Earnings Call Transcript - ENIC Q4 2023

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to Enel Chile’s Full Year and Fourth Quarter 2023 Results Conference Call. My name is Carmen, and I will be your host for today. Please note that today’s conference is being recorded. During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect only our current expectations, are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors are described in Enel Chile’s press release reporting its full year and fourth quarter 2023 results, the presentation accompanying this conference call and in Enel Chile’s annual report on Form 20-F, included under Risk Factors. You may access our full year and fourth quarter 2023 results press release and presentation on our website, www.enel.cl and our 20-F on the SEC’s website, www.sec.gov. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of their dates. Enel Chile undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate, except as required by law. I would now like to turn the presentation over to Ms. Isabela Klemes, Head of Investor Relations of Enel Chile. Please proceed.

Isabela Klemes, Head of Investor Relations

Good afternoon, and welcome to Enel Chile’s 2023 fourth quarter and full year results presentation. Thank you all for joining us today. Joining me this morning is our CEO, Fabrizio Barderi, and our CFO, Giuseppe Turchiarelli. As announced yesterday by our Board of Directors, today is the last day of our CEO, Fabrizio Barderi, after 2 years in charge of our company, assuming a new position within Enel S.p.A in Italy. During the period that the new CEO shall be decided, Giuseppe Turchiarelli will serve as Interim CEO of Enel Chile. I take the opportunity to thank Fabrizio for all his contributions to our company over the years. Now our presentation and related financial information are available on our website, www.enel.cl in the Investors section and in our app investors. In addition, a replay for the call will be soon available. In the following slides, Fabrizio will open the presentation with our key highlights of the period, then go through our portfolio management actions, regulatory context updates and guidance achievements. Finally, Giuseppe will give you a view of our business economics and financial performance. Thank you all for your attention. And now let me hand over the call to Fabrizio.

