endesa gas t&d, s.l. and subsidiaries · endesa gas t&d, s.l. (hereinafter the company) was...

Endesa Gas T&D, S.L. and

Subsidiaries Consolidated Annual Accounts

31 December 2012

Consolidated Directors’ Report 2012

Prepared in accordance with the International Financial Reporting Standards

adopted by the European Union

(with report of the auditors thereon)

Free translation from the original in Spanish In the event of discrepancy, the Spanish-

language version prevails

KPMG Auditores S.L. Centro Empresarial de Arag6n Avda. Gomez Laguna. 25 50009 Zaragoza

Auditors' Report on the Consolidated Annual Accounts

(Free Translation from the original in Spanish. In the event of discrepancy, the Spanishlanguage version prevails.)

To the Shareholders of Endesa Gas T&D, S.L.

We have audited the consolidated annual accounts of Endesa Gas T&D, S.L. (the Company) and subsidiaries (the Group), which comprise the consolidated balance sheet at 31 December 2012, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows for the year then ended and the notes thereto. As mentioned in note 2 to the accompanying consolidated annual accounts, the Company's directors are responsible for the preparation of the con sol idated annual accounts of the Group in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS), and other provisions of the financial information reporting framework applicable to the Group. Our responsibility is to express an opinion on the consolidated annual accounts taken as a whole, based on our audit, which was conducted in accordance with prevailing legislation regulating the audit of accounts in Spain, which requires examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated annual accounts and evaluating whether their overall presentation, the accounting principles and criteria used and the accounting estimates made comply with the applicable legislation governing financial information .

In our opinion, the accompanying consolidated annual accounts for 2012 present fairly, in all material respects, the consolidated equity and consolidated financial position of Endesa Gas T&D, S.L. and subsidiaries at 31 December 2012 and the consolidated results of their operations and consolidated cash flows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union, and other applicable provisions of the financial information reporting framework.

The accompanying consolidated directors' report for 2012 contains such explanations as the Directors of Endesa Gas T &D, S.L. consider relevant to the situation of the Group, the evolution of its business and other matters, and is not an integral part of the consolidated annual accounts. We have verified that the accounting information contained therein is consistent with that disclosed in the consolidated annual accounts for 2012. Our work as auditors is limited to the verification of the consolidated directors' report within the scope described in this paragraph and does not include a review of information other than that obtained from the accounting records of Endesa Gas T &D, S .L. and subsidiaries.

KPMG Auditores, S.L.

(Signed on the original in Spanish)

Estfbaliz Bilbao 27 March 2013

KPMG Auditores S.L., sociedad espanola de Reg . Mer Madrid, T. 11 .96 1. F. 90. responsabilidad limitada. es una filial de KPMG Europe Sec. 8, H. M -188 .007, lnscrip. 9 LLP Y firma mlembrode la red KPMG de firmas N.I .F,8-78510 153 independientes afillddas a KPMG Internallonal Cooperative ("KPMG Internatlonan. sociedad suiza.

ENDESA GAS T&D, S.L. AND SUBSIDIARIES

Consolidated Annual Accounts and Consolidated Directors’ Report

31 December 2012

Prepared in accordance with International Financial Reporting Standards as adopted by the European Union

(With Auditors’ Report Thereon)

(Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)

CONTENTS

(1) Nature, Activities and Composition of the Group 7

(2) Basis of Presentation 9

(3) Significant Accounting Principles 12

(a) Subsidiaries 12

(b) Business combinations 12

(c) Non-controlling interests 13

(d) Property, plant and equipment 13

(e) Intangible assets 15

(f) Non-current assets held for sale 16

(g) Impairment of non-financial assets subject to amortisation or depreciation 16

(h) Leases 17

(i) Financial instruments 18

(j) Hedge accounting 18

(k) Inventories 19

(l) Cash and cash equivalents 19

(m) Income and expenses 19

(n) Environmental issues 23

(o) Provisions and contingencies 23

(p) Deferred income 24

(q) Employee benefits 24

(r) Income taxes 27

(s) Segment reporting 29

(t) Classification of assets and liabilities as current and non-current 29

(4) Sector Regulation 30

(5) Segment Reporting 31

(6) Non-current assets held for sale 33

(7) Property, Plant and Equipment 33

(8) Intangible Assets 35

(9) Impairment and Allocation of Goodwill and Intangible Assets with Indefinite Useful Lives to CGUs 37

(10) Operating Leases 37

(11) Financial Assets by Category 38

(12) Derivative financial instruments 39

(13) Current and Non-Current Financial Assets 43

(14) Income tax 43

(15) Inventories 49

(16) Trade and other receivables 49

(17) Cash and Cash Equivalents 50

(18) Equity 51

(19) Financial Liabilities by Category 54

(20) Financial Liabilities from Borrowings 55

(21) Trade and Other Payables 58

(22) Late Payments to Suppliers. “Reporting Requirement” Third Additional Provision of Law 15/2010 of 5 July 2010 59

(23) Risk Management Policy 59

(24) Provisions for Employee Benefits 62

(25) Other Provisions 65

(26) Environmental Information 66

(27) Deferred Income 67

(28) Revenues 67

(29) Other Operating Income 68

(30) Other Operating Expenses 68

(31) Personnel Expenses 69

(32) Finance Income and Cost 70

(33) Related Party Balances and Transactions 70

(34) Information on the Parent’s directors and the Group’s senior management personnel 72

(35) Audit Fees 75

(36) Off Balance Sheet Agreements 75

(37) Guarantees 76

(38) Events after the Reporting Period 76 Appendices I. Details of Subsidiaries

1


Consolidated Statements of Financial Position at 31 December 2012 and 2011

(Expressed in thousands of Euros)


The accompanying consolidated notes form an integral part of the consolidated annual accounts.

Assets Note 2012 2011 Property, plant and equipment 7 606,677 587,296Goodwill 6 213,053 213,053Other intangible assets 8 526,855 524,452Deferred tax assets 14 57,168 51,513Non-current financial assets 13 4,356 4,468

Total non-current assets 1,408,109 1,380,783 Inventories 15 1,832 1,780Trade and other receivables 16 49,327 42,289Other current financial assets 13 152 461Other current assets 51 (38)Cash and cash equivalents 17 70,242 54,116

121,604 98,607

Non-current assets held for sale 6 578 - Total current assets 122,182 98,607

Total assets 1,530,291 1,479,390

Equity and Liabilities Note 2012 2011 Share capital 100,000 100,000Share premium 105,433 105,433Other reserves 4,550 18,250

Cash flow hedges (37,897) (18,373)Loss for the year (23,888) (19,123)

Other comprehensive income (61,785) (37,496)

Equity attributable to equity holders of the Parent

148,198 186,187 Non-controlling interests 6,133 13,311

Total equity 18 154,331 199,498 Loans and borrowings - banks 20 576,421 528,605Loans and borrowings - related companies 20 361,695 361,697Derivative financial instruments 12 54,138 26,247Other financial liabilities 19 4,184 4,215Deferred tax liabilities 14 223,060 225,338Provisions for employee benefits 24 4,839 6,725Other provisions 25 1,772 1,267Deferred income 27 3,459 2,074

Total non-current liabilities 1,229,568 1,156,168

Loans and borrowings - banks 20 12,309 1,127Loans and borrowings - related companies 20 74,393 37,749Trade and other payables 21 52,851 84,206Current income tax liabilities 14 2,239 -Provisions for employee benefits 24 4,588 633Other current liabilities 12 9

Total current liabilities 146,392 123,724 Total equity and liabilities 1,530,291 1,479,390

2


Consolidated Income Statements for the years ended 31 December 2012 and 2011




Note 2012 2011 Revenues 28 133,843 117,541 Other operating income 29 2,028 721 Self-constructed non-current assets 3,200 3,769 Supplies (7,392) (10,951)

Salaries and wages (12,863) (12,261) Other employee benefits (4,097) (3,068) Restructuring (3,000) -

Personnel expenses 31 (19,960) (15,329) Amortisation and depreciation 7 and 8 (33,023) (30,834) Impairment losses on non-current assets 7 - (13) Other operating expenses 30 (18,371) (21,480) Results from operating activities 60,325 43,424 Finance income 32 895 1,550 Finance costs 32 (74,784) (72,585) Net finance cost 32 (73,889) (71,035)

Loss before income tax (13,564) (27,611)

Income tax income/(expense) 14 (9,947) 9,152

Loss for the year (23,511) (18,459)

Loss for the year attributable to owners of the Parent (23,888) (19,123)

Profit for the year attributable to non-controlling interests 377 664

3


Consolidated Statements of Comprehensive Income for the years ended

31 December 2012 and 2011

(Expressed in thousands of Euros) (Free translation from the original in Spanish. In the event of discrepancy,

the Spanish-language version prevails.)


Note

2012 2011 Loss for the year (23,511) (18,459)

Other comprehensive income: Cash flow hedges 12 (27,891) (34,004) Actuarial gains / (losses) on defined benefit plans (13) - Tax effect 14 8,371 10,202

Other comprehensive income for the year, net of tax (19,533) (23,802)

Total comprehensive income for the year (43,044) (42,261) Total comprehensive income attributable to:

Equity holders of the Parent (43,421) (42,925) Non-controlling interests 377 664

(43,044) (42,261)

4


Consolidated Statement of Changes in Equity for the year ended 31 December 2012




Equity attributable to equity holders of the Parent Other comprehensive income

Share capital Share

premium Other

reserves Cash flow

hedges Loss for the

year Total Non-controlling

interests Total equity Balance at 1 January 2012 100,000 105,433 18,250 (18,373) (19,123) 186,187 13,311 199,498

Loss for 2012 - - - - (23,888) (23,888) 377 (23,511) Additions of cash flow hedges, net of tax - - - (19,524) - (19,524) - (19,524) Actuarial gains/(losses) on defined benefit

plans

-

-

(9)

-

-

(9)

-

(9) Acquisition of non-controlling interests - - 5,432 - - 5,432 (7,555) (2,123) Application of losses for 2011 - - (19,123) - 19,123 - - - Balance at 31 December 2012 100,000 105,433 4,550 (37,897) (23,888) 148,198 6,133 154,331

5


Consolidated Statement of Changes in Equity for the year ended 31 December 2011




Equity attributable to equity holders of the Parent Other comprehensive income

Share capital

Share premium

Other reserves Cash flow

hedges Loss for the

year

Total Non-controlling

interests Total equity Balance at 1 January 2011 100,000 105,433 22,155 5,429 (4,350) 228,667 12,647 241,314

Loss for 2011 - - - - (19,123) (19,123) 664 (18,459) Additions of cash flow hedges, net of

tax

-

-

-

(23,802)

-

(23,802)

-

(23,802) Actuarial gains/(losses) on defined

benefit plans

-

-

445

-

-

445

-

445 Application of losses for 2010 - - (4,350) - 4,350 - - - Balance at 31 December 2011 100,000 105,433 18,250 (18,373) (19,123) 186,187 13,311 199,498

7


Notes to the Consolidated Annual Accounts

31 December 2012


(Continued)

(1) Nature, Activities and Composition of the Group

Endesa Gas T&D, S.L. (hereinafter the Company) was incorporated with limited liability under Spanish law in Madrid on 6 April 2000 under the name of Nubia 2000, S.L., and subsequently adopted its current name in 2011. The registered offices of the Company are located in C/Doctor Aznar Molina, nº 2, Zaragoza. On 1 December 2010 Endesa Gas, S.A. (Sociedad Unipersonal), an Endesa Group company, sold the shares and equity holdings of the following six companies to the Company:

Euros

Company Number of shares and equity

holdings Initial purchase price

Gesa Gas, S.A.(Sociedad Unipersonal) 198,398 59,077,595

Endesa Gas Distribución, S.A.(Sociedad Unipersonal)

169,237

19,412,297

Distribuidora Regional del Gas, S.A.(Sociedad Unipersonal)

41,768

23,334,846

Gas Aragón, S.A. 82,744 141,243,801

Endesa Gas Transportista, S.L. (Sociedad Unipersonal)

3,790,438

186,584,803

Transportista Regional del Gas, S.A. 332,901 40,973,098

TOTAL 470,626,440

At that date, as agreed by the shareholders at the extraordinary general meeting, the Company increased its share capital by Euros 100,000 thousand by issuing 10 million new equity holdings of Euros 10 par value each and a total share premium of Euros 105,433 thousand. Endesa Gas, S.A. (Sociedad Unipersonal) subscribed this capital increase in full through the non-monetary contribution of full ownership of the following shares and equity holdings:

8



31 December 2012


(Continued)

Euros

Company Number of shares and equity

holdings

Fair value

of the contribution

Gesa Gas, S.A.(Sociedad Unipersonal) 86,602 25,787,749

Endesa Gas Distribución, S.A.(Sociedad Unipersonal)

73,874

8,473,703

Distribuidora Regional del Gas, S.A.(Sociedad Unipersonal)

18,232

10,185,810

Gas Aragón, S.A. 36,132 61,654,880


1,654,562

81,446,029

Transportista Regional del Gas, S.A. 145,314 17,885,091

TOTAL 205,433,262

Consequently, on 1 December 2010 Endesa Gas T&D, S.L. became the Parent of a Group comprising the subsidiaries detailed above. On 17 December 2010, as a result of an agreement entered into by Endesa Gas, S.A. (Sociedad Unipersonal) with Augusta Global Coöperatieve, U.A. and Zaragoza International Coöperatieve, U.A. on 24 September 2010 for the sale and purchase of equity holdings, purchased interests of 33.2% and 46.8%, respectively, in Endesa Gas T&D, S.L. In November 2012 the Company incorporated the following three companies with a view to improving operating efficiency and its consolidated structure:

Eg Administrador de Transporte de Gas, S.L.U. Eg Administrador de Distribución de Gas, S.L.U. Eg Actividades de GLP, S.L.U.

9



(Continued)

The statutory activity of Endesa Gas T&D, S.L. and subsidiaries (hereinafter the Group) comprises the holding, purchase, subscription, swap and sale of Spanish and foreign securities, on their own behalf and without brokerage intervention, in order to govern, administrate and manage these entities. These activities do not include those expressly restricted by law to collective investment undertakings and activities restricted to stock exchange member brokers and brokerage firms by the Spanish Stock Market Law. The principal activity of the Group companies is the distribution and transmission of gas and oil-based products for domestic, commercial and industrial purposes, the use of any by-products, and related activities.

