Q1 2012 Enagas Earnings Conference Call

Thomson Reuters StreetEvents Event Transcript
E D I T E D   V E R S I O N

ENG.MC - Enagas SA
Q1 2012 Enagas Earnings Conference Call
Apr 24, 2012 / 08:00AM GMT 

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Corporate Participants
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   *  Antonio Velazquez
      Enagas - Director of IR
   *  Antonio Llarden
      Enagas - Chairman and CEO
   *  Diego de Reina
      Enagas - CFO
   *  Juan Pons
      Enagas - General Planning Director

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Conference Call Participants
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   *  Pablo Cuadrado
      BofA Merrill Lynch - Analyst
   *  Alberto Gandolfi
      UBS - Analyst
   *  Jorge Alonso
      Societe Generale - Analyst
   *  Javier Suarez
      Nomura - Analyst
   *  Carolina Dores
      Morgan Stanley - Analyst
   *  Jose Martin-Vivas
      Ahorro Corporacion - Analyst
   *  Manuel Palomo
      Citigroup - Analyst
   *  Fred Barasi
      Goldman Sachs - Analyst

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Presentation
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 Antonio Velazquez,  Enagas - Director of IR   [1]
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 (Interpreted). Good morning, ladies and gentlemen. Welcome to the results presentation of the first quarter 2012.

 The results were published earlier on this morning, before the opening of the stock exchange market. And they are, as you saw, available in our website, www.enagas.es. Mr. Antonio Llarden, Chairman of Enagas, will host the presentation. We expect it to last about half an hour. Afterwards, there will be a Q&A session, during which we will try to answer any questions as fully as possible.

 Thank you very much for your attention, and I will now hand the floor to Mr. LLarden.

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 Antonio Llarden,  Enagas - Chairman and CEO   [2]
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 Good morning, ladies and gentlemen, and thank you very much for joining us today. Today we present our earnings for the first quarter of 2012, having recently published our earnings for 2011 and held a successful general shareholders' meeting.

 Enagas earnings in the first quarter. The details contained in the presentation accompanying this conference call are consistent with both the expected performance for 2012 and our commitments for the year. This solid earnings performance is especially encouraging in the difficult environment of the Spanish economy, which again saw negative growth in the first quarter of the year.

 Here are the headline earnings figures. EBITDA is up 4% compared to the first quarter of 2011, reaching EUR214.2m. This growth was possible, essentially, mainly due to the expansion of the Company's asset base last year and the reining in of operating expenses in like-for-like terms, increasing by only 2.3% in the quarter.

 The Company reported a net profit of EUR86.7m, which is 0.8% higher than in the same period of a year earlier. Investment in the quarter amounted to EUR163.3m, and assets put into operations are EUR26.7m. I would also like to highlight that Enagas income increased by 8% in the first quarter, and this reflects the pace of assets being brought on stream in 2011 and the inclusion in our accounts of the Gaviota underground storage facility.

 We haven't included the results of the first quarter of Altamira, because we just received them in the very last minute and we didn't have enough time to audit them. And if we would have increased -- included Altamira, we will have an income increased by 9%, for example. And from now on, we will include Altamira's results in every single quarter.

 Now, in terms of the results obtained in this first quarter, again, they put us on track to meet our commitments for 2012. Let me remind you of our main commitments. First of all, EBITDA growth of roughly 8%, net profit at a level similar to 2011, and this is in line with the targets set out in the 2010/14 business plan. A dividend increase of roughly 8%. We will invest EUR550m and we will put into operation assets worth EUR750m, in line with the targets contained in our business plan.

 As you all know, we have set these targets with a high degree of prudence, in view of the particularly volatile economic environment. But we are certain that -- after this results presentation, we are certain that we are back on track to meeting them.

 Enagas' financial position remains one of the strong points of the Company, and I would like to focus on certain issues regarding this issue. Enagas' net debt at March 31 stood at EUR3.413b. At the end of the quarter, Enagas' liquidity totaled EUR2.459b, which will allow us to maintain elevated solvency ratios and flexibility in our operatives.

