Promigas S.A. E.S.P. and its subsidiaries. Consolidated Financial Statements as of December 31, 2012 and 2011, and Independent Auditor s Report

Transcription

1 Promigas S.A. E.S.P. and its subsidiaries Consolidated Financial Statements as of December 31, 2012 and 2011, and Independent Auditor s Report

2 PROMIGAS S.A. E.S.P. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2012 AND 2011 (Expressed in thousands of Colombian pesos, except as otherwise noted) 1. REPORTING ENTITY Promigas S.A. E.S.P. (hereinafter, Promigas S.A. E.S.P., Promigas or the Company ) was established according to Colombian laws on December 27, 1974 and its corporate purpose is the purchase, sale, transportation, distribution, exploitation and exploration of natural gas, petroleum and hydrocarbons and the gas and oil activities in all their forms. It can also sell or provide goods or financial and non-financial services to third parties, and finance with their own resources the acquisition of goods or services by third parties. Its corporate domicile is located in the city of Barranquilla (Colombia) and its term of duration goes until December 27, LEGAL AND REGULATORY FRAMEWORK The Company is mainly ruled by Law 142 of 1994, whereby it is established the Domiciliary Public Utilities Regime, Law 689 of 2001 and Resolution CREG 071 of 1999, whereby it is established the Sole Bylaws of Natural Gas Transportation (RUT, for its Spanish initials) in Colombia, its bylaws and other norms contained in the Code of Commerce. Since it is a public utility company, the rates charged by the Company to its customers for natural gas transportation and distribution services are regulated by the National Government through the Energy and Gas Regulatory Commission ( Comisión de Regulación de Energía and Gas - CREG ). The gas transportation rates were updated to be in force from 2002 until 2007 as per Resolution CREG 14 of 2002 and CREG 70 of The current distribution rates were revised in 2004 and were supposed to be in force until 2009 as per Resolution CREG 86 of In August 2011, the CREG issued Resolution 126 of 2011, which establishes the general remuneration criteria for the natural gas transportation service and the general scheme of charges of the national transportation system for the rate period The tariff of the electric-power domiciliary public utility was established through Resolution CREG 079 of In September 2012, the CREG issued Resolution 117, whereby it stated a new transportation rate. This Resolution was subject to an appeal for reversal filed by Promigas, which was resolved through Resolution 122 of November Consequently, the new gas transportation tariff entered into effect and started to be charged in the December 2012 billing. The main operations of Promigas and its subsidiaries are basically the following: 8

3 Natural Gas Transportation and Services Promigas and its subsidiaries dedicated to these activities sell natural gas transportation capacity and related services to gas producers, natural gas distribution companies and other large customers. Natural Gas Distribution The company s subsidiaries dedicated to this activity distribute and sell natural gas primarily to residential, industrial and commercial customers. Power distribution - The subsidiary devoted to this activity distributes and sells electricity primarily to residential, commercial and industrial customers. Telecommunications The subsidiaries devoted to this activity provide either transmission services to other carriers and telecommunication providers through their fiber optic cable network, or call center, contact center, business process outsourcing and personalized attention services for all type of business. Investment companies Subsidiaries devoted to this activity invest in all types of fixed yield or variable yield investments. Following is a summary of Promigas and its main subsidiaries by their primary operations: Business Natural Gas Transportation and Related Services Natural Gas Distribution Power Distribution Telecommunications Company - Promigas S.A. E.S.P. - Gases de Boyacá y Santander S.A. (1) - Transoccidente S.A. E.S.P. - Transportadora de Metano S.A. E.S.P. - Transportadora de Gas del Oriente S.A. E.S.P. - Promisol S.A.S. (formerly Promigas Sevicios Integrados) - Surtidora de Gas del Caribe S.A. E.S.P. - Gases de Occidente S.A. E.S.P. - Compañía Energética de Occidente S.A. E.S.P. (CEOC) - Promigas Telecomunicaciones S.A.S (Promitel) - Promitel Panama S.A. - Promitel Costa Rica S.A. - Orion Call Center S.A.S. 9

4 Business Company Investment - Gasprom S.A.S. (2) - Prominversión Limitada en Liquidación. (3) - Sociedad de Inversiones en Telecomunicaciones S.A.S. (1) This company was merged with Promisol S.A. (absorbing entity) in October (2) This company was merged with Promigas S.A. E.S.P. (absorbing entity) in November (3) This company was liquidated on February 28, SIGNIFICANT ACCOUNTING POLICIES These financial statements are the English translations of those originally prepared by the Company in Spanish and presented in accordance with the accounting principles generally accepted in Colombia, or Colombian GAAP. The effects of the differences between Colombian GAAP and the accounting principles generally accepted in the countries in which these financial statements are to be used have not been quantified. Accordingly, the accompanying financial statements are not intended to present the financial positions, results of operations, shareholders equity, changes in shareholders equity and in financial position or cash flows in accordance with accounting principles generally accepted in the countries of users of the financial statements, other than Colombia. The consolidated financial statements of the Company and its subsidiaries were prepared and presented in accordance with accounting principles generally accepted in Colombia, which are prescribed by legal norms, especially by Decree 2649 of 1993 and the norms issued by the Offices of the Superintendents of Finance, of Public Utilities and of Corporations, as well as by other legal norms. Certain accounting principles applied by the Company and its subsidiaries that conform to accounting principles generally accepted in Colombia, might not conform to accounting principles generally accepted in other countries. Below, there is a description of the main accounting policies and practices applied by the Company and its subsidiaries: a. Consolidation of financial statements The Company consolidates its financial statements applying the method of global consolidation, which consists of incorporating to the financial statements of the Company, all assets, liabilities, equity and results of the subsidiaries, with the elimination of the investments and the reciprocal operations. All operations between related companies were eliminated in the consolidation. The consolidated financial statements as of December 31, 2012 and 2011 include the financial statements of Promigas S.A. E.S.P. and of those entities controlled by Promigas (its subsidiaries, hereinafter, the Companies ). 10

