Q2 2013 Enagas Earnings Conference Call

ENG.MC - Enagas SA
Q2 2013 Enagas Earnings Conference Call
Jul 23, 2013 / 07:00AM GMT 

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Corporate Participants
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   *  Antonio Llarden
      Enagas SA - Chairman

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Conference Call Participants
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   *  Alberto Gandolfi
      UBS - Analyst
   *  Gonzalo Sanchez-Bordona
      BPI - Analyst
   *  Carolina Dores
      Morgan Stanley - Analyst
   *  Virginia Sanz
      Deutsche Bank - Analyst
   *  Pablo Cuadrado
      Bank of America - Merrill Lynch - Analyst
   *  Fernando Lafuente
      N+1 - Analyst
   *  Javier Suarez
      Mediobanca - Analyst
   *  Antonella Bianchessi
      Citigroup - Analyst

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Presentation
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Operator   [1]
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 (Interpreted). Good morning ladies and gentlemen and welcome to this first half of 2013 results presentation, which were open, published before the opening bell and you can check them on our website, www.enagas.es. Mr. Antonio Llarden will chair the presentation which will last approximately 20 minutes and then there will be a Q and A session where we would try to answer as fully as possible. Thank you very much for your attention and I will now give the floor to Mr. Antonio Llarden.

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 Antonio Llarden,  Enagas SA - Chairman   [2]
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 (Interpreted). Good morning ladies and gentlemen and thank you very much for your attention. As you will see, the General Director of Planning, the CEO are here with me, also the CFO, the General Secretary and his teams. And we will now first of all display the results presentation and as usually we will open the Q and A session.

 The results for the first half of 2013 will allow me to tell you that we will comply with the results for the rest of the year. As you can see, the growth until June, of this net profit is 5.5% higher. This was chiefly due to a different scope of consolidation in the first half of 2013 with respect to the first half of 2013.

 Now if we now go into detail let's take a look at the leading figures. Net profit was EUR202.1m. This is 9% higher than 2012 same period as it includes acquisitions with no contributions or with a smaller weighting during the first six months of the last year. For example, A, consolidation of investments in the TLA Altamira reclassification plant in Mexico and Quintero in Chile, and BBG in Bilbao, as well as the integration of the assets of Naturgas Transporte.

 It should be pointed out that when the scope of consolidation is homogenized for the half-year period the increase in net profit comes out at around 5%, well on target for our forecast of 5.5% for the year overall. The increase in net profit during the first half of the year was also thanks to lower borrowing cost with respect to those budgeted for year-end 2013. As we said at the last conference call, as the year continues the increase in net profit and other figures will move towards the 5.5% targeted for 2013 as a result as a more homogeneous scope of consolidation and also due to the development in the average cost of borrowing as set out in the annual budget. And we can give you additional information in this respect.

 Besides, during the first six months of this year we have also invested EUR357m and we have deployed assets with a total worth of EUR300m. In terms of both figures the huge purchase of 90% of Naturgas Transporte is a feature of both these items. Both our investment and the deployment of assets meet the budget for the first half of the year.

 With regards to Engas' financial position, it remains one of the Company's main strengths. For example, I'd like to highlight the following. Firstly, our net financial debt at June 30 stood at EUR3.507b, slightly below the figure for the first quarter of the year. Secondly, we are also maintaining a prudent debt structure strategy with a 95% of fixed rate debt, in line with year-end 2012 and undoubtedly greater than the 70% target we had observed in recent years. Thirdly, at the end of the half-year our liquidity totaled EUR2.575b, thus allowing us to maintain high solvency ratios and to continue to pursue our investment plan without jeopardizing our financial flexibility.

 In 2013 we do not have any major refinancing requirements. However, we maintain our active short-term loans renewal policy and we still strive to reduce our average borrowing cost at all times. Once again these figures confirm Enagas' sound financial position, enabling us to continue to forge ahead towards our strategic targets.

 Additionally I would also like to say that on July 3 after the first quarter a final dividend was paid out on the year 2012. The total divided for 2012 was up 12.1% against the previous year, pursuant to the 70% payout policy approved by the Board for the year 2012. For 2013 the Board resolved to increase the payout to 75%. This, in conjunction with our forecast of a 5.5% increase in net profit, will increase the dividend by around 13% in 2013 year end.