 In a highly complicated financial environment, not only in Spain but all around Europe, in this first quarter we have been very active with a view to bolstering our financial structure and preparing us for any negative developments yet to come in financial markets. In this sense, we have increased the percentage of fixed rate debt to 80%, as against the 70% we had maintained in recent quarters.

 We have pursued an active policy of renewing our loans and obtaining new financing, which now accounts for 85% of the expected refinancing for the entire year, only during the first quarter. Of this new financing, I would like to mention the signing of the last EUR175m tranche of the EUR1b loan of the EIB granted to Enagas in 2008, and which will be used to continue our investment plan. The loan, signed under excellent payment and cost conditions, confirms the European Investment Bank's confidence in our Company.

 In addition, we expect to refinance the EUR500m bond which matures in July. As we noted in the February conference call, we intend to execute this transaction in May and June. Refinancing of this bond not only comfortably meets the Company's funding needs, but also allows us to enhance our financial structure.

 All this provides further proof of Enagas' sound financial position, allowing us to continue moving towards our strategic goals. We have a very good level of financing, because we have been highly cautious in this regard. If financial markets become more difficult, Enagas is ready to meet its needs.

 I will now talk about the government measures regarding electricity and gas deficits and fiscal measures set by the government. I am going to address the measures recently announced by the government with regard to these issues.

 As far as the measures to reduce the gas tariff deficit generated in 2011, which is temporary and not structural in nature, is that they are a step in the right direction. They do combine a necessary increase in tolls with seven adjustments, such as the extension of the depreciation period of the new underground storage assets. Hence, the steps proposed by the government can end the problem of the gas deficit -- gas tariff deficit and maintain the regulatory stability needed to ensure fair profitability, as well as an efficient and quality service for the Spanish energy system.

 As far as the fiscal measures introduced by the government, their impact on Enagas is quite limited. For reasons of prudence, the Company had not taken into account the tax incentive arising from accelerated depreciation in our estimates of the business plan 2010/2014. We can have an in-depth view on this issue during the Q&A session. Thank you.

 Now, Enagas considers all the adjustments to be rational and acceptable, and no adjustments are needed in our estimates for the coming years. This is partly due to the fact that Enagas had prudently acted in advance and adapted its investment plan to the present economic environment. This is the case with some of the investments that have been temporarily halted by the government in the Royal Decree Law published at the end of March, such as the expansion of the Gaviota underground storage facility, which Enagas had recently adjusted in its investment plan.

 Again, we are prudent and realistic and capable of adapting to changes in the economic and energy environment.

 With regard to the temporary freeze of permits for new projects, we will have to wait for the Spanish gas and electricity infrastructure plan 2012/2020 being prepared by the Ministry of Industry, which might be approved in the second half of this year. However, I'd like to emphasize that our prudent policy of exploitation of our know-how and purchase of core business assets allows us to supplement our organic investment, thus reaffirming our investment targets for the 2010/2014 period.

 With regard to demand, the total amount of gas transported in the Spanish gas system increased by 1.4% in the quarter -- in the first quarter. Year to date, this increase has been larger. And this is information not contained in the presentation regarding accumulated aggregated demand as to date. So, until yesterday, this transported gas increase was 4.1%, which is partly explained because of the major activity of tank loading in Spanish terminals, reaching nearly 7,000 gigawatts per hour, which is an outstanding figure we've never reached before.

 Thus, our forecast for the year is a 3.6% growth in total transported demand. Quarter on quarter, we will try to give you a better assessment of the total demand.

 Again, during the first quarter and despite the adverse economic environment, there was a monthly record in February of conventional domestic demand, commercial domestic demand and co-generation, plus industrial demand. So far, until yesterday, conventional demand has increased by 8.1%, which is not included on the presentation.

 8.1% in conventional demand increase resulted in a total gas demand in Spain, aggregated until -- during the first quarter increased by 1.4%, including conventional and electric demand, which continues to go down compared to previous year's figures. This stresses the importance of a correct and adequate system, to be able to cater for certain demand peaks.

 In short, and to conclude, the first-quarter earnings we have just presented give Enagas good visibility for 2012 with the data we now have. And I can add that we are on the right track to meeting each and every one of our commitments, not only for this year but also for 2013 and '14, as we have been doing for five consecutive years now.

 In fact, so far, there has been 21 quarters since we launched our strategic plan where we've met our commitments announced at the beginning of the year, and despite the fact that during these 21 quarters 18 of them have been during the current economic crisis.

 Thank you very much for your attention. If you now have questions, please ask now and we will endeavor to answer them as best we can. Thank you very much indeed.



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Questions and Answers
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Operator   [1]
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 (Interpreted). (Operator Instructions). Pablo Cuadrado from Bank of America Merrill Lynch will ask the first question.

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 Pablo Cuadrado,  BofA Merrill Lynch - Analyst   [2]
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 (Interpreted). Good morning, ladies and gentlemen. I have three very quick questions. First and foremost, regarding the net debt, you explained that the deduction proposed in Spain won't have an impact on Enagas. Could you briefly give us a figure, the net debt figure by the end of the year Enagas is expecting?

 Secondly, regarding the latest changes approved by the end of March in terms of tariff and gas at the end of the quarter, could you briefly explain whether the change in amortization will only affect Yela, or will it also affect Gaviota? Can you briefly talk about its impact in terms of its impact on earnings -- Enagas earnings?

 And finally, with today's presentation on the investment figure, you have included EUR80m in CapEx in these gas plants. Why have you included this in the CapEx line? Is this provision linked with any type of remuneration provided by the regulators to Enagas?

 Secondly, does this only affect one plant or does it have an impact on other -- on each and every plant?

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 Antonio Llarden,  Enagas - Chairman and CEO   [3]
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 (Interpreted). Thank you very much indeed, Mr. Pablo Cuadrado. We will reply to these questions. Starting -- the Chief Financial Officer, Diego de Reina, will answer the first and third question. And then I will give the floor to the General Planning Director, Juan Pons. He will answer the second one. So, Diego?

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 Diego de Reina,  Enagas - CFO   [4]
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 (Interpreted). Good morning, Pablo. The net debt figure seen for the end of this year is about EUR3.6b. The end figure will obviously depend on the purchases or acquisitions that the Company might do during the 2012 period, but our provisions are around EUR3.6b.

 With regard to the dismantling provision, that will affect all the plants, not only the three plants but also the subsidiaries in Altamira and BBG. This is a consequence on, first of all, the need registered on the concession deeds in every plant, and secondly because of the obligation of accounting standards, which do require that whenever we need a provision all the provision is accounted, and then by means of depreciation and --

 So the question whether this is -- this has been accounted for, yes, of course these dismantled provisions have been accounted for. This will affect Yela and Castor, the underground facilities. There is a EUR500m income, which is about EUR2m yearly, which is recurring. This will happen every single year. The provision will take place every single year. We will write them down, year after year. And the total figure is not relevant, taking into account that the regulated income is about EUR1.2b, and this is not concerning us.

 And regarding the last changes in March, I will now give the floor to Juan Pons.

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 Juan Pons,  Enagas - General Planning Director   [5]
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 (Interpreted). Hello, Pablo. These will only affect Yela, because it's for new storage facilities. In terms of the impact of these measures, I'd like to mention that the increase of the useful life is -- decreases the retribution, but it's partially offset by the decrease of that quantity in terms of amortization cost. So there won't be -- it will be a nil total or net impact. These won't have an impact because if we have this provisional document to proceed we can collect a transitional amount.

 However, these gas tenders have been postponed in two months and this will postpone the retribution but, again, minor impact. Minor cost increase, due to the fact that we need a backup guarantee for the 10% of the retribution that we will receive until we receive the definitive retribution. But again, a minor impact.

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 Antonio Llarden,  Enagas - Chairman and CEO   [6]
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 (Interpreted). Thank you very much indeed. Any further questions, please?

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Operator   [7]
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 (Interpreted). Alberto Gandolfi from UBS will ask the following question.

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 Alberto Gandolfi,  UBS - Analyst   [8]
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 (Interpreted). Alberto Gandolfi. I have two questions. First of all, can you briefly talk about your outlook in terms of investment, especially for the 2014/'15 period? I'd like to get to know your investment outlook, and because this will go -- probably go down and your cash generation will be stronger. Will you increase investment in the field of international investment, or will you increase your payout ratio? Or what is going to happen with regulation?

 Secondly, what are your expectations in terms of regulatory changes? Are you expecting a net drop of assets? And are you expecting to see a very objective figure? What do you think the evolution will be? And the National Energy Commission had proposed several measures that could have a 20% impact on your EPS. So what is the worst possible scenario if there is a regulatory change? Can you briefly talk about all these issues, please?

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 Antonio Llarden,  Enagas - Chairman and CEO   [9]
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 (Interpreted). Thank you very much, Mr. Gandolfi. Now, let me answer to both of your questions. First, our strategic plan goes through 2014. With the figures we just shared with you, we still think we can comply by 2014 with our investment figure. I think the presentation says more or less 10%, and the final number will depend on the investment pace, potential delays or advances and our prudent investment for third -- for assets. It could be lower because of these reasons. But right now, I think that we can comply with our strategic plan within that 10% range.

 For 2015, we still need to await the publication of the energy plan, which we think will be published by the government in the second half of the year. Two years ago, and I'm starting to get boring because I've been saying this for two years, the gas investment in the system after 2015 or starting 2015 will be less than we've had up to date.

 However, there are certain projects in this Company (inaudible) ready for that period, for example the second regasification plant in the Canary Islands, which is not part of the strategic plan, and some other subjects linked to international connections. The point is that average investment in space in that period will be lower.

 Secondly, we are not going to increase or decrease investment in third-party assets. The investment in core business assets not owned by us is not trying to compensate what we do or do not do in our energy plan and our organic investment. It's just trying to make use of the know-how we have, which we think may add value to shareholders. But those both -- silos are not connected.

 That is why we decided to increase the payout last year, and we've -- we are planning to do so this year as well. We're going up from 65% to 70%. And by 2014, as I announced in the P&L presentation conference call, when we have the energy plan by the government approved and we've come to the end of our strategic plan, then we will assess our payout policy. And I think this information covers your questions.

 Now, regarding the regulatory changes, based on the statements by the government and the conversation we've held with the Ministry, we know that the main concern of the government right now is to cut the tariff deficit. The first measures in the right direction have been taken, but the government thinks further measures are needed. That's not our business, so we won't go into that. I'm just repeating what the government said.

 Regarding the gas deficit, we do believe the measures taken are correct and they are in the right direction. If these policies are maintained, if the tolls go up prudently every year, then the gas deficit won't mean a problem whatsoever.

 From this point of view, we do not expect regulatory -- significant regulatory changes, because we do understand that the retribution systems and the gas system, not only ours but other operators as well, do not impact at all solving the main problem at hand, which is the gas deficit -- the electricity deficit, correction. It's true that that's the main problem and I don't have to say that; you know that. And it's worth thousands of millions.

 The CNE published their report on this and the Ministry very briefly declared on it, saying that most measures were not appropriate and were not going to be taken into consideration. So, from that point of view, we think -- and this is our opinion -- we think that what's on the table, what's pending action right now, is to take on further measures to readdress the energy deficit problem, and then, second to that, putting together a final energy plan for 2012/2020 or even longer, which would be what would set the energy policy in this country.

 That's why we think that, from a strictly gas point of view, we do not think that it should be us, whoever needs to bring on essential changes to solve this problem.

 And then, finally, what you mentioned about the Robin Hood taxes and so forth, well, the government has taken initial fiscal and tax measures, but none of the ones you mentioned. And to the best of our knowledge, although I do not have a crystal ball, I do not think we are going to be affected by this. But at least as of today, we have no knowledge of that.

