translation of a report and financial statements ... · translation of a report and financial...

Translation of a report and financial statements originally issued in Spanish – See Note 27

Consorcio Transmantaro S.A.

Financial statements as of December 31, 2014 and 2013, together with the Report of Independent Auditors

Translation of a report and financial statements originally issued in Spanish – See Note 27

Consorcio Transmantaro S.A. Financial statements as of December 31, 2014 and 2013, together with the Report of Independent Auditors

Content

Report of the Independent Auditors

Financial statements

Statement of financial position

Statement of comprehensive income

Statement of changes in net equity

Statement of cash flows

Notes to the financial statements

Inscrita en la partida 11396556 del Registro de Personas Jurídicas de Lima y Callao

Miembro de Ernst & Young Global

Translation of a report originally issued in Spanish – See Note 27

Report of Independent Auditors

Paredes, Zaldívar, Burga & Asociados Sociedad Civil de Responsabilidad Limitada

To the Shareholders of Consorcio Transmantaro S.A.

We have audited the accompanying financial statements of Consorcio Transmantaro S.A. (a

subsidiary of Interconexión Eléctrica S.A. E.S.P. from Colombia), which comprise the statement of

financial position as of December 31, 2014, and the related statements of comprehensive income,

changes in net equity and cash flows for the year then ended, and a summary of significant

accounting policies and other explanatory notes.

Management’s responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in

accordance with International Financial Reporting Standards and for the internal control that

Management determines is appropriate to the preparation of financial statements that are free from

material misstatement, whether due fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We

conducted our audit in accordance with International Standards on Auditing approved for

application in Peru by the Board of Deans of Institutes of Peruvian Certified Public Accountants.

Those standards require that we comply with ethical requirements and plan and perform the audit

to obtain reasonable assurance whether the financial statements are free from material

misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditor’s judgment,

including the assessment of the risks of material misstatement of the financial statements, whether

due to fraud or error. In making those risk assessments, the auditor considers internal control

relevant to the entity’s preparation and fair presentation of the financial statements in order to

design audit procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes

evaluating the appropriateness of accounting policies used and the reasonableness of accounting

estimates made by Management, as well as evaluating the overall presentation of the financial

statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Translation of a report originally issued in Spanish – See Note 27

Report of Independent Auditors (continued)

Opinion

In our opinion, the accompanying financial statements referred to above present fairly, in all

material respects, the financial position of Consorcio Transmantaro S.A. as of December 31, 2014,

and the results of its operations and its cash flows for the year then ended, in accordance with

International Financial Reporting Standards.

Other matters

The financial statements for the year ended December 31, 2013 were audited by other auditors,

whose opinion dated February 10, 2014, expressed an unqualified opinion about those financial

statements.

Lima, Peru,

February 5, 2014

Countersigned by:

Elizabeth Fontenla

C.P.C.C. Register No.25063

Translation of financial statements originally issued in Spanish – See Note 27

The accompanying notes are an integral part of this statement.


Statement of financial position As of December 31, 2014 and 2013

Note 2014 2013 US$ US$

Assets

Current assets

Cash and cash equivalents 6 3,380,106 15,259,750

Trade accounts receivable 7 14,008,081 12,014,382

Accounts receivable from related parties 22(b) 6,661,773 3,854,277

Other accounts receivable 8 36,018,074 9,653,269

Income tax asset 4,251,327 2,999,149

Supplies and spare parts 3,899,625 1,905,794

Prepaid expenses 565,351 934,657 ____________ ____________

Total current assets 68,784,337 46,621,278

Long-term trade accounts receivable 7 24,064,630 22,804,500

Other long-term accounts receivable 8 109,618,802 120,300,808

Furniture and equipment, net 3,534,397 2,935,019

Intangible assets, net 9 746,162,322 673,403,470 ____________ ____________

Total assets 952,164,488 866,065,075 ____________ ____________

Liabilities and net equity

Current liabilities

Trade accounts payable 10 2,243,020 3,718,570

Accounts payable to related parties 22(b) 20,332,824 10,753,315

Other accounts payable 3,406,698 3,485,158

Provisions 11 1,918,589 1,088,272

Financial obligations 12(a) - 3,050,000 ____________ ____________

Total current liabilities 27,901,131 22,095,315

Long-term accounts payable to related parties 22(b) 1,066,549 -

Long-term financial obligations 12(a) 543,989,693 500,163,011

Long-term provisions 11 5,908,740 4,801,616

Deferred income tax liability, net 13 58,484,211 47,283,766 ____________ ____________

Total liabilities 637,350,324 574,343,708 ____________ ____________

Net equity 14

Issued capital 194,409,194 194,409,194

Other capital reserves 13,409,611 11,375,366

Retained earnings 106,995,359 85,936,807 _____________ _____________

Total equity 314,814,164 291,721,367 _____________ _____________

Total liabilities and net equity 952,164,488 866,065,075 _____________ _____________




Statement of comprehensive income For the years ended December 31, 2014 and 2013

Note 2014 2013 US$ US$

Operating revenues

Power transmission services 2 y 17 97,154,915 93,261,375

Construction services 22(f) 92,408,440 76,312,930

Other operating revenue 1,744,928 577,417 ____________ ____________

191,308,283 170,151,722

Cost of construction services 22(f) (92,408,440) (76,312,930)

Cost of power transmission services 18 (44,582,647) (39,703,027)

Provisions for maintenance and replacements 11(c) (3,133,113) (2,089,106) ____________ ____________

Gross profit 51,184,083 52,046,659

Operating expenses

Administrative expenses 19 (598,728) (1,012,344) ____________ ____________

Operating profit 50,585,355 51,034,315 ____________ ____________

Other income (expenses)

Financial income 20 11,720,723 15,370,344

Financial expenses 21 (25,082,091) (27,994,047)

Foreign exchange gain, net 24(b) (2,930,745) (7,862,203) ____________ ____________

(16,292,113) (20,485,906) ____________ ____________

Profit before income tax 34,293,242 30,548,409

Income tax 13(b) (11,200,445) (10,205,963) ____________ ____________

Net income 23,092,797 20,342,446 ____________ ____________

Other comprehensive income - - ____________ ____________

Total comprehensive income for the year 23,092,797 20,342,446 ____________ ____________

Basic and diluted earnings per common share (in

US dollars) 23 0.04 0.04 ____________ ____________

Weighted average number of shares in circulation

(units) 23 580,714,259 580,714,259 ____________ ____________

Translation of financial statements originally issued in Spanish – See Note 27.



Statement of changes in net equity For the years ended December 31, 2014 and 2013

Issued

capital

Other capital

reserves

Retained

earnings Total US$ US$ US$ US$

Balances as of January 1, 2013 194,409,194 9,826,063 67,143,664 271,378,921

Net income - - 20,342,446 20,342,446

Transfer to legal reserve - 1,549,303 (1,549,303) - _____________ _____________ _____________ _____________

Balances as of December 1, 2013 194,409,194 11,375,366 85,936,807 291,721,367

Net income - - 23,092,797 23,092,797

Transfer to legal reserve - 2,034,245 (2,034,245) - _____________ _____________ _____________ _____________

Balances as of December 31, 2014 194,409,194 13,409,611 106,995,359 314,814,164 _____________ _____________ _____________ _____________




Statement of cash flows For the years as of December 31, 2014 and 2013

2014 2013 US$ US$

Operating activities

Collection from customers 92,353,720 88,211,448

Value added tax credit recovery 9,086,298 12,317,773

Collection of interest 12,026,389 7,664,174

Income tax paid (1,437,828) (2,971,615)

Payment to suppliers (45,013,221) (32,911,315)

Payment of interests (21,483,761) (20,457,547)

Other operating payments (1,561,872) (1,650,015) ____________ ____________

Net cash and cash equivalents provided by operating activities 43,969,725 50,202,903 ____________ ____________

Investing activities

Collections related to private energy transmission contracts 1,044,170 591,370

Purchase of intangible assets (98,994,337) (81,290,394)

Loans to third parties relating to private energy transmission

contracts (3,899,202) (15,446,334)

Purchase of fixed assets - (183,643) ____________ ____________

Net cash and cash equivalents used in investing activities (101,849,369) (96,329,001) ____________ ____________

Financing activities

Proceeds from borrowings 115,000,000 517,249,591

Loans received from a related party 7,000,000 4,000,000

Amortization of financial obligations (76,000,000) (343,225,823)

Amortization of loan received from related party - (124,000,000) ____________ ____________

Net cash and cash equivalents provided by financing activities 46,000,000 54,023,768 ____________ ____________

Net increase (decrease) in cash and cash equivalents for the period (11,879,644) 7,897,670

Cash and cash equivalents at beginning of year 15,259,750 7,362,080 ____________ ____________

Cash and cash equivalents at year - end 3,380,106 15,259,750 ____________ ____________



Notes to the financial statements As of December 31, 2014 and 2013

1. Identification and business activity

(a) Identification -

Consorcio Transmantaro S.A. (hereafter “the Company”) was incorporated in January 1998. The

Company is a subsidiary of Interconexion Eléctrica S.A. E.S.P. (Company with legal address in

Colombia). The Company's legal address is Av. Juan de Arona 720, 6th floor, San Isidro, Lima,

Peru.

(b) Business activity -

The Company’s main business activity is the electric power transmission produced by generating

companies. The Company also provides operational and maintenance services to private entities

that run transmission lines and sub-stations.

The Company’s electric power transmission operations are developed in accordance with the

Electrical Concession Law and are regulated and supervised by the Supervising Organism of

Investment in Energy and Mining (OSINERGMIN for its Spanish acronym).

(c) Approval of financial statements -

The financial statements at December 31, 2014 have been approved by the Company’s

Management and will be submitted for approval by the Board and Shareholders within the period

prescribed by law. In the opinion of the Company’s Management, the accompanying financial

statements will be approved without modifications in the Board’s Meeting and the General

Shareholders’ Meeting to be held during the first quarter of 2015. The financial statements at 31

December 2013 were approved by the General Annual Shareholders’ Meeting held of on March

25, 2014.

2. Concession contracts of electrical transmission systems

Mantaro-Socabaya concession

In January 1998, the Peruvian State (through the Special Committee authorized by Supreme Resolution

No. 498-96-PCM dated December 30, 1996) awarded to the Company the Mantaro-Socabaya electrical

transmission system concession. As a result of the award, the Company obtained the right to design,

build and commercially exploit the above-mentioned electrical transmission system, together with the

responsibility for its maintenance and repairing. The concession term is for thirty three years, starting in

February 1998.


Notes to the financial statements (continued)

2

By virtue of the aforementioned award, the Company signed with the Peruvian State the Build, Own,

Operate and Transfer contract (named BOOT contract) which establishes the rights and obligations of

both parties, as well as the rules and procedures that are in force for the design, supply of goods and

services, construction and commercial exploitation of the Mantaro-Socabaya electrical transmission line,

as well as the transfer of all the corresponding assets to the Peruvian State at the termination of the

concession.

The Mantaro-Socabaya transmission line became commercially operative on October 8, 2000. From that

date, it has rendered a public service of electric power transmission and it is part of the national grid

(known by its Peruvian acronym as SINAC). In reward of the service, the Company receives an income

corresponding to the established tariff regime in the concession contract. The contract is regulated by

the Energy and Mining Superintendence Organism (OSINERGMIN).

In reward for its electric power transmission service, the Company receives a fee corresponding to the

total transmission cost, which corresponds to the annuity of the carried out investment, including

operating and maintenance overheads as well as other outgoings. The investment amounts to

US$157,466,796, see note 9(c) . During the concession‘s lifetime, the remuneration is adjusted

annually in accordance with the U.S. “Finished Goods Less Food and Energy” index. The Peruvian State,

through the Ministry of Energy and Mines, guarantees that the Energy and Mining Superintendence

Organism (OSINERGMIN) will put in place the necessary tariff mechanisms to assure that the

remuneration received by the Company in return for their transmission services will be entirely

recovered from their customers. The Company recognized an annual income originated from its

electrical transmission service for 2014 and 2013 amounting to US$97,154,915 and US$93,261,375,

respectively.

Extension N°1

In June 2009, the Company and the Ministry of Energy and Mines signed an addendum to the

concession contract detailing an extension to the Mantaro-Socabaya electric transmission line’s capacity

amounting to 505 MVAR. The service became operational in July 2011. As of December 31, 2014, the

Company had invested US$71,051,390, see note 9(c).

Chilca- La Planicie- Zapallal concession

The Company entered into a concession contract with the Peruvian State on September 8, 2008. The

contract has been made under BOOT modality, expires after 30 years from the date the service became

operational. The service became operational in June of 2011. As of December 31, 2014, the Company

had invested US$140,402,997, see note 9(c).

Ica-Independencia concession

On October 21, 2009, the Company entered into a concession contract with the Peruvian State in order

to carry out a construction project designated “Independencia – Ica Transmission Line 220Kw Structural

Upgrade (Southern Area Transmission System)”. The service became operational in June 2011. As

of December 31, 2014, the Company had invested US$10,340,212, see note 9(c).



