Business Context and Reporting Period
This Form 6-K filing by Transportadora de Gas del Sur S.A. (TGS) was submitted on April 9, 2018. The report discloses a material fact regarding the company's Fiscal Year 2017 financial statements. TGS is a regulated natural gas transporter in Argentina, subject to oversight by the Argentine Natural Gas Regulatory Entity (ENARGAS) and the Argentine Securities and Exchange Commission (CNV).
Key Financial Metrics
The filing does not provide specific numerical values for revenue, profit, cash flow, margins, debt, or liquidity. Instead, it addresses a qualitative discrepancy in accounting treatment that affects the reported operating results for the 2017 fiscal year.
Material Changes and Regulatory Discrepancy
ENARGAS notified the CNV of a significant discrepancy between the accounting criteria used in TGS's financial statements and those used for setting natural gas transportation rates. The key issues include:
- Asset Valuation: Financial statements calculate depreciation based on book value without asset revaluation.
- Rate Setting: The Integral Tariff Review (RTI) procedure uses a regulatory capital base that includes asset revaluation.
- Impact on Results: This difference results in lower book depreciation in the financial statements compared to the cash flows used for rate setting. Consequently, reported book operating results are higher than they would be if the regulatory valuation were applied.
Outlook, Risks, and Management Commentary
ENARGAS indicated that the discrepancy could generate confusing information regarding TGS's future expected profits for investors. The regulator is currently analyzing a body of rules to require regulated companies to apply an accounting policy for fixed assets that better reflects the regulatory capital base used in income determination. No specific guidance or management commentary on future financial performance was included in this filing.
Investor Verification Checklist
- Verify the magnitude of the difference between book depreciation and regulatory depreciation for the 2017 fiscal year.
- Monitor ENARGAS for the finalization of new accounting rules regarding fixed asset appraisal for regulated companies.
- Assess the potential impact of adopting regulatory valuation on future reported operating results and profit margins.
- Review the full text of Note ENRG/GAL/GDyE/D No. 02953 for detailed technical specifications of the discrepancy.