Fabrizio Barderi, CEO

Thank you, Isabela. Good afternoon, and thanks for joining us. Let’s start our presentation with our highlights on Slide 3. I want to start with our portfolio management highlights. During the year, we added around 600 megawatts of new renewable energy capacity, including our first BESS project. All these additions will support us in our long-term mission of decarbonization and the continued optimization of our portfolio. As of today, we have received a commercial operation date and cost from the system operator for around 1.4 gigawatts, which is in line with our expectations announced in our last Investor Day. This year, we had a remarkable performance of our Generation portfolio. The better-than-expected hydrology due to the El Nino phenomenon and all the gas trading activities’ outstanding performance supported the achievement of our goals and targets. On the regulatory side, we have some important news to share. First, the Chilean government presented a draft bill to Congress introducing the stabilization mechanism. The PEC 3.0 is a very important positive sign of stability to the energy market. At the same time, the regulator has published the final technical distribution record. Referring to the 2020-2024 cycle, this step was very important to reduce events or uncertainties to the Distribution business remuneration. I will deep dive into most topics later. Finally, I am pleased to announce that we will beat all our financial targets for 2023, which reflects our confidence in Enel Chile’s future and solidity. Giuseppe will give you more color on this. To conclude, during 2023, we recovered around $358 million related to the stabilization mechanism, the PEC 2, including the current project, which represented around $180 million, a positive impact on our net income. Now let us move to Slide 4 to review how we executed our goals and strategy towards a more efficient Generation portfolio. Over the last few years, we have significantly increased our renewable capacity through a diversified pipeline across different tariffs of the towns, increasing our exposure to solar close to centers of consumption, to wind, and more recently to storage. During 2023, we connected almost 600 megawatts of additional net capacity. In Q4, we connected 106 megawatts related to the last phase of our power plant in Sierra Gorda, 34 megawatts of La Cabana BESS, and 39 megawatts of some solar PMGD. During the year, we have also executed some asset rotation in the form of the sale of 416 megawatts of solar generation assets to Sonnedix in the North of Chile and the sale of our Huasco gas turbine power plant. Both were initiatives aimed at optimizing our portfolio and resizing our capital. Regarding costs, since January 2023, we have received the authorization from the National Electricity Coordinator to begin commercial operation for 1.4 gigawatts. This includes projects such as Campos de Sol, Valle de Sol, Finis Terrae, Guanchoi, Sierra Gorda, and the recently announced El Manzano and La Cabana. Now let’s look at some updates on the hydrological situation and gas optimization activities on Slide 5. Favorable hydrological conditions during 2023 allowed us to reach a higher-than-expected hydro production, exceeding by 25% the level recorded in 2022, totaling 12.2 terawatt hours of hydro generation, a scenario that we have not seen since 2010. The hydrological situation in our reservoirs is also very positive year-to-date when compared to last year’s figure, especially in the South. We have included an updated view of our reservoir levels in the annex of our presentation. Rainfall during 2023 surpassed the last 10-year average, allowing us to have comfortable water availability until the end of the first quarter of 2024. In fact, as of February 3, 2024, water available for generation was equivalent to 1,800 gigawatt hours, 150 gigawatt hours more than the same day in 2023. Regarding our gas optimization and trading activities, we have guaranteed natural gas and LNG supply to our fleet and executed some very profitable sales to local industrial and mining customers, as well as to the foreign market. The foreign market rates were negotiated during 2022 at very attractive prices. Deliveries were mainly concentrated during the first and fourth quarters of 2023, totaling four cargoes sold overall. All the above contributed around $300 million as margins for 2023. For 2024, we also see the situation as very comfortable. For reference, we have already executed a new firm agreement with several Argentinian gas suppliers for up to 4 million cubic meters per day that are already in operation from October 1 until the end of April 2024, allowing us to optimize our combined cycle and generation costs. In