Bottles Program have been adjusted and we did not continue pursuing legal actions against Resolutions No. 49/15 and 70/15.
On March 16, 2015 through Resolution No. 36/2015, which modified Resolution No. 792/05, the Ministry of Energy set the method to calculate the LPG export parity that would be updated monthly by this agency. These modifications generated an increase in the prices at which the LPG is sold in the local market to those customers who are not reached by the Households with Bottles Program and the Propane Networks Agreement.
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Since the Propane Networks Agreement was signed between the Government and producers of LPG, including us, in 2003, we have complied with our commitments under that agreement. Pursuant to the Propane Networks Agreement, which has undergone several extensions, the Ministry of Energy fixed prices and procedures by which it compensates participating companies. The compensation received is calculated as the difference between the sales price established for the domestic market and the GLP-export parity price published monthly by the Ministry of Energy. The compensation is calculated on a monthly basis.
On October 6, 2016, the Ministry of Energy enacted Resolution 212, which establishes the new propane prices for the distribution under the Propane for Networks Agreement, settling at Ps. 800/Tn for Residential Users and General Service P1 and P2, and Ps. 2,100/Tn for General Service P3 users. In 2017, the Ministry of Energy 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. These price adjustments are framed within the increase path outlined by the Government until 2019, with the aim of reducing the subsidies applied to that effect.
The Government compensates us for our participation in the Households with Bottles Program and the Propane for Networks Agreement. Although we have not received this payment in a timely manner, collections have improved in 2017.
Decree No. 704/2016 provided for the extension of the issuance of Argentine Bonds in U.S. dollars with an annual rate of 8% which will expire in 2020 (“BONAR 2020”) which were used to, among others, the cancellation of the compensation due of related to Propane for Networks Agreement. On June 22, 2016, the Company gave written consent and agreement to the terms and conditions of Decree No. 704/2016 to the Ministry of Energy. Within this letter, TGS accepted the cancellation of the amounts due as compensation for propane networks Agreement until December 31, 2015, according to the methodology of cancellation informed by the SHR, which amounted to Ps. 140,496. On October 5, 2016, TGS received BONAR 2020 for an original nominal value of U.S.$8.0 million.
On March 14, 2017, the Ministry of Energy issued Resolution No. 34/17 authorizing the payment of Ps. 91.6 million corresponding to the compensation due for the participation in the Propane for Networks Agreement from the months of January to March and May to October 2016, which were collected on April 26, 2017. In this sense, during 2017, we received of the SHR the payment of Ps. 216.1 million owed as compensation for the year 2016 and certain months of 2017.
As of December 31, 2017, we recorded a receivable against the Government amounting to Ps. 173.3 million in connection with the Households with Bottles Program and the Propane for Networks Agreement.
Through Decree No. 2,067/08, the Executive Branch created a trust to finance natural gas imports to be injected into the natural gas pipeline system. The trust is funded, among other means, through the creation of a charge to be paid by (i) the users of the transportation and/or distribution regulated services; (ii) natural gas consumers receiving gas directly from producers without using natural gas transportation or distribution systems; and (iii) the natural gas processing companies. Certain entities, including us, were selected to receive a subsidy for the payment of the charge starting in December 2008. However, in November 2011, ENARGAS issued the Gas Charge Resolutions that modified the list of the subsidy beneficiaries, and thus, involved a charge increase for many of our clients, and specifically for our consumption for our own account. The charge increased from Ps. 0.049 to Ps. 0.405 per cubic meter of natural gas effective from December 1, 2011, representing a significant rise of the variable costs of natural gas processing. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Discussion of Results of Operations for the Two Years Ended December 31, 2015 and 2014.”
In order to avoid the damage that would result from the implementation of this increase in the cost for natural gas consumption for liquids producers, including us, we initiated legal actions challenging the application of the Executive Branch decree and the Gas Charge Resolutions against the Government, ENARGAS and MPFIPyS as defendants, and have obtained a preliminary injunction stopping the implementation of the charge against us pending a determination on the merits of the case. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Regulatory Proceedings.”
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On March 28, 2016, the Ministry of Energy issued Resolution 28, which instructs ENARGAS to take all the necessary measures to reduce to zero the tariff charge created by Decree No. 2,067/08. However, Resolution 28 did not repeal the Charge or Resolutions 1982 and 1991, for which reason the judicial actions are ongoing.
International market
Disposition 168/05 of the former Undersecretary of Fuels requires companies intending to export LPG to first obtain an authorization from the Ministry of Energy. Companies seeking to export LPG must first demonstrate that the local demand is satisfied or that an offer to sell LPG to local demand has been made and rejected.
Since 2002, LPG and natural gasoline exports have been subject to a withholding tax on exports. In May 2004, the effective tax rate for LPG exports was increased from 4.76% to 16.67%. On May 24, 2007, it was increased to 20%.
Since the issuance of Resolution No. 127/08 by the MEF, in November 2007 and March 2008, a variable export tax regime has been in force for natural gasoline, propane and butane, respectively. During 2014, until the enactment of Resolutions No. 1,077/2014 and 60/2015, the minimum effective tax rate was 31.03% when international prices were lower than U.S.$1,028, U.S.$663 and U.S.$678 per metric ton (or U.S.$932, U.S.$601 and U.S.$615 per short ton, respectively). If international prices exceed these amounts, the marginal tax rate applicable to the excess is 100%. Because of this export tax regime, we were unable to obtain post-tax prices of more than U.S.$709, U.S.$457 and U.S.$468 per metric ton (or U.S.$643, U.S.$415 and U.S.$424 per short ton, respectively) of natural gasoline, propane and butane, respectively. Due to international prices, the average effective tax rate for 2014 was 33.7%, 32.8% and 31.5% for natural gasoline, propane and butane, respectively.
On December 30, 2014, the MEF issued Resolution No. 1,077/2014, which modified the nominal rates applicable for the export of oil and oil by-products, including natural gasoline. The withholding tax on exports regime is based on the price of Brent crude oil less 8 U.S.$/bbl (“IP”) as a reference price that is used to determine the applicable rate. When the IP is less than 71 U.S.$/bbl the nominal rate of the withholding tax on export of natural gasoline will be 1%. When the IP is greater than 71 U.S.$/bbl, the rate will be (IP- 70) / 70 x 100. IP was below U.S.$71/bbl throughout 2015 and 2016, and continues to be below that level as of the date of this Annual Report, so the applicable nominal rate for the exports of natural gasoline has been 1%.
In addition, on February 25, 2015, the MEF issued Resolution No. 60/2015, which entered into force on the same date. This resolution modified the variable export tax regime established under Resolution No. 127/08. According to the new methodology, the minimum tax rate is 1% if the international prices for propane and butane are lower than U.S.$464 and U.S.$478 (the “reference value”) per metric ton, respectively. If the propane and butane international prices are higher than the reference value, the tax rate applicable to the selling price is calculated on a sliding scale according to the amount by which the selling price exceeds the cut-off value of U.S.$460 and U.S.$473 per metric ton, respectively. As the international prices remained below the reference value, the applicable nominal rate for the exports of propane and butane has been 1%.
Beginning on January 7, 2017, natural gasoline, propane and butane exports will not be subject to hydrocarbons withholding. This is because the hydrocarbon export rights scheme created by Law 26.732 and its amendments was not renewed upon its expiration date. For the year ended December 31, 2017, when the average applicable withholding rates were of 1%, the total accrued exports withholding amounted to Ps. 0.7 million.
Competition
The construction and operation of natural gas processing plants located in the Province of Neuquén have represented important competition for our Liquids sector, since our customers could satisfy their product demand with alternative suppliers. This competition was finally mitigated by entering into agreements with natural gas producers that limited their ability to make investments in natural gas processing plants.
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For example, at the end of 2000, MEGA 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 MEGA. However, there is a risk that additional gas processing at the MEGA plant could result in lower volumes or lesser quality gas (i.e., gas with lower liquids content) 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.
Since summer 2014, our sole purchaser of ethane, PBB, decided, for commercial reasons, to give priority to the product provided by MEGA. If PBB continues with its policy to take increased volumes of ethane from our competitors, this situation could adversely affect our revenues from Liquids production and commercialization services, if we are unable to sell the ethane and must reinject it into the gas stream.
In order to guarantee access to natural gas to be processed in the Cerri Complex, in the past, we 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. From time to time, and as these contracts expire, we renew and sign new agreements with them to replace expiring contracts. The agreements reached in more recent years, have had shorter durations and the contracts in effect do not limit the ability of gas producers to build natural gas processing plants upstream of the Cerri Complex during the term of the agreement. All of these recent agreements contain commitments of such natural gas producers not to reduce the quality of the natural gas that they sell to us. Nevertheless, any decision by such natural gas producers to make modifications to the methodology for injecting natural gas into the pipeline system could result in the receipt of lower quality natural gas, thereby reducing the amount of the Liquids available for extraction and processing in the Cerri Complex.
OTHER SERVICES
Other services activities are not subject to regulation by ENARGAS.
Midstream Services
Through midstream services, we provide integral solutions related to natural gas from the wellhead up to the transportation systems. The services are comprised of gas gathering, compression and treatment, as well as construction, operation and maintenance of pipelines, which are generally rendered to natural gas and oil producers at the wellhead. Our portfolio of midstream customers also includes distribution companies, big industrial users, power plants and refineries. Our midstream activities include the separation and removal of impurities such as water, carbon dioxide and sulfur from the natural gas stream, as well as services related to pipeline and compression plant construction, operation and maintenance of pipelines and compressor plants services, as well as steam generation for electricity production. Small diameter pipes from the wellheads form a network, or gathering system, carrying the gas stream to larger pipelines where field compression is sometimes needed to inject the gas into our large diameter gas pipelines. The services are tailored to fit the particular needs of each customer in technical, economic and financial matters.
In addition, we provide operation and maintenance of pipelines services to our affiliate Gas Link S.A. (“Link”).
In October 2012, ENARGAS issued Resolution No. 3,952/12 which authorized our affiliate Emprendimientos de Gas del Sur S.A. (“EGS”) to transfer its connection pipeline and service offerings in operation to us. The transfer was executed on December 17, 2013.
In September 2017, an agreement was reached with the UT Río Neuquén (made up of YPF, Pampa and Petrobras Brasil) to expand, for the next 10 years, the services provided at the Río Neuquén Plant. To this end, the installation of a natural gas dehydration unit of 71 MMcf/d capacity and the realization of several minor modifications in the plant was committed.
As for the construction services, the connection of the natural gas supply of the General Rojo thermal power plant to the DVS Construcciones S.A. firm was completed in May 2017 and the gas supply work of the Spegazzini thermal power plant, belonging to Generación Mediterránea, was completed in August 2017.
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On October 27, 2017, TGS - SACDE UT signed a contract with the Ministry of Energy for the construction of the project of “Expansion of the System of Transportation and Distribution of Natural Gas” in the Province of Santa Fe. This project will generate joint revenue of Ps. 947 million and the maximum execution period was set at 365 days, counted from the signing of the certificate of commencement of the works, held on November 15, 2017. As of the date of issuance of this Annual Report, that construction has begun.
Telcosur (Telecommunications System)
We own 99.98% of Telcosur, a telecommunications company created in September 1998 to provide value-added and data transportation services using our modern digital land radio telecommunications system with Synchronous Digital Hierarchy (“SDH”) technology (which was installed for purposes relating to our gas transportation system).
In line with the strategy of consolidating the business in the medium and long term, Telcosur reached agreements with new clients (ArSAT SA, Techint SA / Tecpetrol SA, SES Sistemas Electrónicos SA, INFA SA and Aluar Aluminio Argentino SAIC) and expanded or renewed existing agreements (Claro - AMX Argentina SA, British Telecom, Centurylink (ex Level 3), Silica Networks Argentina SA, Pan American Energy SA, Transener SA, AESA and Total Austral SA).
C. Organizational Structure
The following is a summary diagram of our subsidiaries and affiliates as of the date of this Annual Report, including information about ownership and location:

(1) | Incorporated in Argentina.

(2) | Incorporated in Uruguay.

As of the date of issuance of this Annual Report, we are performing the formal steps to liquidate EGS.
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D. Property, Plant and Equipment
Gas Transportation
The principal components of the pipeline system we operate are as follows:
Pipelines. We render natural gas transportation service through a pipeline system that is 5,706 miles long, of which 4,745 miles are owned by us. We manage the transportation of natural gas over the remainder of the system under management agreements with the Gas Trust, which owns the remaining portions of the pipeline. The system consists primarily of large diameter, high-pressure pipelines intended for the transportation of large volumes of gas at a pressure of approximately 853-996 pound/inch2. Line valves are installed on the pipeline at regular intervals, permitting sections of the pipeline to be isolated for maintenance and repair work. Gas flow regulating and measurement facilities are also located at various points on the system to regulate gas pressures and volumes. In addition, a cathodic protection system has been installed to protect the pipeline from corrosion and significantly reduce metal loss. All of the pipelines are located underground or underwater.
Maintenance bases. Maintenance bases are located adjacent to the natural gas pipeline system in order to maintain the pipeline and related surface facilities and to handle any emergency situations which may arise. Personnel at these bases periodically examine the pipelines to verify their condition and inspect and lubricate pipeline valves. Personnel at the bases also carry out a cathodic protection system to ensure that adequate anti-corrosion systems are in place and functioning properly. They also maintain and verify the accuracy of measurement instruments to ensure that these are functioning within appropriate industry standards and in accordance with the specifications contained in our service regulations.
Compressor plants. Compressor plants along the pipelines recompress the natural gas volumes transported in order to restore pressure to optimal operational levels, thereby ensuring maximum use of capacity as well as efficient and safe delivery. Compressor plants are spaced along the pipelines at various points (between 62 and 124 miles) depending upon certain technical characteristics of the pipelines and the required pressure for transport. Compressor plants include mainly turbine-driven compressors and, to a lesser extent, motor-driven compressors which use natural gas as fuel, together with electric power generators to supply the complementary electrical equipment (control and measurement devices, pumping, lighting, communications equipment, etc.).
We transport natural gas through four major pipeline segments: General San Martín, Neuba I, Neuba II and Loop Sur, as well as several smaller natural gas pipelines. Information with respect to certain aspects of our main natural gas pipelines as of December 31, 2017, is set out in the table below:

Major Pipeline |  | Length (miles) |  |  | Diameter (inches) |  |  | Maximum Pressure (pound/inch) |  |  | Compressor Units |  |  | Operative Compressor Plants |  |  | HP Output |
General San Martín |  |  | 2,939 |  |  |  | 30(2 | ) |  |  | 853/995 |  |  |  | 62 |  |  |  | 17 |  |  |  | 515,800 |
Neuba I/Loop Sur |  |  | 732 |  |  |  | 24/30 |  |  |  | 853 |  |  |  | 15 |  |  |  | 5 |  |  |  | 61,300 |
Neuba II |  |  | 1,307 |  |  |  | 30/36 |  |  |  | 975/995 |  |  |  | 21 |  |  |  | 7 |  |  |  | 194,000 |
Other (1) |  |  | 728 |  |  |  | Various |  |  |  | Various |  |  |  | 6 |  |  |  | 3 |  |  |  | 7,500 |
Total |  |  | 5,706 |  |  |  |  |  |  |  |  |  |  |  | 104 |  |  |  | 32 |  |  |  | 778,600 |

(1) | Includes 247 miles of transfer pipelines throughout the pipeline system, as well as the Cordillerano pipeline, with a length of 239 miles, and the Chelforó-Conesa pipeline and other minor pipelines.

(2) | Includes two tranches of 24 inches, which correspond to the “Estrecho de Magallanes” natural gas pipeline.

General San Martín. This pipeline was built in three stages, completed in 1965, 1973 and 1978, and transports natural gas from the extreme southern portion of Argentina to the greater Buenos Aires area in east-central Argentina. It originates in San Sebastián (Tierra del Fuego), passes through the Straits of Magellan and the Provinces of Santa Cruz, Chubut, Río Negro and Buenos Aires (including the Cerri Complex located near the city of Bahía Blanca in central Argentina), and terminates at the high pressure transmission ring around the city of Buenos Aires. The pipeline receives natural gas from the Austral basin at the extreme south in the province of Tierra del Fuego, from the same basin further north at El Cóndor and Cerro Redondo, in the Province of Santa Cruz and from the San Jorge basin in northern Santa Cruz and southern Chubut provinces. The natural gas pipeline primarily serves the districts and cities of Buenos Aires, La Plata, Mar del Plata, Bahía Blanca, Puerto Madryn and Comodoro Rivadavia. This pipeline was expanded in 2005 by the Gas Trust in order to satisfy the growing natural gas demand in the Argentine economy. This expansion resulted in the construction of 458 miles of pipeline and the installation of new compressor units. See “Item 4. Our Information—B. Business Overview—Natural Gas Transportation—Pipeline Operations—Pipeline Expansions.”
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Neuba I (Sierra Barrosa-Bahía Blanca). Neuba I was built in 1970 and was expanded by us in 1996. It is one of our two main pipelines serving our principal source of gas supply, the Neuquén Basin. The pipeline originates in west-central Argentina at Sierra Barrosa (Province of Neuquén), passes through the provinces of Río Negro, La Pampa and Buenos Aires, and terminates at the Cerri Complex. This pipeline transports the natural gas received from the Neuquén Basin, particularly from the Sierra Barrosa, Charco Bayo, El Medanito, Fernández Oro, Lindero Atravesado, Centenario, Río Neuquén and Loma de la Lata natural gas fields. The gas delivered from Neuba I is subsequently compressed and injected into the Loop Sur and the General San Martín pipelines for transportation north to the greater Buenos Aires area.
Loop Sur. This gas pipeline was built in 1972 as an extension of Neuba I and runs parallel to a portion of the General San Martín gas pipeline. Located in the province of Buenos Aires, it transports natural gas from the Neuba I at the Cerri Complex in Bahía Blanca and terminates at the high pressure transmission ring around Buenos Aires, which we also operate. The natural gas delivered by this gas pipeline constitutes a portion of the natural gas supply for the greater Buenos Aires area. Loop Sur is also connected to the TGN system and allows us to deliver natural gas to or receive natural gas from TGN. Such transfers occur occasionally during periods of high demand for natural gas.
Neuba II. Our newest natural gas pipeline, Neuba II, was built in 1988 and is our second pipeline serving the Neuquén Basin. Neuba II was expanded four times between 1996 and 2000, and again in 2008. Neuba II begins at YPF’s Loma de la Lata gas treatment plant in the western portion of the basin and runs through the provinces of Neuquén, Río Negro, La Pampa and Buenos Aires (through the Cerri Complex), up to its terminal station located at Ezeiza just outside of Buenos Aires. Neuba II is a principal source of natural gas for the Federal District and the greater Buenos Aires area. In 2008, this pipeline was expanded as a part of the Second Expansion, resulting in the construction of 153 miles of natural gas pipeline.
Other Pipelines. We also operate the Cordillerano natural gas pipeline, built in 1984, which receives gas from the Neuquén Basin and supplies it mainly to three tourist centers in southern Argentina. In addition, we operate other minor pipelines, the high pressure transmission ring around Buenos Aires, the Chelforó-Conesa natural gas pipeline and other natural gas pipelines known as natural gas transfer pipelines.
Additional information regarding the expansion of our gas transportation system is included in “Item 4. Our Information—B. Business Overview—Natural Gas Transportation—Pipeline Operations—Pipeline Expansions.”
Ancillary Facilities
Cathodic Protection System
Currently, we operate cathodic protection devices, which are located along our main pipelines. The objective of this system is to prevent the corrosion process. The corrosion process causes metal loss, which, depending on the severity of the damage, may cause pipeline ruptures. Cathodic protection equipment includes DC rectifiers, and generators powered by thermic, turbine natural gas engines in locations where no electric lines are available. The system also includes an impressed current anode, which facilitates circulation of electricity through the circuit formed by the generator, the anode itself, the pipe and the land.
Measurement and control of the transport system.
To guarantee the reliability of the facilities and optimize the operation of the transport system, it is necessary to have real-time information from the various measurement and control devices installed throughout our more than 5,904 miles of gas pipelines and 32 compressor plants.
To that effect, we have fiscal measurement stations associated with gas receptions from producer facilities and gas deliveries to our distributors or customers, in addition to the mediation equipment installed in the compressor plants to determine the volumes of pumped gas, fuel and other variable of operational interest.
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All the information generated by the field devices is collected by our Electronic Flow Measurement (SCADA/EFM) system, transmitted through or communications infrastructure and centralized at our headquarters. The fiscal mediation information corresponding to volumes and quality of gas coming from the flow computers, which is collected by the system SCADA/EFM and saved in a database for further processing by other corporate applications (mediation system, application system, programming, assignment and control (“SPAC”), system of operational control of the transportation system (“COST”), modeling system of gas pipelines, among others.
In addition, the information is shared in real time with producers, distributors and ENARGAS in order to ensure the required auditability and transparency.
Natural Gas Control System
Located at our Buenos Aires headquarters, the gas control system controls scheduled gas injections and deliveries and allows us to follow gas flows in real time. Data is received from compressor stations by phone and automatically from remote terminal units (“RTUs”) installed in the receipt and delivery points equipped with the Electronic Flow Management (EFM) system. The information is normally collected by the Supervisory Control and Data Acquisition system (which has an ad-hoc database that is updated every 30 seconds on average) and is then consolidated into other databases. In order to control gas injection and deliveries, we have developed a software system called Solicitud, Programación, Asignación y Control, which, among other things, allows us to control actual volumes and projected future injections to determine producer deviations. As part of this system, we operate meteorological equipment and receive daily weather information from various sources, which is used for the purpose of forecasting natural gas demand.
Natural Gas Measurement
Shipped and delivered natural gas is measured through primary field facilities that are connected with RTUs. Such RTUs transmit the data to the Buenos Aires headquarters. This data is utilized to prepare reports for clients, shippers, producers and ENARGAS. Energy balances are also prepared in order to control our system efficiency.
Liquids Production and Commercialization
Our Liquids production and commercialization activities are conducted at our Cerri Complex. It is located near the city of Bahía Blanca and is connected to each of our main pipelines. The Cerri Complex consists of an ethane extraction cryogenic plant to recover ethane, LPG and natural gasoline, together with a lean oil absorption plant to recover LPG and natural gasoline. The facility also includes compression, power generation and storage facilities. The Cerri Complex processing capacity is approximately 1.6 Bcf/d.
As part of the Cerri Complex, we also maintain at Puerto Galván a storage and loading facility for the natural gas liquids extracted at the Cerri Complex. The Cerri Complex, including the Puerto Galván facility, is currently capable of storing 68,882 short tons of liquids. See “—Item 4. Our information. —B. Business Overview—Liquids Production and Commercialization” above.
Other Services
Midstream
As part of this business segment, we provide services related to natural gas including treatment, gathering and gas compression, which are rendered at two treatment plants and four gas compression plants with a total treatment capacity of 160.7 MMcf/d and a total compression capacity of 32,200 HP, respectively. The following chart shows summary information regarding the treatment and compression plants’ capacities as of December 31, 2017:

|  | Treatment capacity (in MMcf/d) |  |  | Compression capacity (in HP) |
Río Neuquén |  |  | 130.7 |  |  |  | 24,350 |
Plaza Huincul |  |  | 30.0 |  |  |  | 5,160 |
El Chourrón |  |  | - |  |  |  | 2,400 |
Total |  |  | 160.7 |  |  |  | 31,810 |

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Telecommunication
We own two interconnected networks beginning in the Buenos Aires Province, which consist of (i) a flexible and modern microwave digital network with SDH technology over more than 2,859 miles, which covers the routes: Buenos Aires – Bahía Blanca – Neuquén to the West, Buenos Aires – Bahía Blanca – Comodoro Rivadavia – Río Grande to the South, and (ii) a dark fiber optic network of approximately 1,056 miles, which covers the route La Plata – Buenos Aires – Rosario – Córdoba – San Luis – Mendoza. There is also a network in the Patagonia region, which consists of a “lit” fiber optic network of approximately 374 miles, which covers the route Puerto Madryn – Pico Truncado.
In addition, the following networks were installed in 2010, 2011 or 2012: (i) a high capacity fiber optic network of approximately 745 miles, which links Buenos Aires – Bahía Blanca – Neuquén; (ii) a fiber optic network of approximately 497 miles, which covers the route Bahía Blanca – Puerto Madryn; and (iii) a high capacity fiber optic network of approximately 497 miles, which links Pico Truncado – Río Gallegos. In 2013, we installed 81 miles of fiber optics to connect the city of Río Gallegos and the radio station “El Cóndor” which is the southernmost continental radio station in South America.
Environmental and Sustainability Policy
Our safety and environment policy establishes a commitment of compliance with the applicable legislation in environmental matters, the prevention of pollution and the continuous improvement of its Sistema de gestión Integrado or SGI. This commitment extends not only to our personnel, but also to contractors who work for, or provide services to, us.
Aligned with our safety and environment policy, the environmental management system is implemented, which is integrated with quality, safety and occupational health management. The SGI is certified according to ISO 9001, ISO 14001 and OHSAS 18001. Described in this framework are the processes that make up environmental management and the responsibilities and procedures associated with each of them.
A requirement of fundamental importance for us is to guarantee compliance with applicable environmental legislation, both in regulatory matters and at the level of the different jurisdictions in which we operate. To put it into practice, we have specific procedures that establish the obligations specific areas and a strategy to monitor the requirements of the authorities that allow for the maintenance of the environmental permits necessary to operate. In the case of projects, the environmental impact assessment is carried out following the requirements of Argentine natural gas rule 153 (NAG153), as well as all presentations, studies and public consultation processes necessary to obtain the environmental aptitude thereof from each local authority. The projects are carried out following the guidelines of the environmental protection plans that arise from the evaluation process.
In the framework of strengthening sustainability management, progress was made in the first stage of the Environmental Improvement Program, with the aim of managing projects that reduce the environmental impact of our operations. A series of projects focused on optimizing the measurements of environmental variables was carried out in order to have a baseline on which to set objectives associated with improvement projects, such as the calculation of the Company’s carbon footprint, and the balance of energy efficiency in the Cerri Complex, Galván Plant and Headquarters. On the other hand, we continue to evaluate technical alternatives with the goal of achieving the “zero effluent” in the Cerri Complex.
Environmental performance is monitored through indicators that show trends in the main variables and serve as a basis to evidence the process of continuous improvement. In turn, the adequacy of the SGI with the certified standards is verified through the annual program of internal audits.
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TGS recognizes that caring for the environment in the communities where it carries out its activities is essential to the strength of its business, understanding that business success is based on the ability to be recognized for operational efficiency, social responsibility and a commitment to its character as a citizen company.
The Environmental Improvement Program aims to implement projects through interdisciplinary teams that allow to know/validate the current situation of some environmental impacts. These validations will establish the baseline on which future improvements and investments will be calculated. The impacts considered are gaseous emissions, liquid effluents and energy consumption.
The work methodology consists of collecting information, relieving processes and having reliable data that allows TGS to obtain gas emission inventories, liquid effluent reduction plans and measures for the most efficient use of energy.
The Program of Environmental Improvements seeks to reduce negative environmental impacts, avoid demands for environmental causes and avoid non-compliance with legislation. In order to meet its objectives, the following projects have been developed:

| · | Inventory of gaseous emissions.

| · | Monitoring of gaseous emissions from the Cerri Complex

| · | Zero effluent in Cerri Complex

| · | Diagnosis of energy efficiency in Cerri Complex, Puerto Galván and Don Bosco Building.

| · | Measurement of the vents generated by the use of seals.

| · | Sewage effluent treatment plant in Plaza Huincul.

Prevention and Control of Impacts on the Environment
We have a database that evaluates all activities that may have a significant impact on the environment or risks to the health and safety of our staff and contractors.
The main environmental factors related to our operations are related to emissions to the atmosphere (mainly methane and combustion gases), damage to soils or water courses due to intervention in the pipeline (for maintenance, third-party actions or failures), generation of waste, generation of environmental noise and archaeological or paleontological findings during the execution of works. All of these aspects are evaluated based on their probability of occurrence and the magnitude of the damage they could cause to determine their possible impact. Those environmental aspects resulting significant have one or more associated documents to guarantee adequate operational control.
In order to produce a planned response and an operational method in the event of an incident, emergency or crisis, we issued a crisis plan and particular emergency plans for each site. These plans take into account the possible impact on the community, the environment and the availability of external support services. In particular, in the Cerri Complex of Bahía Blanca, we participate in the APELL Plan, a process of awareness and preparation for emergencies designed by the United Nations, which seeks to provide organized responses in the event of major technological accidents. The objective is to protect the community from human and material losses, as well as to avoid damage to the environment, by preparing a coordinated emergency plan. This program is distinguished from other community experiences of self-protection given it requires the active participation of the community, local government authorities and the industry. In the case of the Galván Plant, the National Contingency Plan (PLANACON) is applied, aimed at responding to environmental emergencies in port areas and with jurisdiction of Prefectura Naval Argentina. It focuses on the mitigation of possible spills of dangerous substances, for which simulations are carried out and a company qualified for a response to spills is hired.
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Insurance
We maintain insurance, subject to deductibles, against third-party liability, damage to our pipeline assets that pass under rivers or other bodies of water and the Straits of Magellan and business interruption. We believe this coverage is consistent with standards for international natural gas transportation companies. The terms of the policies related to the regulated assets have been approved by ENARGAS. In addition, we have obtained insurance coverage for our directors and officers pursuant to a standard D&O insurance. For additional information, see “Item 3. Key Information.—D. Risk Factors.—Risks Relating to Our Business—Our insurance policies may not fully cover damage or we may not be able to obtain insurance against certain risks.”

Item 4A. | Unresolved Staff Comments

We do not have any unresolved staff comments.

Item 5. | Operating and Financial Review and Prospects

A. Operating Results
The following Operating and Financial Review and Prospects should be read in conjunction with “Item 3. Key Information—A. Selected Financial Data” and our Financial Statements included elsewhere herein.
This Operating and Financial Review and Prospects discussion contains forward-looking statements that involve certain risks, uncertainties and assumptions. These forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “will likely result,” “intend,” “projection,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” “plan” or other similar words. Our actual results may differ materially from those identified in these forward-looking statements. For more information on forward-looking statements, see “Cautionary Statement Regarding Forward-Looking Statements.” In addition, for a discussion of important factors, including, but not limited to, the pesification of our tariffs and other factors that could cause actual results to differ materially from the results referred to in the forward-looking statements, see “Item 3. Key Information—D. Risk Factors.”
For purposes of the following discussion and analysis, unless otherwise specified, references to fiscal years 2017, 2016 and 2015 relate to the fiscal years ended December 31, 2017, 2016 and 2015, respectively.
We maintain our accounting books and records in pesos. Our Financial Statements as of December 31, 2017, 2016 and 2015 have been prepared in accordance with the accounting policies based on the IFRS issued by the IASB.
For information relating to the presentation of financial information, see “Presentation of Financial and Other Information.”
Critical Accounting Policies and Estimates
Critical accounting policies are those that are most important to the portrayal of the Company’s financial condition, results of operations and cash flows, and require management to make difficult, subjective or complex judgments and estimates about matters that are inherently uncertain. In connection with the preparation of our Financial Statements included in this Annual Report, we have relied on assumptions derived from historical experience and various other factors that we deemed reasonable and relevant. Although we review these assumptions in the ordinary course of our business at the end of each reporting period, the presentation of our financial condition and results of operations often requires management to make judgments regarding the effects of matters that are inherently uncertain. Actual results may differ from those estimated as a result of these different assumptions. We have described each of the following critical accounting policies and estimates in order to provide an understanding about how our management forms judgments and views with respect to such policies and estimates, as well as the sensitivity of such policies and estimates:

| · | impairment of property, plant and equipment;

| · | allowances for doubtful accounts and provisions for legal claims and others; and

| · | income tax – deferred tax and tax credits.

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Impairment of property, plant and equipment
We consider each of our business segments to be a single cash generating unit (“CGU”). Accordingly, we evaluate the carrying value of our property, plant and equipment (“PPE”) for impairment on a segment-by-segment basis when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
When assessing whether an impairment indicator may exist, we evaluate 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; and

| · | whether evidence of obsolescence or physical damage has occurred.

| · | whether the macroeconomic situation in which we carry out our activities, including significant variations in the sale prices of products, raw materials, interest rates, etc., has worsened.

We base our evaluations of property, plant and equipment on the assets’ value in use, its recoverable amount. 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) projections of the future costs to be incurred, (iv) expected macroeconomic variables such as interest rates, inflation, foreign exchange rates. The discount rate is our weighted average cost of capital.
When the carrying amount of a CGU exceeds its recoverable amount, the CGU is considered impaired and is written down. We base our impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of our CGUs to which the individual assets are allocated. These detailed budgets and forecast calculations generally cover a five-year period. Consistent with the requirements of IFRS, for longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.
Impairment losses of continuing operations are recognized in the statement of comprehensive income in those expense categories consistent with the function of the impaired asset generally in the cost of sales or other operating expenses.
No impairments indicators were identified during the year ended December 31, 2017.
Allowances for doubtful accounts and provisions for legal claims and others
We provide for doubtful accounts relating to accounts receivables. The allowance for doubtful accounts is based on the evaluation of various factors, including the credit risk of customers, historical trends and other information. While we use the information available to make evaluations, future adjustments to the allowance may be necessary if future economic conditions differ substantially from the assumptions used in making the evaluations. We have considered all events and/or transactions that are subject to reasonable and normal methods of estimation, and our Financial Statements reflect that consideration.
We have certain contingent liabilities with respect to legal and regulatory proceedings. We accrue liabilities when it is more likely than not that future expenses will be incurred and such expenses can be reasonably estimated. Such provisions are based on developments as of the time the provisions are made, estimates of the outcomes of these matters and our lawyers’ experience in contesting, litigating and settling other matters. As the scope of the liabilities becomes better defined, there may be changes in estimates of future costs, which could have a material effect on our future results of operations and financial condition or liquidity.
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We believe that our accounting policies relating to the allowances for doubtful accounts and provision for legal and other claims are “critical accounting policies” because:

| · | it requires our management to make estimates and assumptions that are highly susceptible to change from period to period; and

| · | the impact that recognizing or reversing allowances for doubtful accounts and provisions for legal claims and others would have on our consolidated balance sheet as well as on the results of our operations could be material.

Income tax – deferred tax assets and tax credits
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Determining the amount of deferred tax assets that can be registered requires the exercise of considerable judgment on the part of management, based on the probable term and level of future taxable profits together with future tax planning strategies and variables macroeconomic affecting the business.
On December 29, 2017, the Executive Branch promulgated and put into effect the Tax Reform. Among other topics, this reform establishes a gradual reduction of the applicable rate for the calculation of income tax, being 35%, 30% and 25% for fiscal periods 2017, 2018 through 2019 and 2020 onwards, respectively.
Since these regulations were published in the Argentine Official Gazette and are in full force, for the calculation of deferred assets and liabilities, we estimate the reversal of the deferred items and the tax rates applicable in the period in which the asset is expected to be realized or the liability is expected to be canceled.
As of December 31, 2017 and 2016, we do not maintain any income tax loss carry forward.
Entities in Argentina are subject to the Impuesto a la Ganancia Mínima Presunta (the tax on minimum presumed income, “TOMPI”). Pursuant to this tax regime, an entity is required to pay the greater of the income tax or the TOMPI. The TOMPI payable is calculated on an individual entity basis at the enacted tax rate of 1% and is based upon our taxable assets as of the end of the year. Any excess of the TOMPI over the current income tax may be carried forward and recognized as a tax credit against future income taxes payable over a 10-year period. When we assess that it is probable that we will use the TOMPI payment against future taxable income tax charges, we recognize the TOMPI as a current or non-current receivable, as applicable, within “Trade and other receivables” in the Consolidated Statement of Financial Position. At December 31, 2017 current income tax owed exceeded TOMPI, thus we have not recorded any TOMPI payable.
In accordance with the provisions of article 76 of Law No. 27,260, the TOMPI has been repealed for the periods beginning on or after January 1, 2019.
Factors Affecting Our Consolidated Results of Operations
As we are an Argentine sociedad anónima and all of our operations and operating assets are located in Argentina, we are affected by general economic conditions in the country, such as demand for natural gas, inflation and fluctuations in currency exchange rates. In particular, these factors affect our operating costs and revenues.
Since the onset of the severe economic crisis in Argentina in late 2001, our revenue composition has changed significantly, mainly as a consequence of (i) the substantial devaluation of the peso as compared to the U.S. dollar; (ii) high inflation since 2002; and (iii) the suspension, pursuant to the Public Emergency Law, of adjustments of the tariff for the transportation and distribution of natural gas. Regarding our Liquids Production and Commercialization business segment, in the past the Government has intervened in the market to implement measures to limit exports and limit selling prices. In addition, LPG and natural gasoline prices are set by reference to international prices, which suffered sharp decreases in 2014 and 2015, but recovered by the end of 2016.
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For the year ended December 31, 2017, 56.1% and 37.2% of our net revenues were attributable to our Liquids production and commercialization segment and to our natural gas transportation business, respectively.
The following table sets forth, for the years indicated, the variation of key economic indicators in Argentina during the years indicated, as reported by official sources.

|  | 2017 |  |  | 2016 |  |  | 2015 |  |  | 2014 |  |  | 2013 |
WPI (1) |  |  | 18.8 |  |  |  | 34.5 |  |  |  | 10.6 |  |  |  | 28.3 |  |  |  | 14.7 |
CPI (2) |  |  | 24.8 |  |  |  | 36.1 |  |  |  | 23.6 |  |  |  | 23.9 |  |  |  | 10.9 |
Devaluation of pesos vs. dollar (in %) |  |  | 17.4 |  |  |  | 9.3 |  |  |  | 52.5 |  |  |  | 31.1 |  |  |  | 32.6 |
Real GDP (pesos of 2004) (% change) |  |  | 3.9 |  |  |  | (2.3 | ) |  |  | 2.6 |  |  |  | (2.6 | ) |  |  | 2.3 | )
Industrial production (% change) |  |  | 1.8 |  |  |  | (4.6 | ) |  |  | 0.1 |  |  |  | (2.5 | ) |  |  | (0.2 | )
Transportation services tariffs increase |  |  | 182.0 |  |  |  | 200.1 |  |  |  | 44.3 |  |  |  | 20.0 |  |  |  | - |

(1) | For the year 2015, the latest information published by the INDEC refers to October 2015. This rate (which contains ten months accumulated), was complemented with November and December 2015 Consumer Price Index average rates for these two months published by the Province of San Luis and the City of Buenos Aires (7.8%).

(2) | Since June 2016, the INDEC began to gradually publish CPI information for the period May – December 2016. As of the date of issuance of this Annual Report the CPI for the first four months of 2016 has not been published. As a consequence of the lack of information, we completed the missing information with Consumer Price Index average rates for these four months published by the Province of San Luis and the City of Buenos Aires (16.6%).

Source: INDEC, Banco Nación Argentina, Statistical Agencies for the Province of San Luis and CABA.
The lack of adjustments to our natural gas transportation tariffs and sustained cost increases over the years have resulted in a substantial deterioration in the operating results of our natural gas transportation segment.
Year to year fluctuations in our net income are a result of a combination of factors, including primarily:

| · | the volume of liquids products we produce and sell;

| · | changes in international prices of LPG and natural gasoline;

| · | regulation affecting our liquids business, including Law No. 26,020 (which requires us to meet domestic demand before exporting LPG);

| · | changes in the input costs related to the liquids production and commercialization segment, including the Gas Charge Resolutions;

| · | the availability of natural gas and its richness;

| · | fluctuation in the Argentine peso / U.S. dollar exchange rate;

| · | the tariffs we are permitted to charge in our Natural Gas Transportation business segment;

| · | local inflation and its impact on costs expressed in Argentine pesos; and

| · | other changes in laws or regulations affecting our operations, including tax matters.

Consideration of the effects of inflation
Argentina has faced and continues to face inflationary pressures. During periods of high inflation, effective wages and salaries tend to fall and consumers adjust their consumption patterns to eliminate unnecessary expenses. The increase in inflationary risk may erode macroeconomic growth and further limit the availability of financing, causing a negative impact on our operations. Inflation increases also have a negative impact on our cost of sales, selling expenses and administrative expenses. We cannot give any assurance that increased costs as a result of inflation will be offset in whole or in part with increases in prices of our products and services.
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IAS 29 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 measure at the reporting date of the reporting period. IAS standard lists a series of factors that should be considered in determining whether an economy is hyperinflationary, including whether the cumulative rate of inflation over in three years approaches or exceeds 100%.
In January 2007, the INDEC modified its methodology for calculating the CPI in order to reflect the CPI for the Great Buenos Aires Area (CPI-GBA). Some private analysts have suggested that the change was driven by Argentina’s policy to control inflation and reduce payments on its inflation-linked bonds and have materially disagreed, and continue to disagree, with INDEC’s official inflation data (as well as other economic data affected by inflation data). In January 2014, the Government established the IPCNu, which more broadly reflects consumer prices by considering price information from the 23 provinces of the country and the City of Buenos Aires. The methodological and geographic differences in the calculation of the CPI-GBA and the IPCNu caused the Government to decide to discontinue its publication.
On January 7, 2016, the new leadership of the INDEC declared a “national statistical emergency” and implemented several reforms in order to reorganize the INDEC. As a result, the INDEC did not publish CPI data until June 2016, with information from April 2016. During the implementation of these reforms, the INDEC used the figures for CPI and other official statistics published by the Province of San Luis and the Autonomous City of Buenos Aires. As of the date of issuance of this Annual Report the CPI for the first four months of 2016 and November and December 2015 has not been published. Further, there are no communications from the INDEC expressing their intention to re-calculate CPI for those months.
Moreover, as a result of the slowdown in inflation beginning in the second half of 2016 and the expectations of the Government to continue programs designed to reduce inflation (for the year 2017 the CPI reported by the INDEC was 24.8% in comparison with 2016’s CPI of 37.8%, considering average CPI of the province of San Luis and the City of Buenos Aires for the period May through December 2016), the Argentine peso does not meet the characteristics to qualify as the currency of a hyperinflationary economy according to the guidelines established in IAS 29. Even so, many of our operating costs such as wage costs and prices for inputs and services, have increased materially in recent years.
Hence, the Financial Statements included elsewhere herein have not been restated into constant currency. Notwithstanding the above, in recent years, certain macroeconomic variables affecting our business, such as the cost of labor, the exchange rate of the Argentine peso to the U.S. dollar and the prices of our inputs and services, have experienced significant annual changes, which, although they may not surpass the levels established in IAS 29, are significant and should be considered in the assessment and interpretation of our financial performance reported in this Annual Report.
Argentine Macroeconomic Outlook for 2018
Since the Macri administration took office on December 10, 2015, the new authorities have been taking different measures to enable Argentina to begin a path of sustainable growth, lower inflation, a reduction of the fiscal deficit, regaining access to credit markets, production of reliable statistics and correcting imbalances in the relative prices of certain goods and services in the economy. These measures have included: (i) the issuance of Decree No. 55/2016, which declared a national statistic emergency and granted INDEC the necessary tools to restore international credibility regarding the indexes that it publishes; (ii) relaxation of foreign exchange controls, (iii) the settlement of claims by holdout bondholders; (iv) the Tax Reform which reduces taxes for commercial companies and encourage private investment in Argentine economy, (v) the elimination or reduction of taxes on exports in order to improve the situation of regional economies; and (vi) the process of adjustment of public services rates, including those collected by the Natural Gas Transportation business segment.
In addition, on December 28, 2017, Congress passed the Pension Reform Law, with the goal of improving the sustainability and predictability of Argentina’s pension program, while still protecting the most vulnerable persons. To that effect, the Pension Reform Law modified the basic formula for the periodic adjustment of retirements, pensions and the Universal Child Allowance (Asignación Universal por Hijo).
The Pension Reform Law also modified Section 252 of the Labor Law No. 20,744 by establishing that employers may request employees who have reached 70 years of age to initiate retirement proceedings (compared to age 65 under the prior regimen). Public sector employees are excluded from the foregoing provision.
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At the date of issuance of this Annual Report there is uncertainty regarding the impact that these and other measures that the Government can take will have on key macroeconomic variables and particularly on the energy sector.
New accounting pronouncements not adopted as of December 31, 2017
IFRS 15, Revenue from Contracts with Customers:
In May 2014, IFRS 15 was issued which provides a single, principles-based five-step model for revenue recognition to be applied to all customer contracts, and requires enhanced disclosures. The new standard is effective for annual periods beginning on or after January 1, 2018, and allows for early adoption. We will adopt this standard on January 1, 2018, and have elected to use the modified retrospective approach. To do so, the initial application of this standard is retroactively recognized as an adjustment to the opening balance of accumulated earnings as of January 1, 2018 and the comparative information is not adjusted.
After performing its analysis, our Management has concluded that the current income recognition practices are in accordance with current IFRS, which are substantially consistent with the requirements of IFRS 15 and the adoption of this standard is not expected to have a material impact on our consolidated financial statements. Thus, no material adjustments required upon adoption have been noted to date.
IFRS 9, Financial Instruments:
In July 2014, the IASB issued a final version of this standard, which replaces IAS 39, Financial Instruments: Recognition and Measurement, and is effective for annual periods beginning on or after January 1, 2018. The standard introduces a new model for the classification and measurement of financial assets, a new expected credit loss model for the measurement of the impairment of financial assets. We will adopt this standard effective January 1, 2018. Management has assessed financial assets and liabilities as of December 31, 2017 in order to determine the impact that its classification and measurement could have on its financial situation and results of operations. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.
IFRS 16, Leases:
In January 2016, IFRS 16 was issued which establishes the new model of accounting for leasing transactions. This standard replaces the current guidance on the accounting for such transactions in IAS 17 “Leases” and related interpretations and is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted. We do not intend to adopt this standard early. IFRS 16 brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases.
The Company is currently assessing the impact of IFRS 16 and as of the date of this Annual Report is not reasonably possible to determine its impact.
IFRIC Interpretation 23, Uncertainty over Income Tax Treatments:
This interpretation clarifies application of recognition and measurement requirements in IAS 12, Income Taxes, when there is uncertainty over income tax treatments. The interpretation specifically addresses the following: (a) whether an entity considers uncertain tax treatments separately, (b) the assumptions an entity makes about the examination of tax treatments by taxation authorities, (c) how an entity determines taxable profit (tax loss), tax basis, unused tax losses, unused tax credits and tax rates and (d) how an entity considers changes in facts and circumstances. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019. Early application is permitted. The Company is analyzing the impact of IFRIC 23, and as of the date of this Annual Report is not reasonably possible to determine its impact.
IFRIC 22 Foreign Currency Transactions and Advance Consideration:
This interpretation refers to the determination of the “transaction date” that determines the exchange rate to be used in the initial recognition of an asset, expense or income related to an entity that received or paid a foreign currency advance. Applies to foreign currency transactions when an entity recognizes a non-monetary asset or non-monetary liability arising from the receipt or payment of advance consideration before the entity recognizes the related asset, expense or income. For the purpose of determining the exchange rate to be used in the initial recognition of an asset, expense or income, the transaction date is the date on which the non-monetary asset or liability derived from the receipt or payment of the advance is recognized. This interpretation applies to fiscal years beginning on or after January 1, 2018. The initial application may be retroactive or prospective from: (i) the beginning of the period in which it is applied; or (ii) the beginning of an earlier comparative period.
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The Company believes that the adoption of this standard will not have an impact on its financial position or on its results of operations given that its accounting policies are in line with this interpretation.
Discussion of Results of Operations for the Years Ended December 31, 2017 and 2016
The following table presents a summary of our consolidated results of operations for the years ended December 31, 2017 and 2016, stated in millions of pesos, and the increase or decrease and percentage of change between the periods presented:

|  | Year ended December 31, |
|  | 2017 |  |  | 2016 |  |  | Variation |  |  | Percentage change |
Revenues from sales |  |  | 12,246.7 |  |  |  | 7,402.2 |  |  |  | 4,844.5 |  |  |  | 65.4 |
Operating costs |  |  | (6,191.4 | ) |  |  | (4,198.0 | ) |  |  | (1,993.4 | ) |  |  | 47.5 |
Depreciation |  |  | (331.9 | ) |  |  | (238.0 | ) |  |  | (94.0 | ) |  |  | 39.5 |
Costs of sales |  |  | (6,523.3 | ) |  |  | (4,435.9 | ) |  |  | (2,087.4 | ) |  |  | 47.1 |
Gross profit |  |  | 5,723.3 |  |  |  | 2,966.3 |  |  |  | 2,757.1 |  |  |  | 92.9 |
Administrative and selling expenses |  |  | (902.9 | ) |  |  | (668.9 | ) |  |  | (234.0 | ) |  |  | 35.0 |
Other operating loss |  |  | (104.4 | ) |  |  | (65.5 | ) |  |  | (38.8 | ) |  |  | 59.2 |
Operating profit |  |  | 4,716.1 |  |  |  | 2,231.8 |  |  |  | 2,484.2 |  |  |  | 111.3 |
Net financial results |  |  | (568.0 | ) |  |  | (813.4 | ) |  |  | 245.4 |  |  |  | (30.2 | )
Share of profit from associates |  |  | 0.2 |  |  |  | 1.5 |  |  |  | (1.3 | ) |  |  | (87.5 | )
Income tax expense |  |  | (1,355.0 | ) |  |  | (489.3 | ) |  |  | (865.7 | ) |  |  | 176.9 |
Total net income and total comprehensive income |  |  | 2,793.3 |  |  |  | 930.7 |  |  |  | 1,862.6 |  |  |  | 200.1 |

Year 2017 Compared to Year 2016
Total comprehensive income
For the year ended December 31, 2017, we reported total net income and total comprehensive income of Ps. 2,793.3 million, in comparison to the total net income and total comprehensive income of Ps. 930.7 million reported 2016.
The positive variation in the comprehensive net results for fiscal year ended December 31, 2017, was mainly attributed to the increase of the operating profit of Ps. 2.484,2 million and a decrease of Ps. 245.4 million in net financial expense.
The material factors affecting total comprehensive income were as follows:

| · | Net revenues reached Ps. 12,246.7 million, an increase of Ps. 4,844.5 million compared to the 2016 fiscal year. This increase was mainly due to higher net revenues from the Natural Gas Transportation and Liquids Production and Commercialization segments, which grew by 118.5% or Ps. 2,472.5 million and 44.2% or Ps. 2,106.9 million, respectively.

| · | Operating costs, including depreciation of fixed assets, increased by Ps. 2,087.4 million, or 47.1% over 2016 fiscal year, primarily as a result of an increase in the price of natural gas used as replacement for thermal plant reduction at the Cerri Complex combined with butane purchases made to supply the local market, higher charges for maintenance of fixed assets and depreciation and an increase in labor costs.

| · | Administrative and selling expenses rose by Ps. 234.0 million, or 35.0% over 2016 fiscal year.

