Always ahead in its Results - Presentation of the Financial Statements

SOCIEDADES CONTROLADAS ARGENTINAS – RELAÇÃO COM O PODER CONCEDENTE

(a) Renegotiation of the concession agreement
From July 1997 to March 2001, through Decree 605/97, the Argentine Executive Power ordered the Transportation Secretariat to renegotiate all concession agreements for freight rail transportation services, and there were various discussions and analysis resulting in the proposal of an addendum, which was null and void.

With the enactment of Law 25,561, a new turning point for the renegotiation of concession agreements was introduced, and on April 10, 2002, a presentation was delivered to the Argentine Minister of Economy through which the process was reinitiated.

In 2003, the Executive Power issued Decree 311, creating a special committee for the renegotiation of all concession agreements. This committee reports simultaneously to the Ministry of Economy and to the Ministry of Federal Planning, Public Investments and Services. The change in the management of Argentine Government in May 2003 suspended the process for a few months and in September 2003, the concessionaires were once again required to update data and to attend various meetings with government officers and advisers of the Ministry of Federal Planning.

On July 18, 2005, Provisions 18/2005 and 19/2005 of the Unit for Renegotiation and Analysis of Public Services Agreements were published on the Official Bulletin of the Argentine Government, relative to the Letter of Understanding resulting from renegotiations for commitments to the concession agreement between ALL Central and ALL Mesopotámica with the Argentine Government. On October 20, 2006, ALL Central and ALL Mesopotámica executed new Letters of Understanding with the Unit for Renegotiation and Analysis of Public Services Agreements in order to replace the prior Letter. The effects and commitments arising from this concession are reflected in the Financial Statements, even considering that the referred Letters shall be analyzed and approved by the Argentine National Congress and by the President of the Republic of Argentina. The referred Letters mainly establish the following:

(i) Annual investment plan
As of January 2006, the concessionaries must carry out annual investments in an amount equivalent to 9.5% of total net revenues of ALL Central and ALL Mesopotámica related to the previous quarter. In 2006 these companies made investments at the amount of R$20,474 and R$8,849 respectively, which are higher than the minimum assumed commitments.

(ii) Concession fee (“canon”)
As of January 1, 2006, the amount corresponding to 3% of total net revenues of ALL Central and ALL Mesopotámica referring to the previous year will be considered as the amount of the concession fee (“canon”). During 2006, these Companies recorded expenses of R$3,124 and R$1,169, respectively, having as counter-entry the lease and concession payable account.

The concession tariffs relating to the previous three-year periods were included as an integral part of mutual claims negotiations, as described in item (iii).

(iii) Rights and obligations comprising the mutual claims
The renegotiation of concession agreements includes the discussion on amounts claimed by both Argentine Government and concessionaries, such as: investments not complied with by concessionaries, amounts related to concession tariffs of previous periods and losses incurred by concessionaires by unavoidable reasons (floods and other).

Based on the Letters, the extinction of liabilities of the amounts related to mutual claims balances, which totaled P$79,760 thousand and P$14,480 thousand for ALL Central and ALL Mesopotámica, respectively, in favor of the Argentine Government, was set forth, and the concessionaries started to assume investment commitments as from January 2006, which can not be lower than 3.17% and 1.54%, respectively, on net revenues of the previous year, respecting the minimum amounts of P$4,686 thousand and P$852 thousand, respectively. The minimum investments required by the Letters commitments were fully complied with by concessionaries in 2006.

(b) Approval for transfer of shares
On May 26, 1999, the indirect subsidiary ALL Argentina entered into an agreement with Poconé Participações S.A., Judori Administração, Empreendimentos e Participações S.A., Interférrea S.A. - Serviços Ferroviários e Intermodais, GP Capital Partners II L.P. and Emerging Markets Capital Investments (“the 5 shareholders”) for the purchase and sale agreement for 73.55% of shares of ALL Central and 70.56% of shares of ALL Mesopotámica. The amount of the transaction, equivalent to US$ 33,900 thousand at that time, was settled by means of offset against credits the subsidiary held with 5 shareholders. Pursuant to the terms of the concession agreement, this transfer of shares is subject to the approval by the Argentine Government, and on April 26, 2004 that Government approved the share transfer, which is now in progress.