3

Zapallal-Trujillo concession

The Company entered into a concession contract with the Peruvian State on February 18, 2010. The

contract has been made under BOOT modality, for a period of 30 years from its start-up, commissioning

of the project was in December 2012. As of December 31, 2014, the Company had invested

US$212,179,564, see note 9(c).

Talara-Piura concession

The Company entered into a concession contract with the Peruvian State on August 26, 2010. The

contract expires after 30 years from the date the service becomes operational. Commissioning of the

project was in August 2013. As of December 31, 2014, the Company had invested a total of

US$21,209,658, see note 9(c).

Pomacocha-Carhuamayo concession


contract expires after 30 years from the date the service becomes operational, commissioning of the

project was September 20, 2013. At 31 December 2014, the Company had invested a total of

US$25,390,682, see note 9(c).

Trujillo- Chiclayo concession

The Company entered into a concession contract with the Peruvian State on May 26, 2011. This

contract has a term of 30 years from its start-up, commissioning of the project was in July 2014. At 31

December 2014, the Company had invested a total of US$118,804,888, see note 9(c).

Machupicchu-Cotaruse concession

The Company entered into a concession contract with the Peruvian State on December 22, 2010. The

contract expires after 30 years from the date the service becomes operational. At 31 December 2014,

the Company had invested a total of US$85,389,695 see note 9(d).

Mantaro – Montalvo concession


contract expires after 30 years from the date the service becomes operational, which would take place

in 38 months after the closing date of the concession process. At 31 December 2014, the Company had

invested a total of US$24,305,456, see note 9(d).

Planicie Industriales concession




invested a total of US$1,373,301, see note 9(d).



4

Friaspata - Mollepata concession

The Company entered into a concession contract with the Peruvian State on November 18, 2014. The



invested a total of US$957,850, see note 9(d).

Orcotuna concession

The Company entered into a concession contract with the Peruvian State on November 18, 2014. The



invested a total of US$29,887, see note 9(d).

Private Contract - Compañía Eléctrica El Platanal S.A

In September 2008, Red de Energía del Perú S.A. transferred to the Company the contract that had

previously entered into with Compañía Eléctrica El Platanal S.A. (hereafter CELEPSA). As a result, the

Company was obliged to build the El Platanal – Chilca transmission line as well as provide an electric

energy transmission service to this client. The contract is in force for a 20-year period. The total

investment in the transmission line, which became operational in August 2009, amounted to

US$16,606,850.

Private Contract – Minera Miski Mayo S.A.

In March 2009 the Company subscribed a contract with the Miski Mayo mining company. Under the

terms of the contract, the Company would construct a transmission line and a 220-1138 Kv sub-station.

In addition, an electric energy transmission service would be provided. This contract is in force for a

period of 30 years. An amount of US$16,808,047 was invested in the transmission line which entered

into service in March 2010.

Private Contracts - “Duke Energy S.A.” and “Kallpa Generación S.A.”

In July 2009 the Company signed two contracts – one with Duke Energy S.A. and the other with Kallpa

Generación S.A. Under the terms of the contracts, the Company was obligated to build the 220 Kv cell

at the Chilca Nueva sub-station and the Kallpa III 220 Kv cell at the Chilca sub-station, respectively. The

Company was also contracted to supply an electrical transmission service. The total value of each

construction contract amounts to US$1,309,000 and US$1,392,210, respectively. Both contracts are

in force for 20 years and became operational in May 2010.

Private Contract - “Fenix Power Perú S.A.”

In August 2010 the Company entered into a contract for transmission services with Fenix Power Perú

S.A. Under the terms of the contract, the Company was committed to construct a transmission line, a

220 Kv sub-station, and to provide an electrical energy transmission service. The total investment was

US$15,805,860 and the contract term is 20 years. The transmission service began to be provided in

March 2013.



5

Private Contract - ATN2 S.A.

In November 2012, the Company entered into a contract with ATN2 SA for electrical energy

transmission services. Under the terms of the contract, the Company was committed to the

construction, operation and maintenance of facilities to provide electric transmission services. At 31

December 2014, the Company had invested a total of US$8,403,103 and the term of the contract is 18

years.

Private Contract - Minera Suyamarca S.A.C.

In November 2012, the Company entered into a contract with Minera Suyamarca for electrical energy

transmission services. Under the terms of the contracts, the Company was committed to the

construction, operation and maintenance of facilities to provide electric transmission service. At 31

December 2014, the Company had invested a total of US$4,201,551 and the term of the contract is 18

years.

Private Contract - Termochilca S.A.C.

In December 2010, the Company entered into a contract with Termochilca S.A.C. for electrical energy

transmission services. Under the terms of the contract, the Company was committed to the construction

and operation of facilities to provide electric transmission service. The total investment was

US$11,263,271 and the contract term is 20 years. The transmission service began to provide in August

2013.

Private Contract - “Luz del Sur S.A.A.”

In October 2013, the Company entered into a contract with Luz del Sur S.A.A. for transmission services.

Under the terms of the contract, the Company was committed to the construction and operation of

facilities to provide electric transmission service. As of December 31, 2014, the Company has invested

US$1,416,065 and the contract term is 30 years.

3. Trusts

Guarantee Trust - Trujillo – Chiclayo Project

The guarantee trust under the Management Trust Agreement signed on February 1, 2011, represented

by La Fiduciaria S.A. managed the trust assets under the Concession Contract of the Guaranteed

Transmission System Project "Transmission Line Trujillo - Chiclayo at 500 Kv" (Concession contract).

The Guarantee Trust began its operational phase on December 7, 2012 through the syndicated loan

agreement signed between the lender, Banco de Crédito del Perú, and the Trust (represented by La

Fiduciaria S.A.), which confer a medium-term financing for the sum of US$100,000,000, with a

maturity of eight calendar years.

As of December 31, 2014, the Company cancelled the trust, since on July 5, 2014, the Project Trujillo –

Chiclayo started commercial operations; thus, the inflows provides by the loan granted by Banco de

Credito del Peru were used to the prepayment of the Trust debt. As of June 20, 2014, liquidation date,

the debt amounted to US$76,000,000.



6

Guarantee Trust Machu Picchu – Cotaruse Project

Pursuant to the Guaranteed Transmission System Concession Contract designated of the Machipicchu

Abancay Cotaruse at 220 kV Electric Transmission Line Project (Concession Contract), the Peruvian

State, represented by the Ministry of Energy and Mines, in its role as of licensor grants the Company

(the concessionaire) the rights to design, finance and supply goods and services required, build, operate

and maintain the electric line and render services, in accordance with the terms set forth in the

Concession Contract and applicable legislation.

In accordance with the conditions stipulated in the Concession Contract, the Company as

concessionaire, with a view to complying with the terms therein, is empowered to self-finance or to seek

financing through third parties as would best serve its interests. The Company may also set up

guarantees underwritten with the concession’s assets, the Guaranteed Transmission System

concession, transmission flows, or any other asset or right corresponding to the concessionaire, all with

the purpose of securing such financing.

The Deputy Minister of Energy and Mines, in representation of the licensor, issued the official

communication N°047-2013/MEM-VME dated 25 February, 2013. Therein, he confirmed the licensor’s

agreement permitting the Company to transfer or cede its rights or obligations, cede its contractual

position, substitute by novation all or any of its obligations pertaining to the concession Contract

without prejudice to the concessionaire’s obligation to fulfill the terms of the Concession Contract and

applicable legislation.

Trust Management Contract

(a) Description of operations

On October 18, 2013, pursuant to the Trust Management Contract (hereafter the “Contract”)

subscribed by the Company (hereafter the “Settler”) and La Fiduciaria S.A. (hereafter the

“Trustee”), the Trust Fund was established.

The Trust Fund was established with a view to subscribe the syndicated loan contract and with

the purpose of administrating the loans or funds that accumulate in the collecting bank, and also

to execute and manage the rights and obligations pertaining to the concession contract. These

actions shall be implemented in accordance with the terms established in the Trust Management

Contract.

The Trust Fund became operative on October 18, 2013, upon subscription of the syndicated loan

contract entered into between the lenders and the Trust Fund. The contract specified a medium-

term loan of up to US$78,000,000 with repayment scheduled at 6 calendar years from the date

of subscription. As of December 31, 2014, no disbursements have been made. Principal

payments was defined by a balloon payment included in the same installment, and interest is

payable semiannually.



7

(b) Trust property

The collateral pertaining to the Trust Fund includes: (i) the contributions, (ii) the extraordinary

contributions, (iii) items related to the concession, (iv) the concession, (v) the rights and

obligations from the Guaranteed Transmission System Concession Contract (SGT); (vi) the

disbursements, (vii) collection rights, (viii) cash flows; and, (ix) once signed the Transfer of

Contractual Position agreements, the accessory contracts.

A summary of the main assets and liabilities of the Company’s statement of financial position,

related to the operation of the Trust Fund as of December 31, 2014 is presented below:

2014 2013

US$ US$

Asset accounts relating to Trust Fund operations

Cash and cash equivalent 74,640 33,114

Other accounts receivable 5,083,627 3,061,622

Prepaid expenses 27,709 354,494

Intangible assets, net 84,212,591 27,311,416 _____________ _____________

Total asset accounts 89,398,567 30,760,646 _____________ _____________

Liability accounts relating to Trust Fund operations

Trade accounts payable 865 226,917

Accounts payable to related parties 9,612,683 4,166,427 ____________ ____________

Total liability accounts 9,613,548 4,393,344 ____________ ____________

Net assets pertaining to Trust Fund operations 79,785,019 26,367,302 ____________ ____________

During 2014, the disbursement related to administrative expenses amounted to US$45,283

(US$25,917 during 2013).



8

A summary of the main components of the Company’s cash flows statements related to the

operations of the Trust Fund during 2014 is shown below:

2014 2013

US$ US$

Operating activities

Payments to suppliers 3,536,020 951,312 ____________ ____________

Net cash and cash equivalents used in operating

activities 3,536,020 951,312 ____________ ____________

Investing activities

Intangible asset additions (56,901,175) (27,311,416) ____________ ____________

Net cash and cash equivalents used in investing activities (56,901,175) (27,311,416) ____________ ____________

Financing activities

Fiduciary contributions 53,406,681 26,393,218 ____________ ____________

Net cash and cash equivalents provided by financing

activities 53,406,681 26,393,218 ____________ ____________

Net increase in cash and cash equivalent 41,526 33,114

Cash and cash equivalents at beginning of year 33,114 - ____________ ____________

Cash and cash equivalents at year – end 74,640 33,114 ____________ ____________

4. Summary of significant accounting policies

4.1 Basis of preparation and presentation –

The Company’s financial statements of have been prepared in accordance with International

Financial Reporting Standards (hereinafter "IFRS") as issued by the International Accounting

Standards Board (the "IASB").

The accompanying financial statements have been prepared on a historical cost basis, based on

the accounting records kept by the Company. The financial statements are presented in United

States dollars, which is the Company´s functional and presentation currency, except when

otherwise indicated.



9

The accounting policies adopted are consistent with policies applied in previous years, except for

the new IFRS and revised IAS that are mandatory for periods beginning on or after January 1,

2014, which the Company has adopted; however, due to the structure of the Company and

nature of its operations, the adoption of these standards had no significant effect on its financial

position and results of operations; therefore, it was not necessary to modify the comparative

information of the Company as of December31, 2013. These new IFRS and revised IAS are

described below:

- IAS 32 Financial Instruments: Presentation - Offsetting Financial Assets and Financial

Liabilities (Amendment)

Defines the meaning of "currently has a legal right to compensation" criteria and

mechanisms for non-simultaneous solution clearinghouses for entitlement to

compensation modification. Additionally, this amendment clarifies that to compensate two

or more instruments financial institutions should have a right to compensation that cannot

be conditioned on a future event, and should be mandatory the following circumstances:

(i) the normal course of business, (ii) in the event of default, and (iii) in the event of

insolvency or bankruptcy of the entity or any of the counterparties.

- IAS 36 Impairment of Assets (Amendments)

This amendment eliminate the unforeseen consequences of IFRS 13 on the disclosures

required by IAS 36. In addition, the amendments also require disclosure of recoverable

amounts of the assets or cash-generating units for which an impairment loss is recognized

or when reversals have been recognized in the period.

- IAS 39 Novation derivatives and continuity of hedge accounting (Amendments)

These amendments provide an exception to discontinue hedge accounting when the

novation of a derivative designated as a hedging instrument that meets certain criteria is

given.

- IFRIC 21 Levies

IFRIC 21 Clarifies that an entity recognizes a liability for a levy when the activity giving

rise to the payment, as identified in the relevant legislation, is performed. To a levy that is

activated when a minimum threshold, the interpretation clarifies that no liability should be

anticipated before reaching the minimum threshold specified.

In note 4.3 include information on judgments, estimates and significant accounting assumptions

used by management in the preparation of the accompanying financial statements.