5 Control is achieved where Promigas has directly or indirectly the power to govern the decision making process. The consolidated companies are: Percentage of Stock December 31, 2012 December 31, 2011 Direct Indirect Total Direct Indirect Total Surtidora de Gas del Caribe S.A. E.S.P Gases de Boyacá y Santander S.A.(4) Gases de Occidente S.A. E.S.P Promigas Telecomunicaciones S.A.S. (2) Promitel Panamá S.A Transoccidente S.A. E.S.P Transportadora de Metano E.S.P. S.A. (2) Promisol S.A.S. (2) Gasprom S.A.S. (5) Compañía Energética de Occidente S.A. E.S.P. (7) Prominversión Limitada en Liquidación (1) Transportadora de Gas del Oriente S.A. E.S.P Promitel Costa Rica S.A Orion Call Center SAS (3) Sociedad de Inversiones en Telecomunicaciones S.A.S. (6) (1) On February 28, 2012, through Minute No. 5, the Ordinary Board of Partners of Prominversión Limitada, approved the definitive liquidation of the Company, awarding the remaining shares of Gases de Occidente S.A. E.S.P. to Promigas S.A. E.S.P. for an amount of $1,670,928. (2) In April 2012, Promigas entered into a purchase-sale contract with Gazel and Terpel for the purchase of the interest shares that these companies held in Promigas portfolio companies as follows: a) 121,250 shares of Promigas Telecomunicaciones S.A.S. for an amount of $5,088,932, increasing its interest share by 4.57%. b) 68,238,551 shares of Transportadora de Metano S.A. E.S.P for an amount of $5,227,190, increasing its interest share by 4.65%. c) 27,299 shares of Promisol S.A.S. for an amount of $1,459,720, increasing its share by 99.99%. (3) On May 7, 2012, the companies Gases de Occidente S.A. E.S.P. and Surtidora de Gas del Caribe S.A. E.S.P. incorporated the company Orion Call Center S.A.S. with an interest share of 60% and 40%, respectively. (4) In July 2012, Promisol S.A.S. fully absorbed Gases de Boyacá y Santander S.A., both affiliates of Promigas; the purpose of this transaction was to have a more efficient operation and unified processes of supplementary activities. (5) In February 2012, the General Stockholders Meetings of Promigas S.A. E.S.P. and Gasprom S.A.S. authorized the merger of the latter with Promigas S.A. E.S.P., operation that was protocolized by Public Deed No dated September 28, As a result of this merger, Promigas received 1,087,954 shares of Promigas Telecomunicaciones S.A.S. to increase its share from 59.09% to 99.99%. Subsequently, Promigas S.A. E.S.P. acquired 0.01% to fully own Promigas Telecomunicaciones S.A.S. 11

6 (6) In December 2012, Promigas S.A. E.S.P. incorporated Sociedad de Inversiones en Telecomunicaciones S.A.S.Investment amounted to $1,000,000, equivalent to a 100% share. (7) During 2011, the advances for future capitalizations that Promigas S.A. E.S.P. and Gases de Occidente S.A. E.S.P. provided to Compañía Energética de Occidente S.A. E.S.P. amounting to $56,465,735 and $58,770,459, respectively, were capitalized keeping their respective shares of 49% and 51%. In October 2011, the Extraordinary Partners Meeting of Prominversión Limitada approved the liquidation of the company. As a result of that process the following transactions have taken place: a) Subrogation of a financial liability to Promigas amounting to $21,300,000, in exchange of 45,000 shares of Gases de Boyacá y Santander S.A., 24,273 shares of Transoccidente S.A E.S.P., 334,200 shares of Gasprom S.A.S., 250 shares of Promigas Servicios Integrados S.A., 133,057 shares of Gases de Occidente S.A. E.S.P., 590,802 shares of Transportadora de Gas del Tolima S.A. E.S.P. and a cash trust amounting to $3,909,011. b) Partial allocation of 239,565 shares of Gases de Occidente S.A. E.S.P. amounting to $25,868,316. The financial statements of foreign subsidiaries were translated into Colombian pesos for consolidation purposes, as follows: Assets and liabilities use the market representative exchange rate as of December 31, 2012 and 2011; revenues, costs and expenses, using the monthly average exchange rate of the respective month; and the shareholders equity using historical exchange rates. Selected information from the separate balance sheets and income statements of the consolidated subsidiaries as of December 31, 2012 and 2011 and for the years then ended are as follows: Assets Liabilities Shareholders Net income Shareholders equity (Loss) Assets Liabilities equity Net income (Loss) Surtidora de Gas del Caribe S.A. E.S.P. 598,059, ,532, ,526,221 47,388, ,061, ,840, ,221,004 43,788,231 Gases de Boyacá y Santander S.A ,519,538 78,675 3,440,863 55,623 Promigas Telecomunicaciones S.A.S. 162,083,844 87,924,371 74,159,473 10,758, ,264,428 74,889,287 80,375,141 11,377,536 Promitel Panamá S.A. 11,655,339 10,225,384 1,429,955 (1,327,066) 12,502,858 9,651,827 2,851,031 (143,069) Promitel Costa Rica S.A. 9,234,626 6,116,983 3,117,643 (412,521) 5,817,137 3,123,709 2,693,428 - Transoccidente S.A. E.S.P. 15,415,812 2,095,932 13,319,880 1,757,030 15,750,830 2,129,803 13,621,027 2,305,338 Gases de Occidente S.A. E.S.P. 817,211, ,314, ,896,638 78,533, ,647, ,769, ,877,932 69,165,801 Transportadora de Metano E.S.P. S.A. 146,178,011 22,630, ,547,223 12,079, ,968,560 34,788,109 95,180,451 9,953,420 Promisol S.A.S. 56,692,413 4,451,543 52,240,869 4,505,679 40,881,040 4,630,822 36,250,218 1,331,863 Gasprom S.A ,042, , ,829,679 4,636,878 Compañía Energética de Occidente SAS ESP 358,801, ,813, ,988,321 32,374, ,152,070 59,538, ,613,643 17,966,599 Prominversión Limitada en liquidación ,429,674 52,329 2,377,345 (273,390) Transportadora de Gas del Oriente S.A. E.S.P 516,126, ,459, ,667,183 1,941, ,489, ,404, ,085,041 4,266,742 Orion Call Center 687, , , Sociedad de Inversiones en Telecomunicaciones S.A.S. 1,000,000-1,000, b. Reporting currency According to legal provisions, the reporting currency used by the Company is the Colombian peso. 12

