Transportadora de Gas del Perú S.A. Interim financial statements September 30, 2018 and 2017

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1 Transportadora de Gas del Perú S.A. Interim financial statements September 30, 2018 and 2017

2 Transportadora de Gas del Perú S.A. Interim statements of financial position As of September 30, 2018 (unaudited) and December 31, 2017 Note Assets Current assets Cash and cash equivalents 7 278, ,067 Trade accounts receivable 8 58,827 55,967 Other accounts receivable 10 3,118 5,204 Other supplies 15,537 15,389 Prepaid expenses 6,129 10,091 Assets classified as held for sale, net 1,445 1,445 Non-current assets 363, ,163 Property, plant and equipment, net 11 39,786 40,968 Intangible assets other than goodwill, net 12 1,274,413 1,331,445 Deferred income tax asset, net 17 12,084 9,869 1,326,283 1,382,282 Total assets 1,689,596 1,595,445 Liabilities and shareholders equity, net Current liabilities Trade accounts payable 13 29,905 26,773 Other accounts payable 16 27,677 24,664 Current income tax liability 29,340 10,931 Current part of long-term debt 14 y 15 18,710 9,465 Non-current liabilities 105,632 71,833 Liability for main grid guarantee advances , ,677 Corporate bonds , ,554 Other accounts payable of long-term 16 71,054 86,237 1,156,450 1,173,468 Total liabilities 1,262,082 1,245,301 Shareholders equity, net 18 Share capital 208, ,300 Other capital reserves 41,660 41,660 Retained earnings 177, ,184 Total Shareholders equity, net 427, ,144 Total liabilities and shareholders equity, net 1,689,596 1,595,445 The accompanying notes are an integral part of this statement.

3 Transportadora de Gas del Perú S.A. Interim statements of comprehensive income (unaudited) For the nine-month periods ended September 30, 2018 and 2017 Note For the nine-month periods ended September 30, Operating revenues 22 Net sales 516, ,544 Total operating revenues 516, ,544 Cost of service 23 Cost of sales, excluding depreciation or amortization (134,144) (131,601) Depreciation and amortization (73,532) (73,055) Total cost of service (207,676) (204,656) Gross profit 308, ,888 Operating income (expenses) Administrative expenses 24 (17,073) (22,690) Other income 25 10,205 2,851 Other expenses 25 (1,201) (418) Total operating expenses, net (8,069) (20,257) Operating profit 300, ,631 Other income (expenses) Net financial costs 26 (51,144) (53,080) Financial income, net 26 1, Net gain (loss) from currency exchange difference 4 1,735 (480) Total other expenses, net (47,602) (53,139) Profit before income tax 253, ,492 Income tax 20 Current income tax (77,903) (53,824) Deferred income tax 2,215 (17,067) Net profit 177, ,601 The accompanying notes are an integral part of this statement.

4 Transportadora de Gas del Perú S.A. Interim statements of changes in equity (unaudited) For the nine-month periods ended September 30, 2018 and 2017 Capital Other capital stock reserves Retained earnings Total As of January 1, 2017 (Restated) 208,300 41, , ,710 Profit and comprehensive income of the period , ,601 Dividends distribution, Note (184,220) (184,220) As of September 30, ,300 41, , ,091 As of January 1, ,300 41, , ,144 Profit and comprehensive income of the period , ,554 Dividends distribution, Note (100,184) (100,184) As of September 30, ,300 41, , ,514 The accompanying notes are an integral part of this statement.

5 Transportadora de Gas del Perú S.A. Interim statements of cash flows (unaudited) For the nine-month periods ended September 30, 2018 and 2017 Operating activities For the nine-month periods ended September 30, Collection from customers 513, ,768 Payment to suppliers (144,904) (144,779) Payment of income tax (59,494) (34,340) Payments of interest (24,340) (24,301) Other (payments) operating charges (13,438) (10,127) Net cash and cash equivalents provided by operating activities 271, ,221 Investing activities Acquisition of property, plant and equipment (2,152) (4,432) Acquisition of other assets (16,029) (19,572) Net cash and cash equivalents used in investing activities (18,181) (24,004) Financing activities Payment of dividends (100,182) (184,220) Net cash and cash equivalents used in financing activities (100,182) (184,220) Net increase in cash and cash equivalents during the period, net 153,190 81,997 Cash and cash equivalents at beginning of period 125,067 86,480 Cash and cash equivalents at period-end 278, ,477