10

4.2 Summary of significant accounting policies -

(a) Financial instruments: initial recognition and subsequent measurement

(i) Financial assets -

Initial recognition and measurement -

Financial assets within the scope of IAS 39-“Financial Instruments: Recognition and

measurement” are classified as financial assets at fair value through profit or loss,

loans and receivables, held-to-maturity investments, available-for-sale financial

assets, or as derivatives designated as hedging instruments in an effective hedge,

as appropriate. The Company determines the classification of its financial assets at

initial recognition and, when appropriate, the Company asses this classification at

the end of each year.

All financial assets are recognized initially at fair value plus transaction costs,

except in the case of financial assets recorded at fair value through profit or loss.

Purchases or sales of financial assets that require delivery of assets within a time

frame established by regulation or convention in the market place (regular way

trades) are recognized on the trade date, i.e., the date that the Corporation

commits to purchase or sell the asset.

The Company‘s financial assets include cash and cash equivalent, trade and other

receivables and account receivables from related parties.

Subsequent measurement -

The subsequent measurement of financial assets depends on their classification. At

December 31, 2014 and 2013, the Company only has loans and account

receivables, whose main characteristics are detailed below:

Loans and receivables -

The Company‘s financial assets include cash and cash equivalents, trade and other

receivables, and account receivables from related parties, which are stated at the

value of the transaction less impairment loss, if applicable.

Loans and receivables are non-derivative financial assets with fixed or

determinable payments that are not traded in an active market. Consequently, the

Company has no intention of selling them immediately or in the near future and

such assets do not have any recovery risk different from its credit impairment.



11

After initial measurement, such financial assets are subsequently measured at

amortized cost using the effective interest rate method, less any impairment loss.

Amortized cost is calculated by taking into account any discount or premium on

acquisition and fees or costs that are an integral part of the effective interest rate.

The effective interest rate amortization is included in finance income in the

statement of comprehensive income. The losses arising from impairment are

recognized in the statement of comprehensive income as finance costs.

Derecognition -

A financial asset (or, where applicable, a part of a financial asset or part of a group

of similar financial assets) is derecognized when:

- The rights to receive cash flows from the asset have expired;

The Company has transferred its rights to receive cash flows from the asset

or has assumed an obligation to pay the received cash flows in full without

material delay to a third party under a ‘pass-through’ arrangement; and

either (a) the Company has transferred substantially all the risks and

rewards of the asset, or (b) the Company has neither transferred nor

retained substantially all the risks and rewards of the asset, but has

transferred control of the asset.

When the Company has transferred its contractual rights to receive cash flows

from an asset or has entered into a pass-through arrangement, it evaluates if and

to what extent it has retained the risks and rewards of ownership. When it has

neither transferred nor retained substantially all of the risks and rewards of the

asset, nor transferred control of the asset, the asset is recognized to the extent of

the Company’s continuing involvement in the asset. In that case, the Company also

recognizes an associated liability. The transferred asset and the associated liability

are measured on a basis that reflects the rights and obligations that the Company

has retained.

Continuing involvement that takes the form of a guarantee over the transferred

asset is measured at the lower of the original carrying amount of the asset and the

maximum amount of consideration that the Company could be required to repay.

(ii) Impairment of financial assets -

At the end of each reporting period under review, the Company assesses whether

there is any objective evidence that a financial asset or group of financial assets is

impaired. A financial asset or group of financial assets is considered impaired only

if there is objective evidence as a result of one or more events that occurred after

the initial recognition of the asset (a "loss event") and that event which caused the

loss has an impact on the estimated future cash flows of the financial asset or

group of financial assets that can be reliably estimated. Evidence of impairment



12

may include indications that the debtors or a group of debtors are experiencing

significant financial difficulty, default or delinquency in interest or principal

payments, the probability that they will enter bankruptcy or other financial

reorganization and where observable data indicate that there is a measurable

decrease in the estimated future cash flows, such as changes in arrears or

economic conditions that correlate with defaults.

Financial assets carried at amortised cost:

For financial assets carried at amortised cost, the Company first assesses whether

objective evidence of impairment for financial assets that are individually

significant, or collectively for financial assets that are not individually significant. If

the Company determines that no objective evidence of impairment for a financial

asset is assessed individually, regardless of its importance, includes the asset in a

group of financial assets with similar credit risk characteristics, and evaluates them

collectively to determine whether impairment exists. Assets that are individually

assessed to determine whether impairment exists, and for which an impairment

loss is recognized or continues to be recognized are not included in the assessment

of impairment made collectively.

If there is objective evidence that there has been an impairment loss, the amount of

the loss is measured as the difference between the asset's carrying amount and the

present value of estimated future cash flows (excluding future credit losses

expected and that have not yet occurred). The present value of estimated future

cash flows is discounted at the original effective interest rate of financial assets. If

a loan bears a variable interest rate, the discount rate for measuring any

impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance

account and the loss is recognised in the statement of profit or loss. Interest

income continues to be accrued on the reduced carrying amount and is accrued

using the rate of interest used to discount the future cash flows for the purpose of

measuring the impairment loss. Interest income is recorded as financial income in

the income statement Loans together with the associated allowance are written off

when there is no realistic prospect of future recovery and all collateral has been

realised or has been transferred to the Company. If, in a subsequent year, the

amount of the estimated impairment loss increases or decreases because of an

event occurring after the impairment was recognised, the previously recognised

impairment loss is increased or reduced by adjusting the allowance account. If a

write-off is later recovered, the recovery is credited to finance costs in the

statement of profit or loss.

(iii) Financial liabilities -

Initial recognition and measurement -



13

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at

fair value through profit or loss, loans and borrowings, or as derivatives designated

as hedging instruments in an effective hedge, as appropriate. The Company

determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognized initially at fair value plus, in the case of loans

and borrowings, directly attributable transaction costs.

The Company’s financial liabilities include trade and other payables, loans and

borrowings and accounts payable to related parties.

The financial liabilities are recognized when the Company is involved in the

contractual agreements of the instrument. Financial liabilities are classified as

short-term obligations, unless the Company has the absolute right to defer the

agreement of the obligations for more than twelve months after the date of the

statement of financial position. Financing costs are recorded on an accrual basis

including commissions related to the acquired financing.

Subsequent measurement –

The subsequent measurement of financial liabilities depends on their classification.

At December 31, 2014 and 2013, the Company only maintains interest bearing

loans whose characteristics are detailed below:

Loans and borrowings -

After their initial recognition, interest-bearing loans and borrowings are

subsequently measured at amortized cost using the effective interest rate method.

Gains and loss are recognized in the income statement when the liabilities are

derecognized as well as through the effective interest rate method (EIR)

amortization process. Amortized cost is calculated by taking into account any

discount or premium on acquisition and fees or costs that are an integral part of

the EIR. The EIR amortization is included in finance costs in the statement of

comprehensive income.

Derecognition -

A financial liability is derecognized when the obligation under the liability is

discharged or cancelled or expired.

When an existing financial liability is replaced by another one from the same lender

on substantially different terms, or the terms are substantially modified, such

replacement or amendment is treated as a derecognition of the original liability and

the recognition of a new liability, and the difference in the respective carrying

amount is recognized in the statement of comprehensive income.



14

(b) Offsetting of financial instruments -

Financial assets and financial liabilities are offset and the net amount reported in the statement

of financial position if, and only if there is a currently enforceable legal right to offset the

recognized amounts, and there is an intention to settle on a net basis, or to realize the assets and

settle the liabilities simultaneously.

(c) Fair value of financial instruments -

The fair value is the price that would be received to sell an asset or paid to transfer a liability in

an orderly transaction between market participants at the measurement date.

The fair value of an asset or liability is measured using the assumptions that market participants

would use to rank the asset or liability value, assuming that market participants act in their best

economic interest.

The Company uses valuation techniques that are appropriate in the circumstances and for which

sufficient information is available to measure fair value, maximizing the use of relevant

observable inputs and minimize the use of unobservable inputs.

All assets and liabilities which are determined or reveal fair values in the financial statements are

classified within the fair value hierarchy, described below , based on the lowest level of the data

used that are significant to the measurement at fair value as a whole:

- Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities.

- Level 2: Other techniques for all information or data different to quoted prices within

level 1, available, either directly or indirectly.

- Level 3: Techniques which use inputs that have a significant effect on the recorded fair

value that are not based on observable market data.

For assets and liabilities that are recognized at fair value in the separate financial statements on

a recurring basis , the company determines whether there have been transfers between levels in

the hierarchy by reviewing the categorization at the end of each reporting period . Also,

Management analyzes the movements in the values of assets and liabilities to be valued in

accordance with the accounting policies of the Company.

For purposes of the disclosures of fair value, the Company has determined the types of assets

and liabilities based on their nature, characteristics and risks and the level of the fair value

hierarchy as explained above.



15

(d) Foreign currency translation -

(i) Functional and presentation currency -

The Company’s financial statements are presented in US dollars, which is also the

Company’s functional currency.

(ii) Transactions and balances in foreign currency -

The transactions carried out in a currency other than the functional currency are

considered as transactions in foreign currency. Transactions in foreign currencies are

initially recorded by the Company at the functional currency rates prevailing at the date of

the transaction. Monetary assets and liabilities denominated in foreign currencies are

retranslated at the functional currency spot rate exchange ruling at the reporting date. All

differences are taken to the income statement should the specific criteria be met. Non-

monetary items that are measured in terms of historical cost in a foreign currency are

translated using the exchange rates as of the dates of the initial transactions.

(e) Cash and cash equivalents -

Cash and cash equivalents in the statement of financial position comprise cash at cash balances

held in banks. For the purpose of the financial statement of cash flows, cash and cash equivalents

consist of cash and short-term deposits with a maturity of three months or less. These accounts

do not have any significant valuation risk.

(f) Supplies and spare parts –

Supplies and spare parts are valued at the lower of cost and net realizable value. Cost is

determined based on a weighted average.

The provision for supplies impairment loss is calculated based on a specific analysis performed

annually by Management and is charged as profit or loss in the year in which the requirement of

that provision is determined.

(g) Facilities, furniture and equipment -

The item of facilities, furniture and equipment is stated at cost, net of accumulated depreciation

and / or accumulated impairment losses, when applicable. The purchase price or construction

cost is the total amount paid and the fair value of any other consideration given to acquire the

asset. For the significant components of facilities, furniture and equipment that must be replaced

periodically, the Company derecognized the replaced component and recognizes the new

component with their respective useful lives and depreciation. Similarly, when a major inspection

is performed, its cost is recognized as a replacement to the extent that they meet the recognition

requirements. Other repair and maintenance costs are recognized as expenses as incurred.



16

Depreciation -

Depreciation is calculated following the straight-line method using the following estimated useful

lives:

Years

Improvements in leased facilities 10

Vehicles 5

Furniture and fixtures 10

Other equipment 4 to 10

The asset’s residual value, useful lives and methods of depreciation/amortization are reviewed at

each reporting period, and adjusted prospectively if appropriate.

An item of property, plant and equipment and any significant part initially recognized is

derecognized upon disposal or when no future economic benefits are expected from its use or

disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference

between the net disposal proceeds and the carrying amount of the asset) is included in the

income statement when the asset is derecognized.

At December 31, 2014 and 2013, the Company maintains ongoing projects which have to

capitalize interest on loans.

(h) Financial leases -

The determination of whether an arrangement is, or contains, a lease is based on the substance

of the arrangement at inception date, whether fulfillment of the arrangement is dependent on

the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if

that right is not explicitly specified in an arrangement.

Private contracts with third parties -

The Company as lessor -

For leases where the Company transfers substantially all the risks and benefits incidental to

ownership of the leased asset, a finance lease receivable is recognized, either at the fair value of

the leased asset (expenditure incurred in the construction of active) or the present value of the

minimum lease charges, whichever is less.

Subsequently, at the date of use of the asset, the finance lease is recognized under the financial

method, recording the capital of the lease installments to be collected as an account receivable.

Charges for finance leases are distributed to finance income and to reduce accounts receivable

under finance leases so as to determine a constant rate of interest on the remaining balance of

the receivable. These credits are recognized as financial income in the statement of




17

Charges or payments under operating leases are recognized as income or expenses in the

statement of comprehensive income, in a straight line basis over the lease term.

At December 31, 2013 and 2014, the Company has not performed financial leases as a lessor.

(i) Borrowing costs -

The costs of financial obligations are accounted for as expenses when incurred, except for those

directly related to the acquisition or construction of a qualifying asset, which are included in the

cost of the respective asset. All other borrowing costs are expensed as incurred. The borrowing

costs include charges for interests and other related costs.

The capitalization of borrowing costs starts when the activities needed to prepare the qualifying

asset is in process and the borrowing costs are being incurred. The capitalization of borrowings

costs ends when the qualifying asset is completed and ready for its purpose. If the total cost

asset is greater than its recoverable value, the Company records an impairment loss.