7 c. Foreign currency transactions Foreign currency transactions and balances denominated in a currency other than the Colombian pesos are translated into Colombian pesos at the official exchange rate as certified by the Colombian Financial Superintendency. The exchange gains and losses resulting from accounts payable and liabilities denominated in foreign-currency that resulted from the acquisition of assets are capitalized until the assets are in conditions to be used or sold. All other exchange gains and losses are included in operations. The official year-end exchange rates used to translate the foreign currency assets and liabilities were Col$1, per US$1 as of December 31, 2012 and Col$1, per US$1 as of December 31, d. Investments Temporary investments are initially recorded at cost and subsequently valued at their net realizable value. Investments made in shares of non-controlled companies are recorded at the acquisition cost and subsequently adjusted at their intrinsic value through revaluations. e. Allowance for doubtful accounts The allowance for doubtful accounts is reviewed and updated at the end of each period based upon aging analysis and individual analyses of the credit-worthiness of the customers. f. Inventories Inventories are recorded at cost. The cost is determined based upon the average cost method or at their net realization value, the lower. A provision is recorded to reduce obsolete and slow moving inventories to net realizable value. g. Property, plant and equipment Recorded at cost and adjusted for inflation through either December 31, 2005 or The carrying value of the assets includes all expenditures and charges necessary to put them in conditions of being used, such as engineering, supervision, taxes and financial expenses. Depreciation of most of these assets is calculated applying the straight-line method over their estimated useful lives. Annual depreciation rates are the following: Constructions and buildings 5% Gas pipelines, plant and networks 5% Machinery and equipment 6.7% - 10% Transportation fleet and equipment 20% Computer and communications equipment 20% - 25% Office equipment 10% Fiber optics networks 5% h. Deferred depreciation The excess fiscal depreciation over book depreciation is recorded as deferred depreciation and the corresponding tax effect is recorded as deferred tax liability. To be entitled to the fiscal deduction, the Companies constitute a reserve equivalent to 70% of the higher value requested for tax purposes. i. Leasing Leasing contracts are accounted for as follows: 13

8 Finance Leases Assets held under finance leases are recognized as intangible assets at the present value of the minimum lease payments including the purchase option. The corresponding liability to the lessor is included in the balance sheet as a financial obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation. Depreciation is calculated under the straight line method over the useful life of the asset and is recorded as amortization in the income statement. Operating Lease Rentals payable under operating leases are charged to profit or loss. Neither an asset nor a liability is recognized for the assets received. The requirements and conditions for a contract to be recognized as an operating lease are stated by Article 127 of the Tax Statute. j. Intangibles Correspond to the costs (adjusted for inflation until either 2005 or 2006) of software and goodwill, which are amortized using the straight line method over 5 and 20 years, respectively. Goodwill is tested for impairment on an annual basis. k. Deferred charges They mainly correspond to: Pre-operating costs and expenses incurred by Promigas Telecomunicaciones S.A.S. and Transmetano E.S.P. S.A. The amortization term for Promigas Telecomunicaciones S.A.S. is 20 years, using the straight-line method; and for Transmetano the amortization is calculated over the same useful life of the gas pipeline (at a 7.5% annual rate). Other deferred charges incurred in the Ili project are amortized over 5 years, until May of Deferred income taxes. l. Revaluations of assets This account corresponds to the differences between: a) the replacement value determined by technical appraisals and the net book value of property, gas pipelines, plant and equipment; and b) the intrinsic value and the book value of the investments. Such revaluation of assets is recorded in the non-current assets account Revaluation of Assets with the offsetting entry credited to the shareholders equity account Surplus from revaluation of assets, which cannot be distributed. If the revaluation results in a decrease in the book value of the asset the difference is charged against income to the extent that it exceeds the balance, if any, held in the surplus from revaluation of assets account; except for those related to investments 14

