Enel Americas
Annual Report 2006

Plain-text annual report

S A N T A R O S A 7 6 , S A N T I A G O , C H I L E / T E L . ( 5 6 2 ) 3 5 3 4 4 0 0 , 3 7 8 4 4 0 0 / W W W . E N E R S I S . C O M T R O P E R L A U N N A A N N U A L R E P O R T SANTIAGO STOCK EXCHANGE ENERSIS NEW YORK STOCK EXCHANGE ENI LATIN AMERICAN STOCK EXCHANGE OF MADRID STOCK EXCHANGE (LATIBEX) XENI ENERSIS S.A. WAS CONSTITUTED WITH THE NAME OF COMPAÑÍA CHILENA METROPOLITANA DE DISTRIBUCIÓN ELÉCTRICA S.A., AND ON AUGUST 1, 1988, THE COMPANY BECAME KNOWN AS ENERSIS S.A.. THE CAPITAL OF THE COMPANY AMOUNT TO TH.CH$2,415,284,412, DIVIDED INTO 32,651,166,465 SHARES. ENERSIS SHARES ARE TRADED IN CHILEAN STOCK EXCHANGES, NEW YORK STOCK EXCHANGE IN THE FORM OF AMERICAN DEPOSITARY RECEIPTS (ADR) AND IN THE LATIN AMERICAN STOCK EXCHANGE OF MADRID STOCK EXCHANGE (LATIBEX). THE OBJECTS OF THE COMPANY ARE TO EXPLORE, DEVELOP, OPERATE, GENERATE, DISTRIBUTE, TRANSMIT, TRANSFORM AND/OR SELL ENERGY IN ANY OF ITS FORMS OR NATURE, IN CHILE OR ABROAD, EITHER DIRECTLY OR THROUGH OTHER COMPANIES, AND ACTIVITIES IN TELECOMMUNICATIONS AND THE PROVISION OF ENGINEERING IN CHILE OR ABROAD, AND ALSO HAS THE OBJECT OF INVESTING AND MANAGING ITS INVESTMENTS IN SUBSIDIARY AND ASSOCIATE COMPANIES. ITS TOTAL ASSETS WERE TH.CH$11,062,409,283 AT DECEMBER 31, 2006. ENERSIS CONTROL A GROUP WHO OPERATE IN THE ELECTRICITY MARKET ON FIVE COUNTRIES IN LATIN AMERICA. IN THE YEAR 2006 OBTAINED A NET INCOME OF TH.CH$285,960,366 AND AN OPERATING INCOME OF TH.CH$805,366,156. EMPLOYEES: AT THE END OF 2006 IT GAVE DIRECT OCCUPATION TO 11,784 PEOPLE, THROUGH ITS SUBSIDIARIES COMPANIES OVER LATIN AMERICA. ENERSIS MANAGEMENT CHAIRMAN PABLO YRARRÁZAVAL PHONE (56-2) 353 4663 CHIEF EXECUTIVE OFFICER IGNACIO ANTOÑANZAS PHONE (56-2)353 4510 COMMUNICATIONS OFFICER JOSÉ LUIS DOMÍNGUEZ PHONE (56-2) 353 4666 AUDITING OFFICER FRANCISCO HERRERA PHONE (56-2) 353 4647 HUMAN RESOURCES OFFICER FRANCISCO SILVA PHONE (56-2) 353 4610 GENERAL COUNSEL DOMINGO VALDÉS PHONE (56-2) 353 4631 REGIONAL ACCOUNTING OFFICER FERNANDO ISAC PHONE (56-2) 353 4685 REGIONAL CHIEF FINANCIAL OFFICER ALFREDO ERGAS PHONE (56-2) 630 9130 REGIONAL PLANNING AND CONTROL OFFICER MACARENA LAMA PHONE (56-2) 353 4684 INVESTOR AND SHAREHOLDER RELATIONS CHIEF INVESTMENTS AND RISKS OFFICER RICARDO ALVIAL PHONE (56-2) 353 4682 CITIBANK NY RICARDO SZLEZINGER PHONE (1-212) 816 6852 SANTANDER CENTRAL HISPANO INVESTMENT ENRIQUE ROMERO PHONE (34-91) 289 3943 enersis06 CHAIRMANS’ LETTER TO SHAREHOLDERS HIGHLIGHTS OF 2006 THE COMpANy OWNERSHIp AND CONTROL SHARE TRANSACTIONS DIVIDEND pOLICy 2007 INVESTMENT AND FINANCE pOLICy MANAGEMENT AND HUMAN RESOURCES BUSINESS ACTIVITIES ELECTRICITy BUSINESS By COUNTRy OTHER BUSINESSES RISK FACTORS ACTIVITIES OF THE COMpANy ESSENTIAL FACTS SUBSIDIARIES AND ASSOCIATE COMpANIES DECLARATION OF RESpONSIBILITy CONSOLIDATED FINANCIAL STATEMENTS UNCONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS OF SUBSIDIARIES 2 6 8 11 14 17 19 22 33 38 60 68 71 79 94 118 121 257 295 Ralco, Chile CHAIRMANS’ LETTER TO SHAREHOLDERS Dear shareholder, I have pleasure in presenting you the Annual Report of Enersis for the year 2006. As the chairman of Enersis, head of ENDESA’s business in Latin America, I like to give a special welcome to all our shareholders. As an energy holding company with headquarters in Chile, heading a group that is leader in the Latin American region, we strive to improve our processes and management day by day in order to grow and continue recompensing in the best possible way all those that support our business endeavors. We are very satisfied with respect to Enersis’s performance during 2006, as the results show a net income after tax of 285,960 million Chilean pesos, more than 300% higher than the year before. This result reflects an important improvement in the operating income of Enersis, which increased by 29% to 1,068,042 million pesos. It is also remarkable the positive effect, of 107,000 million pesos, on the Company’s results of the merger between Chilectra and Elesur, plus the better non-operating result which improved by 10,932 million pesos. These figures reflect the positive performance in 2006 in the Group’s two main businesses, electricity generation and distribution, as consequence of the favourable economic conditions in the countries where we operate: Argentina, Brasil, Colombia, Peru and, of course, Chile. This economic factor strongly stimulated the consumption of electricity and therefore sales rose by approximately 20% in generation and transmission and 6% in distribution. SUCCESSFUL ECONOMIC AND FINANCIAL INDICATORS The strong operating improvement has led the Enersis’ EBITDA, one of the main indicators of the Company’s progress, to increase by 23% to 1,490,519 million pesos during the year. It is also worth mentioning the increase in the return on equity, which reached approximately 10% at the end of 2006, positively compared with the 2.6% recorded a year ago. The good news are that these excellent results have been translated into a recognition by the financial markets, clearly visible in the Enersis’ share price which rose by 53%, at the same pace with the ADR price rising by 45.6%, during the year. The market capitalization of Enersis has therefore increased enormously in the last twelve months to over 10,000 million dollars by the end of 2006. 2 | Annual Report 2006 CHAIRMANS’ LETTER TO SHAREHOLDERS This solid financial, operational and commercial position, has also been recognized by the international credit-rating agencies. On December 14, Moody’s increased its rating for Enersis and our subsidiary Endesa Chile to investment grade, from Ba1 to Baa3, with stable outlook. This improvement reflects the higher financial flexibility achieved by both companies. Enersis and Endesa Chile are rated unanimously as investment grade companies by Fitch, Standard & Poor´s and Moody´s. ELECTRICITY BUSINESS In the operating area, our electricity distribution companies in the region continued presenting significant improvements in their results as of December 31, 2006. The number of customers served increased by over 350 thousand, which implies provide electricity service to 11.6 million customers, the equivalent of some 45 million inhabitants of Latin America. Regarding energy losses, an important indicator in the distribution business, these figures continued on a decline trend, recording approximately 11% at the consolidated level, reflecting the efforts made in applying medium and long-term plans and programs in order to reduce losses in all the subsidiaries, with special emphasis on Brazil where the indicators are substantially higher than in other countries. Electricity generation and transmission business recorded a 34% increase in operating income, mainly due to improvements in Chile and Argentina. Consolidated energy production was approximately 12% Pablo Yrarrázaval Valdés more than in the previous year, whereas installed capacity President reached 13,299 MW following the incorporation of 142 MW of the Cartagena plant (Colombia), 387 MW from the merger of Etevensa and Edegel (Peru), and 70 MW from the second combined cycle of the Ventanilla plant (Peru). Annual Report 2006 | 3 CHAIRMANS’ LETTER TO SHAREHOLDERS INVESTMENTS The Enersis Group considers that an essential part of its strategy is to deliver a service in line with the highest quality standards in electricity distribution. Meeting this objective requires permanent investments in different consumer segments, such as industrial, street lighting, commerce and homes, in order to keep their daily lives not impaired. Investments planned for the distribution business during the period 2007-2011 exceed 500 million dollars annually, which are fully financed by our respective subsidiaries and contribute to meet reliable and on time the electricity supplies for all the customers incorporated each year. In addition to this plan, the Enersis Group intends to invest in new generating projects that contribute to the development of the different countries in which it has a presence. In the case of Chile, our subsidiary Endesa Chile is carrying out various projects that exceed 2,800 MW of capacity, where a special emphasis has been placed on using our natural resources. In the area of renewable energies, the first wind-turbine generating farm will be introduced to the Central Electricity Grid in the district of Canela, as well as the Ojos de Agua project which is a mini hydroelectric plant located on a tributary of the Maule river. The Palmucho plant is also under construction and will use the constant flow from the Ralco plant, and the San Isidro II plant is under construction to use liquefied natural gas. Lastly, studies are being carried out for the important Aysén hydroelectric project that could meet a large part of the growing electricity demand. SOCIETY Conscious of our actions in a society that, as ourselves as an organization, works to improve and grow, we have participated in a wide range of activities, involving both the public and the private sectors, for making life in our cities and countries more dignified and developed. Enersis, together with its subsidiaries Endesa Chile and Chilectra, and the Fundación Endesa, Spain, have continued to develop their ‘Illuminating Monuments in the South of the World’ program, an idea that allows to provide ornamental lighting for religious buildings and monuments in order to add value to the buildings and collaborate with the conservation of the cultural heritage. During 2006, we illuminated eight buildings in Chile including the Moneda Palace Cultural Center, the Santiago Cathedral crypt, the Evangelical Cathedral of Santiago, the Military Cathedral, Los Angeles Cathedral and the Naval Museum in Valparaiso. And to reaffirm our commitment, we recently in 2007, renewed an agreement with the Chilean Episcopal Conference to continue with this program until the year 2011. As Enersis, we have focused our contributions in Chile mainly on the cultural area. The most notable actions were donations of libraries for children and young people in remote areas of the country, and the publication of two books: ‘The last paths of the Huemul’ together with the Fundación San Ignacio del Huinay, and ‘Monumental Light’ that gathers together the work carried out in illumination in Chile, Colombia and Peru. 4 | Annual Report 2006 AWARDS Proof of our good corporate actions, knowing how to do our work well, is that we can proudly show off three prizes won by Enersis during 2006: “Best Companies for Working Mother and Fathers” awarded by Fundación Chile Unido together with the Ya magazine of the El Mercurio newspaper; the ‘City’ prize awarded by Fundación Futuro to the Enersis Group for its program for Illuminating Churches in the South of the World; and the ‘Joint Action Prize’ by the Chilean Safety Association, thanks to the innovative contributions made by Enersis’s Joint Committee on Hygiene and Safety. In additions to these awards, there were also those received by our main businesses. In the case of Endesa Chile, the company won the Sofofa 2006 prize for Corporate Social Responsibility, and in the case of Chilectra, won the Energy Efficiency Prize awarded by CIGRE, the Chilean Committee of the International Council of Large Electricity Networks. These prizes are a solid proof that our group of companies is acting correctly, being clear that as well as obtaining good financial results, with the consequent returns for you, our shareholders, we are facing the respective businesses with the society in which they operate. All that I have mentioned was possible thanks to the great human team our Company has. I should therefore like to thank all the personnel for the valuable collaboration and constant dedication. The task that lies ahead is to continue working, giving the best personal and professional contributions, and continuing to re-invent ourselves in our business so that our companies continue along the road to continuous success that has characterized us in recent times. Yours sincerely, Pablo Yrarrázaval Valdés Chairman Annual Report 2006 | 5 HIGHLIGHTS OF 2006 In March the General Shareholders In August, Enersis organized the In October the Board of Enersis Meeting of Enersis appointed on a Second International Conference appointed Mr. Ignacio Antoñanzas new Board, which is renewed every for the Chilean Issuers, which was Alvear as new CEO who assumed his three years. attended by over 200 people linked position as on October 26th, 2006. to the national and the international financial markets. The clients served by the distribution The sales of energy in the generation The Enersis Group is developing companies of electrical energy of and transmission business increased various generation projects which the Group increased by 3.2% to 11.6 by 19.2%, and in the distribution surpass 2,800 MW, which includes the million. business grew by 5.5%. significant Project of Aysen. 6 | Annual Report 2006 During the year, the International During the year, regarding Fitch, Enersis obtained three awards: ‘Best Fi n a n c e C o r p o r at i o n (I FC) wa s Moody’s y Standard & Poor’s upgraded Company for Working Parents”; the incorporated into the participation of the classification and risk tendency in prize “Ciudad”, for their program the electrical holding Endesa Brasil. Enersis, unanimously all reaching the Lighting Churches in the South of investment grade. the World; and the “Premio Acción Paritaria”, of the Chilean Association of Security. The consolidated operational result The profits for the fiscal year greatly The share value increased by 52.6% of Enersis increased 28.9% reaching increased to by 311.8%, reaching during this year, to 169.68 pesos, 1,068,042 million pesos. 285,960 million pesos. whereas the value of the ADS Grew by 45.6%, to 16.00 dollars. Annual Report 2006 | 7 THE COMpANy 8 | Annual Report 2006 NAME LOCATION ENERSIS S.A. SANTIAGO, BEING ABLE TO ESTABLISH AGENCIES OR BRANCHES IN OTHER PARTS OF THE COUNTRY OR ABROAD KIND OF COMPANY : PUBLICLY HELD LIMITED TAX Nº ADDRESS TELEPHONES FAX PO BOX WEB SITE 94,271,000 - 3 SANTA ROSA Nº 76, SANTIAGO, CHILE (56-2) 353 4400 - (56-2) 378 4400 (56-2) 378 4788 1557, SANTIAGO WWW.ENERSIS.CL ELECTRONIC MAIL INFORMACIONES@E.ENERSIS.CL SECURITIES REGISTRY NO Nº 175 EXTERNAL AUDITORS DELOITTE & TOUCHE SUBSCRIBED AND PAID CAPITAL (THCH$) 2,415,284,412 CHILEAN STOCK EXCHANGES TICKER CODE ENERSIS NEW YORK STOCK EXCHANGE TICKER CODE ENI MADRID STOCK EXCHANGE TICKER CODE XENI ADR PROGRAM CUSTODIAN BANK BANCO DE CHILE ADR PROGRAM DEPOSITARY BANK CITIBANK N. A. LATIBEX CUSTODIAN BANK BANCO SANTANDER LATIBEX LINK ENTITY SANTANDER CENTRAL HISPANO INVESTMENT S.A. CHILEAN CREDIT RATING AGENCIES FELLER RATE AND FITCH INTERNATIONAL CREDIT RATING AGENCIES FITCH, MOODY´S AND STANDARD & POOR´S CONSTITUTION DETAILS amendment is that appearing in public deed dated April 13, 2006 signed before the Santiago notary Patricio Zaldívar The company predecessor of Enersis S.A. was constituted Mackenna, whose extract was inscribed in the Santiago with the name of Compañía Chilena Metropolitana de Trade Register (folio 15,343 No. 10,611) for 2006, and was Distribución Eléctrica S.A., under public deed dated published in the Official Gazette on April 22, 2006. June 19, 1981 signed before the Santiago notary Patricio Zaldívar Mackenna and amended by public deed dated July 13 the same year and signed before the same notary. CORpORATE pURpOSES Its existence was authorized and its bylaws approved by The corporate purposes of the company are to explore, Resolution No.409-S of July 17, 1981 of the Superintendency develop, operate, generate, distribute, transmit, transform of Securities and Insurance (SVS). The extract of these two and/or sell energy in any of its forms or nature, in Chile documents was registered in the Santiago Trade Register or abroad, either directly or through other companies, (folio 13,099 No.7,269) for 1981, and was published in the and activities in telecommunications and the provision of Official Gazette on July 23, 1981. The bylaws have been engineering in Chile or abroad. It also has the object of the subject of various amendments. On August 1, 1988, investing and managing its investments in subsidiary and the company became known as Enersis S.A. The last associate companies that are generators, transmitters, Annual Report 2006 | 9 THE COMpANy distributors or sellers of electrical energy or whose business with management ser vices, financial, commercial, is related to any of the following: (i) energy in any of its technical and legal advice, auditing services and in general forms or nature; (ii) the supply of public utilities or which have services of any kind that appear necessary for their best energy as their principal input; (iii) telecommunications and performance. information technology; and (iv) internet trading activities. Apart from its principal corporate purposes and acting always In compliance with its principal object, the company shall within the limits set by the Investment and Financing Policy develop the following functions: a) promote, organize, approved by the ordinary shareholders’ meeting, the company constitute, modify, dissolve or liquidate companies of any may invest in i) the acquisition, exploitation, construction, kind whose objects are related to those of the company; b) rental, administration, intermediation, commercialization propose investment, financing and commercial policies to and disposal of all kinds of movable and immovable assets, the subsidiary companies as well as accounting systems directly or through subsidiary or associate companies, ii) and criteria which they should follow; c) supervise the all kinds of financial assets including shares, bonds and performance of its subsidiaries; d) provide its subsidiaries or debentures, trade paper and in general all kinds of securities associate companies with the financial resources necessary and contributions to companies, whether directly or through for developing their businesses and provide its subsidiaries subsidiary or associate companies. 10 | Annual Report 2006 Power Plant Rapel, Chile OWNERSHIp AND CONTROL Annual Report 2006 | 11 OWNERSHIp AND CONTROL OWNERSHIp STRUCTURE The capital of the company is divided into 32,651,166,465 shares of no par value and all of the same and sole series. As of December 31, 2006, the total number of shares were subscribed and paid, whose property was distributed as follows: SHAREHOLDER Endesa Internacional S.A. Pension Funds Administrators (AFPs) ADR´s (Citibank N.A. Per Circular N° 1375) Stockbrokers, Mutual Funds & Insurance Companies Citibank Chile (Chapter XIV ) Foreign Investments Funds Others Total NUMBER OF SHARES 19,794,583,473 6,088,088,095 2,791,284,650 2,110,306,154 611,256,799 274,628,613 981,018,681 32,651,166,465 % 60.62% 18.65% 8.55% 6.46% 1.87% 0.84% 3.00% 100% IDENTIFICATION OF THE CONTROLLERS In accordance with the definition in Title XV of Law 18,045, the controller of the company, Endesa S.A, Spain, holds 60.62% of the share capital of Enersis through its control of Endesa Internacional S.A. Endesa Internacional, S.A. on the other hand, is controlled in a 100% by Endesa S.A., Spanish society whose main shareholders as of December 31, 2006, and in accordance with the publishes in the CNMV (National Commission of the Market of Values of Spain, are: Grupo Entrecanales S.A. with 20.00%, Caja Madrid with 9.94% and AXA, S.A. with 5.35%. 12 | Annual Report 2006 THE TWELVE LARGEST SHAREHOLDERS OF THE COM pANy As of December 31, 2006, Enersis was owned by 8,728 shareholders. The twelve largest were: NAME TAX Nº. NUMBER OF SHARES Endesa Internacional, S.A. Citibank N.A. (Per circular 1375) AFP Provida S.A. AFP Habitat S.A. AFP Cuprum S.A. AFP Bansander S.A. AFP Santa María S.A . Citibank Chile Chapter XIV Banchile Corredores de Bolsa S.A. AFP Planvital S.A. Larraín Vial S.A. Corredora de Bolsa Ultra Fondo de Inversión SUBTOTAL 12 SHAREHOLDERS Other 8.716 shareholders TOTAL 8.728 SHAREHOLDERS 59,072,610-9 97,008,000-7 98,000,400-7 98,000,100-8 98,001,000-7 98,000,600-K 98,000,000-1 97,008,000-7 96,571,220-8 98,001,200-K 80,537,000-9 96,966,250-7 19,794,583,473 2,791,284,650 1,952,198,706 1,518,357,657 863,954,735 848,566,411 690,445,050 611,256,799 429,730,676 214,565,536 185,024,008 133,903,238 30,033,870,939 2,617,295,526 32,651,166,465 MORE IMpORTANT CHANGES IN SHAREHOLDINGS The more important changes in shareholdings in Enersis during 2006 were: (%) 60.62% 8.55% 5.98% 4.65% 2.65% 2.60% 2.11% 1.87% 1.32% 0.66% 0.57% 0.41% 91.98% 8.02% 100.00% NAME TAX Nº SHARES AT 31/12/2006 SHARES AT 31/12/2005 % CHANGE Citibank N.A. (Per circular 1375) 97,008,000-7 2,791,284,650 3,068,642,900 AFP Provida S.A. AFP Habitat S.A. AFP Cuprum S.A. AFP Bansander S.A. AFP Santa María S.A. Citibank Chapter XIV 98,000,400-7 1,952,198,706 1,802,617,868 98,000,100-8 1,518,357,657 1,324,577,958 98,001,000-7 863,954,735 919,861,776 98,000,600-K 848,566,411 663,086,985 98,000,000-1 690,445,050 667,574,861 97,008,000-7 611,256,799 572,445,448 Banchile Corredores de Bolsa S.A. 96,571,220-8 429,730,676 476,723,543 AFP Planvital S.A. 98,001,200-K 214,565,536 214,039,681 Larraín Vial S.A. Corredora de Bolsa 80,537,000-9 185,024,008 157,932,687 Ultra Fondo de Inversión BCI Corredor de Bolsa S.A. 96,966,250-7 133,903,238 - 96,519,800-8 127,297,628 132,995,256 (9.04) 8.30 14.63 (6.08) 27.97 3.43 6.78 (9.86) 0.25 17.15 - (4.28) Annual Report 2006 | 13 SHARE TRANSACTIONS 14 | Annual Report 2006 SHARES TRANSACTIONS IN STOCK EXCHANGES The quarterly transactions during the last 3 years on the stock exchanges where Enersis shares are traded, in Chile, through the Santiago Stock Exchange, as in Chilean Electronic Stock Exchange and Valparaiso Stock Exchange, and in the United States of America and Spain, through the New York Stock Exchange (NYSE) and the Latin American Stock Market on the Madrid Stock Exchange (Latibex) respectively, are detailed as follows: SANTIAGO STOCK EXCHANGE During 2006, 7,715 million shares were traded on the Santiago Stock Exchange, equivalent to Ch$1,069,304 million. The closing share price at December was Ch$169.68. SANTIAGO STOCK EXCHANGE 1st Quarter 2004 2nd Quarter 2004 3rd Quarter 2004 Quarter 2004 4th 1st Quarter 2005 2nd Quarter 2005 3rd Quarter 2005 Quarter 2005 4th 1st Quarter 2006 2nd Quarter 2006 3rd Quarter 2006 Quarter 2006 4th UNITS 1,413,791,567 1,032,271,059 2,236,312,231 2,248,285,905 1,348,339,507 2,112,530,098 1,840,936,792 2,212,992,708 1,963,504,194 1,391,561,107 1,424,604,249 2,935,194,633 AMOUNT (CH$) 114,464,836,990 70,883,441,314 180,354,445,209 202,705,192,331 129,184,082,805 229,190,716,985 215,658,892,589 265,485,390,022 241,782,332,100 170,737,146,206 185,750,114,705 471,034,884,328 AVERAGE PRICE 80.96 68.67 80.65 90.16 95.81 108.49 117.15 119.97 123.14 122.69 130.39 160.48 CHILEAN ELECTRONIC STOCK EXCHANGE During the year, 1,474 million shares were traded on the Chilean Electronic Stock Exchange, equivalent to Ch$203,251 million. The closing share price at December was Ch$169.75. CHILEAN ELECTRONIC STOCK EXCHANGE 1st Quarter 2004 2nd Quarter 2004 3rd Quarter 2004 Quarter 2004 4th 1st Quarter 2005 2nd Quarter 2005 3rd Quarter 2005 Quarter 2005 4th 1st Quarter 2006 2nd Quarter 2006 3rd Quarter 2006 Quarter 2006 4th VALPARAISO STOCK EXCHANGE UNITS 534,792,384 219,310,562 565,021,305 763,885,464 254,172,086 476,168,653 498,204,288 569,457,331 363,061,858 280,361,371 278,723,806 551,462,369 AMOUNT (CH$) 43,742,052,276 16,749,908,612 44,917,950,788 68,403,030,387 24,362,432,413 51,910,060,501 58,397,117,390 68,028,424,373 44,427,922,583 34,161,027,229 36,216,066,265 88,445,858,217 AVERAGE PRICE 81.79 76.38 79.50 89.55 95.85 109.02 117.22 119.46 122.37 121.85 129.94 160.38 During the year, 44 million shares were traded on the Valparaiso Stock Exchange, equivalent to Ch$5,936 million. The closing share price at December was Ch$167.70. VALPARAISO STOCK EXCHANGE 1st Quarter 2004 2nd Quarter 2004 3rd Quarter 2004 Quarter 2004 4th 1st Quarter 2005 2nd Quarter 2005 3rd Quarter 2005 Quarter 2005 4th 1st Quarter 2006 2nd Quarter 2006 3rd Quarter 2006 Quarter 2006 4th UNITS 17,400,165 15,688,115 12,719,018 12,601,377 21,367,282 12,853,040 9,405,452 21,499,005 11,090,794 7,727,889 8,279,320 16,427,067 AMOUNT (CH$) AVERAGE PRICE 1,414,623,582 1,200,734,218 1,209,656,286 1,160,034,348 2,057,215,407 1,427,487,132 1,107,429,833 2,591,673,759 1,365,417,295 938,354,614 1,049,392,923 2,582,363,519 81.30 76.54 95.11 92.06 96.28 111.06 117.74 120.55 123.11 121.42 126.75 157.20 Annual Report 2006 | 15 SHARE TRANSACTIONS NEW YORK STOCK EXCHANGE (NYSE) Enersis shares began to be traded on the New York Stock Exchange (NYSE) on October 20, 1993. The ADR of Enersis consists of 50 shares in the company and its ticker code is ENI. Citibank N.A. acts as the depositary bank and Banco de Chile as the custodian in Chile. During 2006, 79 million ADRs were traded in the United States of America, equivalent to US$994 million. The closing ADR price was US$16.00. NEW YORK STOCK EXCHANGE 1st Quarter 2004 2nd Quarter 2004 3rd Quarter 2004 Quarter 2004 4th 1st Quarter 2005 2nd Quarter 2005 3rd Quarter 2005 Quarter 2005 4th Quarter 2006 1st 2nd Quarter 2006 3rd Quarter 2006 Quarter 2006 4th ADS 36,556,900 26,246,600 26,505,200 30,515,600 19,729,400 24,619,700 28,894,300 27,267,100 24,652,200 20,778,900 13,510,900 20,414,300 AMOUNT (US$) AVERAGE PRICE 251,401,801 159,600,325 166,479,161 231,918,560 162,167,776 232,313,951 307,507,588 309,549,753 290,316,633 242,325,610 161,661,972 299,702,338 6.88 6.08 6.28 7.60 8.22 9.44 10.64 11.35 11.78 11.66 11.97 14.68 LATIN AMERICAN STOCK MARKET OF THE MADRID STOCK EXCHANGE ( LATIBEX ) The shares of Enersis began to be traded on the Latin American Stock Market of the Madrid Stock Exchange (Latibex) on December 17, 2001. The trading unit (block) for the company is 50 shares and its ticker code is XENI. Santander Central Hispano Bolsa S.A. S.V.B. acts as the link entity and Banco Santander as the custodian in Chile. During 2006, 1.9 million blocks were traded on Latibex, equivalent to €18 million. The closing price was €12.08. LATIBEX 1ro Quarter 2004 2do Quarter 2004 3er Quarter 2004 4to Quarter 2004 1ro Quarter 2005 2do Quarter 2005 3er Quarter 2005 4to Quarter 2005 1ro Quarter 2006 2do Quarter 2006 3er Quarter 2006 4to Quarter 2006 BLOCKS AMOUNT(€$) AVERAGE PRICE 599,507 665,930 713,812 589,448 590,534 559,731 449,276 499,837 472,690 479,532 433,281 475,391 3,288,305 3,377,061 3,688,468 3,455,069 3,711,369 4,172,973 3,916,131 4,829,056 4,652,963 4,411,956 4,059,131 5,367,646 5.49 5.07 5.17 5.86 6.28 7.46 8.72 9.66 9.84 9.20 9.37 11.29 SHARES TRANSACTIONS CONDUCTED By DIRECTORS AND MAIN EXECUTIVES SHAREHOLDER TAX N° BUYER/ SELLER TRANSACTION DATE NUMBER OF SHARES TRADED TRANSACTION UNIT PRICE TRANSACTION TOTAL AMOUNT Francisco Silva B. y Cía. Ltda. Inversiones Santa Verónica Ltda. 78.134.200-9 Vendedor 27/9/06 1.070.738 146,00 156.327.748 79.880.230-5 Vendedor 27/9/06 2.000.000 145,50 291.000.000 PURPOSE OF THE TRANSACTION Financial Investment Financial Investment RELATIONSHIP WITH THE COMPANY Relationship with Francisco Silva, Ejecutivo Relationship with Hernán Somerville, Director 16 | Annual Report 2006 DIVIDEND pOLICy 2007 Annual Report 2006 | 17 DIVIDEND pOLICy DISTRIBUTABLE EARNINGS The following shows the distributable earnings for the year 2006: Net income for the year Amortizaction of negative goodwill Net income DIVIDEND pOLICy THOUSAND CH$ 285,960,366 (6,077,557) 279,882,809 The Board is willing to propose to the Ordinary Shareholders Meeting of Enersis, which be celebrated within the first four months of 2008, a distribution of an amount equivalent to 70% of the net income for 2007. In addition, the Board has the intention of distribute interim dividends against net income for the year 2007 of till 15% of net income as of September 30, 2007, according to the financial statements at that date, being payable as of December, 2007. The definitive dividend will correspond to the approved by the General Ordinary Shareholders Meeting that will take place on first four months of 2008. The Compliance of this program will keep conditioned, in terms of dividends, to the effective income, as well as the results of projections periodically made by the company or the existence of certain conditions. The following shows the dividends per share paid in recent years: DIVIDEND N° 69 70 71 72 73 74 KIND OF DIVIDEND Interim Definitive Definitive Definitive Definitive Interim DATE OF CLOSING 20.11.98 11.05.99 19.04.01 14.04.05 28.03.06 19.12.06 PAID DATE 26.11.98 17.05.99 25.04.01 20.04.05 03.04.06 26.12.06 Ch$ PER SHARE 1.600000 4.000000 1.806391 0.416540 1.000000 1.110000 YEAR CHARGED TO 1998 1998 2000 2004 2005 2006 SUMMARy OF SHAREHOLDERS’ COMMENTS AND pROpOSALS No comments were received in Enersis with respect to the business between January 1 and December 31, 2006 from the majority shareholders or groups of shareholders representing 10% or more of the issued shares with voting rights, in accordance with provisions of clause 74 of Law 18,046 and clauses 82 and 83 of the regulations of the Corporations Law. 18 | Annual Report 2006 INVESTMENT AND FINANCE pOLICy 2006 Power Plant San Isidro II, Chile Annual Report 2006 | 19 INVESTMENT AND FINANCE pOLICy The General Ordinary Shareholders Meeting held on March 21, 2006 approved the Investment and Finance Policy which C) PARTICIPATION IN THE CONTROL OF THE AREAS OF INVESTMENT. is detailed below: 1. INVESMENTS For the control of the areas of investment and according to that established in the social objective of Enersis S.A., as is possible, the procedure will be as far as possible, the A) AREAS OF INVESTMENT following: Enersis S.A. will make investments accordingly authorized • In the General Shareholders Meetings of the affiliate by its by-laws, in the following areas: companies, the proposed designation of directors to participate in Enersis S.A., preferably should be drawn • Contributions for investment or formation of affiliates from among the directors or executives of the Company or related companies whose activities coincides with, and its affiliate companies. or are related or linked to energy in any of its forms or states or the supply of public services which use energy • Investment, financial, and commercial policies will as a main resource. be proposed to the affiliate companies; likewise the systems and accounting criteria which must be • Investments consistent with the acquisition, exploitation, followed. construction, rental, administration, commercialization and sale or transfer of all types of real estate, directly • Affiliate and related companies will be supervised. or through affiliates. • Other investments in all types of financial assets, limits, so that investments or contributions made or valuables and bearer securities. planned do not vary from the norms and limits defined • A permanent control will be maintained regarding debt as maximum investments. B) MAXIMUM INVESTMENT LIMITS 2. FINANCING The maximum investment limits for each investment area A) MAXIMUM DEBT LEVEL are the following: • Investments in electric sector affiliates, those needed by a ratio of total debt/assets plus minority interest equal to for these affiliates to fulfill their respective social 1.75 times the consolidated balance. The maximum level of debt for Enersis S.A. will be given obligations. • Investments in other affiliate companies, in such a way that the sum of the proportions of the corresponding fixed assets of the participation of each one of these affiliate companies does not exceed the proportion of the fixed assets corresponding to the participation of the affiliates in the electricity sector, and of Enersis S. A. 20 | Annual Report 2006 B) THE ADMINISTRATION’S POWERS TO AGREE WITH CREDITORS TO RESTRICT THE DISTRIBUTION OF DIVIDENDS. Restrictions regarding the distribution of dividends may be agreed only if such restrictions have been previously approved of by the General Shareholders Meeting (Common and Extraordinary). C) THE ADMINISTRATION’S POWER TO AGREE WITH CREDITORS ON THE GRANTING OF PLEDGES. The administration of the Company may agree with creditors to grant real or personal pledges, in accordance with the law and social statutes. D) ASSETS ESSENTIAL FOR THE FUNCTIONING OF THE COMPANY The assets essential for the functioning of Enersis S.A. are the shares represented by the contributions the former makes to its affiliate Chilectra S.A. In the event of the affiliate Elesur S.A. absorbs Chilectra S.A. through a corporate merger and as a consequence Chilectra S.A. is dissolved, for the effects of Law 3,500 it will be declared that the shares issued by Elesur S.A. and that Enersis S.A. may receive as a result of the merger will be essential assets, and that from the date the General Shareholders Meeting of Elesur S. A. and Chilectra S.A. approve such merger. In any case, those General Shareholders Meetings will take place within six months from the date of approval of Investment and Financing Policy. If that period of six months has passed and the General Shareholders Meetings have not taken place to approve the merger, the shares represented by the contributions that Enersis S.A. makes to its affiliate Chilectra S.A. will continue as essential assets. Power Plant Ralco, Chile Annual Report 2006 | 21 MANAGEMENT AND HUMAN RESOURCES 22 | Annual Report 2006 BOARD OF DIRECTORS CHAIRMAN VICE CHAIRMAN DIRECTOR DIRECTOR Pablo Yrarrázaval Chairman of the Santiago Stock Exchange Tax Nº:5,710,967-K Rafael Miranda Industrial Engineer Instituto Católico de Artes e Industrias (ICAI) de Madrid Tax Nº: 48,070,966-7 Patricio Claro Industrial Engineer Universidad de Chile Tax Nº: 5,206,994-7 Juan Ignacio de la Mata Degree in Law Universidad de Madrid Tax Nº: 48,101,910-9 DIRECTOR DIRECTOR DIRECTOR SECRETARY Rafael Español Degree in Law Universidad de Barcelona Tax Nº: 48,101,912-5 Hernán Somerville Degree in Law Universidad de Chile Tax Nº: 4,132,185-7 Eugenio Tironi Ph,D,in Sociology L’Ecole des Hautes Etudes en Sciences Sociales, Paris, France Tax Nº: 5,715,860-3 Domingo Valdés Degree in Law Universidad de Chile Tax Nº: 6,973,465-0 Enersis is managed by a Board of Directors of seven DIRECTORS’ REMUNER ATION members who remain in their positions for a period of three years and may be re-elected. The current board was As required by clause 33 of the Corporations Law 18,046, elected at the ordinary shareholders’ meeting held on March and the XVI Article of By-Laws the ordinary shareholders’ 11, 2006. In the board session on March 29, 2006, were meeting held on March 21, 2006, agreed the remuneration designed the Chairman, Vice-Chairman and Secretary of of the board of Enersis for the year 2006. the Board Directors. Annual Report 2006 | 23 MANAGEMENT AND HUMAN RESOURCES The amounts paid to Enersis directors as such, to members of the committee and to those that performed as directors of subsidiaries during 2006 are as: AS OF DECEMBER 31, 2006, IN PESOS * EXERCISE PERIOD ENERSIS BOARD SUBSIDIARIES BOARD BOARD COMMITTEE AUDITING COMMITTEE SINCE-TILL TITLE DIRECTOR 01.01.06 - 31.12.06 Chairman Pablo Yrarrázaval Valdés Rafael Miranda Robredo Vice Chairman 01.01.06 - 31.12.07 Rafael Español Navarro Director 01.01.06 - 31.12.08 01.01.06 - 31.12.09 Juan Ignacio de la Mata Gorostizaga Director Director Hernán Somerville Senn 01.01.06 - 31.12.10 Director Ernesto Silva Bafalluy 01.01.06 - 31.12.11 Director Patricio Claro Grez 21.03.06 - 31.12.12 Eugenio Tironi Barrios Director 01.01.06 - 31.12.13 TOTAL GROSS Ch$ 49,506,410 34,675,548 24,426,313 24,426,313 25,080,099 6,526,647 19,016,069 24,426,315 208,083,714 GROSS Ch$ - - - - - - - - - GROSS Ch$ GROSS Ch$ - - 2,638,813 2,638,813 1,986,461 652,352 - - 7,916,439 7,932,541 - - - 7,932,541 1,304,198 6,628,343 - 23,797,623 * Gross amounts BOARD ASSESSMENT EXPENSES regulations and policies that guide our corporate governance principles. The most important of these regulations and There were no assessment expenses during 2006. policies are the following: CORPORATE GOVERNANCE The Internal Regulations on Conduct in Securities Markets, approved by the Board on January 31, 2002, defines the rules Enersis is managed by its Executive Officers under the of conduct that must be followed by members of the Board direction of its Board of Directors which, in accordance of Directors, senior management and other executives and with the estatutos, or articles of incorporation or by-laws, employees who, due to the nature of their job responsibilities, consists of seven directors who are elected at an annual may have access to sensitive or confidential information, with regular shareholders’ meeting. Each director serves a view to contributing to transparency and to the protection for a three-year term and the term of each of the seven of investors. These regulations are based on the principles directors expires on the same day. Staggered terms are of impartiality, good faith, placing the company’s interests not permitted under Chilean law. If a vacancy occurs on the before one’s own, and care and diligence in using information board during the three-year term, the Board of Directors may when acting in the securities markets. appoint a temporary director to fill the vacancy. In addition, the vacancy will trigger an election for every seat on the The Charter Governing Executives (“Estatuto del Directivo”), Board of Directors at the immediately succeeding Ordinary approved by the Board on May 28, 2003, and the Employees Shareholders’ Meeting. The current Board of Directors was Code of Conduct, provide the rules governing dealings with elected in March 2006 and their terms expire in March 2009. customers and suppliers, and establish the principles that The members of the Board of Directors do not have service should be followed by employees , including ethical conduct, contracts with Enersis or any of its subsidiaries that provide professionalism and confidentiality. They also impose benefits upon termination of employment. limitations on the activities that our senior executives and other employees may undertake outside the scope of their Chilean corporate law provides that a company’s Board of employment with us. Directors is responsible for the management, administration and representation of a company in all matters concerning its The regulations and rules mentioned above reflect our core corporate purpose, subject to the provisions of the company’s principles of transparency, respect for stockholders’ rights, by-laws and the stockholders’ resolutions. In addition to and the duty of care and loyalty of the directors imposed the by-laws, the Board of Directors of Enersis has adopted by Chilean law. 24 | Annual Report 2006 COMPLIANCE WITH NYSE LISTING STANDARDS ON CORPORATE GOVERNANCE “non-control director”), it permits the Directors’ Committee to be composed of a majority or even a unanimity of control directors, if there are not sufficient non-control directors on The following is a summary of the significant differences the board to serve on the committee. Currently, our Directors’ between our corporate governance practices and those Committee is composed of one non-control director and of applicable to domestic issuers under the corporate two directors appointed by the controlling shareholder. governance rules of the New York Stock Exchange. Because we are a “controlled company” under NYSE rules (a company CORPORATE GOVERNANCE GUIDELINES of which more than 50% of the voting power is held by an individual, a group or another company), we would not, were The NYSE’s corporate governance rules require U.S.-listed we to be a U.S. company, be subject to the requirement that companies to adopt and disclose corporate governance we have a majority of independent directors, or nomination guidelines. Although Chilean law does not contemplate this and compensation committees. practice, the Company has adopted the codes of conduct INDEPENDENCE AND F UNCTIONS OF THE A UDIT COMMITTEE held on March 2006, approved the inclusion of articles in its bylaws that govern the creation, composition, attributions, described above, and its Special Shareholders’ Meeting functions and retribution of the Directors’ Committeee and Under the NYSE corporate governance rules, all members the Audit Committee. of the Audit Committee must be independent. We are subject to this requirement as of July 31, 2005. COMMITTEES AND O THER ADVISORY BODIES Under the NYSE corporate governance rules, the audit Directors’ Committee (Comité de Directores) committee of a U.S. company must perform the functions detailed in, and otherwise comply with the requirements of The Directors’ Committee is composed of three members NYSE Listed Company Manual Rules 303A.06 and 303A.07. who are simultaneously directors of the Company. It performs Non-U.S. companies have been required to comply with Rule the following functions: 303A.06 beginning July 31, 2005, but are not required to comply with Rule 303A.07. We do not currently comply with • examination of Annual Report, Financial Statements and Rule 303A.07, but as of July 31, 2005, we do comply with the Reports of the External Auditors and Inspectors of the independence and the functional requirements of Rule the Accounts; 303A.06. As required by the Sarbanes-Oxley Act and the • formulation of the proposal to the Board of Directors NYSE corporate governance rules, on June 29, 2005, the for the selection of external auditors and private Board of Directors of Enersis created an Audit Committee. rating agencies; The Audit Committee is currently composed of three directors • examination of information related to operations by the meeting the applicable independence requirements of the Company with related parties and/or related to operations NYSE: Mr. Juan Ignacio de la Mata (Chairman), Mr. Rafael in which the Company board members or relevant Español and Mr. Hernán Somerville. Mr. Español is relying executive officers may have personal interest; on the exemption provided by Rule 10A-3(b)(1)(iv)(B), but • examination of the compensation framework and plans otherwise meets such independence requirements. for managers and executive officers; and • any other function mandated to the committee by the As required by Chilean Law, Enersis also has a Directors’ by-laws, the board of directors or the shareholders of Committee composed of three directors. Although Chilean the company. Law requires that a majority of the Directors’ Committee (two out of three members) must be composed of directors Pablo Yrarrázaval, Chairman of the Board, has also served who were not nominated by the controlling shareholder as chairman of this committee since July 31, 2002. The other and did not seek votes from the controlling shareholder (a members are Hernán Somerville and Patricio Claro. Annual Report 2006 | 25 MANAGEMENT AND HUMAN RESOURCES The Audit Committee (Comité de Auditoría) Soluciones y Servicios IT Limitada (“Synapsis”), declaring that meets the conditions of equality similar to those normally The Audit Committee is composed of three independent prevailing in the market. The Committee also examined the members who also serve as directors of the Company. It loan between Enersis S.A. and Elesur S.A. for an amount performs the following functions: of 200 million pesos and agreed that this transaction mets conditions of equality similar to those normally prevailing • submits a proposal for the appointment and compensation in the market. The Directors’ Committee was also formally of independent auditors at the Shareholders’ Meeting; informed of the report of the external auditors on banking • oversees the work of independent auditors; business and money brokerage, as established in Circular • pre-approves audit and non-audit services provided by 960 of the Superintendence of Banks and Financial the independent auditors; Institutions and of Securities and Insurance. In addition, the • establishes procedures for receiving and dealing with Directors’ Committee proposed to the board the appointment complaints regarding accounting, internal control and of the external audit firm Deloitte & Touche for the year auditing matters. DIRECTORS´COMMITTEE 2006 and agreed to propose to the board the appointment of the firms Feller Rate Clasificadora de Riesgo Limitada and Fitch Chile Clasificadora de Riesgo Limitada as the private credit-rating agencies for domestic risk and the firms Fitch In accordance with the provisions of clause 50 bis of the Ratings, Moody’s Investors Service and Standard & Poor’s Corporations Law 18,046, Enersis S.A. has a Directors’ International Ratings Services as the private credit-rating Committee consisting of three members who have the agencies for international risk of Enersis S.A. for the year powers and duties set out in that clause. 2006. Finally, the Directors’ Committee approved the text of the report to be presented to the Company’s ordinary On March 29, 2006, the Company’s board appointed as the shareholders meeting about the activities carried out by the members of the Directors’ Committee Pablo Yrarrázaval Committee during 2005, and the expenses it has incurred, Valdés (related to the controller), Hernán Somerville including of advisers, during that year. Senn (related to the controller) and Patricio Claro Grez (independent of the controller). The Committee, at its meeting At the second meeting held on February 28, 2006, the held on March 29, 2006, agreed to appoint Pablo Yrarrázaval Directors’ Committee examined the expert reports published Valdés as its chairman and Domingo Valdés Prieto as the by Elesur S.A. and Chilectra S.A., the respective exchange secretary. equation and the financial statements of these subsidiaries, with respect to the merger of these companies, and agreed ACTIVITIES OF THE DIRECTOR’S COMMITTEE to propose their approval to the board of Enersis S.A., in order be voted favourably at the extraordinary shareholders The Directors’ Committee met twelve times during 2006. meetings to be held for this purpose. It examined and approved information related to the transactions referred in clause 89 of Law 18,046, and The Committee, at its third meeting held on March 29, 2006, reported on such transactions. The following specific matters agreed to appoint Pablo Yrarrázaval Valdés as its chairman were also dealt with at its meetings: and Domingo Valdés Prieto as the secretary. At its first meeting in the year, held on January 25, 2006, At its fourth meeting on April 26, 2006, the unconsolidated the Directors’ Committee examined the unconsolidated and consolidated financial statements of the Company as and consolidated financial statements of the Company of March 31, 2006 were examined, including notes, Income as of December 31, 2005 and their notes and material Statement and Essential Facts. information, as well as the reports of the external auditors and inspectors of accounts. It also examined the terms of the At its fifth meeting on May 31, 2006, the Directors’ Committee services contracted for Datacenter, Support and Maintenance examined a joint and several guarantee agreement to be systems between Enersis S.A. and the subsidiary Synapsis signed by Enersis S.A. with its Brazilian subsidiary Luz de 26 | Annual Report 2006 Río Limitada (Luz de Río) covering the subsidiary’s future its subsidiary Chilectra S.A., and agreed that this agreement obligations with the International Financial Corporation (IFC), met conditions of equality similar to those normally prevailing part of the World Bank group, in the context of the entry of IFC in the market. The Committee also examined the terms of the as a shareholder in Endesa Brasil S.A. The Committee also rental agreement regarding an offices property at Marcoleta agreed to report that the extension of the terms for certain street number 634, Santiago, that Enersis S.A. will sign with loans granted by Enersis S.A. and Enersis Internacional to its subsidiary Endesa Inversiones Generales S.A., as these the subsidiary Chilectra S.A. meets conditions of equality terms meet conditions of equality similar to those normally similar to those normally prevailing in the markets. It also prevailing in the market. examined the merger transaction of Endesa Brasil S.A. (absorber company) and Endesa Internacional Energía At its eight meeting on August 30, 2006, the Directors’ Limitada (absorbed company), making the respective capital Committee examined the remuneration systems and increase in Endesa Brasil S.A. and then immediately making compensation plans of the managers and senior executives a capital reduction in the same company, and declared that of Enersis S.A. this transaction met conditions of equality similar to those normally prevailing in the market. At its ninth meeting, held on September 27, 2006, the Directors’ Committee examined information relating to the At its sixth meeting on June 28, 2006, the president of the transactions referred to in clause 89 of Law 18,046 made by Committee explained the strategic alliance signed between Enersis S.A. during the month of August 2006. Enersis S.A. and Endesa, S.A. and its main contents. The Directors’ Committee agreed to report that, based on the At its tenth meeting on October 25,, 2006, the unconsolidated information received, it was reasonable to agree to the and consolidated financial statements of the Company modifications proposed in order to preserve the strategic as of September 30, 2006 were examined, together with alliance. Consequently, the Directors’ Committee of Enersis the notes and material information. The Committee also S.A. considered it appropriate to qualify the modifications examined the information related to a real-estate services requested as convenient for the best corporate interests of contract to be provided to Enersis S.A. by its real-estate Enersis S.A., and that meet conditions of equality similar to subsidiary Inmobiliaria Manso de Velasco Limitada (IMV), those normally prevailing in the market. These modifications and the signing of a money desk and treasury, accounting consisted of replacing the prior notice foreseen in the fourth and taxation services contract to be provided by Enersis S.A. clause, No.1, of the strategic alliance, which is currently six to its subsidiary IMV, and declared that this contract meet months, by one of three months, and replacing the term of conditions of equality similar to those normally prevailing the automatic renewal foreseen in the same clause, which is in the market. The Committee examined information currently three years, to a period of one year. The Directors’ related to the amendment of the rental agreement, signed Committee agreed to declare having examined the renewal in January 2000 between Enersis S.A. and IMV, whereby of the insurance policies of the Enersis Group through a the Enersis Group stadium located at Carlos Medina street captive reinsurance company scheme called Compostilla 858, Independencia, Santiago was rented to Enersis S.A. Re, formed in Luxembourg by Endesa, S.A., as the market by IMV, as this contract meet conditions of equality similar quotes and methodology used in the tender and division of to those normally prevailing in the markets. The Committee the premiums enabled it to state that the contracting met also examined information relating to the amendment of two conditions of equality similar to those normally prevailing service contracts for the use of the Enersis Group stadium in the market. signed between Enersis S.A. and IMV in January 2000, and between Enersis S.A. and its subsidiary Chilectra S.A. in At its seventh meeting, held on July 26, 2006, the Directors’ December 2002, and approved the signing of the contractual Committee examined the unconsolidated and consolidated amendments as these met conditions of equality similar to financial statements of the Company as of June 30, 2006 and those normally prevailing in the markets. the report of the external auditors. It also examined the terms of a contract for the sale of Site 29 and “Hijuela Oriente”, that At its eleventh meeting on November 29, 2006, the Directors’ form part of the Buín electricity substation, by Enersis S.A. to Committee agreed to take formal and express note of the Annual Report 2006 | 27 MANAGEMENT AND HUMAN RESOURCES internal control letter of Enersis S.A., dated November 27, 2006, prepared by the Company’s external auditors, Deloitte, AUDIT COMMITTEE as referred to in Circular 980 of the Superintendence of The constitution of the Audit Committee was agreed by the Securities and Insurance. It also examined and approved board of Enersis S.A. at its meeting on June 29, 2005. The the terms of the services contract for the implementation Audit Committee is different compared to the Board and the of the “Identities Management (IM) and Unique Connection Directors’ Committee, required by the Corporations Law LogOn (SSO)” project to be signed between Enersis S.A. 18,046. The Audit Committee is required by the United States and its subsidiary Synapsis, and approved its signing, as the Sarbanes Oxley Act and the complementary regulations contract met conditions of equality similar to those normally issued by the Securities and Exchange Commission (SEC) prevailing in the markets. and the New York Stock Exchange (NYSE), considering that Enersis S.A. is an issuer of American Depositary At its twelfth meeting held on December 14, 2006, the Receipts (ADRs) which are duly registered with the NYSE, Directors’ Committee examined the terms of the service and an issuer of bonds registered in the United States of contract for creating an information technology solution for America. Its functions include: i) to be one of the proponents configuring “Control Tables” especially designed for the of the appointment of the external auditors to the ordinary corporate finance and treasury management of Enersis S.A., shareholders meeting; ii) to be responsible for checking the including the assignment of the right of use of the SAP BW work of the company’s external auditors; iii) to pre-approve software licences required for the operation of the solution, to the external audit services and other services provided by be signed between Enersis S.A. and its subsidiary Synapsis, the external auditors; and iv) to set procedures for reception as this contract met conditions of equality similar to those and processing of claims in accounting, internal control or normally prevailing in the markets. The Committee examined auditing areas. The extraordinary shareholders meeting of the contract for services and assignment of rights to use Enersis S.A. held on March 21, 2006 amended the bylaws of the respective software licences that Enersis S.A. will sign the Audit Committee, regulating the generation, membership, with Synapsis in order to implement a documents-entering functioning and powers of this committee. solution for the corporate treasury sub-management of Enersis S.A., as the terms of the contract met conditions of On March 29, 2006, the Company’s board appointed as equality similar to those normally prevailing in the markets. members of the Audit Committee of Enersis Juan Ignacio de The Committee examined the terms of a services contract la Mata Gorostizaga, Rafael Español Navarro and Hernán for the implementation of a new cash budget system for the Somerville Senn, who satisfied and declared satisfying the Company’s treasury sub-management, to be signed between requirements of independence required to the members of Enersis and Synapsis, as the contract met conditions of the Audit Committee by the United States Sarbanes Oxley equality similar to those normally prevailing in the markets. Act, the Securities and Exchange Commission and the New Finally, the Committee agreed to approve the calendar for York Stock Exchange, according to the applicable rules to its ordinary meetings for 2007. Enersis S.A.. The board also appointed Rafael Español In conclusion, the Directors’ Committee of Enersis S.A. during Audit Committee, at its meeting held on April 26, 2006, also 2006 has been fully committed to comply with the issues set unanimously appoint Juan Ignacio de la Mata Gorostizaga out in clause 50 bis of the Corporations Law 18,046 and has as chairman of this committee and Domingo Valdés Prieto Navarro as the Committee’s financial expert. Enersis’s analyzed and contributed to the best outcome of the above as the secretary. analyzed transactions. ACTIVITIES OF THE AUDIT COMMITTEE DIRECTOR’S COMMITTEE EXPENSES The Directors’ Committee in 2006 made no use of the Committee examined the unconsolidated and consolidated functioning expenses approved by the ordinary shareholders financials statements of Enersis S.A. as of December 31, meeting held on March 21, 2006. The Committee has not 2005, with their notes and material information, as well as the needed to contract professional advisers for carrying out reports of the external auditors of Enersis S.A. The chairman At its first meeting held on January 24, 2006, the Audit its duties. 28 | Annual Report 2006 of the Audit Committee explained that Enersis S.A. has been and in accordance with the procedure for the Ethic Channel preparing for more than a year a group of internal control and the Treatment of Claims approved in accordance with procedures in order to comply with the Sarbanes Oxley Act, the Sarbanes Oxley Act, the Committee issued its opinion giving a presentation of the work carried out by Enersis S.A. on each of the claims presented and gave the directions on this subject. The Committee took formal and express to be followed in each case. Also in accordance with the note of the internal control letter of Enersis S.A., dated Sarbanes Oxley Act, the Committee agreed to pre-approve November 30, 2005, prepared by the Company’s external the contracting of certain auditing services and others un- auditors, Deloitte & Touche, as referred to in Circular 980 related to auditing services to be provided by the external of the Superintendence of Securities and Insurance dated auditors. December 24, 1990. The Committee also took formal note of the report of Deloitte & Touche on banking business and At its third meeting on July 25, 2006, the Audit Committee money brokerage for the year 2005, issued on January 20, examined the unconsolidated and consolidated financials 2006. The Committee agreed that it should be informed of statements of Enersis S.A. as of June 30, 2006, with their the result of each and every one of the investigations made notes and material information and the report of the external following complaints received since October 25, 2005 and auditors. At the same time, and in accordance with the that the Ethics Channel should contemplate direct information procedure for the Ethics Channel and Treatment of Claims to the chairman of the Audit Committee. In addition, and in approved in accordance with the Sarbanes Oxley Act, the accordance with Section 202 of the Sarbanes Oxley Act, Committee issued its opinion on each of the claims presented the Audit Committee agreed unanimously to pre-approve and gave the directions to be followed in each case. Also in to contract external audit services and those un-related to accordance with the Sarbanes Oxley Act, the Committee the external audit to be provided by the external auditors agreed to pre-approve the contracting of certain auditing and which were presented in that meeting for their pre- services and others un-related to auditing services to be approval. Likewise, and in accordance with Section 201(a) provided by the external auditors of the Sarbanes Oxley Act, the Audit Committee of Enersis S.A. agreed to establish a procedure for the pre-approval At its fourth meeting on October 24, 2006, the Audit of professional services by the external auditors and submit Committee examined the unconsolidated and consolidated them for the final approval of the board. At the same meeting, financials statements of Enersis S.A. as of September 30, the Audit Committee agreed to propose the appointment of 2006, with their notes and material information. At the same the firm of independent external auditors Deloitte & Touche time, and in accordance with the procedure for the Ethics for the year 2006. The Committee also approved the text Channel and Treatment of Claims approved in accordance of the report that should be presented to the Company’s with that set out in the Sarbanes Oxley Act, the Committee ordinary shareholders meeting concerning the activities issued its opinion on each of the claims presented and of the Committee during 2005, and the expenses it has gave the directions to be followed in each case. Also in incurred that year, including those of its advisers, introduced accordance with the Sarbanes Oxley Act, the Committee in the Annual Report of Enersis S.A. Finally, the Committee agreed to pre-approve the contracting of certain auditing approved the proposed Audit Committee expense budget for services and others un-related to auditing services to be 2006, and agreed to submit it to the board and the ordinary provided by the external auditors shareholders meeting of Enersis S.A. for a final resolution of this matter. It also approved the calendar of its ordinary EXPENSES OF THE AUDIT COMMITTEE meetings for 2006. In its second meeting, held on April 26, 2006, the Audit budget for its functioning expenses approved by the Committee elected Juan Ignacio de la Mata Gorostizaga ordinary shareholders meeting held on March 21, 2006. The as its chairman and Domingo Valdés Prieto as secretary. Committee has not required the services of professional It also examined the unconsolidated and consolidated advisers for carrying out its duties. During 2006, the Audit Committee made no use of the financials statements of Enersis S.A. as of March 31, 2006, with their notes and material information. At the same time, Annual Report 2006 | 29 MANAGEMENT AND HUMAN RESOURCES SENIOR EXECUTIVES CHIEF EXECUTIVE OFFICER Ignacio Antoñanzas Mines Engineer Universidad Politécnica de Madrid Tax Nº: 22,298,662-1 LEGAL COUNSEL Domingo Valdés Lawyer Universidad de Chile Tax Nº: 6,973,465-0 CHIEF REGIONAL FINANCE OFFICER Alfredo Ergas Business Administration Graduate Universidad de Chile Tax Nº: 9,574,296-3 CHIEF COMMUNICATIONS OFFICER José Luis Domínguez Civil Engineer Pontificia Universidad Católica de Chile Tax Nº: 6,372,293-6 CHIEF REGIONAL PLANNING AND CONTROL OFFICER Macarena Lama Tax Nº: 21,495,901-1 Agronomist Escuela Técnica Superior de Ingenieros Agrónomos de Madrid CHIEF REGIONAL ACCOUNTING OFFICER Fernando Isac Economist Universidad de Zaragoza Tax Nº: 14,733,649-7 CHIEF AUDITING OFFICER Francisco Herrera Civil Engineer Pontificia Universidad Católica de Chile Tax Nº: 7,035,775-5 CHIEF HUMAN RESOURCES OFFICER Francisco Silva Public Administration Universidad de Chile Tax Nº: 7,006,337-9 30 | Annual Report 2006 ORGANIZATION STRUCTURE (cid:35)(cid:40)(cid:33)(cid:41)(cid:50)(cid:45)(cid:33)(cid:46) (cid:48)(cid:65)(cid:66)(cid:76)(cid:79)(cid:192)(cid:57)(cid:82)(cid:65)(cid:82)(cid:82)(cid:199)(cid:90)(cid:65)(cid:86)(cid:65)(cid:76) (cid:35)(cid:40)(cid:41)(cid:37)(cid:38)(cid:192)(cid:35)(cid:47)(cid:45)(cid:45)(cid:53)(cid:46)(cid:41)(cid:35)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:51)(cid:192) (cid:47)(cid:38)(cid:38)(cid:41)(cid:35)(cid:37)(cid:50)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192) (cid:42)(cid:79)(cid:83)(cid:206)(cid:192)(cid:44)(cid:85)(cid:73)(cid:83)(cid:192)(cid:36)(cid:79)(cid:77)(cid:210)(cid:78)(cid:71)(cid:85)(cid:69)(cid:90) (cid:35)(cid:40)(cid:41)(cid:37)(cid:38)(cid:192)(cid:33)(cid:53)(cid:36)(cid:41)(cid:52)(cid:192)(cid:47)(cid:38)(cid:38)(cid:41)(cid:35)(cid:37)(cid:50) (cid:38)(cid:82)(cid:65)(cid:78)(cid:67)(cid:73)(cid:83)(cid:67)(cid:79)(cid:192)(cid:40)(cid:69)(cid:82)(cid:82)(cid:69)(cid:82)(cid:65) (cid:35)(cid:40)(cid:41)(cid:37)(cid:38)(cid:192)(cid:37)(cid:56)(cid:37)(cid:35)(cid:53)(cid:52)(cid:41)(cid:54)(cid:37)(cid:192)(cid:47)(cid:38)(cid:38)(cid:41)(cid:35)(cid:37)(cid:50) (cid:41)(cid:71)(cid:78)(cid:65)(cid:67)(cid:73)(cid:79)(cid:192)(cid:33)(cid:78)(cid:84)(cid:79)(cid:214)(cid:65)(cid:78)(cid:90)(cid:65)(cid:83) (cid:35)(cid:40)(cid:41)(cid:37)(cid:38)(cid:192)(cid:40)(cid:53)(cid:45)(cid:33)(cid:46)(cid:192)(cid:50)(cid:37)(cid:51)(cid:47)(cid:53)(cid:50)(cid:35)(cid:37)(cid:51)(cid:192) (cid:47)(cid:38)(cid:38)(cid:41)(cid:35)(cid:37)(cid:50)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192) (cid:38)(cid:82)(cid:65)(cid:78)(cid:67)(cid:73)(cid:83)(cid:67)(cid:79)(cid:192)(cid:51)(cid:73)(cid:76)(cid:86)(cid:65) (cid:44)(cid:37)(cid:39)(cid:33)(cid:44)(cid:192)(cid:35)(cid:47)(cid:53)(cid:46)(cid:51)(cid:37)(cid:44) (cid:36)(cid:79)(cid:77)(cid:73)(cid:78)(cid:71)(cid:79)(cid:192)(cid:54)(cid:65)(cid:76)(cid:68)(cid:206)(cid:83) (cid:33)(cid:35)(cid:35)(cid:47)(cid:53)(cid:46)(cid:52)(cid:41)(cid:46)(cid:39)(cid:192)(cid:47)(cid:38)(cid:38)(cid:41)(cid:35)(cid:37)(cid:50)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192)(cid:192) (cid:35)(cid:40)(cid:41)(cid:37)(cid:38)(cid:192)(cid:50)(cid:37)(cid:39)(cid:41)(cid:47)(cid:46)(cid:33)(cid:44)(cid:192) (cid:38)(cid:69)(cid:82)(cid:78)(cid:65)(cid:78)(cid:68)(cid:79)(cid:192)(cid:41)(cid:83)(cid:65)(cid:67) (cid:35)(cid:40)(cid:41)(cid:37)(cid:38)(cid:192)(cid:50)(cid:37)(cid:39)(cid:41)(cid:47)(cid:46)(cid:33)(cid:44)(cid:192)(cid:38)(cid:41)(cid:46)(cid:33)(cid:46)(cid:35)(cid:37)(cid:192) (cid:47)(cid:38)(cid:38)(cid:41)(cid:35)(cid:37)(cid:50) (cid:33)(cid:76)(cid:70)(cid:82)(cid:69)(cid:68)(cid:79)(cid:192)(cid:37)(cid:82)(cid:71)(cid:65)(cid:83) (cid:35)(cid:40)(cid:41)(cid:37)(cid:38)(cid:192)(cid:50)(cid:37)(cid:39)(cid:41)(cid:47)(cid:46)(cid:33)(cid:44)(cid:192)(cid:48)(cid:44)(cid:33)(cid:46)(cid:46)(cid:41)(cid:46)(cid:39)(cid:192) (cid:33)(cid:46)(cid:36)(cid:192)(cid:35)(cid:47)(cid:46)(cid:52)(cid:50)(cid:47)(cid:44)(cid:192)(cid:47)(cid:38)(cid:38)(cid:41)(cid:35)(cid:37)(cid:50) (cid:45)(cid:65)(cid:67)(cid:65)(cid:82)(cid:69)(cid:78)(cid:65)(cid:192)(cid:44)(cid:65)(cid:77)(cid:65)(cid:192) REMUNERATIONS OF SENIOR EXECUTIVES AND MANAGERS INCENTIVE PLANS FOR SENIOR EXECUTIVES AND MANAGERS The total gross remunerations received by the above Enersis has an annual bonus plan for its executives based on mentioned senior executives and the rest of the managers compliance of objectives and on the individual contribution of Enersis, that do not report directly neither Chairman nor towards the Company’s results. This plan includes a definition Chief Executive Officer, for the exercise 2006, amounted to of the range of bonuses according to the level of seniority of Ch$ 2,581 million. the executives. The bonuses paid to the executives consist of a determined number of gross monthly remunerations. INDEMNIFICATIONS PAID TO SENIOR EXECUTIVES AND MANAGERS During 2006, there was not indemnification payment made by the company. Annual Report 2006 | 31 MANAGEMENT AND HUMAN RESOURCES DISTRIBUTION OF HUMAN RESOURCES Enersis’ personnel distribution, including information regarding to subsidiaries within the five countries the Group operates, as of December 31, 2006, was the following: COMPANY Enersis Endesa Brasil (1) Endesa Chile (2) Chilectra (3) Edesur Edelnor Codensa Synapsis (4) Cam (5) Manso de Velasco (6) Total SENIOR EXECUTIVES PROFESSIONALS AND TECHNICIANS WORKERS TOTAL 24 62 58 12 30 14 19 14 10 5 248 102 1,997 1,777 514 1,664 328 872 640 820 13 8,727 94 879 193 182 713 206 43 204 283 12 2,809 220 2,938 2,028 708 2,407 548 934 858 1,113 30 11,784 (1) (2) (3) (4) (5) (6) Includes: Ampla Energía, Coelce, CIEN, Cachoeira Dourada, Fortaleza, CTM and TESA. Includes: Ingendesa, Pangue, Pehuenche, Celta, San Isidro, Central Costanera, El Chocón, Edegel, Emgesa, Betania, Enigesa and Túnel El Melón. Includes: Empresa Eléctrica de Colina and Luz Andes. Includes: Synapsis Chile, Synapsis Argentina, Synapsis Colombia, Synapsis Brasil and Synapsis Peru. Includes: Cam Chile, Cam Argentina, Cam Brasil, Cam Colombia and Cam Peru. Includes: Soc. Agrícola de Cameros Ltda., Aguas Santiago Poniente S.A., Agrícola e Inmobiliaria Pastos Verdes Ltda., Const. and Proyectos los Maitenes S.A. 32 | Annual Report 2006 BUSINESS ACTIVITIES Annual Report 2006 | 33 BUSINESS ACTIVITIES HISTORIC OVERVIEW The electricity distribution business abroad has been developed jointly with its subsidiary Chilectra, a company On June 19, 1981 Compañía Chilena de Electricidad S.A. involved in the distribution of electricity in the Metropolitan created a new corporate structure, giving rise to a Holding Region of Santiago, Chile. Company with three subsidiaries. One of these was Compañía Chilena Metropolitana de Distribución Eléctrica S.A. In Enersis has developed its investments in the generation 1985, as a result of the privatization policy enacted for state- of electricity in the country and abroad mainly through owned companies by the Government of Chile, the transfer its subsidiary Empresa Nacional de Electricidad S.A. of the capital stock of Compañía Chilena Metropolitana de (Endesa Chile). Distribución Eléctrica S.A. to the private sector began. This process concluded on August 10, 1987. Through this process, In addition, the Company is present in businesses that private pension funds (A.F.P.), the company’s workers, complement its principal activities through majority equity institutional investors and thousands of small investors holdings in the following companies: became stockholders of the Company. The organization structure was based upon operating activities or functions in Synapsis Soluciones y Servicios IT Ltda., involved in which the achievements were evaluated on functions and its supplying services and equipment related to information profitability was limited by a scheme of tariffs, due to the fact technology and data processing. that the company was devoted exclusively to the distribution of electricity. Inmobiliaria Manso de Velasco Ltda., involved in the real estate business, through the integral development of real In 1987, the Board of Directors proposed a division of estate projects and in the management, rental, purchase and the various activities of the parent company. Thus, four sale of the real estate holdings of Enersis and its subsidiaries subsidiaries were formed enabling them to be run as separate in Chile. business units, each with its own objectives, and in this way expanding the activities of the company into other non- Compañía Americana de Multiservicios Ltda. (CAM), regulated businesses, though still related to the core business. which activities are related to business and other operations This proposed division was approved by the Extraordinary in networks for public service companies, preferably in the Shareholders’ Meeting held on November 25, 1987, which service of measuring systems for public utilities and as a determined its new corporate purpose. As a result of the purchasing agent, importer and exporter, and also seller above, Compañía Chilena Metropolitana de Distribución and supplier of materials for Enersis’ subsidiaries and Eléctrica S.A. became an investment company. third parties. On August 1, 1988, under a resolution adopted by the Shareholders’ Meeting held on April 12, 1988, one of the INTERNATIONALIZATION companies born out of the division changed its corporate Enersis started its international expansion process during name to Enersis S.A. The Extraordinary General Meeting 1992 through its participation in various privatizations in the of Shareholders held on April 12, 2002 modified the corporate neighboring countries in the continent, in this way establishing purpose of the Company, introducing the activities in a significant presence in the electricity sectors of Argentina, telecommunications and the investment and management of Peru, Colombia and Brazil. companies involved in telecommunications and information technology and brokerage via Internet. In July 1992, Distrilec Inversora S.A., a company in which Today, Enersis is one of the largest private electricity groups in Distribuidora Sur S.A., Edesur, a company that distributes Latin America, in terms of consolidated assets and operating electricity in the city of Buenos Aires, Argentina. Subsequently, income, achieved through stable and balanced growth in its in December 1995, Enersis acquired a further 39% of this electricity generating and distribution businesses, as well as company and became its controlling shareholder. Enersis holds a participation, was adjudicated Empresa in other businesses related to these activities. 34 | Annual Report 2006 Between July 1994 and December 1995 and through which it offered a price of 320 Chilean Pesos per share, the Inversiones Distrilima S.A., Enersis purchased 60% of the multinational company bought a further 32% of Enersis, which, capital stock of Empresa de Distribución Eléctrica de Lima added to the 32% acquired in August 1997, increased its final Norte S.A., Edelnor, in Peru. Also that year, it acquired shareholding to 64%. The transaction, concluded on April 7, Edechancay, another Peruvian distribution company. 1999, involved an investment of US$ 1,450 million. During 1996, Enersis ventured for the first time into the Brazilian On May 11, 1999, Enersis acquired an additional 35% of market, acquiring jointly with other partners an important Endesa Chile, in which it already held 25%. Consequently, part of the shares in Companhia de Eletricidade do Rio de Enersis attained approximately 60% of the ownership of the Janeiro S.A., Cerj, that distributed electricity in the city of Rio generating company, becoming its parent company and de Janeiro, Brazil. This company changed its name to Ampla consolidating Enersis’ position as one of the leading private Energía e Serviços S.A. electricity groups in Latin America. In 1997, Enersis participated successfully, through a Important operations were carried out during 2000 that are consortium, in the process of capitalization and subsequent summarized as follows: the Company’s capital was increased control of Codensa S.A. ESP, Codensa, a company involved by US$ 520 million. Furthermore, US$ 1,400 million were in the electricity distribution business in the city of Bogotá and incorporated as a result of the sale of the subsidiarie, Transelec, the Department of Cundinamarca, Colombia. Esval, Aguas Cordillera and the real estate divestments, within the strategic framework of the Genesis Plan. At the beginning of 1998, Enersis ventured once again into the Brazilian market. This time, through a consortium, which was Significant investments were made during 2001: US$ 364 awarded the control of Companhia Energética de Ceará S.A., million to increase the company’s shareholding in Chilectra; Coelce, a company that distributes electricity in the State of US$ 150 million in the purchase of a 10% holding in Edesur, Ceará in the north east of Brazil. Argentina, which was owned by the company employees; During 1999, Endesa S.A. (Spain) became the controlling company Cerj (Ampla) and US$ 23 million to increase by 15% shareholder of Enersis. Through a share purchase offer, in the shareholding of Enersis in Río Maipo. US$ 132 million to increase the participation in the Brazilian Power Plant Ralco, Chile Annual Report 2006 | 35 BUSINESS ACTIVITIES During the year 2002, progress continued in Chile on the Furthermore, in August, Endesa initiated the construction of construction of the Ralco hydroelectric plant located in the VIII the San Isidro II combined cycle thermoelectric plant, which Region and in Brazil, of the Fortaleza Thermoelectric Plant in the will have an installed capacity of 377 MW. Also, in October, it State of Ceará. Furthermore, the second phase of the electricity commenced the construction of the Palmucho hydroelectric interconnection between Argentina and Brazil commenced plant with 32 MW of power. commercial operations, CIEN, achieving a transmission capacity of 2,100 MW between the two countries. During February 2006, Endesa Chile bought for approximately US$17 million, the Termocartagena Plant (142 MW) in Colombia, Also, Enersis strengthened the financial position of Ampla which operates with either fuel oil or gas, and which has the with the conversion of US$ 100 million of convertible bonds ability of being converted into coal. into equity and with a capital increase of US$ 100 million. Furthermore, Enersis invested US$ 1.6 million to increase by On March, Enersis informed to the Superintendency of Securities 1.73% its shareholding in Distrilima, the company through which and Insurance about the merger between Elesur and Chilectra, it controls Edelnor. through the absorption of the former by the first one. The legal effects started to be valid on April 1, 2006. During the year 2003, Enersis carried out a capital increase that permitted a rise in the Company’s equity base by more On May, Endesa Chile started environmental base studies for than US$ 2,104 million. With this operation, the shareholding Hydro Aysén Project, located on XI Region of Chile which will of Endesa (Spain) in Enersis fell to 60.62%. finish on 2007 and in August constituted the company Centrales In addition, the Company refinanced US$ 4,018 million with between Edegel and Etevensa, was accomplished, the latter various financial transactions such as new syndicated loans, is subsidiary of Endesa Internacional. And as of September, bond issues on the local and international markets, prepayment Endesa Chile, jointly with ENAP, Metrogas and GNL Chile signed of the “Jumbo II” loan and other minor operations. Finally, the agreement which defines the structure of Proyecto Gas Enersis sold assets worth US$ 757 million, which included Natural Licuado (GNL), which is expected to solve the lack of Hidroeléctricas de Aysén S.A.as of June, in Peru the merger the Canutillar generating plant and the electricity distribution gas from Argentina. company, Río Maipo. In 2004, the Company refinanced debts of US$ 2,100 million with incorporation into Endesa Brasil, the IFC (International Finance various financial transactions such as new syndicated loans, Corporation), which contributed with US$50 million to the Another relevant operation during 2006 was the new shareholder bond issues on the local and international markets, prepayment Brazilian Holding. of the “Jumbo III” loan and other minor operations. Finally, as of October 2006, the auction of electricity supply for Also, the Ralco generating plant, a subsidiary of Endesa Chile, the period 2009-2020 was closed and Chilectra made contracts came on stream with a contribution of 690 MW of power. for 49,720 GWh, which amounts the energy enough in order to fulfill its contracts until year 2009, whereby Endesa Chile In 2005, a Holding Company domiciled in Brazil was created, a and subsidiaries achieved approximately 6,400 GWh per year, subsidiary of Enersis S.A., by the name of Endesa Brasil S.A. corresponding to the 100% of its bids and 59% of the total bids, This new company was incorporated with all the assets that the under a price close to US$65 per MWh. Enersis Group and Endesa Internacional had in Brazil: CIEN, Fortaleza, Cachoeira Dourada, Ampla, Investluz and Coelce. GROWTH, RESEARCH AND DEVELOPMENT Also during 2005, Endesa Chile, with the participation of The principal objective of Enersis is to maximize the economic Ingendesa, started drawing up the feasibility study of the projects value of its equity through stable growth based on rigorously on the Baker and Pascua rivers that will imply more than 2,400 evaluated and managed electrical businesses. The compliance MW of new installed capacity for Chile. In March, Endesa Chile with this objective is supported by an investment strategy focused created the company, Endesa ECO S.A. whose corporate on increasing the economic value of the subsidiaries and affiliate purpose is to develop renewable energy in Latin America. companies, as well as the acquisition of new companies. 36 | Annual Report 2006 In this context, Enersis has based its strategy on four Regarding the third pillar, to have a better and healthier financial fundamental pillars: structure, the unanimous consensus should be noted from the international credit-rating agencies, which in 2006 issued • • Increase the profitability of the businesses favorable reports on the financial position of our Group. For Increase the value of the investment for its example, Moody´s restored Enersis’ investment grade category, shareholders based on the financial improvements shown by the Company, • Strengthen the balance sheet and financial position its improved liquidity, and the recognition of a better business • Take advantage of the best investment opportunities environment in the region. For its part, Fitch also raised its rating of Enersis based on its greater financial strength and better Regarding the first pillar for development, our Company in predictability of cash flows from its principal businesses. Lastly, 2006 continued to improve the returns of the main subsidiaries, Standard & Poor´s raised the outlook of Enersis by placing the both in electricity generation and in distribution. For example, present rating under revision with positive implications, based the returns on sales in both lines of business showed on the Company´s improved performance. important progress as a result of the permanent application of improvements in production processes and the constant Finally, with respect to the fourth pillar, investment research carried out. opportunities, Enersis is constantly evaluating the best options for growth in both lines of business, in the countries where it Regarding the second pillar, to increase the value of the is currently operating. The Company rigorously evaluates the investment for shareholders, remarkable was the more than different options, bearing in mind the contribution they might 50% growth in the Company’s market capitalization. This have on the previously-commented three pillars. was the result of the better and more informed perception that the market has internalized with respect to the prudent A key factor in this matter involves performing investments diversification of the businesses managed by Enersis. In fact, that require significant amounts of experience, management our Group capitalized well the growth shown by the economies skills and operating capacities of Enersis and its subsidiaries. of the five countries in which we operate, which impacted This requirement means investing in companies in which its favorably on the demand for energy, an essential element in management and operation have a full involvement and the the sustainability of development. power to approve or reject its investment projects. Baker River, Chile Annual Report 2006 | 37 ELECTRICITy BUSINESS By COUNTRy 38 | Annual Report 2006 ELECTRICITY GENERATION Electricity generation is mainly carried out through our subsidiary Endesa Chile. In this business, the Group has subsidiaries operating in Chile, Argentina, Brazil, Colombia and Peru. In all, the installed capacity amounted to 13,299 MW as of December 2006 and our consolidated electricity production was 57,439 GWh in 2006, 12% more than the 51,116 GWh produced in 2005. In the electricity industry, the segmentation of the business between hydroelectric and thermal generation is common as the variable costs of generation are different for each form. Thermal generation requires the purchase of fossil fuels and hydroelectric generation needs water from reservoirs and rivers. 64% of our consolidated generating capacity comes from hydroelectric sources while the remaining 36% is thermal. ELECTRICITY TRANSMISSION For the Enersis Group, the electricity transmission business is concentrated on the interconnection line between Argentina and Brazil, through CIEN, a subsidiary of Endesa Brasil. ELECTRICITY DISTRIBUTION Our electricity distribution business is carried on through Chilectra in Chile, Edesur in Argentina, Ampla and Coelce (owned by Endesa Brasil) in Brazil, Codensa in Colombia and Edelnor in Peru. Our principal subsidiaries and related distribution companies sold 58,280 GWh during 2006. Chilectra, Edesur, Edelnor, Ampla, Coelce and Codensa serve the principal cities of Latin America and provide an electricity service to over 11.6 million customers. These companies face demand that is growing by around 6% annually. This obliges them to invest constantly both in expansion and in the maintenance of their facilities. Annual Report 2006 | 39 ELECTRICITy BUSINESS By COUNTRy ARGENTINA INDUSTRY STRUCTURE Law 24,065 of January 1992, the Argentine Electricity Law, divides the electricity industry into three sectors. The generation sector is organized on the basis of independent producers which compete in selling their production on the Wholesale Electricity Market (MEM) or under private contracts with other parties in the MEM. The transmission sector is organized on a regulated basis which requires transmission companies to operate, maintain and provide to third parties access to their transmission systems and are authorized to charge a toll for the transmission services. Transmission companies are forbidden from generating or distributing electricity. Distribution covers the transfer of electricity from the transmitters’ supply points to the users. Distribution companies operate as geographic monopolies, providing the service to almost all users within a specific region. Distributors’ tariffs therefore are regulated and the companies are subject to specified quality service . While distribution companies can acquire from the MEM at seasonal prices or under contracts with generating companies the electricity they need to meet their demand, all prefer to buy electricity in the MEM as they are only allowed to transfer to final customers the seasonal prices that reflect the average energy spot price. The Argentine electricity dispatch system, like that in Chile, is designed to ensure that the least expensive electricity reaches the consumer. The National Interconnected System (NIS) coordinates the generation, transmission and distribution of electricity. Generating companies sell their electricity to distribution companies, energy traders and large users in the competitive MEM under freely negotiated contracts or on the spot market at prices set by the Compañía Administradora del Mercado Mayorista Eléctrico S.A. (CAMMESA) which is responsible for the operation of the MEM. All the generating companies that are in the common NIS fund operate in the MEM. Distribution companies, energy traders and large users that have supply contracts with the generating companies pay the contractual price. The large users that contract directly with the generating companies also pay to the distribution companies a toll for the use of their distribution network. The seasonal price is that paid by distributors for the electricity obtained in the common fund and is a fixed price that CAMMESA updates every six months and adjusts every three months, and that the Secretary for Energy approves according to supply, demand, available capacity and other factors. The spot price is that paid to generating companies, or paid by the energy traders that sell generating capacity, for the energy dispatched under the administration of CAMMESA and for the capacity that CAMMESA requires for maintaining adequate reserves. The hourly spot price paid for energy reflects the marginal cost of generation. 40 | Annual Report 2006 GENERATION Plant Costanera Type Installed Capacity Plant Arroyito Type Installed Capacity Plant El Chocón Type Installed Capacity Thermal 2,319 MW Hydro 120 MW Hydro 1,200 MW CÓRDOBA MENDOZA ROSARIO BUENOS AIRES NEUQUÉN DISTRIBUTION Edesur Energy Sales Clients Energy Losses 14,837 GWh 2,195,914 10.5% Annual Report 2006 | 41 ELECTRICITy BUSINESS By COUNTRy ELECTRICITY GENERATION Enersis participates in electricity generation in Argentina In Argentina, other generators connected to the NIS include through Endesa Chile and its subsidiaries Endesa Piedra del Águila, Puerto, San Nicolás, Paraná, Alicura, Costanera and El Chocón, with a total installed capacity Genelba, Pichi Picún Leufú and TermoAndes. of 3,639 MW. It has five plants, two of which are hydroelectric and three thermal. ENDESA COSTANERA Enersis indirectly holds 38.5% of the share capital of 2,319 MW is steam-gas thermal and uses natural gas, fuel Costanera and 28.5% of El Chocón. oil and diesel oil as fuel for generating. Located in the city of Buenos Aires, its installed capacity of In 2006, the Group’s Argentine generating plants represented Its capacity represented around 10% of the total installed 15% of the installed generating capacity of the Argentine capacity on the MEM as of December 2006. electricity grid. Total electricity generation in Argentina was 104,341 GWh is the largest of its kind in Argentina, and can operate with in 2006, 11% more than in 2005, and our market share in natural gas and diesel. Its 1,138 MW steam plant can operate terms of generation was approximately 13%. with natural gas or fuel oil. The combined cycle II plant of 859 MW of Endesa Costanera Of our total generation, hydroelectric represented almost The net generation of Endesa Costanera was 8,709 GWh, 37%, higher than in 2005 as this year was relatively wet. 3.7% more than the year before. Physical energy sales of the Group in Argentina were CHOCÓN 13,926 GWh in 2006, of which 98% was generated by our Located in the provinces of Neuquén and Río Negro, its facilities. installed capacity of 1,320 MW is hydroelectric from an artificial reservoir that uses the waters of the Limay and As of December 2005, Endesa Costanera and El Chocón Collón Curá rivers. have shareholdings in two new companies, Termoeléctrica Manuel Belgrano S.A. and Termoeléctrica José de San Its capacity represented around 5% of the total installed Martín S.A., created to construct new generating facilities capacity on the MEM as of December 2006. in connection with FONINVEMEM. Enersis and Endesa Chile also participate in the transmission year enabled the company to break its generation record and sale of electricity in Argentina through their related established in 2001 (4,502 GWh), with a total of 5,041 GWh companies, Compañía de Transmisión del Mercosur S.A. in 2006, 28% higher than the previous year. The continued favourable hydrological conditions of last (CTM), the owner of the Argentine side of the interconnection line with Brazil, CIEN, and CEMSA, a trading company that has signed contracts with generators in Argentina for exporting electricity from Argentina to Brazil and Uruguay. 42 | Annual Report 2006 ELECTRIC DISTRIBUTION Enersis participates in electricity distribution in Argentina It provides an electricity service to 2,195,914 customers, through its subsidiary Edesur. 1.4% more than the year before. Of the total, 86.8% are residential customers, 11.6% commercial, 1.2% industrial Enersis directly and indirectly holds 65.4% of the share and 0.4% other customers. capital of Edesur. Edesur has an exclusive concession for the distribution of its end customers, representing a 5.8% increase over 2005. electricity within a concession area for a period of 95 years This was distributed 38.2% to the residential sector, 26.5% from August 31, 1992. The concession consists of an initial to the commercial sector, 10.3% to industry and 25.0% to During 2006, energy sales amounted to 14,837 GWh to period of 15 years and eight additional periods of 10 years others. each. Energy losses declined by 10.5% in 2006. The concession contract obliges Edesur to supply electricity at the request of the owners or inhabitants of properties within Regarding the tariff situation, with the publication in the its concession area, meet certain quality standards regarding Argentine Official Gazette of Decree 1959/06 of the National the electricity supplied, meet certain operational requirements Executive Power, the renegotiation agreement minutes that regarding the maintenance of the distribution assets, and bill Edesur and the Public Utilities Contracts Renegotiation Unit customers on the basis of effective metering. signed on February 15, 2006 were ratified. The market share of Edesur in terms of physical sales was Edesur will therefore receive an increase in its remuneration 17% in 2006. for the first time since the devaluation of 2001, amounting to 28% and applicable to all tariff categories except for Tariff Other distributors participating in the Argentine electricity 1 Residential. system include Empresa Jujeña de Energía (EJESA), Empresa de Distribución de Energía de Tucumán (EDET), The coming into Effect of this Agreement is an important Empresa Distribuidora de Energía de Santiago del Estero event in the process of re-composition of the Company’s (EDESE), Empresa Distribuidora y Comercializadora economic-financial equation as it not only permits the first Norte (EDENOR) and Empresa de Distribución de la Plata increase in the remuneration of Edesur but establishes the (EDELAP). EDESUR realization of a later Integral Tariff Revision that will enable the Company to achieve a successful renegotiation of its Contract. The principal objective of Edesur is to distribute and commercialize electricity in the southern part of the city of Buenos Aires, comprising two-thirds of the Federal Capital region and twelve districts of the province of Buenos Aires. Its concession area covers 3,309 km2. Annual Report 2006 | 43 ELECTRICITy BUSINESS By COUNTRy BRAZIL 44 | Annual Report 2006 INDUSTRY STRUCTURE The Brazilian electricity industry is organized in a large interconnected electricity system called the National Interconnected System (Brazilian NIS), which is comprised of electricity companies in most of the regions and a small, isolated system in the northern region. Generation, transmission, distribution and supply businesses are separated by law. Under the present regulatory framework, the principal regulatory authority in the Brazilian electricity industry is the União, acting through the Ministry of Mines and Energy, which has exclusive authority over the electricity sector through its concessionary and regulatory powers. The regulatory policies for the sector are implemented by the National Electricity Agency (ANEEL), established in accordance with Law 9,427/96. During recent years, the Brazilian electricity industry has suffered many changes and transformations. In March 2004, federal laws 10,847 and 10,848 established a new model for the electricity sector in Brazil. The new model intends to offer reduced tariffs to the customer and ensure the expansion of the system, within EPE (Energy Inquiry Company), a state entity responsible for the planning of generation and transmission activities, which defines two spheres of contracting: the free and the regulated environments. As part of the regulations of the new model, the contracting of energy by distributors for supplying their regulated customers should be done through a centralized bidding process. Another important change imposed on the sector is the separation of the bidding process for “existing energy” and “energy from new projects”. The plants in existence prior to 2000 are considered as “existing energy” plants and those completed after 2000 are “energy from new projects” plants. The new model also established the separation of sector activities to prevent distributors from participating in generation, transmission and in other companies. The first tender took place in December 2004 in which the energy that the existing generating plants were going to produce was contracted with the distributors for periods of five to eight years, and the first tender for energy to be produced at future plants was held in December 2005. The concessions law establishes three kinds of modifications regarding the tariff in the supply of energy to end customers: the annual tariff setting, the ordinary tariff correction and the extraordinary tariff correction. GENERATION Plant Fortaleza Type Installed Capacity Thermal 322 MW Plant Cachoeira Dourada Type Hydro Installed Capacity 658 MW DISTRIBUTION Ampla Energy Sales Clients 8,668 GWh 2,316,251 Energy Losses 21.9% Coelce Energy Sales Clients 6,769 GWh 2,543,257 Energy Losses 13.0% TRANSMISSION CIEN Installed Capacity Energy Sales 2,100 MW 6,394 GWh BELEM FORTALEZA SALVADOR BRASILIA GOIANIA RiO DE JANEIRO SAO pAULO Annual Report 2006 | 45 ELECTRICITy BUSINESS By COUNTRy ENDESA BRASIL Enersis participates in Brazil through Endesa Brasil. Enersis Enersis also par ticipates in the transmission and began to consolidate Endesa Brasil in October 2005, with a commercialization of electricity through an interconnection direct and indirect shareholding of 53.6%. line between Argentina and Brazil, through CIEN. The objective of the reorganization of all the assets in Brazil CACHOEIRA DOURADA was to simplify the organizational structure, thus permitting Located in the state of Goias, 240 km. south of Goiania, its greater efficiency, transparency in the flows and stability of installed capacity of 658 MW is pass-through hydroelectric local cash flows by being managed centrally, and thus reduce and uses the waters of the Paranaiba river for generation. financing costs. In addition, to improve the financing by third parties and lastly to strengthen the Group’s positioning in Its capacity represented approximately 0.7% of the total considering new investment opportunities. installed capacity on the NIS as of December 2006. ELECTRIC GENERATION The net generation of Cachoeira was 4,241 GWh, 19% more Enersis participates in electricity generation in Brazil through Endesa Brasil and its subsidiaries Cachoeira Dourada and FORTALEZA POWER PLANT than in the previous year. Endesa Fortaleza, with two plants, one hydroelectric and Located in the district of Caucaia, 50 km. from the capital of one thermal, with a total installed capacity of 980 MW. the state of Ceará, it is a combined-cycle thermal plant of 322 MW that uses natural gas and diesel-oil for generation. In 2006, the hydroelectric generation plant contributed approximately 1% of the installed capacity of the NIS. Its capacity represented around 0.3% of the total installed capacity on the NIS as of December 2006. Enersis directly and indirectly holds 53.4% of the share capital of Cachoeira Dourada and 53.6% of Endesa Fortaleza. The gross generation was 248 GWh, 28% below the level Total electricity generation in Brazil was 416,343 GWh in 2006, 4% more than in 2005, and our market share in of 2005. CIEN generation was approximately 1%. This company permits the export and import of electricity The Group’s hydroelectric generation represented almost transmission lines with a total installed capacity of 2,100 94% of total generation in 2006. MW which cover a distance of approximately 500 km., from between Argentina and Brazil, in either direction. It has two Rincón Santa María in Argentina to Itá in the state of Santa The Group’s physical sales of energy in Brazil were 13,276 Catarina in Brazil. GWh in 2006, of which 33% was own generation. CIEN’s energy sales in 2006 were 6,394 GWh. Other generators connected to the NIS include CHESF, Furnas, Cemig, Electronorte, Cesp, Copel, Eletrobras and Eletropaulo. 46 | Annual Report 2006 ELECTRIC DISTRIBUTION Enersis participates in electricity distribution in Brazil through The DAT network was introduced to 112,092 customers this Endesa Brasil and its subsidiaries Ampla and Coelce. year. At December, 361,952 customers were connected, the objective being to reach 500,000 in the next few years. Enersis directly and indirectly holds 69.9% of the share capital of Ampla and 34.9% of Coelce. Regarding the tariff situation, the average tariff adjustment for Ampla was defined on March 13, with an increase The market share of our subsidiaries in Brazil, in terms of of 2.9%. physical sales, was approximately 4%. COELCE The other electricity distributors in Brazil include CPFL, This is the electricity distribution company of the state of Brasiliana de Energía, AES Elpa, Cemig, Light, Coelba, Ceará, in north-east Brazil, and covers a concession zone and Copel. AMPLA of 148,825 km2. The company serves a population of more than seven million people. This is an electricity distribution company that covers 73.3% The customers of Coelce number 2,543,257, of which 79.4% of the area (32,054 km2) of the state of Rio de Janeiro. The are residential, 5.6% commercial, 0.3% industrial and 14.7% population of the area is around eight million living in 66 other sectors. districts, the principal ones being Niteroi, São Gonçalo, Petrópolis, Campos and the coastal area of Los Lagos. Energy sales to December 2006 were 6,769 GWh, 2.9% higher than in 2005. Of this total, 32.1% was to residential It provides an electricity service to 2,316,251 customers, customers, 18.5% to commercial, 17.3% to industrial and 4.5% more than the previous year. Of these, 89.7% are 32.1% to other customers. residential, 7.1% commercial, 0.3% industrial and 3.0% other customers. During 2006, the company sold 8,668 GWh to its end Total energy losses showed a significant improvement, reducing from 14.0% in 2005 to 13.0% in 2006. customers, representing a 6.0% increase over 2005. Of this, Regarding the tariff situation and as defined in the 38.2% was sold to residential customers, 10.6% to industrial, concession contract, supply tariffs were adjusted by 10.0% 18.5% to commercial and 32.7% to other customers. on April 22, 2006. In April 2007, Coelce will be subject to the second tariff revision cycle as foreseen in the distribution The fight against energy losses obtained positive results services concession contract. in 2006, reaching the objective of containing the natural increase in the loss ratio due to the aggressiveness of the market. In terms of energy losses, these have fallen by 2.5%, from 22.4% in December 2005 to 21.9% in December 2006. Annual Report 2006 | 47 ELECTRICITy BUSINESS By COUNTRy CHILE 48 | Annual Report 2006 INDUSTRY STRUCTURE The Chilean electricity sector is regulated by three government entities that are responsible for the application of and compliance with the law: the National Energy Commission (CNE), which has the authority to propose the regulated tariffs (node prices) and to prepare indicative plans for the construction of new generating units; the Superintendency of Electricity and Fuels (SEC), which regulates and checks compliance with the laws, regulations and technical standards for electricity generation, transmission and distribution, liquid fuels and gas; and the Ministry of the Economy which revises and approves the tariffs proposed by the CNE and regulates the granting of concessions to electricity generating, transmission and distribution companies, following a report from the SEC. According to the Chilean electricity law, generating companies have to coordinate their operations through the Economic Load Dispatch Center (CDEC) in order to operate each electricity grid at the lowest cost while preserving service security. The CDEC therefore plans and carries out the grid’s operation, including the calculation of the marginal cost, the price of energy transfers between generators. From a physical point of view, the Chilean electricity sector is divided into four electrical systems: SIC (the Central Electricity System), SING (the Northern Electricity Sistem), and two minor isolated systems in Aysén and Magallanes. The SIC, the principal electricity grid, is 2,400 km long, from Taltal in the north to Quellón, on the island of Chiloé, in the south. With an installed capacity of 8,561 MW as of December 2006, the system is mainly hydroelectric, with 58% of the total, while thermal generation contributes 42%. Peak demand on the SIC in 2006 was 6,064 MW and sales were 38,259 GWh, representing an increase of 7%. The SING covers the north of the country, from Arica to Coloso in the south, covering some 700 km. This system, with an installed capacity of 3,611 MW as of December 2006, is predominantly thermal. Peak gross generation on the SING in 2006 was 1,774 MW and energy sales were 12,027 GWh, representing an annual increase of 4%. Regarding the tenders for long-term supplies carried out in 2006, Endesa Chile and Chilectra were able to successfully carry out their commercial commitments. It is expected that during 2007, the energy tender processes imposed by the authority will continue. ANTOFAGASTA SANTIAGO TALCA LINARES CONCEpCIÓN GENERATION Plant Tarapacá Type Installed Capacity Plant Atacama Type Installed Capacity Plant Tal - Tal Type Installed Capacity Thermal 182 MW Thermal 751 MW Thermal 245 MW Plant Diego de Almagro Type Installed Capacity Thermal 47 MW Plant Huasco Type Installed Capacity Plant Los Molles Type Installed Capacity Plant San Isidro Type Installed Capacity Plant Rapel Type Installed Capacity Plant Sauzal Type Installed Capacity Plant Sauzalito Type Installed Capacity Plant Cipreses Type Installed Capacity Plant Isla Type Installed Capacity Thermal 80 MW Hydro 18 MW Thermal 379 MW Hydro 377 MW Hydro 77 MW Hydro 12 MW Hydro 106 MW Hydro 68 MW Plant Curillinque Type Installed Capacity Plant Loma Alta Type Installed Capacity Plant Pehuenche Type Installed Capacity Plant Bocamina Type Installed Capacity Plant Abanico Type Installed Capacity Plant Antuco Type Installed Capacity Plant El Toro Type Installed Capacity Plant Ralco Type Installed Capacity Plant Pangue Type Installed Capacity Hydro 89 MW Hydro 40 MW Hydro 566 MW Thermal 128 MW Hydro 136 MW Hydro 320 MW Hydro 450 MW Hydro 690 MW Hydro 467 MW DISTRIBUTION Chilectra Energy Sales Clients 12,377 GWh 1,437,381 Energy Losses 5.4% Annual Report 2006 | 49 ELECTRICITy BUSINESS By COUNTRy ELECTRIC GENERATION Enersis participates in electricity generation in Chile through Endesa Chile and its subsidiaries, the largest electricity PEHUENCHE company in the country in terms of installed capacity. It is Located in Chile’s 7th Region, 60 km to the east of Talca, its also involved in engineering services. installed capacity of 695 MW is hydroelectric, with a reservoir that uses the waters of the Melado river and waters from the Enersis directly holds 60% of the share capital of discharge of the Loma Alta plant, for its generation. Endesa Chile. The net generation of Pehuenche was 4,346 GWh, 7% Endesa Chile and its subsidiaries Pehuenche, Pangue, San more than the year before. Isidro and Celta, own and operate a total of 22 generating plants in Chile, 14 of them hydroelectric and 8 thermal plants PANGUE using coal, oil or natural gas, with a total installed capacity Located in Chile’s 8th Region, 100 km to the east of Los of approximately 4,477 MW, representing 37% of Chile’s Angeles, its installed capacity of 467 MW is hydroelectric, total installed capacity. with an artificial reservoir that uses the waters of the Bío-Bío The total electricity generation in Chile was 53,595 GWh in 2006, 6% more than in 2005, and our market share in The net generation of Pangue was 2,432 GWh, 9% more terms of generation was around 37%. than the previous year. river for generation. The Group’s hydroelectric generation represented 86% of SAN ISIDRO total generation in 2006. Located in Chile’s 5th Region, 8 km from Quillota, its installed capacity of 379 MW is thermal in combined cycle, using The Group’s physical energy sales in Chile were 20,923 natural gas and fuel oil for generation. GWh in 2006, of which 94% were own generation. The net generation of San Isidro was 802 GWh, 32% more Endesa Chile supplies electricity to the principal regulated than the previous year. distributors, large unregulated industrial companies (mainly in the mining, wood-pulp and steel-making sectors) and on CELTA the spot market. Located in Chile’s 1st Region, 65 km from Iquique, its installed capacity of 182 MW is steam-gas thermal, using The most important supply contracts of Endesa Chile with coal and oil for generation. regulated customers refer to its contracts with Chilectra and CGE, the two largest distributors in Chile, and with The net generation of Celta was 751 GWh, 96% more than unregulated customers like Codelco and Inforsa, among the previous year. others. Other generators connected to the Chilean electricity grid include AESGener, Colbún, Electroandina, Edelnor and Norgener, among others. 50 | Annual Report 2006 ELECTRIC DISTRIBUTION Enersis participates in electricity distribution in Chile through During 2006, the company sold 12,377 GWh to its end its subsidiary Chilectra. customers, representing a 4.4% increase over 2005. This was distributed 27.3% to the residential sector, En e r s i s d i r e c t l y h o l d s 9 9 % o f t h e s h a r e c a p i t a l 24.8% to commercial, 25.7% to industrial and 22.0% to of Chilectra. other sectors. According to Chile’s tariff regulations covering the activities of Chilectra bought 13,088 GWh of energy during 2006 from electricity distributors, the service area of Chilectra is mainly various generators which included AES Gener, 31.8%, defined as one of high density and includes all the residential, Endesa Chile, 32%, Colbún, 31.1% and others, 5%. commercial, industrial, state customers and those that pay tolls, plus Compañía Eléctrica del Río Maipo S.A.. The Chilectra continued with its efforts to control energy losses Santiago Metropolitan Region is a densely-populated area in 2006, these being 5.4% at the end of 2006. and has the largest concentration of industries, industrial parks and commercial installations in Chile. Regarding the tariff situation, Chilectra does not foresee The market share of Chilectra, in terms of physical sales, was 44%. any changes until 2008. As a result of the “Short Law II”, Chilectra periodically makes open tenders for energy purchases in order to cover its Other distributors participating in the Chilean electricity customers’ long-term energy needs. system include Empresa Eléctrica de Arica S.A.,Empresa Eléctrica de Aysén S.A., Empresa Eléctrica EMEL S.A, On April 18, 2006, Chilectra together with Empresa Eléctrica Compañía Eléctrica del Río Maipo S.A., Sociedad Austral de Puente Alto Ltda., Empresa Eléctrica de Colina Ltda., de Electricidad S.A., Empresa Eléctrica de la Frontera S.A., Luz Andes Ltda. and Empresa Eléctrica Municipal de Til Compañía General de Electricidad S.A. and Luz Andes Ltda., Til, began a tender process for the supply of energy and among others. CHILECTRA capacity for supplying their regulated customers for the period 2009 - 2020. The tender contemplated a total of 4,500 GWh annually, which contracts were awarded on November Chilectra is the largest electricity distribution company in 10, 2006. Chile in terms of energy sales. It covers 33 districts of the Metropolitan Region and its concession zone covers an area On September 27, Chilectra, together with the companies of 2,118 km2, including those of Empresa Eléctrica Colina mentioned in the previous paragraph, began a second tender Ltda. and Luz Andes Ltda. process for the supply of energy and capacity for supplying their regulated customers for the period 2011 - 2025. The It provides an electricity service to 1,437,381 customers, tender contemplated a total of 6,000 GWh annually, which 2.4% more than the year before. Of the total, 89.6% contracts are expected to be awarded in August 2007. corresponds to residential customers, 8.0% to commercial, 0.8% to industrial and 1.5% to other customers. With the tenders mentioned, Chilectra has covered its contracted demand until 2010. Annual Report 2006 | 51 ELECTRICITy BUSINESS By COUNTRy COLOMBIA INDUSTRY STRUCTURE The Colombia Electricity Law establishes certain principles for the industry which are implemented by resolutions published by the Electricity and Gas Regulation Committee (CREG) and other electricity regulatory entities. Prior to the publication of that law, the Colombian electricity sector was heavily vertically integrated. The law separately regulates the generation, transmission, commercialization and distribution (the “Activities”). Any Colombian or international company can participate in any of the Activities, but their participation has to be exclusively limited to one of the Activities, although commercialization may be combined with generation or distribution. The companies that were vertically integrated when the law came into effect can continue to participate in all the Activities in which they participated prior to the effective date of the law, but have to keep separate accounting for each activity. The Ministry of Mines and Energy defines government policies for the energy sector. Other entities that also play an important role in the electricity industry are the Superintendence of Public and Residential Services (SSPD), the CREG and the Mining and Energy Planning Unit. The only interconnected electricity system in Colombia is the National Electricity Grid (Colombian NIS), formed by the generating plants, interconnection network, regional and inter-regional transmission lines, distribution lines and the electricity loads of the users. The generating sector is organized on a competitive basis in which generating companies sell their production on the spot market in a common energy fund known as the Energy Exchange at the spot price or through private long-term contracts with certain market participants and unregulated users at freely-negotiated prices. Purchases and sales of electricity are carried out through bilateral transactions which can be made between generators, distributors, traders and unregulated customers. However, the CREG has been working since 2004 on a proposal to modify contracting procedures in the Colombian market, to becoming an Electronic Contracting System. 52 | Annual Report 2006 DISTRIBUTION Codensa Energy Sales Clients 10,755 GWh 2,138,497 Energy Losses 8.9% BARRANQUILLA MEDELLIN BOGOTA CALI NEIVA GENERATION Plant El Guavio Type Installed Capacity Plant Termozipa Type Installed Capacity Plant La Guaca Type Installed Capacity Plant Charquito Type Installed Capacity Plant La Junca Type Installed Capacity Plant Tequendama Type Installed Capacity Plant Limonar Type Installed Capacity Plant Paraiso Type Installed Capacity Plant La Tinta Type Installed Capacity Plant Cartagena Type Installed Capacity Plant Betania Type Installed Capacity Hydro 1,163 MW Thermal 236 MW Hydro 325 MW Hydro 20 MW Hydro 20 MW Hydro 20 MW Hydro 18 MW Hydro 277 MW Hydro 20 MW Thermal 142 MW Hydro 541 MW Annual Report 2006 | 53 ELECTRICITy BUSINESS By COUNTRy ELECTRIC GENERATION Enersis participates in electricity generation in Colombia Other generators connected to the Colombian electricity through Endesa Chile and its subsidiaries Emgesa grid include Empresa Pública de Medellín, Isagen, Corelca, and Betania, with a total of eleven plants, nine of them EPSA and Chivor, among others. hydroelectric and two thermal, with a total installed capacity of 2,779 MW. EMGESA Enersis indirectly holds 14.1% of the share capital of Emgesa Colombia, located close to the city of Bogotá. It has ten This is the largest electricity generating company in and 60.0% of Betania. plants with a total capacity of 2,238 MW, among which is the El Guavio 1,163 MW plant, the largest hydroelectric plant In 2006, the generating plants accounted for 21% of the in Colombia. It has just one steam-coal thermal plant which country’s total installed capacity. uses coal for generation. Total electricity generation in Colombia was 52,340 GWh Its capacity represented around 17% of the total installed in 2006, 4% more than in 2005 and our market share, in capacity of the Colombian grid at December 2006. terms of generation, was approximately 24%. The net generation of Emgesa was 10,360 GWh, 6% more The Group’s hydroelectric generation represented 97% of the than the year before. total generation in 2006.Our physical generation depends on the reservoir water levels and annual rainfall. BETANIA Apart from the hydrology conditions, generation depends on MW is hydroelectric, with an artificial reservoir fed by the our commercial strategy. The Colombian electricity market waters of the Magdalena, Páez, Yaguará and other rivers, Located 340 km south of Bogotá, its installed capacity of 541 is less regulated than the markets of the other countries in for generation. which we operate. Companies are free to offer their electricity at the price determined by market conditions, instead of being Its capacity represented around 4% of the total installed obliged by a centralized operator entity to generate electricity capacity of the Colombian grid at December 2006. according to the system’s minimum marginal costs. The net generation was 2,204 GWh, 5% more than the The Group’s physical energy sales in Colombia year before. were 15,327 GWh in 2006, of which 81% was from own generation. 