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Exhibit 10(n)
FINAL VERSION
SALE PURCHASE OF SHARES AND EQUIPMENT AND
INDEBTEDNESS REPAYMENT AGREEMENT
The present Sale Purchase of Shares and Equipment and Indebtedness Repayment
Agreement (the “Agreement”), is executed on March 30, 2007, between CMS Energy
Corporation, a corporation duly incorporated in accordance with the laws of the
State of Michigan, United States of America (the “Seller”), represented in this
act by Joseph P. Tomasik, who is a citizen of the United States of America, of
legal age, domiciled in the city of Jackson, State of Michigan, and holder of
the Passport of the United States of America number 027671098, and Petróleos de
Venezuela, S.A. a corporation incorporated in accordance with the laws of the
Bolivarian Republic of Venezuela, domiciled in the city of Caracas in the
Metropolitan District, originally constituted by Decree N° 1.123 dated
August 30th, 1975, published on Extraordinary Official Gazette of the Republic
of Venezuela N° 1.170 on the date before mentioned and registered before the
First Commercial Registry on September 15th, 1975 of the Judicial Circuit of the
Federal District and Miranda State, under No. 23, Volume 99-A, which entry was
published on Extraordinary Municipal Gazette N° 413 of the Federal District on
September 25th, 1975 and which Corporate Charter and Bylaws have been modified
by means of Decrees N° 250, 885, 1313, 2184 and 3299 dated August 23rd, 1979;
September 24th, 1985; May 21st, 2001; December 10th, 2002 and December 7th,
2004, respectively, the last decree published on the Official Gazette of the
Bolivarian Republic of Venezuela N° 38.081 (the “Buyer”), represented in this
act by its President, the citizen Rafael Ramírez Carreño, who is Venezuelan
citizen, of legal age, of this domicile, and bearer of the Identity Card N°
5.479.706, duly authorized for this act in accordance with the numeral 4 of the
Thirty-Fourth Clause of the Corporate Charter and By-Laws of the Buyer;

 

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     WHEREAS that the Seller is the ultimate owner, through its affiliates of
58.961.700 shares (the “Shares”) of the Sistema Eléctrico de Nueva Esparta,
C.A., a Venezuelan corporation (“SENECA”), representing seventy per cent (70%)
of the issued ordinary shares of SENECA, and eighty eight and two thousandth per
cent (88,002%) of its social capital;
     WHEREAS SENECA, in one side, and some of the affiliates of the Seller, are
reciprocally indebted for certain amounts under the concepts described in the
Exhibit A, that upon set off result in a outstanding debt by SENECA to the
affiliates of the Seller for an amount of at least one million nine hundred
thousand Dollars of the United States of America (US$ 1.9 millions) (the
“Indebtedness”);
     WHEREAS, that the equipment of an affiliate of the Seller, described in
Exhibit B of this Agreement (the “Equipment”) is currently subject to a lease
between CMS Enterprises and SENECA (the “Lease”), which unpaid amount is of
fifteen millions six hundred thousand Dollars of the United States of America
(US$ 15,6 millions) including the payment of purchase to the termination;
     WHEREAS the Seller and the Government of the Republic celebrated a
Memorandum of Understanding dated February 13th, 2007 (the “MOU”), which
provides for: (i) the sale of the Shares by the Seller to the Buyer, (ii) the
repayment of the Indebtedness, and (iii) the transfer in favor of SENECA of
ownership of the Equipment (jointly referred to as the “Transactions”); and
     WHEREAS the Seller and the Buyer wish to formalize the Transactions in the
terms and conditions provided in this Agreement.
     Based on the above and with the intention of being legally bound by the
present Agreement, the parties of this Agreement (the “Parties”) agree the
following:

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CLAUSE 1
SALE PURCHASE
     Clause 1.1. Sale Purchase of the Shares.
     Subject to the terms and conditions of the present Agreement, at the moment
of the Closing (as such term is defined below), the Seller shall assure that its
affiliate (i) sell and transfer the Shares to the Buyer, free of all liens,
(ii) release the repayment obligation under the Indebtedness, and (iii) sell and
transfer the Equipment to the Buyer, free of all security interests. The total
price that shall be paid by the Buyer to the Seller for the Transactions is of
one hundred five million five hundred thousand Dollars of the United States of
America (US$ 105,500,000) (the “Price of the Transactions”), which is divided as
follows: (a) for the sale purchase of the Shares, eighty eight million Dollars
of the United States of America (US$ 88,000,000); (b) for the repayment of the
Indebtedness, one million nine hundred thousand Dollars of the United States of
America (US$ 1,900,000); and (c) for the sale purchase of the Equipment, fifteen
millions six hundred thousand Dollars of the United States of America (US$
15,600,000). The Price of the Transactions shall be paid at the Closing (as such
term is defined below) only and exclusively in Dollars of the United States of
America (with exclusion of any other currency), though wire transfer in
immediately available funds, without any set off, withholding (including
withholding of taxes) deduction or restriction whatsoever, to the account that
to such effect the Seller indicates in writing to the Buyer. The Price of the
Transactions constitutes the total compensation to be paid to the Seller for the
transfer of ownership of the Shares and the Equipment, as well as for the
repayment of the Indebtedness. The Seller, on its own behalf and on behalf of
its affiliates, (i) waives, from the Closing, all the claims that has or may
have against the Republic or any of its agencies, dependences, enterprises or
other entities (including SENECA), or any of their respective directors,
officers, employees, agents or representatives, in connection with the Shares,
to the announcements or acts of the Republic with respect to the nationalization
of SENECA, or any other matter related to SENECA, being excepted any claim that
the Seller may have under this Agreement and (ii) commits to indemnify to such
parties for any claim of its affiliates related to such matters. The Buyer
waives, from the Closing, all claims against the Seller or its affiliates or its
respective directors, officers, employees, agents or representatives, for
reasonable and legal acts of administration of SENECA carried out before the
Closing.

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     Clause 1.2 Closing.
     The formalization, perfection and completion of the Transactions shall take
place, provided the conditions precedent that are referred in the Clause 5 of
this Agreement have been satisfied, in a closing (the “Closing”) that shall be
held in the offices of the Buyer in Caracas, Venezuela, on the working day that
to such effect the Buyer sets on or before April 30, 2007 (the “Closing Date”)
in the understanding that the Buyer shall notify the Seller of the Closing Date
five (5) working days in advance.
CLAUSE 2
REPRESENTATIONS AND WARRANTIES OF THE SELLER
     The Seller hereby represents and warrants to the Buyer the following:
     Clause 2.1 Incorporation and Authority; Absence of Conflicts.
     It is a corporation duly incorporated and existing in accordance with the
law of the State of Michigan, United States of America, and has all the required
powers and corporate authority to enter into this Agreement, comply with its
obligations hereunder and to carry out the Transactions. This Agreement
constitutes a valid and legally binding obligation of the Seller and enforceable
against it in accordance with its terms. The Seller is not required to obtain
the consent of any third party for the execution and performance of this
Agreement. The execution and performance of this Agreement by Seller does not
(i) constitutes any violation or breach, nor shall it give a right to the
termination or acceleration of any obligation with respect to (a) any
constitutive document of the Seller or of SENECA, or (b) any law to which the
Seller or SENECA are subject, nor (ii) shall it create any security interest on
the assets of SENECA.

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     Clause 2.2. Shares and Capital.
     The Shares represent seventy per cent (70%) of the issued ordinary shares
of SENECA, and the eighty eight and two thousandth per cent (88,002%) of its
social capital. The affiliates of the Seller are the registered owners of the
Shares, which are free of all security interests of any nature. Except for the
Shares, neither the Seller nor any of its affiliates have any right on the
social or stock capital of SENECA, nor have any other rights or interest on
SENECA. The Buyer shall acquire the legitimate ownership of the Shares, free of
all security interests, when the title to the Shares are delivered at the
Closing and its assignment be inscribed on the books of SENECA. SENECA does not
have any affiliate or subsidiary nor has any equity right of any kind on the
social participation of any third party. Upon Closing, the Seller and its
affiliates will not have any outstanding obligations or rights, option rights or
other rights, contracts or compromises of any kind related to SENECA and its
capital stock.
     Clause 2.3 Equipment and Indebtedness.
     An affiliate of the Seller is the owner of all the Equipment, free of all
security interests. On the Closing, the Buyer shall acquire the legitimate
ownership of the Equipment, free of liens of any nature. The Indebtedness is the
only obligation of any nature of SENECA to the Seller or any of its affiliates,
and from the Closing, SENECA shall cease to have any obligation with respect
thereto.
     Clause 2.4 Financial Statements.
     The Appendix 2.4 contains a truthful copy of the financial statements and
complementary information of SENECA, duly audited, which include the balance
sheet, the profits and losses and cash flow reexpressed values, as of
December 31st, 2006 (the “Financial Statements”), in the understanding that the
complementary information of the Financial Statements includes as well
historical values. The Financial Statements were prepared in accordance with the
general accepted accounting principles in the Republic, and present in an
accurate form all the relevant aspects to the financial condition of SENECA to
such date and the result of its operations during the exercise that has
concluded.

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     Clause 2.5 Conduct of Business and Inexistence of Hidden Liabilities.
     From the date of the issuance of the Financial Statements until the date of
the present Agreement (i) SENECA has, in all the relevant aspects, carried out
its business and operations within the ordinary course of the business in a
manner consistent with its past commercial practices, (ii) neither the Seller,
nor SENECA, has taken any action that, if taken after the execution of this
Agreement, may constitute a breach to the provisions of Clauses 4.2 and 4.4
(neither has authorized, nor has proposed, nor has executed any contract with
aims to take that action), and (iii) in the best knowledge of the Seller, no
material adverse effect has occurred in relation with SENECA; provided that, the
Seller has disclosed the matters referred to in Appendix 4.1 in connection with
the activities of SENECA. Furthermore, except for liabilities incurred after
December 31, 2006 in the ordinary course of business consistent with past
practice or any matter described in the Appendices hereof, SENECA does not have
material obligations or liabilities different from the obligations and
liabilities mentioned in the Financial Statements.
     Clause 2.6 Taxes.
     Except as provided in the Appendix 2.6, (i) all the tax returns have been
filed with relation to SENECA and all taxes, fines and recharges that SENECA has
to pay in accordance with the applicable laws have been paid or have been
reserved for on SENECA’s financial statements, and (ii) SENECA has received no
notification of a material tax assessments that may affect the valuation of the
Shares.
     Clause 2.7 Litigation and Proceedings.
     There is no existing material litigation, whether civil, criminal,
administrative or regulatory, nor relevant arbitral proceedings or alternative
dispute resolution proceedings or similar proceedings, nor relevant pending
investigations, demands, actions or denounces, or to the best knowledge of the
Seller, threaten or announced, against or by SENECA, except to those that are
described in the Financial Statements or in Appendix 2.7 of this Agreement.

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     Clause 2.8 Compliance with the Law.
     Except for the obligation established in the article 6 of the Organic Law
of Electric Service related to the separation of activities, SENECA complies in
all material respects with all the laws or governmental orders that are
applicable to it or to any of its properties or assets.
     Clause 2.9 Transactions with Related Parties.
     Except for the Lease and related letter agreements, there are no agreements
currently in effect between SENECA and the Seller, and/or any of its affiliates,
shareholders, directors or officers. Except for the property of the Equipment
neither the Seller, nor its affiliates or shareholders, directors or officers
are the owners or have any right related to the assets, properties or rights
used by SENECA.
     Clause 2.10 Property Title and Absence of Security Interests.
     Except as set forth in Appendix 2.10, SENECA is the only and exclusive
owner and holder, and has ownership title to all the real property and other
assets, including plants, equipment, turbines, rights of way and servitudes,
free of all security interests or domain limitation.
     Clause 2.11 Assets Conditions.
     Except as set forth in Appendix 2.11, the assets and properties of SENECA,
including plants and equipment, are in reasonable operating condition (excluding
the normal wear and tear for use and for limitations imposed to avoid rationing
on SENECA’s distribution system) and have received maintenance in accordance
with the industry prudent practices .
     Clause 2.12 Contracts.
     Appendix 2.12 contains a complete list of all material contracts entered
into by SENECA for the correct and good operation and conduction of the business
of SENECA or with an amount higher than two hundred fifty thousand Dollars of
the United States of America (US$ 250,000) (the “Important Contracts”). Each of
the Important Contracts is in full force and effect, provided that the Seller
has disclosed to the Buyer what is set forth in

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Appendix 4.1 in connection with the possible termination of the reinsurance.
SENECA is not in breach in accordance with the Important Contracts, and the
completion of the Transactions will not result in any breach on the part of
SENECA in accordance to the Important Contracts, nor will it give right to the
counterpart for early termination of the same.
     Clause 2.13 Environmental Liability.
     Except as set forth in Appendix 2.13, in the best knowledge of the Seller
there are no environmental liabilities of SENECA that may affect in an adverse
manner the valuation of the Shares.
     Clause 2.14 Absence of Indemnification Obligation to Employees.
     Except for payment obligations in accordance with the labor laws that could
arise with relation to Seller’s obligation provided in the Clause 4.3, the
execution and performance of this Agreement by the Seller shall not give any
right to any employee, officer or director of SENECA to receive from SENECA any
payment whether arising from the change of control, related with an obligation
derived from termination or by any other reason.
     Clause 2.15 Complete Disclose.
     The Seller has disclosed to the Buyer all the material information and
documentation that may affect the valuation of the Shares. Furthermore, no
written information or documentation provided or to be provided by the Seller or
any of its affiliates (including SENECA) to the Buyer hereunder or in connection
with the Transactions contemplated in this Agreement contains or will contain
any false declaration or information of any material fact, nor will they omit
any material fact so that the representations granted are not misleading in the
light of the circumstances under which they were made.

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CLAUSE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER
     The Buyer hereby represents and warrants to the Seller that the Buyer has
all the required powers and corporate authority to enter into this Agreement,
comply with its obligations hereunder and to carry out the Transactions. The
execution and performance of this Agreement by the Buyer and the completion of
the Transactions hereunder have been validly and duly authorized by all the
necessary corporate and administrative bodies. This Agreement has been duly and
validly executed by the Buyer and constitutes a valid and legally binding
obligation of the Buyer, enforceable in accordance with its terms.
CLAUSE 4
ADDITIONAL COVENANTS
     Clause 4.1 Activities of SENECA.
     The Seller warrants that, between the date of execution of this Agreement
and the Closing, (i) the operations of SENECA shall be carry out in the ordinary
course of its business in a consistent manner with its past commercial
practices, including maintenance in force of agreement, permits, consents,
leases and insurance policies of such operations, in the understanding that for
all the effects of this Clause 4.1(i), the Seller has revealed to the Buyer the
concepts indicated in the Appendix 4.1, and (ii) shall make its best efforts to
maintain the business, operations and good reputation of SENECA with the clients
and providers whose relation is relevant for the business and operations of
SENECA in a consistent manner with its past commercial practices.
     Clause 4.2 Access to Information, Transition Committee.
     Between the date of execution of this Agreement and the Closing Date, the
Seller shall (a) provide to the Buyer a copy of the financial statements and
operative reports received by the Seller and related, in each case, with the
operation of SENECA, as close as possible to the date issued, and (b) give

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access to Buyer, during working hours and having received a request, to all the
properties, books and files and administrative personnel of SENECA and to all
the information related thereto. To carry out an organized transmission of the
property and management of SENECA, the Seller will assure that SENECA will
cooperate with a transition committee to be designated by the Seller.
     Clause 4.3 Resignations.
     The Buyer shall indicate in writing to the Seller the directors of SENECA
that the Buyer desires their resignation before the Closing. The Seller shall
cause SENECA to obtain the resignation of said directors, effective upon
Closing.
     Clause 4.4 Distribution.
     Without prejudice to Seller’s rights provided in the Clause 4.6, the Seller
will not allow, from the date of execution of this Agreement until the Closing
Date, SENECA to declare, make or separate funds for dividends or distributions
to its shareholders.
     Clause 4.5 Delivery of Documentation.
     At the Closing, the relevant entry of the transfer of the Shares in the
registry of shareholders of SENECA and, in each case, the endorsement of the
Shares in favor of the Buyer, shall be made. Furthermore, the Seller shall
deliver to the Buyer all the documentation that may be necessary to evidence the
completion of the Transactions, including the documentation that evidences the
transfer of the ownership of the Equipment, the termination of the Lease (and
related letter agreements) and a repayment certificate of the indebtedness owed
by SENECA that have been set off in accordance with Exhibit A of this Agreement,
including with respect to the Indebtedness. By its part, SENECA shall issue a
repayment certificate of the indebtedness owed by Seller that has been set off
in accordance with Exhibit A of this Agreement.

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     Clause 4.6 Pending Lease Payment.
     The Parties acknowledge that on December 14, 2006, SENECA delivered to
Enelmar S.A., an affiliate of the Seller, the amount of Bs. 1,961,737,077.50 as
guarantee for the payment of the lease of the fourth quarter of 2006 under the
Lease Agreement (the “Pending Lease Payment”). Such payment is awaiting the
governmental authorizations on exchange control to be paid to the Seller or its
affiliate. In the event that SENECA obtains conversion approval from CADIVI not
less than five (5) days before the Closing, SENECA will be able to transfer the
amount of the Pending Lease Payment to the Seller or its affiliate, provided
that SENECA has previously received from the Seller or its affiliate the amount
in Bolivars of the Pending Lease Payment. In the event that SENECA has not
obtained the conversion approval from the competent authorities five (5) days
prior to Closing, Buyer shall transfer to Seller at the Closing, only and
exclusively in Dollars of the United States of America the amount of nine
hundred twelve thousand four hundred thirty five Dollars of the United Sates of
America and eighty five cents (US$912,435.85) (without interest, charges,
penalties or similar), provided that the Seller or its affiliate transfer,
previously or simultaneously, to SENECA the Pending Lease Payment in Bolivars.
Upon receipt from Buyer of the Pending Lease Payment in Dollars, Seller and its
affiliates shall be deemed to have released SENECA from any liability with
respect to the Pending Lease Payment.
CLAUSE 5
CONDITIONS FOR THE CLOSING
     Clause 5.1 Conditions to the Obligation of the Buyer.
     The obligation of the Buyer to formalize and complete the Transactions is
subject to the following conditions precedent:

    a)   The Seller shall have complied with all its obligations as set forth
herein on or before the Closing Date, and the representations and warranties of
the Seller contained in this Agreement shall be true and correct in all material
respects as of the date of execution of this Agreement and as of the Closing
Date, as if they were made at that time;

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    b)   No facts or circumstances (including the ones that have arisen during
the legal and financial due diligence carried out by the Buyer in relation to
SENECA) shall exist that have resulted or may reasonably result in a material
adverse effect in connection with the value of the Shares, provided that (i) the
Price of the Transactions is based on the Financial Statements and (ii) the
Buyer does not have the intention to challenge the decisions taken by SENECA
prior to the Closing, which have been taken under reasonable commercial
criteria;       c)   No material adverse change shall have occurred in the
business, financial condition or the operations of SENECA; and       d)   The
Buyer shall have received the resignations of the Directors that have to resign
in accordance with the provided in the Clause 4.3.

     Clause 5.2 Conditions to the Obligation of the Seller.
     The obligation of the Seller to formalize and complete the Transactions is
subject to the warranties and representations of the Buyer contained in this
Agreement being true and correct in all the material aspects as of the date of
execution of this Agreement and as of the Closing Date, as if they were made on
that moment.
CLAUSE 6
INDEMNIFICATION
     Clause 6.1 Seller Indemnification.
     The Seller shall protect, defend, indemnify and hold the Buyer and its
affiliates (including to SENECA) and to the relevant representatives, successors
and assigns of each one of the above (jointly referred as, the “Indemnified
Parties”) harmless of liability for and against all the losses, damages,
liabilities and claims of any nature such Indemnified Party have

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incurred, endured, suffered, to the extent they arise or are related to any
inaccuracy of any representation made or warranty granted by the Seller in this
Agreement, or with the breach of the Seller to any obligation provided in this
Agreement, with the understanding that to enforce this indemnity, in relation to
the representations of the warranties provided for in the Clauses 2.4, 2.5, 2.6,
2.7, 2.8, 2.9, 2.11, 2.12, 2.13, 2.14 and 2.15, the Buyer shall have notified
Seller of the claim within one year from the date of the Closing.
     Clause 6.2 Buyer Indemnification.
     The Buyer shall protect, defend, indemnify and hold the Seller harmless of
liability from and against all the losses, damages, responsibilities and claims
of any nature such Indemnified Party have incurred, endured, suffered, to the
extent they arise or are related to any inaccuracy of any representation made or
warrant granted by the Buyer in this Agreement, or the breach by Buyer of any
obligation contained in this Agreement.
     Clause 6.3 Notice and Third Party Claims.
     If any third party notifies Seller or Buyer (as the case may be, an
“Indemnified Party”) of any matter which may give rise to a claim (each, a
“Third Party Claim”) for indemnification against Seller or Buyer (as the case
may be, the “Indemnifying Party”), then the Indemnified Party shall promptly
(and in any event within fifteen (15) business days after receiving service of
process in a claim, demand, lawsuit, administrative proceeding or arbitration
proceeding with respect to the Third Party Claim) notify in writing each
Indemnifying Party of such circumstance. The Parties shall cooperate between
them and solve any Third Party Claim.