6 Transportadora de Gas del Perú S.A. Notes to the interim financial statements (unaudited) September 30, 2018 and Company s identification and business activity Transportadora de Gas del Peru S.A. (hereinafter the Company or TGP) was incorporated in Peru on November 2, 2000 and started its commercial activities on August 20, The Company s shareholders as of September 30, 2018 are detailed in Note 18. The Company s legal address is Av. Santo Toribio 173, Vía Central 125, Torre Real 8, oficina 901, San Isidro, Lima - Peru. The Company is mainly engaged in transporting natural gas (NG) and natural gas liquids (NGL) through its pipelines. The Company may also carry out natural gas distribution activities by a pipeline network as well as the design, supply of goods and other facilities required for the transportation of NG and NGL, including any related activity, either by public or private concession. TGP is the holder of two concessions that are part of the Camisea Project: (i) (ii) Transportation of Natural Gas via pipelines from Camisea to the City Gate in Lima. Transportation of Natural Gas Liquids via pipelines from Camisea to the Coast. As per the Build, Own, Operate & Transfer (BOOT) concession agreements (hereinafter BOOT Concession Agreements), described below, the operating and maintenance activities of the natural gas and natural gas liquids transportation systems have been assigned to Compañía Operadora de Gas del Amazonas S.A.C. (hereinafter COGA) (Note 9). Background of the Concession Agreements - On December 6, 2000, by Supreme Resolutions No. 101/2000 and 102/2000 of the Peruvian Ministry of Energy and Mines (the Licensor - MEM), TGP was granted the two afore-mentioned concessions for which the corresponding BOOT Concession agreements were signed. On the same date, pursuant to Supreme Decree 033/2000-PCM, the Peruvian Government granted TGP, by means of an agreement signed under Art.1357 of the Peruvian Civil Code, a Peruvian Government Guarantee in support of the returns, securities and obligations contained in the above-mentioned BOOT agreements. The effective period of the BOOT Concession Agreements is thirty - three years from December 9, Upon maturity of the BOOT Concession agreements, the Company may request the extension of the effective period no less than 4 years in advance of the original date of maturity or of the maturity of any of its extensions. Each extension period may not exceed ten years and may be granted successively, without exceeding a maximum cumulative period of sixty years.

7 Basis of the BOOT Concession Agreements - The concessions for the transportation of natural gas through pipelines and the transportation of natural gas liquids through pipelines of which TGP is the concessionaire, have been granted free of charge by the Peruvian Government. During the effective period of the BOOT concession agreements, TGP will be the operator of the assets of the concession and, upon termination of the BOOT concession agreement, TGP will transfer to the Peruvian Government the assets received and the investments made and, as compensation, the Peruvian Government will pay TGP up to a maximum amount equivalent to the accounting value of the concession assets at said date. (a) Concession of Natural Gas Transportation via pipelines from Camisea to the City Gate of Lima - Its purpose is to establish the rights and obligations of the parties and set forth the rules governing the design, supply of goods and services, and construction of the Gas Transportation System, the exploitation of the Assets of the Concession and the transfer of the concession Assets to the Peruvian Government, upon termination of the concession. TGP undertakes to design and build the infrastructure necessary for the gas transportation network, which has to be suitable to transport the minimum capacity specified in the agreement. For the service of gas transportation provided through the gas transportation network, the Company can charge the maximum regulated fee, determined based on the financial bid. The Company is responsible for the operation of the gas transportation system, including its maintenance and repair. For this service, a fee will be collected by TGP that permits the recovery of the cost of service for the transport of natural gas. Addenda to BOOT Agreement - By means of Supreme Resolution No EM dated May 27, 2010, the signature of an addendum was approved between the Peruvian Ministry of Energy and Mines (hereinafter MEM) and the Company to the BOOT Concession Agreement for the transportation of natural gas by which TGP undertook to extend the capacity of the Natural Gas Transportation System in various stages up to 920 MMSCFD (million cubic feet per day). Furthermore, by Supreme Resolution No EM dated April 15, 2011, a new addendum was approved to be signed between the MEM and the Company to the BOOT Concession Agreement for Natural Gas Transportation, which updated the conditions necessary for executing the extension foreseen in Supreme Resolution No EM. 2