 Thank you, and I hope I have addressed your questions.

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Operator   [10]
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 (Interpreted). The next question will be asked by Mr. Jorge Alonso from Societe Generale. Please go ahead.

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 Jorge Alonso,  Societe Generale - Analyst   [11]
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 (Interpreted). Hello. Good morning. My name is Jorge Alonso from Societe Generale. I have a couple of questions. The first one, regarding the non-recurring OpEx in the first quarter, could you please give us a number for that? What -- how much is non-recurring, because I understand that the Gaviota expense is recurrent?

 And the second question is regarding the gas deficit. Could you approximately give us the number for the aggregated accumulated gas deficit this year, bearing in mind that the volume transported is behaving well and probably will be above initial expectations? If I'm not mistaken, I think the government said that it would be close to EUR300m. Are your numbers close to that, or are they below that because of the gas evolution?

 And third, I think I can infer from what you say that you would like to specify some core asset acquisitions in the midterm, if they are in line with your profitability expectations and you can create synergies, specifically natural gas operations. Could that operation be brought into place before or after the investment plan by the government or before any other regulatory announcements? Thank you very much.

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 Antonio Llarden,  Enagas - Chairman and CEO   [12]
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 (Interpreted). Thank you very much, Mr. Jorge Alonso. So let me answer your three questions. The first one, the CFO Diego de Reina is going to answer it.

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 Diego de Reina,  Enagas - CFO   [13]
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 (Interpreted). Thank you, President. Good morning, Jorge. Now, regarding the OpEx, it's true there are non-recurring expenses, but it's a small amount. When we compare expenses, we are talking in general. And the recurring expenses are expenses that came up -- non-recurring expenses are expenses that came up this year but did not exist before.

 One of them is a fiscal expense, tax related, which is the -- which are the special properties, which is EUR6m. And that's tax paid, and we are starting to pay that this year. We used to pay the IBI tax before. And of course this has an impact on the expenses comparison, the fact that we are accounting for the OpEx of the underground storage of Gaviota, which in 2011 we started recording in September but now it's going to go throughout the year.

 So these are the most important numbers, when we make a homogeneous comparison. Of course, what I explained about the taxes and the OpEx for the underground storage of Gaviota, those are recurring expenses.

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 Antonio Llarden,  Enagas - Chairman and CEO   [14]
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 (Interpreted). Second question, gas deficit; Mr. Juan Pons, the Planning and Regulation Chief Officer, will answer that.

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 Juan Pons,  Enagas - General Planning Director   [15]
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 (Interpreted). Hello, Jorge. Now, regarding the deficit, it's true that the government provisions last year were at around EUR300m, but it's too early to make a calculation, although you are in the ballpark. If the demand grows higher than expected by the end of the year, the deficit would be below the EUR300m. In general, the gas deficit and the systemic costs will grow up to 2014. But starting 2015, these costs will start to go down. So, in the short term, this may be solved.

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 Antonio Llarden,  Enagas - Chairman and CEO   [16]
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 (Interpreted). Now, the third question, correct, we have included in the forecast for 2012 an approximate number for one or more core asset acquisitions, for an amount of EUR150m. Of course, you'll understand that right now I may not comment anything particularly about this subject. If -- being optimistic, I think that through 2012 we will be able to reach this goal that we set for ourselves.

 Thank you very much. Further questions, please.

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Operator   [17]
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 (Interpreted). The next question will be by Mr. Javier Suarez from Nomura. Please go ahead.

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 Javier Suarez,  Nomura - Analyst   [18]
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 (Interpreted). Hello. Good morning to all. Thank you very much for answering my questions. The first question would be regarding the impact on your accounts starting in 2013. The put into operation of the Musel plant and then the changes in the depreciation period for Yela, could that have a significant impact in your numbers next year?

 Secondly, could you give us your point of view on the load factor of gas transmission factors in Spain? The CN -- government was very critical of that number. Could you give us the number on the usage and why this would need to continue growing?