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CLAUSE 7
GENERAL DISPOSITIONS
     Clause 7.1 Fees and Expenses.
     The Party that incurs in fees or expenses in connection with or related to
this Agreement or to the Transactions shall pay and absorb them, whether or not
such Transactions are completed, and SENECA shall not pay fees or expenses of
the Seller.
     Clause 7.2 Notices.
     All the notices and other communications that have to be delivered in
accordance with this Agreement shall be in writing and will have effect when
received by the addressee on the address or fax indicated below:

     
If it is to the Buyer:
  Petróleos de Venezuela
 
  Av. Libertador, Edif. Petróleos de Venezuela,
 
  Torre Este, La Campiña — Caracas, D.C.
 
  Venezuela.
 
  Attention: Legal Department
 
  Telephone: +58 (0) 212 708 47 90
 
  Fax: +58 (0) 212 708 46 66
 
   
If it is to:
  CMS Energy Corp.
 
  One Energy Plaza
 
  Jackson, Michigan
 
  Attention: General Counsel
 
  Telephone: (517) 788-0550
 
  Fax: (517) 788-1671

     Clause 7.3 Entire Agreement
     This Agreement embodies the entire agreement among the Parties relating to
the transactions contemplated herein. There are no agreements, representations,
or warranties among the parties other than those set forth or provided for
herein. This Agreement supersedes any prior agreements,

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understandings, or letters of intent between or among the Parties with respect
to the subject matter of it.
     Clause 7.4 Applicable Law, Special Domicile and Jurisdiction.
     The interpretation, enforceability and performance of this Agreement shall
be governed in accordance with the laws of the Bolivarian Republic of Venezuela
and to all legal effects the Parties select as special domicile the City of
Caracas. The Parties agree to resolve any controversy or dispute that arises
between them in connection with the interpretation and performance of this
Agreement in amicable manner and in good faith. In the event that any
controversy or dispute cannot be resolved amicably, the Parties submit to
exclusive jurisdiction of the Court sitting in the City of Caracas.
     IN WITHNESS WHEREOF, the Seller and the Buyer execute this Agreement
through their duly authorized officers on the date written in the heading.

            CMS ENERGY CORPORATION
      By:   /s/ Joseph P. Tomasik         Vice President               
PETRÓLEOS DE VENEZUELA, S.A.
      By:   /s/ Rafael Ramirez                      

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Annex A
Indebtedness
SENECA Accounts Payable (Positive Balance) and Accounts Receivable (Negative
Balance): CMS de Venezuela
Summary
In Venezuelan Bolivars
As of February 28, 2007

                                                                      2000  
2001   2002   2003   2004   2005   2006   Total
Fees -Services - Income
    2.346.630.597,34                                                      
2.346.630.597,34  
 
                                                               
Fees Expense
                    (8.031.568,93 )             (4.002.009,60 )    
(40.118,485,00 )     (61.344.825,50 )     (113.496.889,03 )
 
                                                               
Business Assets Tax
                    (57.034.228,94 )     (8.147.747 0 )                        
    (65.181.965,92 )
 
                                                               
Income Tax
            26.239.488,92       (246.112.355,89 )     (94.910.319,81 )          
          (1.157.375.613,00 )     (1.472.158.799,78 )
 
                                                               
Sale of Fiscal Credits
                                                    (1.283.129.991,00 )    
(1.283.129.991,00 )
 
                                                               
Travel Expenses
                                    (228.748,80 )                    
(228.748,80 )
 
                                                               
Equipment Leasing
    1.609.992.000,00       115.271.061,12                                      
        1.725.263.061,12  
 
                                                               
Debt Capitalization
            (382.076.335,42 )                                            
(382.076.335,42 )
 
                                                               
Amounts charged to Account
                    (346.838.516,85 )                                    
(346.838.516,85 )
 
                                                               

 

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                                                                      2000  
2001   2002   2003   2004   2005   2006   Total
Other debts
                                            56,68               56,68  
 
                                                               
Net Balance
    3.956.622.597,34       (240.565.785,38 )     (658.016.670,61 )    
(103.058.066,79 )     (4.230.758,40 )     (40.118.428,32 )     (2.501.850.429,50
)     408.782.458,34  

SENECA Accounts Receivable (Positive Balance) and Accounts Payable (Negative
Balance): Enelmar
Summary
In US Dollars

                                                                             
2000   2001   2002   2003   2004   2005   2006   2007 *   Total
Fees-Services
    12.982,11       7.092,00       1.200,00       725,00       3.376,56      
3.220,41       11.178.41               39.774,49  
 
                                                                       
Business Assets Tax
                    2.146,46       488,37       134,95                          
    2.769,78  
 
                                                                       
Income Tax
                                    12.310,99       138.302.48                  
    150.613.47  
 
                                                                       
Other expenses (mail - miscellaneous services - miscellaneous expenses
                            (18.492,86 )     16,16                              
(18.476,70 )
 
                                                                       
Enelmar 1% Capitalization Rate
                                    188.077,43                              
188.077,43  
 
                                                                       
Adjustments Commissions
                                    (13.842,18 )     (9.950,94 )            
3.954,86       (19.838,27 )
 
                                                                       
Payment on Account
                                            (102.378,30 )                    
(102.378,30 )
 
                                                                       
Travel Expenses
                                            56,82                       56,82  
 
                                                                       
Net Balance
    12.982,11       7.092,00       3.346,46       (17.279,49 )     190.003,91  
    29.250,47       11.178,41       3.954,86       240.528,73  

 

*   As of February 28, 2007

 

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SENECA Accounts Payable (Positive Balance) and Accounts Receivable (Negative
Balance): CMS Electric & Gas.
Summary
In US Dollars

                                                                             
2000   2001   2002   2003   2004   2005   2006   2007 *   Total
Fees-Services
    1.104.193,14       139.223,95       618,25       4.223,33       7.420,68    
  44.712;49       30.057,81       5.144,20       1.335.593,85  
 
                                                                       
Travel Expenses
    56.689,99       5.700,43       9.181,43               16.967,52      
6.704,66       6.751,81       (1,836.07 )     100.159,77  
 
                                                                       
Equipment — Materials for Luisa Caceres de Arismendi Plant (PLCA)
    934.301,40       134.089,95       9.742,82                                  
            1.078.134,17  
 
                                                                       
Caterpillar (CAT) Units
    2.382.967,72                                                              
2.382.967,72  
 
                                                                       
EDEERSA Open SGC Start-up Assistance
    246.676,24       63.550,91                                                  
    310.227,15  
 
                                                                       
Equipments IT &T, Software and Communications
    128.822,33       72.495,21       13.788,25               2900,8      
16.677,45       16243,88       4.157,59       252.075,51  
 
                                                                       
Furniture and Equipment, Head Office
    162.820,83       53.843,45                                                  
    216.664,28  
 
                                                                       
Insurance expenses
            692.931,52       653.442,67               19.364,18       14.416,15
      15.575,30       2.474,39       1.398.204,21  
 
                                                                       

 

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2000   2001   2002   2003   2004   2005   2006   2007 *   Total
Other expenses (mail - miscellaneous services- miscellaneous expenses
    138.327,29       20.898,11       3.461,47               833,44       487,30
                      164.007,61  
 
                                                                       
Debt Negotiation
                    (3.333.245,68 )     (501.139,16 )             (796.742,00 )
                    (4.631.126,84 )
 
                                                                       
Adjustments
                    (18.483,41 )                                            
(18.483,41 )
 
                                                                       
Net Balance
    5.151.798,94       1.182.733,53       (2.661.504,20 )     (496.915,83 )    
47.486,62       (713.743,95 )     68.628,80       9.940,11       2.588.424,02  

 

*   As of February 28 2007

 

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Annex “B”
EQUIPMENT DESCRIPTION
Two (2) General Electric Alstrom Frame 6561B gas generating turbines installed
at the plant named Luisa Caseres de Arismendi located in Sector Macho Muerto,
Margarita Island Bolivarian Republic of Venezuela and having the following
serial numbers: Unit 1-832 and Unit 2-837, with their respective step-up
transformers.
Generating Units:
Brand: 2 General Electric Alstrom Frame 6561B gas generating turbines. 38,300
kilowatts each:
Model Number: PG6561B
Serial Numbers: 832 and 837
Turbine Type: Gas generating turbines (diesel)
Use: Generate electrical power
Valor estimado: US$11.507.500,00 each
Quality: GE Standard
Condition: Used
Identification: Known in plant as TG-10 and TG-11
Manufacturing Characteristics: Metal Finishing
Present State/Condition: Unit TG-10 has accumulated 54,000 operating hours and
Unit TG-11 has accumulated 50,000 operating hours.
Step-up Transformers:
Brand: Koncar Power
Serial numbers: 307040 y 307041
Power: 30 / 50 MVA
Transformer Ratio: 13.8 / 115 kV
Cooling: OA / FA
Identification: known in Plant as TR-10 and TR-11

 

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SENECA — Sistema Electrico del Estado Nueva Esparta, C.A.
Independent Auditors’ Report
Financial Statements
For the years ended December 31, 2006 and 2005
SENECA — SISTEMA ELECTRICO DEL ESTADO NUEVA ESPARTA, C.A.

TABLE OF CONTENTS

          Pages
 
   
INDEPENDENT AUDITORS’ REPORT
  1-2
FINANCIAL STATEMENTS STATED IN CONSTANT BOLIVARS FOR THE YEARS ENDED DECEMBER
31, 2006 AND 2005:
   
 
   
Balance sheets
  3
 
   
Statements of operations
  4
 
   
Statements of changes in stockholders’equity
  5
 
   
Statements of cash flows
  6
 
   
Notes to the financial statements
  7-26

Deloitte Lara Marambio & Asociados
Torre Corp Banca, Piso 21, Av. Blandfn, La Castellana Caracas 1060 — Venezuela 2
Tel: (58-212)206 85 03 Fax: (58-212) 206 88 70 www.deloitte.com/ve

INDEPENDENT AUDITORS’ REPORT
To the Stockholders and Board of Directors of
SENECA — Sistema Electrico del Estado Nueva Esparta, C.A.
We have audited the accompanying balance sheets of SENECA — Sistema EI6ctrico
del Estado Nueva Esparta, C.A. as of December 31, 2006 and 2005, and the related
statements of operations, changes in stockholders’ equity, and cash flows for
the years then ended, stated in constant bolivars. These financial statements
have been prepared by and are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Venezuela. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes . assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 23 to the financial statements, on February 13,2007 the
Company’s main stockholder signed a memorandum of understanding with Petr61eos
de Venezuela, S.A. (PDVSA), which establishes the bases of negotiation for the
sale of its equity participation in the Company.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of SENECA — Sistema Eltctrico del Estado Nueva
Esparta, C.A. as of December 31,2006 and 2005, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in Venezuela.

 

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As indicated in Note 20 to the financial statements, from January 21, 2003, the
Venezuelan Government and die Central Bank of Venezuela agreed to temporarily
suspend the trading of foreign currencies in the country. In connection
therewith, they have entered into some Exchange Agreements and issued certain
related standards that rule the Foreign Currency Management Regime and establish
the exchange rate applicable to transactions set forth in such agreements. The
Company has taken proceeds with die corresponding institutions to obtain the
foreign currencies required for the payment of its foreign currency liabilities,
and presents a foreign currency asset and liability position as of December 31,
2006 and 2005 as indicated in Note 20 to the financial statements. To the date
of this report, the acquisition of foreign currencies necessary for foreign
transactions carried out by the Company in the normal course of operations, will
be dependent upon: (1) the approval of all the registrations requested by the
related institutions; (2) the availability of foreign currencies to be
established in the application of the standards referred to above; and (3) the
actions to be performed by the Company to obtain either the required foreign
currencies not requested with the related institutions, of those requests that
could be rejected by such institutions; therefore, we do not have sufficient
facts in order to determine the effects, if any, on the financial statements as
of December 31,2006.
The translation of the financial statements into English has been made solely
for the convenience of English-speaking readers.
LARA MARAMBIO & ASOCIADOS
Adriana Blanco E.
Public Accountant CPCN° 5416
Caracas — Venezuela, January 20,2007, except for the matter mentioned in Note 23
to the Financial Statements, as to which the date is February 13, 2007

2

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SENECA — SISTEMA ELECTRICO DEL ESTADO NUEVA ESPARTA, C.A.

BALANCE SHEETS AS OF DECEMBER 31, 2006 AND 2005
IN CONSTANT BOLIVARS AS OF DECEMBER 31, 2006
(In thousands of bolivars)

                              NOTES   2006   2005      
ASSET
                       
 
                       
CURRENT ASSETS:
                       
Cash and equivalents
  1, 2 and 20     37,554,635       28,155,419  
Accounts receivable, net
  3 and 20     34,971,793       34,683,575  
Inventories, net
  1 and 4     4,469,046       3,409,775  
Prepaid expenses and other current assets
  5 and 20     5,124,620       6,869,076                
Total current assets
            82,120,094       73,117345  
 
                       
LONG-TERM ACCOUNTS RECEIVABLE
    13       508,633       566,818  
PROPERTY, PLANT AND EQUIPMENT, NET
  1 and 6     330,181,660       337,451,773  
DEFERRED CHARGES AND OTHER ASSETS, NET
  1 and 7     1,015,728       194,720                
TOTAL
            413,826,115       411,331,156                
 
                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                       
 
                       
CURRENT LIABILITIES:
                       
Trade accounts payable
  17,18,19 and 21     31,056,958       7,838,821  
Accounts payable to related companies
  13 and 20     1,967,804       4,612,960  
Accrued liabilities
    9       11,348,238       12,154,695  
Other accounts payable
            851,717       490,189                
 
                       
Total current liabilities
            45,224,717       25,096,665  
LONG-TERM LIABILITIES:
                       
Accounts payable to stockholder and related companies
  13 and 20     5,952,523       9,716,176  
Accrual for severance benefits
    1       4,444,822       4,294,715  
Accrual for pension plan
  1 and 8     5,745,867       477,725  
Accrual for contingencies
  1 and 22     858,252       824,676  
 
                       
Total long-term liabilities
            17,001,464       19,213,292  
 
                       
Total liabilities
            62,226,181       44,309,957                
STOCKHOLDERS’ EQUITY:
                 
Restated capital stock (equivalent to nominal capital stock of Bs. 127,457,58)
    14       361,894,743       361,894,743  
Stockholders’ contribution to be capitalized
            2,989,215       264,693  
Legal reserve
            264,693     4,861,763  
Accumulated surplus
            (13,548,717 )      
Total stockholders’ equity
            351,599,934       367,021,199                
 
                       
TOTAL
            413,826,115       411,331,156                

See notes to the financial statements

3

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SENECA — SISTEMA ELECTRICO DEL ESTADO NUEVA ESPARTA, C.A.

STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
IN CONSTANT BOLIVARS AS OF DECEMBER 31, 2006

                              NOTES   2006   2005      
OPERATING REVENUES
    1       104,288,054       129,689,673  
 
                       
PURCHASES OF ENERGY AND DIESEL
  18 and 19     40,063,101       39,692,258                
GROSS MARGIN
            64,224,953       89,997,415  
 
                       
OPERATING COSTS:
                       
Operating and maintenance expenses
            50,201,015       56344,865  
Administrative expenses
            13,757,092       14,564,153  
Commercialization expenses
            14,101,231       17,285,050                
 
            78,059,38       88,194,068                
OPERATING (LOSS) INCOME
    16       (13,834,385 )     1,803347    
OTHER INCOME AND EXPENSES:
                       
Loss from disposal of property, plant and equipment
    13       (561,135 )     (666,033 )
Gam on debt Structuring
    7       924,136       1,930,871                
Reversal of provisions for net realizable value of other assets
            363,001       1,264,838  
COMPREHENSIVE FINANCING COST:
           
Monetary result for the period
  1 and 15     (4,016,881 )     (2,942,910 )
Loss from sale of investment securities
    2       (5,430 )     (160,671 )
Exchange loss, net
    1       2,658,507       (765,610 )
Financial income, net
            (1,363,804 )     1,425,126  
 
                    (2,444,065 )
 
                       
(LOSS) INCOME BEFORE INCOME TAXES
            (14,835,188 )     624,120  
 
                       
INCOME TAXES
  1 and 12                              
NET (LOSS) INCOME
            (14,835,188 )     624,120                

See notes to the financial statements

4

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SENECA — SISTEMA ELECTRICO DEL ESTADO NUEVA ESPARTA, C.A.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31,
2006 AND 2005
IN CONSTANT BOLIVARS AS OF DECEMBER 31, 2006
(In thousands of bolivars)

                                                                      Restated  
Stockholder’s                   Accumulated   Total             Capital  
contribution to   Legal   Special   surplus   stockholders’     NOTES   stock  
be capitalized   reserve   reserve   (deficit)   equity
 
                                                       
BALANCES AS OF DECEMBER 31, 2004
            361,894,743       —       233,487       —       4,268,849      
366,397,079  
Net income
            —       —       —       —       624,120       624,120  
Provision for legal reserve
            —       —       31,206       —        (31,206 )     —  
 
                                                       
 
                                                       
BALANCES AS OF DECEMBER 31, 2005
            361,894,743       —       264,693       —       4,861,763      
367,021,199  
Dividends declared
    14       —       —       —       —       (3,575,292 )     (3,575,292 )
Stockholder’s contribution to be capitalized
    14       —       2,989,215       —       —       —       2,929,215  
Net loss
            —       —       —       —       (14,835,188 )     (14,835,188 )
 
                                                       
 
                                                       
BALANCES AS OF DECEMBER 31, 2006
            361,894,743       2,989,215       264,693       —       (13,548,717
)     351,599,934  

See notes to the financial statements

5

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SENECA — SISTEMA ELECTRICO DEL ESTADO NUEVA ESPARTA, C.A.

STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2006 AND 2005
IN CONSTANT BOLIVARS AS OF DECEMBER 31, 2006
(In thousadsof bolivars)

                              NOTES   2006   2005      
OPERATING ACTIVITIES:
                       
Net (loss) income
  1 and 15     (14,835,188 )     624,120  
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
                       
Comprehensive financing cost-Exchange loss, net
            5,430       765,610  
Monetary result for the period
            4,016,881       2,942,910  
Depreciation
            20,771,105       20322,112  
Accrual for severance benefits
            1,774,630       1*492,957  
Allowance for doubtful accounts
            683,779       2316,674  
Reversal of provision for realizable value of other asset:
            (924,136 )     116,820  
Allowance for obsolescence
            10091       (4320,178 )
Changes in operating assets and liabilities:
                       
Decrease (increase) in:
                       
Accounts receivable
            (6,498,097 )     (8,090382 )
Inventories
            (1,791,155 )     (1342,154 )
Prepaid expenses
            814,043       (3,948,140 )
Increase (decrease) in:
                       
Accounts payable
            22355,859       (265378 )
Accrued liabilities
            1,040.959       2,001338  
Accrual for pension plan
            2,179,767       (297,952 )
Accrual for contingencies
            166,706       (176,639 )
Severance benefits paid
            (933,396 )              
Net cash provided by operating activities
            28,836,178       11,941,718        
INVESTING ACTIVITIES:
                       
Purchases of property, plant and equipment
            (12,878,102 )     (11,120,198 )      
Net cash used in investing activities
            (12,878,102 )     (11,120,198 )      
FINANCING ACTIVITIES:
                       
Cash dividends
    14       (586,077 )              
Net cash used in financing activities
            (586,077 )              
NET INCREASE IN CASH AND CASH EQUIVALENTS
            15,371,999       821320  
CASH PURCHASING POWER LOSS
            (5,972,783 )     (3,545,368 )
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR
            28,155,419       30,879367        
CASH AND CASH EQUIVALENTS AT THE END OF YEAR
            37,554,635       28,155,419        
MONETARY RESULT FOR THE PERIOD
    14       1,955,900       602,458  
CORRESPONDING TO:
                       
Operations
            (5,972,781 )     (3,545368 )
Cash
            (4,016,881 )     (2,942,910 )
INFORMATION ON TRANSACTIONS NOT GENERATING CASH FLOWS:
                       
Stockholder’s contribution to be capitalized
            2,989^15          

See notes to the financial statements

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SENECA — SISTEMA ELECTRICO DEL ESTADO NUEVA ESPARTA, CA.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
(In thousands of constant bolivars)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated on February 26, 1998 and is mainly engaged in the
generation, non-trunk transmission, distribution and commercialization of
electric energy in Nueva Esparta state and its interconnection with the National
Electric System
On June 3,1998, the National Government issued Decree N° 2552 granting SENECA
Sistema Eletrico del Estado Nueva Esparta, C.A., a concession for the exclusive
rights to render public electric services in Nueva Esparta State (See Notes 10
and 17).
Significant accounting policies —The main accounting policies used by the
Company for the preparation of its financial statements are summarized as
follows:

  a.   Financial statements in constant bolivars — The financial statements are
presented in constant bolivars, for the purpose of eliminating the distortion
generated by changes in the price levels in the Venezuelan economy. The General
Price Level Method (G.P.L.) was used to prepare the financial statements in
constant bolivars. This method consists in substituting the measurement unit
used in traditional accounting for a constant currency, restated at the date of
the financial statements. For restating purposes, the “Consumer Price Index”
(C.P.I.) for the metropolitan area of Caracas was used, which is issued by the
Central Bank of Venezuela.