8 Within the Framework of the above-mentioned Addenda, the construction works to extend the pipeline transport system were located in the area of the district of Echarate, province of La Convencion, Cusco and comprised two projects. The first project was called Loop Sur and comprised the construction of a pipeline 55 Kms long parallel to the existing one. The second project comprised the construction of a Gas - Compressing Plant by Kp 127 of the gas transportation system, which would initially have an installed power of 54,000 HP. These construction works for the extension of the pipeline system through ducts were affected mainly by the unsecure situations which occurred in the area of the location of Kiteni, which led the Peruvian Government to declare a State of Emergency in the entire district of Echarate in April 2012, as well as the acceptance by the MEM of the Force Majeure claimed by the Company, given the fact that the extension works on the natural gas pipeline transportation system had been affected, resulting in a delay in the referred execution and start-up of operation of the natural gas extension project while the Force Majeure event lasts. The conditions of insecurity described in the above paragraph resulted in the impossibility of continuing with the construction of the project called Loop Sur. In this sense, by means of Supreme Resolution No EM dated August 29, 2013 a new addendum was agreed to be signed between MEM and the Company to the BOOT Concession Agreement to transport natural gas, which was signed on September 14, 2013, by which the decision was made to re-define the construction project, terms and conditions under which the capacity of the Natural Gas Transportation System would be extended, considering that the obligation to build the Loop Sur project no longer exists. Also by this Addendum, the Company undertook to build a Major Offshoot from the existing pipeline to the city of Ayacucho, as per the conditions set forth in said document. Under this scheme, it was agreed to extend capacity up to 920 MMSCFD, in a single phase, with the execution of the following two works: the first one, based on improved security conditions in the site, is to resume construction and set-up of the Compressing Plant at Kp 127, by adding more compression capacity: this plant will then be equipped with four (4) turbo-compressors (TTCC) of HP each: with a total installed capacity of HP. The second one, called Loop Costa II, located between Chilca and Lurín, consists of the construction of a pipeline of 31 Kms long to run from Chilca, at Kp 699, where it will connect with the existing Loop Costa, then up to Lurín at Kp 730, where it will connect to the City Gate in Lurín. In April 2016, the capacity of the Natural Gas Transportation System for the local market was extended to 920 MMSCFD with the execution of the above mentioned projects. 3

9 On the other hand, in September 2016 the Ayacucho Principal Diversion (originally Derivación Principal de Ayacucho ) an investment of approximately US$ 47 million, became operational under a regulatory regime involving the determination of the Annual Revenue, comprising Incremental Rates and the Rate Application Factor (FAT, the Spanish acronym), which are established in Supreme Decree No EM and addendum to the BOOT Concession Agreement for Natural Gas Transportation, signed on September 14,2013, as well as the procedures for Calculation of the Annual Revenue, Incremental Rates and FAT, as approved under resolution No OS/CD, containing the calculation methodology to be used in determining the afore-mentioned items over the recovery period. Main Grid Guarantee (MGG) The Main Grid Guarantee comprises an agreement whereby TGP was entitled to a guaranteed minimum revenue in its initial years of operation. If expected revenue from the service is less than the guaranteed revenue, then the Company will receive the difference. The mechanism of the guaranteed revenue expires, when after the fifth year of trading operations, the minimum guaranteed revenue differential is equal to zero for three consecutive years or three alternate years within a five-year period. Any differential to be collected by the Company was received by invoicing certain electric power generation companies, as required by the regulations to promote the electric industry. The mechanism of guaranteed income expired in April 2012, after determining a revenue differential of zero during the last three years. The Peruvian Government, by means of Supreme Decree No EM dated October 20, 2002, decided to allow TGP to bring forward from November 2002 the collection of the potential minimum guaranteed revenue differential, so as to reduce rates resulting from the beginning of the Camisea Project which were gradually assigned to the payment of the guarantee. In February 2003, the collection of the MGG started, as a result of which US$89.8 million was collected from electric power-generating companies in years 2003 and This amount, net of applications and updating, is shown in Liability for Main Grid Guarantee in the statement of financial position (Note 14). These collections are being re-paid to the power generation companies over the life of the Concession. TGP entered into a fiduciary agreement, for the collection of the MGG, with Red de Energía del Perú S.A (REP), GNLC (now Calidda S.A.) and Banco Wiese Sudameris (now Scotiabank Peru), the purpose of which is the administration and collection of the fees derived from the service provided by TGP, including the MGG. In accordance with the above fiduciary agreement and the provisions of Emergency Decree , on December 6, 2004 TGP, PERUPETRO S.A. and Banco Wiese Sudameris (currently Scotiabank Peru) established a payment mechanism trust, which contains the amounts contributed by the electric power- generating companies and the contingency fund contributed by PERUPETRO S.A. as guarantor of the Peruvian Government, in order to cover any possible delays or defaults in the payment of the MGG by the power-generating companies. 4