(2) Basis of Presentation

The accompanying consolidated annual accounts have been prepared on the basis of the accounting records of Endesa Gas T&D, S.L. and the consolidated companies. In accordance with Law 62/2003 of 30 December 2003, groups of companies may opt to apply the accounting principles in the Spanish Code of Commerce or International Financial Reporting Standards as adopted by the European Union (EU-IFRS). The Parent has opted to present the consolidated annual accounts in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS), and other applicable provisions in the financial reporting framework, to present fairly the consolidated equity and consolidated financial position of Endesa Gas T&D, S.L. and subsidiaries at 31 December 2012 and consolidated results of operations and changes in consolidated equity and cash flows of the Group for the year then ended. The directors of the Parent consider that the consolidated annual accounts for 2012, authorised for issue on 19 March 2013, will be approved with no changes by the shareholders at their annual general meeting. The annual accounts for 2012 have been prepared using the same accounting principles as those applied to the approved annual accounts for 2011, except for the following standards and amendments adopted by the European Union and interpretations issued, which are obligatory as of 1 January 2012: Amendments to IFRS 7 set out in Disclosures – Transfers of Financial Assets: effective

for annual periods beginning on or after 1 July 2011. The amendments to this IFRS change the disclosure requirements for transfers of financial assets. In accordance with this standard, no comparative information need be presented for years prior to 2012.

There is no significant impact on the consolidated financial statements. The new disclosures have been included in the notes to the financial statements in the annual accounts. The Group has not opted for the early adoption of any disclosure requirements or accounting policies.

10



(Continued)

The following are standards or interpretations already adopted by the European Union and obligatory in coming years, along with their expected impact for the Group: IFRS 10 - Consolidated Financial Statements: effective for annual periods beginning on

or after 1 January 2014 (1 January 2013 as per IFRS). IFRS 10 introduces a single control model to determine whether a company should be consolidated. As the Group has solely owned subsidiaries, application of this standard is not expected to have a relevant impact.

IFRS 13 - Fair Value Measurement: effective for annual periods beginning on or after 1

January 2013. This standard provides a single framework for measuring fair value and replaces the guidelines currently in force through different standards. The Group is in the process of reviewing its methods for determining fair value, although no significant impact is foreseen.

IFRS 9 - Financial Instruments: effective for annual periods beginning on or after 1

January 2015. Pending adoption by the EU. This standard reduces the number of financial instrument categories to two: amortised cost and fair value. All financial instruments must therefore be classified into one of these categories. The Group will need to adapt the classification of its financial instruments. Changes in value of available-for-sale financial assets are to be recognised as changes in equity. The standard also proposes significant changes in terms of aligning hedge accounting and risk management, defining a target-based approach and eliminating inconsistencies and shortfalls in the existing model. The Group is currently analysing the impacts and defining the risk model to determine which of its instruments could qualify as hedges.

Amendments to IAS 1 – Presentation of items of other comprehensive income: effective

for annual periods beginning on or after 1 July 2012. The amendments require the entity to present those items of other recognised income and expense that could subsequently be transferred from equity to the income statement separately from items that will never be transferred. The option of presenting an income statement and a statement of recognised income and expense as two separate statements has been maintained.

These amendments are not expected to have a relevant impact on the Group’s financial statements, although they will probably entail more in-depth disclosures.

(a) Basis of preparation of the annual accounts

These consolidated annual accounts have been prepared on the historical cost basis, except for derivative financial instruments and business combinations, which have been recognised at fair value, and non-current assets held for sale, which are recognised at the lower of their carrying amount and fair value less costs to sell.

11



(Continued)

(b) Functional and presentation currency

The figures disclosed in the consolidated annual accounts are expressed in thousands of Euros, the Group’s functional and presentation currency, rounded off to the nearest thousand.

(c) Relevant accounting estimates, assumptions and judgements used when applying accounting principles

Relevant accounting estimates and judgements and other estimates and assumptions have to be made when applying the Group’s accounting principles to prepare the consolidated annual accounts in conformity with EU-IFRS. A summary of the items requiring a greater degree of judgement or which are more complex, or where the assumptions and estimates made are significant to the preparation of the consolidated annual accounts, are as follows:

Useful lives of property, plant and equipment and intangible assets (see notes 3.d and

3.e). Measurement of assets and goodwill to determine any impairment losses (see note 3.g) The market value of certain financial instruments (see note 3.i) Recognition of income (see note 3.m)

The probability of occurrence and amount of liabilities for uncertain amounts,

contingent and/or decommissioning liabilities (see note 3.o) Tariff services not yet invoiced (see note 3.m)

The assumptions used in the actuarial calculation of pensions and other obligations to employees (see note 3.q).

The assessment of whether deferred tax assets are likely to be recovered based on its business plan for the coming years and the recovery periods foreseen in Spanish tax legislation.

Interpretation of certain sector regulations, the final economic effects of which will ultimately depend on rulings by the authorities responsible for settlements. Certain rulings are pending at the date of authorisation of these consolidated annual accounts (see note 4).

Although estimates are calculated by the Parent’s directors based on the best information available at 31 December 2012, future events may require changes to these estimates in subsequent years. Any effect on the consolidated annual accounts of adjustments to be made in subsequent years would be recognised prospectively.

12



(Continued)

(3) Significant Accounting Principles

(a) Subsidiaries

Subsidiaries are entities which the Company controls directly or indirectly through other subsidiaries. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control potential voting rights held by the Group or other entities that are exercisable or convertible at the end of each reporting period are considered.

Information on the subsidiaries included in the consolidated Group is presented in Appendix I.

The income, expenses and cash flows of subsidiaries are included in the consolidated annual accounts from the date of acquisition, which is when the Group takes control, until the date that control ceases.

Transactions and balances with Group companies and unrealised gains or losses have been eliminated upon consolidation. Nevertheless, unrealised losses have been considered as an indicator of impairment of the assets transferred.

The subsidiaries' accounting policies have been adapted to Group accounting policies, for like transactions and other events in similar circumstances.

The annual accounts or financial statements of the subsidiaries used in the consolidation process in 2012 have been prepared as of the same date and for the same period as those of the Parent.

(b) Business combinations

The Group has applied IFRS 3 “Business combinations” revised in 2008 to transactions carried out since its creation (see note 1).

The Group applies the purchase method for business combinations.

The acquisition date is the date on which the Group obtains control of the acquiree.

The consideration transferred in a business combination is calculated as the sum of the acquisition-date fair values of the assets transferred.

At the acquisition date the Group recognises the assets acquired, liabilities assumed at fair value. Liabilities assumed include any contingent liabilities that represent present obligations arising from past events for which the fair value can be reliably measured.

13



(Continued)

The excess between the consideration transferred, plus the value assigned to non-controlling interests, and the value of net assets acquired and liabilities assumed, is recognised as goodwill.

(c) Non-controlling interests

Non-controlling interests in subsidiaries acquired are recognised at the acquisition date at the proportional part of the fair value of the identifiable net assets.

Non-controlling interests are disclosed in consolidated equity separately from equity attributable to equity holders of the Parent. Non-controlling interests’ share in consolidated profit or loss for the year and in consolidated total comprehensive income for the year is disclosed separately in the consolidated income statement and the consolidated statement of comprehensive income.

The consolidated profit or loss for the year, consolidated total comprehensive income for the year and changes in equity of the subsidiaries attributable to the Group and non-controlling interests after consolidation adjustments and eliminations, are determined in accordance with the percentage ownership at year end.

(d) Property, plant and equipment

Property, plant and equipment are recognised at cost or deemed cost, less accumulated depreciation and any accumulated impairment losses. The cost of self-constructed assets is determined using the same principles as for an acquired asset, while also considering the criteria applicable to production costs of inventories. The production cost is capitalised by allocating the costs attributable to the asset to non-current self-constructed assets in the consolidated income statement.

The cost of an item of property, plant and equipment includes the estimated costs of dismantling or removal and restoration of the site on which it is located, provided that the obligation is incurred as a consequence of having used the item and for purposes other than to produce inventories.

Property, plant and equipment are depreciated by allocating the depreciable amount of the asset on a systematic basis over its useful life. The depreciable amount is the cost of an asset, less its residual value. The Group determines the depreciation charge separately for each component.

14



(Continued)

Property, plant and equipment are depreciated using the following criteria:

Depreciation method

Estimated years of useful life

Buildings Straight-line 20 Technical installations and machinery Liquefied natural gas plant Straight-line 20 Regulation and measurement stations Straight-line 20-30 EU receiving terminals Straight-line 20 Distribution grids Straight-line 20 Meter-reading equipment Straight-line 10 Gas pipelines Straight-line 30-40 Regasification plant Straight-line 20 Other items of property, plant and equipment Straight-line 2-20 Other installations, equipment and furniture Straight-line 4-20 Transmission equipment Straight-line 7-9

In accordance with Royal Decree 326/2008 of 29 February 2008, which stipulates the remuneration from natural gas transmission activities for facilities entering into service since 1 January 2008, items of property, plant and equipment at the technical installations of the subsidiaries Endesa Gas Transportista, S.L. (Sociedad Unipersonal) and Transportista Regional de Gas, S.A. are depreciated over the useful life of the transmission facilities (40 years in the case of pipelines, and 30 years for regulating and measurement stations).

The Group reviews residual values, useful lives and depreciation methods at each financial year end. Changes to initially established criteria are accounted for as a change in accounting estimates.

Subsequent to initial recognition of the asset, only those costs incurred which will generate probable future profits and for which the amount may reliably be measured are capitalised. Costs of day-to-day servicing are recognised in profit and loss as incurred.

Replacements of property, plant and equipment which meet the requirements for capitalisation are recognised as a reduction in the carrying amount of the items replaced. Where the cost of the replaced items has not been depreciated independently and it is not possible to determine the respective carrying amount, the replacement cost is used as indicative of the cost of items at the time of acquisition or construction.

The Group measures and determines impairment to be recognised or reversed based on the criteria in section (g).

15



(Continued)

(e) Intangible assets

Goodwill

Goodwill is determined using the same criteria as for business combinations. Goodwill is not amortised but is tested for impairment annually or more frequently where events or circumstances indicate that an asset may be impaired. Goodwill on business combinations is allocated to the cash-generating units (CGUs) or groups of CGUs which are expected to benefit from the synergies of the business combination and the criteria described in section (g) (impairment) are applied. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Internally generated goodwill is not recognised as an asset.

Licences

This item reflects the amounts incurred in obtaining governmental authorisation to distribute gas in the various areas in which the subsidiaries perform or will perform their activities, less any impairment. Licences are initially recognised at acquisition cost and may be taken to profit or loss when the Group has reasonable doubts that authorisation will be obtained.

Computer software

Computer software is carried at cost, less any accumulated amortisation and impairment losses. Computer software maintenance costs are charged as expenses when incurred.

(i) Useful life and amortisation rates

The Group assesses whether the useful life of each intangible asset acquired is finite or indefinite. An intangible asset is regarded as having an indefinite useful life when there is no foreseeable limit to the period over which the asset will generate net cash inflows. Intangible assets with indefinite useful lives are not amortised, but are instead tested for impairment on an annual basis or whenever there is an indication that the intangible asset may be impaired. The Group considers that the administrative authorisations for gas distribution and transmission acquired in business combinations have an indefinite useful life, as these are renewed every 25 years, however, renewal is merely an administrative procedure as these cannot be granted to another company.

16



(Continued)

Intangible assets with finite useful lives are amortised by allocating the depreciable amount of an asset on a systematic basis over its useful life, by applying the following criteria:

Amortisation

method Estimated

years of useful life

Computer software Straight-line 4-5 Concessions Straight-line 20

The depreciable amount is the cost or deemed cost of an asset less its residual value. The Group reviews the residual value, useful life and amortisation method for intangible assets at each financial year end. Changes to initially established criteria are accounted for as a change in accounting estimates. (ii) Impairment

The Group measures and determines impairment to be recognised or reversed based on the criteria in section (g).

(f) Non-current assets held for sale

Non-current assets for which the carrying amount will be recovered principally through a sale transaction rather than through continuing use are classified as held for sale, provided that these are available for sale in their present condition subject to terms that are usual and customary for sales of such assets and that the transaction is highly probable.

Non-current assets classified as held for sale are measured at the lower of the carrying amount and fair value less costs to sell and are not depreciated.

(g) Impairment of non-financial assets subject to amortisation or depreciation

The Group evaluates whether there are indications of possible impairment losses on non-financial assets subject to amortisation or depreciation to verify whether the carrying amount of these assets exceeds the recoverable amount. The Group tests goodwill, intangible assets with indefinite useful lives and intangible assets that are not yet ready to enter service for potential impairment at least annually, irrespective of whether there is any indication that the assets may be impaired.

17



(Continued)

Negative differences resulting from comparison of the carrying amounts of the assets with their recoverable amount are recognised in profit and loss.

Impairment losses for cash-generating units are allocated first to reduce the carrying amount of goodwill allocated to the unit and then to the other assets of the unit pro rata with their carrying amounts. The carrying amount of each asset may not be reduced below the highest of its fair value less costs to sell, its value in use and zero. At the end of each reporting period the Group assesses whether there is any indication that an impairment loss recognised in prior periods may no longer exist or may have decreased. Impairment losses on goodwill are not reversible. Impairment losses on other assets are only reversed if there has been a change in the estimates used to calculate the recoverable amount of the asset. A reversal of an impairment loss is recognised in profit or loss. The increase in the carrying amount of an asset attributable to a reversal of an impairment loss may not exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised.

A reversal of an impairment loss for a CGU is allocated to the assets of each unit, except goodwill, pro rata with the carrying amounts of those assets. The carrying amount of an asset may not be increased above the lower of its recoverable amount and the carrying amount that would have been disclosed, net of amortisation or depreciation, had no impairment loss been recognised.

(h) Leases

Leases in which, upon inception, the Group transfers to third parties substantially all the risks and rewards incidental to ownership of the assets are classified as finance leases, otherwise they are classified as operating leases. The Group had no finance leases during 2012 or 2011. Lease payments under an operating lease, net of incentives received, are recognised as an expense on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern of the lease’s benefit. The Group recognises initial direct costs incurred on operating leases as an expense when incurred. Contingent rents are recognised as an expense when it is probable that they will be incurred.