Monetary items included in the balance sheet are presented at nominal value,
since they reflect the purchasing power of the monetary unit to the date of the
last balance sheet. Nonmonetary items such as inventories, deferred charges, and
other assets, property, plant and equipment, capital stock and other income
accounts related to nonmonetary items such as depreciations and amortizations
are stated in constant bolivars using the ^ factor from the date of acquisition
or origin. Operating revenues, costs and expenses and other monetary items are
stated in constant bolivars, based on the average inflation factor for the year.
The monetary result for the year is calculated applying during the period die
inflation rates to net monetaiy assets and liabilities. This represents the
result from exposure to inflation for holding net monetary assets or liabilities
during inflationary periods (See Note 15).
The 2005 financial statements, previously presented in constant bolivars at that
date, are presented for comparison purposes in constant bolivars as of
December 31,2006 through the application of the annual variation in the Consumer
Price Index (C.P.I.).

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The Consumer Price Indexes at the beginning, end and average for the years ended
December 31 are as follows:

                      2006   2005
 
               
At the beginning of year
    525.65       459.65  
At the end of year
    614.83       525.65  
Average for the year
    565.01       497.13  
Inflation for the year
    16.97 %     14.36 %

b. Cash equivalents — Cash equivalents include investments in time deposits,
maturing in three months or less and National Public Debt Bonds with agreed-upon
terms generally under 30 days (See Note 2).
c. Allowance far doubtful accounts — Allowance for doubtful accounts is
determined by management based on the estimated amount of doubtful accounts over
the basis of specific balances and prior year experience, considering both
official and private entities (See Note 3).
d. Inventories — Inventories are accounted for at cost adjusted for inflation,
determined under the average cost method, which does not exceed their recovery
value (See Note 4).
e. Property, plant and equipment — Property, plant and equipment included as
assets during the shares transfer process, are presented at acquisition cost
determined by appraisals made by independent appraisers at acquisition date and
restated through the application of the corresponding CPI. Property, plant and
equipment subsequently acquired are presented at acquisition cost adjusted for
inflation. Disbursements for maintenance and repairs are charged to income for
the year as incurred, while disbursements for renewals or improvements are
capitalized. Depreciation is calculated using the straight-line method based on
the original estimated useful lives of the assets, as follows (See Note 6):

              Years
Transmission system
    7-36  
Diesel plant
    15-30  
Distribution system
    10-25  
Metering equipment
    15-25  
Computers and software
    2-10  
Coche plants
    15-30  
Vehicles and trucks
    5-15  
Buildings
    5-20  
Flow Meter
    5-25  
Communication equipment
    5-15  
Office furniture and equipment
    12  

The Company includes within property, plant and equipment* inventories of spare
parts that will be used for maintenance or improvement of property, plant and
equipment, based on International Accounting Standard (IAS) 16 Property, plant
and equipment.
Constructions in progress include the costs of on-going projects and are
depreciated upon beginning of operations

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f. Deferred charges — Deferred charges mainly correspond to organization and
restructuring expenses, which are amortized over five (5) years or less using
the straight-line method and are restated for inflation considering its original
acquisition date (See Note 7).
g. Accrual for severance benefits — Accrual for severance benefits comprises all
the liabilities related to the workers’ vested rights in accordance with the
Labor Law and the collective bargaining agreement.
Additionally, the Company maintains an accrual based on experience to cover this
liability set forth in the current legislation with respect to the employees*
stability.
h. Income taxes—The provision for income taxes represents the sum of the
estimated current income tax payable and deferred income taxes, if significant.
Current income taxes are determined by applying the tax rates as established by
the current tax legislation to net taxable income for the period. Deferred
income taxes have been determined in accordance with Statement of Accounting
Principles N° 3 (DPC-3 Accounting for income taxes — Revised August 2003). In
accordance with said statement, deferred tax assets and liabilities should be
recognized, corresponding to the amount of income taxes expected to be recovered
or payable on temporary differences between reported book values of assets and
liabilities and their corresponding tax bases.
Deferred tax assets and liabilities are determined by applying the tax rates
established or decreed under current tax law at the balance sheet date.
The recording of the deferred income tax is subjected to the assurance, beyond a
reasonable doubt, of its realization. Considering current conditions, the
Company has not recorded the asset resulting from deferring the tax effect on
the aforementioned temporary differences.
The investment tax credit resulting from investments in property, plant and
equipment is treated as a reduction of the provision for current income taxes
(See Note 12).
i. Accrualfor pension plan and other post-retirement benefits — The
non-contributory pension plan and other post-retirement benefits (medical
benefit insurance and electric subsidy) are accumulated in accordance with
estimates made by independent actuaries and based on the technical discount rate
used to calculate the obligation for the projected benefit (See Note 8).
j. Accrual for contingencies — Contingencies are situations at each period
closing that might result in a loss for the Company, and the realization of
which depends oh the potential occurrence or non-occurrence of one or more
future events. Review of contingent liabilities and creation of corresponding
accruals is the responsibility of the Company’s management, based on the opinion
of its legal counsel and available judgment elements (See Note 22).
k. Fair value of financial instruments — The carrying amount reported on the
balance sheets for cash and cash equivalents, accounts receivable and payable,
accruals and other short-term liabilities approximate their fair values due to
the short-term maturity of these financial instruments. Consequently, these
items have been excluded from the disclosure of fair value in the notes to these
financial statements.

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l. Transactions in foreign currency — Transactions in foreign currency are
recorded in bolivars using the exchange rates applicable on the transaction
date/Balances in foreign currency are presented in bolivars and adjusted at the
year-end exchange rate. The resulting exchange differences are recorded in die
statement of operations (See Note 20).
m. Revenue recognition — Revenues from energy services are recognized on a
cumulative basis in the period earned. At each month-end, Company’s management
estimates and records the unbilled energy effectively distributed to its
subscribers. As of December 31,2006 and 2005, accounts receivable include Bs.
5,960,304 thousand and Bs. 5,990,906 thousand, respectively, from earned but
unbilled revenues. Once approved, decreases in the price of diesel foel granted
by the Ministry of Energy and Petroleum (MENPET) are recorded as income in their
corresponding period and presented as operating income in the statement of
operations (See Note 16).
n. Use ofestimates in the preparation ofthefinancial statements — The
preparation of financial statements in conformity with accounting principles
generally accepted in Venezuela requires management to make estimates and
assumptions that affect die reported amounts of assets and liabilities, their
disclosure and the reported amounts of revenues and expenses. Final results
could differ from those estimates.
o. Reclassifications — Certain items of the financial statements as of
December 31,2005 have been reclassified to conform to the 2006 presentation.
Previously reported Reclassification Restructured

                         
Property, plant and equipment, net
    315,696,835       21,754,938       337,451,773  
Inventories, net
    25,164,713       (21,754,938 )     3,409,775  

For the purpose of complying with International Accounting Standard N° 16,
Company’s management has decided to include inventories of spare parts in
Property, plant and equipment, by considering these are fixed asset components
which will only be used for maintenance or improvement of Property, plant and
equipment.
2. CASH AND EQUIVALENTS
As of December 31, cash and equivalents are as follows:

                      2006   2005      
Cash and banks
    1,650,750       3,702,455  
 
               
Placements:
               
Time deposits
    15,016,000       13,690,898  
National Public Debt Bonds (DPN)
    20,887,885       10,762,066        
 
    37,554,635       28,155,419        

Placements in time deposits are due in 90 days or less with annual interests at
current market rates ranging between 5.50% and 10%, and 6.5 and 12% for the
years 2006 and 2005, respectively. National Public Debt Bonds placements are due
in 90 days or less, with annual interests ranging between 3.30% and 7.25%, and
3.5% and 10.5% for 2006 and 2005, respectively

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During 2005, the Company purchased National Public Debt Bonds (PDB), which were
exchanged by securities denominated in foreign currency and later traded on the
secondary market. As a result of these transactions, losses were generated,
which amounted to Bs. 160,671 thousand in 2005, included in the statements of
operations as comprehensive financing cost.
3. ACCOUNTS RECEIVABLE, NET
As of December 31, accounts receivable, net are as follows:

                      2006   2005      
Accounts receivable from customers, net
    34,838,892       34,560,287  
 
               
Other
    132,901       123,288        
 
    34,971,793       34,683,575        

As of December 31,2006 and 2005, accounts receivable from customers include Bs.
22,469,081 thousand and Bs. 23,106,256 thousand, respectively, corresponding to
accounts receivable from government entities, which are mostly over 360 days
(Note 21). The Company reviews pending balances on a regular basis in order to
update debts with these entities and take proceeds for their collection.
Management considers that all receivable balances from official entities will be
fully recovered since they are guaranteed by the Venezuelan Government.
During 2006, the Company collected for street lighting and electric power supply
Bs. 1,089,319 thousand and Bs. 974,933 thousand from Macanao and Tubores
Municipalities, respectively.
During 2005, the Company collected Bs. 1,225,515 thousand for street lighting
and electric power supply from Antolfn del Campo Municipality and Bs 1,848,127
thousand from Antonio Diaz Municipality.
As of December 31, 2006 and 2005, allowance for doubtful accounts amounts to Bs.
8,707,081 thousand and Bs. 9,907,542 thousand, respectively. Likewise,
write-offs to accounts receivable amounted to Bs. 395,764 thousand and Bs.
1,006,363 thousand for 2005.
INVENTORIES, NET
As of December 31, inventories, net are as follows:

                      2006   2005      
Materials and spare parts for distribution
    3,556,113       2,233,619  
 
               
Fuels
    447,959       670,612  
Other
    543,390       544,560  
Materials and spare parts for transmission
    578,398       508,806        
 
    5,125,860       3,957,597  
Less — allowance for obsolescence
    (656,814 )     (547,822 )      
 
    4,469,046       3,409,775        

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5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of December 31, prepaid expenses and other current assets are as follows:

          2006   2005  
1,982,960
    4,988,076  
1,940,925
    32,020  
451,840
    135,094  
543,765
    1,506,030  
205,130
    207,856    
5,124,620
    6,869,076    

Guarantee deposits (Note 13)
Prepaid insurance
Advances to suppliers
Prepaid taxes
Other
6. PROPERTY, PLANT AND EQUIPMENT, NET
As of December 31, property, plant and equipment, net are as follows:

                      2006   2005
 
               
Transmission system
    121,664,667       121,248,597  
Diesel plants
    122,168,291       121,930,731  
Distribution system
    96,593,015       93,169,888  
Metering equipment
    51,577,367       47,526,098  
Computers and software
    20,785,462       20,456,639  
Coche plants
    5,726,736       5,681,761  
Vehicles and trucks
    5,145,670       4,935,336  
Buildings
    8,997,324       8,737,055  
Flow meters
    1,655,010       1,655,010  
Communication equipment
    2,586,234       2,582,129  
Furniture and office equipment
    2,155,184       1,998,524  
 
               
 
    439,054,960       429,921,768  
Less- accumulated depreciation
    (142,790,345 )     (122,423,560 )
 
               
 
    296,264,615       307,498,208  
Land
    2,903,232       2,928,995  
Materials and spare parts for generation
    18,313,123       17,078,284  
Materials and spare parts for investment projects
    4,064,705       4,676,654  
Constructions in progress
    8,635,985       5,269,632  
 
               
 
    330,181,660       337,451,773  
 
               

Depreciation expense for the years ended December 31,2006 and 2005 amounts to
Bs. 20,771,105 thousand and Bs. 20,222,111 thousand, respectively.
As of December 31,2006 and 2005, fully depreciated assets incorporated to the
production process amount to Bs. 6,719,249 thousand and Bs. 6,268,155 thousand,
respectively.
Durante 2006, the Company capitalized Bs. 4,051,268 thousand corresponding to
the Metering Normalization Project, and Bs. 408,945 thousand for Chacopata
Electrical Improvement Project

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During 2005, the Company capitalized Bs. 7,445,363 thousand corresponding to the
Metering Normalization Project, Bs. 2,784,187 thousand for the Data
Geoprocessing System, Bs. 1,490,087 thousand for 13.8 KV Cells Project and Bs.
4,526,827 thousand corresponding to other projects.
As of December 31, 2006, constructions in process mainly include the Unit N° 5
Generation Turbine Repair Project for Bs. 2,908,377 thousand, and the
Preassembled Cable Project for Bs. 2,094,755 thousand, and Metering
Normalization Project for Bs. 1,584,396 thousand.
As of December 31, 2005, construction in progress mainly includes the
Normalization and Metering Projects for Bs. 854,751 thousand and Preassembled
Cable Project for Bs. 914,345 thousand.
In December 1999, the Company completed its analysis on the historical value of
property, plant and equipment as of December 31, 1998, resulting from the
transfer made during die privatization process (See Note 10), taking as basis an
appraisal made by an Independent Appraisers Firm. This appraisal allowed for the
segregation of property, plant and equipment by business units and define the
basis to adapt to the requirements of the Organic Electric Service Law.
Certain assets amounting to approximately Bs. 5,398,084 thousand have been given
as guarantee in order to comply with the surety bond filed before the Ministry
of Energy and Petroleum (See Note 11).
7 DEFERRED CHARGES AND OTHER ASSETS, NET
As of December 31, deferred charges and Other assets, net are as follows:

                      2006   2005
 
               
Restructuring expenses
    8,870,434       8,870,434  
Reorganization expenses
    4,575,819       4,575,819  
Investments in real estate and other assets
    1,015,728       194,720  
 
               
Less — accumulated amortization
    14,461,981       13,640,973  
 
    (13,446,253 )     (13,446,253 )
 
               
 
    1,015,728       194,720  
 
               

Restructuring expenses correspond to disbursements made by the Company to carry
out projects during start-up for the extension, update and improvement of the
company’s administrative and operating functions, as well as professional fees
and start-up expenses. Reorganization expenses correspond to payments made by
virtue of the Company’s privatization process, such as extraordinary labor
indemnities, payroll and other labor benefits for personnel released as part of
the reorganization process implemented by the Company. These expenses have been
amortized since January 1,2000 over a five-year period. As of December 31,2004,
deferred charges were folly amortized.

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Investments in real estate correspond to property received during 2003 as part
of accounts receivable recovery and restructuring plan carried out during such
year, and are as follows:

                      2006   2005
 
               
Three (3) premises at C.C. Jumbo, in Porlamar, Nueva Esparta State
    397,735       465,216  
 
               
Twenty-nine (29) apartments at Complejo Turistico Vacacional Condominio
Margarita Caribe Hotel- Resort, in Porlamar, Nueva Esparta State
    849,254       993,340  
 
               
Less- provision for decrease in realizable value of other Assets
    (231,259 )     (1,263,836 )
Total
    1,015,728       194,720  

During the year ended December 31, 2004, the Company recorded a provision of Bs.
1,263,836 thousand to recognize the realizable value of certain assets
represented by the premises at C.C. El Jumbo and the total value of the
apartments at Complejo Turistico Vacacional Condominio Margarita Caribe
Hotel-Resort.
During the year ended December 31, 2006, the Company reversed the provision for
realizable value of the apartments located at Complejo Turistico Vacacional
Condominio Margarita Caribe Hotel-Resort for Bs. 924,136 thousand, which is
presented in Other income in the statement of operations. The Company reversed
the provisions for die realizable value of the assets aforementioned, based on
the evidence of the fair value of the apartments through the purchase-sale
agreement entered into during December 2006, whereby the Company received an
advance of Bs. 300,000 thousand presented in Other accounts payable.
8 ACCRUAL FOR PENSION PLAN
The Company has a non-contributory pension plan for employees as provided in the
collective bargaining agreement. Benefits under this plan are based on years of
service and employees’ 30-salary average.
The Company annually contracts an actuarial study prepared by an independent
actuarial management consulting company that includes the benefits corresponding
to the collective bargaining agreement and those established in the Decree-Law
for the Partial Amendment to Retirement Regime regulations in order to determine
its obligations for this concept.
As of December 31, the balance of pension plan liabilities, net is as follows:

                      2006   2005      
Obligation from projected benefit
    7,993,953       7,896,972  
 
               
Unrecognized net transitory obligation (UNTO)
    (261,875 )     (481,342 )
Unrecognized gain (loss)
    (1,986,211 )     (3,037,905 )      
Values recorded in books to support the plan
    5,745,867       4,377,725        

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The estimated cost for the years ended September 30,2006 and 2005 (actuarial
study period) is as follows:

                      2006   2005  
Service cost at year-end
    449,451       478,608  
 
               
Interest cost
    1,131,233       1,112,810  
Amortization of unrecognized net transitory obligation (UNTO)
    149,644       175,034  
Amortization of unrecognized loss
    697339       829,048    
 
    2,427,667       2,595,500  
Expected payment of benefits
    216,230       298,174  

For the years ended December 31,2006 and 2005, the Company recorded pension plan
expenses for Bs. 2,204,552 thousand and Bs. 2,049,072 thousand, respectively.
9. ACCRUED LIABILITIES
As of December 31, accrued liabilities are as follows:

                      2006   2005      
Municipal taxes payable
    6,683,631       8,359,280  
 
               
Allowance for production and service quality
    1,646,867       1,540,119  
Accounts payable for tax inspection rate
    957,604       1,226,517  
Contribution to the Organic Law of Science,
               
Technology and Innovation
    1,078,715          
Other provisions
    810,643       924,484  
Payroll and contributions payable
    170,778       104,295        
 
    11,348,238       12,154,695        

PRIVATIZATION AND CONCESSION AGREEMENT
On September I5, 1998, the Company’s privatization process was carried out
through a public offering of Class A shares of SENECA — Sistema Eldctrico del
Estado Nueva Esparta, C-A as a result of this process Energfa Etectrica de
Margarita, S.A. (ENELMAR) was granted the share. On October 19, 1998, Enelmar
initiated management of Seneca.
The concession contract mainly provides, among others, for the following terms:
a. The concession for the rendering of electric public utility in Nueva Esparta
state will be ruled by the terms of such contract and Decrees N° 138 of the
Concession Law on Public Works and National Public Services; Decree N° 368 on
Standards for Determining Electric Sector tariffs; and Decree No. 1558 on
Standards for the Electric Sector Regulation, of which only Articles 69 and 71
are in effect, since this decree was substituted by the Electric Service Law
(See Note 17).

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b. The concession for the rendering of electric public utility in Nueva Esparta
state will be in effect for 50 years. Exclusive rights of the concession to cany
out generation and commercialization activities by SENECA — Sistema Etectrico
del Estado Nueva Esparta, C.A. will be for a minimum period of 10 years from the
granting date.
c. The Company will not be able to transfer, convey or alienate the rights
granted by the concession contract, without the prior authorization of the
Venezuelan Government.
d. The concession establishes that the Company must render continuous, reliable
and uninterrupted services at agreed-upon quality levels. Also, it shall make
investments and adopt the necessary measures to guarantee the supply of
electricity services, arid compliance with environmental laws.
e. The Company will apply the tariffs approved by the Venezuela Ministry of
Energy and Petroleum, in accordance with the Tariff Regime included in the
concession contract from January 1,1999 through 2002. The application of the
tariff conditions for the 2003-2006 period, contemplated in this contract, has
not been approved yet (See Note 17).
11 SURETY BOND
In order to guarantee the performance of the obligations assumed by SENECA by
virtue of the concession contract (see Note 10), the Company must file a surety
bond before the Venezuelan Ministry of Energy and Petroleum. The bond shall be
granted by a financial institution or an insurance company. Its value is
equivalent to 1% of the value of net revalued fixed assets of the Company. The
bond shall be renewed on an annual basis and filed with the Ministry of Energy
and Petroleum within the first ninety (90) days following the beginning of each
economic period.
As of December 31, 2006, the Company maintains a surety bond for a Bs. 2,699,042
thousand to guarantee the Ministry of Energy and Petroleum its compliance with
the obligations assumed by the Company under the concession contract (See Note
22).
12. TAX REGIME
Income Taxes
Venezuelan tax legislation considers an annual calculation of a regular
adjustment for inflation of its nonmonetary items, which is included in the
reconciliation of the net taxable income as taxable or deductible, as
appropriate. With respect to property, plant and equipment and other similar
assets, this regular adjustment for inflation is either depreciated or amortized
over the remaining useful tax life of the respective assets. For inventories,
this adjustment is considered in the cost of sale of products upon consumption
or sale. The total regular adjustment for the year is determined through the
algebraic sum of the various adjustments for inflation of each nonmonetary item.
This total reconciling item is considered to be a permanent difference for the
effects of the deferred income tax for the year.
In conformity with such legislation, taxpayers subject to income taxes that cany
out transactions with foreign related parties must determine their income from
exports, and costs for goods and services from foreign related parties, in
accordance with certain methods set forth in such legislation. Management
conducted the transfer pricing study required to document such foreign
transactions, and it did not result in important differences with regard to the
amounts included for determining the net taxable income for the years ended
December 31, 2006 and 2005.

