Central Puerto S.A.
Q4 2020 Earnings Call Transcript

Published: 16 Mar 2021

[Operator:]

Good morning, and welcome to the Central Puerto conference call following the results announcement for the quarter ended on December 31, 2020. Please note, this event is being recorded. If you do not have a copy of the press release, please refer to the Investor Support section on the company's corporate website at www.centralpuerto.com. A replay of today's call may be accessed by accessing the webcast in the Investor support section of the Central Puerto corporate website. Before we proceed, please be aware that all financial figures were prepared in accordance with the IFRS and are stated in Argentinian pesos unless otherwise noted. It is worth noting that the financial statements for the quarter ended on December 31, 2020, include the effects of the inflation adjustment. Accordingly, the financial figures mentioned during the call, including the data from previous periods and the growth comparisons, have been stated in terms of Argentine pesos of the end of the reporting period.

[Jorge Rauber:]

Thank you very much. Good morning, and welcome. We are joining you today with our management team from Buenos Aires Argentina to report on the results of the fourth quarter and full year 2020 and then answer any questions you may have. I would like to begin today's call analyzing the developments of the fourth quarter, comment on the progress of our expansion projects and analyze the operating figures of the quarter and full year. Fernando will present the recent financial years and results. The COVID-19 crisis has affected almost all the world and, among other consequences, the electricity demand in Argentina. As you can see on Page 3, electricity demand decreased 2.2% during the fourth quarter 2020 as compared to the same period of 2019. As a reference, during 2020, total electricity demand declined 1.3% as compared to the prior year. Nonetheless, as you may recall, it's worth noting that electricity has a less-than-proportional impact in the income of generation companies. In the case of renewable energy units, they are unaffected since they have dispatch priority, so they can sell all the electricity that they generate. In the case of thermal units, they have a high proportion of their income associated to fixed power remuneration, which is not related to the energy generation of the units. Finally, when demand decreases, so does dispatch of the older, inefficient units, which are remunerated under the Energía Base framework as compared to the new efficient ones that have a higher remuneration to contracts, known also as power purchase agreement, or PPA. Going now to Page 4. As you may recall, the measures adopted to prevent the spread of the COVID-19 virus had an impact on the progress of our projects under construction. La Genoveva I wind farm and Terminal 6 new cogeneration unit. Regarding La Genoveva I, we are pleased to announce that the project reached commercial operation for its 88.2 megawatts on November 21, 2020, and is currently remunerated under a 20 years PPA with CAMMESA. It should be highlighted that the wind farm had 2 partial CODs in September 11, 2020, and October 30, 2020, for 50.4 megawatt and 33.6 megawatt, respectively. This is the seventh wind farm that we commissioned since 2016, reaching a total installed capacity of 374 megawatts of wind power.

[Milagros Grande:]

Thank you, Jorge. I will first refer to some recent financial news for the company and then comment on the results for the fourth quarter of 2020 and the full year. On December 22, the company signed an amendment to a syndicated loan obtained to fund the acquisition of Brigadier López thermal plant. Modifying, among other terms, the amortization schedule in order to compare with the requirements of Communication A 7106 issued by the Central Bank extending the financials of December 2020 and March '21 installments until June '23, incorporating monthly repayments from January 2021 to January 2022 and maintaining the repayments foreseen in the initial scheduled for June, September and December 2021, which equivalent to 20% of the capital. Furthermore, in December 2020, 40% of the installment scheduled for such months was canceled. In addition, the agreed modification included a limitation for the payment of dividends during 2021 and a maximum allowed of $25 million for 2022. Likewise, certain guarantees were granted, including a pledge of the turbines of Brigadier López power plant, a mortgage on the land on which said power plant is located and an assignment of certain FONI collections. On February 25, 2021, Central Bank extended the litigation through a program payment scheduled between April and December of this year. Nowadays, we are working with the banks on this regard. Moving now to the results for the quarter. If you can see on Page 7, our revenues were ARS 9.3 billion as compared to ARS 15.5 billion during the fourth quarter of 2019. This decrease was driven by the discontinuation of the fuel purchases operations due to a regulation stage on December 31, 2019, that centralized the fuel purchases for all generators in CAMMESA. This effect represented a 4,565 million variation during the quarter compared to the same period of the prior year. Excluding this effect, revenues were ARS 8.9 billion compared to ARS 10.9 billion in the last quarter of 2019. This decrease was mainly driven by a decrease of ARS 2,125 million in , that is revenues coming from Resolution 31, which, without considering the remuneration associated to the said procured fuel mentioned above, totaled ARS 3,585 million in the fourth quarter of 2020 as compared to ARS 5,710 million in the fourth quarter of 2019, mainly due to a lack of monthly price adjustment of Resolution 31 as charted by the Secretary of Energy on April 8 of 2020 and to a drop of 6% of the energy generation from the thermal unit.

[Operator:]

Our first question comes from the line of Frank McGann with Bank of America.

[Frank McGann:]

Okay. Two questions, if I could. One is just if you could just discuss potentially how the payment process is now with CAMMESA, if it's continuing normally or what the length of time it is for you to receive payments. And secondly, just looking forward, when you think of -- the demand levels have been generally lower over the last year, I was just wondering how your dispatch might be potentially positively affected given more limited capacity being added to the systems as demand starts to recover and begins to grow again. Would you expect that to be actually positive for the -- your volumes that you sell into the market over time?