9 made in non-controlled companies, which are recorded in the account Surplus from revaluation of assets, even if this account net balance ends up being negative. Technical appraisals are prepared every three (3) years. During the interim, they are updated based upon the consumer price index (CPI), stated by the National Administrative Department of Statistics, DANE. m. Labor obligations Correspond to the Company s obligations for mandatory and voluntary employee benefits under applicable labor agreements. Retirement pension obligations represent the present value of all future allowances that the Company will pay to those employees that have fulfilled or that will fulfill certain legal requirements regarding age, time of service and others, determined on the basis of actuarial studies that the Company obtains every year, in accordance with regulations issued by the Superintendence of Corporations, without the specific investment of funds. For employees covered by the social security regime (Law 100 issued in 1993), the companies cover their pension obligation through the payment of contributions to the Social Security Institute (Spanish acronym ISS) and/or to the Private Pension Funds, under the terms and conditions provided for in the aforementioned law. n. Foreign currency forward agreements Forward agreements are used by the company to hedge against exchange rate fluctuation from foreign currency covering a percentage of revenues in dollars, and are recorded at their nominal value on memorandum accounts. Unsettled agreements are measured at fair value and recognized in equity as far as they are qualified as effective, being effective those with effectiveness range between 80% and 125%. Gains and losses are recognized in the income statement at the time of settlement at each month closing. o. Income taxes The income tax provision is determined based on the taxable profit or presumptive income, whichever is higher, estimated at rates specified in the tax law, except for utility companies, which are not subject to the presumptive (minimum taxable) income. The effect of temporary differences that implies the payment of a lower or higher tax in the current year, calculated at current rates, is recorded as a deferred income tax asset or liability, as applicable, provided that there is reasonable expectation that those differences will reverse in the foreseeable future. p. Memorandum accounts Memorandum accounts mainly include the contingent rights and liabilities, the differences between book and fiscal figures and fully depreciated fixed assets. q. Recognition of revenue, costs and expenses Revenues are recognized in the month when services are rendered. Likewise, costs and expenses are recorded on an accrual basis. r. Cash For purposes of presentation in the statement of cash flows the Company classifies temporary investments within cash equivalents. 15

10 s. Accounting estimates The preparation of financial statements in conformity with accounting principles generally accepted in Colombia, requires Management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. t. Reclassifications Certain 2011 amounts have been reclassified to conform to the 2012 presentation. 3. IFRS CONVERGENCE According to Law 1314 of 2009 and Regulatory Decrees 2706 and 2784 of 2012, issued by the Ministry of Commerce, Industry and Tourism, the Companies are obliged to initiate the process of adopting the International Financial Reporting Standards (IFRS). For this purpose, the Technical Council of Public Accountancy ( Consejo Técnico de la Contaduría Pública ), through strategic guideline, classified the companies by groups (Group 1, Group 2 and Group 3). Promigas S.A. E.S.P. and its Subsidiaries belong to Group 1, whose transition period starts on January 1, 2014 and for whom the year of issuance of their first financial statements under International Financial Reporting Standards is Additionally, the Companies must present on February 28, 2013 at the latest to the corresponding Offices of the Superintendents, the Implementation Plan of the International Financial Reporting Standards (IFRS). 4. CASH AND BANKS Cash $ 897,957 $ 294,478 Bank: Local 76,279,324 59,920,985 Foreing 2,358,355 5,270,538 Funds (1) 64,243,728 4,757,201 $ 143,779,364 $ 70,243,202 (1) Includes resources received by Promigas corresponding to the indemnity for consequential damages amounting to $32,490,000, which will be used for the construction of a new sub-river crossing in the Magdalena River. Additionally, it includes resources held by an autonomous trust of Transoriente amounting to $21,541,716 that are kept as a reserve fund to comply with the service of debt of the syndicated credit that financed the construction of the Gibraltar Bucaramanga pipeline. 16

11 5. OPERATIONS IN FOREIGN CURRENCY As of December 31, 2012 and 2011, the Companies had the following foreign-currency denominated assets and liabilities, recorded at their Colombian-peso equivalents: US Dollars Col$ 000 US Dollars Col$ 000 Current assets US$ 10,170,243 $ 17,983,328 US$ 11,493,257 $ 22,327,950 Long term assets 114,974, ,301,495 84,836, ,810,923 Total assets 125,144, ,284,823 96,329, ,138,873 Current liabilities 11,766,079 20,805,134 16,016,564 31,115,379 Long-term liabilities 71,385, ,225,099 68,368, ,819,245 Total liabilities 83,151, ,030,233 84,384, ,934,624 Net asset position US$ 41,993,740 $ 74,254,590 US$ 11,944,330 $ 23,204, TEMPORARY INVESTMENTS Annual effective Interest rate (%) Term deposit certificates (1) $ 3,750,715 $ 9,999,685 Investment funds ,157,222 2,559,841 Trust mandates (2) ,260, ,289,644 Bonds and securities issued by the National Government ,200,000 Bonds and securities issued by the private sector ,410 Funding security operations ,887 4,078,210 $ 76,174,791 $ 120,228,790 1) As of December 2012, Compañía Energética de Occidente S.A.S. E.S.P., redeemed all its CDT s amounting to $9,687,805 issued by Bancolombia and Banco de Bogotá, in order to cover its energy purchase payments. It also includes the increase on CDT S denominated in US Dollars issued by Corficolombiana Panama with a portion of the resources received from the syndicated loan signed by Transoriente amounting to $3,465,800. 2) Includes a decrease in trusts created to pay off obligations of Promigas amounting to $52,000,000, which are detailed as follows: Dividends, $23,157,000; letter of credit for importation of piping for the Palomino - La Mami project amounting to $11,576,000; interest of bonds amounting to $6,486,000, unpaid balances for the purchase of gas pipeline to TGI amounting to $5,676,000, and unpaid balances related to the purchase of the company Construcciones e Inversiones El Cayao amounting to $5,046,372. This company was subsequently merged with Promigas. Additionally, Compañía Energética de Occidente S.A.S. E.S.P., created Trust Mandates amounting to $18,420,211, with the purpose of managing the resources for construction of rural electrification infrastructure. 17