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Likewise, in conformity with such legislation, die Company can cany forward
operating tax losses, other than losses from the tax adjustment for inflation
for up to three (3) years subsequent to the period in which they were
incurred/The deductible tax effect that is not offset with the adjustment for
inflation can be carried forward up to the following year after itisincurred. As
of December 31, 2006, the Company does not maintain tax loss carryforwards
applicable to future taxable income.
In accordance with the Income Tax Law published in Extraordinary Official
Gazette N° 5390 dated October 22,1999, the Company can credit ten percent (10%)
of new investments carried out during five (5) years after its issuance, and
these can be carried forward up to three (3) years following the period in which
they were incurred. Such Law was subsequently amended and published on
Extraordinary Official Gazette N° 5566 dated December 28, 2001. Management
considers that this last amendment sets forth a five (5) year term, from the
date it became effective, for the application of investment tax credits — i.e.
all investments carried out by the Company until December 28, 2006, may be
considered for the effects of credit calculation for the fiscal years ended
December 31, 2005 and 2006, Based on the matters aforementioned, as of
December 31,2006, the Company maintained unutilized investment tax credits
applicable to future income taxes for Bs. 2,158,745 thousand, expiring in 2007.
Decree-Law N° 3266, whereby the Business Assets Tax Law was issued, published in
the Extraordinary Official Gazette of the Bolivarian Republic of Venezuela N°
4654, dated December 1, 1993, was derogated in Official Gazette N° 38002, dated
August 17, 2004, as well as the other standards issued during the development of
this Law, effective since September 1, 2004.
13. TRANSACTIONS WITH STOCKHOLDERS AND RELATED COMPANIES
During years 2006 and 2005, the Company carried out the following significant
transactions with its stockholders and related companies, during the normal
course of operations:

                      2006   2005
Equipment leasing
    8,538,843       9,531,718  
Transfer of tax credits
    2,445,790       —  
Accounts payable restructuring
    —       1,930,871  
Professional fees
    74,866       241,243  
Insurance premium charge
    39,429       22,972  

In December 2000, the Company entered into a lease agreement with CMS Electric
and Gas, LLC, a related company, for Frame 6B assets. Such agreement is
effective for eight (8) years and is subject to quarterly installments of
approximately US$912,436 each, until 2008.
During 2006, the Company transferred to its stockholder CMS Venezuela, C.A.,
through balance compensation, Bs. 2,445 million in tax credits.
Insurance premium and fee charges correspond to reimbursable expenses.

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As a result of these and other less significant transactions, the following
balances receivable and payable are as follows:

                              2006   2005              
Long-term accounts receivable: Energfa Electrica de Margarita, S.A. (ENELMAR)
    508,633       566,818                
 
                       
Short-term accounts payable:
                       
CMS Enterprises Company
    1,959,754       4,586,821          
CMS Operating, LLC
    5,401       23,568          
CMS Argentina, S.A.
    2,649       2,571                
Long-term accounts payable:
    1,967,804       4,612,960          
CMS Electric and Gas, LLC
    5,543,740       6,311,718          
CMS Venezuela, S.A.
    408,783       3,404,458                
 
    5,952,523       9,716.176                

Long-term accunts receivable from Energia Electrica de Margarita, S.A.
(ENELMAR) correspond to payments made by the Company on behalf of a stockholder
for taxes and equity capitalization . contributions.”
During 2005, CMS Venezuela, S.A. (stockholder) and CMS Electric and Gas, LLC
restructured the accounts payable that the Company maintained with both
companies. As a result from these transactions, income amounting to Bs.
1,930,871 thousand was generated, which is presented in the statements of
operations as part of other income and expenses
During 2004, the Company entered into an agreement for guarantee deposits in
bolivars in order to ensure payment of its foreign currency obligations with
related companies. As of December 31, 2006 and 2005, these guarantee deposits
amounted to Bs. 1,961,737 thousand and Bs. 4,589,140 thousand, respectively, and
are recorded as prepaid expenses and other current assets (See Note 5).
14. STOCKHOLDERS* EQUITY
Capital stock and stockholders’ contribution to be capitalized
As of December 31,2006 and 2005, the Company’s subscribed and paid-in capital
stock is as follows:

                                      Number of   Legal capital Stockholders  
Class   shares   stock  
Energia Electrica de Margarita, S.A. (ENELMAR)
    A       58,961,699       35,682,834  
Fideicomiso BANDES
    B       3,038,646       1,838,948  
Labor Partcipation Program
    B       13,807,554       8,356,148  
Fideicomiso BANDES
    C       8,423,100       5,097,548  
CMS VENEZUELA, S.A.
    D       1       76,481,880  
 
            84,231,000       127,457,358  

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•   Class A shares owned by Energfa Etectrica de Margarita, S.A. (ENELMAR),
acquired through the privatization process   •   Class B shares owned by
employees and former employees of SENECA, as well as of CADAFE - ELEORIENTE;
these shares were granted in trust to Banco de Desarrollo Econ6mico y Social de
Venezuela (BANDES) for the Labor Participation Program pursuant to provisions of
the privatization process.   •   Class C shares owned by CADAFE, granted in
trust to Banco de Desarrollo Econdmico y Social de Venezuela (BANDES), for the
Civil Participation Program, pursuant to provisions of the privatization
process.   •   Class D shares owned by CMS Venezuela, S.A.

As of December 31, 2003, the Company maintained Bs. 34,746,604 thousand (Bs.
21,795,288 thousand, in constant bolivars as of December 31, 2003) as
stockholder’s contributions to be capitalized. Later, at an Extraordinary
Stockholders’ Meeting held on December 10, 2004, it was agreed to increase the
Company’s legal capital stock to Bs. 135,908,532 thousand, through the
capitalization of the stockholder’s contribution of CMS Venezuela, C.A,
amounting to Bs. 34,746,604 thousand (Bs. 21,795,288 thousand, in constant
bolivars as of December 31, 2003), thus maintaining the number of shares and
increasing the value of “Class D” shares owned by CMS Venezuela, S.A. In
addition, in the same Meeting, it was agreed to reduce capital stock in Bs.
11,518,768 thousand (Bs. 8,451,169 thousand, in constant bolivars as of
December 31, 2003) to reach Bs. 127,457,358 thousand, in order to cover the
accumulated deficit as of December 31, 2003, thus maintaining the number of
shares and reducing the value of each share according to its class on a
proportional basis.
At an Extraordinary Stockholders Meeting held on April 26,2006, it was agreed to
declare and pay a dividend corresponding to the period ended December 31,2004 of
Bs. 3,116,547 thousand (Bs. 3,575,292 thousand in constant bolivars) based on
the number of shares subscribed and paid as of December 31,2005, from which Bs.
510,879 thousand (Bs. 586,080 thousand in constant bolivars) were paid in cash
to the class “B” stockholders enrolled in the Labor Participation Program. In
addition, Bs. 2,605,668 thousand (Bs. 2,989,215 thousand in constant bolivars)
were recorded as stockholders’ contributions to be capitalized in favor of the
rest of the stockholders. The cash dividend was transferred to BANDES for its
later distribution to the aforementioned stockholders.
Legal Reserve
The Commercial Code sets forth a provision of 5% of companies’ net income for
establishing the legal reserve, until it reaches at least 10% of capital stock.
This reserve cannot be distributed as dividends.
Special reserve
At an Extraordinary Stockholders’ Meeting held on December 7,2001, a special
reserve was created with cash received from Banco de Desarrollo Econ6mico y
Social (BANDES); these funds were related to a labor liabilities’ settlement.

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At an Extraordinary Stockholders’ Meeting held on December 10,2004, it was
agreed to transfer the special reserve included in stockholders’ equity, which
amounts to Bs. 10,793,442 thousand (Bs. 6,770,336 thousand, in constant bolivars
as of December 31,2003) to the accumulated surplus account included in
stockholders’ equity
Undistributed earnings
The Company’s stockholders consider die financial statements stated in constant
bolivars for the purpose of approvals set forth in the bylaws and the Venezuelan
Commercial Code.
15 MONETARY RESULT FOR THE PERIOD
The monetaiy result for the years ended December 31, is as follows:

                      2006     2005  
NET MONETARY ASSET POSITION, at the beginning of year
    26,966,334       24,742,257  
Increase due to:
               
Net sales
    101,424,561       126,420,992  
Other income
    2,863,493       5,199,552  
Financial income
    2,658,508       1,425,126  
Reversal of monetary asset provision
    924,136          
Sale of property, plant and equipment
    3,537          
Provision for disposal of property, plant and equipment
    —       662,321  
Sale of materials
    —       79,978  
 
           
 
    107,874,235       133,787,969  
 
               
Decrease due to:
               
Operating and maintenance expenses
    29,510,514       28,742,588  
Purchases of diesel fuel
    27,187,330       28,166,279  
Purchases of inventories
    17,289,593       28,361,857  
Purchase of energy
    12,653,117       11,562,457  
Administrative expenses
    10,753,964       11,091,057  
Commercialization expenses
    10,499,495       13,354,984  
Acquisition of property, plant and equipment
    1,503,028       3,367,505  
Additions to projects and works
    3,845,492       3,047,974  
Exchange losses
    5,430       765,610  
Loss from investment securities
    —       160,671  
 
           
 
    113,247,963       128,620,982  
ESTIMATED NET MONETARY ASSET POSITION, at year end
    21,592,605       29,909,244  
ACTUAL NET MONETARY ASSET POSITION, at year end
    17,575,724       26,966,334  
 
           
Monetary result for the period
    (4,016,881 )     (2,942,910 )
 
           

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16. OPERATING INCOME
During 2006, the Company did not obtain from the Ministry of Energy and
Petroleum, reductions in the price of diesel fuel corresponding to such period.
These reductions would have partially offset the non-application and/or partial
application of the price adjustment factor (PAF) of electric energy, set forth
in the Joint Resolution of the Ministry of Production and Commerce N° 089 and
that of the Ministry of Energy and Petroleum N° 455, dated April 3, 2002 (Note
16). The financial statements include an operating loss amounting to Bs.
13,834,3 85 thousand and accumulated deficit at that date of Bs. 13,548,717
thousand, originated by non-received reductions. Currently, Company’s management
is in the process of evaluating the impact of this situation in the business;
future.
As of December 31, 2006, the Company has issued credit notes to Deltaven (diesel
fuel supplier) of Bs. 18,908,400 thousand, which are presented in Trade accounts
payable.
17 REGULATION AND TAFIFFS
The Venezuelan Electric Industry is ruled by the Electric Service Law, enacted
on December 31, 2001, published in Extraordinary Official Gazette of the
Bolivarian Republic of Venezuela N° 5568. This law substitutes the previous
Electric Service Decree-Law published in Official Gazette of the Bolivarian
Republic of Venezuela, N° 36791 dated September 21,1999, and other legal
provisions contrary to this law. The Law provides for the following:

•   The legal, accounting and managerial segregation of the functions for
generation, transmission, distribution and commercialization.   •   The opening
to competition in generation and commercialization activities.   •   Access to
the national energy distribution and transmission system network to other
electric service agents, as well as large consumers. Its use shall be
compensated according to this law and the regulations issued by the National
Commission of Electric Power on this matter.   •   The creation of an
unregulated wholesale electric power market for generators, distributors and
large clients, especially those engaged in generation and distribution
activities.   •   The creation of regulatory entities such as the National
Commission of Electric Power authorized by the Ministry of Energy and Petroleum
(formerly, Ministry of Energy and Mines), to be responsible for the regulation,
supervision, inspection and control of electric service activities and the
National Center of Electric System Management and the Wholesale Electric Power
Market.   •   Elimination of Article 120, related to the applicability of
contractual conditions in cases of concessions granted.

The Electric Service Law provided for the gradual implementation of some of its
resolutions, indicating January 31, 2003 as the deadline for the legal,
accounting and managerial segregation of generation, distribution and
commercialization functions. Nevertheless, on November 6, 2002, this deadline
was extended by the Ministry of Energy and Petroleum through January 31, 2004 in
accordance to Resolution N° 303. To date, the Regulator has not required
electric sector companies to fully comply with the segregation of activities set
forth for January 31, 2004. The segregation of

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activities in the electric service in Venezuela, including the opening for
competition in certain activities might have an effect on revenues and
consequently on the company’s assets values. To date, such effect cannot be
reasonably estimated.
The regulations related to the Venezuelan Electric Service Law were published on
the Extraordinary Official Gazette N° 5510 of the Bolivarian Republic of
Venezuela on December 14, 2000. The objective of this regulation is to develop
the provisions of the Law ruling the electric service at national level,
including generation, transmission, national electric system management,
distribution and commercialization activities of electric power and energy
sectors, as well as performance of the agents involved in the electric service.
The National Electric System Management Center (CNGSE) was officially created by
the National Government through Decree N° 5026 of the Presidency of the
Republic, published in Official Gazette N° 38576, dated December 1, 2006. The
main functions of the CNGSE are the control, supervision, and coordination of
the joint operation of the National Electric System Generation and transmission
Resources. The CNGSE is a state Company under the status of a Limited Liability
Company with equity participation of the Bolivarian Republic of Venezuela
through the Ministry of Energy and Petroleum (MENPET).
Despite of its official incorporation, the CNGSE has not started operations. In
this regard, the Organic Electric Service Law (LOSE) sets forth that until
CNGSE’s start-up, the operation and control of generation and transmission
activities of the National Electric system will continue to be performed by the
Electric System Operation Office (OPSIS) under the terms established in the
Interconnection Agreement entered into^ CADAFE; ENELVEN and EDC on December 1,
1988.
Tariff regime
The Electric Service Law and its regulations provide for the economic regime
applicable to the rendering of electric services. Likewise, the Concession
Agreement entered into between the Bolivarian Republic of Venezuela and SENECA
clearly defines terms and methodology to be applied for the preparation of
subsequent tariff conditions to which it was originally authorized.
In the case of SENECA, on December 30, 1998, according to Official Gazette N°
36612, the Ministry of Energy and Petroleum established the tariffs that the
Company should apply to electric energy consumption beginning January 1,1999. It
also included applicability conditions and the methodology for their subsequent
adjustment and modification for a term of up to four years from that date.
On February 6, 2003, the National Government issued Decree No. 2304, whereby
prices of certain goods and services, including power supply, are frozen.
Subsequently, on May 5, 2003, a joint Resolution by the Ministry of Energy and
Petroleum and the Ministry of Production and Commerce was published in Official
Gazette, which temporarily suspends tariff increases derived from the FAP
application. However, Article 2 of this resolution sets forth that MENPET might
exceptionally approve the application of such factor.
On February 9, 2004, MENPET informed SENECA about the incorporation of its
information in the tariff calculation process in order to evaluate its future
application. This should generate the benefit of applying the same tariff
methodology in all companies within the sector.

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Pursuant to Articles 11 and 12 of Official Gazette N° 36612 and communications
received from MENPET, the Company applied adjustments related to the application
of gas and energy charges (CACE). In connection with the application of the
price adjustment factor (FAP), the Company has applied the values authorized by
MENPET beginning August 2003. These values did not maintain tariff levels in
real terms; therefore, until 200S, the Company has received partial compensation
in diesel fuel prices, thus obtaining from the Ministry of Energy and Petroleum
reductions in the price of diesel fuel corresponding to 2006 (See Note 16).
During 2006 and 2005, in order to maintain established tariff levels in real
terms, management periodically carried out communications with the regulator as
to the appropriate current tariff that should be applied if regulation were
followed.
18. ELECTRIC POWER SUPPLY CONTRACT
On July 1998, the Company entered into a contract with CVG — Electrificacion del
Caroni, C.A. (CVG EDELCA). CVG commits to render services of supply and
transportation of electric power to SENECA - Sistema Electrico del Estado Nueva
Esparta, C.A, through die payment of pre-established tariffs per each kilowatt
of energy transmitted. This contract is effective for twenty (20) years, and
clause N° 25 provides for a minimum annual charge, which has not been applied by
the parties.
19. FUEL SUPPLY CONTRACT
On July 27, 1998, the Company entered into a contract with Deltaven Sociedad
Mercantil, a subsidiary of PDVSA. PDVSA committed therethrough to provide fuel
for the generation of thermoelectricity for the internal consumption in Nueva
Esparta state. The fuel price is set by the related authorities. This contract
will be in effect for five (5) years from the date of subscription, and it will
be automatically renewed for equal and consecutive periods. Consequently, such
contract will be in effect until 2008.
20. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCY
Since 2003, the Venezuelan Government and the Central Bank of Venezuela have
entered into several Exchange Agreements that rule the Foreign Currency
Management Regime and establish the exchange rate applicable to transactions set
forth in such agreements. Since then, the Foreign Exchange Administration
Commission (CADIVI) is in charge of coordinating, administrating, controlling
and establishing the requirements, procedures and restrictions that the
execution of said agreement would require.
CADIVI has issued certain rules related to the registrations, guidelines,
requirements and conditions related to the foreign currency administration. The
Company has taken all the necessary proceeds to obtain the foreign currencies
required for payment of its foreign currency liabilities amounting to
US$8,299,891 as of December 31, 2006.
The acquisition of foreign currencies necessary for foreign currency
transactions carried out by the Company in the normal course of operations will
be dependent upon: (1) the approval of all the registrations requested by the
related institutions; (2) the availability of foreign currencies to be
established in the application of the standards referred to above; and (3) the
actions to be performed by the Company to obtain either the required foreign
currencies not requested with the related institutions, or those requests
rejected by such institutions.

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A summary of assets and liabilities denominated in foreign currencies as of
December 31,2006 and 2005, recorded in bolivars at the official exchange rate at
year-end of Bs. 2,150 per US$1 (in US dollars) are as follows:

                      2006     2005    
ASSETS:
Cash and equivalents
    312,124       841,958  
Advances to suppliers
            11,330  
Guarantee deposits
    45,268       148,765    
Total assets
    357,392       1,002,053  
 
               
LIABILITIES:
Trade accounts payable
    1,626,100       1,186,671  
Accounts payable to stockholder and related companies
    915,258       1,834344  
Total liabilities
    2,541,358       3,021.015  
Excess of liabilities over assets
    2,183,966       2,018,962    

21. CONCENTRATION OF CREDIT RISKS
Financial instruments that partially subject the Company to concentrations of
credit risks mainly consist of short-term investments in time deposits and
investments in National Public Debt Bonds with terms agreed for less than
30 days and trade accounts receivable. The Company places its short-term
investments in different financial institutions, and which excludes risks on
price and/or conditions. Concentration of credit risk regarding trade accounts
receivable is limited due to the Company’s significant number of clients;
however, as of December 31, 2006 and 2005, government clients represent
approximately 64% and 67%, respectively, of the Company’s portfolio (See Note
3). As of December 31, 2006 and 2005, the Company does not have any additional
significant concentration of credit risk.
22. CONTINGENCIES AND COMMITMENTS
Contingencies
During 2006, certain claims have been filed against the Company by former
employees enrolled in the labor participation program, which are mainly related
to difference in severance benefits payments amounting to Bs. 2,741 million.
Management estimates that the outcome of thesis claims would not be in favor of
the former employees; therefore the Company has not recorded any provision in
the financial statements for this concept (See Note 1 j)
Certain claims related to labor indemnities, moral and material damages, among
others, have been filed against the Company. Management estimates that if the
results of such claims were adverse, they would not have any material effect on
the financial statements. Provisions have been created pursuant to available
information regarding the possibility of success of such cases.
Bonds and guarantees granted
The Company currently maintains a surety bond in order to guarantee the Ministry
of Energy and Petroleum, obligations assumed by virtue of the concession
agreement (See Note 11).