18



(Continued)

(i) Financial instruments

Receivables are non-derivative financial assets are initially recognised at fair value, including transaction costs, and are subsequently measured at amortised cost using the effective interest method. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The impairment loss is recognised in profit and loss and may be reversed in subsequent periods. The loss can only be reversed to the limit of the amortised cost of the assets had the impairment loss not been recognised. Financial liabilities Trade payables and loans and borrowings are initially recognised at fair value, less any transaction costs directly attributable to the issue. After initial recognition, liabilities classified under this category are measured at amortised cost using the effective interest method. Profit Participating Loans On initial recognition of any loan the Company makes a best estimate of future cash flows payable or receivable in relation to the loans based on business projections and calculates the effective interest rate. If the interest rate is not a market rate, the difference is recognised based on its substance, generally a grant or a donation. In subsequent years the Company applies the effective interest rate method, which involves adjusting their carrying amount with a debit or credit to profit or loss due to the changes in the estimated cash flows discounted at the original effective interest rate.

(j) Hedge accounting Derivative financial instruments are initially recognised using the same criteria as those described for financial assets and financial liabilities. Derivative financial instruments that do not meet the hedge accounting requirements are classified and measured as financial assets and financial liabilities at fair value through profit or loss. Derivative financial instruments which qualify for hedge accounting are initially measured at fair value, plus any transaction costs that are directly attributable to the acquisition, or less any transaction costs directly attributable to the issue of the financial instruments. Nonetheless, transaction costs are subsequently recognised in profit and loss providing they do not change the effectiveness of the hedge.

19



(Continued)

At the inception of the hedge the Group formally designates and documents the hedging relationships and the objective and strategy for undertaking the hedges. Hedge accounting is only applicable when the hedge is expected to be highly effective at the inception of the hedge and in subsequent years in achieving offsetting changes in fair value or cash flows attributable to the hedged risk, throughout the period for which the hedge was designated (prospective analysis), and the actual effectiveness is within a range of 80%-125% (retrospective analysis) and can be reliably measured. The Group only designates as hedged items liabilities that involve a party external to the Group. In the cash flow hedges, the Group recognises the portion of the gain or loss on the measurement at fair value of a hedging instrument that is determined to be an effective hedge in other comprehensive income. The ineffective portion and the specific component of the gain or loss or cash flows on the hedging instrument, excluding the measurement of the hedge effectiveness, are recognised with a debit or credit to finance costs or finance income.

The separate component of other comprehensive income associated with the hedged item is adjusted to the lesser of the cumulative gain or loss on the hedging instrument from inception of the hedge and the cumulative change in fair value or present value of the expected future cash flows on the hedged item from inception of the hedge. However, if the Group expects that all or a portion of a loss recognised in other comprehensive income will not be recovered in one or more future periods, it reclassifies into finance income or finance costs the amount that is not expected to be recovered.

(k) Inventories Inventories are measured at the lower of acquisition or production cost and net realisable value. The Group uses the same cost model for all inventories of the same nature and with a similar use.

(l) Cash and cash equivalents Cash and cash equivalents include cash on hand and demand deposits in financial institutions.

(m) Income and expenses Income and expenses are recognised on an accruals basis, considering the actual flow of the goods and services they represent, irrespective of collections and payments. Income is calculated at the fair value of the consideration received, net of discounts and taxes.

20



(Continued)

Revenues associated with the rendering of service transactions are recognised by reference to the stage of completion at the reporting date when the outcome of the transaction can be estimated reliably. Customer contract fees are recognised as revenues in the year in which the supply is contracted. Distribution activities: Order IET/3587/2011 of 30 December 2011 stipulates remuneration for distribution activities for 2012. This remuneration in 2011 was established in Order IET/3354/2010 of 30 December 2010. The notes to the Order define the criteria used to calculate remuneration for distribution activities in 2012 based on the adjusted remuneration for the prior year, the average increase in the number of consumers and the year-on-year rise in kWh distributed as a result of the pressure level, and stipulates the unit ratios attributable to these increases. In accordance with accounting criteria in force, at year end the Group calculated and recognised the remuneration for distribution activities for 2012 based on the actual average increase in the number of consumers and the actual increase in kWh distributed as compared with 2011. Remuneration for distribution activities will be adjusted once the final amounts of this remuneration have been set by the Spanish Ministry of Industry, Tourism and Trade. The Group does not expect significant differences to arise between the amounts recognised and the final settlements. Nevertheless, any differences will be taken to consolidated profit and loss when they arise. The National Energy Commission Resolution of 18 September 2012 approved the final settlement for regulated activities in the gas sector for 2010. The difference between the amount recognised and the final settlement, i.e. Euros 2,616 thousand, was taken to consolidated profit and loss. The National Energy Commission Resolution of 18 August 2011 approved the final settlement for regulated activities in the gas sector for 2009. The difference between the amount recognised and the final settlement, i.e. Euros 1,554 thousand, was taken to consolidated profit and loss.

21



(Continued)

In 2011 Gesa Gas, S.A. continued to recognise remuneration from the tariff supply activities for the supply of synthetic natural gas to locations that did not have access to natural gas. This remuneration continued to be included until the regulated market began to disappear, following the arrival of natural gas to the Balearic Islands. In accordance with Spanish Ministry of Industry, Energy and Tourism Order IET/3587/2011 of 30 December 2011, compensation for the supply of synthetic natural gas to the Balearic Islands ceased to be recognised from 1 January 2012 and as such no revenue was recognised for this reason throughout 2012. In accordance with Order ITC/3126/2005 and the technical gas system management standards (NGTS), the distribution companies in the Group have prudently recognised measurement differences (known as unaccounted for gas) as revenue in the consolidated income statement, totalling Euros 2,231 thousand. Transmission activity: Order ITC/3802/2008 of 26 December 2008 ratifies Order ITC/3863/2007 of 28 December 2007 specifying the fixed costs applicable to transmission activities of installations that entered into service prior to 1 January 2008; and Royal Decree 326/2008 of 29 February 2008, establishing remuneration of natural gas transmission activities for installations that came into service subsequent to 1 January 2008. To calculate this remuneration, the Order states that prior to 15 September each year, energy companies are required to submit a list of their installations, distinguishing between those registered as having entered into service and those expected to be registered during the year. In line with the above, Endesa Gas Transportista, S.L. and Transportista Regional de Gas, S.A. submitted these lists, having received remuneration under Order IET/3587/2012 of 30 December 2011 for the facilities that came into service during 2011, and under Order ITC/3354/2010 of 28 December 2009 for those entering service during 2011. Order IET/3587/2011 of 30 December 2011, establishing the tolls and charges for third-party access to gas facilities in 2012, updates certain matters relating to remuneration for regulated activities within the gas sector. Specifically, Appendix V to this Order establishes the reference unit values for the investment in and operation and maintenance of transmission facilities in 2012. Order ITC/3354/2010 of 28 December 2010, establishing the tolls and charges for third-party access to gas facilities in 2011, updates certain matters relating to remuneration for regulated activities within the gas sector. Specifically, Appendix V to this Order establishes the reference unit values for the investment in and operation and maintenance of transmission facilities in 2011.

22



(Continued)

In the case of facilities that entered into service during 2008, 2009 and 2010 and for which remuneration has yet to be received as the Spanish Ministry of Industry, Tourism and Trade has not yet issued its resolution, fixed remuneration has been calculated based on the unit values indicated and the technical characteristics of each facility, in accordance with the Appendix to Order ITC/3520/2009 of 28 December 2009 (in the case of facilities entering into service in 2008 and 2009) and the Appendix to Order ITC/3354/2010 of 28 December 2010 (in the case of facilities entering into service in 2010). These Orders acknowledge, update and publish the remuneration on account for transmission facilities that came into service between 1 January 2008 and 31 December 2010. However, since the Ministry of Industry, Tourism and Trade did not have access to sufficient information at the date of preparation of the Orders, remuneration on account was calculated using the second proposal brought forward by the National Energy Commission published in the notes to the proposed order dated 4 December 2009, which establishes the tolls and charges for third-party access to gas facilities in 2010. The National Energy Commission Resolution of 18 September 2012 approved the final settlement for regulated activities in the gas sector for 2010. The National Energy Commission Resolution of 18 August 2011 approved the final settlement for regulated activities in the gas sector for 2009. In accordance with article 5 of Order ITC/3128/2011 of 17 November 2011 on matters relating to third-party access to gas facilities and remuneration for regulated activities, the transmission companies in the Group have prudently recognised measurement differences (known as unaccounted for gas) as a decrease in revenue in the consolidated income statement, amounting to Euros 753 thousand. The Group is also subject to the following regulatory framework:

Royal Decree 949/2001 of 3 August 2001, which regulates third-party access to gas facilities and establishes an integrated economic system for the natural gas sector, in accordance with the mandate in article 8 of Royal Decree-Law 6/2000 of 23 June 2000.

Ministry of Economy Order ECO/2692/2002 of 28 October 2002, which regulates the settlement procedure for remuneration from regulated activities in the natural gas sector and for specifically allocated payments, and establishes the information system to be implemented by companies.

Ministry of Industry, Tourism and Trade Order ITC/3993/2006 of 29 December 2006, which updates the remuneration from regulated activities in the gas sector. This Order stipulates the cost applicable to transmission activities of all companies engaged in regulated activities within the gas sector.

23



(Continued)

Order ITC/3863/2007 of 28 December 2010, which establishes the tolls and charges for third-party access to gas facilities in 2008, and updates certain matters relating to remuneration for regulated activities within the gas sector.

Royal Decree 326/2008 of 29 February 2008, which stipulates the remuneration for natural gas transmission activities for facilities entering into service since 1 January 2008.

(n) Environmental issues

Environmental assets are those items that the Group uses in its activities on a permanent basis to minimise the environmental impact of its activity and protect and improve the environment, including the reduction and elimination of future pollution. By its nature, the Group’s activity does not have a significant impact on the environment and as such no provisions have been recorded for this contingency. Costs incurred in replacing paving and land with the purpose of eliminating, limiting and controlling the potential impacts of the Group's ordinary activities on the environment, particularly laying its pipelines, are considered to be capital expenditure. Environmental expenses other than those incurred in purchasing property, plant and equipment are classified as expenses for the year. The directors consider that any contingencies that could arise from environmental issues are sufficiently covered by its insurance policies.

(o) Provisions and contingencies General criteria

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligations at the end of the reporting period, taking into account all risks and uncertainties surrounding the amount to be recognised as a provision and, where the time value of money is material, the financial effect of discounting provided that the expenditure to be made each period can be reliably estimated. The discount rate is a pre-tax rate that reflects the time value of money and the specific risks for which future cash flows associated with the provision have not been adjusted at each reporting date.

24



(Continued)

The financial effect of provisions is recognised as a finance cost in profit or loss. If it is not probable that an outflow of resources will be required to settle an obligation, the provision is reversed. The provision is reversed against the income statement caption in which the related expense was recognised, and any surplus is accounted for in other income. Provisions for decommissioning, restoration and similar liabilities These provisions are measured in accordance with the general criteria for provisions and are recognised as an increase in the cost of the associated property, plant and equipment (see note 3.d). Changes in provisions resulting from changes in the amount, timing of the outflow of resources or the discount rate increase or reduce the cost of fixed assets up to the carrying amount thereof, whilst any excess is recognised in profit or loss. The Group assesses whether the increase in value of property, plant and equipment is a sign of impairment. Any changes in provisions subsequent to the end of an asset’s useful life are recognised in profit or loss when they arise.

(p) Deferred income Grants awarded to the Group are essentially to carry out works and are non-refundable. These grants are measured at the fair value of the sum received and are recognised as income over the same period and in proportion to the depreciation of the subsidised assets or when the assets are disposed of or impaired. This item also includes connection charges as monetary consideration for the implementation of the facilities and operations necessary to serve new and extended gas supply points. These connection charges are recognised as income in proportion to the depreciation of financial assets for the year (20 years).

(q) Employee benefits

Defined benefit plans

Three of the six Group companies, Gas Aragón, S.A., Gesa Gas, S.A. and Endesa Gas T&D, S.L., have pension obligations with their personnel, which vary depending on the company at which they work. These obligations, including both defined benefits and defined contributions, are basically arranged through pension plans or insurance policies, except as regards certain benefits in kind, mainly electricity supply commitments, which due to their nature have not been externalised and are covered by in-house provisions.

25



(Continued)

Defined benefit liabilities recognised in the consolidated statement of financial position reflect the present value of defined benefit obligations at the reporting date, minus the fair value at that date of plan assets, minus any past service cost not yet recognised. The Group has recognised actuarial losses and gains in other comprehensive income in the year in which they occur. These actuarial gains and losses are recognised immediately in reserves for accumulated gains and are not recognised in prior years’ profit or losses. Income or expense related to defined benefit plans is recognised as employee benefits expense and is the sum of the net current service cost, interest cost, the expected return on any plan assets, and on any reimbursement rights, the effect of any curtailments or settlements and, where applicable, actuarial gains and losses and past service cost. The difference between the expected return on plan assets and the actual return on plan assets is an actuarial gain or loss. The Group recognises the past service cost as an expense for the year for an amount equal to the total costs divided by the average period until the benefits become vested. However, the Group recognises the past service cost immediately to the extent that the benefits are already vested immediately following the introduction of, or changes to, a defined benefit plan. The present value of defined benefit obligations and the related current service cost and past service cost are calculated annually by independent actuaries using the Projected Unit Credit Method. The discount rate is calculated based on the yield on high quality corporate bonds of a currency and term consistent with the currency and term of the post-employment benefit obligations. Assets and liabilities arising from defined benefit plans are recognised as current or non-current based on the period of realisation of related assets or settlement of related liabilities. Defined contribution plans

The Group recognises the contributions payable to a defined contribution plan in exchange for a service when an employee has rendered service to the Group. The contributions payable are recognised as an expense for employee remuneration, and as a liability after deducting any contribution already paid.

26



(Continued)

Provisions for personnel restructuring

The Group recognises termination benefits when there is an individual or group agreement with the employees or a genuine expectation that such an agreement will be reached that will enable the employees, unilaterally or by mutual agreement with the company, to cease working for the Group in exchange for a termination benefit. If a mutual agreement is required, a provision is only recorded in situations in which the Group has decided to give its consent to the termination of employment when this has been requested. In all cases in which these provisions are recognised, the employees have an expectation that these early retirements will proceed.

Gas Aragón, S.A., Gesa Gas, S.A. and Endesa Gas T&D, S.L., three of the six Group companies, have a "voluntary redundancy plan" approved in 2000.

The plan applies to employees with at least ten years of service in the group of companies concerned at 31 December 2005.