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Cost of sales, administrative and selling expenses
Cost of sales for the years ended on December 31, 2017 and 2016 represented 53.3% and 59.9%, respectively, of net revenues reported in these years. This decrease in the cost of sales as a percentage of revenues is primarily the result of a 65.4% increase in net revenues mainly due to natural gas transportation services tariff increases, while cost of sales increased a lower rate.
Administrative and selling expenses for the years ended on December 31, 2017 and 2016 represented 7.4% and 9.0%, respectively, of net revenues reported in both of these years.
See. “—Analysis of Operating Profit by Business Segment for the years ended December 31, 2017 and 2016.”
Share of profit from associates
For the year ended December 31, 2017, we recorded a profit from our investment in associates of Ps. 0.2 million, compared to the profit of Ps. 1.5 million recorded for 2016.
Net Financial Results
Net financial results for the years ended December 31, 2017 and 2016 are as follows:

|  | 2017 |  |  | 2016 |
|  | (in millions of pesos) |
Financial income |  |  |  |  |  |
Interest income |  |  | 87.4 |  |  |  | 100.4 |
Fair value gains on financial instruments through profit and loss |  |  | 274.6 |  |  |  | 169.9 |
Foreign exchange gain |  |  | 360.2 |  |  |  | 135.0 |
Subtotal |  |  | 722.2 |  |  |  | 405.3 |
Financial expenses |  |  |  |  |  |  |  |
Interest expense |  |  | (516.6 | ) |  |  | (470.7 | )
Foreign exchange loss |  |  | (718.9 | ) |  |  | (712.5 | )
Derivative financial instruments results |  |  | - |  |  |  | (8.9 | )
Other financial charges |  |  | (103.6 | ) |  |  | (66.4 | )
Less: Capitalized borrowing costs |  |  | 49.0 |  |  |  | 39.7 |
Subtotal |  |  | (1,290.1 | ) |  |  | (1,218.7 | )
Total |  |  | (568.0 | ) |  |  | (813.4 | )

The positive variation in net financial results is largely owed to the lesser negative exchange rate difference, net by Ps. 218.7 million, as a consequence of lower liabilities denominated in United States dollars in the year 2017. The exchange rate for the United States dollars as of December 31, 2017 was Ps. 18.6490 representing an increase of 17.4% (or Ps. 2.76 per each U.S. dollar) compared to the exchange rate recorded at the closing of 2016. As of December 31, 2016 the exchange rate increased by 21.9% (or Ps. 2.85 per each U.S. dollar) compared to the rate in effect at the closing of 2015.
Additionally, in 2017 there were higher financial revenues related to interests earned by financial assets, as a result of an increase in the amounts invested, even though the interest rate applicable to such investments were lower compared to the same period of the previous year.
All the positive effects described above were partially offset by increased financial expenses generated by liabilities as a consequence of higher accrued interests related to financial leasing and exchange rate depreciation.
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Income tax
For the year ended December 31, 2017, we reported an income tax expense of Ps. 1,355.0 million, compared to the loss reported in 2016 of Ps. 489.3 million. This increase in income tax expense was due to the higher taxable income generated in the year 2017 and was partially offset by the positive variation recorded in the balance of the deferred tax liability amounting Ps. 102.6 million, as a consequence of the enactment of the Tax Reform that, among other things, established the reduction in the applicable tax rate for the income tax beginning in fiscal year 2018.
Analysis of Operating Profit by Business Segment for the Years Ended December 31, 2017 and 2016
The following table sets forth revenues and operating income for each of our business segments for the years ended December 31, 2017 and 2016:

|  | Year ended December 31, |
|  | 2017 |  |  | 2016 |  |  | Variation |  |  | Percentage Change |
| (in thousands of Pesos) |
Natural Gas Transportation |  |  |  |  |  |  |  |  |  |  |  |
Revenues from sales(1) |  |  | 4,559.7 |  |  |  | 2,087.2 |  |  |  | 2,472.5 |  |  |  | 118.5 |
Cost of sales |  |  | (1,695.2 | ) |  |  | (997.6 | ) |  |  | (697.5 | ) |  |  | 69.9 |
Gross profit |  |  | 2,864.6 |  |  |  | 1,089.6 |  |  |  | 1,775.0 |  |  |  | 162.9 |
Administrative and selling expenses |  |  | (576.9 | ) |  |  | (386.0 | ) |  |  | (190.9 | ) |  |  | 49.5 |
Other operating expense |  |  | (126.0 | ) |  |  | (44.7 | ) |  |  | (81.3 | ) |  |  | 182.1 |
Operating profit |  |  | 2,161.6 |  |  |  | 658.9 |  |  |  | 1,502.7 |  |  |  | 228.1 |
Liquids Production and Commercialization |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from sales |  |  | 6,875.2 |  |  |  | 4,768.3 |  |  |  | 2,106.9 |  |  |  | 44.2 |
Cost of sales |  |  | (4,428.8 | ) |  |  | (3,218.9 | ) |  |  | (1,209.8 | ) |  |  | 37.6 |
Gross profit |  |  | 2,446.5 |  |  |  | 1,549.4 |  |  |  | 897.1 |  |  |  | 57.9 |
Administrative and selling expenses |  |  | (223.0 | ) |  |  | (213.0 | ) |  |  | (10.0 | ) |  |  | 4.7 |
Other operating income / (expense) |  |  | 27.3 |  |  |  | (19.1 | ) |  |  | 46.4 |  |  |  | (242.3 | )
Operating profit |  |  | 2,250.7 |  |  |  | 1,317.2 |  |  |  | 933.5 |  |  |  | 70.9 |
Other services |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from sales |  |  | 735.8 |  |  |  | 485.9 |  |  |  | 250.0 |  |  |  | 51.5 |
Cost of sales |  |  | (353.7 | ) |  |  | (187.8 | ) |  |  | (165.9 | ) |  |  | 88.3 |
Gross profit |  |  | 382.2 |  |  |  | 298.0 |  |  |  | 84.1 |  |  |  | 28.2 |
Administrative and selling expenses |  |  | (89.3 | ) |  |  | (59.0 | ) |  |  | (30.3 | ) |  |  | 51.3 |
Other operating expense |  |  | (5.8 | ) |  |  | (1.3 | ) |  |  | (4.5 | ) |  |  | 356.6 |
Operating profit |  |  | 287.1 |  |  |  | 237.8 |  |  |  | 49.4 |  |  |  | 20.8 |
Telecommunications |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from sales |  |  | 75.8 |  |  |  | 60.8 |  |  |  | 15.0 |  |  |  | 24.7 |
Cost of sales |  |  | (45.7 | ) |  |  | (31.5 | ) |  |  | (14.2 | ) |  |  | 45.0 |
Gross profit |  |  | 30.1 |  |  |  | 29.3 |  |  |  | 0.9 |  |  |  | 2.9 |
Administrative and selling expenses |  |  | (13.7 | ) |  |  | (10.8 | ) |  |  | (2.9 | ) |  |  | 26.3 |
Other operating income / (expense) |  |  | 0.2 |  |  |  | (0.5 | ) |  |  | 0.6 |  |  |  | (133.9 | )
Operating profit |  |  | 16.6 |  |  |  | 18.0 |  |  |  | (1.4 | ) |  |  | (7.7 | )

(1) | Net of intersegment revenues of Ps. 150.4 million and 71.1 million for the fiscal years 2017 and 2016, respectively.

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Regulated Natural Gas Transportation Segment
The Natural Gas Transportation business segment represented 37.2% and 28.2% of our total revenues during the years 2017 and 2016, respectively. Natural Gas Transportation revenues are derived mainly from firm contracts, under which pipeline capacity is reserved and paid for regardless of actual usage by the shipper. We also provide interruptible natural gas transportation services subject to availability of the pipeline capacity. In addition, we render operation and maintenance services for the Natural Gas Transportation facilities, which belong to certain gas trusts created by the Government to expand the capacity of the Argentine natural gas transportation pipeline system. This business segment is subject to ENARGAS regulation. As discussed above, since 2002, significant inflation and depreciation of the peso, combined with a lack of compensating tariff increases, has resulted in a deterioration of the results of operations in this segment.
For additional information regarding the history of our discussions with various Governmental authorities in relation to the adjustment of our gas transportation tariffs see “Item 4. Our Information—B. Business Overview—Natural Gas Transportation—Regulatory Framework.”
During 2017, the Natural Gas Transportation business segment recorded an operating profit of Ps. 2,161.6 million, compared to the Ps. 658.9 million recorded in 2016. The main factors that affected the results of operations of this segment compared to 2016 are the following:

| · | Revenues from the Natural Gas Transportation business segment increased by Ps. 2,472.5 million for the year 2017 compared to 2016.

| · | Revenues related to natural gas firm transportation contracts for the years ended December 31, 2017 and 2016, respectively, amounted to Ps. 3,557.1 million and Ps. 1,485.2 million. The increase is mainly due to the combined effect of: (i) the full application during the 2017 fiscal year of the tariff increase granted by Resolution 3724, later complemented by Resolution 4054, both issued by ENARGAS, which established the tariff increase of 200.1%, (ii) the 64.2% increase granted by Resolution 4362 and (iii) to a lesser extent of the 81.1% tariff increase granted by ENARGAS Resolution 120 effective as of December 1, 2017.

| · | Revenues related to interruptible natural gas transportation service increased by Ps. 252.9 million, from Ps. 313.7 million to Ps. 566.6 million. The increase mainly resulted from the tariff increase discussed above.

| · | Revenues relating to the CAU amounted to Ps. 265.2 million and Ps. 215.8 million for the years ended December 31, 2017 and 2016, respectively. The value of the CAU is much less than the transportation tariff we are permitted to charge for our natural gas transportation services, because we were not required to make any investment in the construction and expansion of the assets to which the CAU relates. Since December 1, 2017, the CAU increased by 29.7% in accordance with ENARGAS Resolution 120. See “Item 4. Our Information—B. Business Overview—Natural Gas Transportation—Pipeline Operations—Pipeline Expansions” for additional information regarding the CAU.

| · | Costs of sales and administrative and selling expenses for the year ended December 31, 2017 increased by Ps. 888.5 million, from Ps. 1,383.6 million to Ps. 2,272.1 million, as compared to the year ended December 31, 2016. This increase was mainly attributable to: (i) an increase of Ps. 404.0 million in ordinary maintenance expenses for the pipeline and other fixed assets primarily resulting from our commitments with ENARGAS, (ii) a higher technical assistance fee accrued of Ps. 106.0 million, (iii) higher labor costs relating to the joint negotiations with trade unions during 2017, amounting to Ps. 183.3 million and (iv) higher turnover tax of Ps. 125.0 million.

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| · | The negative variation in other operating expenses mainly resulted from a Ps. 72.3 million decrease in certain non-financial assets.

| · | During 2017, we received transitory tariff increases totaling 182%.

Regarding the tariff increase discussed in the above-mentioned public hearing, on March 27, 2018, ENARGAS issued Resolution 310 with the tariff charts including a 50% increase in the natural gas transportation service tariff and the CAU corresponding to the non-automatic semiannual tariff increase granted by Resolution 4362 and the close of the RTI process after 2017 Integral Agreement coming into force.
The Mercedes – Cardales project will include the construction of 47 miles of a natural gas pipeline that will run between the towns of Mercedes and Los Cardales in the province of Buenos Aires and the installation of a plant compressor in header. We estimate that this project would require an initial investment of U.S.$150 million and would allow the incremental transportation of 388MMcf/d of natural gas. As of the date of issuance of this Annual Report, ENARGAS is reviewing our proposal with respect to the Mercedes – Cardales project.
Liquids Production and Commercialization Segment.
Unlike the natural gas transportation segment, revenues of the Liquids production and commercialization segment are not subject to full regulation by ENARGAS and the Ministry of Energy. However, in recent years, the Government has enacted a number of laws and regulations that have limited our ability to receive the full international market prices for all of the liquids that the Cerri Complex produces. In addition, ENARGAS has the ability to redirect the volumes of natural gas in the system to cover certain uses and that may result in lower volumes of natural gas to be processed in the Cerri Complex. See “Item 4. Our Information. B—Business Overview—Liquids Production and Commercialization—Regulation” for more information.
The Liquids production and commercialization segment represented 56.1% and 64.4% of our total net revenues during the years ended December 31, 2017 and 2016, respectively. Production and Commercialization of Liquids activities are conducted at the Cerri Complex, which is located near Bahía Blanca and connected to each of our main pipelines. At the Cerri Complex, we recover ethane, LPG and natural gasoline for our own account, on behalf of our customers and on a fee basis, collecting a commission for the extracted Liquids delivered to our customers.
During 2016, we processed on behalf of our customers only 3.6% of the volume sold. For the fiscal year 2017, 100% of our sales were made for our account.
All ethane produced by our Liquids segment in the year ended December 31, 2017 was sold locally to PBB. After the agreement in force between May 1, 2016 and May 1, 2017 expired, on August 1, 2017 we were able to conclude its renegotiation with PBB. The new agreement, with retroactive effect as of May 1, 2017, has similar terms as the previous contract. It also provides TOP and DOP clauses, which allow us to obtain a minimum of revenues irrespective of the volumes purchased by PBB.
Our ethane sales for the years 2017 and 2016 represented 31.1% and 38.7% of our Liquids Production and Commercialization net revenues. For this reason, any decrease in the volumes of ethane sold to PBB may have a negative impact on our net revenues.
In 2017, we sold 57.3% of our production of LPG in the local market to LPG marketers, compared to 59.3% in 2016, with the remainder exported to LPG traders. In addition, all natural gasoline produced during 2017 and 2016 was exported. For more information about these contracts, see “Item 4. Our Information. B—Business Overview—Liquids Production and Commercialization.”
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The total annual sales for the Cerri Complex for 2017 and 2016 in short tons, which include liquids sales made on behalf of third parties, from which we withhold fees for production and commercialization, were as follows:

|  | Years ended December 31, |  |  | Year ended December 31, 2017 compared to year ended December 31, 2016 |
|  | (volumes in short tons) |  |  | (volumes in short tons) |
|  | 2017 |  |  | 2016 |  |  | Increase/ (Decrease) |  |  | Percentage Change |
Local Market |  |  |  |  |  |  |  |  |  |  |  |
Ethane |  |  | 311,786 |  |  |  | 305,861 |  |  |  | 5,925 |  |  |  | 1.9 |
Propane |  |  | 194,665 |  |  |  | 194,447 |  |  |  | 217 |  |  |  | 0.1 |
Butane |  |  | 156,912 |  |  |  | 155,842 |  |  |  | 1,070 |  |  |  | 0.7 |
Subtotal |  |  | 663,363 |  |  |  | 656,151 |  |  |  | 7,212 |  |  |  | 0.1 |
Exports |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Propane |  |  | 158,895 |  |  |  | 151,129 |  |  |  | 7,767 |  |  |  | 5.1 |
Butane |  |  | 103,259 |  |  |  | 88,972 |  |  |  | 14,287 |  |  |  | 16.1 |
Natural Gasoline |  |  | 133,802 |  |  |  | 108,741 |  |  |  | 25,061 |  |  |  | 23.0 |
Subtotal |  |  | 395,956 |  |  |  | 348,842 |  |  |  | 47,114 |  |  |  | 13.5 |
Total Liquids |  |  | 1,059,319 |  |  |  | 1,004,992 |  |  |  | 54,327 |  |  |  | 5.4 |

Export revenues from our Liquids production and commercialization segment command a price premium, as compared to our domestic market sales, primarily as a result of government regulation of domestic prices See “Item 8. Financial Information— A. Consolidated Statements and Other Financial Information—Exports.”
For several years, until the end of 2016, a variable export tax regime has been in force for natural gasoline, propane and butane, respectively. During 2015, to address declining international prices, the Government introduced several changes to the mechanism used to calculate the export taxes. These changes partially offset the impact of lower prices of propane, butane and natural gasoline during 2016, compared with previous years. The export tax regime expired at the end of 2016. During the year ended December 31, 2016, when the applicable average rates were 1%, the total withholdings on exports accrued was Ps. 11.1 million.
We cannot offer any assurance regarding the absence of withholding export taxes or the rate of any such taxes that may be imposed in the future.
In the domestic market, the Ministry of Energy has recently issued a series of measures that are expected to reduce the negative impact that the decrease in the international reference prices and the cost of natural gas have on our operating income. These measures include an increase in the sale price and the compensation from selling propane and butane bottles under the Households with Bottles Program, as well as the Ministry of Energy’s modification of the methodology for calculating the export parity price of the propane and butane sold in the domestic market.
Butane and propane price commercialized under the Households with Bottles Program is determined by the SHR, the Hydrocarbon Resources Secretariat, which in 2017 issued Resolutions N° 56-E/2017 and N° 287-E/2017, setting the prices at Ps. 2,568 per ton of butane and Ps. 2,410 for propane as of April 2017 and at Ps. 4,302 per ton of butane and Ps. 4,290 per ton of propane as of December 1, 2017. For the year 2016 and the first quarter of 2017, the price was established by Resolution N° 70/2015 at Ps. 650 per ton of butane. The compensation received from the Ministry of Energy is currently at Ps. 550 per ton of butane, which has remained unchanged since April 2015.
Finally, on March 27, 2018 the SHR issued Resolution No. 5/2018 increasing, from April 1, 2018, the price paid under the Households with Bottles Program to Ps. 5,416 per ton of butane and Ps. 5,502 per ton of propane. The compensation paid to us remained without modification at Ps. 550 per ton of butane.
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Under this agreement, we collect compensation from the Government, which is calculated taking into consideration the export parity price published monthly by the Ministry of Energy.
See “Item 4. Our Information—B. Business Overview—Liquids Production and Commercialization—Regulation—International Market.” for additional information.
During 2017, the Liquids Production and Commercialization business segment recorded operating income of Ps. 2,250.7 million, compared to Ps. 1,317.2 million in 2016. The main factors that affected the results of operations for this segment compared to 2016 were the following:

| · | Segment revenue increased by Ps. 2,106.9 million in 2017, compared with the previous year. This increase is mainly due to increases of: (i) Ps. 982.8 million as a result higher reference international prices, (ii) Ps. 517.1 million resulting from higher volumes sold for our own account, (iii) Ps. 476.4 million as a result of depreciation of the Argentine peso against the U.S. dollar, and (iv) Ps. 189.4 million in the price of the butane received under the Households with Bottles Program.

| · | In 2017 propane, butane and natural gasoline average prices recorded year-over-year increases of 58.5%, 42.0% and 25.7%, respectively. This growth was followed by a downward trend, in particular during the end of the fourth quarter of 2017 and the first months of 2018.

| · | Notwithstanding the changes made to the Households with Bottles Program to supply butane to the domestic market described above, our obligations under this program continues to have an adverse impact on this segment, resulting in a negative operating margin on domestic sales of LPG.

| · | Costs of sales, administrative and selling expenses for the year ended December 31, 2017 increased by Ps. 1,219.8 million, from Ps. 3,432.0 million to Ps. 4,651.8 million, as compared to the year ended December 31, 2016. This increase was mainly due to: (i) the rise in the price of natural gas that we are required to purchase in replacement of the energy content we extract from the gas stream or (Replenishment Thermal Plant, or “RTP”) as part of the Liquids processing business of Ps. 969.2 million, (ii) higher technical assistance fee of Ps. 71.3 million, (iii) labor costs of Ps. 99.3 million and (iv) higher turnover tax of Ps. 23.6 million. These effects were partially offset by a lower bad debt charge of Ps. 40.1 million and a decrease in the withholding tax on exports of Ps. 10.4 million.

In 2017, we fulfilled our propane and butane term agreement entered into in October 2016 with Geogas Trading S.A. Under this agreement, which expired on April 30, 2017, we sold propane and butane volumes monthly nominated by the client at an international reference, plus a fixed premium per ton of dispatched product.
For the period from October 1, 2017 to April 30, 2018, we sell our LPG exports to Petredec (Europe) Limited. This agreement contemplates similar conditions to the one that expired on April 30, 2017 but implies an improvement for us in terms of premium per ton. It stipulates monthly sales by us of approximately 16,534 short tons of propane and 16,534 short tons of butane at the international reference price plus a fixed charge per ton sold. This price mechanism represents an improvement in the prices obtained in spot sales and brings short-term certainty in the commercialization of such products. This agreement replaced the agreement with Geogas Trading S.A.
As in former years, in the period ranging from May to September 2017, the sales of these products were conducted mainly in the domestic market, due to the restrictions in natural gas consumption for the production of Liquids and governmental requirements to supply the domestic market within the framework of the programs outlined by the Government for the supply of propane and butane.
Regarding natural gasoline exports, on July 10, 2017, we entered with Shell Trading US Company an agreement in effect until January 31, 2018. Within the period ranging from January to July 2017, we conducted spot sales to said client, taking as basis the reference international price less a discount per metric ton.
For the period ranging from February 1, 2018 to January 31, 2019, we entered a new agreement with Petrobras Global Trading S.V.
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Additionally, we export to Chile and Paraguay by land. Although volumes exported under this modality are lower than volumes exported by sea, which increased over the last several years, allowing us to capitalize a higher operative margin.
As described in “Item 4. Our Information— B. Business Overview—Liquids Production and Commercialization—Regulation,” in 2008, the Executive Branch created the gas charge through Decree No. 2,067/08. The gas processing charge increased from Ps. 0.049 to Ps. 0.405 per cubic meter of natural gas on December 1, 2011. This modification in the charge meant an increase of approximately 726.5% of the charge created by Decree No. 2,067/08 for the financing of natural gas imports. We are currently challenging the increased gas charge before the Court of Appeals in administrative federal matters based in the Autonomous City of Buenos Aires. In July 2012, this court issued a preliminary injunction, ordering the Executive Branch (the Federal Energy Bureau), ENARGAS and NAFISA, as collection agents, not to bill or attempt to collect from us the gas processing charge, and permitting us to continue the billing and collection of the amounts stated prior to the issuance of the Gas Charge Resolutions, pending resolution of the dispute. On March 14, 2018, we obtained a new extension of the precautionary measure over the action for annulment of the Gas Charge Resolutions. This new extension will be valid until September 2018 or up to the time of the issuance of the final resolution, whichever occurs later. Although, as of April 1, 2016, we are no longer required to pay the Gas Charge due to the enactment of the Ministry of Energy’s Resolution 28, we continue to request the extension of the precautionary measure since the aforementioned resolution leaves without effect the administrative acts that established the value of the Gas Charge as of was sanction, but nothing disposes with respect to the amounts accrued in the past that we did not pay as a consequence of having the precautionary measure. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Tax Claims.”
We have not recorded the increase of the charge for gas consumption since July 2012, when we obtained the injunction. If the injunction had not been obtained, the impact of the Gas Charge Resolutions, assuming that we were able to recover the charge in the sale price of our Liquids, would have had a significantly negative impact on our future results of operations.
Other Services
This segment includes midstream services. Midstream services include natural gas treatment, separation and removal of impurities from the natural gas stream and compression services, which are generally rendered to the natural gas producers at the wellhead, as well as activities, related to construction, operation and maintenance of pipelines and compressor plants.
During 2017, the other services business segment recorded an operating profit of Ps. 287.1 million, compared to Ps. 237.8 million in 2016. The main factors that affected the results of operations of this segment during 2017 are the following:

| · | Net revenues increased by Ps. 250.0 million primarily due to the higher sales associated with: (i) natural gas compression and treatment services of Ps. 101.4 million, (ii) operation and maintenance services of Ps. 54.9 million and (iii) construction engineering works of Ps. 41.5 million. On the other hand, the exchange rate variation had a positive effect of Ps. 49.7 million.

| · | Costs of sales, administrative and selling expenses increased by Ps. 196.1 million, mainly due to increases in: (i) depreciations (Ps. 62.6 million), (ii) labor costs (Ps. 45.6 million), (iii) costs of services rendered to third parties (Ps. 28.6 million), and (v) turnover tax (Ps. 19.9 million).

On April 3, 2018, we signed a concession agreement with the province of Neuquén and Gas y Petróleo de Neuquén S.A., which allows us to invest in gathering pipelines and treatment plants that will permit the injection of the natural gas proceeding from the existing gas projects in the basin to Neuba II natural gas pipeline. The gathering pipeline, which will connect the Rincón La Ceniza area to the main transportation systems, will have a transportation capacity of 1.3 Bcf/d -expandable to 2.0 Bcf/d-, a length of 57 miles, a 36” diameter and will operate at a 97 Kg/cm2 pressure. The conditioning plant, which will adapt the quality of the natural gas before it enters the main natural gas transportation pipelines, will have an initial capacity of 177 MMcf/d, expandable in modules up to 2.0 Bcf/d.
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The amount of the investment related to the project’s first stage amounts to U.S.$250 million and its execution will be implemented throughout the rest of the year 2018 and during part of the year 2019.
Telecommunications
Telecommunication services are rendered by our subsidiary, Telcosur.
During 2017, the Telecommunications business segment recorded an operating profit of Ps. 16.6 million, compared to Ps. 18.0 million in 2016. The main factors that affected the results of operations of this segment during 2017 are the following:

| · | Net revenues increased by Ps. 15.0 million in the year ended December 31, 2017 when compared to 2016. The positive variation was mainly due to the increase in the foreign exchange rate of the Argentine peso compared to the U.S. dollar.

| · | Costs of sales, administrative and selling expenses increased by Ps. 17.0 million, due mainly to higher labor cost of Ps. 11.0 million and turnover tax of Ps. 1.4 million.

Discussion of Results of Operations for the Years Ended December 31, 2016 and 2015
The following table presents a summary of our consolidated results of operations for the years ended December 31, 2016 and 2015, stated in millions of pesos, and the increase or decrease and percentage of change between the periods presented:

|  | Year ended December 31, |
|  | 2016 |  |  | 2015 |  |  | Variation |  |  | Percentage change |
Revenues from sales |  |  | 7,402.2 |  |  |  | 4,226.6 |  |  |  | 3,175.6 |  |  |  | 75.1 |
Operating costs |  |  | (4,198.0 | ) |  |  | (2,508.9 | ) |  |  | (1,689.0 | ) |  |  | 67.3 |
Depreciation |  |  | (238.0 | ) |  |  | (251.0 | ) |  |  | 13.0 |  |  |  | (5.2 | )
Costs of sales |  |  | (4,435.9 | ) |  |  | (2,759.9 | ) |  |  | (1,676.0 | ) |  |  | 60.7 |
Gross profit |  |  | 2,966.3 |  |  |  | 1,466.7 |  |  |  | 1,499.6 |  |  |  | 102.2 |
Administrative and selling expenses |  |  | (668.9 | ) |  |  | (443.0 | ) |  |  | (225.9 | ) |  |  | 51.0 |
Other operating expenses |  |  | (65.5 | ) |  |  | (335.5 | ) |  |  | 269.9 |  |  |  | (80.5 | )
Operating profit |  |  | 2,231.8 |  |  |  | 688.2 |  |  |  | 1,543.6 |  |  |  | 224.3 |
Net financial results |  |  | (813.4 | ) |  |  | (974.2 | ) |  |  | 160.8 |  |  |  | (16.5 | )
Share of profit from associates |  |  | 1.5 |  |  |  | 0.3 |  |  |  | 1.3 |  |  |  | 499.2 |
Income tax (expense) / gain |  |  | (489.3 | ) |  |  | 113.6 |  |  |  | (602.9 | ) |  |  | (530.9 | )
Total net income and comprehensive income / (loss) |  |  | 930.7 |  |  |  | (172.1 | ) |  |  | 1,102.8 |  |  |  | 640.7 |

Year 2016 Compared to Year 2015
Total comprehensive income
For the year ended December 31, 2016, we reported total comprehensive income of Ps. 930.7 million, in comparison to the total comprehensive loss of Ps. 172.1 million reported 2015.
The positive variation in the comprehensive net results for fiscal year ended December 31, 2016, was mainly attributed to the increase of the operating profit of Ps. 1,543.6 million and a decrease of Ps. 160.8 million in net financial expense.
The material factors affecting consolidated operating were as follows:

| · | Liquids Production and Commercialization net revenues increased by Ps. 1,860.6 million primarily because of the effect that the increase in the exchange rate (Ps. 1,539.7 million) had on sales denominated in U.S. dollars.

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| · | Other operating income improved from a loss position in 2015, when we recognized a loss of Ps. 324.4 million on the acquisition from Pampa of the Rights of the Arbitration Proceeding, which we received as repayment of a loan granted to Pampa in October 2011. The exercise of the Rights of the Arbitration Proceedings will enable us to conclude the final steps of the 2017 Integral Renegotiation Agreement.

| · | The implementation of the tariff increase approved by Resolutions 3724 and 4054, which resulted in an increase of Ps. 1,033.4 million in net revenues from the Natural Gas Transportation business segment.

| · | These positive effects were partially offset by the increase in variable production costs in the Liquids Production and Commercialization segment, as well as increases in other operating costs.

Cost of sales, administrative and selling expenses
Cost of sales for the years ended on December 31, 2016 and 2015 represented 59.9% and 65.3%, respectively, of net revenues reported in these years. This decrease in the cost of sales as a percentage of revenues is due to an increase in net revenues 75.1% higher than the increase in costs of sales 60.7%.
Administrative and selling expenses for the years ended on December 31, 2016 and 2015 represented 9.0% and 10.5%, respectively, of net revenues reported in both of these years.
See. “—Analysis of Operating Profit by Business Segment for the years ended December 31, 2016 and 2015.”
Share of profit from associates
For the year ended December 31, 2016, we recorded a profit from our investment in associates of Ps. 1.5 million, compared to the profit of Ps. 0.3 million recorded for 2015.
Net Financial Results
Net financial results for the years ended December 31, 2016 and 2015 are as follows:

|  | 2016 |  |  | 2015 |
|  | (in millions of pesos) |
Financial income |  |  |  |  |  |
Derivative financial instruments results |  |  | - |  |  |  | 128.5 |
Interest income |  |  | 100.4 |  |  |  | 79.4 |
Fair value gains on financial instruments through profit and loss |  |  | 169.9 |  |  |  | 55.9 |
Foreign exchange gain |  |  | 135.0 |  |  |  | 288.8 |
Subtotal |  |  | 405.3 |  |  |  | 552.6 |
Financial expenses |  |  |  |  |  |  |  |
Interest expense |  |  | (470.7 | ) |  |  | (343.1 | )
Foreign exchange loss |  |  | (712.5 | ) |  |  | (1,165.8 | )
Derivative financial instruments results |  |  | (8.9 | ) |  |  | - |
Other financial charges |  |  | (66.4 | ) |  |  | (41.7 | )
Less: Amounts capitalized on qualifying assets |  |  | 39.7 |  |  |  | 23.9 |
Subtotal |  |  | (1,218.7 | ) |  |  | (1,526.7 | )
Total |  |  | (813.4 | ) |  |  | (974.2 | )

Negative financial expenses for the year ended December 31, 2016, amounted to Ps. 813.4 million, compared to Ps. 974.2 million reported during the year 2015. This decrease of Ps. 160.8 million is mainly due to lower losses generated by the impact in the variation of the Argentine peso exchange rate against the U.S. dollar during 2015 of Ps. 299.5 million. In addition, the net negative financial results suffered a slight positive variation as a consequence of the higher return from the financial investments. This effect was partially offset by the higher interest charge on financial liabilities due to the exchange rate effect.
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Finally, these effects were partially offset by the decrease of Ps. 137.5 million (loss of Ps. 8.9 million for the year 2016 vs. profit of Ps. 128.5 million for the year 2015) in the income generated by derivative financial instruments.
Analysis of Operating Profit by Business Segment for the Years Ended December 31, 2016 and 2015
The following table sets forth revenues and operating income for each of our business segments for the years ended December 31, 2016 and 2015:

|  | Year ended December 31, |
|  | 2016 |  |  | 2015 |  |  | Variation |  |  | Percentage Change |
Natural Gas Transportation |  |  |  |  |  |  |  |  |  |  |  |
Revenues from sales(1) |  |  | 2,087.2 |  |  |  | 1,014.0 |  |  |  | 1,073.2 |  |  |  | 105.8 |
Cost of sales |  |  | (997.6 | ) |  |  | (758.5 | ) |  |  | (239.1 | ) |  |  | (31.5 | )
Gross profit |  |  | 1,089.6 |  |  |  | 255.5 |  |  |  | 834.0 |  |  |  | 326.4 |
Administrative and selling expenses |  |  | (386.0 | ) |  |  | (220.7 | ) |  |  | (165.3 | ) |  |  | (74.9 | )
Other operating expense |  |  | (44.7 | ) |  |  | (333.0 | ) |  |  | 288.3 |  |  |  | 86.6 |
Operating profit / (loss) |  |  | 658.9 |  |  |  | (298.2 | ) |  |  | 957.1 |  |  |  | 320.9 |
Liquids Production and Commercialization |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from sales |  |  | 4,768.3 |  |  |  | 2,907.8 |  |  |  | 1,860.6 |  |  |  | 64.0 |
Cost of sales |  |  | (3,218.9 | ) |  |  | (1,869.4 | ) |  |  | (1,349.5 | ) |  |  | (72.2 | )
Gross profit |  |  | 1,549.4 |  |  |  | 1,038.4 |  |  |  | 511.0 |  |  |  | 49.2 |
Administrative and selling expenses |  |  | (213.0 | ) |  |  | (172.3 | ) |  |  | (40.8 | ) |  |  | (23.7 | )
Other operating expense |  |  | (19.1 | ) |  |  | (2.7 | ) |  |  | (16.5 | ) |  |  | (619.0 | )
Operating profit |  |  | 1,317.2 |  |  |  | 863.5 |  |  |  | 453.8 |  |  |  | 52.6 |
Other services |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from sales |  |  | 485.9 |  |  |  | 260.6 |  |  |  | 225.3 |  |  |  | 86.4 |
Cost of sales |  |  | (187.8 | ) |  |  | (108.6 | ) |  |  | (79.2 | ) |  |  | (72.9 | )
Gross profit |  |  | 298.0 |  |  |  | 152.0 |  |  |  | 146.1 |  |  |  | 96.1 |
Administrative and selling expenses |  |  | (59.0 | ) |  |  | (42.9 | ) |  |  | (16.1 | ) |  |  | (37.7 | )
Other operating (expense) / income |  |  | (1.3 | ) |  |  | 0.2 |  |  |  | (1.5 | ) |  |  | (760.2 | )
Operating profit |  |  | 237.8 |  |  |  | 109.3 |  |  |  | 128.5 |  |  |  | 117.5 |
Telecommunications |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from sales |  |  | 60.8 |  |  |  | 44.2 |  |  |  | 16.6 |  |  |  | 37.6 |
Cost of sales |  |  | (31.5 | ) |  |  | (23.4 | ) |  |  | (8.1 | ) |  |  | (34.7 | )
Gross profit |  |  | 29.3 |  |  |  | 20.8 |  |  |  | 8.5 |  |  |  | 40.7 |
Administrative and selling expenses |  |  | (10.8 | ) |  |  | (7.1 | ) |  |  | (3.7 | ) |  |  | (52.9 | )
Other operating expense |  |  | (0.5 | ) |  |  | - |  |  |  | (0.5 | ) |  |  | (100.0 | )
Operating profit |  |  | 18.0 |  |  |  | 13.7 |  |  |  | 4.3 |  |  |  | 31.0 |

| (1) | Net of intersegment revenues of Ps. 71.1 million and 21.4 million for the fiscal years 2016 and 2015, respectively.

Regulated Natural Gas Transportation Segment
The Natural Gas Transportation business segment represented 28.2% and 24.0% of our total revenues during the years 2016 and 2015, respectively.
During 2016, the Natural Gas Transportation business segment recorded an operating profit of Ps. 658.9 million, compared to the operating loss of Ps. 298.2 million in 2015. The main factors that affected the results of operations of this segment during 2016 are the following:

| · | Revenues from the Natural Gas Transportation business segment increased by Ps. 1,073.2 million for the year 2016 compared to 2015. The increase was mainly due to: (i) the impact of the new rate schedules of natural gas transportation tariffs approved by Resolutions 3724 and 4122, necessary to achieve the temporary stabilization of the net revenues for this business segment until the Integral Renegotiation Agreement is signed, and (ii) the full effect of the implementation in May 2015 of the tariff increase approved by Resolution No. 3347.

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| · | Revenues related to natural gas firm transportation contracts for the years ended December 31, 2016 and 2015, respectively, amounted to Ps. 1,485.1 million and Ps. 801.3 million, and revenues related to interruptible natural gas transportation service amounted to Ps. 313.7 million and Ps. 103.5 million, respectively. The increase resulted mainly from the tariff increase discussed above.

| · | Revenues relating to the CAU amounted to Ps. 215.8 million and Ps. 72.4 million for the years ended December 31, 2016 and 2015, respectively. We have faced increasing operation and maintenance costs throughout the years. The CAU was increased by 73.2% in May 2015 and by 200.1% in April 2016; however, these increases were insufficient to offset the increased operating costs during that period.

| · | Costs of sales and administrative and selling expenses for the year ended December 31, 2016 increased by Ps. 404.4 million, from Ps. 979.2 million to Ps. 1,383.6 million, as compared to the year ended December 31, 2015. This increase was mainly attributable to: (i) higher labor costs relating to the joint negotiations with trade unions during 2016, amounting to Ps. 181.7 million, (ii) an increase of Ps. 62.1 million in the turnover tax, (iii) higher technical assistance fee accrued of Ps. 51.1 million, and (iv) an increase of Ps. 78.7 million in maintenance expenses for the pipeline and other fixed assets.

| · | The positive variation in other operating expenses was mainly due to the charge of Ps. 324.4 million recorded in 2015 for the acquisition of the Rights of the Arbitration Proceedings from Pampa Energía, as mentioned above. This effect was partially offset by the expense for provision for contingencies in 2016 of Ps. 61.6 million.

Liquids Production and Commercialization Segment.
The Liquids Production and Commercialization segment represented 64.4% and 68.8% of our total net revenues during the years ended December 31, 2016 and 2015, respectively.
During 2016 we processed on behalf of our customers only 3.6% of the volume sold, compared with approximately 20.0% of the volume sold in 2015. Total dispatches in 2017 added up to 1,059,318 short tons, representing a 5.4% increase compared to the 1,004,992 short tons sold in the year 2016. Likewise, exported volumes amounted to 395,956 short tons, 47,114 short tons higher than the 348,842 short tons sold in 2016.
All ethane produced by our Liquids segment in the year ended December 31, 2016 was sold locally to PBB. Our long-term contract with PBB expired on December 31, 2015. Sales to PBB from January to April 2016 were made on a month-to-month basis for January-April 2016, and we reached a new agreement for the period May 1, 2016 - May 1, 2017. This agreement provided for the delivery of all of our ethane to PBB and also allowed us to obtain profit margins in line with those obtained in prior years. However, this contract provided for delivery of lower annual volumes than the expired contract did.
Our ethane sales for the years 2016 and 2015 represented 38.7% and 44.3% of our Liquids Production and Commercialization net revenues. For this reason, any decrease in the volumes of ethane sold to PBB may have a negative impact on our net revenues.
In 2016, we sold 59.3% of our production of LPG in the local market to LPG marketers, compared to 58.0% in 2015, with the remainder exported to LPG traders. In addition, all natural gasoline produced during 2016 was exported to Petroleo Brasileiro.
The total annual sales for the Cerri Complex for 2016 and 2015 in short tons, which include liquids sales made on behalf of third parties, from which we withhold fees for production and commercialization, were as follows:
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|  | Years ended December 31, |  |  | Year ended December 31, 2016 compared to year ended December 31, 2015 |
|  | (volumes in short tons) |  |  | (volumes in short tons) |
|  | 2016 |  |  | 2015 |  |  | Increase/ (Decrease) |  |  | Percentage Change |
Local Market |  |  |  |  |  |  |  |  |  |  |  |
Ethane |  |  | 305,861 |  |  |  | 306,097 |  |  |  | (236 | ) |  |  | (0.1 | )
Propane |  |  | 194,447 |  |  |  | 190,530 |  |  |  | 3,918 |  |  |  | 2.1 |
Butane |  |  | 155,842 |  |  |  | 162,316 |  |  |  | (6,474 | ) |  |  | (4.0 | )
Subtotal |  |  | 656,151 |  |  |  | 658,943 |  |  |  | (2,792 | ) |  |  | (0.4 | )
Exports |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Propane |  |  | 151,129 |  |  |  | 156,380 |  |  |  | (5,251 | ) |  |  | (3.4 | )
Butane |  |  | 88,972 |  |  |  | 99,556 |  |  |  | (10,584 | ) |  |  | (10.6 | )
Natural Gasoline |  |  | 108,741 |  |  |  | 118,229 |  |  |  | (9,489 | ) |  |  | (8.0 | )
Subtotal |  |  | 348,841 |  |  |  | 374,166 |  |  |  | (25,324 | ) |  |  | (6.8 | )
Total Liquids |  |  | 1,004,992 |  |  |  | 1,033,109 |  |  |  | (28,116 | ) |  |  | (2.7 | )

See “Item 4. Our Information—B. Business Overview—Liquids Production and Commercialization—Regulation—International Market.” for additional information.
During 2016, the Liquids Production and Commercialization business segment recorded operating income of Ps. 1,317.2 million, compared to Ps. 863.5 million in 2015. The main factors that affected the results of operations for this segment during 2016 were the following:

| · | Segment revenue increased by Ps. 1,860.6 million in 2016, compared with the previous year. This increase is mainly due to: (i) the increase of Ps. 1,539.5 million as a result of depreciation of the Argentine peso against the U.S. dollar, (ii) an increase of Ps. 354.2 million resulting from higher volumes sold for our own account, (iii) higher storage and dispatch fees of Ps. 134.1 million and (iv) higher subsidies received under the New Program of Ps. 56.9 million. All these effects were partially offset by the impact of the 2015 annual adjustment of the ethane price and lower international reference prices (a decrease of Ps. 381.2 million).

| · | Average propane and butane international prices recorded an inter-annual increase of 6.6% and 7.4%, respectively, whereas natural gasoline prices decreased by 16.5%, although the pace of the decrease slowed as the year progress. Such decrease, which was smaller than in previous years, is a result of the regularization of inventories and the increase in oil prices by the end of 2016 (as a result of the decisions adopted by the OPEC countries and other producing countries to decrease production to recover prices). Average international prices as of December 2016 and as of December 2015 increased 65.7%, 72.4% and 19.6% for propane, butane and natural gasoline, respectively.

| · | Costs of sales, administrative and selling expenses for the year ended December 31, 2016 increased by Ps. 1,390.3 million, from Ps. 2,041.7 million to Ps. 3,432.0 million, as compared to the year ended December 31, 2015. This increase was mainly due to: (i) the rise in the price of natural gas that we are required to purchase as RTP as part of the Liquids processing business of Ps. 1,164.1 million, (ii) higher technical assistance fee of Ps. 56.5 million, (iii) labor costs of Ps. 40.7 million, (iv) higher turnover tax of Ps. 32.3 million, (iv) the increase in the bad debts account of Ps. 20.4 million. These effects were partially offset by the decrease in the withholding tax on exports of Ps. 50.0 million.

