Transportadora de Gas del Sur Will Benefit from Argentina’s Tariff Increase
Last Friday, Argentina’s gas regulator Ente Nacional Regulador del Gas (Enargas) issued Resolution 3347,
which approves a tariff increase for Transportadora de Gas del Sur S.A. (TGS, Caa1 negative). The increase is
credit positive for TGS because it will allow the company to earn additional income to cope with its
inflation-driven increased costs. Additionally, the increased revenues will partially compensate for the
decline in TGS’ unregulated revenues owing to lower international gas prices that are the reference point for
TGS’ unregulated revenues.
The tariff increase, which retroactively took effect on 1 May, averages 44% and will constitute around
ARS300 million of additional regulated revenue per year. Resolution 3347 also increases by around ARS35
million the revenues that TGS receives for managing certain portions of the gas network that it does not
own. Cumulatively, TGS will receive an additional ARS335 million of revenue each year, equivalent to 30%
of the cash flows it generated in 2014.
Enargas’ action follows a 20% tariff increase in April 2014, the first time in 13 years that the regulator had
increased tariffs. During that 13-year period without a tariff hike, TGS’ revenues and cash flows relied on its
unregulated business of selling ethane and propane. Those products’ high prices resulted in TGS’
unregulated revenues constituting an average of 70% of the company’s total revenues, and 90% of its
operating profits over the past four years (see exhibit). Before the tariff increase, operating profits from TGS’
regulated business were nil, while the unregulated business had first-quarter 2015 profits of ARS157 million
profits, down from ARS305 million a year earlier. The tariff increase will counterbalance lower unregulated
revenues arising from lower international prices.
Enargas’ resolution specifies that the tariff increase will be passed through to gas distribution companies and
to end consumers, unlike the recently increased electricity tariffs.
One of Argentina’s largest natural gas liquids producers, Buenos Aires-based TGS owns and operates the gas
pipeline system that runs through the southern portion of the country, transporting natural gas from the
main gas basins to the consumption centers in and around Buenos Aires (62% market share). TGS’
unregulated segment includes the Cerri Complex, where the company processes natural gas by separating
ethane, propane, butane and natural gasoline, and the Puerto Galvan facilities, which receive, store and
dispatch the processed products. TGS’ 2014 revenues were ARS4.3 billion (approximately $500 million).
Last Friday, Argentina’s gas regulator Ente Nacional Regulador del Gas (Enargas) issued Resolution 3347,
which approves a tariff increase for Transportadora de Gas del Sur S.A. (TGS, Caa1 negative). The increase is
credit positive for TGS because it will allow the company to earn additional income to cope with its
inflation-driven increased costs. Additionally, the increased revenues will partially compensate for the
decline in TGS’ unregulated revenues owing to lower international gas prices that are the reference point for
TGS’ unregulated revenues.
The tariff increase, which retroactively took effect on 1 May, averages 44% and will constitute around
ARS300 million of additional regulated revenue per year. Resolution 3347 also increases by around ARS35
million the revenues that TGS receives for managing certain portions of the gas network that it does not
own. Cumulatively, TGS will receive an additional ARS335 million of revenue each year, equivalent to 30%
of the cash flows it generated in 2014.
Enargas’ action follows a 20% tariff increase in April 2014, the first time in 13 years that the regulator had
increased tariffs. During that 13-year period without a tariff hike, TGS’ revenues and cash flows relied on its
unregulated business of selling ethane and propane. Those products’ high prices resulted in TGS’
unregulated revenues constituting an average of 70% of the company’s total revenues, and 90% of its
operating profits over the past four years (see exhibit). Before the tariff increase, operating profits from TGS’
regulated business were nil, while the unregulated business had first-quarter 2015 profits of ARS157 million
profits, down from ARS305 million a year earlier. The tariff increase will counterbalance lower unregulated
revenues arising from lower international prices.
Enargas’ resolution specifies that the tariff increase will be passed through to gas distribution companies and
to end consumers, unlike the recently increased electricity tariffs.
One of Argentina’s largest natural gas liquids producers, Buenos Aires-based TGS owns and operates the gas
pipeline system that runs through the southern portion of the country, transporting natural gas from the
main gas basins to the consumption centers in and around Buenos Aires (62% market share). TGS’
unregulated segment includes the Cerri Complex, where the company processes natural gas by separating
ethane, propane, butane and natural gasoline, and the Puerto Galvan facilities, which receive, store and
dispatch the processed products. TGS’ 2014 revenues were ARS4.3 billion (approximately $500 million).
