##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION  FORM 20-F
 [  ]
  [ ]
 For the fiscal year ended December 31, 2003
 [  ]
 
 EMPRESA NACIONAL DE
ELECTRICIDAD S.A.
  NATIONAL ELECTRICITYCOMPANY OF CHILE, INC.
(Translation of Registrants name into English)
    
    CHILE
(Jurisdiction of incorporation or organization)
 Santa Rosa 76, Santiago, Chile
Telephone No. (562) 630-9000
(Address of principal executive offices)Securities registered or to be registered pursuant to Section 12(b) of the Act: Name of each exchangeTitle of Each Class
    
    on which registeredAmerican Depositary Shares
Shares
    
    New York Stock Exchange
New York Stock Exchange*
 *Listed, not for trading, but only in connection with the registration of American Depositary Shares,
pursuant to the requirements of the Securities and Exchange Commission. 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: US$150,000,000
    
    
    7.200
    %
    
    Notes due 2006US$230,000,000
    
    
    7.875
    %
    
    Notes due 2027US$220,000,000
    
    
    7.325
    %
    
    Notes due 2037US$200,000,000
    
    
    8.125
    %
    
    Notes due 2097US$400,000,000
    
    
    7.750
    %
    
    Notes due 2008US$400,000,000
    
    
    8.502
    %
    
    Notes due 2009US$400,000,000
    
    
    8.350
    %
    
    Notes due 2013US$200,000,000
    
    
    8.625
    %
    
    Notes due 2015
 Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close
of the period covered by the annual report: Shares of Common Stock: 8,201,754,580. 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 [X]
    
    NO [ ]
 Indicate by check mark which financial statements item the registrant has elected to follow: ITEM 17 [ ]
    
    ITEM 18 [X]




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TABLE OF CONTENTS PageIntroduction
    
    
    1Financial Information
    
    
    1Technical Terms
    
    
    2Calculation of Economic Interest
    
    
    2Forward-Looking Statements
    
    
    2Part IItem 1.
    
    Identity of Directors, Senior Management and Advisers
    
    
    4Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    4Item 3.
    
    Key Information
    
    
    4Item 4.
    
    Information on the Company
    
    
    19Item 5.
    
    Operating and Financial Review and Prospects
    
    
    71Item 6.
    
    Directors, Senior Management and Employees
    
    
    94Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    101Item 8.
    
    Financial Information
    
    
    103Item 9.
    
    The Offer and Listing.
    
    
    111Item 10.
    
    Additional Information
    
    
    113Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    128Item 12.
    
    Description of Securities Other than Equity Securities
    
    
    132Part IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    132Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    132Item 15.
    
    Controls and Procedures
    
    
    132Item 16.
    
    Reserved
    
    
    133Item 16A.
    
    Audit Committee Financial Expert
    
    
    133Item 16B.
    
    Code of Ethics
    
    
    133Item 16C.
    
    Principal Accountant Fees and Services
    
    
    133Item 16D.
    
    Exemptions from Listing Requirements for Audit Committees
    
    
    134Item 16E.
    
    Purchases of Equity Securities by One Issuer and Affiliated Persons
    
    
    134Part IIIItem 17.
    
    Financial Statements.
    
    
    135Item 18.
    
    Financial Statements.
    
    
    135Item 19.
    
    Exhibits.
    
    
    135LIST OF SUBSIDIARIESCERTIFICATIONCERTIFICATIONCERTIFICATION
  i




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INTRODUCTION As used in this annual report onForm 20-F, first person personal pronouns
such as we, us or our refers to Empresa Nacional de Electricidad S.A., or
Endesa-Chile and its consolidated subsidiaries unless the context indicates
otherwise. Unless otherwise indicated, our interest in our principal
subsidiaries and related companies is expressed in terms of our economic
interest as of December 31, 2003. 
 Financial Information In this annual report on Form 20-F, unless otherwise specified, references
to dollars, U.S. dollars, $ or US$ are to United States dollars;
references to pesos or Ch$ are to Chilean pesos, the legal currency of
Chile; references to Ar$ or Argentine pesos are to the legal currency of
Argentina; references to R$, reals or reais are to Brazilian reals, the
legal currency of Brazil, references to soles are to Peruvian soles, the
legal currency of Peru, references to CPs or Colombian pesos are to the legal
currency of Colombia and references to UF are to Unidades de Fomento. The
Unidad de Fomento is a Chilean inflation-indexed, peso-denominated monetary
unit. The UF rate is set daily in advance based on changes in the previous
months inflation rate. As of December 31, 2003, 1 UF was equivalent to
Ch$16,920.00. The U.S. dollar equivalent of 1 UF was US$28.49 for December 31,
2003, using the Observed Exchange Rate reported by the Banco Central de Chile
(the Chilean Central Bank or the Central Bank) for December 31, 2003 of
Ch$593.80 per US$1.00. The audited consolidated financial statements of Empresa Nacional de
Electricidad S.A., or Endesa-Chile (the Company), and, unless otherwise
indicated, other financial information concerning the Company included herein
are presented in constant Chilean pesos in conformity with Chilean generally
accepted accounting principles (Chilean GAAP) and the rules of the
Superintendencia de Valores y Seguros(Superintendency of Securities and
Insurance), or SVS. Data expressed in Chilean pesos for all periods in the
Companys audited consolidated financial statements for the three fiscal years
ended December 31, 2003 are expressed in constant Chilean pesos as of December
31, 2003. See Note 2(b) to the audited consolidated financial statements
included herein. For Chilean accounting purposes, inflation adjustments are
calculated based upon a one-month lag convention using an inflation
adjustment factor based on the Indice de Precios al Consumidor(Chilean
consumer price index or Chilean CPI). The Chilean CPI is published by
Chiles Instituto Nacional de Estadísticas(the National Bureau of
Statistics). For example, the inflation adjustment applicable for the 2003
calendar year is the percentage change between the November 2002 Chilean CPI
and the November 2003 Chilean CPI which was 1%. Chilean GAAP as applied to the
Company differs in certain important respects from accounting principles
generally accepted in the United States (US GAAP). See Note 34 to the
audited consolidated financial statements of the Company contained elsewhere in
this annual report for a description of the principal differences between
Chilean GAAP and US GAAP, as they relate to the Company and a reconciliation to
US GAAP of net income and stockholders equity for the period and as of the
dates indicated. Certain amounts may not add up due to rounding. Under Chilean GAAP, we consolidate the results from operations of a
company defined as a subsidiary in Law No. 18,046. In order to consolidate a
company we must generally satisfy one of two criteria: We must either:  
    
    control, directly or indirectly, more than a 50% voting interest in such company; or
    
    nominate or have the power to nominate a majority of the board of
directors of such company if we control 50% or less of the voting
interest of such company. Endesa-Chile consolidates all its operational Chilean subsidiaries. In
Argentina, Endesa-Chile consolidates the hydroelectric company Hidroeléctrica
El Chocón S.A.(El Chocón) and the thermoelectric company Central Costanera
S.A(Costanera).In Colombia, Endesa-Chile consolidates generation companies
Hidroeléctrica Betania S.A.(Betania) and Emgesa S.A. E.S.P.(Emgesa).
Endesa-Chile also consolidates the hydroelectric company Centrais Eléctricas
Cachoeira Dourada S.A.(Cachoeira Dourada) in Brazil and the generation
company Edegel S.A.A.(Edegel) in Peru. Due to consolidating adjustments,
financial data reported by us relating to our consolidated subsidiaries may be
materially different from that reported by our consolidated subsidiaries on a
stand-alone basis.




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For the convenience of the reader, this annual report contains
translations of certain Chilean peso amounts into U.S. dollars at specified
rates. Unless otherwise indicated, the U.S. dollar equivalent for information
in Chilean pesos is based on the Observed Exchange Rate, as defined in Item 3.
Key InformationSelected Financial DataExchange Rates. The Federal Reserve
Bank of New York does not report a noon buying rate for Chilean pesos. No
representation is made that the Chilean peso or U.S. dollar amounts shown in
this annual report could have been or could be converted into U.S. dollars or
Chilean pesos, as the case may be, at such rate or at any other rate. See
Item 3. Key InformationSelected Financial DataExchange Rates. 
 Technical Terms As used throughout, 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 installed capacity of such facilities, and in GWh, in the case of the
aggregate annual 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.
Statistics relating to installed capacity and production of the electricity
industry do not include electricity of self-generators. Statistics relating to
our production do not include electricity consumed by us. Technical losses are calculated by:  
    
    subtracting the number of GWh of energy sold from the number of
energy purchased and generated within a given period. 
 Calculation of Economic Interest References are made throughout this annual report to the economic
interest of Endesa-Chile in its subsidiaries or related companies. In
circumstances where the Company does not own its interest in a subsidiary or
related company directly, the economic interest of Endesa-Chile in such
ultimate subsidiary or related company is calculated by multiplying the
percentage ownership interest of the Company in a directly held subsidiary or
related company by the percentage ownership interest of any entity in the chain
of ownership of such ultimate subsidiary or related company. For example, if
Endesa-Chile owns 60% of a directly held subsidiary and that subsidiary owns
40% of a related company, Endesa-Chiles economic ownership interest in such
related company would be 24%. Enersis S.A. (Enersis), a holding company engaged in generation,
transmission and distribution of electricity in Chile, Argentina, Brazil,
Colombia and Peru, beneficially owned as of the date of this annual report,
directly or indirectly, 60% of Endesa-Chiles outstanding capital stock. 
 Forward-Looking Statements This annual report contains statements that are or may constitute
forward-looking statements. These statements appear throughout this annual
report and include statements regarding our intent, belief or current
expectations, including but not limited to any statements concerning:  
    
    our capital investment program;
    
    our financial and economic strengthening plan;
    
    trends affecting our financial condition or results from operations;
    
    our dividend policy;
    
    the future impact of competition and regulation;
    
    political and economic conditions in the countries in which we or
our related companies operate or may operate in the future; 2




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
    
    any statements preceded by, followed by or that include the words
believes, expects, predicts, anticipates, intends,
estimates, should, may or similar expressions; and
    
    other statements contained or incorporated by reference in this
annual report regarding matters that are not historical facts. Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to:  
    
    changes in the regulatory environment in one or more of the
countries in which we operate;
    
    changes in the environmental regulatory framework in one or more of
the countries in which we operate;
    
    our ability to implement proposed capital expenditures, including
our ability to arrange financing where required;
    
    the nature and extent of future competition in our principal
markets;
    
    political, economic and demographic developments in the emerging
market countries of Latin America where we conduct our business; and
    
    the factors discussed below under Risk Factors. You should not place undue reliance on such statements, which speak only
as of the date that they were made. Our independent public accountants have
not examined or compiled the forward-looking statements, and, accordingly, do
not provide any assurance with respect to such statements. You should consider
these cautionary statements together with any written or oral forward-looking
statements that we may issue in the future. We do not undertake any obligation
to release publicly any revisions to forward-looking statements contained in
this annual report to reflect later events or circumstances or to reflect the
occurrence of unanticipated events. For all these forward-looking statements, we claim the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. 3




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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 summary of consolidated selected financial and operating
data should be read in conjunction with, and is qualified in its entirety by
reference to, the Companys audited consolidated financial statements, included
elsewhere in this annual report. The audited consolidated financial statements
are prepared in accordance with Chilean GAAP and the rules of the SVS, which
together differ in certain important respects from US GAAP. Note 34 to the
audited consolidated financial statements provides a description of the
principal differences between Chilean GAAP and US GAAP and a reconciliation to
US GAAP of net income and total shareholders equity for the periods and as of
the dates therein indicated. Financial data as of or for each of the five
years ended December 31, 2003 in the following table have been restated in
constant Chilean pesos as of December 31, 2003. All data, except ratios and operating data, are in millions. For the
convenience of the reader, this annual report contains translations of certain
Chilean peso amounts into U.S. dollars at specified rates. Unless otherwise
indicated, the U.S. dollar equivalent for information in Chilean pesos is based
on the Observed Exchange Rate. The Observed Exchange Rate reported by the
Chilean Central Bank for December 31, 2003 was Ch$593.80 per US$1.00.
Similarly, all data presented in U.S. dollars, as of and for the year ended
December 31, 2003 are translated at the Observed Exchange Rate of Ch$593.80 per
US$1.00. The Federal Reserve Bank of New York does not report a noon buying
rate for Chilean pesos. No representation is made that the Chilean peso or
U.S. dollar amounts shown in this annual report could have been or could be
converted into U.S. dollars or Chilean pesos, at such rate or at any other
rate. For more information concerning historical exchange rates, see
"Exchange Rates below. On June 23, 2003, we sold Infraestructura Dos Mil S.A., or Infraestructura
Dos Mil. Under Chilean GAAP, we ceased consolidating Infraestructura Dos Mil
with effect from January 1, 2003, and as a result this company will not be
reflected in our financial statements as of and for the year ended December 31,
2003. Our other principal operating subsidiaries were consolidated prior to
1998. All companies have been consolidated according to Chilean GAAP. The information detailed in the following table includes changes in
certain accounting policies for the five years ended and as of December 31,
2003, which affect the comparability presented below. Beginning January 1,
2000, the Company adopted new accounting policies concerning the accounting for
deferred taxes in accordance with a new Chilean accounting system. See Item
5. Operating and Financial Review and ProspectsCritical Accounting
PoliciesIncome and Deferred Taxes. 4




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As of or for the year ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2003(Restated for general price-level changes and expressed in millions of constant
    
    (millions ofCh$ as of December 31, 2003, except ratios and operating data)
    
    US$)(1)CONSOLIDATED INCOME STATEMENT DATAChilean GAAP:Revenues from operations
    
    
    966,892
    
    
    
    947,027
    
    
    
    1,055,733
    
    
    
    947,480
    
    
    
    920,281
    
    
    
    1,550Cost of operations
    
    
    (729,036
    )
    
    
    (643,669
    )
    
    
    (669,234
    )
    
    
    (561,142
    )
    
    
    (550,447
    )
    
    
    (927
    )Administrative and selling expenses
    
    
    (50,058
    )
    
    
    (33,759
    )
    
    
    (35,043
    )
    
    
    (36,652
    )
    
    
    (31,324
    )
    
    
    (53
    )Operating income
    
    
    187,798
    
    
    
    269,599
    
    
    
    351,456
    
    
    
    349,686
    
    
    
    338,510
    
    
    
    570Equity in income (losses) of related companies, net
    
    
    1,792
    
    
    
    685
    
    
    
    (10,046
    )
    
    
    8,656
    
    
    
    17,370
    
    
    
    29Goodwill amortization
    
    
    (7,078
    )
    
    
    (7,317
    )
    
    
    (8,352
    )
    
    
    (109,648
    )
    
    
    (1,543
    )
    
    
    (3
    )Interest (expense) income, net
    
    
    (196,073
    )
    
    
    (239,859
    )
    
    
    (218,899
    )
    
    
    (204,929
    )
    
    
    (188,874
    )
    
    
    (318
    )Price-level restatement and foreign currency
translation, net
    
    
    (93,296
    )
    
    
    (3,767
    )
    
    
    (10,269
    )
    
    
    3,591
    
    
    
    9,531
    
    
    
    16Other non-operating income (expense), net
    
    
    (59,477
    )
    
    
    213,822
    
    
    
    (2,711
    )
    
    
    (14,230
    )
    
    
    (15,489
    )
    
    
    (26
    )Income before income taxes, minority interest and
negative goodwill amortization
    
    
    (166,334
    )
    
    
    233,163
    
    
    
    101,179
    
    
    
    33,126
    
    
    
    159,505
    
    
    
    268Income taxes
    
    
    (34,377
    )
    
    
    (89,369
    )
    
    
    (40,311
    )
    
    
    (71,335
    )
    
    
    (27,378
    )
    
    
    (46
    )Extraordinary loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,039
    )
    
    
    
    
    
    
    Minority interest
    
    
    (35,254
    )
    
    
    (69,267
    )
    
    
    (34,356
    )
    
    
    (46,943
    )
    
    
    (69,586
    )
    
    
    117Amortization of negative goodwill
    
    
    37,500
    
    
    
    41,548
    
    
    
    46,370
    
    
    
    86,779
    
    
    
    15,590
    
    
    
    26Net income (loss)
    
    
    (198,465
    )
    
    
    116,075
    
    
    
    72,882
    
    
    
    (9,412
    )
    
    
    78,131
    
    
    
    131Net income (loss) per share(2)
    
    
    (24.20
    )
    
    
    14.15
    
    
    
    8.89
    
    
    
    (1.15
    )
    
    
    9.53
    
    
    
    N.A.Net income (loss) per ADS(2)
    
    
    (725.91
    )
    
    
    424.56
    
    
    
    266.58
    
    
    
    (34.43
    )
    
    
    285.78
    
    
    
    N.A.US GAAP(6):Revenues from operations
    
    
    966,892
    
    
    
    947,027
    
    
    
    1,035,434
    
    
    
    927,456
    
    
    
    920,797
    
    
    
    1,551Operating income
    
    
    196,934
    
    
    
    331,582
    
    
    
    357,112
    
    
    
    191,564
    
    
    
    156,469
    
    
    
    264Equity in income of related companies
    
    
    (3,702
    )
    
    
    831
    
    
    
    (15,742
    )
    
    
    29,726
    
    
    
    45,193
    
    
    
    76Income taxes
    
    
    (17,335
    )
    
    
    (111,635
    )
    
    
    (56,591
    )
    
    
    (85,456
    )
    
    
    24,468
    
    
    
    41Net income (loss) from continuing operations
    
    
    (222,274
    )
    
    
    97,825
    
    
    
    (1,885
    )
    
    
    (75,898
    )
    
    
    72,741
    
    
    
    122Cumulative effect of changes in accounting principles,
net of taxes and minority interest
    
    
    
    
    
    
    
    
    
    
    32,654
    
    
    
    
    
    
    
    (121
    )
    
    
    N.A.Income (loss) from discontinued operations net of tax
and minority interest
    
    
    1,871
    
    
    
    437
    
    
    
    479
    
    
    
    278
    
    
    
    115
    
    
    
    N.A.Net income (loss)
    
    
    (220,403
    )
    
    
    98,262
    
    
    
    31,248
    
    
    
    (75,620
    )
    
    
    72,735
    
    
    
    122Net income (loss) on continuing operations per share(2)
    
    
    (27.10
    )
    
    
    11.93
    
    
    
    3.75
    
    
    
    (9.25
    )
    
    
    8.85
    
    
    
    N.A.Net income (loss) on discontinued operations per
share(2)
    
    
    0.23
    
    
    
    0.05
    
    
    
    0.06
    
    
    
    0.03
    
    
    
    0.01
    
    
    
    N.A.Net income (loss) per share(2)
    
    
    (26.87
    )
    
    
    11.98
    
    
    
    3.81
    
    
    
    (9.22
    )
    
    
    8.87
    
    
    
    N.A.Net income (loss) on continuing operations per
ADS(2)
    
    
    (813.00
    )
    
    
    357.90
    
    
    
    112.54
    
    
    
    (277.61
    )
    
    
    265.62
    
    
    
    N.A.Net income (loss) on discontinued operations per ADS(2)
    
    
    6.90
    
    
    
    1.50
    
    
    
    1.75
    
    
    
    1.02
    
    
    
    0.42
    
    
    
    N.A.Net income (loss) per ADS(2)(4)
    
    
    (806.10
    )
    
    
    359.40
    
    
    
    114.29
    
    
    
    (276.59
    )
    
    
    266.04
    
    
    
    N.A.CONSOLIDATED BALANCE SHEET DATAChilean GAAP:Total assets
    
    
    6,461,820
    
    
    
    6,076,734
    
    
    
    6,425,187
    
    
    
    6,589,443
    
    
    
    5,465,336
    
    
    
    9,204Long-term liabilities
    
    
    3,193,168
    
    
    
    2,785,145
    
    
    
    2,831,129
    
    
    
    2,485,742
    
    
    
    2,289,635
    
    
    
    3,856Minority interest
    
    
    1,358,145
    
    
    
    1,319,399
    
    
    
    1,446,906
    
    
    
    1,513,213
    
    
    
    1,217,743
    
    
    
    2,051Total Shareholders equity
    
    
    1,273,892
    
    
    
    1,390,666
    
    
    
    1,461,014
    
    
    
    1,444,941
    
    
    
    1,492,669
    
    
    
    2,514Capital Stock
    
    
    1,050,194
    
    
    
    1,050,194
    
    
    
    1,050,194
    
    
    
    1,050,194
    
    
    
    1,050,194
    
    
    
    1,769
 5




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As of or for the year ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2003(Restated for general price-level changes and expressed in millions of constant
    
    (millions ofCh$ as of December 31, 2003, except ratios and operating data)
    
    US$)(1)U.S. GAAP:Total assets
    
    
    6,421,796
    
    
    
    6,014,477
    
    
    
    5,992,126
    
    
    
    6,320,553
    
    
    
    5,154,756
    
    
    
    8,681Long-term liabilities
    
    
    3,390,634
    
    
    
    3,001,340
    
    
    
    2,684,860
    
    
    
    2,698,709
    
    
    
    2,364,907
    
    
    
    3,983Minority interest
    
    
    1,343,488
    
    
    
    1,285,868
    
    
    
    1,475,968
    
    
    
    1,540,164
    
    
    
    1,178,188
    
    
    
    1,984Total Shareholders equity
    
    
    1,036,401
    
    
    
    1,117,743
    
    
    
    1,137,557
    
    
    
    1,064,738
    
    
    
    1,123,405
    
    
    
    1,892Capital Stock
    
    
    1,050,194
    
    
    
    1,050,194
    
    
    
    1,050,194
    
    
    
    1,050,194
    
    
    
    1,050,194
    
    
    
    1,769OTHER CONSOLIDATED FINANCIAL DATAChilean GAAP:Capital expenditures(5)
    
    
    150,092
    
    
    
    90,560
    
    
    
    53,502
    
    
    
    136,207
    
    
    
    131,140
    
    
    
    221Depreciation and amortization
    
    
    186,902
    
    
    
    171,249
    
    
    
    153,415
    
    
    
    223,926
    
    
    
    167,081
    
    
    
    281Other Financial Data:Dividends accrued per share(3)
    
    
    
    
    
    
    1.02
    
    
    
    0.99
    
    
    
    
    
    
    
    
    
    
    
    Dividends accrued per ADS in US$(2)(3)(4)
    
    
    
    
    
    
    0.04
    
    
    
    0.04
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding (million)
    
    
    8,202
    
    
    
    8,202
    
    
    
    8,202
    
    
    
    8,202
    
    
    
    8,202
    
    
    
    Number of ADS (million)
    
    
    33
    
    
    
    26
    
    
    
    28
    
    
    
    16
    
    
    
    14
    
    
    
    
   (1)
    
    Solely for the convenience of the reader, Chilean peso amounts have been
translated into dollars at the rate of Ch$593.80 per U.S. dollar, the
Observed Exchange Rate as of December 31, 2003. You should not construe
the translation of currency amounts in this annual report to be a
representation that the Chilean peso amounts actually represent current
U.S. dollar amounts or that you could convert Chilean peso amounts into
U.S. dollars at the rate indicated or at any other rate.(2)
    
    Per ADS amounts in millions of constant Chilean pesos are determined by
multiplying per share amounts by 30 (1 ADS = 30 Shares). Per share amounts
in millions of US$ are determined by dividing per ADS amounts by 30.(3)
    
    This chart details dividends payable in any given year, and not
necessarily paid that same year.(4)
    
    US dollar amounts are calculated by applying the US dollar exchange rate
on the dividend payment date to the nominal Chilean peso amount.(5)
    
    Capital expenditures does not include investments in equity investees and
capital expenditures in development stage subsidiaries.(6)
    
    For reconciliation from Chilean GAAP to US GAAP see Note 34  Differences
between Chilean and United States Generally Accepted Accounting
Principles of the consolidated financial statements. Exchange Rates Fluctuations in the exchange rate between the Chilean peso and the U.S.
dollar will affect the U.S. dollar equivalent of the Chilean peso price of
Endesa-Chiles shares of common stock, without par value (the Shares or the
Common Stock), of the Company on the Bolsa de Comercio de Santiago (the
Santiago Stock Exchange), the Bolsa Electrónica de Chile (the Electronic
Exchange) and the Bolsa de Corredores de Valparaíso (the Valparaíso Stock
Exchange) (collectively, the Chilean Exchanges), and, as a result, will
likely affect the spot price of the Companys American Depositary Shares
(ADSs). Such fluctuations will also affect conversion of cash dividends
relating to the Shares represented by ADSs from Chilean pesos to U.S. dollars.
In addition, to the extent financial liabilities of the Company are denominated
in foreign currencies, exchange rate fluctuations may have a significant impact
on earnings. In Chile, the Ley Orgánica del Banco Central de Chile No. 18840 (the
Central Bank Act), enacted in 1989, liberalized the ability to buy and sell
foreign exchange in Chile. The Central Bank Act currently provides that the
Central Bank may require that certain purchases and sales of foreign exchange
be carried out in the Mercado Cambiario Formal (the Formal Exchange Market),
a market formed by banks and other entities explicitly authorized by the
Central Bank. Purchases and sales of foreign exchange, which are generally
permitted to be 6




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transacted outside the Formal Exchange Market, can be carried out in the
Mercado Cambiario Informal (the Informal Exchange Market), which is a
recognized currency market in Chile. Free market forces drive both the Formal
and Informal Exchange Markets. Foreign exchange for payments and distributions
with respect to the ADSs may be purchased in either the Formal Exchange Market
or the Informal Exchange Market, but such payments and distributions must be
necessarily remitted through the Formal Exchange Market. For the purposes of the operation of the Formal Exchange Market, the
Chilean Central Bank sets a reference exchange rate (dólar acuerdoor the
Reference Exchange Rate). The Reference Exchange Rate is reset daily by the
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 in a ratio of 80:5:15, respectively. The daily
observed exchange rate (dólar observado) (the Observed Exchange Rate)
reported by the Central Bank and published daily in the Chilean newspapers is
computed by taking the weighted average of the previous business days
transactions in the Formal Exchange Market. The Informal Exchange Market reflects transactions carried out at informal
exchange rates (the Informal Exchange Rate) by entities not expressly
authorized to operate in the Formal Exchange Market (e.g., certain foreign
exchange houses, travel agencies and others). 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 Rate. Since 1993, the Observed
Exchange Rate and the Informal Exchange Rate have typically been within less
than 1% of each other. On December 31, 2003, the Informal Exchange Rate was
Ch$593.40, or 0.07% higher than the published Observed Exchange Rate of
Ch$593.8 Per US$1.00. On March 31, 2004, the Informal Exchange rate was
Ch$611.00, or 0.88% lower than the published Observed Exchange Rate of
Ch$616.41 per U.S$1.00 corresponding to such date. The following table sets forth, for the periods and dates indicated,
certain information concerning the Observed Exchange Rate reported by the
Central Bank. No representation is made that the Chilean peso or U.S. dollar
amounts referred to herein could have been or could be converted into U.S.
dollars or Chilean pesos, as the case may be, at the rates indicated or at any
other rate. The Federal Reserve Bank of New York does not report a noon buying
rate for Chilean pesos. Observed Exchange Rate(1)(Ch$ per US$)Year
    
    Low(2)
    
    High(2)
    
    Average(3)
    
    Period-end1999
    
    
    468.69
    
    
    
    550.93
    
    
    
    512.85
    
    
    
    530.072000
    
    
    501.04
    
    
    
    580.37
    
    
    
    542.08
    
    
    
    573.652001
    
    
    557.13
    
    
    
    716.62
    
    
    
    637.57
    
    
    
    654.792002
    
    
    641.75
    
    
    
    756.56
    
    
    
    692.32
    
    
    
    718.612003
    
    
    593.10
    
    
    
    758.21
    
    
    
    691.53
    
    
    
    593.80Last six months2003December
    
    
    593.10
    
    
    
    621.27
    
    
    
    602.90
    
    
    
    593.802004January
    
    
    559.21
    
    
    
    596.78
    
    
    
    573.64
    
    
    
    691.42February
    
    
    571.35
    
    
    
    598.60
    
    
    
    584.31
    
    
    
    592.87March
    
    
    588.04
    
    
    
    623.21
    
    
    
    603.91
    
    
    
    616.41April
    
    
    596.61
    
    
    
    624.84
    
    
    
    608.55
    
    
    
    624.98May
    
    
    622.25
    
    
    
    644.42
    
    
    
    636.00
    
    
    
    638.59June (through June 21, 2004)
    
    
    636.02
    
    
    
    649.45
    
    
    
    645.23
    
    
    
    646.47
   Source: Chilean Central
Bank.
  (1)
    
    Reflects Chilean pesos at historical values rather than in constant
Chilean pesos.  (2)
    
    Exchange rates are the actual high and low, on a day-by-day basis, for
each period.  (3)
    
    The average of the exchange rates on the last day of each month during
the period. 7




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B. Capitalization and indebtedness. Not applicable. C. Reasons for the offer and use of proceeds. Not applicable. D. Risk Factors Risks Relating to Our Operations Since our business depends heavily on hydrological conditions, drought
conditions may hurt our profitability. Approximately 66% of our consolidated generation capacity in Chile,
Argentina, Brazil, Colombia and Peru is hydroelectric and, accordingly, we are
dependent upon hydrological conditions prevailing, from time to time, in the
geographic regions in which we operate. In particular, we are exposed to the
risks discussed below. During periods of drought, thermal generators, including those that are
fueled with natural gas or coal, are dispatched more frequently. During such
periods, we are required to purchase electricity from thermal producers to the
extent our own production is not sufficient to fulfill contractual obligations.
The cost of these electricity pool market purchases may exceed the price at
which we sell electricity under contracts, resulting in a loss. With the aim of partially decreasing the effects of a protracted future
drought, beginning in 2000 our company including its generation subsidiaries
has changed its commercial policy by decreasing its contractual energy sales
levels to better match the amount of firm energy associated with its installed
capacity, giving priority to its higher-paying clients and to industrial firms
that demand larger amounts of energy, and limiting contractual sales to
regulated customers, including distribution companies. It is not certain
whether this new policy will insulate Endesa-Chile and its operations from
negative consequences of a protracted drought period. The Chilean regulatory authorities may impose fines on us and our Chilean
generation subsidiaries due to operational failures in the electricity system. Under current Chilean law, the company and its Chilean generation
subsidiaries may be required to pay the following costs or penalties, imposed
by the Chilean regulatory authorities, during periods of electricity system
failures. Our company and its Chilean generation subsidiaries may be subject to
regulatory fines, which range from 1 Unidad Tributaria Mensual (UTM), or
approximately US$50.0, to 10,000 Unidades Tributarias Anuales (UTA), or
approximately US$6.0 million. Any electricity company supervised by the
Superintendencia de Electricidad y Combustibles(Chilean Superintendence of
Electricity and Fuels) or SEF, may be subject to higher costs when the regular
energy supply to the system is affected by operational failures, including
failing to adequately react to a fault in the system, that in the determination
of the SEF, are due to the negligence or fault of the Company. On August 14, 2003, the SEF imposed fines on our company and our
generation subsidiaries in an aggregate amount of approximately US$2.3 million
due to a failure in the transmission of energy to end-users of electricity in
the Metropolitan Region of Chile on September 23, 2002. Our subsidiaries are
currently appealing these fines. Additionally, on April 27 and May 3, 2004,
the SEF imposed fines on both Endesa-Chile and Chilectra in an aggregate amount
of approximately US$2.0 million due to a black out that occurred in the
Metropolitan Region on January 13, 2003. Endesa-Chile and Chilectra are
currently appealing these fines, however, no assurance can be given that these
appeals will be successful. Chilean electricity regulations may impose additional operating costs on us
and generation subsidiaries and cause our revenues to decline. Electricity Rationing:If we and our Chilean generation subsidiaries are
unable to fulfill our contracts during periods of electricity rationing, we may
be subject to higher operational costs. The Chilean government can impose 8




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electricity rationing, limiting the amount of electricity we can generate,
during drought conditions or prolonged failures in the countrys thermoelectric
facilities. If, due to the rationing, we are unable to generate enough
electricity to fulfill our contracts we may be forced to buy electricity on the
pool market at the spot price. The spot price may be significantly higher than
our costs to generate the electricity and can be as high as the cost of
failure set by the Comisión Nacional de Energía(National Energy Commission),
or the CNE. The cost of failure is determined by the CNEs economic models
as the highest cost of electricity during periods of drought or electricity
deficiency. If we are unable to buy enough electricity in the pool market to
satisfy all our contracts, then we would have to compensate our regulated
customers for the amount of contracted-for electricity we failed to provide at
the cost of failure. If rationing policies are imposed by any regulatory authorities in Chile,
our business, financial condition and results of operations may be affected
adversely in a material way. Rationing periods may occur in the future, and
consequently we and our generation subsidiaries, might be obligated to increase
operational costs as described above if such subsidiaries fail to provide
adequate service under such conditions. Resolution 88:In May 2001, the Chilean Ministry of Economics issued
Resolution 88, under which electricity generators are required to provide power
to distribution companies in the Sistema Interconectado Central, or SIC if
distribution companies are not able to freely contract adequate power supply to
deliver to their customers. Under the terms of Resolution 88, each generator
must supply power to such distributors in proportion to the generators share
of total firm energy in the SIC at a price equal to the node price. If we
cannot produce sufficient energy ourselves to supply the distribution
companies needs, we are required to purchase energy on the spot market, where
prices may be significantly higher than the node price at which we sell to
distributors. In addition, the requirement to sell to distributors may limit
our ability to expand sales to non-regulated customers. We consider Resolution
88 to be unconstitutional because it violates property rights. We also believe
that Resolution 88 violates our freedom to contract and enter into energy
transactions and we have requested that it be nullified. However, if our
request to nullify Resolution 88 (demanda de nulidad de derecho público) is
denied by the local civil court, Resolution 88s supply requirements may remain
in effect, which could increase our costs and adversely affect our future
profitability. Our profitability and business could be adversely affected by the proposals
being considered by the Chilean Congress with respect to our water rights. Approximately 72% of our installed capacity in Chile is hydroelectric.
For the operation of our plants we own water rights granted by the Chilean
Water Authority. Under current law, these water rights are of unlimited
duration. They are absolute and unconditional property rights and are not
subject to any further challenge. The Chilean Congress has been discussing a
proposal to amend the laws governing water rights, under which we would have to
pay a fee for each year we do not utilize the rights we own. This fee would be
imposed whether such rights were granted before or after the enactment of such
proposal. We are unable to predict whether, or in what form, any such proposed
changes to the laws governing water rights will be enacted. There can be no
assurance that any changes would not, if enacted, have a material adverse
effect on us and our operations. We may experience higher generation costs and reduced operating margins due to
the deficit of natural gas in Argentina. The recent natural gas deficit in Argentina could have a negative impact
on some of our generation plants in Chile and Argentina particularly those that
utilize Argentinean natural gas. In Argentina, this deficit has caused the local price of natural gas to
rise. If we are unable to pass along these higher costs to our customers, our
operating margins could decrease. In Chile, Endesa-Chile, and one related company currently rely on natural
gas for their thermoelectric generation and are parties to take or pay gas
contracts with Argentine suppliers. On March 26, 2004, the Argentine
government announced a resolution that allows for the partial suspension of
natural gas exports. Furthermore, the resolution gives the Argentine President
the authority to temporarily suspend the long-term supply contracts of
Argentine exporters. If we experience continuous interruptions in the supply
of natural gas from Argentina, we 9




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could have to replace natural gas with more expensive fuels such as coal
and/or diesel to maintain our current generation level, resulting in higher
generation costs and lower operating margins. We depend in part on payments from our subsidiaries to meet our payment
obligations. In order to pay our obligations, we rely on cash from dividends, loan
payments, and other distributions from our subsidiaries. Our ability to pay
debt and interest will be partially dependent on the receipt of distributions
from our subsidiaries. Our subsidiaries and equity affiliates are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
amounts due or to make any funds available to pay any amount and do not
guarantee payment of interest on or principal of any indebtedness of the
company. In addition, the ability of our subsidiaries to pay dividends, make
loan payments, and other distributions to Endesa-Chile is subject to legal
limits such as dividend restrictions and fiduciary duties, contractual
limitations, foreign exchange controls that may be imposed in any of the five
countries where our subsidiaries operate. Our Subsidiaries and equity
affiliates may be additionally limited by their operating results. We
generally have been able to access the cash flows of our Chilean subsidiaries.
We have not been similarly able to access the cash flows of our non-Chilean
operating subsidiaries due to government regulations, strategic considerations,
economic conditions, and credit agreement restrictions. Our future results from operations outside of Chile may continue to be
subject to greater economic and political risks than what we have experienced
in Chile, thereby reducing the likelihood that we will be able to rely on cash
flow from operations in those entities to repay debts. Dividend Limits and Other Legal Restrictions. We and our Chilean
subsidiaries are subject to customary legal restrictions limiting the amount of
dividend distributions to net income. Some of our non-Chilean subsidiaries are
also subject to legal reserve requirements and other restrictions on dividend
payments. In addition, the ability of any of our less-than-wholly owned
subsidiaries to upstream cash to us may be limited by the fiduciary duties of
the directors of such subsidiaries to their minority shareholders. As a
consequence of such duties, any of our subsidiaries could under, certain
circumstances, be prevented from up streaming cash to us. Contractual Limitations. Specific upstreaming restrictions in our
subsidiaries contractual agreements include:  
    
    prohibitions against dividend distributions by Empresa Eléctrica
Pangue S.A., or Pangue, our Chilean generation subsidiary, if it is not
in compliance with certain debt to equity ratios and debt coverage
ratios (each as defined in Pangues credit agreements);
    
    prohibitions against dividend distributions by Edegel in Peru, and
Betania in Colombia in the case of default of certain loans;
    
    prohibitions against repayments by Betania in Colombia of
intercompany debt unless Betania raises additional funds from the sale
of assets or capital reductions of its subsidiaries (Emgesa), and
against payments by Betania of interest on intercompany debt if any
scheduled payment of Betanias syndicated loan is due and not paid;
    
    prohibitions against dividend distributions, capital reductions,
intercompany interest payments and debt repayment of Costanera in
Argentina while certain of its debt is outstanding. We are not aware of any contractual limitations on our equity affiliates
ability to pay dividends and other distributions to us. Operating Results at Our Subsidiaries. The ability of our subsidiaries
and equity affiliates to pay dividends, loan payments and other distributions
to us are limited by their operating results. To the extent that the cash
requirements at any of our subsidiaries exceed its available cash, that
subsidiary will not be able to make cash available to us. We expect that in
2004 some of our non-Chilean subsidiaries may experience cash flow deficits and
not have funds available for distribution to us. For example, lower energy
prices in Brazil and current regulations in Argentina have resulted in breaches
of contracts by counterparties to our subsidiaries and equity affiliates, which
may impact the amount of dividends and distributions we receive from the
investments in those countries. Our future results of operations outside Chile
may continue to be subject to greater economic and political risks than 10




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what we have experienced in Chile, thereby reducing the likelihood that we
will be able to rely on cash flow from operations in those subsidiaries. In April 2003, Companhia Elétrica de Estado de Goiás S.A.(CELG), the
sole customer of Endesa-Chiles Brazilian subsidiary Cachoeira Dourada, was
awarded a preliminary and provisional judgment that permitted CELG to suspend
its payments under a long-term take-or-pay contract with Cachoeira Dourada. As
of December 31, 2003, CELG owed Cachoeira Dourada US$10.9 million under the
contract. On June 16, the preliminary and provisional Judgment was revoked,
which obliges CELG to pay 100% of the contract, including payments due for all
of 2003. CELG has petitioned for reconsideration of this decision. A final
unfavorable decision would mean that Cachoeira Dourada would receive
significantly lower payments from its only customer, which would affect the
amount of dividend payments Cachoeira Dourada can make to Endesa-Chile. Foreign Exchange Controls. The ability of our non-Chilean subsidiaries
and equity affiliates to pay dividends and make loan payments or other
distributions to us may be subject to emergency restrictions that may be
imposed by Central Banks or other governmental authorities in the various
jurisdictions in which we operate. For example, during the economic crisis in
Argentina, the Central Bank of Argentina imposed restrictions on the transfer
of funds outside of Argentina. We are subject to contractual provisions under our existing indebtedness. A significant portion of our financial indebtedness is subject to
cross-default provisions. Defaults in relation to any single indebtedness of
ours or our most relevant subsidiaries with an outstanding amount equal to or
in excess of US$30 million after the applicable grace periods (if any) have
expired could give rise to a cross-default under most of our bank debt. In
addition, a payment default by us or any of our subsidiaries on any
indebtedness having an aggregate principal amount exceeding US$30 million,
would trigger an event of default on our SEC-registered notes. Finally, any
event of default arising under those notes would trigger a cross-default under
most of our existing bank credit agreements. In the event that any of our
cross-default provisions are triggered and our existing creditors demand
immediate repayment, substantially of our indebtedness will become due and we
could be unable to pay such debt. See Item 5. Operating and Financial Review
and ProspectsLiquidity and Capital Resources. We and our subsidiaries may be subject to refinancing risk. We may be unable to refinance our indebtedness or obtain such financing on
terms acceptable to us. In the absence of such refinancing, we could be forced
to dispose of assets in order to make up for any shortfall in the payments due
on our indebtedness under circumstances that might not be favorable to obtaning
the best price for such assets. Furthermore, assets may not be sold quickly
enough, or for amounts sufficient to enable us to make such payments. See
Item 5. Operating and Financial Review and ProspectsTabular disclosures of
contractual obligations. For details on the situation of refinancing in Argentina, see Risk
Factors relating to Argentina. Foreign exchange risks may adversely affect our results of operations and
financial condition. The Chilean peso and the other Latin American currencies in which we and
our subsidiaries operate have been subject to large devaluations and
revaluations against the U.S. dollar 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 are linked to U.S. dollars, we
generally have been and continue to be materially exposed to fluctuations of
our local currencies against the dollar because of procedural delays and other
limitations in the indexation of our tariffs to the U.S. dollar. Moreover, in the case of our Argentine subsidiaries, regulatory changes
introduced in 2002 eliminated dollar indexation altogether, which together with
an increase of approximately 240% of the Argentine peso against the U.S. dollar
and pesification of our contractual rates, resulted in a reduction of net cash
generation. Future volatility in the exchange rate of the Chilean peso, and
the other currencies in which we receive revenues or incur expenditures, to the
U.S. dollar, may affect our financial condition and results of operations. For
more information 11




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on the risks associated with foreign exchange rates, see Item 11.
Quantitative and Qualitative Disclosures about Market RiskForeign Currency
Risk. As of December 31, 2003, Endesa-Chile had total consolidated indebtedness
of US$4,187 million, of which US$3,225 million, or 77%, was denominated in U.S.
dollars. For the twelve-month period ended December 31, 2003, our revenues
amounted to US$1,550 million of which US$422 million, or 27%, were denominated
in U.S. dollars, and US$598 million, or 39% were linked in some way to the U.S.
dollar. In aggregate, 66% of our consolidated revenues were either in U.S.
dollars or correlated to such currency through some form of indexation. On the
other hand, the equivalent of US$77 million were revenues in pesos, which
represents 5% of our 2003 consolidated revenues. We believe that we remain
exposed to risk due to fluctuations of the Chilean peso to the U.S. dollar. In addition to the U.S. dollar and the Chilean peso, and as of December
31, 2003, our foreign-currency denominated consolidated indebtedness included
the equivalent of US$14 million in Brazilian reais, US$282 million in Colombian
pesos, US$106 million in Peruvian soles, and US$23 million in Argentine pesos,
for an aggregate of US$425 million in currencies other than the Chilean peso
and the U.S. dollar. At the same time, revenues in these other currencies for
the twelve-month period ended December 31, 2003, included the equivalent of
US$52 million in Brazilian reais, US$233 million in Colombian pesos, US$116
million in Argentine pesos, and US$51 million in Peruvian soles, for an
aggregate of US$452 million in such currencies. Despite the fact that we have
both revenues and debt in these same currencies, we believe that we are exposed
to risk in terms of our foreign exchange exposure to these four currencies. The impact on the value of our assets of high levels of devaluation in the
countries in which we operate outside Chile may not be reflected on our
reported financial condition as a result of Chilean accounting treatment. The manner in which we restate our foreign investments under Chilean GAAP
requires us to translate non-monetary assets and non-monetary liabilities of
our non-Chilean subsidiaries and equity affiliates into U.S. dollars at
historical rates of exchange. This accounting treatment may have the effect of
excluding from our reported balance sheet the effect of devaluation on our
non-monetary assets in the countries in which our subsidiaries and investments
are located because devaluations of the local currency against the dollar or
the Chilean peso are not reflected. See Item 5. Operating and Financial
Review and ProspectsCritical Accounting PoliciesTechnical Bulletin No. 64. Environmental regulations in the countries in which we operate can increase
our costs of operations. We are subject to environmental regulations, which, among other things,
require us to perform environmental impact studies on future projects and
obtain regulatory permits. As with any regulated company, no assurance can be
given that any such environmental impact study will be approved by governmental
authorities, that public opposition will not result in delays or modifications
to any of our proposed projects or that laws or regulations will not change or
be interpreted in a manner that could adversely affect our operations or plans
for the companies in which we have an investment. We are currently involved in various litigation proceedings which could result
in unfavorable decisions and/or financial penalties for us, and we will
continue to be subject to future litigation proceedings, any of which could
have material adverse consequences to our business. We are party to a number of legal proceedings, some of which have been
pending for several years. We cannot be certain that these claims will be
resolved in our favor. Our financial condition or results of operations could
be adversely affected to a material extent if certain of these claims are
resolved against us. For a list of pending litigation matters to which we are
subject, see the section entitled Item 8. Financial InformationConsolidated
Statements and Other Financial InformationLegal Proceedings. There are potential conflicts of interest with our affiliates which could
adversely affect our business. Endesa-Spain currently owns 60.6% of Enersis share capital, and Enersis
has a 60% share interest in Endesa-Chile. Therefore, Endesa-Spain and Enersis
have the power to determine the outcome of substantially all matters to be
decided by a vote of our shareholders, such as the election of our board
members and, subject to contractual and 12




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legal restrictions, the distribution of dividends. Endesa-Spain and
Enersis can also exercise influence over our operations and business
strategies. Endesa-Spain conducts its business in Latin America through
Enersis and Endesa-Chile in the generation area, and through affiliates not
consolidated by us. To the extent any conflict arises between our interests
and those of Endesa-Spains other businesses in any jurisdiction in Latin
America, Endesa-Spain might have a conflict of interest, which could have an
adverse effect on our business. Certain of our directors are officers of Endesa-Spain and officers and
directors of certain subsidiaries of Endesa-Spain. For more information about
these directors please refer to Item 6. Directors, Senior Management and
Employees  Directors and Senior Management. We sell electricity to other companies controlled by Endesa-Spain at
regulated prices and have entered into contracts for other services with other
companies under the common control of Endesa-Spain or the Endesa Group. We
believe that the amounts of these contracts are not material to Endesa-Chile or
to the other companies within the Endesa Group. The values of our long-term energy supply contracts are subject to
fluctuations in the market prices of certain commodities. We have economic exposure to fluctuations in the market price of certain
commodities as a result of the long-term energy sales contracts to which we are
a party. We engage in a material amount of long-term, fixed-price electricity
sale contracts, the value of which fluctuates with the market price of
electricity. In addition, we are the selling party in a material amount of
long-term energy supply contracts with prices that vary in accordance with the
market price of electricity, water levels in our reservoirs, the market prices
of primary materials such as natural gas, oil, coal and other energy-related
products, as well as the exchange rate of the U.S. dollar. Changes in the
market price of these commodities and exchange rate do not always correlate
with changes in the market price of electricity or with our cost of production
of electricity; accordingly, there may be times when the price paid to us under
these contracts is less than our cost of production or acquisition of
electricity. We do not carry out transactions in commodity derivative
instruments to manage our exposure to commodity price fluctuations. Under
Chilean GAAP, we do not reflect in our income statement fluctuations in the
fair value of our long-term energy contracts, although we are required to do so
under US GAAP. As a matter of policy, we do not enter into supply contracts
for amounts of electricity in excess of our firm capacity under adverse
hydrological conditions. For further discussion of commodity price risk,
please refer to Item 11. Quantitative and Qualitative Disclosures about Market
Risk. Risk Factors Relating to Chile Our business is dependent on the Chilean economy and our revenues are
sensitive to its performance. A substantial portion of our assets and operations are located in Chile,
and accordingly, our financial condition and results of operations are to a
certain extent dependent upon economic conditions prevailing in Chile. In 2003,
the Chilean economy grew 3.3% in and 2002 it grew 2.1%. The Central Bank
recently reclassified its criteria for growth estimates, and the figures for
2001, 2002 and 2003 and reported in our 2002 Form 20-F are different from those
reported in prior annual reports. The latest Chilean Central bank forecasts
for GDP growth are between 4.0% and 5.0% for 2004 and greater than 4.0% for
2005 (Central Bank Informe Política Monetaria, May 2004). There is no
assurance that such growth will be achieved in 2004 and 2005 nor that the
growth trend will continue in the future or that future developments in the
Chilean economy will not impair our ability to proceed with our strategic plans
or impact our financial condition or results from operations adversely. Our
financial condition and results from operations could also be affected by
changes in economic or other policies of the Chilean government, which has
exercised and continues to exercise a substantial influence over many aspects
of the private sector. In addition, our financial condition and results from
operations could also be affected by other political developments in Chile or
administrative practices of Chilean authorities, over which we have no control. Chilean government debt has recently been upgraded to A by Standard &
Poors and is the only South American government debt that has an investment
grade rating. 13




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Increased inflation in Chile may affect our results from operations adversely. Although Chilean inflation has been under control in recent years, Chile
has experienced high levels of inflation in the past. High levels of inflation
in Chile could adversely affect the Chilean economy. The Chilean Consumer
Price Index, or Chilean CPI, for the 12 months ended December 31, 2003 was 1%.
Government officials expect Chilean CPI to be approximately 2.0% and 3.0% for
years 2004 and 2005, respectively. Historically, a substantial part of our
expenses has been denominated in Chilean pesos, and any future increases in
Chilean inflation could cause our expenses to rise significantly. As a result,
the level of Chilean inflation may affect our financial condition and results
of operations. We believe that moderate inflation will not materially affect our business
in Chile. Electricity tariffs in Chile contain indexing mechanisms that are
intended to neutralize the effects of inflation. However, we believe that the
performance of the Chilean economy, our operating results, or the value of
securities issued by us, could be affected adversely if the level of Chilean
inflation rises significantly. Lawsuits against us brought outside Chile or complaints against us based on
foreign legal concepts may be unsuccessful. We are incorporated under the laws of Chile and substantially all of our
assets are located in Chile or elsewhere outside the United States. All of our
directors and officers reside outside the United States, and most of their
assets are located outside the United States as well. If any shareholder were
to bring a lawsuit against our directors, officers or experts in the United
States, it may be difficult for them to effect service of legal process within
the United States upon these persons or to enforce against them, in United
States courts, judgments obtained in the United States courts based upon the
civil liability provisions of the federal securities laws of the United States.
In addition, there is doubt as to whether an action could be brought
successfully in Chile in the first instance on the basis of liability based
solely upon the civil liability provisions of the United States federal
securities laws. Construction of new facilities may be adversely affected by factors associated with new construction projects. Factors that may adversely affect our ability to build new facilities include:  
    
    the inability to obtain financing at affordable rates;
    
    delays in obtaining regulatory approvals, including environmental permits;
    
    shortages or changes in the prices of equipment, materials or labor;
    
    local opposition of political and ethnic groups;
    
    adverse changes in the political and regulatory environment in the
countries where Endesa-Chile and its related companies operate; and
    
    adverse weather conditions, which may delay the completion of power
plants or substations, or natural disasters, accidents or other
unforeseen events. Any of these factors may cause delays in the completion of all or part of
Endesa-Chiles capital investments program and may increase the cost of the
projects contemplated. The relative illiquidity and volatility of Chilean securities markets could
affect the price of the Endesa-Chiles ADSs and common stock adversely. Chilean securities markets are substantially smaller and less liquid than
the major securities markets in the United States. In addition, Chilean
securities markets may be affected materially by developments in other emerging
markets, particularly other countries in Latin America. The low liquidity of
the Chilean market may impair the ability of holders of ADSs to sell shares of
our common stock withdrawn from the ADS program into the Chilean market in the
amount and at the price and time they wish to do so. 14




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Risk Factors Relating to Argentina The current macroeconomic and political situation in Argentina and changes to
regulations affecting our Argentine subsidiaries could have a material adverse
effect on our business, financial condition and results of operations. The property, operations and customers of our subsidiaries Costanera and
El Chocón, and our related company, CEMSA, are located in Argentina.
Accordingly, our Argentine subsidiaries financial condition and results of
operations depend to a significant extent on economic and political conditions
prevailing in Argentina. Since the end of 2001, Argentine companies have continued to encounter
difficulties as a result of the serious economic and political crisis affecting
Argentina. Monetary and currency exchange control measures, including
restrictions on bank deposit withdrawals and tight restrictions on transferring
funds abroad, suspension of payments by Argentina on its external debt and
abrogation of the peso convertibility law (and the consequent depreciation of
the peso against the dollar) had a significant negative impact on the Argentine
economic system, resulting in a reduction of economic activity, increasing
inflation and exchange rate volatility. These conditions adversely affected
the financial condition of our Argentine subsidiaries and their results of
operations. In March 2003, Argentina elected a new president, Mr. Néstor Kirchner. He
took office on May 25, 2003 and decided to retain Mr. Roberto Lavagna as the
Minister of Economy. One of the administrations first tasks has been to
negotiate with the International Monetary Fund (IMF) to replace, through a
long-term agreement, the $6.8 billion loan secured by the previous
administration. The failure by the new government to successfully negotiate
such agreement with the IMF could completely block Argentinas access to
international financing, affecting the new governments ability to implement
reforms required to restore stability, economic growth and public confidence.
Furthermore, the Kirchner Administration may adopt social, economic or other
policies that have a material adverse effect on our business, financial
condition or results of operations. The main risks we continue to face because of our operations in Argentina are the following:  
    
    the Argentine framework for setting electricity and gas tariffs, does not take into account the real costs of the services
that our Argentine subsidiaries provide and therefore, the energy prices in the hourly market do not reflect our
subsidiaries marginal costs to provide such energy, if this continues, our operating margin could be negatively affected;  
    
    the possibility of an eventual rift in the agreement with the IMF, which may lead to increases in the peso-dollar exchange
rate and more expansive restrictions on financial transactions with foreign entities;  
    
    the possibility that we may be unable to obtain financial resources to repay or refinance short-term debt of our Argentine
subsidiaries, or that they will otherwise be unable to comply with the obligations to which they are subject under their
credit agreements and other financial contracts; and  
    
    the possibility that the Central Bank of Argentina will reinstate restrictions on the transfer of funds outside of
Argentina which could prevent our Argentine subsidiaries from distributing dividend and paying principal on certain of
their external debt as it comes due. Given the continuing economic crisis in Argentina and the economic and
political uncertainties, we cannot predict whether, and to what extent, the
value of the peso may further depreciate or appreciate against the dollar.
Moreover, we cannot predict whether the Argentine government will further
modify its monetary policy, and if so, what impact these changes will have on
the financial condition and results of operations of our Argentine operations. The Central Bank of Argentina lifted, but may reinstate, restrictions on the
transfer of funds outside of Argentina which could prevent our Argentine
subsidiaries from distributing dividends and paying principal on certain of
their external debt as it comes due. From December 3, 2001 to May 6, 2003, the Argentine government imposed a
number of monetary and currency exchange control measures that included
restrictions on the free transfer of funds deposited with banks and severe
restrictions on transferring funds abroad, with certain exceptions for
transfers related to foreign trade and 15




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other authorized transactions. The restrictions requiring the Argentine
Central Banks prior authorization for the transfer of funds abroad in order to
make payments of principal and/or interest, which were in place during 2002,
were progressively reduced from January to May 2003. Currently, funds may be transferred abroad without previous authorization
of the Argentine Central Bank in order to pay dividends corresponding to prior
periods provided that independent accountants have certified the financial
statements for such period. There can be no assurance, however, that the Argentine Central Bank will
not once again require its prior authorization for the transfer of funds abroad
for principal and/or interest payment by any of our Argentine subsidiaries to
their foreign creditors or for dividend payments by our Argentine subsidiaries
to their shareholders. Should the Central Bank of Argentina impose restrictions again on the
transfer of funds outside of Argentina which prevent our Argentine subsidiaries
from paying principal on certain of their external debt and new financing is
not available to our Argentine subsidiaries or they are not able to
renegotiate, or obtain a waiver with respect to this indebtedness. A
substantial portion of their debt obligations may become due and payable. If
similar restrictions were to be imposed again, we can provide no assurance that
our Argentine subsidiaries will be able to obtain new financing or that they
will be able to renegotiate or obtain waivers with respect to indebtedness
subject to foreign exchange restrictions. In addition, such restrictions may
impede the making of cash distributions by Costanera and El Chocón to us. As at December 31, 2003, the third party financial debt of our Argentine
subsidiaries amounted to approximately US$297.1 million. As a matter of policy
for all of our Argentine subsidiaries, as long as the foreign currency
restrictions remain in Argentina, and as long as fundamental issues concerning
the electricity sector remain unresolved, we are primarily making interest
payments when due, as permitted by the Argentine Central Bank, and we are
rolling over most of our outstanding debt. During 2003, we have rolled over
US$109 million in financial debt, paid US$31 million in principal and extended
the maturity of this debt within 12 to 18 months. Our international creditors
have understood the extraordinary circumstances that have led us to take these
steps and to date have accepted these refinancing arrangements. Our creditors
may not continue to accept, or the Argentine Central Bank may not continue to
permit, rolling over debt principal when it becomes due. Risk Factors Relating to Brazil Lower energy prices in Brazil have resulted in breaches of contracts by the
customers of our subsidiaries and equity affiliates, which may impact the
amount of dividends and distributions we receive from these investments. Hydrological conditions during 2002 and 2003, in Brazil have led to
historically low prices in the Brazilian electricity pool market. As a result,
our most important Brazilian customers have breached their contracts with us in
order to purchase energy in the electricity pool market instead of pursuant to
these contracts. In April 2003, CELG, the sole contracted customer of Endesa-Chiles
Brazilian subsidiary Cachoeira Dourada, was awarded a preliminary and
provisional judgment that permitted CELG to suspend its payments under the
long-term take or pay contract with Cachoeira Dourada. On July 4, 2003, the
court presiding over the dispute ruled in a preliminary and provisional
judgment that CELG would be required to make payments until the final decision
to Cachoeira Dourada at price ranges significantly lower than the R$61.63 per
MWh amount provided for under the existing terms of the take or pay contract.
Cachoeira Dourada appealed this ruling, and obtained a decision establishing
that CELG should make a deposit in court of the difference between the contract
price and the amount actually being paid according to the July 2003 decision.
The terms of this contract provide for payments of approximately R$16.0 million
per month, of which Cachoeira Dourada has received, up to the last day of
December 2003, R$59.9 million, corresponding to less than half of the payments
due for the year. On June 16, 2004, the preliminary and provisional judgment
was revoked, which obliges CELG to pay 100% of the contract to Cachoeira
Dourada including payments due for the entire year 2003. By virtue of this
resolution Cachoeira Dourada, in the event that CELG does not pay what it owes,
may make effective the contractual guarantees or demand the payment of the
same. CELG has petitioned for reconsideration of this decision. A final
unfavorable decision could mean that 16




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Cachoeira Dourada would receive significantly lower payments from CELG,
which would affect the dividends paid by Cachoeira Dourada to Endesa-Chile. CELG has also claimed damages of approximately US$250 million from 1997 to
2003 relating to its long-term take or pay contract with Cachoeira Dourada.
However to this date this claim has not been resolved. Cachoeira Dourada has
not made provisions for the accounts receivable from CELG or CELGs damages
claim. If CELG were to prevail in its damages claim, it would have a material
adverse effect on our results of operation. Additionally, in January 2003, Companhia Paranaense de EnergiaCOPEL
(Copel) suspended payments to Companhia de Interconexão Energética(CIEN),
a non-consolidated company in which Endesa-Chile has a 45% interest, under a
take or pay power and energy supply contract signed in 1999. CIEN also sells
energy to three other Brazilian companies. As a justification for its action,
Copel alleged economic and financial imbalance in the 1999 contracts. Copel
also requested a revision of the prices previously agreed. On August 18, 2003,
CIEN and Copel entered into a memorandum of understanding in which they agreed
to modify the terms and conditions of the contract. Among other things, the
modified contract provided for a 50% reduction in the energy volume contracted
(now 400 MW), and a reduction in the term of the contract from 20 to 13 years
ending on December 31, 2015. Brazilian Energy Sector Reform Studies could have a material adverse effect on
our activities and operations in Brazil. Following the Brazilian electricity crisis in 2001, the Electric Sector
Model Revitalization Committee of the former Brazilian Federal Government
announced several measures to revitalize the energy sector in order to insure a
higher level of competition, encourage further investments and increase the
transparency in the rules that regulate these services. Brazilian Sector Reform Studies Law No. 10848, legislation which reformed
the Brazilian electricity sector, was enacted in March 2004. The law will be
implemented by means of decrees and resolutions that will regulate the
Brazilian electricity market and will determine, among other things, how
inherent risks will be distributed among the different market participants
(e.g. hydrological risk, market variation and account receivables) and will
prohibit the participation of the distribution companies in other activities
related to electricity, such as generation. It is not yet possible to predict the impact of Law No. 10848 because the
implementation of regulations has not yet been made, however it may have a
material adverse effect over the companies we own or on our activities and
operations in Brazil. For more information please see Item 4. Information on
the CompanyOperations in BrazilStructure of the New Electricity Sector. Risk Factors Relating to Colombia Colombias electricity power industry has in the past been adversely affected
by guerilla attacks. Guerrilla organizations have long been active in Colombia. Although our
Colombian facilities have never been subject to any attacks, we cannot assure
that such attacks will not occur in the future. In many remote regions of the
country that have traditionally lacked an effective government presence, the
guerillas have exerted influence over the local population. In recent years,
guerilla organizations have employed acts of terrorism to draw attention to
their causes. Despite efforts by the Colombian government to address the
situation, Colombia continues to be affected by social friction and violence
related to guerilla activity. Most of this activity has been directed toward
the oil industry. The peace negotiations between the former Colombian
government and the largest guerrilla organization in the country came to an end
in February 2002, and there has been an escalation of violence since then. The
increased violence could also result in renewed attacks against electricity
assets, which may adversely affect our business. The Colombian government, in
office since 2002, has targeted its intervention on inflation, devaluation,
unemployment, fiscal policy and drug-related violence. We cannot assure you,
however, that these interventionist measures will result in higher economic
growth in Colombia or remove the risks of attack against our electricity
assets. 17




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Risk Factors Relating to Peru Peru electricity power industry can be affected by the Camisea project. The Camisea project, a project to build a gas pipeline from the North of
Peru to Lima, may affect the prices of natural gas in that country. If
completed the project will result in lowering the price of gas and our
subsidiary in Peru, Edegel, and its electricity generation plants that rely on
more expensive resources may be negatively affected. Risk Factors Relating to Latin America Latin American economic fluctuations are likely to affect our results of
operations. All of our operations are located in Latin America. Although we
originally operated only in Chile, we have, through strategic acquisitions and
investments, expanded our operations throughout Latin America. We now generate
a significant portion of our consolidated operating revenues and consolidated
operating income outside Chile 50.2% and 54.1%, respectively, in 2003.
Accordingly, our consolidated revenues are sensitive to the performance of the
Latin American economies as a whole. If local, regional or worldwide economic
trends adversely affect the economies of any of the countries in which we have
investments or operations, our financial condition and results of operations
could be adversely affected. The Latin American financial and securities markets are, to varying
degrees, influenced by economic and market conditions in other emerging market
countries. Although economic conditions are different in each country,
investor reaction to developments in one country can have significant effects
on the securities of issuers in other countries, including Chile. Chilean
financial and securities markets may be adversely affected by events elsewhere,
especially in other emerging markets. Moreover, Endesa-Chile has significant
investments in relatively risky countries such as Argentina, Brazil, Colombia
and Peru. Generation and upstreaming of cash from subsidiaries in these
countries have proven volatile. Certain Latin American economies where we operate are characterized by
frequent and occasionally drastic intervention by governmental authorities
which can adversely affect our business. Governmental authorities have often changed monetary, credit, tariff and
other policies to influence the course of the economy of Argentina, Brazil,
Colombia and Peru. Any governments actions to control inflation and effect
other policies have often involved wage, price and tariff rate controls as well
as other interventionist measures, which have included freezing bank accounts
and imposing capital controls. Changes in the policies of these governmental
authorities with respect to tariff rates, exchange controls, regulations and
taxation could adversely affect our business and financial results, as could
inflation, devaluation, social instability and other political, economic or
diplomatic developments, including the response by governments in the region to
such circumstances. If government authorities intervene in any of the countries
in which we operate, our results of operations may be adversely affected. We may not be able to implement our principal strategies in our investments in
Latin America. The future financial condition and results of operations of our Latin
American subsidiaries will depend in significant part upon their ability to
implement some of their principal strategies, namely, operating and financial
cost reductions. The success of the plan to cut costs substantially generally
will depend upon numerous factors, including the cost and availability of
financing and the ability to achieve operating efficiencies. If any of these
strategies are unsuccessful, the profitability of our Latin American
subsidiaries could suffer. We and our subsidiaries are subject to a variety of risks, including economic
downturns and political risk because we operate solely in Latin America. All of our operations and investments are located in Latin America and are
exposed to various risks inherent in operating and investing in Latin America,
including risks related to the following:  
    
    changes in government regulations and administrative policies; 18




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
    
    imposition of currency restrictions and other restraints on movements of funds;
    
    changes in the business or political environment in which we operate;
    
    economic downturns, political instability and civil disturbances affecting operations; and
    
    governmental expropriation of assets. 
 Item 4. Information on the Company A. History and Development of the Company Incorporation and Contact Information of the Company The Company is a publicly held limited liability stock company
incorporated under the laws of the Republic of Chile on December 1, 1943 with
the legal name, Empresa Nacional de Electricidad S.A. Since 1943 the Company
has been registered in Santiago with the Superintendency of Securities and
Insurance (SVS) under Registration No. 0114. Commercially referred to as
Endesa and/or Endesa-Chile. The Companys contact information in Chile is : Main office:
    
    Santa Rosa 76, Santiago, ChileMailing Address:
    
    Casilla 1392, Correo Central, SantiagoTelephone:
    
    (562) 630 9000Fax:
    
    (562) 635 3938
 The Companys authorized representative in the United States of America is
Puglisi & Associates, whose contact information is: Main office:
    
    850 Library Avenue, Suite 204, Newark, DelawareMailing Address:
    
    P.O. Box 885, Newark, Delaware, 19715Telephone:
    
    (302) 738-6680Fax:
    
    (302) 738-7210
 Development of the Company The Chilean government owned Endesa-Chile for 44 years after its
incorporation in 1943. The Chilean government commenced Endesa-Chiles
privatization process in 1987 through a series of public offerings. The
privatization process was completed in 1989. In May 1992, Endesa-Chile began its international expansion program:  
    
    with the acquisition of Costanera in 1992 and later, in
August 1993, with the acquisition of El Chocón, both in Argentina;
    
    in October 1995, Edegel was acquired in Peru;
    
    in December 1996 Betania was acquired and later, in October
1997, in association with Endesa-Spain, Emgesa was acquired, both in
Colombia; and
    
    finally, in September 1997, Cachoeira Dourada was acquired in
Brazil. Enersis, a publicly held holding company engaged in the distribution and,
through Endesa-Chile, the generation and transmission of electricity in Chile,
Argentina, Brazil, Colombia and Peru, beneficially owns as of the date of this
annual report, directly or indirectly 60% of Endesa-Chiles outstanding capital
stock. In May 1999, Enersis, which at the time owned 25.3% of Endesa-Chile,
purchased an additional 34.7% of Endesa-Chile in the Santiago Stock Exchange
and the American Stock Market. There have been no material changes in the
ownership structure of 19




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the company since then. As of the date of this report, Endesa-Spain owns,
directly and indirectly, a 60.6% beneficial interest in Enersis. Endesa-Chiles shares are publicly traded on the Bolsa de Comercio de
Santiago, Bolsa de Valores(the Santiago Stock Exchange), the Bolsa
Electrónica de Chile, Bolsa de Valores(the Electronic Stock Exchange) and
the Bolsa de Corredores, Bolsa de Valores(the Valparaíso Stock Exchange).
Endesa-Chiles American Depositary Shares (ADS) have been listed on the New
York Stock Exchange since July 1994. Shares of Endesa-Chile have also been
listed and traded on the Bolsa de Valores Latinoamericanos de la Bolsa de
Madrid, or Latibex, since December 2001. Investments, Capital Expenditures and Divestitures Our capital expenditures were US$73.7 million in 2001, US$187.7 million in
2002 and US$220.8 million in 2003. Our capital expenditures and investments
during 2003 include investments of US$166.8 million in Chile related to Central
Hidroeléctrica Ralco (the Ralco Project) and capital expenditure maintenance
of US$47.6 million in all our operating subsidiaries. At present, we expect to
make capital expenditures of approximately US$763 million over the next five
years. Although we have considered assumptions on how these investments will
be financed as part of the Companys budget process, we have not committed to
any financial structure and it will depend on the financial market conditions
at the time the cash flows are needed. The Ralco Project will require roughly US$90 million of additional
investment during 2004. We expect the Ralco power plant to begin operations in
the second half of 2004. Please refer to Property, Plant and Equipment for
more information on financing. In addition, we are currently evaluating the
construction of the San Isidro II 370 MW thermal power plant, which will be
next to San Isidro I located in Chile. This project, which was submitted to
the Chilean environmental authority on December 10, 2003 for approval, has a
total expected investment cost of US$220 million. The project is currently
being reevaluated as a consequence of the Argentine gas crisis. The financing
for the Ralco and San Isidro II projects has not been determined. In the long term, we also intend to continue to seek attractive
opportunities in the electricity industry internationally, either in countries
in which we presently conduct operations or elsewhere in Latin America. See
"Business Overview below. The table below sets forth the capital expenditures made by our
subsidiaries in 2003 and expected capital expenditures for the period
2004-2008: CAPITAL EXPENDITURES OF ENDESA-CHILE AND ITS SUBSIDIARIES Capital Expenditures(millions of U.S. dollars)2003
    
    2004-2008Chile
    
    $
    197.9
    
    
    $
    546.0Argentina
    
    
    9.4
    
    
    
    116.0Brazil
    
    
    0.8
    
    
    
    15.0Colombia
    
    
    6.1
    
    
    
    32.0Peru
    
    
    6.6
    
    
    
    54.0Total
    
    $
    220.8
    
    
    $
    763.0
 
 Endesa-Chile is no longer engaged in the electricity transmission business
in Chile. On October 23, 2000, the Company completed the sale of 100 % of the
shares of Compañía Nacional de Transmisión Eléctrica S.A.or Transelec, for
US$1,076 million, at the exchange rate as of the date of the transaction. The
divestment of this transmission subsidiary was carried out under a public
tender offer. The winning bid was made by Hydro Québec International Inc., a
Canadian company. 
 20




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Thereafter, changes in the corporate structure of Endesa-Chile have
responded to the strategic objective of concentrating on the Companys core
business and also to the Financial and Economic Strengthening Plan implemented
by the Company from October 2002 through February 2004, which involved, among
other activities, asset divestitures. The aforementioned changes include:  
    
    On March 27, 2003, Endesa-Chile sold Canutillar, a 172 MW
reservoir-based hydroelectric facility, for US$174 million, at the
exchange rate as of the date of the transaction.
    
    On May 30, 2003, Endesa-Chile sold its transmission lines in the
Northern Interconnected System (SING). This transaction included the
sale of 285 kilometers of 220 kV line circuits for approximately US$32
million, at the exchange rate as of the date of the transaction, by
Celta, a subsidiary of Endesa-Chile, and a sale of 673 kilometers of
220 kV line circuits for approximately US$78 million through GasAtacama
Generación Limitada, in which Endesa-Chile holds a 50% ownership
interest. In both cases, the transaction included the transfer of the
respective substations.
    
    On June 23, 2003, Endesa-Chile closed the sale of its 60% ownership
share of Infraestructura 2000 to the Spanish company, OHL Concesiones,
S.L., subsidiary of the Spanish company Obrascón Huarte Lain S.A.,for
a total amount of UF 2,305,507, approximately US$55 million, at the
exchange rate as of the date of the transaction.
    
    In 2003, Endesa-Chile purchased 384,508 shares of Cachoeira Dourada
through its investment subsidiary, Lajas Inversora S.A, for a total of
Ch$24,761 million pesos, increasing its ownership of Cachoeira Dourada
to 92.51% of its outstanding shares of common stock.
    
    On October 3, 2003, Endesa-Chile purchased an additional 16 million
Class A Shares and 1.96 million Class B Shares of Costanera, for a
total of US$4.5 million, at the exchange rate as of the date of the
transaction, thus increasing its ownership of Costanera to 64.3% of its
outstanding shares of common stock. B. Business Overview Endesa-Chile is a public electric generation company with operations in
Chile, Argentina, Brazil, Colombia and Peru. Its main business is electricity
generation however, it also participates in electricity transmission and
engineering services. The low proportion of non-generation revenues does not
justify the breakdown of revenues per activity. Endesa-Chiles consolidated installed capacity, as of December 31, 2003,
is 11,599MW, 66% hydroelectric capacity and 34% thermal electric generation
capacity. Endesa-Chile owns and operates nineteen generation facilities in Chile
with an aggregate installed capacity, as of December 31, 2003, of 3,763 MW
(compared to 3,935 MW as of December 31, 2002). Endesa-Chile accounted for
approximately 35% of Chiles total generation capacity as of December 31, 2003.
Hydroelectric installed capacity in Chile represents 72% of Endesa-Chiles
total installed capacity in Chile. The total installed capacity of
Endesa-Chile will increase when the Ralco Project, the new 570 MW hydroelectric
power plant, begins operations. The Ralco Project is expected to begin
operations during the second half of 2004. As of December 31, 2003, Endesa-Chile also had interests in twenty-three
generation facilities outside Chile with an aggregate installed capacity of
7,836 MW(compared to an aggregate installed capacity of 8,018 MW as of December
31, 2002). Hydroelectric installed capacity outside Chile represents 63% of
Endesa-Chiles total installed capacity outside Chile. Based on 2003 figures,
the companys installed generation capacity in Argentina, Brazil, Colombia and
Peru represent approximately 16%, 1%, 20% and 22% of total capacity in each
country, respectively. The following table sets out information relating to Endesa-Chiles
electricity generation: 21




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ENDESA-CHILES CONSOLIDATED HYDRO/THERMAL GENERATION Year ended December 31,2001
    
    2002
    
    2003Generation
    
    
    
    
    
    Generation
    
    
    
    
    
    Generation(GWh)
    
    %
    
    (GWh)
    
    %
    
    (GWh)
    
    %Hydroelectric Generation
    
    
    33,914
    
    
    
    80.3
    
    
    
    34,441
    
    
    
    84.0
    
    
    
    35,203
    
    
    
    82.0Thermal Generation
    
    
    8,810
    
    
    
    19.7
    
    
    
    6,581
    
    
    
    16.0
    
    
    
    7,725
    
    
    
    18.0Total Generation
    
    
    42,724
    
    
    
    100.0
    
    
    
    41,022
    
    
    
    100.0
    
    
    
    42,928
    
    
    
    100.0
 The Companys consolidated electricity production reached 42,928 GWh in
2003, 4.65% higher than the 41,022 GWh produced in 2002. The Companys total
generation in 2001 was 42,724 GWh. It is common in the electricity generation
industry to segment the business into the hydroelectric and thermoelectric
generation. This is done because each method of generation has different
variable costs of generating electricity. For example, thermoelectric
generation requires the purchase of fuel which increases the costs of
generation for the Company. Endesa-Chiles consolidated physical energy sales for 2003 were 50,634
GWh, 4% higher than physical energy sales in GWh 2002. When compared to the
level of physical sales for 2001, figures for 2003 represent a 6.6% reduction,
because of lower physical sales in Argentina, as is illustrated in the
following table: ENDESA-CHILE PHYSICAL DATA PER COUNTRY As of December 31, each year 2001
    
    2002
    
    2003ArgentinaNumber of generating plants
    
    
    5
    
    
    
    5
    
    
    
    5Installed capacity (MW)
    
    
    3,622
    
    
    
    3,622
    
    
    
    3,622Energy generated (GWh)(1)
    
    
    10,182
    
    
    
    7,291
    
    
    
    8,128Energy sales (GWh)
    
    
    12,988
    
    
    
    7,897
    
    
    
    9,259BrazilNumber of generating plants
    
    
    1
    
    
    
    1
    
    
    
    1Installed capacity (MW)
    
    
    658
    
    
    
    658
    
    
    
    658Energy generated (GWh) (1)
    
    
    2,256
    
    
    
    2,467
    
    
    
    3,024Energy sales (GWh)
    
    
    3,743
    
    
    
    3,591
    
    
    
    3,770ChileNumber of generating plants
    
    
    20
    
    
    
    20
    
    
    
    19Installed capacity (MW)
    
    
    3,935
    
    
    
    3,935
    
    
    
    3,763Energy generated (GWh) (1)
    
    
    15,741
    
    
    
    16,286
    
    
    
    16,524Energy sales (GWh)
    
    
    18,673
    
    
    
    18,344
    
    
    
    18,681ColombiaNumber of generating plants
    
    
    10
    
    
    
    8
    
    
    
    9Installed capacity (MW)
    
    
    3,034
    
    
    
    2,735
    
    
    
    2,589Energy generated (GWh)(1)
    
    
    10,189
    
    
    
    10,699
    
    
    
    10,794Energy sales (GWh)
    
    
    14,591
    
    
    
    14,639
    
    
    
    14,481PeruNumber of generating plants
    
    
    8
    
    
    
    8
    
    
    
    8Installed capacity (MW)
    
    
    1,003
    
    
    
    1,003
    
    
    
    967Energy generated (GWh)(1)
    
    
    4,355
    
    
    
    4,279
    
    
    
    4,458Energy sales (GWh)
    
    
    4,239
    
    
    
    4,158
    
    
    
    4,443
   (1)
    
    The figures reflect gross generation for all countries. 22




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We segment our sales to customers using two different categories. First,
we distinguish between regulated and unregulated customers. Regulated
customers are subject to a set tariff established by the government regulators
in each country. We may enter into contracts with them at the set tariff.
Unregulated customers may negotiate the price of electricity freely with
generators and enter into contracts, or they may buy electricity in the pool
market at the spot price. The second criterion we use to segment our customer
sales is by contracted sales and non-contracted sales. This method is useful
because it provides a uniform way for us to compare our customers from country
to country. The countries in which we operate have varying classifications for
what constitutes a regulated customer; in contrast, contracted sales are
defined uniformly throughout. The following table contains information regarding Endesa-Chiles
consolidated sales of electricity by type of customer for each of the periods
indicated: ENDESA-CHILE CONSOLIDATED PHYSICAL SALES BY TYPE OF CUSTOMER Year ended December 31,2001
    
    2002
    
    2003Sales
    
    % of Sales
    
    Sales
    
    % of Sales
    
    Sales
    
    % of Sales(GWh)
    
    Volume
    
    (GWh)
    
    Volume
    
    (GWh)
    
    VolumeRegulated Customers
    
    
    22,012
    
    
    
    40.6
    
    
    
    20,322
    
    
    
    41.8
    
    
    
    21,463
    
    
    
    42.4Non-Regulated Customers
    
    
    12,890
    
    
    
    23.8
    
    
    
    11,047
    
    
    
    22.7
    
    
    
    11,309
    
    
    
    22.3Electricity Pool Market Sales
    
    
    19,332
    
    
    
    35.6
    
    
    
    17,260
    
    
    
    35.5
    
    
    
    17,862
    
    
    
    35.3Total Electricity sales
    
    
    54,234
    
    
    
    100.0
    
    
    
    48,629
    
    
    
    100.0
    
    
    
    50,634
    
    
    
    100.0
 Customer sales may also be segmented into contracted sales and
non-contracted sales. In general, in the countries in which we operate, the
possibility of contracting electricity is related to the volume of electricity
demanded. Customers identified as small volume-regulated customers, such as
residential customers, subject to government regulated electricity tariffs
cannot purchase energy directly from generators, but must purchase electricity
through a distribution company. These distribution companies, which purchase
large amounts of electricity for small, residential customers, generally enter
into contractual agreements with generators at a regulated tariff price.
Customers identified as large volume industrial customers also enter into
contractual agreements with energy suppliers. However, such customers are
non-regulated and are not subject to the regulated tariff price. Instead,
these customers are allowed to negotiate the price of energy with generators
based on the characteristics of service required. Finally, the market pool,
where energy is normally sold at the spot price is not formalized through
contractual agreements. The specific GWh consumption limit of regulated and non-regulated
customers is country-specific. Likewise, regulatory frameworks often require
that regulated distribution companies have contracts to support their
commitments to small customers and often determine which customers can purchase
energy in electricity pool markets. Under normal hydrological conditions, normal fuel conditions and relative
political & economic stability, Endesa-Chiles regulated and non-regulated
customers formalize their relationship by means of a contract. The electricity
pool market sales are not governed by contracts. The following table contains information regarding Endesa-Chiles
consolidated physical sales of electricity per customer segment: 23




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ENDESA-CHILE CONSOLIDATED PHYSICAL SALES PER CUSTOMER SEGMENT Year ended December 31,2001
    
    2002
    
    2003Sales
    
    % of Sales
    
    Sales
    
    % of Sales
    
    Sales
    
    % of Sales(GWh)
    
    Volume
    
    (GWh)
    
    Volume
    
    (GWh)
    
    VolumeContracted Sales
    
    
    34,902
    
    
    
    64.4
    
    
    
    31,369
    
    
    
    64.5
    
    
    
    32,772
    
    
    
    64.7Non-Contracted Sales
    
    
    19,332
    
    
    
    35.6
    
    
    
    17,260
    
    
    
    35.5
    
    
    
    17,862
    
    
    
    35.3Total Electricity Sales
    
    
    54,234
    
    
    
    100.0
    
    
    
    48,629
    
    
    
    100.0
    
    
    
    50,634
    
    
    
    100.0
 The Companys different accounting information systems allow the
consolidation of sales per country, but do not currently allow the
consolidation of sales per segment of customers according to price or contract
criteria. In terms of expenses, the main variable costs involved in the electricity
generation business, in addition to the direct variable cost of generating
hydroelectric or thermal electricity, such as fuel costs, are energy purchases
and transportation costs. During periods of drought conditions, the Companys
amount of thermal generated electricity increases, which involves increasing
not only the total cost of fuel, but also the cost of transporting that fuel to
the thermal generation power plants leading to greater transportation costs.
Under drought conditions, electricity that Endesa-Chile has contractually
agreed to provide may exceed the amount of electricity that it is able to
generate, requiring the company to purchase thermal electricity on the pool
market in order to satisfy its contractual commitments. The cost of these pool
market purchases may, under certain circumstances, exceed the price at which
Endesa-Chile sells electricity under contracts, resulting in a loss.
Endesa-Chile attempts to minimize the effect of poor hydrological conditions on
its operations in any year primarily by limiting contractual sales requirements
to an amount not in excess of estimated production in a dry year. In
determining estimated production in a dry year, Endesa-Chile takes into account
available statistical information concerning rainfall and water-flows, as well
as the capacity of key reservoirs. In addition to limiting contracted sales,
Endesa-Chile may adopt other strategies such as installing temporary thermal
capacity, negotiating lower consumption levels with its unregulated customers
and negotiating with other water users. The following table contains information regarding Endesa-Chiles
electricity production and purchases. ENDESA-CHILE PHYSICAL GWh PRODUCTION AND PURCHASES Year ended December 31,2001
    
    2002
    
    2003% of
    
    
    
    
    
    % of
    
    
    
    
    
    % of(GWh)
    
    Volume
    
    (GWh)
    
    Volume
    
    Sales(GWh)
    
    VolumeElectricity Production
    
    
    42,724
    
    
    
    78.5
    
    
    
    41,022
    
    
    
    83.1
    
    
    
    42,928
    
    
    
    83.1Electricity Purchases
    
    
    11,665
    
    
    
    21.5
    
    
    
    8,321
    
    
    
    16.9
    
    
    
    8,398
    
    
    
    16.9Total(1)
    
    
    54,389
    
    
    
    100.0
    
    
    
    49,343
    
    
    
    100.0
    
    
    
    51,326
    
    
    
    100.0
   (1)
    
    Total GWh production plus purchases differs from GWh sales due to own
consumption and technical losses. Our significant, non-operating business in Chile, which is based on the
operations of unconsolidated related companies, is primarily conducted through
GasAtacama S.A., or GasAtacama. Endesa-Chile has a 50% ownership interest in
GasAtacama through which it participates in the gas transportation and thermal
generation business in Chile. Endesa-Chile also participates in the gas
transportation business in Chile through its associated company, Electrogas
S.A., in which Endesa-Chile has a 42.5% ownership interest. Electrogas has a
pipeline to the fifth Chilean region and it supplies natural gas to the power
plants San Isidro and Nehuenco. An additional relevant non-operational
business is that performed through another of its associated companies,
Companhia de Interconexão Energética S.A,or CIEN, in Brazil, in which
Endesa-Chile has a 45% ownership share. CIEN is involved in electricity
trading in Brazil and also the operation of the transmission interconnection
lines between Argentina and Brazil. Endesa-Chile also has minority interests
in electricity trading and transmission in Argentina through its 45% ownership
of Comercializadora de Energía del Mercosur S.A.,or CEMSA and Compañía de
Transmisión del Mercosur S.A., or CTM. See Organizational Structure for
details on associate companies. 24




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As of December 31, 2003, Endesa-Chile had consolidated assets of Ch$5,465
billion (US$9.2 billion) (compared to Ch$6,589 billion or US$11.1 billion as of
December 31, 2002), consolidated operating revenues of Ch$920 billion (US$1.5
billion) (compared to Ch$947 billion or US$1.6 billion as of December 31, 2002)
and a net income of Ch$78.1 billion (US$132 million) (compared to a net loss of
Ch$9.4 billion or US$15.8 million as of December 31, 2002). All U.S. dollar
amounts were translated using the observed Exchange Rate for December 31, 2003
of Ch$593.80 per US$1.00. See Item 3. Key Information  Selected financial
data. Operations in Chile Operating income from the companys business in Chile represented 39%,
49%, 46%, for years 2001, 2002 and 2003 of Endesa-Chiles total operating
income. Operating revenues and expenses for the three years are shown in the
following table: TOTAL OPERATING INCOME FROM OPERATIONS IN CHILE Year ended December 31,2001
    
    2002
    
    2003(in millions of constant Ch$ as of December 31, 2003)Operating revenues
    
    
    425,461
    
    
    
    448,709
    
    
    
    457,877Operating expenses
    
    
    288,999
    
    
    
    276,209
    
    
    
    302,617Operating income
    
    
    136,462
    
    
    
    172,500
    
    
    
    155,260
   For details on the variations of yearly monetary figures, please see Item 5.
Operating and Financial Review and Prospects. Endesa-Chile, through itself and its subsidiaries Empresa Eléctrica
Pehuenche S.A., or Pehuenche, Empresa Eléctrica Pangue S.A., or Pangue and
Compañía Eléctrica San Isidro S.A., or San Isidro, and Compañía Eléctrica
Tarapacá S.A., or Celta, operates a total of nineteen generation plants in
Chile. Twelve of these plants are hydroelectric plants with a total installed
capacity of 2,727 MW. This represents 72% of Endesa-Chiles total installed
capacity in Chile. The remaining seven plants are gas-, coal- or oil-fired
thermal plants with a total installed capacity of 1,036 MW. Endesa-Chiles
power plants are connected to the countrys major interconnected electricity
systems, Sistema Interconectado Central, or the SIC, and Sistema Interconectado
del Norte Grande, or the SING, which together supply energy to over 98% of
Chiles population. Historically, the Company has been involved in other businesses in Chile,
such as infrastructure projects, involving the building and operating of
private tunnels, as well as engineering services primarily associated with
large hydroelectric dam construction. Endesa-Chile has decided to discontinue
further involvement in its non-core businesses leading to the sale of its
infrastructure projects. However, it continues to offer engineering services.
See History and Development of the Company for more details on these sales. The following table sets forth the installed generation capacity for each
of the Companys Chilean subsidiaries. INSTALLED CAPACITY PER SUBSIDIARY IN CHILE(MW) As of December 31,2001
    
    2002
    
    2003Endesa(1)
    
    
    2,212
    
    
    
    2,212
    
    
    
    2,040Pehuenche
    
    
    695
    
    
    
    695
    
    
    
    695Pangue
    
    
    467
    
    
    
    467
    
    
    
    467San Isidro
    
    
    379
    
    
    
    379
    
    
    
    379Celta
    
    
    182
    
    
    
    182
    
    
    
    182Total
    
    
    3,935
    
    
    
    3,935
    
    
    
    3,763
 25




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(1)
    
    The Canutillar hydroelectric plant (172 MW) was sold on April 30, 2003. The Companys total electricity generation in Chile reached 16,524 GWh in
2003, 1.5 % higher than in 2002, and accounted for approximately 37% of total
electricity production in Chile. The companys Chilean generation market share
in Chile for 2002 and 2001 were 38% and 39%, respectively. We expect that
production market share for 2004 will be greater than that of 2003 due to the
entering into service of the Ralco power plant, a low cost hydroelectric
facility that represents a significant addition to the countrys total
installed capacity (5% of Chiles total generation capacity as of year-end
2003). The following table sets forth the electricity generation for each of the
Companys Chilean subsidiaries: ELECTRICITY GENERATION PER SUBSIDIARY IN CHILE (GWh) Year ended December 31,2001
    
    2002
    
    2003Endesa(1)
    
    
    7,228
    
    
    
    8,153
    
    
    
    8,466Pehuenche
    
    
    4,213
    
    
    
    3,963
    
    
    
    3,679Pangue
    
    
    1,978
    
    
    
    1,977
    
    
    
    1,681San Isidro
    
    
    1,628
    
    
    
    1,590
    
    
    
    2,264Celta
    
    
    695
    
    
    
    602
    
    
    
    434Total
    
    
    15,741
    
    
    
    16,286
    
    
    
    16,524
   (1)
    
    The Canutillar hydroelectric plant (172 MW) was sold on April 30, 2003. Low cost hydroelectric generation accounted for 79% of the Companys total
electricity generation in 2003, as shown in the following table: ENDESA-CHILE HYDRO/THERMAL GENERATION IN CHILE Year ended December 31,2001
    
    2002
    
    2003Generation
    
    
    
    
    
    Generation
    
    
    
    
    
    Generation(GWh)
    
    %
    
    (GWh)
    
    %
    
    (GWh)
    
    %Hydroelectric Generation
    
    
    12,696
    
    
    
    80.7
    
    
    
    13,567
    
    
    
    83.3
    
    
    
    13,085
    
    
    
    79.2Thermal Generation
    
    
    3,045
    
    
    
    19.3
    
    
    
    2,719
    
    
    
    16.7
    
    
    
    3,439
    
    
    
    20.8Total Generation
    
    
    15,741
    
    
    
    100.0
    
    
    
    16,286
    
    
    
    100.0
    
    
    
    16,524
    
    
    
    100.0
 Endesa-Chiles thermal electric generation facilities are either gas-,
coal- or oil-fired. Endesa-Chile meets its natural gas requirements with
long-term gas contracts that establish maximum amounts and price of supply and
long-term gas transportation agreements with the pipeline companies, Gas Andes
and Electrogas, the latter, a company in which Endesa-Chile has a 42.5%
interest. Endesa-Chile meets its coal and fuel oil requirements on a
competitive bid basis from major domestic and international suppliers. Physical energy sales in Chile reached 18,673 GWh in 2001, 18,344 GWh in
2002, and 18,681 in 2003, which represent a 49%, 46% and 44% market share,
respectively. Although Endesa-Chiles physical generation in Chile has
increased since 2001, the percentage of our energy purchases to meet
contractual obligations to third parties has
declined from 17% in 2001 to 13% in both 2002 and 2003, as a consequence
of our commercial strategy of reducing contracted sales. This commercial
strategy is strongly driven by the Companys decision to reduce hydrological
exposure as well as by government regulations implemented in year 2000 and
2001. See Business OverviewElectricity Generation in ChileIndustry
Structure and Regulatory Framework. Endesa-Chile attempts to 26




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minimize the
effect of poor hydrological conditions on its operations, in any year,
primarily by limiting contractual commitments to an amount below the estimated
production in a dry year. Government regulations have had the direct effect of
increasing contract failure costs which is the cost that the Company pays when
it is not able to satisfy its contractual commitments, and the indirect effect
of discouraging investment in generation assets. Given the effects of the
government regulations, energy supply has not increased at the same rate as
energy demand, increasing the spot price in the electricity pool market and
making it a relatively more attractive commercial alternative. The following table sets forth our electricity purchases and production in
Chile: PHYSICAL GWh PRODUCTION AND PURCHASES IN CHILE Year ended December 31,2001
    
    2002
    
    2003% of
    
    
    
    
    
    % of
    
    Sales
    
    % of(GWh)
    
    Volume
    
    (GWh)
    
    Volume
    
    (GWh)
    
    VolumeElectricity Production
    
    
    15,741
    
    
    
    83.0
    
    
    
    16,286
    
    
    
    87.3
    
    
    
    16,524
    
    
    
    87.3Electricity Purchases
    
    
    3,217
    
    
    
    17.0
    
    
    
    2,358
    
    
    
    12.7
    
    
    
    2,409
    
    
    
    12.7Total(1)
    
    
    18,958
    
    
    
    100.0
    
    
    
    18,644
    
    
    
    100.0
    
    
    
    18,933
    
    
    
    100.0
   (1)
    
    Total GWh production plus purchases differs from GWh sales due to own
consumption and technical losses. We and our Chilean generation subsidiaries supply electricity to the major
regulated electricity distribution companies, large un-regulated industrial
firms primarily in the mining, pulp and steel sectors and to the market pool.
Commercial relationships with customers are normally governed by a formal
contract between parties. Supply contracts entered into with distribution
companies are generally standardized and have long terms ranging, on average,
ten years. These contracts are extended automatically at the end of the
applicable term unless terminated by either party upon prior notice. Contracts
with large industrial customers are specific to the needs of each client and
may also include provisions that exclude Endesa-Chile from providing
electricity in cases of force majeure, as defined by the Company which may
include extreme drought conditions, and for binding arbitration in the event of
disputes. In 2001, 2002 and 2003, Endesa-Chile had 69, 67 and 60 customers in
Chile, respectively, including the main distribution companies of the SIC and
the major unregulated industrial customers. During the last three years, sales
to unregulated customers represented approximately one-third of Endesa-Chiles
total energy sales. The following table sets forth information regarding Endesa-Chiles sales
of electricity in Chile by type of customer. ENDESA-CHILE PHYSICAL SALES PER CUSTOMER PRICE SEGMENT
IN CHILE Year ended December 31,2001
    
    2002
    
    2003Sales
    
    % of Sales
    
    Sales
    
    % of Sales
    
    Sales
    
    % of Sales(GWh)
    
    Volume
    
    (GWh)
    
    Volume
    
    (GWh)
    
    VolumeRegulated Customers
    
    
    9,403
    
    
    
    50.4
    
    
    
    9,297
    
    
    
    50.7
    
    
    
    9,994
    
    
    
    53.5Non-Regulated Customers
    
    
    5,851
    
    
    
    31.3
    
    
    
    5,778
    
    
    
    31.5
    
    
    
    5,767
    
    
    
    30.9Electricity Pool Market Sales
    
    
    3,419
    
    
    
    18.3
    
    
    
    3,269
    
    
    
    17.8
    
    
    
    2,920
    
    
    
    15.6Total electricity sales
    
    
    18,673
    
    
    
    100.0
    
    
    
    18,344
    
    
    
    100.0
    
    
    
    18,681
    
    
    
    100.0
 Endesa-Chiles most significant supply contracts with regulated customers
are with Chilectra and Compañía General de Electricidad S.A.(CGE), the two
largest distribution companies in Chile. Endesa-Chile has a supply contract
with Chilectra, which expires in 2010, and is subject to automatic one-year
renewal periods, unless 27




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terminated upon not less than six months prior notice.
The contract with CGE expires in 2009, subject to automatic four-year renewal
periods, unless terminated upon not less than one years prior notice. Customarily, Endesa-Chiles contracts with unregulated customers for the
sale of electricity in Chile are long-term, generally ranging from ten to
twenty years. Such contracts are normally extended automatically at the end of
the applicable term unless terminated by either party upon prior notice. Such
contracts generally provide that the purchase price be reset periodically,
typically following the semi-annual determination of node prices set by the
Comisión Nacional de Energía(National Energy Commission), or CNE. Contracts
with unregulated customers may also include specifications as to back-up power
sources and equipment, which may be provided at special rates, as well as the
provision of technical assistance to the customer. Endesa-Chile has not
experienced any supply interruptions under its contracts, however, Endesa-Chile
did negotiate short-term arrangements with certain customers to reduce its
supply due to the effects of the drought during 1999. In cases of force
majeure, customers are also allowed to refuse purchases and Endesa-Chile is not
required to supply electricity. Contracts with unregulated customers generally
do not impose any limitations on the ability of Endesa-Chile to resell output
not purchased under those contracts. Disputes are typically subject to binding
arbitration between the parties, subject to limited exceptions. The following table sets forth Endesa-Chiles sales by volume to its five
largest distribution and unregulated customers in Chile for each of the periods
indicated: MAIN CUSTOMERS IN CHILE Year ended December 31,2001
    
    2002
    
    2003Sales
    
    % of
    
    Sales
    
    % of
    
    Sales
    
    % of(GWh)
    
    Sales
    
    (GWh)
    
    Sales
    
    (GWh)
    
    SalesDistribution companies:Chilectra
    
    
    4,540
    
    
    
    24.3
    
    
    
    4,274
    
    
    
    23.3
    
    
    
    4,699
    
    
    
    25.2CGE
    
    
    3,176
    
    
    
    17.0
    
    
    
    3,358
    
    
    
    22.3
    
    
    
    3,628
    
    
    
    19.4Sociedad Austral de Electricidad S.A.(1)
    
    
    447
    
    
    
    2.4
    
    
    
    371
    
    
    
    2.0
    
    
    
    314
    
    
    
    1.7Empresa Eléctrica de la Frontera S.A.
    
    
    499
    
    
    
    2.7
    
    
    
    529
    
    
    
    2.9
    
    
    
    557
    
    
    
    3.0Empresa Eléctrica de Atacama S.A.
    
    
    404
    
    
    
    2.2
    
    
    
    449
    
    
    
    2.4
    
    
    
    536
    
    
    
    2.9Total sales to five largest distribution companies
    
    
    9,066
    
    
    
    48.5
    
    
    
    8,981
    
    
    
    49.0
    
    
    
    9,734
    
    
    
    52.1Unregulated customers:Codelco División El Teniente
    
    
    732
    
    
    
    3.9
    
    
    
    734
    
    
    
    4.0
    
    
    
    728
    
    
    
    3.9Industrias Forestales S.A.
    
    
    667
    
    
    
    3.6
    
    
    
    661
    
    
    
    3.6
    
    
    
    676
    
    
    
    3.6Cía. Minera Los Pelambres
    
    
    600
    
    
    
    3.2
    
    
    
    619
    
    
    
    3.4
    
    
    
    648
    
    
    
    3.5Cía. Minera Collahuasi
    
    
    712
    
    
    
    3.8
    
    
    
    734
    
    
    
    4.0
    
    
    
    730
    
    
    
    4.9Cía. Acero del Pacífico S.A.-Usina Huachipato
    
    
    504
    
    
    
    2.7
    
    
    
    506
    
    
    
    2.8
    
    
    
    522
    
    
    
    3.9Total sales to five largest unregulated customers
    
    
    3,215
    
    
    
    17.2
    
    
    
    3,254
    
    
    
    17.8
    
    
    
    3,304
    
    
    
    17.7
   (1)
    
    Endesa-Chile does not have a contract with Sociedad Austral de
Electricidad S.A. Sales respond to a government resolution (RM88) that
forces the generators of the CDEC-SIC system to supply distribution
companies without contracts. Endesa-Chile competes in the SIC primarily with two other electricity
generation companies, AES Gener S.A.(AESGener) and Empresa Eléctrica Colbún
Machicura S.A.(Colbún). According to each companys 2003 annual report as
of December 31, 2003, AESGener had an installed capacity of 2,428 MW (including
277 MW of Norgener in the SING and 643 MW of TermoAndes located in Salta,
Argentina) of which 89% was thermal electric, and Colbún had an installed
capacity of 1,521 MW, of which 48% was thermal electric. Colbún increased its
capacity during 2003 with the start up of Nehuenco II, 255 MW thermal
plant. According to the assumptions included in the electricity pricing model
applied by the CNE in determining the tariffs to regulated customers, it is 28




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estimated that Colbún may add additional MWs of combined cycle thermal capacity
during 2004. In addition to these two large competitors, there are a number of
smaller entities that generate electricity in the SIC. The other principal generation companies operating in the SING are
Electroandina(formerly Corporación Nacional del Cobre División Tocopilla) and
Empresa Eléctrica del Norte Grande S.A.(Edelnor), and Norgener S.A., which
have 1,029 MW, 687 MW and 277 MW of installed capacity, respectively and
significantly larger operations than Endesa-Chiles direct operations in the
SING, 182 MW, through Tarapaca, Celtas thermal power plant. However, by
including Endesa-Chiles indirect participation in the SING through its related
company GasAtacama, whose power plant has 780 MW of installed capacity,
Endesa-Chiles market position increases significantly to 26%. See
"Organizational Structure for details on affiliated companies. Electricity generation companies compete largely on the basis of technical
experience and reliability and, in the case of unregulated customers, on price.
In addition, as 72% of Endesa-Chiles installed capacity derives from
hydroelectric power plants, Endesa-Chile generally has lower production costs
than companies generating electricity in the SIC from thermal plants. During
periods of extended droughts, however, Endesa-Chile is often forced to buy more
expensive electricity from thermoelectric generators at spot prices in order to
satisfy its contractual obligations. The main sources of Endesa-Chiles non-operating income come from its 50%
ownership interest in GasAtacama, which through its subsidiaries has the
ability to transport up to 8.5 million cubic meters of gas daily and that has a
gas-fired combined cycle plant with a total installed capacity of approximately
780 MW in Mejillones, and its 42.5% ownership interest in Electrogas, which
produces transportation income derived from the pipeline supplying San Isidro
and Nehuenco combined-cycle plants at Quillota. See Organizational Structure
for details on related companies. Electricity Generation in
Chile  Industry Structure and Regulatory Framework The electricity industry in Chile is divided into three sectors:
generation, transmission and distribution. The generation sector consists of
companies that generate electricity from hydroelectric and thermal production
sources. Generators sell their production to distribution companies,
generation companies, and other large customers that are permitted to purchase
directly from generators because of the large amounts of electricity they
purchase. The transmission sector consists of companies that transmit at high
voltage the electricity produced by generation companies. The third sector
consists of distribution companies that purchase electricity from generation
companies to sell to their regulated or unregulated customers. The electricity sector in Chile is regulated pursuant to Law DFL No. 1
which was enacted in 1982, and the regulations under Decree No. 327 of 1998, as
amended, collectively known as the Chilean Electricity Act. Under the Chilean
Electricity Act, the generation, transmission and distribution of electricity
are supervised by the SEF and the Ministry of Economy acting through the CNE.
The Ministry of Economy grants concessions to generation companies for
hydroelectric facilities, and to transmission and distribution companies for
networks. The CNE, through the application of certain tariff formulas set
forth in the Chilean Electricity Act, calculates maximum prices for electricity
sales to regulated end-users. Chiles electricity industry is organized into four separate
interconnected electricity systems which facilitate the coordination of
generation, transmission and distribution activities within a given geographic
area: Sistema Interconectado Central(the SIC), Sistema Interconectado del
Norte Grande(the SING), and two minor isolated systems that provide
electricity in remote areas, Aysénand Magallanes. 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 autonomous generating industry groups, known as the Centro de
Despacho Económico de Carga(CDEC). The SIC and the SING are intended to be
efficient markets for the sale of electricity in which the lowest marginal cost
producer is used to satisfy demand. As a result, at any specific level of
demand, the appropriate supply will be provided at the lowest possible cost of
production available in the system. In addition, certain major industrial
companies own and operate generation systems to meet their own demand. 29




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The Chilean regulatory system requires that electricity generated by the
producers with lower marginal costs be dispatched before that of producers with
higher marginal costs, in every electric subsystem in the country. Therefore,
in the SIC, electricity generated in Endesa-Chiles hydroelectric plants, which
generally have lower marginal costs, is generally dispatched before the
electricity generated in facilities that are dependent on thermal electric
generation. However, during unfavorable hydrological conditions when the
marginal cost of electricity is higher due to the increased use of thermal
electric facilities, electricity generated in these thermal facilities may be
dispatched before electricity generated by hydroelectric facilities because the
price/value of the water in reservoirs is relatively higher due to drought
weather conditions. There are no hydroelectric generating facilities in the
SING, but central dispatch of generation follows the same least marginal cost
rule. As of December 31, 2003, Endesa-Chile had a total of nineteen generation
facilities in Chile. Eighteen of the generation facilities owned and operated
by Endesa-Chile in Chile were connected to the SIC, with the remaining
generation facility located in the SING. This generation facility provides
electricity to the northern mining region of Chile. The SIC, the largest of the systems, extends 2,400 km from Tal Tal in the
north to Quellón on the southern island of Chiloé. Installed capacity in
December 2003 was 6,997 MW, 58% of which is hydroelectric and 42% thermal.
Peak demand on the SIC in 2003 was 4,517 MW and annual physical sales were
30,092 GWh. Electricity sales to the SIC grew by 5.8 % from 2002 to 2003. The
SIC covers the area where over 70% of the Chilean demand for electricity is
located. Endesa-Chile, directly and through its subsidiaries Pehuenche, Pangue and
San Isidro, is the principal operator on the SIC, has 18 generation facilities
connected to the SIC, 12 hydro plants and 6 thermal plants, representing 52% of
the total installed capacity and 55% of the physical energy sales of this
system in 2003. The SING covers the northern territory of the country from Arica to
Coloso, a distance of approximately 700 km. The SING had an installed capacity
as of December 2003 of 1,382 MWh, 99% of which is thermal. Peak demand in the
SING in 2003 was 3,634 MW and annual physical sales were 10,480 GWh.
Consumption grew by 10.5 % during 2003 compared to the year 2002. Endesa-Chile, through its subsidiary Celta has one 182 MW thermal power
plant connected to the SING, which represents 5% of the total capacity of the
SING. Through its associate company GasAtacama Generación Limitada,
Endesa-Chile has an additional participation in the SING, with a total 26.5% of
the SINGs total installed capacity in 2003. The following table sets out
information relating to Endesa-Chiles electricity generation capacity in
Chile. POWER PLANTS IN CHILE InstalledCapacity (MW)Type(3)
    
    System
    
    (1) (2)HydroelectricRapel
    
    Reservoir
    
    SIC
    
    
    377Cipreses
    
    Reservoir
    
    SIC
    
    
    106El Toro
    
    Reservoir
    
    SIC
    
    
    450Pehuenche
    
    Reservoir
    
    SIC
    
    
    566Pangue
    
    Reservoir
    
    SIC
    
    
    467Los Molles
    
    Pass Through
    
    SIC
    
    
    18Sauzal-Sauzalito
    
    Pass Through
    
    SIC
    
    
    90Isla
    
    Pass Through
    
    SIC
    
    
    68Antuco
    
    Pass Through
    
    SIC
    
    
    320Abanico
    
    Pass Through
    
    SIC
    
    
    136Curillinque
    
    Pass Through
    
    SIC
    
    
    89Loma Alta
    
    Pass Through
    
    SIC
    
    
    40Total Hydroelectric
    
    
    
    
    
    
    2,727Thermal
 30




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InstalledCapacity (MW)Type(3)
    
    System
    
    (1) (2)Huasco
    
    Steam Turbine/Coal
    
    SIC
    
    
    16Bocamina
    
    Steam Turbine/Coal
    
    SIC
    
    
    128Tarapacá
    
    Steam Turbine/Coal
    
    SING
    
    
    182Diego de Almagro
    
    Gas Turbine/Diesel Oil
    
    SIC
    
    
    24Huasco
    
    Gas Turbine/IFO 180 Oil
    
    SIC
    
    
    64San Isidro
    
    Combined Cycle/Natural Gas & Diesel Oil
    
    SIC
    
    
    379Tal Tal
    
    Gas Turbine/Natural Gas
    
    SIC
    
    
    243Total Thermal
    
    
    
    
    
    
    1,036Total Capacity
    
    
    
    
    
    
    3,763
   (1)
    
    Relates to maximum operating capacity of each plant as informed to the
CDEC.(2)
    
    On April 30, 2003, the Canutillar hydroelectric plant of 172 MW was sold.(3)
    
    Reservoir and pass-through refer to a hydroelectric plant that uses a dam
or a river, respectively, to move the turbines which generate electricity.Steam Turbine refers to the technology of a thermal power plant that
uses either natural gas, coal, diesel or fuel oil to produce steam which
moves the turbines to generate the electricity.Gas Turbine (TG) refers to the technology of a thermal power plant that
uses either diesel oil, fuel oil, natural gas or other fuels to produce gas
that moves the turbines to generate the electricity.Combined Cycle refers to the technology of a thermal power plant that
uses either natural gas, diesel oil or fuel oil to generate gas that moves
the turbines to generate electricity then recuperates the gas that escapes
from that process to generate steam to move another turbine. Chilean Electricity Act General. The goal of the Chilean Electricity Act is to provide a
simplified regulatory scheme and tariff-setting process which limits the
discretionary role of the government through the establishment of objective
criteria for setting prices. The expected result is an economically efficient
allocation of resources to and within the electricity sector. The regulatory
system is designed to provide a competitive rate of return on investments in
order to encourage private investment, while ensuring the availability of
electricity to all who request it. Endesa-Chile is subject to regulation of
its prices and other aspects of its business in Chile under the Chilean
Electricity Act. Three government entities have primary responsibility for the
implementation and enforcement of the Chilean Electricity Act. The CNE
calculates retail tariffs and wholesale, or node prices, which require the
final approval of the Ministry of Economy, and prepares the indicative plan, a
10-year guide for the expansion strategy of the electricity system that must be
consistent with the calculated prices. The SEF sets and enforces the technical
standards of the system. In addition, the Ministry of Economy grants final
approval of tariffs and node prices set by the CNE and regulates the granting
of concessions to electricity generation, transmission and distribution
companies. Pursuant to the Chilean Electricity Act, companies engaged in the
generation of electricity in Chile must coordinate their operations through the
CDECs to minimize the operating costs of the electricity network and monitor
the quality of service granted by the generation and transmission companies.
Generation companies meet their contractual sales requirements by dispatching
electricity, whether produced by them or purchased from other generators in the
pool market. The principal purpose of a CDEC in operating the dispatch system
is to ensure that only the most efficiently produced electricity is dispatched
to customers. However, the CDEC also seeks to ensure that every generation
company has enough installed capacity and can produce enough electricity to
meet the demand of its customers. Because Endesa-Chiles production in the SIC
is primarily hydroelectric and, therefore its marginal cost of production is
generally the lowest in that interconnected system, Endesa-Chiles electricity
production in the SIC is generally dispatched under normal hydrological
conditions. Generation companies balance their contractual obligations with
their dispatch by buying or selling electricity at the spot price which is set
hourly by the CDEC, based on the marginal cost of production of the next kWh to
be dispatched. This is known as the spot marginal cost. 31




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Sales by Generation Companies. Sales may be made pursuant to short- or
long-term contracts or, in the case of sales to other generation companies, on
a spot basis. Generation companies may also engage in contracted sales among
each other at negotiated prices. Generation companies are free to determine
whether and with whom to contract, the duration of contracts and the amount of
electricity to be sold. Sales to Distribution Companies and Certain Regulated Customers. Under
the Chilean Electricity Act and its regulations, sales to distribution
companies for resale to regulated customers must be made at the node prices
then in effect at the relevant locations (nodes) on the interconnected system
through which such electricity is supplied. Regulated customers are those with
maximum consumption capacity equal to or less than 0.5 MW (reduced from 2 MW to
500 kW as of March 2004 with the approval of the Short Law, see below). Two
node prices are paid by distribution companies: node prices for capacity and
node prices for energy consumption. Node prices for capacity are determined by
the marginal cost of increasing the existing capacity of the electricity system
with the least expensive generating facility. Node prices for energy
consumption are calculated based on the projected short-term marginal cost of
satisfying the demand for energy at a given point in the interconnected system,
quarterly during the succeeding 48 months in the SIC and monthly during the
succeeding 24 months in the SING. In order to determine the marginal cost in
the SIC, a model is used that takes into account the principal variables in the
cost of energy at each substation in the interconnected system over the
48-month period. This model includes the following factors: projected growth
in demand; reservoir levels (which are important in determining the
availability and price of hydroelectricity); fuel costs for thermal electric
generation facilities; planned maintenance schedules and other factors that
would affect the availability of existing generation capacity; and scheduled
additions to generation capacity during the 10-year Indicative Electricity
Development Plan. The same general principles are used to determine marginal
cost in the SING. Node prices for capacity and energy consumption are established every six
months, in April and October, by a decree issued by the Ministry of Economy.
Although node prices are quoted in Chilean pesos, the variables used to
determine node prices are mainly computed in U.S. dollars. These node prices
then become effective in May and November. Node prices are adjusted during a
six-month period only if changes in the underlying variables in the model used
to project a node price then in effect would result in a variation in excess of
10%, with respect to the initially calculated price. In addition, the Chilean
Electricity Act requires that the difference between node prices and the
average price paid by unregulated customers in the six-month period prior to
the date of node price calculation not exceed 5% (reduced from 10% to 5% as of
March 2004). If node prices do not meet this requirement, they will be
adjusted so that the difference does not exceed 5%. Distribution companies are
required to pay generation companies for each months electricity purchases on
the 21st day of the following month, at the applicable node prices in effect at
the time. The Chilean Electricity Act provides that if a generation company sells
directly to a regulated customer, outside the concession area of a distribution
company, then the generation company must apply the same price as the
distribution company would be required to apply. Sales to Other Generation Companies. To accomplish its objective of
operating the dispatch system to ensure that only the most efficiently produced
electricity reaches customers, each CDEC annually determines Firm Energy and
Firm Capacity for each member generation company. Firm Energy is the estimated aggregate amount of energy (GWhs) that can be
reliably delivered to an interconnected system during a given year by all
generating units in that system, assuming that (1) the year is one of low
rainfall and (2) there will be an average availability of thermal units during
that year. For purposes of determining estimated hydroelectric production during
periods of low rainfall, annual aggregate energy production of the system
during the last 40 years is ranked by year from the greatest to lowest, subject
to certain adjustments to reflect assumptions as to how the prevailing water
levels at Lake Laja (the principal reservoir in Chile) and recently constructed
hydroelectric plants would have affected production in each of those years.
The amount of aggregate system energy produced in the year ranked closest to
the tenth percentile from the bottom of the resulting ranking is used to
determine the aggregate system production in a dry year. To determine the
average availability of thermal electric units, the CDEC estimates the
aggregate energy that can be delivered by existing thermal electric plants,
taking into consideration maintenance and failure periods, based on national
and international statistics and the average capacity availability during the
least 10 years of operations. The resulting 32




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estimate of system-wide production of energy for the year is called Firm
Energy. Generation companies whose proportionate share of Firm Energy is less
than their contractual sales obligations must purchase, in advance and at
negotiated prices, sufficient energy production to satisfy their contractual
obligations from generation companies with a proportionate share of Firm Energy
in excess of their contractual obligations. Individual generation companies
analyze Firm Energy statistics to determine their pro rata share of Firm
Energy, as a tool in determining how best to match their contractual sales
obligations with projected energy production in order to achieve optimal
operating profits from energy sales. This definition of Firm Energy is no
longer relevant. After December 2001, generation companies are no longer
capped at Firm Energy for their contracts. Subsequently, the regulations
under the Chilean Electricity Act, as amended, replace this concept. Firm Capacity is the total probable capacity of all generating units in an
interconnected system at any point in time, calculated using historical data,
statistical analyses and certain assumptions regarding hydrology. Each CDEC
compares Firm Capacity to the maximum anticipated peak demand for capacity at
peak hours on the system. The amount by which the system-wide probable
capacity exceeds the maximum anticipated demand at peak hours is prorated for
each generating unit in the system based on the installed capacity of the unit.
Installed capacity of each unit is reduced by the resulting pro rata amount to
determine Allocated Firm Capacity. If the Allocated Firm Capacity of any
generation company exceeds its peak hour contracted commitments to customers,
such company will be paid for its excess Allocated Firm Capacity by generation
companies with peak hour commitments to customers in excess of their Allocated
Firm Capacity, based on the prevailing node price for capacity. A generation company may be required to purchase or sell energy or
capacity in the electricity pool market at any time depending upon its
contractual requirements in relation to the amount of electricity from such
company to be dispatched. Purchases and sales made in the electricity pool
market are transacted at the spot marginal cost of the interconnected system in
which the companies are located, which is the marginal cost of the next kWh to
be dispatched. Generation companies making sales in the electricity pool
market are paid for each months sales on the twenty-second day of the
following month at the spot marginal cost in effect at the time of sale. Sales to Unregulated Customers. The electricity law distinguishes between
regulated and unregulated prices for electricity supply. Electricity supply
prices are unregulated for:  (1)
    
    final customers with a connected capacity equal to or
greater than 500 kW (recently reduced from 2 MW with approval of
Short Law, see below), commonly known as large customers;(2)
    
    temporary customers; and(3)
    
    customers with special quality requirements. Customers not subject to regulated prices, commonly known as unregulated
customers, may negotiate prices freely with distribution and/or generation
companies. All other customers are subject to the maximum prices established
by the tariffs. Transmission. To the extent that a companys transmission assets were
built pursuant to concessions granted by the Chilean government, the Chilean
Electricity Act requires such company to operate the covered transmission
system on an open access basis in which users may obtain access to the system
by contributing towards the cost of operating, maintaining and, if necessary,
expanding the system. Transmission companies recover their investment in
transmission assets through tolls, or wheeling rates, which are charged to
generation companies, and with the recent approval of the Short Law (see below)
also partially financed by the final customer. The toll is calculated
according to a formula pursuant to which the owner of the transmission lines is
reimbursed for its investment and operating costs relating to the transmission
lines used. Disputes relating to transmission matters are submitted to
arbitration in accordance with the Chilean Electricity Act. Distribution Tariff to Final Customers. The tariff charged by
distribution companies to their final customers is determined by the sum of the
purchase cost incurred by the distribution company (the node prices for
capacity and energy consumption at the point of purchase from the generation
company), a sub-transmission surcharge, a factor for distribution losses of
capacity and energy and the value added by the distribution network (the
VAD). The price for both generation and distribution capacity sold to
customers includes an overlap factor to reflect the 33




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overlap between peak capacity demand for the customer and for the system
as a whole. The sub-transmission surcharge reflects the cost of transmitting
and transforming electricity from a node on the interconnected system to a
substation at the distribution level. The VAD includes an allowed return on
investment. Concessions. The Chilean Electricity Act permits, in certain cases, the
generation and transmission of electricity without the need to obtain a
concession from the Chilean government. However, companies may apply for a
concession from the Chilean government, particularly to facilitate the use of
and access to third-party properties. Third-party property owners are entitled
to compensation, which may be agreed upon by the parties or, absent agreement,
determined by an administrative proceeding that may be appealed to Chilean
courts. Recent Regulatory Developments. The Chilean Congress amended the Chilean
Electricity Act, effective as of June 8, 2000, placing severe penalties on
deficit generators in the event of prolonged periods of electricity shortages.
Electricity rationing may be enforced by the enactment of a rationing decree
which is subject to the prior approval by the CNE and the Ministry of Economy.
This prior approval is contingent upon the severity of the prevailing
conditions causing the electricity shortage. The Chilean Electricity Act, as amended, no longer exempts deficit
generators from fines if power shortages are due to severe drought and states
that such weather conditions will no longer be considered an event of force
majeure. In addition, the Chilean Electricity Act, as amended, requires that
generators compensate consumers during periods of rationing as compared to the
law prior to amendment, which only compensated surplus generators but did not
penalize deficit generators during power shortages. Companies penalized under
the legislation will have the right to appeal but only after they have made a
prepayment equal to 25% of the fine. Under the Chilean Electricity Act, as currently in effect, Endesa-Chile
may be required to pay fines to the regulatory authorities, make compensatory
payments to electricity consumers affected by the shortage of electricity and
make payments to generators from whom we are forced to purchase electricity in
order to meet contractual commitments. These three types of penalties or
payments are described below.  
    
    Fines. The fines, which could apply to any electricity company
supervised by the CNE and the SEF, including generation, transmission
and distribution companies, range from the equivalent of approximately
US$42 to a maximum of the equivalent of approximately US$5 million.
Companies penalized under the legislation will have the right to appeal
but only after they have made a prepayment equal to 25% of the fine.
    
    Compensatory Payments By Generation Companies. If the Ministry of
Economy issues a rationing decree, generation companies may be required
to reimburse distribution companies on a pro rata basis for credits
given to final customers in an amount equal to the product of:  (1)
    
    the difference between the rationed end-consumer
price specified in the rationing decree and the applicable
node price; and(2)
    
    the difference between the consumers actual
energy consumption during the rationing period and during
the same period in the prior year, with certain
adjustments.  
    
    Failure Cost. Chiles Electricity Law calls for a failure cost
to be imposed on generators that cannot meet their contractual
commitments to deliver electricity during periods when a rationing
decree is in effect. The failure cost is implemented as an additional
amount that must be paid by deficit generators to the surplus
generators from whom deficit generators purchase electricity. On March 21, 2001, the Chilean Antitrust Commission issued Resolution No.
525, which established a list of 25 services related to the supply of
electricity, such as the lease of meters, that should be regulated. The CNE
regulated such services during the month of May of 2004, but this regulation
impacts electricity distribution companies to a greater extent than generation
companies. On May 30, 2001, the Ministry of Economy issued Resolution No. 88, which
stated that generation companies are required to supply electricity to SAESA, a
distribution company which was not able to renew its electricity 34




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supply contracts. In the referred resolution it was also stated that such
supply (with no contract and for regulated clients) shall be provided at the
node price and on a prorated basis, considering the firm capacity of each
generator. The regulatory authority has announced that the Chilean electricity
regulatory framework would be amended in two steps. The first step would refer
to those matters which are needed with more urgency, the Short Law. The
second step would refer to the remaining amendments that are needed, the Long
Law. The Short Law The
Short Law was approved by Chilean Congress on
January 2004 and
became effective as of March 2004. The principle changes implemented by the
Short Law include:  
    
    a new methodology concerning compensation to, and expansion of,
transmission systems, reducing generators transmission costs by
transferring part of the cost to final customers,
    
    reducing the regulated node price band with respect to the free
customer contract price from 10% to 5%,
    
    reducing the definition of unregulated customer from 2000 kw to 500
kw of energy consumption (effective in 2006). In our opinion, the approval of this law has established a better scenario
for companies to analyze new investments. Nevertheless the convenience of
developing new projects depends not only on regulations, but also on the
stability and attractiveness of the industry price levels. As of the date of this report, the final proposal of the Long Law is still
in the evaluation stage by government authorities. Environmental Regulation The Chilean Constitution of 1980 grants to all citizens the right to live
in an environment free of pollution. It further provides that other
constitutional rights may be limited in order to protect the environment.
Although Chilean environmental regulation is not as well developed as in the
United States and certain other countries, Chile has numerous laws,
regulations, decrees and municipal ordinances that may impose environmental
restrictions. Among them is Ley Sobre Neutralización de los Residuos
Provenientes de Establecimientos Industriales No. 3,133, which dates back to
1916 (Law No. 3,133), and regulates the discharge of liquid industrial wastes
and the Sanitary Code which contains provisions relating to waste disposal, the
establishment of industries in areas in which they may affect public health and
the protection of water for human consumption. Regulations under Law No. 3,133
were published on February 23, 1993. The regulations provide that no
industrial entity may dispose of substances that may pose a risk to irrigation
or consumption in any sewer or natural or artificial body of water without
prior authorization from the Ministry of Public Works and a favorable
determination from the Superintendency of Sanitary Services. The regulations
also mandate governmental approval of any systems that an industrial entity
proposes to use for the purpose of neutralizing or purifying liquid industrial
residues. Endesa-Chiles operations in Chile are subject to Ley No. 19,300(the
Chilean Environmental Act) which was enacted in 1994. The Chilean
Environmental Law requires Endesa-Chile to conduct environmental impact studies
of any future projects or activities that may affect the environment and to
arrange for the review of such studies by the Chilean Environmental Commission
(CONAMA). It also requires either an evaluation of the environmental impact
by the Chilean government or the posting of an environmental insurance policy
ensuring compliance with standards for emissions, noise, waste and disposal and
authorizes the relevant ministries to establish emission standards. The
Chilean Environmental Law is implemented by Reglamento No. 30 del Ministerio
Secretaria General de la Presidencia(Regulation No. 30) dated March 20,
1997. Endesa-Chile applies the guidelines set out in Regulation No. 30 in
analyzing the development of future projects. Water Rights Endesa-Chile owns water rights granted by the Chilean Water Authority for
the exploitation of the water from rivers and lakes near Endesa-Chiles
production facilities for electricity generation. Under current law, these
water 35




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rights are absolute property rights of unlimited duration. The Chilean
Congress is currently considering a proposal to revise the laws governing water
rights. Under the proposal Endesa-Chile would pay a fee for every year it
fails to make use of a water source it owns the rights to utilize. Operations in Argentina Operating income from the companys business in Argentina represented 13%,
4%, 10% for years 2001, 2002 and 2003 of Endesa-Chiles total operating income.
Operating revenues and expenses for the three years are shown in the following
table: TOTAL OPERATING INCOME FROM OPERATIONS IN ARGENTINA Year ended December 31,2001
    
    2002
    
    2003(in millions of constant Ch$)Operating Revenues
    
    
    230,017
    
    
    
    99,137
    
    
    
    111,279Operating Expenses
    
    
    185,036
    
    
    
    86,412
    
    
    
    78,965Operating Income
    
    
    44,981
    
    
    
    12,725
    
    
    
    32,313
 For details on the variations of yearly monetary figures, please see Item
5. Operating and Financial Review and Prospects. Endesa-Chile participates in electricity generation in Argentina through
its subsidiaries Costanera and El Chocón, with a total of 5 power plants, two
of which are hydroelectric plants, with total installed capacity of 1,320 MW,
and three of which are thermal plants, with a total installed capacity of 2,302
MW. In 2003, Endesa-Chiles hydro and thermal generation plants in Argentina
represented 16% of the countrys total electricity generation capacity. Endesa-Chile also participates in transmission and trading of electricity
in Argentina through its related companies, Compañía de Transmisión del
Mercosur S.A.(CTM), which owns the Argentine side of a transmission
interconnection line with Brazil, and CEMSA, a trading company that has signed
contracts with generators in Argentina to export electricity from Argentina to
Brazil and Uruguay. Endesa-Chile has a 45% ownership share in both CTM and
CEMSA through its affiliates, CIEN and Endesa Argentina S.A., respectively.
See   Organizational Structure for details on associated companies. Costaneras installed capacity is thermal and accounted for approximately
10% of the total installed capacity in the Sistema Interconectado Nacional(the
Argentine SIN), Argentinas only major interconnected grid system, as of
December 31, 2003. Costaneras Combined Cycle II plant is the largest combined
cycle in Argentina that can operate with natural gas and diesel. The Companys
1,131 MW Steam Turbine power plant can operate with either natural gas or fuel
oil. The Company maintains long-term contractual agreements with natural gas
suppliers. The supply of liquid fuel is contracted annually according to
estimated yearly requirements. El Chocón is currently the second largest private hydroelectric facility
in Argentina, accounting for approximately 6% of the installed capacity in the
Argentine SIN as of December 31, 2003. El Chocón has a 30-year concession for
two hydroelectric generation facilities with an aggregate of 1,320 MW of
installed capacity. The larger of the two facilities for which El Chocón has a
concession has 1,200 MW of installed capacity and is the primary flood control
installation on the Limay River. The facilitys large reservoir, Ezequiel
Ramos Mejía, enables El Chocón to be one of the Argentine SINs major peak
suppliers. Variations in El Chocóns discharge are moderated by El Chocóns
Arroyito facility, a downstream dam with 120 MW of installed capacity. The following table sets forth the installed capacity of Endesa-Chiles
Argentine subsidiaries: 36




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INSTALLED CAPACITY PER SUBSIDIARY IN ARGENTINA As of December 31,2001
    
    2002
    
    2003(MW)Central Costanera S.A.Costanera Steam Turbine
    
    
    1,131
    
    
    
    1,131
    
    
    
    1,131Costanera Combined Cycle II
    
    
    851
    
    
    
    851
    
    
    
    851Central Termoélectrica Buenos Aires Combined Cycle I
    
    
    320
    
    
    
    320
    
    
    
    320Hidroélectrica El Chócon S.A.El Chócon Hydroelectric
    
    
    1,200
    
    
    
    1,200
    
    
    
    1,200Arroyito Hydroelectric
    
    
    120
    
    
    
    120
    
    
    
    120Total
    
    
    3,622
    
    
    
    3,622
    
    
    
    3,622
 Endesa-Chiles total electricity generation in Argentina reached 8,128 GWh
in 2003, 11.5 % higher than the 7,291 GWh in 2002, but lower that the 10,182
GWh registered in 2001. Endesa-Chiles generation market share was
approximately 10% of total electricity production in Argentina for 2003,
approximately 10% for 2002 and 13% for 2001. The following table sets forth the electricity generation of
Endesa-Chiles Argentine subsidiaries: ELECTRICITY GENERATION PER SUBSIDIARY IN ARGENTINA Year Ended December 31,2001
    
    2002
    
    2003(GWh)Central Costanera S.A.
    
    
    5,686
    
    
    
    3,609
    
    
    
    4,090Hidroelectrica El Chocón S.A.
    
    
    4,496
    
    
    
    3,682
    
    
    
    4,038Total
    
    
    10,182
    
    
    
    7,291
    
    
    
    8,128
 Low cost hydroelectric generation accounted for nearly 50% of total
generation in 2003, slightly less than in 2002 because of both a strong
increase in electricity demand and a relatively dry year when compared to 2002.
The percentage of hydroelectric generation in year 2001 reached 44%, as shown
in the following table: ENDESA-CHILE HYDRO/THERMAL GENERATION IN ARGENTINA Year ended December 31,2001
    
    2002
    
    2003Generation
    
    
    
    
    
    Generation
    
    
    
    
    
    Generation(GWh)
    
    %
    
    (GWh)
    
    %
    
    (GWh)
    
    %Hydroelectric Generation
    
    
    4,496
    
    
    
    44.2
    
    
    
    3,682
    
    
    
    50.5
    
    
    
    4,038
    
    
    
    49.7Thermal Generation
    
    
    5,686
    
    
    
    55.8
    
    
    
    3,609
    
    
    
    49.5
    
    
    
    4,090
    
    
    
    50.3Total Generation
    
    
    10,182
    
    
    
    100.0
    
    
    
    7,291
    
    
    
    100.0
    
    
    
    8,128
    
    
    
    100.0
 Endesa-Chiles physical energy sales in Argentina reached 12,988 GWh in
2001, 7,897 GWh in 2002, and 9,259 in 2003. The increase in sales of year 2003
compared to 2002 responds to increased electricity demand in Argentina. The portion of physical sales supplied by the Companys own generation of
energy reached 86% of total sales in 2003 while sales supplied by energy
purchased from other generators represented 14% of total sales in 2003, as set
forth in the following table. 37




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PHYSICAL GWh PRODUCTION AND PURCHASES IN ARGENTINA Year ended December 31,2001
    
    2002
    
    2003Electricity Production
    
    
    10,182
    
    
    
    7,291
    
    
    
    8,128Electricity Purchases
    
    
    3,045
    
    
    
    750
    
    
    
    1,264Total (1)
    
    
    13,227
    
    
    
    8,041
    
    
    
    9,392
   (1)
    
    Energy production plus energy purchases exceed electricity sales due to
energy losses and own consumption. The companys physical sales market share decreased from 14% in 2001 to
10% in 2002 but it increased to 12% in year 2003. Physical sales in years 2002
and 2003 have been strongly affected by the economic crisis in Argentina and
the legislation that the government has approved to confront this crisis since
January 2002. See Item 3. Key Information  Risk Factors Relating to
Argentina. The law required the conversion of dollar denominated obligations
into Argentine pesos at a rate of AR$1 per US$1 and it suspended indexation
mechanisms of public service tariffs. Consequently, Endesa-Chile made
significant commercial strategy adjustments to reduce the impact of the crisis
on the Companys returns, such as reducing contracted sales and selling to the
electricity pool market. Physical contracted sales declined from 30% of total
sales in 2001 to 24% of total physical sales in 2002. The percentage of
contracted sales in 2003 declined even more reaching 12% of Endesa-Chiles
total sales in Argentina as a consequence of the sustained level of political,
economical and regulatory uncertainties. The Argentine Governments
intervention in the energy sector since 2002 has led to the natural gas crisis
that they are currently experiencing. For more information on the Argentine
gas crisis, please refer to   Electricity Generation in Argentina 
Industry Structure and Regulatory Framework  Government Resolutions adopted
during 2004. Costaneras physical sales reached 4,583 GWh in 2003, compared to 4,178 in
2002 and 8,395 in 2001. Contracted sales in 2003 represented 14% of total
physical sales and pool market sales accounted for the remaining 86%. At the
time Costanera was privatized in 1992, it entered into an eight-year sales
contract with Empresa Distribuidora del Sur(Edesur), and Empresa
Distribuidora del Norte S.A.(Edenor), Argentine electricity distribution
companies which hold the concession for the distribution of electricity in the
Buenos Aires metropolitan area. These contracts expired in the year 2000 and
have not been renewed. Endesa-Chile has not entered into contracted sales to
electricity distribution companies in years 2002 and 2003. The distribution of physical sales, in terms of customer segment, is shown
in the following table: ENDESA-CHILE PHYSICAL SALES PER CUSTOMER SEGMENT IN ARGENTINA Year ended December 31,2001
    
    2002
    
    2003(1)% of Sales
    
    
    
    
    
    % of Sales
    
    
    
    
    
    % of SalesSales(GWh)
    
    Volume
    
    Sales(GWh)
    
    Volume
    
    Sales(GWh)
    
    VolumeContracted Sales
    
    
    3,869
    
    
    
    29.8
    
    
    
    1,520
    
    
    
    23.8
    
    
    
    1,117
    
    
    
    12.1Non-Contracted
    
    
    9,119
    
    
    
    70.2
    
    
    
    6,377
    
    
    
    76.2
    
    
    
    8,142
    
    
    
    87.9Total Electricity Sales
    
    
    12,988
    
    
    
    100.0
    
    
    
    7,897
    
    
    
    100.0
    
    
    
    9,259
    
    
    
    100.0
   (1)
    
    Sales in the anticipated spot market are included as non-contracted
sales. In May 1998, in anticipation of the completion of a combined cycle plant
and the termination of the Edesur and Edenor contracts, Costanera entered into
a 20-year contract to sell 500 MW of electricity capacity to CIEN, a Brazilian
company of which Endesa-Chile has a 45% interest. An additional 462 MW of
Costanera  ́s capacity was committed through a contractual agreement to CEMSA, an
affiliated company of which Endesa-Chile has a 45% ownership share. Of the
current 962 MW of capacity committed by Costanera, 750 MW are from the first
interconnection line between Argentina and Brazil and 212 MW from the second
interconnection line between both countries. As a result of the high
hydroelectric production in south-east Brazil, there was no demand under these
energy export contracts during 2003. However, even though there was no call for
the export of energy, Costanera has received payments for having take-or-pay
capacity available for that market. During 2004, Costaneras 38




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electricity generation has been affected by the natural gas crisis in the
Argentine economy. The need to generate electricity with alternative liquid
fuel has increased the dispatch of Costaneras Combined Cycle II. Physical sales of El Chocón were 4,676 GWh in year 2003, representing a
26% increase when compared to the 3,719 GWh sold in 2002 and also greater than
the 4,593 GWh sold in 2001. Contracted sales declined from 666 GWh in 2001 to
582 GWh in 2002, reaching 482 GWh in 2003. Contracted sales to the mining firm
Minera Alumbrerarepresented 100% of total contracted sales in 2003. The
remaining 4,194 GWh sales were delivered to the pool market. Endesa-Chile operates El Chocón for a fee payable to it pursuant to an
operating agreement with a term equal to the duration of the concession (30
years). The agreement is not terminable by Endesa-Chile for a period of five
years from the date its concession became effective. El Chocón does not have
the right to terminate the operating agreement, except following the
non-performance by Endesa-Chile of its agreed upon obligations. Under the
terms of the operating agreement, Endesa-Chile is entitled to a fee payable in
U.S. dollars based on El Chocóns annual gross revenues, payable in monthly
installments. El Chocón has agreed to indemnify Endesa-Chile against all
liabilities resulting from its operation of the facilities owned by El Chocón. Endesa-Chiles Argentine power plants compete with all the major power
plants connected to the SIN. Our major power plant competitors in Argentina
include the plants owned by the AES Group: San Nicolas (thermal 650 MW), Paraná
(thermal 845 MW) and Alicura (hydro 1,020 MW). Petrobras Energía S.A.competes
with Endesa-Chile through two power plants: Genelba(thermal 660 MW) and
Petrobras Energía(hydro 255 MW). Other significant power plants are Piedra
del Aguila(hydro 1,400 MW) and Central Puerto(thermal 2,100 MW) owned by
Totalfinaand TermoAndes(thermal 600 MW) owned by Gener S.A. but not connected
to the SIN. Electricity Generation in Argentina  Industry Structure and Regulatory Framework Ley NacionalNo. 24,065 of January 1992 (the Argentine Electricity Act)
divides the electricity industry into three sectors: generation, transmission
and distribution. The generation sector is organized on a competitive basis
with independent generation companies selling their output on the Wholesale
Electricity Market (WEM) or by private contracts with certain other market
participants. Transmission is organized on a regulated basis. Transmission
companies are required to provide third-party access to the transmission
systems they own and are authorized to collect a toll for transmission
services. Transmission companies are prohibited from generating or
distributing electricity. The major transmission company is Compañía de
Transporte de Energía Eléctrica en Alta Tensión S.A. or Transener.
Distribution involves the transfer of electricity from the supply points of
transmitters to consumers. Distribution companies operate as geographic
monopolies, providing service to almost all consumers within their specific
region. Accordingly, distribution companies are regulated as to rates and are
subject to service specifications. Distribution companies may acquire the
electricity needed to meet consumer demand on the WEM or through contracts with
generation companies. The WEM classifies large users of energy into three categories, Major
Large Users (GUMAs, in its Spanish acronym), Minor Large Users (GUMEs, in
its Spanish acronym) and Large Particular Users (GUPAs, in its Spanish
acronym). Users in each of the three categories may freely negotiate their
supply contract prices with generating companies. GUMAs are all users with a
peak capacity demand of at least 1.0 MW and a minimum annual energy consumption
of 4.38 GWh. GUMAs must contract to purchase at least 50% of their demand and
purchase the rest in the pool market. GUMEs are all users with peak capacity
demand ranging between 0.03 MW and 2.0 MW. GUPAs are all users with a peak
demand ranging between 0.03 MW and 0.1 MW. GUMEs and GUPAs are not required to
have a minimum annual energy consumption. GUMEs and GUPAs must contract to
purchase all of their demand and do not make any transactions in the pool
market. The regulation also recognizes the following entities as participants in
the WEM:  
    
    power traders, who market generation capacity and energy demand by
entering into contracts with generators and large consumers;
    
    provinces which can sell the energy received under royalty rights; and 39




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
    
    foreign companies that are part of import/export energy contracts. Dispatch and Pricing The Argentine electricity dispatch system, like the Chilean system, is
designed to ensure that the most efficiently produced electricity reaches
customers. SIN coordinates the generation, transmission, and distribution of
electricity. Generation companies sell their electricity to distribution
companies, power traders and large users in the competitive WEM through freely
negotiated supply contracts or in the electricity pool market at prices set by
the CAMMESA. The operation of the WEM is the responsibility of CAMMESA.
CAMMESAs shareholders are generation, transmission and distribution companies,
large users (through their respective associations) and the Secretariat of
Energy. All generation companies that are in the SIN pool operate in the WEM. The
contractual price is paid by distribution companies, power traders and large
users that have entered into supply contracts with generation companies. Large
users who contract directly with generation companies must also pay their
distribution companies a toll for the use of their distribution networks. The
average spot price is the price paid by distribution companies for electricity
from the pool and is a fixed price reset every six months by CAMMESA and
approved by the Secretariat of Energy according to supply, demand, available
capacity and other factors. The spot price is maintained for at least 90 days.
Thereafter, CAMMESA updates assumptions underlying the models employed to
establish the seasonal price based on current data and results provided by
companies that are members of the WEM. If the Secretariat of Energy finds
significant variance among current and prior data, it may resolve to change the
seasonal price. The spot price is the price paid to generation companies, or
by power traders marketing generation capacity, for energy dispatched under
CAMMESAs direction and for capacity required by CAMMESA to maintain adequate
reserves. The hourly price paid for energy reflects the marginal cost of
generation. The actual operation of CAMMESA involves the dispatch of generating
resources without regard to the contracts among generation companies, power
traders 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 obliged to buy or sell excess energy from or to the
pool at spot prices. Transmission Tariff The transmission tariff that must be paid by entities engaged in
generation and distribution activities and by large users can be broken down
into: (1) a connection charge that underwrites the costs of operating the
equipment that links them to the transmission system; (2) a capacity charge
that underwrites the cost of operating and maintaining lines; and (3) a
variable charge based on the aggregate amount of electric energy transported to
cover losses that occur during transmission. Regulation of Hydroelectric Operations Ley Nacional No. 23,896of 1990 created the Basin Authority of the Limay,
Neuquén and Negro Rivers (the Basin Authority). The Basin Authority is
responsible for the administration, control, use and preservation of the basin
of the Limay, Neuquén and Negro Rivers, and for the adequate management of
related water resources. The Basin Authority monitors compliance by El Chocón
and other hydroelectric concession holders in the region with the provisions of
their respective concession agreements, environmental laws and the Basin
Authoritys resolutions. The Basin Authority also serves as a forum for public
hearings at which complaints against those holding concessions can be heard and
resolved. The Entity for the Safety of Dams (ORSEP in its Spanish acronym) is in
charge of supervising the safety of El Chocóns dams, and of any additional
works performed by El Chocón. ORSEP supervises and inspects the construction,
operation, maintenance, repair or modification of the works related to the dams
and related structures in order to monitor their safety and to protect persons
and assets. ORSEP is empowered to: (1) inspect and verify the functioning of
any part of the dams or related structures; and (2) require reports on (a) the
design, construction, operation, maintenance, use, repair or modification of
dams and related structures and (b) any situation which may cause risk to the
dam or any death or injury caused by such dams or related structures. ORSEP
also handles the 40




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approval of quality control programs submitted by El Chocón, the
determination of specifications to prevent accidents and the maintenance of
public safety within the area of the dams and related structures. Emergency Measures As of the date of this annual report, the Argentine electricity regulatory
framework is undergoing profound changes, the effect of which is hard to
evaluate in terms of long-lasting impacts. Although Law 24,065 has not been
formally repealed, the trend that has been observed in 2002 to date leads us to
believe that there will be increased state intervention that will modify the
regulatory framework described in this annual report. In particular, in
January 2002, the Economic Emergency Law was promulgated. This law authorizes
the executive power to renegotiate public service concession contracts. Recent Electricity Regulatory Changes In 2002, the Secretary of Energy introduced some regulatory measures
(Resolutions Nos. 2, 8 and others) in order to correct the mismatches produced
by the devaluation of the Argentine peso and to ensure the normal operation of
generation activities. An important provision, with respect to the calculation
of spot prices, is the recognition of the U.S. dollar as the correct currency
of denomination for certain variable costs of production such as liquid fuels,
which are tradable goods, some foreign machinery spare parts and long-term
maintenance contracts with equipment suppliers that are denominated in foreign
currency. A second important aspect of these regulatory measures was to adjust the
price stabilization system in order to identify real costs and prices, reduce
price volatility and diminish the arbitrage risk resulting from differences
between spot prices and seasonal prices. In this respect, an anticipated pool
market has resulted that introduces a prior pricing adjustment to energy prices
that acts as a price stabilization system. Subsequently, the Secretary of Energy enacted Resolution No. 246/02 that
established various regulatory changes. The following are the more significant
measures:  
    
    the separation of capacity and energy payments such that the
capacity payments are tied to availability and short-term reserves are
regulated and tied to commitment reserves;  
    
    the modification of energy supply guarantee rights and obligations,
supply priority and demand disruptions, and regulation of short- and
medium-term reserves for service disruption conditions with respect to
large customers;  
    
    a new capacity relief scheme proposed by CAMMESA;  
    
    the integration of node and adaptation factors for demand without
affecting the calculation of the variable transmission remuneration and
energy delivered by generators and traders;  
    
    the acknowledgement of new tax rates that are applied to natural
gas, oil and fuel transfers as additional costs;  
    
    conditions of the contract market are eased and expanded; and  
    
    the adjustment of forced generation regulations. On July 18, 2002 Resolution No. 317 of the Secretary of Energy, which
supplements Resolution No. 246, increased the capacity payment from 10 Ar$/MW
to 12 Ar$/MW in the hours that the capacity is remunerated. Finally, on January
2, 2003 the Secretary of Energy enacted Resolution SE No. 1/03, whose principal
features are the following:  
    
    the remuneration for generators with variable cost higher than the
first failure cost step (120 Ar$/MWh) is incremented; 41




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
    
    establishment of a new reserve service to ensure availability in
areas where shortage of natural gas in winter will be foreseen;  
    
    adjustment of the reserve service reliability to cover the peak time capacity demand;  
    
    re-establishment of the anticipated pool market operation for seasonal energy transactions; and  
    
    institution of a transitional process to identify and manage the
high voltage system and distribution expansions and to improve the
availability of energy supply. With respect to generation, the regulatory changes are introduced to:  
    
    increase the actual spot price transparency to improve the
predictability of the generators remunerations and facilitate their
decisions; and  
    
    gradually obtain a more stable seasonal price. With respect to transmission, the regulatory changes are introduced to:  
    
    provide more environmentally friendly practices and create
incentives to accomplish certain critical projects; and  
    
    revise the operational and design guidelines to meet the safety and
operating requirements enacted in the law. By means of Resolution No. 82/2003 and, more recently, Resolution No.
784/2003, the Secretary of Energy approved the winter seasonal scheduling,
quarterly reschedulings and summer seasonal schedulings for the WEM maintaining
the seasonal prices to be paid by the distributors at levels similar to those
in force in November 2002. Therefore, the 2003 energy winter prices continue,
and the 2003/2004 energy summer prices will continue, to omit the increase
required to cover the spot prices payable to the generation companies. As a
consequence, the seasonal stabilization fund (created by the regulation to
collect the seasonal stabilization prices paid by distributors and to provide
the amounts to cover the gap between the spot prices that vary on an hourly
basis and the seasonal prices that are passed through to the end users by the
distributors) is now depleted. In accordance with Resolution SE No. 406/2003,
the Secretary of Energy established a priority for payments in the WEM by which
generators are compensated only after certain other creditors of the WEM are
compensated, granting hydro-generators priority only in collecting the part of
their remuneration which reflects their operational and transmission costs, and
eliminated the right of hydro-generators to collect the total energy price
sanctioned in the electricity pool market. Additionally, on August 14, 2003 the Secretary of Energy took further
measures pursuant to Resolution SE No. 240/2003 which temporarily imposed,
until certain alleged restrictions in the supply of natural gas are overcome,
an artificial cap on the energy spot price as a result of ignoring the actual
restrictions of gas supply to electricity generation companies which may occur
in real time operation for calculating the spot price. According to the
Resolution, the WEM does not consider variable costs reflecting liquid fuels
prices but only natural gas tariffs, in order to recognize marginal costs to
define the energy spot price, and excludes the possibility that water values
declared by hydro facilities and hourly import transactions of energy may set
spot prices in the event they are higher than the variable costs of the
marginal unit using natural gas. Further, Resolution SE No. 240/2003 also
discriminates against hydro generators, by not permitting them to recognize
their generation costs in excess of the node-price, whereas thermal generators
variable costs over and above the node-price continue to be recognized as a
temporary excess dispatch cost. Government Resolutions adopted during 2004 Argentina is currently going through what has been called a Natural Gas
Crisis. Towards the end of the first quarter of 2004, the Argentine
Government announced the restriction of natural gas exports and distribution
within Argentina. Most recent publications establish the main cause of these
restrictions to be the lack of investment in extraction and transportation
capacity within Argentina, as well as the increased internal demand for natural
gas. According to analysts, both elements are due to the pesification and
freezing of the price of natural gas in Argentina 42




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since the beginning of year 2002. This artificial low price would have
encouraged consumers to replace more expensive oil derivative energy for
natural gas, leading to an explosive growth in demand. On the other hand, the
fixed price of natural gas discouraged producers from investing in exploration
and increasing their extraction and transportation capacity. Consequently,
current supply is not able to satisfy internal demand and export commitments.
The Argentine Government Authorities have responded with distribution
restriction resolutions seeking to reduce the risk of residential shortages.
This crisis and the Governments resolutions have affected the electricity
industry in Argentina, and also the normal operation of the Chilean energy
industry, an important destination of Argentine exports. In February, 2004, the Secretary of Energy by means of Resolution 93/2004
increased seasonal prices, introducing a segmentation of demand in three
levels:  i)
    
    Residential demand whose consumption is less than 10 kW;ii)
    
    Commercial and small and medium sized industrial consumption between
10 and 300 kW; andiii)
    
    Large customers whose consumption is greater than 300 kW. The seasonal price for residential customers remained the same as
established in November 2002, but the seasonal price for the other two segments
increased nearly 80% and 110%, respectively. These price increases have not restored the balance of the seasonal
stabilization fund, and therefore have not affected resolutions 240/2003 and
406/2003, previously discussed, which are still in place. Environmental Regulation The operations of electricity generation facilities are subject to federal
and local environmental laws and regulations, including Ley Nacional No. 24,051
(the Hazardous Waste Law) enacted in January 1992 and its implementing
decree, Decree No. 831/93, which regulates the disposal of hazardous waste in
Argentina. Pursuant to the terms and conditions established by the Argentine
government for the concession relating to El Chocóns hydroelectric facilities
and the sale of Costanera, El Chocón and Costanera must comply with certain
reporting rules, monitoring obligations and emission standards. The failure by
El Chocón and Costanera to comply with these requirements as well as federal
and local environmental legislation entitles the Argentine government to impose
penalties, and in certain cases, cancel the El Chocón concession agreement or
order the suspension of operations of Costanera. Costanera and El Chocón have
filed reports pursuant to the Hazardous Waste Law and its implementing decree,
Decree 831/93. They have been informed that they have been classified as
eventual generators of hazardous waste. Endesa-Chile believes that El Chocón
and Costanera are in compliance with all material obligations relating to
environmental matters. Emergency Measures As of the date of this annual report, the Argentine electricity regulatory
framework is undergoing profound changes, the effect of which is hard to
evaluate in terms of long-lasting impacts. Although Law 24,065 has not been
formally repealed, the trend that has been observed since 2002 leads us to
believe that there will be increased state intervention that will modify the
regulatory framework described in this annual report. In particular, in
January 2002, the Argentine congress approved the Public Emergency and Reform
of the Exchange Regulation Law 25,561 (the Economic Emergency Law). This law
authorized the forced renegotiation of public service contracts, imposed the
conversion of dollar denominated obligations into Argentine pesos at a rate of
AR$1 per US$1 (with some exceptions) and empowered the Federal Executive Power
to implement, among other things, additional monetary, financial and exchange
measures to overcome the economic crisis in the medium term, such as create a
system for determining the rate at which the Argentine peso is to be exchanged
into foreign currencies. From December 3, 2001 to May 6, 2003, the Argentine government imposed a
number of monetary and currency exchange control measures that included
restrictions on the free transfer of funds deposited with banks and severe
restrictions on transferring funds abroad, with certain exceptions for
transfers related to foreign trade and other authorized transactions. The
restrictions requiring the Argentine Central Banks prior authorization for the 43




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transfer of funds abroad in order to make payments of principal and/or
interest, which were in place during 2002, were progressively reduced from
January to May 2003. Since the beginning of the Argentine crisis, many companies in Argentina,
especially those with foreign currency indebtedness, have fallen behind
temporarily on payments of certain debt obligations, and have had to constantly
renegotiate new payment schedules and terms with creditors. During 2003, we
have rolled over US$109 million in financial debt, paid US$31 million in
principal and extended the maturity of this debt from 12 to 18 months.
Costanera is delayed on payments aggregating US$3.6 million of bank debt,
representing the entire remaining principal amount outstanding under an export
credit facility. Costanera is in advanced discussions with the lender under
this facility and expects to reach an agreement providing for partial payment
and a rescheduling of the remainder of the debt. Operations in Peru Operating Income from the companys business in Peru represented 19%, 20%
and 18% of Endesa Chiles total operating income for the years 2001, 2002 and
2003, respectively. Operating revenues and expenses for the three years are
shown in the following table: TOTAL OPERATING INCOME FROM OPERATIONS IN PERU Year ended December 31,2001
    
    2002
    
    2003(in millions of constant Ch$)Operating Revenues
    
    
    109,802
    
    
    
    118,745
    
    
    
    111,739Operating Expenses
    
    
    43,111
    
    
    
    47,563
    
    
    
    50,442Operating Income
    
    
    66,692
    
    
    
    71,182
    
    
    
    61,297
 For details on the variations of yearly monetary figures, please see Item
5. Operating and Financial Review and Prospects. Endesa-Chile, through its subsidiary Edegel operates a total of eight
generation plants in Peru, with a total installed capacity as of December 2003
of 967 MW. Edegel owns seven hydroelectric power plants, with a total
installed capacity of 739 MW, two of which are located 280 kilometers from Lima
and five of which are located at an average distance of 50 kilometers from
Lima. The company has one thermal plant located in the city of Lima, which
represents the remaining 228 MW of total installed capacity. Installed capacity in 2002 reached 1,003 MW, slightly higher than the 2003
installed capacity of 967 MW. On July 31, 2003, 36 MW of the capacity of the
Santa Rosa thermal power plant was reduced on the system. Endesa-Chiles
hydroelectric and thermal generation plants in Peru represent 22% of the
countrys total electricity generation capacity according to the countrys
official December 2003 statistics. The following chart sets forth the installed capacity of Edegel, our
Peruvian subsidiary: INSTALLED CAPACITY PER SUBSIDIARY IN PERU (MW)2001
    
    2002
    
    2003Edegel S.A.(1)Huinco (Hydroelectric)
    
    
    247
    
    
    
    247
    
    
    
    247Matucana (Hydroelectric)
    
    
    129
    
    
    
    129
    
    
    
    129Callahuanca (Hydroelectric)
    
    
    75
    
    
    
    75
    
    
    
    75Moyopampa (Hydroelectric)
    
    
    65
    
    
    
    65
    
    
    
    65Huampani (Hydroelectric)
    
    
    30
    
    
    
    30
    
    
    
    30Yanango (Hydroelectric)
    
    
    43
    
    
    
    43
    
    
    
    43
 44




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(MW)2001
    
    2002
    
    2003Chimay (Hydroelectric)
    
    
    151
    
    
    
    151
    
    
    
    151Santa Rosa (Thermal) (2)
    
    
    264
    
    
    
    264
    
    
    
    228Total
    
    
    1,003
    
    
    
    1,003
    
    
    
    967
   (1)
    
    The installed capacity figures relate to the recognition of effective
capacity, updated and approved by the Comité de Operación Económica del
Sistema, or COES, Peru.(2)
    
    On July 31, 2003, 35.9 MW of the Santa Rosa plant were withdrawn, leaving
a capacity of 227.7 MW, because the cost of maintaining certain units
operational exceeded the revenues received for their capacity. Endesa-Chiles total electricity generation in Peru reached 4,458 GWh in
2003, 4% higher than the electricity generation of 4,279 GWh in 2002, and also
greater than the 4,355 GWh in 2001. Endesa-Chiles generation market share was
approximately 22% of total electricity production in Peru in 2003,
approximately 22% for 2002 and 23% for 2001. ELECTRICITY GENERATION PER SUBSIDIARY IN PERU (GWh)2001
    
    2002
    
    2003Edegel S.A.
    
    
    4,355
    
    
    
    4,279
    
    
    
    4,458Total
    
    
    4,355
    
    
    
    4,279
    
    
    
    4,458
 Hydrological conditions and reservoir levels allowed hydroelectric
generation to amount to 99.6% of Edegels total production in 2003. Edegels
hydroelectric generation has accounted for more than 99% of its total
generation since 2001. The portion of electricity supplied by Edegels own
generation was 95.9% of total physical sales, requiring only a small amount of
purchases to satisfy contractual obligations to customers. Edegel maintains contractual agreements with diesel suppliers which fix
the transportation cost of the fuel but do not have fixed oil prices or oil
supply amounts. The amount purchased pursuant to these contracts responds to
estimated needs at the time of purchase, and price is determined by market
levels at that time. The following table sets forth the electricity generation and purchases
for Edegel over the past three years: PHYSICAL GWh PRODUCTION AND PURCHASES IN PERU Year ended December 31,2001
    
    2002
    
    2003Electricity Production
    
    
    4,355
    
    
    
    4,279
    
    
    
    4,458Electricity Purchases.
    
    
    64
    
    
    
    65
    
    
    
    189Total (1)
    
    
    4,419
    
    
    
    4,344
    
    
    
    4,674
   (1)
    
    Energy production plus energy purchases exceed electricity sales due to
energy losses and own consumption. In Peru there is only one interconnected system, Sistema Electrico
Interconectado Nacional, or the SINAC. Electricity demand in the SINAC
increased 5% during 2003 when compared to 2002, reaching a total yearly demand
of 20,690 GWh. Increased demand in Peru is partially a consequence of larger
electricity demand by the mining industry whose growth in electricity demand
has been driven by increasing copper and gold production due to higher
international prices for copper and gold. On November 21, 2003, an electricity supply contract was signed with
Compañía Minera Ares S.A.C.(Minera Ares), a mining company held by the
Hochschild Group, for 12 MW of capacity and associated energy. The contract
has been effective since January 2004 and has a term of 5 years. Minera Ares
exploits minerals (gold and 45




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silver) for the mining units of Caylloma (2 MW), Minera Ares (5 MW) and
Arcata (5 MW). With this contract Edegel is not only increasing its mining
company customers but also expanding into a new geographic area in Peru. Edegels physical sales in 2003 increased nearly 7% compared to sales in
2002. The percentage of contracted sales increased in 2003 as compared to 2002
and 2001, due to an increase in sales to unregulated industrial customers.
Sales to regulated customers decreased to 47% of contracted sales in 2003, as
compared to 50% in 2002 and 56% in 2001. An average of seven large industrial
and commercial customers represent the contracted sales in every period. The
average number of years to expiration of these contracts is approximately 11
years. The distribution of Edegels physical sales, in terms of customer segment,
is shown in the following table: ENDESA-CHILE PHYSICAL SALES PER CUSTOMER SEGMENT IN PERU Year ended December 31,2001
    
    2002
    
    2003Sales
    
    % of Sales
    
    Sales
    
    % of Sales
    
    Sales
    
    % of Sales(GWh)
    
    Volume
    
    (GWh)
    
    Volume
    
    (GWh)
    
    VolumeContracted sales
    
    
    2,931
    
    
    
    69.1
    
    
    
    2,829
    
    
    
    68.0
    
    
    
    3,134
    
    
    
    70.5Non-Contracted sales
    
    
    1,308
    
    
    
    30.9
    
    
    
    1,329
    
    
    
    32.0
    
    
    
    1,309
    
    
    
    29.5Total Electricity sales
    
    
    4,239
    
    
    
    100.0
    
    
    
    4,158
    
    
    
    100.0
    
    
    
    4,443
    
    
    
    100.0
 Because SINAC is the only interconnected transmission system in Peru, all
generation companies connected thereto may be considered competitors. However,
Endesa-Chiles most important competitors in Peru are the hydroelectric
generators, Electroperú and Egenor, whose capacity is approximately 860 MW and
553 MW, respectively. Electricity Generation in Peru  Industry Structure and Regulatory Framework The regulatory framework for the electricity industry in Peru was modeled
after the regulatory framework in Chile. Its main regulations are: Law of
Electrical Concessions (Law Decree No. 25,844) and its corresponding regulation
(Supreme Decree No. 009-93 EM), Technical Regulation on the Quality of the
Electrical Supply (Supreme Decree No. 020-97 EM), Antitrust Law on the
Electrical Sector (Law No. 26,876) and its corresponding regulation (Supreme
Decree No. 017-98-ITINCI), Law No. 26,734 which created the regime that
supervises Investments in Energy and its Regulation (Supreme Decree No.
005-97-EM), in addition to the supplementary Law 27,699 of Organismo Supervisor
de la Inversión en Energía, or OSINERG (the Peruvian regulatory electricity
authority) and the regulation for resolution of controversies that arise within
this institution (Resolution No. 0826-2002-OS/CD). Some of the most important characteristics of the regulatory framework of
the electricity industry in Peru are (i) vertical disintegration, or separation
of the three main activities: generation, transmission and distribution; (ii)
freedom of prices for the supply of energy in competitive markets and a system
of regulated prices based on the principle of efficiency (correct allocation
and utilization of resources and the supply of electricity at minimum costs);
and (iii) private operation of the interconnected electricity systems subject
to the principles of efficiency and service quality (compliance with the
technical requirements established in regulations affecting the sector). The electricity sector in Peru consists of one main interconnected system,
SINAC. As of October 2000 the two prior interconnected systems, Sistema
Interconectado Central-Norte (SICN), and Sistema Interconectado Sur (SIS)were
connected and formed the single integrated system. In Peru, the Ministerio de Energía y Minas, or the Ministry of Energy and
Mines, defines energy sector policies, and regulates matters relating to the
environment, and the granting, supervision, maturity and termination of
licenses, authorizations and concessions for generation, transmission, and
distribution activities, among others. The Organismo Supervisor de la
Inversión en Energía, or OSINERG, is an autonomous public regulatory entity
established in 1996 to control the compliance with legal and technical
regulations related to electrical and hydrocarbon activities, as well as the
conservation of the environment in connection with the development of these 46




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activities. In September 2001, the Comisión de Tarifas de Energía, or
CTE, was absorbed by OSINERG. As a consequence, OSINERG  ́s Gerencia Adjunta de
Regulación Tarifariaperforms CTEs functions, which include publishing the
regulated tariffs. The Comité de Operación Económica del Sistema, or COES,
coordinates the dispatch of electricity of Perus SINAC in a manner similar to
the CDECs in Chile and prepares the technical and financial study that serves
as a basis for the semi-annual busbar (i.e., node) tariff calculations.
However, Perus COES consists of generation and transmission companies, whereas
in Chile the CDECs include only generation companies. As of October 1997, technical standards have been established in order to
compare the quality and conditions of the service provided by electricity
companies. As of October 1999, companies that do not meet the minimum quality
standards are subject to fines and penalties imposed by OSINERG, as well as to
compensatory mechanisms for customers who received substandard service. Dispatch and Pricing The dispatch methodology and pricing at the generation level in Peru are
virtually identical to the dispatch methodology and pricing in Chile, except
that node prices are referred to as busbar prices in Peru and unregulated
customers in Peru are those with demand greater than 1 MW, whereas in Chile
unregulated customers are those with demand greater than 0.5 MW. Additionally,
since 1999, capacity payment is determined with regard to a fixed guaranteed
component based on the efficiency of each plant and a variable component
dependant on the level of dispatch of each plant. Transmission At the transmission level in Peru, transmission lines are divided into
principal and secondary systems. The principal system lines are accessible to
all generators and allow electricity to be carried out to all customers. The
transmission concessionaire receives tariff revenues and connection tolls
reflecting a charge per kW. The secondary system lines are accessible to all
generators, but are used to serve only certain customers, who in turn are
responsible for making payments related to their use of the system. Distribution Pricing Sales by generation companies to distribution companies of capacity or
energy for resale to regulated customers must be made at busbar prices set by
OSINERG. Busbar prices for capacity and energy are published every six months,
in April and October and become effective the first day of May and November,
respectively. Busbar prices are the maximum prices for electricity purchased
by distribution companies that can be transferred to regulated customers.
Although these prices are quoted in Peruvian soles, the calculations are mainly
performed in US$. Other conditions of distribution pricing are similar to
those in Chile. The electricity tariff for a customer of the Servicio Público de
Electricidad(regulated clients) includes charges for capacity and energy from
generation and transmission (busbar prices) and from the VAD which considers a
regulated return over capital investments, operating and maintenance fixed
charges and a standard for energy distribution losses. Concessions A concession for electricity generation activities is required when a
hydroelectric or geothermal power plant has an installed capacity in excess of
10 MW. An authorization for electricity generation activities is required when
either a thermoelectric, hydroelectric or geothermal power plant has an
installed capacity in excess of 500 kW. A concession of electricity generation activity constitutes an agreement
between the generator and Ministry of Energy and Mines while an authorization
is merely a unilateral permission granted by the Ministry. Authorizations and
concessions are granted by the Ministry under the procedures set forth in the
Law of Electrical Concessions and its regulations and amendments. In
accordance with national developments, the Ministry currently establishes the 47




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priorities to admit new applications for temporal and definitive
concessions to be integrated in the interconnected systems. Changes to the Law of Electricity Concessions Currently, the Dirección General de Electricidad at the Ministerio de
Energía y Minas(the Ministry of Energy and Mines) has summoned regulators,
customer representatives and electricity operators who are members of the
Comité de Energía de la Sociedad Nacional de Minería, Petróleo y Energía

(National Energy Committee) to discuss changes to the electricity regulatory
framework. The changes to be discussed involve three main areas of reform: the
consolidation of the electricity sector, the improvement of economic
efficiency, and certain technical and procedural matters. A subcommittee has
been formed to address each of these three areas. Within these areas, the
National Energy Committee will aim, among other goals, to encourage private
investment and increase competition in the electricity sector, improve the
quality of the transmission systems, regulate international electricity
transmission line interconnections, improve the methodology used to determine
generation costs, adjust the definition of regulated customer and define the
procedures for granting concessions. Operations in Colombia Operating Income from the companys business in Colombia represented 21%,
22%, and 25% for years 2001, 2002 and 2003 of Endesa-Chiles total operating
income. Operating revenues and expenses for the three years are shown in the
following table: TOTAL OPERATING INCOME FROM OPERATIONS IN COLOMBIA Year ended December 31,2001
    
    2002
    
    2003(in millions of constant Ch$)Operating Revenues
    
    
    222,513
    
    
    
    228,971
    
    
    
    208,595Operating Expenses
    
    
    147,391
    
    
    
    152,842
    
    
    
    122,611Operating Income
    
    
    75,122
    
    
    
    76,129
    
    
    
    85,984
 For details on the variations of yearly monetary figures, please see Item
5. Operating and Financial Review and Prospects. Endesa-Chiles presence in Colombia is based on two electricity generation
companies, Betania and Emgesa. Endesa-Chile has an 85.6% ownership interest in
Betania, and through Betania has a 22.4% indirect ownership interest in Emgesa.
Betania is the operator of Emgesa, although it receives no compensation in
return. As of December 31, 2003 Endesa -Chile, through both subsidiaries, operated
a total of nine generation plants in Colombia, with a total installed capacity
of 2,589 MW as of December 2003, of which 93.4% is hydroelectric. Betania has
one 540 MW hydroelectric facility south of Bogotá. Emgesa had a total
installed capacity of 2,049 MW as of December 31, 2003, 89% of which was
hydroelectric. Emgesas main facilities are located in the Cundinamarca and
Huila regions of Colombia. In April 2004, Emgesa added a new power plant to
its operations, Tequen Dama, this plant has an installed capacity of 19 MW and
is located along the Bogota River. The total combined installed capacity of both companies decreased by 145
MW in 2003 as compared to 2002. This reduction of installed capacity was
caused by the following changes during 2003:  
    
    On October 10, 2003, Emgesas Cadena Vieja (Cadena Casalaco)
facility suspended operations, because the costs associated with
maintaining this plant operational were greater than the revenues from
these plants electricity generation,which had accounted for 241 MW of
hydro installed capacity.
    
    On October 25, 2003, Cadena Pagua (Cadena Nueva) officially
increased installed capacity by 20 MW based on the improvements
performed on the refrigeration systems of the plant. 48




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
    
    Four minor hydroelectric plants were incorporated into the
electricity system with a total capacity of 76 MW. Endesa-Chiles hydro-electric and thermal generation plants in Colombia
represent approximately 20% of the countrys total electricity generation
capacity, according to the countrys December 2003 official statistics.
Although this 2003 market share is equal to that of 2002, it is lower than
Endesa-Chiles installed capacity market share of 2001, which was approximately
23% of the Colombian system. This decline in the past two years can be
attributed to both the suspension of the Cadena Vieja hydro facility (241 MW)
and the introduction of new hydro facilities owned by Chivor S.A. and Isagen
S.A., our main competitors in Colombia. The following table sets forth the installed generation capacity of
Endesa-Chiles Colombian subsidiaries: INSTALLED CAPACITY PER SUBSIDIARY IN COLOMBIA (MW)2001
    
    2002
    
    2003EmgesaGuavio (Hydroelectric)
    
    
    1,150
    
    
    
    1,150
    
    
    
    1,150Cadena Vieja (Hydroelectric)
    
    
    544
    
    
    
    241
    
    
    
    Cadena Nueva (Hydroelectric)
    
    
    580
    
    
    
    580
    
    
    
    600Termozipa (Thermal)
    
    
    220
    
    
    
    223
    
    
    
    223Minor Plants (Hydroelectric)
    
    
    
    
    
    
    
    
    
    
    76BetaniaBetania (Hydroelectric)
    
    
    540
    
    
    
    540
    
    
    
    540Total
    
    
    3,034
    
    
    
    2,734
    
    
    
    2,589
 Approximately 91% of Endesa-Chiles total installed capacity in Colombia
is hydroelectric. As a result, our physical generation depends on the
reservoir levels and yearly rainfalls. Endesa-Chiles total electricity
generation in Colombia reached 10,794 GWh in 2003 compared to 10,699 GWh in
2002 and 10,189 registered in 2001. Endesa-Chiles generation market share in
Colombia has remained stable since 2001 at approximately 23%. In addition to
hydrological conditions, the amount of generation is dependant on the companys
commercial strategy. Colombias electricity market is less regulated than the
markets of the other countries in which Endesa-Chile operates. Companies are
free to offer their electricity at the price that they determine convenient at
any point in time, as opposed to being forced by a centralized operating entity
to generate according to the minimum marginal costs of the system. The following table sets forth the energy generation for each of
Endesa-Chiles Colombian subsidiaries: ENERGY GENERATION PER SUBSIDIARY IN COLOMBIA (GWh)2001(1)
    
    2002(1)
    
    2003Emgesa
    
    
    8,419
    
    
    
    8,870
    
    
    
    9,205Betania
    
    
    1,770
    
    
    
    1,829
    
    
    
    1,589Total
    
    
    10,189
    
    
    
    10,699
    
    
    
    10,794
   (1)
    
    The generation figures were corrected in order to show gross rather than
net generation. Hydrological conditions in 2003 translated into lower generation for
Betania because of reduced rainfall in its geographic area when compared to
2002, but greater hydroelectric generation in Emgesa, due to increased rainfall
in its geographic area allowing for a decrease in thermal generation and a
reduction in the level of physical energy purchases, when compared to 2002.
Considering that thermal generation is not significant, accounting for only
8.6% of Endesa-Chiles total installed capacity in Colombia at December 2003
and less than 2% of total generation in Colombia during 2003, maintaining
long-term contracts with coal suppliers to assure coal supply is not critical 49




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and these contracts are therefore negotiated annually. Since 2001,
hydroelectric generation has composed over 97% of Endesa-Chiles total
generation in Colombia. The following table sets forth the levels of electricity production and
purchases for Endesa-Chiles Colombian subsidiaries for the past three years: PHYSICAL GWh PRODUCTION AND PURCHASES IN COLOMBIA Year ended December 31,2001
    
    2002
    
    2003Electricity Production
    
    
    10,189
    
    
    
    10,699
    
    
    
    10,794Electricity Purchases
    
    
    4,485
    
    
    
    4,023
    
    
    
    3,790Total (1)
    
    
    14,674
    
    
    
    14,722
    
    
    
    14,585
   (1)
    
    Energy production plus energy purchases exceed electricity sales due to
energy losses and own consumption. The sole interconnected electricity system in Colombia is the Colombian
National Interconnected System, or the Colombian SIN. Electricity demand in
the Colombian SIN increased 2.9% during 2003 as compared to 2002, reaching a
total yearly consumption of 46,113 GWh. Similarly, in 2002, electricity
consumption in the Colombian SIN increased 3.3%, from 43,373 GWh in 2001 to
44,811 in 2002. Endesa-Chiles physical sales, on the other hand, declined in
both 2003 and 2002 as compared to 2001. This decline was a consequence of the
companys commercial strategy, which determined convenient to reduce energy
purchases in the pool market. The demand in Colombias electricity market has also been affected by the
interconnection with the electricity system of Equador, which began operations
in March 2003, referred to as International Transactions of Energy (TIE).
During 2004 an interconnection line between Equador and Peru is expected to be
operational. Both interconnections with transmission lines represent a
potential for greater competition, because generators in Equador may generate
and export electricity to Colombia. However, based on the level of capacity
and price levels in each country, it is more likely that Colombian generators
will be exporting electricity to Equador. During 2003, Emgesa served an average of 715 customers, including both
regulated and non regulated customers, and Betania served a total of 7
regulated customers. Endesa-Chiles sales to the distribution company Codensa
accounted for 34% of its total sales in 2003. Physical sales to the six
largest non-regulated customers reached 2.1% altogether. The distribution of physical sales, in terms of customer segment, is shown
in the following table: ENDESA-CHILE PHYSICAL SALES PER CUSTOMER SEGMENT IN COLOMBIA Year ended December 31,2001
    
    2002
    
    2003Sales
    
    % of Sales
    
    Sales
    
    % of Sales
    
    Sales
    
    % of Sales(GWh)
    
    Volume
    
    (GWh)
    
    Volume
    
    (GWh)
    
    VolumeContracted sales
    
    
    9,211
    
    
    
    63.1
    
    
    
    8,373
    
    
    
    57.2
    
    
    
    9,333
    
    
    
    64.4Non-Contracted sales
    
    
    5,380
    
    
    
    36.9
    
    
    
    6,266
    
    
    
    42.8
    
    
    
    5,148
    
    
    
    35.6Total Electricity sales
    
    
    14,591
    
    
    
    100.0
    
    
    
    14,639
    
    
    
    100.0
    
    
    
    14,481
    
    
    
    100.0
 Endesa-Chiles most important competitors in Colombia include the
following state-owned companies: Empresas Públicas de Medellín, whose total
installed capacity was 2,471 in December 2003, Isagen, whose total installed
capacity was 2,091 MW in December 2003, Corelca, whose installed capacity was
1,178 MW in December 2003. Endesa-Chile also competes with the following
publicly owned companies in Colombia: EPSA, whose total installed capacity was
1,059 MW in December 2003 and Chivor, which is owned by AES, whose total
installed capacity was 1,000 MW in December 2003. 50




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Electricity Generation in Colombia  Industry Structure and Regulatory
Framework The Colombian constitution provides that it is the governments duty to
ensure that public services are made available in an efficient manner to
everyone. Ley Número 142of 1994 (Law 142) provides the broad regulatory
framework for the provision of residential public services, including
electricity, and Ley Número 143of 1994 (the Colombian Electricity Act)
provides the regulatory framework for the generation, trading, transmission and
distribution of energy. Law 142 establishes that the provision of electricity services is an
essential public service that may be provided by government and private sector
entities. Utility companies are required to: (1) ensure continuous and
efficient service without abuse of a dominant position; (2) facilitate
low-income users access to subsidies granted by the authorities; (3) inform
users regarding efficient and safe use of the services; (4) protect the
environment; (5) allow access and interconnection to other public service
companies, their large users, or to their services; (6) cooperate with the
authorities in the event of emergency to prevent damage to the users; and (7)
report the commencement of their activities to the appropriate regulatory
commission and the Superintendencia de Servicios Públicos Domiciliarios
(Superintendency of Public Services) (SSP). The Colombian Electricity Act sets out the following principles for the
electricity industry, which are implemented in the resolutions promulgated by
the Comisión de Regulación de Energía y Gas(CREG) and other regulatory
bodies governing the electricity sector: (1) efficiency  the correct
allocation and use of resources and the supply of electricity at minimum cost;
(2) quality  compliance with the technical requirements established in
regulations affecting the sector; (3) continuity  a continuous electricity
supply without unjustified interruptions; (4) adaptability  the incorporation
of modern technology and administrative systems to promote quality and
efficiency; (5) neutrality  the impartial treatment of all electricity
consumers; (6) solidarity  the provision of funds by higher  income consumers
to subsidize the subsistence consumption of lower income consumers; and (7)
equity  an adequate and non  discriminatory supply of electricity to all
regions and sectors of the country. Prior to the passage of the Colombian Electricity Act, the Colombian
electricity sector was extensively vertically integrated. The Colombian
Electricity Act separately regulates generation, transmission, trading and
distribution (the Activities). Under this law, any company, domestic or
foreign, may undertake any of the Activities. New companies, however, must
engage exclusively in one of the Activities. Trading can be combined with
either generation or distribution. Companies which were vertically integrated
at the time the Colombian Electricity Act became effective may continue to
engage in all the Activities in which they were engaged prior to the
effectiveness of the Colombian Electricity Act but must maintain separate
accounting records for each Activity. Effective as of January 1, 2002, the market share of generators, traders
and distributors has been limited as follows:  
    
    a generator may not own more than 25% of the installed generating capacity in Colombia;
    
    a trader may not account for over 25% of the trading activity in the Colombian SIN; and
    
    a distributor cannot have more than 25% of the distribution activity in the Colombian SIN. In order to calculate these limits, the participation of a given company
is added to those of other companies of the same corporate group, of parent
companies, of affiliates and of subsidiaries. In addition, effective as of
January 1, 2002, generators may not own more than a 25% interest in a
distributor, and vice versa; however, this limitation only applies to
individual companies and does not preclude cross-ownership by companies of the
same corporate group, nor by its parents, affiliates or subsidiaries. In 2000,
CREG issued Resolution 42 which established that no generator may increase,
directly or indirectly, its participation in the Generation Market pursuant to
acquisitions or mergers, if the total MW of Net Effective Capacity resulting
therefrom exceed the so-called Capacity Band as set by the CREG. Through
Resolution 5 of 2002, CREG set the Capacity Band at 4,250 MW. The CREG042-1999
resolution also includes rules to determine the participation of a company and
its investors in the generation, distribution and trading businesses. 51




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The Ministry of Mines and Energy defines the governments policies for the
energy sector. Other government entities which play an important role in the
electricity industry are: (1) the Superintendencia de Servicios Públicos
Domiciliarios(SSPD), which is in charge of overseeing and inspecting the
companies incorporated as public services companies; (2) the CREG, which is in
charge of regulating the energy and gas sectors; and (3) the Unidad de
Planeación Minera y Energética(Mining and Energy Planning Agency), which is in
charge of planning the expansion and along with the Comité Asesor para el
Planeamiento de la Transmisión(CAPT), determines the expansion of the
generation and transmission network, among other tasks. Under the Colombian Electricity Act, the CREG is empowered to issue
mandatory regulations governing the technical and commercial operation of the
sector and the setting of charges for regulated activities. The CREGs main
functions are as follows: (1) establish the conditions for the gradual
deregulation of the electricity sector toward an open and competitive market;
(2) approve charges for the transmission and distribution networks and charges
for trading to regulated customers; (3) establish the methodology for
calculating and establishing maximum tariffs for supplying the regulated
market; (4) establish the operations regulations for the planning and
coordination of the operation of the Colombian National Interconnected System;
(5) establish technical requirements for the quality, reliability and security
of supply; and (6) protect customers rights. CREG resolutions do not require Congressional approval. Law 142 of 1994
establishes that any CREG Resolution, that gives rise to a right or obligation
of an individual utility, may be contested first through a recurso de
reposición, an appeal filed with the CREG which makes a decision or promulgates
an administrative act, requesting reversal, modification or clarification of
its decisions or Resolutions; and secondly through lawsuits before
administrative courts. Resolutions of a general nature may be directly
contested through a lawsuit before an administrative court. CREG also has the
authority to resolve disputes between participants in the electricity and gas
sectors, per their request, through arbitration, when the dispute involves the
interpretation of operational or commercial rules. The generation sector is organized on a competitive basis with generation
companies selling their production on the electricity pool market in an energy
pool known as the Bolsa de Energía (the Bolsa) at the spot price or by
long-term private contracts with certain other market participants and
non-regulated users at freely negotiated prices. The Colombian SIN is the
Colombian electricity system formed by the following elements: the generation
plants, the interconnection grid, the regional and inter-regional transmission
lines, the distribution lines and the electrical loads of the users. Betania
and Emgesa are part of the SIN. The spot price is the price paid by the
participant in the wholesale market for energy dispatched under the direction
of the Centro Nacional de Despacho (CND). The hourly spot price paid for
energy reflects prices offered by generators in the Bolsa and the respective
supply and demand. Generators connected to the SIN also receive a capacity
charge provided they meet certain conditions established in the CREG Resolution
116 of 1996 (Resolution 116), as amended by Resolution 113 of 1998,
Resolutions 47 and 59 of 1999 and Resolutions 77 and 111 of 2000. The capacity
charge is calculated pursuant to formulas also included in such Resolutions.
Since the creation of the wholesale electricity market in July of 1995,
relatively stable amounts of energy have been exchanged between generators and
distribution companies, acting in their capacity as traders. Initially,
distribution companies were required to enter into contracts to supply 100% of
their unregulated market and, although this requirement has gradually been
reduced, they have still tended to secure contractors for a large proportion of
their unregulated market. Dispatch and Pricing The purchase and sale of electricity can take place between generators,
distributors acting in their capacity as traders, traders (who do not generate
or distribute electricity) and unregulated consumers. There are no
restrictions limiting new entrants into the market as long as the participants
comply with the applicable laws and regulations. The principal function of the Bolsa is to allow for the sale of excess
energy not committed under contracts and for spot sales of electricity. Its
operations are similar to the electricity pools which operate in England and
Wales. In the Bolsa an hourly spot price for all units dispatched is
established based on the offer price of the highest priced generating unit
dispatched for that period. Every day the CND receives price bids from all the
generators that participate in the Bolsa. These bids indicate the daily prices
at which the generators are willing to supply electricity and the hourly
available capacity for the following day. Based on this information, the CND
following the principle known as optimal dispatch (which assumes an infinite
transmission capacity through the network) ranks the 52




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generators according to their offer price, starting with the lowest bid,
thereby establishing on an hourly basis the merit order in which generators
would be dispatched in the following day to meet expected demand. The price in
the Bolsa for all generators is set by the costliest generator dispatched in
each hourly period under the optional dispatch. This price ranking system is
intended to ensure that national demand, increased by the total amount of
energy exported to other countries will be satisfied by the lowest cost
combination of available generating units in the country. During 2003,
international short-term electricity transactions were regulated through
Resolution CREG 004, which became effective when trade with Equador began.
Also, the CND performs the planned dispatch, which takes into consideration
the limitations of the network as well as every other condition necessary to
attend energy demands expected for the following day, in a secure, reliable and
cost-efficient manner. The planned dispatch is revised continuously by the CND
in response to any changes affecting the system (e.g., demand, actual plant
availability, system restrictions, etc.) that may take place throughout the
day. Differences among real dispatch and optimal dispatch give rise to what
are known as restrictions, which are settled for each generator in the
following way: restricted generators (those whose real generation is lower
than optimal dispatch) are charged with the difference, appraised at their
offer prices; and out-of-merit generators (those whose real generation is
greater than optimal dispatch) are credited with the difference, also appraised
at their offer price. The net value of these restrictions are assigned
proportionally to all the traders within the Colombian SIN, according to their
demands of energy. The attacks by guerrillas on the transmission
infrastructure gave rise to a significant increase in restrictions, which in
turn gave rise to claims from users given the subsequent increase of tariffs.
This situation forced CREG to issue Resolution 34 (2001) and some other
amending resolutions, in order to intervene in the settlement of the
restrictions, in such a manner that for the restricted generators, the
difference is appraised with the sum of the offer price and the spot price.
The out-of-merit generators have a maximum cap on the recognized price, in
accordance with pre-established values. This Resolution, which is still in
force, despite the fact that it had been announced as a temporary measure, has
been challenged, and in certain cases, has resulted in legal proceedings
initiated by the generators, who consider that the recognized prices do not
cover the costs associated with these restrictions. The dominance of hydroelectric generation and the marked seasonal
variations in Colombias hydrology result in a high degree of price volatility
in the Bolsa. In order to enhance predictability and mitigate the volatility
of spot sale prices, CREG introduced a new firm capacity charge pursuant to
Resolution 116 (the Capacity Charge), effective as of December 1, 1997,
amended by Resolution 113 of 1998, Resolutions 47 and 59 of 1999 and
Resolutions 77 and 111 of 2000. The Capacity Charge is a fixed monthly charge
intended to be equivalent to the capital costs of an open-cycle gas turbine.
The Capacity Charge remunerates generators for the firm capacity made available
to the Colombian SIN in periods of critical hydrology. Generators receive the
Capacity Charge payment regardless of actual plant dispatch, provided that
their declared availability exceeds certain limits and that they meet other
conditions set forth in Resolution 116 as amended. The Capacity Charge
provides generators with a source of fixed revenue which is dependent primarily
on the generators own firm energy. The CND can verify a generators declared
availability and the SSPD can impose sanctions if the actual availability is
lower than the declared availability. If a generators availability is less
than the minimum limit, the generator does not receive the total amount of the
Capacity Charge. If a generators availability is less than the minimum limit during the
dry season, between December 1 and April 30 of each year, the generator only
receives the Capacity Charge equivalent to its actual availability. Also, the
minimum limit for the rainy season (between May 1 and November 30 of each year)
is determined by the lowest value between the minimum limit and the average
actual availability during the dry season. In 2000, Resolution 111 modified the calculation of the Capacity Charge
for generation companies, shifting the balance in favor of thermal generators
over hydroelectric generators. The Capacity Charge of a given power plant is
calculated on the basis of the firm energy that could be supplied during a
period of drought assuming hydrological conditions that prevailed during the
El Niño phenomenon that occurred between 1992 and 1994. Pursuant to
Resolution 111 (2000) the capacity charge of a given power plant is calculated
by the basis of the firm energy that could be supplied during a hypothetical
period that assumes the most severe hydrological conditions. In March 2003, the Colombian pool market started the TIE with Equador.
During the year, Colombia exported 1,129 GWh and imported 67 GWh. Please refer
to the section titled Operations in Colombia for more information. 53




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Transmission Transmission companies (defined as those that operate networks of voltages
of at least 220kV, which in turn make up the National Transmission System, or
NTS) are required to provide third-party access to the transmission system
under equal conditions and are authorized to collect a tariff for transmission
services. If the parties do not agree upon the conditions of such access, the
CREG is entitled to impose an easement of access. The transmission tariff that
must be paid by generators, distribution companies and traders is composed of:  
    
    a connection charge that underwrites the cost of operating the
equipment that links the user to the transmission system, which is not
charged if the generator is the owner of the connecting equipment; and
    
    a usage charge, applicable only to traders, effective January 1,
2002. The NTS regulates income for transmission companies by means of a
guaranteed annual fixed income, subject to the compliance of certain minimum
availability, which is determined by the new replacement value of the networks
and equipment existing as of January 1, 2000, and in the case of new projects,
by the resulting value of the bidding processes awarded for the expansion of
the NTS. Until 2001, the monthly value required in order to compensate
transmission companies within the NTS was allocated as follows: 25% for
generators and 75% for NTS traders. Effective January 1, 2002, such value has
been allocated 100% among the traders of the NTS in proportion to the energy
demand registered by all of its clients. According to CREG Resolution 51/98, with the exception of Interconexión
Eléctrica S.A. E.S.P.(the government-owned transmission company), no company
can own more than 25% of the NTS. The expansion of the NTS is carried out according to model expansion plans
designed by Unidad Planeación Minero-Energética(UPME) and pursuant to
bidding processes opened to existing transmission companies and new companies,
which are handled by the Ministry of Mines and Energy following the guidelines
set forth in CREG Resolution 51 of 1998. According to such Resolution, the
construction, operation and maintenance of new projects is awarded to the
Company that demands the lowest present value of cash flows needed for carrying
out the project. Distribution Distribution is defined as the operation of local networks at below 220
kV. Any user may have access to a distribution network provided the user pays
a connection charge. The CREG regulates distribution prices and operations.
Distribution prices should permit distribution companies to recover their
reasonable costs, including operating, maintenance and capital costs. The use
of the system charges (DUOS charges) for each company is approved by CREG and
varies depending on the voltage level. CREG must calculate DUOS charges for each company. The methodology set by
CREG for establishing charges for the five years ending December 31, 2002 is
contained in Resolution 99 of 1997 and is based on the replacement cost of the
distribution assets prevailing at the moment the charges are being calculated
(the calculation method assumes that the marginal cost for new projects is
lower than or equal to the approved average cost, and allows any excess over
the average cost to be charged to the users interested in projects that do not
meet such condition) and an assumed opportunity cost of capital, as well as
operation and maintenance costs. Trading Trading is the resale directly to end users of electricity purchased in
the wholesale market and may be conducted by generators, distributors or
independent agents which must comply with the requirements of the CREG.
Trading prices for unregulated users are freely agreed upon by the parties.
Trading to regulated users is subject to a regulated freedom regime where the
tariffs are set by each trader using the tariff options based on a formula
established by CREG in Resolution 31 (1997) for the 5-year period ending on
December 31, 2002. Tariffs are determined pursuant to a combination of:  
    
    general cost formulas given by CREG; and
    
    individual trading costs approved by CREG for each trader. 54




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The approved costs are maximum costs. Thus the traders may set tariffs
applying lower costs supported by economic reasons, duly evidenced. Tariffs
include, among others, the costs for the purchase of electricity by the trader,
transmission charges, distribution charges and a margin to cover the risks of
the activity and the return on the investment. The distribution market is divided into regulated and unregulated customer
markets. Customers in the unregulated market are free to contract electricity
supplies directly from a generator or distributor, acting in their capacities
as traders, or from a pure trader. Initially, the unregulated customer market
consisted of customers with a peak demand of more than 2 MW, which corresponds
to approximately 260 large industrial and commercial customers and represents
about 5% of the supply market. This peak demand threshold was reduced to 1 MW
as of January 1, 1997, to 0.5 MW as of January 1, 1998, and to 0.1 MW as of
January 1, 2000, or a minimum monthly consumption of 55 MWh. Because CREG did not decide on the new tariff formula to be applied in the
next tariff period, the current methodology remained in effect for 2003. It is
expected that the new tariff formula, the regulated margin for trading
activities and the conditions of competition of the industry will be determined
by the CREG in the second quarter of 2004. Environmental Regulation Law No. 99 of 1993 provides the legal framework on environmental
regulation and, among other actions, created the Ministry of the Environment as
the authority for establishing environmental policies, with a specific focus on
the definition, issuance and execution of policies and regulations seeking the
recuperation, conservation, protection, organization, administration and use of
renewable resources. Thus, the use of natural resources or any impact to them
as a result of any activity or project will require the issuance of permits and
environmental licenses or the establishment of environmental management plans.
The law places particular attention on environmental impact prevention by
entities in the energy sector. Any such entity planning to undertake projects
or activities relating to generation, interconnection, transmission or
distribution of electricity which may result in environmental deterioration,
must first obtain an environmental license. Since 1993, Colombia has experienced a significant expansion in its
environmental regulations as a result of Law No. 99. Law No. 99 requires
generators to contribute to the conservation of the environment by means of a
payment for the use of electricity generation. Hydraulic generators must pay
6% of their generation, and thermal generators must pay 4%. This payment is
made to the municipalities and environmental corporations where their
machinery, and the dams and river basins holding the water that they use for
their operations are located. Operations in Brazil Operating Income from the companys business in Brazil represented 8%, 5%,
and 1% for years 2001, 2002 and 2003 of Endesa-Chiles total operating income.
Operating revenues and expenses for the three years are shown in the following
table: TOTAL OPERATING INCOME FROM OPERATIONS IN BRAZIL Year ended December 31,2001
    
    2002
    
    2003(in millions of constant Ch$)Operating Revenues
    
    
    67,939
    
    
    
    51,918
    
    
    
    30,792Operating Expenses
    
    
    39,741
    
    
    
    34,767
    
    
    
    27,135Operating Income
    
    
    28,198
    
    
    
    17,151
    
    
    
    3,657
 For details on the variations of yearly monetary figures, please see Item
5. Operating and Financial Review and Prospects. 55




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Endesa-Chile participates directly in the Brazilian electricity market
through its subsidiary Cachoeira Dourada, of which Endesa-Chile has a total
92.51% ownership share. Endesa-Chile also participates, through its
non-consolidated related company, CIEN, of which Endesa-Chile has a 45%
ownership interest, in the commercialization and transportation of electricity
between Argentina and Brazil. See Organization Structure for details.
Through CIEN, Endesa-Chile has participated in a 2,000 MW interconnection
project corresponding to the transmission interconnection line between
Argentina and Brazil. Cachoeira Dourada operates a 658 MW pass-through hydroelectric facility in
the State of Goias, south of Brasilia, which represents less than 0.8% of the
total installed capacity of Brazil. The installed capacity of the company has remained stable at 658 MW for
the past three years, although the installed capacity in Brazil expanded 7,000
MW in 2002 and 4,200 MW in 2003. INSTALLED GENERATION CAPACITY IN BRAZIL (MW)2001
    
    2002
    
    2003Cachoeira Dourada
    
    
    658
    
    
    
    658
    
    
    
    658Total
    
    
    658
    
    
    
    658
    
    
    
    658
 The companys total physical generation in 2003 was 3,024 GWh,
representing a 22.6% increase as compared to 2002. Similarly, physical
generation was greater in 2002 than in 2001, rising from 2,256 GWh in 2001 to
2,467 GWh in 2002. Cachoeira Douradas power plant is hydroelectric, and
therefore its generation capabilities depend heavily on rainfall in the region
in which it operates. Hydrological conditions were favorable to Cachoeira
Douradas electricity generation during 2003, increasing the plants average
percentage of total installed capacity used from approximately 43% in 2002 to
53% in 2003. The following table sets forth the physical energy production and
purchases of Cachoeira Dourada. PHYSICAL GWh PRODUCTION AND PURCHASES IN BRAZIL Year ended December 31,2001
    
    2002
    
    2003Electricity Production
    
    
    2,256
    
    
    
    2,467
    
    
    
    3,024Electricity Purchases
    
    
    1,471
    
    
    
    1,125
    
    
    
    745Total (1)
    
    
    3,727
    
    
    
    3,592
    
    
    
    3,769
   (1)
    
    Energy production plus energy purchases may exceed electricity sales due
to energy losses and own consumption. Cachoeira Dourada has a long-term take-or-pay contract, which was executed
in September 1997 when Endesa-Chile acquired the concession of Cachoeira
Dourada with Companhia Elétrica de Estado de Goiás S.A.(CELG), the regional
state-owned distribution company. The contract has a term of 15 years. During
the first five years, CELG was obliged to purchase all of the electricity
produced by Cachoeira Dourada. That amount was to be reduced by 10% a year
beginning in the sixth year. As a result, physical sales to CELG declined 10%
in 2003 as compared to 2002. The electricity generated monthly in excess of
Cachoeira Douradas contractual commitment to CELG is sold to third parties,
including the pool market. This contract is currently in dispute, as is
explained below. Electricity demand in Brazil increased 6.6% during 2003 and 5.2% during
2002 after decreasing in 2001 as a consequence of the government rationing
program imposed which limited the amount of electricity consumers could
utilize. The distribution of physical sales for Cachoeira Dourada, in terms of
customer segment, is shown in the following table: 56




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ENDESA-CHILE PHYSICAL SALES PER CUSTOMER SEGMENT IN BRAZIL Year ended December 31,2001
    
    2002
    
    2003Sales
    
    % of Sales
    
    Sales
    
    % of Sales
    
    Sales
    
    % of Sales(GWh)
    
    Volume
    
    (GWh)
    
    Volume
    
    (GWh)
    
    VolumeContracted sales
    
    
    3,706
    
    
    
    99.4
    
    
    
    3,572
    
    
    
    99.5
    
    
    
    3,427
    
    
    
    90.9Non-Contracted sales
    
    
    22
    
    
    
    0.6
    
    
    
    19
    
    
    
    0.5
    
    
    
    342
    
    
    
    9.1Total
    
    
    3,728
    
    
    
    100.0
    
    
    
    3,591
    
    
    
    100.0
    
    
    
    3,769
    
    
    
    100.0
 Despite this increase in Physical sales, operating income in Brazil was
Ch$3,657 million during 2003, 79% less than the Ch$17,151 million of 2002. The
weaker operating income of Cachoeira Dourada is due to a contractual dispute
with the its most important customer, CELG. Cachoeira Douradas contractual
agreement with CELG, which has been in place since Endesa-Chile was granted the
concession of the power plant in 1997, has been subject to dispute in the
Brazilian courts. In February 2003, CELG suspended payments to Cachoeira in
order to buy electricity in the pool market, where prices at the time were
lower than the contract price. CELG did not reinstate payments until a
provisional court order, issued in July 2003, determined that it should
commence paying at least partial past due invoices. CELG is currently making
payments, but they have been based on a lower energy price and quantity than
provided for in the contract. Consequently, as a conservative accounting
measure, Cachoeira Dourada registered from July to December 2003 and also from
January to May 2004, only partial monthly billings to CELG. On June 16, 2004
the provisional court order issued in July 2003 was revoked, obliging CELG to
pay 100% of the contract. For more information, please refer to Item 3. Risk
FactorsRisk Factors relating to BrazilLower energy prices in Brazil have
resulted in breaches of contracts by the customers of our subsidiaries and
equity affiliates, which may impact the amount of dividends and distributions
we receive from these investments. The operations of the other businesses in which Endesa-Chile participates
in Brazil are included in the income statement as non-operational, considering
that they are developed by a related and not subsidiary company in Brazil,
CIEN. CIEN owns, operates and commercializes the Brazilian side of two
electricity transmission interconnection lines joining the Argentine and
Brazilian grid systems. The Argentine side of the interconnection lines, as
detailed in Business Overview-Operations in Argentina, is owned by CTM and
TESA. CIEN has executed four energy sales agreements to sell energy in Brazil
with the following customers: Furnas Centrais Elétricas S.A. (FURNAS);
Centrais Geradoras do Sul do Brasil S.A.(GERASUL); Companhia Paranaense de
Energia  COPEL(Copel) and Companhia de Electricidade do Río de Janeiro
(Cerj). The contracts are at fixed reales-denominated prices, indexed in part
to the dollar. The contracts with GERASUL and FURNAS are not take or pay as
to the amount of energy to be purchased, but do require the supply of 1,000 MW
of capacity at all times. Similarly, in order to satisfy its commitments with
Brazilian customers, CIEN maintains contracts with Argentine generators,
including Endesa-Chiles subsidiary in Argentina, Costanera. From January 2003 until August 2003, Copel suspended its payments of the
energy and capacity contracts with CIEN. Payments resumed in August 2003, when
an agreement was reached that modified the terms of the original contract and
provided that CIEN receive payment of the past due invoices. Pursuant to the
modified agreement, CIENs 800 MW capacity commitment with Copel was reduced in
half, although the related unit price was increased. The release of CIENs
capacity commitment by Copel has allowed CIEN the flexibility to look at market
opportunities. Electricity Generation in Brazil  Industry Structure and Regulatory Framework Brazils electricity industry is organized into one large interconnected
electricity system, which is known as the Sistema Interconectado Nacional (the
Brazilian SIN), which is comprised of electricity companies in the southern,
southeast, central-western, northeast and parts of the northern regions of
Brazil, and several other small, isolated systems. 57




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Generation, transmission, distribution and supply activities are legally
separated in Brazil. Non-regulated customers in Brazil are currently those
customers who demand 3,000 kW or more annually, though this threshold is under
discussion. Under the current regulatory structure, the electricity industry in Brazil
is comprehensively regulated by the União (Union), acting through the Ministry
of Mines and Energy, which has exclusive authority over the electricity sector
through its concessionary and regulatory powers. Regulatory policy for the
sector is implemented by the Agéncia Nacional de Energia Elétrica (National
Energy Agency)or ANEEL. ANEEL is responsible on behalf of União for, among
other things: (1) granting and supervising concessions on behalf of the União
for electricity generation, transmission, trading and distribution, including
approval of applications for the setting of tariff rates; (2) supervising and
auditing the concessionaire companies; (3) issuing regulations for the
electricity sector; (4) planning, coordinating and executing studies on water
resources and the concession of new hydroelectric facilities and definition of
optimal use of water resources; (5) ?granting decisions in order to solve, as
an administrative matter, the differences among concessionaires, independent
producers, consumers and other industry participants; (6)? establishing the
criteria to calculate transmission prices; (7)? imposing contractual and
regulatory penalties; or (8)? terminating a concession, in those cases
contemplated in the law and/or a concession agreement. In addition, Eletrobrás, the federally-owned electricity utility company,
is charged with establishing general policy with respect to the electricity
sector and with coordinating its planning, financing and operations. Planning
functions are executed by two executive committees coordinated by Eletrobrás,
the Grupo Coordenador de Planejamento dos Sistemas(the GCPS) and Grupo
Coordenador de Operaçóes Interligadas(the GCOI), which include
representatives of each of the major concessionaires. GCPS coordinates the
expansion of the countrys electricity systems and GCOI coordinates their
operation. As of March 1999, pursuant to the terms of Law No. 9,648/98, the GCOIs
coordination and supervisory role over the generation and transmission of
energy in the interconnected systems has been transferred to the Operador
Nacional do Sistema Elétrico, or the ONS, which is a nonprofit private entity
in which the concession holders and the unregulated consumers participate as
members with voting rights and the Ministry of Mines and Energy and the board
of consumers participate as members with no voting rights. The ONS is
responsible for the coordination and supervision of the generation and
transmission of energy in the interconnected systems. Law No. 8,631, effective since 1993, fundamentally changed the regulatory
structure governing electricity rates in Brazil. The new system abolished
utilities guaranteed annual real rate of return (Guaranteed Return) and the
system of uniform electricity rates throughout the country. The reforms called
for automatic inflation tariff adjustments according to a complex multivariable
parametric formula. Law No. 8,631 established that electricity tariffs were
expected to reflect operating costs of each company plus a certain return on
capital, which is not a pre-defined return, but instead a financial/economic
equilibrium. In December 1994, the Brazilian government introduced the Real Plan.
The Real Plan, specifically in the electricity industry, superseded previous
rate setting laws. Under the Real Plan, rate increases for public utilities
due to inflation are no longer granted automatically. In an attempt to curtail
inflation, the Real Plan prohibited price adjustments for periods of less
than one year in any and all contracts. Under the Real Plan prices are
reviewed and corrected on an annual basis. Deregulation Brazils concessions regulations were replaced by two statutes enacted in
1995: Law No. 8,987 of February 13, 1995 (the Concessions Law) and Law No.
9,074 of July 7, 1995 (the Power Sector Law). The Congressional Law and the
Power Sector Law gave rise to substantial changes in both the regulations for
public service concessions and the rule for renewal and approval of
concessions. The objectives of the new laws include the injection of
competition into what had been a government monopoly, the infusion of private
capital into the sector, the creation of incentives to complete projects on
which work was suspended or delayed due to financial difficulties, and the
laying of the groundwork for privatizations in the sector. 58




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The Power Sector Law also introduced the concept of the independent power
producer, or IPP, as a further factor in opening up the electricity sector to
private investment. The Power Sector Law also provides for the formation of
consortia to generate power for public utilities, for use by consortium
members, for independent power production or for any one or more of these, in
each case governed by applicable rules. Self-producers (producers who generate
power primarily for their own use) may (i) contribute or exchange energy with
other self-producers within a consortium, (ii) sell excess energy to the local
distribution concessionaire or (iii) exchange energy with the local
distribution concessionaire to allow for consumption by industrial plants owned
by the self-producer located somewhere other than in the area of generation. Decree No. 2,003 of 1996 sets forth the regulatory framework for IPPs and
self-producers. Pursuant to the decree, the development of hydroelectric power
plants by an IPP or a self-producer requires a concession (awarded following a
bidding process) only when the project will generate power in excess of 1 MW in
the case of an IPP and 10 MW in the case of a self-producer. In all other
cases, including development of thermoelectric plants, the IPP or self-producer
is only required to obtain authorization from, or to register with, ANEEL.
Decree No. 2,003 also provides that concessions and authorizations granted
under the decree have terms of 35 and 30 years, respectively, with the
possibility of extensions for periods equal to the initial terms. As part of the former federal governments attempt to abolish the
monopolies enjoyed by most power companies, the Concessions Law also provides
that, upon receiving a concession, IPPs, self-producers, suppliers and
consumers will be permitted access to the distribution and transmission systems
of all concessionaires, provided that the concessionaires are reimbursed for
their related costs. The basis on which such costs will be reimbursed has been
determined by the ANEEL. In addition to the deregulation and competition introduced by the
Concessions Law, the power industry was reviewed by the Cardoso administration
and subjected to additional significant changes, including but not limited to,
restructuring and privatization of assets owned by the Federal Government, with
the intention to create a more competitive electricity industry. The Cardoso federal government requested recommendations from independent
consultants for a restructuring regime in anticipation of the privatization of
the Brazilian electricity sector. Such recommendations were contemplated by Law
No. 9648/98 whereby the federal government has determined the creation of a
Wholesale Energy Market formed by the generation and distribution companies.
The price offered at the Wholesale Energy Market will be formed according to
market conditions. According to this model, the companies will have a defined
contracted capacity until 2003 when such capacity starts to be reduced annually
at the rate of 25%. The first bundle of energy was liberalized in January 1,
2003, previously having been auctioned among generators in September 2002. The
auction had little success, with only 33% of the energy offered successfully
auctioned. The lack of interest was due in part to the decline in growth
expectations for energy demand in Brazil and in part to consumption pattern
changes after rationing, whereby consumers continue to save energy as they were
legally required to do during the rationing period. Former President Cardoso announced a significant restructuring of the
Brazilian power industry. According to Law No. 10,433, dated as April 24,
2002, the Wholesale Energy Market structure changed to be closely regulated and
monitored by ANEEL. As a result of Law No. 10,433, ANEEL will be responsible
for setting Wholesale Energy Market governance rules. Under the former regime,
such rules were primarily established by the market players, subject only to
ANEELs ratification. This restructuring seeks to reorganize the electricity
system model to allow for continued external investment. On April 26, 2002, former President Cardoso issued another relevant rule
to the sector, the Law No. 10,438, with the objective of expanding the
emergency energy offer, increasing the alternative energy sources and producing
modifications of some important rules to the electricity sector. In April 2002, the enactment of Law 10,438 determined the payment of
compensation to distribution and generation companies for their loss of
revenues that occurred between June 2001 and February 2002 during the rationing
in Brazil. The General Agreement Law of the Electricity Sector granted
extraordinary tariff setting (0% for low-income residential customers; 2.9% for
other residential, rural and public lighting customers; and 7.9% for the rest)
for the period necessary to cover the losses of each company as determined by
ANEEL. 59




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The law also established that federal generators will have to sell at
least 50% of their spare energy (after contracts) through public auctions, and
that the remaining balance of their spare energy would be sold to the Mercado
Atacadista de Energiaor the MAE, the self-regulating wholesale electricity
market. Law 10,438 also established a new criterion for the reclassifying of
low-income residential customers and the goals for the energy supply expansion
program. The eventual higher cost resulting from the application of the new
reclassification criteria will be financed by funds originated from the federal
public energy auctions and the RGR account, as a tariff subsidy, without
affecting distribution companies. The financing of the energy supply expansion
program, not taken into account in the ordinary tariff revision, will be
provided by the government and other sources of financing with the recognition
that the economic financial equilibrium of the companies cannot be altered. In addition, Law 10,438 creates incentives for alternative energy sources
which will be paid by all electricity customers, in proportion to their
consumption levels. Law 10,438 also establishes that potential unregulated customers that do
not exercise their option for unregulated tariffs will have to substitute their
energy supply contracts for equivalent energy supply contracts, right of
connection contracts and usage of the transmission system contracts. Auction Flexibility and Initial Contract Modification. As a result of Law
10,438, the federal generators can sell their energy through modifications in
the initial contracts, exclusive auctions to final consumers and energy
auctions carried out by distribution companies. Low Income Customer Reclassification Compensation. The tariff benefit
granted by Law 10,438will be financed with funds originated by the additional
revenues obtained by federal generators from selling their publicly auctioned
energy contracts and funds from the RGR account. MAE Settlement Resolution No. 763 of 2002 provides that 50% of the values resulting for
the months between September 2000 and September 2002 to be settled in a period
of 30 days, and the remaining 50% to be settled after the auditing takes place.
The months of October, November and December of 2002 will be settled in the
same sequence. The settlements for January 2003 and the following months will
take place subsequent to the constitution of guarantees described below under
"Minimum Contract Level Rule. Normative Value Changes (pass-through rule) On May 2002, ANEEL enacted Resolution No. 248 which changed the
pass-through rule of energy purchase prices to final consumers, establishing a
value equal to 100% of the normative value as the pass-through limit. These
changes do not affect the Groups interests, as the same resolution excludes
previous signed contracts from being affected. Minimum Contract Level Rule Resolution No. 511 of 2002 establishes that at least 85% of the energy
sold by the MAE participants to final consumers must be guaranteed by energy
assured from generation facilities or by energy supply contracts with at least
two years of duration in any sub-market and, at least 10% must be guaranteed
by energy assured from generation facilities or by bilateral contracts of any
duration in any sub-market, totaling 95% of the energy to be sold. Intercompany Contracts Approval The contracts between companies of the Group, Cerj-CIEN and Coelce-CIEN
have been approved by ANEEL. Structure of the New Electricity Sector As expected, the power industry was reviewed by Luiz Inácio Lula da
Silva  ́s new administration and it was subject to significant changes. On March
16, 2004, Law No. 10,848, legislation which reformed the Brazilian 60




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electricity sector, was enacted. The law will be implemented by means of
decrees and resolutions that will regulate the Brazilian electricity market and
will determine, among other things, how inherent risks will be distributed
among the different market participants (e.g. hydrological risk, market
variation and account receivables). The new electricity sector will establish a larger participation of the
Brazilian Government in the electricity sector, since the new law was created
(i) to regulate the purchase and sale of energy, (ii) to increase the
participation of the Federal Government in previously independent institutions
(for example, Operador Nacional do Sistema Elétricos, or ONS); and (iii) to
reduce ANEEL  ́s role in regulating the electric sector, indicating that ANEEL
would be simply a management and controlling institution. The new electricity
sector maintains the State role as an investor and interrupts the privatization
of the public corporations. The first major change of the new electricity sector is the institution of
a regulated contracting market, which will be more limiting than the existing
free contracting market. In the regulated contracting market electricity
supply prices will be established through a bidding process. Only distributors
and energy traders will be allowed to act in the regulating contracting market.
By contrast, in the free contracting market, power supply prices were freely
negotiated and generators negotiated directly with the free consumers and
energy traders. As a result of the regulated contracting market, the contracts
of CIEN and Cachoeira Dourada may be affected, especially those with CIEN,
since our contract prices are favorable and it will likely be difficult for
CIEN to negotiate prices and freely enter into contracts with customers. The second major change in the electricity sector is the separation of the
bidding process for existent power and new project power".Power plants
that were in existence prior to 2000 are considered existent power and those
that were developed after 2000 are considered new project power. Cachoeira
Dourada is considered an existent power and CIEN is considered a new project
power. The government believes that existing power plants are able to provide
power at more competitive prices, and therefore it should give priority in the
bidding process to power generated by new project power companies. Under the
new electricity sector, this priority will be in the form of more favorable
contractual terms. For example, a generator considered a new project power is
guaranteed a power purchase agreement with a twenty-year term if it wins the
bidding process, while an existent power is not necessarily even guaranteed
participation in the bidding process. Currently, the energy market in Brazil
is has an excess supply of energy and therefore existent power generators are
adversely affected by the priority given to the new project power. The third important change in the electricity framework is the creation of
new sector agents, like Empresa de Pesquisa Energética(Power Research
Company), or EPE, bound to Ministry of Mines and Energy. EPE will have the
objective of researching the Brazilian Power Sector Planning. Other new sector
agents will be the Câmara de Comercialização de Energia Elétrica(Power
Commercialization Chamber), or CCEE, which will be the MAEs substitute in
contract administration and monitoring contractual warranties; and Comitê de
Monitoramento do Setor Elétrico(Monitoring Committee of the Electricity
Sector) or CMSE, which will monitor and evaluate the safety and security in the
energy supply industry. The fourth important change in the electricity sector will be the
separation of the sector activities by forbidding distribution companies from
performing generation and transmission activities. Finally, the contracts in
effect at the time of the enactment of the law will be respected, but
amendments changing term, price and quantities to the mentioned contracts is
forbidden. In terms of minimum contract levels, Resolution No. 511 of 2002,
established during the Cardoso administration which determined that at least
85% of the energy sold by the MAE participants to final consumers must be
guaranteed by energy assured from generation facilities or by energy supply
contracts with at least two years of duration in any sub-market and, at least
10% of the energy consumed by free consumers must be guaranteed by energy
assured from generation facilities or by bilateral contracts of any duration in
any sub-market totaling 95% of the energy to be sold, was modified by
Resolution No. 91 of 2003. The new limits require that at least 95% of the
contract must be guaranteed from generation facilties for periods over six
months. With the enactment of law No 10,848 under Lulas administration, the
limits have been increased and require that the demand from the distribution
companies be contracted completely. 61




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Environmental Regulation The Brazilian Constitution gives both the federal government and state
governments power to enact laws designed to protect the environment and to
issue regulations under such laws. While the federal government has the power
to promulgate environmental regulations, state governments have the power to
enact more stringent environmental regulations. Most of the environmental
regulations in Brazil are thus at the state and local level rather than at the
level of the federal government. In Brazil, hydroelectric generation companies are required to obtain the
use of water concessions and environmental approvals, and thermal electric
generation, transmission and distribution companies are required to obtain
environmental approvals from ANEEL and the environmental regulatory
authorities. Recent Changes in the Tax Law Recent tax changes may affect results of Brazilian operations. On December
29, 2003 the Federal Government issued the Law No. 10.833/03, which establishes
the non-cumulative COFINS, determining a tax credit right for some companies
and increasing the COFINSs rate from 3% to 7.6%. Additionally, according to
this law, the revenues arising from long-term agreements executed before
October 31, 2003 will not be impacted by this new legal framework and will
remain subject to the old one (without tax credit right and with the 3%
COFINS  ́s rate). Cachoeira Dourada is not affected by this new tax because it
is not subject to this tax regime. The majority of CIENs contracts are
long-term agreements signed before October 31, 2003 and will consequently not
be impacted by the new tax. Therefore, we believe this new law will not
strongly affect Endesa-Chiles Brazilian subsidiary and related companies. Another relevant change in tax legislation was the Provisional Measure
164/04, which creates a tax to be applied to imports of movable assets, the
Imports PIS/COFINS, effective as of May 2004. This new rule follows the
general terms and conditions of Law No. 10.833/03 and also foresees the
possibility of a tax credit. The tax rate for Imports PIS/COFINS is 9.25%
(7.6% of COFINS and 1.65% of PIS). As of the date of this annual report, we
have not finished a complete analysis of the impact of this new rule, if
applicable, on our Brazilian operations. Cachoeira Dourada is not involved in
the import of goods and services and therefore is not subject to this tax
regime. However, CIENs main activity is the import of electricity from
Argentina and therefore it could be affected by this new legislation. C. Organizational structure. The following information sets out a brief description of Endesa-Chiles
significant subsidiaries as of December 31, 2003. Central Costanera S.A. (Costanera) Costanera is an electricity generation company publicly traded in
Argentina with 2,302 MW total installed capacity including a 1,451 MW capacity
oil and gas-fired generation facility and a 851-MW capacity natural gas
combined-cycle facility in Buenos Aires, that came into service in December
1998. The facility was acquired from the Argentine government following the
privatization of Servicios Eléctricos del Gran Buenos Aires S.A.in 1992 when
Endesa-Chile acquired a 24% interest. Endesa-Chile subsequently increased its
interest reaching a total ownership share to date, through its subsidiary
Endesa Argentina, of 64.26%. On November 19, 2001, the shareholders meetings
of Costanera and Central Termoeléctrica Buenos Aires S.A. (CBA) approved the
merger of CBA into Costanera. The merger was effective as of December 1, 2001,
the date when the accounting books of CBA were incorporated in the accounting
books of Costanera, and since such date it functioned as one company. Costanera
is incorporated in Argentina. Hidroeléctrica El Chocón S.A. (El Chocón) El Chocón is an electricity generation company, incorporated in Argentina,
located between the Neuquén and Río Negro provinces in southern Argentina (the
Comahue Zone). It has two hydroelectric power stations with an aggregate
installed capacity of 1,320 MW. El Chocón is currently the second largest
hydroelectric facility in Argentina. This 30-year concession was granted by the
Argentine government to our subsidiary, Hidroinvest S.A., 62




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which bought 59.00% of the shares in July 1993 during the privatization
process. Endesa-Chile operates El Chocón for a fee pursuant to an operating
agreement with a term equal to the duration of the concession. Endesa-Chiles
has an indirect ownership of 47.44% and a 65.19% voting share in El Chocón. Centrais Elétricas Cachoeira Dourada S.A. (Cachoeira Dourada) Cachoeira Dourada, incorporated in Brazil, is located in Goias state,
south of Brasilia. It owns a run-of-the-river hydroelectric plant with a total
installed capacity of 658 MW. In September 1997, a consortium comprised of Endesa-Chile, with an 81.94%
interest, and the Peruvian-associated Edegel, with an 18.06% was awarded 79.36%
of the share capital of Cachoeira Dourada in a 30 year concession. In 1998 and
2001, Endesa-Chile, through its subsidiary Lajas Inversora S.A. (formerly Lajas
Holding Inc.), increased its indirect holding in Cachoeira Dourada and in 2003,
Endesa-Chile purchased an additional 384,508 shares of stock, increasing its
share capital by 0.0131% for a total indirect ownership in Cachoeira Dourada of
92.51%, and a voting share of 99.61%. Empresa Eléctrica Pehuenche S.A. (Pehuenche) Pehuenche, a generation company connected to the SIC, owns three
hydroelectric facilities south of Santiago in the high-rainfall hydrological
basin of the Maule river with a total of 695 MW of installed capacity. Its 566
MW Pehuenche plant started operating in 1991, its 89 MW Curillinque plant
started up in late 1993, and its 40 MW Loma Alta plant started operating in
August 1997. Endesa-Chile holds 92.65% of the share capital of Pehuenche as of
December 31, 2002. Pehuenche is incorporated in Chile. Empresa Eléctrica Pangue S.A. (Pangue) Pangue was incorporated to build and operate the 467 MW installed capacity
hydroelectric power station on the Bío-Bío river. The first unit commenced
operations on October 31, 1996, while the second unit commenced operations on
February 3, 1997. Endesa-Chile holds 94.99% of the share capital of Pangue as
of December 31, 2003. Pangue is incorporated in Chile. Compañía Eléctrica Tarapacá S.A. (Celta) Celta is incorporated in Chile and was formed in November 1995 to build
and operate the 182 MW coal-fired thermal plant in the SING. Celta is a 100%
owned subsidiary of Endesa-Chile. Compañía Eléctrica San Isidro S.A. (San Isidro) San Isidro was incorporated in Chile in February 1996 to build and operate
a 379 MW combined-cycle thermal plant in Quillota in the Fifth Region. The
plant began commercial operations in October 1998. A 220 kV transmission line
of 9 kilometers was built to connect this thermal plant to the SIC. This
transmission system is owned by Transquillota Ltda., in which San Isidro has a
50% interest. Endesa-Chile holds a 75% ownership share capital of San Isidro.
The remaining shares are held by Entergy. Empresa de Ingeniería Ingendesa S.A. (Ingendesa) Ingendesa is a multi-disciplinary engineering company founded in late
1990. Its purpose is to provide engineering services, project management and
related services in Chile and internationally. It therefore offers all the
necessary specializations: civil, mechanical and electrical engineering,
metallurgy, architectural and environmental services. Ingendesa is a 97.64%
owned subsidiary of Endesa-Chile and is incorporated in Chile. Túnel El Melón S.A. (Túnel El Melón) Túnel El Melón S.A. was formed in July 1993 to construct and manage the
public road tunnel called Túnel El Melón, under a 23-year concession. It
includes 3.3 km of access roads and a tunnel approximately 2.5 km long. It is
located 130 km north of Santiago and was the first infrastructure concession
granted by the Chilean state. 63




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Commercial operation of the tunnel began in September 1995. Endesa-Chile
owns 99.95% of this company which is incorporated in Chile. Emgesa S.A. E.S.P. (Emgesa) On September 15, 1997, Central Hidroeléctrica de Betania, through its
subsidiary Inversiones Betania S.A. and in association with Endesa Desarrollo
S.A. of Spain, was awarded control of the generation company Emgesa, with
48.48% of the shares. As of December, 2003, Emgesa has a total installed
generating capacity of 2,049 MW. As of December 31, 2003, Endesa-Chiles
indirect ownership in Emgesa was 22.36%. Emgesa was incorporated in Colombia. Central Hidroeléctrica De Betania S.A. E.S.P. (Betania) Betania is a hydroelectric generation facility and is located at the
intersection of the Magdalena and Yaguará rivers, in the southwest of Colombia.
In December 1996, a consortium comprised of Endesa-Chile, with a 75% interest
and the Colombian company Corfivalle, with the remaining 25% interest, was
awarded 99.9% of the share capital of Betania. In 1997, following a program
of operating improvements, the capacity of the plant was increased from 510 to
540 MW. As of December 31, 2003, Endesa-Chile owned 85.62% of Betania.
Betania is incorporated in Colombia. Edegel S.A.A. (Edegel) Edegel is an electricity generation company, acquired by Endesa-Chile in
1995. It currently owns seven hydroelectric plants (Huinco, Matucana,
Callahuanca, Moyopampa, Huampani, Yanango and Chimay) and one thermal plant
(Santa Rosa), with a combined installed capacity of 967 MW. In 2000, Edegel
completed the construction of two hydroelectric plants, Yanango (43 MW) and
Chimay (153 MW), and a 220 kV transmission line linking both plants to the
Peruvian system. As of December 31, 2003, Endesa-Chile had a 37.90% indirect
ownership share in this subsidiary. Endesa-Chile has a 63.56% voting share in
Edegel through Generandes Peru S.A. Edegel is incorporated in Peru. Sociedad Concesionaria Autopista Del Sol S.A. This company was sold through the divesture of Infraestructura 2000 which
took place on June 23, 2003. It was originally formed to build and manage the
Santiago-San Antonio Highway No. 78 under a 23-year concession. The highway is
108 km long. The first section between Malloco and San Antonio began
operations in April 1997, while the section Santiago-Malloco began its
operations in January 1998. The Ministry of Public Works gave its final
approval of the highway public works in June 2001. Through Infraestructura
2000, Endesa-Chile held a 60.04% interest in this subsidiary as of December 31,
2002. Autopista Los Libertadores S.A. This company was sold on June 23, 2003 through the divesture of
Infraestructura 2000, which took place on June 23, 2003. It was originally
formed to build and manage the Santiago-Colina-Los Andes Highway under a
28-year concession. The project consists of the widening and improvement of
the present General San Martín highway, approximately 90 km long, and includes
the construction of a two-lane highway and access roads between Santiago and
Colina, a Colina two-lane by-pass between Peldehue and Casas de Chacabuco and a
one-lane Los Andes by-pass. It also includes the improvement and resurfacing
of the Chacabuco tunnel. In December 2001, the Ministry of Public Works gave
its final approval of the highway works. Endesa-Chiles indirect shareholding,
through Infraestructura 2000, in Autopista Los Libertadores was 58.36% as of
December 31, 2002. Main Related Companies Comercializadora de Energía del Mercosur S.A. (CEMSA) CEMSA is responsible for trading electricity, including imports and
exports of energy. As of the date of this report, Endesa-Chile has an indirect
ownership holding in CEMSA of 45%. CEMSAs other shareholder is
Endesa-Spain.
CEMSA is incorporated in Argentina. 64




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Companhia De Interconexão Energética S.A. (CIEN) This Brazilian company is responsible for trading electricity in the
Brazilian market. CIEN built two 500 kV transmission lines next to each other
over a distance of approximately 500 km from Rincón, Argentina, to Itá in the
State of Santa Catarina, Brazil. CIEN has received two twenty-year
authorizations from ANEEL to operate the Brazilian side of the transmission
lines, after which time the transmission lines and the converter stations will
become the property of the Brazilian government. CIEN, through its
subsidiaries CTM and TESA, owns and operates the Argentine side of both lines.
Endesa-Chile has a 45% indirect ownership share in this company and
Endesa-Spain the remaining 55%. CIEN is incorporated in Brazil. Compañía de Transmisión del Mercosur S.A. (CTM) CTM is an electricity transmission company that owns the Argentine portion
of an interconnection line joining the Brazilian and Argentina electricity
markets. This company was incorporated in Argentina in July 1997. Endesa-Chile
has an indirect ownership holding in CTM of 45% through CIEN. Transportadora de Energía del Mercosur S.A. (TESA) TESA is an electricity transmission company that owns the Argentine
portion of an interconnection line joining the Brazilian and Argentine
electricity markets. This company was incorporated in Argentina in January
2001 and Endesa-Chile has an indirect ownership holding of 45% through CIEN. Electrogas S.A. (Electrogas) Electrogas was incorporated in Chile, in late 1996. The objective of this
company is to offer natural gas transportation services to the Fifth Region of
Chile, especially to the San Isidro and Nehuenco combined-cycle plants at
Quillota. Endesa-Chile has an added direct and indirect ownership of 42.5%
share in this company. The other shareholders are Colbún S.A. and Enap. GasAtacama S.A. (GasAtacama) Endesa-Chile has a 50% total ownership interest in GasAtacama, a company
incorporated in Chile. CMS Energy Corp. (CMS), a U.S. corporation, has the
remaining 50% ownership interest. The purpose of this company is the
administration of its subsidiaries, including Gasoducto Atacama Chile S.A.,
Gasoducto Atacama Argentina S.A. and GasAtacama Generación, which are involved
in electricity generation and natural gas transportation. Gasoducto Atacama Chile S.A. (Gasoducto Atacama) Gasoducto Atacama was fomed under the laws of Chile, with the purpose of
transporting natural gas both within Chile and abroad, including the
construction and placement of pipelines and any other related activities. The
company owns the Chilean side of a natural gas pipeline that can transport up
to 8.5 million cubic meters of gas daily from northern Argentina to Mejillones
in Chile which commenced supplying gas to the SING in July 1999 and also owns
an extension of this pipeline from Mejillones to Tal Tal in Chile, which was
added in 2000, allowing Endesa-Chiles 240 MW Tal Tal thermal power plant to be
put into service the same year, supplying electricity to the SIC. The company Gasoducto Atacama Companía Limitada changed its name to
Gasoducto Atacama Chile Limitada in October 2002, and changed again in December
2003 to Gasoducto Atacama Chile S.A. Endesa-Chile has a 50% indirect ownership
share in Gasoducto Atacama. GasAtacama Generación S.A. (GasAtacama Generación) The purpose of this company, incorporated in Chile, is to generate,
transmit, purchase, distribute and sell electric energy in the SING. It owns
and operates two combined cycle power plants, that together have 780 MW of
installed generation capacity. The company Nor Oeste Pacifico Generación de
Energía Limitada(Nopel Ltda.) changed its name to GasAtacama Generación
Limitada in October 2002, and changed again in December 2003 to Gasatacama
Generación S.A. Endesa-Chile has a 50% indirect ownership share in this
company. 65




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The following table sets forth the main subsidiaries and related companies
of Endesa-Chile and the percentage of each subsidiary and related company owned
by Endesa-Chile: Percentage of Economic Interest in each Operational Subsidiary and Related
Company per Country SUBSIDIARIESGENERATION
    
    ENGINEERING
    
    INFRA-SERVICES
    
    STRUCTURE (1)Argentina
    
    Brazil
    
    Chile
    
    Colombia
    
    Peru
    
    Chile
    
    ChileCentral Costanera
64.26%
    
    Cachoeira
92.51%
    
    Pehuenche 92.65%
    
    Emgesa 22.36%
    
    Edegel 37.90%
    
    Ingendesa 97.64%
    
    Túnel El Melón
99.95%Hidroeléctrica
El Chocón 47.44%
    
    
    
    Pangue 94.98%(2)
    
    Betania 85.62%Celta 100%San Isidro 75%
 Related Companies (all business segments) GasAtacamaGeneración 50%CEMSA 45%
    
    CIEN 45%
    
    Electrogas 42.5%CTM 45%
    
    
    
    Gasoducto AtacamaChile 50%TESA 45%
    
    
    
    Gasoducto AtacamaArgentina 50%Gasoducto TaltalLtda. 50%Transquillota 37.5%
   (1)
    
    On June 23, 2003, Endesa-Chile closed the sale of Infraestructura Dos Mil
with the Spanish company OHL Concesiones, S.L., subsidiary of the Spanish
company Obrascón Huarte Lain S.A. Through Infraestructura Dos Mil, Endesa
has a 60.04 % shareholding in Sociedad Concesionaria Autopista del Sol and
a 58.36% shareholding in Sociedad Concesionaria Autopista Los
Libertadores.(2)
    
    Endesa Internacional S.A., subsidiary of Endesa-Spain, has a 5.01%
shareholding in Pangue. 66




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(FLOWCHART) PROPORTION OF INTERESTIN EVERY SUBSIDIARY AND
RELATED COMPANY
ENDESA CHILE S.A.
OUTSIDE CHILEWITHIN CHILE
(1)
ENDESA BRASIL
(2)INGENDESA DO 1.00% 5.00% 92.65% PEHUENCHE 0.49%
PARTICIPACOEENIGESA BRASIL LTDAS.A.
S LTDA.
95.00%
1.25%
COM. DE ENERGIAENDESA
CONSORCIO
45.00% 99.99% 96.3875% 50.00%
DEL MERCOSURARGENTINAINGENDESA
INGENDESA
S.A. (CEMSA)S.A. MINMETAL
LTDA.
51.932539% 0.01%
0.01382%
CENTRAL
INVERANDES 99.99% 99.95% TUNEL EL
COSTANERAPANGUE S.A. 12.3325532% S.A. MELON
S.A.
S.A.
94.97% 6.19% 69.93%
CIA.
HIDRO. EL 59.00% HIDROINVEST 50.00% 50.00%
TRANSQUILLO
ELECTRICA
CHOCON S.A. S.A. TA
LTDA.
SAN ISIDRO S.A.
50.00%
INV.
CIA. ENDESA CHILE 100.00% 50.00%
DISTRILEC S.A. ELECTRICAS
ELECTRICA
INTERNACIONAL (5)
0.057198% QUILLOTA S.A. TARAPACA
S.A.
0.887466%
99.942802% (3)
CIA
100.00% INVERSIONES
ELECTRICA 42.50% 99.95%
ELECTROGAS
ELECTROGAS
CONO SUR S.A.
S.A.
S.A.
0.02125% 59.63098% 94.90% 0.01%
GENERANDESENDESA DE 5.099%
PERU S.A. COLOMBIA S.A. 99.99% INV. ENDESA
NORTE S.A.
45.00% 76.7086515589% GAS ATACAMA
8.9136195499%
100.00% 63.5562%
CIA. DE 99.90%
CIA. GENERACION
INTERCONEXIO 0.05%
ATACAMA
HIDROELECTRIS.A.
EDEGEL S.A. N ENERGETICA
FINANCE CO.
CA DE BETANIA
(CIEN)GASADUCTO
S.A.
ATACAMA
0.05%99.90% 88.530224%
11.469777% 100.00% (2)ACCIONESARGENTINA S.A.
LAJASCIA. DEENERGEX CO. INVERSORATRANSMISION
EMGESA S.A. GASADUCTO
S.A. DEL MERCOSURATACAMA
0.05% CHILE S.A.
S.A. (CTM)100.00% 48.4830999% 51.5169%
99.6058801939% 99.99% (4)50.00%
TRANSPORTADOINV. GAS
CACHOEIRA 99.997706%
RA DE ENERGIACAPITAL DEATACAMA DUORADA S.A.
50.90% ENERGIA S.A. HOLDING
DEL MERCOSUR
S.A. (TESA)
5.50% 99.90%
E.E. BOGOTA 0.001147% GAS ATACAMAGASODUCTO
S.A. S.A. 99.90% TALTAL
LTDA.
(1)Enigesa owns 0.01% of Inversiones Endesa Norte
S.A. (2)Ingendesa owns 99.00% of Ingendesa Do Brasil
Ltda. (3)Endesa Chile 24.0668% and Agencia Endesa
75.9332% (4)Endesa Brasil Participacoes has 0.01% of
Tesa (5)Endesa Chile has 61.2% and Agencia Endesa
has 38.8%




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##### Table of Contents



D. Property, Plant and Equipment Description of Property and Insurance Endesa-Chiles main properties in Chile are its nineteen electricity
generation facilities (detailed in Business Overview  Operations in Chile),
in addition to its 27,793 square meter headquarters buildings in Santiago. A substantial portion of Endesa-Chiles cash flow and net income is
derived from the sale of electricity produced by its electricity generation
facilities. Significant damage to one or more of Endesa-Chiles main
electricity generation facilities or interruption in the production of
electricity, whether as a result of an earthquake, flood, volcanic activity or
other cause, would have a material adverse effect on Endesa-Chiles operations.
Endesa-Chile insures all of its electricity generation facilities against
damage due to earthquakes, fires, floods and other similar occurrences and from
damage due to third-party actions, based on the appraised value of the
facilities as determined from time to time by an independent appraiser. Based
on geological, hydrological and engineering studies, however, Endesa-Chiles
management believes that the risk of such an event is remote. Claims under
Endesa-Chiles insurance policies are subject to customary deductibles and
other conditions. Endesa-Chile also maintains business interruption insurance
providing for coverage for failure of any of its facilities for a period of up
to 18 months, commencing after the deductible period. However, there can be no
assurance that such insurance proceeds would be available on a timely basis or
would be sufficient to fully compensate for any losses. Endesa-Chile also has investments in generating companies in Argentina,
Brazil, Colombia and Peru, which involve a total of 23 generation power plants
(detailed in Business Overview). The insurance coverage taken abroad is
approved by the management of each affiliate, taking into account the quality
of the insurance companies and the needs, conditions and risk evaluations of
each generating facility, and are based on general corporate guidelines given
by Endesa-Chile. All insurance policies are purchased from reputable international
insurers. The Company continuously monitors the insurance industry so that it
can obtain the best coverage and premiums available on the market. The following table identifies the power plants that Endesa-Chile is
currently operating and their basic characteristics: Country/Company
    
    Power Plant Name
    
    Power Plant Type(4)
    
    2001
    
    2002
    
    2003(MW)ArgentinaCentral Costanera S.A.
    
    Total
    
    
    
    
    2,302
    
    
    
    2,302
    
    
    
    2,302Costanera Steam Turbine
    
    Steam Turbine/ Natural Gas+ Fuel Oil
    
    
    1,131
    
    
    
    1,131
    
    
    
    1,131Costanera Combined
    
    Combined Cycle/Natural Gas+DieselCycle II
    
    Oil
    
    
    851
    
    
    
    851
    
    
    
    851Central Buenos Aires(CBA) Combined Cycle I
    
    Combined Cycle/Natural Gas
    
    
    320
    
    
    
    320
    
    
    
    320Hidroelectrica El Chocón S.A.
    
    Total
    
    
    
    
    1,320
    
    
    
    1,320
    
    
    
    1,320EL Chocón
    
    Reservoir
    
    
    1,200
    
    
    
    1,200
    
    
    
    1,200Arrollito
    
    Pass Through
    
    
    120
    
    
    
    120
    
    
    
    120Total Capacity in Argentina
    
    
    
    
    
    
    3,622
    
    
    
    3,622
    
    
    
    3,622BrazilCentrais Electricas Cachoeira
Dourada S.A.
    
    Cachoeira Dourada
    
    Pass Through
    
    
    658
    
    
    
    658
    
    
    
    658Total Capacity in Brazil
    
    
    
    
    
    
    658
    
    
    
    658
    
    
    
    658Chile (1)Endesa-Chile S.A .
    
    Total
    
    
    
    
    2,212
    
    
    
    2,212
    
    
    
    2,040Hydroelectric
    
    
    
    
    1,737
    
    
    
    1,737
    
    
    
    1,565Canutillar
    
    Reservoir
    
    
    172
    
    
    
    172
    
    
    
    Rapel
    
    Reservoir
    
    
    377
    
    
    
    377
    
    
    
    377Cipreses
    
    Reservoir
    
    
    106
    
    
    
    106
    
    
    
    106El Toro
    
    Reservoir
    
    
    450
    
    
    
    450
    
    
    
    450Los Molles
    
    Pass Through
    
    
    18
    
    
    
    18
    
    
    
    18Sauzal- Sauzalito
    
    Pass Through
    
    
    90
    
    
    
    90
    
    
    
    90Isla
    
    Pass Through
    
    
    68
    
    
    
    68
    
    
    
    68Antuco
    
    Pass Through
    
    
    320
    
    
    
    320
    
    
    
    320Abanico
    
    Pass Through
    
    
    136
    
    
    
    136
    
    
    
    136Thermal
    
    
    
    
    475
    
    
    
    475
    
    
    
    475Huasco
    
    Steam Turbine/Coal
    
    
    16
    
    
    
    16
    
    
    
    16Bocamina
    
    Steam Turbine/Coal
    
    
    128
    
    
    
    128
    
    
    
    128Diego de Almagro
    
    Gas Turbine/Diesel Oil
    
    
    24
    
    
    
    24
    
    
    
    24Huasco
    
    Gas Turbine/IFO 180 Oil
    
    
    64
    
    
    
    64
    
    
    
    64Taltal
    
    Gas Turbine/Natural Gas
    
    
    243
    
    
    
    243
    
    
    
    243Empresa Electrica Pehuenche S.A.
    
    Total
    
    
    
    
    695
    
    
    
    695
    
    
    
    695
 68




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##### Table of Contents



Country/Company
    
    Power Plant Name
    
    Power Plant Type(4)
    
    2001
    
    2002
    
    2003(MW)Pehuenche
    
    Reservoir
    
    
    566
    
    
    
    566
    
    
    
    566Curillinque
    
    Pass Through
    
    
    89
    
    
    
    89
    
    
    
    89Loma Alta
    
    Pass Through
    
    
    40
    
    
    
    40
    
    
    
    40Empresa Electrica Pangue S.A.
    
    Pangue
    
    Reservoir
    
    
    467
    
    
    
    467
    
    
    
    467Compania Electrica San Isidro S.A.
    
    San Isidro
    
    Combined Cycle /Natural
Gas+Diesel Oil
    
    
    379
    
    
    
    379
    
    
    
    379Compania Electrica Tarapaca S.A.
    
    Tarapacá
    
    Steam Turbine/Coal
    
    
    182
    
    
    
    182
    
    
    
    182Total Capacity in Chile
    
    
    
    
    
    
    3,935
    
    
    
    3,935
    
    
    
    3,763Colombia (2)Emgesa S.A. E.S.P
    
    Total
    
    
    
    
    2,494
    
    
    
    2,194
    
    
    
    2,049Guavio
    
    Reservoir
    
    
    1,150
    
    
    
    1,150
    
    
    
    1,150Cadena Vieja
    
    Pass Through
    
    
    544
    
    
    
    241
    
    
    
    Cadena Nueva
    
    Reservoir
    
    
    580
    
    
    
    580
    
    
    
    600Termozipa
    
    Steam Turbine/Coal
    
    
    220
    
    
    
    223
    
    
    
    223Minor plants
    
    Pass Through
    
    
    
    
    
    
    
    
    
    
    76Central Hidroelectrica de Betania
S.A. E.S.P
    
    Betania
    
    Reservoir
    
    
    540
    
    
    
    540
    
    
    
    540Total Capacity in Colombia
    
    
    
    
    
    
    3,034
    
    
    
    2,734
    
    
    
    2,589Peru (3)Edegel S.A.
    
    Total
    
    
    
    
    1,003
    
    
    
    1,003
    
    
    
    967Huinco
    
    Pass Through
    
    
    247
    
    
    
    247
    
    
    
    247Matucana
    
    Pass Through
    
    
    129
    
    
    
    129
    
    
    
    129Callahuanca
    
    Pass Through
    
    
    75
    
    
    
    75
    
    
    
    75Moyopampa
    
    Pass Through
    
    
    65
    
    
    
    65
    
    
    
    65Huampani
    
    Pass Through
    
    
    30
    
    
    
    30
    
    
    
    30Yanango
    
    Pass Through
    
    
    43
    
    
    
    43
    
    
    
    43Chimay
    
    Pass Through
    
    
    151
    
    
    
    151
    
    
    
    151Santa Rosa
    
    Gas Turbine/Diesel Oil
    
    
    264
    
    
    
    264
    
    
    
    228Total Capacity in Peru
    
    
    
    
    
    
    1,003
    
    
    
    1,003
    
    
    
    967Total Endesa-Chile
    
    
    
    
    
    
    12,252
    
    
    
    11,952
    
    
    
    11,599
   (1)
    
    Canutillar power plant was sold in April, 2003.(2)
    
    Emgesas Cadena Vieja (Cadena Casalaco) facility suspended operations on
October 10, 2003. On October 25, 2003, Cadena Pagua (Cadena Nueva)
officially increased its capacity by 20 MW. Four minor plants were
registered with a total capacity of 76 MW.(3)
    
    On July 31, 2003, 35.9 MW of the Santa Rosa plant were suspended, leaving
a capacity of 227.7 MW.(4)
    
    Reservoir and pass-through refer to a hydroelectric plant that uses a dam
or a river, respectively, to move the turbines which generate electricity.Steam refers to the technology of a thermal power plant that uses either
natural gas, coal, diesel or fuel oil to produce steam which moves the
turbines to generate the electricity.Gas Turbine (TG) or Open Cycle refers to the technology of a thermal power
plant that uses either diesel or natural gas to produce gas that moves the
turbines to generate the electricity.Combined Cycle refers to the technology of a thermal power plant that uses
either natural gas, diesel oil or fuel oil to generate gas that moves the
turbines to generate electricity then recuperates the gas that escapes from
that process to generate steam to move another turbine. Environmental Issues The electricity industry is subject to extensive environmental regulations
that require environmental impact studies in order to obtain approval for
future projects. Endesa-Chiles subsidiaries have always included the
environmental regulations of the various jurisdictions in which they operate
when planning their investment projects. In 2002, some of Endesa Chiles main subsidiaries, including San Isidro,
the Tal Tal thermal plant and Pangue, obtained the ISO 14001 certifications for
their Environmental Management System. Pangue is the first hydroelectric plant
to obtain such a certification in Chile. Our associated company, GasAtacama
Generación 69




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Limitada, is the first generator on the SING to obtain its ISO 14001
certification. By December 2002, a total of 43% of Endesa-Chiles total power
plant assets had reached certification under the ISO 14001 standard. By
December 2003 this percentage had reached 63%. However, the task is still not
finished. The Companys plans in this area are ambitious and are expected to
continue advancing at the same pace as until now. Investment Projects Ralco Project The Ralco Project in Chile is located in the Upper Bío-Bío region,
approximately 120 km south-east of the town of Los Angeles and some 30 km
upstream from the Pangue plant. This project involves the building of a
hydroelectric plant with a nominal capacity of 570 MW, representing a 15%
addition to the Companys installed capacity in Chile, is expected to generate
3,100 GWh annually to the SIC, which will contribute to satisfy the needs of
the growing electricity demand in the country. By March 31, 2004, the project
had reached 98% of advancement and is expected to become operational during the
second semester of 2004. The total investment in the project accumulated up to December 31, 2003
and included in the Companys balance sheet at December 31, 2003 is Ch$383.7
billion. The remaining amount of investment required to complete the project
is expected to reach approximately Ch$58.7 billion during 2004. This project
has been mainly financed with the companys cash flow. Endesa-Chile has complied with all the national and international
environmental issues related to the construction of Ralco. Compliance with the
environmental commitments made by Endesa-Chile has been certified in the audit
reports to environmental authorities concerning both ecological aspects and
social and cultural matters. The Company has reached a complete agreement with the last four Pehuenche
owners and have been included in the projects relocation plan. The Ayin Mapu
and El Barco sites to which families were relocated are indigenous communities
under the law. The Continuity Assistance Plan, which is an important component
of the Ralco Project, is fully in force, with various programs to attract
participation by the relocated families. The plans and programs that have been
carried out have largely benefited the families that live or could be affected
by the project with land, actual payments, and other benefits such as jobs,
education, agricultural machinery, as was originally considered in the project.
For more information, please see Item 8. Legal ProceedingsRalco Project. Major Encumbrances Pehuenche has equipment as guarantee for the Banco Estado de Chileloan
which was used to finance the acquisition of equipment for the Curillinque
Power Plant. The value of the guarantee of this loan, as of December 2003, was
Ch$9.9 billion of the acquired equipment. Costanera has a loan with Mitsubishi which was used to invest in
Costaneras power plant capacity. The value of the fixed assets pledged as
guarantee, on December 31, 2003, was Ch$12.6 billion. Pangue executed the following liens and mortgages in August 18, 1993: (i)
first mortgage on the water rights and the real estate where the power plant is
located; (ii) first lien, under Law No 18,112, on the electric lines, machinery
and equipment of the power plant; and (iii) prohibition to sell, transfer or
encumber such assets, including the definitive concession to establish the
Pangue power plant. The value of the pledged equipment was Ch$86.2 billion on
December 31, 2003. The lenders of the mortgage loan are Skandinaviska Enskilda
Banken, Export Development Corporation, Kreditanstalt für Wiederaufbau and
Eksportfinans. San Isidro executed a lien in connection with the equipment provided by
Mitsubishi Corporation, whose value on December 31, 2003 was Ch$80.9 billion. 70




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Item 5. Operating and Financial Review and Prospects A. Operating results General The following discussion should be read in conjunction with our audited
consolidated financial statements included as Item 18 in this annual report and
the Selected Consolidated Financial and Operating Data included in Item 3
herein. Our consolidated financial statements are prepared in accordance with
Chilean GAAP, which differ in some important respects from U.S. GAAP. See Note
34 to our audited consolidated financial statements, included in Item 18
herein. Introduction We own and operate electricity generation companies in Chile, Argentina,
Brazil, Colombia and Peru. Substantially all of our revenues, income and cash
flow comes from our subsidiaries and equity affiliates operations in these
five countries. Factors such as hydrological conditions, extraordinary actions by
government authorities, regulatory developments and economic conditions in each
country in which we operate are important in determining our financial results.
In addition, our reported results of operations and financial condition are
significantly affected by variations in exchange rates between the U.S. dollar
and the Chilean peso and other currencies of the countries in which we operate.
Such exchange rate variations have a significant non-cash effect due to the
implementation of Chilean GAAPs Technical Bulletin No. 64, Accounting for
Permanent Foreign Investments in connection with the consolidation of the
results of our companies outside of Chile. Lastly, our other critical
accounting policies also have a significant effect on our consolidated results
of operations. Several of the factors described above have been particularly significant
in recent years, and some of these factors are expected to continue to
materially influence our financial results in the future. The most significant
factors are:  
    
    Hydrological conditions. A substantial portion of our generation
business is dependent upon the hydrological conditions prevailing in
the countries where we operate. Our thermal generators, which are
fueled with natural gas, coal or diesel, are dispatched to cover peaks
in energy demand and any shortfalls of our hydroelectric plants because
of insufficient water resources. Under those conditions, the use of
fuels for the generation of electricity results in higher costs of
operations that we would not have to incur otherwise. Accordingly, our
results of operation are adversely affected by low rainfall. In
addition, adverse hydrological conditions have led governments to take
affirmative steps to regulate the electricity business. For additional
information regarding the effects of hydrological conditions on our
results of operations, please see Item 4. Information on the Company
Introduction Electricity Generation Hydrological conditions and
rationing decree.
    
    Regulatory developments. The regulatory structure governing the
tariffs and other aspects of our generation business has a material
effect in our results of operations. Regulators in the countries where
we operate calculate tariffs taking into consideration principally the
costs of fuels, level of reservoirs, exchange rate, future investments
in installed capacity and growth in demand, all of which is intended to
reflect investment and operating costs incurred by generation companies
and is meant to allow such companies to earn a regulated level of
return on their investments. For additional information relating to
Chilean regulations governing our business and for a discussion of the
regulatory frameworks in the countries in which we operate, please see
Item 4. Information on the Company.
    
    Economic conditions. Macroeconomic conditions in the countries in
which we operate have a significant effect on our results of
operations. For example, when a country experiences sustained economic
growth, consumption of electricity by industrial and individual
consumers of electricity increases. Other macroeconomic factors such as
a devaluation of the local currency in the countries in which we
operate may have a negative impact in our results of operations because
while most of our revenues are 71




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denominated in the currency of the countries in which we operate, our
financing and significant other costs such as depreciation are
denominated in U.S. dollars. As a result, devaluation of local
currencies against the dollar shrinks our operating margins and increases
the cost of and capital expenditure plans.
    
    Extraordinary actions by government authorities. Our operations
are materially affected by extraordinary actions taken by the
governments of the countries in which we operate. In the past few years
the results of operations of our Argentine, Brazilian and Colombian
subsidiaries were affected by actions taken by the governments of those
countries. The following are some examples:  
    
    In Argentina, electricity tariffs historically were expressed
in U.S. dollars at an exchange of Ar$1 to US$1. However, following
a devaluation of the Argentine peso against the U.S. dollar from
Ar$1.00 per US$1.00 to Ar$3.37 per US$1.00 as of December 31, 2002,
the Argentine government converted electricity tariffs to Argentine
pesos at the old exchange rate of Ar$1 to US$1. As a result of this
devaluation and the tariff conversion rate dictated by the Argentine
government, the U.S. dollar equivalent of our Argentine revenues
declined significantly.
    
    As a consequence of a severe drought in Brazil, during 2001
and the first quarter of 2002, the Brazilian government imposed
restrictions limiting the consumption of electricity in certain
provinces where our subsidiary Cachoeira Dourada operates. As a
result of these restrictions on electricity consumption, Cachoeira
Dourada experienced a reduction in its revenues.
    