In October 2016, we entered into a term agreement with Geogas Trading that expired on April 30, 2017 for the sale of 25,353 short tons of propane and 11,023 short tons of butane per month. This agreement improves the charges obtained in spot sales and will provide some certainty for the trading of these products in the short term.
Regarding natural gasoline export agreements, in January 2016 we entered into a one-year agreement with Petróleo Brasileiro S.A. This agreement contemplates the delivery of 110,023 short tons at international prices minus a discount per sold ton. During 2017, we sold natural gasoline to Shell Trading U.S. Company at spot prices minus a discount per sold ton. We are currently negotiating with Shell Trading U.S. Company the terms of an agreement to for sales of natural gasoline until January 2018.
Other Services
During 2016, the other services business segment recorded an operating profit of Ps. 237.8 million, compared to Ps. 109.3 million in 2015. The main factors that affected the results of operations of this segment during 2016 are the following:
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| · | Net revenues increased by Ps. 225.3 million primarily due to the increase in the foreign exchange rate of the Argentine peso compared to the U.S. dollar (Ps. 150.9 million) and higher volume of natural gas compression services (Ps. 61.8 million).

| · | Costs of sales, administrative and selling expenses increased by Ps. 95.3 million, mainly due to increases in: (i) labor costs (Ps. 35.4 million), (ii) costs of services rendered to third parties (Ps. 14.1 million), (iii) depreciations (Ps. 13.0 million), (iv) other operating costs (Ps. 12.5 million), (v) management fee (Ps. 7.9 million), and (vi) turnover tax (Ps. 6.9 million).

Telecommunications
During 2016, the Telecommunications business segment recorded an operating profit of Ps. 18.0 million, compared to Ps. 13.7 million in 2015. The main factors that affected the results of operations of this segment during 2016 are the following:

| · | Net revenues increased by Ps. 16.6 million in the year ended December 31, 2016 when compared to 2015. The positive variation was mainly due to the increase in the foreign exchange rate of the Argentine peso compared to the U.S. dollar (Ps. 15.7 million).

| · | Costs of sales, administrative and selling expenses increased by Ps. 11.9 million, due mainly to higher labor cost of Ps. 7.6 million and turnover tax of Ps. 1.9 million.

B. Liquidity and Capital Resources
Our primary sources of liquidity have been cash flows from operating activities, cash flows from the proceeds of the sale of our temporary investments, and cash flows from loans. In response to the limited availability of financing for Argentine companies, we closely monitor our liquidity levels in order to ensure compliance with our financial obligations and to achieve our objectives. Our cash flows from operations have been affected in recent years due to the lack of adjustment to our natural gas transportation tariffs to cover increases in our operating costs and capital expenditures. Along these lines, and as a guiding principle, financial solvency is our main objective.
To preserve cash surpluses, we invest in low risk and highly liquid financial assets offered by high quality financial institutions that are located in Argentina and the United States of America. Our policy is designed to diversify credit risk. Given that our total financial indebtedness is denominated in U.S. dollars, we prioritize the placement of funds in U.S. dollar-denominated investments. During 2017, in light of the high level of liquidity throughout the year and in order to take advantage of the positive real rates, a significant part of the capacity was allocated to investments denominated in Argentine pesos. This keeps a low level of credit risk and high liquidity.
In the short term, the most significant factors generally affecting our cash flow from operating activities are: (i) fluctuations in international prices for LPG products, (ii) fluctuations in production levels and demand for our products and services, (iii) changes in regulations, such as taxes, taxes on exports, tariffs for our regulated business segment and price controls, (iv) fluctuations in the natural gas price used as RTP, and (iv) fluctuations in exchange rates.
The Investment Plan and the Five-Year Plan requires us to execute ambitious works that guarantee the reliability, safety and operation of our natural gas pipeline system. We expect these plans to be executed using our working capital or through access to financial markets.
During 2017, we continued participating in the Households with Bottles Program, which generates operating margins by virtue of the fact that the price determined by the SHR is significantly lower than the costs of processing natural gas. For further information see “Item 4—A. Our Information—Liquids Production and Commercialization.”
On December 17, 2015, the Macri administration issued certain measures that involved the relaxation of foreign exchange controls in force over the last four years. As a result, the official exchange rate published by Banco de la Nación Argentina 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. The new regulation modifies the existing regimes related to, among others, (i) the purchase of external assets by Argentine residents for investment purposes; (ii) arbitration and foreign currency swap; (iii) financial indebtedness (i.e., repatriation obligation, mandatory deposit, minimum waiting period; prepayment); and (iv) imports of goods and services. For additional information, see “Item 10 – Additional information—D. Exchange Controls.”
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A further devaluation of the peso or lower liquids prices could harm our cash-generating ability and materially adversely affect our liquidity, our ability to carry out mandatory capital investments and our ability to service our debt.
As of the date of this Annual Report, we also have uncommitted lines of credit with commercial banks, totaling U.S.$126 million.
We believe that our sources of liquidity, including debt offerings in the international capital markets, will be sufficient to meet our working capital, debt service and capital expenditure requirements for the foreseeable future.
Our primary sources and uses of cash during the years ended December 31, 2017, 2016 and 2015 are shown in the table below:

|  | Years ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
|  | (in millions of pesos) |
Cash and cash equivalents at the beginning of the year |  |  | 1,555.1 |  |  |  | 872.5 |  |  |  | 789.4 |
Cash flows provided by operating activities |  |  | 3,522.6 |  |  |  | 2,137.5 |  |  |  | 467.0 |
Cash flows used in investing activities |  |  | (2,529.9 | ) |  |  | (534.7 | ) |  |  | (228.3 | )
Cash flows used in financing activities |  |  | (40.4 | ) |  |  | (1,016.2 | ) |  |  | (294.6 | )
Net increase / (decrease) in cash and cash equivalents |  |  | 952.2 |  |  |  | 586.6 |  |  |  | (55.8 | )
Foreign exchange gains on cash and cash equivalents |  |  | 145.5 |  |  |  | 95.9 |  |  |  | 138.9 |
Cash and cash equivalents at the end of the year |  |  | 2,652.8 |  |  |  | 1,555.1 |  |  |  | 872.5 |

Cash Flows Provided by Operating Activities
The net cash flow generated by operating activities for the year ended December 31, 2017 increased by Ps. 1,385.1 million, mainly derived from the improvement in operating income, partially offset by higher payments of income taxes (Ps. 504.9 million) and the cancellation of contingencies (Ps. 125.2 million).
Cash flows provided by operating activities were Ps. 2,137.5 million and Ps. 467.0 million in 2016 and 2015, respectively. The increase of Ps. 1,670.5 million in 2016 against 2015 was mainly as a result of: the improvement in operating income and the higher income received (Ps. 162.5 million) from the liquidation of derivative financial instruments contracted in order to mitigate the risk of exchange rate variation on our financial debt.
Cash Flows Used in Investing Activities
Cash flows used for investing activities increased by Ps. 1,995.2 million because of an increase in financial assets not considered cash equivalents by Ps. 1,282.8 million and higher capital expenditures of Ps. 712.5 million mainly due to the execution of the works required by the Five-Year Plan and the Investment Plan.
Cash flows used for investing activities increased by Ps. 306.4 million in 2016 compared with 2015. This increase is mainly due to higher capital expenditures of Ps. 194.1 million due to higher costs incurred for carrying out repair and maintenance of the pipeline system operated by us. In addition, cash flow provided by sales of financial assets not considered cash equivalents fell by Ps. 112.3 million (Ps. 61.4 million for fiscal year 2016 vs Ps. 173.7 million for fiscal year 2015).
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Cash Flows used in Financing Activities
Cash flows used in financing activities for the year ended December 31, 2017 decreased by Ps. 975.8 million compared to 2016 as a result mainly of lower cancellations of financial debts of Ps. 876.1 million and the payment of dividends of Ps. 99.7 million. We made no dividend payment during 2017.
Cash flows used in financing activities increased by Ps. 721.7 million in 2016 compared with 2015, mainly as a result of the following: (i) the prepayment in November 2016 of the remaining outstanding negotiable obligations issued under the 2007 global program, (ii) the higher cancellation of financial debt due to the impact of the higher exchange rate, and (iii) the payment of dividends in January 13, 2016 in accordance with the delegations granted by the respective Shareholders’ Meetings that approved our financial statements for the year ended December 31, 2014 and allocated income for the payment of dividends when determined by the Board.
Description of Indebtedness
As of December 31, 2017, 100% of our total indebtedness was entirely denominated in U.S. dollars, while, as of December 31, 2016, the 99% of our indebtedness was denominated in U.S. dollars. The following table shows our total indebtedness as of such dates:

|  | 2017 |  |  | 2017 |  |  | 2016 |
|  | (in millions of U.S. dollars) (2) |  |  | (in millions of pesos) |
Current loans: |  |  |  |  |  |  |  |  |
2014 Notes |  |  | 63.9 |  |  |  | 1,191.0 |  |  |  | - |
Interest payable |  |  | 2.0 |  |  |  | 37.7 |  |  |  | 31.3 |
Other financial loans |  |  |  |  |  |  | - |  |  |  | 1.5 |
Financial Leasing |  |  | 5.4 |  |  |  | 100.6 |  |  |  | 112.7 |
Total current loans |  |  | 71.3 |  |  |  | 1,329.3 |  |  |  | 145.4 |
Non-current loans: |  |  |  |  |  |  |  |  |  |  |  |
2014 Notes |  |  | 127.6 |  |  |  | 2,379.0 |  |  |  | 3,036.1 |
Financial Leasing |  |  | 42.4 |  |  |  | 790.7 |  |  |  | 735.5 |
Total non-current loans |  |  | 170.0 |  |  |  | 3,169.8 |  |  |  | 3,771.6 |
Total loans (1) |  |  | 241.2 |  |  |  | 4,499.0 |  |  |  | 3,917.0 |

(1) | Issuance expenses net.

(2) | Converted at the exchange rate as of December 31, 2017: Ps. 18.649 per U.S.$1.00.

In order to improve the maturity profile of our financial debt, in January 2014 we launched an offer for a voluntary exchange of the 2007 Notes, which settled on February 11, 2014. Bondholders who had U.S.$250,741,000 aggregate principal amount of the 2007 Notes accepted the exchange, and we delivered to them U.S.$255,451,506 of new notes (the “2014 Notes”) pursuant to our Medium Term Note Program approved by the CNV on January 3, 2014 (the “2014 Program”). The 2014 Notes bear interest at a fixed rate of 9.625% per annum, and the principal will be amortized in four equal payments, the first one amortized in May 2014 while the remaining payments will mature on May 14, 2018, 2019 and 2020.
As of December 31, 2017 the principal amount of outstanding 2014 Notes was U.S.$191,588,630. The 2014 Notes have three equal scheduled amortization payments each in an amount equal to U.S.$63,862,876 payable in each of 2018, 2019 and 2020.
We are subject to several restrictive covenants under our 2014 Notes that limit our ability to obtain additional financing, including limitations on our ability to incur additional indebtedness to create liens on our property, assets or revenues. In addition to the required principal amortization payment obligations, we are also subject to other restrictive covenants that affect our use of cash on hand, such as limitations on our ability to pay dividends to our shareholders and limitations on our ability to sell our assets. See “Item 10. Additional Information—C. Material Contracts—Debt Obligations” for a detailed discussion of the terms of our financial debt, including the interest rates and material covenants applicable to such indebtedness.
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We regularly implement actions aimed at minimizing the impact of the exchange rate variation on our financial indebtedness, including entering into currency-forward agreements with major financial institutions for the purchase of U.S. dollars to cover exposure to the exchange rate risk derived from our financial indebtedness. In addition, we are able to invest in financial instruments, which reflect the variation of the exchange rate. During 2017 and 2016 we did not enter into new derivative instrument.
During the years 2016 and 2015 a financial (expense) / income of (Ps. 8.9 million) and Ps. 128.5 million was recognized as a result of currency-forward agreements. No results were recorded during 2017 year derived from derivative instruments.
Our Board of Directors has proposed that the 2017 Shareholders Meeting authorize an increase of up to U.S.$700,000,000 (or its equivalent in other currencies) of the 2014 Program for the issue of short and medium term notes non-convertible into our Shares.
Future Capital Requirements
Details of our currently projected capital expenditures for the 2018-2020 periods, in millions of U.S. dollars, are set forth in the following table:

|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | Total |
Natural Gas transportation |  |  |  |  |  |  |  |  |  |  |  |
Reliability and others |  |  | 137.9 |  |  |  | 117.8 |  |  |  | 107.0 |  |  |  | 362.7 |
Operational efficiencies |  |  | 3.2 |  |  |  | - |  |  |  | - |  |  |  | 3.2 |
Total |  |  | 141.1 |  |  |  | 117.8 |  |  |  | 107.0 |  |  |  | 365.9 |
Liquids production and commercialization |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Reliability and others |  |  | 16.1 |  |  |  | 17.5 |  |  |  | 10.9 |  |  |  | 44.5 |
Operational efficiencies |  |  | 6.2 |  |  |  | 4.9 |  |  |  | - |  |  |  | 11.1 |
Total |  |  | 22.3 |  |  |  | 22.4 |  |  |  | 10.9 |  |  |  | 55.6 |
Vaca Muerta Project |  |  | 90.3 |  |  |  | 159.8 |  |  |  | - |  |  |  | 250.1 |
Other services |  |  | 7.2 |  |  |  | 3.2 |  |  |  | 0.9 |  |  |  | 11.3 |
Total Capital Expenditures |  |  | 260.9 |  |  |  | 303.2 |  |  |  | 118.8 |  |  |  | 682.9 |

The table above includes the capital works necessary to comply with the mandatory Five-Year Plan.
We currently expect to continue to rely on cash flow from operations and short-term and long-term borrowings and other additional financing activities to finance capital expenditures in the near term.
Currency and Exchange Rates
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.
Therefore, our primary market risk exposure is associated with changes in the foreign currency exchange rates because our debt obligations are denominated in U.S. dollars and 51.2% of our consolidated revenues were peso-denominated for the fiscal year ended December 31, 2017. Contributing to this exposure are the measures taken by the Government since the repeal of the Convertibility Law and the pesification of our regulated tariffs described elsewhere in this Annual Report. This exposure is mitigated in part by our revenues from our Liquids Production and Commercialization business segment, 75.2% of which are denominated in U.S. dollars for the year ended December 31, 2017. Likewise, 84.0% of the operating costs of this business segment for that period are denominated in U.S. dollars. See “Item 3. Key Information—Exchange Rates Information.”
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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 financial institution. Our temporary investments primarily consist of money market mutual funds and Government bonds.
Our strategy will remain focused on mitigating both the exchange rate risk arising from our liabilities in dollars and the effect of inflation on our liquidity. Also given the anticipated finalization of the RTI process, we will analyze the financing sources for the implementation of the Five-Year Plan.
In addition, from 2014 until 2015, we entered into forward purchase transactions. For further information see “—Derivative Financial Instruments” below.
Our financial debt obligations denominated in foreign currency as of December 31, 2017, amounted to U.S.$241.2 million (Ps. 4,499.0 million). As of December 31, 2017, we also had the equivalent of U.S.$45.0 million (Ps. 838.6 million) of trade and other payables denominated in U.S. dollars. Finally, U.S.$192.8 million (Ps. 3,575.6 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.$93.5 million as of December 31, 2017.
Derivative Financial Instruments
Our Board of Directors has approved the terms for acquiring derivative financial instruments in order to hedge risks associated with the fluctuation of interest and exchange rates of our debt.
As a consequence of our liquidity and our strategy to focus our investments in U.S. dollar denominated financial instruments, during 2017 and 2016 we did not enter into any derivative instrument agreement.
We do not enter into derivative financial instrument agreements for speculative purposes.
We do not believe that we are exposed to significant interest rate risk because the interest rates on our all of debt obligations are fixed.
C. Research and Development, Patents and Licenses, etc.
Not applicable.
D. Trend Information
See “—A. Operating Results” and “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Regulatory Proceedings.”
E. Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements or significant transactions with unconsolidated entities not reflected in our Financial Statements. All of our interests in and/or relationships with our subsidiaries are recorded in our Financial Statements. See “—B. Liquidity and Capital Resources—Derivative Financial Instruments.”
F. Tabular Disclosure of Contractual Obligations
The following table represents a summary of our contractual obligations as of December 31, 2017:

|  | Payment due by period (in millions of argentine pesos) |
|  | Total |  |  | Less than 1 year |  |  | 1-3 years |  |  | 3-5 years |  |  | More than 5 years |
Long-Term Debt Obligations(1)(2) |  |  | 4,088.8 |  |  |  | 1,477.6 |  |  |  | 2,611.2 |  |  |  | - |  |  |  | - |
Purchase Obligations (3) |  |  | 565.3 |  |  |  | 565.3 |  |  |  | - |  |  |  | - |  |  |  | - |
Leasing(4) |  |  | 1,227.6 |  |  |  | 167.6 |  |  |  | 279.0 |  |  |  | 279.0 |  |  |  | 501.9 |
Total |  |  | 5,881.7 |  |  |  | 2,182.4 |  |  |  | 2,890.2 |  |  |  | 279.0 |  |  |  | 501.9 |

(1) | Refers to amortization and interest payments on the 2014 Notes as described in “Item 5. Operating and Financial Review of Prospects—Description of indebtedness” and “Item 10. Additional Information—C. Material Contracts”, respectively.

(2) | The total amount of interest payments includes Ps. 472.9 million of estimated interest payments not accrued according to the 2014 Notes.

(3) | Refers to agreements for the purchase of natural gas used in our liquids production and commercialization activities.

(4) | Corresponds to the financial leasing arrangement entered with Pampa Energía. The total amount includes estimated interest payment not accrued as of December 31, 2017 for Ps. 336.2 million. For additional information see “Item 5. Operating and Financial Review of Prospects—Description of indebtedness” and “Item 10.C. Financial Lease with Pampa Energía.”

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All of our debt obligation amounts set forth in the table above are U.S. dollar-denominated and, therefore, principal and accrued interest included in the amounts presented have been converted to peso amounts using the selling exchange rate of U.S.$1.00 per Ps. 18.649 as of December 31, 2017. Actual foreign currency debt payments may significantly differ from these estimates due to exchange rate fluctuations.
Additionally, we entered into a contractual obligation with Pampa Energía with regard to technical financial and operational assistance services. See Item 7.B – Technical Assistance Services Agreement.

Item 6. | Directors, Senior Management and Employees

A. Directors and Senior Management
General. Management of our business is vested in the Board of Directors. Our By-laws provide for a board of directors consisting of a minimum of nine principal directors and nine alternate directors and a maximum of 11 principal directors and 11 alternate directors. In the absence of one or more principal directors, alternate directors will attend meetings of the Board of Directors. Principal directors and alternate directors are elected at an ordinary meeting of shareholders and serve one- to three-year renewable terms, as resolved by the shareholders, subject to reelection. Effective and alternate directors shall remain in their positions until substituted by the shareholders.
Under our By-laws and Argentine law, the Board of Directors is required to meet at least once every three months. A majority of the members of the Board of Directors constitutes a quorum, and resolutions must be adopted by a majority of the directors present. In the case of a tie, the Chairman or the person replacing him at a particular meeting is entitled to cast the deciding vote. Upon motion by the Chairman our Board of Directors’ meetings may be held by video or telephone conference.
Current Board of Directors members were designated by the 2018 Shareholders’ Meeting, for the term of one year from the date of such meeting. The Shareholders’ Agreement (as defined in “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders—Shareholders’ Agreement”) contains provisions governing the voting of our shares held by CIESA, the election of the members of our Board of Directors and certain other matters.
As mentioned above, in December 2008, as a consequence of the enactment of Law No. 26,425, the AFJPs transferred their share participation of our outstanding capital stock (which as of the date of this Annual Report represents 23.1% of our common stock) to the FGS managed by the ANSES. At our 2018 Shareholders’ Meeting, the ANSES appointed Mauricio Edgardo Szmulewiez and Sergio Benito Patrón Costas as independent directors, Ignacio Gustavo Alvarez Pizzo, and Hernán Castrogiovanni as independent alternate directors.
On February 2015, the Executive Branch enacted Decree No. 196/2015, which complements the provisions of Decree 1278/2012, mainly extending indemnity and legal assistance coverage to directors and statutory committee members appointed by the Government in companies in which it has stock participation.
Decree No. 894/2016, which created the Secretary of Economic Policy and Planning Development, established that directors appointed by the FGS shall have the functions, duties and powers established by the General Companies Law, the Capital Market Law and all the rules applicable to the company in which they act as directors, its bylaws and other internal regulations.
The General Companies Law governs the way directors are appointed. Directors are appointed by the General Annual Shareholders’ Meeting or by the Statutory Committee as the case may be, when authorized by the “By-Laws”. It is not mandatory to be a shareholder of the company to be eligible as director. Section 263 of the General Corporations Act mandates that up to one third of the members of the board can be appointed by the “cumulative vote system.” The vote of each shareholder who chooses to use the “cumulative vote system” shall be multiplied by the number of members to be appointed; the result may be partially or fully allocated to any of the candidates. All of the shareholders are entitled to choose the “cumulative vote system” in other words, not only ANSES has the right to appoint members to the Board of Directors through that system.
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Duties and Liabilities of Directors. Under Argentine law, directors have the obligation to perform their duties with the loyalty and diligence of a prudent business person. Directors are jointly and severally liable to us, shareholders and third parties for the improper performance of their duties, for violating the law, our By-laws or regulations, if any, and for any damage caused by fraud, abuse of authority or gross negligence. Under Argentine law, specific duties may be assigned to a director by our By-laws or regulations or by a resolution of a shareholders’ meeting. In such cases, a director’s liability will be determined with reference to the performance of such duties, provided that certain recording requirements are met. Moreover, under Argentine law, directors are prohibited from engaging in activities in competition with us without express shareholder authorization. Certain transactions between us and directors are subject to ratification procedures established by Argentine law.
A director who participates in the adoption of a resolution or who advises on or recognizes such resolution, will be exempted from liability if he leaves written evidence of his objection and notifies the Statutory Committee before his liability is reported to the board of directors, Statutory Committee, a shareholders’ meeting, or competent authority or before judicial action is exercised. Shareholder approval of a director’s performance terminates any liability of a director vis-à-vis the Company, provided that shareholders representing at least 5% of our capital stock do not object and that such liability does not result from a violation of the law or our By-laws or regulations.
Causes of action against directors may be initiated by us upon a majority vote of shareholders. If a cause of action has not been initiated within three months of a shareholders’ resolution approving its initiation, any shareholder may initiate the action on behalf of and for our account.
At the General Annual Shareholders’ Meeting held on March 6, 1996, our shareholders approved the acquisition of civil liability insurance coverage for directors, Syndics and officers. Such coverage is common practice among public companies who seek protection for such persons against shareholders’ and other parties’ claims.
As of the date of this Annual Report, five of the principal directors of our Board of Directors qualify as independent as defined in the NYSE Standards, Rule 10A-3 under the Exchange Act and the CNV Rules. Three of the principal directors of our Board of Directors are also members of our Audit Committee. The remaining members of the Board of Directors are not independent. Under the independence requirements, a director is not independent if any of the following apply:

| · | is also a member of the administrative body or dependent on shareholders who hold “significant shareholding” of the issuer, or any corporation in which those shareholders hold directly or indirectly “significant shareholding,”

| · | is engaged or was engaged during the last three years to the issuer under a contract of employment,

| · | provides, or belongs to a professional corporation or association, which renders professional services to or receives any form of remuneration or fees (other than the corresponding remuneration for its position in the administration body) from the issuer, or those shareholders that have any direct or indirect “significant shareholding” in TGS or from corporations in which shareholders also have any direct or indirect “significant shareholding,”

| · | directly or indirectly holds “significant shareholding” in the issuer or any corporation, which holds “significant shareholding” in the latter,

| · | directly or indirectly sells or provides goods or services to the issuer or its shareholders, who hold direct or indirect “significant shareholding,” for an amount substantially higher than the compensation received for their position as members of the administration body, or

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| · | is a husband or wife, close relative up to fourth degree of kinship or second degree of relationship that, in case of being a member of the administration body, would not be independent as set forth in the CNV regulations.

In all cases, “significant shareholding” refers to those shareholders holding at least fifteen per cent (15%) of our common stock, or less in cases when they are entitled to appoint one or more directors per class of share, or have agreements with other shareholders relating to management and administration of any such companies, or its controlling entity.
The following table reflects the current members of our Board of Directors, their respective positions on the Board of Directors and the year they were appointed to such position.

Name |  | Date of Appointment |  | Term Expires |  | Position |  | Position in Other Company
Gustavo Mariani |  | 4/10/2018 |  | 2019 |  | Chairman |  | Vice Chairman and Co-Chief Executive Officer at Pampa Energía
Luis A. Fallo |  | 4/10/2018 |  | 2019 |  | Vice Chairman |  | Director of Sagua Argentina S.A.
Mariano Batistella |  | 4/10/2018 |  | 2019 |  | Director |  | New Business, Strategy and Planning Executive Director at Pampa
Gregorio Werthein |  | 4/10/2018 |  | 2019 |  | Director |  | Executive Director at Werthein Group
Luis Rodolfo Secco |  | 4/10/2018 |  | 2019 |  | Independent Director |  | Economist
Carlos Alberto Olivieri |  | 4/10/2018 |  | 2019 |  | Independent Director |  | Independent Consultant
Carlos Alberto Di Brico |  | 4/10/2018 |  | 2019 |  | Independent Director |  | Public Accountant
Sergio Benito Patrón Costas |  | 4/10/2018 |  | 2019 |  | Independent Director |  | Head in Labor Relations at Macro Bank
Mauricio Edgardo Szmulewiez |  | 4/10/2018 |  | 2019 |  | Independent Director |  | Legal and accounting advisor
Jorge Romualdo Sampietro |  | 4/10/2018 |  | 2019 |  | Alternate Director |  | Senior Director at Petroquímica Cuyo and Petroken
Nicolás Mindlin |  | 4/10/2018 |  | 2019 |  | Alternate Director |  | New Business, Strategy and Planning Director at Pampa Energia
Diego Salaverri |  | 4/10/2018 |  | 2019 |  | Alternate Director |  | Legal counselor and member of the Board of Directors and Statutory Committee of various companies
Pablo Rodrigo Tarantino |  | 4/10/2018 |  | 2019 |  | Alternate Director |  | Lawyer
Enrique Benitez |  | 4/10/2018 |  | 2019 |  | Independent Alternate Director |  | Advisor in economics and finance matters. Chief Investment Officer at Primevo Advisors.
Diego Petrecolla |  | 4/10/2018 |  | 2019 |  | Independent Alternate Director |  | Chairman of GPR Economía S.A.
Pablo Fabiam Waisberg |  | 4/10/2018 |  | 2019 |  | Independent Alternate Director |  | Accounting and tax advisor
Ignacio Gustavo Álvarez Pizzo |  | 4/10/2018 |  | 2019 |  | Independent Alternate Director |  | Lawyer at the Directors and Corporate Affairs department in the FGS
Hernán Castrogiovanni |  | 4/10/2018 |  | 2019 |  | Independent Alternate Director |  | Financial analyst at FGS

Additional information regarding the occupation and employment background of each of our regular directors is set forth below:
Gustavo Mariani holds a degree in Economics from the Universidad de Belgrano and a Master’s degree in Business Administration from the Universidad del CEMA (Center of Macroeconomic Studies) and also is a Chartered Financial Analyst (CFA) since 1998. He has been a member of board of directors of Pampa since 2005 and serves as Vice-Chairman and co-CEO. Mr. Mariani joined Grupo Dolphin in 1993 as an analyst and served as an investment portfolio manager. He currently serves as Director of Bodega Loma la Lata S.A., CPB, CTG, Loma de La Lata, GMA Warrants S.A., Transener, CIESA, Citelec, Comunicaciones y Consumo S.A., Consultores Fund Management S.A., Dolphin Créditos S.A., Dolphin Créditos Holding S.A., Dolphin Finance S.A, Grupo Mtres S.A., Emes Inversora S.A., IEASA, EASA, Transba, Edenor, Grupo Emes S.A., Grupo Dolphin Holding S.A., HIDISA, HINISA, Nihuiles, Diamante, IPB, Orígenes Seguros de Vida S.A., Orígenes Seguros de Retiro S.A., Pampa Comercializadora S.A., Pampa Participaciones II, Pampa Participaciones, Transelec, Petrolera Pampa, Sitios Argentinos S.A, Greenwind S.A., Parques Eólicos del Fin del Mundo S.A., Parques Eólicos Argentinos S.A., Dolphin Fund Management S.A., and PELSA and as alternate liquidator of CAM Gerenciadora S.A. (company in liquidation). In addition, Mr. Mariani is the executive secretary of the management board of “Fundación Pampa Energía Comprometidos con la Educación.” He was born on September 9, 1970.
Luis A. Fallo holds a degree in Accounting from the Universidad de La Plata and a Master’s degree in Business Administration from the Universidad del CEMA. He currently serves as director of Simali S.A., Sagua Argentina S.A., Beau Lieu S.A., President of FINCA of Los Andes, Petroquímica Cuyo S.A.I.C., Aguas de Santiago S.A., Petroken Petroquímica Ensenada S.A., PEPCA S.A. and CIESA. Since 1999 he has also acted as executive manager of Argentine Real Estate Investment Company S.A. He was born on January 29, 1960.
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Mariano Batistella currently works as New Business, Strategy and Planning Director of Pampa Energía. Mr. Batistella previously worked in investment banking at Goldman Sachs. Mr. Batistella holds a degree in business administration from the Universidad de San Andres and a postgraduate degree in finance from the same institution. He currently serves as director of CIESA, IEASA S.A., Petrobras Bolivia Internacional S.A., Petrolera Entre Lomas S.A. Oleoductos del Valle S.A., Hidroeléctrica Los Nihuiles S.A., Petrobras Hispano Argentina S.A., Refinería del Norte S.A., Pampa Participaciones S.A., Inversora Nihuiles S.A. and Inversora Diamante S.A. He also acts as alternate director of Bodega Loma la Lata S.A., Central Térmica Loma la Lata S.A., Electricidad Argentina S.A., EG3 Red S.A., ENECOR S.A., Pampa Comercializadora S.A., Pampa Energía, Parques Eolicos del Fin del Mundo S.A., Petrolera Pampa S.A., Petrobras Argentina S.A., Pampa Participaciones II S.A., Transelec Argentina S.A., World Energy Business S.A., Central Térmica Güemes S.A., Empresa Distribuidora y Comercializadora Norte S.A. and Hidroeléctrica Diamante S.A. He was born on July 31, 1982.
Gregorio Werthein holds a degree in Economics from Universidad de Buenos Aires and a Master’s degree in Business Administration from Columbia Business School and participated in the Leadership Development Program of Harvard Business School. Since June 2011, he has served as Executive Director of Werthein Group. He also is the co-founder and Chairman of Shipeala. He was born on September 15, 1983.
Luis Rodolfo Secco holds a Bachelor’s Degree in Economics and a Master’s Degree in Banking Disciplines from the National University of La Plata. In 1990 he obtained a scholarship as a full time researcher at the Universitá degli Studi di Siena. Between 1992 and 1994 he was a researcher and director of the School of Banking Disciplines of the National University of La Plata. Between 1994 and 1999 he worked as Chief Economist of the M.A.M. Broda and Associates. At the beginning of 2000 he was summoned to work in the government of the then president Fernando De la Rúa as economic adviser to the Presidency and General Director of Strategic Analysis of the Secretary of State Intelligence, a position he held until January 2002. In 2002, Mr. Secco founded his economic consulting firm, Economic Perspectives, and is currently director and editor of the Economic Perspectives newsletter. Between 2004 and 2012 he was external director of the Department of Economics of Deloitte Argentina. Since 1988 he is a professor at the Faculty of Economic Sciences of the National University of La Plata. He is also a guest columnist for the newspapers La Nación, Perfil and El Economista. He was born on December 14, 1963.
Carlos Alberto Olivieri holds a Public Accountant degree from the Universidad Nacional de Rosario and a postgraduate degree in Corporate Financial Management from the University of Michigan (USA) and Stanford. At present, Mr. Olivieri is professor of Finance of Di Tella University. Between 2008 and March 2010, Mr. Olivieri acted as a financial advisor at Raymond James and between 2002 and 2007 he worked for Repsol YPF S.A. as Chief Financial Officer (“CFO”) for Argentina, Brazil and Bolivia. Previously he acted as CFO of YPF S.A., Quilmes Industrial S.A. and Eaton S.A. and president of YPF GAS S.A. and Maxus Corporation (USA). He also had executive responsibilities in other industries, such as Aerolíneas Argentinas and Arthur Andersen & Co. and taught at the Universidad de Buenos Aires and Michigan Universities. Currently, Mr. Olivieri is also member of the board of directors of Provida AFP (Chile) and act as financial advisor. He was born on May 14, 1950.
Carlos Alberto Di Brico holds a degree in Administration and Public Accountancy from the University of Buenos Aires. Currently, he is a member of the board of NTN SNR Argentina SA, FDV Intive Argentina SA, Aristocrat Argentina PTY Limited y Plant Impact Argentina S.A. He has held several management positions in Eveready Argentina S.A. between 1975 and 1995. From 1995 to 1998 he was CFO at Stafford Miller Argentina S.A. Between 2001 and 2013 he served as CFO and later as CEO in Emerson Argentina. Between 2010 and 2017 he was member of the board of directors of Pampeana. He was born on August 1, 1952.
Sergio Benito Patrón Costas holds a law degree from Universidad de Buenos Aires. From 1994 to 2002, he held several positions in the Federal Criminal and Correctional Court of the City of Buenos Aires. Between 2002 and 2006, he acted as lawyer in Urtubey & Asociados Law firm and Group M Collection. He is currently the Head of Labor Relations in Macro Bank. He was born on December 31, 1975.
Mauricio Edgardo Szmulewiez holds degrees in law and accounting, both from the Universidad de Buenos Aires. Between April 1982 and October 1989, he worked for Lisdero Law Firm as tax and foreign investments manager. Since 1989, he is the owner of Dr. Mauricio Edgardo Szmulewiez law and accounting firm. He was born on January 19, 1960.
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Jorge Romualdo Sampietro holds a degree in Chemical Engineering from the University of Buenos Aires and an Executive Program at Darden Business School - University of Virginia, USA. Between 1968 and 1973 he worked as Technical Sales Manager at Dow Química Argentina. From 1973 to 1975 he was Export Manager at Petroquímica Mosconi. Since 1976 he has worked as Commercial and General Manager in several companies. He currently holds the position Senior Director at Petroquímica Cuyo and Petroken. He was born on May 12, 1944.
Nicolás Mindlin holds a degree in industrial engineering from the Technological Institute of Buenos Aires. Mr. Mindlin has been a member of the Board of Directors of Pampa Energía since April 2017. He is also a member of the board of EG3 Red S.A., Petrolera Pampa, Petrobras Hispano Argentina S.A. and Deputy Director in Petrobras Participaciones S.L. He was born on November 11, 1989.
Diego Martín Salaverri earned a degree in law in 1988 from the Universidad Católica Argentina, Buenos Aires. Mr. Salaverri has been a member of Pampa Energía’s board of directors since June 2006. He is a founding partner of the Argentine law firm of Salaverri, Burgio & Wetzler Malbrán. Mr. Salaverri is also Chairman of Petrobras Participaciones SL, Vice Chairman of Petrobras Hispano Argentina S.A. and member of the board of directors of Edenor (alternate director), CIESA (alternate director) and PELSA (alternate director). Estancia María S.A. and ARPHC S.A. He is also a member of the supervisory committee of Dolphin Créditos S.A., Dolphin Créditos Holding S.A., Grupo Dolphin Holding S.A., Dolphin Finance S.A., Orígenes Seguros de Retiro S.A., Orígenes Seguros de Vida S.A. Mr. Salaverri is also an alternate member of the statutory audit committee of GSF S.A. and Partners I S.A. He was born on August 7, 1964.
Pablo Rodrigo Tarantino holds a law degree from the University of Buenos Aires. Since 2004, he has practiced law independently, focusing on matters related to corporations, insurance, financial law, natural resources and telecommunications. He currently serves as Deputy Director at CIESA. He was born on July 7, 1975.
Enrique Benitez holds a degree in Economics from the University of Buenos Aires. During his professional career he held various management positions in the Ministry of Economy of the Nation and in Banco Hipotecario. Since November 2011, he has provided professional advice in economics and finance and holds the position of Chief Investment Officer at Primevo Advisors. He was born on March 22, 1972.
Diego Petrecolla holds a Ph.D. in Economics from the University of Illinois at Urbana-Champaign. He obtained a Master’s Degree in Economics from the same university and has a Bachelor’s Degree in Economics from the Universidad Católica Argentina. He has done consulting work for international organizations, such as the World Bank, the IDB, the OECD, UNCTAD, ECLAC and IICA. He has also advised the governments of the Dominican Republic, El Salvador, Costa Rica, Uruguay and Ecuador on issues of defense of competition. Between 1996 and 2001 he was Chief Economist, Member and President of the Argentine National Commission for the Defense of Competition. Between 2001 and 2007 he was Director of the Center for Regulation Studies (CEER) of the Argentine University of Business and the World Bank Institute. He is currently President of GPR Economía S.A. He was born on February 11, 1967.
Pablo Fabiam Waisberg graduated as a Public Accountant at the University of Buenos Aires. He currently works as an accounting and tax advisor. Additionally, he is a trustee in Petroken S.A.U., Petrosiel S.A., Areic S.A., Thirteen Holding S.A., Grainco S.A., Ribera Desarrollos S.A., Petroquímica Cuyo S.A., Sagua Argentina S.A. and Waters of Santiago del Estero. He was born on February 3, 1965.
Ignacio Gustavo Álvarez Pizzo holds a law degree from the University of Belgrano and a Magister in Business Law from the Austral University. He serves as Coordinator of Corporate Affairs of the FGS - ANSES. In addition, he is the Deputy Director of Transener, Edesa H., Edenor S.A. and Telecom Argentina. He was born on August 19, 1985.
Hernán Castrogiovanni holds a bachelor degree in administration from the University of Buenos Aires. Since 2004 he has served in different positions in the ANSES. He was born on February 14, 1980.
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Executive Committee. In order to achieve more streamlined management of the Company, the 2017 Shareholders’ Meeting approved the amendment of our By-laws for the purpose of allowing, within the scope of the Board of Directors, the possibility of constituting an Executive Committee (the “Executive Committee”), under the terms established by article 269 of the General Companies Law.
The Board of Directors is the body in charge of appointing the members of the Executive Committee which will be made up of four members: the directors who have been appointed as our President and Vice President, and any other two directors elected by simple majority, with a mandate of one year.
The Executive Committee will function with a quorum of the majority of its members, being necessary for this purpose the presence of our President and the Vice President. It will adopt its decisions unanimously and will have the powers determined by the Board of Directors.
At the meeting held on April 10, 2018, the Board of Directors decided its current composition. To this end, Gustavo Mariani, Mariano Batistella, Luis Alberto Fallo and Gregorio Werthein are in office for a period of one fiscal year.
Executive Officers. The following is a list of our executive officers as of the date of this Annual Report, their respective positions with us and the year they were appointed to such position:

Name |  | Year of Appointment |  | Position
Javier Gremes Cordero |  | 2012 |  | General Director and CEO
Oscar Jose Sardi |  | 2016 |  | Operations Director
Carlos Hector Sidero |  | 2013 |  | Human Resources Director
Alejandro Mario Basso |  | 2016 |  | Administration, Finance 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

There is no expiration term defined for the executive officers.
Below is a description of the main activities currently carried out by each of our executive officers, together with the biographical information thereof:
Javier Gremes Cordero received a Public Accounting degree from the Universidad Católica Argentina, a Master’s in Science from the Université de Management, Switzerland and a MBA from the Universidad Francisco de Vitoria, Spain. He worked for Perez Companc from January 1993 to September 2002. Between October 2002 and February 2006, he worked for Petrobras Argentina in the Financial Department of the E&P business unit. Between March 2006 and February 2009, he served as CFO and from March 2009 to November 2012 as CEO of Petrobras Ecuador. He became our CEO in November 2012. He was born on January 11, 1962.
Oscar Jose Sardi received a Mechanical Engineering degree from the Universidad Nacional de Rosario and holds a major in Natural Gas from the Universidad de Buenos Aires. He also participated in a General Administration Program at the Universidad Austral. He worked for GdE between 1983 and 1992 and from that year he has held different positions in our operations area. In April 2005, he was designated as our Service Vice President, until October 2016 when he was named as our Operations Vice President. He also acts as alternate director of Link and Telcosur. He was born on September 1, 1955.
Carlos Hector Sidero graduated from Universidad de Buenos Aires as a Certified Public Accountant in Argentina. He worked with Isaura S.A. from 1981 through 1994. From 1994 he managed different areas within the Human Resources department at Eg3 SA and Petrobras Argentina S.A. He joined TGS in March 2013 as Vice President Human Resources. He was born on February 16, 1956.
Alejandro Mario Basso received a Public Accounting degree from the Universidad de Buenos Aires. He worked for Petrobras Argentina from 1987 to 1992 and for Quitral-Co S.A. from 1992 to 1994. From 1994 to 1998 he acted as our Planning and Corporate Control Manager and between September 1998 and March 2008 he was our Planning and Control Vice President. Between March 2008 and October 2016, he acted as our Management Control and Corporate Governance Vice President. In October 2016, he was designated as our CFO and Services Vice President. He also acts as alternate director of TGU, EGS and Telcosur. He was born on October 13, 1961.
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Hernán Diego Flores Gómez received a Law degree from the University of Buenos Aires. He is also a co-founder and professor of the Petroleum and Natural Gas Law post-graduate course at said university and professor of the Energy Master’s Degree at the CEARE. Additionally, Dr. Flores Gómez has a Master’s Degree in Business Law from the Escuela Superior de Economía y Administración de Empresas, a Master’s Degree in Finance from the Universidad del CEMA and a Postgraduate Degree in Damage Law from the Universidad Católica Argentina. He began his career in the National Judicial Branch. Throughout his career, he held various positions of legal responsibility, institutional and management relationship in professional 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 was born on April 17, 1953.
Rubén De Muria received a Public Accountant degree from Universidad de Buenos Aires. He obtained a Master in Regulations of Gas and Electricity Industries from Energy Regulatory Activity Studies Center (“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. Finally, 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 include 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 paid by us during the year 2017 to the members of our Board of Directors and executive officers amounted to Ps. 9.0 million and Ps. 44.2 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.
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.
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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 Market 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 Market 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. 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 10, 2018 appointed the current members of the Audit Committee, who as of the date of this filing are Carlos Alberto Di Brico, Carlos Alberto Olivieri and Luis Rodolfo Secco and their respective alternates, Pablo Fabián Waisberg, Diego Petrecolla and Enrique Benitez. All of the current members of our Audit Committee are independent under CNV and the Securities and Exchange Commission (“SEC”) regulations.
The Audit Committee’s mandatory periodic 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 BASE 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;

| · | 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”);

| · | issue a well-founded opinion on whether the terms and conditions of relevant transactions with related parties are according to market practice, within five calendar 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;

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| · | 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 internal auditing matters; and (ii) the confidential, anonymous submission by our employees of concerns regarding questionable accounting or internal 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 and those regulations set by Title II, Chapter III, Article 21 of the rules of the CNV;

| · | 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, such as those associated with regulatory reporting, financial issues, etc.; and

| · | verify the independence of the external auditors in accordance with internal policies.