 Now let's now focus on the demand figures. With respect to trend in demand for natural gas during the first six months of the year, conventional demand, that is domestic and commercial demand along with industrial usage and cogene, has risen by almost 1%. It should be noted that when the increase is corrected for the number of working days and temperature it comes out at 2.2%, which is in line with the growth we experienced in the last two previous years. Our latest forecasts indicate that we will close 2013 with an increase in conventional demand of around 2%. Now I would like to reply to any questions you might have during the Q and A session regarding our opinion about the evolution of future demand.

 Before I finish, before we start with the Q and A session I would like to make some mention of the situation concerning regulation. As we all know, on past July 12 the government a week ago announced the electricity sector reform entailing a package of measures to reduce the electricity sector's structural tariff deficit. As you are aware, the measures presented did not entail any changes whatsoever to regulations at Enagas or other gas operators. I wanted to clarify this because in the past days we've been asked a few questions whether we were affected by this. No. I understand this is an issue of paramount importance and please do ask any questions you might have during the Q and A session.

 Now to conclude the main conclusion I would like to convey is that in light of these results for the first half of the year we are on target to meet each and every commitment taken up in 2013. I will briefly remind you of the commitments we stipulated at the very beginning of the year, being very prudent especially against a harsh and volatile economic backdrop. A, EBITDA growth of approximately 9%. B, 5.5%, approximately 5.5% increase in net profit. C, a dividend increase of roughly 13%. And D, investment of EUR650m along with the deployment of EUR550m in assets.

 Thank you now very much for your attention. If you have any further questions please feel free to ask and we'll endeavor to answer them as fully as possible, both myself and the rest of the top management team. We've been the first utility presenting results during -- for the first half so I assume you are having many questions, but please understand that I am only representing one of the companies of this sector and we cannot give an answer for everybody. But we would like to answer them as fully as possible. Thank you very much indeed.



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Questions and Answers
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Operator   [1]
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 (Interpreted). Good morning ladies and gentlemen. The Q and A session will start now. (Operator Instructions). The first question by Alberto Gandolfi, UBS.

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 Alberto Gandolfi,  UBS - Analyst   [2]
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 (Interpreted). Hello. Good morning. I'm Alberto from UBS. Thank you very much for answering my questions. First of all would you please give us an update on the gas tariff deficit for 2013 and '14?

 Secondly, can you give us some insight on your impression, your feelings about the new philosophy of the new regulatory framework, which talks about returns of the 10-year bond of 200 basis points or more than 200? Have you had any meetings with the government as regards activities?

 And thirdly, would you please comment on the expansion, international expansion strategy? Did it change? Are you, will you keep on investing EUR150m a year or are you waiting for to see the potential new regulatory impact? Thank you very much indeed.

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 Antonio Llarden,  Enagas SA - Chairman   [3]
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 (Interpreted). Good morning Alberto Gandolfi. Thank you very much for your questions. Now with regard with the tariff deficit I would like to review the figures quite briefly. In 2011 the tariff deficit was EUR219m approx. In 2012 there was no deficit because precisely the government had undertaken certain measures already. In fact technically the surplus was 5%. And for 2013 it will depend on whether we have a deficit figure or not and based on that we will decide if we increase the total put out or not. If this is not the case and demand continues as it is, two hypotheses that we will need to verify by year-end, deficit will increase by EUR100m, EUR125m year-end.

 Now regarding future forecasts I think the most important thing is to have two things in mind, three actually, to be exact. The average general increase and I think this figure has been mentioned in our past conference call. For the next three/four years if an average tariff increase by 2.5%, there would be no deficit, calculating all demand forecasts and infrastructures. That's my first point.

 Second point the cost of gas infrastructures starting with this year onwards basically has no important increases, only one which could be Castor. But from now to 2018/2019 approx, unlike the previous 10 years there is no significant increase in the cost of infrastructures.

 And third, demand. We know the demand. We've planned it correctly and it accounts for three fourths. That's conventional demand and that's been increasing for three years in a row. And our forecast is that it will continue to grow in this trend; it will continue to grow at a slow pace.