    In 2002, the Colombian government imposed an extraordinary
tax for Colombias antiterrorist campaign. Technical Bulletin No. 64 Our consolidation of the results of our non-Chilean subsidiaries is
governed by Technical Bulletin No. 64. Technical Bulletin No. 64 establishes a
mechanism to consolidate the financial results of a non-Chilean company
prepared in local GAAP and denominated in local currency into the financial
results of its Chilean parent which are prepared in Chilean GAAP and
denominated in Chilean pesos. The implementation of Technical Bulletin No. 64
affects the reporting of our results of operations. In particular, exchange
rate variations, if significant, can materially affect the amounts of operating
revenues and expenses reported in our consolidated financial statements in
Chilean GAAP as well as generate material non-operating gains and losses. Technical Bulletin No. 64Conversion Effect. Technical Bulletin No. 64
requires Endesa-Chile to convert the denomination of the financial statements
of its non-Chilean subsidiaries from local currency to U.S. dollars and to
restate such financial statements into Chilean GAAP after such conversion,
including by converting such U.S. dollar amounts into Chilean pesos. We refer
to the gain or loss resulting of this balance sheet conversion as the
conversion effect. In order to convert monetary assets and liabilities of
its non-Chilean subsidiaries to U.S. dollars, Endesa-Chile must use the U.S.
dollar/local currency exchange rate applicable at period-end. In order to
convert Endesa-Chiles equity interests in such subsidiaries as well as such
subsidiaries non-monetary assets and liabilities to U.S. dollars, Endesa-Chile
must use the U.S. dollar/local currency exchange rate applicable at the time
when such equity interests or non-monetary assets or liabilities were acquired
or incurred. In addition, Technical Bulletin No. 64 requires income and
expense accounts (except for the expenses incurred in connection with
depreciation and amortization) of foreign subsidiaries to be converted into to
U.S. dollars at the average exchange rate of the month during which such
results or expenses were recorded. All amounts converted from local currency
to U.S. dollars are then converted from U.S. dollars to Chilean pesos at the
exchange rate applicable at the end of the reporting period. Technical
Bulletin No. 64 may have the effect of excluding from our reported financial
condition the effect on non-monetary assets of devaluation in the countries in
which our subsidiaries and investments are located. For example, the carrying
value of our Argentine and Brazilian non-monetary assets increased in 2002
notwithstanding the devaluation of Argentine peso and Brazilian real because
these assets are carried at historical U.S. dollar value and the U.S. dollar
appreciated against the Chilean peso in 2002. The currency conversion from local currencies to U.S. dollars can have
different effects depending on a foreign subsidiarys structure of monetary and
non-monetary assets and liabilities. For example, when a foreign subsidiary
has more monetary assets than monetary liabilities, a devaluation of the
applicable local currency against the U.S. 72




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dollar may result in a loss due to the effects of the currency conversion.
On the other hand, the appreciation of the applicable local currency results
in a gain. The reverse is also true for foreign subsidiaries with more
monetary liabilities than monetary assets, where a devaluation of the
applicable local currency against the U.S. dollar may result in a gain, whereas
an appreciation may result in a loss. The recent fluctuations of the exchange
rates between the currencies of the countries where we operate and the U.S.
dollar, as well as in the exchange rate between the Chilean peso and the U.S.
dollar, have materially affected the comparability of our results of operations
during the periods discussed below because of this conversion effect. Technical Bulletin No. 64Equity Hedge. Technical Bulletin No. 64 allows
U.S. dollar denominated debt incurred in connection with the acquisition of
equity in non-Chilean subsidiaries located in unstable countries, to be hedged
by the investing company against and limited to the book-value of such equity
investments. For purposes of Technical Bulletin No. 64 all the countries where
we have investments  Argentina, Brazil, Colombia and Peru  are considered
unstable countries. This hedge results in the elimination of the effects of
exchange rate variations on the debt incurred in connection with such
investments. If the book-value of an equity investment is lower than the U.S.
dollar denominated debt incurred in connection with its acquisition, the
results of the exchange rate fluctuations affecting the amount of U.S. dollar
denominated debt that is not hedged are included in determining net income. On
the other hand, if the book-value of an equity investment is higher than the
U.S. dollar denominated debt incurred in connection with its acquisition, then
the results of the exchange rate fluctuations affecting the book-value of the
equity that is not hedged are recorded in cumulative translation adjustment in
a reserve account as part of shareholders equity reference to as cumulative
translation adjustment for U.S. GAAP purposes. U.S. GAAP Reconciliation Our audited consolidated financial statements have been prepared in
accordance with Chilean GAAP, which differs in some significant respects from
U.S. GAAP. You should read Note 34 to our audited Consolidated Financial
Statements for a description of the principal differences between Chilean GAAP
and U.S. GAAP and reconciliation to U.S. GAAP of net income and total
shareholders equity. The principal differences between Chilean GAAP and U.S. GAAP as they
relate to the Company are (i) the elimination of the effects of a revaluation
of fixed assets, (ii) the elimination of complementary accounts in deferred
taxes, (iii) the effects on goodwill and negative goodwill from the application
of fair value purchase accounting, (iv) the effects of eliminating capitalized
exchange rate differences and general and administrative expenses capitalized
in fixed assets, (v) the effects of recording a liability related to minimum
dividends payable, and (vi) the effects of accounting for derivatives at fair
value. The following table sets out the differences between consolidated net
income (loss) and Shareholders Equity as reported under Chilean GAAP and U.S.
GAAP: Chilean GAAP
    
    U.S. GAAP(in millions of constant Ch$ as ofDecember 31, 2003)Net income (loss) for the year ended December 31:2001
    
    
    72,882
    
    
    
    31,2482002
    
    
    (9,412
    )
    
    
    (75,898
    )2003
    
    
    78,131
    
    
    
    72,735Shareholders equity as of December 31:2002
    
    
    1,444,942
    
    
    
    1,492,6692003
    
    
    1,064,738
    
    
    
    1,123,405
 Argentine Peso to U.S. dollar Exchange Rate The financial statements of our Argentine subsidiaries are remeasured into
U.S. dollars for purposes of the preparation of our audited consolidated
financial statements, because under Chilean GAAP, in accordance with Technical
Bulletin No. 64, the financial statements of foreign subsidiaries that operate
in countries exposed to 73




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significant risks (unstable countries) and are not considered to be an
extension of the parent companys operations are required to be remeasured into
U.S. dollars. The accounting loss included in results of operations as a
consequence of the devaluation of the Argentine peso when so remeasured into
U.S. dollars was approximately US$20.9 million net of minority interest for the
year ended December 31, 2001 in historical dollars. The effect of remeasuring
the Argentine peso into U.S. dollars resulted in a net gain of approximately
US$2.5 million for the year ended December 31, 2002, and a net loss of US$0.1
million for the year ended December 31, 2003. At the date of issuance of the
audited consolidated financial statements of the years 2001 and 2002, there was
uncertainty regarding future changes that could occur in Argentina. As required
under Chilean GAAP, we assumed the Argentine monetary assets and liabilities
and revenues and expenses were translated at 1.70 Argentine pesos to the U.S.
dollar as of December 31, 2001, 3.37 Argentine pesos to the U.S. dollar as of
December 31, 2002 and at 2.96 Argentine pesos to the U.S. dollar as of December
31, 2003. This accounting estimate required us to make assumptions about future
events that were highly uncertain in 2001, because the future exchange rate of
Argentine pesos to U.S. dollars was uncertain, however the exchange rate has
since stabilized. Our investments in Argentina represent 13.58%, 12.49% and
12.77% of total assets as of December 31, 2001, 2002 and 2003, and 21.78%,
10.46% and 12.09% of total revenues and 12.80%, 3.64% and 9.55% of total
operating income for the years ended December 31, 2001, 2002 and 2003,
respectively. Prior to 2002, the Argentine peso has been pegged to the U.S. dollar at a
rate of 1 Argentine peso to 1 U.S. dollar. In early December 2001, restrictions
were put in place that prohibited cash withdrawals above a certain amount and
foreign money transfers, with certain limited exceptions. While the legal
exchange rate remained at 1 Argentine peso to 1 U.S. dollar, financial
institutions were allowed to conduct only limited activity due to these
controls, and currency exchange activity was effectively halted except for
personal transactions in small amounts. In January 2002, the Argentine government announced its intent to create a
dual currency system with an official fixed exchange rate of 1.4 pesos to 1
U.S. dollar for import, and export transactions and a free floating exchange
rate for other transactions. On January 11, 2002, the exchange rate market
holiday ended and closing new free floating exchange rates ranged from 1.6 to
1.7 Argentine pesos to 1 U.S. dollar. On February 3, 2002, the Argentine
government issued a decree that (1) eliminated the fixed exchange rate; (2)
established one free floating exchange rate for the Argentine peso; and (3)
required U.S. dollar-denominated obligations be converted to peso-denominated
obligations using mandated conversion rates, depending on the type of
obligation. The market for the floating exchange rate opened on February 11,
2002 and was maintained open for the year 2003. Revenue Recognition In accordance with Chilean GAAP, energy supplied and unbilled at each
year-end is valued at the selling price using the current rates and has been
included in revenue from operations. The unbilled amount is presented in
current assets as trade receivables as collection of these amounts is
relatively assured and the corresponding cost of energy purchased or produced
is included in cost of operations. The Company recognizes revenue generated
from engineering and inspection services and highway tolls at the time the
related services are provided. Critical Accounting Policies Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, which would potentially result in
materially different results under different assumptions and conditions. We
believe that our critical accounting policies in the preparation of our Chilean
GAAP financial statements are limited to those described below. It should be
noted that in many cases, Chilean GAAP specifically dictates the accounting
treatment of a particular transaction, with no need for managements judgment
in their application. Additionally, significant differences can exist between
Chilean GAAP and US GAAP, as explained in US GAAP Reconciliation above.
There are also areas in which managements judgment in selecting available
alternatives would not produce materially different results. For a summary of
significant accounting policies and methods used in the preparation of the
financial statements, see Note 2 to our audited consolidated financial
statements. The preparation of the financial statements requires us to make estimates
and judgments that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities at the date of our financial statements. Actual results may differ
from these estimates under different assumptions or conditions. 74




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Impairment of Long Lived Assets We assess the impairment of our long-lived assets to be held and used
whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. Factors we consider important which could trigger an
impairment review include the following:  
    
    significant underperformance relative to expected historical or
projected future operating results;
    
    significant changes in the manner of use of the acquired assets or
the strategy for our overall business; and
    
    significant negative industry or economic trends. When we determine that the carrying value of long-lived assets may not be
recoverable based upon the existence of one or more of the above indicators of
impairment, we evaluate the future cash flows to determine if we need to take
an impairment charge. If the sum of the expected future cash flows
(undiscounted) is less than the carrying amount of the assets, we recognize an
impairment loss. In order to estimate future cash flows, we must make
assumptions about future events that are highly uncertain at the time of
estimation. For example, we make assumptions and estimates about future
interest rates, exchange rates, electricity rate increases, and cost trends
such as taxes and plant repair and maintenance. The number of years included in
determining discounted cash flow, in our opinion, is estimable in the case of
the generating companies because the number is closely associated with the
useful lives of the plants and their equipment. These useful lives are readily
determinable based on historical experience and type of power generated. The
discount rates used in the analysis vary by country and fluctuate as economic
conditions in these countries vary; therefore the likelihood of change in
estimate in any given period is high. Adjustments to historical results based
on anticipated operating conditions are estimated in light of the current
competitive market in the countries in which we do business. These conditions
are estimated in light of the current competitive market in the countries in
which we do business. These condition change periodically, therefore, the
likelihood of a change in estimate in any given period is high. As a result,
the actual cash flows may materially differ from our estimate and we may be
required to make additional impairment charges. Impairment of Goodwill We assess the impairment of goodwill in a similar manner as long lived
assets. The measurement of the impairment loss is based on the recoverable
value of the investment which we generally determine using a discounted cash
flow approach and recent comparable transactions in the market. In order to
estimate recoverable value, we must make assumptions about future events that
are highly uncertain at the time of estimation. The results of this analysis
showed that the goodwill and related negative goodwill associated with
investments in Argentina and Brazil were impaired because estimated future
discounted cash flows were not sufficient to recover goodwill and negative
goodwill. During 2002, the Company recorded a net charge of Ch$62.8 billion to
write-off all amounts of goodwill and negative goodwill. At a consolidated
level this charge amounted to Ch$56.7 billion, net of minority interest. Income and Deferred Taxes In accordance with Chilean law, the Company and each of its subsidiaries
compute and pay tax on a separate basis. We estimate our actual current tax
exposure together with assessing temporary differences resulting from differing
treatment of items, such as depreciation, for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are
included within our consolidated balance sheet. As a transitional provision
under Chilean GAAP, we recorded a contra asset or liability offsetting the
effects of the deferred tax assets and liabilities not recorded prior to
January 1, 2000. Such contra asset or liability amounts must be amortized to
income over the estimated average reversal periods corresponding to the
underlying temporary differences to which the deferred tax asset or liability
relates calculated using the tax rates in effect at the time of reversal. We
then assess the likelihood that our deferred tax assets will be recovered from
future taxable income and to the extent we believe that recovery is unlikely,
we establish a valuation allowance. In order for us to estimate the realizable
value of deferred tax assets and the average reversal periods of contra assets
or liabilities, we must make assumptions about future events that are highly
uncertain at the time of estimation. For example, we make estimates of future
earnings, including estimates of future interest rates, exchange rates,
electricity rate increases, and cost trends such as taxes 75




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and plant repair and maintenance. Revisions to the estimated realizable
value of deferred tax assets or estimated average reversal periods of contra
assets or liabilities could cause our provision for income taxes to vary
significantly from period to period. The net deferred tax liability was Ch$63.3
billion and Ch$33.1 billion as of December 31, 2002 and 2003, respectively. Derivative Instruments The Company has commodity derivative, financial derivative, and embedded
derivative instruments that are recorded at fair value, with changes in fair
value recognized in earnings under SFAS No. 133, as amended. In establishing
the fair value of such contracts management makes assumptions based on
available market data and pricing models, which may change from time to time. Calculation of fair value for commodity and embedded derivatives is done
with internal models that are based primarily on discounted future cash flows.
Inputs to such models include estimated forward prices of electricity and
natural gas, interest rates, foreign exchange rates, inflation indices,
transmission costs, and others. Simulation techniques are used to forecast
electricity consumption levels for the countries in which the Company has
derivative instruments with optionality in quantities. These inputs become
more difficult to predict and the estimates are less precise, the further out
these estimates are made. As a result, fair values are highly dependent upon
the assumptions being used. The Company also adjusts fair value of certain
commodity derivatives to reflect risks related to the performance of
counterparties. The Companys Argentine generation entities have access to the Brazilian
energy market through an interconnection system between the two markets. The
Company has entered into a number of power purchase agreements on the
Argentinean side and power sales agreements on the Brazilian side to export
electricity from Argentina to Brazil. In order to calculate the fair values of
the electricity purchase and sale contracts related to this interconnection
business, Argentine electricity forward prices were used as a benchmark for all
contracts included in this portfolio. The Company considers the Argentine
prices to be the correct benchmark to calculate the fair value of the
interconnection contracts because the Company does not have concessions to sell
the Argentine generated energy in the Brazilian spot or forward market to any
parties other than those currently contracted and all the energy is being
sourced from Argentina. Therefore the Company views the interconnection as an
extension of the Argentine market. Such values are included in the
reconciliation to U.S. GAAP in Note 34 I (v) of the Consolidated Financial
Statements. The Company has assumed therefore that the Argentinean energy
forward curve is the only relevant benchmark for the whole portfolio, including
contracts on the Argentinean and Brazilian side of the interconnection.
Alternatively the Company could have assumed that the Brazilian energy forward
curve is the relevant benchmark for the Brazilian side of the portfolio under
certain circumstances. The impact of using Brazilian prices on the Companys
U.S. GAAP net income and shareholders equity is as follows: Net Income
    
    Shareholders Equity2002
    
    2003
    
    2002
    
    2003(in millions of constant Ch$)Increase (decrease)
    
    
    80,871
    
    
    
    59,673
    
    
    
    (95,457
    )
    
    
    (18,424
    )
 The Companys financial derivative instruments are primarily short
duration foreign currency forward exchange contracts to purchase U.S. dollars
or Euros and sell UF and interest swaps and collars and cross-currency swaps.
The Company records these financial derivative contracts at fair value.
Estimates of fair values of financial instruments for which no quoted prices or
secondary market exists have been made using valuation techniques such as
forward pricing models, present value of estimated future cash flows, and other
modeling techniques. These estimates of fair value include assumptions made by
the Company about market variables that may change in the future. Changes in
assumptions could have a significant impact on the estimate of fair values
disclosed. The net asset related to financial derivative instruments was
Ch$23.8 billion and Ch$556.6 billion as of December 31, 2002 and 2003,
respectively. The Companys accounting policy for derivative instruments is discussed in
Note 34(k) of our Audited Consolidated Financial Statements. 76




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Pension and Post-Retirement Benefits Liabilities We have significant pension and post-retirement benefit plan liabilities,
which are developed from actuarial valuations. Inherent in these valuations
are key assumptions including discount rates and expected returns on plan
assets. We are required to consider current market conditions, including
changes in interest rates, in selecting these assumptions. Changes in the
related pension and post-retirement benefit liabilities, may occur in the
future due to changes resulting from fluctuations in our related headcount or
to changes in the assumptions. The net pension and post-retirement liability
was Ch$23.9 billion and Ch$24.7 billion as of December 31, 2002 and 2003,
respectively. Results of Operations for Years Ended December 31, 2003 and 2002 Overview Our 2003 results, when compared to those of 2002, were mainly affected by
the following factors:  
    
    our operating income for the year ended December 31, 2003 amounted
to Ch$338.5 billion, a decrease of 3.2% from operating income of
Ch$349.7 billion in 2002. This decrease was mainly due to the
accounting effect under Technical Bulletin N° 64 of the appreciation of
the Chilean peso against the U.S. dollar, which resulted in a loss of
Ch$32.2 billion. If we eliminate the negative impact of the
appreciation of the Chilean peso during 2003, our operating income
would have increased Ch$38.3 billion We believe it is helpful to
eliminate the effects of the appreciation of the Chilean peso in order
to understand the underlying trend in our operating income. For a
reconciliation of these non-GAAP measures to Chilean GAAP. See
Reconciliation of non-GAAP measures to Chilean GAAP below. In
addition, operating income in Chile declined as a consequence of the
sale of assets of Canutillar and the sale and deconsolidation of
Infraestructura Dos Mil which had an aggregate negative effect of
approximately Ch$22.0 billion.
    
    our non-operating results amounted to a loss of Ch$179.0 billion in
2003 in comparison to a loss of Ch$316.6 billion in 2002. This
reduction in losses in 2003 principally resulted from the
non-recurrence of a write-off of goodwill in 2002 of Ch$108.1 billion
related to our investments in Argentina and Brazil which did not occur
again in 2003; and
    
    our amortization of negative goodwill decreased to Ch$15.6 billion
in 2003, compared to Ch$86.8 billion for 2002. This decrease is mainly
explained by the write-off of negative goodwill arising from our
investments in Argentina and Brazil in December 2002, which did not
occur again in 2003. Revenues from operations We derive a substantial portion of our consolidated revenues from the sale
of electricity in Chile. However, revenues from sales from countries other
than Chile accounted for 50.2% and 52.6% of our consolidated revenues in 2003
and 2002, respectively. Revenues from sales of electricity in Argentina
accounted for 12.1% of our consolidated revenues in 2003 as compared to 10.5%
in 2002. Revenues from sales of electricity in Colombia accounted for 22.6% in
2003 as compared to 24.0% in 2002 and revenues from sales of electricity in
Brazil accounted for 3.3% in 2003 as compared to 5.5% in 2002. In addition,
revenues from sales of electricity in Peru accounted for 12.1% in 2003 as
compared to 12.5% in 2002. In each of 2003 and 2002, other income accounted
for less than 5% of total consolidated revenues. 77




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The table below sets forth the breakdown of Endesa-Chiles revenues from
operations for 2002 and 2003, and the percentage change from year to year. Year ended December 31,2002
    
    2003
    
    %Change(in millions of constant Ch$ as of December 31, 2003,except volume data)Sales of electricity (Chile)
    
    
    408,740
    
    
    
    429,149
    
    
    
    5.0Sales of electricity (Argentina)
    
    
    99,137
    
    
    
    111,279
    
    
    
    12.2Sales of electricity (Colombia)
    
    
    227,539
    
    
    
    208,374
    
    
    
    (8.4
    )
 Year ended December 31,2002
    
    2003
    
    %Change(in millions of constant Ch$ as of December 31, 2003,except volume data)Sales of electricity (Brazil)
    
    
    51,917
    
    
    
    30,792
    
    
    
    (40.7
    )Sales of electricity (Peru)
    
    
    118,031
    
    
    
    110,912
    
    
    
    (6.0
    )Other
    
    
    42,116
    
    
    
    29,776
    
    
    
    (29.3
    )Total
    
    
    947,480
    
    
    
    920,282
    
    
    
    (2.9
    )
 Year ended December 31,2002
    
    2003
    
    %Change(GWh)
    
    (GWh)Energy Sales (Chile)
    
    
    18,344
    
    
    
    18,681
    
    
    
    1.8Energy Sales (Argentina)
    
    
    7,897
    
    
    
    9,259
    
    
    
    17.2Energy Sales (Colombia)
    
    
    14,639
    
    
    
    14,481
    
    
    
    (1.1
    )Energy Sales (Brazil)
    
    
    3,591
    
    
    
    3,770
    
    
    
    5.0Energy Sales (Peru)
    
    
    4,158
    
    
    
    4,443
    
    
    
    6.9Total
    
    
    48,629
    
    
    
    50,634
    
    
    
    4.1
 Revenues from sales of electricity in Chile increased by 5.0% to Ch$429.1
billion in 2003 from Ch$408.7 billion in 2002. This increase was mainly due to
an increase in the average sales price of 3.1% to Ch$23.0 per kWh in 2003 from
Ch$22.3 per kWh in 2002 and an increase in volume terms of approximately 4.6%
in contractual sales offset in part by a decrease in spot sales volumes of
approximately 10.7%. Revenues from sales of electricity in Argentina increased by 12.2% to
Ch$111.3 billion in 2003, from Ch$99.1 billion in 2002. The increase in
revenues was primarily due to higher water levels in El Chocóns reservoir,
which allowed the company to increase physical energy sales by 25.7%, which
resulted in a Ch$13.7 billion increase in revenues, as well as a 9.7% increase
in physical energy sales at Costanera, which resulted in a Ch$16.5 billion
increase in revenues, from the second interconnection line with Brazil, which
operated throughout 2003, but only the last five months of 2002. These
positive factors were offset in part by the impact of the appreciation of the
Chilean peso against the dollar, which caused a decrease in revenues of Ch$18.0
billion. Revenues from sales of electricity in Colombia decreased by 8.4% to
Ch$208.4 billion in 2003 from Ch$227.5 billion in 2002. This was mainly due to
the impact of the appreciation of the Chilean peso against the U.S. dollar,
which caused a decrease in revenues of Ch$41.6 billion. This decrease was
offset in part by an increase of 1.8% in physical energy sales, which resulted
in a Ch$21.2 billion increase in revenues, due to a 208.5% increase in non
regulated sales offset in part by a decrease of 37.5% in regulated and spot
physical energy sales. Revenues from sales of electricity in Brazil decreased by 40.7% to Ch$30.8
billion in 2003 from Ch$51.9 billion in 2002. This primarily reflected a
decline of 43.4% in the average price of electricity sold due to good
hydrological conditions in the region as well as the dispute between Cachoeira
Dourada and CELG (see Legal Proceedings in Item 8 of this Report), which
resulted in a loss of Ch$11.7 billion. Revenues were also adversely affected
by the appreciation of the Chilean peso against the U.S. dollar, which caused a
decrease in revenues of Ch$9.4 billion. These effects were offset in part by a
5% increase in physical sales. Revenues from sales of electricity in Peru decreased by 6.0% to Ch$110.9
billion in 2003 from Ch$118.0 billion in 2002, due to the appreciation of the
Chilean peso against the U.S. dollar, which caused a decrease of Ch$21.6
billion, partially offset by an increase of revenues by Ch$14.6 billion mainly
due to a 6.9% increase in physical sales. Other revenues decreased by 29.3% to Ch$29.8 billion in 2003 from Ch$42.1
billion in 2002, mainly due to the sale of Infraestructura Dos Mil in June
2003. Infraestructura Dos Mil revenues in 2002 amounted to Ch$20.4 billion. 78




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Under Chilean GAAP, Endesa-Chile ceased consolidating Infraestructura Dos
Mil with effect from January 1, 2003. The effect of this disposition was
partially offset by an increase of Ch$6.0 billion of other revenues in Chile. Cost of operations The table below sets forth the breakdown of costs of operations for 2002
and 2003 and the percentage change from year to year. Year ended December 31,2002
    
    2003
    
    %Change(in millions of constant Ch$ as of December 31, 2003,except percentages)Cost of operations (Chile)
    
    
    258,913
    
    
    
    285,264
    
    
    
    10.2Cost of operations (Argentina)
    
    
    84,602
    
    
    
    77,036
    
    
    
    (8.9
    )Cost of operations (Colombia)
    
    
    145,284
    
    
    
    119,894
    
    
    
    (17.5
    )Cost of operations (Brazil)
    
    
    32,901
    
    
    
    25,215
    
    
    
    (23.4
    )Cost of operations (Peru)
    
    
    39,441
    
    
    
    43,037
    
    
    
    9.1Total
    
    
    561,141
    
    
    
    550,447
    
    
    
    (1.9
    )
 Chilean operating costs increased 10.2% to Ch$285.3 billion in 2003 from
Ch$258.9 billion in 2002. Weaker hydrological conditions caused a 17.4%
increase in variable costs (Ch$27.4 billion) resulting from: (i) a 26.5%
increase in thermoelectric generation, producing a Ch$4.9 billion increase in
fuel costs and Ch$2.8 billion higher tolls and energy transport costs, mainly
gas transportation necessary for the thermo generation, and (ii) a 63.1%
increase in energy and power purchases at an average purchase price of Ch$20.1
per KWh during 2003, 60% higher than during 2002, which increased costs by
Ch$18.8 billion. Costs of operations in Argentina decreased by 8.9% to Ch$77.0 billion in
2003 from Ch$84.6 billion in 2002, mainly due to a Ch$15.4 billion decrease in
expenses due to the appreciation of the Chilean peso against the U.S. dollar.
This effect was offset in part by an increase of Ch$4.2 billion in fuel costs,
energy and power purchases at Costanera due to 13.3% higher thermoelectric
generation and Ch$2.8 billion of higher energy and power purchases at El
Chocón, both because of higher levels of energy demand. Costs of operations in Colombia decreased by 17.5% to Ch$120.0 billion in
2003 from Ch$145.3 billion in 2002, principally reflecting a Ch$26.4 billion
decrease in expenses due to the appreciation of the Chilean peso against the
U.S. dollar. Costs of operations in Brazil decreased by 23.4% to Ch$25.2 billion in
2003 from Ch$32.9 billion in 2002, principally reflecting a Ch$6.0 billion
decrease in expenses due to the appreciation of the Chilean peso against the
U.S. dollar and Ch$4.4 billion decrease due to a 71.1% decrease in the average
price of purchased energy, offset in part by a Ch$2.6 billion increase in other
variable costs. Costs of operations in Peru increased by 9.1% to Ch$43.0 billion in 2003
from Ch$39.4 billion in 2002, mainly due to an increase of Ch$7.1 billion in
energy purchases and tolls and transport costs due to lack of rainfall and an
increase of Ch$4.3 billion in depreciation because of higher fixed assets.
These increases were offset in part by a Ch$7.2 billion decrease in expenses
due to the appreciation of the Chilean peso against the U.S. dollar and also by
Ch$1.2 billion of lower other fixed costs. Administrative and selling expenses Administrative and selling expenses decreased by 14.5% to Ch$31.3 billion
in 2003 from Ch$36.7 billion in 2002. This is due to a decrease of Ch$3.5
billion resulting from the impact of the appreciation of the Chilean peso
against the U.S. dollar and a Ch$1.9 billion reduction in expenses of our
foreign subsidiaries mainly because of a decrease in salaries and other
expenses in Colombia. 79




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Operating margin Our operating margin as a percentage of revenues decreased slightly from
40.8% in 2002 to 40.2% in 2003, reflecting a decline in operating margin in
Brazil primarily due to a decline in the average price of electricity sold due
to improved hydrological conditions in the region as well as the dispute
between Cachoeira Dourada and CELG (see Legal Proceedings in Item 8 of this
Report). This effect was offset by an increase in operating margin in Argentina
due to high levels of rainfall, which allowed more electricity to be dispatched
from our hydroelectric generation subsidiary, El Chocón, at a lower generation
cost. Our operating margin as a percentage of revenues increased from 36.6% in
2001 to 40.8% in 2002. This increase was due to an improvement in our operating
margin in Chile resulting from an increase in hydrological generation at a
lower cost, as well as in sales. This was partially offset by a decline in
operating margin in Argentina due to a decrease in energy sales and in the
average sales price, primarily due to lower electricity pool market sales
prices and lower operating revenues from El Chocón during 2002 due to the
Argentine crisis. Operating income The following table breaks down operating income by country for the years
ended December 31, 2002 and 2003. Year ended December 31,2002
    
    2003
    
    % Change(in millions of Ch$ as of December31, 2003, except percentages)Operating Income (Chile)
    
    
    172,500
    
    
    
    155,260
    
    
    
    (10.0
    )%Operating Income (Argentina)
    
    
    12,725
    
    
    
    32,313
    
    
    
    153.9
    %Operating Income (Colombia)
    
    
    76,129
    
    
    
    85,984
    
    
    
    12.9
    %Operating Income (Brazil)
    
    
    17,151
    
    
    
    3,657
    
    
    
    (78.7
    )%Operating Income (Peru)
    
    
    71,182
    
    
    
    61,297
    
    
    
    (13.9
    )%Total
    
    
    349,687
    
    
    
    338,511
    
    
    
    (3.2
    )%
 Operating income in Chile for 2003 decreased 10.0% to Ch$155.3 billion
from Ch$172.5 billion in 2002. This decrease is mainly explained by Ch$26.4
billion increase in total expenses, partially offset by a Ch$9.2 billion
increase in revenues. If we eliminate the effect of the deconsolidation of
Infraestructura Dos Mil and Canutillar during 2003, our operating income would
have increased by 3.2 % when compared to year 2002. We believe that it is
helpful to eliminate the effects of the sale of Canutillar and the
deconsolidation of Infraestructura Dos Mil in order to understand the
underlying trend in our operating income. For a reconciliation of these
non-GAAP measures to Chilean GAAP, see Reconciliation of non-GAAP measures to
Chilean GAAP below. Operating income in Argentina increased 153.9% to Ch$32.3 billion in 2003
from Ch$12.7 billion in 2002. This increase is mainly explained by an increase
of Ch$11.3 billion in El Chocóns operating income and an increase of Ch$10.6
billion in Costaneras operating income, in both cases, in local currency
terms. El Chocóns revenues increased Ch$13.7 billion and operating expenses
decreased Ch$2.2 billion compared to 2002 due to better hydrology. Costaneras
revenues increased Ch$16.5 billion and operating expenses decreased Ch$5.6
billion compared to 2002. Costaneras revenues increased in part due to a 9.7%
increase in physical energy sales from the second interconnection line with
Brazil, which operated throughout 2003, but only the last five months of 2002.
These positive factors were offset in part by the impact of the appreciation of
the Chilean peso against the U.S. dollar, which caused a decrease in our
operating income of Ch$2.3 billion. In Brazil, the operating income of Cachoeira Dourada decreased 78.7% to
Ch$3.7 billion in 2003 from Ch$17.2 billion in 2002. This decrease is mainly
explained by a decrease of Ch$10.4 billion in revenues due to partial billings
resulting from provisional court decisions related to a contractual dispute
with CELG (see Legal Proceedings) and by a negative effect amounting to
Ch$3.1 billion resulting from the appreciation of the Chilean peso and the
Brazilian real (our contracts with CELG are denominated in Brazilian real)
against the U.S. dollar for the periods under comparison. 80




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Operating income in Colombia for 2003 increased 12.9% to Ch$86.0 billion
from Ch$76.1 billion in 2002. This increase is mainly explained by an increase
in operating income in local currency terms amounting to Ch$23.7 billion,
partially offset by a negative effect amounting to Ch$13.8 billion resulting
from the appreciation of the Chilean peso against the U.S. dollar in the
periods under comparison. This increase in operating income is mainly due to
Ch$21.2 billion in higher revenues, a decrease of Ch$3.5 billion in
administrative and selling expenses and a reduction of Ch$1.1 billion in
operating expenses. In Peru, the operating income of Edegel decreased by 13.9% to Ch$61.3
billion in 2003 from Ch$71.2 billion in 2002. This decrease is mainly
explained by a negative effect amounting to Ch$12.9 billion resulting from the
appreciation of the Chilean peso against the U.S. dollar in the periods under
comparison. Edegels revenues increased by Ch$14.6 billion and operating
expenses decreased by Ch$10.8 billion during 2003, compared to 2002. Non-operating Results The following table sets forth certain information regarding our
non-operating results for each of the periods indicated. Year ended December 31,2002
    
    2003
    
    %Change(in millions of constant Ch$ as of December 31, 2003,except percentages)Non-operating income:Interest earned
    
    
    15,399
    
    
    
    15,262
    
    
    
    (0.9
    )Equity in income of non-consolidated affiliates
    
    
    8,656
    
    
    
    17,370
    
    
    
    100.7Other non-operating income
    
    
    103,509
    
    
    
    44,573
    
    
    
    (56.9
    )Non-operating expenses:Interest expense
    
    
    (220,329
    )
    
    
    (204,136
    )
    
    
    (7.3
    )Goodwill amortization
    
    
    (109,647
    )
    
    
    (1,543
    )
    
    
    (98.6
    )Other non-operating expenses
    
    
    (117,739
    )
    
    
    (60,062
    )
    
    
    (49.0
    )Monetary correction:Price level restatement
    
    
    4,036
    
    
    
    575
    
    
    
    (85.8
    )Foreign Exchange translation
    
    
    (445
    )
    
    
    8,956
    
    
    
    2,112.6Non-operating results
    
    
    (316,560
    )
    
    
    (179,005
    )
    
    
    (43.5
    )
 Non-operating results amounted to a loss of Ch$179.0 billion in 2003 in
comparison to a loss of Ch$316.6 billion in 2002. This reduction in losses in
2003 resulted from a write-off of goodwill in 2002 of Ch$108.1 billion related
to our investments in Argentina and Brazil which did not occur again 2003. Interest earned.Interest earned slightly decreased by 0.9% to Ch$15.3
billion in 2003 from Ch$15.4 billion in 2002. This decrease was primarily
attributable to lower cash balances in Chile during 2003. Equity income from non-consolidated affiliates. The Ch$8.7 billion
improvement in the net income from related companies is mainly due to the
increase in the net profit of CIEN, which amounted to Ch$11.1 billion for
December 31, 2003 compared to a net profit of Ch$7.3 billion for the year ended
December 31, 2002. The improved result of CIEN in 2003 is explained by
significantly better operating results following the start-up of its second
transmission line with Brazil, which was in place during all 2003 year but only
in the last five months of 2002. Other non-operating income. The decrease of Ch$58.9 billion in the results
of other non-operating income to Ch$44.6 billion in 2003 from Ch$103.5 billion
in 2002 is explained principally by a negative effect amounting to Ch$62.4
billion resulting from the appreciation of the Chilean peso against the U.S.
dollar in the periods under comparison. 81




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Interest expense. The Ch$16.1 billion decrease is explained principally by
a reduction of US$340 million in our total debt at period end. The reduction
of debt was the result of operating cash flows and the use of proceeds from the
sale of Infraestructura Dos Mil that permitted the repayment of a significant
portion of our financial debt. Other non-operating expenses. The Ch$57.7 billion decrease in other
non-operating expenses is explained mainly by a decrease of Ch$44.8 billion in
costs related to provisions for constructions in progress which were made in
2002 at Cachoeira Dourada and that were not made again in 2003. The decrease
is also explained by decreases in provisions for obsolescence of assets by
Ch$8.5 billion and a decrease of Ch$5.7 billion in contingency and litigation
expenses. Goodwill amortization. The decrease of Ch$108.1 billion of goodwill
amortization is the result of an impairment of the investments in Brazil and
Argentina during 2002 which did not occur again during 2003. For more
information about this impairment please see note 13(b) to our audited
consolidated financial statements and Critical Accounting
PoliciesImpairment of Long Lived Assets and Goodwill. Foreignexchange translation. During 2003 we had a Ch$9.0 billion gain in
contrast to a Ch$445 million loss in 2002. This positive effect is due to the
17.4% appreciation of the Chilean peso against the U.S. dollar in 2003,
compared to a 9.7% depreciation in 2002. Price-level restatement. In 2003, there was a Ch$0.6 billion price-level
restatement gain, compared to a gain of Ch$4.0 billion in 2002. This decrease
in the price-level restatement gain was mainly due to lower inflation in Chile
(a 2003 inflation rate was 1.0%, versus 3.0% in 2002 year). Net income The following table sets forth our net income for the periods indicated. Year ended December 31,2002
    
    2003
    
    % Change(in millions of constant Ch$ as of December 31, 2003,except percentages)Operating income
    
    
    349,687
    
    
    
    338,511
    
    
    
    (3.2
    )%Non-operating income
    
    
    (316,559
    )
    
    
    (179,005
    )
    
    
    (43.5
    )%Net income before taxes,
minority interest and negative
goodwill amortization
    
    
    33,128
    
    
    
    159,506
    
    
    
    381.5
    %Income tax
    
    
    (35,513
    )
    
    
    (51,782
    )
    
    
    45.8
    %Deferred taxes
    
    
    (35,822
    )
    
    
    24,404
    
    
    
    n.a.Total income taxes
    
    
    (71,335
    )
    
    
    (27,378
    )
    
    
    61.6
    %Minority interest
    
    
    (46,943
    )
    
    
    (69,586
    )
    
    
    (48.2
    )%Amortization of negative goodwill
    
    
    86,777
    
    
    
    15,590
    
    
    
    (82.0
    )%Extraordinary items
    
    
    (11,039
    )
    
    
    0
    
    
    
    n.a.Net income
    
    
    (9,412
    )
    
    
    78,132
    
    
    
    n.a.
 Income Taxes and Extraordinary Items. The lower total income tax of
Ch$44.0 billion during 2003 is due mainly to a decrease of Ch$60.2 billion in
deferred tax net liabilities, offset by increases in income tax due to higher
revenues in the period. The extraordinary item of Ch$11.0 billion recorded
during 2002 corresponds to a one-time security tax imposed to our Colombian
subsidiaries by the Colombian authorities in order to finance national security
activities. Minority Interest. Minority interest expense resulted in charges of
Ch$69.6 billion in 2003, compared to Ch$46.9 billion in 2002. The 48.2%
increase in 2003 was mainly due to an improvement in the results of El Chocón
in Argentina and in Edegel in Peru. Negative Goodwill Amortization. Negative goodwill was Ch$15.6 billion in
2003, compared to Ch$86.8 billion for 2002. This decrease resulted primarily
from accelerated depreciation of the negative goodwill related to 82




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investments in Brazil and Argentina during 2002 which did not occur again
in 2003. See note 13 to our audited consolidated financial statements. Net income. Net income reached Ch$78.1 billion in the year ended December
31, 2003, compared to a Ch$9.4 billion loss in 2002. The loss was due to a
Ch$56.7 billion net impairment of goodwill related to investments in Brazil and
Argentina, which did not occur again in 2003. This difference was partially offset by:  
    
    a 2.9% reduction in operating revenues resulting from the
appreciation of the Chilean peso against the U.S. dollar during 2003;
and
    
    Ch$10.7 billion in higher operating expenses due to higher energy
purchases resulting from poor hydrological conditions. Results of Operations for Years Ended December 31, 2002 and 2001 Overview Our 2002 results, when compared to those of 2001, were mainly affected by
the following factors:  
    
    our operating income for the year ended December 31, 2002 amounted
to Ch$349.7 billion, a decrease of 0.5% from operating income of
Ch$351.5 billion in 2001. This slight reduction in operating income is
basically due to lower operating income in Argentina and Brazil, which
was almost entirely offset by the improved results in Chile and Peru.
    
    our non-operating results amounted to losses of Ch$316.6 billion in
2002 in comparison to losses of Ch$250.3 billion in 2001. This
difference is basically explained by an increase of Ch$109.6 billion in
goodwill amortization resulting from the impairment of the Companys
investments in Brazil and Argentina during 2002, partially offset by a
decrease of Ch$14.0 billion in net financial expenses, and a rise of
Ch$18.7 billion in the equity in income from investments in related
companies, and
    
    our goodwill amortization increase of Ch$101.3 billion in the
result of an impairment in the goodwill related to the Companys
investments, Cachoeira Dourada in Brazil, and El Chocón and Costanera
in Argentina, during 2002. For more information on this impairment
please see note 13(b) to our audited consolidated financial statements
and Critical Accounting Policies. Revenues from operations We derive a substantial portion of our consolidated revenues from the sale
of electricity in Chile. However, revenues from sales from countries other
than Chile accounted for 52.6% and 59.7% of our consolidated revenues in 2002
and 2001, respectively. Revenues from sales of electricity in Argentina
accounted for 10.5% of our consolidated revenues in 2002 as compared to 21.8%
in 2001. Revenues from sales of electricity in Colombia accounted for 24.0% in
2002 as compared to 21.1% in 2001 and revenues from sales of electricity in
Brazil accounted for 5.5% in 2002 as compared to 6.3% in 2001. In addition,
revenues from sales of electricity in Peru accounted for 12.5% in 2002 as
compared to 10.4% in 2001. In each of 2002 and 2001, other income accounted
for less than 5% of total consolidated revenues. The table below sets forth the breakdown of Endesa-Chiles revenues from
operations for 2001 and 2002, and the percentage change from year to year. 83




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Year ended December 31,2001
    
    2002
    
    %Change(in millions of constant Ch$ as of December 31, 2003,except volume data)Sales of electricity (Chile)
    
    
    389,943
    
    
    
    408,740
    
    
    
    4.8Sales of electricity (Argentina)
    
    
    230,017
    
    
    
    99,137
    
    
    
    (56.9
    )Sales of electricity (Colombia)
    
    
    222,513
    
    
    
    227,539
    
    
    
    2.3Sales of electricity (Brazil)
    
    
    66,986
    
    
    
    51,917
    
    
    
    (22.5
    )Sales of electricity (Peru)
    
    
    109,294
    
    
    
    118,031
    
    
    
    8.0Other
    
    
    36,979
    
    
    
    42,116
    
    
    
    13.9Total
    
    
    1,055,732
    
    
    
    947,480
    
    
    
    (10.3
    )
 Year ended December 31,2001
    
    2002
    
    %Change(GWh)
    
    (GWh)Energy Sales (Chile)
    
    
    18,673
    
    
    
    18,344
    
    
    
    (1.8
    )Energy Sales (Argentina)
    
    
    12,988
    
    
    
    7,897
    
    
    
    (39.2
    )Energy Sales (Colombia)
    
    
    14,591
    
    
    
    14,639
    
    
    
    0.3Energy Sales (Brazil)
    
    
    3,743
    
    
    
    3,591
    
    
    
    (4.1
    )Energy Sales (Peru)
    
    
    4,239
    
    
    
    4,158
    
    
    
    (1.9
    )Total
    
    
    54,234
    
    
    
    48,629
    
    
    
    (10.3
    )
 Total revenues from operations decreased by 10.3% to Ch$947.5 billion in
2002 from Ch$1,055.7 billion in 2001, which is explained primarily by the
effect of the current market conditions in Argentina and Brazil on the
operations of our subsidiaries in these markets, partially offset only by the
improvement in the sales recorded in Chile and Peru. Revenues from sales of electricity in Chile increased by 4.8% to Ch$408.7
billion in 2002 from Ch$389.9 billion in 2001. This increase is primarily due
to a higher average sales price of 6.7% to Ch$22.3 per kWh in 2002 from Ch$20.9
per kWh in 2001. This increase was partially offset by a decrease in sales
volumes of approximately 1.8% due to lower sales in the pool market. The
average sales price of electricity sold by us in Chile increased to Ch$22.3 per
kWh in 2002 from Ch$20.9 per kWh in 2001, primarily due to an increase in the
price of regulated and non regulated contract prices. Revenues from sales of electricity in Argentina decreased by 56.9% to
Ch$99.1 billion in 2002, from Ch$230.0 billion in 2001. The decrease is
primarily due to a 39.2% decrease in energy sales and a 29.1% decrease in the
average sales price. The average sales price per kWh of electricity sold by our
subsidiaries in Argentina decreased to Ch$12.6 per kWh in 2002 from Ch$17.7 per
kWh of electricity in 2001, primarily due to lower pool market sales prices and
the lower contract price for El Chocón in 2002 due to the devaluation of the
local currency by more than 70%. The volume of electricity sold in Argentina
decreased to 7,897 GWh in 2002 from 12,988 GWh in 2001 primarily due to a
reduction of the electricity demand in the Argentine market because of the
economic instability during this period. Revenues from sales of electricity in Brazil decreased by 22.5% to Ch$51.9
billion in 2002 from Ch$67.0 billion in 2001 primarily as a result of a 19.2%
decrease in the average sales price during fiscal year 2002 to Ch$14.5 per kWh
in 2002 from Ch$17.9 per kWh in 2001. This decrease was mainly produced by a
drop in the average price of energy sales due to the devaluation of the
Brazilian currency with respect to the U.S. dollar. Revenues from sales of electricity in Colombia increased by 2.3% to
Ch$227.5 billion in 2002 from Ch$222.5 billion in 2001 due to an increase in
sales volumes to 14,639 GWh in 2002 from 14,591 GWh in 2001. The increase in
sales volumes is mainly related to higher energy production due to favorable
hydrological conditions. 84




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Revenues from sales of electricity in Peru increased by 8.0% to Ch$118.0
billion in 2002 from Ch$109.3 billion in 2001 due to a 10.1% higher average
sales price of Ch$28.4 per kWh in 2002 from Ch$25.8 per kWh in 2001. The
increase in the average sales price, which was due to the increase in regulated
prices, helped to offset the 1.9% decline in sales volumes. Other revenues increased by 13.9% in 2002, mainly due to higher revenues
from Infraestructura Dos Mil, and higher sales from the engineering subsidiary
Ingendesa related to new service contracts. Cost of operations The table below sets forth the breakdown of costs of operations for 2001
and 2002 and the percentage change from year to year. Year ended December 31,2001
    
    2002
    
    %Change(in millions of constant Ch$ as of December 31, 2003,except percentages)Cost of operations (Chile)
    
    
    272,479
    
    
    
    258,913
    
    
    
    (5.0
    )Cost of operations (Argentina)
    
    
    180,385
    
    
    
    84,602
    
    
    
    (53.1
    )Cost of operations (Colombia)
    
    
    143,191
    
    
    
    145,284
    
    
    
    1.5Cost of operations (Brazil)
    
    
    37,776
    
    
    
    32,901
    
    
    
    (12.9
    )Cost of operations (Peru)
    
    
    35,402
    
    
    
    39,441
    
    
    
    11.4Total
    
    
    669,233
    
    
    
    561,141
    
    
    
    (16.2
    )
 Cost of operations decreased to Ch$561.1 billion in 2002, 16.2% less
compared to Ch$669.2 billion in 2001. The main drivers of this cost reduction
were savings in our operations in Argentina, Chile and Brazil, partially offset
by higher operating expenses in Colombia, and Peru. Cost of operations in Chile decreased by 5.0% to Ch$258.9 billion in 2002
from Ch$272.5 billion in 2001. This decline is explained by the exceptional
hydrology of the period, which allowed us to deliver energy pursuant to our
contracts by principally using our hydroelectric plants. Cost of operations in Argentina decreased by 53.1% to Ch$84.6 billion in
2002 from Ch$180.4 billion in 2001. The lower energy demand and the operation
of our plants resulted in lower purchased power needs from the Argentine pool
market. El Chocón reduced its purchased power by 63% and its power purchase
cost by more than 82%. In the case of Costanera, physical purchases fell by
more than 75%, contributing to a decrease of purchased power cost of 77%. In
addition, the decrease in generation in our Argentine plants decreased other
operational expenses. With respect to Costanera, the devaluation and conversion
of contracts to local currency reduced the fuel costs of the plant by Ch$36.1
billion, 68% compared to 2001. As a hydroelectric plant, El Chocón does not
have fuel costs, but nevertheless reduced its tolls and transportation costs by
almost Ch$3.2 billion because of lower sales volumes. Cost of operations in Brazil decreased by 12.9% to Ch$32.9 billion in 2002
from Ch$37.8 billion in 2001. Cachoeira Dourada in Brazil benefited from the
lower spot prices produced by the end of shortages and rationing in the
beginning of 2002, reducing its power purchase costs by 55%, and thereby
decreasing its operating expenses by 9% compared to last year. Cost of operations in Colombia increased by 1.5% to Ch$145.3 billion from
Ch$143.2 billion. This increase was mainly due to higher toll expenses. Cost of operations in Peru increased by 11.4% to Ch$39.4 billion in 2002
from Ch$35.4 billion in 2001. The increase in Edegels cost of operations was
mostly the result of the amortization of maintenance cost associated to Central
Chimay. 85




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Administrative and selling expenses Administrative and selling expenses increased by 4.9% to Ch$36.7 billion
in 2002 from Ch$35.0 billion in 2001. This increase is primarily explained by
the effect of a provision made during 2002 related to severance liabilities in
Colombia, partially compensated by the decrease in administrative and selling
expenses in Argentina. Operating Income The operating income for 2002 amounted to Ch$349.7 billion, a decrease of
0.5% from operating income of Ch$351.5 billion in 2001. This slight reduction
in operating income is basically due to lower operating income in Argentina and
Brazil, which was almost entirely offset by the improved results in Chile and
Peru. In Chile, operating income for 2002 amounted to Ch$172.5 million, an
increase of 26.4%. This increase was principally the result of higher
hydroelectric generation associated with an improvement in reservoir levels.
Another contributing factor was the increase in average sales prices resulting
from Endesa-Chiles marketing policies that enabled it to obtain the better
prices from unregulated clients and pool markets. Furthermore, the reduction
in thermoelectricity generation resulted in a decrease of Ch$26.9 billion in
the cost of fuel and transport gas. In addition, the greater volumes of water
allowed for a reduction of Ch$10.2 billion in the cost of energy purchases. In Argentina, operating income amounted to Ch$12.7 billion, a fall of
Ch$32.3 billion with respect to 2001. This decrease is due to the drop in the
average sales prices of energy from El Chocón as a result of the devaluation of
the Argentine Peso and of a 39.2% decrease in the sales volumes of energy in
Argentina. Furthermore, the low energy prices in Brazil as a result of the
abundant water supply in the region meant that in 2002 only 2% of water demand
needed to be purchase from the CIEN interconnection line. Nevertheless, the
operating income of Costanera rose by Ch$2.9 billion in relation to the
previous year due to the sales of capacity to the interconnection with Brazil
that have partially offset the fall in El Chocóns sales of energy. In Brazil, the operating income of Cachoeira Dourada decreased by 39.2% to
Ch$17.2 billion in 2002 from Ch$28.2 billion in 2001. This decrease was mainly
the result of a 19.2% drop in the average price of energy sales due to the
devaluation of the Brazilian currency relative to the U.S. dollar and greater
energy purchases associated with the recovery of reservoirs after a prolonged
drought in southeastern Brazil. In Colombia, the operating income for 2002 increased by 1.3% to Ch$76.1
billion mainly as a result of an increase in sales volumes of energy due to an
improvement in water supplies and rainfall and to higher sales prices of energy
on the pool market. Our subsidiary in Peru, Edegel, also contributed to the increased
consolidated operating income. Edegels operating income increase by 6.7% to
Ch$71.2 billion, mainly due to higher average sales prices on the pool market,
which was more than offset the reduction in energy sales volumes. 86




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Non-operating Results The following table sets forth certain information regarding our
non-operating results for each of the periods indicated. Year ended December 31,2001
    
    2002
    
    %Change(in millions of constant Ch$ as of December 31, 2003,except percentages)Non-operating income:Interest earned
    
    
    19,342
    
    
    
    15,399
    
    
    
    (20.4
    )Equity income from
non-consolidated affiliates
    
    
    (10,047
    )
    
    
    8,656
    
    
    
    (186.2
    )Other non-operating income
    
    
    56,375
    
    
    
    103,509
    
    
    
    83.6Non-operating expenses:Interest expense
    
    
    (238,242
    )
    
    
    (220,329
    )
    
    
    (7.5
    )
 Year ended December 31,2001
    
    2002
    
    %Change(in millions of constant Ch$ as of December 31, 2003,except percentages)Goodwill amortization
    
    
    (8,351
    )
    
    
    (109,647
    )
    
    
    1,213.0Other non-operating expenses
    
    
    (59,086
    )
    
    
    (117,739
    )
    
    
    99.3Monetary correction:Price level restatement
    
    
    4,382
    
    
    
    4,036
    
    
    
    (7.9
    )Foreign Exchange translation
    
    
    (14,650
    )
    
    
    (445
    )
    
    
    (97.0
    )Non-operating results
    
    
    (250,277
    )
    
    
    (316,560
    )
    
    
    26.5
 Non-operating results amounted to losses of Ch$316.6 billion in 2002 in
comparison to losses of Ch$250.3 billion in 2001. This difference is basically
explained by an increase of Ch$109.6 billion in goodwill amortization resulting
from the impairment of the Companys investments in Brazil and Argentina during
2002, partially offset by a decrease of Ch$14.0 billion in net financial
expenses, and a rise of Ch$18.7 billion in the equity in income from
investments in related companies. Interest earned.Interest earned decreased by 20.4% to Ch$15.4 billion in
2002 from Ch$19.3 billion in 2001. The decrease in 2002 from 2001 was primarily
attributable to lower cash balances at our subsidiaries in Argentina. Equity income from non-consolidated affiliates. The Ch$18.7 billion
improvement in the net income from related companies is mainly due to the
increase in the net profit of CIEN that for 2002, amounted to Ch$7.3 billion
compared to a loss of Ch$10.0 billion for the year ended 2001. The improved
result of CIEN in 2002 is explained by significantly better operating results
following the start-up of its second transmission line, with the first 500 MW
coming on line in May 2002 and the other 500 MW in August 2002. Other non-operating income. The increase of Ch$47.1 billion in the
results of other non-operating income to Ch$103.5 billion in 2002 from Ch$56.4
billion in 2001 is explained principally by the positive effect of the
devaluation on the liabilities in local currency of our subsidiaries in
Colombia and Argentina, offset by gains of Ch$18.8 billion and Ch$3.2 billion
related to the repurchase of bonds and the sale of shares in Transelec,
respectively. Interest expense. The Ch$17.9 billion fall in net financial expenses is
explained principally by a reduction of US$240 million in debt. This reduction
was the result of operating cash flows that permitted the repayment of
financial debt in 2002 and by lower interest rates explained by the drop in
international interest rates from 2001. Other non-operating expenses. The Ch$58.7 billion increase in the results
of other non-operating expenses is explained principally by a write-off during
2002 related to assets of our generating subsidiary in Brazil, Cachoeira
Dourada. Goodwill amortization. The increase of Ch$101.3 billion in the charge for
goodwill amortization is the result of an impairment of the Companys
investments, Cachoeira Dourada in Brazil, and El Chocón and Costanera in
Argentina, during 2002. For more information on this impairment please see
note 13(b) to our audited consolidated financial statements and Critical
Accounting Policies Foreign exchange translation.The loss of Ch$445.0 million for the year
ended 2002, compared to a loss of Ch$14.7 billion for the year ended 2001
reflects the fact that for the year ended 2002, the Chilean peso depreciated by
9.7% against the U.S. dollar as compared to a depreciation of 14.1% during the
same period of the year before. On the other hand, these losses were offset to
a large extent by forward contract operations that produced a profit of Ch$16.2
billion for the year ended 2002. Price-level restatement. In 2002, there was a Ch$4.0 billion price-level
restatement gain, compared to a gain of Ch$4.4 billion in 2001. This slight
decrease in the price-level restatement gain was due to the combined effect of 87




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lower inflation in Chile (a 2002 inflation rate of 3.0%, versus 3.1% for
the same period in 2001); and a higher level of net monetary liabilities during
2002. Income Taxes The higher income tax during this period reflects the improved results of
the operations in Chile and Peru. The extraordinary item of Ch$11.0 billion
corresponds to a one-time security tax imposed by the Colombian authorities on
the equity of the companies in order to finance national security activities.
The total tax was recorded during the 2002 period. Minority Interest Minority interest expense resulted in charges of Ch$46.9 billion in 2002,
compared to Ch$34.4 billion in 2001. The 36.6% increase in 2002 compared to
2001 was mainly due to an improvement in the results of Emgesa in Colombia. Negative Goodwill Amortization Negative Goodwill was Ch$86.8 billion in 2002, compared to Ch$46.4 billion
for 2001. This increase resulted primarily from the impairment of the Companys
investments in Brazil and Argentina during 2002. See note 13 to our audited
consolidated financial statements. Net Income The Company recorded a loss of Ch$9.4 billion in 2002, compared to a net
income of Ch$72.9 billion in 2001. This was primarily due to a net impairment
of goodwill and negative goodwill of Ch$56.7 billion (net of minority interest)
of investments in Argentina and Brazil. The amount of the goodwill impairment
is Ch$27.2 billion in Argentina and Ch$72.8 billion in Brazil. This adjustment
was partially offset by:  
    
    a 26.4% increase in operating results in Chile due mainly to better
hydrological conditions;
    
    a Ch$18.7 billion improvement in the net results on investments in
related companies due fundamentally to the improved results of CIEN,
which exports energy from Argentina to Brazil and in which Endesa-Chile
has a participation of 45%; and
    
    a reduction of Ch$14.0 billion, or a decrease of 6.4% in net
financial expenses. 88




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B. Liquidity and capital resources. Endea-Chiles primary sources of liquidity are operating cash flows,
domestic and international borrowings from commercial banks, and debt offerings
in the domestic and international capital markets. The following discussion of our cash flows is based on Chilean GAAP. See
Note 34 to our Audited Consolidated Financial Statements for reclassification
differences between U.S. GAAP and Chilean GAAP. For the twelve month period ended December 31, 2003, our principal sources of funds were:  
    
    Ch$844.5 billion from short- and long-term credit facilities;
    
    Ch$584.6 billion from results from operations;
    
    Ch$152.8 billion from sales of assets; and
    
    Ch$49.8 billion from loan repayment by Infraestructura Dos Mil. For the twelve month period ended December 31, 2003, our principal uses of funds were:  
    
    Ch$1,018.3 billion in debt amortizations of short- and long-term credit facilities;
    
    Ch$204.1 billion primarily in interest expenses;
    
    Ch$131.1 billion in investments;
    
    Ch$100.3 billion in tax payments;
    
    Ch$57.9 billion in other uses;
    
    Ch$36.4 billion in dividend payments; and
    
    Ch$12.7 billion of capital reductions. We had a net cash generation during 2003 of approximately Ch$39.7 billion. For the twelve month period ended December 31, 2002, our principal sources of funds were:  
    
    Ch$673.5 billion from results from operations;
    
    Ch$551.1 billion from short- and long-term credit facilities;
    
    Ch$19.7 billion from sales of assets. For the twelve-month period ended December 31, 2002, our principal uses of funds were:  
    
    Ch$688.5 billion in debt amortizations of short- and long-term credit facilities;
    
    Ch$214.9 billion primarily in interest expenses;
    
    Ch$136.2 billion in investments;
    
    Ch$102.9 billion in tax payments;
    
    Ch$69.3 billion in dividend payments; and
    
    Ch$5.0 billion in other uses. We had a net cash generation during 2002 of approximately Ch$29.2 billion. 89




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For a description of liquidity risks resulting from the inability of our
subsidiaries to transfer funds to us, please see Risk FactorsWe depend in
part on payments from our subsidiaries to meet our payment obligations. We coordinate the overall financing strategy of our subsidiaries. Our
operating subsidiaries independently develop capital expenditure plans and our
strategy is generally to have the operating subsidiaries independently finance
capital expansion programs through internally generated funds or direct
financings. We coordinate all generation acquisition financing at
Endesa-Chile. For information regarding our commitments for capital
expenditures, see Item 4. Information on the Company  A. History and
Development of the Company  Investments, Capital Expenditures and
Divestitures. We have accessed the international equity capital markets, registering one
ADS issuance with the SEC in August 3, 1994. We have also frequently issued
bonds in the international capital markets, or Yankee Bonds. Our subsidiaries
and we have issued Yankee Bonds between 1996 and 2003, of which US$2,200
million are currently outstanding. In June 2000 Endesa-Chile established a
Euro medium-term note program, or EMTN Program, for an aggregate amount of 1
billion. We issued 400 million in 3-year floating rate notes in July 2000
under our EMTN Program which have been repaid. The following table lists the Yankee Bonds of Endesa-Chile and
consolidated subsidiaries outstanding as of the date of this annual report.
The weighted average annual interest rate for Yankee Bonds issued by
Endesa-Chile and its consolidated subsidiaries, of which an aggregate principal
amount US$2,200 million is currently outstanding, is approximately 8.04%. Aggregate PrincipalIssuer
    
    Maturity
    
    Coupon
    
    Amount Issued(as a percentage)
    
    (in U.S. millions)Endesa-Chile Overseas Co.
    
    April 1, 2006
    
    
    7.200
    
    
    
    150Endesa-Chile
    
    July 15, 2008
    
    
    7.750
    
    
    
    400Endesa-Chile
    
    April 1, 2009
    
    
    8.500
    
    
    
    400Endesa-Chile
    
    August 1, 2013
    
    
    8.350
    
    
    
    400Endesa-Chile
    
    August 1, 2015
    
    
    8.625
    
    
    
    200Endesa-Chile
    
    February 1, 2027
    
    
    7.875
    
    
    
    230Endesa-Chile(1)
    
    February 1, 2037
    
    
    7.325
    
    
    
    220Endesa-Chile
    
    February 1, 2097
    
    
    8.125
    
    
    
    200
   (1)
    
    Holders of these Yankee Bonds can exercise a put option against
Endesa-Chile on February 1, 2009. Endesa-Chile and our subsidiaries in the five countries in which we
operate also have access to the local capital markets, where we have issued
debt instruments including commercial paper and medium and long-term bonds that
are primarily sold to pension funds, life insurance companies, and other
institutional investors. In 2001, Endesa-Chile issued UF 7.5 million
(approximately US$180 million at the time of issuance) in Chilean 5-year and
21-year bonds in each case with an interest rate of 6.2% per annum. On October
24, 2003, Endesa-Chile issued UF4 million in 7-year UF denominated bonds with
an interest rate of 5.65% per annum, and other UF4 million in 25-year UF
denominated bonds with an interest rate of 6.74% per annum, for an aggregate
principal amount of UF8 million (Ch$135.8 billion or US$214 million at the time
of issuance). For detailed information about local bonds issued by
Endesa-Chile, see Note 17 to our Audited Consolidated Financial Statements. Endesa-Chile is also a frequent borrower in the commercial bank markets,
both in the form of bilateral loans as well as in syndicated loans. In 1999,
we obtained US$1.8 billion in 2-year bilateral loans with a syndicate of banks.
The loans were extended for two years, maturing in 2003. We have also signed
several syndicated loans over the last few years including, among others, a
3-year bullet US$500 million syndicated facility in July 2001. These
syndicated loans were paid before their stated maturity with the proceeds of a
syndicated credit facility that we entered into in May 2003. On May 15, 2003, Endesa-Chile consolidated its outstanding syndicated and
bilateral credit agreements, which would have otherwise matured in 2003 and
2004, into a credit agreement for approximately US$743 million, refinancing
most of the existing bank indebtedness of the Company. This facility
eliminated a mandatory 90




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prepayment in the event that the borrower fails to achieve investment
grade ratings from Standard & Poors. The total outstanding amount under this
credit facility has been prepaid in full as described below. On February 4, 2004, Endesa-Chile entered into an agreement with a
syndicate of banks to provide a new US$250 million senior unsecured term loan
facility through Endesa-Chiles Cayman Islands branch (the Endesa-Chile
Facility). Endesa-Chile borrowed the full amount under this facility and used
the proceeds of the borrowing plus the proceeds of the issuance of US$600
million Yankee Bonds on July 18, 2003 to repay all amounts outstanding under
the May 25, 2003, Endesa-Chile credit facility for US$743 million. The
Endesa-Chile Facility ranks pari passu with all other unsubordinated debt of
Endesa-Chile. No principal repayments are required under the Endesa-Chile
facility until it matures 42 months from its original closing date, February 9,
2004; prior to maturity, Endesa-Chile is required to pay interest in respect
of the unpaid principal amount of all loans under the Endesa-Chile Facility,
subject to mandatory prepayment of all amounts owed to any lender, at the
option of such lender, in the event of a change of control or Endesa-Chile
ceasing to be a public company. The Endesa-Chile Facility requires
Endesa-Chile to maintain specified financial covenants related to maximum
ratios of indebtedness to adjusted cash flow (ranging from 10.40:1 in 2003 to
8.40:1 in the third quarter of 2007), indebtedness to EBITDA (ranging from
6.40:1 in 2003 to 5.00:1 in the third quarter of 2007), debt to equity (ranging
from 120% in 2003 to 102% in the third quarter of 2007) and minimum ratio of
adjusted cash flow to interest expense (ranging from 1.50:1 in 2003 to 1.7:1 in
the third quarter of 2007). The Endesa-Chile Facility contains covenants that
place restrictions on the extent to which Endesa-Chile and certain of its
subsidiaries (i) sell, assign, transfer or contribute essential operating
assets, (ii) repurchase or redeem its capital stock or make other distributions
in respect of its capital stock, (iii) consummate mergers, consolidations,
liquidations or dissolutions, (iv) conduct sales of assets, (v) create or incur
liens on properties and assets, (vi) enter into transactions with affiliates
(other than in the ordinary course of business and at arms length), (vii)
enter into sale and leaseback transactions and (viii) permit any material
change in the nature of the principal business of Endesa-Chile or of
Endesa-Chile and its subsidiaries taken as a whole. These restrictions will
cease to apply upon repayment in full of the Endesa-Chile Facility, which
matures on August 4, 2007. We do not consider these covenants and restrictions
to be material. The margin over LIBOR at which interest accrues under the
Endesa-Chile Facility is determined by reference to the S&P rating of
Endesa-Chiles senior unsecured long-term foreign currency denominated debt;
such margin ranges from 75 basis points for an A- or higher rating to 275 basis
points for a rating lower than BB+. At the time of this filing, the current
interest rate applicable to the Endesa-Chile Facility is LIBOR plus 115 basis
points. For detailed information about weighted average interest rates
applicable to our bank loans, see Note 15 to our Audited Consolidated
Statements. In the past a substantial portion of Endesa-Chiles financial indebtedness
was subject to mandatory prepayment triggers (in the event of a loss of
investment grade status from Standard & Poors) and a pricing grid based on
the borrowers senior unsecured long-term foreign currency Standard & Poors
debt ratings. On December 11, 2002, Standard & Poors lowered such rating for
Endesa-Chile from BBB+ to BBB as a result of the currency devaluations
affecting our Argentine and Brazilian subsidiaries and the reduction in the
Chilean node prices. On February 21, 2003, Endesa-Chile was downgraded again
from BBB to BBB- with a negative outlook based primarily on Standard &
Poors heightened concerns about Endesa Chiles ability to refinance in the
midst of difficult market conditions and the deterioration of our investments
in Argentina and Brazil. On May 16, 2003, and as a direct consequence of our
new bank refinancing, Standard & Poors lifted its negative outlook and
maintained Endesa-Chiles corporate foreign currency ratings debt rating at
BBB- with a stable outlook. The Endesa-Chile Yankee Bonds contain covenants that place restrictions on
the extent to which Endesa-Chile and certain of its subsidiaries may (i) create
or incur liens on properties and assets and (ii) enter into sale and leaseback
transactions. As is customary for certain credit and capital market debt facilities, a
significant portion of Endesa-Chiles financial indebtedness is subject to
cross default provisions. The Endesa-Chile Facility and the Yankee Bonds
represent the Companys most material indebtedness, and contain the most
material cross default provisions. Other outstanding indebtedness is for less
significant amounts, and their cross default provisions, if any, have higher
thresholds. Payment defaults in relation to any individual indebtedness of
Endesa-Chile, or some of its more relevant subsidiaries, subject to expiration
of applicable grace periods (if any) and a materiality threshold of US$30
million outstanding (on an individual basis) could give rise to a cross default
under the Endesa-Chile Facility. Endesa- 91




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Chiles relevant subsidiaries which have indebtedness in excess of US$30
million as of March 31, 2004 are Celta, Pehuenche, Endesa Internacional and
Betania. If Endesa-Chile or any of its subsidiaries defaults in the payment on any
individual indebtedness having a principal amount in excess of US$30 million,
an event of default would be triggered under the Endesa-Chile Yankee Bonds.
Endesa-Chiles subsidiaries which have indebtedness in excess of US$30 million
as of March 31, 2004 are Betania, Celta, Pehuenche, Endesa Internacional, San
Isidro, Costanera and Emgesa. Any event of default arising out of Endesa-Chiles Yankee Bonds would
trigger a cross default under most of the existing bank credit agreements. In addition to the payment cross default provisions described in the
previous paragraphs, certain indebtedness of Endesa-Chile is subject to (A)
cross acceleration provisions, again subject to a materiality threshold of
US$30 million (US$50 million in certain cases) on an individual basis, and (B)
certain other customary events of default. Some of the more material examples
of such customary event of default triggers include bankruptcy and insolvency
proceedings, material adverse judgments, and certain governmental actions such
as nationalization, seizure, or expropriation of assets. The general cross
acceleration provisions give rise to an event of default only when other
material indebtedness has been accelerated at the direction of the required
lenders thereunder or otherwise pursuant to its terms, after expiration of
grace periods where applicable. At the time of this filing, we are in compliance with our material
covenants contained in our debt instruments. There is one delayed payment of
an immaterial amount in Costanera (totaling US$3.6 million of bank debt). We
are in advanced discussions with the lender under this facility and expect that
we will soon reach an agreement for its partial payment and rescheduling. Finally, most of our companies have access to existing credit lines
sufficient to meet all of our present working capital needs. Payment of dividends and distributions by Endesa-Chiles subsidiaries and
related companies represent a significant source of funds for Endesa-Chile. The
payment of dividends and distributions by such subsidiaries and related
companies are subject to legal and contractual restrictions, such as legal
reserve requirements, capital and retained earning criteria and other
restrictions, and is contingent upon their earnings and cash flows.
Endesa-Chile has been advised by legal counsel in the various geographical
locations where its subsidiaries and related companies operate that there are
currently no other legal restrictions on the payment to Endesa-Chile of
dividends or distributions from the jurisdictions where such subsidiaries or
related companies are incorporated, other than customary restrictions limiting
dividends to the amount of net income and retained earnings. Certain credit
facilities and investment agreements of Endesa-Chiles subsidiaries restrict
the payment of dividends or distributions under certain circumstances. There
can be no assurance that legal restrictions will not be imposed or that
additional contractual restrictions will not arise in the future. For a
description of liquidity risks resulting from our holding company status,
please see Risk FactorsRisks Relating to Our OperationsWe are a holding
company and depend on payments from our subsidiaries and related companies to
meet our payment obligations in this annual report. We believe that cash flow generated by operations, cash balances,
available lines of credit (including lines of credit from suppliers) and
planned borrowings will be sufficient to meet our working capital, debt service
and capital expenditure requirements for the foreseeable future. Endesa-Chile
intends to roll over up to approximately US$290 million in short-term debt. The following are the transactions that most significantly affected our
liquidity in 2003:  
    
    On April 7, 2003, Endesa-Chile reached an agreement with HQI
Transelec to sell its transmission assets on the Chilean Northern Grid
System (SING). Endesa-Chile was paid US$110 million pursuant to the
terms of this agreement. The transaction included the disposal of 285
kilometers of 220 kV line circuits for approximately US$32 million,
corresponding to the assets of the Tarapacá plant, and the transfer of
673 kilometers of 220 kV line circuits for approximately US$78 million,
corresponding to GasAtacama Generación Limitada, of which Endesa owns
50%. 92




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
    
    On April 30, 2003, Endesa-Chile completed the sale of the assets of
the Canutillar hydroelectric plant to Cenelca S.A., a subsidiary of
Minera Valparaíso S.A., for the sum of US$174 million.
    
    On May 1, 2003, Endesa-Chile repaid the US$170 million Yankee Bond
of our Chilean subsidiary Pehuenche, using part of the proceeds
received from the assets sales of Canutillar.
    
    On June 23, 2003, Endesa-Chile sold Infraestructura Dos Mil to OHL
for a total of US$55 million and deconsolidated debt of US$220 million
since January 1, 2003, that Infraestructura Dos Mil owes to third
parties.
    
    On July 23, 2003, Endesa-Chile successfully issued US$600 million
aggregate principal amount of bonds in the U.S. market. The transaction
is structured in two tranches; the first, for an amount of US$400
million of unsecured 10 year bonds at an interest rate of 8.35%, and
the second for a total of US$200 million in unsecured 12 year bonds
with an interest rate of 8.625%. The proceeds from the sale of these
bonds were used to prepay part of the US$743 million syndicated loan
disclosed above.
    
    On July 24, 2003, Endesa-Chile repaid the 400 million euro bond of
Endesa-Chile International.
    
    On October 24, 2003, Endesa-Chile successfully placed in the local
market UF8,000,000 (approximately US$214 million) in two equal tranches
with maturities of 7 and 25 years at rates of 5.65% and 6.74%
respectively. Reconciliation of non-GAAP measures to Chilean GAAP The table below excludes the effect of the deconsolidation of
Infraestructura Dos Mil, the sale of Canutillars assets as well as the effect
of the appreciation of the Chilean peso against the U.S. dollar in our
operating income for the periods indicated. 2002
    
    2003(in millions of constant Ch$)Operating Income
    
    
    349,687
    
    
    
    338,511Infraestructura Dos Mil S.A.
    
    
    (8,288
    )
    
    
    Effect of Ch$ appreciation
    
    
    (32,223
    )
    
    
    Operating income excluding above
    
    
    309,176
    
    
    
    338,511
 C. Research and development, patents and licenses, etc. Costs incurred by the Company for research and development expenses that
are general in nature (water-level studies, hydroelectric research,
seismic-activity surveys) are expensed as incurred. Studies related to specific
construction projects are capitalized. During the years ended December 31,
2001, 2002 and 2003 no research and development costs have been incurred. D. Trend information. In general terms, no trends can be easily established for the energy
business in the five countries in which we operate. However, we have
identified the following themes: There is a tendency toward greater competition
in some countries, combined with a liberalization of regulated markets, and the
introduction, or proposed introduction, of trading companies that will market
energy to final clients. This would give us access to a wider universe of
customers, allowing us to compete to serve higher margin clients. There is
also a general tendency toward the interconnection of electricity systems,
including systems that cross international borders, such as our CIEN project
between Argentina and Brazil, increasing competition in the markets served by
interconnection projects and at the same time opening new markets for our
current installed capacity. Our ability to rely on natural gas from Argentina is increasingly
uncertain, because of natural gas restrictions applied by the Argentine
government. See Item 3. Key InformationRisk Factors relating to Argentina. 93




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E. Off-balance sheet arrangements Endesa-Chile is not a party to any off balance sheet transactions. F. Tabular disclosures of contractual obligations The table below sets forth the Companys cash payment obligations as of
December 31, 2003: Payment obligations due by period (in US$ million)
ENDESA-CHILE on a consolidated basis Jan 2004 -
    
    Jan 2005 -
    
    Jan 2006 -
    
    AfterAs of December 31, 2003
    
    TOTAL
    
    Dec 2004
    
    Dec 2005
    
    Dec 2006
    
    Dec 2006Bank debt
    
    
    884
    
    
    
    243
    
    
    
    141
    
    
    
    57
    
    
    
    444Other bonds
    
    
    840
    
    
    
    13
    
    
    
    53
    
    
    
    310
    
    
    
    464Yankee bonds
    
    
    2,016
    
    
    
    0
    
    
    
    0
    
    
    
    150
    
    
    
    1,866Intercompany debt
    
    
    124
    
    
    
    124
    
    
    
    0
    
    
    
    0
    
    
    
    0Other debt
    
    
    219
    
    
    
    28
    
    
    
    39
    
    
    
    40
    
    
    
    112Financial expenses
    
    
    1,469
    
    
    
    295
    
    
    
    278
    
    
    
    257
    
    
    
    1,698Contractual obligations (1)Leases (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations (3)
    
    
    2,528
    
    
    
    134
    
    
    
    131
    
    
    
    126
    
    
    
    1,078Total (4)
    
    
    8,080
    
    
    
    836
    
    
    
    641
    
    
    
    940
    
    
    
    5,663
   (1)
    
    In addition to the contractual obligations set forth above, we expect to
make capital expenditures of US$184 million in 2004, US$100 million in
2005 and US$294 million in 2006.(2)
    
    We do not have any material operating or capital lease obligations.(3)
    
    Comprised mainly of energy purchase contracts, operating and maintenance
contracts and other services.(4)
    
    Our table of contractual cash obligations does not include planned
funding of pension and other postretirement benefit obligations. For a
comprehensive discussion of our employee benefit obligations, including
the assets held in our plans, our estimated obligations, and the
assumptions behind those estimates, please see Critical Accounting
Policies in this Item 5 and our consolidated financial statements in Item
18, particularly Note 34. We will continually assess, based on the amounts
that are presented in these areas of our Form 20-F, whether there is
additional material information that should be presented in this table to
provide an understanding of our cash requirements. G. Safe Harbor None 
 Item 6. Directors, Senior Management and Employees A. Directors and senior management. Endesa-Chiles current directors and executive officers are as follows: Current Position
    
    Expiration ofName
    
    Position
    
    Held Since
    
    Current TermDirectorsLuis Rivera Novo (1) (3) (4)
    
    Chairman
    
    
    2002
    
    
    
    2005Antonio Pareja Molina (1) (4)
    
    Vice Chairman
    
    
    2000
    
    
    
    2005Ignacio Blanco Fernández (1) (4)
    
    Director
    
    
    2002
    
    
    
    2005Leonidas Vial Echeverría (2)
    
    Director
    
    
    1995
    
    
    
    2005Jaime Bauzá Bauzá (2) (3)
    
    Director
    
    
    1999
    
    
    
    2005Carlos Torres Vila (1)(4)
    
    Director
    
    
    2003
    
    
    
    2005
 94




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Current Position
    
    Expiration ofName
    
    Position
    
    Held Since
    
    Current TermAndrés Regué Godall (1) (4)
    
    Director
    
    
    1999
    
    
    
    2005Antonio Tuset Jorratt (2) (3)
    
    Director
    
    
    1999
    
    
    
    2005Enrique García Alvarez (1)
    
    Director
    
    
    2003
    
    
    
    2005Executive OfficersHector López Vilaseco
    
    Chief Executive Officer
    
    
    2000
    
    
    
    N/AAlejandro González Dale
    
    Chief Financial Officer
    
    
    2003
    
    
    
    N/AJulio Valbuena Sánchez
    
    Planning and Control Manager
    
    
    2002
    
    
    
    N/ARafael Mateo Alcalá
    
    Production and Transport Manager
    
    
    1999
    
    
    
    N/ACarlos Martín Vergara
    
    General Counsel
    
    
    1996
    
    
    
    N/AJuan Carlos Mundaca
    
    Human Resources Manager
    
    
    2000
    
    
    
    N/AJosé Venegas Maluenda
    
    Trading and Marketing Manager
    
    
    2001
    
    
    
    N/ARafael Errázuriz Ruiz Tagle
    
    Energy Planning
    
    
    2001
    
    
    NARenato Fernández Baeza
    
    External Affairs Manager
    
    
    2003
    
    
    
    N/AClaudio Iglesis Guillard
    
    Generation Chile Manager
    
    
    1999
    
    
    
    N/A
   (1)
    
    Director appointed as representative of Enersis.(2)
    
    Independent Director not appointed by a particular shareholder.(3)
    
    Member of the Director Committee.(4)
    
    Officer of Endesa-Spain Directors Luis Rivera Novobecame Chairman of the board of directors in July 2002.
In 1998, he joined Endesa-Spain as Executive Vice President. Mr. Rivera is
currently the General Director of Endesa España Internacional and the Chairman
of Endesa-Spain. Mr. Rivera has served as a director of Endesa-Spain
subsidiaries including Compañía Sevillana de Electricidad and Enersis. He
worked as a consultant for McKinsey since 1986 and became a partner at that
firm in 1991. At McKinsey, he specialized in the energy and the financial
sectors. Mr. Rivera holds a degree in Civil Engineering from Universidad
Politécnica de Madrid and an MBA degree from INSEAD. Antonio Pareja Molinabecame Vice-Chairman of the board of directors in
August 2000. Since 1986, Mr. Pareja has occupied various positions at
Endesa-Spain including his current position of Corporate Planning Director
(held since 1998), Planning and Control Manager and Director of Control. At
present, Mr. Pareja is also a member of the Executive Committee of Endesa
Group, a Director of Chilectra S.A.and Vice Chairman of Endesa-Chile. He
holds a degree in economics and a post graduate degree from the London Business
School and Instituto Empresa. Leonidas Vial Echeverríabecame a director in April 1995. Beginning in
June 1988, Mr. Vial has been Vice President of the Santiago Stock Exchange, as
well as a Director of Empresas Santa Carolina S.A., Cía Industrial El Volcan
S.A., Inversiones Industriales Colina S.A., Inversiones Industriales Los Valdes
S.A.and Las Americas Cía.de Seguros de Vida S.A., none of which are affiliated
with the Endesa Group. Jaime Bauzá Bauzábecame a director in May 1999. From 1990 to May 1999,
Mr. Bauzá served as the Chief Executive Officer of Endesa-Chile. He joined
Endesa-Chile in May 1990 after more than twenty years in the electricity
sector. Mr. Bauzá was the Chief Executive Officer of Pehuenche from 1987 to
April 1990 and Chairman of Chilgener S.A. (Chilgener, or now Gener) from
1987 to 1989. Mr. Bauzá also served as Chief Executive Officer of Chilgener
from 1981 to 1987. He holds a degree in civil engineering from the Catholic
University of Chile. Andrés Regué Godallbecame a director in May 1999. As of May 1999, he is
also the Chief Executive Officer of the Colombian distribution company Codensa.
Mr. Regué began his career at Endesa-Spain in 1968 and has
served as General Director of Relsa S.A., Director of Engineering of
Empresa Nacional Hidroeléctrica del 95




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Ribagorzana S.A., and Assistant Director of
Térmicas de Besos S.A.Mr. Regué holds a degree in engineering from Escuela
Técnica Superior de Ingenieros Industriales in Barcelona and an MBA from ESADE. Antonio Tuset Jorratbecame a director in June 1999. Mr. Tuset is also a
director of Empresa Eléctrica Pehuenche S.A., Fanaloza S.A., Banvida S.A.,
Banmédica S.A., CIMENTA, Mutuos Hipotecarios S.A., SCL Terminal Aéreo de
Santiago S.A., Inversiones Tricahue S.A. Mr. Tuset holds a degree in
commercial engineering from the University of Chile. Carlos Torres Vilabecame a director in March 2003. Mr. Torres is
currently the Corporate Director of Strategy of Endesa-Spain. In addition, Mr.
Torres has served as consultant and partner at McKinsey & Company since January
1997, with a focus in the energy industry. Mr. Torres holds a degree in
electrical engineering from Massachusetts Institute of Technology, a law degree
from Universidad Nacional de Educación a Distancia and a MBA from MIT. Ignacio Blanco Fernándezbecame a director in March 2003. Mr. Blanco has
been the CEO of the distribution company Edelnor in Peru since January 2003, an
affiliate of Endesa-Chile. Mr. Blanco was Planification and Development
Manager of Enersis from 1998 until December 2002 and he has also served as
Energy Management and Strategy Manager and as a Chairman of Companhia de
Interconexão Energética(CIEN) a related company of Endesa-Chile. Mr. Blanco
holds a degree in economics from the University of Zaragoza, an industrial
engineering degree from Universidad Politécnica de Cataluña, and postgraduate
studies at the University of Chicago. Enrique García Alvarezbecame a director in September 2003. From January
1999 to September 2003, he was part of the Board of Directors of Distrilec
Inversoraand Edesur, an affiliate of Endesa-Chile. Mr. García was the Chief
Executive Officer of Enersis from May 1999 to July 2003 and he has also served
as Chief Technical Officer of Endesa-Spain between 1992 and 1997 and Chief
Distribution Officer from 1997 to 1999. Mr. García holds a degree in civil
engineer from the Escuela Técnico Superior de ICCP of Madrid. Senior Management Héctor López Vilasecobecame the Chief Executive Officer in August 2000.
From November 1997 to August 2000 he was part of the board of directors of
Endesa-Chile and since May 1999 he has served as our Vice Chairman. Mr. López
has occupied various positions at Endesa-Spain including Director of
International Finance and Capital Markets (1985-1992), member of the Management
Committee, Deputy Energy Manager of Endesa-Spain Internacional (1997-2000) and
adjunct Financial Director of Endesa-Spain (1996-1997). Mr. López holds
degrees in law and economics from ICADE Madrid. Alejandro González Dalebecame the Chief Financial Officer of Endesa-Chile
in August 2003. From January 2002 to July 2003, he was deputy CFO to
Endesa-Chile. Prior to that, from June 2001 to December 2001, he was the
Senior Analyst of Planning and Control of Endesa-Chile. From March 1999 to
September 1999, Mr. González was a Senior Analyst of the Internal Division of
Endesa-Chile. Mr. González holds an MBA from the University of California Los
Angeles, which he obtained from September 1999 to June 2001. Julio Valbuena Sánchezis the Planning and Control Manager of
Endesa-Chile. He joined Endesa-Chile in July 2002. Mr. Valbuena was the
Planning and Control Manager of Endesa Energía-Spain from 1998 to June 2002.
He holds an Executive MBA from the Instituto de Estudios Superiores de la
Empresa (IESE) of Madrid and degree in civil engineering from the Escuela
Técnica Superior de Ingenieros de Caminos, Canales y Puertos de la Universidad
Politécnica of Madrid. Rafael Mateo Alcalábecame Production and Transport Manager of
Endesa-Chile in August 1999. Prior to that time, from January 1997 to July
1999, he was the Production Deputy Director of Endesa-Spain. He joined the
Endesa Group in 1982, and has been the Power Station Manager, and the Thermal
Production Manager of Endesa-Spain in Spain. He holds a degree in industrial
engineering from the Zaragoza University and an MBA from IESE. Carlos Martín Vergarabecame the General Counsel of Endesa-Chile in May
1996. He has also served as the General Counsel of Enersis. He holds a law
degree from the Catholic University of Valparaíso and a doctor in law degree
from the University of Navarra (Spain). 96




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Juan Carlos Mundaca Alvarezhas been the Human Resources Manager of
Endesa-Chile since June 2000. Prior to that time, from January 1998 to May
2000, he was Human Resources Manager of Chilectra an affiliate of Endesa-Chile.
Mr. Mundaca has also served as Customer Service Manager and Branch Manager of
Chilectra. Mr. Mundaca holds a degree in commercial engineering from the
University of Santiago, Chile. José Venegas Maluendabecame the Trading and Marketing Manager of
Endesa-Chile in June 1, 2001. Mr. Venegas joined the Company in 1992. He has
also served as Planning and Energy Manager (from June 2000 to April 2001),
Commercial Manager (from September 1997 to May 2000) and Director of the
Economic Load Dispatch Center (CDEC) of the SIC during 1997). Mr. Venegas
holds a degree industrial civil engineer from the Catholic University of Chile
and a MBA from the Adolfo Ibañez University. Rafael Errázuriz Ruiz Taglehas been the Energy Planning Manager of
Endesa-Chile since June 2001. Mr. Errázuriz was the Chief Executive Officer of
Emgesa, a subsidiary of Endesa-Chile, from April 1999 to June 2001. He holds a
degree in civil engineering from University of Santiago. Renato Fernández Baezahas been the External Affairs Manager of
Endesa-Chile since August 2003. He was the External Affairs Manager of
Smartcom PCS from December 2000 to July 2003. From December 1997 to December
2000, Mr. Fernández was the External Affairs Manager of Hil & Knowlton Captiva. Claudio Iglesis Guillardhas been the Generation Manager of Endesa-Chile
in Chile since July 1999. He joined Endesa-Chile in 1982. He has been Chief
Executive Officer of Emgesa, Betania both subsidiaries of Endesa-Chile, and
CBA, part of the Endesa-Chile subsidiary Costanera in Argentina. Mr. Iglesis
was director of CAMMESA and Chairman of the AGEERA in Argentina. He holds a
degree in electric civil engineering from University of Chile. B. Compensation. At the regular shareholders meeting held on March 26, 2004, our
shareholders maintained the compensation policy for the board of directors
approved last year. Each director will receive a fixed salary of 55 UTM per
month and a fee of 36 U.F. for attending meetings of the board. The
vice-chairman will receive a fixed salary of 82.5 UTM per month and a fee of 54
U.F. for attending meetings of the board. The chairman will receive a fixed
salary of 110 UTM per month and a fee of 72 U.F. for attending meetings of the
board. In 2003, the total compensation paid to each director in millions of
Chilean pesos, was as follows: Year ended December 31, 2003 (In thousands of Ch$)Board
    
    BoardCompensation
    
    CompensationFrom
    
    From
    
    DirectorDirector
    
    Endesa-Chile
    
    Subsidiaries
    
    Committee
    
    Participation
    
    TotalLuis Rivera Novo
    
    
    43,005
    
    
    
    
    
    
    
    7,302
    
    
    
    
    
    
    
    50,307Antonio Pareja Molina
    
    
    29,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,518Jaime Bauzá Bauzá
    
    
    21,503
    
    
    
    
    
    
    
    7,302
    
    
    
    
    
    
    
    28,805Andrés Regué Godall
    
    
    20,893
    
    
    
    7,719
    
    
    
    
    
    
    
    
    
    
    
    28,613Antonio Tuset Jorratt
    
    
    21,503
    
    
    
    
    
    
    
    7,302
    
    
    
    
    
    
    
    28,805Leonidas Vial Echeverría
    
    
    20,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,285Ignacio Blanco Fernández
    
    
    20,285
    
    
    
    6,538
    
    
    
    
    
    
    
    
    
    
    
    26,823Carlos Torres Vila
    
    
    19,678
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,678Enrique García Alvarez
    
    
    6,764
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,764José María Hidalgo Martín-Mateos (1)
    
    
    14,130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,130Emilio García Diez (2)
    
    
    1,540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,540Rodolfo Martín Villa (2)
    
    
    931
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    931
   (1)
    
    José María Hidalgo Martín-Mateos was a director of Endesa-Chile until
September 1, 2003.(2)
    
    Emilio García Diez and Rodolfo Martín Villa were directors of Endesa-Chile
until January 28, 2003. 97




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We do not disclose to our shareholders or otherwise, information on
individual executive officers compensation. For the year ended December 31,
2003, the aggregate compensation (including performance-based bonuses) of the
executive officers of Endesa-Chile paid or accrued, was Ch$1,538,986,153.
Executive Officers are eligible for variable compensation under a bonus plan.
Endesa-Chile provides for its executive officers an annual bonus plan for
meeting company-wide objectives and for their individual contribution to the
Companys results. The annual bonus plan provides for a range of bonus amounts
according to hierarchical level. The bonuses eventually paid to executives
consist of a certain number of gross monthly salaries. The total variable
compensation paid in April 2003 was Ch$199,351,611, and is included in the
aggregate compensation. The amounts set aside or accrued in 2003 to provide severance benefits for
our executive officers totaled Ch$220,666,566. No severance indemnities were
paid in 2003 to the companys executive officers. C. Board practices Corporate Governance Endesa-Chile is managed by its executive officers under the direction of
its board of directors which, in accordance with the estatutos, or articles of
incorporation and bylaws, of Endesa-Chile, consists of nine directors who are
elected at the annual regular shareholders meeting. Each director serves for a
three year term and the term of each of the nine directors expires on the same
day. Staggered terms are not permitted under Chilean law. If a vacancy occurs
on the board during the three year term, the board of directors may appoint a
temporary director to fill the vacancy until a permanent replacement is elected
at the next general shareholders meeting. The current board of directors was
elected in March 2004 and their terms expire in March 2007. The members of the
board of directors do not have service contracts with Endesa-Chile or any of
its affiliates that provide benefits upon termination of employment. Chilean corporate law provides that a companys board of directors is
responsible for the management, administration and representation of a company
in all matters concerning its corporate purpose, subject to the provisions of
the companys estatutosand the stockholders resolutions. In addition to the
estatutos, the Board of Directors of Endesa-Chile has adopted regulations and
policies that guide our corporate governance principles. The most important of
these regulations and policies are the following: The Internal Regulations on Conduct in Securities Markets, approved by the
Board on June 2002, which determine the rules of conduct that must be followed
by members of the Board of Directors, senior management and other managers and
employees who, due to the nature of their job responsibilities, may have access
to sensitive or confidential information, with a view to contributing to
transparency and to the protection of investors. These regulations are based on
the principles of impartiality, good faith, placing the companys interests
before ones own, and care and diligence in using information and acting in the
securities markets. The
Charter Governing Executives (Estatuto del Directivo), approved by
the Board in July 2003, and the Employees Code of Conduct, which develop our
principles and values, establish the rules governing dealings with customers
and suppliers, and establish the principles that should be followed by
employees in their work: ethical conduct, professionalism and confidentiality.
They also impose limitations on the activities our senior executives and other
employees may undertake outside the scope of their employment with us, such as
non-compete limitations. The above regulations and rules reflect our core principles of
transparency, respect for stockholders rights, and the duty of care and
loyalty of the directors imposed by Chilean law. Compliance with NYSE Listing Standards on Corporate Governance Following is a summary of the significant differences between our
corporate governance practices and those applicable to domestic issuers under
the corporate governance rules of the New York Stock Exchange. Because we are
a controlled company under the NYSE rules (a company of which more than 50%
of the voting power is held by an individual, a group or another company), we
would not, were we a domestic U.S. company, be 98




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subject to the requirement that
we have a majority of independent directors, and nomination and compensation
committees. Independence and functions of the Audit Committee Under the NYSE corporate governance rules, all members of the audit
committee must be independent. We will be subject to this requirement
effective July 31, 2005. As required by Chilean Law, Endesa-Chile has a Comité
de Directorescomposed of three directors. Although Chilean Law requires that a
majority of the Comité de Directores(two out of three members) must be
composed of directors who were not nominated by the controlling shareholder and
did not seek votes from the controlling shareholder (a non-control director),
it permits the Comité de Directoresto be composed of a majority or even a
unanimity of controlled directors, if there are not sufficient non-control
directors on the board to serve on the committee. Currently, our Comité de
Directoresis composed by a majority of non-control directors. Our Comité de
Directoresdoes not currently meet the independence requirements to which the
audit committee of Endesa-Chile, whether the Comité de Directoresor a
different committee, will become subject on July 31, 2005, or the additional
independence requirements to which the audit committees of U.S. companies are
subject. Under the NYSE corporate governance rules, the audit committee of a U.S.
company must perform the functions enumerated in NYSE Listed Company Manual
Rules 303A.06 and 303A.07 Non-U.S. companies are required to comply with Rule
303A.06 beginning July 31, 2005 but are not at any time required to comply with
Rule 303A.07. We do not currently comply with these rules, but we expect that,
when we become subject to Rule 303A.06, we will comply with both the
independence and the function requirements of the rule. Corporate Governance Guidelines The NYSEs corporate governance rules require U.S. listed companies to
adopt and disclose corporate governance guidelines. Chilean law does not
contemplate this practice, other than with respect to the codes of conduct
described above. Committees and Other Advisory Bodies The Comité de Directores The Comité de Directoresis composed of three members who are
simultaneously directors of the Company. It performs the following functions:  
    
    examination of Annual Report, Financial Statements and the Reports
of the External Auditors and Inspectors of the Accounts;
    
    formulation of the proposal to the Board of Directors for the
selection of external auditors and private rating agencies;
    
    examination of information related to operations by the Company
with related parties and/or related to operations in which the Company
board members or relevant executive officers may have personal
interest;
    
    examination of the remuneration framework and compensation plans
for managers and executive officers; and
    
    any other function mandated to the committee by the estatutos, the
board of directors or the shareholders of the company. 99




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The members of this Committee are Luis Rivera Novo, Jaime Bauzá Bauzá, and
Antonio Tuset Jorrat. Luis Rivera Novo has served as chairman of this
committee since July 25, 2002. D. Employees. As of December 31, 2003, the personnel of Endesa-Chile and its
subsidiaries was as follows: ProfessionalsandCompany
    
    Executive Officers
    
    Technicians
    
    Other Employees
    
    TotalIn ArgentinaCentral Costanera S.A.
    
    
    5
    
    
    
    213
    
    
    
    15
    
    
    
    233Hidroeléctrica El Chocón S.A.
    
    
    1
    
    
    
    43
    
    
    
    6
    
    
    
    50Total Personnel in Argentina
    
    
    6
    
    
    
    256
    
    
    
    21
    
    
    
    283In BrazilCentrais Elétricas Cachoeira Dourada S.A.
    
    
    2
    
    
    
    47
    
    
    
    4
    
    
    
    53Total Personnel in Brazil
    
    
    2
    
    
    
    47
    
    
    
    4
    
    
    
    53In Chile(1)Endesa-Chile
    
    
    28
    
    
    
    400
    
    
    
    38
    
    
    
    466Pehuenche
    
    
    0
    
    
    
    3
    
    
    
    0
    
    
    
    3Pangue
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0San Isidro
    
    
    0
    
    
    
    2
    
    
    
    0
    
    
    
    2Celta
    
    
    1
    
    
    
    0
    
    
    
    0
    
    
    
    1Ingendesa
    
    
    3
    
    
    
    183
    
    
    
    25
    
    
    
    211Túnel El Melón
    
    
    1
    
    
    
    22
    
    
    
    2
    
    
    
    25Total Personnel in Chile
    
    
    33
    
    
    
    610
    
    
    
    65
    
    
    
    708In ColombiaEmgesa
    
    
    7
    
    
    
    250
    
    
    
    28
    
    
    
    285Betania
    
    
    1
    
    
    
    32
    
    
    
    1
    
    
    
    34Total Personnel in Colombia
    
    
    8
    
    
    
    282
    
    
    
    29
    
    
    
    319In PeruEdegel
    
    
    5
    
    
    
    128
    
    
    
    19
    
    
    
    152Total Personnel in Peru
    
    
    5
    
    
    
    128
    
    
    
    19
    
    
    
    152Total Personnel of Endesa-Chile and Subsidiaries
    
    
    54
    
    
    
    1.323
    
    
    
    138
    
    
    
    1.515
   (1)
    
    On June 23, 2003, Endesa closed the sale of Infraestructura Dos Mil with
the Spanish company OHL Concesiones, S.L., subsidiary of the Spanish
company Obrascón Huarte Lain S.A. Through Infraestructura Dos Mil, Endesa
had a 60.04 % shareholding in Sociedad Concesionaria Autopista del Sol
S.A. and a 58.36 % shareholding in Sociedad Concesionaria Autopista Los
Libertadores S.A. All Chilean employees who are dismissed for reasons other than misconduct
are entitled by law to a severance payment. According to Chilean law,
permanent employees are entitled to a basic payment of one months salary for
each year (or a six-month portion thereof) worked, subject to a limitation of a
total payment of no more than 11 months pay for employees hired after August
14, 1981. Severance payments to employees hired prior to that date consist of
one months salary for each full year worked, not subject to any limitation on
the total amount payable. In addition, under Endesa-Chiles collective
bargaining agreements, Endesa-Chile is obligated to make severance payments to
all covered employees in cases of voluntary resignation or death, in specified
amounts that increase according to seniority. Management believes
Endesa-Chiles relationship with its trade unions is a positive one. We
entered into a new collective bargaining agreement with our engineering
personnel in January 2004. This agreement
has a term of three years. In May 2004, we began the renegotiation of the
collective bargaining agreements with our electro-mechanical, technical and
administrative personnel that must be closed on June 30, 2004. Various amendments were made to the Chilean Code of Labor, which came into
effect as of December 1, 2001. Among the principal reforms are the following: 100




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Higher indemnity costs.Indemnity costs associated with dismissing
employees are now 30-100% higher than they were under prior labor provisions
when a Labor Tribunal rules in favor of the former employee and finds that the
reasons given for dismissing the employee are unjustified. Obligation for full indemnity.Severance compensation must be paid at the
moment of termination of the labor relationship. Indemnity settlements may be
negotiated in installments (with inflation and interest adjustments). Failure
to pay severance compensation will allow the judge to increase the amount owed
by up to 150%. Anti-union practices.Several amendments relating to anti-union practices
have been introduced by the reform. Among others, in the event that a judge
decrees that a given layoff violated labor union practices, the employee may
choose to be reinstated to his former job, or demand the payment of the
applicable compensation and, in addition, receive an indemnification which
would be determined by the judge (within the margins established by the law).
Another amendment protects employees who participate in the creation of a union
from being dismissed from ten days before the date in which the union is
created until thirty days after such date. E. Share ownership. Each of Endesa-Chiles directors and officers owns less than one percent,
if any, of the shares of the Company. None of Endesa-Chiles directors and
officers have any stock options, which are not permitted under current Chilean
securities laws and regulations. It is not possible to confirm if any of our

officers or directors have beneficial, rather than direct, interest in the
shares of Endesa-Chile. However, to the best of our knowledge, any potential
shareholding by all of the directors and officers of Endesa-Chile in the
aggregate amounts to much less than 10% of outstanding shares. 
 Item 7. Major Shareholders and Related Party Transactions A. Major shareholders. Endesa-Chile has only one class of capital stock. As of December 31,
2003, according to Endesa-Chiles shareholder records, 27,334 registered
shareholders held its 8,201,754,580 shares. The following table sets out information concerning beneficial ownership
of Endesa-Chiles shares as of December 31, 2003. As of December 31, 2003Percentage ofShares Beneficially
    
    Total SharesOwned
    
    OutstandingEnersis (1)
    
    
    4,919,488,794
    
    
    
    59.98
    %Citibank, N.A. (2)
    
    
    407,728,650
    
    
    
    4.97
    %Directors and executive officers (6 persons) (3)
    
    
    432,593
    
    
    
    0.00
    %
   (1)
    
    Endesa-Spain, as of December 31, 2003, directly or indirectly, owned
60.6% of the share capital of Enersis, which holds 60.0% of Endesa-Chile.(2)
    
    Represents the number of shares held in the form of ADSs. The ADSs are
evidenced by American Depositary Receipts (ADRs). The ADRs are
outstanding under a Deposit Agreement dated as of 3 August 1994 (the
Deposit Agreement) among Endesa-Chile, Citibank N.A. as depositary and
the holders from time to time of ADRs issued thereunder.(3)
    
    Excludes shares held by Enersis. Enersis, a holding company engaged in the distribution and, through
Endesa-Chile, the generation and transmission of electricity in Chile,
Argentina, Brazil, Colombia and Peru, beneficially owned as of December 31,
2003, directly or indirectly, 60.0% of Endesa-Chiles outstanding capital
stock. During 2003 Enersis performed a Capital Increase, which resulted in
Endesa-Spain reducing its participation directly and indirectly from 65% to
60.6% beneficial interest. On April 13, 1999, Enersis, which already owned
25.3% of Endesa-Chile, launched a tender offer to purchase up to 34.7% of Endesa-Chiles outstanding shares,
subject to shareholder approval of a 101




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resolution to increase the maximum
percentage of shares that may be beneficially owned by any one shareholder from
26% to 65%. On April 8, 1999, Endesa-Chiles shareholders passed the
resolution and on May 11, 1999, Enersis successfully completed its tender offer
for an additional 30% of Endesa-Chiles outstanding shares on the Santiago
Stock Exchange. On May 14, 1999, Enersis acquired an additional 4.7% of
Endesa-Chiles shares in a concurrent US tender offer, increasing its ownership
interest in Endesa-Chile to 60%. B. Related party transactions. Article 89 of the Chilean Companies Act requires that the Companys
transactions with related parties be on a market basis or on terms similar to
those customarily prevailing in the market. Directors and executive officers
of companies that violate Article 89 are liable for losses resulting from such
violation. The Directors Committee examines several company operations and
contracts with related companies, referred to in Clause 89 of the Companies
Law, and reports on these agreements to the Companys Board. In addition,
Article 44 of the Chilean Companies Act 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 the terms of such transaction and that such terms are similar to
those prevailing in the market. Resolutions approving such transactions must be
reported to the Companys shareholders at the next shareholders meeting.
Violation of Article 44 may result in administrative or criminal sanctions to
the Company, and shareholders or interested third parties who suffer losses as
a result of such violation have the right to receive compensation in certain
situations. The Companys largest electricity distribution customer is Chilectra S.A.
(Chilectra), a subsidiary of Enersis. The terms of the Companys contracts
with Chilectra are regulated in accordance with the Chilean Electricity Law.
For additional information concerning the Companys transactions with
affiliates and other related parties, see Note 6 to the audited consolidated
financial statements. The Company believes that it has complied with the
requirements of Article 89 and Article 44 in all transactions with related
parties. It is common practice in Chile to transfer surplus funds of one company to
another related company that has a cash deficit It is the Endesa groups
policy that all cash inflows and outflows of Endesa-Chile and Endesa-Chiles
Chilean subsidiaries are managed through a centralized cash management policy
in coordination with Enersis. These operations are carried out through
short-term inter-company loans. Under Chilean law and regulation, such
transactions must be carried out on an arms length basis. Such centralized
cash management is more efficient for both financial and tax reasons. All of
these operations are subject to the supervision of our Board of Directors
Committee. These transactions are priced at TIP (variable Chilean interest
rate) + 0.05% per month. In other countries in the regions in which we do business, these
intercompany transactions are permitted but they have adverse tax consequences.
Accordingly, we do not manage the cash flows of our non-Chilean subsidiaries
in a centralized manner. Endesa-Chile has also made structured loans to its subsidiaries in Chile,
primarily to finance projects and refinance existing indebtedness. As of
December 31, 2003, the outstanding net balance for such loans was US$431
million, the largest amount outstanding during 2003. Additionally,
Endesa-Chile lent money to its foreign subsidiaries, in order to finance
foreign investments, in an amount of US$481 million as of December 31, 2003.
The largest amount outstanding during 2003 for such loans to its foreign
subsidiaries was US$492 million. The interest rate on these intercompany loans to Endesa-Chiles
subsidiaries ranges from 3.77% to 8.13% in Chile, with a weighted average
interest rate of approximately 4.6%. The interest rate on these intercompany
loans to Endesa-Chiles foreign subsidiaries ranges from 6.58% to 9.00%, with a
weighted average interest rate of approximately 7.3%. C. Interests of experts and counsel. Not applicable. 102




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Item 8. Financial Information A. Consolidated Statements and Other Financial Information. See Item 18 for our consolidated financial statements. Legal Proceedings Chile Chilean Electricity Regulations The Chilean government imposed electricity rationing during three periods
in 1998 and 1999. During these periods, Endesa-Chile and other hydroelectric
generators were required by law to purchase energy from thermal electric
generators with surplus energy. When the Chilean government imposes
electricity rationing, it limits the amount of electricity we can generate
during drought conditions or prolonged failures in the countrys thermoelectric
facilities. If, due to the rationing, we are unable to generate enough
electricity to fulfill our contracts we may be forced to buy electricity on the
electricity pool market at the spot price. The spot price may be significantly
higher than our costs to generate the electricity and can be as high as the
cost of failure set by the CNE. The cost of failure is determined by the
CNEs economic models as the highest cost of electricity during periods of
drought or electricity deficiency. If we are unable to buy enough electricity
in the pool market to satisfy all our contracts, then we have to compensate our
regulated customers for the amount of contracted-for electricity we failed to
provide at the cost of failure. The first rationing decree was issued for the period between November 13,
1998 and December 31, 1998, though actual rationing took place for only 14 days
during this period. Under the then prevailing Chilean Electricity Law, a
drought as severe as the one that occurred in 1968-69 constituted force
majeure and provided an exemption from paying the cost of failure for
electricity. Because the drought in 1998 was the worst in recorded history,
Endesa-Chile argued that the force majeure exemption should be applied and
disputed the applicability of failure cost during the first rationing period.
The dispute was settled on March 26, 1999 by the Ministry of Economy, which
held that those transactions carried out in the electricity pool market between
generation companies in those node locations and during the hours when the
energy supplied was not enough to satisfy the demand had to be calculated based
on failure costs. However, the Ministry of Economy did not establish the
appropriate procedures to calculate these failure costs but instead left the
matter to be resolved by the SIC dispatch center. As of the date of this

annual report, no such procedures have been established. Even if an
unfavorable decision is reached, it will not have material adverse consequences
on the Company. The second rationing decree period began on April 30, 1999 and was
eventually superseded by a third rationing decree, which began on June 12, 1999
and was extended to August 31, 1999. In the interim, on June 8, 1999, the
Electricity Law was amended and, as a result, extreme hydrological conditions
were no longer deemed to constitute force majeure. In addition, the amended
Electricity Law provided for the compensation of customers in the event of
electricity rationing occurring as a result of any hydrological event. There
is no maximum level of compensation. The amended Electricity Law also provided for the payment of fines by
electricity generators of up to a maximum amount of approximately US$5.2
million per breach resulting from inadequate supply to the electricity system.
In respect of the third rationing decree period Endesa-Chile paid US$2.3
million by way of compensation to customers in 1999. The amount paid was based
on the days and hours in which rationing actually occurred. Endesa-Chile
contested the payments on the grounds that their power purchase agreements with
the distribution companies, who in turn provide the electricity to the final
clients, were executed prior to the enactment of the amendment to the
Electricity Law and that the amendment could not be applied retroactively to
pre-existing contracts. Notwithstanding Endesa-Chiles position, the
regulatory authorities have asserted that the compensation payments made during
the third rationing decree were insufficient. Endesa-Chile has contested this
assertion. The Chilean courts are currently reviewing this case. Even if an
unfavorable decision is reached, it will not have material adverse consequences
on the Company. 103




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Endesa-Chile and its subsidiaries and related companies are parties to
legal proceedings arising in the normal course of business that are not
material to Endesa-Chiles consolidated results of operations, either
individually or in the aggregate. Endesa-Chile is currently evaluating legal
action that may be taken in response to the 1999 amendment to the Electricity
Law regarding the imposition of fines for non-provision of energy to the system
in drought conditions. Ralco Insurance Agreement In January 2002, AGF/Allianz Chile Compañïa de Seguros Generales S.A.
(AGF/Alianz) filed an arbitral claim against Endesa-Chile, requesting the
rescission of an insurance policy, which covers all construction and assembly
risks in connection with the construction of the Ralco hydroelectric facility.
AGF/Allianz claim is based on the existence of known risks, the aggravation of
known risks and Endesa-Chiles failure to provide information on the nature and
extent of the known risks. The arbitration court ruled in favor of
Endesa-Chile. In turn, Endesa-Chile filed an arbitral claim against
AGF/Allianz in January 2003 in connection with damages to the Ralco
hydroelectric facility resulting from floods in May 2001. The claim requests
that AGF/Alianz compensate Endesa-Chile approximately US$11.4 million for the
damages resulting from the floods. This US$11.4 million amount is based on the
opinion rendered by Endesa-Chiles loss adjuster. Endesa-Chile cannot predict
the result of this arbitration proceeding. Ralco Project On May 15, 2003, the Sixth Civil Court of Santiago issued its ruling in
relation to a lawsuit opposing the Ralco Project filed by a group of people
belonging to the Pehuenche ethnic group. The lower courts sentence concludes
that the voluntary procedure undertaken by Endesa-Chile for the assessment of
the environmental impact of the Ralco Project is null since, in the courts
opinion, CONAMA, the Environmental Government Agency, was not legally entitled
to assess the environmental impact study presented by the Company to CONAMA.
Both defendants, the Company and CONAMA, consider this questioning of the
legitimacy of the process is unjustified. The Resolution dictated by the Sixth
Civil Court of Santiago does not imply the suspension of the Project, which as
of the date of this annual report has achieved more than 80% completion. On May 30, 2003, the plaintiffs requested the suspension of the Ralco
Project, which was rejected by the court. Instead of suspending the entire
works related to the Ralco Project, the judge ruled that the flooding of the
dam should not proceed. In September 2003, the Company and the group of people belonging to the
Pehuenche ethnic group reached an extrajudicial settlement agreement ending all
the lawsuits initiated against the Ralco project, including the one of the
Sixth Civil Court of Santiago. This agreement was executed in October 2003. Transelec On March 10, 2003, in arbitration proceedings, HQI Transelec Chile S.A.,
the main owner of the SIC, presented a claim against Endesa-Chile in which it
requested Endesa-Chile to pay Ch$3.62 billion (approximately US$5.13 million)
by reason of additional tolls and the use of its transmission system in order
to supply power to four customers located in the Northern zone of the country. Endesa-Chile maintains the position that it is not required to make this
payment to HQI Transelec Chile S.A. for the aforementioned amount since,
pursuant to the agreements for the basic toll and the additional tolls with
that company in compliance with the legislation in force, such basic and
additional tolls for sections located in the zone of influence of its Northern
plants (Tal Tal, Diego de Almagro and Huasco) would be contrary to law if the
power flow were countercurrent. This is the case of such customers with which,
additionally, Endesa-Chile enters into agreements for uninterrupted supply and,
precisely for that supply, Endesa-Chile does not use the sections of the
transmission system which are subject to payment under Transelec. The
discussion period of the trial is over and the Court of Arbitration is
currently in the analysis stage. 104




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On July 30, 2003 the Court of Arbitration ruled in favor of Endesa-Chile,
rejecting the lawsuit in all its parts. HQI filed all their claims against the
ruling of the Court of Arbitration and on May 10, 2004 the Court of Appeal of
Santiago confirmed the ruling of the Court of Arbitration. Resolution 88 On July 5, 2002, the Company submitted a petition to nullify Resolution 88
of the Ministry of Economics, which provided for a deviation in the Load
Dispatch Center of the SIC. Resolution 88 provides that a SIC power
distributor that has exhausted its power supply should be supplemented by all
SIC generators, according to their apportioned participation in the SIC, at the
regulated price (node price). The basis for the Companys petition was that
Endesa-Chile considered this resolution unconstitutional since it breaches the
right to property and violates the Companys freedom to contract energy. On
April 2004 the ruling declared was unfavorable for Endesa-Chile. The Company
has contested such ruling before the Court of Appeal. Proceedings for annulment and other actions presented by Punta de Lobos S.A.
against Endesa-Chile, Celta and others. Endesa-Chile holds a maritime concession in the zone of Puerto Patache in
Iquique, Chile that allows it to exploit Puerto Patache. The fixed assets on
Puerto Patache belong to Celta. Puerto Patache is principally used for the
unloading of coal, used as the fuel for Celtas thermal power plant annexed to
Puerto Patache. In August 2002, Endesa-Chile and its subsidiary Celta were notified of a
petition, in which Punta de Lobos S.A., requested to nullify the concessions,
transfers or any other legal actions undertaken by Endesa-Chile for the benefit
of Celta concerning the assets that Endesa-Chile holds in its maritime
concession in Puerto Patache. Punta de Lobos also requested the discontinuance
of the maritime concession granted to Endesa-Chile by the State of Chile.
Endesa-Chile and Celta responded to the petition arguing that since neither the
maritime concession nor the concession of the assets that are part of Puerto
Patache represent alienation acts and Endesa-Chile has complied with the laws
regulating maritime concessions, the requested discontinuance has no legal
validity. In 2003, Punta de Lobos initiated another suit against Endesa-Chile, Celta
and Terminal Marítimo Minera Patache S.A., principally requesting to nullify
the promise of sale of Puerto Patache by Endesa-Chile and Celta to Terminal
Marítimo Minera Patache S.A. agreed upon in November 2001. In February 2003,
Punta de Lobos filed another claim in order to impede new administrative
actions related to the sale of Puerto Patache. The sale has not been finalized
by an agreement due to a series of legal and administrative actions taken by
Punta de Lobos in an attempt to frustrate the transfer of the maritime
concession and Puerto Patache from Endesa-Chile and Celta to Terminal Marítimo
Minera Patache S.A. The three lawsuits filed by Punta de Lobos against Endesa-Chile and Celta
were initiated after the decision of Celta to abandon the request for bids for
the purchase of Puerto Patache, which occurred in November 2001. Punta de
Lobos and Terminal Marítimo Minera Patache, who are rivals in the world market
of salt, both placed bids for Puerto Patache. After such declaration, Celta
and Endesa-Chile initiated private negotiations with Terminal Marítimo Minera
Patache that ended in the execution of a promise of sale agreement subject to
certain conditions for the sale of Puerto Patache and the transfer of the
maritime concession. The contingency of the lawsuits is approximately US$15
million. Currently, due to the existence of precautionary measures and that
certain contractual conditions have not been met, the transfer of Puerto
Patache has not been able to be executed. Claim by Minera los Pelambres against Endesa-Chile In October 2003, Minera Los Pelambres (Los Pelambres) filed a claim
against us for alleged misrepresentations made by us in a purchase and sale
agreement entered into between Endesa-Chile and Los Pelambres on June 12, 2002,
regarding the power line between San Isidro and Los Piuquenes, which started
its operations in 1999. This purchase and sale agreement was entered into
pursuant to an option included in a pre-existing contract, between Los
Pelambres and Endesa-Chile, for the supply of electricity and power. Under the
terms of the original contract, which was entered into on October 28, 1996,
Endesa-Chile would build various structures to supply electricity to Los
Pelambres, including a power line between San Isidro and Los Piuquenes. Los
Pelambres had the option to buy these structures, and exercised that option in
the year 2000, one year after the line commenced 105




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its activities. Subsequently, in the year 2002 the purchase was
formalized, for a purchase price of US$ 32 million. Los Pelambres claims that
we made certain misrepresentations in the purchase and sale agreement as to the
function, design and construction of the power line. In November 2003, we filed an answer to Los Pelambress complaint, in
which we denied all of Los Pelambress claims. Endesa-Chile has argued that the
operational difficulties that the line has presented are due to climatic
reasons of force majeureand that the line is well designed and constructed in
accordance with the conditions of the bid that was prepared by Los Pelambres.
The lawsuit is currently in discovery. Los Pelambres claims it has suffered damages in the amount of
approximately US$22.8 million for costs it may incur to repair the line. It
also claims that Endesa-Chile should compensate them approximately US$6.5
million, which is the amount they believe they overpaid for the power line due
to our alleged misrepresentation as to its condition and construction. Argentina Stamp Tax for Transportadora de Gas del Norte S.A. and Endesa-Chile On March 27, 2001, Endesa-Chile was notified of the Resolution of the
administrative agency Dirección Provincial de Rentasin the Neuquén Province
against Transportadora de Gas del Norte S.A.(TGN). This resolution was
related to the Stamp Tax charge of $13,943,572 Argentine pesos (including tax,
interests and penalties calculated on February 28, 2001). On April 5, 2001,
TGN filed an appeal before the Dirección Provincial de Rentaswhich effectively
suspended the obligation of the payment. On April 11, 2001, Endesa-Chile filed
an appeal to review the resolution and the process used by the Provinciato
determine the tax and apply the sanctions. On November 8, 2001 the Dirección
Provincial de Rentasnotified Endesa-Chile of Resolution 591/DPR/2001, which
required us to pay the sum of Ar$2,784,507.98 (this sum does not include
interests and penalties), for the concept of taxes for the two gas
transportation contracts executed by TGN and Endesa-Chile. On November 22,
2001 Endesa-Chile presented its response against this Resolution. The ruling
of the Dirección Provincial de Rentasis still pending as of the date of this
annual report. Brazil Drawback In 1998, CIEN received a fiscal incentive (Drawback) for the import of
goods and equipment for the construction of electrical transmission lines
between Brazil and Argentina with the suspension of federal taxes on imports
and industrialized products. This fiscal incentive covered goods and equipment
imported by March 31, 2001. Before that date, CIEN requested an extension in
order to include the import of goods and equipment still pending for inclusion
in the project. The extension of the term for the fiscal incentive was denied
and CIEN appealed against that decision administratively, and through the
courts, obtained a preliminary and provisional decision to ensure the extension
of the Drawback to import goods and equipment still required to complete the
project. Following the final communication of DECEX concerning the
non-extension of the drawback, CIEN presented other administrative proceedings
and obtained, through the court, the suspension and approval for the release of
equipment free of taxes, until the final administrative final decision.
However, it is very probable that the Ministry of Development will confirm the
cancellation of the benefit. In that event, CIEN will bring legal proceedings
to investigate the matter in more detail. A final decision against the
interests of CIEN could represent a contingency for CIEN of approximately
US$100 million. ICMS Fiscal Incentives Under legislation of the State of Rio de Janeiro in effect at the time
when the concession of the fiscal incentives (drawback) from federal taxes (as
stated in the previous point) was in effect, CIEN would have the right to
obtain drawbacks on imports of goods and equipment for the carrying out of the
electricity transmission line project between Brazil and Argentina, with a
suspension of tax (VAT) on the circulation of merchandise and services  ICMS
(state tax). 106




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In April 1999, CIEN obtained from the tax authorities of the State of Rio
de Janeiro the drawback related to the ICMS. However, this drawback was
cancelled in 2003 by a decree issued by the Legislative Assembly of the State
of Rio de Janeiro due to differences in legal interpretation regarding the
right of CIEN to avail itself of this incentive. Considering the mentioned
Decree in January 31, 2004 CIEN decided to integrate the REFERJ (State Tax
Restructuring Authority) and the total due amount (US$35,897,435.90) is being
paid beginning in January 2004 in 120 monthly installments. Class Action Suit Against COPEL and CIEN In 2001, a class action by the citizens of Paraná was brought against
CIEN, COPEL, the State of Paraná and its Governor, and the ANEEL (the Brazilian
electricity regulatory agency). The class action suit alleges, among other
things, that the power supply agreement with COPEL and CIEN was not properly
authorized. The group is seeking the nullity of the 1999 power supply contract
with COPEL and CIEN (currently 400MW) and the suspension of the privatization
of COPEL. If the group of citizens is successful the energy contracts between
CIEN and COPEL, which represent US$ 107 million in annual revenues for CIEN,
could be nullified. However, an early termination of this contract would allow
us to re-contract this energy. While the matter remains active, CIEN has yet to be summoned to appear in
relation to this class action. We believe that the possibility that a court
will nullify the power supply contract is extremely remote. Administrative Tax Demand for Federal Taxes In May 2003, CIEN was notified of an administrative tax demand brought by
the federal tax authorities for amounts supposedly due in relation to Imposto
de Renda Pessoa Jurídica  IRPJ, Programa de Integração Social  PIS,
COFINS and Contribuição Social sobre Lucro Líquido, incidents concerning
financial transactions and exchange fluctuations occurring in 1998 and 1999,
i.e. when CIEN was still in a pre-operating phase. CIEN has to present its defense in July 2003. According to the defense
lawyers and lawyers who gave legal opinions on the matter in 1998 and 1999,
there is a good probability of a decision favorable to CIEN. A final adverse
decision to CIEN would imply a contingency of approximately US$7 million. Legal Proceeding by CELG In April 2003, CELG, the sole customer of Endesa-Chiles Brazilian
subsidiary Cachoeira Dourada, was awarded a preliminary and provisional
judgment that permitted CELG to suspend its payments under a long-term take or
pay contract with Cachoeira Dourada. CELG has also claimed damages of
approximately US$250 million from 1997 to 2003 relating to this contract. On
July 4, 2003, the court presiding over the dispute ruled that CELG would be
required to make payments, until the final decision is ruled, to Cachoeira
Dourada at price ranges significantly lower than the R$61.63 per MWh amount
provided for under the current terms of the take or pay contract. Cachoeira
Dourada appealed this ruling, and obtained only a decision establishing that
CELG should make a deposit in court of the difference between the old price and
amount actually paid according to the July decision. The terms of this
contract provide for payments of approximately R$16.0 million per month of
which Cachoeira Dourada has received, up to the last day of December 2003,
approximately R$51.5 million, corresponding to less than half of the payments
due under the contract for the year.On June 16, the preliminary and
provisional judgment was revoked, which obliges CELG to pay 100% of the
payments due under the contract. CELG has petitioned for reconsideration of
this petition. A final unfavorable decision could mean that Cachoeira Dourada
would receive significantly lower payments from its only customer. Cachoeira
Dourada has not made provisions for the accounts receivable from CELG or CELGs
damages claim. If CELG were to prevail in its damages claim, it would have a
material adverse effect on our results of operations. In September 2003, another claim was filed by CELG against Cachoeira
Dourada in the amount of approximately R$357 million (which is approximately
US$120 million as of the date of this current report) seeking indemnity for
losses resulting from the energy rationing crisis in Brazil. CELG claims an
energy supply shortfall of 20% from the amount provided for in the supply
agreement between CELG and Cachoeira Dourada. Cachoeira Dourada was notified of
the proceeding and in November 2003 argued, among other things, that CELG has
already received tariff compensation for the supply shortfall pursuant to a
Rationing Agreement signed by certain 107




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Brazilian energy companies, including Cachoeira Dourada. Although
Cachoeira Dourada expects a favorable decision, we cannot assure that it will
prevail in this proceeding. Demand for Annulment of Privatization of Cachoeira Dourada. A legal demand was made in 1997 against the State of Goiás and others
mainly requesting the annulment of the privatization of Cachoeira Dourada. We
were only notified of this demand in 2002. Cachoeira Dourada responded to the
demand by arguing that the demand was inappropriate, as it has challenged the
legality and legitimacy of the entire privatization process of Cachoeira
Dourada. Cachoeira Dourada also requested to remit the demand to the federal
court to decide whether ANEEL should become a party to these proceedings. The legal demand filed against Cachoeira Dourada did not call for a
specific compensation or damages award. Additionally, there is no legal
precedent that would enable us to estimate the potential liability. We are
currently awaiting the final decision on this matter and Cachoeira Douradas
expectation is to have success in this demand. Colombia Capacity Charge Resolution 077 of the Energy and Gas Regulatory Commission (CREG), dated
November 8, 2000, amended Resolution 116/96 by declaring that the hydrological
conditions of the year 1992 (which was the driest year in recorded Colombian
history) will no longer be used as the basis for calculating the capacity
charge. Instead, the hydrological conditions of the last driest 12 years will
be used for purposes of this calculation. The hydrological series considered
in this manner have a very low energy contribution, resulting in a reduction of
the hydraulic generation used in the model for the calculation of the Capacidad
Remunerable Teórica(CRT) and benefiting the thermal generation. On December 4, 2000, Emgesa filed a lawsuit in the Supreme Court of
Antioquia, to prevent the CREG from carrying out the calculation of the
capacity charge, which was scheduled for December 22, 2000. Subsequently,
Emgesa and Betania asked to revoke CREG Resolution 077 of 2000 based on
violations of due process and the right of equality. Both requests were
rejected by the CREG in Resolutions 107 and 109 dated December 18, 2000.
Finally, on March 10, 2000, Emgesa and Betania presented an action for
annulment against CREG Resolutions 077 and 111 of 2000. As of the date of this
annual report, the Supreme Court of Antioquia has not resolved this action. On December 22, 2000, CREG calculated the capacity charge under the new
model for Emgesa and Betania.The Emgesa and Betania filed a lawsuit on April
30, 2001 before the Supreme Court of Antioquia seeking to reverse the new
calculation. The ruling of the court is still pending. In March 2002, CREG calculated the capacity charge under the new model for
Emgesa and Betania. The Emgesa and Betania filed a lawsuit on January 13, 2003
before the Supreme Court of Antioquia seeking to reverse the new calculation.
The ruling of the court is still pending. Every year the administrator of the electricity system (ASIC) estimates
the capacity charge for the following year. Emgesa and Betania petitioned ASIC
to revoke the estimates carried out for the years 2001, 2002, 2003 and 2004.
ASIC rejected all the requests for revocation. After that, both companies
filed lawsuits before the Supreme Court of Antioquia (32 lawsuits until the
present date) for the annulment of the resolutions adopted by ASIC. The
Supreme Court of Antioquia has not decided such actions. Emgesa S.A. Muña Class Action On August 16, 2001, approximately 4,000 inhabitants of the
Sibaté-Cundinamarca community filed a class action environmental claim before
the Administrative Court of Cundinamarca. This claim was based on the alleged
pumping of polluted waters from the Bogotá River to the Muña Reservoir for the
generation of electricity. The defendants are a group of public and private
entities, including Emgesa. The plaintiffs are seeking damages of
approximately US$1.108 billion. The plaintiffs allege that the pollution has
been occurring for several decades. It is important to note that Emgesa did
not begin generating energy in the Muña Reservoir until the end of 1997, when
it was incorporated. In addition, there is a separate claim seeking the
decontamination of the Muña Reservoir, which 108




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may present an additional liability of US$3 to 5 million for Emgesa.
Moreover, Empresa de Energía Eléctrica de Bogotá, the previous owner of the
Muña Reservoir, was recently ordered by a judicial ruling to begin the
decontamination process of the Muña Reservoir, which may offset the amount of
damages Emgesa will be responsible for should the plaintiffs prevail in either
of these proceedings. Peru SUNAT Income Tax Assessment As a result of a tax audit, the Peruvian Tax Administration Superintendent
(SUNAT) initially assessed a US$86 million income tax claim against Edegel
relating to the 1996 spin-off that originated Edegel. This income tax claim
corresponds primarily to, among others, excessive tax depreciation for revalued
fixed assets. SUNAT based its assessment on the Seventh Transitory and Final
Provision of Law No. 27034, which repealed, as of the 1999 accounting period,
the option to depreciate the revaluation of fixed assets. In January 2002,
Edegel filed an objection to the assessment and concurrently commenced
arbitration proceedings against the Peruvian State, pursuant to its stability
agreement, in order to resolve the dispute initiated by the SUNAT assessment. Prior to the decision of the arbitrator, which ultimately favored Edegel
by deciding that Law No. 27,034 was not applicable, SUNAT ruled against Edegel
repealing its revaluation of its fixed assets. Edegel appealed this SUNAT
ruling in a petition to the Tribunal Fiscal on April 10, 2002. The Tribunal
Fiscal, adhering to the arbitration proceedings initiated by Edegel, ruled that
the SUNAT ruling was void. The Tribunal Fiscal ordered SUNAT to resolve the
disputed issues by taking into account the legal framework determined by the
arbitration and the criteria in Rule VIII in the preliminary Title of the
Ordered Unique Text of the Tax Code, if applicable, in its tax assessment. On July 10th, 2003 by an Intendance Resolution N°0150150000032 SUNAT
resolved the controversy and accepted some of Edegels claims. However,
regarding Rule VIII in the preliminary Title of the Ordered Unique Text of the
Tax Code, SUNAT determined that tax benefits granted by Law No. 26,283 and its
regulation (Supreme Decree No.120-94-EF) were not applicable to Edegel because
the 1996 spin-off was not real. Additionally, SUNAT objected to the market
value attributed to the fixed assets Edegel acquired from Talleres Moyopampa.
The Peruvian tax Authority claims a tax liability for the fiscal years 1996,
1997, 1998 and 1999 in the amount of Peruvian soles 555 million (approximately
US$159 million) in connection with, among other things, the 1996 spin-off that
created Edegel. On
August 1st, 2003, Edegel appealed SUNATs ruling (Intendance Resolution
N°0150150000032) to the Tribunal Fiscal. Furthermore, in September and November
2003 Edegel presented complementary written reports to Tribunal Fiscal in order
to reinforce its legal and economic position. On
November 14, 2003 Edegel accepted some of SUNATs claims and partially
paid approximately US$15 million. However, the most significant claims remain
in controversy (these include excessive tax depreciation for revalued fixed
assets, Rule VIII in the preliminary Title of the Ordered Unique Text of the
Tax Code and market value of acquired fixed assets). Finally, a hearing took place on December 10th, 2003, in where Edegel made
an oral presentation of its arguments. Currently, Tribunal Fiscal is evaluating
the case. Notwithstanding SUNATs initial tax claim reached US$86 million, given
that Tribunal Fiscals final position is unknown regarding the excessive tax
depreciation for revalued fixed assets, Rule VIII in the preliminary Title of
the Ordered Unique Text of the Tax Code, and market value of acquired fixed
assets, Edegel cannot predict an outcome. If the result is not favorable to
Edegel, it can appeal to the Court of Appeal (Corte Superior) and if such
decision is unfavorable to Edegel, it can appeal to the Supreme Court (Corte
Suprema). In such a scenario, the appeal process can last up to two and a half
years. Edegel believes that the Peruvian Tax Authority will not prevail in
this matter and is therefore, not making provisions for the amount asserted by
the Peruvian Tax Authority. 109




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Dividend Policy As required by the Chilean Companies Act, unless otherwise decided by
unanimous vote of its issued Shares eligible to vote, Endesa-Chile must
distribute a cash dividend in an amount equal to at least 30% of Endesa-Chiles
consolidated net income for each year (on a Chilean GAAP basis), unless and
except to the extent Endesa-Chile has carried forward losses. Subject to this
requirement, Endesa  Chiles dividend policy is proposed to the shareholders
at the annual regular shareholders meeting of Endesa  Chile, as is the policy
the board of directors intends to follow with respect to the payment of
dividends for that year. At such meeting, shareholders consider and, if in
order, approve the final dividend proposed by the board of directors in respect
of the prior years results. In each year since 1990, Endesa-Chile has declared as dividends 100% of
its net income. However, at the annual regular shareholders meeting held on
April 2001, the board of directors recommendation to change Endesa-Chiles
dividend policy to provide for dividends that amount to 30% of the net income
for 2000 was approved. The board of directors recommended this change because
much of the net income for 2000 did not represent recurring profits and the
retained earnings would reinforce the Companys financial position and provide
more funds for future projects. At the annual regular shareholders meeting held
on March 2004 the dividend policy to provide for dividends an amount to 30% of
the net income for 2003 was approved. Considerations that are relevant to a determination by the board of
directors to propose a dividend include current and projected operating
results, any applicable restrictions in Endesa-Chiles credit agreements and
any other relevant factors. Shareholders approval of a proposed dividend is
typically made subject to the boards ability to change the amount and timing
of the dividend if circumstances relating to any of the foregoing
considerations change subsequent to such shareholders approval. In addition,
because certain of the operations of Endesa-Chile are conducted through
subsidiaries, Endesa-Chiles ability to pay dividends depends, in part, on its
receipt of dividends from such subsidiaries. Currently, there are no
restrictions on the ability of Endesa-Chile or any of its subsidiaries to pay
dividends, other than customary legal restrictions limiting the amount of
dividends to net income and retained earnings and except for the following:
Endesa-Chile and its subsidiary Pehuenche may not pay dividends in excess of
net income adjusted for non-cash items in respect of any fiscal year
(utilidades liquidas y realizadas) plus any such amount retained from prior
periods; Edegel may not pay dividends in the case of default of certain loans;
Costanera is prohibited from paying dividends and inter-company interest,
undertaking capital reductions and repaying debt while certain debt is
outstanding; and Betania is restricted from paying dividends in the case of
default of certain loans, prohibited from repaying inter-company debt unless it
raises additional funds from the sale of assets or capital reduction of its
subsidiaries (Emgesa), and prohibited from paying inter-company interest if any
scheduled payment of the syndicated loan is due and not paid. The Company pays dividends to shareholders of record as of five business
days before the payment date. Holders of ADSs on the applicable record dates
will be entitled to participate in all future dividends. Dividends The table below sets forth, for each of the calendar years indicated, the
per share amounts of dividends paid by the Company when earned and the amount
of dividends paid per 30 Shares (one ADS represents 30 Shares) in U.S. dollars
converted at the Observed Exchange Rate on each date of payment. See Item 10.
Additional Information  Exchange Controls. Dividends Paid (1)US$ per 30 SharesYear
    
    Ch$ per Share (2)
    
    Ch$ per Share (3)
    
    (ADS)(4)1997
    
    
    11.74800
    
    
    
    14.24738
    
    
    
    0.7201998
    
    
    2.06200
    
    
    
    2.35490
    
    
    
    0.1191999
    
    
    
    
    
    
    
    
    
    
    02000
    
    
    0.96000
    
    
    
    1.02266
    
    
    
    0.0522001
    
    
    0.94000
    
    
    
    0.97598
    
    
    
    0.0492002
    
    
    0
    
    
    
    0
    
    
    
    02003
    
    
    2.30000
    
    
    
    2.30000
    
    
    
    0.116
 110




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##### Table of Contents



(1)
    
    Amounts shown do not reflect reduction for any applicable Chilean
withholding taxes or dividends declared but paid out in a different
calendar year.(2)
    
    Amounts shown are in historical Chilean pesos.(3)
    
    Restated in constant Chilean pesos as of December 31, 2003.(4)
    
    The U.S. dollar per ADS amount has been calculated by applying the
exchange rate of Ch$593.80 = US$1.00, the Observed Exchange Rate
prevailing on December 31, 2003, to the constant Chilean peso amount. B. Significant Changes. None. 
 Item 9. The Offer and Listing. A. Offer and listing details. Market Price and Volume Information The shares are traded on the Santiago Stock Exchange, the Electronic Stock
Exchange and the Valparaíso Stock Exchange. Endesa-Chile conducted a
preemptive rights offering and United States offering of ADSs in 1994 (the
1994 Offerings). Since the conclusion of the offerings in 1994, the ADSs
(each ADS representing 30 shares) have been traded in the United States on the
New York Stock Exchange under the symbol EOC. The ADSs are evidenced by
American Depositary Receipts, ADRs. The ADRs are outstanding under a Deposit
Agreement dated as of August 3, 1994 among Endesa-Chile, Citibank N.A. as
depositary, and the holders from time to time of ADRs issued thereunder. An
ADR may represent any number of ADSs. Only persons in whose names ADRs are
registered on the books of the depositary are treated by the depositary as
owners of ADRs. Endesa-Chiles outstanding notes are not listed on any exchange. The
notes are traded primarily in the over-the-counter market in the United States. The table below shows, for the periods indicated, annual, quarterly, high
and low closing prices in Chilean pesos for the Shares on the Santiago Stock
Exchange and the annual, quarterly high and low closing prices of the ADSs in
U.S. dollars as reported by the New York Stock Exchange. Santiago Stock Exchange (1)(2)
    
    NYSE (1)Ch$ per Share
    
    US$ per ADSMost Recent Six Months
    
    High
    
    Low
    
    High
    
    Low2004June (through June 21)
    
    
    264.01
    
    
    
    258.00
    
    
    
    12.30
    
    
    
    11.90May
    
    
    275.00
    
    
    
    255.00
    
    
    
    13.14
    
    
    
    11.50April
    
    
    279.00
    
    
    
    257.91
    
    
    
    13.61
    
    
    
    12.71March
    
    
    264.51
    
    
    
    242.00
    
    
    
    13.52
    
    
    
    11.71February
    
    
    266.50
    
    
    
    228.00
    
    
    
    13.64
    
    
    
    11.57January
    
    
    244.00
    
    
    
    229.00
    
    
    
    13.31
    
    
    
    11.602003 Annual
    
    
    253.00
    
    
    
    172.00
    
    
    
    12.02
    
    
    
    7.021st Quarter
    
    
    189.01
    
    
    
    172.00
    
    
    
    8.10
    
    
    
    7.022nd Quarter
    
    
    224.50
    
    
    
    172.00
    
    
    
    9.54
    
    
    
    7.103rd Quarter
    
    
    238.00
    
    
    
    208.50
    
    
    
    10.80
    
    
    
    8.904th Quarter
    
    
    253.00
    
    
    
    222.00
    
    
    
    12.02
    
    
    
    10.632002 Annual
    
    
    236.00
    
    
    
    152.50
    
    
    
    10.73
    
    
    
    6.051st Quarter
    
    
    236.00
    
    
    
    188.00
    
    
    
    10.73
    
    
    
    8.152nd Quarter
    
    
    219.00
    
    
    
    172.00
    
    
    
    10.18
    
    
    
    7.603rd Quarter
    
    
    206.00
    
    
    
    161.40
    
    
    
    8.99
    
    
    
    6.504th Quarter
    
    
    189.00
    
    
    
    152.50
    
    
    
    8.00
    
    
    
    6.052001 Annual
    
    
    254.00
    
    
    
    190.99
    
    
    
    12.22
    
    
    
    7.96
 111




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Santiago Stock Exchange (1)(2)
    
    NYSE (1)Ch$ per Share
    
    US$ per ADSMost Recent Six Months
    
    High
    
    Low
    
    High
    
    Low2000 Annual
    
    
    254.70
    
    
    
    180.00
    
    
    
    14.37
    
    
    
    9.751999 Annual
    
    
    264.00
    
    
    
    146.00
    
    
    
    14.19
    
    
    
    10.94
   (1)
    
    Sources: Santiago Stock Exchange, Official Quotation Bulletin, NYSE.(2)
    
    Chilean pesos per Share reflected nominal price at trade date. As of May 31, 2004, ADRs evidencing 13,590,955 were outstanding
(equivalent to 407,728,650 shares or 4.97% of the total number of issued
shares). It is not practicable for the Company to determine the proportion of
ADRs beneficially owned by US persons. The stock closed at US$11.82 on the last
day of trading in the New York Stock Exchange in 2003. B. Plan of distribution. Not applicable. C. Markets. The Santiago Stock Exchange was established in 1893 as a private company.
Its equity consists of 48 shares held by 46 stockholders as of the date of this
filing. As of December 31, 2003, 239 companies had shares listed on the
Santiago Stock Exchange. The Santiago Stock Exchange is Chiles principal
exchange and, for the year ended 2002, accounted for 76.7% of all equity traded
in Chile. Approximately 23.2% of equity trading was conducted on the
Electronic Exchange, an electronic trading market that was created by banks and
non-member brokerage houses. The remaining 0.1% of equity was traded on the
Valparaíso Exchange. Equities, closed-end funds, fixed-income securities, short-term and money
market securities, gold and US$ are traded on the Santiago Stock Exchange. In
1991, the Santiago Stock Exchange initiated a futures market with two
instruments, U.S. dollar futures and Selective Shares Price Index, or IPSA,
futures. Securities are traded primarily through an open voice auction system,
a firm offers system or the daily auction. Trading through the open voice
system occurs on each business day in two sessions, from 11:00 a.m. to 11:30
a.m. and from 4:00 p.m. to 4:30 p.m., Santiago time, which varies from New York
City time depending on the season. The Santiago Stock Exchange has an
electronic trading system called Telepregón, which operates continuously for
high volumes from 9:30 a.m. to 11:00 a.m. to 5:30 p.m. on each business day.
On days in which auctions are scheduled, there are three times available for
such auctions, 11:30 a.m., 1:00 p.m. and 3:30 p.m. There are two share price indices on the Santiago Stock Exchange: the
General Share Price Index, or IGPA and the IPSA. The IGPA is calculated using
the prices of over 180 issues and is broken into five main sectors: banks and
finance; farming and forest products; mining; industry; and miscellaneous. The
IPSA is calculated using the prices of the 40 most actively traded shares. The
shares included in the IPSA are weighted according to the value of the shares
traded. As of December 31, 2003, Endesa-Chile was included in the IPSA. Shares of Endesa-Chile were first listed and began trading on the Bolsa de
Valores Latinoamericanos de la Bolsa de Madrid, or Latibex, as of December 17,
2001. One trading unit is the equivalent of 30 common shares (the same unit
conversion of 30:1 as an ADS) and the trading ticker symbol is XEOC. Trading
of our shares in the Latibex during 2003 amounted to 2,604,845 units, which in
turn was the equivalent of 20,307 thousand. The stock closed at  9.45
on the last day of trading in Latibex in 2003. D. Selling shareholders. Not applicable. 112




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E. Dilution. Not applicable. F. Expense of the issue. Not applicable. 
 Item 10. Additional Information A. Share capital. Not applicable. B. Memorandum and Articles of Association. Description of Share Capital Set forth below is certain information concerning our share capital and a
brief summary of certain significant provisions of our by-laws and Chilean law. General Shareholders rights in Chilean companies are governed by a companys
by-laws, which effectively serve the same purpose as the articles or
certificate of incorporation and the by-laws of a company incorporated in the
United States, and by the Chilean Companies Act. In addition, DL-3500, which
permits the investment by pension funds in stock of qualified companies,
indirectly affects corporate governance and prescribes certain rights of
shareholders. In accordance with the Chilean Companies Act, legal actions by
shareholders against us enforcing their rights as shareholders must be brought
in Chile in arbitration proceedings or at the option of the plaintiff before
the ordinary courts of Chile. The Chilean securities markets are principally regulated by the
Superintendencia de Valores y Seguros, the Superintendency of Securities and
Insurance, or the SVS, under the Ley de Mercado de Valores No. 18045,or the
Securities Market Law, and the Chilean Companies Act. These two laws provide
for disclosure requirements, restrictions on insider trading and price
manipulation, and protection of minority investors. The 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 Companies Act clarifies rules establishing publicly
held limited liability companies while eliminating government supervision of
private companies. On December 20, 2000, Law 19,705 was enacted, introducing
important amendments to the Chilean Companies Act and the Securities Market
Law. Among other things, it provides a new definition for publicly held
companies and new rules regarding change of control, tender offers,
transactions with directors, qualified majorities, share repurchase, directors
committee, stock options and derivative actions. Publicly held limited
liability companies are those with 500 or more shareholders, or companies in
which 100 or more shareholders own at least 10% of the subscribed capital,
excluding those whose individual holdings exceed such percentage, and all other
companies which are registered with the SVS, regardless of the number of their
shareholders. Endesa-Chile is a publicly held limited liability company. Reporting Requirements Regarding Acquisition or Sale of Shares. Under Article 12 of the Securities Market Law and Section II Circular 585
of the SVS, certain information regarding transactions in shares of publicly
held limited liability companies must be reported to the SVS, the Chilean stock
exchanges, and the Comisión Clasificadora de Riesgo, or the Risk Classification
Committee. Since the ADRs are deemed to represent the shares of common stock
underlying the ADRs, transactions in ADRs will be subject to these reporting
requirements and those established in Circular 1,375 of the SVS. Shareholders
of publicly held companies are required to report to the SVS, the Chilean stock
exchanges. 113




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
    
    any direct or indirect acquisition or sale of shares or options to
buy or sell shares that results in the holders acquiring or disposing,
directly or indirectly, of 10% or more of a publicly held companys
subscribed capital; and
    
    any direct or indirect acquisition or sale of shares or options to
buy or sell shares, in any amount, if made by a holder of 10% or more
of a publicly held limited liability companys subscribed capital. Any direct or indirect acquisition or sale of shares or options to buy or
sell shares, in any amount, made by a director, receiver, principal executive,
general manager or manager of a company which is party to any of the
above-mentioned transactions, must be reported to the SVS, the Chilean stock
exchanges. In addition, the majority shareholders must inform the SVS, the Chilean
stock exchanges if the above-mentioned acquisitions are done with the intention
to obtain the control of the Company or only as passive investment. Under Article 54 of the Securities Market Law and Norma de Carácter
GeneralNo. 104 enacted by the SVS on January 5, 2001, any person who directly
or indirectly intends to take control of a publicly held company must disclose
this intent to the market at least 10 business days in advance of the change of
control and, in any event, as soon as the negotiations for the change of
control have started. If the change of control shall occur by means of a
tender offer, the new provisions on tender offers will apply. Law 19,705 introduces a new chapter to the Securities Market Law,
establishing a comprehensive regulation on tender offers. The law defines a
tender offer as the offer to purchase shares of corporations which publicly
offer their shares or securities convertibles into shares and which offer is
made to shareholders to purchase their shares in conditions which allow the
bidder to reach a certain percentage of ownership of the corporation within a
fixed period of time. The new provisions apply to both voluntary and mandatory
tender offers. Register Endesa-Chile is registered with the SVS and its entry number is 0114. Corporate Object and Purpose Article 4 of our by-laws state that our corporate objective and purpose
is, among other things, to exploit the production, transportation, distribution
and supply of electric power, as well as to provide engineering consultancy
services, directly or through other companies, in Chile and abroad. Board of Directors Our board of directors is made up of nine members. Members of the board
are appointed by the general meeting of shareholders and are elected for a
period of three years at the end of which they will be re-elected or replaced. The nine directors elected at the shareholders meeting are those nine
individual nominees who receive the most votes. Each shareholder may vote all
of his shares in favor of one nominee or may apportion his shares among any
number of nominees. The compensation of the directors is set annually by the general meeting
of shareholders. Agreements entered into by Endesa-Chile in which one or more directors
have an interest or act as the representative of another person have to be
known to, and approved previously by, the board and have to be consistent with
usually prevailing market conditions. The resolutions taken by the board to
this effect have to be submitted to the next shareholders meeting by the
Chairman, and have to be listed in the notice of that meeting as a matter to be
addressed at that meeting. 114




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All agreements between Endesa-Chile and its majority shareholders, its
directors or executives, or related parties, need to be approved by a 2/3
majority of the board and must be recorded in the minutes of the board of
director meetings. Certain Powers of the Board of Directors Our by-laws do not contain provisions relating to:  
    
    the directors power, in the absence of an independent quorum, to
vote compensation to themselves or any members of their body;
    
    borrowing powers exercisable by the directors and how such borrowing powers can be varied;
    
    retirement or non-retirement of directors under an age limit requirement; or
    
    number of shares, if any, required for directors qualification. Certain Provisions Regarding Shareholder Rights As of the date of the filing of this annual report, Endesa-Chiles capital
is comprised of only one class of shares, all of which are ordinary shares and
have the same rights. Our by-laws do not contain any provisions relating to:  
    
    redemption provisions;
    
    sinking funds; or
    
    liability to further capital calls by the Company. Under Chilean law, the rights of holders of stock may only be changed by
an amendment to the by-laws of the company that complies with the requirements
explained below under Shareholders Meetings and Voting Rights. Capitalization Under Chilean law, the shareholders of a company, acting at a special
shareholders meeting, have the power to authorize an increase in its capital.
When an investor subscribes for shares, the shares are officially issued and
registered in his name, and the subscriber is treated as a shareholder for all
purposes except receipt of dividends and for return of capital in the event
that the shares have been subscribed but not paid for. The subscriber becomes
eligible to receive dividends once he has paid for the shares, or, if he has
paid for only a portion of such shares, such subscriber is entitled to receive
a corresponding pro-rata portion of the dividends declared with respect to such
shares unless the companys by-laws provide otherwise. If a subscriber does
not fully pay for shares for which he has subscribed on or prior to the date
agreed upon for payment, the company is entitled to auction the shares on the
stock exchange where such shares are traded and has a cause of action against
the subscriber for the difference, if any, between the subscription price and
the price received at auction. However, until such shares are sold at auction,
the subscriber continues to exercise all the rights of a shareholder, except
the right to receive dividends and return of capital. Authorized shares, and
issued shares for which full payment has not been made within the period fixed
by the special shareholders meeting at which their subscription was
authorized, which in no case may exceed three years from the date of such
meeting, are canceled and are no longer available for issuance. As of the date of this annual report, the capital subscribed for and fully
paid is Ch$1,050,193,846,268 through 8,201,754,580 shares. Preemptive Rights and Increases of Share Capital The Chilean Companies Act requires Chilean companies to grant shareholders
the preemptive right to purchase a sufficient number of shares to maintain
their existing ownership percentage of such company whenever such company
issues new shares. 115




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Under Chilean law, preemptive rights are exercisable or freely
transferable by shareholders during the 30-day period following the granting of
such rights. During such 30-day period, and for an additional 30-day period,
publicly held limited liability companies are not permitted to offer any
unsubscribed shares to third parties on terms which are more favorable than
those offered to their shareholders, but they may be freely sold after the
30-day period following the granting of such rights to third parties on terms
less favorable for the purchaser than those offered to shareholders. At the
end of such additional 30-day period, a Chilean publicly held limited liability
company is authorized to sell non-subscribed shares to third parties on any
terms, provided they are sold on one of the Chilean stock exchanges. Shareholders Meetings and Voting Rights A modification of Articles 1bis, 5bis, 16bis, 20 bis, 27bis, 32bis, 34bis,
35bis, 36bis, and 28bis of the by-laws requires the affirmative vote of 75% of
the shares eligible to vote. A regular annual meeting of our shareholders is held within the first four
months following the end of our fiscal year. The last regular annual meeting
was held on March 26, 2004. Special meetings may be called by the board of
directors when deemed appropriate or when requested by shareholders
representing at least 10% of the issued voting shares or by the SVS. To
convene a special meeting, or a regular annual meeting, notice must be given by
three publications in a prescribed manner in a newspaper of our corporate
domicile. The newspaper designated by our shareholders is El Mercurio de
Santiago. 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
to each shareholder and given to the SVS and the Chilean stock exchanges. The
last special meeting of shareholders was held on March 31, 2003. Under Chilean law, a quorum for a shareholders meeting is established by
the presence, in person or by proxy, of shareholders representing at least a
majority of the issued voting shares of a company. If a quorum is not present
at the first meeting, a reconvened meeting can take place at which the
shareholders present are deemed to constitute a quorum regardless of the
percentage of the shares represented. The second meeting must take place
within 45 days following the scheduled date for the first meeting.
Shareholders meetings adopt resolutions by the affirmative vote of an absolute
majority of those shares present, or represented, at the meeting.
Additionally, if a shareholders meeting is called for the purpose of
considering:  
    
    a transformation of the company into a form other than a sociedad
anónima abierta(a publicly held limited liability company) under the
Chilean Companies Act, a merger or division of the company;
    
    an amendment to the term of duration or early dissolution;
    
    a change in the corporations domicile;
    
    a decrease of corporate capital;
    
    approval of capital contributions kind and assessment of assets that do not consist in money;
    
    modification of the authority reserved to shareholders or limitations on the board of directors;
    
    reduction in the number of members of the board of directors;
    
    disposition of 50% or more of the assets of the corporation,
whether it includes disposition of liabilities or not, as well as the
approval or the amendment of the business plan which contemplates the
disposition of assets for such amount;
    
    the form of distributing corporate benefits;
    
    issue of guarantees for third parties liabilities which exceed 50%
of the assets, but if the third party is a subsidiary of the company,
the approval of the board of directors is sufficient;
    
    the purchase of the corporations own shares; or 116




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
    
    Certain remedies for the nullification of the corporate by-laws. Regardless of the quorum present, the vote required for any of the above
action is a two-thirds majority of the issued voting shares. By-law amendments for the creation of a new class of shares, or an
amendment to or an elimination of those classes of shares that already exist,
must be approved by two-thirds of the outstanding shares of the affected
series. Chilean law does not require an publicly held Chilean company to provide
its shareholders the same level and type of information required by US
securities laws regarding the solicitation of proxies. However, shareholders
are entitled to examine the books of the company within the 15-day period
before the scheduled meeting. Under Chilean law, a notice of a shareholders
meeting listing matters to be addressed at the meeting must be mailed no sooner
than 15 days prior to the date of such meeting, and, in cases of a regular
annual meeting, shareholders must be sent an annual report of the companys
activities which includes audited financial statements. Limitations on the
distribution of annual reports are established for the SVS in Circular No.
1108. The Chilean Companies Act provides that, upon the request by shareholders
representing 10% or more of the issued voting shares, 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 Companies Act
provides that whenever the board of directors of an publicly held company
convenes a regular meeting of shareholders and solicits proxies for the
meeting, or circulates information supporting its decisions or other similar
material, it is obligated to include the pertinent comments and proposals that
may have been made by shareholders owning 10% or more of the companys voting
shares who request that such comments and proposals be so included. Only shareholders registered as such with Endesa-Chile at least five
business days 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. Proxies for such
representation shall be given in writing for all the shares held by the owner.
Every shareholder entitled to attend and vote at a shareholders meeting shall
have one vote for every share subscribed. Each share of common stock entitles the registered holder thereof to one
vote in person or by proxy at any meeting of shareholders of the company.
There are no limitations on the right of nonresidents or foreigners to hold or
vote shares of common stock imposed by Chilean law or the companys by-laws.
However, the registered holder of the shares of common stock represented by
ADSs and evidenced by outstanding ADRs is the custodian of the Depositary,
currently Citibank N.A. (Chile), or any successor thereto. Accordingly,
holders of ADRs are not entitled directly to receive notice of meetings of
shareholders or directly to vote the underlying shares of common stock
represented by ADSs and evidenced by the ADRs. The Deposit Agreement contains
provisions pursuant to which the Depositary has agreed to solicit instructions
from registered holders of ADRs as to the exercise of the voting rights
pertaining to the shares of common stock represented by the ADSs evidenced by
such holders ADRs. Subject to compliance with the requirements of the Deposit
Agreement and receipt of such instructions, the Depositary has agreed to
endeavor insofar as practicable and permitted under Chilean law and the
provisions of the by-laws to vote or cause to be voted (or grant discretionary
proxy to the Chairman of the Board of directors of the company or to a person
designated by the Chairman of the Board of directors of the company to vote)
the shares of common stock represented by the ADSs evidenced by such holder of
ADRs in accordance with any such instruction. The Depositary shall not itself
exercise any voting discretion over any shares of common stock underlying ADSs.
If no voting instructions are received by the Depositary from a holder of ADRs
with respect to the shares of common stock represented by the ADSs and
evidenced by such holders ADRs on or before the date established by the
Depositary for such purpose, the shares of common stock represented by the
ADSs, subject to limitations set forth in the Deposit Agreement, may be voted
in the manner directed by the Chairman of the Board of the company. Dividends and Liquidation Rights In accordance with Chilean law, we are required to pay cash dividends
equal to at least 30% of annual audited net income, calculated in accordance
with Chilean GAAP. If there is no net income in a given year, we may, but are
not legally obligated to, distribute dividends out of retained earnings. 117




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Any dividend in excess of 30% of net income may be paid, at the election
of the shareholder, in cash, in Endesa-Chiles shares or in shares of publicly
held corporations held by Endesa-Chile. 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. Dividends which are declared but not paid within the appropriate time
period set forth in the Chilean Companies Actas to minimum dividends, 30 days
after declaration; as to additional dividends, the date set for payment at the
time of declaration, are adjusted to reflect the change in the value of UF, a
Chilean inflation adjusted currency, 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 such dividend is payable. In the event of a liquidation of Endesa-Chile, the holders of shares would
participate in the assets available in proportion to the number of paid-in
shares held by them, after payment of all creditors. Approval of Financial Statements The board of directors is required to submit Endesa-Chile financial
statements to the shareholders annually for their approval. If the
shareholders by a vote of a majority of shares present (in person or by proxy)
at the shareholders meeting reject the financial statements, the board of
directors must submit new financial statements no later than 60 days from the
date of such meeting. If the shareholders reject the new financial statements,
the entire board of directors is deemed 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 following period.
Our shareholders have never rejected the financial statements presented by the
board of directors. Change of Control Our by-laws do not contain any provisions that would delay, defer or
prevent a change in control of Endesa-Chile. Under new Article 54 and Norma de
Carácter GeneralNo. 104 enacted by the SVS on January 5, 2001, any person who
directly or indirectly intends to take control of a company and who makes a
public offer for its shares must disclose their intent to the market at least
10 business days in advance of the change of control and, in any event, as soon
as the negotiations for the change of control have started. If the change of
control shall occur by means of a tender offer, the new provisions on tender
offers will apply. Acquisition of Shares There are no provisions in our by-laws that discriminate against any
existing or prospective holder of shares as a result of such shareholder owning
a substantial number of shares. However, no person may directly or indirectly
own more than 65% of the outstanding shares of our stock. The foregoing
restriction does not apply to the depositary as record owner of shares
represented by ADRs, but it does apply to each beneficial ADS holder.
Additionally, our by-laws prohibit any shareholder from exercising voting power
with respect to more than 65% of the common stock owned by such shareholder or
on behalf of others representing more than 65% of the outstanding shares
eligible to vote. Right of Dissenting Shareholders to Tender Their Shares The Chilean Companies Act provides that upon the adoption of any of the
resolutions enumerated below at a special meeting of shareholders, dissenting
shareholders acquire the right to withdraw from the company and to compel the
company to repurchase their shares, subject to the fulfillment of certain terms
and conditions. In order to exercise such rights, holders of ADRs must first
withdraw the shares represented by their ADRs pursuant to the terms of the
deposit agreement. Dissenting shareholders are defined as those who vote against a
resolution that results in the withdrawal right, or who if absent from such
meeting, state in writing their opposition to the respective resolution. The
price paid to a dissenting shareholder of a publicly held company, the shares
of which are quoted and actively traded on one of the Chilean stock exchanges,
is the greatest among (i) the weighted average of the sales prices for the
shares as reported on the Chilean stock exchanges on which the shares are
quoted for the two-month period preceding the 118




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shareholders meeting giving rise to the withdrawal right, and (ii) the
market price resulting from the average price of transactions on such day. If,
because of the volume, frequency, number and diversity of the buyers and
sellers, the SVS determines that the shares are not actively traded on a stock
exchange, the price paid to the dissenting shareholder shall be the book value.
Book value for this purpose shall equal paid capital plus reserves and
profits, less losses, divided by the total number of subscribed shares, whether
entirely or partially paid. For the purpose of making this calculation, the
last annual balance sheet is used, as adjusted to reflect inflation up to the
date of the shareholders meeting which gave rise to the withdrawal right. The resolutions that result in a shareholders right to withdraw include,
among others, the following:  
    
    the transformation of the company into an entity which is not
sociedad anónima abiertagoverned by Chilean Companies Act;
    
    the merger of the company with another company;
    
    disposition of 50% or more of the assets of the corporation,
whether it includes disposition of liabilities or not, as well as the
business plan which contemplates the disposition of assets for such
amount;
    
    issue of guarantees for third parties liabilities which exceed 50%
of the assets, but if the third party is a subsidiary of the company,
the approval of the board of directors is sufficient;
    
    the creation of preferential rights for a class of shares or an
amendment to the existing ones. In this case the right to withdraw
only accrues to the dissenting shareholders of the class or classes of shares adversely affected;
    
    certain remedies for the nullification of the corporate by-laws; and
    
    such other causes as may be established by a companys by-laws. 119




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Investments by AFPs Title XII of DL-3500 permits Administradoras de Fondos y Pensiones,or
AFPs to invest their fund assets in companies that are subject to Title XII
and, subject to greater restrictions, in other companies. The determination of
which stocks may be purchased by AFPs is made by the Risk Classification
Committee. The Risk Classification Committee establishes investment guidelines
and is empowered to approve or disapprove those companies that are eligible for
AFP investments. Endesa-Chile has been a Title XII Company since 1987 and is
approved by the Risk Classification Committee. Title XII companies are required to have by-laws that limit the ownership
of any shareholder to a specified maximum percentage, and that certain actions
be taken only at a meeting of the shareholders and give the shareholders the
right to approve certain investment and financing policies. Registrations and Transfers The shares are registered by Endesa-Chile through an Administrative Agent
named Depósito Central de Valores S.A., Depósito de Valores. This entity is
responsible for Endesa-Chiles shareholders registry as well. In case of
jointly owned shares, an attorney-in-fact must be appointed to represent the
joint owners in dealing with Endesa-Chile. Foreign Investment Contract and Chapter XXVI In connection with our initial offering of ADSs in 1994, we entered into a
foreign investment contract (the Foreign Investment Contract) with the
Central Bank and the Depositary, pursuant to Article 47 of the Central Bank Act
and Chapter XXVI of the Compendium of Foreign Exchange Regulations of the
Central Bank (Chapter XXVI), which governed the issuance of ADSs by a Chilean
company. Pursuant to the Foreign Investment Contract, the foreign exchange for
payments and distributions with respect to the ADSs may be purchased in either
the Formal Exchange Market or the Informal Exchange Market, but such payments
must be necessarily remitted through the Formal Exchange Market. A new
Compendium of Foreign Exchange Regulations in force since April 19, 2001
eliminated Chapter XXVI. This Compendium was restated and has been in force
since March 1, 2002. As a result of the elimination of Chapter XXVI, there is
no longer assured access to the Formal Exchange Market. However, because the
Foreign Investment Contract was entered into pursuant to Chapter XXVI, the
principles of Chapter XXVI still apply to its terms. Foreign investors who have
purchased their shares under a Foreign Investment Contract pursuant to Chapter
XXVI continue to have access to the Formal Exchange Market for the purpose of
converting Chilean pesos to US$ and repatriating from Chile amounts received
with respect to the deposited shares of common stock or shares of common stock
withdrawn from deposit on surrender of ADRs (including amounts received as cash
dividends and proceeds from the sale in Chile of the underlying shares of
common stock and any rights with respect thereto). The Foreign Investment
Contracts cannot be modified or terminated without consent of all parties, and
therefore foreign investors who have purchased their shares under a Foreign
Investment Contract will continue to have access to the Formal Exchange Market.
However, foreign investors who did not deposit the shares of common stock into
our ADS facility will not have the benefits of our foreign investment contract
with the Central Bank but instead will be subject to the normal foreign
investment rules. The following is a summary of certain provisions which were contained in
Chapter XXVI and the Foreign Investment Contract, and which therefore remain
relevant. This summary does not purport to be complete and is qualified in its
entirety by reference to Chapter XXVI and the Foreign Investment Contract. Under Chapter XXVI and the Foreign Investment Contract, the Central Bank
agreed to grant to the Depositary, on behalf of ADR holders, and to any
investor not residing or domiciled in Chile who withdraws common stock upon
delivery of ADRs (such shares of common stock being referred to herein as
Withdrawn Shares) access to the Formal Exchange Market to convert Chilean
pesos into US dollars (and to remit such dollars outside of Chile), including
amounts received as:  
    
    cash dividends; 120




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
    
    proceeds from the sale in Chile of Withdrawn Shares subject to
receipt by the Central Bank of a certificate from the holder of the
Withdrawn Shares (or from an institution authorized by the Central
Bank) that such holders residence and domicile are outside Chile and a
certificate from a Chilean stock exchange (or from a brokerage or
securities firm established in Chile) that such Withdrawn Shares were
sold on a Chilean stock exchange;
    
    proceeds from the sale in Chile of rights to subscribe for additional shares of Common Stock;
    
    proceeds from the liquidation, merger or consolidation of our company; and
    
    other distributions, including without limitation those resulting
from any recapitalization, as a result of holding shares of Common
Stock represented by ADSs or Withdrawn Shares. Transferees of Withdrawn Shares were not entitled to any of the foregoing
rights under Chapter XXVI. Investors receiving Withdrawn Shares in exchange for
ADRs had the right to redeposit such shares in exchange for ADRs, provided that
certain conditions relating to redeposit were satisfied. Chapter XXVI provided that access to the Formal Exchange Market in
connection with dividend payments was conditioned upon certification by us to
the Central Bank that a dividend payment has been made and any applicable tax
has been withheld. Chapter XXVI also provided that the access to the Formal
Exchange Market in connection with the sale of Withdrawn Shares or
distributions thereon was conditioned upon receipt by the Central Bank of
certification by the Depositary (or the Custodian on its behalf) that such
Shares have been withdrawn in exchange for ADRs and receipt of a waiver of the
benefit of the Foreign Investment Contract with respect thereto until such
Withdrawn Shares were redeposited. The Foreign Investment Contract provides that a person who brings foreign
currency into Chile to purchase shares of common stock with the benefit of the
Foreign Investment Contract must convert it into Chilean pesos on the same date
and has five banking business days within which to invest in shares of common
stock in order to receive the benefits of the Foreign Investment Contract. If
such person decides within such period not to acquire shares of common stock,
such person can access the Formal Exchange Market to reacquire US$, provided
that the applicable request is presented to the Central Bank within seven
banking business days of the initial conversion into pesos. Shares acquired as
described above may be deposited for ADRs and receive the benefits of the
Foreign Investment Contract, subject to receipt by the Central Bank of a
certificate from the Depositary (or the Custodian on its behalf) that such
deposit has been effected and that the related ADRs have been issued and
receipt of a declaration from the person making such deposit waiving the
benefits of the Foreign Investment Contract with respect to the deposited
shares of common stock. Access to the Formal Exchange Market under any of the circumstances
described above is not automatic. Pursuant to Chapter XXVI, such access
required approval of the Central Bank based on a request therefore presented
through a banking institution established in Chile. The Foreign Investment
Contract provides that if the Central Bank has not acted on such request within
seven banking days, the request will be deemed approved. In November 1995, the Central Bank amended Chapter XXVI to regulate
secondary offerings of ADSs by companies that have previously entered into a
Foreign Investment Contract. In accordance with the new regulations, we entered
into an amended Foreign Investment Contract in connection with its offering of
ADSs completed in February 1996 to comply with the rules in effect on the date
of Central Bank approval of the new issuance of ADSs. On November 16, 1999, the Central Bank issued new regulations which
amended Chapter XXVI. Among the amendments, Chapter XXVI required that foreign
currency that entered Chile pursuant to Chapter XXVI be converted into Chilean
pesos in the Formal Exchange Market, and the shares evidencing ADRs only be
paid in Chilean pesos. In addition, foreign currency required to remit the
proceeds of the sale of the underlying shares be acquired alternatively in the
Formal or in the Informal Exchange Market, although remittance of such amounts
necessarily was to be made through the Formal Exchange Market (i.e., through a
bank). On May 12, 2000, the rule that required that the invested capital remain
in the country for at least one year before being repatriated was eliminated. 121




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Under current Chilean law, the Foreign Investment Contract cannot be
changed unilaterally by the Central Bank. It is not certain, however, that
additional Chilean restrictions applicable to the holders of ADRs, the
disposition of underlying shares of Common Stock or the repatriation of the
proceeds from such disposition could not be imposed in the future, nor can
there be any assessment of the duration or impact of such restrictions if
imposed. The Compendium and International Bond Issuances Chilean issuers may offer bonds internationally under Chapter XIV, as
amended, of the Compendium of Foreign Exchange Regulations (the Compendium),
issued by the Central Bank. Prior to September 17, 1998, foreign loans (including international bond
offerings) granted to individuals or companies in Chile were subject to a
mandatory deposit (encaje) of an amount equal to 10% (reduced from a prior
level of 30%) of the proceeds of the loan (or bond offering) in a one-year,
noninterest-bearing U.S. dollar account with the Central Bank (or to payment of
a charge to the Central Bank on the next working day after the date of
conversion of foreign currency into Chilean pesos in an amount equal to
interest on such deposit at the rate of the twelve-month LIBOR for U.S. dollar
deposits plus a market spread that currently approximates 4%). On September
17, 1998, the encajedeposit requirement was reduced to 0%, and on April 19,
2001, the encajewas eliminated. Despite this elimination, the Central Bank
may at any time reinstate the encaje. C.  Material contracts. None. D.  Exchange controls. The Central Bank is responsible for, among other things, monetary policies
and exchange controls in Chile. On January 23, 2002, the Chilean Central Bank approved a new Compendium of
Foreign Exchange Regulations that replaced the existing one. The new rules are
in effect since March 1, 2002. With these new rules, the Central Bank ends a process of gradual
deregulation of the foreign exchange market. This new Compendium enhances the quality of the information gathered by
the Central Bank with respect to monetary policies and exchange controls. The
Compendium incorporates the main regulations that modified the Compendium of
Foreign Exchange Regulations in April 1991. In other words, new cross-border
investing and financing decisions will no longer be subject to any restrictions
set forth in both Articles 42 and 49 of the Central Bank law such as:  
    
    the prior Central Bank authorization requirement for the entry of
capital associated with foreign loans, investments, capital
contributions, bonds and ADRs;
    
    the prior Central Bank authorization for capital remittances
associated with returns of capital, dividends, and other benefits
related to capital contributions, investments and prepayment of foreign
loans;
    
    the prior Central Bank authorization for the return of capital,
profits and other benefits associated with investments made by Chilean
residents abroad;
    
    the limitations to the special prepayment and acceleration clauses contained in foreign loans;
    
    the restrictions of minimum risk classification and the weighted duration for the issuance of bonds;
    
    the limitations with respect to the currencies in which external debt can be issued or contracted;
    
    the restrictions to the issue of ADRs; and
    
    the reserve requirement on funds coming from abroad (which was already 0%). 122




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E.  Taxation. Chilean Tax Considerations The following discussion summarizes material Chilean income and
withholding tax consequences to beneficial owners arising from the receipt, the
exercise and/or the sale of ADS rights as well as from the purchase, ownership
and disposition of the shares and ADSs. The summary which follows does not
purport to be a comprehensive description of all of the tax considerations that
may be relevant to a decision to purchase, own or dispose of shares or ADSs and
does not purport to deal with the tax consequences applicable to all categories
of investors, some of which may be subject to special rules. Holders of shares
and ADSs are advised to consult their own tax advisors concerning the Chilean
and other tax consequences of the ownership of shares, of ADSs evidenced by
ADRs. The summary that follows is based on Chilean law, all as in effect on the
date hereof, and is subject to any changes in these or other laws occurring
after such date, possibly with retroactive effect. Under Chilean law,
provisions contained in statutes such as tax rates applicable to foreign
investors, only another law may amend the computation of taxable income for
Chilean purposes and the manner in which Chilean taxes are imposed and
collected. In addition, the Chilean tax authorities enact rulings and
regulations of either general or specific application and interpret the
provisions of Chilean tax law. Chilean tax may not be assessed retroactively
against taxpayers who act in good faith relying on such rulings, regulations
and interpretations, but Chilean tax authorities may change their rulings,
regulations and interpretations prospectively. The discussion that follows is
also based, in part, on representations of the depositary, and assumes that
each obligation in the deposit agreement and any related agreements will be
performed in accordance with its terms. There is no income tax treaty in force
between Chile and the United States. As used in this annual report, the term foreign holder means either  
    
    in the case of an individual, a person who is not a resident in
Chile; for purposes of Chilean taxation, an individual holder is
resident in 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
    
    in the case of a legal entity that is not organized under the laws
of Chile, unless the shares, ADSs or Notes are assigned to a branch,
agent, representative or permanent establishment of such entity in
Chile. Taxation of Shares and ADSs Taxation of Cash Dividends and Property Distributions Cash dividends paid with respect to the shares or ADSs held by a foreign
holder will be subject to a 35% Chilean withholding tax, which is withheld and
paid over by the company. A credit against the Chilean withholding tax is
available based on the level of corporate income tax actually paid by the
company on the income to be distributed; however, this credit does not reduce
the Chilean withholding tax on a one-for-one basis because it also increases
the base on which the Chilean withholding tax is imposed. In addition, if the
company distributes less than all of its distributable income, the credit for
the Chilean corporate income tax paid by the company is proportionately
reduced. On September 28, 2001, the income tax rate applicable to individuals
who are Chilean residents, and the Chilean corporate tax rate, were amended.
Until December 31, 2001, the corporate tax rate was 15%. As of January 1,
2002, the corporate tax rate was to 16%. As of January 1, 2003, the corporate
tax rate increased to 17%. At the same time, income tax rates applicable to
individuals who are Chilean residents were lowered and will continue to be
gradually decreased in the future. The example below illustrates the effective
Chilean withholding tax burden on a cash dividend received by a foreign holder,
assuming a Chilean withholding tax rate of 35%, an effective Chilean corporate
income tax rate of 17% and a distribution of 50% of the net income of the
company distributable after payment of the Chilean corporate income tax: Company taxable income
    
    
    100.0Chilean corporate income tax (17% of Ch$100)
    
    
    (17
    )Net distributable income
    
    
    83Dividend distributed (50% of net distributable income)
    
    
    41.5
 123




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Withholding tax (35% of the sum of Ch$41.5 dividend plus Ch$8.5)
    
    
    (17.5
    )Credit for 50% of Chilean corporate income tax
    
    
    8.5Net withholding tax
    
    
    (9
    )Net dividend received
    
    
    32.5Effective dividend withholding rate
    
    
    21.69
    %
 In general, the effective dividend Chilean withholding tax rate, after
giving effect to the credit for the Chilean corporate income tax paid by the
company, can be computed using the following formula: Effective Dividend
    
    =
    
    (Withholding tax rate)  (Chilean corporate income tax rate)Withholding Tax Rate
    
    
    
    1  (Chilean corporate income tax rate)
 Under Chilean income tax law, dividend distributions made in property are
subject to the same Chilean tax rules as cash dividends. Stock dividends are
not subject to Chilean taxation. Dividends generally are assumed to have been
paid out of the Companys oldest retained profits for purposes of determining
the level of Chilean corporate income tax that was paid by the Company. For
information as to the retained earnings of the Company for tax purposes and the
tax credit available on the distribution of such retained earnings, see note 8
to our consolidated financial statements. Taxation on Sale or Exchange of Shares or ADSs Gains obtained by a foreign holder from the sale or exchange of ADSs, or
ADRs evidencing ADSs outside Chile will not be subject to Chilean taxation. Taxation on shares acquired on or before April 19, 2001 Gain recognized on a sale or exchange of shares (as distinguished from
sales or exchanges of ADSs representing such shares) will be subject to both a
17% Chilean corporate income tax and the 35% Chilean withholding tax (the
former being creditable against the latter) if either the foreign holder:  
    
    has held the shares for less than one year since exchanging ADSs
for the shares; or
    
    acquired and disposed of the shares in the ordinary course of its
business or as an habitual trader of shares. In all other cases, gain on the disposition of shares will be subject to a
flat 17% Chilean corporate income tax but will not be subject to the 35%
Chilean withholding tax. Taxation on shares acquired after April 19, 2001 On November 7, 2001, the income tax law was amended in order to create a
tax exemption on capital gains arising from the sale of shares of listed
companies traded in the stock markets. Although there are certain restrictions
established in the amended income tax law, in general terms, the amendment
provides that in order to have access to the capital gain exemption: (i) the
shares must be of a public stock corporation with a certain minimum level of
trading in a stock exchange; (ii) the sale must be carried out in a Chilean
stock exchange, or in another stock exchange authorized by the SVS, or in a
tender offer subject to Chapter XXV of the Chilean Securities Market Law, (iii)
the shares which are being sold must have been acquired in a stock exchange, or
in a tender offer subject to Chapter XXV of the Chilean Securities Market Law,
or in an initial public offering (due to the creation of a company or to a
capital increase), or due to the exchange of convertible bonds, and (iv) the
shares must have been acquired after April 19, 2001. The tax basis of shares received in exchange for ADSs will be the
acquisition value of the shares. The valuation procedure set forth in the
deposit agreement, which values shares at the highest price at which they trade
on the Santiago Stock Exchange on the date of the exchange, will determine the
acquisition value for this purpose. Consequently, the conversion of ADSs into
shares and the immediate sale of the shares for the value established under the
deposit agreement will not generate a capital gain subject to taxation in
Chile. 124




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Taxation of Rights and ADS Rights For Chilean tax purposes, the receipt of rights or ADS rights by a foreign
holder of shares or ADSs pursuant to a rights offering is a non-taxable event.
In addition, there is no Chilean income tax consequences to foreign holders
upon the exercise or the lapse of the rights or the ADS rights. Any gain on
the sale, exchange or transfer of the rights by a foreign holder is subject to
a 35% Chilean withholding tax. Other Chilean Taxes There are no gift, inheritance or succession taxes applicable to the
ownership, transfer or disposition of ADSs by a foreign holder, but such taxes
will generally apply to the transfer at death or by gift of the shares by a
foreign holder. There are no Chilean stamp, issue, registration or similar
taxes or duties payable by holders of shares or ADSs. United States Tax Considerations The following discussion describes the material US federal income tax
consequences of acquiring, owning and disposing of our ADSs or shares to a
beneficial owner that is, for US federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a corporation; or other entity taxable as a
corporation; created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source. The discussion is based on the tax laws of the United States,
including the Internal Revenue Code of 1986, as amended (the Code), final,
temporary and proposed regulations, published rulings and court decisions, all
as currently in effect or proposed, any of which is subject to change at any
time, possibly with retroactive effect. This discussion deals only with our ADSs or shares held by you as capital
assets as defined in Section 1221 of the Code and does not address the tax
treatment to you, if you are a member of a class of holders subject to special
treatment under US federal income tax laws such as:  
    
    certain financial institutions;
    
    a dealer in securities or foreign currencies;
    
    a trader in securities that elects to use a mark-to-market method
of accounting for your securities holdings;
    
    an insurance company;
    
    a tax-exempt entity;
    
    a person subject to the alternative minimum tax;
    
    a person who will hold our ADSs or shares as part of a straddle,
hedging transaction or conversion transaction;
    
    partnerships or other entities classified as partnerships for US
federal income tax purposes;
    
    a person that has a principal place of business or tax home
outside the United States, or a person whose functional currency is not
the U.S. dollar;
    
    a person who acquired our ADSs pursuant to the exercise of an
employee stock option or otherwise as compensation; and
    
    a person owning directly, indirectly or by attribution 10% or more
of our capital stock. Moreover, the effect of any applicable U.S. state or local tax laws as
well as of any foreign taxing jurisdiction is not discussed herein. 125




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In general, if you hold ADSs, you will be treated as the holder of the
underlying shares represented by those ADSs for US federal income tax purposes.
Accordingly, no gain or loss will be recognized if you exchange ADSs for the
underlying shares represented by those ADSs. Unless otherwise stated, this discussion assumes that we are not, and will
not become, a passive foreign investment company (a PFIC) for US federal
income tax purposes, as described more fully below. This discussion also
assumes that each obligation in the Deposit Agreement and any related agreement
will be performed in accordance with its terms and that the representations
made by the Depositary regarding the pre-release of our ADRs are true. The US
Treasury has expressed concern that parties to whom ADSs are pre-released may
be taking actions that are inconsistent with the claiming of foreign tax
credits. Such actions would also be inconsistent with claiming the 15% rate
applicable to certain dividends received by non-corporate holders.
Accordingly, the creditability of Chilean taxes and the availability of the 15%
rate for dividends received by certain non-corporate holders described below
could be affected by actions taken by parties to whom ADSs are pre-released. Taxation of dividends To the extent paid out of our current or accumulated earnings and profits
(as determined in accordance with US federal income tax principles),
distributions made in respect of our ADSs or shares (including amounts withheld
by us in respect of Chilean taxes) will be treated as foreign-source dividend
income to you and will not be eligible for the dividends-received deduction
generally allowed to corporations under the Code. Under recently enacted
legislation, dividends received by noncorporate US holders on ADSs may be
subject to US federal income tax at lower rates (generally 15%) than other
types of ordinary income if certain conditions are met. US holders should
consult their own tax advisors regarding the implications of this new
legislation in their particular circumstances. Distributions in excess of
current or accumulated earnings and profits will be treated first as a tax-free
return of capital to the extent of your basis in the ADSs or shares and as
capital gain thereafter, which will be long-term capital gain if you held our
ADSs or shares for more than one year. The amount of any distribution of
property other than cash will be the fair market value of the property on the
date of distribution. To the extent such distributions are taxable (as discussed above), you
will be required to include such distributions paid in Chilean pesos in a U.S.
dollar amount calculated by reference to the exchange rate in effect on the
date you actually or constructively received such dividends, regardless of
whether the pesos are in fact converted into U.S. dollar at that time. If you
hold shares, dividends and gains, if any, are treated as received on the date
you receive your distribution. If you hold ADSs, that date would be the date
on which the Depositary receives the distribution. If items received in pesos
are not converted into U.S. dollar on the day they are received, you may be
required to recognize foreign currency gain or loss (which will be US-source
ordinary income or loss, as the case may be) upon a subsequent sale or other
disposition of the pesos. Effect of Chilean withholding taxes Payments of dividends on our ADSs or shares to foreign investors are
subject to Chilean withholding taxes. For US federal income tax purposes, you
will be treated as having received the gross amount of any dividend paid,
including the net amount of Chilean taxes withheld by us and then as having
paid over the withheld taxes to the Chilean tax authorities. As a result, the
amount of dividend income includible in gross income for US federal income tax
purposes by you in connection with a payment of dividends will be greater than
the amount of cash actually received by you. However, subject to generally applicable limitations and restrictions, you
will be entitled to a credit against your US federal income tax liability, or a
deduction in computing your US federal taxable income, for the net amount of
Chilean income taxes withheld by us. You must satisfy minimum holding-period
requirements to be eligible to claim a foreign tax credit for foreign taxes
withheld on dividends. A foreign tax credit will be denied for foreign taxes
withheld on dividends in circumstances where you are under an obligation to
make related payments in connection with positions in substantially similar or
related property. The limitation on foreign taxes eligible for credit is
calculated separately for specific classes of income. For this purpose,
depending on your particular circumstances, dividends paid by us on our ADSs or
shares will generally constitute passive income or financial services
income. You are urged to consult your tax advisor to determine the extent to
which you are entitled to foreign tax credits with respect to dividends paid on
our ADSs or shares. 126




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Sale or other disposition Upon a sale or other disposition of our ADSs or shares, you generally will
recognize a capital gain or loss for US federal income tax purposes equal to
the difference between the amount realized on the disposition and your adjusted
tax basis in the ADSs or shares. This gain or loss will be long-term capital
gain or loss if you held our ADSs or shares for more than one year on the date
of disposition. Capital losses are subject to limitations. Any gain or loss
will generally be US-source gain or loss for foreign tax credit purposes.
Certain gains recognized upon a sale or exchange of our shares or ADSs (except
for ADSs that are disposed of outside Chile) are subject to Chilean income
taxes. Due to generally applicable limitations and restrictions, those taxes
may not be creditable against your US federal income tax liability. You are
urged to consult your tax adviser to determine the extent to which you may be
entitled to foreign tax credits with respect to gains recognized upon sale or
exchange of our shares or ADSs. Passive Foreign Investment Company rules We believe that we will not be considered a PFIC for United States federal
income tax purposes for the 2003 taxable year. We believe that we have never
been a PFIC and that it is unlikely that we will become a PFIC in the
foreseeable future. However, because PFIC status depends upon the composition
of a companys income and assets and the market value of its assets (including,
among others, less-than-25-percent-owned equity investments) from time to time,
and because it is unclear whether certain types of our income constitute
passive income for PFIC purposes, there can be no assurance that we will not be
considered a PFIC for any taxable year. If we were treated as a PFIC for any
taxable year during which you held an ADS or a share, certain adverse
consequences could apply to you. If we were treated as a PFIC for any taxable year during your holding
period, gain recognized by you on a sale or other disposition of our ADSs or
shares would be allocated ratably over your holding period for such ADSs or
shares. The amounts allocated to the taxable year of the sale or other
exchange and to any year before we became a PFIC would be taxed as ordinary
income. The amount allocated to each other taxable year would be subject to
tax at the highest rate in effect for individuals or corporations, as
appropriate, and an interest charge would be imposed on the amount allocated to
such taxable year. Further, any distribution in respect of our ADSs or shares
in excess of 125 percent of the average of the annual distributions on our ADSs
or shares received by you during the preceding three years or your holding
period, whichever is shorter, would be subject to taxation as described above.
Certain elections (including a mark-to-market election) may be available to
United States persons that may ameliorate the adverse consequences of PFIC
status. Backup withholding and other reporting requirements Payments of dividends and other proceeds in connection with our ADSs or
shares by a US paying agent or other US intermediary will be reported to the
IRS and to you as may be required under applicable regulations. You will be
subject to United States backup withholding on these payments if you fail to
provide your taxpayer identification number to the paying agent and comply with
certain certification procedures or otherwise establish an exemption from
backup withholding. The amount of any backup withholding from a payment to you
will be allowed as a credit against your United States federal income tax
liability and may entitle you to a refund, provided that the required
information is furnished to the Internal Revenue Service.  F.
    
    Dividends and paying agents.Not applicable.G.
    
    Statement by experts.Not applicable.H.
    
    Documents on display. We are subject to the information requirements of the Exchange Act, except
that as a foreign issuer, we are not subject to the proxy rules or the
short-swing profit disclosure rules of the Exchange Act. In accordance with
these statutory requirements, we file or furnish reports and other information
with the SEC. Reports and other information 127




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filed or furnished by us with the SEC may be inspected and copied at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SECs regional offices at 233
Broadway, New York, New York 10279 and 475 West Jackson Boulevard, Suite 900,
Chicago, Illinois 60604. Copies of such material may also be inspected at the
offices of the New York Stock Exchange, 11 Wall Street, New York, New York
10005, on which our ADSs are listed. In addition, the SEC maintains a Web site
that contains information filed electronically with the SEC, which can be
accessed over the internet at http://www.sec.gov.  I.
    
    Subsidiary Information.Not applicable. 
 Item 11. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to risks from changes in interest rates and foreign
exchange rates. These risks are constantly monitored and managed by the
company in coordination with Enersis, our parent company. The Companys board
of directors approves risk management policies at all levels. The Company does not enter into financial instruments for trading or
speculative purposes. As a result, the Companys market risk is limited to
non-trading risks. Commodity Price Risk In our electricity generation business we are exposed to market risks
arising from the volatility of electricity, natural gas, and coal prices. In
order to manage these exposures, we enter into long-term contracts with
suppliers and customers. In Brazil and Argentina we also enter into contracts
to secure long-term supplies of electricity for our interconnection business
between Argentina and Brazil. All contracts that constitute commodity-price
sensitive instruments held as of December 31, 2003 and 2002 related to
electricity and were taken for purposes other than speculative trading. We are exposed to the volatility of natural gas prices in the Chilean and
Argentine markets. We manage our exposure to this commodity by securing
long-term contracts with our suppliers for terms that are expected to match the
lifetime of our generation assets. These contracts generally provide for us to
purchase gas at market prices prevailing at the time the purchase occurs. As
of December 31, 2003 and 2002 we did not hold any contracts classified as
either derivative financial instruments, financial instruments or derivative
commodity instruments related to natural gas. We are exposed to the volatility of coal prices in the Chilean and
Colombian market. We manage our exposure to this commodity by entering into
short-term contracts with our suppliers. We believe that our exposure to this
commodity is immaterial. As of December 31, 2003 and 2002 we did not hold any
contracts classified as either derivative financial instruments, financial
instruments or derivative commodity instruments related to coal. The following tables set forth certain information with respect to
electricity price-sensitive instruments issued or held by the Company as of
December 31, 2003 and 2002 differentiated by power market and company. These
electricity price sensitive-instruments are power forward contracts with
multiple delivery dates and require physical delivery. Net settlement is not
allowed for any of the contracts. Most contracts have optionality features in
quantities and prices with indexation clauses to factors such as inflation
indices, foreign currencies and natural gas prices in Argentina. In the
construction of these tables management makes assumptions using available
market data and pricing models. Inputs to pricing models include estimated
forward prices of electricity and natural gas, interest rates, foreign exchange
rates, inflation indices, transmission costs and others. These inputs become
more difficult to predict and the estimates less precise as the term of the
contract increases. As a result, fair values are highly dependent upon the
assumptions being used. Intercompany amounts have not been eliminated in the
following tables. 128




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##### Table of Contents



As of December 31, 20032004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    Fair valuein MMUS$Chile Endesa-Chile:Purchase of electricity in GWh
    
    
    720
    
    
    
    720
    
    
    
    720
    
    
    
    720
    
    
    
    
    
    
    
    
    
    
    
    2,880
    
    
    
    (10.03
    )Weighted average price in US$/MWh
    
    
    24
    
    
    
    23.2
    
    
    
    23.3
    
    
    
    23.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Colombia Emgesa and Betania:Sale of electricity in GWh
    
    
    4,850
    
    
    
    232
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,082
    
    
    
    12.65Weighted average price in US$/MWh
    
    
    27.8
    
    
    
    24.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of electricity in GWh
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    0.08Weighted average price in US$/MWh
    
    
    24.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brazil CIEN:(1)Sale of electricity in GWh
    
    
    7,584
    
    
    
    7,744
    
    
    
    8,182
    
    
    
    9,934
    
    
    
    10,400
    
    
    
    101,468
    
    
    
    145,312
    
    
    
    440.22Weighted average price in US$/MWh
    
    
    29.9
    
    
    
    28.1
    
    
    
    27.5
    
    
    
    25.7
    
    
    
    25.2
    
    
    
    25.4
    
    
    
    
    
    
    
    Purchase of electricity in GWh
    
    
    2,326
    
    
    
    3,086
    
    
    
    3,857
    
    
    
    6,943
    
    
    
    7,735
    
    
    
    74,567
    
    
    
    98,514
    
    
    (
    305.26
    )Weighted average price in US$
    
    
    16.9
    
    
    
    15.4
    
    
    
    15.7
    
    
    
    16.3
    
    
    
    16.9
    
    
    
    17.0
    
    
    
    
    
    
    
    Argentina CEMSA:(1)Sale of electricity in GWh
    
    
    1,388
    
    
    
    2,210
    
    
    
    2,762
    
    
    
    4,972
    
    
    
    5,539
    
    
    
    52,055
    
    
    
    68,926
    
    
    
    298.51Weighted average price in US$/MWh
    
    
    15.1
    
    
    
    15.5
    
    
    
    15.9
    
    
    
    16.7
    
    
    
    17.5
    
    
    
    17.8
    
    
    
    
    
    
    
    Purchase of electricity in GWh
    
    
    1,426
    
    
    
    2,270
    
    
    
    2,837
    
    
    
    5,107
    
    
    
    5,690
    
    
    
    53,308
    
    
    
    70,638
    
    
    (
    182.51
    )Weighted average price in US$
    
    
    14.3
    
    
    
    14.7
    
    
    
    15.2
    
    
    
    16.1
    
    
    
    16.6
    
    
    
    18.1
    
    
    
    
    
    
    
    Argentina
COSTANERA - CBA:(1)Sale of electricity in GWh
    
    
    1,059
    
    
    
    1,685
    
    
    
    2,107
    
    
    
    3,792
    
    
    
    4,225
    
    
    
    44,666
    
    
    
    57,534
    
    
    
    (18.51
    )Weighted average price in US$/MWh
    
    
    15.0
    
    
    
    15.0
    
    
    
    15.1
    
    
    
    15.3
    
    
    
    15.4
    
    
    
    15.5
    
    
    
    
    
    
    
    
    (1)
    
    During 2003 some of the Companys long-term contracts related to the
electricity interconnection business between Argentina and Brazil were
amended. Such amendments were primarily made to reduce the quantity of
electricity that was sold in the Brazilian market and purchased on
Argentine market. As of December 31, 20022003
    
    2004
    
    2005
    
    2006
    
    2007
    
    Thereafter
    
    Total
    
    Fair valuein MMUS$Chile Endesa-Chile:Purchase of electricity in GWh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average price in US$/MWh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Colombia Emgesa and Betania:Sale of electricity in GWh
    
    
    4,072
    
    
    
    4,784
    
    
    
    179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,035
    
    
    
    25.72Weighted average price in US$/MWh
    
    
    25.6
    
    
    
    24.3
    
    
    
    21.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of electricity in GWh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average price in US$/MWh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brazil CIEN:Sale of electricity in GWh
    
    
    10,717
    
    
    
    12,003
    
    
    
    12,046
    
    
    
    12,439
    
    
    
    12,702
    
    
    
    171,239
    
    
    
    231,146
    
    
    
    913.54Weighted average price in US$/MWh
    
    
    26.7
    
    
    
    24.9
    
    
    
    24.8
    
    
    
    24.7
    
    
    
    24.7
    
    
    
    27.2
    
    
    
    
    
    
    
    Purchase of electricity in GWh
    
    
    2,903
    
    
    
    6,057
    
    
    
    6,787
    
    
    
    7,600
    
    
    
    8,143
    
    
    
    101,174
    
    
    
    132,664
    
    
    
    (982.6
    )Weighted average price in US$
    
    
    17.2
    
    
    
    16.6
    
    
    
    16.7
    
    
    
    16.9
    
    
    
    17.1
    
    
    
    18.5
    
    
    
    
    
    
    
    Argentina CEMSA:Sale of electricity in GWh
    
    
    1,609
    
    
    
    4,298
    
    
    
    5,144
    
    
    
    5,761
    
    
    
    6,172
    
    
    
    76,685
    
    
    
    99,669
    
    
    
    908.76Weighted average price in US$/MWh
    
    
    16.7
    
    
    
    16.9
    
    
    
    17.2
    
    
    
    17.4
    
    
    
    17.7
    
    
    
    19.6
    
    
    
    
    
    
    
    Purchase of electricity in GWh
    
    
    1,645
    
    
    
    4,392
    
    
    
    5,257
    
    
    
    5,887
    
    
    
    6,307
    
    
    
    78,116
    
    
    
    101,604
    
    
    
    (802.22
    )Weighted average price in US$
    
    
    16.1
    
    
    
    16.3
    
    
    
    16.5
    
    
    
    16.8
    
    
    
    17.0
    
    
    
    18.8
    
    
    
    
    
    
    
    Argentina
COSTANERA - CBA:Sale of electricity in GWh
    
    
    1,125
    
    
    
    3,003
    
    
    
    3,594
    
    
    
    4,025
    
    
    
    4,313
    
    
    
    53,334
    
    
    
    69,394
    
    
    
    264.06Weighted average price in US$/MWh
    
    
    16.1
    
    
    
    16.2
    
    
    
    16.3
    
    
    
    16.5
    
    
    
    16.6
    
    
    
    17.7
    
    
    
    
    
    
    
    
 129




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##### Table of Contents



Interest Rate Risk At December 31, 2002 and 2003, 39.8% and 22.6%, respectively, of the
Companys outstanding debt obligations were subject to floating interest rates
(primarily based on LIBOR rate). The Company manages its risk exposure to
interest rates by maintaining debt with both variable and fixed rates. As of December 31, 2003 the recorded values for financial accounting
purposes and the corresponding fair values of the significant financial
instruments which expose the Company to interest rate risk are as follows: As of December 31, 20032004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    Fair value(in millions of constant Ch$)Debt:Fixed rate:Ch$- and UF-denominated
    
    
    10,093
    
    
    
    4,213
    
    
    
    74,748
    
    
    
    3,593
    
    
    
    3,519
    
    
    
    166,884
    
    
    
    263,050
    
    
    
    245,656Weighted average interest rate
    
    
    5.5
    %
    
    
    5.4
    %
    
    
    5.7
    %
    
    
    5.7
    %
    
    
    5.7
    %
    
    
    5.5
    %
    
    
    5.6
    %US$ denominated
    
    
    89,464
    
    
    
    78,838
    
    
    
    141,759
    
    
    
    84,102
    
    
    
    261,070
    
    
    
    910,231
    
    
    
    1,565,464
    
    
    
    1,676,327Weighted average interest rate
    
    
    7.9
    %
    
    
    7.9
    %
    
    
    8.0
    %
    
    
    8.0
    %
    
    
    8.2
    %
    
    
    8.0
    %
    
    
    8.0
    %Other currencies
    
    
    9,289
    
    
    
    18,941
    
    
    
    56,358
    
    
    
    1,798
    
    
    
    1,798
    
    
    
    9,316
    
    
    
    97,500
    
    
    
    100,971Weighted average interest rate
    
    
    8.7
    %
    
    
    9.6
    %
    
    
    8.3
    %
    
    
    9.4
    %
    
    
    10.9
    %
    
    
    14.6
    %
    
    
    9.3
    %Variable rateCh$- and UF-denominatedWeighted average interest rateUS$ denominated
    
    
    97,437
    
    
    
    20,926
    
    
    
    35,273
    
    
    
    103,987
    
    
    
    82,385
    
    
    
    9,854
    
    
    
    349,862
    
    
    
    351,495Weighted average interest rate
    
    
    4.5
    %
    
    
    6.0
    %
    
    
    7.2
    %
    
    
    7.7
    %
    
    
    6.8
    %
    
    
    8.1
    %
    
    
    6.2
    %Other currencies
    
    
    95,201
    
    
    
    15,618
    
    
    
    21,827
    
    
    
    15,074
    
    
    
    1,157
    
    
    
    61,946
    
    
    
    210,823
    
    
    
    211,474Weighted average interest rate
    
    
    13.2
    %
    
    
    13.4
    %
    
    
    13.4
    %
    
    
    13.1
    %
    
    
    13.0
    %
    
    
    16.0
    %
    
    
    13.3
    %Total
    
    
    301,484
    
    
    
    138,536
    
    
    
    329,965
    
    
    
    208,554
    
    
    
    349,929
    
    
    
    1,158,231
    
    
    
    2,486,699
    
    
    
    2,585,923
 By comparison, as of December 31, 2002 the recorded values for financial
accounting purposes and the corresponding fair values of the significant
financial instruments which expose the Company to interest rate risk were as
follows: 
 As of December 31, 20022003
    
    2004
    
    2005
    
    2006
    
    2007
    
    Thereafter
    
    Total
    
    Fair value(in millions of constant Ch$)Debt:Fixed rate:Ch$- and UF-denominated
    
    
    13,983
    
    
    
    3,820
    
    
    
    4,980
    
    
    
    117,273
    
    
    
    6,015
    
    
    
    115,932
    
    
    
    262,003
    
    
    
    267,202Weighted average interest rate
    
    
    6.2
    %
    
    
    6.2
    %
    
    
    6.1
    %
    
    
    6.1
    %
    
    
    6.0
    %
    
    
    6.0
    %
    
    
    6.0
    %US$ denominated
    
    
    241,296
    
    
    
    44,351
    
    
    
    91,603
    
    
    
    166,621
    
    
    
    96,471
    
    
    
    1,013,535
    
    
    
    1,653,877
    
    
    
    1,662,091Weighted average interest rate
    
    
    7.6
    %
    
    
    7.7
    %
    
    
    7.7
    %
    
    
    7.7
    %
    
    
    7.8
    %
    
    
    7.8
    %
    
    
    7.8
    %Other currencies
    
    
    17,174
    
    
    
    6,191
    
    
    
    
    
    
    
    21,535
    
    
    
    
    
    
    
    5,332
    
    
    
    50,232
    
    
    
    51,838Weighted average interest rate
    
    
    7.7
    %
    
    
    7.5
    %
    
    
    
    
    
    
    7.8
    %
    
    
    
    
    
    
    10.3
    %
    
    
    8.0
    %Variable rate:Ch$- and UF-denominated
    
    
    24,762
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,762
    
    
    
    24,762Weighted average interest rate
    
    
    6.2
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.2
    %US$ denominated
    
    
    249,592
    
    
    
    408,405
    
    
    
    28,962
    
    
    
    10,593
    
    
    
    10,593
    
    
    
    21,064
    
    
    
    729,209
    
    
    
    716,100Weighted average interest rate
    
    
    2.8
    %
    
    
    3.6
    %
    
    
    5.1
    %
    
    
    5.7
    %
    
    
    6.1
    %
    
    
    6.5
    %
    
    
    3.5
    %Euro denominated
    
    
    282,081
    
    
    
    580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    282,661
    
    
    
    292,335Weighted average interest rate
    
    
    3.8
    %
    
    
    3.8
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3.8
    %Other currencies
    
    
    132,344
    
    
    
    6,019
    
    
    
    13,502
    
    
    
    21,644
    
    
    
    13,468
    
    
    
    73,908
    
    
    
    260,885
    
    
    
    234,596Weighted average interest rate
    
    
    27.4
    %
    
    
    13.6
    %
    
    
    12.6
    %
    
    
    12.5
    %
    
    
    12.4
    %
    
    
    12.3
    %
    
    
    20.0
    %Total
    
    
    961,232
    
    
    
    469,366
    
    
    
    139,047
    
    
    
    337,666
    
    
    
    126,547
    
    
    
    1,229,771
    
    
    
    3,263,629
    
    
    
    3,248,924
 
 Foreign Currency Risk The Company is exposed to foreign currency risk arising from long-term
debt denominated in U.S. dollars. This risk is mitigated, as a substantial
amount of the Companys revenues are linked to the U.S. dollar either directly
or indirectly. As of December 31, 2003, Endesa-Chile had total consolidated
indebtedness of US$4.187 billion, of 130




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##### Table of Contents



which US$3.225 billion, or 77%, was denominated in U.S. dollars. For the
twelve-month period ended December 31, 2003, our revenues amounted to US$1.550
billion of which US$422 million, or 27%, were denominated in U.S. dollars, and
US$598 million, or 39% were linked in some way to the U.S. dollar. As an
aggregate, 66% of our consolidated revenues were either in U.S. dollars or
correlated to such currency through some form of indexation. On the other
hand, the equivalent of US$77 million were revenues in pesos, which represents
5% of our 2003 consolidated revenues. Although the actual foreign currency exchange risk to which we are exposed
depends upon the fluctuation of foreign exchange rates in which monetary assets
and liabilities are maintained as compared to the Chilean peso, for accounting
purposes our results from operations are affected by variations in the exchange
rate between the U.S. dollars and the Chilean peso due to the applications of
Technical Bulletin No. 64. Under Chilean accounting standards, the effect of
re-measuring many of the Chilean peso to U.S. dollar exchange rate fluctuations
is recorded in equity net of any price level restatement due to the effects of
Chilean inflation on such foreign investment amounts. Foreign currency gains and losses are included in the results of
operations for the period together with price-level restatement. As of December 31, 2003 the recorded values for financial accounting
purposes and the corresponding fair values of the significant financial
instruments, which expose the Company to foreign currency risk, are as follows: As of December 31, 20032004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    Fair value(in millions of constant Ch$)(2)Debt:Fixed rate:US$ denominated
    
    
    89,464
    
    
    
    78,838
    
    
    
    141,759
    
    
    
    84,102
    
    
    
    261,070
    
    
    
    910,231
    
    
    
    1,565,464
    
    
    
    1,676,327Other currencies
    
    
    9,289
    
    
    
    18,941
    
    
    
    56,358
    
    
    
    1,798
    
    
    
    1,798
    
    
    
    9,316
    
    
    
    97,500
    
    
    
    100,971Variable rateUS$ denominated
    
    
    97,437
    
    
    
    20,926
    
    
    
    35,273
    
    
    
    103,987
    
    
    
    82,385
    
    
    
    9,854
    
    
    
    349,862
    
    
    
    351,495Other currencies
    
    
    95,201
    
    
    
    15,618
    
    
    
    21,827
    
    
    
    15,074
    
    
    
    1,157
    
    
    
    61,946
    
    
    
    210,823
    
    
    
    211,474Monetary assetsUS$ denominated
    
    
    141,239
    
    
    
    132,621
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    273,860
    
    
    
    273,860Other currencies
    
    
    130,182
    
    
    
    8,355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    138,537
    
    
    
    138,537Monetary assetsForward contracts
(receive US$/pay
Ch$-UF)
    
    
    48,098
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,098
    
    
    
    (1,601
    )Other foreign
currency
derivatives
    
    
    
    
    
    
    
    
    
    
    85,804
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,804
    
    
    
    9,149
   (2)
    
    Calculated based on the Observed Exchange Rate as of December 31, 2003,
which was Ch$593.80 = US$1.00. As of December 31, 2002 the recorded values for financial accounting
purposes and the corresponding fair values of the significant financial
instruments, which expose the Company to foreign currency risk, are as follows: As of December 31, 20022003
    
    2004
    
    2005
    
    2006
    
    2007
    
    Thereafter
    
    Total
    
    Fair value(in millions of constant Ch$)Debt:Fixed rate:US$ denominated
    
    
    241,296
    
    
    
    44,351
    
    
    
    91,603
    
    
    
    166,621
    
    
    
    96,471
    
    
    
    1,013,535
    
    
    
    1,653,877
    
    
    
    1,662,091Other currencies
    
    
    17,174
    
    
    
    6,191
    
    
    
    
    
    
    
    21,535
    
    
    
    
    
    
    
    5,332
    
    
    
    50,232
    
    
    
    51,838Variable rateUS$ denominated
    
    
    249,592
    
    
    
    408,405
    
    
    
    28,962
    
    
    
    10,593
    
    
    
    10,593
    
    
    
    21,064
    
    
    
    729,209
    
    
    
    716,100Euro denominated
    
    
    282,081
    
    
    
    580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    282,661
    
    
    
    292,335Other currencies
    
    
    132,344
    
    
    
    6,019
    
    
    
    13,502
    
    
    
    21,644
    
    
    
    13,468
    
    
    
    73,908
    
    
    
    260,885
    
    
    
    234,596Monetary assetsUS$ denominated
    
    
    262,798
    
    
    
    6,145
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    268,943
    
    
    
    268,943Other currencies
    
    
    106,124
    
    
    
    11,650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,774
    
    
    
    117,774Monetary assets
 131




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##### Table of Contents



As of December 31, 20022003
    
    2004
    
    2005
    
    2006
    
    2007
    
    Thereafter
    
    Total
    
    Fair value(in millions of constant Ch$)Forward contracts
(receive US$/pay
Ch$-UF)
    
    
    (373
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (373
    )
    
    
    (1,270
    )Other foreign
currency
derivatives
    
    
    29,365
    
    
    
    (265
    )
    
    
    (148
    )
    
    
    (4,783
    )
    
    
    
    
    
    
    
    
    
    
    24,169
    
    
    
    9,326
   (3)
    
    Calculated based on the Observed Exchange Rate as of December 31, 2003,
which was Ch$593.80 = US$1.00. 
 Item 12. Description of Securities Other than Equity Securities  A.
    
    Debt Securities.Not applicable.B.
    
    Warrants and Rights.Not applicable.C.
    
    Other Securities.Not applicable.D.
    
    American Depositary Shares.Not applicable. 
 PART II 
 Item 13. Defaults, Dividend Arrearages and Delinquencies  None. 
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds  None.A.
    
    Use of proceeds.  Not applicable. 
 Item 15. Controls and Procedures Endesa-Chiles management, under the supervision the Chief Executive
Officer and the Chief Financial Officer, performed an evaluation of the
effectiveness of its disclosure controls and procedures as of December 31,
2003. Based on this evaluation, Endesa-Chiles Chief Executive Officer and
Chief Financial Officer concluded that Endesa-Chiles disclosure controls and
procedures are effective at the reasonable assurance level for gathering,
analyzing and disclosing the information Endesa-Chile is required to disclose
in the reports it files under the Securities Exchange Act of 1934, within the
time periods specified in the SECs rules and forms. Endesa-Chiles management
applied its judgment in assessing the costs and benefits of such controls and
procedures, which by their nature can provide only reasonable assurance
regarding managements control objectives. There have been no significant changes in Endesa-Chiles internal control
over financial reporting that occurred during the period covered by this annual
report that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting. 132




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##### Table of Contents



Item 16. [Reserved] 
 Item 16A. Audit Committee Financial Expert Although we have
not determined whether any particular member of our
Board of Directors is a financial expert in
accordance with SEC rules and regulations, and therefore, have not named any
particular member of such board as our Audit Committee Financial Expert,
we believe that several members of the Board have an understanding of
Chilean GAAP, the ability to assess the general application of Chilean GAAP in
connection with the accounting for estimates, accruals and reserves, experience
analyzing and evaluating financial statements that present a breadth and level
of complexity of accounting issues that are generally comparable to the breadth
and complexity of issues that can reasonably be expected to be raised by our
consolidated financial statements, an understanding of internal controls over
financial reporting, and an understanding of audit committee
functions. These
members of our Board of Directors also have experience assessing the
performance of Endesa-Chile and its consolidated subsidiaries and
overseeing our external
auditors with respect to the preparation, auditing and evaluation of our
consolidated financial statements. 
 Item 16B. Code of Ethics The standards of ethical conduct in Endesa-Chile are governed by means of
two corporate rulings or policies: the Charter Governing Executives and the
Internal Regulations on Conduct in Securities Markets. The Charter Governing Executives, was adopted by the Board of Directors in
June 2003 and is applicable to all managers contractually related to
Endesa-Chile or its controlled subsidiaries in which it is the majority
shareholder, both in Chile and internationally, including the Chief Executive
Officer, the Chief Financial Officer and other senior financial officers of the
Company. The object of this set of rules, currently being introduced into the
contracts of those subject to its compliance, is to establish the behavior of
management with respect to the principles governing their actions, and the
limitations and incompatibilities involved, all within Endesa-Chiles vision,
mission and values. The Internal Regulations on Conduct in Securities Markets, adopted by
Endesa-Chiles Board of Directors in June, 2002 set the behavior criteria to be
followed in market operations in order to contribute to their transparency and
the protection of investors, and is applicable to the members of the Board of
Directors, the senior executives, and the executives and employees of
Endesa-Chile determined by the Chief Executive Officer, and known to the
Chairman, who work in areas related to the securities market or have access to
privileged information. The Internal Regulations on Conduct in Securities Market is accessible via
Endesa-Chiles corporate website at www.endesa.cl and the Charter Governing
Executives will be posted on the Companys website, after its inclusion into
the managements contracts. This inclusion is currently underway as the
individual managers contracts are renewed (the information found at this
website is not incorporated by reference into this report.) A copy of them is
also available at request, free of charge, by writing or telephoning us at: Empresa Nacional de Electricidad S.A.      
 Item 16C. Principal Accountant Fees and Services The following table provides information on the aggregate fees billed by
the principal accountants of our companies in Chile and Peru, Ernst & Young ,
and of our companies in Brazil, Argentina, and Colombia, Deloitte & Touche of
each country, and by type of service rendered for the periods indicated. 133




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Services Rendered
    
    2002
    
    2003
    
    Total(millions of US$)Audit Fees (1)
    
    
    0.75
    
    
    
    0.97
    
    
    
    1.72Audit-Related Fees (2)
    
    
    0.02
    
    
    
    0.204
    
    
    
    0.23Tax Fees (3)
    
    
    
    
    
    
    
    
    
    
    All Other Fees (4)
    
    
    
    
    
    
    0.09
    
    
    
    0.09Total
    
    
    0.78
    
    
    
    1.26
    
    
    
    2.04
 (1) Provides aggregate fees billed for each of the last two fiscal years
for professional services rendered by Ernst & Young and Deloitte & Touche, for
the audit of Endesa-Chile and its Subsidiaries separate annual financial
statement filings required by each countrys regulatory authorities and annual
financial statement filings required by the United States Securities Exchange
Commission. (2) Provides aggregate fees billed in each of the last two fiscal years
for assurance and related services by Ernst & Young and Deloitte & Touche, for
the performance of the audit or review of Endesa-Chiless financial statements
and are not reported under (1) above; and that are related to the issuance of
Company bonds, significant asset sale and other financial structure related
activities occurring during 2002 and 2003. (3) Provides aggregate fees billed in each of the last two fiscal years
for professional services rendered by external auditors for tax compliance, tax
advice, and tax planning. (4) Provides aggregate fees billed in each of the last two fiscal years
for products and services provided, other than the services reported in (1),
(2) and (3) above; and specifically refer to the expenses related to compliance
with the Sarbanes Oxley Act of 2002 and were approved by the Companys Board of
Directors. Each year the Directors Committee submits to the Board of Directors a
proposal with the name or names of potential external auditors for the Company.
This proposal relates only to the selection of the external auditors who will
perform the audit of Endesa-Chile financial statements in that year. The
Directors Committee proposal may be adopted or not adopted by the Board of
Directors. If such proposal is not adopted by the Board of Directors, the
Board of Directors will propose one or more other audit firms to perform the
audit of Endesa-Chiles financial statements in that year. In either
case, the actual selection of the external auditor is made by the shareholders
meeting, which votes on the proposal of the Directors Committee adopted by the
Board of Directors or, if the Board of Directors does not adopt the Directors
Committee proposal, chooses between the audit firm or firms recommended by the
Directors Committee and the audit firm or firms recommended by the Board of
Directors. Any engagement of the external auditor to
perform services in addition to the audit of the financial statements
is pre-approved by the Board of Directors. 
 Item 16D. Exemptions from Listing Requirements for Audit Committees Not Required. 
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Persons Not Required. 134




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PART III 
 Item 17. Financial Statements.  None. 
 Item 18. Financial Statements. PageReport of Independent Auditors:Report of
Independent Auditors  Empresa Nacional de Electricidad S.A.
(Endesa-Chile)
    
    
    F-2Report of
Independent Registered Accounting Firm  Endesa Argentina S.A. 2002 and 2003
    
    
    F-3Report of
Independent Registered Accounting Firm  Endesa Colombia S.A. 2002 and 2003
    
    
    F-3Report of
Independent Registered Accounting Firm  Central Hidroelectrica de Betania
S.A. 2002 and 2003
    
    
    F-4Report of
Independent Registered Accounting Firm  Centrais Eletricas Cachoeira Dourada 2002 and 2003
    
    
    F-5Report of
Independent Registered Accounting Firm  Compañía de Interconexao
Energética-CIEN 2002 and 2003
    
    
    F-6Report of
Independent Registered Accounting Firm   Empresa Nacional de Electricidad S.A.
(Endesa-Chile) 2001
    
    
    F-7Audit Report
of Arthur Andersen  Endesa Argentina S.A. 2001
    
    
    F-8Audit Report
of Arthur Andersen  Endesa Colombia S.A. 2001
    
    
    F-10Audited Consolidated Financial Statements of Endesa-Chile:Consolidated Balance Sheets as of December 31, 2002 and 2003
    
    
    F-11Consolidated Statements of Income for the years ended
December 31, 2001, 2002 and 2003
    
    
    F-13Consolidated Statements of Shareholders Equity for the years ended
December 31, 2001, 2002 and 2003
    
    
    F-14Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2002 and 2003
    
    
    F-15Notes to the Consolidated Financial Statements
    
    
    F-17Schedule IIndividual Financial Statements of Endesa-Chile
    
    
    G-1Consolidated Financial Statements of Compañía de Interconexao
Energética S.A. (CIEN) and Comercializadora de Energía del Mercosur
S.A. (CEMSA)
    
    
    H-1
 
 Item 19. Exhibits. Exhibit
    
    Description1.1
    
    By-laws (Estatutos) of Empresa Nacional de Electricidad S.A., as amended*1.2
    
    By-laws (Estatutos) of Empresa Nacional de Electricidad S.A., as amended (English translation)*8.1
    
    List of Subsidiaries12.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.12.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.13.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act.
  *
    
    Incorporated by reference to Empresa National de Electricidad S.A. Annual
Report on Form 20-F for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on July 1, 2002. We will furnish to the Securities and Exchange Commission, upon request,
copies of any unfiled instruments that define the rights of holders of
long-term debt of Empresa Nacional de Electricidad S.A. 135




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SIGNATURES The registrant certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf. EMPRESA NACIONAL DE ELECTRICIDAD S.A.By:
    
    /S/ ALEJANDRO GONZÁLEZ DALEName: Alejandro González DaleTitle: Chief Financial OfficerDate:
June 30, 2004
 136




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Endesa-Chile and Subsidiaries Audited Consolidated Financial Statements as of
December 31, 2002 and 2003 and for each of the three years in the period ended December 31, 2003




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Endesa-Chile and Subsidiaries Index to the Audited Consolidated Financial Statements Reports of Independent Auditors:Report of
Independent Auditors  Empresa Nacional de Electricidad S.A.
(Endesa - Chile) 2002 and 2003
    
    
    F2Report of
Independent Registered Public Accounting Firm  Endesa Argentina
S.A. 2002 and 2003
    
    
    F3Report of
Independent Registered Accounting Firm  Endesa Colombia
S.A. 2002 and 2003
    
    
    F3Report of
Independent Registered Public Accounting Firm  Central Hidroelectríca de Betania S.A. 2002 and 2003
    
    
    F4Report of
Independent Registered Public Accounting Firm  Centrais
Eletricas Cachoeira Dourada S.A. 2002 and 2003
    
    
    F5Report of
Independent Registered Public Accounting Firm  CIEN  Companhía de Interconexao Energetica 2002 and
2003
    
    
    F6Report of
Independent Registered Public Accounting Firm  Empresa Nacional de Electricidad S.A.
(Endesa - Chile)  2001
    
    
    F7Audit report
of Arthur Andersen  Endesa Argentina S.A. 2001
    
    
    F8Audit report
of Arthur Andersen  Endesa Colombia S.A. 2001
    
    
    F10Consolidated Financial Statements:Consolidated Balance Sheets as of December 31, 2002 and 2003
    
    
    F13Consolidated Statements of Income for the years ended December 31, 2001, 2002 and 2003
    
    
    F15Consolidated Statements of Shareholders Equity for the years ended December 31, 2001,
2002 and 2003
    
    
    F16Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002 and 2003
    
    
    F17Notes to the Consolidated Financial Statements
    
    
    F19Schedule I  Individual Financial Statements of Endesa-Chile S.A.
    
    
    G1Consolidated
Financial Statements of Compahia de Interconexaon
Energética S.A. (CIEN) and
Comercializadora de Energía del Mercosur S.A. (CEMSA) (See Note 34 p)
    
    
    H1
 Ch$
    
    -
    
    Chilean pesosUS$
    
    -
    
    United States dollarsUF
    
    -
    
    The UF is a Chilean inflation-indexed, peso-denominated
monetary unit that is set daily in advance based on the
prevíous months inflation rate (see Note 2 (b)).ThCh$
    
    -
    
    Thousands of Chilean pesosThUS$
    
    -
    
    Thousands of United States dollars
 Application of Constant Chilean Pesos The consolidated financial statements included herein have been restated for
general price-level changes and expressed in constant Chilean pesos of December
31, 2003 purchasing power. F-1




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(ERNST AND YOUNG LOGO)
    
    (ERNST AND YOUNG LETTERHEAD)
 Report of Independent Auditors To the Board of Directors and Shareholders of
Empresa Nacional de Electricidad S.A. (Endesa-Chile) and subsidiaries: We have audited the accompanying consolidated balance sheets of Endesa-Chile
and subsidiaries (the Company) as of December 31, 2002 and 2003, and the
related consolidated statements of income, changes in shareholders equity and
cash flows for the years then ended. Our audits also included the financial
statement Schedule 1  Condensed financial information. These financial
statements and schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We did not audit the consolidated financial
statements of certain subsidiaries, which statements reflect total assets
representing 40.06 percent and 49.61 percent as of December 31, 2002 and 2003,
respectively, and total revenues representing of 31.93 percent and 39.38
percent for the years ended December 31, 2002 and 2003, respectively. We also
did not audit the financial statements of certain investments accounted for
under the equity method, which represented total assets of 0.87 percent and
1.07 percent of total assets as of December 31, 2002 and 2003, respectively,
and net income representing 61.23 percent and 14.87 percent of the consolidated
net income for the years then ended, respectively. Those statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for those entities, is
based solely on the reports of the other auditors. We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (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 and the reports of other auditors provide a reasonable basis for our
opinion. In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Endesa-Chile and subsidiaries
at December 31, 2002 and 2003, and the results of their operations and their
cash flows for the years then ended in conformity with accounting principles
generally accepted in Chile, which differ in certain respects from accounting
principles generally accepted in the United States of America (see Note 34 to
the consolidated financial statements). Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.  ERNST & YOUNG LTDA.
    
    (-s- Ernst and Young)
 Santiago, Chile
January 23, 2004
(except for Notes 32 and 34 for which the date is May 1, 2004) F-2




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Deloitte & Co. S.R.L.Florida 234-Piso 5oREPORT OF INDEPENDENT REGISTERED PUBLIC
 ACCOUNTING FIRM
  
  Buenos Aires C1005AAFArgentinaTo the President and Board of Directors of
  
  Tel: (54) 11-4320-2700Endesa Argentina S.A.
  
  Fax: (54) 11-4320-8081www.deloitte.com We have audited the consolidated balance sheets of Endesa Argentina S.A. and
Subsidiaries (the Company) as of December 31, 2003 and 2002, and the related
consolidated statements of income and cash flows for the years then ended (not
separately presented herein). These financial statements are the
responsibility of the Companys Management. Our responsibility is to express
an opinion on these financial statements based on our audits. The consolidated
financial statements of the Company for the year ended December 31, 2001, were
audited by other auditors who were a member firm of a worldwide organization
that has ceased operations. Those auditors expressed an unqualified opinion on
those financial statements in their report dated March 8, 2002, which included
emphasis paragraphs expressing the uncertainty on the Companys capacity to
meet its obligations and continue operations, and discussing the major effects
that the severe changes made by the Argentinean Government to the economic
model and to the International Exchange Law that had been in force since 1991
might have on the Company. We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (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, based on our audits, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Endesa Argentina S.A. and Subsidiaries as of December 31, 2003 and 2002, and
the consolidated results of their operations and their consolidated cash flows
for the years then ended in conformity with accounting principles generally
accepted in Chile. Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 40 to the financial statements. Buenos Aires, January 22, 2004, except for Note 40 for which the date is April
30, 2004. DELOITTE & Co. S.R.L.
/s/ CARLOS A. LLOVERASCARLOS A. LLOVERAS
               (Partner) F-3




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[Deloitte Logo]
  Deloitte & Touche Ltda.
Cra. 7N° 74-09
A.A. 075874
Nit. 860.005.813-4
Bogotá D.C.
Columbia
Tel. +57(1) 5461810-5461815
Fax: +57(1) 2178088
www.deloitte.com Report of Independent Registered Accounting Firm
(Translation of a report originally issued in Spanish) To the Board of Directors and Shareholders of Endesa Colombia S.A. We have audited the balance sheets of Endesa Colombia S.A. (the Company) as
of December 31, 2003 and 2002, and the related statements of income and cash
flows for the years then ended, all expressed in thousands of constant Chilean
pesos (not presented separately herein). These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits. The consolidated
financial statements of the Company for the year ended December 31, 2001, were
audited by other auditors who have ceased operations. Those auditors expressed
an unqualified opinion on those financial statements in their report dated
January 18, 2002. We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (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, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of Endesa de
Colombia S.A. as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in Chile. Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 18 to the financial statements. /s/ Carlos Eduardo Tovar
Carlos Eduardo Tovar
Bogotá, Colombia, January 15, 2004,
     except for Note 18 for which the date is April 30, 2004
  /s/ DELOITTE AND
TOUCHE LTDA.

DELOITTE AND TOUCHE LTDA. F-4




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[Deloitte Logo]
  Deloitte & Touche Ltda.
Cra. 7N° 74-09
A.A. 075874
Nit. 860.005.813-4
Bogotá D.C.
Columbia
Tel. +57(1) 5461810-5461815
Fax: +57(1) 2178088
www.deloitte.com Report of Independent Registered Public Accounting Firm
(Translation of a report originally issued in Spanish) To the Board of Directors and Shareholders of Central Hidroeléctrica de Betania S.A. E.S.P. and Subsidiaries: We have audited the consolidated balance sheet of Central Hidroeléctrica de
Betania S.A. E.S.P. and Subsidiaries (the Company) as of December 31, 2003,
and the related consolidated statement of income and cash flows for the year
then ended, all expressed in thousands of constant Chilean pesos (not
separately presented herein). These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards of the Public Company
Accounting Oversight Board (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
audit provides a reasonable basis for our opinion. In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Central Hidroeléctrica de Betania S.A. E.S.P. and its Subsidiaries as of
December 31, 2003, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in Chile. Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 26 to the financial statements. /s/ Carlos Eduardo Tovar
Carlos Eduardo Tovar
Bogotá, Colombia, January 15, 2004,
     except for Note 18 for which the date is April 30, 2004
  /s/ DELOITTE AND
TOUCHE LTDA.

DELOITTE AND TOUCHE LTDA. F-5




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[Deloitte Logo]
  Deloitte Touche Tohmatsu
Av. Pres. Wilson, 231
8° e 22° andares
20030-021-Rio de Janeiro - RJ
Brasil
 
Tel. +55(21) 3981-0500
Fax: +55(21) 3981-0600
www.deloitte.com.br Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of
Centrais Elétricas Cachoeira Dourada S.A.
Cachoeira Dourada  GO, Brazil We have audited the balance sheets of Centrais Elétricas Cachoeira Dourada S.A.
as of December 31, 2003 and 2002, and the related statements of income and cash
flows for the years then ended, all expressed in United States dollars. These financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Centrais Elétricas Cachoeira
Dourada S.A. as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in Chile. Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 21 to the consolidated financial statements. /s/ Deloitte Touche
Tohmatsu
January 17, 2004 F-6




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[Deloitte Logo]
  Deloitte Touche Tohmatsu
Av. Pres. Wilson, 231
8° e 22° andares
20030-021-Rio de Janeiro - RJ
Brasil
 
Tel. +55(21) 3981-0500
Fax: +55(21) 3981-0600
www.deloitte.com.br Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of
CIEN  Companhia de Interconexão Energética
Rio de Janeiro  RJ, Brazil We have audited the accompanying balance sheets of CIEN

Companhia de Interconexão Energética as of
December 31, 2003 and 2002, and the related consolidated statements of income
and cash flows for the years then ended, all expressed in United States
dollars. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, the financial statements referred to above present
fairly, in all material respects, the financial position of CIEN  Companhia de
Interconexão Energética S.A. as of December 31, 2003 and 2002,
and the results of its operations and its cash flows for the years then ended,
in conformity with accounting principles generally accepted in Chile. Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 23 to the financial statements. Rio de Janeiro, Brasil  /s/ Deloitte Touche Tohmatsu
January 17, 2004 F-7




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[Deloitte Logo]  
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of
Empresa Nacional de Electricidad S.A. We have audited the consolidated statements of income, shareholders equity and
cash flow of Empresa Nacional de Electricidad S.A. and Subsidiaries for the
year ended December 31, 2001 (not presented separately herein). These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the consolidated financial statements for 2001 of
Endesa Argentina, S.A. and Endesa Colombia, S.A. which income statements
reflect total consolidated revenues on both a Chilean GAAP and a US GAAP basis
constituting 41.92% as of December 31, 2001. Those financial statements were
audited by other auditors, one of whom was a member firm of a worldwide
organization that has ceased operations, and another who has ceased to exist,
whose reports have been furnished to us. The report of the other auditors over
the 2001 financial statements of Endesa Argentina S.A. expressed an unqualified
opinion and includes emphasis paragraphs expressing the uncertainty on the
Argentinean subsidiaries capacity to meet their obligations and continue
operations, and discussing the major effects that the severe changes made by
the Argentinean Government to the economic model and to the International
Exchange Law that had been in force since 1991 might have on the companies.
Our opinion, insofar as it relates to the amounts included for those companies
for the year ended December 31, 2001, is based solely on the reports of such
other auditors. We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (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
audit provides a reasonable basis for our opinion. In our opinion, based on our audit and the reports of the other auditors, the
statements of income, shareholders equity and cash flows of Empresa Nacional
de Electricidad S.A. and subsidiaries referred to above present fairly, in all
material respects, the results of their operations, shareholders equity and
their cash flows for the year ended December 31, 2001 in conformity with
accounting principles generally accepted in Chile. F-8




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As discussed in Note 2 (r) to the consolidated financial statements, the
accompanying consolidated statement of cash flows for the year ended December
31, 2001 has been restated under Chilean GAAP Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 34 to the consolidated financial statements As discussed in Note 34 II(h) to the consolidated financial statements, the
information relating to the nature and effect of the differences between
Chilean GAAP and US GAAP has been restated. /s/ Deloitte & Touche
Sociedad de Auditores Consultores Limitada

Santiago, Chile
February 1, 2002 except for Note 32, Note 34 for which
the date is May 1, 2004 F-9




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NOTE: This is a copy of a report issued by Pistrelli, Diaz
& Asociados, an affiliate of Arthur Andersen Worldwide SC,
on March 8, 2002 with respect to our financial statements
for the fiscal year ended December 31, 2001; which report
has not been reissued for purposes of its inclusion in this
annual report.



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

(English translation of the report originally issued in Spanish)

To the Board of Directors of





|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | We have audited the consolidated balance sheets of ENDESA
    ARGENTINA S.A. (the Company) and its subsidiaries
    ENDESA BRASIL PARTICIPACOES LTD., HIDROELECTRICA EL CHOCON S.A.,
    HIDROINVEST S.A. and CENTRAL COSTANERA S.A. as of
    December 31, 2001 and 2000, and the related consolidated
    statements of income and cash flows for the years then ended,
    not presented separately herein, all expressed in thousands of
    constant Chilean pesos. Those financial statements are the
    responsibility of the Companys Management. Our
    responsibility is to express an opinion on those financial
    statements based on our audits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|2. |  | We conducted our audits in accordance with generally accepted
    auditing standards 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 the
    Management, as well as evaluating the overall financial
    statement presentation. We believe that our audits provide a
    reasonable basis for our opinion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|3. |  | As described in note 38 to the financial statements referred to
    above (not presented separately herein), in the last few months,
    a deep change has been implemented in the economic framework of
    Argentina as well as in the Convertibility Law that was in place
    since March 1991. The main consequences of the set of measures
    adopted by the Argentine Federal Government, which are detailed
    in the above mentioned note, have been (a) the devaluation of
    the Argentine peso with respect to the US dollar and
    de-dollarization of certain assets and liabilities in foreign
    currency held in the country; (b) de-dollarization of
    utilities rates previously agreed upon in U.S. dollars and
    subsequent renegotiation in each particular case; (c) the
    implementation of restrictions on the withdrawal of funds
    deposited with financial institutions; (d) the restriction
    on transfers abroad on account of financial loan principal
    service and dividend distributions without prior authorization
    from the Central Bank; and (e) the increase in domestic
    prices. The future development of the economic crisis may
    require further measures from the Argentine Federal Government.
    The above mentioned financial statements, should be read taking
    into account the issues mentioned above.                                                                                                                                                  
|  
|4. |  | In our opinion, the consolidated financial statements referred
    to above (not presented separately herein) present fairly, in
    all material respects, the financial position of ENDESA
    ARGENTINA S.A. and its subsidiaries ENDESA BRASIL PARTICIPACOES LTD., HIDROELECTRICA EL CHOCON S.A., HIDROINVEST S.A. and
    CENTRAL COSTANERA S.A. as of December 31, 2001 and 2000,
    and the results of their operations and their cash flows for the
    year then ended, in conformity with generally accepted
    accounting principles in Chile.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|5. |  | As described in note 15 to the financial statements referred to
    above (not presented separately herein), as of the date of
    issuance thereof, HIDROELECTRICA EL CHOCON S.A. has been unable
    to repay yet past-due corporate bonds amounting to about USD
    140 million. In addition, as mentioned in Note 28.2 to the
    above mentioned financial statements, as of December 31,
    2001, CENTRAL COSTANERA S.A. does not meet a financial ratio
    required by the syndicated bank loan agreement, recorded under
    current liabilities in the amount of about CLP
    62,240 million. Considering that this represents a breach
    of contractual provisions for this loan and for other loans with
    cross-default clauses, the lenders are entitled to demand
    accelerated repayment. As of December 31, 2001
    HIDROELECTRICA EL CHOCON S.A., HIDROINVEST S.A. and CENTRAL
    COSTANERA S.A. have negative working capital, which creates
    substantial doubt, among others, on the ability to pay their
    obligations. In addition, due to the negative exchange rate
    difference derived from devaluation mentioned in note 38 to the
    above mentioned financial statements, ENDESA ARGENTINA S.A. and
    CENTRAL COSTANERA S.A. could enter into the mandatory
    dissolution for loss of capital stock, as provided for by the
    Business Associations Law No. 19,550, which creates substantial
    doubt, among others, on the continuity of the operations of
    these Companies.
|  
|   |  | The continuity of the operations of ENDESA ARGENTINA S.A.,
    HIDROELECTRICA EL CHOCON S.A., HIDROINVEST S.A., and CENTRAL
    COSTANERA S.A. will depend on their ability to pay their
    obligations and the ability of ENDESA ARGENTINA S.A. and CENTRAL
    COSTANERA S.A. to restore its capital stock. The financial
    statements referred to above have been prepared assuming that
    ENDESA ARGENTINA S.A., HIDROELECTRICA EL CHOCON S.A.,
    HIDROINVEST S.A., and CENTRAL COSTANERA S.A. will continue as
    going concerns, therefore, the financial statements referred to
    above do not include any adjustments that might result from the
    outcome of these uncertainties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Buenos Aires



| |                            
| | ---------------------------
| | PISTRELLI, DIAZ Y ASOCIADOS
|
| | /s/ EZEQUIEL A. CALCIATI   
| |                            
| | EZEQUIEL A. CALCIATI       
| | Partner                    



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NOTE: This is a copy of a report issued by Arthur Andersen y
Cía. Ltda., on January 18, 2002 with respect to our
financial statements for the fiscal year ended December 31,
2001; which report has not been reissued for purposes of its
inclusion in this annual report.



Report of Independent Accountants

(Translation of a report originally issued in Spanish-



To the Shareholders of



We have audited the accompanying consolidated balance sheets of
Endesa de Colombia S.A. and Subsidiaries (the
Company) as of December 31, 2000 and 2001 and
the related consolidated statements of income and cash flows for
each of the two years in the period ended December 31,
2001, all expressed in thousands of constant Chilean pesos.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards 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 misstatements. 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 the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Endesa de Colombia S.A. and its subsidiaries as of
December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles in
Chile.

|                                                                             |  |                                                                          
|---------------------------------------------------------------------------- |  | -------------------------------------------------------------------------
|/s/ CÉSAR CHENG
       César Cheng
       January 18, 2002, Bogotá, Colombia |  | /s/ ARTHUR ANDERSEN & CIA LTDA.
          ARTHUR
    ANDERSEN & CIA LTDA.



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Endesa-Chile and Subsidiaries
Audited Consolidated Balance Sheets
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) As of December 31,Note
    
    2002
    
    2003
    
    2003ThUS$ThCh$
    
    ThCh$
    
    (Note 2 (b))AssetsCurrent assets:Cash
    
    
    
    
    
    
    7,525,362
    
    
    
    5,508,484
    
    
    
    9,277Time deposits
    
    
    4
    
    
    
    90,971,901
    
    
    
    155,197,683
    
    
    
    261,364Accounts receivable, net
    
    
    5
    
    
    
    89,137,085
    
    
    
    99,528,830
    
    
    
    167,613Notes receivable, net
    
    
    5
    
    
    
    1,020,556
    
    
    
    1,121,413
    
    
    
    1,889Other accounts receivable, net
    
    
    5
    
    
    
    18,101,711
    
    
    
    50,949,586
    
    
    
    85,803Amounts due from related companies
    
    
    6a
    
    
    
    221,699,398
    
    
    
    46,198,865
    
    
    
    77,802Inventories, net
    
    
    
    
    
    
    10,512,508
    
    
    
    9,838,552
    
    
    
    16,569Taxes recoverable
    
    
    7a
    
    
    
    24,180,465
    
    
    
    14,257,740
    
    
    
    24,011Prepaid expenses
    
    
    
    
    
    
    3,676,305
    
    
    
    2,689,949
    
    
    
    4,530Deferred income taxes, net
    
    
    7b
    
    
    
    3,294,847
    
    
    
    1,239,995
    
    
    
    2,088Other current assets
    
    
    8
    
    
    
    77,499,611
    
    
    
    6,330,959
    
    
    
    10,662Total current assets
    
    
    
    
    
    
    547,619,749
    
    
    
    392,862,056
    
    
    
    661,608Property, plant and equipment, net
    
    
    9
    
    
    
    5,726,547,619
    
    
    
    4,667,941,801
    
    
    
    7,861,134Other assets:Investments in related companies
    
    
    10a
    
    
    
    176,460,417
    
    
    
    165,503,886
    
    
    
    278,720Investments in other companies
    
    
    11
    
    
    
    82,452,402
    
    
    
    69,089,450
    
    
    
    116,351Long-term receivables, net
    
    
    5
    
    
    
    19,349,010
    
    
    
    16,676,098
    
    
    
    28,084Goodwill, net
    
    
    12a
    
    
    
    28,211,120
    
    
    
    22,153,259
    
    
    
    37,308Negative goodwill, net
    
    
    12b
    
    
    
    (92,642,392
    )
    
    
    (77,429,182
    )
    
    
    (130,396
    )Amounts due from related companies
    
    
    6a
    
    
    
    907,111
    
    
    
    128,779,149
    
    
    
    216,873Other intangibles
    
    
    13
    
    
    
    32,330,456
    
    
    
    28,259,184
    
    
    
    47,590Accumulated amortization
    
    
    13
    
    
    
    (5,402,732
    )
    
    
    (7,321,147
    )
    
    
    (12,329
    )Other assets
    
    
    14
    
    
    
    73,610,650
    
    
    
    58,821,286
    
    
    
    99,059Total other assets
    
    
    
    
    
    
    315,276,042
    
    
    
    404,531,983
    
    
    
    681,260Total assets
    
    
    
    
    
    
    6,589,443,410
    
    
    
    5,465,335,840
    
    
    
    9,204,002
 The accompanying notes are
an integral part of these consolidated financial statements. F-13




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Endesa-Chile and Subsidiaries
Audited Consolidated Balance Sheets
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) As of December 31,Note
    
    2002
    
    2003
    
    2003ThUS$ThCh$
    
    ThCh$
    
    (Note 2 (b))Liabilities and Shareholders equityCurrent liabilities:Short-term debt due to banks and financial institutions
    
    
    15a
    
    
    
    110,558,707
    
    
    
    54,546,837
    
    
    
    91,861Current portion of long-term debt due to banks and financial
institutions
    
    
    15b
    
    
    
    268,852,754
    
    
    
    97,205,122
    
    
    
    163,700Promissory notes
    
    
    16
    
    
    
    7,642,846
    
    
    
    
    
    
    
    Current portion of bonds payable
    
    
    17a
    
    
    
    491,659,331
    
    
    
    57,559,407
    
    
    
    96,934Current portion of long-term notes payable
    
    
    
    
    
    
    42,045,203
    
    
    
    21,433,863
    
    
    
    36,096Dividends payable
    
    
    
    
    
    
    734,540
    
    
    
    935,198
    
    
    
    1,575Accounts payable
    
    
    
    
    
    
    67,353,521
    
    
    
    58,558,498
    
    
    
    98,617Miscellaneous payables
    
    
    
    
    
    
    39,211,665
    
    
    
    13,064,866
    
    
    
    22,002Amounts payable to related companies
    
    
    6b
    
    
    
    52,758,148
    
    
    
    123,575,972
    
    
    
    208,110Accrued expenses
    
    
    18a
    
    
    
    38,910,218
    
    
    
    21,861,849
    
    
    
    36,817Withholdings
    
    
    
    
    
    
    6,504,581
    
    
    
    7,393,639
    
    
    
    12,451Income taxes payable
    
    
    7a
    
    
    
    4,512,902
    
    
    
    6,567,829
    
    
    
    11,061Prepaid income
    
    
    
    
    
    
    755,654
    
    
    
    293,683
    
    
    
    495Other current liabilities
    
    
    
    
    
    
    14,046,232
    
    
    
    2,292,254
    
    
    
    3,860Total current liabilities
    
    
    
    
    
    
    1,145,546,302
    
    
    
    465,289,017
    
    
    
    783,579Long-term liabilities:Due to banks and financial institutions
    
    
    15c
    
    
    
    669,820,608
    
    
    
    382,924,226
    
    
    
    644,871Bonds payable
    
    
    17b
    
    
    
    1,466,386,267
    
    
    
    1,688,367,775
    
    
    
    2,843,327Long-term notes payable
    
    
    
    
    
    
    147,256,986
    
    
    
    120,532,045
    
    
    
    202,984Miscellaneous payables
    
    
    
    
    
    
    20,193,781
    
    
    
    15,009,516
    
    
    
    25,277Amounts payable to related companies
    
    
    6b
    
    
    
    49,150,295
    
    
    
    84,320
    
    
    
    142Accrued expenses
    
    
    18a
    
    
    
    39,606,649
    
    
    
    38,035,284
    
    
    
    64,054Deferred income taxes
    
    
    7d
    
    
    
    66,556,574
    
    
    
    34,302,605
    
    
    
    57,768Other long-term liabilities
    
    
    
    
    
    
    26,770,732
    
    
    
    10,379,002
    
    
    
    17,479Total long-term liabilities
    
    
    
    
    
    
    2,485,741,892
    
    
    
    2,289,634,773
    
    
    
    3,855,902Commitments and contingencies
    
    
    28Minority interest
    
    
    19a
    
    
    
    1,513,213,543
    
    
    
    1,217,743,010
    
    
    
    2,050,763Shareholders equity:
    
    
    20Paid-in capital, no par value
    
    
    
    
    
    
    1,050,193,846
    
    
    
    1,050,193,846
    
    
    
    1,768,599Additional paid-in capital  share premium
    
    
    
    
    
    
    206,008,557
    
    
    
    206,008,557
    
    
    
    346,933Other reserves
    
    
    20e
    
    
    
    72,043,330
    
    
    
    49,184,422
    
    
    
    82,830Retained earnings
    
    
    
    
    
    
    126,108,187
    
    
    
    109,151,303
    
    
    
    183,818Net income (loss) for the year
    
    
    
    
    
    
    (9,412,247
    )
    
    
    78,130,912
    
    
    
    131,578Total Shareholders equity
    
    
    
    
    
    
    1,444,941,673
    
    
    
    1,492,669,040
    
    
    
    2,513,758Total liabilities and Shareholders equity
    
    
    
    
    
    
    6,589,443,410
    
    
    
    5,465,335,840
    
    
    
    9,204,002
 F-14




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##### Table of Contents



Endesa-Chile and Subsidiaries
Audited Consolidated Statements of Income
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) As of December 31,Note
    
    2001
    
    2002
    
    2003
    
    2003ThUS$ThCh$
    
    ThCh$
    
    ThCh$
    
    (Note 2 (b))Operating income:Sales
    
    
    
    
    
    
    1,055,732,113
    
    
    
    947,480,143
    
    
    
    920,281,398
    
    
    
    1,549,817Cost of sales
    
    
    
    
    
    
    (669,233,875
    )
    
    
    (561,141,752
    )
    
    
    (550,446,696
    )
    
    
    (926,990
    )Gross profit
    
    
    
    
    
    
    386,498,238
    
    
    
    386,338,391
    
    
    
    369,834,702
    
    
    
    622,827Administrative and selling expenses
    
    
    
    
    
    
    (35,043,324
    )
    
    
    (36,651,655
    )
    
    
    (31,323,805
    )
    
    
    (52,751
    )Operating income
    
    
    
    
    
    
    351,454,914
    
    
    
    349,686,736
    
    
    
    338,510,897
    
    
    
    570,076Non-operating income and expense:Interest income
    
    
    
    
    
    
    19,342,227
    
    
    
    15,399,196
    
    
    
    15,262,478
    
    
    
    25,703Equity participation in income of related companies
    
    
    10a
    
    
    
    4,077,090
    
    
    
    15,171,911
    
    
    
    17,742,891
    
    
    
    29,880Other non-operating income
    
    
    21a
    
    
    
    56,375,185
    
    
    
    103,509,288
    
    
    
    44,573,304
    
    
    
    75,065Equity participation in losses of related companies
    
    
    10a
    
    
    
    (14,124,190
    )
    
    
    (6,515,709
    )
    
    
    (373,179
    )
    
    
    (628
    )Goodwill amortization
    
    
    12a
    
    
    
    (8,351,188
    )
    
    
    (109,647,318
    )
    
    
    (1,543,104
    )
    
    
    (2,599
    )Interest expense
    
    
    
    
    
    
    (238,241,668
    )
    
    
    (220,328,590
    )
    
    
    (204,136,170
    )
    
    
    (343,779
    )Other non-operating expenses
    
    
    21b
    
    
    
    (59,085,663
    )
    
    
    (117,738,968
    )
    
    
    (60,062,123
    )
    
    
    (101,149
    )Price-level restatement, net
    
    
    22
    
    
    
    4,381,614
    
    
    
    4,036,447
    
    
    
    574,930
    
    
    
    968Foreign currency translation, net
    
    
    23
    
    
    
    (14,649,888
    )
    
    
    (445,425
    )
    
    
    8,955,964
    
    
    
    15,082Non-operating Expense, net
    
    
    
    
    
    
    (250,276,481
    )
    
    
    (316,559,168
    )
    
    
    (179,005,009
    )
    
    
    (301,457
    )Income before income taxes and extraordinary loss
    
    
    
    
    
    
    101,178,433
    
    
    
    33,127,568
    
    
    
    159,505,888
    
    
    
    268,619Income tax
    
    
    7e
    
    
    
    (40,311,014
    )
    
    
    (71,334,682
    )
    
    
    (27,378,083
    )
    
    
    (46,107
    )Extraordinary loss
    
    
    24
    
    
    
    
    
    
    
    (11,039,393
    )
    
    
    
    
    
    
    Income (loss) before minority interest
    
    
    
    
    
    
    60,867,419
    
    
    
    (49,246,507
    )
    
    
    132,127,805
    
    
    
    222,512Minority interest
    
    
    19b
    
    
    
    (34,356,009
    )
    
    
    (46,943,077
    )
    
    
    (69,586,444
    )
    
    
    (117,188
    )Income (loss) before amortization of
negative goodwill
    
    
    
    
    
    
    26,511,410
    
    
    
    (96,189,584
    )
    
    
    62,541,361
    
    
    
    105,324Amortization of negative goodwill
    
    
    12b
    
    
    
    46,370,207
    
    
    
    86,777,337
    
    
    
    15,589,551
    
    
    
    26,254Net income (loss) for the year
    
    
    
    
    
    
    72,881,617
    
    
    
    (9,412,247
    )
    
    
    78,130,912
    
    
    
    131,578
 The accompanying notes are
an integral part of these consolidated financial statements. F-15




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Audited Consolidated Statements of Shareholders Equity
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) Number of
    
    
    
    
    
    Additionalshares
    
    Paid-in capital
    
    paid-in capital(In thousands)
    
    ThCh$
    
    ThCh$As of January 1,
2001
    
    
    8,201,755
    
    
    
    979,156,712
    
    
    
    192,073,741Reclassification of prior year net income
    
    
    
    
    
    
    
    
    
    
    Price-level restatement of capital
    
    
    
    
    
    
    30,353,858
    
    
    
    5,954,286Loss from subsidiaries in the development stage
    
    
    
    
    
    
    
    
    
    
    Changes in equity of affiliates
    
    
    
    
    
    
    
    
    
    
    Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    Net income for the year
    
    
    
    
    
    
    
    
    
    
    As of December 31, 2001
    
    
    8,201,755
    
    
    
    1,009,510,570
    
    
    
    198,028,027As of December 31, 2001 (1)
    
    
    8,201,755
    
    
    
    1,050,193,846
    
    
    
    206,008,557As of January 1, 2002
    
    
    8,201,755
    
    
    
    1,009,510,570
    
    
    
    198,028,027Reclassification of prior year net income
    
    
    
    
    
    
    
    
    
    
    Price-level restatement of capital
    
    
    
    
    
    
    30,285,317
    
    
    
    5,940,841Loss from subsidiaries in the development stage
    
    
    
    
    
    
    
    
    
    
    Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    As of December 31, 2002
    
    
    8,201,755
    
    
    
    1,039,795,887
    
    
    
    203,968,868As of December 31, 2002 (1)
    
    
    8,201,755
    
    
    
    1,050,193,846
    
    
    
    206,008,557As of January 1, 2003
    
    
    8,201,755
    
    
    
    1,039,795,887
    
    
    
    203,968,868Reclassification of prior year net
loss
    
    
    
    
    
    
    
    
    
    
    Price-level restatement of capital
    
    
    
    
    
    
    10,397,959
    
    
    
    2,039,689Income from subsidiaries in the development stage
    
    
    
    
    
    
    
    
    
    
    Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    Net income for the year
    
    
    
    
    
    
    
    
    
    
    As of December 31, 2003
    
    
    8,201,755
    
    
    
    1,050,193,846
    
    
    
    206,008,557
   [Continued from above table, first column(s) repeated] Net incomeOther
    
    
    
    
    
    (loss) for thereserves
    
    Retained earnings
    
    year
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$As of January 1,
2001
    
    
    60,432,902
    
    
    
    (43,287,153
    )
    
    
    108,222,663
    
    
    
    1,296,598,865Reclassification of prior year net income
    
    
    11,574
    
    
    
    111,565,992
    
    
    
    (111,577,566
    )
    
    
    Price-level restatement of capital
    
    
    1,873,420
    
    
    
    (1,530,871
    )
    
    
    3,354,903
    
    
    
    40,005,596Loss from subsidiaries in the development stage
    
    
    (78,369
    )
    
    
    
    
    
    
    
    
    
    
    (78,369
    )Changes in equity of affiliates
    
    
    (5,836,137
    )
    
    
    
    
    
    
    
    
    
    
    (5,836,137
    )Cumulative translation adjustment
    
    
    11,542,385
    
    
    
    
    
    
    
    
    
    
    
    11,542,385Dividends
    
    
    
    
    
    
    (7,873,684
    )
    
    
    
    
    
    
    (7,873,684
    )Net income for the year
    
    
    
    
    
    
    
    
    
    
    70,058,270
    
    
    
    70,058,270As of December 31, 2001
    
    
    67,945,775
    
    
    
    58,874,284
    
    
    
    70,058,270
    
    
    
    1,404,416,926As of December 31, 2001 (1)
    
    
    70,683,988
    
    
    
    61,246,918
    
    
    
    72,881,617
    
    
    
    1,461,014,927As of January 1, 2002
    
    
    67,945,775
    
    
    
    58,874,284
    
    
    
    70,058,270
    
    
    
    1,404,416,926Reclassification of prior year net .income
    
    
    
    
    
    
    70,058,270
    
    
    
    (70,058,270
    )
    
    
    Price-level restatement of capital
    
    
    2,038,374
    
    
    
    3,636,686
    
    
    
    
    
    
    
    41,901,218Loss from subsidiaries in the development stage
    
    
    (7,968,156
    )
    
    
    
    
    
    
    
    
    
    
    (7,968,156
    )Cumulative translation adjustment
    
    
    9,314,037
    
    
    
    
    
    
    
    
    
    
    
    9,314,037Dividends
    
    
    
    
    
    
    (7,709,649
    )
    
    
    
    
    
    
    (7,709,649
    )Net loss for the year
    
    
    
    
    
    
    
    
    
    
    (9,319,056
    )
    
    
    (9,319,056
    )As of December 31, 2002
    
    
    71,330,030
    
    
    
    124,859,591
    
    
    
    (9,319,056
    )
    
    
    1,430,635,320As of December 31, 2002 (1)
    
    
    72,043,330
    
    
    
    126,108,187
    
    
    
    (9,412,247
    )
    
    
    1,444,941,673As of January 1, 2003
    
    
    71,330,030
    
    
    
    124,859,591
    
    
    
    (9,319,056
    )
    
    
    1,430,635,320Reclassification of prior year net
loss
    
    
    7,469,939
    
    
    
    (16,788,995
    )
    
    
    9,319,056
    
    
    
    Price-level restatement of capital
    
    
    788,000
    
    
    
    1,080,707
    
    
    
    
    
    
    
    14,306,355Income from subsidiaries in the development stage
    
    
    75,847
    
    
    
    
    
    
    
    
    
    
    
    75,847Cumulative translation adjustment
    
    
    (30,479,394
    )
    
    
    
    
    
    
    
    
    
    
    (30,479,394
    )Net income for the year
    
    
    
    
    
    
    
    
    
    
    78,130,912
    
    
    
    78,130,912As of December 31, 2003
    
    
    49,184,422
    
    
    
    109,151,303
    
    
    
    78,130,912
    
    
    
    1,492,669,040
  (1)
    
    Restated in thousands of constant Chilean pesos as of December 31,
2003. F-16




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##### Table of Contents



Endesa-Chile and Subsidiaries
Audited Consolidated Statements of Cash flows
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) Years Ended December 31,2001
    
    2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThUS$Restated  seeNote 2 (r)
    
    
    
    
    
    (Note 2 (b))Cash flows from operating activities:Charges (credits) to income which do not represent cash flows:Net income (loss) for the year
    
    
    72,881,617
    
    
    
    (9,412,247
    )
    
    
    78,130,912
    
    
    
    131,578Loss (gain) on sales of property, plant and
equipment
    
    
    (4,754,936
    )
    
    
    (714,911
    )
    
    
    6,015,627
    
    
    
    10,131Gain on sales of investments
    
    
    
    
    
    
    
    
    
    
    (1,458,012
    )
    
    
    (2,455
    )Loss on sales of other assets
    
    
    
    
    
    
    
    
    
    
    399,487
    
    
    
    673Depreciation
    
    
    187,274,592
    
    
    
    197,817,210
    
    
    
    179,488,622
    
    
    
    302,271Amortization of intangibles
    
    
    4,159,730
    
    
    
    3,238,941
    
    
    
    1,638,920
    
    
    
    2,760Write-offs and accrued expenses
    
    
    
    
    
    
    388,123
    
    
    
    
    
    
    
    Equity participation in income of related companies
    
    
    (4,077,090
    )
    
    
    (15,171,911
    )
    
    
    (17,742,891
    )
    
    
    (29,880
    )Equity participation in losses of related companies
    
    
    14,124,190
    
    
    
    6,515,709
    
    
    
    373,179
    
    
    
    628Amortization of goodwill
    
    
    8,351,188
    
    
    
    109,647,318
    
    
    
    1,543,104
    
    
    
    2,599Amortization of negative goodwill
    
    
    (46,370,207
    )
    
    
    (86,777,337
    )
    
    
    (15,589,551
    )
    
    
    (26,254
    )Price-level restatement, net
    
    
    (4,381,614
    )
    
    
    (4,036,447
    )
    
    
    (574,930
    )
    
    
    (968
    )Foreign currency translation, net
    
    
    14,649,888
    
    
    
    445,425
    
    
    
    (8,955,964
    )
    
    
    (15,082
    )Other credits to income which do not represent cash flows
    
    
    
    
    
    
    (76,896,611
    )
    
    
    (19,154,186
    )
    
    
    (32,257
    )Other charges to income which do not represent cash flows
    
    
    26,160,881
    
    
    
    88,510,345
    
    
    
    31,585,080
    
    
    
    53,191Changes in assets which affect cash flows:Decrease (increase) in trade receivables
    
    
    50,372,392
    
    
    
    (17,106,819
    )
    
    
    (66,023,524
    )
    
    
    (111,188
    )Decrease (increase) in inventory
    
    
    3,585,181
    
    
    
    4,727,493
    
    
    
    (1,134,509
    )
    
    
    (1,911
    )Decrease (increase) in other assets
    
    
    (4,320,508
    )
    
    
    14,003,609
    
    
    
    27,587,703
    
    
    
    46,460Changes in liabilities which affect cash flows:Increase in accounts payable associated with operating results
    
    
    18,084,134
    
    
    
    6,918,529
    
    
    
    27,387,715
    
    
    
    46,123Increase (decrease) in interest payable
    
    
    8,487,522
    
    
    
    3,860,296
    
    
    
    (3,717,146
    )
    
    
    (6,260
    )Increase (decrease) in income tax payable
    
    
    (28,696,887
    )
    
    
    2,309,659
    
    
    
    (15,010,025
    )
    
    
    (25,278
    )Increase (decrease) in other accounts payable associated with
non- operating results
    
    
    (98,912,650
    )
    
    
    73,436,966
    
    
    
    (5,533,381
    )
    
    
    (9,319
    )Net increase in value added tax and other accounts payable
    
    
    8,289,300
    
    
    
    7,084,314
    
    
    
    11,229,633
    
    
    
    18,911Income attributable to minority interest
    
    
    34,356,009
    
    
    
    46,943,077
    
    
    
    69,586,444
    
    
    
    117,188Net cash flows provided by operating activities
    
    
    259,262,732
    
    
    
    355,730,731
    
    
    
    280,072,307
    
    
    
    471,661
 F-17




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##### Table of Contents



Endesa-Chile and Subsidiaries
Audited Consolidated Statements of Cash Flows
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) Years Ended December 31,2001
    
    2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThUS$Restated  seeNote 2 (r)
    
    
    
    
    
    (Note 2 (b))Cash flows from financing activities:Issuance of subisiary shares
    
    
    
    
    
    
    1,864,208
    
    
    
    
    
    
    
    Proceeds from the issuance of debt
    
    
    637,971,226
    
    
    
    252,890,800
    
    
    
    199,445,157
    
    
    
    335,879Proceeds from bond issuances
    
    
    133,807,881
    
    
    
    108,096,233
    
    
    
    601,914,214
    
    
    
    1,013,665Proceeds from loans obtained from related companies
    
    
    448,188,682
    
    
    
    105,833,741
    
    
    
    
    
    
    
    Other loans received from related companies
    
    
    
    
    
    
    49,354,135
    
    
    
    
    
    
    
    Other sources of financing
    
    
    54,073,670
    
    
    
    23,920,486
    
    
    
    6,327,582
    
    
    
    10,656Dividends paid
    
    
    (56,546,243
    )
    
    
    (69,339,126
    )
    
    
    (36,360,899
    )
    
    
    (61,234
    )Distributions of capital by foreign subsidiaries
    
    
    
    
    
    
    (7,410,908
    )
    
    
    (12,670,989
    )
    
    
    (21,339
    )Payment of debt
    
    
    (866,290,490
    )
    
    
    (500,951,754
    )
    
    
    (597,004,915
    )
    
    
    (1,005,397
    )Payment of bonds
    
    
    (138,684,949
    )
    
    
    (5,887,254
    )
    
    
    (397,376,650
    )
    
    
    (669,210
    )Payment of loans obtained from related companies
    
    
    (384,807,680
    )
    
    
    (152,455,209
    )
    
    
    (23,941,067
    )
    
    
    (40,318
    )Payment of bond issuance costs
    
    
    
    
    
    
    (11,252,187
    )
    
    
    (5,681,393
    )
    
    
    (9,568
    )Other disbursements for financing
    
    
    (23,404,757
    )
    
    
    (15,824,796
    )
    
    
    (55,565,727
    )
    
    
    (93,577
    )Net cash used in financing activities
    
    
    (195,692,660
    )
    
    
    (221,161,631
    )
    
    
    (320,914,687
    )
    
    
    (540,443
    )Cash flows from investing activities:Proceeds from sales of property, plant and equipment
    
    
    16,753,438
    
    
    
    19,658,573
    
    
    
    152,838,022
    
    
    
    257,390Payments received on loans to related companies
    
    
    
    
    
    
    17,301,809
    
    
    
    24,972,489
    
    
    
    42,055Payments received on other loans to related companies
    
    
    88,747,585
    
    
    
    17,598,005
    
    
    
    18,145,215
    
    
    
    30,558Other receipts from investments
    
    
    265,140
    
    
    
    3,786,967
    
    
    
    49,788,337
    
    
    
    83,847Additions to property, plant and equipment
    
    
    (53,502,146
    )
    
    
    (136,206,541
    )
    
    
    (131,139,818
    )
    
    
    (220,848
    )Long-term investments
    
    
    (1,502,375
    )
    
    
    (5,149,716
    )
    
    
    (2,987,209
    )
    
    
    (5,031
    )Investment in financial instruments
    
    
    
    
    
    
    (731,647
    )
    
    
    
    
    
    
    Other loans granted to related companies
    
    
    (45,474,761
    )
    
    
    (29,163,527
    )
    
    
    
    
    
    
    Other investment disbursements
    
    
    (7,899,796
    )
    
    
    (1,616,652
    )
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (2,612,915
    )
    
    
    (114,522,729
    )
    
    
    111,617,036
    
    
    
    187,971Positive net cash flow for the year
    
    
    60,957,157
    
    
    
    20,046,371
    
    
    
    70,774,656
    
    
    
    119,189Effect of price-level restatement on cash and cash equivalents
    
    
    3,311,216
    
    
    
    9,131,221
    
    
    
    (31,221,612
    )
    
    
    (52,579
    )Net increase in cash and cash equivalents
    
    
    64,268,373
    
    
    
    29,177,592
    
    
    
    39,553,044
    
    
    
    66,610Cash and cash equivalents beginning of year
    
    
    30,647,669
    
    
    
    94,916,042
    
    
    
    124,093,634
    
    
    
    208,982Cash and cash equivalents end of year
    
    
    94,916,042
    
    
    
    124,093,634
    
    
    
    163,646,678
    
    
    
    275,592
 F-18




---



##### Table of Contents



Endesa-Chile and
SubsidiariesNotes to the Audited Consolidated Financial
StatementsTranslation of financial statements originally issued
in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 1. Description of Business: Empresa Nacional de Electricidad S.A. (Endesa-Chile or the Company) is an
electric generation and transmission company domiciled in Chile. It is a
publicly traded company, regulated by the Chilean Superintendency of Securities
and Insurance (Superintendencia de Valores y Seguros or SVS) as well as by
the United States Securities and Exchange Commission (SEC) since issuing
American Depositary Receipts (ADRs) in 1994. As of December 31, 2003 the Companys only subsidiary that is regulated by the
SVS is Empresa Eléctrica Pehuenche S.A. (Pehuenche S.A.). The Company is a subsidiary of Enersis S.A., which held 60% of the shares as of
December 31, 2003. 2. Summary of Significant Accounting Policies: a. General: The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in Chile and the
regulations established by the SVS (collectively Chilean GAAP). Certain
accounting practices applied by the Company that conform with accounting
principles generally accepted in Chile do not conform with accounting
principles generally accepted in the United States (US GAAP). Certain amounts
in the prior years financial statements have been reclassified to conform with
the current years presentation. The preparation of financial statements requires management to make estimates
and assumptions 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. 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 available
information, including using modeling and other valuation techniques. The accompanying financial statements reflect the consolidated results of
operations of Endesa-Chile and its subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Investments in companies
in the development stage are accounted for using the equity method, except that
income or losses are included directly in equity instead of being reflected in
the Companys consolidated statement of income. The Company consolidates the
financial statements of companies in which it controls over 50% of the voting
shares, provided there are no substantive minority participating rights that
prevent control, as detailed as follows: F-19




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##### Table of Contents



Endesa-Chile and
SubsidiariesNotes to the Audited Consolidated Financial
StatementsTranslation of financial statements originally issued
in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 2. Summary of Significant Accounting Policies, continued: Percentage participation in voting rights as of December 31,2001
    
    2002
    
    2003Company name
    
    Total
    
    Total
    
    Direct
    
    Indirect
    
    TotalEnigesa S.A.
    
    
    100.00
    
    
    
    100.00
    
    
    
    99.51
    
    
    
    0.49
    
    
    
    100.00Ingendesa S.A.
    
    
    97.64
    
    
    
    97.64
    
    
    
    96.39
    
    
    
    1.25
    
    
    
    97.64Pehuenche S.A.
    
    
    93.66
    
    
    
    92.65
    
    
    
    92.65
    
    
    
    
    
    
    
    92.65Endesa Argentina S.A.
    
    
    99.99
    
    
    
    99.99
    
    
    
    99.99
    
    
    
    
    
    
    
    99.99Endesa-Chile Internacional
    
    
    100.00
    
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    100.00Pangue S.A.
    
    
    92.48
    
    
    
    94.99
    
    
    
    94.97
    
    
    
    0.02
    
    
    
    94.99Hidroinvest S.A.
    
    
    69.93
    
    
    
    69.93
    
    
    
    
    
    
    
    69.93
    
    
    
    69.93Infraestructura Dos Mil S.A. (1)
    
    
    60.00
    
    
    
    60.00
    
    
    
    
    
    
    
    
    
    
    
    Hidroeléctrica El Chocón S.A.
    
    
    65.19
    
    
    
    65.19
    
    
    
    
    
    
    
    65.19
    
    
    
    65.19Central Costanera S.A.
    
    
    51.93
    
    
    
    51.93
    
    
    
    12.33
    
    
    
    51.93
    
    
    
    64.26Endesa Brasil Participacoes Ltda.
    
    
    100.00
    
    
    
    100.00
    
    
    
    5.00
    
    
    
    95.00
    
    
    
    100.00Túnel El Melón S.A.
    
    
    99.95
    
    
    
    99.95
    
    
    
    99.95
    
    
    
    
    
    
    
    99.95Soc. Concesionaria Autopista del Sol S.A. (1)
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    
    
    
    
    Inecsa 2000 S.A. (1)
    
    
    97.32
    
    
    
    97.32
    
    
    
    
    
    
    
    
    
    
    
    Soc. Concesionaria Autopista Los Libertadores S.A. (1)
    
    
    99.95
    
    
    
    99.95
    
    
    
    
    
    
    
    
    
    
    
    Compañía Eléctrica Cono Sur S.A.
    
    
    100.00
    
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    100.00Central Hidroeléctrica Betania S.A.
    
    
    85.62
    
    
    
    85.62
    
    
    
    
    
    
    
    85.62
    
    
    
    85.62Endesa de Colombia S.A.
    
    
    100.00
    
    
    
    100.00
    
    
    
    5.10
    
    
    
    94.90
    
    
    
    100.00Lajas Inversora S.A.
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    100.00
    
    
    
    100.00Centrais Electricas Cachoeira Dourada S.A.
    
    
    99.51
    
    
    
    99.59
    
    
    
    
    
    
    
    99.61
    
    
    
    99.61Capital de Energía S.A.
    
    
    50.90
    
    
    
    50.90
    
    
    
    
    
    
    
    50.90
    
    
    
    50.90Emgesa S.A (2)
    
    
    48.48
    
    
    
    48.48
    
    
    
    
    
    
    
    48.48
    
    
    
    48.48Edegel S.A.
    
    
    63.56
    
    
    
    63.56
    
    
    
    
    
    
    
    63.56
    
    
    
    63.56Generandes Perú S.A.
    
    
    59.63
    
    
    
    59.63
    
    
    
    
    
    
    
    59.63
    
    
    
    59.63Compañía Eléctrica San Isidro S.A. (3)
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    100.00
    
    
    
    100.00Compañía Eléctrica Tarapacá S.A.
    
    
    100.00
    
    
    
    100.00
    
    
    
    99.90
    
    
    
    0.10
    
    
    
    100.00Inversiones Endesa Norte S.A.
    
    
    100.00
    
    
    
    100.00
    
    
    
    99.99
    
    
    
    0.01
    
    
    
    100.00Ingendesa Do Brasil Limitada
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    100.00
    
    
    
    100.00
  (1)
    
    On June 23, 2003 these companies were sold as part of the sale of
Infraestructura Dos Mil.(2)
    
    Endesa-Chile exercises control over this company pursuant to a shareholders
agreement.(3)
    
    Endesa-Chile owns 100% of the class A shares of Compañía Eléctrica San
Isidro which compose 50% share capital ofthis company and are the only shares with voting rights. F-20




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##### Table of Contents



Endesa-Chile and
SubsidiariesNotes to the Audited Consolidated Financial
StatementsTranslation of financial statements originally issued
in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 2. Summary of Significant Accounting Policies, continued: The participation in voting rights is equal to economic participation in all
subsidiaries apart from those presented in the following table. Economic
interest of the Company in a subsidiary or related company is calculated by
multiplying the percentage ownership interest of the Company in a directly held
subsidiary or related company by the percentageo ownership interest of any
entity in the chain of ownership or such ultimate subsidiary or related
company. Economic participation is the Companys share in earnings or losses
of the subsidiary, which is not always equal to the Companys voting interest. Percentage of economic participation as of December 31,2001
    
    2002
    
    2003Lajas Inversora S.A.
    
    
    92.88
    
    
    
    92.88
    
    
    
    92.88Centrais Electricas Cachoeira Dourada S.A.
    
    
    92.51
    
    
    
    92.51
    
    
    
    92.51Emgesa S.A.
    
    
    22.36
    
    
    
    22.36
    
    
    
    22.36Edegel S.A.
    
    
    37.90
    
    
    
    37.90
    
    
    
    37.90Capital de Energía S.A.
    
    
    43.58
    
    
    
    43.58
    
    
    
    43.58Compañía Eléctrica San Isidro S.A.
    
    
    75.00
    
    
    
    75.00
    
    
    
    75.00Hidroeléctrica El Chocon S.A.
    
    
    47.45
    
    
    
    47.45
    
    
    
    47.45
 b) Constant currency restatement: The cumulative inflation rate in Chile as measured by the Chilean Consumer
Price Index (CPI) for the three-year period ended December 31, 2003 was
approximately 7.25%. Chilean GAAP requires that the financial statements be restated to reflect the
full effects of changes in the purchasing power of the Chilean peso on the
financial position and results of operations of reporting entities. The method
described below 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. The model prescribes that the
historical cost of all non-monetary accounts be restated for general
price-level changes between the date of origin of each item and the year-end. The financial statements of the Company have been price-level restated in order
to reflect the effects of the changes in the purchasing power of the Chilean
currency during each year. All non-monetary assets and liabilities, all equity
accounts and income statement accounts have been restated to reflect the
changes in the CPI from the date they were acquired or incurred to year-end
(see also Note 22). The resulting gain or loss included in net income reflects the effects of
Chilean inflation on the monetary assets and liabilities held by the Company. The restatements were calculated using the official consumer price index of
the National Institute of Statistics and based on the prior-month rule, in
which the inflation adjustments are based on the CPI 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 that most closely complies with the
technical requirement to reflect the variation in the general level of prices
in Chile, and consequently it is widely used for financial reporting purposes. F-21




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##### Table of Contents



Endesa-Chile and
SubsidiariesNotes to the Audited Consolidated Financial
StatementsTranslation of financial statements originally issued
in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 2. Summary of Significant Accounting Policies, continued: The values of the Chilean consumer price indices used to reflect the effects
of the changes in the purchasing power of the Chilean peso (price-level
restatement) are as follows: Change over PreviousIndex
    
    November 30,November 30, 2001
    
    
    110.10
    
    
    
    3.1
    %November 30, 2002
    
    
    113.36
    
    
    
    3.0
    %November 30, 2003
    
    
    114.44
    
    
    
    1.0
    %
 By way of comparison, the actual values of the Chilean consumer price indices
as of the balance sheet dates are as follows: Change over PreviousIndex
    
    December 31,December 31, 2001
    
    
    109.76
    
    
    
    2.6
    %December 31, 2002
    
    
    112.86
    
    
    
    2.8
    %December 31, 2003
    
    
    114.07
    
    
    
    1.1
    %
 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 net income or loss for each year the
gain or loss in purchasing power arising from the holding of monetary assets
and liabilities exposed to the effects of inflation. Index-linked assets and liabilities Assets and liabilities that are denominated in index-linked units of account
are stated at the year-end values of the respective units of account. The
principal index-linked unit used in Chile is the Unidad de Fomento(UF),
which is adjusted daily to reflect the changes in Chiles CPI. Certain of the
Companys investments are linked to the UF. As the Companys indexed
liabilities exceed its indexed assets, the increase in the index results in a
net loss. Values for the UF are as follows (historical Chilean pesos per UF): Ch$December 31, 2001
    
    
    16,262.92December 31, 2002
    
    
    16,744.12December 31, 2003
    
    
    16,920.00
 F-22




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##### Table of Contents



Endesa-Chile and
SubsidiariesNotes to the Audited Consolidated Financial
StatementsTranslation of financial statements originally issued
in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 2. Summary of Significant Accounting Policies, continued: Comparative financial statements For comparative purposes, the historical December 31, 2002 consolidated
financial statements and their accompanying notes have been presented in
constant Chilean pesos as of December 31, 2003. Amounts previously presented
in constant Chilean pesos as of each balance sheet date have been adjusted by
the percentage changes in the CPI to December 31, 2003 as follows: Year
    
    Change in Index2001
    
    
    4.0
    %(1)2002
    
    
    1.0
    %(2)
  (1)
    
    Equivalent to the amounts for 2001 multiplied by the change in the CPI for
2002, then by the change in the CPI for 2003.(2)
    
    Equivalent to the amounts for 2002 multiplied by the change in the CPI for
2003. This updating does not change the prior years statements or information in any
way except to update the amounts to constant Chilean pesos of similar
purchasing power. Convenience translation to U.S. dollars The financial statements are stated in Chilean pesos. The translations of
Chilean pesos into US dollars are included solely for the convenience of the
reader, using the observed exchange rate reported by the Chilean Central Bank
as of December 31, 2003 of Ch$ 593.80 to US$ 1.00. The convenience
translations should not be construed as representations that the Chilean peso
amounts have been, could have been, or could in the future be, converted into
US dollars at this or any other rate of exchange. F-23




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##### Table of Contents



Endesa-Chile and
SubsidiariesNotes to the Audited Consolidated Financial
StatementsTranslation of financial statements originally issued
in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  2.
    
    Summary of Significant Accounting Policies, continued:c)
    
    Assets and liabilities denominated in foreign currencies: Assets and liabilities denominated in foreign currencies are detailed in Note
30. These amounts have been stated at the observed rates of exchange reported
by the Central Bank of Chile as of each year-end as follows: Currency
    
    Symbol used
    
    2001
    
    2002
    
    2003Ch$
    
    Ch$
    
    Ch$United States dollar
(Observed)
    
    US$
    
    
    654.79
    
    
    
    718.61
    
    
    
    593.80British pound sterling
    
    £
    
    
    948.01
    
    
    
    1,152.91
    
    
    
    1,056.21Colombian peso
    
    $Col
    
    
    0.29
    
    
    
    0.25
    
    
    
    0.21New Peruvian sol
    
    Soles
    
    
    190.29
    
    
    
    204.73
    
    
    
    171.62Brazilian real
    
    Rs
    
    
    282.97
    
    
    
    203.57
    
    
    
    205.52Japanese yen
    
    ¥
    
    
    4.99
    
    
    
    6.07
    
    
    
    5.55Euro
    
    
    
    
    578.18
    
    
    
    752.55
    
    
    
    744.95French Franc (1)
    
    FFr
    
    
    88.36
    
    
    
    N/A
    
    
    
    N/APool Unit (IBRD) (2)
    
    UP
    
    
    7,742,160.26
    
    
    
    9,089,158.76
    
    
    
    8,408,776.27Unidad de Fomento (UF)
    
    UF
    
    
    16,262.66
    
    
    
    16,744.12
    
    
    
    16,920.00Unit of Account (IBD) (2)
    
    UC
    
    
    929.26
    
    
    
    1,093.75
    
    
    
    970.23Argentine peso (3)
    
    $Arg
    
    
    385.17
    
    
    
    219.09
    
    
    
    200.61
  (1)
    
    Beginning on January 1, 2002, this currency is expressed in the
Euro.(2)
    
    Units of measurement used by the International Bank for
Reconstruction and Development (IBRD) and Interamerican Development
Bank (IDB) to express the weighted-average of multicurrency loan
obligations granted using fixed currency ratios to the US dollar, at a
determined date.(3)
    
    In the years prior to December 31, 2001, the Argentine peso had
been pegged to the US dollar at a rate of 1 Argentine peso to 1 US
dollar. In early December 2001, restrictions were put in place that
prohibited cash withdrawals above a certain amount and foreign money
transfers, with certain limited exceptions. While the legal exchange
rate remained at 1 peso to 1 US dollar, financial institutions were
allowed to conduct only limited activity due to these controls, and
currency exchange activity was effectively halted except for personal
transactions in small amounts. In January 2002, the Argentine
government announced its intent to create a dual currency system with
an official fixed exchange rate of 1.4 pesos to 1 US dollar for
import, and export transactions and a free floating exchange rate
for other transactions. On January 11, 2002, the exchange rate market
holiday ended and closing new free floating exchange rates ranged
from 1.6 to 1.7 pesos to 1 US dollar notwithstanding the official
foreign exchange rate as of December 31, 2001, in accordance with SVS
Circular No. 81. The conversion of Argentine subsidiary financial
statements reflect the observed rates of exchange of 2.94 pesos to 1
US dollar as of December 31, 2003. F-24




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##### Table of Contents



Endesa-Chile and
SubsidiariesNotes to the Audited Consolidated Financial
StatementsTranslation of financial statements originally issued
in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 2. Summary of Significant Accounting Policies, continued: d) Time deposits and Marketable securities: Time deposits are presented at cost plus accrued interest and UF indexation
adjustments, as applicable. Marketable securities consist primarily of mutual
funds and are stated at market value. e) Accounts receivable and Allowance for doubtful accounts: Accounts receivable are classified as current or long-term, depending on their
collection terms. Current and long-term trade accounts receivable, notes
receivable and other receivables are presented net of allowances for doubtful
accounts (see Note 5). The Company establishes its allowance for doubtful
accounts based on the aging of the accounts and prior experience with specific
accounts. Long-term receivables bear an immaterial imputed interest. f) Inventories: Inventories primarily include fuels for the generation of electricity and are
valued at the lower of price-level restated average cost or net realizable
value. Inventories are presented net of a provision for obsolescence. g) Property, plant and equipment: Until 1980, property, plant and equipment were previously valued at net
replacement cost as determined by the Chilean Superintendency of Electricity
and Fuels adjusted for price-level restatement in accordance with Decree Law
N° 4 of 1959. Property, plant and equipment are currently shown at contributed amounts or
cost, as appropriate, plus price-level restatement. The interest cost on debt
directly obtained in the construction projects is capitalized during the period
of construction. Costs of maintenance and repairs are expensed as incurred
unless such costs increase the useful life or productivity of the related
assets, in which case the costs are capitalized when incurred. In 1986, an increase based upon a technical appraisal of property, plant and
equipment was recorded in the manner authorized by the SVS in Circulars No.s
550 and 566 dated October 15 and December 16, 1985, respectively, and
Communication No. 4790, dated December 11, 1985. Property, plant and equipment received in leasing which qualify as capital
leases, are accounted for as a purchases of fixed assets at the amount of the
total of the lease obligation and interest expense on an accrual basis. Assets
obtained under financial contracts are not the legal property of the Company
until it decides to exercise the related purchase option. Therefore, the
Company cannot freely dispose of them. In accordance with Chilean GAAP, the Company has evaluated the recoverability
of its foreign investments as required by Technical Bulletins No. 33 and No. 42
of the Chilean Association of Accountants. It is the Companys policy, when
evidence exists of an other than temporary impairment of fixed assets, such
that the Companys operations are not expected to produce sufficient net cash
flows, on a discounted basis, to recover all fixed asset costs, including
depreciation, that the book values of those assets must be reduced to their net
realizable values with a charge to non-operating expense. The Company has not
identified impairments in the net book values of its property, plant and
equipment; however, an impairment of goodwill and negative goodwill was
identified during the end of 2002 (see Note 12). F-25




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##### Table of Contents



Endesa-Chile and
SubsidiariesNotes to the Audited Consolidated Financial
StatementsTranslation of financial statements originally issued
in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 2. Summary of Significant Accounting Policies, continued: h) Depreciation: Depreciation expense is calculated on the price-level restated balances using
the straight-line method over the estimated useful lives of the assets.
Depreciation expense was ThCh$ 187,274,592, ThCh$ 197,817,210 and ThCh$
179,488,622 as of December 31, 2001, 2002 and 2003, respectively. i) Investments in related companies: Investments in related companies are included in Other assets using the
equity method. This accounting method recognizes in income the Companys
proportionate share in the net income or loss of each investee on the accrual
basis (Note 10). Investments in foreign affiliates are recorded in accordance with Technical
Bulletin No. 64 of the Chilean Association of Accountants (see Note 2(j)). Investments in other companies are presented at acquisition cost adjusted for
price-level restatement. j) Foreign investments: Under Technical Bulletin No. 64 of the Chilean Association of Accountants,
investments in foreign subsidiaries and equity method investees are price-level
restated, the effects of which are reflected in income, while the effects of
the foreign exchange gains or losses between the Chilean peso and the US dollar
on the foreign investment measured in US dollars, are reflected in equity in
the account Cumulative Translation Adjustment. k) Other intangibles: Intangibles, other than goodwill, correspond primarily to easements and rights
for the use of waterways and are amortized over periods not exceeding 40 years
in accordance with Technical Bulletin No. 55 of the Chilean Association of
Accountants. l) Goodwill and negative goodwill: Goodwill and negative goodwill are determined according to Circular No. 368 of
the SVS based on differences between the purchase price and the recorded book
values of the company acquired at the effective acquisition date. Amortization
is determined using the straight-line method, considering the nature and
characteristic of each investment, foreseeable life of the business and
investment return, and does not exceed 20 years. The Company has evaluated the recoverability of its recorded goodwill and
negative goodwill in accordance with Technical Bulletin No. 56 and Statement
of International Accounting Standard No. 36 (IAS No. 36) Impairment of
Assets. F-26




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##### Table of Contents



Endesa-Chile and
SubsidiariesNotes to the Audited Consolidated Financial
StatementsTranslation of financial statements originally issued
in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 2. Summary of Significant Accounting Policies, continued: m) Revenue recognition: Revenues are recognized at the time energy is supplied to the customer and
collectibility is reasonably assured. Energy supplied and unbilled at each
year-end is valued at the selling price using the current rates and has been
included in revenue from operations. The unbilled amount is presented in
current assets as trade receivables and the corresponding cost is included in
cost of operations. The Company recognizes revenue generated from engineering
and inspection services and highway tolls at the time the related services are
provided. n) Income tax and deferred income taxes: The Company records income taxes in accordance with Technical Bulletin No. 60
and complementary technical bulletins thereto issued by the Chilean
Association of Accountants, and with Circulars No. 1466 and No. 1560 issued by
the SVS, recognizing, using the liability method, the deferred tax effects of
temporary differences between the financial and tax values of assets and
liabilities. As a transitional provision at the date of adoption, 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 contra
asset or liability must be amortized to income over the estimated average
reversal periods corresponding to the underlying temporary differences to
which the deferred tax asset or liability relates calculated using the tax
rates to be in effect at the time of reversal. For the years ended December
31, 2001, 2002 and 2003, the Company recorded current tax expense according to
the tax laws and regulations within each country of ThCh$ 28,365,764, ThCh$
40,086,586 and ThCh$ 50,161,138, respectively. A provision for the Article 21
tax of the Income Law (Impuesto Unico del Art. 21 de la Ley de la Renta) has
also been made in the amount of ThCh$ 40,186, ThCh$ 108,851 for the years
ended December 31, 2001 and 2002 and a benefit for the Article 21 tax of ThCh$
74,702 was recorded for the year ended December 31, 2003. o) Accrued vacation expense: In accordance with Technical Bulletin No. 47 issued by the Chilean Association
of Accountants, employee vacation expenses are recorded on the accrual basis. p) Severance indemnity: The severance indemnity that under collective bargaining agreements the Company
is obliged to pay to its employees who have completed 15 years of service is
stated at the present value of the benefit under the vested cost method,
discounted at 9.5%. The value of the obligation is calculated based on an
average employment span of 35 years for employees with 15 years or more service
and includes 75% of the benefit related to employees with less than the
required 15 years. q) Pension and post-retirement benefits: Pension and post-retirement benefits are recorded in accordance with the
respective employee collective bargaining agreements based on the actuarially
determined projected benefit obligation using a discount rate of 9.5% less an
asset for the unrecognized transition obligation. The asset was recorded in
1999 as a deferred charge when the Company for the first time accounted for
pensions and post-retirement benefits using the actuarial method and is being
amortized over 5 years. F-27




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##### Table of Contents



Endesa-Chile and
SubsidiariesNotes to the Audited Consolidated Financial
StatementsTranslation of financial statements originally issued
in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 2. Summary of Significant Accounting Policies, continued: r) Statements of cash flows:   As of December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Cash
    
    
    5,074,480
    
    
    
    7,525,362
    
    
    
    5,508,484Time deposits
    
    
    89,841,562
    
    
    
    116,568,272
    
    
    
    156,946,516Marketable securities
    
    
    
    
    
    
    
    
    
    
    1,191,678Total cash and cash equivalents
    
    
    94,916,042
    
    
    
    124,093,634
    
    
    
    163,646,678
  (ii)
    
    Restatement of financial statements as of and for the year ended December
31, 2001We have reclassified:(1)
    
    cash outflow of ThCh$85,953,315 for interest payments previously
classified in Payment of bonds (financing) to Other accounts payable
associated with non-operating results (operating), in the amount of
ThCh$78,596,592, and to Decrease in interest payable (operating) in the
amount of ThCh$7,356,723 and(2)
    
    a net cash inflow of ThCh$17,470,297 from the settlement of forward
exchange contracts, used to hedge the Companys exposure to the U.S.
dollar, previously classified in Other charges to income not representing
cash flows (operating) to Other sources of financing (financing), in
the amount of ThCh$27,862,275 (for receipts from derivative contracts) and
Other disbursements for financing, in the amount of ThCh$10,391,978 (for
cash outflow from these derivative contracts).(3)
    
    a cash outflow of ThCh$111,018,111 from the repurchase of Yankee bonds,
previously classified in Repurchase of Yankee bonds (investing) to
Payment of bonds (financing). Statement of cash-flow reclassifications for the year ended December 31, 2001 ThCh$From:Other charges to income which do not
represent cash-flows
    
    
    (17,470,297
    )Payment of bonds
    
    
    85,953,315Repurchase of Yankee bonds
    
    
    111,018,111Total
    
    
    179,501,129
 ThCh$To:Decrease in interest payable
    
    
    (7,356,723
    )Other sources of financing
    
    
    27,862,275Other accounts payable
associated with non-operating
result
    
    
    (78,596,592
    )Other disbursements for financing
    
    
    (10,391,978
    )Payment of bonds
    
    
    (111,018,111
    )Total
    
    
    (179,501,129
    )
 F-28




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##### Table of Contents



Endesa-Chile and
SubsidiariesNotes to the Audited Consolidated Financial
StatementsTranslation of financial statements originally issued
in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 2. Summary of Significant Accounting Policies, continued: s) Bonds: Bonds payable are recorded at the face value of the bonds. The difference
between the face value and the placement value, equal to the premium or
discount, is deferred and amortized over the term of the bonds (see Note 17).
Discounts on the bond issuances of Endesa-Chile and its subsidiaries deferred
over the term of the respective bonds amounted to ThCh$ 12,189,522 and ThCh$
13,559,306 as of December 31, 2002 and 2003, respectively, presented in Other
assets. t) Financial derivative contracts: As of December 31, 2002 and 2003, the Company has forward contracts, currency
swaps, and interest swaps and collars with various financial institutions,
which are recorded according to Technical Bulletin No. 57 of the Chilean
Association of Accountants. Forward foreign exchange contracts gains and losses
are recorded at estimated fair value with certain gains and losses deferred
until settlement if the instrument qualifies as a hedge and is included in
earnings as Other non-operating income and expense. u) Research and development costs: Costs incurred in research and development by the Company which are general in
nature (water-level studies, hydroelectric research, seismic-activity surveys)
are expensed as incurred. Studies related to specific and approved construction
projects are capitalized. During the years ended December 31, 2001, 2002 and
2003 no such costs were incurred. v) Computer software: The Company has deferred the costs of purchased computer software packages,
which are being amortized over a period of three years. w) Cost of sales and Administrative and selling expenses: The cost of sales line item in the Consolidated Statements of Income includes
the cost of: purchased energy and power, materials and fuel used in our
operations, tolls, energy transportation, direct production salaries,
depreciation, amortization, and maintenance of productive assets and other
costs of operations. The administrative and selling expense line item in the
Consolidated Statements of Income includes the cost of: general administration
of the company, office supplies and materials, overhead salaries, the allowance
for doubtful accounts, amortization and depreciation of assets that are not
used in the production process. x) Cost recovery: The Company has not recognized any assets for expected recoveries, through
insurance or from others, related to litigation and other legal actions, in
the periods presented. The Company records such recoveries only in the case
that it is virtually certain such recoveries will be realized. In the case
that the Company does record expected recoveries, the Companys policy is to
record such amounts as an asset in our consolidated balance sheet, unless a
right of offset clearly exists. F-29




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  3.
    
    Changes in Accounting Principles: There were no changes in accounting principles during the years ended December
31, 2002 and 2003 that would affect the comparability with previously issued
financial statements.  4.
    
    Time deposits: Time deposits as of December 31, 2002 and 2003 and the applicable annual
interest rates and scheduled maturities as of December 31, 2003 are as follows: As of December 31,Annual
    
    ScheduledFinancial Institution
    
    Rate
    
    Maturity
    
    2002
    
    2003%
    
    
    
    
    
    ThCh$
    
    ThCh$Banco BBM
    
    
    
    
    
    
    
    
    
    
    1,064,100
    
    
    
    Banco Bilbao Vizcaya
    
    
    7.84
    %
    
    Jan 01, 2004
    
    
    
    
    
    
    43,123,656Banco Boston
    
    
    0.80
    %
    
    Jan 01, 2004
    
    
    
    
    
    
    440,462Banco Bradesco
    
    
    1.37
    %
    
    Jan 15, 2004
    
    
    2,703,940
    
    
    
    855,934Banco Citibank N.A.
    
    
    0.15
    %
    
    Jan 01, 2004
    
    
    
    
    
    
    135,461Banco Continental
    
    
    1.99
    %
    
    Jan 08, 2004
    
    
    3,402,753
    
    
    
    2,104,459Banco de Credito
    
    
    
    
    
    
    
    
    
    
    1,669,331
    
    
    
    Banco Frances
    
    
    
    
    
    
    
    
    
    
    444,239
    
    
    
    Banco Holandes
    
    
    
    
    
    
    
    
    
    
    436,058
    
    
    
    Banco Interbank
    
    
    0.70
    %
    
    Jan 08, 2004
    
    
    2,891,618
    
    
    
    646,681Banco Itau
    
    
    
    
    
    
    
    
    
    
    215,200
    
    
    
    Banco Nationale de Paris
    
    
    1.44
    %
    
    Jan 01, 2004
    
    
    700,763
    
    
    
    404,796Banco Pactual
    
    
    1.39
    %
    
    Jan 15, 2004
    
    
    2,952,372
    
    
    
    2,698,006Banco Rio de la Plata
    
    
    1.20
    %
    
    Jan 05, 2004
    
    
    1,966,534
    
    
    
    2,222,352Banco Santander
    
    
    1.49
    %
    
    Jan 15, 2004
    
    
    1,756,462
    
    
    
    2,124,227Banco Santos
    
    
    1.39
    %
    
    Jan 15, 2004
    
    
    
    
    
    
    861,954Banco Votorantim
    
    
    1.39
    %
    
    Jan 15, 2004
    
    
    2,258,787
    
    
    
    981,676Banco Wiese Sudameris
    
    
    
    
    
    
    
    
    
    
    435,478
    
    
    
    Bancolombia
    
    
    6.99
    %
    
    Jan 01, 2004
    
    
    
    
    
    
    5,313,388Bank of America
    
    
    0.56
    %
    
    Jan 05, 2004
    
    
    5,373,623
    
    
    
    16,444,649Bonos de la Paz
    
    
    
    
    
    
    
    
    
    
    1,359
    
    
    
    Certificado de Deposito Termino
    
    
    6.72
    %
    
    Jan 04, 2004
    
    
    
    
    
    
    1,520Citi trust
    
    
    6.94
    %
    
    Jan 01, 2004
    
    
    480
    
    
    
    4,471Citibank
    
    
    1.03
    %
    
    Jan 04.2004
    
    
    526,285
    
    
    
    36,373,638Citibank New York
    
    
    0.84
    %
    
    Jan 01, 2004
    
    
    50,625,162
    
    
    
    3,981,139Citiliquit
    
    
    0.95
    %
    
    Jan 01, 2004
    
    
    
    
    
    
    3,077,936Corfinsura
    
    
    1.41
    %
    
    Jan 01, 2004
    
    
    
    
    
    
    1,968,859Corfivalle
    
    
    1.70
    %
    
    Jan 01, 2004
    
    
    
    
    
    
    4,513,569Credifondos
    
    
    
    
    
    
    
    
    
    
    2,302,034
    
    
    
    Fam Fondo Ganadero
    
    
    6.48
    %
    
    Jan 01, 2004
    
    
    
    
    
    
    106,930Fiduciaria del Valle
    
    
    7.30
    %
    
    Jan 01, 2004
    
    
    768,985
    
    
    
    1,722,823Fiducolombia
    
    
    8.14
    %
    
    Jan 01, 2004
    
    
    
    
    
    
    1,095,663HSBC  Bamerindus
    
    
    1.39
    %
    
    Jan 15, 2004
    
    
    4,420,731
    
    
    
    7,832,523Porvenir
    
    
    3.22
    %
    
    Jan 01, 2004
    
    
    
    
    
    
    14,906,595Serfinco
    
    
    8.05
    %
    
    Jan 01, 2004
    
    
    
    
    
    
    88,380Suvalor
    
    
    10.10
    %
    
    Jan 01, 2004
    
    
    4,055,607
    
    
    
    1,165,93690,971,901
    
    
    
    155,197,683
 F-30




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  5.
    
    Accounts, notes and other receivables:(i)
    
    Current accounts, notes and other receivables and related allowances
for doubtful accounts as of December 31, 2002 and 2003 are as follows: As of December 31,2002
    
    2003Under 90
    
    91 days
    
    
    
    
    
    
    
    
    
    Under 90
    
    91 days toAccount
    
    days
    
    to 1 year
    
    Allowance
    
    Total
    
    Days
    
    1 year
    
    Allowance
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Accounts
Receivable
    
    
    80,210,635
    
    
    
    13,391,442
    
    
    
    (4,464,992
    )
    
    
    89,137,085
    
    
    
    99,380,175
    
    
    
    2,752,183
    
    
    
    (2,603,528
    )
    
    
    99,528,830Notes receivable
    
    
    435,751
    
    
    
    584,805
    
    
    
    
    
    
    
    1,020,556
    
    
    
    738,742
    
    
    
    475,825
    
    
    
    (93,154
    )
    
    
    1,121,413Other
Receivables
    
    
    8,928,118
    
    
    
    10,117,600
    
    
    
    (944,007
    )
    
    
    18,101,711
    
    
    
    3,663,252
    
    
    
    48,156,407
    
    
    
    (870,073
    )
    
    
    50,949,586Total
    
    
    89,574,504
    
    
    
    24,093,847
    
    
    
    (5,408,999
    )
    
    
    108,259,352
    
    
    
    103,782,169
    
    
    
    51,384,415
    
    
    
    (3,566,755
    )
    
    
    151,599,829
 Net long-term other receivables as of December 31, 2002 and 2003 are
ThCh$19,349,010 and ThCh$16,676,098, respectively, and are presented on the
balance sheet net of an allowance for doubtful accounts of ThCh$ 175,959
and ThCh$ 112,148, respectively.  (ii)
    
    Current and long-term accounts receivable per country as of December 31,
2002 and 2003 are as follows: As of December 31,Country
    
    2002
    
    2003ThCh$
    
    %
    
    ThCh$
    
    %Chile
    
    
    57,005,704
    
    
    
    44.67
    
    
    
    82,403,609
    
    
    
    48.97Peru
    
    
    23,658,029
    
    
    
    18.54
    
    
    
    17,732,756
    
    
    
    10.54Argentina
    
    
    6,396,166
    
    
    
    5.02
    
    
    
    14,304,642
    
    
    
    8.49Colombia
    
    
    20,088,585
    
    
    
    15.74
    
    
    
    20,762,811
    
    
    
    12.34Brazil
    
    
    19,485,955
    
    
    
    15.27
    
    
    
    32,776,575
    
    
    
    19.48Panama
    
    
    973,923
    
    
    
    0.76
    
    
    
    295,534
    
    
    
    0.18Total
    
    
    127,608,362
    
    
    
    100.00
    
    
    
    168,275,927
    
    
    
    100.00
 F-31




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  5.
    
    Accounts, notes and other receivables, continued:  (iii)
    
    Changes in the allowance for doubtful accounts are as follows: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Beginning balance
    
    
    3,592,584
    
    
    
    5,158,399
    
    
    
    5,584,958Charged to expense
    
    
    1,319,876
    
    
    
    1,127,732
    
    
    
    589,252Deductions
    
    
    
    
    
    
    (70,038
    )
    
    
    (2,118,667
    )Other
    
    
    245,939
    
    
    
    (631,135
    )
    
    
    (376,640
    )Ending balance
    
    
    5,158,399
    
    
    
    5,584,958
    
    
    
    3,678,903
  (iv)
    
    Sales recorded but not invoiced as of December 31 2001, 2002, and
2003 are ThCh$ 62,810,661, ThCh$ 60,659,280 and ThCh$ 57,766,766, respectively. F-32




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)    6.
    
    Transactions with Related Companies: Balances of accounts receivable and payable classified according to the nature
of the related company transaction are as follows as of December 31, 2002 and
2003: a. Notes and accounts receivable due from related companies: As of December 31,Short-term
    
    Long-termCompany Name
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Transmisora Eléctrica de Quillota Ltda. (1)
    
    
    307,264
    
    
    
    306,210
    
    
    
    890,930
    
    
    
    594,249Atacama Finance Co. (2)
    
    
    183,867,365
    
    
    
    1,904,970
    
    
    
    
    
    
    
    128,184,900Cía de Energía del Mercosur S.A.
    
    
    4,467,110
    
    
    
    5,058,905
    
    
    
    
    
    
    
    Chilectra S.A.
    
    
    9,814,157
    
    
    
    10,916,580
    
    
    
    
    
    
    
    Cía. Interconexión Energética S.A.
    
    
    4,140,271
    
    
    
    2,664,652
    
    
    
    
    
    
    
    Codensa S.A.
    
    
    15,071,156
    
    
    
    19,649,343
    
    
    
    
    
    
    
    Edelnor S.A.
    
    
    2,611,419
    
    
    
    2,070,382
    
    
    
    
    
    
    
    Empresa Eléctrica de Bogotá S.A.
    
    
    173,464
    
    
    
    34,433
    
    
    
    
    
    
    
    Empresa Eléctrica Piura S.A.
    
    
    176,951
    
    
    
    1,589
    
    
    
    
    
    
    
    Ingendesa Do Brasil Ltda.
    
    
    
    
    
    
    
    
    
    
    16,181
    
    
    
    Enersis S.A.
    
    
    180,890
    
    
    
    163,985
    
    
    
    
    
    
    
    Etevensa
    
    
    128,705
    
    
    
    80,447
    
    
    
    
    
    
    
    Gasoducto Tal Tal Ltda.
    
    
    146,320
    
    
    
    
    
    
    
    
    
    
    
    Gas Atacama Generación Ltda.
    

    
    576,149
    
    
    
    29,846
    
    
    
    
    
    
    
    Gas Atacama S.A.
    
    
    
    
    
    
    2,615,689
    
    
    
    
    
    
    
    Compañía Americana de Multiservicios Ltda.
    
    
    18,025
    
    
    
    
    
    
    
    
    
    
    
    Central Generadora Termoeléctrica de
Fortaleza S.A.
    
    
    3,900
    
    
    
    103,206
    
    
    
    
    
    
    
    Synapsis Colombia Ltda.
    
    
    15,242
    
    
    
    
    
    
    
    
    
    
    
    Synapsis Soluciones y Servicios IT Ltda.
    
    
    
    
    
    
    18,916
    
    
    
    
    
    
    
    Inversiones Eléctricas Quillota S.A.
    
    
    1,010
    
    
    
    2,000
    
    
    
    
    
    
    
    Elesur S.A.
    
    
    
    
    
    
    2,081
    
    
    
    
    
    
    
    Gasoducto Atacama Chile S.A.
    
    
    
    
    
    
    123,521
    
    
    
    
    
    
    
    Consorcio
Ara - Ingendesa Ltda.
    
    
    
    
    
    
    452,110
    
    
    
    
    
    
    
    221,699,398
    
    
    
    46,198,865
    
    
    
    907,111
    
    
    
    128,779,149
 (1) The long-term receivable with Sociedad Transmisora Eléctrica de Quillota
Limitada resulted from the sale of fixed assets at book value. The receivable
is denominated in UF with accrued interest at an annual rate of 9% and is
being paid in five equal annual installments beginning in December 2002. F-33




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  6.
    
    Transactions with Related Companies, continued: (2) The receivables from Atacama Finance Co. correspond to loans received by
Compañía Eléctrica Cono Sur S.A. for the purpose of financing construction
works of Gasoducto Atacama Argentina S.A., Gasoducto Atacama
Chile S.A. and Gas Atacama Generación S.A. The loans are denominated in US
dollars, bear average weighted interest of 3.40% and mature in March 2005. b. Notes and accounts payable due to related companies: As of December 31,Short-term
    
    Long-termCompany Name
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Compañía de Energía del Mercosur S.A.
    
    
    767,772
    
    
    
    569,799
    
    
    
    
    
    
    
    Compañía de Transmisión del Mercosur
S.A.
    
    
    108,115
    
    
    
    1,008,377
    
    
    
    
    
    
    
    Chilectra S.A.
    
    
    10,984
    
    
    
    27,299
    
    
    
    
    
    
    
    Codensa S.A. (1)
    
    
    18,922,225
    
    
    
    68,843,708
    
    
    
    22,354,521
    
    
    
    Empresa Eléctrica de Bogotá S.A.
    
    
    1,238,933
    
    
    
    2,851,852
    
    
    
    929,744
    
    
    
    84,320Enersis S.A (2)
    
    
    29,749,071
    
    
    
    48,799,445
    
    
    
    23,688,641
    
    
    
    Synapsis Soluciones y Servicios IT Ltda.
    
    
    1,276,866
    
    
    
    1,061,963
    
    
    
    
    
    
    
    Transmisora Eléctrica de Quillota Ltda.
    
    
    83,226
    
    
    
    22,820
    
    
    
    
    
    
    
    Compañía Americana de Multiservicios
Ltda.
    
    
    12,780
    
    
    
    55,900
    
    
    
    
    
    
    
    Electrogas S.A.
    
    
    236,175
    
    
    
    194,463
    
    
    
    
    
    
    
    Enersis Internacional S.A. (3)
    
    
    4,034
    
    
    
    

    
    
    
    2,177,389
    
    
    
    Synapsis Perú S.A.
    
    
    111,781
    
    
    
    8,388
    
    
    
    
    
    
    
    Synapsis Colombia S.A.
    
    
    33,387
    
    
    
    38,087
    
    
    
    
    
    
    
    Compañía Americana Multiser. Perú S.A.
    
    
    7,224
    
    
    
    2,872
    
    
    
    
    
    
    
    Compañía Americana Multiser.Colombia
Ltda.
    
    

    26,855
    
    
    
    55,659
    
    
    
    
    
    
    
    Gasoducto Tal Tal Ltda.
    
    
    162,165
    
    
    
    
    
    
    
    
    
    
    
    Smartcom S.A.
    
    
    
    
    
    
    2,211
    
    
    
    
    
    
    
    Ingendesa Do Brasil
    
    
    
    
    
    
    7,126
    
    
    
    
    
    
    
    Edelnor S.A.
    
    
    6,555
    
    
    
    26,003
    
    
    
    
    
    
    
    Total
    
    
    52,758,148
    
    
    
    123,575,972
    
    
    
    49,150,295
    
    
    
    84,320
 Short-term accounts receivable and payable with related companies are related
to the sales and purchases
of electricity and various services, as well as operating loans. Transactions
for electricity and services have terms
of 30 days for payment and are not readjustable, operating loans are
readjustable and require payment of interest.  (1)
    
    The payable to Codensa S.A. includes a loan of ThCh$ 18,407,800
denominated in US dollars that accrues interest at an average annual rate
of 8.35% and is due on November 10, 2004.  (2)
    
    The payables to Enersis S.A. for both years result mainly from financing
operations. They are denominated
in US dollars and bear interest at Libor+0.955%. In 2003 ThCh$ 3,076,845 of
this balance relates to short-term operating loans. F-34




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)    6.
    
    Transactions with Related Companies, continued: (3) The payables to Enersis Internacional S.A. bear interest of 2.47%. Other short-term receivables and payables bear interest rate of TIP + 0.05%.
TIP is an inter-bank average interest rate, which amounted to 6.17% as of
December 31, 2003.  c.
    
    The most significant transactions and their effects in income
(expense) for each year ended December 31 are as follows: Income (expense)Nature ofCompany
    
    Transaction
    
    2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Atacama Finance Co.
    
    Interest
    
    
    10,156,851
    
    
    
    6,726,455
    
    
    
    5,540,261Price-level restatement
    
    
    4,621,096
    
    
    
    5,038,575
    
    
    
    1,737,790Exchange differences
    
    
    17,203,587
    
    
    
    11,218,729
    
    
    
    (28,991,652
    )Cia. Americana Multiservicios Ltda.
    
    Services provided
    
    
    
    
    
    
    34,138
    
    
    
    72,312Services received
    
    
    
    
    
    
    
    
    
    
    (1,136
    )Central Generadora Termoeléctrica
de Fortaleza
    
    Services provided
    
    
    
    
    
    
    478,557
    
    
    
    1,071,271Exchange differences
    
    
    
    
    
    
    (21,852
    )
    
    
    Com. de Energía del Mercosur S.A.
    
    Sales of energy
    
    
    23,038,719
    
    
    
    19,344,388
    
    
    
    19,987,902Purchases of energy
    
    
    (15,500,667
    )
    
    
    (1,977,795
    )
    
    
    (2,125,804
    )Interest
    
    
    
    
    
    
    (63,144
    )
    
    
    Codensa S.A.
    
    Purchases of energy
    
    
    (10,033,428
    )
    
    
    (13,482,676
    )
    
    
    (11,421,743
    )Sales of energy
    
    
    71,480,134
    
    
    
    74,117,211
    
    
    
    75,147,172Services provided
    
    
    
    
    
    
    105,966
    
    
    
    51,067Services received
    
    
    
    
    
    
    (134,057
    )
    
    
    (440,600
    )Interest
    
    
    (2,349,570
    )
    
    
    (4,306,873
    )
    
    
    (3,100,230
    )Cía. Transmisión del Mercosur S.A.
    
    Purchases of energy
    
    
    (4,025,762
    )
    
    
    (1,411,673
    )
    
    
    (2,058,111
    )Cía. Interconexión Energética S.A.
    
    Sales of energy
    
    
    47,308,136
    
    
    
    27,260,902
    
    
    
    21,407,084Services provided
    
    
    912,416
    
    
    
    137,215
    
    
    
    Empresa Eléctrica de Bogotá
    
    Services received
    
    
    
    
    
    
    
    
    
    
    (2,148,962
    )Empresa Propietaria de la Red
    
    Services provided
    
    
    
    
    
    
    350,464
    
    
    
    149,404Chilectra S.A.
    
    Sales of energy
    
    
    103,626,017
    
    
    
    110,055,612
    
    
    
    122,844,944Services provided
    
    
    803,095
    
    
    
    1,911,773
    
    
    
    2,032,970Services received
    
    
    
    
    
    
    (42,595
    )
    
    
    (82,399
    )Gas Atacama Generación S.A.
    
    Services provided
    
    
    328,628
    
    
    
    
    
    
    
    78,322Empresa Eléctrica Piura S.A.
    
    Sales of energy
    
    
    947,738
    
    
    
    1,562,856
    
    
    
    488,777Enersis S.A.
    
    Interest
    
    
    (319,608
    )
    
    
    (3,485,198
    )
    
    
    (2,101,485
    )Services provided
    
    
    452,098
    
    
    
    558,058
    
    
    
    911,270Exchange differences
    
    
    (3,379,855
    )
    
    
    227,246
    
    
    
    1,851,914Price-level restatement
    
    
    (369,292
    )
    
    
    (581,634
    )
    
    
    (277,296
    )Enersis Internacional S.A.
    
    Interest
    
    
    
    
    
    
    
    
    
    
    (19,151
    )Exchange differences
    
    
    
    
    
    
    
    
    
    
    100,262Price-level restatement
    
    
    
    
    
    
    
    
    
    
    (32,337
    )Enersis de Argentina S.A.
    
    Exchange differences
    
    
    
    
    
    
    1,866
    
    
    
    Etevensa
    
    Sales of energy
    
    
    
    
    
    
    5,815,456
    
    
    
    2,214,085Services provided
    
    
    3,093,945
    
    
    
    
    
    
    
    57,629Electrogas S.A.
    
    Purchase of gas
    
    
    
    
    
    
    (3,003,372
    )
    
    
    (2,618,015
    )Services provided
    
    
    (2,474,130
    )
    
    
    5,117
    
    
    
    2,384Edelnor S.A.
    
    Sales of energy
    
    
    
    
    
    
    29,063,279
    
    
    
    28,019,575Smartcom S.A.
    
    Services provided
    
    
    32,635,662
    
    
    
    2,081
    
    
    
    Endesa Internacional S.A.
    
    Interest
    
    
    181,813
    
    
    
    (4,034
    )
    
    
    Cam Colombia Ltda.
    
    Services received
    
    
    16,133
    
    
    
    (311,959
    )
    
    
    (318,277
    )Services provided
    
    
    
    
    
    
    
    
    
    
    2,969Elesur S.A.
    
    Services provided
    
    
    
    
    
    
    
    
    
    
    17,199Subtotal
    
    
    
    
    278,353,756
    
    
    
    265,189,082
    
    
    
    228,049,365
 F-35




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 6. Transactions with Related Companies, continued:  c.
    
    The most significant transactions and their effects in income (expense)
for each year ended December 31, continued: Income (expense)Nature ofCompany
    
    Transaction
    
    2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Subtotal from previous page
    
    
    
    
    278,353,756
    
    
    
    265,189,082
    
    
    
    228,049,365Synapsis Sol y Serv. IT Ltda.
    
    Services received
    
    
    (241,217
    )
    
    
    (3,220,908
    )
    
    
    (2,384,966
    )Services provided
    
    
    
    
    
    
    2,754
    
    
    
    96,922Synapsis Argentina
    
    Services received
    
    
    
    
    
    
    (41,520
    )
    
    
    Synapsis Colombia
    
    Services received
    
    
    
    
    
    
    (395,967
    )
    
    
    (374,688
    )Consorcio ARA  Ingendesa Ltda.
    
    Services provided
    
    
    
    
    
    
    
    
    
    
    2,122,834Services received
    
    
    
    
    
    
    
    
    
    
    (45,740
    )Transmisora Eléc. de Quillota Ltda.
    
    Interests
    
    
    135,751
    
    
    
    145,491
    
    
    
    107,246Services provided
    
    
    
    
    
    
    5,117
    
    
    
    157,244Services received
    
    
    
    
    
    
    
    
    
    
    (28,950
    )Price-level restatement
    
    
    
    
    
    
    44,434
    
    
    
    24,733Endesa Servicios Generales S.A.
    
    Services received
    
    
    
    
    
    
    
    
    
    
    (122,745
    )Enersis Energía de Colombia S.A.
    
    Sale of energy
    
    
    2,963,870
    
    
    
    
    
    
    
    Total
    
    
    
    
    281,212,160
    
    
    
    261,728,483
    
    
    
    227,601,255
  These transactions were carried out at prices that approximate market
value.The transfer of short-term funds between related companies, which funds are
not for collection or payment of services, is on the basis of a current cash
account, at a variable interest rate based on market conditions. The
resulting accounts receivable and accounts payable are essentially on 30-day
terms, with automatic rollover for the same period and settlement in line
with cash flows.  7.
    
    Income taxes:a.
    
    Taxes recoverable (payable) as of each year-end are as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Income tax payable
    
    
    (4,512,902
    )
    
    
    (6,567,829
    )Income tax recoverable
    
    
    8,795,363
    
    
    
    9,054,254VAT recoverable
    
    
    15,385,102
    
    
    
    5,203,486Net
    
    
    19,667,563
    
    
    
    7,689,911
 F-36




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  7.
    
    Deferred income taxes, continued:  b.
    
    In accordance with BT No. 60 and complementary bulletins thereto of the
Chilean Association of Accountants, and applicable circulars issued by the
SVS, the Company and its subsidiaries have recorded consolidated deferred
income taxes as of December 31, 2002 and 2003 as follows: As of December 31, 2002
    
    As of December 31, 2003Asset
    
    Liability
    
    Asset
    
    LiabilityShort-term
    
    Long-term
    
    Short-term
    
    Long-term
    
    Short-term
    
    Long-term
    
    Short-term
    
    Long-termThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Allowance for doubtful accounts
    
    
    
    
    
    
    49,608
    
    
    
    
    
    
    
    
    
    
    
    37,154
    
    
    
    49,334
    
    
    
    
    
    
    
    Deferred income
    
    
    100,963
    
    
    
    1,383,656
    
    
    
    
    
    
    
    
    
    
    
    42,276
    
    
    
    1,070,102
    
    
    
    
    
    
    
    Vacation accrual
    
    
    327,336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    352,168
    
    
    
    
    
    
    
    
    
    
    
    Depreciation
    
    
    
    
    
    
    7,733,690
    
    
    
    34,247
    
    
    
    304,884,830
    
    
    
    
    
    
    
    6,886,751
    
    
    
    32,065
    
    
    
    261,519,431Severance indemnities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    334,864
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    524,885Other events
    
    
    194,458
    
    
    
    1,179,854
    
    
    
    
    
    
    
    5,625,588
    
    
    
    501,167
    
    
    
    836,938
    
    
    
    
    
    
    
    Finance costs
    
    
    
    
    
    
    118,204
    
    
    
    
    
    
    
    13,893,414
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,638,763Tax losses
    
    
    
    
    
    
    61,626,381
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,591,437
    
    
    
    
    
    
    
    Contingencies
    
    
    2,352,011
    
    
    
    1,378
    
    
    
    
    
    
    
    
    
    
    
    1,304,390
    
    
    
    
    
    
    
    
    
    
    
    Capitalized Costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,371,541Imputed interest on construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,912,067
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,550,251Costs of studies
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    8,052,280
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,980,878Spare parts used
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,097,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,716,538Leasing payables
    
    
    
    
    
    
    2,324,725
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bonds discount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    236,988
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    567,008El Chocón investments
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    2,926,732
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,725,964Forward and swap contracts
    
    
    354,326
    
    
    
    236,516
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    305,207
    
    
    
    965,095
    
    
    
    Provision for employee obligations
    
    
    
    
    
    
    920,310
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,031,431
    
    
    
    
    
    
    
    Complementary accounts, net
    
    
    
    
    
    
    (39,232,190
    )
    
    
    (37
    )
    
    
    (242,731,134
    )
    
    
    
    
    
    
    (20,892,082
    )
    
    
    
    
    
    
    (209,661,844
    )Valuation allowance
    
    
    
    
    
    
    (2,294,384
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,619,849
    )
    
    
    
    
    
    
    Total
    
    
    3,329,094
    
    
    
    34,047,748
    
    
    
    34,247
    
    
    
    100,604,322
    
    
    
    2,237,155
    
    
    
    48,259,269
    
    
    
    997,160
    
    
    
    82,561,874Net deferred tax balance
    
    
    3,294,847
    
    
    
    
    
    
    
    
    
    
    
    66,556,574
    
    
    
    1,239,995
    
    
    
    
    
    
    
    
    
    
    
    34,302,605
 F-37




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  7.
    
    Deferred income taxes, continued:  c.
    
    Income tax expense for the years ended December 31, 2001, 2002 and 2003
is as follows: As of December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Current income tax (expense) benefitIncome tax provision
    
    
    (32,853,827
    )
    
    
    (40,746,144
    )
    
    
    (50,159,498
    )Adjustment for tax expense prior year
    
    
    4,488,063
    
    
    
    659,558
    
    
    
    (1,640
    )Non-deductible expense tax Art.21
    
    
    (40,185
    )
    
    
    (108,851
    )
    
    
    74,702Deferred tax (expense) benefitDeferred taxes
    
    
    (15,239,925
    )
    
    
    (15,514,061
    )
    
    
    40,356,084Amortization of complementary
accounts
    
    
    4,957,934
    
    
    
    (15,338,063
    )
    
    
    (17,609,110
    )Change in valuation allowance
    
    
    (1,623,074
    )
    
    
    (127,841
    )
    
    
    (38,621
    )Other charges or credits
    
    
    
    
    
    
    (159,280
    )
    
    
    Total
    
    
    (40,311,014
    )
    
    
    (71,334,682
    )
    
    
    (27,378,083
    )
  8.
    
    Other current assets: Other current assets as of each year-end are as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Accounts receivable from the Chilean Ministry of PublicWorks
    
    
    8,483,476
    
    
    
    57,395Deposits related to payments to suppliers
    
    
    996,620
    
    
    
    1,135,343Legal deposit (Cachoeira Dourada)
    
    
    
    
    
    
    1,748,833Forward contracts and swaps
    
    
    29,488,151
    
    
    
    1,459,694Unrealized losses on derivatives
    
    
    11,366,432
    
    
    
    367,503Time deposits Infraestructura Dos Mil S.A.
    
    
    25,596,370
    
    
    
    Reserve funds Infraestructura Dos Mil S.A.
    
    
    1,311,954
    
    
    
    Marketable securities
    
    
    4,870
    
    
    
    1,191,678Other
    
    
    251,738
    
    
    
    370,513Total
    
    
    77,499,611
    
    
    
    6,330,959
 F-38




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  9.
    
    Property, plant and equipment: The composition of property, plant and equipment as of each year end is as
follows: As of December 31,Estimated years ofuseful lives
    
    2002
    
    2003ThCh$
    
    ThCh$Land
    
    
    
    
    40,661,260
    
    
    
    36,288,301Buildings and infrastructure
    
    35  40
    
    
    6,425,685,364
    
    
    
    5,517,079,866Distribution and transmission lines and public lighting:Distribution lines
    
    35
    
    
    3,268,398
    
    
    
    2,955,476Substation transmission and distribution
    
    35
    
    
    10,043,295
    
    
    
    9,929,501Others
    
    35
    
    
    9,208,520
    
    
    
    7,588,870Sub-total
    
    
    
    
    22,520,213
    
    
    
    20,473,847Machinery and equipment:Generators and turbines
    
    20-30
    
    
    735,072,977
    
    
    
    594,684,086Combined cycle
    
    25
    
    
    383,019,445
    
    
    
    316,919,672Others
    
    6-40
    
    
    101,351,629
    
    
    
    102,695,634Sub-total
    
    
    
    
    1,219,444,051
    
    
    
    1,014,299,392Construction in progress
    
    
    
    
    24,101,640
    
    
    
    24,689,533Fixed assets in leasing
    
    
    
    
    30,295
    
    
    
    30,295Furniture and fixtures, tools, software and information
technology equipment
    
    3  10
    
    
    13,898,972
    
    
    
    15,988,125Vehicles
    
    6  10
    
    
    1,427,501
    
    
    
    2,960,240Other assets
    
    3  8
    
    
    3,765,864
    
    
    
    7,669,111Sub-total
    
    
    
    
    43,224,272
    
    
    
    51,337,304Technical appraisal
    
    
    
    
    734,129,604
    
    
    
    601,340,020Total Property, plant and equipment
    
    
    
    
    8,485,664,764
    
    
    
    7,240,818,730Less: Accumulated depreciation
    
    
    
    
    (2,759,117,145
    )
    
    
    (2,572,876,929
    )Total Property, plant and equipment, net
    
    
    
    
    5,726,547,619
    
    
    
    4,667,941,801
 The Company and its foreign subsidiaries have individually purchased insurance
policies which cover all risk, earthquake and machinery breakdown, with
coverage limitation of ThUS$100,000. This coverage includes business
interruption damages. The premiums associated with these policies are recorded
proportionately in each company under Prepaid expenses and charged to
expenses over their term of usage. F-39




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  9.
    
    Property, plant and equipment, continued: Recoverability of property, plant and equipment: The Company periodically analyzes the recoverability of its recorded book
values of its property, plant and equipment, including property, plant and
equipment held by the Companys subsidiaries in countries outside of Chile
where property, plant and equipment is measured into US dollars. The analyses
consist in evaluating the recoverability of the Companys property, plant and
equipment by comparing estimated future undiscounted cash flows to the carrying
amounts of such assets recorded by the Company in these companies, in
accordance with Chilean GAAP. These analyses differ from impairment testing
performed for goodwill (see note 12). The result of these analyses determined
that no adjustments were required to the net book values of the property, plant
and equipment of the Company and its subsidiaries as of December 31, 2003. F-40




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  10.
    
    Investment in related companies:  a)
    
    Investments as of each year-end are as follows: As ofDecember 31,2002
    
    As of December 31, 2003
    
    Carrying Value
    
    Equity in net earnings (losses)Related Companies
    
    PercentageOwned
    
    Number ofShares
    
    PercentageOwned
    
    RelatedEquity
    
    2002
    
    2003
    
    2001
    
    2002
    
    2003%
    
    
    
    
    
    %
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Companía de Interconexión Energética S.A.
    
    
    45.000
    %
    
    
    128,270,106
    
    
    
    45.000
    %
    
    
    121,877,449
    
    
    
    53,779,154
    
    
    
    54,844,852
    
    
    
    (5,885,119
    )
    
    
    7,302,991
    
    
    
    11,141,588Gas Atacama Generación S.A. (1)
    
    
    50.000
    %
    
    
    
    
    
    
    0.050
    %
    
    
    59,258,642
    
    
    
    34,224,169
    
    
    
    29,629
    
    
    
    (3,475,447
    )
    
    
    (4,841,267
    )
    
    
    1,629Gasoducto Atacama Argentina S.A. (1)
    
    
    50.000
    %
    
    
    
    
    
    
    0.050
    %
    
    
    54,547,284
    
    
    
    32,434,359
    
    
    
    27,274
    
    
    
    (4,733,532
    )
    
    
    2,410,003
    
    
    
    738Gasoducto Atacama Chile S.A. (1)
    
    
    50.000
    %
    
    
    
    
    
    
    0.050
    %
    
    
    51,450,616
    
    
    
    28,208,829
    
    
    
    25,725
    
    
    
    3,336,818
    
    
    
    3,244,807
    
    
    
    2,647Inversiones Eléctricas Quillota S.A.
    
    
    50.000
    %
    
    
    608,676
    
    
    
    50.000
    %
    
    
    21,995,615
    
    
    
    8,649,319
    
    
    
    10,997,808
    
    
    
    (30,092
    )
    
    
    1,323,229
    
    
    
    3,290,216Inversiones Electrogas S.A.
    
    
    42.500
    %
    
    
    425
    
    
    
    42.500
    %
    
    
    18,797,232
    
    
    
    6,744,695
    
    
    
    7,988,824
    
    
    
    34,432
    
    
    
    644,761
    
    
    
    2,489,188Inversiones Gas Atacama Holding Ltda
    
    
    
    
    
    
    
    
    
    
    50.000
    %
    
    
    164,948,946
    
    
    
    
    
    
    
    82,474,473
    
    
    
    
    
    
    
    
    
    
    
    (237,707
    )Comercializadora de Energía del Mercosur S.A.
    
    
    45.000
    %
    
    
    6,305,400
    
    
    
    45.000
    %
    
    
    7,708,759
    
    
    
    3,460,579
    
    
    
    3,468,942
    
    
    
    49,361
    
    
    
    (1,539,842
    )
    
    
    610,060Transmisora Eléctrica de Quillota Ltda
    
    
    50.000
    %
    
    
    
    
    
    
    50.000
    %
    
    
    5,392,454
    
    
    
    2,541,493
    
    
    
    2,696,227
    
    
    
    88,718
    
    
    
    127,794
    
    
    
    155,165Atacama Finance Co.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,615,406
    
    
    
    
    
    
    
    122,027
    
    
    
    (134,600
    )
    
    
    Gas Atacama S.A.(1)
    
    
    50.000
    %
    
    
    1,147
    
    
    
    0.001
    %
    
    
    164,950,845
    
    
    
    
    
    
    
    1,891
    
    
    
    
    
    
    
    
    
    
    
    4Electrogas S.A (2)
    
    
    0.020
    %
    
    
    85
    
    
    
    0.020
    %
    
    
    17,267,942
    
    
    
    2,402
    
    
    
    3,669
    
    
    
    
    
    
    
    342
    
    
    
    1,268Distrilec Inversora S.A (3)
    
    
    0.890
    %
    
    
    4,416,141
    
    
    
    0.890
    %
    
    
    324,606,610
    
    
    
    3,686,728
    
    
    
    2,880,773
    
    
    
    37
    
    
    
    41,383
    
    
    
    (135,472
    )Consorcio
ARA - Ingendesa Ltda
    
    
    50.000
    %
    
    
    
    
    
    
    50.000
    %
    
    
    124,272
    
    
    
    53,412
    
    
    
    62,136
    
    
    
    422,909
    
    
    
    57,496
    
    
    
    50,388Consorcio
Ingendesa - Minmetal Ltda
    
    
    50.000
    %
    
    
    
    
    
    
    50.000
    %
    
    
    3,326
    
    
    
    1,856
    
    
    
    1,663
    
    
    
    
    
    
    
    19,105
    
    
    
    Ingendesa do Brasil Limitada (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,016
    
    
    
    
    
    
    
    22,788
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176,460,417
    
    
    
    165,503,886
    
    
    
    (10,047,100
    )
    
    
    8,656,202
    
    
    
    17,369,712
 (1)     Inversiones Gas Atacama Holding Ltda. is the parent company of these
entities (see Note 10 d). (2)     Electrogas S.A. is consolidated by Inversiones Eléctrogas, but the
Company also has a direct participation, which is reflected here. (3)     The Companys participation in Distrilec Inversora S.A. is accounted for
under the equity method as the Companys parent, Enersis S.A., exerts
control over this Company. (4)     This company is in the development stage. F-41




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  10.
    
    Investment in related companies, continued:  b)
    
    Purchases of subsidiaries during the years ended December 31, 2002 and
2003:- Lajas Inversora S.A.During the year ended December 31, 2003, Lajas Inversora S.A. purchased
384,508 (0.0131%) shares of Central Eléctrica Cachoeira Dourada S.A.
(Brazil) for ThCh$24,761, increasing its participation in voting rights to
99.61%.- Endesa S.A.As of October 3, 2003, the Company acquired 18,127,421 (12.33%) shares of
Central Costanera S.A. (Argentina) for ThCh $2,962,448 (US$ 4,500,000),
increasing its participation to 64.26%.The costs of these incremental investments is as follows: As of December 31,2002
    
    2003Purchases
    
    ThCh$
    
    ThCh$Central Eléctrica Cachoeira Dourada S.A.
    
    
    59,520
    
    
    
    24,761Pangue S.A.
    
    
    5,048,883
    
    
    
    Central Costanera S.A.
    
    
    
    
    
    
    2,962,448Other
    
    
    41,313
    
    
    
    5,149,716
    
    
    
    2,987,209
  c)
    
    Sales of subsidiary shares during the years ended December 31, 2002
and 2003:As of June 23, 2003 the Company sold 330,939,522 shares of Infraestructura
Dos Mil S.A. for the price of ThCh$39,097,079 and 3,741 shares of Sociedad
Concesionaria Autopista del Sol S.A. for the price of ThCh$40,147, which
represented the total participation of the Company in these entities.As of December 29, 2003, Cono Sur S.A. sold 3,150,000 shares of Atacama
Finance to Gas Atacama S.A. for the price of US$4,400,000.As of December 29, 2003, Cono Sur S.A. sold 5,000 shares of Enegex Co. to
Gas Atacama S.A. for the price of US$5,000.d)
    
    New entities created in 2003:As of October 1, 2003 and November 17, 2003, Inversiones Gas Atacama Holding
Limitada was constituted. Inversiones Endesa Norte S.A. 50% participation
was purchased for ThCh$700,000 in cash and the transfer of 99.50% of its
participation in Gasoducto Atacama Chile Limitada, Gasoducto Atacama
Argentina Limitada and Gas Atacama Generacion Limitada, which is equal to
49.95% of total voting rights in these entities.As of December 1, 2003 Gasoducto Atacama Chile Limitada, Gasoducto Atacama
Argentina Limitada and Gas Atacama Generacion Limitada changed their names
to Gasoducto Atacama Chile SA, Gasoducto Atacama Argentina SA and Gas
Atacama Generación SA., respectively. F-42




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  10.
    
    Investment in related companies, continued:(e)
    
    In accordance with Technical Bulletin No. 64 of the Chilean Association
of Accountants for the years ended December 31, 2002 and 2003, the Company
has designated long-term liabilities denominated in foreign currencies as
hedges against net investments in foreign countries, when the functional
currency of those investments is the same currency in which the liability
is denominated. The Company recorded foreign exchange gains and losses on
those liabilities as cumulative translation adjustments in shareholders
equity, and in this way, they act as economic hedges of the exchange risk
affecting the investments. To the extent that liabilities exceed the
total investment, the gain or loss on the ineffective portion of the
hedging liability is recorded in current income. As of December 31, 2003
the corresponding investments and associated liabilities are as follows: Reporting
    
    AssociatedCompany
    
    Country of Origin
    
    Investment
    
    Currency
    
    LiabilityThCh$
    
    
    
    ThCh$Central Hidroeléctrica Betania
    
    Colombia
    
    
    388,075,105
    
    
    US$
    
    
    275,373,220Central Hidroeléctrica Cachoeira Dourada
S.A.
    
    Brazil
    
    
    358,414,232
    
    
    US$
    
    
    405,082,294Edegel S.A.
    
    Peru
    
    
    180,701,515
    
    
    US$
    
    
    165,456,684Companía de Interconexión Energética S.A.
    
    Brazil
    
    
    54,844,852
    
    
    US$
    
    
    48,193,748Hidroeléctrica El Chocón S.A.
    
    Argentina
    
    
    189,748,674
    
    
    US$
    
    
    81,628,031Comercializadora de Energia del Mercosur
S.A.
    
    Argentina
    
    
    3,468,942
    
    
    US$
    
    
    2,271,562Central Costanera S.A.
    
    Argentina
    
    
    92,380,475
    
    
    US$
    
    
    57,636,346Distrilec Inversora S.A.
    
    Argentina
    
    
    2,880,773
    
    
    US$
    
    
    1,342,178Total
    
    
    
    
    1,270,514,568
    
    
    
    
    
    
    
    1,036,984,063
 11. Investments in other companies: Investments in other companies as of December 31, 2002 and 2003 are as follows: As of December 31,Number of
    
    PercentageCompany
    
    shares
    
    owned
    
    2002
    
    2003%
    
    ThCh$
    
    ThCh$Club de la Banca y Comercio
    
    
    1
    
    
    
    
    
    
    
    2,726
    
    
    
    1,945Club Empresarial
    
    
    1
    
    
    
    1.00
    %
    
    
    6,212
    
    
    
    6,290Empresa Eléctrica de Aysen S.A.
    
    
    2,516,231
    
    
    
    
    
    
    
    1,997,810
    
    
    
    1,997,810Inmobiliaria España S.A.
    
    
    1
    
    
    
    
    
    
    
    98
    
    
    
    98Inverandes S.A.
    
    
    1,011,899
    
    
    
    
    
    
    
    3,455
    
    
    
    3,455Cooperativa Eléctrica de Chillán
    
    
    
    
    
    
    
    
    
    
    13,037
    
    
    
    13,037CDEC-SIC Ltda
    
    
    
    
    
    
    24.35
    %
    
    
    225,345
    
    
    
    169,004CDEC-SING Ltda
    
    
    
    
    
    
    7.69
    %
    
    
    
    
    
    
    100,655Empresa Eléctrica de Bogotá S.A.
    
    
    6,409,132
    
    
    
    5.50
    %
    
    
    79,838,297
    
    
    
    65,318,594Financiera Eléctrica Nacional
    
    
    4,098
    
    
    
    0.10
    %
    
    
    357,091
    
    
    
    108,998Electrificadora de la Costa
    
    
    3,599,191
    
    
    
    0.06
    %
    
    
    
    
    
    
    26,475Electrificadora del Caribe
    
    
    85,568,116
    
    
    
    0.23
    %
    
    
    
    
    
    
    1,343,089Edegas
    
    
    1
    
    
    
    1.00
    %
    
    
    3,456
    
    
    
    Autopista del Río Maipo S.A.
    
    
    25
    
    
    
    
    
    
    
    4,875
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    82,452,402
    
    
    
    69,089,450
 F-43




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  12.
    
    Goodwill and Negative Goodwill:  a.
    
    Goodwill is calculated as the excess of the purchase price over the net
book value of the assets acquired and as of December 31, 2001, 2002 and
2003 is as follows: As of December 31,Amortization
    
    Net BalanceCompany
    
    2001
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Central Costanera S.A. (1)
    
    
    1,651,827
    
    
    
    24,259,256
    
    
    
    
    
    
    
    
    
    
    
    Companía Hidroeléctrica
Cachoeira Dourada S.A.(1)
    
    
    4,121,311
    
    
    
    70,260,190
    
    
    
    
    
    
    
    
    
    
    
    Lajas Inversora S.A. (1)
    
    
    106,529
    
    
    
    1,816,111
    
    
    
    
    
    
    
    
    
    
    
    Emgesa S.A.
    
    
    1,531,826
    
    
    
    1,631,589
    
    
    
    1,335,456
    
    
    
    24,210,381
    
    
    
    18,471,931Gasoducto Atacama Chile Ltda
    
    
    4,820
    
    
    
    4,820
    
    
    
    4,820
    
    
    
    77,926
    
    
    
    73,106Hidroeléctrica El Chocón S.A. (1)
    
    
    818,125
    
    
    
    10,170,013
    
    
    
    
    
    
    
    
    
    
    
    Hidroinvest S.A. (1)
    
    
    78,471
    
    
    
    1,393,519
    
    
    
    
    
    
    
    
    
    
    
    Edegel S.A.
    
    
    38,279
    
    
    
    41,431
    
    
    
    33,895
    
    
    
    614,543
    
    
    
    468,885Pangue S.A.
    
    
    
    
    
    
    70,389
    
    
    
    168,933
    
    
    
    3,308,270
    
    
    
    3,139,337Total
    
    
    8,351,188
    
    
    
    109,647,318
    
    
    
    1,543,104
    
    
    
    28,211,120
    
    
    
    22,153,259
  b.
    
    Negative goodwill has been recorded as the excess of the net book value
of the assets acquired over the purchase price and as of December 31,
2001, 2002 and 2003 is as follows: As of December 31,Amortization
    
    Net BalanceCompany
    
    2001
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Edegel S.A.
    
    
    9,757,944
    
    
    
    10,397,103
    
    
    
    8,506,245
    
    
    
    63,714,136
    
    
    
    43,620,591Central Costanera S.A.
    
    
    
    
    
    
    
    
    
    
    424,069
    
    
    
    
    
    
    
    16,538,687Central Hidroeléctrica Betania S.A.
    
    
    34,103,377
    
    
    
    35,234,878
    
    
    
    6,448,438
    
    
    
    25,067,747
    
    
    
    14,322,281Empresa Eléctrica de Bogotá S.A.
    
    
    241,529
    
    
    
    257,351
    
    
    
    210,799
    
    
    
    3,860,509
    
    
    
    2,947,623Companía Hidroeléctrica Cachoeira
Dourada S.A. (1)
    
    
    2,016,729
    
    
    
    37,238,402
    
    
    
    
    
    
    
    
    
    
    
    Hidroeléctrica El Chocón S.A. (1)
    
    
    250,628
    
    
    
    3,649,603
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    46,370,207
    
    
    
    86,777,337
    
    
    
    15,589,551
    
    
    
    92,642,392
    
    
    
    77,429,182
 F-44




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  12.
    
    Goodwill and Negative Goodwill, continued:  (1)
    
    An analysis of the recoverability of the net goodwill balance (goodwill
less negative goodwill) associated with investments in and outside Chile
was performed in accordance with IAS No. 36 Impairment of Assets,
following the guidance in Technical Bulletin No. 56 issued by the Chilean
Association of Accountants. The results of this analysis showed that the
goodwill and negative goodwill associated with investments made in
Argentina and Brazil were 100% impaired as of December 31, 2002, due to
the finding that the future discounted cash flows expected to be produced
from the investees in those countries was not sufficient to offset the
recovery of recorded goodwill and negative goodwill.Endesa-Chile recorded a charge to income of ThCh$62,772,793, which is
recorded in amortization of goodwill and amortization of negative goodwill
in the consolidated statement of income for the year ended December 31,
2002. The amount recorded by the Company on a consolidated basis, net of the
effect of minority interests, was a net charge to income of ThCh$56,671,291.An analysis of the recoverability of goodwill and negative goodwill
associated with investments in and outside Chile performed as of December
31, 2003 did not resulted in any impairment.13.
    
    Other intangibles: The detail of other intangibles as of each year-end is as follows: As of December 31,
    
    As of December 31,2002
    
    2003Usefullife
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    
    
    
    Accumulated(months)
    
    Total
    
    Amortization
    
    Net Balance
    
    Total
    
    Amortization
    
    Net BalanceThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Easements
    
    
    24
    
    
    
    1,424,761
    
    
    
    (646,034
    )
    
    
    778,727
    
    
    
    2,323,909
    
    
    
    (1,658,036
    )
    
    
    665,873Water rights
    
    
    1,440
    
    
    
    18,482,398
    
    
    
    (1,074,904
    )
    
    
    17,407,494
    
    
    
    15,121,117
    
    
    
    (1,200,664
    )
    
    
    13,920,453Salex-fourth line Comahue
    
    
    60
    
    
    
    9,470,187
    
    
    
    (1,946,650
    )
    
    
    7,523,537
    
    
    
    9,712,787
    
    
    
    (4,074,062
    )
    
    
    5,638,725Software
    
    
    48
    
    
    
    624,890
    
    
    
    (123,958
    )
    
    
    500,932
    
    
    
    1,097,196
    
    
    
    (386,858
    )
    
    
    710,338Mine rights
    
    
    
    
    
    
    50,965
    
    
    
    
    
    
    
    50,965
    
    
    
    
    
    
    
    
    
    
    
    Tolls license
    
    
    
    
    
    
    31,634
    
    
    
    
    
    
    
    31,634
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    2,245,621
    
    
    
    (1,611,186
    )
    
    
    634,435
    
    
    
    4,175
    
    
    
    (1,527
    )
    
    
    2,648Total
    
    
    
    
    
    
    32,330,456
    
    
    
    (5,402,732
    )
    
    
    26,927,724
    
    
    
    28,259,184
    
    
    
    (7,321,147
    )
    
    
    20,938,037
 Amortization expense for the years ended December 31, 2001, 2002 and 2003
amounted to ThCh$4,159,730, ThCh$3,238,941 and ThCh$1,638,920, respectively. F-45




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 14. Other assets: Other assets as of each year-end are as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Bond discount
    
    
    12,189,522
    
    
    
    13,559,306Receivable from Ministry of Public Works
    
    
    2,142,816
    
    
    
    Reimburseable contributions
    
    
    4,170,854
    
    
    
    3,658,444Deferred commissions on loans and lines of credit (1)
    
    
    16,506,125
    
    
    
    16,852,118Minimum tax on earnings of certain productive assets (Argentina)
    
    
    3,396,406
    
    
    
    3,975,491Bond issuance costs
    
    
    11,628,452
    
    
    
    5,512,705Unrealized loss on forward contracts and collars
    
    
    22,664,739
    
    
    
    8,110,371Software and licenses
    
    
    
    
    
    
    1,012,429Forward contracts and swaps
    
    
    810,569
    
    
    
    4,843,040Others
    
    
    101,167
    
    
    
    1,297,382Total
    
    
    73,610,650
    
    
    
    58,821,286
  (1)
    
    In May 2003 the Company refinanced debt of US$ 743 million, incurring
commission expenses of ThCh$16,141,071, which are presented in the
statement of cash-flows as other disbursements for financing. These costs
are being deferred and are amortized over the period of the loans to which
they relate. F-46




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  15.
    
