SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 20-F/A

|o |  | Registration Statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934                                                      
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  | or                                                                                                                                                    
|ý |  | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2003                      
|  |  | or                                                                                                                                                    
|o |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transmission period
from                           to
|  |  | Commission file number 1-13210                                                                                                                        

AES GENER S.A.(Exact Name of Registrant as Specified in its Charter)

AES GENER INC.(Translation of Registrant's Name into English)

Republic of Chile(Jurisdiction of Incorporation or Organization)

Mariano Sánchez Fontecilla 310, 3rd Floor, Santiago, Chile(Address of Principal Executive Offices)

Securities
registered or to be registered pursuant to Section 12(b) of the Act:

|Title of Each Class  |  | Name of Each Exchange
on Which Registered
|-------------------- |  | -----------------------------------------
|61/2% Notes due 2006 |  | N/A                                      

Securities
registered or to be registered pursuant to Section 12(g) of the Act:    None

Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:    None

The
number of outstanding shares of each of the issuer's classes of capital or common stock at December 31, 2003 was: 5,672,752,777 shares of capital stock of AES Gener S.A., without nominal
(par) value.

Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý                             No o

Indicate by check mark which financial statement item the registrant has elected to follow.

Item
17 o                             Item 18 ý



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TABLE OF CONTENTS

|         |  |                                                                              |  | Page
|-------- |  | ---------------------------------------------------------------------------- |  | ----
|PART I  
|Item 1.  |  | Identity of Directors, Senior Management and Advisers                        |  | 1   
|Item 2.  |  | Offer Statistics and Expected Timetable                                      |  | 1   
|Item 3.  |  | Key Information                                                              |  | 1   
|Item 4.  |  | Information on the Company                                                   |  | 17  
|Item 5.  |  | Operating and Financial Review and Prospects                                 |  | 59  
|Item 6.  |  | Directors, Senior Management and Employees                                   |  | 95  
|Item 7.  |  | Major Shareholders and Related Party Transactions                            |  | 100 
|Item 8.  |  | Financial Information                                                        |  | 103 
|Item 9.  |  | The Offer and Listing                                                        |  | 106 
|Item 10. |  | Additional Information                                                       |  | 109 
|Item 11. |  | Quantitative and Qualitative Disclosure About Market Risk                    |  | 124 
|Item 12. |  | Description of Securities Other than Equity Securities                       |  | 125 
|PART II 
|Item 13. |  | Defaults, Dividend Arrearages and Delinquencies                              |  | 126 
|Item 14. |  | Material Modifications to the Rights of Security Holders and Use of Proceeds |  | 126 
|Item 15. |  | Controls and Procedures                                                      |  | 126 
|Item 16. |  | [Reserved]                                                                   |  | 127 
|PART III
|Item 17. |  | Financial Statements                                                         |  | 129 
|Item 18. |  | Financial Statements                                                         |  | 129 
|Item 19. |  | Exhibits                                                                     |  | 129 

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PRESENTATION OF INFORMATION

In this annual report, unless the context requires otherwise, the terms "AES Gener", "we", "us" and "our" refer to AES Gener S.A. and its subsidiaries on a
consolidated basis.

Our
audited consolidated financial statements and, unless otherwise indicated, the other financial information presented in this annual report, are presented in Chilean pesos in
conformity with generally accepted accounting principles in Chile, or Chilean GAAP, and the rules of theSuperintendencia de Valores y Seguros, the
Chilean Superintendency of Securities and Insurance, or SVS. Chilean GAAP differs in certain important respects from generally accepted accounting principles in the United States, or U.S. GAAP. See
note 37 to our audited consolidated financial statements for the years ended December 31, 2002 and 2003 contained in Item 18 herein for a description of the principal differences between
Chilean GAAP and U.S. GAAP as they relate to us. Note 37 to our audited consolidated financial statements for the years ended December 31, 2001, 2002 and 2003 also contains a
reconciliation to U.S. GAAP of our net income for the years ended December 31, 2001, 2002 and 2003 and our total shareholders' equity at December 31, 2002 and 2003. Under U.S. GAAP, a
definition of the functional currency is required, which may differ from the reporting currency of a company. Management has determined the U.S. dollar to be AES Gener's functional currency in
accordance with the Statement of Financial Accounting Standards, or SFAS, No. 52. Therefore, by applying the procedures specified in SFAS No. 52, we have remeasured the audited
consolidated financial statements as of December 31, 2001 and 2002 into U.S. dollars, in accordance with U.S. GAAP. Subsequent to the filing of our December 31, 2002 financial
statements, we determined that an error had been made in accounting for the provision for current tax expenses for the years 2001 and 2002, which resulted in a higher tax loss carryforward for those
years. This increase in the tax loss carryforward resulted in the recognition of a higher deferred tax asset of Ch$3,139 million and Ch$ 2,835 million for the years 2001 and 2002,
respectively. The financial data relating to the years ended December 31, 2001, 2002 and 2003 is presented in constant Chilean pesos of December 31, 2003 purchasing power.

Subsequent
to the filing of our December 31, 2003 Chilean GAAP financial statements, we determined that an error had been made in disclosure related to the omission of certain
treasury lock agreements as derivative instruments and the reduction in their value for the period from January 1, 2004 to March 12, 2004.

In
addition, the Company determined that the effect of a mark-to-market adjustment for the treasury lock agreements under U.S. GAAP was omitted from the Chilean GAAP to U.S. GAAP
net income and shareholders' equity reconciliations and the calculation of earnings per share. The disclosure related to the subsequent reduction in value of the treasury lock agreements from
January 1, 2004 to March 12, 2004 was also omitted.

The
functional currency and deferred tax adjustments were reflected as restatements in the audited consolidated financial statements in the annual report filed on Form 20-F on
February 20, 2004. All adjustments discussed above are reflected in this Form 20-F/A.

Unless
otherwise specified, references herein to "U.S. dollars", "dollars", "$" or "US$" are to United States dollars, references to "peso" or "Ch$" are to Chilean pesos, the legal
currency of Chile, references to "Col$" are to Colombian pesos, the legal currency of Colombia, references to "Arg$" are to Argentine pesos, the legal currency of Argentina, references to "RD$" are to
Dominican Republic pesos, the legal currency of the Dominican Republic, and references to "UF" are toUnidad de Fomento. The Unidad de Fomentois an
inflation-indexed, Chilean peso-denominated monetary unit that is linked to, and set daily in advance to reflect
changes in, the previous month's Chilean consumer price index. As of December 31, 2003, one UF was equivalent to Ch$16,920.

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For
your convenience, we have translated certain peso amounts into U.S. dollars. Unless otherwise indicated, information regarding the U.S. dollar equivalents of amounts in pesos is
based on the daily observed exchange rate reported by the Chilean Central Bank for December 31, 2003 (the rate we used for December 31, 2003 financial reporting purposes), which was
Ch$593.8 = US$1.00. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos. The exchange rate between the Colombian peso and the U.S. dollar used by us for
December 31, 2003 financial reporting purposes was Col$2,778.21 = US$1.00. The exchange rate between the Argentine peso and the U.S. dollar used by us for December 31, 2003
financial reporting purposes was Arg$2.935 = US$1.00. The exchange rate between the Dominican Republic peso and the U.S. dollar used by us for December 31, 2003 financial reporting
purposes was RD$35.0 = US$1.00. No representation is made that the peso, U.S. dollar or other currency amounts shown in this annual report could have been or could be converted into U.S.
dollars or pesos at such rate or at any other rate.

For
the purposes of Chilean GAAP, we consolidate the results of operations of a company defined as a filial, or subsidiary, in accordance withLey Sobre
Sociedades Anónimas, LeyNo. 18,046, or the Chilean Corporations Law. In order to consolidate the results of operations of a company, we must satisfy, in
general, one of two criteria. We must either:



Our
most significant consolidated subsidiaries include:



In
accordance with the segment definitions found in note 37 to our audited consolidated financial statements included in this annual report, the term "our Chilean Operations"
refers to the operations of AES Gener, Norgener, Energía Verde and Eléctrica Santiago, "our Argentine Operations" refers to TermoAndes and InterAndes. In this annual
report "our Colombian Operations" refers solely to Chivor.

As
used in this annual report the term "equity-method investee" refers to an entity in which we have an ownership interest between 10% and 50%, in accordance with Chilean GAAP, and,

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accordingly,
whose results of operations are not consolidated in our results of operations. Our most significant equity-method investees are:



Unless
otherwise indicated, information with respect to our electrical capacity includes the total capacity of AES Gener S.A., together with the total capacity of each of our
consolidated subsidiaries.

CALCULATION OF ECONOMIC INTEREST

Except in our audited consolidated financial statements, and unless otherwise specified, references to our percentage interest in a subsidiary or equity-method
investee refer to our level of economic interest in that subsidiary or equity-method investee. Our economic interest in a subsidiary or equity-method investee is calculated by multiplying our
percentage ownership interest in a directly held subsidiary or equity-method investee by the percentage ownership interest of any entity in the chain of ownership of such ultimate subsidiary or
equity-method investee. For example, if we own 60% of a directly held subsidiary that owns 40% of an equity-method investee, our economic ownership interest in that equity-method investee would be
24%.

TECHNICAL TERMS

In this annual report references to "GW" and "GWh" are to gigawatts and gigawatt hours, respectively, references to "MW" and "MWh" are to megawatts and megawatt
hours, respectively, references to "kW" and "kWh" are to kilowatts and kilowatt-hours, respectively, and references to "kV" are to kilovolts. Unless otherwise indicated, statistics provided throughout
this annual report with respect to electricity generation facilities are expressed in MW, in the case of the nominal capacity of such facilities, and in GWh, in the case of the aggregate electricity
production of such facilities. One GW = 1,000 MW, and one MW = 1,000 kW. Statistics relating to aggregate annual electricity production are expressed in GWh and are based on a year of
8,760 hours. "Nominal capacity" means the total amount of nominal capacity in any company or system.

STATISTICAL INFORMATION

Statistical information contained in this annual report regarding the economies of, and electricity industries in, Chile, Colombia, Argentina and the Dominican
Republic, and regarding the competitors of AES Gener S.A. and its subsidiaries and equity-method investees in those industries, is based on material obtained from public sources, including
publications and materials from participants in those industries and from government entities, such as CDEC-SIC, CDEC-SING, the Chilean Central Bank and CAMMESA, among others. We believe such
information is accurate, but we have not independently verified it.

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FORWARD-LOOKING STATEMENTS

Except for the historical information contained in this annual report, certain matters discussed herein, including without limitation under "Information on the
Company" and "Operating and Financial Review and Prospects", contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Although we believe
that in making any such statements our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially
different from those projected. When used in this annual report the words "anticipates", "believes", "expects", "intends" and similar expressions, as they relate to us or our management, are intended
to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. There are important factors that could cause actual results to differ
materially from those in forward-looking statements, certain of which are beyond our control. These factors, risks and uncertainties include the following:



Accordingly,
we cannot assure you that any of the events anticipated by the forward-looking statements will transpire or occur, or, if any of them do, what impact they will have on our
results of operations or financial condition. We do not intend, and undertake no obligation, to publicly revise any forward-looking statements that have been made to reflect the occurrence of events
after the date hereof.

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PART I

Item 1.    Identity of Directors, Senior Management and Advisers

Not
Applicable.

Item 2.    Offer Statistics and Expected Timetable

Not
Applicable.

Item 3.    Key Information

A.    Selected Financial Data

The following table presents selected consolidated financial and statistical information for each of the periods indicated. This information should be read in
conjunction with "Item 5. Operating and Financial Review and Prospects" and our audited consolidated financial statements included elsewhere in this annual report. Our audited consolidated financial
statements are prepared in accordance with Chilean GAAP, which differs in certain significant respects from U.S. GAAP. Note 37 to our audited consolidated financial statements provides a
description of the principal differences between Chilean GAAP and U.S. GAAP and a reconciliation to U.S. GAAP of our net income for the years ended December 31, 2001, 2002 and 2003 and our
total shareholders' equity as of December 31, 2001, 2002 and 2003. Financial information presented below as of and for the years ended December 31, 1999-2003 is presented in
constant pesos of December 31, 2003 purchasing power.

|                       |                                             | For the year ended December 31,
|---------------------- | ------------------------------------------- | -------------------------------
|
|
|Income Statement Data: |                                             |                                
|                       | Chilean GAAP:(2)(9)                         |                                
|                       | Operating Revenues                          |                                
|                       | Income from operations                      |                                
|                       | Net Income (3)                              |                                
|                       | Income from operations per share            |                                
|                       | Weighted average shares outstanding (000s)  |                                
|                       | Capital stock (000s)                        |                                
|                       | U.S. GAAP:(7)(8)(9)                         |                                
|                       | Operating Revenues                          |                                
|                       | Income from operations                      |                                
|                       | Income from continuing operations           |                                
|                       | Net income (3)                              |                                
|                       | Income from operations per share            |                                
|                       | Income from continuing operations per share |                                

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|                    |                                                         | At December 31,
|------------------- | ------------------------------------------------------- | ---------------
|
|
|Balance Sheet Data: |                                                         |                
|                    | Chilean GAAP:(2)(9)                                     |                
|                    | Total assets                                            |                
|                    | Long term liabilities                                   |                
|                    | Total shareholders' equity                              |                
|                    | Ratio of total shareholder's equity to total assets (4) |                
|                    | U.S. GAAP:(7)(8)(9)                                     |                
|                    | Total assets                                            |                
|                    | Long term liabilities                                   |                
|                    | Total shareholders' equity                              |                
|                    | Ratio of total shareholder's equity to total assets (4) |                

|                                      |                                                     | At December 31,
|------------------------------------- | --------------------------------------------------- | ---------------
|
|
|Other Consolidated Financial Data:(2) |                                                     |                
|                                      | Chilean GAAP                                        |                
|                                      | Consolidated ratio of earnings to fixed charges (5) |                
|                                      | Net income per share (Ch$)                          |                
|                                      | Dividends per share (Ch$)                           |                
|                                      | U.S. GAAP                                           |                
|                                      | Consolidated ratio of earnings to fixed charges (5) |                
|                                      | Net income per share (US$) (7)(8)(9)                |                
|                                      | Diluted net income per share (7)(8)(9)              |                
|                                      | Dividends per share (7)(8)(9)                       |                
|                                      | Operating Data:(6)                                  |                
|                                      | Total MW Installed Capacity                         |                
|                                      | Total GWh Produced                                  |                
|                                      | Total GWh Sold                                      |                

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Exchange Rates

Chile has two currency markets, theMercado Cambiario Formal, or Formal Exchange Market, and the Mercado Cambiario
Informal, or Informal Exchange Market. The Formal Exchange Market is comprised of banks and other entities authorized by the Chilean
Central Bank. The Informal Exchange Market is comprised of entities that are not expressly authorized to operate in the Formal Exchange Market, such as certain foreign exchange houses and travel
agencies, among others. The Chilean Central Bank is empowered to determine that certain purchases and sales of foreign currencies must be carried out on the Formal Exchange Market. Both the Formal and
Informal Exchange Markets are driven by free market forces. Current regulations require that the Chilean Central Bank be informed of certain transactions and that they be effected through the Formal
Exchange Market.

For
the purposes of the operation of the Formal Exchange Market, the Chilean Central Bank sets adólar acuerdo, or
Reference Exchange Rate. The Reference Exchange Rate is reset daily by the Chilean Central Bank, taking into account internal and external inflation and variations in parities between the Chilean peso
and each of the U.S. dollar, the Japanese yen and the Euro at a ratio of 80:5:15, respectively. In order to keep the average exchange rate within certain limits, the Chilean Central Bank may intervene
by buying or selling foreign currency on the Formal Exchange Market. Thedólar observado, or Observed Exchange Rate, which is reported by
the Chilean Central Bank and published daily in the Chilean newspapers, is computed by taking the weighted average of the previous business day's transactions on the Formal Exchange Market.
On September 2, 1999, the Chilean Central Bank eliminated the band within which the Observed Exchange Rate could fluctuate, in order to provide greater flexibility in the exchange market.
Nevertheless, the Chilean Central Bank has the power to intervene by buying or selling foreign currency on the Formal Exchange Market to attempt to maintain the Observed Exchange Rate within a desired
range.

The
Informal Exchange Market reflects transactions carried out at an informal exchange rate, or the Informal Exchange Rate. There are no limits imposed on the extent to which the rate of
exchange in the Informal Exchange Market can fluctuate above or below the Observed Exchange

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Rate.
Since 1993, the Observed Exchange Rate and the Informal Exchange Rate have typically been within less than 1% of one another.

The
following table sets forth the annual low, high, average and year-end Observed Exchange Rate for U.S. dollars for each year starting in 1999 as reported by the Chilean
Central Bank. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.

Observed Exchange Rate of Ch$ per US$(1)

|               |  | Low(2) |  | High(2) |  | Average(3) |  | Year-end
|-------------- |  | ------ |  | ------- |  | ---------- |  | --------
|1999           |  | 468.69 |  | 550.93  |  | 512.43     |  | 527.70  
|2000           |  | 501.04 |  | 580.37  |  | 542.62     |  | 572.68  
|2001           |  | 557.13 |  | 716.62  |  | 636.39     |  | 656.20  
|2002           |  | 641.75 |  | 756.56  |  | 694.46     |  | 712.38  
|2003           |  | 593.10 |  | 758.21  |  | 691.54     |  | 599.42  
|September 2003 |  | 655.92 |  | 697.91  |  | 675.44     |  |        
|October 2003   |  | 628.10 |  | 661.63  |  | 646.07     |  |        
|November 2003  |  | 616.34 |  | 632.23  |  | 625.47     |  |        
|December 2003  |  | 593.10 |  | 621.27  |  | 602.90     |  |        
|January 2004   |  | 559.21 |  | 596.78  |  | 573.64     |  |        
|February 2004  |  | 571.35 |  | 598.60  |  | 584.31     |  |        

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Source:    Chilean Central Bank

On
March 18, 2004, the Observed Exchange Rate as reported by the Chilean Central Bank was Ch$607.91 per US$1.00.

B. Capitalization and Indebtedness

Not
Applicable.

C. Reasons for the Offer and Use of Proceeds

Not
Applicable.

D. Risk Factors



As regulated electric companies, we and our equity-method investees are subject to the extensive regulation of various aspects of our businesses. The current
regulatory framework governing electricity utility businesses has been in existence in Chile since 1982, in Colombia since 1994, in Argentina since 1992 and in the Dominican Republic since 1999. We
are also subject to environmental regulations, which, among other things, require us to perform environmental impact assessments of future projects and obtain regulatory permits. As with any regulated
company, we cannot assure you that the laws or regulations in the countries where we have operations or investments will not change, or be interpreted, in a manner that could adversely affect us or
our equity-method investees or that any environmental impact assessment

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will
be approved by government authorities. For example, in May 2001 the Chilean government issued Resolution No. 88, under which electricity generators such as AES Gener are required to
provide power to distribution companies in theSistema Interconectado Central, or SIC, if such companies are unable to freely contract for adequate
power to meet their customers' needs. This resolution effectively requires us to supply more energy to distribution companies than we have otherwise freely contracted for, thereby increasing our
exposure to the spot market. See "Item 4. Information on the CompanyBusiness OverviewRegulation of Electricity Generation in Chile, Colombia, Argentina and the Dominican
Republic".



Our operations in the SIC and Colombia can be substantially impacted by hydrological conditions and the effects that such weather conditions can have on the
prices of energy.

In
recent years, our contracted energy in the SIC has grown beyond our generation capabilities, particularly during peak hours. Therefore, we have to purchase electricity at spot prices
in order to meet our commitments. As a result, future drought conditions, which generally result in higher prices for energy, will necessitate purchases at higher prices on the spot markets in
addition to generation by our less cost-efficient units. Although we have plans to construct a transmission line between Chile and Argentina, to convert an oil/diesel-fired facility we own
in the SIC into a combined-cycle natural gas dependent plant, and to develop new combined-cycle plants in the SIC to reduce our exposure to drought conditions, droughts could adversely affect our
operations and financial condition until these projects are completed. In addition, during periods of extreme drought conditions, Chilean authorities may impose electricity rationing and may require
us to pay regulatory penalties related to the operation of our business. For example, if we are required to buy electricity on the spot market during a period in which a rationing decree is in effect,
we may be required to pay a "shortage cost", which is the cost to consumers for not having energy available that is set by regulatory authorities to other generators. If any end-consumers
fail to receive electricity, we must pay them a compensation payment based on the "shortage cost".

In
Colombia, our energy output generated under contract is presently lower than our expected hydroelectric generation. As a result, since 2001, we have been selling between 22% and 30%
of our electricity on the spot market. Due to the Colombian market structure, our Chivor business must submit bids for the sale of its generation, and its revenues from spot market sales are subject
to the variable price of electricity, which depend on current market and electric system conditions at any point in time. Spot market prices depend directly on hydrological weather conditions, with
prices increasing in dry years and falling in wet years. Thus, revenues received from Chivor's spot market transactions may fluctuate and affect our operating results.

We
cannot assure you that the level of our future contractual commitments in the SIC or Colombia will be appropriate for the weather conditions prevailing at that time. In addition,
severe weather conditions may lead to governmental intervention, imposing power rationing and penalties on companies involved in the electricity sector, which could have a negative impact on our
operations and financial condition.



When
events or circumstances warrant, we review the book values of our assets to determine whether there has been an impairment of the value of any of our assets. Due to

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unfavorable
economic and regulatory conditions in Colombia and excess capacity in the SING that had resulted in dispatch limitations and low prices to our Argentine asset TermoAndes/InterAndes, we
have recently performed impairment tests under Chilean GAAP and U.S. GAAP with respect to our Colombian asset, Chivor, and our Argentine asset, TermoAndes/InterAndes. At this time, we do not believe
that any impairment-related adjustments to the book values of these assets are necessary. In the future, we will continue to review the book values of our assets. We cannot assure you that any such
review will not require adjustments to the book values of our assets, including Chivor and TermoAndes/InterAndes.

A substantial portion of our operations is conducted through subsidiaries and equity-method investees.

We conduct a substantial portion of our operations through our subsidiaries and equity-method investees. In 2003, about 49% of our operating revenues were
accounted for by our subsidiaries. Generally, claims of creditors of a subsidiary or an equity-method investee, guarantees issued by a subsidiary or an equity-method investee and claims of preferred
shareholders of a subsidiary or an equity-method investee will have priority with respect to its assets and earnings over the claims of creditors of its parent company or other shareholders, including
the notes issued pursuant to a separate offering, except to the extent that the claims of creditors of the parent company are guaranteed by the subsidiary or the equity-method investee. Additionally,
in certain circumstances, the ability of each of our subsidiaries and equity-method investees to pay dividends may be restricted by, among other things, its ability to generate cash flows from
operations, the laws of the jurisdiction of its incorporation, and the financing agreements to which it is a party. See "Item 5. Operating and Financial Review and ProspectsLiquidity and
Capital Resources" in this annual report for a description of AES Gener S.A.'s and its subsidiaries' outstanding debt.



The Chilean peso, the Colombian peso and the Argentine peso have been subject to large devaluations in the past and may be subject to significant fluctuations in
the future. Historically, a significant portion of our consolidated indebtedness has been denominated in U.S. dollars and, although a substantial portion of our revenues in Chile is linked in part to
U.S. dollars, we generally have been, and will continue to be, exposed to fluctuations of the Chilean peso against the dollar because of time lags and other limitations in the indexation of Chilean
tariffs to the U.S. dollar. Furthermore, in the event of a devaluation of the Chilean peso under Chilean GAAP, we are required to account in Chilean pesos for 100% of the losses relating to our U.S.
dollar-denominated indebtedness in the year that such losses occur. This can materially reduce our earnings under Chilean GAAP, thereby limiting our ability to pay or preventing us from paying
dividends in excess of retained earnings. Historically, in Colombia a significant portion of our indebtedness has been denominated in U.S. dollars, but approximately 50% of our revenues have been
denominated in Colombian pesos. As a result, a devaluation of the Colombian peso in relation to the U.S. dollar may adversely affect our financial condition and results of operations. In Argentina,
our earnings are denominated in U.S. dollars, except for net tax credits, including VAT and others, which are denominated in Argentine pesos, and in 2003 amounted to approximately
US$24.3 million. Consequently, a further devaluation of the Argentine peso may result in a decrease in our tax credits in U.S. dollar terms. Since the U.S. dollar is our functional currency for
U.S. GAAP reporting purposes, our financial results are not affected by foreign exchange fluctuations, except for those asset and liability line items expressed in Chilean pesos and other non
U.S.-denominated currencies, such as the UF-denominated local bond of Electrica Santiago, marketable securities and time-bank deposits held at AES Gener S.A., our Chilean subsidiaries and our
equity-method investees, among others. See "Item 5. Operating and

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Financial
Review and ProspectsOperating ResultsImpact of Inflation and Price-Level Restatement" in this annual report.



The success of our capital investments will depend on numerous factors, including the cost and availability of financing and the effect of delays or difficulties
in obtaining regulatory approvals and permits. Although we have experience with large-scale construction projects, the construction of new facilities may be adversely affected by factors commonly
associated with such projects, which will have an adverse effect on our market share.



For the year ended December 31, 2003, we derived approximately 40.5% of our Chilean operating revenues from long term electricity sales contracts with
unregulated customers. Such contracts are entered into at the market prices prevailing at the time of execution and, given their long term nature, their value may deviate from the market price of
electricity at different points during the lives of the contracts. We cannot assure you that we will be able to renew any such contracts upon expiration, or that if we do renew such contracts, the
renewal will be at prices that are as favorable as the original prices.



If our recapitalization plan is successfully implemented we would have, exclusive of indebtedness that is recourse only to Chivor, US$86.8 million of debt
maturing in 2005, of which US$50 million represents AES Gener S.A.'s maximum potential liability on debt of Chivor that is otherwise non-recourse to AES Gener S.A. and its other
subsidiaries, US$105.3 million in 2006, and US$34.0 million in 2007. Our ability to refinance our indebtedness could be adversely affected by variations in our international and local
credit ratings and for other reasons.



We and our equity-method investees sell electricity on a contractual basis to numerous distribution companies, industrial customers and electricity generation
companies, among others. Additionally, we enter into other legal agreements customary to the normal conduct of business. The provisions of such contracts and agreements may be disputed by the parties
from time to time, and we cannot assure you that pending or future lawsuits brought against us or our equity-method investees will not adversely affect our operations or financial condition. See "Item
8. Financial InformationConsolidated Statements and Other Financial InformationLegal Proceedings" in this annual report.



Our and our equity-method investees' thermoelectric plants burn natural gas, coal and other petroleum-based fuels. Argentine natural gas is purchased under long
term market-based contracts for the Eléctrica Santiago and TermoAndes combined-cycle units. Additionally, coal is purchased internationally as the primary fuel for several of our
plants, while our peaking plants utilize petroleum-based fuels. In addition, two of our equity-method investees, Guacolda and Itabo, also burn fossil fuels. Significant increases in the market prices
for these fuels would lead

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to
higher operating costs, which could adversely affect our operations, at least until the higher fuel costs are adequately reflected in electricity prices.



In Colombia we have had difficulties in recent years in collecting payments from some of our customers, in particular distribution companies. In 2003, after
repeated collection problems with a certain distribution company that owed Chivor approximately US$2 million, Chivor sold that company's debt to a third party for 10% of the balance, or
US$200,000. Additionally, in the SIC during the severe drought that occurred in 1998 and 1999, generation companies disputed the amounts to be paid for purchases made on the spot market during
rationing periods, resulting in collection difficulties. We have also experienced minor problems collecting outstanding payments from certain customers in Chile. Difficulties in collecting payments
for electricity supply from contract or spot market customers may adversely affect our cash flow.

Risk Factors Related to Our Chilean Operations



For the year ended December 31, 2003, 78% of our consolidated operating revenues were derived from our operations in Chile, including the operations of
TermoAndes, which is located in Argentina although its generated electricity is sold in Chile. Accordingly, our financial condition and results of operations are substantially dependent on economic
conditions prevailing in Chile. In turn, economic conditions are substantially dependent on exports of raw materials, which depend on international prices for those raw materials. In addition, in
recent years, the growth of the Chilean economy has slowed. In 2003, the gross domestic product of Chile increased at an inflation-adjusted rate estimated at 3.2%, compared to the 2.1% increase
experienced in 2002. We cannot predict with certainty whether the Chilean economy or electricity consumption will grow or decline in the future or if future developments in the Chilean economy will
not materially adversely affect our business, financial condition or results of operations.



At present, there is no overcapacity in the SIC. In the next few years, any growth in electricity supply that outpaces growth in demand, including from certain
potential interconnection projects, such as SIC-SING and SIC-SADI, as defined below, and the construction of new combined-cycle power plants, may create overcapacity in the
SIC. Under those circumstances our operating revenues from regulated customers, spot sales and potential new unregulated customers could decline, and our financial results could be adversely affected.

In
the SING, excess capacity currently exists and, as a result of reliability constraints, the Economic Load Dispatch Center of the SING, or the CDEC-SING, has the power to
set the maximum level of dispatch for each independent unit in the SING between 150 MW and 270 MW. While this limit had previously been set at 180 MW, it was increased in 2002 to 220 MW during peak
hours and on June 17, 2003 to 240 MW during peak hours. This measure is part of the "Short-Term Operational Reliability Plan" adopted by the CDEC-SING in order to
minimize the risk of energy outages in the SING, which in the past have been affected by blackouts sanctioned by theSuperintendencia de Electricidad y
Combustibles, the Chilean Superintendency of Electricity and Fuels, or CSEC. This dispatch restriction limits generation from all power plant facilities in the SING. As a
result, TermoAndes is only able to produce up to 240 MW. The dispatch limitation level set by the CDEC-SING tracks total electricity demand in

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the
SING, which principally relates to mining activities. If further system blackouts occur, or the demand for electricity in the SING declines, the dispatch limitation may be reduced. If the dispatch
level were to be reduced, TermoAndes' operating income, and over the long term, Norgener's operating income, would be adversely affected.



Our subsidiary Eléctrica Santiago produces electricity by burning natural gas produced in southern Argentina and transported from there to central
Argentina through a pipeline owned by Transportadora Gas del Norte S.A., or TGN. The natural gas is then transported to Eléctrica Santiago through a pipeline owned and operated by
GasAndes Argentina S.A. and GasAndes Chile S.A. that originates in Argentina and crosses into Chile through the Andes Mountains. The TGN pipeline supplies consumers in Argentina and Chile. TGN is
currently experiencing financial difficulties and may not be able to invest in necessary expansions. Given the current economic, social and political instability in Argentina, interruptions in the
supply and/or transportation of natural gas may occur, which would adversely affect the operations and financial condition of Eléctrica Santiago. Such potential interruptions would
materially impair Eléctrica Santiago's ability to generate electricity and would force it to rely on the spot market to purchase electricity to meet its contractual commitments.
Furthermore, because all combined-cycle plants in the SIC use the same pipeline to obtain their natural gas supplies from Argentina, a disruption of this supply would materially increase prices in the
spot market, and therefore would negatively affect our business, operations and financial condition. See "Risk Factors Related to Our Argentinean Operations" below.



There are important differences between Chilean GAAP and U.S. GAAP. As a result, Chilean financial statements and reported earnings generally differ from those
that are reported based on U.S. GAAP. In particular, our earnings and the amount of dividends that we declare under Chilean GAAP may be subject to a higher degree of fluctuation as compared to U.S.
GAAP, due to accounting pronouncements or other modifications required under Chilean GAAP. See note 37 to our audited consolidated financial statements contained in this annual report for a
description of the principal differences between Chilean GAAP and U.S. GAAP as they relate to our business and a reconciliation to U.S. GAAP of our net income for the years ended December 31,
2001, 2002 and 2003 and our total shareholders' equity as of December 31, 2001, 2002 and 2003.

Risk Factors Related to Our Colombian Operations



On May 31, 2002, Chivor entered into a refinancing agreement with a bank syndicate, led by Bank of America, to restructure its defaulted debt of
US$335.5 million through a "prepackaged" Chapter 11 bankruptcy proceeding in the United States, which became effective in August 2002. As of December 31, 2003, Chivor had
US$283.6 million of outstanding indebtedness owed to its creditors. Pursuant to the terms of the prepackaged plan, Chivor must reduce its indebtedness to US$225 million by
March 31, 2005 through scheduled amortization payments and a cash sweep of any excess amounts. If Chivor is not successful in reducing its indebtedness to that level by that date, Energy Trade
is obligated to pay on that date the difference between Chivor's outstanding indebtedness and the amortization target for that date, up to US$50 million. If Energy Trade is unable to meet its
obligations, then AES Gener S.A. will be obligated to make certain principal payments to Chivor's creditors. Any such principal payments will be limited to

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US$50 million
in the aggregate. We cannot assure you that Chivor will be able to reduce its debt as required.



As of December 31, 2003, Chivor had outstanding US$283.6 million of indebtedness. By March 31, 2005, Chivor must reduce its indebtedness to
US$225 million through scheduled amortization payments and a trust-managed "cash sweep account" of any excess amounts to avoid an increase in interest rates, both prospectively and
retroactively, and recourse to AES Gener S.A., as discussed above. The remaining outstanding balance at that time is scheduled to mature on December 31, 2006. We cannot assure you that Chivor
will be able to refinance this indebtedness prior to maturity on favorable terms or at all. Chivor previously attempted to consensually restructure its indebtedness, but was unable to do so outside of
a "prepackaged" Chapter 11 bankruptcy proceeding. Additionally, the Chivor credit agreement includes a "go to market" clause under which we have agreed to use our best efforts to place Chivor bonds or
to syndicate a refinancing loan on or before December 30, 2004 in order to repay, in whole or in part, outstanding amounts due under the Chivor credit agreement. If Chivor is unable to
refinance or repay this indebtedness prior to maturity, Chivor's creditors will have the right to foreclose on Chivor's assets, which have been pledged in favor of the banks to secure the
indebtedness.



We generate a significant portion of our consolidated operating revenue and consolidated operating income before taxes in Colombia. For both years ended
December 31, 2003 and 2002, our Colombian operations accounted for approximately 22% of our consolidated operating revenue. Therefore, economic conditions in Colombia have a significant impact
on our results of operations and financial condition. In recent years, economic conditions in Colombia have deteriorated as a result of political instability. As a result of the adverse economic
conditions in Colombia, their impact on Chivor and the terms of Chivor's credit agreement, we do not expect Chivor to distribute any dividends to AES Gener S.A. in the near future.



While the Colombian government does not currently restrict the ability of Colombian persons or entities to convert Colombian pesos into U.S. dollars or Chilean
pesos, we cannot assure you that it will not institute a restrictive exchange control policy that may affect Chivor's ability to
remit funds to us in the future. Although the government has not imposed foreign exchange restrictions since 1990, Colombia's foreign currency markets have historically been heavily regulated.
Currently, foreign exchange transactions occur at free, or market, rates of exchange. In 2001, the Colombian peso appreciated against the U.S. dollar by 4.5%, in 2002 it depreciated by 16.8% and in
2003 it appreciated by 9.7%, in each case in real terms. We cannot assure you that the Colombian Central Bank will continue to follow its current foreign exchange policy in the future or whether it
will intervene in the foreign exchange markets to support the Colombian peso in the event of a substantial devaluation or that any such intervention would be effective.

Colombian
law permits the Colombian Central Bank to impose foreign exchange controls if the foreign currency reserves of the Colombian Central Bank fall below a level equal to the value

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of
three months of imports of goods and services into Colombia. The Colombian Central Bank reported net international reserves of US$10.6 billion at December 31, 2003, representing
coverage of approximately eight months of imports of goods and services as of such date.



Guerilla organizations have long been active in Colombia. In many remote regions of the country that have traditionally lacked an effective government presence,
guerilla organizations have engaged in acts of terrorism to draw attention to their causes. Most of this activity has been directed towards the oil industry, but the electric power industry has been
affected as well. Attacks by guerilla groups have disrupted power supplies, which disruption, in some cases, has led to short-term regional power outages. If any of these attacks were to
damage Chivor's facilities or the related transmission lines, Chivor's revenues and its ability to refinance its debt would be adversely affected. With the exception of one incident in August 2003, on
the transmission lines that connect our facilities to the electricity grid, Chivor's facilities have not been subject to attacks by any guerilla group. We cannot assure you, however, that such attacks
will not occur in the future.



AES Gener S.A. purchased Chivor in December 1996 as part of the Colombian government's privatization process. Since our purchase of this company, there has
been frequent governmental intervention in the electricity market, including changes in the methodology for the
determination of capacity payments paid to generation companies and payments made by distribution companies to generators for electricity purchases. Chivor's capacity payments have decreased
significantly in recent years, from approximately US$31 million in 2000 to approximately US$17 million in 2003, as a result of Resolution No. 077, implemented in 2000 by the Comisión de Regulación
de Energía y Gas, a Colombian regulatory agency. This resolution effectively reduced
the level of capacity payments received by hydroelectric generation companies such as Chivor, while increasing the level received by thermoelectric generation companies. Capacity payments for 2006 and
onward have not yet been defined. We cannot assure you that payments for Chivor's capacity will not decrease in the future as a result of further regulatory changes or that additional regulatory
changes will not adversely affect Chivor's operating results.



Since 2001, Chivor has historically sold between 22% and 30% of its electricity on the spot market, which in Colombia consists of a wholesale energy exchange with
hourly spot market transactions. As a participant in this market, Chivor must submit bids for the sale of its generation, and its revenue from spot market sales is subject to the variable price of
electricity, which depends on current market and electric system conditions at any point in time. Spot market prices depend directly on hydrological weather conditions, with prices increasing in dry
years and falling in wet years. Revenue received from Chivor's spot market transactions may fluctuate, and we cannot assure you that it will not adversely affect our operating results.

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Risk Factors Related to Our Argentinean Operations



The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth and high and variable levels of
inflation. To address these pressures, the Argentine government has implemented various plans and utilized a number of exchange rate systems. In 1991, the Argentine government launched a plan aimed at
controlling inflation and restructuring the economy enacting Law No. 23,928 and its Regulatory Decree No. 529/91, together, the Convertibility Law. This law fixed the exchange rate at
Arg$1.00 to US$1.00, among other provisions. The country's economy experienced growth throughout most of the period from 1991 to 1997, but entered into a recession in 1998. During the second half of
2001, Argentina's recession worsened significantly, precipitating the current ongoing economic and political crisis.

In
2001, in response to the severe difficulties faced by the Argentine financial system, the government responded by implementing new regulations. The lack of confidence in the country's
economic future and the inability to sustain the Argentine peso's parity with the U.S. dollar led to massive withdrawals of deposits from the financial system. Despite prior assurances to the
contrary, on December 1, 2001, the Argentine government enacted Decree 1570/2001, which effectively froze bank deposits and introduced exchange controls restricting capital outflows. On
January 7, 2002, the Argentine Congress enacted the Public Emergency and Foreign Exchange System Reform Law, Law No. 25,561, or the Public Emergency Law, which abrogated several sections
of the Convertibility Law and granted the executive branch the power to determine the new exchange rate between the Argentine peso and foreign currencies and to approve the corresponding monetary
regulations. Thereafter, the executive branch issued several supplementary resolutions. Decree No. 71/2002 and Communication A3425, as modified, issued by the Argentine Central Bank, created a
dual currency system in which certain transactions were settled at a fixed rate of Arg$1.40=US$1.00, while non-qualifying transactions were settled using a market rate. On the first day of
operations of the market rate on January 11, 2002, the exchange rate was between Arg$1.60 and Arg$1.70 per US$1.00.

On
February 3, 2002, Decree 214/2002, or Decree 214, was issued by the executive branch and established the conversion of dollar deposits held in financial institutions to pesos,
or pesification, at an exchange rate of Arg$1.40 per US$1.00, and also converted into Argentine pesos (pesified) all obligations incurred in dollars as of January 6, 2002 at the exchange rate
of ARG$1.00 per US$1.00. Deposits and debts converted into Argentine pesos are subsequently adjusted by the reference stabilization ratio, or the CER, an inflation index published by the Argentine
Central Bank, which is applied from the date of the publication of the decree. In addition, the minimum interest rate to be applied for deposits and the maximum interest rate for obligations under the
financial system are to be established by the Argentine Central Bank. Decree 214 also converted all obligations in U.S. dollars related to private contracts subscribed as of January 6, 2002 at
an exchange rate of Arg$1.00 per US$1.00, which are to be adjusted by the CER in the same manner mentioned above. After issuing Decree 214, the Argentine government issued other regulations that
established specific exceptions to pesification, such as debts with local financial institutions related to foreign trade, credit card purchases made abroad and forward and options agreements, among
others.

The
Argentine financial system's situation remains very unstable after the events of recent years. The main problems that have been faced by financial institutions, particularly banks,
include extremely tight liquidity, negative cash flows, deteriorating loan portfolios and insolvency. From December 2001 through December 2003, the consumer price index, the wholesale
price index and the CER exhibited cumulative increases of 44.6%, 115.12% and 45.68%, respectively.

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However,
in 2003 the inflationary trend slowed, with the consumer price index rising 3.7% from January to December 2003 and the wholesale price index rising 2.0% in the same period. In 2003,
Argentina's gross domestic product increased by an estimated 7.9%.

Overall,
the series of measures applied by the Argentine government has severely affected the financial system's stability and has had a materially negative impact on its reputation. We
cannot predict how the current Argentine government, which took office on May 25, 2003, will attempt to resolve the economic crisis, and the extent to which it will be able to maintain a strict
monetary policy and control inflation. The unpredictability, timing and scope of economic measures enacted by the Argentine government, including expropriations, higher taxes and exchange control
measures that may require TermoAndes to sell electricity to Argentina, may adversely affect our Argentinean Operations and our results of operations.



Pursuant to the pesification established by the Public Emergency Law and related decrees in Argentina, TermoAndes, as a local consumer of gas, has, since the
beginning of 2002, converted its obligations under its gas supply and gas transportation agreements into pesos, while the income it receives from its electricity exports is accounted for in U.S.
dollars. In accordance with current regulations, payments must be made in Argentine pesos at a 1:1 exchange rate plus the CER, and suppliers may legally request an equitable adjustment of the
contract.

During
2002, TermoAndes' gas and transportation service providers requested that regulatory authorities redollarize TermoAndes' gas supply and gas transportation agreements, citing
Decrees 689/2002 and 1491/2002, which state that the Public Emergency Law does not apply to gas export contracts, gas transportation for gas exports or electricity exports. TermoAndes responded to
both requests, clarifying that it is an Argentine generation company and that all of the gas it purchases is consumed within Argentina and is not intended for export. Furthermore, TermoAndes has been
making payments under its gas supply and transportation contracts in Argentine pesos at a 1:1 exchange rate against the U.S. dollar, excluding the CER, which has not been invoiced by the gas
suppliers. TermoAndes currently believes that prices for local transportation contracts do not include the CER. We cannot assure you that TermoAndes' gas supply and transportation contracts payments
will not be redollarized in the future or that the CER will not be applied to such payments, even with respect to retroactive payments. Any such redollarization could negatively impact our cash flow
and financial condition.

On
August 20, 2003, the Natural Gas Regulatory Agency in Argentina, or Enargas, ruled in favor of a preliminary injunction filed by TermoAndes against its natural gas
transportation service provider, TGN, ordering it to provide the requested service and to invoice TermoAndes for such service in Argentine pesos. The injunction was appealed by TGN but no further
ruling has been issued by Enargas.

On
January 30, 2004, TermoAndes was notified that Tecpetrol S.A., Mobil Argentina S.A. and Compañía General de Combustibles S.A., which are members
of the consortium that provides gas to TermoAndes, filed a claim for arbitration at the International Chamber of Commerce, or the ICC, requesting the redollarization of the gas price. TermoAndes
responded to this claim on March 10, 2004, which response included a counterclaim regarding (i) the non-fulfillment by the suppliers of the "Most Favored Nation" clause, (ii) the
lack of basis of the unilateral modification of the gas injection point where the suppliers delivers the natural gas, (iii) the obligation to supply the contracted quantities, and
(iv) the ability of TermoAndes to resell gas that was not consumed.

On
February 2, 2004 and February 3, 2004, TermoAndes received letters from Tecpetrol S.A., Mobil Argentina S.A. and Companía General de Combustibles S.A.,
stating that the companies

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intended
to reduce the volumes of gas to be supplied to TermoAndes, commencing on or about February 16, 2004. Suppliers have reduced volumes of gas supplied as of this date, but such reductions
have been smaller than those stated in their respective letters. Since this time, through short-term contracts and spot purchases, TermoAndes has almost always been able to secure
sufficient quantities of gas, although at a significantly higher price, to cover this deficit and generate electricity without interruptions. Additionally, TermoAndes commissioned the liquid fuel
burning system of the facility, to permit operations to continue in the event of a gas interruption, thereby preventing it from losing its capacity payments."



TermoAndes has take-or-pay agreements with its Argentine natural gas suppliers that provide for payments of a certain minimum amount of
gas, regardless of whether it is consumed. The gas that is purchased but not consumed may be consumed throughout the term of the supply contract and two years beyond its termination. Since TermoAndes
has been producing much less electricity than originally projected, it has also been consuming less gas and therefore accumulating volumes of gas that must be paid for or consumed at a later date. The
only way to increase the use of gas is by increasing electricity production, either by a higher level of dispatch in the SING or by selling electricity in Argentina; however, neither option is likely
to occur in the near future. Even though TermoAndes has until December 2012 to consume its accumulated take-or-pay gas, TermoAndes may not be able to consume the full
amount before such date, and therefore may not be able to use the gas for which it will be required to pay, unless it is able to renegotiate its agreements as described below.

TermoAndes
believes that the application of the "most favored nation" clause in the supply contracts may substantially reduce or eliminate its take-or-pay
obligations, and has consistently communicated this position to its gas suppliers. In August 2003, TermoAndes was invoiced for take-or-pay obligations for 2001 and 2002
by one of its gas suppliers, and these invoices were rejected on the basis of the aforementioned "most favored nation" clause. In January 2004, one of the suppliers wrote again to TermoAndes to
demand payment of the aforementioned invoices, and TermoAndes rejected this demand again on the basis of the "most favored nation" clause. We cannot assure you that TermoAndes will be successful in
renegotiating, reducing or eliminating its take-or-pay obligations. If TermoAndes is not successful in renegotiating, reducing or eliminating its
take-or-pay obligations, it will have a material adverse effect on our financial conditions or operations.



Argentine federal, provincial and other local authorities have interpreted some tax regulations differently from private companies and have also changed their
interpretations over time. As a result of different tax interpretations, there was a dispute between TermoAndes and the Argentine tax authority in the Salta province regarding the imposition of a
stamp tax on a certain agreement, which was resolved in January 2003. We cannot assure you that there will not be other different interpretations of the regulations in the future that could
negatively affect our Argentinean Operations.

Until
April 2002, no export taxes were applied to energy exports. In May 2002, a 5% export tax was imposed on all energy exports and an additional tax was imposed equal to
Arg$3.80 per thousand cubic meters of natural gas consumed. We cannot assure you that new taxes or contributions will not be created or that interpretations will not change that could materially
adversely affect our financial condition and operations.

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On
December 4, 2003, Law 25,822 was enacted, relating to the expansion of the Argentine electricity transmission system. This law provides that electricity exports are subject to federal
taxes, which could mean that electricity exporters would be liable for a tax of Arg$3.00 per megawatt hour that now affects end-users' electricity purchases. The law also provides that this amount may
be adjusted, but it does not identify the circumstances or the method of adjustment. TermoAndes believes that this tax is not applicable to generators or to foreign end-users. However, we cannot
assure you that this law will not adversely affect our Argentinean Operations and our results of operations.

Item 4. Information on the Company

A. History and Development of the Company

AES Gener S.A. is asociedad anónima abierta, or an open stock corporation, organized under the
laws of Chile by means of anescritura pública, or a public deed, dated June 19, 1981. Our by-laws were approved by
the SVS by Resolution No. 410-S dated July 17, 1981, published in the Official Gazette No. 31,023 on July 23, 1981, and recorded on Page 13,107,
No. 7,274 of Santiago's Registry of Commerce in 1981. We changed our name from Chilgener S.A. to Gener S.A. on March 27, 1998 and to AES Gener S.A. on September 4, 2001.

We
trace our origin to Compañía Chilena de Electricidad S.A., which was formed in 1921, nationalized by the Chilean government in 1970 and operated as a
government-owned electricity generation, transmission and distribution company until 1981. The privatization of Compañía Chilena de Electricidad S.A. was completed in
1988, when it was divided into two distribution companies and one generation company, Chilectra Generación S.A., which changed its name to Chilgener S.A. At that time, 100% of our share
capital was held by the private sector.

Our
registered address is Mariano Sánchez Fontecilla 310, 3rd Floor, Santiago, Chile, and our telephone number is (562) 686-8900.

We
are the largest thermal generator and the second largest electricity generation company in Chile based on our operating revenue and generating capacity. As of December 31,
2003, we and our 50% owned equity-method investee, Guacolda, accounted for approximately 22.4% of the total generating capacity in the SIC, while in the SING, through our subsidiaries Norgener and
TermoAndes, we accounted for approximately 25.3% of total generating capacity. During 2003, we also engaged, directly or through subsidiaries and equity-method investees, in:



As
of December 31, 2003, our consolidated total assets were Ch$1,657,046 million (approximately US$2,791 million). In 2003, we reported consolidated operating income
of Ch$109,953 million (approximately US$185.2 million) and consolidated net income of Ch$53,678 million (approximately US$90.4 million).

For
additional information about our revenues and sales, see "Item 3. Key InformationSelected Financial Data" and "Item 5. Operating and Financial Review and Prospects".

Our Acquisition by The AES Corporation

On November 3, 2000, The AES Corporation, through its subsidiary Inversiones Cachagua Limitada, or Cachagua, announced a tender offer for cash for 61.57%
of our outstanding shares in Chile, as well as an exchange tender offer of all of our American Depositary Shares, or ADSs, for The AES Corporation's shares. The purchase price for the offer was
US$16.50 per ADS, or its equivalent in Chilean pesos per common share.

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On
November 28, 2000, The AES Corporation entered into an agreement with Total Fina Elf S.A., or Total, pursuant to which The AES Corporation agreed to cause us to sell to Total
all of our Argentine assets and certain other interests for a total of US$657.5 million, if The AES Corporation succeeded in its tender offer.

On
December 28, 2000, The AES Corporation acquired 61.11% of our total capital for the Chilean peso equivalent of US$841.2 million and effectively assumed control of us. On
January 9, 2001, The AES Corporation acquired an additional 34.56% of us for a total purchase price of US$475.6 million in the form of The AES Corporation's common stock. On
February 28, 2001, The AES Corporation acquired 2.87% of us for a total purchase price of US$38 million by purchasing our shares on the Santiago Stock Exchange. In December 2001,
The AES Corporation acquired an additional 0.11% of our shares for a purchase price of US$1.2 million. At that time, the total aggregate value for the acquisition of 98.65% of AES Gener was
US$1,356 million. The AES Corporation is currently the owner of 98.65% of AES Gener through its wholly owned subsidiary, Cachagua.

On
March 2, 2001, we provided Total with an option to purchase all of our Argentinean Operations, which, as of March 2, 2001, included Hidroneuquén S.A., or
Hidroneuquén, InterAndes,
TermoAndes, Central Puerto S.A., or Central Puerto, and certain of our minor projects in Argentina. Under the terms of the agreement, Total or any of its subsidiaries could purchase any combination of
the companies. On July 27, 2001, Total exercised its option to buy our 63.94% interest in Central Puerto for approximately US$255 million in cash. On September 21, 2001, Total
exercised its option to buy our 70.02% interest in Hidroneuquén for approximately US$72.45 million in cash. On November 1, 2001, however, Total declined to exercise its
option to buy our ownership interest in TermoAndes and InterAndes.

Capital Investments

We continually review opportunities for improving our production methods and developing new plants and markets. We intend to continue to make capital expenditures
to meet expected increased demand for electricity in Chile, our principal market. Over the past three years, our capital expenditures amounted to US$24.4 million in 2001, US$7.3 million
in 2002 and US$5.4 million in 2003.

In
2001, our capital expenditures related to transmission line investments and a gas turbine project by our subsidiary, Energía Verde. In 2002, our principal capital
expenditures were related to the completion of the gas turbine project by Energía Verde, transmission line investments and business development projects, and in 2003, our capital
expenditures were related to the minor maintenance of certain of our generation units, including Chivor.

Our
budget projections include capital expenditures of US$15.4 million in 2004 and US$13.2 million in 2005, exclusive of expansion projects. The substantial increase in
2004 and 2005 is due primarily to planned capital expenditures by TermoAndes associated with the first major gas turbine (TG11) maintenance scheduled at 30,000 Equivalent Operating Hours.

We
believe that energy demand in Chile will continue to grow at a rate exceeding the growth rate of Chile's gross domestic product. Our expansion strategy in the SIC is based on this
expected demand growth, as well as an expected increase in the proportion of energy generated by thermoelectric sources to reduce Chile's dependence on hydrological conditions and the risk of an
electricity shortage during dry years. We plan to take advantage of the expertise we have acquired in Chile as the largest thermoelectric energy producer by developing combined-cycle projects.

Consistent
with this strategy, in July 2002, we completed our most recent project in Chile, the installation of a 25 MW gas turbine generator by our subsidiary,
Energía Verde. This turbine

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was
connected to the SIC and is used to provide energy and capacity to meet existing contractual requirements.

We
are currently pursuing several development projects in the SIC. In addition, we intend to construct a transmission line connecting the southern portion of the SIC with the Argentine
interconnected system, theSistema Argentino de Interconección, or SADI, which we estimate will have an interchange capacity of
approximately 250 MW, giving us the option to sell electricity in both Chile and Argentina and to take advantage of favorable local demand conditions. We expect this transmission line to begin
operations in 2006, as long as environmental permits are obtained and demand in the SIC continues to grow as expected. We also intend to convert our existing Renca power plant in Santiago, which city
accounts for most of the electricity consumption in the SIC, from a steam turbine that burns fuel oil or diesel, into a cleaner combined-cycle plant that burns natural gas. This conversion is expected
to increase Renca's nominal capacity from 100 MW to approximately 240 MW. We expect that the conversion of our Renca plant, for which we already have the environmental approval, will begin in the
second half of 2005 and expect construction to be completed in 18 months. We estimate that our total investment in both projects will be approximately US$150 million over the next three
years.

In
the future, we plan to construct additional combined-cycle plants to meet growing demand in the SIC. We have already requested environmental approval for the construction of two 370
MW combined-cycle power plants in the Sixth Region of Chile, south of Santiago. We are also considering the Laguna Verde 394 MW combined-cycle project in the Fifth Region of Chile, near Santiago, and
as of January 2004, theEstudio de Impacto Ambiental, or Environmental Impact Study, was submitted to the Comisión Regional del Medioambiente,
or Fifth Region Environmental Commission. We expect to complete the approval process by the end of
2004.

Our
maintenance capital expenditures that are currently in progress will be financed with our operating cash flow, while external financing as well as operating cash flow will be
utilized for future capacity expansions, including those described above, and are subject to our ability to implement a recapitalization plan, as described below.

Divestitures

During 2001, we divested our interests in Central Puerto and Hidroneuquén in Argentina as well as our remaining 50% interest in Merchant Energy
Group of the Americas Inc., or MEGA, and our shipping and port services investments in Chile, which included our 69.87% interest in Puerto
Ventanas S.A, our 26.02% interest in Compañía Chilena de Navegación Interoceánica, our 21.18% interest in Portuaria Cabo Froward S.A. and
our 26.70% interest in Agencias Universales S.A.

In
2002, we divested our 100% interest in OilGener Argentina Ltd., the assets of OilGener Inc. (USA) and the Fell Block (an oil and natural gas concession granted for the
Fell Block area in southern Chile), our 51% interest in Explotaciones Sanitarias S.A., our 51% interest in Ecogener S.A. and our 40% interest in SIGEN S.A. (a joint venture with General Electric
International Benelux B.V.).

With
regard to potential divestitures, during 2003 we held discussions to sell our 100% owned subsidiary Compañía de Carbones del Cesar Limitada, a coal
deposit located in Colombia, our 25% interest in the Itabo generation facility and our 13% interest in GasAndes Chile and GasAndes Argentina. We have entered into an agreement to sell the coal deposit
and expect such sale to be completed in the first half of 2004. No agreement has been reached with respect to any of the other assets.

17

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We
do not believe that these potential divestitures will have a material effect on our long term results of operations or financial condition.

B. Business Overview

Electricity Generation



AES Gener and Guacolda provide electricity to the largest interconnected system in Chile, the SIC, which serves central Chile from Rada Paposo in the north
(Chile's Second Region) to Isla Grande de Chiloé in the south (Chile's Tenth Region). More than 90% of the country's population lives in this region, which includes the densely
populated Santiago Metropolitan Region. We also provide electricity to the SING, the interconnected system that serves the northern part of the country from Tarapacá (Chile's First
Region) to Antofagasta (Chile's Second Region). Mining industry consumption prevails over residential consumption in this region, and thermoelectric facilities accounted for 99.6% of the region's
nominal generation capacity in 2003. The following table provides further information about the two major electric systems operating in Chile:

Major Electric Systems in Chile

|                           |  |                |  |                            |  | SIC           |  | SING          
|-------------------------- |  | -------------- |  | -------------------------- |  | ------------- |  | --------------
|
|Nominal Capacity (MW)      |  | 6,737          |  | 7,003                      |  | 3,634         |  | 3,634         
|                           |  |                |  |                            |  |               |  |               
|                           |  | Thermoelectric |  | Coal steam
Oil
Gas         |  | 838
485
1,359 |  | 847
485
1,616 
|                           |  | Hydroelectric  |  | Run-of-the-river
Reservoir |  | 1,302
2,753   |  | 1,302
2,753   
|                           |  |                |  |                            |  |               |  |               
|Max. Demand peak hour (MW) |  | 4,385          |  | 4,517                      |  | 1,360         |  | 1,382         
|                           |  |                |  |                            |  |               |  |               
|Gross Generation (GWh)     |  | 31,971         |  | 33,710                     |  | 10,400        |  | 11,424        
|                           |  | Thermoelectric |  | Coal steam
Oil
Gas         |  | 3,458
5
5,984 |  | 3,997
18
7,836
|                           |  | Hydroelectric  |  | Run-of-the-river
Reservoir |  | 9,568
12,956  |  | 9,523
12,336  
|                           |  |                |  |                            |  |               |  |               
|Energy Sales (GWh)         |  | 30,331         |  | 32,092                     |  | 9,482         |  | 10,480        
|                           |  |                |  |                            |  |               |  |               
|                           |  |                |  | Regulated                  |  | 20,491        |  | 21,681        
|                           |  |                |  | Non-regulated              |  | 9,840         |  | 10,411        

---

Source: CDEC-SIC, CDEC-SING

Demand
for electrical energy in Chile's two major power grids grew in 2003 by 5.4% in the SIC and 9.8% in the SING. In comparison, Chile's gross domestic product increased by an
estimated 3.2% in real terms in 2003. Our management believes that energy demand in Chile will continue to grow for the foreseeable future at an annual rate that exceeds the annual rate of growth in
Chile's gross domestic product, which is also in accordance with the Chilean National Energy Commission forecast.

Our
generation capacity in the SIC is comprised of hydroelectric, combined-cycle, coal, peaking diesel and biomass facilities, and, accordingly, our plants are well distributed across
the dispatch curve. This distribution allows us to operate our facilities competitively in a variety of hydrological and pricing conditions, and to effectively manage our contractual obligations with
limited exposure to the spot market.

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AES Gener and Guacolda had 1,803.4 MW of nominal capacity in Chile as of December 31, 2003, which consisted of:



In
order to take advantage of expected growth in electricity demand, we plan to increase generation capacity in the SIC by 390 MW through the execution of two development projects. See
"History and Development of the CompanyCapital Investments", for further details.

Additionally,
AES Gener has 642.8 MW of nominal capacity at its TermoAndes facility, a combined-cycle natural gas-fired plant located in the province of Salta, Argentina,
which is connected by a 345 kV transmission line to the SING. This plant began commercial operations on April 13, 2000.



We began operations in Colombia in December 1996 when we purchased the Chivor hydroelectric power plant from the Colombian government as part of its
privatization process. The Chivor plant consists of eight units with a total nominal capacity of 1,000 MW. Chivor is one of the largest dam-based hydroelectric plants in Colombia,
representing approximately 7.5% of the country's total generating capacity in 2003. The Chivor plant, which is
located on the Batá River, 160 km northeast of Bogotá, has been operating continuously since 1977.



Our electricity investments in Argentina consist of the TermoAndes generation plant in the province of Salta and the InterAndes transmission line, which delivers
electricity produced by TermoAndes to the SING. The Argentine portion of the transmission line is currently owned by InterAndes, our wholly owned Argentine subsidiary. The Chilean portion of the line
is directly owned by AES Gener S.A.



On May 13, 1999, a consortium comprised of AES Gener and an affiliate of Coastal Corporation of the United States was the successful bidder for a 50%
interest in Itabo, a company formed as part of the Dominican Republic's program to privatize its electricity sector. Itabo owns six thermoelectric generation facilities, with a total of 13 units
located near Santo Domingo, with approximately 586.5 MW of nominal capacity, but of the facility's 13 units, only seven, with approximately 432.5 MW of nominal capacity, are currently in commercial
operation. The other units have been decommissioned based on their low levels of efficiency. During 2003, discussions were held with interested parties for the sale of this asset; however, no
agreements were reached.

Other Businesses

We also have ownership interests in other non-electricity businesses, principally related to fuels. We are the largest distributor of coal in Chile
and own one coal deposit in Colombia. We

19

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have
entered into an agreement to sell the coal deposit and expect such sale to be completed in the first quarter of 2004. We also participate in the Chilean natural gas industry through our 13%
ownership interest in each of GasAndes Argentina and GasAndes Chile, which transport natural gas through a pipeline from the Province of Mendoza in Argentina to the Santiago Metropolitan Region in
Chile. We have held discussions with interested parties regarding the sale of GasAndes Argentina and GasAndes Chile, which are non-core businesses; however, no agreements have been
reached.

Principal Market Revenues

Our principal market is the electricity generation market in Chile, which in 2001, 2002 and 2003 accounted for 68%, 68% and 70% of our operating revenues,
respectively. Although our TermoAndes facility is located in Argentina, the electricity generated by this plant is sold in the SING in Chile and, therefore, is registered in the Chilean market and
considered to be a part of our Chilean operations. In addition, the revenue contribution made by our Colombian subsidiary Chivor accounted for 20%, 22% and 22% of our operating revenues in 2001, 2002
and 2003, respectively. Our non-electric, or other business operations, primarily fuel sales, represented 12%, 10% and 8% of our operating revenues in 2001, 2002 and 2003, respectively.
The table below details the revenue contribution by market segment in 2001, 2002 and 2003.

Operating Revenues in Million Ch$

|Market   |             | 2001    |         | 2002    |         | 2003   
|-------- | ----------- | ------- | ------- | ------- | ------- | -------
|Chile    |             | 289,298 |         | 292,641 |         | 283,668
|         | Electricity |         | 245,723 |         | 255,749 |        
|         | Other       |         | 43,575  |         | 36,892  |        
|Colombia |             | 71,696  |         | 81,615  |         | 78,664 
|         | Electricity |         | 71,696  |         | 81,615  |        
|         |             |         |         |         |         |        
|Total    |             | 360,994 |         | 374,256 |         | 362,332
|         |             |         |         |         |         |        

Seasonal Business Variations

Our operating income is less affected by seasonal demand variations resulting from pronounced changes in temperature than the operating income of electricity
generation companies in the United States. For example, in the SING, there are no significant seasonal cycles that affect the supply or demand of electricity. Nevertheless, the demand in the SIC is
subject to seasonal variations due to higher consumption of electricity during the winter from May to August, by residential consumers in general. Approximately 46% of our operating revenue in 2003
was generated in the SIC, and approximately 68% of the consumption in the SIC is classified as residential. Residential customers are characterized by having a low-load factor
and a continuous growth curve. Load factor is the consumption ratio with respect to nominal capacity. Consumption of electricity by industrial customers in the SIC presents little seasonal variation,
and growth in this customer class depends principally on the development of new industrial projects.

The
impact of seasonal variations is more significant with regard to supply in the SIC, given that approximately 58% of the SIC's nominal capacity comes from hydroelectric plants that
depend on inflow from rainfall, melting snow or both. Hydroelectric plants that depend on rainfall inflow generate more electricity in winter months, while those plants that depend on

20

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snow
melt-off generate at higher levels in the spring and early summer, usually between September and January, as a result of warmer temperatures melting the snow that accumulated in the
mountains throughout the winter. The rest of the SIC's power plants, namely thermoelectric facilities fueled by natural gas, coal and fuel oil, experience higher or lower levels of generation based on
the seasonal evolution of the hydroelectric facilities, as well as the particular hydrological conditions in any given year.

In
Colombia, the impact of hydro inflow variations is also significant with regard to supply in theSistema Interconectado Nacional
Colombiano, the National Interconnected System, or the SIN, given that approximately 70% of the SIN's nominal capacity comes from hydroelectric plants that are dependent on
rainfall inflow. Hydroelectric plants generate more electricity in wet months, from May to November, and less in dry months between December and April. This condition is accentuated when the
"El Niño" weather phenomenon is present because water inflows decrease and spot market prices significantly increase.

Fuel Supply

Approximately 63% of the capacity we own in Chile, including our participation in equity-method investees, is thermoelectric capacity that is fueled by natural
gas, coal and fuel oil or other kinds of petroleum derivatives. Additionally, coal is purchased internationally as the primary fuel for several of our equity-method investees' plants. During 2003, we
were the second largest coal importer in Chile, which position enables us to negotiate attractive prices and directly arrange coal transportation and delivery. We have taken advantage of our position
in the Chilean coal market by selling coal to third parties and to our 50% equity-method investee, Guacolda, upon being selected to supply coal to these entities after participating in competitive
bidding processes. During 2003, AES Gener purchased all of its coal requirements from producers in Indonesia (28%), Canada (50%), Australia (7%) and New Zealand (15%). Our peaking plants, which are
typically only dispatched in order to meet system demand during high consumption periods, utilize petroleum-based fuels such as fuel oil No. 2. Itabo, our 25% equity-method investee located in
the Dominican Republic, also purchases fossil fuels, which include coal, fuel oil No. 2 and fuel oil No. 6, from international suppliers.

The
significant variations in the market prices for these fuels could lead to higher operating costs that could adversely affect our operations in the short-term. However,
all of these fuels are purchased under market conditions similar to those that affect our competitors, and under the marginal cost regulatory framework that is in effect in the SIC and the SING, such
variations should eventually be incorporated into the price of electricity. The price of the fossil fuels consumed by our power plants increased considerably during 2003: coal prices increased
approximately 40% over prices in 2002 and freight costs have, in some cases, increased by 100%. It is expected that current prices in the market for coal and freight will remain constant throughout
2004.

Argentine
natural gas is purchased under long term market-based contracts for Eléctrica Santiago and TermoAndes' combined-cycle units.

Strategy

AES Gener's historic business strategy has been to focus on the development of efficient electricity generation in Chile. In the 1990's we expanded this strategy
to take advantage of electricity generation opportunities presented by privatization activities in other Latin American countries, as well as opportunities in other non-electricity
businesses, such as fuels and infrastructure. In December 2000, The AES Corporation acquired a controlling interest in our

21

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company.
As a result of The AES Corporation's involvement we returned our focus to our core business activity, principally electricity generation in Chile, as demonstrated by the divestitures that we
have made since 2001 and future divestitures that we are pursuing. Consistent with our focus, we are continuing to implement the following strategy:



Divesting Non-Core Assets.As discussed above under "History and Development of the
CompanyDivestitures", we have divested a number of assets since 2001, many of which were non-core assets. The total consideration that we have received for all divestitures
since 2001 is US$414 million. We expect to continue to divest non-core operations and business lines, including the potential divestitures that were previously discussed. We do not
believe that any of the divestitures under consideration will have a material effect on our long term results of operations or financial condition.

Expanding Our Electricity Generating Capacity in the SIC.As discussed above under "History and Development of
the CompanyCapital Investments", in order to take advantage of expected growth in electricity demand, we plan to increase generation capacity in the SIC by 390 MW with the execution of
two development projects.

Restructuring Our Balance Sheet.At the corporate level, AES Gener S.A. has restructured a portion of its outstanding debt in
the past few years. For additional information, see "Item 5. Operating and Financial Review and ProspectsLiquidity and Capital Resources". We continue to pursue opportunities to
restructure debt and strengthen our balance sheet, including a recapitalization plan.

As
of December 31, 2003, US$676.6 million of our outstanding indebtedness will become due and payable in March 2005 and January 2006. As a result of these
upcoming maturities, as well as a widespread decline in economic conditions in Latin America, we have been unable to access the capital markets on favorable terms, thereby exposing us to significant
refinancing risk for this debt. Based on this refinancing risk, our restricted access to the capital markets and, at that time, low liquidity, we lost our investment grade rating in July 2002.
To improve our financial condition, we are pursuing a recapitalization plan designed to do the following:



We
believe that the implementation of a recapitalization plan, which will reduce the amount of our outstanding indebtedness and extend the maturities of our long term debt, will improve
our financial condition and enhance our financial flexibility and our ability to generate cash flow for the upcoming years. Our recapitalization plan consists of the following transactions:



22

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Operational Structure

In 2002, our operational structure was modified to improve administrative efficiency. In October 2002, a functional operational structure was adopted and
remains in place, with the following divisions reporting to our Chief Executive Officer:



This
restructuring at the executive level was accomplished with existing personnel and did not result in a material reduction in personnel or the incurrence of restructuring charges.

Electricity Generation Facilities

The following table provides information about each of our existing electricity generation facilities, including those of our subsidiaries and equity-method
investees. All of these facilities are currently in operating condition and available for dispatch, with the exception of six of Itabo's generation units (Santo Domingo V and VIII, Los Mina I and II
and Timbeque I and II), representing approximately 150 MW of nominal capacity, which were removed from commercial operation in 2002.

23

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|Location, Operating Company
and Facility |                              | Type of Unit |                                           | Year of Commission |                  | Nominal
Capacity
(MW) |         | Our Share of
Capacity (MW)(1)
|---------------------------------------- | ---------------------------- | ------------ | ----------------------------------------- | ------------------ | ---------------- | --------------------- | ------- | -----------------------------
|Chile                                    |                              |              |                                           |                    |                  |                       |         |                              
|AES Gener                                |                              |              |                                           |                    |                  |                       |         |                              
|                                         | Ventanas                     |              | Steam Turbine                             |                    | 1964, 1977       |                       | 338.0   |                              
|                                         | Renca                        |              | Steam Turbine                             |                    | 1962             |                       | 100.0   |                              
|                                         | Laguna Verde                 |              | Steam Turbine                             |                    | 1939, 1949       |                       | 54.7    |                              
|                                         | El Indio                     |              | Gas Turbine                               |                    | 1990             |                       | 18.8    |                              
|                                         | Alfalfal                     |              | Run-of-the-river                          |                    | 1991             |                       | 178.0   |                              
|                                         | Queltehues                   |              | Run-of-the-river                          |                    | 1928             |                       | 48.9    |                              
|                                         | Maitenes                     |              | Run-of-the-river                          |                    | 1923, 1989       |                       | 30.8    |                              
|                                         | Volcán                       |              | Run-of-the-river                          |                    | 1944             |                       | 13.0    |                              
|Norgener                                 |                              |              |                                           |                    |                  |                       |         |                              
|                                         | Nueva Tocopilla I            |              | Steam Turbine                             |                    | 1995             |                       | 136.3   |                              
|                                         | Nueva Tocopilla II           |              | Steam Turbine                             |                    | 1997             |                       | 141.0   |                              
|Guacolda                                 |                              |              |                                           |                    |                  |                       |         |                              
|                                         | Guacolda I                   |              | Steam Turbine                             |                    | 1995             |                       | 152.0   |                              
|                                         | Guacolda II                  |              | Steam Turbine                             |                    | 1996             |                       | 152.0   |                              
|Energía Verde                            |                              |              |                                           |                    |                  |                       |         |                              
|                                         | Laja                         |              | Steam Boiler                              |                    | 1995             |                       | 8.7     |                              
|                                         | San Francisco de Mostazal(3) |              | Vibrating Grate Boiler(2)
and Gas Turbine |                    | 2000, 2002       |                       | 28.8    |                              
|                                         | Constitución                 |              | Steam Boiler                              |                    | 1995             |                       | 8.7     |                              
|                                         | Nacimiento(4)                |              | Fluidized Bed Boiler(2)                   |                    | 1997             |                       | 15.0    |                              
|Eléctrica Santiago                       |                              |              |                                           |                    |                  |                       |         |                              
|                                         | Nueva Renca                  |              | Combined-Cycle                            |                    | 1998             |                       | 379.0   |                              
|                                         |                              |              |                                           |                    |                  |                       |         |                              
|Total Chile                              |                              |              |                                           |                    |                  | 1,803.7               |         | 1,613.8                      
|                                         |                              |              |                                           |                    |                  |                       |         |                              
|Colombia                                 |                              |              |                                           |                    |                  |                       |         |                              
|Chivor                                   |                              |              |                                           |                    |                  |                       |         |                              
|                                         | Chivor                       |              | Reservoir                                 |                    | 1977, 1982       |                       | 1,000.0 |                              
|                                         |                              |              |                                           |                    |                  |                       |         |                              
|Total Colombia                           |                              |              |                                           |                    |                  | 1,000.0               |         | 1,000.0                      
|                                         |                              |              |                                           |                    |                  |                       |         |                              
|Argentina                                |                              |              |                                           |                    |                  |                       |         |                              
|TermoAndes                               |                              |              |                                           |                    |                  |                       |         |                              
|                                         | Salta Plant                  |              | Combined-Cycle                            |                    | 1999             |                       | 642.8   |                              
|                                         |                              |              |                                           |                    |                  |                       |         |                              
|Total Argentina                          |                              |              |                                           |                    |                  | 642.8                 |         | 642.8                        
|                                         |                              |              |                                           |                    |                  |                       |         |                              
|The Dominican Republic                   |                              |              |                                           |                    |                  |                       |         |                              
|Itabo(5)                                 |                              |              |                                           |                    |                  |                       |         |                              
|                                         | Itabo Steam Turbines         |              | Steam Turbine                             |                    | 1984, 1988, 1998 |                       | 260.0   |                              
|                                         | Itabo Gas Turbines           |              | Gas Turbine                               |                    | 1984, 1988, 1998 |                       | 103.5   |                              
|                                         | Santo Domingo                |              | Steam Turbine                             |                    | 1954, 1964       |                       | 39.1    |                              
|                                         | Timbeque                     |              | Gas Turbine                               |                    | 1974             |                       | 45.6    |                              
|                                         | Los Mina                     |              | Gas Turbine                               |                    | 1981             |                       | 68.8    |                              
|                                         | Higuamo                      |              | Gas Turbine                               |                    | 1998             |                       | 69.0    |                              
|                                         |                              |              |                                           |                    |                  |                       |         |                              
|Total The Dominican Republic(6)          |                              |              |                                           |                    |                  | 586.0                 |         | 146.6                        
|                                         |                              |              |                                           |                    |                  |                       |         |                              
|Total for all facilities                 |                              |              |                                           |                    |                  | 4,032.5               |         | 3,403.2                      
|                                         |                              |              |                                           |                    |                  |                       |         |                              

---

Notes:

24

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The
following table provides information about each of our planned electricity generation facilities, including those of our subsidiaries and equity-method investees:

|Project                                            |  | Type of Unit      |  | Nominal
Capacity (MW) |  | Our Share of
Capacity (MW)
|-------------------------------------------------- |  | ----------------- |  | --------------------- |  | --------------------------
|SIC-SADI Transmission Line(1)                      |  | Transmission Line |  | 250                   |  | 250                       
|Renca Plant Conversion(2)                          |  | Combined-Cycle    |  | 240                   |  | 240                       
|                                                   |  |                   |  |                       |  |                           
|Total of increase in all planned facilities (net). |  |                   |  | 390                   |  | 390                       
|                                                   |  |                   |  |                       |  |                           

---

Electricity Generation in Chile

Our core business is our operation in the Chilean electricity generation industry. AES Gener and Guacolda, our 50% owned equity-method investee, own and operate
18 generation facilities in Chile, with an aggregate nominal capacity of 1,803.4 MW, which as of December 31, 2003, consisted of:



AES
Gener and Guacolda's aggregate electricity production of 7,829 GWh during 2002, which includes TermoAndes' production that is sold in the SING, represented 19% of all electricity
produced in Chile, while in 2003 our production, including that of TermoAndes, was 9,005 GWh which represented 20% of all electricity produced in Chile.



Sales contract decisions regarding the amount of current and future production that should be committed to long term contracts, either at regulated or unregulated
prices, and the amount of production that should be left uncommitted to be sold at spot prices, are critical to our profitability. The desired level of contractual commitments is one that permits us
to take advantage of a low marginal cost environment and still maintain profitability in a high marginal cost environment. In order to determine the appropriate level of contractual commitments to
maximize profits with limited risk, we estimate demand based on standard economic theory and estimate node prices and system marginal cost using dynamic programming models. Historically, this strategy
has led us to enter into long term contracts for our most efficient units and to reserve our less efficient units for sales in the spot market; however, in recent years, our contract volume
commitments have been increasing, while our nominal capacity has remained unchanged. Accordingly, in the case of a dry year, we may be adversely affected, as we would have to either generate or buy
electricity in the spot market at high prices in order to fulfill our commitments.