10 Agreement for increase in and use of the gas transportation capacity of the major pipeline By means of Supreme Resolution No dated May 26, 2010, an agreement was approved with Peru LNG S.R.L. (hereinafter PLNG) for the increase in and use of the transportation capacity of the pipeline owned by this entity. By this agreement, PLNG maintains the right to a dedicated transportation capacity of 745 MMSCFD through its pipeline and grants TGP the right to use and create capacity in said pipeline for up to 550 MMSCFD. This agreement will permit TGP to extend its natural gas transportation capacity to provide service to its customers. In return for using PLNG's pipeline to create transportation capacity and use it for natural gas transportation for its customers, TGP agrees to pay a fixed monthly consideration of US$208,450, which will be paid with effect from the first month following the date on which PLNG informs TGP that it has satisfactorily completed testing and commissioning of the PLNG pipeline. The maturity date of this agreement is January 11, The notification date of the above communication was June 1, Subsequently, in February 2016, the monthly consideration payable to PLNG was set at US$222,533 given certain additional investments. (b) Concession of Natural Gas Liquids Transportation via pipelines from Camisea to the Coast Its purpose is to establish the rights and obligations of the parties and set forth the standards and rules between these parties governing the design, supply of goods and services, and construction of the Liquid Transportation System, the exploitation of the assets of the concession and the transfer of the assets of the concession to the Peruvian Government at the termination date of the concession agreement. By means of this agreement, TGP undertook to design, supply goods and services and construct the works committed for the liquid transportation system. For this service, TGP will charge a fee that permits the recovery of the cost of the liquids transportation service. From the starting date of commercial operations, the liquids transportation system must be capable of transporting liquids covering the capacity guaranteed by the holder of the license agreement for the production of hydrocarbons in Block 88 (the Producer ), which is 50,000 barrels per day. The construction of the transportation system which includes all of the works, installations and equipment necessary for the adequate operation of the transportation system is the responsibility of TGP. The separation and fractioning plants, as well as the marine facilities necessary for shipment of the final products obtained in the fractioning plant are not the responsibility of TGP. The Producer will guarantee to TGP the recovery of the liquids transportation service cost through the payment of a fee, which may be freely agreed upon between the parties. 5

11 (c) Legal stability agreement On December 5, 2000, TGP signed a Legal Stability Agreement with the National Commission for Foreign Investments and Technologies (CONITE, now Proinversion), by which TGP committed to issue a certain number of shares and the Peruvian Government guaranteed the tax regime legal stability related to income tax rates and the employees hiring regimes in force at the agreement signing date. This stability agreement, which is effective from the signing date of the BOOT agreements and over the effective period of the concession, cannot be modified unilaterally, regardless of whether such eventual modifications may be more favorable or unfavorable for either of the parties. TGP has the right, on a one-time basis, to relinquish the legal stability agreement and automatically become subject to ordinary legislation. (d) Issuance of senior bonds - On April 30, 2013, the Company carried out the international issue of senior bonds under Rule 144A and Regulation S of the 1933 U.S. Securities Act for a total of US$850,000,000, bearing interest at 4.25% and with maturity on April 30, Funds raised from this international issuance of senior bonds were used to refinance debt and other corporate objectives (Note 15). (e) Approval of the financial statements - The interim financial statements corresponding to the nine-month period ended September 30, 2018 were authorized for issue by Management on October 30, The financial statements as of December 31, 2017 were approved at the General Shareholders Meeting held on March 27, Application of IFRIC12 Service Concession Arrangements Until 2016, the Company, based on the critical judgment followed, determined that IAS 16 Property, Plant and Equipment was the most appropriate accounting standard for the registration of the assets of the concessions, having determined that it was not within the scope of application of the IFRIC 12 Service Concession Arrangements, because the Company considered that the nature of the services it provides to its clients did not qualify as a public service (free access, low cost access, universal, basic needs satisfaction). In September 2017, the Company reevaluated the possible accounting application of IFRIC 12 and determined that IFRIC 12 is the standard that best adapts to both concessions, which will provide more reliable and relevant financial information in the financial statements. As a result of the application of the above-mentioned standard (Note 3.3 (g), it was concluded that certain assets of the concessions were reclassified from property, plant and equipment to intangible assets other than goodwill. As of December 31, 2016 and 2015 was a decrease of US $ 4,470,000 and US $ 5,796,000, respectively. 6

12 3. Basis of preparation, presentation and changes in accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented. 3.1 Basis of preparation - The financial statements of the Company have been prepared and presented in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB). The financial statements have been prepared on the basis of the historical cost model based on the Company's records, with the exception of assets classified as held for sale that are measured at fair value less costs for disposal, Note 3.3 (i). The financial statements are expressed in US dollars and all amounts have been rounded up to thousands, except when indicated otherwise. The preparation of the financial statements requires that the Company's Management uses judgments, estimates and significant accounting assumptions, which are detailed in note 4 below. These financial statements provide comparative information regarding previous periods. 3.2 New standards and interpretations adopted by the Company New standards and modifications to standards adopted by the Company The following standards are effective for the first time for periods beginning on or after January 1, 2018: - FRS 9, Financial Instruments - IFRS 15, Revenue from contracts with customers The adoption of these two standards has required changes in the disclosure. Other than that, the adoption of these standards did not have any impact on the current period or any prior period and is not likely to affect future periods New standards, amendments and interpretations effective for the financial statements for annual periods beginning on or after January 1, 2019 and which have not been early adopted - IFRS 16, Leases - IFRS 16 will affect primarily the accounting by lessees and will result in the recognition of almost all leases on the balance sheet. The standard removes the current distinction between operating and finance leases and requires recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for virtually all lease contracts. An optional exemption exists for short-term and low-value leases. The income statement will also be affected, because the total expense is typically higher in the earlier years of a lease and lower in later years. Additionally, operating expense will be replaced with interest and depreciation, so key metrics like EBITDA will change. Operating cash flows will be higher as cash payments for the principal portion of the lease liability are classified within financing activities. Only the part of the payments that reflects interest can continue to be presented as operating cash flows. 7

13 The accounting by lessors will not significantly change. IFRS 16 is effective for periods beginning on or after 1 January 2019, with earlier adoption permitted. The lessee may choose to apply the standard using a comprehensive or modified retrospective approach, in the latter case, the standard allows certain practical applications for the transition. The Company has plans to perform an assessment of the impact of IFRS 16 during Other amendments to standards to become effective in future years that are not relevant to the Company s operations - Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts. Amendments to IAS 40 - Transfers of investment property. Annual improvements cycle: IFRS 1 and IAS 28 was amended in respect of an investment held by an entity that is a venture capital organization. IFRIC 22 - Foreign currency transactions and advance consideration. IFRIC 23 - Uncertainty over Income Tax Treatments. Amendments to IAS 28 Investments in Associates and Joint Ventures. Amendment to IFRS 9 Financial instruments regarding prepayment features with negative compensation and modifications of financial liabilities. Annual improvements cycle- amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23. IFRS 17, Insurance Contracts. These amendments are effective for periods beginning on or after January 1, 2019, except for IFRS 17, effective from January 1,

14 3.3. Summary of significant accounting policies - (a) Foreugn currency translation Functional and presentation currency The Company has established the US dollar as it s functional and presentation currency. Transactions and balances Transactions in foreign currency (any currency other than the functional currency) are initially recorded by the Company at the exchange rates in effect on the dates of the transactions, published by the Superintendency of Banking and Insurance and Administration of the Pension Fund (AFP).. Monetary assets and liabilities denominated in foreign currency are translated to the functional currency using the exchange rate in effect on the reporting date. Gains or losses on exchange differences resulting from the settlement or translation of such monetary assets and liabilities are recognized in the income statement. Non-monetary assets and liabilities, recorded in terms of historical costs, are translated using the exchange rates in effect at the original dates of the transactions. (b) Financial instrument: Initial recognition and subsequent mediation - A financial instrument is any agreement that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. (i) Financial assets - Recognition and initial measurement Financial assets are classified, on initial recognition, as financial assets at fair value through profit or loss, loans and accounts receivable, investments held to maturity, financial assets available for sale, or as derivatives designated as hedging instruments. As appropriate. All financial assets are initially recognized at fair value plus in the case of financial assets not recorded at fair value through profit or loss, the transaction costs that are attributable to the acquisition of the financial asset. Subsequent measurement For the purpose of subsequent measurement, financial assets are classified into four categories: - Financial assets at fair value with changes in results. - Loans and accounts receivable. - Investments held until maturity. - Financial investments available for sale. 9

15 Loans and accounts receivable Loans and accounts receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these financial assets are subsequently measured at amortized cost using the effective interest method, less any estimate for impairment. Impairment losses are recognized in the income statement. This category generally applies to commercial and miscellaneous receivables, net. Investments held until maturity Non-derivative financial assets with fixed or determined payments and fixed maturities are classified as held-to-maturity when the Company has the positive intention and the ability to hold them until maturity. The Company does not hold these financial assets as of September 30, 2018 and December 31, Financial investments available for sale Available-for-sale financial investments include investments in stocks and debt securities. Investments in shares classified as available for sale are those that are not classified as held for trading or designated as at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and could be sold in response to liquidity needs or changes in market conditions. As of September 30, 2018 and December 31, 2017 the Company only holds financial assets in the category of loans and accounts receivable, which are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor without intending to negotiate the account receivable and are included in current assets. Loans and accounts receivable include trade accounts receivable, other accounts receivable, and cash and cash equivalents in the statement of financial position. The Company evaluates at each date of the statement of financial position if there is objective evidence of the impairment of a financial asset or group of financial assets. 10

16 Derecognition of financial assets - A financial asset (or, when applicable, a part of a financial asset or a part of a group of similar financial assets) is written off when: - The rights to receive cash flows from said asset have ended. - The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay to a third party all of the cash flows received under a transfer agreement; and: (a) the Company has transferred substantially all of its risks and benefits from the asset or; (b) the Company has not transferred or retained substantially all of the risks and benefits of the asset, but has transferred its control. The Company transfers its rights to receive cash flows from an asset or enters into a transfer agreement, it evaluates whether and to what extent it has retained the risks and benefits of the property. When it has not transferred or retained substantially all the risks and benefits of the asset, nor has it transferred control of the asset, the asset is recognized to the extent that the Company continues to be involved with the asset. In this case, the Company also recognizes the 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. Impairment of financial assets The Company evaluates at the end of each year whether there is objective evidence of impairment of a financial asset or a group of financial assets. Impairment exists if one or more events that have occurred since the initial recognition of the asset ("loss event") have an impact on the estimated future cash flows of the financial asset or a group of financial assets and can be estimated reliably. Evidence of impairment could include evidence that debtors or a group of debtors are experiencing significant financial difficulties, lack of payments or delays in interest or principal payments, the likelihood of bankruptcy or other financial reorganization, and other information indicating that there is a significant decrease in estimated future cash flows, such as changes in economic conditions that may lead to defaults. For financial assets held at amortized cost, the Company first assesses whether there is objective evidence of impairment of financial assets that are individually significant or collectively for financial assets that are individually insignificant. 11

17 The amount of any identified impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows. The present value is discounted using the original effective interest rate of the financial asset. The carrying amount of the asset is reduced through the use of a provision account and the loss is recognized in the income statement. Interest earned (recorded as income in the income statement) continues to accrue on the reduced carrying amount of the asset, using the interest rate used to discount future cash flows for the purpose of measuring the impairment loss. The loans and the corresponding provision are written off when there are no realistic expectations of a future recovery and all guarantees have been made or transferred to the Company. If, in a subsequent exercise, the estimated amount of the impairment loss increases or decreases due to an event that occurs after the impairment has been recognized, the impairment loss of the previously recognized value is increased or decreased by adjusting the provision account. If a penalty is subsequently reversed, the recovery is credited as a financial cost in the income statement. (ii) Financial liabilities - Recognition and initial measurement Financial liabilities are classified, at the time of initial recognition, as financial liabilities at fair value through profit or loss, trade and other accounts payable, financial obligations or as derivatives designated as hedging instruments, as appropriate. All financial liabilities are initially recognized at fair value and, in the case of accounts payable and financial obligations, net of costs directly attributable to the transaction. The Company's financial liabilities include commercial and miscellaneous accounts payable, loans payable, financial obligations, derivative financial instruments and embedded derivatives. Subsequent measurement The subsequent measurement of financial liabilities depends on their classification, as detailed below: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held as marketable and financial liabilities designated at the time of initial recognition at fair value through profit or loss. 12

18 Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as hedging instruments. Gains or losses on liabilities held for trading are recognized in the statement of profit or loss. This category includes the hedge derivative financial instruments for metal quotation price and exchange rate and the embedded derivatives for sales of concentrate. Debt and loans that accrue interest - After initial recognition, interest-bearing debt and loans are subsequently measured at amortized cost using the effective interest rate method. Profits and losses are recognized in the income statement when the liabilities are written off, as well as through the amortization process that arises from using the effective interest rate method. The amortized cost is calculated taking into account any discount or premium at the time of acquisition and the fees or costs that are an integral part of the effective interest rate. Amortization according to the effective interest rate method presents as in the financial cost in the income statement. Derecognition of financial liabilities - A financial liability is written off when the payment obligation is terminated, canceled or expires. When an existing financial liability is replaced by another of the same borrower under significantly different conditions, or the conditions of the existing liability are significantly modified, such replacement or modification is treated as a derecognition of the original liability and recognition of a new liability. The difference in the respective book values is recognized in the income statement. (iii) Compensation of financial instruments - Financial assets and liabilities are compensated and the net amount is reported in the statement of financial position if there is a legal right to offset the amounts recognized, and there is an intention to settle in net terms or to realize the assets and settle the liabilities simultaneously. 13