Employees aged 50 or over at 31 December 2005 are entitled to opt for inclusion in a plan for early retirement at the age of 60. They may avail of such a plan between the ages of 50 and 60, provided that there is an agreement between the employee and the company concerned.

For the plan to apply to employees younger than 50 at 31 December 2005, a written request from the employee and the acceptance thereof by the company are required.

The conditions applicable to employees who have not yet reached 50 years of age encompassed by the voluntary plan approved in 2000 consist of a termination benefit of 45 days' salary per year of service plus an additional amount of one or two annual salary payments depending on the age of the employee in question at 31 December 2005.

In February 2006 the Directorate General of Employment amended the initial terms of this scheme to include employees both over and under the age of 50 who terminate their employment with the Group after 31 December 2005.

The Group recognises the full amount of the expenditure relating to these plans when the obligation is accrued by performing the appropriate actuarial studies to calculate the actuarial obligation at year end. The actuarial gains and losses disclosed each year are recognised in the consolidated income statement for that year.

27



(Continued)

(r) Income taxes The income tax expense and tax income for the year comprises current and deferred tax. Current tax is the amount of income taxes payable or recoverable in respect of the consolidated taxable profit or consolidated tax loss for a period. Current tax assets or liabilities are measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates and tax laws that have been enacted or substantially enacted at the reporting date. Current and deferred tax are recognised as income or an expense and included in profit or loss for the year, except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different year, directly in equity, or from a business combination.

The Endesa Gas T&D, S.L. Group, which comprises the companies listed in Appendix I, files consolidated tax returns. In addition to the factors to be considered for individual taxation, set out previously, the following factors are taken into account when determining the accrued income tax expense for the companies forming the consolidated tax group: Temporary and permanent differences arising from the elimination of profits and

losses on transactions between Group companies, derived from the process of determining consolidated taxable income.

Deductions and credits corresponding to each company forming the consolidated tax group. For these purposes, deductions and credits are allocated to the company that carried out the activity or obtained the profit necessary to obtain the right to the deduction or tax credit.

Temporary differences arising from the elimination of profits and losses on transactions between tax group companies are recognised by the company that generates the profit or loss, using the applicable tax rate. A reciprocal credit and debit arises between the companies that contribute tax losses to the consolidated Group and the rest of the companies that offset those losses. Where a tax loss cannot be offset by the other consolidated Group companies, these tax credits for loss carryforwards are recognised as deferred tax assets using the applicable recognition criteria, considering the tax group as a taxable entity.

28



(Continued)

The Parent of the Group records the total consolidated income tax payable (recoverable) with a debit (credit) to receivables (payables) from/to related parties. The amount of the debt (credit) relating to the subsidiaries is recognised with a credit (debit) to payables (receivables) to/from related parties. Taxable temporary differences are recognised in all cases except where they arise from the initial recognition of goodwill. Deductible temporary differences are recognised provided that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the differences arise from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable income.

Tax planning opportunities are only considered when evaluating the recoverability of deferred tax assets and if the Group intends to use these opportunities or it is probable that they will be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the years when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted. The tax consequences that would follow from the manner in which the Group expects to recover or settle the carrying amount of its assets or liabilities are also reflected in the measurement of deferred tax assets and liabilities. The carrying amounts of deferred tax assets are reviewed by the Group at each reporting date to reduce these amounts to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of the deferred tax assets to be utilised. Deferred tax assets that do not meet the aforementioned conditions are not recognised in the consolidated statement of financial position. At each year end the Group evaluates whether the conditions for recognising deferred tax assets not previously recognised have been met. The Group only offsets current tax assets and liabilities if it has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

29



(Continued)

The Group only offsets deferred tax assets and liabilities if it has a legally enforceable right, when they relate to income taxes levied by the same taxation authority and on the same taxable entity and when the taxation authority permits the Group to settle on a net basis, or to realise the asset and settle the liability simultaneously for each of the future years in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Deferred tax assets and liabilities are recognised in the consolidated statement of financial position under non-current assets or liabilities, irrespective of the expected date of recovery or settlement.

(s) Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

(t) Classification of assets and liabilities as current and non-current

The Group classifies assets and liabilities in the consolidated statement of financial position as current and non-current. Current assets and liabilities are determined as follows: Assets are classified as current when they are expected to be realised or are intended

for sale or consumption in the Group’s normal operating cycle, they are held primarily for the purpose of trading, they are expected to be realised within twelve months after the reporting date or are cash or a cash equivalent, unless the assets may not be exchanged or used to settle a liability for at least twelve months after the reporting date.

Liabilities are classified as current when they are expected to be settled in the Group's normal operating cycle, they are held primarily for the purpose of trading, they are due to be settled within twelve months after the reporting date or the Group does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.

Financial liabilities are classified as current when they are due to be settled within

twelve months after the reporting date, even if the original term was for a period longer than twelve months, and an agreement to refinance or to reschedule payments on a long-term basis is completed after the reporting date and before the consolidated annual accounts are authorised for issue.

30



(Continued)

(4) Sector Regulation

The regulatory framework for the natural gas sector in Spain is based on Hydrocarbon Law 34/1998, enacted by Royal Decrees 949/2001 and 1434/2002. Royal Decree 949/2001 regulates third-party access to gas facilities and specifies an integrated economic system for the natural gas sector. Royal Decree 1434/2002 regulates transmission, distribution, sale and supply activities and the authorisation procedures for natural gas facilities. Following the regulation of the sector, over a number of years, the aforementioned Hydrocarbon Law was amended on numerous occasions. The most recent amendment stemmed from Royal Decree-Law 13/2012 of 30 March 2012, transposing directives on the domestic electricity and gas markets and on electronic communications and adopting measures to correct mismatches between remuneration and costs in the electricity and gas sectors. As regards the natural gas sector, this Royal Decree Law amended and adapted the Hydrocarbon Law to Directive 2009/73/EC of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC. The main changes introduced in this legislation include: Transposition into Spanish law of the concept of ownership unbundling, which implies

the appointment of the network owner as the system operator and its independence from any supply and production interests,

Greater functions assigned to the National Energy Commission, including various

powers to monitor the gas sector. This legislation also stipulated that the NEC will be responsible for establishing, via circulars, the methodology used to calculate the tolls and charges for basic access services for gas facilities and the methodology for access to cross-border infrastructures, inter alia, following public hearing and under economic efficiency, transparency, objectivity and non-discriminatory criteria.

Introduction of a transmission system operator. Companies that will be classified as such

will be those authorised to construct, operate and maintain backbone grid facilities and certified under the procedure set forth to this end in the new article 63 bis of the Hydrocarbon Sector Law.

Certain measures aimed at strengthening the obligations stipulated in the Hydrocarbon

Sector Law regarding the unbundling of activities, with particular emphasis placed on the unbundling of regulated and deregulated activities.

31



(Continued)

(5) Segment Reporting

As described below, the Group is organised internally into operating segments, which are strategic business units. The strategic business units are managed separately due to their different remuneration systems. At 31 December 2012, the Group comprises the following operating segments:

Natural gas and LPG (liquefied petroleum gas) distribution activities. Natural gas transmission activities.

The Group also renders sundry services, sells LPG by pipeline and supplies synthetic natural gas. These activities do not meet the quantitative criteria to be presented separately. Segment accounting policies are the same as those described in note 3. A segment’s performance is measured based on its profit before tax. Segment profit is used to measure performance as this information is regularly submitted to the Group's chief operating decision maker. The main segment information is as follows:

31/12/2012 Thousands of Euros

Distribution Transmission Adjustments

and other Consolidated Goodwill 50,651 162,402 - 213,053 Non-current assets 677,425 474,188 43,443 1,195,056 Current assets 32,160 21,138 68,885 122,182 Total assets 760,235 657,728 112,328 1,530,291

Liabilities 176,054 127,445 - 303,499Liabilities not distributable - - 1,072,461 1,072,461 Total liabilities 176,054 127,445 1,072,461 1,375,960

32



(Continued)


Distribution

Transmission Adjustments

and other

Consolidated Goodwill 50,651 162,402 - 213,053Non-current assets 708,328 470,848 (11,446) 1,167,730Current assets 30,347 18,338 49,922 98,607 Total assets 789,326 651,588 38,476 1,479,390

Liabilities 309,388 321,554 - 630,942Liabilities not distributable - - 648,950 648,950 Total liabilities 309,388 321,554 648,950 1,279,892

Adjustments and other reflect consolidation adjustments and balances attributable to the corporate business which cannot be allocated to other segments.


Distribution


and other

Consolidated Revenues 99,646 34,197 - 133,843Other operating income 1,477 490 61 2,028Self-constructed non-current assets

2,730

470

-

3,200Supplies (7,117) (275) - (7,392)Personnel expenses

(15,255)

(232)

(4,473)

(19,960)Amortisation and depreciation (25,952) (7,069) (2) (33,023)Other operating expenses (8,949) (938) (8,484) (18,371)Finance income 771 1 123 895Finance costs (11,611) (15,470) (47,703) (74,784) Profit/(loss) before income tax 35,740 11,174 (60,478) (13,564)

33



(Continued)


Distribution


and other

Consolidated Revenues 94,548 22,993 - 117,541Other operating income 4,035 371 (3,685) 721Self-constructed non-current assets 1,720 - 2,049 3,769Supplies (10,886) (65) - (10,951)Personnel expenses (11,660) (266) (3,403) (15,329)Amortisation and depreciation (25,794) (5,040) - (30,834)Impairment losses on non-current

assets

(189)

-

-

(189)Other operating expenses (5,126) (974) (15,204) (21,304)Finance income 907 - 643 1,550Finance costs (10,290) (13,700) (48,595) (72,585) Profit/(loss) before income tax 37,265 3,319 (68,195) (27,611)

(6) Non-current assets held for sale

The Group classified certain land owned by Gesa Gas, S.A. as held-for-sale in 2012, based on agreements adopted by the board meeting and the extraordinary shareholders’ meeting. The sale transaction will be completed in the year 2013.

(7) Property, Plant and Equipment

Details of property, plant and equipment and movement during the years ended 31 December 2012 and 2011 are as follows:

Thousands of Euros

Land and buildings

Technical installations

and other items

Under construction and

advances

Total Balance at 1 January 2012 3,423 547,106 36,767 587,296 Additions 375 1,758 52,442 52,829 Transfers (609) 62,256 (62,224) (578) Depreciation (5) (32,004) - (32,009) Disposals (105) (1,281) (37) (1,423) Impairment - 561 - 561 Balance at 31 December 2012 3,079 576,650 26,948 606,677

34



(Continued)

Thousands of Euros

Land and buildings

Technical

installations and other items

Under

construction and advances

Total Balance at 1 January 2011 2,105 463,246 62,467 527,818 Additions 5 968 90,880 91,853 Transfers 1,318 115,260 (116,578) - Depreciation (5) (29,501) - (29,506) Disposals - (2,860) (2) (2,862) Impairment - (7) - (7) Balance at 31 December 2011 3,423 547,106 36,767 587,296

The most significant additions reflect the construction of transmission pipelines. At 31 December 2012, under construction and advances reflect investments in gas transmission and distribution grids that the Group expects to bring into service in the coming months. The individual values of the buildings and land are Euros 23 thousand and Euros 3,056 thousand, respectively, at the 2012 year end (Euros 60 thousand and Euros 3,363 thousand, respectively, at the 2011 year end).

At 31 December 2012, the Group had recognised gas plant decommissioning costs of Euros 885 thousand under property, plant and equipment (Euros 938 thousand at 31 December 2011). These expenses were determined based on the Group's best estimate of the market costs of the various physical units involved in decommissioning these plants. The Parent has taken out insurance policies to cover the potential risks to which the Group's property, plant and equipment are exposed. The coverage of these policies is considered sufficient. The cost of fully depreciated property, plant and equipment still in use at 31 December 2012 and 2011 is as follows:

Thousands of Euros 2012 2011

Technical installations and machinery 67,060 64,005 Other installations, equipment and furniture 381 152 Other assets 274 302

67,715 64,459

35



(Continued)

(8) Intangible Assets

Details of intangible assets and movement during the years ended 31 December 2012 and 2011 are as follows:

Thousands of Euros

Goodwill Licences Computer software Concessions Total

Balances at 1 January 2012 213,053 520,397 2,611 1,444 737,505 Additions - - 3,417 1 3,418 Amortisation - - (989) (26) (1,014) Disposals - - - - - Impairment - - - - - Balances at 31 December 2012 213,053 520,397 5,039 1,419 739,908

Thousands of Euros

Goodwill Licences Computer software Concessions Total

Balances at 1 January 2011 213,053 520,397 2,873 1,525 737,848 Additions - - 1,017 - 1,017 Amortisation - - (1,279) (49) (1,328) Disposals - - - (26) (26) Impairment - - - (6) (6) Balances at 31 December 2011 213,053 520,397 2,611 1,444 737,505

The goodwill arising on the business combination mentioned in note 1 amounts to Euros 213,053 thousand and essentially comprises the future economic benefits from the ordinary activities of the subsidiaries listed in Appendix I, which did not qualify for recognition as a separate asset.

36



(Continued)

Details of the allocation of goodwill at 31 December 2012 and 2011, by cash-generating unit (CGU), are as follows:

Thousands of Euros

Gas Aragón, S.A. 31,248 Endesa Gas Distribución, S.A. 12,951 Gesa Gas, S.A. 5,447 Endesa Gas Transportista, S.L. 155,457 Distribuidora Regional de Gas, S.A. 1,005 Transportista Regional de Gas, S.A. 6,945

213,053

A summary of the CGUs to which intangible assets with indefinite useful lives, namely governmental authorisations for gas distribution and transmission, have been allocated at 31 December 2012 and 2011 is as follows:

Thousands of Euros

Gas distribution

Gesa Gas, S.A. Distribuidora Regional del Gas, S.A. Gas Aragón, S.A.

Gas transmission Endesa Gas Transportista, S.L. Transportista Regional del Gas, S.A.

45,179 19,812

257,955

139,420 58,031

520,397

The cost of fully amortised intangible assets still in use at 31 December 2012 and 2011 is as follows:


Computer software 7,331 6,719 Licences - 26 Other intangible assets 94 67

7,425 6,812

37



(Continued)

(9) Impairment and Allocation of Goodwill and Intangible Assets with Indefinite Useful Lives to CGUs

For impairment testing purposes, goodwill and intangible assets with indefinite useful lives have been allocated to the Group’s cash-generating units (CGUs) as detailed in note 8.

The recoverable amount of a CGU is determined based on its fair value. These calculations are based on cash flow projections from the financial budgets approved by management for 2013. A growth rate of 2% was used for the remaining years (up to 2029 in the case of gas distributors and up to 2052 for gas transmitters). A discount rate of 7.40% was used.

The Group determines budgeted gross margins based on past experience and forecast market performance. The weighted average growth rates are consistent with the forecasts included in sector reports. The discount rates used are pre-tax values and reflect specific risks related to the relevant segments.

According to the projections and estimates available to the directors of the Group, the CGUs to which goodwill and various intangible assets with indefinite useful lives are allocated at 31 December 2012 are expected to generate sufficient cash flow to recover the value of each of these assets. The impairment test performed at 31 December 2012 reveals that the recoverable amount of goodwill exceeds its carrying amount by Euros 1,087 thousand. The discount rate (WACC), the growth rate (g) and the budgeted EBIT margin are considered key assumptions in the impairment test. Following a sensitivity analysis entailing different scenarios, impairment of the recoverable amount would only occur by increasing the discount rate (WACC) by 35%. Alternatively, the discount rate could be increased by 15% while simultaneously bringing the growth rate (g) down to zero.

(10) Operating Leases

The Group's operating leases are as follows: At 31 December 2012, the company has leased land in Can Picafort and Sant Llorenç d'es Cardassar under operating leases from third parties. The company's only operating lease contract as lessor at the 2012 year end was for an industrial bay in Medina del Campo (Valladolid). The lease agreement was entered into on 30 January 2006 for a period of one year, and is renewable for subsequent annual periods, at the discretion of the parties.

38



(Continued)

The Group has also leased various commercial premises in which it has sales branches and registered offices. Most of these contracts are renewable annually, with rent pegged to the CPI.

Future minimum payments under non-cancellable operating leases are as follows:


Up to 1 year 130 126 Between 1 and 5 years 171 191 More than 5 years 12 9 313 326

(11) Financial Assets by Category

The classification of financial assets by category and class and details of the fair value, which does not differ from the carrying amount, are as follows:

Miles de euros No corriente Corriente

2012 2011 2012 2011 Loans and receivables

Loans 162 79 95 396 Deposits and guarantees 4,188 4,203 45 52Other financial assets 6 186 11 13 Trade and other receivables

Trade receivables - - 23,243 22,064Other receivables - - 26,136 20,187

Total 4,356 4,468 49,530 42,712 Total financial assets 4,356 4,468 49,530 42,712

Net losses and gains by category of financial asset are as follows:

Thousands of Euros 2012 2011 Impairment losses (note 30) (1,067) 965Finance income at amortised cost 895 542 (172) 1,507

39



(Continued)

(12) Derivative financial instruments

At 31 December 2012 the Company has contracted derivative financial instruments to manage its exposure to interest rate fluctuations on bank loans. These financial instruments comprise 12 interest rate swaps arranged on 17 December 2010, which exchange floating interest (3-month Euribor) for a fixed rate (2.43%) and expire on 25 September 2017.

The fair value of financial swaps is based on the market values of equivalent derivative financial instruments at the reporting date. Details of derivative financial instruments are as follows:

2012 Thousands of Euros

Fair value

Amount

contracted Expiry Assets Liabilities

Interest rate swap 39,314 25.09.2017 - 3,446












TOTAL 617,592 54,138

40



(Continued)


Fair value

Amount

contracted Expiry Assets Liabilities

Interest rate swap

Interest rate swap

Interest rate swap

Interest rate swap

Interest rate swap

Interest rate swap

Interest rate swap

Interest rate swap

Interest rate swap

Interest rate swap

Interest rate swap

Interest rate swap

34,436

25,044

25,044

87,655

54,471

68,871

43,827

50,088

68,871

25,044

15,653

41,500

25.09.2017

25.09.2017

25.09.2017

25.09.2017

25.09.2017

25.09.2017

25.09.2017

25.09.2017

25.09.2017

25.09.2017

25.09.2017

25.09.2017

-

-

-

-

-

-

-

-

-

-

-

-

1,672

1,226

1,216

4,238

2,645

3,339

2,128

2,412

3,362

1,216

760

2,032

TOTAL 540,504 - 26,247

In 2012 an amount of Euros 9,874 thousand has been transferred from the consolidated statement of comprehensive income to finance costs in the consolidated income statement (Euros 5,631 thousand in 2011). No ineffectiveness was recognised in the consolidated income statement in 2012 or 2011.

The classification of cash flow hedges by reporting periods in which the cash flows are expected to occur and reporting periods which are expected to impact the consolidated income statement is as follows:

41



(Continued)

Thousands of Euros

2012

Occurrence of cash flows and impact on profit and loss

Expected cash

flows 2013 2014 2015 2016 2017

Interest rate swaps

Payables (3,447) (911) (890) (752) (583) (311)

Payables (2,507) (663) (647) (547) (424) (226)

Payables (2,507) (663) (647) (547) (424) (226)

Payables (8,772) (2,320) (2,265) (1,914) (1,483) (790)

Payables (5,450) (1,441) (1,407) (1,190) (921) (491)

Payables (6,893) (1,823) (1,780) (1,504) (1,165) (621)

Payables (4,385) (1,160) (1,132) (957) (741) (395)

Payables (5,013) (1,326) (1,294) (1,094) (847) (452)

Payables (6,893) (1,823) (1,780) (1,504) (1,165) (621)

Payables (2,507) (663) (647) (547) (424) (226)

Payables (1,566) (414) (404) (342) (265) (141)

Payables (4,198) (1,110) (1,084) (916) (710) (378)

Total (54,138) (14,317) (13,977) (11,814) (9,152) (4,878)

42



(Continued)

Thousands of Euros 2011 Occurrence of cash flows and impact on profit and loss

Expected cash flows

2012

2013

2014

2015

2016

Thereafter

Interest rate swaps Payables (1,672) (485) (565) (447) (215) (54) 94 Payables (1,216) (355) (411) (325) (156) (39) 70 Payables (1,216) (355) (411) (325) (156) (39) 70 Payables (4,257) (1,248) (1,439) (1,137) (547) (135) 249 Payables (2,645) (776) (894) (707) (340) (84) 156 Payables (3,344) (981) (1,131) (893) (430) (106) 197 Payables (2,128) (624) (720) (568) (274) (68) 126 Payables (2,432) (713) (822) (650) (313) (77) 143 Payables (3,344) (981) (1,131) (893) (430) (106) 197 Payables (1,216) (355) (411) (325) (156) (39) 70

Payables (760) (223) (257) (203) (98) (24) 45Payables (2,017) (624) (720) (568) (274) (68) 237

Total (26,247) (7,720) (8,912) (7,041) (3,389) (839) 1,654

43



(Continued)

(13) Current and Non-Current Financial Assets

Details of current and non-current financial assets at 31 December 2012 and 2011 are as follows:

Thousands of Euros 2012 Non-current Current

Security deposits paid 4,188 45 Loans to employees 162 95 Other financial assets 6 11 Total 4,356 151

Thousands of Euros 2011 Non-current Current

Security deposits paid 4,203 52 VAT recoverable from Enel Energy Europe, S.L. - 152 Loans to employees 79 119 Other financial assets 186 138 Total 4,468 461

Deposits paid essentially comprise the balances lodged with public entities in respect of deposits received from customers upon contracting a service, as required by legislation in force. These deposits are maintained throughout the duration of the customer's contract with the supplier and while their distribution company is a Group company.

(14) Income tax

At the annual general meeting held on 17 December 2010 the Company's shareholders agreed to file consolidated tax returns, with effect as of 1 January 2011, under the regime regulated in Title VII, Chapter VII of Royal Decree Law 4/2004 of 5 March 2004, which approves the Revised Spanish Income Tax Law. The Company will be the parent of a new tax group formed by the subsidiaries listed in Appendix I attached.

44



(Continued)

Details of deferred tax assets and liabilities by type of asset and liability are as follows: 2012 Thousands of Euros Assets Liabilities Net Property, plant and equipment - (60,573) (60,573)Goodwill - (73) (73)Deferred income - (8,112) (8,112)Intangible assets - (154,302) (154,302)Cash flow hedges 16,241 - 16,241Provisions 2,910 - 2,915 19,151 (223,060) (203,904) Unused deductions 1,773 - 1,773 Tax loss carryforwards 36,244 - 36,244 Net assets and liabilities 57,168 (223,060) (165,887)

2011 Thousands of Euros Assets Liabilities Net Property, plant and equipment - (62,658) (62,658)Goodwill - (51) (51)Deferred income - (7,971) (7,971)Intangible assets - (154,658) (154,658)Cash flow hedges 7,874 - 7,874Provisions 1,982 - 1,982 9,856 (225,338) (215,482) Unused deductions 1,773 - 1,773 Tax loss carryforwards 39,884 - 39,884 Net assets and liabilities 51,513 (225,338) (173,825)

45



(Continued)

Deferred tax liabilities relating to property, plant and equipment mostly derive from the application of the tax incentive approved in the 11th additional provision of Law 4/2008 of 23 December 2008 and in Royal Decree-Law 13/2010 of 3 December 2010, on accelerated depreciation of non-current property, plant and equipment, which most of the Group's subsidiaries applied in 2009, 2010 and 2011, as well as from the fair value measurement of assets in the business combination. Accelerated depreciation is only applied to investments brought into service in the 2009, 2010 and 2011 tax periods and which comprise new assets commissioned under works execution contracts or investment projects with an execution period, in both cases, of less than two years between the commission or investment start date and the date on which the asset becomes available or enters service. The subsidiaries that have applied this system depreciate the assets over a period of 20 years for accounting purposes and one year for tax purposes. In accordance with Law 4/2008 of 23 December 2008, in order to avail of accelerated depreciation the Company's average headcount must remain the same in the 24 months following the start of the tax period during which the acquired assets enter service as in the preceding 12 months. Royal Decree-Law 13/2010 of 3 December 2010, on tax, labour and deregulation initiatives to promote investment and create employment, allows for accelerated depreciation for new investments in fixed assets associated with economic activities. However, unlike the previous legislation, it does not impose any obligation to maintain the headcount in order to avail of this tax incentive. All deferred tax liabilities associated with intangible assets and deferred income derive from the business combination. Based on the best estimate of future consolidated profits, recovery of the deferred tax assets detailed above is considered probable and they have therefore been recognised in the consolidated statement of financial position. In light of the application of deductions arising from the accelerated depreciation referred to above, the Group has committed to maintaining its average total headcount at a certain number. Details of total current and deferred income tax in relation to items recognised directly in equity during 2012 and 2011 are as follows:

2012 Thousands of Euros Current Deferred

Actuarial gains and losses - 3Cash flow hedges - 8,367

- 8,370

46



(Continued)

2011 Thousands of Euros Current Deferred

Actuarial gains and losses - (133)Cash flow hedges - 7,874

- 7,741

Details of the tax expense/(tax income) are as follows:

Thousands of Euros 2012 2011 Current tax Present year 13,423 (30,932) Prior year adjustments (15) (844) Deferred tax Source and reversal of temporary differences (16,714) 23,414 Temporary differences not recognized in the year 14,031 - Income tax expense for the year (companies)

10,725

(8,362) Adjustments and eliminations on consolidation (778) (790) Income tax expense/(income) for the year (Group) 9,947 (9,152)

47



(Continued)

The relationship between the tax expense/(tax income) and accounting profit/loss for the year is as follows:


Profit/(loss) for the year before tax (companies) (13,564) (27,611) Permanent differences 14 (86) Tax at 30% (4,065) (8,309) Non-taxable income - - Non-deductible expenses 14,031 - Deductions - - Other net movements 759 (53)

Income tax expense for the year (companies) 10,725 (8,362) Adjustments and eliminations on consolidation (778) (790) Income tax expense/(income) for the year (Group) 9,947 (9,152)

The Group has recognised the tax effect of tax loss carryforwards as deferred tax assets, the amounts and reversal periods of which are as follows:

Company / Year Thousands of

Euros Final year Endesa Gas Transportista, S.A. / 2010

12,765

2028

Endesa Gas Distribución, S.A. / 2010

11,960

2028

Grupo Endesa Gas T&D, S.L. / 2011

96,089

2029

120,814

48



(Continued)

31 December 2011

Company / Year Thousands of

Euros Final year Endesa Gas Transportista, S.A. / 2010

17,882

2028

Endesa Gas Distribución, S.A. / 2010

11,960

2028

Grupo Endesa Gas T&D, S.L. / 2011

103,108

2029

132,950

The Group has recognised deductions of Euros 1,773 thousand as deferred tax assets. The Group has not recognised as deferred tax assets the tax effect of non-deductible finance costs arising on the income tax settlement for 2011, amounting to Euros 46,771 thousand, the reversal period of which expires in 2029. Royal decree law 20/2012 limits the use of loss carryforwards to 25% of taxable income prior to offsetting loss carryforwards for periods commencing in 2012 for entities with revenues of Euros 60 million or above. In its provisional calculation of income tax for 2012, the tax group has offset tax losses of Euros 11,175 thousand The Royal decree mentioned in the previous paragraph also limits deductibility of interest with effect for tax periods commencing on or after 1 January 2012. Net finance costs are deductible to a limit of 30% of operating income for the year and net finance costs will in all cases be deductible to Euros one million. Consequently, in the provisional calculation of income tax for 2012, the tax group has estimated that net finance costs of Euros 46,771 thousand will not be considered deductible. Nevertheless, the tax group can deduct these net finance cost which have not been deducted in the following 18 tax periods. In accordance with current legislation, taxes cannot be considered definitive until they have been inspected and agreed by the taxation authorities or before the inspection period of four years has elapsed. At the end of 2012, the Group companies have income tax for 2008 and subsequent years and other applicable taxes for 2009 and subsequent years open to inspection by the taxation authorities. Due to the treatment permitted by fiscal legislation of certain transactions, additional tax liabilities could arise in the event of inspection. In any event, the directors of the Parent do not consider that any such liabilities that could arise would have a significant effect on the consolidated annual accounts.

49



(Continued)

(15) Inventories

Details of inventories are as follows:

Thousands of Euros 2012 2011 Gas inventories 1,222 1,117 Inventories of liquid propane gas 609 655 Other inventories 1 8 1,832 1,780

At 31 December 2012, the Group has no commitments to purchase or sell gas.

(16) Trade and other receivables

Details of trade and other receivables are as follows:

Thousands of Euros 31/12/2012 31/12/2011

Trade receivables 20,254 15,806 Trade receivables- related companies 5,572 8,315 Receivables, settlements pending collection 14,856 6,144 Other receivables 491 1,532 Advances to personnel 1 568 Current tax assets - 438 Public entities, other:

Taxation authorities, recoverable VAT 10,379 10,548 Grants receivable 189 826 Deposits, Andalusia Regional Government 168 168

Less valuation allowances due to uncollectibility (2,583) (2,057) Total 49,327 42,289

Trade receivables primarily comprise balances receivable from suppliers of natural gas for tolls invoiced. Receivables, settlements pending collection reflect settlements receivable from the Gas System.

50



(Continued)

Movement in allowances for impairment and uncollectibility is as follows:

Thousands of Euros 2012 2011 Balance at 1 January (2,057) (2,715) Impairment (note 30) (1,067) (965)Eliminations against the accounting balance 541 1,623 Balance at 31 December (2,583) (2,057)

(17) Cash and Cash Equivalents

Details of cash and cash equivalents are as follows:

Thousands of Euros 2012 2011 Cash in hand and at banks 70,242 54,116 Cash equivalents - - 70,242 54,116

The loan described in note 20 has a DSCR (debt service coverage ratio) guarantee account of Euros 15 million financed at the start of the contract term and released after 31 December 2012 and a DSRA (debt service reserve account) financed for a period of six months, taking into account the Euros 22.7 million debt payment at year end. At 31 December 2012 these amounts are included as cash.

51



(Continued)

(18) Equity

Details of equity and movement during the year are shown in the statement of changes in equity.

(a) Share capital

At 31 December 2012 and 2011 the Company's capital totals Euros 100,000 thousand, represented by 10,000,000 equity holdings with a par value of Euros 10 each. The first 8,000,000 of these equity holdings are class A and the remaining 2,000,000 are class B. They were issued with a share premium of Euros 10.5433262 each, and have been subscribed and fully paid through the contribution of the equity holdings mentioned in note 1. The equity holders are Zaragoza International Coöperatieve, U.A., with an interest of 46.8% (class A), Augusta Global Coöperatieve, U.A. with an interest of 33.2% (class A), and Endesa Gas, S.A.U., with a 20% interest (class B). The equity holdings forming the Company's capital at 31 December 2012 have the same voting and profit-sharing rights, although the Company's by-laws establish certain veto rights for class B equity holdings. On 17 December 2010, as a result of an agreement entered into by Endesa Gas, S.A.U. with Augusta Global Coöperatieve, U.A. and Zaragoza International Coöperatieve, U.A. on 24 September 2010 for the sale and purchase of equity holdings, the latter two companies, which are private equity firms and subsidiaries managed by Goldman Sachs & Co., purchased interests of 33.2% and 46.8%, respectively, in Endesa Gas T&D, S.L. Under the terms of this sale-purchase agreement Augusta Global Coöperatieve, U.A. and Zaragoza International Coöperatieve, U.A. have extended to Endesa Gas, S.A.U. a purchase option on their equity holdings in Endesa Gas T&D, S.L., which will be exercisable between the fifth and the seventh year following the acquisition described in the preceding paragraph.

(b) Share premium The revised Spanish Companies Act expressly permits the use of the share premium to increase capital and does not establish any specific restrictions as to its use.

52



(Continued)

(c) Other reserves Legal reserve The legal reserve is appropriated in compliance with article 274 of the revised Spanish Companies Act, which requires that companies transfer 10% of profits for the year to a legal reserve until this reserve reaches an amount equal to 20% of share capital. The legal reserve is not distributable to shareholders and if it is used to offset losses, in the event that no other reserves are available, the reserve must be replenished with future profits. Other Parent reserves These reserves include the Euros 26,010 thousand difference between the fair value of non-controlling interests and the fair value of the Euros 74,530 thousand consideration paid for the acquisition of 34.99% of Gas Aragón, S.A. on 17 December 2010, as the Parent already exercised control over that company. Following the Company's acquisition of a 2.39% interest in Gas Aragón, S.A. from non-controlling interests on 20 July 2012, it held 98.05% of the share capital of this company at the reporting date. These reserves also include the Euros 5,432 thousand difference between the fair value of non-controlling interests and the fair value of the Euros 2,123 thousand consideration paid for the acquisition of 2.39% of Gas Aragón, S.A. in 2012, as the Parent already controlled that company and this was a transaction between shareholders.

53



(Continued)

Details of other reserves contributed by each Group company at 31 December 2012 and 2011 are as follows:

Miles de euros 2012 2011 Holding Endesa Gas T&D, S.L. (9,910) 15,656 Distribución de Gas

Gesa Gas, S.A. Distribuidora Regional del Gas, S.A. Gas Aragón, S.A. Endesa Gas Distribución, S.A.

3,761 2,339

16,928 (9,093)

269 (256) 4,504

(2,476)

Transporte de Gas Endesa Gas Transportista, S.L. Transportista Regional del Gas, S.A.

(1,001) 1,526

337 407

4,550 18,250

(d) Restrictions on the distribution of dividends

In accordance with the terms of the loan described in note 20 no dividends were distributed in 2011 or 2012.

(e) Profit/loss for the year Details of profit/loss for the year contributed by each Group company at 31 December 2012 and 2011 are as follows:

Miles de euros 2012 2011 Holding Endesa Gas T&D, S.L. (44,369) (31,188) Distribución de Gas

Gesa Gas, S.A. 1,122 3,521 Distribuidora Regional del Gas, S.A. 3,050 2,595 Gas Aragón, S.A. 17,533 13,449 Endesa Gas Distribución, S.A. (4,811) (6,618)

Transporte de Gas Endesa Gas Transportista, S.L. 1,102 (1,338) Transportista Regional del Gas, S.A. 2,862 1,120

(23,511) (18,459)

54



(Continued)

(19) Financial Liabilities by Category

(a) Classification of financial liabilities by category

A classification of financial liabilities and their carrying amounts by category and class is as follows:

Thousands of Euros 2012 Non-current Current Carrying amount Carrying amount Debts and payables Loans and borrowings - banks Variable rate 576,421 12,309 Guarantees and deposits received 4,130 -Other financial liabilities 54 -Payables to related companies 361,695 73,349 Trade and other payables Suppliers - 2,185Suppliers of fixed assets - 34,221Other payables - 16,445 Total financial liabilities 942,300 138,509

Thousands of Euros 2011 Non-current Current Carrying amount Carrying amount Debts and payables Loans and borrowings - banks Variable rate 528,605 1,127 Guarantees and deposits received 4,149 -Other financial liabilities 66 -Payables to related companies 361,697 37,749 Trade and other payables Suppliers - 1,713Suppliers of fixed assets - 60,786Other payables - 21,707 Total financial liabilities 894,517 123,082

55



(Continued)

At 31 December 2012 the fair value of loans and borrowings from banks is Euros 697,936 thousand (Euros 666,163 thousand at 31 December 2011). The fair value of the Group's other liabilities is similar to their carrying amount.

(b) Net losses and gains by financial liability category

Net losses and gains by financial liability category for 2012 comprise finance costs at amortised cost and total Euros 74,362 thousand (Euros 72,298 thousand in 2011).

(20) Financial Liabilities from Borrowings

(a) Loans and borrowings

The terms and conditions of loans and borrowings are as follows:

2012 Thousands of Euros Carrying amount

Type Currency Nominal

rate Maturity Nominal amount Current

Non-current

Loans and borrowings - banks:

-Tranche A Euro (1) 24.09.2017 500,000 11,838 477,250 -CAPEX Tranche Euro (1) 24.09.2017 344,000 448 99,171

-Revolving Tranche Euro (1) 24.09.2017 20,000 23 -

864,000 12,309 576,421


Type Currency Nominal rate Maturity

Nominal amount

Current

Non-current

Loans and borrowings - banks:

-Tranche A Euro (1) 24.09.2017 500,000 972 479,846 -CAPEX Tranche Euro (1) 24.09.2017 344,000 146 48,759

-Revolving Tranche Euro (1) 24.09.2017 20,000 9 -

864,000 1,127 528,605

(1) 3-month Euribor plus a spread of 2.75% until 31 December 2013, 3.25% from 31 December 2013 until 31 December 2015 and 3.50% from 31 December 2015 until 24 September 2017.

56



(Continued)

Details of loans and borrowings - banks, maturity tranche and cost, are as follows:

2012

(Figures in thousands of Euros)

Average interest

rate A.P.R.

(*) Extended at arrangement

date

Drawn down at Maturity

Total debt Drawable

Type of borrowing

2012 2012 31/12/2012 2013 2014 2015 2016 2017

Facility A 3.43% 5.30% 500,000 496,927 10,800 19,500 25,800 29,500 411,327 496,927 - CAPEX 3.30% 5.75% 344,000 108,381 - - - - 108,381 108,381 235,104 RCF - - 20,000 - - - - - - 20,000 Total 5.38% 864,000 605,308 10,800 19,500 25,800 29,500 519,708 605,308 255,104 (*) Includes financing cost of arranging hedge swaps. Total result calculated as weighted average

2011

(Figures in thousands of Euros)

Average interest

rate A.P.R.

(*) Extended at arrangement

date

Drawn down at Maturity

Total debt Drawable

Type of borrowing

2011 2011 31/12/2011 2012 2013 2014 2015 2016 2017

Facility A 4.02% 500,000 500,000 3,073 10,800 19,500 25,800 29,500 411,327 500,000 - CAPEX 4.03% 344,00 50,986 516 - - - - 50,470 50,986 293,014 RCF - 20,000 - - - - - - - - 20,000 Total 864,000 550,986 3,589 10,800 19,500 25,800 29,500 461,797 550,986 313,014 (*) Includes financing cost of arranging hedge swaps

At 31 December 2012 and 2011 loans and borrowings from banks comprise the amounts drawn down at those dates on the loan initially for an amount of Euros 864,000 thousand extended by a syndicate of 12 financial institutions, the final maturity date of which is 24 September 2017. At 31 December 2012 the Company has not drawn down the full balance of the CAPEX tranche of this loan, and Euros 255,104 thousand were still drawable. Drawdowns may be made up to 31 December 2014. The terms of the aforementioned loan contract require the Group to maintain a certain financial structure, to comply with a number of financial covenant ratios, in addition to restricting the distribution of dividends in 2011 and 2012, and to restrict the payment of finance costs to related companies. At 31 December 2012, the directors of the Group consider that the aforementioned obligations have been met.

The hedging instruments contracted in relation to this loan are detailed in note 12.

57



(Continued)

(b) Related companies The terms and conditions of payables to related companies are as follows:


Type

Currency Effectiv

e rate Nominal

rate Maturity Nominal amount

Current

Non-current

Payables to related companies:

-Zaragoza International Coöperatieve U.A.

Euro

10%

(1)

17.12.2020

169,277

34,817

169,277

-Augusta Global Coöperatieve U.A.

Euro

10%

(1)

17.12.2020

120,081

24,907

120,081

-Endesa Gas, S.A. Euro 10% (1) 17.12.2020 72,339 14,670 72,337 Total 361,697 74,393 361,695


Type

Currency

Effective rate

Nominal rate

Maturity Nominal amount

Current

Non-current

Payables to related companies:

-Zaragoza International Coöperatieve U.A.

Euro

10%

(1)

17.12.2020

169,277

17,484

169,277

-Augusta Global Coöperatieve U.A.

Euro

10%

(1)

17.12.2020

120,081

12,403

120,081

-Endesa Gas, S.A. Euro 10% (1) 17.12.2020 72,339 7,472 72,339 Total 361,697 37,749 361,697

(1) Fixed interest rate of 8% plus a variable interest rate of 2% dependant on the Group's results as of 2011.

At 31 December 2012 and 2011 loans and borrowings from other related parties reflect the participating loans that the equity holders extended to the Company on 1 October and 17 December 2010. These participating loans, which fall due on 17 December 2020, accrue interest at a fixed annual rate of 8%, plus a variable rate of 2% depending on the revenues generated by the Endesa Gas T&D Group as of 2011. Interest is accrued from 17 December 2010, initially for the first two years, and will be settled as stipulated in the contract terms for the loan from financial institutions (see note 20 a).

58



(Continued)

Accrued interest that had not yet fallen due at 31 December 2012 and 2011 has been recognised within current liabilities in the consolidated statement of financial position, under loans and borrowings - banks and loans and borrowings - related companies.

(c) Hedged financial liabilities

Details of the notional amount of interest rate swaps designated as hedges at 31 December 2012 and 2011 are as follows (see note 12):

Thousands of Euros Class of financial liability Type of hedge 2012 2011 Loans and borrowings - banks Cash flow hedges 617,592 540,504

(21) Trade and Other Payables

Details of trade and other payables are as follows:


Suppliers 2,185 1,713 Suppliers, related companies 1,954 2,540 Trade payables 3,056 7,625 Payables, settlements pending 6,829 3,972 Salaries payable 2,533 1,818 Public entities, other

Taxation authorities, VAT payable - 1,613 Taxation authorities, withholding tax on salaries 308 473 Social Security payables 224 233 Public utility rates, taxes and city council payables 1,541 3,433

Suppliers of fixed assets 34,221 60,786

52,851 84,206

Payables, settlements pending primarily comprise the provisional settlements received from the gas companies, which are pending final settlement by the regulatory body for 2011 and 2012.

59



(Continued)

(22) Late Payments to Suppliers. “Reporting Requirement” Third Additional Provision of Law 15/2010 of 5 July 2010

Information on late payments to suppliers by Spanish consolidated companies is as follows:

Payments made and payable at the reporting date

2012 2011

Thousands of

Euros % Thousands of

Euros % Within maximum legal payment term 59,934 88% 40,106 95%Rest 8,388 12% 2,879 5%Total payments for the year 68,322 100% 42,985 100%Weighted average period payments past-due (days) - - Late payments for which the maximum legal payment term has been exceeded at the reporting date 41 163

(23) Risk Management Policy

Financial risk factors The Group’s activities are exposed to various financial risks: market risk (including fair value interest rate risk and price risk), credit risk, liquidity risk, and interest rate risk in cash flows. The Group’s global risk management programme focuses on uncertainty in the financial markets and aims to minimise the potential adverse effects on the Group’s profits. Certain interest rate risks are hedged by derivative instruments. Risks are managed by the Group’s Administration Department in accordance with policies approved by the board of directors. This department identifies, evaluates and mitigates financial risks in close collaboration with the Group’s operational units. The board of directors issues policies on global risk management and on specific issues such as interest rate risk and liquidity risk, and authorises the contracting of long-term financing facilities where applicable, on an individual basis. Credit risk

Due to its activities and the particular characteristics of the customers in the sector in which it operates, the Group has no significant concentrations of credit risk. Valuation allowances for bad debts require a high degree of judgement by management and a review of individual balances.

60



(Continued)

Liquidity risk The Group applies a prudent policy to cover its liquidity risks, based on having sufficient cash and sufficient financing through credit facilities. The Group’s Administration Department aims to be flexible with regard to financing through drawdowns on contracted credit facilities.

Cash flow interest rate risks

As the Group does not have a considerable amount of remunerated assets, income and cash flows from operating activities are not significantly affected by fluctuations in market interest rates. The Parent's interest rate risk arises from non-current borrowings. Borrowings at variable interest rates expose the Parent to cash flow interest rate risks. Fixed-interest loans expose the Group to fair value interest rate risks. The Parent manages interest rate risks in cash flows through variable to fixed interest rate swaps. These interest rate swaps convert variable interest rates on borrowings to fixed interest rates. Generally the Company obtains other non-current borrowings with variable interest rates and swaps these for fixed interest rates. These are generally at lower rates than those which would have been obtained had the financing been obtained directly with fixed interest rates. Through interest rate swaps the Company undertakes to exchange the difference between fixed interest and variable interest with other parties periodically (generally quarterly). The difference is calculated based on the contracted notional principal.

2012 Thousands of Euros Less than 3

months 3 to 6

months 6 months to 1

year More than 1

year Total

Trade and other receivables

Fixed rate 23,243 11,228 14,856 - 49,327Other financial assets - 64 139 4,356 4,559 Total assets 23,243 11,292 14,995 4,356 53,886

2011 Thousands of Euros Less than 3

months 3 to 6 months 6 months to 1

year More than 1 year Total

Trade and other receivables

Fixed rate 34,653 4,290 3,346 - 42,289Other financial assets 326 97 - 4,468 4,891 Total assets 34,979 4,387 3,346 4,468 47,180

61



(Continued)


Less than 3

months

3 to 6 months

6 months to 1 year

More than 1 year

Total

Loans and borrowings from banks 1,575 5,367 5,367 576,421 588,730 Variable rate 1,575 5,367 5,367 576,421 588,730 Principal 5,367 5,367 576,421 587,155 Interest 1,575 1,575Trade and other payables 27,389 13,364 12,098 - 52,851 Variable rate 27,389 13,364 12,098 - 52,851 Principal 27,389 13,364 12,098 - 52,851 Interest - - - - -

Loans and borrowings from related companies and other financial liabilities

73,349

365,879

439,228

Principal 365,879 365,879Interest 73,349 - 73,349

Total liabilities 28,964 18,.731 90,814 942,300 1,080,809


Less than 3

months

3 to 6 months

6 months to 1 year

More than 1 year

Total

Loans and borrowings - banks 1,127 - - 528,605 529,732 Variable rate 1,127 - - 528,605 529,732 Principal - - - 528,605 528,605 Interest 1,127 - - - 1,127Trade and other payables 74,597 8,917 692 - 84,206 Variable rate 74,597 8,917 692 - 84,206 Principal 74,597 8,917 692 - 84,206 Interest - - - - -

Loans and borrowings from related companies and other financial liabilities

37,749

-

-

365,912

403,661

Principal - - - 365,912 365,912Interest 37,749 - - - 37,749

Total liabilities 113,473 8,917 692 894,517 1,017,599

62



(Continued)

(24) Provisions for Employee Benefits

Details of provisions for employee benefits and their classification as current and non-current are as follows:

Thousands of Euros 31/12/2012 31/12/2011 Non-current Current Non-current Current

Long-term employee benefits 2,010 - 1,791 - Provisions for early retirement benefits 2,829 1,588 4,934 633 Provisions for restructuring costs - 3,000 - Total 4,839 4,588 6,725 633

(a) Long-term employee benefits

Group company employees included under the Framework Agreement dated 25 October 2000 participate in the Endesa Group Employee Pension Scheme of which they were members at that date. Most of the employees participate in defined contribution plans for retirement and defined benefit plans for disability and death of serving employees. Insurance policies have been taken out to cover the plan. There are also certain benefit obligations to employees during their retirement, relating mainly to electricity supply. These obligations have not been externalised and are covered by the related in-house provisions. At 31 December 2012 and 2011 commitments with personnel for which provision has been made through internal funds are as follows:

Electricity consumption during retirement for serving and retired personnel, amounting to Euros 1,667 thousand and Euros 1,553 thousand, respectively.

Long-service bonuses for serving personnel, totalling Euros 272 thousand and Euros

198 thousand, respectively.

Health insurance policies for retired personnel, totalling Euros 71 thousand and Euros 40 thousand, respectively.

63



(Continued)

Details (in thousands of Euros) of provisions for employee benefits and movement are as follows:

Other long-term employee benefits 2012 2011

Balance at 1 January 1,791 2,351

Charges recognised in profit or loss Personnel expenses 386 71Finance costs 185 (8)

Applications Payments (7) -Transfers - 13

Actuarial gains and losses (345) (636)

Balance at 31 December 2,010 1,791

The amounts recognised in the consolidated statement of financial position for the post-employment benefit plans are as follows:


Present value of defined benefit obligations Retired personnel 322 310 Serving personnel 981 439 Early-retired personnel 364 804

Fair value of plan assets - 1,667 1,553

The present value of the commitments has been determined by qualified independent actuaries applying the following criteria:

Calculation method: Projected unit credit method, which sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately.

64



(Continued)

The most significant actuarial assumptions used were as follows:

Technical interest rate 3.74% Annual pension review rate 2.3% Expected rate of salary increase 2.3% Retirement age 65

The mortality tables used to calculate the defined benefit obligation were PER MF 2000P.

(b) Provisions for early retirement benefits and restructuring

The obligations reflected in the consolidated statement of financial position in respect of provisions for retirement benefits are a result of collective or individual agreements with the Group's employees which provide for the company's obligation to supplement the public social security system benefits in the event of termination of the employment relationship as a result of an agreement between the parties. At 31 December 2012 and 2011 the liabilities recognised in the consolidated statement of financial position relate to the voluntary redundancy plan approved in 2000.

The plan applies to employees with at least ten years of service in the group of companies concerned at 31 December 2005. Employees aged 50 or over at 31 December 2005 are entitled to opt for inclusion in a plan for early retirement at the age of 60. They may avail of such a plan between the ages of 50 and 60, provided that there is an agreement between the employee and the company concerned. For the plan to apply to employees younger than 50 at 31 December 2005, a written request from the employee and the acceptance thereof by the company are required. The conditions applicable to employees who have not yet reached 50 years of age encompassed by the voluntary plan approved in 2000 consist of a termination benefit of 45 days' salary per year of service plus an additional amount of one or two annual salary payments depending on the age of the employee in question at 31 December 2005. In February 2006 the Directorate General of Employment amended the initial terms of this scheme to include employees both over and under the age of 50 who terminate their employment with the Group after 31 December 2005. All 44 of the employees considered in the valuation have taken early retirement.

65



(Continued)

The assumptions used in the actuarial calculation of the obligations arising under these collective redundancy procedures are as follows:

Technical interest rate 1.22% Expected rate of salary increase 2.3% Mortality tables PER MF 200 P

Movement in this non-current provision in 2012 and 2011 is as follows:

Thousands of Euros 2012 2011 Balance at 1 January 4,934 5,249Charges recognised in profit or loss Personnel expenses 77 363 Finance costs 237 168Applications Payments (1,127) (831) Transfers and other (1,293) (15) Balance at 31 December 2,829 4,934

At 31 December 2012 the Group has opted to discontinue synthetic natural gas activities at its subsidiary Gesa Gas, S.A., and has therefore recognised the pertinent provision in relation to the voluntary redundancy plan approved in 2000.

(25) Other Provisions

Details of other provisions are as follows:

Thousands of Euros 31/12/2012 31/12/2011 Provision for decommissioning (note 7) 885 938Environmental rehabilitation 107 320Other liabilities 780 9 Total 1,772 1,267

66



(Continued)

Movement in provisions in 2012 and 2011 was as follows: Thousands of Euros

Provision for decommissioning

Environmental rehabilitation

Other liabilities

Total Balance at 1 January 2012 938 320 9 1,267 Charges - - 771 771 Applications (53) (163) - (216) At 31 December 2012 885 107 780 1,772

Thousands of Euros

Provision for decommissioning

Environmental rehabilitation

Other liabilities

Total Balance at 1 January 2011 1,046 336 115 1,497 Charges - - - - Discounting - - - - Applications (108) (16) (106) (230) At 31 December 2011 938 320 9 1,267

(26) Environmental Information

The Group is aware of its responsibility to protect the environment and has undertaken a number of initiatives with this purpose within its area of influence. The Group's activities are carried out in full compliance with prevailing environmental legislation. The Group renders an important energy advisory service to its customers, including active participation in campaigns to replace other energies with natural gas, as well as supporting and facilitating the renewal of installations, with consequent improvements in energy efficiency and reductions in pollutant emissions. The Group does not make significant investments in environmental actions. However, when so required by law due to the characteristics of the project in question, the Group commissions mandatory reports by independent environmental consultants when carrying out works to extend the network, recognising the related costs as an increase in the value of the investment.

67



(Continued)

(27) Deferred Income

Movement in deferred income is as follows:

2012

Thousands of Euros

Body/Item Scope

(1) Balance at 1 January 2012 Additions

Transfer to profit and loss

Balances at 31 December 2012

Aragón Regional Government RG 482 203 (33) 652Andalusian Energy Agency RG 88 127 (15) 199Spanish Ministry of Industry, Tourism

and Trade CG 168 748 (35) 881Connection charges Private 1,335 477 (87) 1,726

2,074 1,555 (170) 3,459

2011

Miles de euros

Body/Item Scope

(1) Balance at 1 January 2011 Additions

Transfer to profit and loss

Balances at 31 December 2011

Aragón Regional Government AA - 499 (17) 482Andalusian Energy Agency AA - 91 (3) 88Spanish Ministry of Industry,

Tourism and Trade AE - 174 (6) 168Connection charges Privado - 1,378 (42) 1,336

- 2,142 (68) 2,074

RG: regional government; CG: central government The capital grants awarded by regional and central government are earmarked for investment in gas pipelines.

(28) Revenues

El detalle de ingresos ordinarios es como sigue:

Miles de euros 2012 2011

Remuneration for distribution activities 76,719 71,810 Remuneration for transmission activities 38,092 22,990

Remuneration for regulated activities 114,811 94,800 Other income 19,032 22,741 133,843 117,541

68



(Continued)

(29) Other Operating Income

Details of other income are as follows:

Thousands of Euros 2012 2011 Operating grants 74 14 Transfer of deferred income to profit and loss (note 27) 167 85 Termination benefits 121 - Profit on sale of property, plant and equipment 3 - Other operating income 1,663 521 Other income - 101 2,028 721

(30) Other Operating Expenses

Details of other operating expenses are as follows:

Thousands of Euros 2012 2011 Operating lease expenses 509 403 Repairs and maintenance 2,659 4,594 Independent professional services 524 1,039 Advertising and publicity 83 92 Utilities 153 324 Other expenses 13,705 13,887 Losses, impairment and uncollectibility of trade and other

receivables (notes 11 and 16)

1,067

965 Losses on sale of property, plant and equipment (329) 176 18,371 21,480

69



(Continued)

(31) Personnel Expenses

Details of personnel expenses during 2012 and 2011 are as follows:


Salaries and wages 12,863 12,261 Social Security payable by the company 2,575 2,243 Contributions to defined contributionpension plans (note 24)

574

546

Restructuring expenses 3,000 Other employee benefits 948 279

19,960 15,329

The Group has terminated the activity carried out by its subsidiary Gesa Gas, S.A., comprising the distribution of synthetic natural gas, and has therefore restructured the positions corresponding to this activity. With a view to covering this eventuality and the loss of certain activities at the subsidiary Gas Aragón, S.A., the Group has recognised a Euros 3,000 thousand provision in the income statement for termination benefits payable to employees engaged in this activity, in accordance with the voluntary redundancy plan approved in 2000. The average headcount of the Group in 2012 and 2011, distributed by category, is as follows.

Number 2012 2011 Management 9 6 Technicians 106 114 Administrative staff 89 86 204 206

70



(Continued)

At the 2012 and 2011 year ends, the distribution by gender of Group personnel and the members of the board of directors, by category, is as follows:

2012 2011 Male Female Total Male Female Total Board members 6 - 6 6 - 6 Management 10 1 11 5 1 6 Technicians (*) 104 10 114 108 10 118 Administrative staff 46 28 74 52 31 83 166 39 205 171 42 213

(*) In 2012 four employees were reclassified from Technicians to Managers.

(32) Finance Income and Cost

Details of finance income and cost are as follows:

Thousands of Euros 2012 2011 Finance income 895 1,552Interest on loans and borrowings - banks (24,106) (23,961)Interest on swap settlements (9,874) (5,631)Interest on bank loans (36,170) (36,170) Other finance costs and interest at amortised cost (4,212) (6,825) Finance costs for provision adjustments (note 24) (422) - Financial loss (73,889) (71,035)

(33) Related Party Balances and Transactions

Balances receivable from and payable to related parties by category, and the main details of these balances, are provided in notes 16 and 20.

71



(Continued)

(a) Group related party transactions

The Group's transactions with related parties are as follows:


Equity holders

Key management personnel (note 34)

Other related parties

Total Income Revenues - - 91,625 91,625Other services rendered - - 744 744

- - 92,369 92,369

Expenses Personnel expenses - 851 - 851Other services received - - 6,446 6,446Finance costs 36,170 - 36,170

36,170 851 6,446 43,467

Investments Other intangible assets - - 3,200 3,200Technical installations - - 866 866

- - 4,066 4,066


Equity holders

Key management

personnel (note 34)

Other related parties

Total Income Revenues - - 96,067 96,067Other services rendered 60 - - 60

60 - 96,067 96,127

Expenses Personnel expenses - 173 - 173Other services received 56 - 8,409 8,465Finance costs 36,170 - - 36,807

36,225 173 8,409 44,807

Investments Other intangible assets 21 - - 21Technical installations 18 - 30 48

39 - 30 69

72



(Continued)

(34) Information on the Parent’s directors and the Group’s senior management personnel

At 31 December 2012 and 2011 the board of directors of the Parent is formed by six individuals, all male. In 2012 and 2011 the directors did not receive salaries, expenses or any other remuneration as members of the board of directors. No advances or loans were granted during 2012 and 2011, nor were any guarantees extended on their behalf. The Group has no pension or life insurance obligations with the parent’s former or current directors. In 2012 and 2011 the directors of the Parent have not carried out any transactions other than ordinary business or applying terms that differ from market conditions with the Company or any other Group company. Details of investments held by the directors of the Parent or their related parties in companies with identical, similar or complementary statutory activities to that of the Company, as well as positions held and functions and activities performed in these companies, are as follows:

2012

Name No. of shares / equity holdings

/ % ownership

Company

Mr. Fernando Bergasa Cáceres 14,250 shares EDP-Energías de Portugal, S.A.

2,291 shares Repsol, S.A.

Mr. José Luis Marín López-Otero

100 shares Acciona, S.A.

6,550 shares Enel Green Power S.p.A.

2011

Name No. of shares / equity holdings

/ % ownership

Company

Mr. Fernando Bergasa Cáceres 14,250 shares EDP-Energías de Portugal, S.A.


2,900 shares Iberdrola, S.A.

6,250 shares Enel Green Power S.p.A.

Ms. Rosario Huarte Giménez 2.48% Iniciativas Energéticas, S.A.

Mr. Juan Huarte Beaumont 14.93% Iniciativas Energéticas, S.A.

Ms. Sonsoles Huarte Giménez 2.48% Iniciativas Energéticas, S.A.

73



(Continued)

Mr. Juan Félix Huarte Giménez

6.93% Iniciativas Energéticas, S.A.

Mr. Ignacio Huarte Giménez 2.73% Iniciativas Energéticas, S.A.

2012 and 2011

Director Position/duties Company


Chairman of the board of directors










Joint director

Gesa Gas, S.A.U.

Endesa Gas Distribución, S.A.U.

Distribuidora Regional del Gas, S.A.U.

Gas Aragón, S.A.

Endesa Gas Transportista, S.L.U.

Transportista Regional del Gas, S.A.

Endesa Red, S.A.

EG Administrador de Distribución de gas, S.L.

EG Administrador de Transporte de gas, S.L.

EG Actividades de GLP, S.L.

Endesa Operaciones y Servicios Comerciales, S.A.

Mr. Philippe Louis Hubert Camu

Board member

Board member

Board member

Board member

Board member

Board member

Board member

Board member

Board member

Gesa Gas, S.A.U.



Gas Aragón, S.A.






Mr. Peter Robert Lyneham Board member

Board member

Board member

Board member

Board member

Board member

Board member

Board member

Board member

Gesa Gas, S.A.U.



Gas Aragón, S.A.






Mr. Matteo Botto Poala Board member

Board member

Board member

Board member

Gesa Gas, S.A.U.



Gas Aragón, S.A.

74



(Continued)

Board member

Board member

Board member

Board member

Board member






Mr. Fernando Bergasa Cáceres Board member

Board member

Board member

Board member

Board member

Board member

Board member

Board member

Board member

Gesa Gas, S.A.U.



Gas Aragón, S.A.






Mr. Claudio Aguirre Pemán Board member

Board member

Board member

Board member

Board member

Board member

Board member

Board member

Board member

Gesa Gas, S.A.U.



Gas Aragón, S.A.






The positions held by the senior management personnel of the Parent are as follows:

Name Position

D. Fernando Bergasa Cáceres CEO

Dª. Cristina Ávila García General Business Manager

D. Pio-Javier Ramón Teijelo Operations Manager

D. David Folgado Delgado Chief Financial Officer Remuneration received by senior management in 2012 amounts to Euros 851 thousand (Euros 173 thousand in 2011). The difference is due to the Company’s first two managers not being employed for the full year in 2011 (which they were in 2012) and because two more managers were added in 2012.

75



(Continued)

(35) Audit Fees

KPMG Auditores, S.L., the auditors of the annual accounts of the Group, have invoiced the following fees for professional services during the years ended 31 December 2012 and 2011:

Thousands of Euros

2012 2011 Audit services 181 185 Other assurance services 26 19

207 204

The amounts detailed above include the total fees for services rendered in 2012 and 2011, irrespective of the date of invoice. Other companies forming part of the KPMG Europe, LLP Group invoiced the Group the following fees and expenses for professional services during the years ended 31 December 2012 and 2011:

Thousands of Euros 2012 2011 Tax advisory services 37 - Other advisory services 156 - 193 -

Other auditors invoiced the Group the following fees and expenses for professional services during the years ended 31 December 2012 and 2011:

Thousands of Euros 2012 2011 Other services 20 19 20 19

(36) Off Balance Sheet Agreements

At the date these consolidated annual accounts were authorised for issue, the Group had not entered into any agreements that could have a significant impact on the Group's financial position which are not reflected in the consolidated statement of financial position or disclosed in another note to the accompanying consolidated annual accounts.

76



(Continued)

(37) Guarantees

The Group has extended guarantees to several government bodies totalling Euros 13,825 thousand (Euros 16,990 thousand in 2011) to secure compliance with its obligations as a company that grants authorisation to distribute gas in a number of municipalities and to carry out works on public thoroughfares. The Group does not expect any significant liabilities to arise from these guarantees.

(38) Events after the Reporting Period

On 16 January 2013 the Parent acquired a 1.08% interest in Gas Aragón, S.A. from non-controlling interests and consequently held 99.13% of the share capital in this company at that date. In the first few months of 2013 the Company expects to sell the non-current asset held for sale disclosed in the Consolidated Statement of Financial Position at 31 December 2012. Otherwise, no significant events have occurred subsequent to year end which bear any impact on these consolidated annual accounts.

Appendix I


Details of the key indicators of Joint Ventures at 31 December 2012 and 2011


(Continued)

Name Registered

offices Activity Auditor

Company holding

investment

Percentage

ownership

Percentage of

voting rights

Consolidation method

Endesa Gas T&D, S.L. Zaragoza Holding KPMG Auditores, S.L.

- - - Fully consolidated

Gesa Gas, S.A. (Sociedad Unipersonal) Palma de Mallorca

Distribution of piped natural gas Production and supply of synthetic natural gas


Endesa Gas T&D, S.L.

100 100 Fully consolidated

Endesa Gas Distribución, S.A. (Sociedad Unipersonal)

Madrid

Distribution and secondary transmission of natural gas, supply of natural gas under the tariff system and distribution and sale of LPG



100

100

Fully consolidated

Distribuidora Regional del Gas, S.A. (Sociedad Unipersonal)

Valladolid

Distribution and secondary transmission of natural gas



100

100

Fully consolidated

Gas Aragón, S.A.

Zaragoza

Distribution and secondary transmission of natural gas Distribution and sale of LPG through pipelines



98.05 98.05 Fully consolidated


Zaragoza

Regasification of liquefied natural gas; transmission and storage of natural gas



100

100

Fully consolidated


Valladolid

Regasification of liquefied natural gas Transmission and storage of natural gas



100

100

Fully consolidated

EG ADMINISTRADOR DE TRANSPORTE DE GAS, S.L. (*)

Madrid

Regasification of liquefied natural gas Transmission and storage of natural gas



100

100

Fully consolidated

EG ADMINISTRADOR DE DISTRIBUCIÓN DE GAS, S.L. (*)

Madrid

Distribution and secondary transmission of natural gas



100

100

Fully consolidated

EG ACTIVIDADES DE GLP, S.L. (*) Madrid Regasification of liquefied natural gas Transmission and storage of natural gas



100 100 Fully consolidated

(*) These companies were incorporated in 2012, and as such were not part of the Group at 31 December 2011.



1

CONSOLIDATED DIRECTORS’ REPORT



2

CONTENTS

(1) MOST SIGNIFICANT DATA

(2) EVENTS AFTER THE REPORTING PERIOD

(3) ACTIVITIES

(4) OUTLOOK

(5) HUMAN RESOURCES

(6) OWN SHARES

(7) FINANCIAL INSTRUMENTS

(8) RESEARCH AND DEVELOPMENT



3

(1) MOST SIGNIFICANT DATA

2012 2011

Average headcount at 31 December 204 207

2012 2011

Investees

Length of the network (kilometres) 5,348 4,989

Energy transmitted and distributed (thousands of kWh) 9,503,108 8,237,142

Consumers (number) 375,435 370,569

(2) EVENTS AFTER THE REPORTING PERIOD

Events occurring subsequent to year end are described in note 38 to the consolidated annual accounts.

(3) ACTIVITIES

Order IET 3587/2011 of 30 December 2011, issued by the Spanish Ministry for Industry, Energy and Tourism and published in Official State Gazette number 315 of 30 December 2011, establishes the tolls and charges associated with third-party access to gas installations, and updates certain aspects related to the remuneration of regulated gas sector activities for 2012.

The activity of Endesa Gas T&D, S.L. during 2012 has been associated with that of the subsidiaries over which it has control. The most significant events relating to these companies, each of which is referred to separately, are described below:

- EG Administrador de Transporte de Gas, S.L.U. , EG Administrador de Distribución de Gas, S.L.U. and EG Actividades de GLP, S.L.U.

The Group has created these three new companies with a view to achieving a more efficient and structured management of the Group in the future, both in operating and financial terms.

- Gesa Gas, S.A.U.

Gesa Gas, S.A.U. currently distributes piped gas in nine localities.

At 31 December 2012 a total of 698,954 thousand kWh of energy had been distributed to 94,692 consumers, and the total length of the existing network was 858 km.

The most significant events that occurred during the year are as follows:

- Entry into service of the Cala Millor LNG plant and change from propane to natural gas in the municipalities of Sant Llorenç and Son Servera on 9 July 2012.

- Endesa Gas Distribución, S.A.U.

Endesa Gas Distribución, S.A.U. currently distributes piped gas in 68 localities.

At 31 December 2012 a total of 1,333,556 thousand kWh of energy had been distributed to 43,206 consumers, and the total length of the existing network was 1,106 km.



4


- Commencement of the supply of natural gas in Sigüenza on 1 March 2012

- The obtainment, through the corresponding municipal ruling xxxxx, of the administrative authorisation for the distribution of piped gas in the municipal district of xxxx

- Distribuidora Regional del Gas, S.A.

Distribuidora Regional del Gas, S.A. currently distributes piped gas in 30 localities.

At 31 December 2012 a total of 2,166,072 thousand kWh of energy had been distributed to 27,964 consumers, and the total length of the existing network was 491 km.


- Commencement of the supply of natural gas in Belorado, Villacastín and El Espinar on 14 May 2012.

- Gas Aragón, S.A.

Gas Aragón, S.A. currently distributes piped gas in 74 localities.

At 31 December 2012 a total of 5,304,526 thousand kWh of energy had been distributed to 209,573 consumers, and the total length of the existing network was 1,902 km.


- Commencement of the supply of propane in Villamayor de Gállego on 4 December 2012 and in Pastriz on 1 May 2012.

- Endesa Gas Transportista, S.L.

At year end the total length of gas pipelines in service was 658 km.

The following works were completed during the year:

- The Cabecera Sonan Sansón -02 regulation and measuring station, which entered into service on 23 October 2012.

- The Ramal Belchite gas pipeline, which entered into service on 9 November 2012.

- The Ramal Borja gas pipeline, which entered into service on 9 November 2012.

- Position P 20.03a (Fraga) – Mequinenza TR.II, which entered into service on 29 November 2012.

- Olivia-Altea gas pipeline (phase I) (Marina Alta I), which entered into service on 10 December 2012.

- Transportista Regional del Gas, S.A.

At year end the total length of gas pipelines in service was 333 km.

The following works were completed during the year:

- The Segovia Norte gas pipeline, which entered into service on 9 October 2012.

- Position P 04.05 Medina del Campo, which entered into service on 30 May 2012.

(4) OUTLOOK

The activity of Endesa Gas T&D, S.L. comprises the transmission and distribution of natural gas through different transmission and distribution companies in which the Group holds interests.



5

The integrated system defines a framework of action for the different players, setting out the parameters that establish remuneration for regulated activities. This means that the Endesa Gas T&D, S.L. project can continue as planned, as it is able to:

- Continue expanding distribution activity in new or existing areas.

- Expand its transmission operations.

- Optimise transmission and distribution activities based on recognition of the corresponding remuneration.

- Consolidate in Endesa Gas T&D, S.L. all transmission and distribution activity carried out by the Endesa Gas T&D Group based on the regulatory framework.

At the date of this report, the directors are not aware of any risks or uncertainties that could have a significant impact on the Group. However, it is Group policy to cover the risks to which its business activity is exposed.

(5) HUMAN RESOURCES

At 31 December 2012, Endesa Gas T&D had a total of 199 employees, compared with 209 employees at 31 December 2011.

(6) OWN SHARES

Endesa Gas T&D did not hold any own shares at 31 December 2012 and did not carry out any transactions involving own shares in 2012.

(7) FINANCIAL INSTRUMENTS

The Group considers that, as a result of its activities and operations, it is exposed to extraordinary risks in respect of interest rates, and therefore uses derivative financial instruments to hedge the risks to which its cash flows are exposed.

The Group's risk management policy is presented in note 23 to the accompanying consolidated annual accounts.

The fair value of derivative financial instruments is presented in note 12 to the accompanying consolidated annual accounts.

(8) RESEARCH AND DEVELOPMENT

The Group has not conducted any significant research and development activities during 2012. However, over the course of the year the Group has made improvements in terms of efficiency, continuing initiatives undertaken in prior years, primarily through the deployment of networks that ensure the Group is better prepared to weather the current economic conditions.



Authorisation for issue of the Consolidated Annual Accounts Consolidated Directors' Report for 2012

At their meeting held on 19 March 2013, pursuant to the requirements of article 253.2 of the Revised Spanish Companies Act and article 37 of the Spanish Code of Commerce, the Directors of Endesa Gas T&D, S.L. authorised for issue the consolidated annual accounts and consolidated directors’ report for 2012. The consolidated annual accounts comprise the documents that precede this certification. Signed: Mr. Jose Luis Marín López-Otero – Chairman

Mr. Philippe Louis Hubert Camu - Board member

Mr. Peter Robert Lyneham - Board member

Mr. Matteo Botto Poala - Board member

Mr. Fernando Bergasa Cáceres - Board member

Mr. Claudio Aguirre Pemán - Board member

endesa gas t&d, s.l. and subsidiaries · endesa gas t&d, s.l. (hereinafter the company) was...

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