54 | Annual Report 2006 ELECTRIC DISTRIBUTION Enersis participates in electricity distribution in Colombia Provides electricity services to 2,138,497 customers, 3% through its subsidiary Codensa. more than in 2005. Of the total, 88.6% are residential, 9.6% Enersis directly and indirectly holds 21.7% of the share capital of Codensa. commercial, 1.7% industrial and 0.2% other customers. During 2006, energy sales were 10,755 GWh to its end customers, representing an increase of 6.6% over 2005. Since 2001 Codensa has provided services to regulated These were distributed 35.9% to residential, 14.6% customers only . More than 9.5 million people, or around commercial, 6.0% industrial and 43.5% to other sectors. 20.7% of the Colombian population, live in the service area of Codensa. Codensa acquired 41% of its energy in 2006 from Emgesa, a generator controlled by Endesa Chile, and 59% from Codensa’s market share, in terms of physical sales, other suppliers. was 23%. Other distributors participating in the Colombian electricity 2006. Loss management is focused on metering, seeking system include Empresa de Energía Cundinamarca, greater effectiveness from loss inspections. Suburb EEPP Medellín, Electrificadora de la Costa Atlántica and electricity networks were also standardized through Electrificadora del Caribe, among others. ‘micropimt’ programs. Energy losses were reduced from 9.4% in 2005 to 8.9% in CODENSA Regarding the tariff situation, Codensa began to obtain The company contributes and sells electricity in Bogotá and remuneration for its high-tension assets associated with the in 96 districts of the departments of Cundinamarca, Boyacá Chía substation, whose additional revenues were received and Tolima, comprising an area of 14,087 km2. by the company from January 1, 2006. Bogota City, Colombia Annual Report 2006 | 55 ELECTRICITy BUSINESS By COUNTRy PERU 56 | Annual Report 2006 INDUSTRY STRUCTURE The regulatory framework of the Peruvian electricity industry is similar to the Chilean one. In Peru, the Ministry of Energy and Mines defines the policies of the energy sector and regulates matters related to the environment. It is also responsible for the granting, supervision and expiry and termination of licenses, permits and concessions for generating, transmission and distribution activities. Other entities that play an important role in the electricity industry are the Energy Investment Supervisory Organism (OSINERG) and the System Economic Operation Committee (COES). Some of the most relevant features of the regulatory framework applicable to the Peruvian electricity sector are: (i) the vertical disintegration or separation of the three principal activities: generation, transmission and distribution; (ii) freedom of prices for the supply of energy on competitive markets and a regulated price system based on efficiency principles, and (iii) the private operation of the electricity interconnection systems subject to principles of efficiency and service quality. The Peruvian electricity sector consists of just one main grid system, the National Electricity Grid (SEIN), plus many isolated and smaller regional systems that provide electricity to rural areas. Some technical standards were introduced in October 1997 to compare service quality and conditions provided by electricity companies. Effective October 1999, those companies not complying with the minimum quality standards are subject to fines and tax surcharges by the OSINERG, apart from the compensation mechanisms for customers whose service did not meet the standards. The Tariff Regulation Management is the executive arm of Osinerg, responsible for proposing to its directive council the electricity tariffs, and tariffs for the transportation of liquid hydrocarbons and natural gas by pipeline, according to the criteria set out in the Electricity Concessions Law and the regulations applicable to the Hydrocarbons sub-sector. The methodology used for dispatch and price setting for generators in Peru is practically the same as that used in Chile. At the transmission level, lines are divided into two systems, the principal and the secondary, and electricity distribution tariffs are set on the basis of voltage levels. GENERATION Plant Huinco Type Installed Capacity Plant Matucana Type Installed Capacity Plant Callahuanca Type Installed Capacity Plant Moyopampa Type Installed Capacity Plant Huampani Type Installed Capacity Plant Santa Rosa Type Installed Capacity Plant Ventanilla Type Installed Capacity Plant Yanango Type Installed Capacity Plant Chimay Type Installed Capacity Hydro 247 MW Hydro 129 MW Hydro 75 MW Hydro 65 MW Hydro 30 MW Thermal 229 MW Thermal 457 MW Hydro 43 MW Hydro 151 MW DISTRIBUTION Edelnor Energy Sales Clients Energy Losses 4,874 GWh 951,560 8.2% CHICLAyO TRUJILLO LIMA CUZCO AREQUIpA Annual Report 2006 | 57 ELECTRICITy BUSINESS By COUNTRy Power Plant Ventanilla, Peru ELECTRIC GENERATION Enersis participates in electricity generation in Peru through copper and gold production, which in turn reflect the higher Endesa Chile and its subsidiary Edegel, with a total of nine prices of those metals on the international markets. plants with a installed capacity of 1,426 MW. Enersis indirectly holds 19.8% of the share capital in Peru, the competition can be considered to be all the of Edegel. generators connected to this system. As the SEIN is the only interconnected transmission system In 2006, our hydroelectric and thermal generating plants Other generators connected to the Peruvian electricity grid accounted for 30% of the country’s total installed capacity. include Electroperú and Egenor, among others. Total electricity generation in Peru was 24,763 GWh in The market share of Edegel in terms of physical sales was 2006, and our market share, in terms of generation, was 30% in 2006 and contracted sales represented 91% of total approximately 27%. physical sales and spot market sales the remaining 9%. The Group’s hydroelectric generation represented 63% of EDEGEL the total generation in 2006. This company is located close to the city of Lima. It has nine plants with a total capacity of 1,426 MW, two of which are The Group’s physical energy sales in Peru were 6,766 thermal plants that use gas as their generating fuel. GWh in 2006, of which 96% was from own generation. The growing demand in Peru is partly due to the mining sector, The net generation of Edegel was 6,662 GWh, 48% higher whose increased electricity requirements reflect the growing than in the previous year. 58 | Annual Report 2006 ELECTRIC DISTRIBUTION Enersis participates in electricity distribution in Peru through Edelnor provides electricity services to 951,560 customers, its subsidiary Edelnor. of which 93.7% are residential, 4.3% commercial, 0.1% industrial and 1.9% other customers. The number of Enersis directly and indirectly holds 33.5% of the share customers increased by 27,000 in 2006. capital of Edelnor. Physical energy sales in 20 0 6 were 4,874 GWh , Edelnor is the electricity service concession holder for the representing a 7.6% increase over 2005 as a result of northern part of Metropolitan Lima and the province of Callao, increased demand in the country. Of the total energy as well as the provinces of Huaura, Huaral, Barranca and sold, 36.3% relates to residential, 25.9% industrial, 18.9% Oyón. It serves 52 districts exclusively and shares in another commercial and 18.9% other customers. 5 districts with the distribution company for the southern part of the zone. Edelnor’s concession mainly includes Edelnor in 2006 bought energy mainly from Electroperú Lima’s industrial zone and some densely-populated parts (52.4%), Edegel (19.9%), Egenor (14.5%), Cahua (5.9%) of the city. and Eepsa (4.0%). Edelnor’s market share, in terms of physical sales, was Energy losses at December 2006 were 8.2%. approximately 30%. Other participants in Peru’s electricity distribution system an amendment to the Electricity Concessions Law, seeking include Luz del Sur, Electro Sur, ENOSA, ENSA and to ensure the efficient development of electricity generation. Regarding the tariff situation, Congress approved in 2006 Hidrandina, among others. EDELNOR The regulation thus accepts practically all the proposals of the Ministry of Energy and Mines and of Osinerg concerning tenders for long-term energy contracts with distributors, the The concession zone granted to Edelnor covers a total area planning of energy transmission and the restructuring of of 2,440 km2, of which 1,838 km2 relate to northern Lima the COES with the participation of independent and fully- and Callao. dedicated directors. Annual Report 2006 | 59 OTHER BUSINESSES 60 | Annual Report 2006 SyNApSIS Synapsis Soluciones y Servicios IT Ltda. is an information supporting business processes; the integration of services technology (IT) professional services company. With and products, and services of development, implementation more than 19 years’ experience, it has positioned itself and maintenance of information systems; construction and as a Latin American leader in the field of IT solutions, development of IT solutions for highly-available and complex mainly in the services, energy, telecommunications and business processes. government markets. Located in Santiago, Chile, it has offices in the principal years toward companies that are un-related to Enersis, cities of the region: Buenos Aires in Argentina; Rio de this source last year providing a third of the company’s The company has developed a policy of growth in recent Janeiro, Fortaleza and a commercial office in Sao Paulo, in revenues. Brazil; Bogotá in Colombia and Lima in Peru, thus providing coverage of a large part of the Latin America. Synapsis continued with its growth strategy in 2006, obtaining important new contracts and outsourcing renewals, The most important areas of the business of Synapsis in the areas of consulting and in the development of relate to outsourcing and infrastructure services, data software solutions, and made significant investments like centers, contact centers, mass printing, remote services the completion of the construction of the company’s data- applications (ASP), and advice and implementation of processing center in Fortaleza, Brazil, and the renovation solutions in telemetries, remote control, security and location of data-storage infrastructure in the processing centers in of vehicles and telecommunications; consultancy in the Chile, plus investment in the development of Synapsis’s search for and implementation of technological solutions for human resources. Annual Report 2006 | 61 OTHER BUSINESSES MANSO DE VELASCO CAM Inmobiliaria Manso de Velasco Ltda. focuses its business Compañía Americana de Multiservicios Ltda. (CAM) on real-estate development projects. During 2006, it made focuses its business on providing integral, mass and multi- important progress in the urbanization and sale of its principal service solutions, mainly in operations related to the field of project in the industrial sector (ENEA) and completed the measurement, large works, market discipline, distribution Puerto Pacífico residential project. and commercialization network works and materials and equipment logistics. In addition, there is the Tapihue Project which contemplates plots corresponding to land associated with the Tapihue, The parent company in Chile and its subsidiaries in Amancay (Plot B) and La Petaca farms. Argentina, Brazil, Colombia and Peru, have consolidated a regional presence, successfully expanding its customer The business of Manso de Velasco also includes managing portfolio in the electrical, sanitation, gas, industrial, mining a total of 33,985 m2 of construction corresponding to office and telecommunications sectors. buildings and commercial offices which are mainly rented to related companies and other parties. CAM obtained its ISO 9001:2000 certification for all its subsidiaries, thus complying with the corporate objective of cultivating a culture oriented to quality, based on the commitment to achieve organizational efficiency and continuous improvement. CAM was awarded contracts for US$77 million in 2006, of which US$45 million is business with third party customers and US$32 million with related companies. 62 | Annual Report 2006 DIRECT AND INDIRECT ECONOMIC INTEREST (*) ARGENTINA Costanera El Chocón Edesur Cam Argentina Gasoducto Atacama Argentina Synapsis Argentina CTM TESA CEMSA Business Gx Gx Dx Ox Ox Ox Tx Tx Tx Ownership 38.5% 28.5% 65.4% 100.0% 30.0% 100.0% 53.6% 53.6% 27.0% Endesa Brasil Cachoeira Dourada Fortaleza Ingendesa Brasil Cam Brasil Synapsis Brasil Ampla Coelce CIEN BRASIL Business Gx, Dx, Tx Gx Gx Ox Gx Ox Dx Dx Tx Ownership 53.6% 53.4% 53.6% 60.0% 100.0% 100.0% 69.9% 34.9% 53.6% CHILE COLOMBIA Endesa Chile Celta Pangue Pehuenche San Isidro Chilectra Gasoducto Atacama Chile Gasoducto Tal Tal Electrogas Ingendesa Túnel El Melón Cam Synapsis Inmobiliaria Manso Velasco Transquillota Business Gx Gx Gx Gx Gx Dx Ox Ox Ox Ox Ox Ox Ox Ox Tx Ownership 60.0% 60.0% 57.0% 55.6% 60.0% 99.1% 30.0% 30.0% 25.5% 60.0% 60.0% 100.0% 100.0% 100.0% 30.0% Emgesa Betania Codensa Synapsis Colombia Business Gx Gx Dx Ox Ownership 14.1% 60.0% 21.7% 100.0% Edegel Edelnor Synapsis Perú Cam Perú PERÚ Business Gx Dx Ox Ox Ownership 19.8% 33.5% 100.0% 100.0% Gx: Generation Tx: Transmission / Trading Dx: Distribution Ox: Pipelines and Others (*) It considers operating companies of the Group. Annual Report 2006 | 63 (cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:214)(cid:210)(cid:65)(cid:192) OTHER BUSINESSES ENERSIS GROUp STRUCTURE (cid:37)(cid:78)(cid:68)(cid:69)(cid:83)(cid:65)(cid:192) (cid:45)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:192)(cid:48)(cid:76)(cid:65)(cid:67)(cid:69)(cid:192)(cid:51)(cid:14)(cid:33)(cid:14) (cid:17)(cid:21)(cid:14)(cid:16)(cid:16)(cid:5) (cid:25)(cid:25)(cid:14)(cid:25)(cid:25)(cid:17)(cid:5) (cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:214)(cid:210)(cid:65)(cid:192)(cid:33)(cid:77)(cid:69)(cid:82)(cid:73)(cid:67)(cid:65)(cid:78)(cid:65)(cid:192) (cid:68)(cid:69)(cid:192)(cid:45)(cid:85)(cid:76)(cid:84)(cid:73)(cid:83)(cid:69)(cid:82)(cid:86)(cid:73)(cid:67)(cid:73)(cid:79)(cid:83)(cid:192)(cid:44)(cid:84)(cid:68)(cid:65)(cid:14) (cid:35)(cid:33)(cid:45) (cid:16)(cid:14)(cid:16)(cid:16)(cid:25)(cid:5) (cid:25)(cid:25)(cid:14)(cid:25)(cid:25)(cid:25)(cid:25)(cid:23)(cid:5) 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(cid:33)(cid:82)(cid:71)(cid:69)(cid:78)(cid:84)(cid:73)(cid:78)(cid:65)(cid:192)(cid:51)(cid:14)(cid:33)(cid:14) (cid:51)(cid:85)(cid:67)(cid:85)(cid:82)(cid:83)(cid:65)(cid:76)(cid:192)(cid:33)(cid:82)(cid:71)(cid:69)(cid:78)(cid:84)(cid:73)(cid:78)(cid:65) (cid:16)(cid:14)(cid:17)(cid:18)(cid:18)(cid:22)(cid:5) (cid:25)(cid:25)(cid:14)(cid:25)(cid:25)(cid:23)(cid:23)(cid:16)(cid:22)(cid:5) (cid:16)(cid:14)(cid:16)(cid:16)(cid:17)(cid:17)(cid:20)(cid:23)(cid:5) (cid:39)(cid:65)(cid:83)(cid:33)(cid:84)(cid:65)(cid:67)(cid:65)(cid:77)(cid:65)(cid:192)(cid:51)(cid:14)(cid:33)(cid:14) (cid:17)(cid:16)(cid:16)(cid:5) (cid:37)(cid:78)(cid:69)(cid:82)(cid:71)(cid:69)(cid:88)(cid:192)(cid:35)(cid:79)(cid:14) Annual Report 2006 | 67 RISK FACTORS 68 | Annual Report 2006 Power Plant Betania, Colombia Enersis is an investment society which assets correspond hiring about the 70% of the capacity, reducing the exposure mainly to the investment made through its subsidiaries. In to sudden variations in the spot market during the periods order to face our liabilities, we depend on the dividends, of water scarcity. credits payment of interests, capital reductions and other payments in cash that we receive from our subsidiaries, in If any of the regulatory authorities would impose a rationing addition to our own capital stock and borrowing capacity. policy resulting from the extremely adverse hydrological conditions in the countries where we operate, the business Given the nature of our business, as well as the geographical and financial condition, as well as the operating incomes diversity of our investments, there are different factors that might be affected. However, the above mentioned conditions might, eventually, threaten the stability of our business in are permanently monitored by the business areas of each some of the countries where we operate. company in order to avoid the negative effects coming from those circumstances. However, the vast experience in the electrical business in the Region trained us to search and apply all the possible In Argentina, the low price imposed by the regulatory preventive measures aiming at avoiding or minimizing authorities in natural gas had a direct effect on production contingencies or damages that might be motivated by and investment in the natural gas deposits, which affected, in external issues beyond our control. turn, the availability of this fuel in the long and medium term in Chile. The scarcity of natural gas may oblige the electricity Even though usually the risk factors appear combined or generating companies to use the most expensive fuel oil, have correlated effects, only for the Annual Report herein which would increase significantly the production costs. we offer the following principal structure: OPERATING / COMMERCIAL RISK together with a low level of investments in the electrical A strong demand of electricity in the central region of Chile, sector, make this particular area in Chile to be exposed to A significant part of the business of some of the above the adverse effects of the Argentinean natural gas crisis. mentioned subsidiaries depend on the hydrology conditions of the area where they operate, and thus, the eventual drought ECONOMICAL – FINANCIAL RISKS conditions can have a negative impact in Enersis’ profitability. Nearly 64% of our consolidated generating capacity in Latin The ability of subsidiaries to pay dividends, interests, and America is hydroelectric. Therefore, adverse hydrological credits or make any other distributions is subject to certain conditions may have a negative impact in the business and legal limitations such as contractual restrictions, and in the operating income. exchange controls that might be imposed in any of the five countries in which our subsidiaries have operations, and During dreught periods, the electricity produced from thermal depends, besides, on its operating income. electricity plants is dispatched more frequently; this includes the electricity coming from those generating plants that use Furthermore, the results of Enersis’ subsidiaries and affiliates natural gas, fuel oil and coal as fuel. Our operating costs depend on the macroeconomic conditions of countries in rise during those periods and, according to the scope of which they operate. The growing rate of the product and the the commitments engaged, it is possible that we have to variation of the intensive added economic activity in electrical purchase electricity to third parties in order to accomplish consumption, have a great impact on the demand of energy with the energy committed. The cost of these purchases and, consequently, over the sales ratio. Likewise, inflation, in the spot market may exceed the agreed price, causing exchange rate and interests rates are important elements therefore losses. Thus, our generating companies have in determining the operating incomes of companies. In that developed a wise business policy which consists basically in sense, even though the spread of flows in five countries in Annual Report 2006 | 69 RISK FACTORS two lines of business constitutes a natural protection, the POLITICAL/REGULATORY RISKS Enersis Group uses financial products aimed at reducing the eventual impact of dramatic changes in the exchange Considering that most of the generation and distribution and interest rates. business constitute regulated activities, these are exposed to changes in the regulations and tariffs made by the The method in which we value the company’s overseas authorities of the different countries where our subsidiaries investments, according to the Chilean GAAP, forces us to and affiliates operate. These may, in fact, impact on the convert the non monetary assets and liabilities of our non company’s revenues. Chilean subsidiaries and related companies to the US dollar, at historical exchange rates. Due to this accounting system, In addition, the operating subsidiaries are subject to it is possible that the balance sheet being reported does not environmental regulations. At this respect, it is important to include the effect of a devaluation of our non monetary assets underline the permanent concern and commitment of the in the countries where our subsidiaries and investments are Enersis Group in this matter. In fact, each project must have located, as the devaluation of the local currencies against a rigorous environment impact study as essential background the US dollar or the Chilean peso are not reflected. In of its global evaluation. Subsequently, they are submitted fact, in order to reduce the impact of the appreciations or before the authorities in order to fully satisfy the institutional devaluations of local currencies against the US dollar, it is and legal requirements demanded by each country. being promoted to denominate, on the merits of the case, the debt of the subsidiaries in local currency. Likewise, given the enforcement of the supply in concession Finally, Enersis has debt subject to financial covenants and our activities may be subject to regulatory fines for failing other standard contractual restrictions related to the maximum to comply with any of the regulations currently in force, ratios on debt levels in cash flows, debt-EBITDA, debt-equity including failures in the energy supply or problems related areas, and as electric power is considered a basic input, and cash flow ratios related to the financial cost. A significant to its quality. part of Enersis’ debt contains cross-default clauses that may usually result in its anticipated payment when other debts Some Latin American economies where Enersis have amounted in more than 30 million dollars, individually, are not investments undergone drastic and occasional interventions paid. In case our creditors claim the immediate acceleration from the government authorities. For example, the of the payment of obligations, a significant part of our Argentinean authorities have implemented a series of indebtedness would become overdue. measures for monetary and exchange control that affected negatively the operating income and that could continue However, the above mentioned situation has been balanced having a negative impact. by the current financial strength of Enersis, which resulted in overdraft lines without any restriction for its withdrawal. Even though the above mentioned risks are hard to anticipate, Enersis is permanently monitoring the legal, juridical and Finally, the permanent concern of the management, in terms regulatory situation of that sector in order to evaluate the of having a strong balance and a solid financial situation tendencies that might result, in those cases, unfavorable has been clearly ratified by the risk rating Agencies which, for the business of the group in the region. unanimously, raised Enersis ranking or its expectations. 70 | Annual Report 2006 ACTIVITIES OF THE COMpANy Annual Report 2006 | 71 ACTIVITIES OF THE COMpANy FINANCIAL ACTIVITIES LOCAL FINANCES As of December 2006, the Enersis Group had a total financial In November 2006, the market capitalization of Enersis debt of 6,951 million dollars. Of this, 3,857 million dollars exceeded 10 billion dollars for the first time. was of Endesa Chile consolidated and 3,094 million dollars of Enersis and its foreign subsidiaries. This debt was mainly In November 2006, the Yankee bond of Enersis matured, for composed of bank debt and locally- and internationally- 300 million dollars, which was financed from the available issued bonds. revolving credit facility. With this, the amount drawn as of TOTAL DEBT Enersis Individual Endesa Chile Individual Other Generation Companies Other Distribution Companies Total (MMUS$) ENERSIS INDIVIDUAL Banks International Bonds Local Bonds Total (MMUS$) ENDESA CHILE INDIVIDUAL Banks International Bonds Local Bonds Total (MMUS$) Dec / 06 1,147 2,378 1,526 1,900 6,951 315 766 66 1,147 185 1,866 327 2,378 December was 315 million dollars. In December 2006, Enersis and Endesa Chile signed new revolving credit facilities for 200 million dollars each, without Material Adverse Effect clauses for drawings. The facilities are for a 3-year term and serve to increase the companies’ liquidity. The interest rate is Libor+25 bps. The same month, and partly due to the flexibility provided by these facilities, the credit-rating agency Moody´s improved its ratings for Enersis and Endesa Chile to Baa3, thus restoring investment grade status by the three rating agencies that evaluate the Company. The financial debt as of December 2006 shows an increase over December 2005 mainly due to the consolidation of the Peruvian generating company Etevensa-Edegel. INTERNATIONAL FINANCES Chile During 2006, the foreign subsidiaries of the Enersis Group In January 2006, Endesa Chile signed a new 5-year credit have continued to refinance their debt to improve its facility for 200 million dollars at an interest rate of Libor+30 pricing conditions and term, taking advantage of the better bps. This financed the repayment of the Yankee bond for macroeconomic and industry conditions. They have also 300 million dollars that matured in April. continued to seek financing in local currency and at longer term, to the extent that their operating cash flows are in those In July 2006, the domestic bond of Endesa Chile, for currencies and that the market conditions are reasonable. approximately 200 million dollars, matured which was financed from the company’s own cash flow. Consequently, the year 2006 saw refinancing transactions like new issues for the equivalent of around 1,616 million In June 2006, the generating companies Edegel (a dollars, of which 202 million dollars were in Argentina, 935 subsidiary of Endesa Chile) and Etevensa (a subsidiary of million dollars in Brazil, 326 million dollars in Colombia and Endesa Internacional) were merged, causing an increase in 153 million dollars in Peru. consolidated debt of approximately 150 million dollars. 72 | Annual Report 2006 Particularly notable were the following transactions: Perú Argentina Edelnor placed domestic bonds for a total equivalent to 53 million dollars with terms of between 3 and 10 years, used El Chocón obtained a 5-year bank loan for 100 million dollars to refinance debt. Edelnor also contracted interest-rate to refinance all its financial debt. Edesur refinanced bank swaps for 25 million dollars. Edegel managed to refinance debt repayments for approximately 50 million dollars with short-term bank debt at 3 years for 44 million dollars. It also a local-currency syndicated loan with a 3.5-year term. The issued domestic bonds for a total of 25 million dollars with company also refinanced a bank loan for around 17 million terms of between 4 and 7 years. These issues were used dollars for 3 years. These transactions have permitted the to refinance debt maturing during the year and were made continuation of the plan to lengthen the average life of the on more attractive pricing conditions. debt in Argentina. Brasil COVERAGE POLICIES CIEN refinanced debt for approximately 280 million dollars Exchange rate with a local-currency syndicated loan, for a 6-year term The Group’s exchange rate hedging policy in based on with 3 year’s grace. Ampla issued domestic debentures cash flows and is intended to maintain a balance between at a 6-year term for approximately 173 million dollars, to dollar-indexed flows and the level of assets and liabilities in refinance bank debt, and signed an agreement with Bndes that currency. During 2006, Enersis, in consolidated terms, for the equivalent of 140 million dollars at a 5.5-year term to contracted exchange rate swaps for approximately 175 million finance investments. All these facilities have enabled Ampla dollars, which enabled it to maintain a level of dollar debt to reduce the cost of its debt and lengthen its maturities. meeting its expected flows in that currency. Fortaleza obtained financing led by the International Finance Corporation (IFC) for approximately 130 million dollars for 10 This policy also sets mis-matching accounting limits years to refinance debt, and also contracted an interest-rate for Enersis and Endesa Chile consolidated for which it swap for approximately 22 million dollars. Coelce contracted occasionally needs to contract short-term cover. During an exchange rate swap for 50 million dollars, permitting 2006, the Company contracted forwards for approximately the transformation of a dollar debt into local currency, and 236 million dollars. Following the actions taken during the signed two loan agreements for a total of approximately 90 year, the levels of accounting mis-matches remained within million dollars to finance investments. At the Endesa Brasil the limits set in the Company’s policies. level, notable was the incorporation of IFC as a shareholder, contributing 50 million dollars, equivalent to 2.7% of the Interest Rates share capital. Colombia The Group’s policy consists of maintaining an interest-rate coverage level, corresponding to most-protected fixed-rate debt, of around 70%. During 2006, as the Group companies Regarding the generating subsidiaries, Betania managed to have refinanced part of their original fixed-rate debt with refinance a loan with a group of banks for 120 million dollars floating-rate debt, they have contracted interest-rate swaps in local currency for 7 years and to issue a domestic bond for and collars for approximately 267 million dollars, reaching 56 million dollars for 5.5 years, achieving a spread below the a coverage of 71.3% as of December 2006. sovereign credit rating of Colombia at the time of placement. Emgesa refinanced debt with bank loans for approximately Every time that debt is prepaid, the associated hedging 60 million dollars. On the other hand, Codensa drew short- instruments are liquidated in order not to keep those without term bank loans for approximately 90 million dollars. an assigned underlying obligation. Annual Report 2006 | 73 ACTIVITIES OF THE COMpANy CREDIT RATING PROPERTIES AND INSURANCES The perception of Enersis risk has been declining in The Company is the owner of some equipment and recent years. This has been confirmed by the national and substations in Chile’s Metropolitan Region. The Company international credit-rating agencies, which have raised their has insurance cover for risks like fire, lightning, explosions, ratings of the Company during the year. malicious acts, earthquake, flooding, landslides, etc. In May, Fitch improved its rating of Enersis from BBB- to BBB TRADEMARKS with stable outlook, reflecting a sustained improvement in The Company has registered its trademarks and slogans the Group’s finances. Enersis, Chispazos, Dixsa, EnersisPLC and Internet at the In December, Moody’s raised its ratings of Enersis and its subsidiary Endesa Chile from Ba1 to Baa3, with stable outlook. This new rating permits both companies to recover speed of light Enersis PLC. HUMAN RESOURCES investment grade from all the different rating agencies. The Human Resources Management has carried out various activities related to internal Corporate Social Responsibility In December also, Standard & Poor’s placed the BBB- rating (CSR), including: of Enersis in revision, with positive implications, reflecting a potential change as a result of the improvement in the Activities with employees: Company’s debt-service ratio and its financial flexibility. • Cycle of talks with parents called “Work and the Family” The rating tendency of all the international agencies is on how to reconcile work with the family. positive, the consequence of the better financial profile, • Anti-sedentar y courses organized by the Joint the good business performance, favorable changes in the Committee, exercises at the work-place, ergonomic Chilean regulatory framework, the solid competitive position campaigns and formation of safety at home. in the different countries where the Group operates, the • Inter-company sports olympics. given by the philosopher Carolina dell’ Oro, to reflect growing demand for electricity in the region, etc. Further improvements in these trends could also result in new Family activities: positive actions in the Company’s credit rating. • Dance, spor ts, physical exercise and painting KIND OF DEBT Local Currency Foreign Currency Tendency FITCH BBB BBB Stable STANDARD & POOR’S BBB- BBB- Possitive MOODY’S - Baa3 Stable INSTRUMENT Shares Bonds Tendency FITCH 1st Class Level 1 A+ Stable FELLER RATE 1st Class Level 1 A+ Possitive workshops. • Recreational programs and summer camps for employees’ children during their summer and winter vacations. • Prizes for academic excellence to employees’ children who obtain the best marks in the corresponding teaching period, in basic, secondary and tertiary education. • Activities for employees’ children: Christmas party and Paint Christmas. 74 | Annual Report 2006 Development based on skills and according to the needs of SOCIAL RESpONSIBILITy each group of workers: • • Senior management programs for managers. CULTURE Advanced management program for professionals, with participation of 75% of the professionals of all the Company’s areas (the remaining 25% carried ILLUMINATING CHURCHES AND MONUMENTS THE SOUTH OF THE WORLD out the program at the end of 2005). Its purpose was Enersis, together with its subsidiaries Endesa Chile and to update knowledge and provide tools on the basis Chilectra, and Fundación Endesa, have been carrying out of new management trends in matters like strategy, this program since 2000, modernizing the ornamental lighting and political, economic, technological and social of churches and monuments, thus providing great support responsibility areas. for the conservation of the cultural heritage. • “Diploma in International Accounting Standards” for standardizing the technical skills of staff working in the During 2006, eight buildings were illuminated in Chile, financial areas of the business. including churches, cathedrals and monuments. Projects benefiting in the Santiago Metropolitan Region were the Continuing with the skills management processes, the Moneda Palace Cultural Center, the Santiago Cathedral objective this year was to check the generic and technical crypt, and the Evangelical Cathedral of Santiago. In the skills identified the year before and measure the adaptation of rest of Chile, these were the church of San Agustín de people to the requirements of each job. As a result, policies Concepción, the Naval Museum in Valparaiso, Los Ángeles will be developed in 2007 in formation and development Cathedral, the Los Ángeles Cultural Center and cross, the oriented to reducing the gaps identified in the process. Santa Clara de Pucón Monastery, the Castrence Cathedral T h e f o r m at i o n p r o g r a m s d eve l o p e d du r i n g 2 0 0 6 totaled 14,500 hours of training, distributed as follows: DONATION OF LIBRARIES 6% for managers, 50% for professionals and 44% for Enersis, jointly with El Mercurio newspaper has provided and the Virgen de las Rosas, Santiago. administrative staff. four thousand books thanks to a reinforcement campaign to support the culture of communities that are remote from urban centers. Another two new municipal libraries were donated in 2006 to benefit children and young people in Cochrane, in Chile’s 11th Region, and Mincha, in the 4th region. Annual Report 2006 | 75 ACTIVITIES OF THE COMpANy THE LAST PATHS OF THE HUEMUL BOOK SPONSORSHIPS Enersis sponsored the book “The last paths of the huemul”, published by the Fundación San Ignacio del Huinay and With the sponsorship of Enersis, an exhibition of the Chilean describing in detail the research and gathering of information painter Matías Movillo, called ‘Unjustified Painting’, was given on the huemul (a Chilean deer in danger of extinction). This at Isabel Aninat Gallery, Santiago, between June 27 and scientific-technical work summarizes the life of this animal July 30. Enersis also sponsors on a monthly basis cultural through the work of well-known field photographers in activities organized by the municipality of Vitacura which various locations in Chile like Chillán, the Tamango National are free of charge for residents. These include theatre Reserve, Cerro Castillo, Río Simpson National Reserve, productions, painting exhibitions and musical concerts. Bernardo O`Higgins National Reserve and Torres del Paine. In the same municipality, the Company participated in the The authors also describe 30 years of effort by a handful of creation of a library so that residents of Villa Comunitaria El academics, conservationists and game-keepers in trying to Dorado can have greater access to reading. The company avoid the extinction of this deer. also sponsors the “Cultural Panorama” program, given four times a day on Radio Beethoven. MONUMENTAL LIGHTING The “Illuminating monuments in the south of the World” EDUCATION program was recorded in a second book edited by Enersis that reflects the work of the Fundación Endesa and DIGITAL “CIEL” companies in the Enersis Group in the program for the Enersis has designed a web site of Information on Electricity illumination of churches and monuments. This quality edition (CIEL) so that Chilean children and young people can learn explains the delicate and complex work of beautifying and about electricity, according to the depth of learning required renovating religious buildings through the modernization of by the Ministry of Education. The site is presented in a playful their lighting, and this time has an appendix consisting of way, segmented to suit the age and school level of visitors a compact disc with all the photographs of the illuminated and is accessed directly from Enersis’s web site. churches and monuments under this initiative in Spain, Chile, Colombia, Peru and the Dominican Republic. 76 | Annual Report 2006 UNIVERSIDAD DE CHILE SCHOLARSHIPS and foundations that clearly carry out activities for the Enersis, jointly with its subsidiaries Endesa Chile and public good and that have good reputations within Chile. Chilectra, signed an agreement with the Economics and The beneficiaries include: Business Management Faculty of the Universidad de Chile to grant scholarships to students and professors in Hogar De Cristo: This institution seeks to give dignified commercial engineering and auditing. The scholarship for shelter to the very poorest people, inviting and involving students consists of the equivalent of the annual tuition fees, the community in its social responsibility with society’s poor while the award for the best professor takes the form of the and excluded. The Group companies, together with volunteer financing a scholarship for study or improvement in Chile employees, took part in the 1+1 campaign for helping the or abroad. SOCIETY Los Patroncitos creche and kindergarten (in the Estación Central district of Santiago), which looks after more than 30 children. CHRISTMAS FOR CHILDREN UNDER SOCIAL RISK Fundación Las Rosas: Fundación las Rosas has for 38 More than 55 thousand children between 5 and 12, from years been concerned about poor and disabled old people 189 institutions that care for children at social risk take part in Chile. It is currently looking after 2,400 old people in 40 in a Christmas party held in December organized by the homes throughout the country. Enersis made a significant Chilean government. This party is the most important artistic contribution to the development of this institution’s and cultural event held annually for these children, who see activities. a top-level show and enjoy an evening of recreation and relaxation. Enersis collaborates with the transportation of Paz Ciudadana: This entity contributes to reducing the children and the safety plan. delinquency through technical collaboration in the formulation CONTRIBUTIONS TO FOUNDATIONS AND INSTITUTIONS FOR THE PUBLIC GOOD of policies and the development and transfer of work tools. Fundación Miguel Kast: This institution was created in As an important party in Chilean society, Enersis contributes commemoration of the former minister of that name in order with sponsorships of and donations to different institutions to work in overcoming poverty. Annual Report 2006 | 77 ACTIVITIES OF THE COMpANy REGIONAL CONFERENCES AWARDS Enersis sponsored another cycle of conferences in ten of During 2006, Enersis was recognized in various areas Chile’s largest cities, organized by Diario Financiero, to of its internal and external affairs, receiving the following encourage economic, political and social debate in various awards: regions of the country. Each conference attracts an audience of some 200 leaders of opinion, including the businessmen, CITY PRIZE OF THE FUNDACIÓN FUTURO politicians and academics of each region. The Company Fundación Futuro awarded the Company its ‘City’ prize for also sponsors conferences organized by the Estrategia its outstanding work through its support for the enhancement newspaper jointly with the central bank, to explain that bank’s and improvement of the quality of life in the city of Santiago economic reports throughout the country. Other panellists through its program ‘Illuminating Churches in the South of the were also invited to complement the central bank’s reports World’, which for six years has been enriching and giving new with the views of economists and academics. life to religious buildings and different monuments. The prize- winning ceremony was attended by well-known personalities CSR SEMINAR FOR UNIVERSITY STUDENTS from the academic and cultural worlds. For the third consecutive year, Enersis sponsored the corporate social responsibility seminar organized by Acción RSE, called “Chile commits Chile learns. Is Chile seizing BEST COMPANIES FOR WORKING MOTHERS AND FATHERS sustainable development?” for 600 university students from Enersis received the distinction as one of the ten best Chile’s most prestigious universities. The theme for the companies for working mothers and fathers in Chile, meeting was the contribution to sustainable development of according to an annual survey made by Fundación Chile the new professionals, the role of companies and the World Unido jointly with Ya magazine and El Mercurio newspaper, Business Council for Sustainable Development (WBCSD) in which over 400 companies throughout the country were in today’s world and “from cup to lip”, real CSR business evaluated. This is the first time that Enersis has participated cases in Chile. FRIENDS OF THE PRADO MUSEUM FOUNDATION in this survey which involves an exhaustive evaluation of the practices, benefits and flexibilities offered by a company to its employees and their children, who answered the respective The principal art works of Velázquez, Goya, El Greco and survey. The prize-winning ceremony was attended by the Rubens are part of the Prado Museum collection brought President of Chile, Michelle Bachelet. to Chile through a series of interactive talks at 26 schools in Santiago, where more than five thousand students enjoyed a cultural presentation of excellence at no cost to them. CHILEAN SAFETY ASSOCIATION (ACHS) JOINT ACTION This had the sponsorship of Enersis, Endesa Chile and Enersis´s joint committee was awarded the Chilean Safety Chilectra, was organized by the Friends of the Prado Museum Association Joint Action prize at the XXXII Annual Safety Foundation and was also appreciated by the employees of Meeting, for its efficiency and excellent management of the Group companies. prevention and safety. The award was made in recognition of the various initiatives taken by the committee in internal and external safety matters, including training in the defensive driving of vehicles, alcoholism and drug-addiction programs, and the anti-sedentary campaign “Energy is Life, Live it”. 78 | Annual Report 2006 ESSENTIAL FACTS Annual Report 2006 | 79 ESSENTIAL FACTS CONSOLIDATED ESSENTIAL FACTS Senn, and Mr. Patricio Claro Grez. In compliance with that established in Circular Nº 1.526 of the SVS (Chilean Securities and Exchange Commission), it is informed that ENERSIS S.A. (PARENT COMPANY ) the Director, Mr. Patricio Claro Grez was elected by votes distinct from those of the controller, its members, or any Dividends related persons. As agreed upon in the General Ordinary Shareholder’s Meeting held on March 21st, 2006, agreement was reached Next, the Directors Committee designated as President Mr. to pay a final dividend Nº 73 of 60% of the liquid Company Pablo Yrarrázaval Valdés, and as Secretary Mr. Domingo profits, which is $0.9651 per share, rounded off to the closest Valdés Prieto. whole number, the result of which is $ 1.00 per share. Also the Board of Enersis S.A., in compliance with that This represents a disbursement reaching M$ 32,651,166 provided in the Company’s Social Statutes, in the session charged to the results of December 31, 2005. held on March 29th 2006, the new members of the Audit The aforementioned modifies the effect of the dividend policy of the Sarbanes Oxley Law of the United States of America. on this subject, which provided a proposed disbursement of The Audit Committee of Enersis S.A. is composed of Mr. a final dividend of 50% of the liquid Company profits. Juan Ignacio de la Mata Gorostizaga, Mr. Rafael Español Committee were designated, a body created by the demands For this reason, a minimum obligatory dividend of $ 0.48256 the requirements provided in the Sarbanes Oxley Law and Navarro, and Mr. Hernán Somerville Senn, all of whom fulfill will be paid, and an additional dividend of $ 0.51744 per its complementary norms. share, which together make up the Definitive Dividend Nº 73. Finally, it is important to inform that the Board has designated Mr. Rafael Español Navarro as Financial Expert of the Changes in the Board mentioned Audit Committee. In the Board Meeting held on March 29th, 2006, Mr. Pablo Yrarrázaval Valdés was elected as President of the Board MERGER ELESUR - CHILECTRA and the Company, and Mr. Rafael Miranda Robredo was elected as Vice President, and Mr. Domingo Valdés Prieto The Extraordinary Shareholders General Meeting of the as Secretary. As a result, the Board elected in the General subsidiaries Elesur S.A. (called Chilectra S.A. as of 31.03.06) Ordinary Shareholder’s Meeting on the 21st of March is and Chilectra S.A., both held on the 31st of March 2006, established as follows: Pablo Yrarrázaval (President) Rafael Miranda (Vice President) Juan Ignacio de la Mata Rafael Español Hernán Somerville Eugenio Tironi Patricio Claro informs that it has been agreed upon by the shareholders of each company that, among other things, Elesur S.A. and Chilectra S.A. shall merge by the absorption of the last by the first, Chilectra being the merged company or absorbed by Elesur S.A. the absorbing company, merging its agencies in the Cayman Islands, which is Chilectra S.A. Cayman Islands Agency, the one which is absorbed, and Elesur S.A. Cayman Islands Agency the one that absorbs the former. Domingo Valdés (Secretary) Due to the merger, Chilectra S.A. will dissolve, incorporating itself into Elesur S.A. so that the shareholders of Chilectra Likewise, in the aforementioned Board Meeting the S.A. will become shareholders of Elesur S.A. a product designation of the Directors Committee established in Article of its capital increase and the exchange of corresponding 50 Bis of Law 18.046, was carried out, which is made up shares acquired by Elesur S.A. the totality of the assets of Mr. Pablo Yrarrázaval Valdés, Mr. Hernán Somerville and liabilities of Chilectra S.A., conceding all of its rights, 80 | Annual Report 2006 permits and obligations. Likewise as a result of the merger, all of the assets and liabilities of Chilectra S.A. Cayman 1. To approve the financial statements and balance Islands Agency shall be incorporated and acquired by Elesur audits as of the 31st of December 2005, for Chilectra S.A. Cayman Islands Agency, which shall take over all of S.A. and Chilectra S.A. (former Elesur) for the the rights and obligations of Chilectra S.A. Cayman Islands purpose of the merger and submit these to respective Agency. The legal effects of the merger will occur as of April Shareholder’s Meeting for the merger’s approval. 1st, 2006. The exchange conversion will be to the amount Copies of the aforementioned will accompany said of 3.0337 shares of Elesur for each share of Chilectra S.A. presentation. According to current accounting regulations Elesur S.A. will recognize as of March 31, 2006, an accountable profit of near 2. Bring forth the expert report regarding the economic Ch$100,000 million, for the right to compensate future taxes value of the Chilectra S.A. and Chilectra S.A. (former with tributary losses from previous fiscal years. Enersis S.A. Elesur) equity, and the results of the exchange through the consolidation of this subsidiary will take in to its equation for shareholders of said company’s, to Financial Statements on that date the accountable profit inform and for the approval of, the Extraordinary proportional with its participation. General Shareholders Meeting. A copy expert report for the merger is attached to the present Change of Administration communication. In the session held on October 25th, 2006, the Board received and accepted the resignation of the General Manager, Mr. 3. Approval of absorbent company’ by-laws, namely Mario Valcarce Durán, effective as of October 26th, 2006, Chilectra S.A. (former Elesur) and other modifications and the said Board, in the same meeting has designated Mr. that the Board of Directors of the aforementioned Ignacio Antoñanzas Alvear as General Manager, who will company will propose to shareholders in light of the assume his duties on October 26th, 2006. merger. Interim Dividend 4. Set up a Extraordinary General Shareholders Meeting In the session held on November 29th, 2006, the Board for Chilectra S.A. to take place March 31, 2006 at agreed to declare an Interim Dividend Nº 74 of $ 1.11 per 3:00 pm , in the Chilectra S.A. Auditorium, located share, dated December 26th, 2006, charged to the results on Santa Rosa street, N° 76, mid level, Santiago; of the fiscal year 2006, which corresponds to 14.91% of the the object of said Shareholders Meeting is to get the liquid profits calculated on October 31st, 2006, in compliance shareholders acquainted with the following topics: with the Company’s dividend policy. CHILECTRA S.A. Merger of Companies a. Study and approve the merger of Chilectra S.A. with Chilectra S.A. (former Elesur S.A.) and its respective foreign agencies; whereby Chilectra S.A. will be absorbed by Chilectra S.A. (former a. The Chilectra S.A. Board of Directors adopted the Elesur) and Chilectra Cayman Islands Agency, following agreements, dated February 27, 2006, with the absorbed by Chilectra S.A. (former Elesur) aim of suggesting to shareholders, the eventual merger Cayman Islands Agency as of April 1, 2006. (by absorption) of Chilectra S.A. with Chilectra S.A. The assets and liabilities as also the rights and (former Elesur S.A.), with their registered agencies in obligations pertaining to Chilectra S.A. will be the Cayman Islands, whereby the former will be dissolved absorbed and legally continued by Chilectra S.A. and totally incorporated into the latter, including the (former Elesur) through the merger. Further, the hole equity of Chilectra S.A. in Chilectra S.A. (former entire Chilectra S.A. equity and shareholders Elesur), constituted in the Cayman Islands, will absorb pertaining will dissolve without the need for as well the agency of Chilectra S.A., constituted in the liquidation, and incorporated in Chilectra S.A. same place: (former Elesur) as stipulated in article 99 of Annual Report 2006 | 81 ESSENTIAL FACTS the Law N 18,046 regarding public companies. of Shareholder s M eeting dec isions, the Where the merger with Chilectra (former Elesur) authorization and subscription of instruments is approved, dissenting shareholders will have required to declare the merger and to perfect the right to retire in line with the stipulations in the transfer of total assets and liabilities from the aforementioned law. The right to retire could Chilectra S.A. to Chilectra S.A. (former Elesur be exercised by the shareholders within 30 days S.A.). Those shareholders that appear recorded from the date of the Extraordinary Shareholders in the shareholder registry of March 25, 2006 Meeting. have the right to participate in the aforementioned Shareholders Meeting. b. Study and approve the individual and consolidated financial statements and audited balance sheet of g. Approve that, where fractions of shares are the companies involved in the merger (prepared produced through the exchange of shares, December 31, 2005). minority shareholders of Chilectra with a fraction of an Elesur share, be given an entire share rather c. Study and approve the expert reports regarding than the fraction of a share that would correspond the merger, the exc hange equation and them, given the exchange relation. This would consequently, the number of shares that will be charged to the shares that corresponded to rightfully due to Chilectra S.A. shareholders, Enersis S.A. in the exchange (as Enersis is a following the incorporation of the total equity shareholder of Chilectra S. A.). of said company into Chilectra S.A. (former Elesur). The exchange equation of shares will be The positive effects estimated in the absorbed company’ put into effect within the shape and opportunity results will increase to approximately Ch$100,000 million, granted by the Chilectra (former Elesur) Board during the next years, mainly due to the optimization of of Directors. the tributary structure and the reductions in operating and financial expenses. In consideration of current d. In approving the merger through incorporation, to accounting norms, the central part of the aforementioned study and approve the by-laws of the absorbing sum, foreseeable corresponds to the optimization of the company (Chilectra, former Elesur), considering tributary structure, recognizable as accountable profit at the modifications that should be explained in the moment the merger is perfected. Despite this, the and approved by the Extraordinary General economic result associated with monetary effects will Shareholders Meeting of said company, as well extend over various exercises, as indicated below. as other statutory modifications the shareholders of Chilectra S.A. (former Elesur S.A.) could agree This measure has been taken before by the company, upon. given the impossibility of foreseeing precisely how the merged company’s profits will behave perform in future, e. Approve the dissolution of Chilectra S.A., that it would be considered for the annual quantification of he will take place without the need for liquidation, as economic result related to cash effects, that the merged consequence of the merger through incorporation company would behave in the future as it has been in the to Chilectra S. A. (former Elesur S. A.), as past. Under this hypothetical base, the merged company stipulated in article 99 of Law N 18,046 (regarding could quantify Ch$10,000 million per year, and as such, Public Company’s). the effect would extend for over approximately 10 years. The aforementioned effect will depend on factors such f. Adopt all agreements that may be necessary as the growth of demand, number of company’ clients, to complete the merger through incorporation, unitary consumption, applicable tariffs, human resources of Chilectra S.A. into Chilectra S.A. (former costs, operating and maintenance costs, financial Elesur S.A.). This includes: the certification expenses, interest rates, exchange rates, etc., and 82 | Annual Report 2006 therefore, also, the profit the company obtains through d. In the Extraordinary General Shareholders meeting dated each exercise. March, 31, 2006, the following was agreed: Regarding reductions in operating costs and financial 1. The merger of Chilectra S.A. (former Elesur S.A.) and expenses, it has been estimated that in each exercise Chilectra S.A. through the absorption of the latter by following the completion of the merger, the results of the the former, being Chilectra S.A. the absorbed and merged company will improve by Ch$820 million. This is Chilectra S.A. (former Elesur S.A.) the absorbent due to reduced fixed expenses (by Ch$240 million) and company, as also to merge the company agencies in reduced financial expenses (Ch$580 million). the Cayman Islands; where Chilectra S.A. Cayman Islands Agency will be absorbed be Chilectra S.A. b. A copy was sent to that Superintendence (on March 3, (former Elesur) Cayman Islands Agency. Due to 2006), of the expert report regarding the economic value the merger, Chilectra S.A. will be dissolved and of the equity of Chilectra S.A. and Chilectra S.A. (former incorporated into Chilectra S.A. (former Elesur S.A.), Elesur S.A.) as well as the determinations stipulated whereby shareholders of Chilectra S.A. will become in the exchange equation of shares pertaining to said shareholders of Chilectra S.A. (former Elesur) due companies. The aforementioned report was published to the increase in capital and the exchange equation on January 31, 2006, made by Mr. Eduardo Walker of the corresponding shares, assets, liabilities, rights Hitschfeld, and financed by Chilectra S.A. (former Elesur and obligations from Chilectra S.A to Chilectra S.A. S.A.). This expert report and the one financed by Chilectra (former Elesur). S.A. under equal expertise, published on the same date as the former, and sent to that Superintendence Likewise, due to the merger, the totality of the assets (as annex to the essential facts sent by Chilectra S.A. and liabilities of Chilectra S.A. Agencia Cayman on February 27, 2006), will be subject to the study and Islands will be incorporated and acquired by Chilectra approval of the Chilectra S.A. Extraordinary General S.A. (former Elesur S.A.) Agencia Cayman Islands Shareholders (aimed for March 31, 2006); said meeting which will take the place of Chilectra S.A. Agencia will mainly concern the merger between Chilectra S.A. Cayman Islands in all of its rights and obligations. and Chilectra S.A. (former Elesur S.A.). The effects of the merger will take place from April c. The merger through incorporation between Chilectra the 1st 2006. S.A. and Chilectra S.A. (former Elesur S.A.) will take 2. Approve the audited balances and f inancial effect since April 1, 2006, or as of the date stipulated in statements of Chilectra S.A. (former Elesur S.A.) and the company’s Extraordinary Shareholders Meeting. Chilectra S.A. on December 31, 2005, and the expert reports that formed the fundaments of the merger. The aforementioned was decided in the Chilectra S.A. Board of Directors Session N° 3 (of March 14, 2006), 3. Approve the by-laws of the absorbing company. whereby it was agreed to modify section (a) of Agreement N° 9/2006, adopted in Session N° 2 of the company’s 4. Approve that the absorbed company will be made Board of Directors (in February 27, 2006). responsible and is obliged to pay all the taxes due In the end, it was unanimously agreed to allow the necessary to give notice about end of business. Company Executive Officer to put the relevant notices, It also obliged to authorize the use of instruments citations and publications into effect, as also, to follow deemed necessary (specially mainly to facilitate the through with the other formalities (that proceed to carry certification, materialization and completion of merger out the necessary completion of any legal prerequisites) agreements) and to authorize and subscribe to the by the absorbed company, whereby it won’t be for the convening. instruments required to declare the merger has been carried out, and to perfect the transfer of the total Annual Report 2006 | 83 ESSENTIAL FACTS assets and liabilities associated to the company being 49,207,873 shares where recorded, totally subscribed absorbed into the absorbing company. to and paid for. Within the following days, Elesur S.A. will solicit that the company and its shares be recorded 5. To inform that, in accordance with the stipulations in in the Santiago Stock market. Articles 69 and 70 of Public Company Law 18,046, the approval of the merger by the Extraordinary 2. Record in the Santiago Stockmarket General Shareholders Meeting will concede the right Dated February 21, 2006, the company informed the for dissenting shareholders, to retire from Chilectra following: On February 21, 2006, the company Elesur S.A. and be paid the value of their shares. S.A. was recorded in the Bolsa de Comercio de Santiago Renewal of the Board of Directors and Committee of Directors stock market, whereby its shares where officially listed as of February 23 under the ticker ELESUR. In the Ordinary Shareholders Meeting dated March 21, 2006, 3. Board of Directors Agreements the designated Company Directors were: Dated February 23, 2006, the company informed the 1. Jorge Rosenblut Ratinoff. 2. José Manuel Fernández Norniella. 3. Hernán Felipe Errázuriz Correa. 4. Pedro Buttazzoni Alvarez. 5. Alberto Martín Rivals. 6. Marcelo Llévenes Rebolledo. 7. Antonio Cámara Eguinoa. following: On February 22, 2006, the Chilectra S.A. Board of Directors (former Elesur S.A.) adopted the following agreements with the aim of presenting to its shareholders, the eventual merger (by absorption) of Chilectra S.A. with Chilectra S.A. (former Elesur S.A.), with their registered agencies in the Cayman Islands, whereby the former will be dissolved and totally incorporated into the latter, including the hole equity of Chilectra S.A. in Chilectra S.A. (former Elesur), Also, in the Board of Directors Extraordinary Session constituted in the Cayman Islands, will absorb as well N° 4/2006 dated March 21, 2006, Mr. Jorge Rosenblut the agency of Chilectra S.A., constituted in the same Ratinoff was named President of the Board of Directors and place: Mr. José Manuel Fernándes Norniella was named Vice- President. Further, in said session Jorge Rosenblut Ratinoff, 1. Approve for effects or the merger, the Chilectra S.A. Hernán Felipe Errázuriz Correa and Alberto Martín Rivals and Chilectra S.A. (former Elesur S.A.) audited financial were named members of the Committee of Directors (as statements (as of December 31, 2005) that are relevant stipulated in the S.V.S Circular N° 1,526). to the merger, and submit these for approval by the Dividends Shareholders Meeting’s that will approve the merger. A copy of the aforementioned is attached to the present It was agreed upon in the General Ordinary Shareholders communication. Meeting dated March 21, 2006, that a definitive dividend of $10.00 per share will be distributed (charged to the 2005 2. Submit the expert report on the economic value of profits). the Chilectra S.A. (former Elesur S.A.) and Chilectra S.A. equity as well as the determinations stipulated CHILECTRA S.A. (FORMER ELESUR S.A.) in the exchange equation of shares pertaining to said 1. Records in the Value Registry company’s was published on January 31, 2006. The report was made by Mr. Eduardo Walker Hitschfeld, to the Dated February 14, 2006, the company informed about knowledge and under the approval of the Extraordinary the following: Dated February 13, 2006, the company General Shareholders Meeting so that they are aware Elesur S.A. was recorded in the Commercial Registry the merger. A copy of said expert report is attached to put into effect by the S.V.S. Also on the same date, the present communication. 84 | Annual Report 2006 3. A meeting will take place on March 31, 2006 in the 2. Approve the merger of Chilectra S.A. (former Elesur General Ordinary and Extraordinary Shareholders S.A.) and Chilectra S.A. through the absorption of Meeting’s of Chilectra S.A. (former Elesur S.A.) located in the latter, by the former, whereby Chilectra S.A. will the Auditorium (Santa Rosa N° 76, mid level, Santiago), absorbed by Chilectra S.A. (former Elesur S.A.) where the shareholders will get to know, and decide and Chilectra S.A. (former Elesur S.A.) will be the upon, the following items: absorbent company, as well as their Cayman Islands Agencies, where Chilectra S.A. Cayman Islands General Ordinary Shareholders Meeting of Chilectra S.A. Agency will be absorbed and Chilectra S.A. (former (former Elesur S.A.): Elesur) Cayman Islands Agency the absorbent company, as well as the rest of aspects and conditions 1. Approval of the Report, Balance, Financial Statements of the company. Due to the merger, Chilectra S.A. and Inquiries External Auditors corresponding to will be dissolved in order to incorporate to Chilectra exercises finalized on December 31, 2005. S.A. (former Elesur S.A.), so that shareholders of Chilectra, will become shareholders of Chilectra 2. Distribution of profits and distribution of dividends. S.A. (former Elesur). This is due to the increase in 3. Dismissal and election of the Board of Directors. shares, whereby Chilectra S.A. (ex Elesur) acquired capital, which corresponds to the exchange equation 4. Designation of the Committee of Directors, settling achieve it with regard to all its rights, obligations and their remuneration and the expenses related to the permits. With regard to the merger, the total assets, all assets and liabilities relating to Chilectra S.A. and function of the Committee. liabilities, obligations and rights relating the Chilectra S.A. Cayman Islands Agency will be incorporated 5. Report on Board of Directors expenses. and acquired by the Chilectra S.A. (former Elesur) Cayman Islands Agency. The effects produced by 6. Designation of Independent External Auditors. the Merger will take effect as of April 1, 2006. 7. Exposure of Company Policies regarding Dividends 3. Approve the following records which will be used as and information about the proceedings that are the fundament for the proposed merger: realized in the distribution of Dividends. 8. Information regarding Board of Director agreements Statements (as of December 31, 2005), audited related to the activities and contracts that fall under by Deloitte & Touche Company of Auditors and Article 44 and 93 of Law N 18,046. Consultants Limited. a) Chilectra S.A. (former Elesur S.A.) Financial 9. Other subjects that are of public interest and under b) Expert report (dated January 31, 2006), made by the authority of Ordinary Shareholders Meeting. expert Mr. Eduardo Walker Hitschfeld who was contracted for the report by Chilectra S.A. (former General E x traordinar y Shareholders Meeting of Elesur S.A.). Chilectra S. A. (former Elesur S.A.) 1. A pprove the reductions in social c apital by December 31, 2005), audited by KPMG Auditor c) Chilectra S.A. Financial Statements (as of Ch$1,047,103,444,673 with the purpose of absorbing Consultants Limited. company losses, without having to return capital to shareholders and maintaining the same number of d) Expert report (dated January 31, 2006), made by shares. expert Mr. Eduardo Walker Hitschfeld contracted for the report by Chilectra S.A. Annual Report 2006 | 85 ESSENTIAL FACTS 4. Increase Chilectra S.A. (former Elesur S.A.) social instruments esteemed necessary (mainly to facilitate capital by Ch$302,578,793,634, for which approval the legalization, materialization and completion of of Chilectra S.A. (former Elesur S.A.) by-laws will merger agreements) and to authorize and authorize be needed, in the following areas: (a) modification and subscribe to, the instruments required to of the Fourth article which deals with social capital, declare the merger has been carried out, and to by increasing the capital amount through emission of perfect the transfer of the total assets and liabilities 1,110,471,933 payable shares (and other conditions associated to the company being absorbed to the dictated by the Shareholders Meeting), or an absorbing company. alternate amount determined by the Extraordinary Shareholders Meeting. These will be emitted by the 8. To inform that, in accordance with the stipulations in Chilectra S.A. Board of Directors and distributed as Articles 69 and 70 of Public Companies Law 18,046, payment relating to the merger, to the Chilectra S.A. the approval of the merger by the Extraordinary shareholders; the shares will be distributed at a rate General Shareholders Meeting will concede the right of 3.0337 Chilectra S.A. (former Elesur S.A.) share for dissenting shareholders, to retire from Chilectra for every one Chilectra S.A. share. These shares will S.A. (former Elesur S.A.) and be invoiced the value be understood as paid through the proprietorship of of their shares. The dissenting shareholders may only Chilectra S.A. which will be absorbed by Chilectra exercise their retirement right within a time limit of S.A. (former Elesur S.A.) through the merger, 30 days (counted from the Shareholders Meeting and (b) modification of the First Transit article, so date) and for only the totality of their shares listed that it reflects the modifications mentioned in the in the Company’s Shareholders Registry (as of the aforementioned subheading (a). 5th working day before the Shareholders Meeting). The cost of the shares payable to the dissenting 5. Approve (i) the reform of Chilectra S.A. (former Elesur shareholders correspond to the market value of the S.A.) statutes by modifying the following articles: (a) shares, determined under the norms in Article 79 modification of the First article, so as to replace the of the Public Company Regulations in the Supreme Chilectra S.A. (former Elesur S.A.) company name Decree N° 587. for that of Chilectra S.A., (b) modifying the Third article, to adjust the social objectives of Chilectra The Chilectra S.A. (former Elesur S.A.) General S.A. (former Elesur S.A.) for those of Chilectra S.A. Ordinary Shareholders Meeting will take place at 8:30 (c) modify the Fourth and First Transitory article, to am, in the Auditorium (located in Santa Rosa N° 76, mid reflect the increase in capital produced in the merger, level, Santiago), and the Chilectra S.A. (former Elesur in the terms indicated in the prior subheading, (d) S.A.) Extraordinary General Shareholders Meeting modify the Ninth article, stating that Directors will be will take place after the formational Ordinary General remunerated, (e) modify the Eight and Tenth-Quarter Shareholders Meeting. articles, to eliminate all reference to the existence of Director substitutes; (ii) approve and set the The positive effects estimated in the absorbed company’s resummarized and updated social statute text of the results will increase to approximately Ch$100,000 million, absorbing company. during the next few years, mainly due to the optimization of the tributary structure and the reduced expenses in 6. Approve and set the remuneration of the Board operating and financial areas. In consideration of current of Directors. accounting norms, the central part of the aforementioned sum, foreseeable corresponds to the optimization of 7. Adopt whatever other agreement that may effect or the tributary structure, recognizable as an accountable be necessary for the Merger agreements referred to profit at the moment the merger is perfected. Despite in the prior headings, as also to authorize the use of this, the economic result associated with monetary 86 | Annual Report 2006 effects will extend over various exercises, as indicated 1° In today’s Elesur (denominated Chilectra S.A. from below; this has been done before by the company, March 31, 2006) General Ordinary Shareholders given the impossibility of foreseeing precisely how the Meeting, it was agreed to dismiss the current Board merged company’s profits will behave in future. Using of Directors and redesignate those positions to: this hypothetical base, the merged company could Jorge Rosenblut Ratinoff, José Manuel Fernández quantify Ch$10,000 million, per year, and as such, the Norniella, Pedro Buttazzoni Álvarez, Antonio effect would extend over approximately 10 years. The Cámara Eguinoa, Hernán Felipe Errázuriz Correa, aforementioned effect depends on factors such as the Marcelo Andrés Llévenes Rebolledo and Alberto growth of demand, number of company clients, unitary Martín Rivals. consumption, applicable tariffs, human resources costs, operating and maintenance costs, financial expenses, 2° In the Elesur (denominated Chilectra S.A on March interest rates, exchange rate, etc., and therefore, also, 31, 2006), General Extraordinary Shareholders the profit the company obtains through each exercise. Meeting the following was agreed: With regard to reductions in operating costs and financial 1. To reduce social capital by Ch$1,047,103,444,673 expenses, it has been estimated that in each transaction with the aim of absorbing company losses following the completion of the merger, the results of the of the same sum, without returning capital to merged company will improve by Ch$820 million. This is shareholders and therefore maintaining the due to reduced fixed expenses (by Ch$240 million) and same number of shares, and to modify the reduced financial expenses (Ch$580 million). Fourth article and the First Transitory article of the statutes, so they reflect this reduction. 4. Expert Report A copy was sent to the S.V.S (on March 3, 2006), of the 2. The Merger of Chilectra S.A. (former Elesur S.A.) expert report regarding the economic value of the equity and Chilectra S.A., through the absorption of of Chilectra S.A. and Chilectra S.A. (former Elesur S.A.) the latter by the former. That is, Chilectra S.A. as also the determinations stipulated in the exchange (formerly Elesur S.A.), was to absorb Chilectra equation of shares pertaining to said company’s. The S.A.; the new Chilectra company agencies aforementioned report was published on January 31, where to function through their Cayman Islands 2006, made by Mr. Eduardo Walker Hitschfeld, and office. Due to the merger, Chilectra S.A. will be financed by Chilectra S.A. (former Elesur S.A.). This dissolved in order to incorporate it to Chilectra expert report and the one financed by Chilectra S.A. S.A. (former Elesur S.A.), so that shareholders of through the same expert, published on the same date as Chilectra, will become shareholders of Chilectra the former, and sent to the S.V.S ( to annex the essential S.A. (former Elesur). This is due to the increase facts sent by Chilectra S.A. on February 27, 2006), will in capital, which corresponds to the exchange be subject to the study and approval of the Chilectra S.A. of assets, whereby Chilectra S.A. (ex Elesur) Extraordinary General Shareholders (organized for March acquired all assets and liabilities relating to 31, 2006); said meeting will mainly concern the merger Chilectra S.A. and succeeded it with regard to between Chilectra S.A. and Chilectra S.A. (former Elesur all its rights, obligations and permits. Regarding S.A.) . A copy of the expert report financed by Chilectra the merger, the total assets, liabilities, obligations S.A. is attached to the present communication. and rights relating the Chilectra S.A. Cayman 5. Ordinary and Extraordinary Shareholders by the Chilectra S.A. (former Elesur) Cayman Agreements Islands Agency. The legal effects of the merger Dated March 31, 2006, the company informed about will take effect from the 1st of April 2006. Islands Agency will be incorporated and acquired the following: Annual Report 2006 | 87 ESSENTIAL FACTS 3. A p p r o v a l o f t h e F i n a n c i a l S t a t e m e n t s 6. Inform that, in compliance with the stipulations c or responding to exercises f inalized on in Articles 69 and 70 of Public Company Law December 31, 2005 and expert reports which 18,046, the approval of the Merger, by the were took in account to the merger. General Extraordinary Shareholders Meeting, 4. To Increase Chilectra S.A. (former Elesur S.A.) to retire from Chilectra S.A. (former Elesur social capital by Ch$302,578,793,634, for which S.A.) once they are invoiced for the value of conceded dissenting shareholders the right approval of Chilectra S.A. (former Elesur S.A.) their shares. statutes will be needed, in the following areas: (a) modification of the fourth article which deals with 3° Having acknowledged that the Merger through social capital, by increasing the capital amount absorption of Chilectra S.A. by Elesur S.A. was through emission of 1,110,471,933 payable approved by the General Extraordinary Shareholders shares (and other conditions dictated by the Meeting of Chilectra S.A., it is appropriate then for Shareholders Meeting), or an alternate amount Elesur S.A. to recognize as accounting income in its determined by the Extraordinary Shareholders its March 31, 2006 Financial Statement), its right to Meeting. These will be emitted by the Chilectra compensate future taxes with tributary losses in past S.A. Board of Directors and distributed as exercises by approximately Ch$100,000 million. payment relating to the merger, to the Chilectra S.A. shareholders; the shares will be distributed Exchange of Shares at a rate of 3.0337 Chilectra S.A. (former Elesur Through the Board of Directors agreement, dated July 10, S.A.) share for every one Chilectra S.A. share. 2006, the exchange of Chilectra S.A. titles for those of Elesur These shares will be understood as paid through S.A. (today Chilectra S.A.) was perfected. the proprietorship of Chilectra S.A. which will be absorbed by Chilectra S.A. (former Elesur New Organizational Structure S.A.) through the merger, and (b) modification In the Chilectra S.A. Ordinary Directory Session Nº 9/2006, of the First Transit article, so that it reflects the celebrated on July 25, 2006, a new organizational structure modifications mentioned in the aforementioned was approved. subheading (a). Consequently, there were accepted the resign of the following 5. Approve (i) the reform of Chilectra S.A. (former company staff members: Juan Camilo Olavarría Couchot Elesur S.A.) by-laws by modifying the following (Operational and Market Administration Manager–position articles: (a) modification of the First article, so will no longer exists), Marcelo Silva Iribarne (Regional as to replace the Chilectra S.A. (former Elesur Distribution Manager- position will no longer exists), Marcelo S.A.) campany name for that of Chilectra S.A., Castillo Sibilla (Communication Manager–will be replaced (b) modifying the Third article, to adjust the social by Juan Pablo Larraín M.) and Klaus Winkler Speringer objectives of Chilectra S.A. (former Elesur S.A.) (Planning and New Business Manager- position will no for those of Chilectra S.A. (c) modify the Fourth longer exist). Meanwhile, Commercial Management was and First Transitory article, to reflect the increase created (dependent on the General Manager) and realized in capital produced in the merger, in the terms by Andreas Gebhardt Strobel. indicated in the prior subheading, (d) modify the Ninth article, stating that Directors will be Change of Director remunerated, (e) modify the Eight and Tenth- In the ordinary Chilectra S.A. Board of Directors Session Quarter articles, to eliminate all reference to the Nº 13/2006, dated November 30, 2006, the resign of Director existence of Director substitutes; (ii) approve and Mr. Alberto Martin Rivals was accepted and Mr. José María set the resummarized and updated social statute Calvo Ibánez- Martin was named in order to replaced text of the absorbing company. him, in conformity with the stipulations of Law N° 18,046, article 32. 88 | Annual Report 2006 (cid:34)(cid:79)(cid:65)(cid:82)(cid:68)(cid:192)(cid:79)(cid:70)(cid:192)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83) (cid:42)(cid:79)(cid:82)(cid:71)(cid:69)(cid:192)(cid:50)(cid:79)(cid:83)(cid:69)(cid:78)(cid:66)(cid:76)(cid:85)(cid:84)(cid:192) (cid:35)(cid:37)(cid:47) (cid:50)(cid:65)(cid:70)(cid:65)(cid:69)(cid:76)(cid:192)(cid:44)(cid:215)(cid:80)(cid:69)(cid:90) (cid:36)(cid:73)(cid:83)(cid:84)(cid:82)(cid:73)(cid:66)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78)(cid:192)(cid:65)(cid:78)(cid:68)(cid:192)(cid:51)(cid:69)(cid:82)(cid:86)(cid:73)(cid:67)(cid:69)(cid:83)(cid:192)(cid:50)(cid:69)(cid:71)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:192)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:82) (cid:35)(cid:82)(cid:73)(cid:83)(cid:84)(cid:215)(cid:66)(cid:65)(cid:76)(cid:192)(cid:51)(cid:199)(cid:78)(cid:67)(cid:72)(cid:69)(cid:90) (cid:35)(cid:79)(cid:77)(cid:77)(cid:85)(cid:78)(cid:73)(cid:67)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:192)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:82) (cid:42)(cid:85)(cid:65)(cid:78)(cid:192)(cid:48)(cid:65)(cid:66)(cid:76)(cid:79)(cid:192)(cid:44)(cid:65)(cid:82)(cid:82)(cid:65)(cid:210)(cid:78) (cid:44)(cid:69)(cid:71)(cid:65)(cid:76)(cid:192)(cid:35)(cid:79)(cid:85)(cid:78)(cid:83)(cid:69)(cid:76) (cid:39)(cid:79)(cid:78)(cid:90)(cid:65)(cid:76)(cid:79)(cid:192)(cid:54)(cid:73)(cid:65)(cid:76) (cid:35)(cid:79)(cid:77)(cid:77)(cid:69)(cid:82)(cid:67)(cid:73)(cid:65)(cid:76)(cid:192)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:82) (cid:33)(cid:78)(cid:68)(cid:82)(cid:69)(cid:65)(cid:83)(cid:192)(cid:39)(cid:69)(cid:66)(cid:72)(cid:65)(cid:82)(cid:68)(cid:84) (cid:50)(cid:69)(cid:71)(cid:85)(cid:76)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:192)(cid:65)(cid:78)(cid:68)(cid:192)(cid:37)(cid:78)(cid:69)(cid:82)(cid:71)(cid:89)(cid:192)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:192)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:82) (cid:39)(cid:85)(cid:73)(cid:76)(cid:76)(cid:69)(cid:82)(cid:77)(cid:79)(cid:192)(cid:48)(cid:206)(cid:82)(cid:69)(cid:90) (cid:46)(cid:69)(cid:84)(cid:83)(cid:192)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:192)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:82) (cid:37)(cid:78)(cid:82)(cid:73)(cid:81)(cid:85)(cid:69)(cid:192)(cid:38)(cid:69)(cid:82)(cid:78)(cid:199)(cid:78)(cid:68)(cid:69)(cid:90) (cid:40)(cid:85)(cid:77)(cid:65)(cid:78)(cid:192)(cid:50)(cid:69)(cid:83)(cid:79)(cid:85)(cid:82)(cid:67)(cid:69)(cid:83)(cid:192)(cid:65)(cid:78)(cid:68)(cid:192)(cid:41)(cid:78)(cid:78)(cid:79)(cid:86)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:192)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:82) (cid:35)(cid:82)(cid:73)(cid:83)(cid:84)(cid:73)(cid:199)(cid:78)(cid:192)(cid:40)(cid:69)(cid:82)(cid:82)(cid:69)(cid:82)(cid:65) (cid:48)(cid:76)(cid:65)(cid:78)(cid:78)(cid:73)(cid:78)(cid:71)(cid:192)(cid:65)(cid:78)(cid:68)(cid:192)(cid:37)(cid:67)(cid:79)(cid:78)(cid:79)(cid:77)(cid:73)(cid:67)(cid:192)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:82) (cid:42)(cid:85)(cid:65)(cid:78)(cid:192)(cid:48)(cid:65)(cid:66)(cid:76)(cid:79)(cid:192)(cid:51)(cid:80)(cid:79)(cid:69)(cid:82)(cid:69)(cid:82) Further, within said session, and in the conformity with the ENDESA S.A. (HEADQUARTERS) stipulations in Circular N° 1526 of the S.V.S., the following members of the Committee of Directors were designated: The Board of Directors of Empresa Nacional de Electricidad Jorge Rosenblut Ratinoff, Hernán Felipe Errázuriz Correa S.A. is informed (on Januar y 27, 2006) that in their and José María Calvo-Sotelo Ibañez-Martín. January 26, 2006 session, it agreed to set up an Ordinary Dividends Shareholders Meeting at 10:00 March 21, 2006 in the Sheraton Hotel Santiago, located on Santa María Avenue The company Board of Directors Session dated July 25, N° 1742; and an Extraordinary Shareholders Meeting on the 2006, agreed on distributing (starting August 30, 2006), an same day, in the same place, to proceed immediately after interim dividend (N° 1) of Ch$18.00 per share, charged to the Ordinary Shareholders Meeting. 2006 profits. The Ordinary Shareholders Meeting will deal with and decide In the Board of Directors session dated October 24, 2006, it on, the following items: was agreed to distribute an interim dividend N° 2 starting on November 30, 2006, valued at Ch$8.00 per share, charged 1. Approval of the Annual Report, Balance, Financial to the profits of year 2006. Statements and Inquiries External Auditors corresponding to exercise ended on December 31, 2005, Annual Report 2006 | 89 ESSENTIAL FACTS 2. Distribution of profits relating to the exercise and would effectively establish a new number of articles and distribution of dividends, titles in the by-laws; and adequating references has been made in articles 28 bis, and 36 bis to the other statutory 3. Exposition regarding the Company Dividend Policy and articles of the new numeration. information regarding the proceedings to be put in place in the distribution of the aforementioned; 4. Approve the resummarize of the by-laws; 4. Policies regarding Investments and Financing proposed 5. Adopt all the agreements necessary for creation and by the Board of Directors; completion of the aforementioned subheadings. 5. Election of the Board of Directors; - It was informed as essential fact on March 1, 2006 6. Settling of the Board of Directors Remuneration; yesterday agreed, that in completion of the dividend that the ordinary session of the Board of Directors 7. Settling of the Committee of Directors and Committee Endesa Ordinary Shareholders Meeting should take of Auditors Remuneration and the determination of place (on March 21, 2006) to enable the distribution policy (corresponding to the exercise of 2005), an its budget; of a definitive dividend of above Ch$5.82 per share to be effective as of March 30 2006, subject to the 8. The Committee of Directors Report; aforementioned Shareholders Meeting’s approval. 9. Designation of External Auditors; - In the Company’s Ordinary and Extraordinary Shareholders Meeting’s (Dated March 21, 2006), all 10. Election of two Account Inspectors and two substitutes, the matters proposed in the table where approved. as also the determination of their remuneration; 11. Other issues of public interest under the faculties of the Board of Directors proposition to pay a definitive dividend Shareholders Meeting, and information regarding the for 2005 exercise (worth Ch$5.82 per share). Said dividend transactions referred to in Article 44 of Law N° 18,046; will be paid since March 30, 2006, to shareholders listed in In this instance, the Shareholders Meeting approved the the Shareholders Registry from March 24, 2006. The Extraordinary Shareholders Meeting will study and decide regarding the following matters: The publication of the corresponding article was made on March 22, 2006 in the Santiago newspaper “El Mercurio”. 1. Amendment of article 28 of the by-laws, with regard to the matters in the Extraordinary Shareholders Meeting, - It was noted as essential fact on March 22, 2006, and aimed at adequate part (d) to the text of Nº4 article that in yesterday’s Ordinary Shareholder’s Meeting 57 of Law N° 18,046; of the Empresa Nacional de Electricidad S.A, new Company Board of Directors was chosen for 2. Modify the final section within article 36, of the by-laws, a period of three years, starting from the date of to make the article adequate to the section 1 of article said meeting. 7 in Law N° 18,046; The Board of Directors is now comprised of the following 3. Modify the by-laws, in order to include the norms relative people: to the Committee of Directors and the Audit Committee including the incorporation of title and respective articles, Jaime Bauzá (as stipulated in domestic and international laws under Jaime Estévez which the Company functions). The aforementioned, José María Fernández 90 | Annual Report 2006 Enrique García Héctor López Antonio Pareja Luis Rivera Carlos Torres Leonidas Vial constituted, achieved agreements and other legal instruments that allow the joined development of the Aysén Project. - On April 26, 2006, in conformity with the agreement adopted by the Board of Directors in its ordinary session, the following essential fact was informed: In the Extraordinary Board of Directors session (of the same The Board of Directors agreed to authorize the subscription date), the directors agreed to designate Mr. Luis Rivera Novo by the Company to an Memorandum of Understanding (MOU) as President of the company and Board, and Mr. Antonio with the Colbún S.A. Company, in order to regulate eventual Pareja Molina as Vice-president. joint participation in the development and exploitation of the In the same session, it was also agreed to designate the Aysén Project. directors Luis Rivera Novo, Jaime Bauzá Bauzá and Jaime The documents objective is to stipulate the basic agreements Estevez Valencia as members of the committee of directors. and general criteria that have been reached by each party It was also agreed to designate Jaime Bauzá Bauzá, José in order to subscribe to the document in the shortest period María Fernández Olano and Enrique García Alvarez as possible (mainly prior to August 31, 2006) and before the members of Audit Committee. Colbún S.A. due diligence process is carried out concerning - Due to the information regarding the Aysén Project permit the joint function of Endesa Chile and Colbún in the published in the press (Diario La Tercera) on April 12, development, financing, construction and exploitation of the the contracts, agreements and other legal instruments that 2006, on the same date the S.V.S was informed of the Aysén Project. following: The MOU oversees that suspension conditions are fulfilled In fact, for some time until current date, advanced (as stipulated in the document); one of these conditions conversations and negotiations have taken place (under concerns the finalizing of the due diligence process and confidentiality agreements) between the company’ executive the agreements referred to in the contribution contracts, administration and Colbún S.A. with the aim of reaching shareholders agreements and other relevant contracts. an Understanding Agreement, which has not happened Further, the parties will constitute a public company for the yet, and which would imply additional negotiations during development and exploitation of the Aysén Project, whereby a predetermined period, and if successful, create an Endesa Chile will have shareholder participation equal to 51% association to conjunctly commit to the development of the of the public capital, and Colbún S.A. the remaining 49%. aforementioned Aysén Project. The project consists in the In consideration to its contribution to the Projects, Endesa construction of 4 centrals (sizes big and medium), and a Chile will receive a counterclaim of 12,3% of the energy support central for works, all with a 2,355MW capacity. produced by various plants within the Aysén Project for 30 years counted from the sixth month of commercial operation In the eventuality that the negotiations under current of all Project centrals. development do reach the consensus that would allow an Understanding Agreement to be signed, there is the possibility The surplus energy produced, after the aforementioned for directors of both companies to approve the contents and counterclaim, will be distributed 51% to Endesa Chile and authorize subscription. Following this, the aforementioned 49% to Colbún S.A.. directors would inform the S.V.S and the market, through the usual mechanism settled in current legislation. The public company that will be created for this process will return 100% of its energy to its shareholders in A similar information pattern will take place where following the aforementioned quantities. The shareholders will the signing of said Understanding Agreement, other related commercialize the energy in light of their individual and agreements take place relating to the social vehicle to be autonomous commercial enterprises, therefore, the company Annual Report 2006 | 91 ESSENTIAL FACTS will not commercialize directly with third parties, nor will it concessions relevant to this type of project, all of which sell the energy it produces in the spot market. will be underway and solicited during years 2006 and 2007 (subject to the authorization and decisions of the relevant Other relevant aspects of the MDE concern the administration authorities). of the company, the matters that must be considered in the future shareholders agreement and the common clauses for After the finalization of the preparatory activities which the company, as also the termination of the joined association precede a final decision regarding the determination to go and the type of common clauses within these documents. ahead with the Aysén Project. The decision will be made by the Shareholders of Aysén Hydroelectric Centrals S.A., and The company will leave a record of the structure of the joint be subject to the determinations of the relevant authorities association with Colbún S.A. and has preferred a system that and organizations (regarding the issues and matters which assures transparency and competitiveness in the national have been presented them). electric sector, achieved through due consideration regarding the project centrals as simple productive units which, will The Endesa Chile Board of Directors, created the company distribute the total produced energy to Endesa Chile and constitution once the suspension conditions where fulfilled Colbún S.A., which in an autonomous and independent (on which the constitution was pending) and once the way through the company which has been created. These company was informed by Colbún S.A. of the finalization two entities will then commercialize said energy in the and approval of the due diligence of the Aysén Project. Post national electric marketplace, in compliance with current these occurrences, the Endesa Chile Board of Directors, legislation. proceeded to approve the contents of the documents (which had been objected to, and stalled negotiations with Colbún - The following essential facts are informed on August 31, S.A. from last April). 2006: In today’s Empresa Nacional de Electricidad S.A. ordinary to the S.V.S and to the general market values on April Board of Directors session, this company agreed to 26, 2006 have been fulfilled with the completion of the The suspension conditions sent as essential information the constitution of a new company named Centrales aforementioned. Hidroeléctricas de Aysén S.A.. The constitution of said central is legally proposed for September 2006; Endesa Chile - It is informed as essential fact on October 26, 2006, that will definitely receive 51% and Colbún S.A. the remaining in today’s ordinary session of the Empresa Nacional de 49%, of the capital. Electricidad S.A. Board of Directors, it was agreed that the resignations by the following people will be accepted: The aforementioned company will be responsible for the Mr. Luis Rivera Novo (a director, president of the Board study, development, financing, construction and exploitation of Directors and member of the Committee of Directors), of the Aysén Project which consists of a hydroelectric and of Mr. Antonio Pareja Molina (a director and vice- generation project in the XI Region; an estimated capacity president of the Company Board of Directors). of 2,355 MW has been calculated for the project, through five hydroelectric centrals, that will use the same line for electric In the same session, the Board of Directors designated Mr. transmission. From the date recorded in its constitution, the Mario Valcarce Durán and Mr. Pedro Larrea Paguaga as company must continue developing preparatory actions for new Company directors; these were designated as president the Project, consisting of (among others), the completion of and vice-president of the Board of Directors, respectively. feasibility studies, hydraulics, pre-project engineering and Additionally, Mr. Mario Valcarce Durán was designated as environmental impact statements, as also the administration new member of the Company Committee of Directors. and achievement of permission, authorizations and 92 | Annual Report 2006 - In compliance with the stipulations in Circular N° 660 of 6. Designation of Independent External Auditors; the S.V.S., it was informed on December 1, 2006, that in a Board of Directors session dating (November 30, 2006) 7. Other subjects that are of public interest and under the the Empresa Nacional de Electricidad S.A. agreed to pay authority of Ordinary Shareholder Shareholders Meeting, a provisory dividend of Ch$2.57 per share (in cash and and informations about operations referred to article 44 commissioned by profits stemming from 2006 exercise), of Law N° 18,046. to shareholders listed in the Shareholders Registry (at the end of December 16, 2006). In this instance, the Shareholders Meeting approved the PEHUENCHE proposal by the Company Board of Directors to pay a definitive dividend of the 2005 exercise, which represents a total payable dividend of Ch$33.581873 per share. Said - Dated January 26, 2006, the Company informed that dividend will be paid from April 19, 2006, to the shareholders the Board of Directors unanimously agreed with the listed in the Shareholders Registry as of April 11, 2006. current Company Dividend Policy, proposing a Ordinary Shareholders Meeting (for March 20 this year), for the The publication of the corresponding note, took effect on definitive dividend payment of Ch$33.5811873 per share. April 10, in the Santiago newspaper, “El Mercurio”. This proposition is based on the distribution of 100% of the liquid profit of the yearly exercise (ending December - On June 30, 2006, the association informed that the 31, 2005), and through it, the proposal will also fulfill the Company Board of Directors, in their June 29, 2006 Dividend Policy informed by the Board of Directors in session, approved the distribution of Provisory Dividend, the Ordinary Shareholders Meeting of April 6, 2005. corresponding to the exercise of 2006, for a sum of Ch$17.16 per share. On July 26, 2006, said dividend Similarly, it was agreed to propose in the Ordinar y will be paid to the shareholders listed in the Shareholders Shareholders Meeting set to take place on March 20, 2006, Registry five working days prior. that the aforementioned dividend be paid from the April 19, this year to the shareholders listed in the Registry five On September 29, 2006, the association informed that on working days before said date. September 28, 2006, the Board of Directors approved the As of March 20, 2006, was held the Company’ Ordinary to the exercise of 2006, for a sum of Ch$25.27 per share. Shareholders Meeting, which had the objective of know and Said dividend, will be paid to from October 18, 2006 to solve about the following matters: the shareholders listed in the Shareholders Registry from distribution of a Second Interim Dividend, corresponding 1. Approval of the Report, Balance, Financial Statements October 12, 2006. and Inquiries External Auditors corresponding to - In conformity with the stipulations in the S.V.S. ‘Official transactions, finalized on December 31, 2005; Circular N° 3572, on December 22, 2006, the Company informed of the resignation of Mr. Leonardo Contreras 2. Distribution of profits of dividends; Rivera from his position from Company Director as of December 21, 2006. 3. Exposure of Company Policies regarding Dividends and information about the proceedings that are realized in - On December 29, 2006, the Company informed that the distribution of Dividends, in their December 28, 2006 session, the Board of Directors approved the distribution of a Third Interim 4. Designation of the remuneration of the Committee Dividend corresponding to the fiscal year of 2006, for a of Directors and the budget related to the function of sum of Ch$26.72 per share. Said dividend will be paid the Committee; 5. Report on Board of Directors expenses; from January 24, 2007, to the shareholders listed in the Shareholders Registry from January 18, 2007. Annual Report 2006 | 93 SUBSIDIARIES AND ASSOCIATE COMpANIES 94 | Annual Report 2006 AGRÍCOLA DE CAMEROS Name Sociedad Agrícola de Cameros Limitada Kind of Company Limited Partnership Tax N° 77.047.280-6 Address Camino Polpaico a Til-Til, S/N Til-Til. Telephone (56 2) 378 4700 Fax (56 2) 378 4702 External Auditors Deloitte & Touche Subscribed and paid capital (M$) 5,738,046 Holding of Enersis (direct and indirect) 57.5% Corporate Purpose The society’s objective is the exploitation of a farmland. Administration Complete with the presence of 3 representatives together. Executive Officer Hugo Ayala Espinoza AGRÍCOLA E INMOBILIARIA PASTOS VERDES Name Agrícola e Inmobiliaria Pastos Verdes Limitada Kind of Company Limited Partnership Tax N° 78.970.360-4 Address Santa Rosa 76, Piso 9, Santiago Telephone (56 2) 601 0601 Fax (56 2) 601 0519 External Auditors Deloitte & Touche Subscribed and paid capital (M$) 37,029,390 Holding of Enersis (direct and indirect) 55% Corporate Purpose The society’s objectives are the exploitation of farmland and the development of all types of real estate activities, including the urbanization, commercialization, and transfer of lands in any legal way possible. Administration Complete with the presence of 3 representatives together. Executive Officer Bernardo Küpfer Matte AGUAS SANTIAGO PONIENTE Name Aguas Santiago Poniente S.A. Kind of Company Private Company, Held under Public Company normative Tax N° 96.773.290-7 Address Américo Vespucio Nº 0100, Pudahuel, Santiago Telephone (56 2) 601 0601 Fax (56 2) 601 0519 External Auditors Deloitte & Touche Shares 3,996,874 Subscribed and paid capital (M$) 5,643,981 Holding of Enersis (direct and indirect) 55% Corporate Purpose To exclusively establish, construct, and exploit public services that are aimed at producing enersis06 and distributing drinking water; to collect, treat, and dispose of sewage water, and to carry out the other duties that the D.F.L. Nr. 382 of 1998 expressly authorizes and its modifications. Directors President Víctor Manuel Jarpa Riveros Directors Cristóbal Sánchez Romero Andrés Salas Estrades Luis Felipe Edwards Mery José Manuel Guzmán Nieto Executive Officer Jorge Alé Yarad AMPLA Name Ampla Energia e Serviços S.A. Kind of Company Publicly Held Limited Liability Stock Company Address Praça Leoni Ramos, N°01 – São Domingos, Niteroi, Rio de Janeiro, Brasil Telephone (55 21) 2613 7031 Fax (55 21) 2613 7199 P.O. Box 24.210-205 Web site www.ampla.com E-mail arochinha@ampla.com External Auditors Deloitte Touche Tohmatsu Total N° of shares 3,922,515,918,446 Subscribed and paid capital (Br. Real) 998,230,386.65 Holding of Enersis (direct and indirect) 69.88% Investments as proportion of Enersis assets 1.86% Corporate Purpose (excerpt) To study, plan, project, construct, and explore the production, transmission, conversion, distribution, and marketing systems of electrical energy, as well as to provide correlative services that have 2006 Annual Report | 95 SUBSIDIARIES AND ASSOCIATE COMPANIES been or could be granted; to carry out research in the field of energy and to participate as a share holder in other energy sector companies. Fax (55 21) 2613 7153 External Auditors Deloitte Touche Tohmatsu Subscribed and paid capital (Br. Real) 120,000,000 Holding of Enersis (direct and indirect) 69.88% Investments as proportion of Enersis assets 0.17% Corporate Purpose To study, plan, project, construct, and explore the production, transmission, conversion, distribution, and marketing systems of electrical energy, as well as to lend correlative services that have been or could be granted; to lend services of any kind and to participate as a share holder in other energy sector companies. Directors President Manuel Jorge Correia Minderico Vice President Mário Fernando de Melo Santos Directors Gonzalo Carbó João Ricardo de Azevedo Ribeiro Cristián Herrera Fernández Marcelo Llévenes Rebolledo Antonio Basílio Pires e Abuquerque Martín Serrano Spoerer Juan Pablo Spoerer Hurtado Alternate Directors Joaquim Pedro de Macedo Santos José Miguel Bandeira Pires Monteiro Lopes ARA - INGENDESA Name Consorcio Ara - Ingendesa Ltda. Kind of Company Limited Partnership Tax N° 77.625.850-4 of plans and construction. Apart from that, whether it be at its own or at others´ expense, to provide all types of construction, to set up and to start, for itself or third parties, all types of establishments, be they industrial or not, and the marketing for ourselves or third parties the goods and services that are produced. In general, to develop activities that are related directly or indirectly to the above mentioned operations, all phases of commercialization, including the buying and selling of furniture, exporting and importing, and any business that partners have agreed upon that relate to the activities pointed out. Paid Capital (M$) 1,000 Holding of Enersis (direct and indirect) 29.99% Representatives Rodrigo Alcaíno Mardones Alejandro Santolaya de Pablo Alternate Representatives Fernando Orellana Welch Julio Montero Montegu Elías Arce Cyr Cristián Araneda Valdivieso ATACAMA FINANCE Name Atacama Finance Co. Kind of Company Exent Company Address Caledonian House P.O. Box 265 G, George Town, Grand Cayman, Cayman Islands. Corporate Purpose The company’s main objective includes debt financing in the financial market through credit agreements and the issuing of coupons and other documents or through loans to other companies, particularly those that are involved with the Atacama Project. Paid Capital (M$) 3,354,057 Administration President Manuel Jorge Correia Minderico Vice President Mario Fernando de Melo Santos Directors Joao Alves de Azevedo Ribeiro Marcos da Silva Crespo Juan Pablo Spoerer Hurtado Cristián Herrera Fernández Martín Serrano Spoerer (Enersis’ Chief financial Officer International) Antonio Basilio Pires de Carvalho e Albuquerque Gonzalo Carbó Alternate Directors José Alves de Mello Franco Fernando Urbina Soto Joaquim Pedro de Macedo Santos José Miguel Bandeira Pires Monteiro Lopes Principal Directors Director President Marcelo Llévenes Rebolledo Regulation Director José Alves de Mello Franco Commercial Director Carlos Alberto Oliveira Human Resources Director Carlos Ewandro Naegale Moreira Energy Losses Director Claudio Rivera Moya Administratie-Financial Director Abel Alves Rochinha Legal Director Déborah Meirelles Rosa Brasil Technical Director Albino Motta da Cruz Government Relationships and Environmental Director Mario Rocha AMPLA INVESTIMENTOS Name Ampla Investimentos e Serviços S.A. Kind of Entity: Open Corporation Address Santa Rosa 76 Piso 10, Santiago, Chile Holding of Enersis (direct and indirect) 29.99% Address: Praça Leoni Ramos, N°01 – parte São Domingos,Niterói, Rio de Janeiro, Brasil Telephone (55 21) 2613 7071 Corporate Purpose The provision of engineering services that c ompr ise the projec tion, planning, and implementation of engineering projects and studies, consultancy services, granting of assistance and technical information, and the administration, inspection, and development Directors Tom Miller Andrés Salvestrini Balmaceda David Baughman Vacant 96 | 2006 Annual Report BETANIA Name Central Hidroeléctrica de Betania S.A. E.S.P. construction, installation, operation, and exploitation of central generators of electrical energy and the business related to these activities. Kind of Company Public utility Corporation Paid Capital (Br. Real) 289,339,835.85 Address KM. 35 Vía Neiva – Yaguará, Colombia. Holding of Enersis (direct and indirect) 53.36% Corporate Purpose T he c ompany ’s main objec tive is t he production and commercialization of electrical energy. Paid Capital (M$) 333,425,742 Holding of Enersis (direct and indirect) 59.98% Directors President José Antonio Vargas Lleras Directors Carlos Martín Vergara Emilio Archiva Rafael Errázuriz Ruiz-Tagle Sebastián Fernández David Yanovich Carlos Alberto Luna Cabrera Alternate Directors Fredy Urrea Manuel Pesqueira Patricia Marulanda Renato Fernández José Arturo López Aquiles Mercado Fernández Fredy Canen Anaya Principal Directors Executive Officer Carlos Alberto Luna Cabrera CACHOEIRA DOURADA Directors President Francisco Javier Bugallo Sánchez Directors Aurelio de Oliveira Guilherme Gomes Lencastre Principal Directors Executive Officer Francisco Bugallo Sánchez Commercial and Trading Manager Manuel Herrera Vargas Technical Officer José Ignacio Pires Human Resources Officer Raimundo Câmara Filho CAM Name Compañía Americana de Multiservicios Ltda. Kind of Company Limited Partnership. Tax N° 96.543.670-7 Address Bulnes N° 1238, Santiago. Telephone (56 2) 389 7300 Fax (56 2) 389 7342 Name Centrais Elétricas Cachoeira Dourada S.A. Web site www.camchile.cl Kind of Company Closed Capital Publicly Held Liability Stock Company E-mail cam@cam.enersis.cl Address Rodovia GO 206, Km 0, Cachoeira Dourada Goiania, Goiás, Brasil. Corporate Purpose The company’s corporate purpose is the carr ying out of studies, planning, External Auditors Deloitte & Touche Soc. de Auditores y Consultores Ltda. Subscribed and Paid Capital (M$) 2,572,038 Holding of Enersis (direct and indirect) 100% enersis06 Investments as proportion of Enersis assets 1.10% Corporate Purpose (excerpt) The company’s corporate purpose is to carry out on its own or through third parties and/or third-party associates, in the country as well as abroad, services in general, real estate services and immovable asset construction, the importation, exportation, and distribution of all types of products. Representatives and Senior Executives Representatives Cristóbal Sánchez Romero Klaus Winkler Speringer Alternate Representatives Gonzalo Mardones Pantoja Eduardo López Miller Principal Directors Executive Officer Klaus Winkler Speringer Chief Operations Officer Gonzalo Mardones Pantoja Chief Administration and Human Resources Officer Raúl Mella Varas Chief Economic and Control Officer Pedro Carrizo Polanco Chief Quality Officer Eduardo Villalobos Abad Executive Officer CAM Brasil Tomás Casanegra Rivera Executive Officer CAM Perú Ricardo Camezzana Leo Executive Officer CAM Colombia Carlos A. Zarruk Gómez Executive Officer CAM Argentina Daniel Strizinec CAM ARGENTINA Name Compañía Americana de Multiservicios (CAM) S.R.L. Kind of Company Limited Partnership Address Av. Vélez Sarsfield 1160, Capital Federal, Argentina Telephone (54 11) 4302 2951/58 Fax (54 11) 4302 2951/58 Total N° of Shares (quotes) The capital is $1,000,000 divided into 1,000,000 shares. 