 Now the question is the demand for electricity, for gas to generate electricity, that is. Let's take something into account. This active evolution of demand is not due to the prices; it's due to other reasons that you're very well aware of, for example coal, although we don't talk much about it. So if this year or next year demand is the same as in the year with lowest demand, which was last year when combined cycles were used barely 19%, the demand in the country would be positive.

 So what I'm trying to say is that in terms of demand, I'm not saying that in the short-term there will be important changes, but we'll have to see what's the evolution worldwide in coal costs and in the use of renewable energy in general. Small changes to this demand in our specific situation could have a positive impact in our demand.

 So, in conclusion, the gas tariff deficit is perfectly controllable. The regulator has these figures and it's due to the situation exclusively. Ever since the gas regulation system exists in Spain since 2002 we've had a deficit or a surplus every year because it was mathematically impossible to get the exact figure for to balance out supply and demand. And over the last three years we've taken measures to sort out either the deficit or the surplus. This wasn't done in one year exclusively and that's the problem that we are trying to solve right now. So our update on this regard is just what I mentioned and of course we will tell you about whatever measures we need to take at any given point in time.

 Now regarding the regulatory framework I'm going to make some remarks although I'm not the appropriate person to answer. Those of you who follow us regularly on one-on-one calls or these conference calls, you know what our opinion is.

 First, the electricity tariff deficit was a severe problem for the entire country, not only for the system. If European Institutions, the International Monetary Fund told -- it came up with six issues to the government one year and a half ago. This was one of them. We knew it and we knew it was a severe problem. The government has undertaken a package of measures, very important measures, and one decree at a time it's implementing the fine type and we will have to see how the situation evolves. But obviously it was a severe problem and the government is set to action and they're implementing important measures.

 We do not have this type of problem in the gas system and this is so obvious. Let me remind you that over the last 18 months in all conference calls and one-on-one the question always was -- despite everything, when the government takes measures regarding electricity, don't you think that you will be included in the package? We always replied -- we don't think so because they are different things and now we have the proof. The regulator has perfectly understood that these are two different things and we have not been included, the entire gas system, not just ourselves, we have not been included in this package of measures.

 They could have done so, yes, because when a regulator prepares a package of 12 decrees of course they could include one more decree, no problem. So the regulator has sent a clear message. They understand perfectly that the problem in the electricity system, which we're not going to go into the details now, was radically different from the problems in the gas sector. That said, the regulator has not given us a precise indicator, indication in this regard, but it's true that the end of the year along with the review of the coal system and the gas system the regulator could review the gas system.

 Generally speaking moving towards longer regulatory periods, more stable regulatory periods, taking into account all characteristics in the system, we're going to be for that. To be honest I must say that at this time we do not have any precise indication or any calendar to share with you in this regard. It could be that the regulator decides to make a review or not. So we do not have further information on this.

 It's important to remind you in any case that the gas system is going to have some changes over 2013/'14 because of the European Union. All gas systems in Europe -- in fact we've been working on this for a year already. We are going to introduce certain measures in toll systems etc. and these are being promoted by the European Union. These changes are meant to favor a greater connectivity among countries and encourage a single market in gas so that infrastructures are not a problem, rather a facility -- they facilitate market openness.

 So we're going to have to prepare some changes, no doubt. The regulator is very much aware of this. And this is one of the reasons probably -- and this is my personal opinion, very subjective, and I think the regulator has made a clear difference between the electricity sector and the problems with the gas system, which does not have these type of problems. They may come up with other interesting changes.

 Now regarding international expansion, there are no changes in this regard. The average figures what I mentioned, that's the expected investment over this period of time. It's not necessarily the same figure every year. It's around an average. And possible or potential regulatory changes do not affect us in this regard given the complementary turnover of our investments. And prudence in what we're doing and the success of our measures add value to our P&L if I may say.

 Thank you very much. Are there any questions?

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Operator   [4]
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 (Interpreted). Next question will be asked by Gonzalo Sanchez-Bordona from BPI. Please go ahead.

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 Gonzalo Sanchez-Bordona,  BPI - Analyst   [5]
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 (Interpreted). Hello. Good morning. Thank you very much for taking my questions. I actually have three. Now the first question is regarding regulatory changes in electricity, which have been mentioned already. I would like to know if there is any reason why, since the regulations for electricity transport was very similar, is there any reason why you think that even though the situation in the gas system has nothing to do with the electricity system, the regulation is kept different between both?

 My second question is regarding investments over the second half of the year. I would like to know if you have further details on expected investment. And also we've seen on the news that you could have an interest in, a stake in [Met Gas]. I'd like to know whether there are any changes in this regard, any negotiation details that you could share in this regard.

 And my third question would be the cost of debt over the first half of the year and are you still maintaining the 3.25% for the year although it's clearly going better? Thank you very much.

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 Antonio Llarden,  Enagas SA - Chairman   [6]
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 (Interpreted). Alright. Thank you very much Mr. Sanchez. So let me address your questions. First, of course we would have enjoyed the same regulatory framework in the gas system as in the electricity system. Let me be clear about that. We've never had the same regulatory system in both systems. So they are not similar systems. The similarity between gas and electricity is that our function is the same or similar, but the regulatory framework for gas has never been similar to the regulatory framework for electricity. And I insist I would have enjoyed the same framework. It would give us mass and of course it would be positive.

 Of course they are not similar systems and different solutions could be applied. Similar solutions to the European gas system could be applied to Spain and there would be advantages and disadvantages if this were done. So I'm not going to give an opinion on changes to other systems that are not our own beyond what I've already mentioned.

 Now investments for the second half of the year, what we need to meet the target, that's what we're going to do. 650 -- 525 -- if it's EUR550m this would be figures and this is what's expected right now.

 Regarding the [Met Gas] issue there are no changes, no negotiations underway. Based on what we know about it, which is what you know as well, what happened with [Met Gas] is that the founding shareholders in the pipeline have used their preferential purchase right before other shareholders that have left. So a core of three shareholders has consolidated. We have no further news in this regard. We do not think this is going to change. If they decide to sell in the future we would discuss it.

 But in any case we've always said that with the [Met Gas] pipeline or asset, Enagas has always had a very smooth relationship. In fact it works, because on the Spanish side we made a huge investment and we've maintained it, so in a way we have a very good working relationship with them. Although I insist there are no news, no negotiations underway. Inasmuch as what has happened with this company or asset is that a core of three shareholders, three core shareholders has consolidated and they have purchased the shares of other shareholders who decided to step out. That's it.

 Now regarding the cost of debt over the first quarter of course it's good news we have not reached that 3.25% although we maintain the objective of 3.25%. As we shared in our presentation of results with the last semester of last year, we extended the average life of our debt with very good, under very good conditions, but it's a matter of calculations with bonds and so forth. Our average cost is going to be slightly over what we had last year because we have less short-term debt and more long-term debt. We think that our goal is 3.25%.

 Of course it goes without mentioning we are going to strive to beat this goal, this target. I'm happy to say though that as we've gone through half of the year without hitting the 3% mark.

 And I think that answers all your questions. Any further questions?

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Operator   [7]
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 (Interpreted). The next question will be by Carolina Dores from Morgan Stanley. Please go ahead.

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 Carolina Dores,  Morgan Stanley - Analyst   [8]
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 (Interpreted). Hello. Good morning. Thank you very much for taking my questions. I have two questions. The first one is regarding Castor. When do you think operations will start?

 And my second question is regarding Castor as well. Are there any regulatory changes who needs to pay for Castor, the asset side, or can this be negotiated?

 And then one more question. The financial costs have gone up by 95% in the first quarter. Is there a recurring effect -- is there a non-recurring effect in this number? Thank you.

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 Antonio Llarden,  Enagas SA - Chairman   [9]
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 (Interpreted). Thank you very much for your question, Ms. Flores. Now let me address your questions. Regarding Castor the information that we have available is that gas injection has started already and we know that's working correctly. We have no further information. So my technical calculations -- and this is a technical opinion, not an official opinion -- is that the final entry would be by the end of last year. But that's one opinion based the pace.

 Now regarding regulatory changes, we've mentioned many times that our potential acquisition of part of this asset is completely linked to the regulatory retribution system. That's how it's set. And therefore there are no news in this regard at all.

 Now regarding the cost over the second quarter, you are right. The truth is that over the first quarter because of the situation there were some positive changes in financial cost. Given the currency dollars investments we have (technical difficulty), that have balanced out over the second quarter. That's strictly determined based on the situation and the calculation that we have for the entire year are in line with our forecasts. These are just small changes. So out of our investments in dollars there has been a positive change that has balanced in the second quarter.

 Now just as liquidity in the end of June is slightly higher than the average we had calculated for the entire year because we paid a dividend on June 3, so we have extra liquidity to pay for the dividend payout. It's not part of the semester half of the year. So there are small changes that of course when you cut on one semester or quarter there was always a border effect, but I don't think it has an impact through the year.

 Thank you very much. Are there any further questions?

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Operator   [10]
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 (Interpreted). The next question will be asked by Virginia Sanz from Deutsche Bank. Please go ahead.

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 Virginia Sanz,  Deutsche Bank - Analyst   [11]
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 (Interpreted). Good morning. I had three questions regarding results as well. The first question is the debt target that you have for the year. I saw that in June it's below what you had at the end of 2012. I believe that's due in part to the liquidity effect that you just mentioned. I just wanted to know your expectations for year end.

 Now regarding international investments, I heard that you are going to maintain your strategy and in any case I would like to know if you are looking into any specific investment that could come to realization over the second half of the year or in 2014?

 And then regarding the combined cycle hibernation in the new regulation, does this affect you in any way? I understand the answer is no, but could it have an impact on your forecasted CapEx for the future? Thank you very much.

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 Antonio Llarden,  Enagas SA - Chairman   [12]
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 (Interpreted). Thank you very much Virginia. Yes, of course we are maintaining our net-debt/EBITDA ratios. We're maintaining those, as you all said. The fact that they're during this first half being less or inferior than that of the first half of the year last year is because of the liquidity movement, the payout ratio in June [3], the payments that took place there. But we are not seeing any changes in this respect, no.

 Now regarding your second question, international investment, we have no update in this regard. We are moving towards, we are improving and I told you that we are contemplating something that is going to happen anyway. We'll have to announce it. But again no update. R&D department is constantly studying additional possibilities, monitoring different projects, and as the projects are materialized, in that moment we will brief you.

 But please remember in terms of international investments the figure we gave you was for the overall period, not necessarily on a year-to-date or year-to-year basis. And therefore if your question is are you expecting any impact, either positive or negative in cases of increased cost of debt, the answer is no for this year because these preference issues, as you all know. Since the closing of a deal and the putting into operation, there's a reasonable delay. So, for example, in that regard we close it in one year and it wasn't (technical difficulty) effect and it didn't have an impact on neither our profit or losses in the next year. So no update, which is good news. We keep on working business as usual but no additional update.

 Now regarding the hibernational cycle, as you said, Virginia, so rightly, it does not affect us either directly or indirectly. I have a very personal opinion, but this might be subjective. I believe that, against intuition --- this is counter-intuitive, but I believe that this hibernation, paradoxically speaking, might lead to a higher use in the other cycles. I'm not referring to all the cycles. And let me explain myself. Hibernation has the following goal. At the end of the day it's about fully and totally concentrating in those cycles that, for whatever reason, whether their location or the high-voltage evacuation lines or the longer or shorter distance to renewable energies and the extensive use of renewable energies.

 Well, let me explain myself. Cycles in Spain that are distributed along our territories are not homogenous just because the electric system does not require them to do so. And this is again, please note, my own personal opinion. It's nothing official. But I can guess that this hibernation aimed at trying or attempting perhaps to hibernate, and of course with the agreement of the different stakeholders and operators, those less effective cycles and giving the possibility to do those more effective cycles, trying to prevent any stops or halts.

 So in reply to your question, A, it does not affect us. B, we have no CapEx related to it and therefore we won't be affected in the future.

 Thank you very much indeed. Now should you have any additional questions, please.

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Operator   [13]
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 (Interpreted). Pablo Cuadrado, Bank of America, will ask the following questions. Please go ahead.

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 Pablo Cuadrado,  Bank of America - Merrill Lynch - Analyst   [14]
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 (Interpreted). Good morning ladies and gentlemen. I've listened to most of my answers so far, but I would like to ask about operating expenses. As you explained throughout the presentation, these are half-yearly results. It is difficult to compare them to those of previous year because of the scope. There is an increase in income that is around 15%. This is a revenue increase where there are OpEx increases by 22%, therefore the EBITDA margin falls from a 79% to a 78% per year. Please can you comment on the OpEx level for the first half of the year? What can we expect for the second half of the year? Thank you very much indeed.