 And the next question, could you please update us on the Castor regasification plant? And when do you think this asset could be put into operation? Thank you.

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 Antonio Llarden,  Enagas - Chairman and CEO   [19]
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 (Interpreted). Well, Mr. Suarez, thank you very much for your questions. Let me answer now. Now, Mr. Juan Pons will actually answer the first question.

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 Juan Pons,  Enagas - General Planning Director   [20]
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 (Interpreted). Hello, Javier. So the impact is zero, because we do not receive the payment for depreciation -- for amortization but we do not amortize them. We do receive the financial retribution for the CapEx invested and the OpEx for maintenance costs.

 Yela, same thing applies, the impact is zero. It's divided by -- the depreciation is divided by two and so is the cost. So the impact in general is zero, null.

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 Antonio Llarden,  Enagas - Chairman and CEO   [21]
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 (Interpreted). Now, regarding the CNE, National Energy Commission, report and the load factor report, let's see if I can clarify this issue once and for all. It's a technical matter and it leads to misunderstandings.

 Gas pipelines of high-pressure transportation throughout the world, if we take the average volume transported by the end of the year, if we take the percentage, for example, it's normally at around 40%, 60%. Now, that said, because of technical and legal reasons, these types of gas pipelines are not built for the average load but for the peak usage. So a network of pipelines that needs to transport between 50% and 55% of volumes through the year at the peak point is at 90% or 100%, and that's the sizing they need.

 So, we speak about averages at this point. It is not that it's not true; it is just that we cannot reach any technical conclusion. If you know me, you know that I have explained this several times, but we will have to explain this further once again. Not because of the person that asks the question, but I'm saying this because this normally appears in technical reports.

 Same applies to regasification plants. The goal is twofold for these plants. Of course, the first one is to diversify the origin of the supply and facilitate the entry to the country and competition. But then the security of supply is also another objective. The plant works as a star system, and they are sized so that one of the entry to the plants -- and this is a regulatory requirement from the European Union. If one of the entry fails, we can work with the other ones. So the averages don't work here. The other ones would need to work.

 And then also they need to work during peak times. And they are useful for the daily back half of the renewable that we have in this country in terms of power. For example, the biggest plant we have by far is the one in Barcelona. At certain times of the year, it cannot provide all the gas it needs in that area and we need to get it from elsewhere.

 So it's true that in technical reports at times we talk about the average use of high-pressure gas infrastructures, but we insist the average usage. It's not that it's not important; it's just that the regulatory requirement, the technical requirement, concerns the peaks not the average.

 And now, regarding your comment about Castor, of course it's not a regasification plant. You mean Castor underground storage. Based on the information that we have, the gas auction has been done already to start using the buffer gas. And we understand that through the year Castor will carry out the necessary tests. And sometime next year, regardless of the specific contents of costs recognized by the regulator, and that's not something where we have a say, we hope that at some point next year it will be operational in the system.

 Thank you very much. Further questions?

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Operator   [22]
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 (Interpreted). The next question will be asked by Mrs. Carolina Dores from Morgan Stanley. Please go ahead.

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 Carolina Dores,  Morgan Stanley - Analyst   [23]
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 (Interpreted). Good morning. I have two questions. First, what are the minimal OpEx that you will have in 2013 regarding the freezing of the National Energy Commission for the year?

 And then the fixed rate debt increase, you said it had changed for 2012. Could you further explain that, please? Thank you very much.

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 Antonio Llarden,  Enagas - Chairman and CEO   [24]
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 (Interpreted). Mrs. Carolina Dores, thank you very much for your questions. Now, the first question will be answered by Mr. Juan Pons.

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 Juan Pons,  Enagas - General Planning Director   [25]
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 (Interpreted). Carolina, hello. Now, regarding the Musel OpEx, until we do not put it into operation we are still evaluating that. But a regular plant could be 70/80 employees, and we think that [710] should be enough to maintain that. Of course, it won't have energy costs and pump costs. Could be a little bit higher, but it should be at around 10%, 15% of the regular OpEx costs of a fully operational plant.