The Company capitalizes borrowing costs for all eligible assets where construction commenced

on January 1, 2009 or thereafter.

(j) Intangible assets –

Concession agreement with the Peruvian State -

The Company has adopted IFRIC 12, Service Concession Arrangements, to record its concession

contracts with the Peruvian Government (see note 2). As explained in note 2, the following two

criteria are met for the Company’s concession contract and, as result, are within the scope of

IFRIC 12:

- The grantor controls or regulates what services the operator must provide using the

assets, to whom, and at what price; and

- The grantor controls, through ownership, beneficial entitlement or otherwise, any

significant residual interest in the assets at the end of the term of the arrangement.

The Company uses the Intangible Assets model to record its concession agreements.

The intangible asset represents the right granted by the Peruvian State to perform charges to

electric power transmission service users. Extensions to the infrastructure are recorded as

additions to intangible assets because they are expected to generate future economic benefits to

the Company.



18

The significant replacements and maintenance that the Company must perform to the

infrastructure of the electric power transmission system, in order to maintain the quality and

reliability standards, as required in the Concession Agreements, and which do not create future

economic flows for the Company, are recorded as part of the provision of maintenance and

significant replacements, see note 11 (c).

The intangible asset arising from the Concession Contract is amortized using the straight - line

method during the effective period of the contract. The amortization expense on intangible

assets with finite lives is recognized in the statement of comprehensive income in the expense

category consistent with the function of the intangible assets.

Software -

The software licenses acquired are capitalized based on the costs incurred to acquire or set-up

the specific computer software. These costs are amortized in 5 years.

Intangible assets with finite lives are amortized over the useful economic life and assessed for

impairment whenever there is an indication that the intangible asset may be impaired.

Gains or losses arising from derecognition of an intangible asset are measured as the difference

between the net disposal proceeds and the carrying amount of the asset and are recognized in

the statement of comprehensive income when the asset is derecognized.

(k) Impairment of long-term assets -

At the end of each year end the Company evaluates if there are indicators that an asset could be

impaired. The Company prepares an estimate of the recoverable amount of the asset when

events or economic changes occur that indicate that the value of assets may be impaired, or

when it is required to perform the annual asset impairment test. The recoverable amount of an

asset is the greater of the fair value of the unit cash of production less the costs to sell and its

value in use, and it is determined for an individual asset, unless the asset does not generate cash

flows in an independent manner. When the book value of an asset exceeds its recoverable value,

an asset is considered impaired and it is reduced to its recoverable value. In assessing value in

use, the estimated future cash flows are discounted to their present value using a pre-tax

discount rate that reflects current market assessments of the time value of money and the risks

specific to the asset. In determining fair value less costs to sell, recent market transactions are

taken into account, if available. If no such transactions can be identified, an appropriate valuation

model is used. These calculations are corroborated by valuation multiples, quoted share prices or

other available fair value indicators. The impairment losses are recognized in the statement of


Such assessment requires certain estimates and assumptions such as volume of projects,

investments, working capital budgets, discount rates, list prices and operating costs.



19

As of December 31, 2014 and 2013, the Company's management believes that there is no

evidence of operational and/or economic indication that the carrying amount of furniture and

equipment and intangibles may be impaired.

(l) Revenue and cost recognition -

Revenues are recognized when all inherent risks and benefits of the service are transferred, to

the extent that it is probable that the economic benefits related to the transaction will flow to the

Company and the revenue can be reliably measured, without considering the time in which the

payment is carried out. The revenues are measured at the fair value of the consideration

received or receivable, taking into account contractually defined terms of payment and excluding

taxes or duty.

The following specific criteria must be met to recognize a revenue:

Energy transmission services –

Revenues from the power transmission services are recognized in the related accounting period

as established under the concession agreement signed by the Peruvian State. The transmission

service rendered and not billed is accounted for on the basis of estimates of power transmission,

which does not differ significantly from the subsequent actual billing.

Construction services -

The revenues and cost for the projects’ construction services are recognized in the income

statement in accordance with the percentage of advance method at the reporting date. The

Company has not recognized any profit margin from these construction services due to these are

rendered, administered and supervised by a related party. The related party is the only entity

which recognizes a profit margin for those services in its financial statements.

Operation and maintenance services -

Revenues from operation and maintenance services to third party installations are recognized as

the services are provided.

Interests income –

Interest income is recognized on a time-proportion basis using the effective interest method. The

interest income is included as part of financial income in the statement of comprehensive

income.

Costs and expenses -

Costs and expenses are recognized as accrued, except for construction costs, and are recorded

in the periods to which they are related.



20

(m) Taxes -

Current income tax-

Current income tax assets and liabilities for the current period are measured at the amount

expected to be recovered from or paid to the taxation authorities. The income tax is calculated

based on the Company’s financial information.

The current income tax is calculated and recorded in accordance with the legal stability

agreement signed with the Peruvian state in 1998.

Deferred income tax -

The income tax is recognized following the liability method based, for the effect of timing

differences between the accounting basis and the tax basis on each statement of financial

position date.

Deferred tax liabilities are recognized for all taxable temporary differences.

Deferred tax assets are recognized for all deductible temporary differences, the carry forward of

unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent

that it is probable that taxable profit will be available against which the deductible temporary

differences, and the carry forward of unused tax credits and unused tax losses can be utilized.

The carrying amount of the deferred asset is reviewed at each statement of financial position

date and is reduced to the extent that it is no longer probable that sufficient future taxable

income will be available to allow the benefit of part or the entire deferred asset to be utilized.

Unrecognized deferred assets are re-assessed on each statement of financial position date.

Assets and deferred tax liabilities are measured at the tax rates that are expected to apply in the

period when the asset is realized or the liability is settled, according to the legal stability

agreement signed in 1998.

Deferred tax relating to items recognized outside profit or loss is recognized outside it. The

deferred tax items are recognized in correlation to the underlying transaction either in other

comprehensive income or directly in equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set

off current tax assets against current income tax liabilities and the deferred taxes relate to the

same taxable entity and the same tax authority.



21

Value added tax -

Revenues, expenses and assets are recognized net of the amount of sales tax, except:

- Where the sales tax incurred on a purchase of assets or services is not recoverable from

the taxation authority, in which case the sales tax is recognized as part of the cost of

acquisition of the asset or as part of the expense item as applicable.;

- Receivables and payables are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as

part of receivables or payables in the statement of financial position.

(n) Provisions -

A provision is recognized only when the Company has a present obligation (legal or constructive)

as a result of a past event, it is probable that an outflow of resources embodying economic

benefits will be required to settle the obligation and the amount of the obligation can be reliably

estimated. The expense relating to any provision is presented in the statement of comprehensive

income, net of any reimbursement. If the time value of money is material, the provisions are

discounted using a pre-tax rate that reflects, when appropriate, the risks specific to the liability.

When the discount is made, the increase in the provision due to the passage of time is recognized

as a financial cost.

Provision for maintenances and significant replacements -

As part of its obligations under the Concession Agreement subscribed with the Peruvian State

(note 2), the Company takes responsibility for the significant maintenances and replacements of

the infrastructure it maintains. The future maintenance and replacement costs, necessary to

maintain the infrastructure in the conditions required by the Peruvian State, are estimated and

recorded as an expense and a provision at year end, in accordance to the estimated period of use

of the assets that will be maintained or replaced.

Technical standard of quality provision in electric services (NTCSE) -

Supreme Decree N°020-97-EM approved the Technical Standard of Quality in Electrical Services

(NTCSE), that establishes the minimum levels of quality in electrical services to regulated

customers and, in a supplementary manner, for free customers, including the public lighting

system, and the obligations of electrical sector companies and the customers that operate within

the framework of the Law of Electrical Concessions. These obligations are recorded in the

statement of comprehensive income when the interruption’s events are in progress and exceed

the tolerance level. This economic compensation is calculated based on the number of

interruptions and the total duration of interruptions, and is paid to the generators that have been

affected. Compensation arising from deficiencies in the transmission lines may not exceed 10% of

the semi - annual sales of the Company.



22

(o) Contingencies -

A contingent liability is disclosed when the existence of an obligation will only be confirmed by

future events or when the amount of the obligation cannot be reliably measured. Contingent

assets are not recognized, but are disclosed when an inflow of economic benefits is probable.

Contingent assets are not recorded in the financial statements, but they are disclosed in notes to

the financial statements when the degree of contingency is probable.

(p) Subsequent events -

Events occurred subsequent to the year-end which provide additional information about financial

status of the Company at the statement of financial position date (adjustment events) are

included as part of the financial statements. Subsequent events that do not represent adjustment

events are disclosed in notes to the financial statements.

(q) Earning per share -

Basic and diluted earnings per share amounts are calculated by dividing net profit for the year

attributable to ordinary equity holders of the parent by the weighted average number of ordinary

shares outstanding during the year.

As of December 31, 2014 and 2013, the Company does not have financial instruments with

diluted effect; thus, basic and diluted earnings per share are the same.

(r) Segments -

A business segment is a distinguishable component of an enterprise that provides a single

product or service or group of products or related services, and subject to risks and returns that

are different from other business segments. A geographical segment is a distinguishable

component of an enterprise that is dedicated to providing products or services within a particular

economic environment and is subject to risks and returns that are different from those of

components operating in other economic environments. Companies should consider its

organizational structure and management and its internal financial reporting systems to identify

segments.

The only segment of the Company is the transmission of electrical power.

4.3 Significant accounting judgments, estimates and assumptions –

The preparation of the Company’s financial statements requires management to make

judgments, estimates and assumptions that affect the reported amounts of revenues, expenses,

assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting

period. However, uncertainty about these assumptions and estimates could result in outcomes

that require a material adjustment to the carrying amount of the asset or liability affected in

future periods.



23

(a) Significant judgments -

In the process of applying the Company’s accounting policies, management has made the

following judgments, which have the most significant effect on the amounts recognized in

the financial statements:

(i) Recognition of the concession as an intangible asset (see note 9) -

Based on its analysis of IFRIC 12 Service Concession Agreements, the Company

decided to use the intangible asset model to register transmission lines concessions

granted by the Peruvian state. According to Company's Management, although the

remuneration for the Company’s transmission service is determined annually by

the Peruvian government during the term of the concession, the concession

contracts do not establish obligations by the Peruvian government to take

responsibility for the payment of the duties assigned to each service user as a

result of the annual provision of transmission services, since the obligation is on

the users of the service provided. That is, once the compensation is allocated to

service users, there is no mechanism established in the Concession Agreement

unconditionally guaranteeing that the collection of the rights generated by the

transmission.

Furthermore, the Company's Management considers that the right to charge each

transmission service end-user is generated on an annual basis whilst the Company

remains capable of maintaining the transmission lines to a certain standard of

service over the lifetime of each concession. If the service were not maintained to

the standard specified no counterpart exists to guarantee payment for the service.

Moreover, and according to the terms established in the concession Contracts,

insofar as the Peruvian Government cannot guarantee the permanent presence of

electricity generating firms in the concession zones, it was established that in the

absence of end-users the corresponding concession Contracts be placed in

abeyance until such time as new generators come to the transmission system.

As a result of the above considerations, the Company’s Management concludes

that although the Peruvian Government provides for the assignation of the service

to each end-user it does not guarantee the payment of the corresponding service

fee. Therefore, and in accordance with the IFRIC 12 Service Concession

Arrangements



24

(ii) Trust Management Obligations (see note 3) -

The Company has subscribed a trust management contract with a view to financing

the construction Trujillo – Chiclayo transmission line (canceled in 2014) and

Machupicchu – Cotaruse (see note3). On the basis of an evaluation of the agreed

terms, the Company’s Management determined that the risks and benefits of the

concession Contract had not been transferred in their entirety. Similarly, the

Company had not ceded control of the concession Contract. Given the

circumstances, the Company also recognizes and records liabilities that relate to

subsequent assumed obligations. The transferred asset and the related liability are

measured so they reflect those rights and obligations retained by the Company.

(b) Estimates and assumptions -

The most significant estimates and assumptions in relation with the preparation of the

financial statements are described below:

(i) Impairment of non-financial assets (see note 9) -

The Company assesses at each reporting date whether there is an indication that

an asset may be impaired. If any indication exists, or when annual impairment

testing for an asset is required, the Company estimates the asset’s recoverable

amount.

At the reporting date, there are available projections of those variables which show

favorable trends in a view of the Company’s objectives. These projections support

the recoverability of its long - lived assets.

(ii) Provision for significant maintenance and replacement costs –

The provision for maintenance and replacements represents the present value of

the costs of significant maintenance and replacement outlays expected during the

remaining lifetime of the concession. This provision corresponds mainly to those

expenses necessary in order to maintain the transmission line’s infrastructure in

the operative conditions demanded by the Peruvian State and set out in the

corresponding concession contract. The provision is calculated by the Transmission

Management staff and is based on an assessment of factors relating to the

condition and age of the transmission lines and sub-stations. The evaluation

includes both a qualitative analysis and a quantitative analysis.