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Commitments
In December 2005, the Company entered into a Cooperation Agreement with Compania
Anonima de Administracion y Fomento Electrico (CADAFE). CADAFE will install,
operate and maintain a thermal generation plant on Margarita Island, and the
Company will buy the energy generated thereof Likewise, CADAFE and the Company
commit to enter into an electric power supply contract effective for 10 years
under the terms and conditions agreed upon by the parties, in maximum six
(6) months from the date of execution of the partnership agreement.
However, due to changes in the sector guidelines, a new cooperation agreement is
being discussed under similar terms and conditions to the aforementioned, as
well as a commodatum contract for an area located at Luisa Caceres de Arismendi
Plant, where thermal generation plants will be installed, operated and
maintained by the corresponding government entity.
In December 2005, the Company also entered into an agreement with Compania
Anonima de Administracion y Fomento Eletrico (CADAFE) for the leasing of a
turbine compartment (cigar), which is fully and exclusively owned by the latter.
The annual installment will amount to Bs. 40,000 thousand, which shall be paid
upon installation of the module in Luisa Ciceres de Arismendi Plant. When the
agreement term ends, the Company commits to return the compartment to CADAFE in
its current conditions. At year-end 2006, the module was incorporated to Unit N°
5, which is currently undergoing pre-dperating tests prior to its start-up,
expected during January 2007.
23 SUBSEQUENT EVENTS
FUNDELEC
In January 2007, the Company entered into a Cooperation Agreement with Fundaci6n
para el Desarrollo del Sector E16ctrico (FUNDELEC) for the purpose of
installing, operating and maintaining thermal generation units with their
respective fuel supply, protection and communications system in Nueva Esparta
State, assumed by FUNDELEC. SENECA, on the other hand, will receive, in
conformity with the quality, continuity and reliability specifications, energy
generated by FUNDALEC for its distribution and conmierci^izatiott. FUNDELEC and
SENECA commit to enter into an electric energy supply agreement in no later than
six (6) months since the Agreement execution, which will be in effect for five
(5) years under the terms and conditions agreed upon by the parties.
Based on this agreement, SENECA gives FUNDELEC in commodatum or loan for use, at
all risks, a real estate for five (5) years, destined to the installation of the
generation units mentioned in Clause III of the Cooperation Agreement between
FUNDELEC — SENECA aimed at increasing Thermal Generation in Nueva Esparta state
and meet the increasing local customers’ demand.
Presidential announcements on January 8, 2007
The President of the Bolivarian Republic of Venezuela announced through the
local media, the nationalization, among others, of the telecommunication,
electricity and petroleum sectors, which had been formerly privatized, by
considering them strategic sectors.

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Enabling Law
On February 1, 2007, the National Assembly passed a Law enabling the President
of the Republic to issue legislative decrees on certain specific matters for an
18-month period since the publication of said Law in the Official Gazette of the
Bolivarian Republic of Venezuela. The purpose of this law is to rule on
different matters related to the Transformation of Government Entities, Popular
Participation, as well as Economic, Social, Financial, Tax and Energy matters.
Memorandum of Understanding with Petrdleos de Venezuela (PDVSA)
On February 13, 2007 the Company’s main stockholder signed a memorandum of
understanding (MOU) with Petroleos de Venezuela, S.A. (PDVSA), which establishes
the bases of negotiation for the sale of their equity participations in the
Company, as well as other assets from related companies for US$105.5 million,
subject to:

•   Negotiation and conclusion of a full sale purchase agreement of CMS
Interest, with standard representations, warranties and indemnity obligations to
be granted by CMS and PDVSA.   •   Performance of a legal and financial due
diligence by PDVSA, which do not result in the identification of material
differences with the financial statements accompanying the MOU, and that, in the
reasonable opinion of PDVSA, does not materially affect the value of CMS
Interest previously agreed. It is expressly understood that the agreed
compensation is based on SENECA’s current situation according to the
accompanying financial statements, and that it is not PDVSA’s intent to
challenge the legal and reasonable administrative acts carried out by the
employees and executives of the Company prior to the acquisition.   •  
Inexistance of transactions outside the ordinary course of business before the
closing of the acquisition.   •   Full cooperation on the part of CMS up to the
closing of the acquisition with a liaison team to be appointed by PDVSA shortly,
and best efforts of CMS to facilitate the transition in the administration of
SENECA.   •   Accuracy in all substantial aspects of the representations granted
by CMS in the sale purchase agreement of CMS Interest; and   •   Transfer of
ownership regarding all the shares and equipment included in CMS Interest, as
well as the discharge of all SENECA’s indebtedness with CMS or any of its
subsidiaries, and delivery of evidence that the value of leased equipment to be
transferred is equal or higher than US$15.6 million and that the total debt
amount is not lower than US$1.9 million (amounts included in the compensation
referred to in the memorandum of understanding).   •   Both parties will
proceed, in good faith, to conclude the agreements tp close the operation as
soon as possible, but in no event after March 31, 2007.

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Appendix 2.6 Taxes
1. Tax on Economic Activities:
Status of the Gross Income Returns with Municipalities of the State of Nueva
Esparta as of 12/31/2006.
a. Diaz Municipality:
SENECA filed gross income return from October 2005 to September 2006. Pending
review of the situation to reconcile debt.
b. Tubores Municipality:
Solvent until September 2006.
c. Macanao Municipality: Solvent until September 2006.
d. Antolin del Campo Municipality:

          Filed Returns   Observations
Oct-03
  Sep-04   Pending
Oct-04
  Sep-05   agreement
Oct-05
  Sep-06   to reconcile debt

e. Marcano Municipality:

          Filed Returns   Observations
Oct-03
  Sep-04   Pending
Oct-04
  Sep-05   agreement
Oct-05
  Dic-05   to reconcile debt
Ene-06
  Dic-06    

f. Arismendi Municipality:
Gross income return has not been filed. Pending review of the situation to
reconcile debt.
g. Garcia Municipality:
Gross income declaration has not been filed.
h. Gomez Municipality:
Gross income return has not been filed. Pending review of the situation to
reconcile debt.
i. Maneiro Municipality:
Gross income return has not been filed. Pending review of the situation to
reconcile debt,
j. Villalba Municipality:
Gross income return has not been filed. Pending review of the situation to
reconcile debt
Following, a summary of the outstanding debts as of December 31st, 2006 for
municipal taxes on economic activities, its provision in SENECA, and the
favorable balance to SENECA upon reconciliation of debts:

         
TOTAL AMOUNT of TAXES on GROSS INCOME as of DECEMBER 2006
    6,188,904,614  
PROVISION FOR MUNICIPAL TAXES DECEMBER 2006
    6,683,630,906  
ACCOUNTS RECEIVABLES TO MUNICIPALITIES as OF DDECEMBER 2006 FOR ELECTRIC SERVICE
    18,147322,664  

 

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NET BALANCE IN FAVOR OF SENECA AS OF DECEMBER 2006
    (11,958,418,050 )

2. Other Municipal Taxes:
Status of Municipal Taxes year 2007

                 
Marifio
  Solvent until 2007.   Solvent until February 2007   Solvent until 2007  
Solvent untilo 2007
Maneiro
  Solvent until 2007   A communication was sent and awaiting for Account
Statement   A communication was sent and awaiting for Account Statement  
Solvent until 2007
Antolln del eampo
  Solvent until 2007   A communication was sent and awaiting for Account
Statement.   and awaiting for
Account   Not applicable
Diaz
  Not applicable   Not applicable   Not applicable   Not applicable
Macanma
  A communication was sent and awaiting for Account Statement. Solvent until
2004   A communication was sent and awaiting for Account Statement   A
communication was tend and awaking for Account §&forar“flfe to 2004  
Acommunkaaionwasscnd and awaking for Account 5of£rtun*12M>4
Arismendi
  Solvent until 2007   A communication was sent and awaiting for Account
Statement.   and awaking for Account Statement.   Not applicable
Tuhorts
  Not applicable   Not applicable   No applicable   Not applicable
VUlalba
  A communication was sent and awaiting for Account Statement.   A communication
was sent and awaiting for Account Statement.   A commu taxation was sent and
awaking for Account Statemaatt   A comminication was sent and awaking for
Account Statement
Gomez
  Not applicable   Not applicable   No applicable   No applicable
Marcano
  A communication was sent and awaiting for Account Statement. Solvent until
2005   A communication was sent and awaiting for Account Statement   A
coinuMMcutton was sent and awaking for Account Statement.   A communication was
sent and awaking for Account State. Solvent until 2003
Cruz Salmon* Acoaa
  A communication was sent and awaiting for Account Statement. Solvent until
2006   Not applicable   Not applicable   Not applicable
Garcia
  Solvent until 2007   A communication was sent and awaiting for Account
Statement.   A cominu nicotian was sent sad awaking for Account StstejMfiL.  
Not applicable

 

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The amounts outstanding as of December 31st 2006 included in the Financial
Statements for the abovementioned taxes are Bs. 31.533.000,00.
3. Assessment
On March 8th, 2007 SENECA received assessment N° J-H.04-2007 issued by the
Mayor’s Office Tax Department of the Garcia Municipality, in connection with
years 1998 to 2006 for the amount of Bs. 61,939,223,059.00, based on
Municipality’s Ordinance on Industrial and Commercial License and the Municipal
Ordinance on Urban Property Tax for the following concepts:
1. Energy Distribution
2. Post rental
3. Garbage Collection Fee
1,428,521,843
10,863,680
1,557,536
4. Servitude (Distribution)
5. Servitude (Transmission)
54,335,200,000
6,163,080,000
Bs. 61,939,223,059
SENECA agrees with the concepts described in points 1, 2 and 3. However, it does
not agree with the amounts assessed in the concepts 4 and 5.
On 2004, Antolin del Campo Municipality of the State of Nueva Esparta issued an
assessment to SENECA for the same concepts asserted by Garcia Municipality. The
Assessment of Antolin del Campo Municipality was declared null and void by the
Mayor’s Office, at his own instance, and therefore, the Judicial Tax Appeal was
voluntarily desisted by SENECA, and confirmed by the Superior Tax Court.
Action: SENECA filed defense arguments before the Garcia Municipality’s Tax
Department on March 27th, 2007 for the concepts 4 and 5, based on the arguments
used in the Antolin del Campo Municipality assessment. SENECA has not reserved
for concepts 4 and 5.

 

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Provision: As of December 31st, 2006, SENECA Financial Statements show the
assigned provision for the amounts contained in concepts 1, 2 and 3,
aforementioned. Therefore, there shall be no changes in the financial condition
of SENECA.
Debt of the Municipality: Garcia Municipality owes SENECA for energy consumption
since 1998. As of December 31”, 2006 the amount owed is Bs. 3,045,000,000.00
without interests and Bs. 5,157,000,000.00 with interests.
Appendix 2.10
Exceptions to Property Title and Liens of Assets
1. — Airport Substation. Located at the General Santiago Marino International
Airport in the State of Nueva Esparta. The Nueva Esparta Government is the owner
of the land. Seneca has no title to the constructions. The aforementioned
property was listed in Annex 5 (Property with Entitlement Problems) of the Sales
Purchase Agreement entered into on September 15th, 1998 between
FIV-Cadafe-Eleoriente and Enelmar whereby the Seneca class “A” shafes were
purchased. The property of this asset was never transferred to Seneca.
2. — Las Hernandez Substation. Located at Las Hernandez Sector in the Diaz
Municipality of the State of Nueva Esparta. Cadafe transferred Seneca the
possession rights over the land and constructions by document authenticated
before Pampatar Notary Public Office of the State of Nueva Esparta on May 26th,
2000, under N° 68, Volume 21, and before Sucre Municipality’s Second Notary
Public Office of the State of Miranda on May 17th, 2000 under N° 78, Volume 24,
There is an adverse ownership declaration proceeding identified with N° 19.765,
as mentioned in Appendix 2.7.
3. — Land on which Coche Plant and Substation is located. The land has an area
of 14,663 Mt2 and is owned by the Villalba Municipality of the State of Nueva
Esparta. The aforementioned property was listed on Annex 5 (Property with
Entitlement Problems) of the Sales Purchase Agreement entered on September 15th,
1998 between FIV-Cadafe-Eleoriente and Enelmar whereby the Seneca class “A”
shares were purchased. The property of this asset was never transferred to
Seneca.
4. — San Lorenzo Transition Substation. This substation existed at moment class
“A” shares were purchased, but was never mentioned in Annex 2 (Inventory on the
Fixed Assets), nor in Annex 5 (Property with Entidement Problems) of the Sales
Purchase Agreement Seneca has tide neither to the land, nor to the
constructions.
5. -Servitudes:
For the transmission lines, networks and circuits referred to below, SENECA
servitude right is based on a legal presumption of servitude, transferred by
Cadafe and Eleoriente, and not on servitudes formally constituted.
a.- As evidenced in document registered before the following Registry Offices:

•   Subordinate Public Registry Office of Maneiro Municipality of the State of
Nueva Esparta on February 2nd, 2005, under N° 12, Volume 4, Protocol 1°.   •  
Subordinate Public Registry Office of Diaz Municipality of the State of Nueva
Esparta on April 5th, 2005, under N° 11, Volume 1, Protocol 1°, pages 46 to 60.
  •   Subordinate Public Registry Office of Gomez Municipality of the State of
Nueva Esparta on April 11th, 2005, under N° 21, Protocol 1 °, pages 46 to 60.  
•   Subordinate Public Registry Office of Arismendi y Antolin del Campo
Municipalities of the State of Nueva Esparta on April 1.1* 2005, under N° 29,
Volume 2, Protocol 1°, pages 162 to 183.   •   Subordinate Public Registry
Office of Marcano Municipality of the State of Nueva Esparta on April 12th,
2005, under N° 27, Volume 1, Protocol 1°, pages 140 to 157.   •   Subordinate
Public Registry Office of Marino Municipality of the State of Nueva Esparta on
April 21”, 2005, under N° 17, Volume 5, Protocol 1°, pages 125 to 151.

Cadafe and Eleoriente transferred Seneca the right of way for electric
conductors identified below, based on the existence of duly constituted
servitude’s presumption in favor of Cadafe issued by the First Instance Civil
and

 

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Commerce Second Court in the State of Nueva Esparta on May 2nd, 2001, file N°
1198/01, and registered before the following Real Estate Subordinate Registry
Public Offices:

•   Subordinate Public Registry Office of Maneiro Municipality of the State of
Nueva Esparta on November 20*, 2003, under N° 37, Volume 7, Protocol 1°, pages
225 to 287;   •   Subordinate Public Registry Office of Gomez Municipality of
the State of Nueva Esparta on December 5th, 2003, under N° 24, Volume 3,
Protocol 1°;   •   Subordinate Public Registry Office of Marcano Municipality of
the State of Nueva Esparta on December 19*, 2003, under N° 10, Volume 5,
Protocol 1°, pages 95 to 166;   •   Subordinate Public Registry Office of Diaz
Municipality of the State of Nueva Esparta on January 20*, 2004, under N° 37,
Volume 1, Protocol 1°, pages 215 to 280;   •   Subordinate Public Registry
Office of Marino Municipality of the State of Nueva Esparta on March 8*, 2004,
under N° 50, Volume 13, Protocol 1°, pages 295 to 321;   •   Subordinate Public
Registry Office of Arismendi y Antolin del Campo Municipality of the State of
Nueva Esparta on March 15*, 2004, under N° 21, Volume 9, Protocol 1°, pages 217
to 290:

1.- 115 Kv. Transmission Lines
Name of the Lines_
Luisa Caceres — Los Millanes_
La Asuncion — San Lorenzo — Los Robles
Luisa Caceres — Boca de Rio_.
Pampatar — San Lorenzo_
2.- Networks:
(i). 34,5 Kv Circuits,

      Name of the Substation (E/S)   Name of the Line
Pampatar
  Morropo
Los Millanes
  Aricagua
Luisa Caceres
  Aeropuerto — Las Hernandez
Luisa Caceres
  Conejeros
Boca de Rio
  Boca de Rio — Las Hernandez
Los Robles
  Morropo — Conejeros

(ii). 13,8 Kv Circuits.

      Name of the Substation (E/S)   Name of the Line
Los Robles
  Los Robles
 
  Playa El Angel
 
  Sabanamar — Fermtn
 
  Av. 4 de mayo
 
  Achipano
 
  La Arboleda
 
  ClinicaLa Fe
Coche
  San Pedro
 
  ElBichar
Aricagua
  Paraguachi
 
  ElSalado

 

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      Name of the Substation (E/S)   Name of the Line
 
  Hotel Playa El Agua
 
  La Mir a
 
  Aricagua
Conejeros
  Calle Maneiro
 
  Calle Marcano
 
  ElValle
 
  La Comarca
 
  Av. F. Fajardo
 
  Mercado
Porlamar
  CANTV
 
  Iiano Adentro
 
  Calle Igualdad
 
  El Jumbo
 
  Clinico Margarita
 
  Hospital
 
  CC. El Angel
 
  Calle Guevara
La Asuncion
  La Otra Banda
 
  Cruce de Guacuco
 
  Av. 31 de Julio
 
  La Gobernacion
 
  La Fuente
 
  Atamo Norte
Pampatar
  Pampatar
 
  La Caranta
 
  ElParaiso
 
  Hotel Hilton
 
  Marina Bay
 
  San Lorenzo
 
  Laguna Mar
 
  Centro AB
 
  Jorge Coll

      Name of the Substation (E/S)   Name of the Line
Boca de Rio
  Boca de Pozo
 
  San Francisco
 
  Boca de Rio
Las Hernandez
  Los Gomez
 
  El Guamache
 
  Punta Piedras
 
  Las Hernandez
Aeropuerto
  Aeropuerto
 
  Av. Aeropuerto
 
  Base Aerea
 
  Los Bagres
Luisa Caceres
  Villa Rosa

 

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      Name of the Substation (E/S)   Name of the Line
 
  Valle Verde
 
  Los Cocos
 
  El Piache
 
  Cuidad Carton
 
  La Isleta
Los Millanes
  Isla Bonita
 
  Bahia de Plata
 
  Pedregales
 
  San Juan
 
  La Vecindad
 
  Taritare
 
  Los Martires
 
  Juan Griego
Morropo
  Dumar — Caracola
 
  Bella Vista
 
  Av. Bolivar
 
  El Dandy
 
  Concorde
 
  Costa Azul

b.- On the following 13.8 Kv circuits there is no constituted servitude, but the
presumption of duly constituted semtude provided in the Electric Service Organic
Act may be applied.

          Substation   Circuit   Description
Pampatar
  Sambil   Feeds Centro Comercial Sambil
Los Millanes
  El Maco   Feeds El Maco, El Tuey y Punta Cuji.
Morropo
  Sabanamar   Feeds Sabanamar y Porlamar’s El Hambre Street
Porlamat
  Av. Terranova   Feeds the hamlets form Terranova Este Av.

c- On the following 13.8 Kv circuits there is no constituted servitude.