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 Antonio Llarden,  Enagas - Chairman and CEO   [26]
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 (Interpreted). Now, the increase in the fixed rate debt, Diego de Reina will answer that, but please let me make an initial remark. For this first quarter, the three messages that I would like to convey very briefly are the following.

 First the financial figures, the most important ones. Second, in that regard, I would like to say that we are on the right track regardless of the economic situation right now.

 Secondly, the measures taken by the government to cut the gas deficit are rational, and of course they don't have a huge impact on Enagas this year or the following years. And if there is an over-cost, of course we will try to improve our efficiency to solve that, to address that.

 And the third remark, which will start to answer your question, this first quarter, given the volatility of the financial situation, the euro, Europe and Spain, because of all this we've put our efforts into reinforcing our good financial structure so that if the financial markets take a turn for the worse we will be in a safe harbor. You know that this has been Enagas' policy through four years of crisis.

 We've been prudent in our forecasts and we've tried to get ahead of the curve as much as possible. And we've tried to increase efficiency, increase our financing strength, getting ahead of possible financial decreases -- investment decreases to avoid sudden surprises. And we've tried to get up to speed with our P&L accounts, so that we can maintain in average our results despite the changing environment. I think we've done so. And the payouts to shareholders have increased, in fact, through the period.

 And in this context is where your question should be answered. And now Diego will give further details.

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 Diego de Reina,  Enagas - CFO   [27]
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 (Interpreted). Thank you, Mr. President, and good morning, Carolina. Now, in line with what the President was explaining, specifically why we have increased the fixed rate debt percentage up to 80%, two main reasons. The first, what the President already mentioned; we are being prudent in a scenario of uncertainty. The evolution in financial markets is hard to forecast. That's why we have done this.

 The second one is the opportunity. As you are very well aware of, when a company decides to cover part of its debt, as part of the mixed debt establishes the financing cost, the coverage represents the highest percentage of the costs. So we wanted to go up from 70% to 80%, to make coverage operations that are below our 3.3% goal for the year. So we've done so without penalizing the cost, and on the contrary we've helped the cost to be lower than expected for the year.

 And it's true that we are below the 3.3% expected for the year, but there is -- we are only one quarter through the year. There is one important operation that will be done between May and June that will be very profitable for the Company. But still we are trying to be prudent, and that's why we are acting like this in a highly volatile scenario.

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 Antonio Llarden,  Enagas - Chairman and CEO   [28]
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 (Interpreted). Thank you very much. Further questions, please?

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Operator   [29]
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 (Interpreted). The next question will be asked by Mr. Jose Martin-Vivas from Ahorro Corporacion.

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 Jose Martin-Vivas,  Ahorro Corporacion - Analyst   [30]
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 (Interpreted). Thank you very much for answering my questions. Good morning. Most of them have been answered already. The first one I have left is regarding the put into operation of the Musel plant. I heard yesterday that putting it into operation could jeopardize the rest of the plants in the system, because it would not reach the minimum level of operation. Could you please give further details on this?

 Then, I don't know if all the investments necessary have been done. Is there anything missing? And in that case, how much?

 And then the second question, regarding the tariff deficit, regarding the demand and how important it is for the tariff deficit. The demand was pretty good for the first quarter and you are expecting 2.5% growth for 2012, which is quite a good number. So do you think this growth could be kept up in the midterm?

 And the final question, the number that you have on your net cash flow. I don't know if maybe I oversaw something, but you have EUR45m in the first quarter positive for the profit -- for receivables. Could you please give us some more information on this?

 And regarding the tariff deficit, I forgot, what gas tariff do you have on your balance right now? Thank you very much.

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 Antonio Llarden,  Enagas - Chairman and CEO   [31]
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 (Interpreted). There is no risk whatsoever in the Musel plant. The government measures are adequate in view of the flat demand in the last two years. Therefore, we decided to freeze the entry into operation of this plant until we can experience a justified increase of demand, or unfortunately the shutting down of any plant, god forbid. So we have finished the plant, and we will run a maintenance without its definitive entry into force. But it can be opened as soon as possible.

 In terms of the tariff deficit, yes, we can maintain these expectations during the first quarter of 2012 if the demand evolution is reasonably as expected, as opposed to what we saw a few months ago. Therefore, these will all contribute to a decrease in booming tariff -- gas tariff deficit.

 And having said that, if you've seen the core of this gas demand, which is the so-called conventional demand because that's been the historical market, it's growing at an 8% rate, highly influenced by the average temperatures during this time of the year. If demand continued this trend, we will probably reach the end of the year with a demand increase or a conventional demand increase by 5% or 5.5%, which will be highly positive after these two -- or these last years of crisis.

 When we talk about conventional gas demand, this is not representative or it's not linked to the rest of the economy, as opposed to the electric demand. Gas demand is only linked to certain industries, and also gas customers are not the same customers as with electricity customer.

 Hopefully, demand will continue to grow beyond 2012. It is difficult to really envisage what is going to happen in 2013 or '14, given the current economic situation. But our forecast will be similar or in line with the 2012 year.

 Regarding the net cash flow, I don't have this figure at the moment, but perhaps Antonio Velazquez will comment on this. Diego de Reina would like to make a comment, please.

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 Diego de Reina,  Enagas - CFO   [32]
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 (Interpreted). Good morning, Jose. When you ask about the net cash flow we are talking about EUR45m, corresponding to a devolution of the corporate income tax of statements done in 2011. It has to do with the amortization system during this fiscal year.

 And finally, I forgot to answer to this question of the tariff deficit in the balance. It is about EUR150m.

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 Antonio Llarden,  Enagas - Chairman and CEO   [33]
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 (Interpreted). Well, any further questions, please?

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Operator   [34]
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 (Interpreted). The following question will be asked by Manuel Palomo by Citigroup.

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 Manuel Palomo,  Citigroup - Analyst   [35]
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 (Interpreted). Good morning, everyone. Regarding debt, the (inaudible) debt -- annual debt is below 3.3%, as I see it. When you talk about fixed income debt, it's hedging. And are these very good price hedgings? What is their term? And can they have an impact beyond 2012? You have set a goal of about 4% for the 2012 period. Did this have an impact?

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 Antonio Llarden,  Enagas - Chairman and CEO   [36]
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 (Interpreted). Yes, in about three to four years of course they do have an effect. But this effect is positive, not only in order to complete our goals set for this period, but also because of the term. This will also have a positive influence over the next four years, yes, indeed.

 Thank you very much indeed. Any further questions?

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Operator   [37]
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 (Interpreted). No further questions. We will now give the floor to the English room.

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Operator   [38]
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 The first question comes from Fred Barasi from Goldman Sachs. Please go ahead with your question.

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 Fred Barasi,  Goldman Sachs - Analyst   [39]
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 Good morning. I just have two questions left, hopefully easy ones. Could you please confirm the contribution you expect to net income from Altamira in 2012?

 And the second question is just returning to Castor. I just wanted to confirm when you expect the -- your acquisition of the one-third stake in that project to take place. Is that immediately upon it entering operation in 2013, or could that potentially be a bit later? Thank you.

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 Antonio Llarden,  Enagas - Chairman and CEO   [40]
------------------------------
 Well, the first question, Fred, is I think for all the 2012 year the contribution of Altamira is near EUR7m. And in Castor we are expecting our acquisition, with the conditions we have in our contract with Castor, is exactly for the year 2013. I mean in the year 2012 we do not have in our budget any contribution or any acquisition in Castor, but we are calculating that it could be possible in the year 2013. Thank you.

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 Antonio Velazquez,  Enagas - Director of IR   [41]
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 (Technical difficulty) finish the conference call. Thanks to everyone. Muchas gracias a todos por la atencion. Gracias.

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Operator   [42]
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 We will now finish the conference call. Thank you very much.

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Editor   [43]
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 Portions of this transcript that are noted Interpreted were interpreted on the conference call by an Interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.






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