addition, we have already secured new agreements for 2024 during the period with Argentinian suppliers for up to 2.6 million cubic meters per day from May to September 2024, giving us security to optimize our portfolio during 2024. Now let’s look at some important updates related to the regulatory context on Slide 6. In January this year, the Ministry of Energy presented a draft bill related to the stabilization of the energy mechanism with the purpose of continuing the PEC mechanism and mitigating the projected tariff increases to final consumers. At the same time, they aim to improve the client protection mechanism known as MPC mechanism, to allow gradual repayment of accumulated debt with the generator and establish a transitory subsidy for the most vulnerable clients. Also, during January, the draft bill was reviewed and approved by a Special Energy Commission from the Senate. After the Congress annual leaves end during the month of February, the draft will be discussed first in the Senate plenary and then in the chambers of Congress. We consider government proposals to be very solid and aligned with Chile’s position and growth in incentives investments towards decarbonization. Let me quickly explain the PDL proposal, starting with how this mechanism is financed. The PDL considers three sources of finance. First, a temporary state subsidy until 2026 of total $20 million per year, then the public service charge which involves a regulated rate charged to clients and amounts to around $200 million annually. Finally, the client protection mechanism charge would be applied only to regulated customers up to 2035. Both charges shall have different fees depending on the consumption of each line. With this finance mechanism in place, the gradual increase in the tariff, which will depend on the client consumption, shall support the recovery of the generator’s accounts receivables generated since the enforcement of PEC 1 and PEC 2. As of December 31, we had an account receivable related to the tariff, already net of factoring, of $759 million. In addition, the PDL has confirmed that PEC 1 settlement shall occur up to 2027. Also, the PDL modifies PEC 2 by extending the settlement limit period from 2032 to 2035 and increasing the total amount of the fund by $3,700 million, totaling $5,500 million. We expect that the PDL will be approved and published in the first semester of 2024, considering the urgency of the decision and the fact that the next regulatory auction is scheduled to be held during April. Regarding the distribution tariff review, the regulatory’s final report for the 2020-2024 cycle was published early in February. The tariff decrease for the distribution 2020 to 2024 remuneration cycle should be published within the next few months. We maintain a more positive view compared to 2023. Additionally, by November 2024, we should start the distribution regulatory cycle comprising the 2024-2028 period. We are still at the very beginning of this process. The external consultant responsible for realizing the reference model company studies has started this work. The results of this study should be known in the following months. Now let us move to Slide 7 to review our main KPIs of 2023 versus our guidance. In terms of renewables and BESS execution, we achieved our goal reaching 77% of renewables and BESS contribution in our metrics on December 31, 2023, contributing to our commitment to the country’s energy transition. Our efforts to improve efficiency and quality in the Distribution business have led to increased indicators such as targeted achievements and meeting our goal regarding network losses, despite the more complex market scenario. On electrification efforts, we have successfully achieved our goals. Now let’s review Slide 8, showcasing our main financial indicators over our 2023 guidance. During 2023, we experienced a significant improvement in our operations, mostly attributed to a more efficient generation mix related to a better hydrological situation and our optimization portfolio action plans developed during the last year. The conclusion of optimization initiatives, such as the sale of Arcadia last October, enabled us to achieve our EBITDA and net income commitments. In the last financial year, we reached the upper range of the guidance announced during the 2023 Investor Day. Giuseppe will provide details on our performance on EBITDA and net income in the following slide. All the above guaranteed our leverage and net debt-to-EBITDA commitment, maintaining a comfortable recommendation for the maintenance of the committed payout, which was also the company’s Board of Directors recommendation and in line with our guidance. Now I will hand over the call to Giuseppe; the floor is yours.