          Substation   Circuit   Description
Luisa Caceres
  San Antonio   Feeds San Antonio and Pedro Luis Briceiio hamlets.
Luisa Caceres
  ElDatil   Feeds El Datil, Cotoperis I, II and III
Boca de Rio
  El Indio   Feeds Chacachacare and Santa Maria
Conejeros
  Macho Muerto   Feeds Macho Muerto and Los Cuartos

6. — There is no title to vehicle Type: PICK-UP; Year: 1985; Number Plate: 721
-BBJ; Brand: TOYOTA; Model: FJ45LPK; Body Serial Number: FJ45-947426.
7. — As evidenced in document registered before the Real Estate Registry Public
Office of Marino Municipality in the State of Nueva Esparta on May 23rf, 2006,
under N° 5, Volume 18, Protocol 1°, pages 28 to 40 and before the Real Estate
Registry Public Office of Maneiro Municipality in the same State on June 1st,
2006, under N° 46, Volume 11, Protocol 1°, pages 223 to 238 a first degree
mortgage was granted in order to secure performance bond issued by

 

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Corpbanca, and required by the Nueva Esparta Electric Service Concession
Agreement, on the following real estate:
(i) Land on which Pampatar Substation is located with an area of 2,412 Mts2.
Seneca owns the land as evidenced in document registered before Subordinate
Registry Public Office of Maneiro Municipality in the State of Nueva Esparta on
March 16th, 2000, under N° 31, Volume 6, Protocol 1°, pages 153 to 156
(ii) Land on which Seneca Main Offices are located with an area of 22,500Mts2.
Seneca owns the land as evidenced in document registered before the Subordinate
Registry Public Office of Maneiro Municipality in the State of Nueva Esparta on
March 16th, 2000, under N° 31, Volume 6, Protocol 1°, pages 153 to 156, and the
Main Offices as evidenced in document before the same Registry Office on
July 29th, 2003, under N° 18, Volume 4, Protocol 1°, pages 79 to 101.
(iii) Two (2) commercial establishments identified with N° 17 with an area of de
106,88 mts2 and 17-D with an area of 144.03 mts2 located at El Angel Shopping
Mall in the city of Porlamar, Marino Municipality. Seneca owns the
aforementioned commercial establishments as evidenced in document registered
before the Subordinate Registry Public Office of Marino Municipality in the
State of Nueva Esparta on January 14th, 1999, under N° 34, Volume 2 Protocol 1°,
pages 223 to 230 and on April 8th, 1999, under N° 6, pages 37 to 46, Volume 1 °,
Protocol 3°.
(iv) Two (2) commercial establishments identified with N° 18 with an area of de
104,92 nits2 and 18-D with an area of 144.03 mts2 located at El Angel Shopping
Mall in the city of Porlamar, Marino Municipality. Seneca owns the
aforementioned commercial establishments as evidenced in document registered
before the Subordinate Public Registry Office of Marino Municipality in the
State of Nueva Esparta on April 8th, 1999, under N° 31, Volume 30 Protocol 1°,
pages 250 to 257 and on April 7th, 1999, under N° 9, pages 67 to 76, Volume 1°,
Protocol 3°.
(v) Two (2) commercial establishments identified with N° 19 with an area of de
104,92 mts2 and 19-D with an area of 141.66 mts2 located at El Angel Shopping
Mall in the city of Porlamar, Marino Municipality. Seneca owns the
aforementioned commercial establishments as evidenced in document registered
before the Subordinate Public Registry Office of Marino Municipality in the
State of Nueva Esparta on January 14* 1999, under N° 33, Volume 2 Protocol 1°,
pages 215 to 222 and on April 8*, 1999, under N° 8, pages 57 to 66, Volume 1°,
Protocol 3°.
(iv) Two (2) commercial establishments identified with N° 20-A and 20-B, both
with an area of de 154,69 mts2 each, located at El Angel Shopping Mall in the
city of Porlamar, Marino Municipality. Seneca owns the before mentioned
commercial establishments as evidenced in document registered before the
Subordinate Public Registry Office of Marino Municipality in the Nueva Esparta
State on January 14*, 1999, under N° 9, Volume 2 Protocol 1°, pages 57 to 64 and
on April 8*, 1999, under N° 7, pages 47 to 56, Volume 1°, Protocol 3°.
8.- Nueva Esparta Electric Supply Concession Agreement entered between Republic
of Venezuela Acting through the Ministry of Energy and Mines, SENECA Sistema
Electrico del Estado Nueva Esparta, C.A. authenticated by the 27^ Notary Public
Office in the Libertador Municipality of the Federal District on July 17th,
1998, under N° 9, Volume 42, sets forth in its Fourth Clause that the Electric
Supply Concession in the State of Nueva Esparta will have term of 50 years, that
is, until July 17*, 2048. The Eighteenth Clause of the Agreement establishes
that upon termination of the concession all the assets affected to the supply of
the service shall gratuitously reverse to the Republic, free of liens and
encumbrances.

 

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Appendix 2.7 Litigation

                                  Docket                 Court   Number   Case  
Amount   Description
1
  First Court of First Instance on Civil, Mercantile, Traffic and Agrarian
Matters of Nueva Esparta State   20.286       Lawsuit filed by Jose R. Lares
against SENECA for economic/physic al and moral damages   Bs. 814.720.000,oo
NOTE:
Due to calculation mistake on the lawsuit (External lawyer’s opinion) the amount
of the action reduces to Bs. 435.000.000,00 1. - 400.000,00-moral damages, and
2. — 35.000.000,00 -material damages   Claim for moral and material damages to
the plaintiff and his property, who entered into a contract with a third party
to perform works of removal of aerial electric lines to underground lines, and
lost both arms due to an electric shock. This trial presents many controversial
facts, since the circumstances alleged by the plaintiff in the complaint are not
coincident with the facts alleged in the answer to the complaint, nor the
allegations of three trade companies summoned and acting as third parties.
 
                       
2
  First Court of First Instance on Civil, Mercantile, Traffic and Agrarian
Matters of Nueva Esparta State   20.442       Lawsuit filed by SENECA against
CONSORCIO CVA seeking payment of outstanding amounts. (Collection action)   Bs.
360.000.000,00    
 
                       
3
  First Court of First Instance on Civil, Mercantile, Traffic and Agrarian
Matters of Nueva Esparta State   21.011       Lawsuit filed by
Ivan De Angelis
against SENECA for
moral damages   Bs. 50.000.000,00   Claim for moral and material damages
allegedly caused by officers of SENECA upon carrying out inspections to power
consumption measuring equipment
There are reasonable arguments to think that this claim should be dismissed.
 
                       
4
  Second Court of First Instance on Civil, Mercantile, Traffic and Agrarian
Matters of Nueva Esparta State   6192       Lawsuit fileid by SENECA against
PENTAG for Termination of Contract   Bs. 600.000.000,00    

 

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                                  Docket                 Court   Number   Case  
Amount   Description
5
  Second Court of First Instance on Civil, Mercantile, Traffic and Agrarian
Matters of Nueva Esparta State   6229       Lawsuit filed by SENECA against
Jenny Acuero seeking payment of outstanding amounts. (Collection action)   Bs.
25.000.000,00    
 
                       
6
  Second Court of First Instance on Civil, Mercantile, Traffic and Agrarian
Matters of Nueva Esparta State   8538       Foreclosure lawsuit
filed by SENECA
against JUMBO
CIUDAD COMERCIAL        
 
                       
7
  Second Court of First Instance on Civil, Mercantile, Traffic and Agrarian
Matters of Nueva Esparta State   6388       Lawsuit filed by SENECA against
TELECARIBE seeking payment of outstanding amounts. (Collection action)   Bs.
72.000.000,00    
 
                       
8
  Superior Court on Civil, Mercantile, Traffic and Agrarian Matters of Nueva
Esparta State   5.480       Demand for payment of legal costs
Brigitte Rudolph W. (CADAFE Case)   Bs. 125.000.000,00   Demand for Payment of
Legal Costs derived from final ruling in the suit for legal protection filed by
Brigitte Rudolph W. against SENECA (1998).
 
                       
9
  Superior Court on Labor Matters of Nueva Esparta State   OP02-R- 2006-
000002 6 3738   Lawsuit filed against SENECA by former employees of PENTAG,
Joint Liability of Employers   Bs. 55.696.353,69   Lawsuit filed by a group of
former employees that provided services to the company PENTAG, C.A., contractor
of seneca, engaged in carrying out costumer, posts and lighting census.
Plaintiffs claim payment of social benefits of labor nature from both companies,
since they allege that existed inherence in the labor provided by the contractor
PENTAG, C.A. to Seneca, this last one is jointly liable for the payment of the
amounts and social benefits of labor nature claimed.
 
                       
10.
  Superior Court on Labor Matters of Nueva Esparta State                    

 

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OP02-R-2005-148 y 1516 OP02-L-2004-0000267
Lawsuit filed by Romulo Lorenzo Oliveros against Lecturay Servicios Electricos
Buen Viaje and SENECA seeking payment of outstanding amounts. (Collection
action)
Bs. 33.854.398,47
Claim seeking acknowledgement of labor relation that purportedly existed between
the plaintiff and SENECA and payment of social benefits derived from said
relation; however, it is indicated the existence of a company named Lecturas y
Servicios Electricos Buen Viaje, C.A., integrated by several stockholders, being
that the plaintiff was actually an employee of Lecturas y Servicios Electricos
Buen Viaje, C.A., so it is alleged that SENECA lacks the quality to be demanded
in this trial.
11 Superior Court on Labor Matters of Nueva Esparta State
OP02-R-2007-000009 6OP02-L-2005-0000580
Lawsuit filed by Pablo Cesar Nunez against SENECA seeking payment of Severance
Benefits.
Bs. 611.830.458,58
Claim seeking acknowledgement of labor relation that purportedly existed between
the plaintiff and SENECA since the first service contract entered into on
January 1st, 2001 until August 12th, 2005. Consequendy, payment of social
benefits derived from said relation, including vacation pay, severance pay and
further benefits provided by the Collective Bargaining Agreement of the Company
12 First Court on Contentious-Administrative Matters
00351
Lawsuit filed by several employees against SENECA for enforcement of contract
Bs. 421.273.010,08
Action for annulment of settlement entered into by former employees and Seneca
before the Labor Inspectorate, whereby both parties agreed to terminate the
labor . relations, payment of social benefits and a setdement fee, and mutual
releases were exchanged. Plaintiffs allege that such settlement is null and void
due to defect of consent, since they mistakenly considered that such settlement
was more favorable in economic terms. In this sense, they alleged that the
Company owes them a series of social benefits of labor nature, including: rise
of wages, housing pay, vacation pay, food pay, and back wages, and profits among
others.

                     
13
  Third Court of First Instance of substantiation, Mediation and Execution on
Labor Matters   OP02-L-2006-000 612   Lawsuit filed by NumarMata against
Electric 3000, CA. and SENECA seeking payment of outstanding amounts,
(collection action)   Bs. 15.625.507,00   Claim seeking acknowledgement of labor
relation that purportedly existed between the plaintiff and SENECA and payment
of social benefits derived from said relation; however, it is indicated the
existence of a company named ELECTRIC 3000, C A., integrated by several
stockholders, being that the plaintiff was actually an employee of the ELECTRIC
3000, CA. so it is alleged that SENECA lacks the quality to be demanded in this
trial

 

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14
  Supreme Tribunal of Justice, the Full Court (Sala Plena)   2006-353   Action
for annulment against SENECA filed by Migdalia Ramona Vasquez, Luisa Beltrana
Acosta Garcia and Beltran Diaz, (former employees of SENECA) + economic damages
  Bs. 277.253.219,72   Action for annulment of setdement entered into by former
employees and Seneca before the Labor Inspectorate, whereby both parties agreed
to terminate the labor relations, payment of social benefits and a setdement
fee, and mutual releases were exchanged. Plaintiffs allege that such setdement
is null and void due to defect of consent, since they mistakenly considered that
such setdement was more favorable in economic terms. In this sense, they alleged
that the Company owes them a series of social benefits of labor nature,..’
including: rise of wages, back wages, sole gratifications, housing pay, food
pay, profits, vacations, vacation pay, among others;
 
                   
15
  Supreme Tribunal of Justice, the Full Court (Sala Plena)   2006-356   Action
for annulment against SENECA filed by Elena Salazar de Landaeta, Juan Antonio
Hernandez, Luis Beltran Velasquez Marin (former employees of SENECA) + economic
damages   Bs. 268.075.744,75   Action for annulment of settlement entered into
by former employees and Seneca before the Labor Inspectorate, whereby both
parties agreed to terminate the labor relations, payment of social benefits and
a settlement fee, and mutual releases were exchanged. Plaintiffs allege that
such setdement is null and void due to defect of consent, since they mistakenly
considered that such setdement was more favorable in economic terms. In this
sense, they alleged that the Company owes them a series of social benefits of
labor nature, including:
 
                  rise of wages, back wages, sole gratifications, housing pay,
food pay, vacations, vacation pay, among others.

 

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16
  Supreme Tribunal of Justice, the Full Court (Sala Plena)   2006-351   Action
for annulment against SENECA filed by Juana Alcira Diaz de Cedeno,Jennis
Velasquez and Jose Gregorio Gonzalez, (former employees of SENECA) + economic
damages   Bs. 78.512.411,63   Action for annulment of setdement entered into by
former employees and Seneca before the Labor Inspectorate, whereby both parties
agreed to terminate the labor relations, payment of social benefits and a
settlement fee, and mutual releases were exchanged. Plaintiffs allege that such
setdement is null and void due to defect of consent, since they mistakenly
considered that such setdement was more favorable in economic terms. In this
sense, they alleged that the Company owes them a series of social benefits of
labor nature, including:
 
                  rise of wages, back wages, sole gratifications, housing pay,
food pay, vacations, vacation pay, among others
 
                   
17
  Supreme Tribunal of Justice, the Full Court (Sala Plena)   2006-358   Action
for annulment against SENECA filed by Estilito jose Milano, Neidy del Valle
Monasterios deIimpio,Jose Rafael Rojas (former employees of SENECA)   Bs.
75.832.264,20   Action for annulment of setdement entered into by former
employees and Seneca before the Labor Inspectorate, whereby both parties agreed
to terminate the labor relations, payment of social benefits and a settlement
fee, and mutual releases were exchanged. Plaintiffs allege that such setdement
is null and void due to defect of consent, since they mistakenly considered that
such setdement was more favorable in economic terms. In this sense, they alleged
that the Company owes them a series of social benefits labor nature, including:
 
                  rise of wages, back wages, sole gratifications, housing pay,
food pay, vacations, vacation pay, among others

 

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18
  Supreme Tribunal of Justice, the Full Court (Sala Plena)   2006-352   Action
for annulment against SENECA filed by Emiro Rafael Salazar Brito, Orlando Jose
Rodriguez Vizcaino, Alceo Rafael Velasquez Marcano (former employees of SENECA)
+ economic damages   Bs. 75.832.264,20   Action for annulment of settlement
entered into by former employees and Seneca before the Labor Inspectorate,
whereby both parties agreed to terminate the labor relations, payment of social
benefits and a setdement fee, and mutual releases were exchanged. Plaintiffs
allege that such setdement is null and void due to defect of consent, since they
mistakenly considered that such setdement was more favorable in economic terms.
In this sense, they alleged that the Company owes them a series of social
benefits of labor nature, including:
 
                  rise of wages, back wages, sole gratifications, housing pay,
food pay, vacations, vacation pay, among others
 
                   
19
  Supreme Tribunal of Justice, the Full Court (Sala Plena)   2006-355   Action
for annulment against SENECA filed by Felix Gomez, Remigio Ganero and Luisa Diaz
(former employees of SENECA) + economic damages   Bs. 71.103.479,77   Action for
annulment of settlement entered into by former employees and Seneca before the
Labor . Inspectorate, whereby both parties agreed to terminate the labor
relations, payment of social benefits and a setdement fee, and mutual releases
were exchanged. Plaintiffs allege that such setdement is null and void due to
defect of consent, since they mistakenly considered that such settlement was
more favorable in economic terms. In this sense, they alleged that the Company
owes them a series of social benefits of labor nature, including:
 
                  rise of wages, back wages, sole gratifications, housing pay,
food pay, vacations, vacation pay, among others

 

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20
  Supreme Tribunal of Justice, the Full Court (Sala Plena)   2006-323   Action
for annulment against SENECA filed by Teowaldojose Milano Gonzalez, Jesus Maria
Tineo Martinez and Enrique Marcano Jimenez (former employees of SENECA) +
economic damages   Bs. 74.760.199,45   Action for annulment of setdement entered
into by former employees and Seneca before the Labor Inspectorate, whereby both
parties agreed to terminate the labor relations, payment of social benefits and
a setdement fee, and mutual releases were exchanged. Plaintiffs allege that such
setdement is null and void due to defect of consent, since they mistakenly
considered that such setdement was more favorable in economic terms. In this
sense, they alleged that the Company owes them a series of social benefits of
labor nature, including:
 
                  rise of wages, back wages, sole gratifications, housing pay,
food pay, vacations, vacation pay, among others
 
                   
21
  Supreme Tribunal of Justice, the Full Court (Sala Plena)   2006-357   Action
for annulment against SENECA filed by Leonardo Rafael Gonzalez, Maria Rosario
Medina Perez and Luis Alberto Suarez (former employees of SENECA) + economic
damages   Bs. 68.443.614,01   Action for annulment of settlement entered into by
former employees and Seneca before the Labor Inspectorate, whereby both parties
agreed to terminate the labor relations, payment of social benefits and a
setdement fee, and mutual releases were exchanged. Plaintiffs allege that such
setdement is null and void due to defect of consent, since they mistakenly
considered that such setdement was more favorable in economic terms. In this
sense, they alleged that the Company owes them a scries of social benefits of
labor nature, including:
 
                  rise of wages, back wages, sole gratifications, housing pay,
food pay, vacations, vacation pay, among others
 
                   
22
  Supreme Tribunal of Justice, the Full Court (Sala Plena)   2006-350   Action
for annulment against SENECA filed by Jose Rivas, Gonzalo Rodriguez and
Guillermo Rocca (former employees of SENECA) + economic   Bs. 74.545.447,00  
Action for annulment of settlement entered into by former employees and Seneca
before the Labor Inspectorate, whereby both parties agreed to terminate the
labor relations, payment of social benefits and a setdement fee, and mutual
releases were exchanged. Plaintiffs allege that such setdement is null and void
due to defect of

 

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                  consent, since they mistakenly considered that such setdement
was more favorable in economic terms. In this sense, they alleged that the
Company owes them a series of social benefits of labor nature, including:
 
                  rise of wages, back wages, sole gratifications, housing pay,
food pay, vacations, vacation pay, among others
 
                   
23
  Supreme Tribunal of Justice, the Full Court (Sala Plena)   2006-326   Action
for annulment against SENECA filed by Saud Ramon Villaroel,Jose German Barreto
Frontado and Zoraida Veronica Lopez (former employees of SENECA) + economic
damages   Bs. 77.332.539,45   Action for annulment of settlement entered into by
former employees and Seneca before the Labor Inspectorate, whereby both parties
agreed to terminate the labor relations, payment of social benefits and a
setdement fee, and mutual releases were exchanged. Plaintiffs allege that such
setdement is null and void due to defect of consent, since they mistakenly
considered • that such setdement was more favorable in economic terms. In this
sense, they alleged that the Company owes them a series of social benefits of
labor nature, including:
 
                  rise of wages, back wages, sole gratifications, housing pay,
food pay, vacations, vacation pay, among others

                         
24
  Regional Archives for the Judicial Circuit of Nueva Esparta State (Remitted
under file No. 363, page. 1, official communication No. 0970-5602 dated
27/07/2006)     19.765     Lawsuit filed by CADAFE claiming adverse ownership of
land plot on which Las Hernandez Substation is built        

 

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Potencial Litigation

                     
1
  Garcia Municipality’s Tax Department       Tax Assesment
N°J-H-04-2007
received on March
8th, 2007   Bs. 61.939.223.059,00   SENECA filed defense arguments before the
Garcia Municipality’s Tax Department on March 27*, 2007

Criminal Complaints involving Seneca as a victim as of March 28th, 2007

                  Mode of             Commencement of         Commencement of
criminal   criminal         investigation   investigation   Place and Cause of
Action   Remarks
1. 18/08/2003 INEPOL Report C13-3626
  EX-OFFICIO   Francisco Esteban Gomez Avenue Defendants: Omar Jose Mendez and
Hender Jean Ramos Quijada. Type of criminal Offense: ATTEMPTED QUALIFIED THEFT  
1st Prosecutor’s Office. Docket No. 17-F3-0855-03 TRIAL STAGE. Public and oral
hearing scheduled 29/07/05 at 11 AM, and adjourned until 07/09/05 at 10:00 AM,
due to the absence of the counsel for the defense. The trial was scheduled
21/08/06 but it was adjourned due to the lack of available room until 20/10/06
at 11:00 AM 1” Trial Court Docket No. 1M-206
 
           
2. 18/04/05 Polimarino Dckt. 2053-05
  Formal complaint made by Erica Hernandez and several residents of El Poblado.
  Alteration of electric meters and collection of unlawful fees. El Poblado,
calle el Colegio, cruce con callejon El Chino. Defendant: Jose Ramon Gil   3rd
Prosecutor’s Office. Docket No. 17 -F3-601-05 TRIAL STAGE. Defendant was
presented before die 3rd Tribunal of Control on 19/04/05 charged with EXTORTION
AND MISAPPROPRIATION OF GOODS FROM A CRIMINAL OFFENSE, with a conditional
release precautionary measure which involves appearing before the court every
thirty days. On 05/06/05 a power of attorney was filed on the records. The trial
was scheduled 14/08/06 but it was subsequently adjourned due to lack of
available room until 05/10/06. 1* Trial Court Docket No. 2431
 
           
3. 15/01/2004 Polimarino Report no. 1641-04
  Formal Complaint
made by Angel
Bermudez   Calle Guayacan Sur, Costa Azul Theft of 250 meters of underground
cable Defendant: Felipe Antonio Lopez.   1* and 3rd Prosecutor’s Offices. Docket
No. 17-F3-039-04 INVESTIGATION STAGE. The Prosecutor’s Office received the
complaint and the commencement of investigations was ordered by official
communication No. 0127 dated 10/02/04. On 14/10/04 the police force requested
members of SENECA staff to testify in order to proceed with the investigations
 
           
4. 16/1/2004 CICPC Report No. G-587157
  Formal Complaint
made by Angel
Indriago   SENECA, Luisa Caceres JL UUll Theft of 700 meters of electrical cable
at Almacen delaPlantaLCA.   1” and 3rd Prosecutor’s Offices. Docket No.
17-F3-089-04 INVESTIGATION STAGE. The Prosecutor’s Office-received the complaint
and the commencement of investigations was ordered on 19/01/04

 

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                  Mode of             Commencement of         Commencement of
criminal   criminal         investigation   investigation   Place and Cause of
Action   Remarks
5. 13 / 9 / 2003 CICPC Report G-492296
  Formal Complaint
made by Marianella
Silva   Av. Bolivar, Urb. Piedra Virgen, El Datil Theft of electrical cable   1*
and 5th Prosecutor’s Offices, Docket No.17-F5-0961-03 INVESTIGATION STAGE. This
case is to be processed by the ltt Prosecutor’s Office, but it is waiting for
the police records in order to commence proceedings
 
           
6. 04/03/05 CICPC Report No G-751.813
  Formal Complaint
made by
Cruz Manuel Rasse
Rojas   Altagracia, calle Presente Quijada. Theft of 2 Motorola transmission
radios, black valued at Bs.2 million   1* Prosecutor’s Office Docket No.
17-F1-298-05 INVESTIGATION STAGE. Commencement of investigations was ordered on
06/04/05. On 21/04/05 Prosecutor’s Office requested dismissal of the case
 
           
 
      each. One pair of electrical insulated gloves valued at Bs.l50 thousand.
One plastic lantern, yellow, valued at Bs.90 thousand. One hydraulic jack valued
at Bs.l50 thousand and one lug wrench valued at Bs. 30 thousand Total Bs.
420.000,00    
 
           

             
7. 11 /06 / 2003 CICPC Report No G-431018
  Formal Complaint made by Marianella
Silva       2nd Prosecutor’s Office Docket No. 17-F2^477-03 INVESTIGATION STAGE.
This Prosecutor’s Office is processing the case, but the records are with the
Police, Theft and Robbery Brigade, since 27/05/03
 
           
8. 08 / 01 / 2004 INEPOL
  Formal Complaint made by Pedro
Losada   Villa Rosa Attempted theft at the communications tower of O/C   2nd
Prosecutor’s Office Docket No. 17-F2-549-03 INVESTIGATION STAGE. The
Prosecutor’s Office received formal complaint and on 20/01 /04 it was ordered
the commencement of investigations.
 