Since
we plan to increase our nominal generating capacity in the SIC, we intend to increase our long term contractual commitments to supply electricity in line with our planned capacity
increases. This will reduce the risk of excess capacity in the SIC, caused by the construction of additional generating plants, hedge against the decline in electricity prices that has resulted from
the introduction of combined-cycle natural gas-fired plants in the SIC, minimize our exposure to significant changes in hydrological conditions and stabilize our level of cash flow. In
addition, we plan to maintain our coal-fired thermoelectric plants, which have higher operating costs, for sales

25

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to
the spot market in periods of low water conditions and/or high demand when the system marginal cost generally exceeds the node price.

Regulated Sales in the SIC and the SING.Our largest regulated customers in Chile are two distribution companies operating in
the SIC, Chilectra S.A., or Chilectra, and Chilquinta Energía S.A., or Chilquinta. In 2003, Chilectra accounted for 42.4% of our total energy sales in Chile and 24.0% of our
consolidated operating revenue. In 2003, Chilquinta accounted for 11.2% of our total energy sales in Chile and 9.5% of our consolidated operating revenue.

During
2003, we supplied Chilectra with an estimated 526 MW of capacity and 3,729 GWh of energy. Pursuant to a contract entered into between Chilectra and us on January 31, 1996,
we have agreed to supply Chilectra's demand until 2010. The average maximum amount of energy to be supplied each year during the 15-year term of the contract is approximately 3,500 GWh.

During
2003, we supplied Chilquinta with an estimated 166 MW of capacity and 985 GWh of energy. We entered into our current capacity and energy contract with Chilquinta in
January 1986. The contract was originally for a five-year term but was renewed in July 1990, May 1994 and in September 1998, for an additional term expiring on
April 30, 2010. Under the terms of the contract, Chilquinta is required to pay for the capacity or energy that it actually uses.

In
addition to those contracts, during 2003, AES Gener supplied Río Maipo with an estimated 3 MW of capacity and 29 GWh of energy. We entered into our current contract
with Río Maipo in January 1991, which expires in March 2006.

During
2003, we supplied SAESA, SOCOEPA and CODINER, distribution companies in the SIC, with an aggregate of 28 MW of capacity and 148 GWh of energy. Although we have not entered into
supply agreements with these companies, pursuant to Resolution No. 88, AES Gener and all other electricity generators in the SIC are required to provide power to distribution companies in the
SIC if such companies are unable to freely contract for adequate power to meet their customers' needs. We supplied electricity to these distribution companies in 2003 pursuant to this requirement.

Our
equity-method investee, Guacolda, has a contract with Empresa Eléctrica de Coquimbo S.A., or EMEC, a distribution company in Chile's Fourth Region, which is located
north of the Santiago Metropolitan Region. During 2003, Guacolda sold 74 GWh to EMEC, representing approximately 34% of Guacolda's total sales. The Fourth Region is becoming an increasingly important
source of electricity demand in the SIC resulting from growth in the Chilean tourism industry. This contract expires in October 2015.

In
2003, none of our other electricity contracts with distribution companies exceeded estimated annual sales of 220 GWh each.

Unregulated Sales in the SIC and the SING.Prices of sales to unregulated customers (principally large industrial companies
and other generation companies) are negotiated directly between the parties. We continue to focus on sales to different customers in order to stabilize revenues. Unregulated customers are generally
stable customers that require large volumes of electricity
with low seasonal variation in demand. The majority of our contracts with unregulated customers require them to pay for only the energy that they actually use.

In
the SIC, in August 1994, AES Gener S.A. signed a ten-year contract with Compañía Minera Disputada de Las Condes S.A., or Disputada, a
copper mining company, which contract was transferred to our 90% owned subsidiary Eléctrica Santiago in January 2003. In 2003, total energy sales to Disputada amounted to 261
GWh. AES Gener S.A. also sells electricity under a contract expiring in April 2004 to Cemento Polpaico S.A., which consumed 168 GWh in 2003. Eléctrica Santiago also has contracts
with two large unregulated customers, Codelco-Chile, División Andina and Empresa Nacional de Minería-Ventanas, which expire in 2005. During 2003,

26

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energy
sales to Codelco-Chile, Andina and Empresa Nacional de Minería-Ventanas were 311 GWh each. Guacolda also has several contracts with unregulated customers, including a long term
contract expiring in 2012 with the mining company Candelaria, to which it supplied 620 GWh during 2003. In 2003, our total unregulated sales, together with sales made by Guacolda, totaled 2,877 GWh.

In
the SING, we entered into supply contracts during 1996 with two mining companies, Compañía Minera Zaldívar S.A., or
Zaldívar, and Compañía Minera Lomas Bayas S.A., or Lomas Bayas, for a total of 110 MW of capacity and a minimum term of 12 years. Energy under both
contracts is being supplied by TermoAndes' Salta power plant. Total consumption under the two contracts totaled 726 GWh during 2003. Norgener has two existing supply contracts for up to 172 MW of
capacity with Minera Escondida Limitada, or Escondida, which operates one of the largest copper mines in the world and is our largest customer in the SING. The first contract for 110 MW expires in
2007 and the second for 62 MW expires in 2008. In 2003, we supplied an estimated 1,287 GWh to Escondida, which represented 93.0% of Norgener's total energy sales and 14.6% of our total energy sales in
Chile. On February 16, 2004, Norgener and Escondida entered into an agreement that consists of (i) a decrease in price for both supply contracts effective July 2004 and an upfront
indemnification payment to us of US$40 million, (ii) the extension of the current contracts for an amount covering 172 MW until 2015 and (iii) the execution of a new contract of 80 MW beginning
2004 and expiring in 2015. This agreement must be approved by both our board of directors and Escondida's board of directors, which we expect to occur in the first quarter of 2004 and is conditioned
upon the completion of our proposed recapitalization plan. In the event that board approvals are not obtained, or if we do not complete our proposed recapitalization plan, the arbitration proceedings
will be reinstated. We believe that these transactions will not change the net present value of the original contracts. Norgener also has two long term contracts with SQM Nitratos and SQM Salar, which
expire in 2013 and 2017, respectively. Under the terms of these contracts, SQM Nitratos may purchase up to 10 MW of capacity and SQM Salar may purchase up to 18 MW. During 2003, Norgener supplied an
estimated total of 97 GWh to these companies.

Spot Sales to and Purchases from Other Generators.In the SIC, we become a spot purchaser of electricity from other
generation companies during relatively wet years that result in high hydro conditions and lower marginal costs. Our spot purchases of electricity decline in periods of low
hydro conditions. As our contractual sales in the SIC have continued to increase as a result of higher production, our spot market purchases have decreased from 2,728 GWh to 2,544 GWh and 1,831 GWh in
2001, in 2002 and 2003, respectively.

In
the SING, our energy sales to the spot market have increased from 629 GWh in 2001 to 998 GWh and 1,089 GWh in 2002 and 2003, respectively, due to higher production from TermoAndes'
combined-cycle plant. On the other hand, our subsidiary Norgener has to purchase on the spot market due to its own low production; however, the net purchases, on a consolidated basis, have been
decreasing steadily from 736 GWh in 2001 to 390 GWh in 2002 and 221 GWh in 2003, primarily as a result of the increase of the TermoAndes production.



The Chilean National Energy Commission, or NEC, periodically prepares projections of electricity supply and demand in the SIC and the SING. In addition, the NEC
prepares a 10-year indicative plan for the construction of new energy projects, both generation and transmission, designed to minimize the cost to supply the electricity required to meet
projected demand in the SIC and the SING. The NEC receives information about plants and transmission facilities under construction from generation and transmission companies, which it includes in its
indicative plan. The NEC cannot prevent a generation company from building a new plant that is not included in the indicative plan or from completing construction of a new plant ahead of schedule. If
the aggregate capacity of all projects submitted to the NEC is insufficient to meet the NEC's projected electricity demand, the NEC will include the construction of plants that have not been proposed
by any generation company in its plan.

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The following table shows the anticipated schedule for the construction of new generating plants in Chile for 2004-2015, based on the NEC's most recent 10-year
indicative plan for the SIC, which was issued in October 2003. Given the current excess capacity in the SING, an indicative plan is not currently established. References to a particular sponsor
mean "under construction", otherwise, "TBD"refers to plants that have been proposed by the NEC but have
not been adopted by any generation company.

SIC Plant Expansion Schedule

|Expected
Commercial
Operation |  | Facility                        |  | Sponsor |  | Type of Unit      |  | Capacity
Estimated
(MW)
|----------------------------- |  | ------------------------------- |  | ------- |  | ----------------- |  | -----------------------
|March 2004                    |  | Valdivia                        |  | Arauco  |  | Steam turbine     |  | 70.0                   
|April 2004                    |  | Licantén                        |  | Arauco  |  | Steam turbine     |  | 11.0                   
|April 2004                    |  | Arauco                          |  | Arauco  |  | Steam turbine     |  | 24.0                   
|June 2004                     |  | Nehuenco II                     |  | Colbún  |  | Combined-Cycle    |  | 130.7                  
|July 2004                     |  | Ralco                           |  | Endesa  |  | Dam-Based         |  | 570.0                  
|July 2006                     |  | Combined-Cycle 1                |  | TBD     |  | Combined-Cycle    |  | 358.7                  
|July 2007                     |  | Combined-Cycle 2                |  | TBD     |  | Combined-Cycle    |  | 358.1                  
|October 2008                  |  | SIC-SING Interconnection        |  | TBD     |  | Transmission Line |  | 600.0                  
|January 2009                  |  | Geothermal power plant I        |  | TBD     |  | Steam turbine     |  | 100.0                  
|January 2010                  |  | Geothermal power plant II       |  | TBD     |  | Steam turbine     |  | 100.0                  
|April 2010                    |  | Chile-Argentina Interconnection |  | TBD     |  | Transmission Line |  | 400.0                  
|January 2011                  |  | Geothermal power plant III      |  | TBD     |  | Steam turbine     |  | 100.0                  
|April 2011                    |  | Combined-Cycle 3                |  | TBD     |  | Combined-Cycle    |  | 385.1                  
|October 2011                  |  | Combined-Cycle 4                |  | TBD     |  | Combined-Cycle    |  | 381.0                  
|October 2012                  |  | Combined-Cycle 5                |  | TBD     |  | Combined-Cycle    |  | 381.0                  
|April 2013                    |  | Neltume                         |  | TBD     |  | Dam-Based         |  | 400.0                  
|October 2013                  |  | Combined-Cycle 6                |  | TBD     |  | Combined-Cycle    |  | 379.4                  
|January 2015                  |  | Combined-Cycle 7                |  | TBD     |  | Combined-Cycle    |  | 379.4                  

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Source: Chilean National Energy Commission, October 2003

During 2003, several plants entered into operation in the SIC with a total nominal capacity of 266 MW, increasing the total nominal capacity available in the SIC
by 4% when compared to 2002.



As discussed above, we plan to construct a 250 MW transmission line connecting the southern SIC with the SADI (Argentina), and to convert our existing fuel
oil/diesel Renca power facility into a natural gas fired-combined cycle plant, which we estimate would increase the nominal capacity of the plant from 100 MW to 240 MW. See "History and
Development of the CompanyCapital Investments", for further details. The construction of these projects may be affected by changes in demand for electricity in Chile and the construction
plans of other generating companies.

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Electricity Generation in Colombia

Chivor's main facilities, in addition to the eight 125 MW generators, consist of a reservoir with a maximum useful water volume of 617 million cubic meters
and storage capacity of 1,045.5 GWh, a primary dam and two additional diversion dams. The plant's availability averaged 93.4% during the 1997-2003 period. Forced
non-availability, which is, interruptions for unscheduled maintenance or repair, averaged 0.38% during the 1997-2003 period. The following table shows Chivor's energy sales
during the last three years, broken down into contract sales, sales on the spot market and reconciliation sales:

Market

2001
GWh

%

2002
GWh

%

2003
GWh

%Contract

2,110

45

2,491

39

2,544

44Spot Market

1,828

39

3,678

58

3,049

52Reconciliation

730

16

170

3

229

4Total Chivor

4,668

100

6,339

100

5,822

100


Electricity Generation in Argentina

Our electricity investments in Argentina consist of the TermoAndes generation plant in the province of Salta, and the InterAndes transmission line. The Argentine
portion of the transmission line is owned by InterAndes, our wholly owned Argentine subsidiary, and the Chilean portion of the line is directly owned by AES Gener S.A.

The
TermoAndes generation plant was built in two stages. The first two units, which have a total capacity of 417 MW, began commercial operations in open cycle in December 1999,
and the second stage was completed when these units began to operate in combined-cycle, together with a third unit on April 13, 2000.

While
this project was originally designed to supply electricity to the SING, the construction of two unaffiliated natural gas pipelines that connect northern Argentina with northern
Chile and their related new generation plants has led to an oversupply of electricity in the system. In addition, in 2000 and 2001, we invested US$15 million in additional infrastructure to
permit the sale of excess energy into the Argentine system. In August 2002, Argentina's electric regulatory agency, ENRE, authorized TermoAndes to connect 203 MW (approximately 32% of its
nominal capacity) to the national grid. However, connection to the Argentine grid is not projected in the short term, because of the economic instability in that country. Therefore, no further
investments were made during 2002 and 2003.

The
CDEC-SING has the authority to set the maximum level of dispatch for each independent unit in the SING between 150 MW and 270 MW. While this limit for combined cycle
plants, such as the TermoAndes plant, had previously been set at 180 MW, it was increased in 2002 to 220 MW during peak hours, and on June 17, 2003 to 240 MW during peak hours. This measure is
part of the "Short-Term Operational Reliability Plan" adopted by the CDEC-SING in order to minimize the risk of energy outages in the SING, which in the past have been affected
by blackouts sanctioned by regulatory authorities.

AES
Gener S.A. entered into an agreement to purchase 100% of the capacity and energy of TermoAndes, for which it is obligated to make minimum capacity and energy payments in amounts
sufficient, among other things, to service the US$257.0 million of debt securities issued by TermoAndes and InterAndes to finance the project, as further described in "Item 5. Operating
and Financial Review and ProspectsLiquidity and Capital ResourcesLong Term Debt

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TermoAndes
and InterAndes". We have entered into long term supply contracts with two mining companies in the SING, Zaldívar and Lomas Bayas, for a total of 110 MW of the capacity
that is being supplied by TermoAndes. During 2003, we supplied these customers with a total of approximately 726 GWh.

Electricity Generation in the Dominican Republic

On May 13, 1999, a consortium composed of AES Gener and an affiliate of Coastal Corporation of the United States was the successful bidder for a 50%
interest in Itabo, a company formed as part of the Dominican Republic's program to privatize its electricity sector. Currently, the ownership of Itabo is comprised of AES Gener with 25.01%, Coastal
Itabo Ltd., a subsidiary of El Paso Energy International, with 24.99%, the Dominican Republic government with 49.98% and employees of the former state-owned company owning the remaining 0.02%.
AES Gener has the right to designate the president and a majority of the directors of the holding company
formed to own the consortium's investment in Itabo. For certain significant actions, the approval of both members of the consortium is required.

As
part of our efforts to focus on our core business in Chile, discussions were held with interested parties for the sale of this asset during 2003; however, no agreements were reached.

Itabo
owns six thermoelectric generation facilities located near Santo Domingo with approximately 586.5 MW of nominal capacity, but of the facility's 13 units, only seven with
approximately 432.5 MW of nominal capacity are currently in commercial operation. The other units have been decommissioned based on their low level of efficiency.

Itabo
holds contracts for 200 MW of capacity with Empresa Distribuidora del Sur and Empresa Distribuidora del Norte, which the government acquired in 2003 from Union Fenosa.
Additionally, Itabo has 100 MW of capacity contracted with Empresa Distribuidora del Este, a subsidiary of The AES Corporation. In October 2001, Itabo and these three distribution companies
extended the terms of their original agreements from five to 15 years. The agreements now expire in July 2016. Additionally, in November 2001, Itabo entered into an agreement with
an industrial client to supply 2 MW of capacity for three years, which will expire in October 2004.

During
2003, Itabo supplied the Dominican Republic with 1,435 GWh, representing 15% of the Dominican Republic system's total production. Itabo generation increased by 18% from 2002 to
2003, due to the fact that the Itabo I and II steam units resumed operation after the completion of their rehabilitation. The rehabilitation permitted the units to increase their available capacity
from 80 MW to 128 MW, and from 100 MW to 132 MW, respectively, and additionally provided them with dual fuel capability, or the ability to burn either coal or fuel oil. The benefits of the
rehabilitation include an increase in available capacity, higher levels of efficiency and a reduction in production costs, allowing them to be dispatched as base load plants. Available capacity
increased from 285 MW to approximately 432 MW when Itabo I and II were returned to service.

Itabo
removed six of its generation units (Santo Domingo V and VIII, Los Mina I and II and Timbeque I and II), representing approximately 150 MW in nominal capacity, from commercial
operation in 2002. Two of these units are steam units, and the remaining four are gas turbine units. The decommissioned facilities are older, inefficient units with low production and dispatch levels
and received low firm capacity remunerations that did not contribute to Itabo's commercial margin.

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Itabo's
construction of a fuel unloading port during 2003 was delayed due to technical revisions. We expect the port facility to have the capacity to unload 1,600 metric tons of coal per
hour, allowing the entry of high-capacity Panamax ships. It is also expected to lead to a reduction in fuel transportation costs and frequency by significantly reducing the unloading time
for each vessel. We expect the port to create new business opportunities through the potential provision of services to third parties.

Non-Electricity Businesses



As the largest Chilean thermoelectric generation company, we require large quantities of coal for our plants. In addition, during 2003 we were the second largest
coal importer in Chile, which enables us to negotiate attractive prices and directly arrange coal transportation and delivery. We have taken advantage of our position in the Chilean coal market,
selling coal to third parties and to our 50% equity-method investee, Guacolda. We estimate that in 2003 our market share in the bituminous coal market for the industrial sector in Chile was
approximately 45%.

In
2003, we bought 639,000 metric tons of coal directly from foreign suppliers in Indonesia (28%), Canada (50%), Australia (7%) and New Zealand (15%). These suppliers provide us with
coal of proven and consistent quality. In comparison with 2002, coal purchases decreased by 19.7%, due to our use of stockpiled coal during 2002. The following table provides information regarding our
coal sales and consumption in 2003:

Thousands of
metric tons

Millions of Ch$AES Gener consumption

167

5,405Sales to equity-method investees

271

6,298Shipment ceded

242

9,785Total

680

21,488


Our
industrial customers are located across Chile, and they are important participants in the cement, food and fishing sectors. Our main customers are Polpaico (cement company), CCSA
(coal distributor), Soprocal and Inacesa (lime companies) and Nestlé (food company).

As
one of the principal thermoelectric generators in Chile, we require large volumes of fossil fuels for our business activities. During 2003, in addition to our own consumption of coal
in the amount of 167,000 metric tons, we sold approximately 271,000 metric tons of coal to our equity-method investee Guacolda, as well as approximately 242,000 metric tons to other industrial
customers. We were able to sell coal to Guacolda after being selected in an international coal supply bid process held by such company. In 2003, in the SING, our subsidiary Norgener consumed 31,091
metric tons of coal.

In
addition to coal, we use petroleum-based fuels such as natural gas, diesel and fuel oil for our thermoelectric operations. Eléctrica Santiagos' Nueva Renca
combined-cycle facility in Chile utilizes natural gas imported from Argentina. In 2003, this plant consumed approximately 496 million cubic meters of natural gas. In addition, our subsidiary
TermoAndes, through its combined-cycle facility in Argentina, consumed approximately 392 million cubic meters of natural gas in 2003. Our subsidiary Energía Verde uses forestry
waste as fuel, which is supplied by neighboring paper pulp and sawmill companies under long term agreements. During 2003, Energía Verde generated approximately 75 GWh in addition to the
approximately 1.0 million

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metric
tons of steam supplied by its four facilities to several sawmills and pulp and paper companies in the south-central region of Chile.



We own one coal mine concession in Colombia, Compañía de Carbones del Cesar Limitada, which was incorporated as our 100% owned
subsidiary in September 1997. This company was formed to mine a coal deposit at La Loma, Department of El Cesar, in northeastern Colombia. We have entered into an agreement to sell the coal
deposit and expect such sale to be completed in the first half of 2004.



In December 1998, AES Gener acquired six oil and gas exploratory concessions in Argentina and Chile from Cordex Petroleums Inc. In
Argentina, OilGener Argentina Ltd. operates one concession in the Austral Basin and holds two exploratory areas in the Neuquén Basin. In southern Chile, the Fell Block area,
which was 55% controlled by AES Gener, was operated through a joint operation agreement between the state-owned oil company ENAP and AES Gener. We sold the assets of OilGener Inc. (USA) and the
Fell Block, along with OilGener Argentina Ltd., in November 2002, for US$500,000, to Energy Holdings LLC, for which we recorded a loss of Ch$8,409 million in 2001, equal to the
book value of OilGener, and an additional loss of Ch$4,664 million in 2002, for contributions made to assets in the Fell Block area, according to the joint venture agreement with ENAP.



We own 13% of each of GasAndes Argentina and GasAndes Chile, which together in August 1997, began to operate a pipeline that connects the Argentine
national gas system in the Province of Mendoza, Argentina with the Santiago Metropolitan Region in Chile. The pipeline is 463 km long and has a current capacity of approximately ten million cubic
meters per day. In 2003, we initiated discussions to sell our interest in GasAndes Chile and GasAndes Argentina; however, no agreements have been reached.



Explotaciones Sanitarias S.A. holds a concession for the treatment and distribution of drinking water and sewage collection and treatment in Quilicura, an
industrial zone located in the Santiago Metropolitan Region. Ecogener S.A. was formed primarily to provide liquid industrial waste removal services in the industrial area of Quilicura. We sold our 51%
interest in both of these companies in November 2002 for 220,000 UF to Inversiones Residuos y Tratamientos S.A., and we registered a loss of Ch$1,466 million on this sale. Prior to the
sale, under U.S. GAAP an impairment loss amounting to Ch$1,592 million was recorded as of December 31, 2001.



In October 1998, we formed a joint venture with an affiliate of General Electric International Benelux B.V., or GE, to operate and service thermoelectric
power plants throughout Latin America. In January 2002, we sold our 40% interest to GE, which transaction did not have a significant impact on our results for the year ended December 31,
2002.

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Regulation of Electricity Generation in Chile, Colombia, Argentina and the Dominican Republic



The electricity sector in Chile is regulated by the Chilean Electricity Law, or the Electricity Law, which was originally enacted in 1982. Under the Electricity
Law, the generation, transmission and distribution of electricity is supervised with respect to price setting by the NEC and the Chilean Ministry of Economy and Energy acting through the NEC and by
the CSEC with respect to operational and technical issues. The Chilean Ministry of Economy and Energy regulates the granting of concessions to generation companies for hydroelectric facilities and to
distribution companies for distribution networks. Concessions are not required for thermoelectric power plants. The NEC, through the application of certain tariff formulas set forth in the Electricity
Law, calculates regulated prices for electricity sales to certain end users. The operation of electricity generation companies in each of the two major interconnected electricity systems in Chile, the
SIC and the SING, is coordinated by independent dispatch centers, known as CDECs, in each of the two systems. The SIC and the SING are intended to be near-perfect markets for the operation
of electricity producers in which the lowest cost producer is used to satisfy demand before the next lowest cost producer is dispatched. As a result, at any specific level of demand, the appropriate
supply will be provided at the lowest possible cost of production available, constrained to maintain the safety and reliability of the service in the electrical system.

The
purpose of the Electricity Law is to provide a simplified regulatory scheme and tariff-setting process that limits the discretionary role of the government through the establishment
of criteria for setting prices in a manner that results in an economically efficient allocation of resources to and within the electricity sector. The principal tool for assuring economic efficiency
is a pricing system based on marginal costs.

The
electricity industry in Chile is divided into three sectors:



The
following discussion of the Electricity Law and the tariff-setting process focuses principally on the generation-transmission sector and is not a complete description. Although the
regulatory scheme governing the electricity sector has remained relatively unchanged since its adoption in 1982, it is subject to legislative review and amendment from time to time. In
May 1999, the Chilean Congress passed a law amending both the Electricity Law and the law that created the CSEC, and in January 2004, the Chilean Congress passed a bill known as the Ley Corta, or
the Short Law, which is expected to be effective in the following months. For more information relating to the changes in the Chilean
Electricity Law, see "Changes in the Chilean Electricity Regulation" and "Changes in the Chilean Electricity Law".

The
Chilean electricity industry regulatory framework is different from the framework in most areas of the United States in a number of aspects. Specifically, large-scale generation and
distribution of electricity in the United States is generally conducted by utility companies as integrated businesses, while in Chile the generation, transmission and distribution of electricity is
conducted by separate entities. In addition, in the United States generators and distributors of electricity operate in concession areas that are often granted on an exclusive basis, while in

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Chile
generation companies are free to sell electricity through the relevant system to any distribution company, to unregulated customers and to other generation companies.

In
Chile, the regulation of production schedules for electricity generation facilities is based on the marginal cost of production, which is the cost of the most expensive unit required
by the system at the time. In order to meet demand for electricity at any point in time, the lowest marginal cost generating plant in an interconnected system is used before the next lowest marginal
cost plant is dispatched. As a result, at any specific level of demand, the appropriate supply will be provided at the lowest possible marginal cost of production available in the system, considering
transmission and reliability constraints. Generation companies are free to enter into sales contracts with distribution companies and other customers for the sale of capacity and energy.
However, the electricity necessary to fulfill these contracts is provided by the contracting generation company only if the generation company's marginal cost of production is low enough for its
generating capacity to be dispatched to meet demand. Otherwise, the generation company will purchase electricity from other generation companies at the marginal cost of production in the system.

Under
existing law, during periods when production cannot meet system demands, regardless of whether the government has enacted a rationing decree, the price of energy exchanges between
generation companies is valued at the "shortage cost" determined by NEC, by considering the cost to consumers for not having energy available. This "shortage cost" is significantly higher than market
price at normal conditions. Although this law was promulgated in 1990, it was not applied until November 1998, when generators in the SIC were unable to agree on the implementation of the
shortage cost during the supply deficit and associated mandated rationing periods.

Also,
under existing law, the prices paid to generation companies by distribution companies for capacity and energy to be resold to their retail customers are based on the marginal cost
of capacity or energy. In order to ensure price stability, however, the regulatory authorities in Chile establish prices, known as "node prices", every six months to be paid by distribution companies
for the energy and capacity requirements of regulated consumers. Node prices for energy are calculated on the basis of projections of the expected marginal costs within the system over the next
24-48 months in the SING and the SIC. The formula takes into account, among other things, assumptions regarding available supply and demand in the future. Node prices for capacity
are based on the marginal investment required to meet peak demand, based on the cost of a diesel-fired turbine. Prices for capacity and energy over 2.0 MW sold to large customers and for other
generation companies purchasing on a contractual basis are unregulated. If average prices for capacity and energy sold to unregulated customers differ from node prices by more than 10%, node prices
are adjusted upward or downward, as the case may be, so that the difference between such prices equals 10%. In contrast, the spot price paid by one generation company to another for energy is referred
to as the "system marginal cost", which is based on the actual marginal cost of the highest cost generator producing electricity in the system during the relevant period, as determined on an hourly
basis. The recently approved Short Law will amend some of those points. See "Changes in the Chilean Electricity Law".

Since
the system marginal cost for energy is set weekly (but may in certain circumstances be changed on a daily basis) based on variables that can change instantaneously, and the node
price for energy is set every six months based on projections of these variables, the system marginal cost for energy tends to be more volatile than the node price for energy of that system. In
periods of low water conditions that require greater generation of energy by more costly thermoelectric plants, the system marginal cost typically exceeds the node price. In periods of high water
conditions when lower cost hydroelectric facilities can meet the majority of the

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demand,
the system marginal cost is typically below the node price and may in fact decline to zero during some hours.



The organization and operation of the electricity sector in Chile is intended to support the overall energy policy of the country, which seeks to achieve the
greatest practical benefit by establishing conditions for economically efficient investment and operation and which relies principally on the private sector.

The
basic strategy of Chile's energy policy, as applied to the electricity sector, is to:



Under
the policy, the role of the state in the electricity sector is principally threefold:



An administrative regulation under the Electricity Law was officially promulgated by the Chilean Ministry of Mining and published in the Official Gazette on
September 10, 1998 or the Supreme Decree No. 327. The regulation makes certain technical changes to the existing regulations and related statutes. The primary purpose of these changes is
to clarify existing procedures and resolve differing interpretations of the regulations. The changes include the establishment of an independent CDEC in all interconnected systems, in order to more
effectively separate electricity transmission from electricity generation, make revisions to the toll system for transmission lines and establish new standards for quality of service.

On
May 20, 1999, the Chilean Congress passed a law amending both the Electricity Law and the law that created the CSEC, which was approved by the executive branch in
June 1999.

The
amended Electricity Law requires that, during rationing periods dictated by decree from the Chilean Ministry of Economy, any system shortage or deficit is to be distributed
proportionally among generation companies, regardless of each company's actual generation levels and contractual commitments. The amendments also require generation companies with supply deficits to
pay generators with supply surpluses for energy transfers valued at the system

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marginal
cost that is equal to the unserved cost of energy during shortages. Generation companies, in turn, must compensate their regulated customers for energy deficits in an amount equal to the
difference between the unserved energy cost and the effective node price of energy. Finally, distribution companies are required to pass on all compensation received to their regulated customers. The
amended Electricity Law provides that a generator cannot fail to meet its payment obligations by claiming that a drought situation is aforce majeureevent. In addition, the amendments to the law creating the CSEC expand the powers granted to this regulatory agency, most notably in connection with the authority to impose fines for certain
infractions of the law and the compensation of consumers for energy supply failures.

On
October 9, 2003, the Chilean Ministry of Economy and Energy issued an amendment to Supreme Decree 327 that specifies the administrative norms that will prevail in case of
electrical rationing, dictates complementary norms for the calculation of transmission tolls and standardizes the procedures for determining the node price. The primary impact of the new regulation is
the following:





The Short Law, which was passed by the Chilean Congress in January 2004, establishes amendments to the existing Electricity Law, principally in relation to tolls
charged for the use of high voltage and transmission systems.

In
addition to the amendments to modify the procedures used to determine transmission tolls, the Short Law contains other important modifications, including a reduction in the minimum
demand requirement for a customer to qualify as an unregulated customer and a reduction of the range outside of which the node price must fall in order to be subject to readjustment. The Short Law
reduces the minimum demand requirement from the current level of 2.0 MW to 0.5 MW. Such modification provides generation companies with a larger unregulated customer base and allows them to sell
electricity to those customers directly, rather than to regulated distributors that resell the energy to those customers. The previous law required that the difference between regulated node prices
and the actual prices charged to unregulated customers, on average, not exceed 10%. If the prices determined by the Chilean regulatory agency do not meet this requirement, the node prices are adjusted
upward or downward to fall within a range of 10%. The Short Law reduces the range to 5%, effectively moving the regulated price closer to unregulated market prices.

We
believe that the modifications contained in the Short Law maintain or improve our position, with regard to both our current status and projected development, particularly in regard to
issues related to transmission tolls. Supreme Decree No. 327 was modified on October 9, 2003 with respect to the clarification of the methodology utilized to calculate transmission tolls
and the procedures to be used during rationing periods. The Short Law was enacted on March 13, 2004.

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Under the Electricity Law, generation companies may sell capacity and energy:



Sales
may be made pursuant to short or long term contracts or on a spot basis. Generation companies are free to determine whether and with whom to contract, the duration of contracts,
and the amount of electricity to be sold.



Most sales of electricity to distribution companies are regulated. Under the Electricity Law and relevant regulations, all sales of electricity to distribution
companies for resale to regulated customers, principally those customers who require 2.0 MW of nominal capacity or less, must be made at the node prices then in effect. As mentioned above, the
Short Law reduces this limit to 0.5MW. Node prices for capacity are based on the annual cost of installing a new diesel fuel gas turbine generation facility. Node prices for energy are calculated on
the basis of projected short-term marginal cost of satisfying the demand for energy at a given point in the relevant interconnected system over the next 48 months in the SIC and the
next 24 months in the SING on an expected value basis. In order to determine the cost of energy, a tariff formula is used which takes into account projections of the principal variables in the
cost of energy at each sub-station in the system over the relevant time period, including:



These
marginal cost projections assume efficiency in operations and future investment.

The
current Electricity Law requires that the difference between node prices and the actual prices charged to unregulated customers in the prior six-month period not, on
average, exceed 10%. The Short Law amends the range outside of which the node price must fall by reducing it from 10% to 5%.

Node
prices for capacity and energy are established every six months, in April and October, by a decree issued by the Chilean Ministry of Economy and Energy. Node prices thus established
become effective in May and November. The Chilean Ministry of Economy and Energy acts on recommendations submitted by the NEC, which, prior to finalizing its recommendation, receives comments from
generation companies and the relevant CDEC. Node

37

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prices
are expressed as formulas, with industry-specific indexation that allows the node prices to be adjusted during the six-month period if changes in some of the underlying assumptions
used to project the node prices then in effect would result in a change of more than 10% in the node price calculation.

As
with any regulated company, we cannot assure you that the laws or regulations in Chile will not change, or be interpreted, in a manner that could adversely affect our equity-method
investees or us. For instance in May 2001, the Chilean government issued Resolution No. 88, under which electricity generators such as AES Gener are required to provide power to
distribution companies in the SIC if such companies are unable to freely contract for adequate power to meet their customers' needs. This resolution effectively requires us to supply more energy to
distribution companies than we have otherwise freely contracted for, thereby increasing our exposure to the spot market.



Contractual sales of capacity or energy to other generation companies and other customers with more than 2.0 MW of capacity demand, whether directly by a
generation company or through a distribution company, are not regulated. As mentioned above, the Short Law reduces this limit to 0.5 MW. These customers are free to negotiate prices and may purchase
the capacity or energy directly from generation companies or from distribution companies pursuant to short or long term contracts.

Sales
of electricity by generation companies directly to large customers are facilitated by provisions of the Electricity Law, which enable any generation company to use the transmission
lines of other generation companies, transmission companies and distribution companies upon payment of a toll charge. The toll is fixed according to a formula that reimburses the owner of the
transmission lines for a portion of its investment and operating cost for the transmission lines used. As a result of these toll arrangements, a generation company can supply electricity directly to
large customers that are located at a considerable distance from its own facilities, thus fostering enhanced competition in the sale of electricity to large customers.



Spot sales of capacity and energy between generation companies are also regulated by the Electricity Law. These sales are made at the "system marginal cost" of
the interconnected system in which the companies are located. System marginal costs are set twice a year in the case of sales of capacity, and each week, with daily review, on an hourly basis in the
case of sales of energy. In each case, system marginal costs are set by the relevant CDEC. The system marginal cost for capacity is based on the cost of installing a new diesel fuel gas turbine
generation facility. The system marginal cost for energy is based on such factors as demand projections, reservoir levels, fuel costs for thermoelectric-generating facilities, maintenance schedules
and other factors that would affect the availability of existing capacity during the week.

38

---

The
following graph sets forth the relationship between the node price and the system marginal cost for energy in the SIC in the 1990-2003 period:

Node Price and System Marginal Cost in the SIC
(in US$/MWh)

GRAPHIC

The
following graph sets forth the relationship between the node price and the system marginal cost for energy in the SING in the 1993-2003 period:

Node Price and System Marginal Cost in the SING
(in US$/MWh)

GRAPHIC

39

---



In 2003, 55.8% of our energy sales in Chile were to distribution companies. Under the Electricity Law, distribution companies may sell capacity and energy to
large customers, customers with a capacity demand of more than 2.0 MW and certain other short-term or special customers at unregulated prices. The recently approved Short Law, once
effective, will reduce this limit to 0.5MW. All other sales must be at regulated tariffs. These tariffs, which vary among distribution companies and among customers of a given distribution company,
are based on factors such as level of usage, variability of usage and proximity to generation facilities. They are calculated by adding a distribution charge, called the value added in distribution,
and reflect the assumed costs incurred in distribution in the applicable node prices charged by the generation company.

Distribution
tariffs are adopted by the Chilean Ministry of Economy every four years, based on recommendations from the NEC, which develops its proposals through a prescribed process
that includes participation by the distribution companies and specialized consultants. Tariff formulas provide for tariffs based on variations in node prices and other factors affecting distribution
costs. Such indexation occurs on a monthly basis. As required by the Electricity Law, distribution tariffs were revised in 1988, 1992, 1996 and 2000, and the next revision of tariffs is expected to
become effective in 2004.



Concessions for the operation of hydroelectric generation facilities are granted by the Chilean Ministry of Economy under the Electricity Law. Concessions for
hydroelectric facilities are of indefinite duration but are subject to revocation for failure to comply with their terms. Concessions are not required for the operation of thermoelectric generation
facilities.



The Colombian electricity sector is comprised of 66 electric generation companies, 12 national transmission companies, 75 local and regional distribution
companies and 123 licensed wholesale electricity traders.

Almost
all of the electricity used in Colombia is generated domestically, principally by hydroelectric plants. In addition, Colombia's national transmission network is interconnected at
three points to the Venezuelan grid and at two points to the Ecuadorian grid. As of December 31, 2003, the gross capacity to both countries was 371 MW (imports) and 621 MW (exports). In
March 2003, a new line of 230 kV interconnecting the Colombian and Ecuadorian transmission network began operations. During 2003, the total energy exported to Ecuador represented about 2.7% of
Colombian demand. In addition, during 2003, Colombia was a net exporter of energy (exported 94% and imported 6%); this condition allowed increases in spot prices of approximately Col$2/kWh.

Generally,
electricity is delivered to end users through local distribution companies' networks, although some large consumers of electricity have direct connections to regional
transmission networks or the national transmission network.

From
1980 to 1985, the Colombian electricity sector expanded rapidly, financed largely by foreign currency-denominated project finance debt. During this period, the industry was heavily
regulated by the Colombian government, which often set prices charged to retail end users of electricity below the cost of the electricity consumed, encouraging excess consumption and waste. The
combination of a high debt load, artificially low prices and the devaluation of the Colombian peso in 1985 led to a financial crisis in the sector that culminated in the Colombian

40

---

government
assuming control of significant ownership stakes in a majority of Colombian electric utilities by exchanging debt owed by such utilities to the government for equity interests in the
utilities.

Since
1991, the Colombian government has sought to restructure the electricity sector, seeking to reduce administrative inefficiency in electricity enterprises, establish a rational
tariff structure to allow energy companies to recover the true economic cost of electricity services, strengthen the finances of electricity enterprises and establish a framework for the participation
of private entities in the energy sector.

In
1994, the Colombian government enacted laws that provide the basic structure and regulatory framework of the sector today. The principal reforms initiated by these laws represented a
change in the government's role in the sector from direct management, ownership and control of electric utilities to ordinary regulation of electric utilities, the opening of the industry to private
sector participation, the creation of an open and competitive wholesale electricity market, the regulation of monopolistic transmission and distribution activities, and the establishment of universal
access to transmission and distribution networks. Currently, the Colombian government continues to control a substantial majority of the electricity generation and distribution in Colombia through
public entities and entities of mixed public and private share ownership.

The
majority of the electricity generated in Colombia is initially purchased from generators on a wholesale, unregulated basis by licensed electricity traders. Many of these traders are
themselves generators that are required to purchase electricity from other generators in order to meet their delivery commitments to customers. In addition to traders, several industrial electricity
end users purchase electricity directly from generators. All of these initial purchases, as well as any subsequent sales among traders, are made at unregulated, market-driven prices. All of these
purchases are conducted on the Major Electricity Market, or MEM, which began functioning in July 1995. Purchases on the MEM are made on a spot basis through the wholesale power market, the Bolsa de
Energía, or Colombian Energy Exchange, although the effective cost to the purchaser is usually modified under long term hedging
contracts entered into between traders and generators. These contracts covered approximately 89% of the total demand in 2003.

Total
nominal capacity in Colombia in 2003 is estimated to be 13,265 MW, of which about 67% is accounted for by hydroelectric plants and 33% is accounted for by either coal or
gas-fired thermal plants. The electricity industry in Colombia is regulated by the Colombian Electricity Law, which divides the electricity industry into four sectors: generation,
transmission, distribution and commercialization. Companies created after the approval of the Colombian Electricity Law in 1994 may engage in only one of the first three activities. Commercialization
activities may be combined with either generation or distribution by any single company.

The
Colombian Electricity Law establishes participation limits on each activity in the electricity industry. As of 2002, no generation company or distribution company may own more than
25% of the business assets, and no commercialization company may account for more than 25% of the demand of the system. Vertical integration restrictions were established in 2002 as well, whereby no
distribution company may own more than 25% of a generation company and no generation company may own more than 25% of a distribution company. In 2003, this regulation remained in force.

41

---

The
Colombian Electricity Law created the Regulatory Commission of Energy and Gas, or CREG, to act as the legal coordinator and regulator of the electricity industry. The CREG
established two specific energy markets:



Participation
in the power pool market is mandatory for all generators. Electricity dispatch is performed by the National Dispatch Center, or the CND, which performs a function similar
to that of the CDEC in the Chilean electricity market. For each hour of the day, dispatch is prioritized according to the prices bid by each generator, with daily optimization and without considering
energy contract sales.

The
Colombian Electricity Law also establishes open access to the transmission grid. Sales by electricity traders to most end users are made through local distribution systems at prices
set by the CREG. Certain end users, currently including users with more than 0.1 MW or 55 MWh/month of nominal capacity, purchase electricity at market-determined prices. Transmission and distribution
companies have regulated revenues established by the CREG. As of January 1, 2002, generation companies do not have to pay for the use of transmission facilities.

Each
customer's electricity tariffs include: (1) generation and commercialization costs, (2) fees paid to the distribution and transmission companies,
(3) fees paid to the regulatory agencies, (4) costs for energy losses and (5) subsidies determined by the government. Current electricity tariffs are partially subsidized by the
government and large electricity consumers, but it is expected that these subsidies will be reduced in the future.

TheEl Niñoweather phenomenon that prevailed in Colombia during the second half of 1997 through the beginning of the
second half of 1998 caused a drought throughout Colombia and significantly increased spot market prices. Reservoir levels recovered, reaching high levels in late 1998, and normal weather conditions
continued until the second half of 2002. Thermoeletric generation was only needed for system maintenance purposes and to satisfy demand in isolated zones where guerrillas attacked the energy
transmission system. From the second half of 2002 through April 2003,El Niñoreturned, producing a moderate decrease in system inflows
and, accordingly, an increase in spot prices. Nonetheless, 2003 was a normal year overall, which means that weather conditions were in the average range based on historical data. However,
there was an increase in the amount of necessary thermoelectric generation due to guerrilla activity that resulted in continued attacks on the Colombian electric grid. The spot price of electricity
averaged Col$67.01/kWh in 2003, ranging from Col$63.02/kWh to Col$79.98/kWh during the year. In comparison, the average spot price in 2002 was Col$48.68/kWh.

The
following graph sets forth the average Colombian Energy Exchange prices on the SIN, Colombia's electricity grid, for the 1995-2003 period. The spot price on the Colombian
Energy Exchange is set hourly and is equal to the price at which the last generator was dispatched to produce electricity during that hour.

42

---

Average Energy Spot Prices in the SIN
(in US$/Mwh)

LOGO

As
of December 31, 2003, approximately 94% of Colombia's urban population and 58% of its rural population had electricity service. During the period from 1980 to 2003, electricity
demand grew at a compounded annual growth rate of 3.8%, from 19,533 GWh in 1980 to 46,090 GWh in 2003. By comparison, from 1980 through 2003, Colombia's gross domestic product grew at a compounded
annual growth rate of 3.7% on a U.S. dollar basis, and its population grew at a compounded annual growth rate of 2.1%. Colombia's electricity demand has increased steadily since 1980, with the
exception of decreases in consumption in 1992, which resulted from rationing during a drought and in 1999 because of a decrease in gross domestic product that year.

Electricity
generation in Colombia has more than tripled over the past 23 years. In 1980, nominal generating capacity was 4,108 MW, approximately 71% hydroelectric and 29%
thermal. By 2003, nominal generating capacity had grown to 13,265 MW, approximately 67% hydroelectric and 33% thermal. The following table illustrates the total amount of electricity generated in
Colombia for the years indicated:

---

1999

2000

2001

2002

2003Total GWh

41,795

42,460

43,379

44,811

46,090Hydroelectric

80.1
%
75.4
%
75.5
%
77.8
%
78.9
%Thermoelectric

19.9
%
24.6
%
24.5
%
22.2
%
21.2
%


---

Total
generation capacity in 2004 is expected to increase by 133 MW (31.5 MW Hydro, 82 MW Gas and 19.5 MW Wind Power) according to estimates of the Unidad de Planeación Minera y
Energética, the Mining and Energy Planning Agency, or UPME. To satisfy demand for the period
from 2004 to 2013, it will be necessary to install additional capacity of 1,000 to 1,900 MW, depending on the reliability of the system.

The
Colombian Constitution places a duty on the part of the government to ensure public services are made available to all of the country's inhabitants in an efficient manner. Law 142
provides a broad regulatory framework for the provision of residential public services, including the distribution of electricity, gas, water, sewage and telecommunications, and Law 143 provides

43

---

the
regulatory framework for the generation, trading, transmission and distribution of energy. Resolutions promulgated by the CREG address the general principles set forth in Law 142 and Law 143.

Law 142.Law 142 establishes that the provision of electricity, telecommunications, water, sewage and bottled gas
distribution are essential public services that may be provided by public and private sector entities. Public service companies are required to:



Law 143.Law 143 sets out the following principles for the electricity industry, which are implemented in the resolutions
promulgated by the CREG and other regulatory bodies governing the electricity sector:



Prior
to the effectiveness of Law 143, the Colombian electricity sector was extensively vertically integrated. Under Law 143, generation, trading, transmission and distribution of
electricity have begun to be separated and are subject to distinct regulatory regimes. Most companies that were vertically integrated at the time Law 142 became effective may continue to engage in
various sector activities but must keep separate accounting records of each business activity. Companies
that did not engage in both generation and distribution at the time the electricity sector was restructured are currently prohibited from engaging in both activities. Any company may enter the
transmission business. In addition, the participation by all electric sector companies in other companies within the sector is limited. For example, a generator may not own more than 25% of the
effective nominal generating capacity in Colombia, and individual distributors or traders may not account for over 25% of distribution capacity.

The
electricity sector is under the jurisdiction of the Colombian Ministry of Mines and Energy, or the MME, which defines the government's policies for the energy sector. This duty is
carried out in collaboration with several other government agencies. Listed below are the principal government agencies involved in the regulation of the electricity sector and their responsibilities:



44

---



The
following functions have been assigned to the CREG by Laws 142 and 143:



The
CREG performs its functions by issuing operational regulations and resolutions. The CREG's operational regulations and resolutions do not require congressional approval.



The Argentine electricity industry was restructured in 1992 as a result of the government's privatization program. A new framework, similar to the Chilean
regulatory system, was established to regulate the generation, transmission and distribution of electricity. Production

45

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scheduling
and prices are both based on a competitive generation market. Distribution companies and other large users purchase electricity (both capacity and energy) on the spot market at a spot or
seasonal price or through long term contracts on the Wholesale Electricity Market, or the WEM.

The
Argentine electricity industry is currently regulated by theEnte Nacional Regulador de la Electricidad, which is the Argentine
National Electricity Regulating Entity, or the ENRE. The ENRE operates under the supervision and rules and regulations of the Argentine Secretariat of Energy, the Argentine Ministry of Economy and the
Argentine Executive Branch of the government and is responsible for enforcing compliance with the provisions of the regulatory framework and the applicable concessions.

The
Argentine electricity industry is divided into theSistema Argentino de Interconexión, which is the National
Interconnection System, or SADI, and theSistema Interconectado Patagónico, which is the Patagonian Interconnected System. Under the
current framework, generation companies sell their electricity to distribution companies and other large users in the competitive wholesale electricity market through supply contracts or in the spot
market at prices set by the Wholesale Electricity Market Management Company, or CAMMESA. The operation of the wholesale electricity market is the responsibility of CAMMESA. CAMMESA's participants
include generation,
transmission and distribution companies and large users through their respective industrial associations. CAMMESA's president is the Argentine Secretary of Energy.

Most
of the electric transmission system in Argentina has been privatized and is currently operated byCompañía de Transporte de
Energía Eléctrica en Alta Tensión S.A. Three other companies own most of the remaining transmission system. Transmission companies
have specific obligations and rights by law. For example, they are required to provide third parties open access to available transmission capacity, prohibited from generating, buying or selling
electricity and authorized to charge a toll for transmission services. The cost of transmission in Argentina charged to generation and distribution companies and large users consists of a charge for
transportation of energy across the system, a charge for connection to the system, and a charge for line availability.

Within
the Argentine electricity industry, all generation companies pool electricity in a wholesale electricity market. Electricity is purchased from participants in the pool by
distribution companies and other large users at the contractual, seasonal or spot price. The contractual price is paid by distribution companies and other large users that have entered into supply
contracts with generation companies. Large users who contract directly with generation companies must also pay the distribution companies a toll for distribution. The seasonal price is the generation
price passed through by distribution companies to regulated customers. It is a fixed price reset every three months by CAMMESA and approved by the Argentine Secretary of Energy, and it is supposed to
represent the average expected spot prices for the next three months plus a correction for the difference between the current average spot price during the last three months and the previous seasonal
price. The spot price is the price paid by other generation companies for energy dispatched under CAMMESA's direction, as discussed in the immediately succeeding paragraph, and for electricity
required by CAMMESA to maintain adequate reserves. The hourly spot price paid for energy reflects the marginal cost of generation according to the values declared by generators.

The
actual operation of CAMMESA involves the dispatch of generating resources without regard to contracts between generation companies and distribution companies or large users.
Consequently, a generation company's capacity may be dispatched to provide more or less energy to the pool, irrespective of its contractual commitments. Under these circumstances, the generation
company will be obligated to buy or sell excess energy from or to the pool at spot prices.

46

---

As
a consequence of the Public Emergency Law, since November 2002 the seasonal price has not been adjusted, and its level has been consistently below the spot price. Thus, the
funds collected by CAMMESA from distributors have been insufficient to pay generators the spot price. In order to avoid greater differences between the spot price and seasonal price, Resolution 240/03
was issued in August 2003, establishing that the spot price will be set using the variable
costs of thermal plants, assuming they consumed natural gas, even though they actually consumed other more expensive fuels. This measure considerably reduced the spot price in the winter season when
gas restrictions were in effect.

Since
the seasonal price has systematically been below the spot prices, collections from the electricity market have not been high enough to pay generators. As a result, in
September 2003 Resolution 406/03 was issued to change the proportional criteria used to pay generators for their sales in the spot market, giving priority to thermal generators on the basis of
their variable operating costs. In the event that CAMMESA observes some unexpected shortage of generators that it might consider unusual, the resolution requires it to inform the Argentine Secretary
of Energy of the situation and to retain the whole payment to this generator if it considers there to be no reasonable explanation for such unavailability.



After several attempts to restructure and privatize the electricity sector, in March 1998, the Dominican government approved a decree that enabled
capitalization through privatization. The capitalization decree transferred the ownership of previously state-owned enterprises to the private sector by offering 100% management control in exchange
for a 50% equity interest. In July 2001, Law No. 125 was enacted to define the legal framework for the electricity sector, and, in July 2002, the Dominican executive branch passed
regulations for the implementation of the law. The law and its regulations are very similar to those in effect in Chile and were designed to meet the country's energy consumption needs through
governmental energy institutions, namely theComisión Nacional de Energía, the National Energy Commission, or CNE, and the Superintendencia de Electricidad,the Superintendency of Electricity, or Superintendency. The principal role of the CNE, acting as advisor to the
executive branch is to develop and coordinate regulations, propose and adopt policies, design plans for the adequate operation and development of the sector and ensure that they are complied with, and
to promote investments. The Superintendency's duties include the setting of tariffs, processing of permits, supervision of compliance with regulatory and technical rules related to electricity
generation, transmission and distribution companies and the prevention of monopolistic activity in areas where competition is required. The new law and its regulations establish that generation,
transmission and distribution companies, as well as self-producers and co-generators that sell surpluses to the system, be members of an organization that coordinates the operation of
facilities, and transmission and distribution systems.

In
October 2003, the Dominican government created a commission to revise the laws related to the electricity sector and the process of capitalization through Decree
1036-03. The objective of the commission is to evaluate the current legal framework, including issues such as allowing the complete privatization of the companies formed during the
capitalization process, the privatization of the transmission sector and the vertical integration of the sector.

C. Organizational Structure

We are a holding company and conduct some of our business through subsidiaries. The following charts present as of December 31, 2003, (1) our
relationship with The AES Corporation, (2) our corporate structure and the approximate percentage equity ownership interest that we hold in those subsidiaries and equity-method investees.

47

---

LOGO

48

---

LOGO

49

---

D. Property, Plant and Equipment

AES Gener S.A.'s electricity generation facilities in the SIC consist of four hydroelectric plants and four thermoelectric plants, including one gas turbine
plant. Energía Verde, 100% owned by AES Gener S.A., also operates in the SIC, and its facilities consist of two thermoelectric co-generation units, one thermoelectric unit,
two steam generation plants and one gas turbine. Energía Verde uses forestry waste to generate steam, with a capacity of 60 metric tons of steam per hour. Eléctrica
Santiago, 90% owned by AES Gener S.A., has one combined-cycle plant and operates in the SIC. Norgener, 100% owned by AES Gener S.A., has two thermoelectric units operating in the SING. Chivor, 99.98%
owned by Energy Trade, a 100% owned subsidiary of AES Gener S.A., is a 1,000 MW hydroelectric (dam-based) facility located in the SIN. TermoAndes, 100% indirectly owned by AES Gener S.A.,
owns one combined-cycle facility in the province of Salta in Argentina and supplies electricity to the SING. InterAndes, 100% indirectly owned by AES Gener S.A., owns the portion of the transmission
line in Argentina, which delivers electricity produced by TermoAndes in the SING.

50

---

The following table provides information related to our electricity generation operations from 1999 to 2003:

AES Gener Electricity Generation 1999-2003 as of December 31 of Each Year

1999

2000

2001

2002

2003AES Gener S.A.Nominal capacity (MW)

756

756

756

782

782Number of plants

8

8

8

8

8Energy generation (GWh)

3,565

2,648

2,052

1,715

1,815Total energy purchases (GWh)

2,221

2,366

3,904

4,279

3,988Total energy sales (GWh)

5,661

4,922

5,956

5,942

5,743Losses + own consumption

125

98

79

52

59Total sales + losses + own consumption

5,786

5,020

6,035

5,994

5,803Percentage of total (power sales + losses)represented by own generation

62
%
53
%
34
%
29
%
31
%NorgenerNominal capacity (MW)

276

277

277

277

277Number of plants

1

1

1

1

1Energy generation (GWh)

1,277

511

61

284

128Total energy purchases (GWh)

218

836

1,362

1,089

1,271Total energy sales (GWh)

1,468

1,278

1,414

1,350

1,383Losses + own consumption

27

52

7

23

17Total sales + losses + own consumption

1,495

1,330

1,421

1,372

1,399Percentage of total (power sales + losses)represented by own generation

85
%
38
%
4
%
21
%
9
%Energía Verde(1)Nominal capacity (MW)

32

32

37

42

42Number of plants

3

3

4

5

5Energy generation (GWh)

97

107

79

71

75Total energy purchases (GWh)

118

149

168

227

221Total energy sales (GWh)

213

256

245

291

290Losses + own consumption

1





7

6Total sales + losses + own consumption

214

256

245

298

296Percentage of total (power sales + losses)represented by own generation

45
%
42
%
32
%
24
%
25
%Eléctrica SantiagoNominal capacity (MW)

379

379

379

379

379Number of plants

1

1

1

1

1Energy generation (GWh)

2,060

1,797

1,979

1,910

2,450Total energy purchases (GWh)

443

741

809

812

435Total energy sales (GWh)

2,482

2,522

2,751

2,720

2,885Losses + own consumption

22

58

85

50

Total sales + losses + own consumption

2,503

2,580

2,837

2,770

2,885Percentage of total (power sales + losses)represented by own generation

82
%
70
%
70
%
69
%
85
%


51

---

TermoAndesNominal capacity (MW)



643

643

643

643Number of plants



1

1

1

1Energy generation (GWh)



1,217

1,386

1,768

1,903Total energy purchases (GWh)





3

43

37Total energy sales (GWh)



1,131

1,353

1,686

1,815Losses + own consumption



87

36

125

125Total sales + losses + own consumption



1,218

1,389

1,811

1,940Percentage of total (power sales + losses)represented by own generation



100
%
100
%
98
%
98
%ChivorNominal capacity (MW)

1,000

1,000

1,000

1,000

1,000Number of plants

1

1

1

1

1Energy generation (GWh)

3,016

3,118

3,401

4,421

3,817Total energy purchases (GWh)

1,480

1,822

1,592

2,312

2,504Total energy sales (GWh)

4,496

4,940

4,664

6,339

5,822Losses + own consumptionTotal sales + losses + own consumption

4,496

4,940

4,992

6,733

6,322Percentage of total (power sales + losses)represented by own generation

67
%
63
%
68
%
66
%
62
%


---

Thermoelectric Facilities

The following table provides information related to AES Gener's existing thermoelectric facilities in Chile and Argentina:

|Name                 |                | Year
Commissioned |  | Type of Unit  |  | Fuel
Sources  |  | Number
of
Units |   | Nominal
Capacity
(MW) |       | 2003 Net
Generation
(GWh)
|-------------------- | -------------- | ----------------- |  | ------------- |  | ------------- |  | --------------- | - | --------------------- | ----- | -------------------------
|Chile:               |                |                   |  |               |  |               |  |                 |   |                       |       |                          
|Ventanas             |                | 1964, 1977        |  | Steam Turbine |  | Coal/Fuel/Oil |  | 2               |   | 338.0                 |       | 399.0                    
|Renca                |                | 1962              |  | Steam Turbine |  | Diesel        |  | 2               |   | 100.0                 |       |                         
|Laguna Verde         |                | 1939, 1949        |  | Steam Turbine |  | Coal          |  | 2               |   | 54.7                  |       | 0.3                      
|El Indio             |                | 1990              |  | Gas Turbine   |  | Diesel        |  | 1               |   | 18.8                  |       |                         
|                     |                |                   |  |               |  |               |  |                 |   |                       |       |                          
|Total AES Gener S.A. |                |                   |  |               |  |               |  | 7               |   | 511.5                 |       | 399.3                    
|                     |                |                   |  |               |  |               |  |                 |   |                       |       |                          
|Norgener             |                | 1996, 1997        |  | Steam Turbine |  | Coal/Fuel Oil |  | 2               |   | 277.3                 |       | 128.0                    
|                     |                |                   |  |               |  |               |  |                 |   |                       |       |                          
|                     | Total Norgener |                   |  |               |  |               |  |                 | 2 |                       | 277.3 |                          
|                     |                |                   |  |               |  |               |  |                 |   |                       |       |                          

52

---

|Energía Verde(1)   |                          | 1995, 1997 |  | Steam Turbine  |  | Forestry Waste |  | 4 |    | 42.4  |         | 75.0   
|------------------ | ------------------------ | ---------- |  | -------------- |  | -------------- |  | - | -- | ----- | ------- | -------
|                   |                          |            |  |                |  |                |  |   |    |       |         |        
|                   | Total Energía Verde      |            |  |                |  |                |  |   | 4  |       | 42.4    |        
|Eléctrica Santiago |                          | 1995, 1997 |  | Combined-Cycle |  | Natural Gas    |  | 1 |    | 379.0 |         | 2,450.0
|                   |                          |            |  |                |  |                |  |   |    |       |         |        
|                   | Total Eléctrica Santiago |            |  |                |  |                |  |   | 1  |       | 379.0   |        
|                   |                          |            |  |                |  |                |  |   |    |       |         |        
|                   | Total in Chile           |            |  |                |  |                |  |   | 14 |       | 1,210.2 |        
|                   |                          |            |  |                |  |                |  |   |    |       |         |        
|Argentina:         |                          |            |  |                |  |                |  |   |    |       |         |        
|TermoAndes         |                          | 2000       |  | Combined-Cycle |  | Natural Gas    |  | 3 |    | 642.8 |         | 1,903.0
|                   |                          |            |  |                |  |                |  |   |    |       |         |        
|                   | Total in Argentina       |            |  |                |  |                |  |   | 3  |       | 642.8   |        
|                   |                          |            |  |                |  |                |  |   |    |       |         |        
|                   | Total
Thermoelectric     |            |  |                |  |                |  |   | 17 |       | 1,853.0 |        
|                   |                          |            |  |                |  |                |  |   |    |       |         |        

---

Hydroelectric Facilities

The following table provides information concerning our existing hydroelectric generation facilities in Chile and Colombia:

|Name                 |                     | Year
Commissioned |  | Type of Unit     |  | River Source   |  | Number
of
Units |    | Nominal
Capacity
(MW) |         | 2003
Net
Generation
(GWh)
|-------------------- | ------------------- | ----------------- |  | ---------------- |  | -------------- |  | --------------- | -- | --------------------- | ------- | -------------------------
|Chile:               |                     |                   |  |                  |  |                |  |                 |    |                       |         |                          
|Alfalfal             |                     | 1991              |  | Run-of-the-River |  | Colorado River |  | 2               |    | 178.0                 |         | 792.0                    
|Queltehues           |                     | 1928              |  | Run-of-the-River |  | Maipo River    |  | 3               |    | 48.9                  |         | 376.0                    
|Maitenes             |                     | 1923, 1989        |  | Run-of-the-River |  | Maipo River    |  | 5               |    | 30.8                  |         | 136.0                    
|Volcán               |                     | 1944              |  | Run-of-the-River |  | Volcán River   |  | 1               |    | 13.0                  |         | 111.0                    
|                     |                     |                   |  |                  |  |                |  |                 |    |                       |         |                          
|Total AES Gener S.A. |                     |                   |  |                  |  |                |  | 11              |    | 270.7                 |         | 1,415.0                  
|                     |                     |                   |  |                  |  |                |  |                 |    |                       |         |                          
|                     | Total in Chile      |                   |  |                  |  |                |  |                 | 11 |                       | 270.7   |                          
|                     |                     |                   |  |                  |  |                |  |                 |    |                       |         |                          
|Colombia:            |                     |                   |  |                  |  |                |  |                 |    |                       |         |                          
|Chivor               |                     | 1977, 1981        |  | Reservoir        |  | Batá River     |  | 8               |    | 1,000.0               |         | 3,817.0                  
|                     |                     |                   |  |                  |  |                |  |                 |    |                       |         |                          
|                     | Total in Colombia.  |                   |  |                  |  |                |  |                 | 8  |                       | 1,000.0 |                          
|                     |                     |                   |  |                  |  |                |  |                 |    |                       |         |                          
|                     | Total Hydroelectric |                   |  |                  |  |                |  |                 | 19 |                       | 1,270.7 |                          
|                     |                     |                   |  |                  |  |                |  |                 |    |                       |         |                          

53

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All of our hydroelectric plants in Chile are run-of-the-river plants rather than dam-based facilities. As a result, they depend on
rainfall and melting snow to produce water flow. Even in drought conditions, run-of-the-river plants generally continue to operate, although at reduced capacity,
while a dam-based plant may not operate due to the dispatching authority's reluctance to use scarce water supplies.

The
principal sources of water for our hydroelectric facilities located in Chile are the Colorado and Maipo rivers, each located near our hydroelectric facilities. We have concessions
under applicable Chilean law to use such water sources without charge for an indefinite period of time based on specified maximum levels that are adequate for our present needs. The Maitenes,
Queltehues and Volcán power stations maintained a high level of availability during 2003. On the other hand, unexpected damage in some areas of the Alfalfal power station's tunnel, in
the Colorado branch, was discovered during the programmed draw-down in April 2003. Substantial repairs were recommended and activities in this branch of the tunnel were suspended
for three months. A claim was presented to the insurance company for generation losses and costs incurred for the repairs. Repairs were concluded in August 2003, in accordance with the
scheduled plan, and the plant was fully operational from this point forward. This claim is in the process of loss adjustment in order to determine the amounts to be indemnified. Our hydroelectric
facilities have suffered damage in the past as a result of natural disasters such as floods and mud slides.

Chivor,
our hydroelectric plant in Colombia, is a 1,000 MW dam-based facility that began service in 1977 with 500 MW and added an additional 500 MW of capacity in 1981. The
main facilities of the plant consist of a reservoir with a maximum useful water volume of 617 million cubic meters, a main dam, two additional diversion dams, and a powerhouse that consists of
a plant with eight generators. The plant is located approximately 160 km northeast of Bogotá, and its principal sources of water are the Tunjita, Negro, Rucio and Batá
rivers, all of which provide water to the plant's main reservoir, the Esmeralda reservoir. Chivor has concessions under applicable Colombian law to use such water sources without charge. Both
Colombian water rights concessions granted to Chivor are for fifty-year terms. Resolution 282 expires in 2019, and Resolution 294 is effective until 2034. Each concession allows Chivor to
use the water sources for the purpose of electricity generation and is renewable during the last year of each term.

In
Chile, we and our equity-method investee, Guacolda, also own about 1,610 km of medium and high voltage transmission lines and their corresponding substations. The following table
summarizes the transmission lines we own in Chile:

Voltage

System

Length (km)

Property345 kV

SING

140.0

AES Gener S.A.SING

280.0

InterAndes S.A.220 kV

SIC

43.4

AES Gener S.A.SIC

168.0

Guacolda S.A.SING

696.0

Norgener S.A.110 kV

SIC

249.4

AES Gener S.A.SING

33.0

Norgener S.A.Total Transmission Lines in Chile



1,609.8




54

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Liens and Encumbrances

Our generation facilities and other properties are subject to a variety of liens and encumbrances in favor of our creditors, which have arisen in the normal
course of business. The principal liens and encumbrances at December 31, 2003 were the following:

|Name of Facility or Property |                                                          | Name of Principal Creditor |                                          | Mortgage Value |       | Amount Owed
to Creditor
|---------------------------- | -------------------------------------------------------- | -------------------------- | ---------------------------------------- | -------------- | ----- | -----------------------
|
|Chivor:                      |                                                          |                            |                                          |                |       |                        
|                             | Mortgage over land and constructions                     |                            | Bank of America/syndicate                |                | 400.0 |                        
|TermoAndes:                  |                                                          |                            |                                          |                |       |                        
|                             | Mortgage over generators, gas turbines and steam turbine |                            | Deutsche Bank Securities Inc.            |                | 153.8 |                        
|Norgener:                    |                                                          |                            |                                          |                |       |                        
|                             | Mortgage over Unit No. 2                                 |                            | Banco de Chile                           |                | 96.6  |                        
|Energía Verde:               |                                                          |                            |                                          |                |       |                        
|                             | Mortgage over land and constructions                     |                            | Scotiabank - Banco Crédito e Inversiones |                | 22.7  |                        
|                             |                                                          |                            |                                          |                |       |                        
|                             |                                                          |                            | Total                                    |                |      |                        
|                             |                                                          |                            |                                          |                |       |                        

Government Regulation

In addition to regulation under laws governing the electricity sector, we are subject to a full range of governmental regulation and supervision generally
applicable to companies engaged in business in Chile and the other countries where we operate, including labor laws, social security laws, public health and environmental laws, securities laws and
antitrust laws. These include regulations to ensure sanitary and safe conditions in our facilities.

For
details concerning material legal or administrative proceedings pending against us with respect to regulatory matters, see note 25 to our audited consolidated financial
statements for the years ended December 31, 2001, 2002 and 2003.

Environmental Regulation

Although the regulation of matters relating to the protection of the environment is not as well-developed in the countries where AES Gener operates as in the
United States and certain other countries, Chile, Colombia, Argentina and the Dominican Republic have numerous laws, regulations, decrees and municipal ordinances relating to environmental matters.

We
anticipate that additional laws and regulations related to environmental and other regulatory matters will be enacted over time in the countries in which we operate. While we believe
that we will continue to be in compliance with all applicable environmental regulations currently in effect, there can be no assurance that future legislative or regulatory developments will not
impose material restrictions on us.



In March 1994, Law No. 19,300 was enacted by the Chilean Congress to regulate certain environmental issues, and, in April 1997, the Chilean
President promulgated regulations under this law. This law encourages companies to hire independent experts to conduct environmental impact studies of any future projects or activities. Regulations
under Law 19,300 created the NEC, as well as regional commissions, to supervise environmental impact studies of all new projects. We have conducted environmental impact studies for Norgener's Nueva
Tocopilla plant, Eléctrica Santiago's Nueva Renca plant and Guacolda's thermoelectric facilities. We also have

55

---

conducted
an environmental study for our InterAndes Project, which complies with both Chilean and Argentine environmental laws. In addition, we have conducted environmental studies for our subsidiary,
Norgener, and our equity-method investee, Guacolda, so that both may obtain approvals for the use of petcoke as fuel. In March 2003, our environmental permit request for the conversion project
of the Renca power plant was approved by the authorities, and, currently, an environmental approval application is pending for a new combined-cycle facility located in Chile's Sixth Region.

In
order to comply with restrictions on atmospheric sulfur dioxide levels in Chile, we operate our thermoelectric facilities with coal that has a low sulfur content. In addition, our
existing Renca thermoelectric facility operates using a special fuel oil due to restrictions on particulate emissions from that facility. Our policy is to seek to conduct our operations on an
environmentally sound basis that is consistent with applicable laws. There are no material legal or administrative proceedings pending against us with respect to any environmental matter, and we
believe that we are in compliance in all material respects with all applicable environmental laws and regulations.



In Colombia, Law 99 created the Colombian Ministry of the Environment in 1993. This law requires that projects that affect the land or impact the environment must
obtain a license from the Colombian Ministry of the Environment. While regional environmental authorities can issue licenses for generation projects with capacity of less than 100 MW, only the
Colombian Ministry of the Environment has the authority to issue licenses for the construction of large-scale generation or transmission projects. Our subsidiary Chivor initiated operations in 1977,
prior to implementation of the environmental law.



There are several environmental laws in Argentina that affect the electric sector. The recent General National Environmental Law, Law No. 25,675
promulgated in 2002, establishes a baseline for environmental protection and mandates the submission of environmental impact studies prior to the initiation of construction projects, among other
provisions. The Electric Regulatory Framework Law, Law No. 24,065, provides the ENRE with the power to protect the environment in relation to the construction and operation of electric
generation, transmission and distribution projects. In addition to environmental regulations at the federal level, provinces may establish new rules or rules that supplement the federal policies.
Resolution No. 555/01 issued by the ENRE requires all members of the MEM wholesale power market to implement and certify environmental management systems based on the environmental
certification ISO 14,001. TermoAndes' initial environmental management system audit was approved in April 2003, and the final audit for certification was approved in July 2003.



The Environmental and Natural Resources Law was adopted on August 18, 2000 in order to prevent, regulate and control any activity that causes the
deterioration of the environment, pollutes ecosystems, degrades, changes or destroys the natural environment. This same law created and appointed the Dominican Ministry of the Environment, whose
functions include: (i) control and prevention of environmental pollution from emission sources and (ii) compliance with environmental standards and regulations by all human settlements,
mining activities, industrial activities, tourism and transportation and any activities or services that generate direct or indirect environmental damage.

In
order to assure the enforcement of the policies, programs and projects related to the environment and natural resources, the Environmental Management and Natural Resources National
System, or Environmental Management Authority, was created. The Environmental

56

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Management
Authority is in charge of issuing environmental permits and licenses. The Environmental and Natural Resources Law states that every installation established before the law was adopted must
obtain an environmental permit. The law also states that, in order to prevent atmospheric pollution, the Dominican Ministry of the Environment will regulate gas emissions from power generators,
boilers, internal combustion engines and industrial activities.

Item 5. Operating and Financial Review and Prospects

This section is intended to assist in the understanding and assessment of the trends and significant changes in our results of operations and financial condition.
Our historical results may not be indicative of our future performance. The forward-looking statements contained in this section are subject to a variety of factors that could cause actual results to
differ materially from those contemplated by these statements.

Overview

Our principal business and that of the majority of our consolidated subsidiaries and equity-method investees is the generation and sale of electricity. The most
significant variables affecting our results are the prices of energy and capacity, weather conditions and foreign exchange variations in the countries in which we operate.

We
are the second largest electricity generation group in Chile in terms of operating revenue and generating capacity with an installed capacity of 2,428 MW, composed of 2,157 MW of
thermal and 271 MW of hydro generating capacity. We are the largest thermal generator in Chile, and we serve both the SIC and the SING. Through various subsidiaries and equity-method investees, we own
a dam-based hydroelectric plant in Colombia with a total nominal operating capacity of 1,000 MW (Chivor); a combined-cycle natural gas-fired unit with 643 MW of installed
capacity in Argentina (TermoAndes), connected to the SING by a 345 kV transmission line of 420 km, 140 km of which are owned by AES Gener S.A. and 280 km are owned by InterAndes;
a 25% interest in a thermoelectric generation facility located in the Dominican Republic with approximately 586.5 MW of installed capacity (Itabo); and a 13% interest in a natural gas transportation
company in Chile and Argentina (GasAndesChile and GasAndes Argentina). The following table presents the percentage of revenues contributed by each of the different markets in which we operate and the
percentage of sales of energy to regulated and unregulated customers and spot sales for the years ended December 31, 2003, 2002 and 2001.

Revenues

2001

2002

2003SIC

47
%
43
%
46
%SING

21
%
25
%
24
%Colombia

20
%
22
%
22
%Other Income

12
%
10
%
8
%Revenues in Chile

2001

2002

2003Regulated

48
%
49
%
49
%Unregulated

50
%
44
%
44
%Spot Sales

2
%
7
%
7
%


Our
largest customers in Chile are two distribution companies, Chilectra S.A. and Chilquinta Energía S.A., operating in the SIC and Minera Escondida, operating in the
SING.

Most
of our sales in the spot markets are in the SING as a result of production from subsidiary TermoAndes' combined-cycle plant. In the SIC, we become a spot purchaser of electricity
from other generation companies during relatively wet conditions, while spot purchases of electricity decline in periods of low water conditions.

57

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In
Chile, the amount of our capacity that is contracted or left uncommitted to be sold at spot prices is critical to our profitability. The desired level of contractual commitments
depends on our estimation of demand, based on standard economic theory, node prices and system marginal cost using dynamic programming models. Historically, this strategy has led us to enter into long
term contracts for our most efficient units and to reserve our less efficient units for sales in the spot market. According to our current level of contracted capacity, in case of a dry year, we may
be adversely affected as we would generate electricity at a higher cost and buy energy at higher prices.

The
introduction of natural gas as a source of fuel for electric generation in Chile in the SIC in 1997 and in the SING in 1999, with the construction of the pipelines which transport
natural gas from Argentina to Chile, led to a significant technological change in the industry, reducing energy prices and the country's reliance on hydrological conditions. We are currently analyzing
the conversion of one of our existing fuel generation plants into a gas-fired generation unit.

We
plan to increase our installed generating capacity in the SIC to reduce our exposure to significant changes in hydrological conditions and stabilize our level of cash flow. In
addition, we plan to maintain our coal-fired thermoelectric plants, which have higher operating costs, for sales to the spot market in periods of low water conditions and/or high demand
when the system marginal cost generally exceeds the node price.

A. Operating Results

The following discussion is based on, and should be read in conjunction with, our audited consolidated financial statements and the accompanying notes included in
Item 18 of this annual report. We prepare our audited consolidated financial statements in accordance with Chilean GAAP, which differs in certain important respects from U.S. GAAP. See note 37
to our audited
consolidated financial statements for a summary of the principal differences between Chilean GAAP and U.S. GAAP. Unless otherwise specified, financial data is presented in constant Chilean pesos of
December 31, 2003 purchasing power.

An
understanding of our financial condition and the results of our operations for the periods discussed in this annual report requires an understanding of the regulatory structure for
the production and pricing of electricity in Chile, Colombia, Argentina and the Dominican Republic, the principal countries in which we and our equity-method investees operate. Factors such as the
method of determining the dispatch of generating units in a system, the pricing of electricity sales to regulated and unregulated customers and in the spot market, the significance of a generation
company's mix of contract and spot market sales, the effect of a company's mix of hydro and thermal generation and the effect of hydrological conditions on operations are important factors in
determining financial results. Accordingly, the following discussion should be read in conjunction with the discussion of these and related matters that appears elsewhere in this annual report under
the following headings:



Our
TermoAndes and InterAndes facilities are included in Chilean operations, given that currently they only receive revenue from the Chilean market. The results of our Chilean operations
are
separated between the two primary electric systems, the SIC and SING. Colombian operations correspond to our subsidiary Chivor.

58

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Operating Revenues

The following table shows operating revenue information for 2001, 2002 and 2003:

|                   |                               | For the Year Ended December 31, |        
|------------------ | ----------------------------- | ------------------------------- | -------
|
|
|Operating Revenues |                               |                                 |        
|Chile(1)           |                               |                                 |        
|                   | Regulated electricity sales   |                                 | 118,717
|                   | Unregulated electricity sales |                                 | 122,165
|                   |                               | Spot sales in the SIC(2)        |        
|                   |                               | Spot sales in the SING(2)       |        
|                   |                               |                                 |        
|                   |                               |                                 | Total  
|Colombia           |                               |                                 |        
|                   | Contractual electricity sales |                                 | 35,311 
|                   | Spot sales                    |                                 | 36,385 
|                   |                               |                                 |        
|                   |                               | Total                           |        
|                   |                               |                                 |        
|Total Electricity  |                               | 317,419                         |        
|                   |                               |                                 |        
|Other              |                               | 43,575                          |        
|                   |                               |                                 |        
|Total              |                               | 360,994                         |        
|                   |                               |                                 |        

---

The
following table provides information about our sales volume of energy and capacity in 2001, 2002 and 2003:

|             |                | For the Year Ended December 31,
|------------ | -------------- | -------------------------------
|
|
|Sales Volume |                |                                
|Chile        |                | 9,948                          
|             | Regulated      |                                
|             | Unregulated    |                                
|             |                | Spot sales in the SIC          
|             |                | Spot sales in the SING         
|Colombia     |                | 4,664                          
|             | Contract sales |                                
|             | Spot sales     |                                
|Total        |                | 14,612                         
|             |                |                                

59

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As an electricity generation company with our primary market located in Chile, our operating revenues are relatively stable and generally are only subject to
significant variations under extreme hydrological conditions. Our primary revenue source comes from our two principal products, electrical energy and capacity, which are sold both under contracts to
regulated and unregulated customers and in the spot market.

Our
consolidated operating revenues decreased by Ch$11,925 million to Ch$362,332 million in 2003 from Ch$374,257 million in 2002. This decrease was mainly due to:
(1) a Ch$3,058 million decrease in revenues from energy and capacity sales in Chile, attributable to higher capacity reconciliation settlement payments received during the first quarter of 2002, (2) a
Ch$5,915 million decrease in revenues from fuel sales, consulting services and other sales to third parties, and (3) a Ch$2,951 million decrease in revenues in the Colombian electricity sales
market. Although U.S. dollar-denominated revenues in Colombia increased significantly, exchange rate declines resulted in decreased peso-equivalent revenues. Electrical capacity
reconciliation settlement payments are determined by the CDECs in each of the SIC and the SING at the beginning of each year with respect to the prior year, may be positive or negative in any given
year and are applied to revenue in the year of determination.

In
2003, the contribution to total sales in the different markets in which we operate was as follows: SIC 46%, SING 24%, Colombia 22%, and fuel sales and technical assistance to third
parties 8%.



Our revenues from the Chilean electricity sector decreased by Ch$3,058 million to Ch$252,691 million in 2003 from Ch$255,749 million in 2002
for the reasons described below.



Revenues from our electricity operations in the SIC were Ch$166,798 million in 2003, as compared to Ch$162,287 million in 2002, primarily due to an
increase in capacity sales. Revenues from capacity sales increased by Ch$4,163 million in 2003 primarily as the result of higher prices, as physical sales of capacity remained virtually
unchanged in 2003. Revenues from energy sales in the SIC increased by Ch$347 million in 2003 primarily due to a 1% increase in physical sales of electricity, which was partially offset by a
0.9% decrease in the average sale price per unit sold. The increase in physical sales was due to increased sales to Chilectra of 188 GWh, partially offset by decreased sales to Chilquinta of 81 GWh.



Revenues generated by our activities in the SING decreased by Ch$7,569 million to Ch$85,893 million in 2003 from Ch$93,462 million in 2002.
This decrease was primarily due to a decrease in capacity revenues of Ch$5,765 million, which resulted primarily from the Ch$9,769 million net effect of an extraordinary capacity
reconciliation settlement for the years ended 2000 and 2001 that positively affected our operating income in the first quarter of 2002. The reconciliation settlement adjusted 2000 and 2001 capacity
payment distributions among SING generators, and it is not expected to occur in the future. Energy sales also decreased by Ch$1,804 million in 2003 due to a decrease in the average sale price.

60

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Chivor's revenues decreased by Ch$2,975 million to Ch$78,640 million in 2003 from Ch$81,615 million in 2002, mainly due to exchange rate
declines. Although U.S. dollar-denominated revenues in Colombia increased significantly, peso-equivalent revenues decreased. U.S. revenues denominated in dollars but paid in Colombian
pesos increased, mainly as a result of higher revenues from services provided for transmission frequency regulation. These higher revenues were partially offset by a 523 GWh decrease in physical sales
in 2003, mainly due to lower physical sales on the spot market. Although in Colombian pesos the average spot market price increased to Col$67/kWh in 2003 from Col$49/kWh in 2002, and the average sale
price to contracted customers increased to Col$74/kWh in 2003 from Col$65/kWh in 2002, these increases were insufficient to offset the overall decrease in physical sales. Average Colombian peso sale
prices increased in 2003 due to the effects of theEl Niñoweather phenomenon, which caused a reduction in hydrological resources in
almost the entire Colombian system.



Our other revenues are comprised mainly of coal and natural gas sales to third parties and steam sales to industrial clients through our subsidiary,
Energía Verde. Other revenues decreased by Ch$5,915 million to Ch$30,977 million in 2003 from Ch$36,892 million in 2002. This decrease was primarily due to a
Ch$7,825 million increase in coal sales to industrial customers and a Ch$1,720 million decrease in sales to Guacolda. In terms of sales volume, tonnage decreased by approximately
132 thousand metric tons, as a result of lower sales to industrial clients. Large volumes of coal are sold in bidding processes. Therefore, fluctuations in quantities sold may vary from year to
year.



Our consolidated operating revenues increased by Ch$13,263 million to Ch$374,257 million in 2002 from Ch$360,994 million in 2001. This
increase was mainly due to: (1) a Ch$9,769 million increase in revenues in the SING due to firm capacity reconciliation settlements and higher physical sales volumes, (2) a
Ch$3,904 million increase to our principal regulated clients, Chilectra and Chilquinta, due to an increase in the node price expressed in pesos, and (3) a Ch$9,918 million
increase in sales in the Colombian market. These increases were offset by a decrease in revenues of Ch$6,682 million from fuel sales, due to lower physical coal sales to industrial clients and
Guacolda, and from consulting services and other sources of revenue and a decrease of Ch$3,647 million in sales to other clients.

In
2002, the contribution to total sales from the different markets in which we operate was as follows: SIC 43%, SING 25%, Colombia 22%, and fuel sales and technical assistance to third
parties 10%.



Our revenues from the Chilean electricity sector increased by Ch$10,026 million to Ch$255,749 million in 2002 from Ch$245,723 million in
2001.



Revenues from electricity operations in the SIC decreased by Ch$10,615 million to Ch$162,169 million in 2002 from Ch$172,784 million in 2001. This decrease was
primarily due to the termination of the contract between Eléctrica Santiago and the Empresa Nacional de

61

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Electricidad,
or Endesa Chile, in June 2001. The decrease in revenue was partially offset by higher revenues from sales to regulated customers in 2002 due to an increase in the average capacity
sale price of 24% compared to 2001. During 2002, physical sales of electricity in the SIC decreased by 7.8% due to lower sales to unregulated customers.



Revenues generated by our activities in the SING increased from Ch$72,938 million in 2001 to Ch$93,581 million in 2002 due to: (1) the net
effect of the above-mentioned firm capacity settlement which positively affected TermoAndes' income, offsetting the negative impact on our Norgener subsidiary, (2) an increase in physical sales
to the spot market in the SING, which was made possible by an increase in the dispatch limitation imposed by the CDEC-SING from 180 MW to 220 MW during peak periods for all independent
combined-cycle units in the SING, including TermoAndes' Central Salta plant, and (3) to a lesser extent, an increase in exchange rates that affected sales contracts with our Zaldivar and Lomas
Bayas mining clients.



Chivor's revenues increased by Ch$9,918 million to Ch$81,615 million in 2002 from Ch$71,697 million in 2001 as a result of higher sale prices. The
average sale price to customers under contract increased to Col$65/kWh in 2002 from Col$57/kWh in 2001. In addition, physical sales in 2002 increased by 1,675 GWh compared to 2001, mainly due to an
increase in sales on the spot market. However, revenues generated from increased physical sales on the spot market were offset by lower prices. On the spot market, the average sale price decreased to
Col$49/kWh in 2002 from Col$53/kWh in 2001. These lower sale prices were a result of more favorable hydrological conditions in Colombia during 2002.



Other revenues decreased by Ch$6,683 million to Ch$36,892 million in 2002 from Ch$43,575 million in 2001. This decrease was due to lower coal
sales to Guacolda (Ch$4,577 million in 2002 compared to Ch$10,787 million in 2001) and to industrial clients (Ch$17,751 million in 2002 compared to Ch$20,033 million in
2001). In terms of sales volume, tonnage decreased by approximately 376 thousand metric tons in 2002, 227 thousand of which resulted from a decrease in sales to Guacolda because of
competitors that offered better contract terms to Guacolda in the 2002 bidding process. The remaining decrease in tonnage resulted from lower sales to industrial clients. The decrease in tonnage was
partially offset by a Ch$932 million increase in sales of steam by our subsidiary, Energía Verde, as a result of higher demand by its sawmill, paper and pulp company customers.

62

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The following table provides our operating expense information for 2001, 2002 and 2003:

|                         |                                          | Year Ended December 31, |       
|------------------------ | ---------------------------------------- | ----------------------- | ------
|
|
|Variable Costs:          |                                          |                         |       
|                         | Purchases of energy                      |                         | 68,214
|                         | Purchases of capacity                    |                         | 17,906
|                         | Use of transmission system               |                         | 14,732
|                         | Fuel consumption                         |                         | 52,236
|                         | Costs of fuel sales                      |                         | 26,049
|                         | Costs of technical consultants and other |                         | 14,617
|                         |                                          |                         |       
|Total Variable Costs     |                                          | 193,754                 |       
|                         |                                          |                         |       
|Fixed Costs:             |                                          |                         |       
|                         | Energy production                        |                         | 16,918
|                         | Depreciation                             |                         | 46,926
|                         |                                          |                         |       
|Total Fixed Costs        |                                          | 63,844                  |       
|                         |                                          |                         |       
|Total Operating Expenses |                                          | 257,598                 |       
|                         |                                          |                         |       



Operating expenses increased by Ch$1,228 million to Ch$235,314 million in 2003 from Ch$234,086 million in 2002 primarily as a result of an
increase in variable costs partially offset by a decrease in fixed costs, as explained in greater detail below. Costs of our subsidiaries in Colombia and Argentina are recorded in accordance with Boletín
TécnicoNo. 64 of theColegio de Contadores de Chile, or
Chilean Accounting Board, which requires certain investments to be accounted for in U.S. dollars.



Our variable costs consist primarily of purchases of electricity and capacity on the spot market, fuel consumption, mainly natural gas by Eléctrica
Santiago and TermoAndes, and purchases of coal by AES Gener S.A. and Norgener. Variable costs increased by Ch$3,760 million to Ch$166,497 million in 2003 from Ch$162,737 million
in 2002, primarily as the result of a Ch$8,899 million increase in electricity purchases and a Ch$8,124 million increase in fuel consumption, partially offset by a
Ch$9,062 million decrease in the cost of fuel sales and a decrease in capacity purchases of Ch$1,135 million.

63

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Variable costs for our Chilean Operations consist primarily of purchases of energy and capacity on the spot market in the SIC and the SING and fuel consumption.
Variable costs for our Chilean Operations increased by Ch$3,556 million to Ch$135,983 million in 2003 from Ch$132,427 million in 2002.

Energy
purchases in the SIC increased by Ch$7,056 million in 2003 as compared to 2002 due to an increase in the average purchase price partially offset by a 2.3%, or 690 GWh,
decrease in the amount of energy purchased. During 2003, our thermal generation in the SIC increased to 2,925 GWh from 2,146 GWh during 2002, but was partially offset by 136 GWh decrease in
hydroelectric generation in 2003, mainly due to the maintenance and repair of our Alfalfal plant. Capacity purchases in the SIC decreased by Ch$710 million in 2003 as compared to 2002 due to
the positive net effect of readjustments of Ch$374 million and a 4% (245 MW) decrease in amounts purchased.

Energy
purchases in the SING increased by Ch$1,640 million and 235 GWh in 2003 as compared to 2002, mainly as a result of the unexpected generation of Norgener units in 2002. In
the SING, net generation (gross generation less own consumption) decreased by 20 GWh to 2,031 GWh in 2003 from 2,051 GWh in 2002. This decrease was caused by lower generation of Norgener, which was
partially offset by the 180 GWh increase in generation by our TermoAndes plant due to a regulatory change in June 2003 that increased the maximum level of dispatch for combined-cycle units
operating in the SING from 220 MW to 240 MW during peak periods. The increase was partially offset by a 155 GWh decrease in generation by Norgener, which substantially increased its generation during
the second quarter of 2002 as a result of the interruption of a natural gas pipeline supplying northern Chile. Capacity purchases in the SING decreased by Ch$799 million in 2003 as compared to
2002 due to the positive net effect of Norgener's capacity reconciliation settlements and a decrease in the average purchase price.

Fuel
consumption increased by Ch$8,124 million in 2003 as compared to 2002 due to an 804 GWh increase in thermal generation, primarily as the result of a 541 GWh increase in
generation by Eléctrica Santiago due to higher requirements imposed by the SIC.



Variable costs for our Colombian Operations, which consist primarily of purchases of energy on the spot market, decreased by Ch$1,867 million to
Ch$37,006 million in 2003 from Ch$38,873 million in 2002, mainly due to lower costs of technical assistance, connection costs and expenses related to an environmental tax (Law
No. 99) that is imposed on the amounts of energy generated during the year. A 193 GWh increase in energy purchases in 2003 was partially offset by a decrease in exchange rates resulting in
lower peso-equivalent amounts.



Our fixed costs consist primarily of maintenance costs and salaries of technical personnel. Fixed costs decreased by Ch$2,532 million to
Ch$68,817 million in 2003, from Ch$71,349 million in 2002. The decrease was the result of a decrease in depreciation of Ch$4,085 million, mainly due to the exchange rate effect on
our foreign subsidiaires, Chivor and TermoAndes, partially offset by an increase in operating and maintenance fixed costs of Ch$1,553 million.

64

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Operating expenses decreased by Ch$23,512 million to Ch$234,086 million in 2002 from Ch$257,598 million in 2001 primarily as a result of a
decrease in fuel consumption, capacity purchases in the SIC and SING markets, lower electricity prices and coal sale costs, as explained in greater detail below. Costs of our subsidiaries in Colombia
and Argentina are recorded in accordance with Boletín Técnico No. 64 of theColegio de Contadores de Chile, or the
Chilean Accounting Board, which requires certain investments to be accounted for in U.S. dollars.



Variable costs decreased by Ch$31,017 million to Ch$162,737 million in 2002 from Ch$193,754 million in 2001 as a result of: (1) a
Ch$9,428 million reduction in TermoAndes' fuel consumption costs due to the "pesification" of gas supply and transportation contracts, (2) a Ch$8,100 million decrease in costs
associated with energy and capacity purchases, primarily as a result of lower costs of energy purchases in the SIC due to higher rainfall, (3) a Ch$6,835 million decrease in costs
related to fuel consumption due to a lower dispatch of our thermal plants and (4) lower transmission costs of Ch$2,529 million.



During 2002, our thermal generation in the SIC was 2,146 GWh as compared to 2,595 GWh during 2001. However, as a result of the termination of our subsidiary
Eléctrica Santiago's contract with Endesa Chile, it was not necessary to increase purchases in the spot market, which contributed to a decrease in costs. In the SING, our net generation
(gross generation less own consumption) was 2,051 GWh, representing an increase of 640 GWh in net generation from 2001. This increase in net generation was primarily due to the higher dispatch of
TermoAndes' Central Salta plant, which resulted from a regulatory change allowing all combinedcycle units operating in the SING to increase their maximum generation from 180 MW to 220 MW
during peak periods, and the substantial increase in generation of Norgener's coal-fired plant during the second quarter of 2002 as a result of the interruption of a natural gas pipeline
supplying northern Chile.



Variable operating costs increased by Ch$3,287 million to Ch$38,873 million in 2002 from Ch$35,586 million in 2001, mainly due to
Ch$2,889 million in costs associated with energy purchases as a result of a 720 GWh increase in sales volume.



Fixed costs increased by Ch$7,504 million to Ch$71,349 million in 2002 from Ch$63,844 million in 2001, primarily due to an increase in
depreciation. Higher depreciation costs resulted in an increase of Ch$3,138 million in fixed costs, principally caused by the higher dispatch of TermoAndes, which depreciates its assets based
on generation hours, and the exchange rate effect on foreign subsidiaries' costs.

65

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Administrative and Selling Expenses



Our administrative and selling expenses consist primarily of administrative personnel salaries, services rendered by third parties and insurance premiums.
Administrative and selling expenses decreased by Ch$4,056 million to Ch$17,065 million in 2003 from Ch$21,121 million in 2002. This decrease was mainly due to a
Ch$4,169 million decrease in services rendered by third parties and in other items relating to legal and advisory fees incurred in connection with Chivor's debt refinancing during 2002. This
reduction was offset by a Ch$716 million increase in insurance costs and information technology systems and communications expenses.



Administrative and selling expenses decreased by Ch$9,203 million to Ch$21,121 million in 2002 from Ch$30,324 million in 2001. This decrease
was primarily due to the inclusion in our 2001 results of Ch$6,462 million in costs related to our employee retirement program as the result of a staff reduction in 2001 initiated after our
acquisition by The AES Corporation in 2000. In addition, in 2002 there was a Ch$1,278 million reduction in remunerations and social benefits due to a
minor reduction in personnel, which occurred in October 2002, and a Ch$1,744 million reduction in services rendered by third parties. Insurance costs increased by Ch$1,620 million
in 2002 mainly as the result of an increase in insurance premiums based on market conditions.



Operating income decreased by Ch$9,097 million to Ch$109,953 million in 2003 from Ch$119,050 million in 2002. This decrease was primarily due
to a higher capacity settlement of Ch$8,220 million in 2002, as a result of the extraordinary impact on operating income in the first quarter of 2002 resulting from a Ch$9,769 million
capacity reconciliation settlement in the SING for 2000 and 2001. In addition, in 2003 there was an increase in the average energy purchase price in the SIC and higher fuel consumption, offset by
higher income from capacity sales.



Operating income increased by Ch$45,978 million to Ch$119,050 million in 2002 from Ch$73,072 million in 2001. This increase resulted from:
(1) a Ch$11,628 million decrease in fuel and capacity costs in the SIC and SING markets, (2) a Ch$9,769 million positive impact on operating income from the capacity
settlement in the SING, (3) higher revenues from sales in the SING from the spot market and unregulated clients of Ch$10,874 million, (4) a Ch$9,918 million increase in
sales to the Colombian market, and (5) a Ch$9,203 million decrease in administrative and sales costs.

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Non-Operating Income

The following table sets forth non-operating income information for 2001, 2002 and 2003:

|                           |                                  | For the year ended December 31,
|-------------------------- | -------------------------------- | -------------------------------
|
|
|Interest income            |                                  | 17,602                         
|Other non-operating income |                                  | 79,720                         
|                           |                                  |                                
|                           | Total non-operating income items |                                
|                           |                                  |                                



Our non-operating income consists primarily of financial income. Our non-operating income decreased by Ch$17,449 million to
Ch$25,668 million in 2003 from Ch$43,117 million in 2002. This decrease was primarily due to a Ch$13,521 million decrease in financial income, a decrease in exchange rates and a
decrease in interest income related to the intercompany loan between us and our parent company, Cachagua. On May 15, 2003, the interest rate of the account was reduced from 21.14% to 10%.
Furthermore, the outstanding balance of US$310 million as of June 30, 2003 was reduced to US$288 million as the result of an
amortization payment from Cachagua with the proceeds from our dividend payment on August 5, 2003. As of December 31, 2003, the outstanding balance of this intercompany account, including
accrued interest, was US$294 million. Our other non-operating income decreased by Ch$3,928 million, primarily as a result of Ch$2,435 million in revenues that we
received from the sale of our headquarters and other properties in 2002.



Our non-operating income decreased by Ch$54,205 million to Ch$43,117 million in 2002 from Ch$97,322 million in 2001. This
decrease was primarily due to a gain on asset sales finalized during 2001 involving Central Puerto and Puerto Ventanas, which had contributed Ch$72,416 million to non-operating
income in 2001. Financial income increased by Ch$18,713 million in 2002, to Ch$36,315 million from Ch$17,602 million, due to higher interest income related to the intercompany
loan between us and our parent company, Cachagua. This intercompany loan was executed in February 2001 and the last disbursement thereunder was in September 2001. Since then, changes in
the balance of the loan were due to accrued interest.

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Non-Operating Expenses

Our non-operating expenses consist primarily of interest expenses, expenses related to the issuance of debt, non-conversion premiums and
provisioned losses related to the sales of assets. The following table sets forth our non-operating expense information for 2001, 2002 and 2003:

|                             |                                   | For the year ended December 31, |         
|---------------------------- | --------------------------------- | ------------------------------- | --------
|
|
|Financial expenses           |                                   | (74,299                         | )       
|Other non-operating expenses |                                   | (65,413                         | )       
|                             |                                   |                                 |         
|                             | Total non-operating expense items |                                 | (139,712
|                             |                                   |                                 |         



Our financial expenses decreased by Ch$18,587 million to Ch$54,855 million in 2003 from Ch$73,442 million in 2002, mainly due to the lower
interest rate applied to Chivor's credit obligations and debt amortizations since December 2002 and to lower interest rates applied to our credit obligations with banks and financial
institutions, including Energy Trade, Norgener, TermoAndes and InterAndes.

Our
other non-operating expenses in 2003 decreased by Ch$14,382 million to Ch$15,775 million in 2003 from Ch$30,157 million in 2002. This decrease was
due to provisions and losses of Ch$7,130 million recorded during 2002 for the sales of our subsidiaries, Oil Gener, Carbones del Cesar, Ecogener and Explotaciones Sanitarias S.A. and our Fell
Block assets, and to a decrease of Ch$3,595 million in provisions for the non-conversion premium of our convertible notes as a result of lower exchange rates in 2003 as compared to
2002. These amounts were partially offset by provisions of Ch$1,427 million in 2003 relating to interest rate coverage of TermoAndes and InterAndes. As of December 31, 2003, the credit
was overhedged and, according to Chilean accounting rules, we needed to recognize any gain or losses for the portion that was contracted for in excess.



Our financial expenses decreased by Ch$857 million to Ch$73,442 million in 2002 from Ch$74,299 million in 2001 due to a decrease in bank and
financial institution debt of Energy Trade and Chivor as a result of scheduled principal payments during the period.

Our
other non-operating expenses in 2002 decreased by Ch$36,113 million to Ch$103,599 million in 2002 from Ch$139,712 million in 2001. This decrease was
mainly due to losses of Ch$27,913 million derived from our sale of Hidroneuquén, CCNI and Agencias Universales S.A. and losses of Ch$8,409 million associated with the sale
process of OilGener and the Fell Block assets, which took place in 2001. For further details concerning non-operating expenses incurred in both years see note 29 to our audited
consolidated financial statements included in Item 18.

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Investments in Equity-Method Investees

|                                                                                                       |  | For the year ended
December 31, |  
|------------------------------------------------------------------------------------------------------ |  | ------------------------------- | -
|
|
|Gains from investment in equity-method investees                                                       |  | 8,541                           |  
|Loss from investment in equity-method investees                                                        |  | (7,973                          | )
|Amortization of goodwill                                                                               |  | 1,064                           |  
|                                                                                                       |  |                                 |  
|Net income (loss) from equity-method investees (net of amortization of goodwill and negative goodwill) |  | 1,632                           |  
|                                                                                                       |  |                                 |  



Income from equity-method investees increased by Ch$10,444 million to Ch$9,064 million in 2003 from a loss of Ch$1,380 million in 2002 due to
a Ch$7,082 million increase in equity income from Guacolda and a Ch$2,956 million increase in equity income from Itabo.

During
2003, Guacolda, which is 50% owned by us, recorded profits of Ch$15,789 million, while in 2002 it recorded profits of Ch$1,637 million. This difference was mainly
due to a Ch$23,307 million increase in non-operating income resulting from the positive effects of exchange rates as a result of the reduction in their U.S. dollar-denominated debt
and a price-level restatement of Ch$22,025 million as compared to 2002. Guacolda's operating income decreased by Ch$7,577 million in 2003 primarily due to a Ch$2,800 million
increase in fuel consumption and a Ch$1,530 million increase in energy and capacity purchases.

Itabo,
which is 25% owned by us, recorded profits of Ch$4,832 million in 2003 as compared to losses of Ch$7,333 million in 2002. The improvement was primarily due to a
Ch$5,282 million increase in revenues due to more favorable energy and capacity sales agreements in terms of both volumes of physical sales and prices. In addition, Itabo sold electricity to
the spot market in 2003 as a result of the higher availability and higher dispatch of its steam-coal units during the year.



Income from equity-method investees decreased by Ch$3,012 million to a loss of Ch$1,380 million in 2002 from Ch$1,632 million in 2001 due to
a decrease in income from entities that were sold during 2001, primarily Puerto Ventanas and Central Puerto, and a loss of Ch$1,833 million recorded by Itabo as a result of lower operating
results.

In
2002, Guacolda recorded profits of Ch$1,637 million compared to a loss of Ch$9,255 million in 2001. This improvement was mainly due to higher operating income, which
increased to Ch$24,329 million in 2002 from Ch$15,563 million in 2001, and lower interest expense.

Itabo
reported a loss of Ch$7,334 million in 2002 as compared to profits of Ch$7,751 million in 2001 as a result of a lower operating income due to a decrease in contracted
sales prices and an increase in spot market purchases due to the rehabilitation of its units.

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Price-Level Restatements



Our price-level restatement generated a loss of Ch$46 million in 2003, as compared to a profit of Ch$1,420 million recorded in 2002. The difference
was primarily due to a change in the Chilean Consumer Price Index, or CPI, factor applied in 2003, which was 1% in comparison to a 3% factor used in 2002.

Exchange
rate differences generated a negative effect of Ch$13,561 million in 2003, as compared to a loss of Ch$19,527 million in 2002. During 2002, losses were mainly
attributable to the devaluation of the Argentine peso, which negatively affected our investments in Argentina. Exchange rates reflected a 17% nominal appreciation of the Chilean peso in 2003, as
compared to a nominal devaluation of 10% in 2002.



Our price-level restatement generated earnings of Ch$1,420 million, approximately Ch$2,542 million less than the Ch$3,962 million recorded in
2001. The difference was primarily due to a change in the CPI factor applied in 2002, which was 3.0% in comparison to a 3.1% factor used in 2001, and the decrease in the price level restatement of
shareholders' equity resulting from the distribution of dividends in 2001.

Exchange
rate differences generated a negative effect of Ch$19,527 million in 2002, as compared to a loss of Ch$29,668 million in 2001. The lower effect was mainly due to
the devaluation of the Argentine peso during 2002, which affected our investments in Argentina, and the devaluation of
the Chilean peso during 2002, which affected our consolidated debts. The exchange rate effect reflected a nominal devaluation of the Chilean peso of 9.8% in 2002, as compared to a nominal devaluation
of 14.2% in 2000.

Impact of Inflation and Price-Level Restatement

We are required under Chilean GAAP to restate non-monetary assets and liabilities, equity and income and expense accounts to reflect changes in the
CPI from the date they were acquired or incurred to the end of the period. During inflationary periods, monetary items generate a gain or loss in purchasing power depending upon the currency in which
they are denominated. Non-monetary assets and liabilities are restated so as to correct the effect of inflation and remain constant in real terms from period to period. Under Chilean GAAP,
liabilities in foreign currency or denominated in UFs are considered to be non-monetary, and all resulting foreign exchange adjustments and indexation are included in the price-level
adjustment account. See note 1(b) to our audited consolidated financial statements included in Item 18.

Non-monetary
assets and liabilities are generally restated using the CPI published by the Chilean National Institute of Statistics. Monetary assets and liabilities are not
adjusted because their amounts are fixed by contract or otherwise in terms of currency regardless of changes in specific prices or in the general price level. Holders of monetary assets and
liabilities lose or gain general purchasing power during periods of inflation. Monetary liabilities in foreign currency are stated at closing exchange rates and are affected by the relationship
between local inflation and the exchange rate of the local currency with the U.S. dollar.

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Our
audited consolidated financial statements have been restated in accordance with Chilean GAAP for the purpose of reflecting the actual purchasing power of the peso. The effects of
monetary restatement are summarized below in millions of Chilean pesos.

|                                                         |  | Year ended December 31, |  
|-------------------------------------------------------- |  | ----------------------- | -
|
|
|Property, plant and equipment                            |  | 22,948                  |  
|Other assets in local currency                           |  | 20,839                  |  
|Other assets in foreign currency                         |  | (13,793                 | )
|Liabilities in foreign currency                          |  | (15,398                 | )
|UF Indexed liabilities                                   |  | (14,797                 | )
|Shareholders' equity                                     |  | (24,414                 | )
|                                                         |  |                         |  
|Net balance sheet effect reflected in income             |  | (24,614                 | )
|Net price-level restatement of income statement accounts |  | (615                    | )
|Net losses due to foreign exchange differences           |  | (477                    | )
|                                                         |  |                         |  
|Charge to income                                         |  | (25,706                 | )
|                                                         |  |                         |  



We had a non-operating loss of Ch$49,504 million in 2003, which was Ch$30,465 million lower than the Ch$79,969 million
non-operating loss in 2002. The decrease was mainly due to a Ch$18,587 million decrease in interest expenses and other non-operating expenses. In addition, the
contribution to net income from equity-method investees increased by Ch$10,444 million and the appreciation of the Chilean peso generated a positive exchange rate effect of
Ch$5,966 million.



We had a non-operating loss of Ch$79,969 million in 2002, which was Ch$11,296 million higher than the Ch$68,673 million
non-operating loss recorded in 2001, mainly due to our sales in 2001 of Central Puerto and Puerto Ventanas at a significant gain of Ch$72,416 million, compared to the gains of
Ch$2,435 million recorded in connection with the sale of other assets. This decrease in other non-operating income was partially offset by a reduction in the effect of the U.S.
dollar exchange rate variation of Ch$10,140 million, a decrease in other non-operating expenses of Ch$35,255 million related to losses
on sales of assets in 2001 (CCNI, Hidroneuquén and Agunsa) and an increase in financial income of Ch$18,713 million in 2001.



A higher income tax provision of Ch$4,748 million was recorded in 2003 as compared to a provision of Ch$1,663 million in 2002.

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A lower income tax provision of Ch$1,663 million was recorded in 2002 as compared to a provision of Ch$7,049 million in 2001. This decrease was due
to tax losses related to exchange differences of our Argentine subsidiaries and a decrease in the valuation allowance set up by our subsidiary Chivor for deferred tax assets for tax loss
carryforwards. The latter decrease resulted from a lengthening of tax depreciable lives of fixed assets.

Net Income



Net income increased by Ch$18,103 million to Ch$53,678 million in 2003 from Ch$35,575 million in 2002. The most significant components of
this increase were a Ch$30,465 million or 38% decrease in non-operating expenses as a result of a decrease in interest expenses and other non-operating expenses, a
Ch$10,444 million improvement in operating results among our equity-method investees, and the positive exchange rate effects of Ch$5,966 million, which offset a 7.6% decrease in our
operating income, mainly due to extraordinary income in 2002 from a retroactive capacity reconciliation settlement in the SING.



During 2002, we recorded net income of Ch$35,575 million, compared to a net loss of Ch$2,091 million in 2001. This increase was attributable to
higher operating income of Ch$45,977 million in 2002, a 63% increase from the previous year, offsetting higher non-operating losses by Ch$11,296 million due to lower revenues
from equity-method investees and the impact of the extraordinary gains obtained from sales of Central Puerto and Puerto Ventanas in 2001, which were not totally offset by the increase in financial
income and the decrease in exchange losses.

B.    Liquidity and Capital Resources

Cash Flow Analysis

As an electricity generation company with our primary market located in Chile, our operational cash flows are relatively stable and generally are only subject to
significant variations under extreme hydrological conditions. Our primary operating revenue comes from our two principal products, electrical energy and capacity, which are both sold under contracts
to regulated and unregulated customers and on the spot market. Since The AES Corporation acquired us at the end of 2000, two significant cash flow items related to asset sales and personnel benefits
as a result of a staff reduction were recorded in 2001 and 2002, as a result of a restructuring plan that has been completed. In terms of our financing cash flow, we expect to refinance a significant
portion of our debt, including AES Gener S.A.'s Chilean convertible notes and Yankee notes
which come due in 2005 and 2006, respectively, which would have an impact on our long term cash flow.



In 2003, we generated a positive cash flow of Ch$25,208 million, as compared to a negative cash flow of Ch$30,075 million in 2002.

Operating
activities generated a positive flow of Ch$119,680 million in 2003, which was Ch$45,665 million higher than the Ch$74,015 million recorded in 2002.
This increase was due to

72

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a
Ch$28,246 million decrease in payments to suppliers and personnel, a Ch$26,832 million decrease in interest payments, offset by a Ch$16,139 million decrease in trade accounts
receivable and a Ch$1,354 million decrease in accrued financial income.

Financing
activities generated a negative cash flow of Ch$122,779 million in 2003, as compared to a negative cash flow of Ch$100,429 million in 2002. The
Ch$22,350 million increase in negative cash flow was mainly due to a Ch$28,336 million increase in dividend payments, which were offset by a Ch$8,143 million decrease in bond payments.

Investment
activities generated positive cash flow of Ch$28,306 million in 2003, as compared with a negative cash flow of Ch$3,661 million in 2002. This difference was
primarily due to a Ch$28,406 million increase in loan collections in 2003, mainly from Cachagua, which made two amortization payments in 2003 with dividends received from us.



In 2002, we generated a negative cash flow of Ch$30,075 million, compared to negative cash flow of Ch$3,360 million in 2001.

Operating
activities generated a positive flow of Ch$74,015 million in 2002, higher than the Ch$24,553 million recorded in 2001. This increase was due to a higher
collection of trade receivables of Ch$47,075 million, lower payments to suppliers and personnel of Ch$28,945 million, and lower VAT and other payments of Ch$8,361 million in 2002.
This increase was partially offset by higher interest payments of Ch$3,977 million, a decrease in dividends, other income and distributions received of Ch$14,436 million and a decrease
in financial revenue of Ch$5,153 million in 2002.

Financing
activities generated a negative cash flow of Ch$100,429 million in 2002, compared to our negative cash flow of Ch$157,855 million in 2001. The difference was
mainly due to reduced dividend payments of Ch$151,357 million, partially offset by the net negative effect between borrowings and loan payments of Ch$60,249 million, higher payments of
public liabilities of Ch$26,082 million related to payments of the TermoAndes and InterAndes notes, and higher payments of other financing activities of Ch$9,671 million in 2002.

Investing
activities generated a negative cash flow of Ch$3,661 million, compared to the Ch$129,941 million positive cash flow generated in 2001. This decrease was the
result of reduced proceeds from investment sales of Ch$274,010 million in 2002, lower loan collections from equity-method investees of Ch$22,508 million and lower revenues from other
investments of Ch$27,086 million. In addition, during 2002, there was a Ch$16,332 million decrease in permanent investments and the acquisition of fixed assets, a
Ch$148,312 million decrease in loans to equity-method investees and a Ch$14,476 million decrease in investments in financial instruments.



We have included in our budget capital expenditures for approximately US$15.4 million in 2004 for both major and minor routine maintenance repairs,
including the TG11 gas turbine maintenance in TermoAndes.



We expect that we will have sufficient resources from operations to fund our currently anticipated capital expenditures, for working capital needs and for general
corporate purposes.

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We
expect to fund our future projects and investments with a combination of internally generated cash, sales of assets and additional indebtedness, including project financing. In
addition, we believe that the implementation of a recapitalization plan, which will reduce the amount of our outstanding indebtedness and extend the maturities of our long term debt, will improve our
financial condition and enhance our financial flexibility and our ability to generate cash flow for the upcoming years. Any additional indebtedness may be incurred by our subsidiaries and may or may
not be guaranteed by AES Gener S.A. See "Item 4. Information on the CompanyBusiness OverviewElectricity Generation in ChileOther Generation Projects Under
Development in Chile".

Certain
of our credit agreements contain provisions that impose restrictions on the transfer of funds in the form of cash dividends, loans or advances. Our subsidiary Chivor is
restricted from declaring or paying any dividends or return on any capital, or authorizing or making any other distribution, payment or delivery of cash to its shareholders in accordance with the
Second Amendment and Waiver to the Credit Agreement executed by Chivor and a bank syndicate led by Bank of America on August 27, 2002. The credit agreement executed by our subsidiary
Energía Verde and Banco de Crédito e Inversiones and Scotia Bank Sudamericano establishes a minimum cash flow coverage ratio for the distribution of dividends. As of
December 31, 2003, the note purchase agreement with Bank of America and the loan agreement with ABN Amro restrict the amount of dividend payments by AES Gener S.A., in excess of
the minimum amount required by Chilean law. In January 31, 2004, the loan agreement with ABN Amro was completely repaid. Additionally, the provisions of the TermoAndes and InterAndes notes
prohibit these companies from making or declaring any distribution, unless such distribution is made from the funds available for distribution in accordance with the terms of these agreements.
Finally, our Argentine subsidiaries TermoAndes and InterAndes cannot distribute dividends or transfer money abroad without prior authorization of the Argentine Central Bank. These restrictions have
been incorporated in our financial projections, and we do not expect them to affect our ability to meet our cash obligations, as we estimate that we will have sufficient operational resources to meet
our projected capital expenditures and working capital needs.

Investment and Financial Policy

Until 2001, each year our shareholders had to approve an annual financing and investment policy proposed by management, which set forth limits on the amount of
debt we could incur. At the shareholders' general meeting held on July 4, 2001, the assembly resolved to modify our by-laws by eliminating all references to investment, financing
and commercial policies, with respect to both us and our subsidiaries.

In
order to comply with our corporate purpose under Chilean law, we may make investments in each of the companies in which we have an interest or to which we make capital contributions,
supervise and coordinate the management of the companies in which we have an interest or to which we make capital contributions, and provide the companies in which we have an interest or to which we
make capital contributions with management, auditing, financial, commercial, technical and legal services and all and any services of any nature that may be necessary. Notwithstanding the foregoing,
we are required to maintain at least a 51% interest in companies in which we gain an interest, by making contributions of electricity generation assets.

74

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We intend to maintain a balanced portfolio between Chilean peso and U.S. dollar-denominated investments. In 2003, we held an average of US$18.6 million on financial investments,
of which almost 50% were in U.S. dollar-denominated instruments. In addition, we have stringent financial investment policies approved by our CFO and the CEO. The compliance with our financial
investment policy is controlled by our internal audit department.

We
have no formal coverage policies for risks related to exchange rates and interest rates. However, our board of directors constantly evaluates alternatives to minimize foreign exchange
and interest rate risks. We cover our foreign exchange exposure relating to interest, debt payments, power purchase agreements and take-or-pay payments by purchasing forward rate
agreements.

Long Term Debt

Our long term bank debt consists principally of U.S. dollar-denominated loans from certain financial institutions. We have also issued bonds and other long term
debt, primarily in U.S. dollars, in Chile, the United States and Argentina. See note 17 to our audited consolidated financial statements for additional information.

Long
term liabilities were Ch$739,118 million as of December 31, 2003 compared to Ch$981,570 million as of December 31, 2002. The decrease in long term
liabilities resulted principally from the amortization in 2003 of the TermoAndes and InterAndes notes and Chivor's debt.

Bank Liabilities as of December 31, 2003

|                          |  |     |   | Years to Expiration |        |  |         |  |  
|------------------------- |  | --- | - | ------------------- | ------ |  | ------- |  | -
|
|Bank of America           |  | US$ |   |                     | 17,729 |  | 139,391 |  | 
|Scotiabank                |  | US$ |   |                     | 4,988  |  |        |  | 
|Banco Crédito Inversiones |  | US$ |   |                     | 7,482  |  |        |  | 
|                          |  |     |   |                     |        |  |         |  |  
|Total                     |  |     |  |                     | 30,199 |  | 139,391 |  | 
|                          |  |     |   |                     |        |  |         |  |  

Bonds Payable as of December 31, 2003

|Series |  | Issue Amount
Outstanding
(in issue
currency) |  | Issue
Currency |  | Interest
Rate % |   | Maturity
Date |  | Periodicity
Interest
Payments |  | Periodicity
Principal
Payments |  | Carrying
Value
2003
Million Ch$ |  | Place of
Issuance
|------ |  | -------------------------------------------- |  | -------------- |  | --------------- | - | ------------- |  | ----------------------------- |  | ------------------------------ |  | ------------------------------- |  | -----------------
|      |  | 200,000,000                                  |  | US$            |  | 6.50            | % | 15-Jan-06     |  | Semiannual                    |  | Upon Maturity                  |  | 122,305                         |  | U.S.             
|LA1    |  | 659,900                                      |  | US$            |  | 6.00            | % | 1-Mar-05      |  | Semiannual                    |  | Upon Maturity                  |  | 400                             |  | Chile            
|LA2    |  | 2,591,000                                    |  | US$            |  | 6.00            | % | 1-Mar-05      |  | Semiannual                    |  | Upon Maturity                  |  | 1,569                           |  | Chile            
|LA3    |  | 15,705,000                                   |  | US$            |  | 6.00            | % | 1-Mar-05      |  | Semiannual                    |  | Upon Maturity                  |  | 9,512                           |  | Chile            
|LA4    |  | 110,800,000                                  |  | US$            |  | 6.00            | % | 1-Mar-05      |  | Semiannual                    |  | Upon Maturity                  |  | 67,105                          |  | Chile            
|LA5    |  | 273,000,000                                  |  | US$            |  | 6.00            | % | 1-Mar-05      |  | Semiannual                    |  | Upon Maturity                  |  | 165,341                         |  | Chile            
|M      |  | 73,883,000                                   |  | US$            |  | 6.00            | % | 1-Mar-05      |  | Semiannual                    |  | Upon Maturity                  |  | 44,747                          |  | Chile            
|A      |  | 57,500,000                                   |  | US$            |  | 8.00            | % | 15-Oct-09     |  | Semiannual                    |  | Semiannual                     |  | 34,709                          |  | Chile            
|B      |  | 1,086,000                                    |  | UF             |  | 7.50            | % | 15-Oct-24     |  | Semiannual                    |  | Semiannual                     |  | 18,661                          |  | Chile            
|O      |  | 126,202,247                                  |  | US$            |  | 6.36            | % | 31-Dec-07     |  | Semiannual                    |  | Semiannual                     |  | 74,939                          |  | Argentina        
|O      |  | 25,190,353                                   |  | US$            |  | 6.36            | % | 31-Dec-07     |  | Semiannual                    |  | Semiannual                     |  | 15,581                          |  | Argentina        

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In December 1996, our Colombian subsidiary, Chivor, borrowed US$400 million under a five-year bank credit facility, the net proceeds of
which were used to finance a portion of the acquisition price of Chivor. The Chivor credit facility was secured by substantially all of Chivor?s assets, including accounts receivable,
payments under contracts, funds held offshore, insurance proceeds, real property and its plant and equipment. On December 28, 2001, Chivor failed to pay when due approximately
US$336 million of the principal amount of indebtedness borrowed pursuant the terms of the bank credit facility.

On
May 31, 2002, Chivor reached an agreement for refinancing its debt of US$336 million with the original bank syndicate led by Bank of America. This agreement, which
involved 19 of the 20 members of the bank syndicate, specifies a new interest rate and amortization schedule and expires on December 31, 2006. The agreement stipulated that the refinancing
would be structured under terms and conditions established under Chapter 11 of the U.S. bankruptcy law, specifically in terms of a pre-packaged voluntary reorganization.

On
July 6, 2002, a hearing regarding First Day Papers of Chivor was conducted in the United States Bankruptcy Court for the Southern District of New York. On August 13,
2002, Judge Burton R. Lifland in New York approved the financing restructuring plan. An agreement executed on August 27, 2002, the second amendment and waiver to the credit agreement, amended
the credit agreement entered into on December 30, 1996, and provided Chivor with a term extension up to December 2006, including a new payment schedule with interim amortization
payments. Under the terms of the new agreement, Chivor paid US$15 million in 2002 and US$37 million in 2003. A minimum of US$19 million is scheduled to be paid in 2004. The
contract also requires Chivor to maintain a debt service coverage ratio of 1.0 and restricts Chivor from paying dividends and other distributions to its shareholders or from incurring additional debt
outside of the ordinary course of business, with a limit on working capital indebtedness of US$10 million. Finally, in accordance with the second amendment and waiver, the lenders may declare
the principal and any accrued interest due and payable if Chivor defaults in the payment of all or any portion of other indebtedness or in the performance of any agreement that requires other
indebtedness to become due. The conditions of default under the agreement also include a default by AES Gener S.A. in the performance of any agreement, covenant or condition relating to its
indebtedness, the effect of which causes such indebtedness to become due prior to its stated maturity.

In
connection with the execution of the second amendment and waiver, also on August 27, 2002, a support agreement was executed, under which Energy Trade agreed to irrevocably and
unconditionally provide funds to Chivor for payment of outstanding debt under the second amendment and waiver, up to a maximum amount of US$50 million, if the outstanding amount of debt exceeds
US$290 million on March 31, 2004 and US$225 million on March 31, 2005. In the same support agreement, AES Gener S.A. agreed to irrevocably and unconditionally guarantee
Energy Trade's obligations. As of December 31, 2003, the outstanding amount of the debt under the amended credit agreement was approximately US$283.6 million.



Energía Verde borrowed US$25 million under a five-year bank credit facility with Scotiabank and Banco Crédito e
Inversiones in November 2001. The net proceeds were used to refinance the capital structure of Energía Verde. Annual interest rate is based on LIBOR 180 days plus a fixed spread
of 1.85%. As part of the financing, we pledged all our shares in that subsidiary in favor of the two banks. In addition, Energía Verde pledged all its assets in favor of the bank

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creditors.
As of December 31, 2003, the outstanding amount under this bank credit facility was US$24 million.



In September 1999, the SVS approved the issuance by Eléctrica Santiago of a local bond of US$100 million, which was principally used
to prepay debt to General Electric for the construction of the Nueva Renca combined-cycle plant. This bond was divided into a U.S. dollar-denominated tranche of US$60 million and a
UF-denominated tranche equivalent to US$40 million. In October 1999, Eléctrica Santiago placed US$57.5 million of the dollar-denominated tranche, which
comes due in October 2009. A portion of the outstanding principal is to be paid semiannually beginning April 2005. Interest is paid semiannually and the annual interest rate is 8%. The
outstanding amount as of December 31, 2003 was US$57.5 million. In July 2000, Eléctrica Santiago placed the UF-denominated tranche of
UF1,086 million. A portion of the outstanding principal is to be paid semiannually beginning April 2006. Interest is paid semiannually, and the annual interest rate is 7.5%. The
outstanding amount as of December 31, 2003 was UF1,086 million, equivalent to US$30.9 million.

The
indentures governing these issuances establish the following financial covenants, which were fully complied with as of December 31, 2003:





In September 1998, our shareholders approved the issuance of up to US$500 million of convertible debt securities. These notes totaling
US$499.9 million were placed in Chile between December 1998 and March 1999, and in the United States in June 1999. As of December 31, 2003, Ch$283,028 million
(approximately US$476.6 million) of convertible debt was outstanding. Convertible notes outstanding in Chile account for Ch$239,156 million (approximately US$402.76 million),
convertible notes outstanding in the United States account for US$73.88 million (approximately Ch$43,872 million), and notes that have already been converted amount to
US$23.3 million (approximately Ch$13,836 million). The Chilean convertible notes differ from the U.S. convertible notes in that they are:



In
addition, the U.S. convertible notes are not exchangeable for Chilean convertible notes.

The
indenture governing the convertible notes issued in Chile and the United States restricts the incurrence of debt by us in excess of the amount approved at the annual shareholders'
meeting. Our shareholders, however, currently do not restrict our incurrence of debt to a particular amount. Further, AES Gener S.A. and its subsidiaries may not issue, assume or

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guarantee
debt secured by mortgages, which, together with the aggregate outstanding principal amount of all our other debt, exceeds 10% of total net consolidated assets. Nonetheless, we may incur
indebtedness secured by a mortgage upon property or assets as long as such indebtedness shall be secured equally and ratably with these securities. The noteholders may require immediate payment if an
event of default occurs, including failure by us to pay any indebtedness in an aggregate principal amount exceeding 1.5% of total consolidated assets.

On
November 24, 2003, AES Gener announced a cash tender offer for any and all of its U.S. and Chilean convertible notes, which remains outstanding.



In January 1996, we issued US$200 million aggregate principal amount of our 61/2% notes due January 15, 2006 in the United
States, which principal amount was outstanding as of December 31, 2003, representing approximately Ch$118,760 million. On January 9, 2002, we solicited and obtained the required
consent of a majority of the note holders to amend the indenture to eliminate the possibility that (i) a default on payments due or money borrowed by Chivor (unless AES Gener S.A. or a
subsidiary guarantees or otherwise agrees to be liable, directly or indirectly, for such Chivor indebtedness), including Chivor's aforementioned default, or (ii) a bankruptcy proceeding
involving Chivor would, in each case, constitute, or be the basis for, an event of default with respect to the notes under the indenture.

Under
the terms of the indenture for the Yankee notes, we may not issue, assume or guarantee debt secured by mortgages, which, together with the aggregate outstanding principal amount of
all our debt, exceeds 10% of consolidated net tangible assets. The provisions of the indenture governing this issue also allow for the holders to require immediate payment if an event of default
occurs, including default in the payment of the note obligations as well as default by AES Gener S.A. or any subsidiary with respect to any indebtedness with an aggregate principal amount exceeding
US$15 million.

On
November 24, 2003, AES Gener announced a cash tender offer for any and all of its Yankee notes, which we accepted for payment upon expiration of the offer for a total amount of
US$146.3 million, including the tender consideration, consent payment and accrued interest.



We financed TermoAndes and InterAndes through an equity contribution of approximately US$146.9 million made with funds from our operations, floating rate
debt securities of approximately US$257 million (aggregate principal amount) issued by TermoAndes and InterAndes and a US$18 million loan from Argentine banking institutions, which was
primarily used to pay our value-added tax obligations. The floating rate debt is hedged with a swap that fixes the interest rate at 6.36%. The notes issued by TermoAndes and InterAndes are secured by
substantially all the assets of both companies, including AES Gener S.A.'s obligations to purchase capacity and energy pursuant to its power purchase agreement with TermoAndes, which includes
minimum payments in amounts sufficient, among other things, to serve the payments of the US$257 million of floating rate notes.

Additionally,
US$82 million of TermoAndes and InterAndes notes are subject to a put option executed in 1998, which permits Bank of America to require AES Gener S.A. to purchase
the TermoAndes and InterAndes notes at par plus accrued interest under certain defined circumstances. In April 2000, the put agreement was assigned to Energy Trade by AES Gener S.A., with a
full guarantee by AES Gener S.A. The put option was further modified in September 2002, and, in connection therewith, a purchase agreement was executed by AES Gener S.A. and Bank of America.

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Under the terms of the purchase agreement, AES Gener S.A. agreed to purchase the TermoAndes and InterAndes notes through quarterly principal installments of approximately
US$7.9 million until September 2004. If there is a default under the terms of the TermoAndes or InterAndes notes, an acceleration of the TermoAndes or InterAndes notes or a default under
the purchase agreement, Bank of America may exercise its put option, requiring AES Gener S.A. to purchase the notes at par value plus accrued interest at any time prior to payment of the final
installment under the purchase agreement. The purchase agreement also contains provisions allowing Bank of America to exercise its put right in the event of default by AES Gener S.A., which may be
caused by AES Gener S.A., Norgener or Eléctrica Santiago's failure to pay material indebtedness, defined as indebtedness of or guaranteed by AES Gener S.A. equal to or in excess of
US$15 million in the aggregate or, in the case of Norgener and Eléctrica Santiago, indebtedness equal to or in excess of US$10 million, among other events. As of
December 31, 2003, the principal balance under the TermoAndes and InterAndes notes was US$151.4 million, net of AES Gener S.A. holdings. As of December 31, 2003, the principal
balance of the TermoAndes and InterAndes notes held by Bank of America was US$23 million.

On
February 27, 2004, we reached an agreement to restructure the outstanding TermoAndes and InterAndes debt. Pursuant to the restructuring, with a combination of cash currently
held in TermoAndes' and InterAndes' trust accounts, along with a cash contribution made by us through Gener Argentina S.A., will be received upfront by the holders of outstanding TermoAndes and
InterAndes notes. In exchange for this paydown, the holders of the TermoAndes and InterAndes notes have agreed to extend a loan to AES Gener S.A. to enable it to repurchase the notes. This loan will
be amortized over a period from 2004 to 2010. The closing of the agreement is subject to several conditions, which include, among others, the amendment and restatement of certain guaranties and pledge
agreements, the successful restructuring of AES Gener's other indebtedness and the condition that the proceeds from the TermoAndes and InterAndes' trust accounts established under the former debt
agreement, are available for paydown of the existing debt by the new debtor, AES Gener, at the close. Additionally, the interest rate swap on the TermoAndes and InterAndes debt will be terminated at
the close. The termination fee will be equal to the mark-to-market adjustment for the interest rate swap hedge.



We financed the construction of Norgener's Tocopilla thermoelectric plant through a loan provided by Mitsubishi Heavy Industry, in the total outstanding amount of
approximately US$34 million at December 31, 2003, which bears an annual interest rate of 8.17%. In addition, in order to guarantee 50% of the loan, Norgener granted Mitsubishi Heavy
Industry a stand-by letter of credit issued by Banco de Chile for up to US$50 million. Furthermore, in order to
guarantee the amount of the letter of credit, Norgener pledged Unit No. 2 in favor of Banco de Chile.

Recapitalization PlanTreasury Lock Agreement

In connection with the offering of our senior notes, we entered into treasury lock agreements in a notional amount of US$400 million
(Ch$237,520 million) to hedge against the underlying interest rate of the senior notes to be issued pursuant to our recapitalization plan. The agreements were entered into in December 2003 and
in February 2004 in contemplation of the senior notes offering to be completed on March 22, 2004. The agreements have been extended on several occasions. Since the date of the agreements, the
yield on the benchmark 10-year U.S. treasury note has decreased. On March 12, 2004, the date of the pricing of the senior notes, we set a coupon on the senior notes of 7.50% based on the
current market yields of the 10-year U.S. treasury note rate and unwound the agreements which set the losses under

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such
agreements at approximately US$22.1 million (Ch$13,140 million). On the closing date of the senior notes, we will be required to pay that loss to the counterparty. Under Chilean
GAAP, we expect to amortize the cost associated with these transactions over the life of the senior notes. Under U.S. GAAP, the agreements are marked-to-market through income because they do not
qualify as hedges due to the lack of documentation. With the transactions described above, we locked in the 10-year U.S. treasury note rate in connection with the issuance of the senior notes at an
average rate of 4.37%.

The
December 2003 agreements were excluded from the required tabular disclosure in note 24, Derivative Contracts, of our audited consolidated financial statements and the
note 36, Subsequent Events, omitted to state the reduction in value for the period January 1, 2004 through the date of the independent auditors' report. The effect of these transactions
will also need to be reflected in further adjustments to net income, shareholders' equity and earnings per share for 2003 in the reconciliation footnote, note 37, relating to the differences
between Chilean GAAP and U.S. GAAP.

Guarantees and Contingencies

As of December 31, 2003, we had outstanding the following guarantees in favor of third parties and on behalf of some subsidiaries and equity-method
investees:



Additionally,
AES Gener S.A. has outstanding the following contingencies relating to certain agreements in which AES Gener is also guarantor:





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None
of our subsidiaries has guaranteed AES Gener S.A.'s debt. Other non-financing related contingencies are contained in note 25 to our audited consolidated financial
statements included in Item 18.

Financial Covenants.Under the terms of our credit agreements with ABN Amro and Bank of America,
certain financial covenants apply to AES Gener S.A. The following table shows these obligations for these agreements and our actual performance at December 31, 2003:

|Covenant |  | Credit Agreement                                |  | Ratio, Percentage or Amount
at December 31, 2003
|-------- |  | ----------------------------------------------- |  | ------------------------------------------------
|1.       |  | Minimum interest coverage ratio of 1.8 to 1     |  | Bank of America                                 
|2.       |  | Minimum interest coverage ratio of 2.4 to 1     |  | ABN Amro(1)                                     
|3.       |  | Maximum leverage coverage ratio of 1.65 to 1    |  | Bank of America                                 
|4.       |  | Maximum leverage coverage ratio of 1.7 to 1     |  | ABN Amro(1)                                     
|5.       |  | Maximum total debt to EBITDA ratio of 7.8 to 1  |  | Bank of America                                 
|6.       |  | Maximum total debt to EBITDA ratio of 8.5 to 1  |  | ABN Amro(1)                                     
|7.       |  | Maximum total debt to equity ratio of 1.75 to 1 |  | Chivor                                          

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Rating Trigger Clauses.Under the terms of some credit arrangements, certain rating trigger clauses
are applicable to AES Gener and may affect our liquidity:

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As
of December 31, 2003, the international credit rating level assigned to AES Gener S.A.'s unsecured long term debt was "B" by Standard & Poor's, "BB-" by
Fitch, and "B2" by Moody's. As of December 31, 2003, AES Gener S.A. was assigned a local credit rating of "BBB-" by both Feller Rate and Fitch. On December 6, 2003, our
shares and our local notes were approved by theComisión Clasificadora de Riesgo, the Institutional Rating
Commission, or CCR, thereby permitting Chilean pension funds to purchase our debt and equity securities.

Differences Between Chilean GAAP and U.S. GAAP

The principal differences between Chilean GAAP and U.S. GAAP as they relate to AES Gener's reported results in 2001, 2002 and 2003 involve the following issues:



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See
note 37 to our audited consolidated financial statements for a description and quantification of the principal differences between Chilean GAAP and U.S. GAAP.



Under Chilean GAAP, financial statements are adjusted for the effect of changes in the purchasing power of the Chilean currency during each period and presented
in constant Chilean pesos ("reporting currency"), as mentioned in note 1 of our audited consolidated financial statements. Transactions are recorded in Chilean pesos by applying to the foreign
currency amount the exchange rate between the reporting and the foreign currency at the date of the transaction. Exchange rate differences arising on the settlement of monetary items at rates
different from those at which they were originally recorded are recognized in the income statement of the period.

In
accordance withBoletín TécnicoNo. 64, the financial statements of foreign subsidiaries that
operate in countries exposed to significant risks, and are not considered to be an extension of the parent company's operations must be remeasured into U.S. dollars. We have remeasured our foreign
subsidiaries into U.S. dollars under this requirement as follows:



UnderBoletín TécnicoNo. 64, the investment in a foreign subsidiary is price-level restated, the
effects of which are reflected in income, while the effects of the foreign exchange gain or loss between the Chilean peso and the U.S. dollar are reflected in equity in the account "Cumulative
Translation Adjustment", as the foreign investment itself is measured in U.S. dollars.

Under
U.S. GAAP, a definition of the functional currency is required, which may differ from the reporting currency. Upon our acquisition by The AES Corporation in 2000, management
determined the U.S. dollar as our functional currency in accordance with SFAS No. 52.

However,
subsequent to the issuance of our December 31, 2002 consolidated financial statements, our management determined that our reconciliation of net income and shareholders'
equity from Chilean GAAP to U.S. GAAP were not prepared assuming that the U.S. dollar was the functional currency, but rather continued to reflect the Chilean peso as the functional currency.
Therefore, the reconciliation of net income and shareholders' equity to U.S. GAAP as of and for the years ended December 31, 2001 and 2002 have been restated to give effect to the determination
of the U.S. dollar as the functional currency.

Accordingly,
we have remeasured into U.S. dollars the consolidated financial statements as of and for the years ended December 31, 2001, 2002 and 2003, and translated these
financial statements into the reporting currency, the Chilean peso, by applying the procedures specified in SFAS No. 52.

Translation
adjustments for periods prior to January 1, 2001 were not removed from equity, and the translated amounts for non-monetary assets at December 31, 2000 became
the accounting basis for those assets, beginning January 1, 2001. In addition, price-level adjustments

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reflecting
the effect of changes in the purchasing power of the Chilean peso recorded prior to January 1, 2001 in the amount of Ch$225,030 million were reversed.

The
objective of the remeasurement process is to produce the same results that would have been reported if the accounting records had been kept in U.S. dollars. Accordingly, monetary
assets and liabilities are remeasured at the balance sheet date (current) exchange rate. Non-monetary assets are recorded at their historical exchange rate at the time of purchase. Past transactions
in currencies other than the U.S. dollar are remeasured at the exchange rates in effect at the time the transactions occurred. Revenues and expenses are remeasured on a monthly basis at the average
rates of exchange in effect during the period, except for consumption of non-monetary assets, which are remeasured at the rates of exchange in effect when the respective assets were acquired.
Transaction gains and losses on monetary assets and liabilities arising from the remeasurement are included in the determination of the net income (loss) in the period such gains and losses arise.

The
amounts obtained from the remeasurement process referred to above are translated into Chilean pesos in accordance with the provisions of SFAS No. 52. Assets and liabilities
are translated at the current selling exchange rate of Ch$654.79, Ch$718.61 and Ch$593.8 to US$1.00
as of December 31, 2001, 2002 and 2003, respectively. Revenues, expenses, gains and losses reported in the income statement are translated at the exchange rate existing at the time of each
transaction or, if appropriate, at the monthly average exchange rate during the period. The translation effect of changes in the exchange rates is included as a cumulative translation adjustment in
shareholders' equity.

For
further information relating to functional and reporting currency, see note 37Ia. to our audited
consolidated financial statements.

Treasury Lock Agreements

Subsequent to the issuance of our December 31, 2003 audited consolidated financial statements, our management determined that our reconciliation of net income and
shareholders' equity from Chilean GAAP to U.S. GAAP did not include the mark-to-market adjustments for AES Gener S.A.'s treasury lock agreements nor the disclosure for their reduction in
value from January 1, 2004 to March 12, 2004.

U.S. GAAP Reconciliation

The U.S. GAAP reconciliation items had a positive effect on net income reported under U.S. GAAP in 2001, primarily due to accounting differences in adjustments
for deferred taxes corresponding to the subsidiaries that were sold in 2001 and the accounting for penalties received in 2000 from contractors who had performed work for a subsidiary we sold in 2001
and transactions gains resulting from change in functional currency. In 2002, reconciliation items had a positive effect on net income reported under U.S. GAAP, principally due to the remeasurement of
the functional currency and the reversal of price level restatement, which was offset by the negative effect of the reversal and classification of the interest income from the mercantile account with
Cachagua as shareholders' equity. The U.S. GAAP reconciliation items had a negative effect in 2003 on net income reported under U.S. GAAP primarily due to the reversal of the interest income from the
mercantile account with Cachagua and the effect of the functional currency remeasurement.

In
2002 and 2003, the U.S. GAAP reconciliation items had a negative effect on shareholders' equity reported in accordance with U.S. GAAP, mainly due to the reclassification of the
mercantile account and interest income from Cachagua, the reversal of price level restatement, the reversal of a technical revaluation of property, plant and equipment made in prior years, the
accounting differences regarding deferred taxes and the recognition of impairment losses in

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long-lived
assets, which were partially offset by the cumulative translation adjustment and transaction gains that resulted from the change in functional currency.

The
following table shows the difference between net income and shareholders' equity determined on a Chilean GAAP and U.S. GAAP basis for 2001, 2002 and 2003 in million of Chilean pesos:

|                     |  | 2001      |   | 2002      |  | 2003      
|-------------------- |  | --------- | - | --------- |  | ----------
|
|Net income           |  | Ch$(2,091 | ) | Ch$50,789 |  | Ch$35,575 
|Shareholders' equity |  |          |   |          |  | Ch$784,778

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Subsequent
to the filing of our December 31, 2002 financial statements, we determined that an error was made in accounting for the accrual related to the tax deductible net loss
for the years ended December 31, 2001 and 2002, which resulted in a higher tax loss carryforward for those years. The increase in the tax loss carryforward resulted in the recognition of a
higher deferred tax asset of Ch$3,138 million and Ch$2,834 million for the years ended December 31, 2001 and 2002, respectively. The statutory report filed with the SVS for the
year ended December 31, 2003 reflected this effect as an increase in retained earnings as of December 31, 2003.

Effects of Change in Accounting Policy and Presentation

In 2003 and 2001, no accounting changes were made.

In
2002, the following accounting change was made:

Staff
Severance Indemnities. As of January 1, 2002, we changed the interest rate used for determining the present value of the provisions for staff severance indemnities and for
pensions and post-retirement benefits, reducing it from 10% to 8%. The effect of this change at the beginning of the year amounted to Ch$673,832 thousand, an amount that was charged
to deferred assets in accordance withBoletín TécnicoNo. 8 of the Chilean Association of Accountants and
will be amortized over 10 years.

Critical Accounting Policies and Estimates

Preparation of our financial statements requires us to make estimates and judgments that affect the amounts of our assets, liabilities, revenues and expenses. We
continually evaluate these estimates, including those related to allowances for doubtful accounts, inventories, allowances for recoverable taxes, restructuring of our operations, useful lives of
property, plant and
equipment, goodwill, contingent liabilities, income tax valuation allowances, pension plans and the fair value of financial instruments. We base our estimates on historical experience and other
assumptions, which we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying value of our assets and liabilities. Actual results may
differ from these estimates under different assumptions and conditions. We have identified below the accounting policies that are critical to our financial statements.

Functional Currency:Upon our acquisition by The AES Corporation in 2000, we determined the U.S.
dollar as our functional currency in accordance with SFAS No. 52. As a consequence, our financial results are not affected by foreign exchange fluctuations, except for

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those
asset and liability line items expressed in Chilean pesos and other non-US-denominated currencies.

Revenue Recognition:Revenues from the sale of electricity are recorded based on output delivery and
capacity provided at rates as specified under regulated market terms, under contract terms or at prevailing spot market prices.

Since
revenues in the spot market are derived from sales to other generators in accordance with the weekly price of electricity, we must prepare our invoices on the basis of estimated
values, which we then reconcile in the following month's invoice. Revenues obtained from industrial clients and distribution companies do not require any reconciliation, as they are invoiced at the
price determined in their respective contracts.

A
substantial portion of our revenues is based on long term contractual agreements. Thus, we base our contractual terms on consumption demand projections and anticipated spot market
prices. Should the actual market perform differently than the circumstance under which we performed our pricing models, our profit margin could be significantly impacted.

Property, Plant and Equipment:Property, plant and equipment is capitalized. Work in progress
includes labor, materials, financing debt, interest and an allocation of some general and overhead costs. Maintenance and repairs, including replacement of minor items of property, are charged to
maintenance expense as incurred. When depreciable property units are retired, the original cost and dismantling charges, less salvage value, are charged to accumulated depreciation. The direct and
indirect financing costs associated with projects under construction are capitalized as a component of the asset value; however, under Chilean GAAP the capitalization of interest expenses associated
with projects under construction is optional when incurred on debt that is not directly related to such projects. Under U.S. GAAP the capitalization of interest on qualifying assets under construction
is required for the interest that could have
been avoided if the expenditure had not been made. These costs are capitalized based on a real average financing cost rate.

Under
Chilean GAAP, the interest expenses associated with plants under construction are required to be capitalized until plants have commenced operation, which occurs upon receipt of
operation certification approval from the regulatory agency and/or upon utilization of a minimum of 50% of total plant capacity. In the cases where the certification approval from the regulatory
agency is received and the plant use is less than 50% of total plant capacity, we could either continue to capitalize our plant costs or recognize them as operational costs. For revenues received in
such situations, we could either recognize them as operational revenues or as a credit to fixed asset accounts. In 2001, use of our TermoAndes plant was under 50% of total capacity and the
certification approval from the regulatory agency was received. We decided to adopt a policy of recognizing operational cost and revenues. Our operating results would have been different if the other
policies had been adopted.

We
and our subsidiaries evaluated the impairment or disposal of long-lived assets amount based on the provisions of SFAS No. 144. This standard requires that
long-lived assets be tested for impairment or disposal. We adopted SFAS No. 144 on January 1, 2001 and the impact of this adoption was included on our results of operations,
financial position and cash flows for that year.

Post-Retirement Benefits:Our employees participate in unfunded benefit pension plans.
Our pension and post-retirement benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions provided by us to our actuaries, such as the
discount rate. Material changes in our pension and postretirement benefit costs may occur in the future due to changes in these assumptions, changes in the number of plan participants and changes in
the level of benefits provided.

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As
of December 31, 2003, we used a discount rate of 8%. This decline in the discount rate generated a higher charge to income amounting to ThUS$521.

Severance Indemnities:Severance indemnities with our employees are calculated based on the liability
projected cost present value, using a discount rate of 8%. This decline in the discount rate generated a higher charge to income amounting to ThUS$800.

Accounting for Income Taxes:We follow the guidelines of Boletín TécnicoNo. 60, "Accounting for Income Taxes", which requires that we use the balance sheet method of
accounting for deferred
income taxes and provide deferred income taxes for all significant temporary differences in income tax and for tax loss carryforwards.

As
part of the process of preparing our financial statements, we are required to calculate our income tax expense based on rates in effect at the time of the calculation (which are
subject to change and affect the calculation as any new tax rates are enacted) as well as estimates of when the above-mentioned temporary differences will reverse. We recorded a provision for income
tax according to Chilean tax law. These taxes comprise a first category tax rate set at 16% for 2002 (15% for prior years); our subsidiaries recorded a provision for income tax according to
stipulations in force in Chile and in the countries where they operate. We record valuation allowances to reduce our deferred tax assets to the amount that we are likely to realize. Our estimate of
realization of such deferred tax assets results from consideration of, among other things, our future taxable income and our tax planning strategies, which may differ from actual results.

In
addition, under Chilean GAAP, upon adoption ofBoletín TécnicoNo. 60, a contra asset or liability
account was created in which the effects of the cumulative effect of the temporary differences were recorded. This account is being amortized into income over the estimated period of reversal, with
the exception of tax loss carryforwards, which are being amortized as utilized. The actual period of reversal could differ.

For
U.S. GAAP the assessment of whether a valuation allowance should be recorded is based on whether it is "more likely than not that the deferred tax asset will be fully realized";
however, under both Chilean and U.S. GAAP, the valuation allowance was determined to be the same.

New Accounting Standards

In December 2002, the U.S. Financial Accounting Standards Board, or FASB issued SFAS No. 148, "Accounting for Stock-Based
CompensationTransition and Disclosures". This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS
No. 148 is effective for fiscal years beginning after December 15, 2002, with early application encouraged. We determined that the adoption of SFAS No. 148 will not have any
significant impact on our results of operations, our financial position and our cash flows.

In
April 2003, the FASB issued SFAS No. 149, Amendment of SFAS No. 133 on "Derivative Instruments and Hedging Activities". SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is applied
prospectively and is effective for contracts entered into or modified after June 30, 2003, except for SFAS No. 133 implementation issues that have been effective for fiscal quarters that
began prior to June 15,

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2003,
and certain provisions relating to forward purchases or sales of issued securities or other securities that do not yet exist. We determined that the adoption of SFAS No. 149 will not have
any significant impact on our results of operations, our financial position and our cash flows.

In
June, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150 clarifies
classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires classification of financial instruments within a company's scope as
liabilities. Such financial instruments may include mandatory redeemable shares, financial instruments which embody an obligation to repurchase shares or require an issuer to settle the obligation by
transferring assets, or financial instruments that embody an unconditional obligation, or, in certain circumstances, an unconditional obligation. We believe that the adoption of this pronouncement
does not have an impact on our statements of financial condition, our statements of operations or cash flows.

In
November 2002, the FASB published FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN 45 expands
on the accounting guidance of SFAS No. 5, 57, and 107 and incorporates without change the provisions of FIN 34: "Disclosure of Indirect Guarantees of Indebtedness of Others and Interpretation
of SFAS No. 5", which has been superseded. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. FIN 45
also clarifies that, at the time a company issues a guarantee, we must recognize an initial liability for the fair value, or market value, of the obligations we assume under that guarantee and must
disclose that information in our interim and annual financial statements. The provisions of FIN 45 are required to be applied on a prospective basis to guarantees issued or modified by us on
January 1, 2003 and after. The expanded disclosure requirements of FIN 45 were effective for the year ended December 31, 2002. We have various guarantees issued or modified after
January 1, 2003 which are accounted for or disclosed under the provisions of FIN 45.

In
December 2003, the FASB issued a revision to Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46R" or
the "Interpretation"). FIN 46R clarifies the application of ARB No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN 46R requires the consolidation
of these entities, known as variable interest entities, or VIEs, by the primary beneficiary of the entity. The primary beneficiary is the entity, if
any, that will absorb a majority of the entity's expected losses, receive a majority of the entity's expected residual returns, or both.

Among
other changes, the revisions of FIN 46R (a) clarified some requirements of the original FIN 46, which had been issued in January 2003, (b) eased some
implementation problems, and (c) added new scope exceptions. FIN 46R deferred the effective date of the Interpretation for public companies, to the end of the first reporting period ending
after March 15, 2004, except that all public companies must at a minimum apply the provisions of the Interpretation to entities that were previously considered "special-purpose entities" under
the FASB literature prior to the issuance of FIN 46R by the end of the first reporting period ending after December 15, 2003. We are evaluating whether the adoption of FIN 46 will have a
material impact on our financial position, cash flows and results of operations. We did not enter into any transactions under the scope of FIN 46R after February 1, 2003.

EITF
Issue No. 01-08, "Determining Whether an Arrangement Contains a Lease". In May 2003, the EITF arrived at a consensus on EITF Issue No. 01-08 to clarify the
requirements of identifying whether an arrangement should be accounted for as a lease at its inception. The

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guidance
in the consensus is designed to mandate reporting revenue as rental or leasing income that otherwise would be reported as part of product sales or service revenue. EITF Issue No. 01-08
requires both parties to an arrangement to determine whether a service contract or similar arrangement is, or includes, a lease within the scope of SFAS No. 13, "Accounting for Leases". Upon
application of EITF Issue No. 01-08, the accounting requirements under the consensus could affect the timing of revenue and expense recognition, and revenues reported as supply, transportation
and storage services may be required to be reported as rental or lease income. Should capital-lease treatment be necessary, purchasers of transportation and storage services in the arrangements would
be required to recognize assets on their balance sheets. The consensus is being applied prospectively to arrangements agreed to, modified, or acquired in business combinations on or after
January 1, 2004. Previous arrangements that would be leases or would contain a lease according to the consensus will continue to be accounted for as transportation and storage purchases or
sales arrangements. We are currently evaluating the impact of the adoption of EITF Issue No. 01-08 on our consolidated results of operations, cash flows or financial position.

EITF
Issue No. 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, and Not Held for Trading Purposes". In July 2003, the EITF arrived at a consensus on EITF Issue No. 03-11 that determining whether realized gains and losses on
derivative contracts not held for trading purposes should be reported on a net or gross basis is a matter of judgment that depends on the relevant facts and circumstances and the economic substance of
the transaction. In analyzing the facts and circumstances, EITF Issue No. 99-19, and Opinion No. 29, "Accounting for Nonmonetary Transactions", should be considered. EITF Issue
No. 03-11 is effective for transactions or arrangements entered into after September 30, 2003. We are
currently evaluating the impact of the adoption of EITF Issue No. 03-11 on our consolidated results of operations, cash flows or financial position.

In
December 2003, the SEC issued Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. SAB 104 updates portions of the interpretive guidance included in
Topic 13 of the codification of the Staff Accounting Bulletins in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules
and regulations. We believe that we are following the guidance of SAB 104.

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C. Research and Development, Patents and Licenses

During 2001, 2002 and 2003, we have not had any material research or development expenses.

D. Trend Information

As described under "Item 4. Information on the CompanyBusiness Overview" and "Operating Results", the most significant variables
affecting our results are the prices of energy and capacity, weather conditions and foreign exchange variations in the countries in which we operate. However, our operating revenues are generally
stable, except in cases of extreme weather conditions.

The
introduction of natural gas as a source of fuel for electric generation in Chile in the SIC in 1997, and in the SING in 1999, with the construction of the pipelines which transport
natural gas from Argentina to Chile, led to a significant technological change in the industry and reduced energy prices and the country's reliance on hydrological conditions. It is expected that the
trend toward the construction of natural gas-fired facilities will continue in the future and, accordingly, as discussed in "Item 4. Information on the CompanyBusiness
OverviewElectricity Generation in ChileOther Generation Projects Under Development in Chile", we are currently analyzing the conversion of one of our existing fuel generation
plants into a gas-fired generation unit.

E. Off-Balance Sheet Arrangements

The gas supply and transportation agreements detailed below cover all fuel needs for our combined-cycle plants located in Chile and Argentina. Costs incurred for
these contracts are reflected as operating costs in the period in which the gas is consumed or the transportation services are received. These agreements are in the form of
take-or-pay contracts that provide for payments of a certain minimum amount of gas, regardless of whether such minimum is consumed. TermoAndes' use of gas is contingent upon
its level of electricity production. Since TermoAndes has been
producing less electricity than originally projected, its volume of accumulated gas has increased. In addition, TermoAndes has been making payments under its gas supply and transportation contracts in
Argentine pesos at a 1:1 exchange rate against the U.S. dollar. However, TermosAndes' gas and transportation service providers are requesting that the payments be redollarized, which would negatively
impact our cash flow and financial condition. See "Item 3. Key InformationRisk FactorsRisks Related to Our Argentinean Operations". The minimum payments required to be made,
whether or not we are able to take delivery of the gas, are as follow:

Year

Millions of US$

Millions of Ch$2004

60

35,4202005

78

46,5602006

81

48,0112007

84

49,8712008

86

51,055Thereafter

542

321,663Total

931

552,580


In
general, transportation agreements contain rating trigger clauses that require us to provide a letter of credit or a bank guarantee equal to the obligations for the usage of one year
of the pipeline if we fail to be rated "investment grade", as defined in each contract.

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There
are no known events, demands, commitments, trends or uncertainties that will result in, or are reasonably likely to result in, the termination or material reduction in availability
to us of our off-balance sheet arrangements, with the exception of TermoAndes, which has received letters from its gas suppliers during January and February 2004. The gas suppliers
presented a demand requesting the redollarization of the gas price, as well as their intention to reduce the volume of gas supplied. We began discussions with different gas suppliers in order to
secure sufficient gas to fullfil our generation requirements; however, there is no guarantee that these negotiations will be successful.

For
a detailed discussion of the risks related to our operations derived from gas interruption, gas limitation, the ability to consume take-or-pay obligations and
disputes with gas and gas transportation suppliers, see "Item 3. Key InformationRisk Factors".



In 1997, AES Gener S.A. entered into a 16-year gas supply agreement with Sierra Chata Consortium, formed by Mobil Exp. & Dev.
Inc.Argentine Branch, Total Austral S.A., Atalaya Energy S.A., Canadian Hunter Argentina S.A. and Petrolera Santa Fe. S.A., to produce natural gas in the Neuquén region of
southern Argentina. This agreement was signed to provide for the natural gas requirements of Eléctrica Santiago's Nueva Renca combined-cycle gas-fired plant. The base contracted
capacity is 1.74 million cubic meters per day delivered in Neuquén. The contract includes an obligation on the part of the supplier to provide up to 100% of the gas contracted
and an average annual take-or-pay obligation of 75%, with a recovery period of three years for the purchase of the remaining take-or-pay gas not
consumed, which can be sold to other consumers in Chile or Argentina directly or through Sierra Chata. At the time we entered into this contract, the contract price reflected market conditions in the
Neuquén basin. Since domestic transactions were pesified and the market reference was not clear, a price reduction was agreed to and the price was fixed through April 2005, when
the current market conditions will then be reinstated to the contract.

This
agreement covers the needs of the Nueva Renca plant operation. As Nueva Renca is a state of the art combined-cycle plant utilizing General Electric technology and is located inside
the Metropolitan Region of Santiago serving the area of the electrical system with the greatest demand, it has a high dispatch factor and usually consumes all of the gas under its
take-or-pay contract. As of December 31, 2003, the amount of take-or-pay gas that was not consumed under the agreement was 9,569 cubic meters.

Gas supply agreement between AES Gener and Eléctrica Santiago

This
agreement covers Eléctrica Santiago's natural gas requirements by using the gas purchased from the Sierra Chata Consortium. The base contracted capacity is
1.74 million cubic meters per day. This agreement allows AES Gener S.A. to transfer gas to Eléctrica Santiago at the same price and upon the other conditions agreed to by AES
Gener S.A. and Sierra Chata, with the exception of a 1.5% fee charged by AES Gener S.A. for the gas actually provided.

Gas transportation agreement between Eléctrica Santiago and Transportadora del Gas del Norte, or TGN

In
1997, Eléctrica Santiago entered into a 25-year firm take-or-pay gas transportation agreement with TGN for transportation from
Neuquén to the Mendoza province in central Argentina. The contracted volume is 1.74 million cubic meters per day. To optimize the management of available gas and transportation,
Eléctrica Santiago has entered into an agreement with Metrogas, the local gas distributor, as is detailed below.

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Gas transportation agreement between Eléctrica Santiago and GasAndes Chile and GasAndes Argentina

In
1997, Eléctrica Santiago entered into two 25-year firm take-or-pay gas transportation agreements with GasAndes Chile and GasAndes
Argentina for the Chilean and Argentine portions of the pipeline, respectively. The contracted volume under each contract is 1.74 million cubic meters per day, transported from Mendoza to the
Santiago Metropolitan Region. To optimize the management of available gas and
transportation, Eléctrica Santiago has entered into an agreement with Metrogas, the local gas distributor as is detailed below.

Gas transportation agreement between Eléctrica Santiago and Metrogas

Eléctrica
Santiago signed a take-or-pay gas transportation agreement with Metrogas, a local gas distributor. The volume under this agreement is
1.74 million cubic meters per day and covers all the needs of Eléctrica Santiago for the Nueva Renca plant. The agreement provides for transportation in the Metropolitan Region
of Santiago from City Gate 2, which is the property of GasAndes, to the Nueva Renca plant, which is the property of Eléctrica Santiago.

Second gas transportation agreement among Eléctrica Santiago and GasAndes Chile and GasAndes Argentina

In
1995, AES Gener S.A. entered into a 25-year firm take-or-pay gas transportation agreement with GasAndes Chile and GasAndes Argentina. Both
agreements commenced in August 2003. During 2003, AES Gener, GasAndes Chile and GasAndes Argentina amended the agreement. AES Gener S.A. was authorized to reduce the volume of gas transported
and to assign the contract to its subsidiary, Eléctrica Santiago. On December 9, 2003, AES Gener S.A. exercised the assignment right. It is anticipated that the assignment will
be finalized during the first quarter of 2004, when the permits are obtained. The contracted volume is 50,000 cubic meters per day initially, increasing up to 770 thousand cubic meters per day
in 2007, to be used in the Renca gas plant after its conversion. This contracted volume will remain until the expiration of the contract in 2028.

Gas supply agreement and gas transportation agreement between Eléctrica Santiago and Metrogas

In
order to optimize gas supply and transportation for the seasonal requirements of electricity generation, a take-or-pay gas sale and transportation agreement
was executed by Eléctrica Santiago and Metrogas. This agreement provides for a volume of 160,000 cubic meters per day, which is approximately 9% of the gas and transportation contracted
by Eléctrica Santiago. The agreement provides Eléctrica Santiago with an option to re-buy the volume sold.

Take-or-pay natural gas supply contract between TermoAndes and YPF S.A., Tecpetrol S.A., Ledesma S.A.I.I., Compañía
General de Combustibles S.A. and Mobil Argentina S.A.

In
January 1999, TermoAndes entered into a 12-year gas supply agreement with YPF, Tecpetrol, Ledesma, CGC and Mobil. The contracted base capacity is an average of
2.375 million cubic meters per day, and TermoAndes has the option to increase or decrease the contracted capacity by 10%. Given that the plant's current level of gas consumption is less than
the contracted level, we have exercised this option, reducing contracted capacity by 10%. The contract establishes an 80% take-or-pay obligation that is applied to 95% of the
monthly contracted capacity. The take-or-pay contract may be suspended up to 35 days per year during maintenance periods. TermoAndes is able to recover the gas that is
paid for but not consumed during the contract term, and for up to two years after the termination date. During 2002 and 2003, payments made under this agreement amounted to US$6.0 million and
US$7.0 million, respectively. As of December 31, 2003, the accumulated take-or-pay provisions were approximately US$12.6 million.

Gas transportation contract between TermoAndes and Transportadora del Gas del Norte

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In
January 1998, TermoAndes entered into a 17-year gas transportation contract with TGN that includes a five-year extension. The daily contracted volume is
2,800 million cubic meters as of January 1999. The base price is the "Enargas tariff", plus an additional US$0.033383 per cubic meter for firm capacity reserved. Payments under this
contract amounted to US$2.0 million in 2002 and 2003.

Power purchase agreement between TermoAndes and AES Gener S.A.

In
January 1997, we entered into a power purchase agreement with TermoAndes, which was modified on June 26, 1998, pursuant to which we purchase 100% of TermoAndes'
electrical capacity and energy. The power purchase agreement provides for a minimum monthly payment in amounts sufficient to cover, among other things, the payment of interest and amortization of the
US$257 million notes issued by TermoAndes and InterAndes and their fixed and variable costs. The payment of the notes is guaranteed by all of TermoAndes' and InterAndes' assets. Furthermore,
TermoAndes has collaterally assigned its interest under the power purchase agreement to the bank arranging the issuance of the notes, Deutsche Bank A.G. New York. AES Gener S.A. has consented to such
assignment and has assumed certain other obligations related to the power purchase agreement in favor of the bank and the noteholders. The amounts paid by AES Gener under the power purchase agreement
since entering into the agreement amounted to US$16.4 million for the period covering June 1999 to December 1999, US$69.7 million for 2000, US$70.3 million for 2001,
US$59.6 million for 2002 and US$65.2 million for 2003.

Third-Party Guarantees

As
mentioned in note 25 to our audited consolidated financial statements, as of December 31, 2003, AES Gener S.A. is a guarantor of the timely payment of 15% of the capital
and interest related to the loan granted to Gasoducto GasAndes S.A. and Gasoducto GasAndes Argentina S.A., by the bank Bilbao Vizcaya Argentaria (España) S.A. The amount guaranteed by
us under the Gasoducto GasAndes Argentina S.A. portion of the loan totaled Ch$2,850 million (US$4.8 million). The guarantee matures in March 2006, together with the principal
amount of the loan, US$32.0 million of which was outstanding on December 31, 2003. In addition, we gave a negative pledge over our shares in Gasoducto GasAndes S.A. (Chile) in favor of
the lenders, for the same term of the credit agreement that amounts to US$136 million ending on 2011.

F. Tabular Disclosure of Contractual Obligations

|                           |                                 | Payments due by period
|-------------------------- | ------------------------------- | ----------------------
|
|
|Contractual Obligations(1) |                                 |                       
|                           | Long Term Debt Obligations (2)  |                       
|                           | Purchase Obligations (3)        |                       
|                           | Other Long Term Liabilities (4) |                       
|                           |                                 |                       
|Total                      |                                 | 1,338,082             
|                           |                                 |                       

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Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

We are managed by our board of directors, which in accordance with our by-laws, is comprised of seven regular directors and seven alternate directors
who are elected at an annual regular shareholders' meeting. The entire board of directors is elected every three years. Our board of directors as of December 31, 2003 was elected during our
ordinary shareholders' meeting held in April 2003. If a vacancy occurs, the board of directors may elect a temporary director to fill the vacancy until the next regularly scheduled meeting of
shareholders, at which time the entire board of directors will be elected or re-elected. Regularly scheduled meetings of the board of directors are held once a month, while extraordinary
meetings are convened when called by the chairman, requested by any other director with the assent of the chairman or requested by a majority of the directors.

During
the extraordinary shareholders' meeting held on February 5, 2001, it was decided that members of the board of directors would no longer be paid any compensation, with the
exception of members of the executive committee. Directors are prohibited from borrowing or otherwise making use of corporate funds or assets for their own benefit, unless previously approved by the
board of directors. There is no requirement for directors to hold any of our shares, and there is no age limit established for the retirement of directors.

The
table below sets forth, as of December 31, 2003, our regular directors, their names and ages, their position with our company, the dates of their initial appointment as
directors, the expiration dates of their terms and their principal occupation or employment. There is no family relationship between any of the persons listed in the chart below.

AES Gener S.A. Board of Directors as of December 31, 2003

|Name (age)          |  | Position |  | Current Position
Held Since |  | Term
Expires |  | Principal Occupation or Employment                                       
|------------------- |  | -------- |  | --------------------------- |  | ------------ |  | -------------------------------------------------------------------------
|Joseph Brandt (39)  |  | Chairman |  | 2002                        |  | 2006         |  | Executive Vice-President and Chief Operating Officer, The AES Corporation
|Andrés Gluski (45)  |  | Director |  | 2003                        |  | 2006         |  | Senior Vice-President, The AES Corporation                               
|Erik Lukau (33)     |  | Director |  | 2003                        |  | 2006         |  | Asst. General CounselSpecial Projects, The AES Corporation              
|Eduardo Dutrey (43) |  | Director |  | 2003                        |  | 2006         |  | Vice-President, The AES Corporation                                      
|Javier Giorgio (33) |  | Director |  | 2002                        |  | 2006         |  | Generation Manager, AES Andes                                            
|Daniel Yarur (47)   |  | Director |  | 2001                        |  | 2006         |  | Director of BCI, Invertec and SQM                                        
|René Cortázar(51)   |  | Director |  | 2001                        |  | 2006         |  | Director of ICARE, Entel and Moneda Asset                                

Joseph
Brandt, Andrés Gluski, Erik Luckau and Eduardo Dutrey are currently officers or employees of The AES Corporation. Javier Giorgio is an officer of one of The AES
Corporation's subsidiaries. Daniel Yarur and René Cortázar are not affiliated with us or The AES Corporation.

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Joseph Brandt:Mr. Brandt holds a Juris Doctorate from the Georgetown University Law Center, a Master of Arts from the
University of Virginia and a Bachelor of Arts from George Mason University, and was a Fulbright Scholar at the University of Helsinki, Finland. He is currently Executive Vice President, Chief
Operating Officer of Integrated Utilities and Chief Restructuring Officer of The AES Corporation. From January 2002 to February 2003, Mr. Brandt was President and Group Manager
for AES Andes, covering AES business interests in Argentina. From 1998 to 2002, Mr. Brandt held various corporate and development positions with AES. Prior to joining AES, Mr. Brandt was
an Investment Analyst & Portfolio Manager at McGinnis Advisors in San Antonio, Texas. He also held positions at the Washington, D.C. law firm, Latham & Watkins, and at the University of
Santa Clara, California.

Andrés Gluski:Mr. Gluski received an undergraduate degree in Economics from Wake Forest University and
earned a Master's and a Ph.D. in Economics and International Finance from the University of Virginia. He is currently President of Electricidad de Caracas, a subsidiary of The AES Corporation. He was
Chief Executive Officer of AES Gener S.A. from January 2001 to August 2001 and acted as Executive President of AES Gener S.A. from August 2001 to April 2002. Prior to
joining AES Gener, he was Executive Vice President of Shared Services at a subsidiary of The AES Corporation, Grupo EDC for C.A. La Electricidad de Caracas and Corporación EDC. He has
also served as Executive Vice President of Banco de Venezuela, Grupo Santander; Executive Vice President of Finance at the Venezuelan national telephone company, CANTV; Economist at the International
Monetary Fund; Director General of Public Finance at the Venezuelan Ministry of Finance and Principal Director of the Venezuelan Investment Fund.

Erik Luckau:Mr. Luckau has held the position of Assistant General Counsel with The AES Corporation since 2001. He is
currently Assistant General CounselSpecial Projects. Prior to that, he was an attorney with the law firm of Shearman & Sterling LLP. Mr. Luckau received a JD from the
Georgetown University Law Center and a BBA from the University of Kentucky.

Eduardo Dutrey:Mr. Dutrey received his degree in electromechanical engineering from the University of Buenos Aires
and an MBA from Dartmouth College. Mr. Dutrey joined The AES Corporation in February 2000 as Chief Executive Officer for AES Juramento, and, in August 2000, he became Chief
Executive Officer for AES Alicura. In May 2003, he was appointed group manager of the AES Andes group in Argentina. Prior to joining The AES Corporation, he was Chief of Investor Relations for
Repsol YPF.

Javier Giorgio:Mr. Giorgio is an electric engineer who received his degree from Universidad
Tecnológica Nacional in Argentina as well as an MBA from Universidad del CEMA (Centro de Estudios Macroeconómicos de Argentina) in Argentina. He has 13 years of
experience in the electric sector. He is currently Chief Executive Officer of AES Andes Generación, which includes all the generation companies of The AES Corporation in Argentina. At
The AES Corporation, he previously worked as General Manager of our subsidiary TermoAndes, as commercial manager of distribution companies and as a project developer. He is also on the board of
directors of several companies in Argentina that are a part of The AES Corporation.

Daniel Yarur:Mr. Yarur received his degree in Systems Engineering and Accounting from the University of Chile. He
also received a Masters of Science in Finance from The London School of Economics and completed the Advanced Management Program at Harvard University. Mr. Yarur was our former Superintendente de Valores y
Seguros(Superintendent of Securities and Insurance) from March 1994 to March 2000.

René Cortázar:Mr. Cortázar received his degree in Commercial Engineering
from the Pontificia Catholic University of Chile. He received his Ph.D. in Economics from The Massachusetts Institute of Technology. Mr. Cortázar was the Chilean Labor Minister
between

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1990
and 1994 and the General Manager of Televisión Nacional de Chile until 2000. He is currently President of the Latin American Economic Research Corporation and is a director of the
Empresa Nacional de Telecomunicaciones S.A. and CorpBanca S.A.

Executive Officers

Our executive officers are appointed by the board of directors and hold office at the board's discretion. There is no family relationship between any of the
persons listed in this chart.

As
of December 31, 2003, our executive officers were as follows:

|Name (age)                  |  | Position                         |  | Current Position
Held Since |  | Number of Years
with AES Gener
|--------------------------- |  | -------------------------------- |  | --------------------------- |  | ------------------------------
|Felipe Cerón (43)           |  | Chief Executive Officer          |  | 2001                        |  | 4                             
|Francisco Castro (34)       |  | Chief Financial Officer          |  | 2002                        |  | 10                            
|Juan Carlos Olmedo (42)     |  | Commercial Manager               |  | 2002                        |  | 16                            
|Juan Ricardo Inostroza (44) |  | Development & Regulation Manager |  | 2002                        |  | 2                             
|Enio Belmonte (57)          |  | Operations Manager               |  | 2002                        |  | 29                            
|María Francisca Cea (37)    |  | General Counsel                  |  | 2001                        |  | 6                             
|María Teresa Bravo (36)     |  | Communications Manager           |  | 2001                        |  | 10                            

The
following biographies provide certain information about our executive officers.

Felipe Cerónhas been our Chief Executive Officer since September 2001. Prior to this appointment,
Mr. Cerón served as Chief Chilean Power Officer from 1999 to 2001, Chief Executive Officer of Santiago's International Airport from 1998 to 1999, Chief Executive Officer of
Central Puerto (Argentina) from 1995 to 1998 and Chief Executive Officer of Guacolda from 1993 to 1995. Mr. Cerón received an undergraduate degree in Civil Industrial Engineering
from the Pontificia Catholic University of Chile and a Master of Science in Accounting and Finance from The London School of Economics.

Francisco Castroreceived his degree in Civil Industrial Engineering from the Pontificia Catholic University of Chile and joined AES Gener
in 1994. Since February 2002, he has acted as our Chief Financial Officer. From February 2001 to February 2002, he was Finance Manager and previously acted as AES Gener's
Treasurer from January 1999 to February 2001.

Juan Carlos Olmedoreceived his degree in Civil Industrial Engineering from the Pontificia Catholic University of Chile as well as an MBA
from the Adolfo Ibañez University. He joined AES Gener in 1988. Since October 2002, he has acted as the Commercial Division Manager. He has held previous positions in AES Gener
in the commercial area, including Director of Cordillera Plants from May 2001 to October 2002 and Commercial Manager of Non-Affiliate Operations from September 1996 to
May 2001.

Juan Ricardo Inostrozareceived his degree in Civil Electrical Engineering from the University of Chile. He was appointed as Manager of
Regulation and Development in October 2002. He has worked for AES Gener, including appointments in equity-method investees, since 1986. His previous positions include Chief Executive Officer of
Energén S.A. (March 2000 to October 2002), Commercial Manager of Central Puerto (December 1995 to March 2000), Assistant Commercial Manager of Guacolda
(February 1994 to December 1995) and Commercial Manager of Non-Affiliate Operations (January 1990 to February 1994).

Enio Belmontereceived his degree in Civil Mechanical Engineering from Federico Santa María University. He has been with
AES Gener since 1974, holding various positions in AES Gener's production area, including Production Manager of Eléctrica Santiago from

96

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November 1997
to November 2002, Production Manager of Norgener from July 1995 to November 1997 and Technical Manager of Thermoelectric Plants from October 1992 to
July 1995. He was appointed Operating Manager in October 2002.

María Francisca Ceais an attorney who received her degree from the Pontificia Catholic University of Chile. She joined AES
Gener in 1998 as an attorney in the Legal Corporate Management department. Since July 2001, she has acted as AES Gener S.A.'s General Counsel.

María Teresa Bravois a journalist who graduated from the Pontificia Catholic University of Chile. She joined AES Gener in
1994 working in the Labor Relations Department. In 1999, she began working as Journalist of Communications in the Division of Corporate Management of Human Resources and Communications. Since
March 2001, she has held the post of AES Gener Communications Manager.

B. Compensation

For the year ended December 31, 2003, we paid an aggregate compensation of Ch$955 million to our executive officers and deputy officers, including
bonuses based on performance and corporate earnings, which are also granted to some of our other employees.

In
accordance with our by-laws, our board of directors does not receive compensation. However, members of our Board Committee who are not employees of the AES Corporation
receive compensation of UF160 per month, which is equivalent to approximately US$4,559 per month, and was determined at the shareholders' meeting that was held in April 2003. In addition,
US$25,000 was approved as part of the annual budget, which was not used in 2003. The table below shows compensation paid to members of our Board Committee as of December 31, 2003, in thousands
of Chilean pesos:

Board Committee Compensation

2003René Cortázar Sanz

29,174Daniel Yarur Elsaca

29,174Total

58,348


C. Board Practices

Management of our business is vested in the board of directors. Our by-laws provide that shareholders elect seven regular directors and an equal
number of alternate directors. Alternate directors can only replace the regular directors for whose position they have been appointed and are authorized to serve on the board of directors in place of
those directors who are unable to attend a meeting. Directors and alternate directors are elected at the annual shareholders' meeting for terms of three years. At present, there are no service
contracts between any of the directors and AES Gener S.A. providing for benefits upon termination of employment. The legal responsibilities of each board member are established in accordance with the
Chilean Corporations Law.

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Committee of the Board of Directors

Our board of directors has a board committee that is composed of three board members. As of December 31, 2003, the directors serving on AES Gener's board
committee were René Cortázar, Daniel Yarur and Eduardo Dutrey. Mr. Yarur is the President of the board committee, which has the following duties:



Our
board of directors has determined that Mr. Daniel Yarur Elsaca and Mr. René Cortázar Sánz, both members of our board
committee, meet the requirements of an "audit committee financial expert", as defined by the Securities and Exchange Commission, or SEC.

D. Employees

We had 446 employees as of December 31, 2003. The table below details the number of individuals employed by us and each existing subsidiary as of
December 31, 2003. The country in which the company is located is also indicated.

2003

2002

2001AES Gener S.A.(Chile)Executives

13

11

18Professionals

82

69

79Technicians and administrative staff

110

114

122TOTAL

205

194

219SubsidiariesChivor (Colombia)

70

70

89Ecogener (Chile)





12Eléctrica Santiago (Chile)

12

9

10Energía Verde (Chile)

70

66

74Explotaciones Sanitarias (Chile)





13Norgener (Chile)

47

44

43OilGener Argentina (Argentina)





9TermoAndes (Argentina)

42

38

39Total Subsidiaries

241

227

289TOTAL

446

421

508


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Labor
relations for employees are governed by collective bargaining agreements executed separately by each of AES Gener S.A. and its consolidated subsidiaries with their employees. These
collective bargaining agreements establish compensation levels and other benefits.



E. Share Ownership

None of our directors or executive officers owns AES Gener shares. For more information see "Item 7. Major Shareholders and Related Party Transactions".

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

Our sole outstanding equity security is shares of our common stock. The following table sets forth certain information concerning ownership of AES Gener S.A.'s
common stock as of December 31, 2003, with respect to the 12 shareholders known to us to have the highest level of ownership participation in the outstanding common stock, and for all of our
directors and

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executive
officers as a group. Shareholder information is derived from our records and reports filed by certain of the parties named below with the SVS and the Chilean Stock Exchanges.

|Shareholders                                   |  | Number of Shares of Common
Stock Held of Record |  | Percentage Ownership of
Common Stock |  
|---------------------------------------------- |  | ----------------------------------------------- |  | ------------------------------------ | -
|Inversiones Cachagua Limitada                  |  | 5,596,329,349                                   |  | 98.65                                | %
|Banchile Corredores de Bolsa S.A.              |  | 4,251,390                                       |  | 0.07                                 | %
|Bolsa de Comercio de Stgo Bolsa de Valores     |  | 3,761,756                                       |  | 0.07                                 | %
|Francisco Ebel Vial                            |  | 3,100,000                                       |  | 0.05                                 | %
|Santander Investment S.A., Corredores de Bolsa |  | 2,532,157                                       |  | 0.04                                 | %
|Ugarte y Cía. Corredores de Bolsa              |  | 2,301,815                                       |  | 0.04                                 | %
|Finanzas y Negocios S.A. Corredores de Bolsa   |  | 2,260,261                                       |  | 0.04                                 | %
|Sucesión Ricardo Contreras Fischer             |  | 1,723,091                                       |  | 0.03                                 | %
|Larraín Vial S.A. Corredores de Bolsa          |  | 1,681,881                                       |  | 0.03                                 | %
|Yrarrázabal y Cía. Corredores de Bolsa         |  | 1,595,339                                       |  | 0.03                                 | %
|Valenzuela Lafourcade S.A. Corredores de Bolsa |  | 1,433,296                                       |  | 0.03                                 | %
|Tanner Corredores de Bolsa S.A.                |  | 1,332,049                                       |  | 0.03                                 | %
|Directors and Executive Officers as a group    |  | 0                                               |  | 0.00                                 | %

There
are no special voting rights applicable to our major shareholders.

As
of December 31, 2003, the main shareholder of AES Gener S.A., with 98.65% of AES Gener's outstanding common stock, was Cachagua, a wholly owned subsidiary of The AES
Corporation. The remaining 1.35% of AES Gener's outstanding common stock is owned by certain minority investors. As of December 31, 2003, we have no outstanding shares held in the United
States.

Significant Changes in Ownership by Major Shareholders

Our Acquisition by The AES Corporation

On November 3, 2000, The AES Corporation, through its subsidiary Cachagua, announced a tender offer for 61.57% of our outstanding shares in Chile for cash,
as well a tender offer for all of our American Depositary Shares, or ADSs, for The AES Corporation's shares. The purchase price for the offer was US$16.50 per ADS, or its equivalent in Chilean pesos
per common share.

On
November 28, 2000, The AES Corporation entered into an agreement with Total, pursuant to which The AES Corporation agreed to cause us to sell to Total all of our Argentine
assets and certain other interests for a total of US$657.5 million, if The AES Corporation succeeded in its tender offer.

On
December 28, 2000, The AES Corporation acquired 61.11% of our total capital for the Chilean peso equivalent of US$841.2 million and effectively assumed control of us. On
January 9, 2001, The AES Corporation acquired an additional 34.56% of us for a total purchase price of US$475.6 million in the form of The AES Corporation's common stock. On
February 28, 2001, The AES Corporation acquired 2.87% of us for a total purchase price of US$38 million by purchasing our shares on the Santiago Stock Exchange. In December 2001,
The AES Corporation acquired an additional 0.11% of our shares for a purchase price of US$1.2 million. At that time, the total aggregate value for the acquisition of 98.65% of AES Gener was
US$1,356 million. The AES Corporation is currently the owner of 98.65% of AES Gener through its wholly owned subsidiary, Cachagua.

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On
March 2, 2001, we provided Total with an option to purchase all of our Argentine Operations, which, as of March 2, 2001, included Hidroneuquén S.A., or
Hidroneuquén, InterAndes, TermoAndes, Central Puerto, and certain of our minor projects in Argentina. Under the terms of the agreement, Total or any of its subsidiaries could purchase
any combination of the companies. On July 27, 2001, Total exercised its option to buy our 63.94% interest in Central Puerto for approximately US$255 million in cash. On
September 21, 2001, Total exercised its option to buy our 70.02% interest in Hidroneuquén for approximately US$72.45 million in cash. On November 1, 2001, however,
Total declined to exercise its option to buy our ownership interest in TermoAndes and InterAndes.

B. Related Party Transactions

In the ordinary course of our business, we engage in a variety of transactions with certain of our affiliates and related parties. Financial information
concerning these transactions is set forth in note 23 to our audited consolidated financial statements included in Item 18. Article 89 of the Chilean Corporations Law requires that
companies' transactions with related parties be conducted on an arm's-length basis, at terms similar to those customarily prevailing in the market. A company must identify all related party
transactions that have occurred in the preceding period at its next ordinary annual shareholders' meeting. Directors and executive officers that violate Article 89 are liable for damages. We
are required to compare the terms of any such transaction with those prevailing in the market on the date of the transaction.

In
addition, Article 44 of the Chilean Corporations Law provides that any transaction in which a director has a personal interest or is acting on behalf of a third party may be
approved only when the board of directors has previously been informed and has approved of such director's interest and the terms of such transaction are similar to those prevailing in the market. In
accordance with Chilean law, an interested director must refrain from voting on such a transaction under certain circumstances. If the board of directors cannot reach such a judgment, it may appoint
two independent valuators or appraisers. The final conclusions of such valuators or appraisers must be made available to shareholders and directors for a period of 20 business days, during which time
shareholders representing 5% or more of the issued voting shares may request that the board call a shareholders' meeting to resolve the matter. All transactions by related parties (Articles 44 and
89) must be evaluated by the executive committee before they receive board approval. All resolutions approving such transactions must be reported to the company's shareholders at the next
annual shareholders' meeting. Violations of this provision may result in administrative, criminal or civil liability to the corporation, the shareholders and/or third parties who suffer losses as a
result of such violation. We believe that we have complied with the requirements of Article 89 and Article 44 in all transactions with related parties.

On
February 28, 2001, we signed a mercantile account agreement with Cachagua, whose balance in its current account is adjusted in U.S. dollars and accrues interests at
30-day LIBOR plus spread. On May 15, 2003, Cachagua pledged the shares of AES Gener S.A. that it
owns in our favor to guarantee the timely and complete payment of the mercantile account. Additionally, on May 15, 2003, the interest rate was modified to 10% annually. As part of our proposed
financial recapitalization on February 27, 2004, Cachagua repaid in full all amounts due under the mercantile account.

In
February 2003, two power purchase agreements, for Energía Verde's Laja and Constitución plants, were renewed with AES Gener S.A. In addition, a
new power purchase agreement for the Mostazal plant was entered into between Energía Verde and AES Gener S.A. In December 2003, the board of directors of both AES Gener S.A. and
Eléctrica Santiago approved the transfer from AES Gener to Eléctrica Santiago of the 100MW Renca plant and properties for US$26.3 million. This agreement was
executed in February 2004.

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C. Interests of Experts and Counsel

None.

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

See "Item 18. Financial Statements" for a list of the financial statements filed with this document.

Legal Proceedings

As of March 15, 2004, we were involved in certain legal proceedings customary to the normal conduct of our business. The most important proceedings are
summarized as follows:



102

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103

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For
further details concerning these and other contingencies, see note 25 to our audited consolidated financial statements included in Item 18.

Dividend Policy

Our dividend policy for each year is announced to our shareholders at our annual ordinary shareholders' meeting, including the policy intended to be followed by
the board of directors for interim dividends for that year. At the meeting, shareholders consider and approve the final dividend proposed by the board of directors with respect to the prior year's
earnings, and ratify the interim dividends previously declared and paid. As required by Chilean law, unless otherwise decided by all shareholders, we must distribute a cash dividend in an amount equal
to at least 30% of our consolidated net income for that year, determined on a Chilean GAAP basis, unless and except to the extent to which, we have accumulated losses. Our board of directors may also
distribute interim dividends based on net income projections, as long as there are no accumulated losses, and subject to directors' personal liability for any difference between the final annual net
income and the aggregate interim dividend distributed during the year. It is our current dividend policy to distribute dividends equal to or in excess of the statutory minimum.

In
2002, no dividends were paid on account of our losses in 2001. At the last ordinary shareholders' meeting held on April 29, 2003, dividends equal to 30% of adjusted
consolidated net income for the year 2002 were declared, as required by Chilean law, and paid on May 19, 2003. On July 9, 2003, dividends equal to the remaining 70% of adjusted
consolidated net income for 2002 were declared at an extraordinary shareholders' meeting and paid on August 5,

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2003;
however, all dividends owed to our immediate parent company, Cachagua, were used to pay amounts due to us under the mercantile account. On February 19, 2004, dividends equal to 100% of
net income for the year ended December 31, 2003 and 50% of retained earnings were declared, and such dividend will be paid on February 27, 2004.

Dividends
are not price-level adjusted between the end of the preceding year and the declaration of the final dividend. The amount and timing of dividend payments are subject to revision
from time to time and depend on revenues, costs, cash flow, capital requirements and market conditions. Any change in dividend policy would ordinarily be effective for dividends declared in the year
following the adoption of the change. In addition, we must file a notice as to any such change of policy with Chilean regulatory authorities. Accordingly, a change in policy would become
publicly available information.

Some
of our subsidiaries and equity-method investees are or may become parties to credit agreements containing restrictions on the payment of dividends. We cannot assure you that these
contractual restrictions will not limit our ability to maintain our current dividend policy in the future.

The
following table sets forth the amounts of annual dividends, on a per share basis in nominal Chilean pesos, paid in each of the calendar years indicated. Information has been
translated into U.S. dollars at the historical Observed Exchange Rates on the respective dates of payment of dividends.

Per ADSPer ShareYear(Ch$)

(US$)

(US$)1999

0.66

0.001

0.092000(1)

0.50

0.001

0.062001(2)

25.55

0.040

2.652002

0.00

0.000

0.002003(3)(4)

5.24

0.009

0.002004(5)

10.00

0.017

0.00


---

Dividends
are paid in pesos, and each investor must make his or her own arrangements to convert them into U.S. dollars and send them abroad.

B. Significant Changes

We are not aware of any significant changes bearing upon our financial condition since the date of the audited consolidated financial statements included in this
annual report.

Item 9. The Offer and Listing

A. Offer and Listing Details

Shares of our common stock are traded on theBolsa de Comercio de Santiago,Bolsa de
Valores, or the Santiago Stock Exchange, theBolsa Electrónica de Chile - Bolsa de Valores, or Electronic Stock
Exchange, and theBolsa de Corredores - Bolsa de Valores, or the Valparaiso Stock Exchange, which we jointly refer to as the Chilean Stock Exchanges
under the symbol "GENER". In terms of volume, 89.60% of the transactions of our common stock are carried out on the Santiago Stock Exchange, while 9.88% are carried out on the Electronic Stock
Exchange, and 0.52% are carried out on the Valparaíso Stock Exchange.

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The table below shows the quarterly high and low closing sale prices of our common stock as reported on the Santiago Stock Exchange for the indicated periods. The following information
reflects actual historical amounts at the trade dates and has not been restated in constant pesos.

Santiago Stock Exchange
Per ShareNYSE per ADSYear ended December 31Share Volume

Low

High

Share Volume

Low

High1999

1,213,843,464

85.0

160.0

21,651,300

13.0

22.32000

5,416,911,686

89.0

143.3

46,610,900

10.8

18.02001

225,035,160

91.0

159.0





2002

10,511,820

31.0

110.0





2003

68,713,417

31.0

120.0





2002First Quarter

2,668,120

80.0

110.0





Second Quarter

1,297,554

66.0

82.0





Third Quarter

4,055,777

31.0

70.1





Fourth Quarter

2,490,369

45.0

57.0





2003First Quarter

2,803,361

40.0

50.0





Second Quarter

35,294,999

28.6

70.0





Third Quarter

15,648,513

65.0

94.0





Fourth Quarter

14,966,544

89.0

120.0





Last Six MonthsSeptember 2003

5,836,491

81.0

94.0





October 2003

10,694,884

90.0

120.0





November 2003

2,148,266

89.0

120.0





December 2003

2,123,394

93.4

110.0





January 2004

369,779

91.0

106.0





February 2004

5,193,864

92.6

120.0








As
of March 17, 2004, the closing sale price for our common stock on the Santiago Stock Exchange was Ch$107.0 per share. As of December 31, 2003, the aggregate principal
amount of Chilean convertible notes outstanding was US$476,638,900, which notes are exchangeable into approximately 2,161,627,664 shares of common stock. The current conversion price is US$0.2205 per
share, or is equivalent to Ch$133.56 per share, as of March 17, 2004.

B. Plan of Distribution

Not applicable.

C. The Chilean Stock Market: History and Description

The Chilean securities markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. The Santiago Stock
Exchange, which is Chile's principal stock exchange, had a market capitalization of approximately US$86 billion as of December 31, 2003. The Santiago Stock Exchange was established in
1893 and is a private company whose equity consists of 48 shares held by 46 shareholders. As of December 31, 2003, 239 companies were listed on the Santiago Stock Exchange, and the Santiago
Stock Exchange accounted for approximately 76.5% of all amounts traded in Chile. The ten largest companies in terms of market capitalization represented, as of December 31, 2003, approximately
48.5% of the

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Santiago
Stock Exchange's aggregate market capitalization and, during 2003, accounted for approximately 58% of its total volume. During 2003, 12.6% of the companies listed on the Santiago Stock
Exchange had their shares traded on an average of 90% of the Santiago Stock Exchange's trading days.

Equity,
closed-end funds, fixed-income securities, short-term and money market securities, gold, silver and U.S. dollars are traded on the Santiago Stock
Exchange. In 1991, the Santiago Stock Exchange initiated a futures market with two instruments: U.S. dollars futures and Selective Share Price Index, or IPSA, futures. In 1994, the Santiago Stock
Exchange initiated an option market. Securities are traded through an open voice auction system and an electronic auction system called Telepregon. Trading through the open voice system occurs each
business day from 9:30 a.m. to 5:30 p.m. The electronic trading system operates between 9:00 a.m. and 9:25 a.m. on a pre-opening basis and for high volumes from
9:30 a.m. to 5:30 p.m.

The
three main share price indices for the Santiago Stock Exchange are the General Share Price Index, or the IGPA, the IPSA and the Inter-10, which corresponds with the 10
most active Chilean American Depositary Receipts, or ADRs, each quarter. The IGPA is calculated using the prices of 177 issues and is broken into five main sectors: banks and finance, farming and
forest products, mining, industrials and miscellaneous. The IPSA is a major company index, which currently includes the most 40 active stocks on the Santiago Stock Exchange. Shares included in the
IPSA are weighted according to the value of the shares traded and account for more than 68% of the entire market capitalization as of December 31, 2003. Our common stock is included in the
IGPA.

In
addition to the Santiago Stock Exchange, the second largest stock exchange in Chile is the Chilean Electronic Stock Exchange created in 1989. The Chilean Electronic Stock Exchange is
an electronic trading market created by certain banks and brokerage houses, the main feature of which is that all the transactions are made solely by electronic means. As of December 31, 2003,
approximately 9.6% of the equity trading in Chile was conducted on the Chilean Electronic Stock Exchange. There are two main share prices indices for the Chilean Electronic Stock Exchange: the Global
Index and the ADRIAN. The Global Index is comprised of the 42 shares most representative of the Chilean economy, which are integrated by four industrial sectors: electricity, services, industry and
natural resources. Our common stock is also included in the Global Index. Less than 1% of the equity securities in Chile are traded on the Valparaíso Stock Exchange.

Shares
of our common stock were traded in the United States on the New York Stock Exchange in the form of American Depositary Shares, or ADSs, from July 1994 until
January 2001. After an exchange offer made by The AES Corporation, our ADSs were delisted from the New York Stock Exchange because the number of publicly held shares was less than 600,000. In
April 2003, all remaining ADSs were converted and sold on the Santiago Stock Exchange.

D. Selling Shareholder

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

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Item 10. Additional Information

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

General

Shareholders' rights in Chilean corporations are governed by each corporation'sestatutos,or by-laws,
which effectively serve the purpose of both the certificate of incorporation and the by-laws of a company incorporated in the United States, and by the Chilean Corporations Law.

Article 137
of the Chilean Corporations Law provides that all provisions of the Chilean Corporations Law take precedence over any contrary provision in a corporation's estatutos. Both the Chilean Corporations Law
and ourestatutosprovide that legal actions by
shareholders against us (or our officers or directors) to enforce their rights as shareholders or by one shareholder against another in its capacity as such are to be brought in Chile in the form of
arbitration proceedings, notwithstanding the plaintiff's right to submit the action to the ordinary courts of Chile.

The
Chilean securities markets are principally regulated by the SVS under the Chilean Securities Market Law and the Chilean Corporations Law. These two laws provide for disclosure
requirements, restrictions on insider trading and price manipulation and protection of minority investors. The Chilean Securities Market Law sets forth requirements for public offerings, stock
exchanges and brokers and outlines disclosure requirements for companies that issue publicly offered securities. The Chilean Corporations Law sets forth the rules and requirements for establishing
open stock (publicly-held) corporations, while eliminating government supervision of closed (privately-held) companies. Open stock corporations are those with 500 or more shareholders or companies in
which 100 or more shareholders own at least 10% of the subscribed capital, excluding all shareholders which directly or indirectly own more than such 10%, and all other companies that are voluntarily
registered in the Securities Registry of the SVS.

Registration and Corporate Purpose

We are asociedad anónima abierta, or an open stock corporation, organized by means of an escritura
publica, or public deed, dated June 19, 1981. Our by-laws were approved by the SVS by Resolution
No. 410-S, dated July 17, 1981 and published in the Official Gazette No. 31,023 on July 23, 1981. It was recorded in Page 13,107, No. 7,274 of Santiago's
Registry of Commerce in 1981.

As
established in our by-laws, our principal objective is to exploit the generation, transmission, purchase, distribution and sale of electricity or any other kind of energy,
although the by-laws authorize other business activities such as fuel marketing and sales, project engineering services, and port services, among others. As demonstrated by the divestiture
of our non-electricity assets in recent years, we have refocused primarily on electricity generation in Chile as our core business activity.

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Ownership Restrictions

Under Article 12 of the Chilean Securities Market Law and the regulations of the SVS, shareholders of open stock corporations, such as ours, are required
to report the following to the SVS and the Chilean Stock Exchanges:



In
addition, majority shareholders must state in their report whether their purpose is to acquire control of the company or to make a financial investment.

Under
Article 54 of the Chilean Securities Market Law and the regulations of the SVS, persons or entities intending to acquire control, directly or indirectly, of a publicly
traded company, regardless of the acquisition vehicle or procedure, and including acquisitions made through direct subscriptions or private transactions, are also required to inform the public of such
acquisition of control at least 10 business days before the date on which the transaction is to be completed, but, in any case, as soon as negotiations regarding the change of control begin
(i.e., when information and documents concerning the target are delivered to the potential acquiror), through a filing with the SVS, the stock exchanges
where the target is listed and the companies
controlled by and that control the target and through a notice published in two Chilean newspapers which must disclose, among other information, the person or entity purchasing or selling and the
price and conditions of any negotiations.

Prior
to such publication, a written communication to such effect must be sent to the target corporation, to the controlling corporation, to the corporations controlled by the target
corporation, to the SVS and to the Chilean stock exchanges on which the securities are listed.

In
addition to the foregoing, Article 54 A of the Chilean Securities Market Law requires that within two business days of the completion of the transactions pursuant to which a
person has acquired control of a publicly traded company, a notice must be published in the same newspapers in which the notice referred to above was published, and written communications must be sent
to the same entities mentioned in the preceding paragraphs.

The
provisions of the aforementioned articles do not apply whenever the acquisition is being made through a tender or an exchange offer.

Title
XXV of the Chilean Securities Market Law on tender offers and the regulations of the SVS provide that the following transactions must be carried out through a tender offer:



109

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Article 200
of the Chilean Securities Market Law prohibits any shareholder that has taken control of a publicly traded company from acquiring, for a period of 12 months
from the date of the transaction that granted it control of the publicly traded company, a number of shares equal to or greater than 3.0% of the outstanding issued shares of the target, without making
a tender offer at a price per share that is not lower than the price paid at the time of taking control. Should the acquisition from the other shareholders of the company be made on the floor of a
stock exchange and on a pro rata basis, the controlling shareholder may purchase a higher percentage of shares, if so permitted by the regulations of the stock exchange.

Title
XV of the Chilean Securities Market Law sets forth the basis for determining what constitutes a controlling power, a direct holding and a related party. The Chilean Securities
Market Law defines control as the power of a person, or group of persons acting pursuant to a joint action agreement, to direct the majority of the votes in the shareholders' meetings of the
corporation, to elect the majority of members of its board of directors, or to influence the management of the corporation significantly. Significant influence is deemed to exist with respect to a
person or group which holds, directly or indirectly, at least 25.0% of the voting share capital, unless:



According
to the Chilean Securities Market Law, a joint action agreement is an agreement among two or more parties that, directly or indirectly, own shares in a corporation at the same
time and
whereby they agree to participate with the same interest in the management of the corporation or in taking control of the same. The law presumes that such an agreement exists between:



Likewise,
the SVS may determine that a joint action agreement exists between two or more entities considering, among others, the number of companies in which they participate, the
frequency with which they vote identically in the election of directors, appointment of managers and other resolutions passed at shareholders' meetings.

According
to Article 96 of the Chilean Securities Market Law, a business group is a group of entities with such ties in their ownership, management or credit liabilities that it
may be assumed that the economic and financial action of such members is directed by, or subordinated to, the joint interests of the group, or that there are common credit risks in the credits granted

110

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to,
or securities issued by, them. According to the Chilean Securities Market Law, the following entities are part of the same business group:



Capitalization

Under Chilean law, the shareholders of a company, acting at an extraordinary shareholders' meeting, have the power to authorize an increase in the company's
capital. When an investor subscribes for issued shares, the shares are registered in that investor's name, even if not paid for, and the investor is treated as a shareholder for all purposes, except
with regard to the receipt of dividends and the return of capital, provided that the shareholders may, by amending the by-laws, also grant the right to receive dividends or distributions
of capital. The investor becomes eligible to receive dividends and/or returns of capital once he or she has paid for the shares, and, if he or she has paid for only a portion of such shares, he or she
is entitled to receive a corresponding pro rata portion of the dividends declared with respect to such shares, unless the company'sestatutosprovide
otherwise. If an investor does not pay for the shares for which he or she has subscribed on or prior to the date agreed upon for payment, under Chilean law the company is entitled to auction the
shares off on a stock exchange, and collect the difference, if any, between the subscription price and the price received at auction. However, until such shares are sold at auction, the investor may
continue to exercise all the rights of a shareholder, except the right to receive dividends and returns of capital. Authorized shares and issued shares that have not been paid for within the period
fixed by the
extraordinary shareholders' meeting for their payment, which in any case cannot exceed three years from the date of the shareholders' meeting that authorized the increase in capital, are canceled and
are no longer available to be issued.

Article 22
of Chilean Corporations Law states that the purchaser of shares of a company implicitly accepts its by-laws and any agreements adopted at shareholders'
meetings.

As
of December 31, 2003, our share capital consisted of 8,428,659,801 authorized shares of common stock, of which 5,672,752,777 were subscribed for and fully paid. This share
capital includes a capital increase of approximately US$80 million, which was approved by our shareholders on November 21, 2003, authorizing the issuance of 466,839,282 shares of common
stock that are currently being registered with the SVS. We held an extraordinary shareholders' meeting on March 10, 2004 to revoke this capital increase and instead authorize a capital increase
of approximately US$125 million. Chilean law recognizes the right to issue common stock and preferred stock. To date, we have issued and are authorized to issue only common stock.

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When
our U.S. convertible notes and Chilean convertible notes were issued, 2,375,000,000 shares of common stock had been reserved for issuance upon the conversion of our U.S. convertible
notes and Chilean convertible notes, and cannot be used for any other purpose. As of December 31, 2003, our fully paid capital had increased by 85,932,258 shares of common stock as a result of
holders of U.S. convertible notes and Chilean convertible notes exercising their rights of conversion. Each share of common stock is entitled to one vote.

Preemptive Rights and Increases of Share Capital

The Chilean Corporations Law provides that whenever a Chilean company issues new shares it must offer its existing shareholders the right to purchase a sufficient
number of shares to maintain their existing percentage of ownership in the company. Under Chilean law, preemptive rights are exercisable or freely transferable by shareholders during a period of
30 days following the grant of such rights. During such period and for an additional 30-day period, a Chilean open stock corporation is not permitted to offer any unsubscribed
shares for sale to third parties on terms that are more favorable than those offered to its shareholders. At the end of the additional 30-day period, a Chilean open stock corporation, such
as AES Gener S.A., is authorized to sell unsubscribed shares to third parties on any terms, provided that, if such unsubscribed shares are sold on more favorable terms, they must be sold on a Chilean
Stock Exchange.

Unsubscribed
shares that are not sold on a Chilean Stock Exchange can be sold to third parties only on terms no more favorable for the purchasers than those offered to shareholders.

Shareholders' Meetings and Voting Rights

In accordance with Chilean law, an ordinary annual meeting of our shareholders is held within the first four months of each year. The ordinary annual meeting of
shareholders approves our annual report and annual financial statements. It also approves all dividends to be paid, elects the board of directors and external auditors and approves any other matter
which is not required to be decided by an extraordinary shareholders' meeting. Our last ordinary annual meeting of shareholders was held on February 19, 2004. Extraordinary shareholders'
meetings may be called by the board of directors when deemed appropriate and must be called by the board of directors when requested by shareholders representing at least 10% of the issued voting
shares or by the SVS.

The
following matters may only be dealt with at extraordinary shareholders' meetings:



Notice
to convene the annual ordinary meeting or an extraordinary meeting is given by means of three notices which must be published in a newspaper of our corporate domicile, which is
currently Santiago, or in the Official Gazette in a prescribed manner, and the first notice must be published not less than 15 days nor more than 20 days in advance of the scheduled
meeting. Notice must also be mailed 15 days in advance to each shareholder and given to the

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SVS
and the Chilean Stock Exchanges. Currently, we publish our official notice inEl Diario Financiero, which is published in Santiago, Chile.

The
quorum for a shareholders' meeting is established by the presence, in person or by proxy, of shareholders representing at least an absolute majority of our issued voting shares. If a
quorum is not present at the first meeting, the meeting can be reconvened, and, upon the meeting being reconvened, the shareholders present at the reconvened meeting are deemed to constitute a quorum
regardless of the percentage of the shares represented. The shareholders' meetings pass resolutions by the affirmative vote of an absolute majority of those voting shares present or represented at the
meeting. Such resolutions may involve all matters that may be submitted to the shareholders' meeting, such as the amount of the yearly dividend, the designation of our auditors, the approval of our
annual report and financial statements, the election of directors, the issuance of bonds and the creation of security interests or guarantees to secure third-party obligations. Notwithstanding the
foregoing, a two-thirds majority of the issued voting stock is required to approve the following actions:



Under
our by-laws, directors are elected by cumulative voting. Each shareholder has one vote per share and may cast all of his or her votes in favor of one nominee or may
apportion his or her votes among any number of nominees. These voting provisions currently ensure that a shareholder owning more than 12.5% of our outstanding shares is able to elect at least one
representative to our board of directors.

In
general, Chilean law does not require a Chilean open stock corporation to provide the level and type of information that the U.S. securities laws require a U.S. reporting company to

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provide
to its shareholders in connection with a solicitation of proxies. However, shareholders are entitled to examine our books within the 15-day period before the scheduled ordinary
annual shareholders' meeting. Under Chilean law, a notice of a shareholders' meeting listing the issues to be addressed at the meeting must be mailed not fewer than 15 days prior to the date of
such meeting, and, in cases of an ordinary annual meeting, shareholders holding a prescribed minimum investment must be sent an annual report of our activities that includes audited financial
statements. Shareholders who do not fall into this category but who request it must also be sent a copy of our annual report.

The
Chilean Corporations Law provides that whenever shareholders representing 10.0% or more of the issued voting shares so request, a Chilean company's annual report must include, in
addition to the materials provided by the board of directors to shareholders, such shareholders' comments and proposals in relation to the company's affairs. Similarly, the Chilean Corporations Law
provides that whenever the board of directors of an open stock corporation convenes an ordinary meeting of the shareholders and solicits proxies for that meeting, or distributes information supporting
its decisions, or other similar material, it is obligated to include as an annex to its annual report any pertinent comments and proposals that may have been made by shareholders owning 10.0% or more
of the company's voting shares who have requested that such comments and proposals be so included.

Only
shareholders registered as such on the fifth business day prior to the date of a meeting are entitled to attend and vote their shares. A shareholder may appoint another individual
who need
not be a shareholder as his proxy to attend and vote on his behalf. Every shareholder entitled to attend and vote at a shareholders' meeting has one vote for every share subscribed.

Dividend and Liquidation Rights

In accordance with Chilean law, we must distribute an annual cash dividend equal to at least 30% of our annual consolidated net income calculated in accordance
with Chilean GAAP, unless otherwise decided by a unanimous vote of the holders of the issued shares and unless, and except to the extent that, we have accumulated losses. If there is no net income in
a given year, we can elect, but are not legally obligated, to distribute dividends out of retained earnings. We may grant an option to our shareholders to receive any dividend in excess of 30% of net
income in cash, in our own shares or in shares of corporations we hold. Shareholders who do not expressly elect to receive a dividend other than in cash are legally presumed to have decided to receive
the dividend in cash. All of our shares are entitled to share equally in all dividends we declare.

Dividends
that are declared but not paid within the appropriate time period set forth in the Chilean Corporations Law (as to minimum dividends, 30 days after declaration; as to
additional dividends, if any, the date set for payment at the time of declaration) are adjusted to reflect the change in the value of the UF from the date set for payment to the date such dividends
are actually paid. Such dividends also accrue interest at the then-prevailing rate for UF-denominated deposits during such period. The right to receive a dividend lapses if it
is not claimed within five years from the date that such dividend is payable. After that period, the amount not claimed is given to a non-profit organization, the Junta Nacional de Cuerpos de Bomberos de Chile, or the National Corporation of Firefighters.

In
the event of a liquidation, the holders of fully paid shares would participate equally and ratably in the distribution of assets remaining after payment to all creditors. Holders of
shares that are not fully paid will participate in such distribution in proportion to the amount paid.

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In
connection with our shareholders' meeting held on March 10, 2004, we amended our by-laws to restrict our ability to pay dividends, whether in cash or in kind, in excess of the
statutory minimum under Chilean law, unless:



Our
ability to pay dividends, whether in cash or in kind, in excess of the minimum required under Chilean law may also be limited by the indenture governing the senior notes issued in
connection with our recapitalization plan unless we meet certain financial ratio tests.

Approval of Financial Statements

Our board of directors is required to submit our consolidated financial statements to the shareholders annually for their approval. The approval or rejection of
such financial statements is entirely within our shareholders' discretion. If our shareholders reject the financial statements, the board of directors must submit new financial statements not later
than 60 days from the date of such rejection. If our shareholders reject the new financial statements, our entire board of directors is deemed to be removed from office and a new board is
elected at the same meeting.

Directors
who individually approved such financial statements are disqualified for reelection for the ensuing period.

Right of Dissenting Shareholders to Tender Their Shares

The Chilean Corporations Law provides that, upon the adoption at an extraordinary shareholders' meeting of any of the resolutions enumerated below, dissenting
holders of voting shares have the right to withdraw from a Chilean company and to compel that company to repurchase their shares, subject to the fulfillment of certain terms and conditions described
below.

"Dissenting"
shareholders are defined as those who vote against a resolution which results in the withdrawal right or, if absent at such a meeting, those who state in writing to the
company
their opposition to such resolution within the following 30 days. Dissenting shareholders must secure their withdrawal rights by tendering their stock to the company within 30 days after
adoption of the resolution.

The
price paid to a dissenting shareholder of an open stock corporation, such as us, whose shares are quoted and actively traded on a Chilean stock exchange, is the weighted average of
the sale prices for the shares as reported on the stock exchanges on which the shares are quoted for the two-month period preceding the shareholders' meeting giving rise to the withdrawal
right. If, because of the volume, frequency, number and diversity of the buyers and sellers, the SVS determines that the shares are not shares actively traded on a stock exchange or stock exchanges,
the price paid to the dissenting shareholder is the book value. Book value for this purpose is paid-in capital plus reserves and profits, less losses, divided by the total number of
subscribed shares, whether entirely or partially paid. For the purposes of making this calculation, the last annual balance sheet shall be used, as adjusted to reflect inflation up to the date of the
shareholders' meeting that gave rise to the appraisal right.

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The
resolutions that result in a shareholder's right to withdraw are the following:



Under
Article 69-bis of the Chilean Corporations Law, the right to withdraw is also granted to shareholders (other than pension funds that administer private pension plans under
the Chilean Pension Law), under certain terms and conditions, if an open stock corporation were to become controlled by the State of Chile, directly or through any of its agencies, and if two
independent rating agencies downgrade the rating of its stock from the first class as a result of certain actions specified in Article 69-bis undertaken by the open stock corporation or the
State of Chile that negatively and substantially affect the earnings of the company. Shareholders must perfect their withdrawal rights by tendering their shares to the corporation within
30 days of the date of the publication of the new rating by two independent rating agencies. If the withdrawal right is exercised by a shareholder invoking Article 69-bis, the price paid
to the dissenting shareholder shall be the weighted average of the sales price for such corporation's shares as reported on the Chilean Stock Exchanges for the six-month period preceding
the publication of the new rating by the two independent rating agencies. If the SVS determines that the shares are not actively traded on a Chilean Stock Exchange, the price shall be the book value
calculated as described above. The price must be paid within 60 days from the expiration of the 30-day period for the tendering of the shares.

In
addition to the foregoing, under Article 69-ter of the Chilean Corporations Law, any person acquiring two-thirds or more of the shares with the right to vote of an
open stock corporation (except in the case of a reduction of capital produced as a result of not having fully subscribed and paid an increase of capital within the legal term) shall make, within the
30 days following such acquisition, a tender offer for the remaining shares at a price not lower than the one that would correspond to shareholders exercising withdrawal rights. If the acquirer
does not comply with these obligations, the minority shareholders shall have withdrawal rights.

Registrations and Transfers

On March 27, 2001, we executed an agreement withSonda S.A.to act as our registrar and transfer agent.
This contract is renewable every three years. On May 16, 2002,Sonda S.A.transferred this contract to its subsidiary, Empresa de Servicios BPO Sonda S.A.

Recent Shareholders' Meetings and Proposed Amendments to Our By-laws

As part of our proposed recapitalization plan, we held an extraordinary shareholders' meeting on November 21, 2003, at which our shareholders authorized a
capital increase of US$80 million. We called shareholders' meetings on March 10, 2004, which revoked this capital

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increase
and instead authorized a capital increase of approximately US$125 million and amended certain provisions of our by-laws, including:



The
above-referenced shareholders' meeting also amended our by-laws to restrict our ability to pay dividends, whether in cash or in kind, in excess of the statutory minimum
under Chilean law, unless:



C. Material Contracts

On March 2, 2001, AES Gener S.A. signed a purchase and sale agreement with Total, pursuant to which agreement AES Gener agreed to sell its interest in
certain Argentine assets to Total and/or its subsidiaries. An amendment of this agreement, which extended the term of Total's option to purchase all of our Argentine Operations to November 1,
2001, was signed on July 16, 2002. On July 27, 2001, we sold to Total Austral (Argentine Branch) our 63.94% participation in Central
Puerto, equivalent to 56,589,164 shares, for a total amount of US$255 million. On September 21, 2001, we sold to Total Austral (Argentine Branch) our 70.02% interest in
Hidroneuquén, equivalent to 196,220,631 shares, for a total amount of US$72.45 million. In 2002 and in 2003, we did not enter into material contracts, other than contracts
entered into in the ordinary course of business.

D. Exchange Controls

Foreign Investment and Exchange Controls in Chile

The Chilean Central Bank is responsible for monetary policies and exchange controls in Chile, among other things. Foreign investments can be registered with the
Foreign Investment

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Committee
under Decree-Law 600 of 1974 or with the Chilean Central Bank under the Chilean Central Bank Act, Law No. 18,840, dated October 1989.

E. Taxation

Chilean Tax Considerations

The following is a general summary of the material consequences under Chilean tax law, as currently in effect, of acquiring debt securities and the ownership and
disposition of debt securities by a Foreign Holder. The term "Foreign Holder" means (i) an individual not resident or domiciled in Chile (for purposes of Chilean taxation, (a) an
individual is a resident of Chile if he or she has resided in Chile for more than six months in one calendar year, or a total of more than six months in two consecutive fiscal years or (b) an
individual is domiciled in Chile if he or she resides in Chile with the purpose of staying in Chile (such purpose to be evidenced by circumstances such as the acceptance of employment within Chile or
the relocation of one's
family to Chile)) or (ii) a legal entity that is not organized under the laws of Chile, unless the notes are assigned to a branch or an agent representative or permanent establishment of such
entity in Chile.



Payments of interest or premium, if any, made by us in respect of the notes to a Foreign Holder will generally be subject to a Chilean withholding tax, or the
Chilean Interest Withholding Tax currently assessed at a rate of 4%. However, the same interests or premiums that qualify for the referenced 4% withholding tax rate are subject to a special additional
tax equal to the difference between the withholding tax paid and a 35% rate when they are paid to related entities, on the part of our indebtedness with related entities considered to be excessive.
Our indebtedness will be considered to be excessive ("Excessive Indebtedness") when in the commercial year in which the notes are issued we have an indebtedness with related parties qualifying for the
4% withholding tax rate that exceeds three times our net worth calculated for tax purposes. Consequently, such qualifying interests or premiums paid to related entities out of debt that exceeds the
Excessive Indebtedness ratio will be subject to a 35% tax (4% withholding tax plus the difference between the withholding tax and a 35% rate).

Under
the Excessive Indebtedness Rules, a lender or creditor, such as a holder of notes, will be deemed to be related with the payor or debtor, if: (i) the lender or creditor is
incorporated, domiciled or resident in a tax haven (qualified as such by the Chilean Ministry of Finance) at the time of granting the loan; or (ii) the lender or debtor, directly or indirectly,
owns or participates in 10% or more of the capital or the profits of the other or if lender and debtor are subject to a common partner or shareholder which, directly or indirectly, owns or
participates in 10% or more of the capital or the profits of both; or (iii) the debt is guaranteed directly or indirectly in cash or in any financial instruments or securities evidencing
payment obligations (excluding any financial instruments or securities evidencing obligations of the borrower with any of its related entities) by a third party, for the amount effectively guaranteed.
The debtor will be required to issue a sworn statement in this regard in the form set forth by the tax authorities.



Under Chile's Income Tax Law and regulations thereunder, payments of principal made by us with respect to the notes to a Foreign Holder will not be subject to any
Chilean taxes. Any capital gains realized on the sale or other disposition by a Foreign Holder of the notes generally will not be subject to any Chilean income taxes provided that the sale or other
disposition of such notes will be effected outside of Chile by a Foreign Holder. Any premium payable on

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redemption
of the notes will be treated as interest and subject to the Chilean Interest Withholding Tax as described above.



A Foreign Holder will not be liable for estate, gift, inheritance or similar taxes with respect to the notes unless such notes (i) are located in Chile at
the time of such Foreign Holder's death or (ii) were purchased or acquired with money obtained from Chilean sources.



Upon request, AES Gener will provide to Foreign Holders appropriate documentation evidencing the payment of the Chilean Interest Withholding Tax.

United States Tax Considerations

The following discussion summarizes the material United States federal income tax considerations, under present law, of the purchase, ownership and disposition of
any debt securities, shares of common stock and any shares of common stock into which convertible debt securities are converted. This discussion deals only with investors who hold the securities or
common stock as a capital asset and whose functional currency is the U.S. dollar. This
discussion does not purport to be a comprehensive description of all of the tax considerations that may be relevant and does not address the United States federal income tax consequences applicable to
investors that are subject to special tax rules such as banks, securities dealers and traders who elect to mark their investments to market, tax-exempt entities, investors that will hold
shares of common stock as a position in a "straddle" or a hedging or conversion transaction, insurance companies, persons that own (or are deemed to own for United States tax purposes) 10% or more of
the voting stock of AES Gener or, except as described below, persons that are not U.S. Holders, as defined below. In addition, this discussion does not describe any tax consequences arising
under the tax laws of any state, locality or foreign jurisdiction. AES Gener believes, and this discussion assumes, that AES Gener is not, and will not become, a passive foreign investment company or
foreign personal holding company for United States federal income tax purposes.

This
summary is based on the tax laws of the United States (including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions) as in effect on the date hereof, all of which are subject to change (or changes in interpretation), possibly with retroactive effect.

As
used herein the term "U.S. Holder" means a beneficial owner of debt securities or shares of common stock that is (i) a citizen or resident of the United States, (ii) a
corporation or other entity treated as a corporation organized in or under the laws of the United States, any state thereof or the District of Columbia, (iii) a trust subject to the control of
a U.S. person and the primary supervision of a U.S. court or that has otherwise validly elected to be treated as a U.S. person or (iv) an estate, the income of which is subject to United States
federal income taxation regardless of its source. "Non-U.S. Holder" means any Holder that is not a U.S. Holder.



The United States is party to bilateral income tax treaties with certain countries. However, there is presently no income tax treaty between the United States and
Chile.

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Each U.S. Holder of a debt security is required to report, as ordinary interest income, all interest paid on debt securities in accordance with such holder's
method of accounting for United States federal income tax purposes. Thus, accrual method holders will report interest on debt securities as it accrues, and cash method holders will report interest
when it is received or unconditionally made available for receipt.

A
U.S. Holder may elect to amortize any "amortizable bond premium" relating to a debt security over the remaining term of the debt security. The amount of "amortizable bond premium" on a
debt security is generally the excess of the purchase price of the debt security over the sum of all payments on the debt security other than stated interest (the "amount payable at maturity"). For
this purpose, however, the purchase price of a convertible debt security is reduced by the value of the conversion feature inherent on the debt security (determined using any reasonable method). AES
Gener believes that the excess of the purchase price of convertible debt securities over the amount payable at maturity is entirely attributable to the value of the conversion feature. Accordingly, no
amount of bond premium should be amortizable on convertible debt securities. However, U.S. Holders are urged to consult their tax advisors regarding the application of these rules.

Payments
of interest on debt securities will generally be subject to a Chilean Interest Withholding Tax of 4% (see "Chilean Tax Considerations"), which AES Gener will
withhold from such payments. AES Gener has agreed, subject to specific exemptions and limitations, to pay the Additional Amounts in respect of any Chilean withholding taxes imposed on payments of
interest on the debt securities so that the holders of debt securities will be paid the amount they would have received if no Chilean withholding taxes were applied.

For
United States federal income tax purposes, a holder must treat the gross amount of interest received on debt securities and any Additional Amounts paid in respect of Chilean
withholding taxes as ordinary interest income. The 4% Chilean Interest Withholding Tax will be treated as a foreign income tax eligible, subject to limitations and conditions, for credit against a
holder's United States federal income tax liability, or at the holder's election, for deduction in computing the holder's taxable income. Interest and Additional Amounts paid on debt securities
generally will constitute foreign source "passive income" for United States foreign tax credit purposes.

The
calculation of foreign tax credits involves the application of rules that depend on a holder's particular circumstances. Holders of debt securities should consult their own tax
advisors regarding the application of the foreign tax credit rules to interest income on debt securities.



In general, each U.S. Holder of debt securities will recognize gain or loss upon the sale, exchange, redemption, retirement or other disposition of debt
securities (but generally no gain or loss will be recognized upon conversion of debt securities into shares) measured by the difference (if any) between (i) the amount realized by such holder
on the disposition (other than amounts attributable to accrued but unpaid interest which will be taxable as ordinary interest to the extent not previously included in such holder's gross income) and
(ii) the holder's adjusted basis in debt securities. A U.S. Holder's adjusted basis in a debt security will generally equal the cost of such security reduced by any principal payments received
by the U.S. Holder. Any gain or loss on the sale, exchange, redemption, retirement or other disposition of a debt security will be capital gain or loss and will generally be long term capital gain or
loss if, at the time of disposition, the debt security had been held for more than one year (except that any gain will be

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ordinary
income to the extent of accrued market discount). Any gain or loss on a disposition of debt securities will be treated as United States-source income or loss for foreign tax credit purposes.



In general, U.S. Holders will include in gross income the gross amount of any dividend paid (after reduction for any applicable Chilean First-Category Tax that is
credited against Chilean Withholding Tax, but before reduction for the net amount of Chilean Withholding Tax) by AES Gener out of its current or accumulated earnings and profits (as determined for
United States federal income tax purposes) as ordinary income when the dividend is actually or constructively received by the U.S. Holder. Dividends paid by AES Gener will generally not be eligible
for the dividends received deduction allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution includable in
income of a U.S. Holder will be the U.S. dollar value of the Chilean Peso payments made, determined at the spot Chilean Peso/U.S. dollar rate on the date such dividend distribution is includable in
the income of the U.S. Holder, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date the dividend payment is includable in income to the date such payment is converted into U.S. dollars will be treated as ordinary income or loss. Such gain
or loss will generally be from sources within the United States for foreign tax credit limitation purposes.

U.S.
Holders will recognize capital gain or loss on the sale or other disposition of shares of common stock held by the U.S. Holder in an amount equal to the excess of the amount
realized on such sale or other disposition over the U.S. Holder's adjusted tax basis in such common stock. A U.S. Holder's adjusted tax basis in the common stock will generally equal the holder's cost
of acquiring such stock. Capital gain or loss recognized on the sale or other disposition of common stock will be long term capital gain or loss if, at the time of such sale or other disposition, such
common stock has been held for more than one year. Any gain recognized by a U.S. Holder upon a disposition of shares of common stock will generally be treated as U.S. source income.



Subject to the discussion of backup withholding below, a Non-U.S. Holder generally will not be subject to United States federal income or withholding
tax in respect of payments of interest (including any Additional Amounts) on debt securities or dividends on shares of common stock, unless the interest or dividends are effectively connected with
such holder's conduct of a trade or business within the United States (and, if an income tax treaty applies, the interest or dividends are attributable to a permanent establishment maintained by such
holder within the United States). If this exception applies, the Non-U.S. Holder generally will be subject to United States federal income tax in respect of such interest or dividends in
the same manner as a U.S. Holder, as described above.

A
Non-U.S. Holder of debt securities or shares of common stock will not be subject to United States federal income or withholding tax on gain realized on the sale or other
disposition of debt securities or shares, unless (i) such gain is effectively connected with the holder?s conduct of a trade or business within the United States (and, if an income
tax treaty applies, the gain is attributable to a permanent establishment maintained by such holder within the United States), or (ii) in the case of gain realized by an individual holder, the
holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met. If the first exception applies, the Non-U.S. Holder
generally will be subject to United

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States
federal income tax in respect of such gain in the same manner as a U.S. Holder, as described above. If the second exception applies, the Non-U.S. Holder generally will be subject to
United States federal income tax at a rate of 30% on the amount by which such holder's United States-source capital gains exceed such holder's United States-source capital losses.



In general, payments to a U.S. Holder of principal and interest (including Additional Amounts) on the debt securities or dividends on the shares of common stock
and the proceeds of a disposition of debt securities or shares will be subject to U.S. information reporting requirements. In general, subject to certain exceptions, such payments will be subject to
U.S. backup withholding tax if the U.S. Holder does not provide a taxpayer identification number or otherwise establish an exemption.

In
general any such payments to a Non-U.S. Holder that are made by a U.S. office of a custodian or broker or that are otherwise paid or considered to be paid in the United
States will be subject to U.S. information reporting requirements and, under certain circumstances, to a U.S. backup withholding tax, unless the holder certifies his or her non-U.S. status
under penalties of perjury or otherwise establishes an exemption. Information reporting requirements (but not backup withholding) also apply to a payment of the proceeds of a sale of debt securities
or shares of common stock by a foreign office of a broker that (a) is a U.S. person, (b) is a U.S. controlled foreign corporation, (c) is a foreign person that derives at least
50% of his or her gross income from the conduct of a trade or business within the United States or (d) is a foreign partnership with certain connections to the United States, in each case
unless the broker has documentary evidence in its records that the holder is a Non-U.S. Holder and certain other conditions are met, or the holder otherwise establishes an exemption.

Backup
withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in
an
overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the U.S. Internal Revenue Service.



Holders of debt securities and shares of common stock may be liable for foreign, state and local taxes in the country, state, or locality in which they are
resident or do business. Since the tax laws of each country, state, and locality may differ, each prospective investor should consult his or her own tax counsel with respect to any taxes other than
U.S. federal income taxes that may be payable as a result of an investment in the debt securities or shares of common stock.

THE
ABOVE DISCUSSION IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PARTICULAR INVESTOR. EACH PROSPECTIVE INVESTOR IS STRONGLY URGED TO CONSULT
HIS OR HER OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN DEBT SECURITIES OR SHARES OF COMMON STOCK.

F. Dividends and Paying Agents

Not Applicable.

G. Statement by Experts

Not Applicable.

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H. Documents on Display

We are subject to the informational requirements of the Securities Exchange Act of 1934 and, in accordance with these requirements, we file reports and
information statements and other information with the SEC. These reports, information statements and other information filed by us with the SEC can be inspected and copied at the Public Reference
Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549, and at regional offices of the SEC located at 233 Broadway, New York, New York 10279 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials can be obtained by mail from the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. You may also call 1-800-SEC-0330 for further information on the public reference rooms. The SEC maintains a
website(www.sec.gov)that contains reports, proxy and information statements and other information regarding registrants that file electronically with
the SEC. We also file financial statements and other public reports with the SVS.

I. Subsidiary Information

Not Applicable.

Item 11. Quantitative and Qualitative Disclosure About Market Risk

We face primary market risk exposures in two categories: interest rate risk and exchange rate risk.

We periodically review our exposure to risks arising from fluctuations in foreign exchange rates and interest rates and determine at our senior management level
how to reduce such risks. We have entered into a limited number of derivative contracts for the purpose of hedging the interest rate risk that arises from certain liabilities. See note 24 to
the audited consolidated financial statements. We do not enter into derivative contracts related to fluctuations in interest rates or foreign exchange rates for purposes that are speculative in
nature.

Interest Rate Risks

Of our long term interest bearing debt on December 31, 2003, 74% was fixed rate (including the swap executed to fix the interest rate for the TermoAndes
and InterAndes notes) and 26% was variable rate; there were no changes in these percentages compared to December 31, 2002. All of our variable rate long term debt was denominated in U.S.
dollars and bore interest at rates tied to the London interbank offered rate, or LIBOR, the rates that banks in the London interbank market offer for U.S. dollar deposits of varying maturities. We
have entered into a limited number of derivative contracts for the purpose of hedging approximately 98% of our variable-rate debt against fluctuations in LIBOR.

As
of December 31, 2003, our current interest rate exposure arises principally from the US$283.6 million Bank of America led syndicate credit of our subsidiary Chivor, the
US$4 million ABN Amro credit facility of our subsidiary Energy Trade and the US$24 million Scotiabank Sudamericano and Banco Crédito e Inversiones credit facility of our
subsidiary Energía Verde.

We
do not hedge our Chilean peso-denominated debt against fluctuations in interest rates. All of such debt is fixed-rate, inflation-indexed and/or
UF-denominated debt.

In
connection with the offering of our senior notes, we entered into treasury lock agreements in a notional amount of US$400 million (Ch$237,520 million) to hedge against
the underlying interest rate of the senior notes to be issued pursuant to our recapitalization plan. As of December 31, 2003, the notional amount of these agreements was US$200 million

123

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(Ch$118,760 million)
and, as of March 12, 2004, the notional amount was US$400 million (Ch$237,520 million). The agreements were entered into in December 2003 and in
February 2004 in contempletion of the senior notes offering and have been extended on several occasions.

The
following table summarizes the debt obligations and derivative instruments held by us at December 31, 2003. The table presents principal payment obligations in millions of
Chilean pesos that exist by maturity date and the related weighted-average interest rates. The table also presents the notional amounts and effective interest rates by settlement date for our interest
rate swaps. All U.S. dollar-denominated liabilities and notional amounts have been converted into Chilean pesos based on the observed exchange rate as of December 31, 2003, which was
US$1.00 = Ch$593.8.

|Liabilities    |                               | 2004 |        | 2005 |         | 2006 |         | 2007 |        | 2008 |       | Thereafter |        | Total |         | Fair Value
|-------------- | ----------------------------- | ---- | ------ | ---- | ------- | ---- | ------- | ---- | ------ | ---- | ----- | ---------- | ------ | ----- | ------- | ----------
|Long Term Debt |                               |      |        |      |         |      |         |      |        |      |       |            |        |       |         |           
|               | Bank loans                    |      |        |      |         |      |         |      |        |      |       |            |        |       |         |           
|               | Variable Rate                 |      |        |      |         |      |         |      |        |      |       |            |        |       |         |           
|               | (US$-denominated)             |      | 15,439 |      | 12,767  |      | 156,823 |      |       |      |      |            |       |       | 185,029 |           
|               | Weighed average interest rate |      | 4.56   | %    | 4.02    | %    | 4.57    | %    | 0.00   | %    | 0.00  | %          |        |       |         |           
|               | Notes                         |      |        |      |         |      |         |      |        |      |       |            |        |       |         |           
|               | Fixed Rate                    |      |        |      |         |      |         |      |        |      |       |            |        |       |         |           
|               | (Ch$-denominated)             |      |       |      |        |      | 101.1   |      | 137.8  |      | 174.6 |            | 17,962 |       | 18,375  |           
|               | Weighed average interest rate |      |       |      |        |      | 7.50    | %    | 7.50   | %    | 7.50  | %          | 7.50   | %     |         |           
|               | (US$-denominated)             |      | 21,131 |      | 311,298 |      | 147,949 |      | 31,794 |      | 6,829 |            | 6,829  |       | 525,830 |           
|               | Weighed average interest rate |      | 7.86   | %    | 6.17    | %    | 6.77    | %    | 7.89   | %    | 8.00  | %          | 8.00   | %     |         |           

|Interest Rate Swaps |                                                        | 2004 |         | 2005 |        | 2006 |        | 2007 |        | 2008 |   | Thereafter |   | Total |   | Fair Value
|------------------- | ------------------------------------------------------ | ---- | ------- | ---- | ------ | ---- | ------ | ---- | ------ | ---- | - | ---------- | - | ----- | - | ----------
|                    | Notional amount of variable to fixed (US$ denominated) |      | 111,541 |      | 89,794 |      | 67,346 |      | 56,121 |      |  |            |  |       |  |           
|                    | Average pay rate                                       |      | 6.36    | %    | 6.36   | %    | 6.36   | %    | 6.36   | %    |  |            |   |       |   |           
|                    | Average receive rate (1)                               |      | 2.90    | %    | 2.90   | %    | 2.90   | %    | 2.90   | %    |  |            |   |       |   |           

---

|Treasury Lock Agreements |                                                        |  |         |   |      |   |      |   |      |   |      |   |   |  |   | 
|------------------------ | ------------------------------------------------------ |  | ------- | - | ---- | - | ---- | - | ---- | - | ---- | - | - |  | - | 
|                         | Notional amount of variable to fixed (US$-denominated) |  | 118,760 |   | 0    |   | 0    |   | 0    |   | 0    |   | 0 |  | 0 | 
|                         | Average Payable Rate                                   |  | 4.378   | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |   |  |   | 
|                         | Average Receivable Rate(1)                             |  | 4.274   | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |   |  |   | 

---



As of December 31, 2003, approximately 98% of our long term interest-bearing debt was denominated in U.S. dollars and, therefore, exposed to exchange rate
fluctuations between the Chilean peso and the U.S. dollar. The remaining 2% was UF-denominated and, therefore, not subject to currency exchange rate risk. There were no changes in these
percentages compared to December 31, 2002.

In
2003, we entered into short-term derivative contracts to limit our exposure to revenue variations as a result of fluctuations between the Chilean peso and the U.S. dollar.
As of December 31, 2003, only our subsidiary Eléctrica Santiago had outstanding exchange rate derivative contracts. Although node prices for electricity sales in Chile are quoted
in Chilean pesos, the most significant components of the formula used to set such prices are based on U.S. dollars. We believe that such a formula partially mitigates the effect of U.S. dollar versus
Chilean peso currency fluctuations. See further information relating to the derivative contracts

124

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outstanding
as of December 31, 2003 in Note 24 to our audited consolidated financial statements included in Item 18.

The
following table presents principal payment obligations in millions of Chilean pesos by maturity date for U.S. dollar-denominated debt. U.S. dollar-denominated liabilities and
notional amounts have been converted into Chilean pesos based on the observed exchange rate of December 31, 2003, which was US$1.00 = Ch$593.8.

|Balance Sheet
Financial Instruments |  | 2004   |  | 2005    |  | 2006    |  | 2007   |  | 2008  |  | Thereafter |  | Total   |  | Fair
Value
|----------------------------------- |  | ------ |  | ------- |  | ------- |  | ------ |  | ----- |  | ---------- |  | ------- |  | ----------
|Long Term Interest-Bearing Debt     |  |        |  |         |  |         |  |        |  |       |  |            |  |         |  |           
|Fixed Rate (US$)                    |  | 21,131 |  | 311,298 |  | 147,949 |  | 31,794 |  | 6,829 |  | 6,829      |  | 525,830 |  | 539,763   
|Variable Rate (US$)                 |  | 15,439 |  | 12,767  |  | 156,823 |  |       |  |      |  |           |  | 185,029 |  | 198,806   



As of December 31, 2003, we and our equity-method investees did not enter into commodity price hedges because (1) Argentine natural gas and coal are
purchased under long term market-based contracts, (2) all of the natural gas and coal are purchased under similar market conditions, (3) such market conditions also affect our competitors and (4)
under the marginal cost regulatory framework that is in effect in the SIC and the SING, any variations should eventually be incorporated into the price of electricity.

Item 12. Description of Securities Other than Equity Securities

Not applicable.

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Part II

Item 13. Defaults, Dividend Arrearages and Delinquencies

In December 1996, our Colombian subsidiary Chivor borrowed US$400 million under a five-year bank credit facility, the net proceeds of
which were used to finance a portion of the acquisition price of Chivor. The Chivor credit facility was secured by substantially all of Chivor?s assets, including accounts receivable,
payments under contracts, funds held offshore, insurance proceeds, real property and its plant and equipment. On December 28, 2001, Chivor failed to pay when due approximately
US$336 million principal amount pursuant the terms of the bank credit facility.

On
May 31, 2002, Chivor reached an agreement to refinance its debt of US$336 million, with the original bank syndicate led by Bank of America. This agreement, which
involved 19 of the 20 members of the bank syndicate, specifies a new interest rate and amortization schedule and expires on December 31, 2006. The agreement stipulated that the refinancing
would be structured under terms and conditions established under Chapter 11 of U.S. bankruptcy law, specifically in terms of a pre-packaged voluntary reorganization.

On
August 13, 2002, Judge Burton R. Lifland in New York approved the financing restructuring plan. The confirmation of such plan gives Chivor a term extension up to
December 2006, including a new payment schedule with interim amortization payments. Additionally, a support agreement was included in the restructuring plan pursuant to which Energy Trade
agreed to irrevocably and unconditionally fund the payment of the outstanding principal, up to a maximum amount of US$50 million, if the outstanding amount of Chivor debt exceeds
US$290 million and US$225 million, on March 31, 2004 and March 31, 2005, respectively. In the same support agreement, AES Gener agreed to irrevocably and unconditionally
guarantee Energy Trade's obligations. The corresponding agreements were signed on August 27, 2002. As of December 31, 2003, the outstanding amount of the debt under the approved credit
agreement is approximately US$283.6 million.

There
are no dividend arrearages.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

To our knowledge, no one (i) has materially modified the instruments defining the rights of our shareholders or (ii) has modified materially or
qualified the rights evidenced by our registered securities by issuing or modifying any other class of securities.

Item 15. Controls and Procedures

Our Chief Executive Officer, or CEO, and Chief Financial Officer, CFO, are responsible for establishing and maintaining our disclosure controls and procedures.
These controls and procedures were designed to ensure that information relating to AES Gener S.A. and its subsidiaries required to be disclosed in the reports that AES Gener S.A. files under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We evaluated these disclosure controls
and procedures under the supervision of our CEO and CFO as of December 31, 2003. Although this evaluation concluded that our disclosure controls and procedures were effective, in light of our
failure to reflect in our audited consolidated financial statements the treasury lock agreements described in this Form 20-F/A under "Item 5. Operating Review and Financial
Prospects?Liquidity and Capital Resources?Interest Rate Hedge", our management recognizes the need to improve our disclosure controls and procedures by making our procedures
and guidelines more stringent and efficient to avoid any further omissions from our financial disclosure.

126

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The
internal audit department of AES Gener S.A. not only will continue to formalize its control structure by documenting such structure through the use of flow charts of the processes
used in each cycle, but it will also improve the communication of existing procedures and guidelines established by our management through its Intranet.

Our
management is committed to the improvement of our internal control structure to guarantee the efficiency and effectiveness of our controls.

Item 16. [Reserved]

Item 16A. Audit Committee Financial Expert

Our board of directors has determined that Mr. Daniel Yarur Elsaca and Mr. René Cortázar Sánz, both
members of our audit committee, meet the requirements of an "audit committee financial expert", as defined by the SEC.

Item 16B. Code of Ethics

During 2003, we developed a code of ethics to reflect SEC rules and other proposed regulations that were adopted by our board of directors, executive officers and
employees. All of our executives and employees accepted the provisions of the code of ethics, which governs the actions of everyone who works for us, including the employees of our subsidiaries. Our
code of ethics deals with the following issues:



A
copy of our code of ethics is filed as an exhibit to this annual report. A copy of this document is also available on our website
(www.aesgener.cl) under the section AES Gener. All interested investors may acquire a copy of our code of ethics free of charge by sending electronic
mail to the attention of investor relations by accessing the section entitledRelación con Inversionistason our website.

There
have been no waivers to our code of ethics in 2003.

Item 16C. Principal Account Fees and Services

Deloitte & Touche, Sociedad de Auditores y Consultores, Limitada, or Deloitte & Touche, acted as our independent auditor for the fiscal years ended
December 31, 2003 and 2002. The chart below sets forth the total amount billed to us by Deloitte & Touche for services performed

127

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in
the years 2003 and 2002, and breaks down these amounts by category of service in thousands of Ch$:

|                   |  | Total Fees
|------------------ |  | ----------
|
|Audit Fees         |  | $         
|Audit-Related Fees |  |           
|Tax Fees           |  |           
|All Other Fees     |  |           
|Total              |  | $         

Audit Fees

Audit fees are fees billed for the audit of our annual consolidated financial statements and for the reviews of our quarterly financial statements submitted on
Form 6-K.

Audit-Related Fees

Audit-related fees in 2003 and 2002 were comprised of accounting consultations and services provided in connection with the preparation of our annual report on
Form 20-F/A. The main reasons for the increase in these expenses was the audit of our annual report for the years 2001 and 2002, which were both completed in 2003, and the
additional expenses related to the requirements imposed by the Sarbanes-Oxley Act of 2002.

Tax Fees

Tax fees in 2003 were related to services for tax compliance, tax planning and tax advice.

All Other Fees

All other fees in 2003 were related to consulting services.

Pre-Approval Policies and Procedures

The audit committee approves all audit, audit-related services, tax services and other services provided by Deloitte & Touche. Any services provided by
Deloitte & Touche that are not specifically included within the scope of the audit must be pre-approved by the audit committee prior to any engagement. The audit committee is
permitted to approve certain fees for audit-related services, tax services and other services pursuant to ade minimusexception before the completion
of the engagement. In 2003, none of the fees paid to Deloitte & Touche were approved pursuant to thede minimusexception.

Item 16D. Exemptions from the Listing Standards for Audit Committees

None

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None

128

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Part III

Item 17. Financial Statements

Not applicable

Item 18. Financial Statements

|Independent Auditors' Report                   |  | F-2  
|---------------------------------------------- |  | -----
|Consolidated Balance Sheets                    |  | F-3  
|Consolidated Statements of Income              |  | F-5  
|Consolidated Statements of Cash Flows          |  | F-6  
|Notes to the Consolidated Financial Statements |  | F-8  
|Schedule I                                     |  | F-126
|Schedule II                                    |  | F-134

Item 19. Exhibits

|1.1  |  | Current By-laws (estatutos) of Registrant as amended (unofficial English translation). (1)                                                                           
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Chilean Central Bank Chapter XIV. (5)                                                                                                                                
|2.2  |  | Form of Indenture dated as of January 26, 1996, between the Registrant and the Chase Manhattan Bank, as trustee. (5)                                                 
|2.3  |  | Form of Indenture dated as of June 23, 1999, between the Registrant and the Bank of New York, as trustee. (6)                                                        
|4.1  |  | Electricity Sales Contract between Gener S.A. and Chilectra S.A. (3)                                                                                                 
|4.2  |  | Addendum No. 5 to Electricity Sales Contract between Gener S.A. and Chilquinta Energía S.A. (2)                                                                      
|4.3  |  | Purchase Contract between Chilgener S.A. and ISAGEN S.A. E.S.P. dated as of December 20, 1996. (4)                                                                   
|4.4  |  | Credit Agreement among Chivor S.A. E.S.P., various financial institutions, Bank of America National Trust and Savings Association and BANCAMERICA Securities Inc. (4)
|4.5  |  | Second Amendment and Waiver among Chivor S.A.E.S.P., various financial institutions and Bank of America, N.A. (7)                                                    
|4.6  |  | Purchase and Sale Agreement by and between Gener S.A. and Total Gas and Power Ventures dated as of March 2, 2001. (6)                                                
|4.7  |  | Amendment of Purchase and Sale Agreement by and between Gener S.A. and Total Gas and Power Ventures dated as of July 16, 2001. (8)                                   
|8.1  |  | List of Subsidiaries. (1)                                                                                                                                            
|11.1 |  | Code of Ethics (unofficial English translation). (1)                                                                                                                 
|12.1 |  | Section 906 Certification of the Chief Executive Officer. (1)                                                                                                        
|12.2 |  | Section 906 Certification of the Chief Financial Officer. (1)                                                                                                        
|13.1 |  | Section 302 Certification of the Chief Executive Officer. (1)                                                                                                        
|13.2 |  | Section 302 Certification of the Chief Financial Officer. (1)                                                                                                        

---

129

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130

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INDEX TO  AUDITED CONSOLIDATED FINANCIAL STATEMENTS

|                                               |  |       |  | 
|---------------------------------------------- |  | ----- |  | 
|Independent Auditors' Report                   |  | F-2   |  | 
|Consolidated Balance Sheets                    |  | F-3   |  | 
|Consolidated Statements of Income              |  | F-5   |  | 
|Consolidated Statements of Cash Flows          |  | F-6   |  | 
|Notes to the Consolidated Financial Statements |  | F-8   |  | 
|Schedule I                                     |  | F-126 |  | 
|Schedule II                                    |  | F-134 |  | 

F-1

---

[Letterhead of Deloitte & Touche]

INDEPENDENT AUDITORS' REPORTTo the Shareholders of AES Gener S.A.:

We
have audited the accompanying consolidated balance sheets of AES Gener S.A. (the "Company") as of December 31, 2003 and 2002, and the related consolidated statements of income
and cash flows for each of the three years in the period ended December 31, 2003 (all expressed in thousands of Chilean pesos). Our audits also included the financial statement schedules listed
in the Index at Item 18. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedules based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in Chile
("Chilean GAAP").    Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.

As
discussed in Note 35 a) to the consolidated financial statements, the consolidated balance sheet as of December 31, 2002 and the related consolidated statements
of income and cash flows for each of the two years in the period ended December 31, 2002 included herein have been restated under Chilean GAAP.

As
discussed in Note 35 b) of the consolidated financial statements, the Company modified its financial statements in Chilean GAAP for the year ended December 31,
2003 for the omission of
disclosure of certain derivative instruments (treasury lock agreements) and their reduction in value from January 1, 2004 to the report date.

Chilean
GAAP varies in certain significant respects from accounting principles generally accepted in the United States of America ("US GAAP"). The application of the latter would have
affected the determination of net income for each of the three years in the period ended December 31, 2003 and the determination of shareholders' equity and financial position at
December 31, 2003 and 2002, to the extent summarized in Note 37.

As
discussed in Note 37 Ib) and a), respectively, to the consolidated financial statements, the reconciliation to US GAAP as of December 31, 2002 and for the two years then
ended has been restated for the remeasurement effect relating to a change in the functional currency and as of December 31, 2003 and for the year then ended has been restated for the
mark-to-market adjustment for certain derivative instruments.

Our
audits also comprehended the translation of the Chilean peso amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated

F-2

---

in
Note 1 w). The translation of the financial statement amounts into U.S. dollars and the translation of the financial statements into English have been made solely for the convenience of
readers in the United States of America.

/s/
Deloitte & Touche, Sociedad de Auditores y Consultores, Limitada

January 23,
2004
(except for Notes 1w); 7, 24, 35, 36 and 37 I a and b), v), II a 1) b), f) and k), for which the date is March 12, 2004)

F-3

---



AES GENER S.A. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Restated for general price-level changes and expressed in thousands of constant Chilean
 pesos as of December 31, 2003 and thousands of US dollars)

|                                                                                                                               |  | As of December 31, |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | -
|
|Current Assets                                                                                                                 |  |                    |  
|Cash                                                                                                                           |  | 4,562,737          |  
|Time deposits, including restricted cash of ThCh$3,117,426 in 2002, ThCh$4,411,604 in 2003 (Note 3)                            |  | 22,763,614         |  
|Money market funds                                                                                                             |  | 5,056,585          |  
|Trade accounts receivable, net of allowance for doubtful accounts of ThCh$3,048,830 and ThCh$1,437,991, respectively (Note 13) |  | 33,987,117         |  
|Miscellaneous accounts receivable                                                                                              |  | 3,161,619          |  
|Accounts and notes receivable from related companies (Note 23)                                                                 |  | 2,564,043          |  
|Inventories (Note 4)                                                                                                           |  | 22,111,796         |  
|Recoverable taxes, net (Note 5)                                                                                                |  | 4,555,959          |  
|Deferred taxes (Note 15)                                                                                                       |  | 733,123            |  
|Prepayments                                                                                                                    |  | 6,729,461          |  
|Other current assets (Note 7)                                                                                                  |  | 16,811,181         |  
|                                                                                                                               |  |                    |  
|Total current assets                                                                                                           |  | 123,037,235        |  
|                                                                                                                               |  |                    |  
|Property, plant and equipment (Note 8)                                                                                         |  |                    |  
|Land                                                                                                                           |  | 8,497,760          |  
|Construction and infrastructure                                                                                                |  | 817,701,318        |  
|Machinery and equipment                                                                                                        |  | 1,014,217,966      |  
|Other property, plant and equipment                                                                                            |  | 11,542,843         |  
|Technical revaluation                                                                                                          |  | 42,213,625         |  
|Accumulated depreciation                                                                                                       |  | (540,841,642       | )
|                                                                                                                               |  |                    |  
|Net property, plant and equipment                                                                                              |  | 1,353,331,870      |  
|                                                                                                                               |  |                    |  
|Other non-current assets                                                                                                       |  |                    |  
|Investments in related companies (Note 9)                                                                                      |  | 122,551,825        |  
|Goodwill (Note 10)                                                                                                             |  | 9,394,718          |  
|Long-term accounts receivable (Note 13)                                                                                        |  | 6,638,194          |  
|Long-term receivable from related companies (Note 23)                                                                          |  | 222,364,229        |  
|Intangibles (Note 11)                                                                                                          |  | 5,909,735          |  
|Accumulated amortization of intangibles (Note 11)                                                                              |  | (4,123,833         | )
|VAT account receivable                                                                                                         |  | 19,231,108         |  
|Other (Note 12)                                                                                                                |  | 44,842,473         |  
|                                                                                                                               |  |                    |  
|Total other non-current assets                                                                                                 |  | 426,808,449        |  
|                                                                                                                               |  |                    |  
|TOTAL ASSETS                                                                                                                   |  | 1,903,177,554      |  
|                                                                                                                               |  |                    |  

The
accompanying Notes 1 to 37 are an integral part of these consolidated financial statements.

F-4

---

AES GENER S.A. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Restated for general price-level changes and expressed in thousands of constant Chilean
pesos as of December 31, 2003 and thousands of US dollars)

|                                                                                                                                                                                               |  | As of December 31,
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|
|Current Liabilities                                                                                                                                                                            |  |                   
|Short-term bank liabilities (Note 16)                                                                                                                                                          |  | 12,391,617        
|Short-term portion of long-term bank liabilities (Note 16)                                                                                                                                     |  | 16,679,213        
|Bonds payable (Note 21)                                                                                                                                                                        |  | 41,490,179        
|Short-term portion of long-term liabilities, net (Note 18)                                                                                                                                     |  | 14,401,133        
|Dividends payable                                                                                                                                                                              |  | 148,679           
|Trade accounts and notes payable (Note 14)                                                                                                                                                     |  | 40,192,847        
|Accounts and notes payable to related companies (Note 23)                                                                                                                                      |  | 1,325,954         
|Provisions (Note 19)                                                                                                                                                                           |  | 7,482,584         
|Withholding taxes                                                                                                                                                                              |  | 1,176,627         
|Income taxes                                                                                                                                                                                   |  | 231,540           
|Unearned income                                                                                                                                                                                |  | 386,259           
|                                                                                                                                                                                               |  |                   
|Total current liabilities                                                                                                                                                                      |  | 135,906,632       
|                                                                                                                                                                                               |  |                   
|Long-Term Liabilities                                                                                                                                                                          |  |                   
|Long-term bank liabilities (Note 17)                                                                                                                                                           |  | 239,949,234       
|Bonds payable (Note 21)                                                                                                                                                                        |  | 679,781,328       
|Notes payable (Note 18)                                                                                                                                                                        |  | 2,495,447         
|Provisions (Note 19)                                                                                                                                                                           |  | 21,498,865        
|Deferred taxes (Note 15)                                                                                                                                                                       |  | 4,000,343         
|Other (Note 18)                                                                                                                                                                                |  | 27,870,917        
|                                                                                                                                                                                               |  |                   
|Total long-term liabilities                                                                                                                                                                    |  | 975,596,134       
|                                                                                                                                                                                               |  |                   
|Contingencies and Commitments (Note 25)                                                                                                                                                        |  |                   
|Minority Interest (Note 30)                                                                                                                                                                    |  | 6,897,036         
|                                                                                                                                                                                               |  |                   
|Shareholders' Equity (Note 22)                                                                                                                                                                 |  |                   
|Paid-in capital; 7,981,108,657 shares authorized as of December 31, 2002 and 2003 and 5,672,752,777 shares issued and outstanding as of December 31, 2002 and 2003, respectively; no par value |  | 660,615,361       
|Share premium                                                                                                                                                                                  |  | 29,535,351        
|Other reserves                                                                                                                                                                                 |  | 51,035,492        
|Future dividends reserve                                                                                                                                                                       |  | 4,877,585         
|Retained earnings                                                                                                                                                                              |  | 3,138,513         
|Net income for the year                                                                                                                                                                        |  | 35,575,450        
|                                                                                                                                                                                               |  |                   
|Total Shareholders' Equity                                                                                                                                                                     |  | 784,777,752       
|                                                                                                                                                                                               |  |                   
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                     |  | 1,903,177,554     
|                                                                                                                                                                                               |  |                   

The
accompanying Notes 1 to 37 are an integral part of these consolidated financial statements.

F-5

---



AES GENER S.A. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Restated for general price-level changes and expressed in thousands of constant
Chilean  pesos as of December 31, 2003 and thousands of US dollars)

|                                                          |  | For the year ended December 31, |  
|--------------------------------------------------------- |  | ------------------------------- | -
|
|Operating results:                                        |  |                                 |  
|Operating revenue (Note 27)                               |  | 360,993,786                     |  
|Operating expenses (Note 28)                              |  | (257,597,826                    | )
|                                                          |  |                                 |  
|Gross profit                                              |  | 103,395,960                     |  
|Administration and sales costs (Note 28)                  |  | (30,323,940                     | )
|                                                          |  |                                 |  
|Operating Income                                          |  | 73,072,020                      |  
|                                                          |  |                                 |  
|Non-operating results                                     |  |                                 |  
|Financial income (Note 29)                                |  | 17,602,118                      |  
|Equity share in net income of related companies (Note 29) |  | 8,541,384                       |  
|Other non-operating income (Note 29)                      |  | 79,719,583                      |  
|Equity share in net loss of related companies (Note 29)   |  | (7,973,438                      | )
|Amortization of goodwill (Note 10)                        |  | (1,144,957                      | )
|Financial expense (Note 29)                               |  | (74,299,432                     | )
|Other non-operating expenses (Note 29)                    |  | (65,412,340                     | )
|Price-level restatement (Note 1(b))                       |  | (25,705,634                     | )
|                                                          |  |                                 |  
|Non-operating loss, net                                   |  | (68,672,716                     | )
|                                                          |  |                                 |  
|Income before income taxes and minority interest          |  | 4,399,304                       |  
|Income taxes (Note 15)                                    |  | (7,049,261                      | )
|Minority interest (Note 30)                               |  | (1,650,832                      | )
|Amortization of negative goodwill (Note 10)               |  | 2,209,345                       |  
|                                                          |  |                                 |  
|Net income (Loss)                                         |  | (2,091,444                      | )
|                                                          |  |                                 |  

The
accompanying Notes 1 to 37 are an integral part of these consolidated financial statements.

F-6

---

AES GENER S.A. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Restated for general price-level changes and expressed in thousands of constant
Chilean  pesos as of December 31, 2003 and thousands of US dollars)

|                                                                                                   |  | For the year ended December 31, |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------- | -
|
|Cash flow from operating activities                                                                |  |                                 |  
|Collection of accounts receivable                                                                  |  | 341,780,624                     |  
|Financial income received                                                                          |  | 18,919,109                      |  
|Dividends and other distributions received                                                         |  | 9,653,302                       |  
|Other income received                                                                              |  | 9,169,972                       |  
|Payment to suppliers and personnel                                                                 |  | (239,762,956                    | )
|Financial expenses                                                                                 |  | (69,847,626                     | )
|Payment for income taxes                                                                           |  | (59,763                         | )
|Other expenses                                                                                     |  | (13,444,182                     | )
|VAT and other similar items paid                                                                   |  | (31,855,067                     | )
|                                                                                                   |  |                                 |  
|Net cash provided by operating activities                                                          |  | 24,553,413                      |  
|                                                                                                   |  |                                 |  
|Cash flow from financing activities                                                                |  |                                 |  
|Proceeds from issuance of shares                                                                   |  |                                |  
|Borrowings from Banks and others                                                                   |  | 115,518,112                     |  
|Dividends paid                                                                                     |  | (154,377,184                    | )
|Repayment of loans                                                                                 |  | (112,531,617                    | )
|Repayment of bonds                                                                                 |  | (6,463,818                      | )
|Payment of costs associated with issuance of bonds                                                 |  |                                |  
|Other financing activities                                                                         |  |                                |  
|                                                                                                   |  |                                 |  
|Net cash used in financing activities                                                              |  | (157,854,507                    | )
|                                                                                                   |  |                                 |  
|Cash flow from investing activities                                                                |  |                                 |  
|Sales of property, plant and equipment                                                             |  | 226,603                         |  
|Sales of permanent investments                                                                     |  | 300,830,184                     |  
|Proceeds from other loans to related companies                                                     |  | 30,004,894                      |  
|Other investments revenues                                                                         |  | 33,295,833                      |  
|Acquisition of fixed assets                                                                        |  | (22,742,182                     | )
|Payment of capitalized interest                                                                    |  | (658,260                        | )
|Permanent investments                                                                              |  | (5,767,788                      | )
|Investments in Commercial paper                                                                    |  | (26,873,309                     | )
|Other obligations to related companies                                                             |  | (178,092,467                    | )
|Other investing activities                                                                         |  | (282,442                        | )
|                                                                                                   |  |                                 |  
|Net cash provided by (used in) investing activities                                                |  | 129,941,066                     |  
|                                                                                                   |  |                                 |  
|Net increase (decrease) in cash and cash equivalents before the effects of price-level restatement |  | (3,360,028                      | )
|Price-level restatement of cash and cash equivalents                                               |  | 1,601,969                       |  
|                                                                                                   |  |                                 |  
|Net increase (decrease) in cash and cash equivalents                                               |  | (1,758,059                      | )
|Cash and cash equivalents at beginning of year                                                     |  | 68,048,593                      |  
|                                                                                                   |  |                                 |  
|Cash and cash equivalents at end of year                                                           |  | 66,290,534                      |  
|                                                                                                   |  |                                 |  

The accompanying Notes 1 to 37 are an integral part of these consolidated financial statements.

F-7

---

AES GENER S.A. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Restated for general price-level changes and expressed in thousands of constant Chilean
pesos as of December 31, 2003 and thousands of US dollars)

RECONCILIATION BETWEEN NET CASH FLOWS
PROVIDED BY OPERATING ACTIVITIES AND NET
INCOME FOR THE YEAR

|                                                                                 |  | For the year ended December 31, |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | -
|
|Net income (Loss)                                                                |  | (2,091,444                      | )
|(Gain) loss on sales of fixed assets                                             |  | (225,176                        | )
|Gain on sale of investments                                                      |  | (72,415,897                     | )
|Loss on sale of investments                                                      |  | 29,051,797                      |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                                 |  
|Depreciation                                                                     |  | 46,951,162                      |  
|Amortization of intangibles                                                      |  | 7,539,870                       |  
|Provisions and write-offs                                                        |  | 16,546,541                      |  
|Equity share in net income from investments in related companies                 |  | (8,541,384                      | )
|Equity share in net loss from investments in related companies                   |  | 7,973,438                       |  
|Amortization of goodwill                                                         |  | 1,144,957                       |  
|Amortization of negative goodwill                                                |  | (2,209,345                      | )
|Net price-level restatement                                                      |  | 25,705,634                      |  
|Other credits to income that do not represent cash flow                          |  | (2,086,161                      | )
|Other debits to income that do not represent cash flow                           |  | 8,120,253                       |  
|Change in operating assets                                                       |  |                                 |  
|(Increase) decrease of accounts receivable                                       |  | (814,260                        | )
|(Increase) decrease of inventories                                               |  | (5,551,801                      | )
|(Increase) decrease of other assets                                              |  | (915,175                        | )
|Change in operating liabilities                                                  |  |                                 |  
|Increase (decrease) of accounts payable to related companies                     |  | (27,191,183                     | )
|Increase of interest payable                                                     |  | 2,726,615                       |  
|Net increase of income taxes payable                                             |  | 2,546,907                       |  
|Increase (decrease) of other accounts payable                                    |  | (2,060,116                      | )
|Increase (decrease) of other accounts payables, net of VAT                       |  | (1,302,651                      | )
|Minority interest in net income                                                  |  | 1,650,832                       |  
|                                                                                 |  |                                 |  
|Net cash provided by operating activities                                        |  | 24,553,413                      |  
|                                                                                 |  |                                 |  

The
accompanying Notes 1 to 37 are an integral part of these consolidated financial statements.

F-8

---



AES GENER S.A. AND SUBSIDIARIES        Notes to the Consolidated Financial Statements        (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of
December 31, 2003 and thousands of US dollars, except as indicated)

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



AES Gener S.A. ("Gener") and its subsidiaries (collectively referred to as the "Company") are engaged in the generation and sale of electricity both within Chile
and internationally, shipping and port services (until August 2001), the production of fuels (until July 2001), and engineering services and other services both internally and
externally. AES Gener S.A. consolidates its financial statements with those of the companies detailed below, eliminating any intercompany transactions and balances between related companies:

|                                                      |  | 2002   |   | PERCENTAGE OF PARTICIPATION
2003 |  
|----------------------------------------------------- |  | ------ | - | -------------------------------- | -
|
|Petróleos, Asfalto y Combustible S.A.                 |  | 97.90  | % | 97.90                            | %
|Energía Verde S.A.                                    |  | 99.99  | % | 99.99                            | %
|Norgener S.A.                                         |  | 99.99  | % | 99.99                            | %
|Sociedad Eléctrica Santiago S.A.                      |  | 90.00  | % | 90.00                            | %
|New Caribbean Investment S.A.                         |  | 50.01  | % | 49.98                            | %
|Gener Colombia S.A.                                   |  | 100.00 | % | 94.63                            | %
|Gener Internacional S.A.                              |  | 100.00 | % | 99.90                            | %
|Energy Trade and Finance Corporation (Cayman Islands) |  | 100.00 | % | 100.00                           | %
|Chivor S.A. E.S.P.                                    |  | 99.98  | % | 0.00                             | %
|Gener Blue Water (Cayman Islands)                     |  | 100.00 | % | 0.00                             | %
|Inversiones Termoenergía Chile Ltda.                  |  | 100.00 | % | 0.00                             | %
|Gener Argentina S.A.                                  |  | 100.00 | % | 99.99                            | %
|TermoAndes S.A.                                       |  | 100.00 | % | 0.00                             | %
|InterAndes S.A.                                       |  | 100.00 | % | 0.00                             | %
|Servicios de Asistencia Técnica S.A.                  |  | 99.99  | % | 99.99                            | %
|Genergía S.A.                                         |  | 99.99  | % | 0.00                             | %
|Genergía Power Ltd. (Cayman Islands)                  |  | 100.00 | % | 0.00                             | %

Sociedad
Eléctrica Santiago S.A., a 90%-owned subsidiary by AES Gener S.A., is engaged principally in the generation of electricity.

Norgener
S.A. ("Norgener") is engaged principally in the generation of electricity.

TermoAndes
S.A. is engaged principally in the generation of electricity.

InterAndes
S.A. is engaged principally in the transmission of electricity.

Energía
Verde S.A. ("Energía Verde") is engaged principally in the generation of electricity for forest product factories.

Energy
Trade and Finance Corporation (Cayman Islands) is a wholly-owned subsidiary established to facilitate Company financing.

F-9

---

New
Caribbean Investment N.A. is a subsidiary which provides administration services to Compañía Generadora de Electricidad Itabo in the Dominican Republic.
AES Gener owns 49.98% of its subsidiary and Norgener, Energía Verde and Energy Trade and Finance Co. each own 0.01% on NCI equity, totaling a participation of 50.01%.

Gener
Colombia S.A. is a wholly-owned subsidiary established to facilitate business in Colombia.

Chivor
S.A. E.S.P. (Colombia) is engaged principally in the generation of electricity.

Inversiones
Termoenergía de Chile Ltda. is a subsidiary wholly-owned by Gener Blue Water, which is a subsidiary wholly-owned by Energy Trade and Finance Co.

Genergía
S.A. is a subsidiary wholly-owned by Nova Gas Andes Power Limited, which in turn is a subsidiary wholly-owned by Energy Trade and Finance Co.
Genergía and Nova Gas Andes Power Limited were created as investment company vehicles.

Compañía
Carbones del Cesar Ltda., a wholly-owned subsidiary, is engaged principally in coal production activities. As of December 31, 2003, a
net loss was recorded as a provision at December, 31 2003 and was not consolidated in the financial statements of AES Gener S.A.

The
financial statements of Compañía Carbones del Cesar Ltda., are not consolidated as this company is in the process of being sold.

Petróleos,
Asfaltos y Combustibles S.A. (Ex Petróleos y Asfaltos Cordex S.A.) is engaged principally in the construction and operation of a fuel oil and
asphalt terminal in the area of Puerto Ventanas, in the Fifth Region of Chile.

Gener
International S.A. engages in investment activities and provides administrative services.

Gener
Argentina S.A., an indirectly wholly-owned subsidiary, manages the Company's investments in Argentina.

Servicios
de Asistencia Técnica S.A. provides engineering, quality-control, and administration services.

Presentation

These consolidated financial statements have been prepared on the basis of accounting principles generally accepted in Chile. For the convenience of readers
outside Chile, the consolidated financial statements have been translated into English, certain reclassifications have been made and certain clarifying account descriptions have been included.

The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

F-10

---

In
certain cases generally accepted accounting principles require that assets or liabilities be recorded or disclosed at their fair values. The fair value is the amount at which an asset
could be bought or sold or the amount at which a liability could be incurred or settled in a current transaction between willing parties, other than in a forced or liquidation sale. Where available,
quoted market prices in active markets have been used as the basis for the measurement; however, where quoted market prices in active markets are not available, the Company has estimated such values
based on the best information available, including using modeling and other valuation techniques.



The financial statements have been price-level restated in order to reflect the effect of changes in the purchasing power of the Chilean currency during each
period. All non-monetary assets and liabilities and income statement accounts have been restated to reflect the changes in the Chilean consumer price index from the date they were acquired
or incurred to the end of the period.

The
purchasing power gains and losses have been included in net income within the account "price-level restatement" and reflect the effects of Chilean inflation on the value of monetary
assets and liabilities held by the Company.

The
restatements were calculated using the official consumer price index of the Chilean National Institute of Statistics ("CPI") and based on the "prior month rule", in which inflation
adjustments are based on the consumer price index at the close of the month preceding the close of the respective period or transaction. This index is considered by the business community, the
accounting profession and the Chilean government to be the index which most closely complies with the technical requirement to reflect the variation in the general level of prices in the country and,
consequently, is widely used for financial reporting purposes in Chile.

The
values of the Chilean consumer price index are as follows:

Index

Change over previous
December 31December 31, 2001

109.76

2.6
%December 31, 2002

112.86

2.8
%December 31, 2003

114.07

1.07
%


The
values of the Chilean consumer price index used for financial accounting price-level restatement purposes are as follows:

Index

Change over previous
November 30November 30, 2001

110.10

3.1
%November 30, 2002

113.36

3.0
%November 30, 2003

114.44

1.0
%


F-11

---

The
above-mentioned price-level restatements do not purport to represent appraisal or replacement values and are only intended to restate all non-monetary financial statement
components in terms of local currency of a single purchasing power and to include in the net result for each period the gain or loss in purchasing power arising from the holding of monetary assets and
liabilities exposed to the effects of inflation.

Assets
and liabilities that are denominated in index-linked units of account are stated at the period-end values of their respective units of account. The principal
index-linked unit used in Chile is theUnidad de Fomento(UF), which changes daily to reflect the changes in Chile's consumer price index. Many of the
Company's financial investments are denominated in UFs. As the Company's indexed liabilities exceed its indexed assets, the increase in the index results in a net loss on indexation.

Values
for the UF are as follows (historical pesos per UF):

Ch$December 31, 2001

16,262.66December 31, 2002

16,744.12December 31, 2003

16,920.00


Comparative financial statements:

For comparative purposes, the December 31, 2001, 2002 and 2003 consolidated financial statements, and the amounts disclosed in the related notes to the
consolidated financial statements, have been restated in terms of Chilean pesos of December 31, 2003 purchasing power. This updating does not change the prior period's statements or information
in any way except to update the amounts to constant Chilean pesos of similar purchasing power.

F-12

---

Credit (Charge) to income for price-level restatement and foreign exchange gains and losses:

The credit or charge to income for price-level restatement in each of the periods consists of the restatements of non-monetary assets and liabilities
and net losses due to foreign exchange differences as follows:

Credit (charge) to income
Year ended December 31,2001
ThCh$

2002
ThCh$

2003
ThCh$Property, plant and equipment

22,948,470

21,396,786

6,941,969Other assets in local currency

20,839,350

19,330,435

5,828,349Other assets in foreign currency

(13,792,748
)
13,374,335

(24,118,964
)Liabilities in foreign currency

(15,397,830
)
(29,703,043
)
11,679,060UF Indexed liabilities

(14,796,947
)
(15,450,847
)
(5,201,861
)Shareholders' equity

(24,414,232
)
(21,697,041
)
(7,782,746
)Net balance sheet effect reflected in income

(24,613,937
)
(12,749,375
)
(12,654,193
)Net price-level restatement of income statement accounts

(614,664
)
(2,159,140
)
(167,879
)Net losses due to foreign exchange differences

(477,033
)
(3,198,282
)
(784,228
)Charge to income

(25,705,634
)
(18,106,797
)
(13,606,300
)




In accordance with Technical Bulletin No 64 of the Chilean Association of Accountants and dispositions of Official Circular No. 368 of the SVS, permanent foreign
investments established in countries defined by Technical Bulletin No 64 as being unstable, whose activities do not constitute an extension of the parent company's operations are controlled and
measured in US dollars. Differences between the Chilean peso and the US dollar exchange rate variation and fluctuations in the Chilean Consumer Price Index (CPI) are accounted for as a charge or
credit to the equity reserve account called "Accumulated Foreign Currency Translation Adjustment". Foreign Exchange differences on US dollar denominated liabilities that have been designated as a
hedge of such investments are also included in the same equity account to the extent the hedge is effective. This rule corresponds to all US dollar functional currency subsidiaries (Chivor S.A.
E.S.P,. Compañía Carbones del Cesar Ltda., TermoAndes S.A. InterAndes S.A., Gener Colombia S.A. and New Caribbean Investment S.A.).

F-13

---



Balances denominated in foreign currencies or indices have been translated into Chilean pesos at the following rates, which are the Observed Exchange Rates, as
reported by the Central Bank of Chile:

As of December 31,2001
Ch$/Unit

2002
Ch$/Unit

2003
Ch$/UnitObserved Dollar (US$)

654.79

718.61

593.80Argentine Pesos (Arg$)

385.17

216.45

202.32Colombian Pesos (Col$)

0.29

0.25

0.21


To
reduce its exposure to the volatility of foreign currencies, the Company enters into currency swap agreements to manage the Company's foreign currency exposure to US dollars. Foreign
currency transaction gains (losses) of ThCh$4,610,486, ThCh$(649,699) and ThCh$(1,385,325) are included in the consolidated statements of income in 2001, 2002, and 2003, respectively.



Time deposits and commercial paper for resale are shown at cost plus price-level restatement and accrued interest, which approximates the market value of these
items. Money market funds are shown at the lower of cost plus indexation adjustments or market value.

Commercial
paper is classified as other current assets. Such financial instruments include:

Pagaré Reajustable del Banco Central de Chile(Central Bank Adjustable Promissory Notes or "PRBC"), These notes are bearer,
short and long-term debt securities with the principal denominated in UF.

Pagaré Reajustable del Banco Central de Chile con Pago en Cupones(Central Bank Adjustable Promissory Notes with Coupon
Payments or "PRC"). These are long-term debt securities issued by the Central Bank of Chile. The principal is denominated in UF. PRCs are bearer financial instruments with equal
consecutive semiannual principal and interest payments.



The Company determines this allowance over the basis of an individual analysis of each client and its payment capacity.



Inventories consist of raw materials, parts and accessories valued at their corresponding acquisition cost. The values shown do not exceed their estimated net
realizable values and are reflected in income on the basis of weighted-average cost.

An
allowance for inventory shrinkage is determined according to technical and environmental studies based on factors affecting the coal in stock.

F-14

---



Other current assets mainly include Commercial paper and Colombian Fiduciary Rights related to the affiliate Chivor S.A. E.S.P. which are presented at cost plus
accrued interest.



Property, plant and equipment is valued at cost plus price-level restatement. The carrying value of property, plant and equipment was adjusted on June 30,
1986 in accordance with the regulations of the Chilean Superintendence of Securities and Insurance. (See Note 8)

Depreciation
is included in operating costs and includes depreciation for technical reappraisal of fixed assets. Depreciation has been calculated on a straight-line basis
over the following useful lives, with the exception of the TermoAndes Power Plant, in which case depreciation is amortized on a usage basis, which uses the total estimated hours of service for the
plant's useful life.

YearsHydroelectric dam

77Construction and infrastructure

18-42Machinery and equipment

15-31Other property, plant and equipment

5-13Technical revaluation

10


The
Company capitalizes the direct costs of financing its construction-in progress, including indexation, foreign currency gains and losses, interest and other similar
expenses. Similarly, income from deposits of funds identified for specific projects is recorded as a decrease in the cost of financing the related work in progress. The Company ceases capitalization
of interest when the asset is in a position to be used for its intended purpose.

Repair
and maintenance costs are charged against income while renewals and improvements are capitalized as additions to the related assets. Retirements, sales and disposals of assets are
recorded by removing the cost and accumulated depreciation from the asset and accumulated depreciation accounts with any related gain or loss reflected in other non-operating income or
expense.



The Company has internally developed computer software as well as acquired software packages. The cost incurred in software development is charged to income and
the cost paid to acquire software packages is included in "other fixed assets" and amortized over 36 months. All significant internally developed software was completed prior to 1997.

F-15

---



Investments in companies that are 50%-or-less owned, over which the Company exercises significant influence, and investments in companies
in the development stage are shown under Other Non-Current Assets and are accounted for using the
equity method. The Company's proportionate share of net income and losses of related companies is recognized in non-operating results in the statement of income on an accrual basis, after
eliminating any unrealized profits from transactions between related companies.



According to Chilean Superintendence rule number 1.358 of December 1997, the excess of cost of an acquired enterprise over the net book value of the assets
acquired and liabilities assumed (goodwill) or the excess of this net book value over the cost of the acquired enterprise (negative goodwill) are amortized over 20 years.

The
Company has evaluated the recovery of its goodwill for impairment under the hierarchy of the regulation established in the Technical Bulletin No. 56 of Colegio de Contadores
de Chile A. G. (Accountants Association of Chile). As a result of this evaluation, no impairment has been recorded.



The Company has classified certain assets as intangibles due to their nature and characteristics. These assets have resulted principally from the following:

The
asset revaluation that was performed at the time of the division of the Company's predecessor into three independent companies in 1981, one of which being AES Gener S.A. This
intangible asset, representing the price-level restated excess of the market value over the book value of the assets that were transferred to AES Gener S.A., is being amortized over a period of
30 years, beginning on January 1, 1982.



The Company has recorded provisions at each period-end for income taxes currently payable in accordance with current tax regulations. A detail of such
provisions is shown in Note 15.



Starting January 1, 2000, the Company recorded income taxes in accordance with Technical Bulletin No. 60 of the Chilean Association of Accountants,
and with circular No. 1466 issued on January 27, 2000 by the SVS, recognizing by using the liability method, the deferred tax effects of all temporary differences between the financial
and tax values of assets and liabilities and loss carry forwards. As a transitional provision, a contra asset or liability has been recorded offsetting the effects of the deferred tax assets and
liabilities not recorded prior to January 1, 2000. Such

F-16

---

contra
asset or liability is amortized to income over the estimated average reversal periods corresponding to the underlying temporary differences to which the deferred tax asset or liability relates.



Bonds payable are shown at each period-end at their nominal value plus accrued interest and price-level restatement. The discount amount, the cost of
obtaining such financing and other expenses directly related to the issuance of bonds at the time of their placement are presented in "Other Assets" and are amortized using the straight-line method
over the contracted term of the bonds. The difference between the straight-line method and the effective interest rate method is not material.



The liability for long-term severance indemnities is accrued in accordance with agreements entered into with the employees. This liability is shown at
the present value of the expected future payments. At December 31, 2003 and 2002, the staff severance indemnities provision is discounted at an interest rate of 8% and is limited to a service
period of 31 years.



The Company has recorded a provision for vacations on an accrual basis, in accordance with Technical Bulletin No. 47 of the Chilean Association of
Accountants.



Beginning January 1, 1999, the Company has accounted for the total liabilities related to voluntary pension plans for retired employees (no active employee
is entitled to this benefit when he or she retires) and other post-retirement benefits, as stipulated in collective bargaining agreements. Pension benefits include the payment of a complementary
pension in addition to that provided by the Chilean social security system, which is payable for life to retired employees. In addition, these benefits include health services and electricity
subsidies. This liability has been recorded at the actuarially determined projected benefit obligation, discounted at an annual rate of 8% at December 31, 2003 and includes the likelihood of
such payments or benefits based on mortality (in the case of retired employees) and employee turnover. In the case of current employees, who are only entitled to medical benefits and the electricity
subsidies, benefits are recognized based on an estimate of the proportion of such benefits earned as of the balance sheet date. The obligations for medical benefits and electricity subsidies have been
determined considering a trend for future medical costs and the fixed electricity bonus granted to retired employees and to active employees after retirement.

F-17

---



Revenues from the sales of electricity are recorded based on output delivery and capacity provided at rates as specified under contract terms or at prevailing
market rates.

Operating
income includes uninvoiced income from energy supplied but not billed at each period-end, which has been valued at contracted rates existing at each respective
period-end. These amounts are included in current assets, as trade accounts receivable. The related cost of this energy has been included in operating costs. The Company recognized
revenues from sales of inventory such as coal and gas upon delivery and revenues from shipping and engineering services upon performance of such services.



The costs of research, project development and special studies are charged to income in the year in which they are incurred, except for the cost of fixed assets
once development has been approved. The costs of research and development charged to income were ThCh$163,555, ThCh$82,432 and ThCh$2,600 for the years ended December 31, 2001, 2002 and 2003,
respectively.



Unrealized gains or losses on forward exchange and swap agreements that are not both designated and effective as hedges are accounted for at market value basis
with the effect of the changes in the fair value recorded in income. Net losses on derivatives designated and effective as hedges of assets and liabilities are charged to income. Gains and losses
related to qualifying hedges of anticipated transactions and net gains of derivatives designated and effective as hedges of assets and liabilities are deferred and recognized in income in the same
period in which the underlying items are settled. These contracts are recorded according to Technical Bulletin No. 57.

TermoAndes
and InterAndes have a swap agreement with Deutsche Bank Securities and Bank BBV Securities in order to fix its variable interest rate (LIBOR) with a 180-day fixed rate. This
hedging covers the 92% of the debt.



The statements of cash flow have been prepared using the direct method in accordance with Technical Bulletin No. 50 of the Chilean Association of
Accountants.

Cash
and cash equivalents represent cash, time deposits, money market funds and Commercial paper that can be converted to cash within a term not exceeding 90 days from the
acquisition date and without risk of material loss of value.

"Cash
flow from operating activities" includes those cash flows related to the operations of the Company, interest paid, financial income collected and all other cash flows that are not
defined as either investing or financing.

F-18

---



The Company maintains its accounting records and prepares its financial statements in Chilean pesos. The United States dollar amounts disclosed in the
accompanying financial statements are presented solely for the convenience of the reader at the December 31, 2003 observed exchange rate of Ch$593.8 per US$1.00. This translation should not be
construed as representing that the Chilean peso amounts actually represent or have been, or could be, converted into United States dollars at such a rate or at any other rate.

2. CHANGES IN ACCOUNTING PRINCIPLES AND PRESENTATION

Staff
Severance Indemnities

As
of January 1, 2002, the Company changed the interest rate used for determining the present value of the provisions for staff severance indemnities and for pensions and
post-retirement benefits, reducing it from 10% to 8%. The effect of this change at the beginning of 2002 amounted to ThCh$673,832, which was charged to deferred assets in accordance with
Technical Bulletin No. 8 of the Chilean Association of Accountants and will be amortized over 10 years.

In
the years 2001 and 2003 the Company did not have any changes in accounting principles.

3. TIME DEPOSITS

The detail of time deposits at December 31, 2002 and 2003 is as follows:

As of December 31,Average Interest rate

2002
ThCh$

2003
ThCh$Time deposit in U.S. dollars (1)

1.00

3,117,426

4,411,604JP Morgan

1.80

956,088

Banco BBVA

1.95

5,046,241

595,762Bank Boston N.A.

1.32



297,793Bank of America N.A.

0.84



1,908,874Bank Boston N.A.

1.35



119,259BBVA Banco Francés S.A.

1.00



213,591Banco Crédito Inversiones

1.97

5,905,174

495,416Banco Chile

1.61

5,693,676

Banco Santander A.G. Valores

1.75

2,045,009

Banco Scotiabank

2.00



2,088,964Total



22,763,614

10,131,263


---

F-19

---



4.    INVENTORIES

Inventories have been valued in accordance with the policy described in Note 1(f).

The
principal components at each year-end are as follows:

2002
ThCh$

2003
ThCh$Coal

13,753,189

6,710,976Oil

277,542

243,369Coal in transit

413,035

2,403,510Imported gas in transit

3,282,402

82,383Spare parts and materials

3,979,191

1,669,115Others

406,437

340,576Total

22,111,796

11,449,929


Coal
is presented net of an allowance for shrinkages amounting to ThCh$213,969 and ThCh$150,914 at December 31, 2002 and 2003, respectively.

The
inventory of materials is presented net of provisions of ThCh$1,243,000 as of December 31, 2003, which is part of a ThCh$ 3,736,000 provision for obsolescence recorded against
materials in inventory, property, plant and equipment and other long term assets.

5.    RECOVERABLE TAXES, NET

The detail of recoverable taxes is as follows:

2002
ThCh$

2003
ThCh$VAT credit surplus (Chile)

167,260

180,828VAT credit surplus (Argentina)

3,449,018

36,315Excess of income tax estimated monthly payments over the year's tax liability (Chile)

661,761

476,554Excess of income tax estimated monthly payments over the year's tax liability (Argentina)

178,201

47,760Excess of income tax estimated monthly payments over the year's tax liability (Colombia)

99,719

34,551Total

4,555,959

776,008


F-20

---

6.    COMMERCIAL PAPER

The detail of these financial instruments, which are included within other current assets, is as follows:

|DATES         |  |               |  |                          |  |     |  |            |  |      |  |           
|------------- |  | ------------- |  | ------------------------ |  | --- |  | ---------- |  | ---- |  | ----------
|
|
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BBVA Corredores de Bolsa |  | Ch$ |  | 1,500,000  |  | 0.21 |  | 1,500,735 
|Dec. 24, 2003 |  | Jan. 06, 2004 |  | Banco de Chile           |  | Ch$ |  | 611,000    |  | 0.21 |  | 611,556   
|Dec. 29, 2003 |  | Jan. 06, 2004 |  | Scotiabank Sud Americano |  | Ch$ |  | 1,000,000  |  | 0.21 |  | 1,000,560 
|Dec. 29, 2003 |  | Jan. 07, 2004 |  | Banco de Chile           |  | Ch$ |  | 1,500,000  |  | 0.22 |  | 1,500,990 
|Dec. 29, 2003 |  | Jan. 08, 2004 |  | Valores Security C.B.    |  | Ch$ |  | 1,500,000  |  | 0.28 |  | 1,501,400 
|Dec. 29, 2003 |  | Jan. 12, 2004 |  | Consorcio C.B.           |  | Ch$ |  | 1,500,000  |  | 0.23 |  | 1,501,610 
|Dec. 29, 2003 |  | Jan. 13, 2004 |  | BCI C.B.                 |  | Ch$ |  | 1,646,000  |  | 0.24 |  | 1,647,975 
|Dec. 26, 2003 |  | Jan. 05, 2004 |  | Banco de Chile           |  | UF  |  | 652,223    |  | 0.18 |  | 652,614   
|Dec. 26, 2003 |  | Jan. 05, 2004 |  | Banco de Chile           |  | UF  |  | 30,777     |  | 0.18 |  | 30,796    
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BBVA BHIF                |  | UF  |  | 26,288     |  | 0.24 |  | 26,303    
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BBVA BHIF                |  | UF  |  | 1,159      |  | 0.24 |  | 1,159     
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BBVA BHIF                |  | UF  |  | 239        |  | 0.24 |  | 239       
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BBVA BHIF                |  | UF  |  | 418,169    |  | 0.24 |  | 418,403   
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BBVA BHIF                |  | UF  |  | 10,396     |  | 0.24 |  | 10,401    
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BBVA BHIF                |  | UF  |  | 10,288     |  | 0.24 |  | 10,294    
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BBVA BHIF                |  | UF  |  | 93,878     |  | 0.24 |  | 93,930    
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BBVA BHIF                |  | UF  |  | 466,584    |  | 0.24 |  | 466,845   
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BCI C.B.                 |  | UF  |  | 105,534    |  | 0.23 |  | 105,591   
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BCI C.B.                 |  | UF  |  | 125,729    |  | 0.23 |  | 125,797   
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BCI C.B.                 |  | UF  |  | 218,645    |  | 0.23 |  | 218,762   
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BCI C.B.                 |  | UF  |  | 162,764    |  | 0.23 |  | 162,851   
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BCI C.B.                 |  | UF  |  | 100,335    |  | 0.23 |  | 100,389   
|Dec. 29, 2003 |  | Jan. 05, 2004 |  | BCI C.B.                 |  | UF  |  | 1,993      |  | 0.23 |  | 1,994     
|Dec. 30, 2003 |  | Jan. 06, 2004 |  | BCI C.B.                 |  | UF  |  | 805,381    |  | 0.23 |  | 805,751   
|Dec. 30, 2003 |  | Jan. 06, 2004 |  | BCI C.B.                 |  | UF  |  | 72,619     |  | 0.23 |  | 72,653    
|Dec. 9, 2003  |  | Jan. 12, 2004 |  | Banco Estado             |  | US$ |  | 593,800    |  | 2.20 |  | 595,034   
|Dec. 15, 2003 |  | Jan. 12, 2004 |  | BBVA                     |  | US$ |  | 2,434,580  |  | 2.00 |  | 2,438,367 
|Dec. 29, 2003 |  | Jan. 19, 2004 |  | Citibank N.A.            |  | US$ |  | 2,493,960  |  | 2.30 |  | 2,497,306 
|Dec. 30, 2003 |  | Jan. 07, 2004 |  | BCI                      |  | US$ |  | 35,965     |  | 1.60 |  | 35,641    
|Dec. 22, 2003 |  | Jan. 06, 2004 |  | BCI                      |  | US$ |  | 7,134,840  |  | 2.00 |  | 7,130,944 
|Dec. 22, 2003 |  | Jan. 06, 2004 |  | Banco BBVA BHIF          |  | US$ |  | 3,683,470  |  | 2.10 |  | 3,681,918 
|Dec. 22, 2003 |  | Jan. 06, 2004 |  | Banco BBVA BHIF          |  | US$ |  | 3,061,927  |  | 2.10 |  | 3,060,637 
|Dec. 22, 2003 |  | Jan. 06, 2004 |  | Banco de Chile           |  | US$ |  | 7,314,840  |  | 1.80 |  | 7,131,538 
|              |  |               |  |                          |  |     |  |            |  |      |  |           
|              |  |               |  |                          |  |     |  | 39,313,383 |  |      |  | 39,140,983

F-21

---

7.    OTHER CURRENT ASSETS

Other current assets at the end of each year are as follows:

2002
ThCh$

2003
ThCh$
(As restated)
note 35Chivor trust accounts receivable (2)

7,807,336

8,542,881Chivor trust investments

407,831

1,361,959Commercial paper

8,234,403

9,258,643Commercial paper (UF)



29,862,964Swap TermoAndes and InterAndes



(1,427,889
)Rights Forwards



5,932,770Obligation Forwards



(6,053,061
)Not carried out results Forwards



13,630Treasury lock agreement rights (1)



985,242Treasury lock agreement obligations (1)



(985,242
)Other Current Assets

361,611

16,055Total

16,811,181

47,507,952


---

The
trust restricts all Chivor's accounts receivable. A portion of accounts receivable estimated to cover Chivor's operating expenses is transferred to Chivor's unrestricted receivable
account, and is included in the consolidated accounts receivable balance of Gener. The excess funds remaining in the trust are converted into U.S. dollars and are held in a U.S. dollar bank account in
Columbia, classified as Chivor trust investments above.

8.    PROPERTY, PLANT AND EQUIPMENT



Property,
plant and equipment has been valued and its depreciation has been calculated in accordance with Note 1(h). The items comprising property, plant and equipment at each

F-22

---

period-end
include mainly the buildings, generating systems and transmission systems comprising the Company's power plants, as follows:

Fixed Assets
As of December 31,

Accumulated Depreciation
As of December 31,2002
ThCh$

2003
ThCh$

2002
ThCh$

2003
ThCh$Land

8,497,760

8,018,338



Buildings

804,773,950

724,262,096

(182,907,241
)
(180,446,732
)Transmission and generation system

995,530,056

939,512,695

(315,608,747
)
(344,038,848
)Process and communication equipment

14,860,014

16,649,098

(9,080,483
)
(9,670,334
)Furniture and others

3,827,896

3,591,100

(1,825,552
)
(2,286,528
)Other fixed assets

11,542,843

8,116,417

(1,692,038
)
(1,881,457
)Technical revaluation

42,213,625

42,213,625

(29,727,581
)
(31,108,358
)Subtotal

1,881,246,144

1,742,363,369

(540,841,642
)
(569,432,257
)Projects under development

12,927,368

11,324,692



Total fixed assets before depreciation

1,894,173,512

1,753,688,061

(540,841,642
)
(569,432,257
)Total fixed assets net of depreciation

1,353,331,870

1,184,255,804








Property,
plant and equipment includes net increases arising from the technical revaluation of certain assets performed during 1986, in accordance with regulations of the Superintendence
of Securities and Insurance.

F-23

---

The
accumulated net effect of these revaluations as of each year-end is detailed below by class of asset:



Fixed Assets
As of December 31,

Accumulated Depreciation
As of December 31,2002
ThCh$

2003
ThCh$

2002
ThCh$

2003
ThCh$Transmission and generation System

42,207,445

42,207,445

(29,721,416
)
(31,102,188
)Process and communication equipment

5,673

5,673

(5,658
)
(5,663
)Furniture and others

507

507

(507
)
(507
)Total technical revaluation (positive asset)

42,213,625

42,213,625

(29,727,581
)
(31,108,358
)




Fixed Assets
As of December 31,

Accumulated Depreciation
As of December 31,2002
ThCh$

2003
ThCh$

2002
ThCh$

2003
ThCh$Land

(503,778
)
(461,900
)


Buildings

(116,690
)
(107,244
)
65,468

61,203Total technical revaluation (negative asset)

(620,468
)
(569,144
)
65,468

61,203


The
technical revaluation that decreased the value of land and buildings has been directly deducted from the book value of these fixed assets.



Fixed Assets
As of December 31,

Accumulated Depreciation
As of December 31,2002
ThCh$

2003
ThCh$

2002
ThCh$

2003
ThCh$Materials and parts

8,778,595

5,269,528



Leasing contracts

82,077

41,136

(42,871
)
(37,708
)Others

2,682,171

2,805,753

(1,649,167
)
(1,843,749
)Total

11,542,843

8,116,417

(1,692,038
)
(1,881,457
)


F-24

---



As of December 31,2001
ThCh$

2002
ThCh$

2003
ThCh$Property, plant and equipment

45,247,566

48,360,224

44,650,717Leasing contracts

17,103

22,804

17,118Technical revaluation

1,686,493

1,687,514

1,312,755Total

46,951,162

50,070,542

45,980,590


F-25

---

AES GENER S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements (Continued)

9.    INVESTMENTS IN RELATED COMPANIES



|                                                  |  |               |  |        |  |             |  | Percentage of
Participation |  | Equity of
The Company |  | Net income (loss) of the Company |  | Net income (loss) of Investment |  | Investment
Value |  | Unreralized
Results |   | Book Value of
The Investment
|------------------------------------------------- |  | ------------- |  | ------ |  | ----------- |  | --------------------------- |  | --------------------- |  | -------------------------------- |  | ------------------------------- |  | ---------------- |  | ------------------- | - | ----------------------------
|
|Central Puerto S.A. (2)                           |  | Argentina     |  | Dollar |  |            |  | 0.00                        |  | 0.00                  |  | 0.00                             |  |                                |  |                 |  | 4,454,987           |   |                            
|C.G.E. Itabo S.A                                  |  | R. Dominicana |  | Dollar |  | 14,091,707  |  | 25.01                       |  | 25.00                 |  | 25.00                            |  | 247,323,890                     |  | 206,832,276      |  | 7,751,333           |   | (7,332,534                  
|Hidroneuquén S.A. (1)(2)                          |  | Argentina     |  | Dollar |  |            |  | 0.00                        |  | 0.00                  |  | 0.00                             |  |                                |  |                 |  | 429,036             |   |                            
|Empresa Eléctrica Guacolda S.A.                   |  | Chile         |  | Ch$    |  | 64,779,500  |  | 50.00                       |  | 50.00                 |  | 50.00                            |  | 82,389,314                      |  | 98,189,570       |  | (9,254,626          | ) | 1,636,604                   
|Puerto Ventanas S.A.                              |  | Chile         |  | Ch$    |  |            |  | 0.00                        |  | 0.00                  |  | 0.00                             |  |                                |  |                 |  | 2,232,475           |   |                            
|Gasoducto Gasandes S.A. (1)                       |  | Argentina     |  | Dollar |  | 10,850,710  |  | 13.00                       |  | 13.00                 |  | 13.00                            |  | 92,885,934                      |  | 80,615,476       |  | 8,521,538           |   | 5,630,726                   
|Agencias Universales S.A. (2)                     |  | Chile         |  | Ch$    |  |            |  | 0.00                        |  | 0.00                  |  | 0.00                             |  |                                |  |                 |  | 453,895             |   |                            
|Oilgener Inc. (3)                                 |  | U.S.A.        |  | Dollar |  |            |  | 100.00                      |  | 0.00                  |  | 0.00                             |  |                                |  |                 |  | (903,119            | ) |                            
|Cía. Chilena de Navegación Interoceánica S.A. (2) |  | Chile         |  | Ch$    |  |            |  | 0.00                        |  | 0.00                  |  | 0.00                             |  |                                |  |                 |  | (862,736            | ) |                            
|Gasoducto Gasandes S.A.                           |  | Chile         |  | Ch$    |  | 22,464      |  | 13.00                       |  | 13.00                 |  | 13.00                            |  | 37,483,711                      |  | 31,849,036       |  | (1,622,450          | ) | 299,028                     
|Cía. Carbones del Cesar Ltda. (1).                |  | Colombia      |  | Dollar |  | 9,080,008   |  | 100.00                      |  | 99.00                 |  | 99.00                            |  | 4,039,134                       |  | 3,354,530        |  |                    |   |                            
|Portuaria Cabo Froward S.A. (2)                   |  | Chile         |  | Ch$    |  |            |  | 0.00                        |  | 0.00                  |  | 0.00                             |  |                                |  |                 |  | 304,018             |   |                            
|Explotaciones Sanitarias S.A. (3)                 |  | Chile         |  | Ch$    |  |            |  | 51.00                       |  | 0.00                  |  | 0.00                             |  |                                |  |                 |  | 298,944             |   |                            
|Serv. Int. de Generación de E.Eléctrica S.A.(3)   |  | Chile         |  | Ch$    |  |            |  | 40.00                       |  | 0.00                  |  | 0.00                             |  |                                |  |                 |  | 869,630             |   |                            
|Ecogener S.A. (3)                                 |  | Chile         |  | Ch$    |  |             |  | 51.00                       |  | 0.00                  |  | 0.00                             |  |                                |  |                 |  | 305,893             |   |                            
|CDEC-SING Ltda.                                   |  | Chile         |  | Ch$    |  | 100,641,422 |  | 28.38                       |  | 33.00                 |  | 28.00                            |  | 435,810                         |  | 431,541          |  | (31,741             | ) | (26,080                     
|CDEC-SIC Ltda.                                    |  | Chile         |  | Ch$    |  | 62,769,168  |  | 18.75                       |  | 15.00                 |  | 15.00                            |  | 455,244                         |  | 357,777          |  | (37,852             | ) | (7,426                      
|Energen S.A. (1)(4)                               |  | Argentina     |  | Dollar |  | 11,999      |  | 100.00                      |  | 99.00                 |  | 99.00                            |  |                                |  |                 |  | (411,068            | ) | (40,727                     
|MEGA Inc.(2)                                      |  | U.S.A         |  | Dollar |  |            |  | 0.00                        |  | 0.00                  |  | 0.00                             |  |                                |  |                 |  | 451,267             |   |                            
|Oilgener Ltd. (1)(3)                              |  | Argentina     |  | Dollar |  | 11,000      |  | 100.00                      |  | 0.00                  |  | 0.00                             |  |                                |  |                 |  | (1,240,307          | ) |                            
|                                                  |  |               |  |        |  |             |  |                             |  |                       |  |                                  |  |                                 |  |                  |  |                     |   |                             
|                                                  |  |               |  |        |  |             |  |                             |  |                       |  |                                  |  |                                 |  |                  |  |                     |   |                             
|                                                  |  |               |  |        |  |             |  |                             |  |                       |  |                                  |  |                                 |  |                  |  |                     |   |                             

---

Provisions recorded for investments held for sale are as follows:

|                       |  | As of December 31, |  |           |  | 
|---------------------- |  | ------------------ |  | --------- |  | 
|
|Carbones del Cesar (1) |  | 1,385,954          |  | 1,756,164 |  | 

---

F-26

---



Additional information concerning this item is as follows:



The
Superintendence of Securities and Insurance ("SVS"), in accordance with its communication No. 02385 of April 12, 2001, authorized AES Gener S.A. to not consolidate its results
with those of its subsidiaries Oilgener Inc., Explotaciones Sanitarias S.A, Ecogener S.A. and Carbones del Cesar.

Finally,
the SVC established through such communication that the investments in these subsidiaries must be presented under the item "investment in related companies" until they are sold
or there is a purchase commitment.

The
authorization requested from the SVC was based on the intention of AES Gener management to sell its interest in those subsidiaries and initiating the bid process over such
investments. Note 34 shows the financial statements of the non-consolidated subsidiaries.

In
2002, Explotaciones Sanitarias S.A. and Ecogener S.A. were sold. In addition, the assets of the subsidiary Oilgener Inc. were sold in 2002.



In
June 2001, AES Gener S.A. sold its 50% interest in MEGA for ThUS$289. The net income after tax originated by this transaction amounted to ThCh$224,968 in 2001.



During
2002 and 2003, AES Gener S.A. made contributions of ThUS$176 and ThUS$75, respectively.



On
July 26, 2001, AES Gener S.A. sold 53,190,000 shares of Puerto Ventanas S.A equivalent to 66.33% of its outstanding shares, for ThCh$40,023,270. In the same month the company
sold its remaining 2,840,611 shares of Puerto Ventanas S.A. equivalent to 3.54% of the total outstanding shares for ThCh$2,137,447. The net income after tax originated by this transaction amounted to
ThCh$8,768,982.



On
February 9, 2001, AES Gener S.A informed Sociedades de Inversiones Paine S.A., Inversiones Tongoy S.A. and Inversiones Patagonia Ltda. of its decision to exercise its
option over all the shares of Compañía Chilena de Navegación Interoceánica S.A.. On April 4, 2001, AES Gener S.A. bought, acquired
and accepted the ownership of the 35,564,602 shares, which represents 13.01% of the outstanding shares of Compañía Chilena de Navegación
Interoceánica S.A. The price of this transaction was paid through the compensating loan existing with the sellers.

On
June 12, 2001, AES Gener sold 71,129,207 shares of Compañía Chilena de Navegación Interoceánica S.A. to
Compañía Sud Americana de Vapores S.A., equivalent to 26.02% of the

F-27

---

outstanding
shares, for US$3,903,000. This transaction generated a net loss after tax amounting to ThCh$5,888,343.



On
June 14, 2001, AES Gener sold to Sudamericana Agencias Maritimas y Areas S.A. 228,311,092 shares of Agencias Universales S.A. equivalent to 26.70% of the outstanding shares for
ThUS$10,060. Such transaction generated a net loss after tax amounting to ThCh$1,578,699.



On
August 27, 2001, AES Gener S.A. sold to Empresas Navieras S.A. 10,158,935 shares of Portuaria Cabo Froward S.A. equivalent to 8.97% of the outstanding shares, for ThCh$923,447.

On
August 31, 2001, AES Gener S.A. sold to Inmobiliaria Dos Robles S.A. 2,623,458 shares of Portuaria Cabo Froward equivalent to 2.32% of the outstanding shares, for ThCh$238,472.

On
August 31, 2001, AES Gener S.A sold to Puerto de Lirquén S.A. 11,200,000 shares of Portuaria Cabo Froward equivalent to 9.89% of the outstanding shares, for
ThCh$1,018,080. These transactions generated a net loss after tax amounting to ThCh$341,290.



On
September 21, 2001, AES Gener S.A exercised its option to buy 53,306,844 shares of Hidroneuquén equivalent to 19.02% of the outstanding shares. Such transaction
increased the Company's interest in Hidroneuquén to 43.28%.AES Gener S.A. paid ThUS$4,402 for such shares.

On
September 21, 2001, AES Gener SA sold to Total Austral S.A. (Argentinean branch) 121,283,366 shares of Hidroneuquén S.A. equivalent to 43.28% of the outstanding
shares, for ThUS$44,781.

Likewise,
on that same date, Gener Argentina S.A., a subsidiary of AES Gener S.A., sold to Total Austral S.A. (Argentinean branch) 74,937,265 shares of Hidroneuquén S.A.
equivalent to 26.74% of the outstanding shares, for ThUS$27,669 These transactions generated a net loss after tax amounting to ThCh$16,259,168.



On
July 27, 2001, AES Gener S.A. sold to Total Austral S.A. (Argentinean branch) 56,589,164 shares of Central Puerto S.A. equivalent to 63.94% of the outstanding shares, for
ThUS$255,000. Such transaction generated a net income after taxes amounting to ThCh$52,784,531.



On
November 5, 2002, AES Gener S.A. sold to Energy Holdings LLC its ownership rights over the assets of this company, as well as the rights of AES Gener S.A. over the contract
with the Chilean State for the development of the Fell-Block area. These assets together with the investment in Oilgener Argentina Ltda. were sold for ThUS$500. Said operation
generated a net loss after tax of ThCh$3,916,249 in 2002.

In
2003, the net book value of the investment was written-off for ThCh$1,501,059.

F-28

---





On
November 25, 2002, AES Gener S.A sold to Inversiones Residuos y Tratamientos S.A. 51,000 shares of Explotaciones Sanitarias and 663,918 shares of Ecogener equivalent to 51% and
50.61% respectively, of the outstanding shares of those companies. The remaining 0.39% interest in Ecogener S.A. (equivalent to 5,100 shares) was sold to Explotaciones Sanitarias S.A. The total amount
obtained in the sale of these companies was ThCh$3,722,400, which generated a net loss after tax amounting to ThCh$1,231,243.



The
liabilities of AES Gener that have been specifically designated as foreign investment hedge instruments of U.S. dollar functional currency subsidiaries are as follows:

USA
bond for US$200,000,000, repayment of capital due on January 15, 2006.

Convertible
bond for US$476,638,900, repayment of capital due on March 1, 2005.



The
unrealized gains correspond to services provided by AES Gener S.A. for the construction of the Empresa Eléctrica Guacolda S.A. plants. Such amount is part of the
construction cost of the corresponding fixed assets and is amortized over the average useful life of each power plant.



AES
Gener S.A. owns the following direct investments in Argentina:

Gener
Argentina S.A. (100%) that consolidates TermoAndes S.A. (100%) and InterAndes S.A. (100%) and also owns an investment in Energen S.A. (100%) and Gasoducto Gasandes Argentina S.A.
(13%), which have been valued according to the accounting standards of Technical Bulletin No. 64 issued by the Chilean Association of Accountants. Those investments represent 7.5% of total of
consolidated assets of AES Gener S.A. as of December 31, 2003.



In
accordance with the agreement adopted by the Board of Directors during its 437th session held on February 28, 2001, the Company was authorized to sell those
subsidiaries that were not part of the electric business in Chile, including Empresa Generadora de Electricidad Itabo Inc., Compañía de Carbones del
Cesar Ltda., Chivor S.A. E.S.P., Gasoducto Gasandes S.A. and Gasoducto Gasandes Argentina S.A. (Argentina). With the exception of Compañía de Carbones del
Cesar Ltda, none of these companies are in the process of being sold.



On
January 25, 2002, AES Gener S.A. sold to General Electric Internacional 400 shares of Servicios Integrales de Generación Eléctrica S.A.,
equivalent to 40% of the total outstanding shares, for ThCh$301,438, resulting in a net loss after tax of ThCh$672,382 in 2002.

F-29

---



On
May 27, 2002, AES Gener S.A. increased its direct equity share participation in Sociedad Eléctrica Santiago S.A. by purchasing an additional 39% of the total
outstanding shares that were previously owned by Sociedad Termoenergía Ltda and Genergía S.A. of 24% and 15% respectively.



As
of December 31, 2003, there were undistributed earnings from New Caribbean Investment S.A. of RD$59,697,306 (ThCh$2,026,425).



Based
on Ordinance No. 150 issued by the SVS, a study of investments was performed that determined that the expected cash flows to be generated by those investments are enough to
recover their book values. In the case of Compañía de Carbones del Cesar Ltda, which is undergoing a divesture process, a provision of ThCh$1,385,954 associated
with the lower value that is expected to be received from the sale was established in 2002.

10. GOODWILL AND NEGATIVE GOODWILL

This note includes the difference between the acquisition cost and the proportional equity value of investments in related companies. The amortization of these
values is recognized in income on a straight-line basis over a 20-year period, in accordance with Circular No. 1358 of the SVS. The details of goodwill and negative goodwill are as
follows:

|                                    |  |           |  | Amortization |  |        
|----------------------------------- |  | --------- |  | ------------ |  | -------
|
|
|
|a) Goodwill:                        |  |           |  |              |  |        
|Empresa Eléctrica Guacolda S.A.     |  | 626,033   |  | 56,911       |  | 56,913 
|Gasoducto Gasandes S.A.             |  | 1,330,578 |  | 102,352      |  | 102,352
|Gasoducto Gasandes S.A. (Argentina) |  | 2,325,800 |  | 167,909      |  | 178,907
|Oilgener Ltd. (Argentina) (1)       |  |          |  | 159,048      |  |       
|Explotaciones Sanitarias S.A. (1)   |  |          |  | 261,315      |  | 216,071
|Gener Blue Water (Islas Cayman)     |  | 1,068,245 |  | 52,174       |  | 55,571 
|Sociedad Eléctrica Santiago S.A.    |  | 3,214,401 |  | 341,594      |  | 341,595
|Genergia Power Ltd. (Islas Cayman)  |  | 829,661   |  | 3,654        |  | 43,652 
|                                    |  |           |  |              |  |        
|                                    |  | 9,394,718 |  | 1,144,957    |  | 995,061
|                                    |  |           |  |              |  |        
|b) Negative goodwill:               |  |           |  |              |  |        
|Puerto Ventanas S.A. (1)            |  |          |  | 20,955       |  |       
|Central Puerto S.A. (Argentina) (1) |  |          |  | 598,979      |  |       
|Hidroneuquén S.A. (Agentina) (1)    |  |          |  | 1,589,411    |  |       
|                                    |  |           |  |              |  |        
|                                    |  |          |  | 2,209,345    |  |       
|                                    |  |           |  |              |  |        

---

F-30

---

11. INTANGIBLES

The details of intangibles are as follows:

As of December 31,2002

2003ThCh$

ThCh$Revalued asset from the Company?s predecessor (1981)

5,889,447

5,889,448Others

20,288

42,568Total

5,909,735

5,932,016Accumulated Amortization

(4,123,833
)
(4,319,893
)Total Intangible net of Accumulated Amortization

1,785,902

1,612,123Charge to net income

196,060

196,060


Amortization
expense is included within "Other non-operating expenses" (Note 29).