2006 Annual Report | 97 SUBSIDIARIES AND ASSOCIATE COMPANIES Subscribed and Paid Capital The social capital is completely subscribed and integrated. Holding of Enersis (direct and indirect) 100% Corporate Purpose (excerpt) The company’s corporate purpose is to present professional and technical services to companies and national and international organizations, public and private, and to provide advice, technical assistance, staging, process control, systems set up and maintenance, machinery and equipment, transport and distribution network maintenance, and everything related to production, transport, and distribution of electric energy, among other objectives. Principal Directors Titular Manager Daniel Strizinec CAM COLOMBIA Name Compañía Americana de Multiservicios Limitada Colombia Kind of Company Limited Partnership Address AV. Carrera 68 No. 5-21, Bogotá, Colombia Telephone (57 1) 4173000 Fax (57 1) 5651012 External Auditors Deloitte & Touche Ltda. Total N° of Shares 1,615,500 CAM BRASIL Subscribed and Paid Social Capital (Col. $) 1,615,500,000 Name Cam Brasil Multiserviços Limitada Holding of Enersis (direct and indirect) 100% Kind of Company Limited Partnership Address Av José Mendonça de Campos, 680 São Gonçalo – RJ, Brasil Telephone (55 21) 2702-8001 Fax (55 21) 2702-8000 P.O. Box 24.450-700 External Auditors Deloitte Touche Tohmatsu. Corporate Purpose To carry out on its own, or through third parties and/or through third-party associates, in the country as well as abroad, the following activities: Services: the offering of professional and technical services to national and international businesses and organizations, public and private; construction and real estate services through the construction and refurbishment of all types of furniture, and project execution; The importation and exportation of all types of material; and marketing through the purchasing, sales exchange, dividing of, consignment, and distribution of all types of material. Principal Directors Executive Officer Carlos Alberto Zarruk Gómez Subscribed and Paid Capital (R$) 14,327,826 CAM PERÚ Holding of Enersis (direct and indirect) 100% Corporate Purpose The offering of electrical engineering services, network and big job construction, and utility large-scale commercial services. Principal Directors General Director Tomás Casanegra Rivera 98 | 2006 Annual Report Name Compañía Americana de Multiservicios del Perú S.R.L. Kind of Company Limited Partnership Address Jr. Teniente César López Rojas 201, Piso 3, Maranga, San Miguel, Lima, Perú Telephone (0511) 5611604 Paid Capital (M$) 88,150,545 Fax (0511) 4523007 External Auditors Gris y Hernández y Asociados S.AC. – Deloitte & Touche. Total N° of Shares 5,220,000 Subscribed and Paid Capital (Per. New Sun) 5,220,000 Holding of Enersis (direct and indirect) 100% Corporate Purpose The company’s corporate purpose is to carry out on its own or through third-party professional and technical services the management and purchasing of materials or equipment for electrical, water, gas, or communication services, among others. Principal Directors Executive Officer Ricardo Mario Camezzana Leo CELTA Name Compañía Eléctrica Tarapacá S.A. Kind of Company Private Company Tax N° 96.770.940-9 Address Santa Rosa 76, Santiago, Chile Corporate Purpose The company’s main corporate purpose is the production, transport, distribution, and supply of electric energy, nationally as well as internationally, and as such, to obtain, acquire, and enjoy its respective favors and concessions. Additionally, another objective with the intention of seeing it through to completion, is the construction of a thermoelectric station, the construction and operation of a wharf or maritime installations, for the loading and unloading of supplies and other products in the area known as Punta de Patache, south of Iquique, in the I Region. Likewise, the objective includes the transmission line construction with its substations between the main station and the Doña Inés de Collahuasi copper mine; as well as the reinforcing of the interconnected system of Norte Grande. Holding of Enersis (direct and indirect) 59.98% Directors President Alejandro Wendling Aliaga Directors Alan Fischer Hill Liones Roa Burgos Executive Officer Eduardo Soto Trincado CEMSA Name Comercializadora de Energía del Mercosur S.A. Kind of Company Public Company Address Pasaje Ing. E. Butty 220, Piso 16, Buenos Aires, Argentina Corporate Purpose The company’s main corporate purpose is the wholesale buying and selling of electric energy produced by third parties and to be consumed by third parties, including the importation and exportation of electric energy and the commercialization of royalties, as well as the provision and/or carrying out of related services of the above mentioned goals, in accordance with existing regulations. The company could carry out, as such, all subsidiary and complementary activities that are linked with its corporate purpose, having full legal power to acquire rights and to enter into obligations and exercise any activity that is not prohibited by law or this statute. Paid Capital (M$) 7,489,700 Holding of Enersis (direct and indirect) 26.99% Directors President José María Hidalgo Martín-Mateos Vice President José Agustín Venegas Maluenda Fernando Antognazza Alternate Directors Arturo Pappalardo Roberto José Fagan Pedro Cruz Viné Principal Directors Executive Officer Juan Carlos Blanco CENTRALES HIDROELÉCTRICAS DE AYSÉN S.A. Name Centrales Hidroeléctricas de Aysén S.A. Kind of Company Private Company Tax N° 76.652.400-1 enersis06 Tax N° 96.800.570-7 Address Santa Rosa N°76, Piso 8, Santiago, Chile Telephone (56 2) 675 2000 Fax (56 2) 675 2999 P.O. Box 1557 Santiago Address Miraflores 383, oficina 1302, Santiago, Chile Web site www.chilectra.cl Corporate Purpose The company’s main corporate purpose is the development, financing, ownership and exploitation of an hydroelectric project located on Eleventh Region of Aysén, which comprises an estimated capacity of 2,355 MW distributed within five hydroelectric plants, which is denominated “Aysén Project”. In order to fulfill its objective, its line of business comprises the following activities: a) electricity production and transportation; b) supplying and commercialization of electricity towards its shareholders; c) administration, operation ans maintenance of hydraulic works, electrical systems and hydroelectric generation plants d) delivery of services related with its corporate purpose. The aforementioned activities could be carried out by it own or by third parties’ own. In order to compliance its purpose, the company could obtain, buy and make use of the concessions and permissions that required. Paid Capital (M$) 19,920,000 Holding of Enersis (direct and indirect) 30.59% Directors President Antonio Albarrán Ruiz-Clavijo Rafael Mateo Alcalá Juan Benabarre Benaiges Rafael Errázuriz Ruiz-Tagle Bernardo Larraín Matte Luis Felipe Gazitúa Achondo Principal Directors Executive Officer Hernán Salazar Zencovich CHILECTRA Name Chilectra S.A. Kind of Company Publicly Held Limited Liability Stock Company E-mail comunicacion@chilectra.cl Secutiries Register Inscription N°0931 External Auditors KPMG Auditores Consultores Ltda. Total N° of Shares 1,159,679,806 Subscribed and paid capital (M$) 326,416,749 Holding of Enersis (direct and indirect) 99.09% Investments as proportion of Enersis assets 19.23% Corporate Purpose (excerpt) To exploit in the countr y and abroad, the distribution and sale of energy, be it electric, hydraulic, thermal, caloric, or of any other form, as well as the distribution, transport, and sale of all kinds of fuel, supplying said energy or fuels to the greater consuming public directly or through other companies. Directors President Jorge Rosenblut Ratinoff Vice President José M. Fernández Norniella Directors Pedro Buttazzoni Álvarez José María Calvo-Sotelo Ibañez-Martín Antonio Cámara Eguinoa Hernán F. Errázuriz Correa Marcelo Llévenes Rebolledo Principal Directors Executive Officer Rafael López Rueda Comunications Manager Juan Pablo Larraín Medina 2006 Annual Report | 99 SUBSIDIARIES AND ASSOCIATE COMPANIES Legal Counsel Gonzalo Vial Vial Distribution and Services Regional Manager Cristóbal Sánchez Romero Economic and Planning Manager Juan Pablo Spoerer Hurtado Innovation and Human Resources Manager Cristián Herrera Fernández Energy and Regulation Manager Guillermo Pérez del Río Chief Commercial Officer Andreas Gebhardt Strobel Networks Manager Enrique Fernández Pérez CHILECTRA INVERSUD Name Chilectra Inversud S.A. Tax N° 99.573.910-0 Kind of Company Private Company Address Santa Rosa 76, piso 8°, Santiago Telephone (562) 675 2000 Fax (562) 675 2000 External Auditors KPMG Auditores Consultores Ltda. Total N° of Shares 89,200 Paid Capital (US$) 569,020,000 Holding of Enersis (direct and indirect) 99.09% Corporate Purpose To exploit the business of sales and distribution of electric energy abroad, either on its own or through third parties. Likewise, the company could invest in foreign companies, as well as invest in all types of commercial tools such as in payments, vouchers, bonds, credit, negotiable furnishing values, and other financial or commercial documents, all with the vision of receiving its earned and unearned income. As for the preceding, the company could form, modify, dissolve, and liquidate foreign companies, while being able to also develop all the other activities that would be complementary and/or related to previous transfers. 100 | 2006 Annual Report Directors President Cristóbal Sánchez Romero Vice President Juan Pablo Spoerer Hurtado Director José Luis Acuña Velasco Principal Directors Executive Officer José Luis Acuña Velasco CHOCÓN Name Hidroeléctrica El Chocón S.A. Kind of Company: Publicly Held Limited Liability Stock Company Address: Av. España 3301, Buenos Aires; Argentina Corporate Purpose The company’s objective is the production and commercialization of electric energy. Paid Capital (M$) 180,063,881 Holding of Enersis (direct and indirect) 28.46% Directors President Rafael Mateo Alcalá Vice President Bernardo J. Velar de Irigoyen José Miguel Granged Bruñen Miguel Ortiz Fuentes Julio Valbuena Sánchez Eduardo Adrián Carbajo José Luis Mazzone Enrique Díaz Riva Alternate Directors Fernando Antognazza Francisco Domingo Monteleone José María Hidalgo Martín-Mateos José Luís Sierra Luís A.Acuña Carlos Arturo Principi Aldo Luis Evitan Vacant Principal Directors Executive Officer Fernando Claudio Antognazza CIEN Name Compañía de Interconexión Energética S.A. Kind of Company Public Company Address Praia de Flamengo, 200 -12º andar-parte, Río de Janeiro, R.J. 22.210.030 - Brasil Corporate Purpose The company’s corporate purpose is electrical energy’s production, industrialization, distribution, and commercialization performance, including the area of imports and exports. Paid Capital (Br. Real) 285,044,682 Holding of Enersis (direct and indirect) 53.57% Directors President Marcelo Llévenes Rebolledo Vice President Francisco Javier Bugallo Sánchez Director José Venegas Maluenda Principal Directors President Manager Francisco Javier Bugallo Sánchez Planning and Accounting Manager Aurelio Ricardo Bustillo de Oliveira Financial Manager Guilherme Gomes Lencastre Technical Manager José Ignácio Pires Medeiros Trading and Commercialization Manuel Rigoberto Herrera Vargas Human and Administrative Resources Manager Raimundo Câmara Filho CODENSA Name Codensa S.A. E.S.P. Kind of Company Public Company Address Carrera 13 A N° 93-66, Bogotá, Colombia Telephone (57 1) 601 6060 Fax (57 1) 601 5917 Web site www.codensa.com.co E-mail tservice@codensa.com.co External Auditors Deloitte & Touche Ltda. Total N° of Shares subscribed and paid 132,093,274 Subscribed and Paid Capital (Col $) 13,209,327,400 Holding of Enersis (direct and indirect) 21.73% Investments as proportion of Enersis assets 1.84% Corporate Purpose (excerpt) The distribution and commercialization of electric energy, as well as the implementation of all activities that are common, similar, complementary, and related to energy distribution and commercialization, job execution, electrical engineering design and consultancy, and product marketing benefiting its clients. Directors President Andrés Regué Godall Directors Carlos Bello Vargas Orlando Cabrales Martínez Alfredo Ergas Segal (Chief Regional Finance Officer) Astrid Martínez Ortiz Pedro Rodríguez Tobo Cristóbal Sánchez Romero Alternate Directors José Inostroza López Henry Navarro Sánchez Roberto Ospina Pulido Luis Rueda Silva Antonio Sedán Murra Juan Pablo Spoerer Hurtado Héctor Zambrano Rodríguez Luis Larumbe Aragón Legal Manager Alvaro Camacho Borrero Chief Planning and Control Officer Roberto Ospina Pulido Chief Human Resources Officer Carlos Alberto Niño Forero Chief Regulation Officer Omar Serrano Rueda Chief Auditing Officer Alba Urrea Gómez COELCE Name Companhia Energética do Ceará Kind of Company Foreign Publicly Held Liability Stock Company Address Av. Barão de Studart, 2917/83, Bairro Dionísio Torres, Fortaleza, Ceará, Brasil Telephone (55 85) 3216 1350 Fax (55 85) 3216 1247 Web site www.coelce.com.br E-mail investor@coelce.com.br External Auditors Deloitte Touche Tohmatsu Total N° of shares 155,710,600,088 Subscribed and paid capital (Br. Real) 433,057,722.64 Holding of Enersis (direct and indirect) 34.90% Corporate Purpose (excerpt) To explore the distribution of electric energy and similar services in the state of Ceará. Principal Directors Chief Executive Officer José Inostroza López Chief Commercial Officer David Acosta Correa Chief Communications Officer María Alexandra Velez Henao Chief Distribution Officer Margarita Olano Olano Chief Financial and Administration Officer Directors President Mario Fernando de Melo Santos Vice President Marcelo Llévenes Rebolledo Directors Luis Gastão Bittencourt da Silva Irã da Silva Cardoso José Alves de Mello Franco Joao Ricardo de Azevedo Ribeiro Fernando de Moura Avelino enersis06 Jorge Parente Frota Júnior Luis Carlos Ortins Bettencourt Cristóbal Sánchez Romero Gonzalo Vial Vial Alternate Directors Luciano Alberto Galasso Samaria José Nunes de Almeida Neto Antônio Basílio Pires e Albuquerque José Miguel Bandeira Pires Monteiro Lopes Juarez Ferreira de Paula Nelson Ribas Visconti José Caminha Alencar Araripe Júnior Abel Alves Rochinha José Renato Ferreira Barreto Vladia Viana Regis Principal Directors Director President Cristián Fierro Montes Vice President Institutional and Comunicational Projects Director José Nunes de Almeida Neto Commercial Director Vice President Luciano Galasso Samaria Technical Director Vice President José Távora Batista Strategic Planning and Control Director Vice President Abel Pérez Claros Organization and Human Resources Director Vice President José Ferreira Barreto Financial and Investor Relations Director Vice President Antonio Osvaldo Alves Teixeira COMPAÑÍA PERUANA DE ELECTRICIDAD Name Compañía Peruana de Electricidad S.A.C. Kind of Company Private Company Address Jr. Teniente César López Rojas 201, Maranga, San Miguel, Lima, Perú Telephone (51 1) 561 1604 Fax (51 1) 452 3007 P.O. Box 32, Lima, Perú External Auditors Gris y Hernández y Asociados S.AC. – Deloitte & Touche. 2006 Annual Report | 101 SUBSIDIARIES AND ASSOCIATE COMPANIES Total N° of Shares 98,538,403 Subscribed and Paid Capital (Per. New Sun) 98,538,403 CONSTRUCCIONES Y PROYECTOS LOS MAITENES COSTANERA Name Endesa Costanera S.A. Holding of Enersis (direct and indirect) 50.54% Name Construcciones y Proyectos Los Maitenes S.A. Kind of Company Public Company Corporate Purpose The company’s objective is to make investments in general, especially those involving the distribution and production of electric energy. Kind of Company Private Company Tax N° 96.764.840-K Address Av. España 3301, Buenos Aires, Argentina. Corporate Purpose The company’s objective is the production and commercialization of electric energy en masse. Address Américo Vespucio Nº 0100, Pudahuel, Santiago Paid Capital (M$) 86,247,712 Directors Private Company without Directors Principal Directors Executive Officer Ignacio Blanco Fernández CONO SUR Name Compañía Eléctrica Cono Sur S.A. Kind of Company Public Company Telephone (56 2) 601 0601 Fax (56 2) 601 0519 External Auditors Deloitte & Touche Total N° of Shares 295,100 Address Edificio Omega. Av. Samuel Lewis y Calle 53, Apartado Postal 4493, Panamá 5, República de Panamá. Corporate Purpose a) The construction of all types of civil works, installations, buildings, housing, offices, etc., on its own or by third parties, on company or third- party land that is developed or not. b) The sale or disposal of such works and structures by any means necessary. c) The study and development of plans for such structures, including the engineering, architecture, financing, commercialization, etc. In the development of the company’s actions, the company could always act on its own or through third parties, be it directly or in participation with partnerships, communities, companies, and legal representatives of any kind, of which the company could even take on the administration. Subscribed and paid capital (M$) 4,029,525 Holding of Enersis (direct and indirect) 55% Corporate Purpose a) The construction of all types of civil works, installations, buildings, housing, offices, etc., on its own or by third parties, on company or third party land that is developed or not. b) The sale or disposal of such works and structures by any emans necessary. c) The study and development of plans for such structures, including the engineering, architecture, financing, commercialization, etc. In the development of the company’s actions, the company could always act on its own or through third parties, be it directly or in participation with partnerships, communities, companies, and legal representatives of any kind, of which the company could even take on the administration. Paid Capital (M$) 912,959,220 Holding of Enersis (direct and indirect) 59.98% Directors President Manuel Irarrázaval Aldunate Andrés Salvestrini Balmaceda Alfredo Ergas Segal (Chief Regional Finance Officer) Carlos Martin Vergara 102 | 2006 Annual Report Directors President Cristóbal Sánchez Romero Directors Victor Manuel Jarpa Riveros Andrés Salas Estrades Luis Felipe Edwards Mery José Manuel Guzmán Nieto Principal Directors Executive Officer Bernardo Küpfer Matte Holding of Enersis (direct and indirect) 38.54% Directors President Rafael Mateo Alcalá Vice President Máximo Bomchil Julio Valbuena Sánchez César F. Amuchástegui José María Hidalgo Martín-Mateos Miguel Ortiz Fuentes Juan Rivera Palma Eduardo J. Romero Vacant Alternate Directors Francisco Monteleone Fernando C. Antognazza Jorge Burlando Bonino Roberto Fagan Sergio Schmois Gabriel Cerdá Bernardo Iriberri José Cox Donoso Alfredo Mauricio Vítolo Principal Directors Executive Officer José Miguel Granged Bruñen Chief Administration and Finance Officer Gabriel Cerdá Apalategui Chief Human Resources Officer Rigoberto Allendes Verdugo Chief Planning and Control Officer Jorge Burlando Chief Comercial Officer Sergio Schmois Chief Production Officer Francisco Monteleone CTM Name Compañía de Transmisión del Mercosur S.A. Kind of Company Public Company Holding of Enersis (direct and indirect) 50.93% Address Bartolomé Mitre 797, Piso 13, Buenos Aires, Argentina. Corporate Purpose To provide high-tension electrical energy transport services, whether they be involving national or international electrical systems, in accordance with existing legislation, to which end the company could participate in national or international bids, turning it into a public service licensee in transporting national or international high-tension electrical energy and carrying out any and all duly related activities. Paid Capital (Ar. $) 14,176,000 Holding of Enersis (direct and indirect) 53.56% Directors President José María Hidalgo Martín-Mateos Francisco Javier Bugallo Sánchez Arturo Plácido Miguel Pappalardo Alternate Directors José Agustín Venegas Malvenda Juan Carlos Blanco Roberto José Fagan Principal Directors Executive Officer Francisco Javier Bugallo Sánchez DISTRILEC INVERSORA Name Distrilec Inversora S.A. Kind of Company Foreign Private Company Address San José N° 140 (C1076AAD) Buenos Aires, Argentina Telephone (54 11) 4370 3700 Fax (54 11) 4381 0708 External Auditors Deloitte & Co. Sr. L. Subscribed and Paid Capital (Ar $) 497,612,021. enersis06 Corporate Purpose The company’s main objective is to dedicate itself, in general, to its own activities of creating electrical energy. The company could likewise carry out civil, industrial, and commercial activities and operations, and of any other kind that are related and conducive to its main corporate purpose. Paid Capital (M$) 459,893,164 Holding of Enersis (direct and indirect) 19.83% Directors President Rafael Mateo Alcalá Vice President Javier García Burgos Benfield Juan Benabarre Benaiges Fritz Du Bois Freund Reinaldo Llosa Barber Ricardo Harten Costa Alfonso Bustamante Canny Alternate Directors Julián Cabello Yong Arrate Gorostidi Aguirresarobe Francisco García Calderón Portugal Roberto Cornejo Spickernagel Alberto Triulzi Mora Jaime Zavala Costa Joseph Lessard Meath Principal Directors Executive Officer José Griso Ginés Christian Schroder Romero Chief Legal Assesment Officer Milagros Noriega Cerna Chief Finance Officer Julián Cabello Yong Chief Exploitation Officer Robert Cornejo Spickemagel Chief Commercial Officer Investments as proportion Of Enersis’ Assets 1.98% Corporate Purpose (excerpt) The company’s sole objective is investing capital in established companies or ones that will be established, whose main purpose is electrical energy distribution or who participate directly or indirectly in companies that do so through carrying out all types of financial and investment activity, except for those provided by laws dealing with finance companies, the buying and selling of public and private documents, bonds, shares, negotiable obligations, granting of loans, and the deposit of its funds in any type of bank account. Directors President Joao Ferreira Becerra de Souza Vice President Rafael López Rueda Directors Alan Arntsen Daniel Casal Fermín Demonte Mariano Florencio Grondona Rigoberto Mejía Aravena Luis Miguel Sas Marcelo Silva Iribarne Gonzalo Vial Vial Alternate Directors Pedro Eugenio Aramburu Manuel María Benites Santiago Daireaux Esteban Diez Peña Mónica Diskin Roberto José Fagan Martín Mandarano Luis Ríos Enrique Rosello Jorge Vugdelija Principal Directors Executive Officer José María Hidalgo Martín-Mateos EDELNOR EDEGEL Name Edegel S.A.A. Kind of Company Public Company Name Empresa de Distribución Eléctrica de Lima Norte S.A.A. Kind of Company Foreign Publicly Held Liability Stock Company Address Jr. Teniente Cesar López Rojas 201 Urb. Maranga, San Miguel, Lima, Perú Address Av. Víctor Andrés Belaúnde N° 147, edificio real 4, piso 7, Centro Empresarial Camino Real, San Isidro, Lima, Perú. Telephone (51 1) 561 2001 2006 Annual Report | 103 SUBSIDIARIES AND ASSOCIATE COMPANIES Fax (51 1) 561 0451 Web site www.edelnor.com.pe E-mail enlinea@edelnor.com.pe External Auditors Gris, Hernández y Asociados, S.C.- Deloitte & Touche Total N° of Shares 738,563,900 Kind of Company Foreign Publicly Held Liability Stock Company Address San José 140 (1076), Capital Federal, Argentina Telephone (54 11) 4370 3700 Fax (54 11) 4381 0708 Web site www.edesur.com.ar Subscribed and Paid Capital (Per. New Sun) 738,563,900 E-mail emailservicio@edesur.com.ar Holding of Enersis (direct and indirect) 33.4% External Auditors Deloitte & Co. S.R.L. Corporate Purpose (excerpt) To dedicate itself to its own activities of providing electrical energy distribution, transmission, and creation services. Directors President Reynaldo Llosa Baber Vice President Ignacio Blanco Fernández Directors Fernando Bergasa Cáceres Róger Espinosa Reyes Rafael López Rueda Emilio Recoder de Casso Guillermo Jesús Morales Valentín Ricardo Vega Llona Principal Directors Executive Officer Ignacio Blanco Fernández Chief Commercial Officer Carlos Solís Pino Chief Organization and Human Resources Manager Rocío Pachas Soto Chief Technical Officer Walter Sciutto Brattoli Chief Administration and Control Officer Juan Pablo Harrison Calvo Chief Legal and Regulation Officer Luis Salem Hone Chief Communication Officer José Otárola Luna Chief Energy and Regulation Management Officer Alfonso Valle Cisneros EDESUR Name Empresa Distribuidora Sur S.A. 104 | 2006 Annual Report Total N° of Shares 898,585,028 Subscribed and Paid Capital (Ar. $) 898,585,028 Holding of Enersis (direct and indirect) 65.39% Investments as proportion of Enersis assets 2.07% Corporate Purpose (excerpt) The distribution and commercialization of electric energy and related operations. Directors President Rafael López Rueda Vice President Joao Bezerra de Souza Directors Rafael Arias Salgado Miguel Beruto Juan Pablo Larraín Medina Rigoberto Mejía Aravena Marcelo Silva Iribarne Gonzalo Vial Vial Jorge Volpe Alternate Directors Pedro Aramburu Alan Arntsen Manuel Benites Luis Ríos Santiago Daireaux Roberto Fagan Daniel Casal Mariano Grondona Pablo Lepiane Principal Directors Executive Officer José María Hidalgo Martín-Mateos Chief Environmental Quality and Sustainable Development Officer José María Gottig Chief Communication Officer Daniel Martini Chief Internal Auditing Officer Jorge Lukaszczuk Legal Director Álvaro Estivariz Human Resources Director Héctor Ruiz Moreno Commercial Director Sandro Rollan Distribution Director Daniel Colombo Services Director Daniel Alasia Planning and Economic Control Director Juan Garade Administration and Finance Director Juan Verbitsky ELECTROGAS Name Electrogas S.A. Kind of Company Private Company Tax N° 96.806.130-5 Address Evaristo Lillo Nº 78, piso 4, oficina Nº41, Santiago, Chile. Corporate Purpose The company’s objective is to provide natural gas and other fuel transport services on its own and through third parties, whereby it could construct, operate, and maintain gas pipelines, oil pipelines, poly-pipelines, and complementary installations. Paid Capital (M$) 11,321,888 Holding of Enersis (direct and indirect) 25.49% Directors President Claudio Iglesis Guillard Pedro Gatica Kerr Felipe Aldunate Hederra Carl Weber Silva Rosa Herrera Martínez Alternate Directors Enzo Quezada Zapata Víctor Briazo Peralta Jaime Fuenzalida Alessandri Jorge Bernardo Larraín Matte Vacant Principal Directors Executive Officer Carlos Andreani Luco EMGESA Name Emgesa S.A. E.S.P. Kind of Company Public Service Publicly Held Limited Liability Stock Company. Address Carrera 11 Nº 82-76, Piso 4 Santa Fe de Bogotá, D.C. Colombia. Corporate Purpose The company’s objective is the creation and commercialization of electric energy, as well as the carrying out of all activities that are related, similar, connected, complementary, and involved with the production of energy. Paid Capital (M$) 577,355,128 EMPRESA ELÉCTRICA DE COLINA Name Empresa Eléctrica de Colina Limitada Kind of Company Limited Partnership Tax N° 96.783.910-8 Address Chacabuco N°31, Colina, Santiago, Chile Telephone (562) 844-4280 Fax: (562) 844-4490 External Auditors KPMG Auditores Consultores Ltda. Paid Capital (M$) 88,222 Holding of Enersis (direct and indirect) 14.07% Holding of Enersis (direct and indirect) 99.09% enersis06 Holding of Enersis (direct and indirect) 59.97% Directors President José Miguel Granged Bruñen Vice President Néstor José Belgrano Director Francisco Martín Gutiérrez Alternate Directors José María Hidalgo Martín-Mateos Patricio Alberto Martín Marcelo A. Den Toom ENDESA BRASIL Name Endesa Brasil S.A. Kind of Company Public Company Address Praia do Flamengo, 200 – 16º andar –Rio de Janeiro, Brasil Directors President Andrés Regué Godall Astrid Martínez Ortiz Lucio Rubio Díaz Claudio Iglesis Guillard María Fernanda Lafourie Enrique Borda Villegas Camilo Sandoval Sotelo Alternate Directors Fernando Gutiérrez Medina Henry Navarro Sánchez David Post Mónica Cheng Arango Martha Veleño Quintero Manuel Jiménez Castillo Héctor Zambrano Rodríguez Principal Directors Executive Officer Lucio Rubio Díaz Andrés Caldas Rico Legal Director Gustavo López Chief Administration and Finance Officer Alvaro Pérez Uz Chief Control Officer Carlos Alberto Luna Chief Production Officer Fernando Gutiérrez Medina Chief Commercial Officer Maria Celina Restrepo Chief Communications Officer Corporate Purpose The exploitation, production, transpor t, distribution, and buying and selling of energy and electric equipment, as well as the implementation of electrical installations. Telephone (55 21) 3607 9500 Fax (55 21) 3607 9555 Principal Directors Executive Officer Leonel Martínez Garrido ENDESA ARGENTINA Name Endesa Argentina S.A. Kind of Company Public Company Address Suipacha 268, piso 12, Buenos Aires, Argentina. Corporate Purpose The company’s corporate purpose is to invest in businesses focused on the production, transport, distribution, and commercialization of electric energy, as well as to carry out financial transactions, with the exception of those reserved by law exclusively for banks. Paid Capital (M$) 31,470,587 Corporate Purpose The company’s corporate purpose is: (i) Participation in the share capital of other companies and corporations that act or will be set up to act directly or indirectly in any electrical segment sector, including service-providing companies to acting companies in such a sector, in Brazil or abroad, as a member, or stock holder, like as in legally permitted limits and, when the case is warranted, subject to the securing of mandatory regulation approval. (ii) The participation, individually or through a joint venture, company, consortium, or other similar forms of association, in bids, plans, and initiatives to carry out the services mentioned in the preceding article. External Auditors Deloitte Touche Tohmatsu Independent Auditors Total N° of Shares 170,877,378 Ordinary voting shares Subscribed and paid capital (Br. Real) 916,878,914 Holding of Enersis (direct and indirect) 53.57% 2006 Annual Report | 105 SUBSIDIARIES AND ASSOCIATE COMPANIES Investments as proportion of Enersis assets 5.82% Directors President Mario Fernando de Melo Santos Directors Ignacio Antoñanzas Alvear (Enersis Chief Executive Officer) José María Calvo-Sotelo Ibañez Martín Antonio Basilio Pires de Carvalho e Albuquerque Rafael Mateo Alcalá Rafael López Rueda Héctor López Vilaseco Principal Directors Executive Officer Marcelo Llévenes Rebolledo Vice-CEO Francisco Bugallo CFO and Investor Relations Abel Alves Rochinha Planning and Control Aurelio De Oliveira Institutional Relationships Eugenio Cabanes Legal Antonio Basilio Pires e Albuquerque ENDESA BRASIL PARTICIPACOES LIMITADA Name Endesa Brasil Participacoes Limitada Kind of Company Limited Partnership Address Praia do Flamengo 200, 12º andar, Rio de Janeiro, Brasil External Auditors Ernst & Young Subscribed and Paid Capital (Th.$) $ 643,330 Holding of Enersis (direct and indirect) 59.97% Corporate Purpose The corporate purpose is comprised in other companies, as in being a member, share holder or quotist; the offering of services, including the management of owned and third-party goods related to the electric sector; and the detection and study of new markets and investment alternatives, particularly in the electric sector. 106 | 2006 Annual Report Attorneys Francisco Javier Bugallo Sánchez Guilherme Gomes Lencastre Aurelio Ricardo Bustillo de Oliveira Manuel Rigoberto Herrera Vargas ENDESA CHILE Name Empresa Nacional de Electricidad S.A. Kind of Company Publicly Held Limited Liability Stock Company Tax N° 91.081.000-6 Address Santa Rosa N°76, Santiago, Chile Telephone (56 2) 630 9000 Fax (56 2) 635 4720 P.O. Box 1392, Santiago Web site www.endesa.cl E-mail comunicacion@endesa.cl Secutiries Register Inscription N°114 Directors Jaime Bauzá Bauzá Héctor López Vilaseco Enrique García Álvarez Carlos Torres Vila José María Fernández Olano Jaime Estévez Valencia Leonidas Vial Echeverría Principal Directors Executive Officer Rafael Mateo Alcalá Chief Communications Officer Renato Fernández Baeza Legal Counsel Carlos Martín Vergara Chief Administration and Finance Officer Manuel Irarrázaval Aldunate Chief Human Resources Officer Juan Carlos Mundaca Álvarez Chief Planning and Control Officer Julio Valbuena Sánchez Chief Trading and Commercialization Officer José Venegas Maluenda Chief Energy Planning Officer Rafael Errázuriz Ruiz-Tagle Chief Production and Transportation Officer Juan Benabarre Benaiges Chief Endesa Chile Generation Officer Claudio Iglesis Guillard ENDESA CHILE INTERNACIONAL Name Endesa Chile Internacional S.A. External Auditors Ernst & Young Serv. Prof. de Auditoría Ltda. Kind of Company Exent Company Total N° of Shares 8,201,754,580 Subscribed and paid capital (M$) 1,138,620,063 Holding of Enersis (direct and indirect) 59.98% Investments as proportion of Enersis assets 30.31% Corporate Purpose (excerpt) The production and supply of electric energy, the sale of consultancy and engineering services in the country and abroad and the construction and exploitation of infrastructure construction. Directors President Mario Valcarce Durán Vice President Pedro Larrea Paguaga Address Caledonian Bank & Trust Limited, Caledonian House, Mary Street P.O. Box 1043, George Town, Grand Cayman, Cayman Islands. Corporate Purpose The company’s objective is to carry out all business or activity in accordance with Cayman Islands legislation. Basically, business dealings and activities are referring to financial matters, with the exception of those that the law reserves for banks and those that prohibit doing business with firms or people residing in Cayman Islands. Change of Name Changing name from Endesa Chile Overseas Co. to Endesa Chile Internacional was adopted by shareholder agreement, with date August 16, 2001. This resolution is under the protocol N° 138, August 20, 2001 in the notary’s office Fernando Opazo Larraín. Santiago. enersis06 Address Rodovia 422, Km 1 s/nº, Complexo Industrial e Portuário de Pecém Caucaia – Ceará, Brasil ENDESA MARKET PLACE Paid Capital (M$) 391,773,372 Holding of Enersis (direct and indirect) 59.98% Directors Manuel Irarrázaval Aldunate Carlos Martín Vergara Andres Salvestrini Balmaceda Alfredo Ergas Segal (Enersis’ Regional Chief Finance Officer) ENDESA ECO Name Endesa Eco S.A. Kind of Company Private Company Tax N° 76.313.310-9 Address Santa Rosa 76 piso 12, Santiago, Chile External Auditors Ernst & Young Corporate Purpose The objective of this company is to promote and develop plans that have to do with renewable energy, such as with minihydro, eolian, geothermic, solar, biomass, and others; to identify and develop Mecanismo de Desarrollo Limpio (Clean Growth Mechanism) projects and act as receiver and promoter of the emission reduction certificates that are obtained in said projects. Paid Capital (M$) 582,980 Holding of Enersis (direct and indirect) 59.98% Directors Juan Benabarre Benaiges Manuel Irarrázaval Aldunate Renato Fernández Baeza Principal Directors Executive Officer Wilfredo Jara Tirapegui P.O. Box 61600-000 Telephone (55 85) 3464-4100 Fax (55 85) 3464-4197 E-mail arebello@endesabr.com.br External Auditors Ernst & Young Auditores Independentes S/S Corporate Purpose (excerpt) (i) To study, project, construct, and explore production, transmission, distribution, and commercialization systems of electrical energy that are awarded, permitted, or authorized by any legal title, such as the exercising of other activities associated with the offering of any services related to the above mentioned activities. (ii) The acquisition, obtaining, and exploration of any rights, concessions, and privileges related to the activities mentioned above, as well as the practice of all other business and activities necessary to attain its objective; and (iii) The participation in the share capital of other companies and corporations, as a share holder, member, or participant, whatever its objectives are. Total N° of Shares 151,935,778 Subscribed and paid capital (M$) 151,935,779 Holding of Enersis (direct and indirect) 53.57% Directors President Francisco Bugallo Sánchez Director Vice President Marcelo Llévenes Rebolledo Director Guilherme Gomes Lencastre ENDESA FORTALEZA Name CGTF -Central Geradora Termeléctrica Fortaleza S.A. Kind of Company Closed Capital Publicly Held Liability Stock Company Principal Directors Executive Officer Manuel Herrera Vargas Chief Human Resources and Administrative Officer Raimundo Câmara Filho Chief Financial Officer Guilherme Gomes Lencastre Chief Technical Officer José Pires Medeiros Chief Planning, Control and Accounting Officer Aurélio Bustillo de Oliveira Name Endesa Market Place en Liquidación S.A. Kind of Company Foreign Publicly Held Liability Stock Company Address Ribera de Loira, 60 CEP 28042, España Telephone (34 91) 213 1000 Fax (34 91) 213 4199 External Auditors Deloitte, S.L. Subscribed and Paid Capital (euros) 6,743,800 Holding of Enersis (direct and indirect) 15.00% Corporate Purpose (excerpt) B2B and new technologies. Liquidator Ramón Cabezas Navas Principal Directors Liquidator Ramón Cabezas Navas ENERGEX Name Energex Co. Kind of Company Exent Company Address Caledonian House P.O. Box 265 G, George Town, Grand Cayman, Cayman Islands. Corporate Purpose The company’s objective is to carry out all business or activity in accordance with Cayman Islands legislation. In the case of business and activities referring to finances, the exceptions would be those that the law reserves for banks. It is also prohibited to do business with firms or people residing on Cayman Islands. Paid Capital (MS$) 5,324 Holding of Enersis (direct and indirect) 29.99% 2006 Annual Report | 107 SUBSIDIARIES AND ASSOCIATE COMPANIES Directors Tom Miller Andrés Salvestrini Balmaceda David Baughman Vacant ENIGESA Name Endesa Inversiones Generales S.A. Kind of Company Private Company Tax N° 96.526.450-7 Address Santa Rosa 76, Santiago, Chile Corporate Purpose The company’s objective is the acquisition, sale, management, and exploitation, on its own account or through third parties, all types of furniture goods, properties, furniture values, and other business items; to carry out studies and consultancy; to offer all types of services; to participate in all types of investment and especially those related to the energy business; to participate in all types of companies and to carry out all operations, actions, and contracts that relate to the above mentioned objectives. Paid Capital (M$) 2,612,752 Corporate Purpose a) The administration and management of the Gasoducto Atacama Chile Limitada corporations, Gasoducto Atacama Argentina Limitada, Gasatacama Generación Limitada, and the other companies that the members agree on; b) The investment of its resources, on its own account or through third parties, in all types of furniture goods or properties, physical or non- physical, securities, stocks and business items. Paid Capital (M$) 155,183,214 Holding of Enersis (direct and indirect) 29.99% Directors President Rafael Mateo Alcalá Tom Miller David Baughman Vacant Alternate Directors Juan Benabarre Benaiges Claudio Iglesis Guillard Fernando Gallino Dan Dexter Principal Directors Executive Officer Rudolf Araneda Kauert GASATACAMA GENERACIÓN Holding of Enersis (direct and indirect) 59.96% Name Gasatacama Generación S.A. Directors Manuel Irarrázaval Aldunate Juan Carlos Mundaca Álvarez Jaime Montero Valenzuela Principal Directors Executive Officer Juan Carlos Mundaca Álvarez GASATACAMA Name Gasatacama S.A. Kind of Company Private Company Tax N° 96.830.980-3 Address Isidora Goyenechea 3365, Piso 8, Santiago, Chile 108 | 2006 Annual Report Kind of Company Private Company Tax N° 78.932.860-9 Address Isidora Goyenechea 3365, Piso 8, Santiago, Chile. Corporate Purpose a) To exploit the production, transmission, purchasing, distribution, and sales of electric energy or of any other type. b) The purchasing, extraction, exploitation, processing, distribution, commercialization, and sale of solid, liquid, and gas fuels. c) The sale and offering of engineering ser vices; d) The securing, transfer, purchasing, renting, obligation, and exploitation, by any means, of the concessions that the general law of electrical services, maritime concessions, and water (of any source) exploitation rights refers to. e) To invest in all types of goods, physical or non-physical, furniture or properties; f) The organization and setting-up of any type of company, whose objectives are related or involved with energy in any of its forms or that mainly supply electric energy or that have to do with any of the activities defined above. Paid Capital (M$) 64,364,694 Holding of Enersis (direct and indirect) 29.99% Directors President Rafael Mateo Alcalá Tom Miller David Baughman Vacant Alternate Directors Juan Benabarre Benaiges Claudio Iglesis Guillard Fernando Gallino Dan Dexter Principal Directors Executive Officer Rudolf Araneda Kauert GASODUCTO ATACAMA ARGENTINA Name Gasoducto Atacama Argentina S.A. Kind of Company Private Company Tax N° 78.952.429-3 Address Isidora Goyenechea 3365, Piso 8, Las Condes, Santiago, Chile. Corporate Purpose The company’s objective is the transport of natural gas on its own account, through outside sources or in conjunction with third parties within Chilean territory or in other countries, including the construction, emplacement, and exploitation of gas pipelines and other activities related directly or indirectly to said objective. This company established an agency in Argentina under the name; “Gasoducto Cuenca Noroeste Limitada Sucursal Argentina”, whose purpose is the implementation of the gas pipeline between the locality of Cornejo in the Salta Province and the Argentine-Chilean border near the Jama Pass in the 2nd. Region. Paid Capital (M$) 56,182,414 Holding of Enersis (direct and indirect) 29.99% Principal Directors Executive Officer Rudolf Araneda Kauert Directors President Rafael Mateo Alcalá Tom Miller David Baughman Vacant Alternate Directors Juan Benabarre Benaiges Claudio Iglesis Guillard Fernando Gallino Dan Dexter Principal Directors Executive Officer Rudolf Araneda Kauert GASODUCTO ATACAMA CHILE Name Gasoducto Atacama Chile S.A. Kind of Company Private Company Tax N° 78.882.820-9 Address Isidora Goyenechea 3365, Piso 8, Las Condes, Santiago, Chile. Corporate Purpose The company’s objective is the transport of natural gas on its own, or in conjunction with third parties within Chilean territory or in other countries, including the construction and emplacement of gas pipelines and other activities related directly or indirectly with said objective. Paid Capital (M$) 34,140,865 Holding of Enersis (direct and indirect) 29.99% Directors President Rafael Mateo Alcalá Tom Miller David Baughman Alternate Directors Juan Benabarre Benaiges Claudio Iglesis Guillard Fernando Gallino Dan Dexter enersis06 Corporate Purpose The company’s objective is to carry out activities related to the production of electric energy, directly and/or through companies set up for this purpose. GASODUCTO TALTAL Paid Capital (M$) 192,651,221 Name Gasoducto Taltal S.A. Kind of Company Private Company Tax N° 77.032.280-4 Address Santa Rosa 76, Santiago, Chile Corporate Purpose The company’s objective is to transpor t, commercialize, and distribute natural gas on its own, through outside sources, or in conjunction with third parties, within Chilean territory, especially between the localities of Mejillones and Paposo in the 2nd. Region , including the construction, emplacement, and exploitation of gas pipelines and other activities related directly or indirectly with said objective. Paid Capital (M$) 15,000,978 Holding of Enersis (direct and indirect) 29.99% Directors Rudolf Araneda Kauert Pedro de La Sotta Sánchez Rafael Zamorano Chaparro Eric Bongardt Boettiger Alternate Directors Luis Cerda Ahumada Alejandro Sáez Carreño Gustavo Venegas Castro Luis Vergara Aguilar Principal Directors Executive Officer Rudolf Araneda Holding of Enersis (direct and indirect) 35.77% Directors President Rafael Mateo Alcalá Vice President Javier García Burgos Benfield Juan Benabarre Benaiges José María Hidalgo Martín-Mateos Mario Valcarce Durán José Chueca Romero Ignacio Blanco Fernández Joseph Lessard Meath Alberto Triulzi Mora Alternate Directors Juan Cabello Yong Juan Antonio Rozas Mori José María Hidalgo Martin Mateos Fritz Du Bois Freund Stephen Mitchell Pearlman Milagros Noriega Cerna Roberto Cornejo Spickernagel Guillermo Lozada Pozo Principal Directors Executive Officer José Griso Ginés Milagros Noriega Cerna Chief Finance Officer GNL CHILE Name GNL Chile S.A. Kind of Company Private Company Tax N° 76.418.940-K GENERANDES PERÚ Address Isidora Goyenechea 3477, piso 19, Las Condes, Santiago Name Generandes Perú S.A. Kind of Company Public Company Address Av. Víctor Andrés Belaúnde N°147, Torre Real, Piso 7, San Isidro, Lima, Perú. Corporate Purpose The company will have as its sole objective the provision of management, administration, logistical, and coordination services as a contractor or agent of the group of companies that promotes a plan to secure the supply of liquid natural gas, its re-gasification, and delivery in Chile’s central area. 2006 Annual Report | 109 SUBSIDIARIES AND ASSOCIATE COMPANIES Paid Capital (M$) $10,210 Holding of Enersis (direct and indirect) 14.14% Roberto Fagan Gabriel Cerdá Rigoberto Allendes Verdugo Sergio Falzone Leonardo Katz Vacant Directors President Enrique Dávila Alveal Rafael Mateo Alcalá Eduardo Morandé Montt Bernardo Larraín Matte Felipe Cerón Cerón Alternate Directors Paula Hidalgo Mandujano Claudio Iglesis Guillard Gonzalo Palacios Vásquez Felipe Aldunate Hederra Héctor Rojas Brito Principal Directors Executive Officer Antonio Bacigalupo Gittins HIDROINVEST Name Hidroinvest S.A. Kind of Company Public Company INGENDESA Name Empresa de Ingeniería Ingendesa S.A. Kind of Company Private Company Tax N° 96.588.800-4 Address Santa Rosa 76, Santiago, Chile Corporate Purpose The company’s objective is the provision of engineering services, job inspection, receiving and inspection of equipment and materials, a laboratory, industrial studies, business management in different fields, environment consultancy, including the carrying out of environmental impact studies, and consulting services in general in every field, in the country as well as abroad, be it directly, associated with or through third parties, by which the company could form, or incorporate itself with other companies, corporations, foundations, or consortiums of any kind. Address Av. España 3301, Buenos Aires; Argentina. Paid Capital (M$) 2,037,888 Corporate Purpose The provision of engineering services which comprise the projection, planning and carrying out of engineering plans and studies, consultancy offices, granting of technical information and assistance, and work and design development. Additionally, the company offers on its own account, or through outside sources, all types of works, the setting up and initiating of all types of establishments for itself or third parties, industrial or non-industrial, commercializing for itself or third parties the goods and services produced. In general, to develop activities related directly or indirectly with the operations mentioned, all types of commercial activity, including the buying and selling of furniture, exports and imports, and all business that the members agree on and that are related to the activities indicated. Besides what has been mentioned, a special objective of the company is the awarding and carrying out of the Fiscal Inspection Consultancy Contract and the Concession Contract Justice Center of Santiago. Paid Capital (M$) 1,000 Holding of Enersis (direct and indirect) 29.99% Representatives Rodrigo Alcaíno Mardones Alejandro Santolaya de Pablo Alternate Representatives Cristian Araneda Valdivieso Elías Arce Cyr Julio Montero Montegu Fernando Orellana Welch Corporate Purpose The company’s objective is to acquire and maintain a principal share in Hidroeléctrica El Chocón S.A. Paid Capital (M$) 10,735,404 Holding of Enersis (direct and indirect) 41.94% Directors President Rafael Mateo Alcalá Vice President Bernardo J. Velar de Irigoyen Directors Miguel Ortiz Fuentes José Miguel Granged Bruñen Fernando Claudio Antognazza Julio Valbuena Sánchez Francisco Domingo Monteleone Carlos Principi Alternate Directors Daniel Garrido José María Hidalgo Martín-Mateos 110 | 2006 Annual Report Holding of Enersis (direct and indirect) 59.98% INGENDESA BRASIL Directors President Juan Benabarre Benaiges Rafael de Cea Chicano Aníbal Bascuñán Bascuñán Principal Directors Executive Officer Rodrigo Alcaíno Mardones INGENDESA - ARA Name Sociedad Consorcio Ingendesa - Ara Ltda. Kind of Company Limited Partnership Tax N° 76.197.570-6 Name Ingendesa do Brasil Ltda. Kind of Company Limited Partnership. Address Av. Rio Branco 115, pavimento 10, sala 1005, Centro, Río de Janeiro, Brasil. Corporate Purpose The corporate purpose comprises the provision of engineering services, studies, plans, technical consultancy, administration, work control and supervision, inspection and receiving of materials and equipment, skills and laboratory services, as well as other services that legal authorities permit in practice regarding engineering, architecture, agronomy, geology, and meteorology, in all of its specializations, in the country and abroad, directly or indirectly, whereby the company could participate in companies or consortiums of any kind. Address Santa Rosa 76 Piso 10, Santiago, Chile Paid Capital (M$) 3,628 Holding of Enersis (direct and indirect) 59.98% Osvaldo Dinner Reich Carlos Freire Canto Attorney General Director Sergio Campos Ribeiro INGENDESA MINMETAL Name Consorcio Ingendesa–Minmetal Ltda. Kind of Company Limited Partnership Tax N° 77.573.910-k Address Santa Rosa N° 76, Santiago, Chile Corporate Purpose The corporate purpose comprises the provision of engineering services which include the projection, planning and carrying out of engineering plans and studies, consultancy services, the granting of technical information and assistance, and the administration, inspection, and development of works and projects. The company could also carry out on its own account, or through outside sources, all types of works, set up and initiate all types of establishments on its own account or through third parties, industrial or non-industrial, commercializing for itself or third parties the goods and/or services produced. In general, the company could develop all the activities related directly or indirectly with the operations mentioned, all types of commercial activity, including the buying and selling of furniture, imports and exports, and all other business that members agree on that relate to the activities already mentioned. Apart from what has already been stated, a special objective of the company is the awarding and carrying out of the construction and engineering jobs that constitute the contract named LD-14.1 Technical and Administrative Consultancy regarding the Fiscal Inspection of the Construction Contract LD-4.1 of the Laja Project – Diguillín. Paid Capital (M$) 2,000 Holding of Enersis (direct and indirect) 29.99% Representatives Rodrigo Muñoz Pereira Juan Benabarre Benaiges Alternate Representatives Rodrigo Alcaíno Mardones Fernando Orellana Welch INMOBILIARIA MANSO DE VELASCO Name Inmobiliaria Manso de Velasco Limitada. Kind of Company Limited Partnership. Tax N° 79.913.810-7 Address Santa Rosa N° 76, Piso 9, Santiago-Chile. Telephone (56 2) 378 4700 Fax (56 2) 378 4702 E-mail rch@mvelasco.enersis.cl External Auditors Deloitte & Touche Corporate Purpose (excerpt) The acquisition, transfer, commercialization, and exploitation of real estate and an investment company. Subscribed and paid capital (M$) 25,916,800 Holding of Enersis (direct and indirect) 100% Investments as proportion of Enersis assets 1.04% Attorneys Join Together Attorneys Cristóbal Sánchez Romero Andrés Salas Estrades Alternate Jorge Alé Yarad Alfonso Salgado Menchaca Principal Directors Executive Officer Andrés Salas Estrades Legal Asessor Alfonso Salgado Menchaca Chief Real Estate Development Officer Gustavo Cardemil Dávila Chief ENEA Project Officer Bernardo Küpfer Matte enersis06 INVERSIONES DISTRILIMA Name Inversiones Distrilima S.A. Kind of Company Foreign Publicly Held Liability Stock Company Address Jr. Teniente César López Rojas Nº 201, Maranga, San Miguel, Lima, Perú Telephone (51 1) 561 1604 Fax (51 1) 452 3007 P.O. Box 32, Lima, Perú External Auditors Gris y Hernández y Asociados S.A.C. – Deloitte & Touche Total N° of Shares 394,150,505 acciones Subscribed and Paid Capital (Per. New Sun) 394,150,505 Holding of Enersis (direct and indirect) 55.90 % Investments as proportion en activos de Enersis 0.67% Corporate Purpose (excerpt) The company’s objective is to make investments in general, especially those that are involving the distribution and production of electric energy. Directors President Ignacio Blanco Fernández Vice President Reynaldo Llosa Barber Directors Fernando Bergasa Cáceres Rafael López Rueda Emilio Recoder de Casso Alternate Directors Cristina Ávila García Ricardo Camezzana Leo Fernando Fort Marie Walter Néstor Sciutto Brattoli Zoila Patricia Mascaró Díaz Principal Directors Executive Officer Ignacio Blanco Fernández 2006 Annual Report | 111 SUBSIDIARIES AND ASSOCIATE COMPANIES INVERSIONES ELECTROGAS Name Inversiones Electrogas S.A. Kind of Company Private Company Tax N° 96.889.570-2 Address Apoquindo 3076, Oficina 402, Las Condes, Santiago, Chile Corporate Purpose The company’s objective is to buy, sell, invest in and keep stocks in the Electrogas S.A. closed public corporation. Paid Capital (M$) 11,282,994 Holding of Enersis (direct and indirect) 25.49% Directors President Claudio Iglesis Guillard Pedro Gatica Kerr Felipe Aldunate Hederra Carl Weber Silva Rosa Herrera Martínez Alternate Directors Enzo Quezada Zapata Víctor Briazo Peralta Jaime Fuenzalida Alessandri Jorge Bernardo Larraín Matte Vacant Principal Directors Executive Officer Carlos Andreani Luco Corporate Purpose The company’s objective is to make investments in energy projects in the north of Chile that are connected with Gasoducto Atacama Compañía Ltda., Gasoducto Cuenca Noroeste Ltda., and Noroeste Pacífico Generación de Energía Ltda.; as well as in Administradora Proyecto Atacama S.A.; or its legal successors. Paid Capital (M$) 79,149,068 Holding of Enersis (direct and indirect) 59.98% Directors President Manuel Irarrázaval Aldunate Rafael Mateo Alcalá Andrés Salvestrini Balmaceda Alternate Directors Claudio Iglesis Guillard Juan Benabarre Benaiges Raúl Arteaga Errázuriz Principal Directors Executive Officer Juan Benabarre Benaiges INVERSIONES GASATACAMA HOLDING Holding of Enersis (direct and indirect) 29.99% Directors Rafael Mateo Alcalá Alfredo Ergas Segal (Enersis’ Regional Chief Finance Officer) Tom Miller Francisco Mezzadri Alternate Directors Juan Benabarre Benaiges Claudio Iglesis Guillard David Baughman David Kehoe INVESTLUZ Name Investluz S.A. Kind of Company Foreign Publicly Held Liability Stock Company Address Av. Barão de Studart N° 2917, Bairro Dionísio Torres Fortaleza, Ceará, Brasil. Telephone (55 85) 3216 1350 Fax (55 85) 3216 1247 Name Inversiones Gasatacama Holding Limitada External Auditors Deloitte & Touche Tohmatsu Kind of Company Limited Partnership Tax N° 76.014.570-k Address Santiago, Chile Total N° of Shares 100,461,895,427 Subscribed and paid capital (Br. Real) 954,618,954 Holding of Enersis (direct and indirect) 59.51% Corporate Purpose (excerpt) To par ticipate in the share capital of the Companhia Energetica do Ceará and other companies in Brazil and abroad as a member or stock holder. Directors Non Directors Society administrated by an executives Committee which President is Cristián Fierro Montes. In addition, said Committee its comprised by: Antonio Osvaldo Alves Teixeira Silvia Pereira Cunha José Renato Ferreira Barreto Luciano Alberto Galasso Samaria Abel Pérez Claro João Ricardo de Azevedo Ribeiro INVERSIONES ENDESA NORTE Name Inversiones Endesa Norte S.A. Kind of Company Private Company Tax N° 96.887.060-2 Address Santa Rosa 76, Santiago, Chile Corporate Purpose A) The direct or indirect participation through any type of association in companies whose objectives include one or more of the following activities: i) The transport of natural gas in all of its forms; ii) The production, transmission, purchasing, distribution, and sale of energy; iii) The financing of the activities indicated in i) and ii) a precedent developed by related third parties; B) The receipt and investment of the goods that are invested. The corporate purpose comprises all lucrative activities related to the ones already mentioned and other business that the members agree upon. Paid Capital (M$) 177,562,499 112 | 2006 Annual Report LUZ ANDES Name Luz Andes Limitada Kind of Company Limited Partnership Tax N° 96.800.460-3 Address Santa Rosa 76 Piso 5, Santiago, Chile Telephone (562) 634-6310 Fax (562) 634-6370 External Auditors KPMG Auditores Consultores Ltda. Paid Capital (pesos) 1,224,348 Holding of Enersis (direct and indirect) 99.09% Corporate Purpose The distribution and sale of electric energy. The exploitation, production, transport, distribution, and buying and selling of energy and electrical equipment, and the implementation of electrical installations. Principal Directors Executive Officer Claudio Inzunza Díaz LUZ DE RÍO Name Luz de Río Limitada Kind of Company Limited Partnership Address Praça Leoni Ramos, nº 01, bloco 1, Planta 7 (parte) Niterói, Rio de Janeiro Telephone (55 21) 2613 7071 Fax (55 21) 2613 7153 P.O. Box 24.210-205 E-mail lbettencourt@ampla.com Not applicable Securities Register Inscription External Auditors Deloitte Touche Tohmatsu Total Number Quotes: 755,000 Subscribed and paid capital (Br. Real) 755,000 Holding of Enersis (direct and indirect) 99.48% Corporate Purpose (excerpt) To develop activities related to the electric sector, above all the importation, transmission, production, distribution, commercialization, and exploration of electric energy, and, (if permitted), to participate in other electric-sector companies as a member or stock holder. Directors President Marcelo Llévenes Rebolledo Director Financiero Abel Alves Rochinha Institutional Relationships Director Eugenio Cabanes Durán Legal Director Ana Cláudia Gonçalves Rebello PANGUE Name Empresa Eléctrica Pangue S.A. Kind of Company Private Company Tax N° 96.589.170-6. Address Santa Rosa 76, Santiago, Chile. Corporate Purpose The company’s corporate purpose is to exploit the production, transport, distribution, and supply of electric energy of the Pangue head office of the Biobío river basin. Paid Capital (M$) 77,840,789 Holding of Enersis (direct and indirect) 56.97% Board of Directors President Claudio Iglesis Guillard Vice President Alan Fischer Hill Director Alejandro Wendling Aliaga Principal Directors Executive Officer Lionel Roa Burgos enersis06 PEHUENCHE Name Empresa Eléctrica Pehuenche S.A. Kind of Company Publicly Held Limited Liability Stock Company Tax N° 96.504.980-0 Address Santa Rosa 76, Santiago, Chile Corporate Purpose The company’s objective is the production, transport, distribution, and supply of electric energy, by which the company could acquire and enjoy the respective favors and concessions. Paid Capital (M$) 171,273,442 Holding of Enersis (direct and indirect) 55.57% Board of Directors President Claudio Iglesis Guillard Vice President Alan Fischer Hill Directors Enrique Lozán Jiménez Alejandro Wendling Aliaga Osvaldo Muñoz Díaz Pedro Gatica Kerr Vacant Executive Officer Lucio Castro Márquez PROGAS Name Progas S.A. Kind of Company Limited Partnership Tax N° 77.625.850-4 Address Isidora Goyenechea 3356, 8° Piso, Santiago, Chile Corporate Purpose To develop the following lines of business in the first, second and third regions of the country: a) The acquisition, production, storage, transport, distribution, transformation, and commercialization of natural gas; b) The acquisition, production, storage, transport, distribution, transformation, and commercialization of other oil derivatives and other fuels in general; c) The provision of 2006 Annual Report | 113 SUBSIDIARIES AND ASSOCIATE COMPANIES services, fabrication, commercialization of equipment and materials and the implementation of jobs related to the aforementioned objectives or that are necessary for their implementation and development. d) All other necessary activities or activities that are conducive to the performance of the aforementioned objectives. Paid Capital (M$) 1,228 Holding of Enersis (direct and indirect) 29.99% Directors Rudolf Araneda Kauert, Luis Cerda Ahumada Pedro de La Sotta Sánchez Principal Directors Executive Officer Alejandro Sáez Carreño SACME Name Sacme S.A. Kind of Company Private Company Address Avda. España 3251 – Ciudad Autónoma de Buenos Aires, Argentina Telephone (54 11) 4361 5107 Fax (54 11) 4307 0701 adequately develop, in virtue of the fulfilment distribution and commercialization services of electric energy for the concessionary companies in the Capital Federal and Greater Buenos Aires, all in accordance with what is stipulated in the Public International Tender for the sale of class A stocks from Edenor S.A. and Edesur S.A. and its applied regulations. Directors President Mario Nicolás Covacich Vice President Daniel Héctor Colombo Directors Eduardo Maggi Leandro Ostuni Executive Officer Osvaldo Ernesto Rolando SAN ISIDRO Name Compañía Eléctrica San Isidro S.A. Kind of Company Private Company Tax N° 96.783.220-0. Address Santa Rosa 76, Santiago, Chile. Corporate Purpose The company’s corporate purpose is the production, transport, distribution, and supply of electric energy. External Auditors Estudio Alonso Hidalgo & Asociados Paid Capital (M$) 33,350,180 Total N° of Shares 12,000 Subscribed and Paid Capital (Arg. $) 12,000 Holding of Enersis (direct and indirect) 32.69% Corporate Purpose (excerpt) To carry out the management, supervision, and control of the production, transmission, and subtransmission system of electric energy for the Federal Capital and Greater Buenos Aires and the interconnections with the Argentine Interconection System (AIS). To represent Edenor S.A. and Edesur S.A. companies in the operational management before the Wholesale Electricity Market Administration Company (CAMMESA). In general, to carry out all types of activities that allow its management to 114 | 2006 Annual Report Holding of Enersis (direct and indirect) 59.98% Directors President Alejandro Wendling Aliaga Vice President Alan Fischer Hill Claudio Iglesis Guillard Pedro Gatica Kerr Ricardo Santibáñez Zamorano Alternate Directors Alejandro García Chacón Carlo Carvallo Artiga Osvaldo Muñoz Díaz Claudio Betti Pruzo Sergio Díaz Caro Principal Directors Executive Officer Claudio Iglesis Guillard SISTEMAS SEC Name Sistema SEC S.A. Kind of Company Private Company Tax N° 99.584.600-4. Address Miraflores 383, Of. 1004, piso 10, Santiago, Chile. Corporate Purpose To develop the engineering, supply, setting up, testing, installation and maintenance of signalling, electrification, and communication systems, for the areas of Alameda – Chillán. Hualqui – Talcahuano, and Concepción – Lomas Coloradas, which implies the development of all activities and provision of all services that are the objectives of the Provision of Signalling, Electrification, and Communication Systems Contract, in the process of a public bidding which was awarded by the Empresa de Ferrocarriles del Estado (State Railroad Company), as well as the activities and services permitted by said contract. Paid Capital (M$) 2,065,048 Holding of Enersis (direct and indirect) 49.00% Directors President Cristóbal Sanchez Romero Directors Ángel Aguilar Bueno Pantaleón Calvo García Jaime Godoy Cifuentes Francisco Fernández Ávila de Inza Principal Directors Executive Officer Jaime Pino Cox Technical Officer Sergio Zúñiga Rojo Production Officer Gerardo Zecca SYNAPSIS Name Synapsis Soluciones y Servicios IT Limitada Kind of Company Limited Partnership Tax N° 96.529.420-1 Address Miraflores 383 Piso 27, Santiago Fax (00 54) 11 4021 8300 Telephone (56 2) 397 6600 Fax (56 2) 397 6601 Web site www.synapsis-it.com E-mail Synapsis@synapsis-it.com External Auditors Deloitte & Touche Soc. de Auditores y Consultores Ltda. Subscribed and paid capital (M$) 3,943,580 Holding of Enersis (direct and indirect) 100% Investments as proportion in Enersis’ assets 0.32% Corporate Purpose (excerpt) The supply and commercialization of services and equipment related to the computing, data processing, telecommunications systems, and control systems for public service and other national and international companies. Attorneys and Principal Directors Join Together Attorneys: Cristóbal Sánchez Romero Claudio Guzmán Porras Alternate Eduardo López Miller Rodrigo Morelli Urrutia Principal Directors Executive Officer Claudio Guzmán Porras Chilean Business Officer María Agustina Letelier Reyes SYNAPSIS ARGENTINA Name Synapsis Argentina S.R.L. Kind of Company Limited Partnership Address Alicia Moreau de Justo 1750 3 “C”, Capital Federal Telephone (00 54)11 4021 8300 Securities Register Inscription Subscribed at General Justice Inspection, dated November 10, 1992, under N°10842, Book 112, Section A of Public Companies. The transformation into a limited partnership was registered at the General Justice Inspection, dated September 3, 202, under N°4839, Book 116, of SRL. External Auditors Deloitte & Co SRL Total N° of Shares (quotas) 466,129 Subscribed and Paid Capital (Arg. $) 466,129 Holding of Enersis (direct and indirect) 100% Corporate Purpose (excerpt) The company’s principal objective is to provide services related to computing, data processing, and other telecommunications and control computing services, as well as to provide training in related activities with services provided, among others. Principal Directors Titular Officers Claudio Rafael Guzmán Porras José María Gil Bueno Javier Sampayo Vázquez Alternative Officer Mariano Florencio Grondona Executive Officer José María Gil Bueno Chief Administration Finance and Human Resources Officer Javier Sampayo Vázquez SYNAPSIS BRASIL Name Synapsis Brasil Limitada Kind of Company Limited Partnership Address Av. das Américas 3434, Bloco 2, Sala 403, Barra da Tijuca, Rio Janeiro, Brasil - Cep: 22640-102 Telephone (55 21) 3431-3850 Fax (55 21) 3431-3851 External Auditors Deloitte Touche Tohmatsu enersis06 Subscribed and paid capital (Br. Real) 4,241,890 Holding of Enersis (direct and indirect) 100% Corporate Purpose The providing of consultancy services and technical assistance related to the computing and data processing sector for Brazilian or foreign companies; computing programs and systems development; the commercialization of computing equipment and data processing; the fabrication, purchasing, sales, importation, exportation, representation, consignment, and distribution of all types of goods, mobile or non- mobile, connected with the object described in the topics mentioned; and the participation in other companies, civil or commercial, national or foreign, that operate in the computing, electric energy, or, that still operate in the administration and/or public service operations of electric energy, telecommunications, water for domestic or industrial and sanitary sewage use, as a share holder, quotist, or member; consortiums and companies in participation accounts. Directors President Leonardo Miguel Covalschi Principal Directors Executive Officer Leonardo Miguel Covalschi Deputy Chief Administration and Finance Officer Jacqueline Gomes da Silva Deputy Chief Human Resources Officer Marcia Caporazzo SYNAPSIS COLOMBIA Name Synapsis Colombia Limitada Kind of Company Limited Partnership Tax N° 830.054.730-1 Address Carrera 11 No. 82-76 Piso 6° Bogotá, D.C. Telephone (57-1) 607 6000 Fax (57 1) 636 4606 External Auditors Deloitte Colombia Ltda. Subscribed and Paid Capital (Col. $) 238,446,000 Holding of Enersis (direct and indirect) 100% 2006 Annual Report | 115 SUBSIDIARIES AND ASSOCIATE COMPANIES Corporate Purpose To supply and commercialize services and equipment related to computing and data processing for public service and other national or international companies. Administrators President Claudio Rafael Guzmán Porras Executive Officer Robin Barquín Pardo Chief Business Officer Martha Helena Rico Henao Chief Administration and Finance Officer Edgar Enrique Martínez Niño Chief Commercial Officer Jesús Antonio Vallejo Gómez Chief Consulting Officer José Ivorra Valero Principal Directors Executive Officer Claudio Escudero Alzamora Deputy Human Resources and Administration Officer Jessenia Quevedo Fudino Chief Consultant Officer Eduardo Bedoya Arromatari Chief Sales Officer Mario Nieto Bejar Deputy Chief Solutions Officer Claudio Sánchez Alegría Deputy Chief Outsourcing Officer Pedro Luna Delgado Deputy Chief Quality and Process Control Officer Carlos Castillo Prada Directors José Miguel Granged Fernando Claudio Antognazza Milton Gustavo Tomás Pérez Jorge Aníbal Rauber Gustavo Mariani Guillermo Luis Fiad Fermín Oscar Demonte Alternate Directors José María Vázquez María María Gabriela Roselló Francisco D. Monteleone Roberto José Fagan Iván Diego Duronto Omar Ramiro Algacibiur Gustavo Alberto Matta y Trejo Sergio Raúl Sánchez Benjamín Roberto Guzmán SYNAPSIS PERÚ Name Synapsis del Perú S.R.L Kind of Company Limited Partnership TERMOELÉCTRICA JOSÉ DE SAN MARTÍN Name Termoeléctrica José de San Martín S.A. Kind of Company Public Company Principal Directors Executive Officer Florencio Alberto Olmos Technical Officer Armando Federico Duvo Chief Administration and Finance Officer Daniel Gustavo Isse Chief Commercial Officer Marcelo Walter Holmgren Address Jr. Teniente César López Rojas 201, Piso 10, Maranga, San Miguel, Lima, Perú Address Suipacha 1111 – Piso 18° - Buenos Aires, Argentina Telephone (05 11) 561 0386 Fax (05 11) 517 1232 Secutities Register Insription Does not participate in stock market External Auditors Gris y Hernández y Asociados S.AC. – Deloitte & Touche. Total N° of Shares 609,200 Subscribed and Paid Capital (Per. New Sun) 609,200 Holding of Enersis (direct and indirect) 100% Corporate Purpose The company’s objective is to provide services related to computing, data processing, and other telecommunications and control computing systems, as well as provide training in related activities with ser vices provided, among others. Corporate Purpose The company’s objective is the production of electric energy and its mass commercialization y, particularly, the managing of the equipment purchasing, construction, operation, and maintenance of a thermal plant en compliance with the “Definite agreement for the management and project operation for the readjustment of the MEM in the framework of resolution SE Nº 1427/2004”, approved by resolution SE Nº 1193/2005 (the “Agreement”). For these purposes the company could carry out all complementary and subsidiary activities that involve its corporate purpose, having full legal capacity to acquire rights and to enter into obligations and exercise any activity that is not prohibited by law or these statutes. Subscribed and paid capital (M$) 86,936 Holding of Enersis (direct and indirect) 6.49% Directors President Horacio Jorge T. Turri Vice President Pierre Marie Ranger TERMOELÉCTRICA MANUEL BELGRANO Name Termoeléctrica Manuel Belgrano S.A. Kind of Company Public Company Address Suipacha 268 – Piso 12° - Buenos Aires Corporate Purpose The company’s objective is the production of electric energy and its mass commercialization and, particularly, the managing of the equipment purchasing, construction, operation, and maintenance of a thermal plant in compliance with the “Definite agreement for the management and project operation for the readjustment of the MEM in the framework of resolution SE Nr. 1427/2004”, approved by resolution SE Nr. 1193/2005 (the “Agreement”). For these purposes the company could carry out all complementary and subsidiary activities that involve its corporate purpose, having full legal capacity to acquire rights and to enter into obligations and exercise any activity that is not prohibited by law or these statutes. Subscribed and paid capital (M$) 86,936 116 | 2006 Annual Report Holding of Enersis (direct and indirect) 6.49% Directors President José Miguel Granged Vice President Fernando Antognazza Directors Gustavo Mariani Horacio Jorge T. Turri Pierre Marie Ranger Milton Gustavo Tomás Pérez Jorge Aníbal Rauber Guillermo Luis Fiad Fermín Demonte Alternate Directors José María Vázquez María María Gabriela Roselló Francisco D. Monteleone Roberto José Fagan Iván Diego Duronto Gustavo Alberto Matta y Trejo Sergio Raúl Sánchez Benjamín Roberto Guzmán Vacant Principal Directors Executive Officer Miguel Ortiz Fuentes Chief Technical Officer Gustavo Manifesto Chief Administration and Finance Officer Oscar Zapiola Chief Commercial Officer Daniel Garrido TESA Name Transportadora de Energía S.A. Kind of Company Public Company Address Bartolomé Mitre N° 797, Piso 13, Oficina 79, Buenos Aires, República Argentina. Corporate Purpose The corporate purpose includes providing high- tension electric energy transport services, involving national as well as international electrical systems, in accordance with existing legislation, to which end the company could participate in national and international bids, and become a public service licensee for the transport of high-tension national or international electric energy, and carry out activities necessary for the performance of its goals, expressly including but not limiting to forming part of construction, operation, and maintenance contracts for the commencement and/or extension of electric energy transport lines, to participate in financing projects directly or indirectly related with said undertakings as a borrower and/or moneylender and/or guarantor and/or endorser, to which purpose the company could grant guarantees favoring third parties. Expressly excluded are those activities included in the financial entity law and any others that require public savings tendering. Paid Capital (Arg. $) 55,512,000 Holding of Enersis (direct and indirect) 53.57% Directors President José María Hidalgo Martín-Mateos Directors Francisco Javier Bugallo Sánchez Arturo Pappalardo Alternate Directors José Agustín Venegas Malvenda Juan Carlos Blanco Roberto José Fagan Principal Directors Executive Officer Francisco Javier Bugallo Sánchez TRANSQUILLOTA Name Transmisora Eléctrica de Quillota Ltda. Kind of Company Limited Partnership Tax N° 77.017.930-0 Address Santa Rosa 76, Santiago, Chile. Corporate Purpose The company’s corporate purpose is the transport, distribution, and supply of electric energy on its own account or through third parties. Paid Capital (M$) 3,507,137 Holding of Enersis (direct and indirect) 29.99% Attorneys Representatives Felipe Aldunate Hederra Gabriel Carvajal Menególlez Eduardo Morel Montes Ricardo Santibáñez Zamorano Alternate Representatives Alfonso Bahamondes Morales enersis06 Alejandro Larenas Mantellero Enrique Sánchez Novoa Ricardo Sáez Sánchez TÚNEL EL MELÓN Name Sociedad Concesionaria Túnel El Melón S.A. Kind of Company Private Company Tax N° 96.671.360-7 Address Santa Rosa 76, Santiago, Chile Corporate Purpose The implementation, construction, and exploitation of the public work named the Melón Tunnel and the providing of complementary services that the ministry of public works authorizes. Paid Capital (M$) 9,448,138 Holding of Enersis (direct and indirect) 59.95% Directors President Manuel Irarrázaval Aldunate Jorge Ale Yarad Renato Fernández Baeza Principal Directors Executive Officer Maximiliano Ruiz Ortiz 2006 Annual Report | 117 DECLARATION OF RESPONSIBILITY 118 | 2006 Annual Report The directors of Enersis and the Chief Executive Officer signatories to this declaration swear to the truth of all information contained in this annual report, in accordance with general rule N°30 of the Superintendency of Securities and Insurance. enersis06 Chairman: Pablo Yrarrázaval Tax Nº: 5,710,967-K Vice-Chairman: Rafael Miranda Tax Nº: 48,070,966-7 Director: Juan Ignacio de la Mata Tax Nº: 48,101,910-9 Director: Hernán Somerville Tax Nº: 4,132,185-7 Director: Rafael Español Tax Nº: 48,101,912-5 Director: Eugenio Tironi Tax Nº: 5,715,860-3 Director: Patricio Claro Tax Nº: 5,206,994-7 Chief Executive Officer: Ignacio Antoñanzas Tax Nº: 22,298,662-1 2006 Annual Report | 119 CONSOLIDATED FINANCIAL STATEMENTS 120 | 2006 Annual Report enersis06 CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT ACCOUNTANT´S REPORT 123 CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF OPERATIONS CONSOLIDATED STATEMENTS OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MANAGEMENT’S ANALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS 124 126 127 129 239 2006 Annual Report | 121 CONSOLIDATED FINANCIAL STATEMENTS 122 | 2006 Annual Report enersis06 2006 Annual Report | 123 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (Restated for general price-level changes and expressed in thousands of constant Chilean pesos of December 31, 2006) ASSETS CURRENT ASSETS Cash Time deposits Marketable securities Accounts receivable, net Notes receivable, net Other accounts receivable, net Amounts due from related companies Inventories Income taxes recoverable Prepaid expenses Deferred income taxes Other current assets As of December 31, 2006 ThCh$ 2005 ThCh$ 99,794,219 282,125,166 9,113,927 839,114,373 7,468,202 102,348,625 13,564,970 65,908,585 42,272,428 51,443,419 61,556,350 66,656,313 72,873,740 265,352,164 5,421,998 648,182,799 3,643,961 64,188,527 11,519,571 72,098,351 51,785,668 35,854,421 55,124,100 42,770,237 Total current assets 1,641,366,577 1,328,815,537 PROPERTY, PLANT AND EQUIPMENT Land Buildings, infrastructure and works in progress Machinery and equipment Other plant and equipment Technical appraisal Accumulated depreciation Total property, plant and equipment, net OTHER ASSETS Investments in related companies Investments in other companies Goodwill, net Negative goodwill, net Long-term receivables Amounts due from related companies Long-term deferred taxes Intangibles Accumulated amortization Other assets Total other assets TOTAL ASSETS The accompanying notes are an integral part of these consolidated financial statements. 124 | 2006 Annual Report 132,604,494 10,935,962,744 1,987,188,305 607,486,494 186,062,190 (5,761,866,828) 129,843,148 10,561,484,247 1,757,852,219 438,828,494 183,406,562 (5,264,657,883) 8,087,437,399 7,806,756,787 115,267,451 24,091,667 655,061,997 (37,016,317) 137,479,691 90,523,990 12,249,242 90,759,417 (54,801,394) 299,989,563 100,968,106 41,511,402 716,131,962 (37,460,588) 144,623,436 91,713,359 - 83,533,722 (49,440,338) 253,851,127 1,333,605,307 1,345,432,188 11,062,409,283 10,481,004,512 LIABILITIES AND SHAREHOLDERS´EQUITY CURRENT LIABILITIES: Short-term debt due to banks and financial institutions Current portion of long-term debt due to banks and financial institutions Current portion of bonds payable Current debt to other institutions Dividends payable Accounts payable Short-term notes payable Miscellaneous payables Amounts payable to related companies Accrued expenses Withholdings Income taxes payable Unearned income Other current liabilities enersis06 As of December 31, 2006 ThCh$ 2005 ThCh$ 134,258,949 98,481,794 113,207,598 34,022,985 74,686,578 369,730,359 15,726,703 111,387,344 29,862,520 79,350,634 99,986,616 142,911,425 5,020,454 90,851,517 112,817,457 120,043,940 526,349,244 30,733,269 17,868,511 289,487,672 14,664,751 86,510,753 48,465,331 75,536,120 75,497,909 68,101,613 4,157,316 49,901,747 Total current liabilities 1,399,485,476 1,520,135,633 LONG-TERM LIABILITIES: Due to banks and financial institutions Bonds payable Long-term notes payable Sundry accounts payable Amounts payable to related companies Accrued expenses Long-term deferred income taxes Other long-term liabilities Total long-term liabilities MINORITY INTEREST SHAREHOLDERS´ EQUITY: Paid-in capital Additional paid-in capital Other reserves RETAINED EARNINGS Retained earnings Net income (loss) for the year Provisional dividends Deficit of subsidiaries in development stage Total shareholders´ equity 905,942,537 2,195,520,795 112,388,525 153,786,083 11,250,360 324,947,002 - 219,243,648 565,455,648 2,044,245,014 107,816,634 48,841,187 13,520,056 408,707,679 87,433,198 175,623,314 3,923,078,950 3,451,642,730 2,869,962,948 2,858,841,421 2,415,284,412 172,124,214 (238,342,306) 2,415,284,412 172,124,214 (241,698,626) 271,279,769 285,960,366 (36,242,795) (181,751) 235,229,509 69,445,219 - - 2,869,881,909 2,650,384,728 TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 11,062,409,283 10,481,004,512 The accompanying notes are an integral part of these consolidated financial statements. 2006 Annual Report | 125 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENTS (Restated for general price-level changes and expressed in thousands of constant Chilean pesos of December 31, 2006) OPERATING INCOME: SALES COST OF SALES GROSS MARGIN As of December 31, 2006 ThCh$ 2005 ThCh$ 3,892,064,732 (2,594,444,056) 3,293,142,666 (2,234,185,846) 1,297,620,676 1,058,956,820 ADMINISTRATIVE AND SELLING EXPENSES (229,578,225) (230,312,754) OPERATING INCOME 1,068,042,451 828,644,066 NON-OPERATING INCOME AND EXPENSE: Interest income Equity in income of related companies Other non-operating income Equity in loss of related companies Amortization of goodwill Interest expense Other non-operating expenses Price-level restatement, net Exchange difference, net NON-OPERATING EXPENSE, NET INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND AMORTIZATION OF NEGATIVE GOODWILL INCOME TAXES INCOME (LOSS) BEFORE MINORITY INTEREST AND AMORTIZATION OF NEGATIVE GOODWILL MINORITY INTEREST 124,791,200 5,164,292 110,552,625 (125,352) (55,908,079) (390,708,744) (209,276,211) 1,216,801 5,327,511 87,944,510 14,767,445 72,463,652 (7,879,946) (56,344,563) (358,032,727) (161,394,104) (5,048,829) (6,373,029) (408,965,957) (419,897,591) 659,076,494 408,746,475 (109,407,874) (182,050,674) 549,668,620 226,695,801 (269,785,811) (173,072,574) INCOME (LOSS) BEFORE AMORTIZATION OF NEGATIVE GOODWILL 279,882,809 53,623,227 AMORTIZATION OF NEGATIVE GOODWILL NET INCOME FOR THE YEAR 6,077,557 15,821,992 285,960,366 69,445,219 The accompanying notes are an integral part of these consolidated financial statements. 126 | 2006 Annual Report CONSOLIDATED STATEMENTS OF CASH FLOWS (Restated for general price-level changes and expressed in thousands of constant Chilean pesos of December 31, 2006) enersis06 Net income for the year GAIN (LOSSES) FROM SALES OF ASSETS: Losses (gain) on sale of property, plant and equipment Losses (gain) on sale of other assets Charges (credits) to income which do not represent cash flows: Depreciation Amortization of intangibles Write-offs and accrued expenses Equity in income of related companies Equity in losses of related companies Amortization of goodwill Amortization of negative goodwill Price-level restatement, net Exchange difference, net Other credits to income which do not represent cash flows Other charges to income which do not represent cash flows Changes in assets which affect operating cash flows (increase) decrease: Trade receivables Inventory Other assets Changes in liabilities which affect operating cash flows (decrease) increase: Acounts payable associated with operating results Interest payable Income tax payable Other accounts payable not associated with operating results Net value added tax and other similar taxes payable Income attributable to minority interest As of December 31, 2006 ThCh$ 285,960,366 (18,843,715) (18,572,796) (270,919) 540,406,807 414,616,755 7,859,387 26,064,041 (5,164,292) 125,352 55,908,079 (6,077,557) (1,216,801) (5,327,511) (15,191,289) 68,810,643 (273,097,873) (180,592,346) 4,666,559 (97,172,086) 58,196,944 146,132,574 27,925,255 (30,613,805) (36,931,047) (48,316,033) 269,785,811 2005 ThCh$ 69,445,219 840,657 1,110,490 (269,833) 546,271,218 375,344,080 8,486,578 56,939,695 (14,767,445) 7,879,946 56,344,563 (15,821,992) 5,048,829 6,373,029 (27,093,600) 87,537,535 (71,913,036) (79,262,927) (20,295,362) 27,645,253 119,431,472 18,135,149 36,917,739 45,716,876 42,469,679 (23,807,971) 173,072,574 Net cash flows provided by operating activities 862,408,340 837,148,104 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans obtained Proceeds from bond issuances Other sources of financing Dividends paid Distribution of capital in subsidiary Payment of debt Payment of bonds Payment of loans obtained from related companies Payment of bond issuance costs Other disbursements for financing Net cash used in financing activities The accompanying notes are an integral part of these consolidated financial statements. (297,089,863) 1,274,208,005 166,644,978 - (178,608,453) (85,522,851) (989,096,582) (468,853,343) (8,077,906) (500,059) (7,283,652) (764,261,264) 409,207,785 170,583,174 691,355 (123,960,197) (281,707,042) (804,952,563) (112,873,490) (2,633,414) (916,513) (17,700,359) (297,089,863) (764,261,264) 2006 Annual Report | 127 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOWS (Restated for general price-level changes and expressed in thousands of constant Chilean pesos of December 31, 2006) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment Sales of other investments Sale of permanent investments Payments received from notes receivable from related companies Other receipts from investments Additions to property, plant and equipment Permanent investments in related companies Other investment disbursements Net cash used in investing activities POSITIVE NET CASH FLOW FOR THE PERIOD As of December 31, 2006 ThCh$ (503,559,780) 44,550,554 - 49,394 2,790,737 1,912,389 (517,768,346) (22,550,433) (12,544,075) 2005 ThCh$ (337,667,076) 6,221,648 1,703,530 - 8,038,327 7,242,722 (324,115,605) (33,837,526) (2,920,172) (503,559,780) (337,667,076) 61,758,697 (264,780,236) EFFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH EQUIVALENTS 10,457,783 (21,406,173) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 72,216,480 (286,186,409) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 367,873,902 654,060,311 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 440,090,382 367,873,902 The accompanying notes are an integral part of these consolidated financial statements. 128 | 2006 Annual Report enersis06 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Restated for general price-level changes and expressed in thousands of constant Chilean pesos of December 31, 2006) As of and for the years ended December 31, 2006 and 2005 NOTE 01. REGISTERED UNDER SECURITIES REGISTER a. Enersis S.A. (the “Company”) is registered in the Securities Register under No. 0175 and is regulated by the Chilean Superintendency of Securities and Insurance (the “SVS”). The Company issued publicly registered American Depositary Receipts in 1993 and 1996. Enersis S. A. is a reporting company under the United States Securities and Exchange Comission. b. The Company’s subsidiaries Chilectra S.A., Chilectra S.A. (formerly Elesur S.A.) and Empresa Nacional de Electricidad S.A. (“Endesa”) are registered in the Securities Register under Nos. 0321, 931 and 0114, respectively. NOTE 02. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Reporting period These financial statements reflect the Company’s financial position as of December 31, 2006 and 2005, and the results of its operations, the changes in its shareholders’ equity and its cash flows for the twelve months period ended December 31, 2006 and 2005. b. Basis of preparation The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in Chile and the regulations established by the SVS (collectively “Chilean GAAP”), and include the assets, liabilities, net income and cash flows of the subsidiaries of which it has control. c. Basis of presentation On June 1, 2006, Empresa de Generación Termoeléctrica Ventanilla S.A. – Etevensa (a company indirectly related through common owner) was upstream merged into Edegel S.A. (a subsidiary of Endesa Chile), as agreed in the Shareholders’ Meetings of the two companies on January 17, 2006. Thus, the financial statements and amounts indicated in the notes as of December 31, 2006 incorporate Etevensa S.A. The financial statements as of December 2005 and their accompanying notes have been adjusted off the books by 2.1%, which represents the change in the Chilean consumer price index, in order to allow comparison with the financial statements as of December 31, 2006. RECLASSIFICATIONS For purposes of comparison, the following reclassifications were made in the 2005 financial statements: From Trade accounts receivable Prepaid expenses Long-term provisions Technical revaluation Withholdings From Financial income Other non-operating income Other non-operating expenses Financial expenses Balance sheet reclassifications To ThCh$ (5,683,903) (1,451,226) 6,631,306 (368,441,249) - - - (12,086,774) Due from related companies Other current assets Long-term creditors Land Building and infrastructure Machinery and equipment Other fixed assets Other long-term assets Statement of operations reclassifications ThCh$ (6,814,406) (2,999,000) 683,018 2,731,475 To Sales Cost of sales Administrative and selling expenses ThCh$ 5,683,903 1,451,226 (6,631,306) 4,158,060 265,229,615 98,857,837 258,978 12,023,533 ThCh$ 9,813,406 - (3,106,694) (307,799) 2006 Annual Report | 129 CONSOLIDATED FINANCIAL STATEMENTS d. Basis of consolidation All significant transactions and balances between the consolidated companies have been eliminated and the proportional part corresponding to minority interests of the subsidiaries, is included in the minority interest item of the general balance sheet and the income statement. The consolidated financial statements have been prepared in agreement with the norm established in the Technical Bulletin N° 72 (that partially replaced Technical Bulletin N° 42) of the Chilean Institute of Accountants and in the ‘circular’ N°1,697 (that replaced the ‘circular’ N° 368) of the Superintendency of Securities and Insurance. The financial statements of the foreign companies as of December 31, 2006 and 2005 have been prepared according to the norm established in the Technical Bulletins Nº 72, Nº 64 and N° 42 of the Chilean Institute of Accountants. These consolidated financial statements include the assets, liabilities, results and cash flows of the parent company and the following subsidiaries: Tax Payer Number Company 96.524.320-8 Chilectra S.A.(*) 96.529.420-1 Synapsis Soluciones y Servicios IT Ltda. Inmobiliaria Manso de Velasco Ltda. 96.543.670-7 Cía. Americana de Multiservicios Ltda. 91.081.000-6 Endesa Chile S.A. 96.800.570-7 Chilectra S.A. (*) Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Enersis Internacional Ltda. Inversiones Distrilima S.A. Empresa Distribuidora Sur S.A. (Edesur) Codensa S.A. (**) Investluz Ampla Energía e Serviços S.A. Ampla Investimentos e Serviços S.A. Compañía de Interconexión Energética S.A. (Cien) (***) Central Geradora Termeléctrica Fortaleza S.A. (***) Endesa Brasil S.A. (***) Percentage participation as of December 31, Direct % 2006 Indirect % Total % - - - 99.99 99.99 99.99 59.98 99.08 - 30.14 31.35 12.47 22.77 24.02 24.02 22.06 22.06 22.06 0.01 0.01 0.01 - 0.01 - 100.00 100.00 100.00 59.98 99.09 - 25.54 34.04 9.26 36.74 45.86 45.86 31.51 31.51 31.51 55.68 65.39 21.73 59.51 69.88 69.88 53.57 53.57 53.57 2005 Total % 98.24 100.00 100.00 100.00 59.98 99.99 100.00 55.68 65.39 21.66 59.51 69.88 69.88 53.57 53.57 53.57 (*) In the extraordinary meeting of shareholders of Elesur S.A., held on March 31, 2006, it was agreed to change the name of Elesur S.A. to Chilectra S.A.. The merger of Chilectra S.A. (former Elesur) and Chilectra S.A., approved in general meetings of their shareholders held on March 31, 2006, became effective on April 1, 2006. (**) Codensa S.A. is consolidated because of the majority presence on the board of directors, obtained through the shareholders’ agreement of January 27, 2004, between Endesa Internacional and subsidiaries of Enersis S.A. (***) As a result of the creation of the Brazilian holding company, Endesa Brasil S.A. (“Endesa Brasil”) (see Note 11.l), these companies were included in the consolidated financial statements of Enersis S.A. To allow a better understanding of these financial statements, we show below a Pro Forma income statement, which consolidates for the year 2005 the subsidiaries Compañía de Interconexión Energética S.A. (Cien) and Central Geradora Térmica Fortaleza S.A. 130 | 2006 Annual Report The pro forma statement of income is as follows (1): OPERATING INCOME Sales Cost of sales Gross profit Administrative and selling expenses Operating income NON OPERATING LOSS Income before income taxes Income taxes Income before minority interest Minority interest Net Income Amortization of negative goodwill Net income of the year enersis06 As of December 31, 2006 ThCh$ 2005 ThCh$ 3.892.064.732 (2.594.444.056) 3.373.127.876 (2.251.953.631) 1.297.620.676 1.121.174.245 (229.578.225) (233.676.571) 1.068.042.451 887.497.674 (408.965.957) (460.979.489) 659.076.494 426.518.185 (109.407.874) (203.125.049) 549.668.620 223.393.136 (269.785.811) (169.769.909) 279.882.809 53.623.227 6.077.557 15.821.992 285.960.366 69.445.219 (1) To allow comparison with the current year, results for the entire year 2005 are shown for the companies listed above. e. Price level restatement (Monetary correction) The consolidated financial statements have been price-level restated in order to reflect the effects of the changes in the purchasing power of the Chilean currency during each year. All non-monetary assets and liabilities, all equity accounts and income statement accounts have been restated to reflect the changes in the CPI from the date they were acquired or incurred to year-end (see also Note 24). f. Assets and liabilities in foreign currencies Assets and liabilities denominated in foreign currencies are detailed in Note 31. These amounts have been stated at the observed exchange rates reported by the Central Bank of Chile as of each December 31, as follows: United States dollar (as reported by Chilean Central Bank) Euro Yen Sterling pound Colombian peso Peruvian new sol Argentine peso Brazilian real Unidad de Fomento (UF) December 31 2006 2005 Units per US$1 Units per US$1 1.00 0.76 119.09 0.51 2,238.79 3.196 3.06 2.14 0.03 1.00 0.85 118.04 0.58 2,284.22 3.43 2.91 2.34 0.03 2006 Ch$ 532.39 702.08 4.47 1,041.86 0.24 166.58 173.87 249.01 18,336.38 2005 Ch$ 512.50 606.08 4.34 880.43 0.22 149.42 181.92 219.02 17,974.81 2006 Annual Report | 131 CONSOLIDATED FINANCIAL STATEMENTS g. Time deposits and marketable securities Time deposits are presented at original placement plus accrued interest and UF indexing adjustments, as applicable. Marketable securities include investments in quoted shares that are valued at the lower of cost or market value. The investments are in both short-term highly liquid fixed rate investment shares and mutual fund units valued at cost plus interest and indexing or redemption value as appropriate (Note 4). h. Inventories Inventory of materials in transit, and operation and maintenance materials on hand, are valued at the lower of price-level restated cost or net realizable value. The costs of real estate projects under development included in inventory include the cost of land, demolition, urbanizing, payments to contractors and other direct costs. The costs and revenues of construction in progress are accounted for under the completed contract method in accordance with Technical Bulletin No.39 of the Chilean Institute of Accountants and are included in current assets as their realization is expected in the short-term. i. Allowance for doubtful accounts The estimates for the allowance for doubtful accounts have been made considering the aging and nature of the accounts receivables. Accounts receivable are classified as current or long-term, depending on their collection terms. Current and long-term trade accounts receivable, notes receivable and other receivables are presented net of allowances for doubtful accounts (see Note 5). The allowance for doubtful accounts amounted ThCh$ 134,859,609 (ThCh$133,423,704 in 2005). In addition, the total sum owed by companies that have gone into bankruptcy amounting to ThCh$1,258,119 (ThCh$1,595,109 in 2005) is included in the bad debt allowance estimation. j. Property, plant and equipment Property, plant and equipment are valued at net replacement cost as determined by the former Superintendency of Electric and Gas Services (SEG) adjusted for price-level restatement in accordance with D.F.L. No.4 of 1959. The latest valuation under the D.F.L. 4 was in 1980. Property, plant and equipment acquired after the latest valuation of net replacement cost are shown at cost, plus price-level restatement. Interest on debt directly obtained to finance construction projects is capitalized during the period of construction. In 1986, an increase based upon a technical appraisal of property, plant and equipment was recorded in the manner authorized by the SVS in Circulars Nos. 550 and 566 dated October 15 and December 16, 1985, respectively, and Communication No.4790, dated December 11, 1985. In accordance with Chilean GAAP, the Company and its subsidiary has evaluated the recoverability of its property, plant and equipment as required by Technical Bulletin No.33 of the Chilean Institute of Accountants. As a result of these evaluating the Company has not identified impairments in the net book values of its property, plant and equipment. 132 | 2006 Annual Report k. Depreciation Depreciation expense is calculated on the revalued balances using the straight-line method over the estimated useful lives of the assets. The debit to income from the year’s depreciation amounts to ThCh$414,616,755 (ThCh$375,244,080 in 2005). It is classified in costs of sales of ThCh$402,853,125 (ThCh$362,089,059 in 2005) and in selling and administrative expense of ThCh$11,763,630 (ThCh$13,255,021 in 2005). l. Leased assets The leased assets, whose contracts have financial lease characteristics, are accounted for as an acquisition of property, plant and equipment, recognizing the total obligation and the unrecorded interest. Said assets do not legally belong to the Company, for which reason, as long as the purchase option is not exercised, it will not be able to freely dispose of them. m. Power installations financed by third parties As established by D.F.L. 1 of the Ministry of Mines dated September 13, 1982, power installations financed by third parties are treated as reimbursable contributions. As such, the installations constructed using this mechanism form part of the Company’s plant and equipment. Such installations completed prior to D.F.L. 1 are deducted from Plant and equipment and their depreciation is charged to Power installations financed by third parties. n. Intangibles, other than goodwill Intangibles, other than goodwill, correspond mainly to easements, rights of way, water rights, and parent company contributions, which are recorded and amortized in accordance with Technical Bulletin No.55 of the Chilean Institute of Accountants. o. Investments in related companies Investments in related companies are presented under the equity method of accounting, on the basis of the corresponding financial statements of the invested. Investments in foreign affiliates are recorded in accordance with Technical Bulletins N°64 and 72 (which partially revoked Technical Bulletin N°42) of the Chilean Institute of Accountants. The Company and its subsidiaries has evaluated at December 31, 2005 and 2006, the recoverability of the book value of its investments abroad in accordance with Technical Bulletin N°72 of the Chilean Institute of Accountants. As a result of this evaluation no adjustments have been determined that affect the book values of its investments. p. Investments in other companies Investments in other companies are presented at acquisition cost adjusted for price-level restatement, as they do not trade in an organized market and because the Company does not excecise significant influence. q. Goodwill and negative goodwill Goodwill and negative goodwill are determined according to Circular No.1697 of the SVS (which revoked Circular 368 at December 30, 2003). Amortization is determined using the straight-line method, considering the nature and characteristic of each investment, foreseeable life of the business and investment return, not to exceed 20 years. The Company and its subsidiaries has evaluated at December 31, 2005 and 2006, the recoverability of the book value of its goodwill in accordance with Technical Bulletin No. 72 of the Chilean Institute of Accountants. As a result of this evaluation no adjustments have been determined that affect the book values of its goodwill. r. Reverse repurchase agreements Reverse repurchase agreements are included in “Other current assets” and are stated at cost plus interest and indexation accrued at year end, in conformity with the related contracts. s. Bonds Bonds payable are recorded at the face value of the bonds. The difference between the face value and the placement value, equal to the premium or discount, is deferred and amortized over the term of the bonds. t. Income tax and deferred income taxes For the years ended December 31, 2006 and 2005, the Company recorded current tax expense determined in accordance with the laws and regulations in each country in which it operates of ThCh$251,486,468 and ThCh$134,787,206, respectively and, additionally, it recorded deferred tax credit of ThCh$142,078,594 in 2006 and ThCh$47,263,468 in 2005. The Company records deferred income taxes in accordance with Technical Bulletin N°60 of the Chilean Institute of Accountants, and with circulars N°1,466 and N°1,560 issued by the SVS, recognizing, using the liability method, the deferred tax effects of temporary differences between the financial and tax values of assets and liabilities using the tax rates estimated to be in effect at the time of reversal of the temporary differences that gave rise to them. u. Severance indemnities The severance indemnity that the Company is obliged to pay to its employees under collective bargaining agreements is stated at the present value of the benefit under the vested cost method, discounted at 6.5% in 2006 and 2005 and assuming an average employment span which varies based upon years of service with the Company. enersis06 unbilled at each year-end. Revenues are valued using rates in effect when services are provided to customers. Accrued unbilled revenues are presented in current assets as trade receivables and the corresponding cost is included in cost of sales. The Company also recognizes revenues for amounts received from highway tolls for motorized vehicles, income related to computer advisory services, engineering services, sale of materials and sale of real estate. y. Financial derivative contracts As of December 31, 2006 and 2005 the Company and its subsidiaries have forward contracts, currency swaps, and interest rate swaps and collars with several financial institutions, to hedge against mainly foreign currency and interest risk exposures, which are recorded according to Technical Bulletin No.57 of the Chilean Institute of Accountants. z. Research and development costs Costs incurred by the Company in research and development relate mainly to water-level studies, hydroelectric research, and sismic activity surveys which are expensed as incurred. Costs incurred in performing studies related to specific construction projects are capitalized. aa. Statements of cash flows Investments considered as cash equivalents, as indicated in point 6.2 of Technical Bulletin N°50 issued by the Chilean Institute of Accountants, include time deposits, investments in fixed income securities classified as marketable securities, repurchase agreements classified as other current assets, and other cash balances classified as other accounts receivable with maturities less than 90 days. For classification purposes, cash flows from operations include collections from clients and payments to suppliers, payroll and taxes. ab. Cost of share issue Costs incurred to date associated with issuing and placing shares are recorded according to the provisions of Circular N°1370 of 1998 of the Superintendency of Securities and Insurance. A breakdown of the costs is shown in Note 26. v. Accrued vacation expense In accordance with Technical Bulletin No.47 issued by the Chilean Institute of Accountants, employee vacation expense is recorded on an accrual basis. NOTE 03. CHANGE IN ACCOUNTING PRINCIPLES w. Pension and post-retirement benefits Pension and post-retirement benefits are recorded in accordance with the respective collective bargaining contracts of the employees based on the actuarially determined projected benefit obligation, and using an annual discount rate of 6.5%. x. Revenue recognition The Company’s revenues are primarily derived from electric power generation and distribution services, and include energy supplied and No accounting changes have occurred in 2006 that could affect comparisons with the prior year. Change in reporting entity In accordance with notes 11(g) and 22(e), as of June 1, 2006, Etevensa (indirectly related through the same majority shareholder) was upstream merged into Edegel S.A. (a subsidiary of Endesa Chile), as agreed to in the Shareholders’ Meetings of the two companies held on January 17, 2006. 2006 Annual Report | 133 CONSOLIDATED FINANCIAL STATEMENTS The above transaction has been recorded in conformity with Technical Bulletin N°72 of the Chilean Institute of Accountants, as a business combination under common control, based on the pooling of interest methodology. As a result of this reorganization of entities under common control, the shareholding of Endesa Chile S.A. in its subsidiary Edegel S.A. decreased to 55.44%, causing a decrease of ThCh$5,757,792 (see note 22e) in shareholders’ equity that is shown in the item Other Reserves. In addition, as from June 1, 2006, the merged financial statements involved incorporating assets and liabilities of ThCh$140,370,073 and ThCh$97,826,807, respectively. NOTE 04. TIME DEPOSITS Time deposits as of each year end are as follows: Tax Payer Number Financial Institution Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign ABN Amro Alfa mix Alianza Valores AV villas Banco Bilbao Vizcaya Banco Colpatria Banco Continental Banco Crédito Banco Davivienda Banco de Galicia Banco do Brasil Banco do Estado do Ceará Banco Frances Banco Itau Banco Lloyds Banco Mellon Brascan Banco Nationale de Paris Banco Nordeste Banco Pactual Banco Paribas luxembourg Banco Real Banco Rio de la Plata Banco Santander Central Hispano Banco Sudameris Banco Wiese Sudameris Banco Unión Banco Votorantim Bancolombia Banistmo Colombia S.A. Bank Boston Bank of America BNB Bradesco Cdt Citibank N.Y. Comafi Corficolombiana Correval Corredores Asociados Credit Bank Encargo Fiduciario Banco Santander FAM Fondo Ganadero Fiduciaria Helm Trust Fiducolombia Fiducomercio Fiduoccidente Fiduvalle Fiduciaria Banco de Bogotá Fondeos Fondo Sumar Fondo Surgir Fondo Surenta HSBC - Bamerindus Panamericano Porvenir Serfinco Standard Bank London Suvalor Other time deposits Unibanco Total 134 | 2006 Annual Report Annual Rate % - 1.11% 8.10% - 7.45% 1.24% 4.97% 4.43% 1.00% 6.34% - - 4.08% 4.09% 5.65% 1.60% 3.34% 1.17% 1.10% 6.67% 0.10% 8.74% 2.76% 7.80% - - 1.17% 6.58% 7.00% 5.14% 4.76% 1.18% 7.06% 8.68% 4.19% 9.97% 6.39% 7.99% 7.85% - 7.00% 6.72% 6.01% 6.80% 5.46% 5.93% 5.99% - 7.32% 6.48% 5.09% 6.90% 1.27% 1.10% - 7.89% 5.29% 7.32% - 8.83% Scheduled Maturity - 02.01.07 02.01.07 - 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 - - 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 31-01-07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 - - 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 - 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 - 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 02.01.07 - 02.01.07 17-01-07 02.01.07 - 02.01.07 As of December 31, 2006 ThCh$ - 2,507,181 1,300,014 - 105,150 3,592 8,409,664 1,175,824 136 1,899,867 - - 3,935,683 13,159,451 225 4,119,984 59,116 145,648 62,820 4,331,936 1,763,347 11,589,120 14,543,061 6,265,436 - - 16,666,843 72 700,941 2,171,201 10,068,547 5,972,283 66,181,869 241,517 42,249,678 997,529 11,464,636 861,342 729,111 - 260,604 792 79 6,630,055 51 234,006 1,474,367 - 2,937,750 223,214 2,194,192 2,622,708 4,983,847 169,706 - 641,603 3,320,614 13,330,763 - 9,417,991 2005 ThCh$ 747,015 - - 3,481,534 3,814,991 - 5,427,374 2,143,099 - 1,891,460 1,361,170 1,487,039 5,651,785 36,117,388 2,938,164 9,038,314 7,615,052 114,962 49,694 - 3,935,344 14,854,083 20,151,836 13,518,032 1,143,826 50,471 28,494,945 - - 3,990,069 7,667,815 - 15,493,287 1,604 23,134,105 1,228,019 - 1,415,787 - 1,916,263 4,011,541 - - 1,443 - 750,145 5,801,594 3,826 - - - - 17,950,729 136,574 515,766 155,497 2,320,479 - 4,833,899 9,996,144 282,125,166 265,352,164 enersis06 NOTE 05. ACCOUNTS, NOTES AND OTHER RECEIVABLES a. Current accounts, notes and other receivables and their related allowances for doubtful accounts as of each December 31, are as follows: Account Under 90 days 91 days to 1 year Sub total Current Long term 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ As of December 31, Account receivable 869,466,114 689,339,476 90,538,606 85,459,845 960,004,720 839,114,373 774,799,321 Allowance for doubtful accounts (50,422,157) (48,857,565) (70,468,190) (77,758,957) (120,890,347) - (126,616,522) Notes receivable 7,187,368 3,860,141 Allowance for doubtful accounts (354,275) (654,413) 786,335 (151,226) 577,682 7,973,703 7,468,202 4,437,823 (139,449) (505,501) - (793,862) - - - - - - - - Other receivables (1) 97,156,662 48,122,343 11,946,073 19,689,059 109,102,735 102,348,625 67,811,402 144,189,342 147,013,881 Allowance for doubtful accounts (4,009,993) (1,146,820) (2,744,117) (2,476,055) (6,754,110) - (3,622,875) (6,709,651) (2,390,445) Total Country Chile Peru Argentina Colombia Brazil Panama Total 948,931,200 716,015,287 137,479,691 144,623,436 As of December 31, 2006 2005 ThCh$ 240,403,400 62,532,559 135,088,425 229,987,240 418,399,267 - % 22.13% 5.76% 12.43% 21.17% 38.51% 0.00% ThCh$ 175,965,223 47,287,258 86,123,198 151,687,014 394,687,045 4,888,985 % 20.45% 5.49% 10.01% 17.62% 45.86% 0.57% 1,086,410,891 100.00% 860,638,723 100.00% (1) This includes ThCh$29,089,378 (ThCh$19,709,125 in 2005) relating to other generating companies’ debt payable to Endesa S.A. and generating subsidiaries, as a result of the collection of tolls due to the application, since March 13, 2004, of Law N°19,940. 