19 (c) Cash and cash equivalents - Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank that are easily convertible into cash and are subject to an insignificant risk of changes in value. (d) Trade receivables - Trade receivables are initially recognized at fair value, less provision for impairment. The provision for impairment is estimated in accordance with the policies described in Note 3.3. (b). The amount of the provision is recognized in the statement of comprehensive income. (e) Other supplies - Other supplies principally consist of materials and spare parts that are required in providing or extending the services of transportation of natural gas and liquids of natural gas through pipelines. Supplies are recognized at cost by using the weighted average cost method. A review of obsolete supplies is performed at year-end and a provision for impairment is made, if required, in the statement of comprehensive income. (f) Property, plant and equipment The items in the property, plant and equipment account are recorded at cost less accumulated depreciation and, if any, accumulated impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and includes the disbursements directly attributable to the acquisition of these items. Subsequent costs are included as a higher carrying amount of the asset recorded or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the asset will be generated for the Company and the cost of these assets may be reasonably measured Likewise, the disbursement related to a substantial improvement is recognized as part of the cost of the fixed asset, as long as the recognition criterion is met. The other repair and maintenance costs are recognized as expenses as incurred. Assets in the construction stage are capitalized as a separate component. Upon completion, the cost of these assets is transferred to their final category. Work in progress is not depreciated. The residual values, the useful life of the assets and the depreciation methods applied are reviewed and adjusted, if necessary, at the date of each statement of financial position. Any change in these estimates is adjusted prospectively. 14

20 Depreciation is calculated using the straight-line method to allocate its cost during its estimated useful life. Years Facilities 10 Furniture and fixtures 10 Vehicles 5 Computer equipment 4 The items of property, plant and equipment are written off at the time of sale or when no economic benefits are expected from their use or subsequent sale. The book value of an asset is immediately written down to its recoverable value if the book value of the asset is greater than the estimated recoverable amount (Note 3.3 (h)). The gains and losses on the sale of assets correspond to the difference between the income from the transaction and the book value of the assets. These are included in the statement of comprehensive income. (g) Intangible assets other tan goodwill - Concession Agreement for the Transport of Natural Gas through pipelines from Camisea to the City Gate at Lima - The Company has adopted IFRIC 12- Service Concession Arrangements, to record the concession agreement with the Peruvian Government (Note 1). In addition, the agreement includes a guarantee that grants TGP the right to obtain revenues that permit it to cover the construction costs. However, this guaranteed income mechanism expires when after five years of operation; the guarantee applicable in three consecutive years or three alternate years in a five-year period is zero, which was applied to the Company in Management has assessed that the IFRIC 12 model applicable to the Company is the bifurcated model to record this concession agreement, allocating part of the infrastructure cost as financial asset (until 2012 when the granted guarantee was applicable) and another part as intangible asset. The intangible asset represents the right granted by the Peruvian Government to charge users of the transport system of natural gas. Expansions to infrastructure are recorded as additions to the intangible asset because it is expected that future economic benefits will flow to the Company. This accounting treatment considers recognizing a certain construction margin taking into account that the construction was entrusted to a third party, under an Engineering, Procurement and Construction contract; and that said margin refers to a site management service. The same consideration was applied for pipelines extensions that were subsequently carried out. The intangible asset and subsequent extensions of the Concession Agreement are amortized using the straightline method over the term of the agreement, and the expense is charged to the statement of comprehensive income as Cost of Service. 15

21 Concession Agreement for the Transport of Natural Gas Liquids through pipelines from Camisea to the Coast - The Company has reevaluated IFRIC 12- Service Concession Arrangements, for recording its concession agreement with the Peruvian Government (Note 1). The Company has assessed that the IFRIC 12 model applicable to the Company is the intangible assets model, because the Company has the right to collect the transport service of natural gas liquids which are related to the users real consumption and are within the regulatory regime established by the regulatory entity OSINERGMIN. The intangible asset represents the right granted by the Peruvian Government to charge users of the transport system of natural gas. Expansions to infrastructure are recorded as additions to the intangible asset, because it is expected that future economic benefits will flow to the Company. This accounting treatment considers recognizing a certain construction margin taking into account that the construction was entrusted to a third party, under an Engineering, Procurement and Construction contract; and that said margin refers to a site management service. The same consideration was applied for pipeline extensions that were subsequently carried out. The initial intangible asset and subsequent extensions of the Concession Agreement are amortized using the straight-line method over the term of the agreement, and the expense is charged to the statement of comprehensive income as Cost of Service. The Company is not obliged to record a provision for future costs associated with the final closing of pipelines and related facilities, because the BOOT concession agreements oblige the Company to transfer the concession assets when the granted concessions expire (Note 1). The cost of these assets consists of expenses directly attributable to the acquisition of these items, including the costs of borrowing (Note 3.3 (r)). Assets that are not within the scope of IFRIC 12 will be recognized as items of property, plant and equipment in accordance with IAS 16 (Note 3.3 (f). 16

22 Line pack - Comprises the cost of condensed natural gas and natural gas liquids acquired by the Company from the consortium operating the Camisea project and which are required by the Company for the permanent start-up of the natural gas and natural gas liquids transportation system. They are recognized at cost and presented in Intangible assets other than goodwill in the statement of financial position. Due to its nature, the Line pack must always be maintained, and is not subject to depletion, and therefore, it is not amortized. Right to receive compression services - This item comprises the right to receive natural gas compression service by the consortium-operator of the Camisea project. The item of right to receive compression services is amortized based on the capacity of gas transportation over the useful life of the concession. Impairment of non-financial assets - (h) Impairment of non-financial assets Assets that are subject to amortization and depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the net amount obtained from an asset s sale and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are identifiable cash inflows (cash-generating units). (i) Non-current assets held for sale Non-current assets are classified as assets held for sale when their carrying amount is to be recovered principally through the sale of these assets and their sale is considered highly probable. They are stated at the lower of carrying amount and fair value less selling costs. (j) Liability for Main Grid Guarantee (MGG) - The decrease in the advance of the MGG is calculated on the basis of a decreasing application table using the same interest rate used in determining the MGG (12%). 17

23 The value of the MGG corresponds to the present value of the guaranteed revenues discounted at the rate of 12% and it is updated at the date of the financial statements, by applying said interest rate. Additionally, the principal of the granted advance is adjusted annually by the US Producer Price Index (hereinafter the PPI). The restated amount of the MGG was recognized as a charge to the cost of construction of the transportation system of natural gas and natural gas liquid up to the start-up date of operations; and as from that date, said restated value is recognized with a charge to the finance cost account of the statement of comprehensive income. (k) Corporate bonds - Funds obtained from the issue of corporate bonds are initially recorded at fair value, net of the associated transaction costs incurred. These loans are subsequently recorded at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the statement of comprehensive income during the period of the loan using the effective interest method. Loans are classified as current liabilities unless the Company has the unconditional right to defer the payment of the obligation for at least 12 months after the date of the statement of financial position. (l) Trade Payables - Trade payables are obligations to pay for the provision of services and acquisition of materials, supplies and spare parts necessary for the extension and provision of the service of natural gas and natural gas liquids transportation. Payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. (m) Provisions - Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are reviewed periodically and are adjusted to reflect the best estimate at the date of the statement of financial position. When the time-value of money is significant, the amount of the provision is the present value of the disbursements that are expected to be incurred to settle it. The provision expense is shown in the statement of comprehensive income. 18

24 (n) Employee benefits - Statutory bonuses - The Company recognizes an expense for statutory bonuses and the related liability on an accrual basis. Statutory bonuses comprise two annual payments, paid each year in July and December. Employees severance indemnities - Employees severance indemnities of the Company s staff comprise their indemnification rights, calculated in accordance with the current regulations, which must be credited to the bank accounts designated by workers, in May and November each year. The employees severance indemnity is equivalent to a half salary effective at the date of each bank deposit. The Company has no obligations to make any additional payments once the annual deposits to which workers are entitled have been made. Vacation leave - Annual vacation leave is recognized on the accrual basis. (o) Current and deferred income tax - The income tax expense for the period comprises current and deferred income tax. Income tax is recognized in the statement of comprehensive income, except to the extent that it relates to items recognized directly in equity. In this case, the tax is also recognized in equity. The current income tax charge is calculated on the basis of the tax laws enacted at the signing date of the tax and legal stability agreements as well as any adjustment to prior-year taxes payable. Management periodically evaluates the position taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their respective carrying amounts in the financial statements. Deferred income tax is determined using tax rates that have been enacted at the signing date of the tax and legal stability agreements (Note 1) and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. 19