Budget estimates are reviewed annually and take into consideration any material

changes to previous projections. However, it should be pointed out that significant

upkeep and replacement outlays are dependent upon market prices, maintenance

activity and the price of required equipment as affected by future economic

conditions.



25

Based on the capital expenses budget previously approved by the Board, the

financial planning staff indexes cash outflows by inflation and updates budget flows

by applying an annual risk-free rate that takes into consideration market conditions

and the specific risk of the related liability.

The principal criteria and assumptions used for calculating the provision for

significant maintenance and replacement are set out in note 11 (c).

(iii) Taxes (see note 15) -

Uncertainties exist with respect to the interpretation of complex tax regulations,

changes in tax laws, and the amount and timing of future taxable income. Given the

nature of the long-term concession contract and the complexity of existing

contractual agreements, differences arising between the actual results and the

assumptions made, or future changes to such assumptions, could necessitate

future adjustments to tax income and expense already recorded. The Company

establishes provisions, based on reasonable estimates, for possible consequences

of audits by the tax authorities of the respective counties in which it operates. The

amount of such provisions is based on various factors, such as experience of

previous tax audits and differing interpretations of tax regulations by the taxable

entity and the responsible tax authority. Such differences of interpretation may

arise on a wide variety of issues depending on the conditions prevailing in the

respective Company's domicile.

As the Company assesses the probability for litigation and subsequent cash outflow

with respect to taxes as remote, no contingent liability has been recognized.

(iv) Recoverability of the deferred income taxes (see note 13) -

Significant management judgment is required to determine the amount of deferred

tax assets that can be recognized in the statement of financial position. The

deferred income taxes require the Management assesses if is probable that taxable

profit will be available in future periods in order to use the recorded deferred tax

asset. The estimate future taxable profit is base on the projections of the operative

cash flows and the applying of the corresponding tax laws in each jurisdiction. If

the future cash flows and the taxable profit are significantly different from the

estimates, such situation could have an impact in the Company’s capacity to

recover the net deferred tax asset recorded at the reporting date.

In addition, future changes in tax laws could limit the Company’s capacity to

obtaining tax deductions in future periods. Any difference between the estimates

and subsequent real outflows is recorded in the period in which occur.



26

In Management’s opinion, the estimates included in the financial statements were effected take

into consideration the best knowledge of the relevant facts and circumstances at the reporting

date. However, the final results could be different from the estimates included in the financial

statements.

5. New accounting pronouncements

The Company has decided not to early adopt the following standards that management believes may be

relevant to the Company, and are not effective at December 31, 2014:

- IFRS 9, Financial Instruments:

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments, which reflects all

phases of project financial instruments and replace IAS 39 Financial Instruments: Recognition

and Measurement and all previous versions of IFRS 9 . The standard introduces new

requirements for the classification and measurement, impairment and hedge accounting. IFRS 9

is effective for annual periods beginning on or after January 1, 2018, with early application

permitted. Retrospective application is required, but the comparative information is not

mandatory. The early application of the previous versions of IFRS 9 (2009, 2010 and 2013) is

allowed if the date of initial application is before February 1, 2015. The adoption of IFRS 9 will

have an effect on the classification and measurement financial assets of the Company, but no

impact on the classification and measurement of financial liabilities.

- IFRS 15, Revenue from contracts with customers

IFRS 15 was issued in May 2014 and established a new five-step model to be applied to revenue

from contracts with customers. Under IFRS 15 revenue is recognized at an amount that reflects

the consideration that the entity expects to be entitled in exchange for the transfer of goods or

services to a customer. The principles of IFRS 15 provide an approach more structured to

measurement and revenue recognition. The new standard of income is applicable to all entities

and will replace all current requirements for revenue recognition under IFRS. The retrospective

application Complete or modified is required for annual periods beginning on or after January 1,

2017, with early adoption is permitted.

- Amendments to IFRS 11 Joint Arrangements: Accounting for acquisitions of interests

Amendments to IFRS 11 required that a joint operator record the acquisition of an interest in a

joint venture in which the activity of the joint venture is a business, according to IFRS 3. The

amendments also clarify that a pre-existing interest in a joint operation is not remeasured in the

acquisition of an additional interest in the same joint operation, while the joint control is

maintained. In addition, a scope exclusion has been added to IFRS 11 to specify that the

amendments do not apply when the parties sharing joint control, including reporting entity under

common control of the same main controller.

The changes apply to both the acquisition of the initial stake in a joint operation and the

acquisition of any additional interest in such joint operation and are effective prospectively for

annual periods beginning on or after January 1, 2016, allowing the adoption advance.



27

- Amendments to IAS 16 and IAS 38: Clarification of acceptable methods of depreciation and

amortization.

The amendments clarify the principle of IAS 16 and IAS 38, revenues reflect a pattern of

economic benefits generated from operating a business (which the asset is part) rather than the

economic benefits consumed through use of the asset. As a result, the depreciation method

based on income can not be used to depreciate property, plant and equipment and may only be

used in very limited to the amortization of intangibles circumstances. The amendments are

effective prospectively for annual periods beginning on or after January 1, 2016, allowing for

early adoption.

The amendments are effective prospectively for annual periods beginning on or after January 1,

2016, with early adoption permitted. It is not expected that these amendments will have an

impact for the Company, since I have not used a method based on income to depreciate its non-

current assets.

6. Cash and cash equivalents

(a) This item is made up as follows:

2014 2013

US$ US$

Cash 482 516

Current accounts (b) 3,212,047 1,870,250

Short-term deposits (c) 167,577 13,388,984 ___________ ___________

3,380,106 15,259,750 ___________ ___________

(b) As of December 31, 2014 and 2013, current accounts held in banks and short-term deposits are

held in both national and U.S. dollars. All are held in local banks, are freely available and yield

interest at market rates.

(c) Short-term deposits fall due at under 90 days in the first instance and are renewable at the end

of each term. At December 31, 2014, these deposits yielded interest at an effective rate that

fluctuated between 3.40 and 4.15 percent for deposits in Nuevos Soles and 0.1 and 0.45 percent

for deposits in U.S. dollars (as of December 31, 2013, 3.80 and 3.40 percent for deposits in

Nuevos Soles and 0.13 and 0.45 percent for deposits in U.S. dollars)



28

7. Trade accounts receivable


2014 2013

US$ US$

Estimate of accrued transmission services (e ),( f) 13,094,046 9,534,381

Accounts receivable (controversy) (c) 24,978,665 25,284,501 ___________ ___________

38,072,711 34,818,882

Long-term trade accounts receivable (24,064,630) (22,804,500) ___________ ___________

Current portion 14,008,081 12,014,382 ___________ ___________

(b) Trade accounts receivable are mainly denominated in Nuevos Soles, have current maturities and

do not earn interest.

(c) In May 2004, the Company entered into an arbitration process with the Peruvian Government as

a result of two controversies arising from the application of the terms of the BOOT contract

corresponding to the Mantaro-Socabaya concession. On December 7, 2004 the definite

arbitration award was issued. Among its conclusions are the following:

- Declare the Company’s position justified with regard to the BOOT contract, insofar as said

contract does not empower the Peruvian State to apply a discount to the Company’s

monthly remuneration.

- Declare the Company’s position justified with regard to the sum that the Peruvian State

must refund. This is fixed at US$7,145,626, a figure that includes interest accrued until

March 1, 2005.

On May 20, 2005 addendum N°5 was subscribed with the Peruvian State, wherein it was agreed

that the Company’s position was valid with respect to the amount the Peruvian State should

refund. A timetable of payments over a period of 26 years was established. The payments were

to be added to the monthly invoices and include a 12 percent annual interest rate.

As of October 31, 2013, addendum N°10 was signed with the Peruvian State, in which it is

resolved to amend and clarify the entire execution over the "Monthly charge" pending in the

above mentioned controversy. In this regard, the parties agreed to reimburse the Company the

amounts owed in the period from March 2005 to April 2014. The amount of the restitution shall

be made under the charge during the remaining period of the BOOT contract, from May 1, 2014,

with a 12 percent annual interest rate.



29

The amortization schedule corresponding to this receivable is set out below:

2014 2013

US$ US$

- 2,480,001

2014 914,035 759,707

2015 1,032,892 851,024

2016 1,156,839 953,298

2017 21,874,899 20,240,471

2018 onwards - 2,480,001 ____________ ____________

24,978,665 25,284,501 _______---___ ______---____

Income deriving from interest payments totaled US$2,262,287 during 2014 (US$8,368,784

during 2013), which are shown in the financial income caption. See note 20.

(d) As of December 31, 2014 and 2013 the Company’s Management deems that it is unnecessary to

record an allowance for doubtful accounts, due to its principal clients have a recognised prestige

in the international market and they do not show evidence of financial or corporate problems or

impairment indicators at the close of the financial year.

(e) An analysis of aging of the current portion of trade accounts receivable as of December 31, 2014

and 2013 is set out below:

2014 2013

US$ US$

Neither past due nor impaired 12,453,807 9,371,850

Past due but not impaired

Under 90 days 634,198 156,639

From 90 to 180 days 6,041 5,892 ____________ -___________

Total 13,094,046 9,534,381 __--___-----___ ______---____

(f) Corresponds to the billing of transmission services performed in December of the current year

and were fully paid in January of the following year.



30

8. Other accounts receivable


2014 2013

US$ US$

Accounts receivable corresponding to private transmission

contracts, (b) 75,194,700 72,339,668

Value added tax credit (c) 42,746,856 51,965,951

Advances to suppliers (d) 26,014,008 5,606,862

Accounts receivable for compensation (e) 1,208,910 -

Other accounts receivable 472,402 41,596 ____________ ____________

145,636,876 129,954,077 ____________ ____________

Current portion 36,018,074 9,653,269

Non-current portion 109,618,802 120,300,808 ____________ ____________

145,636,876 129,954,077 ____________ ____________

(b) Financial lease contracts -

Private contracts corresponding to electric energy transmission services signed in conjunction

with third parties (see note 2) are considered financial lease contracts. In accordance with the

accounting practices described in note 4.2(h), disbursements effected by the Company for the

purpose of a related asset construction are considered as receivable accounts insofar as

completion of the transmission line is pending, and an account receivable equivalent to the

capital lease installments pending collection when construction is completed. During 2014,

accounts receivable corresponding to private transmission contracts generated interest

amounting to US$9,349,517 (US$$6,824,777 during 2013), see note 20.

These lease contracts include renewal clauses but do not contemplate call options or updating

clauses. Renewals are an option available to the lessee.

As of December 31, 2014 and 2013, the Company’s Management believes that it is unnecessary

to record an allowance for doubtful accounts as their main customers have a strong reputation in

the domestic and international market and show neither financial problems nor indication of

impairment at end of the period.



31

Future minimum collections receivable under applicable lease contracts, together with the

present value of the net minimum lease collections, are set out below:

2014 2013 _______________________________ _______________________________

Minimum

collections

Present

value

Minimum

collections

Present

value

US$ US$ US$ US$

Within one year 10,541,415 1,192,355 8,957,078 809,963

After one year but no more than five years 42,165,661 6,454,832 35,828,310 4,510,471

More than five years 145,630,278 67,547,513 142,223,195 67,019,234 ____________ ____________ ____________ ____________

Minimum lease collections 198,337,354 75,194,700 187,008,583 72,339,668

Less - amounts representing financial income (123,142,654) - (114,668,915) - ____________ ____________ ____________ ____________

Present value of minimum lease collections 75,194,700 75,194,700 72,339,668 72,339,668 ____________ ____________ ____________ ____________

(c) Corresponds to value added tax credit originated primarily from imports of supplies to be used in

the construction of transmission lines. In January 2011, Supreme Resolution N° 005-2011-EM

enabled the Company to benefit from an early recovery of sales tax corresponding to

investments made from September 2010 on investment projects in progress. During 2014, the

Company has recovered US$9,086,298 (US$12,317,773 in 2013). According to Management

projections, this scheme will enable the Company to recover US$4,838,145 of value added tax

credit in the short term. Long - term tax credits will be applied against value added tax from

future sales.

(d) Advances to suppliers corresponds to advances to various suppliers for the construction of

transmission projects and negotiation of servitude.

(e) In February 2014, the Peruvian State agrees to return to the Company, the payments related to

the Electrical Services Technical Standard (NTCSE for its Spanish acronym) corresponding to

Extension No. 1 of Mantaro- Socabaya transmission lines since, according to Addendum No. 8, it

is exonerated from NTCSE payments since it does not have a supporting infrastructure.