2006 Annual Report | 135 CONSOLIDATED FINANCIAL STATEMENTS NOTE 06. BALANCES AND TRANSACTIONS WITH RELATED COMPANIES The balances of accounts receivable and payable with related companies are as follows at December 31, 2006 and 2005: a. Notes and accounts receivable due from related companies: Tax Payer Number Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign 77.573.910-K 78.932.860-9 78.882.820-9 77.032.280-4 76.197.570-6 77.625.850-4 Foreign 99.584.600-4 77.017.930-0 Company Atacama Finance Co. (1) Com. de Energía del Mercosur S.A. Empresa Eléctrica Piura S.A. Endesa España Endesa Europa Endesa Internacional S.A. Etevensa Fundación Endesa Consorcio Ingendesa - Minmetal Ltda. Gas Atacama Generación Ltda. Gasoducto Atacama Chile Gasoducto Tal Tal Ltda. Sociedad Consorcio Ara Ltda. Consorcio Ara-Ingendesa Ltda. Sacme Sistemas Sec S.A. Transmisora Eléctrica de Quillota Ltda. As of December 31, Short-term Long-term 2006 ThCh$ 61,561 6,193,659 132,203 275,023 878 343,059 - - - 61,365 283,820 1,973 7,928 147,575 1,547 6,051,495 2,884 2005 ThCh$ 21,654 3,821,437 53,464 261,384 - 552,739 307,821 160,590 8,511 21,026 179,951 32,847 17,461 69,704 2,339 5,683,903 324,740 2006 ThCh$ 90,523,990 - - - - - - - - - - - - - - - - 2005 ThCh$ 91,713,359 - - - - - - - - - - - - - - - - Total 13,564,970 11,519,571 90,523,990 91,713,359 (1) The balance receivable from Atacama Finance Co. relates to the loans granted by Compañía Eléctrica Cono Sur S.A. to finance the work in construction of Gasoducto Atacama Argentina S.A., Gasoducto Atacama Chile S.A. and Gas Atacama Generación S.A. The loans are expressed in US dollars, accrue interest at a rate of 7.5% per annum and are due in September 2008. b. Notes and accounts payable due to related companies: Tax Payer Number Foreign 77.625.850-4 77.573.910-K 96.806.130-5 Foreign Foreign Foreign 78.932.860-9 Foreign 77.017.930-0 Company Com. de Energía del Mercosur S.A. Consorcio Ara-Ingendesa Ltda. Consorcio Ingendesa - Minmetal Ltda. Electrogas S.A. Empresa Eléctrica Piura S.A. Endesa Internacional S.A. Etevensa Gas Atacama Generación S.A. Sacme Transmisora Eléctrica de Quillota Ltda. As of December 31, Short-term Long-term 2006 ThCh$ 24,620,706 153,015 - 223,051 1,332,476 2,830,515 - 644,376 58,381 - 2005 ThCh$ 15,280,697 - 1,582 204,122 416,359 32,479,176 11,902 - 45,577 25,916 2006 ThCh$ 2005 ThCh$ - - - - - - - - - - 11,250,360 13,520,056 - - - - - - - - Total 29,862,520 48,465,331 11,250,360 13,520,056 136 | 2006 Annual Report c. Transaction Company Tax Payer Number Relationship Atacama Finance Co. Foreign Affiliate Consorcio ARA-Ingendesa Consorcio Ingendesa Minmetal Ltda. Com. de Energía del Mercosur S.A. Foreign Affiliate Affiliate Affiliate Nature of transaction Interest Monetary correction Exchange difference Services Services Sale of energy Purchase of energy Services Empresa Eléctrica Piura S.A. Foreign Member of Controling Group Sale of energy Electrogas S.A. Endesa España Affiliate Parent company Endesa Servicios Foreign Parent company Endesa Internacional S.A. Foreign Parent company Purchase of energy Services Purchase of gas Interest Exchange difference Exchange difference Monetary correction Interest Services Exchange difference Monetary correction Etevensa Foreign Member of Controling Group Sale of energy Fundación Endesa Gastacama Generación S.A. Sacme Sistemas SEC S.A Soc. Consorcio Ingendesa Ara Ltda. Transmisora Eléctrica de Quillota Ltda. Purchase of energy Services Foreign Member of Controling Group Services Services Services Services Services Interest Services Affiliate Affiliate Affiliate Affiliate Affiliate Foreign enersis06 As of December 31 2006 2005 Amount ThCh$ 6,495,898 1,886,303 1,643,119 800,048 63,059 5,843,513 5,019,836 5,910,737 678,308 11,795,737 205,474 1,967,300 3,198,774 46,493 146 145 2,132,796 4,122,187 12,693 60,276 - - - 94,712 970,233 399,009 469,428 164,767 26,887 5,118 800,048 63,059 Income Income (Expense) Amount (Expense) ThCh$ ThCh$ ThCh$ 4,924,252 4,924,252 6,495,898 3,863,870 1,886,303 3,863,870 (12,609,487) 1,643,119 12,609,487 1,926,343 1,926,343 106,440 106,440 5,843,513 11,260,086 11,260,086 (7,106,860) 7,106,860 (5,019,836) 1,206,991 1,206,991 5,910,737 722,645 722,645 678,308 (5,257,305) 5,257,305 (11,795,737) 132,718 132,718 205,474 (1,585,550) 1,585,550 (1,967,300) - - (3,198,774) - - 46,493 - - 146 - (145) - (564,448) 564,448 (2,132,796) - - (4,122,187) - - (12,693) - (60,276) - 1,026,031 1,026,031 - (171,886) 171,886 - 955,477 955,477 - 101,508 101,508 94,712 147,268 147,268 970,233 (364,214) 364,214 (399,009) (7,573) 7,573 469,428 219,092 219,092 164,767 61,924 61,924 26,889 4,901 4,901 5,118 The most significant transactions and their effects in income (expense) for each year ended December 31 are the transfer of short-term funds between related companies, is on the basis of a current cash account, at a variable interest rate based on market conditions. The resulting accounts receivable and accounts payable are essentially on 30 day terms, with automatic rollover for the same year and settlement in line with cash flows. NOTE 07. INVENTORIES Inventories include the following items and are presented net of an allowance for obsolescence amounting to ThCh$3,865,739 and ThCh$3,251,465 as of December 31, 2006 and 2005, respectively: Real estate under development Materials in transit Operation and maintenance material Fuel Total As of December 31, 2006 ThCh$ 12,176,293 2,425,443 39,225,020 12,081,829 2005 ThCh$ 15,452,755 420,382 39,409,541 16,815,673 65,908,585 72,098,351 2006 Annual Report | 137 CONSOLIDATED FINANCIAL STATEMENTS NOTE 08. DEFERRED INCOME TAXES a. Income taxes (recoverable) payable as of each year-end are as follows: Income tax provision - current Recoverable tax credits As of December 31, 2005 2006 ThCh$ ThCh$ 149,547,441 259,128,302 (81,445,828) (116,216,877) Total 142,911,425 68,101,613 b. Tax loss carryforwards The parent Company had tax loss carryforwards that during the year ended December 31, 2006 amounted to ThCh$325,202,670 (ThCh$388,694,437 in 2005). c. The net effect of recording the deferred tax in 2006 was a net credit of ThCh$ 142,078,594 (net charge of ThCh$7,263,468 in 2005). d. In accordance with BT N°.60 and 69 of the Chilean Association of Accountants, and Circular N°1,466 of the SVS, the Company and its subsidiaries have recorded consolidated deferred income taxes as of December 31, 2006 and 2005 as follows: As of December 31, 2006 As of December 31, 2005 Asset Liability Asset Liability Description Short-term Long-term Short-term Long-term Short-term Long-term Short-term Long-term ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Allowance for doubtful accounts 16,631,379 50,916,006 693,720 1,542,496 - - 1,147,149 - - - - - - - - 12,822,825 44,076,950 1,076,847 700,342 1,314,987 - 1,053,846 464,611 - - - - - - - 966,263 - 560,949 - - - 34,614,105 789,178 442,674,315 639 - 1,677,822 2,716,255 145,408 400,056,299 475 - 1,761,264 5,760,844 5,342,971 2,296,439 3,076,910 1,493,957 5,285,281 278,200 3,691,749 8,630,826 76,646,343 7,471,990 72,528,830 - - - - - - 702,591 - - - - - 141,442 1,337,058 - - - 8,420,626 15,353,914 3,756,520 - - - - 562,219 3,373,758 1,604,532 - - 102,542 - - 142,001 1,567,290 - - - 8,498,040 13,254,965 4,148,807 611,338 3,921,623 - 10,500,328 351,596 2,191,170 - - - 4,013,859 - - - - - - - - 811,521 474,148 Tax losses 53,654,994 188,163,151 Provision real state project Sie2000A project - - 2,367,831 - Provision for employee benefits 2,483,126 3,065,119 Operating fees Energy in measurers Regulated assets Capitalized expenses Fixed assets Exchange difference Complementary account-net - - - - - - - - - - - - - 2,317,635 10,552,279 - - - - 18,421,701 2,130,360 - 18,678,406 (10,800,717) - (193,572,033) - 11,830,729 309,921 2,060,233 - - - 3,781,606 56,476,969 188,355,469 - - 2,460,812 - 2,480,983 3,543,641 1,519,060 - - - - - - - - - 23,800,779 - - (10,831,559) - - - - - - - - - 2,573,088 - - 857,794 - - - 425,977 - - - 14,970,953 14,149,146 - - - - - 20,816,953 - (201,390,555) - - Valuation allowance (11,840,683) (28,157,575) - - (12,089,337) (165,173,665) Total 78,215,542 340,405,726 16,659,192 328,156,484 73,845,088 185,853,365 18,720,988 273,286,563 138 | 2006 Annual Report Unearned income Vacation accrual Leased assets Fixed assets depreciation Severance indemnities Other Contingencies Bond discount Cost of studies Finance cost Imputed interest on construction Deferred charges Actuarial deficit (Brazil) Obsolescence Materials used Imputed salaries on construction Income tax benefit (expense) for the year ended December 31, 2006 and 2005 is as follows: Item Current income tax expense - income tax provision: Adjustment for tax expense - prior year Deferred tax (expense) benefit: Benefits for tax losses (reversal) Effect from amortization of complementary accountsof deferred assets and liabilities Effect on assets or liabilities for deferred tax due to change in valuation allowance (*) Other charges or credits Total enersis06 As of December 31 2006 ThCh$ (259.128.302) 6.060.692 19.619.937 1.581.142 (8.564.282) 131.022.939 - 2005 ThCh$ (149.547.441) 780.413 (22.392.657) 13.979.822 (5.945.853) (17.725.293) (1.199.665) (109.407.874) (182.050.674) (*) During 2006, the valuation provision has been reversed as a consequence of the merger approved in Extraordinary Shareholders’ Meetings of Chilectra S.A. (formerly Elesur S.A.) and Chilectra S.A. and the sale of the offices of the former Elesur S.A., whose proceeds, Th$129,771,116 (historic values) were credited to net income for tax purposes. NOTE 09. OTHER CURRENT ASSETS Other current assets are as follows: Forwards contracts Guaranties and indemnities Deferred expenses Post-retirement benefits Deposits for commitments and guarantees Deferred expenes for bond placement Assets available for sale Bond discount Fair value derivatives contracts Reverse repurchase agreements (1) Other Total Balance as of December 31 2006 ThCh$ - 228.911 176.085 247.554 8.015.123 180.002 4.737.696 973.620 1.965.181 48.872.100 1.260.041 2005 ThCh$ 19.244 218.529 639.798 247.784 6.984.605 7.768.838 975.562 650.026 22.061.590 3.204.261 66.656.313 42.770.237 2006 Annual Report | 139 CONSOLIDATED FINANCIAL STATEMENTS (1) The detail of reverse repurchase agreements is as follows: Code Date Start End Financial institution Currency Document As of December 31, 2006 VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC 26-12-2006 26-12-2006 26-12-2006 26-12-2006 26-12-2006 26-12-2006 26-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 27-12-2006 27-12-2006 27-12-2006 28-12-2006 28-12-2006 28-12-2006 28-12-2006 28-12-2006 28-12-2006 28-12-2006 28-12-2006 28-12-2006 28-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 29-12-2006 02-01-2007 Corpbanca 02-01-2007 Banco Central de Chile 02-01-2007 Banco Estado 02-01-2007 Citibank 02-01-2007 Banco Crédtio e Inversiones 02-01-2007 Banco Santander Santiago 02-01-2007 Banco Chile 02-01-2007 BBVA Banco BHIF 02-01-2007 Banco Central de Chile 02-01-2007 Banco Santander Santiago 02-01-2007 Banco Crédtio e Inversiones 03-01-2007 Banco Central de Chile 03-01-2007 BBVA Banco BHIF 03-01-2007 BBVA Banco BHIF 04-01-2007 Banco Chile 04-01-2007 Banco Santander Santiago 04-01-2007 Banco Central de Chile 04-01-2007 Banco Boston 04-01-2007 Banco Santander Santiago 04-01-2007 Banco Crédtio e Inversiones 02-01-2007 Banchile C.de B. 02-01-2007 Banchile C.de B. 02-01-2007 Banchile C.de B. 02-01-2007 Banchile C.de B. 02-01-2007 Banchile C.de B. 02-01-2007 Banchile C.de B. 02-01-2007 Banchile C.de B. Inv Boston C. de B. 02-01-2007 Inv Boston C. de B. 02-01-2007 Inv Boston C. de B. 02-01-2007 02-01-2007 Inv Boston C. de B. 02-01-2007 BBVA BHIF C. de B. 02-01-2007 BBVA BHIF C. de B. 02-01-2007 BBVA BHIF C. de B. 02-01-2007 BBVA BHIF C. de B. 02-01-2007 BBVA BHIF C. de B. 02-01-2007 BBVA BHIF C. de B. 02-01-2007 BBVA BHIF C. de B. 02-01-2007 BBVA BHIF C. de B. 02-01-2007 BBVA BANCO BHIF 02-01-2007 Banco Santander Santiago 02-01-2007 Banco Chile 02-01-2007 Banco Estado 02-01-2007 Banco Crédtio e Inversiones 02-01-2007 BBVA Banco BHIF 02-01-2007 Security 02-01-2007 Scotiabank $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ UF UF UF UF UF UF UF UF D.P.F. CERO D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. D.P.R. CERO D.P.F. D.P.F. CERO D.P.F. D.P.R. L.H. L.H. CERO D.P.F. D.P.F. D.P.F. L.H. L.H. L.H. L.H. BONO L.H. L.H. D.P.F. CERO D.P.F. D.P.F. CERO D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. D.P.R. D.P.R. D.P.R. D.P.F. D.P.F. D.P.F. D.P.F. D.P.R. D.P.R. D.P.R. Interest rate % 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.51% 0.51% 0.51% 0.51% 0.53% 0.53% 0,53% 0,52% 0,52% 0,54% 0.54% 0.54% 0.54% 0.52% 0.52% 0.52% 0.52% 0.35% 0.35% 0.35% 0.48% 0.48% 0.48% 0.48% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% Current amount ThCh$ 2,207,276 2837 4,485,879 2,577,679 3,402,863 1,383,106 2,090,097 2,899 162 1,946,087 65,737 2,838 7,436,726 111,078 3,901,603 2,926 11,167 69,871 5,411,354 1,511,388 106,492 1,019,081 400,580 192,181 115,399 254,838 203,112 150,306 38,612 279,469 503,923 881 1,877,005 201,088 146,945 298,166 25,489 158,440 206,457 6327 2,086,973 512,294 505,435 1,087,578 729,817 629,001 512,638 Nominal ThCh$ 2,205,438 2,835 4,482,144 2,575,532 3,400,030 1,381,954 2,088,356 2,898 161 1,945,426 65,715 2,836 7,431,474 110,999 3,899,575 2,925 11,161 69,833 5,408,433 1,510,572 106,437 1,018,551 400,372 192,081 115,372 254,778 203,065 150,258 38,600 279,380 503,762 881 1,876,367 201,019 146,895 298,065 25,480 158,386 206,387 6,325 2,086,264 512,120 505,263 1,087,208 729,569 628,787 512,464 Fair value ThCh$ 2,207,276 2,837 4,485,879 2,577,679 3,402,863 1,383,106 2,090,097 2,899 162 1,946,087 65,737 2,838 7,436,726 111,078 3,901,603 2,926 11,167 69,871 5,411,354 1,511,388 106,492 1,019,081 400,580 192,181 115,399 254,838 203,112 150,306 38,612 279,469 503,923 881 1,877,005 201,088 146,945 298,166 25,489 158,440 206,457 6,327 2,086,973 512,294 505,435 1,087,578 729,817 629,001 512,638 Total 48,872,100 48,842,436 48,872,100 Code Date Start VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC 29-dec-05 29-dec-05 30-dec-05 30-dec-05 30-dec-05 30-dec-05 30-dec-05 30-dec-05 30-dec-05 30-dec-05 30-dec-05 30-dec-05 12-dec-05 End Financial institution Currency Document As of December 31, 2005 2-jan-06 2-jan-06 2-jan-06 2-jan-06 2-jan-06 2-jan-06 2-jan-06 2-jan-06 2-jan-06 2-jan-06 2-jan-06 2-jan-06 19-jan-06 Banco Central de Chile Banco Central de Chile Banco Central de Chile Corpbanca Banco Estado Banco Central de Chile Banco Santander Santiago Banco del Desarrollo Banco Chile Banco Boston Banco Central de Chile Banco Boston Valores Security $ $ $ $ $ $ $ $ $ $ $ $ $ D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. D.P.R. D.P.R. P.R.C. Interest rate % 0.50% 0.50% 0.42% 0.42% 0.42% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.09% Current amount ThCh$ 18,519 5,393,871 318,792 3,862 27 3,184 921,545 51,785 1,854,651 209,686 1,308 418,087 12,866,273 Nominal ThCh$ 18,513 5,392,073 318,747 3,862 27 3,184 921,387 51,777 1,854,335 209,650 1,308 418,017 12,829,708 Fair value ThCh$ 18,525 5,356,033 318,881 3,863 27 3,186 921,858 51,802 1,855,282 209,757 1,309 418,230 12,902,837 Total 22,061,590 22,022,588 22,061,590 140 | 2006 Annual Report NOTE 10. PROPERTY, PLANT AND EQUIPMENT The composition of property, plant and equipment is as follows: As of December 31, 2006 Gross Fixed Assets Land Buildings and infrastructure Distribution and transmission lines and public lighting Less: third party contributions Sub-total Machinery and equipment Other fixed assets Work in progress Construction materials Leased assets (*) Furniture and fixtures, tools, and computing equipment Vehicles Equipment in transit Other assets Sub-total Technical appraisal Buildings and infrastructure Machinery and equipment Total technical appraisal Total property plant and equipment Depreciation Accumulated depreciation at beginning of year Buildings and infrastructure Machinery and equipment Other assets Accumulated depreciation at beginning of year of technical appraisal Buildings and infrastructure Machinery and equipment Other assets Total accumulated depreciation at beginning of year of technical appraisal Depreciation for the year (cost of sales) Depreciation for the year ( administrative and selling expenses) Total accumulated depreciation at the end of year Total property, plant and equipment, net (*) Leased assets enersis06 Balance as of December 31 2006 ThCh$ 2005 ThCh$ 132,604,494 6,546,069,336 4,495,375,612 (105,482,204) 129,843,148 6,330,456,250 4,314,627,499 (83,599,502) 10,935,962,744 10,561,484,247 1,757,852,219 1,987,188,305 282,997,996 50,950,519 99,127,980 80,397,713 7,278,032 13,226,605 73,507,649 607,486,494 171,584,764 47,230,684 28,742,014 84,829,123 7,262,119 7,545,663 91,634,127 438,828,494 185,762,956 299,234 186,062,190 183,107,327 299,235 183,406,562 13,849,304,227 13,071,414,670 (4,427,593,232) (784,484,184) (80,599,386) (5,292,676,802) (54,164,397) (291,994) (116,880) (54,573,271) (402,853,125) (11,763,630) (4,108,596,188) (684,780,097) (50,003,980) (4,843,380,265) (45,644,528) (289,010) (45,933,538) (362,089,059) (13,255,021) (414,616,755) (375,344,080) (5,761,866,828) (5,264,657,883) 8,087,437,399 7,806,756,787 a. In Endesa Chile the amount of ThCh$29,363,992 corresponds to a contract for power transmission lines and installations (Ralco-Charrúa 2X220 KV) between Empresa Nacional de Electricidad S.A. and Huepil S.A. This contract has a 20-year maturity and earns interest at a 6.5% annual rate. b. In the Peruvian subsidiary Edegel S.A., the amount of ThCh$69,763,988 relates to contracts to finance the project of converting the thermo-electric plant to combination cycle (former Etevensa), being carried out by the Company and the financial institutions Banco de Crédito del Perú, BBVA - Banco Continental and Citibank. These contracts have a life of eight years and accrue interest at an annual rate of Libor + 3.65%. The Company and its foreign subsidiaries have insurance contracts that include blanket, earthquake, and machinery failure policies up to a MUS$200,000 limit. This coverage includes losses due to business interruption. Premiums prepaid associated with these policies are recorded in prepaid expenses and charged to income over the life of the policy. 2006 Annual Report | 141 CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. INVESTMENT IN RELATED COMPANIES a. Investments in related companies as of December 31, 2006 and 2005 are as follows: Tax Payer Related Number Companies Country Reporting origin currency Number of shares Percentage Shareholders’ equity owned of investee Net income of investees Equity in income Investment book value 2006 2005 2006 ThCh$ ThCh$ ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ Foreign Cía. de Interconexión Energética S.A. (5) 78.932.860-9 Gasatacama Generación S.A. 78.952.420-3 Gasoducto Atacama Argentina S.A. 78.882.820-9 Gasoducto Atacama Chile S.A. 96.889.570-2 Inversiones Electrogas S.A. Brazil Chile Chile Chile Chile US dollar US dollar US dollar US dollar - - - - - 45.00% - - - (17,497,116) - (7,873,702) - - 0.05% 0.05% 0.05% 0.05% 25,992,826 40,700,209 (15,417,047) (10,285,893) 0.05% 73,302,051 61,743,533 10,544,902 8,645,600 0.05% 80,930,367 68,369,574 11,304,767 12,203,699 (7,709) 5,272 5,652 (5,143) 4,323 6,101 12,996 36,651 40,465 20,350 30,872 34,185 Chilean Peso 425 42.50% 42.50% 17,159,888 17,939,876 4,393,321 4,203,589 1,867,161 1,786,525 7,292,952 7,624,447 Foreign Cía. de Energía del Mercosur S.A. (2) Argentina US dollar 6.305.400 45.00% 45.00% 8,257,640 8,114,350 1,749 113,039 787 50,867 3,715,938 3,651,457 77.017.930-0 Transmisora Eléctrica de Quillota Ltda. Chile Chilean Peso - 50.00% 50.00% 6,901,090 6,468,906 428,224 350,385 214,112 175,192 3,450,545 3,234,453 Foreign Sacme 96.806.130-5 Electrogas S.A. 77.625.850-4 Consorcio ARA- Ingendesa 76.197.570-6 Sociedad Consorcio Ingendesa Ara Ltda (1) 77.573.910-K Consorcio Ingendesa - Minmetal Limited (1) 96.830.980-3 Gasatacama S.A. 76.014.570-K Inversiones Gas Atacama Holding Ltda. Chile Chile Chile Chile Chile Chile Chilean Peso Chilean Peso Chilean Peso Chilean Peso Chilean Peso Chilean Peso 85 0.021% 0.021% 15,853,446 16,525,445 4,531,558 4,313,870 - - - 50.00% 50.00% 323,546 863,643 50.00% 50.00% 154,620 50.00% 50.00% 29,154 136,862 183,176 186,142 117,360 147,002 299,310 125,513 219,558 1.147 0.00115% 0.00115% 179,364,050 170,025,373 6,373,709 12,340,047 1,774 963 93,071 58,680 73,501 73 (1,101) 917 149,655 62,757 109,779 142 38,322 3,369 36,260 3,511 161,773 431,822 77,310 14,577 2,057 68,432 91,588 1,950 - 50.00% 50.00% 178,505,773 169,777,794 5,686,489 12,697,243 2,843,246 6,348,622 89,252,887 84,888,897 Argentina US dollar 12.000 50.00% 50.00% 76,644 72,520 3,548 (2,203) Foreign Central Geradora Termelectrica Fortaleza S.A. (5) Brazil US dollar 20.246.908 - 48.82% - - - 12,349,939 - 6,029,241 - - 99.584.600-4 Sistemas SEC S.A. (3) Chile Chilean Peso 500.006 49.00% 49.00% 192,951 1,653,295 (240,088) 88,413 (117,643) 43,324 945,676 810,114 Foreign Foreign Termoeléctrica José de San Martín S.A. (4) Argentina US dollar 500.006 23.10% 23.10% Termoeléctrica Manuel Belgrano S.A. (4) Argentina US dollar 1.020.000 23.10% 23.10% 78,364 78,359 76.652.400-1 Centrales Hidroelécticas de Aysen S.A. (6) Chile Chilean Peso - 51.00% - 19,972,020 85,966 85,966 - - - - - - - - - - - - 18,102 18,101 - 10,185,730 19,884 19,884 Total 5,038,940 6,887,499 115,267,451 100,968,106 (1) Related companies of subsidiary Ingendesa Ltda. (2) Related company of subsidiary Endesa Argentina S.A. (3) Related company of subsidiary CAM Chile Ltda. (4) Related companies of subsidiaries Endesa Costanera S.A. and Hidroeléctrica El Chocon S.A. (5) See Note 11-1. (6) Related company of parent company Endesa (organization and development stage) b. Income and (losses) recognized by Enersis S.A. based on the interest in the related companies as of December 31, 2006, amounted to ThCh$5,164,292 (ThCh$14,767,445 in 2005) and ThCh$125,352 (ThCh$7,879,946 in 2005) respectively. c. In accordance with Technical Bulletin No.64 of the Chilean Institute of Accountants for the years ended December 31, 2006 and 2005, the Company has recorded foreign exchange gains and losses on liabilities related to net investments in foreign countries that are denominated in the same currency as the functional currency of those foreign investments. Such gains and losses are included in the cumulative translation adjustment account in shareholders’ equity, and in this way, act as a hedge of the exchange risk affecting the investments. As of December 31, 2006 and 2005 the corresponding amounts are as follows: 2006 Company Edesur S.A. Ampla Energía e Servicos S.A. Central Hidroeléctrica Betania S.A. Edegel S.A. Hidroeléctrica El Chocón S.A. Comercializadora de Energia del Mercosur S.A. Endesa Brasil S.A. Endesa Costanera S.A. Country of origin Argentina Brazil Colombia Peru Argentina Argentina Brazil Argentina Investment ThCh$ Reporting currency Liability ThCh$ 158,353,824 151,159,521 331,103,269 140,498,360 176,190,422 3,715,938 470,347,245 82,724,307 US$ US$ US$ US$ US$ US$ US$ US$ 57,081,416 139,525,671 244,249,312 112,553,841 78,476,027 2,490,419 403,724,902 48,643,241 Total 1,514,092,886 1,086,744,829 142 | 2006 Annual Report enersis06 2005 During the second quarter of 2004, Enersis (Parent Company) has contracted instruments (swap) redenominating to UF that debt, reason why debt is no longer hedge with the instrument. Company Edesur S.A. Ampla Energía e Servicos S.A. Central Hidroeléctrica Betania S.A. Edegel S.A. Hidroeléctrica El Chocón S.A. Comercializadora de Energia del Mercosur S.A. Endesa Brasil S.A. Endesa Costanera S.A. Country of origin Argentina Brazil Colombia Peru Argentina Argentina Brazil Argentina Investment ThCh$ Reporting currency Liability ThCh$ 163.594.644 140.816.971 319.463.341 153.272.201 159.724.269 3.651.457 436.521.148 82.679.287 US$ US$ US$ US$ US$ US$ US$ US$ 78.362.197 137.133.588 240.501.705 117.491.638 74.213.758 2.581.450 402.005.030 52.664.511 Total 1.459.723.318 1.104.953.877 d. The investments in related companies made by Enersis S.A. and its subsidiaries for the years ended December 31, 2006 and 2005, amounted to ThCh$22,550,433 and ThCh$33,837,526, respectively, which are detailed as follows: Balance as of December 31 2006 ThCh$ 2005 ThCh$ Company Inversiones Lo Venecia Ltda. (San Isidro S.A.) Ingendesa S.A. - - 8.536.140 61.879 Centrales Hidroeléctricas de Aysen S.A. (Endesa S.A) 10.159.200 Pangue (Endesa S.A.) Sistemas Sec S.A. (Cam) Chilectra S.A. (ex Elesur S.A.) (1) - - 9.152 258.372 429.112 12.123.709 24.810.395 Total 22.550.433 33.837.526 (1) The payments made for the purchase of Chilectra S.A. (formerly Elesur S.A.) in May 2004 to Endesa International relate to partial disbursements made in June 2005 and March 2006. The balance outstanding is shown in long-term accounts payable to related companies. e. Due to a corporate restructuring carried out in Colombia, on January 30, 2006, the company Capital de Energía S.A. (Cesa) was liquidated. As a result of such restructuring, and in accordance with Technical Bulletin No. 72 of the Chilean Institute of Accountants, for this transaction carried out by companies under common control, a ThCh$1,912,820 increase in reserves has been recognized under shareholders’ equity (see note 22e). f. On April 1, 2006, the subsidiaries Chilectra S.A. (formerly Elesur S.A.) and Chilectra S.A. merged, as was approved in a Meeting of Shareholders held on March 31, 2006. As a result of the merger and according to Technical Bulletin N°72 of the Chilean Institute of Accountants, this business combination subject to common control was recorded under the pooling of interests methodology, causing an increase of ThCh$3,019,591 in shareholders’ equity (see note 22e). g. In Peru, on June 1, 2006, Empresa de Generación Termoeléctrica Ventanilla S.A. (Etevensa) was upstream merged into the subsidiary Edegel S.A. As a result of the merger and in accordance with Technical Bulletin N° 72 of the Chilean Institute of Accountants, this business combination subject to common control was recorded under the pooling of interests methodology and led to decreasing the interest in Edegel S.A. to 55.44% and recognizing a reduction in other reserves, under shareholders’ equity, by Th$5,757,792 (See note 22e). h. On September 4, 2006, Endesa Chile and its subsidiary Endesa Inversiones Generales S.A. executed the incorporation deed that gave birth to a new subsidiary, whose name is Centrales Hidroeléctricas de Aysén S.A. and whose objective is the development, financing, ownership and operation of a hydroelectric project in the 11th Region (Aysen). The capital of the company is one million Chilean pesos divided into 100 ordinary, single-series, nominative, equivalent, no par-value shares. Endesa Chile subscribed 99 shares, representing 99% of the capital, and paid the total amount, a sum of ThCh$990, while Endesa Inversiones Generales S.A. subscribed one share, representing 1% of the capital, and paid in Th$10 for it. On September 21, 2006 the First General Extraordinary Shareholders’ Meeting of Centrales Hidroeléctricas de Aysén S.A. was held and in it the increase in the paid-in capital of the Company to the new sum of ThCh$20,000,000 divided into 2 million nominative, single-series, no par value shares, was approved. This will be subscribed and paid in within three years of the date of the above mentioned First Extraordinary General Shareholders’ Meeting. In this way, of the 1,999,900 shares corresponding to the increase in paid-in capital, Endesa Chile would subscribe 1,019,900 shares, representing 51% of the increase in capital and 50.99995% of the new capital of the Company, while the new 2006 Annual Report | 143 CONSOLIDATED FINANCIAL STATEMENTS shareholder Colbún S.A. would subscribe 980,000 shares, representing 49% of the increase in paid-in capital and 49% of the new paid-in capital. Endesa Inversiones Generales S.A. will not exercise its preferential subscription right, and therefore its interest in the paid-in capital of the Company will be 0.00005%. On October 10, 2006, Endesa Chile subscribed 1,019,899 shares, paying in a total of Ch$10,158,194,040 for them, or $10,000 per share, a sum equivalent to the placement value agreed to in the First General Shareholders’ Meeting of Centrales Hidroeléctricas de Aysén S.A.. At the same time, it subscribed 1 share, paying in a total of $10,000 for it, equivalent to the placement value agreed to in the First General Extraordinary Shareholders’ Meeting of Centrales Hidroeléctricas de Aysén S.A.. However, the payment of this share was made in accordance with the terms set out in the public deed of “Payment of Shares Subscribed for Transfer of Bare Title and the Constitution of Usufruct on the Rights to Use the Water”, which was executed by the parties as of the same date, and according to which Ch$9,955 were paid in cash, plus a contribution, valued at Ch$5, of the ownership of the bare title to the rights to use the water that are identified in the above deed. i. Through a Memorandum of Understanding signed on October 5, 2004, the Corporación Financiera del Valle will stop being shareholder of the Central Hidroeléctrica de Betania S.A. through an asset exchange operation which will take place between the Corfivalle Group and Endesa Group when the legal processes defined by both parties prior to the delivery of the titles to the assets involved are completed. On December 29, 2006 the writ of the splitting of Betania was protocolized, and with that the transfer of ownership of the assets forming part of the Corfivalle group was formalized. With this operation, the Endesa Chile Group gave to Corfivalle the electricity Sub-station of Betania S.A. E.S.P. and 3.81% of the ownership in Empresa de Energía de Bogotá S.A. E.S.P., in exchange for a 14.3% interest in Central Hidroeléctrica de Betania S.A. E.S.P which at that date was owned Corfivalle; thus Endesa Chile Group increased its interest in Central Hidroeléctrica de Betania S.A. E.S.P from 85.62% to 99.99%. In accordance with Technical Bulletin N° 72 of the Chilean Institute of Accountants and Circular N°1697 of the Superintendency of Securities and Insurance, the Company evaluated the assets and liabilities acquired from Central Hidroeléctrica de Betania S.A. at their respective fair market values. As a result of this evaluation it was concluded that the fair market values do not differ substantially from the book values. As a result, the above mentioned purchase of the minority interest was recorded in conformity with Technical Bulletin No. 72 of the Chilean Institute of Accountants and involved recognizing negative goodwill amounting to Th$7,314,475. (See note 13b). j. Business Structure - As a result of the reduction of available capacity for power generation and the physical guarantee of energy and associated wattage, Companhia de Interconexão Energética (CIEN) is struggling to focus its business on a different compensation structure which would not be dependant on the energy coming from Argentina and Brazil for purchases and sales of power across borders. In this regard, 144 | 2006 Annual Report CIEN is renegotiating its existing contracts for supplying energy while seeking at the same time a compensation that would be compatible with its position of transporter of energy across countries. CIEN expects to define its new business structure in the course of 2007. k. On April 18, 2005, Endesa Chile and its subsidiary Enigesa executed the incorporation deed of a new subsidiary, bearing the corporate name of Endesa Eco S.A. and whose purpose will be to promote and develop projects associated with renewable energies. Endesa Eco S.A.’s capital amounts to ThCh$580,000 and is divided into 5,800,000 nominative, no par value shares. Endesa Chile subscribed 5,799,420 shares, representing 99.99% of the corporate capital and paid in ThCh$179,982, representing 1,799,820 shares while Enigesa subscribed 580 shares, representing 0.01 of the corporate capital and paid in ThCh$18, representing 180 shares. Each shareholder will pay in its part of the balance of the capital over three years as from the date of incorporation. l. On June 10, 2005, Endesa Brasil S.A. was incorporated; its purpose is to acquire paid-in capital in other companies operating, or that may be incorporated to operate, directly or indirectly, in any segment of the electrical sector, transmission, distribution, generation and marketing of electrical energy, in Brazil and other countries. Endesa Brasil S.A. was created as an energy holding concentrating all the electrical assets of Endesa Group in Brazil. -Endesa Brasil S.A. holds ownership percentages in the following companies: Compañía de Interconexión Energética S.A. (CIEN), Central Generadora Termeléctrica Fortaleza S.A. (CGTF), Companhia Energetica Do Ceara (COELCE), Ampla Energia e Servicos S.A. (formerly, Cerj), Ampla Investimentos e Servicos S.A., Ampla Generación S.A., Investluz and Centrais Eléctricas Cachoeira Dourada S.A. (CDSA). Endesa Brasil’s interest in these investees were contributed on October 25, 26 and 27, 2005 by Enersis S.A., Endesa Chile S.A., Chilectra S.A. and Endesa Internacional. Contributions made by Enersis S.A. and its subsidiaries are detailed as follows: • Endesa Chile S.A., through its subsidiaries Edegel S.A. and Compañía Eléctrica Cono Sur S.A., contributed its investment in Centrais Eléctricas Cachoeira Dourada S.A. (99.61%) and Compañía de Interconexión Energética S.A. (Cien) (45.00%), receiving in exchange an interest in Endesa Brasil S.A.: 4.18% for Edegel S.A. and 36.27% for Compañia Eléctrica Cono Sur S.A. • Chilectra S.A., through its subsidiaries Chilectra Inversud S.A. and Luz de Río S.A., contributed its investments as follows: - Chilectra S.A. contributed 10.33% of its investment in Ampla Energia e Servicos S.A., receiving in exchange a 4.65% interest in Endesa Brasil S.A. - Chilectra Inversud S.A. contributed 10.42% of its investment in Investluz S.A., receiving in exchange a 2.37% interest in Endesa Brasil S.A. enersis06 - Luz de Río S.A. contributed 7.76% of its investment in Ampla Energia e Servicos S.A., receiving in exchange a 3.49% interest in Endesa Brasil S.A. • Enersis S.A., contributed to Endesa Brasil S.A. the following investments: - - - Its 48.82% interest in Central Generadora Termeléctrica Fortaleza S.A., receiving in exchange an 8.84% interest in Endesa Brasil S.A. Its 15.61% interest in Investluz S.A., receiving in exchange a 3.55% interest in Endesa Brasil S.A. Its 18.10% interest in Ampla Energia e Servicos S.A., receiving in exchange an 8.15% interest in Endesa Brasil S.A. To summarize the above, Enersis S.A. has a direct and indirect interest in Endesa Brasil S.A. amounting to 53.57%. m. On August 11, 2005, the Company and its subsidiary Endesa Inversiones Generales S.A. acquired 99.999% and 0.001% of the ownership rights in Inversiones Lo Venecia Ltda., for ThCh$8,360,472 and ThCh$82, respectively. Inversiones Lo Venecia Ltda. is the indirect owner of 25.001% of the paid-in capital in Compañía Eléctrica San Isidro S.A., and as a result Endesa Chile S.A. has become, considered directly and indirectly, the owner of 100% of the stock capital in Compañía Eléctrica San Isidro S.A. In accordance with Technical Bulletin N°.72 of the Chilean Institute of Accountants and Circular N°.1697 of the Superintendency of Securities and Insurance, the Company appraised the assets and liabilities acquired in Compañía Eléctrica San Isidro S.A. at July 31, 2005 at their respective fair values. The difference determined by the Company between the fair value and the book value of the shareholders’ equity in Compañía Eléctrica San Isidro S.A. at the acquisition date amounted to ThCh$6,645,776 and is due to the greater economic value of the fixed assets relative to their book value. The amount allocated to fixed assets will be depreciated over 18 years, which is the remaining useful life of such assets. As a result, the assets and liabilities of Compañía Eléctrica San Isidro S. A. stated at book value (for 74.999% of the interest) and at fair values (for 25.001% of the interest) which have been included in the consolidation of the Company at December 31, 2005, are as follows: ASSETS Total current assets Total property, plant and equipment net Total other assets TOTAL ASSETS LIABILITIES Total current liabilities Total long-term liabilities Total shareholders’ equity TOTAL LIABILITIES Book value ThCh$ Proportional difference ThCh$ Adjusted value ThCh$ 14,128,702 86,866,792 4,503,545 - 1,659,591 - 14,128,702 88,526,383 4,503,545 105,499,039 1,659,591 107,158,630 37,923,949 29,604,165 37,970,925 - 281,640 1,377,951 37,923,949 29,885,805 39,348,876 105,499,039 1,659,591 107,158,630 The methodology applied in acquiring 25.001% of Compañía Eléctrica San Isidro S.A. was the purchase method. 2006 Annual Report | 145 CONSOLIDATED FINANCIAL STATEMENTS NOTE 12. INVESTMENTS IN OTHER COMPANIES Investments in other companies at December 31, 2006 and 2005 are as follows: Tax Payer Number 77.286.570-8 77.345.310-1 Foreign Foreign 80.237.700-2 Foreign Foreign 88.272.600-2 Foreign Foreign Foreign Company CDEC-SIC Ltda. CDEC-SING Ltda. Club de la Banca y Comercio Club Empresarial Cooperativa Eléctrica de Chillán Electrificadora de la Costa Atlántica Electrificadora del Caribe Empresa Eléctrica de Aysen S.A. Empresa Eléctrica de Bogotá S.A. Financiera Eléctrica Nacional S.A. Dardanelos Participacoes S.A. Number of shares - - 1 1 - 6,795,148 42,784,058 2,516,231 2,124,047 4,098 - Percentage owned 14.84% 7.83% - 1.00% - 0.19% 0.71% - 2.10% 0.10% - Balance as of December 31 2006 ThCh$ 136,234 152,709 2,060 23,044 14,135 91,500 1,212,261 2,158,060 20,188,918 110,256 2,490 2005 ThCh$ 226,109 109,131 1,891 5,365 14,135 23,330 1,249,998 2,168,431 37,604,403 108,609 - Total 24,091,667 41,511,402 NOTE 13. GOODWILL AND NEGATIVE GOODWILL a. In accordance with current standards, recognition has been given to the excess of purchase price of the proportional equity in the net assets acquired (goodwill) in the purchase of shares as of December 31, 2006 and 2005, as follows: Tax Payer Number 96.800.570-7 Foreign Foreign Foreign 96.783.910-8 96.589.170-6 91.081.000-6 78.882.820-9 Foreign Company Chilectra S.A. (ex Elesur) Codensa S.A. Edegel S.A. Emgesa S.A. Empresa Eléctrica de Colina S.A. Empresa Eléctrica Pangue S.A. Empresa Nacional de Electricidad S.A. Gasoducto Atacama Chile Ltda. Inversiones Distrilima S.A. Balance as of December 31 2006 2005 Amortization for the year ThCh$ (6,806,528) (913,713) (30,390) (724,050) (202,788) (183,157) (47,041,116) (5,226) (1,111) Goodwill Net Balance ThCh$ 89,151,363 9,898,552 329,224 7,846,896 1,977,185 2,854,198 542,932,105 63,583 8,891 Amortization for the year ThCh$ (6,806,450) (898,047) (29,869) (1,176,818) (202,788) (183,157) (47,041,116) (5,225) (1,092) Goodwill Net Balance ThCh$ 95,957,890 10,626,895 353,449 13,924,538 2,179,973 3,037,355 589,973,222 68,809 9,831 Total (55,908,079) 655,061,997 (56,344,563) 716,131,962 146 | 2006 Annual Report enersis06 b. Following current standards, recognition has been given to the excess of the equity in the net assets purchased over the purchase price (negative goodwill) in the purchase of shares as of December 31, 2006 and 2005 as follows: Tax Payer Number Foreign Foreign Foreign Foreign Foreign Foreign 96.529.420-1 Company Endesa Costanera S.A. Central Hidroeléctrica Betania S.A. (*) Edegel S.A. Edelnor S.A. Emgesa S.A. Inversiones Distrilima S.A. Synapsis Soluciones y Servicios IT Ltda. Balance as of December 31 2006 2005 Amortization ThCh$ 2,578,829 1,681,106 1,693,940 - 83,585 23,326 16,771 Goodwill Net Balance ThCh$ (7,091,791) (7,314,475) (22,162,386) - - (359,616) (88,049) Amortization for the year ThCh$ 2,534,616 5,415,785 7,495,788 150,346 185,759 22,927 16,771 Goodwill Net Balance ThCh$ (9,504,823) (1,703,645) (23,447,324) - (2,226,482) (376,377) (201,937) Total 6,077,557 (37,016,317) 15,821,992 (37,460,588) (*) See Note 11i) NOTE 14. OTHER ASSETS Other assets as of each year end are as follows: Bond discount Bond issuance cost Deferred expenses Bank fees and interest expense Post-retirement benefits Security deposits for judicial obligations Presumed minimum income and taxes Reimbursable contributions Investment in Empresa Eléctrica de Bogotá S.A. (1) Regulatory assets Fair value derivative contracts Other Total (1) See note 11i). As of December 31, 2006 ThCh$ 14,824,231 5,172,084 5,421,634 7,767,199 2,893,528 58,939,499 72,208,739 815,229 - 71,047,279 57,378,238 3,521,903 2005 ThCh$ 18,122,213 5,903,514 23,493,248 16,294,953 2,997,785 47,111,510 31,194,724 1,007,208 39,598,937 61,672,226 189,294 6,265,515 299,989,563 253,851,127 2006 Annual Report | 147 CONSOLIDATED FINANCIAL STATEMENTS NOTE 15. DUE TO BANKS AND FINANCIAL INSTITUTIONS a. Short-term debt due to banks and financial institutions: Rut Financial Institution US$ Other foreign currency $ Readjusted Ch$ As of December 31, Foreign currency 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Foreign Foreign Foreign Foreign ABN Amro Bank Banco Av Villas Banco Bayerische Landes Banco BBVA 97.032.000-8 Banco BBVA Bhif Foreign Foreign Foreign Foreign Bnp Paribas Banco Continental Banco Credicoop Banco Crédito Perú - - 14,716 - - - - - - 6,772,464 7,681,959 - - - - 68,004,765 24,111,715 9,256,354 - - 23,608 - - 2,184 2,355,647 13,918,596 12,638,085 - - 97.006.000-6 Banco Crédito e Inversiones 147,767 Foreign Banco de Bogotá 97.004.000-5 Banco de Chile - - Banco de Galicia y Buenos Aires 591,097 570,880 Banco de la Ciudad de Buenos Aires Banco de la Nación - - - - Banco de la Provincia de Buenos Aires 1,347,575 1,241,702 Banco do Brasil 2,532,469 27,996 Banco do Nordeste do Brasil 97.030.000-7 Banco Estado - 71,274 - - - - - - - - 172,258 - 10,065,018 8,444,052 - 19,712,752 - - - - - - 2,102,568 2,116,073 22,647 - - 94,087 - 69,841 - - - - - - Banco Santander Central Hispano 115,767 113,782 4,566,626 2,955,910 97.036.000-K Banco Santander Santiago 139 8,530 Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Banco Hipotecario Banco Itau Banco Lloyds Banco Real Banco Río de la Plata Banco Safra 97.053.000-2 Banco Security Foreign Foreign Foreign Foreign Foreign Bank Boston Bancolombia Barings Bladex Citibank N.A. 97.008.000-7 Citibank (Agencia Chile) Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Comafi Compagnie Belge de la Webstlb Deutsche Bank Interbank JP Morgan Standard Bank Scotiabank - Perú Unibanco 1,023,677 1,217,109 685,710 957,931 - - - - - - - - 7,233,759 - 11,705 245,649 245,920 732,477 - - - - - - 4,951 - - - 7,410 - - - 51,175 39,757 12,169,227 - - - - 605,415 2,439,560 615,357 - - - 9,917,513 343,784 - - 19,625 7,178 3,789 2,834 - - - - 1,335,224 103,287 34,747 30,722 - - - - - 3,908,078 - 978,383 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 - - - - 785 - 200,409 - - - - - - - - - - - - - - - - - - 9 6,772,464 7,681,959 14,716 - - - 24,111,715 77,261,119 1 23,608 9 - - 13,920,780 14,993,732 172,258 - - 10,065,018 8,444,052 14,459 148,552 14,459 - - - - - - - - - - - - - - - 19,712,752 200,409 - - 591,097 570,880 2,102,568 2,116,073 22,647 - 1,347,575 1,241,702 2,532,469 27,996 94,087 71,274 69,841 - - - 1,709,387 2,175,040 7,233,759 - 11,705 245,649 245,920 732,477 - - 4,682,393 3,069,692 2,089 128 - - - - - - - - - - - - - - - 2,237 3,673 652 9,084 4,465 3,673 9,310 9,084 - - - - - 1 - - - - - - - - - - - - 23 - - - - - - - - 39,757 51,175 12,169,227 - - 605,415 2,439,560 615,357 9,922,464 343,784 1 19,625 - 7,410 1,335,224 103,287 23 7,178 3,789 2,834 - - 34,747 30,722 3,908,078 - - 978,383 Total 8,333,333 74,849,703 125,716,421 37,943,399 2,089 128 207,106 24,227 134,258,949 112,817,457 Total principal 5,334,404 67,364,733 123,534,971 27,964,088 - - Weighted average annual interest rate 6.80% 4.73% 3.00% 3.00% 3.00% 0.30% - - 24,227 128,869,375 95,353,048 9.00% 7.85% 5.10% Percentage of liabilities in foreign currency Percentage of liabilities in local currency Total As of December 31, 2006 99.84% 0.16% 2005 99.98% 0.02% 100.00% 100.00% 148 | 2006 Annual Report b. Current portion of long-term debt due to banks and financial institutions: enersis06 US$ Euros Other foreign currency Ch$ $ no Readjusted As of December 31 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ Foreign currency Rut Financial Institution Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Bancafe Banco Abn Amro Bank Banco Alfa Banco Bayerische Landes Banco BBVA Bnp Paribas Banco Colpatria Banco Continental Banco de Crédito (Perú) Banco Corfinsura Banco Davivienda Banco do Brasil Banco do Nordeste do Brasil 97.090.00-7 Banco Estado 36,246 929,278 - - 661,430 8,026,740 115,122 1,602 3,508,128 - 1,326,929 - - - - - - - - - - - - 1,323,854 80,060 - - 11,608,238 - - 175 - 3,493,888 - - Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Banco Europeo de Investimentos 6,925,976 Banco Interamericado de Desarrollo Banco Itau Banco Medio Crédito Banco Monte Paschi Banco Nacionale del Lavoro Banco Nacionale de Paris Banco Pactual Banco Safra - - - 12,427 - - - - Banco Santander Central Hispano 112,752 3,668,581 Bancolombia Banesto Bank Boston Bank of Tokio - Mitsubishi Bndes Bradesco Caja de ahorros de galicia Caja de Ahorros y Monte de Piedad de Madrid - - 4,413,387 4,391,905 - - 89,507 1,212 - - 24,853 129,578 - - - 20,143 Compagnie Belge de la Webstlb 3,863,683 2,110,853 Conavi Credit Suisse First Boston Deutsche Bank A.G. Dresdner Export Develop. Corp. Granahorrar Hsbc Instituto crédito oficial - 11,218 - - 238,637 3,492,458 24,854 505 1,800,708 1,733,770 - 72,492 36,246 - 1,602 1,602 International Fiance Corporation 4,725,494 J.P. Morgan Chase Bank 13,405,136 93,751 Kreditanstal Fur Weideraubau San Pedro IMI S.P.A. Scotiabank Skandinaviska Enskilda Banken Standard Bank Unibanco West LB 300,064 8,273,583 86,990 1,212 - - 882,607 1,737,851 123,515 - - 1,085,185 2,308,262 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,224,653 1,203,288 - - - 1,012,536 - 106,411 - - - 816,521 802,193 9,829,342 10,125 3,937 3,034 3,265,742 3,208,770 2,836,477 2,419,275 1,586,684 227,096 - - - - - - - 793,790 - 1,856,924 2,028,368 1,841,361 - - - 606,534 1,243,640 422,279 370,907 - 770,794 1,152,921 1,380,034 4,456,393 3,208,770 - - - - 5,028,227 - 8,675,850 26,727,120 28,739 887,144 - - - - - 614,905 - - - - - - - - 2,041,089 2,005,482 - - - - - - 1,224,653 1,203,288 - - - - - - 91,477 - - - - - - - - - - - 8,466,259 9,511,991 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 386,869 1,825,596 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 30 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,224,653 1,203,288 36,246 929,278 - 106,411 661,430 8,026,740 1,127,658 3,508,128 1,602 - 816,521 802,193 11,156,271 10,125 3,937 3,034 3,265,742 3,208,770 2,836,477 2,419,275 1,586,684 1,550,950 - 80,060 386,869 1,825,596 6,925,976 793,790 - - 11,608,238 1,856,924 2,028,368 1,841,361 12,427 175 - - 606,534 4,737,528 422,279 370,907 - 770,794 1,265,673 5,048,615 4,456,393 3,208,770 4,413,387 4,391,905 - 5,028,227 89,507 1,212 8,675,850 26,727,120 28,739 24,853 887,144 - 129,578 20,143 823,824 728,517 355 2,249,817 1,365 - - - - - - - - - - - - - - - - - - - - 30 614,905 - - 3,863,683 2,110,853 2,041,089 2,005,482 11,218 - 238,637 3,492,458 24,854 505 1,800,708 1,733,770 1,224,653 1,203,288 72,492 36,246 4,725,494 1,602 1,602 - 13,405,136 93,751 300,064 8,273,583 86,990 91,477 1,212 - 882,607 1,737,851 123,515 - 8,466,259 10,597,176 2,308,262 - Caixa General de Depósitos - - 823,824 728,517 Citibank N.A. 2,249,817 1,010 97.008.000-7 Citibank (Agencia en Chile) Comafi - - - - Total 47,486,058 52,074,462 823,824 728,517 49,785,013 65,410,010 386,869 1,825,596 30 355 98,481,794 120,043,536 Total principal 36,701,521 49,475,489 823,821 725,426 49,785,013 46,795,927 386,869 1,643,036 355 87,695,224 98,640,233 Weighted average annual interest rate 7.85% 10.27% 4.03% 3.45% 10.92% 11.66% 9.00% 9.00% 0,30% 9.37% 11.06% Percentage of liabilities in foreign currency Percentage of liabilities in local currency Total As of December 2006 2005 99.61% 98.48% 0.39% 1.52% 2006 Annual Report | 149 CONSOLIDATED FINANCIAL STATEMENTS NOTE 16. LONG-TERM PORTION OF DEBT DUE TO BANKS AND FINANCIAL INSTITUTIONS The detail is as follows: Foreign 97.030.000-7 Banco Estado Financial Institution Currency Banco Crédito Perú Bancafe ABN Amro Bank Banco Colpatria Banco Continental Banco Alfa Banco Bayerische Landes Banco BBVA Banco Pactual Banco Río de la Plata Bancolombia Banco Santander Central Hispano Banco Europeo de Investimentos Banco Davivienda Banco de la Provincia de Buenos Aires Banco do Brasil Banco do Nordeste do Brasil Banco Hipotecario Banco Interamericado de Desarrollo Banco Itau Banco Medio Crédito Banco Monte Paschi Banco Nacionale de Paris Col. $ US$ Arg $ Rs US$ US$ Col. $ Col. $ US$ Per. Sun Per. Sun US$ Readj. Ch$ US$ Col. $ US$ US$ Rs Rs Arg $ US$ Rs Arg $ US$ US$ Arg $ Rs Arg $ Col. $ US$ Col. $ Rs US$ Arg $ US$ US$ Rs Rs Bradesco Caja de Ahorro de Galicia US$ Caja de Ahorros y Monte de Piedad de Madrid US$ Euro Caixa General de Depósitos US$ Citibank N.Y. US$ Compagnie Belge de la Webstlb Arg $ Comafi Col. $ Conavi Col. $ Corfinsura US$ Credit Swiss First Boston US$ Deutsche Bank A.G. US$ Dresdner US$ Export Develop. Corp. Col. $ Granahorrar US$ HBSC US$ ING Bank US$ Instituto de Crédito Oficial US$ International Finance Corporation US$ J.P.Morgan Chase Bank Arg $ US$ US$ Per. Sun US$ US$ US$ Rs US$ Kreditanstal Fur Weideraubau San Pablo IMI S.P.A. Scotiabank Skandinaviska Enskilda Banken Standard Bank The Royal Bank of Scotiand Unibanco West LB Banesto Bank Boston Bank Tokio - Mitsubishi BNDES As of December 31, 2006 After 1 year After 2 years After 3 years After 5 years but within 2 years ThCh$ but within 3 years ThCh$ but within 5 years ThCh$ but within 10 years ThCh$ - 6,876,704 - - 658,833 22,341,366 - - - - 16,990,017 - - - - - 198,064 8,228 - - - - 2,022,063 2,357,727 3,301,077 - - - - 14,019,603 - - 2,168,434 7,822,874 16,504,090 - 42,561,499 - 4,715,456 22,341,366 - 22,341,366 - 304,223 - - 4,565,624 27,666,584 4,715,454 1,535,300 - 13,753,408 - 6,876,704 4,824,505 - - 436,853 16,504,090 8,326,400 - 13,753,407 - 10,056,608 - - - 1,158,944 - 3,074,552 - 19,620,308 - 10,257,565 - - - - 4,436,583 7,502,299 - 198,064 1,480,913 4,100,034 2,468,551 - - 2,022,063 - 2,623,467 834,440 - 8,692,082 23,071,588 - 22,337,554 - - - - - 4,593,240 - - - - 10,647,800 - 579,472 - - 9,126,686 12,870,052 - 1,535,300 - - - - 5,174,478 - 3,650,674 - - - 6,211,218 - 8,137,099 8,518,240 - 1,885,548 579,472 - - 5,656,644 - - 8,656,800 - - 549,027 - - - - - - - - - - - - - 8,873,168 8,873,167 - - - - 235,237 307,650 4,841,762 2,961,826 - - - 1,234,276 - - - - - 3,033,467 3,484,113 - - 2,540,641 - 417,220 - 7,723,508 - 4,346,041 - - - 7,004,256 - - - 149,407,800 - - - - - - - - - - - - - - - - - 2,286,675 - - - - 32,535,843 - - - - - - - - 12,887,636 - 399,293 - 5,872,925 8,311,056 24,492,649 - 10,670,762 2,941,455 - 7,004,256 - 289,736 - - 2,279,390 18,811,113 - 2,909,218 - 3,771,096 7,240,504 2,684,134 11,502,298 - 1,825,337 - 4,525,315 - - 17,302,675 399,293 8,957,085 - Total Long-term portion 2006 ThCh$ Annual interest rate average After 10 years Years ThCh$ - - - - - - - - - - - - - - - - 8 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 13 - - - - - - - - - - - - - - - - - - - - - - - - - - 1,478,200 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6,481,777 - - - - - - - - - - - 8,762,252 1,738,416 - 3,733,385 27,998,010 19,620,308 - 18,914,365 - 16,990,017 549,027 - 22,182,918 7,502,299 - 2,417,215 9,292,729 4,100,034 3,702,827 - - 7,077,593 2,357,727 11,949,298 1,251,660 7,723,508 13,038,123 23,071,588 21,023,859 22,337,554 149,407,800 2,567,727 7,822,874 22,377,015 8,311,056 71,647,388 10,670,762 4,715,456 25,282,821 - 39,993,422 - 1,173,431 - - 15,971,700 59,347,749 4,715,454 8,266,493 - 17,524,504 7,240,504 9,560,838 60,518,901 - 5,476,011 436,853 21,029,405 8,326,400 - 37,267,300 399,293 40,038,428 8,518,240 - 5.74% 13.25% - 8.61% 5.70% 9.07% - 5.00% - 5.00% 5.71% - 18.33% 9.07% 0.00% 4.31% 16.25% 8.61% 13.25% - - 1.75% 5.75% 5.89% 13.25% 15.58% 13.25% 9.07% 6.72% 9.07% 14.84% 6.66% 14.05% 5.74% 17.75% 13.80% 14.91% 5.75% 5.75% - 5.81% - 13.25% - - 11.12% 7.65% 5.75% 6.42% - 5.74% 5.71% 5.74% 7.81% - 13.25% 4.85% 5.74% 6.75% - 8.81% 5.71% 9.99% 6.45% Total long-term portion - 2005 ThCh$ 1,145,385 15,800,986 - 6,706,488 - 14,380,375 - 763,591 - 8,998,102 6,329,174 - 971,845 26,163,125 2,290,771 523,263 - 11,526,891 1,711,559 - 71,633,668 22,181,363 8,209,989 635,393 14,204,026 - 6,669,085 - 3,253,820 29,475,836 - - 6,393,772 - 11,250,145 - 67,537,292 8,941,983 - 10,298,927 725,880 12,209,458 3,793,653 1,207,860 1,908,976 3,054,361 15,697,875 8,985,785 1,853,221 8,652,627 1,145,405 11,546,034 10,883,860 8,711,698 - 13,081,563 - 42,756,680 11,250,144 - 864,649 10,465,249 - 38,663,816 - Rut Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Totals 300,547,927 184,923,266 197,959,133 214,552,234 21 7,959,977 905,942,537 565,455,648 Percentage of liabilities in foreign currency Percentage of liabilities in local currency Total As of December 31, 2006 97.21% 2.79% 2005 97.29% 2.71% 100.00% 100.00% 150 | 2006 Annual Report enersis06 The operation was carried out without warranties, endorsements, or investment or indebtedness restrictions. NOTE 17. OTHER CURRENT LIABILITIES Other current liabilities are as follows: Advances and guarantee on construction Taxes payables Contingencies - third party claims Reimbursable contributions Energy efficiency program (Brazil) Azopardo provision Accrued employees benefits - other Forward contracts and swaps Fair value - derivative contracts Emergency energy provision (Brazil) Obligations of payment to third parties Other current liabilities As of December 31, 2005 2006 ThCh$ ThCh$ 47,394 2,545,150 23,406,960 1,049,136 28,103,397 2,834,863 2,716,016 4,180,744 1,965,181 7,863,307 10,961,026 5,178,343 43,233 1,411,849 7,048,506 1,743,750 - 3,422,683 1,977,599 16,859,856 8,807,763 3,896,892 - 4,689,616 90,851,517 49,901,747 In November 2004 the Company obtained a syndicated loan amounting to MUS$350 through overdraft (revolving) lines. In 2005, the amount of MUS$265 was prepaid; and MUS$80 were prepaid in 2006, leaving a balance of MUS$5. In November 2006, the Company made a second withdrawal, this time of MUS$310, from the revolving line. The MUS$315 balance is due in November 2008. It is possible to prepay and draw down funds throughout the contract period. The interest (spread) depends on the corporate rating given by S&P. Currently, at BBB-, the interest spread is 0.375%. On November 10, 2004, Endesa Chile entered into a new credit for MUS$250 million, with which it prepaid the loan entered into on February 4, 2004. The new Endesa Chile loan matures on November 11, 2010, and has a 0.375% Libor spread. The operation was carried out without warranties, endorsements, or investment or indebtedness restrictions. On January 26, 2006, Endesa Chile entered into a Revolving Facility for MUS$200, of which it has withdrawn MUS$85 at September 30, 2006. On December 7, 2006, Endesa Chile entered into a Revolving Facility for MUS$200, of which it has withdrawn MUS$0 at December 31, 2006. Total In the case of Endesa Chile’s revolving overdraft lines, it is possible to prepay and draw down funds throughout the contract period. These revolving overdraft lines mature on July 26, 2011 and on December 7, 2007, and have 0.300 and 0.250% Libor spreads, respectively. 2006 Annual Report | 151 CONSOLIDATED FINANCIAL STATEMENTS NOTE 18. BONDS PAYABLE a. Details of the current portion of bonds payable are as follows: Instrument Bond N°269 - Enersis Bond N°269 - Enersis Yankee Bonds - Enersis Yankee Bonds - Enersis Yankee Bonds - Enersis Yankee Bonds II - Enersis Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Codensa Bonds Codensa Bonds Codensa Bonds Edesur Bonds Edesur Bonds Ampla Bonds Ampla Bonds Ampla Bonds Coelce Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Chile Internacional Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Betania Total 152 | 2006 Annual Report Series B-1 B-2 One Two Three One One I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. II° Prog. II° Prog. II° Prog. II° Prog. II° Prog. II° Prog. II° Prog. II° Prog. II° Prog. B3 B5 B8 Five Six 1° serie 2° serie Unit Unit E-1 y E-2 F G H One Two Three One One 144A 144A Unit One Two Three Three A Three B Four A 5 A 2° issue 6 A 2° issue 6 B 2° issue 7 A 2° issue 8 A 2° issue 8 b 2° issue 9 A 2° issue 10 A 2° issue 11 A 2° issue 13 A 2° issue 14 A 2° issue 15 A 2° issue A-1 B-7 B-10 B-10 C-10 C-10 B-1 2° issue B-1 A-10 A-1 B Face value outstanding Currency Interest rate Maturity date 28,356 1,935,000 300,000,000 350,000,000 858,000 350,000,000 4,981,900 80,000,000 100,000,000 18,570,000 40,000,000 30,000,000 20,000,000 20,000,000 20,000,000 20,000,000 40,000,000 30,000,000 30,000,000 20,000,000 4,000,000 18,000,000 20,000,000 27,200,000 19,250,000 15,000,000 15,000,000 15,000,000 15,000,000 50,000,000,000 200,000,000,000 250,000,000,000 40,000,000 80,000,000 290,000,000 110,000,000 370,000,000 88,500,000 6,000,000 1,500,000 4,000,000 4,000,000 230,000,000 220,000,000 200,000,000 400,000,000 400,000,000 400,000,000 200,000,000 150,000,000 30,000,000 30,000,000 30,000,000 50,000,000 50,000,000 50,000,000 10,000,000 30,000,000 20,000,000 10,000,000 22,370,000 25,700,000 70,000,000 35,000,000 20,000,000 25,000,000 25,000,000 30,000,000 15,000,000,000 19,500,000,000 229,825,000,000 60,000,000,000 8,928,433,000 15,889,565,000 50,000,000,000 85,000,000,000 210,000,000,000 15,000,000,000 400,000,000,000 UF UF US$ US$ US$ US$ Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Col. $ Col. $ Col. $ Arg $ Arg $ Br. Real Br. Real Br. Real Br. Real UF UF UF UF US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Per. Sun Per. Sun Per. Sun US$ Per. Sun Per. Sun US$ Per. Sun Per. Sun Per. Sun Per. Sun US$ Per. Sun Per. Sun Per. Sun Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ 5.50% 5.75% 6.90% 7.40% 6.60% 7.38% 9.61% VAC + 7.5% VAC + 6.9% VAC + 6.2% 4.47% 5.86% 6.25% VAC + 5.4% 8.56% VAC + 6.5% VAC + 6.5% 7.38% 8.75% 7.31% 7.84% 8.16% 7.06% 8.00% 6.63% 6.79% 7.56% 7.22% 6.66% 8.84% 10.05% 10.24% 8.50% 10.41% CDI+1.2%aa IGP-M+11.4% DI + 0.85% aa CDI + 16% 6.20% 6.20% 4.80% 6.20% 7.33% 8.13% 7.75% 8.50% 8.35% 8.63% 8.63% 108.63% 8.41% 8.75% 3.75% 5.88% 5.88% 8.50% 6.00% 6.47% 6.91% 6.72% 3.71% 6.47% 6.09% 6.16% 3.71% 6.47% 6.09% 6.16% 9.36% 10.25% 10.62% 10.33% 10.33% 10.33% 10.25% 10.62% 10.33% 10.33% 10.70% 06-15-2009 06-15-2022 12-01-2006 12-01-2016 12-01-2026 12-01-2014 02-01-2011 07-01-2006 10-10-2006 04-26-2007 09-11-2007 01-15-2008 01-15-2012 04-22-2014 06-01-2009 06-01-2014 06-01-2014 05-10-2010 06-08-2009 01-05-2011 01-05-2013 01-05-2016 02-01-2011 02-01-2016 03-17-2009 05-22-2009 05-22-2013 08-31-2016 10-06-2013 03-15-2099 03-15-2011 03-15-2014 04-05-2006 10-05-2007 03-01-2008 03-01-2010 08-01-2012 02-20-2012 08-01-2006 08-01-2022 10-15-2010 10-15-2008 02-01-2027 02-01-2037 01-02-2097 07-15-2008 01-04-2009 01-08-2013 01-08-2015 01-04-2006 03-06-2006 02-14-2007 06-13-2007 04-09-2006 10-30-2006 12-12-2006 01-26-2009 02-27-2008 06-18-2006 07-26-2009 10-03-2006 03-31-2008 01-06-2009 10-21-2010 11-18-2012 10-29-2013 10-21-2010 11-27-2011 01-26-2007 02-23-2007 09-10-2009 10-11-2009 09-10-2009 09-10-2009 07-29-2006 07-26-2006 02-23-2015 07-26-2006 10-11-2011 As of December 31, 2006 ThCh$ 799,912 903,634 - 1,025,253 2,512 6,298,562 6,779 - - 3,458,582 6,752,532 131,616 93,435 35,637 16,641 13,129 7,489 20,476 24,293 118,428 25,406 118,884 97,386 150,027 60,782 17,803 19,946 60,125 38,808 58,262 266,338 338,869 - 10,436,461 3,288,428 2,663,888 5,369,066 - - 699,850 724,858 933,132 3,604,972 3,574,778 785,969 7,564,374 4,525,315 7,409,094 3,826,553 - - 16,480,993 16,042,565 - - - 85,404 100,281 10,223 167,150 68,296 69,212 67,088 75,057 75,311 52,365 44,397 28,193 190,202 - - 94,157 50,992 1,156,693 - - 579485 - 1,401,250 2005 ThCh 162,304 780,002 157,881,378 816,622 2,469 6,190,577 5,271 13,681,226 16,744,396 35,002 83,322 123,474 87,655 33,089 15,965 12,405 7,883 19,689 23,360 - - - - - - - - - - 61,851 274,893 349,342 5,546,761 3,456,707 4,027,908 2,338,356 - 3,767,092 112,915,513 700,457 725,487 933,940 3,537,645 3,513,491 734,801 7,434,687 4,447,731 7,282,070 3,760,949 79,902,184 15,806,229 503,052 71,032 7,726,866 7,687,466 7,643,621 83,940 91,840 9,363 126,819 62,547 63,386 61,441 68,739 73,979 - - - 54,716 3,529,370 1,136,232 182,356 85,905 46,530 12,707,360 1,054,346 4,467,004 19,471,554 1,115,597 113,207,598 526,349,244 b. Details of the long-term portion of bonds payable are as follows: Instrument Bond N°269 - Enersis Bond N°269 - Enersis Yankee Bonds - Enersis Yankee Bonds - Enersis Yankee Bonds II - Enersis Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Edelnor Bonds Codensa Bonds Codensa Bonds Codensa Bonds Edelsur Bonds Ampla Bonds Ampla Bonds Ampla Bonds Coelce Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Endesa Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Edegel Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Emgesa Bonds Betania Total Series B-1 B-2 Two Three One One I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. I° Prog. II° Prog. II° Prog. II° Prog. II° Prog. II° Prog. II° Prog. II° Prog. II° Prog. II° Prog. II° Prog. B3 B5 B8 Six 1° serie 2° serie Unit Unit F G H One Dos Two One One 144A 144A Two Three 5 A 2° issue 6 A 2° issue 6 B 2° issue 7 A 2° issue 8 A 2° issue 8 B 2° issue 9 A 2° issue 10 A 2° issue 11 A 2° issue 13 A 2° issue 14 A 2° issue 15 A 2° issue B-10 B-10 C-10 C-10 A-10 B Face value outstanding Currency Interest rate Maturity date 28,356 1,935,000 350,000,000 858,000 350,000,000 4,891,900 18,570,000 40,000,000 30,000,000 20,000,000 20,000,000 20,000,000 20,000,000 40,000,000 30,000,000 30,000,000 20,000,000 4,000,000 18,000,000 20,000,000 27,200,000 19,250,000 15,000,000 15,000,000 15,000,000 15,000,000 50,000,000,000 200,000,000,000 250,000,000,000 80,000,000 290,000,000 110,000,000 370,000,000 88,500,000 1,500,000 4,000,000 4,000,000 230,000,000 220,000,000 200,000,000 400,000,000 400,000,000 400,000,000 200,000,000 30,000,000 30,000,000 10,000,000 30,000,000 20,000,000 10,000,000 22,370,000 25,700,000 70,000,000 35,000,000 20,000,000 25,000,000 25,000,000 30,000,000 229,825,000,000 60,000,000,000 8,928,433,000 15,889,565,000 250,000,000 400,000,000,000 UF UF US$ US$ US$ Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Per. Sun Col. $ Col. $ Col. $ Arg $ Br. Real Br. Real Br. Real Br. Real UF UF UF US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Per. Sun Per. Sun US$ Per. Sun Per. Sun Per. Sun Per. Sun US$ Per. Sun Per. Sun Per. Sun Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ 5.50% 5.75% 7.40% 6.60% 7.30% 9.61% VAC + 6.2% 4.47% 5.86% 6.25% VAC + 5.4% 8.56% VAC + 6.5% VAC + 6.5% 7.38% 8.75% 7.31% 7.84% 8.16% 7.06% 8.00% 6.63% 6.75% 7.56% 7.22% 6.66% 8.84% 10.05% 10.24% 10.41% CDI + 1.2% aa IGP-M+11.4% DI + 0.85% aa CDI + 16% 6.20% 4.80% 6.20% 7.88% 7.33% 8.13% 7.75% 8.50% 8.35% 8.63% 8.41% 8.75% 3.75% 5.88% 5.88% 8.50% 6.00% 6.47% 6.91% 6.72% 3.71% 6.47% 6.09% 6.16% 10.30% 9.87% 10.25% 10.62% 10.33% 10.70% 15-06-2009 15-06-2022 01-12-2016 01-12-2026 01-12-2014 01-02-2011 26-04-2007 11-09-2007 15-01-2008 15-01-2012 22-04-2014 01-06-2009 01-06-2014 01-06-2014 10-06-2010 08-06-2009 05-01-2011 05-01-2013 05-01-2016 01-02-2011 01-02-2016 17-03-2009 22-05-2009 22-05-2013 31-08-2016 06-10-2013 15-03-2009 15-03-2011 15-03-2014 05-10-2007 01-03-2008 01-03-2010 01-08-2012 20-02-2012 01-08-2022 15-10-2010 15-10-2008 01-02-2027 01-02-2037 01-02-2097 15-07-2008 01-04-2009 01-08-2013 01-08-2015 14-02-2007 13-06-2007 26-01-2009 27-02-2008 18-06-2008 26-07-2009 10-03-2008 30-03-2008 01-06-2009 21-10-2010 18-11-2012 20-10-2013 21-10-2010 27-11-2011 09-10-2009 10-11-2009 09-10-2009 09-10-2009 26-07-2006 10-11-2011 enersis06 As of December 31, 2006 ThCh$ 441,770 33,165,013 132,955,886 456,791 186,336,500 814,893 - - 4,997,403 3,331,602 3,469,712 4,997,403 3,462,470 6,912,916 4,997,403 3,331,602 3,331,602 666,320 2,998,442 3,331,602 4,530,979 3,206,667 2,498,702 2,498,702 2,498,702 2,498,702 11,890,128 47,560,513 59,450,640 - 28,583,054 72,213,798 92,134,846 - 27,504,570 73,345,520 73,345,520 109,608,986 117,125,800 21,517,074 212,956,000 212,956,000 212,956,000 106,478,000 - - 5,323,900 4,995,840 3,330,560 5,323,900 3,725,230 4,279,769 11,656,960 5,828,480 10,647,800 4,163,200 4,163,200 4,995,840 54,652,729 14,268,154 2,243,172 3,992,085 59450686 95,121,057 2005 ThCh 442,153 34,815,550 130,676,437 448,959 183,141,875 746,283 3,085,553 6,102,188 4,576,640 3,051,093 3,129,532 4,576,640 3,123,001 6,235,159 4,576,640 3,051,093 - - - - - - - - - - 11,453,855 45,815,421 57,269,275 10,353,091 24,717,299 64,829,378 - 14,842,630 27,528,422 73,409,124 73,409,124 107,729,807 115,117,750 21,148,177 209,305,000 209,305,000 209,305,000 104,652,500 15,697,875 15,697,875 5,232,625 4,575,306 3,050,204 5,232,625 3,411,653 3,919,512 10,675,714 5,337,857 10,465,250 - - - 52,647,645 13,744,473 3,686,110 2,071,243 48,106,194 68,723,204 2,195,520,795 2,044,245,014 2006 Annual Report | 153 CONSOLIDATED FINANCIAL STATEMENTS 18.1 CURRENT BONDS ARE AS FOLLOWS : 18.1.1 Domestic Bonds On September 11, 2001, the Superintendency of Securities and Insurance registered the issue of adjustable bearer bonds of Enersis S.A. date June 14, 2001 in the Securities Register under No. 269. This placement was made in two series, as follows: Series B1 B1 B2 B2 Total amount In UF 1,000,000 3,000,000 1,000,000 1,500,000 No. of bonds per series 1,000 300 1,000 150 Face value In UF 1,000 10,000 1,000 10,000 The scheduled maturity of the Series B-1 bonds is 8 years, with no grace period; interest and principal are payable semi-annually. Annual interest is 5.5%, compounded semi-annually. The scheduled maturity of the Series B-2 bonds is 21 years, principal payments beginning after 5 years, interest and principal payable semi- annually. Annual interest is 5.75%, compounded semi-annually. 18.1.2 International Bonds (Yankee Bonds) On November 21, 1996, the Company, acting through its agency in the Cayman Islands, issued and placed Yankee Bonds for US$800 million in the US market. This placement was made in three series, as follows: Series 1 2 3 Total amount in US$ 300,000,000 350,000,000 150,000,000 Years to maturity 10 20 30 Stated annual interest rate 6.9% 7.4% 6.6% Interest is payable on a semi-annual basis and principal is due upon maturity. The Series 3 bond holders have a pre-redemption option in year seven, which was exercised by nearly all holders in November 2003 for US$149,142,000. During the second quarter of 2004, UF/US$ swap contracts were entered into for US$100,000,000 associated with the series 1 bond and US$250,000,000 associated with series 2. During November, 2006 US$ 300 million from series one of the Yankee Bonds were amortized. This operation meant liquidating swap for US$ 100 million associated with this bond. During November, 2001, Enersis Internacional made a Tender Offer for total or partial cash purchase of the series 2 Yankee Bonds, with a face value of ThUS$ 350,000 maturing at 20 years in 2016, issued by the agency of the parent Enersis S.A. 154 | 2006 Annual Report As a result of this offer, which expired on November 21, 2001, series 2 bonds for ThUS$ 95,536, with a face value of ThUS$ 100,266, were purchased. As a result of the liquidation of Enersis Internacional S.A. on September 21, 2006, the Agency of the parent Enersis S.A. was allocated the assets and liabilities, which included such bond repurchase among is assets. Given the above, at December 31, 2006 the bonds are presented net of the repurchase. 18.1.3 International Bonds (Yankee Bonds II) On November 24, 2003, the Company, through its Cayman Islands Agency, issued and placed Yankee Bonds on the American market for US$350 million. This placement was made in a single tranche, whose features are as follows: Series 1 Total amount in US$ 350.000.000 Years to maturity 10 Stated annual interest rate 7.375% Interest is paid semi-annually and amortization of capital is a single installment at the end of the term. During the second half of 2004, debts have been re-denominated through US$/UF swap contracts for the total of this issue. 18.1.4 Bonds of Chilectra S.A. On October 13, 2003, Chilectra S.A. registered, in the Superintendency of Securities and Insurance, 2 lines of bonds corresponding to Nº 347 and 348 for a maximum line amount of UF4,200,000 and UF4,000,000 respectively; the placement has a maturity of 10 years from August 22, 2003. To date, the placement of the related bonds has not been made. 18.1.5 Edelnor Bonds (Subsidiary of Distrilima S.A.) First issue Date of Issue : March 1, 1996 Number of bonds subscribed : 48,919 bonds. Face value Redemption term Interest rate Interest payment Principal amortization : S/. 100 (100 new soles) each : 15 years : 9.61% annual. : Annually, on coupon maturity : Amortization of total principal upon maturity FIRST PROGRAM OF CORPORATE BONDS First issue Date of Issue Number of bonds subscribed : 146,300 bonds Face value Redemption term Interest rate Interest payment : 30,000 new soles each : 5 years : 7.50% annual : Semi-annual : October 29, 2001 : October 19, 2001 Second issue Date of Issue Number of bonds subscribed : 20,000 bonds. Face value Redemption term Interest rate Interest payment : 5,000 new soles each : 5 years : 6.9% VAC + annual : Semi-annual enersis06 Tenth issue Date of issue : June 9, 2004. Number of bonds subscribed : 4,000 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 5 years. : 8.56%. : Semi-annual. Eleventh issue Date of issue : June 9, 2004. Number of bonds subscribed : 4,000 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 10 years. : VAC + 6.50%. : Semi-annual. : March 1, 2003 Fifth issue Date of issue Number of bonds subscribed : 3,714 bonds. Face value Redemption term Interest rate Interest payment : 5,000 new soles each : 4 years : 6.2 % VAC + annual : Semi-annual : September 12, 2003 Sixth issue Date of issue Number of bonds subscribed : 8,000 bonds. Face value Redemption term Interest rate Interest payment : 5,000 new soles each : 4 years : 4.47% annual : Semi-annual : January 16, 2004. Seventh issue Date of issue Number of bonds subscribed : 6,000 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 4 years. : 5.86%. : Semi-annual. : January 16, 2004. Eighth issue Date of issue Number of bonds subscribed : 4,000 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 8 years. : 6.25%. : Semi-annual. : April 22, 2004. Ninth issue Date of issue Number of bonds subscribed : 4,000 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 10 years. : VAC + 5.4%. : Semi-annual. : June 24, 2004. Twelfth issue Date of issue Number of bonds subscribed : 8,000 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 10 years. : VAC + 6.50%. : Semi-annual. : June 10, 2005. Thirteenth issue Date of issue Number of bonds subscribed : 6,000 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 10 years. : 7.38%. : Semi-annual. : June 10, 2005. Fourteenth issue Date of issue Number of bonds subscribed : 6,000 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 15 years. : 8.75%. : Semi-annual. SECOND PROGRAM OF CORPORATE BONDS First issue Date of Issue Number of bonds subscribed : 4,000 bonds. Face value Redemption term Interest rate Interest payment : 5,000 new soles each : 5 years : 7.31% : Semi-annual : January 5, 2006 : January 5, 2006 Second issue Date of Issue Number of bonds subscribed : 800 bonds. Face value Redemption term Interest rate Interest payment : 5,000 new soles each : 7 years : 7.84% : Semi-annual 2006 Annual Report | 155 CONSOLIDATED FINANCIAL STATEMENTS : January 5, 2006 Third issue Date of issue Number of bonds subscribed : 3,600 bonds Face value Redemption term Interest rate Interest payment : 5,000 new soles each : 10 years : 8.16% : Semi-annual : February 1, 2006 Fourth issue Date of issue Number of bonds subscribed : 4,000 bonds Face value Redemption term Interest rate Interest payment : 5,000 new soles each : 5 years : 7.06% : Semi-annual : February 1, 2006. Fifth issue Date of issue Number of bonds subscribed : 5,440 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 10 years. : 8.00%. : Semi-annual. : March 17, 2006. Sixth issue Date of issue Number of bonds subscribed : 3,850 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 3 years. : 6.63% : Semi-annual. Seventh issue Date of issue : May 22, 2006. Number of bonds subscribed : 3,000 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 3 years. : 6.75%. : Semi-annual. Eight issue Date of issue : May 22, 2006. Number of bonds subscribed : 3,000 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 7 years. : 7.56%. : Semi-annual. : August 31, 2006. Third issue – Series B Date of issue Number of bonds subscribed : 3,000 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 10 years. : 7.22%. : Semi-annual. 156 | 2006 Annual Report : October 6, 2006. Tenth issue – Series B Date of issue Number of bonds subscribed : 3,000 bonds. Nominal value Term Interest rate Interest payment : 5,000 new soles each. : 7 years. : 6.66%. : Semi-annual. 18.1.6 Codensa S.A. issued bonds on March 11, 2004. First Issue Issuer Issued securities Amount issued 1st principal payment Nominal interest rate Interest payment 2nd principal payment Nominal interest rate Interest payment 3rd principal payment Nominal interest rate Interest payment 18.1.7 Edesur S.A. : Codensa. : Securities negotiable in Colombian pesos. : 500,000,000,000 Colombian pesos. : Maturity in 2009 for 50,000,000,000 Colombian pesos. : 8.84% average annual rate. : Quarterly. Interest accrued at year end is ThCh$58,262 (ThCh$61,851 in 2005), and it is presented in current liabilities. : Maturity in 2011 for 200,000,000,000 Colombian pesos. : 10.05% average annual rate. : Quarterly. Interest accrued at year end is ThCh$266,338 (ThCh$274,893 en 2005), and it is presented in current liabilities. : Maturity in 2014 for 250,000,000,000 Colombian pesos. : 10.24% average annual rate. : Quarterly. Interest accrued at year-end is ThCh$338,869 (ThCh$349,342 in 2005), and it is presented in the current liabilities. On October 5, 2004, under its medium-term certificate of indebtedness issue program, the Company issued negotiable bonds in Argentinean pesos for a total of ThUS$40,302 in two series - 18 month (class 5) and 3 years (class 6), respectively. Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payment : Edesur S.A. : Negotiable bonds in Argentinean pesos. : ThUS$13,434. : Maturity in 2006. : 8.50% average annual rate. : Semi-annual. This issue has been redeemed through payment at December, 2006 enersis06 Series E-1 and E-2 were totally redeemed through payment at July 31, 2006. • On November 26, 2002, it registered the fifth bond issue of U.F. 8,000,000 under Nos. 317 and 318 and then amended it on October 2, 2003; this issue was totally placed at December 31, 2003. Risk rating of the last two bond issues is as follows at the date of these financial statements is as follows: - Feller-Rate Clasificadora de Riesgo Ltda. - Comisión Clasificadora de Riesgo - Fitch Chile Clasificadora de Riesgo Ltda. Category A+ A+ A+ Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payment : Edesur S.A. : Negotiable bonds in Argentinean pesos. : ThUS$26,868. : Maturity in 2007. : 10.41% minimum annual nominal rate. : Quarterly. 18.1.8 Ampla Energía e Servicos S.A. On March 01, 2005, the Company issued bonds in reales for a total amount of R$400,000,000 in two series. First Series Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payment Principal due Second Series Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payment Principal due : Ampla Energía e Servicos S.A. : Negotiable bonds in Brazilian reales. : R$290,000,000. : Maturity in 2008. : CDI + 1,2% per annum : Semi-annual. : Maturity in 2008. : Ampla Energía e Servicos S.A. : Negotiable bonds in Brazilian reales. : R$110,000,000. : Maturity in 2010. : IGP - M + 11.4% per annum : Annual. : Maturity in 2010. One August 1, 2006, the Company issued bonds in reales for R$370,000,000.00 in a single series. Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payment 18.1.9 Coelce S.A. : Ampla Energía e Servicos S.A. : Negotiable bonds in Brazilian reales. : R$370,000,000. : Maturity in 2012 : DI + 0.85% per annum : Semi-annual. ISSUANCE TERMS Fourth Issue Issuer Securities issued Issuance Value (1) Adjustment base Amortization period Early redemption Nominal interest rate Placement period Security On February 29, 2004, the Company issued bonds in reales for a total amount of MR$88,500 in a 12-year term series. Interest payment Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payment : Coelce S.A. : Negotiable bonds in Brazilian reales. : ThR$88,500. : Maturity in 2012. : CDI average annual rate 16%. : Semi-annual. 18.1.10 Endesa Individual Fifth Issue Issuer Securities issued At December 31, 2006, the following bond issues are current on the domestic market: Amount of issue • On August 9, 2001, it registered the fourth bond issue of U.F. 7,500,000 under No.264; this was totally placed at December 31, 2001. : Empresa Nacional de Electricidad S.A. : Bearer bonds in local currency, denominated in Unidades de Fomento (UF-Inflation Index-linked Units of Account) : Up to seven and a half million (UF7,500,000) divided into: Series E-1: 1,000 bonds at UF1,000 each. Series E-2: 500 bonds at UF10,000 each. Series F: 150 bonds at UF10,000 each. : Variation in the UF : Series E-1 and E-2: August 1, 2006. Series F: August 1, 2022. : Only for Series F, beginning February 1, 2012. : 6.20% annually, compounded semi- annually and effective on the outstanding principal adjusted for the value of the Unidad de fomento. The semi-annual interest rate will be 3.0534%. : 36 months from the registration date in the Chilean Securities Register of the Superintendency of Securities and Insurance : There is no specific security, other than the general security of all the issuer’s properties : Interest will be paid semi-annually each August 1 and February 1, starting August 1, 2001. Accrued interest at year end is ThCh$699,850 (ThCh$3,502,284 in 2005) and it is presented in current liabilities. : Empresa Nacional de Electricidad S.A. : Dematerialized bearer bonds in local currency, expressed in Unidades de Fomento (UF-Inflation Index-linked Units of Account) : Eight million Unidades de Fomento (U.F. 8,000,000) divided into: - Series G: 4,000 bonds U.F. 1,000 each. - Series H: 4,000 bonds U.F. 1,000 each. 2006 Annual Report | 157 CONSOLIDATED FINANCIAL STATEMENTS Adjustment base Amortization period Early redemption Nominal interest rate Placement deadline Security Interest payment : Variation in Unidad de Fomento. : Series G: October 15, 2010. Series H: Semi-annually and successively as of April 15, 2010. : Only for series G bonds, as of October 16, 2004. : Series G: 4.8% per year, compounded every six months and effective on the principal not fully paid adjusted by the value of the Unidad de Fomento. The interest rate to be applied every six months will be 2.3719%. : Series H: 6.2% per year, compounded every six months and effective on the principal not fully paid adjusted by the value of the Unidad de Fomento. The interest rate to be paid every six months will be 3.0534%. : 36 months as of date of registration in Securities Register of the Superintendency of Securities and Insurance. : No specific security, except for general security of all the issuer’s properties. : Interest will be paid semi-annually, due on April 15 and October 15 of each year starting from April 15, 2004. Interest accrued at year-end is ThCh$1,657,990 (ThCh$1,659,429 in 2005) an it is presented in current liabilities. a.2 The Company has issued and placed four public offerings of bonds in the international market as follows: The risk ratings of these bond issues at the date of these financial statements is as follows: -Standard & Poor’s -Moodys Investors Services -Fitch First Issue Issuer Securities issued Issuance Value Adjustment Rating entity Category BBB- Ba1 BBB- : Empresa Nacional de Electricidad S.A. : Marketable bonds denominated in US$ (Yankee bonds) in the US market. : Six hundred and fifty million US Dollars (US$650,000,000) divided into: Series 1: US$230,000,000 Series 2: US$220,000,000 Series 3: US$200,000,000 : Variation in the US Dollar in relation to the Chilean peso 158 | 2006 Annual Report Amortization period Nominal interest rate Interest Payments Second Issue Issuer Securities issued Issuance Value Adjustment Principal due Nominal interest rate Interest Payment Third Issue Issuer Securities issued Issuance Value Adjustment Principal due Nominal interest rate Interest Payment Fourth Issue Issuer Securities issued : Series 1 matures on February 1, 2027: Series 2 matures on February 1, 2037 (Put Option on February 1, 2009, on which date the holders may redeem 100% of bonds plus accrued interest). Series 3 matures on February 1, 2097. : Series 1: 7.88% annually Series 2: 7.33% annually Series 3: 8.13% annually : Interest will be paid semi-annually on February 1 and August 1 every year, starting January 27, 1997. Accrued interest at year end is ThCh$11,197,384 (ThCh$11,005,411 in 2005), and it is presented in current liabilities. : Empresa Nacional de Electricidad S.A. : Marketable bonds denominated in US$ (Yankee bonds) in the US market. : Four hundred million US Dollars (US$400,000,000) : Variation in the US Dollar in relation to the Chilean peso : Series 1 matures on July 15, 2008 : Series 1: 7.75% annually : Interest will be paid semi-annually on January 15 and July 15 of each year, starting January 15, 1999. Accrued interest at year end is ThCh$7,564,374 (ThCh$7,434,687 in 2005), and it is presented in current liabilities. : Empresa Nacional de Electricidad S.A. : Marketable bonds denominated in US$ (Yankee bonds) in the US market. : Four hundred million US Dollars (US$400,000,000). : Variation in the US Dollar in relation to the Chilean peso : Series 1 matures on April 1, 2009. : Series 1: 8.50% annually : Interest will be paid semi-annually on October 1 and April 1 of each year, starting October 1, 1999. Accrued interest at year end is ThCh$4,525,315 (ThCh$4,447,731 2005), and it is presented in current liabilities. : Empresa Nacional de Electricidad S.A. : Electronic bonds expressed in US dollars on the American and European markets, under “Rule 144A” and “Regulation S”. enersis06 Amount of issue Adjustment Principal due Nominal interest rate Payment of interest : Six hundred million US dollars (US$600,000,000) divided into: Series August 1, 2013: US$400,000,000 Series August 1, 2015: US$200,000,000 : Variation in US dollar. : Series of ThUS$400 total maturity on August 1, 2013. : Series of ThUS$200 total maturity on August 1, 2015. : Series of ThUS$400 8.35% per year. Series of ThUS$400 8.63% per year. : Interest will be paid semi-annually on February 1 and August 1 each year starting from July 23, 2003. Interest accrued at year-end was ThCh$11,235,647 (ThCh$11,043,019 in 2005) and it is presented in current liabilities. Interest Payment Security : Interest will be paid semi-annually in arrears starting October 1, 1996. Accrued interest at year end is ThCh$ (ThCh$1,412,809 in 2005). : Security from Empresa Nacional de Electricidad S.A. This issue has been fully redeemed through payment at December 31, 2006. b2. Edegel S.A. has made twenty bond issues on June 4, 1999, February 15, 2000, June 14, 2000, November 27, 2000, August 22, 2001, June 6, 2003, September 4, 2003, October 29, 2003, December 12, 2003, January 26, 2004, February 27, 2004, June 18, 2004, July 26, 2004, March 10, 2005, March 30, 2005, June 1, 2005, October 21, 2005, November 18, 2005, and the last three issues on November 18, 2006. REPURCHASE OF ENDESA CHILE INTERNACIONAL BONDS This Company, 100% a subsidiary of Endesa Chile, made a tender offer in November 2001, for the total or partial purchase, in cash, of the first issue of the following bond series in US dollars (Yankee Bonds). • Series 1: ThCh$230,000 at 30 years, maturing in 2027. • Series 3: ThCh$200,000 at 100 years, maturing in 2097. As a result of the offer which expired on November 21, 2001, series 1 and series 3 bonds, for ThUS$21,324 and ThUS$134,828, respectively, were purchased, whose nominal values amounted to ThUS$24,119 and ThUS$159,584 for each series. 18.1.11 Subsidiaries of Endesa Chile S.A. b.1 Endesa Chile Internacional issued Yankee Bonds on April 1, 1996. Risk rating of the bond issue is as follows at the date of these financial statements: - Standard & Poor’s - Moodys Investors Services Category BBB- Ba 1 CURRENT ISSUES ARE AS FOLLOWS: Terms of Issue Issuer Securities issued Issuance value Principal due Nominal interest rate Interest payment Issuer Securities issued Issuance value Principal due Nominal interest rate Interest payment : Edegel S.A. : Marketable bonds in US$ (110,000 bonds). : One hundred and ten million US dollars (US$110,000,000) : June 3, 2006, February 14, 2007, June 13, 2007, and November 21, 2005, respectively. : 8.75%, 8.41%, 8.75% and 8.44% per year : Interest will be paid semi-annually, starting December 3, 1999. Accrued interest at year end is ThCh$708,922 (ThCh$682,437), and it is presented in current liabilities. : Edegel S.A. : Marketable bonds in new soles (10,000 bonds). : Fifty million New Soles (NS50,000,000) : Maturity at September 4, 2006. : 4.13% annually : Interest will be paid semi-annually. Accrued interest at year end is ThCh$0 (ThCh$101,356 in 2005) and it is presented in current liabilities. ISSUE TERMS First Issuance Issuer Securities issued Issuance Value Principal due Nominal interest rate : Endesa Chile Internacional. : Marketable bonds denominated in US$ (150,000 bonds). : One hundred and fifty million US Dollars (US$150,000,000): : Maturity as of April 1, 2006 : 7.2 % per year in arrears. At December 31, 2006, this issue has been fully redeemed through payment. Issuer Securities issued Amount of issuance Principal due : Edegel S.A. : Negotiable Bonds in New Peruvian Soles (10,000 bonds) : Fifty million new Peruvian soles (NS50,000,000). : Total maturity at October 30, 2006. 2006 Annual Report | 159 CONSOLIDATED FINANCIAL STATEMENTS Nominal interest rate Interest payment : 4.88% per year. : Interests will be paid semi-annually. Interest accrued at year-end is ThCh$0 (ThCh$61,956 in 2005) and it is presented in current liabilities. Principal due Nominal interest rate Interest payment At December 31, 2006, this issue has been fully redeemed through payment Issuer Securities issued Amount of issue Principal due Nominal interest rate Interest payment : Edegel S.A. : Negotiable bonds in new Peruvian soles (10,000 bonds) : Fifty million new Peruvian soles (NS50,000,000). : Total maturity at December 12, 2006. : 4.75% per year. : Interests will be paid semi-annually. Interest accrued at year-end is ThCh$0 (ThCh$18,110 in 2005) and it is presented in current liabilities. At December 31, 2006, this issue has been fully redeemed through payment Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payment Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payment Issuer Issued securities Amount issued : Edegel S.A. : Negotiable bonds in US dollars (10,000 bonds.) : Ten million US dollars (US$10,000,000.) : Total maturity on January 26, 2009. : 3.75% per year : Semi-annual. Interest accrued at year end is ThCh$85,404 (ThCh$83,940 in 2005) and it is presented in current liabilities. : Edegel S.A. : Negotiable bonds in new Peruvian soles (6,000 bonds.) : Thirty million new Peruvian soles (NS 30,000,000.) : Total maturity on February 27, 2008. : 5.88% per year : Semi-annual. Interest accrued at year end is ThCh$100,281 (ThCh$91,840 in 2005) and it is presented in current liabilities. : Edegel S.A. : Negotiable bonds in new Peruvian soles (4,000 bonds.) : Twenty million new Peruvian soles (NS 20,000,000.) Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payment Issuer Securities issued Amount of issue Principal due Nominal interest rate Interest payment Issuer Securities issued Amount of issue Principal due Nominal interest rate Interest payment Issuer Securities issued Amount of issue Principal due Nominal interest rate : Total maturity on June 18, 2008. : 5.88% per year. : Semi-annual. Interest accrued at year end is ThCh$10,223 (ThCh$9,363 in 2005) and it is presented in current liabilities. : Edegel S.A. : Negotiable bonds in US dollars (10,000 bonds.) : Ten million US dollars (US$10,000,000.) : Total maturity on July 26, 2009. : 8.5% per year. : Semi-annual. Interest accrued at year end is ThCh$167,510 (ThCh$126,819 in 2005) and it is presented in current liabilities. : Edegel S.A. : Marketable bonds in new Peruvian soles (4,474 bonds) : Twenty two million three hundred seventy thousand new Peruvian soles (NS22,370,000). : Total maturity on March 10, 2008. : 6.00% per year. : Semi-annual. Interest accrued at year- end is ThCh$68,296 (ThCh$62,547 in 2005) and it is presented in current liabilities. : Edegel S.A. : Marketable bonds in new Peruvian soles (5,140 bonds) : Twenty five million seven hundred thousand new Peruvian soles (NS25,700,000). : Total maturity on March 30, 2008. : 6.47% : Semi-annual. Interest accrued at year- end is ThCh$69,212 (ThCh$ 63,386 in 2005) and it is presented in current liabilities. : Edegel S.A. : Marketable bonds in new Peruvian soles (14,000 bonds) : Seventy million new Peruvian soles (NS70,000,000). : Total maturity on June 1, 2009. : 6.91% 160 | 2006 Annual Report Interest payment Issuer Securities issued Amount of issue Principal due Nominal interest rate Interest payment Issuer Securities issued Amount of issue Principal due Nominal interest rate Interest payment Issuer Securities issued Amount of issue Principal due Nominal interest rate Interest payment Issuer Securities issued Amount of issue Principal due Nominal interest rate Interest payment Issuer Securities issued Amount of issue Principal due : Semi-annual. Interest accrued at year-end is ThCh$67,088 (ThCh$61,441 in 2005) and it is presented in current liabilities. : Edegel S.A. : Marketable bonds in new Peruvian soles (7,000 bonds) : Thirty five million new Peruvian soles (NS35,000,000). : Total maturity on October 21, 2010. : 6.72% : Semi-annual. Interest accrued at year- end is ThCh$75,057 (ThCh$68,739 in 2005) and it is presented in current liabilities. : Edegel S.A. : Marketable bonds in US dollars (20,000 bonds) : Twenty million US dollars (US$20,000,000). : Total maturity on November 18, 2012. : 3.71% : Semi-annual. Interest accrued at year- end is ThCh$75,311 (ThCh$73,979 in 2005) and it is presented in current liabilities. : Edegel S.A. : Marketable bonds in new Peruvian soles (5,000 bonds) : Twenty Five million new Peruvian soles (NS25,000,000). : Total maturity on October 20, 2013. : 6.47% : Semi-annual. Interest accrued at year- end is ThCh$52,365 and it is presented in current liabilities. : Edegel S.A. : Marketable bonds in new Peruvian soles (5,000 bonds) : Twenty five million new Peruvian soles (NS25,000,000). : Total maturity on October 27, 2010. : 6.09% : Semi-annual. Interest accrued at year- end is ThCh$44,397 and it is presented in current liabilities. : Edegel S.A. : Marketable bonds in Peruvian Soles (6,000 bonds) : Twenty five million Peruvian Soles (S/. 30,000,000). : Total maturity on November 27, 2011. enersis06 Nominal interest rate Interest payment : 6.16% : Semi-annual. Interest accrued at year- end is ThCh$28,193 and it is presented in current liabilities. b.3 Emgesa S.A. has made three bond issues on October 8, 1999, July 9, 2001 and February 23, 2005, which completes the first issue, and on February 26, 2003 for the second and February 23, 2005 for the third: First Issue Issuer Securities issued Issuance Value Principal due Interest nominal rate Interest payment Second Issue Issuer Securities issued Issuance value Principal due Nominal interest rate Interest payment : Emgesa S.A. : Marketable bonds in Colombian pesos : $Col 530,000,000,000 : Maturities between 2004 and 2009 amounting to Col$449,554,880.000 : 8.97% per year average rate : Interest will be paid on a quarterly and yearly basis. Accrued interest at year end is ThCh$1,492,044 (ThCh$1,598,953 in 2005) and it is presented in current liabilities. : Emgesa S.A. : Marketable bonds in Colombian pesos : $Col 50,000,000,000 : Maturity on July 26, 2006. : 12.43% annual average rate : Interest will be paid annually. Accrued interest at year end is ThCh$ (ThCh$1,784,508 in 2005) and it is presented in current liabilities. At December 31, 2006, this issue has been fully redeemed through payment. Third Issue Issuer Securities issued Issuance value Principal due Nominal interest rate Interest payment : Emgesa S.A. : Marketable bonds in Colombian pesos : $Col 250,000,000,000 : Maturity at February 23, 2015. : Consumer Price Index + 5.04% per quarter (10.33%) : Interest will be paid annually. Accrued interest at year end is ThCh$579,485 (ThCh$523,342 in 2005) and it is presented in current liabilities. 2006 Annual Report | 161 CONSOLIDATED FINANCIAL STATEMENTS b4 Central Hidroeléctrica Betania S.A. E.S.P. hás made a bond issue on November 11, 2004, completing the first issue. b. Long-term accruals: First issue Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payment : Central Hidroeléctrica Betania S.A. E.S.P. : Bonds in Colombian pesos. : 400,000,000,000 Colombian pesos. : Maturity between 2009 and 2011, for 400,000,000,000 Colombian pesos. : Consumer Price Index + 6.29% (10.70%) per annum. : Quarterly. Interest accrued at year end is ThCh$1,401,205 (ThCh$1,115,596 in 2005) and it is presented in current liabilities. Post-retirement benefits-local subsidiaries Employee and retired personnel benefits (Ampla-Coelce) Severance indemnity Legal, labor and tax contingencies (Ampla, Coelce and Cien) Post-retirement benefits-foreign subsidiaries Regulatory contingencies (Brazil) Other As of December 31, 2005 2006 ThCh$ ThCh$ 15,916,543 15,763,109 32,796,639 30,760,217 14,618,570 13,450,029 166,933,247 254,401,205 71,761,136 68,441,868 21,759,376 24,353,683 1,537,568 1,161,491 Deduction of the bond placements of Enersis and subsidiaries has been deferred in the same period as the respective issues. The long-term deferred value at December 31, 2006 is ThCh$14,824,231 (ThCh$18,122,213 in 2005) and it is presented in Other Long Term Assets (Note 14). The balance for deductions in short term bond placements classified under Other current assets is ThCh$973,620 (ThCh$975,562 in 2005) (Note 9) NOTE 19. ACCRUED EXPENSES a. Short-term accruals: As of December 31, 2006 ThCh$ 2005 ThCh$ Bonus and other employee benefits Litigation and other contingencies Energy purchases from others Post-retirement benefits foreign subsidiaries Post-retirement benefits local subsidiaries Suppliers and services Other - 39,434,992 35,332,828 11,942,680 13,292,127 822,448 9,058,164 17,489,940 991,044 1,109,950 5,763,474 15,969,804 1,844,259 1,835,044 Total 79,350,634 75,536,120 Total 324,947,002 408,707,679 During 2006, ThCh$1,038,574 worth of bad debt (ThCh$3,348,355 in 2005) was written off. NOTE 20. SEVERANCE INDEMNITIES Long-term accruals include employee severance indemnities, calculated in accordance with the policy described in Note 2u. An analysis of the changes in the accruals in each year is as follows: Opening balance as of January 1 Increase in accrual Transfer to short-term Payments during the period 2006 ThCh$ 13,450,029 3,396,098 (186,306) (2,041,251) 2005 ThCh$ 11,648,577 2,781,974 (47,310) (933,212) Total 14,618,570 13,450,029 162 | 2006 Annual Report NOTE 21. MINORITY INTEREST a. Minority shareholders’ participation in the shareholders’ equity of the Company’s subsidiaries is as follows: enersis06 Company Aguas Santiago Poniente Ampla Energía e Servicos S.A. Ampla Investimentos Cam Argentina S.A. Cam Brasil S.A. Cam Colombia S.A. Capital de Energía S.A. Central Hidroeléctrica Betania S.A. Central Cachoeira Dourada Chilectra S.A. Cía. Peruana de Electricidad S.A. Codensa S.A. Comercial Mercosur S.A. Companhia Energetica Do Ceara - Coelce Constructora y Proyectos Los Maitenes S.A. Edegel S.A. Edelnor S.A. Edesur S.A. Chilectra S.A. Emgesa S.A. Empresa Eléctrica Pangue S.A. Endesa S.A. Endesa Argentina S.A. Endesa Brasil Central Costanera S.A. Generandes Perú S.A. Hidroeléctrica El Chocón S.A. Hidroinvest S.A. Inversiones Distrilima S.A. Pehuenche S.A. Soc. Agrícola de Cameros Ltda. Soc. Agrícola Pastos Verdes Ltda. Túnel El Melón S.A. Equity ThCh$ 4,465,413 481,905,893 40,805,135 317,868 3,306,198 2,964,877 - 338,438,193 330,607,802 689,197,708 21,352,538 524,261,128 11,069,163 456,001,503 (1,477,728) 464,027,142 141,565,767 458,422,125 - 618,289,529 116,788,312 1,794,309,851 39,793,197 1,005,342,841 139,758,763 235,060,927 188,190,814 76,517,705 78,665,631 216,563,914 7,366,591 69,880,794 (8,966,075) As of December 31, 2006 Participation % 21.12% 8.07% 8.07% 0.001% 0.0001% 0.001% Total ThCh$ Total ThCh$ 943,299 38,874,897 3,291,711 4 5 40 20,448 1,302,991 6,270,631 10,462,743 409,895,674 1,018 187,584,584 (672,375) Equity ThCh$ 2,175,170 448,933,206 36,019,322 333,667 861,876 2,169,447 - 360,943,855 374,886,708 331,584,644 481,233,183 22,076,683 569,255,183 8,970,421 442,881,698 (1,783,821) 206,758,769 440,365,430 147,162,202 56,626,307 473,552,393 156,337,020 17,483,801 - 595,283,825 473,281,467 97,690,887 5,858,335 718,066,218 1,676,746,264 41,485,034 933,041,318 143,443,519 256,441,790 171,383,120 68,639,517 88,364,078 212,394,646 7,406,552 66,719,139 (10,732,330) 3,979 286,346,373 49,949,665 94,891,793 65,509,222 23,008,874 24,866,206 15,917,374 3,130,801 31,446,358 (4,483) As of December 31, 2005 Participation % 45.00% 8.09% 8.07% 0.001% 0.0001% 0.001% 49.00% 14.38% 0.39% 1.76% 49.00% 78.19% 0.02% 41.14% 45.00% 36.44% 40.00% 34.11% 0.001% 51.52% 5.02% 40.02% 0.01% 28.48% 35.74% 40.37% 34.81% 30.07% 31.61% 7.35% 42.50% 45.00% 0.05% 978,827 36,215,022 2,905,645 4 1 29 176,862,489 53,900,461 1,306,841 8,406,794 10,817,575 445,074,460 145 182,187,512 (802,719) 160,485,896 58,864,881 161,499,865 188 306,671,773 4,900,370 671,018,358 4,148 265,753,122 51,259,409 103,523,037 59,658,465 20,639,903 27,931,883 15,611,006 3,147,784 30,023,613 (5,366) - 0.01% 0.39% 0.92% 49.00% 78.19% 0.02% 41.14% 45.00% 44.56% 40.00% 34.11% - 76.55% 5.00% 40.02% 0.01% 28.48% 35.74% 40.37% 34.81% 30.07% 31.61% 7.35% 42.50% 45.00% 0.05% Total 2,869,969,948 2,858,841,421 2006 Annual Report | 163 CONSOLIDATED FINANCIAL STATEMENTS b. Minority shareholders’ participation in the net (income) or loss of the Company’s subsidiaries is as follows: As of December 31, 2006 As of December 31, 2005 Company Net income Participation Aguas Santiago Poniente Cía. do Electricidade do Río do Janeiro Ampla Investimentos Cam Argentina S.A. Cam Brasil S.A. Cam Colombia S.A. Capital de Energía S.A. Central Hidroeléctrica Betania S.A. Central Cachoeira Dourada Chilectra S.A. Cía. Peruana de Electricidad S.A. Codensa S.A. Compañía de Transmisión del Mercosur S.A. Companhia Energetica Do Ceara - Coelce Constructora y Proyectos Los Maitenes S.A. Edegel S.A. Edelnor S.A. Edesur S.A. Elesur S.A. Emgesa S.A. Empresa Eléctrica Pangue S.A. Endesa Endesa Argentina S.A. Endesa Brasil S.A. Central Costanera S.A. Generandes Perú S.A. Hidroeléctrica El Chocón S.A. Hidroinvest S.A. Inversiones Distrilima S.A. Inversiones Eléctricas Quillota S.A. Investluz Pehuenche S.A. Soc. Agrícola de Cameros Ltda. Soc. Agrícola Pastos Verdes Ltda. Túnel El Melón S.A. ThCh$ 100,158 (25,141,747) (4,157,513) 21,619 662,012 (757,588) - (1,013,673) (34,674,029) (232,037,916) (1,251,375) (87,150,758) (1,942,266) (72,820,430) (289,656) (8,637,978) (8,469,675) 23,390,653 - (62,646,331) (38,948,354) (189,541,318) 2,413,625 (92,224,764) 6,186,904 (6,372,945) (13,818,182) (6,679,741) (4,850,516) - - (67,661,976) 39,962 (4,909,487) (1,766,256) % 41.70% 8.07% 8.07% 0.001% 0.0001% 0.001% - 0.01% 0.39% 0.92% 49.00% 78.19% 0.02% 41.14% 45.00% 44.56% 40.00% 34.11% - 76.55% 5.00% 40.02% 0.01% 28.48% 35.74% 40.37% 34.81% 30.07% 31.61% - - 7.35% 42.50% 45.00% 0.05% Total ThCh$ 41,767 (2,028,162) (335,383) - 1 (10) - (61) (136,657) (1,320,540) (613,174) (68,139,171) (338) (29,956,020) (130,345) (3,848,865) (3,387,870) 7,976,982 - (47,953,824) (1,953,727) (75,852,684) 241 (26,267,882) 2,210,884 (2,572,695) (4,810,109) (2,008,598) (1,533,248) - - (4,973,155) 16,984 (2,209,269) (883) Net income Participation ThCh$ 87,119 8,256,002 (1,403,437) 127,172 (851,349) (19,783,507) (2,480,263) (25,535,210) (79,516,682) (2,783,688) (68,194,303) 213,391 (13,586,759) 428,061 (35,247,397) (18,416,541) 17,908,558 4,550,191 (41,236,222) (19,783,241) (112,946,076) 9,716,647 (32,452,492) 11,048,688 (29,805,937) (2,638,290) 122,186 (11,174,458) 10,268,767 (8,571,935) (61,448,069) 66,402 (1,542,661) 1,823,705 % 45.00% 37.50% 8.07% 0.001% 0.001% 49.00% 14.38% 0.39% 1.76% 49.00% 78.19% 0.02% 40.96% 45.00% 36.44% 40.00% 34.11% 0.001% 51.52% 5.02% 40.02% 0.01% 28.48% 35.74% 40.37% 34.81% 30.07% 31.61% 50.00% 13.68% 7.35% 42.50% 45.00% 0.05% Total ThCh$ 39,203 3,096,128 (113,215) 1 (11) (9,693,918) (356,608) (100,639) (1,389,098) (1,364,007) (53,317,991) 202 (5,564,953) 192,628 (12,845,491) (7,366,616) 6,107,518 49 (21,243,623) (992,367) (45,199,975) 972 (9,243,268) 3,948,239 (12,032,365) (918,388) 36,742 (3,532,247) 5,134,383 (1,172,360) (4,516,433) 28,220 (694,198) 912 Total (269,785,811) (173,072,574) 164 | 2006 Annual Report enersis06 NOTE 22. SHAREHOLDERS’ EQUITY a. Consolidated statements of changes in shareholders’ equity. Paid-in capital ThCh$ Share Other Retained subsidiaries in Interim (loss) for premium reserves earnings development stage dividends the year ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Total ThCh$ Deficit of Net income Balances at December 12, 2004 2,283,404,124 162,725,821 (122,588,994) 194,378,259 (2,673,664) - 44,307,596 2,559,553,142 - 41,633,932 2,673,664 - (44,307,596) - Distribution of prior year income Investment equity variations Final dividend Nº 72 Reserve Technical Bulletin No. 72 (1) Reserve cumulative translation adjustment - - - - - - - - - - (5,851,418) - - (13,600,517) (6,197,072) (97,676,664) - - Price-level restatement of capital 82,202,548 5,858,130 (4,413,204) 7,979,618 Net income for the year - - - - Balance at December 31, 2005 2,365,606,672 168,583,951 (236,727,352) 230,391,292 Price-level restatement 49,677,740 3,540,263 (4,971,274) 4,838,217 Restated balance at December 31, 2005 2,415,284,412 172,124,214 (241,698,626) 235,229,509 Historic balance at December 12, 2005 2,365,606,672 168,583,951 (236,727,351) 230,391,292 Distribution of prior year income Investment equity variations Accumulated deficit of subsidiaries in development stage Final dividend 2005 Nº 73 Reserve Technical Bulletin No. 72 (1) Cumulative translation adjustment reserve Price-level restatement Provisional dividend Nº 74 Net income for the year - - - - - - - - - - - - - 68,016,865 (10,585,093) - - (825,381) 14,766,794 - - (32,651,166) - - 49,677,740 3,540,263 (4,971,275) 5,522,778 - - - - - - - - - - - - - - - (181,751) - - - - - - - - - - (5,851,418) (13,600,517) (6,197,072) (97,676,664) 91,627,092 68,016,865 68,016,865 - 68,016,865 2,595,871,428 - 1,428,354 54,513,300 - 69,445,219 2,650,384,728 - 68,016,865 2,595,871,429 - (68,016,865) - - - - - - - - - - - - - - - - (10,585,093) - (181,751) (32,651,166) (825,381) 14,766,794 53,769,506 (36,242,795) - (36,242,795) - - 285,960,366 285,960,366 Balance at December 31, 2006 2,415,284,412 172,124,214 (238,342,306) 271,279,769 (181,751) (36,242,795) 285,960,366 2,869,881,909 b. Dividends These are no restrictions to pay dividends. d. Subscribed and paid in capital is as follows: Number of dividend 72 73 74 Payment Date Apr-05 Mar-06 Nov-06 Historic Value 0.41654 1.000 1.110 Type of dividend Final 2004 Final 2005 Final 2006 Series Single As of December 31, 2006 ThCh$ 2,415,284,412 2005 ThCh$ 2,415,284,412 c. Number of shares. Number of Subscribed Shares 32,651,166,465 As of December 31, 2006 Number of Paid-in Shares 32,651,166,465 Number of Voting Shares 32,651,166,465 Series Single 2006 Annual Report | 165 CONSOLIDATED FINANCIAL STATEMENTS e. Other reserves Reserve for entities using remeasurement method Reserve for accumulated conversion differences Reserve for Technical Bulletin No. 72 (1) Initial balance at January 1, 2006 ThCh$ (21,771,808) (226,284,354) 6,357,536 Reserve for the period ThCh$ (10,585,093) 14,766,794 (825,381) Final balance at December 31, 2006 ThCh$ (32,356,901) (211,517,560) 5,532,155 Total (241,698,626) 3,356,320 (238,342,306) (1) In the Jan-Dec 2006 period, Other Reserves diminished owing to the corporate restructuring conducted by generation companies subject to common control in Colombia and Peru, which had a net effect of ThCh$3,844,972, offset by ThCh$3,019,591 resulting from the Chilectra S.A. merger. Other reserves at December 31, 2006 are composed of the following: Cumulative translation adjustment Initial balance at January 1, 2006 ThCh$ (226,284,354) Reserve for assets ThCh$ 18,731,782 Reserve for liabilities ThCh$ (3,964,988) Reserve for the period ThCh$ 14,766,794 Final balance at December 31, 2006 ThCh$ (211,517,560) Total (226,284,354) 18,731,782 (3,964,988) 14,766,794 (211,517,560) Detail of changes in the reserve for accumulated conversion differences is as follows: Distrilec Inversora S.A. Inversiones Distrilima S.A. Cía. Peruana de Electricidad S.A. Edesur S.A. Ampla Energia e Servicios S.A. Ampla Investimentos e Servicios S.A. Codensa S.A. Investluz S.A. Central Geradora Termelétrica Fortaleza S.A. Synapsis de Colombia S.A. Endesa Market Place Endesa Argentina S.A. Endesa Chile Internacional S.A. Endesa Brasil S.A. Ingendesa Do Brasil Ltda. Endesa Costanera S.A. Conosur S.A. Emgesa S.A. ThCh$ (26,483,840) (11,039,298) (1,362,734) (36,273,768) (48,068,771) 2,820,689 (39,106,966) (6,260,384) (6,425,742) (963,768) 397,933 (2,742,948) (3,202,893) (19,561,981) (139,262) (773,235) (12,307,502) (23,090) Total (211,517,560) 166 | 2006 Annual Report NOTE 23. OTHER INCOME AND EXPENSES a. The detail of other non-operating income is as follows: Adjustments to investments in related companies Gain on sale of property, plant and equipment and materials Received compensations Services - projects and inspections Penalties charged to contractors and suppliers CDEC-SING power settlement gain Cost recoveries Reversal of contingencies provision and other provisions Fiscal benefits for Brazilian subsidiaries Effect of application of BT 64 Indemnities and commissions Dividend from investees Other Total b. Other non-operating expenses are as follows: Adjustments to investments in related companies Loss on sale of fixed assets and materials Obsolescence provision and write-off of fixed assets Effect of application of BT 64 Contingencies and litigation SIC power settlement loss Pension plan expense Index UFIR Brazilian subsidiaries Penalties and fines Other taxes Colombia Other taxes Argentina and Brazil Other taxes Perú Energy efficiency Brazilian subsidiaries Write-off of Copel and other contracts (Brazil) Other enersis06 Year ended December 31, 2006 ThCh$ 1,551,942 23,532,274 - 504,588 3,125,137 9,039,962 4,960,900 17,392,103 22,501,782 11,645,105 8,909,405 922,070 6,467,357 2005 ThCh$ 229,888 9,719,125 4,669,263 1,876,364 3,147,849 7,695,386 3,465,839 2,529,525 8,464,117 20,401,508 1,201,071 2,265,474 6,798,243 110,552,625 72,463,652 Year ended December 31, 2006 ThCh$ 1,075,222 1,861,962 12,838,033 47,155,146 34,256,885 10,521,560 4,311,452 3,263,258 21,002,355 4,952,418 9,167,270 3,215,074 12,244,926 30,518,164 12,892,486 2005 ThCh$ 5,381,566 7,229,865 11,163,472 45,793,460 36,110,799 8,691,477 3,276,820 3,166,191 7,627,894 6,821,778 10,411,316 1,016,548 - - 14,702,918 Total 209,276,211 161,394,104 2006 Annual Report | 167 CONSOLIDATED FINANCIAL STATEMENTS NOTE 24. PRICE-LEVEL RESTATEMENT The (charge) credit to income for price-level restatement is as follows: Assets Inventory Current assets Property, plant and equipment Accounts receivable from subsidiaries Investment in subsidiaries Amortization of goodwill Other assets Price-level restatement of the income statement Net credits - assets Liabilities and Shareholders’ equity Shareholders’ equity Current and long-term liabilities Minority interest Non-monetary liabilities Price-level restatement of the income statement Index I.P.C. I.P.C. U.F. I.P.C. I.P.C. I.P.C. I.P.C. I.P.C. U.F. I.P.C I.P.C. I.P.C. U.F. I.P.C. I.P.C. U.F. I.P.C. Year ended December 31, 2006 ThCh$ 2005 ThCh$ 2,389,811 9,112,369 463,698 48,406,222 1,825,882 2,076,719 13,885,080 53,681,349 4,777,433 10,824,096 2,502,066 10,751,606 452,012 83,773,671 3,863,870 7,037,490 24,745,919 120,151,816 6,310,909 1,355,133 147,442,659 260,944,492 (53,769,506) (42,846,521) (20,406,848) (13,431,629) (344,193) - (15,427,161) (93,551,261) (102,062,662) (37,206,833) (22,836,797) (838,830) (67,400) (9,429,538) Net charge-liabilities and shareholders’ equity accounts (146,225,858) (265,993,321) Net credits (charge) to income 1,216,801 (5,048,829) 168 | 2006 Annual Report Liabilities Currency NOTE 25. EXCHANGE DIFFERENCES The (charge) credit to income for foreign currency translation is as follows: Assets Currency Cash and banks Time deposits Notes receivable (net) Other receivables (net) US$ Otras US$ US$ Others US$ 2006 ThCh$ 426,778 (2,576) 72,963 69,525 11,599 251,948 2005 ThCh$ 2,064,363 - (234,743) (961,188) - (22,532) - (749,527) Short-term debt due to banks and financial institutions Current portion of long-term debt due to banks and financial institutions Current portion of bonds payable Current portion of notes payable Others (9,060) (22,397) - Accounts payable Prepaid expenses Other current assets Amounts due from related companies US$ US$ Others US$ 574 - 249,351 (2,472) 1,677,065 Miscellaneous payables - Accrued expenses (6,634,958) (22,934) Deferred income (156,439) Other current liabilities Amounts due to related companies Non-current assets Long-term receivables Other long-term assets Amounts due from related companies Forward contracts US$ US$ US$ US$ 6,222,449 209,375 - 22,030 Long-term liabilities (2,862,090) Due to banks and financial institutions - - - (23,582,940) Bonds payable (12,458,654) Miscellaneous payables - Other long-term liabilities Forward enersis06 Year ended December, 31 2006 ThCh$ (23,315) 20,093 (1,764,564) (190,750) 1,852 (158,658) (5,427) - (548,241) (11,009) - 320,952 (1,038,055) - - (474,916) - 2005 ThCh$ 5,071 - (3,245,814) (51,283) 1,264 (30,922) 9,949,604 (498,415) (1,876,197) - 120 (10,013) 20,523 16,215 1,263,049 3,439 53 15,696,935 65,769 5,390 42,099 19,376,577 - 3,130,240 (238,321) (4,354,373) US$ US$ Yen Euro Libra US$ US$ US$ Others US$ US$ Others US$ US$ US$ US$ Yen Euro Libras US$ US$ US$ US$ US$ Total gain (loss) 9,199,549 (45,644,039) Total gain (loss) (3,872,038) 39,271,010 Exchange difference - net income (loss) 5,327,511 (6,373,029) NOTE 26. SHARE ISSUANCE COSTS NOTE 27. CASH FLOW STATEMENT a. Expenses incurred for issuing and placing debt instruments incurred each year in placing bonds are as follows: a. Other financing disbursements: Bank commissions As of December 31 2005 2006 ThCh$ ThCh$ 916.513 500.059 Total 500.059 916.513 Commissions on debt refinancing Derivates contracts Reimbursables contributions Others These expenses are registered in other assets, and will be amortizated in the corresponding bond period. Total As of December 31 2005 2006 ThCh$ ThCh$ 592,597 6,171,736 473,114 46,205 - 16,610,130 1,074,908 15,321 7,283,652 17,700,359 2006 Annual Report | 169 CONSOLIDATED FINANCIAL STATEMENTS b. Other investment receipts: c. Other investment disbursements: Receipts from loans granted to former subsidiary Margin Call Premiums Capital reduction Company Energy of Bogotá Others As of December 31 2005 2006 ThCh$ ThCh$ 2,106,789 542,842 - 405,546 5,135,933 456,401 - 507,600 Payments associated with derivative contracts Intangible assets Other As of December 31 2005 2006 ThCh$ ThCh$ 10,840,312 1,197,015 506,748 - 2,920,172 - Total 12,544,075 2,920,172 Total 1,912,389 7,242,722 NOTE 28. FINANCIAL DERIVATIVES As of December 31, 2006 the Company and its subsidiaries held the following financial derivative contracts with financial institutions with the objective of decreasing exposure to interest rate and foreign currency risk, as follows: Derivative Type Nominal Date of Sales/ Hedged Type Contract Amount Maturity Item Purchase Item US$ CCTE CCTE CCTE CCTE CCTE CCTE CCTE 10,005,950 III quarter 07 Interest rate 90,000,000 IV quarter 12 Interest rate 26,070,991 II quarter 14 Interest rate 21,389,734 IV quarter 15 Interest rate 125,000,000 III quarter 08 Interest rate 2,468,231 IV quarter 08 Interest rate 350,000,000 I quarter 14 Interest rate COPE 250,000,000 IV quarter 16 Interest rate 50,000,000 II quarter 12 Interest rate 50,000,000 IV quarter 07 Interest rate 120,000,000 IV quarter 08 Interest rate C C C C C C C C C C C 60,000,000 III quarter 09 Interest rate 50,000,000 IV quarter 09 Interest rate 40,000,000 III quarter 10 Interest rate C/V C C/V CCTE CCTE CCTE CCTE CCTE CCTE S S S S S S S S OE OE OE OE OE OE Amount Hedged Accounts Assets / Liabilities Income Amount ThCh$ item Account Amount Realized Unrealized ThCh$ ThCh$ ThCh$ ThCh$ Bank obligations 8,878,446 8,878,446 Other assets l/t 41,632 50,928 Bank obligations 47,915,100 47,915,100 Other assets l/t Bonds 13,879,935 13,879,935 Other liabilities s/t Bank obligations 11,387,680 11,387,680 Other liabilities l/t Bonds 66,548,750 66,548,750 Other assets l/t Bank obligations 1,314,061 1,314,061 Other liabilities l/t 524,416 19,698 219,355 184,062 (901,468) - - - - - 636 524,416 22,360 219,355 (61,309) (901,468) Bonds Bonds 186,336,500 186,336,500 Other liabilities l/t (77,962,451) (855,631) (108,931) 133,097,500 133,097,500 Other liabilities l/t (64,414,666) (470,600) (915,686) Bank obligations 26,619,500 26,619,500 Other liabilities l/t (3,317,305) Bank obligations 26,619,500 26,619,500 Other liabilities l/t - - - Bank obligations 63,886,500 63,886,500 Other liabilities l/t 42,282 23,366 Bank obligations 31,943,400 31,943,400 Otros act lp / Otros pas lp 17,528 Bank obligations 216,619,500 26,619,500 Other liabilities l/t - - - (3,317,305) - 1,473 17,528 - Bank obligations 21,295,600 21,295,600 Other assets l/t (43,242) (385) (43,242) NOTE 29. COMMITMENTS AND CONTINGENCIES a. The detail of guarantees given by Enersis and its subsidiaries as of December 3i, 2006 and 2005 is the following Collateral held by third parties: Guarantee Subsidiary Type guarantee Banco Acreedores Banco Estado Argentina Mitsubishi Credit Suisse First Boston Miscellaneous Payable Miscellaneous Payable Deutsche Bank Miscellaneous Payable Miscellaneous Payable International Finance Corporation CGT Fortaleza S.A. Bndes Pangue S.A. Tunel el Melón Costanera Endesa Costanera Endesa Costanera Endesa Matriz Edegel S.A. Enersis Ampla S.A. Coelce S.A. Cachoeira Dourada S.A. Pledge Mortgage and pledge Pledge over 45% of operating income Pledge Pledge Pledge Bank bond Pledge Deposits accounts Pledge over collections and others Pledge over collections and others Mortgage and pledge Type Red estate, properties Shares Combined cycle Combined cycle Red estate, properties Deposits accounts Red estate, properties Commited assets Book value Currency of collateral Currency Balance payable of related debt at December 31. 