Giuseppe Turchiarelli, CFO

Many thanks, Fabrizio. Good afternoon to all our investors connected. I will start my presentation with a summary of our main results of this year. To better evaluate our company’s earnings performance, we present the 2022 figures as a pro forma that includes the following adjustments. First, the full year 2022 EBITDA has been adjusted by the impairment of the coal stock and the write-off of generation projects totaling $124 million. This adjustment was $63 million in Q4. Likewise, these adjustments affected the bottom line by a total of $83 million in the full year and $41 million in the Q4 of 2022. Additionally, we have excluded from these figures in order to better evaluate the operational performance of our company, two one-off effects: the operational results and capital gain of the sale of Enel Transmision and the impact of the agreement with Shell, both executed in December 2022 totaling $643 million in the full year and $568 million in Q4. These adjustments affected the bottom line by a total of $1,230 million and $1,185 million in the full year and in the Q4, respectively. Regarding the FFO, the figure for 2023 – in 2022 has been adjusted only by the sale of Enel Transmision. It means that 2022 figures include the Shell agreement. In 2022, in terms of cash, the adjustment amounted to $20 million in the full year and $2 million in Q4. In 2023, we have excluded $310 million paid in taxes on capital gains obtained from this transaction. Considering these adjustments, let’s see how the earnings indicate on an FFO performance. As you can see in the full-year period and the fourth quarter 2023, our earnings indicators show significant improvement compared to the 2022 figures. Regarding EBITDA and net income, the improvement is mainly explained by a more efficient generation mix thanks to the outstanding hydro renewables performance and due to greater gas trading activities, which we will see more detail on in the following slides. Regarding the FFO, the 2023 full year figures show relevant improvement impacted mainly by the effects of factoring executed for around $345 million and other cash management optimization actions. Let me remind you that the Q4 2022 FFO includes a $520 million agreement. We will see more details later on. Let’s review now progress on CapEx. Our 2023 total CapEx reached $804 million, basically in line with our guidance for the year. I would like to highlight that 78% of our total CapEx was related to renewables and storage in line with our strategy of rebalancing our portfolio to adapt it to the new market context. Additionally, 15% of our CapEx was mainly related to client new connections in grids, considering the growth in our customer base. Customer CapEx totaled $78 million, 7% higher than the previous year, mainly associated with new customer connections. Asset management CapEx reached $129 million, 36% lower than the previous year, mainly due to lower maintenance activity in conventional generation plants in the Distribution business. Development CapEx reached $597 million, representing a decrease of 33% versus last year’s figures in line with the remaining renewable portfolio under construction. Let’s now take a look at Slide 12, where we have the summary of the fourth quarter 2023 EBITDA breakdown accounting for $471 million. First of all, let me remind you that we have included the pro forma of our fourth quarter 2022 EBITDA for comparison purposes. We have excluded from the 2022 EBITDA, the impact of the one-off effect from the sales of transmission that we conducted and the agreement signed with Shell. Considering this, our fourth quarter 2023 EBITDA was around $71 million higher than the 2022 pro forma, mainly explained by the following: First, a positive contribution from hydro and renewable assets totaling $41 million, mainly related to the improved hydrology in the quarter. Second, a positive effect of $83 million on variable costs, mainly explained by lower withdrawal, spot price, lower transmission fees, and savings due to lower fuel consumption, as a consequence of better hydrology in the period. Additionally, a positive contribution of $80 million related to the gas optimization activity, mainly due to increased gas trading activity for 0.9 tera BTU made in Q4 2023. The increase in prices was negotiated in the end of 2022 when the international prices were very attractive. The above maintenance effects were partially offset by $115 million from lower PPA sales in Q4 2023 primarily due to lower average PPA price, mainly related to lower commodity indexation in the regulated market. We realized $18 million in OpEx and other costs primarily explained by our new renewable capacity inflection across all the businesses and negative effects in operational costs due to a higher recognition of gross margin in 2022, partially offsetting the positive effect in distribution margin of $3 million, mainly due to indexation. Let’s move on to the next slide, where we will review the full year EBITDA breakdown summary accounting for $1,237 million. In the full year 2023, our EBITDA increased by $358 million versus 2022 pro forma, mainly explained by the following effects: first, a positive contribution from hydro and renewables totaling $213 million, mainly relating to improved hydrology volumes; second, a positive effect of $94 million in variable costs, mainly explained by lower spot price in the period due to improved hydrology since June 2023; a one-off effect of an agreement with one of our PPA suppliers, and lower transition fees, partially offset by a lower generation margin. Additionally, a positive side of $81 million related to gas optimization activities, mainly due to increased gas trading activities from 1 tera BTU in the full year. Finally, a positive contribution of $27 million in grid margin, mainly due to increased remuneration related to indexation, lower financing compensation, and higher demand. The above-mentioned effects were partially offset by $17 million from lower PPA sales in the full year 2023, mainly due to lower average PPA price due to indexation, partially offset by higher capacity payments this year, and $41 million in OpEx and other costs mainly in the Generation business explained primarily by our new renewable capacity and maintenance of plants and inflation across all the businesses. Let’s move on to Slide 14 to take a look at our Generation business new KPIs. Net electricity totaled 24.1 terawatt hours as of December 2023, exceeding by 9% the production during 2022, mainly due to higher hydro and solar generation resulting from improved hydrology and the addition of new projects, respectively. This also offset the lower thermal dispatch, mostly relating to the disconnection of Bocamina 2 in September 2022. If we exclude the production of Bocamina 2 in 2022, the actual increase in the company generation was equivalent to a growth of 15%, coming mainly from hydro and renewable contributions. During Q4 2023, net generation grew