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 Antonio Llarden,  Enagas SA - Chairman   [15]
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 (Interpreted). Thank you very much Mr. Pablo Cuadrado. You're right to point out this is most the explanation of the OpEx increase versus the revenue increase. Well, we're talking about percentages because in absolute level revenues increased much more than OpEx. But this is due to only a comparison issue. A, on the one hand, the scope of consolidation is different, therefore that partly explains the slight increase in OpEx. But B, there is also distribution of cost. I think it's in natural gas. But for some reason they fill during the first half but they won't take place in the second half.

 To summarize, OpEx during the first half is not going to be repeated on the second half. And this is mainly and chiefly due to the difference of the scope of consolidation for so many reasons. But that's the reason why we are very calm to say that we are maintaining our OpEx and cost goals because in the second half we will rationalize the comparison and these deviations will not take place during the second half. So please rest assured, this is not going to happen.

 And now that you ask, I'd like to confirm that we, given current economic regulatory framework, we decided but not saying though, but we are maintaining a very strict cost containment measure and policy, thus allowing us and the system in general to face volatility in the current economic framework. Therefore we are maintaining this policy. The fact that I didn't mention this during my presentation doesn't mean that we are not sticking to this policy. No, much more, but in the past we are sticking to our cost containment policy.

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Operator   [16]
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 (Interpreted). The next question will be asked by Fernando Lafuente from N+1.

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 Fernando Lafuente,  N+1 - Analyst   [17]
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 (Interpreted). Hello. Good morning everybody. I have two follow-ups, two questions regarding other issues. Castor, please confirm Enagas' commitment to purchase one third of the asset for the regulated value requested by the independent -- by the regulator, regardless of the regulation applied to these assets effectively.

 I'd like to ask about the hibernation of combined cycles. If I understood properly, this will not impact the sector. Please confirm that this cycle will continue to pay the access tolls despite being delivered. Thank you very much indeed.

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 Antonio Llarden,  Enagas SA - Chairman   [18]
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 (Interpreted). Thank you very much Mr. Fernando Lafuente. As I said before, the purchase of regulated assets, ones we do and in general the ones done in Europe, is always linked. Regardless of the cost of the asset, it's always subject to the final regulation. Therefore you, when you purchase, you're not incurring any risks. This is subject to the final regulation and the regulators' policies.

 Now regarding combined cycle, as I said before, I explained in my opinion the goal of the regulator. We are talking about a hibernated cycle. It's for the operator not to pay any tolls, but those that are going to use them, they will have to pay the applicable tolls. I'm sure that the regulator's goal -- as I said, again this is my own personal opinion, but I think that it makes sense from the technical point of view -- the goal is to make a rational use of the current part of uses and cycles. And therefore demand will not decrease. Quite the opposite, it'll grow due to all the issues, the evolution of carbon and so on. But the goal of hibernation is the rational use of the other cycles.

 So no paying at all in one cycle could be offset partly by the payment in another cycle, in a more effective cycle. That has nothing to do with demand because whatever the demand is, as I said before, if things go business as usual for a few years' time we, in the coming years, due to costs in Europe, not only in Spain, we will partly recover the functioning of gas, not in every cycle but in those cycles that are working out properly. And I think this replies to your question.

 Any additional questions?

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Operator   [19]
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 (Interpreted). There are no additional questions in Spanish. Now we will move on. The first question comes from Javier Suarez from Mediobanca. Please go ahead, sir.

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 Javier Suarez,  Mediobanca - Analyst   [20]
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 (Spoken in Spanish).

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 Antonio Llarden,  Enagas SA - Chairman   [21]
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 (Interpreted). Thank you very much Javier. Now I try to answer some questions. That was approved. Please note when I was talking about this, I just gave it for granted. I thought it was also understood. Castor has been approved and it will be put into operation, and this is our plan. They're currently starting the re-injection test. And I believe, again, as I said, this might be delayed until, let's say -- the technical put into operation might not take place until the very beginning of 2014. But again, the regulator has approved this project, Castor.

