The Public Emergency and Exchange Rate Regime Reform Law (Law No. 25,561) imposed the obligation on public utilities, such as Transener and its subsidiary Transba, to renegotiate their agreements in force with the Government while continuing supplying electricity services. This situation has significantly affected Transener and Transba’s economic and financial situation.

In May 2005, Transener and Transba signed with the UNIREN (Public Utility Contract Renegotiation and Analysis Unit) the Memorandums of Understanding stipulating the terms and conditions for updating the Concession Agreements. The guidelines of these Memorandums of Understanding provided for the performance of an RTI (Integral Tariff Review) before the ENRE (Ente Nacional Regulador de la Electricidad or National Electricity Regulatory Entity) and the determination of a new tariff regime for Transener and Transba, which should have come into force in 2006, as well as for the recognition of variations in operating costs incurred until the entry into effect of the new tariff regime resulting from the RTI.

Since 2006, Transener and Transba have repeatedly requested the ENRE to regularize compliance with the commitments stipulated in the Memorandum of Understanding, expressing the demand to launch the RTI process. Furthermore, Transener and Transba filed their respective tariff claims for their assessment, the holding of a public hearing and the definition of the new tariff scheme.

Instrumental Agreement

In December 2010 Transener and Transba entered into an Instrumental Agreement to UNIREN’s Memorandum of Understanding with the SE (former Secretariat of Energy) and the ENRE, which mainly provided for the acknowledgment of a credit claim in favor of Transener and Transba for cost fluctuations incurred during the June 2005 –November 2010 period, calculated as per the Cost Variation Index established in the Memorandum of Understanding. These receivables were assigned in consideration of disbursements by CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company), which were executed through loan agreements.

Upon collecting these receivables and still without the RTI, in May 2013 Transener and Transba, respectively, executed with the SE and the ENRE a Renewal Agreement, effective until December 31, 2015, which, among other provisions, acknowledged a credit claim for cost variations recorded during the December 2010 – December 2012 period. In view of the repeated delays in the implementation of the RTI provided for in the Memorandum of Understanding, the SE and the ENRE successively extended the recognition of higher costs up to and including November 2015. In May 2016, upon the expiration of the Renewal Agreement and without any pending recognized receivables, Transener and Transba continued collecting the loans granted by CAMMESA, which were disclosed as liabilities. Finally, on December 26, 2016, Transener executed the last agreement with the SE and the ENRE, which recognized credits for cost variations in favor of Transener and Transba for the December 2015 – January 2017 period. On June 19, 2017, CAMMESA made the last disbursement, thus offsetting all credits for cost variations.

RTI

ENRE Resolutions No. 66/17 and No. 73/17 in February 2017, as amended, established the tariffs effective for the 2017/2021 five-year period. Furthermore, the ENRE established the remuneration update mechanism, the service quality system and applicable penalties, the reward system, and the investment plan to be executed by both companies during such period. In October 2017, the ENRE issued Resolutions No. 516/17 and No. 517/17 partially upholding the Motions for Reconsideration filed by Transener and Transba and establishing, retroactively as of February 2017, a AR$8,629 million and AR$3,575 million recognized capital base and AR$3,534 million and AR$1,604 million annual regulated income for Transener and Transba, respectively.

The purpose of the semiannual adjustment mechanism stipulated in the Integral Tariff Review (RTI) is to keep real-term values for remunerations collectable by Transener and Transba during the RTI’s five-year period. The adjustment formula takes into consideration the variations during such semester in the IPIM (Wholesale Domestic Price Index), ‘Manufactured Products’ item, the CPI (Consumer Price Index) and the Salary Index published by the INDEC (Instituto Nacional de Estadística y Censos de Argentina or National Institute of Statistics and Censuses), which are weighed based on the cost structure and average investments for the 2017-2021 period in the RTI. This mechanism contemplates a trigger clause that weighs the IPIM and the CPI semiannual variations published by the INDEC, ascertained at a variation equal to or higher than 5%.

For the December 2016 – June 2017 period, the trigger clause reached 9.02%, and, therefore, the semiannual adjustment for Transener and Transba remuneration was activated, but deferred until December 15, 2017, when ENRE issued Resolutions No. 627/17 and No. 628/17 updating Transener and Transba’s remunerations by 11.35% and 10.96%, respectively, for the December 2016 – June 2017 period, retroactively to August 1, 2017.

ENRE Resolutions No. 37/18 and No. 38/18 of February 19, 2018, later amended by ENRE Resolutions No. 99/18 and 100/18 on April 5, 2018, updated Transener and Transba’s remunerations by 24.15% and 23.39%, respectively, for the December 2016 – December 2017 period, effective as from February 1, 2018. On November 16, 2018, the ENRE issued Resolutions No. 280/18 and No. 281/18, updating Transener and Transba’s remunerations by 42.55% and 43.25%, respectively, for the December 2016 – June 2018 period, effective as from August 1, 2018.

On March 22, 2019, the ENRE issued Resolutions No. 67/19 and No. 68/19 updating Transener and Transba’s remunerations by 78.41% and 81.26%, respectively, for the December 2016 – December 2018 period, effective as from February 1, 2019. On September 25, 2019, the ENRE issued Resolutions No. 269/19 and No. 267/19 updating Transener and Transba’s remunerations by 112.41% and 115.75%, respectively, for the December 2016 – June 2019 period, retroactively to August 1, 2019.

The Solidarity Law (Law No. 27,541), which entered into effect on December 23, 2019, provided that electricity tariffs under federal jurisdiction would remain unchanged and contemplates the possibility to perform an extraordinary review of the current RTI for a maximum term of up to 180 days. As of the date hereof, Transener did not received instructions from the ENRE on the semiannual remuneration update which, according to the RTI, should have been applied as from February 1, 2020 corresponding to the December 2016 – December 2019 period.

Distribution of Transmission Costs among WEM (Wholesale Electricity Market) Users

Resolution No. 1085/17 of the SEE (Secretariat of Electric Energy) issued on November 28, 2017 and effective as from December 1, 2017, established the methodology for the distribution of costs associated with the remuneration of transmission companies among its users (distributors, large users, self-generators and generators). These costs are distributed based on the demand and/or contribution of energy by each WEM agent directly and/or indirectly associated to the DisTro (High-Voltage Electric Power Transmission System), after discounting costs assigned to generating agents as operational and maintenance costs for connection and transformation equipment.

It is worth highlighting that prices payable by distribution companies in consideration of electric power transmission within the WEM are stabilized for their payment by distributors and are calculated together with each Seasonal Programming or Quarterly Reprogramming. In the case of distributing agents whose demand is connected to different DisTros, their demand’s percentage corresponding to each DisTro will be established, and the price will contemplate the demand and the price on a weighted basis. Furthermore, prices applicable to large users within the WEM are calculated in the economic transaction on a monthly basis. In the case of WEM large users not directly associated with the high-voltage transmission and/or DisTro, the applicable monthly value will be that corresponding to the connecting agent.