12. OTHER LONG TERM ASSETS

The details of other long term assets are as follows:

2002

2003ThCh$

ThCh$Advances to suppliers (f)

4,878,619

4,168,859Discount in bonds issuance (a)

1,948,559

1,675,209Deferred expenses in issuance of bonds and others (b)

6,414,500

4,006,959Materials (g)

1,395,642

243,444Pension plans deferred assets (c)

1,289,481

1,479,426Power supply to Fifth Region (d)

1,838,684

1,266,778Time deposits (restricted cash, see Note 25.4.a(iii))

22,472,283

12,795,011Deferred assets staff severance indemnities and pensions plans (c)

673,832

606,450Deferred charges of bonds



220,972Other deferred charges

3,930,873

2,710,161Totals

44,842,473

29,173,269


---



F-31

---



13. SHORT-TERM AND LONG-TERM ACCOUNTS RECEIVABLE

The details of short-term and long-term accounts receivable are as follows:

|                                |  | SHORT-TERM MATURITIES |   |            |   |          
|------------------------------- |  | --------------------- | - | ---------- | - | ---------
|
|
|
|Trade Account Receivable        |  | 25,119,499            |   | 27,672,281 |   | 8,962,693
|Allowance for Doubtful Accounts |  | (3,048,830            | ) | (1,437,991 | ) |         
|Notes Receivable                |  | 615,278               |   | 237,542    |   | 12,033   
|Sundry Accounts Receivable      |  | 1,998,833             |   | 1,557,139  |   | 535,475  
|                                |  |                       |   |            |   |          
|                                |  |                       |   |            |   |          
|                                |  |                       |   |            |   |          

Long-term accounts receivable at December 31, 2002 and 2003 mainly include ThCh$5,863,541 and ThCh$7,455,173, respectively, of
amounts paid under a take-or-pay contract for the transportation of gas, in excess of the gas received. In accordance with the terms of the contract, the minimum payments in excess of the
gas received are applied to future purchases of gas and bear no interest. The balance at December 31, 2002 includes ThCh$746,584 of management fees due from Hidroeléctrica Piedra
del Aguila, an Argentinean power Company that was related to AES Gener until September 2001, which bear no interest.

F-32

---



14.    CURRENT LIABILITIES

The following liabilities, excluding bank liabilities, are due to within a year:

As of December 31,2002
ThCh$

2003
ThCh$Short-term portion of long-term liabilities

14,401,133

3,856,460Dividends payable

148,679

113,715Bonds payable

41,490,179

31,795,165Trade accounts and notes payable

40,192,847

38,115,648Accounts and notes payable to related companies

1,325,954

1,203,087Taxes, withholdings and other

9,277,010

10,321,225Total

106,835,802

85,405,300


Accounts
payable and other short-term liabilities mainly correspond to purchases of coal, energy and electricity power.

Average
annual interest rates were as follows:

As of December 31,2002

2003a) Average annual interest rate: UF obligations

7.50
%
7.50
%b) Average annual interest rate: US$ obligations

6.32
%
5.86
%


15.    INCOME TAXES

As
of December 31, 2003 and 2002, the Company did not record income taxes payable because at the end of both periods, a negative taxable base of the first category tax was
determined, except for the subsidiary Energía Verde S.A., which recorded ThCh$173,467 since it had net income of ThCh$1,051,317.

As
of December 31, 2002 and 2003, the Company and subsidiaries have no undistributed dividend tax credits.

F-33

---

The
deferred tax assets and liabilities arising from accumulated temporary differences and the deferred tax complementary accounts are set out below:

2002

2003Deferred Asset

Deferred Liability

Deferred Asset

Deferred LiabilityShort-
term
ThCh$

Long-term
ThCh$
(As restated)
note 35

Short-
term
ThCh$

Long-term
ThCh$

Short-
term
ThCh$

Long-term
ThCh$

Short-
term
ThCh$

Long-term
ThCh$Allowance for doubtful accounts

10,993







10,884

442,306



Vacation allowance

193,518







222,962





Accelerated depreciation



421,639



97,254,846



364,106



99,256,030Staff severance indemnities







92,897







143,486Amortization of Intangibles



42,689



300,155







Lease assets















387Benefit of tax losses







607,789







Loss carryforward



42,585,191







47,051,224



Other

528,612

3,187,452



982,797

698,046

(5,804,110
)


4,638,848Coal allowance









25,655





Sale on investments in related companies











1,750,510



652,323Lease, net











476



Allowance for supplies and inventories









231,880





Provision for retirement of machinery and equipment









29,013

211,310



Pension plans provision (Long-term)











143,792



Intangibles















266,824Subtotal

733,123

46,236,971



99,238,484

1,218,440

44,159,614



104,957,898Net Complementary Accounts



8,404,560



57,405,730



2,812,537



54,554,185Total deferred taxes

733,123

37,832,411



41,832,754

1,218,440

41,347,077



50,403,713


F-34

---

These deferred taxes are presented on a net basis in the balance sheet.

As of December 31,2001
ThCh$
(As restated)
note 35

2002
ThCh$
(As restated)
note 35

2003
ThCh$Current income tax

(3,045,423
)
(989,380
)
(826,710
)Adjustment to income taxes of prior periods

(1,137,333
)


Deferred income tax

(8,777,341
)
(7,188,566
)
(7,066,175
)Benefit of tax losses

(3,851,738
)
11,568,413

4,649,979Amortization of complementary accounts

9,110,843

(5,053,573
)
(1,505,480
)Other

651,731

(305
)
Charge to income

(7,049,261
)
(1,663,411
)
(4,748,386
)


In accordance with the registry of the Fondos de Utilidad Tributaria, or FUT, as of December 31, 2003 and 2002, the company had tax loss carryforwards of
ThCh$207,198,654 and ThCh$212,939,441 respectively, as follows:

As of December 31,2002
ThCh$
(As restated)
note 35

2003
ThCh$Chile

173,889,200

142,482,510
(2)Argentina



6,769,766
(1)Colombia

39,050,241

57,946,378
(1)Total

212,939,441

207,198,654


---

F-35

---

16.    SHORT-TERM BANK LIABILITIES

Short-term bank liabilities as of December 31, 2002 and 2003 are as follows:

CURRENCYUS DOLLARS

TOTALBANK

2002
ThCh$

2003
ThCh$

2002
ThCh$

2003
ThCh$Short-TermABN AMRO Colombia

11,612,738

2,396,773

11,612,738

2,396,773BCI

467,328

1,092,402

467,328

1,092,402Scotiabank

311,551

728,269

311,551

728,269Total

12,391,617

4,217,444

12,391,617

4,217,444Principal

11,612,738

3,066,170

11,612,738

3,066,170Annual Average Interest rate

5.32
%
4.21
%


Short-term portion of long-Term bank liabilities

2002
ThCh$

2003
ThCh$

2002
ThCh$

2003
ThCh$Bank of America

13,820,178

11,282,200

13,820,178

11,282,200BBVA Banco Francés

974,570



974,570

Swap (Bco. Francés y Deutsche)

1,755,087

1,337,257

1,755,087

1,337,257ABN AMRO Colombia

129,378



129,378

Total

16,679,213

12,619,457

16,679,213

12,619,457Principal

15,575,266

12,619,457

15,575,266

12,619,457Annual Average interest rate

8.25
%
5.15
%


17.    LONG-TERM BANK LIABILITIES

The detail of this item is as follows:

|                          |  | 2002 |  | Repayment 2003 |            
|------------------------- |  | ---- |  | -------------- | -----------
|
|ABN AMRO Bank             |  | US$  |  |                | 2,903,184  
|Bank of America           |  | US$  |  |                | 218,873,790
|BBVA-Banco Francés S.A.   |  | Arg$ |  |                | 753,167    
|Scotiabank                |  | US$  |  |                | 6,967,644  
|Banco Crédito Inversiones |  | US$  |  |                | 10,451,449 
|                          |  |      |  |                |            
|Total                     |  |      |  |                | 239,949,234
|                          |  |      |  |                |            

F-36

---



18.    LONG-TERM LIABILITIES (EXCLUDING BANK LIABILITIES)

|                                                   |  |      |  | Balances as of December 31, 2002 |  | Balances as of December 31, 2003 | 
|-------------------------------------------------- |  | ---- |  | -------------------------------- |  | -------------------------------- | 
|
|Bonds payable                                      |  | UF   |  | 18,365,955                       |  | 285,538                          | 
|Bonds payable                                      |  | US$  |  | 41,733,276                       |  | 691,269                          | 
|Bonds payable in foreign countries                 |  | US$  |  | 273,739,443                      |  | 33,575,407                       | 
|Convertible bonds                                  |  | US$  |  | 345,942,654                      |  | 6,937,965                        | 
|                                                   |  |      |  |                                  |  |                                  | 
|Subtotal                                           |  |      |  | 679,781,328                      |  | 41,490,179                       | 
|                                                   |  |      |  |                                  |  |                                  | 
|Notes payable (a)                                  |  | US$  |  | 2,495,447                        |  |                                 | 
|                                                   |  |      |  |                                  |  |                                  | 
|Subtotal                                           |  |      |  | 2,495,447                        |  |                                 | 
|                                                   |  |      |  |                                  |  |                                  | 
|Provision for staff severance indemnities          |  | Ch$  |  | 679,521                          |  | 197,424                          | 
|Provision for post-retirement pension Plan         |  | Ch$  |  | 4,406,496                        |  | 666,603                          | 
|Provision for staff severance indemnities          |  | Col$ |  | 2,154,343                        |  |                                 | 
|Other provisions                                   |  | Ch$  |  | 1,333,287                        |  | 6,587,573                        | 
|Other provisions                                   |  | Col$ |  | 290,376                          |  | 30,984                           | 
|Provisions for the conversion of convertible bonds |  | US$  |  | 12,634,842                       |  |                                 | 
|                                                   |  |      |  |                                  |  |                                  | 
|Subtotal                                           |  |      |  | 21,498,865                       |  | 7,482,584                        | 
|                                                   |  |      |  |                                  |  |                                  | 
|Deferred taxes                                     |  | Col$ |  |                                  |  |                                  | 
|Deferred taxes                                     |  | Ch$  |  | 3,378,313                        |  |                                 | 
|Deferred taxes                                     |  | Arg$ |  | 622,030                          |  |                                 | 
|Deferred customs duties                            |  | US$  |  | 3,335,791                        |  | 8,226,364                        | 
|Other long-term liabilities(a)(b)                  |  | US$  |  | 24,535,126                       |  | 6,174,769                        | 
|                                                   |  |      |  |                                  |  |                                  | 
|Subtotal                                           |  |      |  | 31,871,260                       |  | 14,401,133                       | 
|                                                   |  |      |  |                                  |  |                                  | 
|Total                                              |  |      |  | 735,646,900                      |  | 63,373,896                       | 
|                                                   |  |      |  |                                  |  |                                  | 

---

The balances reflected in the caption short-term portion of long-term liabilities are the following:

2002
ThCh$

2003
ThCh$Notes payable

6,174,769

1,417,254Deferred customs duties

8,226,363

2,439,206Total

14,401,132

3,856,460


F-37

---

19.    PROVISIONS

2002
ThCh$

2003
ThCh$Current liabilitiesStaff Severance indemnities

197,424

33,654Vacation and other employee benefits

1,393,072

1,615,704Pensions and post-retirement benefits (2)

666,603

709,349Argentina's tax (5)

1,246,612

5,523Loss on sale of Oilgener Inc. and Carbones del Cesar

2,960,682

1,756,164Other provisions (3)

1,018,191

2,690,396Total

7,482,584

6,810,790Long-term liabilitiesStaff Severance indemnities

969,897

1,374,579Pension and post-retirement benefits

2,154,343

2,274,933Complementary pension plan(2)

4,406,496

4,725,744Conversion of convertible Bonds (1)

12,634,842

12,959,303Other provisions (4)

1,333,287

409,304Total

21,498,865

21,743,863


---



F-38

---





2002
ThCh$

2003
ThCh$Allowance for fixed assets

432,956

218,513Allowance for supplies and inventories



3,736,000Allowance for doubtful accounts

3,048,830

1,437,991Allowance for shrinkage of coal inventory

213,969

150,914Total

3,695,755

5,543,418




20.    STAFF SEVERANCE INDEMNITIES

As of December 31,2002
ThCh$

2003
ThCh$a) Balance of ProvisionShort-term provision:GENER

197,424

33,654Total short-term

197,424

33,654Long-term provision:GENER

679,521

1,097,263CHIVOR

2,444,719

2,552,249Total long-term

3,124,240

3,649,512b) Charge to incomeStaff severance indemnities

496,665

192,333Pensions plans (Chivor)

654,522

74,210c) PaymentsStaff severance indemnities

(665,411
)
(35,214
)Pensions plans (Chivor)

(187,504
)
(82,752
)Employee contributions



31,400d) Deferred actuarial loss

88,696

(8,870
)e) Foreign exchange effect

38,595

223,283




F-39

---



21.    BONDS

|                             | First Foreign
Issuance                                                      |  | First Issuance
Convertible Bonds                                                |  | ESSA Bonds
US$                                                                   |  | ESSA Bonds
UF                                                                    |  | Gener Argentina S.A.
US$                                                                                   
|---------------------------- | --------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------
|Issue date                   | January 23, 1996                                                            |  | December 24, 1998                                                               |  | September 29, 1999                                                               |  | September 29, 1999                                                               |  | July 30, 1998                                                                                              
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|Securities
issued            | Bearer Bonds                                                                |  | Bearer Convertible Bonds denominated in US$                                     |  | Bearer bonds denominated in US$                                                  |  | Bearer bonds denominated in UF                                                   |  | Medium Term Notes denominated in US$                                                                       
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|Amount of issuance           | US$200,000,000                                                              |  | US$500,000,000                                                                  |  | US$60,000,000                                                                    |  | UF1,388,000                                                                      |  | US$257,000,000                                                                                             
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|
|                             |                                                                             |  | 7,416 bonds of US$100 each                                                      |  | 500 bonds of US$
10,000 each                                                     |  | 198 bonds of UF
1,000 each                                                       |  | Total value of
US$210,000,000                                                                              
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|
|                             |                                                                             |  | 2,717 bonds of US$1,000 each                                                    |  | 550 bonds of
US$100,000 each                                                     |  | 119 bonds of UF
10,000 each                                                      |  | Total value of
US$47,000,000                                                                               
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|
|                             |                                                                             |  | 3,517 bonds of US$5,000 each                                                    |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|
|                             |                                                                             |  | 1,139 bonds of US$100,000 each                                                  |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|
|                             |                                                                             |  | 565 bonds of US$500,000 each                                                    |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|
|                             |                                                                             |  | US$82,500,000                                                                   |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|Basis for
readjustment       | US$ Variation                                                               |  | US$ Variation                                                                   |  | US$ Variation                                                                    |  | UF Variation                                                                     |  | US$ Variation                                                                                              
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|Amortization
term            | 10 years                                                                    |  | 6.2 years                                                                       |  | 10 years (5 years grace period and 5 years for principal repayment)              |  | 25 years (6 years grace period and 19 years for principal repayment)             |  | 9 years (4 years grace period and 5 years for principal repayment)                                         
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|Principal payments           | Repayment of principal on January 15, 2006                                  |  | Repayment of principal on March 1, 2005                                         |  | 10 semiannual payments starting on April 15, 2005                                |  | 38 semiannual payments starting on April 15. 2005                                |  | 11 semiannual payments starting on December 31, 2002                                                       
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|Nominal annual
interest rate | 6.50%                                                                       |  | 6.00%                                                                           |  | 8.00%                                                                            |  | 7.50%                                                                            |  | LIBOR + 1.125% up to December 31, 2002 LIBOR + 1.5% to December 31, 2005 LIBOR + 1.875 to December 31, 2007
|                             |                                                                             |  |                                                                                 |  |                                                                                  |  |                                                                                  |  |                                                                                                            
|Interest payments            | Semiannually on January 15 and July 15 each year, starting on July 15, 1996 |  | Semiannually on March 1 and September 1 of each year, starting on March 1, 1999 |  | Semiannually on April 15 and
October 15 of each year, starting on April 15, 2000 |  | Semiannually on April 15 and October 15 of each year, starting on April 15, 2000 |  | Seminanually on June 30 and December 31 from June 30, 2000                                                 

F-40

---

AES GENER S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements (Continued)

(Restated for general price-level changes and expressed in thousands of constant Chilean
pesos as of December 31, 2003 and thousands of US dollars, except as indicated)

21.    Bonds (Continued)

b)    The details of the outstanding bonds at December 31, 2002 and 2003 are as follows:

|Number of the
Instrument |  | Series |  | Amount of
Issuance |  | Basis for
Readjustment |  | Nominal
annual
Interest
rate % |  | Scheduled
Maturity |  | Interest
payments |  | Terms
Amortization
payments |  | 2002        |  | 2003        |  | Country of
Placing
Bonds
|------------------------ |  | ------ |  | ------------------ |  | ---------------------- |  | ------------------------------ |  | ------------------ |  | ----------------- |  | --------------------------- |  | ----------- |  | ----------- |  | ------------------------
|Bonds Short-Term         |  |        |  |                    |  |                        |  |                                |  |                    |  |                   |  |                             |  |             |  |             |  |                         
|N.A.                     |  | Unit   |  | 200,000,000        |  | US                     |  | 6.50                           |  | 1/15/2006          |  | Semiannually      |  | Repayment of principal due  |  | 4,333,082   |  | 3,545,051   |  | Foreign                 
|208                      |  | LA1    |  | 659,900            |  | US                     |  | 6.00                           |  | 3/1/2005           |  | Semiannually      |  | Repayment of principal due  |  | 9,605       |  | 7,815       |  | Chile                   
|208                      |  | LA2    |  | 2,591,000          |  | US                     |  | 6.00                           |  | 3/1/2005           |  | Semiannually      |  | Repayment of principal due  |  | 37,714      |  | 30,686      |  | Chile                   
|208                      |  | LA3    |  | 15,705,000         |  | US                     |  | 6.00                           |  | 3/1/2005           |  | Semiannually      |  | Repayment of principal due  |  | 228,603     |  | 186,000     |  | Chile                   
|208                      |  | LA4    |  | 110,800,000        |  | US                     |  | 6.00                           |  | 3/1/2005           |  | Semiannually      |  | Repayment of principal due  |  | 1,612,807   |  | 1,312,246   |  | Chile                   
|208                      |  | LA5    |  | 273,000,000        |  | US                     |  | 6.00                           |  | 3/1/2005           |  | Semiannually      |  | Repayment of principal due  |  | 3,973,793   |  | 3,233,241   |  | Chile                   
|N.A.                     |  | M      |  | 73,883,000         |  | US                     |  | 6.00                           |  | 3/1/2005           |  | Semiannually      |  | Repayment of principal due  |  | 1,075,443   |  | 875,024     |  | Foreign                 
|214                      |  | A      |  | 57,500,000         |  | US                     |  | 8.00                           |  | 10/15/2009         |  | Semiannually      |  | Semiannually                |  | 691,269     |  | 565,552     |  | Chile                   
|214                      |  | B      |  | 1,086,000          |  | UF                     |  | 7.50                           |  | 10/15/2024         |  | Semiannually      |  | Semiannually                |  | 285,538     |  | 285,680     |  | Chile                   
|N.A.                     |  |        |  | 210,000,000        |  | US                     |  | 6.36                           |  | 12/31/2007         |  | Semiannually      |  | Semiannually                |  | 23,894,506  |  | 17,293,590  |  | Foreign                 
|N.A.                     |  |        |  | 47,000,000         |  | US                     |  | 6.36                           |  | 12/31/2007         |  | Semiannually      |  | Semiannually                |  | 5,347,819   |  | 4,460,280   |  | Foreign                 
|                         |  |        |  |                    |  |                        |  |                                |  |                    |  |                   |  |                             |  |             |  |             |  |                         
|Total Short-Term         |  |        |  |                    |  |                        |  |                                |  |                    |  |                   |  |                             |  | 41,490,179  |  | 31,795,165  |  |                         
|                         |  |        |  |                    |  |                        |  |                                |  |                    |  |                   |  |                             |  |             |  |             |  |                         
|Bonds Long-Term          |  |        |  |                    |  |                        |  |                                |  |                    |  |                   |  |                             |  |             |  |             |  |                         
|N.A.                     |  | Unit   |  | 200,000,000        |  | US                     |  | 6.50                           |  | 1/15/2006          |  | Semiannually      |  | Repayment of principal due  |  | 145,159,220 |  | 118,760,000 |  | Foreign                 
|208                      |  | LA1    |  | 659,900            |  | US                     |  | 6.00                           |  | 3/1/2005           |  | Semiannually      |  | Repayment of principal due  |  | 478,953     |  | 391,849     |  | Chile                   
|208                      |  | LA2    |  | 2,591,000          |  | US                     |  | 6.00                           |  | 3/1/2005           |  | Semiannually      |  | Repayment of principal due  |  | 1,880,538   |  | 1,538,536   |  | Chile                   
|208                      |  | LA3    |  | 15,705,000         |  | US                     |  | 6.00                           |  | 3/1/2005           |  | Semiannually      |  | Repayment of principal due  |  | 11,398,628  |  | 9,325,629   |  | Chile                   
|208                      |  | LA4    |  | 110,800,000        |  | US                     |  | 6.00                           |  | 3/1/2005           |  | Semiannually      |  | Repayment of principal due  |  | 80,418,208  |  | 65,793,040  |  | Chile                   
|208                      |  | LA5    |  | 273,000,000        |  | US                     |  | 6.00                           |  | 3/1/2005           |  | Semiannually      |  | Repayment of principal due  |  | 198,142,335 |  | 162,107,400 |  | Chile                   
|N.A.                     |  | M      |  | 73,883,000         |  | US                     |  | 6.00                           |  | 3/1/2005           |  | Semiannually      |  | Repayment of principal due  |  | 53,623,992  |  | 43,871,725  |  | Foreign                 
|214                      |  | A      |  | 57,500,000         |  | US                     |  | 8.00                           |  | 10/15/2009         |  | Semiannually      |  | Semiannually                |  | 41,733,276  |  | 34,143,500  |  | Chile                   
|214                      |  | B      |  | 1,086,000          |  | UF                     |  | 7.50                           |  | 10/15/2024         |  | Semiannually      |  | Semiannually                |  | 18,365,955  |  | 18,375,120  |  | Chile                   
|N.A.                     |  |        |  | 210,000,000        |  | US                     |  | 6.36                           |  | 12/31/2007         |  | Semiannually      |  | Semiannually                |  | 105,065,552 |  | 57,645,299  |  | Foreign                 
|N.A.                     |  |        |  | 47,000,000         |  | US                     |  | 6.36                           |  | 12/31/2007         |  | Semiannually      |  | Semiannually                |  | 23,514,671  |  | 11,120,530  |  | Foreign                 
|                         |  |        |  |                    |  |                        |  |                                |  |                    |  |                   |  |                             |  |             |  |             |  |                         
|Total Long Term          |  |        |  |                    |  |                        |  |                                |  |                    |  |                   |  |                             |  | 679,781,328 |  | 523,072,628 |  |                         
|                         |  |        |  |                    |  |                        |  |                                |  |                    |  |                   |  |                             |  |             |  |             |  |                         

F-41

---

SHORT AND LONG TERM OBLIGATIONS WITH THE PUBLIC

The
fourth bond issuance series, (JA and KA series) placed on March 8, 1991 was used to finance the purchase of the fourth to seventh floors along with parking and storage space
of the Las Americas building in Santiago. On January 2002, the company pre-paid all its existing debt of issuance No. 136, which was originally due on January 2012.
The redemption did not result in an extraordinary gain or loss on the early extinguishment of debt.

The
first foreign bond issuance on January 23, 1996 was used to finance part of the capital investment program.

In
1998, the company issued its first convertible bonds amounting to 500 million dollars from which US$499,943,600 (equivalent to ThCh$362,857,115) (99.99%) were placed. The funds
were used to refinance existing debt. These bonds pay an annual interest of 6% and are due on March 2005. As of December 31, 2003, a total of US$23,304,700 has been converted into
shares. The conversion price was determined on the basis of the average market stock price, expressed in US dollars, plus 15%. Such average market stock price was computed for the 10 days
preceding the twenty second day before the bonds were offered first to the shareholders for a limited amount of time. Under no circumstances can the conversion price be lower than US$0.211 (21.1 cent
of a US Dollar). The conversion price at the time of bonds issuance was US$0.2712 (27.12 cents of a US Dollar) and at December 31, 2003 is US$0.2205 (22.05 cents of a US dollar). The parent
company has made a provision for the eventual conversion to shares of bonds amounting to ThCh$12,959,303 which will be paid to holders who have not converted their bonds to shares by March 1,
2005. This provision is accrued over the period from the date of debt issuance to the expiration date for converting the bonds.

During
1999, Sociedad Eléctrica Santiago S.A. completed its first bonds issuance for the aggregate principal amount of US$100 million (series A and B).
US$60 million in A series bonds and UF1,388,000 in B series bonds, from which as of December 31, 2003, 96% of the A series bonds had been placed, totaling US$57.5 million and
78.2% of the B series bonds had been placed totaling UF1,086,000. The issuance proceeds were used to finance the prepayment of General Electric debt related to the construction of its power plant,
Nueva Renca and other short-term debts.

On
July 30, 1998, the National Commission of Securities, through Resolution No. 12337, authorized TermoAndes S.A. and InterAndes S.A. to issue through a public tender offer
negotiable obligations and to create a Global Program without re-issuance in order to issue secured and non-convertible negotiable obligations for up to US$250,000,000 and
US$50,000,000, respectively.

As
of December 31, 2003, TermoAndes S.A. had issued ten series of bonds under such program amounting to US$210,000,000. In December 2003, it made the second principal
payment amounting to US$17,325,000.

F-42

---

As
of December 31, 2002, InterAndes S.A. has issued five series of bonds under such program amounting to US$47,000,000. In December 2003, it made the second principal
payment amounting to US$3,887,500.

TermoAndes
S.A. and InterAndes S.A. hedged their variable rate obligations with a fixed 180-day Libor rate, which applies to an average of 92% of the debt. The hedge is
effective from January 10, 1998 until September 30, 2007. Through this hedge, TermoAndes S.A. and InterAndes S.A. pay a fixed rate and receive a variable rate.

The
placement discounts and the bond issuance expenses are shown under other long-term assets (Note 12).

The
company has accrued ThCh$12,634,842 at December 31, 2002 and ThCh$12,959,303 at December 31, 2003 for the eventual premium to be paid to holders of convertible bonds
who would have not converted their bonds into shares before March 1, 2005.

Accrued
interest as of December 31, 2002 and 2003 amounted to ThCh$12,247,854 and ThCh$10,664,069 respectively and are included under short-term obligations with the
public.

2002
ThCh$

2003
ThCh$2003

41,490,179

2004

29,672,359

31,795,1652005

384,391,703

311,297,8802006

184,999,383

148,049,6642007

45,897,374

31,931,4402008

8,521,133

7,003,2642009

8,557,863

7,040,0142010

247,941

248,0642011

284,673

284,8142012

321,404

321,5652013

358,136

358,3152014

394,868

395,0652015

431,600

431,8152016

468,332

468,5662017

505,064

505,3162018

541,795

542,0662019

606,077

606,3792020

679,540

679,8792021

918,298

918,7562022

1,652,935

1,653,7612023

4,040,510

4,042,5262024

6,290,340

6,293,479Total

721,271,507

554,867,793


F-43

---



2002
ThCh$

2003
ThCh$Legal fees

455,817

342,854Financial fees

4,520,917

2,953,528Commissions

1,539,632

891,455Taxes

3,068,142

1,758,475Other expenses

20,965

18,634Total

9,605,473

5,964,946


22. SHAREHOLDERS' EQUITY



|                                               |  | Paid-in
Capital
ThCh$ |  | Share
Premium
Account
ThCh$ |  | Other
Reserves
ThCh$ |   | Future
Dividends
Reserve
ThCh$ |   | Retained
Earnings
ThCh$ |   | Interim
Dividends
ThCh$ |   | Subsidiary
Development
Stage
Deficit
ThCh$ |   | Net Income
For the
Year
ThCh$ |  
|---------------------------------------------- |  | --------------------- |  | --------------------------- |  | -------------------- | - | ------------------------------ | - | ----------------------- | - | ----------------------- | - | ------------------------------------------ | - | ----------------------------- | -
|2001                                           |  |                       |  |                             |  |                      |   |                                |   |                         |   |                         |   |                                            |   |                               |  
|Balance as of January 1                        |  | 615,928,605           |  | 27,536,497                  |  | 105,890,721          |   | 26,080,533                     |   | 60,255,290              |   | (2,877,218              | ) | (670,262                                   | ) | 2,206,586                     |  
|Distribution of earnings from last year        |  |                      |  |                            |  |                     |   |                               |   | (1,340,894              | ) | 2,877,218               |   | 670,262                                    |   | (2,206,586                    | )
|Issuance of shares, due to conversion of bonds |  | 1,488                 |  | 1,046                       |  |                     |   |                               |   |                        |   |                        |   |                                           |   |                              |  
|Capitalization of reserves                     |  |                      |  |                            |  | (67,448,654          | ) | 67,448,654                     |   |                        |   |                        |   |                                           |   |                              |  
|Subsidiary start-up accumulated deficit        |  |                      |  |                            |  |                     |   |                               |   |                        |   |                        |   | (118,387                                   | ) |                               |  
|Dividend Payments                              |  |                      |  |                            |  |                     |   | (86,024,114                    | ) | (58,914,396             | ) |                        |   |                                           |   |                              |  
|Other reserves                                 |  |                      |  |                            |  | (2,536,857           | ) |                               |   |                        |   |                        |   |                                           |   |                              |  
|Currency translation adjustment                |  |                      |  |                            |  | 10,873,328           |   |                               |   |                        |   |                        |   |                                           |   |                              |  
|Price-level restatement                        |  | 19,093,805            |  | 853,643                     |  | 1,191,704            |   | 1,436,994                      |   | 892,307                 |   |                        |   |                                           |   |                              |  
|Net income for the period                      |  |                      |  |                            |  |                     |   |                               |   |                        |   |                        |   |                                           |   | (2,010,423                    | )
|                                               |  |                       |  |                             |  |                      |   |                                |   |                         |   |                         |   |                                            |   |                               |  
|Total                                          |  | 635,023,898           |  | 28,391,186                  |  | 47,970,242           |   | 8,942,067                      |   | 892,307                 |   |                        |   | (118,387                                   | ) | (2,010,423                    | )
|Balances at Dec. 31, 2001                      |  | 660,615,361           |  | 29,535,351                  |  | 49,903,443           |   | 9,302,432                      |   | 928,267                 |   |                        |   | (123,158                                   | ) | (2,091,444                    | )
|                                               |  |                       |  |                             |  |                      |   |                                |   |                         |   |                         |   |                                            |   |                               |  
|2002                                           |  |                       |  |                             |  |                      |   |                                |   |                         |   |                         |   |                                            |   |                               |  
|Balances as of January 1                       |  | 635,023,898           |  | 28,391,186                  |  | 47,970,242           |   | 8,942,067                      |   | 892,307                 |   |                        |   | (118,387                                   | ) | (2,010,423                    | )
|Distribution of earnings from last year        |  |                      |  |                            |  |                     |   | (4,253,434                     | ) | 2,124,624               |   |                        |   | 118,387                                    |   | 2,010,423                     |  
|Currency translation adjustment                |  |                      |  |                            |  | 1,120,841            |   |                               |   |                        |   |                        |   |                                           |   |                              |  
|Price-level restatement                        |  | 19,050,717            |  | 851,736                     |  | 1,439,107            |   | 140,659                        |   | 90,508                  |   |                        |   |                                           |   |                              |  
|Net income for the period                      |  |                      |  |                            |  |                     |   |                               |   |                        |   |                        |   |                                           |   | 35,223,218                    |  
|                                               |  |                       |  |                             |  |                      |   |                                |   |                         |   |                         |   |                                            |   |                               |  
|Total                                          |  | 654,074,615           |  | 29,242,922                  |  | 50,530,190           |   | 4,829,292                      |   | 3,107,439               |   |                        |   |                                           |   | 35,223,218                    |  
|Balances Dec. 31, 2002                         |  | 660,615,361           |  | 29,535,351                  |  | 51,035,492           |   | 4,877,585                      |   | 3,138,513               |   |                        |   |                                           |   | 35,575,450                    |  
|                                               |  |                       |  |                             |  |                      |   |                                |   |                         |   |                         |   |                                            |   |                               |  
|2003                                           |  |                       |  |                             |  |                      |   |                                |   |                         |   |                         |   |                                            |   |                               |  
|Balances as of January 1                       |  | 654,074,615           |  | 29,242,922                  |  | 50,530,190           |   | 4,829,292                      |   | 3,107,439               |   |                        |   |                                           |   | 35,223,218                    |  
|Distribution of earnings from last year        |  |                      |  |                            |  | 2,636,863            |   | 29,779,536                     |   | 2,806,819               |   |                        |   |                                           |   | (35,223,218                   | )
|Final dividends                                |  |                      |  |                            |  |                     |   | (29,779,536                    | ) |                        |   |                        |   |                                           |   |                              |  
|Currency translation adjustment                |  |                      |  |                            |  | (144,607             | ) |                               |   |                        |   |                        |   |                                           |   |                              |  
|Price-level restatement                        |  | 6,540,746             |  | 292,429                     |  | 486,844              |   | 462,727                        |   | 59,142                  |   |                        |   |                                           |   |                              |  
|Net income for the period                      |  |                      |  |                            |  |                     |   |                               |   |                        |   |                        |   |                                           |   | 53,678,463                    |  
|                                               |  |                       |  |                             |  |                      |   |                                |   |                         |   |                         |   |                                            |   |                               |  
|Total Balances at Dec. 31, 2003                |  | 660,615,361           |  | 29,535,351                  |  | 53,509,290           |   | 5,292,019                      |   | 5,973,400               |   |                        |   |                                           |   | 53,678,463                    |  
|                                               |  |                       |  |                             |  |                      |   |                                |   |                         |   |                         |   |                                            |   |                               |  

F-44

---



At the Extraordinary General Shareholders Meeting held on September 14, 1998, the shareholders agreed to increase the authorized capital to
ThCh$237,500,000 by issuing 2,375,000,000 shares of common stock for the purpose of supporting the conversion of convertible bonds into company shares (Note 21). Such shares were issued in
November 13, 1998, according to its inscription in the Securities registry. As of December 31, 2003, US$23,304,700 in bonds have been converted into shares, which represents 85,932,258
shares.

At
the Extraordinary Shareholders Assembly held on November 21, 2003, the shareholders agreed to increase the capital amounting to $50,484,000,000 pesos through the issuance of
466,839,282 common shares, which implies that each shareholder per share owned shall have access to subscribe for 0.082295016256 shares of the new issuance in order to keep the same percentage of
equity share. The value of the common shares issued shall be paid in cash and shall be issued, subscribed and paid within the maximum term due on March 31, 2004.



The following shows a detail of final dividends paid as of December 31, 2002 and 2003 against the profits of 2001 and 2002, and against reserve for future
dividends and retained earnings, as well as the interim dividends declared against 2001 and 2002 profits:

|Date of payment                                         |  | Dividend
share
Per
ThCh$ |  | Total
Dividend in
Historical Chilean pesos
ThCh$ |  | Total Dividend in
constant Chilean pesos as
of December 31,
ThCh$
|------------------------------------------------------- |  | ------------------------ |  | ------------------------------------------------ |  | -----------------------------------------------------------------
|2001                                                    |  |                          |  |                                                  |  |                                                                  
|Final dividends against reserves and retained earnings: |  |                          |  |                                                  |  |                                                                  
|July 2001                                               |  | 5.95                     |  | 33,752,804                                       |  | 35,639,737                                                       
|September 2001                                          |  | 0.50                     |  | 111,185,706                                      |  | 116,707,488                                                      
|2002                                                    |  |                          |  |                                                  |  |                                                                  
|There were no dividends paid during 2002                |  |                         |  |                                                 |  |                                                                 
|2003                                                    |  |                          |  |                                                  |  |                                                                  
|Final dividends against reserves and retained earnings: |  |                          |  |                                                  |  |                                                                  
|May 2003                                                |  | 1.57                     |  | 8,933,860                                        |  | 8,880,257                                                        
|July 2003                                               |  | 3.67                     |  | 20,845,676                                       |  | 20,803,985                                                       



The dividends distribution policy for the year 2003, which was approved at the General Ordinary Shareholders Meeting held on April 29, 2003 establishes a
minimum distribution of 30% of the net income for the year.

F-45

---



|                                                                        |  | 2001
ThCh$  |   | 2002
ThCh$  |   | 2003
ThCh$  |  
|----------------------------------------------------------------------- |  | ----------- | - | ----------- | - | ----------- | -
|
|Price-level restatement                                                 |  |            |   | (741,360    | ) |            |  
|Merchant Energy Group of the Americas MEGA (USA)                        |  | 14,183      |   |            |   |            |  
|Reversal of acumulative translation adjustment                          |  | (365,627    | ) |            |   |            |  
|Reversal of foreign exchange hedge MEGA                                 |  | 829,452     |   |            |   |            |  
|Central Puerto S.A. (Argentina)                                         |  | 13,914,151  |   |            |   |            |  
|Reversal of acumulative translation adjustment                          |  | (23,923,574 | ) |            |   |            |  
|Reversal of foreign exchange hedge Central Puerto                       |  | 18,683,863  |   |            |   |            |  
|Compañía Carbones del Cesar Ltda. (Colombia)                            |  | 356,501     |   | 815,229     |   | 240,484     |  
|Energy Trade & Finance Corporation                                      |  | 20,743,752  |   | 49,740,362  |   | 13,949,461  |  
|Gener Argentina S.A.                                                    |  | 2,666,504   |   | 17,675,330  |   | 5,623,561   |  
|Gasoducto Gasandes (Argentina) S.A.                                     |  | 1,263,275   |   | 2,179,941   |   | 810,915     |  
|Inversión OilGener Inc. (U.S.A.)                                        |  | 431,486     |   | 1,056,042   |   |            |  
|Compañía General de Electricidad Itabo S.A. (Dominican Republic)        |  | 5,995,771   |   | 7,894,887   |   | 3,910,283   |  
|Other investments                                                       |  | 817,784     |   | (195,753    | ) | 77,898      |  
|Reversal of cumulative translation adjustment Hidroneuquén S.A.         |  | (831,022    | ) |            |   |            |  
|Reversal of accumulative translation adjustment Oilgener Inc.           |  |            |   |            |   | (1,025,283  | )
|Reversal of accumulative translation hedge adjustment Hidroneuquén S.A. |  | 15,787,265  |   |            |   |            |  
|Net foreign investments hedge                                           |  | (45,072,240 | ) | 164,951,436 |   | (22,455,269 | )
|                                                                        |  |             |   |             |   |             |  
|Total year                                                              |  | 11,311,524  |   |            |   | 1,132,050   |  
|                                                                        |  |             |   |             |   |             |  
|Total accumulated                                                       |  |            |   | 13,473,242  |   |            |  
|                                                                        |  |             |   |             |   |             |  



The detail of other reserves is as follows:

|                                                    |  | As of December 31, |  
|--------------------------------------------------- |  | ------------------ | -
|
|Accumulated foreign currency translation adjustment |  | 13,473,242         |  
|Fixed assets technical revaluation reserve          |  | 42,611,805         |  
|Variations in the equity of subsidiaries            |  | (6,181,604         | )
|                                                    |  |                    |  
|Total                                               |  | 49,903,443         |  
|                                                    |  |                    |  

F-46

---

Variations
in the equity of subsidiaries includes ThCh$2,636,863, that corresponds to the correction of a mathematical error in the calculation of the depreciation of certain fixed
assets of the Colombian subsidiary Chivor, related to the three-year period ended December 31, 1999.

In
April 2003, the Shareholders Assembly approved such amount and it was reclassified under "Future Dividend Reserves".

23. RELATED COMPANY TRANSACTIONS

Balances with related companies relate to transactions completed within the normal course of business in accordance with current legislation. All receivables and
payables arising from related party transactions are settled in cash. The details of those balances are as follows:

|                                        |  | Short-term
As of December 31, |  | Long-term
As of December 31,
|--------------------------------------- |  | ----------------------------- |  | ----------------------------
|
|Empresa Eléctrica Guacolda S.A.         |  | 8,723                         |  | 58,502                      
|Gasoducto Gasandes S.A.                 |  | 135,643                       |  | 253,529                     
|Gasoducto Gasandes (Argentina) S.A.     |  | 579,736                       |  | 490,817                     
|C.G.E. Itabo S.A. (Dominican Republic)  |  | 1,806,209                     |  | 2,337,313                   
|Inversiones Cachagua Ltda.              |  |                              |  | 174,565,714                 
|Energen S.A.                            |  | 33,721                        |  | 10,367                      
|Coastal Itabo Ltd. (Dominican Republic) |  | 11                            |  |                            
|                                        |  |                               |  |                             
|Totals                                  |  | 2,564,043                     |  | 177,716,242                 
|                                        |  |                               |  |                             

On
February 28, 2001, AES Gener S.A. signed a mercantile account agreement with Inversiones Cachagua Limitada, whose balance in current account is adjusted in US dollars and
accrues interest at 30-day LIBOR plus spread. This balance is due on February 28, 2004.

On
May 15, 2003, Inversiones Cachagua Ltda pledged its shares owned in favor of AES Gener S.A. in order to guarantee the timely and complete payment of the balance
resulting from the mercantile account and it obliged itself not to place any lien, divest, use, hold acts or subscribe any contracts over the shares
pledged.This pledge also included an extension of their rights to receive dividends which will be applied to the receivable balance. Additionally, on
May 15, 2003 the interest rate was modified to 10% annually.

The
account receivable of Gasoducto Gasandes S.A. and Gasoducto Gasandes Argentina S.A. represent a down payment of gas transport due to Sociedad Eléctrica Santiago S.A.
Such down payment accrues interest at a rate of 15% per year and is payable in monthly installments from 2002.

F-47

---

|                                        |  | Short-term
As of December 31, |  | Long-term
As of December 31,
|--------------------------------------- |  | ----------------------------- |  | ----------------------------
|
|Gasoducto Gasandes (Argentina) S.A.     |  | 176,529                       |  | 169,219                     
|Gener Blue Water                        |  | 123,272                       |  | 100,853                     
|Coastal Itabo Ltda (Dominican Republic) |  |                              |  | 3,193                       
|Cordex Petroleum Inc.                   |  | 518,027                       |  | 572,485                     
|The AES Corporation                     |  | 508,126                       |  | 357,337                     
|                                        |  |                               |  |                             
|Totals                                  |  | 1,325,954                     |  | 1,203,087                   
|                                        |  |                               |  |                             

The
details of the transactions between related companies in 2001, 2002 and 2003 are as follows:

|                                                  |  |                  |  |                                          |  | (Charge) Credit to income
For the year of December, 31 |  
|------------------------------------------------- |  | ---------------- |  | ---------------------------------------- |  | ------------------------------------------------------ | -
|
|Explotaciones Sanitarias S.A.                     |  | Ex-Affiliate     |  | Other services                           |  | 220                                                    |  
|Empresa Eléctrica Guacolda S.A.                   |  | Affiliate        |  | Other services                           |  | (1,940,562                                             | )
|Empresa Eléctrica Guacolda S.A.                   |  | Affiliate        |  | Other services                           |  |                                                       |  
|Empresa Eléctrica Guacolda S.A.                   |  | Affiliate        |  | Other services                           |  |                                                       |  
|Inversiones Cachagua Ltda.                        |  | Main shareholder |  | Interest on loans                        |  | 6,924,761                                              |  
|Inversiones Cachagua Ltda.                        |  | Main shareholder |  | Price level restatement                  |  | 4,136,804                                              |  
|Inversiones Cachagua Ltda.                        |  | Main shareholder |  | Foreign exchange gain (loss)             |  | (5,044,504                                             | )
|Inversiones Cachagua Ltda.                        |  | Main shareholder |  | Funds transfer                           |  |                                                       |  
|CDEC - SIC Ltda.                                  |  | Affiliate        |  | Administrative and coordination services |  | (130,747                                               | )
|CDEC - SIC Ltda.                                  |  | Affiliate        |  | Administrative and coordination services |  |                                                       |  
|CDEC - SING Ltda.                                 |  | Affiliate        |  | Other services                           |  | (269,126                                               | )
|CDEC - SING Ltda.                                 |  | Affiliate        |  | Other services                           |  |                                                       |  
|Servicios Integrales de Generación Eléctrica S.A. |  | Ex-Affiliate     |  | Operating maintenance and other services |  | (5,724,415                                             | )
|                                                  |  |                  |  |                                          |  |                                                        |  

F-48

---

|C.G.E. ITABO S.A.                                  |  | Affiliate          |  | Technical assistance and other services |  | 3,030,338  |   |            |   |            |  
|-------------------------------------------------- |  | ------------------ |  | --------------------------------------- |  | ---------- | - | ----------- | - | ----------- | -
|SCL Terminal Aéreo Santiago S.A.                   |  | Partners in common |  | Other services                          |  | 113,387    |   |            |   |            |  
|Hidroeléctrica Piedra del Águila S.A.              |  | Affiliate          |  | Interest                                |  | 4,510,807  |   |            |   |            |  
|Hidroeléctrica Piedra del Águila S.A.              |  | Affiliate          |  | Technical assistance                    |  | 250,901    |   |            |   |            |  
|Gasoducto Gasandes S.A.                            |  | Affiliate          |  | Transport of gas and commissions        |  | (1,550,915 | ) | (1,675,805  | ) | (2,046,215  | )
|Gasoducto Gasandes S.A.                            |  | Affiliate          |  | Transport of gas and commissions        |  |           |   |            |   | 175,250     |  
|Gasoducto Gasandes (Argentina) S.A.                |  | Affiliate          |  | Transport of gas and commissions        |  | (4,072,953 | ) |            |   | (346,323    | )
|Gasoducto Gasandes (Argentina) S.A.                |  | Affiliate          |  | Transport of gas and commissions        |  |           |   | (4,371,558  | ) | (4,074,914  | )
|Gasoducto Gasandes (Argentina) S.A.                |  | Affiliate          |  | Transport of gas and commissions        |  |           |   |            |   | 219,645     |  
|AES CORP.                                          |  | Holding company    |  | Other services                          |  |           |   | (183,099    | ) |            |  
|AES CORP.                                          |  | Holding company    |  | Transfers of funds                      |  |           |   | (68,329,565 | ) | (34,114,209 | )
|René Cortázar y Cía. Ltda                          |  | Director in common |  | Other services                          |  | (25,618    | ) | (8,307      | ) |            |  
|Centro de Estudios e Investigación Financiera S.A. |  | Director in common |  | Other services                          |  | (28,126    | ) | (8,304      | ) |            |  
|Oscar Guillermo Garretón y Cía. Ltda.              |  | Director in common |  | Other services                          |  | (32,207    | ) |            |   |            |  
|Estudio Jurídico Claro y Cía.                      |  | Director in common |  | Other services                          |  | (47,848    | ) | (21,798     | ) | (78,171     | )
|Itabo S.A.                                         |  | Affiliate          |  | Professional fees                       |  |           |   |            |   | 2,436,801   |  
|Jeffery Safford                                    |  | Director           |  | Work contract                           |  |           |   | (75,170     | ) |            |  
|Robert Morgan                                      |  | Director           |  | Work contract                           |  |           |   | (92,714     | ) |            |  
|René Cortazar                                      |  | Director           |  | Professional fees                       |  |           |   | (24,146     | ) | (29,174     | )
|Daniel Yarur                                       |  | Director           |  | Professional fees                       |  |           |   | (25,556     | ) | (29,174     | )
|José Joaquín Brunner R.                            |  | Director           |  | Professional fees                       |  | (12,432    | ) | (15,959     | ) | (3,551      | )
|Andrés Sanfuentes Vergara                          |  | Director           |  | Professional fees                       |  | (17,755    | ) | (15,949     | ) | (3,551      | )
|Gabriel del Real C.                                |  | Director           |  | Professional fees                       |  | (10,653    | ) | (15,961     | ) | (14,226     | )
|Sergio de la Cuadra                                |  | Director           |  | Professional fees                       |  | (2,678     | ) |            |   |            |  
|Eugenio Ortega                                     |  | Director           |  | Professional fees                       |  | (1,785     | ) |            |   |            |  
|Pedro Lizana Greve                                 |  | Director           |  | Professional fees                       |  | (26,645    | ) | (26,596     | ) | (5,327      | )
|Andres Gluski                                      |  | Director           |  | Work contract                           |  |           |   | (107,827    | ) |            |  

F-49

---



24.    DERIVATIVES CONTRACTS (As restatednote 35)

The details of derivatives outstanding as of December 31, 2003 are as follows:

Agreements DescriptionsNet income effectAmount
of item
hedged
ThCh$Kind of
derivative

Kind of
agreement

Amount of
agreement
ThCh$

Due Date

Specific
Item

Position
Sale/
Purchase

Item
hedged

Realized
ThCh$

Unrealized
loss
ThCh$FR

CCTE

1,194,900

1Q/2004

US $

Purchase

Revenues

1,194,900



(13,130
)FR

CCTE

1,188,700

1Q/2004

US $

Purchase

Revenues

1,188,700



(500
)FR

CCPE

593,800

1Q/2004

US $

Purchase

Loans

593,800

(179,000
)
FR

CCPE

593,800

1Q/2004

US $

Purchase

Loans

593,800



FR

CCPE

593,800

2Q/2004

US $

Purchase

Loans

593,800



FR

CCPE

593,800

2Q/2004

US $

Purchase

Loans

593,800



FR

CCPE

593,800

3Q/2004

US $

Purchase

Loans

593,800



FR

CCPE

593,800

3Q/2004

US $

Purchase

Loans

593,800



S

CCTE

12,184,488

3Q/2007

USD-LIBOR-BBA

Purchase

Notes in U.S. Dollars

139,009,994



(7,737,327
)S

CCTE

2,726,998

3Q/2007

USD-LIBOR-BBA

Purchase

Notes in U.S. Dollars

31,111,682



(1,731,683
)S

CCTE

59,380,000

1Q/2004

Treasury lock

Purchase

Bond Payable

59,380,000



(881,034
)S

CCTE

59,380,000

1Q/2004

Treasury lock

Purchase

Bond Payable

59,380,000



(104,208
)


---

FR

=

ForwardS

=

SwapCCTE

=

Hedge of a forecasted transactionCCPE

=

Hedge of an existing balanceItem hedged

=

Revenues of the distribution of energy and capacity to customers in Chile, based on contracts in force at sales prices established by the tariff regulations of the Ministry of Economy, Development and Reconstruction. The
reason for hedging these revenues is that the cost of sales are mainly in US Dollars.


25.    CONTINGENCIES AND COMMITMENTS



The Company has the following commitments, guarantees, and contingencies:



The credit agreements executed by AES Gener with a variety of financial institutions impose certain financial covenants during the term of these agreements, which
are usual for this kind of financing. The Company informs such institutions regarding its compliance with its debt covenants, in accordance with each agreement's terms and conditions.

F-50

---

Convertible Bonds issued in Chile and the United States for US$500 million:

The main financial covenants contained in the convertible bonds issuance contracts are:



United States Bonds issued forUS$200 million:



Financial Institutions and Bank Obligations:



Pursuant
to such credit agreement with ABN AMRO Bank N.V., Inversiones Cachagua Limitada must not withdraw from the Company any amount received as dividends during the term of the credit
agreement.



F-51

---



The
outstanding amount of debt under this credit agreement as of December 31, 2003 was ThCh$2,375,200 (ThUS$4,000).



As
of December 31, 2003, all restrictions or covenants related to obligations with financial institutions or public bonds were met.

2.     Third-Party Guarantees

Also,
the Company pledged its shares in the Chilean company Gasoducto GasAndes in favor of the lenders, for the same term as the credit agreement, which amounts to ThCh$80,756,802
(ThUS$136,000) ending in 2011. There are no recourse provisions that would enable the Company to recover from third parties any amounts that might be paid under the guarantee.

F-52

---

There
are also no assets held as collateral that the Company could obtain and liquidate to recover amounts that might be paid under the guarantee.

AES
Gener was the guarantor of the obligation between Energy Trade and Finance Corporation and Nova Gas international Holding Ltd. for ThCh$2,969,000 (ThUS$5,000) as a result of
the acquisition of 100% of the shares of Genergía S.A. The maturity date of this

F-53

---

agreement
was April 1, 2003, and the guarantee was released when the obligation was completely repaid.

3.     Guarantees to Subsidiaries

F-54

---



2)    TRIALS AND BAILS



There was a dispute between the companies that are members of the CDEC-SIC with regard to capacity transfer estimates in the CDEC-SIC. A
final decision for the 2000, 2001, 2002 and 2003 payments related to these estimates is pending resolution, since payments have only been preliminary, as is usual for this type of operation. On
November 2, 2001, the dispute was resolved through Resolution No. 119/2001 from the Ministry of Economy, Development and Reconstruction. During the implementation stage of the Resolution
No. 119/2001, by members of the CDEC-SIC, the unanimous approval required was not achieved, thus, the Minister of Economy submitted another dispute for resolution in April 2002.
Additionally, Colbún and Endesa have submitted a motion against Resolution No. 119/2001 and the response from the Minister is still pending.

Nevertheless,
the CDEC-SIC's Board of Directors unanimously agreed to provisionally pay the capacity transfer charges corresponding to years 2000, 2001, 2002 and 2003
utilizing the calculation procedure established in Resolution No. 119/2001, while awaiting resolution of the dispute and its related motions.

As
the Company is normally a purchaser within the system, provisions of ThCh$8,599,567 and ThCh$7,208,943 as of December 31, 2003 and 2002 were recorded under the methodology
required by the resolutions mentioned in the preceding paragraph which were reversed as payments were made. The Company is unable to estimate the effects of any retroactive change in the methodology
of calculation which might be applied, due to lack of guidance from the appropriate authorities and/or historical precedents. Therefore, no further provisions related to the above dispute have been
recorded.

F-55

---



The Company took a different position from some of the generation companies that are members of the CDEC-SING, such as Electroandina and Nopel,
related to the method of calculating and valuing energy and capacity transfers within the CDEC-SING.

Energy
transfers in the CDEC-SING from August 1999 were paid provisionally, as there were differences between the generators with respect to the prices utilized to
value such transfers. The Minister has resolved the conflict through the issuance of Resolutions No. 39 dated May 22, 2000, No. 59 dated September 2000, No. 72 dated
November 16, 2000 and No. 74 dated November 17, 2000. However, there is a dispute with respect to the application of such resolutions by the Directorate of Operations.
Additionally, because the previous resolutions were complex and contradictory, the Directorate of Operations has not yet been able to calculate the final energy transfers.

Nevertheless,
the CDEC-SING's Board of Directors reached an agreement on December 26, 2002, which resolved the dispute with regard to the valuation of energy transfers
between March 1999 and March 2000 and established final values that did not result in payments to/from AES Gener.

As
for capacity transfers in 2000 and the subsequent years, a new dispute arose that was resolved with Resolution No. 163 dated December 28, 2001, which presented a new
method for calculating firm capacity. This resolution instructed the CDEC-SING to calculate firm capacity and definitive transfers of peak capacity for the years indicated. However, the
companies have submitted new motions against this resolution and at the same time, a new dispute arose between the members of the CDEC-SING with respect to the application by the Director
of Operations authority of certain aspects of the methodology provided by the authority. Based on this, the reconciliation payments between companies based on the new procedure continue to be
provisional.

In
February 2003 the reconciliation payment process for transfers of peak capacity for the year 2002 was performed on a provisional basis. The Company is unable to estimate the effects
of any retroactive change in the methology of the calculation which might be applied, due to the lack of guidance from the appropriate authorities and/or historical precedents. Therefore, the Company
has not recognized any gain or loss contingency for this matter.

F-56

---



c.     Legal Proceedings

c.1 Junta de Vigilancia de Río Maipo vs. AES Gener

AES Gener was sued by the Junta de Vigilancia of Río Maipo (security committee), which filed a lawsuit in the 2nd Civil Court of
Santiago (case number 1062-01) for an alleged debt of ThCh$215,461 as of December 31, 2003, related to the payment of installments that were allegedly owed to such committee. AES
Gener has opposed the lawsuit, since it deems that it should not have to make any payment, because it does not make use of any of the security committee's facilities. The plaintiff has garnished
approximately ThCh$39,690 of cash of AES Gener, which is classified as restricted cash. The Company firmly believes it should not be forced to pay the aforementioned amounts, since they have been
imposed arbitrarily, unilaterally and without reason. The Company accrued a provision for this contingency in the amount of ThCh$215,461.

c.2 Justo Gallardo vs. Gener S.A.

The Company has been sued for monetary compensation by a neighbor of the Renca plant, who claims to have suffered certain damages due to the operation of the
power plant. He is claiming the payment of ThCh$120,000 in a lawsuit filed in the 28th Civil Court of Santiago (case number 4070-99). The lawsuit was rejected in the lower
court and it is currently in the appeals court, awaiting final judgment.

AES
Gener estimates that the appeal will be rejected since the lawsuit does not have any grounds. There is no connection between the alleged facts and the damages caused, there is no
responsibility by the Company as to the facts or the damages and the alleged rights have become unenforceable under the statute of limitations.

The
Company has not accrued a provision for the contingency.

c.3 Bankers Trust International Corporation (Delaware) Inc. vs. AES Gener and Ralph Wilkerson

On May 24, 2002, the Company was served with a lawsuit filed by Bankers Trust International Corporation (Delaware), as trustee in the bankruptcy of Cordex
Petroleums Inc., a company chartered under the laws of Canada. The total amount of the lawsuit is ThCh$5,154,827 (ThUS$8,681) plus interest and legal fees. The lawsuit is based on alleged
collusion between the Company and the other defendant, Mr. Ralph Wilkerson, to breach contracts, incitement to breach contracts, fraud and incitement to infringe the fiduciary duties of Cordex
Petroleums, Inc. The lawsuit, case No 0101-05135, was filed in the Superior Court of Alberta, Judicial District of Calgary, Canada. On July 19, 2002, the Company submitted a
motion claiming lack of jurisdiction of the Canadian Courts of Law. A hearing was originally set for February 6, 2003, but it was suspended due to the plaintiff's delay in the presentation of
an affidavit supporting its claim. In March 2003, the judge decided to accept the plaintiff's affidavit only for the purpose of amending its claim. On April 14, 2003, the plaintiff filed
an appeal. The judge ruled that the hearing should take place on March 14, 2004. Afterwards, the judge will have to rule on the

F-57

---

Company's
jurisdiction motion. In the Company's opinion, the jurisdiction motion should be resolved in the Company's favor.

The
Company has not accrued a provision for the contingency.

c.4 Minera Escondida Limitada vs. Norgener S.A.

Norgener S.A. ("Norgener") and its customer, Minera Escondida Limitada ("Escondida") are involved in an arbitration lawsuit related to a dispute regarding the
interpretation and execution of the terms of two power supply agreements between Norgener and Escondida dated June 30,
1993 and November 20, 1994, respectively. The arbitratorMr. Manuel Correa Ossawas appointed on October 25, 2002. Subsequently, on November 14,
2002 the parties agreed on the procedures to be followed, and accordingly the lawsuit was filed on December 9, 2002. Escondida claims nullity of the price adjustment clauses in both agreements,
seeks termination of both agreements based on breach of contract by Norgener and requests authorization to assign the agreements to a subsidiary. On January 8, 2003, Norgener responded to the
lawsuit and filed a lawsuit against Escondida for the damages caused as a result of the breach of contract by Escondida with respect to certain obligations under the second agreement.

Subsequently,
in April 2003, at the end of the discussion period, the arbitrator issued an order to produce evidence, establishing the facts, which are determined to be true by
the parties, and thereby initiated the trial period. The aforementioned order was contested by both parties, although the arbitrator maintained this information and established a settlement period,
which remains effective to date. During the settlement period, the parties have held meetings and exchanged preliminary offers and counteroffers. A preliminary agreement was reached on
December 5, 2003 that will have to be confirmed by each party's Board of Directors. If there is no confirmation by that, the arbitrator will issue a resolution and the trial period will be
initiated. The preliminary agreement consists of (i) a decrease in price for both contracts from July 2004 to be received by the Company as an upfront cash payment, (ii) the
extension of the current contracts and (iii) the execution of a new contract for 2004 to 2015.

No
provision has been recorded for this contingency, as the Company believes that, if no agreement is reached, it will obtain a favorable decision from the arbitrator.

Were
the arbitrator to find in favor of the claims of Escondida and declare the contract with Norgener null and void, Norgener may not receive revenue from Escondida from the date of
such judgment forward. Norgener's revenue for the year 2003 related to this contract was approximately ThCh$52,558,266.

c.5 Hidroeléctrica Guardia Vieja - Hidroeléctrica Aconcagua vs. AES Gener

In December 1999, AES Gener filed a lawsuit against Hidroeléctrica Guardia Vieja S.A. and Hidroeléctrica Aconcagua S.A. for a
contractual performance default related to an energy and capacity sales contract. The arbitrator accepted the Company's claims and the defendants were ordered to fulfill the contract.

F-58

---

On
December 14, 2001, arbitrator César Parada issued a decision in lower court, which, consistent with AES Gener's filing, ordered the modification of the "Sales
Agreement of Electric Power and Capacity and Others" between AES Gener and the companies Hidroeléctrica Guardia Vieja and Hidroeléctrica Aconcagua S.A. dated
November 2, 1993.

Such
decision, according to the amendments introduced in the agreement, ordered the re-liquidation of the invoices exchanged between the parties from April 1998 until
the definitive compliance date with the decision, in accordance with the rules established therein.

AES
Gener's demand under the lawsuit was for ThCh$5,444,617. On December 31, 2003, the corresponding amount, including interest and readjustments, was ThCh$8,727,916. This amount
represents a gain contingency.

The
defendants, HGV-HASA, filed an extraordinary claim and a nullity recourse appeal due to format defects before the Santiago Appeals Court. The nullity recourse appeal due
to format defects is still pending.

Based
on the arbitrator's acceptance of the lawsuit filed by AES Gener, the Company recorded into income in 2001 a portion of the gain contingency equal to ThCh$2,940,374. The remaining
balance of the gain contingency has not been recorded. The Company believes that the nullity recourse appeal due to format defects that is still pending, due to its extraordinary features, will likely
be rejected as it has no grounds.

c.6 Superintendence of Electricity and Fuels ("CSEC") vs. AES Gener

In an ordinary notice dated December 6, 2002, the CSEC brought charges against AES Gener and related companies for alleged infractions in electric
coordination as member of the Dispatch Center, related to the blackout which occurred on September 23, 2002 in the SIC. On January 24, 2003 AES Gener refuted the claim before the CSEC.

On
August 20, 2003, the CSEC fined all CDEC-SIC members as a result of the blackout, alleging responsibility based on their status as a CDEC member. The Company was
fined ThCh$535,302, subsidiary Eléctrica Santiago was fined ThCh$356,868 and Empresa Eléctrica Guacolda S.A. was fined ThCh$356,868.

AES
Gener and its related companies filed a recourse motion before the CSEC on August 29, 2003, which has not been resolved to date. Once a decision is issued, the Company may
appeal claiming illegality before the Appeals Court of Santiago, subject to a prior deposit of 25% of the fine applied. It is estimated that the CSEC will issue a decision during the first quarter of
2004 and the legal proceedings are expected to last approximately two years. The company accrued a provision for this contingency in the amount of ThCh$312,260. The range of loss is between ThCh$0 and
the amount of the fines noted in the preceding paragraph.

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c.7 CSEC vs. AES Gener and Related Companies

On February 21, 2003, the CSEC brought charges against the Company and the other CDEC-SIC members, due to the blackout of January 13,
2003. The Company promptly answered those charges, and a resolution by the CSEC is still pending.

In
our opinion, the charges formulated by the CSEC against AES Gener are unlawful; nevertheless, it is impossible to assess the outcome.

3)    FINANCIAL COVENANTS





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4)    OTHER CONTINGENCIES

a.     Contingencies related to Argentine subsidiaries TermoAndes and InterAndes:

(i)Power Supply Agreement

AES
Gener is party to a contract under which it is obligated to buy 100% of the energy and capacity produced by its wholly-owned subsidiary TermoAndes. Such contract establishes a
minimum monthly payment that covers, among other aspects, the debt service for ThCh$152,606,600 (ThUS$257,000) corresponding to the bonds issued by TermoAndes and InterAndes. The payment of such bonds
is guaranteed with the assets of TermoAndes and InterAndes and the power supply agreement executed by AES Gener and TermoAndes.

(ii)Put Agreement with Bank of America

Originally,
ThCh$48,692 (ThUS$82,000) of the bonds corresponding to the debt of TermoAndes and InterAndes were subject to an option which allowed Bank of America to require AES Gener to
purchase the bonds it held in advance at the par value plus accrued interests. Although the term to execute such option was from October 31, 2002 to January 31, 2003, the Company and
Bank of America agreed to renegotiate the agreement prior to the initiation of this period.

AES
Gener and Bank of America entered into a Purchase Agreement by which the Company committed to make partial purchases of the bonds held by Bank of America, completely eliminating the
debt owed to Bank of America by September 2004. AES Gener has already purchased ThCh$26,132.239 (ThUS$44,008) in negotiable obligations from Bank of America. As a result of the debt payments
made by TermoAndes and InterAndes, Bank of America has received additional payments of ThCh$8,911,319 (ThUS$15,007), thus the debt owed to Bank of America as of December 31, 2003 amounted to
ThCh$13,648,043 (ThUS$22,984).

(iii)Trust Agreement between TermoAndes, InterAndes, Deutsche Bank and Banco Francés

On
September 4, 1998, TermoAndes S.A. and InterAndes signed a trust agreement (the "Trust Agreement") with Deutsche Bank AG, New York Branch ("Deutsche Bank") and Banco
Francés Uruguay S.A. under which the receivables collected by TermoAndes and InterAndes are initially transferred to the bank accounts opened in such banks, which are exclusively
controlled by Deutsche Bank or Banco Francés Uruguay S.A., depending on the account.

While
the amounts owed by TermoAndes S.A and InterAndes related to the issuance of the July 30, 1998 Medium Term Notes ("Negotiable Obligations") and to the Bank of America credit
agreement to finance the Value Added Tax remain unpaid, TermoAndes and InterAndes may only use the amounts deposited in the accounts in accordance with the terms of the Agreement.

Moreover,
TermoAndes and InterAndes assigned, transferred and granted a first degree guarantee right to Deutsche Bank for a) all rights that TermoAndes and InterAndes have over
the accounts controlled by Deutsche Bank; b) all rights that TermoAndes and InterAndes have over the amounts either credited or deposited in such accounts; and c) all rights that
TermoAndes

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and
InterAndes have over the proceeds from insurance and expropriation, as well as the proceeds from civil liability or delayed start-up or business interruption insurance that the company
must maintain.

If
funds held in the accounts exceed the amount needed for the next payment of interest and principal, TermoAndes and InterAndes may use the excess funds for general business purposes.
On December 31, 2003 deposits in TermoAndes' and InterAndes' accounts amounted to ChTh$17,206,615, which were invested in common investment funds. Such funds are shown as restricted in the
Company's balance sheet under the "Time Deposits" category of current assets in the amount of ChTh$4,411,604 and under the "Others" category of other long term assets in the amount of ChTh$12,795,011.

(iv)Assets with Restricted Availability

In
order to guarantee the repayment of the obligations resulting from the financing agreements of the Value Added Tax and the Negotiable Obligations, among others, TermoAndes S.A. and
InterAndes S.A. have agreed as follows:



In
addition, the subsidiary Gener Argentina S.A.parent company of TermoAndes and InterAndespledged the shares to guarantee the fulfillment of the aforementioned
obligation.

(v)Potential Events of Default under the Negotiable Obligations

During
2002, InterAndes requested that Deutsche Bank release certain funds existing in an account controlled by Deutsche Bank, which in accordance with the terms of the contract
qualified for release. Deutsche Bank responded indicating certain potential events of default under the terms and conditions of the Trust Agreement and as such refused to release such funds.

The
Potential Events of Default mentioned by Deutsche Bank are as follows: i) non-compliance with respect to the insurance that InterAndes must keep during the term of
the referenced financing; ii) non-compliance with respect to the insurance that TermoAndes must keep during the term of the financing and (iii) non-compliance
with respect to the validity and

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effect
of the guarantees granted by TermoAndes since, due to the suspension of the mortgage foreclosures set forth in Law 25,563, the mortgage granted by TermoAndes to the bank creditors for the Salta
Plant could not be executed, affecting the rights of such creditors.

On
June 19, 2002, the company requested from Deutsche Bank and the other bank creditors a waiver to the aforementioned potential events of default. With respect to the
non-compliance related to the insurance requirements, a letter from AONthe Company's insurance brokerwas attached which stated: i) that the insurance
policies required in the Trust Agreement were not commercially available in the international insurance market, and ii) that certain endorsements required in the Trust Agreement were not valid
under Argentinean law. The waiver was not granted.

According
to the Trust Agreement, before and during a Potential Event of Default, Deutsche Bank, as loan administrator, may execute all the rights it is legally and contractually
entitled to, including the following: i) acceleration of the payments owed under TermoAndes' Negotiable Obligations to make them immediately payable, with two days of prior notification;
ii) possession of the Salta Plant and perform all of the necessary acts for its operation and maintenance; iii) set off any outstanding debt by TermoAndes with any cash existing in the
trust accounts, and iv) exercise any other right allowed under other related agreements.

To
date, the creditors have not exercised any of the aforementioned rights. According to the Company's legal counsel, since the potential events of default do not relate to TermoAndes'
failure to pay any principal or interest due under the Negotiable Obligations or any breach of contract by AES Gener S.A under the Power Purchase Agreement ("PPA"), there are reasons to believe that
it is not in the creditors? interest to exercise such rights.

Additionally,
in the event of default, according to the Trust Agreement, Deutsche Bank, as TermoAndes' Depositary Bank, may directly pay TermoAndes' operating expenses in accordance with
the instructions by the TermoAndes' Collateral Agent. On October 17, 2002, Deutsche Bank sent a letter to the Company informing it that it would request instructions from the other creditors to
decide whether or not to exercise such right. Additionally, the same letter requested the opinion of TermoAndes on whether to proceed in such a manner.

TermoAndes
replied to such letter explaining the reasons why it would not be convenient to proceed in this manner. The main argument of such reply was the fact that TermoAndes considered
that the event of default would cease shortly. At present, Deutsche Bank has neither exercised this right nor has it replied to the letter sent by TermoAndes.

TermoAndes
and InterAndes are currently working with their insurance advisors to solve the insurance issues and are also holding conversations with Deutsche Bank to modify the financing
terms with respect to those endorsements which would be invalid under Argentinian law.

As
a consequence of these actions, in the TermoAndes and InterAndes insurance policy renewed in November 1, 2003, a series of endorsements required by the financing were included.
These endorsements have been accepted by the insurance companies. The Company believes that the inclusion of these endorsements cures the event of default previously declared,

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but
to date the Company has not received confirmation by Deutsche Bank that the default has been cured. According to the opinion of the Company's legal counsel, the legal and factual reasons used by
TermoAndes are sufficiently strong and will result in the near-term declaration of the debt default null and void.

(vi)Natural Gas Purchase Agreement

On
August 4, 1997, TermoAndes S.A. entered into a gas supply agreement with the consortium integrated by Mobil Argentina S.A. (formerly, Ampolex Argentina S.A.),
Compañía General de Combustibles S.A., Ledesma S.A., Tecpetrol S.A. and YPF S.A. (the Consortium) for a ten year term from January 31, 1999. This agreement
includes monthly minimum gas purchase conditions under a take or pay clause (the minimum purchase amount must be paid equally at the end of the calendar year even if the minimum purchase amount is not
requested), calculated over the base contracted capacity to be delivered by the producers.

According
to the gas supply agreement, TermoAndes may request from the vendors the application of the most favorable terms that they have agreed with third parties in gas sale contracts
aimed at its exportation to the I and II regions of the north of Chile, the generation of electricity in such region and/or the consumption in a thermal plant installed in the province of Salta
that exports electricity to such regions.

Considering
the agreement, TermoAndes has requested from the producers the exhibition of the contracts signed with third parties. The producers have not shown such contracts arguing
confidentiality. Based of that non-fulfillment, the company has rejected the payment of the take or pay invoices received from Repsol YPF S.A. on August 21, 2003 that correspond to
the years 2001, ThCh$3,740,940 (ThUS$6,300) and 2002, ThCh$2,850,240 (ThUS$4,800).

Those
invoices have been rejected because:



The
latter would be admissible by virtue of the non-fulfillment of the obligations of the Producers, under the most favored nation clause by virtue of which TermoAndes is
entitled to: i) access the gas supply agreements subscribed between the producers and third parties for the I and II regions of the north of Chile or power plant of the province of Salta and
ii) opt for the most favorable conditions they may contain.

The
price established in the gas supply agreement was originally set in USA dollars and is currently paid in pesos at the parity of 1 US Dollar = 1 Argentinian Peso by TermoAndes
without any provision over the amounts actually paid. Regardless, the Consortium claims the payment in US dollars from TermoAndes and has submitted a claim before the Secretariat of Energy based on an
extensive interpretation of Decrees 689/02 and 1491/02, which provides for the dollarization of the gas and energy export contracts respectively. The claim request from

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TermoAndes
the payment in dollars. TermoAndes has rejected the claim with the corresponding writs. At the same time, TermoAndes has been negotiating with the producers within the framework of the
provisions set forth in the Emergency Act, which negotiations have not been successful so far.

Although
the Emergency Act provided that the pesified contracts were adjusted by the CER, the producers have not billed or claimed such concept. If the producers do this, and based on
the same regulation, TermoAndes could argue the no application of the CER because the gas value in the Argentinean market today is lower than the result of adjusting the pesified contract price times
the CER.

The
legal advisors of the Company believe that the position of TermoAndes is correct according to the current legislation in force. As of December 31, 2003, TermoAndes has
recorded ThCh$7,455,173 under "accounts payable" in current liabilities and a credit for the same amount under "long term accounts receivable".

(vii)Natural Gas Firm Transport Service

TermoAndes
and Transportadora de Gas del Norte S.A. ("TGN") agreed on a natural gas firm transport service for seventeen years starting on January 15, 1999. TGN is obligated to
transport 2,800,000 cubic meters of natural gas a day from Chango Norte to Estación Torzalito.

No
guarantees under the contract are necessary if the Company or its shareholders maintain an Investment Grade Rating, defined as BBB or higher. In the event both TermoAndes and its
shareholders lose the Investment Grade Rating, it must provide constitute a bank guarantee for an amount equal to the amount due for a year of service. The current rating of the Negotiable Obligations
issued by TermoAndes and InterAndes is BBB+ (Arg) by Fitch and BBB- by Moody's; so, TermoAndes has not be forced to provide said guarantee.

The
contract price is established by a regulated tariff and an additional contribution. The tariff to be applied to the natural gas firm transport service shall be subject to
modifications arising from the tariff schemes approved by the ENARGAS. The additional contribution established by the gas transport contract was originally set in US dollars and is currently paid in
Pesos by TermoAndes. Without detriment of that, TGN claims from TermoAndes the payment in US dollars and it has submitted a complaint before the ENARGAS based on an extensive interpretation of Decrees
689/02 and 1491/02 that establish the dollarization of the electricity and gas export contracts, respectively. TermoAndes S.A. has rejected this claim with the corresponding arguments.

On
August 20, 2003, ENARGAS resolved in favor of TermoAndes and it ordered TGN to render the gas transport service between Campo Duran and Torzalito billing the charges of the
original transport contract (STF No. 52) in Argentinean Pesos (Ar$) while the dispute is finally solved. Said preventive resolution has been appealed by TGN.

The
memorandum of the Legal and Technical Department of ENARGAS issued prior to the resolution left TermoAndes in an extremely favorable position not only with respect to the

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dispute
about the transport service but it also gave the Company valid arguments for the existing disputes with the gas producers.

While
the resolution at issue is still in force, TermoAndes will continue paying in Argentinean pesos without having to pay any extra amount for the distance between Campo
Durán and Chango Norte (STI No. 43).

At
the same time, TermoAndes is still negotiating with TGN within the framework established by the Emergency Act, which has not been successful so far.

b)    Contingencies associated with subsidiary Chivor in Colombia

(i)Syndicated Loan with Bank of America and others

As
part of the syndicated credit agreement with Bank of America NT&SA, Chivor executed a trust agreement with Lloyds Trust SA
whereby it assigned to a special trust vehicle its rights pursuant to energy sales agreements and other income, however earned. The purpose of this trust is to guarantee the payment of Chivor's
obligations under its credit agreement (the "Credit Agreement") and management by Lloyds Trust of said funds.

Additionally,
pursuant to the Credit Agreement, Chivor has certain restrictions concerning the payment of dividends, transactions with affiliates and purchases and sale of certain
assets. Such restrictions are customary in these types of agreements.

In
accordance with the provisions set forth in the First Amendment to the Credit Agreement, Chivor agreed to exercise its legal ownership rights over the property deeds of the land plots
where the La Esmeralda dam and facilities of the Chivor power plant are located. For this purpose, the properties were classified in two categories: the first, considered "necessary" for the plant's
operation, comprised a total of 12 land plots which are legally owned by Chivor. The other category is named "other properties"; Chivor legally owns some of said plots, but merely exercises possession
rights over others. Pursuant to Colombian Law, legal ownership can be acquired through long-term possession; as a result, legal procedures for acquiring legal ownership of such plots of
land are ongoing. However, these processes do not have any effect whatsoever on the financial statements of the Company. The Company expects to perfect its ownership in such plots.

Other
collateral under the Credit Agreement includes (i) Chivor?s assets, (ii) a pledge over Chivor's shares owned by Energy Trade and Finance Corp., and
(iii) an offshore trust agreement whereby an offshore trustee controls Chivor's monies held offshore.

(ii)Refinancing of syndicated loan

On
December 28, 2001, the Company sent to Bank of America a notice of default according to sections 7.1(f)(i); 7.1(f)(vii) and 11.5 of the Credit Agreement between Chivor and Bank
of America.

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On
July 6, 2002, Chivor initiated a prepackaged voluntary process under chapter 11 of the US bankrupty law, in the court of the Southern District of New York, United States of
America. The only and exclusive purpose of such process was to refinance the external indebtedness agreement with Bank of America.

The
restructuring plan submitted to the court was approved by Judge Burton Lifland on August 13, 2002 and it was effective on the 27th of the same month, once all the predecessor
conditions of the second amendment of the syndicated credit agreement were met.