Additionally, ALL Argentina holds partner rights in ALL Central and ALL Mesopotámica, by means of a usufruct agreement entered into with the 5 shareholders in May 1999. Under the terms of the usufruct agreement, ALL Argentina undertakes the rights (both economic and political) and responsibilities as the shareholder of ALL Central and ALL Mesopotámica. The term of the usufruct agreement shall expire upon the effective transfer of shares of ALL Central and ALL Mesopotámica to ALL Argentina.

Also in May 1999, the Company entered into a purchase agreement with the 5 shareholders for the total number of shares of ALL Argentina and a usufruct agreement over the rights (both economic and political) over shares of ALL Argentina. The term of the usufruct agreement is 20 years, automatically renewable if, up to the expiration of the agreement, the Argentine Government does not express an opinion with regard to the approval for the transaction. Should authorization be denied by the Government, the 5 shareholders irrevocably undertake to exercise the voting right over shares of ALL Argentina, in accordance with the Company’s instructions.

Subsequently, as described in Notes 1(a) and 2, the Company sold all its partner rights in ALL Argentina to Logispar, and reacquired these rights through the purchase of Logispar’s shares on December 31, 2003.

On March 29, 2006, the Company reacquired the usufruct right and obligations over ALL Argentina’s shares, as well as the right over advances for future capital increase (“aportes irrevocables”), described in Note 4(d), recorded in that investee, by means of capital stock reduction in Logispar (assignor of such rights and obligations). This transaction was supported by Appraisal Report issued by independent experts and approved in Annual General Meeting held on the date mentioned above.

(c) Advances for future capital increase (“aportes irrevocables”)
Considering the Resolutions of Inspección General de Justicia (“I.G.J”) 25/2004 and 1/2005, the direct subsidiary ALL - América Latina Logística Argentina S.A. should have destined the advances for future capital increase (“aportes irrevocables”), granted by its former parent company Logispar which are recorded in their shareholders’ equity at the approximate amount of R$83,000 on December 31, 2006, for a term, which expired on February 21, 2006 and which was not extended. Such decision should imply the conversion of “aportes irrevocables” into capital
stock or reclassify them to a liability account.

Pursuant to Administrative Resolution applicable to the subsidiary, alterations in its capital stock shall be previously approved by the Argentine Government. Accordingly, the compliance with the conversion of “aportes irrevocables” into capital stock depends on said approval, which until this present moment did not occur. The subsidiary’s management issued a request of waiver to the application of said Resolutions to I.G.J., in view of current regulatory impediment in carrying out the conversion of said advances, and until the issue date of this Report, no definitive
decision was obtained.

The Management of the Company consistently maintains its commitment to convert “aportes irrevocables” into capital stock in ALL Argentina, as well as ALL Argentina to convert “aportes irrevocables” into capital stock in ALL Argentina and ALL Mesopotámica.

Additionally, the indirect subsidiaries ALL Central and ALL Mesopotamica record R$100,730 (P$143,900 thousand) and R$69,230 (P$98,900 thousand), respectively, related to advances for capital increase (AFAC) received from its subsidiary ALL Argentina. In April 2004, at the Shareholders’ Meetings of these companies, the Argentine Government (minority shareholder) proposed the capitalization of such AFACs, but, however, its interest should not be changed, although it would not make any capital investment. This proposition was not accepted by ALL Argentina,
therefore the Government pleaded a suit with the purpose of challenging this decision. Until this moment, there was no definitive decision regarding this suit.

The final treatment form of these advances and, therefore, their classification and evaluation in ALL Central’s and ALL Mesopotámica’s balance sheet and the equity accounting calculation performed by ALL Argentina and recognition of respective minority interests, depends on the legal adequacy to be granted when the closing of these discussions takes place. Until this moment, ALL Argentina recognizes its 100% interest on advances granted, without attributing any interest to the minority shareholder (Argentine Government), which may correspond to 16%.

CASH AND CASH EQUIVALENTS

These are substantially represented by short and long-term Bank Deposit Certificates (CDB) with rates linked to the variation of the Interbank Deposit Certificate – CDI (83.50% to 104% rates) and with daily liquidity, excepting the FAQ/FIF Exclusivo investments, whose liquidity is lower than 90 days. The investment funds are also measured through the Variation of the Interbank Deposit Certificate – CDI, however, its financial results is post-fixed, occurring only on the redemption date.

The investments linked to the Austrian Notes may be redeemed at any moment according to the Company’s decision, regardless the maturity term, with fiscal benefit of Income Tax exemption and daily liquidity. The balance of financial investments is set forth as follows: