Recent Developments

EDESA Tariff Agreement

On March 18, 2008, EDESA requested the Ente Regulador de las Empresas de Servicios Publicos (‘ENRESP’) to make effective the tariff adjustment for the services rendered by EDESA in March 2007, in the terms set forth in ENRESP Resolution No. 160/2006 and in the Adjustment Agreement (Acta Acuerdo) executed by EDESA and the Province of Salta on November 20, 2007, approved by Resolution No. 942/2007 of the Ministry of Production and Employment and fully confirmed by Executive Order No. 3366/2007 of the Province of Salta. The request for the tariff values adjustment is to reflect the actual costs that the company must afford to render the public service, in accordance with the quality levels required in the respective Concession Agreement.

On September 12, 2008, the ENRESP issued Resolution No. 965/08 authorizing a 14.65% adjustment of the average tariffs for sale of electricity of EDESA, as of September 2008.

In addition, within the framework of the effective resolution No. 160/06 and in response to the applications filed by EDESA through letters to the Ministry of Economic Development, ENRESP requested that EDESA be granted a subsidy for the retroactive adjustments of average tariffs for the periods March 2007 – February 2008 and March 2008 – August 2008, respectively. The subsidy was granted and collected in accordance with the stipulated schedule. This subsidy is granted to avoid that the retroactive cost be passed on to end users of the service.

EDESAL Tariff Agreement

Resolution No. 757, dated June 24, 2008, ratified by the Minister Secretary of State of Public Works and Infrastructure of the Province of San Luis, provided that as from June 1, 2008, the new tariff schedule for EDESAL would be applied, which contemplates an additional twenty per cent (20%) temporary increase for users in the average tariff. The resolution further provides that the company shall file with the Electric Energy Provincial Regulatory Commission (Comision Reguladora Provincial de Energia Electrica) (CRPEE) for its analysis, approval and subsequent audit, an investment plan for the sub-transmission and distribution network in an amount in excess of twenty million pesos, to be executed in no more than two years. The Investment Plan submitted to the CRPEE by EDESAL is being executed.

EDELAR Tariff Agreement

In the month of December 2008, an Adjustment Agreement was entered into by and between the Contractual Renegotiation Commission (Comision de Renegociacion Contractual), composed of the Economy Minister, the Infrastructure Minister and the General and Legal Secretary of the Provincial Government, on the one hand, and EDELAR, on the other, which approved adjustments to the Concession Agreement for the Public Service of Electric Energy Distribution and Sale, in accordance with the guidelines set forth in the Tariff Review Public Hearing, held on October 2008. The memorandum of agreement approves a new Tariff Schedule for the Concession Agreement as well as a User Application Schedule, effective for consumption as from November 1, 2008, with an authorized 16% average increase.

In addition, compensation was granted for the cancellation of the Government’s debt to the company on account of subsidies for the period 2007/2008 and other items, with the assignment of the electric infrastructure works carried out and to be carried out by the Government. Moreover, a cost monitoring mechanism was established which will allow EDELAR (upon compliance of the conditions set forth in the agreement regarding cost increases and structure expenses) to request to the regulatory authority to commence a tariff analysis and review process.

Tax Contingency – EDESA

On November 7, 2005, Administracion Federal de Ingresos Publicos (AFIP) (the Federal Tax Authority) advised the company that, according to its interpretation, the restructuring of companies notified by EDESA in 2001 (merger of CESA into Distribuidora Salta) did not meet the requirements set forth by the Income Tax Law and its Regulatory Executive Order. As a result, CESA’s effective and pending accrued tax loss carryforwards as well as the tax franchises pending use by the absorbed company could not be transferred to the successor company EDESA.

EDESA believes that the restructuring meets all the requirements of the laws in force to fall within the framework of the tax-free system and, therefore, it is admissible that CESA’s tax rights and duties be transferred and computed in the successor company.

In November 2005, EDESA appealed said AFIP’s resolution, which on November 4, 2008, notified its decision to reject the appeal filed.

On February 10, 2009, the company filed proceedings against such administrative decision before the Federal Justice, on the grounds that it was an administrative act that could only be challenged through a legal action.

Likewise, on January 19, 2009, the company was notified by AFIP of an extension of the original brief on the restructuring rejection, which EDESA answered on February 11, 2009.

Thus, AFIP will have to make a decision on the validity of the defense posed by EDESA and, as the case may be, determine the amount of the claim.

At this instance, and in the event of an unfavorable resolution by AFIP, EDESA would have the possibility to continue discussing the substantial matter before the Federal Fiscal Court. If such situation is confirmed, the final conclusion as to the admissibility and the final amount of the adjustment, if applicable, will be determined by the Federal Justice. Therefore, no provision has been made in this respect, based on the favorable substantial grounds that the company believes to have.

Piquirenda Generation Plant

EMDERSA Generacion Salta S.A. (‘EGSSA’), a subsidiary of EMDERSA, has commenced the building, operation and maintenance of an electric generation plant under the turnkey modality, the construction of which is carried out by Industrias Juan F. Secco S.A.

For the energy generation, the plant will use ten General Electric Jenbacher JGS620 natural gas-fired motorgenerators, of Austrian manufacture, with a nominal capacity of 3 MW each. These units have already been manufactured, shipped to the port of Buenos Aires and taken away for their transportation to the plant.

In order to develop the electric generation plant, EGSSA has received from its controlling shareholder EMDERSA a loan in the amount of $2.2 million. Furthermore, EMDERSA has funded the previous studies necessary to carry out the first general and detailed engineering and constructive steps of the work. As the work for the construction of the plant progressed, EGSSA additionally received from EMDERSA loans in the amount of Ps.30.2 million and $5.2 million and a capital contribution of Ps.2.9 million, paid up on September 12, 2008, as a result of which its capital stock amounted to Ps.3.0 million.

At the end of the fiscal year, the soil movement works had been finished, the grounding network was completed and the plant civil works have commenced. A request was made for the connection to the Transportadora de Gas del Norte (TGN) pipeline and the detail engineering of the separation, measurement and regulation plants was completed.

Analysis of results

During fiscal year 2008, the company registered an increase of 3% in the sale of energy to customers, an increase of 14% in the average electricity sales price to customers and an increase of 3% in the number of customers. The increase in the average electricity sales price is mainly due to the adjustment of EDESA’s average sale tariff as from September 2008, to readjustments granted to EDESA on account of adjustments on average tariff retroactive for the periods March 2007 to August 2008 and to the application of a new tariff scheme for EDESAL, effective as from June 2008.