The
conditions of the refinanced credit agreement included a term extension until 2006, LIBOR rate plus an incremental spread as the interest rate adjusted at the refinancing anniversary
and incentives to participate in capital markets, among others.

The
guarantee structure of the Credit Agreement remained the same. The borrowings under the refinanced credit agreement are guaranteed by Chivor?s assets, its offices, a
total pledge of Chivor shares and two mercantile trust agreements, with administration and payment sources performed by a local and a foreign trust entity.

(iii)Trials

In
the civil court of Guateque, five extra-contractual civil liability lawsuits were filed against Chivor for the construction of the tunnel for the deviation of the Negro and Rucio
rivers to the Quebrada Trabajos. The claim of the plaintiffs is ThCh$123,306 (Col$600,000,000, ThUS$208) for the alleged damages caused in their properties.

As
of December 31, 2003, a provision for ThCh$123,306 (ThUS$208) is recorded.

(iv)Presumptive Income

The
DIAN (Colombian IRS) has required Chivor to pay presumptive income tax for the year 1999. As of December 31, 2003, unpaid income tax amounted to ThCh$2,062,912. The Company
accrued for such unpaid tax and penalty interest.

Chivor
has objected to DIAN's decision and, if necessary, is prepared to submit the issue before the Administrative Courts. Chivor has indicated, among other legal and factual arguments,
that a previous decision issued by the Director of the DIAN in 1995 determined that electricity generators were not subject to presumptive income and such concept should prevail over that used by the
DIAN for its decision.

As
of December 31, 2003, the Company has recorded a provision of ThCh$1,187,600 (ThUS$2,000).

In
January 2004, the DIAN decided in favor of Chivor.

(v)Restrictions to dividend payments

As
mentioned above, Chivor may not distribute dividends nor pay any amounts whatsoever to affiliates; however, some specific exceptions apply.

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c)     Contingencies and Covenants related to Eléctrica Santiago

(i)Deferred Customs Duties

The
Company has recorded an offset to its customs duties payable of approximately 11% of the capital and interest related to deferred customs duties that originated from importing
capital goods related to the construction of the Nueva Renca Plant, based on the provisions set forth in Law No. 18,634 that empowers the Customs National Service to credit the duties owed if
the production associated with such goods is being exported. As of December 31, 2003 and 2002, current obligations for deferred customs duties net of such benefit indicated in Law
No. 18,634 amounted to ThCh$1,157,156 and ThCh$1,242,763. respectively.

(ii)Other Contingencies



1) CSEC charged Sociedad Eléctrica Santiago S.A. a fine equivalent to ThCh$5,948 (200 UTA (Chilean Tributary Annual Unit)) for alleged breaches to
its obligations to preserve the security and continuity of the service.

On
May 5, 2000, Sociedad Eléctrica Santiago S.A. provided a response was provided to the CSEC, based on the Article 18A of the Law No. 18,410 arguing
that the referred fine was without effect. No decision has been resolved by the CSEC yet.

In
the Company?s opinion, the charges assessed by the CSEC and fuels to Sociedad Electrica Santiago S.A. are inadmissible.

2)
On January 12, 2000, the CSEC charged Sociedad Eléctrica Santiago S.A., for not providing the discounts that resulted from electrical energy deficits during the
periods in which Rationing No. 287 was effective.

On
January 28, 2000, Sociedad Eléctrica Santiago S.A., responded to the charges formulated by the CSEC, but no reply has been received to date.

In
the event that these charges are rejected, Sociedad Eléctrica Santiago S.A. could be punished with a fine to Fiscal Benefit, possible of administrative replacement
and/or claim to the Appeals Court of Santiago.

In
the Company's opinion, the charges presented by the CSEC against Sociedad Eléctrica Santiago are inadmissible.

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The Regional Commission of Environment of the Metropolitan Region and Sociedad Eléctrica Santiago S.A.

The Regional Environmental Commission for the Metropolitan Region imposed a penalty of ThCh$10,409 (350 UTM) for the eventual infringement of Resolution
No. 007/96 on environmental qualification. Sociedad Eléctrica Santiago has presented a legal complaint in order to contest such sanction and it has asked the judge to withdraw
the penalty since the infringement situation has not occurred. The Company has not accrued a provision for the contingency.

Other Contingences

In October 2003, General Electric issued an invoice to Electrica Santiago related to costs associated with the repair of the Nueva Renca Plant gas turbine.
Electrica Santiago contested the invoice because the Company claims that its insurance policy with insurer Cruz del Sur covers the related repair costs. No determination has been made by the insurance
company as to whether the repairs were covered under the policy.

The
Company has recorded a provision of ThCh$890,700 (ThUS$1,500) related to this contingency.

Financial Covenants

Sociedad Eléctrica Santiago must quarterly meet the following financial covenants established in the bond issuance agreement, inscribed in the
Securities Registry under number 214, calculated based on its stand-alone financial statements:



As
of December 31, 2003, Sociedad Eléctrica Santiago was in compliance with the covenants set forth above.

d)    Contingencies and Covenants related to Energía Verde

d.1Sawdust Pile Agreement

The
mutual supply agreement executed with Forestal Copihue S.A. in June 1994 establishes care and protection obligations for the sawdust pile to be used at the
Constitución Plant by Energía
Verde. This commitment is evidenced through insurance policies and the on-site supervision of personnel of the company.

Additionally,
it is established that the sawdust pile is the property of Forestal Copihue S.A. and it is only deposited in favor of Energía Verde, which implies that said
sawdust pile is not an asset of the latter. No provision has been recorded for the ultimate restoration of this property as such cost has been determined to be insignificant.

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d.2Deferred Customs Duties

As
of December 31, 2003 there is a current liability for customs duties subject to deferred payment totaling ThCh$182,227 (ThCh$219,931 in 2002), which originated from importing
capital goods for the construction of the thermoelectric power plants in Constitución, Laja, Nacimiento and San Francisco de Mostazal. This liability will be maintained until it is
offset by credits granted for exporting production resulting from the use of the imported capital goods, in accordance with Law No. 18,634.

d.3Bank Loan

As
of December 31, 2003, Energía Verde has a syndicated loan with Banco de Crédito e Inversions and Banco Scotiabank Sudamericano. The power plants
located in Laja, Constitución and San Francisco de Mostazal were pledged as collateral for such loan.

d.4Guarantees granted

Energía
Verde pledged, in favor of Banco de Crédito e Inversiones and Banco Scotiabank Sudamericano, its assets, such as boilers, turbines, generators,
conveyor belts, cooling water towers, water treatment systems, fans, electric and control systems located in the following plants: (i) Planta Termoeléctrica
Constitución, VII Region, (ii) Planta Termoeléctrica Laja, located in Camino a Laja Km. 1.5, in Cabrero, VIII Region, (iii) Planta
Térmica San Francisco de Mostazal, located in Longitudinal Sur Km. 63, San Francisco de Mostazal, VI Region.

e)    Contingencies and Covenants related to Norgener

e.1Deferred Customs Duties

As
of December 31, 2003, there is a current liability for customs duties of ThCh$192,267 (ThCh$1,907,993 in 2002) which will be offset by credits granted for exporting production
resulting from the use of the imported capital goods.

e.2Mitsubishi creditBanco de Chile

In
order to guarantee 50% of the financing of the construction of the thermoelectric plant Tocopilla (see note 18 b), Norgener gave Mitsubishi a stand-by letter of
credit issued with Banco de Chile for up to US$50 million. To guarantee the amount of the stand-by letter of credit, Norgener pledged unit 2 in favor of Banco de Chile. The value of
the guarantee as of December 31, 2003 is ThCh$10,391,500 (ThUS$17,500).

e.3Financial Restrictions

Norgener
must meet the following financial covenants established in the guaranty agreement, calculated based on its stand alone financial statements:



As
of December 31, 2003, Norgener was in compliance with the covenants set forth above.

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f)     Other

As a result of restrictions imposed by the CDEC-SING for supply security reasons, the combined cycle TermoAndes has limited its dispatch to a fraction
of its generation capacity. In the future, the eventual release of these restrictions will allow a higher dispatch, but it could be limited by the excess energy in the north of Chile. As a
consequence, TermoAndes, Interandes and the transmission facilities of AES Gener in the north of Chile and those related to energy imports from Argentina have been negatively affected. The investments
in Colombia, mainly Chivor, have been affected by regulatory changes that have reduced their revenues, as well as limitations in the electricity price and a low growth of the electricity demand.

Summary of Lawsuits and Contingencies

The Company does not believe that the outcome of all claims and lawsuits will have a material adverse effect on the Company?s financial position or
results of operations.

5)    CHANGE IN THE MONETARY REGIME AND DEVALUATION OF THE ARGENTINEAN PESO

The Argentine Republic is facing a delicate economic scenario, with a high level of external indebtedness, a financial system in crisis, and an economic recession
that has lasted for four years. This situation has generated a large decrease in the demand for products and services and an increase in the unemployment level. Moreover, the Argentine government's
capabilities to meet its obligations and its potential for obtaining borrowings are affected by these circumstances.

To
address this crisis, from early December 2001, the national authorities implemented several monetary and exchange control measures that included restrictions of free
availability of the funds deposited in banks and restrictions on transferring money overseas. Starting in January 2002, the Argentine government issued laws, decrees and regulations that
implemented a profound change in the economic model in effect at the time. Since the approval of Law
No. 25,561 (the Public Emergency and Exchange Regime Reform Law), by which power was granted to the executive branch of government to approve additional monetary, financial and exchange
measures, diverse regulations have been dictated to attempt to overcome the economic crisis. The main aspects of such measures and the social and economic impact are summarized as follows:



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Additionally,
the Energy Department implemented three Resolutions, which modified the Mercado Eléctrico Mayorista or Electric Wholesale Market's (MEM) operating
conditions. These Resolutions are: (a) Res. SE 2/02pesofication of the obligations denominated in foreign currency set forth in the Procedures for Programming, Charge Dispatches,
and Price Calculation (The Procedures); (b) Res. SE240/03established ceiling for the Spot Market; and (c) Res. SE 406/03, which changes collection conditions corresponding
to credits
associated with electric energy provisions. Not withstanding, given Central Salta is not connected to the MEM, these measures will not affect TermoAndes.

The
future events in Argentina's economic crisis may require the modification of some measures or the issuance of additional regulations by the government.

As
for the natural gas and firm transportation and supply agreements subscribed by TermoAndes, they were timely agreed in U.S. dollars and are currently paid in Argentinean pesos by
TermoAndes without any provision being made in excess of the amounts effectively paid. Although the Public Emergency Law provided for the pesofied contracts to be adjusted according to the CER,
TermoAndes' suppliers have not invoiced nor claimed such concept to date. If this occurs, based on the same law, TermoAndes could argue against applying the CER because the value of gas in the
Argentinean market today is lower than that resulting from adjusting the price of the pesofied contract with the CER. Notwithstanding, both gas suppliers and the gas transportation company have issued
administrative complaints by which they intend to maintain prices and tariffs in U.S. dollars. Their argument is an extensive interpretation of Decrees 689/02 and 1491/02 which established the
dollarization of the gas and electricity export agreements. In both cases, TermoAndes has rejected such position with the corresponding arguments. Additionally, TermoAndes has negotiated with the
suppliers under the emergency laws, however to date, these negotiations have not been successful. No adjustments have been recorded to account for any liability related to payment of this obligation
in any currency other than Argentina pesos as, in the opinion of management's counsel, it is unlikely that the company will be required to pay these obligations in US dollars.

On
August 20, 2003, ENARGAS (Ente Nacional Regulador de Gas or the Argentine Gas Regulatory Agency) resolved an argument in favor of TermoAndes, requiring transportation service
provider, Transportadora Gas del Norte, to deliver gas transportation service between Campo Duran and Torzalito, invoicing the corresponding charges under the original transportation agreement (STF
Na 52) in Argentine pesos (Ar$). TermoAndes, prior to and after the favorable ruling, is recording its obligations in Argentine pesos.

The
memorandum issued by the Legal and Technical Department of ENARGAS, which precedes the resolution extremely favors TermoAndes not only with respect to the dispute about transport,
but also with valid arguments for the disputes with the gas producers. See further discussion at note 25 a (vi).

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6)    TAKE-OR-PAY CONTRACTS

To assure a long-term supply of natural gas through 2005, 2013 and 2022, the company and some of its subsidiaries have entered into
take-or-pay contracts with natural gas suppliers and transportation, that require the payment of certain minimum amounts of gas whether it is consumed or not. The minimum
payments required to be made, whether or not the Company and its subsidiaries are able to take delivery of the gas, are as follows:

ThUS$

ThCh$2004

59,649

35,419,5762005

78,410

46,559,8582006

80,854

48,011,1052007

83,986

49,870,8872008

85,980

51,054,924Thereafter

541,703

321,663,241Total

930,582

552,579,591


26.    FOREIGN CURRENCY

A summary of the assets and liabilities in foreign currency is as follows:

Assets

|                                                     |  |                |  | December 31, |  
|---------------------------------------------------- |  | -------------- |  | ------------ | -
|
|Current Assets                                       |  |                |  |              |  
|Cash                                                 |  | US$            |  | 1,713,315    |  
|Cash                                                 |  | Other currency |  | 2,849,422    |  
|Time deposits                                        |  | US$            |  | 22,763,614   |  
|Time deposits                                        |  | US$            |  |             |  
|Marketable securities                                |  | US$            |  | 11,133       |  
|Marketable securities                                |  | Other currency |  | 5,045,452    |  
|Trade account receivable                             |  | US$            |  | 3,673,974    |  
|Trade account receivable                             |  | Other currency |  | 30,313,143   |  
|Miscellaneous accounts receivable                    |  | US$            |  | 595,199      |  
|Miscellaneous accounts receivable                    |  | Other currency |  | 2,566,420    |  
|Accounts and notes receivable from related companies |  | US$            |  | (21,183,032  | )
|Accounts and notes receivable from related companies |  | Other currency |  | 23,747,075   |  
|Inventories                                          |  | US$            |  | 14,782,404   |  
|Inventories                                          |  | Other currency |  | 7,329,392    |  
|Recoverable taxes                                    |  | US$            |  | 6,467        |  
|Recoverable taxes                                    |  | Other currency |  | 4,549,492    |  
|Deferred taxes                                       |  | Other          |  | 733,123      |  
|Prepayments                                          |  | US$            |  | 5,079,613    |  
|                                                     |  |                |  |              |  

F-73

---

|Prepayments                             |  | Other currency |  | 1,649,848     |   | 49,108        |  
|--------------------------------------- |  | -------------- |  | ------------- | - | ------------- | -
|Other current assets                    |  | US$            |  | 8,215,167     |   | 16,386,174    |  
|Other current assets                    |  | Other currency |  | 8,596,014     |   | 31,121,778    |  
|                                        |  |                |  |               |   |               |  
|Total current assets                    |  |                |  | 123,037,235   |   | 291,410,749   |  
|                                        |  |                |  |               |   |               |  
|Fixed Asset                             |  |                |  |               |   |               |  
|Land                                    |  | Other currency |  | 6,109,468     |   | 6,057,325     |  
|Land                                    |  | US$            |  | 2,388,292     |   | 1,961,013     |  
|Constructions and infrastructure        |  | Other currency |  | 374,808,601   |   | 375,512,669   |  
|Constructions and infrastructure        |  | US$            |  | 442,892,717   |   | 360,074,119   |  
|Machinery and equipment                 |  | US$            |  | 276,088,764   |   | 232,020,357   |  
|Machinery and equipment                 |  | Other currency |  | 738,129,202   |   | 727,732,536   |  
|Other fixed assets                      |  | US$            |  | 3,066,795     |   | 2,509,055     |  
|Other fixed assets                      |  | Other currency |  | 50,689,673    |   | 47,820,987    |  
|Depreciation                            |  | US$            |  | (73,299,886   | ) | (76,842,936   | )
|Depreciation                            |  | Other currency |  | (467,541,756  | ) | (492,589,321  | )
|                                        |  |                |  |               |   |               |  
|Total fixed asset                       |  |                |  | 1,353,331,870 |   | 1,184,255,804 |  
|                                        |  |                |  |               |   |               |  
|Other noncurrent assets                 |  |                |  |               |   |               |  
|Investments in related companies        |  | US$            |  | 90,042,909    |   | 62,819,109    |  
|Investments in related companies        |  | Other currency |  | 32,508,916    |   | 54,517,826    |  
|Goodwill                                |  | US$            |  | 5,554,284     |   | 4,865,320     |  
|Goodwill                                |  | Other currency |  | 3,840,434     |   | 3,441,928     |  
|Long-term receivable                    |  | US$            |  | 6,610,851     |   | 1,753         |  
|Long-term receivable                    |  | Other currency |  | 27,343        |   | 7,460,370     |  
|Long-term receivable related companies  |  | US$            |  | 222,364,229   |   | 3,030,514     |  
|Intangible                              |  | Other currency |  | 5,909,735     |   | 5,932,016     |  
|Accumulated amortization of intangibles |  | Other currency |  | (4,123,833    | ) | (4,319,893    | )
|VAT Account receivable                  |  | Other currency |  | 19,231,108    |   | 14,456,977    |  
|Others                                  |  | US$            |  | 33,340,436    |   | 21,010,721    |  
|Others                                  |  | Other currency |  | 11,502,037    |   | 8,162,549     |  
|                                        |  |                |  |               |   |               |  
|Total other noncurrent assets           |  |                |  | 426,808,449   |   | 181,379,190   |  
|                                        |  |                |  |               |   |               |  
|General Total                           |  |                |  | 1,903,177,554 |   | 1,657,045,743 |  
|                                        |  |                |  |               |   |               |  

F-74

---





|                                                 |  |                   |  | Less than 90 days |  | More than 90 days and less than 1 year |  
|------------------------------------------------ |  | ----------------- |  | ----------------- |  | -------------------------------------- | -
|
|
|Short-term bank liabilities                      |  | US$               |  |                  |  |                                       |  
|Short-term portion of long-term bank liabilities |  | US$               |  | 129,377           |  |                                       |  
|Short-term portion of long-term bank liabilities |  | Other currency    |  | 16,549,836        |  |                                       |  
|Bonds payable                                    |  | US$               |  | 11,271,048        |  |                                       |  
|Bonds payable                                    |  | Other currency    |  |                  |  |                                       |  
|Short-term portion of long-term liabilities      |  | US$               |  | 5,893,742         |  | 11.40                                  | %
|Short-term portion of long-term liabilities      |  | Other currency(1) |  | 352,949           |  |                                       |  
|Dividends payable                                |  | US$               |  | 475               |  |                                       |  
|Dividends payable                                |  | Other currency    |  | 148,204           |  |                                       |  
|Accounts payable                                 |  | US$               |  | 7,856,644         |  | 8.17                                   | %
|Accounts payable                                 |  | Other currency    |  | 19,159,158        |  |                                       |  
|Sundry accounts receivables                      |  | US$               |  | 583               |  |                                       |  
|Sundry accounts receivables                      |  | Other currency    |  | 253               |  |                                       |  
|Accounts and notes payable to related companies  |  | US$               |  | 176,529           |  |                                       |  
|Accounts and notes payable to related companies  |  | Other currency    |  | 1,149,425         |  |                                       |  
|Provision                                        |  | Other currency    |  | 1,700,253         |  |                                       |  
|Withholding taxes                                |  | US$               |  | 997,679           |  |                                       |  
|Withholding taxes                                |  | Other currency    |  | 178,948           |  |                                       |  
|Income taxes                                     |  | US$               |  |                  |  |                                       |  
|Income taxes                                     |  | Other currency    |  | 231,540           |  |                                       |  
|Unearned income                                  |  | Other currency    |  | 386,259           |  |                                       |  
|                                                 |  |                   |  |                   |  |                                        |  
|Totals current liabilities                       |  |                   |  | 66,182,902        |  |                                        |  
|                                                 |  |                   |  |                   |  |                                        |  

F-75

---



|2002                        |  |                |  | From 1 to 3 years |  | From 3 to 5 years |   | From 5 to 10 years |  | More than 10 years |  
|--------------------------- |  | -------------- |  | ----------------- |  | ----------------- | - | ------------------ |  | ------------------ | -
|
|Bank liabilities            |  | US$            |  | 230,123,630       |  | 3.29              | % | 9,072,437          |  | 3.29               | %
|Bank liabilities            |  | Other currency |  | 753,167           |  |                  |   |                   |  |                   |  
|Bonds                       |  | US$            |  | 445,456,558       |  | 6.07              | % | 199,265,505        |  | 8.00               | %
|Bonds                       |  | Other currency |  |                  |  |                  |   | 238,757            |  | 7.5                | %
|Long-term notes payable     |  | US$            |  | 2,483,663         |  |                  |   |                   |  |                   |  
|Long-term notes payable     |  | Other currency |  | 11,784            |  | 18.87             | % |                   |  |                   |  
|Provisions                  |  | US$            |  | 3,324,048         |  |                  |   |                   |  |                   |  
|Provisions                  |  | Other currency |  | 18,151,375        |  |                  |   |                   |  |                   |  
|Deferred tax                |  | Other currency |  |                  |  |                  |   | 4,000,343          |  |                   |  
|Other long-term liabilities |  | US$            |  | 17,308,053        |  | 10.39             | % | 10,562,864         |  | 9.64               | %
|                            |  |                |  |                   |  |                   |   |                    |  |                    |  
|Total                       |  |                |  | 717,612,278       |  |                   |   | 223,139,906        |  |                    |  
|                            |  |                |  |                   |  |                   |   |                    |  |                    |  

|2003                        |  |                |  | From 1 to 3 years |             | From 3 to 5 years |      | From 5 to 10 years |            | More than 10 years |     
|--------------------------- |  | -------------- |  | ----------------- | ----------- | ----------------- | ---- | ------------------ | ---------- | ------------------ | ----
|
|Bank liabilities            |  | US$            |  |                   | 169,589,268 |                   | 4.54 | %                  |           |                    |    
|Bonds                       |  | US$            |  |                   | 459,239,010 |                   | 5.90 | %                  | 38,629,799 |                    | 4.77
|Bonds                       |  | Other currency |  |                   | 101,063     |                   | 7.50 | %                  | 312,377    |                    | 7.50
|Long-term notes payable     |  | US$            |  |                   | 617,522     |                   | 6.50 | %                  |           |                    |    
|Provisions                  |  | US             |  | $                 | 12,966,388  |                   |     |                    |           |                    |    
|Provisions                  |  | Other currency |  |                   |            |                   |     |                    | 402,218    |                    |    
|Deferred tax                |  | Other currency |  |                   | 3,744,250   |                   |     |                    | 5,312,386  |                    |    
|Other long-term liabilities |  | US$            |  |                   | 15,038,508  |                   |     |                    |           |                    |    
|                            |  |                |  |                   |             |                   |      |                    |            |                    |     
|Total                       |  |                |  |                   | 661,296,009 |                   |      |                    | 44,656,780 |                    |     
|                            |  |                |  |                   |             |                   |      |                    |            |                    |     

F-76

---

27. OPERATING REVENUE

Operating revenue is generated primarily from the sale of electrical energy and capacity on the domestic market, and is detailed as follows:

Customers

2001
ThCh$

2002
ThCh$

2003
ThCh$Sales to Chilectra S.A.

82,281,465

84,183,133

87,048,622Sales to Chilquinta S.A.

33,920,661

35,922,335

34,508,574Sales to Minera Escondida

54,014,672

54,586,797

52,574,599Sales to CDEC

4,840,982

19,428,736

15,439,734Sales to Interconexión Eléctrica S.A. ISA (Colombia)

25,522,643

28,135,233

29,447,446Sales to Colombian customers

35,310,865

46,488,366

39,222,625ACG Frequency regulation service

10,863,202

6,991,410

9,993,878Sales to other customers

70,664,692

61,628,034

63,119,340Sales of fuel, technical advice and others

43,574,604

36,892,465

30,977,073Total

360,993,786

374,256,509

362,331,891


The
distribution of energy and capacity to customers in Chile is based on the contracts in force for the period and the sales prices are those established by the tariff regulations of
the Ministry of Economy, Development and Reconstruction.

In
Chile, Argentina and Colombia, the contracts with non-regulated customers are defined through negotiation with the counter parties. In addition, sales in the spot market
are defined by the current market prices in the respective countries.

Operating
revenue includes energy, capacity, transmission and other services supplied and not billed amounting to ThCh$30,481,960 in 2001, ThCh$23,017,467 in 2002 and ThCh$26,069,766 in
2003. These amounts are included in Trade accounts receivable at December 31st, of each year.

Sales
of energy and capacity to other customers are related to Hidroeléctrica Guardia Vieja S.A., Pilmaiquén S.A., Compañía
Minera Disputada Las Condes S.A., Cemento Polpaico S.A. and others.

The
companies that sold electricity in the Argentinean Market and contracted Argentine customers (Central Puerto and Hidroneuquén) were sold in 2001.

F-77

---

28. OPERATING EXPENSES

These items are detailed as follows:

Year ended December 31,2001
ThCh$

2002
ThCh$

2003
ThCh$Variable costsPurchases of energy

68,214,047

64,108,554

73,008,494Purchases of capacity

17,906,053

13,909,923

12,775,176Use of transmission system

14,732,211

12,203,086

11,971,601Fuel consumption

52,235,639

35,972,026

44,096,191Costs of fuel sales

26,049,254

27,021,533

17,959,663Costs of technical consultants and others

14,616,634

9,521,877

6,685,555Total variable costs

193,753,838

162,736,999

166,496,680Fixed CostsEnergy production

16,917,525

21,284,003

22,836,665Depreciation

46,926,463

50,065,199

45,980,540Total fixed costs

63,843,988

71,349,202

68,817,205Total Operating costs

257,597,826

234,086,201

235,313,885Total administration and sales costs

30,323,940

21,120,596

17,064,745Total

287,921,766

255,206,797

252,378,630




Year ended December 31,2001
ThCh$

2002
ThCh$

2003
ThCh$Salaries and employee benefits

6,276,024

4,997,969

5,115,675Staff Severance indemnities

7,925,305

363,524

192,369Depreciation

24,699

5,343

2,196External services

10,505,454

8,148,292

5,976,838Insurance

911,132

2,531,107

2,748,664System and comunication

525,851

612,732

1,111,656Municipality taxes and other

1,178,129

1,710,046

1,160,005Other

2,977,346

2,751,583

757,342Total

30,323,940

21,120,596

17,064,745


F-78

---



29.    NON-OPERATING INCOME AND EXPENSES

The detail of non-operating income and expenses is as follows:

|                                                         |  | Year ended December 31, |  
|-------------------------------------------------------- |  | ----------------------- | -
|
|Financial Income                                         |  |                         |  
|Interest on notes receivable                             |  | 11,478,194              |  
|Other financial income                                   |  | 6,123,924               |  
|                                                         |  |                         |  
|                                                         |  | 17,602,118              |  
|                                                         |  |                         |  
|Gain on Investments In Related Companies                 |  |                         |  
|Equity share in net income of related companies (1)      |  | 8,541,384               |  
|Equity share in net loss of related companies (1)        |  | (7,973,438              | )
|Amortization of goodwill                                 |  | (1,144,957              | )
|Negative amortization of goodwill                        |  | 2,209,345               |  
|                                                         |  |                         |  
|                                                         |  | 1,632,334               |  
|                                                         |  |                         |  
|Other non-operating income                               |  |                         |  
|Gain on sale of investments                              |  | 72,415,897              |  
|Gain on sale of property, plant and equipment and others |  |                        |  
|Fee and surcharge on Gas Andes contract                  |  |                        |  
|Forward                                                  |  | 4,610,486               |  
|Other income                                             |  | 2,693,200               |  
|                                                         |  |                         |  
|Other non-operating income (2)                           |  | 79,719,583              |  
|                                                         |  |                         |  
|Total non-operating income                               |  | 98,954,035              |  
|                                                         |  |                         |  
|Financial expenses                                       |  |                         |  
|Interest on bank loans                                   |  | (22,836,541             | )
|Interest on bonds                                        |  | (45,894,823             | )
|Miscellaneous interest and commissions                   |  | (5,568,068              | )
|                                                         |  | (74,299,432             | )
|                                                         |  |                         |  
|Other non-operating expenses (3)                         |  | (65,412,340             | )
|                                                         |  |                         |  
|Total non-operating expenses                             |  | (139,711,772            | )
|                                                         |  |                         |  

F-79

---

|                                                                         |  | Year ended December 31, |  
|------------------------------------------------------------------------ |  | ----------------------- | -
|
|Empresa Eléctrica Guacolda S.A.                                          |  | 88,040                  |  
|Puerto Ventana S.A.                                                      |  | (336,471                | )
|Petróleos, Asfaltos y Combustibles S.A.                                  |  | 22,262                  |  
|                                                                         |  |                         |  
|                                                                         |  | (226,169                | )
|(2) OTHER NON-OPERATING INCOME                                           |  |                         |  
|Gain on the sale of participation in Central Puerto S.A.                 |  | 62,099,448              |  
|Gain on sale of fixed assets                                             |  |                        |  
|Gain on the sale of Puerto Ventanas S.A.                                 |  | 10,316,449              |  
|Reversal of provision in SIGEN S.A. investment                           |  | 627,985                 |  
|Reimbursement from insurance company to subsidiary                       |  |                        |  
|TNG advance interest                                                     |  | 25,502                  |  
|Interest for client's default                                            |  | 21,819                  |  
|Gain on Forwards settlement                                              |  | 4,610,486               |  
|Fee Gas Andes                                                            |  |                        |  
|TermoAndes debt                                                          |  |                        |  
|Sale land and building Club de Campo Maipú                               |  |                        |  
|Sale buildings Miraflores #222 floor 4th to 7th                          |  |                        |  
|Other                                                                    |  | 2,017,894               |  
|                                                                         |  |                         |  
|Total other non-operating income                                         |  | 79,719,583              |  
|                                                                         |  |                         |  
|(3) OTHER NON-OPERATING EXPENSES                                         |  |                         |  
|Loss from sales and write-offs of property, plant and equipment          |  | 690,994                 |  
|Loss from sales of land and building                                     |  |                        |  
|Amortization of intangible assets                                        |  | 7,539,870               |  
|Amortization of bond issue discount and expenses                         |  | 5,591,925               |  
|Taxes on interest payments                                               |  | 631,869                 |  
|Bond conversion provisions                                               |  | 3,733,339               |  
|Loss on purchase rights                                                  |  | 112,241                 |  
|Customs and duty rebates                                                 |  | 1,147,179               |  
|Loss on sale of investment in Agencias Universales S.A.                  |  | 1,857,292               |  
|Post-retirement pension plan post retirement benefits                    |  | 969,087                 |  
|Loss on sale of investment in Hidroneuquén S.A.                          |  | 19,128,432              |  
|Loss on sale of investment CCNI                                          |  | 6,927,463               |  
|Loss on forward                                                          |  |                        |  
|Loss on sale of investment in Ecogener and Explotaciones Sanitarias S.A. |  |                        |  
|Provision for loss sale Carbones del Cesar Ltda.                         |  |                        |  
|Loss on sale of data base of Oilgener Inc. and Fell-Block                |  | 8,410,124               |  
|Research and development expenses                                        |  |                        |  
|Rio Maipo Security loss                                                  |  |                        |  
|Write-off interest receivable from a former subsidiary                   |  |                        |  
|Supplies and invetories write-off                                        |  |                        |  
|TermoAndes and InterAndes swap loss                                      |  |                        |  
|Other non-operating expenses of subsidiaries                             |  | 8,672,525               |  
|                                                                         |  |                         |  
|Total other non-operating expenses                                       |  | 65,412,340              |  
|                                                                         |  |                         |  

F-80

---

30.    MINORITY INTEREST

As described in Note 1(a), AES Gener S.A. consolidates its financial statements with those of its subsidiaries in which other companies have a minority
interest.

Amounts
recorded related to minority shareholders as of December 31, 2001, 2002 and 2003 and for the years ended December 31, 2001, 2002 and 2003 are as follows:

|                                        |  | Minority interest | 
|--------------------------------------- |  | ----------------- | 
|
|
|Norgener S.A.                           |  | 0.01              | 
|Energía Verde S.A.                      |  | 0.01              | 
|Chivor S.A. E.S.P. (Colombia)           |  | 0.02              | 
|Sociedad Eléctrica Santiago S.A.        |  | 10.00             | 
|Servicios de Asistencia Técnica S.A.    |  | 0.10              | 
|New Caribbean S.A. (Dominican Republic) |  | 49.99             | 
|Petróleos, Asfaltos y Combustibles S.A  |  | 2.10              | 
|Inversiones Termoenergía de Chile Ltda  |  | 0.01              | 
|Genergía S.A.                           |  |                  | 
|Gener Blue Water (Cayman Islands)       |  |                  | 
|Genergia Power Ltd. (Cayman Islands)    |  |                  | 
|                                        |  |                   | 
|Total                                   |  |                   | 
|                                        |  |                   | 

F-81

---

31.    ENVIRONMENT COSTS

In connection with the environment, the Company incurred in the following costs during 2001, 2002 and 2003.

|                              |  | 2001
ThCh$ |  | 2002
ThCh$ |  | 2003
ThCh$
|----------------------------- |  | ---------- |  | ---------- |  | ----------
|Air quality measuring station |  | 30,288     |  | 47,296     |  | 34,707    
|Noise measuring               |  | 3,921      |  | 20,857     |  | 5,380     
|ISO 14001                     |  | 21,882     |  | 15,562     |  | 4,860     
|Ashes                         |  | 45,934     |  | 16,572     |  | 76,063    
|Gas emanation measuring       |  | 95,588     |  | 48,286     |  | 49,983    
|Maritime evaluation           |  | 10,613     |  | 10,215     |  | 8,565     
|Electrostatic Precipitators   |  | 33,179     |  | 4,264      |  | 17,901    
|Enviroment Measuring          |  |           |  |           |  | 145       
|Waste water System            |  |           |  | 7.116      |  | 4.894     
|Road improvements             |  | 13,307     |  | 4.398      |  | 2.263     
|Others                        |  | 4,443      |  | 7,901      |  | 2,342     
|                              |  |            |  |            |  |           
|Total                         |  | 259,155    |  | 182,467    |  | 207,103   
|                              |  |            |  |            |  |           

All
costs that represent acquisitions, construction or improvements to property, plant and equipment have been capitalized.

Chivor
S.A. is regulated by the Colombian Law 99 of 1993, which requires routine payments each year by electricity generators. During year 2003 and 2002, Chivor S.A. paid ThCh$ 2,144,373
(ThUS$3,611) and ThCh$2,398,952 (ThUS$4,040) as required under this law.

32.    CASH FLOW STATEMENTS

As of December 31, 2003, the item called "other investing activities" in the cash flow statement does not exceed 10% of the total of the item, whose
explanation is required by Ordinance No. 1501.

The
total balance of cash and cash equivalents is comprised of the following items as of December 31, 2002 and 2003:

|                                        |  | As of December 31,
|--------------------------------------- |  | ------------------
|
|Cash                                    |  | 4,562,736         
|Time Deposits                           |  | 22,763,614        
|Money Market Funds                      |  | 4,799,400         
|Other Current Assets (Commercial paper) |  | 8,227,426         
|                                        |  |                   
|Total                                   |  | 40,353,176        
|                                        |  |                   

F-82

---



The
breakdown of other investment disbursements as of December 31, 2002 is as follows:

|                                                                                    |  | As of
December 31,
2002
ThCh$ |  
|----------------------------------------------------------------------------------- |  | ----------------------------- | -
|Sale of investments for trust accounts with liquidation restrictions (Colombia)     |  | 6,209,884                     |  
|Placement of investments in trust accounts with liquidation restrictions (Colombia) |  | (9,396,810                    | )
|Fell Block Intangible payments                                                      |  | (2,274,448                    | )
|                                                                                    |  |                               |  
|Total Other Investing Activities                                                    |  | (5,461,374                    | )

33.    INSURANCE CONTRACTS

AES Gener S.A.

As of December 31, 2003, AES Gener S.A. had all insurance risk in place for its generation facilities which covers property damage, machine breakdown and
business interruption. In addition, AES Gener S.A. holds public liability and transportation insurance policies in order to provide adequate protection for its assets and commercial operations. The
current insurance policies are effective until April 2004.

Norgener S.A.

As of December 31, 2003, Norgener S.A. had all insurance risk in place for its generation facilities which covers property damage, machine breakdown and
business interruption. In addition, Norgener S.A. holds public liability and transportation insurance policies in order to provide adequate protection for its assets and commercial operations. The
current insurance policies are effective until April 2004.

Energía Verde S.A.

As of December 31, 2003, Energía Verde S.A. had all insurance risk in place for its generation facilities which covers property damage,
machine breakdown and business interruption. In addition, Energía Verde S.A. holds public liability and transportation insurance policies in order to provide adequate protection for its
assets and commercial operations. The current insurance policies are effective until April 2004.

Sociedad Eléctrica Santiago S.A.

As of December 31, 2003, Sociedad Eléctrica Santiago S.A. had all insurance risk in place for its generation facilities which covers
property damage, machine breakdown and business interruption. In addition, Sociedad Eléctrica Santiago S.A. holds public liability and transportation insurance policies in order to
provide adequate protection for its assets and commercial operations. The current insurance policies are effective until April 2004.

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Chivor S.A. E.S.P.

As of December 31, 2003, Chivor S.A. E.S.P. had all insurance risk in place for its generation facilities which covers property damage, machine breakdown
and business interruption and also includes coverage for sabotage and terrorism. In addition, Chivor S.A. E.S.P. holds general and employer's liability insurance policies.

The
expiration of the current insurance policies runs through 2004; Chivor?s most relevant insurance policies expire on April 4, 2004 and January 13, 2005.

InterAndes S.A.

As of December 31, 2003, InterAndes S.A. had in place directors' and officers' and public liability insurance policies with expiration dates until
November 29, 2004 and June 22, 2004, respectively.

TermoAndes S.A.

During 2003, TermoAndes S.A. maintained all insurance risk to cover property damage, machine breakdown and business interruption. The expiration date of this
policy is April 4, 2004. As of December 31, 2003, TermoAndes S.A. had in place directors', officers' and public liability insurance policies with expiration dates until
November 29, 2004 and June 22, 2004, respectively.

34.    SUBSIDIARIES NOT CONSOLIDATED

In accordance with the official Circular No. 981 of the SVS issued on December 28, 1990, AES Gener S.A. does not consolidate
Compañía de Carbones del Cesar Ltda., Oilgener Inc. and Energen.

A
summary of the financial statements is as follows:

December 31,Oilgener Inc.

Cía.
Carbones del
Cesar Ltda.

Energen S.A.2003
ThCh$

2002
ThCh$

2003
ThCh$

2002
ThCh$

2003
ThCh$

2002
ThCh$Current assets

3,425

13,781

3,441

5,072

368

7,349Non-current assets



11,455

2,659,581

3,785,678

3,420

3,352Total assets

3,425

25,236

2,663,022

3,790,750

3,788

10,701Current liabilities





7,726



10,872

18,990Long term liabilities











Shareholder's equity

3,425

25,236

2,655,296

3,790,750

(7,084
)
(8,289
)Total liabilities and shareholder's equity

3,425

25,236

2,663,022

3,790,750

3,788

10,701Net sales











Gross profit

(463,304
)
(4,529,463
)




(3,500
)
(40,327
)Net income (loss)

(463,304
)
(4,529,463
)




(3,500
)
(40,327
)


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35.    CORRECTION OF AN ERROR

a)     Subsequent
to the filing of its December 31, 2002 financial statements, the Company determined that an error was made in accounting for the accrual related to the
tax deductible net loss for years 2001 and 2002, which resulted in a higher tax loss carryforward for those years.

This
increase in the tax loss carryforward resulted in the recognition of a higher deferred tax asset by ThCh$3,138,513 and ThCh$2,834,887 for the years 2001 and 2002, respectively.

The
statutory report filed with the SVS for the year ended December 31, 2003 reflected this effect as an increase in beginning retained earnings as of December 31, 2003.

For
20-F purposes the Company has modified the Chilean financial statements previously filed with the SVS to recognize the error as a deductible net loss in the years 2001 and 2002.

A
summary of the significant effects of the correction is as follows:

|                            |  | As of December 31, 2001 |   | As of December 31, 2002 |  
|--------------------------- |  | ----------------------- | - | ----------------------- | -
|
|Balance Sheet Data:         |  |                         |   |                         |  
|Deferred tax liabilities    |  | 8,637,604               |   | 5,499,091               |  
|Total long-term liabilities |  | 801,302,141             |   | 798,163,628             |  
|Retained earnings           |  | 928,267                 |   | 928,267                 |  
|Total shareholders' equity  |  | 744,931,741             |   | 748,070,254             |  
|Income Statements:          |  |                         |   |                         |  
|Income taxes                |  | (10,187,774             | ) | (7,049,261              | )
|Net income (loss)           |  | (5,229,957              | ) | (2,091,444              | )

b)    Subsequent
to the filing of its December 31, 2003 financial statements, the Company determined that an error was made in the disclosure in the Chilean GAAP
financial statements related to the omission in Note 24 of the treasury lock agreements and to the reduction in value of the treasury lock agreements for the period from January 1, 2004
to March 12, 2004. These 2003 Chilean GAAP financial statements reflect a modification in order to disclose the treasury lock agreements and their subsequent reduction in value that were not
included in Notes 7 and 24. In addition, Note 36 of the Subsequent Events was also modified.

36.    SUBSEQUENT EVENTS

1.Changes in the Chilean Electricity Law

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In
May 2002, the Chilean Ministry of Economy and Energy sent to the Chilean Congress a bill known as the Ley Corta, or the Short Law, which was approved by the Chilean Chamber of
Deputies on January 22, 2004. The Short Law establishes amendments to the existing Electricity Law, principally in relation to tolls charged for the use of high voltage and transmission
systems; the reduction of the minimum demand required to be considered as an unregulated customer from 2MW to 0.5 MW; the reduction of the floating band for regulated price from 10% to 5%; the
incorporation of elements to create an ancillary services market; and the pricing mechanism for small and medium-sized electricity systems.

In
addition to the amendments to modify the procedures used to determine transmission tolls, the Short Law contains other important modifications, including a reduction in the minimum
demand requirement for a customer to qualify as an unregulated customer and a reduction of the range outside of which the node price must fall in order to be subject to re-adjustment. The
Short Law will reduce the minimum demand requirement from the current level of 2 MW to 0.5 MW. Such modification will provide generation companies with a larger unregulated customer base and will
allow them to sell electricity to those customers directly, rather than to regulated distributors that resell the energy to those customers. The previous law required that the difference between
regulated node prices and the actual prices charged to unregulated customers, on average, not exceed 10%. If the prices determined by the Chilean regulatory agency did not meet this requirement, the
node price was adjusted upward or downward to fall within a range of 10%. The Short Law reduces the range to 5%, effectively moving the regulated price closer to unregulated market prices.

The
modifications contained in the Short Law maintain or improve our position, with regard to both our current status and projected development, in particular, the issues related with
transmission tolls. In addition, the Regulations to the Electricity Law, Supreme Decree No. 327, which was modified on October 9, 2003 with respect to the clarification of the
methodology utilized to calculate transmission tolls and the procedures to be used during rationing periods, will be replaced by the Short Law.

2.    Events
occurring after the original issuance of the financial statements:



F-86

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F-87

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37.    DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

I. Reconciliation of Chilean GAAP to U.S. GAAP

The Company's consolidated financial statements have been prepared in accordance with Chilean GAAP, which varies in certain respects from U.S. GAAP. Such
differences involve methods for measuring the amounts shown in the consolidated financial statements as well as additional disclosures required by U.S. GAAP. The principal differences between Chilean
GAAP
and U.S. GAAP for the Company are quantified in paragraph (v) and described below in the paragraphs preceding paragraph (v).

Under
Chilean GAAP, financial statements are restated to reflect the full effects of the gain (loss) in the purchasing power of the Chilean peso on the financial position and results of
operations of reporting entities. The method is based on a model that enables calculation of net inflation gains or losses caused by monetary assets and liabilities exposed to changes in the
purchasing power of local currency, by restating all non-monetary accounts in the financial statements. The model prescribes that the historical cost of such accounts be restated for
general price-level changes between the date of origin of each item and the year-end.

Under
U.S. GAAP, financial statements are presented assuming that the U.S dollar is the functional currency of Gener. Accordingly, the effect of price-level changes is eliminated in the
reconciliation to U.S. GAAP.

F-88

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a)    Interest Rate Hedge

The Company entered into forward treasury lock agreements in a notional amount of US$200 million commencing in December, 2003 and an additional
US$200 million in February, 2004 to hedge against the underlying interest rate of the notes. These agreements were entered into in December 2003 and in February 2004 in connection with an
offering of senior notes which will close on March 22, 2004. Since the date of these agreements, the yield on the benchmark 10 year US treasury note has decreased, which has resulted in a
decrease in value to the Company. See notes 7 and 36 of the restated Chilean GAAP financial statements. On the closing date of the notes, we will be required to pay the actual loss amount to
the counterparty, which is US$22.1 million (ThCh13,140). Under Chilean GAAP, the cost associated with these transactions is amortized over the life of the notes.

Under
U.S. GAAP, as the treasury lock agreements do not qualify as a "hedge", the mark-to-mark adjustment is recognized through the income statement.



Year Ended
December 31, 2003
ThCh$U.S. GAAP net income as previously reported

20,347,612Impact of restatement for omission of adjustment for treasury lock agreements (Note 36)

(985,242
)Tax effect in current year

167,490U.S. GAAP net income as restated (Note 37v.)

19,529,860Earnings per share under U.S. GAAP as previously reported (Chilean Pesos)

3.5869Earnings per share under U.S. GAAP restated (Chilean Pesos)

3.4427U.S. GAAP Shareholders' Equity as previously reported

359,767,234Adjustment for omission of adjustment for treasury lock agreements

(817,751
)U.S. GAAP Shareholders' Equity as restated

358,949,483


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b)    Functional and reporting currency:

Under Chilean GAAP, financial statements are adjusted for the effect of changes in the purchasing power of the Chilean currency during each period and presented
in constant Chilean pesos ("reporting currency"), as mentioned in Note 1. Transactions are recorded in Chilean pesos by applying to the foreign currency amount the exchange rate between the
reporting and the foreign currency at the date of the transaction. Exchange rate differences arising on the settlement of monetary items at rates different from those at which they were originally
recorded are recognized in the income statement of the period. In accordance with Technical Bulletin 64 ("BT64"), the financial statements of foreign subsidiaries that operate in countries exposed to
significant risks, and are not considered to be an extension of the parent company's operations,
must be remeasured into U.S. dollars. The Company has remeasured its foreign subsidiaries into U.S. dollars under this requirement as follows:



Under
BT 64, the investment in a foreign subsidiary is price-level restated, the effects of which are reflected in income, while the effects of the foreign exchange gain or loss between
the Chilean peso and the U.S. dollar are reflected in equity in the account "Cumulative Translation Adjustment"; as the foreign investment itself is measured in U.S. dollars.

Under
U.S. GAAP, a definition of the functional currency is required, which may differ from the reporting currency. Upon the acquisition of the Company by AES Corporation (AES) in 2000,
management determined the U.S. dollar as the Company's functional currency in accordance with the Statement of Financial Accounting Standards ("SFAS") No. 52.

Subsequent
to the issuance of the Company's December 31, 2002 consolidated financial statements, management determined that the Company's reconciliation of net income and
shareholders' equity from Chilean GAAP to U.S. GAAP were not prepared assuming that the U.S. dollar was the functional currency, but rather continued to reflect the Chilean Peso as the functional
currency. Therefore, the reconciliation of net income and shareholders' equity to U.S. GAAP as of and for the years ended December 31, 2001 and 2002, have been restated to give effect to the
identification of the U.S. dollar as the functional currency.

Accordingly,
the Company has remeasured into U.S. dollars the consolidated financial statements as of and for the years ended December 31, 2001, 2002 and 2003 and translated

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these
financial statements into the reporting currency, the Chilean Peso, by applying the procedures specified in SFAS No. 52.

Translation
adjustments for periods prior to January 1, 2001 were not removed from equity and the translated amounts for non monetary assets at December 31 2000 became the
accounting basis for those assets starting January 1, 2001. In addition, price-level adjustments reflecting the effect of changes in the purchase power of the Chilean peso recorded prior to
January 1, 2001 in the amount of ThCh$225,029,951 were reversed.

The
objective of the remeasurement process is to produce the same results that would have been reported if the accounting records had been kept in U.S. dollars. Accordingly, monetary
assets and liabilities are remeasured at the balance sheet date (current) exchange rate. Non-monetary assets are recorded at their historical exchange rate at the time of purchase. Past
transactions in currencies other than the U.S. dollar are remeasured at the exchange rates in effect when the transactions occurred. Revenues and expenses are remeasured on a monthly basis at the
average rates of exchange in effect during the period, except for consumption of non monetary assets, which are remeasured at the rates of exchange in effect when the respective assets were acquired.
Transaction gains and losses on monetary assets and liabilities arising from the remeasurement are included in the determination of net income (loss) in the period such gains and losses arise.

The
amounts obtained from the remeasurement process referred to above are translated into Chilean pesos following the provisions of SFAS No. 52. Assets and liabilities are
translated at the current selling exchange rate of Chilean pesos 654.79, 718.61 and 593.8 to US$1.00 as of December 31, 2001, 2002 and 2003, respectively. Revenues, expenses, gains and losses
reported in the income statement are translated at the exchange rate existing at the time of each transaction or, if appropriate, at the monthly average exchange rate during the period. Translation
effects of exchange rate changes are included as a cumulative translation adjustment in shareholders' equity.

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The
effect of the restatement is shown in the table below:

|                                                                             |  | Year ended
December 31
2001
ThCh$ |   | year ended
December 31
2002
ThCh$ |  
|---------------------------------------------------------------------------- |  | --------------------------------- | - | --------------------------------- | -
|U.S. GAAP net income as previously reported                                  |  | 10,578,578                        |   | (4,757,068                        | )
|Adjustment to Chilean GAAP net income (note 35)                              |  | 3,138,513                         |   | 2,834,887                         |  
|Impact of restatement for change in functional currency                      |  | 40,337,577                        |   | 43,049,122                        |  
|Tax effect from previous year                                                |  | (3,266,113                        | ) | (2,817,622                        | )
|                                                                             |  |                                   |   |                                   |  
|U.S. GAAP net income as restated (Note 37v)                                  |  | 50,788,555                        |   | 38,309,319                        |  
|                                                                             |  |                                   |   |                                   |  
|Earnings per share under U.S. GAAP as previously reported (in Chilean pesos) |  | 1.9208                            |   | (0.8386                           | )
|Earnings per share under U.S. GAAP restated (in Chilean pesos)               |  | 8.9531                            |   | 6.7532                            |  
|Diluted per share under U.S. GAAP as previously reported (in Chilean pesos)  |  | 3.977                             |   |                                   |  
|Diluted earnings per share under U.S. GAAP restated (in Chilean pesos)       |  | 8.9874                            |   |                                   |  

|                                                        |  | 2001
ThCh$   |   | 2002
ThCh$  |  
|------------------------------------------------------- |  | ------------ | - | ----------- | -
|U.S. GAAP Shareholder's equity as previously reported   |  | 479,265,446  |   | 468,681,290 |  
|Adjustment to Chilean GAAP net income (note 35)         |  | 3,138,513    |   | 5,973,400   |  
|Impact of restatement for change in functional currency |  | (150,250,233 | ) | (79,861,358 | )
|                                                        |  |              |   |             |  
|U.S. GAAP Shareholder's equity as restated (Note 37v)   |  | 322,153,726  |   | 394,793,332 |  
|                                                        |  |              |   |             |  

c) Revaluation of property, plant and equipment:

Under Chilean GAAP, certain property, plant and equipment are reported in the financial statements at amounts determined in accordance with a technical
revaluation performed in 1986, as discussed in Note 8b). The difference between the book value at the technical revaluation date and the revalued amount is included in equity as a surplus, and
is subject to adjustments for price-level restatement and depreciation. Under U.S. GAAP, property, plant and equipment is carried at historical cost. The effects of the reversal of this revaluation,
as well as of the related accumulated depreciation and depreciation expense for the periods presented are shown in paragraph (v) below.

d) Deferred income taxes:

Under Chilean GAAP, on January 1, 2000, the Company recorded income taxes in accordance with Technical Bulletin No. 60 of the Chilean Association of
Accountants, recognizing, using the liability method, the deferred tax effects of temporary differences between

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the
financial and tax values of assets and liabilities. Upon adoption, a contra asset or liability ("complementary accounts") was recorded offsetting the effects of the deferred tax assets and
liabilities not recorded prior to January 1, 2000, the adoption date of Technical Bulletin No. 60. The complementary accounts are amortized to income over the estimated average reversal
periods corresponding to the underlying temporary differences to which the deferred tax asset or liability relates.

Under
U.S. GAAP, the accounting is similar, however, at the adoption date of Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, the change
in accounting principle is immediately recorded through the income statement as a "Cumulative Effect of a Change in Accounting Principle". Therefore, in U.S. GAAP, the amortization of the
complementary accounts created under Chilean GAAP is reversed.

e) Intangibles:

Under Chilean GAAP, the Company's balance sheets include net intangible assets relating to the transfer of revalued assets from the Company's predecessor,
Compañía Chilena de Distribución Eléctrica S.A., at the time of the Company's formation. Under U.S. GAAP, such intangible assets would have
been recorded at the predecessor's historical cost before technical revaluation. The effects of adjusting the Company's equity (for the intangible asset net of accumulated amortization, inclusive of
the accumulated price-level restatement) and the Company's income statement (for the annual amortization charge) are included under paragraph (t) below.

In
2001, a provision was made in order to cover the contingent loss that the Company expected would be generated on the disposal of Oilgener Inc. Such loss was equivalent to the
net book value of this investment (as well as other investments that were in the process of being sold at December 31, 2001). The investment included a seismic database owned by
Oilgener Inc. consisting of well data related to properties in Chile and Argentina. The seismic data base was the main asset of Oilgener Inc. and at December 31, 2001 represented
96.6% of the net book value of this investment. This seismic date base was sold in 2002. Under U.S. GAAP, such an intangible asset was net recorded. Consequently a provision was not necessary as the
asset was
not recognized. As a result, the provision for the loss to be incurred on the sale of Oilgener Inc. that was made in Chilean GAAP in 2001 has been reversed in paragraph (v) below.

f) Staff severance indemnities:

Pursuant to agreements between the Company and its employees, the Company has committed to provide a lump sum payment to each employee with more than five years
of service at the end of his or her employment. Under Chilean GAAP, the Company records the present value of the liability, calculated based on total expected service, current salary levels of all
employees covered by such agreements with more than five years of service, and a discount rate of 8%. Under U.S. GAAP, this arrangement is considered to be a pension plan, and the liability should be
measured by projecting future expected severance payments using an

F-93

---

assumed
salary progression rate and discounting the resulting amounts to their present value. In practice, the Company believes that the salary progression rate will not differ significantly from the
general inflation rate. The application of U.S. GAAP would not have produced results materially different from the acceptable method under Chilean GAAP. As a result, the effects of these differences
have not been included in paragraph (v) below.

However,
as of January 1, 2002, the Company changed the interest rate used for determining the present value of the provisions for the staff severance indemnities, reducing it
from 10% to 8%. The effect of this change at the beginning of 2002 amounted to ThCh$88,896, which was recorded as a deferred asset to be amortized over 10 years. Under U.S. GAAP, the effect of
reducing the discount rate to 8% has been charged to income in the year ended December 31, 2002. In the year ended December 31, 2003, the difference between U.S. GAAP and Chilean GAAP
results from the reversal of the amortization of the deferred asset recorded under Chilean GAAP.

g) Capitalized interest:

Under Chilean GAAP, all interest on debt associated with a construction project is capitalized, including interest, price-level restatement and, with respect to
foreign currency borrowings, foreign currency translation gains and losses. Interest is capitalized based on the Company's weighted average interest rate on long-term debt, or if applicable, the
interest rate related to specific borrowings. Interest capitalization ends when the property or equipment is ready for service or its intended use.

Under
U.S. GAAP, the Company reverses those amounts capitalized due to foreign currency exchange gains and losses and the related monetary gain on foreign currency borrowings for
construction costs for purposes of reconciling to U.S. GAAP.

Additionally,
under U.S. GAAP, the capitalization of interest on qualifying assets under construction is required, regardless of whether interest is associated with debt directly related
to a project. The effect of the capitalization and the related depreciation expense of this difference are included in paragraph (v) below.

h) Goodwill and negative goodwill:

Under Chilean GAAP, goodwill is amortized over a maximum of twenty years. Under U.S. GAAP, for business combinations initiated up to June 30, 2001,
goodwill was capitalized and amortized on a straight-line basis over a period not exceeding 40 years. In June, 2001, the FASB issued SFAS No. 141, "Business Combinations"
("SFAS No. 141") which addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. Under U.S. GAAP, the Company adopted SFAS
No. 141 for business combinations initiated after June 30, 2001. In June, 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS
No. 142 addresses the accounting for goodwill and other intangible assets subsequent to a business acquisition. SFAS No. 142 requires that

F-94

---

intangible
assets with finite useful lives be amortized over their estimated useful lives and that goodwill and other intangible assets with indefinite useful lives not be amortized, but rather
tested, at least annually, for impairment Effective December 31, 2001, the provisions of SFAS No. 142 were applied to goodwill and other intangible assets acquired prior to
June 30, 2001. The reversal of the amortization of goodwill generated in Chilean GAAP in 2002 and 2003 has been included in paragraph (v) below.

i) Investments in related companies (difference between cost and equity method):

The Company has a series of investments that represent an interest of less than 20% in certain companies (Gasoducto GasAndes S.A., Gasoducto GasAndes (Argentina)
S.A. and CDEC-SIC Ltda.). Under Chilean GAAP, these investments have been accounted for under the equity method, because it is presumed that an investor, whose investment in voting
stock is more than 10%, has the ability to exercise significant influence over an investee. Under U.S. GAAP, these investments would generally be accounted for at cost less any
non-temporary impairment in value, as it presumed that the investor has the ability to exercise significant influence, if the investor owns 20% to 50% of the voting common stock. The
effects of this difference are included in paragraph (v) below.

j)      Foreign exchange contracts not effective as hedges:

As of December 31, 1993, the Company held foreign exchange contracts to transfer its Yen-denominated construction commitments to U.S. dollars.
Under Chilean GAAP, the Company accounted for these contracts as ineffective hedges and recorded them at the lower of cost or market. During 1994, these contracts were settled, resulting in a loss
that was deferred and is being amortized over the period that the related construction costs are depreciated. For U.S. GAAP purposes, foreign exchange contracts would have been marked-to-market
through earnings. The difference reflects the reversal of amortization recorded under Chilean GAAP for U.S. GAAP purposes. The effects of the above differences are included under paragraph (v)
below.

k)    Effect of U.S. GAAP adjustments in related Companies accounted for under the equity method:

The principal U.S. GAAP adjustments affecting the Company's equity-method investees are:



The
effect of these differences is included under paragraph (v) below.

F-95

---



l)      Complementary pension plan and post-retirement benefits:

Pension and post-retirement benefits are recorded under Chilean GAAP in a comparable manner to U.S. GAAP. However, under Chilean GAAP, the Company
capitalizes unrecognized actuarial gains and losses, whereas under U.S. GAAP, the Company adopted a policy to recognize actuarial gains and losses immediately in the income statement. Additionally,
under Chilean GAAP, additional minimum liabilities, if any, are recorded as charges in the income statement while under U.S. GAAP, an additional liability that exceeds unrecognized prior service cost
is reported in other comprehensive income. Lastly, as of January 1, 2002, the Company changed the interest rate used for determining the present value of the provisions for its supplementary
pension benefit plan, reducing it from 10% to 8%. The effect of this change at the beginning of 2002 amounted to ThCh$585,136, which was recorded as a deferred asset to be amortized over
10 years. Under U.S. GAAP, the effect of reducing the discount rate to 8% has been charged to income in the year ended December 31, 2002. In the year ended December 31, 2003, the
reversal of the amortization of the deferred asset recorded under Chilean GAAP results in an additional difference.

m)   Recognition of a loss from an analysis of the Impairment of Long-Lived Assets:

Under
Chilean GAAP, long-lived assets are subject to impairment tests when circumstances indicate that impairment may exist. In determining whether impairment exists, the
Company evaluates whether the operating revenue of the entity will be sufficient to cover its costs including depreciation (Technical Bulletin No. 33). The entity revenues are estimated based
on its undiscounted cash flows.

Under
U.S. GAAP, long-lived assets are also subject to periodic impairment tests when circumstances indicate that impairment may exist. In determining whether impairment
exists, however, the Company groups its assets at the lowest level of identifiable cash flows. If an asset's (or asset group's) carrying amount exceeds the sum of the undiscounted cash flows that are
expected to be generated from the use and eventual disposition of the asset, an impairment loss is recognized for an amount equal to the amount by which the asset's carrying amount exceeds its fair
value, which is generally measured based on discounted cash flows.

On
March 2, 2001, the Company entered into an agreement with TotalFinaElf to sell four Argentine investments. Notwithstanding the fact that the agreement was signed after
December 31, 2000, an impairment was recorded at such date under U.S. GAAP because management had the authority to sell the investments and committed to a plan to dispose of the assets, as
required by APB Opinion No. 30th "Reporting of Results of Operations-Reporting the Effects of Disposal of a Segment of a Business" ("APB 30").

In
November 2001, TotalFinaElf purchased two of the four Argentine investments, resulting in a loss for Chilean GAAP. Accordingly, the loss on impairment already recorded in 2000
for USGAAP is reversed in the 2001 reconciliation of net income. The remaining two investments have not been sold and are no longer planned to be sold. For this reason, in accordance with

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SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived assets," these investments are considered to be held and used.

In
addition, in 2001, a U.S. GAAP impairment test was performed on the Company's Termoandes generation plant and transmission line, which showed that the Chilean side of the transmission
line owned by Gener was impaired. Accordingly, an impairment loss was recorded at December 31, 2001 under U.S. GAAP for this asset.

An
impairment loss was also recorded in 2001 under U.S. GAAP in connection with the investments in Explotaciones Sanitarias S.A., Ecogener S.A. and Compañía
Carbones del Cesar Ltda. No loss was recorded under Chilean GAAP for Explataciones Sanitarias S.A. or Ecogener S.A. until they were sold in 2002. Additionally, an impairment loss was not
recorded for Compania Carbones del Cesar Ltda. under Chilean GAAP until 2002 when the Company received an offer from a third party indicating that such an impairment occurred. Accordingly, the
loss that was recorded in 2002 for Chilean GAAP is reversed in the 2002 reconciliation of net income to U.S. GAAP.

n)    Reversal of contingent gain

In December 1999, AES Gener filed a lawsuit against Hidroeléctrica Guardia Vieja S.A. and Hidroeléctrica Aconcagua S.A. for
their alleged contractual performance default related to an energy capacity sales contract. On December 14, 2001, the arbitrator accepted the Company's claims and the defendants were ordered to
fulfill the contract. Under Chilean GAAP, based on the arbitrator's acceptance of the lawsuit filed by Gener, the Company recorded into income in 2001 a portion of the gain contingency equal to
ThCh$3,058,871. The Company recorded only a portion of the gain contingency, because on January 7, 2002, the defendants filed an appeal that is being studied by the Supreme Court. Under U.S.
GAAP, this gain contingency would not be recorded until it is realized. The effect of this difference is included in paragraph (v) below.

o)    Reclassification of account receivable from main shareholder

On February 28, 2001, AES Gener and Inversiones Cachagua Ltda. signed a contract for a mercantile current account whose balance is in U.S. dollars
and, accrues interest every 30 days at LIBOR plus a spread, and has a final maturity date on February 28, 2004.

AES
Gener transferred ThCh$302,095,088 to Inversiones Cachagua Ltda. in the above mentioned mercantile current account. Such amount came from proceeds of the sale of investments
in Argentina and in Chile. According to a board of directors' agreement dated July 30, 2001, these funds were transferred to the principal shareholder and charged to the mercantile current
account instead of distributing them as interim dividends, as there was no certainty that the Company would be able to generate the profits needed to cover such interim dividends.

Under
Chilean GAAP, the mercantile account current account receivable balance is classified as an asset, as it is subject to indexation, accrues interest and has a maturity date,
however, under U.S. GAAP, it is shown as a deduction from shareholders' equity as a "Note Receivable

F-97

---

from
Shareholder." In addition, interest and exchange differences accrued each year associated with this note have been reclassified from income to shareholders' equity, net of the payments of
ThCh$29,883,305 received in 2003. The effect of this matter is included in paragraph (v) below.

p)    Interest rate swap

In 1998, the Company entered into an interest rate swap, whereby it receives variable interest payments and pays fixed interest payments in order to convert
variable rate debt into fixed rate debt. Under Chilean GAAP, the Company has recorded the interest expense as incurred and the fair value of the swap has not been recorded.

Under
U.S. GAAP, SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" was adopted by the Company as of January 1, 2001. SFAS No. 133
established accounting and reporting standards for derivative instruments, including embedded derivatives, and for hedging activities. SFAS No. 133 requires that all derivatives be recognized
as either assets or liabilities in the consolidated balance sheet and measured at fair value. Depending on the documented designation of a derivative instrument, any change in fair value is recognized
either in income or shareholders' equity (as a component of accumulated other comprehensive income ("OCI")).

The
Company has designated its interest rate swap as a cash flow hedge, and accordingly has recognized changes in its fair value in other comprehensive income. Gains and losses on cash
flow hedge transactions reported in other comprehensive income, and the transition adjustment reported by the Company as a cumulative effect type adjustment of accumulated other comprehensive income,
are reclassified to earnings in the same period that the related cash flows of the hedged transaction affect earnings.

SFAS
No. 133 also prescribes requirements for designation and documentation of hedging relationships and ongoing retrospective and prospective assessments of effectiveness in
order to qualify for hedge accounting. Hedge accounting is considered to be appropriate if the assessment of hedge effectiveness indicates that the change in fair value of the designated hedging
instrument is 80% to 125% effective at offsetting the change in fair value due to the hedged risk of the hedged item or transaction. Measurement of amounts to be recorded in income due to
ineffectiveness of hedges are based on the dollar-offset method as required by SFAS No. 133.

The
effects of the differences in the method of recording this cash flow hedge are included in paragraph (v) below.

q)    Forward exchange contracts

The Company has forward exchange contracts between the U.S. dollar and the Chilean peso. Under Chilean GAAP, these forward exchange contracts are recorded at fair
value with the changes in the fair value recorded as unrealized gains and losses. These derivatives are considered cash flow hedges of forecasted transactions (future sales of energy to regulated

F-98

---

customers
price-adjusted every six months by the fluctuation in the U.S. dollar exchange rate during that same period, while most of the energy costs are fixed in U.S. dollars). The initial premium or
discount on these contracts is deferred and amortized over the life of the contract.

Under
U.S. GAAP, these forward exchange contracts are also valued at fair value, with the initial premium or discount deferred and amortized over the life of the contract. However, as
the Company's formal documentation at the inception of the hedge did not qualify for hedge accounting treatment, the changes in the fair value of these derivatives are recognized through the income
statement.

r)     Minimum dividend

As required by the Chilean Corporations Law, unless otherwise decided by the unanimous vote of the holders of issued and paid-in shares, a Company
must distribute a cash dividend in an amount equal to at least 30% of the Company's net income for each year as determined in accordance with Chilean GAAP, unless and except to the extent the Company
has unabsorbed prior year losses. Since the payment of the 30% dividend from each year's income is a legal requirement in Chile, a provision has been made in the accompanying U.S. GAAP reconciliation
in paragraph (v) below to recognize the corresponding decrease in shareholders? equity as of December 31 of the year ended included in the reconciliation to which the net
income under Chilean GAAP relates.

s)     Asset retirement obligation

The Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations", effective January 1, 2003. Under SFAS No. 143, entities are
required to record the fair value of a legal liability for an asset retirement obligation ("ARO") in the period in which it is incurred. When a new liability is recorded, the entity capitalizes the
costs of the liability by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period and the capitalized cost is depreciated
over the useful life of the related asset. At retirement, an entity settles the obligation for its recorded amount or incurs a gain or loss.

With
the adoption of SFAS No. 143, the Company recorded an ARO asset of ThCh$141,396, net of accumulated amortization of ThCh$89,253, and a deferred tax asset of ThCh$41,812. The
net amount initially recognized as a result of applying SFAS No. 143 was ThCh$204,142, which was recorded as a cumulative effect of a change in accounting principle. The remaining difference of
ThCh$14,101 results from the 2003 accretion of the ARO liability and depreciation of the ARO asset, which was recorded within costs of goods sold.

t)     Property, plant and equipment construction penalties received

During 2000, the Company received penalty payments from a contractor for the late completion of a project to build a combined cycle power plant. Under Chilean
GAAP, the penalty payments were recognized as income within the income statement.

F-99

---

Under
U.S. GAAP, the payments were treated as a reduction in the asset value. This asset was sold in 2001, thereby resulting in the gain on disposal under U.S. GAAP. The effect of these
differences is included in paragraph (v) below.

u)    Discontinued operations

In 2001 the Company decided to divest the following subsidiaries: Oilgener Inc., Explotaciones Sanitarias S.A, Ecogener S.A., and Carbones del Cesar, for
which an impairment loss was recognized under US GAAP as explained in paragraph (l) above. However, these subsidiaries did not qualify as "discontinued operations" under APB. 30, The adoption
of SFAS No. 144 on January 1, 2002 changed the definition of "discontinued operations" to include operations of a "component" of an entity as defined in conjunction with SFAS
No. 131. SFAS No. 144 required reclassification in all year financial statements presented of such defined "discontinued operations". Such reclassifications have been made in the
reconciliation included in paragraph (v).

Oilgener Inc.,
Explotaciones Sanitarias S.A, and Ecogener S.A. were sold in 2002. Carbones del Cesar, however, has not been disposed of as of December 31, 2003 and was
reclassified as held and used as the Company did not meet the requirement to complete the sale within the one-year period under SFAS No. 144.

F-100

---



v) Effects of conforming to U.S. GAAP:

The adjustments to reported net income required to conform with accounting principles generally accepted in the United States are as follows:

|                                                                                                                         |                           | Year ended December 31, |  
|------------------------------------------------------------------------------------------------------------------------ | ------------------------- | ----------------------- | -
|
|Net income as reported under Chilean GAAP                                                                                |                           | (2,091,444              | )
|Charge to income for the mark-to-market adjustment on treasury lock agreements (a)                                       |                           |                        |  
|Reversal of additional depreciation of technical revaluation (paragraph (c))                                             |                           | 1,686,493               |  
|Reversal of technical revaluation of fixed assets retired during the year (paragraph (c)):                               |                           |                         |  
|                                                                                                                         | Cost                     |                         | 
|                                                                                                                         | Accumulated depreciation |                         | 
|Asset retirement obligation (paragraph (s))                                                                              |                           |                        |  
|Property, plant and equipment construction penalties received (paragraph (t))                                            |                           | 11,324,895              |  
|Capitalized interest (paragraph (g))                                                                                     |                           | (903,749                | )
|Recognition of a loss from an analysis of Impairment of Long-Lived Assets (paragraph (m))                                |                           | 3,484,658               |  
|Intangibles (paragraph (e))                                                                                              |                           | 196,060                 |  
|Charge to income of subsidiary development stage deficit                                                                 |                           | (123,158                | )
|Effect of U.S. GAAP adjustments on investments in related companies (paragraph (k))                                      |                           | (1,359,236              | )
|Difference between equity and cost method of accounting for investments (paragraph (i))                                  |                           | (619,997                | )
|Reversal of provision for loss on sale of Oilgener Inc. (paragraph (e))                                                  |                           | 3,877,011               |  
|Goodwill (paragraph (h))                                                                                                 |                           | 272,862                 |  
|Negative goodwill (paragraph (h))                                                                                        |                           | (1,722,120              | )
|Reversal of contingent gain (paragraph (n))                                                                              |                           | (3,058,871              | )
|Staff severance indemnities (paragraph (f))                                                                              |                           |                        |  
|Complementary pension and post-retirement benefits (paragraph (l))                                                       |                           | (380,971                | )
|Reclassification of additional minimum liability, net of tax (paragraph (l))                                             |                           |                        |  
|Deferred tax effects of U.S. GAAP adjustments                                                                            |                           | (712,049                | )
|Adjustment to deferred income taxes (paragraph (d))                                                                      |                           | 28,612,199              |  
|Interest rate swap (paragraph (p))                                                                                       |                           | 92,799                  |  
|Forward exchange contracts (paragraph (q))                                                                               |                           | (1,986,454              | )
|Foreign exchange contracts not effective as hedges (paragraph (j))                                                       |                           | 10,237                  |  
|Interest on account receivable from main shareholder, net of tax (paragraph (o))                                         |                           | (5,991,303              | )
|Deferred tax effects resulting from change in functional currency (paragraph (b))                                        |                           | (3,266,113              | )
|Reversal of price level restatement (paragraph (b))                                                                      |                           | (320,447                | )
|Transactions gains and losses resulting from change in functional currency (paragraph (b))                               |                           | 33,027,610              |  
|Reclassification of discontinued operations (paragraph (u))                                                              |                           | 10,290,814              |  
|Effect of minority interest on US GAAP adjustments                                                                       |                           | (22,578,250             | )
|Effect of minority interest on remeasurement adjustment                                                                  |                           | 2,308,069               |  
|Effect of change in functional currency on equity method investees                                                       |                           | 9,307,913               |  
|                                                                                                                         |                           |                         |  
|Income from continuing operations                                                                                        |                           | 59,377,457              |  
|                                                                                                                         |                           |                         |  
|(Loss) on discontinued operations, net of tax benefit of ThCh$1,701,912 in 2001 and ThCh$525,915 in 2002 (paragraph (u)) |                           | (8,588,902              | )
|                                                                                                                         |                           |                         |  
|Income in accordance with U.S. GAAP before cumulative effect of change in accounting principle                           |                           | 50,788,555              |  
|                                                                                                                         |                           |                         |  
|Cumulative effect of change in accounting principle for SFAS No. 143, net of tax of ThCh$41,812 in (paragraph (s))       |                           |                        |  
|                                                                                                                         |                           |                         |  
|Net income in accordance with U.S. GAAP                                                                                  |                           | 50,788,555              |  
|                                                                                                                         |                           |                         |  
|Other comprehensive income                                                                                               |                           |                         |  
|Cumulative translation adjustment                                                                                        |                           | 69,555,321              |  
|Cash flow hedge (paragraph (p))                                                                                          |                           | (5,624,171              | )
|Additional minimum liability (paragraph (l))                                                                             |                           |                        |  
|                                                                                                                         |                           |                         |  
|Comprehensive income (loss) in accordance with U.S. GAAP                                                                 |                           | 114,719,705             |  
|                                                                                                                         |                           |                         |  

F-101

---

The adjustments required to conform shareholders' equity amounts to U.S. GAAP are as follows:

Years ended December 31,2002
ThCh$
(As restated
note 37b)

2003
ThCh$
(As restated
note 37a)Shareholders' equity as reported under Chilean GAAP

784,777,752

808,603,884Charge to income for the mark-to-market adjustment on treasury lock agreements (a)



(985,242
)Reversal of technical revaluation of property, plant and equipment (paragraph (c)):Cost

(41,593,156
)
(41,644,481
)Accumulated depreciation

29,662,113

31,047,155Asset retirement obligation (paragraph (s))



(260,054
)Capitalized interest, net of depreciation (paragraph (g))

19,440,627

18,504,161Recognition of a loss from an analysis of the Impairment of long-lived Assests (paragraph (m))

(23,382,386
)
(23,382,386
)Intangibles (paragraph (e))

(1,765,614
)
(1,569,555
)Effect of U.S. GAAP adjustments on investments in related companies (paragraph (k))

(1,455,632
)
(2,293,255
)Difference between equity and cost accounting for investments (paragraph (i))

130,005

(360,847
)Goodwill (paragraph (h))

2,581,494

3,085,789Staff severance indemnities (paragraph (f))

(88,696
)
(79,826
)Complementary pension and post-retirement benefits (paragraph (l))

(585,136
)
(611,239
)Interest rate swap (paragraph (p))

(15,071,171
)
(11,102,143
)Forward exchange contract (paragraph (q))

(1,919
)
(13,630
)Foreign exchange contracts not effective as hedges (paragraph (j))

(225,199
)
(214,963
)Reversal of contingent gain (paragraph (n))

(3,058,871
)
(3,058,871
)Deferred tax effects of U.S. GAAP adjustments

1,174,338

(3,978,469
)Adjustment to deferred income taxes (paragraph (d))

(49,001,169
)
(51,741,648
)Reclassification of account receivable from main shareholder (paragraph (o))

(210,872,302
)
(196,885,647
)Accrual for minimum dividends (paragraph (r))

(10,672,635
)
(16,945,584
)Reversal of price level restatement (paragraph (b))

(260,894,045
)
(243,562,615
)Cumulative translation adjustment (paragraph (b))

101,150,806

39,476,573Effect of change in functional currency on equity method investees (paragraph (b))

14,432,752

3,282,117Transactions gains and losses resulting from change in functional currency (paragraph (b))

58,189,483

51,582,207Effect of minority interest on US GAAP adjustment

254,640

372,260Effect of minority interest on remeasurement adjustment

1,667,253

1,685,792Shareholders' equity in accordance with U.S. GAAP

394,793,332

358,949,483


F-102

---

The
following summarizes the changes in shareholder's equity under U.S. GAAP during the years ended December 31, 2002 and 2003:

Years ended December 31,2002
ThCh$
(As restated
note 37b)

2003
ThCh$
(As restated
note 37a)Balance at January 1 (restated for 2001)

332,153,726

394,793,332Reclassification of Interest on account receivable from main shareholder

26,794,263

15,896,650Reclassification of Account receivable from main shareholder

(33,741,800
)
Payments of account receivable from main shareholder



(29,883,305
)Accrual for minimum dividends

(10,672,635
)
(6,272,950
)Chivor additional minimum liability, net of tax

(661,423
)
661,423Cash flow hedge, net of tax

(3,619,755
)
3,297,374Cumulative translation adjustment

31,595,484

(61,674,231
)Price level adjustment

14,636,153

22,601,330Net income in accordance with U.S. GAAP

38,309,319

19,529,860Balance at December 31

394,793,332

358,949,483


F-103

---

Condensed Financial Statements

As of December 31,ASSETS

2002
ThCh$
(As restated
note 37b)

2003
ThCh$
(As restated
note 37 a)Current assetsInventories

25,145,789

13,876,383Other current assets

108,770,290

105,877,842Total current assets

133,916,079

119,754,225Non-current assetsNet property, plant and equipment

1,209,763,599

961,252,926Other non current assets

229,480,108

148,194,132Total other non-current assets

1,439,243,707

1,109,447,058TOTAL ASSETS

1,573,159,786

1,229,201,283LIABILITIESCurrent Liabilities

276,781,324

187,085,484Long-Term LiabilitiesLong-term bank liabilities

237,573,498

169,589,268Bonds payable

545,743,670

454,306,799Other non-current liabilities

113,097,189

53,992,429Total long-term liabilities

896,414,357

677,888,496Total liabilities

1,173,195,681

864,973,980Minority interest

5,170,773

5,277,820TOTAL SHAREHOLDERS' EQUITY

394,793,332

358,949,483TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

1,573,159,786

1,229,201,283


F-104

---

Year ended December 31,2001
ThCh$
(As restated
note 37b)

2002
ThCh$
(As restated
note 37b)

2003
ThCh$
(As restated
note 37a)INCOME STATEMENT:Operating revenues

376,011,493

358,375,024

315,392,619Operating costs and expenses:Cost of sales

(232,720,344
)
(221,051,670
)
(203,292,895
)Selling, general and administrative expenses

(28,141,499
)
(19,917,720
)
(15,196,034
)Operating Income

115,149,650

117,405,634

96,903,690Interest expense

(75,803,955
)
(76,115,852
)
(50,629,801
)Other income (expense)

13,079,372

9,398,475

3,110,353Other expense

(2,142,502
)
(7,130,551
)
(7,059,872
)Foreign exchange gain (loss)

4,831,177

8,016,838

(18,634,863
)Income before income taxes

55,113,742

51,574,544

23,689,507Income taxes

18,005,296

(13,028,422
)
(9,690,846
)Income before minority interest and equity in earnings

73,119,038

38,546,122

13,998,661Minority interest

(21,650,159
)
(2,539,087
)
(1,677,531
)Equity in earnings of affiliated companies

7,908,578

4,937,384

7,412,872Income from continuing operations

59,377,457

40,944,419

19,734,002Discontinued Operations, net of tax

(8,588,902
)
(2,635,100
)
Income before cumulative effect of change in accounting principle

50,788,555

38,309,319

19,734,002Cumulative effect of change in accounting principle, net of tax





(204,142
)Net income

50,788,555

38,309,319

19,529,860


F-105

---





Information for inclusion in the statement of cash flows required by U.S. GAAP including the cash flow information of Hidroneuquén S.A. and
development-stage companies, which are not consolidated under Chilean GAAP, is as follows:

|                                                         |                                                        | For the year ended December 31, |             
|-------------------------------------------------------- | ------------------------------------------------------ | ------------------------------- | ------------
|
|Net cash flow provided by operating activities           |                                                        | 22,654,566                      |             
|Net cash flow provided by (used in) investing activities |                                                        | 297,012,309                     |             
|                                                         | Sales of permanent investments(1)                      |                                 | 289,176,376 
|Net cash flow (used in) financing activities             |                                                        | (322,939,729                    | )           
|                                                         | Loan to main shareholder(1)                            |                                 | (171,193,374
|                                                         | Proceeds from issuance of shares(1)                    |                                 | 111,043,076 
|                                                         | Dividends paid(1)                                      |                                 | (148,396,793
|                                                         | Repayment of loans(1)                                  |                                 | (108,172,275
|                                                         | Increase (decrease) in cash and cash equivalents       |                                 | (3,272,854  
|                                                         | Cash and cash equivalents at the beginning of the year |                                 | 65,456,688  
|                                                         | Exchange difference                                    |                                 | 1,539,912   
|                                                         |                                                        |                                 |             
|                                                         | Cash and cash equivalents at end of year               |                                 | 63,723,746  
|                                                         |                                                        |                                 |             

---

For the purposes of the U.S. GAAP statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents:

December 31,2001
ThCh$

2002
ThCh$

2003
ThCh$Cash

43,171,250

4,517,560

3,413,411Time deposits that are cash equivalents

16,634,844

22,538,232

10,012,004Other deposit instruments that are cash equivalents(1)

3,917,652

12,897,848

43,733,493Total cash and cash equivalents

63,723,746

39,953,640

57,158,908


---

F-106

---

Supplementary Cash Flow information

Year ended December 31,2001
ThCh$

2002
ThCh$

2003
ThCh$Interest paid, net of capitalized interest

69,195,057

72,897,710

46,845,197Taxes paid

59,763

170,806

72,047


w)   Accumulated other comprehensive income

In accordance with SFAS No. 130, "Reporting Comprehensive Income" the Company reports a measure of all changes in shareholder's equity that result from
transactions and other economic events of the period other than transactions with owners ("comprehensive income"). Comprehensive income is the total net income and other non-owner equity
transactions that result in changes in net equity. The components of other comprehensive income are reported net of the related tax effects.