 Now as it usually happens we will wait and see what the final regulation is. But this is our asset. We have had the approval for the putting into operation. We start working with a provisional regulation, well, with a temporary remuneration. And after a year or two years, and perhaps there's a report to the National Energy Commission, we then have a final remuneration. But again, we've received the final approval for the putting into operation and it is operating.

 However, it is not operating within the system because of the complexity of this installation. They are running some injection tests at the moment and this might take a few months. And that's when I said, as my own personal opinion, very subjective opinion, this might be end of 2013, beginning of 2014 because we're now in July. If we were talking about this in April, I would tell you before the end of the year.

 Now regarding our calculation, and obviously when I talk about a four-year period, our figures are around an average increase of 2.5% and the toll would be sufficient to absorb, with three different demand scenarios I won't comment now, to absorb the cost of the system. And we've included of course Castor.

 Please remember once again that the cost of transportation and infrastructure counts for 10% of the gas bill. When we say 2.5% of average increase, yearly increase, this is just a figure. The real impact on the final cost is really insignificant. So overall speaking we believe this is feasible, mainly because, as I said, unfortunately, given the gas system, we are not forecasting major investments in the next five to six years. When I say major, I'm talking about volumes. I'm not saying they are not important; I'm saying they are not too significant in terms of the figures. And in fact, as one of my colleagues is explaining, we've had a 6% in the tolls, in one specific type of tolls. For the next four/five years the average would be again quite reasonable.

 Now regarding Red Electrica, we've read the public announcements they made and they've properly explained that their system complexity is much higher. They have three different sectors' assets with different dates. And I believe that the last public announcement, I'm not really aware of everything, but as I've been told by my regulation team that Red Electrica announced that the calculation they are forced to do for each and every facility might be a calculation that might be slow and complex.

 Therefore neither myself or anybody can actually give you or raise very accurate opinions about these technicalities because, as I understand, they are currently under development. And again, the last public announcement they made, Red Electrica said that these will take some time, being a long time indeed.

 Regarding the international expansion, I believe I said this before, but I will repeat it. We are very aware of the Ramones project. It is a very important structuring project for the transport in Mexico, from the US to Mexico, north to south. We are monitoring the evolution there. It is an interesting project undoubtedly and we are very cautious but following this into detail. If there are any updates we will brief you as soon as possible.

 Thank you very much indeed. I don't know if --

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Operator   [22]
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 The last question comes from Antonella Bianchessi from Citigroup. Please go ahead madam.

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 Antonella Bianchessi,  Citigroup - Analyst   [23]
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 Good morning. I'll be quick. I have just two questions. The first one, if you can comment on the fact that the redeemable asset life of your assets is very short. Do you think the regulator will take the opportunity to revise the regulatory framework in order to allow reduction of the tariff without affecting your valuation, exchanging the asset life to a more normal number?

 Second, if you can just repeat the guidance for the net debt at the end of the year given the numbers that we saw in H1. Thank you.

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 Antonio Llarden,  Enagas SA - Chairman   [24]
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 (Interpreted). Thank you very much Ms. Antonella Bianchessi. Since there is interpretation available, I will answer to you in Spanish.

 So first I understand your comment about the likelihood of the change and then regulatory passage could be longer. We've already shared with you that at this time we have no indication one way or the other about regulatory changes. So this is just one more issue we could speculate about. In fact in the past there has been some regulatory changes that have traded off on the useful life cycles in exchange for a different framework. It's a possibility. But if I say now that, yes, we're going down this road or not, I would be speculating. And I could hardly say anything else.

 Now regarding your other questions, regarding the guidance on the debt year end, as I've mentioned, there are no changes forecast and off the top of my head our total net would be EUR3.9b by year end, which is approximately what we have forecasted in our plan to maintain our ratios and liquidity levels. So there would be no changes in this regard compared to our forecast and we have no element that makes us think this is going to be otherwise fortunately so we are doing business as usual in this regard.

 And I think I've addressed your most important questions. Are there any further questions?

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Operator   [25]
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 There are no more questions.

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 Antonio Llarden,  Enagas SA - Chairman   [26]
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 (Interpreted). If there are no further questions we will finish this call conference right now. Thank you very much to all of you. If there are any additional questions you can contact the Investor Relations department. Thank you very much and good morning.

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Editor   [27]
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 Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call.  The interpreter was provided by the Company sponsoring this Event.




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