2005 2006 ThCh$ ThCh$ 7,108,191 4,403,734 2,797,441 386,869 9,105,961 10,051,350 30,130,080 20,383,142 21,295,600 20,930,500 109,820 84,298,633 62,581,672 - 39,415,282 - 24,473,045 - 78,286,545 - 652,406,200 - 36,106,450 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 5,610,319 Release of guarantees 2007 ThCh$ - - - - - - - - - - - - ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 91,220,201 2,064,958 72,580,273 84,241,470 24,978,865 - 124,837,126 4,008,541 10,001,535 61,842,491 213,152,560 2,055,776 170 | 2006 Annual Report Guarantees of subsidiary obligations: Guarantee Subsidiary guarantee Type of collateral Currency 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2007 2008 2009 ThCh$ ThCh$ ThCh$ Commited assets Balance payable of related debt Type Book value at December 31. Release of guarantees enersis06 J.P. Morgan & Co. y C.S.F.B. Endesa Chile Internacional Guarantees 2° Juzgado Civil de Quillota Cía. Eléctrica San Isidro Compañía Vestas Vestas Elóicas S.A.U. Endesa Eco S.A. Endesa Eco S.A. Guarantees Guarantees Guarantees ThCh$ ThCh$ ThCh$ ThCh$ - 10,000 6,601,636 5,439,682 Bco. Español de Crédito Cía. Eléctrica Tarapacá S.A. Filial M$ 6,581,821 M$ M$ M$ M$ M$ - 78,489,375 - 10,000 6,601,636 5,439,682 - - - 6,581,821 10,785,677 100,000 6,601,636 - 5,439,682 - 6,581,821 - - - - - - - - - - - b. Litigation and other legal actions: ENERSIS S.A. Plaintiff : Enersis S.A., Chilectra S.A., Empresa Nacional de Electricidad S.A. : The Republic of Argentina Defendant Court : CIADI Arbitration Panel Case/Identification : (CIADI Case ARB/03/21) Compensation for losses caused to the Plaintiff’s investment in the Republic of Argentina is requested in connection with the participation of the power distribution concessionaire Edesur S.A. on the grounds of violation of the Investment Protection and Promotion Agreement entered into by the Republics of Chile and Argentina, and the Argentinean Government behavior through the passing of Public Emergency Law 25,561, dated January 6, 2002. The said behavior has also seriously affected the economic and financial balance of the Concession Contract between Edesur S.A. and the Argentinean National State. The said Law authorized a re-negotiation process of the Concession Contracts with the purpose of re-composing the economic-financial equation affected by the conversion to pesos, at US$1 = $1, of tariff values calculated in American dollars, and the prohibition to apply biased tariff updating. In the practice, this process has not been promoted by the Government, and no measures to prevent losses for the Plaintiff have been formalized. Edesur S.A. has been deprived of receiving the tariffs indicated in the regulations and in the said Concession Contract, therefore being harmful to the investment the Plaintiff companies have made. Process status: On October 18, 2004, a copy of the lack of jurisdiction petition filed by the Republic of Argentina was received. On December 17, 2004 the said petition was answered and confirmation of the CIADI jurisdiction was requested. On April 6, 2005, the allegations of the parties regarding this jurisdiction issue took place. The court decided to accept the re-complaint and re-answer of the parties, setting a brief term for them. And the parties met the term. On June 15, 2005, Edesur S.A. entered with the Unit for Renegotiation and Analysis of Public Services Contracts (UNIREN) into an Understanding Letter within the framework of the process for renegotiating Edesur S.A.’s Concession Contract, envisaged in Law No.25,561 and supplementary regulation. As a result of the Understanding Letter, on August 29, 2005, the Minutes of Agreement for the Adequacy of the Concession Contract for the Public Service of Distribution and Marketing of Electric Energy were entered into. At the request of the Argentine Government, the Minutes of Agreement were executed again, on the same terms and conditions, on February 15, 2006, to include the new female Minister of Economy and Production. The Minutes envisage a Transitional Rate Regimen, retroactively effective beginning on November 1, 2005; require approval of the authorities for paying dividends during the life of the transitional regime; and include other aspects associated with investments, quality of service, penalties applied to Edesur, and unpaid penalties. Also, it establishes a Full Rate Revision, by which a new rate regime is to be set, which was scheduled to become effective on November 1, 2006, and for the next 5 years, under the supervision of the Ente Nacional Regulador de la Electricidad (ENRE), in accordance with law 24,065. In addition, the Understanding Letter imposes the obligation of initially suspending, and subsequently dropping, all actions filed against the Argentinean State by Edesur S.A. and its shareholders. Such requirement would cause Enersis S.A. to suspend the international arbitration started on April 25, 2003 with the International Center for the Settlement of Disputes regarding Investments between States and Nationals of Other States (CIADI). After publication in the Official Gazette of the Republic of Argentina of the resolution approving the rates arising from the Full Rates Revision, Enersis S.A. and its subsidiaries Chilectra S.A., Empresa Nacional de Electricidad S.A. and Elesur S.A. (currently, Chilectra S.A.) would drop the abovementioned international arbitration started with the CIADI. On September 16, 2005 the Republic of Argentina made a filing requesting the suspension of the proceedings. It was answered on September 22, 2005 by the plaintiffs, who opposed the suspension. On September 30, 2005 the court rejected the Argentinean request, for lack for consent. On October 7, 2005, Argentina made a new filing on the same issue, which the court communicated to us on October 11, 2005, and we answered the filing on October 18, 2005. On March 28, 2006, the court ordered the suspension of the proceedings for a term of 12 months, after which it will call on the parties to report on the status of the negotiation conducted in accordance with the Minutes of Agreement for the Adequacy of the Concession Contract for the Public Service of Distribution and Marketing of Electric Energy. Subsequently, the court will decide whether or not the proceedings should continue. The Minutes of Agreement for the Adequacy of the Concession Contract for the Public Service of Distribution and Marketing of Electric Energy, 2006 Annual Report | 171 CONSOLIDATED FINANCIAL STATEMENTS after being approved by the Congress of the Argentine Nation, were ratified by the Executive National Argentine Power through decree 1959 of 2006, published on the Official Gazette on January 8, 2007, and now only their regulation by the ENRE is pending. Amount involved: US$574,739,550. CHILECTRA S.A. Plaintiff : Enersis S.A., Chilectra S.A., Empresa Nacional de Electricidad S.A., Elesur S.A. : The Republic of Argentina Defendant Court : CIADI Arbitration Panel Case/Identification : CIADI Case ARB/03/21 Compensation of losses caused to the Plaintiff’s investment in the Republic of Argentina is requested in connection with the participation in the power distribution concessionaire Edesur S.A. on the grounds of non-fulfillment of the Investment Protection and Promotion Agreement entered into by the Republics of Chile, and Argentina and the Argentinean Government behavior through the passing of Public Emergency Law 25,561, dated January 6, 2002. The said behavior has also seriously affected the economic and financial balance of the Concession Contract between Edesur S.A. and the Argentinean National State. The said Law authorized a re-negotiation process of the Concession Contracts with the purpose of re-composing the economic-financial equation affected by the conversion to pesos, at US$1 = $1, of tariff values calculated in American dollars, and the prohibition to apply biased tariff updating. In the practice, this process has not been promoted by the Government, and no measures to prevent losses for the Plaintiff have been formalized. Edesur S.A. has been deprived of receiving the tariffs indicated in the regulations and in the said Concession Contract, therefore being harmful to the investment the Plaintiff companies have made. Process status: On October 18, 2004, a copy of the lack of jurisdiction petition filed by the Republic of Argentina was received. On December 17, 2004 the said petition was answered and confirmation of the CIADI jurisdiction was requested. On April 6, 2005, the allegations of the parties regarding this jurisdiction issue took place. The court decided to accept the re-complaint and re-answer of the parties, setting a brief term for them. And the parties complied with the term. On June 15, 2005, Edesur S.A. entered with the Unit for Renegotiation and Analysis of Public Services Contracts (UNIREN) into an Understanding Letter within the framework of the process for renegotiating Edesur S.A.’s Concession Contract, envisaged in Law No.25,561 and supplementary regulation. As a result of the Understanding Letter, on August 29, 2005, the Minutes of Agreement for the Adequacy of the Concession Contract for the Public Service of Distribution and Marketing of Electric Energy were entered into. At the request of the Argentine Government, the Minutes of Agreement were executed again, on the same terms and conditions, on February 15, 2006, to include the new female Minister of Economy and Production. The Minutes envisage a Transitional Rate Regimen, retroactively effective beginning on November 1, 2005; require approval of the authorities for paying dividends during 172 | 2006 Annual Report the life of the transitional regime; and include other aspects associated with investments, quality of service, penalties applied to Edesur, and unpaid penalties. Also, it establishes a Full Rate Revision, by which a new rate regime is to be set, which was scheduled to become effective on November 1, 2006, and for the next 5 years, under the supervision of the Ente Nacional Regulador de la Electricidad (ENRE), in accordance with law 24,065. In addition, the Understanding Letter imposes the obligation of initially suspending, and subsequently dropping, all actions filed against the Argentinean State by Edesur S.A. and its shareholders. Such requirement would cause Enersis S.A. to suspend the international arbitration started on April 25, 2003 with the International Center for the Settlement of Disputes regarding Investments between States and Nationals of Other States (CIADI). After publication in the Official Gazette of the Republic of Argentina of the resolution approving the rates arising from the Full Rates Revision, Enersis S.A. and its subsidiaries Chilectra S.A., Empresa Nacional de Electricidad S.A. and Elesur S.A. (currently, Chilectra S.A.) would drop the abovementioned international arbitration started with the CIADI. On September 16, 2005 the Republic of Argentina made a filing requesting the suspension of the proceedings. It was answered on September 22, 2005 by the plaintiffs, who opposed the suspension. On September 30, 2005 the court rejected the Argentinean request, for lack for consent. On October 7, 2005, Argentina made a new filing on the same issue, which the court communicated to us on October 11, 2005, and we answered the filing on October 18, 2005. On March 28, 2006, the court ordered the suspension of the proceedings for a term of 12 months, after which it will call on the parties to report on the status of the negotiation conducted in accordance with the Minutes of Agreement for the Adequacy of the Concession Contract for the Public Service of Distribution and Marketing of Electric Energy. Subsequently, the court will decide whether or not the proceedings should continue. The Minutes of Agreement for the Adequacy of the Concession Contract for the Public Service of Distribution and Marketing of Electric Energy, after being approved by the Congress of the Argentine Nation, were ratified by the Executive National Argentine Power through decree 1959 of 2006, published on the Official Gazette on January 8, 2007, and now only their regulation by the ENRE is pending. Amount claimed by Chilectra S.A.: US722,969,910. Plaintiff Defendant : Chilectra S.A. : S u p e r i n t e n d e n c y o f S e c u r i t i e s a n d Insurance Court Case/Identification : 4394-97 : 10th Civil Court of Santiago Summary of proceedings: On October 31, 1997, the Superintendence of Insurance and Securities (“SVS”) sanctioned Elesur S.A., today Chilectra S.A., with UF 100,000 and interest to the benefit of the state, for the use of privileged information contained in clause six of the Strategic Agreement subscribed by Enersis S.A. and Endesa España, on August 2, 1997. Process status: On November 17, 2000, the first instance court admitted Elesur’s claim and annulled the fine imposed by the SVS. The sentence, in brief, sustained that there had not been use of privileged information because it was information belonging to one of the contracting parties. The SVS appealed requesting procedural annulment and against the sentence. On June 6, 2006, the Santiago Court of Appeals, rejected the annulment of the procedure, but accepted the sentence appeal, revoking the sentence that annulled the fine imposed by the SVS. In opposition to the sentence of the Court of Appeals, on June 23 2006, an appeal was presented requesting procedural annulment and against the sentence, the resolution of which corresponds to the Supreme Court. Management believes, based on the opinion of the lawyer Pedro Hernán Aguila, from the Ortúzar, Aguila & Cía law firm, in charge of the case, that the lawsuit will probably be won. Amount involved: UF 100,000 (approximately US$3.5 Million) EDESUR S.A. Plaintiff : Asociación Coordinadora de Usuarios Consumidores y Contribuyentes - Ente Nacional Regulador de la Electricidad (ENRE). Defendant Court : Edesur S.A. : N°2 Federal Civil and Commercial First Instance Court, Registry of the Court N° 6, La Plata Case/Identification : 38676/03 Summary of proceedings: The said institution filed a measure through which it expects ENRE and EDESUR to be ordered to suspend cabling works in Quilmes, Province of Buenos Aires, as well as the company’s “Sobral” sub-station due to the damage the installations may cause to the population’s health. Process status: After a hearing convened by the court and another hearing at the ENRE, which were attended by the parties and the other entities mentioned in the preceding paragraph, a number of technical measures were implemented to diminish the CEM values, even below the values set in the applicable norms. No new developments have occurred in this trial ever since. Amount: Undeterminable Plaintiff : Users affected by a mass power outage in Buenos Aires Defendant Court : Edesur S.A. : Courts and Civil and Commercial Courts of the Federal Capital of Buenos Aires Case/Identification : (Various processes) Summary of proceedings: As a result of a prolonged outage in February, 1999, which affected 160,000 clients, a large number of claims for damages caused to such users began to be received as of mid 2000. Process status: This involves several proceedings, started on different dates, so each is at its own procedural step depending on its degree of progress. Currently, 3496 proceedings are being handled. Amount involved: US$7,983,931 enersis06 Plaintiff Defendant Court : Edesur S.A. : Transportes Metropolitanos Gral. Roca. : First Instance National Commercial Court, Case/Identification : 87934/03 Registry of the Court N° 1 Summary of proceedings: Edesur promoted an action to declare settlements in public property free-of-charge, taking into consideration that the company Transportes Metropolitanos General Roca S.A. (T.M.R.) intends to charge an annual rent for every crossing or power line wiring along the rails (existing or future) over land designated as railroad service property. Process status: Edesur obtained from the corresponding Court a precautionary measure through which the company is not obliged to pay rent while the procedure is pending resolution. The proceedings returned to the Federal Court of La Plata and the trial is in the status in which the judge must issue a first instance sentence. Amount: Undeterminable Plaintiff Defendant Court : Users and Consumers Union. : Edesur S.A. : N° 11 Federal Administrative First Instance National Court, Registry of the Court N° 21. Case/Identification : 142321/02 Summary of proceedings: The Users and Consumers Union wants a modification of the type of rate applied to the many condominium owners consortiums existing in the City of Buenos Aires and EDESUR users. This would imply an important reduction of the values to be invoiced in the future to these consortiums, as well as the obligation for retrospective reimbursement of “unduly” received amounts. Process status: Evidence stage. Court is to issue ruling. Amount: Undeterminable Plaintiff Defendant Court : Edesur S.A. : National State (Ministry of Economy) : N° 3 Federal Administrative First Instance National Court, Registry of the Court N° 5. Case/Identification : 1856/97 Summary of proceedings: In accordance with a provision in Power Law 24065, the power sector concessionaire companies must pay a significant rate to the Power Regulating National Agency (ENRE) with the purpose of financing its controlling and regulating activities (the rate is paid by EDESUR, among other concessionaires.) These expenses must not exceed annually the amount of the rate paid, thus giving rise to a financial surplus which, instead of being allocated to the Argentinean government, must be refunded to the companies. In this regard, the action was filed to nullify a resolution of the General Agency for Management of the Economy Ministry, which allocates to the Argentinean Treasury these financial surpluses. Obviously, this resolution is confiscatory in nature, because the rate must always be a payment for a service provided, and no portion of it must become income for the government. Process status: An extraordinary recourse was filed. Amount: Undeterminable. 2006 Annual Report | 173 CONSOLIDATED FINANCIAL STATEMENTS Plaintiff Defendant Court : Edesur S.A. : Municipality of Berazategui : N ° 2 F e d e r a l A d m i n i s t r a t i v e F i r s t Instance Court for Civil, Commercial and Administrative Trials, Registry of the Court N° 5. in La Plata Case/Identification : 11,859/05 Summary of proceedings: Legal action was taken against the Municipality of Berazategui, to the effect of declaring the right of Edesur S.A. to continue the necessary works to construct the “Rigolleau” Substation, located in the department of Berazategui, which were suspended by the sued Municipality through Decree N° 758/05, whose unconstitutionality and unenforceability is requested in the lawsuit. Process status: The Court accepted the request for a protection measure, suspending the application of Decree N.° 758/05 and ordering Municipal authorities to not impede the laying of the connections for the “Rigolleau” Substation, as well as its updating and remodeling. This protection measures has been appealed by the Chamber. On the other hand, the Municipality of Berazategui answered the demand. The file passed to the Chamber for it to resolve regarding the appeal against the protection measure favorable to Edesur S.A. Amount: Undeterminable. Plaintiff Defendant : Edesur S.A. : Secretaría de la Política Ambiental de la Court : N° 2 Federal Civil, Commercial and Administrative First Instance National Court, Registry of the Court N° 5, La Plata. Case/Identification : 11.893/05 Summary of proceedings: A lawsuit was filed against the Municipalidad de Berazategui, so that it allows Edesur S.A. to render public services consisting in distributing electricity, for which it must install an underground electrical line under the western sidewalk of street 5, between Avenida Mitre and Calle 146, in Berazategui. The installation was suspended by the defendant through Decree No.1207/05, of which the plaintiff is seeking that it be pronounced unconstitutional and inapplicable. Also, an injunction was requested from the court. The court granted the injunction, suspending the application of Decree No. 758/05, and ordering the district authorities to refrain from stopping the development and/or completion of the installation of the underground 132-Kw line linking the sub-station located there, as well as the adequacy and remodeling of the line. Process status: Given that the injunction has satisfied the plaintiff’s petition, a filing was made suggesting that, if the judge issues a ruling favorable to the plaintiff’s complaint, the injunction be upheld. Amount: Undeterminable. Plaintiff Defendant Court : Edesur S.A. : Buenos Aires City Government (“GCBA”) : N° 7 Administrative and Tax Court of Buenos Aires City, Registry of the Court N° 13 Provincia de Buenos Aires Case/Identification : 2955/00 Court : N° 2 Federal Civil, Commercial and Administrative First Instance National Court, Registry of the Court N° 5, La Plata. Case/Identification : 9335/05 Summary of proceedings: An injunction petition was filed, in accordance with Law PBA No.7166, against the Secretaría de la Política Ambiental (SPA) de la Provincia de Buenos Aires, in connection with several infractions committed by this entity, which affect rights and guarantees established in the Argentinean Constitution, in particular, articles 14, 17, 18 and 31 of the Argentinean Constitution, as well as National Law No.25,760, because the provincial regulations (in particular Resolution SPA No.1118/02) have envisaged caps for PCB concentration in transformers which are not consistent with Argentinean or international standards. Process status: The court accepted the plaintiff’s petition, ordering Secretaría de la Política Ambiental to refrain from implementing Resolution SPA No.1118/02 and all the other measures related to it, and to suspend all proceedings already started and the execution of sanctions, if any, derived from them, until a final ruling is passed in the trial. The defendant appealed against this court resolution, and the trial is at the stage following the answer to the complaint. Amount: Undeterminable. Summary of proceedings: The provision through which the Buenos Aires City Government tries to charge an annual rent for each underground transformation center installed by Edesur in public roads is contested. At the same time, the provision tries to force Edesur to cover the costs resulting from the removal of the said centers whenever removal is necessary. The contested provision violates the Concession Contract. Process status: First instance favorable ruling was appealed against by the GCBA. Amount: Undeterminable Plaintiff Defendant Court : Edesur S.A. : Buenos Aires City Government (GCBA) : N° 7 Administrative and Tax Court of the City of Buenos Aires, Registry of the Court N° 13. Case/Identification : 2956/01 Summary of Proceedings: To contest a GCBA provision through which payment of procedure expenses on permits requested by Edesur for the installation of its lines is demanded, as well as payment for the corresponding inspections carried out by the GCBA, in addition to a rent for using public roads with power systems for the provision of power distribution public utilities. Plaintiff Defendant : Edesur S.A. : Municipalidad de Berazategui. Process status: Court to issue ruling. Amount: Undeterminable 174 | 2006 Annual Report AMPLA ENERGíA E SERVIçOS S.A. (AMPLA) Plaintiff : Meridional S/A Servicios, Emprendimientos y Participaciones Defendant Court : Ampla : 9th Chamber of Rio de Janeiro Public Case/Identification : 98.001.048296-8 Finance Summary of Proceedings: Mistral and Civel, represented by Meridional, claim they are creditors of the former state electricity distribution company CELF, owing to the existence of contracts of jobs undertaken for said company. Meriodional in its representation demands payment of invoices supposedly outstanding and the payment of contractual fines for rescission of the contracts for the above mentioned jobs, for the sum of R$136,085,087.02. Process status: The Plaintiff filed a recourse of appeal, and then Ampla was required to submit its allegations. On September 25, 2006, Ampla submitted its allegations and appealed. Amount US$118,007,521.02 Plaintiff Defendant Court : Enertrade - Comercializadora de Energía S. A : Ampla : Getulio Vargas Foundation Chamber for Conciliation and Arbitration Case/Identification : Arbitration procedure No. 03/2005 Summary of Proceedings: On December 22, 2002, Ampla and ENERTRADE signed a 20-year electric energy sales contract (40MW average). This contract was sent to ANEEL (Agencia Nacional de Energía Eléctrica) (National Electric Energy Agency) for its evaluation and resulting official approval. ANEEL approved the contract because certain conditions were fulfilled, among them, a 25% reduction in the price of the contracted energy (from R$ 97,4 t R$ 72,6/MWh). Given this determination, Ampla only paid the value authorized by ANEEL. ENERTRADE sustained that the contract was tacitly approved by ANEEL due to the passage of time and obtained, through judicial demand nº 2003.34.00.023785-2 against ANEEL. a provisional judicial measure that suspended the effects of the condition imposed by ANEEL, declaring the contract tacitly approved by that entity. ANEEL has not yet been able to have this provisional measure annulled. With the purpose of confirming the right assured by the provisional measure, ENERTRADE, in December 2005, established an arbitration procedure against AMPLA, under nº 3/2005 in the Cámara de Conciliación y Arbitraje of the Fundación Getúlio Vargas/RJ. Ampla continued to pay the reduced rate because, in addition to not being part of the process, it was not authorized to transfer the full cost to its tariffs. Process status: On July 17, 2006, Enertrade presented its first arguments, sustaining that Ampla is delinquent in its payments of the amounts owed, according to the electric energy sales contract signed and that Ampla has been paying for the contracted electric energy at the price established enersis06 in the official letter nº 696/2003, from ANEEL, while it should have paid the contract price, since due to the provisional measure obtained by ENERTRADE, the effects of the ANEEL official letter are suspended. On August 17, 2006, Ampla presented its answer; sustaining: a) the question is not subject to arbitration; b) that the provisional measure does not produce any effect in relation to it, since it is not part of the judicial demand; c) that it cannot pay for energy at a higher price than the price authorized by ANEEL, under the risk of violating the economic-financial equilibrium of the concession. Amount involved: US$ 91,070,534.13 Plaintiff Defendant : Ampla : Enertrade - Comercializadora de Energía S.A Court : Getulio Vargas Foundation Chamber for Case/Identification : Arbitration procedure No. 04/2006 Conciliation and Arbitration Summary of Proceedings: Counterclaim by Ampla against ENERTRADE. The facts of this procedure are the same as arbitration procedure 03/2005. Bearing in mind that the arbitration rules of this Chamber do not consider counterclaims, Ampla petitioned for a new arbitration to be established, with a view to decreeing the nullity of the contract or, alternatively, its avoidance. In this case, the same arbitration court has jurisdiction for hearing the case, which shall be processed together with the other proceeding. On August 28, 2006, Ampla petitioned in the arbitration court for the nullity of the contract entered into with ENERTRADE, or, alternatively, its avoidance, maintaining simply that the contract is null and void, since it was not ratified by ANEEL, as stipulated in the law, which was an essential condition for entering into the contract; also null and void because it infringes Law 8.884/94; it was entered into in unfair terms and conditions, typifying the abuse of the power of control; and the contract fails to comply with its business function. Process status: Ongoing proceedings, the plea period has been concluded and it is now in the period allowed for producing evidence. Bearing in mind that this proceeding shall be heard together with No. 03/2005, the pleadings of both parties regarding the submission of evidence will also be applied to this proceeding. Amount involved: US$ 18,742,278.79. Plaintiff : C i b r a p e l S / A I n d u s t r i a d e P a p e l y Embalajes Defendant Court Case/Identification : 1998.073.000018-6 : Ampla : Single Chamber of Guapimirim County Summary of Proceedings: 1) Plaintiff asks the court to order Ampla to indemnify the material and other damages caused by the poor quality of the services rendered by Ampla between the years 1991 and 1998. 2) Plaintiff asks the court to order Ampla to refund the amounts paid as a result of the price increase implemented following administrative resolutions 38 and 45 of 1986, which have been considered illegal, both by the government and by the courts. 2006 Annual Report | 175 CONSOLIDATED FINANCIAL STATEMENTS Process status: On September 18, 2006, Ampla submitted a filing making observations about the report of the expert appointed by the court. On November 14, 2006, the court issued a resolution requiring the parties to submit final allegations within 10 days. Amount involved: US$ 31,347,290.86. Plaintiff Defendant : AFCONT – Asociación Fluminense del Consumidor y Trabajador y ANACONT – Nacional de Asistencia al Consumidor y al Trabajador : AMPLA, LIGHT, ANEEL, Unión Federal, Eletropaulo Metropolitana de São Paulo, CEMIG Compañía Energética de Minas Gerais. Plaintiff : Qualita’s Tecnología y Servicios Ltda and Symon de Souza Coury Defendant Court Case/Identification : 2005.002.024695-9 : Ampla : 4th Civil Court of Niteroi County Court : 7° Juzgado Federal de la Comarca de Río de Case/Identification : 2004.51.01010086-9. Janeiro. Summary of Proceedings: The plaintiff brought this suit pleading that it had been created to serve Ampla since October, 1999 and that this contract should be in force until March 31, 2009, being able to be extended. The plaintiff petitioned for redress for material damages and moral prejudice caused by an alleged unilateral annulment of the contract by Ampla, which would have caused the plaintiff damages of about R$ 54,000,000 (fifty four million reales). Summary of Proceedings: Civil Class Action brought on June 1, 2004 petitioning the review of the Defendants’ tariffs, by reason of the ruling by the Official Auditing Office of la Unión, which ruled that the tax benefit generated by the distribution of interest on the corporate equity should not be considered for tariff review purposes. The suit is for restitution of twice the amounts paid for supply tariffs as of 11/2003, as well as compensation for moral prejudice. Process status: On September 15, 2006, Ampla filed a petition stating that it intended to produce expert accounting evidence, evidence of witnesses and supplementary proof of private documents. On November 14, 2006, Ampla lodged an appeal against the terms of the decision rejecting the preliminary petitions (delaying actions) brought in its first plea for the defense. Amount involved: US$ 27.367.908,14 Plaintiff Defendant Court Case/Identification : 2000.004.012307-7 : General Attorney’s Office : Ampla and the Municipality of Sao Goncalo : 4th Civil Court of Sao Goncalo County Summary of Proceedings: Towards the end of 2002, there was a charge for financing street lighting of the municipalities, called “Street Lighting Charge” (TMIP). Ampla had signed agreements with municipalities inside its concession area with a view to collecting this TMIP charge, including it in its bills. The constitutional validity of this charge has been challenged, so Ampla, who is simply the collector, has been involved as a defendant in this proceeding, in which the charge is being challenged. Consistent with the above, Ampla alleges in the proceeding that it is simply the collector of this charge, and is not liable. Process status: On July 1, 2005 and August 8, 2005, the letters of summons of Eletropaulo Metropolitana de São Paulo S.A. (Eletropaulo) and Compañía Energética de Minas Gerais (CEMIG), respectively, were attached. Eletropaulo raised a plea of Lack of Jurisdiction, which was admitted, and the decision was handed down for the proceeding involving Eletropaulo to be continued in the 11th Federal Court of São Paulo. On September, 6, 2006, the court records were remitted to the Public Prosecutor’s Office and returned on September 11, 2006. Amount involved: Undeterminable. Plaintiff : Association of Townspeople of Recanto dos Arcanjos-Amora Defendant Court : Ampla : 1st Civil Chamber of the Town of Saint Case/Identification : 2002.004.003639-2 Gonzalo Summary of Proceedings: The people of Recanto dos Arcanjos-Amora, through their Association of Inhabitants, launched this action requiring that Ampla carry out the installation of an electricity network for all inhabitants currently without electricity in the Recanto dos Arcanjos housing development. Process status: Ampla was ruled to not be liable. The ruling declared the charge of the Street Lighting Maintenance Tariff (TMIP) to be illegal, determining that the Municipality of São Gonçalo should abstain from collecting the tax via Ampla. On July, 27, 2005, the Public Prosecutor’s Office requested that the court records of the 6th Civil Court of the Region of São Gonçalo should be sent to it. The judge determined that Ampla should abstain from including the TMIP or other charges, taxes or services in the monthly invoices of the consumers of São Gonçalo without the express authorization of each consumer individually. Ampla was enjoined to comply with the ruling of the Courts of Law. On July 13, 2006, Ampla’s injunction was attached to the court records. Amount involved: Undeterminable. Process status: On May 22, 2006, the court handed down a ruling rejecting the recourse of appeals filed by Ampla and upholding instead the lower court ruling. On July 12, 2006, the court ordered the compliance with the ruling against which Ampla appealed. Afterwards, the plaintiff started the execution of a penalty for late compliance. On November 6, 2006 the proceedings were remitted to the Attorney General’s Office and returned to the court on November 16, 2006 with a decision favorable to Ampla. Amount: Undeterminable Plaintiff : Consumer Defence Commission of the Legislative Assembly of the State of Rio de Janeiro 176 | 2006 Annual Report enersis06 Defendant Court : Ampla : 8th Business chamber of the County of Rio Case/Identification : 2002.001.115854-5 de Janeiro Summary of Proceedings: Plaintiff launched this action stating that on September 7, 2002, there was a wind storm in the entire state of Rio de Janeiro that affected the supply of electrical energy and caused damaged to the population. It charges that Ampla failed to provide adequate service due to the storm, but that this event cannot be considered Force Majeure because it was perfectly predictable. Plaintiff demands that Ampla pay its consumers the amount of 1/30 of the basic rate multiplied by the No.of days (three) in which service was not provided, as well as that Ampla be ordered to pay all damages suffered by consumers, including the pain caused to them by the inability to function with electricity. Process status: Plaintiff filed a Special Recourse which entered the court under No. 2006.135.11857. On August 31, 2006 Ampla filed its allegations against the Special Recourse. On November 23, 2006, the Special Recourse was dismissed. Amount: Undeterminable supply was shut off and refrain from further electric energy shut-offs of any user or consumer due to illegal actions performed by them (whether stealing of energy or fraud) or because of the fact that they may be late in payments, if no ordinary administrative or legal proceedings have been started in connection with them; (iii) no collection of debts from consumers, unless they arise out of a regular court trial. Process status: Ampla appealed against the decision that did not accept attachments on July 17, 2006, and the appeal was rejected. Against such court decision, Ampla filed a Special Recourse on August 28, 2006. On September 19, 2006, the court called on the Plaintiff to submit allegations. On October 27, 2006, the recourse went to “Procuraduría General de Justicia”. On December 6, 2006, the recourse is sent to the 3rd Vice President, who must decide whether or not the recourse meets the requirements to be discussed by the court. Amount: Undeterminable Plaintiff Defendant Court : Consumer Defence Commission of the Legislative Assembly of the State of Rio de Janeiro : Ampla : 7th Business chamber of the State of Rio de Plaintiff : Núcleo de Defensa do Consumidor - Janeiro NUDECON Case/Identification : 2005.001.084370-8 Defendant Court Case/Identification : 1999.001.168990-1 : Ampla and Light : 8th Chamber of Rio de Janeiro Commercial Summary of Proceedings: Group civil action launched on December 13, 1999, with the objective of preventing the cut of the electrical supply to consumers late in payment of their bills, as well as consumers who have stolen electricity. Process status: The actions submitted to the higher courts: Extraordinary injunction 2004.134.02040 and Special Injunction 2004.135.04122. The Extraordinary Injunction was not accepted by the Court of Justice of Rio de Janeiro. This decision was appealed by means of Instrument 2004.136.06485, by Ampla, to get the injunction accepted. While this appeal is awaiting resolution, the Special Injunction was admitted and redirected to the high court of justice on March 15, 2005 and is also awaiting judgement. On March 7, 2006, the Special Injunction sent to the high court of justice was voted upon, and a unanimous decision pronounced as illegitimate the NUDECON. Amount: Undeterminable Plaintiff : Brazilian Consumer Defence Association (ADCON) Summary of Proceedings: This is a Public Civil action launched in order to prevent the installation of electronic measurement meters. The plaintiff states that this modernisation’s only purpose is to prevent theft of electricity and would actually deprive consumers of their right to information. Plaintiff argues that it is Ampla’s responsibility to detect electricity theft in other ways and not put the burden on the consumer. Process status: Ampla submitted allegations against the Appeal filed by the Plaintiff and the proceedings were then remitted to the Justice Court. The Appeal entered the court under No. 2006.001.22785 and was distributed to the 15th civil chamber of the court. The court, by unanimous decision, rejected the appeal, which was published on August 16, 2006. The Plaintiff then filed a Special Recourse, with the proceedings being remitted to the 3rd Vice-presidency of the court. On October 16, 2006 Ampla submitted its allegations. On October 25, 2006, the proceedings were remitted to the “Procuraduria General de Justicia” and were returned on November 22, 2006. Amount: Undeterminable Plaintiff Defendant Court : State Attorney General’s Office : Ampla : 2nd Civil Chamber of Town of Saint Defendant Court : Ampla : 8th Business chamber of the County of Case/Identification : 2003.004.034117-9 Gonzalo Case/Identification : 2004.001.017223-0 Brasilia Summary of Proceedings: (i) No registration of consumers late in payments on records of Services for Credit Protection, and removal of registrations already made, while proceedings continue at court of law; (ii) the restoration of electric energy supply to all consumers whose Summary of Proceedings: Plaintiff launched the Public Civil Action requesting first that Ampla be ordered to “supply the regular consumers of Saint Gonzalo a quality electrical energy service without interruptions, and take all measures necessary to prevent such interruptions, even if in order to achieve this it must restructure all of its equipment; in the event it is absolutely necessary to interrupt the supply, then the restoration of 2006 Annual Report | 177 CONSOLIDATED FINANCIAL STATEMENTS supply must be immediate or the fine shall be R$10,000 a day. until the case is decided. Process status: The Ampla appeal was accepted by the court, which called upon the plaintiff to submit allegations against it. On November 6, 2006, the plaintiff’s allegations were added to the proceedings., which were sent to the judge since November 28, 2006. Amount: Undeterminable Plaintiff Defendant Court Case/Identification : 2003.023.041682-7 : Town of Itaborai : Ampla : 2nd Civil Chamber of County of Itaborai Summary of Proceedings: The Town of Itaborai filed a Public Civil Action against Ampla so that the Defendant (i) refrains from interrupting the supply of electrical energy of the consumers of this Town, even if they are in debit, because this is an essential and continuous service, compelling Ampla to forthwith take measures necessary to provide continuity and reliability of the supply service in the entire town, under penalty of a fine of R$200 (200 reales) per day for each consumer inconvenienced; (ii) be ordered to pay a fine of R$10,000 for each day that it fails to comply with the sentence in (i). Process status: Court to hand down its ruling. Amount: Undeterminable Plaintiff Defendant Court Case/Identification : 2000.002.007345-7 : Town of Niterói : Ampla : 6th Civil Chamber of Niterói County Summary of Proceedings: The Town of Niterói launched this action requiring the removal of posts situated in places that are supposedly inadequate. At issue is the question of paying for the removal of the posts. Process status: On April 10, 2006, the proceedings returned from the court of appeals to its original lower court. On May 29, 2006 the order requiring that the court decision appealed against be complied with, was published. On August 29, 2006, the proceedings were remitted to the Attorney General’s Office and were returned on September 21, 2005. Amount: Undeterminable Plaintiff : Anacont National Association of Consumer and Worker Assistance Defendant Court : Ampla and Town of Angra dos Reis : 2nd Civil Chamber of the County of Angra Process status: Ampla and the Plaintiff filed Appeals. The court has not yet issued a resolution regarding those appeals. Amount: Undeterminable Plaintiff : National Association of Consumer and Worker Assistance Defendant Court : Ampla : 1st Civil Chamber of the County of Angra dos Case/Identification : 2003.003.003327-0 Reis Summary of Proceedings: Plaintiff required Ampla to give early warning to its customers in the event of shut-off of electric supply due to default in payments, asking the court to set a daily fine to ensure effectiveness. Process status: On November 7, 2006 a resolution was issued denying jurisdiction to the Federal Justice, given the obvious interest of ANEEL in the suit. Amount: Undeterminable Plaintiff Defendant Court : National Consumer and Worker Assistance Association and Attorney General’s Office : Ampla and Town of Cachoieras de Macacu : 2nd Civil Chamber of the County of Cachoieras Case/Identification : 2004.012.000013-9 de Macacu Summary of Proceedings: The plaintiff launched this action requiring the suspension of the CIP (Contribución de Iluminación Pública) charge and that the Defendants be ordered to refund amounts charged. Process status: The appeal filed the General Attorney’s Office entered the court under No. 2006.001.26010. The proceedings have already been sent to the judge. Amount: Undeterminable Plaintiff Defendant : Marcos Enrique Sousa de Magalhães : Ampla, State of Rio de Janeiro, EDP - Electricidade de Portugal S/ A (EDP), Sociedad Panameña de Electricidad S. A., Endesa Desarrollo S.A., and Empresa Eléctrica de Panamá S.A. Court : 2nd Public Finance Chamber of the County of Brasilia Case/Identification : 2002.003.001624-5 dos Reis Case/Identification : 1996.001.128021-4 Summary of Proceedings: This is a Public Civil Action in which the plaintiff requires that Ampla be condemned to refrain from charging a fee for the public lighting of the Town of Angra dos Reis, as well as to refund double the amount paid by the consumers for the inappropriate charge. It bases its petition on the illegality and unconstitutionality of the charge and requires the suspension of the charge for public lighting Summary of Proceedings: The plaintiff objects to the sale by the state of Rio de Janeiro of its shares in the equity of the former Cerj and requests the annulment of the edict, the suspension of the sale of the shares and the declaration of nullity of the bidding as well as the sentencing of the Defendants to compensate the public treasury for the damages it has suffered. Process status: The Securities Commission answered the court order, 178 | 2006 Annual Report enersis06 reporting that, since a closely-held company is involved, it has no way of knowing its address, because it only oversees publicly-traded corporations. The court called on the parties to discuss the Securities Commission report. On September 27, 2006 the proceedings were remitted to the General Attorney’s Office. Amount: Undeterminable Plaintiff : Macao Consumer and Worker Defence Association Defendant Court : Ampla : Single Chamber of the County of Río das to reimburse double the amount received for this charge, and that the Defendants pay the costs related to the trial. Process status: On July 17, 2006, Ampla informed the court that it was not interested in a conciliation hearing. The judge called on the General Attorney’s Office to decide on the granting of power in advance. On September 11, 2006, the proceedings were remitted to the General Attorney’s Office. On October 31, 2006 a ruling was handed down denying the plaintiff’s petitions. Amount: Undeterminable Case/Identification : 2004.068.001287-1 do Janeiro Ostras Plaintiff : General Attorney’s Office of the State of Rio Summary of Proceedings: The plaintiff launched this action requesting partial power in advance to prevent the Defendant from charging the TMIP (“Tasa Municipal de Iluminación Pública”), and requesting that Ampla be required to refund the amounts wrongly charged and pay the costs of the trial. Process status: The court called on the plaintiff to make a filing regarding the answer filed by Ampla. Amount: Undeterminable Plaintiff : National Citizen and Consumer Defence Institute (INDECCON) Defendant Court : Ampla : Single Chamber of the County of Río das Case/Identification : 2005.001.069542-2 Ostras Summary of Proceedings: The plaintiff launched this action requesting that the bill for the consumption of electricity be sent to the customer with two different bar codes, one referring to the actual consumption and the other for the levying of the CIP. It requested power in advance with erga omnes effect for the whole state of Rio de Janeiro, the input of the Attorney General’s Office as well as a list of cities that levy the CIP collected by Ampla. Process status: On August 1, 2006, Ampla alleged that INDECCON does not have legitimacy, adding to the trial a report stating some courts which have pronounced INDECCON’s illegitimacy to file public actions. On November 27, 2006, the proceedings were remitted to the General Attorney’s Office. Amount: Undeterminable Plaintiff : National Institute of Defence of Citizen Consumer - INDECCON Defendant Court : Ampla and Light : 7th Business Chamber of the County of Rio Case/Identification : 2005.001.073480-4 de Janeiro Summary of Proceedings: The plaintiff launched this action requesting power in advance to order the suspension of the charge of a fee for normal reconnection, or any fee with this intention, with effect erga omnes for the entire state of Rio de Janeiro, the ordering of the Defendants Defendant Court Case/Identification : 2005.002.024755-1 : Ampla : 5th Civil Court of Niteroi County Summary of Proceedings: The plaintiff launched this action requesting that the bill for the consumption of electricity be sent to the customer with two different bar codes, one referring to the actual consumption and the other for the levying of the CIP. It requested power in advance so that bills allow to pay the consumption of electricity separately from the CIP. Process status: On March 8, 2006 the court accepted Ampla’s argumentation regarding the interest of the State in the issue. As a result, on March 8, 2006, a decision was published that denies the jurisdiction of that court in favor of the 6th Civil Court of the Niteroi County/Ministry of Finance, given the interest of the State in the issue. The General Attorney’s Office objected to this decision, which was rejected, a resolution published in the Official Gazette of May 9, 2006. Amount: Undeterminable. Plaintiff : Commission for the Defense of Consumer in the Legislative Assembly of the State Rio de Janeiro Defendant Court Case/Identification : 2006.51.01.003191-1 : Ampla and ANEEL : 5th Federal Court of Rio de Janeiro Summary of Proceedings: The plaintiff requests: 1) That the Authorizing Resolution nº 201, of May 30, 2005, which authorized the installation of electronic metering, be revoked, for Ampla to return to the use of the old consumption metering system. 2) That Ampla be prohibited to suspend the supply of electric energy to those clients that stop paying the invoices sent after the implementation of the electronic metering system due to differences between the consumption measured during this period with their previous consumption. 3) The granting of a protective measure inhibiting the cutting of supplies to those clients that cease to pay the invoices sent after the implementation of the new electronic metering system. 4) The setting of a daily fine to insure compliance with the protective measure if it were granted. 5) Condemn Ampla to publish the sentence ruling in two large circulation newspapers in the Capital. 6) Condemn Ampla to pay back twice the amounts overcharged the clients. 7) That Ampla be condemned to pay for material and moral harm suffered by the clients. Process status: On September 4, 2006, Ampla presented its reply, 2006 Annual Report | 179 CONSOLIDATED FINANCIAL STATEMENTS arguing, in brief, the efficiency of the electronic metering system and constitutionality of the ANEEL resolution, which authorized Ampla to implement the electronic metering system. On September 29, 2006, the resolution denying the protective measure requested, was published. Amount: Undeterminable. Plaintiff : General Attorney’s Office of the State of Rio do Janeiro Defendant Court Case/Identification : 2005.011.005968-1 : Ampla : 1st Civil Court of Cabo Frío County Summary of Proceedings: The plaintiff filed this lawsuit requesting that in anticipation of protection, that Ampla perform an enquiry among all electric energy consumers, for them to authorize the joint charge for the electric energy tariff and the Contribution for Public Lighting (CPL) in the consumption invoices, or opt for the separate payment of each of these. Process status: On July 26, 2006, Ampla answered arguing that it does not choose the way CPL is charged, ant that it is merely the collection agent for the tax. On October 30, 2006, the plaintiff answered. On November 17, 2006, a resolution was published for the parts to present evidence. On November 24, 2006, Ampla presented a request stating that it does not plan to submit evidence. Amount: Undeterminable. Plaintiff : Centro Comunitario de los Residentes y Asistencia Social del Apolo y Adyacencias Itaboraí Defendant Court Case/Identification : 2005.023.009672-2 : Ampla : 1st Civil Court of Itaboraí County Summary of Proceedings: The plaintiff filed this lawsuit to request: 1) The granting of the protective measure for Ampla to not withdraw the meters from the homes of consumers. 2) The confirmation of the protective measure, condemning Ampla to not withdraw the meters. 3) As an alternative request, that Ampla be obliged to restitute twice the amount consumers had to pay for the purchase of new meters. 4) Condemn Ampla to perform the substitution of the new meters by the old meters, without cost to the consumer. 5) Condemn Ampla to publish the sentence ruling in two large circulation newspapers in the Capital. Process status: On January 27, 2006, was published a resolution accepting the protective measure and ordering Ampla to abstain from disconnecting the meters already installed in the homes of the consumers which are proven members of the plaintiff. Process in the instruction stage. On October 24, 2006, Ampla presented a request informing that it plans to submit oral and documentary supplementary evidence. Amount: Undeterminable. Plaintiff : General Attorney’s Office of the State of Rio do Janeiro Defendant Court : Ampla and Municipality of Paraty : Single Court of Paraty County 180 | 2006 Annual Report Case/Identification : 2005.041.001008-9 Summary of Proceedings: The plaintiff brought this suit petitioning, by way of advanced tutelage, sentencing of the Municipality of Paraty to abstain from collecting the Contribution for Street Lighting (CIP), under penalty of a fine of R$ 50,000.00 (US$23,277.46) and, additionally, that Ampla should be compelled to collect the CIP separately, although on the same energy consumption bill, using different bar codes, under penalty of a fine of R$ 10,000.00 (US$ 4,666.79). Process status: Ampla submitted its plea for the defense on July 4, 2006, pleading preliminarily the lack of legitimacy of the Public Prosecutor’s Office to bring this suit, and that the Public Criminal Indemnification Action is not the appropriate medium for discussing collection of the tax. It also proved that it was not infringing Resolution 456/2000. Amount: Undeterminable. Plaintiff Defendant Court Case/Identification : 2005.041.001124-0 : Municipality of Paraty : Ampla : Single Court of Paraty County Summary of Proceedings: The plaintiff brought this suit petitioning for: 1) Acceptance of the precautionary measure for Ampla to abstain from shutting off the power supply services, under penalty of a fine of R$10,000.00 (US$4,666.79) to be applied to each non-compliance of the delegated order, without detriment to any other possible penalties; 2) That Ampla should maintain the regularity of the system of supply and maintenance of the power transmission grid in satisfactory conditions for the users; 3) That Ampla should be sentenced to submit and execute within a reasonable period of time a project to modernize the grid, consisting of improvements to the power transmission equipment and lines in the area of the Municipality of Paraty; 4) the injunction for the Public Prosecutor’s Office to be a party to or to act in the case as custos legis; and 5) The injunction of the Granting Power in the case, the State of Río de Janeiro, to express an interest in the case through its legal representative. Process status: On November 10, 2006, the court records were remitted to the lawyer’s office of the Municipality and returned on November 13, 2006. The court records are expected to be remitted to the Public Prosecutor’s Office. Amount: Undeterminable. Plaintiff : Núcleo de Primer Atendimiento de la Defensoría Pública de la Comarca de Três Rios Defendant Court Case/Identification : 2003.063.009822-6 : Ampla and Light : 1st Civil Court of Tres Rios County Summary of Proceedings: The Plaintiff petitions for: a) Articles 75 and 76 of Resolution DNAEE No. 466 of November 12, 1997, which stipulate the causes for suspension of the power supply, to be declared unconstitutional; b) specific granting of advanced tutelage to (1) determine the immediate reestablishment of power to consumers with the above service cut off; (ii) suspend collection of debts imposed unilaterally by the Defendants in light of the verification of irregularities in consumption, and (iii) exclusion of the name of delinquent consumers from the record of debtors; c) that the petition to make the granting of advanced tutelage definitive should be deemed admissible. Process status: On May 29, 2006, the sentence deeming the petition admissible was decreed, determining that the Defendants should abstain from suspending or interrupting the power supply. Amount: Undeterminable. Plaintiff : Brazilian bar of lawyers, Section of the Rio Defendant : Municipality of Conceicao of Macabu and de Janeiro State, Subsection 15th Court : Single Court of Conceicao of Macabu Ampla Case/Identification : 1998.018.000024-9 County Summary of Proceedings: The Plaintiff brought this suit petitioning for a precautionary measure to determine that the Municipality of Conceição de Macabu should be compelled to not enforce collection of charges for Urban Services and Street Lighting, and on the intrinsic rights determined by substance rather than form for the precautionary measure to be ratified, with Ampla being notified to abstain from incorporating the Street Lighting Charge (TIP) into its electricity bills. Process status: On November 13, 2006, the sentence was handed down stating that the proceeding involving the petition to cease collecting the TIP had abated due to a lack of any surviving procedural interest (insofar as the question of the TIP has already been ruled on by the Courts), determining the petition made to declare the collection of the TSU improper to be admissible and to consider the proceeding to have been abated, without analyzing the rights and wrongs of the substance of the case, based on article 267, VI of the CPC, with regard to Ampla. Amount: Undeterminable. Plaintiff : Organization of the Society of Angra dos Reis (OSCAR) Defendant Court : Ampla and Town of Angra dos Reis : 2nd Civil Chamber of the County of Angra Case/Identification : 2002.003.005590-1 dos Reis Summary of Proceedings: In this action the plaintiff requires the suspension of the charging of the “Tasa de Iluminación Pública” (TIP) incorporated in the electricity consumption bills of the consumers of the Town of Angra dos Reis, starting on the date on which the defendant is summoned to the court, and that the court pronounce that the charge is not effective. enersis06 Defendant Court Case/Identification : 2006.017.000168-5 : Ampla : Single Court of Casimiro de Abreu County Summary of Proceedings: The Plaintiff asks for: a) concession of guarantee so that AMPLA can grant in the electricity accounts of registered consumers in the City of Casimiro de Abreu, to be issued and in those that were already issued, and in which they were issued but not paid, a discount of 50% of the price to pay for energy supply, until they finish the work of connection with the Silva Jardim Sub-station or a Casimiro de Abreu sub-station is built, to minimize the problems from which the population suffers from the blackouts and power fluctuations; b) the application of a daily fine of R$10,000 (US$ 4,666.79), to be reverted to the Plaintiffs for the improvement or enlargement of the network of electrical energy within the City’s jurisdiction, until the conclusion of the work of connection with the Silva Jardim sub-station; and c) the finding of indemnification of damages to property exiting until the end of the suit. Process status: Trial in evidence presenting stage. On November 21, 2006, Ampla presented an answer pointing out, in summary, that the connection work of the Silva Jardín and Rocha León sub-stations were finished in August, for which reason the said action lost its objective. Amount: Undeterminable Plaintiff : Organization of the Society of Angra dos Reis (OSCAR) Defendant Court : Ampla : 1st Civil Chamber of the County of Angra dos Case/Identification : 2003.003.010569-4 Reis Summary of Proceedings: In this action the plaintiff requires that the court prohibits Ampla to suspend the supply of electrical power to consumers late in payments, and that it condemns Ampla to a penalty of 1,000 reales for each consumer late in payments to whom the electricity supply has been cut off. Process status: Court is examining complaint. On November 21, 2006, a ruling was handed down pronouncing that the facts invoked no longer exist. Amount: Undeterminable Plaintiff Defendant Court Case/Identification : 2005.004.074298-1 : Jorge Luiz Gasco : Ampla : 4th Civil Court of Sao Goncalo County Summary of Proceedings: The Plaintiff presented this action requiring the concession of a guarantee so that Ampla could interrupt the operation of substitution of the electricity consumption meters in the City of São Gonçalo and that such substitution be declared illegal. Process status: On November 14, 2006, the proceedings were remitted to the General Procurator’s Office so that they hand down a ruling. Amount: Undeterminable Process status: On July 26, 2006, sentence was handed down and the trial was declared finished. Amount involved: Undeterminable. Plaintiff : Casimiro de Abreu Municipal Chamber Plaintiff : ASOBRAEE – Brazilian Association of 2006 Annual Report | 181 CONSOLIDATED FINANCIAL STATEMENTS Consumers of Water and Electricity Defendant Court Case/Identification : 2006.002.002621-4 : Ampla : 5th Civil Court of Niteroi County Summary of Proceedings: The Plaintiff presented this action requiring that the DNAEE nº 038 and 045 Resolutions of 1986 be declared null. These resolutions established the rate adjustment, for which AMPLA may be condemned to the restitution of the improper charge, equivalent to 20% of what it would have charged all the consumer in the period from March to November 1986, as well as to force Ampla to present the complete schedule of payments made for all of the consumers in the period from March to November 1986. Process status: The Plaintiff was required to respond to the answer offered by Ampla. Amount involved: Undeterminable. Plaintiff : ANDEC – National Association of Credit Consumers Defendant Court : Ampla : 3rd Business Court of Rio de Janeiro Case/Identification : 2006.001.024920-5 County Summary of Proceedings: The Plaintiff presented this action requiring the condemnation of Ampla in the return to all the consumers who fall into the definition of “consumer” contained in art. 2º of the CDC, the amounts paid in excess for the use of electrical energy in the period between February 27, 1986 until November 27, 1986, on account of the presumed illegal increase imposed by the Ports DNAEE nº 038 045 of 1986, duly increased with statutory interest and inflation adjustment; “the settlement and carrying out of the sentence, as well as the reversion of the Fund, created by Law nº 7347/85, will be performed in accordance with the rules established by the CDC and in the Law of Civil Public Action. Process status: Awaiting the requirement for the parties to present their evidence. Amount involved: Undeterminable. Plaintiff : ANDEC – National Association of Credit Consumers with the rules established by the CDC and in the Law of Civil Public Action. Process status: Awaiting the requirement for the parties to present their evidence. Amount involved: Undeterminable. Plaintiff Defendant Court Case/Identification : 2002.002.025734-2 : Consumer Defense Association : Ampla : 5th Civil Court of Niteroi County Summary of Proceedings: This is a Collective Civil Indemnification Action promoted by the Consumer Defense Association, with a view to receiving refunds of the amounts paid in excess by their associates for use of electricity from February 27, 1986 to November 27, 1986, by reason of the allegedly illegal increase as a result of Resolution DNAEE 038 045 of 1986, duly increased by legal interest and monetary correction. Process status: Ampla was summoned on November 28, 2006, and, after attaching the certificate of due compliance with the summons in the court records, such will be picked up from the Notary Public’s Office so that it can presents its defense. Amount involved: Undeterminable. Plaintiff Defendant : Ampla : Cooperativa de Electrificación Rural Sanjoanense (CERSAN) Court Case/Identification : 99.020.8621-7 : 1st Federal Chamber of Niterol County Summary of Proceedings: This action seeks rescission of the electrical energy supply contract and federal permit of the Rural Electrification Co-operative, because service is to customers in the Ampla Concession area, and because monthly bills are overdue for electrical energy supplied for the past few years and which add up to R$ 15 million. There are other actions to collect the debt from the Co-operative that have been launched by Ampla before the State justice system. Process status: Court is to hand down ruling. Amount: Undeterminable Defendant Court : Ampla : 2nd Business Court of Rio de Janeiro Plaintiff Defendant : Ampla : Teresópolis-Friburgo Electrification Co- Case/Identification : 2006.001.024911-4 County Summary of Proceedings: The Plaintiff presented this action requiring the condemnation of Ampla in the return to all the consumers who do not fall into the definition of “consumer” contained in art. 2º of the CDC, the amounts paid in excess for the use of electrical energy in the period between February 27, 1986 until November 27, 1986, on account of the presumed illegal increase imposed by the Ports DNAEE nº 038 045 of 1986, duly increased with statutory interest and inflation adjustment; “the settlement and carrying out of the sentence, as well as the reversion of the Fund, created by Law nº 7347/85, will be performed in accordance operative (CERTEF) Court Case/Identification : 2000.51.02.000030-1 : 1st Federal Chamber of Niteroi County Summary of Proceedings: This action seeks rescission of the electrical energy supply contract and federal permit of the Rural Electrification Co-operative, because service is to customers in the Ampla Concession area, and because monthly bills are overdue for electrical energy supplied for the past few years and which add up to R$ 9 million. There are other actions to collect the debt from the Co-operative that have been launched by Ampla before the State justice system Process status: The ANEEL informed the court that it is interested in the 182 | 2006 Annual Report enersis06 issue and that it is finishing a report with the findings of the examination of CERTEF. The court is becoming acquainted with the proceedings. Amount: Undeterminable Defendant Court : Federal Union : 2nd Federal Chamber and 4th TRF Chamber Case/Identification : Ordinary Action No.96.0035653-0 and Civil of the 2nd Region Plaintiff : Co-ordination of Consumer Defence - Appeal No.98.02.21000-5 (d.1) CODECON/SG Defendant Court : Ampla : 4th Civil Chamber of the Town of Saint Case/Identification : 2003.004.043260-4 Gonzalo Summary of Proceedings: This is the Public Civil Action in which CODECON/ Saint Gonzalo required that AMPLA be prohibited from suspending the supply of electrical energy to the consumers of Saint Gonzalo when they fail to pay their monthly bill, under penalty of a fine of R$ 500 per day, and that Ampla be ordered to refrain from suspending the supply of electrical energy to the consumers of Saint Gonzalo for delay in payment of their monthly bill. Input is required from the Attorney General’s Office. Summary of Proceedings: Plaintiff is asking from the court the following: 1) The declaration of Ampla’s immunity from payment of the tax called COFINS; and 2) That the Federal Union be ordered to refund payments made under COFINS in the past five years, adjusted and increased as statutorily required and based on the ruling of the court handed down in trial No.92.0113589-4. Process status: On December 6, 2006, the court decision rejecting Ampla’s recourse was published. On December 11, 2006, a filing was made asking the court to clarify its omission of the second point of Ampla’s petition. Amount: US$ 36,741,510.19 Process status: On July 6, 2006, a ruling was handed down, rejecting the petition contained in the Public Civil Action, on the grounds that Ampla is under no obligation of performing its operations free of charge. Amount: Undeterminable : Federal Union Plaintiff : Ampla Defendant : Special Body of TRF in the 2nd Region Court Case/Identification : Rescission Action No.97.02.09655-3 (d.2) Plaintiff : Union of Workers in the NiteróI Electrical Energy Industry representing a class action suit by 2841 employees Defendant Court Case/Identification : Labour Complaint 884/1989 : Ampla : Niterói Work Chamber Summary of Proceedings: In April 1989, the Niterói Union, in representation of 2841 employees, launched an action claiming salary differences of 26.05% since February 1989 that were related to the economic plan instituted by Decree Law 2.335/87, or “Summer Plan”. Process status: Ordinary proceedings have finished. The current discussion centers around the execution of the ruling, because in this regard a filing has been made arguing that the ruling has already been executed. Amount: US$18,735,556.27 Plaintiff Defendant Court ID Number : Selma de Souza and 122 other plaintiffs : Ampla : 2nd Employment Chamber of Niterói : Work Complaint No.3142/1995 Summary of Proceedings: The plaintiffs were fired by the Company and demand to be reinstated and to have their right of employment stability recognized. Process status: Through an Unnamed Incidental Precautionary Action, filed in Rio de Janeiro, it was possible to carry out the termination of these employees, which occurred on December 7, 2005. Amount: US$ 27,278,537.53 Plaintiff : Ampla Summary of Proceedings: The Federal Union filed a rescission action against Ampla with the TRF 2nd region, in order to rescind the decision (passed in trial No.92.0113589-4) that recognized Ampla’s immunity from the requirement to withhold the COFINS tax. The lower court ruling in the rescission action was favorable to Ampla. If the higher court grants the rescission action of the Federal Union, Ampla would have to pay in all the COFINS that it did not pay over as a result of the ruling passed in trial No.92.01134894, which recognized Ampla’s immunity from the requirement to withhold the COFINS tax. Process status: On November 3, 2005, the resolution of the Rio de Janeiro Tribunal was published (TRF – decision of Dec/03) that rejected the rescission action filed by the Ministry of Finance meant to repeal the ruling favorable to Ampla that granted the latter immunity from the COFINS tax. The publication of this resolution was critical if the Federal Union was to appeal against it with the Superior Tribunal of Justice in Brasilia. On December 1, 2005, the Ministry of Finance filed, with the Rio de Janeiro Tribunal, a recourse seeking a clarification of the resolution. Amount: US$ 217,963,885.95 Plaintiff Defendant Court : Ampla : Federal Union : 4th Federal Chamber of Niterói and 4th Group of the TRF of the 2nd Region Case/Identification : Ordinary Action No.96.0035387-5 and Civil Appeal No.1999.02.01.047064-8 (d.4) Summary of Proceedings: Ampla seeks to obtain the declaration that the tax-legal relationship (tax immunity) does not exist as regards the payment of the tax called FINSOCIAL, which would have an impact on its gross monthly revenue. It also seeks to have the Federal Union forced 2006 Annual Report | 183 CONSOLIDATED FINANCIAL STATEMENTS to refund the total amount collected in the last five years, starting from October 1996 and, if the foregoing is not possible, that the Federal Union be made to refund the difference between the amount paid in accordance with Laws 7,787/89 , 7,784/89 and 8,147/90, and that due in accordance with Decree Law No.1.940/82, in the same period referred to above. Process status: The lower court’s decision declared without grounds the request for immunity, but accepted the petition to declare unconstitutional the increases in the FINSOCIAL tax rate above 0.5% and the right to offset the said excess in current and future taxes due. The appeals of Federal Union and Ampla were filed. The proceedings were sent to Federal Regional Court where they are currently awaiting a judgement on the two appeals. Amount: US$ 15,295,482.56 Plaintiff Defendant Court : Ampla : Federal Union : 3rd Group – Federal Regional Court of the 2nd Region and 1st Federal Court of Niterói. Case/Identification : Lawsuit 98.02.07129-3 and Appeal against Lawsuit 1998.51.02.207129-6 (d.5) Lawsuit 98.02.02033-8 and Appeal against Lawsuit 2000.02.01.055412-5 (d.6). Summary of Proceedings: Compensation of Tax Losses – This is about a lawsuit against the Commissary in charge of collection of federal income taxes in Niterói, that seeks to ensure that Ampla has the right to recover wholly the tax losses in order to determine the calculation basis for its income tax on a legal person and the negative calculation basis for the purposes of the Corporate Contribution on Net Profit for the years 1993, 1995 and 1996, with the profits generated in the base-years 1998 and following, without submitting to the limit of 30% of the taxable profit. Process status: On December 14, 2006 the decision by the Regional Federal Court of the 2nd Region on one of the two lawsuits was published. This decision was unfavorable to Ampla. From this time, a period of 30 days commenced, which ended on January 12, to pay the difference in taxes to the Brazilian treasury without applying the fine of 20%. The amount associated with this process was R$ 234.9 million (US$ 109.3 million). However, given the unlikelihood of being successful in the superior courts of justice, the decision of Ampla was to pay the total sum associated with the two lawsuits initiated by Ampla, which amounted to R$ 240.7 million (US$ 111.9 million) with the purpose of ending the contingency involved in the to trials and all the records of infraction against the tax code already reported. On January 11, 2007 Ampla paid to the Brazilian government the sum of R$ 240.7 million (US$ 111.9 million). Amount: U$ 111,949,118,37 Plaintiff : Secretary of the Federal Collecion Tax (Brazilian IRS) Defendant Court Case/Identification : Infraction Proceeding No.00218 and Administrative Trial No.10730.002007/99-24. : Ampla : Federal Income Tax Commissary Summary of Proceedings: A demand for tax credit relating to the PIS 184 | 2006 Annual Report contribution, with the objective of preventing the prescription of amounts entered judicially plus interest due on arrears. Process status: On June 7, 1999, Ampla presented its opposition to the Infraction Proceeding, which was accepted by the Federal Collecion Tax court. As a result of this, Ampla tabled a voluntary action, which was partially recognized by the 3rd Chamber of the 2nd Council of taxpayers of the Ministry of Finance, at least to exclude the interest charged on arrears by the Federal Collecion Tax (IRS) Court. Currently the proceedings are in the Federal Collecion Tax court of Niteról. Amount: US$ 23,814,436.91 Plaintiff : Secretary of Federal Collecion Tax (Brazilian Defendant Court ID Number IRS) : Ampla : Commissariat of the Niterói Federal Collecion Tax : Infraction Proceeding 0710200/00112/05 and Administrative Trial 10730.003110/2005-55 Summary of Proceedings: Sanction action filed by the Federal Tax Collection Office (SRF) on July 1, 2005 for the alleged failure to withhold and collect the Income Tax on remittance of amounts abroad. The SRF filed such sanction action, as it considered that the mutual contracts entered into by Ampla and Cerj Overseas are a simulation of what actually is the payment (amortization) of Fixed Rate Notes (FRN’S). Accordingly, the SRF concluded that the average term required by law of 96 months for the application of the aliquot of zero income tax was not complied. Ampla is obliged to withhold and pay the income tax on the remittances abroad as an amortization of the FRN’s. Process status: March 8, 2006: Ampla was notified in regard to the judicial decision of administrative first instance, which maintained the decision against it. April 5, 2006: The Company filed an appeal at the Tax Payers Council (second administrative instance). For this purpose, the Company indicated assets for 30% of the updated minute.. Amount: US$ 242,196,158.70. Plaintiff Defendant Court Case/Identification : Trial No.2002.001.110494-9 : Ampla : State of Rio de Janeiro : Superior Court of Justice Summary of Proceedings: Lawsuit filed with the aim that the authorities refrain from taking any action to collect the ICMS tax established by Decree No.31.632/02. Process status: On September 2, 2002 Ampla filed a claim and obtained a preventive measure; however, such measure was nullified by the judicial decision that considered such claim as inadmissible. Ampla filed an appeal, which was also rejected by the 15th Civil Chamber. Finally, the Company filed special and extraordinary appeals, which were originally admitted but subsequently rejected by the Judge at the Supreme Court. On December 15, 2005 the decision made by Judge João Otávio of Noronha was published. This decision refused Ampla´s request regarding the appeal being urgently ruled, as the emergency need was not considered as such. On September 21, 2006 the Minister of Economy decided the closing of the administrative proceeding and the start of the judicial collection of the debt, based on Rio de Janeiro State Prosecuting Attorney’s opinion that states that this proceeding cannot follow its normal steps, as Ampla had filed a claim before against the law of the State that decided the prepayment of the tax. Amount: US$ 50,760,861.41 COELCE S.A. Plaintiff Defendant Court Case/Identification : 2000.01122.6248-0/0 : Inácio Nunes Arruda & Others. : Coelce. : 2nd Court of Public Finance - Ceará Summary of proceedings: Popular action whose objective is to cancel the sales process of Coelce. The plaintiffs allege that in the process of privatization of Coelce there was no participation of the employees of Coelce; shares were not offered to the employees in sufficient numbers, and thus they were prevented from gaining control of the Company; that the bidding terms and conditions favored the participation of foreign companies and removd the incentive for employees of the Company; that there was insufficient pulicity in the bidding; that the public stockholders’ equity of Fortaleza was damaged; etc. Process status: Faced with the activation of the process there was no protest of any kind by the plaintiffs. The trial awaits the judge’s verdict. Amount: Undeterminable. Plaintiff Defendant Court Case/Identification : 2000.0013.4212-7 (Court of appeals) – : Libra - Ligas Do Brasil S/A. : Coelce. : Court of Ceara State, in Brazil 1997.02.22643-0 (lower court) Summary of proceedings: This is a “Trial for Tarifazo”, that corresponds to the different trials begun as a result of the dictation of rate decrees 38, 45 and 153 of 1986, by the National Department of Water and Electrical of Brazil (formerly ANEEL), which enabled the different electricity companies of Brazil to increase their rates considerably between the months of March and November 1996. Process status: The trial returned to the lower court for the performance of an expert investigation, for which Coelce was ordered to show certain documents. Now it is waiting for the resolution signaling the beginning of the investigation. Amount: US$ 16,029,263.37 Plaintiff Defendant Court Case/Identification : None : Bar of Lawyers of Brazil and Others : Coelce. : Supreme Court of Justice enersis06 of preventing the application of the rate adjustment (percentage 23.59%) authorized by ANEEL in April 2005. Process status: The Supreme Court judge suspended on October 7, 2005 the guarantee that prevented the adjustment from being applied. Thereby, the concessionaire may apply from that date on the above mentioned adjustment. Coelce had to suspend the retroactive collection of the installments generated by the time in which the guarantee made it impossible to put the adjustment into effect. The guarantees are expected to be annulled and Coelce will be able to re-begin collecting the remaining installments. Amount: US$ 44,000,000 COMPAñíA DE INTERCONEXION ENERGéTICA S.A. Plaintiff Defendant : Maximiliano Nagl Garcez and Aldino Beal : Companhia Paranaense de Energia (COPEL), Companhia de Interconexao Energética (CIEN), Governor of Paraná: Jaime Lerner, State of Paraná, Agencia Nacional de Energía Eléctrica (ANEEL). Court Case/Identification : 2001.70.00.039775-7 : 8ª Federal Court of Curitiba - PR Summary of proceedings: A politically motivated lawsuit presented October 22, 2001 (i) to pay for the privatization of COPEL and (ii) to annul the contracts signed with CIEN for the sale of 800 MW with the following data: The reasons presented by the Plaintiffs to back up their claims are, among others, the following: (i) The contracts between Cien and COPEL bring significant losses to COPEL and also the real intention of the parties to the contract were to obtain, via a contract for the purchase of energy, the financing of private companies; (ii) COPEL supplies the energy at a lower price that that stated in the contract with CIEN; (iii) The energy supplied by Cien through 20 years is not necessary, because in Paraná there is an energy surplus; (iv) The fine specified in case of rescission is illegal, providing a great advantage to Cien and none to COPEL; (v) There was no bidding for contract that was awarded to Cien; (vi) Absolutely no public objective existed; (vii) Although the government of the State of Paraná recognized that COPEL is a highly productive and competitive company, the only justification for privatizing it was that its potential share value was at an all time high; (viii) The advantages of controlling COPEL are much greater than any other program that the government can carry out. Process status: The lawsuit was launched on December 7, 2001. On March 1, 2006 the judge declared the trial at an end, without a resolution and without awarding fines, since (i) the privatization process of Copel was cancelled and (ii) there was a renegotiation of the contracts, implying the loss of a reason to sue. Copel and the plaintiffs presented an appeal, respectively, July 12 and 18 of 2006, and on August 14, 2006. Copel asked in its request for the case to be thrown out of court, while the plaintiffs presented a recourse asking for the respondent (Copel) to be required to pay settlement and costs. On October 23, 2006 the trial was remitted to the Regional Federal Court of the 4th Region. A second instance decision is expected. Amount involved: US$227,893, 917.10. Summary of proceedings: Civil public action launched with the objective Plaintiff : Municipality of Garruchos 2006 Annual Report | 185 CONSOLIDATED FINANCIAL STATEMENTS Defendant : Companhia de Interconexao Energética (CIEN) Court : 1st Civil Chamber of the Court of the State Case/Identification : 70013356134 of Rio Grande do Sul 11, 2005 free justice was finally awarded to the plaintiffs. On November 4, 2005 the decision was published in the government press. The return of the court proceedings to the lower court is expected, so that the suit can continue. Amount involved: Undeterminable Summary of proceedings: Appeal for “agravio de instrumento” (where case is remitted to another court without being ended) with application for guarantee launched by City of Garruchos against the decision handed down in the Ordinary Lawsuit nº 10500005929, presented in July 2005 against Cien and against the State of Rio Grande do Sul, which decided to send the case to the Law Judge of the district of Itá - Santa Catarina for the verdict, according to the decision of the Code of Brazilian Civil Trial, considering that the lawsuits are connected (with identical objectives). Process status: August 15, 2006 - Cien presented an appeal for the case to be thrown out on a technicality with a request for attribution of the moderating effects, questioning the active legitimacy of the City of Garruchos in the absence of the necessary “interest in suing” and of the legal impossibility of the initial request for the ordinary lawsuit and, therefore, the total rejection of the suit. On October 4, 2006, the request by Cien for the case to be thrown out was deemed inappropriate. Considering that Cien is already a respondent in the case, the Company is now deciding whether or not to appeal against this decision. Amount involved: None. Plaintiff Defendant : Municipality of Cachoeira Dourada : Centrais Elétricas Cachoeira Dourada S.A. – CDSA Court Case/Identification : 200503342330 : Public Finance Court of Itumbiara County Summary of proceedings: Treasury Action: Payment by Cdsa of the tax on the transmission of real estate already argued judicially and won by Cdsa, with sentence in judicial suit Nº 9801713704. Process status: On November 14, 2006 the judge handed down a decision rejecting the defense of Cdsa, respecting the wishes of the public prosecutor in the sense that the tax collected is not the same collected in the Treasury Action of 2000, whose decision was favorable to our company. Cdsa asked for this decision to be thrown out on a technicality and, failing that, might still launch “Debtor Embargos” as defense in the execution by presenting guarantees in the trial. Amount involved: R$200.000.000. Plaintiff Defendant : Municipality of Cachoeira Dourada : Centrais Elétricas Cachoeira Dourada S.A. CENTRAIS ELéCTRICAS CACHOEIRA DORADA S.A. – CDSA Plaintiff Defendant : Wildson Sebastiao Fraga Guimaraes (shareholder of Centrais Elétricas de Goias (CELG) and chairman of the “Sindicato dos Trabalhadores nas Industrias Urbanas no Estado de Goias”. : State of Goias, Centrais Elétricas de Goias (CELG), Centrais Elétricas Cachoeira Dourada S/A (CDSA). Court : 3rd Court of Public Finance of the County of Case/Identification : 97009045073 Goiania Summary of proceedings: Politically motivated lawsuit launched on September 23, 1997, asking for the cancellation of the public auction to privatize Cdsa. This lawsuit has been presented against the State of Goiás, CELG and Cdsa. The plaintiff asks also for free justice. Process status: The suit was launched on September 23, 1997 against the State of Goiás, which required the participation of CELG and of Cdsa as necessary co-litigants. On March 12, 2001 CELG took exception to the value initially given to its case, and its request was granted. Cdsa presented a response and the plaintiff presented a reply. On August 29, 2003 ordered the plaintiff to prove his state of poverty, and accordingly, the plaintiff presented proof of his state. On July 18, 2005, the Justice Daily Newspaper published the decision giving the plaintiffs free access to the justice system. On July 27, 2005 a resource was presented against the decision granting free justice. On October 186 | 2006 Annual Report Court Case/Identification : None : Municipal Secretary of Finance Summary of proceedings: Administrative (Infraction notification). The city of Cachoeira Dourada has informed CDSA through an “Infraction notification” that this Company owes the city the tax on services for the generation of electrical energy. Process status: An administrative appeal is launched, considering that the federal constitution prohibits the incidence of tax o services to be applied to electrical energy. The City is expected to answer our defense. Amount involved: R$ 23.640.824,59 CENTRAL GERADORA TERMELECTRICA FORTALEZA S.A. Plaintiff Defendant Court : Secretariat of the Federal Collection Office : CGTF : 3rd Fiscal Region: Alfândega do Porto de Case/Identification : 0317600/00212/04 Fortaleza Summary of proceedings: “Infraction notification” launched to prevent the loss of the right to charge import tax and tax on industrialized products in importation, imposed on the assets imported for the construction of the generating station. The import tax was not accepted, due to the incorrect recording on the declaration of import of the government classification of machines, systems and equipment. This Infraction notification refers to the tax not accepted by virtue of the guarantee granted for these procedures in the Ordinary Lawsuit nº 2002.81.00.020687-1. Process status: On January 31, 2006 the Infraction Notification was learned about. On February 24, 2006 – an appeal against it was launched. Management will speak up about this only after a verdict is reached. Amount involved: R$ 56,696,112.50 Plaintiff : CGTF - Central Geradora Termelétrica Defendant Court Case/Identification : 2002.81.00.020687-1 Fortaleza S.A. : Federal Union : 1st Federal Court of Ceará Summary of proceedings: CGTF presented a lawsuit against Federal Union, objecting to the issue of only one declaration of imports for the two functional units composed of gas turbo-generators and for the functional unit composed of steam turbo-generators and other equipment, as well as to proceed to the partial customs dispatch, the early delivery of the imported equipment and the treasury classification as electrogenic group (portion 0% of import tax and tax on industrialized products, which means a tax saving of approximately US$ 15 million. Process status: In the main lawsuit: Cgtf required the verdict ahead of time because it considers there was already enough evidence in the case. In the case “Declaratória Incidental” (declaration of the existence of a right) : The Union presented resource and the proceedings have been finished since June 24, 2004. Second instance verdict is expected for the appeal launched by he Union from June 24, 2005, against the resolution that was favorable to Cgtf. Amount involved: R$ 147.483.066,71 COMERCIALIZADORA DE ENERGIA DEL MERCOSUR S.A. (CEMSA) Plaintiff Defendant Court Case/Identification : 718/06 : Central Piedra Buena S.A. : CEMSA : Buenos Aires Stock Exchange Summary of proceedings: On November 17, 2006, CPB sued Cemsa for the damages caused by the rescission of the agreement of 250MW, (supposedly) exclusively the responsibility of Cemsa. The amount asked for is US$ 12,225,525 plus interest for damages, plus the cessation of profits, an indeteterminate sum. For damages, CPB means the price of the 250 MW of firm energy committed in the agreement for 250 MW and that CIEN did not pay and that Cemsa has invoiced partially to CIEN in virtue of considering exclusively the technical availability of the CPB power plant,less than the 250 MW committed, and the price of the totality of the energy that was supplied from the month of April 2005 until the date of this report, and which was not paid, with more contractual interest on the amount unpaid. As for cessation of profits, CPB demands for the rescission of the enersis06 agreement of250 MW of firm power, owing to Cemsa’s responsibility, and not being able to sell in the futures market or in other exporting operations, the power committed in the agreement. The suit also asks for the declaration of rescission of the agreement for 250 MW from February 1st, 2006 and that a direct order be issued to CAMMESA so that the energy from the generating units of CPB be removed from the export to Brazil and CPB may sell it them in the futures market. CPB also accuses Cemsa of gravely illegal conduct by charging a commission and breaking the rules set by CPB when it charged CIEN for amounts of energy that did not match, in the opinion of CPB, what was indicated in the agreement for 250 MW and what was instructed by CPB. It also states that Cemsa gave priority to its own personal interests and to the interests of third parties who form part of the group of control of Cemsa over the interests of the client (CPB) when it did not sue and thus favored CIEN. Process status: On November 22, 2006, Cemsa answered the suit rejecting it in all its terms and launched a counter suit against CPB for the damages it suffered from the untimely ending of the contractual relationship. Similarly, it formulated reservations to demand the possible damages that could stem from CPB’s attitude. Amount involved: US$12,225,525 plus interest on damages and undetermined cessation of profits. TRANSPORTADORA DE ENERGíA S.A. (TESA) Plaintiff Defendant Court Case/Identification : T-53/03 : Transportadora de Energía S.A. (Tesa) : Province of Corrientes : Supreme Court of the Nation Summary of proceedings: Tesa initiated a statement of certainty action against the Province of Corrientes, for the Supreme Court to declare that the activity carried out by the company in the province is under federal jurisdiction and therefore exempt from the Gross Business Income Tax that the Province of Corrientes currently demands. It also requested an injunction, to order the General Revenue Department of the Province of Corrientes to abstain from demanding Tesa the payment of the mentioned tax. Process status: The Supreme Court (the “Court”) on July 15, 2003, resolved (i) That it was competent to see the cause; (ii) Notify the Province of Corrientes of proceedings; (ii) Issue the injunction requested by Tesa (to not innovate) in relation to the payment of the gross business income tax included in the Fiscal Code of the Province of Corrientes with regard to the activity carried our by Tesa, in the following terms: “Decree the injunction requested, and consequently, orders the Province of Corrientes to abstain from pursuing the fiscal execution of the gross business income tax regarding the contract signed on July 12, 2002 between the National State and 2006 Annual Report | 187 CONSOLIDATED FINANCIAL STATEMENTS Transportadora de Energía S.A. for the construction, operation and maintenance of the second circuit for electric energy transport of the Nodo Rincón de Santa María-Nodo Frontera Garabí section (Province of Corrientes). On August 29, 2003, the Government of Corrientes was notified by official letter of the injunction granted by the Court. After being notified, the Province of Corrientes answered the demand stating that the Provincial Revenue Department had made no current and concrete requirement to Tesa for the payment of the Gross Business Income Tax and therefore there was no controversy between the parts that entitled the intervention of the Court. In spite of the Province having stated in their reply that it corresponded charging Tesa the Gross Business Income Tax to the activity performed by Tesa, the Court stated that no there was no case, since the there is no requirement from the Provincial Revenue Department demanding the payment of the Gross Business Income Tax. Once there is a requirement to pay the Gross Business Income Tax, the demand can be raised again. Notwithstanding the archiving of the demand, the Court regulated fees in favor of the lawyer for the Province of Corrientes for $37.600, amount that has already been paid by Tesa. On July 6, 2005, the lawyer for the Province of Corrientes presented a letter of payment in favor of Tesa and manifesting that he had no further claim. In the case that the Provincial Revenue Department makes a concrete requirement that Tesa pay the Gross Business Income Tax, the demand must be reopened. Until that happens, this is the last report regarding this lawsuit. Amount involved: Undeterminable COMPAñíA DE TRANSMISIóN DEL MERCOSUR S.A. (CTM) Plaintiff : Compañía de Transmisión del Mercosur S. A. (CTM) Defendant Court Case/Identification : C-222/03 : Province of Corrientes (in Argentina) : Supreme Court of the Nation Summary of proceedings: Ctm initiated a statement of certainty action against the Province of Corrientes, for the Supreme Court to declare that the activity carried out by the company in the province is under federal jurisdiction and therefore exempt from the Gross Income Tax that the Province of Corrientes currently demands. It also requested an injunction, to order the General Revenue Department of the Province of Corrientes to abstain from demanding Ctm the payment of the mentioned tax. Process status: The Supreme Court (the “Court”) on August 21, 2003, resolved (i) That it was competent to see the cause; (ii) Notify the Province of Corrientes of proceedings; (ii) Issue the injunction requested by Ctm (to not innovate) in relation to the payment of the gross business income tax included in the Fiscal Code of the Province of Corrientes with regard to the activity carried 188 | 2006 Annual Report our by Ctm, in the following terms: “Decree the injunction requested, and consequently, orders the Province of Corrientes to abstain from pursuing the fiscal execution of the gross business income tax regarding the contract signed on June 14, 2000 between the National State and Compañía de Transmisión del Mercosur S.A. for the construction, operation and maintenance of the second circuit for electric energy transport of the Nodo Rincón de Santa María-Nodo Frontera Garabí section (Province of Corrientes). The Province of Corrientes was notified of the demand and answered stating that there was no current and concrete requirement for the payment of the gross business income tax. Likewise, it stated that according to express dispositions of the Provincial Fiscal Code, it corresponded that CTM S.A. pay the Gross Business Income Tax and the inapplicability Federal Pact for Employment, Production and Growth by which some provinces, including Corrientes, had committed to eliminate the Gross Business Income Tax. CTM S. A. rebutted each of the arguments invoked by the province in its presentation. Later, the Province of Corrientes requested the lifting of the injunction, presentation that was opportunely answered by Ctm S.A. On April 5, 2005, the Court rejected the request for the lifting of the injunction. On September 9, 2005, Ctm S.A. requested the cause be opened to evidence and the CSJN set the conciliation audience for November 9, 2005. In the mentioned audience, the parts manifested that it was not possible to achieve conciliation. As a result, the case was opened to evidence. On March 13, 2006 the Court certified that the term for evidence was expired without any evidence pending and it instructed the parts to present their arguments regarding the evidence presented. CTM argued on the evidence produced. The proceedings passed to the Attorneys Office on September 8, 2006. At December 27, 2006, the proceedings had not returned from the Attorneys Office. Amount involved: Undeterminable CODENSA S.A. Plaintiff : Roberto Ramírez Rojas (Class action lawsuit). Defendant : Codensa, Bogotá Capital District and Alcaldía Zonal de San Cristóbal. Court : Cundinamarca Administrative Court, Third Case/Identification : Case file 03-1473. Section - Sub-section “B”. Summary of proceedings: The Circo Victoria transmission line I and II was built by Empresa Eléctrica de Bogotá in 1962, when the site in which the towers holding it are located, was not populated. However, when Codensa was born as a legal entity, on October 23, 1997, one of those towers (No.731) was surrounded by buildings put up after 1983 but prior to 1996. The plaintiff demands protection for the following collective rights: a healthy environment; sanitization, security and prevention of technically foreseeable disasters; that buildings abide by statutory regulations. Plaintiff Defendant : Maria Elena Teresa Sola Ruedi : E n d e s a , M i n i s t e r o f E c o n o m y, a n d Superintendent of Electricity and Fuels. enersis06 Process status: The State Council is to decide on the appeals filed by each party. Amount: Undeterminable. Plaintiff : Conjunto Residencial Iguazú (Class act-like lawsuit). Defendant Court : Codensa and Soacha City Government. : Cundinamarca Administrative Court, Fourth Case/Identification : 03-01342. Section - Sub-section “B”. Summary of proceedings: Codensa S.A. ESP was providing the service of public lighting to the Soacha district since the inception of the company (on October 23, 1997). The public lighting infrastructure in the Soacha district is mostly owned by Codensa, through a contribution from Empresa Eléctrica de Bogotá (together with other assets). Soacha district called on bidders for the service of public lighting, the winner being “Soacha Ciudad Luz”, a temporary entity with which district representatives entered into concession contract No.004 on January 19, 1999. Codensa did not take part in the concession contract. However, after that contract had been executed, Sociluz hired Codensa to supply electricity, and rented the Codensa infrastructure, billing and collection systems. These are the conditions under which Codensa is related to the rendering of public lighting services in Soacha. Process status: The State Council is to decide on the appeals filed by all the parties. Amount: Undeterminable. Plaintiff : Jorge Ernesto Salamanca Cortés y Luis Alejandro Montero. Defendant : Codensa, Nación – Ministerio de Minas – Unidad de Planeación Minero Energética. : 3rd Administrative Court of Bogotá Circuit Court Case/Identification : 05-2357 Summary of proceedings: In 14 areas of Bogotá there are at least 35 built-up quarters more than 25 years old where the high and medium voltage grid is “located in an anti-technical manner at several points, including in the front gardens of several houses”, so that people are seen to be exposed to the risk of electrocution. The players consider that, as it is laid out, the grid creates a huge risk to which Condensa has not paid sufficient attention. Consequently, they are petitioning the Constitutional Judge to order the Company to lay the grid underground. Process status: It is in the period allowed for producing evidence. Amount: Undeterminable. ENDESA S.A. (PARENT) Court Case/Identification : 4340-2004 : Santa Barbara Court of First Instance Summary of proceedings: The demand is to change the easement regime for expropriation, and payment for a larger flooded surface. If the foregoing fails, re-assessment of the indemnity amount paid for the easement is demanded. Process status: The court rejected Endesa’s allegations that the court was incompetent and the plaintiff had abandoned the proceedings. Endesa appealed against this court resolution. Amount: Undeterminable. Plaintiff Defendant : Jaime Arrieta Correa and others : Treasury of Chile, General Direction of Water and Endesa S.A. Court Case/Identification : 198-2005 : First Civil Court of Valdivia Summary of proceedings: The annulment by operation of public law is requested of the resolution No.134, of March 22, 2000, issued by the General Direction of Water, which constitutes in favor of Endesa a right to use water to carry out the Neltume Power Plant project, with payment of damages. Failing the foregoing, plaintiffs request payment of damages supposedly caused to them, namely the fact that their properties no longer are located on the shores of Lake Pirehueico and the deterioration of their value. Process status: Endesa made pleas for its defense, whereas the Treasury of Chile made a filing requesting the court to correct the proceedings, in connection with which the court asked the submission of evidence. Amount: Undeterminable Plaintiff Defendant : Inversiones M.D. Ltda. and others : Treasury of Chile, General Direction of Water and Endesa S.A. Court Case Identification : 7957-2005 : 24th Civil Court of Santiago Summary of proceedings: The annulment by operation of public law is requested of the resolution No.134, of March 22, 2000, issued by the General Direction of Water, which constitutes in favor of Endesa a right to use water to carry out the Neltume Power Plant project, with payment of damages. Failing the foregoing, plaintiffs request payment of damages supposedly caused to them, namely the fact that their properties no longer are located on the shores of Lake Pirehueico and the deterioration of their value. Process status: The court issued a resolution prohibiting that contracts or other legal actions be executed in connection with Endesa’s water rights associated with the Neltume Project. The court suspended the proceedings until it decides whether or not the case must be accumulated with the following: Lawsuit of the 9th Civil Court, case No. 15279-2005, 2006 Annual Report | 189 CONSOLIDATED FINANCIAL STATEMENTS called “Arriega vs. Treasury of Chile and Others”; and the lawsuit in the 10th Civil Court, case No. 1608-2005, called “Jordan vs. Treasury of Chile and Others”. As to the proceedings themselves, now comes the stage when the court will have to call on the parties to produce evidence. Amount: Undeterminable Plaintiff Defendant : José Manuel Jordán Barahona and others : Treasury of Chile, General Direction of Water and Endesa S.A. Court Case Identification : 1608-2005 : 10th Civil Court of Santiago Summary of proceedings: The annulment by operation of public law is requested of the resolution No.134, of March 22, 2000, issued by the General Direction of Water, which constitutes in favor of Endesa a right to use water to carry out the Neltume Power Plant project, with payment of damages. Failing the foregoing, plaintiffs request payment of damages supposedly caused to them, namely the fact that their properties no longer are located on the shores of Lake Pirehueico and the deterioration of their value. Process status: Endesa is yet to appeal against the court resolution that resolved on the petitions, submitted by the parties, requesting that the proceedings be corrected. The court issued a resolution indicating the points about which the parties can produce evidence. The term for submitting evidence has been suspended, however, because the court has not yet decided on Endesa’s petition that the notification made to it of the resolution indicating the points about which the parties can produce evidence, be declared null and void. Amount: Undeterminable Plaintiff Defendant Court Case Identification : 13084-04 : Endesa Pangue S.A. and Pehuenche S.A. : Treasury of Chile : Ninth Civil Court of Santiago Summary of proceedings: The annulment by operation of public law is requested of ministerial resolution No.35, dated June 15, 2004, issued by the Minister of Economy, Development and Reconstruction, in which the latter authority pronounces on an issue that was originally not contentious, that of instructing CDEC-SIC to determine the times of day with the highest probability of loss of electric current. Process status: The court summoned the parties to hear the judgement. Amount: Undeterminable Plaintiff Defendant Court Case/Identification : 4563 : Luis Danús Covian and other fifteen people : Endesa and Pangue S.A. : Santa Bárbara lower court Summary of proceedings: A lawsuit was filed calling on the court to declare that over Fundo Ralco (Ralco Ranch) there is a commonwealth of which plaintiffs and defendants are members and on which they all have co-owners’ rights. 190 | 2006 Annual Report Process status: Endesa and Pangue S.A. dropped the request that the lawsuit be notified to approximately 600 people as co-plaintiffs, because the court ruled that Endesa and Pangue S.A. had to pay for these notifications. The defendants made filings requesting the court to correct the proceedings. Amount involved: Undeterminable. Plaintiff Defendant Court : Endesa : YPF : Arbitration Court of the International Chamber Case Identification : 14210/CCO of Commerce (CCI) Summary of proceedings: Compensation for damages caused to Endesa is being claimed by reason of non performance by YPF of contracts for the supply of natural gas signed by the parties for the Tal Tal Power Station. Process status: On October 5, the court issued Procedural Order No. 1, which sets the calendar for the proceedings and the rules for producing evidence, with this period for producing evidence now ongoing. Amount involved: The current damages to Endesa at December, 2005 are estimated at US$ 31,442,461 and future damages are assessed at US$ 322,412,217. PANGUE S.A. Plaintiff Defendant Court Case Identification : 13084-04 : Endesa, Pangue S.A. and Pehuenche S.A. : Treasury of Chile : Ninth Civil Court of Santiago Summary of proceedings: The annulment by operation of public law is requested of ministerial resolution No.35, dated June 15, 2004, issued by the Minister of Economy, Development and Reconstruction, in which the latter authority pronounces on an issue that was originally not contentious, that of instructing CDEC-SIC to determine the times of day with the highest probability of loss of electric current. Process status: The court summoned the parties to hear the judgement. Amount: Undeterminable Plaintiff Defendant Court Case/Identification : 4563 : Luis Danús Covian and other fifteen people : Endesa and Pangue S.A. : Santa Bárbara lower court Summary of proceedings: A lawsuit was filed calling on the court to declare that over Fundo Ralco (Ralco Ranch) there is a commonwealth of which plaintiffs and defendants are members and on which they all have co-owners’ rights. Process status: Endesa and Pangue S.A. dropped the request that the lawsuit be notified to approximately 600 people as co-plaintiffs, because the court ruled that Endesa and Pangue S.A. had to pay for these notifications. The defendants made filings requesting the court to correct the proceedings. Amount involved: Undeterminable. PEHUENCHE S.A. Plaintiff : Endesa, Pangue S.A. and Pehuenche S.A. : Treasury of Chile : Ninth Civil Court of Santiago Defendant Court Case Identification : 13084-04 Summary of proceedings: The annulment by operation of public law is requested of ministerial resolution No.35, dated June 15, 2004, issued by the Minister of Economy, Development and Reconstruction, in which the latter authority pronounces on an issue that was originally not contentious, that of instructing CDEC-SIC to determine the times of day with the highest probability of loss of electric current. enersis06 termination and archiving of the proceedings will be ordered. Amount: Undeterminable. Plaintiff Defendant : 380 people of different locations : Central Hidroeléctrica de Betania S.A. E.S.P. Court : Several courts in the departments of Huila Case/Identification : Non-contractual civil liability and Tolima Summary of proceedings: Central Hidroeléctrica de Betania S.A. ESP. is being sued for its liability in the floods occurring in 1986, 1989, 1994 and 1999, which allegedly swept away and damaged crops and lands of the various plaintiffs. Process status: Some lawsuits have already received their first appealable judgment; others are in the evidence state, and in others the pleas for the defense are being made; in other words, they are in the initial stage. Amount involved: US$8.909.980 Process status: The court summoned the parties to hear the judgement. Amount: Undeterminable EMGESA S.A. CENTRAL HIDROELéCTRICA DE BETANIA S.A. of Sibaté Plaintiff Defendant : Fariel San Juan : Central Hidroeléctrica de Betania S.A. Defendant : Emgesa S.A. ESP. Empresa de Energía de Bogotá S.A. ESP.- EEB-Corporación Autónoma Regional - CAR - E.S.P. Court : Administrative Court of Cundinamarca - First Plaintiff : Orlando Enrique Guaqueta and Inhabitants : 3th and 4th Civil Courts of Neiva Circuit Court Case/Identification : Class action motivated by the impact that the construction of the dam will have on the economy of the region. Summary of proceedings: Construction of system that would allow transit of fish at mating season. Keeping water at equitative level and ordering Central Hidroeléctrica de Betania S.A. to conduct compensatory development projects, such as a fish processor and packing. Process status: The proposed compliance agreement was submitted to the 3rd Court on April 18 of this year. This agreement was approved by the judge by means of a judicial writ issued on September 25, 2006. This activity is already being carried out through the Company’s Environmental Division. Once the commitments acquired have been complied with, the termination of the proceedings and filing of the case records will be decided. The compliance agreement hearing was held last August 30, 2006 in the Fourth Court. The resulting obligation for the Company involves undertaking two studies for developing tourist projects in the region, which shall be developed by the municipality of Yaguará and/or by the Governor’s Office of Huila. The deadline for submitting the studies is February 1, 2007. This compliance agreement was approved by judicial writ on September 8, 2006. Once the studies have been delivered, the Case/Identification : Class Action Section Summary of proceedings: The claim was filed so that the Entities are severally liable for the damage caused by the pollution in El Muña dam, as a result of the pumping by Emgesa S.A. ESP of polluted waters from the river Bogotá. Process status: In a resolution of August 9, 2006, notified to the parties on August 10, 2006, the court decided to accumulate this lawsuit with the class action of Miguel Angel Chávez. Amount: US$1,200,000,000 Plaintiff Defendant : Gustavo Moya : Emgesa S.A. ESP, Empresa de Energía de Bogotá S.A. ESP, the Capital District of Bogotá, Empresa de Acueducto y Alcantarillado de Bogotá, the City Hall of Sibaté and other plants and government agencies that presumably contribute to the pollution of the river Bogotá by action or omission. Court : Administrative Court of Cundinamarca - Case/Identification : Class Action Fourth Section Summary of proceedings: That the entities being sued should be declared liable for damages caused to the environment as a result of storing raw 2006 Annual Report | 191 CONSOLIDATED FINANCIAL STATEMENTS sewage above the El Muña Reservoir. This proceeding was added to the proceedings addressing the pollution of the Bogotá River. Process status: Via judicial writ dated November 30, 2006, Section One of the State Council, in a tutelage decision of November 30 of the same year, confirmed the decision of Section Five of the same body, which rejected the tutelage suite instituted by the Ministry of the Environment, Housing and Territorial Development against the Magistrate Nelly Villamizar, who forms part of Subsection “B” of Section Four of the Administrative Court of Cundinamarca, as being unfounded. Amount involved: Undeterminable. Plaintiff/Tax Creditor : Defendant/Taxpayer : Corporación Autónoma Regional de Cundinamarca - CAR Emgesa S.A. ESP. Court : Administrative Court of Cundinamarca – First Section Case/Identification : Action seeking nullification of decrees and then re-establishment of right Summary of proceedings: That the administrative decrees issued by the CAR (Resolution 506 of March 28, 2005 and 1189 of July 8, 2005) should be declared null and void and Emgesa’s rights, which had been violated by their issue, since they impose works to be performed in the Muña reservoir, on whose effectiveness maintenance of the water concession depends, should be reestablished. The grounds for dissent are: (i) Imposition of the obligations of others on the Company. (ii) Imposition of a nonexistent community of interests. (iii) Disregard and obligatory jurisdiction of court decisions. (iv) It imposes a countervailing measure in favor of the Municipality of Sibaté unjustly and without any legal foundation. Process status: On October 6, 2006, the defendant was ordered to proceed to defend the suit, after which such defendant took exception to all the plaintiff’s claims. Amount involved: US$ 70,700,000 (approx.) EDEGEL S.A. Plaintiff/Tax Creditor : Defendant/Taxpayer : Edegel Court Case/Identification : n/n : Sunat Sunat Summary of proceedings: Tax Note - 2000 Supervision - 2000 Fiscal Year Income Tax Process status: Court is yet to issue a resolution. Amount involved: US$24,511,109.38 ENDESA COSTANERA S.A. On July 25, 1990 the Italian Government authorized Banco Medio Crédito Centrale to grant the Argentinean Government a loan up to US$93,995,562 intended for financing the acquisition of assets and the rendering of Italian source services, used in the reconditioning of four 192 | 2006 Annual Report groups of the steam-electric powerplant owned by Servicios Eléctricos del Gran Buenos Aires (“SEGBA”). Such loan financed the acquisition of assets and services indicated in the Work Order No.4322 (the Order) issued by SEGBA on behalf of a trust leaded by Ansaldo S.P.A., an Italian company. In virtue of the terms in the “Agreement regarding the Work Order No.4322”: i) SEGBA granted Endesa Costanera S.A. a mandate through which it administered the rendering of the services included in the Order and performed the work and services that corresponded to SEGBA, in conformity with the Order; and ii) Endesa Costanera S.A. was obliged to pay the Energy Department the capital installments and interest related to the loan granted by Medio Crédito Centrale, at a 1.75% annual rate (the Agreement). To guarantee the compliance with the financial obligations assumed by Costanera S.A., the buyers (holders of class “A” shares of Endesa Costanera S.A.) pledged all their own class “A” shares. In the event of non-compliance resulting in executing the guarantee, the Energy Department could immediately sell the pledged shares through public bidding and could exercise the political rights applicable to pledged shares. In accordance with Law No.25,561, decreee No.214/02 and regulatory provisions, the payment obligation of Endesa Costanera S.A. as a result of the Agreement has become “pesified” to the peso exchange rate equivalent to one US dollar, plus the application of the reference stabilization coefficient and maintaining the original interest rate of the obligation. On January 10, 2003 the National Executive issued decree No.53/03, which modified decree 410/02 and added subsection j) in Article 1. In conformity with this regulation, the “pesification” is not applied to the obligation of the provincial states, city halls, private and public companies of giving sums of foreign money to the National Government as a result of subsidiary or other loans and guarantees, originally financed by multilateral credit entities, or as a result of liabilities assumed by the National Treasury and refinanced by other external creditors. Endesa Costanera S.A. considers that the loan resulting from the Agreement does not agree with any of the assumptions include in Decree No.53/03 and even though in the assumption that it agrees, there are strong arguments that determine the unconstitutionality of Decree No.53/03, because it would violate the principle of equality and the right of property established by the National Constitution. The most significant contingency that could result, if the aforementioned assumption becomes real at September 30, 2006, would be a shareholders’ equity decrease, net of tax effects, of approximately US$20 million. To date the Energy Department has not filed a claim for the “pesified” payments made by Endesa Costanera S.A. At December 31, 2006, Costanera S.A.’s debt in regard to the Agreement on account of the principal and interest is US$17,103,426. Enersis S.A. and its Subsidiaries are the plaintiffs or defendants in other minor suits with the risk of eventual or reasonably possible loss, whose individual effects, in the event of an adverse resolution, are not significant in these consolidated financial statements. The financial covenants for loans entered into in January 2006 are less strict than those indicated above. enersis06 Restrictions: ENERSIS S.A. The Company’s loan agreements establish an obligation to comply with the following financial ratios, on a consolidated level: • Ratio of debt and cash flow for four quarters of Enersis and its Chilean subsidiaries does not exceed 6.5 in 2006, ending at 6.00 in 2008; • The ratio of consolidated debt to consolidated EBITDA for four consolidated quarters, does not exceed 4.5 in 2006, ending at 3.00 in 2008; • The ratio of Enersis and its Chilean subsidiaries cash flow to financial expenses for four quarters, not less than 1.80 in 2006, ending at 2.20 in 2008; • The consolidated debt to shareholders’ equity plus minority interest does not exceed 77.5% in 2006, ending at 70% in 2008; • No less than 50% of the total consolidated assets of Enersis S.A., steadily until 2008, should belong to companies whose business is regulated; • Minimum shareholders’ equity at least equal to U.F.27 million As of December 31, 2006 and 2005 all these obligations have been met. CHILECTRA S.A. The Company did not have any restrictions nor financial covenants during the periods ended December 31, 2005 and 2006. ENDESA S.A. (PARENT COMPANY) On a consolidated level, Endesa Chile must comply with financial covenants and requirements derived from loan agreements with financial institutions, among which are the following: • Ratio between debt and cash flow for four quarters of Endesa Chile and its Chilean subsidiaries does not exceed 9.25x in 2006, which evolves up to 7.5X in 2010; • The ratio of consolidated debt to consolidated EBITDA for four consolidated quarters, not exceeding 5.90x in 2006, which evolves up to 4.2X in 2010; • The ratio of Endesa Chile and its Chilean subsidiaries cash flow to financial expenses for four quarters, not less than 1.5x in 2006, which evolves up to 2.00X in 2010; • The ratio of consolidated debt to shareholders’ equity plus minority interest not exceeding 107% in 2006, which evolves up to 100% in 2010; • Assets corresponding to companies whose business is regulated, is not to be less than 50% of the total consolidated assets; • Minimum shareholders’ equity at least equal to U.F.45 million. As of December 31, 2006 all these obligations have been met. PEHUENCHE S.A. The Chase Manhattan Bank N.A., in relation to loans granted to the Company, place obligations and restrictions on Pehuenche S.A., some of which are of a financial nature, such as: long-term financial liabilities not exceeding 1.5 times the shareholders’ equity, and a minimum company equity of UF9,500,000. As of December 31, 2006 all these obligations have been met. ENDESA COSTANERA S.A. In virtue of the arrangement in Annex VI-A of the International Public Tender for the Sale of shares of Central Costanera S.A., the ownership of Central Costanera S.A.’s land was transferred subject to the condition that it must be used as the location for an electric power plant for a term of twenty five years as of the date of possession. If under any circumstance whatsoever the land ceases to be used for that purpose during the indicated years, its ownership shall be considered revoked due to this cause, and return of such title will be effective immediately, and as a matter of law, to SEGBA S.A. or, as applicable, to the Chilean State. The most demanding requirements in respect to financial coefficients are those contained in the loan, as amended at September 30, 2005, with CSFBi, which are the following: The long-term debt with third parties may not exceed US$215 million (excluding short-term debt, commercial debt, inter-company loans and balance of debt with MedioCrédito Italiano); the debt for less than 180 days may not exceed US$10 million. There are, also, clauses restricting the change of control of the company and clauses that restrict payments to shareholders, including subjecting the related debt to meeting certain financial indicators. As of December 31, 2006 these obligations have been met. EL CHOCóN S.A. The loan obtained on September 7, 2006 requires the Company to comply with the following financial covenants: ratio of Ebitda to financial expenses not lower than 3.5, debt to Ebitda not greater than 3.0; net shareholders’ equity not lower than 690 million Argentine pesos. As of December 31, 2006 these obligations have been met. 2006 Annual Report | 193 CONSOLIDATED FINANCIAL STATEMENTS EDEGEL S.A. At December 31, 2006, these obligations and restrictions have been fully observed. NOTE 30. SURETIES OBTAINED FROM THIRD PARTIES Enersis S.A. The Company has received certificates of deposit for ThCh$20,451 at December 31 2006 (ThCh$108,076 in 2005). Chilectra S.A. The Company presents among its current liabilities, deposits received in cash for the use of temporary connections by customers of the company for ThCh$33,675 and ThCh$34,541 at December 31, 2006 and 2005, respectively. Inmobiliaria Manso de Velasco Ltda. The Company has received guarantees from third parties to guarantee obligations incurred in the acquisition of assets of ThCh$3,578,240 as of December 31, 2006 (ThCh$583,812 in 2005). Compañía Americana de Multiservicios Ltda. The Company has delivered bank bonds for ThCh$4,742,666 (ThCh$8,520,446 in 2005) and has received bank bonds for ThCh$276,020 (ThCh$735,733 in 2005). Endesa S.A. (Parent Company) The Company has received performance bonds from contractors and third parties to guarantee jobs and construction (mainly the Ralco Project), for ThCh$1,593,331 as of December 31, 2006 (ThCh$5,348,795 in 2005). Compañía Eléctrica de Tarapacá S.A. The Company has received documents in guarantee for ThCh$302,744 as of December 31, 2006 (ThCh$0 in 2005). Enigesa S.A. The Company has received guarantee documents amounting to ThCh$63,623 as of December 31, 2006 (ThCh$ 56,230 in 2005). Financial indicators originated by credit contracts, Bonds Programsand Short-term instruments: • Debt ratio no greater than 0.90 As of December 31, 2006 these obligations have been met. HIDROELéCTRICA BETANIA S.A. Covenants include limitations on the payment of related debt and limitations on change in control and the following financial ratios: • EBITDA/Senior Financial Debt no less than 1.3 • Cash Flows plus Dividend Payments/Senior Financial Debt no less than 1.4 • Shareholders’ Equity/Senior Debt no less than 2.5. At December 31, 2006 these covenants have been fully met. Other restrictions As a common and habitual practice for some bank loan debts and also in capital markets, a substantial portion of Enersis S.A.’s financial indebtedness is subject to cross-failure provisions. Some failures of relevant subsidiaries, if not corrected in time (as to those specific provisions allowing a year of time to correct the problem), might result in the cross-failure at the Endesa Chile and Enersis S.A. level., and, in this case, a significant percent of Enersis S.A.’s consolidated liabilities might eventually become due on demand. Non-payment, after any applicable grace period, of these companies’ debts or of those corresponding to some of their most relevant subsidiaries for an individual amount exceeding the equivalent of 30 million dollars, would cause advanced payment of syndicated credits contracted in 2004. In the credits contracted by Endesa Chile in January and December of 2006, and by Enersis S.A in December 2006, the threshold is 50 million US dollars. Also, non-payment, after any applicable grace period, of these companies’ debts or of those corresponding to any of their subsidiaries for individual amounts exceeding the equivalent of 30 million dollars, would cause advanced payment of Yankee bonds. In addition, some credit agreements contain provisions according to which certain events different from non-payment in these companies or in any of their most relevant subsidiaries, such as bankruptcy, insolvency, adverse executed legal sentences for amounts larger than US$ 50 million, and expropriation of assets, may cause those credit acceleration clauses to be in effect. There are no clauses in the credit agreements through which changes in these companies corporate or debt classification by risk classification agencies may cause an obligation to make debt prepayments. However, according to the Standard & Poor (S&P) risk classification agency, a variation in the foreign currency debt risk classification produces a change in the applicable margin of syndicated credits contracted in 2004. 