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

| · | give a prior assessment, within five days of notification, 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 (in those cases in which the minority shareholders’ rights might be affected), in order to carry out one or more specific revisions. The charges of such revisions shall be paid by the petitioning shareholders (Law No. 26,381, article 108.e);

| · | 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 (Law No. 26,381, article 98); and

| · | issue a report supporting a Board of Directors’ resolution to buy back our shares (Law 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 the Committee performed its duties and the results of its work.
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The aggregate compensation paid by us for the fiscal year 2017 to the members of the Audit Committee was Ps. 3.5 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 Law. 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 Law, 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 and shareholders’ meetings, (ii) call Extraordinary 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.
The aggregate compensation paid by us for the fiscal year 2017 to the members of the Statutory Committee was Ps. 1.7 million. We do not provide pension, retirement or similar benefits for syndics and alternate syndics
The following table sets out the current membership of our Statutory Committee, each of whom was appointed at the 2018 Shareholders’ Meeting, the year when each member was initially appointed and the year when their term expires:

Name |  | Member since |  | Term Expires |  | Position
José María Zuliani |  | 04/10/2018 |  | 2019 |  | Syndic
Gerardo Prieto |  | 04/10/2018 |  | 2019 |  | Syndic
Carlos Manuel Vidal |  | 04/10/2018 |  | 2019 |  | Syndic
Agustin Griffi |  | 04/10/2018 |  | 2019 |  | Alternate Syndic
Alejandro Mario Roisentul Williams |  | 04/10/2018 |  | 2019 |  | Alternate Syndic
Walter Antonio Pardi |  | 04/10/2018 |  | 2019 |  | Alternate Syndic

The present principal occupations and employment history of our syndics are set forth below:
José María Zuliani received a Law degree and a Master’s Degree in International Private Law from the Universidad Nacional de Rosario. In January 1996, he joined Refinería San Lorenzo S.A., where he served as head of the Legal Department. In November 2000, he joined Petrobras Argentina, where he held several managing positions. He left Petrobras Argentina in February 2009 after serving as its Gas and Energy Legal Affairs Manager. Between 2009 and 2010, he was appointed as our Legal Affairs Vice President. Between December 2012 and December 2015, he acted as consulting partner in the law firm Salaverri, Burgio & Wetzler Malbrán. At present, he works as Legal Vice President in Energía Argentina S.A. He was born on December 13, 1961.
Gerardo Prieto obtained the title of Public Accountant. He is a member of the Supervisory Committees of Sofora, Nortel, Personal and Micro Systems. In addition, he is the Director of Campofin SA, Polifin SA, Cabaña Doble G del Litoral S.A., Occupational Risk Insurance Inspector S.A. and Experta Seguros de Retiro S.A. He holds the position of President of Protected Roads ART S.A. and is Director of the Industrial and Commercial Bank of China (Argentina) S.A. He is also Deputy Director of La Estrella S.A. Retirement Insurance Company. He was born on March 3, 1951.
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Carlos Manuel Vidal obtained the title of Public Accountant at the University of Buenos Aires. Between 1970 and 1971, he worked as Costs and Remittance Manager at Casa Matriz in Revlon de Argentina S.A. From 1971 to 1973 he worked as Subcontador at Phonalex S.A.I.C. Between 1973 and 1978, he held the positions of Zonal Manager and then Staff Advisor in Citroen Argentina S.A. Between 1978 and 1979 he served as General Manager of the Citroen dealership in the city of Corrientes. From 1979 to date he holds positions in the public sphere (SIGEP - SIGEN) and is a trustee of several companies. He was born on March 4, 1949.
Agustin Griffi obtained the title of Lawyer in the School of Law of the Torcuato Di Tella University in 2005. In 2012 he obtained a Master’s Degree in Banking, Corporate and Financial Law from the Fordham University School of Law (New York, USA). He worked as an associate at Estudio Bruchou, Fernández Madero & Lombardi, in the area of Corporate Law (2005-2011 and 2013), and as a foreign associate at the Barbosa, Mussnich & Aragao studios (Rio de Janeiro, Brazil) in 2008 and Dechert LLP (New York, USA) in 2012. He currently works as a lawyer specializing in the areas of corporate law, mergers and acquisitions at Werthein Group. He was born on October 7, 1981.
Alejandro Mario Roisentul Williams graduated as a Public Accountant from the University of Buenos Aires and obtained a Master’s Degree in Financial Management from the Public Sector at the same university. Since 1993, he has been a Trustee in the General Syndicature of the Nation. He was born on August 30, 1963.
Walter Antonio Pardi graduated as a Public Accountant from the University of Buenos Aires. Since 1993, he has been a Trustee in the General Syndicature of the Nation. He was born on April 14, 1961.
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, 2017, 2016 and 2015:

|  | Number of Employees as of December 31, |
Department |  | 2017 |  |  | 2016 |  |  | 2015 |
General |  |  | 7 |  |  |  | 2 |  |  |  | 2 |
Administration, Finance and Services |  |  | 97 |  |  |  | 98 |  |  |  | 47 |
Human Resources |  |  | 21 |  |  |  | 21 |  |  |  | 18 |
Control and Corporate Governance(1) |  |  | - |  |  |  | - |  |  |  | 10 |
Legal Affairs |  |  | 8 |  |  |  | 10 |  |  |  | 11 |
Public and Regulatory Affairs |  |  | 7 |  |  |  | 6 |  |  |  | 8 |
Services(2) |  |  | - |  |  |  | - |  |  |  | 139 |
Safety and Environmental |  |  | 27 |  |  |  | 26 |  |  |  | 12 |
Business |  |  | 68 |  |  |  | 40 |  |  |  | 40 |
Internal Audit |  |  | 3 |  |  |  | 4 |  |  |  | 3 |
Operations |  |  | 687 |  |  |  | 719 |  |  |  | 640 |
Young professional program |  |  | 7 |  |  |  | - |  |  |  | - |
Total |  |  | 932 |  |  |  | 926 |  |  |  | 930 |

Since October 2016, these employees are part of the Administration, Finance and Services Department.
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The following table sets out the number of employees according to geographical location as of December 31, 2017, 2016 and 2015:

|  | Number of Employees as of December 31, |
Location |  | 2017 |  |  | 2016 |  |  | 2015 |
City of Buenos Aires |  |  | 237 |  |  |  | 239 |  |  |  | 247 |
Province of Buenos Aires |  |  | 406 |  |  |  | 392 |  |  |  | 390 |
Province of Chubut |  |  | 53 |  |  |  | 59 |  |  |  | 58 |
Province of La Pampa |  |  | 12 |  |  |  | 13 |  |  |  | 13 |
Province of Neuquén |  |  | 91 |  |  |  | 90 |  |  |  | 83 |
Province of Río Negro |  |  | 49 |  |  |  | 49 |  |  |  | 56 |
Province of Santa Cruz |  |  | 82 |  |  |  | 82 |  |  |  | 81 |
Province of Tierra del Fuego |  |  | 2 |  |  |  | 2 |  |  |  | 2 |
Total |  |  | 932 |  |  |  | 926 |  |  |  | 930 |

As of December 31, 2017, 2016 and 2015 the number of temporary employees working for us was 31, 25 and 16, 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.
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 2017 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.
The collective bargaining agreements with our unions are valid for one year. Currently, we are in the process of negotiating the collective bargaining agreements that will be in effect from April 2018 to April 2019., but the status of these negotiations is uncertain.
Currently, 83% of our workforce is under trade union representation, having the same employment benefits. This workforce is representing with one of three national unions acting in the Company.
E. Share Ownership
The total amount of our Class B Shares held by our directors, Syndics and executive officers as of February 28, 2018, is 48,195 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.
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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 February 28, 2018:

Name of Beneficial Owner |  | Number of Shares |  |  | Percent of Total Common Shares |  |  | Class |
CIESA |  |  | 405,192,594 |  |  |  | 51.00 | % |  |  | A |
FGS |  |  | 183,618,632 |  |  |  | 23.11 | % |  |  | B |
Holders through MERVAL |  |  | 55,154,612 |  |  |  | 6.94 | % |  |  | B |
ADRs through Citi |  |  | 150,529,445(*) |  |  |  | 18.95 | % |  |  | B |
Total |  |  | 794,495,283 |  |  |  | 100.00 | % |  |  | -- |

(*) equivalent to 30.105.889 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 23.11%. CIESA is under co-control of: (i) Pampa Energía, which holds 10% of CIESA’s common stock, (ii) the CIESA Trust, which has a trust 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 CIESA Acquisition which encompassed the following steps:

| · | On July 27, 2016, Pampa Energía S.A. 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 S.A.

| · | 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 Petrobras Hispano Argentina S.A. their position as beneficiary of the CIESA Trust owning of 40% of the stock and voting rights of CIESA; and (ii) Pampa Energía and Petrobras Hispano Argentina S.A. 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.

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 23.11% 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 (“MH”). 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%.
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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 Law.
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 Law 26,831.

| · | 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 Extraordinary Shareholders’ Meetings of Pampa Energía and Petrobras Argentina approved the prior merger commitment, under which Pampa Energía will be the continuing entity and Petrobras Argentina will be dissolved without liquidation. The merger is effective as of November 1, 2016. Subsequently, on April 19, 2017, the CNV approved the prior merger commitment issued by Pampa Energía. As of the date of this Annual Report, the merger is pending registration in the IGJ.
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
Petrobras Argentina S.A. |  | 63,881,869 |  | B1 |  | 10% |  | Pampa Group
0.5 |  | A1 |
0.5 |  | A2 |
CIESA Trust (Petrobras Hispano Argentina S.A.) |  | 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% |
50,945,792 |  | B1 |
PCT |  | 73,304,444 |  | A1 |  | 18% |
41,682,920 |  | B1 |
Total |  | 638,818,696 |  |  |  | 100% |  |

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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 Petrobras Hispano Argentina, and on the other hand 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.
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 Technical Assistance Services Agreement.
Changes in the shareholders structure of CIESA
For more information to respect of the changes in the shareholding composition of CIESA see “7. Principal Shareholding and Transactions with Related Parts—A. Major Shareholders.” On its behalf, the mentioned share changes were duly authorized by ENARGAS and by the National Commission of Defense of Competition of Argentina.
In this sense, August 9, 2016, ENARGAS authorized the Transaction through Resolution No. I-3939/2016. Later, the Exchange Option was authorized by ENARGAS 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 under “Item 7. Principal Shareholding and Transactions with Related Parts. A) Principal Shareholding.”
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 US 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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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.
Technical Assistance Services Agreement
Pampa Energía is our technical operator, according to the approval of ENARGAS in June 2004, and subject to the terms and conditions of the Technical Assistance Services 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. Pursuant to this agreement, Pampa Energía, also provides financial advice to us. For these services, we pay a monthly fee based on a percentage of our operating income. With the prior approval of ENARGAS and our Board of Directors, in December 2017, we and Pampa Energía approved the renewal of the Technical Assistance Agreement for a three-year term, beginning on December 28, 2020. For additional information see “Item 4. Our Information—B. Business Overview—Gas Transportation—Pipeline Operations—Technical Assistance Services Agreement.”
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. As of December 31, 2017, activities related to this construction were immaterial.
Financial leasing with Pampa Energía
On August 11, 2016, we entered into a financial lease with Petrobras Argentina S.A (which is currently in the process of merging 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. 750.4 million, which allowed us to expand our midstream services provided in that area.
Loan agreement with Pampa Energía
On October 5, 2011, we granted a U.S.$26 million loan to Pampa Energía. Proceeds from the loan were used by Pampa Energía to exercise the option contained in the Call Option Agreement. Additionally, to guarantee compliance with its obligations under the loan, Pampa Energía. created a pledge on the rights that correspond to the arbitration actions of Ponderosa Assets LP and Enron Creditors Recovery Corp. against the Government acquired upon exercise of the option mentioned above. For more information, see “Item 10—Additional Information—C. Material Contracts.”
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After several extensions of the maturity of the loan agreement, on May 7, 2013, the Board of Directors approved the amendments of certain terms and conditions of the loan granted to Pampa Energía, including:

i) | Extension of the expiration date until October 6, 2014, with the option to automatically renew for one additional period of one year. Due to this term, the expiration date was extended to October 6, 2015.

ii) | Prior to the expiration date, the loan must be paid or prepaid compulsorily by the assignment of rights and obligations to us of the claim assigned to Pampa Energía, mentioned in Note 16.a, from Ponderosa Assets LP and Enron Creditors Recovery Corp against Argentina in the event that, on or before the due date: (a) the 20% effective increase on the tariff schedule has been granted to TGS, under the provisions of the 2008 Transitional Agreement approved by Presidential Decree No. 1918/09 or (b) we have received: (x) the tariff adjustment as provided by the Adjustment Agreement initialed by us approved by the Board of Directors Meeting held on October 5, 2011, or (y) any other compensatory arrangements implemented by any mechanism or system of tariff revision in the future to replace those in force under the Public Emergency Law with an equivalent economic effect on our Company.

iii) | An applicable annual interest rate of 6.8% plus VAT.

After verifying compliance with clause ii) mentioned above, on September 30, 2015, our Board of Directors approved the acquisition of the Rights of the Arbitration Proceedings. For further information, see Note 16.a to our Financial Statements “Regulatory Framework—General framework of the regulated segment—Acquisition of the Rights of Arbitration Proceedings.” According to IFRS, the Rights of the Arbitration Proceeding do not qualify to be recognized as an asset in our financial statements. Consequently, they were recognized and classified under “Other Operating (loss) / Income” in the Statement of Comprehensive Income for the year ended December 31, 2015. The net loss recognized amounted to Ps. 324.4 million.
As of December 31, 2017, the loan to Pampa Energía had been fully repaid by Pampa Energía assigning to TGS Pampa’s rights over the ICSID Claim as described under Item 4. “Our information—B. Business Overview—The Argentine Natural Gas Industry—Regulatory Framework—The Public Emergency Law and Renegotiation Agreement.”
The details of significant transactions with related parties as of December 31, 2017, are as follows:
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Revenues |  |  | Costs |  |  | Financial results |
Company |  | Natural Gas Transportation |  |  | Production and commerciali- zation of Liquids |  |  | Other services |  |  | Gas purchase and others |  |  | Compensation for technical assistance |  |  | Revenues for administrative services |  |  | Interests expenses |
| (in thousands of pesos) |
Controlling shareholder: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CIESA |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 92 |  |  |  | - |
Associate which exercises joint control on the controlling shareholder: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pampa Energía |  |  | 27,181 |  |  |  | 57,234 |  |  |  | 70,492 |  |  |  | 135,833 |  |  |  | 354,519 |  |  |  | - |  |  |  | 65,076 |
Associate with significant influence: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Link |  |  | - |  |  |  | - |  |  |  | 4,587 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Other related companies: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Petrolera Pampa S.A. |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 24,850 |  |  |  | - |  |  |  | - |  |  |  | - |
Refinor S.A. |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,534 |  |  |  | - |  |  |  | - |  |  |  | - |
Petrolera Entre Lomas S.A. |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 11,017 |  |  |  | - |  |  |  | - |  |  |  | - |
Oleoductos del Valle S.A. |  |  | 4,618 |  |  |  | - |  |  |  | 958 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Pampa Comercializadora S.A. |  |  | 6,647 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Central Térmica Loma La Lata S.A. |  |  | - |  |  |  | - |  |  |  | 244 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Central Térmica Piedrabuena S.A. |  |  | 11,031 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Experta ART |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7,326 |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  |  | 49,477 |  |  |  | 57,234 |  |  |  | 76,281 |  |  |  | 182,560 |  |  |  | 354,519 |  |  |  | 92 |  |  |  | 65,076 |

For additional information regarding revenues, costs, and outstanding balances relating to transactions with related parties as of and for the year ended December 31, 2017, see Note 20 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.
Tax Claims

| a) | 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.
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During fiscal year 2017 and 2016, we continued receiving several claims from different provinces. As a consequence of those claims, we paid Ps. 147.4 million and Ps. 27.6 million to provincial agencies, respectively.
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, 2017 and 2016, we recorded a provision of Ps. 189.4 million and Ps. 207.7, 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, in case this contingency turns out unfavorably for us.
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.

| b) | 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 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.
As a result, on March 14, 2018, after successfully obtaining various six-month extensions in our favor, a new extension of the precautionary measure valid until September 2018 or up to the times of the issuance of the final sentence, whichever occurs later. This measure prevents the Government from claiming payment from us of the amounts resulting from the new value of the Charge for the period between November 2011 and March 2016.
On the other hand, the National Court of Appeals in Contentious Administrative Dismissal 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 28, 2016, the Ministry of Energy issued Resolution 28, which instructed ENARGAS to take all the necessary measures to reduce to zero the Natural Gas Processing Charge since April 1, 2016. Since that date, we have not been required to pay the Natural Gas Processing Charge.
Our Management believes we have sufficient valid arguments to defend our position, and, thus, we have not recorded any liability the increase of the charge for natural gas consumptions from the date of obtaining the injunction until April 1, 2016, the effective date of Resolution 28. In the event this injunction had not been obtained, the accumulated impact on the retained earnings since obtaining the injunction would have involved a reduction effect of Ps. 601.6 million.

| c) | 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 the Presidential Decree No. 1,918/09. By means of this decree, we was able to bill the tariff increase to our clients as long 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, 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. 1918/09, 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.
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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. 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 (Camara Nacional de Apelaciones en lo Contencioso Administrative Federal).
As of the date of the issuance of this Annual Report, the case is about to dictate sentence before the Appellate Court for Administrative Proceedings.
The balance of the receivable as of December 31, 2016 was Ps. 69.4 million. This credit was derecognized and charged under “Other operating results, net” of the Comprehensive Income Statement for the year ended December 31, 2017.

| d) | 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.
In March 2017, we partially canceled the debt claimed by ARBA, paying Ps. 2.9 million 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.
As of the date of the issuance 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.

| a) | 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 any material environmental liabilities as a result of our operations to date.

| b) | Arbitral claim

On May 8, 2015, the Secretariat of the International Court of Arbitration of the International Chamber of Commerce notified TGS regarding the request for arbitration initiated by PAE and Pan American Sur SA (the “applicants”) related to the execution of three natural gas processing contracts between the applicants and TGS (the “Agreements”). On April 4, 2016, we were notified of the beginning of the corresponding demand, to which we responded on August 17, 2016. On March 16, 2017 the applicants submitted their response to the arguments filed by us previously.
According to the demand, the applicants allege breach of contracts during the period between February 2006 and February 2016, that would have resulted in a lower allocation of the products obtained (the “Products”), which shortfall at March 31, 2017 is claimed to be equal to U.S.$134 million without interest or U.S.$306.3 million, including interest (the “Claim”). To this amount, accrued interest would be added from March 15, 2017 until the date of effective payment.
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Subsequently, on July 14, 2017, we presented the Rejoinder Memorial, whereby the arguments put forward by the applicants in their Reply Memorial were answered rejecting the plaintiff.
Between September 25 and 29, 2017, the Arbitration Testing Hearing took place in the City of Buenos Aires, in which our legal advisors understand that the evidence produced confirmed our position regarding the main aspects of the claim.
On December 15, 2017, the applicants and us submitted their final conclusions memorials. As of the date of issuance of this Annual Report, the arbitration decision is still pending.
On March 15, 2018, the Arbitration Court notified us of its decision to postpone until April 30, 2018 the issuance of the arbitral award with respect to the Claim.
We consider that the Claim contains inconsistencies resulting from misinterpretations of the contractual provisions and an incorrect application of the mechanisms for calculating the allocation of the Products, and therefore we believe that the amount claimed is inadmissible.
Our external legal counsels understand that as of the date of the issuance of this Annual Report, based on the defense arguments made and the evidence presented by us, it is more likely than not that our position will prevail.

| c) | 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, 2017 and 2016 the total amount of these provisions amounted to Ps. 6.5 million, each year.
Dividend Distribution Policy
Our Board of Directors does not have a formal, written dividend distribution policy. Each year, our Board evaluates whether to submit a distribution proposal to the shareholders’ meeting. In making this evaluation, the Board of Directors considers our financial results, our liquidity, our future financing needs and other information, including economic and financial projections for both TGS and the economy as a whole. See “Item 3. Key Information—A. Selected Financial Data—Dividends.”
Nevertheless, there are a number of restrictions that limit our ability to distribute dividends, including:

| · | According to law No. 25,063, the dividends paid in cash or in kind, in excess of the tax profit, will be subject to a 35% withholding tax of the income tax, as sole and only payment. As a result of the Tax Reform, this restriction will no longer apply to dividends attributable to profits accrued in fiscal years beginning on or after January 1, 2018.

| · | Per the 2017 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 the Company 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.

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

B. Significant Changes
No undisclosed significant change has occurred since the date of our Financial Statements.
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Item 9. | The Offer and Listing

A. Offer and Listing Details
The table below shows the high and low market prices of the Class B Shares on the BYMA (formerly Bolsa de Comercio de Buenos Aires or BASE), stated in historical Argentine pesos and of the ADRs on the NYSE, stated in U.S. dollars, for each of the last five fiscal years.

|  | NYSE (in U.S.$) |  |  | BYMA (in Ps.) |
Years |  | High |  |  | Low |  |  | High |  |  | Low |
2013 |  |  | 2.77 |  |  |  | 1.55 |  |  |  | 5.23 |  |  |  | 2.22 |
2014 |  |  | 3.80 |  |  |  | 1.83 |  |  |  | 10.40 |  |  |  | 3.65 |
2015 |  |  | 6.99 |  |  |  | 3.01 |  |  |  | 20.20 |  |  |  | 7.55 |
2016 |  |  | 9.02 |  |  |  | 5.33 |  |  |  | 29.60 |  |  |  | 13.90 |
2017 |  |  | 23.74 |  |  |  | 9.02 |  |  |  | 85.10 |  |  |  | 29.60 |

The table below shows the high and low market prices of the Class B Shares on the BYMA, stated in historical Argentine pesos, and of the ADRs on the NYSE, stated in U.S. dollars, for each full quarterly period within the two most recent fiscal years.

|  | 2017 |  |  | 2016 |
|  | NYSE (in U.S.$) |  |  | BYMA (in Ps.) |  |  | NYSE (in U.S.$) |  |  | BYMA (in Ps.) |
Quarters |  | High |  |  | Low |  |  | High |  |  | Low |  |  | High |  |  | Low |  |  | High |  |  | Low |
First Quarter |  |  | 14.22 |  |  |  | 9.02 |  |  |  | 44.00 |  |  |  | 29.60 |  |  |  | 6.79 |  |  |  | 5.33 |  |  |  | 21.20 |  |  |  | 13.90 |
Second Quarter |  |  | 16.90 |  |  |  | 14.22 |  |  |  | 56.40 |  |  |  | 43.90 |  |  |  | 6.82 |  |  |  | 6.04 |  |  |  | 20.00 |  |  |  | 16.60 |
Third Quarter |  |  | 20.31 |  |  |  | 14.85 |  |  |  | 71.60 |  |  |  | 51.40 |  |  |  | 6.87 |  |  |  | 5.93 |  |  |  | 21.50 |  |  |  | 17.60 |
Fourth Quarter |  |  | 23.74 |  |  |  | 19.55 |  |  |  | 85.10 |  |  |  | 68.35 |  |  |  | 9.02 |  |  |  | 6.70 |  |  |  | 29.60 |  |  |  | 20.60 |

The table below shows the high and low market prices of the Class B Shares on the BYMA, stated in historical Argentine pesos, and of the ADRs on the NYSE, stated in U.S. dollars, within the six most recent months.

|  | NYSE (in U.S.$) |  |  | BYMA (in Ps.) |
Months |  | High |  |  | Low |  |  | High |  |  | Low |
November 2017 |  |  | 21.60 |  |  |  | 19.55 |  |  |  | 76.00 |  |  |  | 68.35 |
December 2017 |  |  | 23.74 |  |  |  | 21.03 |  |  |  | 85.10 |  |  |  | 72.50 |
January 2018 |  |  | 23.60 |  |  |  | 21.82 |  |  |  | 93.40 |  |  |  | 83.05 |
February 2018 |  |  | 22.90 |  |  |  | 19.97 |  |  |  | 88.15 |  |  |  | 80.80 |
March 2018 |  |  | 21.73 |  |  |  | 19.05 |  |  |  | 87.80 |  |  |  | 78.00 |
April 2018 (through to April 12, 2018) |  |  | 21.08 |  |  |  | 20.16 |  |  |  | 86.00 |  |  |  | 82.90 |

B. Plan of Distribution
Not Applicable.
C. Markets
The Argentine Securities Market. In Argentina, the oldest and largest exchange is the 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.
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As of December 31, 2017, the market capitalization of shares of the 97 companies (excluding mutual funds) listed on the BASE was U.S.$356.9 billion. At the same time, the market capitalization of the domestic companies totaled U.S.$110.4 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.
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 Market 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.
Almost all the provisions of the former Executive branch Decree No. 677/2011 have been incorporated in the Capital Market Law. The Capital Market 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;

| · | 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 Market Law and the CNV Regulations, among other related statutory regulations. The relationship of the CNV and the Argentine Executive is maintained through the MEF, which shall hear any appeals filed against decisions made by the CNV, notwithstanding any other legal actions and remedies contemplated in the Capital Market Law.
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.
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The BYMA. Pursuant to the Capital Market 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 Market Law are as follows:

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

| c) | authorize, suspend and cancel the listing and/or trading of negotiable securities pursuant to the provisions set forth in its bylaws;

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

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

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

| g) | 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 Market Law.
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:

|  | 2013 |  |  | 2014 |  |  | 2015 |  |  | 2016 |  |  | 2017 |
Market capitalization (U.S.$ in billions) |  |  | 530.8 |  |  |  | 455.4 |  |  |  | 336.8 |  |  |  | 282.9 |  |  |  | 356.9 |
Number of listed companies |  |  | 103 |  |  |  | 101 |  |  |  | 99 |  |  |  | 99 |  |  |  | 97 |

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.
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2014 By-laws amendments
The Ordinary and Extraordinary 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 Market Law. Below you will find a description of the amendments to our By-laws:

| · | 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.

| · | 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.

| · | The Audit Committee duties, which are in line with those requirements stipulated in the Capital Market 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 Law. 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 made up this amendment through a note dated April 18, 2017.
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
2007 Notes
On May 14, 2007, we issued the 2007 Notes in aggregate principal amount of U.S.$500,000,000 under our Medium Term Global Program 2007 (the “2007 Program”). The 2007 Program provides for the issuance of up to a maximum principal amount of U.S.$650 million in notes, and was authorized by resolutions of an extraordinary meeting of shareholders dated December 21, 2006, and by resolutions of our Board of Directors adopted on January 4, 2007, March 30, 2007 and April 20, 2007. The program was also authorized by the CNV on January 18, 2007.
During 2016, we paid the principal amortization due on May 14, 2016, and on November 14, 2016, we redeemed the outstanding 2007 Notes in full, for total principal cancellations of U.S.$123,283,000.
2014 Notes
On February 11, 2014, we issued the 2014 Notes in aggregate principal amount of U.S.$255,451,506 under our 2014 Program in exchange for a portion of the outstanding 2007 Notes. The Program provides for the issuance of up to a maximum principal amount of U.S.$400 million in notes, and was authorized by resolutions of an extraordinary meeting of shareholders dated April 25, 2013, and by resolutions of our Board of Directors adopted on July 23, 2013 and December 23, 2013. The program was also authorized by the CNV on January 3, 2014.
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The scheduled maturity date of the 2014 Notes is May 14, 2020. The 2014 Notes accrue interest at an annual fixed rate of 9.625%, payable semi-annually. Principal amortization payments are required commencing on May 14, 2014 with the following schedule: 25% on May 14, 2014, 25% on May 14, 2018, 25% on May 14, 2019 and 25% on May 14, 2020.
We are also permitted to redeem the 2014 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 2014 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, comes to own shares representing more than 50% of the voting power of all our shares, holders of the 2014 Notes are entitled to require us to purchase all or a portion of the 2014 Notes at a price in cash equal to 101% of the principal amount of the 2014 Notes so purchased. The 2014 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.
Covenants
We are subject to several restrictive covenants under the terms of the 2014 Notes, which include, among others, the following:

| · | 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 2014 Notes on a timely basis or (ii) any material rights or interest of the trustee or the holders under the indenture or the 2014 Notes;

| · | a requirement that we not enter into or consent to any amendment, restatement or modification of the Technical Assistance Service Agreement 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;

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

| · | 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;

| · | 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;

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

| · | 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;

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

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

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Events of Default
The 2014 Notes contain the following events of default, among others:

| · | default in the payment of principal, interest or any other amount due under the terms of the 2007 Notes after a specified grace period;

| · | breach of obligations contained in the 2007 Notes after a specified cure period;

| · | the occurrence of an event of default under our other debt obligations;

| · | the occurrence of certain bankruptcy events or enforcement proceedings;

| · | enforcement by any creditor of any mortgage, charge, pledge, lien or other encumbrance created or assumed by us or one of our subsidiaries exceeding U.S.$10 million;

| · | failure to obtain certain required governmental authorizations when required or if any such authorizations are rescinded, terminated, lapse or cease to be in full force and effect; and

| · | the occurrence of certain material adverse events with respect to our License, such as the revocation, suspension for a period of greater than 120 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. 750.4 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 thirty 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 Central Bank 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 Central Bank: www.bcra.gov.ar. None of the information contained on either website is deemed to be incorporated by reference into this Annual Report.
Prior to December 1989, the Argentine foreign exchange market was subject to exchange controls. From December 1989 until April 1991, Argentina had a freely floating exchange rate for all foreign currency transactions, and the transfer of dividend payments in foreign currency abroad and the repatriation of capital were permitted without prior approval of the Central Bank. From April 1, 1991, when the Convertibility Law became effective, until December 21, 2001, when the Central Bank closed the foreign exchange market, the peso was freely convertible into U.S. Dollars.
On December 3, 2001, the Government imposed a number of monetary and currency exchange control measures through Decree No. 1570/01, which included restrictions on the free disposition of funds deposited with banks and tight restrictions on transferring funds abroad (including the transfer of funds to pay dividends) without the Central Bank’s prior authorization subject to specific exceptions for transfers related to foreign trade. In June 2003, the Government set restrictions on capital flows into Argentina, which mainly consisted of a prohibition against the transfer abroad of any funds until 180 days after their entry into the country.
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In January 2002, the Government issued the Public Emergency Law and declared a state of public emergency in respect of its social, economic, administrative, financial and foreign exchange matters, authorizing the Government to establish a system to determine the foreign exchange rate between the peso and foreign currencies and to issue foreign exchange‑related rules and regulations. Within this context, on February 8, 2002, through Decree No. 260/2002, the Government established (i) the MULC through which all foreign exchange transactions in foreign currency must be carried out and (ii) that the foreign exchange rate applicable to foreign exchange transactions may be freely agreed upon among contracting parties, subject to the requirements and regulations imposed by the Central Bank. A summary of the main regulations is set forth below.
On June 9, 2005, through Decree No. 616/2005, the Government mandated that (i) all inflows of funds into the local foreign exchange market arising from foreign debts incurred by residents (including both individuals and legal entities in the Argentine private sector), other than those concerning foreign trade financing and primary issuances of debt securities offered to the public and listed on self‑regulated markets, and (ii) all inflows of funds by non‑residents channeled through the MULC and intended to be held in local currency for acquisition of all types of financial assets or liabilities in the financial or non‑financial private sector (except for foreign direct investments and primary issuances of debt securities and shares offered to the public and listed on self‑regulated markets), as well as investments in securities issued by the public sector and acquired in secondary markets, had to meet the following requirements: (a) such inflows of funds could only be transferred outside the local foreign exchange market upon the expiration of a term of 365 calendar days from the date of settlement of such funds into pesos; (b) the proceeds of such inflows of funds had to be credited to an account in the local banking system; (c) a non‑transferable and non‑interest‑bearing deposit for 30% of the amount of the transaction had to be kept in Argentina for a period of 365 calendar days, in accordance with the terms and conditions set forth in the applicable regulations (the “Deposit”); and (d) the Deposit had to be denominated in U.S. Dollars and held in Argentine financial institutions, and it could not be used to guarantee or serve as collateral for any type of credit transactions.
With the tightening of exchange controls beginning in late 2011, in particular with the introduction of measures that allowed limited access to foreign currency by private companies and individuals (such as requiring authorization from tax authorities to access the foreign currency exchange market), the implied exchange rate, as reflected in the quotations for Argentine securities that trade in foreign markets, compared to the corresponding quotations in the local market, increased significantly over the official exchange rate. Most foreign exchange restrictions were lifted in December 2015, May 2016 and August 2016, re-establishing Argentine residents’ rights to purchase and remit outside of Argentina foreign currency with no maximum amount and without specific allocation or the need to obtain prior approval.
In December 2015, the Argentine Ministry of Economy and Public Finance issued Resolution No. 3/2015 that repealed the requirement to comply with the Deposit. As a result, the Deposit is no longer applicable to, among other transactions, foreign financial debts, inflows by non‑residents and repatriations by residents. In addition, Resolution No. 3/2015 reduced the minimum term that proceeds received from any new financial indebtedness (incurred by residents and granted by foreign creditors) and transferred into Argentina must be kept in Argentina, from 365 calendar days to 120 calendar days from the date the funds were transferred. In January 2017, the Argentine Ministry of Economy and Finance Public through Resolution 1/2017 reduced from 120 calendar days to 0 the permanence term from any new financial indebtedness transferred into Argentina applicable to (i) the inflow of funds to the local foreign exchange market arising from certain foreign indebtedness and (ii) any entry of funds to the foreign exchange market by non-residents.
On May 19, 2017, the Central Bank issued Communication “A” 6244 dated May 19, 2017 and effective as of July 1, 2017 (amended by Communication “A” 6312 dated August 30, 2017), providing certain new rules that govern access to the MULC and that supersede previous rules on the matter. Communication “A” 6244 (as amended by Communication “A” 6312) has replaced all previous rules governing exchange transactions, the general exchange position and the provisions of Decree No. 616/05, while rules governing information and filing requirements were not replaced.
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In addition, Communication “A” 6244 (as amended by Communication “A” 6312 and Communication “A” 6363) sets forth:

| 1. | The principle of freedom of exchange: Argentine residents, as well as non-Argentine residents, may freely access the MULC.

| 2. | The obligation of carrying out any exchange transaction through an entity authorized by the Central Bank has been maintained.

| 3. | Time restrictions to trade in the MULC for carrying out foreign exchange transactions have been eliminated.

| 4. | The mandatory inflow and settlement of export proceeds through the MULC within the applicable term.

| 5. | The obligation of Argentine residents to comply with the “Review of Debt Securities and External Liabilities Issued by the Financial Sector and the Non-Financial Private Sector” (Communication “A” 3602 and its complementary provisions) and the “Review on direct investments” (Communication “A” 4237 and its complementary provisions), even though there has not been an income of funds to the MULC nor any future access through the transactions to be declared has been maintained.

Pursuant to Communication “A” 6401, dated December 26, 2017, a new reporting regime was created by means of which the “Review of Debt Securities and External Liabilities Issued by the Financial Sector and the Non-Financial Private Sector” established by Communication “A” 3602, and the “Survey on direct investments,” established by Communication “A” 4237, were replaced by a unified report on direct investments and debt. Only Argentine residents (both legal entities or natural persons) whose flow of balance of foreign assets or debts during the previous calendar year reaches or exceeds the equivalent of U.S.$1 million in pesos are required to report foreign holding of (i) shares and other capital participations; (ii) debt; (iii) financial derivatives; and (iv) real estate, on an annual basis. Argentine residents whose flow or balance of foreign assets or debts reaches or exceeds the equivalent of U.S.$50 million in pesos, shall comply with the report on a quarterly basis.
On November 1, 2017, the Government enacted Decree No. 893/17 that repealed Decrees No. 2581/64, 1555/86 and 1638/01, eliminating the Argentine residents’ mandatory inflow and settlement of export proceeds through the MULC within the applicable term. Subsequently and complementing Decree No. 893/17, the Central Bank through Communication “A” 6363 dated November 10, 2017 (amended by Communication “A” 6436 dated January 19, 2018) eliminated all provisions regarding transactions of funds coming from export proceeds through the MULC applicable to Argentine residents.
On January 6, 2018, the Public Emergency Law ceased to be in effect, formally ending Argentina’s state of general emergency. The Public Emergency Law was passed by Congress in the immediate aftermath of Argentina’s 2001 political, economic and social crisis, and established a state of emergency in social, economic, administrative, financial and foreign exchange matters.
On January 11, 2018, with the aim of providing more flexibility to the foreign exchange system and promoting competition, allowing the entrance of new players to the system, a free floating foreign exchange market was created by means of Decree No. 27/2018.
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 exceed in the aggregate (through one or more related transactions) Ps. 50,000.
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In addition, Law No. 25,246 created the Financial Information Unit, which is charged with the handling and the transmission of information in order to prevent the laundering of assets originating from:

| · | Crimes related to illegal trafficking and commercialization of narcotics;

| · | Crimes related to arms trafficking;

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

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

| · | Crimes of fraud against the Public Administration;

| · | Crimes against the Public Administration;

| · | Crimes of underage prostitution and child pornography; and

| · | 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 establishes 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.
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 FATF 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 Central Bank’s regulation to maintain databases regarding client operations.
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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 clients information and the information required for KYC purposes. The 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.
Subsequently, the Financial Information Unit published Resolution No. 30-E/17, effective as of September 15, 2017, which derogated 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 GAFI for 2012.
These amendments facilitate compliance of the requirements imposed upon the Obliged 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.
Recently, 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 Central Bank 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.
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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 or 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 tour securities, including, the effect of any foreign, state or local tax laws.
Argentine Taxes
Income Tax
Taxation on Dividends
In view of the recent amendments introduced to the Income Tax Law by virtue of Law No. 27,430, as of fiscal years beginning on or after January 1, 2018, the taxation applicable to dividends distributed from Argentine companies would be as follows:
Dividends originated from profits obtained before fiscal year 2018: are not subject to any income tax withholding except for the Equalization Tax (as defined below).
Dividends originated from profits obtained during fiscal years 2018 and 2019: 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”).
Dividends originated from profits obtained during fiscal year 2020 onward: the tax rate is raised to 13%.
For Argentine individuals not registered before the AFIP as payers of income tax and foreign beneficiaries, the Dividend Tax withholding will be considered as a unique and final payment. In addition, under Law No. 27,430, 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.
With regards to income obtained during fiscal years beginning on or after January 1, 2018, the Equalization Tax is not applicable. With regards to income obtained in prior fiscal years, the Equalization Tax is applicable.
The equalization tax (the “Equalization Tax”) is applicable when the dividends distributed are higher than the “net accumulated taxable income” of the immediate previous fiscal period from when the distribution is made. In order to assess the “net accumulated taxable income” from the income calculated by the Income Tax Law, the income tax paid in the same fiscal period should be subtracted and the local dividends received in the previous fiscal period should be added to such income. The Equalization Tax will be imposed as a 35% withholding tax on the shareholder receiving the dividend. Dividend distributions made in property (other than cash) will be subject to the same tax rules as cash dividends.
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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 rate of 35% on net income.
Beginning in 2018, it is clear that income obtained by Argentine Individuals 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 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.
Due to the recent amendments introduced to the Income Tax Law by Law No. 27,430, as from 2018, Foreign Beneficiaries 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.
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. However, capital gains obtained by Foreign Beneficiaries from the sale, exchange or other disposition of ADSs are exempt from income tax.
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 Law No. 27,430, 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 AFIP 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.
Losses obtained by Argentine Individuals arising from the sale of shares can only be offset with the profits derived from the same type of operations, for a period of 5 years.
Tax on the Minimum Presumed Income (the “TOMPI”)
The TOMPI is levied upon corporate assets, including the Notes. The taxable persons are business companies, foundations, sole proprietorships, and trusts (except for financial trusts established in accordance with Sections 1,690, 1,691 and 1,692 of the Argentine Civil and Commercial Code) that are resident in Argentina, certain mutual funds established in Argentina, and permanent commercial establishments owned by foreign entities, among other taxpayers.
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Concerning notes listed in an authorized market, the taxable value shall be determined on the basis of the last negotiated value as of the fiscal year closing date. Non-negotiable obligations will be valued at cost, increasing, as applicable, with interest and exchange rate differences that have accrued to the applicable date.
The tax rate is 1% (0.2% in the case of local financial entities, leasing entities or insurance entities) applicable over the total value of assets, including the Notes, over an aggregate amount of Ps. 200,000. In the event that a taxpayer owns assets located abroad, this amount will be increased by the amount resulting from multiplying Ps.200,000 by a percentage that represents the taxable assets located abroad, as compared to the taxpayer’s total assets. Assets subject to tax in Argentina whose aggregate value, determined in accordance with the effective regulations, is equal to or lower than Ps. 200,000 as of the relevant fiscal year end date, shall be exempted from application of the TOMPI.
This tax is only payable if the income tax determined for any fiscal year does not equal or exceed the amount owed under the TOMPI. In such case, only the difference between the TOMPI determined for such fiscal year and the income tax determined for that fiscal year shall be paid. Any TOMPI paid will be applied as credit toward income tax owed in the ten next following fiscal years. Please note that shares and other equity participations in entities subject to tax on minimum presumed income are exempt from this tax.
This tax has been abrogated by Law No. 27,260, passed by the Argentine Congress on June 29, 2016, as of fiscal periods commencing on January 1, 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. The applicable tax rate is 0.25% and is levied on the proportional net worth value (“valor patrimonial proporcional”), of the shares arising from the last balance sheet. Pursuant to the Personal Assets Tax Law, Argentine companies are entitled to seek reimbursement of said paid tax from the Argentine Individuals and/or Foreign Beneficiaries. Argentine companies may seek this personal assets tax reimbursement by setting off the applicable tax against any amount due to its shareholders or withholding on assets that originated the payment (i.e., the common shares) or in any other way or, under certain circumstances, waive its right under Argentine law to seek reimbursement from the shareholders.
It is unclear if the ADSs are subject to the personal assets tax applicable to Foreign Beneficiaries, although the underlying assets (the common shares) are subject to the personal assets tax as it was previously described.
For the individuals domiciled in Argentina and undivided estates located in Argentina, this tax is levied on the value of their personal assets exceeding a certain minimum threshold by December 31 of each year. In those cases where the value of the assets exceeds such amount, this tax shall be applicable to the assets subject to tax in excess of such amount. Tax rates applicable are as follows:

Minimum threshold above which tax applies |  | Tax period |  | Applicable Tax Rate |
Over Ps.950,000 |  | 2017 |  |  | 0.50 | %
Over Ps.1,050,000 |  | 2018 and subsequent periods |  |  | 0.25 | %

Tax on Credits and Debits on Bank Accounts
Law No. 25,413 (the “Competitiveness Law”), as amended and regulated by Law No. 25,453, established a tax, with certain exceptions, levied on debits and credits of any nature on banks 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. 534/2004 established that as of May 1, 2004, 34% of the tax paid on credits levied at the 0.6% general tax rate, and 17% of the tax paid on transactions levied at the 1.2% 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 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 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 twenty percent (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 of 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 City Tax Code, Section 180(1), third paragraph, sets forth that revenues from any transaction on notes issued in accordance with Law 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.
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 corroborate 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.
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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 and/or if placement of the Notes is not made within 180-calendar days from the date of granting of such authorization.
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.
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 the other provincial jurisdictions. Potential investors must consider the stamp tax impact depending on the local jurisdictions involved.
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, inheritances 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 (such as Notes) 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 TCTA stated by virtue of Law No. 10,197.
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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 the Notes 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.
Double Tax Agreement
Argentina has entered into tax treaties to avoid the double taxation with several countries (Australia, Belgium, Bolivia, 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 respective 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 Power 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 as an 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 this assumption, the Law provides that Federal Administration of Public Revenues could consider as justified those funds respect of which it could be evidenced that derive from activities genuinely performed by an Argentine taxpayer, or by a third party in said jurisdictions, or that it arises from the placement of declared funds.
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 Income Tax Law) further clarifications are expected to be issued by the implementing decree of Law No. 27,430.
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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 OF THE NOTES. 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.
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.
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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 Argentine peso payments made, determined at the spot Argentine 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.
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 above under “Argentine Taxes—Taxation of Capital Gains”, 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 liable 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.
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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.
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.
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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.
H. Documents on Display
We are subject to the informational requirements of the CNV and the BASE and file reports and other information relating to our business, financial condition and other matters with the CNV and the BASE. You may read such reports, statements and other information, including our publicly filed Financial Statements, at the public reference facilities of the CNV and BASE 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 The Bank of New York Mellon 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 111 Wall Street, New York, NY 10043.
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 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.
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Currently, 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.
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, 2017 according to its interest rate:

|  | Financial assets (1) |  |  | Financial liabilities (2) |
Fixed interest rate |  |  | 2,097,766 |  |  |  | 3,607,665 |
Variable interest rate |  |  | 21,584 |  |  |  | - |
Total |  |  | 2,119,350 |  |  |  | 3,607,665 |

(1) | Includes short term investments, Treasury and BCRA notes and bank accounts. Most of our trade receivables do not accrue interest.

(2) | Includes loans, excluding issuance expenses.

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.
On the other hand, as discussed elsewhere herein, the tariffs charged by the Company for the natural gas transportation services are currently denominated in Argentine pesos. Revenues in U.S. dollars derived from our Liquids Production and Commercialization segment accounted for 75.2% of the segment’s total revenues for the year ended December 31, 2017. Likewise, 84% of the operating costs of this business segment for such period are denominated in U.S. dollars.
Our financial debt obligations denominated in foreign currency as of December 31, 2017, amounted to U.S.$241.2 million. As of December 31, 2017, we also had the equivalent of U.S.$45.0 million (Ps. 838.6 million) of trade and other payables denominated in U.S. dollars. Finally, U.S.$192.8 million (Ps. 3,575.6 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.$93.5 million as of December 31, 2017
Sensitivity Analysis Disclosure to Interest Rates and Exchange Rates
In view of the nature of our financial assets which bear variable interest, an immediate 100 basis points decrease 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, 2017, that would have resulted from a hypothetical, instantaneous and unfavorable 10% change in the peso/U.S. dollar exchange rates would have been Ps. 176.0 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.
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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, Argentine 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 |  |  |  |  |  |  |  |  |  |
|  | Overdue |  |  | 2018 |  |  | 2019 |  |  | 2022 |  |  | Thereafter |  |  | Total(6) |  |  | Fair value(2) |
|  | (in millions of pesos) (1) |
Debt denominated in U.S. dollars(1) (4) (5) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed rate |  |  | - |  |  |  | 1,477.5 |  |  |  | 1,362.9 |  |  |  | 1,248.3 |  |  |  | - |  |  |  | 4,088.8 |  |  |  | 3,833.0 |
Interest rate (3) |  |  | - |  |  |  | 9.625 | % |  |  | 9.625 | % |  |  | 9.625 | % |  |  | - |  |  |  | - |  |  |  | - |
Financial lease in U.S. dollars(1) (6) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed rate |  |  | 28.1 |  |  |  | 139.5 |  |  |  | 139.5 |  |  |  | 139.5 |  |  |  | 781.0 |  |  |  | 1.227.6 |  |  |  | 891.3 |

(1) | Converted at the exchange rate as of December 31, 2017: Ps. 18.649 per U.S.$1.00.

(2) | Based on the quoted market prices of our 2014 Notes.

(3) | For a detailed description of 2014 Notes, see “Item 10. Additional Information—C. Material contracts—Debt Obligations.”

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

(5) | Includes future interest payment not accrued as of December 31, 2017.

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

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 the LPG and natural gasoline since they are subject to international prices (Mont Belvieu for the LPG and NWE ARA for the 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 recently negotiated annual contract which will expire on May 1, 2018. 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. This situation, together with the upcoming expiration of the contract in 2018, means that the risk of price decrease or displacement in supply (lower product sales) would be high.
For any given period, the liquids sales will be dependent on the international price of LPG and natural gasoline, taxes and other government take 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.

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 N.A. is the Depositary 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.
The charges of the Depositary payable by investors are as follows:
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| Persons depositing or withdrawing shares must pay: |  | For:
| U.S.$5.00 (or less) per 100 ADSs |  | Issuance of ADRs, including issuances resulting from a distribution of shares or rights or other property
| U.S.$0.05 (or less) per ADS |  | Cancellation of ADRs for the purpose of withdrawal, including if the deposit agreement terminates
|  | Any cash distribution to ADR registered holders
| A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs |  | Distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to ADR registered holders
| U.S.$0.05 (or less) per ADS per calendar year |  | Depositary services
| Registration or transfer fees |  | Transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw shares
| Expenses of the Depositary |  | Cable, telex and facsimile transmissions (as provided in the deposit agreement) Converting foreign currency to U.S. dollars
| Taxes and other governmental charges the Depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes |  | As necessary
| Any charges incurred by the Depositary or its agents for servicing the deposited securities |  | As necessary

Disclosure for Fees Incurred in Past Annual Period. From January 1, 2017 to April 13, 2018, we received from the Depositary U.S.$420,000 for the expenses incurred by us related to the administration and maintenance of the ADR program and investor relation activities.
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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.