[Jorge Rauber:]

Fernando, would you like to answer the first question.

[Fernando Bonnet:]

Okay. Yes, yes. In terms of -- I think, Frank, you asked for the delays in the CAMMESA payment. I think that in this way, CAMMESA is kind of stable in the delay, it's more or less stabilizing in 30 -- between 30 and 35 days of delay. We are not suffering much more delays than that. We are collecting -- this is in the terms of the energy payments. In terms of FONI payments, we are on schedule. We are receiving the FONI payments on time. And the renewable contracts, which are guaranteed by the , we are receiving also the payments on time. We are only having delays on the Energía Base framework and thermal contracts. And the delay, as I mentioned, are stable, around 30, 35 days of delay and stable on that number. So we are not having additional problems that we suffered in terms of delay in the last year. So it is more or less stable. The -- for the news that we have, the Secretary of Energy and CAMMESA are working towards regularization of that delay in terms of reaching an agreement with the distribution companies in terms of making an increase in tariffs and additional payment plan, payment scale for the past. And we see there are some news -- or we hope to see some news soon in that sense to reduce that 30 days of delay, but they are working on that. We hope to have some news during this month and the next month. So that is in terms of payment.

[Jorge Rauber:]

Yes. Basically, what they do, Frank, is the government is covering any delay we can see on the side of the customers. In particular at the beginning of the quarantine here in Argentina, March or April last year, we had an impact in payment for the size of the final customer, but the government acted eagerly to reduce that and maintain the payment completely stable. So we don't have a position now, which is worse than, I don't know, 1 year before. So it's stable. On the side of dispatch is your second question, what we see is that we reach a kind of base dispatch for our plant. What we have today on dispatch is our more efficient plants, especially common cycles. Naturally, we have also the renewable energy operating because they have a dispatch priority. So we don't see a really impact in terms of dispatch or in terms of revenue, especially because, as we mentioned before -- in our speech was mentioned that we have a remuneration, which is basically based on installed capacity instead of on dispatch, except for the side of the renewal, where we have a priority in terms of dispatch. So we don't see much impact. Perhaps if the demand increases after the quarantine when the -- I don't know when the country start recovering, the consumption, perhaps we have a slight increase in terms of dispatch, but we don't see a huge impact in terms of revenue. What we have today is a kind of base. And we expect, I mean, to improve our remuneration, the price instead of the quantity. On the side of our project, Terminal 6 is also a very, very efficient unit. So we don't -- I mean we expect full operation as soon as the plant is completed, but we expect by the third quarter of this year.

[Frank McGann:]

Okay. If I could follow-up just -- sorry, sorry.

[Fernando Bonnet:]

Sorry. No, I want to add something that Jorge mentioned, which was clear, but I want to add that the main reduction, if you compare 2019 with 2020 are guided by 2 facts. One is our big problem in our combined cycle in Mendoza, the transformer issue that we have during the second quarter was more than I think 70 days out of this combined cycle. That was a big impact in our production. And of course, that was -- that time since July last year that was also -- this was a big impact in our -- this was not dispatch, was a problem, was a failure in transformer. And the second impact in our generation during the 2020 was the lower inflows, water inflows in Piedra del Águila, which dispatch also less water to produce the electricity in our hydro plant. So if you see in terms of dispatch, the reduction is not so high. And additionally, in the other hand, we increased production in terms of renewables. So if you see in terms of dispatch, as Jorge mentioned, we have not seen a problem in our efficient units. In the other ones, since we have additional exportation to Brazil during the last of the 2020 and the 2021, also, the -- all the equipment, the steam turbines were more dispatch than in the previous year. So as Jorge mentioned, we are not see there a problem, a real problem in our efficient units to reduce dispatch in the future.

[Frank McGann:]

Okay. Great. If I could just follow up. In terms of legacy prices, has there been any movement or any discussions about possibly going back to have inflation adjustments or some sort of an adjustment factor?

[Jorge Rauber:]

Yes, in fact, we were having a lot of discussion with the government. The problem is that they are kind of linking the discussion with the prices with the distribution companies. We are in a year where we have an election this year. So it's difficult in political terms. But for sure, we are having discussion with them. According to the information we have, they are convinced that they have to do something with the prices going somehow back to the price we agreed or the setting a resolution last year. When they change and put in place the Resolution 31, they specified the prices at that time, reduced the prices in dollar terms, specified them, but they were supposed to have an adjuvant. That adjustment was suspended somehow. So the discussions are basically focusing on this aspect. I mean we have to go back. The government is convinced that they have to go back, but they are kind of linking this with a bigger discussion they have with the distribution companies in order to -- I mean, try to figure out how to solve that problem because basically, our system now is relying again on a high portion of subsidies. So they have to completely change. But I mean the discussion is ongoing all the time. In fact, we have a meeting tomorrow with them, again.

[Operator:]

This concludes our question-and-answer session. I would like to turn this conference back over to Mr. Rauber for closing remarks.

[Jorge Rauber:]

Okay. Thank you to everyone for your interest in Central Puerto. We encourage you to call us for any information that you may need. Have a great day. Thank you.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.