by 15% to 6.6 terawatt hours, primarily due to higher hydro, solar, and wind generation. Our energy sales totaled 3.9 terawatt hours in 2023, 0.5% higher than the level recorded in 2022, primarily due to higher sales to pre-customers. It’s worth mentioning that our commitments with our clients were fulfilled with a higher portion of our renewable generation, which also led us to lower energy purchases in the spot market, especially during non-solar hours. During Q4 2023, physical energy sales increased by 2.2% to 7.6 terawatt hours, mainly due to higher sales to pre-customers. Let me point out that during the last quarter of 2023, our increased renewable production also allowed us to reach 0 net purchases in the spot market. Now on Slide 15, let’s go through the main drivers of our group's net income. Our net income increased by 66%, excluding the net impact of the Arcadia sale of $183 million versus the last year's pro forma figures. Let me drive you through the main essence: a greater EBITDA of $358 million, as I already explained; higher depreciation and amortization of $22 million, mainly resulting from our new renewable projects in operation, which was offset by lower depreciation in Enel, mainly as a consequence of new investment in power plants that increased the average useful life of property, plant, and equipment; higher amortization of intangible assets in energy distribution due to the new IT system development, partially offset by lower depreciation and amortization due to the sales of Enel Transmision in December 2022. A lower bad debt primarily related to the client net debt recovery due to several commercial actions. Regarding financial results and net investment, we recorded a $35 million improvement, primarily explained by $98 million related to higher interest and adjustments due to PEC 2 recognition, $10 million mainly due to equity income linked to non-consolidated companies and capital gains primarily associated with the sales of Huasco thermal power plant. All the above effects were partially offset by lower income related to monetary adjustments, higher financial costs associated with the payment schedule optimization agreement with suppliers, and higher financial expenses linked to the sale of part of our business. Income tax increased by $138 million, mainly related to the income tax associated with the sales of Arcadia of $148 million. During the fourth quarter of 2023, net income increased 44% to $426 million, primarily explained by higher EBITDA, as detailed in the previous line; higher depreciation and amortization for $10 million, primarily explained by the Generation business due to new renewable energy projects in operation; and higher financial results and equity investment of $13 million. This is explained by $84 million related to the previously mentioned PEC 2 adjustments, partially offset by higher financial expenses linked to the sale of our business, higher franchise costs related to the payment schedule optimization agreement with suppliers, higher financial costs mainly related to the higher cost of debt, and slight variation on the quarter in terms of income taxes. Moving to the FFO analysis on the next slide, let’s review in detail our FFO for this period. Regarding the FFO, the figure for 2023 – for 2022 has been adjusted only by the sale of Enel Transmision but not by the sale agreement executed in 2022. Last year, in terms of cash, the adjustment amounted to $20 million in the full year. In 2023, we have excluded $310 million paid in taxes from capital gains obtained from this transaction. Our FFO in 2023 reached $986 million, representing an improvement of $334 million. The main effects that explain our FFO in this period are the following: $1.3 billion coming from EBITDA driven by the strong hydrology contribution, gas trading activity, and better results in the Distribution business; a $406 million negative impact from the cumulative stabilization mechanism effect in our receivables, reducing the cash conversion of that period. This situation has been improved by the impact of the execution of the IDB factoring related to PEC 2, which amounted to $345 million. Working capital reached a positive balance of $88 million as a consequence of cash management optimization, partially offset by VAT payments related to the stabilization mechanism. Working capital improvement compared to last year’s figures mainly comes from the sales of Santa Rosa buildings and other managerial actions as well as better collection in the Distribution business. $34 million in income tax net payment mainly related to tax payments in the Generation business in 2023, offset by tax recovery from previous periods for both Generation and Distribution business contributions. When compared to the income tax paid in 2023 versus last year, the main difference comes from the faster recovery from previous periods obtained during this year. To conclude, regarding financial expenses, we paid $299 million. This is explained mainly due to the debt interest related to the average impact on the gross debt of 4.9%, reflecting the new interest associated with the revolving credit facility. When we compare the 2023 financial expenses with last year’s figures, we see an increase also explained by higher average interest rates on the gross debt and monthly payments relative to the revolving credit facility as a bridge instrument for the PEC 2 delay. Now let’s look at our liquidity and leverage position. Our gross debt decreased around $0.3 billion to $4.4 billion as of December 2023 compared to December 2022. This decrease was primarily due to the repayment of regulatory increases in line, partially thanks to the use of proceeds from the Arcadia sale concluded last October 2023. The average of our debt maturity increased to 6.1 years as of December 2023, improving the portion of the fixed rate to 88% of total debt from 37% in September 2023. The average cost of our debt reached 4.9% as of December 2023, mainly due to the new profile of our debt, the financial market conditions, and the prepayment of some bridge short-term instruments. In terms of liquidity, we have a comfortable position in order to support the coming debt maturity in 2024 and cope with possible headwinds in the debt market related to the economic situation. Talking about 2024, we have approximately $750 million maturing in 2024, including $400 million of the Yankee bond. In line with our financing strategy and according to our 2024 financial plan, we are evaluating the best alternatives to face this maturity. These would be done through the payment with cash, the use of long-term committed credit lines, executing new financing at Enel Chile level, or a mix between alternatives. Currently, we are in advanced conversations with several banks and financial institutions, which have shown great interest in participating in possible new financing. In the first quarter, we’ll give you more color on it. Now I will hand over to Fabrizio for closing remarks.

