Annual Report and Financial Statements 2017 BOARD OF DIRECTORS

Chairman Marcos Marcelo Mindlin

Vice-Chairman Gustavo Mariani

Director Ricardo Alejandro Torres Damián Miguel Mindlin Gabriel Cohen Diana Mondino Santiago Alberdi Index Carlos Tovagliari José María Tenaillon Miguel Bein

Alternate Director Mariano González Álzaga Mariano Batistella Pablo Díaz Isaac Héctor Mochón Annual Report 4 Nicolás Mindlin Brian Henderson Glossary of Terms 8 Victoria Hitce

Consolidated Financial Statements 176 178 SUPERVISORY COMMITTEE Glossary of Terms Consolidated Statement of Financial Position 182 President José Daniel Abelovich Consolidated Statement of Comprehensive Income (Loss) 184 Statutory Auditor Jorge Roberto Pardo 186 Germán Wetzler Malbrán Consolidated Statement of Changes In Equity Consolidated Statement of Cash Flows 188 Alternate Statutory Auditor Marcelo Héctor Fuxman Tomás Arnaude Notes to the Consolidated Financial Statements 191

Report of Independent Auditors 352 AUDIT COMMITTEE

President Carlos Tovagliari Contact 356

Regular Member Diana Mondino Miguel Bein

Alternate Member José María Tenaillon Isaac Héctor Mochón Annual Report

Center, Argentina. Contents

Glossary of Terms 8

1. 2017 Results and Future Outlook 12

2. Corporate Governance 17

3. Our Shareholders / Stock Performance 23

4. Macroeconomic Context 26

5. The Argentine Electricity Market 28

6. The Argentine Oil and Gas Market 55

7. Fiscal Year Relevant Events 74

8. Description of Our Assets 90

9. Human Resources 120

10. Corporate Responsibility 123

11. Information Technology 128

12. Quality, Safety, Environment and Labor Health 129

13. Results for the Fiscal Year 133 2017 ANNUAL REPORT 14. Dividend Policy 160 To the shareholders of Pampa Energía S.A. (‘Pampa’, the ‘Company’ or the ‘Group’): 15. 161 Board of Directors’ Proposal Pursuant to the statutory rules and Bylaws currently in force, we submit to your consideration the Annual Report and Financial Statements for the 74th fiscal year ended Appendix I: Corporate Governance Report 162 December 31, 2017. ANNUAL REPORT

Glossary of Terms Term Definition

E&P Exploration and Production Term Definition EASA Electricidad Argentina S.A. EBISA Emprendimientos Energéticos Binacionales S.A. E EcoEnergía EcoEnergía Co-Generation Power Plant Edenor Empresa Distribuidora y Comercializadora Norte S.A. ABOL Argentine Business Organizations Law No. 19,550 EG3 EG3 Red S.A. ADRs/ADSs American Depositary Receipts ENARGAS Ente Nacional Regulador del Gas (National Gas Regulatory Entity) Albares Albares Renovables Argentina S.A. ENARSA/IEA Integración Energética Argentina S.A. (former Energía Argentina S.A.) ANSES Administración Nacional de la Seguridad Social (National Social Security Energía Plus Energía Plus Program, SE Res. No. 1,281/06 A Administration) ENRE Ente Nacional Regulador de la Electricidad (National Electricity Regulatory Entity) AR$ Argentine Pesos Exchange Voluntary exchange of Petrobras Argentina’s shares for Pampa’s shares

Bbl Barrel FO Fuel Oil BCRA Banco Central de la República Argentina (Central Bank of the Republic FOCEDE Fondo de Obras de Consolidación y Expansión de Distribución Eléctrica of Argentina) (Fund for Electricity Distribution Expansion and Consolidation Works) BNA Banco de la Nación Argentina (Argentine National Bank) FODER Fondo para el Desarrollo de Energía Renovables (Fund for the Development B BO Boletín Oficial (Public Gazette) F of Renewable Energies) Board of Directors Pampa Energía’s Board of Directors FONINVEMEM Fondo para Inversiones Necesarias que permitan incrementar la oferta de Boe Barrels of oil equivalent energía eléctrica en el Mercado Eléctrico Mayorista (Fund for Investments BOPS Bi-orientated polystyrene required to increase the Power Supply in the Electricity Wholesale Market) BTU British Thermal Unit Foundation Fundación Pampa Energía Bylaws Pampa Energía’s Bylaws FS Financial Statements ByMA Bolsas y Mercados Argentinos (Buenos Aires Stock Exchange) Gas Plan Gas Plan I and Gas Plan II CABA Autonomous City of Buenos Aires Gas Plan I Natural Gas Surplus Injection Promotion Program, SE Res. No. 1/13 CAMMESA Compañía Administradora del Mercado Eléctrico Mayorista S.A. (Argentine Gas Plan II Natural Gas Injection Promotion Program for Companies with Reduced Wholesale Electricity Market Clearing Company) Injection, SE Res. No. 60/13 G Gas Plus Natural Gas Production Promotion Program, SE Res. No. 24/08 CAU Cargo de Acceso Único (Access and Use Position) C CBs Corporate Bonds GE General Electric CC Combined Cycle GO Gas Oil (Diesel Oil) CEE Comité Ejecutivo de Emergencia (Emergency Executive Committee) Government/National National Government of the Republic of Argentina Government CEO Chief Executive Officer GS Gas Station CFE Consejo Federal de la Energía (Federal Energy Council) GT Gas turbine CH Hydroelectric power plant GU Large users CIESA Compañía de Inversiones de Energía S.A. GUDI Large Distribution Company Users Citelec Compañía Inversora en Transmisión Eléctrica Citelec S.A. GUMA Major Large Users CMA Capital Market Act No. 26,831 GUME Minor Large Users CN Nuclear power plant GWh Gigawatt-hour CNG Compressed Natural Gas GyP Gas y Petróleo de Neuquén S.A.P.E.M. CNV Comisión Nacional de Valores (National Securities and Exchange Commission) Code Pampa’s Code of Corporate Governance HI Hydroelectric plants CPB Central Piedra Buena S.A. HIDISA Hidroeléctrica Diamante S.A. CPD Costo Propio de Distribución (Own Distribution Cost) HINISA Hidroeléctrica Los Nihuiles S.A. CPI Consumer Price Index HPPL Hidroeléctrica Pichi Picún Leufú CSJN Supreme Court of Justice of the Republic of Argentina H Hydrocarbon Investments Planning and Coordinating Committee of the National Plan for Hydrocarbon CT Thermal power plant Committee Investments CTG Central Térmica Güemes S.A. CTGEBA Central Térmica Genelba IFRS International Financial Reporting Standards CTIW Central Térmica Ingeniero White INDEC Instituto Nacional de Estadística y Censos de Argentina (National Institute CTLL Central Térmica Loma La Lata S.A. of Statistics and Censuses) CTP Central Térmica Piquirenda Initial Production Monthly average unconventional gas production between July 2016 and June 2017 CTPP Central Térmica Parque Pilar I IVC Índice de Variación de Costos (Cost Variation Index)

Dam3 Cubic decameter KCal Kilocalories DisTro High-Voltage Electric Energy Transmission System and/or kW Kilowatt D Main Distribution Electric Energy Transmission System K kWh Kilowatt-hour

8 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 9 ANNUAL REPORT

Term Definition Term Definition

LNG Liquefied natural gas R&D Refining and Distribution segment LPG Liquefied petroleum gas RBB Bahía Blanca Ricardo Eliçabe Refinery LU300 Large users with demands in excess of 300 kW RCD Campo Durán Refinery LVFVDs Liquidaciones de Ventas sin Fecha de Vencimiento a Definir (Sales Refinor Refinería del Norte S.A. L Settlements with Maturity Date to be Defined) R RENPER Registry of Renewable Electric Power Generation Projects Res. Resolution / Resolutions M3 Cubic meters RTI Integral Tariff Review MAN Engines MAN Diesel B&W engines, model 18V32/40PGI RTOP Public Offering Transparency Regime, Executive Order No. 677/01 MAT Term Market RTP Plant’s thermal reduction M MAT ER Term Market from Renewable Energy Sources MBTU Millions of BTU S&P Standard & Poor’s Global Ratings MECON Ministry of Economy SACDE Sociedad Argentina de Construcción y Desarrollo Estratégico S.A. Medanito La Pampa 25 de Mayo - Medanito Sudeste block, located in the Province of La Pampa SADI Sistema Argentino de Interconexión (Argentine Electricity Grid) MerVal Mercado de Valores de Buenos Aires (Buenos Aires Securities Market) S SBR Styrene Butadiene Rubber MEyM Ministry of Energy and Mining SE Former Secretariat of Energy MMC Cost Monitoring Mechanism SEC Security and Exchange Commission MTO Cash tender offer to the minority shareholdings of Petrobras Argentina SEE Secretariat of Electric Energy MW Mega watt Senior Management M. Mindlin, D. Mindlin, G. Mariani and R. Torres MWh Mega watt-hour SOX Sarbanes-Oxley Act SRH Secretariat of Hydrocarbon Resources N.a. Not applicable ST Steam turbine N/A Not available NGL Natural Gas Liquids Telcosur Telcosur S.A. N NYSE New York Stock Exchange TGS Transportadora de Gas del Sur S.A. TJSM Termoeléctrica José de San Martín OCP Oleoducto de Crudos Pesados TMB Termoeléctrica Manuel Belgrano Offers The MTO and the Exchange T TOE Tonne of oil equivalent OldelVal Oleoductos del Valle S.A. Ton Metric ton O Trafigura Trafigura Ventures B.V. and Trafigura Argentina S.A. Transba Empresa de Transporte de Energía Eléctrica por Distribución Troncal de la Pampa / the Company / Pampa Energía S.A. and its subsidiaries Provincia de Buenos Aires Transba S.A. the Group Transelec Transelec Argentina S.A. Pampa’s Shares Pampa’s common shares in book-entry form with a face value of AR$1 Transener Compañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A. each and each granting the right to one vote P PEISA Petrobras Energía Internacional S.A. Unconventional Gas Plan Encouragement Program for the Investment in Development of Natural Gas PELSA Petrolera Entre Lomas S.A. Production from Unconventional Reservoirs Program, MEyM Res. No. 46, PEN Poder Ejecutivo Nacional (National Executive Branch) 419, 447 /2017 and 12/2018 PEPASA /Petrolera Pampa Petrolera Pampa S.A. UNIREN Public Utility Contract Renegotiation and Analysis Unit Petrobras Argentina Petrobras Argentina S.A. U US$ United States Dollars Petrobras Brazil Petrobras Brasileiro S.A. UTE Joint Venture PGSM Puerto General San Martín port Pilot Blocks with an Initial Production of unconventional gas lower than VAD Distribution Added Value 500,000 m3/d VAT Value-added tax PIST Transportation System Entry Point or natural gas price at wellhead VCPs Short-Term Debt Securities Polisur PBB Polisur S.A. Vista Oil & Gas Vista Oil & Gas S.A.B. de C.V. PPA Power Purchase Agreement V PPI Wholesale Internal Price Index WEM Wholesale Electricity Market Priority Demand Set of residential users, hospitals, schools, healthcare centers and other WFP Wind Farm Project essential services Producers and Refiners’ Agreement for the Transition to International Prices in the Argentine Agreement Hydrocarbon Industry W PTQ Petrochemicals segment PUREE Program for the Rational Use of Electric Power YPF Yacimientos Petrolíferos Fiscales S.A. Q QSELH Quality, Safety, Environment and Labor Health Y

10 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 11 ANNUAL REPORT

DRY GAS OIL WET GAS

Parva Negra Veta Escondida 1 Este Rincón de Sierra Aranda Entre 2017 Results Chata Lomas Bajada del Palo Agua and Future Outlook Amarga El Mangrullo

After closing an exceptional year 2016, 2017 has found us achieving new milestones in the history of Pampa, Las Tacanas Norte accomplishing a great fiscal year in all our business segments. After the acquisition of former Petrobras Argentina, Río Neuquén 2017 was the first year of operation as a unified company and with a new identity, a year in which we have worked Río Neuquén (Río Negro) towards the consolidation of the company and the definition of a forward-looking business structure, which allows (Neuquén) us to continue being positioned as the largest fully integrated power company in Argentina.

One of the main events in 2017 consisted of the return, following 16 years of default, of the regulatory framework to our utility subsidiaries, which was embodied in the RTIs and the resulting new tariff schemes. This tariff schemes are almost fully implemented: as from February 2018 Edenor and Transener are billing the Blocks in which Pampa Energía holds interest. full tariff granted in their respective tariff reviews, whereas in the case of TGS only the last application stage is pending, which will become effective in April 2018, with the additional recognition of cost variations.

This milestone for Edenor, Transener and TGS provides these companies with a stable and predictable return until the next review period in 2022, and constitutes an essential condition to continue making the investments Even though the exploitation of shale gas at Pampa is currently in an early stage, it is part of our big necessary to offer a safe and high-quality service consistent with the awarded tariffs. commitment to the future: in 2018 we will advance with the drilling of six new exploratory wells in El Mangrullo and Sierra Chata, gas blocks that are located in the Vaca Muerta formation’s gas window. Furthermore, with the Furthermore, aiming to encourage domestic production and thus reduce dependence on imports, especially purpose of increasing exposure in the shale gas window, in November 2017 we were awarded the Las Tacanas of LNG —one of the factors currently contributing to the country’s fiscal and trade deficit—, in 2017 the Norte block, which is neighboring to the El Mangrullo block. Government ratified the extension of the Gas Plan until 2021, although only providing incentives for the production of unconventional gas in the Neuquina and Austral basins. This program, which has turned out to be We take all these steps prudently and seeking the highest added value possible in the proper development crucial to revert the negative trend in the country’s natural gas reserves, has encouraged the development of stage. We are confident that, if results are as anticipated, it will represent a great potential for our E&P segment unconventional production methods for the lifting of tight and shale gas, which have contributed to offsetting in the future. the decline in conventional production. In our power generation business, our generation assets continue to be segmented as ‘legacy’ and ‘new’. After The reality is that the Unconventional Gas Plan is not the only solution to a structural problem existing years of claims by the sector and as from February 2017, the remuneration for ‘legacy’ generation capacity is not since almost a decade ago. Additionally, the implementation of a progressive removal of subsidies and market only denominated in US$, but also the payment for power capacity was gradually increased, which was practically deregulation, which results in a gradual increase in demand sale prices until reaching the import parity, also doubled by the end of 2017. In this sector, we understand that this remuneration scheme for legacy capacity is plays a key part in amending the large gas supply deficit. Since 2009, year in which Petrolera Pampa was transitional towards a new scheme no longer based on a cost-plus model, but involving a reversion to a system established, this has been the main reason for us to invest in the production of gas and, despite all market similar to that of marginal prices, which encourages the generation of electricity in the most efficient way possible. changes, it continues to be the main reason which underpins our commitment with the gas E&P business. During 2017 we have strengthened our commitment to the power generation business with the commissioning In this sense, in 2017 we successfully drilled and completed our first shale gas horizontal well targeting the of three thermal projects for a total capacity of 305 MW, which represents 11% of the total power capacity Vaca Muerta formation in the Parva Negra Este exploratory block. This well, with a depth of 2,000 meters and incorporated into the SADI in 2017, with an approximate US$280 million investment, each commissioning for a 2,500-meter horizontal branch, has been in production since November 2017 with satisfactory results so far. service being a major milestone for the Company. We have fulfilled each of our commitments timely and in due Should the testing stage be successful, we will request before the provincial authorities its categorization as a form, which sets us apart us from the performance levels of other committed projects. production block.

12 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 13 ANNUAL REPORT Furthermore, during 2017 we have continued participating in tenders launched by CAMMESA for new As regards the oil E&P segment, we made the decision of divesting our interest in PELSA and certain crude generation capacity, and in October 2017 we were awarded the largest project in the history of the Company: oil E&P blocks because in early 2018 we received a very attractive offer that made us reconsider our presence the closing to combined cycle of Genelba Plus in our CTGEBA plant. This 383 MW expansion, which will require in the business within our corporate strategy. an approximate US$355 million investment, will start generating energy at open cycle in the second quarter of 2019, and at closed cycle in the second quarter of 2020. As we have previously mentioned, in the upstream segment we opted to concentrate our resources and efforts on the development of our unconventional gas reserves (shale and tight gas) vis-à-vis crude oil In the renewable energy area, we expect our first Corti wind farm in Bahía Blanca, with a 100 MW power production, mainly because in the mid-term gas business margins are more stable than crude oil’s, added to the capacity, will be commissioned in 2018, and we will develop two new wind farms under PPAs executed with fact that as from the cancellation of the Producers and Refiners’ Agreement, the price of the domestic crude oil private customers in the same area for a total additional capacity of 100 MW. We have already been successfully barrel has become fully correlated to the volatility of the international price of commodities (in this case, crude granted power transmission backup and dispatch priority for 78 MW, and we still have to negotiate PPAs with oil), whereas the gas sales price benefits from the implicit hedge granted by the import parity, because as long large private users who, as from 2018, should cover 8% of their electricity demand from renewable sources. as LNG is consumed, this will be the marginal purchase price for the demand. Furthermore, despite seasonal These wind farms, which will require an approximate US$205 million investment, add to our actions aiming to variations in the consumption pattern, domestic demand will have to face a structural deficit in the supply protect the environment, which have already been launched with the issuance of carbon emission reduction during at least the following few years and, therefore, at Pampa we anticipate that the country will continue to credits in CTLL’s combined cycle. be a net importer of this hydrocarbon. Given these unique conditions, which create a highly favorable context for the development of the domestic gas supply, we clearly consider it a priority to develop our gas reserves It should be pointed out that throughout 2017, our thermal power plants continued keeping outstanding and resources stock, which will demand an important investment. availability levels, with values which stand above the industry average and are close to their own historical average. In the coming years, and especially during 2018, we will continue growing our asset base in Pampa’s core business, especially in the gas E&P and power generation segments, whether organically or inorganically, especially by leveraging the opportunity presented by the sale of Government assets in the power generation Thermal Power Plants: Pampa and Rest of the System’s Historical Availability segment (ENARSA power plants and interest in FONINVEMEM). Moreover, during 2017 companies controlled As a % of the nominal installed capacity and co-controlled by Pampa continued their investment commitment in the country, with investments in the amount of AR$17,004 million1, 59% higher than the AR$10,712 million recorded in 2016.

Pampa´s thermal capacity Thermal grid without Pampa Evolution of Investments by Business Segment In AR$ million 17,00 4 88% 90% 116 110 87% 87% 87% 154 82% 82% 81% 78% 80% 1,309 74% 73% 73% 73% 67% 67% 71% 70%

4,195 10,712 85 58 389 596 4,137 6,505 4,045 2009 2010 2011 2012 2013 2014 2015 2016 2017 706

Note: 2017 takes into consideration data up to and including November. 3,100 2,703 6,277 1,500 350 Based on the conviction that Pampa should preserve its key role in the industry, contribute to reducing 743 758 739 2,486 deficits in the Argentine energy matrix, and concentrate on business segments where Pampa credits wide know-how and track-record, the Company’s strategy consists of focusing its investments and resources on the expansion of the electric power generation’s installed capacity and natural gas E&P, and to continue investing 2010 2011 2012 2013 2014 2015 2016 2017 in the development and strengthening of our utility concessions. Generation Transmission Distribution Oil & Gas TGS R&D PTQ Holding As regards the fuel R&D segment, even before purchasing former Petrobras Argentina we knew that this business, with the existing scale and structure, lacked competitiveness and called for a larger scale to reach sustainability and, therefore, we had to choose between growing or divesting. With the proactivity that characterizes us, throughout 2017 we worked on both alternatives but, upon the failure to complete an acquisition that would have given us a desirable scale to properly commit to this business, by the end of 2017 we agreed that this segment should be divested. This transaction is about to be closed. 1 It includes 100% of investments in Transener and TGS, which under IFRS are not consolidated in Pampa’s FS.

14 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 15 ANNUAL REPORT In this brief statement, we would like to highlight the actions aimed at generating added value for our shareholders. We have been actively engaged in the equity and debt capital markets: in January 2017 we issued Pampa’s first ten-year bond with a yield similar to sovereign bonds, and we have fully canceled the financing taken out for the acquisition of former Petrobras Argentina.

In September 2017 we announced the second phase of our corporate reorganization by requesting the regulatory and corporate approval of the merger through absorption of Pampa with Petrolera Pampa, certain power generation subsidiaries and other companies with the purpose of simplifying the corporate map, benefiting from cost and structure synergies, and seeking that the Company directly generate operating cash flows, rather than through its subsidiaries. Pampa’s shares continue being one of the most liquid securities among listed Argentine companies, with a 2 daily volume above US$15 million and leading the MerVal index with a weight of 8.5% and the MSCI Frontier Markets Index denominated in US$ with 3%.

This would not have been possible without the effort and dedication of the Company’s employees and advisors who accompany us with commitment and involvement, for which Pampa’s Board of Directors would Corporate like to seize this opportunity to thank them all for helping us overcome the challenges of our business on a daily basis and consolidate the Company as a leading representative of the energy business, both in Argentina and worldwide. We would also like to thank our families, suppliers, financial institutions and investors for the continuous support and trust placed in us. Governance

At Pampa we believe that the best way of preserving and protecting our investors is to adopt and implement the best corporate governance practices, which consolidate us as one of the most trustworthy and transparent companies in the market.

For such purpose, we constantly strive to incorporate those practices by taking into account international market trends, as well as domestic and foreign applicable corporate governance standards and rules.

Beyond the information contained in this presentation, further information on Pampa’s corporate governance practices can be found in Appendix I to this Annual Report, which contains the Corporate Governance Report required under CNV General Res. No. 606/12 issued on March 23, 2012.

2.1 Pampa’s Corporate Structure Board of Directors Pursuant to the ABOL, as amended from time to time, the CMA and Pampa’s Bylaws, decision-making within the Company is vested in the Board of Directors. The Board consists of ten regular directors and an equal or smaller number of alternate directors as determined by the Shareholders’ Meeting, a percentage of which will be independent according to the independence standards set out in the CNV Rules. All of our directors are elected for a term of three years and may be re-elected indefinitely, except for independent directors, who may not be re-elected for consecutive periods. The expiration and further renewal of terms of office is made on a partial and staggered basis every year, with the election of three directors for two years, and four directors on the third year.

16 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 17 ANNUAL REPORT Currently, Pampa’s Board of Directors is composed as follows: Supervisory Committee Our Bylaws provide that the oversight of Pampa will be in charge of a Supervisory Committee consisting Name Position Independence Term Expiration* of three regular members and three alternate members appointed by our shareholders pursuant to the legal provisions in force. The Supervisory Committee will be composed of duly registered lawyers and/or accountants admitted to practice in Argentina, who will serve for a term of three fiscal years. Marcos Marcelo Mindlin Chairman Non-independent 12/31/2017 The primary function of the Supervisory Committee is to exercise statutory control over the Board of Gustavo Mariani Vice-chairman Non-independent 12/31/2019 Directors, complying with the provisions set forth in the ABOL, the Bylaws, its regulations, if any, and the Ricardo Alejandro Torres Director Non-independent 12/31/2019 Shareholders’ Meeting decisions. In the accomplishment of these duties, the Supervisory Committee does neither monitor our operations nor assess the merits of decisions made by board members. Damián Miguel Mindlin Director Non-independent 12/31/2017 Gabriel Cohen Director Non-independent 12/31/2018 Currently, Pampa’s Supervisory Committee is composed as follows: Diana Mondino Director Independent 12/31/2018 Santiago Alberdi Director Independent 12/31/2018 Name Position Term Expiration** Carlos Tovagliari Director Independent 12/31/2018 José María Tenaillon Director Independent 12/31/2018 Miguel Bein Director Independent 12/31/2019 José Daniel Abelovich Statutory auditor* 12/31/2017 Mariano González Álzaga Alternate Director Independent 12/31/2017 Jorge Roberto Pardo Statutory auditor 12/31/2017 Mariano Batistella Alternate Director Non-independent 12/31/2018 Germán Wetzler Malbrán Statutory Auditor 12/31/2017 Pablo Díaz Alternate Director Non-independent 12/31/2018 Marcelo Héctor Fuxman Alternate statutory auditor 12/31/2018 Isaac Héctor Mochón Alternate Director Independent 12/31/2018 Tomás Arnaude Alternate statutory auditor 12/31/2017 Nicolás Mindlin Alternate Director Non-independent 12/31/2018 Brian Henderson Alternate Director Non-independent 12/31/2017 * Chairman of the Supervisory Board (Statutory Auditors). Victoria Hitce Alternate Director Non-independent 12/31/2019 ** They will be in office until the election of their substitutes.

* They will be in office until the election of their substitutes. Audit Committee Pursuant to Section 109 of the CMA, Pampa has an Audit Committee consisting of three regular members, Senior management integrated by three regular members and three alternate members, who all hold independent status according The following table includes information on our senior management: to the independence standards set out in the CNV Rules. The Audit Committee members have professional expertise in financial, accounting, legal, and/or business matters.

Name Position Pursuant to the applicable legislation and its own Internal Regulations, the Audit Committee is responsible for compliance with, inter alia, the following duties:

Marcos Marcelo Mindlin Chairman and CEO i. Supervising the operation of internal control systems and the administrative/accounting system, as well as the reliability of the latter and of all financial information or any other significant events that Gustavo Mariani Executive vice president, power generation and new businesses director may be disclosed to the CNV and the markets in compliance with the applicable reporting system; Ricardo Alejandro Torres Executive vice president, electricity distribution and administration director ii. Expressing its opinion on any proposal by the Board of Directors to designate external auditors to be Damián Miguel Mindlin Executive vice president, procurement, QSELH, assets security and marketing director hired by the Company, and ensuring their independence; Gabriel Cohen Executive director of Corporate finance iii. Reviewing the plans submitted by external and internal auditors, assessing their performance, and Horacio Jorge Tomás Turri Executive director oil and gas issuing an opinion on the presentation and disclosure of annual FS, all of which pursuant to the

María Carolina Sigwald Executive director of legal affairs CNV’s Rules; Ariel Schapira Executive director of downstream iv. Supervising the implementation of risk management information policies within the Company; Mariano Batistella Executive director of planning, strategy and affiliates v. Providing the market with full information on transactions where there may be a conflict of interest with members of corporate bodies or controlling shareholders; vi. Rendering its opinion on remunerations and stock options plans’ proposals for the Company’s directors and managers submitted by the Company’s Board of Directors;

18 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 19 ANNUAL REPORT vii. Approving any proposal for compensation of Pampa’s senior Officers to be submitted by the Board of Directors to the Shareholders’ Meeting for consideration, with the authority to consult 2.3 worldwide-renowned specialists in remuneration issues, and seeking to ensure that Officers receive remunerations in line with similar positions in Argentina and abroad in the same area of business, Corporate Governance Policies taking into consideration each Officer’s contribution and the Company’s financial condition and operating results; Code of Business Conduct – Ethics Hotline viii. Rendering its opinion on the compliance with legal requirements and the reasonableness of the Pampa has a Code of Business Conduct in place, updated in March 2017, which not only lays down the conditions for the issuance of shares or convertible securities in capital increases with the exclusion ethical principles that constitute the foundation of the relationships between Pampa, its employees and or limitation of preemptive rights; suppliers, but also offers the means and instruments that ensure transparency in the handling of matters and issues that may affect Pampa’s adequate management. ix. Issuing a well-founded opinion on related-party transactions in the cases provided by law, and disclosing it in compliance with law whenever there is or may be an alleged conflict of interest within Pampa; Moreover, Pampa has a Fraudulent Practices Prevention Policy and a Procedure for Reporting Suspected x. Supervising the operation of a channel whereby the Company’s executives and staff may report Frauds or Irregularities. Both documents contain a detailed description of the process to be followed from accounting, internal control and audit issues pursuant to the applicable provisions to such effect; the reception of the complaint to the conclusion of the investigation and pertinent corrective action, if applicable. To such effect, it offers the Ethics Hotline, an exclusive channel to report, on a strictly xi. Providing any report, opinion or statement required by the current regulations in force, with the confidential basis, any suspected misconduct or breach to the Code of Business Conduct, which provides scope and frequency required by such regulations, as amended, etc.; different means (toll-free telephone number, e-mail, and/or web page) and is managed by a third-party xii. Fulfilling all obligations provided for in the Bylaws, as well as laws and regulations binding the Company; provider to ensure higher transparency. The Audit Committee is responsible for supervising the channel’s operations and the resolution of complaints in issues within its authority. xiii. Checking compliance with applicable standards of ethical conduct; and xiv. Drawing up an annual action plan for which it will be held accountable to the Board of Directors and Policy on Best Security Market Practices the Audit Committee. The Audit Committee will submit such action plan within a term of 60 calendar days as from the beginning of the fiscal year. This Policy has been implemented with the purpose of establishing certain restrictions and formalities regarding the trading of marketable securities, whether Pampa’s and/or any related companies’, in a stock exchange, thus ensuring higher transparency and guaranteeing that no Pampa employee may derive any Currently, Pampa’s Audit Committee is composed as follows: economic advantage or benefit from the use of material non-public information about Pampa and/or any of its affiliates.

Name Position This Policy applies to Pampa and its subsidiaries’ employees deemed ‘covered individuals’, including, but not limited to, directors, members of the Supervisory Committee, and Senior Management lines.

Carlos Tovagliari Chair Policy on Related-Party Transactions Diana Mondino Regular member Pursuant to the CMA, all high-value transactions made between Pampa and individuals and/or legal entities Miguel Bein Regular member which, pursuant to the applicable regulations in force, are considered ‘related parties’ will be subject to a specific José María Tenaillon Alternate member prior authorization and control procedure to be carried out under the supervision of Pampa’s executive legal Isaac Héctor Mochón Alternate member department and which involves both Pampa’s Board of Directors and its Audit Committee (as applicable). Board of Directors’ Self-Assessment Questionnaire In line with the Code’s recommendations, in 2008 Pampa’s Board of Directors approved the implementation 2.2 of a self-assessment questionnaire to annually examine and assess its own performance and management.

Minority Shareholder Protection The Company’s executive legal department is in charge of examining and filing each individual questionnaire; Pampa’s Bylaws include safeguards aimed at the protection of Pampa’s minority shareholders, such as: afterwards, based on the results, it will submit to Pampa’s Board of Directors all measures deemed useful to improve the performance of the Board of Directors’ duties. • Only one class of shares granting equal economic and political rights; • Special majorities of up to 66.6% of the votes to amend certain clauses of the Bylaws; Policy on Material Information Disclosure • Possibility to call a shareholders’ meeting upon request of shareholders representing at least 5% of the In the year 2009, Pampa’s Management Committee approved the Relevant Information Disclosure Policy capital stock. in order to regulate the basic principles guiding the operation of the processes to be followed when publishing information relevant to Pampa in accordance with the regulatory requirements imposed by the securities markets where Pampa’s securities are traded or those in which Pampa is a registered issuer.

20 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 21 ANNUAL REPORT Policy on Preliminary Approval for External Auditors’ Services In the year 2009, Pampa’s Management Committee passed the Policy on Preliminary Approval for External Auditors’ Services, which standardizes an internal process for the Audit Committee to comply with its obligation to grant its prior approval to the hiring of External Auditors for the provision of any kind of authorized service to Pampa or any of its subsidiaries.

Fraudulent Practices Prevention Program In the year 2010, in accordance with the provisions of the U.S. Foreign Corrupt Act and in addition to the Code of Business Conduct, Pampa adopted the Fraudulent Practices Prevention Program, which sets out the responsibilities, duties and methodology necessary to prevent and detect any misconduct and/or 3 fraudulent behavior within Pampa and/or any Pampa Group company.

Prevention Regarding QSELH On April 26, 2017 Pampa’s Board of Directors approved the QSELH Policy to continue meeting the Our Shareholders / standards for operating the E&P, power generation, electricity distribution, R&D and petrochemical segments with the highest safety possible within the ordinary course of each activity. Stock Performance

As of December 31, 2017, Pampa held 1,836,494,690 outstanding common shares with a par value of AR$1 each. The following table shows information on Pampa’s common shareholdings as of the issuance of this Annual Report:

Name Number of Shares Share Percentage of Capital

Management 328,637,351 17.9% Other shareholders 1,507,857,339 82.1% Total 1,836,494,690 100.0%

On February 16, 2017, Pampa’s Extraordinary General Meeting of Shareholders resolved to approve the merger of the Company —as acquiring company— with Petrobras Argentina, PEISA and Albares —as acquired companies—. Upon the completion of the merger, which is subject to approval by the CNV, Pampa will issue 101,873,741 common shares2 .

Furthermore, on December 21, 2017, the corresponding boards of directors approved the merger through absorption between Pampa, as absorbing company, and Petrolera Pampa, CTG, CTLL, Eg3, Bodega Loma la Lata S.A., Inversora Diamante S.A., Inversora Nihuiles S.A., Inversora Piedra Buena S.A. and Pampa Participaciones II S.A., as absorbed companies, effective as from October 1, 2017, subject to the corresponding corporate and regulatory approvals. Upon the completion of the merger, Pampa will issue 144,322,081 common shares.

Consequently, once the corporate reorganization is completed, Pampa’s capital stock will amount to 2,082,690,512 common shares3.

2 For further information, see section 7.8 of this Annual Report. 3 For further information, see section 7.8 of this Annual Report.

22 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 23 ANNUAL REPORT Pampa is listed on the ByMA and is one of the Argentine companies with a greater weight on the Merval index (8.4667% as from January 1, 2018). Besides, Pampa is one of the Argentine companies with a greater weight on the MSCI Frontier Markets Index denominated in US$ (2.99% as of January 31, 2018).

Pampa has a Level II ADS program listed in the NYSE, and each ADS represents 25 common shares.

The following chart shows the price evolution per share and Pampa’s traded volume on the ByMA from The following chart shows the price evolution per ADS and Pampa’s traded volume on the NYSE from January 2006 to December 31, 2017: October 9, 2009 to December 31, 2017:

AR$ Volume US$ Volume per Share* (AR$ million) per ADS* (US$ million)

60 180 80 140

160 70 50 120 140 60 100 40 120 50 100 80 30 40 80 60 30 20 60 40 40 20 10 20 20 10

- - - -

Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Oct Oct Oct Oct Oct Oct Oct Oct Oct 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017

* Priced adjusted according to preemptive subscription rights and issuances. Source: ByMA/Bloomberg. * Price adjusted as per issuances. Source: The Bank of New York Mellon/Bloomberg.

24 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 25 ANNUAL REPORT 4 The Macroeconomic Context 4.1 4.4 Economic Activity Financial System As of the third quarter of 2017, the economic activity experienced a 2.5% increase compared to levels during BCRA’s US$ currency wholesale exchange rate (Res. A3500) was AR$18.77/US$ as of December 31, 2017, the same quarter of the previous year. Private and public consumption, and investment grew by 3.1%, 2.2% and showing a cumulative 18.4% increase compared to the end of 2016 and a 12.1% average year-on-year variation. 8.1%, respectively, whereas exports net of imports suffered a 46.4% decrease. The expansion reached 13 out BCRA’s international reserves stock amounted to US$55.1 billion at closing, which represents a US$15.7 billion of the 15 sectors of the economy, the most dynamic sectors being fishing (+18.8%), construction (+8.2%) and increase compared to the previous year. Moreover, the monetary base reached AR$1,001 billion, showing a financial intermediation (+4.5%). The only contracting sectors were mining and quarrying (-5.2%), and electricity, 21.8% increase compared to the closing of 2016. Furthermore, BCRA’s debt stock in issued bonds amounted to water and gas (-1.0%). US$61.8 billion as of the closing of the year 2017, which represents a 40% year-on-year increase.

4.2 4.5 Price Trends Trade Balance In 2017 the Cost of Living Index published by the INDEC showed a 24.8% variation. The most important According to the INDEC, as of the third quarter of 2017, the current account deficit amounted to US$22.5 variations were recorded in the following areas: housing, water and electricity, with a 55.7% year-over-year billion (which represents 3.1% of the Gross Domestic Product.) In these first three quarters, Free on Board value variation, communications with a 34.2% variation, and education, with a 31.5% variation. The areas experiencing exports for 2017 reached US$44.0 billion and Cost, Insurance and Freight value imports amounted to US$49.2 the smallest variations were household equipment (17.5%) and transportation (20.8%). Furthermore, salaries, as billion. Primary exports decreased by 7.9% in 2017, whereas agricultural manufactures exports decreased by measured by the registry of the Stable Workers’ Average Taxable Remuneration (RIPTE), experienced a 27.1% 1.3% and industrial manufactures exports experienced a 10.8% increase. In the case of imports, all areas increase between December 2017 and the same month of the previous year. showed growth compared to 2016 values, with the automotive sector (43.1%), capital expenditures (26.0%), consumables (18.3%), intermediate goods (11.7%) and accessories (11.7%) leading the list.

4.3 Fiscal Situation In 2017, non-financial public sector fiscal accounts accumulated a 3.9% and 6.1% primary and total fiscal deficit, respectively. The annual variation of the aggregated tax revenues, measured in pesos based on figures published by the Federal Administration of Public Revenue (AFIP), ended with a 31.2% increase compared to 2016. If collections from penalties resulting from the Tax Transparency program in the amount of AR$42.4 billion had been excluded, the annual net increase would have been 29.2%. Besides, in 2017 primary expenditures by the National Treasury showed a 21.8% year-on year variation.

26 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 27 ANNUAL REPORT 5 The Argentine Electricity Market 5.1 Peak Power Capacity Records Generation 2010 2011 2012 2013 2014 2015 2016 2017 Evolution of Demand

During 2017, the demand for electricity suffered a slight decrease, experiencing a -0.5% variation Capacity (MW) 20,843 21,564 21,949 23,794 24,034 23,949 25,380 25,628 compared to 2016, with a total electricity demand volume of 132,426 GWh and 133,111 GWh for 2017 and Date 08-Mar 01-Aug 16-Feb 23-Dec 20-Jan 27-Jan 12-Feb 24-Feb 2016, respectively. Temperature (ºC) 1.6 3.5 34.2 35.4 29.6 35.6 35.1 27.7 Hora 19:45 20:18 15:10 14:20 15:05 14:13 14:35 14:25 The following chart shows the breakdown of electricity demand in 2017 by type of customer: Source: CAMMESA.

Electricity Demand by Type of Customer On February 8, 2018, at 15:35, there was a record-breaking demand for electricity, which reached 26,320 MW.

Evolution of Electricity Supply and Fuel Consumption Large Users To a lesser extent than for the demand for electricity, during 2017 there was a 0.1% decrease in power 18% generation, with very similar volumes, 136,035 GWh and 136,135 GWh, for the years 2017 and 2016, respectively.

Thermal power generation remained as the main resource to meet the electricity demand, supplying an No Residential Residential > 300 kW electricity volume of 88,462 GWh (65%), followed by hydroelectric power generation, which contributed 39,183 2017 < 10 kW GWh net of pumping (29%), nuclear power generation, with 5,716 GWh (4%), and renewable power generation, 11% with 2,674 GWh (2%). Additionally, there were imports for 734 GWh (50% lower than in 2016), exports for 69 42% GWh (lower than the 327 GWh recorded in 2016), and losses for 4,274 GWh (2.6% higher than in 2016).

No Residential Hydroelectric power generation was 10% higher than that recorded in 2016. Thermal power generation remained as the main source for electricity supply, both with natural gas and liquid fuels (GO and FO) and < 300 kW mineral coal. Nuclear generation recorded a 26% year-on-year decrease. 29%

Source: ADEERA

28 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 29 ANNUAL REPORT

The following chart shows the evolution of power generation by source (thermal, hydroelectric, nuclear, During 2017, power generation facilities have recorded an increase in their installed capacity compared to the and renewable): previous year, totaling 36,505 MW (+2.604 MW compared to 2016). The main commercial commissioning were for units under SEE Res. SEE No. 21/16.

The following table describes the addition of new power units in 2017:

Generation by Type of Power Plant Region Technology Capacity (MW) In %, 2010 – 2017 Center Biogas 3.5 163.5 112,829 118,254 124,659 128,978 129,328 134,624 136,135 136,035 GT 160.0 0% 0% 2% 2% 2% 2% 2% Center west - Comahue Hydraulic Renewable 7.2 324.2 6% 5% 5% 4% 4% 5% 6% 4% GT 317.0 Cuyo Diesel 40.0 40.0 33% 29% 30% 30% 29% 26% 29% Buenos Aires Outskirts Diesel 395.7 35% 1,376.7 – Northwest Litoral – GT 981.0 Buenos Aires Northwest CC 226.7 Wind 8.0 373.3 66% 66% Diesel 89.0 59% 62% 64% 64% 64% 65% GT 49.6 South - Patagonia Wind 25.1 177.1 GT 152.0 Mobile Units Diesel 199.5 199.5 2010 2011 2012 2013 2014 2015 2016 2017

Thermal Hydroelectric Nuclear Renewable Total 2,654.3

Source: CAMMESA. Renewable 2% Note: Including WEM and WEMSP. Hydroelectric power generation net of pumping. Thermal 98%

Source: CAMMESA and Pampa Energía own surveys.

30 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 31 ANNUAL REPORT Additionally, hydroelectric power units’ power capacities were adjusted based on their reservoirs for a total Evolution of WEM Prices 420 MW, renewable for 7 MW and thermal for 81 MW. Furthermore, agreements for 558 MW corresponding to mobile generation were terminated. The following chart shows the composition of Argentine installed power During 2017, the approved average monthly spot price for energy was AR$240/MWh, which is the maximum capacity as of December 31, 2017: stipulated price pursuant to SEE Res. No. 20/17.

On the other hand, the following chart shows the average monthly price that all electricity system users Argentine Installed Power Capacity should pay so that the power grid would not run into a deficit. Such cost includes not only the energy price, but 100% = 36.5 GW also the power capacity fee, the cost of generation with liquid fuels, such as FO or GO, and other minor items.

Average Monthly Monomic Price In AR$ / MWh Hydroelectric Thermal 30.4% 62.7% 1,430 2017 1,371 2017 Nuclear 1,239 1,217 1,179 1,172 1,195 AVERAGE 4.8% Renewable 1,175 1,023 1,097 1,070 1,050 1,054 2.1% 2016 AVERAGE

Source: CAMMESA. 1,055

Regarding fuel supply for electric power generation, supply remained centralized in CAMMESA (with the exception of the fuel supply for generators covered by the Energía Plus Service) provided for by SE Res. No. 95/13, as amended. Likewise, the country continued purchasing LNG and its re-gasification, as well as natural gas from the Republic of Bolivia. However, the natural gas supply remained insufficient to meet the power generation needs, and therefore authorities have continued to rely on the consumption of liquid fuels (FO and GO) for power generation to meet the demand. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Natural gas consumption for electric power generation recorded a 9.8% increase in 2017 compared to the 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 previous year (17.1 million dam3). FO consumption was 51.5% lower than in 2016, totaling 1.3 million tons. GO consumption decreased by 41.4% compared to 2016. Finally, the consumption of mineral coal has experienced Source: CAMMESA. a 10.2% year-on-year decrease.

Price of Electricity SE Res. No. 95/13, 529/14, 482/15 and 22/16 The energy authority has continued with the policy started in the year 2003, whereby the WEM spot price SE Res. No. 95/13, published in the BO on March 26, 2013, provided for a new general-scope system is determined according to the available power generating units’ variable cost of production with natural gas, replacing the remuneration scheme applicable to the whole power generation sector, with the exception of bi- even if these units are not generating electricity with such fuel (SE Res. No. 240/03). The additional cost for national CHs, CNs and/or energy traded under contracts regulated by the SE having a differential remuneration consumption of liquid fuels is recognized outside the specified market price as a temporary dispatch surcharge. (the ‘Covered Generators’.)

As regards the generation capacity remuneration, the remuneration scheme approved by SE Res. No. 19/17 The remuneration scheme applied to economic transactions from February 2013 up to and including January in February 2017 —which abrogated the remuneration scheme established by SE Res. No. 95/13, as amended by 2017. However, its effective application to each specific generating agent required each generator to waive SE Res. No. 22/164, as from the economic transactions for the month of February 2017— remains unchanged5. all administrative and/or judicial claims it may have brought against the National Government, the SE and/or CAMMESA. Covered Generators not meeting this waiver requirement would not be eligible for the new scheme, and would remain under the preexisting system. Within this framework, the Group’s generation companies have waived certain administrative and/or judicial claims and, therefore, the remuneration scheme set forth by Res. No. 95/13 applied to CTLL, CTG, CPB, CTGEBA in its CC and HPPL as from February 2013, and to HIDISA and HINISA as from November 2013.

4 For further information, see section 5.1: ‘SE Resolutions No. 95/13, 529/14, 482/15 and 22/16’ of this Annual Report. 5 For further information, see section 5.1: ‘SEE Res. No. 19/17: Current Remuneration Scheme for Legacy Capacity’ of this Annual Report.

32 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 33 ANNUAL REPORT Fixed Costs Remuneration Scheme Additional Remuneration Until February 2017, generators received a fixed costs remuneration based on their technology and production One portion was paid directly to the generator, whereas another was allocated to ‘new infrastructure projects scale, and a variable remuneration based on the recorded availability, the technology’s target availability, the within the electric sector’ as defined by the SE. historical availability, and the time of the year. Furthermore, SEE Res. No. 22/16 incorporated a 1.20 increase factor for hydroelectric power plants operating and maintaining control structures on river courses. Destined to (AR$ / MWh):

Technology and Scale AR$ / MW-Hrp Classification Power Generator Trust

GT Units with Capacity < 50 MW 152.30 GT Units with Capacity < 50 MW, ST with Capacity < 100 MW 13.70 5.90 GT Units with Capacity > 50 MW 108.80 and CC with Capacity < 150 MW ST Units with Capacity < 100 MW and Internal Combustion Engines 180.90 GT Units with Capacity > 50 MW, ST with Capacity > 100 MW 11.70 7.80 ST Units with Capacity > 100 MW 129.20 and CC Units with Capacity > 150 MW CC Units with Capacity < 150 MW 101.20 HI Units with Capacity between 50 and 120 MW 84.20 14.90 CC Units with Capacity > 150 MW 84.30 HI Units with Capacity between 120 MW y 300 MW 59.40 39.60 HI Units with Capacity = 50 MW (Renewable) 299.20 HI Units with Capacity > 300 MW 54.00 36.00 HI Units with Capacity between 50 and 120 MW (Small scale) 227.50 Internal Combustion Engines 13.70 5.90 HI Units with Capacity between 120 MW and 300 MW (Medium scale) 107.80 Wind Farm, Photovoltaic Solar, Biomass/Biogas Plants and Solid - - Urban Waste HI Units with Capacity > 300 MW (Large scale) 59.80 Wind Farm, Photovoltaic Solar, Biomass/Biogas Plants and Solid Urban Waste -

Remuneration for Non-Recurring Maintenance Works Variable Costs Remuneration This remuneration, which was based on the generated electricity, was implemented through LVFVDs and was destined exclusively to the financing of overhauls, subject to the SE’s approval. Until February 2017, this remuneration was based on the total generated energy.

Technology and Scale AR$ / MWh Operating with (AR$ / MWh):

Units Natural Gas Liquid Fuels Mineral Coal Biofuel GT and ST Units, Internal Combustion Engines 45.10 CC Units 39.50 HI Units (Renewable, Small and Medium scale) 16.00 GT/ST/CC Units 46.30 81.10 139.00 154.30 HI Units (Large scale) 10.00 Internal Combustion Engines 74.10 111.20 148.30 Wind Farm, Photovoltaic Solar, Biomass/Biogas Plants and Solid Urban Waste - HI Units 36.70 Wind Farm Plant 112.00 Photovoltaic Solar Plant 126.00 Biomass/Biogas Plant, Idem thermal based on technology Solid Urban Waste and scale for natural gas

34 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 35 ANNUAL REPORT Incentives to ‘Production’ and ‘Operating Efficiency’ Suspension of MAT Contracts The ‘Production’ incentive consisted of a 10-15% increase in the remuneration of variable costs of thermal SE Res. No. 95/13 suspended the inclusion of contracts into the MAT (excluding those derived from a units operating with GO, FO or coal, respectively, provided their production during the calendar year exceeded differential remuneration scheme), as well as their extension or renewal. Contracts in force under SE Res. No. by 25%-50% their production capacity with the applicable fuel. The ‘Efficiency’ incentive consisted of the 95/13 will continue being managed by CAMMESA until their termination, after which GU will have to acquire acknowledgment of an additional remuneration equivalent to the variable cost remuneration for the percentage their supplies directly from CAMMESA pursuant to the conditions established by the SE to such effect. This difference between the actual consumption and the reference consumption determined for each unit and fuel provision is still effective under SEE Res. No. 19/17. type. In the case of higher consumptions, the base remuneration is not affected by variable costs. This incentive remains effective under SEE Res. No. 19/17. Implementation Criteria for SE Res. No. 95/13 CAMMESA classifications for our units are detailed below: Fuel (kCal / kWh):

Power Unit Natural Gas Alternatives (FO / GO / Mineral Coal) Power Plant Unit Technology Capacity

GT Units 2,400 2,600 ST Units 2,600 2,600 CTG GUEMTV11 ST <100 MW Internal Combustion Engines 2,150 2,300 GUEMTV12 ST <100 MW Large CC (GT > 180 MW) 1,680 1,820 GUEMTV13 ST >100 MW Remaining CC 1,880 2,000 GUEMTG01 GT >50 MW

Resources for 2015-2018 FONINVEMEM Investments CPB BBLATV29 ST >100 MW This item consisted of a specific contribution allocated to the execution of projects approved or to be BBLATV30 ST >100 MW approved by the SE under such regime. Specific contributions did not create acquired rights for the generator and, in case of breach of the construction and/or supply agreements, they could be reassigned by the SE. CTLL LDLATG01 GT >100 MW LDLATG02 GT >100 MW Technology and Scale AR$ / MWh LDLATG03 GT >100 MW

GT / ST / CC Units, Internal Combustion Engines 15.80 HIDISA ADTOHI HI between 120 MW and 300 MW HI Units 6.30 LREYHB HI between 120 MW and 300 MW Wind Farm, Photovoltaic Solar, Biomass/Biogas Plants and Solid Urban Waste - ETIGHI HI < 120 MW

2015-2018 FONINVEMEM Direct Remuneration HINISA NIH1HI HI between 120 MW and 300 MW NIH2HI HI between 120 MW and 300 MW This item consisted of the recognition of an additional remuneration to units installed under the 2015- 2018 FONINVEMEM scheme which was equivalent to 50% of the additional remuneration. The term for the NIH3HI HI between 120 MW and 300 MW recognition of such remuneration would begin with the unit’s commercial commissioning and extend for a term not exceeding 10 years. CTGEBA GEBATV10 CC / ST >150MW GEBATG11 CC / GT >150MW Payment Priority GEBATG12 CC / GT >150MW SE Res. No. 95/13 provided for different payment priorities: (1) payment of the Fixed Costs Remuneration, the recognition of fuel costs and the Variable Costs Remuneration; (2) payment of the remuneration of frequency and regulation, and short-term reserve services; and (3) payment of the Additional Remuneration. HPPL PPL1HI HI between 120 MW and 300 MW PPL2HI HI between 120 MW and 300 MW Fuel Supply PPL3HI HI between 120 MW and 300 MW With the purpose of optimizing and minimizing fuel supply costs to WEM plants, SE Res. No. 95/13 provided that generating agents may not renew or extend their fuel supply agreements with their suppliers upon termination, and that fuel supply would be centralized in CAMMESA. This provision remains effective under SEE Res. No. 19/17.

36 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 37 ANNUAL REPORT In the case of CTG, pursuant to Section 6 of SE Res. No. 482/15 and with the agreement of ‘Energía Plus’ Additional Remuneration generators, both the energy delivered to the spot market and the available power capacity not committed under the Energía Plus agreements in force during each period were remunerated based on the items set out This remuneration for the additional available power capacity aims to encourage Availability Commitments for the periods with a higher demand of the system. Bimonthly, CAMMESA will define a Monthly Thermal by such Res., the cost of the fuel provided by CAMMESA not being a part of the transaction. Generation Goal for the set of qualified generators, and will call for additional power capacity availability offers with prices not exceeding the additional price. SEE Res. No. 19/17: Current Remuneration Scheme for Legacy Capacity On February 2, 2017, the SEE issued Res. No. 19/17, which supersedes the remuneration scheme set forth by SE Res. No. 22/16 and establishes guidelines for the remuneration to power generation plants as from February 1, 2017. Period Additional Price (US$ / MW-month)

Res. No. 19/17 provides for remunerative items based on technology and scale, establishing US$- May 2017 – October 2017 1,000 denominated prices payable in AR$ by applying BCRA’s exchange rate effective on the last business day of the month of the applicable economic transaction; furthermore, the transaction’s maturity will be that November 2017 onwards 2,000 provided for in CAMMESA’s Procedures.

Remuneration for Available Power Capacity Hydroelectric Generators Thermal Power Generators In the case of hydroelectric power plants, a base remuneration and an additional remuneration for power capacity were established. Power capacity availability is determined independently of the reservoir level, Res. No. 19/17 defines a minimum remuneration for power capacity based on technology and scale, and the contributions made, or the expenses incurred. Furthermore, in the case of pumping hydroelectric power allows generating, co-generating and self-generating agents owning conventional thermal power plants to plants, the following is considered to calculate availability: i) the operation as turbine at all hours within the offer Guaranteed Availability Commitments for the energy and power capacity generated by their units and not period, and ii) the availability as pump at off-peak hours every day and on non-business days. committed under Energía Plus or under the WEM Supply Agreement pursuant to SE Res. No. 220/07.

Availability Commitments for each unit should be declared for a term of three years, together with information Base Remuneration for the Summer Seasonal Programming (except for 2017, when it was submitted for the winter seasonal period), with the possibility to offer different availability values for the summer and winter six-month periods. It is determined by the actual power capacity plus that under programmed and/or agreed maintenance:

Finally, generators will enter into a Guaranteed Availability Commitment Agreement with CAMMESA, which may assign it to the demand as defined by the SE. The thermal generators’ remuneration for committed power Classification Base Price (US$ / MW-month) capacity will be proportional to their compliance.

Medium HI Capacity > 120 ≤ 300 MW 3,000 Minimum Remuneration Small HI Capacity > 50 ≤ 120 MW 4,500 It applies to generators with no Availability Commitments: Large Pumped HI Capacity > 120 ≤ 300 MW 2,000

As provided by SE Res. No. 22/16, in the case of hydroelectric power plants maintaining control structures on Technology / Scale Minimum Price (US$ / MW-month) river courses and not having an associated power plant, a 1.20 factor will be applied to the plant at the headwaters.

Large CC Capacity > 150 MW 3,050 Additional Remuneration Large ST Capacity > 100 MW 4,350 Small ST Capacity ≤ 100 MW, Internal Combustion Engines 5,700 It applies to power plants of any scale for their actual availability and based on the applicable period: Large GT Capacity > 50 MW 3,550

Type of Power Plant Period Additional Price (US$ / MW-month) Base Remuneration It applies to generators with Availability Commitments: Conventional May 2017 – October 2017 500 November 2017 onwards 1,000

Period Base Price (US$ / MW-month) Pumped May 2017 – October 2017 0 November 2017 onwards 500

May 2017 – October 2017 6,000 November 2017 onwards 7,000

38 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 39 ANNUAL REPORT As from November 2017, the allocation and collection of 50% of the additional remuneration will be Additional Remuneration for Thermal Generators having Frequent Startups conditional upon the generator taking out insurance, to CAMMESA’s satisfaction, to cover for major incidents on critical equipment, and the progressive updating of the plant’s control systems pursuant to an investment plan The startup factor is established based on startups recorded during the last rolling year for issues associated to be submitted based on criteria to be defined by the SE. with the economic dispatch made by CAMMESA. It will have a 0.0 value for units with up to 74 startups, a 0.1 value for units recording between 75 and 149 startups, and a 0.2 value for units recording more than 150 Other Technologies: Wind Power startups. In all other cases, the factor will equal 0.

The remuneration is made up of a base price of US$7.5/MWh and an additional price of US$17.5/MWh, which Repayment of Ovehauls Financing are associated with the availability of the installed equipment with an operating permanence longer than 12 months as from the beginning of the Summer Seasonal Programming. Res. No. 19/17 abrogates the Maintenance Remuneration and provides that, as regards the repayment of outstanding loans applicable to CTs and CHs, credits already accrued and/or committed to the cancellation Remuneration for Generated and Operated Energy of such maintenance works will be applied first. The balance will be repaid by discounting US$1/MWh for the energy generated until the total cancellation of the financing The remuneration for Generated Energy is valued at variable prices according to the type of fuel: Recategorization of HINISA’s CHs In US$ / MWh For the purposes of applying the effective remuneration scheme, on April 10, 2017, the SEE provided for the recategorization of the Nihuil I, Nihuil II and Nihuil III plants as small-scale plants, thus sustaining the claims repeatedly lodged by the Company since 2013. Technology / Scale Natural Gas Hydrocarbons Pursuant to the terms of SEE’s instruction to CAMMESA, the recategorization is effective as from April 2017. Large CC Capacity > 150 MW 5.0 8.0 The impact of this recategorization represented, among others, a 50% increase in the base remuneration for power capacity, which thus rose from US$3,000 MW/month to US$4,500 MW/month. Large ST Capacity > 100 MW 5.0 8.0 Small ST Capacity ≤ 100 MW 5.0 8.0 Large GT Capacity > 50 MW 5.0 8.0 Energía Plus Internal Combustion Engines 7.0 10.0 The SE approved Res. No. 1281/06, which establishes certain restrictions on the sale of electricity and implements the Energía Plus service, which consists of the offering of additional generation availability by generating agents. These measures imply that: The remuneration for Operated Energy applies to the integration of hourly power capacities for the period (over rotating units), and is valued at US$2.0/MWh for any type of fuel. • CHs and CTs without fuel contracts in place are not allowed to execute any new contract; • LU300 will only be allowed to contract their energy demand within the MAT for the electrical consumption In the case of hydroelectric plants, prices for Generated and Operated Energy are as follows: corresponding to 2005 (‘Base Demand’) with the thermoelectric plants existing in the WEM; • The new energy used by LU300 in excess of the Base Demand should be purchased with Energía Plus generation at a price to be freely negotiated between the parties; In US$ / MWh • New agents joining the system should purchase their whole demand under the Energía Plus service; and • New generation plants to be included in the Energía Plus service should have fuel supply and transportation Technology / Scale Generated Energy Operated Energy contracts in place.

Within this framework, CTG, EcoEnergía and CTGEBA provide the Energía Plus service to different WEM Medium HI Capacity > 120 ≤ 300 MW 3.5 1.4 clients, which represents a 283 MW power capacity. Small HI Capacity > 50 ≤ 120 MW 3.5 1.4 Large Pumped HI Capacity > 120 ≤ 300 MW 3.5 1.4 If a generator cannot meet the power demand by an Energía Plus client, it should purchase that power in the market at the operated marginal cost. Furthermore, pursuant to Note No. 567/07, as amended, the SE has implemented the Surplus Demand Incremental Average Charge as the maximum price payable by LU300 for their Surplus Demand in case they do not have an effective Energía Plus service agreement. Currently these values amount to AR$650/MWh for GUMA and GUME and AR$0/MWh for GUDI. Additional Remuneration for Low-Use Thermal Generators Res. No. 19/17 provides for an additional remuneration for low-use thermal generators having frequent startups Energía Plus contract values are denominated in US$; therefore, they are exposed to the nominal exchange based on the monthly generated energy for a price of US$2.6/MWh multiplied by the usage/startup factor. rate and are based on the behavior of other WEM costs (mainly the WEM Agreements’ Surcharges), which represent the opportunity cost of the purchase of energy by GU. Since the addition of all these prices amounts to The usage factor is based on the Rated Power Usage Factor recorded during the last rolling year, which will values equivalent to the generation cost, a number of customers choose not to enter into Energía Plus contracts. have a 0.5 value for thermal units with a usage factor lower than 30% and a 1.0 value for units with a usage Consequently, generators have to sell their energy at the spot market, thus reducing their profitability margins. factor lower than 15%. In all other cases, the factor will equal 0.0.

40 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 41 ANNUAL REPORT WEM Supply Agreements – SE Res. No. 220/07 Within this framework, 19 projects for the closing to CC for a total capacity of 1,884 MW, and 21 co- generation projects for a total capacity of 2,713 MW were filed. Furthermore, Pampa submitted offers for the Aiming to modify the market conditions to encourage new investments and increase the generation offer, the execution of three projects: i) a co-generation project at its PGSM petrochemical plant; ii) CTLL’s closing to CC; SE passed Res. No. 220/07, which empowers CAMMESA to enter into ‘WEM Supply Commitment Agreements’ and iii) Genelba Plus’ closing to CC. with WEM Generating Agents for the energy produced with new generation equipment. These will be long-term agreements denominated in US$, and the price payable by CAMMESA should compensate the investment made Pursuant to Res. No. 820-E/17 issued on September 25, 2017, the SEE awarded only three co-generation by the agent at a rate of return to be accepted by the SE. projects (not including the one filed by the Company) for a power capacity of 506 MW, and called the remaining qualified bidder to improve their offers. CTLL and CTP have entered into agreements with CAMMESA under this resolution, which account for a hired power capacity of 2746 MW. On October 18, 2017, SEE Res. No. 926-E/17 awarded projects for a total power capacity of 1,304 MW.

Agreement to Increase Thermal Generation Availability Genelba Plus’ closing to CC, which will add an incremental capacity of 383 MW to CTGEBA’s current facilities8, which commissioning at open cycle is expected for the second quarter of 2019 and at closed cycle for the In 2014, the National Government submitted a proposal to generators for the execution of a new thermal second quarter of 2020, is among the nine selected projects. generation availability increase agreement through the application of LVFVDs and the generators’ own resources. CTLL, CTG, CPB, HINISA and HIDISA entered into this agreement, which sets out the conditions Measures for the Promotion of Renewable Energy Projects for the incorporation of new generation capacity in CTLL through the installation of a high-efficiency GT (105 MW), which was commissioned for service in July 2016, and two engines (15 MW), which are scheduled for In October 2015, Law No. 27,191 (regulated by Executive Order No. 531/16) was passed, which amends commissioning during the second quarter of 2018. Law No. 26,190 on the promotion of renewable sources of energy. Among other measures, it provided that by December 31, 2025, 20% of the total demand for energy in Argentina should be covered with renewable In 2015, the National Government submitted a proposal to generators for the execution of a new agreement. sources of energy. To meet such objective, WEM’s GU and CAMMESA should cover 8% of their demand with CTLL, CTG, CPB, HINISA and HIDISA entered into this agreement, whereby CTLL would incorporate a new high- such sources by December 31, 2017, the percentage rising every two years until the objective is met. The efficiency GT (105 MW), as well as investments in renewable energies. However, this Agreement was canceled agreements entered into with GU and GUDI may not have an average price exceeding US$113/MWh. with the implementation of SEE Res. No. 19/17. Additionally, the Law provides for several incentives to encourage the construction of renewable energy SEE Resolution No. 21/16: New Thermal Generation Capacity7 projects, including tax benefits (advance VAT return, accelerated depreciation on the income tax return, import duty exemptions, etc.) and the creation of the FODER, which is destined, among other objectives, to the As a result of the state of emergency in the national electricity sector, on March 22, 2016 the SEE issued granting of loans, capital contributions, etc. for the financing of these projects. Res. No. 21/16 launching a call for tenders for new thermal power generation capacity with the commitment to making it available through the WEM for the 2016/2017 summer, 2017 winter, and 2017/2018 summer periods. RenovAr Program Successful bidders entered into a PPA for a Fixed Price (US$/MW-month) and a Variable Price (US$/MWh, excluding fuels) with CAMMESA, which acted on behalf of WEM’s GU and distribution companies. MEyM Res. No. 71/16, issued on May 17, 2016, launched the ‘RenovAr 1’ open call for tenders. Pampa submitted four projects, three of which were wind farms in the Province of Buenos Aires for a total capacity Pampa’s generation subsidiaries submitted four offers, and the following ones were awarded: CTLL’s 105 of 200 MW, whereas the fourth project was a photovoltaic solar farm with a 100 MW power capacity to be MW expansion, and the construction of CTIW for a 100 MW capacity, which were commissioned for service in installed in the Province of Catamarca. On October 7, MEyM Res. No. 213/16 announced the successful bidders. August and December 2017, respectively. Furthermore, Pampa acquired and developed the CTPP project for a The proposal for the 100 MW capacity Corti WFP in the Province of Buenos Aires was one of the awarded 100 MW capacity, which was commissioned for service in August 2017. projects, the commercial commissioning of which is expected for the second quarter of 2018.

On August 17, 2017, the MEyM issued Res. No. 275-E/17 launching the RenovAr Program - Round 2 National SEE Res. 287/17: Co-generation and Closing to Combined Cycles and International Open Call for Tenders. The call’s purpose was to install up to 1.2 GW power capacity, taking In line with the measures seeking to increase the electric power generation offer, on May 10, 2017 the SEE into consideration the source of energy, power capacity, technology and region, with a maximum price for each issued Res. No. 287/17 launching a call for tenders for co-generation projects and the closing to CC over existing specific technology. On October 19, 2017, technical proposals were opened, with 228 projects submitted for a equipment. The projects should have low specific consumption (lower than 1,680 kcal/kWh with natural gas and total offered power of 9.4 GW, including, among other technologies, 58 wind farm projects for a total capacity 1,820 kcal/kWh with alternative liquid fuels), and the new capacity should not exceed the existing electric power of 3.8 GW and 99 solar farm projects for a total capacity of 5.3 GW. Furthermore, MEyM Res. No. 473-E/17 and transmission capacity; otherwise, the cost of the necessary extensions will be borne by the bidder. 488-E/17 awarded a total 2 GW capacity including, among other technologies, 12 wind farm projects for a 1 GW capacity and 17 solar farm projects for a total 0.8 GW capacity. Awarded projects will be remunerated under a PPA which will be effective for a term of 15 years. The remuneration would be made up of the available power capacity price plus the variable non-fuel cost for the Under such call, Pampa submitted the De la Bahía WFP for a total offered capacity of 49 MW, and the Las delivered energy and the fuel cost (if offered), less penalties and fuel surpluses. Power capacity surpluses would Armas WFP for a total offered capacity of 32 MW. Neither of the submitted projects was awarded. be remunerated pursuant to SEE Res. No. 19/17.

6 It includes CTLL’s TG04 power capacity, which is partially committed under this contract. 8 For further information, see section 7.1: ‘Call for Tenders for New Energy Efficiency Projects and Award of the Closing to CC Project in CTGEBA’ 7 For further information, see section 7.1 of this Annual Report. of this Annual Report.

42 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 43 ANNUAL REPORT MAT ER establishment of a simple tariff system, with tariffs and prices compensating economic costs, were agreed. Furthermore, it was agreed that provisions and programs to be passed by the authorities should not create MEyM Res. No. 281-E/2017 issued on August 18, 2017 regulated the MAT ER regime, which aims to set the distortions in the application of royalties or other provincial revenues. conditions for GU within the WEM and WEM GUDI to meet their demand supply obligation from renewable sources through the individual purchase within the MAT ER or through self-generation from renewable sources. Finally, as regards taxation, the parties undertook to define the criteria for the setting of taxes on the sector Furthermore, it regulates the conditions applicable to renewable power generation projects. Specifically, it to foster investments and reach an income share balance among the different jurisdictions. created the RENPER, where such projects will be registered. Restructuring of the National Government’s Interests in the Energy Sector Projects destined to supply the MAT ER may not be committed under other remuneration mechanisms (e.g., the Renovar program). However, projects covered under the Renovar Program may sell to CAMMESA up to 10% On November 1, 2017, Executive Order No. 882/17 was published, which provides for the reorganization of the surplus energy exceeding commitments with CAMMESA under PPAs. Surplus energy exceeding that sold of the National Government’s interests in several energy sector companies and ventures aiming to limit its under the MAT ER and PPAs executed with CAMMESA will be sold in the Spot Market and remunerated pursuant participation to those works and services which may not be properly undertaken by the private sector. In this to SEE Res. No. 19/17. sense, it instructed:

Furthermore, agreements executed under the MAT ER regime will be administered and managed in i. the merger through absorption of ENARSA with EBISA and the change of its corporate name to IEA. accordance with the WEM Procedures. The contractual terms, life, allocation priorities, prices and other As from the pre-merger agreement, IEA will market the energy corresponding to Argentina in all conditions, notwithstanding the maximum price set forth in Section 9 of Law No. 27,191, may be freely agreed binational projects where EBISA takes part; between the parties, although the committed electricity volumes will be limited by the electric power from ii. that IEA will act as principal in the Condor Cliff and Barrancosa CHs (their original names are restored). renewable sources produced by the generator or supplied by other generators or suppliers with which it has Furthermore, it will act as the generation concessionaire for the transfer of the concession to the purchase agreements in place. private sector;

Pampa registered the Las Armas WFP, De La Bahía WFP, and an extension of the Corti WFP (Pampa Energía iii. that IEA will act as Principal in the Río Turbio CT; the Regional Centro II gas pipeline; the Sistema WFP) with the RENPER. It also requested the corresponding dispatch priority under MEyM Res. No. 281/17, which Cordillerano/Patagónico gas pipeline; the Cordillerano gas pipeline, and the ‘La Costa’ gas pipeline; was granted for the De La Bahía WFP and the Pampa Energía WFP9. iv. the necessary measures so that IEA may sell, assign or otherwise transfer the Ensenada de Barragán and Brigadier López CTs (contemplating their closing to CC); assets and interests in the Manuel Belgrano II CT, Renewable Energy Distributed Generation and ENARSA’s shareholding in CITELEC; and On December 27, 2017, Law No. 27,424 was published, which declares it of national interest the distributed v. the sale, assignment or any other type of transfer of the MEyM’s equity interests in: Central Dique S.A., CTG, generation of electric power from renewable sources destined to self-consumption and the possible injection Central Puerto S.A., Centrales Térmicas Patagónicas S.A., TRANSPA and Dioxitek; as well as the National of surpluses into the distribution network. The Law also establishes the distribution public utility providers’ Government’s interests in TMB, TJSM, the Vuelta de Obligado CT, and the Guillermo Brown CT. obligation to facilitate such injection, thus guaranteeing free access to the distribution network, notwithstanding the provinces’ own powers. Sales indicated in items (iv) and (v) above should follow public and competitive processes, preserving the rights stipulated in the applicable contracts and corporate documents (i.e., preemptive rights). The applicable Furthermore, all national public building projects should contemplate the use of a distributed generation public bodies (i.e., the Appraisal Court) will take part in the valuations necessary to execute these processes, system from renewable sources based on their leveraged use, and after the conduction of an environmental although private entities may be hired to such effect. Furthermore, the MEyM and IEA were authorized to receive impact study, if applicable. Besides, the enforcement authority will carry out a study of existing national as payment the LVFVDs issued pursuant to SE Res. No. 406/03 and other provisions passed by the SE for up to public buildings and will suggest incorporating power efficiency systems, including renewable distributed the maximum amounts and under the conditions to be established by the MEyM. generation capacity. The bidding processes for the above-mentioned reorganization processes have not been published as of the As of the date hereof, this Law’s regulation has not yet been published. date hereof.

CFE Executive Order No. 854/17, issued on October 25, 2017, created the CFE under the Federal Energy Agreement entered into by the National Government, CABA and all the provinces of the country with the exception of San Luis, La Pampa, Río Negro, Misiones and Santiago del Estero. In general terms, the Agreement provides for the coordination of jurisdictions among the National Government, the provinces and CABA; the National Executive Branch will be responsible for designing long-term energy policies, which will be articulated, among others, by the CFE. The CFE’s purpose will be to provide for the sector’s middle and long-term planning and development, to recommend modifications to the legislation applicable to the sector, and to act as advisor.

The agreed items include, among others, the commitment to formalize the regulatory entities’ fields of action, including the normalization of regulatory agencies under intervention or having transitional authorities, and to adjust the role of public utility companies to avoid the overlapping of duties with those vested in the authorities. As regards tariffs, the harmonization of policies among the different jurisdictions and the

9 For further information, see section 7.1: ‘Development of Two New Pampa Energía Wind Farms’ of this Annual Report.

44 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 45 ANNUAL REPORT 5.2 Transener’s Tariff Situation The Public Emergency and Exchange Rate Regime Reform Law (Law No. 25,561) imposed the obligation on Transmission public utilities, such as Transener and its subsidiary Transba, to renegotiate their agreements in force with the Government while continuing supplying electricity services. This situation has significantly affected Transener Evolution of the High-Voltage Transportation System and Transba’s economic and financial situation. The following chart shows the evolution of the cumulative growth of the transformation capacity and of In May 2005, Transener and Transba signed with the UNIREN the Memorandums of Understanding stipulating the number of kilometers of high-voltage transmission system lines, compared to the percentage cumulative the terms and conditions for updating the Concession Agreements. The Memorandums of Understanding provided growth of peak demand since 1992. for the performance of an RTI before the ENRE and for the determination of a new tariff regime for Transener and Transba, which should have come into force in the months of February 2006 and May 2006, as well as for the recognition of increased operating costs incurred until the RTI-based new tariff regime comes into force. Evolution of the Transmission System Since 2006, Transener and Transba have requested the ENRE to comply with the provisions set forth in Cumulative Growth (in %) the Memorandum of Understanding, pointing out ENRE’s failure to fulfill its commitments thereunder and its consequences, as well as their availability to continue with the RTI process inasmuch as the other commitments undertaken by the parties remain in force and until a new RTI-based new tariff regime is decided upon. 179 Furthermore, Transener and Transba filed their respective tariff claims for their consideration, the holding of a 165 public hearing and the definition of the new tariff scheme. 155 140 In order to begin rectifying the tariff scenario, in December 2010 Transener and Transba entered into 142 144 135 134 an Instrumental Agreement to the UNIREN’s Memorandum of Understanding with the SE and the ENRE, 121 which mainly provided for the acknowledgment of a credit claim in favor of Transener and Transba for cost 107 108 108 108 fluctuations recorded during the June 2005 – November 2010 period calculated as per the IVC established 87 91 in the Memorandum of Understanding. These credits were assigned in consideration of disbursements by CAMMESA, which were executed through loan agreements. 79 Having collected these credits and still without the RTI, in May 2013 Transener and Transba, respectively, 52 executed with the SE and the ENRE a Renewal Agreement, effective until December 31, 2015, which, among 34 34 34 25 other provisions, acknowledged a credit claim for cost variations recorded during the December 2010 – 24 December 2012 period. In view of the repeated delays in the implementation of the RTI provided for in the 15 16 Memorandum of Understanding, the SE and the ENRE successively extended the recognition of higher costs up 0 to and including November 2015. In May 2016, upon the expiration of the Renewal Agreement and without any pending recognized credit claims, Transener and Transba continued collecting the loans granted by CAMMESA, 1992 ... 1996 ... 2000 ... 2005 ... 2011 ... 2014 2015 2016 2017 which were disclosed as liabilities. Finally, on December 26, 2016, Transener executed the last agreement with the SE and the ENRE, which recognized credits for cost variations in favor of Transener and Transba for the December 2015 - January 2017 period. Accumulated evolution of transformers capacity Accumulated evolution of km of lines On June 19, 2017, CAMMESA made the last disbursement, thus offsetting all credits for cost variations. Accumulated growth of maximum generated capacity

Source: Transener and CAMMESA.

As illustrated in the graphic above, the High-Voltage Transmission System has grown significantly since 2005, mainly due to the implementation of the 500 kV Transmission Federal Plan. The implementation of this Federal Plan has provided the SADI with more stability and better conditions to meet the rising demand.

46 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 47 ANNUAL REPORT Connection and capacity differential Based on the discrepancy between Transener and Transba’s proposal and what was granted by the RTI, on April 7 and 21, 2017, Transener and Transba filed a Motion for Reconsideration against ENRE Res. No. (In AR$ Million) 66/17, 84/17 and 139/17, and No. 73/17, 88/17 and 138/17, respectively. In consolidated terms, the Motion for Reconsideration mainly requested an additional 50% increase in the recognized capital base, and a 28% increase in regulatory income.

Períod Concept Transba Transener Total Consequently, on October 25, 2017, the ENRE issued Res. No. 516/17 and No. 517/17 partially upholding the motions filed by Transener and Transba. As a result of this proceeding, the ENRE established, retroactively as of February 2017, a AR$8,629 million and AR$3,575 million recognized capital base and AR$3,534 million and June 2005 – November 2010 Principal 59.6 121.7 181.3 AR$1,604 million annual regulated income for Transener and Transba, respectively. Notwithstanding the foregoing, Interests 52.2 126.9 179.1 claims submitted by Transener and Transba regarding the capital base valuation, on which the profitability fixed Additional Investments 22.3 41.1 63.4 by ENRE Res. No. 553/2016 is applied, and other issues that have not been resolved favorably will continue being heard before the SEE under the appeal brought subordinately to the motions for reconsideration. December 2010 – December 2012 Principal 240.2 592.4 832.6 Interests 62.4 152.3 214.7 Furthermore, during fiscal year 2017, Transener and Transba requested the recognition of damages for the Additional Investments 22.3 41.1 63.4 May 2013 – January 2017 period on account of breaches by the National Government in the adjustment of the remuneration for the supply of the high-voltage electric power transmission and regional distribution service in the Province of Buenos Aires based on the actual cost variations under the Transition Tariff Regime and the January 2013 – May 2014 Principal 210.4 544.9 755.3 failure to remunerate the capital base and the reasonable profitability resulting from the RTI. Interests 30.3 77.2 107.5 Furthermore, the purpose of the six-monthly adjustment mechanism stipulated in the RTI is to keep real- June 2014 – November 2014 Principal 161.1 502.4 663.5 term values of remunerations collectable by Transener and Transba during the five-year period of the RTI. This Interests 17.1 61.2 78.4 mechanism contemplates a trigger clause that weights the PPI and the CPI six-monthly variations published by the INDEC, with a variation equal to or higher than 5% (its maximum value) being assessed, which represents December 2014 - May 2015 Principal 123.8 373.3 497.2 30% of the inflation projected for 2017 in the National Budget. Interests 13.2 40.6 53.8 Additional Investments 180.6 95.0 275.6 For the December 2016 – June 2017 period, the trigger clause amounted to 9.02%, and the six-monthly adjustment for Transener and Transba remuneration was activated, taking into consideration the variations June 2015 – November 2015 Principal 136.6 413.6 550.2 during such semester in the PPI, ‘Manufactured Products’ item, CPI and the Salary Index published by the INDEC, Interests 13.8 45.8 59.6 which weightings are defined based on the cost structure and average investments for the 2017-2021 period in the RTI. However, its application was deferred until December 15, 2017, when ENRE issued Res. No. 627/17 and No. 628/17 adjusting Transener and Transba remunerations by 11.35% and 10.96%, respectively, for the December 2015 – January 2017 Principal 514.7 1,502.9 2,017.5 December 2016 – June 2017 period, retroactively to August 1, 2017.

Recognized Subtotal as of 12/31/2016 1,860.6 4,732.6 6,593.1 Furthermore, on February 19, 2018, the ENRE issued Res. No. 37/18 and No. 38/18 adjusting Transener and 10 Accrued principal and interests 65.2 125.8 191.0 Transba remunerations by 24.41% and 23.62%, respectively (both including a 0.2% X Factor adjustment), for the December 2016 – December 2017 period applicable on the remuneration scheme as of February 2017. Recognized Total as of 12/31/2016 1,925.8 4,858.4 6,784.1 Consequently, annual regulatory income in the amount of AR$4,395 million and AR$1,982 million were defined for Transener and Transba, respectively. Accrued principal and interests 66.4 411.8 478.2 SEE Res. No. 1085/17 Recognized Total as of 12/31/2017 1,992.2 5,270.2 7,262.4 SEE Res. No. 1085/17 issued on November 28, 2017 and effective as from December 1, 2017 established the methodology for the distribution of costs associated with the remuneration of transportation companies among the Transportation Systems’ users. These costs are distributed based on the demand and/or contribution of energy by each WEM agent (distribution companies, GU, self-generators and generators), directly and/or RTI indirectly associated with the DisTro, after discounting costs assigned to generating agents as operating and maintenance costs for connection and transformation equipment. On September 28, 2016, pursuant to the instruction provided by MEyM Res. No. 196/16, the ENRE passed Res. No. 524/16 approving the program applicable to the RTI for Electric Power Transmission. The public hearing It is worth highlighting that prices payable by distribution companies in consideration of electric power for the defense of the proposal was conducted in December 2016. transportation within the WEM are stabilized for their payment by distributors, and are calculated together with each Seasonal Programming or Quarterly Reprogramming. In the case of distributing agents whose demand On January 31, 2017, the ENRE issued Res. No. 66/17 and No. 73/17 establishing the tariffs applicable for the is connected to different DisTros, the demand percentage to each DisTro will be ascertained, and the price will 2017/2021 five-year period, the recognized capital base being AR$8,343 million and AR$3,397 million, and the contemplate the demand and the price on a weighted basis. granted regulated revenues amounting to AR$3,274 million and AR$1,499 million for Transener and Transba, respectively. Furthermore, the ENRE established the mechanism for adjusting the remuneration, the service quality system and the applicable penalties, the reward system and the investment plan to be executed by both companies during such period. 10 Factor stimulating efficiency which transfers cost reductions to users.

48 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 49 ANNUAL REPORT Furthermore, prices applicable to GU within the WEM are calculated in the economic transaction on a SE Res. No. 250/13 monthly basis. In the case of WEM GU not directly associated with the high-voltage transportation and/or DisTro, the applicable monthly value will be that corresponding to the connecting agent. Since May 2013, the SE has provided for the recognition of costs owed to Edenor resulting from the partial application of the MMC, the result of which was lower than the actual increase stipulated in the 2007 Contractual Renegotiation Agreement, which was not duly transferred to tariffs. This measure was implemented with the passing of SE Res. No. 250/13 and its subsequent extensions, which has allowed for the offsetting of this 5.3 recognition with debts Edenor has generated under PUREE and with CAMMESA for energy purchases. This Res. Distribution was rendered ineffective on February 1, 2016 with the issuance of SE Res. No. 6/16 and 7/16. Memorandum of Understanding between Edenor and the Argentine Loan Agreements – Extraordinary Investments Plan Government Due to the delay in obtaining the RTI, Edenor has secured the granting of loan agreements by the National Government to conduct the investments plan it may deem appropriate. On February 13, 2006, Edenor entered into a Contract Renegotiation Memorandum of Understanding with the UNIREN, which established, effective as from November 1, 2005, a 23% increase in the average distribution Pursuant to MEyM Res. No. 7/16, CAMMESA suspended, as from February 1, 2016 and until receiving further margin, which, however, may not result in an increase in the average utility tariff above 15%, as well as a 5% instructions, all effects from the executed loan agreements and the transfer of resources to distribution average additional VAD increase to be allocated to certain specific investments in capital goods. Furthermore, it companies on behalf of the FOCEDE trust and, therefore, the new works plan will be financed exclusively with provided for the inclusion of a social tariff and established quality standards for the service to be rendered and a the tariff proceeds. minimum investment plan in the electricity grid to be performed by Edenor, as well as the performance of an RTI. Furthermore, SEE Res. No. 840-E/2017, which was published in the BO on October 4, 2017, recognized in During the last few years following the execution of the Memorandum of Understanding and on account favor of Edenor the amount of AR$323 million in consideration of works performed before the termination of of the failure to perform the RTI, the SE and the ENRE passed several transitory measures seeking to reduce the FOCEDE Trust which had been timely implemented to administer the funds generated from the application Edenor’s operating and asset deterioration resulting from the tariff freeze. The background and the current tariff of ENRE Res. No. 347/1211. situation are described below. Tariff Transition Process SE Res. No. 32/15 On January 27, 2016, MEyM Res. No. 6/16 approved the quarterly summer reprogramming for the months As a result of the delay in the implementation of the Memorandum of Understanding and in order to fund of February through April 2016 within the WEM and fixed new energy reference prices applicable to users with expenses and investments associated with the ordinary operation of the public utility, on March 11, 2015 the supplies higher than 300 kW of power capacity at approximately AR$770/MWh, and at AR$320/MWh for other SE passed Res. No. 32/15 granting Edenor a transitory income increase as from February 1, 2015 to be charged users; a discount scheme for residential users obtaining energy savings, and AR$30/MWh for residential users against the RTI to be timely performed. This income results from the monthly difference between a theoretical framed under the social tariff, whereby 150 kWh-month are subsidized at a price of AR$0/MWh. This resolution tariff scheme embodied in an annex to said resolution and the schemes then effective for each tariff category. also instructed the ENRE to apply the social tariff to Edenor users meeting these criteria, and provided for the Additionally, pursuant to this provision, the amounts collected under the PUREE program are deemed part monthly payment of the utility bill. of Edenor’s income. It should be pointed out that this resolution did not generate any increases in the tariff scheme applicable to customers, but was borne directly by the National Government. This Res. was rendered On January 27, 2016, pursuant to Res. No. 7/16, the MEyM instructed the ENRE to perform all necessary ineffective on February 1, 2016 with the issuance of SE Res. No. 6/16 and 7/16. acts to fulfill Edenor’s RTI, annul the tariff schemes resulting from SE Res. No. 32/15, and adjust the VAD to be charged against the RTI in Edenor’s tariff schemes, thus canceling the PUREE and suspending the loan ENRE Res. No. 347/12 agreements entered into with Edenor. Consequently, on January 29, 2016, the ENRE issued Res. No. 1/16 and 2/16 granting a new tariff scheme values for Edenor effective as from February 1, 2016. ENRE Res. No. 347/12 applied a differential fixed amount to each of the different tariff categories, with the only exception of customers exempt from paying the tariff scheme provided for in ENRE Resolution No. Based on the MEyM’s instruction and pursuant to Res. No. 7/16, the ENRE approved, through Res. No. 55/16, 628/08. Such amounts —which continued to be deposited in a special account and were used exclusively for the Program for the distribution RTI in 2016, establishing the criteria and methodology for the RTI process and the execution of infrastructure and corrective maintenance works in Edenor’s facilities within the concession its schedule, including the applicable public hearing. area— were managed by the FOCEDE. It was pointed out that the presentation did not contemplate the value Edenor assigns to damages resulting Subsequently, on January 29, 2016, ENRE Res. No. 2/16 was passed declaring the termination of the FOCEDE from the failure to timely and properly implement the Memorandum of Understanding or the collection of trust on January 31, 2016 and establishing a new system for the funds collected pursuant to ENRE Res. No. income necessary to face the liabilities Edenor has incurred as a result of such breach. The public hearing was 347/12, which ceased being deposited into such trust and started being managed by Edenor. conducted on October 28, 2016. Finally, with the implementation of the RTI for Edenor in February 2017, these fixed amounts for works and maintenance stopped being charged as a special item on customer bills. RTI On January 31, 2017, the ENRE issued Res. No. 63/17, as amended by ENRE Res. No. 82 and 92/17, which established the final tariff schemes, the review of costs, quality levels required and other Edenor’s rights and obligations for the five-year period beginning February 1, 2017.

11 For further information, see section 7.3 of this Annual Report.

50 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 51 ANNUAL REPORT These Res. provide that the ENRE, as instructed by the MEyM, should limit the VAD increase as a result of Furthermore, this resolution approved a new scheme applicable to users under the social tariff. This consists the RTI process applicable as from February 1, 2017 to a maximum 42% of the VAD, and that the application of a bonus in the stabilized price of electric power within the WEM which will be shown as a direct subsidy of the new VAD’s balance value will be completed in two phases, the first one in November 2017 and the last by the National Government in covered customers’ bills. The ENRE will verify the neutrality in the distribution one in February 2018. Additionally, the ENRE will recognize to Edenor the VAD difference resulting from the company’s tariff proceeds, and, if applicable, the applicable ex-post adjustments will be made. For residential gradual tariff increase recognized in the RTI in 48 installments payable as from February 1, 2018, which will be customers whose demand does not reach 10 kW, the discount scheme based on savings reached compared to incorporated into the resulting VAD value as of that date. the consumption recorded in the same month of the year 2015 is kept; if savings are not lower than 20%, a 10% discount will apply. Furthermore, the social tariff scheme for base consumptions pursuant to SEE Res. No. 20/17 is These tariff increases include the prices established by SEE Res. No. 20/17 issued on January 27, 2017, which kept in place, but with a 50% discount over the surplus until reaching 150 kWh/month over the base consumption. approved the WEM’s summer seasonal reprogramming for the February 1 - April 30, 2017 period; this Res. set the power capacity reference price at AR$3.157/MW-month and made a distinction between energy reference Finally, ENRE Res. No. 33/18 issued on January 31, 2018 published a new tariff scheme, effective as from prices applicable to customers with supplies higher than 300 kW of power capacity at approximately AR$1,070/ February 1, 2018, which contemplates new power capacity and energy reference prices; applies the last 17.8% MWh, and to other users at AR$640/MWh; the latter price being subject to a 25% - 85% discount scheme for VAD increase and the 22.5% CPD update corresponding to the August 2017 – January 2018 six-month period, and residential customers whose demand does not reach 10 kW, based on the savings reached compared to the considers a total amount of AR$6,343.4 million recoverable in 48 installments, which includes the corresponding consumption recorded in the same month of the year 2015, and keeping AR$0/MWh for the base consumption CPD updates as from February 17 and is subject to an annual review in February 2019, 2020 and 2021. of certain categories covered by the social tariff. Furthermore, based on the principles of gradualness and reasonableness, a 37.5% bonus on seasonal prices was established exclusively for the month of February 2017, It is worth highlighting that the 22.5% CPD update contemplates a -2.51% efficiency stimulus E factor a month with a high demand for electric power. resulting from the RTI as an element geared at transferring to the distributor’s users expected efficiency gains as from i) factor X, which captures gains resulting from management optimization and the existence of On August 17, 2017, in furtherance of the provisions of Sub-annex 2 of the concession agreement, ‘Procedure economies of density, which reduces the CPD; and ii) investments factor Q, which captures the impact of the for the determination of the tariff scheme’, Edenor submitted to the ENRE the tariff scheme expected to cost of capital and the evolution of exploitation costs resulting from investments made by the company, which be applied as from August 2017 for its consideration. This note also contained the calculation of ex-post increases the CPD. adjustments on account of cost differences not transferred to tariffs, as well as the variation in the CPD, which amounted to 11.6% for the January - June 2017 six-month period.

In turn, on October 27, 2017, pursuant to the provisions of the RTI, Edenor submitted to the ENRE, for its Edenor’s Residential Tariff Positioning consideration, the tariff scheme calculated for its application as from November 2017, which contemplates an 18% increase over the VAD. Consumption: 275 kWh per month; monthly bill in US$ including taxes

On October 31, 2017, the ENRE, through Note No. 128,399 and upon the MEyM’s instruction, provided for the deferral until December 1, 2017 of the application of the VAD increase scheduled for November 1, 2017, as well as the CPD adjustment which should have been made in August 2017; in both cases, the result of such deferral should be recognized pursuant to the adjustment mechanism provided for by ENRE Res. No. 63/2017 of the RTI. Edenor’s Tariff Evolution Other Countries

On November 17, 2017, the MEyM submitted several issues before the public hearing called under Res. No. 403-E/17, including new reference prices for energy and power capacity within the WEM for the 2017 - 2018 summer seasonal period, the coverage of almost 100% of the WEM monomic price being reached for December 2017 2017 2017 2018 2018. Following this hearing, another hearing was held pursuant to ENRE Res. No. 526/2017, where the impact of Feb Mar Dec Feb the new seasonal prices, the VAD increase and the recognition of costs in Edenor’s customer bills was informed. 76 ENRE Res. No. 603/17 dated November 30, 2017 established a new tariff scheme applicable to the December 56 58 59 2017-January 2018 two-month period, also contemplating, besides the 18% VAD increase and the 11.6% CPD 50 51 update, a retroactive adjustment in real terms as of November 2017 and August 2017, respectively. Additionally, increases in power capacity reference prices, energy stabilized prices and the transfer of stabilized transportation 30 34 21 prices to the end user pursuant to SEE Res. No. 1091/17 were also taken into consideration. Furthermore, the 15 13 15 power capacity reference price, the energy stabilized price and the transportation stabilized price were set 7 for the December 2017 – January 2018, and February 2018 - April 2018 periods. For both periods, the power Normal Social Normal Social Normal Social Normal Chile Peru France Brazil UK Spain capacity reference price was set at approximately AR$3,157/MW-month and the transportation stabilized price tariff tariff tariff tariff tariff tariff tariff at AR$44/MWh for the extra high voltage system; besides, a price was defined for regional distribution based 73% 28% 26% 26% of the of the of the of the on the distribution company, which, in the case of Edenor, amounted to AR$1.1/MWh. clients clients clients clients

Energy reference prices were applied making a distinction between customers with supplies higher than a 300 Note: For the social tariff, it is considered without savings and, in the case of December 2017, with a bill cap. kW power capacity at AR$1,395/MWh for both periods, at AR$880/MWh for other users during the December Reference exchange rate: AR$18.77/US$. 2017 – January 2018 period, and at AR$1,081/MWh for other users during the February 2018 – April 2018 period. Source: Edenor.

52 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 53 ANNUAL REPORT 6 The Argentine Edenor’s Industrial Tariff Positioning Consumption: 1,095 kWh per month; monthly bill in US$ cents including taxes Oil and Gas Market

Edenor’s Tariff Evolution Other Countries 6.1 Hydrocarbon Exploration and Exploitation The Argentine Energy Mix Natural gas and oil constitute the main energy sources in the national primary energy matrix. The following 15.2 chart illustrates their shares as of December 31, 2016, as there is no available information for the year 2017: 13.1 11.8 12.8 12.8 10.4 10.3 11.1 7.6 7.7 2016 Argentine Energy Matrix* 100% = 80.06 million TOE Feb Mar Nov Feb France Peru Chile Spain Brazil UK Renewable 2017 2017 2017 2018 0.2% Nuclear Hydro 2.8% Coal 4.1% Note: Figures include taxes, except for VAT. Client with a peak demand of 2.5 MW in medium-voltage networks. Reference Exchange rate: AR$18.77/US$. 1.3% Source: Edenor. 2016 Natural Gas Oil 53.6% 32.0%

Source: MEyM. * There is no available information for the year 2017.

54 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 55 ANNUAL REPORT Natural Gas Oil During 2017, the total gross natural gas production remained at approximately 122 million m3 per day, which In 2017, total oil production amounted to 76 thousand m3 per day, a volume slightly lower than that recorded represents a 0.6% decrease compared to the volumes produced in 2016. This is mainly due a production in 2016 (81 thousand m3 per day), continuing the downward trend in production recorded over the last sixteen decline from conventional gas basins, such as the Noroeste Basin, which was partially offset by the continued years. production rise in the Neuquina Basin, which has increased its average daily contribution associated with the development of unconventional gas reserves in the block. Based on the last annual information published by the MEyM on oil imports, during 2017 3.4 thousand m3 per day were imported, a volume 37% higher than that recorded during 2016. This volume represented only 5% As regards natural gas imports by the Argentine Government, the supply from Bolivia reached an average of the total domestic production during 2017. On the other hand, in 2017 oil exports amounted to 4.3 thousand of 18.1 million m3 per day, a figure slightly higher than the 15.7 million m3 per day volume recorded in 2016. In m3 per day, a volume 40% lower than in 2016. This volume represented 6% of the total domestic production this same sense, imports of seaborne LNG later injected in the national natural gas transportation system at during 2017. the Bahía Blanca and Escobar ports, in the Province of Buenos Aires, recorded an average of 13.1 million m3 per day contribution in the year 2017, a volume slightly higher than that recorded in 2016 (12.7 million m3 per day). As of December 31, 2016, total oil reserves and resources within the country reached 707,402 thousand Furthermore, imports of LNG regasified in Chile totaled 0.8 million m3 per day, a volume slightly lower than that m3, of which 49% were proven reserves. Compared with the same information as of December 31, 2015, total recorded in 2016, which amounted to 1.3 million m3 per day. reserves and resources have recorded a 5.5% decrease. Furthermore, resources increased by 15%, totaling 162,918 thousand m3. Based on the last annual information published by the MEyM, as of December 31, 2016 total natural gas reserves and resources within the country reached 855,170 million m3, of which 39% are proven reserves. Compared with the same information as of December 31, 2015, reserves and resources have recorded a 7.2% decrease.

Evolution of Natural Gas Production, and Reserves and Resources* Evolution of Oil Production, and Reserves and Resources* In billion m3, 2006-2017 In million m3, 2006-2017

52.3 51.1 50.6 48.4 38.3 37.3 47.1 45.5 36.6 36.1 44.1 45.0 44.6 35.4 41.7 41.5 42.9 33.2 33.2 31.3 30.9 30.9 29.7 27.8

1,073 987 971 951 921 878 823 820 848 855 829 808 808 755 742 741 753 749 739 701 674 707

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Reserves & Resources Production Reserves & Resources Production

Source: National MEyM. Source: National MEyM. * There is no available information on reserves for the year 2017. Production is gross. * There is no available information on reserves for the year 2017.

56 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 57 ANNUAL REPORT Amendment to the Argentine Hydrocarbons Law has properly met its obligations as exploitation concessionaire, is actually producing hydrocarbons in the blocks in question and files an investment plan consistent with the development of the concession. On October 29, 2014, the National Congress enacted Law No. 27,007 amending Hydrocarbons Law No. 17,319. This Law incorporates new drilling techniques available in the industry, as well as changes mainly related The ban on simultaneously holding more than five exploration permits and/or exploitation concessions (whether to terms and extensions of exploration permits and exploitation concessions, levies and royalty rates, the directly or indirectly) has been lifted. incorporation of concepts for the continental shelf and off-shore exploration and exploitation of unconventional hydrocarbons, and a promotion regime pursuant to Executive Order No. 929/13, among other key factors for Concessions Extension the industry. The main changes introduced by Law No. 27,007 are detailed below: Law No. 27,007 grants the provinces having already started the concession extension process a 90-day term Unconventional Hydrocarbons Exploitation to finish it based on the conditions established for each of them. All subsequent extensions will be governed by the Argentine Hydrocarbons Law. The Law conferred a legal status to the concept of ‘Hydrocarbon Unconventional Exploitation Concession’ created by Executive Order No. 929/13. The term hydrocarbon unconventional exploitation is defined as the Awarding of Blocks extraction of liquid and/or gaseous hydrocarbons by unconventional stimulation techniques applied in reservoirs situated in geological formations of schist rock or slate (shale gas or shale oil), tight sandstone (tight sands, tight gas, Law No. 27,007 proposes to elaborate a reference form that will be jointly made by the SE and the provincial tight oil), coal bed methane and/or deposits characterized, in general, by the presence of low permeability rocks. authorities, to which all tenders made by law enforcement authorities should be adjusted, and introduces a specific criterion for the awarding of permits and concessions by incorporating the specific parameter of ‘greater Holders of exploration permits and/or hydrocarbon exploitation concessions will be entitled to request a investment or exploration activity’ as tie-breaker, at the PEN or the Provincial Executive Branch’s duly supported hydrocarbon unconventional exploitation concession to the enforcement authority pursuant to the following terms: discretion, as applicable. • The exploitation concessionaire may, within its block, request the subdivision of the existing block into Levy and Royalties new hydrocarbon unconventional exploitation blocks and the granting of a hydrocarbon unconventional exploitation concession. Such request will be based on the development of a pilot plan seeking the The amended Argentine Hydrocarbons Law updated the values related to exploration and exploitation levy commercial exploitation of the discovered reservoir pursuant to acceptable technical and economic criteria established by Executive Order No. 1,454/07, values that, in turn, may be generally updated by the Executive Branch based on variations in the domestic market’s crude oil price. The updated values for each levy and • Holders of a hydrocarbon unconventional exploitation concession also being holders of a preexisting royalty are detailed below. and adjacent exploitation concession may request the unification of both blocks as a single hydrocarbon unconventional exploitation concession provided that they duly demonstrate geological continuity of Exploration Levy these blocks. Such request should be based on the development of a pilot plan. The holder of the exploration permit will pay the levy on an annual basis, in advance, for each square Terms for Exploitation Concessions and Permits kilometer or its fraction based on the following scale: The terms for the exploration permits will be established in each tender issued by the enforcement authority • First period: AR$250 per km2 or fraction; according to the exploration’s purpose (conventional or unconventional) and based on the following criteria: • Second period: AR$1,000 per km2 or fraction; and i. Conventional exploration: the basic term is divided into two periods of up to three years each plus an • Extension: during the first year of the extension, AR$17,500 per km2 or fraction, with a 25% annual optional extension of up to five years. In this way, the maximum extension for exploration permits cumulative increase. is reduced from fourteen to eleven years; ii. Unconventional exploration: the basic term is divided into two periods of four years each plus an In this case, offsetting mechanisms will remain in place: the amount that the exploration permit holder optional extension of up to five years, that is, reaching a maximum of 13 years; and should pay for the second period of the basic term and for the extension period may be readjusted by offsetting it with exploration investments actually made within the block, until reaching a minimum levy equivalent to 10% iii. Exploration in the continental shelf and the territorial sea: the basic term is divided into two periods of of the applicable levy according to the period per km2, which will be payable in all cases. three years each plus an optional extension of one year each. Exploitation Levy Upon the expiration of the first period of the basic term, the exploration permit holder will decide whether to continue exploring the block or to return it totally to the Government. The whole originally-granted block may The holder of the exploitation permit will pay a levy which will consist of an annual advance payment of be kept provided the obligations arising from the permit have been properly met. Upon the expiration of the AR$4,500 per km2 or its fraction. basic term, the holder of the exploration permit will revert the whole block, unless it exercises its right to use the extension period, in which case the reversion will be limited to 50% of the remaining block. Royalties Royalties are defined as the only revenue the jurisdictions holding title to the hydrocarbons will collect, in Exploitation concessions will have the following terms, which will be computed as from the granting their capacity as grantors, from the production of hydrocarbons. resolution’s date: The 12% is kept as the percentage the exploitation concessionaire should pay on a monthly basis as royalty to i. Conventional exploitation concession: 25 years; the grantor on the proceeds derived from liquid hydrocarbons production extracted at wellhead. The production ii. Unconventional exploitation concession: 35 years; and of natural gas will bear a like percentage of the value of extracted and actually used volumes, and will be payable on a monthly basis. iii. Continental shelf and off-shore exploitation concession: 30 years. Cash payment of royalty will be made based on the value of crude oil at wellhead less freight costs up to the Furthermore, the holder of an exploitation concession may, with a minimum one-year notice before the base location for the definition of its commercial value. Payment in kind of this royalty will only be proceeded expiration of the concession, request the granting of indefinite extensions, for a 10-year term each, provided it

58 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 59 ANNUAL REPORT when the concessionaire is assured a reasonable permanent reception. The possibility to reduce royalty up to - The freezing of the current stamp tax rate and the commitment not to charge with this tax any 5% taking into consideration productivity, conditions and wells location remains in place. financial contracts executed in order to structure investment projects, guarantee and/or warrant investments; and In case of extension, additional royalties for up to 3% regarding the applicable royalties at the time of the - The commitment by the provinces and its municipalities not to impose new taxes —or increase the first extension and up to a total maximum of 18% of royalties for the following extensions. existing ones— on permit and concession holders, except for service compensation rates, improvement contributions and general tax increases. For the conduction of hydrocarbon conventional exploitation complementary activities, as from the expiration of the granted concession and within the hydrocarbons unconventional exploitation concession, the Restrictions on the Reservation of Blocks to National or Provincial Government-Controlled Companies enforcement authority may fix additional royalties of up to 3% above the current royalties, up to a maximum 18%, as applicable. The amendment to the Argentine Hydrocarbons Law restricts the National Government and the provinces from reserving new blocks in the future in favor of public or mixed companies or entities, irrespective of their The PEN or the Provincial Executive Branch, as applicable, acting in its capacity as granting authority, may legal form. Thus, contracts entered into by provincial companies for the exploration and development of reduce up to 25% the amount corresponding to royalties applicable to the production of hydrocarbons during reserved blocks before this amendment are safeguarded. a term of 10 years after the conclusion of the pilot project in favor of companies requesting a hydrocarbon unconventional exploitation concession within a term of 36 months as from Law No. 27,007’s effective date. Regarding blocks that have already been reserved in favor of public companies and that have not yet been awarded under joint venture agreements with third parties, associative schemes may be used, in which case the Finally, with the Hydrocarbon Investments Committee’s prior approval, royalties may be reduced to 50% for participation of such companies during the development stage will be proportional to their investments. In this tertiary production projects, extra-heavy oil and offshore products in view of their productivity, location and way, the ‘carry’ system during the blocks’ development or exploitation stage has been done away with. Such other unfavorable economic and technical characteristics. system has not been prohibited for the exploration stage.

Extension Bond Conventional and Unconventional Hydrocarbon Investment Promotion Regime For exploitation concession extensions, Law No. 27,007 empowers the enforcement authority to establish On July 11, 2013, the PEN issued Executive Order No. 929/13, which created the Investment Promotion the payment of an extension bond, the maximum amount of which will result from multiplying the remaining Regime for the Exploitation of Hydrocarbons —both conventional and unconventional— with the purpose proven reserves at the expiration of the concession by 2% of the average basin price applicable to the specific of encouraging investments destined to the exploitation of hydrocarbons, and introduced the concept of hydrocarbon during a term of 2 years before the granting of the extension. hydrocarbons unconventional exploitation concession.

Exploitation Bond Law No. 27,007 extends the benefits of the Promotion Regime to hydrocarbon projects involving a minimum of US$250 million direct investment denominated in foreign currency, assessed at the time the hydrocarbon The enforcement authority may establish the payment of an exploitation bond, the maximum amount of exploitation investment project is presented, to be invested during its first 3 years. Before the amendment, which will result from multiplying the remaining proven reserves associated with the exploitation of conventional the Promotion Regime benefits reached investment projects denominated in foreign currency for a minimum hydrocarbons at the expiration of the granted concession by 2% of the average basin price applicable to the US$1,000 million amount during a term of 5 years. specific hydrocarbons during the 2 previous years, at the time of granting the hydrocarbon unconventional exploitation concession. Holders of exploration permits and/or hydrocarbons exploitation concessions, and/or third parties associated with such holders and registered with the National Registry of Hydrocarbon Investments submitting this kind of Transportation Concessions projects will enjoy the following rights as from the third year of their respective projects’ execution: Transportation concessions (which had so far been granted for 35 years) will be granted for the same term than i. The right to freely sell abroad 20% and 60% of the liquid and gaseous hydrocarbon production in the that granted for the originating exploitation concession, with the possibility of receiving subsequent extensions case of conventional and unconventional exploitation projects and in offshore projects, respectively, for up to 10 years each. Thus, transportation concessions originating in a conventional exploitation concession with a 0% export duty, if applicable; and will have a basic 25-year term, whereas those originating in an unconventional exploitation concession will have ii. The free availability of 100% of the foreign currency derived from the exportation of these a basic 35-year term, each plus any extension term that may be granted. After the expiration of these terms, hydrocarbons, provided the applicable projects have involved a minimum of US$250 million entry of title to the facilities will be transferred back to the National or Provincial Government, as applicable, without any foreign currency into the Argentine financial market. charges or encumbrances whatsoever and with full rights.

During periods in which the national production of hydrocarbons is insufficient to meet domestic supply Uniform Legislation needs pursuant to Section 6 of the Argentine Hydrocarbons Law, the subjects covered by the Promotion Regime Law No. 27,007 provides for two types of non-binding commitments between the National Government and will have, as from the third year following the execution of their respective investment projects, the right to the provinces regarding tax and environmental issues: obtain a price not lower than the reference export price (without computing the incidence of any applicable export duties) from the exportable liquid and gaseous hydrocarbon percentage produced under such projects. i. Environmental Legislation: It provides that the National Government and the provinces will seek to establish a uniform environmental legislation primarily aiming to apply the best environmental management Pursuant to these investment projects, Law No. 27,007 provides for two contributions payable to the practices to hydrocarbon exploration, exploitation and/or transportation with the purpose of furthering producing provinces where the investment project is conducted: the development of the activity while properly protecting the environment. i. The first one, payable by the project holder, for an amount equivalent to 2.5% of the investment Tax System: It provides that the National Government and the provinces will seek to adopt a uniform ii. amount undertaken to be committed to corporate social responsibility projects; and fiscal treatment encouraging the development of hydrocarbon activities in their corresponding territories in adherence with the following guidelines: ii. The second contribution, payable by the National Government, which amount will be determined by the Hydrocarbon Investments Committee based on the size and scope of the investment project, and - The gross receipts tax rate applicable to the extraction of hydrocarbons will not exceed 3%; which will be destined to infrastructure projects.

60 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 61 ANNUAL REPORT Regulations Specifically Applicable to the Gas Market Under this agreement, producers undertake to sell distributors a minimum natural gas volume to meet the demand at a basin- and segment-based price. Producers’ Agreement Encouragement Programs for the Increase in Domestic Natural Gas Production SE Res. No. 599/06 – ENARGAS Res. No. I-1410/10 Gas Plus In 2007, the Argentine Government and producers signed a Natural Gas Producers’ Agreement, the main goals of which were to secure supply of the domestic demand for gas and the gradual recovery in prices through all This program’s main appeal for gas producers was the free availability and commercialization of the extracted market segments. The above-mentioned agreement was approved by SE Res. No. 599/07 and had a staggered gas. In order to qualify, the producer should submit an investment project in new gas blocks, in blocks which effective term based on the segment, with the residential supply commitment having the longest term and have not been in production since 2004, or in blocks with complex geological characteristics of compact sands expiring in December 2011. As a result, each segment’s market share was uniformly distributed among producers. or low permeability. Except for new entities, to join this program companies should be up-to-date with the production quota fixed pursuant to the Producers’ Agreement. In October 2010, through Res. I-1410 issued by ENARGAS, the natural gas dispatch method was modified, placing a priority on the supply of the residential and CNG segments’ demand. As a result, each distribution In May 2016, MEyM Res. No. 74/16 created the ‘New Natural Gas Projects Promotion Program’, and provided company could request volumes above those committed under the Natural Gas Producers’ Agreement on a daily that no new projects may be submitted under the Gas Plus program, although approved projects would remain basis (SE Res. No. 599/07). This was the only mechanism to request natural gas from producers for the residential effective under the same conditions. segment after the expiration of such agreement in December 2011. In December 2011, the Argentine Government, through SE Res. No. 172/11, temporarily extended the conditions of the Producers’ Agreements on a unilateral Gas Plan I basis, and thus allowed ENARGAS to continue using gas producers’ shares stipulated in such Agreement. On February 14, 2013, Res. No. 1/13 was published in the BO creating the Gas Plan I, which aims to evaluate and approve projects furthering the national self-supply of hydrocarbons through a gas production increase CEE and its injection into the domestic market, as well as to generate higher levels of activity, investment and On June 1, 2016, MEyM Res. No. 89/16 was published in the BO, which established the criteria for the employment in the sector. standardization of natural gas purchase agreement within the PIST by distribution service providers in order to meet the Priority Demand. Additionally, criteria were established to guarantee the meeting of this demand Before June 30, 2013, any company registered with the National Registry of Hydrocarbon Investments created through the CEE in case of operational emergencies which may affect the normal supply. by Executive Order No. 1277/12 could submit its project before the Hydrocarbon Investments Committee. The National Government had undertaken to pay a monthly compensation resulting from: Furthermore, with the purpose of adjusting some aspects of this regulation, on June 7, 2017 ENARGAS Res. i. The difference between the Surplus Injection price (US$7.5/MMBTU) and the price actually collected No. 4502/17 was published, approving the Procedure for Dispatch Administration in the CEE, which mainly sets from the sale of the Surplus Injection; plus out the following guidelines: ii. The difference between the Base Price and the price actually collected from the sale of the Adjusted i. The emergency may be declared by any carriers, distribution service providers or ENARGAS when it Base Injection. is considered that the Priority Demand supply is at stake, the latter being empowered to call the CEE; ii. Carriers and/or ENARGAS will summon the parties that should participate in the CEE. The members These projects would be in force for a maximum term of 5 years as from January 1, 2013, with the possibility of the CEE will be, at least, a representative of carriers, of the provider declaring the emergency, for an extension. and of each loader according to its geographical location and demand configuration. Additionally, it will be required the presence of a representative of the SRH, traders and direct consumers with On April 26, 2013, Hydrocarbon Investments Committee’s Res. No. 3/13 was published in the BO, which consumptions equal to or higher than 0.5 MBTU; regulated Gas Plan I and set forth that any companies interested in participating in this program should submit monthly affidavits to the Hydrocarbon Investments Committee containing specifically-detailed documentation iii. In case the CEE does not reach an agreement regarding how to distribute the supply to satisfy the unmet on injection, price, contracts, etc., so that they may, after meeting the methodology and terms specified therein, Priority Demand, ENARGAS will define the supply taking into consideration each producer’s available obtain the applicable compensation. Furthermore, the resolution expressly prohibited natural gas purchase volumes, deducting the amounts previously purchased to meet the Priority Demand, with a progressive and sale operations between producers and provided special considerations regarding new high-risk projects, allocation until matching the proportional quota of each producer/importer in the Priority Demand; investments control, the evolution of reserves and Gas Plan I’s audit mechanism. iv. Decisions agreed in the CEE will be binding on all active subjects in the gas industry; On July 11, 2013, pursuant to Provision No. 15/13 of the Hydrocarbon Investments Committee, PEPASA was v. Carriers and distribution service providers will be responsible for the follow-up, control and registered with the National Registry of Hydrocarbon Investments. PEPASA submitted several projects so that compensation of imbalances; and the Hydrocarbon Investments Committee should evaluate its inclusion under Gas Plan I. On August 7, 2013, pursuant to Res. No. 27/13, the Hydrocarbon Investments Committee approved a project for an increase in the vi. Although the goal is that imbalances should tend to zero, tolerance bands are admitted and loaders total natural gas injection submitted by PEPASA, with retroactive effects as of March 1, 2013. may not accumulate negative imbalances exceeding such tolerance bands. On July 15, 2015, the Hydrocarbon Investments Committee published Res. No. 123/15 creating the Rules Agreement for the Supply to Distributors applicable to acquisitions, sales and assignments of blocks, rights and interests under Gas Plan I. Thus, these Upon the termination of the extension period set by Law No. 27,200 to the public emergency declared in rules provided that companies acquiring, selling or assigning blocks, rights or interests should submit the 2002, Law No. 24,076 is reinstated, which provides that the price of natural gas supply agreements will be applicable presentation within a term of 10 business days after the transaction is made. We would like to point determined by the free interaction of supply and demand. Furthermore, with the purpose of guaranteeing an out that PEPASA filed the applicable presentation for operations conducted in the Rincón del Mangrullo block adequate natural gas supply to distributors and the continuity of the gradual path towards the reduction of as required by these rules. subsidies, on November 29, 2017, the MEyM and ENARSA executed an agreement with the country’s main natural gas producers, including Pampa, stipulating the terms and conditions effective as from January 1, 2018.

62 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 63 ANNUAL REPORT Gas Plan II Later, on November 2, 2017, MEyM Res. No. 419-E/2017 was published in the BO, which amended the terms and conditions provided for by MEyM Resolution No. 46-E/2017. The new resolution measures the Initial In November 2013, the Hydrocarbon Investments Committee issued Res. No. 60/13 creating Gas Plan II. Production and classifies concessions into Pilot and Developing (with an Initial Production equal to or higher Producers could submit projects to increase natural gas production levels until March 31, 2014. Such program than 500,000 m3 per day). was targeted at companies with no previous production or with a maximum injection limit of 3.5 million m3/ day, and provided for price incentives in the case of production increases, and penalties involving LNG imports Pilot concessions applying for the incentive may obtain the guaranteed minimum price for their whole in the case of non-compliance with committed volumes. Furthermore, beneficiary companies covered by Gas unconventional production provided they reach an annual average production equal to or higher than 500,000 Plan I and meeting the applicable conditions could request the termination of their participation in that program m3 per day during a twelve-month period by December 31, 2019. Developing concessions may only apply for the and their incorporation into Gas Plan II. PELSA filed a presentation and was registered with the Hydrocarbon incentive for the incremental portion on top of their Initial Production. The reference price for the incentive will be Investments Committee on March 6, 2014 pursuant to Res. No. 20/14. calculated using the domestic market’s weighted average reported by the MEyM’s SRH. Furthermore, permanence in the program is conditional upon the blocks meeting the investment plan timely informed to the provincial In March 2014, Res. No. 60/13 was amended by Res. No. 22/14 issued by the Hydrocarbon Investments enforcement authority; otherwise, collected amounts, adjusted by the BNA’s interest rate, should be returned. Committee, whereby the deadline for submission was extended until April 30, 2014, and the previous maximum 3 injection limit was increased to 4.0 million m /day. On the other hand, on November 17, 2017 MEyM Res. No. 447-E/2017 was published in the BO, which extends the application of the Unconventional Gas Plan to the Austral Basin. Additionally, on January 20, 2018, MEyM Res. In August 2014, the MECON, through Res. No. 139/14, introduced new changes to Res. No. 60/13 issued by No. 12-E/2018 was issued; this resolution makes the applicable amendments to the Unconventional Gas Plan so the Hydrocarbon Investments Committee, including, among others, the elimination of the previous maximum as to apply the incentives provided therein to adjacent concessions operated on a unified basis and meeting all injection limit and the fixing of two annual registration periods. Former Petrobras Argentina filed an application other applicable conditions; furthermore, since companies interested in participating in the Unconventional Gas to be included under Gas Plan II and was registered with this program on January 30, 2015 pursuant to Res. No. Plan have suffered certain delays in the proceedings for the granting and approval of their specific investment 13/15 issued by the Hydrocarbon Investments Committee. The participation of Pampa’s areas included under plans, the payment date of the first compensation under the Unconventional Gas Plan should be adjusted and, Plan Gas II is effective until June 30, 2018. correlatively, the corresponding reviews associated with the Initial Provisional Payment should be made.

In furtherance of Hydrocarbon Investments Committee’s Res. No. 123/15, Pampa modified its registration As of the issuance of this Annual Report, Pampa is analyzing the impact of, and its inclusion in the above- following the assignment, in March 2015, of 100% of its blocks in the Austral Basin (Santa Cruz I and II) to YPF mentioned Unconventional Gas Plan program. and, in October 2016, 33.33% of its interests in Río Neuquén and 80% of its interests in Aguada de la Arena to YPF, as well as the assignment of 33.60% of its interests in Río Neuquén to Petrobras Operaciones S.A. Modifications of Natural Gas Price at PIST and Tariff Schemes for Consumers We should also mention Res. No. 185/15, which created the ‘Program for the Promotion of Natural Gas New PIST Prices for the Demand Injection for Companies with No Injection’, the compensation mechanism of which is similar to Gas Plan I and Gas Plan II’s. On April 1, 2016 MEyM Res. No. 28/16 was published, which determined PIST prices for natural gas for the residential segment effective as from its publication date, with price increases for producers ranging from 179% to 12 On January 4, 2016, Executive Order No. 272/15 was published, which dissolved the Hydrocarbon 2056%, according to the user category and gas source basin . Discounted prices were established for residential Investments Committee created pursuant to Executive Order No. 1277/12, and provided that its powers would consumers with savings equal to or higher than 15% compared to the same period in 2015. Furthermore, the be vested in the MEyM. Social Tariff category was created subject to limited eligibility criteria. Under this tariff, 100% of the natural gas price is subsidized for residential users, who must only pay for the transportation and distribution components. On May 18, 2016, the MEyM passed the above-mentioned Res. No. 74/16 creating the New Natural Gas Projects Promotion Program. This provision replaces the program created by Hydrocarbon Investments Committee’s Res. On the same day, the MEyM published Res. No. 31/16 instructing ENARGAS to conduct the RTI process set No. 185/15. This new incentive program seeks to attract new projects by companies not covered by either Gas forth by Law No. 25,561, and granting a term of one year to such effect. Furthermore, it instructs the regulatory Plan I or Gas Plan II, establishes specific requirements, and will be effective until December 31, 2018 entity to update the current transitional tariffs for the natural gas transportation and distribution utility service under the transitory agreements, to be charged against the RTI, to allow for the maintenance of operations and Unconventional Gas Plan the making of investments. On March 6, 2017, MEyM Res. No. 46-E/2017 was published in the BO seeking to encourage investments Furthermore, MEyM published Res. No. 34/16, which established PIST prices for CNG as from April 1, 2016 for the production of natural gas from unconventional reservoirs in the Neuquina Basin effective from its with increases of up to 254% based on the source basin, with a minimum price of AR$2.56/m3 at the Tierra del publication to December 31, 2021. Fuego Basin and a maximum price of AR$3.16/m3 at the Neuquina Basin.

This program provided for a compensation mechanism for each beneficiary company of the unconventional On April 13, 2016, MEyM Res. No. 41/16 established new natural gas prices for the power plant market gas volume —either tight or shale— produced in the Neuquina Basin, which was calculated based on a minimum segment, with an approximate 100% increase and an average price of US$4.88/MBTU, the Neuquina Basin guaranteed price and the total weighted-average sale price of gas by each company to the domestic market, outstanding with a price of US$5.53/MBTU. including both conventional and unconventional gas. The minimum price is US$7.5/MBTU for calendar year 2018, and will be later decreased by US$0.5/MBTU per year until reaching US$6.0/MBTU for calendar year 2021.

Furthermore, this program provides for a more agile payment method, with the initial disbursement of a provisional payment based on 85% of the theoretical compensation resulting from projections, the difference being later adjusted, either positively or negatively, based on actual production. Additionally, compensations resulting from the Unconventional Gas Plan for each concession will be paid as follows: 88% to companies and 12% to the province where the concession under the Unconventional Gas Plan is located. 12 In the case of the Neuquina Basin, the smallest increase was granted for the R34 category, which rose from AR$1.51/m3 to AR$4.21/m3, and the largest increase was granted for the P1 and P2 General Service categories, which rose from AR$0.097/m3 to AR$1.77/m3.

64 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 65 ANNUAL REPORT Following the implementation of the PIST increases for the residential segment and the bringing of several legal actions, the Government established caps on the increases provided for by MEyM Res. No. 28/16 in two opportunities. Firstly, in June 2016 and through MEyM Res. No. 99/16, the increase in final tariffs to residential users was limited to 400% of the tariff effective before March 31, 2016 (before the increase) applicable to the price billed by gas producers to distributors, and to 500% in the case of users of the P General Service category with full service (subcategories P1, P2, P3, and equivalent ones in the undiluted propane distribution through grids service; and including the natural gas acquisition cost). Afterwards, in July 2016 MEyM Res. No. 129/16 established the same 400% and 500% caps, but in this case over the total amount of the bill for the same period of the previous year, irrespective of each user’s consumption level. The resulting difference would also 6.8 6.7 be discounted from producers’ invoices to distribution companies.

Later, on August 18, 2016 the CSJN upheld the nullity of the resolutions passed by the MEyM regarding the 6.0 5.8 distribution companies’ residential users, mainly due to the failure to conduct an appropriate previous public 81% 5.3 hearing process. Thus, MEyM Res. No. 152/16 took PIST prices for residential users back to the values effective 5.1 before the passing of MEyM Res. No. 28/16, and the new prices with 500% caps established by MEyM Res. No. 4.7 129/16 remained effective for users of the P General Service category with full service. As regards residential 50% 4.4 4.2 users that would have been entitled to the Social Tariff, the final billed amount may not exceed that which 3.8 3.8 would have applied if MEyM Res. No. 28/16’s tariff schemes had been applied taking into consideration the 3.4 Social Tariff13. Finally, in September 2016, the public hearings with the attendance of all the interested parties 3.3 were conducted, thus meeting the CSJN’s requirement. 2.9 2.5 On October 7, 2016, the MEyM published Res. No. 212-E/16, which established the new natural gas PIST 2.2 1.9 prices for the residential segment and CNG effective as from the same date. 1.7 1.5 1.3 In the residential segment, increases in gas prices for producers ranged from 111% to 578% compared to 0% 0% the tariffs effective before March 31, 2016, that is, an amount lower than that provided for by MEyM Res. No. 28/16, based on the user category, whether the tariff was full or differential14 and the gas source basin15, anyway keeping the 500% cap for users of the P General Service with full service, and applying lower caps for residential Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct users: 300% for R1 to R2.3 categories, 350% for R3.1 to R3.3 categories, and 400% for the R3.4 category 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 (provided the final bill exceeds AR$250). The Social Tariff created by the previous Res. for residential users and discount incentives for residential users with savings equal to or higher than 15% in their consumptions compared to the same period in 2015 also remained in force. In the case of CNG, the decrease in gas prices Full Tariff (US$/MBTU) Differential Tariff (US$/MBTU) for producers ranged between 14% and 21% compared to those provided for by MEyM Res. No. 34/16, with Full Tariff (% of Subsidy) Differential Tariff (% of Subsidy) a minimum price of AR$2.20/m3 for the Tierra del Fuego Basin and a maximum price of AR$2.49/m3 for the Neuquina Basin. Source: MEyM.

This resolution provided for fixed-percentage increases applicable every six months, in the months of April and October each year, until the total elimination of subsidies in 2019, when market prices are expected to be Furthermore, the following chart shows the gradual subsidy reduction path for CNG, in US$/MBTU: reached. In the case of Patagonia, Malargüe and the Puna, where a differential tariff applies, prices are lower than in the rest of the country, and there is a gradual reduction of the subsidy, which will be totally eliminated only in 2022. The following chart shows prices corresponding to the gradual subsidy reduction path for the residential segment: 6.3 6.8 5.3 5.7 4.1 4.4 4.8

Oct Apr Oct Apr Oct Apr Oct 2016 2017 2017 2018 2018 2019 2019

Source: MEyM.

13 Later, MEyM Res. No. 219/16, published in the BO on October 12, 2016, modified and adjusted eligibility criteria in order to guarantee the protection of the most vulnerable population. 14 It corresponds to Patagonia, Malargüe and the Puna. 15 In the case of the full tariff in the Neuquina Basin, the smallest increase was granted for the R34 category, which rose from AR$1.51/m3 to AR$3.19/m3, and the largest increase was granted for the P3 General Service category, which rose from AR$0.25/m3 to AR$1.50/m3.

66 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 67 ANNUAL REPORT Public Hearing and Second Step of the Gradual Increase Path Agreement for the Transition to International Prices in the Argentine On February 16, 2017, MEyM Res. No. 29/17 was published, which called for a public hearing to analyze Hydrocarbon Industry new PIST prices which will be valid for six-month period as from April 1, 2017, in line with the gradual subsidy In December 2015, the inauguration of the new Government and the elimination of official foreign exchange reduction path established by MEyM Res. No. 212/16. This public hearing was held on March 10, 2017 and, control regulations had a direct impact on crude oil costs for refineries. Therefore, the National Government consequently, on March 31, 2017 MEyM Res. No. 74/17 was published, which determined new PIST prices for agreed on a crude oil price with producers and refineries in Argentina for 2016 aiming to reach a gradual natural gas natural for the residential segment and CNG applicable as from April 2017. convergence for the price of the crude oil barrel traded in Argentina to the international price.

In the residential segment, increases in PIST prices ranged from 10% to 53% compared to the tariffs set Later, on January 11, 2017 the National Government executed the Agreement for the Transition to International by MEyM Res. No. 212/16 passed in October 2016, based on the user category, whether the tariff was full or Price in the Argentine Hydrocarbon Industry with producers and refiners of crude oil with the same purpose of differential, and the gas source basin16, respecting the limits set by MEyM Res. No. 212/16, and keeping both generating a gradual convergence for the price of the crude oil barrel traded in Argentina towards international price. the Social Tariff and the discount incentives ranged from 20% to 50% for residential users with savings equal to or higher than 15% in their consumptions compared to the same period in 2015. In the case of CNG, the On March 21, 2017, on account of the lower international prices and seeking to sustain the domestic activity, increase in gas prices for producers reached 16% compared to those provided for by MEyM Res. No. 212/16, Executive Order No. 192/2017 provided for the regulation of imports of crude oil and certain derivatives until with a minimum price of AR$2.55/m3 for the Tierra del Fuego Basin and a maximum price of AR$2.89/m3 for domestic prices converge towards international prices. the Neuquina Basin. Finally, on September 22, 2017, through Note No. 21505927/17, the MEyM notified the signatories to the Public Hearing and Third Step of the Gradual Increase Path Agreement of its suspension as from October 1, 2017. Going forward, the domestic price of the crude oil barrel to be used as raw material for refining and gas pump prices would be determined based on domestic market rules. On October 24, 2017, MEyM Res. No. 400/17 was published, which called for a public hearing to analyze new PIST prices effective as from December 1, 2017. This public hearing was held on November 15, 2017 and, consequently, on December 1, 2017 MEyM Res. No. 474/17 was published, which determined new PIST prices for natural gas natural for the residential segment and CNG applicable as from December 2017. 6.2 In the residential segment, increases in gas prices for producers ranged from 12% to 55% compared to the Midstream tariffs set by MEyM Res. No. 74/17 passed in April 2017, based on the user category, whether the tariff was full or differential, and the gas source basin17, respecting the limits set by MEyM Res. No. 212/16, and setting a limit Regulations Specifically Applicable to Gas Transportation for the application of the Social Tariff by differentiating between base and surplus consumption blocks, with a 100% and 75% discount, respectively, and, as regards residential users with savings equal to or higher than 20% Public Emergency and Exchange Rate Regime Reform Law No. 25,561, which was passed and enacted during in their consumptions compared to the same period in 2015, with the application of a 10% discount. In the case the first days of the month of January, 2002 and later extended on several occasions, provided for the turning into of CNG, the increase in gas prices for producers reached 17% compared to those provided for by MEyM Res. No. pesos of utility service tariffs; consequently, the transportation tariff remained unchanged in AR$ as from 1999, 74/17, with a minimum price of AR$2.99/m3 for the Tierra del Fuego Basin and a maximum price of AR$3.38/ despite the sharp increase in price indexes and operating costs. As a result of this situation, tariffs in this segment m3 for the Neuquina Basin. suffered a significant lag when compared to the important increases in other macroeconomic variables, which directly affected operating costs, and thus deteriorated the company’s economic and financial situation.

Regulations Specifically Applicable to the Crude Oil Market The tariff freeze continued until April 2014, when a mere 20% increase was obtained as a result of the Right to Export Liquid Hydrocarbons implementation of the 2008 transitory agreement. Later on, effective as from May 1, 2015, an additional 44.3% increase in the natural gas transportation tariff and a 73.2% increase in the CAU were granted. On December 29, 2014, MECON Res. No. 1077/14 established export rates for liquid hydrocarbons in line with the crude oil’s international price, which was determined based on the reference Brent’s value on the month Throughout 2016, TGS continued conducting the relevant procedures aimed at the implementation of the corresponding to the export minus US$8.0/bbl. Under this system, the cut-off value was set at US$71/bbl: transitory agreement signed with the National Government on February 24, 2016 and the holding of the public whenever the international price did not exceed US$71, the producer paid export duties for 1% of that value. hearing, which meant materializing the economic and technical studies serving as the basis for the conclusion When the price was above the international price of US$72/bbl, variable withholdings were settled. This system of the RTI process. Within this context, on March 29, 2016, the MEyM issued Res. No. 31/16 which, among other would be in force for a term of 5 years as from its enactment on January 6, 2002. The term was extended for measures, instructed ENARGAS to conduct the RTI process and to grant a transitory tariff increase until the a five-year term pursuant to Law No. 26,217, and later re-extended for a like term pursuant to Law No. 26,732. conclusion of the RTI process. In furtherance thereof, on March 31, 2016 ENARGAS passed Res. No. 3724/16 approving the new tariff schemes for the natural gas transportation utility service and the CAU, granting a On January 6, 2017, upon the no extension of the provisions regulating this issue (Public Emergency Law No. 200.1% increase effective as from April 1, 2016. 25,561/02, as amended and supplemented), the withholdings scheme on the exports of oil and its derivatives terminated and, therefore, all applicable outstanding rights were canceled by the Customs Office. As a result of the tariff increases granted by ENARGAS to concessionaires of the natural gas transportation and distribution utility service and the increase in the PIST, several legal actions were brought seeking the nullity of the approved increases. Later, on August 18, 2016, the CSJN partially upheld the ruling passed by the Chamber, thus establishing the obligation to hold a public hearing for setting tariffs and prices without market intervention and declaring the nullity of MEyM’s Res. No. 28/16 and 31/16 regarding residential users, for which tariff schemes were taken back to the values effective as of March 31, 201618.

16 In the case of the full tariff in the Neuquina Basin, the smallest increase was granted for the R34 category, which rose from AR$3.19/m3 to AR$3.54/m3, and the largest increase was granted for the P1 and P2 General Service category, which rose from AR$0.55/m3 to AR$0.82/m3. 17 In the case of the full tariff in the Neuquina Basin, the smallest increase was granted for the R34 category, which rose from AR$3.54/m3 to AR$3.97/m3, and the largest increase was granted for the P1 and P2 General Service category, which rose from AR$0.82/m3 to AR$1.23/m3. 18 For further information, see section 6.1 ‘Modifications of Natural Gas Price at Wellhead and Tariff Schemes for Consumers’ of this Annual Report.

68 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 69 ANNUAL REPORT After the holding of the public hearing, on October 6, 2016 ENARGAS issued Res. No. 4054/16. The terms The Household Gas Bottles’ Program establishes a maximum reference price for parties involved in the LPG of this Res. were the same as those provided for in ENARGAS Res. No. 3724/16 regarding the 200.1% transitory supply chain, in order to guarantee supply to low-income residential users, compelling producers to supply LPG tariff increase, the execution of the investment plan and the restrictions on the distribution of dividends until at a set price to fractionation companies, with a defined quota for each of them. Additionally, the payment of this plan is achieved. These tariff schemes have been effective since October 7, 2016. a compensation to participating producers is established. Due to its participation in this program, TGS is bound to produce and sell the LPG volumes required by the MEyM at prices ostensibly lower than market prices. As a The public hearing required by the RTI process was held on December 2, 2016. Furthermore, on March 30, result of this situation, TGS is forced to adopt the necessary mechanisms to minimize its negative impact. 2017, ENARGAS, pursuant to Res. No. I-4362/17, approved a new transitory tariff scheme which, if granted in a single installment as from April 1, 2017, would have represented a 214.2% and 37% increase in the natural gas The sale price for butane and propane traded under the Household Gas Bottles’ Program is determined transportation utility service and the CAU, respectively, applicable as from April 1, 2017, with a semiannual non- by the SRH, which during 2017 issued Res. No. 56-E/17 and No. 287-E/17 setting a price of AR$2,568/ton for automatic tariff adjustment mechanism subject to the PPI published by the INDEC19. butane and AR$2,410/ton for propane as from April 2017, and AR$4,302/ton for butane and AR$4,290/ton for propane as from December 1, 2017. Furthermore, compared to fiscal year 2016 and the first quarter of 2017, This step resulted in TGS executing the 2017 Comprehensive Memorandum of Understanding, which the price was set by SE Res. No. 70/15 at AR$650/ton. The compensation received by the MEyM is currently is pending approval by the National Congress and later ratification by the PEN. Once this Memorandum of AR$550/ton, which has been the compensatory amount since April 2015. Understanding is ratified by the PEN, the RTI process will be deemed concluded. Furthermore, on the same date, the 2017 Transitory Agreement was executed with the purpose of making a transitory tariff adjustment As regards the Propane for Grids Agreement, pursuant to the gradual subsidy reduction path established by to be charged against the RTI; to such effect, ENARGAS Res. No. 4362/17 was issued pursuant to MEyM Res. the MEyM, on March 31, 2017, Res. No. 74/17 and No. 474/17 were issued providing, effective as from April 1 No. 74/17, which limits the tariff increase resulting from the RTI process and provides for its application in three and December 1, 2017, respectively, an increase in the price of undiluted propane gas for the Propane for Grids stages, 58% in April 2017, and the balance in December 2017 and April 2018. Agreement. As from these dates, the price is set at AR$1,267/ton and AR$2,832/ton (under the first Res.), and AR$1,941.20/ton and AR$3,964/ton (under the second Res.), respectively, depending on the client the product Both the RTI process and the determination of the transitory tariff adjustments provide TGS with a framework is targeted at. These price increases fall within the gradual increase path scheme effective until 2019 provided to operate the gas pipeline system on a prudential and economically sound basis. So much so that the increases for by the National Government to reduce subsidies in this area. were granted taking into consideration the income necessary to execute a Five-Year Investment Plan that requires a high level of investments which are essential to face operational and maintenance needs. For the Both the Household Gas Bottles’ Program and the Propane for Grids Agreement provide for a compensation five-year period starting on April 1, 2017 and finishing on March 31, 2022, this plan will amount to AR$6,787 to participants’ payable by the National Government, which is calculated as the difference between the price million, an approximate average of AR$1,360 million per year for the five-year period, expressed in December defined by the MEyM and the export parity published by the SRH on a monthly basis. Even though it is not 2016 values. This Five-Year Investment Plan was devised by TGS to guarantee the safety and continuity of the collected timely and in due form, collection terms have improved during fiscal year 2017. natural gas transportation utility service so as to meet the expected higher demand from the system as a result of the development of natural gas reserves. Natural Gas Import Financing Charges

Later, on October 20, 2017, ENARGAS issued Res. No. 62/2017 calling for a public hearing to discuss a new As regards Res. I-1982/11 and I-1991/11 issued by ENARGAS, which provided for an approximate 700% increase transitory tariff update to be charged against the tariff increase resulting from the RTI process. This public in the natural gas import financing charge (created by Executive Order No. 2067/08 of the PEN), TGS continued hearing was held on November 14, 2017, and the resulting increase entered into effect as from December 1, pursuing legal proceedings timely initiated seeking that this charge should be declared unconstitutional and, 201720 with the issuance of ENARGAS Res. No. 120/17 pursuant to MEyM Res. No. 74/17, which involved an consequently, that it should not be applied. During 2017, upon the termination of the extension of the injunction average 78% increase in tariff schemes, including a 15% increase on account of the non-automatic adjustment passed by the National Judiciary Branch, which suspended the effects of these resolutions as to TGS in 2012, provided for by ENARGAS Res. No. 4362/17 for the January – October 2017 period. This increase should a new six-month term extension was granted, which will terminate in March 2018, when a new extension will be deemed charged against the amounts resulting from the Comprehensive Renegotiation Memorandum of be requested. Understanding for the License executed by TGS on March 30, 201721. Although as from April 1, 2016 the MEyM annulled acts regarding the determination of the value of tariff Furthermore, on January 31, 2018, ENARGAS Res. No. 247/18 was published in the BO, which called for a charges by the former Ministry of Federal Planning, Public Investment and Services under Executive Order public hearing on February 20, 2018 to discuss, if applicable, TGS’ transportation tariff update. To such effect, TGS No. 2067/2008 and instructed ENARGAS to take the necessary measures to quash the application of such submitted to ENARGAS a tariff scheme proposal, which would be applicable as from April 1, 2018, with a 42% charge in bills issued to users, the extension of the injunction is still being requested since this Res. annulled increase (including a 6.62% PPI-based non-automatic adjustment for the November 2017 – February 2018 period). the administrative acts establishing the value of the charge as from its enactment, but contained no provisions on the previously-accrued amounts associated with the charge TGS has not paid relying on the injunction. As regards the lead file, the evidentiary period has concluded, defense statements have been filed, and the Regulations Specifically Applicable to the LPG Business pronouncement of judgment is still pending. Household Gas Bottles’ Program and Network Propane Agreement This injunction has allowed TGS to continue developing its liquid processing activity without its profitability In the domestic market, during 2017 TGS continued participating in several programs developed by the being substantially reduced by the application of such charge. National Government for the supply of propane and butane, such as the program for the supply of butane for gas cylinders at subsidized prices pursuant to Executive Order No. 470/2015, later regulated by SE Res. No. Regulations Specifically Applicable to Crude Oil Transportation 49/2015 and No. 70/2015 —Household Gas Bottles’ Program and Propane for Grids Agreement—, under which the MEyM issued a set of Res. aimed at regulating the price of propane traded under this program. In the month of June 2016, the conduction of an RTI was requested to the MEyM as the then-current tariffs were outdated and insufficient to develop a maintenance and investment plan that may guarantee the integrity of facilities, minimize wastages, prevent and detect fraud, and improve energy efficiency towards the evolution of the transportation service in terms of reliability and efficiency. The Enforcement Authority considered OldelVal’s allegations admissible and on March 10, 2017 MEyM Res. No. 49-E/2017 was published in 19 For further information, see section 7.5: ‘RTI Process’ of this Annual Report. the BO defining a new US$-denominated tariff scheme with an average 34% increase and effective for a term 20 For further information, see section 8.6: ‘TGS’ of this Annual Report. of 5 years as from March 2017. 21 For further information, see section 7.5: ‘RTI Process’ of this Annual Report.

70 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 71 ANNUAL REPORT 6.3 Downstream Main Provisions regarding Maximum Sulfur Content (mg/kg) in Fuels The Argentine Liquid Fuels Market In 2017, the domestic liquid fuels market —gasoline and GO— increased by 4.6% compared to 2016, reaching 22.5 million m3. Current regulation SE Res. No. 1283/06 SRH Res. No. 5/16

According to the MEyM, the volume of GO sales in the domestic market increased by 3.0% in 2017, whereas Effective date Until From From From the gasoline market grew by 7.0%, in 2017. June 2016 June 2016 January 2019 January 2022

As of December 2017, the CNG market decreased by 1.6% compared to the same month in 2016, with sales volumes amounting to 2.6 million m3, and a 1.05% market share for Pampa’s own gas stations. GO Grade 3 10 10 10 10

High Population (4) Regulations Specifically Applicable to Refining, Transportation, Marketing GO Grade 2 Density Areas(1) 500 500 500 350 and Distribution Low Population Density Areas(2) 1,500 1,500 1,000 Pursuant to SRH Res. No. 5/16 published in the BO on June 1, 2016, the SRH regulated the specifications applicable to fuels traded in the national territory, thus superseding SE Res. No. 1,283/06, as amended. FO 10,000 7,000(3) 7,000 7,000

Under SE Res. No. 1,283/06, as amended, the quality parameters and application times established for Notes: (1) It comprises the City of Buenos Aires, the districts of Greater Buenos Aires, the cities of Rosario, Mar del Plata and Bahía Blanca, and all GO were impossible to apply properly and in a timely manner. This caused major economic damages for the the capital cities of provinces with the exception of Rawson, Río Gallegos and Ushuaia. industry and the National Government, and had forced refining companies under the Oil Industry Chamber to (2) Rest of the country not included in (1). (3) Refineries not meeting this specification should file an adjustment plan to meet the sulfur maximum limit within a term of 24 months. file several requests for revision and enhancing proposals. (4) It includes cities with more than 90,000 inhabitants.

SRH Res. No. 5/16 sets new terms and establishes that the maximum sulfur content allowed in GO grade 2 will be 500 mg/kg for areas with a high population density and 1,500 mg/kg for areas with a low population density, and includes provisions applicable to GO for power generation. Furthermore, as from January 2019, cities with Besides, in January 2017 Pampa executed the ‘Agreement for the transition to international prices in the more than 90,000 inhabitants will be deemed high population density areas, and the maximum sulfur content Argentine hydrocarbon industry’ fostered by the MEyM, which was entered into by the main producing and allowed in GO areas with a low population density will be reduced to 1,000 mg/kg. As from January 2022, the refining companies of the country22. The Agreement was in force for a term of 12 months as from January distinction between high and low population density areas will be eliminated, and the maximum sulfur content 1, 2017, and sought to lay the bases for reaching parity between domestic prices and international market allowed for GO grade 2 will be consolidated at 350 mg/kg. As regards GO grade 3, the maximum sulfur content prices in 2017. Among the Agreement’s highlights, refining companies committed to make crude oil purchases is set at 10 mg/kg. To meet such parameters, the Res. calls on oil companies to submit to the SRH a detailed to domestic producers for volumes equivalent to those acquired in 2014, following a decreasing price path schedule of their investment program. Pampa has timely and properly filed this presentation. stipulated in the Agreement until reaching the price convergence. Refining companies undertook to keep gas pump sales prices subject to a quarterly review scheme which contemplated the evolution of crude oil and Additionally, the Res. provides that the maximum sulfur content in FO will be 7,000 mg/kg. Refineries not biofuel prices, and the reference exchange rate. However, this agreement was suspended by the MEyM as from meeting this specification should file an adjustment plan. Pampa submitted this plan and the authorities notified October 1, 2017. it that it was authorized to dispatch FO with a maximum 1% sulfur content from RBB until June 2018. Furthermore, on June 7, 2017 SRH Res. No. 75-E/17 was published, which modifies the Regulation applicable to the Household Gas Bottles’ Program regarding ‘Maximum Reference Prices’ and ‘Producers’ Compensation’ seeking that LPG’s final price to consumers be consistent with the total actual economic costs of the activity through its different stages, to such effect modifying the guidelines set by SE Res. No. 49/15. On November 30, 2017 SRH Res. No. 287-E/2017 was issued, which provided for a new increase in LPG prices.

Finally, on October 31, 2017, MEyM Res. No. 415-E/17 was published in the BO; this resolution amends the procedure for the determination of the purchase price for corn and sugarcane based bioethanol to be blended with gasoline for automotive use, which involved a decrease in the purchase cost of it as a raw material which should make up 12% of the volume of gasoline for automotive use traded in the Argentine territory.

22 For further information, see section 6.1: ‘Regulations Specifically Applicable to the Crude Oil Market’ of this Annual Report.

72 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 73 ANNUAL REPORT Lastly, on December 22, 2017, CAMMESA granted CTIW’s commercial commissioning. The project, with the same characteristics as CTPP, consisted of the construction of a new thermal power plant next to CPB, located in Bahía Blanca, Province of Buenos Aires. The project required an approximate US$90 million investment.

It is worth pointing out that mentioned projects’ commercial commissioning were achieved on schedule or before the terms stipulated in the PPA, as from which time the applicable supply obligations entered into effect.

Public Tender for New Energy Efficiency Projects and Award of the Closing to CC Project in CTGEBA Pursuant to SEE Res. No. 287/17, published in the BO on May 10, 2017, a calling was opened for companies 7 interested in developing projects for co-generation and the closing to CC over existing equipment, with no limits on the power capacity to be installed. The projects should be highly efficient and the new capacity should not exceed the existing electric power transmission capacity; otherwise, the cost of the necessary expansions would be borne by the bidder. Furthermore, awarded projects would be remunerated under a US$-denominated Relevant Events supply agreement to be executed with CAMMESA for a term of 15 years. On October 18, 2017, SEE Res. No. 926-E/2017 was published, whereby, under the call for co-generation and closing to CC projects, the MEyM selected the projects for the execution of PPAs with CAMMESA.

Genelba Plus’ closing to CC, which adds an incremental capacity of 383 MW to CTGEBA’s current facilities for the Fiscal Year owned by the Company, is among the twelve selected projects, which altogether add more than 1.8 GW of power capacity to the system.

7.1 The project consists of the installation of a new GT and a new ST, as well as other enhancement works over the current Genelba Plus GT, which altogether will complete the second CC at CTGEBA, with a total gross Generation Segment’s Relevant Events power capacity of 552 MW and a 52% efficiency. The project will require a US$360 million investment budget, and the Siemens and Techint consortium will be responsible for the supply of the equipment, as well as for the Increase in the Remuneration Scheme for Legacy Capacity23 construction and commissioning of the project on a turnkey basis. Its commissioning at open cycle is expected for the second quarter of 2019, and as closed cycle for the second quarter of 2020. The PPA will be effective On January 27, 2017, SEE Res. No. 19E/17 was published in the BO. This resolution annulled the remuneration for a term of fifteen years and will be remunerated at a fixed price of US$20,500/MW-month and a variable scheme established by SE Res. No. 22/16, but without abrogating SE Res. No. 95/13 and its amending provisions; price of US$6/MWh. therefore, the purchase and dispatch of fuels remains centralized in CAMMESA. The new remuneration system establishes a US$-denominated remuneration for power capacity and non-fuel energy applicable as from Along with this expansion, CTGEBA, which is located in Marcos Paz, Province of Buenos Aires, will have two February 1, 2017, with gradual increases until November 1, 2017, as well as the elimination of remunerations in combined cycles and will reach an installed capacity of 1.2 GW. Currently, it generates electric energy with a 674 the form of receivables. MW CC and a 169 MW Genelba Plus GT, where the project will be conducted.

Startup and Commercial Commissioning – Public Tender under SEE Res. RenovAr 2 Program Public Tender24 No. 21/2016 Pursuant to MEyM Res. No. 275-E/2017 published in the BO on August 17, 2017, the MEyM launched the Under the PPAs executed with CAMMESA as awardee under the Open Call to Companies interested in ‘RenovAr Program (Round 2)’ National and International Open Call aim at contracting of electric energy from Offering New Generation Capacity pursuant to SEE Res. No. 21/2016, CAMMESA granted the commercial renewable sources within the WEM aiming to install power capacity for up to 1.2 GW, taking into consideration commissioning of the GT05 gas turbine as from August 5, 2017 at 12.00 am. The project, which consisted of the source, power capacity, technology and region, with a maximum price for each specific technology. the installation of a new 105 MW high-efficiency GT in CTLL, increased the capacity of this plant to 750 MW and required an approximate US$90 million investment. Pampa submitted two wind farm projects in the Province of Buenos Aires for a total capacity of 81 MW, neither of which was awarded. It is worth highlighting that the new GE GT05 turbine is the same model as the GTs installed in CTLL (GT04) and in CTG (GT01), which have been developed with the latest technology allowing for maximum efficiency and Development of Two New WFPs at Pampa Energía versatility, with the possibility to reach maximum load in only 10 minutes and much reduced maintenance times. On January 30, 2018, Pampa announced the construction of two new wind farms in the Province of Buenos On August 31, 2017, CAMMESA granted CTPP’s commercial commissioning. The project, which consisted of Aires, which together will reach an aggregate installed capacity of 100 MW and will require an approximate the construction of a new power plant in the Pilar Industrial Complex (located at Pilar, Province of Buenos Aires), US$140 million investment. These projects will be developed under the new regulatory framework for the MAT was made up of 6 cutting-edge high-efficiency Wärtsilä engines with a total 100 MW power capacity and the ER25, whereby CAMMESA granted a dispatch priority for Pampa’s projects, Pampa Energía WFP and De la Bahía possibility to run on natural gas or, alternatively, FO. CTPP’s investment reached approximately US$103 million. WFP, targeted at the GU segment under energy supply agreements between private parties.

24 For further information, see section 5.1: ‘Measures for the Promotion of Renewable Energy Projects’ of this Annual Report. 23 For further information, see section 5.1: ‘SEE Res. No. 19/17: Current Remuneration Scheme for Legacy Capacity’ of this Annual Report. 25 For further information, see section 5.1: ‘MAT ER’ of this Annual Report.

74 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 75 ANNUAL REPORT The priority allocation of 28 MW for De la Bahía WFP and of 50 MW for Pampa Energía WFP will ensure dispatch Motion for Reconsideration of the Integral Tariff System Applicable for the for both wind farms and therefore, will guarantee the provision to our clients who have chosen to meet their obligation of fulfilling electricity demand through renewable sources with energy coming from our wind farms. 2017 - 2021 Period Due to the differences between the several tariff proposals submitted under the RTI process initiated by The Pampa Energía WFP will be placed nearby the Corti WFP, with an installed capacity of 100 MW, which the ENRE and the granted tariff schemes, on April 7 and 21, 2017, Transener and Transba, respectively, filed a is located 20 kilometers (12 miles) from the City of Bahía Blanca and will be commissioned in May this year. Motion for Reconsideration and Appeal against ENRE Res. No. 66/17, 84/17 and 139/17, and 73/17, 88/17 and Moreover, the De la Bahía WFP will be built in the Coronel Rosales area, 25 kilometers (16 miles) from Bahía 138/17, whereby the ENRE approved the tariff system applicable to Transener and Transba, respectively, for the Blanca. The wind quality in both projects’ areas should be highlighted, which is conducive to a load factor higher 2017/2021 period. In consolidated terms, the Motion for Reconsideration mainly requested an additional 50% than 50%. Furthermore, 15 wind turbines are scheduled to be installed in each farm. increase in the granted capital base, and a 28% increase in regulatory revenues. The new 100 MW capacity to be developed, in addition to the Corti WFP which is currently under construction, On October 31, 2017, Transener was served notice of ENRE Res. No. 516/2017 and 517/2017, whereby this adds up, as of the date hereof, 200 MW of power capacity from renewable sources developed by Pampa. Thus, regulatory body partially upheld the motions for reconsideration filed in April 2017 against the RTI resulting from once all expansion projects are commissioned, Pampa Energía will contribute a total installed capacity of 4.4 ENRE Res. No. 66/2017 and 73/2017 for Transener and Transba, respectively. The notified Res. establish new GW to the SADI. tariff schemes for Transener and Transba, applicable retroactively to February 1, 2017, which represent a 4% capital base increase and an 8% regulatory revenues increase compared to the amounts granted under the RTI Execution of the Energy Supply Agreement under the 2014 Agreement for conducted in February 2017. the Increase of Thermal Generation Availability26 Both companies are currently filing administrative appeals against these resolutions. On July 14, 2017, CTLL and CAMMESA entered into the supply agreement under Res. No. 220/07 issued by the former SE for the new 105 MW high-efficiency gas turbine, which was commissioned on July 15, 2016. Semiannual Remuneration Update

The agreement stipulates a US$16,900/MW-month remuneration for available power capacity and On December 15, 2017, the ENRE issued Res. No. 627/2017 and 628/2017, which adjusted Transener and a US$7.6/MWh variable price for a power capacity of 79.35 MW, which represents 75.6% of the turbine’s Transba’s remunerations by 11.35% and 10.96%, respectively, for the December 2016 – June 2017 six-month capacity, retroactively as from its commercial commissioning. The remaining 24.4% capacity will continue to be period, retroactively as of August 1, 2017. remunerated under SEE Res. No. 19-E/2017. Furthermore, on February 19, 2018, the ENRE issued Res. No. 37/18 and No. 38/18 adjusting Transener and Technical Problem at CTGEBA Transba’s remunerations by 24.41% and 23.62%, respectively (both including a 0.2% X Factor29 adjustment), for the December 2016 – December 2017 period applicable on the remuneration scheme as of February 2017. On September 22, 2017, a technical problem occurred in one of the two GTs in CTGEBA’s CC. Consequently, the CC generation capacity was reduced by 50%, operating with a 337 MW power capacity. Moreover, all applicable Transener and Transba’s Instrumental Agreement claims were filed and notices were given to the corresponding insurance companies. On June 19, 2017, CAMMESA made its final disbursement under the Loan Agreements executed with Transener The Company worked on the failure together with the generator’s manufacturer, Siemens, and a new unit was and Transba, thus offsetting all credits for cost variations recognized under the Instrumental Agreement, the installed in early January 2018, thus recovering 100% of the CC generation capacity. Renewal Agreement and its Addendum, as well as the Agreement executed on December 26, 2016.

Amendment to the Technical Assistance Agreement 7.2 On December 14, 2017, Transener’s Board of Directors approved an amendment to the Technical Assistance 27 Agreement for the operation, maintenance and administration of the high-voltage electric energy transportation Transener’s Relevant Events system, originally entered into on November 9, 1994, the parties to which, after several assignments, substitutions and executed transactions, are Transener, Transelec and ENARSA, the two latter acting as Operators. In this RTI sense, it was informed that the amendment consisted of a reduction on fees payable by Transener to Operators On January 31, 2017, the ENRE issued Res. No. 66/17 and No. 73/17, which established the tariffs effective for the 2017 and 2018 contract periods. during the 2017/2021 five-year period and granted a 1185% increase for Transener and a 1332% increase for Transba28. Furthermore, the ENRE established the mechanism for adjusting the remuneration, the service It is worth pointing out that prior to the approval by the Board of Directors, Transener’s Audit Committee quality and penalties system, the reward system and the investment plan to be executed by both companies rendered a favorable opinion on the proposed amendment on considering that the transaction was in line with during such period. the normal and regular market conditions pursuant to Sections 72 and 73 of Law No. 26,831.

26 For further information, see section 5.1: ‘Agreement to Increase Thermal Generation Availability’ of this Annual Report. 27 For further information, see section 5.2: ‘Transener’s Tariff Situation’ and ‘RTI’ of this Annual Report. 28 Percentages do not include the IVC remuneration. 29 Factor stimulating efficiency which transfers cost reductions to users.

76 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 77 ANNUAL REPORT 7.3 Regulatory Assets and Liabilities Situation On April 26, 2017, Edenor was notified that the MEyM had provided that, upon the termination of the RTI Edenor’s Relevant Events process by the SEE and with the participation of the Sub secretariat of Tariff Policies Coordination and the ENRE, they should determine, within a 120-day term, the existence of outstanding obligations related to the 30 RTI Process Memorandum of Understanding executed on February 13, 2006 until the entry into force of the tariff schemes resulting from the RTI in February 2017. In such case, the SEE would have an additional 60-day term to On February 1, 2017 ENRE Res. No. 63/17 was published in the BO, which approved Edenor’s new tariff scheme determine the treatment to be given to such obligations. for the following five-year period, effective as from February 1, 2017. If the increase had been implemented in a single installment, it would have reached 98%; however, the MEyM provided that its application would be limited On May 11, 2017, Edenor submitted the report of damages with values updated as of January 31, 2017, and applicable in three stages during 2017: 42% over the VAD effective as of the date of issuance of such Res., estimating a total amount for all claims resulting from the breach of the Memorandum of Understanding, net an incremental 19% in November 2017, and the last stage, an incremental 17% in February 2018. Additionally, of the amounts received during the analyzed time frame (SE Res. No. 250/12 and 32/15, and MEyM Res. No. the ENRE will recognize Edenor the VAD difference resulting from the gradual tariff increase recognized under 7/16). Furthermore, Edenor details the amount of regulatory liabilities taken on as a result of the tariff lag and the RTI in 48 installments payable as from February 1, 2018, which were incorporated into the resulting VAD the damage to Edenor’s economic and financial situation. value as of that date. Furthermore, the ENRE published Rectification No. 92/17 establishing 9 classification levels for residential users instead of 7. As of the issuance of this Annual Report, the SEE has not rendered judgment on the treatment to be given to regulatory assets and liabilities. On March 28, 2017, the Secretariat of the International Centre for Settlement of Investment Disputes (‘ICSID’) put on record the discontinuation of the arbitration proceeding brought in August 2003 by EDF International and EASA, Edenor’s majority and controlling entity shareholder at that time31, regarding the breach of Edenor’s Recognition of Edenor’s Investments concession agreement resulting from the enactment of Public Emergency and Exchange Rate Regime Reform On October 4, 2017, SEE Res. No. 840-E/2017 was published in the BO, which recognized the amount Law No. 25,561. of AR$323 million in consideration of works performed before the termination of the FOCEDE Trust timely implemented to administer the funds generated as a result of the application of ENRE Res. No. 347/1233. The waiver by the claimants was a condition stipulated in Edenor’s Contract Renegotiation Memorandum of Understanding which should be met after the issuance of the tariff scheme resulting from the RTI and approved Its implementation is conditional upon Edenor waiving all administrative and/or legal claims it may have pursuant to ENRE Res. No. 63/17 and Rectification No. 92/17, effective as from February 1, 2017. already brought, as well as any other future claims against the National Government, the MEyM, the SEE, the ENRE and/or CAMMESA associated with the FOCEDE. In this respect, on October 9, 2017, Edenor declared that 32 Remuneration Semiannual Update and CPD Increase it had no administrative or legal claims against these bodies regarding the stated case, on considering that the direct appeal filed in 2015 by Edenor against ENRE Res. No. 356/2014 —which imposed a penalty for the failure On October 31, 2017, Edenor was informed through ENRE Note No. 128,399 that the MEyM instructed it to to timely apply FOCEDE’s remaining funds— is not covered by this requirement. defer until December 1, 2017 the application of the 18% tariff increase over the VAD, scheduled in the RTI for November 1, 2017, and that this increase should be recognized in real terms pursuant to the RTI adjustment mechanism provided for by ENRE Res. No. 63/2017. Corporate Reorganization: Merger of CTLL, EASA and IEASA Furthermore, as regards the deferral in the implementation of the mechanism for monitoring CPD variations On December 7 and 22, 2016, the Board of Directors of CTLL, EASA and IEASA, this latter being EASA’s which, according to the RTI, should have been applicable since August 2017, it is instructed that, for its recognition majority shareholder, resolved to initiate all necessary tasks and procedures for the merger through absorption of in real terms, this item will apply as from December 1, 2017, to such effect also using the above-mentioned CTLL, as absorbing company, with EASA and IEASA, as absorbed companies, effective as from January 1, 2017. adjustment mechanism. In August 2017, after verifying the activation of the trigger clause, Edenor requested the application of the CPD variation for the first control semester (January-June 2017), which amounted to 11.6%. In analyzing this reorganization and in order for the process to be viable, on March 27, 2017 EASA’s Extraordinary General Meeting of Shareholders decided to capitalize all Series A and B Discount CBs issued on On November 30, 2017, ENRE Res. No. 603/17 was issued, which approved Edenor’s new tariff scheme July 19, 2006 and maturing in 2021. The capitalization was accepted by Pampa Inversiones S.A., a subsidiary of for consumptions as from December 1, 2017, based on the new values set by the SEE for the electric power Pampa, in its capacity as sole holder. Reference Seasonal Price and the projected 18% VAD increase approved by the RTI on February 1, 2017, plus the semiannual 11.6% adjustment as of August 2017 which had been deferred until December 2017. That, together EASA, IEASA and CTLL’s board of directors, in their meeting held on March 29, 2017, approved the merger with the new prices for the energy, represented an average 66.3% increase in the tariff’s final values for T1 conditional upon obtaining the necessary approvals by the shareholders’ meeting and regulatory authorities. In category users, an average 58.1% increase for T2 category users; an average 48.5% for T3 category users, and furtherance of the applicable regulations, on March 30, 2017 Edenor and EASA filed a request for authorization an average 63.4% for the AP category. before the ENRE.

Finally, ENRE Res. No. 33/18 issued on January 31, 2018 published a new tariff scheme, effective as from On May 18, 2017, the extraordinary meetings of shareholders were held, which resolved to call for an February 1, 2018, which applies the new seasonal prices, the last 17.8% VAD increase and the 22.5% CPD adjournment in the merger discussions subject to its approval by the ENRE; meetings were resumed on June update corresponding to the August 2017 – January 2018 six-month period accumulated since January 2017, 16, 2017, although deferring the consideration of the merger as the prior authorization by the ENRE had not yet and provides for the collection in 48 installments of the deferred amount resulting from its gradual application been obtained. On August 11, 2017, through Board of Directors Res. No. 347, the ENRE decided, by a majority of during 2017. The 22.5% CPD contemplates the -2.51% E factor stimulating efficiency. votes, to deny the merger authorization request filed by CTLL. CTLL appealed this Res. before the SEE timely and in due form as it considered it did not conform to law. Finally, on December 25, 2017, the MEyM issued Res. No. Resol-2017-501-APN-MEM, in which the MEyM authorized the merger.

30 For further information, see section 5.3: ‘RTI’ of this Annual Report. 31 CTLL is currently the continuing company after EASA’s merger through absorption. 32 For further information, see section 5.3: ‘RTI’ of this Annual Report. 33 For further information, see section 5.3: ‘ENRE Res. No. 347/12’ of this Annual Report.

78 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 79 ANNUAL REPORT On January 18, 2018, CTLL, EASA and IEASA’s respective extraordinary general meetings of shareholders Award of Unconventional Hydrocarbon Exploration License resolved to approve the merger of CTLL —as absorbing company— with EASA and IEASA —as absorbed companies— under the terms of the Pre-Merger Commitment executed on March 29, 2017 and the Merger Under Public Tender No. 1/2017 – Fifth Round for the selection of companies interested in the exploration, Prospectus published on May 8, 2017. development and eventual exploitation of blocks located in the Province of Neuquén granted in concession to GyP, on November 1, 2017 GyP’s board of directors awarded the offer submitted by the Company for the Las 7.4 Tacanas Norte block. Las Tacanas Norte block has a 120 km2 area and borders El Mangrullo block currently operated by the Oil and Gas Segment’s Relevant Events Company. The awarded offer consists of the drilling of 8 wells targeting the Vaca Muerta formation and other exploratory studies. The exploration license is granted for a 4-year term (2018-2021). Investment Agreement with YPF for Rincón del Mangrullo Block On August 1, 2017, YPF, in its capacity as operator and concessionaire of Rincón del Mangrullo block, agreed Termination of Petrolera Pampa’s Service at Medanito La Pampa Block with the authorities of the Province of Neuquén the terms and conditions for the awarding of an unconventional Pursuant to the stipulations of the offer made to Pampetrol SAPEM, the provision of operating services exploitation concession in the block, which it develops jointly with Pampa34, each company holding a 50% interest. whereby Pampa, as Petrolera Pampa’s continuing company, performed hydrocarbons exploitation activities in Medanito La Pampa block, in the Province of La Pampa, terminated on October 28, 2017. The company Pursuant to this agreement, the Province of Neuquén extends the exploitation concession for a term of 35 performed all its obligations under the offer, returned the facilities as and when required and in an operating years in consideration of an investment commitment in the amount of US$150 million on a pilot unconventional status, and provided all the applicable environmental documentation. gas program aiming to continue developing the Mulichinco formation (tight gas), and to explore the potential of Las Lajas (tight gas) and Vaca Muerta (shale gas) formations. Pampa only takes part in the tight gas development 37 in the block and, therefore, its commitment amounts to 30% of the whole investment. It is worth highlighting Suspension of the Producers and Refiners’ Agreement that it is the first time that horizontal wells have been drilled in the block, a technique in which our partner YPF On September 22, 2017, through Note No. 21505927/2017, the MEyM notified the signatories to the Producers has plenty of experience gained in other unconventional blocks in Neuquén where it operates. and Refiners’ Agreement of its suspension as from October 1, 2017. Going forward, the domestic price of crude oil barrel to be used as raw material for refining and gas pump prices would be determined based on domestic New Natural Gas Prices within the PIST35 market rules. This agreement had established a gradual convergence path for the domestic crude oil price until achieving parity with international markets, as well as a price adjustment mechanism for the gas pump prices MEyM Res. No. 74/17 and 474/17 established new PIST prices for natural gas for the residential segment and of refined products. CNG effective as from April and December 2017, respectively.

Under MEyM Res. No. 212/16, which provided for a gradual and predictable path to reduce subsidies to diminish the gap between natural gas costs and prices/tariffs, the second and third staggered increases were 7.5 applied, preserving the savings incentives, the limits on increases defined by MEyM Res. No. 129/16, and the social tariff category. TGS’ Relevant Events Unconventional Gas Plan36 RTI Process38 On March 6, 2017 MEyM Res. No. 46-E/2017 was published in the BO, which created the Unconventional As regards the RTI, on March 30, 2017 ENARGAS issued Res. No. I-4362/17 approving: Gas Incentive Program seeking to encourage investments for the production of natural gas from unconventional i. A new transitory tariff scheme applicable to TGS which, if granted in a single installment as from April 1, reservoirs in the Neuquina basin effective from its publication to December 31, 2021. This program provided for 2017, would have represented a 214.2% and 37% increase in the natural gas transportation utility service a compensation mechanism for each beneficiary company of the unconventional gas volume —either tight or and the CAU, respectively, thus amounting the annual regulatory revenues to AR$8,400 million; shale— produced in the Neuquina basin, which was calculated based on a minimum price guaranteed by the program and the total weighted-average price of gas sales by each company to the domestic market. ii. The granted regulatory asset base amounts to AR$31,874 million as of December 2016, and the after-tax regulatory return amounts to 8.99%; However, on November 2, 2017, MEyM Res. No. 419-E/2017 was published in the BO, which amends the iii. A Five-Year Investment Plan to be developed by TGS between April 2017 and March 2022 in the terms and conditions provided for by MEyM Res. No. 46-E/2017. The new Res. measures the Initial Production approximate amount of AR$6,786 million, an investment level up to 4 times higher than that for this and classifies concessions into undeveloped, or Pilot, and developing, with an Initial Production equal to or business segment in the last 5 years; and higher than 500,000 m3/day. Undeveloped concessions applying for the incentive may obtain a guaranteed minimum price for their whole production provided they meet certain requirements. Developing concessions iv. A semiannual non-automatic tariff adjustment mechanism subject to the PPI published by the INDEC. may only apply for the benefit for the incremental portion of their Initial Production. The reference price for the incentive will be calculated using the domestic market’s weighted average reported by the MEyM’s SRH. Furthermore, as regards the tariff scheme, on the same day MEyM issued Res. No. 74/17 pursuant to the 2017 New Transitory Agreement entered into by TGS and the National Government, which provides for a limitation As of the issuance of this Annual Report, the Company is analyzing the impact of, and its participation in the on the tariff increase resulting from the RTI process and its application in three stages. The first stage, effective above-mentioned program. as from April 1, 2017, involves an average 58% tariff increase and represents a 6% increase in residential users’ final bill. The remaining tariff increases would be granted as from December 1, 2017 and April 1, 2018.

34 Petrolera Pampa’s continuing company. For further information, see section 7.8 of this Annual Report. 37 For further information, see section 6.1: ‘Agreement for the Transition to International Prices in the Argentine Hydrocarbon Industry’ of this 35 For further information, see section 6.1: ‘Modifications of Natural Gas Price at PIST and Tariff Schemes for Consumers’ of this Annual Report. Annual Report. 36 For further information, see section 6.1: ‘Regulations Specifically Applicable to the Gas Market’ of this Annual Report. 38 For further information, see section 6.2: ‘Regulations Specifically Applicable to Gas Transportation’ of this Annual Report.

80 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 81 ANNUAL REPORT Afterwards, on November 30, 2017, ENARGAS issued Res. No. 120/17 granting TGS an average 78% increase in Alignment with Market Prices tariff schemes applicable to the natural gas transportation utility service and the CAU, effective as from December 1, 2017. This increase, which should be charged against the RTI, represented an approximate 9.5% increase for end The Company continued accompanying market fuel price increases with the following adjustments in users. Furthermore, it should be pointed out that this included a 15% increase corresponding to the non-automatic gasoline and GO prices: adjustment provided for by ENARGAS Res. No. 4362/17 for the January – October 2017 period. • A 6% increase on December 4, 2017; Finally, in the public hearing held on February 20, 2018, TGS submitted to ENARGAS a tariff scheme • A 5% increase on January 18, 2018; and proposal, which would be applicable as from April 1, 2018, with a 42% increase (including a 6.62% PPI-based • A 2.8% and 3.4% increase on February 7, 2018. non-automatic adjustment for the November 2017 – February 2018 period). As of the date of release of this Annual Report, the regulatory entity has not published any Res. in this respect.

Renewal of Technical, Financial and Operational Service Contract 7.7 On December 14, 2017, TGS’ board of directors approved the renewal of the Technical, Financial and Strategic Divestments Operational Service Contract (which was originally dated in 1992) between TGS and Pampa Energía as Technical Operator. As evidenced by ENRG GAL/GDyE/GT/D Note No. 11025 dated November 8, 2017, no findings were Sale of Assets from the R&D Segment made by ENARGAS. On December 7, 2017, Pampa executed with Trafigura, one of the major global commodity traders and the In furtherance of Section 72 of Law No. 26,831, TGS’ Audit Committee sought the opinion of two independent operator of more than 3,000 GS worldwide through Puma Energy, an agreement for the sale of a set of assets professionals and issued a statement concluding that the terms of the above-mentioned service may be related to the Company’s R&D segment subject to the fulfillment of certain precedent conditions. The assets deemed reasonably appropriate under normal and regular market conditions. subject-matter of the transaction are as follows: i. The RBB plant, located in Bahía Blanca, Province of Buenos Aires; ii. The lubricants plant, located in the district of Avellaneda, Province of Buenos Aires; 7.6 iii. The Caleta Paula reception and dispatch plant, located in the Province of Santa Cruz; and News from R&D segment iv. The network of GS currently operated under Petrobras brand.

Increase in Fuel Prices at Gas Pump It is worth highlighting that, due to its strategic and operative utility, the Dock Sud storage facility is excluded from the transaction, as well as the Company’s stake in Refinor. Producers and Refiners’ Agreement The transaction price amounts to US$90 million and includes the regular working capital of the business, Pursuant to the Producers and Refiners’ Agreement fostered by the MEyM and to which Pampa adhered subject to the customary closing adjustments. together with the main companies in this sector, the Company has made the following adjustments in its gasoline and GO prices: Sale of Oil Assets from the E&P Segment • An 8% increase on January 12, 2017; On January 16, 2018, Pampa executed with Vista Oil & Gas an agreement to sell its direct interests of 58.88% • A 2.6% decrease, only applicable to GO, on April 5, 2017; at PELSA, 3.85% at Entre Lomas, Bajada del Palo and Agua Amarga blocks, and 100% at Medanito S.E. and • A 7% and 6% increase, respectively, on July 3, 2017. Jagüel de los Machos blocks.

This agreement was suspended as from October 1, 201739. Consequently, on October 23, 2017, the Company The sale price is US$360 million, subject to standard adjustments for this type of transactions; moreover, increased its prices for Podium gasoline by 12%, for high-grade gasoline and Diesel Podium by 10%, and for the closing is subject to compliance of certain precedent conditions, including the approval of Vista Oil & Gas’ GO by 9%. shareholders meeting.

Bioethanol Price Adjustment On October 31, 2017, MEyM Res. No. 415-E/2017 was published in the BO, which modifies the procedure 7.8 to determine the purchase price for corn and sugarcane based bioethanol to be blended with gasoline for automotive use. This modification results in a decrease in the purchase costs of bioethanol, a raw material Corporate Reorganization which should make up 12% of the volume of gasoline for automotive use traded in the Argentine territory. New Corporate Reorganization Process Therefore, on November 4, 2017 Pampa accompanied the measure adopted by major market players and As from the acquisition of Petrobras Argentina, Pampa initiated a corporate reorganization process aiming implemented a 1.5% reduction in suggested gasoline prices at GS, thus transferring this cost reduction to end to simplify and maximize the efficiency of the Company’s structure, derive significant operative efficiency, consumers, except in the Provinces of Chubut and Santa Cruz. benefit from optimized use of available resources and the streamlining of technical, administrative and financial structures, among other improvements.

In this sense, on June 26, 2017, Pampa’s Board of Directors instructed the Company’s Management to start 39 For further information, see section 7.4: ‘Suspension of the Producers and Refiners’ Agreement’ of this Annual Report. the procedures to evaluate the benefits of a merger through absorption process between Pampa, as absorbing

82 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 83 ANNUAL REPORT company, and certain companies of the group, including CTG, CTLL, CPB and EG3, as absorbed companies, It is worth highlighting that on July 27, 2016, Pampa indirectly acquired 67.1933% of Petrobras Argentina’s effective as from October 1, 2017. capital stock and voting rights. As a result of the purchase, in accordance with Capital Market Act No. 26,831, articles 87 and following ones and CNV regulations, Section II, Chapter II, Title III (T.O. 2013) regarding mandatory Furthermore, on September 22, 2017, the Company resolved to incorporate Petrolera Pampa into this tender offers on account of change of control and acquisition of significant indirect interest, Pampa was forced corporate reorganization process. Consequently, subject to obtaining the corresponding corporate and regulatory to launch a MTO and, simultaneously, it launched the Exchange. In order to move the Offers forward and in approvals, Pampa, in its capacity as absorbing company, will incorporate by a merger through absorption process accordance with the applicable regulations, Pampa submitted the request for approval of the Offers before the the following companies of the economic group (Pampa’s direct and indirect interests are shown in parentheses): CNV, which processed the request in file No. 1889/16: ‘Pampa Energía S.A. regarding MTO and Exchange of Petrobras Argentina S.A.’, obtaining consent by the CNV’s Board on September 23 and 28, 2016. • Petrolera Pampa (49.5%); • Inversora Diamante S.A. (91.6%); On October 6, 2016, Pampa launched the Offers, which closed on November 15, 2016. Only 9.6% of Petrobras • CTLL (90.4%); • Inversora Nihuiles S.A. (90.3%); Argentina’s capital stock did not take part in the Offers. Moreover, from the total minority shareholders of • CTLL (100%); • Inversora Piedra Buena S.A. (100%); and Petrobras Argentina that voluntarily participated in the domestic Offers, 85% decided to sell their holdings in • EG3 (100%); • Pampa Participaciones II S.A. (100%). cash according to the MTO, and only 15% decided to exchange their shares of Petrobras Argentina for Pampa’s Shares under the terms of the Exchange40. We would like to clarify that there weren’t any legal or administrative • Bodega Loma la Lata S.A. (100%); restrictions in place either at the Offers’ closing date or thereafter.

Finally, on December 21, 2017, Pampa, Petrolera Pampa, CTLL and CTG’s boards of directors approved the After the closing of the Offers’ process and totally independently from it, the Company’s Board of Directors corporate reorganization conditional upon obtaining the corresponding corporate and regulatory approvals. This decided to approve the merger at its meetings held on December 7 and 23, 2016, setting the effective date merger will be effective as from October 1, 2017, subject to the corresponding registration of the merger and of merger as of November 1, 2016 (date as from which Pampa and Petrobras Argentina operate as a single dissolution without liquidation of the absorbed companies with the Public Registry of Commerce. Moreover, these entity), all subject to the corresponding shareholders’ meeting resolutions and the respective approvals from boards of directors decided to approve, among other items and conditional upon obtaining the corresponding the regulatory authorities. On January 13, 2017, the CNV proceeded to consent the filing and let the course of corporate and regulatory approvals, the following merger exchange ratios: action to carry out the public offering of Pampa’s Shares to be issued as a result of the merger, a necessary step for the Company to continue with the merger process through the publication of the Merger Prospectus. i. Regarding the 50.46% capital stock of Petrolera Pampa that is not directly or indirectly owned by Pampa, as both shares are subject to the public offering system and listed in ByMA, setting an Subsequently, on February 16, 2017, the shareholders’ assemblies of the involved companies approved the exchange ratio of 2.2699 Pampa’s Shares for each Petrolera Pampa’s common share in book-entry merger. It is worth highlighting that the decision was approved by the favorable vote of 99.99% of Pampa’s form with a par value of AR$1 and entitled to one vote per share, a calculation based on the volume- capital stock and votes and 92.98% of the capital stock and votes of Petrobras Argentina. weighted average price of Pampa and Petrolera Pampa’s shares traded over the last six calendar months, determined retroactively as from the closing of operations on September 22, 2017, which After making the corresponding legal disclosures and once the creditors’ opposition period ended without will imply the issuance of 136.7 million Pampa’s Shares; any manifestation against the merger, on April 19, 2017 the Final Merger Agreement was executed pursuant ii. Regarding the 9.58% capital stock of CTG that is not directly or indirectly owned by Pampa, an to the procedures set forth in Section 83 of Argentine General Business Organizations Law. After different exchange ratio of 0.6079 Pampa’s common shares in book-entry form for each CTG’s common share findings were made in the merger and dissolution filings, the Company fully complied with all the findings and in book-entry form with a par value of AR$1 and entitled to one vote per share, which will imply the considerations received from the CNV, the only outstanding matter being CNV’s prior administrative consent, a issuance of 5.6 million Pampa’s Shares; formality that allows the filing to be registered with the Argentine Public Registry.

iii. Regarding the 8.40% capital stock of Inversora Diamante S.A. that is not directly or indirectly owned In this sense, the CNV informed us that Argentine Federal Criminal and Correctional Court No. 11, Clerk’s by Pampa, an exchange ratio of 0.1832 Pampa’s Shares in book-entry form for each Diamante S.A.’s Office No. 22, resolved as follows: ‘(…) In this regard, let the officiant know that the CNV SHOULD NOT take common share in book-entry form with a par value of AR$1 and entitled to one vote per share, which any measure and/or final resolution regarding the merits of the case without the prior authorization from will imply the issuance of 0.7 million Pampa’s Shares; this Court in relation to the proceeding pending before the CNV regarding the corporate reorganization of iv. Regarding the 9.73% capital stock of Inversora Nihuiles S.A. that is not directly or indirectly owned by Pampa Energía S.A.’ It is worth mentioning that the proceeding deals with the voluntary participation of the Pampa, an exchange ratio of 0.2644 Pampa’s Shares in book-entry form for each Inversora Nihuiles shareholder ANSES in the MTO and not with the merger, a procedure that took place after the MTO and was S.A.’s nominative non-endorsable common share with a par value of AR$1 and entitled to one vote completely independent from it, and in which the ANSES did not participate given that, at that time, it was not per share, which will imply the issuance of 1.3 million Pampa’s Shares; and a shareholder of Petrobras Argentina.

v. As regards other companies involved, no exchange ratio is needed since they are 100% directly or Even in the hypothetical scenario that the allegedly questioned act had not occurred and the ANSES had indirectly controlled by Pampa. kept its shares, participated in the shareholders’ meeting of Petrobras Argentina on February 16, 2017 and voted against the merger, the decision would have nevertheless been validly approved with 81.13% of the capital stock Therefore, once all the corresponding regulatory and corporate approvals are obtained, the merger and votes of Petrobras Argentina. transactions are duly registered with the Public Registry of Commerce, and upon the conclusion of the corporate reorganization process initiated in November 2016 with the merger through absorption of former Petrobras For all the above-mentioned facts, Pampa understands that the judicial proceeding investigating the sale Argentina, the capital stock will be composed of 2,082.7 million Pampa’s Shares, representing a 7.4% dilution. of Petrobras Argentina’s shares owned by the ANSES in the MTO has no connection with the merger and had no influence on it whatsoever. The delay in the registration of the merger directly affects approximately 6,250 Status of the Merger with Petrobras Argentina domestic and foreign shareholders of Petrobras Argentina that are awaiting the share swap to take place once the merger is duly registered. Furthermore, the Company will continue taking the necessary measures to obtain On February 28, 2018, Pampa informed the market of the current status of the proceedings before the CNV the registration of the merger. regarding the merger between the Company and Petrobras Argentina, PEISA and Albares, as required by the CNV on February 27, 2018, as a result of a public information request submitted by a shareholder of Petrobras Argentina to the CNV. 40 Corresponding to a ratio of 0.5253 Pampa’s common shares per each Petrobras Argentina’s common share.

84 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 85 ANNUAL REPORT 7.9 7.11 Compensation Agreements with Pampa’s Senior Debt and Capital Transactions by Pampa Management and our Subsidiaries With the purpose of efficiently aligning the Senior Management’s interests with those of Company’s all Pampa Energía shareholders, and creating value for them only inasmuch as value is generated for shareholders, on June 2, 2017 Pampa’s Board of Directors approved the execution and signing of compensation agreements with the Issuance of Series 1 CBs Company’s Senior Management. These agreements mainly provide for an annual, variable and contingent compensation equivalent, in the aggregate, to 3% over the Company’s market capitalization appreciation of On January 17, 2017, the placing of Series 1 CBs, which were dollar-denominated and bore interest at a Pampa’s shares. For fiscal year 2017, the calculation period started on June 1. Furthermore, an annual cashable fixed rate, was successfully concluded for a face value of US$750 million after receiving purchase offers for limit of 50% of the accrued amount and 1.5% of the operating income before interest, taxes and other non-cash US$4,000 million, a figure more than 5 times higher than the par value to be issued. The issuance price was items (Adjusted EBITDA provision) for the period to be compensated was established. 99.136% of the par value, at a 7.5% nominal fixed annual rate, yielding 7.625% and maturing 10 years as from issuance. The banks leading the transaction were Citi and Deutsche Bank, with the subsequent incorporation of Accrued amounts which have not paid by the Company may be only collected by their beneficiaries to the Crédit Agricole and Santander as initial purchasers, and BACS, Banco Hipotecario, Banco Galicia, ICBC and BST extent Pampa’s share market capitalization at the time of realization is higher than the recorded maximum (High as local underwriters. Water Mark provision); additionally, the annual total amount payable should not exceed 1.5% of the Adjusted EBITDA of the year subject to compensation. The payment of the annual compensation will be subject to the Extension of the CBs Program prior approval of the Shareholders’ Meeting to be held for each fiscal year. Furthermore, Pampa will deduct from the variable compensation, if applicable, remunerations that beneficiaries may have collected on account of The shareholders’ meeting held on April 7, 2017 resolved to approve the extension of the CBs program for bonuses and/or other similar items from other subsidiaries of Pampa, proportionally to the Company’s interests up to US$2,000 million and to amend its terms and conditions to allow for the issuance of simple CBs (non- in such companies. convertible into shares) or CBs convertible into common shares or ADSs.

Compensation agreements have been drawn based on a report made by Spencer Stuart, a renowned international The convertible CBs issuance program, the terms and conditions of which were approved by the Company’s firm specializing in this area, and are in line with both domestic and U.S. standards. Furthermore, these agreements board of directors last June 26, 2017, is for a face value of up to US$500 million, with entitlement to dividends were submitted to the prior consideration of the Audit Committee, which rendered a favorable opinion as to their as from the conversion. Furthermore, for its issuance it is necessary that the ADS’s listing price be at least reasonableness, the corresponding report being available for all shareholders in the CNV’s website. US$60 per ADS at the time of approval by the Board of Directors, and the conversion value may not be lower than the ADS’s listing price at the time of issuance plus a 30% conversion premium.

However, given the asset sales transactions in the crude oil E&P and R&D segments41, the resulting fund 7.10 inflow allows the Company to comfortably afford the defined strategic investments. Therefore, the Company considers that the issuance of CBs convertible into shares is not necessary. Employee Stock-Based Compensation Plan Bank Loans On February 10, 2017, aiming to encourage the alignment of the employees’ performance with the Company’s strategic plan, and to generate a clear and direct link between the value creation for shareholders and the employees’ In the month of May 2017, Pampa executed bank loans with different domestic financial entities for a total compensation, the Company resolved to create a stock-based compensation plan and a committee for its amount of US$144 million maturing within a term of one to two years as from the execution date and accruing implementation; this committee would be made up of the Senior Management, who are not the Plan’s beneficiaries. interest at an average 4.4% fixed rate.

The 2017-2019 plan’s beneficiaries are approximately 20 executives, including Pampa’s executive directors, Furthermore, in August 2017 Pampa executed an export pre-financing facility in the amount of US$8 million main directors and managers, which composition may be subject to change in future specific programs under maturing in August 2018. the plan. To fund this Plan, the Company’s board of directors approved the repurchase of own shares under the following terms and conditions: Finally, in October 2017 Pampa entered into bank loans with domestic financial entities for a total amount of AR$2,270 million, finally maturing in August 2018 and October 2019, and accruing interest at a 22% weighted- • Maximum amount: up to AR$104.5 million from Pampa’s Voluntary Reserve; average fixed rate. Additionally, it executed export pre-financing facilities with domestic financial entities for • Maximum number and price: 2.5 million common shares or 100 thousand ADSs (0.136% of Pampa’s a total amount of US$68 million, maturing in August, October and December 2018, and accruing interest at a current capital stock or 0.129% of its capital stock after the merger) and up to a maximum price of AR$42 2.8% average fixed rate. per common share or US$60 per ADS; and • Limits on market transactions: pursuant to the regulations in force, daily repurchased share volume may Generation Segment not exceed 25% of the average volume of daily transactions during the previous 90 business days for the share in all the markets where it is listed, from February 14, 2017 to March 10, 2017. CTLL’s Credit Facility

It should be pointed out that the number of shares to be repurchased in the stated period covers the With the purpose of diversifying financing sources and optimizing their structuring, on July 28, 2017 CTLL payment of the compensation for fiscal years 2016 and 2017. As of the issuance of this Annual Report, 193,000 executed, as borrower, a credit facility with Crédit Agricole Corporate and Investment Bank and Finnish Export common shares and 92,280 ADRs have been repurchased at open market transactions at an average price of AR$28.49 per common share and US$46.36 per ADS. 41 For further information, see section 7.7 of this Annual Report.

86 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 87 ANNUAL REPORT Credit Limited for up to US$55 million. This facility is sponsored by the Republic of Finland’s Export Agency, Furthermore, within the context of the actions aimed at the optimization of financial costs, in the months of known as Finnvera, and the disbursement is subject to the fulfillment of certain conditions precedent. May and August 2017 Petrolera Pampa executed, respectively, loans in the amount of US$50 million maturing within three years and an additional US$20 million maturing in August 2018. Furthermore, in August 2017 The facility will bear a six-month Libor interest rate plus a margin and a guarantee premium. Principal will be Petrolera Pampa early cancelled US$10 million of a loan originally executed in the amount of US$45 million and repaid in 14 semiannual installments, the first one maturing six months as from the commercial commissioning maturing in August 2017, the US$35 million balance being renewed until August 2018. These loans accrue an of the power plant or on November 25, 2017, whichever occurs first. average 3.9% fixed annual interest rate.

Net funds from this facility were allocated to financing the expansion project in Bahía Blanca carried out Redemption Transactions under the Open Call to Companies interested in Offering New Generation Capacity pursuant to SEE Res. No. 21/16 consisting of the installation of Finnish Wärtsilä engines for a 100 MW power capacity, commissioning as On February 24, 2017, Petrolera Pampa fully redeemed the principal balance of Series 7 floating-rate CBs from December 22, 201742. for a face value of AR$310 million and originally maturing on August 3, 2017, as well as Series 14 floating-rate VCPs for a face value of AR$296 million and originally maturing on April 15, 2017. Loan Granted to Finance Corti WFP On May 8, 2017, Petrolera Pampa fully redeemed the principal balance of Series 8 floating-rate CBs for a In October 2017, our power generation affiliate Greenwind S.A. executed, as borrower, a credit facility for face value of AR$403 million and originally maturing on June 22, 2017. Furthermore, on May 18, 2017 Petrolera US$104 million with the Inter-American Investment Corporation (‘IIC’), which is the multilateral financial institution Pampa fully redeemed the principal balance of Series 2 CBs issued under ‘inciso k’ regulation, with interest at of the Inter-American Development Bank (‘IDB’.) The Santander Bank and the Industrial and Commercial Bank the Badlar rate and a face value of AR$525 million, and originally maturing on June 6, 2017. of China Limited Dubai Branch (‘ICBC’) acted as participants. Transener CBs Program This credit facility sets an important milestone for Pampa since it is the first loan granted by a multilateral institution to a project awarded under the RenovAR public tenders. Moreover, the loan offers a tenor of 9 years’ On April 18, 2017, Transener’s extraordinary general meeting of shareholders resolved to create a global door-to-door, a term unprecedented in Argentina for this kind of transactions, and is secured with a corporate program for the issuance of simple or convertible into shares CBs denominated in U.S. dollars or its equivalent guarantee by Pampa. value in any other currency, for a maximum outstanding amount, at any time during its life, of up to US$500 million or its equivalent value in other currencies. The creation of this program was authorized by the CNV Net proceeds from this facility were allocated to the construction, operation and maintenance of the Corti through Res. No. 18,941 dated September 20, 2017. WFP, located in Bahía Blanca, Province of Buenos Aires, consisting of the installation of Vestas 100 MW capacity windmills, which commissioning is scheduled for the second quarter of 2018. The Corti WFP contributes to the Extension of TGS’ CBs Program increase and diversification of Argentina’s energy mix, as well as to the supply of clean energy, reducing CO2 emissions by approximately 213 thousand tons per year during the life of the project. On April 26, 2017, TGS’ ordinary and extraordinary general meeting of shareholders approved the extension of the maximum amount for the program of global short and medium term CBs non-convertible into shares, Redemption Transactions denominated in U.S. dollars or its equivalent value in any other currency from US$400 million to US$700 million. The creation of this program was authorized by the CNV through Res. No. 18,938 dated September 15, 2017. On February 2 and 7, 2017, CTLL fully redeemed the principal and interest balance of Series 3 and Series C CBs for a total amount of AR$51 million and AR$258 million, respectively. Furthermore, on May 11, 2017 CTLL fully redeemed outstanding CBs at Par maturing in 2017, which had been originally issued by EASA, for a face Pampa Group’s CBs Ratings Upgrade value of US$4 million plus interests. By the end of August, 2017, credit rating agency S&P upgraded the ratings of Transener’s CBs. Global rating was upgraded from ‘CCC+’ to ‘B’, whereas local rating was upgraded from ‘raBB+’ with a positive outlook to On August 7, 2017 CTG announced the full redemption of the principal balance of Series 7 CBs, bearing an ‘raA+’ with a stable outlook, mainly on account of the favorable regulatory environment resulting from the interest rate of Badlar plus 3.5% margin, with a face value of AR$173 million and originally maturing on August implementation of the RTI, which allows for enhanced predictability in short and medium term cash flow 10, 2018. Furthermore, on September 11, 2017, CTG redeemed 100% of its outstanding Series VIII US$-link CBs generation. Besides, and for the same reason as in the case of Transener, in mid-September, 2017 S&P upgraded at a 7% fixed rate and maturing in 2020 for an original face value of US$1.4 million plus interest accrued until Edenor’s CBs global rating from ‘CCC+’ to ‘B-’ and local rating from ‘raBB+’ with a positive outlook to ‘raBBB’ the redemption date. with a stable outlook.

Loan granted to Edenor Besides, as a result of the upgrade in the global rating of Argentina’s sovereign debt from ‘B’ to ‘B+’ and in its local rating from ‘raA+’ to ‘raAA’ by the end of October, 2017, S&P also upgraded Pampa and TGS’ ratings. In the On October 11, 2017, Edenor was granted a loan by ICBC in the amount of US$50 million and for a 36-month case of Pampa, the global rating was upgraded from ‘B’ to ‘B+’, whereas, in the case of TGS, the global rating was term, which will be allocated to the financing of its working capital and investment plan. upgraded from ‘B’ to ‘B+’ and the local rating, from ‘raA+’ with a stable outlook to ‘raAA’ with a stable outlook.

PEPASA Finally, in early December 2017, credit rating agency Moody’s upgraded the ratings of CBs issued by Edenor, TGS and Pampa on the above-mentioned grounds. For Edenor, global rating was upgraded from ‘B3’ to ‘B1’, Bank Loans and local rating from ‘Baa2.ar’ with a positive outlook to ‘Aa3.ar’ with a stable outlook. For TGS, global rating was upgraded from ‘B3’ to ‘B1’, and local rating from ‘Baa1.ar’ with a positive outlook to ‘Aa2.ar’ with a stable On March 15, 2017, Petrolera Pampa made an early cancellation of the loan executed with Banco Santander outlook. For Pampa, global rating was upgraded from ‘B3’ to ‘B2’. on June 10, 2016 in the amount of US$105 million and originally maturing on December 31, 2017.

42 For further information, see section 7.1 of this Annual Report.

88 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 89 ANNUAL REPORT 8 Power Electricity Oil and Generation Distribution Gas

Hydroelectric 938 MW Edenor 3.0 million Argentina(3) 16 productive blocks Description 2,804 MW + 9 exploratory blocks Thermal (1) + Expansions 398 MW Venezuela 4 productive blocks Co-Generation 14 MW Oil & LPG 19.2 k bbl/d of New plants(2) production Wind energy 200 MW Gas 8.0 million m3/d of of Our Assets production OIdelVal 1,756 km of oil pipeline Pampa is the largest fully integrated independent power company in Argentina. Through our subsidiaries, as of December 31, 2017 we participate in the electricity and oil and gas value chains (including discontinued Total Capacity Market Share Total Production business in the oil and gas, and R&D segments)43: (View graphic on page. 91) 4,354 MW 20% 66.4 k boe/d(4) As of December 31, 2017, our generation segment has an installed capacity of approximately 3,756 MW, which represents 10.3% of Argentina’s installed capacity. By adding next 598 MW expansions developed by the Company, our total installed capacity would amount to 4,354 MW.

Our distribution segment is composed of Edenor, the largest electricity distributor in Argentina, with 3.0 million customers and a concession area covering the Northern City of Buenos Aires and Northwestern Greater Buenos Aires.

Our oil and gas segment comprises both operated and not operated blocks held by Pampa Energía, our Refining and Petrochemicals Other Business subsidiary PEPASA, a company established in 2009 and merged into Pampa as from October 2017, as well as a 58.88% direct interest in PELSA. As of December, 2017, total average production amounted to 66.4 thousand Marketing boe/day44, with operations in 20 production blocks and 1,950 productive wells. Refining Capacity of: Capacity of: TGS 9,184 km of gas pipelines In downstream, our refining and distribution segment includes RBB, which has an installed capacity of Ricardo Eliçabe 30.2 k bbl/d Styrene 160 k ton/year NGL Capacity of 30.2 thousand oil bbl/day and a network of 250 GS throughout the country, as well as a 28.5% direct interest Campo Durán 25.8 k bbl/d SBR 55 k ton/year 1 million ton/year in Refinor, which has a refinery with an installed capacity of 25.8 thousand oil bbl/day and 81 GS. It also Storage 2.5 million bbl Polystyrene 65 k ton/year Transener 20,718 km of high voltage lines includes the Avellaneda lubricants plant, which has an installed capacity of 2.2 thousand m3 per month. Our Gas stations Petrobras flag 250 petrochemicals segment is made up of three high-complexity plants producing styrene, SBR and polystyrene, Refinor flag 81 with a domestic market share ranging between 90% and 100%. Capacity of: Lubricants 2,200 m3/month Finally, our holding and others segment is made up, among other holding companies, by our indirect interest NGL (Refinor) 390 k ton/year in TGS, the country’s major gas transportation company, owning a 9,184 km-long gas pipeline network and a liquids processing plant, General Cerri, with an output capacity of 1 million tons per year. Besides, the Company Market Share Market Share co-controls Transener, a company that operates and maintains the Argentine high voltage transmission grid 6% 90-100% covering more than 14.5 thousand km of proprietary lines, as well as 6.2 thousand km of Transba-owned high

voltage lines. Transener transports 85% of the electricity in Argentina. Notes: segments correspond to business classifications in the FS. Transener, TGS, Oldelval and Refinor are co-controlled companies, which under IFRS are not consolidated in Pampa’s FS. (1) It includes 383 MW in CTGEBA and 15 MW in CTLL. (2) It includes 100 MW of the Corti WFP and 100 MW of the Pampa Energía and De la Bahía WFPs. (3) Blocks / Joint ventures (UTEs). 43 For further information, see section 7.7 of this Annual Report. (4) Production as of December 2017, including foreign volume and excluding net contributions from Medanito La Pampa, a block serviced by 44 It does not consider the production of Medanito La Pampa, a block which was serviced by PEPASA until October 2017. PEPASA until October 2017.

90 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 91 ANNUAL REPORT Corporate Structure as of December 31, 2017

(1) Notes: (1) In process of merger by absorption being Pampa Energía PAMPA ENERGÍA the continuing entity. 100% (2) Each company solely hold one asset consisting in an agreement for the management of Termoeléctrica José de San Martín and Pampa Termoeléctrica Manuel Belgrano, respectively. Currently, both Inversiones assets are owned by a Trust. 99.94% 0.06% (3) In process of divestment. (4) Petrobras Hispano is the sole beneficiary (¨beneficiario¨) and Pampa trustee (¨fideicomisario¨) of the CIESA Trust. Participac. II(1) (5) In process of merger by absorption with World Energy 99.99% 0.01% Business, being Pampa Comercializadora the continuing entity. (6) Mixed companies. Pampa Participac.

90.27% 91.60% 98% 2% 98% 2% 98.15% 0.16% 98.12% 1.88% 100% Inversora Inversora Inversora Pampa C. T. Loma TRANSELEC Petrobras Nihuiles(1) Diamante(1) Piedra Buena(1) Cogeneración de la Lata(1) Hispano

1.69% 98% 2% 50% 100% CPB CITELEC Fideicomiso Energía CIESA(4)

40% 10% CIESA

52.04% 59% 2% 99.99% 0.01% 26.17% 64.26% 2% 98% 2% 98% 50% 51.54% 52.65% 49.54% 0.002% 58.8816% 51% 23.1% 28.5% Hidroeléctrica Hidroeléctrica C. T. C. T. P. E. P. E. del Fin Greenwind Edenor Transener Petrolera Pelsa(3) TGS Oleoductos Refinor Los Nihuiles Diamante Piedra Buena Güemes(1) Argentinos del Mundo Pampa(1) del Valle

90% TRANSBA

2.44% 0.15% 0.02% 99.98% 51% 49% 49% 100% 4.6% 0.01% Termoeléctrica Termoeléctrica Telcosur Transporte y Gas Link CTG 9% José de San Manuel Servicios de Energía Martín(2) Belgrano(2) Gas en UY

100% 100% 99.99% 0.01% 70% 36% 49% 100% Petrobras Pampa Bodega Enecor Petrowayú Inversora Corod Argentina Energía Loma (6) Mata Producción Suc. Bolivia Bolivia La Lata(1)

100% 100% 11.42% 99% 1% 100% 2.02% 97.95% 100% 100% 22% 10.8% 29.2% 20% 29% 20% Petrobras Petrobras Petrolera Oleoductos Petrobras Pampa 0.03% Petrobras Electricidade Petroritupano Petrokariña Coroil Petrolera Energía San Carlos de Crudos Energía Oper. Energía Comercializa- Participac. SL Com (6) (6) Coroil Colombia LTD Pesados LTD Ecuador Ecuador LTD dora(5)

65% 100% 100% 0.005% 99.995% 100% 20% 10.8%

Cía. Anónima Oleoductos Petrobras Ecuador EG3 Red(1) Petrolera Petroven 29.2% Mixta de Crudos Energía TLC Mata Bras(6) San Carlos Pesados Ecuador Suc.

92 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 93 ANNUAL REPORT 8.1 HINISA In June 1994, HINISA was granted a 30-year concession for the generation, sale, and marketing of electricity Power Generation from the Nihuiles hydroelectric system. Located on the Atuel river, in the Province of Mendoza, HIDISA has an installed capacity of 265 MW, which represents 0.7% of Argentina’s installed capacity, and consists of three Pampa’s power generation assets include CTG, CTP, CTPP, CTLL, CTIW, CPB, CTGEBA, HPPL, EcoEnergía and dams and three hydroelectric power generation plants (Nihuil I, Nihuil II and Nihuil III), as well as a compensator interests in HINISA and HIDISA. The following table summarizes Pampa’s power generation assets: dam. The Los Nihuiles System extends for a total distance of approximately 40 km with a height differential between 440 m and 480 m. From 1990 to 2017, its annual average generation was 838 GWh, with a record Summary Hydroelectric Thermal Total high of 1,250 GWh in 2006 and a record low of 516 GWh in 2014. of Electricity Generation HINISA HIDISA HPPL CTLL CTG CTP CPB CTPP CTIW CT Eco- HIDISA Assets (1) (2) (3) (4) (5) GEBA Energía (1) (1) In October 1994, HIDISA was granted a 30-year concession for the generation, sale and marketing of electricity from the Diamante hydroelectric system. Located on the Diamante river, in the Province of Mendoza, Installed Capacity (MW) 265 388 285 750 361 30 620 100 100 843 14 3,756 HIDISA has an installed capacity of 388 MW, which represents 1.1% of Argentina’s installed capacity, and consists Legacy Capacity (MW) 265 388 285 401 261 - 620 - - 674 - 2,893 New Capacity (MW) - - - 349 100 30 - 100 100 169 14 862 of three dams and three hydroelectric power generation plants (Agua del Toro, Los Reyunos, and El Tigre). The Market Share 0.7% 1.1% 0.8% 2.1% 1.0% 0.1% 1.7% 0.3% 0.3% 2.3% 0.04% 10.3% Diamante System extends for a total distance of approximately 55 km, with a height differential between 873 m and 1,338 m. From 1990 to 2017, its annual average generation was 566 GWh, with a generation record high Net Generation 2017 (GWh) 751 480 760 3,864 1,772 156 1,453 142 23 4,685 100 14,186 of 943 GWh in 2006 and a record low of 322 GWh in 2014. Market Share 0.6% 0.4% 0.6% 2.8% 1.3% 0.1% 1.1% 0.1% 0.0% 3.4% 0.1% 10.4% Sales 2017 (GWh) 751 480 760 3,864 2,337 156 1,453 142 23 5,412 103 15,481 HPPL Net Generation 2016 (GWh) 706 564 176 3,644 1,577 155 2,054 - - 2,211 43 11,131 The HPPL plant started operating in the year 1999 under a 30-year concession. HPPL is located on the Limay Variation 2017 vs. 2016 +6% -15% +332% +6% +12% +1% -29% na na +112% +132% +27% river, in the Province of Neuquén. It has an installed capacity of 285 MW distributed in 3 Kaplan turbines, which Sales 2016 (GWh) 706 564 176 3,644 2,076 155 2,056 - - 2,499 44 11,921 represents 0.8% of Argentina’s installed capacity. The dam is made up of loose materials with a waterproof concrete side. It has a total length of 1,045 m, a total height of 54 m at the deepest point of the foundation, Average Price 2017 (US$ / MWh) 24 33 22 38 36 52 32 98 42 39 69 36 and a crest at 480.2 m above sea level. From 2000 to 2017, HPPL’s average annual generation was 973 GWh, Average Price 2016 (US$ / MWh) 17 17 24 27 30 52 14 na na 34 60 26 with a generation record high of 1,430 GWh in 2006, and a record low of 494 GWh in 2016. Average Gross Margin 2017 11 16 12 34 15 na 12 82 33 15 21 20 (US$ / MWh) Average Gross Margin 2017 8 4 14 23 14 na 1 na na 11 18 13 CTG (US$ / MWh) CTG is located in Northwestern Argentina, in the City of General Güemes, Province of Salta. Privatized in Notes: Gross Margin before depreciation and amortization. AR$/US$ exchange rate: 2017 – 16.57; 2016 – 14.78. 1992, it has a 261 MW open cycle thermal power generation plant with the addition, in September 2008, of a GE (1) Volumes as from the closing of the acquisition of former Petrobras Argentina in August 2016. (2) CTLL’s installed capacity includes 210 MW from GT04 and GT05. natural gas-powered turbo generator unit of 100 MW, totaling 361 MW, which accounts for 1.0% of Argentina’s (3) CTG’s average gross margin considers CTP’s results. installed capacity. From 1993 to 2017, its average annual generation was 1,794 GWh, with a generation record (4) CTPP was commissioned on August 29, 2017. high of 1,903 GWh in 1996, and a record low of 1,030 GWh in 2003. (5) CTIW was commissioned on December 22, 2017.

The following chart shows Pampa’s market share in the power generation segment: CTP CTP is located in Northwestern Argentina, in the small village of Piquirenda, Municipality of Aguaray, Department of General San Martín, Province of Salta. Its construction started in early 2008 and finished in 2017 Net Power Generation 2010. It has a 30 MW thermal power generation plant consisting of ten GE Jenbacher JGS 620 gas-powered 100% = 136,436 GWh Pampa Energía motor-generators, which represent 0.1% of Argentina’s installed capacity. From 2011 to 2017, the average 10% annual generation was 129 GWh, with a record high of 156 GWh registered in 2017 and a record low of 66 GWh FONINVEMEM registered in 2011. Nuclear 8% AES 4% CTLL 10% YPF ENARSA 5% CTLL is located in Loma de la Lata, Province of Neuquén. The plant was built in 1994 and consists of three ENEL 2% GTs with an installed capacity of 375 MW, a 165 MW Siemens ST installed in 2011 for its conversion to CC, a 2017 CEPU 105 MW GE aero derivative GT, and the incorporation in August 2017 of a 105 MW GE GT, its total capacity thus 11% amounting to 750 MW, which represents 2.1% of Argentina’s installed capacity. CTLL has a privileged location 12% due to its proximity to one of the largest gas fields in Latin America, also named Loma de la Lata. From 1997 to Others 2017, the average annual generation was 1,714 GWh, with a record high of 3,864 GWh registered in 2017 and a record low of 272 GWh registered in 2002. 20% Bi-National Hydros 18% Source: CAMMESA. Hydroelectric power generation net of pumping.

94 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 95 ANNUAL REPORT CPB Current Expansions CPB is located in the port of Ingeniero White, close to the City of Bahía Blanca, Province of Buenos Aires. The plant consists of 2 STs of 310 MW each, totaling 620 MW, which represents 1.7% of Argentina’s installed capacity. The boilers can be indistinctly fed with natural gas or FO. Awarded Price

The supply of natural gas is made through a proprietary 22-km gas pipeline, which is also operated and Project MW Equipment Sale Power Variable Total Investment Date of maintained by CPB, connecting with TGS’ main gas pipeline system. Furthermore, CPB has two tanks for the Supplier capacity US$/ US$/ US$/ in US$ Commis- storage of FO with a combined capacity of 60,000 m3. From 1997 to 2017, its average annual generation was MW-month MWh MWh million(1) sioning 2,155 GWh, with a generation record high of 3,434 GWh in 2011, and a record low of 189 GWh in 2002. THERMAL CTIW Loma de 15 MAN SEE Res No. 19/17 n.a. n.a. n.a. 18 Q2 2018 la Lata CTIW is located at Ingeniero White, district of Bahía Blanca, in a lot adjacent to CPB. This power plant has a 100 MW installed power capacity, consisting of 6 cutting-edge dual-fuel engines, which can be fed with natural CTGEBA 383 Siemens 15-Year contract 20,500 6 34 355 GT: Q2 2019 gas or FO, supplied by Wärtsilä. in US$ CC: Q2 2020

The power plant is interconnected to the 132 kW grid through a substation owned by Transba. Liquid fuel RENEWABLE supply is made using CPB’s discharge and storage facilities, and natural gas is also supplied from this power Pampa Eólico 100 Vestas 20-Year contract n.a. n.a. 58(3) 135 Q2 2018 plant’s internal facilities. I (Corti(2)) in US$

Engines are high-efficiency, with a 46% performance rate. The power plant was commissioned on Pampa Eólico 100 n.a. MAT ER n.a. n.a. n.a. 140 n.a. December 22, 2017. II / De La Bahía

CTGEBA Total 598 648 CTGEBA is located in Marcos Paz, in the Province of Buenos Aires. The plant began operating in 1999 and has a CC with a 674 MW installed capacity, which consists of two GTs of 219 MW each and a 236 MW ST. On the Notes: (1) Amounts do not include VAT. (2) Pampa holds a 50% interest in this project. same lot, a GT with a 169 MW power capacity, known as Genelba Plus, was commissioned for service in 2009 (3) Awarded price without considering the incentive and adjustment factor. and is currently under expansio45. The total installed capacity of the CTGEBA complex amounts to 843 MW, which represents 2.3% of Argentina’s installed capacity. From 2000 to 2017, CTGEBA’s average annual generation was 4,714 GWh, with a generation record high of 5,449 GWh in 2012, and a record low of 3,438 GWh in 2001. ENECOR CTGEBA has a strategic location, since it is one kilometer from the Ezeiza transforming substation, a WEM Pampa posee el 70% de Enecor, compañía que actúa bajo la modalidad de transportista independiente y reference node for the supply of electricity to the country’s highest demand. CTGEBA’s CC participates in the spot desarrolla las actividades de operación y mantenimiento, a través de la subcontratación de Transener, respecto market, whereas the Genelba Plus GT participates in the Energía Plus market. de las instalaciones en 132 kV de 21 km de línea en doble terna, desde la estación transformadora Paso de la Patria, en la provincia de Corrientes. Posee una concesión por 95 años, que expira en 2088. EcoEnergía EcoEnergía is a co-generation power plant located in TGS’ General Cerri Complex in Bahía Blanca, Province of Buenos Aires. The plant, consisting of a ST with a power capacity of 14 MW, was commissioned in 2011. The 8.2 plant sells electricity in the Energía Plus market. From 2011 to 2017, EcoEnergía’s average annual generation amounted to 84 GWh, with a generation record high of 102 GWh in 2016, and a record low of 20 GWh in 2011. Electricity Distribution CTPP Edenor CTPP is located in the Pilar Industrial Complex, in the district of Pilar, Province of Buenos Aires. Construction Edenor is the largest electricity distribution company in Argentina in terms of number of customers and began in October 2016, and the plant was commissioned on August 29, 2017. The plant, which was built under electricity sold (in GWh as well as in monetary terms). It holds a concession to distribute electricity on an SEE Res. No. 21/2016, has a total power capacity of 100 MW and is made up of 6 cutting-edge Wärtsilä engines exclusivity basis in Northwestern Greater Buenos Aires and the Northern City of Buenos Aires, which covers an with an approximate 43% performance rate. area of 4,637 square kilometers and a population of approximately 8.5 million inhabitants.

Natural gas is supplied through a dedicated gas pipeline which is connected with TGN’s main gas pipeline, whereas the energy is evacuated through a 132 kW line connected to the Pilar substation owned by Edenor. The power plant has storage tanks for FO, which may be used as alternative fuel.

45 For further information, see section 5.1 of this Annual Report.

96 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 97 ANNUAL REPORT The following table summarizes Edenor’s electricity sales and customers:

Edenor’s 2017 2016 Variation Sales by Type of Customer In GWh Part. % Clients In GWh Part. % Clients % GWh % Clients

The following table summarizes Edenor’s main technical and financial indicators: Residential 9,143 43% 2,579,705 9,708 44% 2,496,946 -6% +3% Commercial 3,514 16% 362,607 3,639 16% 361,485 -3% +0% Industrial 3,687 17% 6,866 3,677 17% 6,840 +0% +0% Technical Information 2016 2017 Wheeling System 3,968 18% 704 4,014 18% 713 -1% -1%

Others Transmission and distribution lines (Km) 38,438 39,012 Public Lighting 709 3% 21 704 3% 21 +1% - Number of clients (million) 2.9 3.0 Shantytowns and 483 2% 426 511 2% 407 -6% +5% Electricity sales (GWh) 22,253 21,503 Others Total 21,503 100% 2,950,329 22,253 100% 2,866,412 -3% +3% Financial Information* 2016 2017

The following chart shows Edenor’s market share in 2017: Revenue from services 13,080 24,340 Fiscal year’s results, attributable to company’s shareholders (1,184) 691 Assets 18,934 25,305 Liabilities 18,572 24,244 2017 Total Electricity Distribution Shareholders’ Equity 362 1,061 100% = 107,507 GWh * Individual annual FS under IFRS figures, in million AR$.

Energy Demand Unlike historical trends, demand consumption rates showed an annual decrease resulting from a reduction in the WEM demand which may be accounted for by a combination of three effects: recession, price elasticity, and temperature.

The volume of electricity distributed in 2017 across Edenor’s area, including the sale of energy and the wheeling system, totaled 21,503 GWh. Energy purchased to meet such demand totaled 25,950 GWh, which Others 2017 Edenor represents a 3.3% year-on-year decrease. Edenor purchased all the energy in the market at an average annual 80% 20% monomic price of AR$569.6/MWh, a price 92% higher than the AR$297.1/MWh in the year 2016 since, as from February 1, 2017, pursuant to Res. No. 20/17, the MEyM had established an adjustment in the price payable by the seasonal demand, which the Distribution Companies pay to CAMMESA. New prices had been established for each demand category effective until November 30, 2017. As from December 1, 2017, prices were updated pursuant to Res. No. 1091/17, and a new stabilized price for energy and reference power capacity was defined. Furthermore, with the new transportation stabilized price, its cost has a greater impact on the purchase price.

Source: CAMMESA and ADEERA.

98 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 99 ANNUAL REPORT Additionally, there was an increase in operations in the neighborhoods most prone to frauds, while campaigns continued in gated communities, shopping malls and new buildings.

Evolution of Peak Power Capacity During 2017, 81,911 tariff 1 meter inspections were made, with a 42.4% effectiveness, which represents a 2000 – 2017, in MW 26% increase compared to those made in 2016. Regarding the recovery of energy, besides the customers put back to normal with MIDE meters, a number of 2,181 clandestine customers and 396 inactive customers with conventional meters were put back to normal. The following chart illustrates the evolution of the annual rates EDENOR ARGENTINE GRID for energy losses since the beginning of Edenor’s concession:

25,628 6,000 25,000 Energy Losses: Annual Rolling Rate (%) 4,985 1992 - 2017 5,000 20,000 4,000 15,000 % 3,000 30 10,000 2,000 25 5,000 1,000 20 17.06 0 0 15 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Argentine Grid Edenor 10 Source: Edenor. 5

Commercial Area 0 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 The sale of electricity evidenced a year-on-year 3.4% decrease in 2017. Residential demand, which plays a key role in the total volume of the demand behavior (43%), experienced a 5.8% decrease compared to 2016. The Source: Edenor. stores segment demand, which represents 16% of the total demand, decreased by 3.4%, whereas the large-scale, T3 and wheeling system demands, which represent a 36% share, recorded a 0.5% decrease compared to 2016. Service Quality Management Energy Losses In the month of March 2017, the first semester of the RTI 2017 – 2021 five-year period started, which is covered by new sub-annex IV of the Concession Agreement, as established by the RTI. Besides establishing district- and The rolling annual rate for total (technical46 and non-technical47) energy losses reached 17.1% in 2017, commune-based service quality controls, a quality improvement path with increasing requirements is implemented, keeping the same levels recorded during the previous year. It is worth highlighting that actions adopted in 2017 both regarding frequency limits and admissible times, and the cost of non-delivered energy. Additionally, an succeeded in halting the increase in losses which had been occurring in the last few years. automatic penalty scheme was established so that bonuses on account of deviations from the established limits be credited to customers within a term of 60 days as from the end of the controlled semester. The values of final During the winter season, in poor homes with no natural gas network access, several kinds of high energy penalties require the ENRE to render judgment regarding the information submitted for each semester. consuming homemade devices continued to be used for room and water heating purposes. Massive and simultaneous use of such devices during the winter season has created a substantial demand for energy. The RTI initiated a tariff recovery process. As a result of the investment, maintenance, and grid operation Electricity theft in poor neighborhoods was the most influential factor in non-technical losses. actions, annual service quality indicators have begun to show an improvement. The average frequency and the total interruption times during the last five years are detailed below: In 2017, the company decided to substantially increase the installation of MIDE (Energy Integrated Meter) self-managed meters under a plan consisting of the installation of 250,000 meters in 3 years with the purpose of putting back to normal clandestine, inactive and chronically delinquent customers. During this fiscal year, 48,560 MIDEs were installed, and the rest of the meters under the plan will be installed during 2018 and 2019.

46 These are a necessary consequence of electric energy transmission and distribution. 47 These are due to errors in customers’ consumption metering, whether on account of theft, defective installation or metering flaws.

100 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 101 ANNUAL REPORT increase which was mainly due to the ICBC loan and the effect of the exchange rate devaluation, as Edenor’s financial debt is denominated in US$. The ICBC loan has a term of 2.5 years. Furthermore, current CBs have a Checked by Client* 2013 2014 2015 2016 2017 4.8-year term and accrue interest at a 9.75% rate. As of fiscal year 2017’s closing date, CB’s outstanding capital, net of repurchased held in portfolio, amounted to US$176 million.

SAIFI (frequency) 8.29 9.13 8.89 8.97 8.80 As regards the ratings for CBs programs for US$300 million and final maturity in 2022, on December 13, 2017 SAIDI (hours) 29.66 31.46 27.22 26.93 25.18 S&P confirmed local ‘raBBB’ rating with a ‘stable’ outlook. In turn, on December 4, 2017, Moody’s Latin America maintained its ‘B1’ global and ‘Aa3.ar’ local ratings, with a stable outlook.

* Rolling annual rate as of November each year. 8.3 Investments Oil and Gas Investments made in 2017 amounted to AR$4,137 million, as Edenor’s board of directors expressly decided to prioritize their execution to preserve the safety of the utility service under concession. Pampa is one of the leading hydrocarbon E&P companies in Argentina: it currently has a presence in the country’s major oil basins, from which it obtains oil, natural gas and LPG, and holds controlling equity interests 49 In order to meet the demand, most of the investments were used to build new infrastructure, to reinforce in PEPASA and PELSA. In addition, the Company holds a 23.1% interest in Oldelval, a company engaged in the existing facilities, and to connect the new supplies. Edenor continued making investments to optimize the transportation of crude oil, and has investments in other Latin American countries, including equity interests in service and technical product quality, as well as to preserve the environment and safety on the streets. assets in Venezuela, and in Ecuador through OCP. In 2017, investments in the Oil and Gas segment amounted to AR$4,195 million, against AR$4,045 million in 201650. The following table summarizes the E&P’s main technical In comparative terms, there was a significant increase in investments in the last few years, which experienced and financial indicators: a AR$1,434 million year-on-year increase in 2017. The following chart illustrates its annual distribution: Technical Information* 2016 2017

Edenor’s Annual Investments Number of productive wells in Argentina 1,924 1,950 1992 – 2017 Average gas production in Argentina (thousand m3/day) 7,719 8,028 Average oil production in Argentina (bbl/day) 19,690 17,907 Average LPG production in Argentina (ton/day) 49 50 AR$ MILLION

4,500 Financial Information** 2016 2017 4,137 4,000

3,500 Revenues 5,579 10,641 3,000 Fiscal year’s results, attributable to company’s shareholders 627 3,241 Assets 19,414 22,116 2,500 Liabilities 11,662 10,446 2,000 Shareholders’ Equity 7,752 11,670 1,500

1,000 * As of December. Excluding net contributions from Medanito La Pampa and foreign production. ** Consolidated annual FS for continued operations, figures in million AR$. Fiscal year 2016 considered as from the closing of the acquisition of 500 Petrobras Argentina in August 2016. 0 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17

Source: Edenor.

Financial Debt As of December 31, 2017, Edenor’s total financial liabilities amounted to AR$4,263 million, including accrued interest for AR$62 million and the loan granted by ICBC in the amount of US$50 million48, a 51% year-on-year

49 Merged into Pampa as from October 2017. 48 For further information, see section 7.11 of this Annual Report. 50 It only considers continued operations.

102 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 103 ANNUAL REPORT Production Pampa’s total proven reserves as of December 31, 2017, both developed and undeveloped, are detailed below: In December 2017, the E&P segment’s consolidated production levels in Argentina and abroad reached 66.4 thousand boe per day51, 71% corresponding to gas production and 29% to oil and LPG. The monthly evolution Reserves Proved Proved Total Proved of the E&P segment’s production is detailed below: Developed Undeveloped Reserves

Oil(1) Natural Oil(1) Natural Oil(1) Natural E&P Segment’s Production* Gas(2) Gas(2) Gas(2) In thousand boe per day Argentina 32,935 446,590 8,695 306,089 41,630 752,679 Venezuela ------69.4 68.5 69.1 68.2 67.4 67.1 68.2 67.7 68.2 67.9 66.8 66.4 Total as of December 31, 2017 32,935 446,590 8,695 306,089 41,630 752,679

Source: Pampa. Notes: (1) In thousand bbl. (2) In million cubic feet. 22.2 21.5 22.1 19.9 21.5 21.2 20.8 20.6 21.1 20.6 19.6 19.2

Estimated reserves in Argentina are shown before deduction of royalty payments, since royalties have characteristics similar to taxes on production and, therefore, are treated as operating costs.

Pampa52 45.9 45.8 47.2 47.2 47.1 47.0 46.9 47.6 48.0 47.3 47.2 47.3 This section’s analysis corresponds to the group of non-consolidated Pampa companies and Petrolera Pampa for the year 2017 and its comparative period, 2016, due to the merger of both companies as from October 201753.

Oil and gas production totaled 56.2 thousand boe per day, accounting for a 13% decline compared to 2016, which is mainly attributable to divestments as from October 2016 in the Río Neuquén and Aguada de la Arena blocks, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec both located in the Neuquina Basin, and in Colpa Caranda in Bolivia; the heavy storms in the Province of Chubut in 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 late March 2017, which affected the production in El Tordillo block until August 2017, and, to a lesser extent, to the natural decline of production from mature fields in Argentina. These effects were partially offset by the increase in Gas Oil (ind. LPG) production in El Mangrullo and Río Neuquén blocks.

Source: Pampa. Argentina Pampa’s production in Argentina averaged 54.9 thousand boe per day. This figure was 11% lower compared Reserves to 2016, mainly due to the above-mentioned reasons. Pampa estimates its reserves at least once a year. Proven reserves are estimated by the Company’s reservoir engineers. Reserve engineering is a subjective process consisting of estimating underground accumulations of With a strong presence in the Neuquina Basin, during 2017 Pampa’s investment plan involved the drilling hydrocarbons that cannot be precisely measured; this process depends on the quality of the available information of 72 production and injection wells: 37 gas wells and 35 oil wells. Specifically, in the Neuquina Basin, Pampa and on engineering and geological interpretation and judgment. Accordingly, reserves estimates, as well as future focused oil drilling activities on the Gobernador Ayala, Medanito and Jagüel de los Machos blocks, and natural production profiles, are often different from the quantities of hydrocarbons that are ultimately recovered. Validity gas drilling activities on the Rincón del Mangrullo, El Mangrullo, Río Neuquén and Sierra Chata blocks. of estimates largely depends on the underlying assumptions. Such reserves estimates were prepared according to the rules for the Modernization of Oil and Gas Reporting Presentation issued by the SEC in late 2008. Throughout 2017, El Mangrullo block kept production levels above 2 million m3 of gas per day, with monthly increases and reaching its peak in December with 2.7 million m3 per day, mainly due to the drilling of wells targeting Gaffney Cline & Associates, international technical consultants, carried out an independent assessment of our the Agrio and Mulichinco formations (tight gas reservoirs). In total, 7 wells were drilled and 6 were completed, reserves, auditing 100% of Pampa’s estimated reserves in both operated and not operated blocks (including 77% including 2 pending from 2016. The gas produced was sold under the Gas Plus program. Furthermore, as regards of the blocks operated by PELSA). These consultants concluded that oil and natural gas reserve volumes subject the production facilities, expansion works are underway for the treatment plant’s compression capacity. to independent technical assessment are reasonable. Regarding the Rincón del Mangrullo block, average gas production in 2017 amounted to 2.4 million m3 per day. The drilling plan for 2017 ended with 19 drilled wells, 15 of which are already in production and 4 of which are estimated to be completed by early 2018.

52 Not consolidated. Including PEPASA and foreign assets of this segment. 51 It does not consider the production of Medanito La Pampa for PEPASA, which provided services in the block until October 2017. 53 For further information, see section 7.8 of this Annual Report.

104 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 105 ANNUAL REPORT In the case of the Sierra Chata block, gas production reached 621 thousand m3/day in 2017. During 2017, 3 wells Finally, it is worth pointing out that in the Río Atuel block, Tecpetrol informed the assignment of its 33.34% were drilled and completed, including Sch-130, the first development horizontal well drilled by Pampa. Furthermore, interest and the transfer of operation in this block to Petrolera El Trébol in the months of September and as regards facilities, the main gas pipelines network was expanded, anticipating future westward developments. October 2017, respectively, and the registration proceedings before the applicable enforcement authority are currently underway, Petrolera El Trébol becoming the operator with a 66.67% interest, whereas Pampa’s 33.33% Likewise, in the Río Neuquén block, activity levels remained stable, with the drilling of 6 wells, which interest remains unchanged. It is expected that during the first semester of 2018, the drilling of the committed resulted in an 11% increase in the average gas production in December 2017 compared to the same month in exploratory well with the Province of Mendoza will be conducted. Furthermore, negotiations for the extension 2016, which was mainly accounted for by the positive results of the 2017 drilling campaign. Targeted reservoirs of the exploratory period in the Chirete block, in the Province of Salta, are currently underway. If accepted, the are tight gas, which are sold under the Gas Plus program. Furthermore, as regards facilities, the compression drilling of the committed exploratory well is projected to be performed in the second semester of 2018. capacity was expanded by 0.6 million m3/day with the installation of 2 additional motor compressors. New Exploratory License in Las Tacanas Norte Block in the Province of Neuquén Lastly, in oil areas, 13 wells were drilled in the Medanito and Jagüel de los Machos blocks, thus offsetting the field natural decline and reaching an average production level of 7 thousand boe/day in 2017. Furthermore, in On November 1, 2017, GyP’s board of directors awarded the offer submitted by Pampa for Las Tacanas 2 the Gobernador Ayala block, 16 production wells and 4 injection wells were drilled. Oil production in this block Norte block with an exploratory license term of 4 years until 2021. This block has a 120 km area and borders 55 was similar to the 2016 levels, with an annual average of 0.7 thousand boe/day. It is worth highlighting that in El El Mangrullo block currently operated by the Company . Tordillo block, due to the negative impact of heavy rain and snow storms on production in 2017, an agreement was entered into with the Province of Chubut to put off 2017 drilling investments for the 2018 - 2020 period. PELSA

Extension of the Concession of the Rincón del Mangrullo Block in the Province of Neuquén Oil On August 1, 2017, YPF, in its capacity as operator and concessionaire of the Rincón del Mangrullo block, In 2017, a development well was drilled in the Entre Lomas block, as committed pursuant to the extension and PEPASA that holds a 50% interest, agreed with the authorities of the Province of Neuquén the terms of the concession agreement entered into with the Province of Río Negro in December 2014. and conditions for the awarding of an unconventional exploitation concession in the block. Pursuant to this agreement, the Province of Neuquén extended the exploitation concession for an additional term of 35 years54. Additionally, efforts were targeted at the development of reserves through the repair of seven oil production wells of the Tordillo formation in the Charco Bayo-Piedras Blancas fields, the conversion of an injection well in Unconventional Gas Plan Implementation the Quintuco formation in the Piedras Blancas field, the conversion to salt-water injection of two wells in the Borde Montuoso field, and the conditioning of a well in the Bajada del Palo block. YPF, Pampa’s partner and operator of the Rincón del Mangrullo and Río Neuquén blocks, submitted to the Sub secretariat of Energy, Mining and Hydrocarbons of the Province of Neuquén the Investment Plan for the These activities have allowed for maintaining proven reserves which, as of December 31, 2017, amount to Development of Natural Gas Production from Unconventional Reservoirs created pursuant to MEyM Res. No. 3,148 thousand m3 (including LPG and gasoline) in the Entre Lomas, Bajada del Palo and Agua Amarga blocks. 46/17, as amended by MEyM Res. No. 419/17. Once all plans have been approved by the provincial authorities, they will have to be ratified by the MEyM. Gas

Venezuela – Equity Interest in Mixed Companies During this fiscal year PELSA reoriented its investments to increase gas production and, in this line, three gas wells were drilled: one in the Piedras Blancas field, in the Entre Lomas block, as part of the investment In Venezuela, oil and gas production attributable to the Company’s interest in Mixed Companies averaged commitment under the concession agreement executed with the Province of Río Negro and targeting the Punta 1.3 thousand boe per day, accounting for a 43% decrease compared to 2016 in fields operated by Petroritupano Rosada formation (Cuyo group), and two wells in the Borde Montuoso field, in the Bajada del Palo block, targeting S.A., Petrowayú S.A., Petroven-Bras S.A., and Petrokariña S.A. the Lotena formation. The BMo-2070 well had to be abandoned due to operational problems during the drilling stage; however, there is a reserves potential for the drilling of another well having similar characteristics. Exploration Activities Additionally, three wells of the Entre Lomas block targeting the Punta Rosada formation and five production Pampa considers that exploration is the main vehicle for reserves replacement. In 2017, exploratory wells in the Bajada del Palo block targeting the Lotena and Sierras Blancas formations were repaired. investments in operated assets were allocated mainly to the drilling of the Parva Negra X-1001 well. This well is especially important since it is Pampa’s first horizontal well targeting the Vaca Muerta formation. The horizontal As at the closing of this fiscal year, gas proven reserves in the Entre Lomas, Bajada del Palo and Agua branch of the well is 2,500-meter-long and was completed with 36 fracking stages. An extended essay is being Amarga blocks reached 2,657 million m3, of which 1,195 million m3 are free gas reserves. conducted, which is currently in the cleaning stage, with a gas flow rate of 220 thousand m3/day with an 8 millimeters orifice as of December 31, 2017. Exploration Activities Furthermore, as part of its exploratory commitments in the Province of Río Negro, during 2017 a well was Seeking to move forward with the exploratory research of deep targets in search of gas, PELSA began conducting drilled in the 25 de Mayo – Medanito blocks with satisfactory results. seismic reprocessing works in the Entre Lomas block and the reinterpretation of the geological modelling.

As regards not operated blocks, El Complejo x-1 exploratory well was drilled in the Gobernador Ayala block. This Additionally, as regards the exploration of unconventional resources, PELSA continued evaluating the well makes part of the oil reserves replacement program for the block. The final depth reached was 930 meters. production potential of the Vaca Muerta formation, in its oil window, through modifications and adjustments of Furthermore, this well was found of interest in the Centenario Miembro Inferior, Mulichinco and Loma Montosa the MdM-2 (Médano de la Mora) well extraction system and a thorough follow-up of its productivity. formations, and, therefore, it was cased. The well is expected to be completed during the first quarter of 2018.

54 For further information, see section 7.4: ‘Investment Agreement with YPF for the Rincón del Mangrullo Block’ of this Annual Report. 55 For further information, see section 7.4: ‘Award of Unconventional Hydrocarbon Exploration License” of this Annual Report.

106 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 107 ANNUAL REPORT Hydrocarbon Transportation Refining OldelVal RBB As of December 31, 2017, Pampa holds a 23.1% direct interest in OldelVal. Oldelval operates main oil pipelines As of December 31, 2017, RBB had an installed capacity to process 30,200 crude oil bbl per day. The refinery providing access to Allen, in the Comahue area, and the Allen - Puerto Rosales oil pipeline, which allow for the is located in Bahía Blanca, Province of Buenos Aires, a strategic point to receive crude oil from the Neuquina evacuation of the oil produced in the Neuquina Basin to Puerto Rosales (a port in the City of Bahía Blanca) and Basin and a superb location for the supply by sea of the oil coming from the Golfo San Jorge or Santa Cruz Sur the supply of the Plaza Huincul distillery located in the pipeline’s area of influence. basins or, possibly, to import crude oil from international markets.

In 2017, oil transportation from Allen to Puerto Rosales averaged 19,910 m3 per day, while oil transportation RBB produces a wide range of products: high-grade gasoline, premium gasoline, GO grade 2, FO, IFO (bunker to the refineries located in the Province of Neuquén totaled an average 2,612 m3 per day. Total transportation fuels), asphalts and NGL (propane, butane). Currents are also generated, which are used as petrochemicals raw volume was 22,522 m3 per day, equivalent to 51.7 million bbl transported in 2017, representing a 1.5% decrease material for the production of solvents and aromatics. compared to 2016. In 2017, RBB processed 25,217 bbl of oil per day, a figure 1% lower than in 2016, in line with the trend towards In 2017, Oldelval managed to maintain uninterrupted transportation services, ensuring operations continuity a lower processing of crude oil in all the Argentine refining business. As in the year 2016, in addition to the typical and a reliable pumping system. Furthermore, planned objectives were achieved in terms of safety and investments. processing of domestic crude oils, several imported crude oils of different qualities were successfully processed.

Dock Sud Terminal 8.4 The Dock Sud Terminal, in the Province of Buenos Aires, has an approximate storage capacity of 1,230,000 bbl of light fuels and base lubricants distributed in its 3 plants. Fuel reception is made from the DAPSA and YPF R&D piers through pipes, with facilities for dispatch and reception of tanker trucks.

Operations in the R&D segment are the necessary link to optimize the value chain, which begins with crude oil and gas E&P, and ends with customer service in the GS network and the offer of petrochemical products. The Caleta Paula Terminal main strategy consists of maximizing profitability by balancing the crude oil, refining and commercial logistics It is a reception and dispatch plant located in the Province of Santa Cruz, close to the City of Comodoro chain. As of the closing of fiscal year 2017, Pampa operates RBB and a network of 250 GS, and has a 28.5% Rivadavia. This location allows it to significantly enhance Pampa’s logistic capabilities in an area that is far from interest in Refinor. refineries. Besides, it allows the Company to keep an important stock of products highly demanded in the South of the country (gasoline and GO) to meet the market needs. Supply is made through bunkers, as it is located The following table summarizes the R&D’s main indicators for fiscal years ended December 31, 2016 on the Atlantic coast, and it has truck loading facilities for its distribution to customers. Its storage capacity and 2017: amounts to 82,000 bbl of light fuels.

Refining Investments Plan Technical Information 2016* 2017 In 2016, investments at RBB were mainly directed to safety and the environment, legal compliance and reliability optimization in different refinery areas, including the revamping of the tank yard, scheduled shutdowns Revenues (thousand m3): in hydro processing and visbreaking units, and the retrofitting of loading points at Puerto Galván. On December 7, 2017, the agreement for the sale of several downstream assets, including RBB, the GS network, the Lubricants Crude Oil 7.2 16.6 plant, and the Caleta Paula dispatch Terminal, was announced. GO 375.6 811.0 Gasoline 225.2 455.0 FO, IFOs and Asphalts At the Dock Sud Terminal, investments will be mainly directed towards the revamping of the pump room, 131.3 297.2 Others reservoir and ducts of the fire system, and the Company will continue tank revamping works to meet applicable 72.6 263.5 requirements and value enhancement works related to the tank yard aimed at increasing storage capacity for light fuels both for own use and to be rented to other oil companies.

Financial Information** 2016* 2017

Argentina 6,402 16,190 Outside Argentina 148 603

Total Revenues 6,550 16,793

* Fiscal year 2016 considered as from the closing of the acquisition of Petrobras Argentina in August 2016. ** Consolidated annual FS for discontinued operations, figures in million AR$.

108 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 109 ANNUAL REPORT Distribution In 2012, an agreement was executed with ENARSA whereby Refinor would provide compression services for the gas ENARSA imports from Bolivia. This agreement was later amended to increase the gas compression Pampa has a GS commercial network which allows it to meet the demand of customers located in different capacity up to a volume of 26 million m3/ day, and to extend its term until April 2019. regions of the country. In the last few years, the strategy consisted of optimizing the customer portfolio to adjust its size to refining capacity and maximize distribution efficiency. As of December 31, 2017, Pampa has Besides, Refinor operates a 1,108 km multiproduct pipeline extending from RCD (Salta) to Montecristo a network of 250 GS located throughout Argentina, all of them under the ‘Petrobras’ brand, and 33 include (Córdoba), which supplies the Banda Río Salí (Tucumán) fuel dispatch plant, and the Güemes (Salta) and Leales ‘Spacio 1’ convenience stores. The following table shows GS as of December 31, 2017: (Tucumán) LPG dispatch plants. In Montecristo, it connects to a YPF multiproduct pipeline which reaches the town of San Lorenzo (Santa Fe). This multiproduct pipeline is the most important distribution path for all liquid fuels generated in the Noroeste Basin in Argentina, which transports GO, gasoline for petrochemical use, Type Quantity components of gasoline for automotive use, butane and propane.

As of December 31, 2017, Refinor had a commercial network of 81 GS in the Provinces of Tucumán, Salta, Own1) 73 Santiago del Estero, La Rioja, Jujuy, Catamarca, and Chaco. The network offers a high-performance fuel line: (2) Concession 177 Refinor 97 (97 octanes), Super (95 octanes), Eco Diesel, and Eco Diesel Premium. Total 250 In 2017, sales of gasoline, GO, raw gasoline and other liquid fuels amounted to 568 thousand m3, which represents a 7% year-on-year increase. LPG sales amounted to approximately 180 thousand tons in 2017, Notes: (1) Property owned or controlled by Pampa under usufruct, rental or sub-concession agreements. experiencing a 14% decrease compared to the previous year. (2) Property owned or controlled by third parties, with whom Pampa has executed a concession agreement.

In 2017, the Company continued implementing gas pump replacement program in the GS network and the 8.5 program for upgrading CNG compressors of the Company’s own network. In addition, the Company moved forward with the rebranding plan in the GS network, and implemented the new EcoPlus image in some of them. Petrochemicals The new image meets state-of-the art standards in energy efficiency and environmental care. The PTQ segment takes part in Pampa’s oil and gas vertical integration of operations. The Company’s goal is to maintain its position in the styrene’s market by capitalizing on current conditions and maximizing the use In 2017, Pampa’s liquid fuels sales volumes in the domestic market totaled 1.2 million m3. As a result, the of its own petrochemical raw materials. Company had a 5.5% market share, ranking fourth in the Argentine fuel market. Out of this total, 0.8 million m3 are attributable to GO, which reported a 9.2% year-on-year decrease. On the other hand, gasoline sales totaled Our assets’ production covers a wide range of products, such as octane bases for gasoline, benzene, 0.4 million m3, experiencing a slight 0.7% year-on-year increase. GO and gasoline sales accounted for a market aromatic solvents, hexane and other hydrogenated paraffinic solvents, propellants for the cosmetic industry, share of 6.0% and 4.9%, respectively. In addition, sales of premium gasoline totaled 0.1 million m3, with a 3.4% monomer styrene, rubber, and polystyrene for the domestic and foreign markets. market share. The petrochemicals market where Pampa competes is influenced by the offer and supply of petrochemical Furthermore, refined products were sold to industrial, construction and marine markets, including marine products in the global market, which has a strong impact on our results. Pampa is the only producer of fuels and lubricants, asphalts and other products. In the case of IFOs (Bunker), the volume sold by Pampa monomer styrene, polystyrene and elastomers in Argentina, as well as the only integrated producer of goods totaled 79 thousand tons, which represents a 11.4% market share. As regards DMA, the market totaled 139 ranging from oil and natural gas to plastics. As part of its efforts to integrate operations, it uses an important thousand m3, which represents an accumulated 1.5% share in 2017. Sales in the asphalt market totaled an volume of its own benzene production to obtain styrene and, in turn, a substantial volume of styrene to accumulated 102 thousand tons in 2017, accounting for a 16.5% market share. manufacture polystyrene and SBR.

Lubricants The petrochemicals division is made up of: Another important business development focus is lubricants. In the last few years, the objective was • The PGSM integrated petrochemical complex, in the Province of Santa Fe, with an annual production consolidating the Lubrax brand in the Argentine market through the development of exclusive lubricants capacity of 50 thousand tons of gases (LPG, which is used as raw material, and propellants), 155 thousand customers, leveraging combined sales with liquid fuels and point-of-sale promotions. tons of aromatics, 290 thousand tons of gasoline and refined products, 160 thousand tons of styrene, 55 thousand tons of SBR, 180 thousand tons of ethyl benzene and 31 thousand tons of ethylene; In 2017, Lubrax sales in the Argentine market totaled 15.2 thousand m3, a 7.5% increase compared to 2016, • A polystyrene plant in Zárate, Province of Buenos Aires, with a production capacity of 65 thousand tons with a 5.3% market share. of polystyrene and 14 thousand tons of BOPS; and Refinor • An ethylene plant in San Lorenzo, with an annual production capacity of 19,000 tons. The plant is located on the banks of the Paraná river, close to the PGSM petrochemical complex, connected through pipelines Pampa has a 28.5% interest in Refinor, a company that owns the only refinery in the Northern region of for the supply of ethylene as raw material for the production of ethyl benzene and styrene. Argentina and which is located at Campo Durán, Province of Salta. The nominal processing capacity of the topping unit is 25.8 thousand bbl per day, whereas the two turboexpander plants’ nominal processing capacity reaches 20.3 million m3 of gas per day.

RCD receives condensed and crude oil from the Noroeste Basin in Argentina, and natural gas from the Noroeste Basin in Argentina and from Bolivia. These operations are conducted through two oil pipelines and three gas pipelines. In 2017, the average daily processing of crude oil amounted to 7,826 bbl. In turn, gas processing reached a daily average of 14.2 million m3.

110 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 111 ANNUAL REPORT The following table shows the petrochemicals segment’s main indicators for fiscal years ended December 31, 2016 and 2017: 8.6 Other Businesses Technical Information 2016* 2017 Transener Transener is the leading company in the utility service of high voltage electric energy transmission in Revenues (in thousand ton): Argentina. It holds a concession over 14,489 kilometers of transmission lines and 57 transforming stations, and Styrene (incl. propylene and ethylene) 30 67 directly operates 85% of high-voltage lines in the country. SBR 11 33 Polystyrene (incl. BOPS) 27 67 In turn, its subsidiary Transba holds a concession over 6,228 km of transmission lines and 95 transforming Others 137 291 stations, which make up the Main Distribution Transmission System of the Province of Buenos Aires.

The following table summarizes Transener’s most relevant technical and financial indicators:

Financial Information** 2016* 2017 Technical Information 2016 2017

Argentina 1,900 5,318 Outside Argentina 607 1,911 Transener Transmission Lines (Km) 14,489 14,489 Transba Transmission Lines (Km) 6,159 6,228 Total Revenues 2,507 7,229

Financial Information* 2016 2017 * Fiscal year 2016 considered as from the closing of the acquisition of Petrobras Argentina in August 2016. ** Consolidated annual FS, figures in million AR$.

Revenues 2,201 6,025 Styrene’s Division Fiscal year’s results, attributable to company’s shareholders (57) 2,282 Assets 3,347 7,335 In 2017, monomer styrene sales volume totaled 52 thousand tons, a figure 3% higher than that recorded in 2016, with a 5% increase in domestic sales associated with the growth of the polyester resin and emulsions Liabilities 2,695 4,330 market. The polystyrene sales volume reached 59 thousand tons. With the polystyrene plant at maximum load Shareholders’ Equity 652 3,005 throughout the year, sales increased by 10% compared to 2016, experiencing a 9% increase in domestic sales and a 15% increase in exports. In 2017, BOPS sales volume amounted to 7.5 thousand tons, which represents a * Consolidated annual FS under IFRS, in million AR$. 16% increase compared to 2016, mainly due to higher exports to Europe.

In 2017, Pampa sold 33.3 thousand tons of rubber, of which 16.8 thousand tons are attributable to the domestic market and 16.5 thousand tons to exports. Sales volume in 2017 was 21% higher compared to 2016, mainly due to increasing exports to the United States and Brazil.

Gasoline Reforming Division Sales of the Reforming division decreased by 7% compared to 2016 due to the lower availability of raw gasoline and the reduced interphase consumption.

In 2017, sales volume of octane bases and gasolines totaled 228 thousand tons, of which 63 thousand were directed to the export market. Sales of hexane, paraffinic solvents and aromatics during 2017 totaled 49 thousand tons, which represent an 11% decrease compared to 2016. Propellant sales volume totaled 10 thousand tons in 2017.

As of December 31, 2017, Pampa’s estimated share in the Argentine styrene, polystyrene and rubber markets amounted to 100%, 93% and 90%, respectively.

112 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 113 ANNUAL REPORT Operation and Maintenance Business Development The extra high voltage electricity transmission’s SADI, operated and maintained by Transener, is subject to Engineering Services –Works higher and higher load conditions every year. In 2017, there was a record-breaking demand for power capacity, which reached 25,628 MW, a value 1% higher than the record peak for the year 2016 (25,380 MW). Regarding power grid expansion works, Transener has focused its activity on those works in which Transener has competitive advantages, prioritizing the works to be executed on the 500 kV system. Despite the great number of power grid requests, in 2017 service quality has been wholly acceptable for the values required from a company like Transener, which ended the year with a rate equal to 0.41 failures per each The development of an important work program for replacing equipment and installing new reserves 100 kilometer-line, consistent with international parameters accepted for companies which operate and maintain within the transportation system has entailed the demand for other services, such as the preparation of extra high voltage transmission systems. The following chart shows the failure rate for the service provided: bidding documents, electricity studies, the implementation of power generation and demand monitoring systems (DAG and DAD systems), and the testing and commissioning of transforming stations. Transener’s technical team extensive expertise has been a key factor in the customers’ decision to entrust it with the Failure Rate performance of critical works. Bidding documents for the expansion of the transportation system under the Federal Plan, works pursuant to SE Res. No. 01/03, and other expansions to be executed by different WEM (Rate per each 100 km of lines) agents have been drafted. Among the most important works, we can mention expansion works of Macachín and 25 de Mayo transforming stations, Ezeiza transformation station’s capacitor bank, Ramallo transformation station, works for fast connection with the reserve phase in Puerto Madryn, Santa Cruz Norte and Esperanza 2.50 transforming stations. Failure Limit: 2.50 2.00 Electric Energy Transmission-Related Services Operation, maintenance and other services, such as specific testing hired by private customers owning 1.50 transmission facilities for both private and public use (independent transporters and international transporters) have been provided since the creation of Transener. 1.00 Failure Transener 0.41 Among the works performed by Transener, we can mention the replacement of bushings, the performance of oil analyses, diagnostic trials, OPGW repairs, and FO connections in repeater junction boxes, the cleaning of 0.50 isolators, measurements of electric and magnetic fields, automation implementation, maintenance of lines and equipment in transforming stations, among others. 0 All service agreements include provisions to maintain Transener’s remuneration at real values; and most ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 agreements have been uninterruptedly renewed since their commencement, which confirms the quality of the Source: Transener. service provided by Transener and the level of satisfaction of its clients.

Communications Investments In 2017, Transener continued providing infrastructure services to several communications companies, including the assignment of dark fiber optics to its own system (Line IV), and the rent of space in microwave stations During 2017, Transener made investments in the amount of AR$706 million. The following chart illustrates and in their antennas-supporting structures. The growing demand from mobile communication companies has its annual distribution: led to a significant increase in revenues both in terms of volume and better prices involved. Besides, Transener continued to provide support services for operative communications and data transmission to WEM agents. 706 Transener’s Annual Investments Financial Situation In million AR$, 1999 - 2017 In 2017, Transener and Transba’s financial surpluses were managed on a prudential basis by means of different conservative instruments available in the market to maximize the portfolio yield and hedge Transener and Transba’s foreign-currency denominated liabilities through an optimal combination of currencies. As of December 31, 2017, the consolidated financial debt amounted to US$98.5 million as principal, corresponding 393 exclusively to Series 2 CBs at a 9.75% rate. Since these bonds are fully redeemed in August 2021, there is no 350 additional financial debt maturing before that date. 257 217 Furthermore, on April 18, 2017, an extraordinary general meeting of shareholders resolved to create a global program for the issuance of simple or convertible in to shares CBs denominated in U.S. dollars or its equivalent value 108 in any other currency, for a maximum outstanding amount, at any time during its life, of up to US$500 million. The 88 76 76 creation of this program was authorized by the CNV through Res. No. 18,941 dated September 20, 2017. 30 51 47 54 11 14 21 15 13 24 Regarding Transener’s risk rating, in 2017 S&P upgraded domestic rating from ‘raB+’ negative to ‘raA+’, and its global rating for domestic and foreign currencies from ‘CCC’ negative to ‘B’, in all cases with a stable outlook. ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17

Source: Transener.

114 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 115 ANNUAL REPORT TGS In 2017, the daily average injection of natural gas into the gas pipeline system operated by TGS was similar to that recorded during fiscal year 2016. Average daily injections by domestic producers to TGS’ system amounted TGS is the most important gas transportation company within the country, and it operates the biggest to 65.8 million m3/day, a level similar to the 66.0 million m3/day recorded in fiscal year 2016. TGS’ gas pipeline pipeline system in Latin America. It is also a leading company in the production and commercialization of NGL system was fairly responsive to meet demand needs, but the regulatory authority went on restricting the supply for both domestic and export markets, conducting this business from the General Cerri Complex located in of natural gas to the industrial and generation markets to reorient and allocate gas to the Priority Demand. Bahía Blanca, Province of Buenos Aires. TGS also provides comprehensive solutions in the natural gas area and, However, there were lower restrictions, mainly on account of the effect of higher temperatures during winter since 1998, it has also landed in the telecommunications area through its controlled company Telcosur. As of 2017 compared to 2016 and, consequently, a lower consumption by the residential demand. December 31, 2017, Pampa holds a 25.5% indirect interest in TGS through CIESA. In the commercial area, during 2017 TGS launched an open bid which allowed for the renewal, for an The following table summarizes TGS’ main technical and financial indicators: additional average 11-year period, of the 41.8 million m3/day firm transportation capacity, with maturity in 2018 and 2019. Furthermore, new contracts were awarded for a total amount of 3.3 million m3/day associated with capacities available in the system, which will generate additional revenues as from the beginning of 2018. Technical Information 2016 2017 Non-Regulated Segment: Production and Commercialization of Liquids Unlike the gas transportation business, the production and commercialization of liquids is not regulated by GAS TRANSPORTATION ENARGAS. In 2017, this segment’s revenues accounted for 56% of TGS total revenues. Revenues from sales 3 Average firm capacity contracted (in million m per day) 79.5 79.1 in the liquids production and commercialization segment reached AR$6,875 million in the fiscal year ended Average delivery (in million m3 per day) 66.7 66.0 December 31, 2017 (AR$2,107 million or 44% higher than those recorded in 2016). The main reason of the PRODUCTION AND COMMERCIALIZATION OF LIQUIDS increase in revenues was the rise in international reference prices during fiscal year 2017. Total liquids production (in thousand ton) 939.4 908.9 Liquids production and commercialization activities are conducted at the Cerri Complex, located close to the Gas processing capacity (in million m3 per day) 47.0 47.0 City of Bahía Blanca, which is supplied by all of TGS’ main gas pipelines. Ethane, propane, butane and natural Storage capacity (in ton) 58,988 58,988 gasoline are recovered at this industrial complex. TGS sells these NGL to both domestic and foreign markets. In the domestic market, propane and butane are sold to fractionator companies. In the foreign market, the sale of these products and natural gasoline is made at current international market prices. On the other hand, ethane Financial Information* 2016 2017 is sold to Polisur at a price agreed by the parties.

During 2017, the production of liquids decreased by 30,542 tons or 3%, mainly as a result of the lower Revenues 7,402 12,247 production of butane, which was however acquired from third parties to meet the domestic demand. On the Fiscal year’s results 931 2,793 other hand, and benefiting from the positive impact of international reference prices, total dispatched volumes Assets 8,931 13,667 experienced a 5% increase, with 49,285 tons against fiscal year 2016, and all sales were made by TGS on its Liabilities 6,405 8,347 own behalf. The dispatched volumes are detailed below Shareholders’ Equity 2,526 5,320

* Consolidated annual FS, in million AR$. Even though this data comprises the full fiscal years 2016 and 2017, the reporting under IFRS of our Dispatched Volume (in ton) 2016 2017 affiliate TGS in Pampa’s FS started as from the closing of the acquisition of Petrobras Argentina in August 2016.

Ethane 277,475 282,850 Propane 313,505 320,748 Description of Business Segments Butane 222,094 236,026 Regulated Segment: Gas Transportation Natural gasoline 98,649 121,384 Total dispatched volume 911,723 961,008 In 2017, revenues from this business segment amounted to AR$4,560 million, showing an increase of AR$2,472 million against AR$2,087 million recorded in 2016. This increase is mainly due to: (i) the combined effect of the full application of the tariff increase granted by ENARGAS Res. No. 3724/16, as supplemented The external context made international reference prices which determine the price of products destined to by ENARGAS Res. No. 4054/16, which provided for a 200.1% tariff increase, (ii) the increase granted under the export market record 59%, 42% and 26% increases for propane, butane and natural gasoline, respectively. ENARGAS Res. No. 4362/17 as from April 1, 2017, and (iii) to a lesser extent, the tariff increase granted by However, the rate of growth experienced kept decreasing, especially as from the fourth quarter of 2017, showing ENARGAS Res. No. 120/17 effective as from December 1, 2017. falls in the first months of 2018.

Revenues from this business segment result mainly from firm natural gas transportation agreements, Besides, TGS has managed to optimize business margins as a result of the coordinated work of its different whereby the gas pipeline capacity is reserved and paid for irrespective of its actual use. Besides, TGS provides areas, thus meeting production and sales objectives. It is worth highlighting that TGS has entered into agreements an interruptible service, where the transportation of natural gas is subject to the gas pipeline’s available for the export of liquids for the 2017/2018 summer period, which not only enable to improve prices compared capacity. Furthermore, TGS provides operation and maintenance services for assets allocated to the natural to the expired agreements, but will also bring short-term certainty for the sale of these products. Furthermore, gas transportation service for the expansions fostered by the National Government and held by trusts created TGS makes land transport exports via trucks to Chile and Paraguay. Even though volumes exported under this to such effect. For this service, TGS receives from customers with incremental natural gas transportation modality are lower than those exported by sea, they have grown in the last few years, which allows TGS to capacities the CAU established by ENARGAS, which remained unaltered since its creation in 2005 until its first capitalize on a higher operating margin. update in May 2015.

116 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 117 ANNUAL REPORT In the domestic market, during 2017 TGS continued participating in different programs set by the Argentina Sales of Liquids by Destined Market Government for the supply of propane and butane at prices lower than market prices. This is the case of the Household Gas Bottles’ Program and the Propane for Grids Agreement, whereby the MEyM issued a set In thousands tons, 2013-2017 of resolutions to regulate the price of propane sold under this program. As in previous periods, under the Household Gas Bottles’ Program TGS is obliged to sell these products at prices ostensibly lower than market 942 937 961 prices, which, under certain conditions, results in negative operating margins. Furthermore, as a result of the 908 912 participation in these programs, the National Government should reimburse to TGS an economic compensation which is denominated in Argentine pesos; even though there are delays in its collection, during fiscal year 2017 there has been some improvement in collection terms. 286 313 339 316 359 In August 2017, and with retroactive effects as of May 1, 2017, TGS concluded negotiations for the sale of ethane to Polisur and entered into an annual agreement for the sale of this product, managing to maintain sales conditions in force under the agreement entered into in the previous year. This agreement not only guarantees the supply of this product to the only customer for ethane production in Argentina, but also allows TGS to obtain sales margins in line with those derived during the last few years. In 2017, physical sales suffered practically no variations, reaching 282,850 tons, against 277,475 tons in 2016, despite the technical defects 622 628 598 595 602 occurred in July 2017 in the ethylene production plant owned by Polisur, which were later offset by higher demands by this customer.

Furthermore, the portfolio of logistic services provided from Puerto Galván facilities continues growing, and improvements in unit tariffs for this kind of services were applied. 2013 2014 2015 2016 2017

During 2017, restrictions on the supply of natural gas for replacement of the RTP required by the Cerri Domestic Market Foreign Market Complex’ Processing Plant for the liquids business persisted, although to a lesser extent. The lower restriction on natural gas arriving at the Cerri Complex and the high operating efficiency levels reached in the processing of Source: TGS. natural gas allowed produced volumes to increase to 908,881 tons. Purchase prices for natural gas used as RTP experienced a 16% average year-on-year increase in US$, in line with the policies implemented by the MEyM to Non-Regulated Segment: Other Services encourage the production of natural gas. The other services segment is not regulated by ENARGAS. TGS provides midstream services, which mainly consist of treatment, impurity separation and gas compression. These services may also include gas extraction In spite of this, and thanks to the increase in NGL international reference prices, operating margins were and transportation in the fields, construction services, inspection and maintenance of compression plants and partially offset. However, operating margins with which this business segment operates have suffered a gas pipelines, as well as steam generation services for the production of electricity. This business segment also negative impact compared to historical values. Nevertheless, and thanks to the coordinated efforts among includes revenues from telecommunication services provided through its subsidiary Telcosur. the different TGS’ areas, equipment operation was optimized through the daily programming of natural gas processing, which improved performance in the recovery of liquids in the Cerri Complex, as well as through This segment represented 7% of TGS’ total revenues in 2017; revenues from sales experienced an increase, the conduction of improvement works under the five-year investment plan, which will allow TGS to continue mainly on account of the growth of natural gas compression and treatment services. Additionally, higher operating optimizing consumption of RTP. Additionally, thanks to the execution of new natural gas supply agreements, its and maintenance services, the exchange rate effect on sales denominated in US$ and engineering services supply at reasonable prices was guaranteed, thus mitigating the exchange-rate impact on the cost of this raw provided during fiscal year 2017 also contributed, although to a lesser extent, to the increase in revenues. material measured in AR$. In September 2017, an agreement was entered into with the Río Neuquén UTE (YPF, Pampa and Petrobras Brazil) to extend, for the next 10 years, services provided at the Río Neuquén Plant. To this effect, the installation of a natural gas dehydration unit with a capacity of 2 million m3/day and several minor changes in the plant were committed.

As regards construction services, the connection of the natural gas feeder line of General Rojo CT for the DVS entity and the gas supply works for Spegazzini CT, owned by Generación Mediterránea, were completed.

Additionally, in the month of September an UTE was set up with SACDE for the joint participation in the piping assembly for the construction of the ‘Expansion of the Natural Gas Transportation and Distribution System’ project. The MEyM awarded to the UTE the works for the construction of the Regional Centro II – Recreo/Rafaela/Sunchales Gas Pipeline, which will represent joint income for approximately AR$946 million56. On October 27, 2017, the TGS - SACDE UTE entered into the applicable construction agreement with the MEyM, and in December 2017, the first advance was received, which will allow to begin and finish works during 2018.

Regarding telecommunication services provided by Telcosur, during 2017 several agreements were entered into which allowed for an increase in the sold capacity and a consolidation of these operations.

56 Including VAT.

118 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 119 ANNUAL REPORT 9.3 Human Resource Planning At Pampa we develop this process through the professional analysis of our employees, considering their academic and work experience background, their career within the Company, as well as performance assessments.

9.4 9 Compensation and Benefits Pampa’s policy on Compensation and Benefits is based on ensuring external competitiveness and maintaining in-house equity. In this line, at Pampa we work with different surveys which allow us to adjust our benefit packages and wage structure to those offered in the market. As a result, in 2017 the Company granted increases equivalent to those offered by the labor market to personnel not subject to collective bargaining Human Resources agreements, and salaries were adjusted according to collective bargaining agreements for unionized employees.

At Pampa, we work with passion and enthusiasm. Guided by our values, we strive for excellence and continuous improvement to meet the market demands and continue growing on a daily basis. The Company supports several practices aimed at human resources training, development, attraction, loyalty and management, thus creating a 9.5 favorable work environment to achieve organizational results. Trade Union Relations During 2017, the strategy of the Human Resources Department was oriented towards renewing talent quality During 2017, Pampa maintained a close bond with the different unions in the industrial sectors where it and boosting a high-performance organization; unifying our policies and practices; implementing SuccessFactors, develops its activities. We participate in business chambers conducting labor negotiations, both at national and a management tool which allows us to simplify processes, gain efficiency and become an agent for change regional levels, and coordinate negotiation processes in each subsidiary. in the organization; maintain labor relationships based on respect for people, regulations and a positive work environment, seeking to guarantee operations continuity and improved productivity, and consolidating integration A consolidated liaison and relationship with different unions, based on dialog and negotiation, allow us to and the values of Pampa’s culture in the transformation process. project joint work to face challenging changes in context, both at the social and economic level.

9.1 9.6 Recruiting and Selection Staff Management At Pampa, we encourage internal development. Therefore, whenever there is a vacancy, we first make an We have participated in the corporate reorganization process for the merger of Pampa with CTLL, CTG, internal survey looking for the proper profiles to cover it. In case this is not feasible, we conduct an external market Bodega Loma de la Lata S.A. and EG3 by providing the required information on the human capital and updating search looking for candidates who not only have the necessary technical profile, but also the skills profile fostered systems and processes to the new corporate structure. This included both internal and external actions, reaching by the Company. We find it essential that employees should feel comfortable with Pampa’s culture and play a labor, tax, pension, judicial and union entities. Furthermore, we finished the restructuring process initiated in leading role in it. 2016, successfully achieving the stated target.

During 2017 we continued transmitting changes in policies and procedures through our communication channel 9.2 (NEXO), thus reinforcing the objective that this should be the Company’s point of contact with its employees. Professional Practice / Internships We have concluded the analysis of medical coverage, and we will make the applicable adjustments during 2018. Furthermore, we have made progress on the integration and implementation of some of the benefits the company During 2017, the Company continued conducting professional practices jointly with technical schools so that grants to its employees, and we project to integrate pending benefits next year. The voluntary disenrollment students should get acquainted with the professional and work environment. This practice has allowed students option for the Pension Plan was implemented, with great acceptance by active beneficiary employees. to take part in selection processes for positions similar to actual professional functions, and some of them were finally hired by the Company. Besides, several career guidance and labor integration workshops were organized In 2018, we will embark on the project for the unification of payroll and accounting records under a with the participation of students from technical schools, continuing with this practice for four consecutive years single management system, aimed at optimizing processes and reaching highly satisfactory functional and in our agenda for the integration with the students’ community of the areas where our assets are located. operating results.

120 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 121 ANNUAL REPORT 9.7 Training and Development Aiming to accompany the development of our employees, during 2017 we developed different Training Programs. Specifically, the Skills Development Program through Business Simulators has applied a practical and innovative methodology for the acquisition of specific tools, such as negotiation, leadership, comprehensive business view, and project management. We organized 12 editions in different plants of the Company located in Buenos Aires, Neuquén and Bahía Blanca with the attendance of more than 285 participants.

We have accompanied the academic training of employees who participated in Master Degree and Specialization Programs; besides, we have organized technical training courses and participated in congresses 10 both locally and abroad.

With the purpose of ensuring the Board of Directors and first-line managers’ training and development, during 2017 we worked intensively to enhance Pampa’s leadership skills through the implementation of the ‘Leaders’ School’ together with the Torcuato di Tella University. Several directors and managers participated Corporate in this program, with a high attendance level. The training program was developed throughout the year and included, among others, the following topics: business knowledge, high-performance team management, diversity, innovation, etc. Additionally, the top management team developed coaching sessions geared at role strengthening, decision-making and managerial responsibilities. Responsibility

At Pampa, we understand Corporate Social Responsibility as a strategic management model which is 9.8 implemented through the Foundation. With a strong commitment to society, which goes beyond energy demand satisfaction, we develop programs oriented towards improving the life quality of our employees, their Internal Communications, Working Environment families and the communities where we operate.

and Culture Since 2008, the Foundation has promoted programs that contribute to strengthening the abilities of people Pampa knows that communication is of the essence for all the Company’s areas and assets to work aligned and social organizations, showing a clear sustainable commitment with the communities Pampa Energía is part of. under the same business objectives. Pampa’s culture expresses a model that reflects a more integrated, professional and swifter way of working and interacting; a way of acting which is common to all the Company and As from 2016, with the incorporation of new assets and their communities of influence, the Foundation which articulates diversity and integrates the Company’s values, practices and objectives towards consolidating has adopted a new strategic focus: education as a fundamental right, local management of Corporate Social it as one the most important energy integrated companies in the country. Responsibility for relationship between the asset and the community, and corporate volunteering.

During 2017 we conducted communication actions focused on consolidating integration and the values of Pampa’s culture through: 10.1 • Communication campaigns targeted at corporate and business areas with the purpose of associating each of them with the concepts of integration, values and culture; Profesional Professional Training Programs • Face-to-face communication events to foster and encourage a cultural change (visits of employees’ The purpose of these programs is to provide equal employment and educational opportunities through children to offices and plants; communication and exchange meetings with leaders and founding the social inclusion of those in a situation of vulnerability throughout the country, and to accompany young shareholders, etc.); students along each stage of their academic-professional training so that, once the process is completed, young • Communication of Pampa’s new Code of Business Conduct and its acceptance by all the Company’s staff; students should become trained and qualified professionals who may successfully integrate in the labor world. • Internal dissemination of the ‘Pampa Talent’ program (hiring of Young Professionals); Integrated programs for the different stages of this professional training process, and results achieved during the year are detailed below: • Implementation and communication of integrated benefits as from the merger; • Training and internal dissemination of changes in performance management processes and Primary Level Compensations; and The ‘Energy Researchers’ workshops aim to arouse and spark an interest for science in primary school • Communication of the SuccessFactors tool, establishing a link between its implementation and the students, also creating awareness on responsible use of energy. Through teacher training, students become values of Pampa’s culture to evidence the cultural transformation process we are going through. ‘Researchers’ of different phenomena related to energy, their sources, efficiency, and benefits associated with the different types of energy. In 2017, a teacher training workshop was given to 20 teachers of different public schools of the Province of Mendoza.

122 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 123 ANNUAL REPORT Secondary Level Open Doors Program The ‘Accompaniment to Complete Technical Secondary Studies’ program aims at providing education to To enhance the training of students of different levels, as well as the general knowledge of interested awake civic values and form committed citizens. The Foundation provides opportunities and escort during parties, the Foundation organizes tours and visits to our plants so that neighbors may get to know Pampa’s the last three years of secondary school to Argentine young students from technical schools with a desire productive processes, facilities, and working methodology. In 2017, 1,412 people were guided by 78 volunteers to complete their studies and develop their life projects, instilling in them the importance of education as an in CTLL, CTG, CPB, CTPP, CTGEBA, HINISA, HIDISA, Refinor, the Dock Sud terminal, and the Zárate and PGSM essential tool to improve their household living conditions. During 2017, we have accompanied 926 students petrochemical plants. from the last three years of Secondary Technical Schools, with 526 scholarship beneficiaries in the Province of Buenos Aires, 198 in Neuquén, 90 in Mendoza, 82 in Salta and 30 in Santa Fe. We also organized a painting meeting to make a community mural for the 70th anniversary of the plant, with the attendance of members of Cottolengo Don Orione. Furthermore, since 2013 we have been working with the assistance of the Human Resources area in the implementation of professional practices for students attending the last year at technical schools of communities At the PGSM Petrochemical Complex, we joined the Corporate Social Responsibility Program whereby 30 close to our assets. The program is oriented to the consolidation, integration and development of the students’ companies work in synergy with the Chamber of Commerce and Industry of the San Lorenzo area. The purpose knowledge and capabilities matching the professional profile the students are developing, thus enhancing work is to teach 7th grade students the productive processes of the San Lorenzo Industrial Area, focusing on the insertion possibilities. This program’s distinctive mark is the assistance of employees, who were the interns’ importance of education and commitment with the community they are part of. The Program consisted of 5 tutors. This year, 62 interns participated in this program: 20 students in CTG, 26 in CTGEBA, 8 in CTP, 3 in CPB meetings, and ended with a guided visit through the plant. Besides, volunteers planted native trees in primary and 5 at the Avellaneda Lubricants Plant. schools of San Lorenzo and PGSM.

College Level Support to Communities Near Pampa’s Assets We accompany college students in their technical-professional studies, directly targeting at the necessary With the purpose of contributing to the strengthening of people in vulnerable neighborhoods (San Cayetano knowledge, and focusing on training in the Argentine energetic sector’s professional field. In 2017, we accompanied and surrounding areas) and furthering community-based organization, the Banquitos Project at the Zárate 3 students from the Province of Salta who are attending a pre-school education teaching program, a nursing Petrochemical Plant aims to develop sources of employment and to promote an improvement in life quality program, and a degree in hygiene and safety. standards within a social and solidary economy. Meetings for the sharing of knowledge and training were organized to promote family entrepreneurship. University Level Furthermore, since 2001 we have taken over the commitment and the responsibility to support a soup With the purpose of fostering equity in education through higher education, we offer financial grants and the kitchen which every day serves meals to 120 children and their mothers in General Güemes, Salta. We assistance of a tutor so that young engineering students may have possibilities for development, thus advancing coordinate efforts with Fundación Banco de Alimentos, an organization responsible for the soup kitchen’s their education and employability. To such effect, we have executed different agreements with universities. operations and food quality.

This year we have accompanied a total 139 young university students: 81 in the Province of Buenos Aires, 21 As Pampa’s culture supports diversity, from the Foundation we provide assistance to the handcrafted in Salta, 20 in Mendoza and 17 in Neuquén. Furthermore, with the purpose of accompanying Pampa employees’ textile’s endeavor by the Newen Mapu mapuche community in Catriel, Río Negro. Through the supply of funds, children, a call was launched to provide support for engineering students. Under this program, in 2017 we have equipment and technical counseling, we committed to provide installed capacity and promote textile micro- accompanied 39 employees’ children in their university education. entrepreneurships by the families that take part in this initiative.

Professional Level Solidarity Hockey We believe that professional internships are an ideal complement for academic training. The program’s At the Buenos Aires Lawn Tenis Club, a tribute to former leona hockey player Carla Rebecchi was organized purpose is that fourth-year and above university students accompanied by the Foundation should join the together with an event in support of vulnerable children and youth so that they may finish their secondary Company through an internship program. Throughout the year 5 university students have made internships in studies. Foundation Pampa assisted the Fundación Uniendo Caminos by collecting 22,000 school supplies and the Company, 3 of them in the Pampa Building and two in HINISA, in the Province of Mendoza. AR$30,000 thought the sale of tickets.

Finally, the ‘Young Professionals’ program aims at the professional development of scholarship beneficiaries Local Actions for Building and Infrastructure Improvement who are about to finish or have finished their university studies and are interested in growing in the energy industry. Two university interns under this program were hired, and are currently working in Neuquén and in CTPP. In the Province of Buenos Aires, we refurbished the facilities of Kindergarten No. 904 ‘Lola Ubeda’, located at La Emilia, district of San Nicolás. The kindergarten had been flooded during the strong January storms. Besides, we supplied all materials necessary for early childhood care, and we donated furniture, computers and 10.2 electronic supplies. At CTGEBA we helped improve the facilities of Club de Barrio Santa Rosa, by replacing electric circuits Corporate Social Responsibility in Our Assets during special sessions. Furthermore, we supported the institutional strengthening of primary school ‘Paraje La Colorada’, through the refurbishment of the computer room and the setting up of shelves to place school books. We seek to strengthen our bond with the communities where our assets are located with the commitment Besides, workshops on power generation voluntarily coordinated by the plant’s bachelor in environmental to contribute to the social, economic and environmental development of our employees and their families studies were organized. and community. We work together with a social responsibility committee in each asset, which is represented by its own employees, and regional coordinators for the Foundation to plan and develop sustainable local management actions aligned with the values of the Company and of each business.

124 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 125 ANNUAL REPORT In CTP, we donated materials for the construction of two classrooms at the ‘Virgen Fátima’ school, which is Besides, at the beginning of the school year, we donated 4,500 school kits to schools throughout the attended by 200 children of the aboriginal community. Besides, we inaugurated a soccer field at this school, country, with volunteers taking part in the delivery. We also provided educational support and counseling to 20 which was built by CTP’s volunteering employees. students from technical schools and 23 Pampa contractors to help them finish secondary school.

Finally, with the purpose of enhancing young people’s education and pursuant to an agreement with the Volunteers Preserving the Environment Department of Electric Engineering of the National Southern University, in Bahía Blanca, we donated 3D printers to three technical schools. The delivery of the equipment was accompanied by specific technical training on As part of the Company’s induction program, 21 people joining the Pampa Young Talent program participated aspects involving operation, assembly, maintenance and codes required for their use. in a solidary activity, organized jointly with the Plantarse Association, on ‘Growing an Organic Orchard’ at a rural school in Pilar. The objective is to promote environmental initiatives to create awareness on climate change.

Furthermore, the ‘INTI Sustainable Solar Project’ was developed in Piquirenda, Salta. The project focused on 10.3 the self-construction of eco-stoves so that the community should become energy autonomous, and offered training for the preparation of high-nutritional dishes (hygiene, nutritional value, health). Volunteering Actions We consider that employees are our best asset, and that each of us can engage our energy and knowledge to the service of those needing them most. That is why we launched the ‘Pampa Volunteering’ Program, a participative space for all employees willing to engage in actions of solidarity. We channeled these actions through volunteering committees, generated a space for involvement and the coordination of actions addressing the bond between the asset and its community. The objectives are the following: • Performing actions in line with the Foundation’s programs; • Providing a space to channel people’s interests through committees and role models; • Having a positive impact on the internal environment, fostering integration; and • Internally reinforcing the values advocated by the Foundation.

Throughout this year, we performed 75 volunteering activities with the participation of 700 employees. Volunteers dedicated more than 11,000 hours to helping actions.

Collaborative Efforts with the Vivienda Digna Organization

The purpose of this program is to assist families in a vulnerable social situation so that they may have access to a lot and a final home through community and participatory work. With the collaboration of 11 Pampa volunteers and 15 secondary school students, we have built 30 meters of sidewalk in the ‘Suelo Firme’ neighborhood in Derqui, Pilar.

A Christmas Eve for Everyone As part of the celebration of the International Volunteer Day on December 5, and seeking that many vulnerable families may enjoy a different Holiday Season, we prepared gift boxes with food for a Christmas Eve dinner and customized gifts for all the members of the families. We donated 1,000 Christmas gift boxes which reached approximately 4,000 people.

Family Day at Pampa This meeting took place in all business units throughout the country with the purpose of bringing the Company employees’ families together, and included several recreational, leisure and solidary activities. In the solidary activity named ‘Developing Solidary Energy’, we made more than 1,000 toys which were donated to different institutions throughout the country.

Activities to Improve Educational Quality Under the ‘Come back to school’ program, we accompanied our employees wishing to join as volunteers to collaborate with their secondary schools, getting involved in different tasks to improve educational conditions. During 2017, we provided infrastructure, furniture, technological equipment and training to schools in the Provinces of Buenos Aires and Salta. Furthermore, our professionals offered talks and workshops, putting their knowledge at the service of others. With the voluntary collaboration of the CTGEBA plant’s nutritionist, participatory meetings were held to transmit the importance of a healthy diet in Marcos Paz.

126 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 127 ANNUAL REPORT 11 12 Information Quality, Safety, Technology Environment

During 2017, and accompanying the corporate reorganization process, the technical integration of companies merging into Pampa as of October 1, 2017, and the implementation of a single SAP instance in 11 unmerged companies were perfected. In this way, all companies within the group are consolidated onto a single system. The and Labor Health main challenges and milestones during 2017 were as follows:

• For the Human Resources area, the SAP SuccessFactors compensation and performance modules were Pampa considers that economic progress will only be sustainable to the extent performance is attained implemented. Additionally, a technical update was implemented in the payroll system so that it may support through the implementation and improvement of a management system committed to all stakeholders: future regulatory changes; shareholders, customers, employees, community, suppliers, and control bodies, with a focus on quality, personal • Together with the Supply area, the implementation of SAP Ariba as the new procurement platform was health and safety, environmental care and energy efficiency. defined, and the project was launched; With the purpose of reaffirming this vision, during 2017 Pampa issued a new QSELH policy applicable to • An application was developed for the Foundation so that it may support interns’ information management all its business segments. This policy makes an integral part of its management system, and operates at all (Foundation CRM); levels of the organization through the setting and follow-up of objectives and goals, furthering projects, plans, • For the E&P business, a voice and data telecommunications platform was designed, which will allow programs, trainings, audits and assessments. The QSELH policy is deployed through guidelines which establish for the optimization of the different business processes with an integrated vision and real-time remote good practices, create a common identity, point the way forward and improve QSELH performance, and enable access from any point in the area to facilitate decision-making. This platform will be implemented in El the Company to be a safe, reliable, high-quality, and eco-efficient company. which optimizes its resources and Mangrullo and Sierra Chata blocks during 2018. Furthermore, e-siGas was implemented as a gas dispatch contributes to the quality of life of its employees and community welfare, guaranteeing at all times compliance and commercialization solution. This platform provides greater flexibility in process management and an with requirements set before national, provincial and municipal entities, control over different hazards and optimized relationship with customers; issues, and impact and risk minimization.

• For the Generation business, the management model in CHs was unified, which resulted in greater efficiency In 2017 Pampa conducted a comprehensive review of its QSELH guidelines taking into consideration the in maintenance management. Furthermore, the electricity pre-billing process was evaluated, and Gol Plus new business context and corporate requirements, the latest developments in international management was implemented as the exclusive corporate solution; regulations, the experience gained through the application of previous guidelines, and the incorporation of • For the Downstream business, technological updates were implemented in GS, including the migration of quality and reliability requirements. The new guidelines constitute a simple and easy-to-use guide designed to the credit card validation system, the renewal of points of sale, and the installation of a new gas pump further sustainable business development. controller. Furthermore, fuel dispatch at the Caleta Paula plant was automated with the implementation of the TMS – Sorrento control software and its integration with SAP; and In 2017 Pampa continued advancing management programs in all its operations by allocating important resources, both at the corporate and asset level, to staff training; besides, it furthered the development and • At the corporate level, technological renewals were made, including the implementation of a new virtual tape strengthening of Pampa’s QSELH culture through an integrated and aligned QSELH management. backup system, and the replacement of the micro-IT room at the Buenos Aires and Neuquén headquarters. Furthermore, the information security policy was published, and SOX control matrixes were redefined, Risk management, which is key to the management of QSELH issues, is disclosed as an explicit commitment in which resulted in optimized controls and enhanced compliance processes. the new QSELH policy and guidelines, and is developed through different systematic and consolidated practices. With the purpose of further enhancing this management with a more strategic focus, in 2017 Pampa started the review of corporate risk management criteria and continued implementing initiatives geared at diminishing

128 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 129 ANNUAL REPORT QSELH risks in operations and new projects, including the application of the QSELH risk management matrix With the purpose of promoting a safety culture focusing on people’s behavior and the importance of the created to measure risk management scales in operations with a focus on: permits and authorizations, integrity, safety leadership commitment, the ‘Behavioral Preventive Observations’ practice was implemented, reviewing reliability, operational discipline, environmental liabilities, contingencies, and labor health and industrial hygiene. and building on previous experiences, and developing a simpler and more flexible IT platform. Furthermore, in the E&P business, a pilot evaluation of the safety culture was launched, which is expected to be extended throughout the Company in 2018.

12.1 As regards industrial hygiene, the relevant measurements in connection with work environments and specific risk maps were completed, and deviations were tracked. The Company also continued the ergonomics program Quality involving the survey of specific workplaces. Pampa furthers its management quality using international ISO standards and the ‘National Quality Prize’ model as references, seeking continuous improvement in all its activities. The main methodologies applied for quality management are certified management systems, standards, anomalies and audits’ management, and improvement teams. 12.3

All Pampa assets are subject to third-party certification accredited by the Argentine Accreditation Organization, Environment under ISO 14001 (environmental management), and OHSAS 18001 (occupational health and safety management) Pampa’s operations are conducted within a context of sustainable development. Pampa is committed to standards. The Generation, Downstream and Petrochemicals segment’s assets are certified under ISO 9001 the protection of the environment and endeavors to make a rational use of natural resources in each of its standard, and especially, the Lubricants Plant and CTGEBA are also certified under the ISO 50001 (energy projects by applying proper and economically viable technologies. management) standard. Pursuant to the implemented model, external audits are conducted on an annual basis to guarantee adherence to the requirements of the above-mentioned international standards. Furthermore, Pampa continues managing environmental risks to prevent the occurrence of undesirable events and/ each asset has a management program which promotes continuous performance improvement. or to minimize their impacts by developing actions and programs such as that for the integrity of aerial and underground pipelines and tanks. In addition, monitoring and environmental studies are performed to become During 2017, Pampa successfully completed the Certification Program under these standards, thus acquainted with different environmental situations. All these programs are encompassed within integrated demonstrating the efficacy in the scope of set goals and its commitment with customers, suppliers, management systems and contribute to environmental performance sustainability and enhancement. shareholders, employees and the community. The program includes internal and external maintenance audits and re-certifications, as well as the implementation of new certifications. External audits were conducted by Furthermore, in line with the country’s energy requirements and aiming to have an active participation in renowned institutions such as TÜV Rheinland, IRAM and Bureau Veritas. Internal audits were conducted by the diversification of the Argentine energy matrix, in 2017 Pampa started with the commissioning of CTPP qualified Pampa staff. Furthermore, in 2017 we started the upgrade of ISO 9001 (quality management) and ISO and CTIW CTs, with an installed capacity of 100 MW each, and also increased CTLL’s installed capacity by 14001 (environmental management) standards under their new 2015 versions in CTGEBA, HIDISA, HINISA, CTG 105 MW. Besides, Pampa has been awarded the project of closing to CC in CTGEBA and the Corti WFP, for and CTP, Quality and Quantity Control Service in GS, Dispatch Terminals and HPPL, which we are expected to a power capacity of 383 MW and 100 MW, respectively. Furthermore, in early 2018, Pampa announced the complete in all operations in 2018. construction of Pampa Energía WFP and De La Bahía WFP, which together will reach an aggregate installed capacity of 100 MW57. In 2017 the Company reviewed the Standards Management and the Anomalies Management to promote everyday quality throughout the organization. These processes are operated through applications developed in the ‘SharePoint’ technological environment, an in-house development which provides a simpler, easier to use and more modern solution. This year, several upgrades have been incorporated into the Standards, Anomalies 12.4 and Audits standards and applications, thus providing an enhanced user experience. Finally, the progressive implementation of these practices in all operations has begun, seeking cultural integration in respect of these Response to Emergency matters, which is expected to be concluded in 2018. Pampa endeavors to prevent undesirable events; even so, it fully prepares to provide a prompt and effective response to emergencies to minimize possible consequences. To such effect, as from 2016 and continuing in With the purpose of improving operations and results through teamwork, Pampa continues developing 2017, it is conducting the review and standardization of contingency processes in its different units. In addition, ‘Improvement Teams’, an initiative launched in 2012 with the purpose of implementing enhancements with there is a corporate contract in place with an environmental emergency response service, which provides for a focus on efficiency, productivity, costs, quality, safety and environment. Since 2013, selected Pampa’s the maintenance of Environmental Defense Centers with specific equipment for this kind of emergencies. improvement teams have participated in the National Annual Meeting for Continuous Improvement organized by Sociedad Argentina Pro Mejoramiento Continuo (Argentine Society for Continuous Improvement), where In 2017, the Company continued making periodic emergency response simulations in terrestrial and aquatic knowledge and experiences are shared. scenarios to develop the skills and competencies necessary to execute emergency plans and coordinate the necessary activities to be deployed should an undesirable event occur. 12.2 Safety As part of the management programs for all its operations, Pampa advanced with the definition and follow- up of safety objectives and goals, which are periodically monitored through the QSELH indicator board, and continued developing initiatives to sustain and improve safety management and performance in each asset.

57 For further information, see section 7.1 of this Annual Report.

130 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 131 ANNUAL REPORT 12.5 Labor Health In 2017, Pampa drew up and approved an alcohol, drugs and psychoactive substances policy. Pampa understands the problem of addictions at the workplace as a blameless disease, and the actions it performs under its Policy are aimed at protecting the life, health and safety of people working at Pampa’s facilities, as well 13 as any third parties who may be at Pampa’s premises. The development and implementation of the Policy is coordinated with a multidisciplinary team made up of QSELH, Human Resources, the Legal and Communications departments. Its principles, commitment and values arise from Pampa’s Code of Business Conduct and QSELH Policy, and are based on the recommendations of the International Labor Organization (ILO) and the World Health Organization (WHO), with the purpose of preventing and doing away with alcohol and drugs misuse Results for at the workplace as a desirable objective. Besides, Health and Safety at Work Law No. 19,587 provides that work environments should be safe and healthy for employees. During the year educational, informative and prevention campaigns targeted at employees and their families were conducted. the Fiscal Year During 2017, Pampa continued implementing the Labor Health Medical Control Program (LHCP) and the Health Promotion and Protection Program (HPPP), both of which focus on primary and secondary prevention, the generation of a healthy workplace, and the response to health emergencies. Pampa, the largest independent energy integrated company in Argentina, focuses its business on the electricity value chain by participating in the generation, transmission and distribution of electricity, as well as on the oil The Health Promotion and Protection Program develops actions aimed at generating healthy life habits and gas value chain by taking part in E&P, midstream and downstream. The following table summarizes the and behaviors through a healthy diet, food safety actions under IRAM 14201 standard, physical activity, dental consolidated ratios obtained during the fiscal year ended December 31, 2017, compared to the last fiscal years: prevention, smoking cessation and addiction prevention. These actions are developed based on an annual health diagnosis performed through a medical test to employees, where a Certificate of Physical Fitness (CPF) is used, which contemplates labor and epidemiological risks and allows for the identification of Homogeneous 12.31.2017 12.31.2016 12.31.2015 12.31.2014 Risk Groups to develop a specific health program tailored to their needs. This program is supplemented by contractors’ medical clearance verification services. Liquidity 1.23 0.77 1.01 0.69 In 2017, progress was made on the Ergonomics Program, which aims to guarantee a proper layout for the Solvency 0.24 0.22 0.40 0.27 working space, avoid unnecessary movements and efforts, achieve proper visibility and location of work items, Immobilized Capital 0.53 0.70 0.67 0.74 establish environmental and ergonomic criteria for the development of future work positions, and improve the Yield 0.332 (0.022) 0.645 0.165 employees’ productivity, comfort and safety through the use of ergonomic tools. Through its subsidiaries and share participations in joint businesses, and based on the business nature, As regards prevention, Pampa continues providing Cardiopulmonary Resuscitation (CPR) and First Aid training customer portfolio and risks involved, we were able to identify the following business segments for continuing courses, a physical activity plan and flu and tetanus immunization campaigns. operations58:

Together with the Foundation, a voluntary blood donation drive was organized in the different assets. • Power Generation, consisting of the Company’s direct and indirect interests in CPB, HINISA, HIDISA, PACOSA S.A., Greenwind S.A., Parques Eólicos del Fin del Mundo S.A., Parques Eólicos Argentinos S.A., TMB, TJSM; as well as power generation activities through CTG, CTLL, CTGEBA, CTPP, CTIW, EcoEnergía power plants and the HPPL dam, and its equity interest in Enecor • Electricity Distribution, consisting of Pampa’s indirect interest in Edenor; • Oil and Gas, consisting of the Company’s own interests in oil and gas blocks, as well as interests in its associates OldelVal and OCP; • R&D, consisting of its interest in its associate Refinor; • Petrochemicals, comprising styrene’s operations and the catalytic reformer unit operations plants conducted in Argentina; and • Holding y Otros, consisting of financial investment transactions, holding activities, interests in joint businesses CITELEC and CIESA and their respective subsidiaries holding the concession over the high voltage electricity transmission nationwide and over gas transportation in the south of the country, respectively.

It should be pointed out the analysis of results for fiscal years 2017 and 2016 is for continuing operations. Furthermore, sections 13.2 and 13.4 of this Annual Report disclose results by segment for discontinued operations for fiscal years 2017 and 2016.

58 For further information, see section 7.7 of this Annual Report.

132 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 133 ANNUAL REPORT 13.1 Consolidated Income Statement by Segment, 2017 Fiscal Year (AR$ million)

Consolidated profit and loss information Generation Electricity Oil Refining and Petro- Holding Eliminations Consolidated (as of December 31, 2017) distribution and gas distribution chemicals and others

Revenue 9,560 24,339 8,831 - 7,229 388 - 50,347 Intersegment sales 37 - 1,810 - - 36 (1,883) - Cost of sales (5,358) (17,667) (6,581) - (6,655) (3) 1,837 (34,427)

Gross profit (loss) 4,239 6,672 4,060 - 574 421 (46) 15,920

Selling expenses (94) (2,079) (455) - (290) - 14 (2,904) Administrative expenses (357) (1,444) (975) - (74) (2,095) 40 (4,905) Exploration expenses - - (44) - - - - (44) Other operating income 420 97 2,522 - 64 289 (4) 3,388 Other operating expenses (149) (758) (776) - (571) (697) - (2,951) Reversal of property, plant and equipment impairment - 461 - - - - - 461 Reversal of intangible assets impairment - 82 - - - - - 82 Results for participation in joint businesses (50) - - - - 1.114 - 1,064 Results for participation in associates - - 44 - - - - 44

Operating profit (loss) 4,009 3,031 4,376 - (297) (968) 4 10,155

Financial income 881 272 96 - 10 214 (41) 1,432 Financial expenses (932) (1,595) (245) - - (2,381) 41 (5,112) Other financial results 55 (9) (193) - 11 (2,130) - (2,266) Financial results, net 4 (1,332) (342) - 21 (4,297) - (5,946)

Profit (loss) before income tax 4,013 1,699 4,034 - (276) (5,265) 4 4,209

Income tax and minimun notional income tax 85 (417) (389) - - 2,088 - 1,367

Total profit (loss) of the year for continuing operations 4,098 1,282 3,645 - (276) (3,177) 4 5,576 Discontinued operations - - 121 (43) - - 16 94

Total profit (loss) of the year 4,098 1,282 3,766 (43) (276) (3,177) 20 5,670 Attributable to: Owners of the Company 3,890 951 3,241 (43) (276) (3,177) 20 4,606 Non-controlling interests 208 331 525 - - - - 1,064

Consolidated statement of financial position Generation Electricity Oil Refining and Petro- Holding Eliminations Consolidated (as of December 31, 2017) distribution and gas distribution chemicals and others

Assets 22,833 26,149 22,116 5,887 3,161 29,449 (5,128) 104,467 Liabilities 7,635 24,460 10,446 3,599 2,406 40,948 (5,139) 84,355

134 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 135 ANNUAL REPORT 13.2 Discontinued Consolidated Income Statement by Segment, 2017 Fiscal Year (AR$ million)

Consolidated profit and loss information, discontinued operations Oil and gas Refining and Eliminations Consolidated (as of December 31, 2017) distribution

Revenue 5,972 16,795 (6,890) 15,877 Cost of sales (4,840) (14,256) 6,906 (12,190)

Gross profit 1,132 2,539 16 3,687

Selling expenses (182) (1,957) - (2,139) Administrative expenses (127) (80) - (207) Exploration expenses (19) - - (19) Other operating income 377 223 - 600 Other operating expenses (181) (110) - (291) Impairment of non current assets classified as held for sale - (687) - (687)

Operating profit (loss) 1,000 (72) 16 944

Financial income 22 15 - 37 Financial expenses - (16) - (16) Other financial results (239) (14) - (253) Financial results, net (217) (15) - (232)

Profit (loss) before income tax 783 (87) 16 712

Income tax and minimun notional income tax (662) 44 - (618)

Total profit (loss) of the year for discontinued operations 121 (43) 16 94 Attributable to: Owners of the Company 10 (43) 16 (17) Non-controlling interests 111 - - 111

Items that will not be reclassified to profit or loss Remeasurements related to defined benefit plans (7) 17 - 10 Income tax (174) (6) - (180) Items that may be reclassified to profit or loss Translation differences 773 - - 773 Other comprehensive income of the year for discontinued operations 592 11 - 603

Total comprehensive income (loss) of the year for discontinued operat. 713 (32) 16 697 Attributable to: Owners of the Company 282 (32) 16 266 Non-controlling interests 431 - - 431

Consolidated statement of financial position for discontinued operat. Oil and gas Refining and Eliminations Consolidated (as of December 31, 2017) distribution

Assets 9,318 3,183 - 12,501 Liabilities 2,219 151 - 2,370

136 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 137 ANNUAL REPORT 13.3 Consolidated Income Statement by Segment, 2016 Fiscal Year (AR$ million)

Consolidated profit and loss information Generation Electricity Oil Refining and Petro- Holding Eliminations Consolidated (as of December 31, 2016) distribution and gas distribution chemicals and others

Revenue 4,609 13,079 4,863 - 2,507 52 - 25,110 Intersegment sales 15 - 716 - - 28 (759) - Cost of sales (2,726) (12,220) (3,737) - (2,207) (3) 740 (20,153)

Gross profit (loss) 1,898 859 1,842 - 300 77 (19) 4,957

Selling expenses (65) (1,618) (334) - (110) (5) - (2,132) Administrative expenses (392) (1,171) (632) - (15) (1,446) 28 (3,628) Exploration expenses - - (94) - - - - (94) Other operating income 55 1,718 1,892 - - 560 (61) 4,164 Other operating expenses (104) (465) (826) - (263) (282) 64 (1,876) Results for participation in joint businesses - - - - - 105 - 105 Results for participation in associates - - 11 (1) - (3) - 7 Results from sale of equity share in companies - - - - - 480 - 480

Operating profit (loss) 1,392 (677) 1,859 (1) (88) (514) 12 1,983

Financial income 600 206 103 - 2 105 (167) 849 Financial expenses (750) (1,645) (730) - - (1,320) 168 (4,277) Other financial results 228 (360) 22 - (3) 35 (2) (80) Financial results, net 78 (1,799) (605) - (1) (1,180) (1) (3,508)

Profit (loss) before income tax 1,470 (2,476) 1,254 (1) (89) (1,694) 11 (1,525)

Income tax and minimun notional income tax (317) 753 (305) - - 1,070 - 1,201

Total profit (loss) of the year for continuing operations 1,153 (1,723) 949 (1) (89) (624) 11 (324) Discontinued operations - - (74) 75 - - 71 72

Total profit (loss) of the year 1,153 (1,723) 875 74 (89) (624) 82 (252) Attributable to: Owners of the Company 1,045 (1,147) 627 74 (89) (603) 82 (11) Non-controlling interests 108 (576) 248 - - (21) - (241)

Consolidated statement of financial position Generation Electricity Oil Refining and Petro- Holding Eliminations Consolidated (as of December 31, 2016) distribution and gas distribution chemicals and others

Assets 19,577 17,219 19,414 6,259 2,812 19,494 (7,498) 77,277 Liabilities 8,632 18,856 11,662 3,267 2,401 25,883 (7,498) 63,203

138 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 139 ANNUAL REPORT 13.4 Discontinued Consolidated Income Statement by Segment, 2016 Fiscal Year (AR$ million)

Consolidated profit and loss information, discontinued operations Oil and gas Refining and Eliminations Consolidated (as of December 31, 2016) distribution

Revenue 2,456 6,550 (2,821) 6,185 Cost of sales (1,941) (5,973) 2,931 (4,983)

Gross profit 515 577 110 1,202

Selling expenses (63) (757) - (820) Administrative expenses (25) (23) - (48) Exploration expenses (41) - - (41) Other operating income 235 459 (377) 317 Other operating expenses (656) (98) 377 (377)

Operating profit (loss) (35) 158 110 233

Financial income 38 6 - 44 Financial expenses (10) (9) - (19) Other financial results (43) (40) - (83) Financial results, net (15) (43) - (58)

Profit (loss) before income tax (50) 115 110 175

Income tax and minimun notional income tax (24) (40) (39) (103)

Total profit (loss) of the year for discontinued operations (74) 75 71 72 Attributable to: Owners of the Company (64) 75 71 82 Non-controlling interests (10) - - (10)

Items that will not be reclassified to profit or loss Remeasurements related to defined benefit plans (62) 14 - (48) Income tax 22 (5) - 17 Items that may be reclassified to profit or loss Translation differences 280 - - 280 Other comprehensive income of the year for discontinued operations 240 9 - 249

Total comprehensive income (loss) of the year for discontinued operat. 166 84 71 321 Attributable to: Owners of the Company 77 84 71 232 Non-controlling interests 89 - - 89

Consolidated statement of financial position for discontinued operat. Oil and gas Refining and Eliminations Consolidated (as of December 31, 2016) distribution

Assets 19 - - 19 Liabilities - - - -

140 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 141 ANNUAL REPORT 13.5 Power Generation Segment Net sales in our power generation segment increased by 107.5% to AR$9,597 million for the fiscal year ended Income Analysis for the Fiscal Year ended December December 31, 2017, against AR$4,624 million for fiscal year 2016. The rise of AR$4,973 million in electricity net sales was mainly due to an increase in the average electricity selling price calculated for the segment (AR$604.8 31, 2017, compared to the Fiscal Year ended December per MWh for the fiscal year ended December 31, 2017, compared to AR$388.1 per MWh for the same period in 2016, which represents a sales increase of AR$2,583 million), as well as an increase in the amount of electricity 31, 2016 sold by the segment (15,481 GWh for the fiscal year ended December 31, 2017, compared to 11,921 GWh for the same period in 2016, which represents a AR$2,153 million increase in sales). Consolidated net sales revenues of AR$50,347 million for the fiscal year ended December 31, 2017, 100.5% higher than the AR$25,110 million for fiscal year 2016, mainly explained by the acquisition of Petrobras The average electricity selling price in this segment mainly reflects the impact of the incorporation of CTGEBA, Argentina as from August 2016. The following increases were registered: 107.5% (AR$4,973 million) in power EcoEnergía and HPPL power plants as from August 2016 following the acquisition of Petrobras Argentina, SEE generation, 86.1% (AR$11,260 million) in electricity distribution, 90.7% (AR$5,062 million) in oil and gas, AR$4,722 Res. No. 19/17, which updates remuneration prices established by SEE Res. No. 22/16 effective as from February million in petrochemicals and AR$344 million in our holding and others segment, which were partially offset by 1, 2017 under a gradual increase scheme until reaching the full remuneration as from November 2017, the higher intersegment eliminations for AR$1,124 million. commercial commissioning of GT05 in CTLL, with a power capacity of 105 MW in August 2017 and of CTPP and CTIW power plants in August and December 2017, respectively, as well as the effect of exchange rate variations. Consolidated cost of sales of AR$34,427 million for the fiscal year ended December 31, 2017, a 70.8% rise The following table shows net electricity sales (in GWh) for power generation plants: compared to AR$20,153 million for fiscal year 2016, mainly explained by the acquisition of Petrobras Argentina as from August 2016. The following increases were registered: 96.6% (AR$2,632 million) in power generation, 44.6% (AR$5,447 million) in electricity distribution, 76.1% (AR$2,844 million) in oil and gas, AR$4,448 million in Twelve-Month Periods ended December 31, petrochemicals and without variations in our holding and others segment, partially offset by higher intersegment eliminations (AR$1,097 million). 2017 2016 Consolidated gross income of AR$15,920 million for the fiscal year ended December 31, 2017, a AR$10,963 million increase compared to AR$4,957 million in fiscal year 2016. The following increases were registered: In GWh Net Generation Purchases Total Sales Net Generation Purchases Total Sales AR$2,341 million in power generation, AR$5,813 million in electricity distribution, AR$2,218 million in oil and gas, AR$274 million in petrochemicals and AR$344 million in our holding and others segment, partially offset by higher intersegment eliminations in the amount of AR$27 million. HYDROELECTRIC HINISA 751 - 751 706 - 706 Consolidated operating profit of AR$10,155 million for the fiscal year ended December 31, 2017, a 412.1% HIDISA increase compared to AR$1,983 million for fiscal year 2016. The following increases were registered: AR$2,617 480 - 480 564 - 564 million in power generation, AR$3,708 million in electricity distribution, AR$2,517 million in oil and gas and AR$1 HPPL(1) 760 760 176 176 million in R&D, partially offset by the following decreases: AR$209 million in petrochemicals, AR$454 million in THERMAL holding and others, and AR$8 million in intersegment eliminations. CTLL 3,864 - 3,864 3,644 - 3,644 Net financial results represented a loss of AR$5,946 million for the fiscal year ended December 31, CTG 1,772 565 2,337 1,577 500 2,076 2017, compared to losses for AR$3,508 million for fiscal year 2016, mainly due to an increase in net losses of CTP 156 - 156 155 - 155 AR$74 million in power generation and AR$3,117 million in holding and others, partially offset by higher profits CPB 1,453 - 1,453 2,054 1 2,056 for AR$467 million in electricity distribution, AR$263 million in oil and gas, AR$22 million in petrochemicals and CTPP 142 - 142 - - - AR$1 million in intersegment eliminations. CTIW 23 - 23 - - - (1) Consolidated profit of AR$5,670 million for the fiscal year ended December 31, 2017, of which AR$4,60659 CTGEBA 4,685 727 5,412 2,211 288 2,499 million are attributable to the owners of the Company, compared to a AR$1160 million loss attributable to the owners EcoEnergía(1) 100 3 103 43 1 44 of the Company for fiscal year 2016, explained by the profits reported in power generation (AR$3,890 million), Total 14,186 1,295 15,481 11,131 790 11,921 electricity distribution (AR$951 million), oil and gas (AR$3,241 million), and intersegment eliminations (AR$20 million),

partially offset by the losses reported in petrochemicals (AR$276 million), holding and others (AR$3,177 million), and Note: (1) Considers as from the closing of the acquisition of Petrobras Argentina in August 2016. R&D (AR$43 million) segments.

59Including profits reported for discontinued operations (AR$94 million). 60Including profits reported for discontinued operations (AR$72 million).

142 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 143 ANNUAL REPORT Cost of sales increased by 96.6%, to AR$5,358 million for the fiscal year ended December 31, 2017, against In turn, administrative expenses decreased to AR$357 million for the fiscal year ended December 31, 2017 from AR$2,726 million for fiscal year 2016, mainly due to higher purchases of inventories, energy and gas for AR$1,649 AR$392 million for fiscal year 2016, mainly due to a AR$35 million decrease in labor costs. The following table million, higher labor costs for AR$168 million, higher depreciation of property, plant and equipment in the shows the main components of our power generation segment administrative expenses for the specified periods: amount of AR$460 million and higher consumption of materials for AR$73 million. The following table shows the main components of our power generation segment cost of sales for the specified periods: Administrative Expenses, Fiscal Years Ended December 31, in AR$m except % Cost of Sales, Fiscal Years Ended December 31, 2017 2016 in AR$m except % 2017 2016 Labor costs 220 61.6% 255 65.1% Fees for third-party services 63 17.6% 78 19.9% Purchases of inventories, energy and gas 2,813 52.5% 1,164 42.7% Rentals and insurance 10 2.8% 16 4.1% Labor costs 689 12.9% 521 19.1% Depreciation of property, plant and equipment 7 2.0% 5 1.3% Depreciation of property, plant and equipment 812 15.2% 352 12.9% Taxes, rates and contributions 6 1.7% 1 0.3% Maintenance 205 3.8% 220 8.1% Others 51 14.3% 37 9.4% Consumptions of materials 185 3.5% 112 4.1% Total 357 100.0% 392 100.0% Rentals and insurance 134 2.5% 76 2.8% Fees for third-party services 71 1.3% 68 2.5% Taxes, rates and contributions 34 0.6% 27 1.0% Other net operating incomes and expenses increased by AR$320 million, to a AR$271 million profit, for fiscal year 2017, compared to a loss of AR$49 million for fiscal year 2016, mainly attributable to a higher recovery of Transportation of electricity 79 1.5% 11 0.4% receivables and others in the amount of AR$78 million and a higher reversal of contingencies and tax charges Royalties 67 1.3% 29 1.1% in the amount of AR$239 million. The following table shows the main components of our power generation Amortization for intangible assets 25 0.5% 21 0.8% segment for the specified periods: Accrual of defined benefit plans 59 1.1% 39 1.4% Others 185 3.5% 86 3.2% Other Op. Income & Expenses, Fiscal Years Ended December 31, Total 5,358 100.0% 2,726 100.0% in AR$m except % 2017 2016 Therefore, our power generation segment gross profit increased by 123.3% to AR$4,239 million for the fiscal year ended December 31, 2017, compared to AR$1,898 million for fiscal year 2016. Furthermore, during the fiscal year ended December 31, 2017, the sales gross margin had a 44.2% increase compared to 41.0% recorded Tax on bank transactions -47 -17.3% -53 108.2% in fiscal year 2016. Contingent consideration -63 -23.2% 0 0.0% Recovery of receivables and others 86 31.7% 8 -16.3% Selling expenses from our power generation segment increased to AR$94 million for the fiscal year ended December 31, 2017, against AR$65 million for fiscal year 2016, mainly due to higher labor costs for AR$21 million Recovery of insurance 5 1.8% 20 -40.8% and higher doubtful accounts in the amount of AR$9 million. The following table shows the main components Reversal of contingencies provision 239 88.2% 0 0.0% of our power generation segment selling expenses for the specified periods: Allowance for uncollectible tax credits -6 -2.2% -13 26.5% Others 57 21.0% -11 22.4% Selling Expenses, Fiscal Years Ended December 31, Total 271 100.0% (49) 100.0% in AR$m except % 2017 2016 Power generation operating income increased by 188.0% to AR$4,009 million for the fiscal year ended December 31, 2017, against AR$1,392 million for fiscal year 2016. In fiscal year 2017, sales operating margin increased to 41.8%, against 30.1% for fiscal year 2016. Taxes, rates and contributions 41 43.6% 38 58.5% Labor costs 39 41.5% 18 27.7% Power generation net financial results accounted for a profit of AR$4 million for the fiscal year ended December Doubtful accounts 10 10.6% 1 1.5% 31, 2017, compared to a profit of AR$78 million for fiscal year 2016, mainly due to higher net financial interest Others 4 4.3% 8 12.3% expenditures (AR$164 million), higher expenses in tax interest (AR$62 million), lower profits from changes in the fair value of financial instruments (AR$43 million) and lower proceeds from current value measurement (AR$127 Total 94 100.0% 65 100.0% million), partially offset by higher income from commercial interests (AR$327 million). The following table shows the main components of our generation segment financial and holding results for the specified periods:

144 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 145 ANNUAL REPORT Financial Results, Fiscal Years Ended December 31, Cost of Sales, Fiscal Years Ended December 31, in AR$m except % in AR$m except % 2017 2016 2017 2016

FINANCIAL INCOME Energy Purchases 12,826 72.6% 6,060 49.6% Commercial interest 868 98.5% 541 90.2% Labor costs 3,062 17.3% 2,586 21.2% Financial interest 11 1.2% 47 7.8% Penalties 254 1.4% 2,374 19.4% Others 2 0.2% 12 2.0% Fees for third-party services 668 3.8% 454 3.7% Subtotal 881 100.0% 600 100.0% Depreciation of property, plant and equipment 353 2.0% 297 2.4% Material consumption 294 1.7% 276 2.3% FINANCIAL COST Others 210 1.2% 173 1.4% Financial interest -866 92.9% -738 98.4% Total 17,667 100.0% 12,220 100.0% Tax interest -57 6.1% 5 -0.7% Others -9 1.0% -17 2.3% Subtotal (932) 100.0% (750) 100.0% Therefore, gross profits from our electricity distribution activities amounted to AR$6,672 million during fiscal year ended December 31, 2017, compared to a profit of AR$859 million for fiscal year 2016, reflecting the OTHER FINANCIAL RESULTS effect of the new tariff scheme as from February 2017 and the effect of the registration of penalties and their Changes in the fair value of financial instruments 143 260.0% 186 81.6% adjustments under criteria defined by the ENRE in 2016. Furthermore, during the fiscal year ended December Foreign exchange differences, net 76 138.2% 80 35.1% 31, 2017, the sales gross margin had a 27.4% increase compared to 6.6% recorded in fiscal year 2016. Proceeds from current value measurement -169 -307.3% -42 -18.4% Selling expenses increased by 28.5% to AR$2,079 million for the fiscal year ended December 31, 2017, Other financial results 5 9.1% 4 1.8% compared to AR$1,618 million for fiscal year 2016, mainly due to an increase in fees for third-party services Subtotal 55 100.0% 228 100.0% (AR$75 million), labor costs (AR$106 million), penalties (AR$84 million), and taxes, rates and contributions (AR$144 million). The following table shows the main components of our electricity distribution segment selling Total 4 100.0% 78 100.0% expenses for the specified periods:

Selling Expenses, Fiscal Years Ended December 31, Our power generation activities recorded an income tax benefit of AR$85 million for fiscal year ended December 31, 2017, compared to a charge of AR$317 million for fiscal year 2016. in AR$m except % 2017 2016 Finally, our power generation activities recorded a net profit of AR$4,098 million for fiscal year ended December 31, 2017, of which AR$3,890 million are attributable to the owners of the Company, compared to AR$1,045 million attributable to the owners of the Company for fiscal year 2016. Fees for third-party services 544 26.2% 469 29.0% Labor costs 544 26.2% 438 27.1% Electricity Distribution Segment Penalties 266 12.8% 182 11.2% Doubtful accounts 235 11.3% 228 14.1% Net sales from our electricity distribution activities increased by 86.1% to AR$24,339 million for the fiscal year Communication expenses 177 8.5% 129 8.0% ended December 31, 2017, compared to AR$13,079 million for fiscal year 2016, mainly due to the application, as from February 1, 2017, of the new tariff scheme set forth by ENRE Res. No. 63/17, as amended, and the new Taxes, rates and contributions 242 11.6% 98 6.1% tariff scheme, effective as of December 1, 2017, established by ENRE Res. No. 603/17, as amended, Edenor’s Others 71 3.4% 74 4.6% electricity sales volume being 21,503 GWh for 2017, compared to 22,253 GWh in 2016. Total 2,079 100.0% 1,618 100.0%

The cost of sales increased by 44.6% to AR$17,667 million for the fiscal year ended December 31, 2017, compared to AR$12,220 million for fiscal year 2016, mainly due to increases in energy purchases (AR$6,766 million), labor costs (AR$476 million) and fees for third-party services (AR$214 million), partially offset by lower penalties (AR$2,120 million). The following table shows the main components of our electricity distribution segment cost of sales for the specified periods:

146 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 147 ANNUAL REPORT Administrative expenses increased by 23.3% to AR$1,444 million for the fiscal year ended December 31, 2017, Net financial results related to our electricity distribution activities represented a loss of AR$1,332 million for the compared to AR$1,171 million for fiscal year 2016, mainly due to the increase in labor costs (AR$43 million), fees fiscal year ended December 31, 2017, 26% lower than the AR$1,799 million loss for fiscal year 2016, mainly due for third party services (AR$102 million), rentals and leasing (AR$23 million), and security surveillance expenses to lower expenses in net financial interests (AR$159 million) and lower losses for net foreign exchange differences (AR$35 million). The following table shows the main components of our electricity distribution segment’s (AR$455 million), partially offset by lower profits in changes in the fair value of financial instruments (AR$106 administrative expenses for the specified periods: million) and higher expenses in net commercial interests (AR$36 million). The following table illustrates the main components of financial and holding results from our electricity distribution segment for the periods shown: Administrative Expenses, Fiscal Years Ended December 31, in AR$m except % Financial Results, Fiscal Years Ended December 31, 2017 2016 in AR$m except % 2017 2016

Labor costs 552 38.2% 509 43.5% Fees for third-party services 498 34.5% 396 33.8% FINANCIAL INCOME Rentals and leasings 111 7.7% 88 7.5% Commercial interest 107 39.3% 134 65.0% Security surveillance expenses 79 5.5% 44 3.8% Financial interest 165 60.7% 72 35.0% Others 204 14.1% 134 11.4% Subtotal 272 100.0% 206 100.0% Total 1,444 100.0% 1,171 100.0% FINANCIAL COST Commercial interest -1,030 64.6% -1,021 62.1% Other operating incomes and expenses for the fiscal year ended December 31, 2017 amounted to a net loss of Financial interest -545 34.2% -611 37.1% AR$661 million, compared to a net profit of AR$1,25361 million in fiscal year 2016, mainly explained by an increase Tax interest -19 1.2% -10 0.6% in the provision for contingencies (AR$187 million) and tax on bank transactions (AR$137 million), besides the recognition of income to be charged against the RTI pursuant to SE Res. No. 32/15 (AR$1,545 million) and the Others -1 0.1% -3 0.2% recognition of higher costs under SE Res. No. 250/13 and subsequent Notes (AR$82 million) effective in 2016. The Subtotal (1,595) 100.0% (1,645) 100.0% following table shows the details for the specified periods: OTHER FINANCIAL RESULTS Other Op. Income & Expenses, Fiscal Years Ended December 31, Foreign exchange differences, net -327 3633.3% -782 217.2% in AR$m except % Changes in the fair value of financial instruments 322 -3577.8% 428 -118.9% 2017 2016 Other financial results -4 44.4% -6 1.7% Subtotal (9) 100.0% (360) 100.0%

Provision for contingencies -338 51.1% -151 -12.1% Total (1,332) 100.0% (1,799) 100.0% Tax on bank transactions -294 44.5% -157 -12.5% Decrease in property, plant and equipment -11 1.7% -40 -3.2% Voluntary retirements - bonus -49 7.4% -35 -2.8% In turn, our electricity distribution operations recorded an income tax charge of AR$417 million in the fiscal Net expenses for technical functions 0 0.0% -18 -1.4% year ended December 31, 2017, compared to a AR$753 million benefit for fiscal year 2016. Other expenses FOCEDE 0 0.0% -15 -1.2% Finally, our electricity distribution activities disclosed a net profit of AR$1,282 million for the fiscal year ended Income from services to third-party 53 -8.0% 62 4.9% December 31, 2017, of which AR$951 million are attributable to the owners of the Company, compared to a net Income recognition on account of the RTI - SE Res. No. 32/15 0 0.0% 1,545 123.3% loss of AR$1,147 million attributable to the owners of the Company for fiscal year 2016. Higher costs recog. - SE Res. No. 250/13 and subseq. Notes 0 0.0% 82 6.5% Others -22 3.3% -20 -1.6% Oil and Gas Segment Total (661) 100.0% 1,253 100.0% It should be pointed out that the following analysis of the oil and gas segment’s results for fiscal years 2017 and 2016 is for continuing operations. Furthermore, sections 13.2 and 13.4 of this Annual Report disclose results by segment for discontinued operations for fiscal years 2017 and 2016. Operating income from our electricity distribution activities increased by AR$3,708 million and recorded a AR$3,031 million profit for fiscal year ended December 31, 2017, compared to a AR$677 million loss for fiscal Net sales from our oil and gas segment amounted to AR$10,641 million for the fiscal year ended year 2016. In 2017, the sales operating margin amounted to 12.5%, whereas in 2016 the operating loss ratio on December 31, 2017, a figure 90.7% higher than the AR$5,579 million disclosed for fiscal year 2016. The total sales reached 5.2%. AR$5,062 million increase was mainly due to the incorporation of Petrobras Argentina as from August 2016. The following table shows production for the oil and gas segment for the periods shown, including the production of discontinued operations:

61 Including income under SE Res. and injunctions in the amount of AR$1,627 million.

148 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 149 ANNUAL REPORT Twelve-Month Periods ended December 31, Our oil and gas segment selling expenses increased to AR$455 million for fiscal year ended December 31, 2017, against AR$334 million for fiscal year 2016, mainly due to higher taxes, rates and contributions (AR$131 million). The following table shows the main components of our oil and gas segment selling expenses for the 2017 2016 specified periods:

Oil (k m3/d) Selling Expenses, Fiscal Years Ended December 31, Pampa* 2.1 2.8 in AR$m except % PEPASA** 0.0 0.0 2017 2016 PELSA* 1.1 1.2 Total 3.2 4.1 Taxes, rates and contributions 277 60.9% 146 43.7% Compensation Agreements 132 29.0% 157 47.0% Gas (m m3/d) Labor costs 17 3.7% 20 6.0% Pampa* 4.4 5.1 Others 29 6.4% 11 3.3% PEPASA** 2.8 2.8 Total 455 100.0% 334 100.0% PELSA* 0.8 0.7 Total 8.0 8.6 In turn, administrative expenses increased to AR$975 million for fiscal year ended December 31, 2017, GLP (k ton/d) against AR$632 million for fiscal year 2016, mainly due to the increase in labor costs (AR$171 million), and fees Pampa* 0.0 0.0 for third-party services (AR$153 million). The following table illustrates the main components of administrative PEPASA** - - expenses from our oil and gas segment for the periods shown: PELSA* 0.1 0.1 Total 0.1 0.1 Administrative Expenses, Fiscal Years Ended December 31, in AR$m except % * Considers since the closing of the acquisition of Petrobras Argentina, from August 2016, and includes foreign production. ** It does not consider the volume of Medanito La Pampa to the benefit of PEPASA. 2017 2016

Cost of sales increased by 76.1% to AR$6,581 million for the fiscal year ended December 31, 2017, against Labor costs 495 50.8% 324 51.3% AR$3,737 million for fiscal year 2016, mainly due to higher property, plant and equipment depreciation costs Compensation Agreements 184 18.9% 214 33.9% (AR$548 million), royalties (AR$655 million), fees for third party services (AR$594 million), gas consumption Fees for third-party services 220 22.6% 67 10.6% and production (AR$708 million), and maintenance costs (AR$223 million). The following table shows the main components of our oil and gas segment cost of sales for the specified periods: Taxes, rates and contributions 10 1.0% 1 0.2% Directors and statutory auditors’ fees 3 0.3% 4 0.6% Others 63 6.5% 22 3.5% Cost of Sales, Fiscal Years Ended December 31, in AR$m except % Total 975 100.0% 632 100.0% 2017 2016 During fiscal year 2017, exploration expenses amounted to AR$44 million, compared to AR$94 million in fiscal year 2016, mainly due to a decrease in wells retirement and decommissioning (AR$48 million), and, to a higher Depreciation of property, plant and equipment 1,939 29.5% 1,391 37.2% extent, as a result of the acquisition of Petrobras Argentina in 2016. Royalties 1,228 18.7% 573 15.3% Fees for third-party services 1,165 17.7% 571 15.3% Exploration Expenses, Fiscal Years Ended December 31, Purchases of inventories and gas 1,618 24.6% 910 24.4% in AR$m except % Labor costs 110 1.7% 72 1.9% Maintenance and material comsumption 240 3.6% 17 0.5% 2017 2016 Rentals and insurance 106 1.6% 89 2.4% Others 175 2.7% 114 3.1% Wells retirement 27 61.4% 75 79.8% Total 6,581 100.0% 3,737 100.0% Geological and geophysical costs 17 38.6% 19 20.2% Total 44 100.0% 94 100.0%

Therefore, our oil and gas segment’s gross profit increased by 120.4% to AR$4,060 million for fiscal year ended December 31, 2017, compared to AR$1,842 million for fiscal year 2016. In fiscal year 2017, the gross margin increased to 38.2% of total sales, against 33.0% for fiscal year 2016.

150 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 151 ANNUAL REPORT Other net operating incomes and expenses increased by 63.8%, to a profit of AR$1,746 million for fiscal year Financial Results, Fiscal Years Ended December 31, 2017, compared to AR$1,066 million for fiscal year 2016. This net profit mainly results from an increase in the Gas in AR$m except % Plan compensations, under which AR$2,340 million were accrued during fiscal year 2017, a figure 14.9% higher than the AR$2,037 million disclosed in fiscal year 2016, lower expenses for compensation agreements (AR$64 2017 2016 million) and higher income from services to third-parties (AR$85 million), besides environmental remediation expenses (AR$199 million) incurred in 2016. The following table shows the main components of our oil and gas FINANCIAL INCOME segment for the specified periods: Financial interest 22 22.9% 23 22.3% Others 74 77.1% 80 77.7% Other Op. Income & Expenses, Fiscal Years Ended December 31, Subtotal 96 100.0% 103 100.0% in AR$m except % FINANCIAL COST 2017 2016 Financial interest -195 79.6% -711 97.4% Tax interest -6 2.4% -1 0.1% Gas Plan 2,340 134.0% 2,037 191.1% Others -44 18.0% -18 2.5% Tax on bank transactions -70 -4.0% -68 -6.4% Subtotal (245) 100.0% (730) 100.0% Compensation Agreements -45 -2.6% -109 -10.2% Environmental remediation 0 0.0% -199 -18.7% OTHER FINANCIAL RESULTS Provision for contingencies -58 -3.3% -101 -9.5% Foreign exchange differences, net -239 123.8% -74 -336.4% Income from services to third-party 129 7.4% 44 4.1% Well decommissioning -40 20.7% -32 -145.5% Extraordinary royalties -314 -18.0% -366 -34.3% Changes in the fair value of financial instruments 63 -32.6% 160 727.3% Others -236 -13.5% -172 -16.1% Others 23 -11.9% -32 -145.5% Total 1,746 100.0% 1,066 100.0% Subtotal (193) 100.0% 22 100.0%

Total (342) 100.0% (605) 100.0%

Oil and gas operating income increased by AR$2,517 million, reaching AR$4,376 million in fiscal year ended Our oil and gas segment recorded an income tax charge of AR$389 million for fiscal year ended December December 31, 2017, against AR$1,859 million for fiscal year 2016. In fiscal year 2017, our operating margin 31, 2017, compared to a charge of AR$305 million for the same period in fiscal year 2016. increased to 41.1% of total sales, compared to 33.3% for fiscal year 2016. Finally, our oil and gas segment recorded a net profit of AR$3,766 million62 for fiscal year ended December Net financial results from our oil and gas activities represented a loss of AR$342 million for fiscal year ended 31, 2017, of which AR$3,241 million are attributable to the Company’s owners, compared to AR$627 million December 31, 2017, compared to a AR$605 million loss in fiscal year 2016, mainly due to lower net financial recorded for fiscal year 2016 attributable to the Company’s owners interest expenses (AR$515 million), partially offset by higher net foreign exchange losses (AR$165 million) and lower profits from changes in the fair value of financial instruments (AR$97 million). The following table illustrates the main components of financial and holding results from our oil and gas segment for the periods shown: R&D Segment It should be pointed out the following analysis of the R&D segment’s results for fiscal years 2017 and 2016 is for continuing operations. Furthermore, sections 13.2 and 13.4 of this Annual Report disclose results by segment for discontinued operations for fiscal years 2017 and 2016.

During fiscal year ended December 31, 2017 no operating results were reported in our R&D activities, against a AR$1 operating loss recorded in fiscal year 2016, corresponding to the results for participation in our affiliate Refinor.

Furthermore, our R&D activities have not recorded either income tax charges or benefits for the fiscal years ended December 31, 2017 and 2016. The following table shows the volumes sold in the R&D segment for discontinued operations during the specified periods:

62 Including profits recorded from discontinued operations in the oil and gas segment (AR$121 million) in fiscal year 2017, whereas in fiscal year 2016 losses for AR$74 million were reported.

152 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 153 ANNUAL REPORT Selling Volume Twelve-Month Periods ended December 31, Cost of Sales, Fiscal Years Ended December 31, in k m3 in AR$m except % 2017 2016 2017 2016

Crude Oil 17 7 Inventory purchases 5,258 79.0% 1,680 76.1% Diesel Oil 811 376 Labor costs 962 14.5% 347 15.7% Gasolines 455 225 Depreciation of property, plant and equipment 116 1.7% 35 1.6% Fuel Oil, IFOs & Asphalts 297 131 Fees for third-party services 44 0.7% 33 1.5% Other distillates 264 73 Maintenance 128 1.9% 46 2.1% Total 1,843 812 Others 147 2.2% 66 3.0% Total 6,655 100.0% 2,207 100.0% Considers as from the closing of the acquisition of Petrobras Argentina in August 2016.

Therefore, our petrochemicals segment gross profit increased by 91.3% to AR$574 million for fiscal year ended Finally, our R&D activities recorded a net loss of AR$43 million63 for fiscal year ended December 31, December 31, 2017, compared to AR$300 million in fiscal year 2016. In fiscal year 2017, the gross margin decreased 2017, the whole of which is attributable to the owners of the Company, compared to a net profit of AR$74 to 7.9% of total sales, against 12.0% for fiscal year 2016. million attributable to the owners of the Company for fiscal year 2016. This net results correspond mainly to discontinued operations. Selling expenses from our petrochemicals segment increased to AR$290 million for fiscal year ended December 31, 2017, against AR$110 million for fiscal year 2016, mainly due to higher taxes, rates and contributions (AR$82 Petrochemicals Segment million), transportation and loading (AR$42 million), labor costs (AR$15 million) and fees for third-party services (AR$31 million). The following table shows the main components of our petrochemicals segment selling expenses Net sales from our petrochemicals segment amounted to AR$7,229 million during fiscal year ended December for the specified periods: 31, 2017, a figure 188.4% higher than AR$2,507 million disclosed for fiscal year 2016. The AR$4,722 million increase was mainly due to the incorporation of former Petrobras Argentina as from August 2016. The following table shows sales volumes in the petrochemicals segment during the specified periods: Selling Expenses, Fiscal Years Ended December 31, in AR$m except % 2017 2016 Selling Volume Twelve-Month Periods ended December 31, in k ton Taxes, rates and contributions 137 47.2% 55 50.0% 2017 2016 Transportation and loading 69 23.8% 27 24.5% Labor costs 21 7.2% 6 5.5% Fees for third-party services 51 17.6% 20 18.2% Styrene & Polystyrene 134 57 Others 12 4.1% 2 1.8% SBR 33 11 Total 290 100.0% 110 100.0% Others 291 137 Total 458 205 In turn, administrative expenses increased to AR$74 million during fiscal year ended December 31, 2017, against Considers as from the closing of the acquisition of Petrobras Argentina in August 2016. AR$15 million in fiscal year 2016, mainly due to higher labor costs (AR$46 million) and fees for third-party services (AR$10 million). The following table shows the main components of our petrochemicals segment administrative expenses for the specified periods:

Cost of sales increased by 201.5%, to AR$6,655 million, for fiscal year ended December 31, 2017, against AR$2,207 million for fiscal year 2016, mainly due to higher inventory purchases (AR$3,578 million), labor costs (AR$615 million), depreciation of property, plant and equipment (AR$81 million) and maintenance costs (AR$82 Administrative Expenses, Fiscal Years Ended December 31, million). The following table shows the main components of our petrochemicals segment cost of sales for the specified periods: in AR$m except % 2017 2016

Labor costs 59 79.7% 13 86.7% Fees for third-party services 12 16.2% 2 13.3% Others 3 4.1% 0 0.0%

63 Including losses recorded from discontinued operations in the R&D segment (AR$43 million) in fiscal year 2017, whereas in fiscal year 2016 profits Total 74 100.0% 15 100.0% for AR$75 million were reported.

154 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 155 ANNUAL REPORT Other net operating incomes and expenses recorded a loss of AR$507 million during fiscal year 2017, against The cost of sales of the holding and others segment suffered no variations, as it amounted to AR$3 million a AR$263 million loss during fiscal year 2016, mainly on account of a higher provision for contingencies (AR$251 for both fiscal years ended December 31, 2017 and 2016. The following table shows the main components of million). The following table shows the main components of our petrochemicals segment for the specified periods: our holding and others segment cost of sales for the specified periods:

Other Op. Income & Expenses, Fiscal Years Ended December 31, Cost of Sales, Fiscal Years Ended December 31, in AR$m except % in AR$m except % 2017 2016 2017 2016

Provision for contingencies -418 82.4% -167 63.5% Labor costs 1 33.3% 2 66.7% Idle capacity -96 18.9% -85 32.3% Inventory purchases 0 0.0% 0 0.0% Others 7 -1.4% -11 4.2% Others 2 66.7% 1 33.3% Total (507) 100.0% (263) 100.0% Total 3 100.0% 3 100.0%

Operating losses from our petrochemicals segment amounted to AR$297 million during fiscal year ended Therefore, gross profit from our holding and others segment amounted to AR$421 million for the fiscal year December 31, 2017, against AR$88 million losses during fiscal year 2016. The operating losses over total sales ended December 31, 2017, a figure 446.8% higher than the AR$77 million disclosed for fiscal year in 2016. ratio amounted to 4.1% during fiscal year 2017, against 3.5% in fiscal year 2016. No selling expenses were recorded in our holding and others segment during fiscal year ended December 31, Net financial results from our petrochemicals activities represented a AR$21 million profit during the fiscal 2017, whereas AR$5 million were reported for taxes, rates and contributions during fiscal year 2016. year ended December 31, 2017, against AR$1 million losses in fiscal year 2016, mainly accounted for higher profits resulting from net foreign exchange differences (AR$14 million) and commercial interest (AR$8 million). Selling Expenses, Fiscal Years Ended December 31, The following table illustrates the main components of financial and holding results from our petrochemicals segment for the specified periods: in AR$m except % 2017 2016 Financial Results, Fiscal Years Ended December 31, in AR$m except % Taxes, rates and contributions 0 100.0% 5 100.0% 2017 2016 Total - 100.0% 5 100.0%

FINANCIAL INCOME Commercial interest 10 100.0% 2 100.0% Administrative expenses increased by 44.9% to AR$2,095 million during fiscal year ended December 31, 2017 Subtotal 10 100.0% 2 100.0% against AR$1,446 million for fiscal year 2016, following the acquisition of Petrobras Argentina as from August 2016. This increase is mainly due to higher labor costs (AR$312 million), compensation agreements (AR$245 million), taxes, rates and contributions (AR$44 million) and pension plans (AR$42 million). The following table OTHER FINANCIAL RESULTS illustrates the main components of administrative expenses from our holding and others segment for the Foreign exchange differences, net 9 81.8% -5 166.7% periods shown: Others 2 18.2% 2 -66.7% Subtotal 11 100.0% (3) 100.0% Administrative Expenses, Fiscal Years Ended December 31, in AR$m except % Total 21 100.0% (1) 100.0% 2017 2016

No income taxes were recorded in our petrochemicals activities during the fiscal years ended December 31, 2017 and 2016. Fees for third-party services 585 27.9% 708 49.0% Labor costs 805 38.4% 493 34.1% Finally, our petrochemicals activities recorded a net loss of AR$276 million for fiscal year ended December Compensation Agreements 246 11.7% 1 0.1% 31, 2017, the whole of which is attributable to the owners of the Company, against a net loss of AR$89 million Directors’ and syndics’ fees 72 3.4% 49 3.4% attributable to the owners of the Company for fiscal year 2016. Taxes, rates and contributions 65 3.1% 21 1.5% Pension plan 106 5.1% 64 4.4% Holding and Others Segment Maintenance 45 2.1% 27 1.9% Net sales from our holding and others segment amounted to AR$424 million for the fiscal year ended Others 171 8.2% 83 5.7% December 31, 2017, a figure 430% higher than the AR$80 million disclosed for fiscal year 2016. These sales Total 2,095 100.0% 1,446 100.0% mostly correspond to fees collected from the Group’s companies.

156 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 157 ANNUAL REPORT Net other operating incomes and expenses from our holding and others segment registered a loss of Financial Results, Fiscal Years Ended December 31, AR$408 million during fiscal year 2017, against a profit of AR$278 million disclosed in fiscal year 2016. The in AR$m except % following table shows the main items recorded in our holding and others segments for the specified periods: 2017 2016

Other Op. Income & Expenses, Fiscal Years Ended December 31, in AR$m except % FINANCIAL INCOME 2017 2016 Financial interest 176 82.2% 78 74,3% Others 38 17.8% 27 25,7% Subtotal 214 100.0% 105 100.0% Provision for contingencies -65 15.9% -26 -9.4%

Tax on bank transactions -406 99.5% -196 -70.5% FINANCIAL COST Reversal of contingencies provision 246 -60.3% 0 0.0% Financial interest -2,148 90.2% -1,172 88.8% Provision for other receivables -8 2.0% -10 -3.6% Tax interest -179 7.5% -69 5.2% Recovery of expenses 0 0.0% 31 11.2% Others -54 2.3% -79 6.0% Donations and contributions -30 7.4% 0 0.0% Subtotal (2,381) 100.0% (1,320) 100.0% Contingent consideration -108 26.5% 0 0.0%

Others -37 9.1% 479 172.3% OTHER FINANCIAL RESULTS Total (408) 100.0% 278 100.0% Changes in the fair value of financial instruments 944 -44.3% 346 988.6% Foreign exchange differences, net -3,078 144.5% -316 -902.9% Others 4 -0.2% 5 14.3% Our holding and others segment’s operating loss amounted to AR$968 million for fiscal year ended Subtotal (2,130) 100.0% 35 100.0% December 31, 2017, compared to a AR$514 million loss for fiscal year 2016, mainly accounted for the acquisition of Petrobras Argentina as from August 2016. Total (4,297) 100.0% (1,180) 100.0%

Net financial results from our holding and others activities represented a loss of AR$4,297 million during fiscal year ended December 31, 2017 against a AR$1,180 million loss for fiscal year 2016, mainly explained by higher net financial interest expenses (AR$878 million), higher tax interest expenses (AR$110 million) and higher Also, our holding and others segment recorded an income tax benefit of AR$2,088 million for fiscal year losses from net foreign exchange differences (AR$2,762 million), partially offset by higher profits from changes ended December 31, 2017, compared to a AR$1,070 million benefit for fiscal year 2016. in the fair value of financial instruments (AR$598 million). The following table illustrates the main components of financial and holding results from our holding and others segment for the periods shown: Finally, our holding and others segment registered a net loss of AR$3,177 million for fiscal year ended December 31, 2017, the whole of which is attributable to the Company’s owners, compared to a net loss of AR$603 million recorded in fiscal year 2016 and attributable to the Company’s owners.

158 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 159 ANNUAL REPORT 14 15 Dividend Board of Directors’ Policy Proposal

Pampa has not set out a specific policy for dividend payments due to the unique characteristics of the As we have informed in section 14, in 2017 the Company is not planning to pay dividends so as to retain all industries where it operates, the current scenario and the volatility of the markets. In this sense, it is not available funds and profits in order to apply them to the operation and expansion of our business. Consequently, advisable to establish a specific dividend payment policy. The Board of Directors assesses the possibility and on account of the AR$3,382 million profit disclosed this fiscal year, the Board of Directors proposes that of paying dividends to Pampa’s shareholders on a prudential basis within each fiscal year, after thoroughly a legal reserve of AR$116 million should be created and that the balance of AR$3,266 million should be examining the economic circumstances prevailing at the time. appropriated to a voluntary reserve.

In 2017, we are not planning to pay cash dividends on our common shares or ADSs, thus retaining all Finally, we would like to express our gratitude to all the people who shape Pampa Energía into the largest available funds and profits in order to apply them to the operation and expansion of our business. independent energy integrated company in Argentina. To all of them, to our shareholders who rely on us, to our advisors, to our customers and suppliers, a warm vote of thanks.

City of Buenos Aires, March 8, 2018.

THE BOARD OF DIRECTORS

160 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 161 ANNUAL REPORT PRINCIPLE I: Ensuring Transparency in the Relationship between the Issuer, the Business Group of which it is a Leader and/or a Part, and its Related Parties

Recommendation I.1: Ensuring Board disclosure of applicable policies to the Issuer’s relationship with the business group of which it is a leader or a part, and its related parties Appendix I: Corporate Compliance: Total Inform or Explain: In Meeting No. 2019 dated October 10, 2008, Pampa’s Board of Directors approved the Related Party Transaction Policy and later, in meeting No. 2,123 dated October 27, 2015, approved an update of this Policy. Pursuant to this policy, all transactions (i) deemed high-value transactions, that is, with a value equal to or higher than 1% of Pampa’s Shareholders Equity; (ii) made with individuals and/or legal entities which, pursuant Governance Report to Section 72 of the CMA, are considered related parties should be subject to a specific prior authorization and control procedure carried out under the coordination of Pampa’s executive legal department with the participation of both Pampa’s Board of Directors and its Audit Committee (as applicable). Said procedure strictly follows the CNV General Res. No. 606/12 guidelines set out in the applicable laws and regulations in this matter (Section 72 of the CMA).

Additionally, Pampa will present itemized information on any contract entered into with related parties in its annual Background and quarterly FS; furthermore, in compliance with the regulations in force, all high-value transactions executed by Pampa with related parties are subject to the consideration of the Audit Committee and promptly reported under Following the guidelines of the abrogated RTOP, the CNV, under General Res. No. 516/07, approved the the caption ‘relevant event’ to both the CNV and the markets where the Company quotes its shares. minimum content requirements for the preparation of a Code of Corporate Governance. Pursuant to this Code, all listed companies authorized by the CNV to make public offering of their marketable securities should Recommendation I.2: Ensuring the existence of mechanisms to prevent any conflict of interest meet disclosure requirements for the presentation of their annual FS. Their annual report should include a separate appendix with a detailed report where they should inform whether and how they complied with the Compliance: Total recommendations in this Code, or explain the reasons why they failed to fully or partially comply with them, Inform or Explain: Pampa has a Code of Business Conduct in place stating the ethical principles that are the and/or whether they planned to adopt such recommendations in the future. groundwork for the relationship between Pampa, its directors and statutory auditors, as well as its employees and third parties (customers, suppliers, communities, colleagues, shareholders, etc.) These guidelines provide Then, based on the core principles set out in CNV General Res. No. 516/07 regarding corporate governance that individuals within the scope of the applicable Code of Business Conduct should avoid any situation resulting and best practices, on May 23, 2012, the CNV passed General Res. No. 606/12, specifically providing as follows: in a conflict between their own personal interests and the company’s, thus preventing their personal or family (i) abrogating CNV Res. No. 516/07 for fiscal years beginning as from January 1, 2012; (ii) setting out a new interests from exerting any influence on their decisions and professional performance. Code laying down the various corporate governance principles and recommendations (substantially similar to those contained in the previous resolution); (iii) broadening the scope of application of this Code, covering all the Any infringement upon the Code of Business Conduct may be reported through Pampa’s Ethics Hotline. issuers subject to the securities public offering regime, except for small and mid-sized enterprises, commercial paper debt issuers, credit unions, associations, and financial trust/depositary receipt Cedear issuers; and (iv) Recommendation I.3: Preventing misuse of insider information changing the way in which issuers must present their annual report, specifying full or partial compliance with Compliance: Total the provisions contained in this Code. Inform or Explain: On the one hand, the Code of Business Conduct provides that all information generated, transmitted or stored by Pampa will be considered private and confidential and may not be disseminated As a result of the passing and enactment of CMA, in force since January 25, 2012, the RTOP regime was in the absence of an express authorization. The obtained information may not be used for its own or third expressly abrogated by such law, and any reference thereto contained herein will conform to the new principles. party’s benefit. Therefore, Pampa’s Board of Directors has approved the report required by the Code, which is an integral part of these FS, and which contents are indicated below: On the other hand, and specifically relating to insider trading practices, Pampa has a Code of Best Securities Trading Practices. The policy provides that Directors, statutory auditors, managers and employees may not use material privileged information about Pampa, its affiliates, subsidiaries, and related companies to take advantage for their own or for third parties whenever they purchase or sell marketable securities.

In this regard, the Code provides that, at all times, all Covered Subjects should require the compliance officer’s express authorization to conduct any trading operation involving Pampa, its controlled companies, subsidiaries, affiliates and related companies’ securities. Furthermore, the Code provides for ‘restricted periods’ within which no covered subject is authorized to conduct any operation. For example, before the issuance of the FS, a restricted period is established, starting 20 days before and 48 hours after the presentation of the quarterly FS, and of 40 days before and 48 hours after the presentation of the annual FS.

162 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 163 ANNUAL REPORT PRINCIPLE II: II.1.1.6 Laying the Groundwork for Sound Management and Supervision by the Issuer Compliance: Partial Inform or Explain: The CEO, together with executive directors and the Human Resources Department, are in charge of designing succession planning for senior managers. The Company does not have specific policies Recommendation II.1: Ensuring that Management takes on the Issuer’s management, supervision, regulating the succession planning for senior managers. and strategic direction II.1.1.7 II.1.1 Compliance: Total II.1.1.1 Inform or Explain: At Pampa, we understand Corporate Social Responsibility as a strategic management model Compliance: Total which is implemented through the Foundation, with a strong commitment to society that goes beyond energy Inform or Explain: Pampa’s Board of Directors approves the Company’s annual budget, management goals, demand satisfaction, by developing programs oriented towards improving the life quality of our employees, administrative matters, and different policies and strategies. It also monitors the strategic goals pursued by Pampa’s their families and the communities we are part of. subsidiaries. As from 2016, with the incorporation of new assets and their communities of influence, the Foundation has II.1.1.2 adopted a new strategic focus: education as a fundamental right, local management of Corporate Social Responsibility for relationships between the asset and the community, and corporate volunteering. Compliance: Total Inform or Explain: Pampa has a Cash Flow Committee and a Finance Committee in charge of implementing Since 2008, the Foundation has promoted programs that contribute to strengthening the abilities of people and procedures and monitoring the Company’s financial transactions in order to ensure transparency, clarity, and real- social organizations, showing a clear sustainable commitment with the communities Pampa Energía is part of. time availability of material information. In turn, articulation of investment policies is supervised by the Company’s executive directors and CEO. II.1.1.8

Furthermore, Pampa has an Investment Project Management Policy in place aimed at systematizing and standardizing Compliance: Total the steps to be followed by the Company’s business areas involved in the management of investment projects so Inform or Explain: Regarding risk management, at the meeting held on March 7, 2007, Pampa’s Board as to provide an analysis, authorization and control mechanism enhancing Pampa Energía’s Group economic value. of Directors decided to implement a risk management methodology that would turn into a useful tool for identifying the main risks affecting Pampa. Such methodology provides for adequate risk response solutions, as II.1.1.3 well as formal risk disclosure channels. Later on, at Meeting No. 2004 held on March 7, 2008, Pampa’s Board of Directors approved the ‘Risk Management Handbook’, which in December 2010 was updated and restated as Compliance: Total ‘Business Risk Management Policy’. Inform or Explain: Annually, the Board of Directors approves the Corporate Governance report pursuant to CNV General Res. No. 606/12. Regarding internal controls, Pampa’s Internal Audit Area has Bylaws in place regulating its activities which is aligned with the most relevant standards issued by the Institute of Internal Auditors and has been approved by Moreover, most of the internal policies implemented in the company in accordance with the aforementioned the Audit Committee. Res., are approved by Pampa’s Board of Directors. Besides, Pampa has an Anti-Fraudulent Practices Policy and a Procedure for reporting suspected frauds or II.1.1.4 irregularities. Both documents contain a detailed description of the process to be followed from the reception of Compliance: Total the complaint to the conclusion of investigation and the application of the pertinent corrective action. At least Inform or Explain: The appointment of Pampa’s senior managers is the result of a coordinated recruitment quarterly, the Internal Audit area reports the received cases and the adopted decisions to the Audit Committee. process conducted by the Company’s Chairman, executive directors, and the Human Resources Department. The Audit Committee supervises the channel’s operations and the resolution of complaints in issues within its Within the organization, there is an employment policy in place which describes the selection process for any authority. This regulation is complementary to the Code of Business Conduct. candidate irrespective of his or her category or position. II.1.1.9 Furthermore, the Company has a procedure in place that is coordinated by the Human Resources Department, Compliance: Partial by which all the employees (including managers) are annually evaluated on the level of performance and Inform or Explain: Pampa has implemented a training policy geared at supporting professional and academic fulfillment of goals set by more senior officers. Based on the degree of fulfillment of corporate goals, among development, and allowing for conducting programs to attract, develop, and retain its own human resources. other factors, an annual variable compensation (performance bonus), and potential promotions and salary This policy is not formally approved or supervised by Pampa’s Board of Directors, but is approved by the CEO increases are determined based on market parameters and the company’s internal criteria. and administered by the Human Resources Department.

II.1.1.5 II.1.2 Compliance: Partial Compliance: Total Inform or Explain: The CEO and the executive directors are in charge of designing succession planning for Inform or Explain: There is no other relevant corporate governance policy not previously mentioned in this report. senior managers. The Company does not have specific policies regulating the allocation of responsibilities to senior managers.

164 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 165 ANNUAL REPORT II.1.3 II.3.2 Compliance: Total Compliance: Total Inform or Explain: Pampa’s executive legal department supplies all Pampa’s directors and statutory auditors, Inform or Explain: Contemporaneously with the approval of audited annual FS, as well as quarterly FS with as early as possible, with all the information on business to be transacted at any Board meeting. limited review, Pampa’s CFO, on behalf of the Board of Directors and the Investor Relations Area, organizes a Moreover, by way of Pampa’s executive legal department, any director and/or statutory auditor may ask conference call for all Pampa’s shareholders and other stakeholders generally, with a view to sharing information the relevant managers’ office questions on issues that are submitted to them for consideration. Besides, it is on management and financial results, giving reasons for such results, and answering any questions and queries. Pampa’s internal practice to submit quarterly management reports to the Board of Directors stating all relevant business, technical, regulatory, financial and accounting information related to Pampa and its subsidiaries. Historically, Pampa’s Annual General Shareholders’ Meetings transacting the annual performance assessment of directors have generally approved such business without any qualification or specification. As of the date of II.1.4 this report, none of the shareholders present at these meetings has ever requested to have the performance of directors assessed according to the compliance levels specified in this Recommendation. Compliance: Total Inform or Explain: Every Pampa’s significant ordinary business affair or administration matter to be approved by its Board of Directors is supported by the relevant reports written by Pampa’s managers offices involved, as Recommendation II.4: Ensuring that the number of external and independent members constitutes well as their opinions on the risks inherent to such matters. If applicable, all these procedures are conducted a significant share of Management within the framework of the Business Risk Management Policy. II.4.1 Recommendation II.2: Ensuring effective Corporate Management and Control Compliance: Total Inform or Explain: Based on its structure, Pampa has an adequate proportional number of independent and II.2.1 executive directors. Compliance: Total Regarding independent directors, pursuant to the criteria set out in the CNV Rules, Pampa has a greater Inform or Explain: Pampa’s Board of Directors, either on its own behalf or by delegating its functions to the proportional number than that required under section 109 of the CMA. This is due to the fact that Pampa is various Company managers’ offices, regularly verifies compliance with, deviations from, or adjustments for the subject to the U.S. SOX. annual budget, as well as the business plan. Therefore, all members of Pampa’s Audit Committee are ‘independent’ directors. II.2.2 Compliance: Total II.4.2 Inform or Explain: As specified in Recommendation II.1.1.4, the Company conducts an employee performance Compliance: Total assessment, as coordinated by the Human Resources Department, by which every employee (including managers) Inform or Explain: It is not necessary to implement any type of internal policy to ensure that at least 20% of is annually evaluated on the level of performance and fulfillment of goals set by corporate officers. Based on Board members are independent, because under the applicable laws and regulations in force, and as provided the degree of fulfillment of these goals, among other factors, an annual variable compensation (performance by the Company Bylaws, the Board of Directors has a greater proportional number of independent directors bonus), and potential promotions and salary increases are determined based on market parameters and the than that specified in this Recommendation. Besides, there are no shareholders’ agreements regarding the company’s internal criteria. designation of Board members. To date, the independence of the members of Pampa’s Board of Directors has never been challenged. Recommendation II.3: Ensuring disclosure of the Management Body’ performance assessment and its impact Besides, Pampa’s directors holding company shares and participating in the Company shareholders’ meetings regularly abstain from discussing and voting on any matter relating to their performance (e.g., approving their II.3.1 performance, setting their compensation, etc.). Compliance:Total Inform or Explain: Pampa’s Board of Directors’ performance is subject to the provisions set forth in the Bylaws, Recommendation II.5: Ensuring the existence of standards and procedures for recruitment and the board rules, and any other applicable laws and regulations. proposed appointment of directors and senior managers

In Meeting No. 2087 held on March 30, 2012, Pampa’s Board of Directors approved its Internal Rules. These II.5.1 regulations primarily regulate issues concerning the requirements for holding board meetings. Compliance: Non-Compliance Inform or Explain: The duties to be discharged by an Appointment Committee would overlap with certain Besides, on an annual basis every Director completes a self-assessment to evaluate the Board of Directors’ duties already undertaken by Pampa’s Audit Committee. Moreover, Section 12 of Pampa’s Bylaws sets out management. This self-assessment is submitted to the executive legal department, which is responsible for a method for recruitment of directors, who are elected upon candidate lists, which guarantees enhanced analyzing results and, if necessary, suggesting actions aiming to improve this body’s operations. transparency for such recruitment process.

166 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 167 ANNUAL REPORT II.5.1.1 – II.5.1.5 PRINCIPLE III: Compliance: Non-Compliance Endorsing an Effective Policy for Identifying, Measuring, Managing and Inform or Explain: Not applicable. Disclosing Business Risk II.5.2 and subsections Recommendation III: The Board of Directors must provide for a comprehensive business risk Compliance: Non-Compliance management policy and monitor its proper implementation Inform or Explain: Not applicable. III.1 II.5.3 and subsections Compliance: Total Compliance: Non-Compliance Inform or Explain: At the meeting held on March 7, 2007, Pampa’s Board of Directors decided to approve Inform or Explain: Not applicable. the selection, adjustment, and implementation of a risk management approach as a useful tool for identifying the main risks affecting Pampa. Such method provides for adequate risk response solutions, as well as formal Recommendation II.6: Assessing the suitability that directors, and/or statutory auditors, and/or risk disclosure channels. Afterwards, at meeting No. 2004 held on March 7, 2008, Pampa’s Board of Directors supervisory board members may discharge functions at different Issuers approved the ‘Risk Management Handbook’, later updated and restated as ‘Business Risk Management Policy’ in December 2010, which describes a process methodology and the roles and responsibilities for risk management. Compliance: Total Inform or Explain: It is not necessary to limit the participation of Pampa’s directors and/or statutory auditors The key aspect of this policy is the establishment of duties, responsibilities, and methods for the prevention and in other companies that are part of other business groups. We understand that the existing legal limitations on detection of risks arising from activities conducted by the Company, and affecting its business or operations. this matter, in addition to the liability system applicable to directors and statutory auditors and the pertinent provisions of the Code of Business Conduct, are sufficient and ensure an adequate performance of duties by III.2 Pampa’s directors and statutory auditors. Compliance: Total Inform or Explain: The Policy mentioned in Recommendation III.1 above sets out responsibilities and methods Recommendation II.7: Ensuring training and development of the Issuer’s directors and senior for business risk assessment, and the procedure is conducted with the assistance of the Audit Committee, managers which is in charge of supervising assessment procedures and implementing related measures.

II.7.1 The key business risk factors taken into consideration by Pampa include, among others: (i) regulatory conditions Compliance: Total having an impact on the Company; (ii) potential production failures; (iii) operational interruptions; (iv) losses Inform or Explain: In 2017, training programs sought that leaders and employees should integrate into resulting from incidents and/or disasters; (v) claims and complaints arising from disputes having an impact Pampa’s culture to consolidate our corporate values and renew our staff’s commitment with professional and on the organization; (vi) environmental issues; (vii) impaired margins; (viii) trade union disputes; (ix) delay in personal development. certain maintenance works (known to and consented by the manufacturer) increasing the probability of unit failure despite taking every possible precaution; (x) loss of key staff and role models; (xi) decline in oil and gas Board of Directors’ members and first-line managers received systematic training on the strengthening of reserves; (xii) impossibility to meet commitments under agreed Programs; among others. leadership skills through the implementation of the ‘Leaders’ School’ together with the Torcuato di Tella University. Several Directors and Managers participated in this program, with a high attendance level. III.3 Compliance: Total The training program was developed throughout the year and included, among others, the following topics: Inform or Explain: The Policy also provides for the role of a Risk Manager, who is responsible for: (i) including business knowledge, high-performance team management, diversity, innovation and other management in its annual programs all the necessary tests for detecting business risk signals and indicators; (ii) monitoring contents oriented at enhancing our leaders’ managerial skills. the effectiveness of the program as a whole, and safeguarding compliance with and oversight of this Policy; (iii) informing the CEO and the Audit Committee of the risk management process; and (iv) following up on the Furthermore, the top management team attended management coaching sessions focusing on role strengthening, implementation of action plans to ensure that corrective measures are taken once a risk is detected. Moreover, decision-making and managerial responsibilities. the manager in charge of internal control brings support to the Board in order to keep the risk matrix updated, identifying and assessing risks, as well as following up with the action plan, if required, and keeping the CEO Besides, the Audit Committee approves an annual training plan for non-audit-related issues (for example, auditing and Audit Committee informed of this process. and internal control according to international accounting standards, among other issues.) In this sense, during fiscal year 2017 its members received training on the 3-line defense model, the internal audit’s policy framework. III.4 II.7.2 Compliance: Total Inform or Explain: The Business Risk Management Policy is updated on a yearly basis and the Risk Manager Compliance: Total presents all new events to the Audit Committee for consideration. Inform or Explain: Pampa generally provides financial support for master degree programs and postgraduate education to its employees. III.5 Compliance: Total Inform or Explain: The results from this risk assessment procedure are communicated to the different departments and disclosed in the Annual Report.

168 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 169 ANNUAL REPORT PRINCIPLE IV: PRINCIPLE V: Safeguarding Integrity of Financial Information with Independent Audits Respecting the Rights of Shareholders

Recommendation IV: Ensuring independence and transparency of the duties assigned to the Recommendation V.1: Ensuring that shareholders have access to the Issuer’s information Audit Committee and the External Auditor V.1.1 IV.1 Compliance: Total Compliance: Total Inform or Explain: Pampa’s CEO, on behalf of the Board of Directors and the investor relations area, organizes Inform or Explain: Pursuant to the Bylaws, the CNV Rules and the Audit Committee’s Regulations, this a conference call upon each closing and presentation of the Company’s annual and quarterly FS. In these committee consists exclusively of independent members. conference calls, which may be attended by all shareholders willing to participate and the investing public generally, information is provided on profits and losses for each fiscal year and relevant events for each period, IV.2 and answers on specific doubts and queries are provided. Compliance: Total V.1.2 Inform or Explain: At Pampa, the Internal Audit function is supervised by the Audit Committee and reports functionally to one of the partners. Compliance: Total Inform or Explain: On the one hand, Pampa has a special area within its organization that receives questions At the beginning of every fiscal year, the Internal Audit area has to submit a proposed annual audit plan and/or queries from its shareholders and/or the investing public generally. to the Audit Committee for its evaluation and approval. Besides, the plan’s performance is followed up on quarterly, and the progress report is submitted to the Audit Committee and the responsible partner. This report On the other hand, Pampa’s website has a special ‘Investor Relations’ section containing all material information summarizes the completed tasks and main findings. (FS, filings before regulatory authorities —including the SEC and the NYSE—, relevant events, corporate governance policies, etc.) for its shareholders and the investing public generally. In turn, this special website On an annual basis, the Audit Committee evaluates the independence level and performance of the Internal section facilitates channeling queries. Audit function in issues within its authority and discloses its assessment in its annual report. Recommendation V.2: Promoting active participation by all shareholders As a member of the Institute of Internal Auditors, the Company uses the standards it considers reasonable and/ or applicable without expressly adhering to them. V.2.1 Compliance: Total IV.3 Inform or Explain: Shareholders are given notice of meetings through the formal means set out in the Bylaws Compliance: Total and applicable regulations. Observance of these formalities to call for meetings is effective, and it does not Inform or Explain: Upon the presentation and publication of Pampa’s annual FS, the Audit Committee conducts undermine the principle of equal treatment to shareholders. an annual assessment of the external auditors’ performance and issues an informed opinion pursuant to Section 18, Title V, Chapter III of CNV Rules (Text Restated in 2013) and the Audit Committee’s Internal Rules. V.2.2 Compliance: Total IV.4 Inform or Explain: Pampa considers it unnecessary and inappropriate to implement any kind of rules to Compliance: Total ensure disclosure requirements for shareholders prior to holding a meeting since the Company strictly Inform or Explain: Pampa has no specific policy in place regarding turnover of members of the Supervisory complies with the effective regulations in this matter. Along this line, Pampa guarantees shareholders the Committee and/or the External Auditor, as it considers that no such policy is necessary as it fully complies with unrestricted exercise of the right to information, making available within the times specified in the applicable the applicable provisions in force. regulations, at its home office and also posted on its website, all relevant information and/or any information especially requested by a shareholder.

V.2.3 Compliance: Total Inform or Explain: Following the provisions set out in the applicable laws and regulations, the Bylaws expressly state that, upon written request, shareholders representing at least 5% of capital stock may call for a meeting, specifying its purpose and reasons. These requests will be handled in such a way that the Board of Directors or the Supervisory Board will convene the meeting for it to take place within 45 days of the date the notice of call is received.

To date, no shareholder or shareholder group representing at least 5% of Pampa’s capital stock has expressly called for a meeting.

170 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 171 ANNUAL REPORT V.2.4 V.6.2 Compliance: Non-Compliance Compliance: Partial Informar o Explicar: Pampa has no policies in place to encourage the participation of major shareholders, thus Inform or Explain: Although the Company has not put in place documented procedures to prepare the Issuer’s abiding by the principle of equal treatment to shareholders, whether actual or potential. proposal for appropriation of retained earnings, Pampa’s Board of Directors drafts an informed proposal in conformity with legal requirements, which is included in the Annual Report. V.2.5 The Shareholders’ Meeting held on April 7, 2017 resolved that profits recorded in the fiscal year ended 12/31/2016, Compliance: Non-Compliance amounting to AR$1,352 million, be allotted as follows: (i) 5% to the Legal Reserve; and (ii) the balance, to the Inform or Explain: When directors are nominated for office, shareholders do not usually require them to state Optional Reserve. their position for or against the adoption of a Corporate Governance Code.

Recommendation V.3: Ensuring the one share one vote principle PRINCIPLE VI: Compliance: Total Maintaining Direct and Responsible Bonds of Trust with the Community Inform or Explain: The implementation of a policy to promote the one share one vote principle is not applicable to the Company. This is due to the fact that, pursuant to the Bylaws, shares are not divided into classes, and all Recommendation VI: Providing the community with information on the Issuer’s affairs, and a of them confer the right to one vote. direct communication channel with the Company

Recommendation V.4: Setting out protection mechanisms for all shareholders vis-à-vis company VI.1 takeovers Compliance: Total Inform or Explain: Pampa’s website, www.pampaenergia.com, is a user-friendly and permanently updated Compliance: Total browser tool, which includes complete and accurate information on the member companies of the business group Inform or Explain: Pursuant to the provisions set forth in Section 90 of the CMA, the application of the led by Pampa and their respective business. This website also enables users to ask questions and send queries. Public Acquisition Offer system is universal, thus comprising every company listing its shares on the stock exchange, such as Pampa. Furthermore, the Bylaws establish certain mechanisms applicable to the acquisition VI.2 of significant or controlling interests. Compliance: Partial Recommendation V.5: Encouraging the Issuer’s shareholding dispersion Inform or Explain: All Pampa assets are subject to third-party certification accredited by the OAA, under ISO 14001 (environmental management), and OHSAS 18001 (occupational health and safety management) standards. Compliance: Total The generation, R&D and petrochemicals segment’s assets are certified under ISO 9001 standard, and especially, Inform or Explain: Pursuant to information supplied in compliance with the requirements set forth in Section the Lubricants Plant and CTGEBA are also certified under the ISO 50001 (energy management) standard. 62 of the ByMA Listing Rules, as of December 31, 2017, there is a controlling group at Pampa holding 17.89% of its capital stock and voting rights. Pursuant to the implemented model, external audits are conducted on an annual basis to guarantee adherence to the requirements of the above-mentioned international standards. Furthermore, each asset has a Management Consequently, the remaining percentage of capital stock is scattered among the investing public, largely Program which promotes continuous performance improvement. exceeding the 20% specification contained in this recommendation.

Moreover, in the last three years, it has been confirmed that more than 20% of the Issuer’s capital stock PRINCIPLE VII: is dispersed in the market. Thus, in compliance with section 62 of the ByMA Listing Rules, the following Providing for Fair and Equitable Compensation percentages were identified in relation to the controlling group: (i) as of 12/31/17, 17.89%; (ii) as of 12/31/16, 20.16%; and (iii) as of 12/31/15, 29.16%. Recommendation VII: Setting out clear-cut policies for compensation of directors and senior managers, specifically focusing on conventional or bylaws-imposed limitations depending on the Recommendation V.6: Ensuring transparency of the Company’s dividend policy existence of profits

V.6.1 VII.1 Compliance: Non-Compliance Compliance: Non-Compliance Inform or Explain: Pampa has not set out a specific policy for dividend payments due to the unique Inform or Explain: Pampa has no Compensation Committee in place. One of the key functions that this characteristics of the industries where it operates, the current scenario, and the volatility of the markets. In committee would perform regarding the compensation of directors and statutory auditors is currently performed this sense, it is not advisable to establish a specific dividend payment policy. The Board of Directors assesses by Pampa’s Audit Committee. Besides, any matter concerning remuneration of managers and employees is the possibility of paying dividends to Pampa’s shareholders on a prudential basis within each fiscal year, and addressed by the Company’s Human Resources Department in compliance with applicable laws and regulations. thoroughly examines the economic circumstances prevailing at the time. Notwithstanding the foregoing, on February 8, 2017, the Company’s Board of Directors approved a Stock- based Compensation Plan aiming to encourage the alignment of the covered employees’ performance with the Company’s strategy and to generate a clear and direct link between the creation of value for shareholders and the covered employees’ compensation. To such effect, the Board of Directors created an Implementation Committee.

172 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 173 ANNUAL REPORT Finally, on June 2, 2017, the Company’s Board of Directors approved compensation agreements with the VIII.3 Company’s Senior Management with the purpose of efficiently aligning their interests with those of the Company and its shareholders, and creating value for them only inasmuch as value is generated for shareholders. Compliance: Total Inform or Explain: Pampa has an Anti-Fraudulent Practices Policy and a Procedure for Reporting Suspected VII.1.1 – VII.1.5 Frauds or Irregularities. Both documents contain a detailed description of the process to be followed from the reception of the complaint to the conclusion of investigation and the application of the pertinent corrective Compliance: Non-Compliance action. At least quarterly, the Internal Audit area reports the received cases and the adopted decisions to the Inform or Explain: Not applicable. Audit Committee. The Audit Committee supervises the channel’s operations and the resolution of complaints in issues within its authority. VII.2 and subsections Compliance: Non-Compliance Inform or Explain: Not applicable. PRINCIPLE IX: Deepening the Scope of the Code VII.3 Compliance: Non-Compliance Recommendation IX: Fostering the inclusion of good corporate governance practices in the Bylaws Informar o Explicar: Not applicable. Compliance: Total Inform or Explain: The Board of Directors annually approves the Code Report, which is drafted in accordance VII.4 with the applicable CNV Rules. However, Pampa’s Board of Directors believes that at present the provisions of Compliance: Total the Code should not necessarily be reflected in whole in the Bylaws. Considering that the Bylaws, as well as Inform or Explain: The Human Resources Department is responsible for developing and executing the applicable the Report, are publicly available information through the CNV web page, Pampa fully complies with the capital compensation setting process. Furthermore, the Company has a procedure in place that is coordinated by the market transparency principle. Human Resources Department, by which all the employees (including managers) are annually evaluated on the level of performance and fulfillment of goals set by their hierarchical superiors. Based on the degree of fulfillment of corporate goals, among other factors, an annual variable compensation (performance bonus), and potential promotions and salary increases are determined based on market parameters and the Company’s internal criteria.

PRINCIPLE VIII: Promoting Business Ethics

Recommendation VIII: Ensuring ethical behavior within the Issuer

VIII.1 Compliance: Total Inform or Explain: Pampa has put in place a Code of Business Conduct which, additionally to setting out the ethical principles which lay the groundwork for the relationship between Pampa and its employees and suppliers, provides for means and tools that guarantee the transparency of affairs and issues affecting Pampa’s proper management. The Code establishes the principles that will govern the relationship between Pampa and its contractors, subcontractors, suppliers, and advisors pursuant to applicable laws and regulations.

On the other hand, the Code of Business Conduct, which is publicly available, must be signed by all the Company’s employees and members of the Board of Directors or the Supervisory Board, as well as by any person wishing to enter into a contract with the Company.

VIII.2 Compliance: Total Inform or Explain: Pampa offers the Ethics Hotline, an exclusive channel to report, on a strictly confidential basis, any suspected misconduct or breach to the Code of Business Conduct which is operated through different channels (toll-free telephone number, e-mail, and/or web page) and is managed by a third-party provider to ensure higher transparency. Additionally, the Company has policies and procedures in place prescribing the way in which received complaints should be analyzed and dealt with.

174 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 175 Consolidated Financial Statements

As of december 31, 2017 and 2016, and for the years then ended.

Patagonia, Argentina. CONSOLIDATED FINANCIAL STATEMENTS Glossary of Terms

The following are not technical definitions, but they are helpful for the reader’s understanding of some terms used in the Terms Definitions notes to the consolidated financial statements of the Company.

FGS – ANSES Fondo de Garantía de Sustentabilidad – Administración Nacional de la Seguridad Social Terms Definitions FOCEDE Fund works of consolidation and expansion of electrical distribution FONINVEMEM Fund for Investments required to increase the electric power supply in F the WEM FOTAE Works Administration Trust Transport for Electricity Supply ADR American Depositary Receipt FRD Flow for debt repayment AFIP Federal Administration of Public Revenue Foundation Pampa Energía Foundation committed to education (Foundation) Albares Albares Renovables Argentina S.A. APCO Oil APCO Oil & Gas international Inc A GE General Electric Greenwind Greenwind S.A. BCBA Bolsa de Comercio de Buenos Aires GUMA, GUME, GUDI Gran Usuario Mayor, Gran Usuario Menor, Gran Usuario del Distribuidor BLL Bodega Loma La Lata S.A. GyP Gas y Petróleo de Neuquén S.A.P.E.M. BO Official Gazette G ByMA Bolsas y Mercados Argentinos B HA Historical Availability HI Hydroelectric CAMMESA Compañía Administradora del Mercado Eléctrico Mayorista S.A. HIDISA Hidroeléctrica Diamante S.A. CC Combined Cycle HINISA Hidroeléctrica Los Nihuiles S.A. CGU Cash-Generating Units H HRP Hours Power Compensation CIESA Compañía de inversiones de energía S.A. C CINIIF International Financial Reporting Interpretations Committee Citelec Compañía Inversora en Transmisión Eléctrica Citelec S.A. IASB International Accounting Standards Board CNCD Comisión Nacional de Defensa de la Competencia IEASA IEASA S.A. CNG Compressed Natural Gas IGMP Minimum Notional Income Tax CNV Comisión Nacional de Valores – Argentine Securities Commisssion IGJ Inspección General de Justicia - General Inspection of Justice I INDISA Inversora Diamante S.A. Corod Corod Producción S.A. CPB Central Piedra Buena S.A. INNISA Inversora Nihuiles S.A. CPD Own Distribution Costs IPB Inversora Piedra Buena S.A. CPF Compromiso Previo de Fusión IPIM Índice de Precios Internos al por Mayor CTG Central Térmica Güemes S.A. CTLL Central Térmica Loma La Lata S.A. LNG Liquefied Natural Gas CTP Central Térmica Piquirenda LVFVD Sales Liquidations with Maturity Date to be Defined CSJN Supreme Court of Justice of the Nation CVP Corporación Venezolana de Petróleo S.A. CYCSA Comunicación y Consumos S.A. L MAT WEM’s Forward Market DESA Desarrollos Energéticos S.A. MAN Engines MAN B & W Diesel model 18V32/40PGI DMC Disponibilidad Mínima Comprometida MECON Ministry of Economy DR Disponibilidad Registrada MEyM Ministry of Energy and Mining D M MMC Cost Monitoring Mechanism MPFIPYS Ministry of Federal Planning, Public Investment and Services EASA Electricidad Argentina S.A. MTO Mandatory Tender Offer EcuadorTLC EcuadorTLC S.A. Edenor Empresa Distribuidora y Comercializadora Norte S.A. NIC International Accounting Standards Edesur Empresa Distribuidora Sur S.A. NIIF International Financial Reporting Standards E Eg3 Red Eg3 Red S.A. NYSE New York Stock Exchange EGSSA EMDERSA Generación Salta S.A. EMES Emes Energía Argentina LLC N EMESA Empresa Mendocina de Energía S.A. OED Organismo Encargado del Despacho ENARGAS Ente Nacional Regulador del Gas Oldelval Oleoductos del Valle S.A. ENDISA Energía Distribuida S.A. Orígenes Retiro Orígenes Seguros de Retiro S.A. ENRE National Regulatory Authority of Electricity O

178 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 179 CONSOLIDATED FINANCIAL STATEMENTS

Terms Definitions Terms Definitions

PACOSA Pampa Comercializadora S.A. VAD Valor Agregado de Distribución PDVSA Petróleos de Venezuela S.A. VAT Value Added tax PEB Pampa Energía Bolivia S.A. (Ex “PBI” - Petrobras Bolivia Internacional S.A.) VCP Short-term securities PEISA Petrobras Energía Internacional S.A. VRD Debt Securities P PELSA Petrolera Entre Lomas S.A. V PEN Federal Executive Power PEPASA Petrolera Pampa S.A. WACC Weighted Average Cost of Capital PEPCA PEPCA S.A. WEM Wholesale Electricity Market Petrobras Petrobras Argentina S.A. WEBSA World Energy Business S.A. PHA Petrobras Hispano Argentina S.A. W PISA Pampa Inversiones S.A. PP Pampa Participaciones S.A. YPF YPF S.A. PP II Pampa Participaciones II S.A. PPSL Petrobras Participaciones S.L. PUREE Rational Use of Electricity Programme PYSSA Préstamos y Servicios S.A. Z

RA Recorded Availability Refinor Refinería del Norte S.A. RTI Tariff Structure Review R RTT Temporary Tariff Regime SACME Centro de Movimiento de Energía S.A. Salaverri, Dellatorre, Salaverri, Dellatorre, Burgio y Wetzler Malbran Abogados Sociedad Civil Burgio & Wetzler SACDE Sociedad Argentina de Construcción y Desarrollo Estratégico S.A. S SADI Argentine Interconnection System SE Secretary of Energy SEC Security and Exchange Comission SEE Secretary of Electrical Energy SIGEN National Comptroller Office SSN Superintendencia de Seguros de la Nación ST Secretary of Labor

TG Gas Turbine TGS Transportadora de Gas del Sur S.A. The Company / Pampa Pampa Energía S.A. The Group Pampa Energía S.A. and its subsidiaries T TJSM Termoeléctrica José de San Martín S.A. TMB Termoeléctrica Manuel Belgrano S.A. Transba Empresa de Transporte de Energía Eléctrica por Distribución Troncal de la Provincia de Buenos Aires Transba S.A. Transelec Transelec Argentina S.A. Transener Compañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A. TV Vapor Turbine

UMA Undertaken Minimum Availability US$ U.S. dollar UTE Senillosa Petrolera Pampa S.A. – Rovella Carranza – Gas y Petróleo de Neuquén, U Unión Transitoria de Empresas Senillosa

180 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 181 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement Consolidated Statement of Financial Position (Continuation) Note 12.31.2017 12.31.2016

SHAREHOLDERS´ EQUITY Share capital 18 2,080 1,938 of Financial Position Share premium 5,818 4,828 Treasury shares 18 3 - As of December 31, 2017 and 2016 Treasury shares cost 45 (72) - Legal reserve 300 232 (In millions of Argentine Pesos (“$”) – unless Voluntary reserve 5,146 3,862 Other reserves 140 135 otherwise stated) Retained earnings (Acumulated losses) 3,243 (11) Other comprehensive income 252 70 Equity attributable to owners of the company 16,910 11,054 Note 12.31.2017 12.31.2016 Non-controlling interest 3,202 3,020 ASSETS Total equity 20,112 14,074 NON-CURRENT ASSETS Investments in joint ventures 8 4,930 3,699 LIABILITIES Investments in associates 9 824 787 NON-CURRENT LIABILITIES Property, plant and equipment 10 41,214 41,001 Trade and other payables 19 6,404 5,336 Intangible assets 11 1,586 2,103 Borrowings 20 37,126 15,286 Other assets 2 13 Deferred revenue 21 195 200 Financial assets at fair value through profit and loss 12 150 742 Salaries and social security payable 22 120 94 Financial assets at amortized cost 13 - 62 Defined benefit plans 24 992 921 Deferred tax assets 14 1,306 1,232 Deferred tax liabilities 14 1,526 3,796 Trade and other receivables 15 5,042 4,469 Income tax and minimum notional income tax provision 23 863 934 Total non-current assets 55,054 54,108 Taxes payables 25 366 306 Provisions 26 4,435 6,267 CURRENT ASSETS Total non-current liabilities 52,027 33,140 Other assets - 1 Inventories 16 2,326 3,360 CURRENT LIABILITIES Financial assets at fair value through profit and loss 12 14,613 4,188 Trade and other payables 19 18,052 12,867 Financial assets at amortized cost 13 25 23 Borrowings 20 5,840 10,686 Derivative financial instruments 4 13 Deferred revenue 21 3 1 Trade and other receivables 15 19,145 14,144 Salaries and social security payable 22 2,154 1,745 Cash and cash equivalents 17 799 1,421 Defined benefit plans 24 121 112 Total current assets 36,912 23,150 Income tax and minimum notional income tax provision 23 943 1,454 Assets classified as held for sale 1.5 12,501 19 Taxes payables 25 1,965 2,392 Derivative financial instruments 82 - Total assets 104,467 77,277 Provisions 26 798 806 Total current liabilities 29,958 30,063 Liabilities associated to assets classified as held for sale 1.5 2,370 - Total liabilities 84,355 63,203 Total liabilities and equity 104,467 77,277

The accompanying notes are an integral part of these consolidated financial statements.

182 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 183 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement Consolidated Statement of Comprehensive Income (Loss) (Continuation)

of Comprehensive Note 12.31.2017 12.31.2016 Other comprehensive income (loss) Items that will not be reclassified to profit or loss Remeasurements related to defined benefit plans 24 1 (30) Income (Loss) Income tax 14 - 10 Share of loss from joint ventures 8 (6) (5) Items that may be reclassified to profit or loss For the years ended December 31, 2017 and 2016 Exchange differences on translation (93) (15) (In millions of Argentine Pesos (“$”) – unless Income tax - (12) Other comprehensive income of the year from continuing (98) (52) operations, net of tax otherwise stated Other comprehensive income of the year from discontinued 1.5 603 249 operations Total comprehensive income (loss) of the year 6,175 (55) Note 12.31.2017 12.31.2016

Total income (loss) of the year attributable to: Revenue 27 50,347 25,110 Owners of the company 4,606 (11) Cost of sales 28 (34,427) (20,153) Non - controlling interest 1,064 (241) Gross profit 15,920 4,957 5,670 (252)

Selling expenses 29 (2,904) (2,132) Total income (loss) of the year attributable to owners of the Administrative expenses 30 (4,905) (3,628) company: Exploration expenses 31 (44) (94) Continuing operations 4,623 (93) Other operating income 32 3,388 4,164 Discontinued operations (17) 82 Other operating expenses 32 (2,951) (1,876) 4,606 (11) Reversal of impairment of property, plant and equipment 5.1.1 461 - Reversal of impairment of intangible assets 5.1.1 82 - Total comprehensive income (loss) of the year attributable to: Share of profit from joint ventures 8 1,064 105 Owners of the company 4,788 90 Share of profit from associates 9 44 7 Non - controlling interest 1,387 (145) Income from the sale of subsidiaries 1.5 - 480 6,175 (55) Operating income 10,155 1,983 Total comprehensive income (loss) of the year attributable to Finance income 33 1,432 849 owners of the company: Finance costs 33 (5,112) (4,277) Continuing operations 4,522 (142) Other financial results 33 (2,266) (80) Discontinued operations 266 232 Financial results, net (5,946) (3,508) 4,788 90 Profit (loss) before income tax 4,209 (1,525) Earnings per share attributable to the equity holders of the Income tax and minimum notional income tax expense 14 1,367 1,201 company during the year Profit (Loss) of the year from continuing operations 5,576 (324) Basic and diluted earnings (loss) per share from continuing 34 2.3455 (0.0536) operations Profit of the year from discontinued operations 1.5 94 72 Basic and diluted (loss) earnings per share from discontinued 34 (0.0086) 0.0472 Profit (loss) of the year 5,670 (252) operations Total basic and diluted earnings (loss) per share 34 2.3369 (0.0063)

The accompanying notes are an integral part of these consolidated financial statements.

184 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 185 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Changes in Equity For the years ended December 31, 2017 and 2016 (In millions of Argentine Pesos (“$”) – unless otherwise stated)

Attributable to owners

Equity holders of the company Retained earnings

Share Share Treasury Treasury Legal Voluntary Other Other Retained Subtotal Non- Total capital premium shares shares reserve reserve reserves comprehensive earnings controlling equity cost (1) income / (loss) (Accumulated interest for the year losses)

Balance as of December 31, 2015 1,696 1,111 - - 51 978 120 (31) 3,065 6,990 1,391 8,381

Constitution of legal reserve - Shareholders’ meeting 04.29.2016 - - - - 153 - - - (153) - - - Constitution of voluntary reserve - Shareholders’ meeting 04.29.2016 - - - - - 2,912 - - (2,912) - - - Acquisition of subsidiaries ------7,869 7,869 Sale of interest in subsidiaries ------3 - - 3 1 4 Dividends provided for or paid ------(82) (82) Recomposition of legal reserve - Shareholders’ meeting 11.17.2016 - - - - 28 (28) ------Public offer for the acquisition of subsidiaries’ shares (Nota 1.2) 141 1,387 ------1,528 (4,260) (2,732) Merger with subsidiaries (Note 1.4) 101 2,330 ------2,431 (1,764) 667 Stock compensation plans (Note 45) ------12 - - 12 10 22 Loss for the year ------(11) (11) (241) (252) Other comprehensive income for the year ------101 - 101 96 197 Balance as of December 31, 2016 1,938 4,828 - - 232 3,862 135 70 (11) 11,054 3,020 14,074

Constitution of legal reserve - Shareholders’ meeting 07.04.2017 - - - - 68 - - - (68) - - - Constitution of voluntary reserve - Shareholders’ meeting 07.04.2017 - - - - - 1,284 - - (1,284) - - - Stock compensation plans (Note 45) - 14 - - - - 5 - - 19 4 23 Acquisition of own shares (Note 45) (3) - 3 (72) - - - - - (72) - (72) Merger with subsidiaries (Note 1.4) 145 976 ------1,121 (1,121) - Dividends provided for or paid ------(88) (88) Profit for the year ------4,606 4,606 1,064 5,670 Other comprehensive income for the year ------182 - 182 323 505 Balance as of December 31, 2017 2,080 5,818 3 (72) 300 5,146 140 252 3,243 16,910 3,202 20,112

Note: (1) Includes the result of operations with non-controlling interests that not representing a loss of control and reserves for stock-based compensation plans.

The accompanying notes are an integral part of these consolidated financial statements.

186 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 187 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Cash Flows (Continuation)

Consolidated Statement Note 12.31.2017 12.31.2016 Changes in operating assets and liabilities: Increase in trade receivables and other receivables (3,676) (3,495) (Increase) decrease in inventories (480) 40 of Cash Flows Increase in trade payables and other payables 1,047 3,531 Increase in deferred income - 47 For the years ended December 31, 2017 and 2016 Increase in salaries and social security payable 312 409 Decrease in defined benefit plans (100) (87) (In millions of Argentine Pesos (“$”) – unless (Decrease) increase in tax payables (75) 989 (Decrease) increase in provisions (1,198) 232 otherwise stated) Income tax and minimum notional income tax paid (1,284) (438) Constitution of guarantees of derivative financial instruments - (214) Proceeds from derivative financial instruments 560 57 Net cash generated by operating activities from discontinued 1,979 1,549 Note 12.31.2017 12.31.2016 operations Net cash generated by operating activities 10,716 5,945 Cash flows from operating activities: Total profit (loss) for the year from continuing operations 5,576 (324) Cash flows from investing activities: Total profit (loss) for the year from discontinued operations 94 72 Payment for property, plant and equipment (10,725) (6,244) Adjustments to reconcile net profit (loss) to cash flows generated Payment for financial assets (11,706) (221) by operating activities: Adquisition of intangible assets - (29) Income tax and minimum notional income tax (1,367) (1,201) Payment for companies’ acquisitions 1.2 - (9,145) Accrued interest 28, 29 and 30 3,590 3,345 Proceeds from sale of property, plant and equipment - 1.151 Depreciations and amortizations 29 and 32 3,421 2,201 Proceeds from financial assets’ sale and amortization 9,272 3,650 Constitution of allowances, net 32 182 235 Proceeds from sales of subsidiaries 328 305 Constitution of provisions, net 8 y 9 360 450 Dividends received 40 64 Share of profit from joint ventures and associates 28, 29 and 30 (1,108) (112) Proceeds from loans 22 6 Accrual of defined benefit plans 33 318 232 (Suscription) recovery of investment funds, net (5,340) (107) Net exchange differences 33 3,558 1,099 Net cash used in investing activities from discontinued operations (1,176) (661) Result from measurement at present value 181 97 Changes in the fair value of financial instruments (1,446) (1,100) Net cash used in investing activities (19,285) (11,231) Results from property, plant and equipment sale and decreases 37 85 Reversal of impairment of property, plant and equipment (543) - Cash flows from financing activities: and intangible assets Proceeds from borrowings 27,567 19,244 Income from sale of investments in subsidiaries - (480) Payment of borrowings (16,150) (6,813) Recognition of income - provisional remedies - CAMMESA Note MEyM - (1,126) Payment of borrowings’ interests No. 2016-04484723 (2,469) (1,519) Payment for acquisition of own shares (72) - Higher costs recognition - SE Resolution No. 250/13 and subsequent - (82) Notes Payment for the public offer for the acquisition of subsidiaries’ shares - (3,233) Income recognition on account of the RTI - Res. SE No. 32/15 - (419) Payments of dividends from subsidiaries to third parties (44) (37) Dividends received 32 (33) (6) Repayment of own debt (28) (893) Compensation agreements 29, 30 and 32 645 502 Proceeds from sales of shares in subsidiaries - 3 Other financial results 22 49 Net cash used in financing activities from discontinued (719) (922) operations Onerous contract (Ship or pay) 32 90 (150) Other 54 (42) Net cash generated by financing activities 8,085 5,830

(Decrease) increase in cash and cash equivalents (484) 544

Cash and cash equivalents at the begining of the year 17 1,421 517 Exchange difference generated by cash and cash equivalents 23 360 Cash and cash equivalents classified as held for sale (161) - (Decrease) increase in cash and cash equivalents (484) 544 Cash and cash equivalents at the end of the year 17 799 1,421

188 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 189 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Cash Flows (Continuation) Notes to the 12.31.2017 12.31.2016

Significant non-cash transactions from continued operations: Acquisition of property, plant and equipment through an increase (2,418) (537) Consolidated Financial in trade payables Borrowing costs capitalized in property, plant and equipment (369) (419) Decrease in borrowings through offsetting with trade receivables (4) (242) Increase in asset retirement obligation provision (9) (158) Statements Constitution of guarantee of derivative financial instruments, net through 459 95 the delivery of financial assets at fair value through profit or loss Outstanding receivable for the sale of interests in subsidiaries and - (1,200) financial assets For the years ended December 31, 2017 and 2016 Decrease of loans through the delivery of subsidiaries’ shares - (1,179) Decrease in loans through compensation with other credits - (1,951) (In millions of Argentine Pesos (“$”) – unless Collection of other credits through the delivery of government bonds - 502 otherwise stated)

Significant non-cash transactions from discontinued operations: Acquisition of property, plant and equipment through an increase in trade (9) (39) payables Decrease (increase) in asset retirement obligation provision 306 (204) NOTE 1: GENERAL INFORMATION Receivable for property, plant and equipment sale, pending of collection 364 - AND GROUP STRUCTURE

The accompanying notes are an integral part of these consolidated financial statements. 1.1 General information The Company is the largest fully integrated power company in Argentina and, directly and through its subsidiaries, it participates in the electricity and oil and gas value chains.

In the generation segment, the Company has a 3,756 MW installed capacity, which represents approximately 10.3% of Argentina’s installed capacity, and is the third largest independent generator in the country. Additionally, the Company is currently undergoing a process to expand its capacity by 598 MW.

In the electricity distribution segment, the Company has a controlling interest in Edenor, the largest electricity distributor in Argentina, which has 3 million customers and a concession area covering the Northern part of the City of Buenos Aires and Northwestern Zone of Greater Buenos Aires.

In the oil and gas segment, the Company is one of the leading oil and natural gas producers in Argentina, with operations in 16 production areas and 9 exploratory areas and an average annual production level for the year 2017 of 8 million m3/day of natural gas and 19,600 barrels of oil equivalent for oil and NGLs. Its main natural gas and oil production blocks are located in the Provinces of Neuquén and Río Negro (without considering the production of the Medanito-La Pampa area for the benefit of PEPASA). Additionally, the Company operates in 4 production areas in Venezuela, with a crude oil production of 1,300 barrels/day, and has a 23.1% interest in Oldelval, a company engaged in the transportation of crude oil from the Neuquén basin to the Province of Buenos Aires. Due to the divestment mentioned in Note 1.5.2, certain assets from de segment and the liabilities associated have been classified as held for sale.

190 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 191 CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: (Continuation) NOTE 1: (Continuation) In the refining and distribution segment, the Company owns the Dr. Ricardo Eliçabe Refinery in the City of assets, the assumed liabilities and the non-controlling interest corresponding to PPSL’s acquisitions as at July Bahía Blanca, which has a 30,200 barrels/day capacity, and has a 28.5% interest in Refinor (owner of a refinery 27, 2016 (in millions of Argentine Pesos): located in the Province of Salta, and 81 gas stations in Northern Argentina). Furthermore, the Company sells fuels through a network of 250 gas stations located in the center and south of the country, and the Dock Sud and Caleta Paula Terminals. Additionally, the Company produces lubricants in its Avellaneda industrial plant. Due to the divestment mentioned in Note 1.5.1, certain assets from de segment and the liabilities associated Purchase price allocation have been classified as held for sale. Cash payment 13,362 In the petrochemicals segment, the Company has three high-complexity plants producing a wide variety of Total consideration transferred 13,362 petrochemical products, including styrenics and synthetic rubber, and holding a large market share. Investments in joint ventures 3,407 a) Finally, through its holding and others segment, the Company participates in the electricity and gas Investments in associates 777 (b) transportation businesses, conducts financial investment transactions and maintains investments in Financial assets at amortized cost 21,801 (c) complementary businesses. In the transmission business, the Company jointly controls Citelec, which has a Intangible assets 224 (d) controlling interest in Transener, a company engaged in the operation and maintenance of a 20,718 km high- Financial assets at fair value through profit and loss 653 (b) voltage electricity transmission network in Argentina with an 85% share in the Argentine electricity transmission Financial assets at amortized cost 315 market. In the gas transportation business, the Company jointly controls CIESA, which has a controlling interest Trade and other receivables 7,256 (e) in TGS, a company holding a concession for the transportation of natural gas with 9,184 km of gas pipelines in Inventories 3,072 the center, west and south of Argentina, and which is also engaged in the processing and sale of natural gas Cash and cash equivalents 4,384 liquids through the Cerri Complex. Non current assets classified as held for sale 3,405 Trade and other payables (4,324) Borrowings (7,434) 1.2 Salaries and social security payable (383) Defined benefit plans (484) Acquisition of PPSL’s Capital stock Deferred tax liabilities (4,096) Taxes payables (859) On May 13, 2016, Petrobras Internacional Braspetro B.V. (“Petrobras Holland”), a subsidiary of Petróleo Provisions (5,793) (f) Brasileiro S.A. (“Petrobras Brazil”) and the Company executed a share purchase agreement for the acquisition Liabilities associated with assets classified as held for sale (240) by the Company of the whole capital stock of PPSL, which holds 67.1933% of the capital stock and voting rights Income tax and minimum notional income tax provision (1,444) in Petrobras (respectively, the “Share Purchase Agreement” and the “Transaction”). As part of the Transaction Non-controlling interest (7,869) (g) and the purchase price, the Company acquired a Petrobras Holland credit with PPSL (the “PPSL Credit”) for an Goodwill 994 (h) amount to US$ 80 million. Total purchase price allocation 13,362 On July 27, 2016, the Transaction was closed upon the meeting of all applicable conditions precedent. On November 21, 2016, the parties agreed on certain adjustments to the Transaction’s final price, which was set at US$900 million, financed as follows: a) cash from the Company US$ 278 million; b) syndicated loan US$ 271 million c) funds obtained from the sale of TGS US$ 161 million; d) YPF financing US$ 140 million; and e) EMES (a) Interests in joint ventures: in determining the fair value of Petrobras’ interest in CIESA, the Company financing US$ 50 million. used a Market-based Approach, applying the Comparable Transactions methodology. To such effect, the Company analyzed the sale of 25.5% of the indirect interest in TGS (Note 1.3), executed on July 27, 2016. The following operations were completed after the closing of the Transaction: (b) Interests in associates: i. On October 27, 2017, an affiliate of Petrobras Brazil acquired 33.6% of all rights and obligations in the concession over the Neuquén River area for an amount of US$ 72 million, and 100% of the rights and - Interests in mixed companies in Venezuela: Petrobras is a party to the Contracts for Conversion obligations pursuant to the Operating Agreement entered into by Petrobras, Bolivia branch, and YPF into a Mixed Company entered into on August 7, 2006, as a participating company jointly with CVP, Bolivia regarding the Colpa and Caranda areas in Bolivia for a negative value of US$ 20 million. and, in such capacity, is a class B shareholder of certain Mixed Companies in Venezuela (Note 9). ii. On October 14, 2017, YPF acquired of Petrobras 33.33% of all rights and obligations in the concession over Since the acquisition of PPSL entailed a change in Petrobras’ indirect parent company, the written the Río Neuquén area for the amount of US$ 72 million and the 80% interest in the concession on the authorization by the Venezuelan Government required by section 6.3 of the timely executed Aguada de la Arena area for the amount of US$ 68 million. Conversion Contracts should be obtained. Given that as of the date of the acquisition of PPSL, the authorizations regarding the change of indirect control by the Government of Venezuela were not 1.2.1 obtained, and considering the fact that the contracts of mixed companies provide the mandatory Fair value of the acquisition transfer of the shares for these cases, the Company has determined market value for its investment as of the date of acquisition was zero, considering: i) the monetary and fiscal policies implemented The following table details the fair value of the transferred consideration, the fair values of the acquired

192 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 193 CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: (Continuation) NOTE 1: (Continuation)

by the Venezuelan government together with the significant drop in international oil prices since (f) Contingent Liabilities: The Company has recorded $ 3,330 million to reflect the fair value of possible 2014 that have eroded the ability of the mixed companies to efficiently operate the producing fields and probable tax, civil and labor contingencies as of the acquisition date. Petrobras is (whether that resulted in increasing losses and reduction of equity in those investments, and ii) that there is directly or indirectly) involved in several legal, tax and labor proceedings in its ordinary course of very unlikely to acquire these assets in a stand-alone transaction, as conversion contracts establish business; their fair value was calculated considering the level of probability of cash outflows that that the transfer of direct control of the shares without obtaining prior approval of Venezuelan would be required for each contingency, including the following: i) differences of interpretation with Government, implies that such participation is considered finished and all of the shares shall be the Argentine Treasury regarding the following: a) the exemption from the Tax on Personal Assets transferred without any consideration in exchange for those shares. As of the issuance of these in its capacity as Substitute Taxpayer for the shareholder PPSL (a company incorporated in Spain) on financial statements, the Company has not obtained the above-mentioned authorizations; however account of the application of the Double Taxation Treaty entered into with Spain; b) the Tariff heading the Company is working on the requirements of the Government of Venezuela´s authorities, including used by the company for certain exported products; c) inaccurate customs declarations for certain the presentation of development and remediation plans for the respective areas. spare parts to be used for the maintenance of production plants; ii) differences of interpretation with the Ecuadorian Treasury regarding the assessment of the reference price in the Income Tax and - Other associates and other investments classified as financial asset at fair value through profit the Tax on Extraordinary Income; and iii) claims by contractors for the lack of payment of services and loss: This balance includes interests in Refinor, Oldelval, TJSM and TMB. The valuation approach associated with health, safety and environment. used to obtain their fair value was the Income-based approach through the Indirect Cash Flow method (net present value of expected future cash flows). The discount rates used were as follows: In March 2017, and as a result of the Company’s adherence to the regularization regime (moratorium) 10.1% for interests in Refinor and Oldelval, and 7.1% for interests in TJSM and TMB; all of them were regarding certain identified liabilities (see detail in Note 43), which granted certain benefits consisting estimated taking the Weighted Average Cost of Capital (“WAAC”) rate in U.S. dollars as a parameter. of the forgiveness of tax fines and a reduction of compensatory interest, a payment obligation in the amount of $ 171 million was generated in favor of Petrobras Brasil as contingent consideration under (c) Property, plant and equipment: the share purchase agreement on account of the acquisition of Petrobras paid in April 18, 2017. - Mining Property: The Company has valued its interests in proven reserves (both developed and to (g) Non-controlling interest in Petrobras: It has been measured based on the proportional share of be developed) and probable reserves in different acquired gas and oil production blocks according the fair value of net identifiable assets in the acquisition. to the reserves reports drawn up by the Company. In all cases (with the exception of 66.9% of the Río Neuquén area and 80% of the Aguada de la Arena block, which were classified as assets (h) Goodwill: The recognized goodwill represents the excess of the purchase consideration transferred available for sale as at the acquisition date and valued at their fair value less cost to sell pursuant over the fair value of identifiable net assets acquired. The $ 994 million goodwill arising from the to IFRS 5) the approach used to determine the mining property’s fair value was the income-based acquisition is attributable to the future synergies of the Company and Petrobras combined business approach through the Indirect Cash Flow method. The projection period was determined based (as described above) and assembled workforce. Goodwill is not amortized, but is rather assessed on the termination of the respective concession contracts. A 100% risk factor for proven reserves for impairment at least annually or more frequently whenever events or circumstances indicate that and a 50% risk factor for probable reserves have been considered. A 10.6% discount rate has been goodwill might be impaired. The Goodwill was allocated to the Oil and Gas segment to evaluate its used, which was estimated taking the WACC rate in U.S. dollars as a parameter. The other main impairment. Goodwill is not deductible for tax purposes. assumptions used to project cash flows were associated with volumes and productions costs, sales prices and capital investments, and were based on market participant assumptions. The Company has incurred in transaction expenses associated with the acquisition of PPSL, the mandatory tender offer and voluntary public offer for the exchange of Petrobras’shares in the amount of $ 305 million - Other Property, plant and equipment: Fair values of property, plant and equipment of the electricity during the fiscal year ended December 31, 2016, mainly corresponding to fees and advisory services included in generation, petrochemicals, refining and distribution and holding segments have been determined Administrative Expenses in the Statement of Comprehensive Income. mainly through the application of the cost-based approach, which consists of the replacement value of the item as adjusted by its loss of value resulting from physical impairment, and physical and economic As a result of the acquisition of PPSL, the Company paid $ 13,362 million, which net of cash and cash equivalent obsolescence. In the cases where the value obtained through the application of the cost-based approach acquired of $ 4,384, results in a net cash flow of $ 8,978, which is disclosed in the line “Payment for companies’ was higher than the discounted cash flow value, the latter was considered the fair value. acquisitions” in statement of cash flow within investment activities. (d) Intangible Assets: The intangible asset identified and recognized in relation to Petrobras’ business 1.2.2 corresponds to commercial relationships identified within the refining and distribution segment. The Mandatory tender offer and voluntary public offer for the exchange of Petrobras’shares (the “offers”) fair value of this intangible asset has been determined through the application of the income-based approach and the multi period excess earnings method. Pursuant to the provisions of Sections 87 and following provisions of Capital Market Act No. 26,831 and Section II, Chapter II, Title III of the CNV provisions on mandatory tender offers on account of changes of control Useful life was based on the amount and the moment on which the Company expects to derive and acquisition of significant indirect interests, on May 20, 2016 the Company’s Board of Directors resolved to economic benefits. It was assigned an average useful life of five years based, among other factors, make a tender offer for the acquisition of the 662,445,264 Petrobras’ shares held by the investing public, which on the contractual agreements, consumers’ behaviors and economic factors associated with the represent 32.81% of the capital stock and voting rights in Petrobras (the “Cash Acquisition Offer”), subject to combined companies. the Transaction Close and the approval of the Cash Acquisition Offer by the CNV and the SEC. Furthermore, the Board of Directors decided to launch a voluntary public offer for the exchange of Petrobras’ shares, (the (e) Acquired Receivables: The fair value of acquired trade and other receivables amounts to $ 7,256 “Exchange Offer”) subject to the same conditions applicable to the Cash Acquisition Offer to avoid a higher use million. The gross contractual amount of receivables is $ 8,352 million, out of which $ 295 million are of cash or greater financial indebtedness to meet the Cash Acquisition Offer. not expected to be collected.

194 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 195 CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: (Continuation) NOTE 1: (Continuation) The authorization to make the Offer to Petrobras’ minority shareholders at a price per share of US$ 0.6825 Furthermore, on this same date the Purchasers paid the balance of the purchase price for a total amount of which, converted into pesos at the official exchange rate at the Transaction’s closing date, amounts to $ US$ 80 million plus applicable interest. 10.3735, was granted through an ordinance issued by the CNV’s Board of Directors on September 22, 2016 and Resolution No. 18,243 issued by the CNV on September 28, 2016 (approving the issuance of Pampa Shares). 1.3.2 On October 3, 2016, the Company requested the SEC to expedite the effectiveness of the International Tender Sale of interest in Greenwind Offer, which was granted on October 6, 2016 and finishing on November 14, 2016. With the purpose of incorporating into the project a strategic partner contributing part of the investments On November 22 and 23, 2016 the Offers were completed with the following results: necessary for the development of the Corti Wind Farm, on March 10, 2017, CTLL and PP entered into an agreement with Valdatana Servicios y Gestiones S.L.U., an entity which later changed its name to Viento i. In the domestic tranche, 365,532,273 Petrobras’ common shares were submitted, out of which 311,669,706 Solutions S.L. for the sale of 50% of Greenwind’s capital stock and rights for a total amount of US$ 11.2 million. shares opted for the Cash Acquisition Offer at a price of $ 10.3735 per share, which entailed a $ 3,233.1 million disbursement; and 53,862,567 shares were exchanged for the Company’s common shares at a As a result of the transaction, the Company has deconsolidated Greenwind’s assets and liabilities and 0.5253 ratio, which entailed the issuance of 28,294,006 new Company common shares. presents its interest in the joint venture based on the equity method of accounting. ii. In the international tranche, 21,388,145 Petrobras’ ADRs were submitted to the Exchange Offer and were exchanged for ADSs of the Company at a 0.2101 ratio, which entailed the issuance of 4,493,649 ADSs of the Company, equivalent to 112,341,232 shares of the Company. 1.4 As a result of the Offers, the Company has increased its direct and indirect interests in Petrobras to 90.4%. Corporate reorganization The corporate reorganizations mentioned below are carried out in order to obtain important benefits for the Company and all its corporate group, as it will allow for enhanced operating efficiency; an optimized use of 1.3 available resources; the leveraging of technical, administrative and financial structures; and the implementation of converging policies, strategies and goals. Furthermore, the high complementarity between the participating Sale of participations companies will be leveraged, thus reducing costs resulting from the duplication and overlapping of operating 1.3.1 and administrative structures. Sale and swap of indirect interest in TGS This reorganization was perfected by means of a merger through absorption process, under the terms of tax On July 18, 2016, the Company executed an agreement with Grupo Inversor Petroquímica S.L. (members neutrality pursuant to articles 77 and following of the Income Tax Law, whereby the absorbed companies will of the GIP Group, headed by the Sielecki family), WST S.A. and PCT L.L.C. (members of the Werthein group) be dissolved without liquidation subject to the stipulations of the PMC, the provisions of sections 82 to 87 of (jointly, the “Purchasers”) for the sale of 25.5% indirect interest in TGS (through PEPCA, owner of a 10% equity Companies Act No. 19,550 and its amending provisions, the CNV provisions, the BCBA Listing Rules and other interest in CIESA and through other subsidiaries rightholders as the only beneficiary of the trust that owns 40% provisions, the IGJ provisions and all other applicable legal and regulatory provisions. equity interest in CIESA, the “interest in TGS”) for a base price of US$ 241 million, subject to certain adjustments resulting from PEPCA’s financial position at the closing of the transaction. The Absorbing Company and the Absorbed Companies are currently performing the necessary procedures before the applicable entities in order to obtain the authorizations, registrations and recordings necessary for As part of the conditions for the closing of the transaction, the Purchasers agreed to assume the risk in case the Absorbing Company to operate as the continuing company in the merger. Notwithstanding that, in view of the necessary regulatory approvals are not obtained. Furthermore, and subject to the closing of the acquisition the need to request and obtain a large number of authorizations, registrations and recordings which must be of PPSL, the Company acquired an option, valid until February 2017, to swap the rights as sole beneficiary of granted by several national, provincial and municipal entities and the impossibility to obtain such approvals on the CIESA Trust in exchange of the shares of PHA, which holds 25% of CIESA and 15% of CIESA’s shares, both a simultaneous basis, some absorbed companies will exceptionally continue operating and performing certain of which are owned by Petrobras Argentina. (the “Exchange”). activities on behalf and at the expense of the Absorbing Company with the sole purpose of not hindering their course of business until all authorizations, registrations and recordings are finally obtained. On July 27, 2016 the transaction was perfected and the economic impact of the transaction reached to a gain of approximately $ 480 million. 1.4.1 2016 Reorganization: On January 11, 2017, the CNDC approved the acquisition by the Company of 40% of CIESA’s capital stock, an interest that had been acquired by the Company through CIESA’s financial debt swap executed on July, 2012 On August 10, 2016, the Company and Petrobras’ Board of Directors resolved to instruct both managements and 100% of PEPCA shares acquired on March, 2011. to initiate all necessary tasks and procedures to merge Pampa Energía, as acquiring company, with Petrobras, as acquired company. On January 17, 2017, the exchange whereby the Purchasers transferred to PHA their capacity as beneficiaries and trustees of the trust holding 40% of CIESA’s capital stock and voting rights, and the Company and PHA Furthermore, the management of both companies considered it appropriate that under such merger, two transferred to the Purchasers shares representing 40% of CIESA’s capital stock and voting rights, was perfected; Petrobras’ subsidiaries should be incorporated as absorbed companies: PEISA (95% through a direct interest and the Group thus keeping a 10% direct interest in CIESA’s capital stock and voting rights. The Exchange was 5% through an indirect interest) and Albares (100% direct interest). approved by ENARGAS on December 29, 2016. The Purchasers and the Company’s direct and indirect interests in TGS remain unaltered as a result of the Exchange. The merger was effective as of November 1, 2016, date on which the transfer to the absorbing company of all the rights and obligations, assets and liabilities of Petrobras, PEISA and Albares became effective, all of which subject to the corresponding corporate approvals under the applicable law and the registration with the Registry of Commerce of the merger and the dissolution without liquidation of the absorbed companies.

196 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 197 CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: (Continuation) NOTE 1: (Continuation) Pursuant to the PMC approved by the Board of Directors of the participating companies on December 23, assets and liabilities will become incorporated into the absorbing company’s equity, all of which subject to the 2016, which was authorized by the CNV on January 13, 2017: corresponding corporate approvals under the applicable law and the registration with the Public Registry of Commerce of the merger and the dissolution without liquidation of the absorbed companies. i. each Petrobras’ minority shareholder will receive 0.5253 common shares of the Company with a face value of $ 1 each and each granting the right to one vote for each share it held before the merger. Except for PEPASA, CTG, INNISA and INDISA, companies with third parties’ shareholding, there was no ii. each minority holder of Petrobras’ ADRs will receive 0.2101 ADSs of the Company for each Petrobras’ ADR exchange ratio for the other companies subject-matter of the merger as the Company directly and/or indirectly it held before the merger. held 100% of the capital stock of such companies.

As regards PEISA and Albares, as Petrobras holds 100% of the capital stock of such companies, no Since PEPASA and the Company’s assets are subject to the public offering system and listed in ByMA, the capital stock increase will be necessary and, consequently, there will be no exchange ratio for the shares Board of Directors decided to propose to the Shareholders’ Meeting an exchange ratio based on the volume- of these companies. weighted average price of the Company and PEPASA’s shares traded over the last six months, determined retroactively as from the Board meeting’s date on September 22, 2017, with a resulting exchange ratio of On February 16, 2017, the Extraordinary General Meetings of Shareholders approved the merger of Pampa 2,2699 common shares with a face value of $ 1 each and each granting the right to one vote for each PEPASA Energía —as acquiring company— with Petrobras, PEISA and Albares —as acquired companies— in agreement common share in book-entry form with a face value of $ 1 and granting the right to one vote. with the terms of the PMC. On April 19, 2017, the final merger agreement was entered into. Pursuant to the CPF approved on December, 21, 2017 by the Board of Directors of the participating companies: Once the exchange of shares is perfected, the Company will issue 101,873,741 common shares with a face i. each PEPASA’ minority shareholder will receive 2,2699 common shares of the Company with a face value value of $ 1 each and each granting the right to one vote and, after the merger through absorption is effected, of $ 1 each and each granting the right to one vote for each share it held before the merger; the Company’s capital stock will be made up of 1,938,368,431 common shares. ii. each INNISA’ minority shareholder will receive 0,2644 common shares of the Company with a face value Pursuant to the provisions of Chapter X of the CNV provisions, the Company has filed a merger authorization of $ 1 each and each granting the right to one vote for each share it held before the merger; proceeding before this entity and obtained from the CNV its authorization to publish the merger prospectus. iii. each INDISA’ minority shareholder will receive 0,1832 common shares of the Company with a face value of $ 1 each and each granting the right to one vote for each share it held before the merger; On February 26, 2018, the CNV notified the Company that, under the proceeding investigating the sale of Petrobras Argentina’s shares held by FGS-ANSES in the MTO, Federal Criminal and Correctional Court No. 11, iv. each CTG’ minority shareholder will receive 0,6079 common shares of the Company with a face value of Clerk’s Office No. 22, ordered it to refrain from adopting any measures and/or final resolution on the merits $ 1 each and each granting the right to one vote for each share it held before the merger. of the case without the prior approval by this Court, where the Company’s corporate reorganization case is being heard. It is worth highlighting that this proceeding does not deal with the merger but with the voluntary Once the exchange of shares is perfected, the Company will issue 144.322.083 common shares with a participation of shareholder FGS-ANSES in Petrobras Argentina’s cash purchase offer under the MTO that the face value of $ 1 each and each granting the right to one vote and, after the merger through absorption is Company was forced to launch when it indirectly acquired 67.1933% of Petrobras Argentina’s capital stock. The effected, the Company’s capital stock will be made up of 2.080.190.514 common shares. The Company has reorganization process took place after the MTO and was completely independent from it, and FGS-ANSES did recognized the effects of this exchange under Shareholders’ Equity in the Consolidated Statement of Changes not take part in it since, at that time, it was not a Petrobras Argentina’s shareholder. in Shareholders’ Equity.

The delay in the registration of the merger directly affects approximately 6,250 domestic and foreign As of the issuance of these financial statements, the CNV’s authorization to the publication of the merger shareholders of Petrobras Argentina that are awaiting the share exchange which will take place after the prospectus, the approval of the merger by each company’s shareholders’ meetings and the registration of the registration of the merger. merger with the applicable controlling authorities are still pending.

Therefore, the Company understands that the above-mentioned judicial proceeding is completely unrelated 1.4.3 to the merger and has not exercised any influence on it, and will continue promoting the measures necessary Merger of Subsidiaries to obtain the registration of the merger. The merger’s effective date detailed below was fixed on January 1, 2017 and correspond to business 1.4.2 combinations between companies under common control, and therefore there is no effect in these consolidated 2017 Reorganization financial statements. On June 26, 2017, the Board of Directors instructed the Company’s Management to start the proceedings 1.4.3.1 allowing to evaluate the benefits of a merger through absorption process between the Company, as absorbing CTLL, EASA and IEASA company, and certain companies of the group, as absorbed companies. On December 7 and 22, 2016, the Board of Directors of CTLL, EASA and IEASA resolved to initiate all On September 22, 2017, the Company’s Board of Directors informed that the companies which will take part necessary tasks and procedures for the merger through absorption among CTLL, as absorbing company, and in these merger will be the Company, as absorbing company, and BLL, CTG, CTLL, EG3 Red, INDISA, INNISA, EASA and IEASA, as absorbed companies. IPB, PP II and PEPASA, as absorbed companies. In analyzing this reorganization, EASA’s management concluded that, in order for the process to be viable, The merger became effective on October 1, 2017, date as from which the transfer of the absorbed it was necessary to capitalize the debt EASA held with holders of Series A and B Discount Corporate Bonds companies’ equity to the absorbing company became effective and, therefore, all their rights and obligations, issued on July 19, 2006 and maturing in 2021. On March 27, 2017 EASA’s Extraordinary General Meeting of Shareholders resolved to capitalize such CBs, which was accepted by PISA in its capacity as sole holder.

198 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 199 CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: (Continuation) NOTE 1: (Continuation) Pursuant to Board Resolution No. 347 passed on August 11, 2017, the ENRE resolved, by a majority of votes, of an impairment of Intangible assets and Property, plant and equipment in the amount of $ 687 million, which to reject the request for merger authorization submitted by EDENOR and EASA, and these companies appealed is disclosed together with the results for the Refining and Distribution segment under “Discontinued Operations” this resolution timely and in due form on considering that it did not conform to law. On December 26, 2017 of the statement of comprehensive income. EASA was served notice of MEyM Resolution No. 501 upholding the filed appeal, revoking ENRE’s Board of Directors’ Resolution No. 347 and sustaining the merger authorization request. 1.5.2 Sale of PELSA shares and certain oil areas On January 18, 2018, the shareholders’ meetings of the intervening companies approved the merger and on February 19, 2018, the merger final agreement was entered into. On January 16, 2018, the Company agreed to sell to Vista Oil & Gas S.A.B. de C.V. (“Vista”) its direct 58.88% interest in PELSA and its direct interests in the Entre Lomas, Bajada del Palo, Agua Amarga and Medanito-Jagüel As of the issuance of these financial statements, the merger is pending registration with the Public Registry, de los Machos blocks, in line with the Company’s strategy to focus its investments and human resources both to which effect the intervening companies are filing all applicable presentations with the corresponding bodies. on the expansion of its power generation installed capacity and on the exploration and production of natural gas, placing a special focus on the development and exploitation of unconventional gas reserves, as well as to 1.4.3.2 continue investing on the development of its utility concessions. PACOSA and WEBSA The sale price amounts to US$ 360 million. The closing of the transaction is subject to the meeting of certain On December 7, 2016, the Boards of Directors of PACOSA and WEBSA resolved to begin all necessary tasks conditions precedent, including approval by shareholders meeting of Vista. The Company expects that it will and procedures for the merger through absorption between PACOSA, as absorbing company, and WEBSA as represent earnings before taxes in the amount of approximately $ 1.400 million, which will be adjusted at the absorbed company. time of closing the transaction.

On March 7, 2017, the shareholders’ meetings of the intervening companies approved the merger, and on Consequently, as of December 31, 2017, assets and liabilities subject to this transaction have been classified May 30, 2017 the merger final agreement was entered into. as held for sale, and the results for affected operations have been disclosed under “Discontinued Operations” in the consolidated Statement of comprehensive income and in the consolidated statement of cash flows. As of the issuance of these financial statements, the merger is pending registration with the Public Registry, to which effect the intervening companies are filing all applicable presentations with the corresponding bodies.

1.5 Assets classified as held for sale, related liabilities and discontinued operations 1.5.1 Sale of assets in the Refining and Distribution segment On December 7, 2017, the Company executed with Trafigura Ventures B.V and Trafigura Argentina S.A. an agreement for the sale of certain assets in the Company’s refining and distribution segment based on the conviction that the oil refining and distribution business calls for a larger scale to attain sustainability. The closing of the transaction, which is subject to the meeting of certain conditions precedent, such as respective government approvals, is expected to take place by the end of March 2018.

The assets subject-matter of the transaction are as follows: (i) the Ricardo Eliçabe refinery; (ii) the Avellaneda lubricants plant; (iii) the Caleta Paula reception and dispatch plant; and (iv) the network of gas stations currently operated under Petrobras branding.

The Dock Sud storage facility is excluded from the sale, as well as the Company’s investment in Refinería del Norte S.A.

The transaction price comprises US $ 90 million in cash that includes the usual working capital of the business, which will be adjusted when the transaction is completed and an additional amount financed that will be determined at the close of the transaction, according to the methodology established in the contract.

Pursuant to the foregoing, as of December 31, 2017, assets and liabilities subject to this transaction have been classified as held for sale, in accordance with IFRS 5. The Company has measured its net assets at the lower of fair value less cost to sell and carrying value before held for sale criteria was met and it involved the recognition

200 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 201 CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: (Continuation) NOTE 1: (Continuation) The consolidated statement of comprehensive income related to discontinued operations is presented below:

As of December 31, 2017: Oil and Refining and Elimina- Total As of December 31, 2016: Oil and Refining and Elimina- Total gas distribution tions gas distribution tions

Revenue 5,972 16,795 (6,890) 15,877 Revenue 2,456 6,550 (2,821) 6,185 Cost of sales (4,840) (14,256) 6,906 (12,190) Cost of sales (1,941) (5,973) 2,931 (4,983) Gross profit 1,132 2,539 16 3,687 Gross profit 515 577 110 1,202

Selling expenses (182) (1,957) - (2,139) Selling expenses (63) (757) - (820) Administrative expenses (127) (80) - (207) Administrative expenses (25) (23) - (48) Exploration expenses (19) - - (19) Exploration expenses (41) - - (41) Other operating income 377 223 - 600 Other operating income 235 459 (377) 317 Other operating expenses (181) (110) - (291) Other operating expenses (656) (98) 377 (377) Impairment of non current assets classified - (687) - (687) Operating income (35) 158 110 233 as held for sale Operating income (loss) 1,000 (72) 16 944 Financial income 38 6 - 44 Financial expenses (10) (9) - (19) Financial income 22 15 - 37 Other financial results (43) (40) - (83) Financial expenses - (16) - (16) Financial results, net (15) (43) - (58) Other financial results (239) (14) - (253) Income (loss) before income tax (50) 115 110 175 Financial results, net (217) (15) - (232) Income (loss) before income tax 783 (87) 16 712 Income tax and minimum notional income tax (24) (40) (39) (103) Profit (loss) of the year for discontinued operations (74) 75 71 72 Income tax and minimum notional income tax (662) 44 - (618)

Profit (loss) of the year for discontinued operations 121 (43) 16 94 Other comprehensive income Items that will not be reclassified to profit or loss Other comprehensive income Remeasurements related to defined benefit plans (62) 14 - (48) Items that will not be reclassified to profit or loss Income tax 22 (5) - 17 Remeasurements related to defined benefit plans (7) 17 - 10 Items that may be reclassified to profit or loss Income tax (174) (6) - (180) Exchange differences on translation 280 - - 280 Items that may be reclassified to profit or loss Other comprehensive income of the year for 240 9 - 249 Exchange differences on translation 773 - - 773 discontinued operations Other comprehensive income of the year for 592 11 - 603 Total comprehensive income (loss) of the year for 166 84 71 321 discontinued operations discontinued operations Total comprehensive income (loss) of the year for 713 (32) 16 697 discontinued operations

Total income of the year for discontinued operations attributable to: Owners of the company (64) 75 71 82 Total income (loss) of the year for discontinued Non - controlling interest (10) - - (10) operations attributable to: (74) 75 71 72 Owners of the company 10 (43) 16 (17) Non - controlling interest 111 - - 111 Total comprehensive income of the year for discontinued operations attributable to: 121 (43) 16 94 Owners of the company 77 84 71 232 Total comprehensive income (loss) of the year for Non - controlling interest 89 - - 89 discontinued operations attributable to: 166 84 71 321 Owners of the company 282 (32) 16 266 Non - controlling interest 431 - - 431 713 (32) 16 697

202 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 203 CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: (Continuation) NOTE 1: (Continuation) The consolidated statement of cash flows related to discontinued operations is presented below:

12.31.2017 12.31.2016 Oil and Refining and 12.31.2017 12.31.2016 gas distribution

Net cash generated by operating activities 1,979 1,549 LIABILITIES Net cash used in investing activities (1,176) (661) NON-CURRENT LIABILITIES Net cash (used in) generated by financing activities (719) (922) Defined benefit plans 97 58 155 - (Decrease) increase in cash and cash equivalents from discontinued 84 (34) Deferred tax liabilities 567 - 567 - operations Provisions 922 52 974 - Total non-current liabilities 1,586 110 1,696 - Cash and cash equivalents at the begining of the year 77 111 (Decrease) increase in cash and cash equivalents 84 (34) CURRENT LIABILITIES Cash and cash equivalents at the end of the year 161 77 Trade and other payables 390 - 390 - Salaries and social security payable 47 - 47 - Defined benefit plans 2 6 8 - Income tax and minimum notional income 26 - 26 - tax provision Taxes payables 117 - 117 - As of December 31, 2017, the assets and liabilities that comprise the assets held for sale and associated Provisions 51 35 86 - liabilities are: Total current liabilities 633 41 674 - Liabilities associated to assets classified 2,219 151 2,370 - Oil and Refining and 12.31.2017 12.31.2016 as held for sale gas distribution

ASSETS NON-CURRENT ASSETS Property, plant and equipment 7,545 1,119 8,664 - NOTE 2: Intangible assets 311 104 415 - Financial assets at amortized cost 35 - 35 19 REGULATORY FRAMEWORK Trade and other receivables 6 - 6 - Total non-current assets 7,897 1,223 9,120 19

CURRENT ASSETS Inventories 153 1,960 2,113 - 2.1 Financial assets at fair value through profit and 681 - 681 - loss Generation 426 - 426 - Trade and other receivables 2.1.1 161 - 161 - Cash and cash equivalents Emergency in the National Electricity Sector Total current assets 1,421 1,960 3,381 - On December 16, 2015, the National Government issued Executive Order No. 134/2015 declaring the state Total assets classified as held for sale 9,318 3,183 12,501 19 of emergency in the electrical sector until December 31, 2017 and instructing the MEyM to adopt the necessary measures applicable to the generation, transmission and distribution business in order to upgrade the quality and safety of the supply and to secure the provision of the electricity public service under proper economic and technical conditions.

2.1.2 Generation units The Company’s revenues from the electric power generation activity come from: i) sales to the Spot market pursuant to the provisions applicable within the WEM administered by CAMMESA (SEE Resolutions No. 22/2016 and 19/2017); ii) sales contracts with large users within the MAT (Resolutions No. 1,281/2006 and No. 281/2017); and iii) supply agreements with CAMMESA (Resolutions No. 220/2007, 21/2016, 420/2017 and Renovar Programs). Furthermore, energy not committed under sales contracts with large users within the MAT and with CAMMESA will be remunerated at the Spot market.

204 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 205 CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: (Continuation) NOTE 2: (Continuation)

The Company’s generating units are detailed below: 2.1.3 Generation remuneration schemes IN OPERATION: 2.1.3.1 SE Resolution No. 22/2016 Generator Generating Tec- Power Applicable regime unit nology On March 22, 2013, the SE issued Resolution No. 95/13 introducing a new general-scope remuneration scheme superseding the applicable remuneration scheme previously in force for the whole electric generation activity, with the exception of power plants the energy and/or power capacity of which are sold under the CTG GUEMTG01 TG 101 MW Energy Plus Res. N° 1281/06 and SEE Energy Plus modality and under supply agreements with CAMMESA. Resolution N° 19/2017(1) CTG GUEMTV11 TV ≤100 MW SE Resolutions No. 22/2016 and 19/2017 On March 30, 2016, the SE issued Resolution No. 22/2016, which provided for a retroactive updating —as CTG GUEMTV12 TV ≤100 MW SE Resolutions No. 22/2016 and 19/2017 from the economic transactions for the month of February, 2016— of the remuneration values for fixed costs, CTG GUEMTV13 TV >100 MW SE Resolutions No. 22/2016 and 19/2017 variable costs and maintenance remunerations. Piquirenda PIQIDI 01-10 MG 30 MW SE Resolution No. 220/2007(1) CPB BBLATV29 TV >100 MW SE Resolutions No. 22/2016 and 19/2017 The remuneration scheme comprises the following items: CPB BBLATV30 TV >100 MW SE Resolutions No. 22/2016 and 19/2017 i. Fixed Costs Remuneration: it considers and remunerates Power Capacity Made Available in power CT Ing. White BBLMD01-06 MG 100 MW SEE Resolution No. 21/2016(1) remuneration hours (HRP). The method for calculating the remuneration will be variable based on the CTLL LDLATG01 TG >50 MW SE Resolutions No. 22/2016 and 19/2017 Recorded Availability (“RA”) and the Historical Availability (“HA”), with prices ranging from US$84.3 to US$299.2/MW-hrp, depending on the technology and scale. CTLL LDLATG02 TG >50 MW SE Resolutions No. 22/2016 and 19/2017 CTLL LDLATG03 TG >50 MW SE Resolutions No. 22/2016 and 19/2017 ii. Variable Cost Remunerations: the calculation methodology will be based on the total power generated by CTLL LDLATG04 TG 105 MW SEE Res. 220/2007 (75%), SEE Res. each type of fuel, with prices ranging from $36.7 to $81.1MWh, depending on the technology, scale and 22/2016 and 19/2017 (25%) type of fuel. CTLL LDLATG05 TG 105 MW SEE Resolution No. 21/2016(1) iii. Additional Remuneration: part of this remuneration is settled directly to the generator and another part CTLL LDLATV01 TV 180 MW SE Resolution No. 220/2007(1) will be allocated to “new infrastructural projects in the electric sectors”, which will be defined by the SE CTGEBA GEBATG01/TG02/TV01 CC >150 MW SE Resolutions No. 22/2016 and 19/2017 through a trust. The SE established the trust funding mechanisms. The price was ranged from $5.9 to CTGEBA GEBATG03 TG 164 MW Energy Plus Res. N° 1281/06 $84.2 MWh, depending on the technology, scale and destination. HIDISA AGUA DEL TORO HI HI – Media 120

2.1.3.2 IN CONSTRUCTION: SEE Resolution No. 19/2017: Generator Tecnology Power Applicable regime On February 2, 2017, the SEE issued Resolution No. 19/2017, which supersedes the remuneration scheme set forth by Resolution No. 22/2016 and establishes guidelines for the remuneration to generation plants as from the commercial transaction corresponding to February 1, 2017. CTLL MG 15 MW SE Resolution No. 19/2017 Greenwind Wind 100 MW Renovar The Resolution provides for remunerative items based on technology and scale, establishing US$- denominated prices payable in pesos by applying BCRA’s exchange rate effective on the last business day of CTGEBA CC 383 MW Resolution No. 420/2017

206 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 207 CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: (Continuation) NOTE 2: (Continuation) the month of the applicable economic transaction, whereas the transaction’s maturity will be that provided for As from November 2017, the allocation and collection of 50% of the additional remuneration will be in CAMMESA’s procedures. conditional upon: i) the generator taking out insurance, to CAMMESA’s satisfaction, to cover for major incidents on critical equipment, and ii) the progressive updating of the plant’s control systems pursuant to an investment 2.1.3.2.1 plan to be submitted based on criteria to be defined by the SEE. Remuneration for Available Power Capacity Other technologies Thermal Power Generators The remuneration is made up of a base price of US$7.5/MWh and an additional price of US$17.5/MWh, which The Resolution provides for a minimum remuneration for power capacity based on technology and scale are associated with the availability of the installed equipment with an operating permanence longer than 12 and allows generating, co-generating and self-generating agents owning conventional thermal power stations months as from the beginning of the summer seasonal programming. to offer Guaranteed Availability Commitments for the energy and power capacity generated by their units not committed under the Energy Plus modality or under the WEM’s supply agreement with CAMMESA. 2.1.3.2.2 Remuneration for Generated and Operated Energy Availability Commitments for each unit should be declared for a term of three years, together with information for the Summer Seasonal Programming (except for 2017, where information may be submitted within the term The remuneration for Generated Energy is applied on the real generationis, with prices ranging between for the winter seasonal period), with the possibility to offer different availability values for the summer and US$5 and US$10/MWh, depending on the technology, scale and type of fuel. winter six-month periods. The remuneration for Operated Energy applies to the integration of hourly power capacities for the period, The committed thermal generators’ remuneration for power capacity will be proportional to their compliance. and is valued at US$2.0/MWh for any type of fuel.

The Minimum Remuneration applies to generators with no availability commitments, with prices ranging In the case of hydroelectric plants, prices for Generated and Operated Energy are remunerated from US$1.4 from US$3,050 to US$5,700/MW-month, depending on the technology and scale. to US$3.5/MWh, depending on the technology and scale.

The Base Remuneration applies to generators with availability commitments, with a price of US$ 6,000/ 2.1.3.2.3 MW-month during the May-October 2017 period, and US$ 7,000/MW-month as from November 2017. Additional Remuneration for Efficiency The “Efficiency” incentive consists of the acknowledgment of an additional remuneration equivalent to the The Additional Remuneration is a remuneration for the additional available power capacity aiming to remuneration for the generated energy by the percentage difference between the actual consumption and the encourage availability commitments for the periods with a higher system demand. CAMMESA will define a reference consumption determined for each unit and fuel type. This comparison will be made on a quarterly monthly thermal generation goal for the set of qualified generators on a bi-monthly basis, and will call for basis. In the case of higher consumptions, the general remuneration will not be affected. additional power capacity availability offers with prices not exceeding the additional price. The additional price amounts to US$ 1,000/MW-month between May and October, 2017, and to US$2,000/MW-month as from 2.1.3.2.4 November 2017. Additional Remuneration for Low-Use Thermal Generators

Hydroelectric Generators The Resolution provides for an additional remuneration for low-use thermal generators having frequent startups based on the monthly generated energy for a price of US$2.6/MWh multiplied by the usage/startup factor. In the case of hydroelectric power plants, a base remuneration and an additional remuneration for power capacity were established. The usage factor is based on the Rated Power Use Factor recorded during the last rolling year, which will have a 0.5 value for thermal units with a usage factor lower than 30% and a 1.0 value for units with a usage factor lower Power capacity availability is determined independently of the reservoir level, the contributions made, or the than 15%. In all other cases, the factor will equal 0. expenses incurred. Furthermore, in the case of pumping hydroelectric power plants, the following is considered to calculate availability: i) the operation as turbine at all hours within the period, and ii) the availability as pump The startup factor is established based on startups recorded during the last rolling year for issues associated at off-peak hours every day and on non-business days. with the economic dispatch made by CAMMESA. It will have a 0.0 value for units with up to 74 startups, a 0.1 value for units recording between 75 and 149 startups, and a 0.2 value for units recording more than 150 startups. In all The base remuneration is determined by the actual power capacity plus that under programmed and/or other cases, the factor will equal 0. agreed maintenance, with prices ranging from US$2,000 to US$8,000/MW-month, depending on the scale and type of power plant. 2.1.3.2.5 Repayment of Overhauls Financing (applicable to thermal and hydroelectric generators) Similarly to the provisions of Resolution No. 22/2016, in the case of hydroelectric power plants maintaining control structures on river courses and not having an associated power plant, a 1.20 factor will be applied to The Resolution abrogates the Maintenance Remuneration and provides that, as regards the repayment of the plant at the headwaters. outstanding loans applicable to thermal and hydroelectric generators, credits already accrued and/or committed to the cancellation of such maintenance works will be applied first. The balance will be repaid by discounting The additional remuneration applies to power plants of any scale for their actual availability and based on US$1/MWh for the energy generated until the total cancellation of the financing. the applicable period, with prices ranging from US$0 to US$500/MW-month between May and October 2017, and US$500 or US$1,000/MW-month as from November 2017 for pumping or conventional hydroelectric power plants, respectively.

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2.1.4 On November 1, 2011, CAMMESA declared the commercial commissioning of CTLL’s Steam Turbine unit and Energy Plus - Resolution SE No. 1281/2006 the combined cycle started to operate on a commercial basis. Part of the totality of the steam turbine’s power capacity and the resulting generated energy is sold under the Agreement Res.220. With the purpose of encouraging new generation works, in 2006 the SE approved Resolution No. 1281/2006 establishing a specific regime which would allow newly installed generation sold to a certain category of Large By last, on July 14, 2017, CTLL entered into a Agreement Res.220 with CAMMESA for the new 105 MW Users to be remunerated at higher prices. high-efficiency gas turbine with retroactive effects as of July 15, 2016, date on which it was commissioned for service, committing 79.35 MW, or 75.6%, of the turbine’s power capacity. The remaining 24.4% capacity To such effect, it established certain restrictions on the sale of electricity and implemented the Energy continue to be compensated under SEE Resolution No. 19/2017. Plus service, which consists of the offer of additional generation availability by the generating agents. These measures imply that: The economic impact as of the new remuneration amounted to $ 198 million, which was disclosed under - Hydroelectric and thermal generators without fuel contracts are not allowed to execute any Revenues from sales in the Statement of Comprehensive Income. new contract. 2.1.6 - LU300s will only be allowed to contract their energy demand in the MAT for the electrical consumption SE Resolution No. 21/2016 corresponding to 2005 (Base Demand) with the thermoelectric plants existing in the WEM. As a result of the state of emergency in the national electricity sector, the SEE issued Resolution No. - New energy used by LU300s in excess of the Base Demand will be contracted at a price between the 21/2016 calling for parties interested in offering new thermal power generation capacity with the commitment parties (Energy Plus). to making it available through the WEM for the following periods: i) 2016/2017 summer; ii) 2017 winter, and - New agents joining the system must contract a maximum 50% of their demand under the Energy iii) 2017/2018 summer. Plus service. - New generation plants included within the Energy Plus service must have fuel supply and transportation The terms of the call were established in SE Note No. 161/2016. The conditions applicable to the generation contracts in place. capacity to be offered included the following: i) the plant should have a minimum 40 MW power capacity; ii) each generating unit should have a minimum 10 MW power capacity; and iii) the equipment should have dual Under this regime, the Company, through its power plants Central Térmica Güemes, EcoEnergía and Genelba, fuel consumption capacity (with certain exceptions). sells its energy and power capacity under the Energy Plus service to different large users within the WEM, which should support their plus demand under this scheme. The power capacity to be sold under this scheme Successful bidders will enter into a wholesale power purchase agreement with CAMMESA for a term of 10 amounts to 280 MW. years. The remuneration will be made up of the available power capacity price plus the variable non-fuel cost for the delivered energy and the fuel cost (if offered), less penalties and fuel surpluses. Power capacity surpluses If a generator cannot meet the power demand by an Energy Plus customer, it should purchase that power in are remunerated pursuant to SEE Resolution No. 19/2017. the market at the operating marginal cost. The Company has Power Availability agreements in force with other generators, whereby it can purchase power from other generators to support its contracts in case of unavailability. For further information on the projects conducted under this resolution, see Note 46.

In turn, the Company also acts as a selling party supporting other Energy Plus generators in case their 2.1.7 equipment is unavailable. These agreements are ranked with a lower priority than Energy Plus contracts and SEE Resolution No. 420/2017 relate to surplus energy (energy committed to the Energy Plus contracts but not demanded by clients). Pursuant to SEE Resolution No. 420/2017, SEE Resolution No. 287/2017 launched a call for bids to all parties interested in developing projects for co-generation and the closing to combined cycles over existing equipment, Lastly, both the energy delivered to the Spot market and the available power capacity not committed with no limits on the power capacity to be installed. The projects should have low specific consumption (lower under effective Energy Plus agreements in each period will be remunerated pursuant to the provisions of than 1,680 kcal/kWh with natural gas and 1,820 kcal/kWh with alternative liquid fuels). Resolution No. 19/2017. It is a condition that the new capacity should not exceed the existing electric power transmission capacity; 2.1.5 otherwise, the cost of the necessary extensions will be borne by the bidder. SE Resolution No. 220/2007 - WEM Supply Agreements (“Agreement Res.220”) Aiming to encourage new investments to increase the generation offer, the SE passed Resolution No. Awarded projects will be remunerated under a Wholesale Power Purchase Agreement for a term of 15 years. 220/2007, which empowers CAMMESA to enter into Agreement with WEM Generating Agents for the energy The remuneration will be made up of the available power capacity price plus the variable non-fuel cost for the produced with new equipment. These will be long-term agreements and the price payable by CAMMESA should delivered power and the fuel cost (if offered), less penalties and fuel surpluses. Power capacity surpluses are compensate the investments made by the agent at a rate of return to be accepted by the SE. remunerated pursuant to Resolution No. 19-E/2017.

Under this regulation, the Company, through its subsidiaries CTP and CTLL power plants, has executed For further information on the projects conducted under this resolution, see Note 46. Agreement Res.220. Additionally, the Act provides for several measures promoting the construction of projects for the generation On May 3, 2011, CTP was commissioned for service. On July 15, 2011, this company executed a Agreement of energy from renewable sources, including tax benefits (advance VAT reimbursement, accelerated depreciation Res.220 as from such date, totality of the power and produced energy generated is sold pursuant to the of the income tax, import duty exemptions, etc.) and the creation of a fund for the development of renewable provisions of such agreement. energies destined, among other objectives, to the granting of loans and capital contributions for the financing of such projects. The tax benefits quota for 2016, set by Executive Order No. 882/2016, amounted to US$ 1,700 million. If it is not allocated in full, the balance will be automatically carried forward to the following year.

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Renovar Programs Pursuant to this agreement, and in order for Transener and Transba to have sufficient and necessary resources to support its ordinary operations and perform all other tasks necessary to secure the proper operation In order to meet the objectives set by Act No. 26,190 and Act No. 27.191, the MEyM called for open rounds for and functioning of the electric power transmission system under concession, the SEE (i) recognized credit claims the hiring of electric power from renewable sources (RenovAr Programs, Rounds 1, 1.5 and 2). These calls aimed in favor of Transener and Transba in the amount of $ 603 million and $ 152 million, respectively, on account of to assign power capacity contracts from different technologies (wind and solar energy, biomass, biogas and small cost variations during the December 1, 2015-July 31, 2016 period, and (ii) determined credit claims for increased hydraulic developments with a capacity of up to 50 MW). Successful bidders will enter into renewable electric costs in favor of Transener in the amount of $ 900 million and $ 363 million, respectively, for the August 1, power supply agreements for the sale of a committed annual electric power block for a term of 20 years. 2016-January 31, 2017 period. To such effects, on March 14, 2017, Transener executed with CAMMESA a Loan and Receivables Assignment Agreement, which was settled through the assignment of the above-mentioned For further information on the projects conducted under this resolution, see Note 46. recognized and ascertained credit claims. Additionally, the Agreement provided for an “Investment Plan” for the October 2016-March 2017 period in the approximate amount of $ 299 million and $ 121 million, respectively. SEE Resolution No. 281/2017 Renewable Energy Term Market (Renewable MAT” Regimen) On June 19, 2017, CAMMESA made its final disbursement under the Loan Agreement executed with Transener The MEyM passed Resolution No. 281/2017, which regulated the Renewable MAT This regime aims to set the and Transba, thus offsetting all credits recognized under the Instrumental Agreement, the Renewal Agreement conditions for large users within the WEM and WEM distributing agents’ large users comprised within Section and its Addendum, as well as the Agreement executed on December 26, 2016. 9 of Act No. 27,191 to meet their demand supply obligation from renewable sources through the individual

purchase within the MAT of electric power from renewable sources, or self-generation from renewable sources. As of the closing of fiscal year 2017, Transener and Transba have recorded income resulting from the recognition of cost variations by the SEE and ENRE for up to the amounts collected through the executed Loan Furthermore, it regulates the conditions applicable to projects for the generation, self-generation and co- Agreements. Consequently, Transener has disclosed revenues from sales in the amount of $ 398 million and generation of electric power from renewable sources. Specifically, the Registry of Renewable Electric Power $ 1,062 million, and earned interest for $ 14 million and $ 105 million for the fiscal years ended on December Generation Projects (“RENPER”) was created for the registration of such projects. 31, 2017 and 2016, respectively. Likewise, Transba has disclosed revenues from sales in the amount of $ 66 million and $ 452 million, and earned interest for $ 1 million and $ 22 million for the same fiscal years, Projects destined to the supply of electric power from renewable sources under the Renewable MAT may be respectively. Liabilities arising from disbursements collected up to the amount of the recognized credit claims covered by other remuneration mechanisms, such as the agreements under the Renovar rounds. Surplus energy for increased costs under the Instrumental Agreement and the Renewal Agreement have been settled through exceeding will be marketed under the Spot Market and remunerated pursuant to SEE Resolution No. 19-E/2017. the assignment of such credit claims. Finally, the contracts executed under the Renewable MAT Regime will be administered and managed Pursuant to Resolution No. 524/2016, which establishes the program applicable to the RTI for Electric Power in accordance with the WEM procedures. The contractual terms, life, allocation priorities, prices and other Transmission during 2016, on January 31, 2017, the ENRE issued Resolutions No. 66/17 and No. 73/17, which conditions, notwithstanding the maximum price set forth in Section 9 of Act No. 27,191, may be freely agreed set the tariffs in force for the 2017/2021 five-year period, which resulted in an annual amount of $3,274 million between the parties, although the committed electricity volumes will be limited by the electric power from and $1,499 million at the exchange rate effective as of February 2017 for Transener and Transba, respectively. renewable sources produced by the generator or supplied by other generators or suppliers with which it has These resolutions provide for an investment plan for the 2017/2021 five-year period in the amounts of $3,336 purchase agreements in place. million and $2,251 million for Transener and Transba, respectively. On January 29, 2018, the Company was assigned a 28 MW priority for the “de la Bahía” wind farm project Furthermore, the ENRE established the mechanism for adjusting the remuneration, the service quality and and a 50 MW priority for the “Corti” wind farm project, which will allow it to guarantee the dispatch from both penalties system, the reward system and the investment plan to be executed by both companies during such period. wind farms. Due to the differences among the several tariff proposals submitted under the Full Tariff Review process initiated For further information on the projects conducted under this resolution, see Note 46. by the ENRE, on April 7 and 21, 2017, Transener and Transba, respectively, filed a Motion for Reconsideration and Appeal against ENRE Resolutions No. 66/2017, 84/2017, 139/2017, 73/17, 88/17 and 138/17, whereby the ENRE approved the tariff system applicable to Transener and Transba, respectively, for the 2017/2021 period. 2.2 On October 31, 2017, ENRE Resolutions No. 516/2017 and 517/17 were notified, whereby the ENRE partially Transmission upheld the Motions for Reconsideration filed against ENRE Resolutions No. 66/17 and 73/17 by Transener and On September 28, 2016, ENRE Resolution No. 524/16 approved the program applicable to the RTI for Electric Transba S.A., respectively. Power Transmission during 2016, which contemplated the entry into force of the resulting tariff scheme as from February 2017. These resolutions provide for a new tariff scheme applicable to Transener and Transba retroactively to February 2017, with annual regulated revenues in the amount of $ 3,534 million and $1,604 million, respectively. On December 26, 2016, Transener and Transba executed a new agreement with the SEE and the ENRE under the commitments stipulated in the Memorandum of Understanding for the Update of the High-Voltage Electric On December 15, 2017, the ENRE issued Resolutions No. 627/17 and No. 628/17 establishing a new tariff Power Transmission Utility, effective until January 31, 2017 or the entry into force of the new tariff scheme scheme resulting from the tariff update defined by the RTI and effective as from August 2017, with Transener resulting from the RTI, whichever occurs first and under the commitments stipulated in the Memorandum of and Transba’s annual regulated revenues amounting to $ 3,933 million and $ 1,771 million, respectively. Understanding for the Update of the High-Voltage Electric Power Transmission Contract for Regional Distribution in the Province of Buenos Aires, effective until January 31, 2017 or the entry into force of the new tariff scheme resulting from the RTI, whichever occurs first.

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v. the carrying out of an RTI which will result in a new tariff structure that will go into effect on a gradual basis and remain in effect for the following 5 years. In accordance with the provisions of Law No. 24,065, 2.3 the ENRE will be in charge of such review; Energy distribution vi. the implementation of a minimum investment plan in the electric network for an amount of $ 178.8 2.3.1 million to be fulfilled by Edenor during 2006, plus an additional investment of $ 25.5 million should General it be required; vii. the adjustment of the penalties imposed by the ENRE that are payable to customers by way of discounts, Edenor is subject to the regulatory framework provided under Law No. 24,065, the Concession Agreement, which were notified by such regulatory agency prior to January 6, 2002 as well as of those that have and the regulations issued by the ENRE. been notified, or whose cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect through the date on which they are effectively paid, The ENRE is empowered to approve and control tariffs, and control the quality levels of the technical product using, for such purpose, the average increase recorded in the Company’s own distribution costs as a result and service, the commercial service and the compliance with public safety regulations, as provided for in the of the increases and adjustments granted at each date; Concession Agreement. If the Distribution Company fails to comply with the obligations assumed, the ENRE may apply the penalties stipulated in the Concession Agreement. viii. the waiver of the penalties imposed by the ENRE that are payable to the Federal Government, which have been notified, or their cause or origin has arisen in the period between January 6, 2002 and the date on The Distribution Company’s obligations are, among others, to make the necessary investments and carry out which the Adjustment Agreement goes into effect; the necessary maintenance works in order to ensure that the quality levels established for the provision of the service in the concession area will be complied with and that electricity supply and availability will be sufficient The payment term of the penalties imposed by the ENRE, which are described in paragraph vii) above, is to meet the demand in due time, securing the sources of supply. 180 days after the approval of the RTI in 14 semiannual installments. Those discounts have been early made as from December 2015. If Edenor repeatedly fails to comply with the obligations assumed in the Concession Agreement, the grantor of the concession will be entitled to foreclose on the collateral granted by the majority shareholders by means Said agreement was ratified by the PEN by means of Executive Order No. 1,957/06, signed by the President of of the pledge of the Class A shares and sell them in a Public Bid. This, however, will not affect the continuity of Argentina on December 28, 2006 and published in the Official Gazette on January 8, 2007. The aforementioned the Holder of the concession. agreement stipulated the terms and conditions that, upon compliance with the other procedures required by the regulations, would be the fundamental basis of the Comprehensive Renegotiation of the Concession Agreement Furthermore, the Concession Agreement may be rescinded in the event of the Distribution Company’s of the public service of electric power distribution and sale within the federal jurisdiction, between the PEN and undergoing bankruptcy proceedings. Additionally, if the Grantor of the Concession fails to discharge his the holder of the concession. obligations in such a manner that the Distribution Company is prevented from providing the Service or the Service is severely affected on a permanent basis, the Distribution Company may request, after demanding the 2.3.2.2 regularization of such situation in a term of 90 days, that the agreement be rescinded. At the date of issuance Breach of Adjustment Agreement of these financial statements, there have been no events of non-compliance by Edenor that could be regarded as included within the scope of this situation. With the aim of ensuring the viability of the electricity supply continuity, safety and quality, the Adjustment Agreement provided for the creation of a Temporary Tariff Structure (RTT), pursuant to which the increase in 2.3.2 Edenor’s costs would be recognized -during the period the RTT remained in effect- on a semiannual basis by Electricity rate situation means of the cost monitoring mechanism (MMC), and laid down the conditions for the RTI. That mechanism was only applied in the first three six-month periods, after which the Federal Government (through its different 2.3.2.1 agencies) systematically failed to comply with the obligations assumed. Adjustment Agreement entered into between Edenor S.A. and the Federal Government By means of MEyM Resolutions Nos. 6 and 7/16, and as from February 1, 2016, the current electricity rate On September 21, 2005, Edenor S.A. entered into an Adjustment Agreement within the framework of schedule of Distribution companies is readjusted within the framework of the Temporary Tariff Structure, which the process of renegotiation of the Concession Agreement set forth in Law No. 25,561 and supplementary is the adjustment of the existing electricity rate schedules by applying thereto the semiannual readjustment regulations, which was ratified on February 13, 2006. that was pending. The Adjustment Agreement provides for the following: Additionally, the aforementioned MEyM Resolution No. 7/16 instructs the ENRE to carry out the RTI. i. the implementation of a Temporary Tariff Structure effective as from November 1, 2005, including a 23% average increase in the distribution margin, which may not result in an increase in the average Finally, by means of ENRE Resolution No. 63/17 dated January 31, 2017, the electricity rate schedule resulting rate of more than 15%, and an additional 5% average increase in the VAD, allocated to certain specified from the RTI process, which will be applied by Edenor as from February 1, 2017, is approved. capital expenditures; 2.3.2.3 ii. the requirement that during the term of said temporary tariff structure, dividend payment be subject Tariff Structure Review to the approval of the regulatory authority; Due to the aforementioned non-compliance indicated in the previous point, in June 2013, Edenor filed iii. the establishment of a “Social Tariff” for the needy and the levels of quality of the service to be rendered; a complaint against the Federal Government claiming full compliance with the Adjustment Agreement and iv. the suspension of the claims and legal actions filed by Edenor and its shareholders in national or foreign compensation for damages due to the non-compliance with the commitments stipulated therein. The complaint courts due to the effects caused by the Economic Emergency Law; was amended so as to extend it in November 2013.

214 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 215 CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: (Continuation) NOTE 2: (Continuation) Although in the last years, the Grantor of the Concession adopted palliative measures –previously described that are to be applied and complied with by Edenor as from February 1, 2017. The above-mentioned regulation was in this Note – to allow for the operations to continue, such measures were partial and considered neither all amended by the ENRE by means of the issuance of Resolutions Nos. 81/17, 82/17, and 92/17, and Note No. 124,898. the variables nor the essential elements of the rights and obligations deriving from the Concession Agreement. The aforementioned Resolution No. 63/2017 states that the ENRE, instructed by the MEyM, should have By means of MEyM Resolution No. 6/16, which defines the seasonal reference prices, the MEM summer limited the increase in the VAD resulting from the RTI process and applicable as from February 1, 2017, to a quarterly rescheduling relating to the February 1-April 30, 2016 period carried out. Additionally, it defines the maximum of 42% vis-á-vis the VAD in effect at the date of issuance of the aforementioned resolution, with social tariff for all the residential customer demand. the remaining value of the new VAD being applied in two stages, the first of them in November 2017 and the second and last one in February 2018. By means of MEyM Resolution No. 7/16: In addition to that which has been mentioned, the ENRE shall recognize and allow Edenor to bill the VAD - SEE Resolution No. 32/15 was repealed and the ENRE was instructed to adopt measures, within its difference arising as a consequence of the gradual application of the tariff increase recognized in the RTI in 48 field of competence, to finish the RTI. This resolution granted Edenor a temporary increase in income installments as from February 1, 2018, which will be incorporated into the VAD’s value resulting as of that date. as from February 2015, and on account of the RTI, in order for Edenor to cover the expenses and afford the investments associated with the normal provision of the service. As a consequence of that As of December 31, 2017, the amount arising from such deferred income and not recognized by Edenor in which has been previously described, as of December 31, 2016 Edenor recognized $ 420 million for these financial statements amounts approximately to $ 4.9 billion. this concept, which has been disclosed in Other operating income of the Consolidated Statement of Comprehensive Income. Moreover, the aforementioned regulation sets forth the procedure for determining the mechanism for - the ENRE instructed to adjust the VAD in electricity rate schedules, on account of the RTI, and to take monitoring the variation of the CPD, whose “trigger clause” will be applicable when the variation recorded in all the necessary steps to carry out the RTI before December 31, 2016. the six-month period being controlled exceeds 5%. In this regard, in August 2017, having the condition for the trigger clause to apply been met, Edenor requested that it be allowed to apply the variation recorded in the CPD - the following was also provided for: (i) the cancellation of the PUREE. As of December 31, 2016, in the first January–June 2017 six-month control period, which amounted to 11.63%. Edenor recognized a total of $ 74 million for this concept, which is disclosed in Other Operating Income of the Consolidated Statement of Comprehensive Income; (ii) the revocation of SEE Res. Additionally, ENRE Resolution No. 329/2017 determines the procedure to be applied for the billing of the No. 32/15 as from the date on which the ENRE’s Resolution that implements the electricity rate deferred income, stating that those amounts will be adjusted as of February 2018, applying for such purpose schedule comes into effect; (iii) the suspension until further instruction of all the effects of the loans the Methodology for the Redetermination of Edenor’s Recognized Own Distribution Costs set forth in caption for consumption (mutuums) agreements entered into by and between the Distribution companies c2) of Sub-Appendix II to ENRE Resolution No. 63/17, and billed in 48 installments as from February 1, 2018. and CAMMESA; (iv) the implementation of the necessary actions to end the trusts created by ENRE Resolution No. 347/12; (v) the restriction on the distribution of dividends in accordance with the By means of Resolution No. 526/17, the ENRE calls a public hearing to be held on November 17, 2017 with provisions of clause 7.4 of the Adjustment Agreement. the purpose of informing about the impact on Edenor’s customer bills of the measures to be implemented by the MEyM as a result of the public hearing that such Ministry has called (MEyM Resolution No.403-E/2017) Additionally, by means of ENRE Resolution No. 290/16, applicable to Edenor. and Edesur S.A., the ENRE in relation to: (i) the new power and energy reference prices in the MEM relating to the 2017-2018 summer instructed Distribution companies to eliminate the six per thousand surcharge established by Section 1 of Law period; (ii) the stimulus plan that rewards electric power-savings; (iii) the social tariff, and; (iv) the electric power No. 23,681, as from the billings that include meter-reading dates subsequent to the date on which Decree No. distribution methodology. 695/16 came into effect, inasmuch as both the interconnection construction works and the transfers of funds duly made by the Federal Government in favor of the province of Santa Cruz, have been complied with. As a consequence of that which has been previously mentioned, by means of ENRE Note 128,399, Edenor was informed that the MEyM had instructed the ENRE to postpone until December 1, 2017 the application of the To that end, on April 1, 2016, the ENRE issued Resolution No. 55/16, whereby the program for the Review of tariff increase established in the RTI for November 1, with the result of such increase being recognized in real the distribution tariff, which was carried out in 2016, was approved. terms, using for such purpose the adjustment mechanism provided for in ENRE Resolution No. 63/17. On September 5, 2016, Edenor submitted its electricity rate schedule proposal for the next five years. For Furthermore, with regard to the deferral of the collection of the CPD adjustment that was to be applied as from the purposes of the rate proposal, Edenor: August 2017, it is instructed that in order for such adjustment to be recognized in real terms, such concept shall be i. determined the capital base using for such purpose the depreciated Net Realizable Value (NRV) method; applied as from December 1, 2017, using also the adjustment mechanism mentioned in the preceding paragraph. ii. submitted the 2017-2021 Investment Plan; On November 30, 2017, by means of Resolution No. 603/17, the ENRE approved the CPD values, applicable as iii. submitted a detail of the operating expenses; and from December 1, 2017, and retroactively to consumption recorded in the months of August through November 2017. That amount totals $ 753.9 million and was billed in two installments, December 2017 and January 2018. iv. submitted all other data requested by the Regulatory Authority. Additionally, the Electricity Rate Schedule’s values, applicable as from December 1, 2017, were approved. In accordance with the Work Plan and schedule duly fixed by the ENRE, on October 28, 2016, the public On January 31, 2018, the ENRE issued Resolution No. 33/18 whereby it approves the values of Edenor’s hearing was held as a preliminary step to define the electricity rate schedule for the next period. own distribution costs, the values of the monthly installment to be applied in accordance with the provisions of ENRE Resolution No. 329/2017, and the values of Edenor’s electricity rate schedule applicable to consumption On January 31, 2017, the ENRE issued Resolution No. 63/17, pursuant to which it determined the definitive recorded as from February 1, 2018. Additionally, it is informed that the average electricity rate value amounts Electricity Rate Schedules, the review of costs, the required quality levels, and all the other rights and obligations to 2.4627 $/kwh.

216 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 217 CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: (Continuation) NOTE 2: (Continuation) 2.3.2.4 In this regard, on December 26, 2016, CAMMESA notified Edenor that, as instructed by the MEyM, Note No. Extraordinary Investment Plan - Temporary insufficiency of the revenue deriving from the FOCEDE 2016 04484723, it would issue credit notes for the negative effects generated by the provisional remedies that affected: Due to the measures adopted by the Ministry of Planning and the fact that the FOCEDE’s funds were insufficient to cover the estimated disbursements under the Investment Plan, Edenor has requested of the respective - the application of the seasonal prices set by MEyM Resolutions Nos. 6 and 41/16, for the periods pending authorities that it be provided with funding assistance, which has been called Extraordinary Investment Plan. as of that date; and - the application of the electricity rates set by ENRE Resolution No. 1/16. Consequently, on September 26, 2014, the SEE, by Resolution No. 65/14, instructed CAMMESA to enter into a Loan for consumption (Mutuum) and assignment of secured receivables agreement with Edenor for a total of Once the conditions and time frames for the billing of the concepts covered by the above-mentioned $ 500 million to cover the Extraordinary Investment Plan as a consequence of the temporary insufficiency of provisional remedies have been set out by the ENRE, Edenor will issue the bills to its customers and transfer the revenue deriving from Resolution No. 347/12, mentioned in Note 2.3. The aforementioned agreement was those values to CAMMESA. entered into on September 30, 2014. On December 18, 2014, said agreement was extended, as instructed by the SEE to CAMMESA, for an additional amount of $ 159 million. The total effects of the credit notes issued for these concepts in 2016 fiscal year were detailed below:

In fiscal year 2015, the loan for consumption (mutuum) agreement was extended, as instructed by the SEE to CAMMESA, for an additional amount of $ 2.2 billion. Res. MEyM Res. ENRE N° 6 and 41/16 N° 1/16 As of December 31, 2017, the debt related to this concept amounts to $ 1.9 billion (comprised of $ 1.2 billion principal and $ 638 million in accrued interest) which is disclosed in the Other non-current payables account. Payables for purchase of electricity – CAMMESA (270) (1,126) Furthermore, as security for the performance of the obligations assumed and the repayment of the funds Purchase of electricity 270 - granted, Edenor agreed to assign and transfer in favor of CAMMESA, as from the end of the grace period that Income recognition of Note MEyM No. 2016-04484723 - 1,126 the SEE will estipulate along with the methodology and terms for the reimbursement of the funds, the amounts receivable which Edenor may have with the MEM up to the actual amount of the funds granted. At the date of

issuance of these financial statements, Edenor does not have any amount receivable with the MEM. Additionally, based on the credit notes issued, CAMMESA has credited the interest amounts billed commensurate with the extent thereof. Additional recognition – Investment Plan As instructed by MEyM Resolution No. 7/16, as from February 1, 2016 CAMMESA suspended all the effects 2.3.3 of the loans for consumption (mutuums) agreements entered into, as well as the transfers of resources to Framework agreement Distribution companies on behalf and to the order of the FOCEDE. As previously mentioned, the new Works On January 10, 1994, Edenor, together with Edesur S.A., the Federal Government and the Government of the Plan will be exclusively financed with the funds collected from users. Province of Buenos Aires entered into a Framework Agreement, whose purpose was to establish the guidelines under which Edenor was to supply electricity to low-income areas and shantytowns. On October 4, 2017, by means of Resolution No. 840-E/17, the MEyM recognized in favor of Edenor an amount of $ 323.4 million for the works carried out prior to the ending of the FOCEDE, , requiring as a condition The approval of the extension of the Framework Agreement until September 30, 2017 was signed on for such recognition to take place that Edenor notify both the SEE and the ENRE of its decision to not only August 3, 2017. The signing of the aforementioned agreement represents the recognition of revenue in favor of abandon any and all administrative and/or judicial claims filed, but also waive its right to any other future claim Edenor relating to the distribution of electricity to low-income areas and shantytowns for the January 1, 2015 - against the Federal Government, the MEyM, the SEE, the ENRE and/or CAMMESA based on the FOCEDE. September 30, 2017 period for an amount of $ 268.1 million. In this regard, on October 9, 2017, Edenor expressed that it had no administrative or judicial claims against In this regard, on October 23, 2017, Edenor received a payment from the Federal Government for such institutions on the aforementioned ground, and that the recourse (“recurso directo”) filed in 2015 against $122.6 million. ENRE’s Resolution No. 356/14, pursuant to which a fine had been imposed on Edenor due to the non-application of the FOCEDE’s remaining funds in due time, was not considered within the scope of such requirement. Due to the fact that at the date of these financial statements the approvals of the Addendum to the Framework Agreement for the October 1-December 31, 2017 period by the Federal Government and the Government of 2.3.2.5 the Province of Buenos Aires are still in process, no revenue for this concept has been recognized, which, as of Provisional remedies December 31, 2017, amounted to $ 40.8 million. During 2016, Edenor was notified by several courts of the Province of Buenos Aires of the granting of provisional remedies requested by different customers, both individuals and groups of consumers, which all 2.3.4 together accounted for more than 30% of Edenor’s sales, ordering the suspension of MEyM Resolutions Nos. Penalties 6 and 7/16 and ENRE Resolution No. 1/16 (authorizing tariff increases), retroactively to the date on which such 2.3.4.1 resolutions came into effect, i.e. February 2016. General These measures required Edenor to refrain from billing with the tariff increase and to reimburse the amounts The ENRE is empowered to control the quality levels of the technical product and service, the commercial of the increases already collected by means of a credit in the customers’ accounts to be offset against their service and the compliance with public safety regulations, as stipulated in the Concession Agreement. future electricity consumption.

218 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 219 CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: (Continuation) NOTE 2: (Continuation) If the Distribution Company fails to comply with the obligations assumed, the ENRE may apply the penalties The impact of these new penalty determination and adjustment mechanisms has been quantified by Edenor stipulated in the aforementioned Agreement. and recognized as of December 31, 2017, which resulted in a recovery included in results of $ 41 million.

As of December 31, 2017 and 2016, Edenor has recognized in its financial statements the penalties accrued, In accordance with the provisions of Sub-Appendix XVI to ENRE Resolution No. 63/17, Edenor is required to whether imposed or not yet issued by the ENRE, related to the control periods elapsed as of those dates. submit in a term of 60 calendar days the calculation of global indicators, interruptions for which force majeure had been alleged, the calculation of individual indicators, and will determine the related discounts, crediting the By means of ENRE Note No. 120,151 dated April 15, 2016, which establishes the new criterion to calculate amounts thereof within 10 business days. In turn, the ENRE will examine the information submitted by Edenor, penalties, Edenor is informed that for purposes of calculating penalty amounts, the values to be applied are and in the event that the crediting of such discounts were not verified will impose a fine, payable to the Treasury, the kWh values in effect at the last day of the six-month period analyzed in which the penalizable event is equivalent to twice the value that should have been recorded. At the date of these financial statements, Edenor detected, with the increases recorded in the “remuneration” as a consequence of the increases and adjustments complied with the terms of this resolution respect to the six-month period ended August 31, 2017. granted as of that date. The effect of this resolution for the September 2015-February 2016 six-month period and subsequent periods has been recorded during the year ended December 31, 2016. 2.3.4.2 Penalty Adjustment: Furthermore, it is stated that the resulting amounts determined as indicated in the preceding paragraph, accrue interest at the BNA lending rate for thirty-day operations from the date on which they are determined In different resolutions concerning penalties relating to the Quality of the Commercial and Technical Service, until the Customer’s account is actually credited, effect which Edenor has recorded in its financial statements. the Regulatory Entity has provided for the application of increases and adjustments, applying for such purpose a criterion different from the one applied by the Company. Additionally, by Note No. 123,091 dated October 19, 2016, the ENRE set the average rate values ($/KWh) to be applied as from December 2012 for the penalties payable to the Public Administration. In accordance In this regard, the Company does not know the formula used for obtaining such increase; therefore, it with the terms of the Concession Agreement, such values relate to the average sale price of energy charged challenged the aforementioned resolutions requesting the suspension of their effects, which are not included to customers. Due to the fact that the amounts informed in the above-mentioned note are not in agreement within the amount of the provision for penalties recognized as of December 31, 2017. with such concept, on November 1, 2016, Edenor submitted a note to the ENRE requesting the rectification of the amounts informed because they are considered erroneous. At the date of issuance of these financial 2.3.5 statements, said Note has not been answered. Law on electricity dependent patients On May 17, 2017, Law No. 27,351 was passed, which guarantees the permanent and free of charge supply Furthermore, ENRE Resolution No. 63/17, has set out the control procedures, the service quality assessment of electricity to those individuals who qualify as dependent on power for reasons of health and require medical methodologies, and the penalty system, applicable as from February 1, 2017, for the 2017 – 2021 period. equipment necessary to avoid risks in their lives or health. The law states that the account holder of the service or someone who lives with him/her (a cohabitant) that is registered as “Electricity dependent for reasons of Additionally, by means of Note No. 125,248 dated March 29, 2017, the ENRE sets the new penalty health” will be exempt from the payment of any and all connection fees and will benefit from a special free determination and adjustment mechanisms in relation to the control procedures, the service quality assessment of charge tariff treatment in the electric power supply service under national jurisdiction, which consists in the methodologies, and the penalty system applicable as from February 1, 2017 for the 2017 – 2021 period set by recognition of the entire amount of the power bill. ENRE Resolution No. 63/17, providing for the following: i. Penalty values shall be determined on the basis of the kwh value, the average electricity rate, the On July 26, 2017, the ENRE issued Resolution No. 292 stating that those discounts are to be made as from cost of energy not supplied or other economic parameter at the value in effect at the first day of the the effective date of the aforementioned law, and instructing CAMMESA to implement those discounts in its control period or the value in effect at the date of the penalizable event for penalties arising from billing to distribution companies. The amounts paid by customers for the bills covered by this Resolution will be specific events. made available in the stipulated time frames. ii. For all the events that occurred during the transition period (the period between the signing of the According to Executive Order 740 of the PEN, dated September 20, 2017, the MEyM will be the Authority of Adjustment Agreement and the effective date of the RTI) for which a penalty has not been imposed, Application of Law No. 27,351, whereas the Ministry of Health will be responsible for determining the conditions penalties shall be adjusted by the IPC used by the BCRA to produce the ITCRM for the month prior to the necessary to be met for registration with the “Registry of Electricity Dependent for Reasons of Health” and will end of the control period or that for the month prior to the date of occurrence of the penalizable event issue the clarifying and supplementary regulations for the application thereof. for penalties arising from specific events, until the date on which the penalty is imposed. This mechanism is also applicable to the concepts penalized after April 15, 2016 (ENRE Note No. 120,151) and until the On September 25, 2017, the National Ministry of Health issued Resolution No. 1,538-E/17, which creates effective date of the RTI. This adjustment will be part of the penalty principal amount. the Registry of Electricity Dependent for Reasons of Health (RECS), within the orbit of the National Ministry of iii. Unpaid penalties will accrue interest at the BNA lending rate for thirty-day discount transactions from the Health, operating under the authority of the Undersecretariat for the Management of Health Care Services. date of the resolution to the date of actual payment, as interest on late payment. In the case of penalties relating to Customer service, the calculated amount shall be increased by 50%. At the date of issuance of these financial statements no further regulations have been issued concerning to the resolution mentioned in the previous paragraph. iv. Penalties subsequent to February 1, 2017 will be valued at the Kwh value or the cost of energy not supplied of the first day of the control period or of the day on which the penalty is imposed for penalties arising from specific events. Those concepts will not be adjusted by the IPC, applying the interest on late payment established in iii) above. Moreover, an additional fine equivalent to twice the amount of the penalty will be determined if payment is not made in due time and proper form.

220 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 221 CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: (Continuation) NOTE 2: (Continuation) The IE Program sets forth that the National Government undertakes to pay a monthly compensation resulting from: (i) the difference between the Surplus Injection price (US$ 7.5/MMBTU) and the price actually collected 2.4 from the sale of the Surplus Injection, plus; (ii) the difference between the Base Price and the price received from the Adjusted Base Injection. These projects will be in force for a maximum term of 5 years, with the Oil and gas possibility for renewal. 2.4.1 Amendment of the Argentine Hydrocarbons Law On April 26, 2013, the Committee of Strategic Planning and Coordination of the National Hydrocarbon Investment Plan (Committee) issued Resolution No. 3/13, which was published in the Official Bulletin, and On October 29, 2014, the National Congress enacted Law No. 27,007 amending Hydrocarbons Law No. regulates the IE Program and sets forth that any companies interested in participating in the Program should 17,319. This Law incorporates new drilling techniques available in the oil industry, as well as changes mainly submit monthly affidavits to the Committee containing specifically-detailed documentation on injection, related to terms and extensions of exploration permits and exploitation concessions, canons and royalty rates, price, contracts, etc., so that they may, after meeting the methodology and terms specified therein, obtain new legal concepts for the exploration and exploitation of unconventional hydrocarbons in the Continental the applicable compensation. Furthermore, the Resolution expressly prohibits natural gas purchase and sale Shelf and the Territorial Sea, and a promotion regime pursuant to Executive Order No. 929/13, among other key operations between producers and provides special considerations regarding new high-risk projects, investments factors for the industry. control, the evolution of reserves and the IE Program’s auditing mechanism.

The main changes introduced by Law No. 27,007 are detailed below: On August 7, 2013, pursuant to Resolution No. 27/13, the Committee approved a project for an increase in the total natural gas injection submitted by the Company, with retroactive effects to March 1, 2013. a. It establishes terms for exploration permits and exploitation and transportation concessions, making a distinction between conventional and unconventional, and continental shelf and 2.4.2.3 territorial sea reservoirs. Natural Gas Surplus Injection Promotion Program for Companies with Reduced Injection (the “IR Program”) b. The 12% percentage payable as royalties to the grantor by exploitation concessionaires on the proceeds derived from liquid hydrocarbons extracted at wellhead and the production of natural gas In November 2013, pursuant to Resolution No. 60/13, the Committee created the IR Program covering 3 will remain effective. In case of extension, additional royalties for up to 3% on the royalties applicable companies with no previous production or with a 3.5 MMm /day production cap, establishing price incentives for at the time of the first extension, up to a maximum of 18%, will be paid for the following extensions. production increases and LNG importation penalties in case of breach of the committed volumes. Furthermore, companies benefiting from this Program and meeting the applicable conditions may request the interruption c. It provides for two types of non-binding commitments between the National Government and of their participation in that program and their incorporation into the current one. Resolution No. 60/13 (as the Provinces aiming to establish a uniform environmental legislation and to adopt a uniform tax amended by ES Resolution N° 22/14 and N° 139/14), established a price ranging from 4 US$/MMBTU to 7.5 US$/ treatment to encourage hydrocarbon activities. MMBTU, based on the highest production curve attained. d. It restricts the National Government and the Provinces from reserving new areas in the future in favor of public or mixed companies or entities, irrespective of their legal form. Thus, contracts entered On March 6, 2014 and January 30, 2015, PELSA and Petrobras were registered with this program pursuant into by provincial companies for the exploration and development of reserved areas before this to Resolutions No. 20/14 and 13/15, respectively, of the Secretariat of Economic Policies and Development amendment are safeguarded. Planning of the Ministry of Economy and Public Finances.

2.4.2 On January 4, 2016, Executive Order No. 272/15 was passed dissolving the Committee created pursuant Gas Market to Executive Order No. 1277/12 and providing that the powers assigned to it would be exercised by the MEyM. During the last few years, the National Government has created different programs seeking to encourage It should be pointed out that the collection of the compensation for both Programs depends on the payment and increase gas injection into the domestic market. capacity of the Argentine Government, which has incurred a delay in the cancellation of credit claims.

2.4.2.1 On May 20, 2016, Executive Order No. 704/16 authorized the delivery of bonds denominated in U.S. Dollars Gas Plus Program – SE Resolution No. 24/08 issued by the Argentine Government (BONAR 2020) for the cancellation of debts outstanding as at December 31, 2015 under the Program. Furthermore, the Executive Order imposes restrictions on the transferability of Under this program, the main attraction for gas producers is the free availability and commercialization of such bonds, with a limit of up 3% per month without penalty, except to subsidiaries and/or affiliates, and the extracted gas. In order to qualify, the producer should submit an investment project in new gas areas, in requires the filing of information on a monthly basis. areas which have not been in production since 2004, or in areas with complex geological characteristics of compact sands or low permeability. With the exception of new entities, companies should be up-to-date with 2.4.2.4 the payment of the production installments fixed pursuant to the Producers’ Agreement to join this program. Program for the Encouragement of Investments in the Development of Unconventional Natural Gas Production 2.4.2.2 Natural Gas Surplus Injection Promotion Program (the “IE Program”) On March 6, 2017 MEyM Resolution No. 46-E/2017 was published, which created the Program for the Encouragement of Investments in the Development of Natural Gas Production from Unconventional Reservoirs On February 14, 2013 Resolution No. 1/13 was published in the Official Bulletin, which creates the IE Program, (the “Program”) seeking to encourage investments for the production of natural gas through unconventional which aims to evaluate and approve projects furthering the national self-supply of hydrocarbons through a gas methods in the Neuquén basin and effective until December 31, 2021. production increase and its injection into the domestic market, as well as to generate higher levels of activity, investment and employment in this sector.

222 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 223 CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: (Continuation) NOTE 2: (Continuation) To join this program, an investment plan should be submitted for concessions located in the Neuquén Furthermore, Resolution No. 474/2017 provides for a 10% rebate in the price of natural gas through grids basin producing unconventional natural gas; the program consists of the payment of a compensation to be and undiluted propane gas through grids for all classification levels of Residential users obtaining consumption determined on a monthly basis by multiplying the sold gas volume from the covered concessions by the savings equal to or higher than 20% compared to the same period in 2015, as well as the rebate for Social difference between its minimum price and its actual price (the average volume billed by each company in Tariff beneficiaries. the domestic market). The minimum price is US$ 7.50 per million BTU for the year 2018, and it will be later decreased by US$ 0.50 per million BTU per year until reaching US$ 6.00 per million BTU for the year 2021. The Finally, Resolution No. 474/2017 provides for the obligation to observe the limits set out in Section 10 company may collect compensations under this program as from the month following the submission of the of Resolution No. 212/16, which established that PIST gas prices may not exceed the maximum amounts application to join the program or the month of January, 2018, whichever is later, and until December 2021, both equivalent to the following percentages compared to the same billing period for the previous year: dates inclusive. Compensations assessed as indicated above will be payable as follows: 88% to the companies joining the program, and the remaining 12% to the province where the concession covered by the program is - R1-R23 Users: 300% located. Compensations will be assessed in U.S. dollars but will be payable in Argentine pesos at the exchange - R31-R33 Users: 350%. rate for sales operations of Banco de la Nación Argentina effective on the last business day of the month - R34 Users: 400%. corresponding to the production subject to compensation. - SGP Users: 500% On November 2, 2017 MEyM Resolution No. 419/2017 was published in the Official Gazette. This resolution amends Resolution No. 46-E/2017 and classifies concessions between pilots and in development, with initial The above-established limits on increases in the final billed amounts will apply provided the total invoiced production greater than or equal to 500,000 m3 / d per day (monthly average for the July 2016 - June amount exceeds $ 250. 2017 period). Undeveloped concessions may obtain the minimum insured price for all of their production, as long as they have an average annual production equal to or greater than 500,000 m3 / d per day during a 2.4.2.6 12-month period before December 31, 2019. For the concessions in development, will only be able to do it for ENARGAS Resolution No. 4502/17 – Proceeding for Dispatch Administration. the incremental amount to the initial production. The reference price to calculate the incentive will be on the On June 17, 2017, ENARGAS Resolution No. 4502/17 was published in the BO This Resolution approved the weighted average of the Argentine market, informed by the Secretary of Hydrocarbon Resources of the MEyM. Procedure for Dispatch Administration by the Emergency Executive Committee (the “CEE”) and mainly provides for the following guidelines: On November 17, 2017, MEyM Resolution No. 447-E/2017 was published in the Public Gazette. This resolution extends the application of the “Investment Incentive Program for the Development of Natural Gas Production i. An emergency may be declared by carriers, distribution service providers or ENARGAS when it is from Unconventional Reservoirs”, created by Resolution No. 46/2017 and amended by Resolution 419/2017, to considered that the priority demand is at stake; the production of natural gas from unconventional reservoirs in the Austral basin. ii. The carriers and/or ENARGAS will summon all CEE participants, including the loader which, based

on the geographic area, may influence the resolution of the situation, as well as suppliers and direct Finally, on January 23, 2018 MEyM Resolution No. 12E/2018 was published, which introduces certain users consuming more than 500,000 m3/day; modifications to the Unconventional Gas Plan created by MEyM Resolution No. 46/17, as amended (the “Unconventional Gas Plan”), including an extension of the definition of “Covered Concessions” to include more iii. In case the CEE fails to agree on how to distribute the supply to satisfy the unmet priority demand, than one concession in a single Plan provided: ENARGAS will make a determination taking into consideration each producer’s available quantities minus the amounts it has already committed to meet another priority demand, with a progressive i. they are adjacent; allocation until matching the proportional quota of each producer in the unmet priority demand. ii. they have a jointly-applicable investment plan; iv. The information on the offer and demand will be provided by carriers and ENARGAS; iii. they are operated on a joint basis through the use of substantially the same surface facilities; v. Decisions by a CEE will be binding on all participants in the gas industry; iv. the companies making up the consortium holding such concessions have the same interest percentages vi. Carriers and distribution service providers will be responsible for the follow-up, control and in all concessions involved; and compensation of imbalances; and v. during the life of the Program, any assignment of an interest in the consortium holding any of the vii. Although the goal is that imbalances should tend to zero, tolerance bands are allowable, but loaders concessions making up the Covered Concession should be made jointly and simultaneously with the may not accumulate negative imbalances surpassing such tolerance bands. assignment of a like interest in all the concessions making up such Covered Concession. On January 24, 2018, ENARGAS Resolution No. 244/18 was published in the Public Gazette, which provided The Company is currently analyzing several projects to submit under this call. for the following: 2.4.2.5 - The resetting of OBA accounts and carriers’ imbalances to zero as from January 1, 2018; Natural Gas Price - Carriers will have a transition period until March 31, 2018 to freely perform the necessary offsets of As from April 2016, the National Government launched a process for the restructuring of natural gas tariffs “OBA” accounts and imbalances recorded as of December 31, 2017. Volumes pending offsetting will and prices aiming to effectively comply with the provisions governing such activities. In this sense, on December be frozen until their allocation proceeding is determined; 1, 2017 Resolution No. 474/2017 was published in the Public Gazette, whereby new PIST prices were established - Consumers which have not received a gas confirmation by a provider or the corresponding for natural gas, as well as new propane gas prices for the distribution of undiluted propane gas through grids. transportation service authorization will not be authorized for consumption and will be subject to the penalties set forth by the applicable provisions; and

224 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 225 CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: (Continuation) NOTE 2: (Continuation) - Distributors anticipating that they will not be able to meet their uninterruptible/priority consumptions 2.4.3.3 will declare an Emergency pursuant to ENARGAS Resolution No. 716/98. Argentine Hydrocarbons Industry Transition to International Price Agreement

Future decisions by this emergency committee may affect the Company’s sales revenues. In December 2015, after then new government assumed office, official exchange rate significantly depreciated, thus directly affecting on crude oil costs for refiners. On this regard, the Government jointly with Argentine´s 2.4.2.7 producers and refiners, agreed domestic crude oil prices for 2016-year. A price of US $ 67.5 and US $ 54.9 per Agreement for gas supply to distributors barrel was defined for Medanito variety and Escalante variety, respectively for the first seven months and the application of a 2%, 4%, 6%, 8% and 10% discount on the mentioned prices for the rest of the months, respectively. On November 29, 2017, the Company, together with the main Argentine gas producers, executed with the MEyM the terms for the supply of natural gas to distributors aiming to establish basic conditions for the purchase On January 11, 2017, the Government and Argentine´s producers and refiners signed the Argentina of gas supply to distributors, effective from January 1, 2018 to December 31, 2018. Hydrocarbons Industry Transition to International Price Agreement, aiming to achieve international parity for domestic crude oil price produced and traded in Argentina during 2017. Producers commit to sell distributors a minimum natural gas volume to cater for their demand pursuant, which establishes the total committed minimum volume per producer and per basin. Furthermore, the main On March 21, 2017, Executive Order No. 192/2017 created the Crude Oil and Oil Derivatives Import Operations conditions applicable to the contracts to be executed between Producers and Distributors are set out. Registry and established tariff positions for certain products subject to registration and authorization requirements.

2.4.3 Oil Market 2.5 As with the gas market, the oil market has also been affected by several resolutions. Refining and Marketing On December 29, 2014, pursuant to Resolution No. 1,077/2014, the Ministry of Economy abrogated The specifications to be met by fuels that are marketed for consumption in the national territory were Resolution No. 394/07 and its amending provisions in order to establish new export rates based on the modified by Resolution No. 5/16 issued by the Secretary of Hydrocarbon Resources, which replaced Exhibit II crude oil’s international price, which is determined based on the reference Brent’s value on the month of Resolution No. 1283/06, issued by the former SE. This Resolution contains the required specifications of the corresponding to the export less eight U.S. dollars per barrel (US$ 8/Bbl). Under this new system, the cut-off different kinds of fuel sold in the Argentine market (i.e. naphtha grades 2 and 3 and gasoil grades 2 and 3), and value is set at US$ 71/Bbl. That is, where the international price does not exceed US$ 71, the producer will establishes that the maximum sulfur content allowed in gasoil for electric generation should be equal to the pay export duties for 1% of that value. When the price is above US$ 80 (that is, an international price of $72/ sulfur content of gasoil Grade 2 established for areas with a low urban density. Bbl), variable deductions will be settled. Section 6 of this Resolution requires companies to submit, within 90 days of publication, a detailed schedule Ministry of Economy’s Resolution No. 1,077/14 was issued using attributions conferred on the right to of the investment program to be carried out for the next four-year period to reach the objectives set out in hydrocarbons export created in the second paragraph of section 6 of Law No. 25,561, and effective for a five- Annex I. Such information was timely filed by the Company. year term from its promulgation on January 6, 2002. The mentioned term was extended for two additional five-year periods through Law No. 26,217 and Law No. 26,732, ending up as from January 6, 2017. Furthermore, section 4 of this Resolution establishes that from June 1, 2016, the maximum Sulfur content in domestic and imported fuel will be 7,000 mg/kg. Local oil refineries not meeting this specification will be On January 6, 2017, upon the failure to extend the provisions regulating this issue (Public Emergency Act required to submit, within 90 days of publication, an adequacy plan in order to meet the above requirements No. 25,561/02, as amended and supplemented), the withholdings scheme for exports of oil and its derivatives within 24 months from the publication of this Resolution. The adequacy plan has been submitted and the terminated and, therefore, all applicable outstanding rights were canceled by the Customs Office. Company was authorized to dispense fuel oil with 1% maximum sulfur content from Bahia Blanca Refinery until May 31, 2018. 2.4.3.1 Petróleo Plus Program As regards pump prices, during the year ended December 31, 2017, the Company has made adjustments The Company, through PELSA, participated in the Petróleo Plus Program, which provided for certain incentives pursuant to the Producers and Refiners Agreement promoted by the MEyM, which was adhered to by the to production companies. In the third quarter of 2015, Executive Order No. 1330/15 abrogated this program Company and the main companies in this sector. The MEyM has informed of the suspension of the “Agreement and provided that incentives pending liquidation would be settled through the issuance of Government bonds. for the Transition to International Prices” applicable to pump prices and to the cost of crude oil as a raw material On November 30, 2016, Decree No. 1204/16 was published in the Official Gazette, expanding the issuance of effective as from October 1, 2017. Going forward, pump prices and the domestic price for crude oil barrels to Government bonds for the same purpose. be used as raw material for refining were determined based on the domestic market rules. In this sense, the Company has made adjustments in fuel prices in line with movements by its main competitors. 2.4.3.2 Exports Promotion Program On October 31, 2017, MEyM Resolution No. 415-E/2017 was published in the BO, which modifies the procedure to determine the purchase price for corn- or sugarcane-based bioethanol to be blended with gasoline for On March 9, 2016, the Ministry of Energy and Mining passed Resolution No. 21/2016 creating a Crude Oil automotive use. This modification results in a decrease in the purchase costs of bioethanol, a raw material Surplus Exports Promotion Program once the domestic demand for Escalante crude oil from the Golfo San which should make up 12% of the volume of gasoline for automotive use sold in the Argentine territory. Jorge basin is met, effective from January 1, 2016 to December 31, 2016. The promotion payments will be made as long as the Brent oil average prices does not exceed US$ 47/barrel two days before and two days after Therefore, on November 4, 2017, the Company accompanied the measure adopted by the major market the shipment. The compensation payable by the Argentine Government will amount to US$ 7.50 per barrel, players by reducing suggested gasoline prices at gas stations, thus transferring this cost reduction to end provided the conditions detailed in such resolution are met. consumers, except in the Provinces of Chubut and Santa Cruz.

226 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 227 CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: (Continuation) NOTE 2: (Continuation) On March 30, 2017, TGS and the Federal Government executed a new transitory agreement (the “2017 Transitory Agreement”). In this sense, ENARGAS issued Resolution No. I-4362 approving: (i) the RTI and the 2.6 new tariff chart applicable to TGS; (ii) a Five-Year Investment Plan (April 2017 through March 2022) to be Gas Transportation conducted by TGS; and (iii) a non-automatic mechanism for bi-annual updates in natural gas transportation tariffs and investment commitments. For the calculation of the adjustment will contemplate the evolution of 2.6.1 the Wholesale Price Index published by the INDEC. General aspect Later, on December 1, 2017, ENARGAS issued Resolution No. 120/2017 whereby, after the conduction of the TGS’ license has been granted for an original term of 35 years starting December 28, 1992. However, upon public hearing, on November 14, 2017 TGS was granted an 80.8% increase on the natural gas transportation termination TGS may request to the ENARGAS a License extension for an additional ten-year period. Upon tariff and a 29.7% increase on the Access and Use Fee. These increases were granted under the 2017 Transitory termination of the License’s life, whether it be 35 or 45 years, the Natural Gas Law requires the call for a new Agreement so that TGS may obtain the necessary resources to execute the applicable Five-Year Investment Plan. bid for the granting of a new license, where TGS —provided it has substantially met its obligations resulting from the License— will have the option to match the best offer received by the National Government during As a result of these transitory agreements, TGS is temporarily restrained from distributing and paying the bidding process. dividends until the 2017 Comprehensive Memorandum of Understanding obtains the applicable governmental approvals, with the duty to previously require the corresponding authorization by ENARGAS and duly evidence 2.6.2 performance of the committed investments. TGS’s Tariff situation 2.6.2.1 As of the issuance of these Financial Statements, the text of the 2017 Comprehensive Memorandum of Framework Understanding is pending approval by the National Congress for its later ratification by the National Executive Branch.

The scenario set in 2002 after the enactment of the Public Emergency Law significantly changed the financial The 2017 Comprehensive Memorandum of Understanding’s entry into effect will entail the termination of equation of the public utility companies, which were affected, among others, by the local currency devaluation, the 2017 Transitory Agreement. the pesification and the elimination of indexation clauses on rates. Likewise, the PEN was authorized to renegotiate the agreements executed with public utility companies, creating for this purpose the UNIREN. Finally, on January 29, 2018, ENARGAS issued Resolution No. 247/2018 calling for a public hearing, which was held on February 20, 2018. The tariff update, which corresponds to the last stage of the tariff increase that PEN Decree No. 367/16, provided for the dissolution of UNIREN and the assumption of its duties, in the case arises from the RTI process in accordance with the provisions of Resolution 74, and the Mercedes-Cardales Gas of TGS, by the Ministry of Energy and Mining, together with the Ministry of Economy. Pipeline construction project, which will be financed through an investment factor (“k” factor), were submitted to the consideration of the public hearing. The Public Emergency Act provided for the termination of tariff step-up clauses based on the value of the U.S. Dollar or on other countries’ price indexes, as well as all other indexation mechanisms. Furthermore, this Act 2.6.3 established an exchange ratio of one Argentine Peso = one U.S. Dollar for tariffs and authorized the Argentine Arbitration claim Government to renegotiate public utility contracts with licensee companies pursuant to certain criteria set out in the Act during its validity which, after several extensions, terminated on December 31, 2017. On May 8, 2015, the Secretariat of the International Court of Arbitration of the International Chamber of Commerce notified TGS of the request for arbitration brought by Pan American Energy LLC, Argentine Branch, 2.6.2.2 and Pan American Sur S.A (the “plaintiffs”) for an alleged breach of three natural gas processing agreements 2017 Comprehensive (effective February 2006 through February 2016), which resulted in a lower allocation of the obtained products.

The 2016 Transitory Agreement lays the grounds for the execution of the Comprehensive Memorandum of From April 4 to September 29, 2017, the parties filed their allegations and the Arbitration Evidentiary Hearing Understanding and sets the guidelines to conduct the RTI within a term not exceeding 12 months. Within this was held. The claimed amount is US$ 306 million as of March 15, 2017, plus interest accrued until the actual framework, on November 9, 2016, the ENARGAS issued Resolution No. I-4122/2016 calling for a public hearing payment date. Finally, on December 15, 2017, the plaintiffs and TGS filed their Final Conclusion Pleadings. The to consider the following: (i) the RTI, (ii) proposals for modifications to the License made by the ENARGAS, and arbitration award has not been issued as of the date hereof. (iii) the methodology for bi-annual adjustments. The public hearing finally took place on December 2, 2016. In the hearing, TGS had the possibility to explain the negative impact the failure to adjust tariff schemes for a TGS considers that the claim contains inconsistencies resulting from wrongful interpretations by the plaintiffs term of more than 15 years has had on its economic and financial situation, since during that period several of the rights and obligations stipulated in the agreement and an incorrect application of the agreed mechanisms macroeconomic variables affecting its business suffered important increases. for the calculation of product allocations and that, therefore, the claimed amount is inadmissible. Additionally, TGS’s external counselors understand that as of the issuance of these financial statements, and based on the A sustainable recovery of the natural gas transportation segment —which, in view of the Argentine energy allegations submitted by the defense and the evidence filed by TGS, it is more likely than unlikely that TGS’ mix, is strategic for national development and production— will depend on the conduction of the RTI process, position will be upheld in this arbitration proceeding. for which TGS has submitted an ambitious expenses and investments plan for the 2017-2021 five-year period, and on the actual implementation of the Comprehensive Memorandum of Understanding.

As at the issuance of these financial statements, there are no certainties on the terms for the execution of the Comprehensive Memorandum of Understanding and its implementation by the National Government.

228 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 229 CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: (Continuation) NOTE 3: 2.7 BASIS OF PRESENTATION Restructuring of the National Government’s interests in assets and energy sector companies These consolidated financial statements have been prepared in accordance with IFRS issued by IASB. On November 1, 2017, Executive Order No. 882/2017 was published, which provides for the restructuring of the National Government’s interests in several energy sector companies and ventures to limit its participation These consolidated financial statements have been approved for issue by the Board of Directors dated to those works and services which may not be properly undertaken by the private sector. March 8, 2018.

This Executive Order provided as follows: Significant accounting policies adopted in the preparation of these financial statements are described in Note 4, which have been consistently applied in these financial statements. i. It instructed the MEyM to take the necessary steps so that EBISA should be merged through absorption into ENARSA, which corporate name will be changed to Integración Energética Argentina S.A. (“IEA”). These accounting policies have been applied consistently by all Group companies. As from the pre-merger agreement, IEA will market the energy corresponding to Argentina in all binational projects where EBISA takes part. Comparative information ii. IEA will act as Principal in the hydroelectric power plants Condor Cliff and Barrancosa (the original names of the plants are restored). Furthermore, it will act as the generation concessionaire pursuant Certain reclassifications have been made to those financial statements to keep the consistency in the to Act No. 15,336. The MEyM was authorized to approve the model contract, which should provide for presentation with the amounts of the current year. a mechanism (both public and competitive) for the transfer of the concession to the private sector. The recognition of income – provisional remedies –CAMMESA Note MEyM No. 2016-0448473, the income iii. IEA will act as Principal in the following works: a) Río Turbio power plant; b) Regional Centro II gas pipeline; recognition on account of the RTI - SE Resolution No. 32/15 and the higher costs recognition - SE Resolution No. c) Sistema Cordillerano/Patagónico gas pipeline; d) Cordillerano gas pipeline; and e) “La Costa” gas pipeline. 250/13 and subsequent Notes, for a total amount of $ 1,627 million, are shown under Other operating income. iv. It instructed the MEyM to adopt the necessary measures so that IEA should sell, assign or otherwise This reclassification impacts the Consolidated Statement of Comprehensive Income presented in comparative form. transfer: a) Ensenada and Barragán and Brigadier López power plants (contemplating their closing to combined cycle); b) assets and interests in Manuel Belgrano II power plant; c) ENARSA’s shareholding The results of operations with non-controlling interests not representing a loss of control and reserves for in CITELEC. stock-based compensation plans are disclosed under “Other reserves”, rather than under “Share premium and other reserves” as previously disclosed. This reclassification impacts the Statement of Financial Position and the v. It instructed the MEyM to sell, assign or otherwise transfer: Statement of Changes in Shareholders’ Equity presented in comparative form. - MEyM’s shareholding in: a) Central Dique S.A.; b) Central Térmica Güemes c) Central Puerto S.A.; d) Centrales Térmicas Patagónicas S.A.; e) TRANSPA; and f) Dioxitek As a result of the divestments mentioned in Note 1.5, the Company has classified certain assets from Refining and Distribution and Oil and Gas segments as held for sale, classifying their results and cash flows as - the National Government’s interests in: a) TMB; b) TSM; c) Termoeléctrica Vuelta de Obligado; discontinued operations. and d) Termoeléctrica Guillermo Brown.

Sales/transfers indicated in items (iv) and (v) above should follow public and competitive processes, preserving the rights stipulated in the applicable contracts and corporate documents (for example, preemptive rights).

Furthermore, the MEyM and IEA were authorized to receive in payment the LVFVDs issued pursuant to Resolution No. 406/2003 and other provisions passed by the SE for up to the maximum amounts and under the conditions to be established by the MEyM.

The applicable public bodies will take part in the valuations necessary to execute these processes, although the MEyM is authorized to hire private entities to such effect.

The bidding processes for the above-mentioned reorganization processes have not been published as of the date of these financial statements.

230 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 231 CONSOLIDATED FINANCIAL STATEMENTS NOTE 4: (Continuation) NOTE 4: Management has assessed the effects of applying IFRS 15 on the group’s financial statements regarding not completed contracts as of January 1, 2018. As a result of this assessment, the Company has not ACCOUNTING POLICIES identified any differences associated with performance obligations identification or price allocation methodology which could affect the timing of future revenue recognition forward. Finally, no contract assets or contract liabilities to be separately presented under IFRS 15 have been identified. The main accounting policies used in the preparation of these financial statements are explained below.

Unless otherwise stated, these accounting policies have been consistently applied in all the years presented. - IFRS 9 “Financial Instruments”: was amended in July 2014. This amended version covers all the phases of the IASB project to replace IAS 39 “Financial Instruments: Recognition and Measurement”. These phases are the classification and measurement of instruments, impairment and hedging. This 4.1 version adds a new impairment model based on expected losses and some minor modifications to the classification and measurement of financial assets. This new version supersedes all previous versions New accounting standards, amendments and interpretations of IFRS 9 and is effective for periods starting as from January 1, 2018. The Company has adopted the issued by the IASB effective as of December 31, 2017 and first phase of IFRS 9 as of the transition date. The Company will apply IFRS 9 amended retrospectively from January 1, 2018 with the practical adopted by the Company expedients permitted under the standard, and comparative periods will not be restated. The Group has applied the following standards and/or amendments for the first time for their annual Pampa has reviewed its financial assets currently measured and classified at fair value through profit reporting period commencing January 1, 2017: and loss or at amortized cost and has concluded that satisfy conditions to maintain classification; hence, IFRS 9’s modifications are not expected to affect the classification and measurement of - Amendments to IAS 7 “Statement of cash flows”, financial assets. - Amendments to IAS 12 “Income taxes”, y Regarding the new hedge accounting model which, in general terms, allows more hedge relationships - Amendments to IFRS 12 “Disclosures of interests in other entities” (within improvements to IFRSs – might be eligible for hedge accounting, in order to align the accounting with the related risk management 2014-2016 Cycle) practices, Pampa has not opted for the designation of any hedge relationships as of the issuance of these financial statements and it does not expect to make such designation; consequently, it does not The adoption of these modifications did not have any impact on the Company’s operating results or expect any modifications resulting from the application of IFRS 9. financial position. As regards the new impairment model based on expected credit losses rather than incurred credit Additional information is disclosed in Notes 6 and 20 as a result of the application of disclosure requirements losses, based on the assessments conducted as of the issuance of these financial statements, Pampa on changes in liabilities arising from financing activities and the clarification of the scope of the standard related expects an approximate 15% increase in the allowance for trade receivables to entity’s interest classified as held for sale in accordance with IFRS 5 was considered in Note 1, as a result, summarised financial information was not disclosed as it is not required. - IFRS 16 “Leases”: issued in January 2016 and replaces the current guidance in IAS 17. It defines a lease as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. Under this standard, lessees have to recognize a lease liability reflecting future lease payments and a ‘right-of-use asset’ for lease contracts. This is 4.2 a significant change compared to IAS 17 under which lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 contains New accounting standards, amendments and interpretations an optional exemption for lessees in case of short-term leases and leases for which the underlying asset is of low value assets. The IFRS 16 is effective for annual periods beginning on or after 1 January issued by the IASB which are not yet effective and have not 2019. The Company is currently analyzing the impact of its application. been early adopted by the Company - IFRS 2 “Share based payments”: amended in June 2016 to clarify the measurement basis for cash- - IFRS 15 “Revenue from Contracts with Customers”, issued in May 2014 and later in September settled share-based payments and the accounting for modifications that change an award from cash- 2015, effected date was amended for applying to annual period beginning on or after January 1, 2018. settled to equity-settled. It also introduces an exception to IFRS 2 principles by requiring an award to The standard addresses the principles for recognizing revenues and establishes the requirements for be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for reporting about the nature, amount, timing an uncertainty of revenue and cash flows arising from the employee’s tax obligation associated with a share-based payment and pay that amount to the contracts with customers. The basic principle implies the recognition of revenue that represent the tax authority. It is effective for annual periods beginning on or after January 1, 2018. The Company transfer of goods or services to customers at an amount that reflects the consideration the entity estimates that these amendments will not have an impact on the Company’s operating results or expects to be entitled in exchange for those goods or services. financial position. The Company will elect to apply IFRS 15 only to contracts that are not completed at the date of initial - IFRIC 22 “Foreign Currency Transactions and Advance Consideration”: issued in December application, recognizing the cumulative effect of the application as an adjustment to the opening 2016. The interpretation addresses how to determine the date of the transaction for the purpose of balance of retained earnings as of January 1, 2018.

232 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 233 CONSOLIDATED FINANCIAL STATEMENTS NOTE 4: (Continuation) NOTE 4: (Continuation) determining the exchange rate to use on initial recognition of the related asset, expense or income related to an entity that has received or paid an advance consideration in a foreign currency. The date of the transaction is the date on which an entity initially recognizes the non-monetary asset or 4.3 non-monetary liability arising from the payment or receipt of advance consideration. It is effective Principles of consolidation and equity accounting for annual periods beginning on January 1, 2018. The Company estimates that this interpretation will not have an impact on the Company’s operating results or financial position. 4.3.1 Subsidiaries - Improvements to IFRSs – 2014-2016 Cycle: amendments issued in December 2016 that are effective Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group for periods beginning on or after January 1, 2018. The Company estimates that these amendments will is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect not have an impact on the Company’s operating results or financial position. those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. - IFRS 17 “Insurance contracts”: issued in May 2017. Replaces IFRS 4, which was brought in as an interim standard in 2004 establishing the dispensation to carry on accounting for insurance The acquisition method of accounting is used to account for business combinations by the group (see Note contracts using national accounting standards, resulting in a multitude of different approaches. IFRS 4.3.5 below). 17 establishes the principles for recognition, measurement, presentation and disclosure related to insurance contracts and shall by applied for annual reporting periods beginning on or after January Intercompany transactions, balances and unrealized gains on transactions between Group companies are 1, 2021, early application for entities that apply IFRS 9 and IFRS 15 is permitted. The Company is eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment analyzing the impact of the application of IFRS 17, however, it estimates that it will not have any of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure impact on the Company’s results of operations or financial position. consistency with the policies adopted by the Group. - IFRIC 23 “Uncertainty over Income Tax Treatments”: issued in June 2017. Clarifies how to apply Since the functional currency of some subsidiaries is different from the functional currency of the Company, IAS 12 when there is uncertainty over income tax treatments to determine income tax. According to exchange gains or losses arise from intercompany operations. Those exchange results are included in “Financial the interpretation, an entity shall reflect the effect of the uncertain tax treatment by using the method results” in the Consolidated Statement of Comprehensive Income. that better predicts the resolution of the uncertainty, either through the most likely amount method or the expected value method. Additionally, an entity shall assume that the taxation authority will Non-controlling interests in the results and equity of subsidiaries are shown separately in the Consolidated examine the amounts and has full knowledge of all related information in assessing an uncertain Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement tax treatment in the determination of income tax. The interpretation shall apply for annual reporting of Financial Position respectively. periods beginning on or after January 1, 2019, early application is permitted. The Company is analyzing the impact of the application of IFRIC 23, however, it estimates that it will not have any material impact 4.3.2 on the Company’s results of operations or financial position. Associates - IFRS 9 “Financial instruments”: application guidance modified in October 2017, in relation to the Associates are all entities over which the group has significant influence but not control or joint control. classification of financial assets in the case of contractual terms that change the timing or amount of This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in contractual cash flows to determine whether the cash flows that could arise due to that contractual associates are accounted for using the equity method of accounting (see Note 4.3.4 below), after initially being term are solely payments of principal and interest on the principal amount. It is effective for annual recognized at cost. periods beginning on or after January 1, 2019, early adoption is permitted. The Company is analyzing the impact of its application, however, it estimates that it will not have any impact on the Company´s 4.3.3 results of operations or financial position. Joint arrangements

- IAS 28 “Investments in associates and joint ventures”: amended in October 2017. Clarifies IFRS 9 Under IFRS 11 “Joint Arrangements” investments in joint arrangements are classified as either joint operations applies to other financial instruments in an associate or joint venture to which the equity method is or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather not applied. It is applicable to annual periods beginning on or after January 1, 2019, early adoption is than the legal structure of the joint arrangement. The Company has both joint operations and joint ventures. permitted. The Company is analyzing the impact of its application, however, it estimates that it will not any impact on the Company’s results of operations or financial position. Joint operations The Company recognizes its direct right to the assets, liabilities, revenues and expenses of joint operations and - Improvements to IFRSs – 2015-2017 Cycle: amendments issued in December 2017 that are its share of any jointly held or incurred assets, liabilities, revenues and expenses. These have been incorporated effective for periods beginning on or after January 1, 2019. The Company estimates that these in the financial statements under the appropriate headings. amendments will not have an impact on the Company’s operating results or financial position. Joint ventures Interests in joint ventures are accounted for using the equity method (see Note 4.3.4 below), after initially being recognized at cost in the Consolidated Statement of Financial Position.

234 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 235 CONSOLIDATED FINANCIAL STATEMENTS NOTE 4: (Continuation) NOTE 4: (Continuation)

4.3.4 If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously Equity Method held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss. The Group has up to 12 months to finalize the Under the equity method of accounting, the investments are initially recognized at cost and adjusted accounting for a business combination. Where the accounting for a business combination is not complete by the thereafter to recognize the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, end of the year in which the business combination occurred, the Group reports provisional amounts. and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognized as a reduction in 4.3.6 the carrying amount of the investment. Changes in ownership interests

When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the The group treats transactions with non-controlling interests that do not result in a loss of control as transactions entity, together with any long-term interests that, in substance, form part of the net investment, the Group does with equity owners of the group. A change in ownership interest results in an adjustment between the carrying not recognize further losses, unless it has incurred obligations or made payments on behalf of the other entity. amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or Unrealized gains on transactions between the Group and its associates and joint ventures are eliminated to received is recognized in “Other reserves” within equity attributable to owners of the Company. the extent of the group’s interest in these entities. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees When the Group ceases to consolidate or equity account for an investment because of a loss of control, have been changed where necessary to ensure consistency with the policies adopted by the group. joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognized in profit or loss. This fair value becomes the initial carrying amount for The carrying amount of equity accounted investments is tested for impairment in accordance with the policy the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial described below in Note 4.8. asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that 4.3.5 amounts previously recognised in other comprehensive income are reclassified to profit or loss. Business combinations If the ownership interest in a joint venture or an associate is reduced but joint control or significant influence The acquisition method of accounting is used to account for all business combinations, regardless of whether is retained, only a proportionate share of the amounts previously recognized in other comprehensive income equity instruments or other assets are acquired. The consideration transferred for the acquisitions comprises: are reclassified to profit or loss where appropriate. i. the fair value of the transferred assets, ii. the liabilities incurred to the former owners of the acquired business, 4.4 the equity interests issued by the group, iii. Segment reporting iv. the fair value of any asset or liability resulting from a contingent consideration arrangement, and Operating segments are reported in a manner consistent with the internal reporting provided to the v. the fair value of any pre-existing equity interest in the subsidiary. Executive committee. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are The Executive committee, is the highest decision-making authority, is the person responsible for allocating measured initially at their fair values at the acquisition date. The group recognises any non-controlling interest in resources and setting the performance of the entity’s operating segments, and has been identified as the the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s person/ body executing the Company’s strategic decisions. proportionate share of the acquired entity’s net identifiable assets. In segmentation the Company considers transactions with third parties and intercompany operations, which Acquisition-related costs are expensed as incurred. The value of the goodwill represents the excess of:The are done on internal transfer pricing based on market prices for each product. excess of i) the consideration transferred, ii) the amount of any non-controlling interest in the acquired entity, and iii) the acquisition-date fair value of any previous equity interest in the acquired entity, over the fair value of the net In the aggregation of segments, the Company has primarily considered the nature of the regulatory framework identifiable assets acquired is recorded as goodwill. If the fair value of the net identifiable assets of the business of the Energy Industry in Argentina and product integration in the Company’s production process. acquired exceeds those amounts, the gain on bargain purchase is recognised directly in profit or loss.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental 4.5 borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Property, plant and equipment Property, Plant and Equipment is measured following the cost model. It is recognized at cost less depreciation Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial a less any accumulated impairment. liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

236 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 237 CONSOLIDATED FINANCIAL STATEMENTS NOTE 4: (Continuation) NOTE 4: (Continuation) Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of any component accounted 4.6 for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit Intangible assets or loss during the reporting period in which they are incurred. 4.6.1 The cost of work in progress whose construction will extend over time includes, if applicable, the computation Goodwill of financial costs accrued on loans granted by third parties and other pre-production costs, net of any income Goodwill is the result of the acquisition of subsidiaries. Goodwill represents the excess of the acquisition obtained from the sale of commercially valuable production during the launching period. cost over the fair value of the equity interest in the acquired entity held by the company on the net identifiable assets acquired at the date of acquisition. Works in progress are valued according to their degree of progress. Works in progress are recorded at cost, less any loss due to impairment, if applicable. For the purpose of impairment testing, goodwill acquired in a business combination is allocated from the acquisition date to each of the acquirer’s cash-generating units or group of CGUs that are expected to benefit The depreciation methods and periods used by the group are described below. from the synergies of the combination. Each unit or group of units that goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each year. An asset’s carrying amount is written down immediately to its recoverable amount if the asset´s carrying amount 4.6.2 is greater than its estimated recoverable amount. Concession arrangements Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. Concession arrangements corresponding to Edenor and hydroelectric generation plants Diamante and Nihuiles are not under the scope of the guidelines of IFRIC 12 “Service Concession Arrangements”. 4.5.1 Depreciation methods and usefull lives These concession agreements meet the criteria set forth by the IFRSs for capitalization and are amortized following the straight-line method based on each asset’s useful life, which corresponds to the life of each The group depreciates productive wells, machinery and camps in the oil and gas production areas according to concession agreement. the units of production method, by applying the ratio of oil and gas produced to estimated proved developed oil and gas reserves. The acquisition cost of property with proved reserves is depreciated by applying the ratio of oil The concession agreement of Edenor, has a remaining life of 71 years, while the HIDISA and HINISA has a and gas produced to estimated proved oil and gas reserves. Acquisition costs related to properties with unproved life of 22 years. reserves is valued at cost with recoverability periodically assessed on the basis of geological and engineering estimates of possible and probable reserves that are expected to be proved over the life of each concession. 4.6.3 Identified intangible assets in acquired investments Machinery and generation equipment (including any significant identifiable component) are depreciated under the unit of production method. Corresponds to intangible assets identified at the moment of the acquisition of companies. Identified assets meet the criteria established in IFRS for capitalization and are amortized by the straight-line method according The group´s remaining items of property, plant and equipment (including any significant identifiable to the useful life of each asset, considering the estimated way in which the benefits produced by the asset will component) are depreciated by the straight-line method based on estimated useful lives, as detailed below: be consumed.

Buildings: 50 years As of December 31, 2016, corresponds to the commercial contracts identified in the Refining and distribution Substations: 35 years segment with an average useful life of five years based, among other factors, on contractual agreements, High voltage lines: 40 - 45 years consumer behavior and economic factors related to companies Combined. Medium voltage lines: 35 - 45 years Low voltage lines: 30 - 40 years Transformer centrals: 25 - 35 years 4.7 Meters: 25 years Vehicles: 5 years Assets for oil and gas exploration Furniture, fittings and communication equipment: 5- 20 years Computer equipment and software: 3 years The Company uses the successful efforts method of accounting for its oil and gas exploration and production Tools: 10 years activities. This method involves the capitalization of: (i) the cost of acquiring properties in oil and gas exploration Gas Plant and Pipeline: 20 years and production areas; (ii) the cost of drilling and equipping exploratory wells that result in the discovery of commercially recoverable reserves; (iii) the cost of drilling and equipping development wells, and (iv) the estimated asset retirement obligations.

The depreciation method is reviewed, and adjusted if appropriate, at the end of each year. According to the successful efforts method of accounting, exploration costs, excluding exploratory well costs, are expensed during the period in which they are incurred. Drilling costs of exploratory wells are capitalized until

238 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 239 CONSOLIDATED FINANCIAL STATEMENTS NOTE 4: (Continuation) NOTE 4: (Continuation) it is determined that proved reserves exists and they justify the commercial development. If reserves are not to experience a downward trend. Therefore, the restatement requirements for financial information established found, such drilling costs are expensed. Occasionally, an exploratory well may determine the existence of oil in IAS 29 have not been applied. and gas reserves but they cannot be classified as proved when drilling is complete. In those cases, such costs continue to be capitalized insofar as the well has allowed determining the existence of sufficient reserves to Although conditions necessary to qualify Argentine economy as hyperinflationary in accordance with warrant its completion as a production well and the Company is making sufficient progress in evaluating the provisions of IAS 29 have not been met, and considering professional and regulatory limitations for the economic and operating feasibility of the project. preparation of adjusted financial statements as of December 31, 2017, certain macroeconomic variables affecting the Company’s business, such as wage costs and purchase prices, have experienced significant annual The initial estimated asset retirement obligations in hydrocarbons areas, discounted at a risk adjusted rate, variations, and as a result should be considered in the evaluation and interpretation of the financial position and are capitalized in the cost of the assets and depreciated using the units of production method. Additionally, a results presented by the Company in these financial statements. liability at the estimated value of the discounted amounts payable is recognized. Changes in the measurement of asset retirement obligations that result from changes in the estimated timing, amount of the outflow of 4.9.2 resources required to settle the obligation, or the discount rate, are added to, or deducted from, the cost of the Transaction and balances related asset. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognized Foreign currency transactions are translated into the functional currency using the exchange rates as of at immediately in profit or loss. the date of the transaction. Foreign exchange gain and loss resulting from the settlement of any transaction and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, unless they have been capitalized. 4.8 The exchange rates used are as follows: buying rate for monetary assets, selling rate for monetary liabilities, Impairment of non-financial assets average rate at the end of the year for balances with related parties, and transactional exchange rate for foreign Intangible assets that have an indefinite useful life and goodwill are not subject to amortization and are tested currency transactions. annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the 4.9.3 carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset´s Group companies carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset´s fair value less Results and financial position of subsidiaries and associates that have a different functional currency from costs of disposal and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels the presentation currency are translated into the presentation currency as follows: for which there are separately identifiable cash flows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units or CGUs). Non-financial assets, other than goodwill, that have been - assets and liabilities are translated using the closing exchange rate; impaired are reviewed for possible reversal of the impairment at the end of each reporting period. - gains and losses are translated using the exchange rates prevailing at the date of the transactions.

The results from the remeasurement process into the functional currency are recorded in line “Financial 4.9 results” of the Consolidated Statement of Income. Foreign currency translation The results from the remeasurement process into the functional currency to presentation currency transactions are recognized in “Other Comprehensive Income”. When an investment is sold or disposed of, in 4.9.1 whole or in part, the related differences are recognized in the Consolidated Statement of Income as part of the Functional and presentation currency gain/loss on the sale or disposal. Information included in the financial statements is measured in the functional and presentation currency of the Company, which is the currency of the primary economic environment in which the entity operates. The functional currency is Argentine peso, which is the Group’s presentation currency. 4.10 IAS 29 “Financial reporting in hyperinflationary economies” requires for financial statements of an entity Financial assets whose functional currency is the currency of a hyperinflationary economy, whether they are based on a historical cost approach or a current cost approach, to be stated in terms of the measuring unit current at the end of the 4.10.1 reporting year. In general terms, by applying to non-monetary items the change in a general price index from Classification the date of acquisition or the date of revaluation, as appropriate, to the end of the reporting period. In order to conclude about the existence of a hyperinflationary economy, the standard mentions certain indications to 4.10.1.1 consider including a cumulative rate of inflation in three years that approaches or exceeds 100%. Financial assets at amortized cost Financial assets are classified and measured at amortized cost only if the following criteria have been met: Considering that as of the end of the fiscal year it was not possible to calculate the cumulative rate of inflation for the three-year period then ended based on INDEC’s official data, as WPI publication was suspended i. the objective of the Group’s business model is to hold the asset to collect the contractual cash flows; from November 2015 to December 2015, there was not enough evidence to conclude that Argentina’s is a ii. the contractual terms, on specified dates, have cash flows that are solely payments of principal and hyperinflationary economy as of December 31, 2017; additionally, Argentine Government expects inflation levels interest on the outstanding principal.

240 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 241 CONSOLIDATED FINANCIAL STATEMENTS NOTE 4: (Continuation) NOTE 4: (Continuation) 4.10.1.2 Financial assets at fair value 4.11 If any of the above mentioned criteria has not been met, the financial asset is classified and measured at fair value through profit or loss. Income recognition Interest income All equity investments are measured at fair value. For equity investments that are not held for trading, the Group can irrevocably choose at the moment of the initial recognition to present changes in fair value through Interest income is recognized using the effective interest method. When a receivable is impaired, the group other comprehensive income. The decision of the Group was recognizing changes in fair value through profit or loss. reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. 4.10.2 Interest income on impaired loans is recognised using the original effective interest rate. Recognition and measurement Dividends At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of Dividend on interests that are not accounted for using the equity method are recognized as revenue when the the financial asset. right to receive payment has been established. This applies even if they are paid out of pre-acquisition profits. However, the investment may need to be tested for impairment as a consequence. A gain or loss on a debt investment that is subsequently measured at fair value and is not part of a hedging relationship is recognized in profit or loss. A gain or loss on a debt investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in profit or loss when the financial asset is derecognized or impaired and through the amortization process using the effective interest rate method. 4.12 Trade and other receivables The Group subsequently measures all equity investments at fair value. When the Group elects to present the changes in fair value in other comprehensive income, such changes cannot be reclassified to profit or loss. Trade receivables and other receivables are recognized at fair value and subsequently measured at amortized Dividends from such investments continue to be recognized in profit or loss as long as they represent a return cost, using the effective interest method, less provision for impairment, if applicable. on investment. A loss allowance is recognized when there is objective evidence that the Company will not be able to The Company reclassifies financial assets if and only if its business model to manage financial assets is changed. collect its receivables at their original maturities or for the full amount, based on the evaluation of different factors, including significant customer’s financial difficulties, breach of contractual clauses, customer´s credit 4.10.3 risk, historical trends and other relevant information. Impairment of financial assets Receivables from CAMMESA, documented as LVFVDs, have been valued at their amortized cost, the Financial assets at amortized cost maximum value of which is their recoverable amount at the period’s closing date. The amortized cost has been The Company assesses at each reporting date whether there is objective evidence that a financial asset or determined based on the estimated future cash flows, discounted based on a rate reflecting the time value of group of financial assets is impaired and if so, an impairment charge is recorded in the income statement. money and the risks inherent to the transaction.

The amount of the impairment loss is measured as the difference between the asset’s carrying amount and Receivables arising from services billed to customers but not collected by Edenor, as well as those arising the present value of estimated future cash flows (excluding future credit losses that have not been incurred) from services rendered but unbilled at the closing date of each financial year are recognized at fair value and discounted at the financial asset’s original effective interest rate. If the financial asset has a variable interest subsequently measured at amortized cost using the effective interest rate method. rate, the discount rate for the calculation of the impairment loss is the currently effective interest rate under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair Receivables from electricity supplied to low-income areas and shantytowns are recognized, also in line with value using an observable market price. revenue, when the Framework Agreement has been renewed for the period in which the service was provided.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related The amounts thus determined are net of an allowance for the impairment of receivables. Any debt arising objectively to an event occurring after the impairment was recognized, the reversal of the previously recognized from the bills for electricity consumption that remain unpaid 7 working days after their due dates for small- impairment loss is recognized in the statement of comprehensive income. demand (tariff 1) customers and 7 working days after due date for medium and large-demand (tariff 2 and 3) customers is considered a delinquent balance. The uncollectibility rate is determined per customer category 4.10.4 based on the historical comparison of collections made and delinquent balances of each customer group. Offsetting of financial instruments Additionally, and faced with temporary and/or exceptional situations, Edenor Management may redefine the Financial assets and liabilities are offset, and the net amount reported in the consolidated statements of amount of the allowance, specifying and supporting the criteria used in all the cases. financial position, when there is a legally enforceable right to offset the recognized amounts, and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. Where applicable, allowances for doubtful tax credits have been recognized based on estimates on their uncollectibility within their statutory limitation period, taking into consideration the Company’s current business plans.

242 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 243 CONSOLIDATED FINANCIAL STATEMENTS NOTE 4: (Continuation) NOTE 4: (Continuation) are measured at the lower of their carrying amount and fair value less costs to sell, except deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value 4.13 and contractual rights frominsurance contracts, which are specifically exempt from this requirement. Derivative financial instruments An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) Derivative financial instruments are measured at fair value, determined as the amount of cash to be collected until fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to or paid to settle the instrument as of the measurement date, net of any prepayment collected or paid. Fair value sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. of derivative financial instruments traded in active markets is disclosed based on their quoted market prices and The gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) fair value of instruments that are not traded in active markets is determined using different valuation techniques. is recognised at the date of derecognition.

Changes in the measurement of derivative financial instruments designated as effective cash flow hedges Non-current assets (including those that are part of a disposal group) are not depreciated or amortized while are recognized in equity. Changes in the measurement of derivative financial instruments that do not qualify for they be classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group hedge accounting or are not designated as hedges are recognized in the statement of income. classified as held for sale continue to be recognized.

The Company partially hedges its exchange rate risk mainly through the execution of forward contracts Non-current assets classified group of assets classified as held for sale are presented separately from the denominated in U.S. dollars. However, the Company has not formally designated privately negotiated derivatives other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented as hedging instruments. Therefore, changes in their value are disclosed in “Foreign currency exchange difference”, separately from other liabilities in the balance sheet. These assets and liabilities are not offset. under “Other financial results”. If it is a discontinued operation, that is, an item which has been disposed of or classified as held for sale; and (i) it represents a significant business line or geographic area which may be considered separate from the rest; (ii) it is part of a single coordinated plan to dispose of a significant business line or operating geographic area 4.14 which may be deemed separate from the rest; or (iii) it is a subsidiary entity acquired solely for the purpose Inventories of reselling it; a single amount is disclosed in the statement of comprehensive income, which shows results of discontinued operations, net of tax, including the result for the valuation at fair value less cost of sales or asset This line item includes crude oil stock, raw materials, work in progress and finished products relating to the disposal costs, if applicable. Refining and Distribution, Petrochemicals and Oil and Gas business segments as well as materials and spare parts relating to the Generation and Distribution of Energy business segments.

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted 4.16 average price method. The cost of inventories includes expenditure incurred in purchases and production and other necessary costs to bring them to their existing location and condition. In case of manufactured products and Cash and cash equivalents production in process, the cost includes a portion of indirect production costs, excluding any idle capacity (slack). For the purpose of presentation in the Consolidated Statement of Cash Flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid The net realizable value is the estimated selling price in the ordinary course of business less the estimated investments with original maturities of three months or less that are readily convertible to known amounts cost of completion and the estimated costs to make the sale. of cash and which are subject to an insignificant risk of changes in value. If any, bank overdrafts are shown within borrowings in current liabilities in the Consolidated Statement of Financial Position and there are not The assessment of the recoverable value of these assets is made at each reporting date, and the resulting disclosed under Cash and cash equivalents in the Consolidated Statement of Cash Flows since they are not loss is recognized in the statement of income when the inventories are overstated. part of the Company’s cash management.

The Company has classified materials and spare parts into current and non-current, depending on the timing in which they are expected to be used for replacement or improvement on existing assets. The portion of materials and spare parts for maintenance or improvements on existing assets, is exposed under the heading 4.17 “Property, plant and equipment”. Shareholder´s equity Equity’s movements have been accounted for in accordance with the pertinent decisions of shareholders’ 4.15 meetings and legal or regulatory standards. Non-current assets (or disposal group) held for sale a. Share capital Share capital represents the capital issued, composed of the contributions that were committed and/ and discontinued operations or made by the shareholders and represented by shares that comprise outstanding shares at nominal value. Ordinary shares are classified as equity. Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They

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b. Share premium It includes: 4.18 i. The portion of the collected price exceeding the face value of the shares issued by the Company, net of absorbed accumulated losses. Compensation plans ii. The difference between the fair value of the consideration paid/collected and the accounting Note 45 details the conditions applicable to the different compensation agreements, the payment conditions, value of the equity interest in the subsidiary acquired/sold/diluted which does not represent a and the main variables considered in the corresponding valuation model. loss of control or significant influence. The following guidelines under IFRS 2 have been taken into consideration for the registration of stock- iii. The difference between the proportional equity value registered before the merger of subsidiary based compensations: and the value resulting from applying to the subsidiary’s merged equity interest, the new ownership share resulting from the exchange relationship. - Compensations payable in cash: i. Compensation agreements – Senior Management: the reasonable value of the received services c. Legal reserve is measured through a share appreciation estimate using the Black-Scholes-Merton valuation In accordance with the Argentine Commercial Companies Law No. 19550, 5% of the profit arising model. The fair value of the amount payable under the compensation agreements is accrued from the statement of comprehensive income for the year, prior years’ adjustments, the amounts and acknowledged as an expense, with the corresponding increase in liabilities. Liabilities are transferred from other comprehensive income and prior years’ accumulated losses, must be revalued on each balance sheet date. Any change in the fair value of liabilities is disclosed under appropriated to a legal reserve until such reserve equals 20% of the Company’s outstanding capital. profit or loss. When for any reason, the amount of this reserve will be shorter, dividends may not be distributed, until such amount is made. ii. Company Value Sharing (“Company-Value Compensation”) - PEPASA: the Black-Scholes- Merton financial valuation model was used to make this estimate, taking into consideration the d. Voluntary reserve enforceability of the remuneration. The fair value of the amount payable for the compensation This reserve results from an allocation made by the Shareholders’ Meeting, whereby a specific amount plan is accrued and acknowledged as an expense, with the recognition of an increase in liabilities. is set aside to cover for the funding needs of projects and situations associated with Company policies. Liabilities are revalued on each balance sheet date and at their settlement date. Any change in the fair value of liabilities is disclosed under profit or loss. e. Other reserves It includes the result of operations with non-controlling interest that do not result in a loss of control - Compensations payable in shares: and reserves for stock compensation plans. i. Stock-based Compensation Plan – Officers and other key staff: the fair value of the received f. Retained earnings (Acumulated losses) services is measured at the fair value of shares at the time of granting, and is disclosed during Retained earnings comprise accumulated profits or losses without a specific appropriation; positive the vesting period, together with the corresponding increase in equity. earnings can be distributable by the decision of the Shareholders’ meeting, as long as they are not ii. Stock-based Compensation Plan -Edenor: The fair value of the services received is disclosed as subject to legal restrictions. These earnings comprise prior years’ earnings that were not distributed, the an expense and determined by reference to the fair value of the granted shares and charged to amounts transferred from other comprehensive income and prior years’ adjustments, according to IFRS. profit or loss in the vesting period, or immediately if vested at the grant date.” General Resolution No. 593/2011 issued by the CNV provided that Shareholders in the Meetings at which they should decide upon the approval of financial statements in which the Retained earnings On the other hand, PEPASA granted to certain officers an Annual Variable Compensation for the account has a positive balance, should adopt an express resolution as to the allocation of such performance of technical and administrative duties amounting to 7% of the EBDA accrued (EBITDA less paid balance, whether to dividend distribution, capitalization, setting up of reserves or a combination of income tax, less total net financial costs, less interest on its own capital, considering an annual 10% dollar- these. The Company’s Shareholders have complied with these requirements. denominated rate) of PEPASA.

g. Other comprehensive income The Company recognizes a provision (liability) and an expense for this EBDA Compensation based on the It includes gains and losses from the remeasurement process of foreign operations and actuarial previously mentioned formula. gains and losses for defined benefit plans and the related tax effect.

h. Dividends distribution Dividend distribution to Company shareholders is recognized as a liability in the consolidated financial statements in the year in which the dividends are approved by the Shareholders’ Meeting. The distribution of dividends is made based on the Company’s Stand-Alone Financial Statements.

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4.19 4.20 Trade payables and other payables Borrowings Trade payables and other payables are recognized initially at fair value and subsequently measured at Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently amortized cost using the effective interest method, except for particular matters described below. measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in profit or loss over the period of the borrowings, using the effective interest method. 4.19.1 Customer guarantees Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability Customer guarantees are initially recognized at fair value and subsequently measured at amortized cost that has been extinguished or transferred to another party and the consideration paid, including any non-cash using the effective interest method. assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. In accordance with the Concession Agreement, Edenor is allowed to receive customer guarantees in the Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement following cases: of the liability for at least 12 months after the reporting period. i. When the power supply is requested and the user is unable to provide evidence of his legal ownership of the premises; Borrowing costs

ii. When service has been suspended more than once in one-year period; General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized during the period of time that is required to complete and iii. When the power supply is reconnected and Edenor is able to verify the illegal use of the service (fraud). prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial iv. When the customer is undergoing liquidated bankruptcy or reorganization proceedings. period of time to get ready for their intended use or sale.

Edenor has decided not to request customer guarantees from residential tariff customers. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Customer guarantees may be either paid in cash or through the customer’s bill and accrue monthly interest at a specific rate of Banco de la Nación Argentina for each customer category. Other borrowing costs are expensed in the period in which they are incurred.

When the conditions for which Edenor is allowed to receive customer guarantees no longer exist, the customer’s account is credited for the principal amount plus any interest accrued thereon, after deducting, if appropriate, any amounts receivable which Edenor has with the customer. 4.21 Deferred revenues 4.19.2 Customer refundable contributions Non-refundable customer contributions Edenor receives assets or facilities (or the cash necessary to acquire or built them) from certain customers Edenor receives assets or facilities (or the cash necessary to acquire or built them) from certain customers for services to be provided, based on individual agreements and the provisions of ENRE Resolution No. 215/12. for services to be provided, based on individual agreements. In accordance with IFRIC 18 “Transfers of Assets These contributions are initially recognized as trade payables at fair value against Property, plant and equipment, from Customers”, the assets received are recognized by Edenor as Property, plant and equipment with a and are subsequently measured at amortized cost using the effective interest rate method. contra-account in deferred revenue, the accrual of which depends on the nature of the identifiable services, in accordance with the following: 4.19.3 i. Customer connection to the network: revenue is accrued until such connection is completed; Particular matters ii. Continuous provision of the electric power supply service: throughout the shorter of the useful life of The recorded liabilities for the debts with the FOTAE, the penalties accrued, whether imposed or not yet the asset and the term for the provision of the service. issued by the ENRE (Note 2.3), and other provisions are the best estimate of the settlement value of the present obligation in the framework of IAS 37 provisions at the date of these financial statements.

The balances of ENRE Penalties and Discounts are adjusted in accordance with the regulatory framework applicable thereto and are based on Edenor’s estimate of the outcome of the RTI process described in Note 2.3, whereas the balances of the loans for consumption (mutuums) are adjusted by a rate equivalent to the monthly average yield obtained by CAMMESA from its short-term investments.

248 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 249 CONSOLIDATED FINANCIAL STATEMENTS NOTE 4: (Continuation) NOTE 4: (Continuation) Contingent liabilities are: i) possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events not wholly within the control 4.22 of the entity; or ii) present obligations that arise from past events but it is not probable that an outflow of Employee benefits resources will be required to its settlement; or whose amount cannot be measured with sufficient reliability. 4.22.1 Contingent liabilities are not recognized. The Company discloses in notes to the financial statements a brief Short-term obligations description of the nature of material contingent liabilities.

Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave that are Contingent liabilities, whose possibility of any outflow in settlement is remote, are not disclosed unless they expected to be settled wholly within 12 months after the end of the period in which the employees render the involve guarantees, in which case the nature of the guarantee is disclosed. related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current salaries and social security payable in the consolidated statement of financial position. 4.24 4.22.2 Defined benefit plans Revenue Labor costs liabilities are accrued in the periods in which the employees provide the services that trigger the Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as consideration. revenue are net of discount and amounts collected on behalf of third parties.

The cost of defined contribution plans is periodically recognized in accordance with the contributions made The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that by the Company. future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities. The group bases its estimates on historical results, taking into consideration the type of customer, the Additionally, the Company operates several defined benefit plans. Defined benefit plans define an amount type of transaction and the specifics of each arrangement. of pension benefit that an employee will receive on retirement, depending on one or more factors, such as age, years of service and compensation. In accordance with conditions established in each plan, the benefit The revenue recognition criteria of the main activities of the Company include: may consist in a single payment, or in making complementary payments to those made by the pension system. i. From the power generation activity: there are recognized as accrued comprising energy made available and generated energy. The defined benefit liability recognized in the financial statement balance sheet, at the end of the reporting period, is the present value of the defined benefit obligation net of the fair value of the plan assets, when ii. From the electricity distribution activity: sthere are recognized on an accrual basis and derives applicable. The defined benefit obligation is calculated annually by independent actuaries using the projected mainly from electricity distribution. Such revenue includes both the electricity supplied, whether billed unit credit method. The present value of the defined benefit obligation is determined by discounting the or unbilled at the end of each year, which has been valued on the basis of applicable tariffs. estimated future cash outflows using future actuarial assumptions about demographic and financial variables Revenue from the electricity provided by Edenor to low-income areas and shantytowns is recognized to the that affect the determination of the amount of such benefits. extent that the Framework Agreement has been renewed for the period in which the service was rendered. Edenor also recognizes revenue from other concepts included in distribution services, such as new Actuarial gains and losses from experience adjustments and changes in actuarial assumptions, are recognized connections, reconnections, rights of use on poles, transportation of electricity to other distribution in other comprehensive income (loss) in the period in which they arise and past service costs are recognized companies, etc. immediately in the statement of income (loss). iii. From exploration and exploitation of oil and gas, petrochemicals and refining and distribution activities: Revenues from sales of crude oil, natural gas and liquefied petroleum gas, petrochemical and refined products are recognized on the transfer of title in accordance with the terms of the 4.23 related contracts, which is when the customer has taken title and assumed the risks and benefits, Provisions and contingent liabilities prices have been determined and collectability is reasonably assured. Revenues from oil and natural gas production in which the Company has a joint interest with other Provisions are recognized when the group has a present legal or constructive obligation as a result of a past producers are recognized on the basis of the net working interest, regardless of actual assignment. event, it is probable that an outflow of resources will be required to settle that obligation, and the amount can Any imbalance between actual and contractual assignment will result in the recognition of an be reliably estimated. Provisions are not recognised for future operating losses. amount payable or receivable according to the actual share in production, whether above or below the production resulting from the Company’s contractual interest in the consortium. Provisions are measured at the present value of the expenditures expected to be required to settle the present obligation, taking into account the best available information as of the date of the financial statements based The Company performs diesel oil and gasoline sale transactions with other refining companies in on assumptions and methods considered appropriate and taking into account the opinion of each Company’s different geographical areas to optimize the logistics chain. These transactions are disclosed on a net legal advisors. As additional information becomes available to the Company, estimates are revised and adjusted basis in the Consolidated statement of Comprehensive income (loss). periodically. The discount rate used to determine the present value reflects current market assessments of the Finally, the Company provides the service of hydrocarbon operation and production in exchange for time value of money and the risks specific to the liability. The increase in the provision due to the passage of a participation in the production of the hydrocarbon areas. time is recognised as other financial results.

250 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 251 CONSOLIDATED FINANCIAL STATEMENTS NOTE 4: (Continuation) NOTE 4: (Continuation) Deferred income tax is recognized, using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, 4.25 deferred tax liabilities are not recognized if they come from the initial recognition of goodwill; or if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at time of the Other Income – Government grants transaction affects neither accounting nor taxable profit or loss. Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. There are no unfulfilled conditions Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will or other contingencies attaching to the following grants. The group did not benefit directly from any other forms be available and can be used against temporary differences. of government assistance. Deferred income tax is provided on temporary differences from investments in subsidiaries and associates, 4.25.1 except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled Recognition of higher cost by the group and it is probable that the temporary difference will not reverse in the foreseeable future.

The recognition of higher costs not transferred to the tariff, as well as the recognition established by SE Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset the Resolution No. 32/15 and the recognition of income due to the effect of the precautionary measures of the recognized amounts and when the deferred income tax assets and liabilities relate to income taxes levied by Municipalities of Pilar and La Matanza (Note 2.3) fall within the scope of IAS 20 “Accounting for Government the same taxation authority on either the same taxable entity or different taxable entities where there is an Grants and Disclosure of Government Assistance” as they imply a compensation to cover the expenses and intention to settle the balances on a net basis. afford the investments associated with the normal provision of the public service, object of the concession. Current and deferred tax assets and liabilities have not been discounted, and are stated at their nominal value. Their recognition is made at fair value when there is reasonable assurance that they will be collected and the conditions attached thereto have been complied with, i.e. provision of the service in the case of the recognition Income tax rates prevailing at year-end in Argentina (see Note 48), Venezuela, Ecuador, Bolivia, Spain and established in SE Resolution No. 32/15, and the ENRE’s approval and the SE’s recognition, by means of a Note Uruguay are 35%, 50%, 22%, 25%, 25% and 25%, respectively. Additionally, payment of Bolivian-source income or Resolution, in the case of the recognition of higher costs. to beneficiaries outside Bolivia is levied with a 12.5% withholding income tax.

Such concepts have been disclosed in the “Income recognition on account of the RTI – SE Resolution 4.26.2 No. 32/15”, “Higher Costs Recognition - SE Resolution 250/13 and subsequent Notes” and “Recognition of Minimum notional income tax income provisional measures MEyM Note N° 2016-04484723” line items under Other operating income in the Consolidated Statement of Comprehensive Income, recognizing the related tax effects. The Company assesses the minimum notional income tax by applying the current 1% rate over the assets computable at the closing of the year. As this tax supplements the income tax, the Company does not assess 4.25.2 it for the periods where no income is evidenced on the income tax, based on the case law established by the Recognition of compensation for injection of surplus gas “Hermitage” decision (CSJN, 15/06/2010), which ruled on the unconstitutionality of this tax when tax losses are disclosed for the period. The recognition of income for the injection of surplus gas is covered by IAS 20 since it involves a compensation as a result of the production increase committed. This item has been disclosed under Compensation for Surplus The Company’s tax obligation for each year will be the higher of the two taxes. If in a fiscal year, however, Gas Injection, under Other operating income, in the Consolidated Statement of Comprehensive Income (loss). minimum notional income tax obligation exceeds income tax liability, the surplus will be computable as a Asimismo, la línea de Canon extraordinario, dentro del rubro Otros egresos operativos, del Estado de resultado payment in advance of income tax through the next ten years. integral consolidado, incluye los costos fiscales asociados al programa. As of the closing date hereof, the Company’s Management analyzed the receivable’s recoverability, and allowances are created in as long as it is estimated that the amounts paid for this tax will not be recoverable 4.26 within the statutory limitation period taking into consideration the Company’s current business plans. The Company’s Management will evaluate the evolution of this recoverability in future fiscal years. Income tax and minimun notional income tax 4.26.1 Current and deferred income tax 4.27 The tax expenses for the year include current and deferred tax. Tax is recognized in the income statement, Leases except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In Leases of property, plant and equipment where the Group, as lessor, has transferred all the risks and rewards of this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. ownership are classified as finance leases (Note 39.2). Finance leases are recognized at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at rental rights, net of finance charges, are included in other current and non-current receivables. Each lease payment the balance sheet. Management periodically evaluates positions taken in tax returns with respect to situations received is allocated between the receivable and finance income. The finance income is charged to the profit or in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the the basis of amounts expected to be paid to the tax authorities. receivable for each period. The property, plant and equipment leased under finance leases is derecognized if there is reasonable certainty that the Group will assign ownership at the end of the lease term.

252 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 253 CONSOLIDATED FINANCIAL STATEMENTS NOTE 4: (Continuation) NOTE 5: (Continuation) Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as The Company Management is required to make judgments at the moment of the future cash flow estimation. lessee are classified as operating leases (Note 39.1.a). Payments made under operating leases (net of any incentives The actual cash flows and the values may differ significantly from the expected future cash flows and the received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. related values obtained through discount techniques.

Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line 5.1.1 basis over the lease term (Note 39.1.b). The respective leased assets are included in the Consolidated Statement Impairment of property, plant and equipment and intangible assets associated with the subsidiary of Financial Position based on their nature. Edenor As of December 31, 2011, the Company has recorded impairment losses for property, plant and equipment and intangible assets associated with its investment in Edenor resulting from the assessment of their recoverable value. Depreciation losses totaled up $ 648 million before income tax.

NOTE 5: CRITICAL ACCOUNTING ESTIMATES As of the date of issuance of these financial statements, Pampa considers that the effective implementation of the comprehensive tariff review process that implied increases in the applicable rates by Edenor during AND JUDGMENTS 2017 represents an indication that the impairment losses recognized in prior years may no longer exist. For this reason, Edenor has prepared its projections for the sole purpose of analyzing the recoverability of the impairment recorded by the Company.

The preparation of financial statements requires the Company’s Management to make future estimates and Cash flows are prepared on the basis of estimates concerning the future performance of certain variables assessments, to apply critical judgment and to establish assumptions affecting the application of accounting that are sensitive to the determination of the recoverable amount, measured as the value in use, among policies and the amounts of disclosed assets and liabilities, income and expenses. which the following can be noted: (i) nature, opportunity and modality of electricity rate increases and/or cost adjustment recognition; (ii) demand for electricity projections; (iii) evolution of the costs to be incurred; (iv) The applied estimates and accounting judgments are evaluated on a continuous basis and are based on past investment needs in accordance with the service quality levels required by the regulatory authority, and (v) experiences and other reasonable factors under the existing circumstances. Actual future results might differ macroeconomic variables, such as growth rates, inflation rates and foreign currency exchange rates. from the estimates and evaluations made at the date of preparation of these consolidated financial statements. The estimates which have a significant risk of producing adjustments on the amounts of the assets and liabilities Edenor has elaborated its projections as from the implementation of ENRE Resolution No. 63/17, which during the following year are detailed below: established the new tariff schemes applicable as from February 1, 2017, that fixed Edenor’s remuneration and the tariff adjustment mechanism for the next 5 years (Note 2.3). Given that the main variable is the electricity rate, and such rate is supported by the approved electricity rate schedule, Edenor has prepared only 5.1 one scenario, considering the most pessimistic situation when estimating the variables with greater impact (Resolution of regulatory matters) and its best estimate for the other variables with lower incidence. Impairment of non-financial assets In order to determine the scenario mentioned in the preceding paragraph, Edenor has considered the following: Non-financial assets, including identifiable intangible assets, are reviewed for impairment at the lowest level for which there are separately identifiable cash flows (CGU). For this purpose, each asset group with i. Nature, opportunity, and modality of electricity rate increases and / or cost adjustments recognition: independent cash flows, each subsidiary, associate and each jointly controlled company has been considered a Electricity rate increases as resolved in the RTI process; single CGU, as all of their assets jointly contribute to the generation of cash inflows, which are derived from a ii. Settlement of regulatory liabilities: Edenor has considered to use the final surplus of its annual cash single service or product; thus cash inflows cannot be attributed to individual assets. flows until these liabilities are settled; iii. Electricity demand growth: 3% per year; In order to evaluate if there is evidence that a CGU could be affected, both external and internal sources of information are analyzed. Specific facts and circumstances are considered, which generally include the discount iv. Development of costs to be incurred: mainly based on the expected level of inflation; rate used in the estimates of the future cash flows of each CGU and the business condition as regards economic v. Investments for infrastructure maintenance: in accordance with the service quality levels required by and market factors, such as the cost of raw materials, oil and gas, the regulatory framework for the energy the regulator in the RTI; industry (mainly the RTI / CMM and recognition of expected prices), the projected capital investments and the evolution of the energy demand. vi. Inflation rate; vii. Exchange rate. The value in use of each CGU is estimated on the basis of the present value of future net cash flows that these units will generate. The Company Management uses approved budgets up to one year as the base for cash viii. The discount rate (WACC) in pesos varies for each year of the projection. For the first 5 years, the flow projections that are latter extrapolated into a term consistent with the assets’ remaining useful life, taking average of these rates is 23%. into consideration the appropriate discount rates. Discount rates used to discount future net cash flows is WACC, for each asset or CGU a specific WACC was determined which considered the business segment and the country As a result of the gradual restructuring of Edenor’s economic-financial situation detailed in Note 41, the conditions where the operations are performed. In order to calculate the fair value less the costs to sale, the Company has reversed the impairment losses recognized in previous years and has recorded a gain of $ 461 Company Management uses the estimated value of the future cash flows that a market participant could generate million in property, plant and equipment net of depreciation expense and a gain of $ 82 million in intangible from the appropriate CGU, and deducts the necessary costs to carry out the sale of the corresponding CGU. assets, net of depreciation expense, before income tax.

254 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 255 CONSOLIDATED FINANCIAL STATEMENTS NOTE 5: (Continuation) NOTE 5: (Continuation)

5.1.2 To such effect, the Company has used the following grounds: Impairment of goodwill a. several previous cases within the Group where Courts has ruled in favor of the Company’s allegation As a result of the acquisition of PPSL, the Company has recognized a goodwill of $ 994 million that has been according to the criterion established by the “Hermitage” decision; allocated, for the purpose of impairment testing, to the oil and gas business segment regarding future synergies b. the completion of tax audits for periods in which certain subsidiaries of the Group have applied the of combined business and assembled workforce. criterion established by the “Hermitage” ruling; For the purpose to determine the value in use of the segment, the Company prepared the cash flows on c. and lastly, the abrogation of the tax pursuant to Section 76 of Act No. 27,260 (Tax Transparency) the basis of estimates concerning proved oil and gas reserves (developed and to be developed) and probable for fiscal years beginning as from January 1, 2019, which evidences the Treasury’s position on the reserves, according to the reports of oil and gas reserves prepared by the Company and the projection period continuation of proceedings as the one brought against the Company. was determined based on the end of the respective concession contracts. In addition, the Company has made estimates concerning the future performance of certain variables that are sensitive to the determination of the Additionally, the Company has recognized an income of $ 23 million for the recognition of the tax credit for recoverable amount, among which are: (i) reserve levels and production; (ii) sales price evolution; (iii) operating minimum notional income tax paid in previous years. The Company considers it is probable that it will generate costs evolution; (iv) investment needs and; (V) macroeconomic variables such as inflation rates, foreign currency future taxable income to use this tax credits within the statutory limitation period, as a result of corporate exchange rate. The WACC discount rate in U.S. dollars used amounted to 10.8%. reorganizations described.

As a result of the oil and gas business segment impairment test, the Company concluded that the assets in the oil and gas segment, considered as a whole do not exceed the recoverable value, measured as the value 5.3 in use as of December 31, 2017. Contingencies The Company is subject to various claims, lawsuits and other legal proceedings that arise during the ordinary 5.2 course of its business. The Company’s liabilities with respect to such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Periodically, the Company reviews the status of each contingency and Current and deferred Income tax / Minimum notional assesses potential financial liability, applying the criteria indicated in Note 4.24, for which elaborates the income tax estimates mainly with the assistance of legal advisors, based on information available to the Management at financial statements date, and taking into account our litigation and resolution/settlement strategies. The Company Management has to regularly assess the positions stated in the tax returns as regards those situations where the applicable tax regulations are subject to interpretation and, if necessary, establish provisions Contingencies include outstanding lawsuits or claims for possible damages to third parties in the ordinary according to the estimated amount that the Company will have to pay to the tax authorities. When the final tax course of the Company’s business, as well as third party claims arising from disputes concerning the result of these items differs from the amounts initially acknowledged, those differences will have an effect on interpretation of legislation. the income tax and on the deferred tax provisions in the fiscal year when such determination is made. The Company evaluates whether there would be additional expenses directly associated to the ultimate There are many transactions and calculations for which the ultimate tax determination is uncertain. The resolution of each contingency, which will be included in the provision if they may be reasonably estimated. Company recognizes liabilities for eventual tax claims based on estimates of whether additional taxes will be due in the future. However, if the Company´s Management estimates are not correct, current provisions might be inadequate and could have an adverse effect on the Company’s results of operations, financial position and cash flows. Deferred tax assets are reviewed at each reporting date and reduced in accordance with the probability that the sufficient taxable base will be available to allow for the total or partial recovery of these assets. Deferred tax assets and liabilities are not discounted. In assessing the realization of deferred tax assets, Management considers that it is likely that a portion or all of the deferred tax assets will not be realized. The ultimate realization of 5.4 deferred tax assets depends on the generation of future taxable income in the periods in which these temporary Asset retirement obligations differences become deductible. To make this assessment, Management takes into consideration the scheduled reversal of deferred tax liabilities, the projections of future taxable income and tax planning strategies. Asset retirement obligations after completion of operations require the Company’s Management to estimate the number of wells, long-term well abandonment costs and the time remaining until abandonment. Technology, As a result of the recoverability analysis performed, as of December 31, 2016, the Company and certain costs and political, environmental and safety considerations constantly change and may result in differences subsidiaries have derecognized the liability related to the application of the provisions of the “Hermitage” between actual future costs and estimates. decision to the determination of the minimum notional income tax liability. This has been applied to all periods in which the Company had evidenced tax losses, and resulted in the recognition of income for $ 123 and $ 88 Asset retirement obligations estimates are adjusted when it is justified by changes in the evaluation criteria million disclosed under the lines “Income tax and minimum notional income tax” and “Financial expense” within or at least once a year. the Consolidated Statement of Comprehensive of Income / (Loss), respectively, as the tax credit had not been previously recognized.

256 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 257 CONSOLIDATED FINANCIAL STATEMENTS NOTE 5: (Continuation) NOTE 5: (Continuation)

5.5 5.8 Allowance for doubtful accounts Revenue recognition The Group is exposed to losses for uncollectible receivables. The Company Management estimates the final In the distribution of energy business segment, revenue is recognized on an accrual basis upon delivery to collectability of the accounts receivable. customers, which includes the estimated amount of unbilled distribution of electricity at the end of each year. We consider our accounting policy for the recognition of estimated revenue critical because it depends on The allowance for doubtful accounts is assessed based on the historical level of both the balances written off the amount of electricity effectively delivered to customers which is valued on the basis of applicable tariffs. as an expense and the default balances. In the case of the distribution of energy segment, a delinquent balance Unbilled revenue is classified as current trade receivables. comprises all such debt arising from the bills for electricity consumption that remain unpaid 7 working days after their due dates for small-demand (tariff 1) customers, for medium and large-demand (tariff 2 and 3) customers. In the oil and gas business segment, the fair value of the consideration receivable corresponding to revenues Edenor´s Management records an allowance applying an uncollectibility rate for each customer category, based on from gas sales to Distributors is recognized based on the volume of gas delivered and the price established by the historical comparison of collections made against the default balances of each customer category. the SE (in accordance with applicable resolutions).

In order to estimate collections related to the energy generation segment we mainly consider the ability of CAMMESA to meet its payment obligations to generators, and the resolutions issued by SE, which allow the Company to collect its credits with CAMMESA through different mechanisms. 5.9 Oil and gas reserves Additionally, Management analyzes the allowance for uncollectible receivables of the remaining accounts receivables of the segment based on an individual analysis of recoverability of receivables of the WEM debtors. Reserves mean oil and gas volumes (in m3 of oil equivalent) that are economically producible, in the areas where the Company operates or has a (direct or indirect) interest and over which the Company has exploitation Future adjustments to the allowance may be necessary if future economic conditions differ substantially rights, including oil and gas volumes related to those service agreements under which the Company has no from the assumptions used in the assessment for each year. ownership rights on the reserves or the hydrocarbons obtained and those estimated to be produced for the contracting company under service contracts.

There are numerous uncertainties in estimating proved reserves and future production profiles, development 5.6 costs and prices, including several factors beyond the producer’s control. Reserve engineering is a subjective Actuarial assumptions in defined benefit plans process of estimating underground accumulations involving a certain degree of uncertainty. Reserves estimates depend on the quality of the available engineering and geological data as of the estimation date and on the Actuarial commitments with defined benefit plans to employees are recognized as liabilities in the statement interpretation and judgment thereof. of financial position based on actuarial estimates revised annually by an independent actuary, using the projected unit credit method. Reserve estimates are adjusted when so justified by changes in the evaluation criteria or at least once a year. These reserve estimates are based on the reports of oil and gas consulting professionals. The present value of pension plan obligations depends on multiple factors that are determined according to actuarial estimates which are revised annually by an independent actuary, net of the fair value of the plan The Company uses the information obtained from the calculation of reserves in the determination of assets, when applicable. For this purpose, certain assumptions are used including the discount rate and wage depreciation of assets used in the areas of oil and gas, as well as assessing the recoverability of these assets growth rate assumptions. (Notes 4.7 and 4.8).

5.7 5.10 ENRE Penalties and discounts Environmental remediation Edenor considers its applicable accounting policy for the recognition of ENRE penalties and discounts critical The costs incurred to limit, neutralize or prevent environmental pollution are only capitalized if at least one because it depends on penalizable events, which are valued on the basis of management best estimate of the of the following conditions is met: (a) such costs relate to improvements in safety; (b) the risk of environmental expenditure required to settle the present obligation at the date of these financial statements. The balances pollution is prevented or limited; or (c) the costs are incurred to prepare the assets for sale and the book value of ENRE penalties and discounts are adjusted in accordance with the regulatory framework applicable thereto (which considers those costs) of such assets does not exceed their respective recoverable value. and have been estimated based on Edenor’s estimate of the outcome of the RTI process described in Note 2.3. Liabilities related to future remediation costs are recorded when, on the basis of environmental assessments, such liabilities are probable to materialize, and costs can be reasonably estimated. The actual recognition and amount of these provisions are generally based on the Company’s commitment to an action plan, such as an approved remediation plan or the sale or disposal of an asset. The provision is recognized on the basis that a future remediation commitment will be required.

258 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 259 CONSOLIDATED FINANCIAL STATEMENTS NOTE 5: (Continuation) NOTE 6: (Continuation) The Company measures liabilities based on its best estimation of present value of future costs, using currently comprised in these financial statements. This section includes a description of the main risks and uncertainties available technology and applying current environmental laws and regulations as well as the Company’s own which may adversely affect the Company’s strategy, performance, operational results and financial position. internal environmental policies. 6.1.1 Market risks 5.11 Foreign exchange risk

Business Combinations The Company’s financial situation and the results of its operations are sensitive to variations in the exchange The acquisition method involves the measurement at fair value of the identifiable assets acquired and the rate between the Argentine peso and other currencies, primarily with respect to U.S. dollar. In some cases, the liabilities assumed in the business combination at the acquisition date. Company may use derivative financial instruments to mitigate associated exchange rate risks.

For the purpose to determine the fair value of identifiable assets, the Company uses the valuation approach The Company collects a meaningful portion of its revenues in Argentine pesos pursuant to prices which are considered the most representative for each asset. These include the i) income approach, through indirect cash indexed to the U.S. dollar, mainly revenues resulting from: i) the sale of energy (Supply Agreements under ES flows (net present value of expected future cash flows) or through the multi-period excess earnings method, Resolution No. 220/07, Energy Plus contracts and generators’ revenues under ES Resolution No. 19-E/17) and ii) cost approach (replacement value of the good adjusted for loss due to physical deterioration, functional and ii) the sale of gas and crude oil. economic obsolescence) and iii) market approach through comparable transactions method. Furthermore, a significant portion of the Company’s financial debt (approximately 85%) is denominated in Likewise, in order to determine the fair value of liabilities assumed, the Company’s Management considers U.S. dollars, against a 66% at the closing of the previous fiscal year. It should be pointed out that this increase the probability of cash outflows that will be required for each contingency, and elaborates the estimates with is mainly due to the issuance of Class 1 Corporate Bonds during January 2017. assistance of legal advisors, based on the information available and taking into account the strategy of litigation and resolution / liquidation. Additionally, the Company has made several investment commitments, mainly projects to increase its thermal generation capacity and projects for the generation of energy from renewable sources, most of which Management critical judgment is required in selecting the approach to be used and estimating future cash are denominated in foreign currency, which exposes the Company to a risk of loss resulting from the devaluation flows. Actual cash flows and values may differ significantly from the expected future cash flows and related of the Argentine peso. values obtained through the mentioned valuation techniques. In the Distribution segment, the subsidiary Edenor collects revenues in pesos pursuant to regulated tariffs which are not indexed to the U.S. dollar, whereas a significant portion of its existing financial debt is denominated in that currency, which exposes the Company to a risk of loss resulting from a devaluation of the Argentine peso. Edenor can manage this risk through the execution of forward contracts denominated in foreign currency. NOTE 6: FINANCIAL RISK As of the end of 2017 year, Edenor has not hedged its exposure to the US dollar. Edenor does not currently hedge its exposure to currency risk. Therefore, any devaluation of the peso could significantly increase its MANAGEMENT debt service burden, which, in turn, could have a substantial adverse effect on its financial and cash position (including its ability to repay its Corporate Notes) and the results of its operations.

During 2017, U.S. Dollar currency appreciated by approximately 18%.

6.1 The following table shows the Company’s exposure to the exchange rate risk for financial assets and Financial Risk Factors liabilities denominated in a currency different from the Company’s functional currency. The Company’s activities are subject to several financial risks: market risk (including the exchange rate risk, the interest rate risk and the price risk), credit risk and liquidity risk.

Financial risk management is encompassed within the Company’s global policies, there is an integrated risk management methodology, where the focus is not placed on the individual risks of the business units’ operations, but there is rather a wider perspective focused on monitoring risks affecting the whole portfolio. The Company’s risk management strategy seeks to achieve a balance between profitability targets and risk exposure levels. Financial risks are those derived from financial instruments the Company is exposed to during or at the closing of each fiscal year. The Company uses derivative instruments to hedge certain risks when it deems it necessary according to its risk management internal policies.

Financial risk management is controlled by the Financial Department, which identifies, evaluates and covers financial risks. Risk management systems and policies are reviewed on a regular basis to reflect changes in market conditions and the Company’s activities, and have been applied consistently during the periods

260 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 261 CONSOLIDATED FINANCIAL STATEMENTS NOTE 6: (Continuation) NOTE 6: (Continuation)

Type Amount Exchange Total Total Type Amount Exchange Total Total of foreign rate(1) 12.31.2017 12.31.2016 of foreign rate(1) 12.31.2017 12.31.2016 currency currency

ASSETS LIABILITIES NON CURRENT ASSETS NON CURRENT LIABILITIES Financial instruments Financial instruments Financial assets at amortized cost Trade and other payables Third parties US$ - - - 1 Third parties US$ 6.7 18.649 125 - Other receivables Borrowings Related parties US$ 42.4 18.599 789 733 Related parties US$ 0.80 18.599 14 16 Third parties US$ 62.7 18.549 1,163 934 Third parties US$ 1,737.5 18.649 32,403 11,737 Financial assets at fair value through profit and loss Non financial instruments Third parties US$ - - - 513 Provisions Total non current assets 1,952 2,181 Related parties US$ - - - 366 Third parties US$ 89.1 18.649 1,662 2,378 CURRENT ASSETS Total non current liabilities 34,204 14,497 Financial instruments Financial assets at fair value through CURRENT LIABILITIES profit and loss Financial instruments Third parties US$ 263.0 18.549 4,879 678 Trade and other payables Derivative financial instruments Related parties US$ 2.2 18.599 40 95 Third parties US$ 0.2 18.549 4 - Third parties US$ 249.4 18.649 4,651 3,447 Trade and other receivables EUR 22.4 22.450 502 57 Related parties US$ 10.2 18.599 189 106 CHF 0.6 19.168 12 - Third parties US$ 246.0 18.549 4,563 4,464 SEK 21.0 2.280 48 6 EUR - - - 1 VEF - - - 5 VEF - - - 2 Borrowings Third parties US$ 213.4 18.649 3,979 5,398 Cash and cash equivalents US$ 21.8 18.549 404 1,087 EUR 0.3 22.283 7 2 Non financial instruments Total current assets 10,046 6,340 Salaries and social security payable Non Financial instruments Third parties US$ 0.1 18.649 3 1 Non current assets classified as held US$ 39.0 18.549 723 19 Taxes payables for sale Third parties US$ 1.0 18.649 19 11 Total assets 12,721 8,540 Provisions Related parties US$ 21.3 18.599 396 394 Third parties US$ 15.0 18.649 280 307 Total current liabilities 9,930 9,721 Liabilities associated to assets classified as US$ 68.9 18.649 1,285 - held for sale Total liabilities 45,419 24,218

Net Position Liability (32,698) (15,6 7 8 )

Notes: (1) The exchange rates correspond to December 31, 2017 released by the National Bank of Argentine for U.S. dollars (US$), euros (EUR), Swiss francs (CHF) and Norwegian kroner (SEK). For balances with related parties, the Exchange rate used is the average.

262 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 263 CONSOLIDATED FINANCIAL STATEMENTS NOTE 6: (Continuation) NOTE 6: (Continuation) The Company estimates that provided all other variables remain constant, a 10% revaluation/(devaluation) In the case of fixed rates and in view of the market’s current conditions, the Company considers that the of U.S.Dollar as compared to the Argentine peso would generate in absolute values an increase or decrease of risk of a significant decrease in interest rates is low and, therefore, does not foresee a substantial risk in its $3,215 million and $ 1,647 million in the 2017 and 2016 fiscal years, respectively. The Group´s exposure to other indebtedness at fixed rates. foreign currency movements is not material. As of the date of issuance of these financial statements, the Company is not exposed to a significant risk of Price risk variable interest rate increases since most of the financial debt is subject to fixed rate.

The Company’s financial instruments are not significantly exposed to hydrocarbon international price risks In the fiscal years ended December 31, 2017 and 2016, the Company did not use derivative financial on account of the current regulatory, economic, governmental and other policies in force, gas domestic prices instruments to mitigate risks associated with fluctuations in interest rates. are not directly affected in the short-term due to variations in the international market. The following chart shows the breakdown of the Company’s borrowings classified by interest rate and the Additionally, the Company’s investments in financial assets classified as “at fair value through profit or loss” currency in which they are denominated: are sensitive to the risk of changes in the market prices resulting from uncertainties as to the future value of such financial assets.

The Company estimates that provided all other variables remain constant, a 10% revaluation/(devaluation) of 12.31.2017 12.31.2016 each market price would generate the following increase/(decrease) in the fiscal year’s income/(loss) in relation Fixed interest rate: to financial assets at fair value through profit and loss detailed in Note 12 to these financial statements: Argentinian pesos 2,270 2,729 U.S dollar 33,769 14,305 Subtotal loans granted at a fixed interest rate 36,039 17,034 Increase (decrease) of the result for the year Floating interest rates: Argentinian pesos 3,603 5,808 Financial assets 12.31.2017 12.31.2016 U.S dollar 2,108 2,479 Subtotal loans granted at a floating interest rate 5,711 8,287 Shares 15 15 Non interest accrues Government securities 502 158 U.S dollar 697 284 Investment funds 959 319 Argentinian pesos 519 367 Corporate bonds - 1 Subtotal no interest accrues 1,216 651 Variation of the result of the year 1,476 493 Total borrowings 42,966 25,972

Cash flow and fair value interest rate risk The management of the interest rate risk seeks to reduce financial costs and limit the Company’s exposure to interest rate increases. Based on the conducted simulations, and provided all other variables remain constant, a 10% increase/ Indebtedness at variable rates exposes the Company to the interest rate risk on its cash flows due to the decrease in variable interest rates would generate the following (decrease)/increase in the fiscal year’s results possible volatility they may experience, as it happened from 2014 to 2016. Indebtedness at fixed rates exposes of $ 107 million. the Company to the interest rate risk on the fair value of its liabilities, since they may be considerably higher than variable rates. As of December 31, 2017, approximately 13.7% of the indebtedness was subject to variable 6.1.2 interest rates, mainly denominated in pesos at the Private Badlar rate plus an applicable margin. Approximately Credit risk 63% of the indebtedness at variable rates is denominated in pesos. The rest of the Company’s indebtedness The Company establishes individual credit limits according to the limits defined by the Board of Directors subject to variable interest rates is denominated in U.S. dollar, based on Libor rate plus an applicable margin. and approved by the Financial Department based on internal or external ratings. The Company makes constant credit assessments on its customers’ financial capacity, which minimizes the potential risk for bad debt losses. The Company seeks to mitigate its interest-rate risk exposure through the analysis and evaluation of (i) the different liquidity sources available in the financial and capital market, both domestic and (if available) The credit risk represents the exposure to possible losses resulting from the breach by commercial or international; (ii) interest rates alternatives (fixed or variable), currencies and terms available for companies in financial counterparties of their obligations taken on with the Company. This risk stems mainly from economic a similar sector, industry and risk than the Company; (iii) the availability, access and cost of interest-rate hedge and financial factors or a possible counterparty default. agreements. On doing this, the Company evaluates the impact on profits or losses resulting from each strategy over the obligations representing the main interest-bearing positions.

264 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 265 CONSOLIDATED FINANCIAL STATEMENTS NOTE 6: (Continuation) NOTE 6: (Continuation) The credit risk is associated with the Company’s commercial activity through customer trade receivables, as Additionally, our Natural Gas Promotion Program compensation depends on the Argentine Government’s well as available funds and deposits in banking and financial institutions. ability and willingness to pay. Before the Government authorized the issuance of dollar-denominated sovereign bonds to cancel outstanding debts under the Program, the Company suffered a significant delay in the collection The Company, in its ordinary course of business and in accordance with its credit policies, grants credits of the Compensation. Afterwards, during June and July, 2016, Petrobras and PEPASA received BONAR 2020 to a large customer base, mainly large sectors of the industry, including service station operators, refineries, bonds for a face value of US$ 34.3 million and US$ 29.5 million as compensation owed as at December 2015. exporters, petrochemical companies, natural gas distributors, electricity large users and electricity distributors. During 2017 the collection of the compensations by the Company were delayed again. We may not guarantee that the Company will be able to properly collect the offered compensations, which might give rise to a claim The Company has established an allowance for doubtful accounts. This allowance represents the best to the Argentine Government. estimate by the Company of possible losses associated with trade receivables. 6.1.3 As of December 31, 2016, the Company’s trade receivables, without considering Edenor, totaled 7,295 Liquidity risk million, out of which 69% are short-term receivables and the remaining 31% are classified as non-current and The liquidity risk is associated with the Company’s capacity to finance its commitments and conduct its correspond mainly to CAMMESA (national company responsible for purchasing electric power from generators business plans with stable financial sources, as well as with the indebtedness level and the financial debt and selling it to distributors). With the exception of CAMMESA, which represents approximately 38% of all trade maturities profile. The cash flow projection is made by the Financial Department. receivables, the Company does not have a significant credit risk concentration, as this exposure is distributed among a large number of customers and other counterparties. No other client has a meaningful percentage of The Company management supervises updated projections on liquidity requirements to guarantee the the total amount of these receivables. sufficiency of cash and liquid financial instruments to meet operating needs while keeping at all times a sufficient margin for unused credit facilities. In this way, the aim is that the Company does not breach indebtedness levels or The impossibility by CAMMESA to pay these receivables may have a substantially adverse effect on cash the Covenants, if applicable, of any credit facility. Those projections take into consideration the Company’s debt income and, consequently, on the result of operations and financial situation which, in turn, may adversely financing plans, the meeting of the covenants and, if applicable, the external regulatory or legal requirements affect the Company’s repayment capacity. such as, for example, restrictions on the use of foreign currency. The credit risk of liquid funds and other financial investments is limited since the counterparties are high Excess cash and balances above working capital management requirements are managed by the Company’s credit quality banking institutions. If there are no independent risk ratings, the risk control area evaluates the Treasury Department, which invests them in term deposits, mutual funds and marketable securities, selecting customer’s creditworthiness, based on past experiences and other factors. instruments having proper currencies and maturities, and an adequate credit quality and liquidity to provide a

sufficient margin as determined in the previously mentioned projections. In the case of Edenor, delinquent trade receivables increased from $ 659 million as of December 31, 2016 to $ 1,041 million as of December 31, 2017. mainly due to the tariff increase during the fiscal year (Note 2.3). As The Company keeps its sources of financing diversified between banks and the capital market, and it is of December 31, 2017 and 2016, a provision in the amount of $ 459 million and $ 260 million, respectively, has exposed to the refinancing risk at maturity. been set aside for such delinquent receivables. The determination of the Company’s liquidity index for fiscal years ended December 31, 2017 and 2016 is One of the significant items of delinquent balances is that related to the receivable amounts with Municipalities, detailed below: in respect of which Edenor either applies different offsetting mechanisms against municipal taxes it collects on behalf of the municipalities, or implements debt refinancing plans, with the aim of reducing them. 12.31.2017 12.31.2016 Furthermore, and taking into account that in fiscal year 2016 the ENRE prevented Edenor from suspending the electricity supply to customers with delinquent balances, Edenor’s actions to reduce the impact of delinquency were limited. Therefore, at the date of issuance of these financial statements Edenor’s Board of Directors is analyzing the Current assets 36,912 23,150 plans of action it will implement in order to reinforce the activities aimed at reducing delinquent balances. Current liabilities 29,958 30,063 Index 1.23 0.77 Additionally, it is important to point out that in fiscal year 2016 it was possible to collect more than 50% of the delinquent receivables existing as of December 31, 2015. The following table includes an analysis of the Company financial liabilities, grouped according to their Finally, and with regard to the electricity supplied to low-income areas and shantytowns, as stipulated in maturity dates and considering the period remaining until their contractual maturity date from the date of the the Adjustment Agreement (Note 2.3), in fiscal year 2016 Edenor received payments for a total of $ 65 million, financial statements. which represents 89% of the outstanding balance as of December 31, 2015. Past experience shows that these balances have always been collected. Derivative financial liabilities are included in the analysis if their contractual maturities are essential for the understanding of the cash flow calendar. The amounts shown in the table are the contractual As of December 31, 2017 and 2016, financial statements included allowances for $ 260 million and $ 79 undiscounted cash flows. million, respectively. Failure to collect receivables in the future may have an adverse effect on Edenor’s financial situation and operating results which, in turn, may negatively impact its capacity to repay loans, including the cancellation of its Corporate Bonds.

266 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 267 CONSOLIDATED FINANCIAL STATEMENTS NOTE 6: (Continuation) NOTE 6: (Continuation)

Financial leverage ratios as at December 31, 2017 and 2016 were as follows: As of December 31, 2017 Trade and other Borrowings Total payables 12.31.2017 12.31.2016 Less than three months 12,041 13,936 25,977 Three months to one year 6,004 12,938 18,942 One to two years 221 4,166 4,387 Total borrowings 42,966 25,972 Two to five years 122 16,624 16,746 Less: cash and cash equivalents, and financial assets at fair (15,412) (5,609) More than five years - 30,239 30,239 value through profit and loss Without established term 6,068 6,071 12,139 Net debt 27,554 20,363 Total capital attributable to owners 44,464 31,417 Total 24,456 83,974 108,430 Leverage ratio 61.97% 64.82%

As of December 31, 2016 Trade and other Borrowings Total payables

Less than three months 8,799 1,088 9,887 6.3 Three months to one year 4,068 10,995 15,063 One to two years 311 2,548 2,859 Regulatory risk factors Two to five years 118 6,312 6,430 More than five years - 12,080 12,080 Pursuant to caption C of Section 37 of the Edenor’s Concession Agreement, the Grantor of the Concession Without established term 4,907 - 4,907 may, without prejudice to other rights to which he is entitled thereunder, foreclose on the collateral granted by Edenor when the cumulative value of the penalties imposed to Edenor in the previous one-year period exceeds Total 18,203 33,023 51,226 20% of its annual billing, net of taxes and rates.

Edenor’s Management evaluates the development of this indicator on an annual basis.

6.2 6.4 Capital risk management Fair value of financial Instruments On managing capital, the Company aims to safeguard its capacity to continue operating as an on-going The Company classifies the fair value measurements of financial instruments using a fair value hierarchy, business with the purpose of generating return for its shareholders and benefits to other stakeholders, and which reflects the relevance of the variables used to perform those measurements. The fair value hierarchy has keeping an optimal capital structure to reduce the cost of capital. the following levels:

To keep or adjust its capital structure, the Company may adjust the amount of the dividends paid to its - Level 1: quoted prices (not adjusted) for identical assets or liabilities in active markets. shareholders, reimburse capital to its shareholders, issue new shares, conduct stock repurchase programs or - Level 2: data different from the quoted prices included in Level 1 observable for the asset or liability, sell assets to reduce its debt. either directly (i.e. prices) or indirectly (i.e. derived from prices).

In line with industry practices, the Company monitors its capital based on the leverage ratio. This ratio is - Level 3: Asset or liability data based on information that cannot be observed in the market (i.e., calculated by dividing the net debt by the total capital. The net debt equals the total indebtedness (including unobservable data). current and non-current indebtedness) minus cash and cash equivalents and current financial assets at fair value through profit and loss. The total capital corresponds to the shareholders’ equity as shown in the statement of financial position, plus the net debt.

268 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 269 CONSOLIDATED FINANCIAL STATEMENTS NOTE 6: (Continuation) NOTE 6: (Continuation) The following table shows the Company’s financial assets and liabilities measured at fair value as of December The fair value of financial instruments that are not negotiated in active markets is determined using valuation 31, 2017 and 2016: techniques. These valuation techniques maximize the use of market observable information, when available, and rely as little as possible on specific estimates of the Company. If all significant variables to establish the fair value of a financial instrument can be observed, the instrument is included in level 2. As of December 31, 2017 Level 1 Level 2 Level 3 Total If one or more variables used to determine the fair value cannot be observed in the market, the financial instrument is included in level 3. Assets Financial assets at fair value through The techniques used for the measurement of assets at fair value with changes in income, classified as Level 2 profit and losss and 3, are detailed below: Government securities 5,024 - - 5,024 Shares - - 150 150 - Derivative Financial Instruments: calculated from variations between market prices at the closing Investment funds 9,589 - - 9,589 date of the year, and the amount at the time of the contract. Derivative financial instruments - 4 - 4 - Shares: they were determined based on Income approach through the Indirect Cash Flow method Other receivables 590 - - 590 (net present value of expected future cash flows) and the discount rates used were estimated taking Total assets 15,203 4 150 15,357 the Weighted Average Cost of Capital (“WAAC”) rate as a parameter.

Liabilities Derivative financial instruments - 82 - 82 Total liabilities - 82 - 82 NOTE 7: INVESTMENTS IN SUBSIDIARIES As of December 31, 2016 Level 1 Level 2 Level 3 Total

Assets Financial assets at fair value through 7.1 profit and losss Corporate securities 12 - - 12 Subsidiaries information Government securities 1,576 - - 1,576 Unless otherwise indicated, the capital stock of the subsidiaries consists of common shares, each granting Trust - - 150 150 the right to one vote. The country of the registered office is also the principal place where the subsidiary Investment funds 3,189 - - 3,189 develops its activities. Other 3 - - 3 Cash and cash equivalents Investment funds 61 - - 61 Derivative financial instruments - 13 - 13 Other receivables 29 - - 29 Total assets 4,870 13 150 5,033

The value of the financial instruments negotiated in active markets is based on the market quoted prices as of the date of these consolidated financial statements. A market is considered active when the quoted prices are regularly available through a stock exchange, broker, sector-specific institution or regulatory body, and those prices reflect regular and current market transactions between parties that act in conditions of mutual independence. The market quotation price used for the financial assets held by the Company is the current offer price. These instruments are included in level 1.

270 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 271 CONSOLIDATED FINANCIAL STATEMENTS NOTE 7: (Continuation) NOTE 7: (Continuation)

7.2 Company Country Main Direct and indirect activity participation % Summarised financial information for each subsidiary that has significant non-controlling interest 12.31.2017 12.31.2016 Non-controlling interests in subsidiaries are not significant for the Company, except for Edenor with 51.54% equity interest and PELSA with 58.88% equity interest, consolidated as from July 27, 2016. BLL(1) Argentina Winemaking - 100.00% Corod Venezuela Oil 100.00% 100.00% Edenor CPB Energía S.A. Argentina Oil 100.00% - The subsidiary is registered in Argentina, which is also the place where it develops its activities. CTG(1) Argentina Generation - 90.42% CTLL(1) Argentina Generation - 100.00% i. Summary statement of financial position Ecuador TLC S.A. Ecuador Oil 100.00% 100.00% Edenor Argentina Distribution of energy 51.54% 51.54% 12.31.2017 12.31.2016 Eg3 Red(1) Argentina Distribution - 100.00% Enecor S.A. Argentina Transportation of electricity 69.99% 69.99% Non Current IEASA(2) Argentina Investment - 100.00% Total non current assets 16,042 12,311 INDISA(1) Argentina Investment - 91.60% Borrowings 4,192 2,770 INNISA(1) Argentina Investment - 90.27% Other non current liabilities 7,511 6,238 HIDISA Argentina Generation 61.00% 61.00% Total non current liabities 11,703 9,008 HINISA Argentina Generation 52.04% 52.04% Current IPB(1) Argentina Investment - 100.00% Cash and cash equivalents 83 259 PACOSA(3) Argentina Distributor 100.00% 100.00% Other current assets 9,180 6,363 PBI Bolivia Investment 100.00% 100.00% Total current assets 9,263 6,622 PELSA(4) Oil 58.88% 58.88% Argentina Borrowings 71 54 Petrobras Energía Colombia Gran Cayman Colombia Oil 100.00% 100.00% Other current liabilities 12,470 9,509 Petrobras Energía México Mexico Oil - 100.00% Total current liabilities 12,541 9,563 Petrobras Energía Ecuador Gran Cayman Investment 100.00% 100.00% Total equity 1,061 362 Petrobras Energía Operaciones Ecuador Ecuador Oil 100.00% 100.00% Non-controlling interest 514 175 PEPASA(1) Argentina Oil - 49.54% Petrolera San Carlos S.A. Venezuela Oil 100.00% 100.00% PHA Spain Investment 100.00% 100.00% PISA Uruguay Investment 100.00% 100.00% PP Argentina Investment 100.00% 100.00% PP II(1) Argentina Investment - 100.00% PPSL Spain Investment 100.00% 100.00% TGU Uruguay Gas transportation 100.00% 100.00% Transelec Argentina Investment 100.00% 100.00% WEBSA(3) Argentina Distributor - 100.00%

Notes: (1) See Note 1.4.1. (2) See Note 1.4.3.1. (3) See Note 1.4.3.2. (4) See Note 1.5.2.

272 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 273 CONSOLIDATED FINANCIAL STATEMENTS NOTE 7: (Continuation) NOTE 7: (Continuation)

ii. Summary statement of comprehensive income (loss) PELSA i. Summary statement of financial position 12.31.2017 12.31.2016 12.31.2017 12.31.2016 Revenue 24,340 13,080 Depreciation (430) (352) Non Current Interest income 273 197 Total non current assets 5,081 4,896 Interest expense (1,541) (1,442) Other non current liabilities 954 1,012 (Loss) Profit for the year before tax 1,123 (1,932) Total non current liabities 954 1,012 Income tax (441) 743 Current (Loss) Profit for the year 682 (1,189) Cash and cash equivalents 162 77 Other comprehensive loss 9 5 Other current assets 1,727 1,154 Total comprehensive (loss) profit of the year 691 (1,184) Total current assets 1,889 1,231 Income (loss) of the year attributable to non-controlling interest 331 (576) Other current liabilities 599 630 Other comprehensive income of the year attributable to non- 4 2 Total current liabilities 599 630 controlling interest Total equity 5,417 4,485 Comprehensive income (loss) of the year attributable to non- 335 (574) controlling interest Non-controlling interest 2,227 1,844

iii. Summary statement of cash flow ii. Summary statement of comprehensive income (loss)

12.31.2017 12.31.2016 12.31.2017 12.31.2016(1)

Net cash generated by operating activities 3,283 2,931 Revenue 3,321 1,155 Net cash used in investing activities (4,046) (2,373) Depreciation (1,017) (413) Net cash generated by (used in) financing activities 587 (493) Interest income 22 13 (Decrease) Increase in cash and cash equivalents (176) 65 Income (loss) for the year / period before tax 278 (3) 129 Cash and cash equivalents at the begining of the year 259 Income tax (8) (41) Exchange difference generated by cash - 65 and cash equivalents Income (loss) for the year / period 270 (44) Cash and cash equivalents at the end of the year 83 259 Other comprehensive income 769 228 Total comprehensive profit of the year / period 1,039 184 Income (loss) of the year attributable to non-controlling interest 111 (18) Other comprehensive income of the year attributable to non- 316 94 controlling interest Comprehensive income (loss) of the year attributable to non- 427 76 controlling interest

Note: (1) For the five-months period.

274 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 275 CONSOLIDATED FINANCIAL STATEMENTS NOTE 7: (Continuation) iii. Summary statement of cash flow NOTE 8:

12.31.2017 12.31.2016(1) INVESTMENTS IN JOINT VENTURES

Net cash generated by operating activities 543 332 The following table presents the main activity and information from the financial statements used for the Net cash used in investing activities (362) (234) valuation, and percentages of participation in joint ventures: Net cash generated by financing activities (108) (108) Increase (Decrease) in cash and cash equivalents 73 (10) Information about the issuer Cash and cash equivalents at the begining 77 121 of the year / period Main Date Share Profit (loss) Equity Direct and indirect Exchange difference generated by cash and cash equivalents 12 (34) activity capital of the year participation % Cash and cash equivalents at the end of the year 162 77

CIESA(1) Investment 12.31.2017 639 1,356 2,900 50% Note: (1) For the five-months period. Citelec(2) Investment 12.31.2017 555 1,201 1,505 50% Greenwind(3) Generation 12.31.2017 5 (104) 222 50% PEPASA Notes: (1) The Company holds a direct and indirect interest of 50% in CIESA, a company that holds a 51% interest in the share capital of TGS. i. Summary statement of comprehensive income (loss) therefore, the Company has an indirect participation of 25.50% in TGS. (2) Through a 50% interest, the company joint controls Citelec, company that controlled Transener with 52.65% of the shares and votes. As a result, the Company has an indirect participation of 26.33% in Transener. 09.30.2017 12.31.2016 (3) See Note 1.3.2.

Revenue 2,894 2,839 The details of the balances of investments in joint ventures is as follows: Depreciation (661) (867) Interest income 22 1 Interest expense (188) (712) 12.31.2017 12.31.2016 Profit for the year before tax 1,277 816 Income tax (411) (288) CIESA 4,048 3,532 Citelec 757 167 (Loss) Profit for the period / year 866 528 Greenwind 125 - Comprehensive income (loss) of the period/year attributable 437 266 4,930 3,699 to non-controlling interest

The following tables show the breakdown of the result from investments in joint ventures: ii. Summary statement of cash flow

12.31.2017 12.31.2016 09.30.2017 12.31.2016

CIESA 518 125 Net cash generated by operating activities 565 1,659 Citelec 596 (20) Net cash generated by (used in) investing activities 1,209 (2,476) Greenwind (50) - Net cash (used in) generated by financing activities (1,961) 994 1,064 105 (Decrease) Increase in cash and cash equivalents (187) 177

Cash and cash equivalents at the begining of the year 226 40 Exchange difference generated by cash 4 9 and cash equivalents Cash and cash equivalents at the end of the period/year 43 226

276 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 277 CONSOLIDATED FINANCIAL STATEMENTS NOTE 8: (Continuation) NOTE 9: (Continuation) The evolution of investments in joint ventures is as follows: The following tables show the breakdown of the result from investments in associates: 12.31.2017 12.31.2016 12.31.2017 12.31.2016

Oldelval 44 11 At the beginning of the year 3,699 224 Refinor - (1) Reclassifications(1) 175 - CIESA - (3) Increase for subsidiaries acquisition(2) - 3,407 44 7 Other decreases (2) (32) Share of profit 1,064 105 Other comprehensive loss (6) (5) The evolution of investments in associates is as follows: At the end of the year 4,930 3,699 Note 12.31.2017 12.31.2016

Notes: (1) Corresponds to the deconsolidation for sale of the interest in Greenwind (Note 1.3.2). (2) Corresponds to the incorporation of the interest in CIESA (Note 1.3.1). At the beginning of the year 787 123 Dividends 30 (7) (4) Increase for subsidiries acquisition - 777 Decreases on disposal of investment in subsidiary - (116) Share of profit 44 7 NOTE 9: At the end of the year 824 787 INVESTMENTS IN ASSOCIATES Other interest in Associates: Interests in mixed companies in Venezuela The following table presents the main activity and information from the financial statements used for valuation and percentages of participation in associates: Interests in Petroritupano S.A. (22%), Petrowayú S.A. (36%), Petroven-Bras S.A. (34.49%) and Petrokariña S.A. (34.49%), companies organized as a result of the migration of operating agreements regulating the exploitation in Venezuela of the Oritupano Leona, La Concepción, Acema and Mata areas, respectively, were incorporated with Information about the issuer the purchase of PPSL’s capital stock for a zero market value as of the acquisition date (see detail in Note 1.2.1).

Pampa has not recognized any share in the additional losses from these investments as it has not incurred Main Date Share Profit (loss) of Equity Direct any legal or implicit obligations or made any payments in the name of these mixed companies as from the activity capital the period / year participation % acquisition date.

Refinor Refinery 09.30.2017 92 (10) 980 28.50% Additionally, under the agreements migration process, in 2006 the Venezuelan Government recognized in Oldelval Transport of 12.31.2017 110 216 657 23.10% favor of the participating Company an interest-free severable and transferable credit in the amount of US$ hydrocarbons 88.5 million which may be used to pay acquisition bonds under any new mixed company projects for the development of oil exploration and production activities, or licenses for the development of gas exploration and production operations in Venezuela. Since no projects have been undertaken for its use, negotiations for its The detail of the balances of the investments in associates is as follows: transfer to third parties have been unsuccessful, and there are no other foreseen application alternatives, the Company keeps this credit valued at zero.

12.31.2017 12.31.2016 Mixed companies should sell to PDVSA all liquid hydrocarbons produced in the delimited area and the associated natural gas (if stipulated in the agreement), pursuant to a price formula based on international benchmarks such as BRENT. Refinor 602 602 Oldelval 221 184 Investment in Oleoductos de Crudos Pesados (OCP) Other 1 1 824 787 The Company has an 11.42% equity interest in OCP, an oil pipeline in Ecuador that has a transportation capacity of 450,000 barrels/day.

OCP has negative equity as a result of certain tax assessments in favor of the Government of Ecuador in issues where OCP and the Ecuadorian Treasury have differences in interpretation. However, and since the Company has not made any capital contributions or financial assistance commitments to OCP, this shareholding has been valued at zero.

278 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 279 CONSOLIDATED FINANCIAL STATEMENTS NOTE 10: (Continuation) NOTE 10: PROPERTY, PLANT AND EQUIPMENT

Original values

Type of good At the Translation Increase for Reversal of Increases Decreases Transfers(1) Reclasification At the end beginning effect subsidiries impairment to assets acquisition classified as held

Land 1,193 - - - 54 (582) 12 (323) 354 Buildings 2,090 1 - - - (18) 239 (238) 2,074 Equipment and machinery 9,000 17 - - 41 (27) 4,046 (913) 12,164 High, medium and low voltage lines 4,586 - - 304 - (20) 1,076 - 5,946 Substations 1,729 - - 85 - - 464 - 2,278 Transforming chamber and platforms 1,040 - - 64 - (2) 281 - 1,383 Meters 943 - - 170 - - 64 - 1,177 Wells 10,522 872 - - 295 (425) 3,017 (7,718) 6,563 Mining property 5,033 81 - - 220 - - (1,566) 3,768 Vehicles 296 2 - - 74 (6) 2 (21) 347 Furniture and fixtures and software equipment 287 7 - - 229 (4) 65 (67) 517 Communication equipments 93 - - - - - 1 (1) 93 Materials and spare parts 628 3 - - 298 (83) (330) (60) 456 Refining and distribution industrial complex 873 - - - - (12) 77 (790) 148 Petrochemical industrial complex 756 - - - - - 169 - 925 Work in progress 6,560 23 - - 12,647 10 (8,355) (320) 10,565 Advances to suppliers 786 - - - 1,131 (274) (911) - 732 Other goods 12 ------12

Total at 12.31.2017 46,427 1,006 - 623 14,989 (1,443) (83) (12,017) 49,502 Total at 12.31.2016 17,334 286 21,801 - 8,440 (1,273) 1 - 46,589

Note: (1) Includes the transfer of materials and spare parts to the item “Inventories” of the current asset.

280 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 281 CONSOLIDATED FINANCIAL STATEMENTS NOTE 10: (Continuation) NOTE 10: (Continuation)

Depreciation Net book values

Type of good At the Decreases Translation For Reversal of Reclasification At the end At the end At 12.31.2016 beginning effect the year(1) impairment to assets classified as held

Land ------354 1,193 Buildings (177) 15 - (109) - 22 (249) 1,825 1,913 Equipment and machinery (1,090) 16 (2) (1,238) - 211 (2,103) 10,061 7,910 High, medium and low voltage lines (778) 13 - (163) (91) - (1,019) 4,927 3,808 Substations (318) - - (58) (27) - (403) 1,875 1,411 Transforming chamber and platforms (191) - - (39) (18) - (248) 1,135 849 Meters (306) - - (47) (26) - (379) 798 637 Wells (1,665) - (180) (2,374) - 2,006 (2,213) 4,350 8,857 Mining property (630) - (18) (898) - 362 (1,184) 2,584 4,403 Vehicles (122) 5 (1) (65) - 8 (175) 172 174 Furniture and fixtures and software equipment (23) 1 (3) (137) - 32 (130) 387 264 Communication equipments (39) - - (4) - - (43) 50 54 Materials and spare parts (18) 47 - (8) - - 21 477 610 Refining and distribution industrial complex (36) 11 - (74) - 83 (16) 132 837 Petrochemical industrial complex (27) - - (113) - - (140) 785 729 Work in progress ------10,565 6,560 Advances to suppliers ------732 786 Other goods (6) - - (1) - - (7) 5 6

Total at 12.31.2017 (5,426) 108 (204) (5,328) (162) 2,724 (8,288) 41,214 Total at 12.31.2016 (2,825) 302 - (2,976) - - (5,499) 41,001

Note: (1) Includes $ 1,940 million and $ 803 million corresponding to discontinued operations, for 2017 and 2016, respectively. Borrowing costs capitalized in the book value of property, plant and equipment during the year ended December 31, 2017 and 2016 amounted to $ 589 million and $ 303 million respectively.

Labor costs capitalized in the book value of property, plant and equipment during the year ended December 31, 2017 and 2016 amounted to $ 369 and $ 419 million respectively.

282 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 283 CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11: NOTE 12: FINANCIAL ASSETS AT FAIR VALUE INTANGIBLE ASSETS THROUGH PROFIT AND LOSS

Original values 12.31.2017 12.31.2016 Non current Type of good At the Increase for Reversal Increase Decrease Reclasifi- At Shares 150 150 beginning subsidiries of impair- cation to the end Government bonds - 592 acquisition ment assets held Total non current 150 742 (1) for sale Current Government bonds 5,024 984 Concession agreements 951 - 96 - - - 1,047 Corporate bonds - 12 Goodwill 999 - - - - (311) 688 Investment funds 9,589 3,189 Intangibles identified in 416 - - - (54) (206) 156 Other - 3 acquisitions of companies Total current 14,613 4,188 Others 14 - - - - (14) - Total at 12.31.2017 2,380 - 96 - (54) (531) 1,891 Total at 12.31.2016 965 1,297 - 118 - - 2,380 Note: (1) Includes the increase of intangible assets related to the purchase of PPSL in the amount of $ 1,218 million. NOTE 13: FINANCIAL ASSETS

Amortization AT AMORTIZED COST

Type of good At the For Reversal of Decrease Reclasification At beginning the year(1) impairment to assets held the end 12.31.2017 12.31.2016 for sale Non current Government securities - 44 Concession agreements (249) (27) (14) - - (290) Corporate securities - 1 Goodwill ------Financial Trustee - Gasoducto Sur Work - 17 Intangibles identified in (28) (44) - - 57 (15) acquisitions of companies Total non current - 62 Others - (1) - - 1 - Current Total at 12.31.2017 (277) (72) (14) - 58 (305) Government securities 11 2 Total at 12.31.2016 (231) (46) - - - (277) Financial Trustee - Gasoducto Sur Work 14 21 Total current 25 23 Note: (1) Includes $ 39 million and $ 18 million corresponding to discontinued operations, for 2017 and 2016, respectively.

Net book values

Type of good At the end At 12.31.2016

Concession agreements 757 702 Goodwill 688 999 Intangibles identified in acquisitions of companies 141 388 Others - 14 Total at 12.31.2017 1,586 Total at 12.31.2016 2,103

284 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 285 CONSOLIDATED FINANCIAL STATEMENTS NOTE 14: (Continuation) NOTE 14: DEFERRED TAX ASSETS AND

LIABILITIES, INCOME TAX AND MINIMUM 12.31.2015 Increase for Profit Other 12.31.2016 subsidiries (loss)(1) comprehen- NOTIONAL INCOME TAX acquisition sive income (loss)(2)

The composition of the deferred tax assets and liabilities is as follows: Tax los-carryforwards 32 - 910 - 942 Trade and other receivables 53 89 52 - 194 Financial assets at fair value through 8 - (8) - - profit and loss 12.31.2016 Reclasification Profit Other 12.31.2017 Trade and other payables 333 - 791 - 1,124 (1) to held for sale (loss) comprehen- Defined benefit plans 109 170 55 27 361 sive income Provisions 134 1,372 216 - 1,722 (loss)(2) Taxes payable 49 379 (192) (12) 224 Other 23 112 (9) - 126 Tax los-carryforwards 942 - 694 - 1,636 Deferred tax asset 741 2,122 1,815 15 4,693 Trade and other receivables 194 (5) (70) - 119 Financial assets at fair value through - - 12 - 12 Property, plant and equipment (710) (4,477) 563 - (4,624) profit and loss Share of profit from joint ventures and - (1,281) (48) - (1,329) associates Trade and other payables 1,124 - 58 - 1,182 Intangible assets (229) (74) 9 - (294) Defined benefit plans 361 (56) (41) (4) 260 Trade and other receivables (266) (269) (316) - (851) Provisions 1,722 (306) (674) - 742 Financial assets at fair value through (49) (53) 7 - (95) Taxes payable 224 - (55) - 169 profit and loss Liabilities associated to assets classified - 367 - - 367 Borrowings (25) (43) 7 - (61) as held for sale Other (2) (21) 20 - (3) Other 126 - (81) - 45 Deferred tax liabilities (1,281) (6,218) 242 - (7,257) Deferred tax asset 4,693 - (157) (4) 4,532 Property, plant and equipment (4,624) 841 2,083 - (1,700) Investments in companies (1,329) - 222 (176) (1,283) Notes: (1) Includes a loss of $ 103 million corresponding to discontinued operations. (2) Includes a gain of $ 17 million corresponding to discontinued operations. Intangible assets (294) - 221 - (73) Trade and other receivables (851) - 176 - (675) Financial assets at fair value through (95) - 46 - (49) profit and loss Borrowings (61) - (75) - (136) Deferred tax assets and liabilities are offset in the following cases: a) when there is a legally enforceable right Assets classified as held for sale - (841) - - (841) to offset tax assets and liabilities; and b) when deferred income tax charges are associated with the same fiscal Other (3) - 8 - 5 authority. The following amounts, determined after their adequate offset, are disclosed in the statement of Deferred tax liabilities (7,257) - 2,681 (176) (4,752) financial position:

Notes: (1) Includes a loss of $ 618 million corresponding to discontinued operations. 12.31.2017 12.31.2016 (2) Includes a loss of $ 180 million corresponding to discontinued operations.

Deferred tax asset 1,306 1,232 Deferred tax liabilities (1,526) (3,796) Deferred tax liabilities, net (220) (2,564)

286 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 287 CONSOLIDATED FINANCIAL STATEMENTS NOTE 14: (Continuation) NOTE 14: (Continuation) The breakdown of income tax charge is: As of December 31, 2017 and 2016 consolidated accumulated tax losses amount to $ 5,548 million and $ 4,283 million, respectively, which may be offset, pursuant to the applicable tax laws, with tax profits corresponding to future fiscal years, at the tax rate that is estimated to apply, based on the following breakdown: 12.31.2017 12.31.2016

Fiscal year generation Fiscal year prescription 12.31.2017 12.31.2016 Current tax 1,385 1,021 Deferred tax (2,524) (2,057) Direct charges for income tax 79 - 2012 2017 - 167 Difference in the estimate of previous fiscal year income (307) (5) 2013 2018 1 115 tax and the income return 2014 2019 1 153 Other comprehensive (loss) income - (15) 2015 2020 10 252 Minimum notional tax - (145) 2016 2021 684 942 Total income tax expense (gain) (1,367) (1,201) 2017 2022 940 - 1,636 1,629 Unrecognized deferred assets - (687) Recognized Tax loss-carryforwards 1,636 942 Below is a reconciliation between income tax expense and the amount resulting from application of the tax rate on the income before taxes: Due to the uncertainty on whether future tax income may or may not absorb all deferred tax assets, as of December 31, 2016 the Company and some subsidiaries had not recorded deferred assets resulting from tax-loss Note 12.31.2017 12.31.2016 carry-forwards accrued for a total amount of $ 687 million.

Profit (loss) before tax 4,209 (1,525) Current tax rate 35% 35% Result at the tax rate 1,473 (534) NOTE 15: Share of profit of joint ventures and associates (208) (39) Non-taxable results (1,347) (731) TRADE AND OTHER RECEIVABLES Non-deductible cost 194 - Non-deductible provisions 121 123 Other 9 131 Note 12.31.2017 12.31.2016 Effect of tax rate change in deferred tax 48 (449) - Minimum notional income tax credit - (145) Non Current Difference in the estimate of previous fiscal year income tax (447) 13 CAMMESA Receivable(1) 2,868 2,286 and the income tax statement Other 6 6 Deferred tax not previously recognized (714) 17 Trade receivables, net 2,874 2,292 Deferred tax assets not recognized 1 (36) Total income tax expense (gain) (1,367) (1,201) Tax credits 163 533 Allowance for tax credits (14) (105) Related parties 36 794 740 Prepaid expenses 20 26 Financial credit 37 44 Guarantee deposits 92 80 Contractual receivables in Ecuador 42 998 850 Receivable for sale of property, plant and equipment 67 - Other 11 9 Other receivables, net 2,168 2,177

Total non current 5,042 4,469

288 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 289 CONSOLIDATED FINANCIAL STATEMENTS NOTE 15: (Continuation) NOTE 15: (Continuation) Note 12.31.2017 12.31.2016 Due to the short-term nature of the current trade and other receivables, their carrying amount is considered to be the same as their fair value. For the non-current trade and other receivables, the fair values are also not Current significantly different to their carrying amounts. Receivables from energy distribution sales 6,115 4,138 Receivables from MAT 436 311 At December 31, 2017 and 2016, trade receivables that were past due amounted to $ 1,606 million and $ 2,766 CAMMESA 2,887 1,501 million, respectively, which were due and net for an allowance for doubtful accounts of $ 605 million, and $ 429 CAMMESA Receivable(1) 421 519 million respectively. The ageing analysis of these trade receivables is as follows: Receivables from oil and gas sales 769 1,038 Receivables from refinery and distribution sales 958 949 Receivables from petrochemistry sales 924 744 12.31.2017 12.31.2016 Related parties 36 170 108 Other 136 25 Less than three months 878 2,432 Allowance for doubtful accounts (557) (429) Three to sixmonths 450 135 Trade receivables, net 12,259 8,904 Six to nine months 22 37 From nine to twelve months 301 161 Up to twelve months 2 1 Note 12.31.2017 12.31.2016 Total expired trade receivables 1,653 2,766

Tax credits 1,290 415 The movements in the allowance for the impairment of trade receivables are as follows: Advances to suppliers 11 24 Advances to employees 25 17 12.31.2017 12.31.2016 Related parties 36 215 98 Prepaid expenses 69 121 Receivables for non-electrical activities 218 143 At the beginning 429 88 Financial credit 83 126 Allowance for impairment 289 252 Receivable for the sale of interests in subsidiaries and - 1,263 Decreases (45) (30) financial instruments Reversal of unused amounts (1) (23) Guarantee deposits 1,053 941 Reclasification to assets held for sale (115) - Natural Gas Surplus Injection Promotion Program(2) 2,592 1,582 Increases for purchases of subsidiaries - 142 Insurance to recover 202 - At the end of the year 557 429 Expenses to be recovered 371 314 Receivables from arbitral proceedings 388 - Other 528 343 Allowance for other receivables (159) (147) As of the date of these financial statements, the maximum exposure to credit risk corresponds to the carrying Other receivables, net 6,886 5,240 amount of each class of receivables. Total current 19,145 14,144 On the basis of the change in an assumption, while holding all other assumptions constant, a 5% increase / decrease in the estimated trade receivables’ uncollectibility rate would result in $ 21 million decrease / increase in

Notes: (1) As of December 31, 2017 and 2016, the Company and its generation subsidiaries hold receivables from CAMMESA which, at nominal fiscal year’s results. value and together with accrued interest, amount to a total $ 4,508 million and $ 3,798 million, with an estimated recoverable value of $ 3,289 million and $ 2,805 million, respectively. These receivables are made up as follows:

a. LVFVDs pursuant to SE Resolution No. 406/2003 for the 2004-2006 period. They have been assigned to FONINVEMEM in the amount of $ 68 million and $ 74 million including interest, and their estimated recoverable value amounts to $ 66 million and $ 71 million, respectively.

b. LVFVDs pursuant to SE Resolution No. 406/2003 for the 2008-2013 period and the Trust under SE Resolution No. 95/2013 for the 2013- 2016 period in the amount of $ 4,028 million and $ 3,232 million including interest, which estimated recoverable value amounts to $ 2,827 million and $ 2,242 million, respectively. As of December 31, 2017 and 2016, $ 1,445 and $ 1,159 million, including interest, have been allocated to the “2014 Agreement for the Increase of Thermal Generation Availability”, which estimated recoverable value amounts to $ 1,445 million and $ 1,050 million, respectively.

c. LVFVDs for Maintenance Remuneration in the amount of $ 396 million and $ 492 million, respectively, to finance the overhauls previously authorized by the SE. They are valued at their nominal value plus accrued interest and, if applicable, they are netted from partial advances received under CAMMESA financing.

(2) As of December 31, corresponds to balances pending collection for compensations under the IR and IE Programs for the April 2016-December 2017 period.

290 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 291 CONSOLIDATED FINANCIAL STATEMENTS NOTE 15: (Continuation) The movements in the allowance for the impairment of other receivables are as follows: NOTE 18:

12.31.2017 12.31.2016 SHARE CAPITAL

At the beginning 252 314 As of December 31, 2017, the Company´s share capital consisted of 2,080,190,514 common shares with a face Allowance for impairment 33 49 value of $ 1 each and each granting the right to one vote, of which 1,836,494.69 shares are issued and 101,873,741 Decreases (15) (9) and 144,322,083 of shares to be issued once perfected the 2016 and 2017 Reorganizations, respectively. Decreases for deconsolidation - (3) Reversal of unused amounts (97) (180) As of December 31, 2017, the Company holds 2,500,000 treasury shares (Note 45). Increase for subsidiaries acquisition - 81 At the end of the year 173 252 Publicly traded shares The Company’s shares are listed for trading on Buenos Aires Stock Exchange, forming part of the Merval Index.

Also, on August 5, 2009, the SEC authorized the Company for the registration of ADSs representing 25 common shares each. On October 9, 2009, the Company started to market its ADSs on the NYSE.

NOTE 16: The listing of the ADSs with the NYSE is part of the Company’s strategic plan to increase its liquidity and the INVENTORIES volume of its shares.

12.31.2017 12.31.2016 NOTE 19: Materials and spare parts 1,514 1,336 Advances to suppliers 143 103 TRADE AND OTHER PAYABLES In process and finished products 640 1,496 Stock crude oil 29 425 Total 2,326 3,360 12.31.2017 12.31.2016

Non Current Customer contributions 80 98 Funding contributions for substations 60 52 Customer guarantees 101 83 NOTE 17: Trade payables 241 233 ENRE Penalties and discounts 3,886 3,477 CASH AND CASH EQUIVALENTS Loans (mutuums) with CAMMESA 1,885 1,347 Compensation agreements 124 - Liability with FOTAE 190 173 12.31.2017 12.31.2016 Payment agreement with ENRE 73 106 Other 5 - Other payables 6,163 5,103 Cash 30 16 Total non current 6,404 5,336 Banks 327 1,308 Investment funds - 61 Time deposits 442 36 Total 799 1,421

292 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 293 CONSOLIDATED FINANCIAL STATEMENTS NOTE 19: (Continuation) Note 12.31.2017 12.31.2016 NOTE 20: Current BORROWINGS Suppliers 8,687 5,705 CAMMESA 7,595 5,470 Customer contributions 19 46 Discounts to customers 37 37 Note 12.31.2017 12.31.2016 Funding contributions substations 8 22 Customer advances 205 384 Non Current Customer guarantees 1 15 Financial borrowings 5,950 691 Related parties 36 80 181 Corporate bonds 27,764 12,158 Other 12 6 CAMMESA financing 3,398 2,421 Trade payables 16,644 11,866 Related parties 36 14 16 37,126 15,286 ENRE Penalties and discounts 288 56 Current Related parties 36 12 14 Bank overdrafts - 846 Advances for works to be executed 14 14 Financial borrowings 5,097 7,539 Compensation agreements 562 708 Corporate bonds 739 2,246 Payment agreements with ENRE 63 60 CAMMESA financing - 34 Other creditors 205 55 Related parties 36 4 21 Other 264 94 5,840 10,686 Other payables 1,408 1,001 Total current 18,052 12,867 The maturities of the Company’s borrowings (excluding finance lease liabilities) and its exposure to interest rates are as follow:

12.31.2017 12.31.2016

Due to the short-term nature of the current payables and other payables, their carrying amount is considered Fixed rate to be the same as their fair value. For the majority of the non-current payables and other payables, the fair Less than one year 4,667 5,335 values are also not significantly different to their carrying amounts One to two years 550 536 Two to five years 7,509 580 The fair values of non-current customer contributions as of December 31, 2017 and 2016 amount to $ 90 Up to five years 23,313 10,583 million and $ 96 million, respectively. The fair values are determined based on estimated discounted cash flows 36,039 17,034 in accordance with a market rate for this type of transactions. This fair value is classified as level 3. Floating rates Less than one year 594 4,918 The book value of the compensation agreements approximates their fair value given the valuation One to two years 610 207 characteristics (Note 4.18). Two to five years 2,561 3,162 Up to five years 1,946 - 5,711 8,287 Non interest accrues Less than one year 579 433 One to two years - (5) Two to five years 530 223 Up to five years 107 - 1,216 651

294 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 295 CONSOLIDATED FINANCIAL STATEMENTS NOTE 20: (Continuation) NOTE 20: (Continuation) The movements in the borrowings are as follows: 12.31.2017 12.31.2016 20.1 Details of borrowings: At the beginning 25,972 7,993 Proceeds from borrowings 26,892 18,367 (16,150) (6,813) Payment of borrowings Type of Company Currency Residual Interest Rate Expiration Book value as Accrued interest 3,252 2,715 instrument value of 12.31.2017 Payment of borrowings’ interests (2,469) (1,519) Net foreign currency exchange difference 5,150 1,761 Increase for subsidiries acquisition - 7,434 Corporate bonds: Costs capitalized in property, plant and equipment 329 244 2022 CB Edenor US$ 172 Fixed 10% 2022 3,321 (1) Decrease through shares of subsidiaries - (1,179) Class 4 CB PAMPA US$ 34 Fixed 6% 10/30/2020 638 (2) Decrease through offsetting with other credits - (1,951) Class E CB PAMPA ARS 575 Variable Badlar 11/13/2020 590 Decrease through offsetting with trade receivables (4) (242) Class A CB PAMPA ARS 282 Variable Badlar 10/5/2018 297 Repurchase and redemption of corporate bonds (28) (893) T Series CB PAMPA(1) US$ 500 Fixed 7% 7/21/2023 9,491 Other financial results 22 55 Class 1 CB PAMPA(2) US$ 750 Fixed 8% 1/24/2027 14,184 At the end of the year 42,966 25,972 28,521 Regulatory:

Notes: (1) Corresponding to US$ 77.4 million related to EMES financing. CAMMESA 2014 PAMPA ARS 855 Variable CAMMESA (4) 1,572 (2) Corresponding to US$ 123 million (comprised of US$ 120 million of principal plus US$ 3 million of interests) related to YPF financing. Agreement CAMMESA Mapro PAMPA ARS 140 Variable CAMMESA (3) 193 CAMMESA Mapro CPB ARS 1,088 Variable CAMMESA (3) 1,633 As of December 31, 2017 and 2016, the fair values of the Company’s non-current borrowings (Corporate 3,398 Bonds) amount approximately to $ 30,611 million and $14,108 million, respectively. Such values were calculated Financial loans: on the basis of the determined market price of the Company’s corporate notes at the end of each year (fair value level 1 and 2). PAMPA US$ 352 Fixed Between 2,9% and Feb-2018 to 6,628 7,5% May-2021 The carrying amounts of short-term borrowings approximate their fair value due to their short-term maturity. PAMPA US$ 63 Variable 6% + Libor Sep-2018 to 1,164 May-2024 PAMPA ARS 2,270 Fixed Between 22% and Aug-2018 to 2,314 Financial borrowings and CAMMESA financing approximate their fair value as they are subjected to a variable rate. 22,25% Oct-2019 Edenor US$ 50 Fixed Libor + 4,27% 10/11/2020 941 The other long-term borrowings were measured at amortized cost, which does not differ significantly from 11,047 its fair value. 42,966 During the years ended December 31, 2017 and 2016, the Company and its subsidiaries acquired and/or redeem its own corporate bonds or corporate bonds of various subsidiaries at their respective market value for a total face value of US$ 15.1 million and US$ 13.8 million, respectively. Due to these debt-repurchase and/or redemptions, the Company and its subsidiaries recorded a loss of $ 4 million in the year ended December 31, 2016, disclosed under the line “Result from repurchase of corporate bonds” within Other financial results.

As of the date of issuance of these financial statements, the Company is in compliance with the covenants established in its indebtedness.

296 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 297 CONSOLIDATED FINANCIAL STATEMENTS NOTE 20: (Continuation) NOTE 20: (Continuation)

Type of Company Currency Residual Amount Interest Rate Expiration Book Type of Company Currency Residual Amount Interest Rate Expiration Book value as instrument value repurchased value as of instrument value repurchased of 12.31.2016 12.31.2016

Corporate bonds: Regulatory: CB at Par EASA US$ 4 2 Fixed 5% 12/16/2017 27 CAMMESA 2014 CTLL ARS 736 - Variable CAMMESA (4) 1,154 Discount CB EASA US$ 130 130 Fixed 9% 12/16/2021 - Agreement 2022 CB Edenor US$ 172 - Fixed 10% 10/25/2022 2,823 CAMMESA CTLL ARS 337 - Variable CAMMESA (3) 102 2017 CB Edenor US$ 15 15 Fixed 11% 10/09/2017 - Mapro (3) Class 7 CB CTG ARS 173 - Variable Badlar + 3,5% 02/12/2018 179 CAMMESA CPB ARS 1,211 - Variable CAMMESA 1,199 Mapro Class 8 CB CTG US$ 1 - Fixed 7% 08/12/2020 22 Class 3 CB CTLL ARS 51 - Variable Badlar + 5% 10/30/2017 53 2,455 Syndicated Lons: Class 4 CB CTLL US$ 30 - Fixed 6% 10/30/2020 543 Class C CB CTLL ARS 258 - Fixed/Vble. Badlar + 4,5% 05/06/2017 267 PAMPA ARS 993 - Fixed 28% 07/26/2017 999 and 27,75% PAMPA ARS 963 - Variable Badcor + 3% 07/26/2017 970 Class E CB CTLL ARS 575 - Variable Badlar 11/13/2020 589 PAMPA US$ 141 - Variable Libor + 7% 07/26/2017 2,236 Class A CB CTLL ARS 282 - Variable Badlar 10/05/2018 297 PAMPA ARS 142 - Fixed 30% 02/26/2019 142 Class II CB PEPASA ARS 525 - Variable Badlar 06/06/2017 532 4,347 Class VII CB PEPASA ARS 310 - Variable Badlar + 5% 08/03/2017 322 Financial loans: Class VIII CB PEPASA ARS 403 - Variable Badlar + 4% 06/22/2017 402 STV 14 PEPASA ARS 296 - Variable Badlar + 5,9% 04/14/2017 311 PEPASA US$ 153 - Fixed Between 5% Aug-2017 to 2,436 T Series CB PAMPA(1) US$ 500 - Fixed 7% 07/21/2023 8,074 and 8% Feb-2018 PAMPA US$ 25 - Fixed Between 2,9% Apr-2017 to 398 14,441 and 7,5% Dec-2017 CTLL US$ 15 - Variable Libor + 4,5% 09/26/2018 239 CTLL US$ 19 - Fixed 8% 06/30/2018 305 CTLL ARS 500 - Fixed 20% 11/11/2017 505 3,883 Bank overdrafts:

PAMPA ARS - - 846

25,972

Notes: (1) On July 14, 2016, Petrobras issued the Series T Notes, for a total amount of US $ 500 million, part of which was used to cancel the Series S in its entirety, thus fulfilling the previous condition for the closing of the acquisition of PPSL. (2) On January 24, 2017, the Company issued Class 1 Corporate Bonds for a face value of US$ 750 million with an issuance price of 99.136%. Funds derived from the issuance of these CBs will be destined to investing in physical assets located in Argentina; financing working capital in Argentina; refinancing liabilities and/or making capital contributions in controlled companies or affiliates to use funds for the above-mentioned purposes. (3) Corresponds to the mutual contracts entered into with CAMMESA to finance major maintenance works related to the different generation units approved by the SE. The financing will be amortized in 36 monthly and consecutive installments as from the completion of the works, this term could be extended by 12 months. Maintenance Remuneration will be used to cancel the financing granted. As a result of the entry into force of the new remuneration scheme (Resolution SE No. 19-E /17), the Maintenance Remuneration was discontinued and it was defined that the balance of the financing will be repayable through the discount of US $ 1 / MWh for the energy generated until its total cancellation. (4) On December 1, 2014, CTLL and CAMMESA signed a Financing and Assignment of Loan Agreement in order to finance the works of the 2014 Agreement Project (see Note 47.1). The financing will be canceled, at Pampa option, through a payment in cash or through offsetting with CAMMESA receivables of the Company and other subsidiaries, 36 months as from the month following the commercial commissioning of the last generating unit making up the Projects.

298 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 299 CONSOLIDATED FINANCIAL STATEMENTS NOTE 20: (Continuation) NOTE 20: (Continuation) On March 9, 2017, the Board Directors resolved to approve the cancellation by YPF of the price balance payable for the transfer to YPF of the participations in Río Neuquén and Aguada de la Arena areas, through 20.2 the assignment of the loan the Company held with YPF, since Pampa and Petrobras were undergoing a merger process, and the Company has taken on the management of Petrobras pursuant to the decision made by the Financing for the acquisition of PPSL and the Offers Shareholders’ Meeting dated February 16, 2017. Furthermore, the Board of Directors agreed that Pampa, in its capacity as assigned debtor, should replace YPF. Finally, the parties agreed on the repayment of the due 20.2.1 balances under the described terms and conditions. Syndicated Loan On July 26, 2016, the Company entered into a syndicated loan agreement with domestic and foreign financial entities for an initial equivalent amount of US$ 750 million, later reduced to US$ 600 million for the 20.3 use of the proceeds from the sale of its indirect interests in TGS. Corporate Bonds Program The syndicated loan was guaranteed until its cancellation with a pledge in first degree of privilege over the The Company has the following programs in place: (i) a simple CBs Program (non-convertible into shares) direct or indirect participation of the Company in PPSL and Petrobras, and after the sale of certain assets to YPF, for a maximum amount of US$500 million, which was authorized by CNV Resolution No. 17,162, effective until over the participation in IEASA. The Syndicated Loan was canceled in its entirety during the first quarter of 2017. August 15, 2018; and (ii) a simple or convertible CBs Program for up to US$ 2,000 million, which was authorized by CNV Resolution No. 18,426, effective until December 29, 2021. 20.2.2 EMES Financing The Company’s Shareholders’ Meeting held on April 7, 2017 approved the issuance of CBs convertible into On May 11, 2016, EMES, an investment vehicle with the participation of the main officers of the Company and common shares and American Depositary Shares (“ADRs”) for a face value of US$ 500 million subject to certain other international investors, entered into an agreement pursuant to which EMES granted a loan in the amount conditions, mainly regarding the Company’s ADR price. of US$ 50 million to the Company, which was used to partially pay the purchase price to the transaction. On January 16, 2018, the Company informed the CNV that, following the sales transactions in the refining Before the expiration of the Exchange Offer or the merger between the Company and Petrobras, the and distribution segment (Note 1.5.1) and of certain oil assets (Note 1.5.2), the resulting fund inflow would Company would have to cancel the total amount owed under the EMES Loan, and EMES would have to accept allow the Company to afford the defined strategic investments. Therefore, the issuance of corporate bonds the delivery of part of the acquired PPSL Credit equivalent to the amount resulting from assessing the market convertible into shares is not deemed necessary. value of the number of Petrobras’ ADRs which, if participating in the Exchange Offer or merger, would entitle EMES to receive the number of ADRs from the Company resulting from dividing the loan principal by the average market price per ADR of the Company at the NYSE on the 30 business days before the Share Purchase 20.4 Agreement execution date. Guarantees on loans The execution of the EMES Financing was a condition precedent requested by the Syndicated Loan’s creditors. On September 27, 2017, Greenwind entered into a loan agreement with Corporación Interamericana de The EMES Financing was approved by the Audit Committee and the Company’s Board of Directors and is in full Inversiones, Banco Interamericano de Desarrollo, Banco Santander, and Industrial and Commercial Bank of compliance with Argentine laws and regulations. China Limited (ICBC) Dubai Branch in the amount of US$ 104 million, which will be used to finance the construction, operation and maintenance of the 100 MW wind farm currently being developed in Bahía Blanca, On October 25, the Company and EMES agreed to cancel the loan with the partial assignment of the Province of Buenos Aires. principal of the PPSL credit for an amount of US$ 77.4 million. On November 1, 2016, PPSL canceled its debt with EMES through the delivery of 11,090,286 Petrobras’ ADRs. The facility will have a nine-year term as from its execution date and will be repaid in 14 six-monthly consecutive installments, the first one becoming due on May 15, 2020. 20.2.3 Financiamiento de YPF Pampa granted a bond for the whole facility’s principal to guarantee the operation. On May 13, 2016, the Company executed a credit agreement with YPF under which YPF undertook to grant a loan to the Company in the amount of US$ 140 million, which were destined by the Company to partially On October 20 and November 13, 2017, Greenwind collected the entire financing. finance the Transaction. To guarantee the performance of its obligations under this financing, the Company granted a pledge on PEPASA’s shares held by it, which represent approximately 49% of PEPASA’s capital stock and voting rights.

On October 14, 2016, the Company pre-paid US$ 20 million of the YPF Financing.

As of December 31, 2016, the outstanding balance of the loan was offset with the receivable for the price balance owed by YPF to Petrobras under the agreements for the transfer of Río Neuquén and Aguada de la Arena consortiums.

300 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 301 CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21: NOTA 24: DEFERRED REVENUE FINED BENEFITS PLANS

12.31.2017 12.31.2016 The main characteristics of benefit plans granted to Company employees are detailed below. Non current Customer contributions not subject to repayment 195 200 a. Indemnity plan: Benefit plan whereby Company employees meeting certain conditions are eligible Total non current 195 200 to receive upon retirement a certain number of salaries according to the provisions of the plan.