Translation of auditor’s report originally issued in Spanish – See Note 27 to the financial statements


32

9. Intangible assets, net

(a) The movement and corresponding accumulated amortization of intangibles is presented below:

2014 2013 ______________________________________________________________________________ ______________________________________________________________________________

Electric

transmission

system

concessions (b) Software

Projects in

progress

(e) Total

Electric

transmission

system

concessions (b) Software

Projects in

progress

(e) Total

US$ US$ US$ US$ US$ US$ US$ US$

Cost

Balances at January 1, 639,587,960 1,503,606 132,524,363 773,615,929 586,144,631 1,503,606 105,892,624 639,587,960

Additions 467,986 - 98,526,351 98,994,337 - - 81,290,394 81,290,394

Transfers (e) 118,804,888 - (118,804,8) - 53,443,329 - (53,443,329) 118,804,888

Transfers to supplies and spare parts (f) (2,014,647) - - (2,014,647) - - (1,215,326) (1,215,326) _____________ _____________ _____________ _____________ _____________ _____________ _____________ _____________

Balances at December 31, 756,846,187 1,503,606 112,245,826 870,595,619 639,587,960 1,503,606 132,524,363 773,615,929 _____________ _____________ _____________ _____________ _____________ _____________ _____________ _____________

Accumulated amortization

Balances at January 1, 98,807,231 1,405,228 - 100,212,459 77,028,572 1,378,884 - 78,407,456

Additions 24,194,493 26,345 - 24,220,838 21,778,659 26,344 - 21,805,003 _____________ _____________ _____________ _____________ _____________ _____________ _____________ _____________

Balances at December 31, 123,001,724 1,431,573 - 124,433,297 98,807,231 1,405,228 - 100,212,459 _____________ _____________ _____________ _____________ _____________ _____________ _____________ _____________

Net book value 633,844,463 72,033 112,245,826 746,162,322 540,780,729 98,378 132,524,363 673,403,470 _____________ _____________ _____________ _____________ _____________ _____________ _____________ _____________

(b) The annual amortization expense is recorded in the statement of comprehensive income as follows:

2014 2013

US$ US$

Cost of power transmission services

note 18 24,194,493 21,778,659

Administrative expenses, note19 26,345 26,344 _____________ _____________

24,220,838 21,805,003 _____________ _____________

Translation of auditor’s report originally issued in Spanish – See Note 27 to the financial statements


33

(c) The item “Electric transmission system concessions” corresponds to the cost of constructing

the electric transmission systems relating to the concessions contracted with the Peruvian State,

(see note 2). The balance is detailed below:

2014 2013

US$ US$

Zapallal - Trujillo 212,179,564 212,179,564

Mantaro-Socabaya 157,466,796 157,466,796

Trujillo - Chiclayo 118,804,888 -

Chilca-La Planicie-Zapallal 140,402,997 140,402,997

Extension N°1 Mantaro-Socabaya 71,051,390 72,730,449

Pomacocha – Carhuamayo 25,390,682 25,228,216

Talara – Piura 21,209,658 21,209,658

Ica-Independencia 10,340,212 10,370,280 ____________ ____________

Total 756,846,187 639,587,960 ____________ ____________

(d) As of December 31, 2014 and 2013 the projects in progress comprise the following

concessions (see note 2):

2014 2013

US$ US$

Machupicchu - Cotaruse 85,389,695 25,164,824

Mantaro – Montalvo 24,305,456 4,772,625

Planicie Industriales 1,373,301 -

Friaspata – Mollepata 957,850 -

Orcotuna 29,887 -

Trujillo Chiclayo - 102,546,648

Other projects 189,637 40,266 _____________ _____________

112,245,826 132,524,363 _____________ _____________

(e) During 2014, transfers of "Projects in progress " to " Electric transmission system concessions "

corresponds to the capitalization of project Trujillo - Chiclayo (during 2013, corresponds to the

Pomacocha - Carhuamayo and Piura-Talara projects).



34

(f) During 2014, the excess of the Extension No. 1, Pomacocha- Carhuamayo and Ica- Independence

projects were transferred to the caption “Supplier and spare parts” for US$1,706,548,

US$278,030 and US$30,069, respectively.

(g) As of December 31, 2014, the projects are financed only with specific loans, see note 12 (c).

During 2014, additions to ongoing projects include capitalized financing costs totaling

US$2,279,500 (US$1,438,152 for generic loans and US$2,254,545 for specific loans during

2013), see note 21.

(h) The Company has insured its principal assets in accordance with Management policy. In the

opinion of Management, the practices adopted with regard to insurance are consistent with

international standards and the risks of eventual loss or losses attributable to accidents or

damage outlined in the relevant policies are reasonable given the type of assets owned by the

Company.

(i) As of December 31, 2014 and 2013, the Company’s Management evaluated the condition

and use of its intangible assets. No indication of impairment was identified.

10. Trade accounts payable


2014 2013

US$ US$

Invoices payable 1,197,550 1,801,677

Provisions for goods and services received 1,045,470 1,916,893 ___________ ___________

2,243,020 3,718,570 ___________ ___________

(b) Trade accounts payable are originated primarily from the purchase of goods and services

destined to contribute to the development of the Company’s operations. These liabilities are

denominated in Nuevos Soles and U.S. Dollars, are not subject to interest and are normally

settled within 15 days. No specific guarantees have been issued for these obligations.



35

11. Provisions

(a) This items is made up as follows:

Provision for

Electrical

Services

Technical

Standard (b)

Maintenance

and

replacement

provision (c) Total

US$ US$ US$

At January 1, 2013 18,745 5,079,682 5,098,427

Disbursements (2,428) (1,329,647) (1,332,075)

Provision for the year 2,428 2,089,106 2,091,534

Fair value update, note 21 - 32,002 32,002 __________ __________ __________

At December 31, 2013 18,745 5,871,143 5,889,888 __________ __________ __________

Current portion 15,067 379,534 394,601 Current portion 18,745 1,069,527 1,088,272

Non-current portion - 4,801,616 4,801,616 __________ __________ __________

18,745 5,871,143 5,889,888 __________ __________ __________

Provision for

Electrical

Services

Technical

Standard

Maintenance

and

replacement

provision Total

US$ US$ US$

At January 1, 2014 18,745 5,871,143 5,889,888

Disbursements (134,612) (1,543,510) (1,678,122)

Provision for the year 175,273 3,133,113 3,308,386

Fair value update, note 21 - 307,177 307,177 __________ __________ __________

At December 31, 2014 59,406 7,767,923 7,827,329 __________ __________ __________

Current portion 15,067 379,534 394,601 Current portion 59,406 1,859,183 1,918,589

Non-current portion - 5,908,740 5,908,740 __________ __________ __________

59,406 7,767,923 7,827,329 __________ __________ __________

(b) Provision for Electrical Services Technical Standard (Peruvian acronym NTCSE) –

In accordance with Supreme Decree N° 020-1997-EM Electrical Services Technical Standard, the

Company records the monetary refunds which it is obliged to pay to its customers (i.e. the

purchasers of its transmission service) in the event of technical malfunction. These monetary

compensations for electrical outages are calculated on the basis of the number of outages and

the total duration of the outages and are paid to the injured parties – i.e. the electrical generating

companies.



36

(c) Provision for maintenance and replacement –

The provision for maintenance and replacement represents the present value of significant

maintenance and replacement costs that the Company expects to incur between 2015 and 2041

for operating transmission lines, see note 9 (c). The provision for maintenance and replacement

corresponds principally to the outlays required to maintain the transmission lines infrastructure in

accordance with the operational standards specified by the Peruvian State in the relevant

concession contract. These costs have been estimated by the Transmission Management on the

basis of the physical condition and age of the transmission lines.

The budgets for maintenance and replacement used for calculating the corresponding provision

are based upon maintenance forecasts and current available information related to operational

Concessions up to date, on the basis of an equivalent period to the remaining years of the

Concession Contracts. Budgets are regularly reviewed with a view to incorporate any material

change to previous projections. However; significant maintenances and replacements will depend

on market prices, maintenance activities and prices for required equipments, which will reflect

future economic conditions. Furthermore, disbursement schedules depend upon the useful life of

units to be maintained or replaced.

During 2014, the Company’s management reviewed the execution probabilities of maintenance

budgets used in determining the provision for maintenance and replacements, which were

modified. The effect of this change in estimate was lower expenses of US$679,000, which were

recorded as a credit to the "Provision for maintenance and replacements" caption in the

statement of comprehensive income for the year 2014.

The principal assumptions used for calculating the provision for maintenance and replacements

as of December 31, 2014 and 2013 were as follows:

2014 2013

Operating Budget (nominal value US$) 82,808,085 60,383,624

Risk-free rate 0.729 - 6.274 0.630 - 6.274

Average probability of budget execution 73% 59%

Projected inflation rate 2.5 2.2

As of December 31, 2014 and 2013, the Company’s Management is considers that the provision

for significant maintenance and replacement is sufficient to fulfill the conditions of quality and

efficiency demanded by the Peruvian State.



37

12. Financial obligations


2014 2013

US$ US$

Corporate bonds (b)

Corporate bonds 450,000,000 450,000,000

Structuring commissions (5,921,434) (6,412,889) ____________ ___________

444,078,566 443,587,111

Bank loans (c)

Bank loans 100,000,000 61,000,000

Structuring commissions (88,873) (1,374,100) ____________ ___________

99,911,127 59,625,900 ____________ ____________

Total financial obligations 543,989,693 503,213,011

Current portion - 3,050,000

Non-current portion 543,989,693 500,163,011 ____________ ____________

543,989,693 503,213,011 ____________ ____________

(b) Corporate bonds –

On April 30, 2013, the Company made the placement of international securities offerings under

Rule 144A and Regulation S of the US Securities Act of 1933. On May 7, 2013, the Company

proceeded with the settlement and issuance of bonds denominated "Senior Notes". The issuance

amounted to US$450,000,000 at an issue price of 99.002%. It has a 10-year Bullet amortization,

with semiannual coupons and accrue interest at an effective annual rate of 4.375%. These funds

were used to prepayment of debt. They are not subject to compliance of financial ratios or

maintenance of specific levels of net working capital or liquidity.

(c) Bank loans –

The following table sets out the details of the debt corresponding to bank loans:

2014 2013

US$ US$

Banco de Crédito del Perú S.A.A. 100,000,000 -

Banco de Crédito del Perú S.A.A. - 61,000,000

Structuring commissions (88,873) (1,374,100) ____________ ____________

99,911,127 59,625,900 ____________ ____________



38

Loan from Banco de Crédito del Perú S.A.A. -

On June 20, 2014 the Company entered into a loan agreement with Banco de Credito del

Peru S.A.A. for US$100,000,000. This loan was used to prepay the loan from the Trujillo -

Chiclayo Trust in effect at December 31, 2013 for US$61 million. The loan term is 4 years from

the date of disbursement. This loan accrues quarterly interests at a rate of compensatory

interest LIBOR + 3.6 percent.

The Company is not required to maintain financial ratios as part of its contractual commitments.

(d) Payment schedule –

As of December 31, 2014 and 2013, the timetable for amortizing the non-current portion of the

long-term debt is as follows:

2014 2013

US$ US$

2015 - 3,355,000

2016 - 3,202,500

2017 - 3,057,500

2018 and thereafter 550,000,000 498,335,000

Less: structuring commissions (6,010,307) (7,786,989) ____________ ____________

543,989,693 500,163,011 ____________ ____________

(e) Funds deriving from loans and corporate bonds have been applied in the development of the

various concession projects undertaken by the Company.



39

13. Deferred income tax liability, net

(a) Details of this item are set out below, together with their respective originating entries:

As of January 1,

2013

(Debit)/credit to

the statement of

comprehensive

income

As of December 31,

2013

(Debit)/credit to

the statement of

comprehensive

income

As of December 31,

2014

US$ US$ US$ US$ US$

Deferred asset

Provision for maintenance and replacements 2,598,289 523,867 3,122,156 1,032,086 4,154,242

Tax loss - 3,034,351 3,034,351 (2,635,698) 398,653

Outlays for replacing concession assets 377,545 - 377,545 - 377,545 ____________ ____________ ____________ ____________ ____________

2,975,834 3,558,218 6,534,052 (1,603,612) 4,930,440 ____________ ____________ ____________ ____________ ____________

Deferred liability

Effect from differences in the amortization rate of

intangible assets (36,964,459) (12,234,503) (49,198,962) (7,486,383) (56,685,345)

Tax depreciation of financial lease contracts (3,089,178) (1,529,678) (4,618,856) (2,110,450) (6,729,306) ____________ ____________ ____________ ____________ ____________

(40,053,637) (13,764,181) (53,817,818) (9,596,833) (63,414,651) ____________ ____________ ____________ ____________ ____________

(37,077,803) (10,205,963) (47,283,766) (11,200,445) (58,484,211) ____________ ____________ ____________ ____________ ____________

(b) Income tax expenses, as shown in the statement of comprehensive income, breaks down as follows:

2014 2013

US$ US$

Current - -

Deferred 11,200,445 10,205,963 ___________ ___________

11,200,445 10,205,963 ___________ ___________

(c) Following the reconciliation of effective tax rate and the theoretical tax rate for the years 2014 and 2013:

2014 2013 US$ US$

Profit before income tax 34,293,242 30,548,409 ____________ ____________

Theoretical income tax (30%) 10,287,973 9,164,523

Other permanent ítems 912,472 1,041,440 ____________ ____________

Income tax expense 11,200,445 10,205,963 ____________ ____________



40

14. Net Equity

(a) Issued capital –

As of December 31, 2014, capital stock was represented by 580,714,259 common shares, fully

subscribed and paid. The nominal value of each share is one Nuevo Sol.