Fabrizio Barderi, CEO

Thanks, Giuseppe. Enel Chile’s sustainable business model demonstrated its resiliency and rationale while sustaining operating and financial results in the management group to conclude the company’s strategy towards decarbonization, electrification, and profitability. As planned, the Arcadia transaction was concluded last October. With this, our asset rotation plan was successfully concluded. The 2023 results showed a solid operating performance. The better-than-expected hydrology and the gas trading activities during this year, complemented by the several managerial actions we have taken over the last year, supported us in achieving our commitment towards our shareholders. Finally, we would like to announce that the 2024 Annual General Meeting will be held on April 29, during which our shareholders will decide on the final dividend for the 2023 results. Let me now hand it over to Isabela.

Isabela Klemes, Head of Investor Relations

Thank you, Fabrizio, and thank you all for your attention. So now let’s begin the Q&A session. We will receive questions via phone and chat in the webcast. The Q&A section is open. Operator, please, you may start.

Operator, Operator

Thank you very much. Our first question comes from Javier Suarez with Mediobanca. Please go ahead.

Javier Suarez, Analyst

Hi, good afternoon and thank you for the presentation. Several questions on the regulatory side. On Slide 6, you detail several significant improvements in the outlook for regulation when it comes to the stabilization mechanism and also the regulation for distribution. So the question for you is if you can again clarify the amount of receivables that you have on your balance sheet related to the stabilization mechanism and your latest expectations on the timeframe for the recovery of this amount. And how this new guidance may impact your guidance as presented in the recent business plan from November 2023? And a similar question for the distribution regulatory cycle; you are expecting the publication of the decree during the second half of 2024. Can you share with us your latest expectations on this regulatory review and how this compares with the assumptions embedded in your business plan? Then the third question is related to the hydro production and reservoir levels; can you kindly elaborate on how these higher reservoir levels that you confirmed for 2024 compared with your assumptions in the business plan for 2024 and what we may expect in terms of additional contribution from this extrahydro capacity? And I guess my final question is, this year we have seen a significant contribution from gas trading optimization opportunities; can you share with us your expectation for 2024? Many thanks.

Fabrizio Barderi, CEO

Okay. Thank you very much. Well, several questions. Let me try to answer starting from the last one, and I will probably change the order in my answer. So gas trading is pretty simple. In the end, we usually have, let me say, between $30 million and $40 million margin in a normal year. And 2024 will be a normal year. So this is the range in which you should consider our gas trading margin activities for 2024. As we usually experience, also in the past, we have some, let me say, growth in gas tariffs, as I said, some million dollars we are talking about. The order of magnitude changed actively in the last 2 years because of the very particular conditions that we experienced in the international LNG market in 2022. That was the moment in which we materialized all our sales that we benefited from in 2022 and 2023 performance. So basically, the standard, let me say, expectation for natural gas trading activity is between $30 million and $40 million. Then hydro production. As I said, we have some higher-than-expected levels in our reservoir. It will help us to probably perform better than expectations in our third quarter. It is difficult to project this in terms of yearly production because starting from the first of April, the rainy season will end and the new rainfall will affect the overall production of the year. So what I can say is that we are pretty confident that first quarter results will be boosted by this additional hydro production and additional water in our reservoir that we have been experiencing in this first part of the year. Distribution, regulatory, yes. As I mentioned, this is a positive piece of news. Of course, we still have to wait for the final decree and the overall review process, but we are quite optimistic that this will lead to positive numbers for our distribution activity. There are some upsides compared to what we registered in the last 3 years because in the last 3 years, we had to make our P&L assumptions about the 2020-2024 distribution tariff. So we may see some upside, probably around $20 million more; that is more or less what we can expect as upside in our distribution business due to this final report from the regulator. And for your first question about PEC, I will give you a very general answer, and then I will let Giuseppe add some more color on that. As I mentioned during my speech, the amount of receivables, net of what we already factored, stands at $759 million. This is the figure that we have in our account for this item. Of course, once the draft bill gets approved, there will be a path to recover all these accounts receivables that we have already registered and the evolution of what will accumulate in the next months. So it’s quite complex between what we are going to have as repayments and what is going to accumulate more. So I will leave Giuseppe to add more color on it.

Giuseppe Turchiarelli, CFO

Yes. Thank you, Fabrizio. Basically, we believe that the lowest is going to be booked in end of March, beginning of April. We are seeing to recover $450 million approximately. It is the amount that we expect to be collected and factored in 2024, and this is what we put in our projection for the year.