12 7. ACCOUNTS RECEIVABLE Gas transportation and distribution (1) $ 455,441,136 $ 378,486,741 Energy commercialization, distribution and subsidies (2) 92,191,708 64,154,648 Sale of gas and compressed natural gas equipment and fuels 11,115,314 7,567,594 Telecommunication services 15,130,343 10,222,723 Non-banking financing (3) 246,939, ,025,459 Related parties 54,824,112 53,136,186 Loans made to third parties 17,398,691 14,686,688 Employee loans 11,243,766 12,016,974 Prepaid taxes and contributions (4) 12,248,611 5,362,199 Prepayments (5) 63,728,583 58,429,622 Dividends receivable 132 1,083,682 Sundry debtors (6) 31,885,359 14,230,786 Doubtful accounts (7) 9,120,385 2,529,039 1,021,267, ,932,341 Less allowance for doubtful accounts (44,364,983) (28,863,627) 976,902, ,068,714 Current portion 606,832, ,997,035 Long-term portion $ 370,070,446 $ 355,071,679 (1) Includes the accounts receivable from users corresponding to the distribution and commercialization of natural gas, the construction of internal networks and other associated services. During 2012, Surtigas connected 40,112 new users. Additionally, it includes the gas transportation service attended by Transoriente, for the Barranca - Payoa - Bucaramanga and Gibraltar - Bucaramanga gas pipelines that initiated operations in December (2) Includes the portfolio of receivables of the distribution business (STR and ADD) and of the commercialization business (billing to regulated and non-regulated users) of the users attended by Compañía Energética de Occidente S.A.S. E.S.P. in the Department/State of Cauca. (3) It corresponds to accounts receivable with domiciliary gas customers related to the Brilla project, payable over periods of 1 to 5 years. Interest rate applied is the maximum legal rate allowed by the Superintendent of Finance. (4) Corresponds to the advanced payment of income tax of Promigas and PSI for (5) Includes advances to contractors of Surtigas amounting to $8,172,677 for the realization of the expansion project. During 2012, the power supply contract of Compañía Energética de Occidente with Emgesa is no longer pre-paid and became a post-payment contract. (6) In 2012, it includes the economic recognition by Gases de Occidente of the ASE concession contract and the receivables from Gases del Caribe and Efigas for the implementation of SAP amounting to $8,653,321. Additionally, it includes $4,257,694 of Compañía Energética de Occidente for accounts

13 receivable from UTEN for inventory shortages, commission charges made to Cedelca and receivables with Banco de Bogotá related to GMF made to resources belonging to FAER and PRONE. (7) Corresponds to accounts receivable of Promigas from Consorcio Protección Gasoductos related to advanced payments made to perform erosion control works at the Magdalena River in the Cabica Island. As of December 31, 2011, it mainly includes accounts receivable from ECOGAS for services rendered to the gas pipelines absorbed by this company together with the interest on arrears, balance that is under discussion. The Company had obtained a favorable ruling but Council of State annulled it. As of December 31, 2012, there are no restrictions or encumbrances on the accounts receivable. As of December 31, 2012, the maturities of long-term accounts receivable are as follows: From January 1 st to December 31 st $ 141,410,900 From January 1 st to December 31 st ,589,412 From January 1 st to December 31 st ,679,415 From January 1 st to December 31 st ,398,222 From January 1 st to December 31 st and thereafter $ 57,992,497 57,992, ,070,446 The movement of the allowance for doubtful accounts was as follows: 57,992, Beginning balance $ (28,863,627) $ (26,599,895) Charge to operations (21,708,420) (12,952,600) Written-off receivables 6,311,156 7,031,862 Recoveries (104,092) 3,657,006 $ (44,364,983) $ (28,863,627) 8. INVENTORIES Materials, spare parts and accessories $ 48,304,301 $ 44,335,985 Constructions available for sale 591, ,520 Inventories in transit 2,495, ,546 Inventory held by third parties 2,964, ,366 54,356,618 46,291,417 Inventories allowance (20,388) (40,472) 54,336,230 46,250,945 Long-term portion 13,521,318 11,985,033 Current portion $ 40,814,912 $ 34,265,912 19

14 9. PERMANENT INVESTMENTS As of December 31, 2012 Economic Activity Number of Shares % Held Book Value Gas Natural de Lima y Callao (3) Gas Distribution 39,320,511 40,00% $ 106,352,315 Gases del Caribe S.A. E.S.P. Gas Distribution 5,440,488 30,99% 3,758,486 Sociedad de Acueducto, Alcantarillado y Aseo de Barranquilla S.A. E.S.P. Water supply 474,271 0,65% 917,043 Aeropuerto de Barranquilla Services 33,000,000 9,76% 77,199 GNC Inversiones S.A.S. en Liquidación Investments 1,039,975 4,95% 1,039,975 Colombiana de Extrusión S.A. Manufacturing 157,710 10,00% 1,212,546 Metrex S.A. Manufacturing 240,000 7,70% 431,374 Gasoducto del Tolima S.A. E.S.P. Gas Distribution 520,802 11,21% 1,132,119 Energía Eficiente S.A. E.S.P. (E2) (2) Gas commercialization 312,136 32,62% 1,829,450 Information Concentra S.A.S management 420,000 26,25% 420,000 Sociedad Portuaria el Cayao S.A. E.S.P. (1) GNL Regasification 2,500 25,00% 1,468,743 Other minor 2,219,898 1,42% 1,074,023 Mandatory bonds and other investments 38, ,751,717 Less valuation allowance (1,527,220) $ 118,224,497 As of December 31, 2011 Economic Activity Number of Shares % Held Book Value Gas Natural de Lima y Callao (3) Gas Distribution 39,320,511 40,00% $ 89,577,238 Gases del Caribe S.A. E.S.P. Gas Distribution 5,440,488 30,99% 3,758,486 Sociedad de Acueducto, Alcantarillado y Aseo de Barranquilla S.A. E.S.P. Water supply 474,271 0,65% 917,043 Aeropuerto de Barranquilla S.A. Services 33,000,000 9,76% 77,199 GNC Inversiones S.A.S. en Liquidación Investments 1,049,975 5,00% 1,049,975 Colombiana de Extrusión S.A. Manufacturing 157,710 10,00% 1,212,545 Metrex S.A. Manufacturing 240,000 7,70% 431,374 Gasoducto del Tolima S.A. E.S.P. Gas Distribution 520,802 11,21% 1,132,119 Energía Eficiente S.A. E.S.P. (E2) Gas commercialization 245,231 24,28% 375,386 Concentra S.A.S Information management 420,000 26,25% 420,000 Other minor (4) 2,294,143 1,63% 1,001,037 Mnadatory bonds and other investments 20,667 99,973,069 Less valuation allowance (1,433,820) $ 98,539,249 (1) In March 2012 it was acquired 25% of the share in Compañía Construcciones e Inversiones El Cayao S.A.S., a company incorporated for the performance of feasibility studies for the importation of Liquefied Natural Gas (LNG). (2) As of June 2012, Surtigas S.A. E.S.P. acquired 72,631 shares of Energía Eficiente S.A. amounting to $1,454,713 from Gas Natural Comprimido S.A.S. (3) In August 2012, the General Stockholders Meeting of Gas Natural de Lima y Callao S.A. approved the capitalization of 60,000,000 shares at a US$1 value per share. Promigas acquired 14,000,000 shares, in November 2012, equivalent to US$14,000,000, keeping its percentage of share in 40%. 20