As of December 31, 2014 and 2013, the Company’s corporate structure was as follows:

Percentage of individual stock participation

Number of

shareholders

Total participation

percentage

From 10.01% to 40% 1 40%

From 41.01% to 60% 1 60% _____ _______

2 100% _____ _______

(b) Other equity reserves –

Company law in Peru requires that each financial year a minimum of 10 percent of distributable

profits, net of income tax, be transferred to a legal reserve until this reaches an equivalent of 20

percent of the firm’s capital. The legal reserve may be used to offset losses or may be

capitalized, but in either circumstance must be replaced. The Company appropriates and

registers the legal reserve when authorized to do so by the shareholders at the Annual General

Meeting.

15. Tax situation

(a) On February 24, 1998 the Company subscribed a Legal Stability agreement with the Peruvian

State which remains in force during the lifetime of the concession granted. In general terms, the

agreement guarantees the Company’s investors stable tax (Income tax) and staff employment

regimes. On October 27, 2006, the Company and the Peruvian State signed an addendum to the

stability agreement wherein it was clarified that total capital contributions at that date amounted

US$43,005,250. Income tax rate is 30 percent on taxable profits.

Legal persons not domiciled in Peru and individuals must pay an additional tax of 4.1 percent on

dividends received.

(b) Management considers that it has determined taxable profits according to the tax regime in force

in 1998 and it is therefore obliged to deduct or add those taxable or non-taxable entries

pertinent to that regime.

(c) In accordance with Article 87 of the Tax Code, and in compliance with the legislation detailed in

Supreme Decree No.151-2002-EF, the Company’s accounts are maintained in US dollars.



41

(d) With the purpose of determining the income tax and value added tax; the transfer prices among

related parties and for transactions with companies domiciled in countries considered tax havens,

should be supported by documentation containing information about the valuation methods

applied and criteria used in its determination. Based on an analysis of the Company’s operations,

Management and its legal advisors do not believe that these regulations will result in significant

contingencies for the Company as of December 31, 2014 and 2013.

(e) The tax authorities are empowered to review and, if applicable, amend the Income Tax and Value

Added Tax as calculated by the Company over the four years from the date the tax return was

presented. Income tax returns for the years 2011 to 2014 and value added tax returns

corresponding to the years 2010 to 2014 are pending review by the tax authorities.

Due to the possible interpretations the tax authorities may apply to the legislation currently in

force, at this time it is not possible to determine whether future revisions would affect the

Company’s liabilities. Therefore any eventual increased taxation or fine resulting from a fiscal

revision will be applied to the financial year in which the revision takes place.

During 2011 the Company received an assessment from the National Tax Administration

Superintendence (Peruvian acronym: SUNAT) regarding income tax corresponding to 2008 and

2009 for S/.5,048,912. The assessment relates to the procedures employed for carrying

forward and off setting previous years’ tax losses. The Company presented to SUNAT a request

for reconsideration, which was declared invalid. Given these circumstances, the Company

appealed to the Tax Court whose verdict is still pending.

During 2012, the Company received an assessment from SUNAT related to the 2010 income tax

for the depreciation of the transmission lines. SUNAT objects to the reason that the depreciation

rate of 10 percent was used considering that transmission lines qualify as buildings and

constructions which would correspond to the depreciation rate of 3 percent. The Company

presented a claim, which is still pending resolution by SUNAT.

During 2014, the Company has received the the first information request for the inspection of

income tax for the years 2012 and 2013, that are in process.

However, it is the opinion of Management and its legal advisors that any eventual additional tax

charge would have no significant effect on the financial statements as of December 31, 2014 and

2013.

(f) The Company’s Management decided to offset the Company’s tax loss carry forward within four

years as from the year in which the tax loss is generated. The balance not offset cannot be used

in subsequently. In this regard, Management decided to record a deferred tax asset as of

December 31, 2014 for US$398,653 (US$3,034,351 as of December 31, 2013), see note 13

(a).



42

16. Commitments and Guarantees

As of December 31, 2014 the Company has letters of guarantee with local financial institutions for

US$$86,305,000 and S/.1,900,000 (letters of guarantee for US$76,841,417 as of December 31,

2013) to guarantee the compliance of the contractual conditions associated with the concessions.

17. Power transmission services

This item is made up as follows:

2014 2013

US$ US$

Mantaro – Socabaya 43,970,099 41,261,861

Zapallal – Trujillo 24,744,126 25,090,942

Chilca – La Planice – Zapallal 9,981,443 9,569,042

Trujillo - Chiclayo 7,212,910 -

Pomacocha – Carhuamayo 2,550,021 360,276

Ica – Independencia 2,024,471 1,380,207

Talara – Piura 2,304,865 884,321

Private transmission services contracts 2,816,691 2,827,653

Account receivable from controversy – Extension 10 1,528,173 11,887,073

Other operational income 22,116 - ___________ ___________

97,154,915 93,261,375 ___________ ___________

18. Cost of power transmission services


2014 2013

US$ US$

Amortization, note 9(b) 24,194,493 21,778,659

Operational and maintenance cost rendered by related parties,

note 22(a) 11,417,658 10,363,880

Management services rendered by related parties,

note 22(a) 3,627,412 3,085,085

Insurance 1,409,383 1,152,292

Taxes 1,109,412 1,037449

Depreciation 154,655 60,935

Other 2,669,634 2,224,727 ___________ ___________

44,582,647 39,703,027 ___________ ___________



43

19. Administrative expenses


2014 2013

US$ US$

Advisory and consulting services 319,500 492,261

Amortization, note 9(b) 26,345 26,344

Other items 252,883 493,739 ___________ __________

598,728 1,012,344 ___________ ___________

20. Financial income


2014 2013

US$ US$

Interest on accounts receivable related to private transmission

contracts, see note 8(b) 9,349,517 6,824,777

Interest on accounts receivable related to disputed revenues, note

7(c) 2,262,287 8,368,784

Interest on short-term deposits 92,697 167,940

Other items 16,222 8,843 ___________ ___________

11,720,723 15,370,344 ___________ ___________

21. Financial expenses


2014 2013

US$ US$

Interest on bonds 20,246,360 12,742,188

Interest on long - term debt 4,916,577 14,242,924

Interest on related parties loans 6,557 3,482,781

Other costs related to financing 1,884,920 1,186,849

Adjustment to the provision for maintenance and replacements,

note 11(a) 307,177 32,002 ___________ ___________

27,361,591 31,686,744

Capitalization of financial expenses, note 9(g) (2,279,500) (3,692,697) ___________ ___________

Total 25,082,091 27,994,047 ___________ ___________



44

22. Transactions with related parties

(a) The principal transactions as of December 31, 2014 and 2013 are set out below:

2014 2013 ____________________________ ____________________________

Expenses

Intangible

assets Expenses

Intangible

assets

US$ US$ US$ US$

Acquisition of construction services (e) - 83,146,220 - 70,005,853

Acquisition of operational and maintenance

services (c), note 18 11,417,658 - 10,363,880 -

Acquisition of specialized technical services (f) - 948,813 - 1,868,913

Acquisition of management services (c), note 18 3,627,412 - 3,085,085 -

Interest on loans received (d) 6,557 - 3,482,781 -

(b) As of December 31, 2014 and 2013, the Company had the following balances with its related

parties:

2014 2013 _____________________________ _____________________________

Accounts

receivable

Accounts

payable

Accounts

receivable

Accounts

payable

US$ US$ US$ US$

Trade

Red de Energía del Perú S.A. (c) 175,155 29,770 42,654 2,547,770

Internexa Perú S.A. 255 30,527 2,047 83,510

Proyectos de infraestructura del Perú S.A.C. (e) - 12,588,183 22,909 6,786,811

Loans

Red de Energía del Perú S.A. (d) - 7,000,000 - -

Various

Red de Energía del Perú S.A. 6,463,294 1,737,048 3,763,598 1,320,089

Interconexión Eléctrica S.A. E.S.P. 13,943 13,845 13,943 15,135

Empresa de Energía de Bogotá 9,126 - 9,126 - ___________ ___________ ___________ ___________

Total accounts receivable/payable 6,661,773 21,399,373 3,854,277 10,753,315 ___________ ___________ ___________ ___________

Current portion 6,661,773 20,332,824 3,854,277 10,753,315

Non-current portion - 1,066,549 - - ___________ ___________ ___________ ___________

6,661,773 21,399,373 3,854,277 10,753,315 ___________ ___________ ___________ ___________

With the exception of the loans from Red de Energía del Perú S.A., receivable and payable

balances relating to related parties are short-term, do not generate interest and are not

underwritten with specific guarantees.



45

(c) Trade accounts payable to Red de Energía del Perú S.A. as of December 31, 2014 and 2013

correspond to the service received for operating and maintaining the transmission line

concession by the Peruvian State and for private energy transmission contracts signed with third

parties. They also include specialized technical services provided for the purpose of managing

transmission line construction contracts from the Peruvian State and third parties. Finally, they

include managerial, administrative and financial services. See (a).

(d) In December 2014, Red de Energia del Peru S.A. granted the Company with a short-term loan

for the development of concession projects granted by the Peruvian State. The loan matures in

December 2015 and accrues interest at an annual effective rate of 2.81 percent.

(e) The Company entered into contracts with Proyectos de Infraestructura del Perú S.A.C. (PDI), a

related party, with the purpose of constructing transmission lines corresponding to the

concessions detailed in the table below. Said contracts provide for a construction timetables that

vary between 24 and 38 months. During the years 2014 and 2013, the Company has made the

following disbursements to PDI, related to the construction of these concessions:

2014 2013

US$ US$

Machupicchu – Cotaruse 52,176,352 12,600,862

Mantaro - Montalvo 17,196,592 2,536,812

Trujillo – Chiclayo 13,773,276 46,478,388

Zapallal-Trujillo - 4,488,869

Pomacocha – Carhuamayo - 1,436,518

Talara-Piura - 2,464,404 _____________ _____________

83,146,220 70,005,853 _____________ _____________

(f) Company’s disbursements in favor of its related party and third parties pertaining to the

construction of electrical energy transmission lines were as follows:

2014 2013

US$ US$

Disbursements to PDI (e) 83,146,220 70,005,853

Disbursements to third parties 8,313,407 4,438,164

Disbursements to REP (a) 948,813 1,868,913 _____________ _____________

92,408,440 76,312,930 _____________ _____________

In accordance with the requirements of IFRIC 12 Service Concession Arrangements, the

Company recognizes these incurred costs in the statement of comprehensive income as part of

the cost of the construction service. According to this interpretation, the Company renders a

construction service in favor of the Peruvian State. Furthermore, the interpretation requires the

Company to recognize revenues equivalent to the fair value of the construction service. In the



46

Company’s case, this revenue, recorded in the statement of comprehensive income, corresponds

to the same value as expenses incurred, as the Company generates no profit margin for

rendering these services since they are provided, administered and/or supervised by its related

party PDI (see paragraph (e)).

(g) Transactions with related parties were effected under normal market conditions. Taxes

generated by these operations and the basis of their calculation are in line with current industry

practice and are settled in accordance with tax legislation currently in force.

(h) Board and Management remuneration

Outlays related to Board and Management remunerations and related concepts amounted to

US$44,737 during 2014 (US$91,210 during 2013). The Company provides Management with no

post-employment or post-contract benefits and no equity participation scheme exists.

23. Basic and diluted earnings per common share

As of December 31, 2014 and 2013, there were 580,714,259 shares in circulation. Set out below is a

table indicating the basic and diluted earnings per share:

2014 ____________________________________________

Earnings

(numerator)

Shares

(denominator)

Earnings per

share

US$ US$

Basic and diluted earnings per share 23,092,797 580,714,259 0.04 ___________ _____________ _________

2013 ____________________________________________

Earnings

(numerator)

Shares

(denominator)

Earnings per

share

US$ US$

Basic and diluted earnings per share 20,342,446 580,714,259 0.04 ___________ _____________ _________

24. Financial risk management objectives and policies

By the nature of its activities, the Company is exposed to market, credit and liquidity risks. These are

managed through a policy of identification, assessment and continuous monitoring and are subject to

risk limits and other controls. The process of financial risk management is of cardinal importance to the

Company’s continuing profitability.

The independent risk control process does not contemplate business risks such as climate or

environmental change or developments in technology or to industry. These are monitored through the

Company’s strategic planning program.



47

(a) Risk management structure -

Risk management structure is the responsibility of the Company’s Board and Management, who

are entrusted to identify and control risks in coordination with other areas of the Company, as

explained below:

(i) Board of Directors -

The Board is responsible for guiding the general focus of risk management, and indicates

the principles to be used to this purpose as well as the policies to be adopted in specific

areas. These may include exchange rate risks, interest rate risks, credit risks and liquidity

risks.

(ii) Treasury and finances -

The treasury and finance area is responsible for the Company’s daily cash flow

administration whilst bearing in mind the policies, procedures and limits imposed by the

Board. The area is also responsible for arranging credit lines with financial entities when

deemed necessary.

(b) Risk mitigation -

As part of their ongoing risk management policy, the Company constantly evaluates different

scenarios and identifies different strategies designed to alleviate eventual exposures to changes

to interest rates, foreign exchange rates as well as risks to capital and credit risks.

The Board reviews and imposes the policies for managing each of these risks, which are detailed in the

following paragraphs:

Market risk

Market risk is defined as a risk whereby a fair value, or a financial instrument’s future cash flow,

fluctuates as a result of changes to market prices. In the Company’s case, market prices include two

types of risk: interest rate risk and currency exchange rate risk. Financial instruments exposed to

market risk include short-term deposits, loans and financial obligations.

The sensitivity analyses displayed in the paragraphs below are based upon the situation as of December

31, 2014 and 2013. These analyses are prepared based on the supposition that the net amount of debt,

the coefficient of a fixed interest rate applied to the debt’s variable interest rates, and the proportion of

foreign currency financial instruments all remain constant.

These analyses do not include the impact of market variables movements on the book value of tax or

labour obligations and provisions.

(a) Interest rate risk -

Interest rate risk is defined as a risk whereby a fair value, or a financial instrument’s future cash

flow, fluctuates as a result of changes to interest rates in the market. The Company’s exposure

to market interest rate risk relates mainly to term deposits and to long-term financial obligations

with variable interest rates.



48

The Company manages its interest rate risk by obtaining corporate bonds at fixed interest rates

(82 percent of the total debt) and a variable rate bank loan. As of December 31, 2014, the

Company maintains a variable rate debt amounting to US$ 99,911,127, see note 12 (c).

The table below details the effects of earnings before income tax that derive from a reasonable

variation in interest rates. Other variables remain constant in this chart:

Increase/ decrease to

exchange rate

Effect on profit

before income tax

US$

2014 +100 86,116

2014 -100 (86,116)

2013 +100 35,181

2013 -100 (35,181)

(b) Exchange rate risk -

Exchange rate risk is defined as a risk whereby a fair value, or a financial instrument’s future

cash flow, fluctuates as a result of changes to rates of exchange. The Company’s exposure to

exchange rate risk relates principally to its operational activities – and when earnings and

expenses are incurred in a currency, which is different from the Company’s functional currency.

Foreign currency transactions are carried out at free market exchange rates as published by the

Superintendence of Banking, Insurance and AFP. As of December 31, 2014 the average weighted

free market exchange rates for the United States dollar were US$0.335 (buy) and US$0.335

(sell). As of December 31, 2013 the respective rates were US$0.391 and US$0.358.

As of December 31, 2014 and 2013, the Company held the following assets and liabilities in

Nuevos Soles:

2014 2013

S/. S/.

Assets

Cash and cash equivalents 2,555,784 8,188,662

Trade accounts receivable 36,158,797 22,534,309

Other accounts receivable 10,223,093 2,311,663 ____________ ____________

48,937,674 33,034,634 ____________ ____________

Liabilities

Trade accounts payable 613,437 858,526

Other accounts payable 116,467 59,471 ____________ ____________

729,904 917,997 ____________ ____________

Net asset position 48,207,770 32,116,637 ____________ ____________



49

As of December 31, 2013 and 2014, the Company has no transactions with derivatives to hedge

its currency risk.

Sensitivity to exchange rate -

The following table shows the sensitivity to a reasonably possible change in the exchange rate of

the U.S. dollar, given that all other variables will remain constant, on the profit before income tax

of the Company (due to changes in fair value of monetary assets and liabilities).

Increase/ decrease

percentage

Effect on profit

before income tax

US$

2014 +10% 1,880,715

2014 -10% (1,880,715)

2013 +10% 1,044,218

2013 -10% (1,044,218)

Credit risk

Credit risk is the risk that the counterpart cannot fulfill its obligations with regard to a financial

instrument or a sales contract, thus generating a financial loss. The Company is exposed to credit risks

due to the nature of its operational activities (primarily through accounts receivable and loans) and its

financial activities that include deposits in banks and financial entities.

The Company considers trade accounts receivable to be a low credit risk as far as its principal customers

are concerned inasmuch as the risk is reduced due to the fact that the total invoiced to each

transmission service end user – and the collection dates – are regulated by OSINERGMIN and through

procedures set out by the National Grid Operations Committee (Peruvian acronym: COES).

In 2014, the three most important customers represented 17, 16 and 14 percent of total sales (17, 16

and 15 percent of total sales in 2013). As of December 31, 2014, 25 percent of accounts receivable

were attributable to these clients (65 percent as of December 31, 2013). The Company’s electrical

energy transmission services connect the generating companies to the Peruvian national grid (SEIN) and

some mining companies.

The assessment for doubtful accounts at the date of the financial statements and individually for each

client is updated.



50

Liquidity risk -

The Company constantly monitors the risk of a deficit of funds with recurrent short-term and long-term cash flow projections.

The Company’s objective is to balance between continuity of funding and flexibility through the use of loans.

The following table summarizes the maturity profile of financial liabilities of the Company’s on the basis of undiscounted payments under the respective contracts:

Post - due Under 3 months

From 3 to 12

months

From 1 to 5

years Over 5 years Total

US$ US$ US$ US$ US$ US$

At 31 December 2014

Financial obligations

Principal - - - 99,911,127 444,078,566 543,989,693

Future interest - - 23,479,406 87,800,436 68,906,251 180,186,093

Trade accounts payable - 2,243,020 - - - 2,243,020

Accounts payable to related parties - 20,332,824 1,066,549 - - 21,399,373

Other accounts payable - 3,406,698 - - - 3,406,698 __________ ____________ ____________ ____________ ____________ ____________

Total - 25,982,542 24,545,955 187,711,563 512,984,817 751,224,877 __________ ____________ ____________ ____________ ____________ ____________

At 31 December 2013

Bonds and loans payable

Financial obligations

Principal - - 3,050,000 13,877,500 486,285,511 503,213,011

Future interest - - 23,299,227 95,569,429 93,926,866 212,795,522

Trade accounts payable - 3,718,570 - - - 3,718,570

Accounts payable to related parties - 10,753,315 - - - 10,753,315

Other accounts payable - 3,485,158 - - - 3,485,158 __________ ____________ ____________ ____________ ____________ ____________

Total - 17,957,043 26,349,227 109,446,929 580,212,377 748,204,049 __________ ____________ ____________ ____________ ____________ ____________



51

Capital management -

The Company’s capital management policys principal objective is to ensure that the Company maintains

a solid credit rating and healthy capital ratios, with a view to grow the business and maximize its value

to the stockholder.

The Company manages its capital to ensure that the entity continues as a going concern while

maximizing the return to its shareholders through the optimization of debt and equity balances.

The capital structure of the Company consists of net debt (loans less cash and cash equivalents), and

attributable to shareholders’ equity.

Debt ratios as of December 31, 2014 and 2013 are set out below:

2014 2013

US$ US$

Total financial obligations 543,989,693 503,213,011

(-) cash and cash equivalent (3,380,106) (15,259,750) ____________ ____________

Net debt 540,609,587 487,953,261

Total net equity 314,814,164 291,721,367 ____________ ____________

Total liabilities and net equity 855,423,751 779,674,628 ____________ ____________

Gearing ratio 63.20% 62.58% ____________ ____________

25. Information concerning fair values of financial instruments

Fair value is defined as the unbiased market price of an asset (or liability) that may be sold or exchanged

in a transaction between knowledgeable and willing parties, providing the transaction is not a liquidation

sale.

When a financial instrument is traded in a functioning active market, its standard market price is the

best evidence of fair value. When the market price does not exist, or when this is not an adequate

indicator of the instrument’s worth, another substantially similar instrument may be employed to assess

fair value. An analysis of discounted cash flows and other techniques are also available, but these are

significantly affected by assumptions or the relevant adopted hypotheses. Despite the fact that

Management has used its best judgment with a view to estimating fair values of the Company’s financial

instruments, any technique for such a process is inherently fragile. Consequently, fair value is not

necessarily a true indicator of net market prices if the Company’s financial instruments were to be

liquidated.



52

The following methods and assumptions were adopted to assess fair values:

(a) Financial instruments with fair values similar to book values –

These are financial assets or liabilities that are cleared or mature in the short term (within three

months), such as cash and cash equivalents, accounts receivable, accounts payable and other

current liabilities. Fair value of these instruments is considered similar to its book value.

(b) Fixed rate financial instruments –

Fair values of fixed rate financial assets and liabilities at amortized cost are determined by

comparing market interest rates at the time of their initial uptake with current rates applicable to

similar instruments. The estimated fair values of interest-bearing deposits are determined

through discounted cash flows that are prepared using market interest rates in the prevalent

currency and considering products with similar maturity dates and inherent risks. Fair values of

long-term financial commitments are approximately the same as their book values, insofar as

interest rates are similar to those currently in force in the market.

The following table compares the Company’s financial instruments’ book values with fair values, as

detailed in the financial statements:

Book value Fair value __________________________ __________________________

2014 2013 2014 2013

US$ US$ US$ US$

Financial assets

Cash and cash equivalents 3,380,106 15,259,750 3,380,106 15,259,750

Trade accounts receivable, net 38,072,711 34,818,882 38,072,711 34,818,882

Accounts receivable from related

parties 6,661,773 3,854,277 6,661,773 3,854,277

Other accounts receivable 145,636,876 129,954,077 145,636,876 129,954,077 ____________ ____________ ____________ ____________

Total 193,751,466 183,886,986 193,751,466 183,886,986 ____________ ____________ ____________ ____________

Financial liabilities

Trade accounts payable 2,243,020 3,718,570 2,243,020 3,718,570

Accounts payable to related parties 20,332,824 10,753,315 20,332,824 10,753,315

Other accounts payable 3,406,698 3,485,158 3,406,698 3,485,158

Financial obligations:

Variable rate loans 100,000,000 61,000,000 100,000,000 61,000,000

Fixed rate loans 450,000,000 450,000,000 452,853,437 411,921,000

Structuring commissions (6,010,307) (7,786,989) (6,010,307) (7,786,989) ____________ ____________ ____________ ____________

Total 569,972,235 521,170,054 572,825,672 483,091,054 ____________ ____________ ____________ ____________



53

Fair values of financial assets and liabilities are shown at prices which could be obtained in current

transactions between willing parties, and not at a forced or liquidation sale. The following methods and

assumptions are employed when estimating fair values:

- Cash and short-term deposits, together with trade accounts receivable, are to a greater degree

the same as their book values insofar as these instruments mature in the short term.

- The estimated fair values of interest-bearing financial obligations are determined through

discounted cash flows that are prepared using prevailing market interest rates for like products

with similar maturity dates and inherent risks.

26. Standards for protecting the environment and technical standard

(a) Standards for protecting the environment -

In accordance with the General Environment Law (Law N°28611) and the Electrical Activities

Environmental Protection Regulation (Supreme Decree N°29-94-EM) the State establishes

principals, policies and standards designed to protect the environment, to promote the rational

use of natural resources, and to encourage sustainable development of activities relating to the

generation, transmission and distribution of electrical energy.

As of December 31, 2014 and 2013, the Company’s Management considers that any

contingency relating to the environment would have a negligible effect upon the overall financial

statements.

(b) Technical standards -

Electrical Services Technical Quality Standard -

Supreme Decree N°020-97-EM endorses the Electrical Services Technical Quality Standard

(Peruvian acronym NTCSE) which establishes minimum levels for the quality of services rendered

to regulated customers and, in supplementary fashion, for independent clients. The standard

applies to street lighting and to obligations undertaken by companies pertaining to the electricity

sector as well as to firms that operate within the framework of the Electrical concession Law.

The NTCSE contemplates measurement procedures and tolerances which encompass quality

standards that are applicable to electricity services and to street lighting. OSINERGMIN is the

entity responsible for overseeing and monitoring the above-mentioned standard with reference

to both electrical companies and their customers. OSINERGMIN is also empowered to regulate

the application of sanctions and compensatory fines when an entity does not fulfill its obligations

within the parameters established by the NTCSE. Law N°28832 awards COES - SINAC la faculty

to assign responsibility when the NTCSE standard is transgressed and to calculate the

corresponding compensatory penalties.



54

Company’s Management considers that if any contingency relating an incident of non-compliance

of the parameters set out by the NTCSE were to arise due to damaged equipment, the event

would be covered by the firm’s insurance policies.

27. Explanation added for English language translation

The accompanying financial statements are presented on the basis of International Financial Reporting

Standards. Certain accounting practices applied by the Company that conform with International

Financial Reporting Standards may differ, in certain respects, to generally accepted accounting

principles in other countries.

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