Isabela Klemes, Head of Investor Relations

Okay. Thank you, Giuseppe and Fabrizio. I think we have reached all the questions from Javier. So now do we have any other questions coming from the line, operator?

Operator, Operator

No, we don’t have any more. I can hand it back to you to mention any questions we have on the chat.

Isabela Klemes, Head of Investor Relations

Definitely. We have received some questions here from the audience coming from the chat. So I will start with the first question here that we received from Felipe Torres. Felipe Torres is asking us, can you give us more detail regarding this ordinary shareholders’ meeting to be held after the ordinary shareholders’ meeting on April 29? So Felipe, I will answer this one here. Soon all the topics of our shareholders’ meeting will be available on our website, okay? And then once it’s available, we will be here, the Investor Relations team, for your questions and any other requirements you may have, okay? So coming from the second question now from Martin. Martin is asking about the PEC, Fabrizio and Giuseppe. Will the IDB offer to monetize the PEC 3 receivables as they did with PEC 2? Do you expect any financial costs from generators? Giuseppe?

Giuseppe Turchiarelli, CFO

Yes. Well, consider that for the new system, we have seen a full pass-through costs for what concerns the generation every time they’re going to do the factoring except for the legal costs associated with the deal. The IDB is going to – already got the mandate from the government to arrange the new factoring. We believe that the situation is going to be smoother than the previous one. So we do not expect significant costs associated with the factoring.

Isabela Klemes, Head of Investor Relations

Okay. Thank you, Giuseppe. So now we’ll go to another question coming from Francisco Paz. The first question of Francisco is what level of gas commercialization do you expect for this year? I think we have already answered not this one. The second question is what level of hydrological production are you forecasting for this year in the context of El Nino and La Nina phenomenon? If you see any kind of change in the forecast because of these events that we may have this year. Thank you. Fabrizio?

Fabrizio Barderi, CEO

Yes, let me deliver a general answer to that. We have already experienced in the past that having El Nino phenomenon or La Nina phenomenon doesn’t imply as a direct consequence a drastic change in hydrology in Chile. Sometimes it happens, sometimes not. So hydrology conditions in Chile have not, as in other countries, an effect of this phenomenon. We monitor this phenomenon and adjust when we have some strong evidence of it affecting our hydrological condition. However, so far, we don’t see any particular, let me say, impact on what we could expect in 2024. We have elaborated our budget, and we are still projecting an overall hydrology production for the year, in line with the last 5 years average. Thus, meaning 9.6 terawatt hours. This is the reason why we have not changed, at least so far, our assumptions about hydro production for this year.

Isabela Klemes, Head of Investor Relations

Okay. Thank you, Fabrizio. We have one more question coming from Florencia Mayorga. The question is from Florencia. First, she’s giving us the congrats on the results and then asking how much of PEC 2 receivables are you expected to monetize in 2024? What’s your plans for the 2024 notes due in April? Florencia is asking about the Yankee bond, okay? Giuseppe?

Giuseppe Turchiarelli, CFO

Yes. I mean, regarding the factoring of PEC 2 in 2024, basically, I’ve already answered. So we are talking about around $450 million in the second half of this year. Concerning the maturing of the Yankee bond that is going to be repaid in the second quarter of 2024, as I said in my speech, we are basically exploring all uncertainty in our hands. We are going to use cash that is available, but also the committed lines that we have outstanding and exploring the possibility to issue a new loan. We are also in the advanced stage of negotiation with some banks and institutions, and we are deciding in March which kind of alternative to apply for our firm. Again, in the first quarter results, we are going to give you more color on that.

Isabela Klemes, Head of Investor Relations

Okay. Thank you, Giuseppe. Now questions coming from Rodrigo Mora. Rodrigo asked about Los Condores. The first question from Rodrigo coming about if we have some news on the project Los Condores, and also how much resources we will need to enter construction during this year of 2024. This is the first question. Then the second question that Rodrigo is asking is about the agreement with the Argentinian gas producers. So he’s asking for more details about what we have already signed with the Argentinian gas producers for 2024. Thank you, Rodrigo, for the question. Fabrizio?