           
9. 10 / 01 / 2004 Inepol Report No.C-22-4549
  EX-OFFICIO   Recuperadora el Datil. Theft of goods owned by SENECA and CANTV.
  2nd Prosecutor’s Office Docket No. 17-F2-081-04 INVESTIGATION STAGE. It is at
investigation stage since 09/03/04
 
           
10 11 /02/2004 CICPC Report No. G-748022
  Formal Complaint made by Dra. Marianella Silva   Costa Azul, Macho Muerto and
Los Bagres Theft of electrical wiring   2nd Prosecutor’s Office Docket No.
17-F2-133-04 INVESTIGATION STAGE. The Prosecutor’s Office received the complaint
and the commencement of investigations was ordered on 13/02/04.
 
           
11. 06/04/2005 CICPC Report No. H-067.052
  Formal Complaint made by Angela Castillo.   Sector Cotoperi 2 calle 7 casa
E-143. Theft of Electric meter.   2nd Prosecutor’s Office Docket No.
17-F2-497-05 INVESTIGATION STAGE. Commencement of investigations was ordered on
13/02/04 by the Prosecutor’s Office.

 

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                  Mode of             Commencement of         Commencement of
criminal   criminal         investigation   investigation   Place and Cause of
Action   Remarks
12. 04/09/2005
  EX-OFFICIO   Isla de Coche. Near Cementerio El Bichar Theft of cables Criminal
Offense: ATTEMPTED QUALIFIED THEFT Defendant: J-Fran Reinaldo Suarez Gonzalez  
2nd Prosecutor’s Office Docket No. 17-F2-1257-05 INVESTIGATION STAGE. This case
was remitted ex-officio by Coche police forces since the defendant was found
with cables from the public electric wiring. The prosecutor carried out the
Presentation Hearing on Sunday 04/09/05 Control 2. Docket No. OP01 -P- 05-4684.
Judicial Archives Docket No 8220  
13 05/08/05 INEPOL Report No. El 6-0400
  Formal Complaint
made by
Alexandra Gomez
Garcia   Av. Fucho Tovar Illegal Connections   2nd Prosecutor’s Office Docket
No. 17-F2-1181-05 INVESTIGATION STAGE. The Prosecutor’s Office ordered
commencement of investigations. On 31/01/06 a petition was filed before the
Prosecutor’s Office seeking the Company to normalize the irregular situation.
 
           
14. 13/08/04 INEPOL Report No D16-6399
  Formal Complaint
made by
Alexandra Gomez   Luisa Caceres de Arismendi Warehouse, Sector Macho Muerto, via
la Isleta, Municipio Garcia Theft of four tires for vehicles, model
300-040-0207-0 valued at Bs. 94.373,46 each, and two tires for forklift trucks,
model 300-040-0301-0 valued at Bs. 5.852,30 each. Total amount Bs. 389.198,44  
3rf Prosecutor’s Office 3° Docket No. 17-F3-848-04 INVESTIGATION STAGE.
Commencement of investigations was ordered on 13/02/04 by the Prosecutor’s
Office.
 
           
15. 27/01/05 INEPOL Report No. D16-8495
  EX-OFFICIO   Raids carried out at la Chatarrera San Juan, in Carapacho, a
scrap dealer located at Av. San Juan Bautista Arismendi, Sector Macho Muerto and
another one at Calle Velasquez in Porlamar.   3* Prosecutor’s Office 3° Docket
17-F3-175-05 INVESTIGATION STAGE. Commencement of investigations was ordered.
The Company may not request for return of stolen goods until processed by the
prosecution. On 08/03/05 a broad request was filed for the return of goods found
in the raids carried out by the National Guard. On 19/05/05 a new petition was
filed for the return of the stolen goods to Seneca. On 09/06/05 the order for
the released of stolen goods was delivered.
 
           
16. 28/02/05 Prosecutor’s Office Superior
  Formal Complaint made by Asociacion de Trabajadores del Centro Comercial
Jumbo. Ivano Bonciani et al.   Centro Gudad Comercial Jumbo. Formal complaint
related to incorrect installation of electric meters   3rd Prosecutor’s Office
3° Docket No. 17 -F3-340-05 INVESTIGATION STAGE. Commencement of investigations
was ordered on 09/04/05 by the Prosecutor’s Office, on 09/04/05 information on
the installation of electric meters was requested from Seneca by official
communication.

 

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                  Mode of             Commencement of         Commencement of
criminal   criminal         investigation   investigation   Place and Cause of
Action   Remarks
17. 04/06/05 INEPOL Report No. D16-9876
  Formal Complaint made by Alexandra Gomez Garcia.   Calle Guayacan,
urbanizacion Costa Azul. Cut of public electric wiring and theft of the control
box   3"* Prosecutor’s Office Docket 17- F3-886-05 INVESTIGATION STAGE.
Commencement of. investigations was ordered on 08/06/05
 
           
18. 01/04/04 INEPOL Report No. D-16-5196
  Formal Complaint
made by
Alexandra Gomez   Puente de la Restinga, theft of 100 meters of No. 2 coated
conductor cooper cables, valued at Bs.280.000,oo and 100 meters of 2” wire duct,
Bs. 289.000,oo. 2) At Juan Griego, Theft of 6 meters of 2/0 coated TTU cooper
conductor valued at Bs. 82.500,oo. 3) Av. Los Robles. Theft of AWG coated cooper
threaded cable valued at Bs 147.000,oo   4* Prosecutor’s Office Dckt 17
-F4-0266-04 INVESTIGATION STAGE. On 2/04/04, said docket was remitted to the
Prosecutor’s Office, enclosed with official communication No. 0199, and
commencement of investigations was ordered. Remission to a Prosecutor’s Office
still pending.  
19. 06/05/04 INEPOL Report No Dl 6-5490-04
  Formal Complaint
made by Alexandra
Gomez   Several places   4th Prosecutor’s Office 4° Docket. 17-F4-0423-04
INVESTIGATION STAGE. Remission to a Prosecutor’s Office still pending.
 
           
20. 06 / 02 / 2004 INEPOL Report No. D-6201
  Formal Complaint
made by Alexandra
Gomez   1) La Asuncion Substation, 2) Plaza Bolivar, la Asuncion., 1) Theft of
several materials valued at 9 million bolivars. 2) theft of wiring, automatic
start, lighters and lighting strengthened valued at Bs. 13.500.000,oo Total
Bs22.500.000,oo   5th Prosecutor’s Office. Docket No. 17-F5-0713-04
INVESTIGATION STAGE. Case was entered and commencement of investigations
ordered. It is processed by CICPC under Docket No. G-749.789

 

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                  Mode of             Commencement of         Commencement of
criminal   criminal         investigation   investigation   Place and Cause of
Action   Remarks
21. 26/06/04 INEPOL report No. Dl 6-6538
  Formal Complaint
made by Alexandra
Gomez   TariTari Sector, 2da transversal near Comercial Leon. Theft of 3
stretches of cooper wire valued at Bs. 225.150,oo Valparaiso Street with Campos
de Juan Griego Street. Theft of one stretch of cooper wire valued at Bs.
85.050,oo.
Pedregales, theft of two stretches of cooper wire valued at Bs. 170.100,oo.
Calle Campos con Av. Chalia, theft of one stretch of cooper wire valued at Bs.
85.050,oo. Abre Brecha Sector. Theft of cooper line valued at Bs. 85.050,oo. El
Palito Sector, Pedregales. Theft of a cooper line valued at Bs. 85.050,oo. Altos
de Moro de la Vecindad, near Urb. Los Cocoteros. Theft of 4 stretches of cooper
wire line valued at Bs. 340.000,oo. Total 1.075.450,oo   5th Prosecutor’s Office
5° Docket No. 17-F5- 0833-04 INVESTIGATION STAGE. The prosecution ordered
commencement of investigations. The police department requested a
technical-scientific report on the stolen material and information about the
defendant. On 17/09/04 Inspector Marin received a report .containing photographs
of the places where the theft took place
 
           
22. 7/11/2004 GN Report No.
  Formal Complaint   Luisa Caceres de
Arismendi Warehouse   5th Prosecutor’s Office Docket No. 17-F5 -1216-04
INVESTIGATION STAGE. On 02/12/04 said docket was remitted to Criminal
Investigations Department (CICPC) so as to proceed with the investigations
 
           
23.14/09/05 INEPOL Report No. E16-0698
  Formal Complaint made by Alexandra Gomez Garcia.   Several thefts in Maneiro
and Marino Municipalities, Playa el Angel and Costa Azul Sectors.
Several meters of cable and fittings   5th Prosecutor’s Office Docket No. 17-F5
-1271-05 INVESTIGATION STAGE commencement of investigations was ordered on
22/09/05

 

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                  Mode of             Commencement of         Commencement of
criminal   criminal         investigation   investigation   Place and Cause of
Action   Remarks
24. 14/04/05 INEPOL Report No. D16-9203
  Formal Complaint made by Alexandra Gomez Garcia.   Boca del Rio to Las
Hernandez Substation, at Santa Maria. Theft of 2/0 cooper wire, two stretches of
200 meters each, and different fittings and parts. Total value: Bs. 2.086.372,01
  5th Prosecutor’s Office Docket No. 17- F5-0567-05 On 22/04/05 the prosecution
received the complaint and ordered commencement of criminal investigations. On
30/05/05 the prosecution received the corresponding records from the Criminal
Investigations Department On 14/2/07, the court ordered Stay of Proceedings.
 
           
25. 15/04/04 INEPOL Report No. Dl-5326
  Formal Complaint made by representatives of Seneca   Festejos Super Portu.
Calle Maria Losada, Sector Sabana Mar. An electric meter was being placed at
this business premises without an installation order due to delinquent accounts
Criminal Offense: Qualified Fraud. Defendants: Tomas Enriquez Guzman Silva,
Adolfo Rafael Guerra Sihra and Joscar Luis Lares Hernandez.   1st Prosecutor’s
Office 1° Dckt 17-F1 -434-04 CONCLUSIVE ACT PENDING. On 16/04/04 the
presentation hearing was carried out by the Prosecution before the Fourth
Tribunal of Control, and the defendant was charged with QUALIFIED FRAUD with a
conditional release precautionary measure which involves appearing before the
court every fifteen days. Juneima Cordero takes te case over and indicates that
it has been a transgression of article 26 of the Constitution, therefore, the
Court requests the Prosecutor’s Office to issue conclusive act The prosecution
issues summons upon the defendants. On 22/06/06 the Prosecutor’s Office request
a certified copy of the Presentation Hearing records. Control 3. Docket
No.C3-7871-04 Judicial Archives Docket No 6261
 
           
26. 03/05/04 INEPOL Report No. D8-5471
  EX-OFFICIO   Qualified Offense. Appropriation of goods from criminal Offense  
1” Prosecutor’s Office 1° Dckt. 17-F1 -693-04 (4th Prosecutor’s Office 4° 0381)
Case was entered on 12/07/04 CONCLUSIVE REPORT PENDING. Charges against
defendants Roberto Jose Ruiz and Manuel Masks still pending. The court granted a
conditional release precautionary measure hich involves appearing before the
court every fifteen days Control 4. Docket No. 7489 Judicial Archives Docket
6448
 
           
27. 01/03/04 GN Report No. 027
  EX-OFFICIO   Recuperadora de Metales
Heracleo Gomez
Investigation proceedings   2nd Prosecutor’s Office Docket No. 17-F2-188-04
CONCLUSIVE REPORT PENDING. Marcelo Heracleo Gomez was charged. The Prosecutor’s
Office received criminal investigation records from the National Guard and is
currendy preparing conclusive report On 28/04/05 the return of stolen materials
was requested by the Company’s attorneys

 

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                  Mode of             Commencement of         Commencement of
criminal   criminal         investigation   investigation   Place and Cause of
Action   Remarks
28. 15/04/04
  Formal Complaint made
by Lairon Jimenez   Isla de Coche
Theft at business premises   1* Prosecutor’s Office Docket No. 17-F1-375-04
CONCLUSIVE REPORT PENDING. On 29/04/04 it was remitted to the National Guard by
official communication No. NE1-555-04 so as to commence the investigations. The
prosecution issued an arrest warrant against the defendant, Raiber Jose Carreno.
CHARGES: QUALIFIED THEFT. On 04/10/04 the prosecution issued an arrest warrant
On 25/07/05 it is requested the dismissal of the case
 
           
24/08/05 INEPOL Report No. E16-0582
  Formal Complaint made
by Alexandra Gomez Garcia   Res. Villas Castilla Mar, Juan Griego, Av. Juan de
CasteUanos Illegal connections Second Offense.   Prosecutor’s Office 1° Dckt.
17-F1256-05 CONCLUSIVE REPORT PENDING. Commencement of investigations was
ordered to the National Guard on 29/09/05. A petition was filed for the
prosecution to render a conclusive report. Records were remitted to the Criminal
Investigations Department on 18/01/06, and it is still pending the conclusive
report by^ the prosecution.
 
           
30. 14/05/04 INEPOL Report No D14-5569
  EX-OFFICIO   At the Hospital An individual was found and arrested by the
Police with a bag of cables used by the Company to coat electrical control
panels, different colors and No. 18, with necessary fittings for power
connection and transmission   5* Prosecutor’s Office Docket No. 17-F5-0477-04
PRELIMINARY HEARING PENDING. On May 15 2007, the prosecutor presented the case
and Luis Gregorio Perez Saarez was charged with QUALIFIED THEFT before the 2nd
Tribunal of Control, with a conditional release precautionary measure which
involves appearing before the court every thirty days. On August 25th, 2004 the
prosecution changed charges to APPROPRIATION OF GOODS FROM CRIMINAL OFFENSE,
with the same precautionary measure. Hearing was scheduled 28/10/04 at 1:00
p.m., and subsequendy adjourned due to the absence of the defendant until
11/04/05 at 01:00 PM. The defendant did not appear before the court. The hearing
was scheduled 19/07/05 at 12:00 PM, and the defendant did not appear before the
court On 26/07/05 the court issued an arrest warrant Control 4. Dckt
No. C4-7491. Judicial Archives 6363
 
           
31 14/09/05 INTEPOL Report No. E16-0699
  Formal Complaint made
by Alexandra Gomez Garcia   Several thefts at Sabana Mar, Villa Rosal and Costa
Azul. Theft of several meters of cable and different fittings   Superior
Prosecutor’s Office. Dckt 17 INVESTIGATION STAGE. Court assignmentpending
 
           
32
  Formal Complaint made
by Alexandra Gomez Garcia   Seneca’s facilities   5th Prosecutor’s Office Dckt
17-F5-1365-05 INVESTIGATION STAGE The Prosecutor’s Office ordered the
commencement of investigations
 
           
33. 17/01/07 INEPOL Report No. C-DAI-002-01-07
  Formal Complaint made
by Marianella Silva Brea   Several thefts: At Santa Maria, Chacachacare and Los
Gomez of Tubores Municipality, 2/0 cooper conductor cable stretches
corresponding to the 34.5kv Las Hernandez— Boca de Rio power line   Superior
Prosecutor’s Office INVESTIGATION STAGE. Court assignment pending

 

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                  Mode of             Commencement of         Commencement of
criminal   criminal         investigation   investigation   Place and Cause of
Action   Remarks
34. 19/02/07 CICPC Report No. H-485.750
  Formal Complaint made
by Marianella Silva Brea   Several thefts: At Carretera Nacional Boca de Rio,
Tubores and Peninsula de Macanao Municipalities, 2/0 cooper conductor cable
stretches corresponding to the 34.5kv Las Hernandez— Boca de Rio power line  
Superior Prosecutor’s Office INVESTIGATION STAGE. Court assignment pending
 
           
35 12/03/07 INEPOL Report No. C-DAI-002-03-07
  Formal Complaint made
by Marianella Silva Brea   Several thefts: At Las Hernandez Substation (doors of
the Battery Room) and at Carretera Nacional Boca de Rio, Tubores and Peninsula
de Macanao municipalities, 2/0 cooper conductor cable stretches corresponding to
the 34.5kv Las Hernandez-Boca de Rio power line.   Superior Prosecutor’s Office
INVESTIGATION STAGE. Court assignment pending
 
           
36. 15-03-07 INEPOL Report No. CPP-056-15-03-07
  Formal Complaint made
by Jose Mata   Several Larcenies: (£) at Las Hernandez Subsation (doors from the
Batteries’ Room) and (H) Theft of streches of copper conductor caliber 2/0 on
the National Road Boca de Rio in the Tubores and Macanao Municipalities that
belong to the 34.5 Kv line Las Hernandez -Boca de Rio   Superior Prosecutor’s
Office INVESTIGATION STAGE. Court assignment pending
 
           
37. 19-03-07 INEPOL Report No. CPA-028-03- 07
  Formal Complaint made
by Jose Mata   Several Larcenies: (i) at Las Hernandez Subsation (doors from the
Batteries’ Room) and (ti) Theft of streches of copper conductor caliber 2/0 on
the National Road Boca de Rio in the Tubores and Macanao Municipalities that
belong to the 34.5 Kv line Las Hernandez -Boca de Rio.   Superior Prosecutor’s
Office INVESTIGATION STAGE. Court assignment pending

 

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Appendix 2,11 Assets* Condition
1) 115 kV underwater cable Chacopata-Luisa Caseres de Arismendi Plant
The underwater cable consists of four 28 km, cooper individual conductors of
approximately 28km long OF type (Internal oil circulation for cooling)
manufactured by Fujikura of Japan and installed between 1975 and 1977. Design
capacity of 100 MVA. Discontinuities on the protective metallic mesh caused by
anchors and/or deep-sea trawling, have caused inefficiency in the operation of
the cathodic protection at least for the last 15 years; therefore the cable
should be operated up to 75% of its designed capacity. One of the four cables is
kept as a “reserve” and operated when one of die other three is out of service
due to maintenance operations or inspection. As a result of such inspection it
was determined that two of the four cables have some oil leak apparendy in the
Chacopata extreme and are partially under control While awaiting new repairs,
the cables are being operated at 60 to 65% design capacity. Repairs consist of
identifying the precise point of the leak, applying a seal or other repair
technique done at the precise junction and replacing the damage section. These
repairs are of outmost priority and should be performed immediately during the
second quarter subject to the availability of Fujikura or other vendor managing
such technology.
2) Unit 03- MS- 5001P Serial # 244.681
Unit 03 is one of seven Frame 5 gas turbines (diesel operated), manufactured by
AEG Kanis, in 1977, installed in the Luisa Caseres de Arismendi Plant. In 1999,
the unit was converted in its main components to “High Tech” obtaining an
increase in power and a specific reduction in fuel consumption. Since its major
inspection (3rd quarter 2004) the unit has operated 16,000 hours. The unit was
shut down due to high vibrations caused by a detachment of material from
blinding. A boroscopic inspection was performed and it was determined that the
second stage blinding and thermal blocks are damaged. The required spare parts
for replacement and inspection of hot gases have been ordered from the
manufacturer (GE). 90% of these spare parts are already in stock at the SENECA
warehouse. Replacing and assembling the unit has already begun according to the
current contract signed with GE. Expected date to be in service is April /
May 07.
3) Unit 10- PG 6561B- Serial # 832
Unit 10 is one of two Frame 6B owned by CMS Enterprises currently under a
leasing agreement with SENECA. This unit was manufactured by GE-Alsthom
(GEEPE) in 1999 and put in service during the first quarter of 2000. During its
operation, routine inspections have been performed to determine the condition of
main components which have shown normal wear considering the type of operation,
fuel, weather and air. Since its last major overhaul the unit has operated
30,000 hours (manufacturers recommended interval 32,000 hours). An inspection of
hot gases was planned for last quarter of 2006 (manufacturer’s recommended
interval for a hot gas path inspection is 16,000 hours); however, such
inspection had to be postponed due to suppliers’ delivery delay of certain spare
parts. This inspection was then replaced by a major inspection which is expected
to occur in mid April. During such time and as a safety measure the unit’s
release temperature has been lowered to 490*C and its power reduced to 20MW.
During 2006, a series of boroscopic inspections were performed to monitor and
deterioration levels of main components were determined.
4) GT Unit 11- PG 6561B- Serial # 837
Unit 11 is one of two Frame 6B owned by CMS Enterprises currendy under a leasing
agreement with SENECA. This unit was manufactured by GE-Alsthom (GEEPE) in 1999
and put in service during the second quarter of 2000. Since its last major
overhaul the unit has operated 23,000 hours (manufacturer’s recommended interval
is 32,000). An inspection of hot gases was planned for the first quarter of 2007
(manufacturer’s recommended interval for a hot gas path inspection is 16,000
hours); however, a delay in the closing down of Unit 10 has caused the hot gases
inspection of Unit 11 to be postponed. Consequendy, a major overhaul is to be
performed during the last quarter of 2007 or beginning of 2008. During such time
and as a safety measure the fire temperature of the unit has been reduced.
5) Los Millanes — La Asuncion 115 kV power line.
High voltage, open air power line interconnecting two substations of 115 kV of
the SENECA high voltage ring. This power line, built in 1981, comprises 3 type
ACAR conductors with 350 MCM and 80 MVA capacity. The replacement of two towers
has been scheduled for March 07. This has already been contracted and the work
has begun. At least 3 Km of said power line lack a guard conductor.