Current b. Compensatory plan: Benefit plan whereby Company employees meeting certain conditions are Customer contributions not subject to repayment 3 1 eligible to receive upon retirement a certain amount according to the provisions of the plan (based Total current 3 1 on the last computable salary and the number of years working for the Company) after deducting the benefits from the pension system. This plan requires the Company to make contributions to a fund. The plan calls for a contribution to a fund exclusively by the Company and without any contribution by the employees. The assets of the fund are contributed to a trust fund and invested in US dollar- denominated money market instruments in order to preserve the accumulated capital and obtain a NOTE 22: return in line with a moderate risk profile. In addition, although there is no target asset allocation for the following years, funds are mainly invested in US government bonds, commercial papers rated A1 SALARIES AND SOCIAL SECURITY PAYABLE or P1, AAAm-rated mutual funds and time deposits in banks rated A+ or higher in the United States of America, in accordance with the Trust Agreement dated on March 27, 2002 entered with The Bank of New York Mellon, duly amended by the Permitted Investment Letter dated on September 14, 12.31.2017 12.31.2016 2006. The Bank of New York Mellon is the trustee and Willis Towers Watson is the managing agent. In case there is an excess (duly certified by an independent actuary) of the funds to be used to settle Non current the benefits granted by the plan, the Company will be entitled to choice to use it, in which case it Seniority - based bonus 116 89 may have to notify the trustee thereof. Early retirements payable 4 5 Total non current 120 94 c. Collective agreements: Benefit plan whereby Company employees covered by certain collective Current bargaining agreements and meeting certain conditions are eligible to receive upon retirement or Salaries and social security contributions 579 419 disability a certain number of salaries according to the provisions of the plan. Provision for vacations 671 617 Provision for gratifications and annual bonus for efficiency 899 705 Early retirements payable 5 4 Total current 2,154 1,745

NOTE 23: INCOME TAX AND MINIMUM PRESUME TAX LIABILITY

12.31.2017 12.31.2016

Non current Income tax, net of witholdings and advances 848 837 Minimum notional income tax, net of witholdings 15 97 and advances Total non current 863 934

Current Income tax, net of witholdings and advances 880 1,451 Minimum notional income tax, net of witholdings 63 3 and advances Total current 943 1,454

302 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 303 CONSOLIDATED FINANCIAL STATEMENTS NOTE 24: (Continuation) NOTE 24: (Continuation) As of December 31, 2017 and 2016, the most relevant actuarial information corresponding to the escribed As of December 31, 2016, net liability by type of plan, is as follows: a) 157 million corresponding to benefit plans is the following: Indemnity plan; b) 270 million corresponding to Compensatory plan and c) 606 million corresponding to Collective agreements.

12.31.2017 Estimated expected benefits payments for the next ten years are shown below. The amounts in the table represent the undiscounted cash flows and therefore do not reconcile to the obligations recorded at Present value Fair value Net liability at the end of the year. of the obligation of plan assets the end of the year 12.31.2017 Liabilities at the beginning 1,188 (155) 1,033 Items classified in profit or loss (1) Current services cost 58 - 58 Less than one year 121 Cost for interest 280 (23) 257 One to two years 84 Cost for past service 28 - 28 Two to three years 74 Items classified in other comprehensive income Three to four years 89 Actuarial losses (gains)(2) (21) 10 (11) Four to five years 81 Exchange differences on translation 32 (16) 16 Six to ten years 377 Benefit payments (105) 7 (98) Contributions paid - (7) (7) Reclasification to liabilities associated to assets (268) 105 (163) classified as held for sale Significant actuarial assumptions used were as follows: At the end 1,192 (79) 1,113 12.31.2017 12.31.2016

Notes: (1) Includes $ 25 million corresponding to discontinued operations. (2) Includes $ 10 million corresponding to discontinued operations. Discount rate 4% 5% Salaries increase 1% 1% Average inflation 15% 21% 12.31.2016

Present value Present value Net liability at of the obligation of assets the end of the year The following sensitivity analysis shows the effect of a variation in the discount rate and salaries increase on the obligation amount:

Liabilities at the beginning 310 - 310 Items classified in profit or loss 12.31.2017 Current services cost 42 - 42 Cost for interest 208 (13) 195 Discount rate: 4% Items classified in other comprehensive income Obligation 1,298 Actuarial losses (gains) 73 5 78 Variation 106 Benefit payments (76) 2 (74) 10% Contributions paid 631 (147) 484 Increase for subsidiries acquisition - (2) (2) Discount rate: 6% Obligation 1,102 At the end 1,188 (155) 1,033 Variation (90) (8%)

Notes: (1) Includes a loss of $ 5 million corresponding to discontinued operations. Salaries increase: 0% (2) Includes $ 9 million corresponding to discontinued operations. Obligation 1,126 Variation (66) (6%) As of December 31, 2017, net liability by type of plan, is as follows: a) 177 million corresponding to Indemnity plan; b) 274 million corresponding to Compensatory plan and c) 662 million corresponding to Salaries increase: 2% Collective agreements. Obligation 1,269 Variation 77 7%

304 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 305 CONSOLIDATED FINANCIAL STATEMENTS NOTE 24: (Continuation) The sensitivity analyses are based on a change in an assumption while holding all other assumptions NOTE 26: constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. Therefore, the presented analysis may not be representative of the actual change in the defined benefit PROVISIONS obligation. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.

Note 12.31.2017 12.31.2016

Non Current NOTE 25: Provisions for contingencies 3,468 3,977 Asset retirement obligation 918 1,719 TAX LIABILITIES Environmental remediation 15 174 Onerous contract (Ship or pay) 42 - 366 Other provisions 34 31 4,435 6,267 12.31.2017 12.31.2016 Current Provisions for contingencies 129 94 Non current Asset retirement obligation 152 143 Value added tax 219 287 Environmental remediation 127 175 Sales tax 17 9 Onerous contract (Ship or pay) 42 389 394 Payment plans 130 10 798 806 Total non current 366 306

Current Value added tax 526 840 12.31.2017 Municipal, provincial and national contributions 398 377 Payment plans 61 3 For Asset retirement For environmental Municipal taxes 69 58 contingencies obligation remediation Tax withholdings to be deposited 195 381 Stamp tax payable 10 10 Royalties 138 165 At the beginning of the year 4,071 1,862 349 Extraordinary Canon 553 527 Increases 980 634 98 Sales tax - 14 Reclasification (209) (16) 16 Other 15 17 Decreases (881) (166) (135) Reclasification to liabilities associated to assets - (875) (184) Total current 1,965 2,392 classified as held for sale Reversal of unused amounts (364) (369) (2) At the end of the year 3,597 1,070 142

12.31.2016

For Asset retirement For environmental contingencies obligation remediation

At the beginning of the year 335 49 - Increases 472 629 210 Increases for purchases of subsidiaries 3,333 1,210 235 Decreases (69) (26) (96) At the end of the year 4,071 1,862 349

306 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 307 CONSOLIDATED FINANCIAL STATEMENTS NOTE 26: (Continuation) NOTE 27: 26.1 REVENUE Provision for Environmental remediation The Company is subject to extensive environmental regulations in Argentina and in the other countries in which it operates. The Company’s management believes that its current operations are in compliance with 12.31.2017 12.31.2016 applicable environmental requirements, as currently interpreted and enforced, including regulatory remediation commitments assumed. The Company undertakes environmental impact studies for new projects and investments and, to date, environmental requirements and restrictions imposed on these new projects have Sales of energy to the Spot Market 5,546 2,411 not had any material adverse impact on Pampa Energía’s business. Sales of energy by contract 3,965 2,187 Other sales 49 11 The Company has performed a sensitivity analysis relating to the discount rate. The 1% increase or decrease Generation subtotal 9,560 4,609 in the discount rate would not have a significant impact on the Company’s results of operations. Energy sales 24,170 12,952 Right of use of poles 131 99 Connection and reconnection charges 38 19 26.2 Other sales - 9 Provision for well plugging and abandonment Distribution subtotal 24,339 13,079

In accordance with the regulations applicable in the countries where the Company (directly or indirectly Oil, Gas and liquid sales 8,271 4,746 through subsidiaries) performs oil and gas exploration and production activities, the Company must incur costs Other sales 560 117 associated with well plugging and abandonment. The Company has not pledged any assets for the purpose of Oil and gas subtotal 8,831 4,863 settling such obligations. Administrative services sales 383 50 The Company has performed a sensitivity analysis relating to the discount rate. The 1% increase or decrease Other sales 5 2 in the discount rate would not have a significant impact on the Company’s results of operations. Holding and others subtotal 388 52

Petrochemicals sales 7,229 2,507 26.3 Petrochemicals subtotal 7,229 2,507 Provision for legal proceedings Total revenue 50,347 25,110 The Company (directly or indirectly through subsidiaries) is a party to several commercial, tax and labor proceedings and claims that arise in the ordinary course of its business. In determining a proper level of provision, the Company has considered its best estimate mainly with the assistance of legal and tax advisors.

The determination of estimates may change in the future due to new developments or unknown facts at the time of evaluation of the provision. As a consequence, the adverse resolution of the evaluated proceedings and claims could exceed the established provision.

308 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 309 CONSOLIDATED FINANCIAL STATEMENTS

NOTE 28: NOTE 29: COST OF SALES SELLING EXPENSES

12.31.2017 12.31.2016 12.31.2017 12.31.2016

Inventories at the beginning of the year 3,360 225 Salaries and social security charges 618 482 Accrual of defined benefit plans 14 13 Plus: Charges for the year Fees and compensation for services 593 496 Incorporation of inventories for acquisition of companies - 3,072 Compensation agreements 132 157 Purchases of inventories, energy and gas 19,649 9,110 Property, plant and equipment depreciations 56 50 Salaries and social security charges 4,659 3,450 Taxes, rates and contributions 696 343 Benefits to personnel 164 77 Communications 177 129 Accrual of defined benefit plans 169 134 Penalties 266 182 Fees and compensation for services 1,948 1,125 Doubtful accounts 254 235 Property, plant and equipment depreciations 3,222 2,068 Transport 85 29 Intangible assets amortization 33 28 Other 13 16 Transport of energy 79 11 Total selling expenses 2,904 2,132 Consumption of materials 645 390 Penalties(1) 269 2,377 Maintenance 422 366 Canons and Royalties 1,295 602 Environmental control 64 33 Rental and insurance 264 174 NOTE 30: Surveillance and security 141 95 Taxes, rates and contributions 67 45 ADMINISTRATIVE EXPENSES Communications 45 36 Water consumption 25 14 Other 233 81 Subtotal 33,393 23,288 12.31.2017 12.31.2016

Less: Inventories at the end of the year (2,326) (3,360) Salaries and social security charges 1,953 1,517 Total cost of sales 34,427 20,153 Benefits to the personnel 140 53 Accrual of defined benefit plans 135 85 Fees and compensation for services 1,338 1,222 Note: (1) Includes $ 414 million of recover by penalties (Note 2.3). Compensation agreements 468 236 Directors’ and Syndicates’ fees 95 65 Property, plant and equipment depreciations 110 55 Consumption of materials 61 38 Maintenance 60 33 Transport and per diem 44 25 Rental and insurance 138 115 Surveillance and security 94 51 Taxes, rates and contributions 102 37 Communications 48 30 Institutional advertising and promotion 56 29 Other 63 37 Total administrative expenses 4,905 3,628

310 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 311 CONSOLIDATED FINANCIAL STATEMENTS

NOTE 31: NOTE 33: EXPLORATION EXPENSES FINANCIAL RESULTS

12.31.2017 12.31.2016 12.31.2017 12.31.2016

Finance income Geological and geophysical expenses 17 18 Commercial interest 986 677 Decrease in unproductive wells 27 76 Financial interest 334 67 Total exploration expenses 44 94 Other interest 112 105 Total finance income 1,432 849

Finance expenses Commercial interest (1,030) (1,021) Fiscal interest (260) (76) NOTE 32: OTHER OPERATING INCOME Financial interest(1) (3,714) (3,083) Other interest (5) (3) AND EXPENSES Taxes and bank commissions (78) (36) Other financial expenses (25) (58) Total financial expenses (5,112) (4,277) Note 12.31.2017 12.31.2016 Other financial results Foreign currency exchange difference, net (3,558) (1,099) Other operating income Result from repurchase of Corporate Bonds - (4) Recovery of expenses 1 48 Changes in the fair value of financial instruments 1,471 1,120 Recovery of doubtful accounts 86 29 Discounted value measurement (141) (65) Surplus Gas Injection Compensation 2,340 2,037 Asset retirement obligation (40) (32) Commissions on municipal tax collections 32 21 Other financial results 2 - Services to third parties 190 109 Total other financial results (2,266) (80) Profit for property, plant and equipment sale 5 91 Total financial results, net (5,946) (3,508) Dividends received 33 6 Recognition of income - provisional remedies Note MEyM - 1,126 No 2016-04484723 Note: (1) Income recognition on account of the RTI - SE Res. No. 32/15 - 419 Net of $ 369 million and $ 419 million capitalized in property, plant and equipment for the years ended December 31, 2017 and 2016, respectively. Higher costs recognition - SE Res. No. 250/13 and - 82 subsequent Notes Onerous contract (Ship or pay) 42 - 150 Reversal of contingencies provision 521 5 Other 180 41 Total other operating income 3,388 4,164

Other operating expenses Provision for contingencies (881) (455) Decrease in property, plant and equipment (15) (51) Allowance for uncollectible tax credits (14) (29) Net expense for technical functions - (18) Tax on bank transactions (817) (473) Other expenses FOCEDE - (15) Cost for services provided to third parties (39) (32) Compensation agreements (45) (109) Donations and contributions (38) (17) Institutional relationships (65) (44) Extraordinary Canon (314) (366) Contingent consideration 1.2.1 (171) - Onerous contract (Ship or Pay) (90) - Other (462) (267) Total other operating expenses (2,951) (1,876)

312 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 313 CONSOLIDATED FINANCIAL STATEMENTS

NOTE 34: NOTE 35: EARNING (LOSS) PER SHARE SEGMENT INFORMATION

a. Basic The Company is an integrated energy company in Argentina, which participates in the various segments of Basic earnings (loss) per share are calculated by dividing the result attributable to the Company’s equity the electricity sector, in the exploration and production of gas and oil, in petrochemicals and in the refining and interest holders by the weighted average of outstanding common shares during the year. distribution of fuels.

b. Diluted Through its own activities, subsidiaries and share holdings in joint ventures, and based on the business Diluted earnings (loss) per share are calculated by adjusting the weighted average of outstanding common nature, customer portfolio and risks involved, we were able to identify the following business segments: shares to reflect the conversion of all dilutive potential common shares. Electricity Generation, consisting of the Company’s direct and indirect interests in CPB, HINISA, HIDISA, PACOSA, Greenwind, PEFMSA, PEA, Enecor, TMB, TJSM and through its own electricity generation activities Potential common shares will be deemed dilutive only when their conversion into common shares may through centrales térmicas Güemes, Loma de la Lata, Genelba and Econoergía, the Pichi Picún Leufú reduce the earnings per share or increase losses per share of the continuing business. Potential common hydroelectric complex. shares will be deemed anti-dilutive when their conversion into common shares may result in an increase in the earnings per share or a decrease in the losses per share of the continuing operations. Electricity Distribution, consisting of the Company’s direct interest in Edenor. Oil and Gas, consisting of the Company’s own interests in oil and gas areas and through its direct interest in The calculation of diluted earnings (loss) per share does not entail a conversion, the exercise or another PELSA and investments in Oldelval and OCP associates. As of December 31, 2017 and 2016, the Company has issuance of shares which may have an anti-dilutive effect on the losses per share, or where the option exercise classified the results corresponding to the divestment mentioned in Note 1.5.2 as discontinued operations. price is higher than the average price of ordinary shares during the period, no dilutive effect is recorded, being the diluted earning (loss) per share equal to the basic. As of December 31, 2017 and 2016, the Company does not hold Refining and Distribution,consisting of the Company’s own operations in the refinery at Bahía Blanca and any significant potential dilutive shares, therefore there are no differences with the basic earnings (loss) per share. the service station network, the equity interest in Refinor associate and the commercialization of the oil produced in Argentina, which is transferred at market prices from the Oil and Gas segment. As of December 31, 2017 and 2016, the Company has classified the results corresponding to the divestment mentioned in 12.31.2017 12.31.2016 Note 1.5.1 as discontinued operations. Petrochemicals, comprising of the Company’s own styrenics operations and the catalytic reformer plant operations conducted in Argentine plants. Earning (loss) for continuing operations attributable to the equity holders of the Company 4,623 (93) Weighted average amount of outstanding shares 1,971 1,736 Holding and Other Business, consisting of financial investment transactions, holding activities, and Basic and diluted earnings (loss) per share for continuing operations 2.3455 (0.0536) interests in joint businesses CITELEC and CIESA and their respective subsidiaries, which hold the concession over the high voltage electricity transmission nationwide and over gas transportation in the South of the (Loss) Earning for discontinued operations attributable to the equity holders of the Company (17) 82 country, respectively. Weighted average amount of outstanding shares 1,971 1,736 Basic and diluted (loss) earnings per share for discontinued operations (0.0086) 0.0472 The Company manages its operating segment based on its individual net results.

Earning (loss) attributable to the equity holders of the Company 4,606 (11) Weighted average amount of outstanding shares 1,971 1,736 Basic and diluted earnings (loss) per share 2.3369 (0.0063)

314 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 315 CONSOLIDATED FINANCIAL STATEMENTS NOTE 35: (Continuation) NOTE 35: (Continuation)

Consolidated profit and loss information as Generation Distribution Oil and Refining & Petro- Holding Eliminations Consolidated of December 31, 2017 of energy gas Distribution chemicals and others

Revenue 9,560 24,339 8,831 - 7,229 388 - 50,347 Intersegment sales 37 - 1,810 - - 36 (1,883) - Cost of sales (5,358) (17,667) (6,581) - (6,655) (3) 1,837 (34,427) Gross profit (loss) 4,239 6,672 4,060 - 574 421 (46) 15,920

Selling expenses (94) (2,079) (455) - (290) - 14 (2,904) Administrative expenses (357) (1,444) (975) - (74) (2,095) 40 (4,905) Exploration expenses - - (44) - - - - (44) Other operating income 420 97 2,522 - 64 289 (4) 3,388 Other operating expenses (149) (758) (776) - (571) (697) - (2,951) Reversal of impairment of property, plant and equipment - 461 - - - - - 461 Reversal of impairment of intangible assets - 82 - - - - - 82 Share of profit (loss) from joint ventures (50) - - - - 1,114 - 1,064 Share of profit from associates - - 44 - - - - 44 Operating profit (loss) 4,009 3,031 4,376 - (297) (968) 4 10,155

Financial income 881 272 96 - 10 214 (41) 1,432 Financial expenses (932) (1,595) (245) - - (2,381) 41 (5,112) Other financial results 55 (9) (193) - 11 (2,130) - (2,266) Financial results, net 4 (1,332) (342) - 21 (4,297) - (5,946) Profit (loss) before income tax 4,013 1,699 4,034 - (276) (5,265) 4 4,209

Income tax and minimum notional income tax 85 (417) (389) - - 2,088 - 1,367 Profit (loss) for the year 4,098 1,282 3,645 - (276) (3,177) 4 5,576

Profit (loss) for the year for the discontinued operations - - 121 (43) - - 16 94 Profit (loss) for the year 4,098 1,282 3,766 (43) (276) (3,177) 20 5,670

Depreciation and amortization 845 443 1,956 - 117 60 - 3,421

Consolidated profit and loss information as Generation Distribution Oil and Refining & Petro- Holding Eliminations Consolidated of December 31, 2017 of energy gas Distribution chemicals and others

Total profit (loss) attributable to: Owners of the Company 3,890 951 3,241 (43) (276) (3,177) 20 4,606 Non - controlling interest 208 331 525 - - - - 1,064

Consolidated statement of financial position as of 12.31.2017 Assets 22,833 26,149 22,116 5,887 3,161 29,449 (5,128) 104,467 Liabilities 7,635 24,460 10,446 3,599 2,406 40,948 (5,139) 84,355

Additional consolidated information as of 12.31.2017 Increases in property, plant and equipment 6,277 4,137 4,195 154 110 116 - 14,989

316 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 317 CONSOLIDATED FINANCIAL STATEMENTS NOTE 35: (Continuation) NOTE 35: (Continuation)

Consolidated profit and loss information as Generation Distribution Oil and Refining & Petro- Holding Eliminations Consolidated of December 31, 2016 of energy gas Distribution chemicals and others

Revenue 4,609 13,079 4,863 - 2,507 52 - 25,110 Intersegment sales 15 - 716 - - 28 (759) - Cost of sales (2,726) (12,220) (3,737) - (2,207) (3) 740 (20,153) Gross profit (loss) 1,898 859 1,842 - 300 77 (19) 4,957

Selling expenses (65) (1,618) (334) - (110) (5) - (2,132) Administrative expenses (392) (1,171) (632) - (15) (1,446) 28 (3,628) Exploration expenses - - (94) - - - - (94) Other operating income 55 1,718 1,892 - - 560 (61) 4,164 Other operating expenses (104) (465) (826) - (263) (282) 64 (1,876) Share of loss from joint ventures - - - - - 105 - 105 Share of profit (loss) from associates - - 11 (1) - (3) - 7 Income from the sale of subsidiaries and financial assets - - - - - 480 - 480 Operating profit (loss) 1,392 (677) 1,859 (1) (88) (514) 12 1,983

Financial income 600 206 103 - 2 105 (167) 849 Financial expenses (750) (1,645) (730) - - (1,320) 168 (4,277) Other financial results 228 (360) 22 - (3) 35 (2) (80) Financial results, net 78 (1,799) (605) - (1) (1,180) (1) (3,508) Profit (loss) before income tax 1,470 (2,476) 1,254 (1) (89) (1,694) 11 (1,525)

Income tax and minimum notional income tax (317) 753 (305) - - 1,070 - 1,201 Profit (loss) for the year for continuing operations 1,153 (1,723) 949 (1) (89) (624) 11 (324)

Profit for the year for discontinued operations - - (74) 75 - - 71 72 Profit (loss) for the year 1,153 (1,723) 875 74 (89) (624) 82 (252)

Depreciation and amortization 378 364 1,398 - 35 26 - 2,201

Consolidated profit and loss information as Generation Distribution Oil and Refining & Petro- Holding Eliminations Consolidated of December 31, 2016 of energy gas Distribution chemicals and others

Total profit (loss) attributable to: Owners of the Company 1,045 (1,147) 627 74 (89) (603) 82 (11) Non - controlling interest 108 (576) 248 - - (21) - (241)

Consolidated statement of financial position as of 12.31.2016 Assets 19,577 17,219 19,414 6,259 2,812 19,494 (7,498) 77,277 Liabilities 8,632 18,856 11,662 3,267 2,401 25,883 (7,498) 63,203

Additional consolidated information as of 12.31.2016 Increases in property, plant and equipment 2,378 2,703 3,051 165 58 85 - 8,440 Increases in intangible assets 108 - 994 224 - - - 1,326

Accounting criteria used by the subsidiaries to measure results, assets and liabilities of the segments is consistent with that used in the consolidated financial statements. Transactions between different segments are conducted under market conditions. Assets and liabilities are allocated based on the segment’s activity.

318 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 319 CONSOLIDATED FINANCIAL STATEMENTS NOTE 36: (Continuation) NOTE 36: c) Fees for services

RELATED PARTIES´ TRANSACTIONS 12.31.2017 12.31.2016

Associates and other related parties: Salaverri, Dellatorre, Burgio & Wetzler (16) (23) a) Sales of goods and services (16) (23)

12.31.2017 12.31.2016 Corresponds to fees for legal advice.

Joint ventures: Transener(1) 28 15 TGS(2) 527 254 d) Other operating income Associates and other related parties: CYCSA - 14 12.31.2017 12.31.2016 Refinor(3) 126 45 Oldelval 4 1 Associates and other related parties: 685 329 OCP - 150 - 150

Notes: (1) Corresponds to advisory services in technical assistance. Corresponds to onerous contract (Ship or Pay). (2) Corresponds to advisory services in technical assistance and gas and refined products sales. (3) Corresponds to oil sales.

e) Other operating expenses

b) Purchases of goods and services 12.31.2017 12.31.2016

12.31.2017 12.31.2016 Associates and other related parties: OCP(1) (90) - Joint ventures: Foundation(2) (35) (13) Transener (7) (10) TGS(1) (197) (132) (125) (13) SACME (47) (35)

Associates and other related parties: Notes: (1) Corresponds to onerous contract (Ship or Pay). Origenes Vida (13) (6) (2) Corresponds to donations. Refinor(2) (393) (117) Oldelval(3) (74) (31) (731) (331) f) Finance income

Notes: (1) Corresponds to natural gas transportation services. 12.31.2017 12.31.2016 (2) Corresponds to purchase of refined products. (3) Corresponds to oil transportation services. Joint ventures: TGS 65 24 65 24

Corresponds to finance leases.

320 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 321 CONSOLIDATED FINANCIAL STATEMENTS NOTE 36: (Continuation) NOTE 36: (Continuation)

g) Finance expenses k) Key management personnel remuneration The total remuneration to executive directors accrued during the year ended December 31, 2017 and 2016 12.31.2017 12.31.2016 amounts to $ 740 million ($ 95 million in Directors’ and Sindycs’ fees and $ 645 in the accrual of the Company-Value Compensation, EBDA Compensation and Stock-based Compensation Plans, of which $ 510 million correspond Associates and other related parties: to compensation based on shares) and $ 567 million ($ 65 million in Directors’ and Sindycs’ fees and $ 502 in Orígenes Retiro (6) (7) the accrual of the Company-Value Compensation, EBDA Compensation and Stock-based Compensation Plan, of Grupo EMES - (417) which $ 406 million correspond to compensation based on shares), respectively. (6) (424)

1) Balances with related parties: h) Corporate Bonds transactions

PURCHASE OF CORPORATE BONDS As of December 31, 2017 Trade receivables Other receivables

12.31.2017 12.31.2016 Current Non Current Current Associates and other related parties: Orígenes Retiro - 590 Joint ventures: - 590 Transener 5 - - TGS 129 789 75 SALEE OF CORPORATE BONDS Greenwind - - 127 SACME - 5 - 12.31.2017 12.31.2016 Associates and other related parties: Associates and other related parties: Ultracore - - 10 Orígenes Retiro - 666 Refinor 10 - - - 666 SACDE 25 - 2 Other 1 - 1 170 794 215

i) Dividends received

12.31.2017 12.31.2016 As of December 31, 2017 Trade Other Borrowings Provisions payables payables Associates and other related parties: CIESA - 4 Current Current Non Current Current Current Oldelval 7 - TJSM 8 3 TMB 10 3 Joint ventures: 25 10 TGS 17 - - - - SACME - 5 - - -

Associates and other related parties: j) Payment of dividends Orígenes Seguro de vida - - - 2 - Orígenes Retiro - - 14 2 - OCP - - - - 389 12.31.2017 12.31.2016 Refinor 53 - - - - Oldelval 9 - - - - Associates and other related parties: Other - 7 - - - EMESA (44) (34) 80 12 14 4 389 APCO Oil (44) (45) Ultracore - (3) (88) (82)

322 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 323 CONSOLIDATED FINANCIAL STATEMENTS NOTE 36: (Continuation) According to paragraphs 25 and 26 of IAS 24, Edenor applied the disclosure exemption in relation to related NOTE 37: party transactions with a governmental agency that has control, joint control or significant influence. As of December 31, 2017, ANSES holds Edenor’s Notes due 2022 amounting to $ 317 million. FINANCIAL INSTRUMENTS

As of December 31, 2016 Trade receivables Other receivables The following chart presents financial instruments by category: Current Non Current Current

Joint ventures: As of December 31, 2017 Financial Financial assets/ Subtotal Non Total Transener 10 - - assets/ liabilities at fair financial financial TGS 90 733 88 liabilities at value through assets/ assets/ amortized profit and losss liabilities liabilities SACME - 7 1 cost Associates and other related parties: Ultracore - - 4 Assets Refinor 6 - 4 Trade receivables and other receivables 21,512 590 22,102 2,085 24,187 Oldelval 1 - - Financial assets at amortized cost Other 1 - 1 Government securities 11 - 11 - 11 108 740 98 Corporate securities - - - - - Trusts 14 - 14 - 14 Financial assets at fair value through profit and loss As of December 31, Trade Other Borrowings Provisions Government securities - 5,024 5,024 - 5,024 2016 payables payables Corporate securities - - - - - Trusts - - - - - Shares - 150 150 - 150 Current Current Non Current Current Non Current Current Investment funds - 9,589 9,589 - 9,589 Derivative financial instruments - 4 4 - 4 Joint ventures: Cash and cash equivalents 799 - 799 - 799 Transener 9 - - - - - Total 22,336 15,357 37,693 2,085 39,778 TGS 116 - - - - - Liabilities SACME - 5 - - - - Trade and other liabilities 18,142 1,885 20,027 4,429 24,456 Associates and other Borrowings 42,966 - 42,966 - 42,966 related parties: Derivative financial instruments - 82 82 - 82 Orígenes Retiro - - 16 21 - - Total 61,108 1,967 63,075 4,429 67,504 OCP - - - - 366 394 UTE Apache - 5 - - - - Refinor 32 - - - - - Oldelval 22 - - - - - Other 2 4 - - - - 181 14 16 21 366 394

324 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 325 CONSOLIDATED FINANCIAL STATEMENTS NOTE 37: (Continuation) NOTE 37: (Continuation)

As of December 31, 2016 Financial Financial assets/ Subtotal Non Total As of December 31, 2016 Financial Financial assets/ Subtotal Non Total assets/ liabilities at fair financial financial assets/ liabilities at fair financial Financial liabilities at value through assets/ assets/ liabilities at value through assets/ assets/ amortized profit and losss liabilities liabilities amortized profit and losss liabilities liabilities cost cost

Assets Interest income 845 4 849 - 849 Trade receivables and other receivables 17,553 29 17,582 1,031 18,613 Interest expense (3,700) (417) (4,117) (66) (4,183) Financial assets at amortized cost Foreign exchange, net (1,369) 250 (1,119) 20 (1,099) Government securities 46 - 46 - 46 Results from financial instruments - 1,120 1,120 - 1,120 Corporate securities 1 - 1 - 1 at fair value Trusts 38 - 38 - 38 Other financial results (166) 3 (163) (32) (195) Financial assets at fair value through Total (4,390) 960 (3,430) (78) (3,508) profit and loss Government securities - 1,576 1,576 - 1,576 Corporate securities - 12 12 - 12 Trusts - - - - - Shares - 150 150 - 150 Investment funds - 3,189 3,189 - 3,189 Derivative financial instruments - 13 13 - 13 NOTE 38: Cash and cash equivalents 1,360 61 1,421 - 1,421 Total 18,998 5,030 24,028 1,031 25,059 CONTINGENCIES

Liabilities Trade and other liabilities 13,016 1,347 14,363 3,840 18,203 Borrowings 25,972 - 25,972 - 25,972 38.1 Total 38,988 1,347 40,335 3,840 44,175 Actions brought against the Company 38.1.1 The categories of financial instruments have been determined according to IFRS 9. Distribution of energy segment

The income, expenses, gains and losses derived from each of the financial instrument categories are 38.1.1.1 indicated below: Legal action brought by “Consumidores Financieros Asociación civil para su defensa”. Purpose:

As of December 31, 2017 Financial Financial assets/ Subtotal Non Total 1. Reimbursement of the Value Added Tax (VAT) percentage paid alleged on the illegally “widened” taxable assets/ liabilities at fair financial Financial basis due to the incorporation of the FNEE. Distribution companies, the defendants, had not paid this tax liabilities at value through assets/ assets/ when CAMMESA invoiced them the electricity purchased for distribution purposes. amortized profit and losss liabilities liabilities cost 2. Reimbursement of part of the administrative surcharge on “second due date”, in those cases in which payment was made within the time period authorized for such second deadline (14 days) but without distinguishing the effective day of payment. Interest income 1,277 155 1,432 - 1,432 Interest expense (4,767) - (4,767) (242) (5,009) 3. Application of the “borrowing rate” in case of customer delay in complying with payment obligation, in Foreign exchange, net (4,352) 1,115 (3,237) (320) (3,558) accordance with the provisions of Law No. 26,361. Results from financial instruments - 1,471 1,471 - 1,471 at fair value Amount: undetermined Other financial results (245) - (245) (37) (282) Total (8,087) 2,741 (5,346) (599) (5,945) Procedural stage of the proceedings: On April 22, 2010, Edenor answered the complaint and filed a motion to dismiss for lack of standing (“excepción de falta de legitimación”), requesting, at such opportunity, that a summons be served upon the Federal Government, the AFIP and the ENRE as third-party defendants. Notice of this was served upon the plaintiff. Although the plaintiff’s opposition to the requested summons had not yet been resolved, the proceedings were brought to trial, in response to which Edenor S.A. filed a motion for

326 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 327 CONSOLIDATED FINANCIAL STATEMENTS NOTE 38: (Continuation) NOTE 38: (Continuation) reversal with a supplementary appeal. The Court hearing the case granted the motion filed by Edenor S.A. and ordered that the Federal Government, the AFIP and the ENRE be summoned as third-party defendants, which has already taken place. These proceedings have been joined to those mentioned below. Without prejudice 38.2 thereto, in the framework of the record of the proceedings, the case has been brought to trial. Actions submitted by the Company Conclusion: no provision has been recorded for these claims in these financial statements as Edenor believes, 38.2.1 based on both that which has been previously mentioned and the opinion of its legal advisors, that there Claim for the recognition of Gas Plus costs exist solid arguments for them to be considered unfounded. It is estimated that the proceedings will not be terminated in 2018. In September 2015, CAMMESA informed CTLL that, pursuant to SE Resolution No. 529/14, as from the termination of the first automatic renewal of the natural gas supply agreements in force as at that date (January 38.1.1.2 2016), it would cease recognizing: (i) any other automatic renewal of such contracts, (ii) costs associated with Legal action brought by ASOCIACIÓN DE DEFENSA DE DERECHOS DE USUARIOS Y CONSUMIDORES – ADDUC the acquisition of Gas Plus (including the 10% contemplated in the Master Agreement).

Purpose: that Court be ordered to reduce or mitigate the default or late payment interest rates charged Therefore, on September 3, 2015 and January 1, 2016, CTLL declared a force majeure regarding the agreements to customers who pay their bills after the first due date, inasmuch as they violate section 31 of Law 24,240, for the acquisition of natural gas with Pan American Energy LLC Argentina and PEPASA, respectively, which ordering both the non application of pacts or accords that stipulate the interest rates that are being applied to resulted in the suspension of CTLL’s obligations under both agreements. Additionally, claims against CAMMESA the users of electricity –their unconstitutional nature– as well as the reimbursement of interest amounts illegally were filed regarding both agreements. collected from the customers of the service from August 15, 2008 through the date on which the defendant complies with the order to reduce interest. It is also requested that the VAT and any other taxes charged on the In the absence of a reply by the ES, on November 13, 2015 CTLL submitted an administrative claim prior portion of the surcharge illegally collected be reimbursed. to the filing of a complaint to reverse CAMMESA’s decision and, subsidiarily, to seek a redress for the damages sustained by CTLL. In view of this situation and after all administrative remedies had been exhausted, on October Amount: undetermined 7, 2016 the Company filed a complaint against the National Government for the January-March 2016 period. Procedural stage of the proceedings: On November 11, 2011, Edenor answered the complaint and filed a motion to dismiss for both lack of standing to sue (“excepción de falta de legitimación activa”) and the fact 38.2.2 that the claims at issue were being litigated in another lawsuit (“excepción de litispendencia”), currently in Income tax process, requesting as well that a summons be served upon the ENRE as a third-party defendant. Notice of 38.2.2.1 these pleadings was served upon the plaintiff. Prior to rendering a decision on the motion to dismiss, the Court Inflation adjustment ordered that the Court in Contentious and Administrative Federal Matters No. 2 – Clerk’s Office No. 3 provide it with the proceedings “Consumidores Financieros Asociación Civil vs EDESUR and Other defendants, for breach HIDISA and HINISA have assessed their income taxes for fiscal years 2012 - 2015 and CTG for the fiscal year of contract”. On April 8, 2014, the Court in Civil and Commercial Federal Matters No. 9 – Clerk’s Office No. 17 2015, taking into consideration the application of the inflation adjustment mechanisms set forth in Title VI of admitted the motion to dismiss due to the fact that the claims at issue were being litigated in another lawsuit the Income Tax Act, the update of Property, plant and equipment amortizations (Sections 83, 84 and 89), a cost (“excepción de litispendencia”), and ordered that the proceedings be sent to Federal Court No. 2 – Clerk’s Office restatement on account of the disposal of shares and mutual funds quotas (Sections 58, 61 and 89), and the No. 3 to be dealt with thereat, thus joining them to the case entitled “consumidores financieros vs Edesur update of intangible assets amortizations (Sections 81.c, 84 and 89, and Section 128 of its regulatory decree), to and other defendants, for breach of contract”. Apart from the fact that the proceedings have been received such effect using the domestic wholesale price index (IPIM) published by the National Institute of Statistics and in the Court that currently hears the case, which continues in process, no significant events have occurred. Censuses, until October 2015 and the index of consumer prices City of Buenos Aires (IPCBA) for the November- As indicated in caption a) above, due to the joining of those proceedings to those herein described, these December 2015 period, based on the similarity with the parameters put forward in the matter of “Candy S.A.” proceedings have been brought to trial. heard by the National Supreme Court of Justice, which on July 3, 2009 ruled for the application of the inflation adjustment mechanism. Conclusion: no provision has been recorded for these claims in these financial statements as Edenor believes, based on both that which has been previously mentioned and the opinion of its legal advisors, that there As of December 31, 2017 the Company, HIDISA, HINISA and CTG will hold a provision for the additional exist solid arguments for them to be considered unfounded. It is estimated that this legal action will not be income tax liabilities assessable for fiscal years mentioned in case the inflation adjustment had not been terminated in 2018. deducted. This provision amounts to $ 843 million including compensatory interest and was disclosed in the line “Income tax liability and minimum notional income tax non-current”. 38.1.2 Sales tax On March 31, 2017, CTG adhered to the tax moratorium set forth by Act No. 27,260 for income taxes corresponding to fiscal year 2015 on account of the application of the above-described inflation adjustment The Company maintains interpretative differences with the AFIP and Argentinian provincial tax authorities mechanism. related to taxes applicable to its oil and gas activity. The Company estimates that the outcome of these differences will not have significant adverse effects on the Company’s financial position or results of operations. 38.2.2.2 Tax refund claim HIDISA and HINISA have filed a note to the Province of Neuquén’s Revenue Department informing that they consider that the electric power generation activity conducted in that province should be covered by the The Company, HIDISA, HINISA and CPB have filed several tax refund claims in the amount of $ 1,228 million provisions of Section 12 of Act No. 15,336. Pursuant to this Section, revenues resulting from the generation of for overpaid income taxes taking into considerations the effects of the inflation adjustment mechanism. electric power are exempted from the provincial sales tax.

328 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 329 CONSOLIDATED FINANCIAL STATEMENTS NOTE 38: (Continuation) NOTE 38: (Continuation) On December 7, 2017, CPB collected the amount claimed for the 2002 period, which amounts to $ 4 million On March 31, 2017, CTLL and EASA adhered to the tax moratorium set forth by Act No. 27,260 regarding plus interest. claims for the 2011 period in the case of EASA, and the 2012, 2014 and 2015 periods in the case of CTLL.

The Company considers it has a high probability of obtaining a favorable final and conclusive ruling. As of December 31, 2017, and due to the uncertainty on whether it may obtain a favorable decision, the Company keeps a $ 97 million in the line “Income tax liability and minimum notional income tax non-current” 38.2.3 for the fiscal periods in which no tax losses have been evidenced. As of December 31, 2016 the minimum Minimum national income tax notional income tax provision amounted to $ 97 million, including compensatory interest.

38.2.3.1 38.2.4 Tax refund claim Distribution Segment The Company and CTLL have filed different petitions for refund against AFIP – DGI for the application of Legal action brought by Edenor (“Edenor S.A. VS FEDERAL GOVERNMENT – MINISTRY OF FEDERAL PLANNING the IGMP corresponding to the fiscal years 2008 and 2009, seeking the refund of $ 25 million, including the / PROCEEDING FOR THE DETERMINATION OF A CLAIM AND MOTION TO LITIGATE IN FORMA PAUPERIS”) recovery of payments recorded and the reversal of the payment made on account of the offsetting of several fiscal credits. As AFIP didn’t answer the claim, the Company and CTLL brought the tax refund claim before a On June 28, 2013, Edenor instituted these proceedings for the recognizance of a claim and the related leave National First Instance Administrative Litigation Court Federal. to proceed in forma pauperis, both pending in the Federal Court of Original Jurisdiction in Contentious and Administrative Federal Matters No. 11 – Clerk’s Office No. 22. On August 25, 2016 CTLL obtained a favorable ruling by the Chamber of Appeals, which upheld the first instance decision sustaining the refund claim; however, the payment has not been received as of the date of Purpose of the main proceedings: To sue for breach of contract due to the Federal Government’s failure to these financial statements and the company is filing all applicable claims in this respect. perform in accordance with the terms of the “Agreement on the Renegotiation of the Concession Agreement” (“Acta Acuerdo de Renegociación del Contrato de Concesion” – the Adjustment Agreement) entered into with The Company considers it has a high probability of obtaining a favorable final and conclusive ruling. Edenor in 2006, and for damages caused as a result of such breach.

38.2.3.2 Procedural stage of the proceedings: On November 22, 2013, Edenor amended the complaint so as to Declaratory relief extend it and claim more damages as a consequence of the Federal Government’s omission to perform the The Company and its subsidiaries filed a petition for declaratory relief pursuant to Section 322 of the Federal obligations under the aforementioned “Adjustment Agreement”. On February 3, 2015, the Court hearing the Code of Civil and Commercial Procedure against AFIP in order to obtain assurance as to the application of the case ordered that notice of the complaint be served to be answered within the time limit prescribed by law, minimum notional income tax for the fiscal years from 2010 to 2015, based on the decision by the CSJN in which was answered by the Federal Government in due time and in proper manner. Subsequently, Edenor S.A. “Hermitage” dated on September 15, 2010. reported as new event, under the terms of Section 365 of the CPCCN, the issuance by the SEE of Resolution No. 32/15. After notice was served, the Court rejected the treatment thereof as an “event”, holding Edenor liable In this established precedent, the Court had declared this tax unconstitutional since it may be considered for costs. Edenor filed an appeal, which was admitted “with a postponed effect” (i.e. the Appellate Court will unreasonable under certain circumstances and since it breaches the tax capacity principle. grant or reject the appeal when deciding on the granting or rejection of the appeal against final judgment). On October 16, 2015, the Attorney General’s Office requested to borrow the records for a term of 20 days, which Furthermore, the Company and certain subsidiaries have requested the granting of interim injunctive relief were returned on December 1, 2015, in order to control the work done by the state’s attorneys. On December so that AFIP may refrain from demanding payment or instituting tax execution proceedings on the tax and for 4, 2015, Edenor requested the suspension of the procedural time-limits under the terms of section 157 of the the fiscal year mentioned. The Court seized of in the proceedings decided to reject the precautionary measures. CPCCN, in accordance with the provisions of SEE Resolution No. 32/15, notice of which has been served upon the defendant. On February 16, 2016, Edenor reiterated the request due to the revocation of SEE Resolution During November and December, 2015, the Company and EGSSA (currently merged with the Company) No. 32/15. At the date of issuance of this report, and by “agreement of the parties”, the procedural time-limits received a favorable decision by the first-instance Court and the Chamber of Appeals, respectively, on the continue to be suspended. declaratory relief claim filed for fiscal period 2010. Regarding the motion to litigate in forma pauperis that was filed on July 2, 2013, the discovery period has During the month of November 2016, EGSSA obtained a favorable first-instance decision on the declaratory ended and the period for the parties to put forward their arguments on the merits of the evidence produced relief claim filed for fiscal period 2011. has begun. At the date of issuance of these financial statements, the procedural time-limits in this incidental motion, as those in the main proceedings, continue to be suspended. During December 2016, the Treasury concluded an inspection on Edenor for fiscal year 2014, during which Edenor had applied the criterion established by the “Hermitage” decision in its IGMP. Conclusion: Edenor believes that there exist solid legal arguments to support its claim. It is estimated that this legal action will not be terminated in 2018. Taking into consideration the different rulings favorable to the Company and its subsidiaries, and in line with the case law established by the “Hermitage” decision and the Treasury’s position on closing several verifications for periods where taxpayers do not have any taxable income (before the calculation of tax losses), in which the Treasury has waived its claims for these debts based on the unfavorable case law and in line with the criterion established by the Court, the Company has decided to derecognize the liabilities it had previously disclosed for the IGMP it should have assessed if the provisions of the Hermitage decision had not applied.

330 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 331 CONSOLIDATED FINANCIAL STATEMENTS NOTE 39: (Continuation) NOTE 39: As of December 31, 2017 and 2016, future minimum collections with respect to operating assignments of use are as follow: LEASES 12.31.2017 12.31.2016

2017 137 109 39.1 2018 137 109 Operating 2019 131 103 Total future minimum lease collections 405 321 a. As lesee The features that these assignments of use have in common are that payments (installments) are established as fixed amounts; there are neither purchase option clauses nor renewal term clauses (except for the assignment of use contract of the Energy Handling and Transformer Center that has an automatic renewal clause for the Total income from operating assignments of use for the years ended December 31, 2017 and 2016 is $ 131 term thereof); and there are prohibitions such as: transferring or sub-leasing the building, changing its use and/ million and $ 108.2 million, respectively. or making any kind of modifications thereto. All operating assignment of use contracts have cancelable terms and assignment periods of 2 to 13 years.

Among them the following can be mentioned: commercial offices, two warehouses, the headquarters 39.2 building (comprised of administration, commercial and technical offices of Edenor), the Energy Handling and Financial Transformer Center (two buildings and a plot of land located within the perimeter of Central Nuevo Puerto and Puerto Nuevo) and Las Heras Substation. Corresponds to the financing granted to TGS for the sale of certain properties, plant and equipment belonging to the Oil and Gas business segment. This agreement was entered into in August 11, 2016 and consists of the As of December 31, 2017 and 2016, future minimum payments with respect to operating leases of use are collection of 119 monthly installments of US$ 623 thousand and a purchase option for the same amount as follow: payable at the end of the 120 months of contract life. As of December 31, 2017, this credit is included in other current and non-current receivables in an amount of $ 72 million and $ 89 million, respectively. 12.31.2017 12.31.2016

2017 - 41 2018 84 8 2019 84 9 NOTE 40: OPERATIONS IN HYDROCARBON 2020 35 6 2021 3 2 CONSORTIUMS Total future minimum lease payments 206 66

40.1 Total expenses for operating leases of use for the years ended December 31, 2017 and 2016 are $ 85 million General considerations and $ 68 million, respectively. The Company is jointly and severally liable with the other participants for meeting the contractual obligations b. As lessor under these arrangements.

Edenor has entered into operating assignment of use contracts with certain cable television companies The production areas in Argentina are operated pursuant to concession production agreements with free granting them the right to use the poles of Edenor’s network. Most of these contracts include automatic hydrocarbons availability. renewal clauses. According to Law No.17,319, royalties equivalent to 12% of the wellhead price of crude oil and natural gas are paid in Argentina. The wellhead price is calculated by deducting freight and other sales related expenses from the sale prices obtained from transactions with third parties. This rate may increase from 3% to 4% depending to the producing jurisdiction and market value of the product.

332 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 333 CONSOLIDATED FINANCIAL STATEMENTS NOTE 40: (Continuation) NOTE 40: (Continuation)

40.2 40.3 Oil and gas areas and participation in joint-operations Production concession in the Veta Escondida area

As of December 31, 2017, the Company and associates are part of the joint operations and consortia for the On April 4, 2012 by the sanction of the Provincial Decree No. 563/12, Petrobras Argentina was notified exploration and production of oil and gas as indicated below: of a decision of the government of the Province of Neuquén to terminate the production concession in the Veta Escondida area. The Company has sought relief alleging that it has complied with all requirements under the concession and that it did not commit any breach which would support the decision adopted by the Name Note Location Participation Participation Operator Duration Government of Neuquén. Direct Indirect Up To As of the date of these financial statements, the parties are negotiating a solution to the conflict taking into Argentine production account the current situation of the industry and market. 25 de Mayo - Medanito S.E. (g) Río Negro 100.00% - PAMPA 2026 Jagüel de los Machos (g) Río Negro 100.00% - PAMPA 2025 Bajada del Palo (g) Neuquén 3.85% 43.07% PELSA 2025 40.4 Río Neuquén (g) Río Negro and Neuquén 33.07% - YPF 2027/2051 Entre Lomas (g) Río Negro and Neuquén 3.85% 43.07% PELSA 2026 New concession and changes in working interest oil Sierra Chata Neuquén 45.56% - PAMPA 2023 El Mangrullo Neuquén 100.00% - PAMPA 2025 and gas areas La Tapera - Puesto Quiroga Chubut 35.67% - Tecpetrol 2027 40.4.1 El Tordillo Chubut 35.67% - Tecpetrol 2027 Parva Negra Area Aguaragüe Salta 15.00% - Tecpetrol 2023/2027 Gobernador Ayala (a) Mendoza 22.51% - Pluspetrol 2036 Petrobras had submitted a request for an exploitation concession in Parva Negra area, holding a 100% Charco del Palenque - Jarilla (g) Río Negro 3.85% 43.07% PELSA 2034/2040 interest. In 2014, Petrobras renegotiated its rights on the area and entered into a joint operation agreement with Quemada GyP, holder of the Parva Negra Este exploration permit, with GyP having a 15% interest and Petrobras (operator) Anticlinal Neuquén 15.00% - YPF 2026 having a 85% interest. Estación Fernández Oro (e) Río Negro 15.00% - YPF 2026 Rincón del Mangrullo (e) Neuquén 50.00% - YPF 2051 Regarding that circumstance, the Executive Branch of the Province of Neuquén, through Decree No. 575/2014, Senillosa (f) Neuquén 85% - PAMPA 2040 approved the joint operation agreement (UTE) for Parva Negra Este area, while Decree No. 1600/2015 approved Foreign Amendment No. 1 whereby EXXONMOBIL Exploration Argentina is authorized to participate. The Company has Oritupano - Leona Venezuela - 22.00% PDVSA 2025 a 42.5% stake and the remaining commitment to drill 1 horizontal branch of approximately 2,500 meters in an Acema Venezuela - 34.49% PDVSA 2025 exploratory well, and, if successful, to complete and test it, until the end of 2017. La Concepción Venezuela - 36.00% PDVSA 2025 Mata Venezuela - 34.49% PDVSA 2025 With the drilling and completion of an approximate 2,500-meter horizontal branch in the PNE.x-1001(h) well and the corresponding trials which are currently under way, there are no outstanding commitments under this Argentine exploration permit. A one-year extension was requested to conduct tests and trials in the well and evaluate its production Parva Negra Este Neuquén 42.50% - PAMPA 2018 behavior in order to conclude the evaluation of the permit. Enarsa 1 (E1) (c) Argentine Continental 25.00% - YPF - Shelf 40.4.2 Enarsa 3 (E3) (c) Argentine Continental 35.00% - PAMPA - Shelf Senillosa Area Chirete Salta 50.00% - High Luck 2017 On May 18, 2016, and subject to certain conditions subsequent, PEPASA and Rovella agreed on the Group Limited assignment of Rovella’s 35% interest in the whole Senillosa joint venture in favor of PEPASA in consideration of Río Atuel Mendoza 33.33% - Tecpetrol 2018 the forgiveness of a debt it held with the company. Thus, PEPASA now holds an 85% interest in the Senillosa Borde del Limay (b) Neuquén 85.00% - PAMPA 2014 joint venture. Los Vértices (b) Neuquén 85.00% - PAMPA 2014 Veta Escondida y Rincón Neuquén 55.00% - PAMPA 2027 de Aranda Lastly, as of the date of these financial statements and as a result of the low pressure and production in the wells, the long-term production trial was terminated and the built facilities were dismantled. Therefore, PEPASA Notes: (a) The granting of the concession is in progress and the term will be 25 years from such granting. (b) It is in process of returning to Gas recorded an impairment of Property, Plant and Equipment in the amount of $ 35 million under “Exploration y Petróleo del Neuquén SA (“GyP”, permit holder). (c) The Company, in compliance with section 5.2 of the respective partnership agreements, Expenses”. informed to the partners of Enarsa 1 and Enarsa 3, its decision not to participate in retraining them in exploration permits according to section 30 of Law 27.007. (d) Within the concession agreement renegotiation with the Province of Río Negro, it was agreed to assign to EDHIPSA 5% of the rights and obligations inherent to the production concession in Rio Neuquén area in the Province of Río Negro, to be assumed in equal parts by the During fiscal year 2017, tasks for the abandonment of 12 wells were initiated, which will be concluded in the partners. (e) The 15% interest in the assets corresponds to 12 wells in the Estación Fernandez Oro area and 10 wells in the Anticlinal area. first semester of 2018. (f) The company is currently conducting a process for the total reversal of the area. (g) In January 2018, the Company decided to sell these interests (Note 1).

334 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 335 CONSOLIDATED FINANCIAL STATEMENTS NOTE 40: (Continuation) NOTE 40: (Continuation)

40.4.3 Las Tacanas Norte block has a 120 km2 surface and is adjacent to El Mangrullo block, which is currently Áreas Río Neuquén and Aguada de la Arena operated by the Company. The accepted offer consists of a perforation of up to 8 wells with the objective toward Vaca Muerta formation, and other exploratory studies. The exploratory license is for a 4-year term (2018-2021). Con fecha 14 de octubre de 2016, la Compañía concretó la venta del 33,33% de la concesión en el área de Río Neuquén y la totalidad de su participación en Aguada de la Arena a YPF. El 27 de octubre de 2016, la 40.4.7 Compañía también concretó la venta, a una afiliada de Petrobras Brasil, del 33,6% de los derechos y obligaciones Rincón del Mangrullo area de la concesión en el área de Río Neuquén y el 100% de los derechos y obligaciones en las áreas de Colpa y Caranda en Bolivia. On August 1, 2017, YPF entered into an Agreement with the Province of Neuquén for the awarding of an unconventional exploitation concession in the Rincón del Mangrullo area, which was approved by a provincial 40.4.4 executive order. Río Neuquén and Aguada de la Arena areas The main commitments of the Agreement are as follows: Pursuant to Decree No. 776/2016 passed on June, 13, 2016, the Executive Branch of the Province of Neuquén approved the Investment Memorandum of Agreement executed by Petrobras Argentina and such province, - A 35-year extension of the exploitation concession, whereunder a 35-year non-conventional exploitation concession was granted over the Río Neuquén area, - A commitment to pay a bond, a corporate social responsibility contribution and the stamp tax for a including a 5-year pilot development plan period. total amount of US$ 20 million, and

This agreement mainly provides that Petrobras will be under a duty to execute a pilot plan for the development - An investment commitment of US$ 150 million aiming to further the development of the Mulichinco of non-conventional hydrocarbons (tight gas) involving the drilling of 24 wells and the refurbishing of surface formation (tight gas) and to explore the potential of the Lajas and Vaca Muerta formations. facilities from 2016 through 2020. Total investments for such period are estimated at US$ 346 million. The agreement provides for the payment of a fixed bond of US$ 5.7 million and a Corporate Social Responsibility Although the Company will participate in this new unconventional concession in Rincón del Mangrullo jointly Contribution in the amount of US$ 8.6 million. with YPF, its investment commitment will amount to 30% of the total amount agreed upon between YPF and the Province of Neuquén as PEPASA’s Agreement with YPF does not include the Vaca Muerta formation. In addition, through a payment of $ 208 million, differences in interpretation concerning the sales tax in the proceedings pending before the Tax Bureau of the Province of Neuquén were finally settled. 40.5 YPF S.A. has been the operator of the area, where Petrobras Operaciones S.A. has an interest, since 2016. Investment Commitments 40.4.5 In the Province of Río Negro, in the 25 de Mayo – Medanito, Jagüel de los Machos and Río Neuquén 25 de Mayo-Medanito S.E. area in the Province of La Pampa concessions, the Company committed to spend a total estimated amount of US$ 908 million in exploration On March 30, 2016, the Legislature of the Province of La Pampa enacted a law declaring “of strategic interest” and exploitation activities (US$ 451 million until 2017, US$ 266 million during the 2018-2020 period and US$ the 25 de Mayo-Medanito S.E. area located in that province with the purpose of transferring its possession to 191 million from 2021 onwards). Additionally, in Entre Lomas field concession, PELSA committed to spend a the province after the expiration of the original term of the concession to Petrobras for 25 years. total estimated amount of US$ 492 million in exploration and exploitation activities as from the agreement’s effective date (US$ 173 million until 2017, US$ 140 million during the 2018-2020 period and US$ 179 million On October 29, 2016, the Province of La Pampa took possession of the 25 de Mayo-Medanito S.E area. from 2021 onwards).

As a result of the foregoing, the Company recognized a loss of $ 213 million, as of December 31, 2016 mainly In January 2018, the Company decided to sell its 58.88% interest in PELSA and its interests in the Entre related to environmental remediation and retirement obligations Lomas, Bajada del Palo, Agua Amarga and Medanito / Jagüel de los Machos areas to Vista Oil & Gas (Note 1.5.2).

PEPASA and Pampetrol SAPEM entered into an operating services agreement for the area for a term of one year as from October 29, 2016 in consideration of a compensation equivalent to approximately 62% of the hydrocarbon production in the area. This exploitation concession belongs to Pampetrol, and the agreement has not granted the Company any rights or interests over it.

On October 28, 2017, the rendering of the operating services terminated and the area began to be operated by Pampetrol SAPEM. The Company has performed all undertaken obligations, returned the facilities as and when required and in an operating status, and provided all the applicable environmental documentation.

40.4.6 Las Tacanas Norte area Under the Public Tender No 1/2017 - V Round, for the selection of companies interested in the exploration, development and eventual exploitation of the blocks located in the Province of Neuquén and concessional in favor of the Gas y Petróleo del Neuquén S.A. (‘GyP’), on November 1, 2017, the Board of Directors of GyP has proceed to award in favor of the Company for the offer summited for Las Tacanas Norte block.

336 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 337 CONSOLIDATED FINANCIAL STATEMENTS NOTE 40: (Continuation) NOTE 41: ECONOMIC AND FINANCIAL 40.6 SITUATION OF GENERATION, TRANSMISSION Exploratory well costs AND ENERGY DISTRIBUTION SEGMENTS The following table provides the year end balances and activity for exploratory well costs, during the years ended December 31, 2017 and 2016:

12.31.2017 12.31.2016 41.1 Generation At the beginning of the year 274 113 Increase for subsidiries acquisition - 227 During the fiscal years ended December 31, 2017 and 2016, CPB recorded comprehensive losses for $ 120 Increases 196 102 million and $ 210 million, respectively. Transferred to development (177) (57) Loss of the year (27) (111) This is mainly due to: (i) a heavier financial burden due to the cessation of the capitalization of financial expenses corresponding to the portion of CAMMESA’s financing destined to the Technological Upgrade Works At the end of the year 266 274 for units TV29 and TV30, which concluded in 2016 and 2017, respectively; (ii) certain sudden outages of both units; and (iii) the delay in their commissioning after the conclusion of the overhauls. Number of wells at the end of the year 7 7 However, CPB is starting to remedy this situation with the higher reliability and availability of turbines, as well as an improvement in the remuneration scheme set forth by SEE Resolution No. 19/2017. This allowed for the 40.7 operating income to record a profit of $ 252 million.

Oil and gas reserves (INFORMATION NOT COVERED BY THE As of December 31, 2017, CPB’s working capital was negative in the amount of $ 375 million.

AUDITORS’ REPORT) It should be pointed out that CPB has recorded financing with affiliates in the amount of $ 449 million under “Loans”, which will be partially refinanced through future disbursements by CAMMESA under the Overhauls The table below presents the estimated proved reserves of oil (including crude oil, condensate and LNG) and Financing Agreement and with the higher operating cash flow expected by the Company. natural gas, by geographic area as of December 31, 2017. Notwithstanding the foregoing, and according to the estimates made by CPB’s Management, there is no Proved Reserves significant substantial doubt on CPB´s ability to continue operating as an on-going business.

Proved Developed Proved Undeveloped Total Proved 41.2 Oil and Natural Oil and Natural Oil and Natural LNG(1) Gas(2) LNG(1) Gas(2) LNG(1) Gas(2) Electricity distribution The measures adopted by the Federal Government, aimed at resolving the electricity rate situation of the Argentina 32,935 12,646 8,695 8,667 41,630 21,313 electric power sector during 2016, together with the application of the RTI as from February 1, 2017 are making it possible to gradually restore Edenor’s economic and financial position; therefore, Edenor’s Board of Directors is optimistic that the new electricity rates will result in Edenor’s operating once again under a regulatory Total at 12.31.2017 32,935 12,646 8,695 8,667 41,630 21,313 framework with clear and precise rules, which will make it possible to not only cover the operation costs, afford the investment plans and meet debt interest payments, but also deal with the impact of the different variables that affect Edenor’s business. Notes: (1) In thousands of barrels. (2) In millions of cubic meters. As of December 31, 2017, Edenor’s comprehensive income results in a profit to $ 691 million, whereas the working capital totals $ 3.3 billion – deficit-, which includes the amount owed to CAMMESA for $ 4.7 billion (principal plus interest accrued as of December 31, 2017).

Edenor’s equity and negative working capital reflect the deteriorated financial and cash position Edenor still has as a consequence of both the Federal Government’s delay in the compliance with certain obligations under the Adjustment Agreement and the constant increase in operating costs in prior fiscal years, which Edenor absorbed in order to comply with the execution of the investment plan and the carrying out of the essential

338 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 339 CONSOLIDATED FINANCIAL STATEMENTS NOTE 41: (Continuation) NOTE 42: (Continuation) operation and maintenance works necessary to maintain the provision of the public service, object of the in Block 18 and Palo Azul Unified Field. Consequently, through Resolution dated November 25, 2010 the concession, in a satisfactory manner in terms of quality and safety. Hydrocarbon Secretary notified EcuadorTLC S.A. the termination of the Participation Agreements and instructed Petroamazonas EP to undertake the operational transition process. Despite the previously described progress achieved with regard to the completion of the RTI process, at the date of issuance of these financial statements, the definitive treatment to be given, by the MINEM, to the Section 9 of the Amendatory Agreements indicates that the Ecuadorian government must compensate effects resulting from the non-compliance with the Adjustment Agreement, including the level of penalties the the terminated parties in an amount equivalent to unamortized investments adjusted by a variable rate and remaining balances with CAMMESA and other effects caused by the partial measures adopted, has yet to be provides for a period of time for the Ecuadorian government and the terminated parties to work out the details defined during the years prior to the validity of the new RTI. of the termination payment.

These issues, among other, are the following: On March 18, 2011, the Hydrocarbon Secretary issued Official Notice No. 626 to inform the Company that it was analyzing and structuring a new regulatory framework to determine a settlement price for the termination, i. the treatment to be given to the funds received from the Federal Government through the loans for to be applied instead of the provisions of the Amendatory Agreements. On April 11, 2011, the Company filed an consumption (mutuums) agreements entered into with CAMMESA for the fulfillment of the Extraordinary answer to the Official Notice and rejected the terms thereof claiming these did not comply with the conditions Investment Plan, granted to cover the insufficiency of the FOCEDE’s funds; set forth in the Amendatory Agreements by the parties concerned, which conditions may not be unilaterally ii. the conditions for the settlement of the balance outstanding with CAMMESA at the date of issuance of modified. In this respect, the Company informed the Hydrocarbon Secretary that it would continue to seek SEE Resolution No. 32/15; compliance with the terms of the Amendatory Agreements.

iii. the treatment to be given to the Penalties and Discounts whose payment/crediting is pending, On December 9, 2011, Petrobras Argentina served a notice on the Ecuadorian government (Trigger Letter) determined by the ENRE, under the terms and during the term of validity of the Agreement Act informing the existence of a dispute under the terms of the Treaty for the Promotion and Reciprocal Protection of unfulfilled by the National State. Investments previously entered into between Argentina and Ecuador. The Treaty, implies the opening of a negotiation period prior to a possible arbitration to seek enforcement of the provisions of the Amendatory Agreements. In this regard, on April 26, 2017 Edenor was notified that the MINEM had provided that, upon completion of the RTI process, the SEE -with the participation of the Under-Secretariat for Tariff Policy Coordination On June 21, 2013, not having reached an agreement with the Ecuadorian government, EcuadorTLC SA, and the ENRE-, should determine in a term of 120 days whether any pending obligations existed until the Cayman International Exploration Company and Teikoku Oil Ecuador, members of the joint operation, submitted effective date of the electricity rate schedules resulting from the RTI and in connection with the Adjustment to the Ecuadorian Goverment a letter of notification of a dispute under the terms of the Amendatory Agreements Agreement entered into on February 13, 2006. Likewise, the treatment to be given to those obligations was starting their decision to submit the dispute to international arbitration under the arbitration Rules of the United also to be determined. Edenor has submitted the information requested by the MINEM in the framework of Nations Commission on International Trade Law. this requirement. At the date of issuance of these financial statements such situation is still pending resolution. Finally, on February 26, 2014 the request for arbitration against Ecuador and EP Petroecuador, was presented in the above terms. On January 16, 2018, the Arbitration Court passed the Award in which it determined the Settlement Value that amounts to US $ 515 million, payable US $ 176 million to EcuadorTLC S.A., based on its participation in the Block.

NOTE 42: Even though the parties may file a plea of nullity before the Courts of the City of Santiago de Chile within 3 months OPERATIONS IN ECUADOR after the service of notice of the award, they have begun to negotiate the conditions to cancel the settlement. As of December 31, 2017 the Company has recorded $ 998 million to be recovered from the Ecuadorian State in accordance with the provisions of the Amendments Agreement, disclosed in Other non-current receivables. As from 2006 the Ecuadorian government implemented far-reaching tax and regulatory reforms in connection Such amount does not include the calculation of the update provided for in such agreements since, as of with hydrocarbon activities, which involved material changes in the conditions set forth at the time of execution December 31, 2017, it was not possible to determine with certainty the applicable adjustment rate. of participation agreements. Crude Oil Transportation Agreement with OCP Amendatory Agreements and Law amending the Hydrocarbon Law The Company holds a contract with OCP, whereby it assumed a commitment to an oil transport capacity of On October 31, 2008, EcuadorTLC S.A., Teikoku Oil Ecuador and Petroecuador, among others, executed the 80,000 barrels/day for a term of 15 years counted as from November 10, 2003. Amendatory Agreements regulating the operation of Block 18 and Palo Azul while the parties negotiated the migration to a new contract modality. The transport contract is a “Ship or Pay” contract, so the Company must meet its contractual obligations for the total volume agreed upon, regardless of the real volume transported, and has to pay, the same as the other On July 26, 2010, the amendment to the Hydrocarbon Law in force was approved by operation of producers, a rate that covers the operating costs and financial services of OCP, among others. law, which provided for, among other things, the obligation to migrate to a new contract modality before November 24, 2010. EcuadorTLC has the right to sell the transport capacity in the heavy crude oil pipeline (OCP) to mitigate the negative impact of its non-use. Periodically, the Company negotiates the sale of the hired transport capacity. As a result of the negotiation process mentioned above, the Company decided not to accept the final On December 31, 2008, the Company entered into a contract with Petroecuador whereby the Ecuadorian State proposal received from the Ecuadorian government, as this is insufficient to migrate to Service Agreements assumed a commitment to charge, effective January 1, 2009, the available crude owned by it and transported

340 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 341 CONSOLIDATED FINANCIAL STATEMENTS NOTE 42: (Continuation) through the heavy crude oil pipeline to the oil transport capacity hired by the Company, up to a maximum NOTE 43: REGULARIZATION REGIME volume of 70,000 barrels/day. In addition, the Company sold transport capacity of approximately 8,000 barrels/ day of oil for the period from July 2004 to January 2012. As a result of the contract non-compliance by the (MORATORIUM) buyers, the Company is making the pertinent claims. Lastly, 40% of the net contractual commitment resulting from the above had been assumed by Teikoku Oil Ecuador, as consideration for the transfer to this company of the 40% interest in Block 18 and Palo Azul in October 2008. Between the 29 and the 31 of March 2017, the Company adhered to the regularization regime (moratorium) In the third quarter of 2015, the Company, through Petrobras Bolivia Internacional S.A., reassumed the provided for Law No. 27,260 in relation to certain tax claims and provisions. The Company related liabilities obligations previously assigned to Teikoku Oil Ecuador relating to the mentioned agreement and received a US$ were mainly attributable to contingencies identified in Petrobras’s acquisition process including interpretation 95 million payment. differences with the Argentine tax authority regarding i) the time of recording well abandonment expenses for income tax purposes, ii) the exemption from the Tax on Personal Assets as Substitute Taxpayer for the As of December 31, 2017 the Company carries a liability for the net transport capacity hired from OCP, shareholder PPSL; iii) the Tariff heading used by the Company for certain exported products; and iv) inaccurate in current provisions for $ 389 million. The premises used in calculation of the provisions mainly include the customs regarding the importation of a turbine supplied by Siemens Germany, including certain spare parts estimate of the applicable rate and the transport capacity used by third parties. The discount rates used in that had not been required nor declared by the Company. In relation to the last matter described before, the the measurement consider the type of liability in question, the business segment and the country where the Company entered into an agreement with Siemens pursuant to which Pampa received the reimbursement of transactions are conducted. In the assessment of liabilities as of December 31, 2017, the Company reviewed the related incurred costs. As of December 31, 2016, the carrying amount of the matters that were included in the assumptions used for the calculation based on the progress in the contractual renegotiations, which resulted in moratorium amounted to $ 1,332 million and $ 668 million disclosed as provisions and tax payables, respectively. a $ 150 million net profit under “Other operating income”. No additional obligations resulting from contractual renegotiations are estimated as of December 31, 2017. As the adhesion to the regularization regime established benefits of releasing tax fines and reducing compensatory interests, the Company has recorded on March 31, 2017 a net gain after income tax effects of In January 2018, EcuadorTLC assigned to PEO a transportation capacity of 10,000 barrels/day. In consideration $335 million. thereof, EcuadorTLC will pay to PEO US$ 2.9 million so that PEO may cancel the commitments associated with the transportation capacity. To afford this compensation, EcuadorTLC will receive a loan from the Company.

In January 2018 PEO declared the Equity Expropriation Event, whereby, under certain circumstances stipulated in the agreement, the Company, in its capacity as guarantor, will bear the payments for the capital charges associated with the assigned transportation capacity. NOTE 44:

The Company must hold collaterals to ensure compliance with its financial commitments under the Ship or PROFIT DISTRIBUTIONS Pay transport contract with OCP and the commitments related to OCP trade payables. The collaterals, falling due in December 2018, will be gradually released in the same proportion as those commitments become extinguished. As of December 31, 2015, the Company holds collaterals for approximately US$ 23 million, which are disclosed under “Other current receivables” in the line item “Guarantee deposits”. The Company is required Dividends to renew or replace the collaterals as they fall due; otherwise, those amounts shall be paid in cash. In accordance with Law No. 25,063, passed in December 1998, dividends distributed in cash or in kind, in excess of accumulated tax profits at the end of the year immediately before the date of payment or distribution, Investment in Oleoductos de Crudos Pesados (OCP) - Ecuador will be subject to a 35% income tax withholding in a single and final payment. To such effect, income to be The Company has a 11.42% equity interest in OCP, an oil pipeline in Ecuador that has a transportation considered in each fiscal year will be that resulting from adding to the specific income determined pursuant to capacity of 450,000 barrels/day. the general provisions of the Income Tax Act the dividends or earnings from other companies not computed within the determination of such income during the same fiscal periods. The distribution of dividends is made OCP has negative equity as a result of certain tax assessments in favor of the Government of Ecuador based on the Company’s Stand-Alone Financial Statements. in issues where OCP and the Ecuadorian Treasury have differences in interpretation. However, and since the Company has not made any capital contributions or financial assistance commitments to OCP, this shareholding has been valued at zero.

342 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 343 CONSOLIDATED FINANCIAL STATEMENTS NOTE 45: (Continuation) NOTE 45: COMPENSATION PLANS 45.2 Stock-based Compensation Plan – Certain officers and other key staff 45.1 On February 8, 2017, the Company’s Board of Directors approved the creation of a stock-based compensation plan and the first Specific Program (2017-2019), whereby certain officers and other key staff covered by each Company-Value Compensation - PEPASA Specific Program will receive a certain number of company shares within the stipulated term aiming to encourage On November 6, 2013, PEPASA’s Extraordinary General Meeting of Shareholders resolved to approve the alignment of the employees performance with the Company’s strategy and to generate a clear and direct a variable and contingent compensation to certain officers equivalent to 7% of the capital stock after the link between the creation of value for shareholders and the employees’ compensation. Company’s capital stock increase, valued based on the difference between the share’s market value at the time of exercising the right and a given value of US$ 0.1735 per share determined at the exact moment of the Furthermore, the Company’s Board of Directors approved the acquisition of own shares in the market as a capital stock increase. means of implementing the Plan.

On January 13, 2014, the capital stock increase was carried out and the rights granted to Officers to receive The first Specific Program was established for a three-year period, between 2017 and 2019, and considers the Company-Value Compensation became effective. the compensation period comprised between August 1 and December 31, 2017, plus the assigned bonus, as the basis for calculating the number of shares, with one-third vesting each year, which will be awarded together The variable remuneration may be required by officers as follows: with the payroll for April of the year following the vesting date.

1. 25% as from June 2015 On April 7, 2017, the Company’s Shareholders’ Meeting ratified the approval of the Stock-based Compensation 2. 7.14% as from December 2015 Plan by the Board of Directors on its February 8, 2017 meeting, as well as its terms and conditions; and approved the cancellation of the preferential offer to shareholders in respect to the disposition of such shares 3. 32.15% as from June 2016 as authorized by Section 67 of Capital Markets’ Act No. 26,831 for the purposes of implementing such Plan. 4. 35.71% as from June 2017 The number of shares is calculated based on a percentage over the total annual remuneration, plus the bonus The given right may be monetized at any time from the date of effective enforcement until November 15, assigned to each covered employee, divided by the weighted average price, in pesos, of the Company’s share and 2020 (by 5%) and 11 January 2021 (for the remaining 2%) over 7% of the share capital calculated according to ADR for the same period, provided the employment relationship continues at least as at each vesting date. what was detailed in the first paragraph of the note. As of the issuance date of these Financial Statements, the Company has: (i) determined that 383,198 treasury The fair value of the Option has been measured according to the Black-Scholes valuation model. The main shares should be delivered to employees pursuant to the first Specific Program (2017-2019 period), with vests variables considered in such model were the following: in March 2017, 2019 and 2020, of 33%, 33% and 34%; and (ii) estimated a quantity of 672.898 treasury shares should be delivered to employees pursuant to the second Specific Program 2018-2020, with vests in March 1. 54.3% volatility based on the volatility of the shares of other comparable companies; 2019, 2020 and 2021, of 33%, 33% and 34%. 2. 1,6886% risk-free U.S. dollars interest rate; As of the issuance date of these Financial Statements, the Company has acquired 193,000 treasury shares Since its organization, PEPASA s growth and performance has far exceeded all initially defined metrics, and 92,280 treasury ADRs for an amount of $ 72 million, which will be destined to the implementation of the parameters, and development and business plans. Therefore, and in view of its officers’ significant contribution Company’s Stock-based Compensation Plan. to meeting such goals, on December 28, 2015, PEPASA entered into an amendment to the compensation agreement providing for the full and irrevocable accrual of the variable remuneration to be collected by officers regarding the percentages which are not yet due effective as from that date, without this affecting the previously 45.3 described enforceability. Compensation agreements - Senior Management On January 18, 2017, PEPASA’s executives requested the monetization of a significant part of the right due at that date, which was canceled by the Company on January. On June 2, 2017, the Board of Directors approved the execution and signing of compensation agreements with the Company’s main officers (the “Senior Management”), conditional upon their approval by the Annual Ordinary Meeting of Shareholders to be held each year. These agreements are effective as of January 1, 2017.

In accordance with international practices, the purpose of these agreements is to efficiently align the Senior Management’s interests with those of the Company and its shareholders, creating value for them only inasmuch as value is generated for shareholders, that is, if the Company’s market value increases.

344 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 345 CONSOLIDATED FINANCIAL STATEMENTS NOTE 45: (Continuation) Under these agreements, the Senior Management will be entitled to a fixed compensation and an annual, NOTE 47: variable and contingent long-term compensation related to the Company’s annual market value appreciation, with a cap on the Company’s operating income NEW GENERATION PROJECTS With the purpose of avoiding duplication, any analogous compensation that the Senior Management had received from any of the Company’s subsidiaries, will be deducted from the compensation amount in proportion to the Company’s interests in such subsidiaries. Under the National Government’s call for the expansion of the generation offer, the Company participates in the following thermal generation closing projects: 45.4 47.1 Share-based Compensation Plan - Edenor 2014 Agreement for the Increase of Thermal Generation In the last months of fiscal year 2016, Edenor’s Board of Directors proposed that the treasury shares be used for the implementation of a long-term incentive plan in favor of executive directors, managers or other Availability personnel holding key executive positions in the Company in an employment relationship with the latter and those who in the future are invited to participate, under the terms of section 67 of Law No. 26,831 on Capital On September 5, 2014, the Company, together with its generation subsidiaries, executed a thermal Markets, after the effort made by the directors in the negotiation of the RTI. The plan was ratified and approved generation availability increase agreement with the National Government through the application of LVFVDs by the ordinary and extraordinary shareholders’ meeting of Edenor held on April 18, 2017. and the generators’ own resources.

At the date of issuance of these condensed interim financial statements, Edenor awarded a total of 1,618,332 The project consisted of a 120 MW expansion in CTLL’s power plant generation capacity through the shares to executive directors and managers as additional remuneration for their performance in special processes installation of two 8 MW engine generators and a 105 MW high-efficiency gas turbine. developed during fiscal year 2016. On July 15, 2016, the new 105 MW high-efficiency gas turbine was commissioned for service, whereas the second project is currently under construction, and its commissioning is expected for May 2018.

NOTE 46: 47.2 INCIDENT AT CENTRAL TÉRMICA GENELBA SE Resolution No. 21/2016 The following projects were awarded under the call for bids made by the National Government to parties interested in offering new thermal power generation capacity pursuant to SE Resolution No. 21/2016.

On September 22, 2017 a major incident occurred in the TG11 unit, which makes up Central Térmica Genelba’s For each of the awarded projects, the Company has entered into a wholesale power purchase agreement with combined cycle plant, and which resulted in severe damage to the turbine’s generator. Following the incident, CAMMESA for a term of 10 years. The remuneration will be made up of the available power capacity price plus the combined-cycle generation capacity has been reduced by 50% (330 MW). the variable non-fuel cost for the delivered energy and the fuel cost (if offered), less penalties and fuel surpluses.

After evaluating the causes of the failure, the Company, together with the generator’s manufacturer 47.2.1 (SIEMENS), started the works for the installation of a new generator. Central Térmica Parque Pilar (“CT Pilar”)

On January 5, 2018, works concluded and TG11 became operative again, thus regaining 100% of the This project, which consisted of the construction of a new power plant in the Pilar Industrial Complex (located combined cycle capacity. at Pilar, Province of Buenos Aires), is made up of 6 cutting-edge and high-efficiency Wärtsilä engine generators with a total 100 MW capacity and the possibility to run on natural gas or fuel oil. The total investment was Following this event, the Company is making all necessary filings with insurance companies to collect the approximately US$ 103 million. compensations for the damages sustained as a result of the failure and to minimize losses in connection with breaches of its availability commitments. On August 31, 2017, CAMMESA granted the commercial commissioning of CT Pilar, which became operative as from that date.

47.2.2 Extension of Central Térmica Loma de la Lata The project consists of the expansion of CTLL’s power plant generating capacity through the installation of a new GE aeroderivative gas turbine (model LMS100) with a gross generation capacity of 105 MW. The investment amounted to approximately US$ 90 million.

346 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 347 CONSOLIDATED FINANCIAL STATEMENTS NOTE 47: (Continuation) NOTE 47: (Continuation) On August 5, 2017, CAMMESA declared the commercial commissioning of the new gas turbine, which became operative as from such date. 47.5 47.2.3 Central Térmica Ingeniero White (“CT I. White”) SEE Resolution No. 281/2017 – Renewable MAT The project consisted of the installation of a new power plant in I. White (Bahía Blanca, Province of Buenos Aires) Under the new regulations for the Renewable MAT, which production will be targeted at large users under with similar characteristics as that mentioned in Note 47.2.1. The total investment was approximately US$ 90 million. power supply agreements between private parties, on January 29, 2018 CAMMESA granted a 50 MW priority to the “Pampa Energía” wind farm and a 28 MW dispatch priority to “de la Bahía” wind farm. On December 21, 2017, CAMMESA declared the commercial commissioning of CT I. White, which became operative as from that date. These projects will be developed in the Province of Buenos Aires, near the City of Bahía Blanca, and together will have a 100 MW power capacity. The total investment amounts to approximately US$ 140 million.

The priority allocation will ensure dispatch for both wind farms and therefore, will guarantee support to our 47.3 future clients choosing to comply with their obligation to meet their electricity demand with renewable sources SEE Resolution No. 420/2017 of energy from our wind farms. Under the call by the National Government to parties interested in developing projects for co-generation and the closing to combined cycles over existing equipment, on October 18, 2017 the SEE, through Resolution No. 926-E/17, awarded Genelba Plus’ closing to combined cycle, which will add a 383 MW capacity over Genelba’s power plant existing facilities. NOTE 48: The Genelba Plus’ closing to combined cycle project consists of the installation of a new gas turbine, a steam turbine, and several enhancement works over the current Genelba Plus gas turbine, which altogether will TAX REFORM complete the second combined cycle at Genelba, with a total gross power capacity of 552 MW. The estimated investment amounts to US$ 350 million.

Siemens and Techint will be in charge of the equipment supply, and the construction and commissioning of On December 29, 2017 the National Executive Branch passed Act No. 27430 – Income Tax. This Act introduced the project on a turnkey basis. Its commissioning at open cycle is expected for the second quarter of 2019, and several modifications in the income tax treatment, the key components of which are described below: as closed cycle for the second quarter of 2020. 48.1 47.4 Income tax RenovAr Program (Round 1) 48.1.1 Under the call by the National Government to parties interested in developing projects for generation from Income tax rate renewable sources, on October 7, 2016 the MEyM, through Resolution No. 213/16, awarded the Corti wind farm The income tax rate for Argentine companies will be gradually reduced from 35% to 30% for fiscal years project submitted by Greenwind. beginning as from January 1, 2018 until December 31, 2019, and to 25% for fiscal years beginning as from January 1, 2020. On January 23, 2017, the Company entered into a wholesale power purchase agreement with CAMMESA for a term of 20 years. The effect of the application of the income tax rate changes on deferred tax assets and liabilities pursuant to the above-mentioned tax reform was recognized, based on their expected realization year, in “Income The project consists of the installation of a 100 MW wind farm in Bahía Blanca, Province of Buenos Aires. tax rate change” under Income tax and Minimum presumed income tax of the Consolidated Statement of The total investment will amount to approximately US$ 135 million. Comprehensive Income (Note 14).

Vestas will be in charge of the equipment supply, and the construction and commissioning of the project on 48.1.2 a turnkey basis. Its commercial commissioning is expected for May 2018. Tax on dividends The tax on dividends or earnings distributed by, among others, Argentine companies or permanent establishments to individuals, undivided estates or beneficiaries residing abroad is introduced based on the following considerations: (i) dividends resulting from earnings accrued during fiscal years beginning as from January 1, 2018 until December 31, 2019, will be subject to a 7% withholding; and (ii) dividends resulting from earnings accrued during fiscal years beginning as from January 1, 2020 will be subject to a 13% withholding.

348 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 349 CONSOLIDATED FINANCIAL STATEMENTS NOTE 48: (Continuation) NOTE 48: (Continuation) Dividends resulting from benefits gained until the fiscal year prior to that beginning on January 1, 2018 will remain subject to the 35% withholding on the amount exceeding the untaxed distributable retained earnings (equalization tax’ transition period) for all beneficiaries. 48.3

48.1.3 Fuel tax Transfer prices Certain modifications are introduced to the fuel tax, incorporating a tax on the emission of carbon dioxide. The reform simplifies the fuel taxation structure, keeping the same tax burden effective prior to the reform. Controls are established for the import and export of goods through international intermediaries different from the exporter at the point of origin or the importer at destination.

Furthermore, the Act sets out the obligation to provide documentation allowing for the verification of the characteristics of the transaction for the import and export of goods and the export of commodities, in both cases when they are conducted through an international intermediary different from the exporter at the point NOTE 49: of origin or the importer at destination. DOCUMENTATION KEEPING 48.1.4 Tax and accounting revaluation On August 14, 2014, the National Securities Commission issued General Resolution No. 629, which introduced The Act provides that Companies may opt to make a tax revaluation of assets located in the country and modifications to the provisions applicable to the keeping and conservation of corporate and accounting books subject to the generation of taxable earnings. The special tax on the revaluation amount depends on the asset, and commercial documentation. To such effect, the Company and its subsidiaries Edenor, CTG, CTLL, EASA and and will amount to 8% for real estate not accounted for as inventories, 15% for real estate accounted for as PEPASA have sent non-sensitive work papers and information corresponding to the periods not covered by the inventories, and 10 % for personal property and other assets. Once the option is exercised for a certain asset, statute of limitations for their keeping in the Administración de Archivos S.A (AdeA)’s data warehouse located all assets within the same category should be revalued. The tax result from the revaluation will not be subject at Ruta 36, km 34.5, Florencio Varela, Provincia de Buenos Aires and in the Iron Mountain Argentina S.A.’s data to income tax, and the special tax on the amount of the revaluation will not be deductible from such tax. warehouses located at the following addresses: The Company is currently analyzing the impact of the above-mentioned option. - Azara 1245 –C.A.B.A. - Don Pedro de Mendoza 2163 –C.A.B.A. 48.1.5 Adjustment - Amancio Alcorta 2482 C.A.B.A. The reform sets out the following rules for the application of the income tax inflation adjustment mechanism: - San Miguel de Tucumán 601, Carlos Spegazzini, Municipality of Ezeiza, Province of Buenos Aires. (i) a cost adjustment for goods acquired or investments made during fiscal years beginning after January 1, 2018 taking into consideration the variations in the Wholesale Domestic Price Index (IPIM) published by the National A list of the documentation delivered for storage, as well as the documentation provided for in Article 5.a.3) Institute of Statistics and Censuses (INDEC); and (ii) the application of a comprehensive adjustment when the Section I, Chapter V, Title II of the PROVISIONS (2013 regulatory provisions and amending rules), is available at IPIM variation exceeds 100% in the 36 months preceding the closing of the fiscal period. the Company headquarters.

The adjustment of acquisitions or investments made in fiscal years beginning as from January 1, 2018 will increase the deductible depreciation and its computable cost in case of sale.

48.2 Value-added tax Reimbursement of favorable balances from investments. A procedure is established for the reimbursement of tax credits originated in investments in property, plant and equipment which, after 6 months as from their assessment, have not been absorbed by tax debits generated by the activity.

350 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 351 Report of Independent Auditors

Noroeste, Argentina. CONSOLIDATED FINANCIAL STATEMENTS Free translation from the original in Spanish published in Argentina.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial Report of statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing Independent procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting Auditors included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Report of Independent Registered Public Accounting Firm Definition and Limitations of Internal Control over Financial Reporting To the Board of Directors and Shareholders of A company’s internal control over financial reporting is a process designed to provide reasonable assurance Pampa Energía Sociedad Anónima (Pampa S.A.) regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable Opinions on the Financial Statements and Internal Control over Financial Reporting detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements We have audited the accompanying consolidated statements of financial position of Pampa Energía Sociedad in accordance with generally accepted accounting principles, and that receipts and expenditures of the company Anónima (Pampa S.A.) (hereinafter, “Pampa S.A.” or the “Company”) and its subsidiaries as of December 31, 2017 are being made only in accordance with authorizations of management and directors of the company; and and 2016, and the related consolidated statements of comprehensive income (loss), changes in equity and cash (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively disposition of the company’s assets that could have a material effect on the financial statements. referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Because of its inherent limitations, internal control over financial reporting may not prevent or detect Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, policies or procedures may deteriorate. the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with Autonomous City of Buenos Aires, March 8, 2018. International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued We have served as the Company’s auditor since 2006. by the COSO.

Basis for Opinions /S/ PRICE WATERHOUSE & CO. S.R.L. The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control /S/ REINALDO SERGIO CRAVERO over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting (Partner) appearing under Item 15 of the Company’s Annual Report on Form 20-F. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

354 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 355 Contact

For further information, contact: The Pampa Energía Building Maipú 1 (C1084AB), Buenos Aires City, Argentina

Tel: +54 11 4344 6000

[email protected] www.pampaenergia.com/ir

356 PAMPA ENERGÍA | ANNUAL REPORT AND FINANCIAL STATEMENTS 2017