The
following represents accumulated other comprehensive income balances as of December 31, 2002 and 2003.

2002Effect of US GAAP ThCh$Cumulative
translation
adjustment
(As restated
note 37b)

Cash flow
hedge

Chivor
additional
minimum/
liability

Accumulated
other
comprehensive
income
(As restated
note 37b)Beginning balance

69,555,321

(5,624,171
)


63,931,150Credit (charge) for the period

31,595,484

(3,619,755
)
(661,423
)
27,314,306Ending balance

101,150,805

(9,243,926
)
(661,423
)
91,245,456Related tax effect



(1,949,099
)
(356,151
)
(2,305,250
)


F-107

---

2003Effect of US GAAP ThCh$Cumulative
translation
adjustment

Cash flow
hedge

Chivor
additional
minimum/
liability

Accumulated
other
comprehensive
incomeBeginning balance

101,150,805

(9,243,926
)
(661,423
)
91,245,456Credit (charge) for the period

(61,674,232
)
3,297,374

661,423

(57,715,435
)Ending balance

39,476,573

(5,946,552
)


33,530,021Related tax effect



1,775,509

356,151

2,305,250


F-108

---



II.     Additional Disclosure Requirements:



|                                                             |  | Year ended December 31, |  
|------------------------------------------------------------ |  | ----------------------- | -
|
|Income from continuing operations                            |  | 10.4672                 |  
|Loss on discontinued operations                              |  | (1.5141                 | )
|Cumulative effect of change in accounting principle          |  |                        |  
|                                                             |  |                         |  
|Basic earnings per share                                     |  | 8.9531                  |  
|                                                             |  |                         |  
|Weighted average number of shares outstanding (in thousands) |  | 5,672,743               |  



As
described in note 21, AES Gener placed ThUS$499,944 (ThCh$296,866,742) in convertible bonds during 1998 and 1999; ThUS$23,305 (ThCh$13,838,509) had been converted into shares
for the year ended December 31, 2001.

Diluted
earnings per share for the year ended December 31, 2001 are as follows (the calculation for December 31, 2002 and 2003 has not been included as the effect would
have been anti-dilutive on the income from continuing operations line):

|                                        |                                   | Year ended December 31, 2001
(As restated note 37b) |           
|--------------------------------------- | --------------------------------- | --------------------------------------------------- | ----------
|
|Income from continuing operations       |                                   | 59,377,457                                          |           
|Loss on discontiunued operations        |                                   | (8,588,902                                          | )         
|                                        |                                   |                                                     |           
|Net income available to shareholders    |                                   | 50,788,555                                          |           
|                                        |                                   |                                                     |           
|Assumed conversion of convertible bonds |                                   | 20,767,371                                          |           
|                                        | Income from continuing operations |                                                     | 80,144,828
|                                        | Loss on discontiunued operations  |                                                     | (8,588,902
|Diluted earnings per share              |                                   | 71,555,926                                          |           

F-109

---



The
provision for income taxes differs under Chilean GAAP from the charge calculated in accordance with U.S. GAAP, as a result of the following differences:

|                                                       |  | 2001       |  
|------------------------------------------------------ |  | ---------- | -
|
|Current income taxes as determined under Chilean GAAP  |  | 657        |  
|Deferred income taxes as determined under Chilean GAAP |  | 3,275,879  |  
|U.S. GAAP adjustments: (As restatednote 37b)          |  |            |  
|Deferred tax effect applying SFAS No. 109              |  | 1,133,165  |  
|Deferred tax effect of U.S. GAAP adjustments           |  | (4,932,266 | )
|Deferred tax effect in remeasuring                     |  | 3,266,113  |  
|Adjustments for remeasurement                          |  | (420,522   | )
|Discontinued operations                                |  | 1,701,912  |  
|                                                       |  |            |  
|Expense (benefit) for the period under U.S GAAP        |  | 4,024,938  |  
|                                                       |  |            |  

|                                                       |  | 2002      
|------------------------------------------------------ |  | ----------
|
|Current income taxes as determined under Chilean GAAP  |  |          
|Deferred income taxes as determined under Chilean GAAP |  | 10,997,017
|U.S. GAAP adjustments: (As restatednote 37b)          |  |           
|Deferred tax effect applying SFAS No. 109              |  | 746,167   
|Deferred tax effect of U.S. GAAP adjustments           |  | 963,760   
|Deferred tax effect in remeasuring                     |  | 2,817,622 
|Adjustments for remeasurement                          |  | 334,390   
|Discontinued operations                                |  | 525,915   
|                                                       |  |           
|Expense (benefit) for the period under U.S GAAP        |  | 16,384,871
|                                                       |  |           

F-110

---

|                                                       |  | 2003       |  
|------------------------------------------------------ |  | ---------- | -
|
|Current income taxes as determined under Chilean GAAP  |  | 139,886    |  
|Deferred income taxes as determined under Chilean GAAP |  | 414,366    |  
|U.S. GAAP adjustments:                                 |  |            |  
|Deferred tax effect applying SFAS No. 109              |  | 261,578    |  
|Deferred tax effect of U.S. GAAP adjustments           |  | (288,268   | )
|Deferred tax effect in remeasuring                     |  | 3,787,784  |  
|Adjustments for remeasurement                          |  | (1,210,791 | )
|                                                       |  |            |  
|Expense (benefit) for the period under U.S. GAAP       |  | 3,104,555  |  
|                                                       |  |            |  

F-111

---

Deferred tax assets (liabilities) as of balance sheet dates are summarized as follows:

|                                                                      |  | 2002        |   | 2003       |  
|--------------------------------------------------------------------- |  | ----------- | - | ---------- | -
|
|
|Deferred income tax assets:                                           |  |             |   |            |  
|Tax loss carry forwards (1)                                           |  | 36,611,792  |   |           |  
|Impairment of long-lived assets                                       |  |            |   | 3,975,005  |  
|Provision allowance                                                   |  |             |   |            |  
|Cash flow hedge                                                       |  |            |   | 4,975,303  |  
|Forward exchange contracts                                            |  |            |   | 327        |  
|Discount on bonds payable                                             |  | 3,946,412   |   |           |  
|Pension                                                               |  |            |   | 114,552    |  
|Other                                                                 |  | 438,490     |   | 819,614    |  
|                                                                      |  |             |   |            |  
|Total deferred income tax assets                                      |  | 40,996,694  |   | 9,884,801  |  
|                                                                      |  |             |   |            |  
|Deferred income tax liabilities:                                      |  |             |   |            |  
|Staff severance indemnities                                           |  | (92,897     | ) |           |  
|Amortization of intangibles                                           |  | (300,155    | ) |           |  
|Depreciation                                                          |  | (97,254,846 | ) |           |  
|Capitalized interest.                                                 |  |            |   | (3,304,907 | )
|Other                                                                 |  | (1,590,585  | ) | 38,284     |  
|Adjustment to deferred income taxes for change in functional currency |  |            |   | (5,443,840 | )
|                                                                      |  |             |   |            |  
|Total deferred income tax liabilities                                 |  | (99,238,483 | ) | (8,710,463 | )
|                                                                      |  |             |   |            |  
|Net deferred tax liabilities from application of SFAS No. 109         |  | (58,241,789 | ) | 1,174,338  |  
|                                                                      |  |             |   |            |  

---

F-112

---

The
provision for income taxes differs from the amount of income tax determined by applying the applicable local statutory income tax rate to pretax income, calculated in accordance with
U.S. GAAP, as a result of the following differences:

December 31,2001
ThCh$
(As restated
note 37b)

2002
ThCh$
(As restated
note 37b)

2003
ThCh$
(As restated
note 37a)Pretax income (loss) in accordance with U.S GAAP

55,113,742

51,574,544

23,689,507Statutory tax rate

16.00
%
16.50
%
17.00
%Statutory tax rate applied to pretax income (loss)

8,818,199

8,509,800

4,027,217Statutory tax rate of foreign subsidiaries income (loss)

720,066

(4,240,684
)
(20,498,325
)Price-level adjustments

(12,255,460
)
(10,499,264
)
(7,334,274
)Equity in earnings in related companies

4,967,006

593,040

15,685,087Goodwill

(183,193
)
(164,185
)
(128,013
)Permanent differences arising from U.S GAAP adjustments

2,378,892

(4,711,831
)
(3,612,091
)Tax loss in the sale Hidroneuquen in excess of the book loss

15,883,598



Others

(687,831
)
(1,994,590
)
2,169,553Discontinued operation

(1,635,981
)
(520,708
)
Effective income tax rate

18,005,296

(13,028,422
)
(9,690,846
)




AES
Gener operates in four reportable segments. The Company aggregated Gener, Energia Verde, Santiago, and Norgener operating segments related to the power generation plants located in
different regions of Chile into one reportable segment, Chilean Operations. The Argentinian Operations consist of the Argentinian subsidiaries Termoandes S.A. and Interandes S.A. engaged principally
in the generation and transmission of electricity. Chivor is the Colombian subsidiary that operates a hydroelectric power generation plant. The Other segment includes the international operations and
all Chilean operations engaged in activities other than generation of electricity.

The
Company's segment information is presented in accordance with Chilean GAAP. The principal measurement differences between Chilean GAAP and U.S. GAAP as they relate to the Company are
the result of differences in the accounting for: (i) functional currency, (ii) price-level adjustments, (iii) investments accounted for under the equity methods; and
(iv) difference between cost and equity method. Management uses Chilean GAAP operating profit/(loss) before depreciation as its measure of segment profitability. In the tables below, this
measure is referred to as segment operating profit.

F-113

---



The following table summarizes segment and geographic information (Chilean GAAP):

|Year ended December 31, 2001 ThCh$                                              |  | Chilean
Operations |   | Argentinian
Operations |   | Chivor      |   | Others      |   | Total         |  
|------------------------------------------------------------------------------- |  | ------------------ | - | ---------------------- | - | ----------- | - | ----------- | - | ------------- | -
|Revenues from external customers                                                |  | 265,958,282        |   | 1,145,075              |   | 71,769,736  |   | 22,120,693  |   | 360,993,786   |  
|Revenues from transactions with other operating segments of the same enterprise |  | 71,180,422         |   | 47,868,953             |   | 14,348      |   | 5,888,494   |   | 124,952,217   |  
|Interest income                                                                 |  | 2,945,776          |   | 968,983                |   | 758,906     |   | 12,928,453  |   | 17,602,118    |  
|Interest expense                                                                |  | (8,466,171         | ) | (13,359,929            | ) | (23,150,886 | ) | (29,322,446 | ) | (74,299,432   | )
|Depreciation                                                                    |  | (28,664,455        | ) | (7,636,597             | ) | (9,415,296  | ) | (1,234,814  | ) | (46,951,162   | )
|Segment operating profit                                                        |  | 116,394,931        |   | (17,939,957            | ) | 32,237,512  |   | 19,654,636  |   | 150,347,122   |  
|Price level restatement                                                         |  | 5,039,050          |   | (19,651,081            | ) | (18,132,165 | ) | 7,038,562   |   | (25,705,634   | )
|Total assets                                                                    |  | 1,151,613,159      |   | 285,840,812            |   | 476,409,571 |   | 12,770,094  |   | 1,926,633,636 |  
|Earning from equity-method investees                                            |  |                   |   | (983,541               | ) |            |   | 1,551,487   |   | 567,946       |  
|Capital expenditures                                                            |  | 20,323,244         |   | 556,835                |   | 189,430     |   | 1,672,674   |   | 22,742,182    |  

|Year ended December 31, 2002 ThCh$                                              |  | Chilean
Operations |   | Argentinian
Operations |   | Chivor      |   | Others     |   | Total         |  
|------------------------------------------------------------------------------- |  | ------------------ | - | ---------------------- | - | ----------- | - | ---------- | - | ------------- | -
|Revenues from external customers                                                |  | 289,757,470        |   | 7,046                  |   | 81,698,657  |   | 2,793,336  |   | 374,256,509   |  
|Revenues from transactions with other operating segments of the same enterprise |  | 88,116,136         |   | 30,677,978             |   | 85,071      |   | 1,815,002  |   | 120,694,187   |  
|Interest income                                                                 |  | 33,818,130         |   | 735,060                |   | 1,358,294   |   | 403,695    |   | 36,315,179    |  
|Interest expense                                                                |  | (39,028,607        | ) | (13,233,473            | ) | (21,179,020 | ) | (843       | ) | (73,441,943   | )
|Depreciation                                                                    |  | (31,407,067        | ) | (9,303,475             | ) | (9,359,978  | ) | (22        | ) | (50,070,542   | )
|Segment operating profit                                                        |  | 162,089,286        |   | (10,125,664            | ) | 36,092,190  |   | 2,185,039  |   | 190,240,851   |  
|Price level restatement                                                         |  | 14,217,454         |   | (12,794,402            | ) | (19,737,886 | ) | 208,037    |   | (18,106,797   | )
|Total assets                                                                    |  | 1,125,899,958      |   | 279,793,610            |   | 482,573,916 |   | 15,275,341 |   | 1,903,177,554 |  
|Earning from equity-method investees                                            |  | (84,946            | ) | (300,115               | ) |            |   |           |   | (385,061      | )
|Capital expenditures                                                            |  | (10,969,243        | ) | (38,149                | ) | (160,727    | ) |           |   | (11,168,119   | )

|Year ended December 31, 2003 ThCh$                                              |  | Chilean
Operations |   | Argentinian
Operations |   | Chivor      |   | Others     |   | Total         |  
|------------------------------------------------------------------------------- |  | ------------------ | - | ---------------------- | - | ----------- | - | ---------- | - | ------------- | -
|Revenues from external customers                                                |  | 281,163,429        |   | 17,593                 |   | 78,714,068  |   | 2,436,801  |   | 362,331,891   |  
|Revenues from transactions with other operating segments of the same enterprise |  | 91,083,239         |   | 29,756,952             |   | 74,056      |   |           |   | 120,914,247   |  
|Interest income                                                                 |  | 20,812,994         |   | 332,519                |   | 1,278,263   |   | 369,745    |   | 22,793,521    |  
|Interest expense                                                                |  | (33,635,421        | ) | (10,696,562            | ) | (10,523,151 | ) | (140       | ) | (54,855,274   | )
|Depreciation                                                                    |  | (30,504,626        | ) | (7,720,869             | ) | (7,755,093  | ) | (2         | ) | (45,980,590   | )
|Segment operating profit                                                        |  | 142,541,825        |   | (8,986,268             | ) | 37,006,235  |   | 2,436,804  |   | 172,998,596   |  
|Price level restatement                                                         |  | (68,111,374        | ) | 3,428,232              |   | 51,990,213  |   | (913,371   | ) | (13,606,300   | )
|Total assets                                                                    |  | 1,024,559,601      |   | 218,296,870            |   | 400,090,280 |   | 14,098,992 |   | 1,657,045,743 |  
|Earning from equity-method investees                                            |  | 9,817,045          |   |                       |   |            |   |           |   | 9,817,045     |  
|Capital expenditures                                                            |  | (1,855,860         | ) | (246,253               | ) | (509,244    | ) |           |   | (2,611,357    | )

F-114

---

2.     Reconciliation of reportable segment totals to consolidated totals

Year Ended
December 31,
2001
ThCh$

Year Ended
December 31,
2002
ThCh$

Year Ended
December 31,
2003
ThCh$Segment operating profit

150,347,122

190,240,851

172,998,596Depreciation

(46,951,162
)
(50,070,543
)
(45,980,590
)Chilean GAAP operating profit

103,395,960

140,170,308

127,018,006


d)    Investments in related companies:

The following tables show the condensed financial information of related companies accounted for using the equity method. All amounts are in thousands of constant
Chilean pesos of December 31, 2003 purchasing power.

The
condensed information shown here has been taken from the companies' financial statements prepared in accordance with Chilean GAAP. For the overall effect that the application of U.S.
GAAP has on the financial statements of these companies, see paragraph 1(j) in Note 37 above.

EMPRESA ELECTRICA GUACOLDA S.A.

December 31,2001
ThCh$

2002
ThCh$

2003
ThCh$Percentage interest

50.00
%
50.00
%
50.00
%Current assets

16,067,593

18,519,264

31,677,318Non-current assets

216,059,173

207,392,226

204,371,605Total assets

232,126,766

225,911,490

236,048,923Current liabilities

23,398,143

89,459,259

28,704,917Non-current liabilities

127,975,913

54,062,917

109,165,650Total liabilities

151,374,056

143,522,176

137,870,567Net sales

57,517,560

63,977,136

63,405,091Gross profit

15,562,798

24,329,366

17,014,619Net income (loss)

(9,254,626
)
1,636,604

15,789,043


F-115

---

EMPRESA GENERADORA DE ELECTRICIDAD ITABO S.A.

December 31,2001
ThCh$

2002
ThCh$

2003
ThCh$Percentage interest

25.01
%
25.01
%
25.01
%Current assets

59,927,044

45,711,961

53,403,081Non-current assets

194,817,714

233,430,084

193,808,337Total assets

254,744,758

279,142,045

247,211,418Current liabilities

9,226,494

25,374,780

33,789,057Non-current liabilities

6,516,759

6,443,380

6,245,696Total liabilities

15,743,253

31,818,160

40,034,753Net sales

107,802,390

94,169,007

82,324,928Gross profit

14,546,906

4,789,521

17,216,890Net income (loss)

7,751,333

(7,332,534
)
4,832,061


e)    Short-term and long-term liabilities

The Company has potentially enforceable non-compliance events under the terms of loan agreements entered into by TermoAndes and InterAndes with a
syndicate of banks led by Deutsche Bank. To date, Deutsche Bank has not exercised, nor are they starting to exercise, any of such rights. The boards of directors of TermoAndes and InterAndes believe
that Deutsche Bank would not benefit from exercising such rights. TermoAndes and InterAndes are currently gathering the evidence needed to obtain a waiver from Deutsche Bank, and management has no
reason to believe such evidence would not satisfy the requirements necessary to maintain the debts as long-term obligations. However, under U.S. GAAP, because of the potential lack of
compliance with contract covenants, the related debts have been reclassified in their entirety as short-term liabilities at December 31, 2002 and December 31, 2003.

The
following table presents the approximate annual maturities of debt for the years after 2003:

ThCh$2004

117,397,8952005

320,178,8342006

264,747,8472007

7,175,7422008

7,003,264Thereafter

24,790,380Total

741,293,962


F-116

---

f)     Disclosure regarding the fair value of financial instruments and derivative financial instruments:

In accordance with SFAS No. 107, "Disclosures About Fair Value of Financial Instruments", information is provided about the fair value of certain financial
instruments for which it is practicable to estimate that value.

For
the purposes of SFAS No. 107, the estimated fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation.

There
are certain limitations inherent in the fair value data since while the data represents management's best estimates, the data is subjective, involving significant estimates
regarding current economic and market conditions. The methods and assumptions used to estimate the fair values are as follows:

For
cash, short-term deposits and investments, and current receivables and payables, the carrying amounts approximate the fair value due to the short-term
maturity of these instruments.

For
interest earning assets and interest bearing liabilities, which are contracted at variable interest rates, the book value is considered to be equivalent to their fair value.

For
financial instruments where an active secondary market exists, the fair value is determined by reference to the quoted market price at the respective balance sheet date.

For
interest earning assets with an original maturity of more than one year, the fair values is calculated by discounting contractual cash flows at the current market origination rates
for financial instruments with similar terms.

For
the Company's long-term fixed rate debt, the contractual cash flows were discounted at prevailing interest rates at the balance sheet dates.

Book value
2002
ThCh$

Estimated fair
Value
2002
ThCh$

Book value
2003
ThCh$

Estimated fair
Value
2003
ThCh$AssetsCash and cash equivalents

4,562,737

4,562,737

3,413,411

3,413,411Time deposits

22,763,614

22,763,614

10,131,263

10,131,263Trade accounts receivable

33,987,117

33,987,117

29,367,132

29,367,132Money market funds

5,056,585

5,056,585

4,789,841

4,789,841Other investments

16,041,436

16,041,436

46,129,938

46,129,938LiabilitiesShort-term debt

70,561,009

75,496,968

117,397,895

163,046,683Long-term debt

919,730,561

884,509,945

623,896,067

576,238,164Derivative financial instruments(1)

25,120,099

25,120,099

19,357,412

19,357,412


---

F-117

---



The
Company is exposed to credit related losses in the event of non-performance by counterparties to these financial instruments, but does not expect any
counterparties to fail to meet their obligations given their high credit ratings. The credit exposure of foreign exchange contracts is represented by the fair value of contracts with a positive fair
value at the reporting date.

The
notional amounts, carrying amounts and fair values of these contracts are as follows:

|                                   |  |             |  |            |  |            |  | As of December 31, 2003
|---------------------------------- |  | ----------- |  | ---------- |  | ---------- |  | -----------------------
|
|
|Forward exchange swaps             |  | 8,295,760   |  | 8,293,841  |  | 8,293,841  |  | 2,383,600              
|Interest rate swap                 |  | 149,197,326 |  | 16,826,258 |  | 16,826,258 |  | 101,018,251            
|Treasury lock agreements           |  |            |  |           |  |           |  | 118,760,000            
|Foreign currency forward contracts |  |            |  |           |  |           |  | 3,383,800              
|                                   |  |             |  |            |  |            |  |                        
|Total                              |  | 157,493,086 |  | 25,120,099 |  | 25,120,099 |  | 225,545,651            
|                                   |  |             |  |            |  |            |  |                        

The amounts of credit risk to which the Company is exposed in the event of the nonperformance by counterparties under these agreements is shown by
the fair values of the gross amounts receivable by the Company in the above table.

g)    Disclosure regarding interest capitalization:

|                                        |  | Year ended December 31,
|--------------------------------------- |  | -----------------------
|
|Interest cost incurred                  |  | 74,299,432             
|Interest capitalized under Chilean GAAP |  | 652,569                
|Interest capitalized under U.S. GAAP    |  | 652,569                

h)    Employee Benefit Plans

Gener and its subsidiaries sponsor various benefit plans for its current and retired employees. A description of such benefits are as follows:



Pursuant to agreements between the Company and its active employees, the Company has committed to provide a lump sum payment to each employee with more than five
years of service, at the end of his or her employment, based upon total years of service.

The
provision for staff severance indemnities is calculated in accordance with the policy set forth in note 1(p), using the current salary levels and expected remaining years of
service of all employees covered under the agreement and an assumed discount rate of 8%.

F-118

---



The present value of the liability for staff severance indemnity as of December 31, 2002 and 2003 was ThCh$3,321,664 and ThCh$3,683,166, respectively.
Amounts charged to income related to staff severance indemnities were ThCh$6,465,404, ThCh$496,665 and ThCh$192,333 for the years ended December 31, 2001, 2002 and 2003, respectively. Payments
for the years ended December 31, 2001, 2002 and 2003 were ThCh$6,466,450, ThCh$665,411 and ThCh$35,214, respectively.



Certain benefits are provided to only retired personnel. These benefits include electrical service rate subsidies, additional medical insurance and supplementary
pension benefits. No active employees are entitled to these benefits when they retire. For the years ended December 31, 2001, 2002 and 2003, the Company paid ThCh$655,805, ThCh$312,045 and
ThCh$698,291 respectively.

i)      Electrical service rate

This benefit subsidizes a portion of the public rate charge that the distribution companies Chilectra and Chilquinta charge retired employees. The electric rate
subsidies result in the eligible retired employees paying approximately 30% of their total monthly electricity costs, with Gener paying the difference.

ii)    Medical benefits

This benefit provides supplementary health insurance. This benefit continues in the event of the death of the retiree, to cover the surviving spouse, and is
measured assuming a trend for future medical costs.

iii)   Supplementary pension benefits

Retired employees receive a monthly benefit designed to cover a portion, up to a maximum of 50%, of the difference between their salary at the point of retirement
and the theoretical pension that would have been received had the employee reached the legal retirement age of the Institución de Previsión Social ("Institute of Social
Welfare"). This benefit expires at the time of death of the retiree.

Under
US GAAP, pension and other post-retirement employee benefits have been accounted for in accordance with SFAS No. 87 and SFAS No. 106, respectively. The
Company?s policy is to recognize actuarial gains and losses immediately in the income statement. The Company uses a December 31 measurement date for its employee benefit plans. The
Company's employee benefit plans are unfunded. The accumulated benefit obligation was equal to the projected benefit at December 31, 2002 and 2003. In 2004 the Company expects to contribute
ThCh$344,650 and ThCh$360,324 to its pension and post-retirement benefit plans, respectively.

F-119

---

The
following data are presented under US GAAP for Gener's pension and post-retirement benefit plans:

|                                                                      |  | Pension Benefits |   | Other Benefits |  
|--------------------------------------------------------------------- |  | ---------------- | - | -------------- | -
|
|Benefit obligations at January 1                                      |  | (2,223,403       | ) | (2,168,164     | )
|Interest cost                                                         |  | (177,872         | ) | (173,453       | )
|Actuarial loss                                                        |  | (107,428         | ) | (151,475       | )
|Benefits paid                                                         |  | 340,539          |   | 346,350        |  
|                                                                      |  |                  |   |                |  
|Benefit obligations at December 31                                    |  | (2,168,164       | ) | (2,146,742     | )
|                                                                      |  |                  |   |                |  
|Funded Status of the Plans                                            |  | (2,168,164       | ) | (2,146,742     | )
|Unrecognized net transition obligation                                |  | 263,633          |   | 131,817        |  
|                                                                      |  |                  |   |                |  
|Net liability recorded under US GAAP                                  |  | (1,904,531       | ) | (2,014,925     | )
|                                                                      |  |                  |   |                |  
|Amounts recognized in the statement of financial position consist of: |  |                  |   |                |  
|Accrued benefit liability                                             |  | (2,168,164       | ) | (2,146,742     | )
|Intangible assets                                                     |  | 263,633          |   | 131,817        |  
|                                                                      |  |                  |   |                |  
|Net liability recorded under US GAAP                                  |  | (1,904,531       | ) | (2,014,925     | )
|Assumptions as of December 31                                         |  |                  |   |                |  
|Discount rate                                                         |  | 8                | % | 8              | %
|Components of net periodic benefit cost                               |  |                  |   |                |  
|Interest cost                                                         |  | (177,872         | ) | (173,453       | )
|Actuarial loss                                                        |  | (107,428         | ) | (151,475       | )
|Amortization of transition obligation                                 |  | (131,816         | ) | (131,816       | )
|                                                                      |  |                  |   |                |  
|Net periodic benefit cost                                             |  | (417,116         | ) | (456,744       | )
|                                                                      |  |                  |   |                |  

Assumed
medical benefits cost trend rates have a significant effect on the amounts reported for the medical benefits plan. For measurement purposes, the medical inflation
trend rate is estimated at 3%. A one-percentage-point change in assumed medical benefits cost trend rates would have the following effect:

1 Percentage
Point increase
ThCh$

1 Percentage
Point decrease
ThCh$Effect on total interest cost

2,287

(2,638
)Effect on post-retirement benefit obligations

228,691

(263,766
)


Pension
Retirement BenefitsChivor

In
addition to the benefits discussed above, Colombian law requires that benefits be paid to all retired employees who have reached certain requirements of age and length of service. In
accordance with Law No. 100 of 1993, beginning April 1, 1994, Chivor has funded its obligation through payments made to theInstituto de Seguros
Sociales("Colombian Institute of Social Security") and other private pension funds. For retirees not covered by the provisions of Law

F-120

---

No. 100,
(10 in 1998 and none in 1997), Chivor obtains an actuarial report each year updating the value of its pension obligation. During 2003, the plan was amended due to the enactment of Law
No. 797. The law established a new system to determine the amount of the pension the Columbian Institute of Social Security is going to recognize. The plan amendment generated unrecognized
prior service cost of ThCh$205,512. The amortization of the unrecognized prior service cost is based on the average remaining service life of active participants. Benefits covered in this reserve
amount include monthly pension benefits, surviving-spouse pension benefits, Christmas bonuses and the additional one-month's pension benefit paid to retirees in June of each year. The
Company uses a December 31 measurement date for its employee benefit plan. The plan is unfunded. The accumulated benefit obligation was ThCh$2,234,443 and ThCh$2,346,604 at December 31,
2003 and 2002, respectively. The Company expects to contribute ThCh$303,424 to its pension plan in 2004. The Company's policy is to recognize actuarial gains and losses immediately in the income
statement. The following data is provided for Chivor's pension plan:

Pension BenefitsThCh$
2002

ThCh$
2003Benefit obligations at January 1

(1,554,023
)
(2,154,344
)Service cost

(40,770
)
(27,404
)Interest cost

(148,904
)
(220,510
)Actuarial gain (loss)

(764,725
)
176,522Amendments



(205,512
)Benefits paid

187,505

221,424Currency adjustments

166,573

(65,109
)Benefit obligations at December 31,

(2,154,344
)
(2,274,933
)Funded status

(2,154,344
)
(2,274,933
)Unrecognized prior service cost



185,447Net liability recorded under US GAAP

(2,154,344
)
(2,089,486
)Assumptions as of December 31Discount rate

5
%
5
%Rate of compensation increase

0.5
%
0.5
%Components of net periodic benefit cost:Service cost

40,770

27,404Interest cost

148,904

220,510Actuarial loss (gain)

764,725

(176,522
)Amortization of prior service cost



20,065Net periodic benefit cost

954,399

91,457Amounts recognized in the statement of financial position consist of:Accrued benefit cost

(2,815,767
)
(2,234,443
)Intangible asset



144,957Accumulated other comprehensive income

661,423

Net amount recognized

(2,154,344
)
(2,089,486
)


F-121

---

i)      Restrictions on payment of dividends

Under certain of the Company's debt agreements, restrictions exist on the ability of its subsidiaries to transfer funds to AES Gener through intercompany loans,
advances, or cash dividends. The nature and amounts of these restrictions are disclosed in note 25.

j)      Pledges granted

Gener Argentina S.A. has pledged to Banco Frances Uruguay S.A., its shares in InterAndes S.A. and TermoAndes S.A., to guarantee all of the existing financing
contracts in these companies. In addition, Energy Trade and Finance Corporation has placed in trust its shares in Chivor, for the purpose of guaranteeing the contracted obligations of Chivor with
respect to the Bank of America NT & S.A. As part of the financing obtained by our wholly-owned subsidiary Energía Verde S.A., in November 2001 AES Gener pledged all our
shares in favor of Banco Crédito e Inversiones and Scotia Bank Sudamericano. The underlying assets are not reported separately in the statement of financial position because the secured
parties are not permitted to sell or repledge the collateral held under the pledges.

The
carrying amounts of assets pledged as collateral is as follows:

Percentage of
Participation
2003

Net assets of
subsidiary
ThCh$InterAndes S.A.

100
%
21,105,752TermoAndes S.A.

100
%
72,391,805Chivor S.A. E.S.P.

99.98
%
202,947,550Energía Verde S.A.

100
%
25,089,701


In
addition to the above assets, as of December 31, 2003, our subsidiary Norgener had outstanding debt with Banco de Chile of ThCh$22,742,540 (ThUS$38,300), which was secured by
certain fixed assets worth ThCh$57,361,080 (ThUS$96,600).

k)    Derivative instruments and hedging activities

The Company enters into derivative financial instruments to manage its exposure to fluctuations in interest rates and foreign currency exchange rates. All
derivative instruments held or issued by the Company are economic hedges of existing or anticipated financial transactions. No derivatives are utilized for speculative purposes. The Company has
entered into interest rate swap agreements to exchange variable rate interest payment obligations for fixed rate obligations without the exchange of the underlying principal amounts in order to manage
interest rate exposures. As of December 31, 2003, Gener had swap agreements outstanding with an aggregate notional amount of ThCh$101,018 (ThUS$ 170,122) that expire in various amounts through
September 28, 2007. The swap agreements have a fixed interest rate of 6.36 percent.

In
connection with the offering of Gener senior notes, the Company has entered into treasury lock agreements to lock in the underlying interest rate for the senior notes to be issued
pursuant to its financial restructuring plan. As of December 31, 2003, the notional amount of

F-122

---

these
agreements was ThCh$118,760 (ThUS$200,000). The treasury lock agreements had an average fixed interest rate of 4.37 percent.

The
Company has entered into foreign currency swap agreements to hedge firm foreign currency commitments. The currency swap agreements mature from January 13, 2004 to
March 10, 2004. The notional amounts were ThCh$3,383,800 at December 31, 2003. The currency swaps have terms that match the hedged exposure, thus no ineffectiveness is recorded. The
interest rate swaps are designated as and are effective cash-flow hedges. The fair values of the swaps are recorded on the balance sheet, with changes in fair values included in other
comprehensive income. The ineffective portion of the hedge is recorded into income in current-period earnings. The foreign currency swaps and treasury lock agreements have not been documented as
hedges, and accordingly, changes in fair value are recognized in the income statement. The Company does not maintain any fair value hedges or hedges of a net investment in a foreign entity under US
GAAP. No hedging relationships were de-designated during 2003.

Hedge
ineffectiveness is measured using the dollar-offset method. During 2003, hedge ineffectiveness for cash flow hedges resulted in ThCh$1,427,889 being recognized in the other
non-operating expenses line in the consolidated financial statements. No portion of the derivative instruments gain or loss was excluded from the assessment of hedge effectiveness. The
Company did not reclassify any amounts to earnings for forecasted transactions that did not occur.

At
December 31, 2003, the Company expects to reclassify approximately ThCh$1,437,167 of loss on derivative instruments, net of deferred taxes of ThCh$503,008 from accumulated
other comprehensive income to earnings during the next twelve months due to the actual fulfillment of forecasted transactions.

l)      Asset Retirement Obligations:

The Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations", effective January 1, 2003. Under SFAS No. 143, entities are
required to record the fair value of a legal liability for an asset retirement obligation (ARO) in the period in which it is incurred. When a new liability is recorded, the entity capitalizes the
costs of the liability by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value
each period and the capitalized cost is depreciated over the useful life of the related asset. At retirement, an entity settles the obligation for its recorded amount or incurs a gain or loss.

The
Company evaluated its leased and owned assets. During this evaluation, the Company determined that it had legal obligations to return certain assets to their condition before the
Company obtained ownership or use of the related asset. Gener has recorded an asset retirement obligation for its legal liability to restore the land at its Laja, Constitución and
Mostazal plants.

With
the adoption of SFAS No. 143, the Company recorded an ARO asset of ThCh$141,396, net of accumulated amortization of ThCh$89,253, and a deferred tax asset of ThCh$41,812. The
net amount initially recognized as a result of applying SFAS No. 143 was ThCh$204,142, which was recorded as a cumulative effect of a change in accounting principle.

F-123

---



Asset retirement obligation as of January 1, 2001

ThCh$289,384Asset retirement obligation as of December 31, 2001

ThCh$330,820Asset retirement obligation as of December 31, 2002

ThCh$387,350




2003
ThCh$Asset retirement obligation as of January 1, 2003

387,350Accretion expense for liability

28,206Currency adjustments

(56,412
)Asset retirement obligation as of December 31, 2003

359,144




m)   Recently issued pronouncements

In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.149, "Amendment of SFAS No. 133 on Derivative Instruments and Hedging
Activities". SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS
No.133. SFAS No.149 is effective for contracts entered into or modified after June 30, 2003, except for SFAS No.133 Implementation Issues that have been effective for fiscal quarters that began
prior to June 15, 2003, which should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of issued
securities or other securities that do not yet exist should be applied to existing contracts as well as new contracts entered into after June 30, 2003. The adoption of SFAS No. 149 did
not have a significant impact on the Company's results of operations, financial position or cash flows.

In
June 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 clarifies
classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires classification of financial instruments within its scope as
liabilities. Such financial
instruments may include mandatory redeemable shares, financial instruments which embody an obligation to repurchase shares or require the issuer to settle the obligation by transferring assets, or
financial instruments that embody an unconditional obligation, or, in certain circumstances, an unconditional obligation. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a
significant impact on the Company's results of operations, financial position or cash flows.

In
November 2002, the FASB published FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45

F-124

---

expands
on the accounting guidance of Statements No. 5, 57, and 107 and incorporates without change the provisions of FIN 34: "Disclosure of Indirect Guarantees of Indebtedness of Others and
Interpretation of FASB Statement No. 5" which has been superseded. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby
letters of credit. FIN 45 also clarifies that at the time a company issues a guarantee, the Company must recognize an initial liability for the fair value, or market value, of the obligations it
assumes under that guarantee and must disclose that information in its interim and annual financial statements. The provisions of FIN 45 are required to be applied on a prospective basis to guarantees
issued or modified by the Company on January 1, 2003 and after. The expanded disclosure requirements of FIN 45 were effective for the year ended December 31, 2002. Except for the
disclosure requirement, the adoption of FIN 45 did not have a significant impact on the Company's results of operations, financial position or cash flows.

In
December 2003, the FASB issued a revision to Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46R" or
the "Interpretation"). FIN 46R clarifies the application of ARB No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN 46R requires the consolidation
of these entities, known as variable interest entities ("VIEs"), by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of the entity's
expected losses, receive a majority of the entity's expected residual returns, or both.

Among
other changes, the revisions of FIN 46R (a) clarified some requirements of the original FIN 46, which had been issued in January 2003, (b) eased some
implementation problems, and (c) added new scope exceptions. FIN 46R deferred the effective date of the Interpretation for public companies, to the end of the first reporting period ending
after March 15, 2004, except that all public companies must at a minimum apply the provisions of the Interpretation to entities that were previously considered "special-purpose entities" under
the FASB literature prior to the issuance of FIN 46R by the end of the first reporting period ending after December 15, 2003.

The
Company is evaluating whether the adoption of FIN 46 will have a material impact on its financial position, cash flows and results of operations. The Company did not enter
into any transactions under the scope of FIN 46R after February 1, 2003.

EITF
Issue No. 01-08, "Determining Whether an Arrangement Contains a Lease." In May 2003, the EITF reached consensus in EITF Issue No. 01-08 to clarify the
requirements of identifying whether an arrangement should be accounted for as a lease at its inception. The guidance in the consensus is designed to mandate reporting revenue as rental or leasing
income that otherwise would be reported as part of product sales or service revenue. EITF Issue No. 01-08 requires both parties to an arrangement to determine whether a service contract or
similar arrangement is, or includes, a lease within the scope of SFAS No. 13, "Accounting for Leases." Upon application of EITF Issue No. 01-08, the accounting requirements under the
consensus could affect the timing of revenue and expense recognition, and revenues reported as supply, transportation and storage services may be required to be reported as rental or lease income.
Should capital-lease treatment be necessary, purchasers of transportation and storage

F-125

---

services
in the arrangements would be required to recognize assets on their balance sheets. The consensus is being applied prospectively to arrangements agreed to, modified, or acquired in business
combinations on or after January 1, 2004. Previous arrangements that would be leases or would contain a lease according to the consensus will continue to be accounted for as transportation and
storage purchases or sales arrangements.

The
Company is currently evaluating the impact of the adoption of EITF Issue No. 01-08 on its consolidated results of operations, cash flows or financial position.

EITF
Issue No. 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, and Not Held for Trading Purposes". In July 2003, the EITF reached consensus in EITF Issue No. 03-11 that determining whether realized gains and losses on derivative
contracts not held for trading purposes should be reported on a net or gross basis is a matter of judgment that depends on the relevant facts and circumstances and the economic substance of the
transaction. In analyzing the facts and circumstances, EITF Issue No. 99-19, and Opinion No. 29, "Accounting for Nonmonetary Transactions," should be considered. EITF Issue
No. 03-11 is effective for transactions or arrangements entered into after September 30, 2003. The Company is currently evaluating the impact of the adoption of EITF Issue
No. 03-11 on its consolidated results of operations, cash flows or financial position.

In
December 2003, the Securities Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. SAB 104 updates portions of the interpretive
guidance included in Topic 13 of the codification of Staff Accounting Bulletins in order to make this
interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The company believes it is following the guidance of SAB 104.

F-126

---

Schedule I

1)    PRESENTATION

These financial statements have been prepared on the bases of accounting principles generally accepted in Chile.

AES GENER S.A.
Financial information of registrant (Parent Company)(Restated for General Price-Level Changes and Expressed in Thousands of Constant
Chilean Pesos (ThCh$) of December 31, 2003)

|                                                     |  | As of December 31, |  
|---------------------------------------------------- |  | ------------------ | -
|
|ASSETS                                               |  |                    |  
|CURRENT ASSETS:                                      |  |                    |  
|Cash                                                 |  | 1,294,808          |  
|Time deposits                                        |  |                   |  
|Marketable securities                                |  | 1,796,083          |  
|Trade receivables                                    |  | 22,026,139         |  
|Notes receivable                                     |  | 21,139             |  
|Miscellaneous receivables                            |  | 729,823            |  
|Notes and accounts receivable from related companies |  | 10,420,761         |  
|Inventories                                          |  | 13,896,635         |  
|Recoverable taxes                                    |  | 109,510            |  
|Prepaid expenses                                     |  | 1,851,192          |  
|Deferred taxes                                       |  | 654,035            |  
|Other current assets                                 |  | 7,047,563          |  
|                                                     |  |                    |  
|Total current assets                                 |  | 59,847,688         |  
|                                                     |  |                    |  
|PROPERTY, PLANT AND EQUIPMENT:                       |  |                    |  
|Land                                                 |  | 1,568,159          |  
|Construction and infrastructure                      |  | 352,887,200        |  
|Machinery and equipment                              |  | 392,446,599        |  
|Other property, plant & equipment                    |  | 6,275,307          |  
|Technical revaluation                                |  | 42,213,625         |  
|Less: Accumulated depreciation                       |  | (392,117,207       | )
|                                                     |  |                    |  
|Net property, plant and equipment, net               |  | 403,273,683        |  
|                                                     |  |                    |  
|OTHER ASSETS:                                        |  |                    |  
|Investments in related companies                     |  | 484,536,047        |  
|Negative goodwill                                    |  | 7,496,812          |  
|Goodwill                                             |  | (7,247,443         | )
|Long-term receivables                                |  | 26,897             |  
|Notes and accounts receivable from related companies |  | 500,014,630        |  
|Deferred taxes                                       |  |                   |  
|Intangibles                                          |  | 5,889,447          |  
|Amortization                                         |  | (4,123,833         | )
|Other                                                |  | 11,266,965         |  
|                                                     |  |                    |  
|Total other assets                                   |  | 997,859,522        |  
|                                                     |  |                    |  
|TOTAL ASSETS                                         |  | 1,460,980,893      |  
|                                                     |  |                    |  

F-127

---

AES GENER S.A.
Financial information of registrant (Parent Company)(Restated for General Price-Level Changes and Expressed in Thousands of Constant
Chilean Pesos (ThCh$) of December 31, 2003)

|                                                |  | As of December 31,
|----------------------------------------------- |  | ------------------
|
|LIABILITIES AND SHAREHOLDERS' EQUITY            |  |                   
|CURRENT LIABILITIES:                            |  |                   
|Bond payables                                   |  | 11,271,048        
|Long-term debt due within one year              |  | 606,611           
|Dividends Payable                               |  | 148,204           
|Accounts payable                                |  | 15,366,729        
|Notes and accounts payable to related companies |  | 37,396,765        
|Accruals                                        |  | 4,563,615         
|Withholdings                                    |  | 1,519,224         
|                                                |  |                   
|Total current liabilities                       |  | 70,872,196        
|                                                |  |                   
|LONG-TERM LIABILITIES:                          |  |                   
|Bond payables                                   |  | 491,101,875       
|Notes and accounts payable to related companies |  | 55,576,962        
|Notes payable                                   |  | 5,596             
|Accruals                                        |  | 53,813,861        
|Deferred taxes                                  |  | 4,050,890         
|Other long-term liabilities                     |  | 781,761           
|                                                |  |                   
|Total long-term liabilities                     |  | 605,330,945       
|                                                |  |                   
|SHAREHOLDERS' EQUITY:                           |  |                   
|Paid-in capital                                 |  | 660,615,361       
|Share premium                                   |  | 29,535,351        
|Other reserves                                  |  | 51,035,492        
|Future dividends reserve                        |  | 4,877,585         
|Prior years                                     |  | 3,138,513         
|Net income                                      |  | 35,575,450        
|                                                |  |                   
|Total shareholders' equity                      |  | 784,777,752       
|                                                |  |                   
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      |  | 1,460,980,893     
|                                                |  |                   

F-128

---

AES GENER S.A.
Financial information of registrant (Parent Company)(Restated for General Price-Level Changes and Expressed in Thousands of Constant
Chilean Pesos (ThCh$) of December 31, 2003)

|                                                                                  |  | December 31, |  
|--------------------------------------------------------------------------------- |  | ------------ | -
|
|OPERATING REVENUE                                                                 |  | 229,196,352  |  
|OPERATING COSTS                                                                   |  | (215,371,199 | )
|                                                                                  |  |              |  
|OPERATING MARGIN                                                                  |  | 13,825,153   |  
|SELLING AND ADMINISTRATION EXPENSES                                               |  | (15,535,415  | )
|                                                                                  |  |              |  
|OPERATING PROFIT                                                                  |  | (1,710,262   | )
|                                                                                  |  |              |  
|NON-OPERATING INCOME                                                              |  |              |  
|Financial income                                                                  |  | 12,723,821   |  
|Equity in earnings of related companies                                           |  | 28,357,631   |  
|Other non-operating income                                                        |  | 85,038,949   |  
|Equity in loss of related companies                                               |  | (84,290,782  | )
|Amortization of goodwill                                                          |  | (588,489     | )
|Financial expense                                                                 |  | (29,511,349  | )
|Other non-operating expenses                                                      |  | (33,983,710  | )
|Monetary correction                                                               |  | (3,701,782   | )
|Exchange difference                                                               |  | 21,639,869   |  
|                                                                                  |  |              |  
|Non-operating expense                                                             |  | (4,315,842   | )
|                                                                                  |  |              |  
|INCOME BEFORE INCOME TAX, MINORITY INTEREST AND AMORTIZATION OF NEGATIVE GOODWILL |  | (6,026,104   | )
|INCOME TAX                                                                        |  | 1,725,315    |  
|                                                                                  |  |              |  
|INCOME (LOSS) BEFORE MINORITY INTEREST AND AMORTIZATION OF NEGATIVE GOODWILL      |  | (4,300,789   | )
|                                                                                  |  |              |  
|INCOME BEFORE AMORTIZATION OF NEGATIVE GOODWILL                                   |  | (4,300,789   | )
|AMORTIZATION OF NEGATIVE GOODWILL                                                 |  | 2,209,345    |  
|                                                                                  |  |              |  
|NET INCOME (LOSS)                                                                 |  | (2,091,444   | )
|                                                                                  |  |              |  

F-129

---

AES GENER S.A.
Financial information of registrant (Parent Company)(Restated for General Price-Level Changes and Expressed in Thousands of Constant
Chilean Pesos (ThCh$) of December 31, 2003)

CONSOLIDATED STATEMENTS OF CASH FLOWS 2003

|                                                                                                   |  | 2001
ThCh$
(as restated
note 3) |   | 2002
ThCh$
(as restated
note 3) |   | 2003
ThCh$   |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------- | - | ------------------------------- | - | ------------ | -
|Cash Flow from operating activities                                                                |  |                                 |   |                                 |   |              |  
|Collection of accounts receivable                                                                  |  | 239,108,898                     |   | 282,139,166                     |   | 268,840,137  |  
|Financial income received                                                                          |  | 15,219,454                      |   | 12,295,252                      |   | 1,735,595    |  
|Dividends and other distributions received                                                         |  | 24,335,836                      |   | 13,526,014                      |   | 7,440,172    |  
|Other income received                                                                              |  | 5,452,427                       |   | 536,106                         |   | 1,419,881    |  
|Payment to suppliers and personnel                                                                 |  | (239,489,440                    | ) | (209,083,167                    | ) | (202,872,370 | )
|Financial expenses                                                                                 |  | (28,508,413                     | ) | (32,950,382                     | ) | (30,471,018  | )
|Payment for income taxes                                                                           |  | (16,763                         | ) | (3,495                          | ) | (2,028       | )
|Other expenses                                                                                     |  | (1,163,249                      | ) | (5,467,925                      | ) | (4,965,682   | )
|VAT and other similar items paid                                                                   |  | (12,172,646                     | ) | (12,265,853                     | ) | (8,607,589   | )
|                                                                                                   |  |                                 |   |                                 |   |              |  
|Net cash provided by operating activities                                                          |  | 2,766,104                       |   | 48,725,716                      |   | 32,517,098   |  
|                                                                                                   |  |                                 |   |                                 |   |              |  
|Cash Flow from financing activities                                                                |  |                                 |   |                                 |   |              |  
|Borrowings from banks and others                                                                   |  | 26,616,624                      |   | 14,114,881                      |   |             |  
|Proceeds from other loans to related companies                                                     |  |                                |   | 17,097,531                      |   | 26,160,747   |  
|Dividends paid                                                                                     |  | (152,330,022                    | ) |                                |   | (29,730,082  | )
|Repayment of loans                                                                                 |  | (26,937,290                     | ) | (13,771,976                     | ) | (446,305     | )
|Repayment of bonds                                                                                 |  | (6,463,818                      | ) | (5,794,421                      | ) |              |  
|Payment of costs associated with issuance of bonds                                                 |  |                                |   |                                |   | (220,722     | )
|Other obligations to related companies                                                             |  |                                |   | (9,055,773                      | ) |             |  
|                                                                                                   |  |                                 |   |                                 |   |              |  
|Other financing activities                                                                         |  |                                 |   |                                 |   |              |  
|                                                                                                   |  |                                 |   |                                 |   |              |  
|Net cash used in financing activities                                                              |  | (159,114,506                    | ) | 2,590,242                       |   | (4,236,362   | )
|                                                                                                   |  |                                 |   |                                 |   |              |  
|Cash flow from investing activities                                                                |  |                                 |   |                                 |   |              |  
|Sales of property, plant and equipment                                                             |  | 222,262                         |   | 2,710,988                       |   | 599,694      |  
|Sales of permanent investments                                                                     |  | 267,232,707                     |   | 4,217,612                       |   |             |  
|Proceeds from other loans to related companies                                                     |  | 73,921,956                      |   |                                |   | 28,405,994   |  
|Sales of other instruments                                                                         |  | 9,671,589                       |   | 808,098                         |   |             |  
|Other investments revenues                                                                         |  | 23,382,239                      |   |                                |   | 12,662       |  
|Acquisition of fixed assets                                                                        |  | (9,042,016                      | ) | (2,813,705                      | ) | (1,630,009   | )
|Payment of capitalized interest                                                                    |  | (481,840                        | ) | (610,649                        | ) | (194,485     | )
|Permanent investments                                                                              |  | (7,553,551                      | ) | (13,795,961                     | ) | (13,909,503  | )
|Investment in financial instruments                                                                |  | (635,519                        | ) | (756,624                        | ) | (1,598,053   | )
|Investments in Commercial paper                                                                    |  |                                 |   |                                 |   |              |  
|Other obligations to related companies                                                             |  | (205,023,269                    | ) | (70,353,505                     | ) | (28,651,703  | )
|Other investing activities                                                                         |  | (216,899                        | ) | (2,359,857                      | ) |             |  
|                                                                                                   |  |                                 |   |                                 |   |              |  
|Net cash provided by (used in) investing activities                                                |  | 151,477,659                     |   | (82,953,603                     | ) | (16,965,403  | )
|                                                                                                   |  |                                 |   |                                 |   |              |  
|Net increase (decrease) in cash and cash equivalents before the effects of price-level restatement |  | (4,870,743                      | ) | (31,637,645                     | ) | 11,315,333   |  
|Price-level restatement of cash and cash equivalents                                               |  | 1,183,741                       |   | 985,824                         |   | (1,395,077   | )
|                                                                                                   |  |                                 |   |                                 |   |              |  
|Net increase (decrease) in cash and cash equivalents                                               |  | (3,687,002                      | ) | (30,651,821                     | ) | 9,920,256    |  
|Cash and cash equivalents at beginning of year                                                     |  | 44,470,070                      |   | 40,783,069                      |   | 10,131,248   |  
|                                                                                                   |  |                                 |   |                                 |   |              |  
|Cash and cash equivalents at end of year                                                           |  | 40,783,068                      |   | 10,131,248                      |   | 20,051,504   |  
|                                                                                                   |  |                                 |   |                                 |   |              |  

F-130

---

AES GENER S.A.
Financial information of registrant (Parent Company)(Restated for General Price-Level Changes and Expressed in Thousands of Constant
Chilean Pesos (ThCh$) of December 31, 2003)

RECONCILIATION BETWEEN NET CASH FLOWS
PROVIDED BY OPERATING ACTIVITIES AND NET
INCOME FOR THE YEAR

|                                                               |  | 2001
ThCh$
(as restated
note 3) |   | 2002
ThCh$
(as restated
note 3) |   | 2003
ThCh$   |  
|-------------------------------------------------------------- |  | ------------------------------- | - | ------------------------------- | - | ------------ | -
|Net income (Loss)                                              |  | (2,091,444                      | ) | 35,575,450                      |   | 53,678.463   |  
|(Gain) loss on sales of fixed assets                           |  | (222,262                        | ) | 1,091,645                       |   | (599,694     | )
|Gain on sale of investments                                    |  | (78,493,974                     | ) |                                |   |             |  
|Loss on sale of investments                                    |  | 9,389,228                       |   | 5,704,099                       |   |             |  
|Adjustments to reconcile net income to net cash                |  |                                 |   |                                 |   |              |  
|Provided by operating activities                               |  |                                 |   |                                 |   |              |  
|Depreciation                                                   |  | 17,195,457                      |   | 18,606,597                      |   | 17,741,168   |  
|Amortization of intangibles                                    |  | 7,537,562                       |   | 196,060                         |   | 196,060      |  
|Provisions and write-offs                                      |  | 11,691,668                      |   | 7,732,020                       |   | 8,039,163    |  
|Equity share in net loss from investments in related companies |  | (28,357,631                     | ) | (31,454,883                     | ) | (118,593,310 | )
|Equity share in net loss from investments in related companies |  | 84,290,782                      |   | 28,425,380                      |   | 1,005,672    |  
|Amortization of goodwill                                       |  | 588,489                         |   | 785,179                         |   | 647,230      |  
|Amortization of negative goodwill                              |  | (2,209,345                      | ) | (217,734                        | ) | (373,259     | )
|Net price-level restatement                                    |  | (17,938,087                     | ) | (18,307,582                     | ) | 76,738,732   |  
|Other credits to income that do not represent cash flow        |  | (1,657,388                      | ) | (1,051,216                      | ) |             |  
|Other debits to income that do not represent cash flow         |  | 4,071,777                       |   | 2,854,493                       |   | 1,725,165    |  
|Change in operating assets                                     |  |                                 |   |                                 |   |              |  
|(Increase) decrease of accounts receivable                     |  | (5,402,639                      | ) | (2,712,675                      | ) | (299,101     | )
|(Increase) decrease of inventories                             |  | (3,074,725                      | ) | 7,117,943                       |   | 5,168,181    |  
|(Increase) decrease of other assets                            |  | 26,355,725                      |   | (7,289,622                      | ) | (9,459,214   | )
|Change in operating liabilities                                |  |                                 |   |                                 |   |              |  
|Increase (decrease) of accounts payable to related companies   |  | (17,210,546                     | ) | (4,477,068                      | ) | 3,896,607    |  
|Increase of interest payable                                   |  | 1,445,553                       |   | (655,448                        | ) | (2,123,574   | )
|Net increase of income taxes payable                           |  | (1,836,361                      | ) | 5,912,050                       |   | (4,826,300   | )
|Increase (decrease) of other accounts payables, net of VAT     |  | (1,305,735                      | ) | 891,028                         |   | (44,891      | )
|                                                               |  |                                 |   |                                 |   |              |  
|Net cash provided by operating activities                      |  | 2,766,104                       |   | 48,725,716                      |   | 32,517,098   |  
|                                                               |  |                                 |   |                                 |   |              |  

F-131

---

AES GENER S.A.
Financial information of registrant (Parent Company)(Restated for General Price-Level Changes and Expressed in Thousands of Constant
Chilean Pesos (ThCh$) of December 31, 2003)

2)    SHAREHOLDERS' EQUITY

|                                               |  | Paid-in
Capital
ThCh$ |  | Share
Premium
Account
ThCh$ |  | Other
Reserves
ThCh$ |   | Future
Dividends
Reserve
ThCh$ |   | Retained
Earnings
ThCh$ |   | Interim
Dividends
ThCh$ |   | Subsidiary
Development
Stage
Deficit
ThCh$ |   | Net Income
For the
period
ThCh$ |  
|---------------------------------------------- |  | --------------------- |  | --------------------------- |  | -------------------- | - | ------------------------------ | - | ----------------------- | - | ----------------------- | - | ------------------------------------------ | - | ------------------------------- | -
|2001                                           |  |                       |  |                             |  |                      |   |                                |   |                         |   |                         |   |                                            |   |                                 |  
|Balance as of January 1                        |  | 615,928,605           |  | 27,536,497                  |  | 105,890,721          |   | 26,080,533                     |   | 60,255,290              |   | (2,877,218              | ) | (670,262                                   | ) | 2,206,586                       |  
|Distribution of earnings from last year        |  |                      |  |                            |  |                     |   |                               |   | (1,340,894              | ) | 2,877,218               |   | 670,262                                    |   | (2,206,586                      | )
|Issuance of shares, due to conversion of bonds |  | 1,488                 |  | 1,046                       |  |                     |   |                               |   |                        |   |                        |   |                                           |   |                                |  
|Capitalization of reserves                     |  |                      |  |                            |  | (67,448,654          | ) | 67,448,654                     |   |                        |   |                        |   |                                           |   |                                |  
|Subsidiary start-up accumulated deficit        |  |                      |  |                            |  |                     |   |                               |   |                        |   |                        |   | (118,387                                   | ) |                                |  
|Dividend payments                              |  |                      |  |                            |  |                     |   | (86,024,114                    | ) | (58,914,396             | ) |                        |   |                                           |   |                                |  
|Other reserves                                 |  |                      |  |                            |  | (2,536,857           | ) |                               |   |                        |   |                        |   |                                           |   |                                |  
|Currency translation adjustment                |  |                      |  |                            |  | 10,873,328           |   |                               |   |                        |   |                        |   |                                           |   |                                |  
|Price-level restatement                        |  | 19,093,805            |  | 853,643                     |  | 1,191,704            |   | 1,436,994                      |   | 892,307                 |   |                        |   |                                           |   |                                |  
|Net income for the period                      |  |                      |  |                            |  |                     |   |                               |   |                        |   |                        |   |                                           |   | (2,010,423                      | )
|Total                                          |  | 635,023,898           |  | 28,391,186                  |  | 47,970,242           |   | 8,942,067                      |   | 892,307                 |   |                        |   | (118,387                                   | ) | (2,010,423                      | )
|Balance at Dec. 31, 2001 restated              |  | 660,615,361           |  | 29,535,351                  |  | 49,903,443           |   | 9,302,432                      |   | 928,267                 |   |                        |   | (123,158                                   | ) | (2,091,444                      | )
|2002                                           |  |                       |  |                             |  |                      |   |                                |   |                         |   |                         |   |                                            |   |                                 |  
|Balances as of January, 1                      |  | 635,023,898           |  | 28,391,186                  |  | 47,970,242           |   | 8,942,067                      |   | 892,307                 |   |                        |   | (118,387                                   | ) | (2,010,423                      | )
|Distribution of earnings from last year        |  |                      |  |                            |  |                     |   | (4,253,434                     | ) | 2,124,624               |   |                        |   | 118,387                                    |   | 2,010,423                       |  
|Currency translation adjustment                |  |                      |  |                            |  | 1,120,841            |   |                               |   |                        |   |                        |   |                                           |   |                                |  
|Price-level restatement                        |  | 19,050,717            |  | 851,736                     |  | 1,439,107            |   | 140,659                        |   | 90,508                  |   |                        |   |                                           |   |                                |  
|Net income for the period                      |  |                      |  |                            |  |                     |   |                               |   |                        |   |                        |   |                                           |   | 35,223,218                      |  
|Total                                          |  | 654,074,615           |  | 29,242,922                  |  | 50,530,190           |   | 4,829,292                      |   | 3,107,439               |   |                        |   |                                           |   | 35,223,218                      |  
|Balance Dec. 31, 2002 restated                 |  | 660,615,361           |  | 29,535,351                  |  | 51,035,492           |   | 4,877,585                      |   | 3,138,513               |   |                        |   |                                           |   | 35,575,450                      |  
|2003                                           |  |                       |  |                             |  |                      |   |                                |   |                         |   |                         |   |                                            |   |                                 |  
|Balances as of January 1,                      |  | 654,074,615           |  | 29,242,922                  |  | 50,530,190           |   | 4,829,292                      |   | 3,107,439               |   |                        |   |                                           |   | 35,223,218                      |  
|Distribution of earnings from last year        |  |                      |  |                            |  | 2,636,863            |   | 29,779,536                     |   | 2,806,819               |   |                        |   |                                           |   | (35,223,218                     | )
|Final dividends                                |  |                      |  |                            |  |                     |   | (29,779,536                    | ) |                        |   |                        |   |                                           |   |                                |  
|Prior year adjustement                         |  |                      |  |                            |  |                     |   |                               |   |                        |   |                        |   |                                           |   |                                |  
|Currency translation adjustment                |  |                      |  |                            |  | (144,607             | ) |                               |   |                        |   |                        |   |                                           |   |                                |  
|Price-level restatement                        |  | 6,540,746             |  | 292,429                     |  | 486,844              |   | 462,727                        |   | 59,142                  |   |                        |   |                                           |   |                                |  
|Net income for the period                      |  |                      |  |                            |  |                     |   |                               |   |                        |   |                        |   |                                           |   | 53,678,463                      |  
|Total                                          |  | 660,615,361           |  | 29,535,351                  |  | 53,509,290           |   | 5,292,019                      |   | 5,973,400               |   |                        |   |                                           |   | 53,678,463                      |  
|Balance at Dec. 31, 2003                       |  | 660,615,361           |  | 29,535,351                  |  | 53,509,290           |   | 5,292,019                      |   | 5,973,400               |   |                        |   |                                           |   | 53,678,463                      |  

Dividends received from subsidiaries and affiliates are as follows:

Company

2001
ThCh$

2002
ThcH$

2003
ThCh$New Caribbean Investment

3,518,083

816,244

897,251Sociedad eléctrica Santiago

630,203

12,083,667

6,542,921Explotaciones Sanitarias S.A.

193,847

174,743

Puerto Ventanas S.A.

2,294,533

356,432

Itabo S.A.

4,161,888

94,928

Ecogener

49,586



Gener Argentina S.A.

12,157,449



Gasandes S.A.

728,668



Agunsa S.A.

482,676



Portuaria Cabo Froward S.A.

118,902



Total

24,335,835

13,526,014

7,440,172


F-132

---

AES GENER S.A.
Financial information of registrant (Parent Company)(Restated for General Price-Level Changes and Expressed in Thousands of Constant
Chilean Pesos (ThCh$) of December 31, 2003)

3)    CORRECTION OF AN ERROR

Subsequent to the filing of its December 31, 2002 and 2001 financial statements, the Company determined that an error was made in accounting for the
accrual related to the deductible net loss for years 2001 and 2002, which resulted in a higher tax loss carryforward for those years.

This
increase in the tax loss carryforward resulted in the recognition of a higher deferred tax asset by ThCh$3,138,513 and ThCh$2,834,887 for the years 2001 and 2002, respectively.

The
Statutory report filed with the SVS for the year ended December 31, 2003 reflected this effect as an increase in beginning retained earnings as of December 31, 2003.

For
20-F purposes the Company has modified the Chilean financial statements previously filed with the SVS to recognized the error as a deductible net loss in the years 2001 and 2002.

A
summary of the significant effects of the restatement is as follows:

|                            |  | As of December 31, 2001 |   | As of December 31, 2002 |  
|--------------------------- |  | ----------------------- | - | ----------------------- | -
|
|Balance Sheet Data:         |  |                         |   |                         |  
|Deferred taxes              |  | 8,637,604               |   | 5,499,091               |  
|Total long term liabilities |  | 801,302,141             |   | 798,163,628             |  
|Retained earnings           |  | 928,267                 |   | 928,267                 |  
|Net income for the year     |  | (5,229,957              | ) | (2,091,444              | )
|Total Shareholders' equity  |  | 744,931,741             |   | 748,070,254             |  
|Income Statements:          |  |                         |   |                         |  
|Income taxes                |  | (10,187,774             | ) | (7,049,261              | )
|Net income (loss)           |  | (5,229,957              | ) | (2,091,444              | )

F-133

---

AES GENER S.A.
Financial information of registrant (Parent Company)(Restated for General Price-Level Changes and Expressed in Thousands of Constant
Chilean Pesos (ThCh$) of December 31, 2003)

4)    BONDS

|Number of Instruments            |  | Series |  | Amount of Issuance |  | Basis of Readjustment |  | Nominal Annual Interest rate % |  | Scheduled Maturity |  | Terms        |  | Amortization payments      |  | 2003 ThCh$  |  | Country of Placing Bonds
|-------------------------------- |  | ------ |  | ------------------ |  | --------------------- |  | ------------------------------ |  | ------------------ |  | ------------ |  | -------------------------- |  | ----------- |  | ------------------------
|Bonds Payable
short-term portion |  |        |  |                    |  |                       |  |                                |  |                    |  |              |  |                            |  |             |  |                         
|                                 |  | Unit   |  | 200,000,000        |  | US                    |  | 6.50                           |  | 1/15/2006          |  | Semiannually |  | Repayment of Principal due |  | 3,545,051   |  | Foreign                 
|                                 |  | LA1    |  | 659,900            |  | US                    |  | 6.00                           |  | 03/01/2005         |  | Semiannually |  | Repayment of principal due |  | 7,815       |  | Chile                   
|                                 |  | LA2    |  | 2,591,000          |  | US                    |  | 6.00                           |  | 03/01/2005         |  | Semiannually |  | Repayment of principal due |  | 30,686      |  | Chile                   
|                                 |  | LA3    |  | 15,705,000         |  | US                    |  | 6.00                           |  | 03/01/2005         |  | Semiannually |  | Repayment of principal due |  | 186,000     |  | Chile                   
|                                 |  | LA4    |  | 110,800,000        |  | US                    |  | 6.00                           |  | 03/01/2005         |  | Semiannually |  | Repayment of principal due |  | 1,312,246   |  | Chile                   
|                                 |  | LA5    |  | 273,000,000        |  | US                    |  | 6.00                           |  | 03/01/2005         |  | Semiannually |  | Repayment of principal due |  | 3,233,241   |  | Chile                   
|                                 |  | M      |  | 73,883,000         |  | US                    |  | 6.00                           |  | 03/01/2005         |  | Semiannually |  | Repayment of principal due |  | 875.024     |  | Foreign                 
|                                 |  |        |  |                    |  |                       |  |                                |  |                    |  |              |  |                            |  |             |  |                         
|Totals Short-Term                |  |        |  |                    |  |                       |  |                                |  |                    |  |              |  |                            |  | 9,190,063   |  |                         
|                                 |  |        |  |                    |  |                       |  |                                |  |                    |  |              |  |                            |  |             |  |                         
|Bonds Long Term                  |  |        |  |                    |  |                       |  |                                |  |                    |  |              |  |                            |  |             |  |                         
|                                 |  | Unit   |  | 200,000,000        |  | US                    |  | 6.50                           |  | 1/15/2006          |  | Semiannually |  | Repayment of principal due |  | 118,760,000 |  | Foreign                 
|                                 |  | LA1    |  | 659,900            |  | US                    |  | 6.00                           |  | 03/01/2005         |  | Semiannually |  | Repayment of Principal due |  | 391.849     |  | Chile                   
|                                 |  | LA2    |  | 2,591,000          |  | US                    |  | 6.00                           |  | 03/01/2005         |  | Semiannually |  | Repayment of principal due |  | 1,538,536   |  | Chile                   
|                                 |  | LA3    |  | 15,705,000         |  | US                    |  | 6.00                           |  | 03/01/2005         |  | Semiannually |  | Repayment of principal due |  | 9,325,629   |  | Chile                   
|                                 |  | LA4    |  | 110,800,000        |  | US                    |  | 6.00                           |  | 03/01/2005         |  | Semiannually |  | Repayment of principal due |  | 65,793,040  |  | Chile                   
|                                 |  | LA5    |  | 273,000,000        |  | US                    |  | 6.00                           |  | 03/01/2005         |  | Semiannually |  | Repayment of principal due |  | 162,107,400 |  | Chile                   
|                                 |  | M      |  | 73,883,000         |  | US                    |  | 6.00                           |  | 03/01/2005         |  | Semiannually |  | Repayment of principal due |  | 43,871,725  |  | Foreign                 
|                                 |  |        |  |                    |  |                       |  |                                |  |                    |  |              |  |                            |  |             |  |                         
|Totals Long Term                 |  |        |  |                    |  |                       |  |                                |  |                    |  |              |  |                            |  | 401,788,179 |  |                         
|                                 |  |        |  |                    |  |                       |  |                                |  |                    |  |              |  |                            |  |             |  |                         

F-134

---

AES Gener S.A. and Subsidiaries
Schedule II-Valuation and Qualifying Accounts
(in thousands of constant Chilean pesos of December 31, 2003)

|                                           |  | Balance at
Beginning
of period |  | Additions
charged to
costs and
expenses |  | Deductions |  | Other   |     | Balance
at end of
period
|------------------------------------------ |  | ------------------------------ |  | --------------------------------------- |  | ---------- |  | ------- | --- | ------------------------
|December 31, 2001                          |  |                                |  |                                         |  |            |  |         |     |                         
|Allowance for doubtful Accounts receivable |  | 2,511,867                      |  | 1,207,259                               |  | 6,780      |  |        |     | 3,712,346               
|December 31, 2002                          |  |                                |  |                                         |  |            |  |         |     |                         
|Allowance for doubtful Accounts receivable |  | 3,712,346                      |  | 347,260                                 |  | 1,010,776  |  |        |     | 3,048,830               
|December 31, 2003                          |  |                                |  |                                         |  |            |  |         |     |                         
|Allowance for doubtful Accounts receivable |  | 3,048,830                      |  | 1,295,577                               |  | 2,368,293  |  | 538,122 | (1) | 1,437,992               
|December 31, 2001                          |  |                                |  |                                         |  |            |  |         |     |                         
|Allowance for Inventories                  |  | 331,949                        |  | 226,324                                 |  | 54,480     |  |        |     | 503,793                 
|December 31, 2002                          |  |                                |  |                                         |  |            |  |         |     |                         
|Allowance for Inventories                  |  | 503,793                        |  | 179,381                                 |  | 469,205    |  |        |     | 213,969                 
|December 31, 2003                          |  |                                |  |                                         |  |            |  |         |     |                         
|Allowance for Inventories                  |  | 213,969                        |  | 3,797,603                               |  | 124,658    |  |        |     | 3,886,914               

---

F-135

---

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.

| |  |     |  |                                                                         
| |  | --- |  | ------------------------------------------------------------------------
| |  |     |  | AES GENER S.A.                                                          
| |  | By: |  | /s/FRANCISCO CASTROName: Francisco Castro
Title: Chief Financial Officer

March 18, 2004

---

EXHIBIT INDEX

|Exhibit No. |  | Name                                                                                 
|----------- |  | -------------------------------------------------------------------------------------
|1.1         |  | Current By-laws (estatutos) of Registrant as amended (unofficial English translation)
|8.1         |  | List of Subsidiaries                                                                 
|11.1        |  | Code of Ethics (unofficial English translation)                                      
|12.1        |  | Section 906 Certification of the Chief Executive Officer.                            
|12.2        |  | Section 906 Certification of the Chief Financial Officer.                            
|13.1        |  | Section 302 Certification of the Chief Executive Officer.                            
|12.2        |  | Section 302 Certification of the Chief Financial Officer.                            

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