194 | 2006 Annual Report enersis06 NOTE 31. FOREIGN CURRENCIES As of December 31, 2006 and 2005, foreign currency denominated assets and liabilities are as follows: a. Current assets, Account Cash and banks Time deposits Marketable securities Accounts receivable, net Notes receivable Other receivables Currency Not readj. Ch$ US$ Euro Yen Col. $ Per. Sun Arg $ Br. Real US$ Col. $ Per. Sun Arg $ Br. Real Not readj. Ch$ US$ Col. $ Per. Sun Arg $ Readj. Ch$ Not readj. Ch$ US$ Euro Col. $ Per. Sun Arg $ Br. Real Not readj. Ch$ US$ Per. Sun Arg $ Br. Real Readj. Ch$ Not readj. Ch$ US$ Euro Col. $ Per. Sun Arg $ Br. Real As of December 31, 2006 ThCh$ 2,191,957 3,600,298 6,467 226 23,362,312 7,416,124 2,228,412 60,988,423 59,861,548 53,629,271 9,981,878 22,196,015 136,456,454 3,900 2,101,620 4,399,346 832,640 1,776,421 - 176,292,058 2,324,931 - 201,719,237 53,613,613 70,816,003 334,348,531 2,526,021 131,722 49,173 19,786 4,741,500 108,279 31,448,255 12,920,727 - 21,777,269 5,802,174 863,783 29,428,138 2005 ThCh$ 2,756,165 1,473,361 - 595 14,771,565 3,136,272 2,008,767 48,727,015 43,946,339 37,985,578 6,680,800 26,208,710 150,530,737 3,901 2,375,415 3,855 1,906,378 1,132,449 2,145,497 144,505,269 5,946,084 4,944 133,690,798 34,498,389 57,793,252 269,598,566 884,914 64,903 17,638 19,640 2,656,866 668,416 23,861,154 5,148,189 4,570 13,261,915 4,831,051 705,197 15,708,035 2006 Annual Report | 195 CONSOLIDATED FINANCIAL STATEMENTS a. Current assets, continued Account Amounts due from related companies Inventories, net Income taxes recoverable Prepaid expenses and other Deferred income taxes Other current assets Currency Not readj. Ch$ US$ Not readj. Ch$ Per. Sun Arg $ Not readj. Ch$ US$ Col. $ Per. Sun Arg $ Br. Real Not readj. Ch$ US$ Col. $ Per. Sun Arg $ Br. Real Readj. Ch$ Not readj. Ch$ US$ Col. $ Per. Sun Arg $ Br. Real Not readj. Ch$ Col. $ Arg $ Br. Real Readj. Ch$ Not readj. Ch$ US$ Col. $ Per. Sun Arg $ Br. Real As of December 31, 2006 ThCh$ 6,495,675 741,886 - 132,203 6,195,206 36,358,647 1,821,376 9,681,693 15,154,427 1,547,713 1,344,729 19,620,499 612,350 598,004 149,010 955,545 20,337,020 - 913,609 836,873 1,700,751 2,551,861 891,188 44,549,137 44,331,741 174,704 6,918,174 10,131,731 6,255,485 44,501,683 4,008,541 2005 ThCh$ 581,006 1,069,602 5,683,903 361,285 3,823,775 48,006,439 - 9,078,082 9,433,077 3,118,033 2,462,720 31,254,058 - 198,383 77,664 5,046,562 15,209,001 25,674 838,852 613,336 850,235 1,142,647 645,914 31,737,763 49,987,797 467,274 4,669,029 - 1,528,313 30,184,853 1,047 - - 233,633 185,087 11,471,884 252,758 160,405 10,642,861 Total current assets 1,641,366,577 1,328,815,537 196 | 2006 Annual Report b. Property, plant and equipment Account Land Building, infrastructure and work in progress Machinery and equipment Other plant and equipment Technical appraisal Accumulated depreciation enersis06 Currency Not readj. Ch$ Col. $ Per. Sun Arg $ Br. Real Not readj. Ch$ Col. $ Per. Sun Arg $ Br. Real Not readj. Ch$ Col. $ Per. Sun Arg $ Br. Real Not readj. Ch$ Col. $ Per. Sun Arg $ Br. Real Not readj. Ch$ Col. $ Br. Real Not readj. Ch$ Col. $ Per. Sun Arg $ Br. Real As of December 31, 2006 ThCh$ 54,557,590 26,321,229 11,127,621 7,227,372 33,370,682 4,065,765,666 2,498,284,958 1,219,914,400 1,361,086,320 1,790,911,400 66,803,411 30,658,273 559,522,797 633,075,377 697,128,447 176,236,751 9,122,302 118,572,568 94,049,268 209,505,605 31,416,737 54,383,639 100,261,814 (1,979,929,855) (827,701,103) (908,746,260) (1,080,089,592) (965,400,018) 2005 ThCh$ 54,286,322 24,978,117 11,629,522 7,251,626 31,697,561 3,933,280,052 2,403,356,496 1,169,622,760 1,315,357,590 1,739,867,349 62,733,741 28,690,807 439,825,114 601,876,650 624,725,907 145,166,531 16,187,648 39,438,784 90,748,711 147,286,820 31,412,411 53,451,264 98,542,887 (1,878,445,735) (740,014,382) (803,881,427) (984,610,843) (857,705,496) Total property, plant and equipment 8,087,437,399 7,806,756,787 2006 Annual Report | 197 CONSOLIDATED FINANCIAL STATEMENTS c. Other assets Account Investments in related companies Investments in other companies Goodwill, net Negative goodwill, net Long-term accounts receivable Amounts due from related companies Deferred taxes Other long-term assets Total other assets Total assets by currency Currency Not readj. Ch$ US$ Not readj. Ch$ US$ Col. $ Per. Sun Br. Real Not readj. Ch$ US$ Col. $ Not readj. Ch$ US$ Col. $ Per. Sun Readj. Ch$ Not readj. Ch$ US$ Col. $ Per. Sun Arg $ Br. Real US$ Br. Real Readj. Ch$ Not readj. Ch$ US$ Col. $ Per. Sun Arg $ Br. Real As of December 31, 2006 ThCh$ 76,386,876 38,880,575 2,469,103 20,188,918 1,406,052 25,104 2,490 636,978,434 10,236,667 7,846,896 (7,179,840) (7,674,091) - (22,162,386) 9,264,695 887,532 2,049,292 6,415,588 151,270 63,094,185 55,617,129 90,523,990 12,249,242 226,049 93,761,617 109,628 19,744,847 3,788,440 26,685,970 191,631,035 2005 ThCh$ 97,155,214 3,812,892 2,517,805 22,009,610 16,936,962 7,257 39,768 691,217,248 10,990,175 13,924,539 (9,609,642) (2,177,140) (2,226,482) (23,447,324) 1,057,385 1,032,539 2,095,347 4,591,576 428,507 27,353,846 108,064,236 91,713,359 - 584,435 44,253,365 49,593 58,212,149 2,861,715 21,152,382 160,830,872 1,333,605,307 1,345,432,188 Readj. Ch$ Not readj. Ch$ US$ Euro Yen Col. $ Per. Sun Arg $ Br. Real 15,854,508 3,582,838,067 243,276,851 6,467 226 2,143,525,268 1,078,110,290 1,219,722,233 2,779,075,373 6,009,720 3,513,548,162 189,131,065 9,514 595 2,088,397,426 898,822,867 1,184,461,695 2,600,623,468 Total assets by currency 11,062,409,283 10,481,004,512 198 | 2006 Annual Report enersis06 d. Current liabilities Account Currency Short-term debt due to banks and financial institutions Current portion of long-term debt due to banks and financial institutions Current portion of bonds payable Current portion of long-term notes payable Dividends payable Accounts payable Readj. Ch$ Not readj. Ch$ US$ Col. $ Per. Sun Arg $ Br. Real Others Not readj. Ch$ Readj. Ch$ US$ Euro Col. $ Per. Sun Arg $ Br. Real Readj. Ch$ US$ Col. $ Per. Sun Arg $ Br. Real Not readj. Ch$ US$ Br. Real Not readj. Ch$ Col. $ Per. Sun Arg $ Br. Real Readj. Ch$ Not readj. Ch$ US$ Euro Col. $ Per. Sun Arg $ Br. Real Within 90 days 91 day to 1 year As of December 31. 2006 Average Rate Amount As of December 31. 2005 Average Rate Amount As of December 31. 2006 Average Rate Amount As of December 31. 2005 Average Rate Amount ThCh$ 2,089 207,106 6,915,738 92,133,225 29,249,563 550,956 1,196,452 499,785 30 - 17,830,678 - 18,030,985 9,930,944 310,682 3,789,554 1,703,546 40,177,750 4,136,248 1,699,161 3,482,796 - 1,576 20,404,380 - 1,553,261 58,710,662 2,100,067 1,980 12,320,608 35,478 88,560,521 11,706,722 1,073,737 53,426,857 30,731,784 58,321,901 80,565,796 0.30% 0.96% 10.49% 8.35% 5.62% 13.70% 16.58% 2.80% - - 11.05% - 9.85% 5.00% 12.11% 17.86% 5.63% 5.38% 10.15% 6.55% 10.43% - - 7.42% - - - - - - - - - - - - - - ThCh$ 128 24,227 71,312,447 12,556,049 21,082,137 7,178 2,181,962 3.00% - 4.62% 6.85% 4.87% 7.23% 5.51% - - 355 1,825,596 12,967,592 4.41% 9.00% 9.38% - - - - 6,971 2,803,527 20,361,376 942,306 16,665,051 44,537,056 54,288,006 5,677 10,133,356 4.41% 6.86% 12.99% 5.75% 7.00% 11.15% 6.98% 7.50% 19.93% - - 13,477,672 2,447,267 1,619,729 3,630,030 72,719 1,448 1,594,314 27,379 63,379,838 8,625,682 926,272 38,058,132 20,983,113 52,191,858 105,295,398 7.42% 5.00% - - - - - - - - - - - - - ThCh$ - - 1,417,595 - - 2,086,440 - - - 386,869 29,655,380 823,824 - - 2,332,591 15,390,257 2,357,840 31,291,055 - 10,084,155 6,953,665 11,321,382 - 10,858,626 2,758,403 - - - - - - - 495,519 - - 2,047,513 - 42,764,531 - - 6.94% - - 8.72% - - - 9.00% 8.68% 4.23% - - 3.10% 15.45% 5.61% 8.22% - 7.19% 10.43% 14.53% - 7.42% - - - - - - - - - - - - - - ThCh$ - - 3,537,256 - - 2,116,073 - - - - 39,111,870 728,517 14,051,066 - 5,916,236 22,270,834 115,275,397 275,504,604 - - 8,997,791 - 14,808,330 - 5,190 - - - 10,945,081 - - - - - - - - - - 6.10% - - 9.50% - - - - 6.09% 3.45% 12.17% - 8.22% 18.28% 6.19% 7.34% - - 8.12% - - 7.42% - - - - - - - - - - - - - - 2006 Annual Report | 199 CONSOLIDATED FINANCIAL STATEMENTS d. Current liabilities, continued Account Currency Within 90 days 91 day to 1 year As of December 31. 2006 Average Rate Amount As of December 31. 2005 Average Rate Amount As of December 31. 2006 Average Rate Amount As of December 31. 2005 Average Rate Amount Short-term notes payables Miscellaneous payables Amounts payable to related companies Accrued expenses Withholdings Income tax payable Reimbursable financial contributions Aportes financieros reembolsables Other current liabilities Total current liabilities by currency US$ Br. Real Not readj. Ch$ US$ Euro Col. $ Per. Sun Arg $ Br. Real Others Not readj. Ch$ US$ Per. Sun Arg $ Br. Real Readj. Ch$ Not readj. Ch$ US$ Col. $ Per. Sun Arg $ Br. Real Not readj. Ch$ Col. $ Per. Sun Arg $ Br. Real Others Not readj. Ch$ Col. $ Per. Sun Arg $ Br. Real Not readj. Ch$ Col. $ Readj. Ch$ Not readj. Ch$ Readj. Ch$ Not readj. Ch$ US$ Col. $ Per. Sun Arg $ Br. Real Readj. Ch$ Not readj. Ch$ US$ Euro Col. $ Per. Sun Br. Real Arg $ Others ThCh$ - 3,029,446 5,348,856 14,063,409 568 14,388,375 17,520,303 75,262 26,156,922 6,745 1,020,442 2,830,515 1,332,476 24,679,087 - - 13,563,503 2,254,459 12,214,947 6,597,027 5,017,288 7,967,636 10,396,763 2,993,292 6,348,709 13,404,157 33,877,889 - 315,481 30,863,810 11,185,703 3,959,378 15,018,189 3,408,981 905,939 1,436 7,465 - 16,184 1,086,926 15,154,212 543,128 29,028,494 27,943,766 ThCh$ 2,922,136 8,835,601 9,086,776 356,916 - 11,444,931 9,256,138 104 47,339,350 - 230,573 32,479,176 428,260 15,326,275 1,047 1,597 12,669,277 2,027,550 6,705,600 2,229,021 3,876,734 26,369,675 8,849,811 2,646,017 5,278,772 11,780,985 46,934,709 4,560 191,341 29,821,382 8,004,824 1,664,326 28,419,740 3,453,219 18,696 1,307 8,088 - 105,753 1,117,013 3,679,476 44,471 9,423,031 20,394,144 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,742,549 124,400,169 117,270,577 1,074,305 302,958,552 117,238,865 211,866,258 138,831,981 506,530 2,798,313 - 99,618,987 - 161,951,235 - - 926,272 - 153,097,369 - 121,674,432 - 320,307,940 97,081,143 - 4,560 - ThCh$ - 12,697,257 - 779,663 - - 201,839 - 32,845,402 - - - - - - 1,244,597 17,907,374 34,523 - 242,483 - 12,306,797 - - 134,516 - 32,831,290 - 32,571,130 - - 707,546 48,290,188 705,534 - 4,309 1,035,926 61,309 79,886 - - - - 15,888,476 4,054,924 52,299,850 74,532,361 823,824 - 12,710,506 227,093,983 12,080,242 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ThCh$ 2,907,014 - - 9,026,537 - - - - - - - - - - 80,585 19,728,544 267,524 - 1,577,692 - 2,321 - - - 3,055 - - - - - - - 685,401 - 3,920 1,730,435 13,262,749 131,348 12 - - - - 128,622,651 22,280,918 345,163,147 728,517 14,051,066 1,577,692 33,218,236 17,033,155 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total current liabilities 1,015,889,786 957,460,123 383,595,690 562,675,382 200 | 2006 Annual Report e. Long-term liabilities as of December 31, 2006 Account Currency Amount Average Rate Amount Average Rate Amount Average Rate 1 to 3 years 3 to 5 years 5 to 10 years More than 10 years Amount Average Rate enersis06 Due to banks and financial institutions Bonds payable Long-term notes payable Miscellaneous payable US$ Arg $ Col. $ Per. Sun Br. Real Readj. Ch$ US$ Col. $ Per. Sun Br. Real US$ Arg $ Br. Real Readj. Ch$ Not readj. Ch$ US$ Arg $ Br. Real Amounts payable to related companies US$ Accrued expenses Reimbursable financial contributions Other long-term liabilities Readj. Ch$ Not readj. Ch$ Col. $ Br. Real Readj. Ch$ Not readj. Ch$ Per. Sun Readj. Ch$ Not readj. Ch$ US$ Col. $ Arg $ Br. Real ThCh$ 287,130,020 29,555,386 72,531,749 25,316,417 70,937,621 73,787,290 436,559,800 87,046,268 43,688,534 28,583,054 29,803,192 3,884,430 37,802,048 - 7,682,647 30,695,575 218,658 17,079,788 11,250,360 128,245 3,504,925 72,789,491 221,494,153 13,272 1,237,759 518,558 2,309,877 157,883,821 304,111 5,512,899 18,030,688 15,046,748 6.80% 11.89% 9.07% 5.58% 12.61% 6.20% 8.08% 10.04% 6.63% 14.90% 7.42% 10.61% 11.50% - - 11.00% - - - - - - - - - - - - - Total long-term liabilities by currency Readj. Ch$ Not readj. Ch$ US$ Col. $ Per. Sun Arg $ Br. Real 76,238,684 170,309,152 795,743,058 237,880,407 69,523,509 51,689,162 390,943,412 9.44% - - - 14.95% 7.85% 10.29% 8.88% 14.10% - - 10.61% - - 6.50% - - - - - - - - - - - - - - - - 8.01% 10.87% - - 13.91% 4.80% - 10.48% 6.97% 15.70% 7.42% - 10.61% - - 9.50% - - - - - - - - - - - - - - - - ThCh$ 131,427,754 11,725,549 - - 54,805,830 73,345,520 - 142,681,570 23,299,820 72,213,798 23,455,926 - 8,411,125 - - 36,413,334 245,890 4,263,725 - - 3,358,560 - - - 616,087 37,015 1,539,918 727,152 592,493 - 3,672,070 - 74,885,438 4,701,799 191,889,507 142,681,570 23,336,835 15,643,509 139,694,478 ThCh$ 47,415,036 - - - 167,137,198 - 649,374,186 118,901,326 44,526,549 92,134,846 - - 7,488,215 - - 33,728,660 16,071 9,195,707 - - 8,309,725 - - - 467,933 61,693 3,400,637 30,290 - - 7,240,627 3,400,637 8,807,948 730,517,882 118,901,326 44,588,242 7,256,698 275,955,966 ThCh$ 7,959,977 - - - - 60,669,583 248,708,651 - - - - - 1,543,589 130,779 - 14,115,249 - - - - 15,361,903 - - - - - - - - - - - 60,800,362 15,361,903 270,783,877 - - - 1,543,589 8.51% - - - - 5.95% 7.64% - - - - - 10.61% - - 6.50% - - - - - - - - - - - - - - - - Total long-term liabilities 1,792,327,384 592,833,136 1,189,428,699 348,489,731 2006 Annual Report | 201 CONSOLIDATED FINANCIAL STATEMENTS f. Long-term liabilities as of December 31, 2005 Account Currency Amount Average Amount Average Amount Average Amount Average 1 to 3 years 3 to 5 years 5 to 10 years More than 10 years Rate Rate Rate Rate ThCh$ ThCh$ ThCh$ ThCh$ Due to banks and financial Readj. Ch$ 971,845 Bonds payable Readj. Ch$ 73,409,124 institutions US$ Euro Arg $ Col. $ Per. Sun Br. Real Long-term notes payable Miscellaneous payable US$ Col. $ Per. Sun Arg $ Br. Real US$ Br. Real Readj. Ch$ Not readj. Ch$ US$ Br. Real Amounts payable to related companies US$ Accrued expenses Readj. Ch$ - 184,424 7,166,487 18,748,985 13,520,056 128,355 Not readj. Ch$ 3,423,253 Col. $ Br. Real 69,203,641 303,969,650 Deferred income taxes Not readj. Ch$ 27,535,615 Reimbursable financial contributions Readj. Ch$ 12,074 Other long-term liabilities Not readj. Ch$ 1,565,050 Per. Sun Readj. Ch$ 697,212 1,852,706 Not readj. Ch$ - Arg $ Br. Real 17,442,874 11,209,500 Total long-term liabilities Readj. Ch$ 76,374,104 by currency Not readj. Ch$ 32,708,342 US$ Euro Col. $ Per. Sun Arg $ Br. Real 470,464,658 725,880 69,403,099 44,745,543 32,652,790 462,259,760 164,631,448 725,880 4,856,825 199,458 15,327,275 9.00% 6.61% 3.06% 3.11% 7.25% 5.51% - - - - 74,080,158 7.51% 122,800,406 5.89% - - - - 3,648,964 1.75% 912,060 1.75% 13,362,850 12.10% - - - - - - 65,544,532 16.67% 77,717,970 13.84% 20,675,977 17.38% - - - - - - - - - - - - - - 240,700,750 6.20% 7.86% 73,851,277 219,770,250 4.80% 8.39% - - 62,343,972 507,564,625 7.96% 375,121,130 5.95% 7.56% - - 83,603,327 10.76% 219,914,093 10.91% 28,721,056 10,353,091 5.65% 7.00% 25,166,851 7.25% 19,336,161 7.83% - - - - 24,717,299 20.64% 64,829,378 18.02% 14,842,630 23.16% 44,445,917 7.42% - - 9,350,701 7.42% - - - - - - - - - - 38,069,794 10.61% 6,624,267 10.61% 9,113,086 10.61% 212,869 10.61% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,794,801 - - - 3,111,726 305,585 1,081,460 3,977,446 6,958 723,207 45,540 221,845 137,688 9,975,310 827,279 74,080,080 7,950,067 295,645,209 - 97,271,762 25,212,391 13,624,274 151,080,354 - - - - - - - - - - - - - - - - - - - 5,612,872 - - - 7,557,188 - 3,244,380 16,883,181 - 514,587 502,102 - - 6,557,389 - - 24,954,956 645,328,604 - 219,914,093 19,838,263 7,469,449 47,876,073 - - - - - - - - - - - - - - - - - 109,717 - 15,223,901 - - - 15,458,434 - 1,224,007 39,036,956 - 11,913 - - 122,712,020 608,060 - 62,453,689 177,219,323 390,345,031 - - - 608,060 1,436,876 Total long-term liabilities 1,189,334,176 664,864,137 965,381,438 632,062,97 202 | 2006 Annual Report enersis06 NOTE 32. SANCTIONS Chilectra S.A. NOTE 33. ENVIRONMENT Chilectra S.A. a . On A pril 27, 20 0 4, through E xempt resolution 814, the Superintendency of Electricity and Fuel (S.E.C.) penalized the Company for a total amount of 1,830 UTA (ThCh$665,564), as a result of the blackout which occurred on January 13, 2003, that affected the area between Tal Tal and Santiago. On May 7, 2004, the Company filed an appeal whose jurisdiction and solution belongs to the Superintendency of Electricity and Fuel (S.E.C.). The S.E.C. rejected the appeal and a claim petition was filed with the Santiago Court of Appeals. The Company has made disbursements during the year of ThCh$ 909,939, mainly for the following items: INVESTMENTS: • Implementation of Environmental Management System, ISO Standard 14.001. • Reforestation, installation of acustic panels and preparation of Environmental Impact Statement. • “Space cape” and pre-assembling for maintenance and improvement The resolution issued by the Santiago Court of Appeal can be appealed against in the Supreme Court. of installations. To this date, the Company cannot exactly forecast the effects the final resolution will have on its financial statements. b. Summary trial to complain about the fine imposed by the Superintendency of Securities and Insurance, 10th Civil Court of Santiago (Case No. 4394-97). This summary trial was brought by Chilectra S.A. (formerly Elesur S.A.) according to the regulations of Statutory Decree 3538 (Basic Law on the Superintendency of Securities and Insurance) against such Superintendency, and its purpose is to petition for the fine imposed by such inspection agency via exempt resolution No. 337 of October 31, 1997 (U.F. 100,000 – 100,000 inflation index-linked units of account) to be declared null and void. On November 17, 2000, the court ruled an appealable judgment endorsing the claim by Chilectra S.A. (formerly Elesur S.A.), declaring the fine imposed by the Superintendency null and void. The ruling states, in sum, that there was no use of privileged information since it was one of the parties to the contract’s own information. The Superintendency lodged an appeal for annulment of the ruling (case number 82-2001). On June 6, 2006, the Santiago Court of Appeal revoked the ruling, maintaining all parts of Exempt Resolution 337 of the Superintendency. On June 23, 2006, appeals for annulment in form and substance were lodged with the Supreme Court, and these are on the weekly lists of cases for hearing and sentencing. The Company and the Board of Directors have not been the target of any other sanctions by the SVS or by any other administrative authorities. ExPENSES: • For handling hazardous wastes controlled through the Management System. • Environment-related, to meet current regulations. • In cleaning and order, which is associated with the preparation for environmental audits. • In pruning and cutting, associated with the need for clearing the area around the lines. Endesa S.A. During the year from January 1 to December 31, 2006, the Company and its subsidiaries have made disbursements for a value of ThCh$2,563,363, which mainly correspond to: Operation expenses: They correspond to laboratory studies, monitoring, follow-up and analysis, which were treated as fiscal year expenses of ThCh$ 2,339,416. And environmental protection at Hidroeléctrica El Chocón and Endesa Costanera S.A. (Updating of standards, cleaning of hydrocarbon separator chambers, measurement of gas emissions, Nitrogen oxide and sulphur dioxide, ISO 9001, 14001 and 18001) equivalent to ThCh$ 84,570. Investments related to the following projects, which have been capitalized in the amount of ThCh$139,377: • El Toro Power Plant: Environmental liabilities recovery and works required for SGA certification under ISO 14.001. • San Isidro- Certification of CO2 cilinders and maintenance of certifications. • Bocamina Power Plant: Certification of environmental management system under ISO 14.001. • Tarapacá: Control on line for particulate material, normalization of gas analyzer and 2nd stage in the power plant’s landscape project. • Huasco: Construction of a profile against fuel spillovers. • Sauzal: Recover of environmental liabilities. 2006 Annual Report | 203 CONSOLIDATED FINANCIAL STATEMENTS NOTE 34. SUBSEQUENT EVENTS On January 15, 2007, the Company was notified of Decree 7-2006 dated January 12, 2007, issued by the Panel of Experts provided for in the General Electrical Services Law, settling the discrepancies arising by reason of the Technical Report containing observations and corrections to the studies for determining the Annual Value of the Subtransmission System, together with the respective rate formulas, approved by the National Energy Committee in Exempt Resolution 695 of October 31, 2006. This Decree, which basically rejected the discrepancies set forth by the Company, will mean that the subtransmission rate setting process will result in a decrease of about Ch$28 thousand million per year, before tax, in income from the sale of energy and power. This, in turn, will result in a decrease of about 4.6% per year in such income. The above notwithstanding, Chilectra S.A. is studying actions and remedies that might apply with regard to such Decree. In the period between January 1, 2007 and the date of issuance of these financial statements, no other significant events have occurred that could affect their presentation. JUAN CARLOS WIECZOREK Deputy Chief Accounting Officer IGNACIO ANTOñANZAS Chief Executive Officer 204 | 2006 Annual Report APPENDIX US GAAP DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Chilean GAAP varies in certain important respects from U.S. GAAP. Such differences involve certain methods for measuring the amounts shown in the financial statements. I. Differences in Measurement Methods The principal differences between Chilean GAAP and U.S. GAAP are described below together with an explanation, where appropriate, of the method used in the determination of the adjustments that affect net income and total shareholders’ equity. References below to “SFAS” are to Statements of Financial Accounting Standards issued by the Financial Accounting Standards Board in the United States. (a) Inflation accounting The cumulative inflation rate in Chile as measured by the Consumer Price Index for the three-year period ended December 31, 2006 was approximately 8.2%. Pursuant to Chilean GAAP, the Company’s financial statements recognize certain effects of inflation. As allowed pursuant to Item 17 c (iv) of Form 20-F the reconciliation included herein of consolidated net income, comprehensive income and shareholders’ equity, as determined in accordance with U.S. GAAP, excludes adjustments attributable to the effect of differences between the accounting for inflation under Chilean GAAP versus U.S. GAAP. (b) Reversal of revaluation of property, plant and equipment In accordance with standards issued by the SVS, certain property, plant and equipment are recorded in the financial statements at amounts determined in accordance with a technical appraisal. The difference between the carrying value and the revalued amount is included in shareholders’ equity, beginning in 1989, in “Other reserves”, and is subject to adjustments for price-level restatement and depreciation. Revaluation of property, plant and equipment is prohibited under U.S. GAAP. The effects of the reversal of this revaluation, as well as of the related accumulated depreciation and depreciation expense are included in paragraph (cc) below. (c) Depreciation of property, plant and equipment enersis06 As discussed in paragraph (i), under Chilean GAAP, assets acquired and liabilities assumed are recorded at their carrying value, and the excess of the purchase price over the carrying value is recorded as goodwill. Under U.S. GAAP, assets acquired and liabilities assumed are recorded at their estimated fair values, and the excess of the purchase price over the estimated fair value of the net identifiable assets and liabilities acquired is recorded as goodwill. As part of the purchase of the majority ownership interest in Endesa-Chile, under U.S. GAAP, the cost of the purchase price would have been allocated to the fair value of property, plant and equipment. The effect on shareholders’ equity and net income for the years presented is included in paragraph (cc) below. The company has considered the factors which could be considered changes in circumstances which would trigger an impairment review and, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposa1 of Long-Lived Assets” beginning in 2002, the Company evaluates the carrying amount of property, plant and equipment and other long-lived assets, in relation to the operating performance and future undiscounted cash flows of the underlying grouping of assets at the lowest level which generates cash flow. These standards require that an impairment loss be recognized in the event that facts and circumstances indicate that the carrying amount of an asset may not be fully recoverable. Impairment is recorded based on the excess carrying amounts of long-live assets (or asset group) over fair value. There were no impairment charges recorded under Chilean GAAP and U.S. GAAP. (d) Intangibles Under Chilean GAAP, the intangible assets correspond mainly to rights of way. Additionally the Company had recorded an intangible asset relating to the transfer of revalued assets which originated in the predecessor company, “Compañía Chilena de Distribución Eléctrica S.A.” at the time of the Company’s formation. Under U.S. GAAP, the balance of this intangible asset would have been recorded at the Predecessor Company’s carrying value which was zero. In 2004, this intangible asset was charged to income under Chile GAAP thereby zeroing out the GAAP difference for this item. Since this effect had already been adjusted in prior years under US GAAP, the effect recorded by the Company must be eliminated, as shown in the 2004 reconciliation to shareholders’ equity in paragraph (cc) below. The estimated amortization expense for the intangible assets with definite lives, which now mainly consist of rights of way for US GAAP purposes (which is equivalent under Chile GAAP) for each of the five succeeding fiscal years is as follows: Under Chilean GAAP, certain costs related to the acquisition of Edesur S.A., at the time of the acquisitions in 1992 and 1994 by Distrilec Inversora S.A., were charged to earnings as incurred. Under U.S. GAAP, these costs have been included in the purchase price and allocated to the net assets acquired based upon fair values. For purposes of the reconciliation to U.S. GAAP, these costs were considered to be of part of property, plant, and equipment, the primary assets of Edesur S.A. Year 2007 2008 2009 2010 2011 Amortization ThCh$ 5,547,991 4,986,896 4,499,388 1,920,840 2,394,384 2006 Annual Report | 205 CONSOLIDATED FINANCIAL STATEMENTS (e) Deferred income taxes Under Chilean GAAP, until December 31, 1999, deferred income taxes were recorded based on non-recurring timing differences between the recognition of income and expense items for financial statement and tax purposes. Accordingly, there was an orientation toward the income statement focusing on differences in the timing of recognition of revenues and expenses in pre-tax accounting income and taxable income. Chilean GAAP also permitted not providing for deferred income taxes where a deferred tax asset or liability was either offsetting or not expected to be realized. Starting January 1, 2000, the Company recorded income taxes in accordance with Technical Bulletin No. 60 of the Chilean Association of Accountants, recognizing, using the liability method, the deferred tax effects of temporary differences between the financial and tax values of assets and liabilities. As a transitional provision, a contra (referred to as “complementary”) asset or liability has been recorded against the deferred tax assets and liabilities recognized as of January 1, 2000. Such complementary assets and liabilities are being amortized to income over the estimated average reversal periods of the underlying temporary differences to which the corresponding deferred tax asset or liability relates. Under U.S. GAAP, companies must account for deferred taxes in accordance with SFAS No. 109, which requires an asset and liability approach to financial accounting and reporting for income taxes, using the following basic principles: i. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and tax loss carryforwards. ii. The measurement of deferred tax liabilities and assets is based on the provisions of the enacted tax law. The effects of future changes in tax laws or rates are not recognized prior to the period in which such changes are enacted into law. iii. Deferred tax assets are reduced by a valuation allowance, to the extent that, based on the weight of available evidence, it is deemed more likely than not that the deferred tax assets will not be realized. Temporary differences are defined as any difference between the financial reporting basis and the tax basis of an asset and liability that at some future date will reverse, thereby resulting in taxable income or expense. Temporary differences ordinarily become taxable or deductible when the related asset is recovered or the related liability is settled. A deferred tax liability or asset represents the amount of taxes payable or refundable in future years as a result of temporary differences at the end of the current year. The principal difference between U.S. GAAP and Chile GAAP relates to the reversal of the complementary assets and liabilities recorded as a transitional provision for unrecorded deferred tapes as of January 1, 2000 and their corresponding amortization into income. Additionally, under U.S. GAAP, temporary differences arising in connection with fair value adjustments on business combinations result in deferred taxes and a corresponding adjustment to goodwill. An adjustment is required in the reconciliation to U.S. GAAP to record goodwill arising 206 | 2006 Annual Report from deferred tax liabilities related to past business combinations (see note 36 II (c)). When required, the income tax effects of U.S. GAAP adjustments are recorded in our reconciliations to U.S. GAAP. The effect of these differences on the net income and shareholders’ equity of the Company is included in paragraph (cc) below. (f) Severance indemnity As described in Note 2 n, under the Company’s employment contracts, it has committed to provide a lump sum payment to each employee in its Chilean entities at the end of their employment, whether due to death, termination, resignation or retirement. Until December 31, 2003, those obligations are calculated based on the present value of the liability determined at each year-end based on the current salary and average service life of each employee. Under US GAAP, this arrangement is considered to be a termination indemnity plan and should therefore be accounted for in accordance with SFAS No. 87, “Employers’ Accounting for Pensions”. The liability would be measured at the actuarial present value of all benefits attributed by the severance indemnity benefit formula to employee service rendered through the balance sheet date. The vested benefit obligation is measured using assumptions as to future compensation levels. For U.S. GAAP purposes, the discount rate has to be reassessed every year, to the relevant discount rate for the period between the date and the expected date of payment. The Company recognizes actuarial gains and losses immediately for severance indemnity plans for both Chilean GAAP and U.S. GAAP. Since 2004, there are no differences between Chilean and US GAAP as regards the accounting for severance indemnities. The effects of accounting for severance indemnity benefits accumulated up to the year 2003 under US GAAP have been presented in paragraph (cc). (g) Pension and post-retirement benefits accounting The Company has obligations related to post-retirement benefits as stipulated in collective bargaining agreements and pension obligations as stipulated by contract for its subsidiaries in Brazil, Colombia and Chile. Under U.S. GAAP, post-retirement benefits are accounted for under SFAS 106 and pension obligations are accounted for under SFAS 87 which results in the following differences: • Under both Chilean GAAP and US GAAP, actuarial gains/losses are deferred over the average remaining service period when the cumulative amount of deferred actuarial gains and losses are less than 10% of the higher of the projected benefit obligation or fair value of plan assets. • The changes effected for the discount rate in Chile GAAP and US GAAP and their timing as described in (f) were also instituted for post-retirement benefits. In addition, during 2006, the Company adopted FAS 158 “Employer’s Accounting for Defined Pension and Other Postretirements Plans – an amendment of FASB Statements N°87, 88, 106 and 132 (R)”. This statements required the recognition of the funded status of a benefit plan in the statement of financial position. It also requires the recognition as a component of other comprehensive income (OCI), net of tax, of the gains or losses and prior service costs or credits that arise during the period, but are not recognized as components of net periodic benefit cost pursuant to statements 87 or 106. The adoption resulted in the recognition through OCI for accumulated effect through the 2006 year – end of prior service costs and related plan assets in the balance sheet of the certain Brazilian subsidiaries. The effects of the adoption of SFAS 158 are presented in paragraph (cc) below. The effects of accounting for post-retirement benefits under US GAAP have been presented in paragraph (cc). (h) Investments in related companies Under Chilean GAAP, until December 31, 2003 for all investments accounted for by the equity method, the proportionate net book value of the investee company was recorded as an investment and the difference between the cost of investment and the proportionate net book value of the investee was recorded as goodwill. The goodwill is to be amortized to income over a maximum period of twenty years. The investment account is adjusted to recognize the investor’s share of the earnings or losses of the investee determined under Chilean GAAP subsequent to the date of the purchase. Technical Bulletin No. 72 issued by Chilean Association of Accountants requires using fair value of acquired assets and liabilities for the accounting for all acquisitions after January 1, 2004 and recording the differential between the cost and the fair value as goodwill/negative goodwill as well as prospectively designating all investments of 20% to 50% as having significant influence rather than the 10% to 50% level previously defined as having significant influence in Chilean GAAP. No retroactive changes or cumulative effects of changes in accounting principles were required under Technical Bulletin No. 72. Under US GAAP, in accordance with Accounting Principles Board Opinion No. 18, The Equity Method for Accounting for Investment in Common Stock” (“APB No. 18”), the carrying amount of an investment accounted for under the equity method is initially recorded at cost and shown as a single amount in the balance sheet of the investor. It is adjusted to recognize the investor’s share of the earnings or losses of the investee determined under US GAAP subsequent to the date of investment. The investment reflects adjustments similar to those made in preparing consolidated financial statements, including adjustments to eliminate inter-company gains and losses and to account for the differences, if any, between the investor’s cost and the underlying equity in net assets of the investee at the date of investment. The investment is also adjusted to reflect the investor’s share of change in the investee capital accounts. The Company’s equity share of the effect of the adjustments from Chilean GAAP to U.S. GAAP for equity method investees is included in paragraph (cc) below. The principal U.S. GAAP adjustments affecting the Company’s equity investees are as follows: enersis06 (i) Reversal of capitalized foreign currency exchange differences related to capitalized interest. (ii) Reversal of complementary accounts (asset or liability) recorded as a transitional provision in connection with the adoption of Technical Bulletin N°60 as of January 1, 2000. (iii) Organizational costs deferred under Chilean GAAP that, under U.S. GAAP, should have been included in income. (iv) The recording of derivative instruments in accordance with SFAS No. 133. (v) The deferred income tax effects of adjustments (i), (iii) and (iv). (i) Goodwill (i) Under Chilean GAAP, for acquisitions completed through December 31, 2003 assets acquired and liabilities assumed are recorded at their carrying value, and the excess of the purchase price over the carrying value are recorded as goodwill. Circular No. 1358, dated December 3, 1997 issued by the SVS, extended the maximum amortization period of goodwill to 20 years from the previous 10 years. Under U.S. GAAP, assets acquired and liabilities assumed are recorded at their estimated fair values, and the excess of the purchase price over the estimated fair value of the net identifiable assets and liabilities acquired are recorded as goodwill. Up until December 31, 2001, the Company amortized goodwill on a straight- line basis over the estimated useful lives of the assets, ranging from 20 to 40 years. Goodwill acquired after June 30, 2001 is not amortized. In accordance with SFAS No. 142, the Company discontinued amortizing goodwill on January 1, 2002. The effects of recording the different amortization periods and reversing the amortization of goodwill are included in paragraph (cc) below. Technical Bulletin No. 72 issued by Chilean Association of Accountants requires using fair value of acquired assets and liabilities for the accounting for all acquisitions after January 1, 2004, and consequently after that date difference in accounting treatment related to the allocation of purchase consideration over assets acquired and liabilities assumed between Chilean GAAP and US GAAP no longer exists. (ii) Under Chilean GAAP and US GAAP, the Company evaluates the carrying amount of goodwill for impairment. The Company determines the impairment losses using a discounted cash flow approach and recent comparable transactions in the market. In order to estimate recoverable value, the Company makes assumptions about future events that are highly uncertain at the time of estimation. The results of this analysis showed no impairment of goodwill for the years ended December 31, 2005 and 2006. The following effects are included in the net income and shareholders’ equity reconciliation to US GAAP under paragraph (cc) below: (i) differences in the amount of the impairment under US GAAP related to basis differences in the original determination and 2006 Annual Report | 207 CONSOLIDATED FINANCIAL STATEMENTS subsequent amortization methodology between Chilean GAAP and US GAAP; (ii) the reversal of negative goodwill impairment under Chilean GAAP, as under US GAAP negative goodwill is treated as an adjustment to the net book value of the related fixed assets to their fair value; (iii) the reversal of goodwill amortization recorded under Chilean GAAP. (j) Negative Goodwill Under Chilean GAAP, until December 31, 2004, the excess of the carrying value of the assets assumed in a business combination over the purchase price is recorded as negative goodwill. Circular No. 1358, dated December 3, 1997 issued by the SVS, extended the maximum amortization period of negative goodwill to 20 years from the previous 5 years. Technical Bulletin No. 72 issued by Chilean Association of Accountants requires using fair value accounting for all acquired assets and liabilities for all acquisitions after January 1, 2004. Technical Bulletin No. 72 states that whenever the negative goodwill exceeds the fair value of identified non-monetary assets, the excess must be recognized immediately as income. Under U.S. GAAP, the fair value of the net assets acquired in excess of the purchase price is allocated proportionately to reduce the values assigned to long-lived assets. If the allocation reduces the long- lived assets to zero, the remainder of the excess is recorded as an extraordinary gain to income. The effect of reduced depreciation expense on the long-lived assets (for which no circumstances changed requiring an impairment test under SFAS N°144) to which negative goodwill had been allocated under U.S. GAAP net of reversals of both amortization and write-offs of negative goodwill recorded in Chilean GAAP (over the appropriate useful lives as defined in the first paragraph) are included in paragraph (cc) below. (k) Capitalized interest and exchange differences In accordance with Chilean GAAP, the Company has capitalized both interest on debt directly related to property, plant and equipment under construction and finance costs corresponding to exchange differences generated by the loans associated with such assets. The capitalization of interest costs associated with projects under construction is optional when incurred on debt that is not directly related to such projects. The Company has optioned for not capitalizing indirect interest cost under Chilean GAAP. Under U.S. GAAP, the capitalization of interest on qualifying assets under construction is required, regardless of whether interest is associated with debt directly related to a project to the extent that interest cost would have been avoided if the project had not been done. In addition, under U.S. GAAP, foreign translation exchange differences may not be capitalized. The accounting differences between Chilean and U.S. GAAP for financing costs and the related depreciation expense are included in the reconciliation to U.S. GAAP under paragraph (cc) below. 208 | 2006 Annual Report (l) Accumulated deficit during the development stage Under Chilean GAAP, the losses incurred during the development stage of subsidiary companies are recorded directly in the parent company’s equity. Under U.S. GAAP, such costs must be charged to income as incurred. As of December 31, 2004 and 2005, no company was classified as a development stage company. For the year ended December 31, 2006, the effects of the adjustment are included in paragraph (cc). (m) Minimum dividend As required by the Chilean Companies Act, unless otherwise decided by the unanimous vote of the holders of issued and subscribed shares, the Company must distribute a cash dividend in an amount equal to at least 30% of its net income for each year as determined in accordance with Chilean GAAP, unless and except to the extent the Company has unabsorbed prior year losses. Net income related to the amortization of negative goodwill can only be distributed as an additional dividend by the approval of the shareholders, and accordingly, is not included in the calculation of the minimum dividend to be distributed. Since the payment of the 30% dividend out of each year’s income is required by Chilean law, an accrual was made in the reconciliation in paragraph (cc) below to reflect the unrecorded dividend liability for 2005 and 2006. (n) Capitalized general and administrative expenses Under Chilean GAAP, Endesa-Chile and certain Brazilian subsidiaries capitalize a portion of its administrative and selling expenses as part of the cost of construction in progress because a substantial portion of the efforts of management were involved in the administration of major projects. Under U.S. GAAP, general and administrative expenses are charged to expense unless they can be directly identified with the supervision of the construction of specific projects. Under Chilean GAAP the Company has also capitalized other administrative expenses into other long-term assets, which under US GAAP would not be allowed. The effects of eliminating capitalized general and administrative expenses and the related depreciation and amortization for U.S. GAAP purposes are shown below under paragraph (cc). (o) Involuntary employee termination benefits Under Chilean GAAP, the Argentine subsidiaries, Central Costanera and Hidroelectricidad, recorded an accrual of certain involuntary employee termination benefits related to the restructuring plan announced in 1997. Since that date employees have continued to be made redundant pursuant to this plan. Additionally, during 2003 the Company increased the amount of the accrual recorded under Chilean GAAP. In accordance with U.S. GAAP, in order to recognize a liability at the balance sheet date for the cost to terminate employees involuntarily, there must have been a plan that specifically include notification of such employee prior to the balance sheet. The net effect of eliminating the accrued liability recognized under Chile GAAP is presented in paragraph (cc) below. (p) Revenue recognition in Edesur During 2005, Edesur reached final agreement with the relevant Argentinean authorities regarding an increase in tariffs related to electricity distribution services. This increase is currently pending ratification via formal decree by the executive power of the Argentinean government (PEN). At December 31, 2005 the Company believed were probable that the economic benefits associated with the tariff increase will flow to the enterprise, and that all other revenue recognition criteria established by Chilean GAAP has been met. Accordingly, the effects of the rate increase were included in 2005 revenues under Chilean GAAP. During 2006 there have been no ratification regarding the increase in tariffs; hence, the initial probable belief of the Company was reassessed and is not longer considered. Therefore, under Chilean GAAP the effects of the rates tariffs recognized as of December 31, 2005 has been adjusted and recognized in income for the current year. However, the effects of the increase in tariffs have not been included in revenues under U.S. GAAP, because management believes that the persuasive evidence of an arrangement criterion under SAB Topic 13 is not met until the agreement is formally ratified by the PEN. The effect on shareholders’ equity and net income for the years presented is included in (cc) below. (q) Elimination of capitalized interest in Brazil Until 1999, under Chilean GAAP, the Company capitalized interest to property, plant and equipment as a result of the creation of a legal reserve specifically permitted in Brazil for the electricity industry by crediting interest expense. Under U.S. GAAP, interest capitalized must be based on actual interest incurred, and as such the effects of the elimination of the interest capitalized to property, plant and equipment and the effects on depreciation expense are included in paragraph (cc) below. (r) Organizational and start-up costs Certain costs related to the organization and creation of certain subsidiaries of the Company are deferred and capitalized under Chilean GAAP and amortized. Under U.S. GAAP, such organizational and start-up costs may not be deferred and must be included in income as incurred. The effects of the difference are included in paragraph (cc) below. (s) Translation of Financial Statements of Investments Outside of Chile Under Chilean GAAP, in accordance with Technical Bulletin 64 (“B. T. 64”) the financial statements of foreign subsidiaries that operate in countries exposed to significant risks (“unstable” countries), and that are not considered to be an extension of the parent company’s operations, are remeasured into US dollars. The Company’s foreign subsidiaries in Argentina, Perú, Brazil, and Colombia all meet the criteria of foreign subsidiaries that operate in countries exposed to enersis06 significant risks under BT 64, and are remeasured into US dollars. The Company has remeasured its foreign subsidiaries into US dollars under this requirement as follows: • Monetary assets and liabilities are translated at year-end rates of exchange between the US dollar and the local currency. • All non-monetary assets and liabilities and shareholder’s equity are translated at historical rates of exchange between the US dollar and the local currency. • Income and expense accounts are translated at average rates of exchange between the US dollar and local currency. • The effects of any exchange rate fluctuations between the local currency and the US dollar are included in the results of operations for the period. Under BT 64, the investment in the foreign subsidiary is price-level restated, the effects of which are reflected in income, while the effects of the foreign exchange gains or losses between the Chilean Peso and the US dollar on the foreign investment measured in US dollars, are reflected in equity in the account “Cumulative Translation Adjustment”. The amounts of foreign exchange losses included in income that is attributable to operations in unstable countries because these amounts have been remeasured into US dollars were ThCh$60,236,680, ThCh$25,391,952 and ThCh$35,510,041 for the years ended December 31, 2004, 2005 and 2006, respectively (See Note 23). Company’s Management believes that, foreign currency translation procedures described above are part of the comprehensive basis of preparation of price-level adjusted financial statements required by Chilean GAAP. Inclusion of inflation and translation effects in the financial statements is considered appropriate under the inflationary conditions that have historically affected the Chilean economy, and accordingly, are not eliminated in the reconciliation to U.S. GAAP as permitted by Form 20-F. (t) Derivative instruments The Company engages in derivative activity for hedging certain risks. These derivatives are considered accounting hedges under Chilean GAAP. Under Chilean GAAP the accounting treatment of hedging activity is similar to the accounting treatment of fair value hedges and cash flow hedges under SFAS 133. The documentation and hedge effectiveness requirements under Chilean GAAP though are not as burdensome as under SFAS 133. Under SFAS 133, to qualify for hedge accounting strict requirements need to be met, including hedge documentation and effectiveness tests. As of December 31, 2004, certain cross-currency swaps had by Enersis with a fair value of ThCh$(53,221,524) as of that date, qualified for hedge accounting under SFAS 133 since all the documentation and hedge effectiveness requirements were fulfilled. All foreign currency and interest rate hedging instruments entered into during 2005 and 2006 (total estimated fair value of ThCh$101,348,563 and ThCh$145,208,861 as of December 31, 2005 and 2006) fulfill the documentation and hedge effectiveness requirements to qualify for hedge accounting. 2006 Annual Report | 209 CONSOLIDATED FINANCIAL STATEMENTS The Company has designated under Chilean GAAP certain non- derivative financial instruments as hedges of the foreign currency exposure of net investments in foreign operations. The gain or loss on the non-derivative financial instrument that is designated as a hedge is reported as a translation adjustment to the extent it is effective as a hedge, any ineffectiveness is recorded in earnings. This accounting treatment is consistent with SFAS 133. adequate supply of energy at reasonable, determined prices, which considers a variety of factors. The marginal cost pricing model is not solely based upon costs incurred by the Company, and as a result, the requirements of U.S. GAAP under SFAS No.71, “Accounting for the Effects of Certain Types of Regulation”, related to a businesses whose rates are not regulated are not applicable, except for the Company’s operations in Brazil as described below. SFAS 133 also requires that certain embedded derivatives be separated and reported on the balance sheet at fair value and be subject to the same rules as other derivative instruments. Current Chilean accounting rules do not consider the existence of derivative instruments embedded in other contracts and therefore they are not reflected in the financial statements under Chilean GAAP. The effects of the adjustment with respect to financial derivatives, commodity derivatives, and embedded derivatives for the years ended December 31, 2004, 2005 and 2006 are included in the net income and shareholders’ equity reconciliation to US GAAP under paragraph (cc) below. (u) Fair value of long-term debt assumed As part of the purchase of the majority ownership interest in Endesa- Chile, a portion of the purchase price was allocated to the fair value of long-term debt. As discussed in paragraph (i), under Chilean GAAP, assets acquired and liabilities assumed are recorded at their carrying value, and the excess of the purchase price over the carrying value is recorded as goodwill. Under U.S. GAAP, assets acquired and liabilities assumed are recorded at their estimated fair values, and the excess of the purchase price over the estimated fair value of the net identifiable assets and liabilities acquired is recorded as goodwill. The effect on shareholders’ equity and net income for the years presented is included in paragraph (cc) below. (v) Deferred income During 2000, fiber optic cable was contributed to the Company in return for granting the contributing company access to the fiber optic network after installation in the Company’s electricity distribution system. Under Chilean GAAP, the contributed assets were recorded at their fair market value, with a corresponding credit recognized as income in 2000. Under U.S. GAAP, the amount was deferred and amortized over the life of the related service contract. This adjustment reverses the gain under Chilean GAAP and records the amortization of the deferred income recognized under U.S. GAAP. The effect on shareholders’ equity and net income for the years presented is included in (cc) below. (w) Regulated assets and deferred costs The electricity sector in Chile and other Latin American countries is regulated pursuant to applicable laws. Most of the Company’s sales are subject to node price regulation, which is designed to ensure an 210 | 2006 Annual Report As a result of changes in Brazilian Electricity Laws and Regulations, the Company’s distribution subsidiaries in Brazil, Ampla Energia e Serviços S.A. (AMPLA, ex CERJ) and Companhia Energética do Ceará (Coelce), are subject to the provisions of SFAS No. 71 beginning on January 1, 2001. With the new regulations issued by the National Agency of Electric Energy (ANEEL), the rate-setting structure in Brazil is now designed to provide recovery for allowable costs incurred, which will be recovered through future increases in energy tariffs in order to recover losses experienced during the period of Brazilian Federal Government mandated energy rationing from June 1, 2001 to December 31, 2001. The Company estimates remaining costs will be recovered approximately over a period of five years, from the balance date. Accordingly, the Company capitalizes incurred costs as deferred regulatory assets when it is probable that future revenue equal to the costs incurred will be billed and collected as a direct result of the inclusion of the costs in an increased rate set by the regulator. The deferred regulatory asset is eliminated when the Company collects the related costs through billings to customers. ANEEL perform a rate review on an annual basis. If ANEEL excludes all or part of a cost from recovery, that portion of the deferred regulatory assets is impaired and is accordingly reduced to the extent of the excluded cost. The Company has recorded deferred regulatory assets, which it expects to pass on to its customers in accordance with and subject to regulatory provisions. The regulations also included certain fixes costs or VPA costs, which each distribution company is permitted to defer and pass on to their customers using future rate adjustments. VPA costs are limited by concession contracts to the cost of purchased power and certain other costs and taxes. Due to uncertainty in the Brazilian economy, ANEEL delayed the approval of such VPA rate increases. An Executive Order in October 2001 created a tracking account mechanism, in order to calculate the variation in the VPA costs for future rate adjustment calculation purposes. The Company has not recognized any regulatory assets for VPA costs incurred prior to 2001, because costs incurred prior to January 1, 2001, are not recoverable through the tracking account. Under Chilean GAAP, the Company recognized revenue and deferred costs related to the regulated assets. Under U.S. GAAP, in accordance with EITF 92-7, “Accounting by Rate Regulated Utilities for the Effects of Certain Alternate Revenue Programs”, revenue amounts not expected to be collected within 24 months, have been deferred. The effect of deferring revenues expected to be collected after two years is included in (cc) below. (x) Reorganization of subsidiaries This adjustment corresponds to the reorganization of the Company’s subsidiaries Endesa Costanera S.A. and Central Buenos Aires (CBA) during 2001, in which Endesa Costanera acquired the minority interest in CBA from third parties and exchanged shares with Endesa Argentina S.A. During 2006, the Company’s subsidiary Edegel was merged with Etevensa, an entity which was controlled by Endesa Internacional S.A., the Company’s parent company. This reorganization included a purchase of a minority interest portion in exchange for shares of Edegel and cash. On April 1, 2006 the Company’s subsidiaries Chilectra S.A. was merged with Elesur S.A. (currently Chilectra S.A.) which is 99.09% owned by Enersis S.A. This reorganization included a purchase of a minority interest portion by cash. Under Chilean GAAP, the Company recorded these transactions under the pooling of interests method, using the book values of the net assets acquired under merger accounting as proscribed by Technical Bulletin 72 for reorganizations under common control. Under US GAAP the exchange of shares between entities under common control is recorded at book values. However, to the extent that shares in CBA, Etevensa and Chilectra S.A. were acquired from third parties, the identifiable assets acquired and liabilities assumed are recorded at fair value using purchase accounting together with the shares issued by the subsidiaries Endesa Costanera S.A., Edegel S.A and Chilectra S.A. The difference in property, plant and equipment basis between Chilean GAAP and US GAAP results in a greater depreciation expense to be recorded under US GAAP over the remaining estimated useful life. The effect of this adjustment is included in the net income and shareholders’ equity reconciliation to US GAAP under paragraph (cc) below. (y) Effects of minority interest on the U.S. GAAP adjustments The net income and shareholders’ equity under Chilean GAAP is adjusted in the U.S. GAAP footnote for the impact of the U.S. GAAP reconciling items on the allocation of income and loss to minority interests. The sum of this adjustment and the minority interest reflected in our consolidated income statement and balance sheet for each period presented under Chilean GAAP represents the allocation of our results and shareholders’ equity to our minority shareholders under U.S. GAAP. The effect of this adjustment is included in net income and shareholders’ equity reconciliation to US GAAP under paragraph (cc) below. (z) Amortization of bond discount and deferred debt issuance costs Under Chilean GAAP the company amortized bond discounts and deferred debt issuance costs using the straight line method over the estimate maturity of the related debt.Under U.S. GAAP, deferred debt enersis06 issuance costs and bond discounts have to be amortized using the effective interest method. The effect of this adjustment included in the net income and shareholders equity reconciliation to US GAAP under paragraph (cc) below. (aa) Asset retirement obligations Under Chilean GAAP, there is no requirement to record obligations associated with the retirement of tangible long-lived assets. Under U.S. GAAP, the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations” effective January 1, 2003. Previously, the Company had not been recognizing amounts related to asset retirement obligations under U.S. GAAP. This standard requires the Company to record the fair value of the legal obligation it has to make certain environmental restorations upon closure of its facilities. The fair value of the liability is estimated by discounting the future estimated expenditures related to the restoration. The Company then measures changes in the liability due to passage of time by applying an interest method of allocation to the amount of the liability at the beginning of the period. The interest rate used to measure that change is the credit-adjusted risk- free rate that existed when the liability, or portion thereof, was initially measured. That amount is recognized as an increase in the carrying amount of the liability and the expense is classified as an operating item in the statement of income, referred to as accretion expense. At the same time the standard requires the Company to capitalize the new asset retirement obligation costs arising as the result of additional liabilities incurred, such as the activation of a new generation facility, and subsequently allocate that asset retirement cost to expense over the life of the plant based on the useful life of the plant. At December 31, 2004, 2005 and 2006, the adjustment to US GAAP income from continuing operations represents the accreted interest expense and depreciation of the costs capitalized for the asset retirement obligations. In Peru, where we have eight hydroelectric plants and one thermoelectric plant, existing legislation includes the requirement for entities with electrical assets to conduct retirement activities when operations cease. In Chile, under certain concession decrees governing four distribution lines, we are similarly required to conduct retirement activities upon cessation of operations. The effects of this U.S. GA AP adjustment on net income and shareholders’ equity are presented in note (cc) below. (bb) Creation of Endesa Brasil On September 30, 2005, certain Brazilian affiliates under common control were reorganized under a newly created holding company, Endesa Brasil S.A. In connection with this reorganization, Enersis transferred its interest in certain investees to Endesa Brasil in exchange for a 53.61% direct and indirect interest therein (see Note 1l). The Company began accounting for Endesa Brasil as a consolidated subsidiary as of that date. The difference between net assets contributed and received generated a difference if ThCh$6,327,211 presented as reserve in equity. Although the transaction received the same accounting treatment under both Chilean GAAP and US GAAP, 2006 Annual Report | 211 CONSOLIDATED FINANCIAL STATEMENTS as a result of the existing adjustment to US GAAP in the subsidiaries which were the subject of the reorganization, an incremental charge to equity of ThCh$1,322,212 was recorded. The effect of this adjustment is included in the net income and shareholders’ equity reconciliation to US GAAP under paragraph (cc) below. (cc) Effect of conforming to U.S. GAAP The reconciliation of reported net income required to conform with U.S. GAAP is as follows: Net income in accordance with Chilean GAAP 2004 ThCh$ 46,866,624 As of December 31, 2005 ThCh$ 69,445,219 2006 ThCh$ 285,960,366 Reversal of amortization of revaluation of property, plant and equipment (paragraph b) 1,955,277 1,123,624 940,087 Depreciation of property, plant and equipment and difference in fixed assets value at acquisition date (paragraph c) Amortization of intangibles (paragraph d) Deferred income taxes (paragraph e) Pension and post-retirement benefits (paragraph g) Investments in related companies (paragraph h) Amortization of goodwill (paragraph i) Amortization of negative goodwill (paragraph j) Capitalized interest (paragraph k) Depreciation capitalized interest (paragraph k) Difference foreign exchange capitalized (paragraph k) Depreciation difference foreign exchange capitalized (paragraph k) Accumulated deficit during the development stage (paragraph l) Capitalized general and administrative expenses (paragraph n) Involuntary employee termination benefits (paragraph o) Revenue recognition Edesur (paragraph p) Elimination of amortization of capitalized legal reserve (paragraph q) Amortization of organizational and start-up costs (paragraph r) Derivative instruments operating income (paragraph t) Derivative instruments non operating income (paragraph t) Fair value of long-term debt assumed (paragraph u) Deferred income (paragraph v) Regulated assets (paragraph w) Reorganization of subsidiaries (paragraph x) Effects of minority interest on the U.S. GAAP adjustments (paragraph y) Deferred tax effects on the U.S. GAAP adjustments Amortization of bond discount and deferred debt issuance cost (paragraph z) Staff severance indemnities (paragraph f) Asset retirement cost - (paragraph aa) Asset retirement obligations - liabilities (paragraph aa) (2,323,226) 1,067,360 12,612,586 (5,736,710) (1,091,989) (1,124,997) - - 3,507,010 1,533 1,549 (33,823,190) 56,882,043 55,757,931 1,267,005 8,348,959 (2,292,471) (6,182,165) 261,423 900,014 11,526,719 (1,689,013) 6,659 493,599 - - 2,953,118 (1,769) (2,995,173) (17,268) - (3,983,074) 518,351 489,552 (7,115,723) 16,710,560 (146,231) 242,761 12,056,423 (262,369) 23,374,626 459,424 3,695,633 33,692,028 (1,919,538) (978,245) 128,342 12,320,216 (232,852) (6,988,163) (710,466) (14,505,746) - (189,069) 566,123 (674,105) - - (64,469) 148,420 8,255,112 155,497 4,773,424 55,324,188 17,753,365 11,902,604 (2,037,571) 31,411 495,731 (303,015) (2,930,771) (21,295) 4,071,920 466,907 2,384,966 1,058,984 (85,113) (27,371) 130,581 (3,562,711) (236,914) (7,211,572) (15,198,481) 2,338,553 - (12,090) (1,140,190) Net income in accordance with U.S. GAAP 160,540,036 124,917,651 362,151,605 Net income in accordance with U.S. GAAP Other comprehensive income (loss): 160,540,036 124,917,651 362,151,605 Cumulative translation adjustment determined under Chilean GAAP net of minority interest (101,836,006) (105,702,172) 15,780,715 Cumulative translation adjustment related to U.S GAAP adjustments net of minority interest Fair value change of hedging instruments used in cash flow hedges, net of deferred tax Adoption of FAS 158, Brazilian subsidiaries, net of deferred tax 13,171,282 - - 21,138,761 1,317,498 (3,334,313) (44,746,077) - 10,393,599 Comprehensive income in accordance with U.S.GAAP 71,875,312 41,671,738 340,245,529 212 | 2006 Annual Report The reconciliation to conform shareholders’ equity amounts to U.S. GAAP is as follows: Shareholders’ equity in accordance with Chilean GAAP enersis06 As of December 31, 2005 ThCh$ 2,650,384,728 2006 ThCh$ 2,869,881,909 Reversal of revaluation of property, plant and equipment net of accumulated amortization revaluation of property, plant and equipment (paragraph b) (10,179,636) (9,238,334) Depreciation of property, plant and equipment and difference in fixed asset value at acquisition date (paragraph c) Deferred income taxes (paragraph e) Pension and post-retirement benefits liabilities long term (paragraph g) Investments in related companies (paragraph h) Goodwill (paragraph i) Goodwill gross amount (paragraph i) Negative goodwill (paragraph j) Capitalized interest (paragraph k) Exchange difference (paragraph k) Minimum dividend (paragraph m) Capitalized general and administrative expenses (paragraph n) Reversal of accrual of certain involuntary employee termination benefits (paragraph o) Revenue recognition Edesur (paragraph p) Elimination of capitalized legal reserve (paragraph q) Amortization organizational and start-up costs (paragraph r) Derivative instruments (paragraph t) Fair value of long-term debt assumed (paragraph u) Reorganization of subsidiaries (paragraph x) Deferred income (paragraph v) Regulated assets (paragraph w) Effects of minority interest on the U.S. GAAP adjustments (paragraph y) Deferred tax effects on the U.S. GAAP adjustments Amortization of bond discount and deferred debt issuance cost (paragraph z) Asset retirement cost (paragraph aa) Asset retirement obligations - liabilities (paragraph aa) (8,986,279) (10,008,427) (294,941,836) (290,128,352) (16,368,212) (6,946,111) 8,057,678 (2,293,661) 421,820,730 479,559,912 89,858,301 88,417,514 (354,124,446) (339,386,151) 68,157,399 (20,328,830) (16,086,968) (26,240,459) 59,128 (3,983,074) (5,438,791) (10,037,395) 19,558,830 191,592 3,721,443 (2,053,473) 2,996,725 204,336,006 114,447,475 79,211,332 (19,905,733) (47,710,019) (29,373,265) 38,865 - (5,066,755) (7,827,515) (33,346,865) 164,221 13,816,196 (1,958,711) (513,714) 191,122,226 100,059,125 - 2,338,553 567,187 (998,688) 547,154 (2,139,121) Shareholders’ equity in accordance with U.S. GAAP 2,799,385,346 3,034,318,062 The changes in shareholders’ equity in U.S. GAAP as of each year-end are as follows: As of December 31, 2004 ThCh$ 2005 ThCh$ 2006 ThCh$ Shareholders equity in accordance with U.S. GAAP - January 1 2,724,074,973 2,786,704,619 2,799,385,346 Dividends paid during the year Reversal of dividends payable as of previous balance sheet date Minimum dividend payable (paragraph m) Reorganization under common control (paragraph x and bb) Fair value change of hedging instruments used in cash flow hedges, net of deferred tax Adoption of FAS 158, Brazilian subsidiaries, net of deferred tax Cumulative translation adjustment Capital increase Net income in accordance with U.S. GAAP for the year - - (8,631,508) - - - (13,886,128) 8,631,508 (16,086,968) (7,649,423) 1,317,498 (68,893,961) 16,086,968 (47,710,019) (4,795,801) (44,746,077) - 10,393,599 (88,664,724) (84,563,411) 12,446,402 (614,158) - - 160,540,036 124,917,651 362,151,605 Shareholders equity in accordance with U.S.GAAP - December 31 2,786,704,619 2,799,385,346 3,034,318,062 2006 Annual Report | 213 CONSOLIDATED FINANCIAL STATEMENTS II. Additional disclosure requirements: (a) Goodwill and negative goodwill The following is an analysis of goodwill and negative goodwill, determined on Chilean GAAP basis, as of December 31, 2005 and 2006, respectively: Goodwill Less: accumulated amortization Goodwill, net Negative goodwill Less: accumulated amortization Negative goodwill, net Amortization expense under Chile GAAP is disclosed in Note 13. (b) Basic and diluted earnings per share: Chilean GAAP earnings per share U.S. GAAP earnings per share As of December 31, 2005 ThCh$ 1,806,704,228 (1,090,572,266) 2006 ThCh$ 1,801,542,342 (1,146,480,345) 716,131,962 655,061,997 (469,806,762) 432,346,174 (475,440,048) 438,423,731 (37,460,588) (37,016,317) For the year ended December 31, 2005 Ch$ 2.13 3.83 2004 Ch$ 1.44 4.92 2006 Ch$ 8.76 11.09 Basic and diluted U.S. GAAP earnings per share 4.92 3.83 11.09 Total number of common outstanding shares at December 31, 32,651,166 32,651,166 32,651,166 Weighted average number of common shares outstanding (000’s) 32,651,166 32,651,166 32,651,166 (1) The earnings per share figures for both U.S. GAAP and Chilean GAAP purposes have been calculated by dividing the respective earnings (loss) amounts in accordance with U.S. GAAP and Chilean GAAP, respectively, by the weighted average number of common shares outstanding during the year. The Company has not issued convertible debt or contingent equity securities. Consequently, there are no potentially dilutive effects on the earnings per share of the Company. 214 | 2006 Annual Report enersis06 (c) Income taxes: The provision (benefit) for income taxes charged to the results of operations determined in accordance with U.S. GAAP is as follows: Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ 2004 Income tax provision under Chilean GAAP Current income taxes as determined under Chilean GAAP (6,110,475) (272,789) (18,550,941) (5,332,042) (69,327,978) (99,594,225) Deferred income taxes as determined under Chilean GAAP 12,770,470 (24,173,507) (27,780,,981) (2,526,996) (3,862,472) (45,573,486) Total income tax provision under Chilean GAAP 6,659,995 (24,446,296) (46,331,922) (7,859,038) (73,190,450) (145,167,711) U.S. GAAP adjustments: Deferred tax effect of applying SFAS No. 109 1,536,490 8,820,314 2,814,136 (558,354) - 12,612,586 Deferred tax effect of adjustments to U.S. GAAP (332,152) 1,570,741 3,022,940 (3,499,615) (1,472,380) (710,466) U.S. GAAP reclassifications (1) 628,403 - - - 1,507,553 2,135,956 Total U.S. GAAP adjustments: 1,832,741 10,391,055 5,837,076 (4,057,969) 35,173 14,038,077 Total Income tax provision under U.S. GAAP 8,492,736 (14,055,241) (40,494,846) (11,917,007) (73,155,277) (131,129,635) Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ 2005 Income tax provision under Chilean GAAP Current income taxes as determined under Chilean GAAP (12,757,343) (6,081,363) (24,595,823) (30,249,268) (75,083,231) (148,767,028) Deferred income taxes as determined under Chilean GAAP (28,135,999) (6,060,321) (2,138,607) 2,577,728 473,553 (33,283,646) Total income tax provision under Chilean GAAP (40,893,342) (12,141,684) (26,734,430) (27,671,540) (74,609,678) (182,050,674) U.S. GAAP adjustments: Deferred tax effect of applying SFAS No. 109 (414,414) 150,177 5,655,585 (1,884,338) - 3,507,010 Deferred tax effect of adjustments to U.S. GAAP (9,755,096) 1,726,862 (1,137,194) (5,259,431) (80,887) (14,505,746) U.S. GAAP reclassifications (1) 1,626,755 - - 4,226,268 1,600,673 7,453,696 Total U.S. GAAP adjustments: (8,542,755) 1,877,039 4,518,391 (2,917,501) 1,519,786 (3,545,040) Total Income tax provision under U.S. GAAP (49,436,097) (10,264,645) (22,216,039) (30,589,041) (73,089,892) (185,595,714) Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ 2006 Income tax provision under Chilean GAAP Current income taxes as determined under Chilean GAAP (48,613,763) (4,507,845) (33,745,695) (80,992,242) (85,208,065) (253,067,610) Deferred income taxes as determined under Chilean GAAP 83,652,728 (10,880,034) (8,186,970) 55,665,414 23,408,598 143,659,736 Total income tax provision under Chilean GAAP 35,038,965 (15,387,879) (41,932,665) (25,326,828) (61,799,467) (109,407,874) U.S. GAAP adjustments: Deferred tax effect of applying SFAS No. 109 5,728,815 135,227 (577,332) 2,968,402 - 8,255,112 Deferred tax effect of adjustments to U.S. GAAP (6,978,720) (3,588,034) (977,017) (1,263,702) (2,391,008) (15,198,481) U.S. GAAP reclassifications (1) 86,038 - - 14,085,351 182,224 14,353,613 Total U.S. GAAP adjustments: (1,163,867) (3,452,807) (1,554,349) 15,790,051 (2,208,784) 7,410,244 Total Income tax provision under U.S. GAAP 33,875,098 (18,840,686) (43,487,014) (9,536,777) (64,008,251) (101,997,630) (1) Certain tax-related expenses under Chilean GAAP are classified as non-operating, but under US GAAP would be classified as income taxes. 2006 Annual Report | 215 CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets (liabilities) as of balance sheet dates are summarized as follows: SFAS No. 109 SFAS No. 109 2005 2006 Applied to SFAS No. Total Applied to SFAS No. Total Chilean 109 applied Deferred Chilean 109 applied Deferred GAAP to U.S. GAAP Taxes under GAAP to U.S. GAAP Taxes under Balances Adjustments SFAS No. 109 Balances Adjustments SFAS No. 109 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 28,899,953 131,313,976 160,213,929 2,739,244 101,989,597 104,728,841 56,899,775 11,830,729 2,015,328 2,460,812 - - - - - 3,038,592 1,053,846 - - 5,565,192 243,459,396 80,000,821 3,781,606 - - - - 1,394,076 56,899,775 11,830,729 2,015,328 2,460,812 3,038,592 1,053,846 5,565,192 67,547,385 10,500,328 2,236,216 2,367,831 - - - - - 9,184,618 1,147,149 - 243,459,396 241,818,145 80,000,821 3,781,606 1,394,076 85,277,169 4,013,859 - 67,547,385 10,500,328 2,236,216 2,367,831 9,184,618 1,147,149 - 241,818,145 85,277,169 4,013,859 - - - - - - - (178,272,879) (940,389) (179,213,268) (39,998,258) (1,104,621) (41,102,879) 12,376,001 6,024,624 804,107 - 13,180,108 6,024,624 14,349,812 5,548,245 1,247,333 (2,739,611) 15,597,145 2,808,634 Deferred income tax assets: Property, plant and equipment Allowance for doubtful accounts Actuarial deficit (companies in Brazil) Deferred income Provision real estate projects Derivative contracts Vacation accrual Post retirement benefits Tax loss carryforwards (1) Contingencies Salaries for construction-in progress Revenue recognition Edesur Valuation allowance Others Provision for employee benefits Total deferred income tax assets 270,530,012 141,175,554 411,705,566 397,547,125 108,577,316 506,124,441 Deferred income tax liabilities: Property, plant and equipment (2) 400,201,707 99,843,560 500,045,267 411,588,632 83,812,317 495,400,949 Severance indemnities Regulated assets Finance costs Derivative contracts Bond discount Cost of studies Imputed interest on construction Materials used Exchange difference Capitalized expenses Capitalized interest Others 1,761,264 29,120,098 13,254,965 - 1,018,886 - - 7,042,386 1,709,291 8,498,040 4,532,961 857,794 20,816,953 - - 12,645,033 1,761,264 30,138,984 13,254,965 7,042,386 1,709,291 8,498,040 4,532,961 857,794 1,677,822 28,973,980 15,353,914 - 1,478,500 8,420,626 3,756,520 811,521 20,816,953 18,678,406 - 2,130,360 - - - - - - - 1,677,822 (174,663) 28,799,317 - 15,353,914 4,889,361 397,554 - - - - - 4,889,361 1,876,054 8,420,626 3,756,520 811,521 18,678,406 2,130,360 26,922,740 13,670,485 23,173,516 32,571 23,173,516 12,677,604 - 26,922,740 13,642,567 27,918 Total deferred income tax liabilities 493,398,106 131,110,919 624,509,025 506,512,848 115,875,227 622,388,075 Net deferred assets (liabilities) (222,868,094) 10,064,635 (212,803,459) (108,965,723) (7,297,911) (116,263,634) Complementary Account 190,558,996 (190,558,996) - 182,771,316 (182,771,316) - Net deferred assets (liabilities) (32,309,098) (180,494,361) (212,803,459) 73,805,593 (190,069,227) (116,263,634) (1) Tax loss carryforwards relate primarily to Peruvian, Chilean and Brazilian entities. In accordance with the current enacted tax law in Chile and Brazil, such tax losses may be carried-forward indefinitely, however Peruvian tax carryforwards expire after five years. (2) In September 2004, the Peruvian tax court ruled invalid the tax basis of certain assets held by Edegel S.A. Based on this ruling, the Company has increased the long-term deferred tax liability ThCh$80,429,245, in order to reflect the write-off of the corresponding tax-basis assets held in Peru. As such estimate of future deductible amounts was determined prior to the acquisition of Edegel in connection with the acquisition of Endesa-Chile in 1999, the Company has adjusted goodwill by a corresponding amount in accordance with SFAS No. 109 “Accounting for Income Taxes” (“SFAS No. 109”) and EITF 93-7 “Uncertainties Related to Income Taxes in a Business Combination”. 216 | 2006 Annual Report enersis06 A reconciliation of the U.S. GAAP Statutory Income Tax rate to the Company’s effective tax rate on net income is as follows: Statutory US GAAP tax Effect of higher foreign tax rates Increase (decrease) in rates resulting from: Price-level restatement not accepted for tax purposes Non-taxable items Non-deductible items (2) Prior years income tax Other 2004 Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ (55,978,322) 2,198,715 (20,188,626) (177,024) (26,039,812) (100,185,069) - 3,526,043 (19,384,976) 10,540,274 (31,758,912) (37,077,571) (158,725) (3,260,306) (9,134,554) - (7,798,630) (20,352,215) 35,091,466 (14,671,010) (8,667,228) (19,240,519) (6,371,390) (13,858,681) 27,204,360 1,300,938 1,133,032 (3,346,512) 1,598,587 27,890,405 (1,280,114) - - - - (1,280,114) 2,985,668 (3,149,621) 15,747,506 306,774 (4,292,673) 11,597,654 US GAAP reclassifications (1) 628,403 - - - 1,507,553 2,135,956 Tax (benefit) expense at effective tax rate 8,492,736 (14,055,241) (40,494,846) (11,917,007) (73,155,277) (131,129,635) Statutory US GAAP tax Effect of higher foreign tax rates Increase (decrease) in rates resulting from: Price-level restatement not accepted for tax purposes Non-taxable items Non-deductible items (2) Effect of change in valuation allowance Prior years income tax Other US GAAP reclassifications (1) 2005 Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ (30,843,549) 7,236,194 (14,242,625) (16,049,611) (30,765,133) (84,664,724) - 7,661,853 (13,823,723) (14,624,618) (36,329,724) (57,116,212) 4,557,943 (6,680,885) - - 114,226 (2,008,716) 13,581,428 1,981,745 9,437,281 12,733,699 8,930,895 46,665,048 (37,594,487) (19,075,945) (2,330,001) (16,854,574) (14,975,140) (90,830,147) (627,216) 780,413 - - - - - - 1,348,200 - 720,984 780,413 (917,384) (1,387,607) (1,256,971) (20,205) (3,013,889) (6,596,056) 1,626,755 - - 4,226,268 1,600,673 7,453,696 Tax (benefit) expense at effective tax rate (49,436,097) (10,264,645) (22,216,039) (30,589,041) (73,089,892) (185,595,714) Statutory US GAAP tax Effect of higher foreign tax rates Increase (decrease) in rates resulting from: Price-level restatement not accepted for tax purposes Non-taxable items Non-deductible items (2) Effect of change in valuation allowance Prior years income tax Other US GAAP reclassifications (1) 2006 Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ (54,195,284) (2,250,914) (10,474,694) (26,981,297) (34,486,586) (128,388,775) - (2,383,321) (10,166,614) (26,981,296) (43,615,390) (83,146,621) (5,306,699) (6,090,435) - - 23,819,730 12,422,596 16,426,968 5,524,094 1,604,352 40,260,656 3,896,349 67,712,419 (63,104,687) (13,626,074) (24,538,926) (15,456,493) (14,913,918) (131,640,098) 130,922,325 6,060,692 2,985,745 86,038 - - - - - - (58,155) 130,864,170 - 6,060,692 9,764,376 (14,036) 88,868 5,536,302 1,167,497 - - 14,085,351 182,224 14,353,613 Tax (benefit) expense at effective tax rate 33,875,098 (18,840,686) (43,487,014) (9,536,777) (64,008,251) (101,997,630) (1) US GAAP reclassifications are tax related expenses that under Chilean GAAP are classified as non-operating expenses, but under US GAAP would be classified as income taxes. (2) This represents mainly deductible temporary differences related to investments in subsidiaries that are permanent in nature for which deferred tax asset are not recognized. 2006 Annual Report | 217 CONSOLIDATED FINANCIAL STATEMENTS (d) Segment disclosures The Company is primarily engaged in the distribution and generation of electricity in Chile, Argentina, Brazil, Colombia and Perú. Enersis provides these and other services through four business segments: • Generation • Distribution • Engineering Services and Real Estate • Corporate and other Generation involves the generation of electricity primarily through its subsidiary Endesa-Chile. Distribution involves the supply of electricity to regulated and unregulated customers. Engineering Services and Real Estate includes engineering services and real estate development. Corporate and other includes computer-related data processing services and the sale of electricity-related supplies and equipment. The Company’s reportable segments are strategic business units that offer different products and services and are managed separately. The methods of revenue recognition by segment are as follows: • Generation Revenue is recognized when energy and power output is delivered and capacity is provided at rates specified under contract terms or prevailing market rates. • Distribution - Operating Revenues Revenue is recognized when energy and power is provided at rates specified under contract terms or prevailing market rates. • Distribution - Non Operating Revenues Revenue is recognized as services are provided, such as public light posts, telephone poles, and other services related to distribution services. • Engineering Services and Real Estate Revenue is recognized as services are provided, or when projects are sold. • Corporate and Other Revenue is recognized as services are provided, or when supplies or equipment are sold. The following segment information has been disclosed in accordance with U.S. reporting requirements, however, the information presented has been determined in accordance with Chilean GAAP: 2004 Generation Transmission Distribution real estate and other Eliminations Consolidated Engineering services and Corporate ThCh$ ThCh$ ThCh$ 1,975,320,611 15,389,646 ThCh$ 18,997,389 13,487,262 ThCh$ ThCh$ ThCh$ 51,147,903 (3,957,563) 2,822,931,552 107,853,629 (360,755,821) 65,323,795 1,990,710,257 32,484,651 159,001,532 (364,713,384) 2,888,255,347 294,748,608 1,529,056 1,107,915 5,593,036 691,697,866 (20,161,300) 275,703 139,481,433 (106,695,637) 32,944,744 222,094,781 1,763,525 57,721,804 - 446,782,332 5,383,514,858 118,908,566 4,316,359,635 (4,310,603,765) 11,096,859,935 174,379,204 341,021 5,205,542 - 281,293,659 Sales to unaffiliated customers Intersegment sales 781,423,212 289,349,079 Total revenues 1,070,772,291 - Operating income 388,719,251 Participation in net income of affiliate companies 20,044,545 Depreciation and amortization 165,202,222 Identifiable assets including investment in related companies 5,588,680,641 Capital expenditures 101,367,892 - - - - - - - 218 | 2006 Annual Report enersis06 Engineering services and Corporate 2005 Generation Transmission Distribution real estate and other Eliminations Consolidated Sales to unaffiliated customers Intersegment sales ThCh$ ThCh$ ThCh$ 885,593,542 285,394,924 13,088,320 2,264,900,754 15,525,130 17,304,838 ThCh$ 21,073,868 12,977,309 ThCh$ 64,780,472 ThCh$ ThCh$ 385,645 3,249,822,601 114,233,574 (402,115,710) 43,320,065 Total revenues 1,170,988,466 28,613,450 2,282,205,592 34,051,177 179,014,046 (401,730,065) 3,293,142,666 Operating income 421,610,853 13,338,963 392,373,848 3,170,830 (470,967) (1,379,461) 828,644,066 Participation in net income of affiliate companies 13,709,598 - 3,173,550 155,382 153,395,823 (163,546,854) 6,887,499 Depreciation and amortization 163,867,174 2,762,088 197,684,077 2,047,397 57,992,494 - 424,353,230 Identifiable assets including investment in related companies 5,529,152,941 499,883,129 4,837,653,506 108,462,482 4,912,851,951 (5,419,086,272) 10,468,917,737 Capital expenditures 61,309,432 328,473 256,061,777 1,437,230 4,978,693 - 324,115,605 Engineering services and Corporate 2006 Generation Transmission Distribution real estate and other Eliminations Consolidated Sales to unaffiliated customers 1,148,304,162 80,025,138 2,529,416,905 Intersegment sales 330,777,812 63,874,769 18,960,499 ThCh$ ThCh$ ThCh$ ThCh$ 33,904,941 15,871,165 ThCh$ 66,484,924 ThCh$ ThCh$ - 3,858,136,070 133,553,160 (529,108,743) 33,928,662 Total revenues 1,479,081,974 143,899,907 2,548,377,404 49,776,106 200,038,084 (529,108,743) 3,892,064,732 Operating income 583,966,319 (758,516) 483,463,309 9,865,975 (9,611,537) 1,116,901 1,068,042,451 Participation in net income of affiliate companies 42,138,395 - 20,916,594 117,573 390,506,117 (448,639,739) 5,038,940 Depreciation and amortization 189,730,359 13,555,986 206,673,313 2,255,417 60,091,589 - 472,306,664 Identifiable assets including investment in related companies 5,817,728,024 460,656,686 5,332,487,512 118,831,802 4,876,485,024 (5,543,779,765) 11,062,409,283 Capital expenditures 173,512,065 1,893,683 335,867,636 1,631,388 4,863,574 - 517,768,346 A summary of activities by geographic area is as follows: 2004 Total revenues Long lived assets (net) (1) 2005 Total revenues Long lived assets (net) (1) 2006 Total revenues Long lived assets (net) (1) Chile ThCh$ 953,247,486 2,369,681,055 Argentina ThCh$ 347,706,629 1,161,390,679 Perú ThCh$ 305,657,073 973,037,235 Brasil ThCh$ 707,503,624 1,562,259,410 Colombia ThCh$ 574,140,535 2,062,298,139 Total ThCh$ 2,888,255,347 8,128,666,518 1,089,380,399 2,353,816,519 402,590,119 995,511,199 300,264,933 855,959,997 901,123,363 1,816,089,978 599,783,852 1,785,379,094 3,293,142,666 7,806,756,787 1,238,222,497 2,422,172,672 503,975,086 1,014,877,458 367,619,243 999,784,191 1,117,460,724 1,861,638,455 664,787,181 1,788,964,623 3,892,064,732 8,087,437,399 (1) Long-lived assets include property, plant and equipment. 2006 Annual Report | 219 CONSOLIDATED FINANCIAL STATEMENTS (e) Concentration of risk: (f) Schedule of debt maturity: The Company does not believe that it is exposed to any unusual credit risk from any single customer. The Company’s debtors are dependent on the economy in Latin America, which could make them vulnerable to downturns in the economic activity in the countries in which the Company operates. No single customers accounted for more than 10% of revenues for the years ending December 31, 2004, 2005 and 2006. Following is a schedule of debt maturity in each of the next five years and thereafter: 2007 2008 2009 2010 2011 Thereafter Total As of December 31, 2006 ThCh$ 379,971,326 634,872,297 501,655,473 354,435,129 368,596,613 1,354,292,344 3,593,823,182 (g) Disclosure regarding interest capitalization: 2004 ThCh$ Year ended December 31, 2005 ThCh$ 2006 ThCh$ Interest expense incurred Interest capitalized under Chilean GAAP Interest capitalized under U.S. GAAP 380,690,839 7,619,740 15,968,699 358,032,727 - 11,526,719 390,708,744 5,783,642 17,686,246 (h) Cash flow information: (i) The statement of cash flows under Chile GAAP differs in certain respects from the presentation of a statement of cash flow under U.S. GAAP. Marketable securities under Chile GAAP qualify as cash flow equivalent, whereas under U.S. GAAP they are classified as available – for –sale securities (See note 36 II (q)) Cash flow from operating activities - Chile GAAP and US GAAP 653,699,031 837,148,104 862,408,340 Cash flow from financing activities - Chile GAAP and US GAAP (200,047,308) (764,261,264) (297,089,863) As of December 31, 2004 ThCh$ 2005 ThCh$ 2006 ThCh$ Cash flow investing activities Chile GAAP Differences between Chilean GAAP and US GAAP: Purchase of marketable securities during period Sale of marketable securities during period Cash flow investing activities US GAAP Net cash flow (205,104,786) (337,667,076) (507,680,720) (13,033,179) 12,095,052 (5,421,998) 13,033,179 (9,019,778) 5,421,998 (206,042,913) (330,055,895) (511,278,500) 247,608,810 (257,169,055) 54,039,977 14,578,723 68,618,700 Effect of price-level restatement and foreign exchange differences (28,574,426) (21,406,173) Net increase (decrease) in cash and cash equivalent 219,034,384 (278,575,228) Cash and cash equivalent at beginning of the year 346,776,012 565,810,396 362,451,904 Additional cash resulting from creation of Endesa Brasil - 75,216,736 - Cash and cash equivalent at end of the year 565,810,396 362,451,904 431,070,604 220 | 2006 Annual Report enersis06 (ii) The reconciliation of cash and cash equivalents from Chilean GAAP to U.S. GAAP as of December 31, 2004, 2005 and 2006 is as follows: Cash and cash equivalent under Chilean GAAP Elimination of marketable securities 2004 ThCh$ 578,843,575 (13,033,179) Year ended December 31, 2005 ThCh$ 367,873,902 (5,421,998) 2006 ThCh$ 440,090,382 (9,019,778) Total cash and cash equivalents under US GAAP 565,810,396 362,451,904 431,070,604 (iii) Additional disclosures required under U.S. GAAP are as follows: Interest paid during the year Income taxes paid during the year Assets acquired under capital leases 2004 ThCh$ 333,041,786 93,108,247 29,084,335 Years ended December 31, 2005 ThCh$ 295,157,898 100,024,223 2006 ThCh$ 299,160,341 155,915,573 - - (iv) Under US GAAP, cash and cash equivalents includes all highly liquid debt instruments purchased with a maturity of three months or less: Cash Time deposits and repurchase agreements 2004 ThCh$ 59,757,305 506,053,093 Years ended December 31, 2005 ThCh$ 72,873,740 289,578,164 2006 ThCh$ 99,794,219 331,276,385 Total cash and cash equivalents under US GAAP 565,810,398 362,451,904 431,070,604 (i) Disclosures about fair value of financial instruments The following methods and assumption were used to estimate the fair value of each class of financial instruments as of December 31, 2005 and 2006 for which it is practicable to estimate that value: • Cash The fair value of the Company’s cash is equal to its carrying value. • Time deposits The fair value of time deposits is equal to its carrying value due to its relatively short-term nature. • Marketable securities The fair value of marketable securities is based on quoted market prices of the mutual money market funds held and is equal to its carrying value. • Long-term accounts receivable The fair value of long-term accounts receivable was estimated using the interest rates that are currently offered for loans with similar terms and remaining maturities. • Long-term debt The fair value of long-term debt was based on rates currently available to the Company for debt with similar terms and remaining maturities. • Derivative instruments Estimates of fair values of derivative instruments for which no quoted prices or secondary market exists have been made using valuation techniques such as forward pricing models, present value of estimated future cash flows, and other modeling techniques. These estimates of fair value include assumptions made by the Company about market variables that may change in the future. Changes in assumptions could have a significant impact on the estimate of fair values disclosed. As a result such fair value amounts are subject to significant volatility and are highly dependent on the quality of the assumptions used. 2006 Annual Report | 221 CONSOLIDATED FINANCIAL STATEMENTS The estimated fair values of the Company’s financial instruments compared to Chilean GAAP carrying amounts are as follows: 2005 2006 Carrying amount ThCh$ 72,873,740 265,352,164 5,421,998 648,182,799 3,643,961 64,188,527 11,519,571 144,623,436 (375,457,796) (113,031,828) (3,507,461,206) (126,228,655) Fair Value ThCh$ 72,873,740 265,352,164 5,421,998 648,182,799 3,643,961 64,188,527 11,519,571 144,623,436 (375,457,796) (113,031,828) (3,737,751,214) (126,086,146) Carrying amount ThCh$ 99,794,219 282,125,166 9,113,927 839,114,373 7,468,202 102,348,625 13,564,970 137,479,691 (587,328,362) (136,440,740) (3,593,823,183) (146,110,329) Fair Value ThCh$ 99,794,219 282,125,166 9,113,927 839,114,373 7,468,202 102,348,625 13,564,970 137,479,691 (587,328,362) (136,440,740) (3,940,785,000) (146,110,329) Cash Time deposits Marketable securities Accounts receivable Notes receivable, net Other accounts receivable, net Amounts due from related companies Long-term accounts receivable Accounts payable and other Notes payable Long-term debt Derivative instruments (j) Derivative instruments The Company is exposed to the impact of market fluctuations in the price of electricity, primary materials such as natural gas, petroleum, coal, and other energy-related products, interest rates, and foreign exchange rates. The Company has policies and procedures in place to manage the risks associated with these market fluctuation on a global basis through strategic contract selection, fixed-rate and variable-rate portfolio targets, net investment hedges, and financial derivatives. All derivatives that do not qualify for the normal purchase and sales exemption under SFAS No. 133 are recorded at their fair value. On the date that swaps, futures, forwards or option contracts are entered into, the Company designates the derivatives as a “hedge”, if the documentation is not appropriate to designate as a “hedge”, the derivative’s mark-to-market adjustment flows through the income statement. The Company has classified its derivatives into the following general categories: commodity derivatives, embedded derivatives, and financial derivatives. Certain energy and other contracts for the Company’s operations in Chile are denominated in the US dollar. According to SFAS No. 133, an embedded foreign currency derivative should be separated from the host contract because none of the applicable exclusions are met (See Embedded Derivative Contracts below). For purposes of evaluating the functional currency of the Company’s subsidiaries in Argentina, Perú, Brazil, and Colombia, the Company applied BT 64, consistent with the methodology described in Note 36 I paragraph (s), thus the functional currency of these subsidiaries was the US dollar as these subsidiaries were remeasured into US dollars because foreign subsidiaries operate in countries exposed to significant risks as determined under BT 64. The following is a summary of the Company’s derivative contracts as of December 31, 2005 and 2006. Embedded derivatives Commodity derivatives Financial derivatives Investment in related companies Distribution ThCh$ 2,347,356 - (112,685,697) (110,338,341) - 2005 Generation ThCh$ 38,569,674 (21,500,709) (13,400,449) 3,668,516 (4,559,772) Total ThCh$ 40,917,030 (21,500,709) (126,086,146) (106,669,825) (4,559,772) Derivative instruments U.S.GAAP Shareholders equity adjustment (110,338,341) (891,256) (111,229,597) Embedded derivatives Commodity derivatives Financial derivatives Distribution ThCh$ 5,166,861 - (146,500,484) 2006 Generation ThCh$ 23,111,274 (7,731,630) 390,155 Total ThCh$ 28,278,135 (7,731,630) (146,110,329) Derivative instruments U.S.GAAP Shareholders equity adjustment (141,333,623) 15,769,799 (125,563,824) 222 | 2006 Annual Report enersis06 The following is the reconciliation of the Company’s derivative contracts from Chile GAAP to US GAAP: Embedded derivatives Commodity derivatives Financial derivatives Chile GAAP ThCh$ - - (126,228,655) 2005 Adjustment ThCh$ 40,917,030 (21,500,709) 142,509 US GAAP ThCh$ 40,917,030 (21,500,709) (126,086,146) Shareholders equity adjustment (126,228,655) 19,558,830 (106,669,825) Embedded derivatives Commodity derivatives Financial derivatives Chile GAAP ThCh$ - - (92,216,959) 2006 Adjustment ThCh$ 28,278,135 (7,731,630) (53,893,370) US GAAP ThCh$ 28,278,135 (7,731,630) (146,110,329) Shareholders equity adjustment (92,216,959) (33,346,865) (125,563,824) Certain Company’s generation and distribution commodity contracts could be seen as contracts that meet the definition of a derivative under SFAS No. 133 and are required to be accounted for at fair value. These conditions are (i) have an underlying, which is the market price of power at the delivery location and a notional amount specified in the contract; (ii) have no initial payment on entering into the contract; and (iii) have a net settlement provision or have the characteristic of net settlement because power is readily convertible to cash, as it is both fungible and actively traded in the country of generation or country of distribution. The Company assessed that its commodity contracts that are requirements contracts do not meet the above definition because the contracts, do not have notional amounts, as they only have maximum amounts or no specified amounts, and do not include an implicit or explicit minimum amount in a settlement or a default clause. A requirements contract allows the purchaser to use as many units of power as required to satisfy its actual needs for power during the period of the contract, and the party is not permitted to buy more than its actual needs. The Company has commodity contracts that are unique, due to their long-term nature and complexity. In establishing the fair value of contracts management makes assumptions using available market data and pricing models. Factors such as commodity price risk are also included in the fair value calculation. Inputs to pricing models include estimated forward prices of electricity and natural gas, interest rates, foreign exchange rates, inflation indices, transmission costs, and others. These inputs become more difficult to predict and the estimates are less precise, the further out in time these estimates are made. As a result, fair values are highly sensitive to the assumptions being used. Until December 31, 2005 the Company’s Argentine generation entities had access to the Brazilian energy market through an interconnection system between those two countries. Due to action taken by Argentine Regulation Authorities, the exportations of energy from Argentina to Brazil were limited, resulting in a default of most energy supply contracts the Company had entered into. However, during 2006 the Brazilian regulator issued a statement that allowed these interconnection contracts to reduce their amounts of power and energy to be delivered, and to accelerate their maturity date to December 2007. As a result of action taken by Argentine and Brazilian regulation authorities, the contracts the Argentine subsidiaries had entered into ceased to exist as of the December 31, 2006. EMBEDDED DERIVATIVE CONTRACTS The Company enters into certain contracts that have embedded features that are not clearly and closely related to the host contract. As specified in SFAS No. 133, bifurcation analysis focuses on whether the economic characteristics and risks of the embedded derivative are clearly and closely related to the economic characteristics and risks of the host contract. In certain identified contracts, the host service contract and the embedded feature are not indexed to the same underlying and changes in the price or value of service will not always correspond to changes in the price of the commodity to which the contract is indexed. U.S. GAAP requires embedded features to be measured at fair value as freestanding instruments. Unless the embedded contracts are remeasured at fair value under otherwise applicable GAAP, the embedded feature must be valued at fair value with changes in fair value reported in earnings as they occur. Embedded foreign currency derivative instruments are not separated from the host contract and considered a derivative instrument if the host contract is not a financia1 instrument and it requires payments denominated in either: (1) the currency of any substantial patty to the contract. (2) the local currency of any substantial party to the contract, (3) the currency used because the primary economic environment is highly inflationary, or (4) the currency in which the good or service is routinely denominated in international commerce. 2006 Annual Report | 223 CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL DERIVATIVES Changes in interest rates expose the Company to risk as a result of its portfolio of fixed-rate and variable rate debt. The Company manages interest rate risk exposure on a global basis by limiting its variable rate and fixed-rate exposures to certain variable/fixed mixes set by policy. The Company manages interest rate risk through the use of interest rate swaps and collars and cross-currency swaps. The Company does not enter into financia1 instruments for trading or speculative purposes. The Company also uses short duration forward foreign currency contracts and swaps, and cross-currency swaps, where possible, to manage its risk related to foreign currency fluctuations. These contracts are considered “cover” contracts under Chilean GAAP. In accordance with Chilean GAAP the gain and losses on these contracts are deferred until realized as assets or liabilities. For US GAAP purposes the Company has met all the requirements for designating all the derivative instruments subscribed during 2005 and 2006 as “hedges” as well as the cross currency swaps held by Enersis since 2004. These derivative instruments are recorded at fair value in the balance sheet with any gain and/or losses being recorded according to fair value or cash flow hedge accounting as stated in SFAS 133. NET LNVESTMENT HEDGES gains and losses on liabilities related to net investments in foreign countries which are denominated in the same currency as the functional currency of those foreign investments. Such unrealized gains and losses are included in the cumulative translation adjustment account in shareholders equity’, and in this way act as a net investment hedge of the exchange risk affecting the investments (see Note ll (c) and Note 22 (f) for further detail). The accounting treatment for such operations is the same under Chile GAAP and U.S. GAAP. (k) Presentation to U.S. GAAP Certain reclassifications and adjustment would be made to the Chilean GAAP income statement in order to present the amounts in accordance with U.S. GAAP. For example, certain non-operating income and expenses under Chilean GAAP would be included in the determination of operating income under U.S. GAAP. Such reclassifications from non- operating to operating income and expense include the following: • Losses arising from contingencies and litigation, and reversals thereof • Gains and losses from disposals of fixed assets • Taxes, other than income taxes • Pension plan expenses • Penalties and fines The Company is also exposed to foreign currency risk arising from long-term debt denominated in foreign currencies, the majority of which is the US dollar. This risk is mitigated, as a substantial portion of the Company’s revenues are either directly or indirectly linked to the US dollar. Additionally, the Company records the foreign exchange In addition to the above, recovered taxes included in other non-operating revenues under Chilean GAAP would be recorded as part of income tax expense under U.S. GAAP, and equity in net income or loss of related companies included in non-operating results under Chilean would be presented after income taxes and minority interest under U.S. GAAP. The following reclassifications and adjustment disclose amounts in accordance with U.S. GAAP presentation: Operating income Non-operating expense, net Income taxes Minority interest Equity participation in income of related companies, net Amortization of negative goodwill Chilean GAAP ThCh$ 691,697,866 (410,811,934) (145,167,711) (106,946,525) U.S. GAAP Reclassification ThCh$ (56,879,565) 39,893,792 2,135,956 - - 18,094,928 32,944,745 (18,094,928) 2004 Sub-total ThCh$ 634,818,301 (370,918,142 (143,031,755) (106,946,525) 32,944,745 U.S. GAAP Adjustments ThCh$ 68,013,899 10,381,218 11,902,120 23,374,626 1,549 U.S. GAAP ThCh$ 702,832,200 (360,536,924) (131,129,635) (83,571,899) 32,946,294 - - - Net income 46,866,624 - 46,866,624 113,673,412 160,540,036 224 | 2006 Annual Report enersis06 Operating income Non-operating expense, net Income taxes Minority interest Equity participation in income of related companies, net Amortization of negative goodwill Chilean GAAP ThCh$ 828,644,066 (419,897,591) (182,050,674) (173,072,574) U.S. GAAP Reclassification ThCh$ (96,382,051) 97,862,848 7,453,696 - - 15,821,992 6,887,499 (15,821,992) 2005 Sub-total ThCh$ 732,262,015 (322,034,743) (174,596,978) (173,072,574) 6,887,499 U.S. GAAP Adjustments ThCh$ 109,912,898 (2,630,377) (10,998,736) (6,988,163) (33,823,190) U.S. GAAP ThCh$ 842,174,913 (324,665,120) (185,595,714) (180,060,737) (26,935,691) - - - Net income 69,445,219 - 69,445,219 55,472,432 124,917,651 Operating income Non-operating expense, net Income taxes Minority interest Equity participation in income of related companies, net Amortization of negative goodwill Chilean GAAP ThCh$ 1,068,042,451 (408,965,957) (109,407,874) (269,785,811) - 6,077,557 U.S. GAAP Reclassification ThCh$ (118,827,218) 105,512,222 14,353,613 - 5,038,940 (6,077,557) 2006 Sub-total ThCh$ 949,215,233 (303,453,735) (95,054,261) (269,785,811) 5,038,940 U.S. GAAP Adjustments ThCh$ 83,359,474 2,516,297 (6,943,369) (7,211,572) 4,470,409 U.S. GAAP ThCh$ 1,032,574,707 (300,937,438) (101,997,630) (276,997,383) 9,509,349 - - - Net income 285,960,366 - 285,960,366 76,191,239 362,151,605 Certain reclassifications and adjustments would be made to the Chilean GAAP balance sheet in order to present Chilean GAAP amounts in accordance with U.S. GAAP. Deferred taxes from depreciation differences that are recorded as short-term under Chilean GAAP would be recorded as long-term under U.S. GAAP. Additionally, the regulated asset recorded during 2001 by Coelce and Ampla, Brazilian subsidiaries, has been partially recorded in trade receivables and an additional component was recorded in current assets by Coelce under Chilean GAAP. However, under U.S. GAAP the presentation of these regulated assets should be classified as non-current assets as the recovery of these assets is not expected in the short term. Assets and liabilities related to financial derivatives have been recorded in the balance sheet at their gross amounts for Chilean GAAP purposes, whereas under US GAAP unrealized derivative gains and losses are recorded in earnings or directly to shareholders’ equity for qualifying cash flow hedges. Under U.S. GAAP, negative goodwill is allocated to long-lived assets instead of a separate line term in the other assets. These reclassifications exclude consolidation of development stage companies, the effect of which is immaterial. The effect of the reclassifications and adjustment discloses amounts using a U.S. GAAP presentation: Current assets Property, plant and equipment, net Other assets Chilean GAAP ThCh$ 1,328,815,537 7,806,756,787 1,345,432,188 U.S. GAAP Reclassification ThCh$ (44,216,371) (37,460,588) 61,720,620 2005 Sub-total ThCh$ 1,284,599,166 7,769,296,199 1,407,152,808 U.S. GAAP Adjustments ThCh$ (3,983,074) (2,449,410) 147,289,248 U.S. GAAP ThCh$ 1,280,616,092 7,766,846,789 1,554,442,056 Total assets 10,481,004,512 (19,956,339) 10,461,048,173 140,856,764 10,601,904,937 Current liabilities Long-term liabilities Minority interest Shareholder’s equity 1,520,135,633 3,451,642,730 2,858,841,421 2,650,384,728 (1,644,832) (18,311,507) - - 1,518,490,801 3,433,331,223 2,858,841,421 2,650,384,728 (20,723) 196,212,875 (204,336,006) 149,000,618 1,518,470,078 3,629,544,098 2,654,505,415 2,799,385,346 Total liabilities and shareholders’ equity 10,481,004,512 (19,956,339) 10,461,048,173 140,856,764 10,601,904,937 2006 Annual Report | 225 CONSOLIDATED FINANCIAL STATEMENTS Current assets Property, plant and equipment, net Other assets Chilean GAAP ThCh$ 1,641,366,577 8,087,437,399 1,333,605,307 U.S. GAAP Reclassification ThCh$ (52,915,315) (37,016,317) 7,995,325 2006 Sub-total ThCh$ 1,588,451,262 8,050,421,082 1,341,600,632 U.S. GAAP Adjustments ThCh$ - 6,165,972 231,772,581 U.S. GAAP ThCh$ 1,588,451,262 8,056,587,054 1,573,373,213 Total assets 11,062,409,283 (81,936,307) 10,980,472,976 237,938,553 11,218,411,529 Current liabilities Long-term liabilities Minority interest Shareholder’s equity 1,399,485,476 3,923,078,950 2,869,962,948 2,869,881,909 (2,938,801) (78,997,506) - - 1,396,546,675 3,844,081,444 2,869,962,948 2,869,881,909 (3,246,469) 267,871,095 (191,122,226) 164,436,153 1,393,300,206 4,111,952,539 2,678,840,722 3,034,318,062 Total liabilities and shareholders’ equity 11,062,409,283 (81,936,307) 10,980,472,976 237,938,553 11,218,411,529 (l) Employee Benefit Plans benefits maintained by employees of Enersis. This benefit expires at the time of death of the pensioner. Enersis S.A. and its subsidiaries sponsor various benefit plans for its current and retired employees. A description of such benefits follows: iii) Supplementary pension benefits SEVERANCE INDEMNITIES The provision for severance indemnities, included in the account “Accrued expenses” short and long-term is calculated in accordance with the policy set forth in Note 2 (n), using the current salary levels of all employees covered under the severance indemnities agreement, an assumed discount rate 6.5% for the years ended December 31, 2004, 2005 and 2006, and an estimated average service period based on the years of services for the Company. BENEFITS FOR RETIRED PERSONNEL Other benefits provided to certain retired personnel of Enersis include electrical service rate subsidies, additional medical insurance and additional post-retirement benefits. Descriptions of these benefits for retired personnel are as follows: i) Electrical rate service This benefit is extended only to certain retired personnel of Enersis. These electric rate subsidies result in the eligible retired employees paying a percentage of their total monthly electricity costs, with Enersis paying the difference. ii) Medical benefits This benefit provides supplementary health insurance, which covers a portion of health benefits not covered under the institutional health Eligible employees are able to receive a monthly amount designed to cover a portion of the difference between their salary at the point of retirement and the theoretical pension that would have been received had the employee reached the legal retirement age of the Institución de Previsión Social (Institute of Social Welfare). This benefit expires upon the death of the pensioner for the Enersis employee, however, continues to cover the surviving-spouse in the case of employees of the subsidiary Endesa-Chile. iv) Worker’s compensation benefits Employees that were entitled to Worker’s compensation insurance in prior years for work related injuries receive benefits from the Company when that insurance expires. This benefit continues at the time of death of the pensioner, to cover the surviving-spouse. The Company has recognized liabilities related to complementary pension plan benefits and other postretirement benefits as stipulated in collective bargaining agreements. Under U.S. GAAP, post-retirement employee benefits have been accounted for in accordance with SFAS No. 87 and SFAS No. 106, with inclusion of prior-period amounts in current year’s income as the amounts are not considered significant to the overall financial statement presentation. The effects of accounting for post-retirement benefits under U.S. GAAP have been presented in paragraph (cc), above. The following data represents Chile GAAP amounts presented under FAS N°132 Revised 2003 Employers’ Disclosures about Pensions and other Postretirement Benefits, for Company’s post-retirement benefit plans. 