Fabrizio Barderi, CEO

Okay. Look, regarding Los Condores, we are finally at the end – the final stage of this very particular project, very challenging project. I want to comment that all the main civil works related to the excavation demand and the challenges we experienced have concluded. This is something that is really important for us to announce since the main work that were risky from a geological point of view were finalized at the end of December. Regarding the timing, we could expect Los Condores online in the second semester. This timing is a bit longer than what we projected previously. This delay is related to the heavy rainfalls that we experienced last year, which, on one hand, were positive for our performance in 2023. Unfortunately, on the other hand, it made it impossible for us to continue working on the Los Condores project for some months. Thus, we have some months delay due to this unexpected stop related to the heavy rainfall. In relation to how much investment we need to finalize the project, we are talking about a small amount – around $60 million. This is our projection for 2024 CapEx needed to conclude the Los Condores project. Hence, we expect this important project to be online this year, and we are optimistic since the main critical work was already finished. The second question is about the Argentinian gas. I can repeat the numbers I gave you during my speech. However, let me make a general comment. We have committed to sign several agreements with the Argentinian suppliers because we want to ensure gas availability, given the risk profile is really estimated in case hydrological conditions could change compared to the projected conditions in our budget. We want to ensure and secure enough gas availability to optimally face hydrological changes if more gas production is needed from our plants and competitors' power plants. The figures I was referring to are 4.1 million cubic meters per day in the current period, from October 2023 to August 2024. Then in the winter period, we secured 2.6 million cubic meters per day, and finally from October 2024 to December 2024, we have 3.5 million cubic meters per day.

Isabela Klemes, Head of Investor Relations

Okay. Fabrizio, now we have a last question coming from an analyst from Itau. David is asking about the transmission costs that we had in 2023. David is asking, I would like to ask about the transmission costs in the fourth quarter. We can see a lower cost compared to the other quarters of this year. What explains this difference? Can we expect the same level going forward?

Giuseppe Turchiarelli, CFO

Well, in the fourth quarter, the cost of transmission has been offset by the recovery of the cut in costs to the transmission tools. This is a net cost on that we released in Q4. It’s difficult to predict whether we are going to have again this kind of recovery. This kind of situation requires more analysis once we have the closing of the book. Right now, I cannot say that we are going to repeat the recovery.

Fabrizio Barderi, CEO

Well, of course, this is a very challenging question because it will depend on the levels that we experience in the next weeks about inflows generated by the last part of the rainy season. The inflows are decreasing, as expected, of course, as always, during this season. However, it is true that this year we are experiencing a smoother rainy season compared to last year. This is the reason we have accumulated more water in our reservoirs and generated more hydro production compared to our budget expectations. Now, saying this, predicting if there will also be some comfort in April or during the second quarter is difficult today. It will depend on the level of inflows that may materialize in the next weeks. Anyway, as I said, it’s very good business news for Q1. However, it’s difficult to comment about Q2.

Isabela Klemes, Head of Investor Relations

Okay. Thank you, Fabrizio. As there are no more questions, I will hand over to you, Fabrizio, for your final words. Thank you.

Fabrizio Barderi, CEO

Thank you, Isabela. Well, as you may know, today is my last day as CEO of Enel Chile. Tomorrow, I will assume another position within the Enel Group back to Italy. I would like to take this opportunity to thank all my colleagues in Enel Chile and the management team who worked together with me for all the support during this year in which we worked together to unlock the value of this asset and reshape the financial sustainability of Enel Chile. Being able to deliver all the commitments agreed to with our shareholders. Also, I would like to sincerely thank all of you for all the engaging interactions we had during our call and meeting. It has provided me with considerable professional growth. So thank you very much again, and all the best.

Isabela Klemes, Head of Investor Relations

Thank you, Fabrizio. Thank you all. So with this, we conclude our conference call. The Investor Relations team is available for any doubts you may have. Many thanks for your attention and see you soon in our Annual Shareholders Meeting at the end of April. Thank you. Bye-bye.

Operator, Operator

Thank you, everybody, for your participation, and you may now disconnect.