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, 2017. 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 generally accepted accounting principles.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. 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 2017, 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, 2017, as stated in their report appearing herein.
D. Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting during 2017 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. 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 for professional services provided to us by PwC and EY, during the years ended December 31, 2017 and 2016 in each of the following categories are:

|  | Year ended December 31, |
|  | PwC |  |  | EY |
|  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
|  | (in thousands of pesos) |
Audit fees |  |  | 5,042.0 |  |  |  | 5,740.1 |  |  |  | 4,517.5 |  |  |  | - |
Audit-related fees |  |  | 150.0 |  |  |  | - |  |  |  | - |  |  |  | - |
Tax fees |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
All other fees |  |  | 879.7 |  |  |  | - |  |  |  | 170.0 |  |  |  | - |
Total fees |  |  | 6,071.7 |  |  |  | 5,740.1 |  |  |  | 4,687.5 |  |  |  | - |

Audit fees. Audit fees in the above table represent services rendered for the audit of our annual Financial Statements for the 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 rendered by PwC in connection for its review of the regulatory presentations made to the CNV with respect to the Global Program.
Tax fees. None.
All other fees. Fees related to governance, risk and compliance billed by PwC and IFRS training activities delivered 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 auditor 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.
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 accountants in 2017 were approved by the Audit Committee prior to their engagement to perform such work.
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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

None.

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 Corporations Law),

| · | Capital Market Law and Decree No. 1,023/2013,

| · | the standards of the CNV,

| · | our By-laws,

| · | our Code of Conduct and other internal control policies and procedures, and

| · | 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 in Section 303A of its Listed Company Manual (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 Section. 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 10, 2018, three independent directors (meeting the independence criteria set forth in the NYSE Standards) 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, the 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.
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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 executive officers’ compensation 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 members 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.
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. Our Audit Committee is made of three independent members. One of them qualifies as a “financial expert” within the meaning of Item 16A of the 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 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.
CEO’s Certification
Each listed company 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, 2017, 2016 and 2015 | F-4
Consolidated Statements of Financial Position as of December 31, 2017 and 2016 | F-5
Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015 | F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 | F-7
Notes to Consolidated Financial Statements for the years ended December 31, 2017 and comparative information | F-8

Item 19. | Exhibits

Exhibit No. |
1.1 | Corporate Charter and By-laws.(1)
1.2 | By-laws Amendments.(2)
2.1 | Indenture, dated as of May 14, 2007, among TGS, Law Debenture Trust Company of New York, as trustee, co-registrar, principal paying agent and transfer agent, and Banco Santander Río S.A., as registrar, paying agent and transfer agent, in respect of TGS’s 7.875% Notes Due 2017.(3)
2.2 | Officers’ Certificate establishing the terms of TGS’ 7.875% Notes Due 2017.(3)
2.3 | We hereby agree to furnish to the SEC, upon its request, copies of any instruments defining the rights of holders of our long-term debt (or any long-term debt of our subsidiaries for which we are required to filed consolidated or unconsolidated financial statements), where such indebtedness does not exceed 10% of our total consolidated assets.
2.4 | Indenture, dated as of February 11, 2014, among TGS, Law Debenture Trust Company of New York, as trustee, co-registrar, principal paying agent and transfer agent, and Banco Santander Río S.A., as registrar, paying agent and transfer agent, in respect of TGS’s 9.625% Notes Due 2020.(4)
2.5 | Officers’ Certificate establishing the terms of TGS’ 9.625% Notes Due 2020.(4)
3.1 | CIESA Shareholders’ Agreement.(5)
3.2 | CIESA’s Fourth Amendment to the Restructuring Agreement.(6)
3.3 | CIESA’s Settlement Agreement.(7)
4.1 | Technical Assistance Service Agreement between TGS and Petrobras Argentina, dated November 4, 2014.(2)
5.1 | Financial lease agreement between Petrobras Argentina S.A. and TGS, dated July 25, 2016.(9)
8.1 | List of TGS’s Subsidiaries.
11.1 | Code of Ethics.(5)
12.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1 | Certification of Chief Executive Officer 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.(8)

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(1) | Incorporated by reference to our Annual Report on Form 20-F filed with the Securities and Exchange Commission for the year ended December 31, 2001 (Commission File No. 1-13396).

(2) | 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).

(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, 2006 (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, 2013 (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, 2005 (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, 2010 (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, 2012 (Commission File No. 1-13396).

(8) | 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).

(9) | Incorporated by reference to our Annual Report on Form 20-F filed with the Securities and Exchange Commission for the year ended December 31, 2001 (Commission File No. 1-13396).

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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/ Javier Gremes Cordero
|  | Name: | Javier Gremes Cordero
|  | Title: | Chief Executive Officer
|  | /s/ Alejandro M. Basso
|  | Name: | Alejandro M. Basso
|  | Title: | Chief Financial Officer and
|  |  | Services Vice President

Dated: April 13, 2018
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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, 2017, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, 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, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, 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, 2017, 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 13, 2018 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 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 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 audit 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 audit 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 audit provide a reasonable basis for our opinion.

/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/Alejandro P. Frechou |  | 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 13, 2018
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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, 2017, based on criteria established in Internal Control - Integrated Framework (2013 framework) 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, 2017, 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 statement of financial position of the Company as of December 31, 2017, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and the related notes, and our report dated April 13, 2018 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 accompanying Management’s Annual Report on Internal Control over Financial Reporting. 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 audits 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.
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/Alejandro P. Frechou |  | 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 13, 2018
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Transportadora de Gas del Sur S.A.
In our opinion, the accompanying consolidated statement of financial position and the related consolidated statements of comprehensive income, of changes in equity and of cash flows (including the related notes) present fairly, in all material respects, the financial position of Transportadora de Gas del Sur S.A. and its subsidiary (“the Company”) at December 31, 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2016 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ Price Waterhouse & Co. S.R.L. |
/s/Alejandro P. Frechou |

Buenos Aires, Argentina
April, 13 2018
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
AS OF DECEMBER 31, 2017, 2016 AND 2015
(Stated in thousands of pesos as described in Note 3)

|  | Notes |  |  | 2017 |  |  | 2016 |  |  | 2015 |
Revenue from sales |  |  | 7 |  |  |  | 12,246,664 |  |  |  | 7,402,172 |  |  |  | 4,226,569 |
Cost of sales |  |  | 8.h. |  |  |  | (6,523,317 | ) |  |  | (4,435,915 | ) |  |  | (2,759,905 | )
Gross profit |  |  |  |  |  |  | 5,723,347 |  |  |  | 2,966,257 |  |  |  | 1,466,664 |
Administrative expenses |  |  | 8.i. |  |  |  | (402,995 | ) |  |  | (315,379 | ) |  |  | (201,636 | )
Selling expenses |  |  | 8.i. |  |  |  | (499,909 | ) |  |  | (353,514 | ) |  |  | (241,330 | )
Other operating expenses |  |  | 8.k. |  |  |  | (104,377 | ) |  |  | (65,543 | ) |  |  | (335,451 | )
Operating profit |  |  |  |  |  |  | 4,716,066 |  |  |  | 2,231,821 |  |  |  | 688,247 |
Net financial results |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial income |  |  | 8.j. |  |  |  | 722,185 |  |  |  | 405,347 |  |  |  | 552,568 |
Financial expenses |  |  | 8.j. |  |  |  | (1,290,145 | ) |  |  | (1,218,708 | ) |  |  | (1,526,731 | )
Total |  |  |  |  |  |  | (567,960 | ) |  |  | (813,361 | ) |  |  | (974,163 | )
Share of profit from associates |  |  | 11 |  |  |  | 190 |  |  |  | 1,522 |  |  |  | 254 |
Net income / (loss) before income tax |  |  |  |  |  |  | 4,148,296 |  |  |  | 1,419,982 |  |  |  | (285,662 | )
Income tax (expense) / gain |  |  | 14 |  |  |  | (1,355,030 | ) |  |  | (489,304 | ) |  |  | 113,553 |
Net income / (loss) and total comprehensive income / (loss) for the year |  |  |  |  |  |  | 2,793,266 |  |  |  | 930,678 |  |  |  | (172,109 | )
Net income / (loss) and total comprehensive income / (loss) attributable to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owners of the Company |  |  |  |  |  |  | 2,793,263 |  |  |  | 930,675 |  |  |  | (172,109 | )
Non-controlling interests |  |  |  |  |  |  | 3 |  |  |  | 3 |  |  |  | - |
|  |  |  |  |  |  | 2,793,266 |  |  |  | 930,678 |  |  |  | (172,109 | )
Weighted average of outstanding ordinary shares |  |  |  |  |  |  | 794,495,283 |  |  |  | 794,495,283 |  |  |  | 794,495,283 |
Basic and diluted earnings / (losses) per share |  |  |  |  |  |  | 3.52 |  |  |  | 1.17 |  |  |  | (0.22 | )

The accompanying notes are an integral part of these consolidated financial statements.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONS
AS OF DECEMBER 31, 2017 AND 2016
(Stated in thousands of pesos as described in Note 3)

|  | Notes |  |  | 2017 |  |  | 2016 |
ASSETS |  |  |  |  |  |  |  |  |
Non-current assets |  |  |  |  |  |  |  |  |
Property, plant and equipment |  |  | 12 |  |  |  | 6,480,361 |  |  |  | 5,333,344 |
Investments in associates |  |  | 9 |  |  |  | 3,065 |  |  |  | 2,874 |
Other financial assets at amortized cost |  |  | 8.m. |  |  |  | 14,473 |  |  |  | 21,584 |
Other financial assets at fair value through profit or loss |  |  | 8.l. |  |  |  | - |  |  |  | 142,872 |
Deferred tax asset |  |  | 14 |  |  |  | 528 |  |  |  | - |
Other receivables |  |  | 8.a. |  |  |  | 12,106 |  |  |  | 75,465 |
Trade receivables |  |  | 8.b. |  |  |  | 3,055 |  |  |  | 8,122 |
Total non-current assets |  |  |  |  |  |  | 6,513,588 |  |  |  | 5,584,261 |
Current assets |  |  |  |  |  |  |  |  |  |  |  |
Other receivables |  |  | 8.a. |  |  |  | 695,316 |  |  |  | 378,272 |
Inventories |  |  |  |  |  |  | 105,996 |  |  |  | 116,863 |
Trade receivables |  |  | 8.b. |  |  |  | 2,033,540 |  |  |  | 1,226,439 |
Other financial assets at amortized cost |  |  | 8.m. |  |  |  | 1,445,428 |  |  |  | 14,900 |
Other financial assets at fair value through profit or loss |  |  | 8.l. |  |  |  | 220,229 |  |  |  | 55,508 |
Cash and cash equivalents |  |  | 8.c. |  |  |  | 2,652,803 |  |  |  | 1,555,089 |
Total current assets |  |  |  |  |  |  | 7,153,312 |  |  |  | 3,347,071 |
Total assets |  |  |  |  |  |  | 13,666,900 |  |  |  | 8,931,332 |
EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Common stock |  |  |  |  |  |  | 1,345,300 |  |  |  | 1,345,300 |
Legal reserve |  |  |  |  |  |  | 269,059 |  |  |  | 247,503 |
Future dividends reserve |  |  |  |  |  |  | 912,010 |  |  |  | - |
Future capital expenditures reserve |  |  |  |  |  |  | - |  |  |  | 2,891 |
Accumulated retained earnings |  |  |  |  |  |  | 2,793,263 |  |  |  | 930,675 |
Non-controlling interests |  |  |  |  |  |  | 8 |  |  |  | 9 |
Total equity |  |  |  |  |  |  | 5,319,640 |  |  |  | 2,526,378 |
LIABILITES |  |  |  |  |  |  |  |  |  |  |  |
Non-current liabilities |  |  |  |  |  |  |  |  |  |  |  |
Deferred tax liabilities |  |  | 14 |  |  |  | 273,390 |  |  |  | 416,716 |
Advances from customers |  |  | 8.d. |  |  |  | 298,169 |  |  |  | 313,686 |
Loans |  |  | 13 |  |  |  | 3,169,760 |  |  |  | 3,771,604 |
Total non-current liabilities |  |  |  |  |  |  | 3,741,319 |  |  |  | 4,502,006 |
Current liabilities |  |  |  |  |  |  |  |  |  |  |  |
Provisions |  |  | 15 |  |  |  | 196,349 |  |  |  | 221,433 |
Advances from customers |  |  | 8.d. |  |  |  | 81,004 |  |  |  | 37,594 |
Other payables |  |  | 8.e. |  |  |  | 33,547 |  |  |  | 3,816 |
Taxes payables |  |  | 8.f. |  |  |  | 96,557 |  |  |  | 59,192 |
Income tax payable |  |  |  |  |  |  | 1,180,704 |  |  |  | 305,410 |
Payroll and social security taxes payable |  |  | 8.n |  |  |  | 235,207 |  |  |  | 168,859 |
Loans |  |  | 13 |  |  |  | 1,329,270 |  |  |  | 145,396 |
Trade payables |  |  | 8.g. |  |  |  | 1,453,303 |  |  |  | 961,248 |
Total current liabilities |  |  |  |  |  |  | 4,605,941 |  |  |  | 1,902,948 |
Total liabilities |  |  |  |  |  |  | 8,347,260 |  |  |  | 6,404,954 |
Total equity and liabilities |  |  |  |  |  |  | 13,666,900 |  |  |  | 8,931,332 |

The accompanying notes are an integral part of these consolidated financial statements.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(Stated in thousands of pesos as described in Note 3)

|  | Shareholders Contributions |  |  | Retained Earnings |  |  |  |  |  |  |  |  |  |
|  | Common stock |  |  | Inflation adjustment to common stock |  |  | Total common stock |  |  | Legal reserve |  |  | Future capital expenditures and other financial need reserve |  |  | Future dividends reserve |  |  | Future capital expenditures reserve |  |  | Accumulated retained earnings |  |  | Subtotal |  |  | Total attributable to equity holders |  |  | Non-Controlling interests |  |  | Total |
Balances at December 31, 2014 |  |  | 794,495 |  |  |  | 550,805 |  |  |  | 1,345,300 |  |  |  | 242,254 |  |  |  | - |  |  |  | - |  |  |  | 175,000 |  |  |  | 104,983 |  |  |  | 522,237 |  |  |  | 1,867,537 |  |  |  | 6 |  |  |  | 1,867,543 |
Resolutions of the Ordinary Shareholders´Meeting held on April 23, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derecognition of Reserves |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (175,000 | ) |  |  | 175,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Legal Reserve |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,249 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (5,249 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Future Dividends Reserve |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 99,734 |  |  |  | - |  |  |  | (99,734 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Future Capital Expenditures and Other Financial Expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 175,000 |  |  |  | - |  |  |  | - |  |  |  | (175,000 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Comprehensive loss for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (172,109 | ) |  |  | (172,109 | ) |  |  | (172,109 | ) |  |  | - |  |  |  | (172,109 | )
Balances at December 31, 2015 |  |  | 794,495 |  |  |  | 550,805 |  |  |  | 1,345,300 |  |  |  | 247,503 |  |  |  | 175,000 |  |  |  | 99,734 |  |  |  | - |  |  |  | (172,109 | ) |  |  | 350,128 |  |  |  | 1,695,428 |  |  |  | 6 |  |  |  | 1,695,434 |
Resolutions of the Board of Directors' Meeting held on January 13, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash dividends |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (99,734 | ) |  |  | - |  |  |  | - |  |  |  | (99,734 | ) |  |  | (99,734 | ) |  |  | - |  |  |  | (99,734 | )
Resolutions of the Extraordinary and Ordinary Shareholders' Meeting held on April 20, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Future Capital Expenditures Reserve |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,891 |  |  |  | (2,891 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Derecognition of reserves |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (175,000 | ) |  |  | - |  |  |  | - |  |  |  | 175,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Comprehensive income for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 930,675 |  |  |  | 930,675 |  |  |  | 930,675 |  |  |  | 3 |  |  |  | 930,678 |
Balances at December 31, 2016 |  |  | 794,495 |  |  |  | 550,805 |  |  |  | 1,345,300 |  |  |  | 247,503 |  |  |  | - |  |  |  | - |  |  |  | 2,891 |  |  |  | 930,675 |  |  |  | 1,181,069 |  |  |  | 2,526,369 |  |  |  | 9 |  |  |  | 2,526,378 |
Resolutions of the Ordinary and Extraordinay Shareholders´ Meeting held on April 26, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |
- Legal reserve |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 21,556 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (21,556 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
- Future Dividends reserve |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 912,010 |  |  |  | - |  |  |  | (912,010 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
- Derecognition of Reserves |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (2,891 | ) |  |  | 2,891 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |
Dividends payment to non-controlling interest |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (4 | ) |  |  | (4 | )
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |
Comprehensive income for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,793,263 |  |  |  | 2,793,263 |  |  |  | 2,793,263 |  |  |  | 3 |  |  |  | 2,793,266 |
Balances at December 31, 2017 |  |  | 794,495 |  |  |  | 550,805 |  |  |  | 1,345,300 |  |  |  | 269,059 |  |  |  | - |  |  |  | 912,010 |  |  |  | - |  |  |  | 2,793,263 |  |  |  | 3,974,332 |  |  |  | 5,319,632 |  |  |  | 8 |  |  |  | 5,319,640 |

The accompanying notes are an integral part of these consolidated financial statements.
For supplemental Changes in Equity information, see Note 4.q).
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
CONDOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(Stated in thousands of pesos as described in Note 3)

|  | 2017 |  |  | 2016 |  |  | 2015 |
Cash flows provided by operating activities |  |  |  |  |  |  |  |  |
Total comprehensive income / (loss) for the year |  |  | 2,793,266 |  |  |  | 930,678 |  |  |  | (172,109 | )
Reconciliation of total comprehensive income / (loss) to cash flows provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation of property, plant and equipment |  |  | 358,420 |  |  |  | 286,798 |  |  |  | 261,393 |
Disposal of property, plant and equipment |  |  | 7,814 |  |  |  | 7,201 |  |  |  | 8,481 |
Share of profit from associates |  |  | (190 | ) |  |  | (1,522 | ) |  |  | (254 | )
Increase in provisions |  |  | 128,136 |  |  |  | 98,833 |  |  |  | 46,202 |
Interest expense accrual |  |  | 400,947 |  |  |  | 392,372 |  |  |  | 287,290 |
Interest income on other financial assets other than cash and cash equivalents |  |  | (78,592 | ) |  |  | (37,616 | ) |  |  | (47,174 | )
Income tax |  |  | 1,355,030 |  |  |  | 489,304 |  |  |  | (113,553 | )
Acquisition of the Rights of the Arbitration Proceeding (Note 16.a) |  |  | - |  |  |  | - |  |  |  | 324,390 |
Derivative financial instrument results |  |  | - |  |  |  | 8,933 |  |  |  | (128,525 | )
Foreign exchange loss |  |  | 208,256 |  |  |  | 623,757 |  |  |  | 948,456 |
Doubtful accounts |  |  | (12,055 | ) |  |  | 20,546 |  |  |  | - |
Changes in assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Other financial assets at fair value through profit or loss |  |  | - |  |  |  | - |  |  |  | (19,856 | )
Trade receivables |  |  | (933,043 | ) |  |  | (524,014 | ) |  |  | (474,352 | )
Other receivables |  |  | (253,686 | ) |  |  | (227,569 | ) |  |  | (120,299 | )
Inventories |  |  | 10,867 |  |  |  | (108,411 | ) |  |  | 20,679 |
Trade payables |  |  | 329,675 |  |  |  | 487,238 |  |  |  | (86,502 | )
Payroll and social security taxes |  |  | 66,348 |  |  |  | 51,927 |  |  |  | 35,249 |
Taxes payables |  |  | 7,396 |  |  |  | (33,368 | ) |  |  | 48,391 |
Income tax |  |  | (73,315 | ) |  |  | (39,189 | ) |  |  | 321 |
Other payables |  |  | 29,731 |  |  |  | (37,131 | ) |  |  | (195 | )
Provisions |  |  | (153,220 | ) |  |  | (27,986 | ) |  |  | (45,963 | )
Interest paid |  |  | (182,131 | ) |  |  | (324,869 | ) |  |  | (230,031 | )
Income tax paid |  |  | (515,423 | ) |  |  | (10,529 | ) |  |  | (10,517 | )
Derivative financial instruments |  |  | - |  |  |  | 118,490 |  |  |  | (44,009 | )
Advances from customers |  |  | 28,340 |  |  |  | (6,359 | ) |  |  | (20,478 | )
Cash flows provided by operating activities |  |  | 3,522,571 |  |  |  | 2,137,514 |  |  |  | 467,035 |
Cash flows used in investing activities |  |  |  |  |  |  |  |  |  |  |  |
Additions to property, plant and equipment |  |  | (1,308,560 | ) |  |  | (596,109 | ) |  |  | (401,980 | )
Financial assets not considered cash equivalents |  |  | (1,221,342 | ) |  |  | 61,436 |  |  |  | 173,698 |
Cash flows used in investing activities |  |  | (2,529,902 | ) |  |  | (534,673 | ) |  |  | (228,282 | )
Cash flows used in financing activities |  |  |  |  |  |  |  |  |  |  |  |
Payment of loans |  |  | (40,433 | ) |  |  | (916,490 | ) |  |  | (294,556 | )
Dividends paid to the Company's shareholders |  |  | - |  |  |  | (99,734 | ) |  |  | - |
Dividends paid to non-controlling interest |  |  | (4 | ) |  |  | - |  |  |  | - |
Cash flows used in financing activities |  |  | (40,437 | ) |  |  | (1,016,224 | ) |  |  | (294,556 | )
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS |  |  | 952,232 |  |  |  | 586,617 |  |  |  | (55,803 | )
Cash and cash equivalents at the beginning of the year |  |  | 1,555,089 |  |  |  | 872,537 |  |  |  | 789,420 |
Foreign exchange gains on Cash and cash equivalents |  |  | 145,482 |  |  |  | 95,935 |  |  |  | 138,920 |
Cash and cash equivalents at the end of the year |  |  | 2,652,803 |  |  |  | 1,555,089 |  |  |  | 872,537 |

The accompanying notes are an integral part of these consolidated financial statements.
For supplemental cash flow information see Note 6.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, 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.
On April 26, 2017, the Ordinary and Extraordinary Shareholders’ Meeting approved the amendment of TGS’ bylaws (the “Statutory Modification”) in order to: (i) expand the 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 Law. The objective is to provide this Administration body with greater flexibility in decision-making. In relation to compliance with the regulatory requirements, it has been recorded that the Statutory Modification has not received comments from ENARGAS, in what concerns its competence, as informed by a note dated April 25, 2017, nor from (ii) the Comisión Nacional de Valores (“CNV”), which has made up the Statutory Modification through a note dated April 18, 2017. On July 14, 2017, through the issuance of Resolution No. 18,852, the CNV approved the Statutory Modification, which finally was approved by the General Inspection of Justice on July, 25, 2017.
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) Petrobras Argentina S.A. (in the process of merging with Pampa Energía S.A. “Pampa Energía”), which holds 10% of CIESA’s common stock, (ii) CIESA Trust (whose trustee is TMF Trust Company (Argentina) S.A. and whose beneficiary is Petrobras Hispano Argentina SA, 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.
The current shareholding structure of CIESA is the result of the transaction carried out on July 27, 2016, by which: (i) Pampa Energía and its subsidiary Pampa Participaciones SA sold all of the capital stock and votes of its ownership in PEPCA in favor of GIP (by 51%), WST (by 45.8%) and PCT (by 3.2%), and (ii) Pampa Inversiones S.A. transferred its status as beneficiary of the Trust to GIP and PCT, with a holding of 55% and 45%, respectively (the “Transaction”). On August 9, 2016, ENARGAS authorized the change of share control in CIESA.
On July 27, 2016, Pampa Energía SA acquired from an affiliate of Petroleo Brasileiro SA the total shareholding and votes of Petrobras Participaciones S.L., the controlling company of Petrobras Argentina S.A., and consequently the indirect control of Petrobras Hispano Argentina S.A.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

On December 7, 2016, Pampa Energía, Petrobras Argentina S.A., Petrobras Hispano Argentina S.A., Pampa Participaciones S.A. and Pampa Inversiones S.A. (jointly “Pampa Group”) requested authorization from ENARGAS to exercise the exchange option (the “Exchange”) provided for in the Transaction. The Exchange consisted of a series of transfers by which Pampa Group transfers to GIP and PCT 40% of the capital stock of CIESA, while GIP and PCT transfer to Petrobras Hispano Argentina S.A. their status as Beneficiaries of the Trust. Thus, the Exchange did not modify GIP, PCT and WST percentage ownership of CIESA, and thereby TGS. Finally, the Exchange was approved by ENARGAS on December 29, 2016.
As a result of the Transaction and the Exchange, GIP, WST and PCT hold 50% of CIESA’s capital stock in the following proportions: GIP 27.10%, WST 4.58% and PCT 18.32%, while Pampa Group holds the remaining 50%.
On February 16, 2017, the Extraordinary Shareholders’ Meetings of Pampa Energía and Petrobras Argentina S.A approved the merger commitment mentioned above. The merger was effective as from November 1, 2016. At the date of issuance of these consolidated financial statements, the administrative compliance of the merger is still pending by the controlling bodies.

| 2. | CONSOLIDATED FINANCIAL STATEMENTS

TGS presents its consolidated financial statements with TGS, Telcosur S.A. (“Telcosur”) and CTG Energía S.A. (“CTG”), 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 (“IFRS”) issued by the International Accounting Standards Board (“IASB”).
These financial statements have been prepared in order to be included in a Securities and Exchange Commission (“SEC”) filing and have been approved by the Company’s Board of Directors on April 13, 2018.
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, recoverable value of assets, and present value of long term receivables. 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, unless otherwise stated. For further information, see Note 4.c.

| 4. | SIGNIFICANT ACCOUNTING POLICIES

| a) | New accounting standards

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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

New standards and interpretations issued by the IASB effective for the periods beginning on or after January 1, 2017 adopted by the Company
Below is a description of the standards, amendments and interpretations to existing standards that have been issued and were mandatory for the Company’s fiscal periods beginning on or after January 1, 2017:
Amendments to IAS 12 “Income Taxes”
In January 2016, the IASB issued certain amendments with respect to the recognition of deferred tax assets for unrealized losses.
The adoption of this standard has not had any impact on the financial situation or the results of the Company’s operations as there are no active temporary differences reached by these modifications.
Amendments to IAS 7 “Statements of Cash Flows”
In February 2016, the IASB issued certain amendments regarding disclosures of the Statement of Cash Flows.
Modifications to the Disclosure Initiative (Amendments to IAS 7) aim entities to disclose information that enables users of financial statements to evaluate changes in liabilities arising from financing activities. For this purpose, the IASB requires that an entity shall disclose the following changes in liabilities arising from financing activities: (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair value; and (v) other changes.
Finally, the amendments state that changes in liabilities arising from financing activities must be disclosed separately from changes in other assets and liabilities.
The Company applied these amendments. See Note 6.
New standards and interpretations issued by the IASB not yet effective for the periods beginning on January 1, 2017
Below is a description of the standards, amendments and interpretations to existing standards that are issued, but not yet effective and might impact the Company. They have not been early adopted by the Company:
IFRS 15 Revenue from contracts with customers
In May 2014, IFRS 15 “Revenue from contracts with customers” was issued which establishes a new model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 “Revenue”, IAS 11 “Construction Contracts” and the related interpretations when it becomes effective.
The core principle of IFRS 15 is that an entity shall assess the goods or services promised in a contract with a customer and shall identify its performance obligations. IFRS 15 introduces a 5-step approach to recognize revenue:
Step 1: Identify the contract with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The new revenue recognition model established in IFRS 15 is applicable to all contracts with customers, except lease contracts, insurance contracts and financial instruments. The recognition of interest and dividends are not under the scope of this standard.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

According to IFRS 15, among other issues, a mechanism is established for assigning the transaction price among the different performance obligations. According to this standard, the Company must recognize its income once the performance obligations are satisfied; this is whenever the “control” over the goods or services is transferred to the client.
Note 7 includes the main revenue streams of the Company.
After performing its analysis, the Company’s management has concluded that the current revenue recognition practices based on current IFRS, are substantially consistent with the requirements of IFRS 15.
Given the analysis carried out by management, it is not estimated that the application of IFRS 15 will have a significant impact on the accumulated retained earnings.
TGS will apply IFRS 15 for its fiscal years beginning on January 1, 2018. To this end, it will apply the modified retrospective approach. To do so, if any, the cumulative effect of the initial application of this standard will be retroactively recognized as an adjustment to the opening balance of accumulated retained earnings as of January 1, 2018 and the comparative information will not be adjusted.
It is noteworthy that this rule requires the use of higher estimates and professional judgments than those applied in the current accounting standards. Additionally, IFRS 15 requires the presentation of greater disclosures in the financial statements including the disclosure of significant judgments applied.
In this regard, IFRS 15 requires the presentation separately in the statement of financial position of the assets and liabilities of the contracts and the trade receivables. This requirement will result in posting certain reclassifications as of January 1, 2018 in relation to the services to be provided to those customers who paid in advance the transportation capacity or the services contracted, which are currently classified as “advanced from customer”.
IFRS 9 Financial instruments
In July 2014 a new revised version of IFRS 9 “Financial instruments” was issued. The IFRS 9 introduces new requirements to the classification and measurement of financial instruments. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. Also, new requirements to classify and measure financial assets were included in this version.
IFRS 9 will be applicable for its fiscal years beginning on January 1, 2018.
Management has assessed financial assets and liabilities as of December 31, 2017 in order to determine the impact that its classification and measurement could have on its financial situation and results of operations. Management has assessed that the application of IFRS 9 will not have an impact on the accumulated retained earnings.
IFRS 16 “Leases”
In January 2016, IFRS 16 “Leases” was issued which establishes a new model of accounting for leasing transactions. This standard replaces the current guidance on the accounting for such transactions in IAS 17 “Leases” and related interpretations.
As a result of the modifications introduced, the accounting treatment of leases in the lessee accounting will undergo major changes. IFRS 16 eliminates the dual accounting model for lessee distinguishing between on-balance sheet finance leases and operating leases for which no recognition of future lease payments is required. Instead, a unique, in-balance model is developed that is similar to the current financial leasing model. There are certain exceptions for short-term and insignificant leases. It also requires the presentation of further disclosures.
IFRS 16 will be effective for annual periods beginning after January 1, 2019, with earlier application permitted. Adoption is retroactive.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

The Company is currently assessing the impact of IFRS 16 and as of the date of these consolidated financial statements is not reasonably possible to determine its impact.
IFRIC 22 “Foreign Currency Transactions and Advance Consideration”
This interpretation refers to the determination of the “transaction date” that determines the exchange rate to be used in the initial recognition of an asset, expense or income related to an entity that received or paid a foreign currency advance. Applies to foreign currency transactions when an entity recognizes a non-monetary asset or non-monetary liability arising from the receipt or payment of advance consideration before the entity recognizes the related asset, expense or income.
For the purpose of determining the exchange rate to be used in the initial recognition of an asset, expense or income, the transaction date is the date on which the non-monetary asset or liability derived from the receipt or payment of the advance is recognized.
This interpretation applies to fiscal years beginning on or after January 1, 2018. The initial application may be retroactive or prospective from: (i) the beginning of the period in which it is applied; or (ii) the beginning of an earlier comparative period.
The Company believes that the adoption of this standard will not have an impact on its financial position or on its results of operations given that its accounting policies are in line with this interpretation.
IFRIC Interpretation 23 - Uncertainty over Income Tax Treatments
The interpretation clarifies the application of IAS 12 “Income taxes” with regards to the effect of uncertain income tax position in tax gains (losses), tax base and unused tax losses / tax credits and tax rates.
The interpretation specifically clarifies whether an entity should use judgment to determine each tax treatment independently or collectively. The decision should be based on which approach provides better predictions of the resolution of the uncertainty.
An entity has to consider whether it is probable that the relevant authority will accept each tax treatment, or group of tax treatments, that it used or plans to use in its income tax filing.
If the entity concludes that it is probable that a particular tax treatment is accepted, the entity has to determine taxable profit consistently with the tax treatment included in its income tax filings.
If the entity concludes that it is not probable that a particular tax treatment is accepted, the entity has to use the most likely amount or the expected value of the tax treatment when determining taxable profit. The decision should be based on which method provides better predictions of the resolution of the uncertainty.
IFRIC 23 is effective for annual periods beginning on or after January 1, 2019. Early adoption is permitted.
The Company is analyzing the impact of IFRIC 23, and as of the date of these consolidated financial statements it is not possible to reasonably determine its impact.

| b) | Consolidation

Subsidiary
Subsidiaries are all entities (including structured 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.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, 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, 2017 and 2016 is as follows:

Company | Shareholding and votes (in %) | Country | Closing date | Main activity
Telcosur | 99.98 | Argentina | December 31 | Telecommunication Services
CTG(1) | 100.00 | Argentina | December 31 | Electricity related services

(1) | This company was acquired on August 8, 2017.

For consolidation purposes for the year ended December 31, 2017, the financial statements of Telcosur have been used at that date. The subsidiary CTG does not record operations or significant assets and liabilities as of December 31, 2017.
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.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income is reclassified to profit or loss where appropriate.
The Company accounted for the investments in its associates, on the basis on the financial statements as of September 30, 2017 of Gas Link S.A. (“Link”), Transporte y Servicios de Gas en Uruguay SA (“TGU”) and Emprendimientos de Gas del Sur S.A. (“EGS”). 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, 2017 of Link, TGU and EGS (in liquidation) from this date to December 31, 2017.
As mentioned in note 22, on October 13, 2016, the liquidator of EGS ordered the payment of a dividend in kind to its shareholders, which was made in proportion to their shareholdings. For this reason, as of December 31, 2016, the valuation of the investment in EGS has been adjusted in Ps. 2,289.
When the Company’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred.
According to Link’s accounting policies, certain items of property, plant and equipment (“PPE”) are measured using the revaluation model, meanwhile, as it is stated in Note 4.i, the Company use the cost model to measure PPE items. Furthermore, as of December 31, 2017 and 2016, investment in Link has been reduced to zero in the extent that it recorded a shareholders’ equity below zero according to the accounting policies used by TGS. As of the date of issuance of these Consolidated Financial Statements, the Company has not incurred in any legal or constructive obligation or made payments on behalf of the associate.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

In the table below, associates are disclosed, together with the percentage of shareholding and voting as of December 31, 2017 and 2016:

Company | Shareholding and voting (in %) | 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 22 on August 7, 2017, the Company formed a UT (similar to a joint operation) with SACDE Sociedad Argentina de Construcción y Desarrollo Estratégico S.A. (“SACDE”) (“UT”). This joint agreement takes the form of a joint operation between the Company and SACDE.
Given that it grants its participants a percentage of the rights over the assets and liabilities arising from each contract, 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 10.

| 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 (‘the functional currency’).
IAS 29 “Financial reporting in hyperinflationary economies” 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 fair value method, are expressed in terms of the current unit of measure at the reporting date of the reporting period. For this purpose, in general terms, the inflation produced from the date of acquisition or from the date of revaluation, as appropriate, should be included in non-monetary items. In order to conclude about the existence of a hyperinflationary economy, the standard details a series of factors to consider including a cumulative rate of inflation in three years that approaches or exceeds 100%.
As of December 31, 2017, for companies in Argentina, it is not possible to compute the cumulative inflation rate for the three-year period ended on that date based on official data of the Instituto Nacional de Estadísticas y Censos (“INDEC”), because in October 2015, INDEC ceased to compute the Wholesale Price Index, and started to compute it again as from January 2016.
At the end of the reporting period, as a result of: (i) local inflation data has not been reported consistently, (ii) the slowdown in inflation in the second half of 2016 and during 2017 and (iii) mixed qualitative indicators suggest that there are not conclusive evidence that the Argentine peso meet the characteristics to qualify as the currency of a hyperinflationary economy according to the guidelines established in IAS 29 and, therefore, these consolidated financial statements have not been restated in constant currency. In this regard, the Company’s Management will continue monitoring the evolution of inflation levels in the Argentine Republic in order to comply with the provisions of IAS 29.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

However in recent years, certain macroeconomic variables affecting the Company’s operations, such as payroll costs, prices of inputs and services, and the exchange rate have undergone significant annual variations. This circumstance should be considered in the evaluation and interpretation of the financial situation and results presented by the Company in these Consolidated Financial Statements.
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.
Associates
The company located abroad, TGU, has a functional currency different from the Argentine peso. 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) | Financial instruments

Classification
Financial assets are classified into the following categories:
Financial assets at fair value through profit or loss: Includes financial assets held for trading or selling in the near future or designated by the management upon initial recognition.
Financial assets held to maturity: TGS includes non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company has the intent and ability to hold to maturity.
Loans and other receivables: The Company includes financial assets with fixed or determinable payments that are not quoted in an active market. Current assets are included, except those whose maturity exceeds twelve months, which are included as non-current assets.
Financial assets available for sale. Financial assets available for sale are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period. As of December 31, 2017 and 2016, there are no instruments classified in this category.
Financial liabilities are classified into the following categories:
Financial liabilities at fair value through profit or loss: Includes financial liabilities held for trading. As of December 31, 2017 and 2016, there are no instruments classified in this category.
Other financial liabilities: 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, which are included as non-current liabilities.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

The classification of the financial instruments depends on the nature and purpose of the financial assets and liabilities and is determined at the time of initial recognition. For additional information see Note 16.2.1.
Recognition and measurement
Financial assets are initially measured at fair value, net of transaction costs except for those financial assets classified at fair value through profit or loss. Financial assets at fair value through profit or loss are initially recognized at their fair value including transaction costs. Financial assets available for sale and financial assets at fair value through profit or loss are subsequently recorded at fair value. Loans and receivables and financial assets held to maturity are subsequently recorded at amortized cost in accordance with the method of the effective rate of interest, less, if applicable, impairment losses.
Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the statement of comprehensive income within ‘Financial Income’ in the period in which they arise.
Unrealized gains or losses arising from changes in the fair value of the financial asset category available for sale are recognized as other comprehensive income in the reserve for financial assets classified as available for sale, until the investment is derecognized. At that moment, the accumulated gain or loss is recognized as an operating profit or is considered as an impairment of the asset’s value, in which case the accumulated loss is reclassified to the income statement as a financial cost and is eliminated from the respective reserve.
Financial liabilities at fair value through profit or loss are initially and subsequently recorded at fair value. Other financial liabilities, including loans, are initially measured at fair value and subsequently measured at amortized cost using the effective interest rate, recognizing the corresponding interest charge.
Impairment of financial assets at amortized cost
The Company assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired and if so, an impairment charge is recorded. Impairment losses are incurred if there is objective evidence of impairment as a result of one or more events occurring after initial recognition of the asset and that event (or events) has a negative impact on the estimated future projected cash flows of the financial asset or group of financial assets that can be reliably estimated. For this, the Company evaluates several factors, including the credit risk of customers, historical trends and other available information.
The carrying amount of the asset is reduced through an allowance account and the amount of the loss is recognized in the statement of comprehensive income at the time it occurs. If in subsequent periods, the amount of the impairment loss decreases, the reversal is also recorded in the statement of comprehensive income.
As of December 31, 2016, impairment of financial assets corresponds to the allowance for doubtful accounts indicated in Note 8.b.
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.

| e) | 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.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

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, 2017, the Company does not have derivative financial instruments

| f) | 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 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.

| g) | Trade receivables, other receivables and trade payables

Trade receivables 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.
An allowance for trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Customers’ credit risk, historical trends and other relevant information are considered to assess impairment. Such evaluation may require future adjustments if economic conditions substantially differ from the assumptions made. Management has considered all events and/or transactions that are subject to reasonable and normal methods of estimation, and the consolidated financial statements reflect that consideration.
The amount of the allowance is the difference between the asset’s carrying amount and the estimated future recoverable cash flows. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the statement of comprehensive income within selling expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against selling expenses in the statement of comprehensive income.
The tax credits (for income tax and value added tax) booked as a consequence of the tariff increase reversal (Note 19.c.) were written off as of December 31, 2017.
Trade payables have been initially valued at their fair values and subsequently at their amortized cost, using the effective interest method.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

| h) | 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 change of value.

| i) | Property, plant and equipment

PPE as of January 1, 2012 (IFRS’ transition date) were measure at deemed cost, less accumulated depreciation at such date. Deemed cost was determined by applying the exemption provided in IFRS 1 as follows:
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 property, plant and equipment 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 of February 28, 2003 in accordance with previous accounting standards to recognize changes in general price index and net of 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 of February 28, 2003.
Other items of PPE: have been valued at acquisition cost restated for the effects of inflation up to February 28, 2003 according to the previous accounting standards, to reflect changes in the general price index, 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 goods affected to the Production and Commercialization of Liquids and Other Services segment.
Capitalization of foreign exchange loss: under previous accounting standards Resolutions No. 3/2002 and No. 87/03 issued by the Consejo Profesional de Ciencias Económicas (“CPCECABA”) established that exchange losses arising from the devaluation of the peso from January 6, 2002 to July 28, 2003, to the extent that they were related to foreign currency liabilities existing at the first date, could be added to the cost basis of assets acquired or constructed with direct financing by such foreign currency liabilities. They have been added to the cost of the assets acquired or constructed through this financing, net of the accumulated depreciation.
TGS considered that these deemed cost values were substantially comparable at that date with the depreciated cost under IFRS, adjusted to reflect changes in the economy’s prices index.
PPE additions after the IFRS Transition date 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). 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 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 derecognized. In the same way, when a major maintenance is carried out, they are added to the cost of the good if the recognition criteria are satisfied, derecognizing any remaining non-depreciated remaining value, if any, of previous overhaul.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

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 borrowing costs on long term construction projects, until the moment in which the asset is in conditions for its use. Financial expense capitalized was Ps. 48,975 and Ps. 39,736 for the years ended December 31, 2017 and 2016.
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 disposed.
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 asset; 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.
As of December 31, 2017 and 2016, the carrying value of PPE does not exceed their recoverable value.

| j) | Financial Leases

TGS classifies as financial leases when it assumes substantially all the risks and benefits of ownership of leased assets. To that end, an asset and a liability are initially recognized at the same amount as 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 financial 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.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

Assets acquired through finance leases are depreciated over the useful life of the assets received in accordance with current depreciation policies.

| k) | 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.

| l) | Income tax and deferred income tax

Income tax includes current tax and deferred income tax. Income tax charge 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 date. 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, 2017 and 2016, there are no provisions 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 basis.
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 date (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 only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized.

| m) | Tax on Minimum Presumed Income

The Company is subject to the Impuesto a la Ganancia Mínima Presunta (the tax on minimum presumed income “TOMPI”). The TOMPI is calculated on an individual entity basis at the statutory tax rate of 1%, and is based upon the taxable assets of each Argentine entity as of the end of the year. This tax is complementary to income tax and the Company is required to pay the greater of the income tax or the TOMPI. Any excess of the TOMPI over the income tax may be carried forward and recognized as a payment on account of any excess of income tax over TOMPI occurring within the subsequent ten years.
When the Company considers it is probable that the position of the TOMPI is utilized as payment on account of income tax, TGS accounts for TOMPI credit as current or non-current, as appropriate, under “Other receivables” in the statement of financial position. As of December 31, 2016, the Company recorded a balance of Ps. 71,405 offsetting the balance of income tax payables.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

In accordance with the provisions of article 76 of Law No. 27,260, the TOMPI has been repealed for the periods beginning on or after January 1, 2019.

| n) | 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 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.

| o) | Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods and/or services supplied. The Company recognizes revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Company’s activities, as described below.
Tax on exports and turnover tax are disclosed as Selling Expenses.
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 Government and whose ownership corresponds to the trusts created for such purpose whose revenues are recognized when services are rendered.
Liquids Production and Commercialization services includes: (i) Liquids production and commercialization for its own account and on behalf of third parties, whose revenues are recognized at the time of the delivery of the liquids to the customers, (ii) Other liquids services, which corresponds mainly to the receipt, storage and dispatch from facilities located in Puerto Galván, and whose sales revenues are recognized when the service is provided and (iii) Government grants related to economic compensation of selling liquefied petroleum gas (“LPG”) below market prices are recognized as revenues at the time of the deliveries of the products as there is reasonable assurance that the grant will be received (Note 17.b).
The services included in the Other Services segment consist mainly of the treatment, removal of impurities and natural gas compression, as well as inspection and maintenance of pipelines and compressor plants and services of steam generation for electricity production and management services for expansion works and steam generation for the production of electricity. In addition, the Company also provides gas pipeline operation, inspection and maintenance services. Revenue from sales in this segment is recognized when the service is provided.
Also, TGS provides telecommunications services provided through Telcosur. Revenues in this segment are recognized when the service is provided.

| p) | Advances of customers

Mainly consist of pre-payments for services made by customers in order to finance the works to render the service. Advances from customers 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.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

Additionally, it includes the advance received by the UT from the Ministry of Energy and Mining “MINEM” as payment on account of the gas pipeline construction project. For more information, see Note 22.

| q) | 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.
Common stock
The common stock consists of contributions made by shareholders represented by shares and comprises outstanding shares at their nominal value.
Adjustment to common stock
Common stock accounts were restated in constant currency in accordance with previously applicable accounting standards in Argentina to the implementation of IFRS. Common stock account was kept at nominal 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.
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.
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”.
General Resolution No. 593/11 issued by the CNV provided that Shareholders in the Meetings at which they should decide upon the approval of financial statements in which the Retained earnings account has a positive balance, should adopt an express resolution as to the allocation of such balance, whether to dividend distribution, capitalization, setting up of reserves or a combination of these.

| r) | Basic and diluted (losses) / earnings per share

Basic earnings per share as of December 31, 2017, 2016 and 2015 was calculated by dividing the amount of income or loss attributable to Shareholders of the Company by the weighted average number of ordinary shares outstanding during the fiscal year (794,495,283 shares). There are no transactions or concepts that generate a dilutive effect, therefore the diluted earnings per share equals the basic earnings per share.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

| s) | Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (“CODM”). The Company’s CODM is the Board of Directors. Business segment information is provided in Note 7.

| 5. | CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Critical accounting policies are those that are most important to the portrayal of the Company’s financial condition, results of operations and cash flows, and 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.
Actual results could differ from estimates used in employing the critical accounting policies and these could have a material impact on the Company’s results of operations. The Company’s critical accounting policies are discussed below:
(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.
(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 requires a considerable judgment by 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”). Among other issues, this reform establishes a gradual reduction of the applicable rate for the calculation of income tax, being 35%, 30% and 25% for fiscal periods 2017, 2018/2019 and 2020 onwards, respectively.
Since these regulations were published in the Official Gazette and are in full force, for the calculation of deferred assets and liabilities, the Company made an estimate of the reversal of the deferred items and the tax rates applicable in the period in which the asset is expected to be realized or the liability is expected to be canceled.
Note 14 includes more detailed information on Income Tax.
(c) Impairment of property, plant and equipment
As mentioned in Note 4.i, 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. These evaluations are carried out at the lowest level for which there are identifiable cash flows, that is, for each single CGU. TGS considers each of its business segments to be a CGU.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

Some of the indications that the Company evaluates to determine the existence of trigger events that could lead to the impairment of PPE value are the following, among others:
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 its activities, including significant variations in the sale prices of products, raw materials, interest rates, etc., has worsen.
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) projections of the future costs to be incurred, (iv) expected macroeconomic variables such as interest rates, inflation, foreign exchange rates. The discount rate is our weighted average cost of capital (“WACC”).
No impairment indicators were identified as of December 31, 2017.
(d) Allowances for doubtful accounts
The Company provides for doubtful accounts relating to its accounts receivables. The allowance for doubtful accounts is based on management’s evaluation of various factors, including the credit risk of customers, historical trends and other information. While management uses the information available to make evaluations, future adjustments to the allowance may be necessary if future economic conditions differ substantially from the assumptions used in making the evaluations. Management has considered all events and/or transactions that are subject to reasonable and normal methods of estimation, and the consolidated financial statements reflect that consideration.

| 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, 2017, 2016 and 2015 are presented below:

|  | 2017 |  |  | 2016 |  |  | 2015 |
Unpaid acquisition of PPE |  |  | 202,911 |  |  |  | 47,198 |  |  |  | 25,608 |
Leasing for PPE acquisition |  |  | - |  |  |  | 750,389 |  |  |  | - |
Principal payment of financial lease (1) |  |  | 37,952 |  |  |  | - |  |  |  | - |
Financial charges capitalization |  |  | 48,975 |  |  |  | 39,735 |  |  |  | 22,676 |
Increase in financial assets through a decrease in Other Receivables (2) |  |  | - |  |  |  | 144,773 |  |  |  | - |

(1) | Paid through the offset of account receivables hold with the creditors. (See Note 13)

(2) | See Note 17.b)

Note 13 includes a reconciliation between the initial and final balance of the financial liabilities arising from financing activities.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

| 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 Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s CODM is the Board of Directors.
The CODM evaluates the business based on the differences in the nature of the Company’s products and services. The business segment information is reported consistently with the information reviewed by the Board of Directors. The amount reported for each segment item is the measure reported to the CODM for these purposes. This measure is the operating profit / deficit.
Operating segments identified are disclosed as reportable segments if they meet any of the following quantitative thresholds:
Reported revenues of the operating segments are 10% or more of the combined revenue, internal and external, of all operating segments;
The absolute amount of reported profit or loss is 10% or more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss.
Assets are 10% or more of the combined assets of all operating segments
As well as this, the operating segments that do not meet any of the quantitative thresholds can be considered as reportable segments if the management estimates that this information could be useful for the users of the financial statements.
If, after determining reportable segments in accordance with the preceding quantitative thresholds, the total external revenue attributable to those segments amounts to less than 75% of the total Company’s consolidated external revenue, additional segments are identified as reportable segments, even if they do not meet the thresholds described above, until at least 75% of the Company’s consolidated external revenue is included in reportable segments.
Segment information has been prepared and classified according to different types of businesses in which the Company conducts its activities. The four reportable segments are as follows:
Natural Gas Transportation: Revenues of this business segment are derived mainly from firm contracts, under which pipeline capacity is reserved and paid for regardless of actual usage by the customer. The Company also provides interruptible natural gas transportation services and exchange and displacement services subject to available pipeline capacity. In addition, TGS renders operation and maintenance services of the Natural Gas Transportation facilities, which belong to certain gas trusts (fideicomisos de gas) created by the Argentine Government to expand the capacity of the Argentine natural gas transportation pipeline system (Note 17.c). This business segment is subject to ENARGAS regulation.
Production and Commercialization of Liquids: Liquids production and commercialization activities are conducted at Cerri Complex, which is located, near the city of Bahía Blanca in the Province of Buenos Aires. In the Cerri Complex, ethane, LPG and natural gasoline are extracted from the natural gas, which arrives through three main pipelines from the Neuquén and Austral natural gas basins. TGS sells its production of liquids in the domestic and the international markets. TGS sells part of its production of propane and butane to liquids marketers in the domestic market. The remainder of these products and all of its natural gasoline are exported at current international market prices. Ethane is entirely sold in the domestic market to PBB-Polisur S.A. at agreed prices.
Other services: Midstream services include natural gas treatment, separation, and removal of impurities from the natural gas stream, as well as natural gas compression, rendered at the wellhead typically for natural gas producers. In addition, TGS provides services related to pipeline and compression plant construction, operation and maintenance of pipelines and compressor plants services, as well as steam generation for electricity production.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

Moreover, within this segment services provided by the UT were included. For further information, see Note 10.
Telecommunications: Telecommunication services are rendered through Telcosur, a company controlled by TGS. Telcosur provides services as an independent carrier of carriers to leading telecommunication operators and corporate customers located in its service area.
Detailed information on each business segment for the years ended December 31, 2017, 2016 and 2015 is disclosed below:

Year ended December 31, 2017 |
|  | Natural Gas Transportation |  |  | Production and Commercialization of Liquids |  |  | Other Services |  |  | Telecommunications |  |  | Eliminations |  |  | Total |
Revenues from sales (1) |  |  | 4,559,739 |  |  |  | 6,875,241 |  |  |  | 735,839 |  |  |  | 75,845 |  |  |  | - |  |  |  | 12,246,664 |
Intersegment revenues |  |  | 150,388 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (150,388 | ) |  |  | - |
Cost of sales |  |  | (1,845,551 | ) |  |  | (4,428,764 | ) |  |  | (353,676 | ) |  |  | (45,714 | ) |  |  | 150,388 |  |  |  | (6,523,317 | )
Administrative expenses |  |  | (316,627 | ) |  |  | (59,249 | ) |  |  | (22,984 | ) |  |  | (4,135 | ) |  |  | - |  |  |  | (402,995 | )
Selling expenses |  |  | (260,313 | ) |  |  | (163,746 | ) |  |  | (66,306 | ) |  |  | (9,544 | ) |  |  | - |  |  |  | (499,909 | )
Other operating (expenses) / income |  |  | (126,027 | ) |  |  | 27,253 |  |  |  | (5,758 | ) |  |  | 155 |  |  |  | - |  |  |  | (104,377 | )
Operating profit |  |  | 2,161,609 |  |  |  | 2,250,735 |  |  |  | 287,115 |  |  |  | 16,607 |  |  |  | - |  |  |  | 4,716,066 |
Depreciation of property, plant and equipment |  |  | (245,600 | ) |  |  | (20,170 | ) |  |  | (92,650 | ) |  |  | - |  |  |  | - |  |  |  | (358,420 | )

(1) Revenues from sales from Production and Commercialization of Liquids segment includes Ps. 235,459 of Government subsidies.