 

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6) La Asuncion — Pampatar- Los Robles 115 kV power line.
High voltage, open air power line interconnecting three substations of 115 kV of
the SENECA high voltage ring. This power line, built in 1981/1983, comprises 3
type ACAR conductors with 350 MCM and 80 MVA capacity. 8 km approximately lack a
guard conductor.
7) Luisa Caceres — Porlamar — Los Robles 115 kV power line.
High voltage, open air power line interconnecting three substations of 115 kV of
the SENECA high voltage ring. This power line, built in 1993, comprises 2x3 ACAR
conductors with 500 MCM and 120 MVA capacity. Tower 15 needs to be replaced due
to saline contamination. Another six towers are to be inspected. Near 3 km lack
a guard conductor.

 

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Appendix 2.11 Assets’ Condition
1) 115 kV underwater cable Chacopata-Luisa Caseres de Arismendi Plant
The underwater cable consists of four 28 km, cooper individual conductors of
approximately 28km long OF type (Internal oil circulation for cooling)
manufactured by Fujikura of Japan and installed between 1975 and 1977. Design
capacity of 100 MVA. Discontinuities on the protective metallic mesh caused by
anchors and/or deep-sea trawling, have caused inefficiency in the operation of
the cathodic protection at least for the last 15 years; therefore the cable
should be operated up to 75% of its designed capacity. One of the four cables is
kept as a “reserve” and operated when one of the other three is out of service
due to maintenance operations or inspection. As a result of such inspection it
was determined that two of the four cables have some oil leak apparendy in the
Chacopata extreme and are partially under control. While awaiting new repairs,
the cables are being operated at 60 to 65% design capacity. Repairs consist of
identifying the precise point of the leak, applying a seal or other repair
technique done at the precise junction and replacing the damage section. These
repairs are of outmost priority and should be performed immediately during the
second quarter subject to the availability of Fujikura or other vendor managing
such technology.
2) Unit 03- MS- 5001P Serial # 244.681
Unit 03 is one of seven Frame 5 gas turbines (diesel operated), manufactured by
AEG Kanis, in 1977, installed in the Luisa Caseres de Arismendi Plant. In 1999,
the unit was converted in its main components to “High Tech” obtaining an
increase in power and a specific reduction in fuel consumption. Since its major
inspection (3rd quarter 2004) die unit has operated 16,000 hours. The unit was.
shut down due to high vibrations caused by a detachment of material from
blinding. A boroscopic inspection was performed and it was determined that the
second stage blinding and thermal blocks are damaged. The required spare parts
for replacement and inspection of hot gases have been ordered from the
manufacturer (GE). 90% of these spare parts are already in stock at the SENECA
warehouse. Replacing and assembling the unit has already begun according to the
current contract signed with GE. Expected date to be in service is April /
May 07.
3) Unit 10- PG 6561B- Serial #832
Unit 10 is one of two Frame 6B owned by CMS Enterprises currendy under a leasing
agreement with SENECA. This unit was manufactured by GE-Alsthom (GEEPE) in 1999
and put in service during the first quarter of 2000. During its operation,
routine inspections have been performed to determine the condition of main
components which have shown normal wear considering the type of operation, fuel,
weather and air. Since its last major overhaul the unit has operated 30,000
hours (manufacturer’s recommended interval 32,000 hours). An inspection of hot
gases was planned for last quarter of 2006 (manufacturer’s recommended interval
for a hot gas path inspection is 16,000 hours); however, such inspection had to
be postponed due to suppliers’ delivery delay of certain spare parts. This
inspection was then replaced by a major inspection which is expected to occur in
mid April During such time and as a safety measure the unit’s release
temperature has been lowered to 490*C and its power reduced to 20MW. During
2006, a series of boroscopic inspections were performed to monitor and
deterioration levels of main components were determined.
4) GT Unit 11- PG 6561B- Serial # 837
Unit 11 is one of two Frame 6B owned by CMS Enterprises currendy under a leasing
agreement with SENECA. This unit was manufactured by GE-Alsthom (GEEPE) in 1999
and put in service during the second quarter of 2000. Since its last major
overhaul the unit has operated 23,000 hours (manufacturer’s recommended interval
is 32,000). An inspection of hot gases was planned for the first quarter of 2007
(manufacturer’s recommended interval for a hot gas path inspection is 16,000
hours); however, a delay in the closing down of Unit 10 has caused the hot gases
inspection of Unit 11 to be postponed. Consequendy, a major overhaul is to be
performed during the last quarter of 2007 or beginning of 2008. During such time
and as a safety measure the fire temperature of the unit has been reduced.
5) Los Millanes — La Asuncion 115 kV power line.
High voltage, open air power line interconnecting two substations of 115 kV of
the SENECA high voltage ring. This power line, built in 1981, comprises 3 type
ACAR conductors with 350 MCM and 80 MVA capacity. The replacement of two towers
has been scheduled for March 07. This has already been contracted and the work
has begun. At least 3 Km of said power line lack a guard conductor.

 

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6) La Asuncion — Pampatar- Los Robles 115 kV power line.
High voltage, open air power line interconnecting three substations of 115 kV of
the SENECA high voltage ring. This power line, built in 1981/1983, comprises 3
type ACAR conductors with ‘ 350 MCM and 80 MVA capacity. 8 km approximately lack
a guard conductor.
7) Luisa Caceres — Porlamar — Los Robles 115 kV power line.
High voltage, open air power line interconnecting three substations of 115 kV of
the SENECA high voltage ring. This power line, built in 1993, comprises 2x3 ACAR
conductors with 500 MCM and 120 MVA capacity. Tower 15 needs to be replaced due
to saline contamination. Another six towers are to be inspected. Near 3 km lack
a guard conductor.

 

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Appendix 2.13 Environmental Liability
1. Industrial water recollection pond, Luisa Caceres de Arismendi Plant:
Except for suspended solids, biochemical oxygen demand and chemical oxygen
demand, all the parameters (21) analyzed show values below the standard limits
or range set forth in Decree N0.883, which establishes the Rules for the
Classification and Quality Control of Water Bodies and Effluents or Wastewater
published in the Extraordinary Official Gazette NO. 5021 dated October 11, 1985.
The test results have been sent to the Ministry of Environment and Natural
Resources. SENECA continues to take corrective actions to bring these measures
into compliance.
2. Industrial Effluent, Coche Plant:
Except for hydrogen potential, mineral and fuel gases and oils, biochemical
oxygen demand and chemical oxygen demand, all the parameters (21) analyzed show
values below the standard limits or range set forth in Decree N0.883, which
establishes the Rules for the Classification and Quality Control of Water Bodies
and Effluents or Wastewater, published in the Extraordinary Official Gazette NO.
5021 dated October 11,1985. The test results have been sent to the Ministry of
Environment and Natural Resources.
3. Noise Levels, Luisa Caceres de Arismendi Plant:
The noise level equivalent (Leq) and the noise level exceeded during 10% of
testing period (L10) in the peripheral areas showed that during night hours the
levels were higher than the tolerable noise established in Decree NO. 2217 which
sets forth the Rules on Noise Pollution Control published in the Special
Official Gazette NO.4.418 dated April 23, 1992 for areas classified as Zone IV.
The test results have been sent to the Ministry of Environment and Natural
Resources. SENECA continues to take corrective actions to bring these measures
into compliance.
4. Noise Levels, Coche Plant:
The noise level equivalent (Leq) and the noise level exceeded during 10% of
testing period (L10) in the peripheral areas showed that during day and night
hours the levels were higher than the tolerable noise established in Decree NO.
2217 which sets forth the Rules on Noise Pollution Control published in the
Special Official Gazette NO.4.418 dated April 23, 1992 for areas classified as
Zone IV. The test results have been sent to the Ministry of Environment and
Natural Resources.
5. Soil Characteristics, Coche Plant: There are two precise pollution points
with hydrocarbons sub-products (Fuel pumping system around 6m2 and adjacent area
to Unit CAT01 55m2approx.)
6. Equipment that may contain PCB: There are two 660 kVA Marelli transformers
manufactured in 1953 currendy out of service which may contain Askarel
dielectric oil with capacity of approximately 430 litters each. This equipment
has been isolated, covered and kept in metal boxes and shows no signs of
leaking. The test results have been sent to the Ministry of Environment and
Natural Resources.
7. Underwater Cable: The underwater cable consists of four individual cooper
conductors of approximately 28km long, OF type (Internal oil circulation for
cooling) manufactured by Fujikura of Japan and installed between 1975 and 1977.
As a result of inspections it was determined that two of the four cables have
some oil leak apparendy in the Chacopata extreme which are partially under
control. Repairs consist of identifying the precise point of the leak, applying
a seal or other repair technique, perform the relevant junction and replace the
damaged section. These repairs are of outmost priority and should be performed
immediately during the second quarter subject to the availability of Fujikura or
other vendor managing such technology. SENECA continues to take corrective
actions to bring these measures into compliance.

 

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Appendix 4.1 Seneca’s Activities
1. The Maintenance Agreement entered into by GE and SENECA dated July 1, 2005
provides that SENECA shall confirm to GE prior to shipping that all payments
related to the shipping of spare parts from abroad shall be covered by the
guaranty issued by CMS Electric & Gas, LLC, in favor of GE. As explained
hereunder such guaranty is no longer in effect and shall not be renewed as
consequence of the sale of SENECA. GE could request a payment guaranty for the
shipping of spare parts from abroad.
On March 1, 2004, CMS Electric & Gas, L.L.C., issued a payment guaranty in favor
of GE which was renewed for the last time on June 29,2006. Said renewal
established that the guaranty was to be in effect until December 29, 2006 and
would only cover those spare parts and equipment requested in a letter dated
June 29, 2006 which confirmed GE’s quotation NO.06-1281 as evidenced by SENECA’s
Purchase Order No.38315, up to the amount of USD 956,641.71. In light of such
guaranty CMS Electric & Gas, L.L.C., and SENECA signed a Reimbursement Agreement
whereby SENECA agrees to repay any and all costs incurred by CMS Electric & Gas,
L.L.C., pursuant the aforementioned guaranty. Effective as of March 26, 2007,
the Reimbursement Agreement was terminated in all respects and therefore SENECA
is released of any payment or reimbursement obligation.
2. The All Risk Insurance Contract NO 01-04-01914-22-001 entered into with
Banesco Seguros, C.A., which is in effect from December 14, 2006 until
December 14, 2007 establishes as a requirement of the reinsurance contract set
forth in Attachment 6 (Insurance Premium payment Requirements Attachment NO
22-06-9-03 Special Conditions) that the reinsurance premium owed from the date
of the agreement shall be paid and received by the reinsures before midnight on
April 14, 2007. In the event that such conditions are not met, the reinsurance
contract shall be terminated on the aforesaid date and the reinsured shall pay
the premium calculated on a pro rata basis for the time at risk. Regarding this
matter Banesco Seguros, C A., requested authorization to purchase foreign
currency from the Currency Administration Commission (CADIVI) in order to pay
the reinsurers: however said authorization has not yet been granted.
3. Clause NO 5 (Worsening of Risk of the Especial Conditions for Industry All
Risk Attachment) of the AH Risk Insurance Contract NO 01-04-01914-22-001 entered
into with Banesco Seguros, C.A., which is in effect from December 14, 2006 until
December 14, 2007 states that if during the life of the policy the risk was
change, the insured shall inform Banesco Seguros, CA. of such changes by written
notice sent within five (5) consecutive days following the date in which the
insured became aware of such changes indicating the precise changes of risk.
Banesco Seguros, C.A., shall have fifteen (5) consecutive days commencing on the
date notice is received to propose amending or terminating the policy.
Additionally, it is set forth that the transfer of interest that the insurer has
in the properties subject to the agreement shall constitute a risk change fact.
On March 2, 2007 SENECA informed Marsh Venezuela, C.A., that upon the purchase
of SENECA’s shares and the Equipment by Buyer, the same maintenance programs
will continue in effect. Seller has also requested a confirmation that the
purchase of SENECA’s shares and the Equipment is not a worsening of risk; about
this matter, on March 15*, 2007 Banesco Seguros,
CA. informed the reassurer through Marsh Venezuela, CA. that Banesco Seguros,
CA. would keep in effect SENECA’s insurance policies under the same current
conditions and including the new holder of SENECA’s shares, PDVSA.
4. Difficulties with diesei transportation/supply: SENECA’s Luisa Caceres Plant
has a storage capacity of approximately 12.5 million liters, while the daily
average diesei consumption is approximately 1.5 million liters, seven days a
week (with peaks up to 1.7 million liter on holiday season). Due to various
circumstances (including without limitation, dispatching problems, limited hours
of operation at PDVSA’s El Guamache Plant, unsuitable and unreliable
transportation, traffic botdenecks, rate disputes with transporters and
increased demand on Margarita Island), SENECA’s inventories of diesei fuel have
reached an historically low level of 2.8 million liters. Such information is
reported daily to the Ministry of the Popular Power for Energy and Petroleum
(Electric Room and Internal Market Division), to the National Management Center,
to PDVSA and Deitaven.

 

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SENECA could run short of diesei fuel to operate its plants. Prior to Closing,
SENECA will continue to take such actions (or undertake new actions) as it deems
reasonably necessary to maintain and replenish its inventories of diesei fuel
SENECA has previously proposed, among others, the following solutions:
a) to establish a self-dispacth system in El Guamache
b) to extend dispatch hours until inventory replenishment
c) to dispatch on Sundays and holidays until inventory replenishment
d) Once the inventory is replenished agree with PDVSA/Deltaven delivery of
product in Luisa Caseres de Arismendi Plant, allowing PDVSA/Deltaven to manage
with more flexibility and opportunity the dispatch of fuel, including gas
(service stations) and SENECA requirements.
5. On March 23, 2007, SENECA received notice from the regional Labor Authority
that a new Labor Contract has been proposed by SENECA’s labor union. The labor
contract proposes wage increases in excess of three hundred percent (300%). The
first meeting before the Labor Authority is scheduled for March 28, 2007 which
was postponed by the Labor Inspector to be held on April 3™, 2007. SENECA will
continue to take such actions as reasonably necessary to delay the first meeting
and/or postpone negotiations with the labor union until after Closing. If
unsuccessful, SENECA may enter into negotiations with the labor union regarding
the proposed Labor Contract
6. As mentioned on Appendix 2.6, on March 8th, 2007 SENECA received assessment
N° J-H.04-2007 issued by the Mayor’s Office Tax Department of the Garcia
Municipality, in connection with years 1998 to 2006 for the amount of Bs.
61,939,223,059.00, based on Municipality’s Ordinance on Industrial and
Commercial License and the Municipal Ordinance on Urban Property Tax. To this
respect, SENECA filed defense arguments before the Garcia Municipality’s Tax
Department on March 27th, 2007.
7. As describe on Appendix 2.7, there are current and potential litigation in
which SENECA is either the plaintiff or defendant processed before the Courts
there mentioned. On the Appendix 2.7 all current criminal complaints are also
described; in all of which SENECA is the victim.
8. As described in detail on Appendix 2.11, on the assets there mentioned some
activities are being carried out or need to be carried out as established on the
aforementioned Appendix.
9. As describe don Appendix 2.13, there are potential environmental liabilities
against which SENECA continues to take corrective actions to bring these
measures into compliance including the notification of these situations to the
Ministry of Environment and Natural Resources.
Schedule 2.12
Important Contracts in force entered into by Seneca

                          Subject Matter of   Termination Date   Aprox. Annual  
  Contracting Party   Contract   (dd/mm/yyyy)   Cost ($)   Status
MINISTRY OF ENERGY
AND OIL
  CONCESSION CONTRACT   26/07/2048           In force
DELTAVEN
  Diesel supply for generation in Luisa Caceres Plant and Coche Plant  
27/07/2008   12.574.884   In force

 

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                          Subject Matter of   Termination Date   Aprox. Annual  
  Contracting Party   Contract   (dd/mm/yyyy)   Cost ($)   Status
EDELCA (1)
  Power delivered at Substations Chacopata I and II   01/07/2018   5.193.455  
In force
GE Energy Parts,
General Electric
International,
Turbimeca
  Multiannual maintenance
plan for Frame 5
generation units   30/06/2009   2.000.000   In force
MANPRESA / SINEAUCA
  Processing and collection of garbage disposal fees   14/07/2007   1.311.628  
In force
EDELCA (2)
  Transportation Services (Toll) power delivered at Substations Chacopata I and
II   01/07/2018   1.036.160   In force
Banesco Seguros
  (Industrial) Property
damage insurance policy   14/12/2007   840.000   In force
BANESCO/ MARSH /London
Reinsurers
  All Risk Insurance Policy   12/12/2007   800.000   Reinsurers payment is being
processed
General Electric International/Turbinas y Mecanica, C A.
  TG 10 Unit Major
Maintenance   19/06/07 approx., until the completion of the work   750.000   In
force
Inversiones El Taparo, CA.
  Diesel transportation service to Luisa Caceres Plant and Coche Plant  
30/11/2006   684.681   Expired
Sigo
  Food Voucher Payments to SENECA’s Employees and Workers on Payroll  
23/05/2007   558.140   In force
Makler
Administradora
  Administration of Self-Administered Health Plan   31/07/2007   446.512   In
force
CANTV
  Leasing of poles owned by SENECA and used by CANTV for rendering services to
third parties   30/06/2007   418.605   In force

 

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                          Subject Matter of   Termination Date   Aprox. Annual  
  Contracting Party   Contract   (dd/mm/yyyy)   Cost ($)   Status
Venequip, S.A.
  Coche Plant’s Unit # CAT-02 overhaul   Until delivery date. Estimated date: 6
weeks from delivery of spare parts   354.889   In force
Venequip, S.A.
  Coche Plant’s Unit # CAT-05 overhaul   Until delivery date. Estimated date: 6
weeks —from delivery of spare parts   354.889   In process
Seguridad Venezuela, C.A.
  Surveillance and Protection of SENECA’s facilities   31/01/2007   252.000  
Agreed. Written contract is being prepared by the Legal Department
Servicios Tecnicos Turbicar, CA.
  Operation and regular maintenance of Coche Plant   09/08/2007   77.348   In
force