226 | 2006 Annual Report enersis06 Assets and obligations Accumulated benefit obligation Plan assets at fair value Pension Benefits Non Contributory Other Benefits Contributory Total Total At December 31, 2005 (58,065,099) - (204,562,870) 182,018,314 (262,627,969) 182,018,314 (51,078,797) - Unfunded accumulated benefit (58,065,099) (22,544,556) (80,609,655) (51,078,797) Changes in benefit (obligations) Benefit (obligations) at January 1 Price-level restatement Foreign exchange effect Net periodic expense Benefits paid Company contributions Effect of exchange adjustment (57,665,992) (1,444,699) 3,632,203 (7,934,975) 5,348,364 - - (62,906,646) 2,185,946 4,344,922 (2,724,248) (6,225,185) 17,317,971 (4,821,341) (120,572,638) 741,247 7,977,125 (10,659,223) (876,821) 17,317,971 (4,821,341) (53,668,943) 147,962 2,666,728 (4,627,758) 3,485,837 (1,234,377) 1,400,772 Benefit (obligations) at December 31 (58,065,099) (52,828,581) (110,893,680) (51,829,779) Funded Status of the Plans Projected Benefit Obligation Fair value of the plans assets Funded Status Unrecognized loss (gain) Unrecognized net prior service cost (58,065,099) - (58,065,099) (209,279,991) 182,018,313 (27,261,678) (267,345,090) 182,018,313 (85,326,777) - - - - (25,566,904) (25,566,904) (54,228,413) - (54,228,413) - 2,398,635 Net liability recorded under U.S. GAAP (58,065,099) (52,828,582) (110,893,681) (51,829,778) Change in the plan assets Fair value of the plan assets, beginning Foreign exchange effect Actual return on the plan assets Employer contributions Plan participant contributions Benefits paid - - - - - - 137,576,219 12,060,795 31,095,794 14,384,960 2,953,647 (16,053,101) 137,576,219 12,060,795 31,095,794 14,384,960 2,953,647 (16,053,101) Fair value of plans assets, ending - 182,018,314 182,018,314 - - - - - - - Service cost Interest cost Expected return on assets Amortization gain (loss) Amortization of transition asset (592,565) (6,375,991) - (966,419) - 859,211 (3,974,837) 1,277,410 479,003 (1,365,035) 266,646 (10,350,828) 1,277,410 (487,416) (1,365,035) (136,121) (4,270,515) - (221,122) - Net periodic expenses (7,934,975) (2,724,248) (10,659,223) (4,627,758) Assumptions as of December 31, 2005 Weighted - discount rate (1) Weighted - salary increase Weighted - return on plan assets (1) Weighted - long term inflation (2) (1) Includes fixed long term inflation assumption detail in (2) Pension Benefits Brazil 10.2% 4.0% 10.2% 4.0% Colombia 11.2% 6.1% - 6.1% Chile 6.5% 4.0% - 2.5% Other Benefits Brazil 11.2% - - 6.1% Colombia 10.2% - - 4.0% Chile 6.5% 4.0% - 2.5% 2006 Annual Report | 227 CONSOLIDATED FINANCIAL STATEMENTS Assets and obligations Accumulated benefit obligation Plan assets at fair value At December 31, 2006 Pension Benefits Non Contributory Other Benefits Contributory Total Total (60,792,793) - (251,324,115) 240,748,561 (312,116,908) 240,748,561 (56,184,086) - Unfunded accumulated benefit (60,792,793) (10,575,554) (71,368,347) (56,184,086) Changes in benefit (obligations) Benefit (obligations) at January 1 Price-level restatement Foreign exchange effect Net periodic expense Benefits paid Company contributions Effect of exchange adjustment Recognized net prior service cost (application SFAS 158) (58,065,099) 1,194,287 (3,774,906) (6,665,640) 6,352,917 - - - (52,828,581) 1,086,582 (2,007,564) (344,901) (7,409,385) 19,552,581 (2,570,910) 27,686,366 (110,893,680) 2,280,869 (5,782,470) (7,010,540) (1,056,468) 19,552,581 (2,570,910) 27,686,366 (51,829,776) 1,066,038 (867,908) (8,779,014) 3,629,464 1,654,136 (1,145,703) (3,136,309) Benefit (obligations) at December 31 (60,958,441) (16,835,811) (77,794,252) (59,409,071) Funded Status of the Plans Projected Benefit Obligation Fair value of the plans assets Funded Status Unrecognized loss (gain) Unrecognized net prior service cost (60,958,441) - (60,958,441) (257,584,373) 240,748,562 (16,835,811) (318,542,814) 240,748,562 (77,794,252) (59,409,071) - (59,409,071) - - - - - - - - Net liability recorded under U.S. GAAP (60,958,441) (16,835,811) (77,794,252) (59,409,071) Change in the plan assets Fair value of the plan assets, beginning Foreign exchange effect Actual return on the plan assets Employer contributions Plan participant contributions Benefits paid - - - - - - 181,750,303 21,311,462 38,166,830 16,006,512 3,414,838 (19,901,384) 181,750,303 21,311,462 38,166,830 16,006,512 3,414,838 (19,901,384) Fair value of plans assets, ending - 240,748,562 240,748,562 - - - - - - - Service cost Interest cost Expected return on assets Amortization gain (loss) Amortization of transition asset (387,040) (6,428,734) - 150,134 - 981,823 (3,998,016) 3,339,360 6,493,179 (7,161,247) 594,783 (10,426,750) 3,339,360 6,643,313 (7,161,247) (22,221) (5,983,796) - (2,772,997) - Net periodic expenses (6,665,640) (344,901) (7,010,541) (8,779,014) Assumptions as of December 31, 2006 Weighted - discount rate (1) Weighted - salary increase Weighted - return on plan assets (1) Weighted - long term inflation (2) (1) Includes fixed long term inflation assumption detail in (2) Pension Benefits Brazil 12.0% 5.8% 14.1% 4.7% Colombia 10.4% 5.3% - 5.3% Chile 6.5% 3.5% - 3.0% Other Benefits Brazil 10.4% - - 4.5% Colombia 12.3% - - 5.3% Chile 6.5% 3.5% - 3.0% 228 | 2006 Annual Report enersis06 The following presents the impact of applying the provisions os SFAS 158 on the balance sheets of Enersis as of December 31, 2006: Liabilities and Equity: Accrued Pension Cost Other Benefits Cost Deferred taxes – long term Accumulated Other Comprehensive Income, net of tax Before SFAS 158 ThCh$ (105,480,618) (56,272,762) (107,916,615) (194,776,448) Adjustment SFAS 158 ThCh$ 27,686,366 (3,136,309) (8,347,019) 16,203,038 After SFAS 158 ThCh$ (77,794,252) (59,409,071) (116,263,634) (178,573,410) Following is a schedule of estimated pay-out of pension benefits in each of the next five years: 2007 2008 2009 2010 2011 Thereafter Total As of December 31, 2006 ThCh$ 2,716,016 30,117,741 30,681,598 31,616,466 32,152,437 147,313,928 274,598,186 The following data present some supplementary information regading Enersis’s pension plans in Brazil: Defined benefit pension plan assets allocations at Decemer 31, 2005 and 2006, by assets category are as follows: Asset Category Equity securities Debt securities Real estate Other (m) Comprehensive income (loss) 2005 Plan asset 22.00% 71.74% 4.70% 1.56% 2006 Plan asset 22.11% 70.75% 4.80% 2.34% In accordance with U.S. GAAP, the Company reports a measure of all changes in shareholders’ equity that result from transactions and other economic events of the period other than transactions with owners (“comprehensive income”). Comprehensive income is the total of net income and other non-owner equity transactions that result in changes in net shareholders’ equity. The following represents accumulated other comprehensive income balances as of December 31, 2004, 2005 and 2006 (in thousands of constant Chilean pesos as of December 31, 2006). Beginning balance Credit (charge) for the period Ending balance 2004 Effect of U.S. GAAP adjustments on cumulative translation adjustment ThCh$ 39,826,041 13,171,282 52,997,323 Accumulated other comprehensive income (loss) ThCh$ 15,243,303 (88,664,724) (73,421,421) Chilean GAAP cumulative translation adjustment ThCh$ (24,582,738) (101,836,006) (126,418,744) 2006 Annual Report | 229 CONSOLIDATED FINANCIAL STATEMENTS 2005 Effect of U.S. GAAP adjustments on cumulative translation adjustment ThCh$ 52,997,323 21,138,761 74,136,084 Fair value of financial instruments used in cash flow hedge ThCh$ - 1,317,498 1,317,498 Chilean GAAP cumulative translation adjustment ThCh$ (126,418,744) (105,702,172) (232,120,916) Accumulated other comprehensive income (loss) ThCh$ (73,421,421) (83,245,913) (156,667,334) 2006 Chilean GAAP cumulative translation adjustment ThCh$ (232,120,916) 15,780,715 (216,340,201) Effect of U.S. GAAP adjustments on cumulative translation adjustment ThCh$ 74,136,084 (3,334,313) 70,801,771 Application of SFAS 158 in Ampla and Coelce see Note 36 I g ThCh$ - 10,393,599 10,393,599 Fair value of financial instruments used in cash flow hedge ThCh$ 1,317,498 (44,746,077) (43,428,579) Accumulated other comprehensive income (loss) ThCh$ (156,667,334) (21,906,076) (178,573,410) Beginning balance Credit (charge) for the period Ending balance Beginning balance Credit (charge) for the period Ending balance The Company does not recognize deferred tax assets associated with cumulative translation reclassification as the investment they are associated with is permanent in nature. (n) Goodwill and intangible assets As discussed in Note 36 paragraph (i), Enersis S.A. adopted SFAS 142, which requires companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, FAS 142 requires that goodwill and intangible assets deemed to have an indefinite useful life be reviewed for impairment upon adoption of SFAS 142, effective January 1, 2002 and annually thereafter. Under SFAS 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The Company’s reporting units are at the operating subsidiary level. This methodology differs from Enersis’s previous policy, as provided under accounting standards existing at that time of using undiscounted cash flows on an enterprise-wide basis to determine if goodwill was recoverable. Subsequent to adoption ins 2002 of SFAS No. 142, due to changes in circunstances, the Company recognized a non-cash charge of ThCh$650,931,949 to reduce the carrying value of goodwill. In calculating the impairment charge, the fair value of the impaired reporting units’ goodwill underlying the segments were estimated using discounted cash flow methodology. The ThCh$650,931,949 goodwill impairment is associated entirely with goodwill associated with investments in Argentina and Brazil. The impairment reflects the decline in the Company’s revenues and forecasted cash flows in their Argentina and Brazilian subsidiaries and the increase in inflation and interest rates and decreasing expectations of the currencies in Argentina and Brazil. Prior to performing the review for impairment, SFAS 142 required that all goodwill deemed to be related to the entity as a whole be assigned to all of the Company’s reporting units, including the reporting units of the acquirer. A summary of the changes in the Company’s goodwill under U.S. GAAP during the year ended December 31, 2005 and 2006, by country of operation and segment is as follows: 2005: Goodwill by Country Chile Colombia Perú Total January 1, ThCh$ 1,165,258,375 45,183,742 17,479,019 1,227,921,136 Acquisitions (Disposals) ThCh$ - - - - 2005 Translation adjustment ThCh$ - (5,083,283) (1,966,433) Impairment ThCh$ December 31, ThCh$ 1,165,258,375 40,100,459 15,512,586 - - - (7,049,716) - 1,220,871,420 230 | 2006 Annual Report enersis06 January 1, ThCh$ 1,071,651,161 156,201,391 68,584 Acquisitions (Disposals) ThCh$ - - - 2005 Translation adjustment ThCh$ (4,635,851) (2,413,865) - Impairment ThCh$ - - - December 31, ThCh$ 1,067,015,310 153,787,526 68,584 1,227,921,136 - (7,049,716) - 1,220,871,420 Goodwill by Segment Generation Distribution Other Total 2006: Goodwill by Country Chile Colombia Perú January 1, ThCh$ 1,165,258,375 40,100,459 15,512,586 2006 Acquisitions (Disposals) ThCh$ Translation adjustment ThCh$ Impairment ThCh$ Reclassification (1) ThCh$ December 31, ThCh$ - - 3,194,340 699,490 270,175 - - - (8,473,153) - 1,165,258,375 32,326,796 18,977,101 - Total 1,220,871,420 3,194,340 969,665 - (8,473,153) 1,216,562,272 Goodwill by Segment Generation Distribution Other January 1, ThCh$ 1,067,015,310 153,787,526 68,584 Acquisitions (Disposals) ThCh$ 3,194,340 - - 2006 Translation adjustment ThCh$ 637,434 332,231 - Impairment ThCh$ - - - Reclassification (1) ThCh$ (8,473,153) - - December 31, ThCh$ 1,062,373,931 154,119,757 68,584 Total 1,220,871,420 3,194,340 969,665 - (8,473,153) 1,216,562,272 (1) See Note 11 e). The Company’s intangible assets were ThCh$83,533,722 and ThCh$90,759,417 and related accumulated amortization were ThCh$49,440,338 and ThCh$54,801,394 as of December 31, 2005 and 2006, respectively. There is no difference between Chilean and U.S. GAAP in the amortization of intangible assets because all of the Company’s intangible assets are subject to amortization, since they relate to finite contracts or concessions. (o) Asset retirement obligations As discussed in Note 36 paragraph (aa), the Company adopted SFAS No. 143 effective January 1, 2003. The following table describes all changes to the Company’s U.S. GAAP asset retirement obligation during the year ended December 31, 2005 and 2006: Balance as of January 1, Cumulative Translation Adjustment Liabilities incurred in the period Accretion expense As of December 31, 2006 2005 ThCh$ ThCh$ (998,688) (1,201,519) (243) 54,411 (819,317) (320,873) 148,420 - (p) Capital lease obligations Minimum lease obligations for capital lease are presented net of interest expense, and as of December 31, are summarized as follows: Short-term: Lease obligations Less: interest expense Year ended December 31, 2005 ThCh$ 2006 ThCh$ 2,093,050 (1,373,523) 15,354,959 (9,547,254) Net short-term lease obligations 719,527 5,807,705 Long-term: Lease obligations Less: interest expense 37,214,877 (13,000,900) 123,292,061 (40,669,984) Net long-term lease obligations 24,213,977 82,622,077 Balance as of December 31, (998,688) (2,139,121) Weighted-average interest reate 6.50% 8.47% 2006 Annual Report | 231 CONSOLIDATED FINANCIAL STATEMENTS Future payments under capital leases are summarized as follows: Year ended December 31, 2006 ThCh$ 15,354,959 27,512,877 13,857,691 14,741,976 67,179,517 a) permits fair value re-measurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”; c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; d) clarifies that concentrations of credit risk in the form of subordination 2007 2008 2009 2010 2011 and thereafter Total 138,647,020 are not embedded derivatives; and (q) Available for sale securities Under US GAAP, the company classifies marketable securities as available for sale securities Realized gains and losses are determined using the proceeds from sales less the cost of the investment identified to be sold. Gross gains and losses realized on the sale of available for-sale securities for the years ended December 31, 2004, 2005 and 2006 are as follows: Gross unrealized gains ThCh$ Fair value ThCh$ Cost ThCh$ Securities available for sale at December 31, 2004 13,033,179 Securities available for sale at December 31, 2005 5,421,998 Securities available for sale at December 31, 2006 9,019,778 - 13,033,179 - 5,421,998 - 9,019,778 Information on sales of available for sale securities during the three years in the period ended December 31, 2004, 2005 and 2006 is as follows: Proceeds from sales 2004 ThCh$ 12,095,052 2005 ThCh$ 13,033,179 2006 ThCh$ 5,421,998 As of December 2004, 2005 and 2006, the Company has no securities that are considered to be trading securities or debt securities to be held to maturity. The cost of available for sale securities is determined using the average cost method. (r) Recent accounting pronouncements The following new accounting standards have been adopted by the Company during the year-ended December 31, 2006 and the impact of such adoption, if applicable, has been presented in the accompanying consolidated financial statements. In February 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid Financia1 Instruments an amendment of FASB Statements No. 133 and 140.” The new statement: e) amends SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” to eliminate the prohibition on a qualifying special - purpose entity from holding a derivative financial instrument that pertains to a beneficia1 interest other than another derivative financia1 instrument. SFAS 155 generally is effective for al1 financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after 15 September 2006. The Company does not anticipate that the adoption of this statement will have a material effect on its financial position, results of operations or cash flows. In June 2006, the FASB issued FASB Interpretation (FIN 48), “Accounting for Uncertainty in Income Taxes - an interpretation of FASE Statement No. 109”. This interpretation prescribes a recognition threshold and measurement attribute for the financia1 statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification and other matters. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is assessing the impact of the adoption FIN 48. In September 2006, the FASB issued Statement of Financia1 Accounting Standards No. 157, “Fair Value Measurements”. This statement defines fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact that will result from the adoption of SFAS 157. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employer’s Accounting for Defined Pension and Other Postretirement Plans – an amendment of FASB Statement No. 87, 88, 106 and 132 (R)”. This Statement requires the recognition of the funded status of a benefit plan in the statement of financial position. It also requires the recognition as a component of other comprehensive income (OCI), net of tax, of the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to statement 87 or 106. The statement also has new provisions regarding the measurement date as well as certain disclosure requirements. The statement was effective at fiscal year en 2006 and the Company adopted the statement at that time. 232 | 2006 Annual Report In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 permits measurement of recognized financial assets and liabilities at fair value with some exceptions. Changes in the fair value of items for which the fair value option is elected should be recognized in income or loss. The election to measure eligible items at fair value is irrevocable and can only be made recognized in income or loss. The election to measure eligible items at fair value is irrevocable and can only be made at defined election dates or events, generally on an instrument by instrument basis. Items for which the fair value option is elected should be separately presented or be parenthetically disclosed in the statement of financial position. SFAS No. 159 also requires significant new disclosures that apply for interim and annual financial statements. SFAS No. 159 will be effective for fiscal years beginning after November 15, 2007 with earlier adoption permitted, if certain conditions are met. The Company is currently determining the policy of adoption as well as the resulting effect of SFAS No. 159 on the consolidated financial statements. In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”, SAB 108 expresses the SEC’s view regarding the process of quantifying financial statement misstatements. The bulletin was effective as of the year beginning January 1, 2006. The implementation of this bulletin had no impact on our consolidated financial statements and disclosures. enersis06 In June 2006, the Emerging Issues Task Force, or EITTF, reached a consensus on Issue No. 06-03, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (That Is, Gross versus Net Presentation)”. EITF 06-03 relates to any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction. EITF 06-03 states that the presentation of the taxes, either on a gross or net basis, is an accounting policy decision that should be disclosed pursuant to Accounting Principles Board Opinion No. 22, “Disclosure of Accounting Policies”, if those amounts are significant. EITF 06-03 should be applied to financial reports for interim and annual reporting periods beginning after December 15, 2006 (January 1, 2007 for us). We are currently evaluating the impact of this standard on our consolidated financial statements and disclosures. Rule 4-08 of the Securities and Exchange Commission require presentation of basis financial statements of the parent Company when restricted net assets, defined as not to be transferred to the parent Company in the form of loans, advances or cash dividends of the subsidiary without the consent of a third parties. Following are the parent company Chilean balance sheets as of December 31, 2005 and 2006 and results of operations and cash flows for the years ended December 31, 2004, 2005 and 2006. 2006 Annual Report | 233 CONSOLIDATED FINANCIAL STATEMENTS BALANCE SHEETS (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2006 and thousands of US dollars) ASSETS CURRENT ASSETS: Cash Time deposits Notes receivable, net Other accounts receivable, net Amounts due from related companies Income taxes recoverable Prepaid expenses Deferred income taxes Other current assets 2005 ThCh$ As of December 31, 2006 ThCh$ 121,111 - 752 19,368,022 25,951,697 7,764,556 633 44,968,049 5,922,650 162,935 6,949,540 737 8,167,902 95,297,378 3,914,901 21,075 36,240,045 11,100,923 2006 ThUS$ 306 13,053 1 15,342 178,999 7,353 40 68,070 20,851 Total current assets 104,097,470 161,855,436 304,015 PROPERTY, PLANT AND EQUIPMENT: Buildings and infraestructure Machinery and equipment Other assets Technical appraisal Sub - total Less: accumulated depreciation 22,554,028 2,677,301 1,045,214 35,928 22,553,982 2,957,880 748,512 35,915 26,312,471 (14,081,250) 26,296,289 (15,116,748) 42,364 5,556 1,406 67 49,393 (28,394) Total property, plant and equipment, net 12,231,221 11,179,541 20,999 2,260,486,518 13,956,895 691,959,988 (578,314) 359,398,768 1,559,002 (615,481) 7,452,939 2,357,240,064 12,408,630 637,700,908 (447,665) 482,649,439 1,559,002 (693,579) 59,813,862 4,427,657 23,307 1,197,808 (841) 906,571 2,928 (1,303) 112,350 3,333,620,315 3,550,230,661 6,668,477 3,449,949,006 3,723,265,638 6,993,491 OTHER ASSETS: Investments in related companies Investment in other companies Goodwill, net Negative goodwill, net Amounts due from related companies Intangibles Accumulated amortization Other assets Total other assets TOTAL ASSETS 234 | 2006 Annual Report enersis06 BALANCE SHEETS (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2006 and thousands of US dollars) LIABILITIES AND SHAREHOLDERS´ EQUITY CURRENT LIABILITIES: Current portion of long-term debt due to banks and financial institutions Current portion of bonds payable Dividends payable Accounts payable Miscellaneous payables Amounts payable to related companies Accrued expenses Withholdings Other current liabilities 2005 ThCh$ As of December 31, 2006 ThCh$ 2006 ThUS$ 12,479 166,146,106 56,071 370,422 44,267 34,633,984 22,063,178 111,060 1,194,830 870,783 9,029,873 15,563 369,676 155,577 35,887,882 23,539,813 60,099 1,086,926 1,636 16,961 29 694 292 67,409 44,215 113 2,042 Total current liabilities 224,632,397 71,016,192 133,391 LONG -TERM LIABILITIES: Due to baks and financial institutions Bonds payable Amounts payable to related companies Accrued expenses Deferred income taxes Other long-term liabilities 44,477,313 401,990,412 - 2,804,580 2,947,556 122,712,020 167,702,850 353,355,960 100,962,578 3,130,568 2,567,976 154,647,605 315,000 663,716 189,639 5,880 4,823 290,478 Total long-term liabilities 574,931,881 782,367,537 1,469,536 SHAREHOLDERS´ EQUITY: Paid-in capital, no par value shares Additional paid-in capital Other reserves Retained earnings Net income for the year Provisional dividends Deficit of subsidiaries in development stage 2,415,284,412 172,124,214 (241,698,626) 235,229,509 69,445,219 - - 2,415,284,412 172,124,214 (238,342,306) 271,279,769 285,960,366 (36,242,795) (181,751) 4,536,683 323,305 (447,684) 509,551 537,126 (68,076) (341) Total shareholders´ equity 2,650,384,728 2,869,881,909 5,390,564 TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 3,449,949,006 3,723,265,638 6,993,491 2006 Annual Report | 235 CONSOLIDATED FINANCIAL STATEMENTS INCOME STATEMENT (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2006 and thousands of US dollars) OPERATING INCOME: SALES COST OF SALES GROSS PROFIT Years ended December 31, 2004 ThCh$ 2005 ThCh$ 2006 ThCh$ 4,688,939 (1,165,089) 4,684,439 (1,168,385) 4,696,347 (1,320,685) 2006 ThUS$ 8,821 (2,481) 3,523,850 3,516,054 3,375,662 6,340 ADMINISTRATIVE AND SELLING EXPENSES (18,314,915) (17,405,985) (16,852,806) (31,655) OPERATING LOSS (14,791,065) (13,889,931) (13,477,144) (25,315) NON-OPERATING INCOME SELLING ExPENSES: Interest income Equity in income of related companies Other non-operating income Equity in losses of related companies Amortization of goodwill Interest expense Other non-operating expenses Price-level restatements, net Exchange difference, net 32,277,277 166,628,832 10,572,293 (22,057,188) (54,225,363) (75,759,667) (16,881,795) (2,255,046) 5,391,199 25,900,988 176,922,137 12,572,511 (23,541,240) (54,356,183) (57,730,417) (2,920,264) (1,653,344) (6,675,764) 26,511,641 397,786,664 6,579,819 (9,668,736) (54,365,152) (49,274,578) (2,999,139) (755,593) (4,436,146) 49,798 747,172 12,359 (18,161) (102,115) (92,554) (5,633) (1,419) (8,333) NON-OPERATING RESULT 43,690,542 68,518,424 309,378,780 581,114 INCOME (LOSS) BEFORE INCOME TAXES AND AMORTIZATION OF NEGATIVE GOODWILL 28,899,477 54,628,493 295,901,636 555,799 INCOME TAX 17,924,544 14,777,028 (9,981,367) (18,748) INCOME (LOSS) BEFORE AMORTIZATION OF NEGATIVE GOODWILL 46,824,021 69,405,521 285,920,269 537,051 AMORTIZATION OF NEGATIVE GOODWILL 42,603 39,698 40,097 75 NET INCOME FOR THE YEAR 46,866,624 69,445,219 285,960,366 537,126 236 | 2006 Annual Report enersis06 STATEMENTS OF CASH FLOWS (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2006 and thousands of US dollars) CASH FLOWS FROM OPERATING ACTIVITIES : Net income (loss) for the year GAIN (LOSSES) FROM SALES OF ASSETS: Gain on sale of investments Charges (credits) to income which do not represent cash flows: Depreciation Amortization of intangibles Equity in income of related companies Equity in losses of related companies Amortization of goodwill Amortization of negative goodwill Price-level restatement, net Exchange difference, net Other credits to income which do not represent cash flows Other charges to income which do not represent cash flows Changes in assets which affect cash flows: Decrease in dividends receipts Decrease (increase) in trade receivable Decrease in other assets Changes in liabilities which affect cash flows: Increase (decrease) in accounts payable associated with operating results Increase in interest payable Decrease in income tax payable Increase in other accounts payable associated with non-operating results Net decrease in value added tax and other similar taxes payable As of December 31, 2004 ThCh$ 2005 ThCh$ 2006 ThCh$ 2006 ThUS$ 46,866,625 69,445,219 285,960,366 537,126 - - - - 1,115,925 78,097 (166,628,832) 22,057,188 54,225,363 (42,604) 2,255,046 (5,391,199) (915,099) 30,668,634 70,316,217 461,966 (9,453,276) (4,460,429) 6,149,084 (19,171,282) (20,424,928) 40,217 1,118,537 78,097 (176,922,137) 23,541,240 54,356,183 (39,698) 1,653,344 6,675,764 (4,762,484) 7,312,730 1,270,523 78,097 (397,786,664) 9,668,736 54,365,152 (40,097) 755,593 4,436,146 (125,661) 2,805,359 87,849,013 - - - 2,386 147 (747,172) 18,161 102,115 (75) 1,419 8,333 (236) 5,269 - - - - (2,551,565) 115,748,695 217,413 (4,396,430) (966,827) (9,409,654) (38,490) (307,675) (12,500,564) 6,085,743 11,210,273 (19,814,541) 42,567 - - (23,480) 11,431 21,057 (37,218) 80 Net cash flows provided by operating activities 7,746,713 52,635,167 62,159,723 116,756 CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of shares Loans obtained Proceeds from bond issuances Other loans obtained from related companies Loans obtained from related companies Other sources of financing Dividends paid by related company Dividends paid Payment of loans Payment of bonds Payment of loans granted by related companies Payment of other loans obtained from related companies Payment of bond issuance costs Other disbursements for financing - 79,609,984 - - 89,663,745 13,374,721 - (62,506) (176,610,595) (142,415) (90,172,184) (12,101,961) - - - - - 163,847,648 307,759 - - 1,178,526 25,763,034 453,506 (8,637,264) (5,706,970) (152,622,147) (147,886) - (39,484,097) 33,486,296 9,322,986 62,898 17,512 - - - - (69,571,809) (42,885,724) (159,582,715) (11,680,095) (130,678) (80,553) (299,748) (21,939) - - - - - - - - (2,869,086) (5,967,572) Net cash used in financing activities (99,310,297) (185,170,870) (77,063,413) (144,750) CASH FLOWS FROM INVESTING ACTIVITIES: Sales of property, plant and equipment Proceeds from sales of long-term investments Proceeds from loans granted to related companies Proceeds from other loans granted to related companies Long-term investments Sales of other investment Additions to property, plant and equipment Other loans to related companies Loans granted to relates companies Other disbursement for investments Other receipts from investment - - 114,971,918 103,894,064 (363,825) - (99,462) - (105,134,269) (24,810,395) 1,106,324 (148,437) (9,435,501) (137,957,317) - - 2,244,700 57,095,671 - - 187,482 - 352 - 221,784,153 22,891,224 42,997 - - - (12,123,709) (22,772) - - (181,166) (6,153,842) (205,536) (502,413) 24,028,675 (340) (11,559) (386) (944) 45,134 Net cash provided by investing activities 115,513,126 107,634,498 27,940,715 52,482 NET CASH FLOW FOR THE YEAR 23,949,542 (24,901,205) 13,037,025 24,488 EFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH EQUIVALENTS (331,672) (205,833) 24,402 46 NET INCREASE IN CASH AND CASH EQUIVALENTS 23,617,870 (25,107,038) 13,061,427 24,534 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 1,610,278 25,228,149 121,111 227 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 25,228,148 121,111 13,182,538 24,761 2006 Annual Report | 237 CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Expressed in thousands of historical Chilean pesos, except as stated) Paid-in capital ThCh$ Additional paid-in Capital ThCh$ Other reserves ThCh$ Retained earnings ThCh$ Deficit of subsidiaries in development stage ThCh$ Interim dividens ThCh$ Net income (loss) for the year ThCh$ Total ThCh$ As of January 1, 2004 Capital increase Transfer of prior year income to retained earnings Changes in equity of affiliates Cumulative translation adjustment Reserve Technical Bulletin No. 72 Price-level restatement of capital Net income for the year (25,671,685) 2,227,711,340 159,323,362 - (563,714) - - - - - - (4,435,524) - (103,832,123) - 11,992,130 - - (641,792) 3,966,173 55,692,784 - - - 176,016,726 - 13,629,822 - - - 4,731,711 - (1,455,716) - (1,161,959) - - - (55,989) - - - - - - - - 12,467,863 2,548,391,890 (563,714) - - (12,467,863) - (4,435,524) - (103,832,123) 11,992,130 - 63,692,887 - 44,307,596 44,307,596 As of December 31, 2004 2,283,404,124 162,725,821 (122,588,994) 194,378,259 (2,673,664) - 44,307,596 2,559,553,142 As of December 31, 2004 (1) 2,415,284,412 172,124,214 (129,669,244) 205,604,769 (2,828,084) - 46,866,624 2,707,382,691 As of January 1, 2005 Transfer of prior year income to retained earnings Changes in equity of affiliates Dividend paid Cumulative translation adjustment Reserve Technical Bulletin No. 72 Price-level restatement of capital Net income for the year 2,283,404,124 162,725,821 - - - - - - - - - - 5,858,130 82,202,548 - - (122,588,994) 194,378,259 41,633,932 - (13,600,517) - - 7,979,618 - - (5,851,418) - (97,676,664) (6,197,072) (4,413,203) - As of December 31, 2005 2,365,606,672 168,583,951 (236,727,351) 230,391,292 As of December 31, 2005 (1) 2,415,284,412 172,124,214 (241,698,626) 235,229,509 As of January 1, 2006 Transfer of prior year income to retained earnings Changes is equity of affiliates Accumulated deficit of subsidiaries in development stage Final dividend 2005 Reserve Technical Bulletin No. 72 Cumulative translation adjustment Price-level restatement Interim dividend Net income for the year 2,365,606,672 168,583,951 - - - - - - - - - - - - 3,540,263 49,677,740 - - - - (236,727,351) 230,391,292 68,016,865 - - (32,651,166) - - 5,522,778 - - - (10,585,093) - - (825,381) 14,766,794 (4,971,275) - - (2,673,664) 2,673,664 - - - - - - - - - - - (181,751) - - - - - - - - - - - - - - 44,307,596 2,559,553,142 - (44,307,596) (5,851,418) - (13,600,517) - (97,676,664) - (6,197,072) - 91,627,093 - 68,016,865 68,016,865 - 68,016,865 2,595,871,429 - 69,445,219 2,650,384,728 - - - - - - - - 68,016,865 2,595,871,429 - (68,016,865) (10,585,093) - (181,751) - (32,651,166) - (825,381) - 14,766,794 - 53,769,506 - (36,242,795) - 285,960,366 - 285,960,366 (36,242,795) As of December 31, 2006 2,415,284,412 172,124,214 (238,342,306) 271,279,769 (181,751) (36,242,795) 285,960,366 2,869,881,909 As of December 31, 2006 (2) 4,536,683 323,304 (447,684) 509,551 (341) (68,076) 537,127 5,390,564 (1) Restated in thousands of constant Chilean pesos as of December 31, 2006. (2) Expressed in thousands of US$ as of December 31, 2006. The accompanying notes are an integral part of these consolidated financial statements. The following table presents the dividends received by Enersis individual in the years ended December 31, 2004, 2005 and 2006: Dividends received 2004 ThCh$ 70,316,217 Years ended December 31, 2005 ThCh$ 87,843,005 2006 ThCh$ 127,505,099 238 | 2006 Annual Report enersis06 MANAGEMENT’S ANALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS ENERSIS GROUP, FOR THE YEAR ENDED DECEMBER 31, 2006 ECONOMICAL- FINANCIAL SUMMARY ENERSIS RESULTS The most important items (among others), stemming from 2006, are summarized in the following synthesis: • Net Income rose by 312%, reaching Ch$285,960 million. • Sales rose 18,2% (or Ch$3,892,064 million), due to the increased revenue received from business in generation and distribution areas. • The Operating Margin rose by 22.5%, reaching Ch$1,297,620 million. • Operating Income increased by 28.9%, reaching Ch$1,068,042 million. The increase, per country, was as follows: Chile Argentina Brazil Colombia Peru 31.4% 94.4% 52.6% 9.6% 10.7% • The EBITDA increased by 22.9% to Ch$1,490,519 million. • Coverage for Financial Expenses improved by 14.9% to 4.16 times. • The Return on Equity was equal to 9.96%. • Consolidated physical sales continue to increase (in distribution by 5.5% and in generation and transmission by 19.0%). • Distribution clients continued to increase, this time by more than 360 thousand. The Net Results for 2006 reached Ch$285,960 million, revealing a significant growth of 311.8%. The aforementioned is mainly due to the excellent operating result which the company obtained during this period, which increased by 28.9%, as well as the non operating results, which improved by 2.6%, and the positive effect of deferred taxes in Chilectra (worth Ch$107,170 million), product of the merger with Elesur in April 2006. The 28.9% more significant increase in Operating Income, are due mainly to a strong increase in operating revenue (by 18.2%), related to increased product sales stemming from growing demand. This revenue far outweighs that of energy purchases and other associated operating costs, which increased by 16.1%, making possible an increase in operating margin to 33% from 32%. This important operating improvement made possible to increase EBITDA by 23%, reaching Ch$1,490,519 million. That is approximately US$2,800 million. On the other hand, the Non Operating Income registered a small decrease of losses by 2.6%. These good results have been recognized and integrated by the market, with an appreciated increase in share prices of 52.6% and a 45.6% increase in ADR prices. • The price per share increased by 52.6% and the ADR by 45.6%, reaching Ch$169.68 and US$16.00, respectively. • The market capitalization of the Enersis Group, reached Ch$5,540,249 In this sense that the stock market value of the Enersis Group has increased significantly in the last twelve months, reaching Ch$5,540,249 million by the end of 2006. million. • Moody’s elevated the classification of the senior Enersis debt to Baa3, from Ba1, with a stable tendency; this is equal to an Investment Grade level. • S&P put the Enersis classification under positive revision, considering its better financial profile. During 2006, the two main businesses of to the Enersis Group have shown very positive results due to the good economic conditions that have been registered in the five countries within which the group operates. This has stimulated significantly energy consumption. In effect, the aggregate demand per country has increased by a significant 6.4%. This is reflected in the increased need for energy generation in 2006, in order to meet customer demand. (cid:57)(cid:90)(cid:88)(cid:35)(cid:21)(cid:37)(cid:42) (cid:56)(cid:93)(cid:25)(cid:21)(cid:40)(cid:33)(cid:43)(cid:40)(cid:37) (cid:73)(cid:93)(cid:35)(cid:21)(cid:98)(cid:94)(cid:97)(cid:97)(cid:94)(cid:100)(cid:99) (cid:32)(cid:42)(cid:39)(cid:35)(cid:43)(cid:26) (cid:57)(cid:90)(cid:88)(cid:35)(cid:21)(cid:37)(cid:43) (cid:56)(cid:93)(cid:25)(cid:21)(cid:42)(cid:33)(cid:42)(cid:41)(cid:37) (cid:73)(cid:93)(cid:35)(cid:21)(cid:98)(cid:94)(cid:97)(cid:97)(cid:94)(cid:100)(cid:99) Also, transaction levels in the domestic and New York market (via ADR’s) continue to reflect a positive perception of our companies due to the great liquidity of our papers. International risk classification rating agencies have also taken note of this solid operating and commercial financial condition. This past December 14, Moody’s raised the Enersis and Endesa Chile risk classification to an Investment Grade, from ‘Ba1’ to ‘Baa3’, with ‘stable tendencies’. This improvement is in line with the greater financial flexibility achieved by both companies; Enersis 2006 Annual Report | 239 CONSOLIDATED FINANCIAL STATEMENTS is unanimously classified as an Investment Grade company by Fitch, Standard & Poor’s and Moody’s. In this context, this past December 15, Standard & Poor’s placed Enersis and its subsidiary Endesa Chile, under revision with the a positive perspective, based on the best coverage ratios and greater financial flexibility. The results of this review will probably come to light in the first quarter of 2007. ANALISIS BY BUSINESS LINE AND COUNTRY Of note, regarding the generation line of business, the consolidated production level was 12.4%, greater than that of the year prior. Similarly, the sale of energy reached 70,337 GWh, which represents a 19.2% increase. On the other hand, installed power reached 13,299 MW, as a result of the incorporation of 199 MW in Termocartagena, 387 MW due to the merger of Etevensa and Edegel and 70 MW due to the second combined-cycle of Ventanilla. The distribution business, revealed a significant increase in sales (5.5%) similar to results in past periods, due to the sustained growth of demand in the concession area belonging to the Enersis Group. As such, the losses in energy continued to decrease, this time by 0.5 percentage points less than that of the prior year, reaching consolidated terms equal to 11.3%. The aforementioned reflects the effectiveness of the plans to reduce losses pertaining to all subsidiaries. Upon the closing of transactions, more than 360 thousand new clients appeared which is one of the significant factors explaining the stable nature of flow within this business. Regarding our country by country business situations, these can be summarized as follows: Argentina In generation, an increased exploitable margin can be observed, stemming from growth in average sales prices, related to the recognition of major expenditure for energy within the system. In the case of El Chocón, a greater operating margin can be observed, principally explained by an improved purchase-production mix, due to increased hydro electric generation. El Chocón, not only benefited from the improved hydrology, but also increased its physical sales by 26.2%. In distribution, Edesur reported a 5.8% increase in the sale of energy, resulting from the increased demand in the concession zone, a significant reduction in the loss of energy and over thirty one thousand new clients, all positive structural elements for company distribution. Despite this, the operating income decreased due to increased spending in the administration and sales areas. Of note, under reasonable criteria, as of September 2006, the administration decided to reverse income stemming from adherence to the terms agreed upon in the August Act Agreement (signed between the company and the Ministers for Economy, Production and General Planning. All this, considering that at that date, the said act was still pending agreement by the executive (which only came about on December 28, 2006). In effect, on January 8, 2007, through Decree 1,959/06 published in the Official Bulletin, said Act Agreement was approved. This brought about an increase by 23% in the Aggregate Distribution Value, more than 5% of which was destined to specific works; which could not reflect an adjustment any greater than 15% to the final rates to industrial and commercial users (in comparison, residential sectors will not experience any increase). Pending for the application of the rate increase is that ENRE publish their tariff rates, and that the standards for retro-active charging be established. The increase in rates supposes increased revenue for Edesur of approximately US$45 million per annum. Regarding the Argentine market, there were record levels of energy consumption during December, showing an increase by 9.1% when compared to the same month the year prior (whereby December was the highest month registered for 2006). National consumption reached 97,198 GWh, that is 5.6% above the 92,037 GWh used in 2005. Chile In generation, Endesa Chile, showed a greater operating income of 74.3%, associated to increased sales and greater regulated and average spot price resulting from the higher cost of generation (due to the increased demand, and the natural gas restrictions in Argentina). As such, the good hydrology and the good dam levels, has permitted increased distribution of hydroelectricity. Dated January 2, 2007, the new node price was finally published (which reached US$67.31 (+7.76%). This price will be in place from November 1° 2006, to April 30, 2007. As such, Endesa Costanera shows a greater operating margin, due to increased sales and higher sales prices (Ch$16.9 per kWh as of December 2006, compared to Ch$12.7 per kWh in December 2005), which compensated for the significant cost increase in the purchasing of energy due to the recognition of increased generation costs in the system. Regarding the first tendering of energy process, Endesa Chile, was awarded 100% of that offered, a total of 6,395 GWh/ per annum (2,400 GWh/per annum by Chilectra, 618.5 GWh/per annum of Chilquinta, 1,500 GWh/per annum by Saesa, 876.5 GWh/per annum by Emel and 1,000 GWh/per annum pertaining to CGE Distribution), at an average sales price of energy at the point of supply of 52.3 US$/MWh, which is equal to the monomial price of 65.0 US$/MWh. Of note during 2006, historical maximums in generation were produced in the Costanera, with 8,940 gross GWh generated (3% increase over 2005) and El Chocón which in total produced 5,041 GWh of energy, a figure never before reached (28% increase over 2005). Of note, electric generation by the Endesa Chile Plants reached a historic annual production record in 2006. The production during 2006 was 20,239 GWh (85% hydraulic) an 11.4% more than the 18,909 GWh (84% hydraulic) generated in 2005. 240 | 2006 Annual Report In distribution, Chilectra reported an operating income of Ch$117,137 million, which reflects a decrease by 0.4% due to major expenditure in the administration and sales areas. However, this was compensated by the increase in physical sales by 4.4% due to the increased energy demand at a time where losses where reduced slightly, which indicates greater efficiency reached by this subsidiary in the administration of its network. Additionally, there was an increase in clients (by 33 thousand new inscriptions). Of further note, as a consequence of the increase in node price, the final rates to clients increased by 11.7%. This charge has been applied retroactively from November 1°, 2006. Regarding the first tendering of energy process, Chilectra tendered a total of 4,500 GWh/per annum for the period 2010-2022. 900 GWh/per annum was awarded to Guacolda, 2,400 GWh/per annum to Endesa, and 1,200 GWh/per annum with AES Gener for an average price of 53.59 MWh. The second process of the tendering of energy is planned for August 2007. The energy demand in SIC increased by 6.3% as of December 2006, which reflects a positive comparison with the increase occurring on the same date the year before (which reached 4.5%). As such, in SING, the demand reached 4.8% versus 2.8% in 2005. Colombia In the area of generation, Emgesa generated 6.1% more than in 2005. The aforementioned is basically due to the good hydrological conditions prevailing in the first semester of the year. However, this increased hydraulic production contributed to decrease market prices, decreasing the company margins; a tendency which has been reversed in the last quarter of this year. Betania registered a reduced operating income by Ch$4,675 million. The aforementioned is basically due to the fall of sales prices despite the fact that this subsidiary increased production by 4.9%. Regarding the regulatory framework, from the end of 2006 a new methodology was adopted to remunerate power based on the charge by Confidence in the Wholesale Energy Market. In distribution, Codensa reported a 6.5% increase in the sale of energy resulting from the increased domestic demand and a small reduction in loss of energy. Additionally, it reported a greater purchase- sales margin due to the lower purchase cost (which in turn stemmed from good hydrology). This operating income reached Ch$13,352 million which is a 23% increase compared to December 2005. Peru In the generation business, Edegel registered an improved operating income associated to a 47.1% increase in physical sales, a reality that was partially compensated for by the fall of average sales prices by 4.2% (due to the availability of natural gas from Camisea). On the other hand, the operating costs increased due to the cost of fuels used enersis06 in the increased thermal generation taking place in the simple-cycle Ventanilla Plant. Consequently, the purchase of electricity, as power or as energy, rose from Ch$22.7 per kWh in 2005, to Ch$37.3 in 2006. Regarding the regulatory plan, dated December 16, the Urgent Decree N° 035-2006 was issued by the Ministry of Energy and Mines. Through this decree, the electricity market contingency is resolved, which originated from the lack of contracts of electricity supply between generators and distributors for 2006. Consequently, as of December 18 energy tenders were successfully developed called for by Luz del Sur and Distriluz for the period 2007- 2010. The first was awarded 113 MW and the second 31 MW for Edegel. The awarded prices were similar to the re gulated rates and will be maintained for the life of the contracts (4 years). The Edegel-Etevensa merger was in effect on June 1st. Accountably, this takes effect from January 1st. Consequently, the group has become consolidated as leading generator in Peru in a system where regulation is well adapted and demand is increasing. This merger increases the balance between the thermal and hydraulic capacities of the company, thus improving the generation mix. In distribution, Edelnor reported a significant 29.8% increase in their operating income (reaching Ch$38,578. This great progress is due to the combination of higher sales and improved margins. In effect, a 7.6% increase in energy sales was registered due to increased domestic demand at a time where a slight reduction in energy loss was also registered. Additionally, a greater purchase-sale margin was reported, due to the lower purchase cost (stemming from lower market prices thanks to good hydrology). Additionally, this subsidiary saw a client increase by 27 thousand, rapidly reaching 1 million consumers. It now has 952 thousand subscribers to its network. Brazil In generation, the operating income of Cachoeira increased by 23.6%, basically deriving from an 8.0% increase in physical sales which reached 4,177 GWh (due to better hydrology in the central region). This decreased the need for the purchase of energy and power. This positive set of circumstances partially compensated for the decrease in sales margins, as well as the increased costs for the transportation of energy. The Fortaleza Thermo Generation Plant (CGTF), saw a slight decrease in its operating income due to the lower average sales price, which could not be compensated by the very slight increase in the level of physical sales (which only increased by 0.6%). Regarding CIEN, a negative operating income can be seen of Ch$759 million. This loss is due fundamentally, to a decrease in physical sales 2006 Annual Report | 241 CONSOLIDATED FINANCIAL STATEMENTS mainly due to the lack of supply from Argentina, as well as a decrease in the average sales margins in 2006. Considering the energy situation of Argentina and Brazil, CIEN is in the process of redesigning its business in order to become independent from the availability of energy in both countries, and to be able to carry out purchases and/or sales with each other. Additionally, it seeks adequate remuneration as an international energy transporter. On the other hand, it is renegotiating contracts that will make current commercial conditions more flexible. In this context, CIEN, in December, reduced the energy contract it had with Copel, signing on January 3, 2007 an agreement in which it was stipulated that only 175MW would be supplied in 2007. In distribution, Ampla registered an increase of 34.5% in its operating income, reaching Ch$110,008 million. The aforementioned is the result of increased physical sales by 6.0%, better buy-sell margins, fewer energy losses and increased unitary margins associated with the rate readjustment that took place in March 2006 (by 2.9%); as well as the incorporation of 100 thousand new clients in 2006. Regarding the plan to reduce Ampla losses, the losses for December were of 19.9%, while the losses this year have reduced by 1.7 percentage points, reaching 21.9%. To date we have 362 thousand clients connected to DAT technology, thus reaching the establish goal. Coelce, saw increased operating incomes by 75.9% by Ch$86,549 million. This significant increase is mainly due to the 2.9% increase in physical sales, as well as the improved purchase-sale margin. In this light Coelce saw a significant reduction in energy loss (which went from 14.0% to 13.0%). On the other hand, there was also an increase in new clients by 105 thousand. In 2006, there was an overall rate readjustment (of 10.0%) which was granted in April, which is directly reflected in the positive variation by 21.8% of income from energy sales. In this sense, and of note, Coelce, will have its next rate revision in April 22, 2007 and this will be the first company to calculate its 2007-2009 tariffs under the new WACC as defined by ANEEL of a 9.98% after taxes. Of note, last October a third new energy tender took place for a total amount of tendered energy of 1,104 MW. This resulted in an average price of R120.86 for hydroelectricity and R$137.44 for thermoelectricity in 30 and 15 year respective terms (distribution starting in 2011). INVESTMENTS The Enersis Group considers the compliance of high standard and quality services in the distribution of electric energy as an essential part of its strategy. To reach this objective, permanent investment is required so that different consumer segments, industrial, public illumination, commercial and residential, do not have their daily processes altered. 242 | 2006 Annual Report The maintenance investment plan (Capex) for the period 2007-2009 reaches approximately MMCh$1,900 and is totally financed by its respective subsidiaries, and contributes to the trustworthy and timely supply of electric energy to satisfy more than 360 thousand clients that are added each year, and form part of the Enersis Group; a key factor for the stable flows coming from this line of business. In conjunction with this plan, the Enersis Group plans to invest in new projects that contribute to the development of different countries within which it functions. Regarding Chile, our subsidiary Endesa Chile is currently developing the following projects: Expansion Investments MMUS$ Installed Capacity (MW) Investment Amount (US$ app.) Operation beginning date Combustible utilized San Isidro II Palmucho Aysén Canela Ojos de Agua 377 32 2400 30 20 * Open Cycle ** Combined Cycle 210 44 2400 30 20 Apr 07* - Mar 08** Thermal II Sem. 2007 Hydraulic 2012 Hydraulic II Sem. 2007 Eolic 2008 Hydraulic Likewise the company is actively participating in the initiative sponsored by the government, the GNL project, with 20% of the property of the new re-gasification terminal, where it participated alongside Enap, Metrogas and British Gas (the last being the provider of gas). The GNL Chile S.A. Company has finalized the conditions for the development of the project ‘Project Development Agreement’ (PDA) with British Gas. In September, Electrogas, a company formed by Endesa Chile (42.5%), the Matte group (42.5%) and ENAP (15.0%) announced their intention to construct an oil pipeline in the V Region, which will run from Concón to Lo Venecia (where the combined cycles of both generators are located). This will imply an investment of US$6 million, with its operation is set to begin May 2007. In Argentina, Foninvemem, an investment fund created to normalize the wholesale electricity market, financed the construction of the combined cycles of 800MW each. In December 2005, two generation companies where constructed in this way, of which Endesa Chile has a 26.2% share (through its subsidiary Argentina). These companies are Thermoelectric José de San Martín S.A. and Thermoelectric Manuel Belgrano S.A. In October, the supply of equipment of both cycles was awarded to the Siemens Company for a total of 1,650 MW. The preset date for the beginning operation is January 2009, from which point the companies will begin to recover their balance with flows generated by the project through a sales contract of their production to MEM (CAMMESA) for 10 years. enersis06 MARKET WITHIN WHICH THE COMPANY OPERATES The commercial activities pertaining to Enersis take place through the affiliated companies that operate in the various businesses within which the company is present. The more relevant business for Enersis is Distribution, Generation and Electricity Transmission. The following tables show the evolution of key indicators pertaining to the company in the different countries in which it operates. Generation and Transmission Business Country Endesa Chile (1) Endesa Costanera El Chocón Edegel (2) Emgesa Betania Cachoeira Dourada CGTF (3) CIEN (3) Total Markets in which operates SIC y SING Chile SIN Argentina SIN Argentina SICN Peru SIN Colombia SIN Colombia SICN Brazil SICN Brazil SICN Brazil Energy Sales (GWh) Market Share Dec-05 Dec-06 Dec-05 Dec-06 20,731 8,466 4,113 4,600 12,358 2,737 3,867 678 1,467 20,923 8,816 5,191 6,767 12,311 3,054 4,177 2,705 6,394 59,017 70,337 43.7% 9.6% 4.7% 23.6% 17.9% 4.0% 0.9% 0.1% 0.3% 41.6% 8.9% 5.3% 30.4% 17.4% 4.3% 1.2% 0.8% 1.8% Includes Endesa Chile and its generation subsidiaries in Chile. Includes sales whithin January and December 2006 of Etevensa, company merged with Edegel as of June 1, 2006. (1) (2) (3) Includes sales whithin January and December 2006. In year 2005, includes sales for the period within October and December 2005, since the companies are being consolidated since October 1, 2005, through Endesa Brasil. Distribution Business Company Chilectra Río Maipo Edesur Edelnor Ampla Coelce Codensa Total Energy Sales (GWh) ( * ) Energy Losses (%) Clients (Thousands) Clients / Employees Dec-05 11,851 Dec-06 12,377 - - 14,018 14,837 4,530 8,175 6,580 4,874 8,668 6,769 10,094 10,755 Dec-05 Dec-06 5.5% 0.0% 11.4% 8.6% 22.4% 14.0% 9.4% 5.4% 0.0% 10.5% 8.2% 21.9% 13.0% 8.9% Dec-05 1,404 Dec-06 Dec-05 1,437 1,972 Dec-06 2,030 - - - - 2,165 925 2,216 2,438 2,073 2,196 952 2,316 2,543 2,138 926 1,726 1,671 1,848 2,239 912 1,737 1,639 1,937 2,289 55,248 58,280 11.8% 11.3% 11,221 11,582 1,568 1,582 (*) Includes sales to final clients, tolls and intercompany sales. 2006 Annual Report | 243 CONSOLIDATED FINANCIAL STATEMENTS I. ANALYSIS OF FINANCIAL STATEMENTS 1. ANALYSIS OF THE I NCOME STATEMENT The results of the company as of the 31st December 2006, amounted to Ch$285,960 million, which represented a considerable increase from the 311.8% of the prior year, in which a result of Ch$69,445 million was obtained, which represents a greater profit of Ch$216,515 million, which is primarily the result of an increase in operating incomes obtained by the company during 2006, which increased by 28.9%,(or its equivalent Ch$239,398 million), to the better non-operating incomes achieved in the period of Ch$10,932 million and to the recognition of the positive effect of deferred taxes in Chilectra (ex Elesur S.A.), resulting from the merger with Chilectra. It is also important to point out that in 2005, starting from October, with the creation of the Endesa Brasil Holding Company, the income statements of Enersis and the companies Central Geradora Termelétrica Fortaleza (CGTF) and Companhia de Interconexão Energética (CIEN). If a comparison is made in homogeneous terms, and the pro forma income statements are compared (see note 2) in which both companies where added to the Enersis consolidation in fiscal year 2005, the operational growth result increases by 20.3%. A comparison of each item in the income statements can be seen in the following: Income Statement (Million Ch$) Operating Revenues Operating Costs Operating Margin Selling and Administrative Expenses Operating Income Net Income from Related Companies Net other Non Operating Income (Expense) Net Interest (Expense) Positive Goodwill Amortization Price Level Restatement Foreign Exchange Effect Non Operating Income Net Inc before Taxes Income Tax Extraordinary Items Minority Interest Negative Goodwill Amortization Net Income Dec-05 3,293,143 (2,234,186) 1,058,957 (230,313) 828,644 6,887 (88,930) (270,088) (56,345) (5,049) (6,373) (419,898) 408,746 (182,051) Dec-06 3,892,064 (2,594,444) 1,297,620 (229,578) 1,068,042 5,039 (98,723) (265,918) (55,908) 1,217 5,327 (408,966) 659,076 (109,408) Var. Dec 06 - 05 Var. % Dec 06-05 598,921 (360,258) 238,663 735 239,398 (1,848) (9,793) 4,170 437 6,266 11,700 10,932 250,330 72,643 18.2% (16.1%) 22.5% 0.3% 28.9% (26.8%) 11.0% 1.5% 0.8% (124.1%) 183.6% (2.6%) 61.2% 39.9% - - - - (173,072) 15,822 69,445 (269,786) 6,078 285,960 (96,714) (9,744) 216,515 331,007 6,63 55.9% (61.6%) 311.8% 25.5% 311.8% Net Inc b. Taxes, Min Int and Neg Goodwill Amort. Earnings per Share Ch$ 1,295,885 2,13 1,626,892 8,76 a.- Operating Income: The operating income as of the 31st of December, 2006, reveals growth amounting to Ch$239,398 million relative amount to the period of time equal to that of the prior year, and reaching Ch$1,068,042 million, equivalent to an increase of 28.9%. If a comparison is made pro forma, in homogenous terms, within the consolidation framework, the operating income increases by 20.3% between both periods. Further, if the effect of the devaluation of the Chilean Peso with regard to the dollar is incorporated (which devalued by 3.9% between 31 December 2005 and the same date in 2006, going from Ch$512.50 to Ch$532.39 pesos respectively), the operating income increases by 18.3% The Generation and Transmission line of business reveals an increase in operating income of Ch$148,204 million (equivalent to 34.1%). This is primarily the result of significant growth in the operating income in Chile and Argentina. The physical sales increased by 19.2%, growing from 59,017GWh in December 2005 to 70,337 GWh in December 2006. Chile: In Chile, the operating income reached Ch$288,460 million in December 2006, compared to Ch$190,863 million the year before, that is a 51.1% increase. This is due to a favorable hydrology in Chile, mainly during the period from June to September in 2006, and to the favorable accumulation of snow in the mountain reserves, which led to an increase in the results through the more abundant generation of hydroelectricity 244 | 2006 Annual Report (by 8.8%) as also a better set of prices during 2006. An increase by 6% of demand and the constant cutting in supply of natural gas from Argentina has put pressure on the electric system which has had to stretch its installed capacity. In 2006, Endesa Chile and its subsidiaries in Chile carried out sales within the market for 4,991 GWh, with the average market price being around US$44.8 per MWh. Meanwhile, the physical sale of energy to regular clients, which are subject to a new energy matrix recognized in the tariffs settler system, has increased by 1.7%, reaching 10,756 GWh. The increase in the sale of energy reflects an increase of 12.7% in the average sale price which went from Ch$25.3 per kWh in 2005 to Ch$28.5 per kWh in 2006, due to the recorded increases in market prices. Alternatively, the greatest thermal generation during the last quarter of 2006 stemming from the strong cutbacks to the supply of natural gas from Argentina, have made the cost of fuel and other fixed costs increase in spite of the favorable hydrology within the year, this value was compensated for through lower costs in the purchasing of energy and power. The cost of the purchase of electricity, regarding energy and capacity, went down from Ch$66,772 million in 2005 to Ch$53,789 million in 2006, mainly due to a decrease in the purchasing of physical energy (by 42.0%); Meanwhile, the average sale price went from Ch$29.4 per kWh in 2005 to Ch$40.9 per kWh in 2006. Brazil: In Brazil, the operating income of our subsidiary Cachoeira Dourada, throughout the year 2006, reached Ch$ 29,547 million, which compares favorably with the Ch$23,896 million reached during 2005 (representing an increase by 23.6%). This is mainly due to the increase in the physical sales by 8.0% (reaching 4.77 GWh), which was partially compensated for by the lower sales margin within this period and an increase in the cost of transporting energy. Additionally, a favorable hydrology west of the southeast-center has permitted the increase of production in Cachoeira, which decreased the need to purchase energy, allowing for the reduction of costs for the purchase of energy and power. Since October, 2005, with the forming of Endesa Brasil, Enersis consolidates the companies Central Geradora Termelétrica Fortaleza and Companhia de Interconexão Energética. During 2006, the operating income of CGTF reached Ch$52,531 million, showing a decrease of 2.8% in comparison the 2005 in which a operating income of Ch$54,018 million was obtained. This decrease is mainly due to the lower average price of sale during 2006, which was in part compensated by the decrease in the cost of fuel and transport. The physical sales reached 2,705 GWh in December 2006 (2,690 GWh in December 2005). As for CIEN, it showed losses in its operating income for the period in question of over Ch$759 million (comparatively, in same period of the year prior- it reached a profit of Ch$33,858 million). The aforementioned is due to the decrease of physical sales stemming from the lack of supply from Argentina to Brazil, which reached 6,394 GWh in December 2006 (6,567 GWh in December 2005). Significantly, CIEN is aiming to refocus their business so that it does not have to depend on Argentine and Brazilian energy to carry out purchases and sales between these countries. In this context it has been renegotiating its existing contracts relating to the supply of energy while at the same time seeking a enersis06 remuneration that is compatible with its function as an international transporter of energy. The company aims to have a redefined business structure from the year 2007. Argentina: The operating income in Argentina increased due to the improved transaction of our subsidiaries within that country. Endesa Costanera registered an operating profit of Ch$4,893 million compared to the loss of Ch$2,132 million in 2005, due principally to the energy price increase which occurred in recognition of the higher cost related to energy within the system. Similarly, the hydroelectric central El Chocón registered an increase in the operating income of Ch$30,309 million in the current year, resulting from better hydrology, which together with the increase in market prices, enhanced the operating income. The El Chocón hydroelectric plant has continued to capitalize on the increased demand for electricity within the Argentine market, (which borders on 10% thanks to good hydrology in the Comahue region). Its sales have reached 5,191 GWh in December 2006, revealing a 26.2% increase when compared to the prior year. The better hydrology has made allowed the increase of hydro-energy production by 1,111 GWh when compared to the prior year, (reaching 5,041 GWh, which was largely predestined to the spot market). Additionally, an increase in the price of energy has been noted, due to the recognized higher cost of fuel for the system, which simultaneously creates better energy sale margins for the current year. In Endesa Costanera, the physical sale of energy increased to 4.1% during 2006, reaching 8,816 GWh when compared to that of the prior year (8,466 GWh). This is due to the greater demand for electricity and the company’s capacity to generate liquid fuel. Also, an increase in energy prices has been noted, due to the recognized higher costs of fuel within the system. The company’s average sale price increased by 33.1% from Ch$12.7 for kWh in 2005, to Ch$16.9 for kWh in 2006. The cost of fuel increased by Ch$45,281 million, mainly attributable to the generation of electricity produced using liquid fuel (oil); this is the principal reason for the increase in costs associated with Argentina. The increased use of liquid fuel was a consequence of the scarcity of natural gas in Argentina. Peru: In Peru, Edegel registered a greater operating income of Ch$582 million, reaching Ch$55,536 million in December 2006. This is mainly due to the increase in physical sales of energy by 2,167GWh equivalent to a 47.1% growth, which partially compensated for the decreased average sales price (by 4.2%) which resulted from the availability of Camisea natural gas in the Peruvian electric system. The average sale price decreased from Ch$25.8 per kWh in 2005 to Ch$24.7 for kWh in 2006. The operating costs in Peru increased by 78.2%, going from Ch$56,569 million in 2005 to Ch$100.804 million in 2006. This increase is mainly due to an increase by Ch$25.043 million in fuel costs, related to the greater simple-cycle thermal generation by the Ventanilla Thermal Plant, as well as an increase in fixed costs. The purchase of electricity with regard to energy in the form of power, increased by Ch$4,625 million during 2006 which is mainly attributable to the rise in the average purchase price (from Ch$22.7 per kWh in 2005 to Ch$37.3 per kWh in 2006). Also of note, regarding the aforementioned, the figures for 2006 incorporate the effects stemming from the merger of Edegel with Etevensa which took place on the 1st of June this year. 2006 Annual Report | 245 CONSOLIDATED FINANCIAL STATEMENTS Colombia: In Colombia, the operating income of Emgesa reached Ch$109,077 million during 2006. This is Ch$2,924 million more than what was obtained within the same period of the prior year. The high level of hydrology in the country in the first half of the year inspired the decrease in the price of hydraulic production which simultaneously brought about through smaller sales margins. This tendency began to reverse itself during the last quarter (due to the expected “Niño” phenomenon). Emgesa production increased by 6.1%, reaching a generation of 10,360 GWh. Physical sales reached 12,311 GWh (12,358 GWh in December 2005). On the other hand, Betania revealed a decrease in its operating income by Ch$4,675 million with regard to the same period within the prior year and reaching Ch$12,252 million this year. Betania increased its production by 4.9%, reaching 2,204 GWh. Sales, as of the 31st of December, were 3,054 GWh, reflecting an increase of 11.6% relative to the same period in the prior year (2005). Notwithstanding, the operating income decreased by Ch$3,201 million (8.0% recorded December 2005) as a consequence of falling sales prices. In the Line of Business pertaining to Distribution, our subsidiaries in the region continue to present important increases in physical sales and client numbers. In this sense physical sales have increased by 5.5% (or 3,032 GWh); reaching sales of 58,280 GWh as of the 31st of December 2006. On the other hand, client numbers increased by 3.2%, (that is 361 thousand new clients reaching a total amount of 11.6 million). Brazil: In Brazil, our Distributor subsidiary Ampla, showed an operating income of Ch$110,008 million as of the 31st of December 2006; an increase by 34.5% (or Ch$28,213 million). This is notable when compared to the results of the same period the year before. This more favorable result is primarily due to an increase in the demand for energy which simultaneously caused a 6.0% rise in physical sales, reaching 8,668 GWh during the period January- December of 2006. It is also due to the better buy-sell margins during this period, and the decrease in lost energy by 0.5 percentage points (reaching 21.9% this year and 22.4% in December 2005). Ampla client numbers increased by 100 thousand and currently reach 2.32 million clients. Coelce is also showing an increase in its operating income by Ch$37,360 million, reaching Ch$86,549 million in December 2006. This increase is due to the growth of the demand for energy which increased physical sales by 2.9% (which reached 6,769 GWh for the period January- December 2006). It is also due to the more favorable buy-sell margins throughout the period, stemming from the significant reduction in energy losses by 1.0 pp (equivalent to 7.1%), going from 14% in December 2005 to 13.0% in December 2006. Client numbers as of December 2006 reached 2.54 million, reflecting an increase by 105 thousand clients (4.3%) compared to the same period in the prior year (2005). Argentina: Our subsidiary in Argentina, Edesur, has noted a decrease in operating income of Ch$7,815 million; it went from an operating profit of Ch$3,738 million recorded in December 2005 to an operating loss occurring in the present period of Ch$4,077 million. This is basically the result of increased operating expenses and the maintenance of the administrative and sales areas. 246 | 2006 Annual Report This meager operating income, despite the fact that all the main indicators of the electric distribution company have improved. In this sense, the physical sales increased by 819 GWh (5.8 %) due to the increase in demand for energy (reaching 14,837 GWh in December 2006). The energy losses decreased by 0.9 pp, reaching 10.5% in December 2006, and client numbers increased by 31 thousand, reaching 2.20 million clients. Of note, in September 2006 (under prudential criteria), the company administration decided to reverse the accrued income derived from the transitional rate system; foreseen in the Agreement Act signed in August 2005 between the Company and the Economy and Production and General Planning, Public Investment and Services Ministries since as at this date, the Agreement Act was pending of ratification by the National Executive (ratification occurred on the 28th of December 2006 through Decree N° 1,959). To date, is pending the approval of E.N.R.E of the new rate system and the transferal through invoicing of the agreed upon transitional increases, notwithstanding the need for the adaptation of the previous time tables for implementing the Overall Rate Revision (RTI). Colombia: In Colombia, Codensa reached a operating income of Ch$135,352 million in December 2006, (an increase of 23.0% compared to the same period the year before). This increase is mainly due to a better energy buy-sell margin, through an energy loss decrease by 0.5 pp, as well as the increase in demand implied higher physical sales of energy by 6.5% (reaching 10,755 GWh), and to growth in the earnings related to other operating services. Client numbers have increased by 65 thousand, reaching 2.14 million clients in December 2006. The energy losses went from 9.4% in December 2005 to 8.9% in December 2006. Peru: Our subsidiary in Peru, Edelnor, shows an operating income of Ch$38,578 million, exceeding by Ch$8,847 million the result obtained in the same period the year before (which was Ch$29,731 million). This is partially due to the greater demand for energy and the better margins on individual sales. The increase in the demand made the physical sale of energy rise by 7.6% (reaching 4,874 GWh in December 2006). Client numbers increased by 27 thousand, reaching a total amount od 952 thousand on the 27th of December 2006. Energy losses decreased by 0.4 pp, reaching 8.2% in December 2006 compared to 8.6% within the same period in 2005. Chile Our subsidiary in Chile, Chilectra, shows a slightly reduced operating income by Ch$460 million for the period January - December 2006, (or 0.4% when compared to the same period in the prior year), reaching Ch$117,137 million. This decrease is mainly due to the increase administration and sales expenses by Ch$3,387 million, partially compensated by the increase in the operating margin by Ch$2,928 million, due to the increase in physical sales by 4.4% reaching 12,377 GWh, which reflects the current state of economic activity within the country, and due to a better buy-sell margin in the current period, resulting from reductions in the loss of energy. Client numbers in Chile increased by 33 thousand as of December 2006, reaching a total of 1.44 million clients. Energy losses decreased as of December 2006 to 5.4%, compared to 5.5% recorded in December 2005. The operating revenues and costs, as well as the administration and sales expenses by subsidiary companies of the Enersis group in the exercises ended December 2005 and 2006, are shown in the following: OPERATING INCOME DETAILS (In Million Ch$) Companies (million Ch$) Endesa S.A. Cachoeira Dourada (*) CGTF (**) Cien (**) Chilectra S.A. Edesur S.A. Edelnor S.A. Ampla (former Cerj) Coelce Codensa Cam Ltd. enersis06 December 2005 December 2006 Operating Revenues Operating Costs Selling and Administrative Expenses Operating Income Operating Revenues Operating Costs Selling and Administrative Expenses Operating Income 1,146,623 (704,081) (39,388) 403,154 1,337,121 (793,260) (39,386) 504,475 12,592 30,923 28,614 (6,461) (14,758) (13,957) (1,195) (480) (1,318) 4,936 15,685 13,339 66,844 100,193 (30,992) (46,091) 143,900 (139,072) 606,015 (444,798) (43,620) 117,597 664,957 (500,814) (6,305) (1,571) (5,587) (47,006) (35,574) (19,966) (17,189) 29,547 52,531 (759) 117,137 (4,077) 38,578 110,008 86,549 239,469 (205,917) 197,489 (149,600) 485,791 (381,422) 343,491 (242,305) 409,953 (281,186) 127,792 (108,434) (29,814) (18,158) (22,574) (51,997) (18,765) (8,052) (2,103) (7,557) 29,731 81,795 49,189 1,058 3,532 3,738 248,394 (216,897) 214,271 (155,727) 552,631 (425,434) 418,314 (297,489) (34,276) 110,002 449,811 (301,258) (13,201) 135,352 11,306 141,080 (121,469) 21,659 54,262 4,695 (11,762) (44,992) (2,396) (9,837) (2,626) (10,364) (20,666) 9,774 7,271 (1,094) (18,367) Inmob. Manso de Velasco Ltd. Synapsis Soluc.y Servicios Ltd. Holding Enersis and Investmenmt Company 11,356 46,513 4,706 (8,195) (35,424) (2,264) (17,425) (14,983) Consolidation Adjustments (398,184) 364,616 32,133 (1,435) (526,068) 493,209 33,976 1,117 Total Consolidated 3,293,143 (2,234,186) (230,313) 828,644 3,892,064 (2,594,444) (229,578) 1,068,042 (*) Consolidated by Endesa Chile until September 30th, 2005. Since October 1st, it is consolidated by Enersis through Endesa Brasil. (**) Since October 1st, 2005, these subsidiaries are consolidated by Enersis through Endesa Brasil. OPERATING INCOME PER LINE OF BUSINESS The operating revenues and costs, broken down by line of business for the periods ending the 31st of December 2005 and 2006, are shown as follows: Business (Million Ch$) Generation and Transmission (1) Distribution Engineering and Real State Headquarters and Other Services Eliminations Total Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Operating Revenues 1,199,547 1,622,319 2,282,206 2,548,377 34,051 49,776 179,014 200,038 (401,675) (528,446) 3,293,143 3,892,064 Operating Costs Operating Margin (722,503) (986,445) (1,705,225) (1,897,619) (27,484) (36,137) (146,127) (168,858) 367,153 494,615 (2,234,186) (2,594,444) 477,044 635,874 576,981 650,758 6,567 13,639 32,887 31,180 (34,522) (33,831) 1,058,957 1,297,620 Selling and Administrative Expenses (42,041) (52,667) (184,607) (167,295) (3,396) (3,773) (33,358) (40,791) 33,089 34,948 (230,313) (229,578) Operating Income 435,003 583,207 392,374 483,463 3,171 9,866 (471) (9,611) (1,433) 1,117 828,644 1,068,042 (1) Includes Operating Income for the period January - December 2006 from Etevensa, CGTF and CIEN. For the year 2005, includes Operating Income for the period October - December 2005 from CGTF and CIEN. b. Non Operating Income On the 31of December 2006, the company revealed losses in the operational period of over Ch$408,966 million, which reflects an improvement of Ch$10,932 million with regard to the non- operating income obtained on the same date in 2005, where losses where of Ch$419,898 million. The net interest expenses reveal a 1.5% decrease (equivalent to Ch$4,170 million), going from a net expense of Ch$270.088 million in December 2005 to a net expense of Ch$265,918 million. The reduced expenditure is the result of greater financial earnings, mainly stemming from placements using cash surpluses and to a containment if average debt between the two periods. The aforementioned occurred despite the consolidation of the debt from two new companies during 2006 (CIEN y CGTF) versus a consolidation period of only three months of 2005. Income from investments in related companies show a net decrease of Ch$1,848, going from a net profit of Ch$6,887 million in December 2005 to one of Ch$5,039 million, presently. The reduced profit mainly stems from the reduced profit seen in the investment in Gas Atacama (by Ch$3,505 million); partially compensated by the decreased losses in 2006 Annual Report | 247 CONSOLIDATED FINANCIAL STATEMENTS CIEN (by Ch$7,874 million) and the CGTF profit of Ch$6,029 million. With the compensating effect of the other two companies as of December 2005, the net loss was of Ch$1,844 million; and that at this period the equity value attributable to equity value for each company is zero, as both have been consolidated within Enersis as of October 2005. Amortization of positive goodwill does not reveal significant variation and reached a sum of Ch$55,908 million decreasing by Ch$437 million, or 0.8%, as of the 31st of December 2006. Net Other Operating Income reveal greater net losses of Ch$9,793 million, going from a net loss of Ch$88,930 million in December 2005, to one of Ch$98,723 million, presently. The principal reasons for this variation in the results are detailed in the following: • Penalties for accounts receivable in CIEN due to contract renegotiation with Copel Ch$30,518 million. • Greater expense, by Ch$12,245 million, relating to energy efficiency for Brazilian subsidiaries. • Net losses of Ch$10,118 million resulting from adjustments pertaining to conversion to Chilean norms; mainly corresponding to subsidiaries in Colombia, Brazil and Peru, in the application of the Technical Bulletin N° 64. The aforementioned was compensated in part by: • Greater profit in the sale of fixed assets by Ch$19,181 million primarily from the sale of Ampla generation assets. • Lower expenses relating to provisions and contingencies, by Ch$16,716 million. Price level restatement reveals a positive variation of Ch$6,266 million, due primarily to the effect of inflation (by 3.6% in the period January- December 2005, and by 2.1% in the same period this year) within monetary and non-monetary assets and liabilities, mainly debt, calculated in U.F; It is also due to the updating of our income statement. Foreign Exchange Effect show a positive net variation of Ch$11,700 million in December 2006, relative to the same period the year before, moving from a loss of Ch$6,373 million in 2005 due to exchange differences where Chilean peso was revaluated by 8.1%, at a profit of Ch$5,327 million in the current year, with a 3.9% devaluation of Chilean peso. The aforementioned is the result of the company’s active mismatch of dollar positions in both transactions. Income Tax and Deferred Tax as of December 2006 reveals an expense of Ch$109,408 million, compared to the expenses recorded in December 2005 of Ch$182,051 million, shows a positive variation of Ch$72,643 million. INCOME TAX AND D EFERRED TAX Item (Million Ch$) Income Tax Deferred Tax Dec-05 (134,787) (47,264) Dec-06 (251,486) 142,078 Variations (116,699) 189,342 Total (182,051) (109,408) 72,643 248 | 2006 Annual Report Expenses related to income tax increased by Ch$116,699 million. This is primarily the result of greater income tax provisions by our subsidiaries, Coelce by Ch$25,746 million, Endesa by Ch$17,240 million, CGTF by Ch$16,493 million, Pehuenche by Ch$15,093 million, Codensa by Ch$10,973 million, and Edelnor by Ch$9,804 million. Partially offset with lower expenses in Edesur by Ch$5,719 million and Chilectra by Ch$4,014 million. Regard the deferred tax, which does not count as cash flow, there is a noted positive variation by Ch$189,342 million. It principally stems from Chilectra (Ch$129,771 million) due to the significant recognized effect (worth Ch$107,170 million) of the merger of Elesur with Chilectra. The merger brought about the reversal of the valuation provision that it applied over its tributary losses that were accumulated from past exercises. Added to this are the effects of CIEN (by Ch$28,835 million), as well as those of Ampla (by Ch$17,329 million), Coelce (by Ch$14,106 million), Emgesa (by Ch$12,586 million, Pehuenche (by Ch$11,021 million) and Codensa (by Ch$10,348 million). This was compensated, in part, by the negative variation in Edegel (by Ch$12,916 million), Enersis (by Ch$9,398 million) and Endesa (by Ch$5,282 million). Negative Goodwill Amortization reached Ch$6,078 million on the 31st of December 2006, revealing a decrease by Ch$9,744 million in comparison to the equivalent period the year prior. The lower redemption is the result of the balance being paid off in Edegel, and to the first purchase in Betania, whose effect is a smaller amortization of Ch$3,735 and Ch$5,802 million, respectively. ANALYSIS OF INTEREST RATES AND RISKS OF EXCHANGE The company has a portion of its loans held in dollars, since a portion of sales in the different markets within the Company operates, index in this currency particularly. Nevertheless, the Brazilian, Colombian and Argentine markets index the dollar to a lesser extent; subsidiaries within these countries therefore, are willing to take greater debt in local currency. Regarding financing in Argentina, the dollar has gradually been replaced with local currency, as far as term conditions and market rates allows it. Notwithstanding this natural exchange rate coverage, in a scenario of high dollar volatility, the Company has continued its strategy of partially covering its liabilities in dollars in order to cushion fluctuations affecting the results through exchange rate variations. Considering the significant reduction in accounting mismatches within former; which have led to more prudent levels today. As a result, the company has modified its dollar-peso coverage policies and created a cash flow coverage policy; establishing a maximum in permissible accounting mismatches through which coverage transactions are realized. As of the 31st of December 2006, the company has coverage in Chile through Swap dollar-UF contracts (for a sum of US$600 million) and Swap dollar-peso contracts (for a sum of US$125 million); in consolidated terms, which allow the compliance with the said coverage policy within US$100 million expired in 2006. Regarding interest rate risks, the company has consolidated the terms under which a portion of its loans under fixed interest (70.8%) and a portion under variable interest (29.2%) as of December 2006. The percentage of loans under fixed interest has decreased in comparison enersis06 to the prior year balance where 81.8% was fixed interest and 18.2% was variable. This is due to the refinancing by some companies within the group of expired loans, and the shifting of these loans from fixed interest to variable. Despite this, risk levels for these companies continue to maintain within the coverage levels established by the group. Operating Income for each country is shown in the following figure which compares the December 2006 results with those of December 2005. Country (Million Ch$) Chile Argentina Brazil (1) Peru (2) Colombia Eliminations Total Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Operating Revenues 1,089,939 1,240,633 411,728 507,669 901,123 1,117,461 300,265 367,619 599,784 664,787 (9,696) (6,105) 3,293,143 3,892,064 % r / consolidated 33% 32% 12% 13% 27% 29% 9% 9% 18% 17% Operating Costs (709,799) (758,956) (357,981) (426,298) (646,162) (783,996) (191,005) (244,127) (339,170) (387,509) 9,931 6,442 (2,234,186) (2,594,444) % r / consolidated 32% 29% 15% 16% 29% 30% 9% 9% 15% 15% Operating Margin 380,140 481,677 53,747 81,371 254,961 333,465 109,260 123,492 260,614 277,278 235 337 1,058,957 1,297,620 % r / consolidated 36% 37% 5% 6% 24% 26% 10% 10% 25% 21% Selling and Administrative Expenses (69,313) (73,372) (34,166) (43,305) (79,156) (65,187) (23,864) (29,000) (24,864) (18,847) 1,050 133 (230,313) (229,578) % r / consolidated 30% 32% 15% 19% 34% 28% 10% 13% 11% 8% Operating Income 310,827 408,305 19,581 38,066 175,805 268,278 85,396 94,492 235,750 258,431 1,285 470 828,644 1,068,042 (1) Year 2006 includes Operating Income for perios January - December 2006 from CGTF and CIEN. Year 2005 includes Operating Income from period October - December 2005 from CGTF and CIEN. (2) Year 2006 includes Operating Income for the period January - December 2006 from Etevensa, merged with Edegel. OTHER RISKS As commonly practiced in bank loans and market transactions regarding capital, a portion of the financial debt of Enersis and its subsidiary Endesa Chile, is subject to cross default covenants. Where certain breaches by relevant subsidiaries are not corrected, it could result in a cross default at levels of Enersis and Endesa Chile, in which case certain company liabilities may be required. or more) by the company or its relevant subsidiaries, could give place to the anticipated payment of Yankee bonds. Further, some loan agreements contain stipulations under which nonpayment due to certain events experienced by the company or its relevant subsidiaries (such as bankruptcy, insolvency and adverse judicially passed sentences involving over 50 million dollars, assets expropriation) can lead to an accelerated return of credit. Once the grace period has expired, the nonpayment of debt (specifically individual amount of 30 million dollars or more) by the company or its relevant subsidiaries, could give place to the anticipated payment of syndicated loans subscribed to in 2004. The loans subscribed to by Endesa (in January and December 2006) and by Enersis (in December 2006), the minimum increases to 50 million dollars. There are no clauses within the contracts with creditors that oblige them to pay-off acquired debt, in anticipation, as a result of corporate classification changes or variances in company debt classifications as determined by risk classifying agencies. Notwithstanding this, variation in the risk classification for foreign currency debt, changes the applicable margins for syndicated loans. Analogously, following the applicable grace period, where debt remains unpaid (specifically regarding individual amounts of 30 million dollars The liabilities that could become due where loan payments go unfulfilled and the respective subsidiary creditor are detailed as follows: Bank Loans Enersis Endesa Chile Total Sindicated 315 100 415 Potentially active events of default in subsidiaries that World generate a cross – default to the Parent Company. Enersis Effect on the Parent 1. Default Debt -> 30 MMUS$ (1) 2. Bankruptcy or Cessation of Payments 3. Substantial Adverse Effects Defaults 4. Governmental Action (2) 415 MMUS$ The noted grounds only produce on the parent if occurring in what are called Relevant Subsidiaries. Judgments in otehr subsidiaries have no effect on the parent. The Relevant Subsidiaries are qualified o the basis of financial statements of the last fiscal year under the U:S: GAAP. are based on financial statements as of December 31, 2005, and are Relevant Subsidiaries of Enersis: Endesa Chile, Endesa Brasil, Chilectra and Cono Sur. 2006 Annual Report | 249 CONSOLIDATED FINANCIAL STATEMENTS Endesa Chile Efecto en la Matriz: 1. Default Debt -> 30 MMUS$ (1) 2. Bankruptcy or Cessation of Payments 3. Substantial Adverse Effects Defaults 4. Governmental Action (2) 100 MMUS$ The noted grounds only produce on the parent if occurring in what are called Relevant Subsidiaries. Judgments in otehr subsidiaries have no effect on the parent. The Relevant Subsidiaries are qualified o the basis of financial statements of the last fiscal year under the U:S: GAAP. are based on financial statements as of December 31, 2005, and are Relevant Subsidiaries of Endesa Chile: Cono Sur, Betania, Pehuenche, Pangue and C.E. Tarapacá. Notes: (1) At an operational level of individual debt. (2) Nacionalization, expropriation, dissolution, etc. International Yankee Bonds Amounts in US$ million as of December 31, 2006. Enersis Endesa Chile Total Yankee Bonds 601 1,866 2,467 Non-fulfillment events potentially active in Subsidiaries (those which would cause cross default in the parent company). Enersis Effect on the Parent 1. Default Debt -> 30 MMUS$ (1) 2. Initiation of the Bankruptcy Process Endesa Chile Effect on the Parent Default on Enersis debt or Subsidiaries. Enersis’ Subsidiaries that hold at current date, debt with third parties for over US$30 million are: Ampla, Endesa, Betania, Endesa Costanera, Codensa, Coelce, Edegel, Edelnor and Emgesa. In Enersis or in Relevant Subsidiaries of Enersis, based on financial statements as of December, 31, 2005. Under US GAAP, Relevant Subsidiaries are: Chilectra, Endesa Chile, Endesa Brasil and Codensa. Under Chilean GAAP, Codensa is not included. 1. Default Deuda -> 30 MMUS$ (1) Default on Endesa Chile debt or Subsidiaries. Endesa Chile’ Subsidiaries that hold at current date, debt with third parties for over US$30 million are: Betania, Endesa Costanera, Edegel and Emgesa. 2. Initiation of the Bankruptcy Process In Endesa Chile or in Relevant Subsidiaries of Endesa Chile, based on financial statements as of December, 31, 2005. Under US GAAP, Relevant Subsidiaries are: Cono Sur, Endesa Chile Internacional and San Isidro, under US GAAP as well as Chilean GAAP. Notes: (1) At an operational level of individual debt. Local Bonds Payments in US$ million as of December 31, 2006. Enersis Endesa Chile Total Local Bonds 66,2 327,2 393,4 The Enersis bond ahs cross default only if its own debt exceeds 3% of its assets. Non-fulfillment events potentially active in Subsidiaries (those which would cause cross default in the parent company). Endesa Chile 1. Insolvency or unable to pay debts 2. Default Debt >= 2 MMUF 3. Initiation of the Bankruptcy Process 250 | 2006 Annual Report Relevant Subsidiaries Cono Sur Subsidiaries Other Subsidiaries (in parenthesis costs affected MMUS$) yes (326) no yes (326) no no no enersis06 2. ANALYSIS OF THE B ALANCE SHEET As of the 31st of December 2006 total assets show an increasing of Ch$581,404 million respect previous year, mainly due to: The total company liabilities have increased by Ch$581,404 million when compared to the year prior, this is mainly due to: Assets (Million Ch$) Dec-05 Dec-06 Var. Dec 06-05 Var. % Dec 06-05 Liabilities (Million Ch$) Dec-05 Dec-06 Var. Dec 06-05 Var. % Dec 06-05 Current Assets 1,328,816 1,641,367 312,551 23.5% Fixed Assets 7,806,757 8,087,437 280,680 3.6% Current Liabilities 1,520,136 1,399,485 (120,651) (7.9%) Long Term Liabilities 3,451,643 3,923,079 471,436 13.7% Minority interest 2,858,841 2,869,963 11,122 0.4% 8.3% Other Assets 1,345,432 1,333,605 (11,827) (0.9%) Equity 2,650,385 2,869,882 219,497 Total Assets 10,481,005 11,062,409 581,404 5.5% Total Liabilities 10,481,005 11,062,409 581,404 5.5% • Current assets have increased by Ch$312,551 million, equivalent to 23.5% due principally to: Long term liabilities have increased by Ch$471,436 million (or 13.7%), for the following reasons: • An increase in accounts receivable by Ch$190,932 million, mainly due to the increase in the invoices by the distributor subsidiaries Condensa (by Ch$61,179 million), Ampla (by Ch$25,302), CIEN (by Ch$18,549 million), Cachoeira Dourada (by Ch$14,038 million), Chilectra (by Ch$13,897 million), Edegel (Ch$12,490 million), Costanera (by Ch$10,433 million), Endesa (by Ch$10,042 million) and Emgesa (by Ch$6,716 million). • Increase in other accounts receivable by Ch$38,160 million due mainly to increases in Chilean generators stemming from the reliquidation of tolls by Ch$9,380 million, in Codensa by Ch$8,678 million, and in Endesa by Ch$4,844 million. • Increase in other current assets by Ch$23,886 million, mainly due to the increase in instruments with retro sale agreements in the subsidiary Endesa Chile, by Ch$27,428 million. • Increase in time deposits over time by Ch$16,773 million, due to cash surplus found mainly in Emgesa by Ch$31,079 million, Cono Sur by Ch$15,173 million, and Enersis by Ch$6,950 million, which was compensated in part, by the rescue by Betania (Ch$15,122 million), Codensa (Ch$9,124 million) and Costanera (Ch$4,119 million). • Increase in fixed assets by Ch$280,680 million (or 3.6%) due principally to the addition of fixed assets during the year, by approximately Ch$520,000 million, the incorporation of fixed assets associated with the consolidation of Etevensa (by Ch$126,807 million) and to exchange rate effects on fixed asses of foreign company’s due to the method of keeping non monetary assets in historic dollars (as stipulated in Technical Bulletin N° 64) in subsidiaries in unstable countries of Ch$91,502 million. The aforementioned is compensated in part by the depreciation of fixed assets of one year (by approximately Ch$415,000 million), and the sale of fixed assets (worth Ch$44,550 million). • Obligations with banks and financial institutions has increased by Ch$340,487 million, explained by the growth of Enersis worth Ch$123,226 million, CTGF by Ch$60,519 million, Betania by Ch$59,168 million, El Chocón by Ch$53,239 million, CIEN by Ch$37,216 million and Edesur by Ch$36,897 million. The aforementioned was compensated, in part, by reductions in Ampla worth Ch$23,922 million, Endesa worth Ch$18,496 million and Pehuenche by Ch$13,082 million. • An increase in bonds payable, worth Ch$151,276 million, due mainly to new issues made in Ampla worth Ch$93,018 million, Edelnor worth Ch$27,103 million, Betania worth Ch$23,690 million and Emgesa worth Ch$9,512 millions. • An increase in other accounts receivable by Ch$104,945 million as consequence of the growth of Edegel by Ch$58,846 million, Endesa Brasil by Ch$27,647 million and CIEN by Ch$11,709 million. • Decrease in Provisions by Ch$83,761 million due to the decrease in provisions for labor and third parties contingencies in CGTF, Ampla, Coelce and CIEN (by Ch$87,468 million) The current liabilities have reduced by Ch$120,651 million (or 7.9%), mainly due to: • Decrease in current portion of bonds payable by Ch$413,142 million for payments to Enersis by Ch$157,881 million, and Endesa Chile by Ch$112,916 million, Endesa Chile International by Ch$79,902 million and Emgesa by Ch$1,786 million. • Increases in accounts payable due by Ch$80,243 million as a consequence of the increase in Codensa by Ch$18,923 million, CIEN by Ch$18,369 million, Endesa Chile by Ch$15,572 million, Coelce by Ch$9,720 million and Chilectra by Ch$7,889 million. • Increase in payable dividends by Ch$56,818 million, mainly in Codensa by Ch$21,180 million and payable dividends payable to Endesa International of Ch$22,794 millions (Distrilima, Codensa, Emgesa, Endesa Brasil). 2006 Annual Report | 251 CONSOLIDATED FINANCIAL STATEMENTS • Increase in various creditors by Ch$24,877 million, due to the increase in Coelce by Ch$15,441 million and Edegel by Ch$12,843 million. • An increase in income tax by Ch$74,810 million, where some companies stands out such as Ampla revealing an increase of Ch$53,761 million, Edelnor of Ch$7,987 million and Codensa Ch$5,858 million. The minority interest reached Ch$2,869,963 million, without significant variations; it only varied 0.4%, equivalent to Ch$11,122 million. Respect the equity, it increased by Ch$219,497 million within the equity, in December 2005. This variation is mainly due to the increased in accumulated profits of Ch$36,050 million and the increase of the prior period by Ch$216,515 million, compensated for, in part, by the distribution of provisional dividends worth Ch$36,243 million. The evolution of the principal financial indicators is as follows: Indicator Liquidity Current Ratio Acid Test (1) Working capital Debt Debt Ratio Short-term debt Long-term debt Interest Coverage (2) Profitability Return on Equity Return on Assets Unit Times Times MM Ch$ Times % % Times % % Dec-05 Dec-06 Var.Dec 06-05 Var. % Dec 06-05 0.87 0.80 1.17 1.09 0.30 0.29 (191,320) 241,882 433,202 0.90 0.31 0.69 3.62 2.62% 0.66% 0.93 0.26 0.74 4.16 9.96% 2.58% 0.03 (0.05) 0.05 0.54 7.34% 1.92% 34.5% 36.3% n.a. 3.3% (16.1%) 7.2% 14.9% 280.2% 290.9% As of December 2006, the liquidity index reached 1.17 times, which indicates an increase by 0.30 times (or 34.5%) when compared to the same period in 2005; this reveals a significant improvement where the index that year was 0.87 times. The aforementioned, reflects a continued liquidity position for the company, which is decreasing its obligations with banks through cash excesses and an adequate timeline for the deadlines of debt. The reason for debt can be seen at 0.93 times as of the 31st of December 2006, maintaining a similar level compared to the same period in 2005 (increasing slightly by 3.3%). The coverage of financial expenses has improved by 0.54 times (equivalent to 14.9%), going from 3.62 times in December 2005, to 4.16 times in the current period. The aforementioned is due to the increase in operating income obtained by the Enersis Group in the course of the current year and has more than compensated for the increase in financial expenses. On the other hand, the profitability on equity reached 9.96%; in the same period the year prior it reached 2.62%. This increase is directly related to the growth in results obtained for the period, The profitability of these assets went from 0.66% in December 2005 to 2.58% in December 2006; this also, is a reflection of the improved results obtained for the period. 252 | 2006 Annual Report enersis06 3. CASH FLOW The company generated a positive net flow during the period of Ch$61,759 million, shown in the following caption: The aforementioned was compensated, in part, by: Cash Flows (Million Ch$) Dec-05 Dec-06 Dic-05 Dec-06 Operating Financing Investment 837.148 862.408 25.260 3,0% (764.261) (297.090) 467.171 61,1% (337.667) (503.559) (165.892) (49,1%) Net Cash fow for the year (264.780) 61.759 326.539 123,3% Operational activities generated a positive net flow of Ch$862,408 million, which is higher by Ch$25,260 million compared to that obtained at the same date the year prior, mainly due to the excellent operating income for the company. As of the 31st of December 2006, operating flow is mainly composed of: Profits for the period of Ch$285,960 million, including: • Charges made to results that do not represent cash flow (of Ch$540,407 million) which mainly correspond to depreciation within the period (by Ch$414,617 million), penalties and provisions (worth Ch$26,064 million), positive goodwill amortization (worth Ch$55,908 million) intangible amortization (worth Ch$7,859 million), losses in permanent investments (worth Ch$125 million) and other charges that do not represent flow (worth Ch$68,810 million), within which a negative conversion effect has occurred with foreign subsidiaries regarding the BT64 (worth Ch$47,155 million). • Variation in net liabilities that affect cash flow by Ch$58,196 million. • Payments that do not indicate cash flow (worth Ch$15,191 million), of which Ch$11,645 million correspond to the positive conversion effect pertaining to foreign subsidiaries. • Net income in the sale of assets (worth Ch$18,844 million). • Profit stemming from investments in related company’s, (worth Ch$5,164 million). • Amortization of the greater value of investments (worth Ch$6,078 million). • Variation in net assets which affect operating flow (by Ch$273,098 million). The financing activity originated a negative net flow of Ch$297,090 million, mainly due to loan payments of Ch$989,097 million, payments related to bonds payable of Ch$468,853 million, payment of dividends (worth Ch$178,608 million) and capital distributions from subsidiaries by Ch$85,523. The aforementioned is compensated, in part, by loans of Ch$1,274,208 million and the allocation of bonds worth Ch$166,645 million. The investment activities generated a negative net flow of Ch$503,560 million, showing an increase by Ch$165,892 million (49.1%) compared to the same period the year prior. These disbursements mainly correspond to the incorporation of fixed assets (worth Ch$517,768 million), permanent investments (worth Ch$22,550 million) and other disbursements (worth Ch$12,544 million), compensated in part by the collection of Ch$44,551 million through the sale of fixed assets, and other investment revenue worth Ch$1,912 million. 2006 Annual Report | 253 CONSOLIDATED FINANCIAL STATEMENTS II. ECONOMIC VALUE OF ASSETS AND BOOK VALUE Assets expressed in foreign currency, are shown in the exchange rate at the end of the revised period. Investments in financial instruments with pacts are shown in light of their purchase value plus the corresponding interests in conformity with the rates implicit within each transaction. The accounts and documents yet to be charged to related companies are classified by their long or short-term expiration date. The transactions are adjusted to conditions of equality, similar to those prevalent in the market. In summary, assets are shown valued in accordance with generally accepted accounting principles and norms and specific instruction stipulated by the S.V.S., as explained in Note 2 of the Financial Statements. The following is noteworthy with regard to significant assets: The value of goods as fixed assets, are adjusted in compliance with the accounting criteria established by the SVS, in the Circulars N. 550 and 566 of 1985. Regarding the foreign company Inversiones Distrilima S.A. fixed asset values where adjusted in compliance with exception criteria stipulated in the Technical Bulletin N° 45 of the Chilean Accountants Association A.G., a norm in practice at the date the investment was made and which was not modified by Technical Bulletin N° 51 (which replaced the former). Depreciation is calculated over the updated value of goods according to their remaining useful life. Investments in related companies are shown valued through their proportional equity value. For the case or foreign companies, the application of this method in financial statements in compliance with the norms stipulated in the Technical Bulletin N° 72 and 64 of the Chilean Accountants Association A.G. The intangible values associated with the aforementioned have been monetarily corrected and are amortized as indicated by the norms in Technical Bulletin N° 55 of the Chilean Accountants Association A.G. In accordance with the S.V.S Office Circular N° 150 of January 31, 2003. In finalizing year 2006 financial statements, the company has evaluated the recoverability of assets linked to investments; this is in accordance with the norms established in Technical Bulletin N° 72 of the Chilean Accountants Association A.G. 254 | 2006 Annual Report enersis06 2006 Annual Report | 255 UNCONSOLIDATED FINANCIAL STATEMENTS 256 | 2006 Annual Report enersis06 UNCONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT ACCOUNTANT´S REPORT 259 UNCONSOLIDATED BALANCE SHEET 260 UNCONSOLIDATED INCOME STATEMENT 262 UNCONSOLIDATED STATEMENTS OF CASH FLOWS NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS ESSENTIAL FACTS MANAGEMENT’S ANALYSIS OF THE UNCONSOLIDATED FINANCIAL STATEMENTS 263 265 288 289 2006 Annual Report | 257 UNCONSOLIDATED FINANCIAL STATEMENTS ACCOUNT INSPECTOR’S REPORT In accordance with the stipulations of law N° 18,046 on corporations, and in compliance with the mandate conferred by the Ordinary General Shareholders Meeting held on March 21, 2006, we have proceeded to examine the Financial Statements of Enersis S.A. for the fiscal year starting January 1, 2006, and ending on December 31, 2006. Our work focused on the verification, on a selective basis, of the match between the figures expressed on financial statements and those on the official registers of the Company, and to this end we compared the figures presented in the general ledger against the grouping and classification spreadsheets, in order to subsequently verify that these amounts, which represented the totals of the accounts under one item, coincided with those included in the financial statements. We have no observations on this review. Roberto Lausen Account Inspector Luis Bone Account Inspector Santiago, January 23, 2007 258 | 2006 Annual Report enersis06 2006 Annual Report | 259 UNCONSOLIDATED FINANCIAL STATEMENTS UNCONSOLIDATED BALANCE SHEETS (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2006) As of December 31, 2006 ThCh$ 2005 ThCh$ 162,935 6,949,540 737 8,167,902 95,297,378 3,914,901 21,075 36,240,045 11,100,923 121,111 - 752 19,368,022 25,951,697 7,764,556 633 44,968,049 5,922,650 161,855,436 104,097,470 22,553,982 2,957,880 748,512 35,915 26,296,289 (15,116,748) 22,554,028 2,677,301 1,045,214 35,928 26,312,471 (14,081,250) 11,179,541 12,231,221 2,357,240,064 12,408,630 637,700,908 (447,665) 482,649,439 1,559,002 (693,579) 59,813,862 2,260,486,518 13,956,895 691,959,988 (578,314) 359,398,768 1,559,002 (615,481) 7,452,939 3,550,230,661 3,333,620,315 3,723,265,638 3,449,949,006 ASSETS CURRENT ASSETS: Cash Time deposits Notes receivable, net Other accounts receivable, net Amounts due from related companies Income taxes recoverable Prepaid expenses Deferred income taxes Other current assets Total current assets PROPERTY, PLANT AND EQUIPMENT: Buildings and infraestructure Machinery and equipment Other assets Technical appraisal Property, plant and equipment, gross Less: accumulated depreciation Total property, plant and equipment, net OTHER ASSETS: Investments in related companies Investment in other companies Goodwill, net Negative goodwill, net Amounts due from related companies Intangibles Accumulated amortization Other assets Total other assets TOTAL ASSETS 260 | 2006 Annual Report LIABILITIES AND SHAREHOLDERS´ EQUITY CURRENT LIABILITIES: Current portion of long-term debt due to banks and financial institutions Current portion of bonds payable Dividends payable Accounts payable Miscellaneous payables Amounts payable to related companies Accrued expenses Withholdings Other current liabilities Total current liabilities LONG -TERM LIABILITIES: Due to banks and financial institutions Bonds payable Amounts payable to related companies Accrued expenses Deferred income taxes Other long-term liabilities Total long-term liabilities SHAREHOLDERS´ EQUITY: Paid-in capital, no par value shares Additional paid-in capital Other reserves Retained earnings Net income for the year Provisional dividends Deficit of subsidiaries in development stage Total shareholders´ equity enersis06 As of December 31, 2006 ThCh$ 2005 ThCh$ 870,783 9,029,873 15,563 369,676 155,577 35,887,882 23,539,813 60,099 1,086,926 12,479 166,146,106 56,071 370,422 44,267 34,633,984 22,063,178 111,060 1,194,830 71,016,192 224,632,397 167,702,850 353,355,960 100,962,578 3,130,568 2,567,976 154,647,605 44,477,313 401,990,412 - 2,804,580 2,947,556 122,712,020 782,367,537 574,931,881 2,415,284,412 172,124,214 (238,342,306) 271,279,769 285,960,366 (36,242,795) (181,751) 2,415,284,412 172,124,214 (241,698,626) 235,229,509 69,445,219 - - 2,869,881,909 2,650,384,728 TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 3,723,265,638 3,449,949,006 2006 Annual Report | 261 UNCONSOLIDATED FINANCIAL STATEMENTS UNCONSOLIDATED INCOME STATEMENT (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2006) OPERATING INCOME: SALES COST OF SALES GROSS PROFIT ADMINISTRATIVE AND SELLING ExPENSES OPERATING LOSS NON-OPERATING INCOME SELLING EXPENSES: Interest income Equity in income of related companies Other non-operating income Equity in losses of related companies Amortization of goodwill Interest expense Other non-operating expenses Price-level restatements, net Exchange difference, net NON-OPERATING RESULT 2006 ThCh$ 2005 ThCh$ 4,696,347 (1,320,685) 4,684,439 (1,168,385) 3,375,662 3,516,054 (16,852,806) (17,405,985) (13,477,144) (13,889,931) 26,511,641 397,786,664 6,579,819 (9,668,736) (54,365,152) (49,274,578) (2,999,139) (755,593) (4,436,146) 25,900,988 176,922,137 12,572,512 (23,541,240) (54,356,183) (57,730,418) (2,920,266) (1,653,344) (6,675,762) 309,378,780 68,518,425 INCOME BEFORE INCOME TAXES AND AMORTIZATION OF NEGATIVE GOODWILL 295,901,636 54,628,494 INCOME TAx (9,981,367) 14,777,027 INCOME BEFORE AMORTIZATION OF NEGATIVE GOODWILL 285,920,269 69,405,521 AMORTIZATION OF NEGATIVE GOODWILL NET INCOME FOR THE YEAR 40,097 39,698 285,960,366 69,445,219 262 | 2006 Annual Report UNCONSOLIDATED STATEMENTS OF CASH FLOWS (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2006) enersis06 CASH FLOWS FROM OPERATING ACTIVITIES: Net income for the year Changes (credits) to income wihch do not represent cash flows: Depreciation Amortization of intangibles Equity in income of related companies Equity in losses of related companies Amortization of goodwill Amortization of negative goodwill Price-level restatement, net Exchange difference, net Other credits to income which do not represent cash flows Other charges to income which do not represent cash flows Changes in assets which affect cash flows: Dividends receipts Other assets Decrease in other assets Changes in liabilities which affect cash flows: Decrease in accounts payable associated with operating results Increase (decrease) in interest payable Decrease in income tax payable Decrease in other accounts payable associated with non-operating results Net increase (decrease) in value added tax and other similar taxes payable 2006 ThCh$ 2005 ThCh$ 285,960,366 69,445,219 1,270,523 78,097 (397,786,664) 9,668,736 54,365,152 (40,097) 755,593 4,436,146 (125,661) 2,805,359 115,748,695 (12,500,564) 6,085,743 11,210,273 (19,814,541) 42,567 1,118,537 78,097 (176,922,137) 23,541,240 54,356,183 (39,698) 1,653,343 6,675,762 (4,762,484) 7,312,730 87,849,013 - (2,551,565) (4,396,430) (966,827) (9,409,654) (38,490) (307,675) Net cash flows provided by operating activities 62,159,723 52,635,164 CASH FLOWS FROM FINANCING ACTIVITIES: Loans obtained Other loans obtained Loans obtained from related companies Other sources of financing Dividends paid to related companies Dividends paid Payment of loans Payment of bonds Payment of loans granted by related companies Payment of other loans obtained from related companies Other disbursements for financing Net cash used in financing activities CHASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from loans granted to related companies Proceeds from other loans granted to related companies Other loans to related companies Sales of other investments Long-term investments Additions to property, plant and equipment Loans granted to related companies Other receipts from investments Other disbursements from investments Net cash provided by investing activities NET CASH FLOW FOR THE YEAR 163,847,648 33,486,296 9,322,986 - (69,571,809) (42,885,724) (159,582,715) - (11,680,095) - 1,178,526 25,763,034 453,506 (8,637,264) (5,706,970) (152,622,147) (147,886) (39,484,097) - - (5,967,572) (77,063,413) (185,170,870) 22,891,224 187,482 (6,153,842) - (12,123,709) (181,166) (205,536) 24,028,675 (502,413) 221,784,153 - (9,435,502) 1,106,324 (24,810,395) (148,433) (137,957,317) 57,095,671 - 27,940,715 107,634,501 13,037,025 (24,901,205) EFFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH EQUIVALENTS 24,402 (205,833) NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR 13,061,427 (25,107,038) 121,111 25,228,149 13,182,538 121,111 2006 Annual Report | 263 UNCONSOLIDATED FINANCIAL STATEMENTS ENERSIS S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Expressed in thousands of historical Chilean pesos, except as stated) As of January 1, 2004 Capital increase Transfer of prior year income to retained earnings Changes in equity of affiliates Cumulative translation adjustment Reserve Technical Bulletin No. 72 Paid-in capital ThCh$ Additional paid-in capital ThCh$ Deficit of Net income Other Retained subsidiaries in (loss) for reserves earnings development stage the year ThCh$ ThCh$ ThCh$ ThCh$ Total ThCh$ 2,227,711,340 159,323,362 (25,671,685) 176,016,726 (1,455,716) 12,467,863 2,548,391,890 - - - - - (563,714) - - - - - - (4,435,524) (103,832,123) 11,992,130 - - - (563,714) 13,629,822 (1,161,959) (12,467,863) - - - - - - - - - - - (4,435,524) (103,832,123) 11,992,130 63,692,887 Price-level restatement of capital 55,692,784 3,966,173 (641,792) 4,731,711 (55,989) Net income for the year - - - - - 44,307,596 44,307,596 As of December 31, 2004 2,283,404,124 162,725,821 (122,588,994) 194,378,259 (2,673,664) 44,307,596 2,559,553,142 As of December 31, 2004 (1) 2,365,606,672 168,583,951 (127,002,198) 201,375,876 (2,769,916) 45,902,669 2,651,697,054 As of January 1, 2005 2,283,404,124 162,725,821 (122,588,994) 194,378,259 (2,673,664) 44,307,596 2,559,553,142 - 41,633,932 2,673,664 (44,307,596) - Transfer of prior year income to retained earnings Changes in equity of affiliates Dividend paid Cumulative translation adjustment Reserve Technical Bulletin No. 72 - - - - - - - - - - (5,851,418) - - (13,600,517) (97,676,664) (6,197,072) - - Price-level restatement of capital 82,202,548 5,858,130 (4,413,204) 7,979,618 Net income for the year - - - - - - - - - - - - - - - (5,851,418) (13,600,517) (97,676,664) (6,197,072) 91,627,092 68,016,865 68,016,865 As of December 31, 2005 2,365,606,672 168,583,951 (236,727,352) 230,391,292 - 68,016,865 2,595,871,428 As of December 31, 2005 (2) 4,615,818 328,944 (461,907) 449,544 - 132,716 5,065,115 As of January 1, 2006 Transfer of prior year income to retained earnings Changes in equity of affiliates Dividend paid Cumulative translation adjustment Reserve Technical Bulletin No. 72 Price-level restatement of capital Net income for the year As of December 31, 2006 - - - - - - As of December 31, 2006 (2) - - - - - - - - - - (1) Restated in thousands of constant Chilean pesos as of December 31, 2006. (2) Expressed in thousands of US$ as of December 31, 2006 The accompanying notes are an integral part of these consolidated financial statements. 