Identifiable assets |  |  | 8,284,454 |  |  |  | 3,911,169 |  |  |  | 1,410,054 |  |  |  | 61,223 |  |  |  | - |  |  |  | 13,666,900 |
Identifiable liabilities |  |  | 5,991,730 |  |  |  | 1,217,863 |  |  |  | 1,120,469 |  |  |  | 17,198 |  |  |  | - |  |  |  | 8,347,260 |

|  | Natural Gas Transportation |  |  | Production and Commercialization of Liquids |  |  | Other Services |  |  | Telecommunications |  |  |  |  |  | Total |
External market |  |  | - |  |  |  | 2,676,792 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,676,792 |
Local market |  |  | 4,559,739 |  |  |  | 4,198,449 |  |  |  | 735,839 |  |  |  | 75,845 |  |  |  | - |  |  |  | 9,569,872 |

Year ended December 31, 2016
|  | Natural Gas Transportation |  |  | Production and Commercialization of Liquids |  |  | Other Services |  |  | Telecommunications |  |  | Eliminations |  |  | Total |
Revenue from sales (1) |  |  | 2,087,191 |  |  |  | 4,768,326 |  |  |  | 485,855 |  |  |  | 60,800 |  |  |  | - |  |  |  | 7,402,172 |
Intersegment revenues |  |  | 71,079 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (71,079 | ) |  |  | - |
Cost of sales |  |  | (1,068,714 | ) |  |  | (3,218,936 | ) |  |  | (187,815 | ) |  |  | (31,529 | ) |  |  | 71,079 |  |  |  | (4,435,915 | )
Administrative expenses |  |  | (264,821 | ) |  |  | (32,535 | ) |  |  | (14,734 | ) |  |  | (3,289 | ) |  |  | - |  |  |  | (315,379 | )
Selling expenses |  |  | (121,189 | ) |  |  | (180,499 | ) |  |  | (44,286 | ) |  |  | (7,540 | ) |  |  | - |  |  |  | (353,514 | )
Other operating (expenses) / income |  |  | (44,678 | ) |  |  | (19,147 | ) |  |  | (1,261 | ) |  |  | (457 | ) |  |  | - |  |  |  | (65,543 | )
Operating profit |  |  | 658,868 |  |  |  | 1,317,209 |  |  |  | 237,759 |  |  |  | 17,985 |  |  |  | - |  |  |  | 2,231,821 |
Depreciation of property, plant and equipment |  |  | (238,844 | ) |  |  | (16,693 | ) |  |  | (31,261 | ) |  |  | - |  |  |  | - |  |  |  | (286,798 | )

(1) | Revenues from sales from Production and Commercialization of Liquids segment includes Ps. 183,870 of Government subsidies.

Identifiable assets |  |  | 6,454,526 |  |  |  | 1,184,593 |  |  |  | 1,235,079 |  |  |  | 57,134 |  |  |  | - |  |  |  | 8,931,332 |
Identifiable liabilities |  |  | 4,209,833 |  |  |  | 1,214,944 |  |  |  | 968,527 |  |  |  | 11,650 |  |  |  | - |  |  |  | 6,404,954 |

|  | Natural Gas Transportation |  |  | Production and Commercialization of Liquids |  |  | Other Services |  |  | Telecommunications |  |  |  |  |  | Total |
External market |  |  | - |  |  |  | 1,437,902 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,437,902 |
Local market |  |  | 2,087,191 |  |  |  | 3,330,424 |  |  |  | 485,855 |  |  |  | 60,800 |  |  |  | - |  |  |  | 5,964,270 |

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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

Year ended December 31, 2015
|  | Natural Gas Transportation |  |  | Production and Commercialization of Liquids |  |  | Other Services |  |  | Telecommunications |  |  | Eliminations |  |  | Total |
Revenue from sales (1) |  |  | 1,013,998 |  |  |  | 2,907,770 |  |  |  | 260,600 |  |  |  | 44,201 |  |  |  | - |  |  |  | 4,226,569 |
Intersegment revenues |  |  | 21,435 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (21,435 | ) |  |  | - |
Cost of sales |  |  | (779,923 | ) |  |  | (1,869,397 | ) |  |  | (108,617 | ) |  |  | (23,403 | ) |  |  | 21,435 |  |  |  | (2,759,905 | )
Administrative expenses |  |  | (172,667 | ) |  |  | (16,512 | ) |  |  | (9,985 | ) |  |  | (2,472 | ) |  |  | - |  |  |  | (201,636 | )
Selling expenses |  |  | (48,082 | ) |  |  | (155,747 | ) |  |  | (32,889 | ) |  |  | (4,612 | ) |  |  | - |  |  |  | (241,330 | )
Other operating (expenses) / income |  |  | (332,997 | ) |  |  | (2,663 | ) |  |  | 191 |  |  |  | 18 |  |  |  | - |  |  |  | (335,451 | )
Operating profit |  |  | (298,236 | ) |  |  | 863,451 |  |  |  | 109,300 |  |  |  | 13,732 |  |  |  | - |  |  |  | 688,247 |
Depreciation of property, plant and equipment |  |  | (194,659 | ) |  |  | (49,651 | ) |  |  | (17,083 | ) |  |  | - |  |  |  | - |  |  |  | (261,393 | )

(1) | Revenues from sales from Production and Commercialization of Liquids segment includes Ps. 126,929 of Government subsidies.

Identifiable assets |  |  | 5,032,799 |  |  |  | 1,237,732 |  |  |  | 310,441 |  |  |  | 65,605 |  |  |  | - |  |  |  | 6,646,577 |
Identifiable liabilities |  |  | 4,095,216 |  |  |  | 625,023 |  |  |  | 196,031 |  |  |  | 34,873 |  |  |  | - |  |  |  | 4,951,143 |

|  | Natural Gas Transportation |  |  | Production and Commercialization of Liquids |  |  | Other Services |  |  | Telecommunications |  |  |  |  |  | Total |
External market |  |  | - |  |  |  | 967,340 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 967,340 |
Local market |  |  | 1,013,998 |  |  |  | 1,940,430 |  |  |  | 260,600 |  |  |  | 44,201 |  |  |  | - |  |  |  | 3,259,229 |

| 8. | DETAIL OF SIGNIFICANT STATEMENT OF FINANCIAL POSITION AND STATEMENT OF COMPREHENSIVE INCOME CAPTIONS

| a) | Other receivables

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
Turnover tax credit balance |  |  | - |  |  |  | - |  |  |  | 1,074 |  |  |  | - |
Income tax credit balance |  |  | - |  |  |  | - |  |  |  | 962 |  |  |  | - |
VAT credit balance |  |  | 105,367 |  |  |  | - |  |  |  | 101,460 |  |  |  | - |
Other tax receivables (1) |  |  | 7,229 |  |  |  | 2,564 |  |  |  | 15,430 |  |  |  | 68,686 |
Prepaid expenses |  |  | 21,783 |  |  |  | - |  |  |  | 20,124 |  |  |  | - |
Advances to suppliers |  |  | 375,505 |  |  |  | - |  |  |  | 70,203 |  |  |  | - |
Subsidies receivables |  |  | 173,311 |  |  |  | - |  |  |  | 156,399 |  |  |  | - |
Easements to be recovered |  |  | - |  |  |  | 461 |  |  |  | - |  |  |  | 461 |
Other Receivables UT |  |  | 2,247 |  |  |  | - |  |  |  | - |  |  |  | - |
Others |  |  | 9,874 |  |  |  | 9,081 |  |  |  | 12,620 |  |  |  | 6,318 |
Total |  |  | 695,316 |  |  |  | 12,106 |  |  |  | 378,272 |  |  |  | 75,465 |

(1) | As of December 31, 2016 other non current tax receivables include Ps. 65,539 of income tax and VAT credits generated by the reversion of the tariff increase credit.

The breakdown of other receivables based on its currency of origin is the following:

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
Argentine Pesos |  |  | 650,186 |  |  |  | 12,106 |  |  |  | 359,103 |  |  |  | 75,465 |
U.S. Dollars |  |  | 45,130 |  |  |  | - |  |  |  | 19,169 |  |  |  | - |
Total |  |  | 695,316 |  |  |  | 12,106 |  |  |  | 378,272 |  |  |  | 75,465 |

| b) | Trade receivables

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
Ordinary |  |  | 2,008,861 |  |  |  | 3,055 |  |  |  | 1,128,454 |  |  |  | 8,122 |
Natural Gas Transportation |  |  | 890,370 |  |  |  | - |  |  |  | 405,388 |  |  |  | - |
Production and Commercialization of Liquids |  |  | 909,065 |  |  |  | - |  |  |  | 550,596 |  |  |  | - |
Other services |  |  | 209,426 |  |  |  | 3,055 |  |  |  | 172,470 |  |  |  | 8,122 |
Related parties |  |  | 24,679 |  |  |  | - |  |  |  | 117,688 |  |  |  |  |
Natural Gas Transportation |  |  | 9,687 |  |  |  | - |  |  |  | 5,544 |  |  |  | - |
Other services |  |  | 14,992 |  |  |  | - |  |  |  | 112,144 |  |  |  | - |
Allowance for doubtful accounts |  |  | - |  |  |  | - |  |  |  | (19,703 | ) |  |  | - |
Total |  |  | 2,033,540 |  |  |  | 3,055 |  |  |  | 1,226,439 |  |  |  | 8,122 |

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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

The breakdown of trade receivables based on its currency of origin is the following:

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
Argentine Pesos |  |  | 960,693 |  |  |  | - |  |  |  | 568,500 |  |  |  | - |
U.S. Dollars |  |  | 1,072,847 |  |  |  | 3,055 |  |  |  | 657,939 |  |  |  | 8,122 |
Total |  |  | 2,033,540 |  |  |  | 3,055 |  |  |  | 1,226,439 |  |  |  | 8,122 |

The movement of the allowance for doubtful accounts is as follows:

Balances as of December 31, 2015 |  |  | 1,389 |
Additions (1) |  |  | 19,703 |
Applications |  |  | (1,389 | )
Reversals |  |  | - |
Balances as of December 31, 2016 |  |  | 19,703 |
Additions |  |  | - |
Applications |  |  | - |
Reversals (1) |  |  | (19,703 | )
Balances as of December 31, 2017 |  |  | - |

(1) | The total amount is recorded in Selling Expenses

| c) | Cash and cash equivalents

|  | 2017 |  |  | 2016 |
Cash and banks |  |  | 664,910 |  |  |  | 650,248 |
UT Cash and banks |  |  | 471 |  |  |  | - |
Mutual funds |  |  | 1,263,969 |  |  |  | 901,680 |
Bank account |  |  | 659,448 |  |  |  | 3,161 |
UT Mutual funds |  |  | 64,005 |  |  |  | - |
Total |  |  | 2,652,803 |  |  |  | 1,555,089 |

The breakdown of cash and cash equivalents based on its currency of origin is the following:

|  | 2017 |  |  | 2016 |
Argentine Pesos |  |  | 1,340,795 |  |  |  | 921,768 |
U.S. Dollars |  |  | 1,312,008 |  |  |  | 633,321 |
Total |  |  | 2,652,803 |  |  |  | 1,555,089 |

| d) | Advances from customers

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
Aluar Aluminio Argentino S.A.C.I. ("Aluar") |  |  | 6,742 |  |  |  | 138,238 |  |  |  | 6,742 |  |  |  | 144,980 |
Advances from customers -UT- |  |  | 59,868 |  |  |  | - |  |  |  | - |  |  |  | - |
Total Austral S.A. ("Total Austral") |  |  | - |  |  |  | - |  |  |  | 795 |  |  |  | - |
YPF S.A. ("YPF") |  |  | 2,526 |  |  |  | 4,517 |  |  |  | 2,434 |  |  |  | 6,947 |
Pan American Sur S.A. ("PAS") |  |  | - |  |  |  | - |  |  |  | 530 |  |  |  | - |
Pan American Energy L.L.C. ("PAE") |  |  | 2,182 |  |  |  | 56,805 |  |  |  | 2,182 |  |  |  | 58,976 |
PBB Polisur S.A. ("Polisur") |  |  | 5,115 |  |  |  | 94,804 |  |  |  | 3,905 |  |  |  | 98,531 |
Otros |  |  | 4,571 |  |  |  | 3,805 |  |  |  | 21,006 |  |  |  | 4,252 |
Total |  |  | 81,004 |  |  |  | 298,169 |  |  |  | 37,594 |  |  |  | 313,686 |

(1) | They are mainly related to the financing of expansion works for the rendering of services contracted by such clients. The advance will be settled with the effective rendering of firm transportation service.

Advances from customers are denominated in pesos.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

| e) | Other payables

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
Payable for compensation for the Board of Directors and Supervisory Committee |  |  | - |  |  |  | - |  |  |  | 2,334 |  |  |  | - |
Justice fee payable |  |  | 31,882 |  |  |  | - |  |  |  | - |  |  |  | - |
Others |  |  | 1,665 |  |  |  | - |  |  |  | 1,482 |  |  |  | - |
Total |  |  | 33,547 |  |  |  | - |  |  |  | 3,816 |  |  |  | - |

Other payables are denominated in pesos.

| f) | Taxes payables

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
Withholdings and perceptions made to third parties |  |  | 54,014 |  |  |  | - |  |  |  | 43,687 |  |  |  | - |
Tax on exports |  |  | 638 |  |  |  | - |  |  |  | 2,299 |  |  |  | - |
Turnover Tax |  |  | 28,862 |  |  |  | - |  |  |  | 4,570 |  |  |  | - |
Others |  |  | 13,043 |  |  |  | - |  |  |  | 8,636 |  |  |  | - |
Total |  |  | 96,557 |  |  |  | - |  |  |  | 59,192 |  |  |  | - |

Taxes payables are denominated in pesos.

| g) | Trade payables

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
Suppliers |  |  | 1,332,298 |  |  |  | - |  |  |  | 911,318 |  |  |  | - |
UT Suppliers |  |  | 7,610 |  |  |  | - |  |  |  | - |  |  |  | - |
Customers (credit balances) |  |  | 10,736 |  |  |  | - |  |  |  | 8,592 |  |  |  | - |
Related companies |  |  | 102,659 |  |  |  | - |  |  |  | 41,338 |  |  |  | - |
Total |  |  | 1,453,303 |  |  |  | - |  |  |  | 961,248 |  |  |  | - |

The breakdown of trade payables based on its currency of origin is the following:

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
Argentine Pesos |  |  | 614,699 |  |  |  | - |  |  |  | 290,245 |  |  |  | - |
U.S. Dollars |  |  | 838,604 |  |  |  | - |  |  |  | 671,003 |  |  |  | - |
Total |  |  | 1,453,303 |  |  |  | - |  |  |  | 961,248 |  |  |  | - |

| h) | Cost of sales

|  | 2017 |  |  | 2016 |  |  | 2015 |
Inventories at the beginning of the year |  |  | 116,863 |  |  |  | 8,452 |  |  |  | 29,131 |
Purchases |  |  | 3,718,129 |  |  |  | 2,868,189 |  |  |  | 1,574,999 |
Operating costs (Note 8.i.) |  |  | 2,794,321 |  |  |  | 1,676,137 |  |  |  | 1,164,227 |
Inventories at the end of the year |  |  | (105,996 | ) |  |  | (116,863 | ) |  |  | (8,452 | )
Total |  |  | 6,523,317 |  |  |  | 4,435,915 |  |  |  | 2,759,905 |

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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

| i) | Expenses by nature – Information required under art. 64 paragraph I, clause B) Commercial Companies Law

|  | 2017 |
|  |  |  |  | Operating expenses |  |  |  |  |  |  |  |  |  |
Accounts |  | Total |  |  | Regulated Activities |  |  | Non Regulated Activities |  |  | Administrative expenses |  |  | Selling expenses |  |  | Financial expenses |
Salaries, wages and other compensations |  |  | 1,104,770 |  |  |  | 530,892 |  |  |  | 289,732 |  |  |  | 222,528 |  |  |  | 61,618 |  |  |  | - |
Social security taxes |  |  | 188,424 |  |  |  | 82,847 |  |  |  | 49,461 |  |  |  | 42,825 |  |  |  | 13,291 |  |  |  | - |
Compensation to Directors and Supervisory Committee |  |  | 8,455 |  |  |  | - |  |  |  | - |  |  |  | 8,455 |  |  |  | - |  |  |  | - |
Professional services fees |  |  | 61,786 |  |  |  | 1,504 |  |  |  | 3,055 |  |  |  | 52,109 |  |  |  | 5,118 |  |  |  | - |
Technical operator assistance fees |  |  | 354,518 |  |  |  | 160,095 |  |  |  | 194,423 |  |  |  | - |  |  |  | - |  |  |  | - |
Materials |  |  | 59,949 |  |  |  | 18,602 |  |  |  | 41,347 |  |  |  | - |  |  |  | - |  |  |  | - |
Third parties services |  |  | 126,971 |  |  |  | 52,922 |  |  |  | 63,530 |  |  |  | 10,519 |  |  |  | - |  |  |  | - |
Telecommunications and post expenses |  |  | 9,936 |  |  |  | 1,323 |  |  |  | 1,217 |  |  |  | 6,912 |  |  |  | 484 |  |  |  | - |
Rents |  |  | 6,827 |  |  |  | 1,980 |  |  |  | 962 |  |  |  | 3,407 |  |  |  | 478 |  |  |  | - |
Transports and freight |  |  | 35,514 |  |  |  | 21,124 |  |  |  | 12,056 |  |  |  | 2,314 |  |  |  | 20 |  |  |  | - |
Easements |  |  | 21,490 |  |  |  | 21,490 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Offices supplies |  |  | 3,450 |  |  |  | 1,041 |  |  |  | 368 |  |  |  | 1,589 |  |  |  | 452 |  |  |  | - |
Travels expenses |  |  | 19,325 |  |  |  | 8,643 |  |  |  | 3,174 |  |  |  | 5,613 |  |  |  | 1,895 |  |  |  | - |
Insurance |  |  | 32,262 |  |  |  | 18,848 |  |  |  | 10,724 |  |  |  | 2,413 |  |  |  | 277 |  |  |  | - |
Property, plant and equipment maintenance |  |  | 641,569 |  |  |  | 554,602 |  |  |  | 80,590 |  |  |  | 5,276 |  |  |  | 1,101 |  |  |  | - |
Depreciation of property, plant and equipment |  |  | 358,420 |  |  |  | 219,245 |  |  |  | 112,693 |  |  |  | 26,482 |  |  |  | - |  |  |  | - |
Taxes and contributions |  |  | 566,058 |  |  |  | 131,187 |  |  |  | 7,943 |  |  |  | 719 |  |  |  | 426,209 | (1) |  |  | - |
Advertising |  |  | 479 |  |  |  | - |  |  |  | 3 |  |  |  | - |  |  |  | 476 |  |  |  | - |
Doubtful accounts |  |  | (12,055 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (12,055 | ) |  |  | - |
Banks expenses |  |  | 4,438 |  |  |  | - |  |  |  | - |  |  |  | 4,438 |  |  |  | - |  |  |  | - |
Interests expense |  |  | 469,325 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 469,325 |
Foreign exchange loss |  |  | 717,234 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 717,234 |
Other financial charges |  |  | 103,586 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 103,586 |
Derivative financial instruments results |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Costs of services rendered to third parties |  |  | 69,059 |  |  |  | - |  |  |  | 69,059 |  |  |  | - |  |  |  | - |  |  |  | - |
Transactions among business segments |  |  | - |  |  |  | (150,388 | ) |  |  | 150,388 |  |  |  | - |  |  |  | - |  |  |  | - |
Other expenses |  |  | 35,580 |  |  |  | 19,206 |  |  |  | 8,433 |  |  |  | 7,396 |  |  |  | 545 |  |  |  | - |
Year ended December 31, 2017 |  |  | 4,987,370 |  |  |  | 1,695,163 |  |  |  | 1,099,158 |  |  |  | 402,995 |  |  |  | 499,909 |  |  |  | 1,290,145 |

(1) | Includes tax on exports of Ps. 700 for year ended December 31, 2017

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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

|  | 2016 |
|  |  |  |  | Operating expenses |  |  |  |  |  |  |  |  |  |
Accounts |  | Total |  |  | Regulated Activities |  |  | Non Regulated Activities |  |  | Administrative expenses |  |  | Selling expenses |  |  | Financial expenses |
Salaries, wages and other contributions |  |  | 814,731 |  |  |  | 403,546 |  |  |  | 200,403 |  |  |  | 163,999 |  |  |  | 46,783 |  |  |  | - |
Social security taxes |  |  | 139,356 |  |  |  | 64,518 |  |  |  | 33,944 |  |  |  | 30,874 |  |  |  | 10,020 |  |  |  | - |
Compensation to Directors and Supervisory Committee |  |  | 6,328 |  |  |  | - |  |  |  | - |  |  |  | 6,328 |  |  |  | - |  |  |  | - |
Professional services fees |  |  | 41,392 |  |  |  | 1,434 |  |  |  | 3,645 |  |  |  | 32,657 |  |  |  | 3,656 |  |  |  | - |
Technical operator assistance fees |  |  | 168,008 |  |  |  | 54,128 |  |  |  | 113,880 |  |  |  | - |  |  |  | - |  |  |  | - |
Materials |  |  | 43,205 |  |  |  | 14,153 |  |  |  | 29,052 |  |  |  | - |  |  |  | - |  |  |  | - |
Third parties services |  |  | 94,185 |  |  |  | 37,014 |  |  |  | 49,257 |  |  |  | 7,914 |  |  |  | - |  |  |  | - |
Telecommunications and post expenses |  |  | 5,177 |  |  |  | 342 |  |  |  | 1,087 |  |  |  | 3,405 |  |  |  | 343 |  |  |  | - |
Rents |  |  | 3,219 |  |  |  | 722 |  |  |  | 252 |  |  |  | 2,099 |  |  |  | 146 |  |  |  | - |
Transports and freight |  |  | 27,614 |  |  |  | 17,020 |  |  |  | 9,846 |  |  |  | 709 |  |  |  | 39 |  |  |  | - |
Easements |  |  | 19,315 |  |  |  | 19,315 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Offices supplies |  |  | 2,679 |  |  |  | 917 |  |  |  | 305 |  |  |  | 1,223 |  |  |  | 234 |  |  |  | - |
Travels expenses |  |  | 9,972 |  |  |  | 4,832 |  |  |  | 1,550 |  |  |  | 2,742 |  |  |  | 848 |  |  |  | - |
Insurance |  |  | 26,509 |  |  |  | 15,048 |  |  |  | 9,330 |  |  |  | 1,771 |  |  |  | 360 |  |  |  | - |
Property, plant and equipment maintenance |  |  | 209,257 |  |  |  | 150,923 |  |  |  | 52,100 |  |  |  | 5,065 |  |  |  | 1,169 |  |  |  | - |
Depreciation of property, plant and equipment |  |  | 286,798 |  |  |  | 190,031 |  |  |  | 47,928 |  |  |  | 48,839 |  |  |  | - |  |  |  | - |
Taxes and contributions |  |  | 355,446 |  |  |  | 80,365 |  |  |  | 8,927 |  |  |  | 728 |  |  |  | 265,426 | (1) |  |  | - |
Advertising |  |  | 584 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 584 |  |  |  | - |
Doubtful accounts |  |  | 20,546 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 20,546 |  |  |  | - |
Banks expenses |  |  | 2,120 |  |  |  | - |  |  |  | - |  |  |  | 2,120 |  |  |  | - |  |  |  | - |
Interests expense |  |  | 431,561 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 431,561 |
Foreign exchange loss |  |  | 711,822 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 711,822 |
Other financial charges |  |  | 66,392 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 66,392 |
Derivative financial instruments |  |  | 8,933 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 8,933 |
Costs of services rendered to third parties |  |  | 40,453 |  |  |  | - |  |  |  | 40,453 |  |  |  | - |  |  |  | - |  |  |  | - |
Transactions among business segments |  |  | - |  |  |  | (71,079 | ) |  |  | 71,079 |  |  |  | - |  |  |  | - |  |  |  | - |
Other expenses |  |  | 28,136 |  |  |  | 13,908 |  |  |  | 5,962 |  |  |  | 4,906 |  |  |  | 3,360 |  |  |  | - |
Year ended December 31, 2016 |  |  | 3,563,738 |  |  |  | 997,137 |  |  |  | 679,000 |  |  |  | 315,379 |  |  |  | 353,514 |  |  |  | 1,218,708 |

(1) | Includes tax on exports of Ps. 11,081 for the year ended December 31, 2016.

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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

|  | 2015 |
|  |  |  |  | Operating expenses |  |  |  |  |  |  |  |  |  |
Accounts |  | Total |  |  | Regulated Activities |  |  | Non Regulated Activities |  |  | Administrative expenses |  |  | Selling expenses |  |  | Financial expenses |
Salaries, wages and other contributions |  |  | 564,489 |  |  |  | 295,429 |  |  |  | 121,264 |  |  |  | 114,577 |  |  |  | 33,219 |  |  |  | - |
Social security taxes |  |  | 98,812 |  |  |  | 46,067 |  |  |  | 19,839 |  |  |  | 25,962 |  |  |  | 6,944 |  |  |  | - |
Compensation to Directors and Supervisory Committee |  |  | 5,379 |  |  |  | - |  |  |  | - |  |  |  | 5,379 |  |  |  | - |  |  |  | - |
Professional services fees |  |  | 25,025 |  |  |  | 563 |  |  |  | 1,124 |  |  |  | 21,139 |  |  |  | 2,199 |  |  |  | - |
Technical operator assistance fees |  |  | 52,481 |  |  |  | 3,000 |  |  |  | 49,481 |  |  |  | - |  |  |  | - |  |  |  | - |
Materials |  |  | 29,113 |  |  |  | 10,545 |  |  |  | 18,568 |  |  |  | - |  |  |  | - |  |  |  | - |
Third parties services |  |  | 51,604 |  |  |  | 20,161 |  |  |  | 25,429 |  |  |  | 6,014 |  |  |  | - |  |  |  | - |
Telecommunications and post expenses |  |  | 4,161 |  |  |  | 445 |  |  |  | 778 |  |  |  | 2,714 |  |  |  | 224 |  |  |  | - |
Rents |  |  | 2,619 |  |  |  | 516 |  |  |  | 367 |  |  |  | 1,615 |  |  |  | 121 |  |  |  | - |
Transports and freight |  |  | 19,506 |  |  |  | 12,484 |  |  |  | 6,634 |  |  |  | 381 |  |  |  | 7 |  |  |  | - |
Easements |  |  | 15,003 |  |  |  | 15,003 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Offices supplies |  |  | 1,508 |  |  |  | 531 |  |  |  | 239 |  |  |  | 634 |  |  |  | 104 |  |  |  | - |
Travels expenses |  |  | 8,279 |  |  |  | 4,069 |  |  |  | 1,290 |  |  |  | 2,285 |  |  |  | 635 |  |  |  | - |
Insurance |  |  | 22,850 |  |  |  | 12,935 |  |  |  | 8,280 |  |  |  | 1,279 |  |  |  | 356 |  |  |  | - |
Property, plant and equipment maintenance |  |  | 137,814 |  |  |  | 105,054 |  |  |  | 28,791 |  |  |  | 3,262 |  |  |  | 707 |  |  |  | - |
Depreciation of property, plant and equipment |  |  | 261,393 |  |  |  | 184,251 |  |  |  | 66,734 |  |  |  | 10,408 |  |  |  | - |  |  |  | - |
Taxes and contributions |  |  | 261,712 |  |  |  | 60,094 |  |  |  | 4,999 |  |  |  | 524 |  |  |  | 196,095 | (1) |  |  | - |
Advertising |  |  | 154 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 154 |  |  |  | - |
Banks expenses |  |  | 1,430 |  |  |  | - |  |  |  | - |  |  |  | 1,430 |  |  |  | - |  |  |  | - |
Interests expense |  |  | 320,428 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 320,428 |
Foreign exchange loss |  |  | 1,164,585 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,164,585 |
Other financial charges |  |  | 41,718 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 41,718 |
Costs of services rendered to third parties |  |  | 26,375 |  |  |  | - |  |  |  | 26,375 |  |  |  | - |  |  |  | - |  |  |  | - |
Transactions among business segments |  |  | - |  |  |  | (21,435 | ) |  |  | 21,435 |  |  |  | - |  |  |  | - |  |  |  | - |
Other expenses |  |  | 17,486 |  |  |  | 8,512 |  |  |  | 4,376 |  |  |  | 4,033 |  |  |  | 565 |  |  |  | - |
Year ended December 31, 2015 |  |  | 3,133,924 |  |  |  | 758,224 |  |  |  | 406,003 |  |  |  | 201,636 |  |  |  | 241,330 |  |  |  | 1,526,731 |

(1) | Includes tax on exports of Ps. 61,057 for the year ended December 31, 2015.

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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

| j) | Net financial results

|  | 2017 |  |  | 2016 |  |  | 2015 |
Financial income |  |  |  |  |  |  |  |  |
Derivative financial instrument results |  |  | - |  |  |  | - |  |  |  | 128,525 |
Interest income |  |  | 87,407 |  |  |  | 100,418 |  |  |  | 79,387 |
Fair value gains on financial instruments through profit or loss |  |  | 274,620 |  |  |  | 169,890 |  |  |  | 55,892 |
Foreign exchange gain |  |  | 360,158 |  |  |  | 135,039 |  |  |  | 288,764 |
Subtotal |  |  | 722,185 |  |  |  | 405,347 |  |  |  | 552,568 |
Financial expenses |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | (516,643 | ) |  |  | (470,663 | ) |  |  | (343,104 | )
Foreign exchange loss |  |  | (718,891 | ) |  |  | (712,456 | ) |  |  | (1,165,803 | )
Derivative financial instrument results |  |  | - |  |  |  | (8,933 | ) |  |  | - |
Other financial charges |  |  | (103,586 | ) |  |  | (66,392 | ) |  |  | (41,718 | )
Less: Capitalized borrowing costs |  |  | 48,975 |  |  |  | 39,736 |  |  |  | 23,894 |
Subtotal |  |  | (1,290,145 | ) |  |  | (1,218,708 | ) |  |  | (1,526,731 | )
Total |  |  | (567,960 | ) |  |  | (813,361 | ) |  |  | (974,163 | )

| k) | Other operating expenses

|  | 2017 |  |  | 2016 |  |  | 2015 |
Net increase in provisions (1) |  |  | (141,385 | ) |  |  | (95,840 | ) |  |  | (15,897 | )
Recovery of insurance |  |  | 107,543 |  |  |  | 19,703 |  |  |  | - |
Acquisition of the Rights of the Arbitration Proceeding (Note 16.a) |  |  | - |  |  |  | - |  |  |  | (324,390 | )
Write off of other receivables |  |  | (69,391 | ) |  |  | - |  |  |  | - |
Others |  |  | (1,144 | ) |  |  | 10,594 |  |  |  | 4,836 |
Total |  |  | (104,377 | ) |  |  | (65,543 | ) |  |  | (335,451 | )

(1) | Includes judicial costs

| l) | Other financial assets at fair value through profit or loss

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
Government bonds |  |  | 148,130 |  |  |  | - |  |  |  | 55,508 |  |  |  | 84,857 |
Private bonds |  |  | 72,099 |  |  |  | - |  |  |  | - |  |  |  | 58,015 |
Total |  |  | 220,229 |  |  |  | - |  |  |  | 55,508 |  |  |  | 142,872 |

Other financial assets at fair value through profit or loss are denominated in US dollars.

| m) | Other financial assets at amortized cost

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
VRD bonds |  |  | 7,111 |  |  |  | 14,473 |  |  |  | 14,900 |  |  |  | 21,584 |
Government Bonds (Argentine National Treasury Notes) |  |  | 922,314 |  |  |  | - |  |  |  | - |  |  |  | - |
Government Bonds (Central Bank Notes) |  |  | 516,003 |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  |  | 1,445,428 |  |  |  | 14,473 |  |  |  | 14,900 |  |  |  | 21,584 |

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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

The breakdown of Other financial assets at amortized cost based on its currency of origin is the following:

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
Argentine Pesos |  |  | 523,114 |  |  |  | 14,473 |  |  |  | 14,900 |  |  |  | 21,584 |
U.S. Dollars |  |  | 922,314 |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  |  | 1,445,428 |  |  |  | 14,473 |  |  |  | 14,900 |  |  |  | 21,584 |

| n) | Payroll and social security taxes payable

|  | 2017 |  |  | 2016 |
|  | Current |  |  | Non Current |  |  | Current |  |  | Non Current |
Vacation benefit payable |  |  | 104,739 |  |  |  | - |  |  |  | 82,476 |  |  |  | - |
Annual bonus payable |  |  | 84,895 |  |  |  | - |  |  |  | 50,788 |  |  |  | - |
Social security taxes payable |  |  | 45,573 |  |  |  | - |  |  |  | 35,595 |  |  |  | - |
Total |  |  | 235,207 |  |  |  | - |  |  |  | 168,859 |  |  |  | - |

| 9. | INVESTMENT IN ASSOCIATES

|  | 2017 |  |  | 2016 |
|  | Cost value |  |  | Book value |  |  | Book value |
Emprendimientos de Gas del Sur S.A. (in liquidation) ("EGS") |  |  | 116 |  |  |  | 367 |  |  |  | 357 |
Transporte y Servicios de Gas en Uruguay S.A. ("TGU") |  |  | 5 |  |  |  | 2,697 |  |  |  | 2,517 |
Subtotal |  |  | 121 |  |  |  | 3,064 |  |  |  | 2,874 |
Gas Link S.A. ("Link") |  |  | 503 |  |  |  | - |  |  |  | - |
Total |  |  | 624 |  |  |  | 3,064 |  |  |  | 2,874 |

On October 13, 2016, the liquidator of EGS resolved the distribution of a dividend in kind of Ps. 4,673 through the partial transfer of the credit that EGS had with TGS as a result of the sale of the Connection Gas Pipeline, which was implemented through TGS and TGU Assignment Agreements, which had full effects on November 4, 2016.

| 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 that would extend until December 31, 2018. For further information, see Note 22.
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 as of December 31, 2017 is the following:
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

|  | 2017 |
Consolidated Statements of financial position |  |  |
Non Current assets |  |  | - |
Current Assets |  |  | 67,705 |
Total Assets |  |  | 67,705 |
Non Current Liabilities |  |  | - |
Current Liabilities |  |  | 67,544 |
Total Liabilities |  |  | 67,544 |
Consolidated Statements of comprehensive income |  |  |  |
Gross profit |  |  | 540 |
Operating loss |  |  | (17 | )
Net Financial results |  |  | 153 |
Comprehensive Income |  |  | 135 |

| 11. | PROFIT FROM ASSOCIATES

|  | 2017 |  |  | 2016 |  |  | 2015 |
EGS |  |  | 11 |  |  |  | 780 |  |  |  | 177 |
TGU |  |  | 179 |  |  |  | 742 |  |  |  | 77 |
Total |  |  | 190 |  |  |  | 1,522 |  |  |  | 254 |

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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

| 12. | PROPERTY, PLANT AND EQUIPMENT

|  | 2017 |
|  | 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 at the end of the year |  |  | Net book value |
Pipelines |  |  | 3,646,711 |  |  |  | - |  |  |  | - |  |  |  | 275,806 |  |  |  | 3,922,517 |  |  |  | 1,606,593 |  |  |  | - |  |  |  | 91,452 |  |  |  | 2.2 |  |  |  | 1,698,045 |  |  |  | 2,224,472 |
Compressor plants |  |  | 1,564,820 |  |  |  | 1,418 |  |  |  | 11,274 |  |  |  | 289,319 |  |  |  | 1,844,283 |  |  |  | 993,793 |  |  |  | 8,988 |  |  |  | 99,716 |  |  | 3.3 to 25 |  |  |  | 1,084,521 |  |  |  | 759,762 |
Other plants |  |  | 2,868 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,868 |  |  |  | 651 |  |  |  | - |  |  |  | 97 |  |  |  | 3.3 |  |  |  | 748 |  |  |  | 2,120 |
Stations of regulation and/or measurement of pressure |  |  | 136,288 |  |  |  | - |  |  |  | - |  |  |  | 5,594 |  |  |  | 141,882 |  |  |  | 93,207 |  |  |  | - |  |  |  | 5,432 |  |  |  | 4.0 |  |  |  | 98,639 |  |  |  | 43,243 |
Other technical installations |  |  | 28,861 |  |  |  | - |  |  |  | - |  |  |  | 2,686 |  |  |  | 31,547 |  |  |  | 21,944 |  |  |  | - |  |  |  | 987 |  |  |  | 6.7 |  |  |  | 22,931 |  |  |  | 8,616 |
Subtotal assets related to natural gas transportation service |  |  | 5,379,548 |  |  |  | 1,418 |  |  |  | 11,274 |  |  |  | 573,405 |  |  |  | 5,943,097 |  |  |  | 2,716,188 |  |  |  | 8,988 |  |  |  | 197,684 |  |  |  |  |  |  |  | 2,904,884 |  |  |  | 3,038,213 |
Assets related to natural gas upstream service |  |  | 972,061 |  |  |  | - |  |  |  | - |  |  |  | 143,034 |  |  |  | 1,115,095 |  |  |  | 140,574 |  |  |  | - |  |  |  | 88,124 |  |  | 3.3 to 25 |  |  |  | 228,698 |  |  |  | 886,397 |
Assets related to liquids production and commercialization service |  |  | 782,595 |  |  |  | - |  |  |  | - |  |  |  | 104,059 |  |  |  | 886,654 |  |  |  | 582,934 |  |  |  | - |  |  |  | 17,290 |  |  |  | 3.3 |  |  |  | 600,224 |  |  |  | 286,430 |
Lands |  |  | 10,922 |  |  |  | 4 |  |  |  | - |  |  |  | - |  |  |  | 10,926 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 10,926 |
Buildings and constructions |  |  | 206,842 |  |  |  | - |  |  |  | - |  |  |  | 22,734 |  |  |  | 229,576 |  |  |  | 106,479 |  |  |  | - |  |  |  | 4,597 |  |  |  | 2.0 |  |  |  | 111,076 |  |  |  | 118,500 |
Fittings and features in building |  |  | 34,398 |  |  |  | - |  |  |  | - |  |  |  | 265 |  |  |  | 34,663 |  |  |  | 7,028 |  |  |  | - |  |  |  | 1,452 |  |  |  | 4.0 |  |  |  | 8,480 |  |  |  | 26,183 |
Machinery, equipment and tools |  |  | 55,004 |  |  |  | 51,268 |  |  |  | - |  |  |  | 929 |  |  |  | 107,201 |  |  |  | 40,715 |  |  |  | - |  |  |  | 4,837 |  |  | 6.7 to 10 |  |  |  | 45,552 |  |  |  | 61,649 |
Computers and Telecommunication systems |  |  | 470,349 |  |  |  | - |  |  |  | - |  |  |  | 49,345 |  |  |  | 519,694 |  |  |  | 364,652 |  |  |  | - |  |  |  | 31,047 |  |  | 6.7 to 20 |  |  |  | 395,699 |  |  |  | 123,995 |
Vehicles |  |  | 44,900 |  |  |  | 30,577 |  |  |  | 1,972 |  |  |  | - |  |  |  | 73,505 |  |  |  | 28,949 |  |  |  | 1,972 |  |  |  | 6,883 |  |  |  | 20 |  |  |  | 33,860 |  |  |  | 39,645 |
Furniture |  |  | 14,857 |  |  |  | - |  |  |  | - |  |  |  | 143 |  |  |  | 15,000 |  |  |  | 12,973 |  |  |  | - |  |  |  | 231 |  |  |  | 10 |  |  |  | 13,204 |  |  |  | 1,796 |
Capitalization of foreign exchange loss |  |  | 177,272 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 177,272 |  |  |  | 113,795 |  |  |  | - |  |  |  | 6,275 |  |  |  | 4 |  |  |  | 120,070 |  |  |  | 57,202 |
Materials |  |  | 482,546 |  |  |  | 312,381 |  |  |  | 5,528 |  |  |  | (166,840 | ) |  |  | 622,559 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 622,559 |
Line pack |  |  | 13,872 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 13,872 |  |  |  | 1,618 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,618 |  |  |  | 12,254 |
Works in progress |  |  | 804,083 |  |  |  | 1,117,603 |  |  |  | - |  |  |  | (727,074 | ) |  |  | 1,194,612 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,194,612 |
Total |  |  | 9,449,249 |  |  |  | 1,513,251 |  |  |  | 18,774 |  |  |  | - |  |  |  | 10,943,726 |  |  |  | 4,115,905 |  |  |  | 10,960 |  |  |  | 358,420 |  |  |  |  |  |  |  | 4,463,365 |  |  |  | 6,480,361 |

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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

|  | 2016 |
|  | Cost |  |  | Depreciation |  |  |  |
Cuenta principal |  | 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 at the end of the year |  |  | Net book value |
Pipelines |  |  | 3,644,917 |  |  |  | - |  |  |  | - |  |  |  | 1,794 |  |  |  | 3,646,711 |  |  |  | 1,520,415 |  |  |  | - |  |  |  | 86,178 |  |  |  | 2.2 |  |  |  | 1,606,593 |  |  |  | 2,040,118 |
Compressor plants |  |  | 1,512,294 |  |  |  | 306 |  |  |  | - |  |  |  | 52,220 |  |  |  | 1,564,820 |  |  |  | 910,354 |  |  |  | - |  |  |  | 83,439 |  |  | 3.3 to 25 |  |  |  | 993,793 |  |  |  | 571,027 |
Other plants |  |  | 2,868 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,868 |  |  |  | 554 |  |  |  | - |  |  |  | 97 |  |  |  | 3.3 |  |  |  | 651 |  |  |  | 2,217 |
Stations of regulation and/or measurement of pressure |  |  | 129,228 |  |  |  | - |  |  |  | - |  |  |  | 7,060 |  |  |  | 136,288 |  |  |  | 87,972 |  |  |  | - |  |  |  | 5,235 |  |  |  | 4.0 |  |  |  | 93,207 |  |  |  | 43,081 |
Other technical installations |  |  | 28,368 |  |  |  | - |  |  |  | - |  |  |  | 493 |  |  |  | 28,861 |  |  |  | 20,978 |  |  |  | - |  |  |  | 966 |  |  |  | 6.7 |  |  |  | 21,944 |  |  |  | 6,917 |
Subtotal assets related to natural gas transportation service |  |  | 5,317,675 |  |  |  | 306 |  |  |  | - |  |  |  | 61,567 |  |  |  | 5,379,548 |  |  |  | 2,540,273 |  |  |  | - |  |  |  | 175,915 |  |  |  |  |  |  |  | 2,716,188 |  |  |  | 2,663,360 |
Assets related to natural gas upstream service |  |  | 206,576 |  |  |  | 750,389 |  |  |  | - |  |  |  | 15,096 |  |  |  | 972,061 |  |  |  | 119,046 |  |  |  | - |  |  |  | 21,528 |  |  | 3.3 to 25 |  |  |  | 140,574 |  |  |  | 831,487 |
Assets related to liquids production and commercialization service |  |  | 756,700 |  |  |  | - |  |  |  | - |  |  |  | 25,895 |  |  |  | 782,595 |  |  |  | 570,286 |  |  |  | - |  |  |  | 12,648 |  |  |  | 3.3 |  |  |  | 582,934 |  |  |  | 199,661 |
Lands |  |  | 6,279 |  |  |  | 4,935 |  |  |  | 292 |  |  |  | - |  |  |  | 10,922 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 10,922 |
Buildings and constructions |  |  | 198,796 |  |  |  | - |  |  |  | - |  |  |  | 8,046 |  |  |  | 206,842 |  |  |  | 102,436 |  |  |  | - |  |  |  | 4,043 |  |  |  | 2.0 |  |  |  | 106,479 |  |  |  | 100,363 |
Fittings and features in building |  |  | 33,897 |  |  |  | - |  |  |  | - |  |  |  | 501 |  |  |  | 34,398 |  |  |  | 5,598 |  |  |  | - |  |  |  | 1,430 |  |  |  | 4.0 |  |  |  | 7,028 |  |  |  | 27,370 |
Machinery, equipment and tools |  |  | 48,655 |  |  |  | 5,780 |  |  |  | - |  |  |  | 569 |  |  |  | 55,004 |  |  |  | 38,370 |  |  |  | - |  |  |  | 2,345 |  |  | 6.7 to 10 |  |  |  | 40,715 |  |  |  | 14,289 |
Computers and Telecommunication systems |  |  | 419,541 |  |  |  | 660 |  |  |  | - |  |  |  | 50,148 |  |  |  | 470,349 |  |  |  | 308,394 |  |  |  | - |  |  |  | 56,258 |  |  | 6.7 to 20 |  |  |  | 364,652 |  |  |  | 105,697 |
Vehicles |  |  | 33,072 |  |  |  | 12,281 |  |  |  | 453 |  |  |  | - |  |  |  | 44,900 |  |  |  | 24,351 |  |  |  | 389 |  |  |  | 4,987 |  |  |  | 20 |  |  |  | 28,949 |  |  |  | 15,951 |
Furniture |  |  | 13,485 |  |  |  | - |  |  |  | - |  |  |  | 1,372 |  |  |  | 14,857 |  |  |  | 12,852 |  |  |  | - |  |  |  | 121 |  |  |  | 10 |  |  |  | 12,973 |  |  |  | 1,884 |
Capitalization of foreign exchange loss |  |  | 177,272 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 177,272 |  |  |  | 106,272 |  |  |  | - |  |  |  | 7,523 |  |  |  | 4 |  |  |  | 113,795 |  |  |  | 63,477 |
Materials |  |  | 356,008 |  |  |  | 209,239 |  |  |  | 6,845 |  |  |  | (75,856 | ) |  |  | 482,546 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 482,546 |
Line pack |  |  | 13,872 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 13,872 |  |  |  | 1,618 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,618 |  |  |  | 12,254 |
Works in progress |  |  | 467,188 |  |  |  | 424,233 |  |  |  | - |  |  |  | (87,338 | ) |  |  | 804,083 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 804,083 |
Total 2016 |  |  | 8,049,016 |  |  |  | 1,407,823 |  |  |  | 7,590 |  |  |  | - |  |  |  | 9,449,249 |  |  |  | 3,829,496 |  |  |  | 389 |  |  |  | 286,798 |  |  |  |  |  |  |  | 4,115,905 |  |  |  | 5,333,344 |

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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

|  | 2015 |
|  | Cost |  |  | Depreciatin |  |  |  |
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 at the end of the year |  |  | Net book value |
Pipelines |  |  | 3,631,240 |  |  |  | - |  |  |  | - |  |  |  | 13,677 |  |  |  | 3,644,917 |  |  |  | 1,434,424 |  |  |  | - |  |  |  | 85,991 |  |  |  | 2.2 |  |  |  | 1,520,415 |  |  |  | 2,124,502 |
Compressor plants |  |  | 1,436,084 |  |  |  | - |  |  |  | - |  |  |  | 76,210 |  |  |  | 1,512,294 |  |  |  | 834,255 |  |  |  | - |  |  |  | 76,099 |  |  | 3.3 to 25 |  |  |  | 910,354 |  |  |  | 601,940 |
Other plants |  |  | 2,868 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,868 |  |  |  | 456 |  |  |  | - |  |  |  | 98 |  |  |  | 3.3 |  |  |  | 554 |  |  |  | 2,314 |
Stations of regulation and/or measurement of pressure |  |  | 129,228 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 129,228 |  |  |  | 82,806 |  |  |  | - |  |  |  | 5,166 |  |  |  | 4.0 |  |  |  | 87,972 |  |  |  | 41,256 |
Other technical installations |  |  | 28,355 |  |  |  | - |  |  |  | - |  |  |  | 13 |  |  |  | 28,368 |  |  |  | 20,002 |  |  |  | - |  |  |  | 976 |  |  |  | 6.7 |  |  |  | 20,978 |  |  |  | 7,390 |
Subtotal assets related to natural gas transportation service |  |  | 5,227,775 |  |  |  | - |  |  |  | - |  |  |  | 89,900 |  |  |  | 5,317,675 |  |  |  | 2,371,943 |  |  |  | - |  |  |  | 168,330 |  |  |  |  |  |  |  | 2,540,273 |  |  |  | 2,777,402 |
Assets related to natural gas upstream service |  |  | 205,773 |  |  |  | 423 |  |  |  | 566 |  |  |  | 946 |  |  |  | 206,576 |  |  |  | 111,667 |  |  |  | 536 |  |  |  | 7,915 |  |  | 2.2 to 25 |  |  |  | 119,046 |  |  |  | 87,530 |
Assets related to liquids |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
production and commercialization service |  |  | 695,548 |  |  |  | - |  |  |  | 313 |  |  |  | 61,465 |  |  |  | 756,700 |  |  |  | 526,427 |  |  |  | 311 |  |  |  | 44,170 |  |  |  | 5.9 |  |  |  | 570,286 |  |  |  | 186,414 |
Lands |  |  | 6,279 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6,279 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6,279 |
Buildings and constructions |  |  | 196,204 |  |  |  | - |  |  |  | - |  |  |  | 2,592 |  |  |  | 198,796 |  |  |  | 97,700 |  |  |  | - |  |  |  | 4,736 |  |  |  | 2.0 |  |  |  | 102,436 |  |  |  | 96,360 |
Fittings and features in building |  |  | 33,975 |  |  |  | - |  |  |  | 242 |  |  |  | 164 |  |  |  | 33,897 |  |  |  | 4,319 |  |  |  | 142 |  |  |  | 1,421 |  |  |  | 4.0 |  |  |  | 5,598 |  |  |  | 28,299 |
Machinery, equipment and tools |  |  | 46,917 |  |  |  | 1,130 |  |  |  | 6 |  |  |  | 614 |  |  |  | 48,655 |  |  |  | 36,400 |  |  |  | 6 |  |  |  | 1,976 |  |  | 6.7 to 20 |  |  |  | 38,370 |  |  |  | 10,285 |
Computers and Telecommunication systems |  |  | 389,779 |  |  |  | - |  |  |  | - |  |  |  | 29,762 |  |  |  | 419,541 |  |  |  | 286,351 |  |  |  | - |  |  |  | 22,043 |  |  | 6.7 to 20 |  |  |  | 308,394 |  |  |  | 111,147 |
Vehicles |  |  | 31,064 |  |  |  | 2,403 |  |  |  | 395 |  |  |  | - |  |  |  | 33,072 |  |  |  | 21,571 |  |  |  | 395 |  |  |  | 3,175 |  |  | 10 and 20 |  |  |  | 24,351 |  |  |  | 8,721 |
Furniture |  |  | 13,147 |  |  |  | 62 |  |  |  | - |  |  |  | 276 |  |  |  | 13,485 |  |  |  | 12,743 |  |  |  | - |  |  |  | 109 |  |  |  | 10 |  |  |  | 12,852 |  |  |  | 633 |
Capitalization of foreign exchange loss |  |  | 177,272 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 177,272 |  |  |  | 98,754 |  |  |  | - |  |  |  | 7,518 |  |  |  | 4 |  |  |  | 106,272 |  |  |  | 71,000 |
Materials |  |  | 286,677 |  |  |  | 161,986 |  |  |  | 8,349 |  |  |  | (84,306 | ) |  |  | 356,008 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 356,008 |
Line pack |  |  | 13,872 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 13,872 |  |  |  | 1,618 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,618 |  |  |  | 12,254 |
Works in progress |  |  | 327,282 |  |  |  | 241,319 |  |  |  | - |  |  |  | (101,413 | ) |  |  | 467,188 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 467,188 |
Total 2015 |  |  | 7,651,564 |  |  |  | 407,323 |  |  |  | 9,871 |  |  |  | - |  |  |  | 8,049,016 |  |  |  | 3,569,493 |  |  |  | 1,390 |  |  |  | 261,393 |  |  |  |  |  |  |  | 3,829,496 |  |  |  | 4,219,520 |
Total 2014 |  |  | 7,282,950 |  |  |  | 373,390 |  |  |  | 4,776 |  |  |  | - |  |  |  | 7,651,564 |  |  |  | 3,316,042 |  |  |  | 860 |  |  |  | 254,311 |  |  |  |  |  |  |  | 3,569,493 |  |  |  |  |

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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

As of December 31, 2017 and 2016, the assets allocated to the natural gas treatment and compression service include the following amounts in which the Company is the financial lease under the terms of leasing contracts:

|  | 2017 |  |  | 2016 |
Cost-Capitalized financial leasing |  |  | 750,389 |  |  |  | 750,389 |
Accumulated depreciation |  |  | (68,503 | ) |  |  | (20,148 | )
Total |  |  | 681,886 |  |  |  | 730,241 |

The financial leasing agreement expires in September 2026, the date on which the purchase options provided for in the contracts may be exercised.

| 13. | LOANS

Short-term and long-term loans as of December 31, 2017 and 2016 comprise the following:

|  | 2017 |  |  | 2016 |
Current loans: |  |  |  |  |  |
2014 EMTN Program: Series 1 Notes |  |  | 1,190,979 |  |  |  | - |
Interest payable |  |  | 37,667 |  |  |  | 31,269 |
Other financial loans |  |  | - |  |  |  | 1,466 |
Financial leasing |  |  | 100,624 |  |  |  | 112,661 |
Total current loans |  |  | 1,329,270 |  |  |  | 145,396 |
Non-current loans: |  |  |  |  |  |  |  |
2014 EMTN Program: Series 1 Notes |  |  | 2,379,019 |  |  |  | 3,036,084 |
Financial leasing |  |  | 790,741 |  |  |  | 735,520 |
Total non-current loans |  |  | 3,169,760 |  |  |  | 3,771,604 |
Total loans (1) |  |  | 4,499,030 |  |  |  | 3,917,000 |

(1) Issuance expenses net.
The breakdown of loans based on its currency of origin is the following:

|  | 2017 |  |  | 2016 |
Argentine pesos |  |  | - |  |  |  | 1,466 |
U.S. Dollars |  |  | 4,499,030 |  |  |  | 3,915,534 |
Total loans |  |  | 4,499,030 |  |  |  | 3,917,000 |

The activity of the loans as of December 31, 2017 and 2016 is the following:
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

|  | 2017 |  |  | 2016 |
Beginning balance |  |  | 3,917,000 |  |  |  | 3,335,192 |
Accrued interest |  |  | 381,390 |  |  |  | 362,127 |
Effect of foreign exchange rate change |  |  | 500,729 |  |  |  | 710,651 |
VAT unpaid installments |  |  | 4,883 |  |  |  | - |
Financial leasing |  |  | - |  |  |  | 750,389 |
Payment of principal (1) |  |  | (78,384 | ) |  |  | (916,490 | )
Interest paid (2) |  |  | (226,588 | ) |  |  | (324,869 | )
Ending balance |  |  | 4,499,030 |  |  |  | 3,917,000 |

(1) As of December 31, 2017, Ps. 37,951 were cancelled through the offseting of debit balances maintained with the creditor (Pampa Energía).
(2) As of December 31, 2017, Ps. 44,457 were cancelled through the offseting of debit balances maintained with the creditor (Pampa Energía).
The maturities of the current and non-current loans (without including issuance cost) as of December 31, 2017 are as follows:

|  | 2017 |
Less than 1 year |  |  | 1,233,966 |
From 01/01/2019 to 12/31/2019 |  |  | 1,190,976 |
From 01/01/2020 to 12/31/2020 |  |  | 1,190,976 |
Ending balance |  |  | 3,615,918 |

The following are the maturities of the finance leases in force as of December 31, 2017:

|  | 2017 |
Less than 1 year |  |  | 100,624 |
From 1/01/2019 to 12/31/2019 |  |  | 78,574 |
From 1/01/2020 to 12/31/2020 |  |  | 85,171 |
From 1/01/2021 to 12/31/2021 |  |  | 92,322 |
From 1/01/2022 onwards |  |  | 534,674 |
Ending balance |  |  | 891,365 |

The following table sets reconciliation between the total of future minimum lease payments as of December 31, 2017, and their present book value:

|  | 2017 |
Less than 1 year |  |  | 167,634 |
From 1/01/2019 to 12/31/2019 |  |  | 139,513 |
From 1/01/2020 to 12/31/2020 |  |  | 139,513 |
From 1/01/2021 to 12/31/2021 |  |  | 139,513 |
From 1/01/2022 onwards |  |  | 641,414 |
Total minimum future payments |  |  | 1,227,587 |
Future financial charges on finance leases |  |  | (336,222 | )
Book value financial leases |  |  | 891,365 |

Issuance of notes under the 2014 Global Program (the “2014 EMTN Program”):
The 2014 EMTN Program provides for the issuance of up to a maximum principal amount of U.S.$400 million in notes, and was authorized by resolutions of an Extraordinary Shareholders’ Meeting dated April 25, 2013, and by resolutions of its Board of Directors adopted on July 23, 2013 and December 23, 2013. The program was also authorized by the CNV on January 3, 2014, after the issuance of Resolution No. 17,262.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

As it is mentioned above, on January 10, 2014 TGS launched an offer for a voluntary exchange. The exchange offer settled on February 7, 2014. TGS accepted 67% of the 2007 Notes. For this reason, on February 7, 2014, the Company issued its 2014 Notes in aggregate principal amount of U.S.$255,451,506 (the “2014 Notes”) under its 2014 EMTN Program. The main conditions of 2014 Notes are as follows:

| 2014 Notes
Amount in U.S.$ | 255,451,506
Interest rate | 9.625% annual
| Scheduled payment date | Percentage of original principal amount
Amortization | May 14, 2014 | 25%
| May 14, 2018 | 25%
| May 14, 2019 | 25%
| May 14, 2020 | 25%
Frequency of payment | Interest Semiannual, payable el May 14 and November 14 of each year.
Guarantor | None

The 2014 Notes are traded in the BCBA, the MAE and the Euro MTF of the Luxembourg Exchange.
The terms and conditions of the 2014 Notes are similar to those applied to the 2007 Notes, having not changed financial covenants with respect to those effective for the 2007 Notes. According to the criteria established by IAS 39, the exchange offer was not accounted for as an extinguishment of financial liabilities, and thus, the costs paid are amortized over the remaining life of the 2014 Notes.
The book values are based on cash flows discounted at an effective rate of 10.126%.
Covenants:
The 2014 Notes contain certain restrictive covenants that, among other things, limit the ability of the Company to (i) incur additional indebtedness, (ii) pay dividend, (iii) issue guarantees, (iv) dispose certain assets and (v) make certain related party transactions. The Company was in compliance with all covenants of the 2014 Notes as of the December 31, 2017.
The Company may incur in additional indebtedness as long as (i) after issuing it, 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 or lower than 3.75:1; (ii) it is incurred to refinance outstanding debt and (iii) it is originated in advances from customers.
Additionally, the Company may pay dividends as long as (i) the Company is not in default under 2014 Notes, (ii) immediately after any dividend payment, the Company would be able to incur in additional indebtedness pursuant to item (i) and (ii) of the preceding paragraph.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

Financial Leasing
On August 11, 2016, the Company entered into a financial leasing agreement with Pampa Energía. The agreement is valid for 10 years. During 9 years and 11 months TGS pays Pampa Energía a monthly fee of U.S.$623,457, without taxes, with an option to purchase in month 120 for the same amount.

| 14. | INCOME TAX AND DEFERRED TAX

Tax Reform
The Tax Reform recently sanctioned in Argentina will bring 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. The main changes are the following:
Reduction in the applicable rate
Until the fiscal year ended on December 31, 2017, the income tax rate remains 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 through 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 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 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.
The effects as of December 31, 2017 of this change in the rate on the measurement of deferred assets and liabilities are detailed below in the section “Deferred tax”.
Tax adjustment for inflation
It is provided that for the determination of the net taxable income of the periods beginning on or after January 1, 2018, the adjustment for inflation obtained by 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 WPI, according to the tables drawn up by the tax authority for these purposes, will accumulate (a) a percentage higher than 100% in the 36 months prior to the end of the year, or (b) in the first and second fiscal year beginning on or after January 1, 2018, an accumulated variation, calculated from the first of them and until the close of each fiscal year, which exceeds 33% or 66%, respectively.
Cost adjustment of acquisitions and investments made in fiscal years beginning on or after January 1, 2018
A cost increase 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 establishes the possibility of carrying out the 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 is optional, and to carry out the tax revaluation, a special tax must be paid. The special tax will vary between 8% and 15%, depending on the type of asset to be re-evaluated and it will be calculated between the difference of the residual revalued tax value and the tax residual value of origin.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

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 TOMPI .
The taxpayers that exercise the revaluation option shall waive to promote any judicial or administrative process for which the adjustment for tax inflation is claimed, if any. The exercise of the revaluation option must be elected only once in the term established in the regulation.
As of the date of approval of these Consolidated Financial Statements, the Management has not yet decided whether it will make use of said option.
Deferred Tax
The reconciliation between the tax computed for tax purposes and the income tax expense charged to the statement of comprehensive income in the years ended December 31, 2017, 2016 and 2015 is as follows:

|  | 2017 |  |  | 2016 |  |  | 2015 |
Estimated current income tax (expense) / gain |  |  | (1,498,885 | ) |  |  | (482,721 | ) |  |  | 68,626 |
Deferred income tax |  |  | 143,855 |  |  |  | (6,583 | ) |  |  | 44,927 |
Income tax (expense) / gain |  |  | (1,355,030 | ) |  |  | (489,304 | ) |  |  | 113,553 |

The analysis of the net deferred tax assets and liabilities is as follows:

|  | 2017 |  |  | 2016 |
Deferred tax assets: |  |  |  |  |  |
Deferred tax assets to be recovered after more than 12 months |  |  | 276,751 |  |  |  | 375,430 |
Deferred tax assets to be recovered after less than 12 months |  |  | 26,880 |  |  |  | 12,184 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Deferred tax liabilities to be recovered after more than 12 months |  |  | (522,764 | ) |  |  | (791,823 | )
Deferred tax liabilities to be recovered after less than 12 months |  |  | (53,729 | ) |  |  | (12,507 | )
Deferred tax liabilities, net |  |  | (272,862 | ) |  |  | (416,716 | )

The components of the net deferred tax assets and liabilities as of December 31, 2017, 2016 and 2015 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 |  |  | Income tax loss carryforward |  |  | Total |
As of December 31, 2015 |  |  | 1,218 |  |  |  | 5,261 |  |  |  | 38 |  |  |  | 71,360 |  |  |  | - |  |  |  | 58,936 |  |  |  | 136,813 |
Charge in results |  |  | 5,454 |  |  |  | (3,733 | ) |  |  | - |  |  |  | 26,846 |  |  |  | 281,170 |  |  |  | (58,936 | ) |  |  | 250,801 |
As of December 31, 2016 |  |  | 6,672 |  |  |  | 1,528 |  |  |  | 38 |  |  |  | 98,206 |  |  |  | 281,170 |  |  |  | - |  |  |  | 387,614 |
Charge in results |  |  | (6,672 | ) |  |  | (1,528 | ) |  |  | (38 | ) |  |  | (21,784 | ) |  |  | (53,961 | ) |  |  | - |  |  |  | (83,983 | )
As of December 31, 2017 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 76,422 |  |  |  | 227,209 |  |  |  | - |  |  |  | 303,631 |

Deferred tax liabilities |  | Deferred sales |  |  | Loans |  |  | Property, plant and equipment |  |  | Cash and cash equivalents |  |  | Inventories |  |  | Total |
As of December 31, 2015 |  |  | 46 |  |  |  | (6,652 | ) |  |  | (539,622 | ) |  |  | (719 | ) |  |  | - |  |  |  | (546,947 | )
Charge in results |  |  | - |  |  |  | 1,900 |  |  |  | (252,201 | ) |  |  | (7,082 | ) |  |  | - |  |  |  | (257,383 | )
As of December 31, 2016 |  |  | 46 |  |  |  | (4,752 | ) |  |  | (791,823 | ) |  |  | (7,801 | ) |  |  | - |  |  |  | (804,330 | )
Charge in results |  |  | (46 | ) |  |  | 2,272 |  |  |  | 229,318 |  |  |  | (3,350 | ) |  |  | (357 | ) |  |  | 227,837 |
As of December 31, 2017 |  |  | - |  |  |  | (2,480 | ) |  |  | (562,505 | ) |  |  | (11,151 | ) |  |  | (357 | ) |  |  | (576,493 | )

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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

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, 2017, 2016 and 2015 as follows:

|  | 2017 |  |  | 2016 |  |  | 2015 |
Pre-tax income |  |  | 4,148,296 |  |  |  | 1,419,982 |  |  |  | (285,662 | )
Statutory income tax rate |  |  | 35 | % |  |  | 35 | % |  |  | 35 | %
Pre-tax income at statutory income tax rate |  |  | (1,451,904 | ) |  |  | (496,994 | ) |  |  | 99,982 |
Tax effects due to: |  |  |  |  |  |  |  |  |  |  |  |
-Change in the tax rate (1) |  |  | 102,634 |  |  |  | - |  |  |  | - |
-Non-taxable income or non-deductible expenses |  |  | (5,316 | ) |  |  | 7,690 |  |  |  | 13,571 |
-Others |  |  | (444 | ) |  |  | - |  |  |  | - |
Income tax expense |  |  | (1,355,030 | ) |  |  | (489,304 | ) |  |  | 113,553 |

(1) Corresponds to the effect of the change in the enacted tax rate on the net deferred tax liability according to the aforementioned.

| 15. | PROVISIONS

|  | For legal claims and others (1) |  |
Balances as of 12/31/2014 |  |  | 150,347 |  |
Additions |  |  | 51,929 |  | (1)
Uses |  |  | (45,963 | ) |
Reversals |  |  | (5,727 | ) | (2)
Balances as of 12/31/2015 |  |  | 150,586 |  |
Additions |  |  | 115,056 |  | (1)
Uses |  |  | (27,986 | ) |
Reversals |  |  | (16,223 | ) | (2)
Balances as of 12/31/2016 |  |  | 221,433 |  |
Additions |  |  | 133,745 |  | (1)
Uses |  |  | (153,220 | ) |
Reversals |  |  | (5,609 | ) | (3)
Balances as of 12/31/2017 |  |  | 196,349 |  |

(1) Ps. 62,458, Ps. 76,603 and Ps. 21,625 are included in "Other operating expenses" and Ps. 71,287, Ps. 38,453 and Ps. 30,304 in "Financial expenses" for the years ended on December 31, 2017, 2016 and 2015, respectively.
(2) The total amount is recorded in "Other operating income"
(3) Ps. 1,420, Ps. 14,852 and Ps. 5,727 are included in "Other operating expenses" and Ps. 4,189 and Ps. 1,371 in "Financial expenses" for the years 2017, 2016 and 2015.
The total amount of the Provisions are included in current liabilities.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

| 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.

| 1.1. | 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 76%, 79% and 84% of the segment’s total revenues for the years ended December 31, 2017, 2016 and 2015, respectively. Total revenues denominated in Argentine Pesos accounted for 51%, 43% and 40% for the years ended December 31, 2017, 2016 and 2015, 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.
As of December 31, 2017, for mitigating this foreign exchange risk, 57% 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, 2017, 2016 and 2015 would have decreased the Company’s income before tax for the year in Ps. 176.045, Ps. 306,961, and Ps. 244,418, 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.

Net liability position in US$ |  | 12/31/2017 |  |  | 12/31/2016 |  |  | 12/31/2015 |
U.S. dollars |  |  | (93,366 | ) |  |  | (192,574 | ) |  |  | (186,754 | )
Total |  |  | (93,366 | ) |  |  | (192,574 | ) |  |  | (186,754 | )
Decrease of financial results in Ps. |  |  |  |  |  |  |  |  |  |  |  |
Pesos |  |  | 176,045 |  |  |  | 306,961 |  |  |  | 244,418 |
Total |  |  | 176,045 |  |  |  | 306,961 |  |  |  | 244,418 |

Derivative Financial Instruments
To mitigate the foreign exchange risk, during the year 2015, the Company entered into forward purchase of US dollars, as well as investments in mutual funds linked to the US dollar in order to cover the exposure to the risk associated with the foreign exchange rate derived from its financial debt.
At the end of 2015, the net position is buying US dollars amounting to U.S.$52.5 million at a weighted average exchange rate of Ps. 11.65 which due in May 2016.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

| 1.2. | Interest rate risk

The Company’s interest rate risk arises from long-term borrowings. Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The interest rate profile of the Company’s borrowings is set out in Note 13. Currently, the Company’s exposure to cash flow interest rate risk is limited due to the fact that 100% of its outstanding financial indebtedness bears fixed interest rates.
As far as interest-bearing financial assets, most of the financial assets of the Company are investments made in mutual funds, public bonds and deposits remunerated in bank accounts. The risk of these instruments is low given the short-term nature and high liquidity in well-known financial institutions.
The following table shows a breakdown of the Company’s fixed-rate and floating-rate financial assets and liabilities as of December 31, 2017 and 2016:

|  | Financial assets (1) |  |  | Financial liabilities (2) |
|  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
Fix interest rate |  |  | 2,097,766 |  |  |  | - |  |  |  | 3,607,665 |  |  |  | 3,068,819 |
Variable interest rate |  |  | 21,584 |  |  |  | 39,465 |  |  |  | - |  |  |  | - |
Total |  |  | 2,119,350 |  |  |  | 39,465 |  |  |  | 3,607,665 |  |  |  | 3,068,819 |

(1) Includes mutual funds, LEBACs and bank accounts. Trade receivables do not bear interests, except for Ps. 21,584 and Ps. 36,484 which bears CER plus a spread of 8% as of December 31, 2017 and 2016, respectively.
(2) Includes loans, excluding issuance expenses.
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). These prices have historically been cyclical, reflecting overall economic conditions and changes in capacity within the industry, which may affect the profitability of companies engaged in this business.
Based on the volume of sales for the years ended December 31, 2017, 2016 and 2015, 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. 304,254 Ps.233,323 and Ps. 157,051 respectively. On the other hand, an increase of U.S.$50/ton in the international price would have had the opposite effect.
The Company does not currently use derivative financial instruments to mitigate the risks associated with international commodity price fluctuations.
Ethane is sold to PBB Polisur S.A. (“Polisur”) under a recently negotiated annual contract with a maturity date of May 31, 2018. Furthermore, due to the sharp decrease in the international price of the ethane, the gap between the selling price of TGS has increased against the price offer by the alternative Polisur’s alternative supplier. This gap, plus the expiration of the contract, it would be expected that the risk of lower price or lower volumes of ethane sales could be considered high.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

| 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. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, and other financial instruments.
The Company’s policy is to manage credit exposure to trading counterparties within defined trading limits.
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, 2017 and 2016, the balance of current and non-current trade receivables, net of allowances of doubtful accounts are as follows:

|  | 2017 |  |  | 2016 |
Current trade receivables |  |  | 2,033,540 |  |  |  | 1,246,142 |
Non-current trade receivables |  |  | 3,055 |  |  |  | 8,122 |
Allowances for doubtful accounts (1) |  |  | - |  |  |  | (19,703 | )
Total |  |  | 2,036,595 |  |  |  | 1,234,561 |

(1) Corresponds to the best estimate made by TGS according to what is mentioned in note 5.a.
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, 2017, 2016 and 2015 are as follows:

|  | 2017 |  |  | 2016 |  |  | 2015 |
|  | Revenues |  |  | Trade receivables |  |  | Revenues |  |  | Trade receivables |  |  | Revenues |
MetroGas |  |  | 1,188,059 |  |  |  | 209,426 |  |  |  | 597,041 |  |  |  | 70,319 |  |  |  | 268,626 |
Camuzzi Gas Pampeana S.A. |  |  | 873,176 |  |  |  | 153,163 |  |  |  | 358,756 |  |  |  | 51,908 |  |  |  | 154,209 |
Gas Natural BAN S.A. ("BAN") |  |  | 627,356 |  |  |  | 116,946 |  |  |  | 268,043 |  |  |  | 38,635 |  |  |  | 110,259 |
CAMMESA |  |  | 545,023 |  |  |  | 157,252 |  |  |  | 335,751 |  |  |  | 16,920 |  |  |  | - |
Pampa Energía |  |  | 28,643 |  |  |  | 882 |  |  |  | 27,353 |  |  |  | 5,943 |  |  |  | 27,681 |
Camuzzi Gas del Sur S.A. |  |  | 192,200 |  |  |  | 31,372 |  |  |  | 58,056 |  |  |  | 50,001 |  |  |  | 36,614 |

Revenues from Liquids Production and Commercialization customers (including those made on behalf of third parties, from whom the Company earns a commission and trade receivables (net of allowances of doubtful accounts) for the years ended December 31, 2017, 2016 and 2015 are as follows:
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

|  | 2017 |  |  | 2016 |  |  | 2015 |
|  | Revenues |  |  | Trade receivables |  |  | Revenues |  |  | Trade receivables |  |  | Revenues |
Polisur |  |  | 2,226,179 |  |  |  | 352,632 |  |  |  | 1,949,460 |  |  |  | 223,938 |  |  |  | 1,298,152 |
Petredec |  |  | 910,633 |  |  |  | 293,890 |  |  |  | - |  |  |  | - |  |  |  | 254,061 |
Petroleo Brasileiro |  |  | 62,254 |  |  |  | - |  |  |  | 513,912 |  |  |  | 57,335 |  |  |  | 95,618 |
Petrobras Global |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 44,058 |
Braskem Netherlands B.V. |  |  | - |  |  |  | - |  |  |  | 19,706 |  |  |  | - |  |  |  | 135,971 |
Trafigura Beheer B.V. |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 159,911 |
Geogas Trading S.A. |  |  | 324,540 |  |  |  | 54,014 |  |  |  | 460,234 |  |  |  | 125,303 |  |  |  | 112,392 |
Shell Trading (US) Company |  |  | 892,086 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |

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. The maximum exposure to credit risk is represented by the carrying amount of cash and cash equivalents in the statement of financial position. Below we include information regarding their credit rating at December 31, 2017:

Concept |  | (In thousands of pesos) |  |  | Credit rate |
Mutual funds |  |  | 899,570 |  |  | AA |
Mutual funds |  |  | 183,315 |  |  |  | A |
Mutual funds |  |  | 75,817 |  |  | BBB |
Mutual funds |  |  | 143,531 |  |  | AA- |
Mutual funds |  |  | 25,741 |  |  |  | B |
Public bonds (1) |  |  | 1,586,447 |  |  |  | B |

(1) Includes BONAR 2020, Letes and Lebacs
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, and (iv) other receivables, as of December 31, 2017 and 2016:
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

|  | December 31-2017 |
|  | Cash and cash equivalents |  |  | Other financial assets |  |  | Receivables (1) (2) |
Without specified maturity |  |  | 1,993,355 |  |  |  | - |  |  |  | 464 |
With specified maturity |  |  |  |  |  |  |  |  |  |  |  |
Overdue |  |  |  |  |  |  |  |  |  |  |  |
Until 12-31-2016 |  |  | - |  |  |  | - |  |  |  | 2,025 |
From 01-01-17 to 03-31-17 |  |  | - |  |  |  | - |  |  |  | 137 |
From 04-01-17 to 06-30-17 |  |  | - |  |  |  | - |  |  |  | 1,786 |
From 07-01-17 to 09-30-17 |  |  | - |  |  |  | - |  |  |  | 12,690 |
From 10-01-17 to 12-31-17 |  |  | - |  |  |  | - |  |  |  | 149,097 |
Total overdue |  |  | - |  |  |  | - |  |  |  | 165,735 |
Non-Due |  |  |  |  |  |  |  |  |  |  |  |
From 01-01-18 to 03-31-18 |  |  | 659,448 |  |  |  | 400,639 |  |  |  | 2,043,919 |
From 04-01-18 to 06-30-18 |  |  | - |  |  |  | 1,038,397 |  |  |  | 2,508 |
From 07-01-18 to 09-30-18 |  |  | - |  |  |  | 225,020 |  |  |  | 2,159 |
From 10-01-18 to 12-31-18 |  |  | - |  |  |  | 1,495 |  |  |  | 2,600 |
During 2019 |  |  | - |  |  |  | 5,714 |  |  |  | 11,937 |
During 2020 |  |  | - |  |  |  | 3,355 |  |  |  | - |
During 2021 |  |  | - |  |  |  | 3,044 |  |  |  | - |
During 2022 |  |  | - |  |  |  | 1,911 |  |  |  | - |
From 2023 onwards |  |  | - |  |  |  | 555 |  |  |  | - |
Total non-due |  |  | 659,448 |  |  |  | 1,680,130 |  |  |  | 2,063,123 |
Total with specified maturity |  |  | 659,448 |  |  |  | 1,680,130 |  |  |  | 2,228,858 |
Total |  |  | 2,652,803 |  |  |  | 1,680,130 |  |  |  | 2,229,322 |

(1) The total amount of the receivables without specified maturity is recorded in Non-current assets.
(2) Includes trade receivables and other receivables.

|  | December 31-2016 |
|  | Cash and cash equivalents |  |  | Other financial assets |  |  | Receivables (1) (2) |
Without specified maturity |  |  | 724,725 |  |  |  | - |  |  |  | 461 |
With specified maturity |  |  |  |  |  |  |  |  |  |  |  |
Overdue |  |  |  |  |  |  |  |  |  |  |  |
Until 12-31-2015 |  |  | - |  |  |  | - |  |  |  | 37,023 |
From 01-01-16 to 03-31-16 |  |  | - |  |  |  | - |  |  |  | 2,274 |
From 04-01-16 to 06-30-16 |  |  | - |  |  |  | - |  |  |  | 8,224 |
From 07-01-16 to 09-30-16 |  |  | - |  |  |  | - |  |  |  | 21,209 |
From 10-01-16 to 12-31-16 |  |  | - |  |  |  | - |  |  |  | 235,656 |
Total overdue |  |  | - |  |  |  | - |  |  |  | 304,386 |
Non-Due |  |  |  |  |  |  |  |  |  |  |  |
From 01-01-17 to 03-31-17 |  |  | 830,364 |  |  |  | 13,877 |  |  |  | 1,102,024 |
From 04-01-17 to 06-30-17 |  |  | - |  |  |  | 13,877 |  |  |  | 5,704 |
From 07-01-17 to 09-30-17 |  |  | - |  |  |  | 13,877 |  |  |  | 1,546 |
From 10-01-17 to 12-31-17 |  |  | - |  |  |  | 13,877 |  |  |  | 1,501 |
During 2018 |  |  | - |  |  |  | 142,872 |  |  |  | 11,893 |
During 2019 |  |  | - |  |  |  | - |  |  |  | 2,547 |
During 2020 |  |  | - |  |  |  | - |  |  |  | - |
During 2021 |  |  | - |  |  |  | - |  |  |  | - |
From 2022 onwards |  |  | - |  |  |  | - |  |  |  | - |
Total non-due |  |  | 830,364 |  |  |  | 198,380 |  |  |  | 1,125,215 |
Total with specified maturity |  |  | 830,364 |  |  |  | 198,380 |  |  |  | 1,429,601 |
Total |  |  | 1,555,089 |  |  |  | 198,380 |  |  |  | 1,430,062 |

(1) The total amount of the receivables without specified maturity is recorded in Non-current assets.
(2) Includes trade receivables and other receivables.
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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

| 1.5. | Liquidity risk

The Company is exposed to liquidity risks, including: risks associated with refinancing borrowings as they mature, the risk that borrowing facilities are not available to meet cash requirements and the risk that financial assets cannot readily be converted to cash without loss of value. Failure to manage financing risks could have a material impact on the Company’s cash flow and statement of financial position.
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 table below includes 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, 2017 and 2016. 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.

|  | December 31, 2017 |  |  |  |
|  | Loans |  |  | Other financial liabilities |  |  | Financial Leases |
Without specified maturity |  |  | - |  |  |  | - |  |  |  | - |
With specified maturity |  |  |  |  |  |  |  |  |  |  |  |
Overdue |  |  |  |  |  |  |  |  |  |  |  |
Until 12-31-2016 |  |  | - |  |  |  | 74,183 |  |  |  | - |
From 01-01-17 to 03-31-17 |  |  | - |  |  |  | 311 |  |  |  | - |
From 04-01-17 to 06-30-17 |  |  | - |  |  |  | 311 |  |  |  | - |
From 07-01-17 to 09-30-17 |  |  | - |  |  |  | 311 |  |  |  | - |
From 10-01-17 to 12-31-17 |  |  | - |  |  |  | 311 |  |  |  | 28,138 |
Total overdue |  |  | - |  |  |  | 75,427 |  |  |  | 28,138 |
Non-Due |  |  |  |  |  |  |  |  |  |  |  |
From 01-01-18 to 03-31-18 |  |  | - |  |  |  | 1,558,120 |  |  |  | 34,874 |
From 04-01-18 to 06-30-18 |  |  | 1,362,926 |  |  |  | 84,895 |  |  |  | 34,874 |
From 07-01-18 to 09-30-18 |  |  | - |  |  |  | - |  |  |  | 34,874 |
From 10-01-18 to 12-31-18 |  |  | 114,632 |  |  |  | - |  |  |  | 34,874 |
During 2019 |  |  | 1,362,926 |  |  |  | - |  |  |  | 139,513 |
During 2020 |  |  | 1,248,295 |  |  |  | - |  |  |  | 139,513 |
During 2021 |  |  | - |  |  |  | - |  |  |  | 139,513 |
During 2022 |  |  | - |  |  |  | - |  |  |  | 139,513 |
From 2023 onwards |  |  | - |  |  |  | - |  |  |  | 501,901 |
Total non-due |  |  | 4,088,779 |  |  |  | 1,643,015 |  |  |  | 1,199,449 |
Total with specified maturity |  |  | 4,088,779 |  |  |  | 1,718,442 |  |  |  | 1,227,587 |
Total |  |  | 4,088,779 |  |  |  | 1,718,442 |  |  |  | 1,227,587 |

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TRANSPORTADORA DE GAS DEL SUR S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

|  | December 31, 2016 |  |  |  |
|  | Loans |  |  | Other financial liabilities |  |  | Financial Leases |
Without specified maturity |  |  | - |  |  |  | - |  |  |  | - |
With specified maturity |  |  |  |  |  |  |  |  |  |  |  |
Overdue |  |  |  |  |  |  |  |  |  |  |  |
Until 12-31-2015 |  |  | - |  |  |  | 56,664 |  |  |  | - |
From 01-01-16 to 03-31-16 |  |  | - |  |  |  | 311 |  |  |  | - |
From 04-01-16 to 06-30-16 |  |  | - |  |  |  | 311 |  |  |  | - |
From 07-01-16 to 09-30-16 |  |  | - |  |  |  | 311 |  |  |  | - |
From 10-01-16 to 12-31-16 |  |  | - |  |  |  | 311 |  |  |  | - |
Total overdue |  |  | - |  |  |  | 57,908 |  |  |  | - |
Non-Due |  |  |  |  |  |  |  |  |  |  |  |
From 01-01-17 to 03-31-17 |  |  | 1,092 |  |  |  | 984,988 |  |  |  | 75,732 |
From 04-01-17 to 06-30-17 |  |  | 146,873 |  |  |  | 50,447 |  |  |  | 29,714 |
From 07-01-17 to 09-30-17 |  |  | - |  |  |  | - |  |  |  | 29,714 |
From 10-01-17 to 12-31-17 |  |  | 146,509 |  |  |  | - |  |  |  | 29,714 |
During 2018 |  |  | 965,945 |  |  |  | - |  |  |  | 118,873 |
During 2019 |  |  | 1,161,290 |  |  |  | - |  |  |  | 118,873 |
During 2020 |  |  | 1,063,617 |  |  |  | - |  |  |  | 118,873 |
During 2021 |  |  | - |  |  |  | - |  |  |  | 665,410 |
From 2022 onwards |  |  | - |  |  |  | - |  |  |  | - |
Total non-due |  |  | 3,485,326 |  |  |  | 1,035,435 |  |  |  | 1,186,904 |
Total with specified maturity |  |  | 3,485,326 |  |  |  | 1,093,343 |  |  |  | 1,186,904 |
Total |  |  | 3,485,326 |  |  |  | 1,093,343 |  |  |  | 1,186,904 |

| 1.6. | Capital risk management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal credit quality and capital structure to reduce the cost of capital.
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, 2017 and 2016, the gearing ratio was as follows:

|  | 2017 |  |  | 2016 |
Total Loans (note 13) |  |  | 4,499,030 |  |  |  | 3,917,000 |
Total Equity |  |  | 5,319,640 |  |  |  | 2,526,378 |
Total Capital |  |  | 9,818,670 |  |  |  | 6,443,378 |
Gearing ratio |  |  | 0.46 |  |  |  | 0.61 |

No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2017 and 2016.

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.d.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

The categories of financial assets and liabilities as of December 31, 2017 and 2016 are as follows:

|  | December 31, 2017 |
|  | Financial assets at fair value |  |  | Financial assets held to maturity |  |  | Loans and other receivables |  |  | Total |
CURRENT ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Trade receivables |  |  | - |  |  |  | - |  |  |  | 2,033,540 |  |  |  | 2,033,540 |
Other receivables |  |  | - |  |  |  | - |  |  |  | 183,185 |  |  |  | 183,185 |
Other financial assets at amortized cost |  |  | - |  |  |  | 1,438,317 |  |  |  | 7,111 |  |  |  | 1,445,428 |
Other financial assets at fair value through profit or loss |  |  | 220,229 |  |  |  | - |  |  |  | - |  |  |  | 220,229 |
Cash and cash equivalents |  |  | 1,327,974 |  |  |  | - |  |  |  | 1,324,829 |  |  |  | 2,652,803 |
Total current assets |  |  | 1,548,203 |  |  |  | 1,438,317 |  |  |  | 3,548,665 |  |  |  | 6,535,185 |
NON-CURRENT ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade receivables |  |  | - |  |  |  | - |  |  |  | 3,055 |  |  |  | 3,055 |
Other receivables |  |  | - |  |  |  | - |  |  |  | 9,542 |  |  |  | 9,542 |
Other financial assets at amortized cost |  |  | - |  |  |  | - |  |  |  | 14,473 |  |  |  | 14,473 |
Total non-current assets |  |  | - |  |  |  | - |  |  |  | 27,070 |  |  |  | 27,070 |
Total assets |  |  | 1,548,203 |  |  |  | 1,438,317 |  |  |  | 3,575,735 |  |  |  | 6,562,255 |

|  | Financial liabilities at fair value |  |  | Other financial liabilities |  |  | Total |
CURRENT LIABILITIES |  |  |  |  |  |  |  |  |
Trade payables |  |  | - |  |  |  | 1,453,303 |  |  |  | 1,453,303 |
Loans |  |  | - |  |  |  | 1,329,270 |  |  |  | 1,329,270 |
Payroll and social security taxes payables |  |  | - |  |  |  | 191,657 |  |  |  | 191,657 |
Other payables |  |  | - |  |  |  | 33,547 |  |  |  | 33,547 |
Total pasivo corriente |  |  | - |  |  |  | 3,007,777 |  |  |  | 3,007,777 |
NON-CURRENT LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |
Loans |  |  | - |  |  |  | 3,169,760 |  |  |  | 3,169,760 |
Total non-current liabilities |  |  | - |  |  |  | 3,169,760 |  |  |  | 3,169,760 |
Total liabilities |  |  | - |  |  |  | 6,177,537 |  |  |  | 6,177,537 |

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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

|  | December 31, 2016 |  |  |  |
|  | Financial assets at fair value |  |  | Financial assets held to maturity |  |  | Loans and other receivables |  |  | Total |
CURRENT ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Trade receivables |  |  | - |  |  |  | - |  |  |  | 1,226,439 |  |  |  | 1,226,439 |
Other receivables |  |  | - |  |  |  | - |  |  |  | 169,019 |  |  |  | 169,019 |
Other financial assets at amortized cost |  |  | - |  |  |  | - |  |  |  | 14,900 |  |  |  | 14,900 |
Other financial assets at fair value through profit or loss |  |  | 55,508 |  |  |  | - |  |  |  | - |  |  |  | 55,508 |
Cash and cash equivalents |  |  | 901,680 |  |  |  | - |  |  |  | 653,409 |  |  |  | 1,555,089 |
Total current assets |  |  | 957,188 |  |  |  | - |  |  |  | 2,063,767 |  |  |  | 3,020,955 |
NON-CURRENT ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade receivables |  |  | - |  |  |  | - |  |  |  | 8,122 |  |  |  | 8,122 |
Other receivables |  |  | - |  |  |  | - |  |  |  | 6,779 |  |  |  | 6,779 |
Other financial assets at amortized cost |  |  |  |  |  |  |  |  |  |  | 21,584 |  |  |  | 21,584 |
Other financial assets at fair value through profit or loss |  |  | 142,872 |  |  |  | - |  |  |  | - |  |  |  | 142,872 |
Total non-current assets |  |  | 142,872 |  |  |  | - |  |  |  | 36,485 |  |  |  | 179,357 |
Total assets |  |  | 1,100,060 |  |  |  | - |  |  |  | 2,100,252 |  |  |  | 3,200,312 |

|  | Financial liabilities at fair value |  |  | Other financial liabilities |  |  | Total |
CURRENT LIABILITIES |  |  |  |  |  |  |  |  |
Trade payables |  |  | - |  |  |  | 961,248 |  |  |  | 961,248 |
Loans |  |  | - |  |  |  | 145,396 |  |  |  | 145,396 |
Payroll and social security taxes payables |  |  | - |  |  |  | 134,772 |  |  |  | 134,772 |
Other payables |  |  | - |  |  |  | 3,816 |  |  |  | 3,816 |
Total current liabilities |  |  | - |  |  |  | 1,245,232 |  |  |  | 1,245,232 |
NON-CURRENT LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |
Loans |  |  | - |  |  |  | 3,771,604 |  |  |  | 3,771,604 |
Total non-current liabilities |  |  | - |  |  |  | 3,771,604 |  |  |  | 3,771,604 |
Total liabilities |  |  | - |  |  |  | 5,016,836 |  |  |  | 5,016,836 |

| 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 MERVAL/BCBA. Additionally within this level, the Company included derivative financial instruments because the settlement date thereof coincided with the closing date of the fiscal year. For the calculation of fair value, the corresponding quoted price was obtained.
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.
Level 3: includes financial instruments for which the assumptions used in estimating fair value are not based on observable market information.
During 2017, 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, 2017 and 2016:
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

|  | December 31, 2017 |  |  |  |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Financial assets at fair value |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  | 1,327,974 |  |  |  | - |  |  |  | - |  |  |  | 1,327,974 |
Other non-current financial assets at fair value through profit or loss |  |  | 220,229 |  |  |  | - |  |  |  | - |  |  |  | 220,229 |
Total |  |  | 1,548,203 |  |  |  | - |  |  |  | - |  |  |  | 1,548,203 |

|  | December 31, 2016 |  |  |  |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Financial assets at fair value |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  | 901,680 |  |  |  | - |  |  |  | - |  |  |  | 901,680 |
Other current financial assets at fair value through profit or loss |  |  | 55,508 |  |  |  | - |  |  |  | - |  |  |  | 55,508 |
Other non-current financial assets at fair value through profit or loss |  |  | 142,872 |  |  |  | - |  |  |  | - |  |  |  | 142,872 |
Total |  |  | 1,100,060 |  |  |  | - |  |  |  | - |  |  |  | 1,100,060 |

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, 2017, 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 2014 Notes as of December 31, 2017 and December 31, 2016, based on their quoted market price:

|  | 2014 Notes |
|  | 2017 |  |  | 2016 |
Carrying amount |  |  | 3,607,665 |  |  |  | 3,067,353 |
Fair Value |  |  | 3,833,046 |  |  |  | 3,275,135 |

| 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 other regulation for the transportation and distribution of natural gas in Argentina (the “Regulatory Framework”). 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 repealed the Resolution 2000/2005 of the former Ministry of Federal Planning, Public Investment and Services (“ex MPFIPyS”) which provided that all tariff increases should have the prior intervention of the Undersecretary of Coordination and Management Control.
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. See point d) in this Note.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

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) semi-annually to reflect changes in the US producer price index (“PPI”) and (ii) every five years according to efficiency and investment factors determined by ENARGAS. The “efficiency factor” 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 increased 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.
In July 2003, the former Unit for Renegotiation and Assessment of Utilities Contracts (“ex UNIREN”) was created under the joint jurisdiction of the Ministry of Economy (“MH”) and ex MPFIPyS. Ex UNIREN conducted the renegotiation process of the contracts related to utilities and public works, and was entitled to enter into total or partial agreements with the licensees and submit projects regulating the transitory adjustment of tariffs and prices, among other things. As provided in the Public Emergency Law, TGS should have reached a consensus with the ex UNIREN on the modalities, terms and dates for signing the comprehensive agreement before its due date. In the event that such a consensus was not reached, ex UNIREN should have submitted a report to the Executive Branch with recommendations of the next steps to follow in the future.
On February 16, 2016, the Executive Branch issued Decree No. 367/2016. It established the dissolution of the ex UNIREN and transferred to each ministry the responsibility to renegotiate public service agreements (In our case, the MINEM together with MH.
Transitional Agreement
After having received two proposals during 2005 from the ex UNIREN, on October 9, 2008, TGS signed the 2008 Transitional Agreement with ex UNIREN that contemplated a tariff increase of 20%, which would be retroactively applicable to September 1, 2008 (the “2008 Transitional Agreement”). On December 3, 2009, the Executive Branch ratified this transitional agreement through Decree No. 1,918/09. By means of this decree, TGS should have been able to bill the tariff increase to its clients as soon as ENARGAS were published the new tariffs schedule and set the methodology to bill the retroactive effect.
This administrative act did not become effective and because of this delay, in August 2010, TGS requested from ENARGAS authorization to issue the tariff schedule, including the 20% transitory tariff increase and the retroactive collection methodology, and application of an interest rate in line with the established method of payment. ENARGAS responded to TGS that they had submitted the records and the tariff project to the Coordination and Management Control Under-Secretariat (“SCyCG”), which was under the scope of ex MPFIPyS, based on Resolution No. 2000/2005 of ex MPFIPyS.
On September 30, 2010, the Company filed an acción de amparo (a summary proceeding to guarantee constitutional rights) under the terms of the Article 43 of the National Constitution and Law No. 16,986, against ENARGAS and the SCyCG, in order to obtain the implementation of the new tariff schedule, which had favorable reception in court.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

On April 7, 2014, ENARGAS issued Resolution No. I-2852/14 (the “Resolution No. I-2852”) containing the new rate schedules authorizing a 20% increase to the rate applicable to the natural gas firm and interruptible transportation rates. This tariff increase was established in a progressive scheme beginning with an 8% increase as from April 1, 2014, an accumulated 14% increase as from June 1, 2014 and an accumulated 20% increase as from August 1, 2014. These tariff increases were not enough to effectively support the increasing operating costs in the natural gas transportation business segment.
On June 5, 2015, ENARGAS issued Resolution No. I-3347/15, complementary to Resolution No. I-2852, which approved an increase in the tariff schedule applicable to the public transportation of natural gas as from May 1, 2015. This increase represented to TGS an increase of 44.3% in the price of the service of natural gas transportation and 73.2% in the Charge of Access and Use (“CAU”).
These increases represented a partial recognition of prior administrative claims made by the Company but they were not enough to alleviate the constant increases in the operating costs. TGS continued with the corresponding actions towards safeguarding its rights, including those necessary to accomplish the signing of the Integral Renegotiation License Agreement (“Integral Renegotiation Agreement”).
On December 9, 2014, TGS filed administrative claims under the terms of Article 30 of the National Administrative Procedures Act to the Argentine government claiming damages for the failure to implement the retroactive increase provisions of the 2008 Transitional Agreement for the period between September 1, 2008 and March 31, 2014 and the lack of adjustment of the CAU.
On February 24, 2016, jointly with the MINEM and the MH, TGS signed a new Transitional Agreement (“2016 Transitional Agreement”). The main implications of the 2016 Transitional Agreement were:

- | It set the guidelines to grant to TGS an additional transitional tariff increase. Under this framework, on March 31, 2016, ENARGAS Resolution No. I/3724/2016 (“Resolution 3724”) was issued, which provided for a 200.1% tariff increase over the tariffs applicable to the public service of Natural Gas Transportation and to the CAU as of April 1, 2016 (the “2016 Increase”);

- | Subject to the granting of the 2016 Increase, it set the guidelines for the implementation of mandatory investment plan to be approved by ENARGAS of Ps. 794.3 million in nominal value of the 2016 Transitional Agreement date (the “2016 Investment Plan”);

- | Set guidelines to perform an RTI; and

- | Obligated TGS for the non-distribution of dividends without prior authorization of ENARGAS.

The 2016 Increase was granted based on the economic-financial situation, the execution of the 2016 Investment Plan and the commitments of operating and maintenance expenses, administration and commercialization, and in compliance with the maturities of the obligations contracted until that moment. All this allowed TGS to face the RTI process that was extended for a period of one year, based on the normal provision of the public service of natural gas transportation.
The 2016 Increase was granted within the framework of the provisions of Resolutions No. 28/2016 and 31/2016 (jointly “Resolutions 28 and 31”) of the MINEM. Against these resolutions, numerous legal actions were filed requesting their nullity, which seriously affected the established predictability framework.
On August 18, 2016, the Supreme Court partially upheld the ruling issued by the lower courts, establishing: (i) the obligation to comply with the prior public hearing for the determination of the natural gas tariffs related to the transportation and distribution segments, (ii) the obligation to carry out prior public hearings to fix the price of natural gas at the Point of Entry to the Transportation System (“PIST” as its acronym in Spanish), and (iii) the nullity of Resolutions 28 and 31 regarding the residential users, in respect of which the rates had to be retroactive to the amounts in force as of March 31, 2016.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

On August 23, 2016, ENARGAS issued Resolution No. I/3961 instructing TGS to apply in relation to the transportation service provided to the license of the natural gas distribution service to supply residential users, the tariff schedule in force as of March 31, 2016.
Subsequently, and within the framework of the public hearing held on September 16 and 18, 2016 (the “September Public Hearing”) following the provisions of the Supreme Court on 6 October 2016, ENARGAS issued Resolution No. I-4054/2016 (“Resolution 4054”). This resolution included the same terms than those included in Resolution 3724 in respect of: (i) the Increase applicable to all users of the public natural gas transportation service, (ii) the execution of the Investment Plan and (iii) restrictions on the payment of dividends. The effect of these tariff schedules was as from October 7, 2016.
As of the date of issuance of these Consolidated Financial Statements, the 2016 Investment Plan is fully executed, and pending of approval by ENARGAS, although with delays, due to the impossibility of TGS to bill the entire 2016 Increase in accordance with the provisions of the Resolution 3724
On March 30, 2017, the Company and the Government signed a new transitional agreement (the “2017 Transitional Agreement”). On the same date and as agreed in the 2017 Transitional Agreement, ENARGAS issued Resolution No. 4362/17 (“Resolution 4362”) by which:

| · | 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. Notwithstanding, in accordance with the provisions of Resolution No. 74/2017 (“Resolution 74”) from the MINEM, it provides for a limitation on the full effectiveness of the tariff increase arising from the RTI process until the approvals of the Integral Renegotiation Agreement Act initiated by the Company on March 30, 2017 (the “2017 Integral Renegotiation Agreement”) are completed. This meant that the tariff increase was granted in three stages from April 1, 2017 and December 1, 2017 and, the last one, once the 2017 Integral Renegotiation Agreement is ratified by the PEN.

| · | Accordingly, a new transitional tariff schedule was force as from April 1, 2017, which contemplated a rate increase of 64.2% was approved, but no increases for the Access and Use Charge (“CAU”) were approved at that stage.

| · | For the determination of the amount of the remaining increases, ENARGAS should consider the corresponding financial effect, without affecting the investment plan mentioned below.

| · | A 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 (in nominal value at December 2016, adjustable by WPI). If TGS does not execute the Five Year Plan in accordance with ENARGAS’s regulations, it would be subject to fines to be calculated on the value of the work pending execution.

| · | However, pursuant to Resolution 4362, pending the entry into force of the 2017 Integral Renegotiation Agreement, a transition investment plan is established to be made equal to 10% of the total amount of the Five-Year Investment Plan. This without prejudice to the full compliance of the Five-Year Investment Plan once the 2017 Integral Renegotiation Agreement is in force.

| · | 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.

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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

Subsequently, on December 1, 2017, ENARGAS issued Resolution No. 120/2017 whereby, after holding the corresponding public hearing on November 14, 2017, TGS was granted a tariff increase of 80.8% on the natural gas transportation service and a 29.7% increase on the CAU as from December 2017. These increases were granted within the framework of the 2017 Transitory Agreement to provide TGS obtains the necessary resources to execute the corresponding Five-Year Investment Plan.
Additionally, the 2017 Transitory Agreement restricts dividends payments. For further information, see Note 18.
Finally, on January 29, 2018, ENARGAS issued Resolution No. 247/2018 whereby a public hearing was convened on February 20, 2018. At the public hearing, a tariff adjustment and the construction project of the Mercedes-Cardales gas pipeline -with financing through an investment factor (factor “k”) were submitted for consideration. As a result of the public hearing, on March 27, 2018, ENARGAS issued Resolution No. 310/2018 which granted the Company with a new tariff increase of 50% in the natural gas transportation tariff and the CAU, effective as from April 1, 2018.
Integral Renegotiation Agreement
In October 2008, TGS received an integral license renegotiation agreement from ex UNIREN (which included the initial 20% tariff increase), whose purpose is the license renegotiation and the overall tariff revision. This proposal was not accepted by TGS since the granting of an indemnity in favor of the Argentine Government was unable to provide.
In October 2011, TGS received a new proposal from ex UNIREN (the “Renegotiation Agreement”) which included similar terms and conditions from the ones included in the last proposal received in 2008. In August 2011 TGS’ Board of Directors approved the new proposal, which was initiated by the Company allowing ex UNIREN to initiate the administrative procedure for finalizing the Renegotiation Agreement. Ex UNIREN issued a supplementary report for the subscription of the Renegotiation Agreement between the Government and TGS, filing it on December 22, 2011 together with the Agreement filed by TGS before the Legal Under Secretary of the ex MPFIPyS. Taking into consideration that the case was returned to UNIREN, on July 16, 2012 TGS called for the continuation of appropriate administrative proceedings. On October 4, 2012, TGS notified the ex UNIREN the filing made before ENARGAS and the National Commission for the Defense of Competition regarding the suspension of the claim initiated by Enron Corp. and Ponderosa against the Argentine Republic and formally required the order of quick sentence.
Given the lack of progress in the administrative procedure in ex MPFIPyS, on December 29, 2014, TGS filed a preliminary administrative appeal under the terms of article 30 of the National Administrative Procedures Act to the Argentina Government claiming damages for the failure to implement the recomposition of the tariff.
After the signing of the successive integral agreements, the 2017 Integral Renegotiation Agreement was signed, which contains similar terms and conditions as those set forth in the agreements initiated in 2008, 2011 and 2015.
The sustainable recovery of the natural gas transportation segment, which, in view of the national energy matrix, is strategic for the country’s development, will depend of the immediate implementation of the RTI process for which TGS presented an ambitious investments and expenditures plan for the five – year period 2017-2021 and for the effective implementation of the Integral Renegotiation Agreement.
On March 27, 2018, the Executive Branch issued Decree No. 250/2018 which ratified the 2017 Integral Renegotiation Agreement. This decree represents the conclusion of the RTI process and the finalization of the 2017 Transitional Agreement, and thus, the final renegotiation of our License. Therefore, we and our former and present shareholders are required to abandon any claim, including the ICSID Claim disclosed below, before June 30, 2018
Acquisition of the Rights of Arbitration Proceedings
In November 2005, in response to the requirement made by the ex UNIREN, Ponderosa Assets L.P. (“Ponderosa”), as an indirect shareholder of TGS and CIESA, informed a claim that was filed jointly with Enron Corp. (together the “Claimants”) against the Argentine Government under the International Centre for Settlement of Investment Disputes of the World Bank (the “ICSID Claim”). The ICSID Claim argues that the pesification of tariffs and other unilateral changes to our regulatory structure affected by the Public Emergency Law and related laws and decrees violate the requirement of fair and equitable treatment under the treaty. On May 22, 2007, ICSID decided in favor of the Claimants and ordered the Government to pay U.S.$106.2 million to the them. In July 2010, an ICSID committee annulled the award rendered in 2007 and ordered the Claimants to reimburse the Government the total amount of the annulment award costs. On October 18, 2010, Enron Creditors Recovery Corp. (Enron’s new corporate name) and Ponderosa filed a new claim against the Government before the ICSID. In June 2011, a tribunal to hear the case was constituted.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

On March 11, 2011, Pampa Energía entered into a call option agreement with the Claimants in order to acquire the rights to monitor, suspend and withdraw the ICSID Claim. In October, 2011, Pampa Energía acquired the rights under the arbitration proceeding (the “Rights of the arbitration proceeding”) which include the powers to suspend, monitor and withdraw from arbitration proceedings.
Through the enactment of Resolutions No. I-2852 and No. I-3347 and after having verified its effectiveness, the Transitional Agreement was implemented between the Company and ex UNIREN in October 2008, and thus, the condition provided by the loan awarded by TGS to Pampa Energía that consisted of its compulsory cancellation by transferring the rights acquired by Pampa Energía with the proceeds of the Loan in respect of the ICSID Claim . The rights acquired under the arbitration proceeding (the “Rights of the Arbitration Proceeding”) include the powers to suspend, monitor and withdraw from arbitration proceedings.
The acquisition of the Rights of the Arbitration Proceeding by TGS was implemented through the transfer to a trust established abroad of which TGS shall be its beneficiary.
The exercise of the Rights of the Arbitration Proceeding allows TGS to continue with the tariff renegotiation process and comply with the conditions for the signing and implementation of the RTI. In accordance with the terms and conditions of the RTI, TGS may suspend and subsequently abandon those claims brought against Argentina for the lack of tariff adjustments by the PPI following the enactment of the Public Emergency Law.
According to IFRS, the Rights of the arbitration proceeding do not qualify to be recognized as an asset in the financial statements of the Company. Consequently, they were recognized and classified under “Other Operating (loss) / Income” in the Statement of Comprehensive Income for the year ended December 31, 2015. The net loss recognized amounted to Ps. 324,390.
As of the date of issuance of these consolidated financial statements, as agreed with the Government, the Arbitration Proceeding is suspended until April 15, 2018.
In addition, as provided in the 2017 Integral Renegotiation Agreement, and as the last tariff increase as established in Resolution 74 is in force, the Company, CIESA and the shareholders representing at least two thirds of the share capital of CIESA must desist before June 30, 2018 from all the initiated complaints or to initiate against the Government from the sanction of the Law of Public Emergency.

| b) | Regulatory 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 records 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 SHR periodically publish reference prices for LPG sold in the local market. It also sets forth LPG volumes to be sold in the local market.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

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 “Household with Bottles Program”). It replaced Stabilization Agreement signed in September 2008 between the Federal Energy Bureau and the LPG producers (“2008 Stabilization Agreement”) (which, after several extensions, remained in force until March 31, 2015). The Household with Bottles Program was implemented through Resolutions No. 49/2015 and No. 70/2015 issued by the Federal Energy Bureau.
In line with the 2008 Stabilization Agreement, the Household with Bottles Program sets a maximum reference price for the members of the marketing chain in order to guarantee the supply to low-income residential user, by committing the LPG producers to supply at a fixed price (below the market price) with a quota assigned to each producer. This price reduction is partially offset by a subsidy paid to producers by a trust fund created for that purpose. Through the Household with Bottles Program, the Argentine government subsidizes low-income residential users.
On April 1, 2015, the former Federal Energy Bureau issued Resolution No. 70/2015, which sets the new reference prices and the compensation to be paid to domestic LPG producers intended for ten, twelve and fifteen kilos LPG bottles under the Households with Bottles Program. Notes 547/15 and 612/15 of the Federal Energy Bureau notified the volumes to be sold by TGS during 2015.
On March 28 and March 29, 2016, the MINEM informed TGS the volumes of butane and propane, respectively that were assigned to commercialize under this program during 2016. These administrative acts were also duly challenged by TGS.
It is noteworthy that participation in the new program implies that the Company produces and markets the volumes of LPG required by the SHR at prices significantly lower than the market price, which means that, under certain circumstances, the Company might fail to cover production costs, providing a negative operating margin.
As in prior periods, the Company will continue making the corresponding objections in order to safeguard its financial position and to ensure that this situation is not extended in the future.
In this regard, on April 4, 2016, the Company made a request for early release regarding the claim filed on August 18, 2015 on the objections made to Resolutions 49/15 and 70/15.
In addition, the Company filed a motion for reconsideration to administrative acts, which provided butane and propane quotas under the Household with Bottles Program for 2016.
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 MINEM.
In June 2016, the Company signed the thirteenth and fourteenth extensions to the Propane Network Agreement, which provides for propane deliveries through April 30, 2017. In September 2016, the Company signed the addenda corresponding to these agreements for the purpose of re-determination of the price of propane sold by TGS to distributors and sub-distributors as a result of a judicial judgment issued on August 18, 2016.
On October 6, 2016, the MINEM issued Resolution No. 212, which provided for the new price of propane to be sold under the Propane for Networks Agreement paid by residential users.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

As mentioned above, both the Households with Bottles Program and the Propane for Networks Agreement established payment of compensation, calculated as a difference between the price set by the Government and the export parity price. Over recent years, this compensation has been paid with significant delays.
On May 20, 2016, Decree No. 704/2016 provided for the extension of the issuance of Argentine Bonds in US dollars with an annual rate of 8%, which will expire in 2020 (“BONAR 2020”) which were used to, among others, the cancellation of the compensation due of related to Propane for Networks Agreement. On June 22, 2016, the Company gave written consent and agreement to the terms and conditions of Decree No. 704/2016 (the “Letter of Consent”) to the MINEM. Within this letter, TGS accepted the cancellation of the amounts due as compensation for propane networks Agreement until December 31, 2015, according to the methodology of cancellation informed by the SHR, which amounted to Ps. 140,496. On October 5, 2016, TGS received BONAR 2020 for an original nominal value of U.S.$8.0 million.
As of December 31, 2016, the Argentine Government owed Ps. 156,399 to the Company for these concepts. On September 2, 2016, TGS submitted a note to MINEM demanding payment of the amounts owed on that date.
On March 14, 2017, the MINEM issued Resolution No. 34/17 authorizing the payment of Ps. 91,578 corresponding to the compensation due for the participation in the Propane for Networks Agreement from the months of January to March and May to October 2016, which were collected on April 26, 2017. In this sense, during 2017, we received of the SHR the payment of Ps. 216.1 million owed as compensation for the year 2016 and certain months of 2017.
As of December 31, 2017, we recorded a receivable against the Argentine Government by Ps. 173,311.
On the other hand, Resolution 74 provides for the increase of the price of the propane gas used for the Propane for Networks Agreement as of April 1, 2017. The price is established at Ps. 1,267 / ton (“tn”) and Ps. 2,832 / tn depending on the customer to whom the product is intended. As in previous periods, the difference between the determined price and the export parity price determined by the MINEM is compensated to the Company through the economic compensation paid by the Government.
Regarding the Household with Bottles Program, it has also recorded price increases in accordance with the provisions of Resolutions N° 56-E/2017 and N° 287-E/2017 issued by the ME. Thus, prices were set at Ps. 2,568 per ton of butane and Ps. 2,410 for propane as from April 2017 and Ps. 4,302 per ton as from December 1, 2017 for butane and Ps. 4,290 per ton for propane starting December 1, 2017. The compensation received from the Government remained fixed at Ps. 550/ton.
Decree No. 2,067 / 08 (the “Decree”)
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 set forth in this decree financed 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 per cubic meter.
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. 0.049 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 this damage, TGS appealed against the Presidential Decree and the Resolutions including the Government, ENARGAS and ex MPFIPyS as defendants. For further information regarding the legal action filed the Company, see Note 19.b.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

On March 28, 2016, the MINEM issued Resolution No. 28/16 (“Resolution 28”), which instructed 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) | Expansion of the natural gas transportation system

Since 2004, the natural gas transportation system expansion works have been carried out under the Gas Trust Fund Program framework, which was created through Executive Branch Decree No. 180/04 and Resolution No. 185/04 issued by the ex MPFIPyS, aimed at financing the expansion of the national natural gas transportation system in a manner different from that established in the License.
Under this framework, several expansion works of the gas pipeline system have been executed, which were financed with the contributions of funds from natural gas producers and shippers awarded the incremental transportation capacity, with a structure that contemplates the recovery through the income from specific fiduciary charges, paid by all shippers who have firm transportation contracts, except distribution companies. In addition, TGS is in charge of the rendering of firm transportation services. For these services, TGS is being paid a monthly CAU.
In this sense, TGS assumed the role of technical manager of the expansion works of its gas pipeline system, for which it signed, in December 2006, the respective management contract. For such services, TGS was paid by the Argentine Government through Valores Representativos de Deuda Obra 3 (“debt securities”) issued by Nación Fideicomiso S.A. (“NAFISA”). These debt securities amortize principal in 85 monthly, consecutive and equal installments and bear CER interest plus an 8% from their date of issue.
On July 20, 2016, NAFISA notified TGS of MINEM’s decision to suspend the works to expand the firm natural gas transport capacity carried out under this program.
As of December 31, 2017, these debt securities were classified as “Other financial assets at amortized cost” in the Statement of Financial Position, with a balance of Ps. 21,584.

| d) | 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.
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:

| i) | 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”)

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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

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 as compensation for the transfer of the Essential Assets to the new licensee.

| 18. | COMMON STOCK AND DIVIDENDS

a) Common stock structure and shares’ public offer
As of December 31, 2017, 2016 and 2015, TGS’ common stock was as follows:

Common Shares Class (Face value $ 1, 1 vote) |  | Amount of common stock, subscribed, issued, paid in, and authorized for public offer |
Class “A” |  | 405,192,594 |
Class “B” |  | 389,302,689 |
|  | 794,495,283 |

TGS’s shares are traded on the BCBA and under the form of the American Depositary Shares (“ADS”) registered in the SEC and representing 5 shares each on the New York Stock Exchange.
b) Limitation on the transfer of the TGS’ shares
TGS’ by‑laws provide that prior approval of ENARGAS and the unanimous approval of CIESA’s shareholders, under agreements among them, must be obtained in order to transfer Class “A” shares (representing 51% of common stock). The Bid Package for the privatization of GdE states that approval of ENARGAS will be granted provided that:
- The sale covers 51% of common stock or, if the proposed transaction is not a sale, the transaction that reduces the shareholding will result in the acquisition of a shareholding of not less than 51% by another investment company; and
- The applicant provides evidence to the effect that the transaction will not impair the operating quality of the licensed service.
In the case of shareholders of CIESA who have qualified to obtain such condition due to the equity, guarantee and/or technical background of their respective parent companies, the sale of shares representing the capital of such subsidiaries by the respective ultimate, direct or indirect parent companies, and/or the cessation of management running TGS, requires the prior authorization of ENARGAS.
In case TGS wishes to reduce its capital, redeem its shares or distribute any part of its equity, except for the payment of dividends, it requires prior authorization from ENARGAS.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

On July 22, 2016, Law No. 27,260 was enacted, which modifies the investments allowed to the fund managed by the Administración Nacional de la Seguridad Social. (“Fondo de Garantía de Sustentabilidad” or “FGS”), which as of December 31, 2016 held 183,618,632 shares class “B” of TGS. Thus, the FGS may invest in shares of national corporations - among others - whose public offering is authorized by the CNV and which are listed on markets authorized by the CNV. The FGS may invest between the 7% and the 50% of its total assets in these kind of investments. However, it stipulates that the transfer and / or any other act or action that limits, alters, deletes or modifies the destiny, ownership, dominion or nature of the shares of which the FGS is entitled, provided that it results in a less than the previously established FGS, without prior authorization of the Argentine Congress, with the following exceptions:
- Public takeover bids addressed to all holders of said assets and at a fair price authorized by the CNV, under the terms of Chapters II, III and IV of Title III of Law 26,831.
- Exchange of shares for others shares of the same or another company in the framework of merger split-off or corporate reorganization processes.
c) Restrictions on distribution of retained earnings
Under current Argentine legal requirements and CNV standards, 5% of each fiscal year net income must be appropriated into a legal reserve, provided that there is no unappropriated retained deficit. In such case, the 5% should be calculated on any excess of the net income over the unappropriated retained deficit. This appropriation is legally binding until such reserve equals 20% of the amount which results from the sum of the “Common stock nominal value” and the balance of “Cumulative inflation adjustment to common stock”.
In addition, the by-laws provide for the issuance of Profit Sharing Vouchers, as defined in Article 230 of the Argentine Business Associations Law, which Vouchers entitle all regular employees to share in 0.25% of TGS’ net income for each year.
According to law No. 25,063, the dividends paid in cash or in kind, in excess of the taxable profit, will be subject to a 35% withholding tax of the income tax, as sole and only payment. As from the Tax Reform, such restriction will no longer apply to dividends attributable to profits accrued in fiscal years beginning on or after January 1, 2018.
Furthermore, TGS is subject to certain restrictions for the payment of dividends, which were contemplated in the outstanding debt agreements (Note 13 – “Covenants”).
The Company is temporarily limited to the distribution and payment of dividends in accordance with the provisions of the 2016 and 2017 Transitional Agreements applicable until the definitive tariff schedules that will occur once the 2017 Integral Renegotiation Agreement obtain the corresponding governmental approvals.
In this regard, the 2016 Transitional Agreement and the 2017 Transitional Agreement provide that, prior to the distribution of dividends, TGS must request the respective authorization from ENARGAS, for which purpose it must certify compliance with the 2016 Investment Plan and / or the portion corresponding to the year 2017 of the Five-Year Investment Plan.

| 19. | 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.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

During fiscal year 2017 and 2016, the Company continued to receive several claims from different provinces, which meant that TGS paid Ps. 147.4 million and Ps. 27.6 million to provincial agencies, 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, 2017 and 2016, the Company recorded a provision of Ps. 189.4 million and Ps. 207.7 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.

| 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 Presidential decree N° 2067/08 and the Resolutions as well as the unconstitutionality of the administrative acts that created the Charge (see Note 17.b) Decree N° 2067/08). 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 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 prevents the Government from the TGS claims 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 or until the decision that resolves the merits of the matter, whichever occurs first. On March 14, 2018, the Company obtained a new extension of the precautionary measure over the action for annulment of the Resolutions. This new extension will be valid until September 2018 or up to the times of the issuance of the final sentence, whichever occurs later.
On the other hand, the National Court of Appeals in Contentious Administrative Dismissal 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 TGS in accordance with the precedent “Alliance” issued by the Supreme Court in December 2014.
TGS’s Management believes it has sufficient valid arguments to defend its position, and thus, the Company has not recorded the increase of any liability from the charge for natural gas consumptions from the date of obtaining the injunction until April 1° 2016, effective date of Resolution 28. In the event this injunction had not been obtained, the accumulated impact on the retained earnings since obtaining the injunction would have involved a reduction effect of Ps. 601.6 million.

| 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 long 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.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

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. 69.4 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.
As of the date of the issuance of these consolidated financial statements, the case is about to dictate sentence.
The balance of the receivable as of December 31, 2016 was Ps. 69.4 million. Given the negative judgment, this receivable was derecognized and charged under “Other operating results, net” of the Comprehensive Income Statement for the year ended December 31, 2017.

| 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 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.
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, 2017 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.

| f) | Arbitral claim

On May 8, 2015, the Secretariat of the International Court of Arbitration of the International Chamber of Commerce (the “Arbitration Court”) notified TGS regarding the request for arbitration initiated by PAE and Pan American Sur SA (the “Claimants”) related to the execution of three natural gas processing contracts between the claimants and TGS (the “Agreements”). On April 4, 2016, the Company was notified of the beginning of the corresponding demand, which TGS was responded on August 17, 2016.
According to the demand, the claimants alleged breach of contracts during the period between February 2006 and February 2016, that would have resulted in a lower allocation of the products obtained (the “Products”), claiming U.S.$163 million, plus interest (the “Claim”).
On March 16, 2017, the Claimants filed their Reply Memorial, whereby they replied to TGS Response Memorial and adjusted the amount of their claim to U.S.$306.3 million as of March 15, 2017, the total amount would consist of U.S.$134.0 million in nominal damages plus U.S.$172.3 million of interest. To this amount, accrued interest would be added as from March 15, 2017 until the date of effective payment.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

Subsequently, on July 14, 2017, the Company presented the Rejoinder Memorial, whereby the arguments put forward by the Claimants in their Reply Memorial were answered.
Between September 25 and 29, 2017, the Arbitration Testing Hearing took place in the City of Buenos Aires, in which the legal advisors of the Company understand that the evidence produced confirmed TGS ‘position regarding the main aspects of the claim. .
On December 15, 2017, the Claimants and TGS submitted their Final Conclusions Memorials. On March 15, 2018, the Arbitration Court notified the Company of its decision to postpone until April 30, 2018 the issuance of the arbitral award with respect to the Claim.
TGS considers that the Claim contains inconsistencies resulting from misinterpretations of the contractual provisions and an incorrect application of the mechanisms for calculating the allocation of the Products, and therefore the Company believes that the amount claimed is inadmissible.
The external legal counsels of the Company understand that as of the date of the issuance of these consolidated financial statements, based on the defense arguments made and the evidence presented by TGS, it is more likely than not that the position of TGS will prevail.

| g) | 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, 2017 and 2016 the total amount of these provision amounted Ps. 6.5 million, for both years.

| 20. | 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. Pursuant to the agreement, Pampa Energía also provides financial advice. For these services, the Company pays a monthly fee based on a percentage of the operating income of the Company. In December 2017, after having obtained the prior approval of ENARGAS, TGS and Pampa Energía renewed the Technical Assistance Agreement for a three-year term as of December 28, 2017, due on December 28, 2020.
For this service, TGS will pay Pampa Energía the higher of: (i) a fixed annual amount of U.S.$3.0 million or (ii) 7% of annual comprehensive profits (before financial results and income tax and after deducting also the aforementioned fixed sum) of TGS.
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.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

On November 1, 2016, Pampa Energía assigned to YPF the operation of the Río Neuquén area and related contracts, which until that date were disclosed as transactions with related parties in the Other Services business segment.
Financial transactions.
Loan agreement with Pampa Energía
On October 5, 2011, TGS granted a U.S.$26 million loan to Pampa Energía. Proceeds from the loan were used by Pampa Energía to exercise the option contained in the “Call Option Agreement”. Additionally, to guarantee compliance with its obligations, Pampa Energy S.A. created a pledge on the rights that correspond to the arbitration actions of Ponderosa Assets LP and Enron Creditors Recovery Corp. against Argentine Government acquired upon exercise of the option mentioned above. For more information, see Note 17.a.
After several extensions of the maturity, on May 7, 2013, the Board of Directors approved the amendments of certain terms and conditions of the loan granted to Pampa Energía, among others:

| · | Extended the expiration date until October 6, 2014, with option of an automatic renewal for one additional period of one year. For this reason, the expiration date was October 6, 2015.

| · | The applicable interest rate was equivalent to 6.8% annual plus VAT.

On September 30, 2015, the Board of Directors of the Company approved the acquisition of the Rights of the arbitration proceedings. For further information, see Note 17.a
Financial leasing with Pampa Energía
As mentioned in Note 13 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, 2017 and 2016 were Ps. 52,643 and Ps. 39,409, respectively.
Acquisition of CTG
On August 8, 2017, the Company acquired the entire shareholding of CTG from Pampa Energía for Ps. 100. The purpose of this company is to carry out various activities related to electric power.
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, 2017 and 2016 is as follows:
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

|  | 2017 |  |  | 2016 |
Sociedad |  | Accounts receivable |  |  | Accounts payable |  |  | Accounts receivable |  |  | Accounts payable |
Controlling shareholder: |  |  |  |  |  |  |  |  |  |  |  |
CIESA |  |  | 39 |  |  |  | - |  |  |  | 44 |  |  |  | - |
Associate which exercises joint control on the controlling shareholder: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pampa Energía (1) |  |  | 15,681 |  |  |  | 987,062 |  |  |  | 114,039 |  |  |  | 883,781 |
Associate which exercises significant influence on the controlling shareholder: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Link |  |  | 520 |  |  |  | - |  |  |  | 425 |  |  |  | - |
EGS |  |  | - |  |  |  | 460 |  |  |  | - |  |  |  | 602 |
TGU |  |  | - |  |  |  | 2,968 |  |  |  | - |  |  |  | 2,529 |
Other related companies: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Petrolera Pampa S.A. |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,634 |
Refinor |  |  | - |  |  |  | 3,534 |  |  |  | - |  |  |  | - |
Pampa Comercializadora S.A. |  |  | 1,882 |  |  |  | - |  |  |  | 943 |  |  |  | - |
Petrolera Entre Lomas S.A. |  |  | - |  |  |  | - |  |  |  | 17 |  |  |  | - |
Oleoductos del Valle S.A. |  |  | 1,338 |  |  |  | - |  |  |  | 297 |  |  |  | - |
Central Térmica Piedrabuena S.A. |  |  | 5,189 |  |  |  | - |  |  |  | 1,224 |  |  |  | - |
Transener S.A. |  |  | 30 |  |  |  | - |  |  |  | 727 |  |  |  | - |
Total |  |  | 24,679 |  |  |  | 994,024 |  |  |  | 117,716 |  |  |  | 889,546 |

(1) Accounts payable includes Ps. 891,365 and Ps. 848,181 corresponding to the financial leasing recorded as "Loans" as of December 31, 2017 and 2016, respectively.
The detail of significant transactions with related parties for the years ended December 31, 2017, 2016 and 2015 is as follows:
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 |  |  | Interests expenses |
Controlling shareholder: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CIESA |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 92 |  |  |  | - |
Associate which exercises joint control on the controlling shareholder: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |  |  |  |  |  |  |  |  |
Pampa Energía |  |  | 27,681 |  |  |  | 57,234 |  |  |  | 70,492 |  |  |  | 135,833 |  |  |  | 354,518 |  |  |  | - |  |  |  | 65,076 |
Jointly control entity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
UT |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,397 |  |  |  | - |
Associates with significant influence: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Link |  |  | - |  |  |  | - |  |  |  | 4,587 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Other related companies: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Petrolera Pampa S.A. |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 24,850 |  |  |  | - |  |  |  | - |  |  |  | - |
Refinor S.A. |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,534 |  |  |  | - |  |  |  | - |  |  |  | - |
Petrolera Entre Lomas S.A. |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 11,017 |  |  |  | - |  |  |  | - |  |  |  | - |
Oleoductos del Valle S.A. |  |  | 4,618 |  |  |  | - |  |  |  | 958 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Pampa Comercializadora S.A. |  |  | 6,647 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Central Térmica Piedrabuena S.A. |  |  | 11,031 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Central Térmica Loma La Lata S.A. |  |  | - |  |  |  | - |  |  |  | 244 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Experta ART |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7,326 |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  |  | 49,977 |  |  |  | 57,234 |  |  |  | 76,281 |  |  |  | 182,560 |  |  |  | 354,518 |  |  |  | 1,489 |  |  |  | 65,076 |

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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

Year ended December 31, 2016:

|  | 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 |  |  | Interests expenses |
Controlling shareholder: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CIESA |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 122 |  |  |  | - |
Associate which exercises joint control on the controlling shareholder: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pampa Energía (1) |  |  | 21,653 |  |  |  | 1,140 |  |  |  | 178,056 |  |  |  | 81,421 |  |  |  | 168,008 |  |  |  | - |  |  |  | 24,464 |
Associates with significant influence: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Link |  |  | - |  |  |  | - |  |  |  | 3,924 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Other related companies: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Compañía Mega S.A.(2) |  |  | 1,641 |  |  |  | 82,590 |  |  |  | 17 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Braskem Netherlands BV (2) |  |  | - |  |  |  | 19,511 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Petroleo Brasileiro (2) |  |  | - |  |  |  | 265,236 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Petrolera Pampa S.A. |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 165,771 |  |  |  | - |  |  |  | - |  |  |  | - |
WEB S.A. |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,325 |  |  |  |  |  |  |  |  |  |  |  |  |
Oleoductos del Valle S.A. |  |  | 2,418 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Pampa Comercializadora S.A. |  |  | 3,603 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Petrouruguay S.A. (2) |  |  | 551 |  |  |  | 51 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Central Térmica Piedrabuena S.A. |  |  | 7,618 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Petrolera Entre Lomas S.A. |  |  | - |  |  |  | - |  |  |  | 188 |  |  |  | 24,740 |  |  |  |  |  |  |  |  |  |  |  |  |
Total |  |  | 37,484 |  |  |  | 368,528 |  |  |  | 182,185 |  |  |  | 277,603 |  |  |  | 168,008 |  |  |  | 122 |  |  |  | 24,464 |

(1) Until July, 27, 2016 includes transactions with Petrobras Argentina S.A. From that date, as a consequence of the merger between Pampa Energía and Petrobras Argentina, includes transactions with both parties.
(2) As of July 27, 2016, those companies are not considered as related parties due to the acquisition of Petrobras Argentina shares by Pampa Energía as described in Note 1.
Year ended December 31, 2015:

|  |  |  |  | Revenues |  |  |  |  |  | Costs |  |  | Financial Results |  |  | Other operating income |
Company |  | Natural Gas Transportation |  |  | Production and commercialization of liquids |  |  | Other services |  |  | Gas purchase and others |  |  | Compensation for technical assistance |  |  | Revenues for administrative services |  |  | Interests earned |  |  | Acquisition of the rights of the arbitration procedding (1) |
Controlling shareholder: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CIESA |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 122 |  |  |  | - |  |  |  | - |
Associate which exercises joint control on the controlling shareholder: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Petrobras Argentina |  |  | 27,681 |  |  |  | 2,414 |  |  |  | 99,481 |  |  |  | 112,135 |  |  |  | 52,481 |  |  |  | - |  |  |  | - |  |  |  | - |
Associate which exercises significant influence on the controlling shareholder: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pampa Energía |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 11,348 |  |  |  | 324,390 | (1)
Associate with significant influence: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Link |  |  | - |  |  |  | - |  |  |  | 3,087 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Other related companies: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Compañía Mega S.A. |  |  | 1,176 |  |  |  | 63,591 |  |  |  | 30 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Petrobras Global Trading BV |  |  | - |  |  |  | 44,058 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Braskem Netherlands BV |  |  | - |  |  |  | 132,101 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Petroleo Brasileiro |  |  | - |  |  |  | 95,618 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Petrolera Pampa S.A. |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 41,332 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  |  | 28,857 |  |  |  | 337,782 |  |  |  | 102,598 |  |  |  | 153,467 |  |  |  | 52,481 |  |  |  | 122 |  |  |  | 11,348 |  |  |  | 324,390 |

(1) See Note 17.a)
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

| 21. | CONTRACTUAL OBLIGATIONS

As of December 31, 2017, the Company had the following contractual commitments:

|  | Estimated maturity date |
|  | Total |  |  | Less than 1 year |  |  | 1-2 years |  |  | 3-4 years |  |  | More than 5 years |
Financial indebtedness (1) |  |  | 4,088.8 |  |  |  | - |  |  |  | 2,645.9 |  |  |  | 872.8 |  |  |  | - |
Purchase obligations (2) |  |  | 632.8 |  |  |  | 632.8 |  |  |  | - |  |  |  | - |  |  |  | - |
Other long term purchase obligations (3) |  |  | 390.9 |  |  |  | 164.0 |  |  |  | 226.9 |  |  |  | - |  |  |  | - |
Total |  |  | 5,112.5 |  |  |  | 796.8 |  |  |  | 2,872.8 |  |  |  | 872.8 |  |  |  | - |

(1) Corresponds to the cancellation of principal and interests of the financial indebtedness. For more information, see Note 12.
(2) Corresponds to purchase of natural gas contracts for the processing of Liquids.
(3) Corresponds to the payment related to the Technical Assistance Agreement with Pampa Energía. For more, information see Note 19.
Almost all the financial indebtedness of TGS and the totality of 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, 2017 (U.S.$1.00 = Ps. 18.659). The amounts to be paid in pesos could vary depending on the actual fluctuations in the exchange rate. For future information, see Note 16.1.1.
Additionally, see Note 20 - Technical, Financial and Operational Assistance Agreement.

| 22. | 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 Petrobras Argentina (being merged with 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 December 17, 2013, the sale of all the fixed assets of EGS to TGS for an amount of $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 Extraordinary Shareholders Meeting held on March 10, 2016 appointed EGS’ liquidator.
On October 13, 2016, the liquidator of EGS resolved the distribution of a dividend in kind of Ps. 4,673 through the partial transfer of the credit that EGS has with TGS as a result of the sale of the Connection Gas Pipeline, which was implemented through TGS and TGU Assignment Agreements, which had full effects on November 4, 2016.
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Notes to the Consolidated Financial Statements as of December 31, 2017 and comparative information
(Stated in thousands of pesos as described in Note 3, unless otherwise stated)

CTG:
On August 8, 2017, the Company acquired from Pampa Energía the entire shareholding of CTG for Ps. 100. The purpose of this company is to carry out various activities related to electric power. As of the date of issuance of these Consolidated Financial Statements, it does not have operations.
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”).
On October 27, 2017, TGS - SACDE UT signed the corresponding work contract with the MINEM.
The Work will generate a joint revenue of Ps. 946 million (VAT included) and the maximum execution period was set in 365 days, counted from the signing of the certificate of commencement of the works, held on November 15, 2017.
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, 2017, the UT has received the first advance payment from the Government. Nevertheless, the Work does not have a degree of physical progress yet.

| 23. | SUBSEQUENT EVENTS

No subsequent events between the end of the fiscal year ended December 31, 2017 and the date of the issuance of these consolidated financial statements have had a material effect on the financial position or the results of operations of the Company, in addition to those already considered in these financial statements.
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