15 In 2011, EEB, a Colombian company, acquired the 60% share that AEI had in Calidda. Consequently, the joint control that AEI and Promigas used to have in Calidda was lost. Therefore, starting 2011 Promigas accounts for its 40% share in Calidda under the cost method. 10. PROPERTY, PLANT AND EQUIPMENT Lands $ $ Livestock Constructions in process (1) Movable assets in the warehouse Buildings Computer and communications equipment Furniture and fixtures Transportation equipment Machinery and equipment Gas pipelines, plants and networks Fiscal depreciation ( ) ( ) Deferred depreciation Total accumulated depreciation ( ) ( ) Property, plant and equipment valuation allowance ( ) ( ) $ $ Total depreciation charged to operations for the years ended as of December 31, 2012 and 2011 was $104,634,388 and $84,204,616. (1) Includes changes of linings in gas pipelines, extension of the Palomino Station and construction of the Palomino - La Mami Loop in Promigas. Additionally, it includes the construction of a trench of the Transoriente s Gibraltar - Bucaramanga gas pipeline. 11. OTHER ASSETS Revaluation of property, plant and equipment (1) $ $ Revaluation of permanent investments (2) Deferred charges Deferred income tax Deferred monetary correction charge Leasehold improvements Goodwill Software

16 Rights Other intangibles Assets acquired under leasing Autonomous equity Accumulated amortization ( ) ( ) Fiscal amortization Total other assets $ $ (1) Assets are revalued at least every three (3) years based on technical appraisals. Appraisals were updated in 2012 for Promigas S.A. E.S.P., Promisol S.A.S., Surtidora de Gas del Caribe S.A. E.S.P. and Gases de Occidente S.A. E.S.P.; in 2011 for Transportadora de Metano E.S.P. S.A. and Transoccidente S.A. E.S.P.; and in 2010 for Transportadora de Gas de Oriente S.A. E.S.P. and Promigas Telecomunicaciones S.A.S. (2) As of December 31, 2012, it mainly includes reavaluation of Promigas investments in Gas Natural de Lima y Callao S.A. amounting to $37,606,845 and in Gases del Caribe S.A. E.S.P. amounting to $117,701,007. Total amortization charged to operations for the years ended as of December 31, 2012 and 2011 amounted to $16,826,208 and $14,038,362; respectively. 12. FINANCIAL OBLIGATIONS Local-currency liabilities $ 971,136,102 $ 797,921,015 Foreign-currency liabilities 142,590, ,528,274 Leasing 211,870, ,372,920 Interests payable 9,066,179 10,868,091 1,334,663,010 1,109,690,300 Less: current portion 427,901, ,758,450 Long-term portion $ 906,761,489 $ 969,931,850 During 2012, Promigas obtained loans with financial entities amounting to $205,662,049, to refinance the bonds issued in 2002, which expired on May 16, Additionally, the funds obtained were used to cover certain investment acquisitions and for working capital. During 2011, Promigas obtained loans with financial entities amounting to $160,554,861 which were used as follows: $21,300,000 for the subrogation of the debt of Prominversión Limitada en Liquidación, to fund the refinancing of the bonds issued in 2002, which expired on August 23, 2012, and the remaining $ for working capital, the importation of the Palomino Station compressor and the works to control the erosion of the Magdalena River - Cabica sector. 22

17 Gases de Occidente paid off financial liabilities in local currency amounting to $134,640,000 with resources obtained through the issuance of bonds carried out on December 11, The leasing contracts increased as compared to 2011 by $24,506,598 due to advances that the financial entity paid-off during 2012, for the execution of the construction contracts of distribution networks and regulation stations. These contracts are recorded in assets as goods acquired under financial leasing and in liabilities as financial liabilities. Surtigas and CEO acquired loans with banking entities amounting to $68,000,000 and $47,307,809, respectively, for investments in fixed assets and working capital. Additionally, Surtigas increased the leasing contracts as composed to 2011, for an amount of $35,793,113 due to the advanced payments that the financial entity made during 2012, for the execution of construction contracts of distribution networks and regulation stations. In June 2012, Transoriente restructured the syndicated credit debt, which allowed it obtaining benefits regarding rates and payment terms. With the resources obtained the company paid balances of the previous syndicated credit, treasury credits, and obligations with Gasoriente and invested in the construction of the Gibraltar Bucaramanga gas pipeline. Transmetano obtained credits for working capital amounting to $3,000,000 with Bancolombia and, in turn, it paid-off obligations with the same bank amounting to $5,250,000 and US$ 3,500,000. Additionally, it cancelled the obligation with Banco Popular that amounted to $2,500,000. As of December 31, 2012, the interest rates of these liabilities range between 2.66% E.A. 9.81% E.A., DTF % - DTF % and LIBOR % - LIBOR % (December 31, 2011, DTF % and DTF + 3.0% and LIBOR + 6.0%). Long-term liabilities maturity is as follows: From January 1 st to December 31 st, 2014 $ 279,982,755 From January 1 st to December 31 st, ,038,385 From January 1 st to December 31 st, ,797,178 From January 1 st to December 31 st, ,051,456 From January 1 st to December 31 st, 2018 and thereafter 143,891,715 $ 906,761,489 23

18 13. ACCOUNTS PAYABLE Suppliers (1) $ 126,953,108 $ 81,138,205 Costs and expenses payable 73,166,676 59,788,065 Dividends payable (2) 68,507,540 39,886,125 Related parties 1,152,936 6,037,265 Income taxes 34,598,526 42,912,398 Tax on equity (3) 19,128,813 29,347,292 Withholding taxes payable 7,617,425 4,876,005 Industry and Commerce Tax payable 8,814,227 3,182,435 Value Added Tax payable 2,362,100 2,126,157 Other taxes payable 5,615, ,008 Advances (4) 56,368,227 20,494, ,285, ,518,311 Less-current portion 391,457, ,390,738 Long-term portion $ 12,827,531 $ 24,127,573 (1) As of December 31, 2012, it includes: Accounts payable from Promigas S.A. E.S.P. to Montinpetrol S.A. amounting to $12,857,057 for the realization of studies and works related to the construction of the new sub-fluvial crossing of the Magdalena River; Promigas Telecomunicaciones, for the purchase of telecommunications equipment for the Telmex and Tigo projects amounting to $4,069,203; Gases de Occidente S.A. E.S.P. for the supply and transportation of gas, mainly with Ecopetrol which increased in $16,058,984 and TGI amounting to $11,286,040. (2) As of December 31, 2012, it mainly corresponds to extraordinary dividends decreed by Promigas amounting to $28,576,681, payable in January (3) As of December 31, 2012, it includes the four installments of the Tax on Equity, paid in March and September of each year, with expiration in (4) As of December 31, 2012, it includes: resources of the Ministry of Mines and Energy transferred to Surtigas for gasification of municipalities of Sucre amounting to $3,235,474; the resources for rural electrification projects under law 178/59 amounting to $29,369,534 received by Compañía Energetica de Occidente S.A. E.S.P. as well as resources received by this company from the Ministry of Mines and Energy PRONE fund amounting to $1,913,957. Income tax Colombian companies are subject to income tax at a 33% rate applicable to net taxable income or presumptive (minimum taxable) income, whichever is higher. Presumptive (minimum taxable) income is equivalent to 3% of the previous year s net taxable equity. 24

19 As of December 31, 2012, Promigas and its related company, Sociedad Transportadora de Gas del Oriente S.A., calculated and recorded the income tax provision taking as a basis the presumptive (minimum taxable) income. Tax years 2011 and 2010 are open to the review by the tax authorities for all consolidating companies, except for Transoriente and Promitel whose tax years are open from 2008 and 2009, respectively. Promigas S.A. E.S.P., entered into a Juridical/Legal Stability Agreement with the Nation Ministry of Mines and Energy, whereby it agrees to build a gas pipeline and other transportation facilities amounting to $77,263,585, over a seven- (7) year term. The contract term is twenty (20) years, during which as a consideration the Nation guarantees Promigas the juridical/legal stability on certain provisions of the Tax Statute. As of December 31, 2012, Promigas S.A. E.S.P., Sociedad Transportadora de Gas del Oriente S.A. E.S.P. and Promisol had net tax loss carry-forwards pending to be utilized in subsequent tax years amounting to $122,453,815 and $11,182,814, respectively. Tax on equity By means of Law 1111 of December 2006 the Colombian government created a tax on equity for taxable years of 2007 to The taxable base of the equity tax is comprised at the book value of the tax payer s net equity owned on January 1, 2007 applying a rate of 1, 2%. Article 1 of Law 1370 of 2009, extended the application of this tax until The Company and its subsidiaries recorded a tax on equity amounting to $37,491,628, of which $29,648,075 was recognized against the equity revaluation account and the remaining $7,843,553 was charged to income. Consequently, Promigas and its subsidiaries paid the tax on equity due in However, in connection with the tax on equity paid by Promigas S.A., the company decided to file before the DIAN an application for payment of a non-due amount, as it considers that such tax is not applicable to it by virtue of the Legal /Juridical Stability contract entered into with the Nation in This application was rejected by the DIAN. Therefore, Promigas filed an appeal against that decision before the DIAN, which has one year to resolve the issue. Tax Reform The Congress of the Republic enacted Law 1607 of December 26, 2012, which introduces important changes to the Colombian tax regulations, as follows: The income tax rate is reduced from 33% to 25% as from 2013 and it is created the income tax for equity ( Impuesto de Renta para la equidad - CREE ), with a 9% rate between 2013 and 2015 and 8% as from The base to compute this tax, is different to the one used for purposes of the income tax calculation. The taxpayers of the income tax for equity are not obliged to pay the contributions to SENA and to ICBF for the employees who earn less than ten (10) minimum legal monthly wages. This exoneration will also cover the contributions to the health contributing regime as from January 1,

20 The law states the concept of permanent establishment, understood as a fixed place whereby a foreign company develops businesses in the country. The law modifies the methodology to calculate the taxable and non-taxable profits for the companies that distribute profits to their partners or shareholders. Transfer pricing In accordance with tax regulations, Promigas S.A. E.S.P. prepared its 2011 transfer pricing informative return. No adjustments to the taxable income resulted from that analysis. 14. LABOR OBLIGATIONS Consolidated severance $ 3,523,890 $ 3,261,649 Severance interest 404, ,280 Vacations 4,146,814 3,133,374 Extralegal benefits 5,127,741 5,663,670 13,202,697 12,441,973 Less current portion 12,877,145 12,170,519 Long-term portion $ 325,552 $ 271,454 A consolidated breakdown of personnel and personnel expenses of the Company and its subsidiaries for the years ended as of December 31, 2012 and 2011 is the following: Number of employees: Promigas S.A. E.S.P. Management 5 5 Other Subsidiaries Management Other 1,269 1,134 Personnel expenses Promigas S.A. E.S.P. Management $ 4,852,547 $ 5,633,773 Other 29,479,904 27,358,747 Subsidiaries Management $ 29,794,663 $ 24,005,973 Other 49,555,980 50,947,306 26

21 15. BONDS Principal (1) $ 750,000,000 $ 650,000,000 Interest 6,532,880 8,111, ,532, ,111,237 Less-current portion 6,532, ,111,237 Long-term portion $ 750,000,000 $ 550,000,000 Promigas S.A. E.S.P. In August 2009, through a public offering, the Company issued bonds with the following characteristics: Amount: $400,000,000 Purpose: 100% to substitute liabilities Par value: One million Colombian pesos each Series and terms: Maturities: Series C7, C10 and C15 years $ 80,000,000, on August 27, 2016 $150,000,000 on August 27, 2019 $170,000,000 on August 27, 2024 Securities yield: Series C7: CPI % Series C10: CPI % Series C15: CPI % Interest payment form: Legal representative of holders Quarterly Fiduciaria Helm Trust S.A. Through a public offering in 2002, the Company issued bonds with the following characteristics: Amount: $200,000,000 Purpose: 35% to substitute obligations and the remaining percentage to finance the investment plan as of that date. Par value: One million Colombian pesos each Series and terms: Series A and B 10 years Maturities: Securities yield: Interest payment form: Legal representative of holders $100,000,000, on May 16, 2012 Series A: CPI + plus a margin determined at the public offering Series B: CPI + plus a margin determined at the public offering Quarterly Fiducolombia S.A. 27

22 Gases de Occidente S.A. E.S.P. - Through a public offering dated December 11, 2012, the Company issued bonds with the following characteristic: Amount: $200,000,000 Purpose: Substitution of financial debt Par value: One Million Colombian pesos each Series and terms: Series A10-10 years Series A20-20 years Securities yield: Series A10 CPI % E.A. Series A20 CPI % E.A. Form of payment: Quarterly Legal representative of holders Helm Trust S.A. Through a public offering dated July 23, 2009, the Company issued bonds with the following characteristic: Amount: $150,000,000 Purpose: Substitution of financial debt Par value: One Million Colombian pesos each Series and terms: Series A5-5 years Series A7-7 years Series A10 10 years. Securities yield: Series A5 CPI % E.A. Series A7 CPI % E.A. Series A10 CPI % E.A. Form of payment: Quarterly Legal representative of holders Helm Trust S.A. (1) In May 2012, $100,000,000 of the B Series bonds issued by Promigas S.A. E.S.P. in 2002 were paid. Additionally, in August 2011, $100,000,000 of A Series bonds were also paid. In June 2011, bonds issued in 2004 by Surtidora de Gas del Caribe S.A. E.S.P. were paid with a loan granted by Bancolombia amounting to $60,000,000. During 2012 and 2011, interests accrued by each company were the following: Promigas, S.A. E.S.P. $39,380,786 ($52,234,267 as of December 31, 2011). Surtidora de Gas del Caribe, S.A. E.S.P. $0 ($3,041,024 as of December 31, 2011). Gases de Occidente, S.A. E.S.P. $15,975,240 ($12,710,479 as of December 31, 2011). 28

23 16. ACCRUED LIABILITIES Retirement pension (1) $ 910,918 $ 763,361 Other contingencies (2) 2,602, ,814 Lawsuits and litigation (3) 6,285,448 5,640,282 9,799,202 6,544,457 Less-current portion 2,223, Long-term portion $ 7,576,202 $ 6,544,457 (1) The present value of the pension liability is determined based upon an actuarial estimate and the benefits covered correspond to all future payments of retirement pensions. As of December 31, 2012 it includes a new pensioner of Gases de Occidente S.A. E.S.P. The main factors used in the actuarial estimates as of December 31, 2012 were: Number of people 5 DANE rate 3.73% As per policy of Promigas and its subsidiaries, the actuarial estimate is made on an annual basis. (2) As of At December 31, 2012, Promigas recognized a provision amounting to $2,223,000 for the dismantling of the sections of the subfluvial cross gas pipeline and the gas pipeline built by emergency on the bridge Laureano Gómez, to comply with environmental and safety standards. (3) As of December 31, 2012 and 2011, it includes a provision for the following cases: a) a group action requesting indemnities for the alleged damages caused as a consequence of the terrorist attack on Promigas gas pipeline in the city of Riohacha in 2001, which has been estimated to amount to $3,000,000; b) labor actions against Promigas filed by former workers amounting to $340,000 and $320,000, respectively; c) charge of the so-called Scholarships Fund by the Ministry of Mines and Energy, amounting to $715,193; d) Coactive actions to collect public lighting tax filed by the municipalities of Zona Bananera, Santiago de Tolú, Pueblonuevo, Sagahún and Distrito Santa Marta, amounting to $1,837,172 and $1,528,224, respectively. As of December 31, 2012 and 2011, the Company and its subsidiaries are facing several administrative, fiscal, civil and labor lawsuits amounting to $ and $ , respectively. Based upon the evaluation of likelihood of success in the defense of these cases, the Company and its subsidiaries have provisioned the probable losses related to these contingencies. The companies management estimates that the result of the litigation corresponding to non-provisioned portions shall be favorable to the companies interest and will not result in significant losses, if any that would significantly affect the companies financial position. 29