264 | 2006 Annual Report NOTES TO THE FINANCIAL STATEMENTS (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2006) enersis06 NOTE 01. DESCRIPTION OF BUSINESS Enersis S.A. (the “Company”) is registered in the Securities Register under N°0175 and is regulated by the Chilean Superintendence of Securities and Insurance (the “SVS”). The Company issued publicly registered American Depositary Receipts in 1993 and 1996 and is also subject to the regulation of the Securities and Exchange Commission (SEC) of the United States. NOTE 02. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Years covered These financial statements reflect the Company’s financial position as of December 31, 2006 and 2005 and the results of its operations, the changes in its shareholders’ equity and its cash flows for the years ended December 31, 2006 and 2005. b. Basis of preparation The financial statements have been prepared in accordance with generally accepted accounting principles in Chile and the regulations established by the SVS (collectively “Chilean GAAP”), except for the investment in subsidiaries, which is shown in one line of the balance sheet under the equity method and, therefore, have not been consolidated line by line. This treatment does not affect the net income of the year or shareholders’ equity. These financial statements have been prepared only for stand-alone analysis of the Company and they should be read along with the consolidated financial statements required by accounting principles accepted in Chile. These financial statements include assets, liabilities and result of the agency established in 1996 by Enersis S.A. in Cayman Islands. c. Basis of presentation For comparative purposes the 2005 financial statements and the amounts disclosed in the related notes have been restated by 2.1%, purchasing power. This percentage corresponds to the Consumer Price Index variation within the last twelve months, with a one-month lag. d. Price-level restatement The financial statements have been price-level restated in accordance with generally accepted accounting principles, to reflect the effects of the changes in the purchasing power of the Chilean peso for the years ended December 31, 2006 and 2005. The effects of these off-the-books restatements are shown in Note 22. e. Currency conversion Assets and liabilities denominated in foreign currencies and/or Unidad de Fomento (UF, Inflation index linked units of accounts) are shown at their corresponding values and/or exchange rates effective at each year end using the following year-end rates: Currency United States dollar (Observed) Euro Unidad de Fomento (UF) Symbol used US$ € UF 2005 Ch$ 2006 Ch$ 532.39 702.08 18,336.38 17,974.81 512.50 606.08 f. Time deposits Time deposits are presented at original placement plus accrued interest and indexation adjustments at each year end. g. Property, plant and equipment Property, plant and equipment are stated at cost plus price-level restatement. In 1986, the increase resulting from a technical appraisal of property, plant and equipment was recorded in the manner authorized by the SVS in Circulars No.’s 550 and 566 dated October 15 and December 16, 1985, respectively, and Communication N°4790, dated December 11, 1985. At December 31, 2006, the Company has evaluated the recoverability of the book value of its property, plant and equipment in accordance with Technical Bulletin N°33 of the Chilean Institute of Accountants. As a result of this evaluation no adjustments have been determined that affect the book values of these assets. h. Depreciation Depreciation expense is calculated on the revalued balances using the straight-line method over the estimated useful lives of the assets. Depreciation expense was ThCh$1,270,523 and ThCh$1,118,537 in 2006 and 2005, respectively. Intangibles i. Intangibles are mainly easements recorded at acquisition cost and restated price level adjustment, such assets are amortized over their estimated useful lives in accordance with Technical Bulletin N°55 of the Chilean Institute of Accountants. Investments in related companies j. Investments in related companies are presented under the equity method of accounting, on the basis of the corresponding financial statements of the invested. 2006 Annual Report | 265 q. Accrued vacation expense In accordance with Technical Bulletin No.47 issued by the Chilean Association of Accountants, employee vacation expense is recorded on the accrual basis. r. Pension and post-retirement benefits Pension and post-retirement benefits are recorded in accordance with the respective Collective Bargaining Contracts of the employees based on the actuarially determined projected benefit obligation, discounted at 6.5%. s. Revenue recognition The Company recognizes revenues for amounts received from substations rental and electrical distribution lines in accordance with contracts with Chilectra S.A. These amounts are presented in current assets as amounts due from related companies and the corresponding cost is included in cost of sales as depreciation of the aforementioned equipment and electrical installations. t. Financial derivative contracts As of December 31, 2006 and 2005 the Company has forward contracts, currency swaps, and interest swaps and collars with several financial institutions, defined as cover, which are recorded according to Technical Bulletin N°57 of the Chilean Institute of Accountants. u. Software Software has been acquired by the Company as computing packages and are presented as other fixed assets. v. Research and development costs During 2006 and 2005 there have been no expenses under this caption which require footnote disclosure as required by Circular No. 981 of SVS dated December 28, 1990. w. Statements of cash flows Investments considered as cash equivalents, as indicated in point 6.2 of Technical Bulletin N°50 issued by the Chilean Institute of Accountants, include cash, time deposits and repurchase agreements classified as other current assets. For classification purposes, cash flows from operations include collections and payments to related companies for services and dividends paid. x. Reclassification Do not reclassification was made for the December 31, 2005, financial statements. UNCONSOLIDATED FINANCIAL STATEMENTS Investments in foreign affiliates are recorded in accordance with Technical Bulletins No. 64 and 72 (which partially revoked Technical Bulletin No. 42) of the Chilean Institute of Accountants. The Company evaluate the recoverability of their investments as required by Technical Bulletin No.72 of the Chilean Institute of Accountants. At December 31, 2006 and 2005, the Company has not identified impairments in the net book values of its investments. k. Investment in other companies Investment in other companies are presented at acquisition cost adjusted for price-level restatement, and it corresponds to the investment in Empresa de Energía de Bogotá. l. Goodwill and negative goodwill Goodwill and negative goodwill are determined according to Circular N°1697 (which revoked Circular N°368 at December 30, 2003 of the SVS). Amortization is calculated using the straight-line method, considering the nature and characteristic of each investment, foreseeable life of the business and investment return, and does not exceed 20 years. The Company has evaluated at December 31, 2006 and 2005, the recoverability of the book value of its investments abroad in accordance with Technical Bulletin N°72 of the Chilean Institute of Accountants. As a result of this evaluation no adjustments have been determined that affect the book values of its investments. m. Reverse repurchase agreements Reverse repurchase agreements are included in “Other current assets” and are stated at cost plus interest and indexation accrued at year-end, in conformity with the related contracts. n. Bonds Bonds payable are recorded at the face value of the bonds. The difference between the face value and the placement value, equal to the premium or discount, is deferred and amortized over the term of the bonds. o. Income tax and deferred taxes At December 31, 2006 and 2005, the Company recorded current tax expense according to the tax laws. The Company records income taxes in accordance with Technical Bulletin N°60 and its complements of the Chilean Association of Accountants, and with circular N°1466 and N°1560 issued by the SVS, recognizing the deferred tax effects of temporary differences between the financial and tax values of assets and liabilities using the tax rates estimated to be in effect at the time of reversal of the temporary differences that gave rise to them. p. Severance indemnity The severance indemnity that the Company is obliged to pay to its employees under collective bargaining agreements is stated at the present value of the benefit under the vested cost method, discounted at 6.5% and assuming an average employment span which varies based upon years of service with the Company. 266 | 2006 Annual Report enersis06 NOTE 03. ACCOUNTING CHANGES a. Changes in Accounting Principles There were no changes in accounting principles during the year ended December 31, 2006 that would affect the comparison with the prior year financial statements. b. Changes in the Reporting Entities Effective June 1, 2006, Etevensa (indirectly related through the same majority shareholder) was upstream merged into Edegel S.A. (a subsidiary of Endesa Chile), as agreed to in the Shareholders’ Meetings of the two companies held on January 17, 2006. to 55.44%, causing a decrease of ThCh$5,757,792 (see note 22e) in shareholders’ equity that is shown in the item Other Reserves. In addition, as from June 1, 2006, the merged financial statements involved incorporating assets and liabilities of ThCh$140,370,073 and ThCh$97,826,807, respectively, in prior years Etevensa was not required to be consolidated. NOTE 04. TIME DEPOSITS Time deposits as of each year end are as follows: The above transaction has been recorded in conformity with Technical Bulletin N°72 of the Chilean Institute of Accountants, as a business combination under common control, based on the pooling of interest methodology. Financial Institution Annual Rate % Citibank N.A. 5.07 Scheduled As of December 31, 2006 Maturity ThCh$ 6,949,540 2005 ThCh$ 2/1/07 - As a result of this reorganization of entities under common control, the interest of Endesa Chile S.A. in its subsidiary Edegel S.A. decreased Totals 6,949,540 - NOTE 05. SHORT AND LONG-TERM RECEIVABLES Details of the current and long-term other accounts as receivable, net is as follows at each year end: Item Notes receivable, net Doubtful allowance Others accounts receivable, net Doubtful allowance Totals More than 90 days Until 90 days up to 1 year Total current Long term 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 737 - 752 - 8,167,902 19,368,022 - - - - - - 752 737 - - - - - 8,167,902 19,368,022 - - - 8,168,639 19,368,774 - - - - - - - - - - 2006 Annual Report | 267 UNCONSOLIDATED FINANCIAL STATEMENTS NOTE 06. TRANSACTIONS WITH RELATED COMPANIES Balances of accounts receivable and payable are as follows at December 31, 2006 and 2005 a. Notes and accounts receivable: Company Synapsis, Soluciones y Servicios IT Ltda. Inmobiliaria Manso de Velasco Ltda. RUT 96.524.320-8 Chilectra S.A. 96.529.420-1 79.913.810-7 96.543.670-7 Cía. Americana de Multiservicios Ltda. Enersis Internacional Foreign Foreign Chilectra S.A. (Agencia en Islas Cayman) 96.764.840-K Construcciones y Proyecto Los Maitenes S.A. Foreign Foreign Foreign Foreign Foreign 91.081.000-6 96.800.570-7 Foreign 96.588.800-4 96.671.360-7 96.770.940-9 Foreign Foreign 96.504.980-0 Pehuenche S.A. 96.773.290-7 Edelnor S.A. Ampla Energia e Serviços S.A (Ex Cerj) Edesur S.A. Luz de Rio Ltda. Codensa S.A. Endesa S.A. (Chile) Elesur S.A. Inversiones Distrilima S.A. Ingendesa S.A. Túnel el Melón S.A. Compañía Eléctrica Tarapacá S.A. (Celta) Endesa S.A. (España) Endesa Internacional S.A. Aguas Santiago Poniente S.A. As of December 31 , Short-term Long-term 2006 ThCh$ 1,564,585 4,143,569 109,224 335,877 - 1,365,467 1,006 51,211 48,670,436 47,454 38,289,244 10,889 122,363 - 488 1,226 748 28,677 272,825 271,120 969 10,000 2005 ThCh$ 19,037,980 3,249,848 39,069 385,751 1,563,141 39,715 1,027 50,333 15,688 46,640 12,538 10,702 635,099 21,537 498 1,735 81,862 29,674 261,384 383,607 659 83,212 2006 ThCh$ 137,076,072 2005 ThCh$ 154,551,532 - - - - - - 2,071,461 - 255,254,745 167,641,896 - - 90,318,622 - - - - - - - - - - - - - - - - - 35,133,879 - - - - - - - - - - - Total 95,297,378 25,951,699 482,649,439 359,398,768 b. Notes and accounts payable: RUT Company Synapsis, Soluciones y Servicios IT Ltda. Inmobiliaria Manso de Velasco Ltda. 96.524.320-8 Chilectra S.A. 96.529.420-1 79.913.810-7 96.543.670-7 Cía. Americana de Multiservicios Ltda. Foreign Foreign 91.081.000-6 Foreign Foreign 96.800.570-7 96.671.360-7 Foreign 96.588.800-4 Foreign Foreign 96.526.450-7 Ampla Energia e Servicos S.A. Enersis Internacional Endesa S.A. (Chile) Edelnor S.A. Edesur S.A. Elesur S.A. Túnel el Melón S.A. Endesa Internacional S.A. Ingendesa S.A. Chilectra Internacional Chilectra S.A. ( Agencia en Islas Cayman ) Endesa Inversiones Generales S.A. As of December 31 , Short-term Long-term 2006 ThCh$ 336,900 111,238 10,197,566 3,049,633 22,088,079 - 80,079 12,495 11,892 - - - - - - - 2005 ThCh$ 290,640 64,446 2,890,731 2,002,976 - 1,179,757 515,039 12,281 11,688 - 192 27,613,899 1,085 36 26,753 24,461 2006 ThCh$ - - - - 100,962,578 - - - - - - - - - - - 2005 ThCh$ - - - - - - - - - - - - - - - - - Total 35,887,882 34,633,984 100,962,578 268 | 2006 Annual Report enersis06 c. Effects in income (expense) in each year are as follows: Company Relationship Nature of transaction Chilectra S.A.(Ex Elesur S.A.) Affiliate Loans December 31, 2006 Income (expense) ThCh$ 5,305,953 172,532,959 December 31, 2005 Income (expense) ThCh$ 2,368,175 ThCh$ 137,373,033 ThCh$ Property rental 4,696,347 4,696,347 4,684,439 4,684,439 Inmobiliaria Manso de Velasco Ltda. Affiliate Services Loans 3,518,587 3,518,587 4,105,545 4,105,545 (10,121,479) (455,046) (2,869,046) Property rental (215,689) (215,689) (328,137) (620,811) (328,137) Compañía Americana de Multiservicios Ltda. Affiliate Services Loans Materials Services 84,347 (2,926,307) (2,765) 296,185 84,347 40,041 (2,765) - - 178,676 (6,703) (38,828) (6,703) 296,185 333,248 333,248 Property maintenance (362,967) (362,967) (704,494) (704,494) Synapsis, Soluciones y Servicios IT Ltda. Affiliate Empresa Distribuidora Sur S.A. Endesa S.A. (Chile) Affiliate Affiliate Loans Services Services Loans Services Ingendesa S.A. Related to affiliate Services 4,091,417 314,910 3,193,425 89,998 (304,508) (304,508) (280,199) (280,199) 87,346 - 783,452 1,300 87,346 185,325 783,452 1,300 95,595 (412,421) 782,730 - 95,595 405,540 782,730 - Endesa Inversiones Generales S.A. Related to affiliate Property rental (934,432) (934,432) (1,056,331) (1,056,331) Chilectra S.A. (Agencia en Islas Cayman) Affiliate Luz de Río Enersis Internacional Ampla Energia e Servicos S.A. Related to affiliate Affiliate Affiliate Endesa Chile Internacional Related to affiliate Endesa Agencia Empresa Distribuidora Sur S.A. Chilectra Internacional Compañía Eléctrica Cono Sur Affiliate Related to affiliate Related to affiliate Related to affiliate Loans Loans Loans Loans Loans Loans Loans Loans Loans 255,254,745 14,005,218 167,641,896 19,611,478 24,979,713 2,932,007 24,551,451 2,058,734 59,357 423 4,625,178 119,505 (10,643,957) (790,797) - - - - - - (477,999) (3,003) 44,824,235 101,398 - - (2,465) - - - 29,062,250 44,302 (8,832,359) (1,329) - - The transfer of short-term funds between related companies is on the basis of a current cash account, at a variable interest rate based on market conditions. The resulting accounts receivable and accounts payable are essentially on 30 day terms, with automatic rollover for the same period and settlement in line with cash flows. d. Conditions of the long-term receivables and payables are as follows: Type Due date Currency Capital Company Chilectra S.A. Chilectra S.A. Throught agencies: Chilectra S.A.( Agencia en Islas Cayman ) Chilectra S.A.( Agencia en Islas Cayman ) Ampla Energia e Servicos S.A. Ampla Energia e Servicos S.A. Account receivable Account receivable Account receivable Account receivable Account receivable Account receivable 2010 2010 2010 2010 2010 2010 UF UF UF UF US$ US$ Interest rate 5.93% 3.96% 3,568,405.98 2,907,228.40 326,231,803.29 153,218,872.23 169,647,479.55 189,640,260.29 7.01% 5.91% 11.20% 11.37% 2006 Annual Report | 269 UNCONSOLIDATED FINANCIAL STATEMENTS NOTE 07. CURRENT AND DEFERRED INCOME TAXES a. Income taxes recoverable as of each year-end are as follows: As of December 31, 2005 2006 ThCh$ ThCh$ 7,763,024 3,891,797 20,104 3,000 Credits for absorbed profits Value added tax PPM, donations, training expense 1,532 - b. The Company has tax losses of ThCh$325,202,670 and ThCh$388,694,437 for the years ended December 31, 2006 and 2005, respectively. c. In accordance with BTs N°60 and 69 of the Chilean Institute of Accountants, and Circular N°1,466 of the SVS, the Company has recorded deferred income taxes as of December 31, 2006 and 2005 as follows: Total income taxes recoverable 3,914,901 7,764,556 As of December 31, 2006 As of December 31, 2005 Asset Liability Asset Liability Short-term Long-term Short-term Long-term Short-term Long-term Short-term Long-term ThCh$ ThCh$ ThCh$ Vacation accrual Depretiation Severance indemnities Provisions Bond discount Deferred charges Tax losses Other events Complementary account, net Valuation allowance ThCh$ 142,396 - - 702,591 - - 47,251,670 133,792 - (11,840,683) - - - - - - - 145,543 - - - - 1,618,458 123,356 - - - 1,002,868 141,442 8,144 93,696 - 135 - - 676 (125,535) ThCh$ 127,021 - - 558,431 - - - 56,476,969 120,589 - - (12,089,337) ThCh$ ThCh$ ThCh$ - - - - - - - 132,810 - - - - - 1,744,980 90,611 - - - 1,146,378 142,001 234,653 83,485 - - 691 138 (136,948) - - - Total 36,389,766 145,543 149,721 2,713,519 45,193,673 132,810 225,624 3,080,366 d. Income tax expense for the years ended December 31, 2006 and 2005 is as follows: Income tax provision Tax expense art.21 Adjustment for tax expense - prior year Effect on deferred tax assets or liabilities for the year Benefits for tax losses Amortization of complementary accounts Total As of December 31, 2006 ThCh$ (7,475,548) (379,307) (3,250,798) 1,132,881 (8,595) - 2005 ThCh$ 14,009,652 - - 12,862,970 (6,257) (12,089,337) (9,981,367) 14,777,027 270 | 2006 Annual Report NOTE 08. OTHER CURRENT ASSETS Other current assets as of each year-end are as follows: Deferred costs-loans Post-retirement benefits Deferred expense Collar contracts Bond discount (see note 17 d) Guarantee deposits (see note 26a) Reverse repurchase agreements (*) Others Total (*) The detail of reverse repurchase agreements is a follows: enersis06 As of December 31, 2006 ThCh$ 47,903 796 - 973,620 4,008,541 6,070,063 2005 ThCh$ 326,116 813 134,953 842,437 4,473,894 - - 144,437 11,100,923 5,922,650 Code CRV CRV CRV CRV CRV CRV CRV CRV Date start Date end Financial Institution Currency Document 29/12/06 29/12/06 29/12/06 29/12/06 29/12/06 29/12/06 29/12/06 29/12/06 02/01/07 BBVA C. BOLSA BHIF S.A. 02/01/07 SANTANDER 02/01/07 CHILE 02/01/07 ESTADO 02/01/07 CREDITO 02/01/07 BBVA BANCO BHIF 02/01/07 SECURITY 02/01/07 SCOTIABANK UF UF UF UF UF UF UF UF D.P.R. D.P.F. D.P.F. D.P.F. D.P.F. D.P.R. D.P.R. D.P.R. Interest rate % 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% 0.51% Current amount ThCh$ 6,330 2,087,683 512,468 505,607 1,087,948 730,066 629,214 512,812 Nominal ThCh$ 6,325 2,086,264 512,120 505,263 1,087,208 729,569 628,787 512,464 Fair value ThCh$ 6,327 2,086,973 512,294 505,435 1,087,578 729,817 629,001 512,638 Total 6,072,128 6,068,000 6,070,063 NOTE 09. PROPERTY, PLANT AND EQUIPMENT The composition of property, plant and equipment as of each year-end is as follows: Buildings and infraestructure: Distribution lines, transmission Total constructions and buildings Machinery and equipment Other assets Total fixed assets Technical appraisal Buildings and infraestructure Total technical appraisal Total property, plant and equipment Depreciation Accumulated depreciation at beginning of year: Buildings and infraestructure Machinery and equipment Other assets in transit Total accumulated depreciation at beginning of year Accumulated depreciation at beginning of year- technical appraisal of buildings and infraestructure Total depreciation accumulated by technical retasation Depreciation of the year (cost of sales) Depreciation (selling and administrative expenses) Total depreciation with charge or operation Total accumulated depreciation at end of year As of December 31, 2006 ThCh$ 22,553,982 22,553,982 2,957,880 748,512 748,512 35,915 35,915 26,296,289 (11,915,369) (1,079,910) (822,589) (13,817,868) (28,357) (28,357) (1,242,588) (27,935) (1,270,523) (15,116,748) 2005 ThCh$ 22,554,028 22,554,028 2,677,301 1,045,214 1,045,214 35,928 35,928 26,312,471 (11,288,573) (1,000,314) (646,651) (12,935,538) (27,175) (27,175) (1,090,288) (28,249) (1,118,537) (14,081,250) Total property, plant and equipment, net 11,179,541 12,231,221 2006 Annual Report | 271 UNCONSOLIDATED FINANCIAL STATEMENTS NOTE 10. INVESTMENT IN RELATED COMPANIES a. Investments as of each year-end are as follows: Related Companies País de origen Number of shares Percentage owned 2006 % 2005 % Shareholders´equity of investee 2006 ThCh$ 2005 ThCh$ Net income of investees Equity in income Share of equity Unrealized income Investment book value 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ Foreign Foreign Foreign Foreign Foreign 4,919,488,794 59.98% 59.98% 1,794,309,851 1,676,746,264 189,541,318 112,946,076 113,688,648 67,746,109 1,076,243,762 1,005,728,029 - 1,076,243,762 1,005,728,028 91.081.000-6 Empresa Nacional de Electricidad S.A. 96.524.320-8 Chilectra S.A. Chile Chile Enersis Internacional Islas Caymán 360,557,685 100.00% - - 98.24% 100.00% - - 481,233,184 275,934,319 - 79,516,682 - 78,117,065 13,786,817 (9,952,170) 13,786,817 (9,952,170) - - 472,762,734 275,934,318 1,417,861 (22,695,109) 1,417,861 (4,106,735) 65,923,712 3,748,313 (17,908,558) (3,748,313) (2,869,817) 73,461,384 75,885,984 232037916 (4,550,191) 230,688,444 (4,550,142) 682,842,317 17,483,613 - 12,349,939 - 6,029,241 - 2,741,026 2,442,807 2,741,026 2,442,589 57,274,124 49,585,558 (18,305,673) (13,418,203) 38,968,451 36,167,356 2,322,579 2,604,689 (2,322,579) 2,604,429 12,468,833 9,863,069 (1,181,924) (1,263,794) 11,286,909 8,599,274 - - 532,075 683 - - - - - 6,732 5,582,057 23,716 532,075 683 - - - - - - - - 92,224,764 32,452,492 18,950,647 6,668,442 206,581,147 191,724,307 1,200 1,036,772 1,200 - 1,035 - 2,368 - 2,184 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 472,762,734 275,934,318 65,923,712 73,461,384 75,885,984 70,244,070 54,537,633 37,011,827 36,624,163 23,709,821 14,076,397 682,842,317 17,483,613 - - - 6,732 5,582,057 23,716 206,581,147 191,724,307 2,368 - 2,184 - 65,351,791 70,960,526 - - - - - - - Total 388,117,928 153,380,897 2,376,727,661 2,275,168,515 (19,487,597) (14,681,997) 2,357,240,064 2,260,486,517 Equity in income Equity in loss 397,786,664 176,922,137 (9,668,736) (23,541,240) Ampla Energía e Servicos S.A. (ex-Cerj) Brasil 536,591,907,867 Empresa Distribuidora Sur S.A. Argentina 143,996,758 13.68% 16.02% 18.10% 481,905,893 - 16.02% 458,422,124 473,552,394 Investluz S.A. Distrilec Inversora S.A. Brasil - - 15.61% - - - 3,122,123 - 487,359 - Argentina 135,321,264 27.19% 20.43% 258,305,995 266,890,384 (3,597,844) (10,092,635) (3,597,844) (2,062,376) 70,244,070 54,537,633 79.913.810-7 Inmobiliaria Manso de Velasco Ltda. Foreign Inversiones Distrilima S.A. 96.800.570-7 Chilectra S.A.(ex Elesur S.A.) Chile Perú Chile Foreign Central Geradora Termelétrica Fortaleza S.A. (*) Brasil 96.543.670-7 Compañía Americana de Multiservicios Ltda. 96.529.420-1 Synapsis, Soluciones y Servicios IT Ltda. Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Endesa Market Place (3) Synapsis Argentina Ltda. Ampla Investimentos Compañía Peruna de Electricidad S.A. Endesa Brasil (b) Synapsis Colombia S.A. Luz de Río Ltda.(1) Codensa S.A. (1) Company with negative equity (note 18) Chile Chile Brasil Argentina Brasil Perú Brasil Colombia Brasil Colombia 29,462,253 100.00% 100.00% 37,011,840 36,624,176 3,983,070 2,545,014 3,983,070 2,545,013 37,011,827 36,624,163 95,363,337 30.14% 15.93% 78,665,630 88,364,078 1,132,412 11,174,458 1,132,412 1,780,091 23,709,821 14,076,397 1,140,128,044 - 33,821,693 10,569,721 - 540 1,641,574,700 98,539 34,163,243 238 - 99 - 99.99% 99.99% 0.00% 0.12% 13.48% 0.10% 20.55% 0.10% 100.00% 689,197,708 17,483,801 48.82% 99.99% 99.99% - - 57,279,221 49,589,971 12,470,080 9,864,055 - - - - - 5,816,810 40,805,136 23,716,104 - - - - 20.55% 1,005,342,841 933,041,318 0.10% 2,372,781 2,188,268 - - - - 16,466,029 12.47% 12.47% 524,261,126 569,255,184 10,863,781 68,194,303 10,863,781 8,500,764 65,351,791 70,960,526 b. Endesa Brasil On June 10, 2005, Endesa Brasil S.A. was incorporated; its purpose is to acquire paid-in capital in operating companies, or that may be incorporated to operate, directly or indirectly, in any segment of the electrical sector, transmission, distribution, generation and marketing of electric energy, in Brazil and other countries. Endesa Brazil S.A. was created as a holding concentrating all the electrical assets of Endesa Group in Brazil. Endesa Brasil S.A. holds ownership percentages in the following companies: Compañía de Interconexión Energética S.A. (CIEN), Central Geradora Termelétrica Fortaleza S.A. (CGTF), Companhia Energetica Do Ceara (COELCE), Ampla Energia e Servicos S.A. (formerly, Cerj), Ampla Investimentos e Servicos S.A., Ampla Generación S.A., Investluz and Centrais Eléctricas Cachoeira Dourada S.A. (CDSA). Endesa Brasil’s interest in these investees were contributed on October 25, 26 and 27, 2005 by Enersis S.A., Endesa Chile S.A., Chilectra S.A. and Endesa Internacional. Enersis S.A., contributed to Endesa Brasil S.A. the following investments: • Its 48.82% interest in Central Generadora Termelétrica Fortaleza S.A., receiving in exchange an 8.84% interest in Endesa Brasil S.A. • Its 15.61% interest in Investluz S.A., receiving in exchange a 3.55% interest in Endesa Brasil S.A. • Its 18.10% interest in Ampla Energia e Servicos S.A., receiving in exchange an 8.15% interest in Endesa Brasil S.A. To summarize the above, Enersis S.A. has a direct and indirect interest in Endesa Brasil S.A. amounting to 53.57%. 272 | 2006 Annual Report enersis06 NOTE 10. INVESTMENT IN RELATED COMPANIES a. Investments as of each year-end are as follows: Related Companies País de origen Number of shares Percentage owned 2006 % 2005 % Shareholders´equity of investee 2006 ThCh$ 2005 ThCh$ Net income of investees Equity in income Share of equity Unrealized income Investment book value 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 91.081.000-6 Empresa Nacional de Electricidad S.A. 4,919,488,794 59.98% 59.98% 1,794,309,851 1,676,746,264 189,541,318 112,946,076 113,688,648 67,746,109 1,076,243,762 1,005,728,029 96.524.320-8 Chilectra S.A. Enersis Internacional Islas Caymán 360,557,685 100.00% 98.24% 100.00% - - 481,233,184 275,934,319 - 79,516,682 - 78,117,065 13,786,817 (9,952,170) 13,786,817 (9,952,170) - - 472,762,734 275,934,318 Ampla Energía e Servicos S.A. (ex-Cerj) Brasil 536,591,907,867 18.10% 481,905,893 1,417,861 (22,695,109) 1,417,861 (4,106,735) 65,923,712 - Empresa Distribuidora Sur S.A. Argentina 143,996,758 16.02% 458,422,124 473,552,394 3,748,313 (17,908,558) (3,748,313) (2,869,817) 73,461,384 75,885,984 Investluz S.A. Distrilec Inversora S.A. Argentina 135,321,264 27.19% 20.43% 258,305,995 266,890,384 (3,597,844) (10,092,635) (3,597,844) (2,062,376) 70,244,070 54,537,633 15.61% - - 3,122,123 - 487,359 - - 79.913.810-7 Inmobiliaria Manso de Velasco Ltda. 29,462,253 100.00% 100.00% 37,011,840 36,624,176 3,983,070 2,545,014 3,983,070 2,545,013 37,011,827 36,624,163 95,363,337 30.14% 15.93% 78,665,630 88,364,078 1,132,412 11,174,458 1,132,412 1,780,091 23,709,821 14,076,397 1,140,128,044 100.00% 689,197,708 17,483,801 232037916 (4,550,191) 230,688,444 (4,550,142) 682,842,317 17,483,613 - 12,349,939 - 6,029,241 - - - - - - - - - - - - - - 1,076,243,762 1,005,728,028 - - - - - - - - - - - - 472,762,734 275,934,318 65,923,712 - 73,461,384 75,885,984 - - 70,244,070 54,537,633 37,011,827 36,624,163 23,709,821 14,076,397 682,842,317 17,483,613 - - 2,741,026 2,442,807 2,741,026 2,442,589 57,274,124 49,585,558 (18,305,673) (13,418,203) 38,968,451 36,167,356 2,322,579 2,604,689 (2,322,579) 2,604,429 12,468,833 9,863,069 (1,181,924) (1,263,794) 11,286,909 8,599,274 16,466,029 12.47% 12.47% 524,261,126 569,255,184 10,863,781 68,194,303 10,863,781 8,500,764 65,351,791 70,960,526 - - 532,075 683 - - - - - - 532,075 683 - - - - - 6,732 5,582,057 23,716 - - - - 92,224,764 32,452,492 18,950,647 6,668,442 206,581,147 191,724,307 1,200 1,036,772 - - 1,200 - 1,035 - 2,368 - 2,184 - - - - - - - - - - - - - - - - - - 6,732 5,582,057 23,716 - - - - 206,581,147 191,724,307 2,368 - 2,184 - 65,351,791 70,960,526 Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Foreign Inversiones Distrilima S.A. 96.800.570-7 Chilectra S.A.(ex Elesur S.A.) Foreign Central Geradora Termelétrica Fortaleza S.A. (*) Brasil 96.543.670-7 Compañía Americana de Multiservicios Ltda. 96.529.420-1 Synapsis, Soluciones y Servicios IT Ltda. Compañía Peruna de Electricidad S.A. Endesa Market Place (3) Synapsis Argentina Ltda. Ampla Investimentos Endesa Brasil (b) Synapsis Colombia S.A. Luz de Río Ltda.(1) Codensa S.A. Chile Chile Brasil Chile Perú Chile Chile Chile Brasil Brasil Perú Brasil Argentina Colombia Brasil Colombia - - - 33,821,693 10,569,721 1,641,574,700 98,539 34,163,243 - 540 238 - - - 13.68% 16.02% 99 - 99.99% 99.99% 0.00% 0.12% 13.48% 0.10% 20.55% 0.10% - - - - - - - - 57,279,221 49,589,971 12,470,080 9,864,055 48.82% 99.99% 99.99% - - - - - - 5,816,810 40,805,136 23,716,104 20.55% 1,005,342,841 933,041,318 0.10% 2,372,781 2,188,268 - - - (1) Company with negative equity (note 18) Total 388,117,928 153,380,897 2,376,727,661 2,275,168,515 (19,487,597) (14,681,997) 2,357,240,064 2,260,486,517 Equity in income Equity in loss 397,786,664 176,922,137 (9,668,736) (23,541,240) c. Chilectra S.A. d. Enersis Internacional On April 1, 2006, the subsidiaries Chilectra S.A. (formerly Elesur S.A.) and Chilectra S.A. merged, as was approved in a Meeting of Shareholders held on March 31, 2006. As a result of the merger and according to Technical Bulletin N°72 of the Chilean Institute of Accountants, this business combination subject to common control was recorded under the pooling of interests methodology, causing an increase of ThCh$3,019,591 in shareholders’ equity . As a result, of the previous operation Chilectra S.A. (formerly Elesur S.A.) proceeded to reverse the valuation allowance over taxable losses for an amount of ThCh$107,673.319. On September 21, 2006, Enersis Internacional ceased to exist. Its assets and liabilities were awarded to Agencia Enersis. Due to the above, the following investments in related companies were awarded to Agencia Enersis: 33.336.890 shares of Distrilec Inversora S.A., equivalent to 6,76%; 56.008.787 shares of Inversiones Distrilima S.A., equivalent to 12,21%; 98.539 shares of Cía. Peruana de Electricidad S.A., equivalent to 0,1%; 536.591.907.867 shares of Ampla Energia e Serviços S.A., equivalent to 13,68%; 1.641.574.700 shares of Ampla Investimentos e Serviços S.A., equivalent to 13,68%, and 450 rights of Synapsis Argentina S.R.L, equivalent to 0,12%. 2006 Annual Report | 273 UNCONSOLIDATED FINANCIAL STATEMENTS NOTE 11. GOODWILL AND NEGATIVE GOODWILL a. In accordance with current standards, recognition has been given to the excess of purchase price over the equity in net assets acquired (goodwill) in the purchase of shares as of December 31, 2006 and 2005, as follows: Company Empresa Nacional de Electricidad S.A. Chilectra S.A. Inversiones Distrilima S.A. Codensa S.A. As of December 31, 2006 2005 Amortization ThCh$ (47,041,116) (6,800,928) (1,111) (521,997) Net balance ThCh$ 542,932,105 89,104,948 8,891 5,654,964 Amortization ThCh$ (47,041,117) (6,800,927) (1,092) (513,047) Net balance ThCh$ 589,973,222 95,905,875 9,831 6,071,060 Total (54,365,152) 637,700,908 (54,356,183) 691,959,988 b. Following current standards, recognition has been given to the excess of the equity in the net assets purchased over the purchase price (negative goodwill) in the purchase of shares as of December 31, 2006 and 2005 as follows: As of December 31, 2006 2005 Amortization ThCh$ 23,326 16,771 Net balance ThCh$ (359,616) (88,049) Amortization ThCh$ 22,927 16,771 Net balance ThCh$ (376,378) (201,936) 40,097 (447,665) 39,698 (578,314) As of December 31, 2006 ThCh$ 43,911 3,980 5,885,354 53,880,617 2005 ThCh$ 712,617 4,063 6,736,259 - 59,813,862 7,452,939 Company Inversiones Distrilima S.A. Synapsis Soluciones y Servicios IT Ltda. Total NOTE 12. OTHERS Other assets as of each year-end are as follows: Deferred commissions on foreign currency loans Post-retirement benefits Bond discount Unrealized loss derivative contracts Total 274 | 2006 Annual Report NOTE 13. DUE TO BANKS AND FINANCIAL INSTITUTIONS a. Current portion of long-term debt due to banks and financial institutions: US$ Other foreign U.F. ThCh$ As of December 31, Currency enersis06 Financial Institution Banco Bilbao Vizcaya Argentaria S.A. Citibank, N.A., acting through its International Banking Facility Citibank N.A. Caja de Ahorros y Monte de Piedad de Madrid, Caja Madrid Banco Santander Central Hispano Deutsche Bank AG. New York Branch ABN Ambro Bank Bank of Tokyo -Mitsubishi Sao Paulo USA Caja de Ahorros de Galicia Banca Monte Paschi Banco HSBC London Dresdner Bank Instituto de Crédito Oficial Total Total principal 2006 ThCh$ 115,122 115,122 115,122 29,167 115,122 36,246 86,990 86,990 24,853 12,427 72,492 24,854 36,246 2005 ThCh$ 1,602 1,010 - 1,602 693 404 505 1,212 1,212 - 175 1,602 505 1,602 870,753 12,124 - - 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ 2006 ThCh$ 2005 ThCh$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 30 355 - - - - - - - - - - - - - - - - - - - - - - 2006 ThCh$ 115,122 115,122 30 115,122 29,167 115,122 36,246 86,990 86,990 24,853 12,427 72,492 24,854 36,246 2005 ThCh$ 1,602 1,010 355 1,602 693 404 505 1,212 1,212 - 175 1,602 505 1,602 30 355 870,783 12,479 - - - - Weighted average annual interest rate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Percentage of debt in foreign currency: Percentage of debt in local currency: Total As of December 31, 2006 % 99.99 00.01 2005 % 97.00 3.00 100.00 100.00 NOTE 14. LONG-TERM PORTION OF DEBT DUE TO BANKS AND FINANCIAL INSTITUTIONS Years to maturity After 1 year After 2 year After 3 year After 5 year but within but within but within but within R.U.T. Financial Institution Currency Foreign Banco Bilbao Vizcaya Argentaria S.A. Foreign Citibank, N.A., acting through its International Banking Facility Foreign Caja de Ahorros y Monte de Piedad de Madrid, Caja Madrid Foreign Banco Santander Central Hispano S.A. Foreign Deutsche Bank AG. New York Branch Foreign Banco HSBC London Foreign Dresdner Bank Foreign Foreign ABN Ambro Bank Foreign Bank of Tokyo -Mitsubishi Foreign Sao Paulo USA Foreign Banca Monte Paschi Foreign Caja de Ahorros de Galicia Instituto de Crédito Oficial US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Total 2 years ThCh$ 22,341,366 22,341,366 22,341,366 6,033,753 22,341,366 13,753,408 4,715,454 6,876,704 6,876,704 16,504,090 16,504,090 2,357,727 4,715,456 167,702,850 Percentage of debt in foreign currency: As of December 31, 2005 2006 % % 100.00 100.00 3 years ThCh$ 5 years ThCh$ 10 years ThCh$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total long-term portion- 2006 ThCh$ - 22,341,366 - 22,341,366 - 22,341,366 - 6,033,753 - 22,341,366 - 13,753,408 4,715,454 - 6,876,704 - - 6,876,704 - 16,504,090 - 16,504,090 2,357,727 - 4,715,456 - Average annual interest rate % 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% Total long-term portion- 2005 ThCh$ 5,877,359 3,706,442 5,877,359 2,541,561 1,482,577 5,877,359 1,853,221 5,877,359 1,853,221 4,447,731 4,447,731 635,393 - - 167,702,850 44,477,313 In November 2004 the Company obtained a syndicated loan amounting to MUS$350 through overdraft (revolving) lines. In 2005, the amount of US$265 million was prepaid; and US$80 million were prepaid in 2006, leaving a balance of US$5 million. In November 2006, the Company made a second withdrawal, this time of US$310 million, from the revolving line. The US$315 million balance is due in November 2008. It is possible to prepay and draw down funds throughout the contract period. The interest (spread) depends on the corporate rating given by S&P. Currently, at BBB-, the interest spread is 0.375%. 2006 Annual Report | 275 UNCONSOLIDATED FINANCIAL STATEMENTS NOTE 15. OTHER CURRENT LIABILITIES NOTE 16. OTHER LONG-TERM LIABILITIES Other current liabilities at each year-end are as follows: Derivative contracts (swap collar) Others As of December 31, 2005 2006 ThCh$ ThCh$ 1,117,013 1,024,621 77,817 62,305 As of December 31, 2005 2006 ThCh$ ThCh$ Derivative contracts - fair value Unrealized gain - swap at fair value Others 141,352,496 100,262,539 8,843,103 13,606,378 - 13,295,109 Total 1,086,926 1,194,830 Total 154,647,605 122,712,020 NOTE 17. BONDS PAYABLE Details of the current portion of bonds payable is as follows at each year-end: Bonds long-term - short-term portion Instrument Series Face value outstanding Currency Interest rate Maturity date As of December 31, 2005 2006 ThCh$ ThCh$ Yankee Bonds Yankee Bonds Yankee Bonds Yankee Bonds Bond N° 269 Bond N° 269 1 2 3 3 B-1 B-2 300,000,000 249,734,000 858,000 350,000,000 28,536 1,935,000 US$ US$ US$ US$ U.F. U.F. 6.90% 7.40% 6.60% 7.38% 5.50% 5.75% Semi annual 01/12/2006 Semi annual 01/12/2016 Semi annual 01/12/2026 Semi annual 01/12/2014 Semi annual 15/06/2009 Semi annual 15/06/2022 - 157,881,379 Foreign 1,129,375 Foreign 2,469 Foreign 6,190,577 Foreign 162,304 Local 780,002 Local 1,025,253 2,512 6,298,562 170,644 1,532,902 Total short-term portion 9,029,873 166,146,106 Details of the long-term portion of bonds payable is as follows at each year-end: Maturity date As of December 31, 2005 2006 ThCh$ ThCh$ 132,955,886 183,141,875 Foreign Semi annual 01/12/2016 448,959 Foreign Semi annual 01/12/2026 Semi annual 01/12/2014 186,336,500 183,141,875 Foreign Semi annual 15/06/2009 Semi annual 15/06/2022 442,153 Local 34,815,550 Local 272,126 33,334,657 456,791 353,355,960 401,990,412 Bonds long-term Instrument Series Face value outstanding Currency Interest rate Yankee Bonds Yankee Bonds Yankee Bonds Bond N° 269 Bond N° 269 Total long-term 2 3 3 B-1 B-2 249,734,000 858,000 350,000,000 28,536 1,935,000 US$ US$ US$ U.F. U.F. 7.40% 6.60% 7.38% 5.50% 5.75% 276 | 2006 Annual Report a. Bonds payable are comprised of the following: i. Enersis S.A. Local Bonds On September 11, 2001, the Superintendency of Securities and Insurance registered the issue of adjustable bearer bonds of Enersis S.A. date June 14, 2001 in the Securities Register under No. 269. This placement was made in two series, as follows: Series B1 B1 B2 B2 Total amount in UF 1,000,000 3,000,000 1,000,000 1,500,000 N°of bonds per series 1,000 300 1,000 150 Face value in UF 1,000 10,000 1,000 10,000 The scheduled maturity of the Series B-1 bonds is 8 years, interest and principal payable semi-annually. Annual interest is 5.50%, compounded semi-annually. The scheduled maturity of the Series B-2 bonds is 21 years, principal payments beginning after 5 years, interest and principal payable semi- annually. Annual interest is 5.75%, compounded semi-annually. ii. Yankee Bonds (Foreign) On November 21, 1996, the Company, acting through its agency in the Cayman Islands, issued corporate notes in United States of America (Yankee Bonds) for US$800 million in three series, as follows: Series Total amount in US$ Years to maturity Stated annual interest rate 1 2 3 300,000,000 350,000,000 150,000,000 10 20 30 6.90% 7.40% 6.60% Interest is payable on a semi-annual basis and principal is due upon maturity. The Series 3 bond holders have a pre-redemption option in year seven, which was exercised by nearly all holders in November 2003 for US$149,142,000. During the second quarter of 2004, UF/US$ swap contracts were entered into for US$100,000,000 associated with the series 1 bond and US$250,000,000 associated with series 2. During November, 2006 US$ 300 million from series one of the Yankee Bonds were amortized. This operation meant liquidating swap for US$ 100 million associated with this bond. During November, 2001, Enersis Internacional made a Tender Offer for total or partial cash purchase of the series 2 Yankee Bonds, with a face value of ThUS$ 350,000 maturing at 20 years in 2016, issued by the agency of the parent Enersis S.A. As a result of this offer, which expired on November 21, 2001, series 2 bonds for ThUS$ 95,536, with a face value of ThUS$ 100,266, were purchased. enersis06 As a result of the liquidation of Enersis Internacional S.A. on September 21, 2006, the Agency of the parent Enersis S.A. was allocated the assets and liabilities, which included such bond repurchase among is assets. Given the above, at December 31, 2006 the bonds are presented net of the repurchase. iii. Yankee Bonds II On November 24 2003, the Corporation, through its Cayman Islands Agency, issued and placed Yankee Bonds on the American market for US$350 million. This placement was made in a single Series, whose features are as follows: Series 1 Total amount in US$ 350,000,000 Years to maturity 10 Stated annual interest rate 7.375% Interest is paid on a semi-annual basis and principal is due upon maturity. During the second half of 2004, second half, debts have been re- nominated through US$/UF swap contracts for the total of this issuance. iv. Discount on bonds placed The discounts on Enersis S.A. bonds placed have been deferred over the same periods as the periods of the related bonds issues. The balance at December 31, 2006 amounts to ThCh$5,885,354 (ThCh$6,736,259 in 2005), are included in “Other assets” (note 12) and ThCh$973,620 (ThCh$842,437 in 2005) are included in “Other current assets” (note 8). 2006 Annual Report | 277 UNCONSOLIDATED FINANCIAL STATEMENTS NOTE 18. ACCRUED EXPENSES b. Long-term accruals: Accrued expenses included in long term liabilities as of each year-end are as follows: a. Short-term accruals: Accrued expenses included in current liabilities as of each year-end are as follows: Negative equity of investments (*) Profit sharing and other employee benefits Notes receivable provision As of December 31, 2005 2006 ThCh$ ThCh$ 17,633,630 18,517,023 2,575,226 2,648,206 1,854,322 2,374,584 Total 23,539,813 22,063,178 Severance indemnities Post-retirement benefits Total NOTE 19. SEVERANCE INDEMNITIES As of December 31, 2005 2006 ThCh$ ThCh$ 2,023,346 2,274,432 781,234 856,136 3,130,568 2,804,580 (*) Provision for ownership in negative equity of Luz de Rio Limitada and Endesa Market Place for ThCh$18,277,350 (ThCh$17,403,330 in 2005) and ThCh$ 239,673 (ThCh$230,300 in 2005) respectively. Include employee severance indemnities, determined in accordance with the policy described in Note 2p, post-retirement benefits and others. An analysis of the changes in the accruals in each year is as follows: During 2006 and 2005 there were no write-offs of assets. Opening balance as of January 1 Increase in accrual Payments during the year As of December 31, 2005 2006 ThCh$ ThCh$ 1,835,496 1,981,730 505,038 387,463 (317,188) (94,761) Total 2,274,432 2,023,346 NOTE 20. SHAREHOLDERS’ EQUITY a. During 2006 and 2005, the equity accounts movements are as follows: As of January 1, 2005 Transfer of prior year loss to retained earnings Changes in equity of affiliates Dividend paid Reserve Technical Bulletin No. 72 Cumulative translation adjustment Price-level restatement of capital Net income for the year Paid-in capital M$ 2,283,404,124 - - - - - 82,202,548 - Additional paid-in capital M$ 162,725,821 - - - - - 5,858,130 - Other reserves M$ (122,588,994) - (5,851,418) - (6,197,072) (97,676,664) (4,413,204) - Retained earnings M$ 194,378,259 41,633,932 - (13,600,517) - - 7,979,618 - Deficit of subsidiaries in development stage M$ (2,673,664) 2,673,664 - - - - - - Balances as of December 31, 2005 Price-level restated balances As of December 31, 2005 2,365,606,672 49,677,740 2,415,284,412 168,583,951 3,540,263 172,124,214 (236,727,352) (4,971,274) (241,698,626) 230,391,292 4,838,217 235,229,509 As of January 1, 2005 Transfer of prior year loss to retained earnings Changes in equity of affiliates Deficit of subsidiaries in development affiliate Dividend paid 2005 N°73 Reserve Technical Bulletin No. 72 Cumulative translation adjustment Price-level restatement of capital Provisional dividend N°74 Net income for the year 2,365,606,672 - - - - - - 49,677,740 - - 168,583,951 - - - - - - 3,540,263 - - (236,727,352) - (10,585,093) - - (825,381) 14,766,794 (4,971,274) - - 230,391,292 68,016,865 - - (32,651,166) - - 5,522,778 - - - - - - - - (181,751) - - - - - - Provisional dividends M$ Net income for the year M$ Total M$ 2,559,553,142 - (5,851,418) (13,600,517) (6,197,072) (97,676,664) 91,627,092 68,016,865 44,307,596 (44,307,596) - - - - - 68,016,865 68,016,865 2,595,871,428 54,513,300 69,445,219 2,650,384,728 1,428,354 - - - - - - - - - - - - - - - - - - - (36,242,795) - 68,016,865 2,595,871,428 - (68,016,865) (10,585,093) - (181,751) - (32,651,166) - (825,381) - 14,766,794 - 53,769,507 - (36,242,795) - 285,960,366 285,960,366 Balances as of December 31, 2006 2,415,284,412 172,124,214 (238,342,306) 271,279,769 (181,751) 285,960,366 2,869,881,909 278 | 2006 Annual Report b. Dividends There are no restrictions to pay dividends Dividend Payment Number date 72 73 74 April 2005 March 2006 December 2006 Historical value ($) 0.41654 1.00 1.11 Type of Dividend Final 2004 Final 2005 Provisional 2006 c. Number of shares Number of shares subscribed 32,651,166,465 As of December 31, 2005 Number of shares paid 32,651,166,465 Number of shares with voting rights 32,651,166,465 d. Subscribed and paid in capital is as follows: As of December 31, 2005 Subscribed in capital ThCh$ 2,415,284,412 Paid in capital ThCh$ 2,415,284,412 e. Other information Detail of other reserves is as follows: Reserve for entities using remeasurement method Reserve for accumulated conversion differences Reserve for Technical Bulletin No. 72 (1) Initial balance at Reserve for Final balance at January 1, 2006 the period December 31, 2006 ThCh$ ThCh$ ThCh$ (21,771,808) (10,585,093) (32,356,901) (226,284,354) 14,766,794 (211,517,560) 6,357,536 (825,381) 5,532,155 Total (241,698,626) 3,356,320 (238,342,306) (1) In the Jan-Jun 2006 period, Other Reserves diminished owing to the corporate restructuring conducted by generation companies subject to common control in Colombia and Peru, which had a net effect of ThCh$3,844,972, offset by ThCh$3,019,591 resulting from the Chilectra S.A. merger. Detail of changes in the reserve for accumulated conversion differences are as follows for the year ended December 31, 2005: Initial Final balance at Reserve Reserve for Variation balance at January 1, 2006 for assets liabilities of the year December 31, 2006 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ (226,284,354) 18,731,782 (3,964,988) 14,766,794 (211,517,560) Cumulative translation adjustment Total (226,284,354) 18,731,782 (3,964,988) 14,766,794 (211,517,560) enersis06 The detail of the accumulated conversion difference reserve at December 31, 2006 is as follows: ThCh$ (36,273,768) (26,483,840) (11,039,298) (1,362,734) (48,068,771) 2,820,689 (19,561,981) (39,106,966) (6,260,384) (6,425,742) (963,768) 397,933 (2,742,948) (3,202,893) (139,262) (773,235) (12,307,502) (23,090) (211,517,560) Edesur S.A. Distrilec Inversora S.A. Inversiones Distrilima S.A. Cía. Peruana de Electricidad S.A. Ampla Energia e Servicios S.A. (ex Cerj) Ampla Investimentos e Servicios S.A. Endesa Brasil Codensa S.A. Investluz Central Geradora Termelétrica Fortaleza S.A. Synapsis de Colombia S.A. Endesa Market Place Endesa Argentina S.A. Endesa Chile Internacional Ingendesa Do Brasil Ltda. Endesa Costanera S.A. Cono Sur S.A. Emgesa S.A. E.S.P. Total NOTE 21. OTHER INCOME AND EXPENSES a. The detail of other non-operating income in each year is as follows: As of December 31, 2006 ThCh$ 2005 ThCh$ Adjustments to investment in related companies 125,661 5 Project administration, maintenance and construction 5,865,908 7,078,164 Dividends on EEB Compensation received Others Total 361,771 755,038 - 4,669,263 226,479 70,042 6,579,819 12,572,512 b. Other non-operating expenses in each year are as follows: As of December 31, 2006 ThCh$ 2005 ThCh$ Adjustments to investment in related companies - 735,359 Accrued negative equity Foreign taxes Others Total 888,131 - 1,479,339 1,112,838 631,669 1,072,069 2,999,139 2,920,266 2006 Annual Report | 279 Index I.P.C. I.P.C. U.F. I.P.C. U.F. I.P.C. I.P.C. I.P.C. I.P.C. I.P.C. I.P.C. I.P.C. I.P.C. U.F. I.P.C I.P.C. I.P.C. I.P.C. U.F. I.P.C. I.P.C. As of December 31, 2006 ThCh$ 275,018 (172,873) 41,212 3,930,953 3,104,735 37,071,989 8,438,381 14,222,385 1,179,013 6,622,751 181,876 2005 ThCh$ 488,017 15,723 603 10,846,414 3,987,058 67,013,992 12,729,580 25,942,958 86,620 14,816,812 423,856 74,895,440 136,351,633 (53,769,507) - 204,665 (199,687) (3,536,250) (7,597,089) (357,953) (10,234,929) - (160,283) (75,651,033) (93,551,261) (133,846) - (14,359,035) (6,146,338) (4,124,111) (528,351) (18,718,791) (1,792) (441,451) (138,004,976) (755,593) (1,653,343) UNCONSOLIDATED FINANCIAL STATEMENTS NOTE 22. PRICE-LEVEL RESTATEMENT The (charge) credit to income for price-level restatement as of each year-end is as follows: Assets Property, plant and equipment Accounts receivable from subsidiaries short-term Accounts receivable from subsidiaries long-term Investment in subsidiaries Investment in other companies Amortization of goodwill Current assets Other assets Credit for cost and expense accounts Net credit-assets Liabilities and Shareholders´ equity Shareholders’ equity Accounts payable to subsidiaries short-term Accounts payable to subsidiaries long-term Due to banks and financial institutions short-term Bonds payable short-term Bonds payable long-term Non monetary liabilities Current liabilities and long-term Charge to income accounts Net charge-liabilities and shareholders’ equity Net charge to income 280 | 2006 Annual Report enersis06 NOTE 23. EXCHANGE DIFFERENCES The (charge) credit to income for foreign currency translation as of each year-end is as follows: Assets Current assets Currency Cash Time deposits Other current assets Amounts due from related companies Other accounts receivable Non-current assets Amounts due from related companies Investment in other companies US$ US$ US$ US$ US$ US$ US$ As of December 31 , Liabilities 2006 ThCh$ 201 512,253 341,016 197,290 Current liabilities 2005 ThCh$ 316,245 Due banks and financial institutions (2,843,446) Amount payable to related companies (167) Forward (1,174,537) Other liabilities (574,053) Miscellaneous payable As of December 31 , Currency US$ US$ US$ US$ US$ 2006 ThCh$ (1,396,500) 1,025,576 - - (989) 2005 ThCh$ - 599,589 (393,972) - 579,882 (650,223) Long-term liabilities (31,814,475) Due banks and financial institutions (7,292) Bonds payable US$ US$ (3,454,255) 9,260,225 (1,590,397) 19,956,121 Total gain (loss) 980,419 (36,097,725) Total gain (loss) (5,416,565) 29,421,963 Exchange difference- net income (loss) (4,436,146) (6,675,762) NOTE 24. CASH FLOW STATEMENT Other financing disbursements Collar and collateral derivative contracts premiums Forward contract settlement Total Other financing receipts Forward contract settlement Total Other income of investments Equity negative Chilectra S.A. Decrease in investment Codensa Decrease in equity Distrilima Premius of margin call Total Other disbursements from investments Others Total As of December 31 2006 ThCh$ - - 2005 ThCh$ 5,111,847 855,725 - 5,967,572 As of December 31 2006 ThCh$ - 2005 ThCh$ 453,506 - 453,506 As of December 31 2006 ThCh$ 12,719,821 - 10,903,308 405,546 2005 ThCh$ 24,882,941 2,798,204 29,414,526 - 24,028,675 57,095,671 As of December 31 2006 ThCh$ 502,413 502,413 2005 ThCh$ - - 2006 Annual Report | 281 UNCONSOLIDATED FINANCIAL STATEMENTS NOTE 25. FINANCIAL DERIVATIVES As of December 31, 2006 the Company held the following financial derivative contracts with financial institutions with the object of reduce exposure to interest rate and foreign currency risk, as follows, which have been valued according to the note 2t: Type Nominal Date of Sales/ Hedged Amount Hedged Accounts Assets / Liabilities Income Type Contract Amount Maturity Item Purchase Item Amount item Account Amount Realized Unrealized US$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ S S OE OE OE CCTE 350,000,000 I- 2014 CCTE 250,000,000 IV-2016 CCTE 50,000,000 IV-2007 CCTE 100,000,000 IV-2008 CCTE 50,000,000 IV-2009 Exchange rate Exchange rate Interest rate Interest rate Interest rate C C C C C Bonds payable 186,336,500 186,336,500 Bonds payable 133,097,500 133,097,500 Bank obligations Bank obligations Bank obligations 26,619,500 26,619,500 53,239,000 53,239,000 26,619,500 26,619,500 Other liabilities long-term Other liabilities long-term Other liabilities short-term Other liabilities long-term Other liabilities long-term (77,962,451) (855,631) (108,931) (64,414,666) (470,600) (915,686) - - - - - - - - - (1) S = SWAP, OE = OPTIONS NOTE 26. COMMITMENTS AND CONTINGENCIES a. Collateral held by third parties: Guarantee Subsidiary guarantee Type Currency Type Book value of collateral Commited assets Balance payable of related debt at December 31. Release of guarantees Currency 2006 2005 2006 2007 2008 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Deutsche Bank Enersis S.A. Deposits account Deposit account ThCh$ 4,008,541 ThCh$ 39,415,282 - - - - b. Litigation and other legal actions: Plaintiff : Enersis S.A., Chilectra S.A., Empresa Nacional de Electricidad S.A. : The Republic of Argentina Defendant : CIADI Arbitration Panel Court Case/Identification : (CIADI Case ARB/03/21) Compensation for losses caused to the Plaintiff’s investment in the Republic of Argentina is requested in connection with the participation of the power distribution concessionaire Edesur S.A. on the grounds of violation of the Investment Protection and Promotion Agreement entered into by the Republics of Chile and Argentina, and the Argentinean Government behavior through the passing of Public Emergency Law 25,561, dated January 6, 2002. The said behavior has also seriously affected the economic and financial balance of the Concession Contract between Edesur S.A. and the Argentinean National State. The said Law authorized a re-negotiation process of the Concession Contracts with the purpose of re-composing the economic-financial equation affected by the conversion to pesos, at US$1 = $1, of tariff values calculated in American dollars, and the prohibition to apply biased tariff updating. In practice, this process has not been promoted by the Government, and no measures to prevent losses for the Plaintiff have been formalized. Edesur S.A. has been deprived of receiving the tariffs indicated in the regulations and in the said Concession Contract, therefore being harmful to the investment the Plaintiff companies have made. Process status: On October 18, 2004, a copy of the lack of jurisdiction petition filed by the Republic of Argentina was received. On December 17, 2004 the said petition was answered and confirmation of the CIADI jurisdiction was requested. On April 6, 2005, the allegations of the parties regarding this jurisdiction issue took place. The court decided to accept the re-petition and re-response of the parties, setting a brief term for them. And the parties met the term. On June 15, 2005, Edesur S.A. entered with 282 | 2006 Annual Report enersis06 On March 28, 2006, the court ordered the suspension of the proceedings for a term of 12 months, after which it will call on the parties to report on the status of the negotiation conducted in accordance with the Minutes of Agreement for the Adequacy of the Concession Contract for the Public Service of Distribution and Marketing of Electric Energy. Subsequently, the court will decide whether or not the proceedings should continue. The Minutes of Agreement for the Adequacy of the Concession Contract for the Public Service of Distribution and Marketing of Electric Energy, after being approved by the Congress of the Argentine Nation, were ratified by the Executive National Argentine Power through decree 1959 of 2006, published on the Official Gazette on January 8, 2007, and now their regulation by the ENRE is pending. Amount involved: US$574,739,550. c. Restrictions: c.1 The Company’s loan agreements establish an obligation to comply with the following financial ratios: • Enersis’s ratio between debt and cash flow for four quarters and that of its Chilean subsidiaries did not exceed 6.5 in 2006,ending at 6.00 in 2008 • The ratio of consolidated debt to EBITDA for four consolidated quarters, not exceeding 4.5 in 2006, ending at 3.00 in 2008 • The ratio of Enersis and its Chilean subsidiaries cash flow to financial expenses for four quarters, not less than 1.80 in 2006 ending at 2.20 in 2008 • The ratio of consolidated debt to shareholders’ equity plus minority interest not exceeding 77.5% in 2006, ending at 70% in 2008 • Assets corresponding to companies whose business is regulated, is not to be less than 50% of the total consolidated assets, steadily until 2008 • Minimum shareholders’ equity at least equal U.F.27 million. As of December 31, 2006 and 2005 all these obligations have been met. the Unit for Renegotiation and Analysis of Public Services Contracts (UNIREN) into an Understanding Letter within the framework of the process for renegotiating Edesur S.A.’s Concession Contract, envisaged in Law No.25,561 and supplementary regulation. As a result of the Understanding Letter, on August 29, 2005, the Minutes of Agreement for the Adequacy of the Concession Contract for the Public Service of Distribution and Marketing of Electric Energy were entered into. At the request of the Argentine Government, the Minutes of Agreement were executed again, on the same terms and conditions, on February 15, 2006, to include the new Minister of Economy and Production. The Minutes envisage a Transitional Rate Regimen, retroactively effective beginning on November 1, 2005; require approval of the authorities for paying dividends during the life of the transitional regime; and include other aspects associated with investments, quality of service, penalties applied to Edesur, and unpaid penalties. Also, it establishes a Full Rate Revision, by which a new rate regime is to be set, which was scheduled to become effective on November 1, 2006, and for the next 5 years, under the supervision of the Ente Nacional Regulador de la Electricidad (ENRE), in accordance with law 24,065. In addition, the Understanding Letter imposes the obligation of initially suspending, and subsequently dropping, all actions filed against the Argentinean State by Edesur S.A. and its shareholders. Such requirement would cause Enersis S.A. to suspend the international arbitration started on April 25, 2003 with the International Center for the Settlement of Disputes regarding Investments between States and Nationals of Other States (CIADI). After publication in the Official Gazette of the Republic of Argentina of the resolution approving the rates arising from the Full Rates Revision, Enersis S.A. and its subsidiaries Chilectra S.A., Empresa Nacional de Electricidad S.A. and Elesur S.A. (currently, Chilectra S.A.) would drop the abovementioned international arbitration started with the CIADI. On September 16, 2005 the Republic of Argentina made a filing requesting the suspension of the proceedings. It was answered on September 22, 2005 by the plaintiffs, who opposed the suspension. On September 30, 2005 the court rejected the Argentinean request, for lack for consent. On October 7, 2005, Argentina made a new filing on the same issue, which the court communicated to us on October 11, 2005, and we answered the filing on October 18, 2005. 2006 Annual Report | 283 UNCONSOLIDATED FINANCIAL STATEMENTS NOTE 27. SURETIES OBTAINED FROM THIRD PARTIES As of December 31, 2006, the Company has received sureties as follows: Operation Contractor Relation Support contract Contract of Sit. and Srv. Corp. Contract of Sit. and Srv. Corp. Contract of Sit. and Srv. Corp. Contract of Sit. and Srv. Corp. Others Total ARC S.A. Novell Chile S.A. Proveedores Integrales Prisa S.A. Clasificadora de riesgo Humphreys Felle-Rate Clasificadora de Riesgos As of December 31, 2005, the Company has received sureties as follows: Third Third Third Third Third Third Operation Contractor Relation Gtd Teleductos S.A. Telmex Chile Networks Sa Smartcom S.A. Empresa Nacional de Telecomunicaciones Aguas Andinas S.A. Telefónica Móviles Chile ARC S.A. Resguardo Proveedores Integrales Prisa S.A. Third Third Third Third Third Third Third Third Third Third Support contract Seriousness of supply Support contract Support contract Support contract Contract of Sit. and Srv. Corp. Support contract Finish contract Support contract Others Total NOTE 28. FOREIGN CURRENCIES As of December 31, 2006 and 2005, foreign currency denominated assets and liabilities are as follows: Amount ThCh$ 8,031 6,307 3,500 688 688 1,238 20,452 Amount ThCh$ 18,352 18,352 18,352 17,640 9,176 9,176 8,038 3,047 2,450 3,493 108,076 a. Current assets Account Cash Time deposits Notes receivables Other receivables Amounts due from related companies Income taxes recoverable Prepaid expenses Deferred income taxes Other current asset Total current assets 284 | 2006 Annual Report As of December 31, Currency Ch$ US$ US$ Ch$ Ch$ US$ Ch$ US$ U.F. Ch$ Ch$ Ch$ Ch$ US$ 2006 ThCh$ 86,966 75,969 6,949,540 737 1,931,474 6,236,428 5,876,797 89,148,129 272,452 3,914,901 21,075 36,240,045 7,092,382 4,008,541 2005 ThCh$ 46,057 75,054 - 752 15,094,727 4,273,295 23,205,019 2,501,257 245,421 7,764,556 633 44,968,049 5,922,650 161,855,436 104,097,470 b. Property, plant and equipment Account Buildings and infraestructure Machinery and equipment Other fixed assets Technical appraisal Depretiation Total property, plant and equipment c. Other assets Account Investment in related companies Investment in other companies Negative goodwill, net Goodwill, net Other receivables Amount due from related companies Intangibles Less: Accumulated amortization Other assets Total other assets Total assets by currency Total enersis06 As of December 31, 2006 ThCh$ 22,553,982 2,957,880 748,512 35,915 2005 ThCh$ 22,554,028 2,677,301 1,045,214 35,928 (15,116,748) (14,081,250) 11,179,541 12,231,221 As of December 31, 2006 ThCh$ 2005 ThCh$ 1,846,353,266 1,853,301,670 510,886,798 407,184,848 12,408,630 13,956,895 632,037,053 685,879,097 5,663,855 (88,049) (359,616) 345,573,366 137,076,073 1,559,002 (693,579) 59,813,862 6,080,891 (104,819) (473,495) - 202,775,775 156,622,993 1,559,002 (615,481) 7,452,939 3,550,230,661 3,333,620,315 2,605,325,473 2,656,706,072 980,591,640 636,374,520 137,348,525 156,868,414 3,723,265,638 3,449,949,006 Currency Ch$ Ch$ Ch$ Ch$ Ch$ Currency Ch$ US$ US$ Ch$ US$ Ch$ US$ Ch$ US$ U.F. Ch$ Ch$ Ch$ Ch$ US$ U.F. 2006 Annual Report | 285 UNCONSOLIDATED FINANCIAL STATEMENTS d. Current liabilities Account Currency Amount Avg Rate Amount Avg Rate Amount Avg Rate Amount Avg Rate ThCh$ % ThCh$ % ThCh$ % ThCh$ % Within 90 days 91 days to 1 year As of December 31, 2006 As of December 31, 2005 As of December 31, 2006 As of December 31, 2005 Due to banks and financial institutions Due to banks and financial institutions short-term Due to banks and financial institutions long-term - short-term portion Bonds payable Dividends payable Accounts payable Miscellaneous payable Accrued expenses Income tax payable Deferred income Other current liabilities Total current liabilities US$ US$ US$ Ch$ U.F. US$ Ch$ Ch$ Ch$ Ch$ US$ Ch$ Ch$ Ch$ US$ Ch$ U.F. Ch$ US$ 870,753 30 1,703,546 7,326,327 15,563 369,676 155,577 13,775,416 24,387 5,022,790 60,099 - 1,086,926 - 1,703,546 19,399,151 9,308,393 - - - - - - - - - - - 12,124 355 942,306 - 56,071 370,422 44,267 - 33,403,470 - - - - - - 134,285 4,429,548 111,060 - 1,117,012 77,818 942,306 38,493,011 1,263,421 - - - - - - - - - - - - - - - - - - - - - 22,088,079 - 18,517,023 - - - - - - - - - - - - - - - - - - - - 165,203,800 - - - - - - - - - 1,096,229 - 17,633,630 - - - - - - - - - 18,517,023 22,088,079 17,633,630 166,300,029 - - - - - - - - - - - - - - - - Total current liabilities 30,411,090 40,698,738 40,605,102 183,933,659 e. Long-term liabilities, December 31, 2006 Account Currency Amount Avg Rate Amount Avg Rate Amount Avg Rate Amount Avg Rate 1 to 3 years 3 to 5 years 5 to 10 years More than 10 years Due to banks and financial institutions Bonds payable Accrued expenses Amounts due from related companies Deferred income taxes Other liabilities Total long-term liabilities by currency ThCh$ 167,702,850 5,144,268 - - % 49.10% 5.73% 0.00% 100,962,578 11.37% 2,567,976 154,647,605 5,144,268 157,215,581 268,665,428 US$ U.F. US$ Ch$ US$ Ch$ Ch$ U.F. Ch$ US$ ThCh$ % ThCh$ % ThCh$ % 3,732,902 5.75% 11,380,312 5.75% 13,349,301 - - - - - 3,732,902 - - 0.00% - - 319,749,177 856,136 6.50% 2,274,432 - - - 11,380,312 856,136 - - - - 13,349,301 2,274,432 319,749,177 5.75% 7.39% 6.50% Total current liabilities 431,025,277 3,732,902 12,236,448 335,372,910 f. Long-term liabilities, December 31, 2005 Account Currency Amount Avg Rate Amount Avg Rate Amount Avg Rate Amount Avg Rate ThCh$ % ThCh$ % ThCh$ % ThCh$ % 1 to 3 years 3 to 5 years 5 to 10 years More than 10 years Due to banks and financial institutions Bonds payable Accrued expenses Deferred income taxes Other liabilities Total long-term liabilities by currency 4.91 5.72 - - - - US$ U.F. US$ Ch$ Ch$ US$ U.F. Ch$ US$ 44,477,313 3,336,384 - - 2,947,556 - 3,336,384 2,947,556 44,477,313 - - - - 3,434,118 - - - - - - - 3,434,118 5.74 10,185,214 5.75 18,301,987 - - 366,732,709 781,234 6.50 2,023,346 - - - - - 122,712,020 10,185,214 123,493,254 - - - - - 18,301,987 2,023,346 366,732,709 - 5.75 7.39 6.50 - - Total current liabilities 50,761,253 3,434,118 133,678,468 387,058,042 286 | 2006 Annual Report enersis06 NOTE 29. SANCTIONS The Company and its directors has not been the subject to sanctions by the SVS nor by any other administrative authorities. NOTE 30. SUBSEQUENT EVENTS On January 15, 2007, the Company was notified of Decree 7-2006 dated January 12, 2007, issued by the Panel of Experts provided for in the General Electrical Services Law, settling the discrepancies arising by reason of the Technical Report containing observations and corrections to the studies for determining the Annual Value of the Subtransmission System, together with the respective rate formulas, approved by the National Energy Committee in Exempt Resolution 695 of October 31, 2006. This Decree, which basically rejected the discrepancies set forth by the Company, will mean that the subtransmission rate setting process will result in a decrease of about Ch$28 thousand million per year, before tax, in income from the sale of energy and power. This, in turn, will result in a decrease of about 4.6% per year in such income. The above notwithstanding, Chilectra S.A. is studying actions and remedies that might apply with regard to such Decree. No other significant events that might affect these financial statements have occurred in the period from January 1, 2007 to their date of issue. NOTE 31. ENVIRONMENT As of December 31, 2006, the Company has not incurred in environmental expenses. JUAN CARLOS WIECZOREK Deputy Chief Accounting Officer IGNACIO ANTOñANZAS Chief Executive Officer 2006 Annual Report | 287 UNCONSOLIDATED FINANCIAL STATEMENTS SSENTIAL FACTS DIVIDENDS As agreed upon in the General Ordinary Shareholder’s Meeting held on March 21st 2006, agreement was reached to pay a final dividend Nº 73 of 60% of the liquid Company profits, which is $0.9651 per share, rounded off to the closest whole number, the result of which is $ 1.00 per share. This represents a disbursement reaching M$ 32,651,166 charged to the results of December 31 2005. The aforementioned modifies the effect of the dividend policy on this subject, which provided a proposed disbursement of a final dividend of 50% of the liquid Company profits. For this reason, a minimum obligatory dividend of $ 0.48256 will be paid, and an additional dividend of $ 0.51744 per share, which together make up the Definitive Dividend Nº 73. CHANGES IN THE BOARD In the Board Meeting held on March 29th 2006, Mr. Pablo Yrarrázaval Valdés was elected as President of the Board and the Company, and Mr. Rafael Miranda Robredo was elected as Vice President, and Mr. Domingo Valdés Prieto as Secretary. As a result, the Board elected in the General Ordinary Shareholder’s Meeting on the 21st of March is established as follows: Pablo Yrarrázaval (President) Rafael Miranda (Vice President) Juan Ignacio de la Mata Rafael Español Hernán Somerville Eugenio Tironi Patricio Claro Domingo Valdés (Secretary) Likewise, in the aforementioned Board Meeting the designation of the Directors Committee established in Article 50 Bis of Law 18.046, was carried out, which is made up of Mr. Pablo Yrarrázaval Valdés, Mr. Hernán Somerville Senn, and Mr. Patricio Claro Grez. In compliance with that established in Circular Nº 1.526 of the SVS (Chilean Securities and Exchange Commission), it is informed that the Director, Mr. Patricio Claro Grez was elected by votes distinct from those of the controller, its members, or any related persons. Next, the Directors Committee designated as President Mr. Pabli Yrarrázaval Valdés, and as Secretary Mr. Domingo Valdés Prieto. Also the Board of Enersis S.A., in compliance with that provided in the Company’s Social Statutes, in the session held on March 29th 2006, the new members of the Audit Committee were designated, a body created 288 | 2006 Annual Report by the demands of the Sarbanes Oxley Law of the United States of America. The Audit Committee of Enersis S.A. is composed of Mr. Juan Ignacio de la Mata Gorostizaga, Mr. Rafael Español Navarro, and Mr. Hernán Somerville Senn, all of whom fulfill the requirements provided in the Sarbanes Oxley Law and its complementary norms. Finally, it is important to inform that the Board has designated Mr. Rafael Español Navarro as Financial Expert of the mentioned Audit Committee. MERGER ELESUR - CHILECTRA The Extraordinary Shareholders General Meeting of the subsidiaries Elesur S.A. (called Chilectra S.A. as of 31.03.06) and Chilectra S.A., both held on the 31st of March 2006, informs that it has been agreed upon by the shareholders of each company that, among other things, Elesur S.A. and Chilectra S.A. shall merge by the absorption of the last by the first, Chilectra being the merged company or absorbed by Elesur S.A. the absorbing company, merging its agencies in the Cayman Islands, which is Chilectra S.A. Cayman Islands Agency, the one which is absorbed, and Elesur S.A. Cayman Islands Agency the one that absorbs the former. Due to the merger, Chilectra S.A. will dissolve, incorporating itself into Elesur S.A. so that the shareholders of Chilectra S.A. will become shareholders of Elesur S.A. a product of a its capital increase and the exchange of corresponding shares acquired by Elesur S.A. the totality of the assets and liabilities of Chilectra S.A., conceding all of its rights, permits and obligations. Likewise as a result of the merger, all of the assets and liabilities of Chilectra S.A. Cayman islands Agency shall be incorporated and acquired by Elesur S.A. Cayman Islands Agency, which shall take over all of the rights and obligations of Chilectra S.A. Cayman Islands Agency. The legal effects of the merger will occur as of April 1st 2006. The exchange conversion will be to the amount of 3.0337 shares of Elesur for each share of Chilectra S.A. According to current accounting regulations Elesur S.A. will recognize as of 31.03.2006, an accountable profit of near Ch$100,000 million, for the right to compensate future taxes with tributary losses from previous fiscal years. Enersis S.A. through the consolidation of this subsidiary will take in to its Financial Statements on that date the accountable profit proportional with its participation. CHANGE OF ADMINISTRATION In the session held on October 25th 2006, the Board received and accepted the resignation of the General Manager, Mr. Mario Valcarce Durán, effective as of October 26th 2006, and the said Board, in the same meeting has designated Mr. Ignacio Antoñanzas Alvear as General Manager, who will assume his duties on October 26th 2006. INTERIM DIVIDEND In the session held on November 29th 2006, the Board agreed to declare an Interim Dividend Nº 74 of $ 1.11 per share, dated December 26th 2006, charged to the results of the fiscal year 2006, which corresponds to 14.91% of the liquid profits calculated on October 31st 2006, in compliance with the Company’s dividend policy. enersis06 EMANAGEMENT’S ANALYSIS OF THE UNCONSOLIDATED FINANCIAL STATEMENTS ENERSIS GROUP FOR THE YEAR ENDED DECEMBER 31, 2006 1. INCOME STATEMENTS ANALYSIS The profit obtained by the Company as of December 31st 2006, comes to $ 285,960 million which means an increase of $ 216,515 million compared with the previous year, in which the profits obtained reached $ 69,445 million. The comparison and variations in each item of the Income Statements of the results are presented in the following table: INCOME STATEMENT (MILLION Ch$) Dec-05 Dec-06 Variation Dec 06-05 %Variation Dec 06-05 Sales Cost of Sales Operatinmg Margin Administration and Selling Expenses Operating Income Income (loss) on investments in related companies Non operating income & expenses, net Financial margin, net Goodwill amortization Price.level restatements Exchange differences Non Operating Result Income Tax Amortization negative goodwill Net income for the year R.A.I.I.D.A.I.E. (*) Earnings per share 4,684 (1,168) 3,516 (17,406) (13,890) 153,381 9,652 (31,830) (54,356) (1,653) (6,676) 68,518 14,777 40 69,445 158,259 2.13 4,696 (1,320) 3,376 (16,853) (13,477) 388,118 3,581 (22,763) (54,365) (756) (4,436) 309,379 (9,982) 40 285,960 397,310 8.76 12 (152) (140) 553 413 234,737 (6,071) 9,067 (9) 897 2,240 240,861 (24,759) - 216,515 239,051 6.63 0.3% 13.0% (4.0%) (3.2%) (3.0%) 153.0% (62.9%) (28.5%) 0.0% (54.3%) (33.6%) 351.5% (167.6%) 0.0% 311.8% 151.1% 311.3% (*) Income before tax, interests, depreciation, amortization, and extraordinary items. The operating income reached a positive variation of $413 million; the said variation is explained mainly by a reduction in administrative costs and sales through general expenses and services with related companies. The non operating income company results increased by $240,861 million, equivalent to a 351.5%, going from a profit of $68,518 million in the year 2005, to a profit of $309.379 million en the year 2006. This is explained by the following variations: The net financial expenses of financial income reached a positive variation of $9,067 million compared with the same period the year before. This is due to lower financial expenses with financial institutions for the amount of $11.661 million, and for income of $611 million, compensated with greater financial expenses with related companies for $3.025 million. The income on investments in related companies show, as of December 31st 2006, a net profit of $388,118 million, which compared with the same period last year registered a profit of $153,381 million, representing an increase of $234,737 million, and is due to the results of greater investments in Chilectra S.A., Endesa S.A., Enersis Internacional, Endesa Brasil, Ampla Energía e Serviços S.A., Codensa S.A., Inmobiliaria Manso de Velasco Ltda., Ampla Investimentos, Cam Ltda., Cía Peruana de Electricidad S.A. and Synapsis Colombia Ltda. for $249.242 millon, compensated with CGTF, Synapsis Soluciones y Servicios IT Ltda., Distrilec Inversora S.A., Edesur S.A., Inversiones Distrilima S.A., Investluz S.A., for $14.505 millon. 2006 Annual Report | 289 UNCONSOLIDATED FINANCIAL STATEMENTS The amortization of goodwill does not represent important variations with the year before. FOREIGN EXCHANGE AND INTEREST RATE ANALYSIS The other non-operating income and expenses (net) reached a profit of $3,581 million as of December 2006, which compared with the $9,652 million of profit that there was on the same date of 2005, shows a negative variation of $6,071 million. This effect is mainly explained by: • A reduction of $4,669 million in compensations received (Tax returns from SII to Elesur). • A reduction of $823 million in incomes for the administration of projects, maintenance and construction. • A reduction of incomes financed by related companies for $389 million. Price level restatement and exchange differences underwent a net, positive variation of $3,137 million compared with the same period the year before, going from a loss of $8,329 million in December 2005, to a loss of $5,192 million as of December 2006. This is due to a strengthening of the foreign exchange position. Income tax and deferred taxes show a negative variation of $24,759 million due to a reduction in tributary losses the effect of which on the expense for deferred tax is $9,778 million, and for the recognition of lower benefits for absorbed profits by $14,981 million. The amortization of goodwill doesn’t show variations with the year before. The Company has a percentage of its credits denominated in dollars since part of its income flows are in that currency. Despite this natural economic coverage, the company is exposed to a high dollar volatility, and has continued with its strategy to partially cover its accountable mismatch between assets and liabilities in dollars, in order to ease the effect of the fluctuations and their effect on results due to variations in the exchange rate. Considering the important reduction in the mismatch in the accounting in recent years, reaching prudent levels, the company has modified its dollar-peso coverage policy to establish a policy of cash flow coverage, together with the maximum permissible accounting mismatch, upon which coverage operations are carried out. As of December 31st 2006, in individual terms, the company maintained dollar-UF Swap contracts for the amount of US$600 million. On the same date the year before, the company had contracted US$700 million in dollar-UF SWAP, as part of the establishment of the new, previously mentioned coverage policy, of which US$100 million matured in 2006. In terms of interest rate risk, the company has a debt relation in fixed interest and variable interest of 90%/10% fixed/variable as of December 2006. This risk relation has diminished if compared with the same date the year before, in which period the relation fixed/variable was 100% / 0%, due mainly to refinancing debt maturities, with the new debt at a variable rate. Despite this, risk levels have been maintained at levels within the range established by coverage policies of the company. 290 | 2006 Annual Report 2. BALANCE SHEET ANALISYS Assets (million Ch$) Dec-05 Dec-06 Variation Dec 06-05 %Variation Dec 06-05 Current Assets 104,097 161,855 57,758 55.5% Fixed Assets 12,232 11,180 (1,052) Other Assets 3,333,620 3,550,231 216,611 (8.6%) 6.5% Total Assets 3,449,949 3,723,266 273,317 7.9% The total assets of the company show an increase of $273,317 million compared with the same period the year before. This is due mainly to: • An increase in the accounts receivable from related companies of short and long term for $192,595 million, principally with Ampla Engeria e Serviços S.A. and Chilectra Agency, this last company was product of the awarding of the assets and liabilities by Enersis Agency, due to the liquidation of Enersis Internacional. • An increase in investments in related companies for the net amount of $96,754 million, mainly for positive variations in Chilectra S.A., Endesa S.A., Ampla Energia e Serviços S.A., Distrilec Inversora S.A., Endesa Brasil, Distrilima S.A., Ampla Investimentos e Serviços S.A., CAM Ltda., Synapsis Soluciones and Servicios IT Ltda., Inmobiliaria Manso de Velasco Ltda., Cía. Peruana de Electricidad S.A., Synapsis Argentina S.R.L. and Synapsis Colombia Ltda. for $380,721 million, compensated with reductions in the companies Enersis Internacional, Codensa, Edesur S.A. for $283,967 million. Because of the dissolution of Enersis Internacional, Enersis Agencia was awarded investments in Enersis Internacional. Enersis Agencia was awarded investments in Distrilec Inversora S.A., Inversiones Distrilima S.A., Cía. Peruana de Electricidad S.A., Ampla Energia e Serviços S.A., Ampla and Investimentos e Serviços S.A. y Synapsis Argentina S.R.L. • An increase in the short and long term assets by $57.539 million, mainly for the loss not made by derivative contracts. • A reduction of positive goodwill by $54,259 million, mainly with Endesa S.A. and the corresponding amortization of one year. enersis06 Liabilities (million Ch$) Dec-05 Dec-06 Variation Dec 06-05 %Variation Dec 06-05 Current Liabilities 224,632 71,016 (153,616) (68.4%) Long-term liabilities 574,932 782,368 207,436 Shareholders’ Equity 2,650,385 2,869,882 219,497 36.1% 8.3% Total Liabilities 3,449,949 3,723,266 273,317 7.9% Liabilities increased by $53,820 million, compared with December of 2005, which is the equivalent of 6.7% and principally explained by: • An increase in the short and long term accounts payable due to related companies for $102,216 million, mainly with Ampla Energia e Serviços S.A. for $121,093 million, debt incurred by the dissolution of Enersis Internacional, which originated that Enersis Agency held the assets and liabilities of Distrilec Inversora S. A., Inversiones Distrilima S.A., Cía. Peruana de Electricidad S.A., Ampla Energia e Serviços S.A., Ampla Investimentos e Serviços S.A. and Synapsis Argentina S.R.L., besides an increase in the commercial current accounts with CAM Ltda. e Inmobiliaria Manso de Velasco Ltda. for $5,857 million, compensated by the payment made to Endesa Internacional for $12,922 million. • An increase in the obligations with banks and financial institutions for $123,225 million due to the 2nd revolving line of credit withdrawal of US$ 310,000 million, plus the exchange rate effect. • A reduction of the short and long term obligations with the public for $205,751 million, for the payment of 1st segment of the Yankee Bonds for $159,183 million (US$ 300 million), beside, as a result of the liquidation of Enersis Internacional, the Enersis Agency held the repurchase of the said bonds of this company, those which show net obligations with the public for $50,185 million, besides the amortization of the national bonds for the amount of $856 million, compensated for the exchange rate effect. • An increase on the long term liabilities for $31,932 million for the adjustment of fair value in SWAP contracts for $41,090 million, compensated with a reduction in unrealized profits of fair value for $8,843 million. Regarding equity, it should be pointed out that this had a positive variation of $219,497 million compared with December 2005. This is explained largely by the increase in profits for the fiscal year of $285,960 million, plus the reserves for the period of $2,431 million, compensated with the diminishing of dividends paid for $68,894 million. 2006 Annual Report | 291 UNCONSOLIDATED FINANCIAL STATEMENTS Main Indexes Indicator Liquidity Current Liquidity Acid Test (1) Working Capital Indebtedness Debt Ratio Short-Term Debt Long-Term Debt unit Times Times MM Ch$ Veces % % Financial Expenses Coverage (2) Times Profitability Return on Equity Return on Assets (1) Current Asset net of advance costs (2) RAIIDAIE divided by financial expenses % % The evolution of main financial indexes has been the following: The liquidity index as of December 2006 reached 2.28 times that shows and increase of 1.82 points compared with the same date the year before, this given mainly by the paying of the 1st segment of the Yankee Bonds. Dec-05 Dec-06 Variation Dec 06-05 0.46 0.46 2.28 2.28 1.82 1.82 (120,535) 90,839 211,374 0.30 0.28 0.72 2.74 2.62% 2.01% 0.30 0.08 0.92 8.06 9.96% 7.68% - (0.20) 0.20 5.32 7.34% 5.67% %Variation Dec 06-05 395.7% 395.7% (175.4%) 0.0% (71.4%) 27.8% 194.2% 280.2% 282.1% The debt rate is placed at 0.30 times that of December 2006 which when compared with the same period of 2005 does not show variations, despite the awarding of assets and liabilities by Enersis from the liquidation of Enersis Internacional. This meant an increase the accounts payable to related companies and to net the obligations to the public with the repurchase of bonds. Regarding the profitability index, the net worth reaches 9.96%, which on the same date the year before it reached 2,62%. This increase of 7,34% is due to a greater recognition in the results compared to the same period the year before. 3. MAIN CASH FLOW During the period, the Company generated a net possitive flow of $15.935 million, performed as follows: Cash Flow (Millions Ch$) Operations Financing Investment Net Cash Flow of the year Dec-05 52,635 (185,171) 107,635 (24,901) Dec-06 62,159 (77,063) 27,941 13,037 Variation Dec 06-05 %Variation Dec 06-05 9,524 108,108 (79,694) 37,938 18.1% (58.4%) (74.0%) (152.4%) The operational activities generated a positive net flow of $62.159 million. This flow is mainly composed of profits for the fiscal year of $285.960 million, plus the positive variation of assets and liabilities which affect the operational flow by $100,772 million, compensated by the charges to the results which do not represent the cash flows of $324.573 million. The financing activities generated a negative net flow of $77.063 million, due mainly to the paying of Yankee Bonds of $159.582 million, the paying of dividends of $69,572 million, the paying of bank loans of $42.886 million, compensated with the obtaining of bank loans for the revolving line of credit of $163.848 million and the obtaining of loans of related companies of $33.486 million. The investment activities generated a positive net flow of $27.941 million which is largely explained by other investment activities of $26.800 million, for the collection of documented loans from related companies for $22.891 million, compensated by permanent investments of $12,124 million, and by other loans granted to related companies for $6,154 million and other investment outlays for $3,274 million. 292 | 2006 Annual Report enersis06 II. BOOK VALUE AND ECONOMIC VALUE OF THE ASSETS Regarding the most important assets, it’s important to note the following: The value of fixed asset goods are adjusted according to the accounting criteria established by the SVS en Circulars Nº 550 and 566 of 1985. This case of the foreign company Inversiones Distrilima S.A. its fixed asset values were adjusted according to the exceptional criteria indicated in the Technical Bulletin Nº 45 of the Chilean Accountants Association A.G., regulations which were in effect at the moment the investment was made, and which has not been modified by Technical Bulletin Nº 51, which replaced the former. The depreciation is calculated over the updated value of the good according to the years left in the normal life span of each item. The investments in related companies are shown valued at their proportional patrimonial value. In the case of foreign companies, the application of this methodology has been carried out on the financial statements prepared following the regulations established in Technical bulletins Nº 72, and Nº 64 of the Chilean Accountants Association A.G., and the intangible values are found with monetary correction and are amortized in compliance with the regulations found in Technical Bulletins Nº 55, of the Chilean Accountants Association A.G. According to the Oficial Circular Nº 150 of January 31st 2003 of the S.V.S the Company has evaluated the closing of its financial statements for the year 2002 the recoverability of its investments retated assets, applying the generally accepted accounting principals in Chile which are the Technical Bulletin Nº 33 for fixed assets and by the scale defined in the Technical Bulletin Nº 56 and has applied the NIC 36 for greater and lesser values related to these investments. The assets expressed in foreign currency show the exchange rate in effect at the closing of the period. The investments in financial instruments with agreements are shown according to their purchase value plus the proportion of corresponding interest with the implicit rate in each transaction. The accounts and documents receivables from related companies are classified according to their short and long term due dates. The operations comply with the equity conditions similar to those prevailing on the market. In summary, the assets are show valued according to the accounting principals and regulations generally accepted and the relevant instructions issued by the SVS, shown on Note 2 of the Financial Statements. 2006 Annual Report | 293 UNCONSOLIDATED FINANCIAL STATEMENTS 294 | 2006 Annual Report enersis06 FINANCIAL STATEMENTS OF SUBSIDIARIES SUMMARIZED BALANCE SHEETS BY SUBSIDIARY SUMMARIZED INCOME STATEMENTS BY SUBSIDIARY SUMMARIZED CASH FLOW STATEMENTS BY SUBSIDIARY 296 296 296 2006 Annual Report | 295 UNCONSOLIDATED FINANCIAL STATEMENTS SUMMARIZED BALANCE SHEETS BY SUBSIDIARY As of December 31, 2006 and 2005 in thousands of Chilean Pesos ASSETS Current Assets Fixed Assets Other Assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS EQUITY Current Liabilities Long Term Liabilities Minority Interest Shareholders Equity CHILECTRA SYNAPSIS 2006 2005 2006 2005 I. MANSO DE VELASCO CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA ENDESA BRASIL (*) 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 147,943,067 463,038,606 607,665,047 138,348,157 419,876,506 521,151,669 21,563,721 9,493,597 31,335 20,964,452 8,365,016 59,392 31,182,749 36,689,626 7,129,477 23,939,265 43,420,147 5,642,574 69,591,394 14,272,042 3,136,718 65,644,598 13,597,571 2,420,164 40,718,772 - 346,731,975 41,656,984 288,876,236 2,577,423 35,276,265 281,608,889 2,025,025 72,572,373 558,805,112 8,598,590 66,490,966 560,787,224 7,766,262 418,324,915 4,150,576,272 715,785,600 290,918,234 3,992,211,914 693,704,608 235,513,143 679,734,841 18,710,562 165,965,783 673,413,198 9,787,102 660,284,941 1,894,422,419 490,821,560 557,092,467 1,816,090,298 480,280,149 1,218,646,720 1,079,376,332 31,088,653 29,388,860 75,001,852 73,001,986 87,000,154 81,662,333 387,450,747 333,110,643 318,910,179 639,976,075 635,044,452 5,284,686,787 4,976,834,756 933,958,546 849,166,083 3,045,528,920 2,853,462,914 127,338,877 409,878,189 (7,768,054) 689,197,708 104,311,380 482,889,218 (6,541,249) 498,716,983 16,512,141 2,095,427 11,004 12,470,081 18,118,760 1,396,229 9,816 9,864,055 2,383,709 594,969 34,848,083 37,175,091 2,300,178 566,875 33,347,506 36,787,427 22,611,258 7,109,625 49 25,671,337 6,400,989 34 57,279,222 49,589,973 12,284,792 103,522,927 - 271,643,028 82,039,509 115,779,196 56,626,307 78,665,631 78,755,192 92,926,187 58,864,938 88,363,862 93,917,685 87,636,265 91,904,779 69,587,110 - - 458,422,125 473,552,563 461,617,399 2,093,571,094 935,188,443 1,794,309,851 538,847,579 1,807,729,320 953,511,592 1,676,746,265 237,824,866 171,872,554 110,796,648 169,114,254 - - 634,452,594 939,213,638 466,519,847 524,261,126 569,255,181 1,005,342,841 640,918,073 838,432,399 441,071,043 933,041,399 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1,218,646,720 1,079,376,332 31,088,653 29,388,860 75,001,852 73,001,986 87,000,154 81,662,333 387,450,747 333,110,643 318,910,179 639,976,075 635,044,452 5,284,686,787 4,976,834,756 933,958,546 849,166,083 3,045,528,920 2,853,462,914 SUMMARIZED INCOME STATEMENTSS BY SUBSIDIARY As of December 31, 2006 and 2005 in thousands of Chilean Pesos OPERATING INCOME Operating Revenues Operating Costs Administrative and Selling Expenses CHILECTRA SYNAPSIS 2006 2005 2006 2005 I. MANSO DE VELASCO 2006 2005 CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA ENDESA BRASIL (*) 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 664.957.299 (500.813.595) (47.005.935) 606.014.895 (444.798.511) (43.618.748) 54.261.890 (44.991.907) (10.363.721) 46.512.974 (35.424.558) (7.557.414) 21.659.308 (11.762.042) (2.626.602) 11.355.154 (8.194.927) (2.103.221) 141.079.847 (121.468.511) (9.837.376) 127.792.077 (108.433.636) (8.051.337) 214.271.061 (155.726.612) (19.965.790) 197.488.163 (149.600.225) (18.159.825) 244.438.883 (216.897.461) (35.574.393) 239.469.513 (205.917.399) (29.814.974) 1.337.120.927 (793.260.032) (39.385.780) 1.146.622.685 (704.080.979) (39.387.634) 449.810.665 (301.258.158) (13.200.958) 401.711.238 (278.455.186) (18.764.717) 1.125.728.588 (784.000.850) (68.741.047) 258.878.889 (166.998.704) (36.886.343) NET OPERATING INCOME 117.137.769 117.597.636 (1.093.738) 3.531.002 7.270.664 1.057.006 9.773.960 11.307.104 38.578.659 29.728.113 (8.032.971) 3.737.141 504.475.115 403.154.072 135.351.549 104.491.335 272.986.691 54.993.842 NON OPERATING INCOME Non-Operating Revenues Non-Operating Expenses Price.Level Restatement and Exchange Rate Difference 39.284.306 (38.023.205) 262.630 23.960.318 (47.026.792) 3.725.599 412.781 (855.012) 133.707 626.738 (346.277) (199.780) 2.369.367 (2.710.468) 123.668 4.088.909 (1.994.947) 64.777 2.007.960 (2.260.804) 429.161 1.448.492 (5.607.078) (875.503) 16.439.320 (8.343.925) 5.691.422 25.159.862 (12.744.682) (22.367.350) 5.056.246 (21.391.659) - 9.310.933 (9.579.890) - 8.756.618 (19.829.838) - 7.446.549 (22.699.651) - 87.255.538 (216.554.715) 5.095.463 71.680.252 (246.623.864) 16.559.508 9.111.748 (21.076.310) 20.973.408 (21.659.405) 161.021.709 (273.177.500) - - 47.676.016 (51.990.839) - NET NON OPERATING INCOME 1.523.731 (19.340.875) (308.524) 80.681 (217.433) 2.158.739 176.317 (5.034.089) 13.786.817 (9.952.170) (16.335.413) (268.957) (11.073.220) (15.253.102) (124.203.714) (158.384.104) (11.964.562) (685.997) (112.155.791) (4.314.823) Income Tax Extraordinary Items Minority Interest Negative Goodwill Amortization 113.118.106 - 258.310 - (21.853.528) - (1.436.742) - (997.251) - (5.081) - (1.512.339) - (4.607) - (789.297) (236.586) (2.320.830) (1.432.751) (14.004.860) (11.068.572) (4.284.462) (6.392.698) (130.856.751) (93.885.428) (36.236.229) (35.611.676) (22.951.195) (3.776.385) (2.280.863) (434.145) - - - - - (9) - - (10) - (3.387.870) - - - (7.366.489) 150.176 - - - - - - - (65.910.792) 6.037.460 - (53.570.412) 15.631.948 - - - - - - - - (45.654.941) (14.449.894) - - NET INCOME (LOSS) FOR THE PERIOD 232.037.916 74.966.491 (2.404.594) 2.094.737 3.983.071 2.545.014 7.629.438 4.840.254 13.786.817 (9.952.170) 4.850.516 11.174.271 (23.390.653) (17.908.659) 189.541.318 112.946.076 87.150.758 68.193.662 92.224.764 32.452.740 - - - - - - - - SUMMARIZED CASH FLOW STATEMENTS BY SUBSIDIARY As of December 31, 2006 and 2005 in thousands of Chilean Pesos Net Positive (negative) Cash flow from Operating Activities Net Positive (negative) Cash flow from Financing Activities Net Positive (negative) Cash flow from Investment Activities 2006 142.118.884 (79.574.779) (66.573.283) 2005 169.260.837 (140.483.631) (23.699.145) NET POSITIVE (N EGATIVE) CASH FLOW FOR THE PERIOD Effect of the inflation on cash and cash equivalent (4.029.178) 31.640 5.078.061 (506.748) 2006 2.212.879 1.712.890 (2.969.749) 956.020 (51.482) 2005 (154.594) 5.034.447 (3.461.882) 1.417.971 (91.405) 2006 6.020.504 (3.399.624) (2.648.219) (27.339) 308.875 2005 (6.059.370) 1.479.480 3.499.959 (1.079.931) (418.608) 2006 4.239.617 (38.684.849) 34.366.653 2005 8.158.651 (12.107.790) 2.495.637 2006 42.423.083 (19.918.340) (21.145.648) 2005 38.450.898 (20.362.760) (16.879.925) 2006 26.790.893 11.722.567 (35.814.594) 2005 35.481.384 (4.731.340) (29.234.676) 2006 420.100.772 (136.166.481) (200.382.110) 2005 276.617.083 (374.771.957) (56.275.095) 2006 97.443.752 (64.500.116) (42.250.355) 2005 113.216.737 (254.650.405) (7.176.545) 2006 185.858.038 (64.031.617) (160.860.197) 2005 117.573.944 (22.463.659) (50.791.521) (78.579) 433 (1.453.502) 15.614 1.359.095 1.208.213 2.698.866 1.515.368 - - - - 83.552.181 (11.112.397) (154.429.969) (5.651.512) (9.306.719) 528.268 (148.610.213) (27.579.073) (39.033.776) 28.764.985 44.318.764 (15.339.964) CHILECTRA SYNAPSIS I. MANSO DE VELASCO CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA ENDESA BRASIL (*) NET VARIATION OF CASH AND CASH EQUIVALENT (3.997.538) 4.571.313 904.538 1.326.566 281.536 (1.498.539) (78.146) (1.437.888) 1.359.095 1.208.213 2.698.866 1.515.368 72.439.784 (160.081.481) (8.778.451) (176.189.286) (10.268.791) 28.978.800 INITIAL BALANCE OF CASH AND CASH EQUIVALENT 14.363.807 9.792.494 3.447.619 2.121.053 32.388 1.523.648 3.022.187 83.176 1.520.901 1.811.197 571.926 23.091.742 21.180.096 83.073.421 243.154.902 29.079.418 204.769.884 215.854.328 183.174.841 FINAL BALANCE OF CASH ANS CASH EQUIVALENT 10.366.269 14.363.807 4.352.157 3.447.619 50.780 1.805.184 1.523.648 5.030 83.013 3.170.292 1.780.139 25.790.608 22.695.464 155.513.205 83.073.421 20.300.967 28.580.598 205.585.537 212.153.641 2006 13.500.168 (5.221.887) (8.310.757) 2005 7.597.568 (14.465.528) 6.880.864 12.904 5.488 18.392 (32.476) 291 (32.185) 50.780 18.595 - - - - - - - - - - - - - - - - - (*) Since October 1st, 2005 consolidates the societies of Ampla, Coelce, Cachoeira Dourada, Endesa Fortaleza and CIEN. 296 | 2006 Annual Report CHILECTRA SYNAPSIS 2006 2005 2006 2005 I. MANSO DE VELASCO 2005 2006 CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA ENDESA BRASIL (*) 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 ASSETS Current Assets Fixed Assets Other Assets TOTAL ASSETS Current Liabilities Long Term Liabilities Minority Interest Shareholders Equity LIABILITIES AND SHAREHOLDERS EQUITY 147,943,067 463,038,606 607,665,047 138,348,157 419,876,506 521,151,669 21,563,721 9,493,597 31,335 20,964,452 8,365,016 59,392 31,182,749 36,689,626 7,129,477 23,939,265 43,420,147 5,642,574 69,591,394 14,272,042 3,136,718 65,644,598 13,597,571 2,420,164 1,218,646,720 1,079,376,332 31,088,653 29,388,860 75,001,852 73,001,986 87,000,154 81,662,333 127,338,877 409,878,189 (7,768,054) 689,197,708 104,311,380 482,889,218 (6,541,249) 498,716,983 16,512,141 2,095,427 11,004 12,470,081 18,118,760 1,396,229 9,816 9,864,055 2,383,709 594,969 34,848,083 37,175,091 2,300,178 566,875 33,347,506 36,787,427 22,611,258 7,109,625 49 57,279,222 25,671,337 6,400,989 34 49,589,973 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1,218,646,720 1,079,376,332 31,088,653 29,388,860 75,001,852 73,001,986 87,000,154 81,662,333 - - - - - - - - - 40,718,772 - 346,731,975 41,656,984 288,876,236 2,577,423 35,276,265 281,608,889 2,025,025 72,572,373 558,805,112 8,598,590 66,490,966 560,787,224 7,766,262 418,324,915 4,150,576,272 715,785,600 290,918,234 3,992,211,914 693,704,608 235,513,143 679,734,841 18,710,562 165,965,783 673,413,198 9,787,102 660,284,941 1,894,422,419 490,821,560 557,092,467 1,816,090,298 480,280,149 387,450,747 333,110,643 318,910,179 639,976,075 635,044,452 5,284,686,787 4,976,834,756 933,958,546 849,166,083 3,045,528,920 2,853,462,914 12,284,792 103,522,927 - 271,643,028 82,039,509 115,779,196 56,626,307 78,665,631 78,755,192 92,926,187 58,864,938 88,363,862 93,917,685 87,636,265 - 91,904,779 69,587,110 - 458,422,125 473,552,563 461,617,399 2,093,571,094 935,188,443 1,794,309,851 538,847,579 1,807,729,320 953,511,592 1,676,746,265 237,824,866 171,872,554 110,796,648 169,114,254 - - 634,452,594 939,213,638 466,519,847 524,261,126 569,255,181 1,005,342,841 640,918,073 838,432,399 441,071,043 933,041,399 387,450,747 333,110,643 318,910,179 639,976,075 635,044,452 5,284,686,787 4,976,834,756 933,958,546 849,166,083 3,045,528,920 2,853,462,914 OPERATING INCOME Operating Revenues Operating Costs Administrative and Selling Expenses 664.957.299 (500.813.595) (47.005.935) 606.014.895 (444.798.511) (43.618.748) 54.261.890 (44.991.907) (10.363.721) 46.512.974 (35.424.558) (7.557.414) 21.659.308 (11.762.042) (2.626.602) 11.355.154 (8.194.927) (2.103.221) 141.079.847 (121.468.511) (9.837.376) 127.792.077 (108.433.636) (8.051.337) NET OPERATING INCOME 117.137.769 117.597.636 (1.093.738) 3.531.002 7.270.664 1.057.006 9.773.960 11.307.104 - - - - - - - - 214.271.061 (155.726.612) (19.965.790) 197.488.163 (149.600.225) (18.159.825) 244.438.883 (216.897.461) (35.574.393) 239.469.513 (205.917.399) (29.814.974) 1.337.120.927 (793.260.032) (39.385.780) 1.146.622.685 (704.080.979) (39.387.634) 449.810.665 (301.258.158) (13.200.958) 401.711.238 (278.455.186) (18.764.717) 1.125.728.588 (784.000.850) (68.741.047) 258.878.889 (166.998.704) (36.886.343) 38.578.659 29.728.113 (8.032.971) 3.737.141 504.475.115 403.154.072 135.351.549 104.491.335 272.986.691 54.993.842 CHILECTRA SYNAPSIS 2006 2005 2006 2005 I. MANSO DE VELASCO 2005 2006 CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA ENDESA BRASIL (*) 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 NON OPERATING INCOME Non-Operating Revenues Non-Operating Expenses Price.Level Restatement and Exchange Rate Difference 39.284.306 (38.023.205) 262.630 23.960.318 (47.026.792) 3.725.599 412.781 (855.012) 133.707 626.738 (346.277) (199.780) 2.369.367 (2.710.468) 123.668 4.088.909 (1.994.947) 64.777 2.007.960 (2.260.804) 429.161 1.448.492 (5.607.078) (875.503) 16.439.320 (8.343.925) 5.691.422 25.159.862 (12.744.682) (22.367.350) 5.056.246 (21.391.659) - 9.310.933 (9.579.890) - 8.756.618 (19.829.838) - 7.446.549 (22.699.651) - 87.255.538 (216.554.715) 5.095.463 71.680.252 (246.623.864) 16.559.508 9.111.748 (21.076.310) 20.973.408 (21.659.405) 161.021.709 (273.177.500) - - 47.676.016 (51.990.839) - NET NON OPERATING INCOME 1.523.731 (19.340.875) (308.524) 80.681 (217.433) 2.158.739 176.317 (5.034.089) 13.786.817 (9.952.170) (16.335.413) (268.957) (11.073.220) (15.253.102) (124.203.714) (158.384.104) (11.964.562) (685.997) (112.155.791) (4.314.823) Income Tax Extraordinary Items Minority Interest Negative Goodwill Amortization 113.118.106 (21.853.528) (997.251) (1.512.339) 258.310 (1.436.742) - - - - (5.081) - - (4.607) - - (789.297) - (2.280.863) - (236.586) - (434.145) - (2.320.830) - (9) - (1.432.751) - (10) - - - - - - - - - (14.004.860) - (3.387.870) - (11.068.572) - (7.366.489) 150.176 (4.284.462) (6.392.698) (130.856.751) (93.885.428) (36.236.229) (35.611.676) (22.951.195) (3.776.385) - - - - - - - (65.910.792) 6.037.460 - (53.570.412) 15.631.948 - - - - - - (45.654.941) (14.449.894) - - - - NET INCOME (LOSS) FOR THE PERIOD 232.037.916 74.966.491 (2.404.594) 2.094.737 3.983.071 2.545.014 7.629.438 4.840.254 13.786.817 (9.952.170) 4.850.516 11.174.271 (23.390.653) (17.908.659) 189.541.318 112.946.076 87.150.758 68.193.662 92.224.764 32.452.740 Net Positive (negative) Cash flow from Operating Activities Net Positive (negative) Cash flow from Financing Activities Net Positive (negative) Cash flow from Investment Activities 2006 142.118.884 (79.574.779) (66.573.283) 2005 169.260.837 (140.483.631) (23.699.145) NET POSITIVE (N EGATIVE) CASH FLOW FOR THE PERIOD (4.029.178) Effect of the inflation on cash and cash equivalent 31.640 5.078.061 (506.748) 2006 2.212.879 1.712.890 (2.969.749) 956.020 (51.482) 2005 (154.594) 5.034.447 (3.461.882) 1.417.971 (91.405) CHILECTRA SYNAPSIS NET VARIATION OF CASH AND CASH EQUIVALENT (3.997.538) 4.571.313 904.538 1.326.566 INITIAL BALANCE OF CASH AND CASH EQUIVALENT 14.363.807 9.792.494 3.447.619 2.121.053 FINAL BALANCE OF CASH ANS CASH EQUIVALENT 10.366.269 14.363.807 4.352.157 3.447.619 I. MANSO DE VELASCO 2006 2005 7.597.568 13.500.168 (14.465.528) (5.221.887) 6.880.864 (8.310.757) 12.904 5.488 18.392 (32.476) 291 (32.185) 50.780 18.595 CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA ENDESA BRASIL (*) 2006 6.020.504 (3.399.624) (2.648.219) (27.339) 308.875 2005 (6.059.370) 1.479.480 3.499.959 (1.079.931) (418.608) 2006 4.239.617 (38.684.849) 34.366.653 2005 8.158.651 (12.107.790) 2.495.637 2006 42.423.083 (19.918.340) (21.145.648) 2005 38.450.898 (20.362.760) (16.879.925) 2006 26.790.893 11.722.567 (35.814.594) 2005 35.481.384 (4.731.340) (29.234.676) 2006 420.100.772 (136.166.481) (200.382.110) 2005 276.617.083 (374.771.957) (56.275.095) 2006 97.443.752 (64.500.116) (42.250.355) 2005 113.216.737 (254.650.405) (7.176.545) 2006 185.858.038 (64.031.617) (160.860.197) 2005 117.573.944 (22.463.659) (50.791.521) (78.579) 433 (1.453.502) 15.614 1.359.095 1.208.213 2.698.866 1.515.368 - - - - 83.552.181 (11.112.397) (154.429.969) (5.651.512) (9.306.719) 528.268 (148.610.213) (27.579.073) (39.033.776) 28.764.985 44.318.764 (15.339.964) 281.536 (1.498.539) (78.146) (1.437.888) 1.359.095 1.208.213 2.698.866 1.515.368 72.439.784 (160.081.481) (8.778.451) (176.189.286) (10.268.791) 28.978.800 32.388 1.523.648 3.022.187 83.176 1.520.901 1.811.197 571.926 23.091.742 21.180.096 83.073.421 243.154.902 29.079.418 204.769.884 215.854.328 183.174.841 50.780 1.805.184 1.523.648 5.030 83.013 3.170.292 1.780.139 25.790.608 22.695.464 155.513.205 83.073.421 20.300.967 28.580.598 205.585.537 212.153.641 enersis06 ASSETS Current Assets Fixed Assets Other Assets TOTAL ASSETS Current Liabilities Long Term Liabilities Minority Interest Shareholders Equity LIABILITIES AND SHAREHOLDERS EQUITY OPERATING INCOME Operating Revenues Operating Costs Administrative and Selling Expenses CHILECTRA SYNAPSIS 2006 2005 2006 2005 I. MANSO DE VELASCO CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA ENDESA BRASIL (*) 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 147,943,067 463,038,606 607,665,047 138,348,157 419,876,506 521,151,669 21,563,721 9,493,597 31,335 20,964,452 8,365,016 59,392 31,182,749 36,689,626 7,129,477 23,939,265 43,420,147 5,642,574 69,591,394 14,272,042 3,136,718 65,644,598 13,597,571 2,420,164 40,718,772 - 346,731,975 41,656,984 288,876,236 2,577,423 35,276,265 281,608,889 2,025,025 72,572,373 558,805,112 8,598,590 66,490,966 560,787,224 7,766,262 418,324,915 4,150,576,272 715,785,600 290,918,234 3,992,211,914 693,704,608 235,513,143 679,734,841 18,710,562 165,965,783 673,413,198 9,787,102 660,284,941 1,894,422,419 490,821,560 557,092,467 1,816,090,298 480,280,149 1,218,646,720 1,079,376,332 31,088,653 29,388,860 75,001,852 73,001,986 87,000,154 81,662,333 387,450,747 333,110,643 318,910,179 639,976,075 635,044,452 5,284,686,787 4,976,834,756 933,958,546 849,166,083 3,045,528,920 2,853,462,914 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1,218,646,720 1,079,376,332 31,088,653 29,388,860 75,001,852 73,001,986 87,000,154 81,662,333 387,450,747 333,110,643 318,910,179 639,976,075 635,044,452 5,284,686,787 4,976,834,756 933,958,546 849,166,083 3,045,528,920 2,853,462,914 127,338,877 409,878,189 (7,768,054) 689,197,708 104,311,380 482,889,218 (6,541,249) 498,716,983 16,512,141 2,095,427 11,004 12,470,081 18,118,760 1,396,229 9,816 9,864,055 2,383,709 594,969 34,848,083 37,175,091 2,300,178 566,875 33,347,506 36,787,427 22,611,258 7,109,625 49 25,671,337 6,400,989 34 57,279,222 49,589,973 12,284,792 103,522,927 - 271,643,028 82,039,509 115,779,196 56,626,307 78,665,631 78,755,192 92,926,187 58,864,938 88,363,862 93,917,685 87,636,265 91,904,779 69,587,110 - - 458,422,125 473,552,563 461,617,399 2,093,571,094 935,188,443 1,794,309,851 538,847,579 1,807,729,320 953,511,592 1,676,746,265 237,824,866 171,872,554 110,796,648 169,114,254 - - 524,261,126 569,255,181 634,452,594 939,213,638 466,519,847 1,005,342,841 640,918,073 838,432,399 441,071,043 933,041,399 CHILECTRA SYNAPSIS 2006 2005 2006 2005 I. MANSO DE VELASCO 2006 2005 CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA ENDESA BRASIL (*) 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 664.957.299 (500.813.595) (47.005.935) 606.014.895 (444.798.511) (43.618.748) 54.261.890 (44.991.907) (10.363.721) 46.512.974 (35.424.558) (7.557.414) 21.659.308 (11.762.042) (2.626.602) 11.355.154 (8.194.927) (2.103.221) 141.079.847 (121.468.511) (9.837.376) 127.792.077 (108.433.636) (8.051.337) 214.271.061 (155.726.612) (19.965.790) 197.488.163 (149.600.225) (18.159.825) 244.438.883 (216.897.461) (35.574.393) 239.469.513 (205.917.399) (29.814.974) 1.337.120.927 (793.260.032) (39.385.780) 1.146.622.685 (704.080.979) (39.387.634) 449.810.665 (301.258.158) (13.200.958) 401.711.238 (278.455.186) (18.764.717) 1.125.728.588 (784.000.850) (68.741.047) 258.878.889 (166.998.704) (36.886.343) NET OPERATING INCOME 117.137.769 117.597.636 (1.093.738) 3.531.002 7.270.664 1.057.006 9.773.960 11.307.104 38.578.659 29.728.113 (8.032.971) 3.737.141 504.475.115 403.154.072 135.351.549 104.491.335 272.986.691 54.993.842 NON OPERATING INCOME Non-Operating Revenues Non-Operating Expenses Price.Level Restatement and Exchange Rate Difference 39.284.306 (38.023.205) 262.630 23.960.318 (47.026.792) 3.725.599 412.781 (855.012) 133.707 626.738 (346.277) (199.780) 2.369.367 (2.710.468) 123.668 4.088.909 (1.994.947) 64.777 2.007.960 (2.260.804) 429.161 1.448.492 (5.607.078) (875.503) 16.439.320 (8.343.925) 5.691.422 25.159.862 (12.744.682) (22.367.350) 5.056.246 (21.391.659) - 9.310.933 (9.579.890) - 8.756.618 (19.829.838) - 7.446.549 (22.699.651) - 87.255.538 (216.554.715) 5.095.463 71.680.252 (246.623.864) 16.559.508 9.111.748 (21.076.310) 20.973.408 (21.659.405) - 161.021.709 (273.177.500) - 47.676.016 (51.990.839) - NET NON OPERATING INCOME 1.523.731 (19.340.875) (308.524) 80.681 (217.433) 2.158.739 176.317 (5.034.089) 13.786.817 (9.952.170) (16.335.413) (268.957) (11.073.220) (15.253.102) (124.203.714) (158.384.104) (11.964.562) (685.997) (112.155.791) (4.314.823) Income Tax Extraordinary Items Minority Interest Negative Goodwill Amortization 113.118.106 (21.853.528) (997.251) (1.512.339) (789.297) (236.586) (2.320.830) (1.432.751) 258.310 (1.436.742) - - - - (5.081) - - (4.607) - - (2.280.863) (434.145) - - - - - (9) - - (10) - - - - - (14.004.860) (11.068.572) (3.387.870) - - - (7.366.489) 150.176 (4.284.462) - - - (6.392.698) - - - (130.856.751) - (65.910.792) 6.037.460 (93.885.428) - (53.570.412) 15.631.948 (36.236.229) - - - (35.611.676) - - - (22.951.195) - (45.654.941) - (3.776.385) - (14.449.894) - NET INCOME (LOSS) FOR THE PERIOD 232.037.916 74.966.491 (2.404.594) 2.094.737 3.983.071 2.545.014 7.629.438 4.840.254 13.786.817 (9.952.170) 4.850.516 11.174.271 (23.390.653) (17.908.659) 189.541.318 112.946.076 87.150.758 68.193.662 92.224.764 32.452.740 - - - - - - - - - - - - - - - - - - - - - Net Positive (negative) Cash flow from Operating Activities Net Positive (negative) Cash flow from Financing Activities Net Positive (negative) Cash flow from Investment Activities 2006 142.118.884 (79.574.779) (66.573.283) 2005 169.260.837 (140.483.631) (23.699.145) NET POSITIVE (N EGATIVE) CASH FLOW FOR THE PERIOD (4.029.178) Effect of the inflation on cash and cash equivalent 31.640 5.078.061 (506.748) 2006 2.212.879 1.712.890 (2.969.749) 956.020 (51.482) 2005 (154.594) 5.034.447 (3.461.882) 1.417.971 (91.405) 2006 6.020.504 (3.399.624) (2.648.219) (27.339) 308.875 2005 (6.059.370) 1.479.480 3.499.959 (1.079.931) (418.608) 2006 4.239.617 (38.684.849) 34.366.653 2005 8.158.651 (12.107.790) 2.495.637 2006 42.423.083 (19.918.340) (21.145.648) 2005 38.450.898 (20.362.760) (16.879.925) 2006 26.790.893 11.722.567 (35.814.594) 2005 35.481.384 (4.731.340) (29.234.676) 2006 420.100.772 (136.166.481) (200.382.110) 2005 276.617.083 (374.771.957) (56.275.095) 2006 97.443.752 (64.500.116) (42.250.355) 2005 113.216.737 (254.650.405) (7.176.545) 2006 185.858.038 (64.031.617) (160.860.197) 2005 117.573.944 (22.463.659) (50.791.521) (78.579) 433 (1.453.502) 15.614 1.359.095 1.208.213 2.698.866 1.515.368 - - - - 83.552.181 (11.112.397) (154.429.969) (5.651.512) (9.306.719) 528.268 (148.610.213) (27.579.073) (39.033.776) 28.764.985 44.318.764 (15.339.964) CHILECTRA SYNAPSIS I. MANSO DE VELASCO CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA ENDESA BRASIL (*) NET VARIATION OF CASH AND CASH EQUIVALENT (3.997.538) 4.571.313 904.538 1.326.566 281.536 (1.498.539) (78.146) (1.437.888) 1.359.095 1.208.213 2.698.866 1.515.368 72.439.784 (160.081.481) (8.778.451) (176.189.286) (10.268.791) 28.978.800 INITIAL BALANCE OF CASH AND CASH EQUIVALENT 14.363.807 9.792.494 3.447.619 2.121.053 32.388 1.523.648 3.022.187 83.176 1.520.901 1.811.197 571.926 23.091.742 21.180.096 83.073.421 243.154.902 29.079.418 204.769.884 215.854.328 183.174.841 FINAL BALANCE OF CASH ANS CASH EQUIVALENT 10.366.269 14.363.807 4.352.157 3.447.619 50.780 1.805.184 1.523.648 5.030 83.013 3.170.292 1.780.139 25.790.608 22.695.464 155.513.205 83.073.421 20.300.967 28.580.598 205.585.537 212.153.641 2006 13.500.168 (5.221.887) (8.310.757) 2005 7.597.568 (14.465.528) 6.880.864 12.904 5.488 18.392 (32.476) 291 (32.185) 50.780 18.595 2006 Annual Report | 298 Production and Design: Leaders S.A. / Photography: Carlos Quiroga / Printing: Quebecor World SANTIAGO STOCK EXCHANGE ENERSIS NEW YORK STOCK EXCHANGE ENI LATIN AMERICAN STOCK EXCHANGE OF MADRID STOCK EXCHANGE (LATIBEX) XENI ENERSIS S.A. WAS CONSTITUTED WITH THE NAME OF COMPAÑÍA CHILENA METROPOLITANA DE DISTRIBUCIÓN ELÉCTRICA S.A., AND ON AUGUST 1, 1988, THE COMPANY BECAME KNOWN AS ENERSIS S.A.. THE CAPITAL OF THE COMPANY AMOUNT TO TH.CH$2,415,284,412, DIVIDED INTO 32,651,166,465 SHARES. ENERSIS SHARES ARE TRADED IN CHILEAN STOCK EXCHANGES, NEW YORK STOCK EXCHANGE IN THE FORM OF AMERICAN DEPOSITARY RECEIPTS (ADR) AND IN THE LATIN AMERICAN STOCK EXCHANGE OF MADRID STOCK EXCHANGE (LATIBEX). THE OBJECTS OF THE COMPANY ARE TO EXPLORE, DEVELOP, OPERATE, GENERATE, DISTRIBUTE, TRANSMIT, TRANSFORM AND/OR SELL ENERGY IN ANY OF ITS FORMS OR NATURE, IN CHILE OR ABROAD, EITHER DIRECTLY OR THROUGH OTHER COMPANIES, AND ACTIVITIES IN TELECOMMUNICATIONS AND THE PROVISION OF ENGINEERING IN CHILE OR ABROAD, AND ALSO HAS THE OBJECT OF INVESTING AND MANAGING ITS INVESTMENTS IN SUBSIDIARY AND ASSOCIATE COMPANIES. ITS TOTAL ASSETS WERE TH.CH$11,062,409,283 AT DECEMBER 31, 2006. ENERSIS CONTROL A GROUP WHO OPERATE IN THE ELECTRICITY MARKET ON FIVE COUNTRIES IN LATIN AMERICA. IN THE YEAR 2006 OBTAINED A NET INCOME OF TH.CH$285,960,366 AND AN OPERATING INCOME OF TH.CH$805,366,156. EMPLOYEES: AT THE END OF 2006 IT GAVE DIRECT OCCUPATION TO 11,784 PEOPLE, THROUGH ITS SUBSIDIARIES COMPANIES OVER LATIN AMERICA. ENERSIS MANAGEMENT CHAIRMAN PABLO YRARRÁZAVAL PHONE (56-2) 353 4663 CHIEF EXECUTIVE OFFICER IGNACIO ANTOÑANZAS PHONE (56-2)353 4510 COMMUNICATIONS OFFICER JOSÉ LUIS DOMÍNGUEZ PHONE (56-2) 353 4666 AUDITING OFFICER FRANCISCO HERRERA PHONE (56-2) 353 4647 HUMAN RESOURCES OFFICER FRANCISCO SILVA PHONE (56-2) 353 4610 GENERAL COUNSEL DOMINGO VALDÉS PHONE (56-2) 353 4631 REGIONAL ACCOUNTING OFFICER FERNANDO ISAC PHONE (56-2) 353 4685 REGIONAL CHIEF FINANCIAL OFFICER ALFREDO ERGAS PHONE (56-2) 630 9130 REGIONAL PLANNING AND CONTROL OFFICER MACARENA LAMA PHONE (56-2) 353 4684 INVESTOR AND SHAREHOLDER RELATIONS CHIEF INVESTMENTS AND RISKS OFFICER RICARDO ALVIAL PHONE (56-2) 353 4682 CITIBANK NY RICARDO SZLEZINGER PHONE (1-212) 816 6852 SANTANDER CENTRAL HISPANO INVESTMENT ENRIQUE ROMERO PHONE (34-91) 289 3943 S A N T A R O S A 7 6 , S A N T I A G O , C H I L E / T E L . ( 5 6 2 ) 3 5 3 4 4 0 0 , 3 7 8 4 4 0 0 / W W W . E N E R S I S . C O M T R O P E R L A U N N A A N N U A L R E P O R T 

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