    Due to banks and financial institutions:  a.
    
    Short-term debt due to banks and financial institutions: During May of 2003 the Company refinanced debt of US$ 743 million with a
consortium of 24 banks lead by BBVA, Dresdner Kleinwort Wasserstein, Salomon
Smith Barney and and Santander Central Hispano Investment Securities, extending
the payment period to 2008. The Company issued bonds in July 2003 of US$ 600
million and in October 2003 of UF 8 million (see Note 17), of which US$ 459
million was used to prepay the debt. Foreign Currency
    
    Local Currency
    
    TotalOther foreignUS$
    
    currencies
    
    Ch$Financial Institution
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThChBanco BBVA Bhif
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,751,678
    
    
    
    7,846
    
    
    
    5,751,678
    
    
    
    7,846Banco Barings
    
    
    5,085,087
    
    
    
    3,644,804
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,085,087
    
    
    
    3,644,804Banco Continental
    
    
    
    
    
    
    
    
    
    
    3,725,094
    
    
    
    6,008,244
    
    
    
    
    
    
    
    
    
    
    
    3,725,094
    
    
    
    6,008,244Banco Crédito e Inversiones
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,801,774
    
    
    
    
    
    
    
    2,801,774
    
    
    
    Banco Crédito e Inversiones  Perú
    
    
    
    
    
    
    3
    
    
    
    16,435,418
    
    
    
    4,851,076
    
    
    
    
    
    
    
    
    
    
    
    16,435,418
    
    
    
    4,851,079Banco de Bogotá
    
    
    
    
    
    
    
    
    
    
    3,851,800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,851,800
    
    
    
    ABN Ambro Bank
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,306,874
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,306,874Banco Ganadero
    
    
    
    
    
    
    
    
    
    
    893,455
    
    
    
    2,642,638
    
    
    
    
    
    
    
    
    
    
    
    893,455
    
    
    
    2,642,638Banco Itau
    
    
    2,799,403
    
    
    
    1,824,094
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,799,403
    
    
    
    1,824,094Lloyds Bank
    
    
    3,637,074
    
    
    
    2,586,355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,637,074
    
    
    
    2,586,355Banco Santander
    
    
    
    
    
    
    
    
    
    
    2,070,399
    
    
    
    2,731,780
    
    
    
    
    
    
    
    
    
    
    
    2,070,399
    
    
    
    2,731,780Banco Santander Santiago
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,619,283
    
    
    
    2,370,847
    
    
    
    17,619,283
    
    
    
    2,370,847Bank Boston
    
    
    2,235,902
    
    
    
    1,234,748
    
    
    
    
    
    
    
    8,084,402
    
    
    
    
    
    
    
    
    
    
    
    2,235,902
    
    
    
    9,319,150Interbank
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,220
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,220Citibank
    
    
    
    
    
    
    
    
    
    
    2,936,630
    
    
    
    3,833,554
    
    
    
    
    
    
    
    
    
    
    
    2,936,630
    
    
    
    3,833,554Hermes Bank
    
    
    
    
    
    
    3,290,246
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,290,246Banco San Paolo
    
    
    40,715,710
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,715,710
    
    
    
    Davivienda
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,254,460
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,254,460Banco AV Villas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,153,639
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,153,639Banco de Occidente
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,714,007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,714,007Total
    
    
    54,473,176
    
    
    
    12,580,250
    
    
    
    29,912,796
    
    
    
    39,587,894
    
    
    
    26,172,735
    
    
    
    2,378,693
    
    
    
    110,558,707
    
    
    
    54,546,837Total principal
    
    
    54,317,523
    
    
    
    12,403,371
    
    
    
    28,947,175
    
    
    
    39,548,392
    
    
    
    26,172,735
    
    
    
    2,378,693
    
    
    
    109,437,433
    
    
    
    54,330,456Weighted average
annual interest rate
    
    
    5.04
    %
    
    
    5.70
    %
    
    
    6.20
    %
    
    
    6.81
    %
    
    
    1.08
    %
    
    
    3.00
    %
    
    
    4.23
    %
    
    
    6.54
    %
 As of December 31,2002
    
    2003%
    
    %Percentage of debt in foreign currency
    
    
    76.33
    
    
    
    95.64Percentage of debt in local currency
    
    
    23.67
    
    
    
    4.36Total
    
    
    100.00
    
    
    
    100.00
 F-47




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  15.
    
    Due to banks and financial institutions, continued:  b.
    
    Current portion of long-term debt due to banks and financial
institutions: Foreign Currency
    
    Local Currency
    
    TotalUS$
    
    Other foreign currencies
    
    Ch$Financial Institution
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThChABN Amro Bank
    
    
    2,197,313
    
    
    
    1,758,905
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,197,313
    
    
    
    1,758,905Banco Estado
    
    
    940,631
    
    
    
    3,867
    
    
    
    
    
    
    
    
    
    
    
    1,391,523
    
    
    
    1,365,649
    
    
    
    2,332,154
    
    
    
    1,369,516Banco Hermes
    
    
    5,445,443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,445,443
    
    
    
    Banco Medio Crédito
    
    
    
    
    
    
    
    
    
    
    2,039,576
    
    
    
    1,820,338
    
    
    
    
    
    
    
    
    
    
    
    2,039,576
    
    
    
    1,820,338Banco Santander
    
    
    776,322
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    776,322
    
    
    
    Banco Santander Central Hispano
    
    
    112,031,531
    
    
    
    81,025
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,031,531
    
    
    
    81,025Corfinsura
    
    
    56,385
    
    
    
    
    
    
    
    
    
    
    
    196,560
    
    
    
    
    
    
    
    
    
    
    
    56,385
    
    
    
    196,560Bancolombia
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196,560
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196,560Banesto
    
    
    4,647,067
    
    
    
    5,093,156
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,647,067
    
    
    
    5,093,156Bank of América
    
    
    68,968,165
    
    
    
    46,438,382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,968,165
    
    
    
    46,438,382Banco Nationale París
    
    
    11,980,120
    
    
    
    11,746,568
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,980,120
    
    
    
    11,746,568Bank of Tokio  Mitsubishi
    
    
    7,174,671
    
    
    
    5,758,498
    
    
    
    1,059,993
    
    
    
    960,646
    
    
    
    
    
    
    
    
    
    
    
    8,234,664
    
    
    
    6,719,144Bndes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,498,751
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,498,751J.P. Morgan Chase Bank
    
    
    412,797
    
    
    
    315,209
    
    
    
    5,374,116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,786,913
    
    
    
    315,209Citibank
    
    
    22,936,068
    
    
    
    9,786,826
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,936,068
    
    
    
    9,786,826Citibank N.A.
    
    
    
    
    
    
    26,946
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,946Citibank N.Y.
    
    
    387,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    387,469
    
    
    
    Electrobras  Brasil
    
    
    
    
    
    
    
    
    
    
    464,068
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    464,068
    
    
    
    Export Develop. Corp
    
    
    2,532,048
    
    
    
    1,827,243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,532,048
    
    
    
    1,827,243Santander Investment Bank
    
    
    
    
    
    
    3,057,654
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,057,654Kreditanstalt fuer Wiederaufbau
    
    
    429,022
    
    
    
    346,974
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    429,022
    
    
    
    346,974Midland Bank
    
    
    5,725,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,725,137
    
    
    
    Santander Inv. Bank
    
    
    6,412,718
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,412,718
    
    
    
    Skandinaviska Enskildabnken
    
    
    2,398,873
    
    
    
    1,985,176
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,398,873
    
    
    
    1,985,176BIRF
    
    
    
    
    
    
    
    
    
    
    1,207,721
    
    
    
    1,117,055
    
    
    
    
    
    
    
    
    
    
    
    1,207,721
    
    
    
    1,117,055Societe Generale
    
    
    1,863,977
    
    
    
    1,140,973
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,863,977
    
    
    
    1,140,973Davivienda
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159,212Conavi
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,850Bancafe
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,710
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,710Colpatria
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,140
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,140Granahorrar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,710
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,710Banco Bilbao Vizcaya Argentaria S.A.
    
    
    
    
    
    
    16,448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,448Dresdner Bank Luxembourg
    
    
    
    
    
    
    16,448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,448HSBC Bank plc. Spanish Branch
    
    
    
    
    
    
    19,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,750San Paolo IMI S.p.A.
    
    
    
    
    
    
    18,877
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,877BNP Paribas
    
    
    
    
    
    
    16,448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,448Deutsche Bank AG
    
    
    
    
    
    
    16,448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,448Landesbank Rheinland-Pfalz
    
    
    
    
    
    
    5,140
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,140Credit Lyonnais
    
    
    
    
    
    
    10,498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,498ING Bank N.V.
    
    
    
    
    
    
    10,498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,498Subtotal
    
    
    257,315,757
    
    
    
    89,497,957
    
    
    
    10,145,474
    
    
    
    6,268,532
    
    
    
    1,391,523
    
    
    
    1,365,649
    
    
    
    268,852,754
    
    
    
    97,132,138
 F-48




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  15.
    
    Due to banks and financial institutions, continued:  b.
    
    Current portion of long-term debt due to banks and financial
institutions, continued: Foreign Currency
    
    Local Currency
    
    TotalOther foreignUS$
    
    currencies
    
    Ch$Financial Institution
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThChSubtotal previous page
    
    
    257,315,757
    
    
    
    89,497,957
    
    
    
    10,145,474
    
    
    
    6,268,532
    
    
    
    1,391,523
    
    
    
    1,365,649
    
    
    
    268,852,754
    
    
    
    97,132,138The Bank of Tokyo-Mitsubishi,
Ltd.
    
    
    
    
    
    
    10,498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,498WestLB AG,
    
    
    
    
    
    
    10,498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,498Banco Popular Español
    
    
    
    
    
    
    7,352
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,352Bayerische Hypo-und
Vereinsbank AG, IBF Branch
    
    
    
    
    
    
    3,115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,115Bayerische Landesbank, IBF
Branch
    
    
    
    
    
    
    3,115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,115Banco de Sabadell S.A.
    
    
    
    
    
    
    2,087
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,087Israel Discount Bank of New
York
    
    
    
    
    
    
    1,682
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,682Banca Intesa, S.p.A.
    
    
    
    
    
    
    10,498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,498Banco Español de Crédito
    
    
    
    
    
    
    5,233
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,233Mizuho Corporate Bank,
    
    
    
    
    
    
    4,205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,205Landesbank Baden-Wuerttemberg
    
    
    
    
    
    
    4,205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,205Royal Bank of Canada Europe
Limited
    
    
    
    
    
    
    10,496
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,496Total
    
    
    257,315,757
    
    
    
    89,570,941
    
    
    
    10,145,474
    
    
    
    6,268,532
    
    
    
    1,391,523
    
    
    
    1,365,649
    
    
    
    268,852,754
    
    
    
    97,205,122Total principal
    
    
    246,650,904
    
    
    
    86,844,444
    
    
    
    9,862,252
    
    
    
    5,365,903
    
    
    
    1,391,523
    
    
    
    1,254,060
    
    
    
    257,904,679
    
    
    
    93,464,407Weighted average
annual interest rate
    
    
    3.62
    %
    
    
    4.87
    %
    
    
    4.30
    %
    
    
    8.12
    %
    
    
    9.00
    %
    
    
    9.00
    %
    
    
    3.71
    %
    
    
    4.98
    %
 As of December 31,2002
    
    2003%
    
    %Percentage of debt in foreign currency
    
    
    99.48
    
    
    
    98.60Percentage of debt in local currency
    
    
    0.52
    
    
    
    1.40Total
    
    
    100.00
    
    
    
    100.00
 F-49




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 15. Due to banks and financial institutions, continued:  c.
    
    Long-term portion of debt due to banks and financial institutions: As ofDecember 31,2002
    
    As of December 31, 2003After 2
    
    After 3
    
    After 5After 1 year
    
    years but
    
    years but
    
    years but
    
    
    
    
    
    
    
    
    
    AnnualLong-term
    
    but within 2
    
    within 3
    
    within 5
    
    within 10
    
    After 10
    
    Total long-
    
    interestFinancial Institution
    
    Currency
    
    portion
    
    years
    
    years
    
    years
    
    years
    
    years
    
    term portion
    
    rateThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    %ABN Amro Bank
    
    US$
    
    
    2,113,291
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Banco Estado
    
    $Ch.
    
    
    5,756,763
    
    
    
    1,395,900
    
    
    
    1,694,640
    
    
    
    1,273,686
    
    
    
    
    
    
    
    
    
    
    
    4,364,226
    
    
    
    9.00
    %US$
    
    
    4,650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Banco Medio Crédito
    
    $Arg
    
    
    12,090,308
    
    
    
    1,797,897
    
    
    
    1,797,897
    
    
    
    1,797,897
    
    
    
    6,292,887
    
    
    
    
    
    
    
    11,686,578
    
    
    
    1.75
    %Bandes
    
    Rs
    
    
    7,509,509
    
    
    
    
    
    
    
    1,783,205
    
    
    
    2,121,553
    
    
    
    2,989,260
    
    
    
    
    
    
    
    6,894,018
    
    
    
    17.50
    %Banco Santander
Central
    
    US$
    
    
    
    
    
    
    7,310,509
    
    
    
    14,621,019
    
    
    
    21,931,528
    
    
    
    
    
    
    
    
    
    
    
    43,863,056
    
    
    
    4.16
    %Banesto
    
    US$
    
    
    28,650,213
    
    
    
    2,418,557
    
    
    
    2,418,557
    
    
    
    4,837,114
    
    
    
    7,255,675
    
    
    
    
    
    
    
    16,929,903
    
    
    
    4.29
    %Banco Nationales de
    
    US$
    
    
    59,750,971
    
    
    
    9,378,499
    
    
    
    8,779,095
    
    
    
    17,558,190
    
    
    
    4,389,548
    
    
    
    
    
    
    
    40,105,332
    
    
    
    4.66
    %Paris
    
    US$
    
    
    16,342,684
    
    
    
    1,928,644
    
    
    
    1,928,644
    
    
    
    3,857,288
    
    
    
    4,664,497
    
    
    
    1,644,520
    
    
    
    14,023,593
    
    
    
    5.28
    %Bank Of Tokio
    
    US$
    
    
    13,928,001
    
    
    
    5,697,501
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,697,501
    
    
    
    2.00
    %Mitsubishi ltda
    
    Pounds
    
    
    886,725
    
    
    
    402,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    402,154
    
    
    
    4.63
    %Yen
    
    
    933,276
    
    
    
    422,438
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    422,438
    
    
    
    0.89
    %Euros
    
    
    248,420
    
    
    
    121,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,738
    
    
    
    3.00
    %IRF
    
    
    U.P.
    
    
    
    1,201,425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    JP Morgan Chase Bank
    
    US$
    
    
    58,063,688
    
    
    
    32,659,000
    
    
    
    
    
    
    
    14,845,000
    
    
    
    
    
    
    
    
    
    
    
    47,504,000
    
    
    
    8.53
    %Citibank
    
    US$
    
    
    34,216,101
    
    
    
    9,331,143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,331,143
    
    
    
    3.38
    %Citibank N.Y.
    
    US$
    
    
    362,897,812
    
    
    
    2,431,215
    
    
    
    4,862,430
    
    
    
    7,293,645
    
    
    
    
    
    
    
    
    
    
    
    14,587,290
    
    
    
    4.16
    %Export Development
Corp.
    
    US$
    
    
    17,817,287
    
    
    
    828,805
    
    
    
    828,805
    
    
    
    1,657,610
    
    
    
    4,144,025
    
    
    
    828,802
    
    
    
    8,288,047
    
    
    
    2.11
    %US$
    
    
    
    
    
    
    862,246
    
    
    
    862,246
    
    
    
    1,724,492
    
    
    
    1,293,371
    
    
    
    
    
    
    
    4,742,355
    
    
    
    2.44
    %Kreditanstalt für
Wiederaufbau
    
    US$
    
    
    2,183,691
    
    
    
    324,830
    
    
    
    324,830
    
    
    
    649,660
    
    
    
    162,415
    
    
    
    
    
    
    
    1,461,735
    
    
    
    4.85
    %Santander Investment
    
    US$
    
    
    3,701,560
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Skandinaviska
Enskildabnken
    
    US$
    
    
    7,196,504
    
    
    
    1,962,604
    
    
    
    1,962,509
    
    
    
    981,302
    
    
    
    
    
    
    
    
    
    
    
    4,906,415
    
    
    
    0.65
    %Societe Generale
    
    US$
    
    
    1,391,828
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Davivienda
    
    $Col
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,412,312
    
    
    
    
    
    
    
    
    
    
    
    6,412,312
    
    
    
    12.55
    %Corfinsura
    
    $Col
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,549,390
    
    
    
    
    
    
    
    
    
    
    
    8,549,390
    
    
    
    12.55
    %US$
    
    
    32,935,901
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    
    
    
    
    669,820,608
    
    
    
    79,273,680
    
    
    
    41,863,877
    
    
    
    95,490,667
    
    
    
    31,191,678
    
    
    
    2,473,322
    
    
    
    250,293,224
 F-50




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 15. Due to banks and financial institutions, continued:  c.
    
    Long-term portion of debt due to banks and financial institutions, continued: As ofDecember31, 2002
    
    As of December 31, 2003After 2
    
    After 3
    
    After 5After 1 year
    
    years but
    
    years but
    
    years but
    
    
    
    
    
    
    
    
    
    AnnualLong-term
    
    but within 2
    
    within 3
    
    within 5
    
    within 10
    
    After 10
    
    Total long term
    
    interestFinancial Institution
    
    Currency
    
    portion
    
    years
    
    years
    
    years
    
    years
    
    years
    
    portion
    
    rateThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    %Subtotal previous
page
    
    
    
    
    
    
    669,820,608
    
    
    
    79,273,680
    
    
    
    41,863,877
    
    
    
    95,490,667
    
    
    
    31,191,678
    
    
    
    2,473,322
    
    
    
    250,293,224Bancolombia
    
    $Col
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,549,390
    
    
    
    
    
    
    
    
    
    
    
    8,549,390
    
    
    
    12.55
    %Conavi
    
    $Col
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,343,369
    
    
    
    
    
    
    
    
    
    
    
    5,343,369
    
    
    
    12.55
    %Bancafe
    
    $Col
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,206,021
    
    
    
    
    
    
    
    
    
    
    
    3,206,021
    
    
    
    12.55
    %Colpatria
    
    $Col
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,137,347
    
    
    
    
    
    
    
    
    
    
    
    2,137,347
    
    
    
    12.55
    %Granahorrar
    
    $Col
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,206,021
    
    
    
    
    
    
    
    
    
    
    
    3,206,021
    
    
    
    12.55
    %Banco Bilbao Viscaya
Argentina S.A.
    
    US$
    
    
    
    
    
    
    1,484,025
    
    
    
    2,968,050
    
    
    
    4,452,075
    
    
    
    
    
    
    
    
    
    
    
    8,904,150
    
    
    
    4.16
    %Dresdner Bank
Luxembourg S.A.
    
    US$
    
    
    
    
    
    
    1,484,025
    
    
    
    2,968,050
    
    
    
    4,452,075
    
    
    
    
    
    
    
    
    
    
    
    8,904,150
    
    
    
    4.16
    %HSBC Bank plc,
Spanish Branch
    
    US$
    
    
    
    
    
    
    1,781,954
    
    
    
    3,563,908
    
    
    
    5,345,862
    
    
    
    
    
    
    
    
    
    
    
    10,691,724
    
    
    
    4.16
    %San Paolo IMI S.p.A.
    
    US$
    
    
    
    
    
    
    1,703,256
    
    
    
    3,406,512
    
    
    
    5,109,768
    
    
    
    
    
    
    
    
    
    
    
    10,219,536
    
    
    
    4.16
    %BNP Paribas
    
    US$
    
    
    
    
    
    
    1,484,025
    
    
    
    2,968,050
    
    
    
    4,452,075
    
    
    
    
    
    
    
    
    
    
    
    8,904,150
    
    
    
    4.16
    %Deutsche Bank AG
    
    US$
    
    
    
    
    
    
    1,484,025
    
    
    
    2,968,050
    
    
    
    4,452,075
    
    
    
    
    
    
    
    
    
    
    
    8,904,150
    
    
    
    4.16
    %Landesbank
Rheinland-Pfalz-Girozentrale
    
    US$
    
    
    
    
    
    
    463,758
    
    
    
    927,516
    
    
    
    1,391,274
    
    
    
    
    
    
    
    
    
    
    
    2,782,548
    
    
    
    4.16
    %Credit Lyonnais
    
    US$
    
    
    
    
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    %ING Bank N.V.
    
    US$
    
    
    
    
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    %Bank Of Tokio
Mitsubishi ltda
    
    US$
    
    
    
    
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    %WestLB AG
    
    US$
    
    
    
    
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    %Banco Popular Español
    
    US$
    
    
    
    
    
    
    663,314
    
    
    
    1,326,628
    
    
    
    1,989,942
    
    
    
    
    
    
    
    
    
    
    
    3,979,884
    
    
    
    4.16
    %Bayerische Hypo-und
Vereinsbank AG
    
    US$
    
    
    
    
    
    
    281,065
    
    
    
    562,131
    
    
    
    843,196
    
    
    
    
    
    
    
    
    
    
    
    1,686,392
    
    
    
    4.16
    %Bayerische Landesbank,
    
    US$
    
    
    
    
    
    
    281,065
    
    
    
    562,131
    
    
    
    843,196
    
    
    
    
    
    
    
    
    
    
    
    1,686,392
    
    
    
    4.16
    %Banco de Sabadell, SA
    
    US$
    
    
    
    
    
    
    188,314
    
    
    
    376,628
    
    
    
    564,942
    
    
    
    
    
    
    
    
    
    
    
    1,129,884
    
    
    
    4.16
    %Israel Discount Bank
of New York
    
    US$
    
    
    
    
    
    
    151,775
    
    
    
    303,551
    
    
    
    455,326
    
    
    
    
    
    
    
    
    
    
    
    910,652
    
    
    
    4.16
    %Banca Intesa, S.p.A.
    
    US$
    
    
    
    
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    %Banco Español de
Crédito
    
    US$
    
    
    
    
    
    
    472,190
    
    
    
    944,380
    
    
    
    1,416,570
    
    
    
    
    
    
    
    
    
    
    
    2,833,140
    
    
    
    4.16
    %Mizuho Corporate
Bank, Ltd.
    
    US$
    
    
    
    
    
    
    379,438
    
    
    
    758,876
    
    
    
    1,138,314
    
    
    
    
    
    
    
    
    
    
    
    2,276,628
    
    
    
    4.16
    %Landesbank
Baden-Württemberg
    
    US$
    
    
    
    
    
    
    379,438
    
    
    
    758,876
    
    
    
    1,138,314
    
    
    
    
    
    
    
    
    
    
    
    2,276,628
    
    
    
    4.16
    %Royal Bank of Canada
Europe Limited
    
    US$
    
    
    
    
    
    
    947,192
    
    
    
    1,894,381
    
    
    
    2,841,573
    
    
    
    
    
    
    
    
    
    
    
    5,683,146
    
    
    
    4.16
    %Total
    
    
    
    
    
    
    669,820,608
    
    
    
    97,638,489
    
    
    
    78,593,495
    
    
    
    173,027,242
    
    
    
    31,191,678
    
    
    
    2,473,322
    
    
    
    382,924,226
 F-51




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  15.
    
    Due to banks and financial institutions, continued:  c.
    
    Long-term portion of debt due to banks and financial institutions, continued: As of December 31,2002
    
    2003%
    
    %Percentage of debt in foreign currency
    
    
    99.15
    
    
    
    98.86Percentage of debt in local currency
    
    
    0.85
    
    
    
    1.14Total
    
    
    100.00
    
    
    
    100.00
  d.
    
    Except for certain debts, which are collateralized by liens on specific
assets (see Note 28), all of these debts rank the same in priority of
payment. 16. Promissory notes: Promissory notes as of each year-end are as follows: As of December 31,Financial
    
    Maturity
    
    InterestInstrument
    
    Date
    
    Rate
    
    2002
    
    2003%
    
    ThCh$
    
    ThCh$Commercial paper 1st issuance
    
    June 10, 2003
    
    
    4.33
    %
    
    
    3,500,603
    
    
    
    Commercial paper 2nd issuance
    
    May 9, 2003
    
    
    4.50
    %
    
    
    4,142,243
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    7,642,846
    
    
    
    
 F-52




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  17.
    
    Bonds payable:  a)
    
    Details of the current portion of bonds payable is as follows at each
year-end: Short-term portion of long-term bonds: Par valueFace Value
    
    Interest
    
    MaturityIssuer
    
    Series
    
    Currency
    
    Outstanding
    
    rate
    
    date
    
    2002
    
    2003Endesa-Chile
    
    1
    
    US$
    
    
    230,000,000
    
    
    
    7.88
    %
    
    
    2/1/2027
    
    
    
    4,906,924
    
    
    
    4,005,132Endesa-Chile
    
    2
    
    US$
    
    
    220,000,000
    
    
    
    7.33
    %
    
    
    2/1/2037
    
    
    
    4,873,420
    
    
    
    3,987,121Endesa-Chile
    
    3
    
    US$
    
    
    200,000,000
    
    
    
    8.13
    %
    
    
    2/1/2097
    
    
    
    1,019,215
    
    
    
    769,694Endesa-Chile
    
    1
    
    US$
    
    
    400,000,000
    
    
    
    7.75
    %
    
    
    7/15/2008
    
    
    
    10,312,351
    
    
    
    8,436,908Endesa-Chile
    
    1
    
    US$
    
    
    400,000,000
    
    
    
    8.50
    %
    
    
    4/1/2009
    
    
    
    6,169,267
    
    
    
    5,047,300Endesa-Chile
    
    E-1, E-2
    
    
    U.F.
    
    
    
    6,000,000
    
    
    
    6.20
    %
    
    
    8/1/2006
    
    
    
    2,581,888
    
    
    
    2,583,176Endesa-Chile
    
    C1, C2, D1, D2
    
    
    U.F.
    
    
    
    1,251,257
    
    
    
    6.80
    %
    
    
    11/1/2010
    
    
    
    2,473,129
    
    
    
    2,600,930Endesa-Chile
    
    F
    
    
    U.F.
    
    
    
    1,500,000
    
    
    
    6.20
    %
    
    
    8/1/2022
    
    
    
    645,472
    
    
    
    645,794Endesa-Chile
    
    144 A
    
    US$
    
    
    400,000,000
    
    
    
    8.35
    %
    
    
    8/1/2013
    
    
    
    
    
    
    
    8,649,357Endesa-Chile
    
    144 A
    
    US$
    
    
    200,000,000
    
    
    
    8.63
    %
    
    
    8/1/2015
    
    
    
    
    
    
    
    4,467,626Endesa-Chile
    
    G
    
    
    U.F.
    
    
    
    4,000,000
    
    
    
    4.80
    %
    
    
    10/15/2010
    
    
    
    
    
    
    
    668,867Endesa-Chile
    
    H
    
    
    U.F.
    
    
    
    4,000,000
    
    
    
    6.20
    %
    
    
    10/15/2008
    
    
    
    
    
    
    
    861,052Pehuenche
    
    1
    
    US$
    
    
    170,000,000
    
    
    
    7.30
    %
    
    
    5/1/2003
    
    
    
    124,886,525
    
    
    
    Edegel-Peru
    
    1
    
    US$
    
    
    30,000,000
    
    
    
    8.75
    %
    
    
    6/3/2007
    
    
    
    150,293
    
    
    
    122,974Edegel-Peru
    
    2
    
    US$
    
    
    30,000,000
    
    
    
    8.41
    %
    
    
    2/14/2007
    
    
    
    697,526
    
    
    
    570,865Edegel-Peru
    
    3
    
    US$
    
    
    30,000,000
    
    
    
    8.75
    %
    
    
    6/13/2006
    
    
    
    98,468
    
    
    
    80,569Edegel-Peru
    
    4
    
    US$
    
    
    20,000,000
    
    
    
    8.46
    %
    
    
    11/21/2005
    
    
    
    136,680
    
    
    
    111,835Edegel-Peru
    
    A-5
    
    Soles
    
    
    30,000,000
    
    
    
    11.60
    %
    
    
    8/22/2003
    
    
    
    7,524,632
    
    
    
    Edegel-Peru
    
    B-5
    
    Soles
    
    
    30,000,000
    
    
    
    6.00
    %
    
    
    2/22/2004
    
    
    
    132,188
    
    
    
    5,250,320Edegel-Peru
    
    A-1
    
    Soles
    
    
    100,000,000
    
    
    
    6.00
    %
    
    
    6/6/2005
    
    
    
    
    
    
    
    68,568Edegel-Peru
    
    A-3
    
    Soles
    
    
    50,000,000
    
    
    
    4.13
    %
    
    
    5/5/2006
    
    
    
    
    
    
    
    113,923Edegel-Peru
    
    B-3
    
    Soles
    
    
    50,000,000
    
    
    
    4.88
    %
    
    
    10/30/2006
    
    
    
    
    
    
    
    70,800Edegel-Peru
    
    A-4
    
    Soles
    
    
    50,000,000
    
    
    
    4.75
    %
    
    
    12/12/2006
    
    
    
    
    
    
    
    22,356Emgesa-Colombia
    
    A-1
    
    $Col
    
    
    15,000,000
    
    
    
    9.89
    %
    
    
    7/26/2006
    
    
    
    1,308,919
    
    
    
    58,942Emgesa-Colombia
    
    B-3
    
    $Col
    
    
    31,525,018
    
    
    
    14.79
    %
    
    
    2/8/2003
    
    
    
    10,264,100
    
    
    
    Emgesa-Colombia
    
    B-5
    
    $Col
    
    
    12,750,000
    
    
    
    9.97
    %
    
    
    10/9/2004
    
    
    
    75,658
    
    
    
    2,788,242Emgesa-Colombia
    
    B-7
    
    $Col
    
    
    19,500,000
    
    
    
    10.29
    %
    
    
    10/9/2006
    
    
    
    119,344
    
    
    
    99,864Emgesa-Colombia
    
    B-10
    
    $Col
    
    
    229,825,000
    
    
    
    10.60
    %
    
    
    10/9/2009
    
    
    
    1,449,421
    
    
    
    1,213,243Emgesa-Colombia
    
    B-10
    
    $Col
    
    
    60,000,000
    
    
    
    10.57
    %
    
    
    11/10/2009
    
    
    
    
    
    
    
    196,835Emgesa-Colombia
    
    C-10
    
    $Col
    
    
    7,701,962
    
    
    
    9.88
    %
    
    
    10/9/2009
    
    
    
    81,486
    
    
    
    73,690Emgesa-Colombia
    
    C-10
    
    $Col
    
    
    19,777,918
    
    
    
    10.25
    %
    
    
    10/8/2009
    
    
    
    44,130
    
    
    
    39,903Emgesa-Colombia
    
    B-10 2nd issue
    
    $Col
    
    
    50,000,000
    
    
    
    15.18
    %
    
    
    6/26/2006
    
    
    
    223,180
    
    
    
    1,164,287Emgesa-Colombia
    
    A-5
    
    $Col
    
    
    172,858
    
    
    
    8.35
    %
    
    
    10/8/2004
    
    
    
    70,746
    
    
    
    Emgesa-Colombia
    
    A-5
    
    $Col
    
    
    403,068
    
    
    
    14.63
    %
    
    
    10/13/2010
    
    
    
    
    
    
    
    Emgesa-Colombia
    
    B-1
    
    $Col
    
    
    85,000,000
    
    
    
    13.95
    %
    
    
    7/26/2006
    
    
    
    
    
    
    
    1,185,974Endesa Chile Internacional
    
    B-2
    
    US$
    
    
    150,000,000
    
    
    
    7.20
    %
    
    
    4/1/2006
    
    
    
    1,959,649
    
    
    
    1,603,260Endesa Chile Internacional
    
    1
    
    Euro
    
    
    400,000,000
    
    
    
    3.34
    %
    
    
    7/24/2003
    
    
    
    306,778,275
    
    
    
    Autopista del Sol S.A.
    
    A-1
    
    
    U.F.
    
    
    
    3,446,160
    
    
    
    5.80
    %
    
    
    1/15/2018
    
    
    
    1,648,440
    
    
    
    Autopista del Sol S.A.
    
    A-2
    
    
    U.F.
    
    
    
    861,540
    
    
    
    5.80
    %
    
    
    1/15/2018
    
    
    
    412,110
    
    
    
    Autopista del Sol S.A.
    
    B-1
    
    
    U.F.
    
    
    
    964,372
    
    
    
    5.80
    %
    
    
    1/15/2018
    
    
    
    491,702
    
    
    
    Autopista del Sol S.A.
    
    B-2
    
    
    U.F.
    
    
    
    243,578
    
    
    
    5.80
    %
    
    
    1/15/2018
    
    
    
    124,193
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    491,659,331
    
    
    
    57,559,407
 F-53




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  17.
    
    Bonds payable, continued:  b)
    
    Details of the long-term portion of bonds payable is as follows at each year-end: Long-term portion of long-term bonds: Par valueFace value
    
    Interest
    
    MaturityIssuer
    
    Series
    
    Currency
    
    outstanding
    
    rate
    
    date
    
    2002
    
    2003Endesa-Chile
    
    1
    
    US$
    
    
    230,000,000
    
    
    
    7.88
    %
    
    
    2/1/2027
    
    
    
    149,427,626
    
    
    
    122,252,138Endesa-Chile
    
    2
    
    US$
    
    
    220,000,000
    
    
    
    7.33
    %
    
    
    2/1/2037
    
    
    
    159,675,143
    
    
    
    130,636,000Endesa-Chile
    
    3
    
    US$
    
    
    200,000,000
    
    
    
    8.13
    %
    
    
    2/1/2097
    
    
    
    29,333,775
    
    
    
    23,999,021Endesa-Chile
    
    1
    
    US$
    
    
    400,000,000
    
    
    
    7.75
    %
    
    
    7/15/2008
    
    
    
    290,318,440
    
    
    
    237,520,000Endesa-Chile
    
    1
    
    US$
    
    
    400,000,000
    
    
    
    8.50
    %
    
    
    4/1/2009
    
    
    
    290,318,440
    
    
    
    237,520,000Endesa-Chile
    
    E-1, E-2
    
    
    U.F.
    
    
    
    6,000,000
    
    
    
    6.20
    %
    
    
    8/1/2006
    
    
    
    101,469,367
    
    
    
    101,520,000Endesa-Chile
    
    C1,C2, D1, D2
    
    
    U.F.
    
    
    
    1,251,257
    
    
    
    6.80
    %
    
    
    11/1/2010
    
    
    
    20,029,882
    
    
    
    17,662,331Endesa-Chile
    
    F
    
    
    U.F.
    
    
    
    1,500,000
    
    
    
    6.20
    %
    
    
    8/1/2022
    
    
    
    25,367,342
    
    
    
    25,380,000Endesa-Chile
    
    144 A
    
    US$
    
    
    400,000,000
    
    
    
    8.35
    %
    
    
    8/1/2013
    
    
    
    
    
    
    
    237,520,000Endesa-Chile
    
    144 A
    
    US$
    
    
    200,000,000
    
    
    
    8.63
    %
    
    
    8/1/2015
    
    
    
    
    
    
    
    118,760,000Endesa-Chile
    
    G
    
    
    U.F.
    
    
    
    4,000,000
    
    
    
    4.80
    %
    
    
    10/15/2010
    
    
    
    
    
    
    
    67,680,000Endesa-Chile
    
    H
    
    
    U.F.
    
    
    
    4,000,000
    
    
    
    6.20
    %
    
    
    10/15/2008
    
    
    
    
    
    
    
    67,680,000Edegel-Peru
    
    1
    
    US$
    
    
    30,000,000
    
    
    
    8.75
    %
    
    
    6/3/2007
    
    
    
    21,773,883
    
    
    
    17,814,000Edegel-Peru
    
    2
    
    US$
    
    
    30,000,000
    
    
    
    8.41
    %
    
    
    2/14/2007
    
    
    
    21,773,883
    
    
    
    17,814,000Edegel-Peru
    
    3
    
    US$
    
    
    30,000,000
    
    
    
    8.75
    %
    
    
    6/13/2006
    
    
    
    21,773,883
    
    
    
    17,814,000Edegel-Peru
    
    4
    
    US$
    
    
    20,000,000
    
    
    
    8.46
    %
    
    
    11/21/2005
    
    
    
    14,515,922
    
    
    
    11,876,000Edegel-Peru
    
    A-1
    
    Soles
    
    
    100,000,000
    
    
    
    6.00
    %
    
    
    6/6/2005
    
    
    
    
    
    
    
    17,142,033Edegel-Peru
    
    B-5
    
    Soles
    
    
    30,000,000
    
    
    
    6.00
    %
    
    
    2/22/2004
    
    
    
    6,196,324
    
    
    
    Edegel-Peru
    
    A-3
    
    Soles
    
    
    50,000,000
    
    
    
    4.13
    %
    
    
    5/5/2006
    
    
    
    
    
    
    
    8,571,016Edegel-Peru
    
    B-3
    
    Soles
    
    
    50,000,000
    
    
    
    4.88
    %
    
    
    10/30/2006
    
    
    
    
    
    
    
    8,571,016Edegel-Peru
    
    A-4
    
    Soles
    
    
    50,000,000
    
    
    
    4.75
    %
    
    
    12/12/2006
    
    
    
    
    
    
    
    8,571,016Emgesa-Colombia
    
    A-1
    
    $Col
    
    
    15,000,000
    
    
    
    9.89
    %
    
    
    7/26/2006
    
    
    
    3,800,258
    
    
    
    3,206,021Emgesa-Colombia
    
    B-1
    
    $Col
    
    
    85,000,000
    
    
    
    13.95
    %
    
    
    6/26/2006
    
    
    
    21,534,796
    
    
    
    18,167,453Emgesa-Colombia
    
    B-5
    
    $Col
    
    
    12,750,000
    
    
    
    9.97
    %
    
    
    10/9/2004
    
    
    
    3,230,219
    
    
    
    Emgesa-Colombia
    
    B-7
    
    $Col
    
    
    19,500,000
    
    
    
    10.29
    %
    
    
    10/9/2006
    
    
    
    4,940,336
    
    
    
    4,167,827Emgesa-Colombia
    
    B-10
    
    $Col
    
    
    229,825,000
    
    
    
    10.60
    %
    
    
    10/9/2009
    
    
    
    58,226,188
    
    
    
    49,121,888Emgesa-Colombia
    
    B-10
    
    $Col
    
    
    60,000,000
    
    
    
    10.57
    %
    
    
    11/10/2009
    
    
    
    
    
    
    
    12,824,085Emgesa-Colombia
    
    C-10
    
    $Col
    
    
    7,701,962
    
    
    
    9.88
    %
    
    
    10/9/2009
    
    
    
    
    
    
    
    3,086,739Emgesa-Colombia
    
    C-10
    
    $Col
    
    
    19,777,918
    
    
    
    10.25
    %
    
    
    10/8/2009
    
    
    
    5,331,860
    
    
    
    1,734,454Emgesa-Colombia
    
    B-10 2nd issue
    
    $Col
    
    
    50,000,000
    
    
    
    15.18
    %
    
    
    7/26/2006
    
    
    
    15,201,032
    
    
    
    10,686,737Endesa Chile Internacional
    
    A-1
    
    
    U.F.
    
    
    
    3,446,160
    
    
    
    5.80
    %
    
    
    1/15/2018
    
    
    
    58,279,946
    
    
    
    Autopista del sol S.A.
    
    A-2
    
    
    U.F.
    
    
    
    861,540
    
    
    
    5.80
    %
    
    
    1/15/2018
    
    
    
    14,569,986
    
    
    
    Autopista del sol S.A.
    
    B-1
    
    
    U.F.
    
    
    
    964,372
    
    
    
    5.80
    %
    
    
    1/15/2018
    
    
    
    16,309,031
    
    
    
    Autopista del sol S.A.
    
    B-2
    
    
    U.F.
    
    
    
    243,578
    
    
    
    5.80
    %
    
    
    1/15/2018
    
    
    
    4,119,290
    
    
    
    Endesa Chile International
    
    1
    
    US$
    
    
    150,000,000
    
    
    
    7.20
    %
    
    
    4/1/2006
    
    
    
    108,869,415
    
    
    
    89,070,000Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,466,386,267
    
    
    
    1,688,367,775
 F-54




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 17. Bonds payable, continued: i) Endesa-Chile (Individual legal entity): I) The Company made following public offerings of bonds in the local market on
the following dates:  
    
    On November 26, 2002, the fifth bond issuance was registered under No.
317 and 318 in the amount of
UF 8,000,000 and was fully placed as of December 2003.  Risk ratings of the bonds issued are as follows as of the date of these financial statements: Rating Entity
    
    Category
    
    Date of ratingComisión Clasificadora de Riesgo
    
    BBB+
    
    May 29, 2004Fitch IBCA Chile Clasificadora de Riesgo Ltda.
    

    A+
    
    
    May 15, 2003
 ISSUANCE TERMS Third Issuance Issuer
    
    Empresa Nacional de Electricidad S.ASecurities issued
    
    Bearer bonds in local currency, denominated in Unidades de FomentoIssuance Value
    
    Four million Unidades de Fomento (UF 4,000,000) divided into:- Series C-1: 120 bonds at UF 10,000 each- Series C-2: 800 bonds at UF 1,000 each- Series D-1: 120 bonds at UF 10,000 each- Series D-2: 800 bonds at UF 1,000 eachIndexation
    
    Based on variations in Unidad de Fomento indexAmortization period
    
    Series C-1 and C-2: 15 years (5-year grace period and 10 years to amortize capital)Series D-1 and D-2: 20 years (5-year grace period and 15 years to amortize capital)Capital amortization
    
    Series C-1 and C-2: 20 consecutive installments payable semi-anually, starting
April 1, 1996. Amortization installments will increase with time.Series D-1 and D-2: 30 consecutive installments payable semi-anually, starting May
1, 1996. Amortization installments will increase with time.
 F-55




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 17. Bonds payable, continued: Early Redemption
    
    At the issuers option, starting May 1, 1996 and only
on the interest payment and amortization dates.Nominal interest rate
    
    6.8% annually, compounded and on semi-annually
outstanding capital, readjusted by the value of the
Unidad de Fomento. The applicable interest rate
will be equal to 3.34409%.Interest Payments
    
    Interest will be paid semi-anually each May 1 and
November 1, starting May 1, 1991. Accrued
interest at the end of the year amounts to ThCh$
223,384 (ThCh$ 248,075 in 2002), and is shown under
current liabilities.Guarantee
    
    There is no specific guarantee, however there is a
general guarantee over the issuers assets.Placement period
    
    48 months from the registration date in the Chilean
Securities Register of the Superintendency of
Securities and Insurance.Fourth IssuanceIssuer
    
    Empresa Nacional de Electricidad S.ASecurities issued
    
    Bearer bonds in local currency, denominated in Unidades de FomentoIssuance Value
    
    Seven and a half million (UF 7,500,000) divided into (1):Series E-1: 1,500 bonds at UF 1,000 each.Series E-2: 600 bonds at UF 10,000 each.Series F: 200 bonds at UF 10,000 each.Indexation
    
    Based on variations in Unidad de Fomento indexAmortization period
    
    Series E-1 and E-2: August 1, 2006.Series F: August 1, 2022.Early Redemption
    
    Only in the case of Series F, beginning February 1, 2012.Nominal interest rate
    
    6.2% annually, compounded on outstanding capital, readjusted by
the value of the Unidad de Fomento. The interest rate applied
semi-annually will be equal to 3.0534%.Placement period
    
    36 months from the registration date in the Chilean Securities
Register of the Superintendency of Securities and Insurance.Guarantee
    
    There is no specific guarantee, however, there is a general
guarantee over the issuers assets.Interest payments
    
    Interest will be paid semi-annually each August 1 and February 1,
starting August 1, 2001. Accrued interest at the end of the year
amounted to ThCh$3,228,970 (ThCh$3,227,360 in 2002) and is
presented under current liabilities.
  (1)
    
    The Company holds a currency swap that swaps UF payments to US dollars,
and which has a fair value of ThCh$ 4,843,040 as of December 31, 2003 and
is included in long-term other assets. F-56




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 17. Bonds payable, continued: Fifth Issuance Issuer
    
    Empresa Nacional de Electricidad S.ASecurities issued
Issuance Value
    
    Bearer bonds in local currency, denominated in Unidades de Fomento
Eight million (UF 8,000,000) divided into (1):Series G: 4,000 bonds at UF 1,000 each.Series H: 4,000 bonds at UF 10,000 each.Indexation
Amortization period
    
    Based on variations in Unidad de
Fomento index
Series G: October 15, 2010.Series H: in semiannual installments from April 15, 2010.Early Redemption
    
    Only in the case of Series G, beginning October 16, 2004.Nominal interest rate
    
    Series G: 4.8% annually, in semi-annual installments, compounded
on outstanding capital, readjusted by the value of the Unidad de
Fomento. The interest rate applied semi-annually will be equal
to 2.3719%.Series H: 6.2% annually, in semi-annual installments, compounded
on outstanding capital, readjusted by the value of the Unidad de
Fomento. The interest rate applied semi-annually will be equal
to 3.0534%.Placement period
    
    36 months from the registration date in the Chilean Securities
Register of the Superintendency of Securities and Insurance.Guarantee
    
    There is no specific guarantee, however, there is a general
guarantee over the issuers assets.Interest payments
    
    Interest will be paid semi-annually each April 15 and October 15,
starting April 15, 2004. Accrued interest at the end of the year
amounted to ThCh$1,529,919 (ThCh$0 in 2002) and is presented
under current liabilities.
 F-57




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 17. Bonds payable, continued: II) The Company has issued and placed four public offerings of bonds in the
international market as follows: Risk ratings of the bonds are as follows as of the date of these financial
statements: Rating Entity
    
    Category
    
    Date of ratingStandard & Poors
    
    BBB-
    
    August 4, 2003Moodys Investors Services
    
    Ba2
    
    November 18, 2003Fitch
    
    BBB-
    
    May 14, 2003
 First Issuance Issuer
    
    Empresa Nacional de Electricidad S.ASecurities issued
    
    Marketable securities denominated in US$(Yankee bonds) in the US market.Issuance Value
    
    Six hundred and fifty million US Dollars (US$ 650,000,000) divided into:Series 1: US$230,000,000Series 2: US$220,000,000Series 3: US$200,000,000Indexation
    
    Variation in the US DollarCapital Amortization
    
    Series 1 full expiration on February 1, 2027Series 2 full expiration on February 1, 2037 (Put Option on February 1,
2009, on which date the holders may redeem 100% of the securities plus
accrued interest).Series 3 full expiration on February 1, 2097Nominal interest rate
    
    Series 1: 7.875% annuallySeries 2: 7.325% annuallySeries 3: 8.125% annuallyInterest Payments
    
    Interest will be paid semi-anually each February 1 and August 1
annually, starting January 27, 1997. Accrued interest as of December 31,
2003 amounts to ThCh$12,488,977 (ThCh$15,265,158 in 2002), which is
shown under current liabilities.Second IssuanceIssuer
    
    Empresa Nacional de Electricidad S.ASecurities issued
    
    Marketable securities denominated in US$(Yankee bonds) in the US market.Issuance Value
    
    Four hundred million US Dollars (US$ 400,000,000)Indexation
    
    Variation in the US DollarCapital amortization
    
    Series 1 full expiration on July 15, 2008Nominal interest rate
    
    Series 1: 7.75% annuallyInterest Payments
    
    Interest will be paid semi-anually each January 15 and July 15 annually,
starting January 15, 1999. Accrued interest as of December 31, 2003
amounts to ThCh$8,436,908 (ThCh$10,312,351 in 2002), which is shown
under current liabilities.
 F-58




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 17. Bonds payable, continued: Third Issuance Issuer
    
    Empresa Nacional de Electricidad S.ASecurities issued
    
    Marketable securities denominated in US$(Yankee bonds) in the US market.Issuance Value
    
    Four hundred million US Dollars (US$ 400,000,000)Indexation
    
    Variation in the US DollarCapital amortization
    
    Series 1 full expiration on April 1, 2009Nominal interest rate
    
    Series 1: 8.50% annuallyInterest Payments
    
    Interest will be paid semi-anually each October 1 and April 1 annually,
starting October, 1 1999. Accrued interest as of December 31, 2003
amounts to ThCh$5,047,300 (ThCh$6,169,267 in 2002), which is shown
under current liabilities.Fourth IssuanceIssuer
    
    Empresa Nacional de Electricidad S.ASecurities issued
    
    Marketable securities denominated in US$(Yankee bonds) in the
US and European market under the Rule 144-A.Issuance Value
    
    Six hundred million US Dollars (US$ 600,000,000) in two seriesIndexation
    
    Variation in the US DollarCapital amortization
    
    Series 1: expiration on August 1, 2013: US Dollars 400,000,000;Series 2: expiration on August 1, 2015: US Dollars 200,000,000Nominal interest rate
    
    Series 1: 8.35% annuallySeries 2: 8.625% annuallyInterest Payments
    
    Interest will be paid semi-anually each February 1 and August
1 annually, starting July, 23 2003. Accrued interest as of
December 31, 2003 amounts to ThCh$13,116,983 (ThCh$0 in
2002), which is shown under current liabilities.
 Repurchase of Yankee Bonds During November 2001, the Company made a tender offer to repurchase all of a
portion of the First Issuance of the following series of Yankee Bonds: - Series 1: US$ 230,000,000; 30 years term with maturity in 2027. - Series 3: US$ 200,000,000; 100 years term with maturity in 2097. The offer expired November 21, 2001, and the Company repurchased a total of
US$24,119,000 and US$159,584,000 of Series 1 and 3 bonds, respectively, with
accrued interest, at prices of US$21,324,000 and US$134,828,000 for Series 1
and 3, respectively. F-59




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 17. Bonds payable, continued:  ii)
    
    Subsidiaries of Endesa-ChileI)
    
    Endesa-Chile Internacional a) Endesa-Chile Internacional issued Yankee Bonds on April 1, 1996. The risk rating of these bonds is as follows as of the date of these
financial statements: Rating Entity
    
    Category
    
    Date of ratingStandard & Poors (First Issuance)
    
    BBB-
    
    February 21, 2003Moodys Investors Services
    
    Ba2
    
    November 18, 2003
 ISSUANCE TERMS First Issuance Issuer
    
    Endesa-Chile InternacionalSecurities issued
    
    Marketable securities denominated in US$(150,000 bonds).Issuance Value
    
    One hundred and fifty million Dollars (US$ 150,000,000)Readjustment
    
    Variation in the US DollarCapital amortization
    
    Full expiration as of April 1, 2006Nominal interest rate
    
    7.2 % annually until expirationInterest Payments
    
    Interest is to be paid quarterly, beginning on October
1, 1996. Accrued interest as of December 31, 2003
amounts to ThCh$1,603,260 (ThCh$1,959,649 in 2002),
which is shown under current liabilities.Guarantee
    
    Guarantee from Empresa Nacional de Electricidad S.A.
 Endesa-Chile Internacional is a 100%-owned finance subsidiary of Endesa-Chile
and Endesa-Chile has issued a full and unconditional guarantee of the US$150
million Yankee Bonds issued by Endesa-Chile Internacional on April 1, 1996. ISSUANCE TERMS First Registration Securities registered
    
    1,000 million EurosIssuance Value
    
    Euros 400,000,000 (1)Capital amortization
    
    Principal due July 24, 2003. As of December 31, 2003 these bonds were fully paid.Nominal interest rate
    
    Euribor + 0.80%Interest Payments
    
    Interest is to be paid quarterly, beginning on October 24, 2000.Guarantee
    
    Guarantee from Empresa Nacional de Electricidad S.A.
  (1)
    
    Through a cross-currency swap, the company has elected to change the
debt from Euros to US dollars. F-60




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 17. Bonds payable, continued:  II)
    
    Empresa Eléctrica Pehuenche S.A. issued bonds on May 2, 1996. First Issuance Issuer
    
    Empresa Eléctrica Pehuenche S.A.Securities issued
    
    Marketable securities denominated in US$.Issuance Value
    
    One hundred and seventy million US Dollars (US$ 170,000,000)Capital amortization
    
    Full expiration as of May 1, 2003. As of December 31, 2003 these bonds were fully paid.Nominal interest rate
    
    7.3 % annually upon expirationInterest Payments
    
    Interest will be paid semi-anually, starting November 1, 1996.
  III)
    
    Edegel S.A. issued bonds on June 4, 1999, February 15, 2000, June 14,
2000 and November 27, 2000, August 22, 2001, June 6, 2003 and September 4,
2003 as per the following: First Issuance Issuer
    
    Edegel S.A.Securities issued
    
    Marketable securities denominated in US$(110,000 bonds).Issuance Value
    
    One hundred and twenty million US dollars (US$ 110,000,000)Capital amortization
    
    Full expiration as of June 3, 2007, February 14, 2007, June 13,
2006, November 21, 2005 and February 22, 2004, respectively.Nominal interest rate
    
    8.75%, 8.41%, 8.75%, 8.46%, and 6.0% annually.Interest Payments
    
    Interest will be paid semi-anually. Accrued interest as of
December 31, 2003 amounts to ThCh$1,269,600 (ThCh$1,381,190 in
2002) and is shown under Other Current Liabilities.Issuer
    
    Edegel S.A.Securities issued
    
    Marketable securities denominated in Peruvian Soles (30,000 bonds).Issuance Value
    
    Thirty million Peruvian Soles (Peruvian Soles 30,000,000)Capital amortization
    
    Full expiration as of February 22, 2004.Nominal interest rate
    
    6.0% annually.Interest Payments
    
    Interest will be paid semi-anually.Issuer
    
    Edegel S.A.Securities issued
    
    Marketable securities denominated in Peruvian Soles (20,000 bonds).Issuance Value
    
    One hundred million Peruvian Soles (Peruvian Soles 100,000,000)Capital amortization
    
    Full expiration as of June 6, 2005.Nominal interest rate
    
    6.0% annually.Interest Payments
    
    Interest will be paid semi-anually. Accrued interest as of
December 31, 2003 amounts to ThCh$68,568 (ThCh$0 in 2002) and is
shown under Other Current Liabilities.Issuer
    
    Edegel S.A.Securities issued
    
    Marketable securities denominated in Peruvian Soles (10,000 bonds).Issuance Value
    
    Fifty million Peruvian Soles (Peruvian Soles 50,000,000)Capital amortization
    
    Full expiration as of May 5, 2006.Nominal interest rate
    
    4.13% annually.Interest Payments
    
    Interest will be paid semi-anually. Accrued interest as of
December 31, 2003 amounts to ThCh$113,923 (ThCh$0 in 2002) and is
shown under Other Current Liabilities.
 F-61




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 17. Bonds payable, continued: Issuer
    
    Edegel S.A.Securities issued
    
    Marketable securities denominated in Peruvian Soles (10,000 bonds).Issuance Value
    
    Fifty million Peruvian Soles (Peruvian Soles 50,000,000)Capital amortization
    
    Full expiration as of October 30, 2006.Nominal interest rate
    
    4.875% annually.Interest Payments
    
    Interest will be paid semi-anually. Accrued interest as of
December 31, 2003 amounts to ThCh$70,800 (ThCh$0 in 2002) and is
shown under Other Current Liabilities.Issuer
    
    Edegel S.A.Securities issued
    
    Marketable securities denominated in Peruvian Soles (10,000 bonds).Issuance Value
    
    Fifty million Peruvian Soles (Peruvian Soles 50,000,000)Capital amortization
    
    Full expiration as of December 12, 2006.Nominal interest rate
    
    4.75% annually.Interest Payments
    
    Interest will be paid semi-anually. Accrued interest as of
December 31, 2003 amounts to ThCh$22,356 (ThCh$0 in 2002) and is
shown under Other Current Liabilities.
  IV)
    
    Emgesa S.A. issued bonds on October 8, 1999 and July 9, 2001 from the
first issuance, and on February 26, 2003 from the second issuance, as per
the following: First Issuance Issuer
    
    Emgesa S.A.Securities issued
    
    Marketable securities denominated in Colombian pesosIssuance Value
    
    Five hundred and thirty million Colombian pesos ($Col 530,000,000)Capital amortization
    
    Full expiration between 2004 and 2009 at the amount of $Col 436,845,174Nominal interest rate
    
    15.5% annual average rateInterest Payments
    
    Interest will be paid quarterly and annually. Accrued interest as of
December 31, 2003 amounts to ThCh$1,904,178 (ThCh$5,439,841 in 2002)
and is shown under current liabilities.
 Second Issuance Issuer
    
    Emgesa S.A.Securities issued
    
    Marketable securities denominated in Colombian pesosIssuance Value
    
    Fifty million Colombian pesos ($Col 50,000,000)Capital amortization
    
    Full expiration as of July 26, 2006.Nominal interest rate
    
    15.18% annual average rateInterest Payments
    
    Interest will be paid annually. Accrued interest as
of December 31, 2003 amounts to ThCh$1,164,287
(ThCh$223,180 in 2002) and is shown under current
liabilities.
 F-62




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 18. Accrued expenses: a. The accrued expenses included in short-term and long-term liabilities as of
each year end are as follows: Short-term
    
    Long-termAs of December 31,
    
    As of December 31,2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Employee salaries
    
    
    7,837,841
    
    
    
    7,795,395
    
    
    
    
    
    
    
    Highway construction costs
    
    
    
    
    
    
    
    
    
    
    1,863,375
    
    
    
    Provision for contingences,
lawsuits, and others
    
    
    8,409,040
    
    
    
    4,828,504
    
    
    
    1,146,366
    
    
    
    58,102Chilean Ministry of Public Works
annual cost
    
    
    4,529,192
    
    
    
    
    
    
    
    
    
    
    
    Provisional tax payments and other
    
    

    
    
    
    
    
    
    
    
    7,070,602
    
    
    
    7,639,831Post retirement benefits
    
    
    830,654
    
    
    
    672,953
    
    
    
    2,620,968
    
    
    
    3,343,592Employee severance indemnities (1)
    
    
    142,474
    
    
    
    57,694
    
    
    
    2,659,977
    
    
    
    3,378,529Pensions and post-retirement
benefits of foreign subsidiaries
    
    
    
    
    
    
    
    
    
    
    20,436,547
    
    
    
    20,643,547Provision for purchases of energy
and power
    
    
    13,986,276
    
    
    
    5,789,515
    
    
    
    
    
    
    
    Provisions for syndicated expenses
    
    
    
    
    
    
    669,256
    
    
    
    
    
    
    
    Others
    
    
    3,174,741
    
    
    
    2,048,532
    
    
    
    3,808,814
    
    
    
    2,971,683Total
    
    
    38,910,218
    
    
    
    21,861,849
    
    
    
    39,606,649
    
    
    
    38,035,284
  (1)
    
    Long-term accruals include severance indemnities to personnel,
calculated in accordance with the policy described in Note 2, and an
analysis of the changes in the accrual in each year is as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Opening balance as of January 1
    
    
    2,155,164
    
    
    
    2,659,977Net increase in accrual
    
    
    640,668
    
    
    
    759,610Net transfers to short-term accrual
    
    
    
    
    
    
    (41,058
    )Payments during the period
    
    
    (135,855
    )
    
    
    Total
    
    
    2,659,977
    
    
    
    3,378,529
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Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 19. Minority interest: The information presented represents the participation by non-controlling
shareholders in the legal entities presented below. As a result the economic
participation by minority interest shareholders may be larger at the
consolidated level of Endesa-Chile.  a.
    
    Minority shareholders participation in the shareholders equity of the
Companys subsidiaries as of each year-end is as follows: As of December 31, 2002
    
    As of December 31, 2003Company
    
    Equity
    
    Participation
    
    Total
    
    Equity
    
    Participation
    
    TotalThCh$
    
    %
    
    ThCh$
    
    ThCh$
    
    %
    
    ThCh$Sociedad Concesionaria Autopista Los
Libertadores S.A.
    
    
    25,465,151
    
    
    
    0.05
    %
    
    
    12,733
    
    
    
    
    
    
    
    
    
    
    
    Capital de Energía S.A.
    
    
    571,885,956
    
    
    
    49.10
    %
    
    
    280,796,004
    
    
    
    464,741,947
    
    
    
    49.10
    %
    
    
    228,188,296Central Hidroeléctrica Betania S.A.
    
    
    524,653,325
    
    
    
    14.38
    %
    
    
    75,433,605
    
    
    
    427,549,420
    
    
    
    14.38
    %
    
    
    61,472,200Central Cachoeira Dourada
    
    
    491,582,589
    
    
    
    0.41
    %
    
    
    2,002,022
    
    
    
    406,438,881
    
    
    
    0.39
    %
    
    
    1,601,856Central Costanera S.A.
    
    
    173,176,401
    
    
    
    48.07
    %
    
    
    83,241,500
    
    
    
    169,484,178
    
    
    
    35.74
    %
    
    
    60,565,015Companía Eléctrica San Isidro S.A. (1)
    
    
    34,559,972
    
    
    
    50.00
    %
    
    
    17,279,986
    
    
    
    43,956,845
    
    
    
    50.00
    %
    
    
    21,978,423Edegel S.A.
    
    
    687,370,285
    
    
    
    36.44
    %
    
    
    250,503,852
    
    
    
    544,119,075
    
    
    
    36.44
    %
    
    
    198,297,667Emgesa S.A. (1)
    
    
    973,289,667
    
    
    
    51.52
    %
    
    
    501,408,665
    
    
    
    795,386,193
    
    
    
    51.52
    %
    
    
    409,758,310Empresa Eléctrica Pangue S.A.
    
    
    75,180,999
    
    
    
    5.01
    %
    
    
    3,766,568
    
    
    
    85,397,699
    
    
    
    5.01
    %
    
    
    4,283,719Endesa Argentina S.A.
    
    
    22,016,613
    
    
    
    0.01
    %
    
    
    2,202
    
    
    
    56,988,038
    
    
    
    0.01
    %
    
    
    5,699Generandes Perú S.A.
    
    
    373,148,990
    
    
    
    40.37
    %
    
    
    150,636,590
    
    
    
    302,246,635
    
    
    
    40.37
    %
    
    
    122,014,005Hidroeléctrica El Chocón S.A.
    
    
    229,449,565
    
    
    
    34.81
    %
    
    
    79,871,394
    
    
    
    201,332,047
    
    
    
    34.81
    %
    
    
    70,083,686Hidroinvest S.A.
    
    
    93,395,129
    
    
    
    30.07
    %
    
    
    28,083,916
    
    
    
    83,655,531
    
    
    
    30.07
    %
    
    
    25,155,218Inecsa 2000 S.A.
    
    
    25,666,499
    
    
    
    2.68
    %
    
    
    687,863
    
    
    
    
    
    
    
    
    
    
    
    Infraestructura Dos Mil S.A.
    
    
    64,642,503
    
    
    
    40.00
    %
    
    
    25,857,001
    
    
    
    
    
    
    
    
    
    
    
    Ingendesa S.A.
    
    
    2,289,440
    
    
    
    2.36
    %
    
    
    54,088
    
    
    
    2,561,114
    
    
    
    2.36
    %
    
    
    60,506Pehuenche S.A.
    
    
    184,730,491
    
    
    
    7.35
    %
    
    
    13,577,691
    
    
    
    194,308,570
    
    
    
    7.35
    %
    
    
    14,281,680Túnel El Melón S.A.
    
    
    (4,273,191
    )
    
    
    0.05
    %
    
    
    (2,137
    )
    
    
    (6,539,494
    )
    
    
    0.05
    %
    
    
    (3,270
    )Total
    
    
    
    
    
    
    
    
    
    
    1,513,213,543
    
    
    
    
    
    
    
    
    
    
    
    1,217,743,010
  (1)
    
    Endesa-Chile consolidates these companies because it
exercises control over their operations (see Note 2). F-64




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 19. Minority interest, continued:  b.
    
    Minority shareholders equity participation in the results from
operations of the Companys subsidiaries for each year is as follows: Year-ended December 31, 2001
    
    Year-ended December 31, 2002
    
    Year-ended December 31, 2003Net
    
    Partici -
    
    
    
    
    
    Net
    
    Partici -
    
    
    
    
    
    Net
    
    Partici -Company
    
    Income
    
    pation
    
    Total
    
    Income
    
    pation
    
    Total
    
    Income
    
    pation
    
    TotalThCh$
    
    
    
    
    
    ThCh$
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    ThCh$
    
    
    
    
    
    ThCh$Sociedad Concesionaria Autopista Los
Libertadores S.A.
    
    
    45,544
    
    
    
    0.05
    %
    
    
    23
    
    
    
    (84,611
    )
    
    
    0.05
    %
    
    
    (42
    )
    
    
    
    
    
    
    
    
    
    
    Capital de Energía S.A.
    
    
    8,688,357
    
    
    
    49.10
    %
    
    
    4,265,984
    
    
    
    23,907,723
    
    
    
    49.10
    %
    
    
    11,738,692
    
    
    
    8,613,883
    
    
    
    49.10
    %
    
    
    4,229,417Central Hidroeléctrica Betania S.A.
    
    
    (8,752,677
    )
    
    
    14.38
    %
    
    
    (1,258,443
    )
    
    
    (7,428,523
    )
    
    
    14.38
    %
    
    
    (1,068,058
    )
    
    
    (1,688,410
    )
    
    
    14.38
    %
    
    
    (242,756
    )Central Cachoeira Dourada
    
    
    26,100,238
    
    
    
    0.41
    %
    
    
    128,239
    
    
    
    (35,856,858
    )
    
    
    0.41
    %
    
    
    (146,031
    )
    
    
    4,314,551
    
    
    
    0.39
    %
    
    
    17,005Central Costanera S.A.
    
    
    (11,683,579
    )
    
    
    48.07
    %
    
    
    (5,616,000
    )
    
    
    24,982,628
    
    
    
    48.07
    %
    
    
    12,008,515
    
    
    
    27,802,310
    
    
    
    35.74
    %
    
    
    12,253,976Compañía Eléctrica San Isidro S.A. (1)
    
    
    (102,294
    )
    
    
    50.00
    %
    
    
    (51,147
    )
    
    
    5,302,727
    
    
    
    50.00
    %
    
    
    2,651,364
    
    
    
    13,177,857
    
    
    
    50.00
    %
    
    
    6,588,929Edegel S.A.
    
    
    28,922,541
    
    
    
    36.44
    %
    
    
    10,540,473
    
    
    
    4,600,041
    
    
    
    36.44
    %
    
    
    1,676,429
    
    
    
    31,881,870
    
    
    
    36.44
    %
    
    
    11,618,965Emgesa S.A. (1)
    
    
    18,984,503
    
    
    
    51.52
    %
    
    
    9,780,228
    
    
    
    56,730,401
    
    
    
    51.52
    %
    
    
    29,225,744
    
    
    
    22,221,183
    
    
    
    51.52
    %
    
    
    11,447,665Empresa Eléctrica Pangue S.A.
    
    
    6,634,223
    
    
    
    5.01
    %
    
    
    498,894
    
    
    
    19,039,350
    
    
    
    5.01
    %
    
    
    953,871
    
    
    
    37,165,525
    
    
    
    5.01
    %
    
    
    1,864,297Endesa Argentina S.A.
    
    
    (10,931,526
    )
    
    
    0.01
    %
    
    
    (1,094
    )
    
    
    (10,888,971
    )
    
    
    0.01
    %
    
    
    (1,089
    )
    
    
    38,333,485
    
    
    
    0.01
    %
    
    
    3,833Generandes Perú S.A.
    
    
    28,208,767
    
    
    
    40.37
    %
    
    
    11,387,603
    
    
    
    13,236,381
    
    
    
    40.37
    %
    
    
    5,343,397
    
    
    
    28,556,438
    
    
    
    40.37
    %
    
    
    11,527,954Hidroeléctrica El Chocón S.A.
    
    
    9,019,242
    
    
    
    34.81
    %
    
    
    3,139,598
    
    
    
    (26,030,227
    )
    
    
    34.81
    %
    
    
    (9,061,122
    )
    
    
    13,610,490
    
    
    
    34.81
    %
    
    
    4,737,812Hidroinvest S.A.
    
    
    2,662,364
    
    
    
    30.07
    %
    
    
    800,573
    
    
    
    (26,767,299
    )
    
    
    30.07
    %
    
    
    (8,048,927
    )
    
    
    7,105,008
    
    
    
    30.07
    %
    
    
    2,136,476Inecsa 2000 S.A.
    
    
    32,624
    
    
    
    2.68
    %
    
    
    874
    
    
    
    (99,306
    )
    
    
    2.68
    %
    
    
    (2,661
    )
    
    
    
    
    
    
    
    
    
    
    Infraestructura Dos Mil S.A.
    
    
    1,006,235
    
    
    
    40.00
    %
    
    
    402,494
    
    
    
    417,093
    
    
    
    40.00
    %
    
    
    166,837
    
    
    
    
    
    
    
    
    
    
    
    Ingendesa S.A.
    
    
    882,416
    
    
    
    2.36
    %
    
    
    20,847
    
    
    
    932,483
    
    
    
    2.36
    %
    
    
    22,030
    
    
    
    1,601,578
    
    
    
    2.36
    %
    
    
    37,837Pehuenche S.A.
    
    
    5,013,232
    
    
    
    7.35
    %
    
    
    317,839
    
    
    
    20,212,254
    
    
    
    7.35
    %
    
    
    1,485,601
    
    
    
    45,798,189
    
    
    
    7.35
    %
    
    
    3,366,167Túnel El Melón S.A.
    
    
    (1,951,707
    )
    
    
    0.05
    %
    
    
    (976
    )
    
    
    (2,946,920
    )
    
    
    0.05
    %
    
    
    (1,473
    )
    
    
    (2,266,302
    )
    
    
    0.05
    %
    
    
    (1,133
    )Total
    
    
    
    
    
    
    
    
    
    
    34,356,009
    
    
    
    
    
    
    
    
    
    
    
    46,943,077
    
    
    
    
    
    
    
    
    
    
    
    69,586,444
  (1)
    Endesa-Chile consolidates these companies because it exercises
control over their operations (see Note 2). F-65




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 20. Shareholders equity:  a.
    
    Dividends In accordance with law 18.046, the Company must declare a minimum dividend of
30% of net income of the year. The Company paid dividends to shareholders
during 2002 related to the result of operations during 2001 as follows : Historical value
    
    
    
    
    
    YearPayment date
    
    Ch$ per share
    
    Type of dividend
    
    related toApril 2001
    
    
    0.9600
    
    
    Final
    
    
    2000April 2002
    
    
    0.9400
    
    
    Final
    
    
    2001
 No dividend was paid in 2003 related to the result of 2002 because the Company
incurred a net loss for the year ended December 31, 2002.  b.
    
    Number of shares As of each of the years ended December 31, 2001, 2002 and 2003, the number of
shares authorized, subscribed, outstanding and paid for was 8,201,754,580, all
having voting rights.  c.
    
    Subscribed and paid-in capital Subscribed and paid-in capital as of each of the years ended December 31, 2001,
2002 and 2003 amounted to
ThCh$ 1,050,193,846.  d.
    
    Net earnings from operations and accumulated net earnings of
development-stage subsidiaries are as follows: As of December 31, 2003Net EarningsDuringCompany
    
    the year
    
    AccumulatedThCh$
    
    ThCh$Compañía Eléctrica Taltal Ltda
    
    
    
    
    
    
    246,471Gas Atacama Generación Ltda
    
    
    
    
    
    
    1,365,867Ingendesa Ltda
    
    
    74,882
    
    
    
    74,882Enigesa S.A.
    
    
    965
    
    
    
    965Total
    
    
    75,847
    
    
    
    1,688,185
 F-66




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 20. Shareholders equity, continued: e. Other reserves Other reserves are composed of the following as of December 31, of each year: As of December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Accumulated surplus (deficit) of development-stage subsidiaries
    
    
    2,115,537
    
    
    
    (5,932,302
    )
    
    
    1,688,185Accumulated capital revaluation
    
    
    1,667,838
    
    
    
    1,667,838
    
    
    
    1,667,838Revaluation of fixed assets under Decree Law No. 4 (see Note 2)
    
    
    1,143,475
    
    
    
    1,143,475
    
    
    
    1,143,475Other revaluations
    
    
    74,410
    
    
    
    74,410
    
    
    
    74,410Reserve for technical revaluation of fixed assets (Circulars
550 and 566)
    
    
    28,604,964
    
    
    
    28,604,964
    
    
    
    28,604,964Reserve for technical revaluation of investments in
subsidiaries subsequently sold (Circulars 550 and 566)
    
    
    24,054,623
    
    
    
    24,054,623
    
    
    
    24,054,623Equity adjustment of unconsolidated subsidiaries
    
    
    (325,933
    )
    
    
    (325,933
    )
    
    
    (325,933
    )Accumulated foreign currency translation adjustments, net (1)
    
    
    19,420,410
    
    
    
    28,827,588
    
    
    
    (1,651,807
    )Reduction of capital in foreign subisiaries
    
    
    (6,071,336
    )
    
    
    (6,071,333
    )
    
    
    (6,071,333
    )Total
    
    
    70,683,988
    
    
    
    72,043,330
    
    
    
    49,184,422
  (1)
    
    The detail of the net cumulative translation adjustment for foreign
currency gains and losses on liabilities and net investments measured in
currencies other than the Chilean peso as of December 31, of each year are as
follows: As of December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Endesa-Chile equity method investments
    
    
    12,175,458
    
    
    
    17,957,381
    
    
    
    (1,103,009
    )Endesa Argentina
    
    
    5,692,110
    
    
    
    7,642,348
    
    
    
    4,255,822Endesa Chile Internacional
    
    
    264,869
    
    
    
    1,644,508
    
    
    
    1,644,508Distrilec Inversora S.A.
    
    
    407,536
    
    
    
    530,781
    
    
    
    158,652Endesa Colombia S.A.
    
    
    886,272
    
    
    
    1,062,710
    
    
    
    113,150Ingendesa Do Brasil Ltda
    
    
    (5,835
    )
    
    
    (10,140
    )

    
    
    (16,272
    )Cono Sur S.A.
    
    
    
    
    
    
    
    
    
    
    (6,571,292
    )Central Costanera S.A.
    
    
    
    
    
    
    
    
    
    
    (133,366
    )Total
    
    
    19,420,410
    
    
    
    28,827,588
    
    
    
    (1,651,807
    )
 F-67




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 21. Other income and expenses: a. The detail of other non-operating income in each year is as follows: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Effect of application of BT 64
    
    
    4,945,761
    
    
    
    73,783,706
    
    
    
    18,438,657Gain on sale of fixed assets
    
    
    5,390,717
    
    
    
    2,614,687
    
    
    
    1,660,252Gain on sale of other assets
    
    
    
    
    
    
    
    
    
    
    4,982Recovery of expenses and clients portfolio
    
    
    
    
    
    
    
    
    
    
    11,653,011Gain from sales of investments
    
    
    
    
    
    
    
    
    
    
    1,458,012Energy and power contract settlement
    
    
    6,552,026
    
    
    
    12,621,854
    
    
    
    2,414,983Incorporation of fourth line Camahue
    
    
    415,466
    
    
    
    340,825
    
    
    
    Dividends Empresa Eléctrica de Bogotá
    
    
    2,723,236
    
    
    
    5,232,571
    
    
    
    2,311,343Indemnities and commissions
    
    
    
    
    
    
    642,526
    
    
    
    2,284,552Gains on service and other contracts
    
    
    
    
    
    
    
    
    
    
    955,086Generator security foundation
    
    
    
    
    
    
    2,143,232
    
    
    
    Price adjustment on sale of Transelec shares
    
    
    3,194,957
    
    
    
    
    
    
    
    Gain on repurchase of bonds
    
    
    18,767,610
    
    
    
    
    
    
    
    Adjustment for Colombian equity method investments
    
    
    3,287,439
    
    
    
    
    
    
    
    Guarantee for bonds of Infraestructura Dos Mil
    
    
    
    
    
    
    
    
    
    
    685,434Recoverable taxes
    
    
    6,704,538
    
    
    
    
    
    
    
    Other
    
    
    4,393,435
    
    
    
    6,129,887
    
    
    
    2,706,992Total
    
    
    56,375,185
    
    
    
    103,509,288
    
    
    
    44,573,304
 F-68




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 21. Other income and expenses, continued: b. Other non-operating expenses in each year are as follows: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Amortization of bond discount
    
    
    915,648
    
    
    
    
    
    
    
    Effect of application of BT 64
    
    
    24,252,203
    
    
    
    18,135,858
    
    
    
    14,446,728Loss on sale of fixed assets
    
    
    635,781
    
    
    
    1,899,776
    
    
    
    7,675,879Loss on sale of other assets
    
    
    
    
    
    
    
    
    
    
    404,469Loss on sale of financial instruments
    
    
    
    
    
    
    
    
    
    
    1,142,690Costs of sales of materials and fixed assets
    
    
    
    
    
    
    
    
    
    
    417,349Retirement benefits and severance indemnities
    
    
    793,099
    
    
    
    1,531,708
    
    
    
    1,252,100Board of directors compensation
    
    
    229,003
    
    
    
    219,494
    
    
    
    241,941Contingencies and litigation
    
    
    4,872,161
    
    
    
    12,206,892
    
    
    
    6,469,786Intangible amortization and other deferred expenses
    
    
    403,259
    
    
    
    1,446,722
    
    
    
    Energy and power settlement
    
    
    9,206,006
    
    
    
    17,621,748
    
    
    
    2,676,757Internal Revenue Service fines and other
    
    
    5,289,111
    
    
    
    
    
    
    
    Provision for obsolescence of work-in-progress
    
    
    
    
    
    
    46,775,052
    
    
    
    Provision for obsolescence of fixed assets
    
    
    
    
    
    
    
    
    
    
    10,453,663Provision for obsolescence of inventory
    
    
    
    
    
    
    
    
    
    
    366,654Recalculation of pension liability
    
    
    
    
    
    
    
    
    
    
    583,751Tax penalties
    
    
    3,825,368
    
    
    
    8,792,250
    
    
    
    6,016,121Write-off Los Pelambres
    
    
    1,296,782
    
    
    
    
    
    
    
    Indemnity Unelco
    
    
    521,846
    
    
    
    
    
    
    
    Turbine relocation
    
    
    481,376
    
    
    
    
    
    
    
    Other
    
    
    6,364,020
    
    
    
    9,109,468
    
    
    
    7,914,235Total
    
    
    59,085,663
    
    
    
    117,738,968
    
    
    
    60,062,123
 F-69




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 22. Price-level restatement: The gain (loss) from price-level restatement as of each year is as follows: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$AssetsCurrent assets
    
    
    6,511,380
    
    
    
    4,242,011
    
    
    
    5,905,146Accounts receivable from subsidiaries
    
    
    4,698,952
    
    
    
    5,083,009
    
    
    
    1,762,523Fixed assets
    
    
    57,451,458
    
    
    
    59,423,942
    
    
    
    19,533,089Investment in subsidiaries
    
    
    4,858,064
    
    
    
    2,701,811
    
    
    
    1,764,604Goodwill and negative goodwill
    
    
    (2,788,834
    )
    
    
    (1,102,258
    )
    
    
    (946,023
    )Other assets
    
    
    4,767,895
    
    
    
    4,075,800
    
    
    
    19,448,205Net gain from asset accounts
    
    
    75,498,915
    
    
    
    74,424,315
    
    
    
    47,467,544Liabilities and Shareholders equityShareholders equity
    
    
    (41,617,822
    )
    
    
    (42,320,230
    )
    
    
    (14,306,355
    )Current and long-term liabilities
    
    
    (33,806,001
    )
    
    
    (32,703,015
    )
    
    
    (34,437,409
    )Minority interest
    
    
    6,582,451
    
    
    
    6,717,336
    
    
    
    2,163,541Accounts payable to subsidiaries
    
    
    (3,675,058
    )
    
    
    (581,634
    )
    
    
    (309,632
    )Net loss from liabilities and shareholders equity accounts
    
    
    (72,516,430
    )
    
    
    (68,887,543
    )
    
    
    (46,889,855
    )Net gain from price-level restatement of balance
sheet
    
    
    2,982,485
    
    
    
    5,536,772
    
    
    
    577,689Net gain (loss) from price-level restatement of income
statement
    
    
    1,399,129
    
    
    
    (1,500,325
    )
    
    
    (2,759
    )Net gain from price-level restatement
    
    
    4,381,614
    
    
    
    4,036,447
    
    
    
    574,930
 F-70




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 23. Foreign currency translation: The (charge) credit to income for foreign currency translation as of each year
is as follows: Assets As of December 31,Current assets
    
    Currency
    
    2001
    
    2002
    
    2003Cash
    
    US$
    
    
    744,328
    
    
    
    2,764,849
    
    
    
    3,123,677Other
    
    
    
    
    
    
    (13,827
    )
    
    
    7,216Time deposits
    
    US$
    
    
    76,868
    
    
    
    (62,098
    )
    
    
    (9,248,649
    )Other
    
    
    
    
    
    
    (31,365
    )
    
    
    (6,922
    )Marketable securities
    
    US$
    
    
    11,915,745
    
    
    
    
    
    
    
    Other accounts receivable, net
    
    US$
    
    
    1,068,558
    
    
    
    795,727
    
    
    
    (145,284
    )UC
    
    
    85,957
    
    
    
    42,961
    
    
    
    (118,623
    )Prepaid expenses
    
    US$
    
    
    170,676
    
    
    
    29,736
    
    
    
    (62,642
    )Other current assets
    
    US$
    
    
    11,291,274
    
    
    
    22,368,795
    
    
    
    (22,228,874
    )Other
    
    
    35,170
    
    
    
    8,047
    
    
    
    (119,218
    )Amounts due from related companies
    
    US$
    
    
    
    
    
    
    11,195,184
    
    
    
    Non-current assetsLong-term receivables
    
    US$
    
    
    950,093
    
    
    
    1,188,827
    
    
    
    UC
    
    
    279,938
    
    
    
    204,029
    
    
    
    (222,446
    )Amounts due from related companies
    
    US$
    
    
    17,203,587
    
    
    
    (43,185
    )
    
    
    (28,991,652
    )Deferred expenses
    
    US$
    
    
    249,328
    
    
    
    230,340
    
    
    
    Other Assets
    
    US$
    
    
    33,372,956
    
    
    
    13,955,177
    
    
    
    (178,777,327
    )Forward contracts
    
    US$
    
    
    36,371,323
    
    
    
    16,197,938
    
    
    
    Subtotal foreign exchange
gain (loss)
    
    
    
    
    
    
    113,815,801
    
    
    
    68,831,135
    
    
    
    (236,790,744
    )
 Liabilities As of December 31,Current liabilities
    
    Currency
    
    2001
    
    2002
    
    2003Short-term debt due to banks and financial institutions
    
    US$
    
    
    (739,359
    )
    
    
    (2,142,059
    )
    
    
    6,522,560Current portion of long-term debt due to banks and financial Institutions
    
    US$
    
    
    (2,844,199
    )
    
    
    (1,808,540
    )
    
    
    7,238,358¥
    
    
    
    
    26,513
    
    
    
    (72,424
    )
    
    
    56,071Euro
    
    
    
    
    
    
    (26,389
    )
    
    
    87,199UP
    
    
    (64,206
    )
    
    
    (244,524
    )
    
    
    167,230Current portion of bonds payable
    
    US$
    
    
    (2,734,102
    )
    
    
    (2,549,594
    )
    
    
    13,329,822Current portion of long-term notes payable
    
    US$
    
    
    (1,440,353
    )
    
    
    (865,294
    )
    
    
    2,248,465Other
    
    
    19,318
    
    
    
    
    
    
    
    Amounts payable to related companies
    
    US$
    
    
    (3,379,855
    )
    
    
    270,431
    
    
    
    Dividends payable
    
    Other
    
    
    
    
    
    
    
    
    
    
    45Accrued expenses
    
    US$
    
    
    (20,554
    )
    
    
    2,758
    
    
    
    Accounts payable
    
    US$
    
    
    
    
    
    
    (15,622
    )
    
    
    52,192Other
    
    
    
    
    
    
    14,851
    
    
    
    168Miscellaneous payables
    
    US$
    
    
    (256,957
    )
    
    
    (383,996
    )
    
    
    (140,883
    )Other current liabilities
    
    US$
    
    
    
    
    
    
    2,624
    
    
    
    1,462,488Other
    
    
    
    
    
    
    
    
    
    
    (975
    )Long-term liabilitiesDue to banks and financial Institutions
    
    US$
    
    
    (34,644,113
    )
    
    
    (20,692,542
    )
    
    
    90,236,462¥
    
    
    
    
    23,068
    
    
    
    (182,578
    )
    
    
    39,275Euro
    
    
    
    
    
    
    (61,092
    )
    
    
    1,008UP
    
    
    
    
    
    
    (372,406
    )
    
    
    14,043GBP
    
    
    (249,392
    )
    
    
    
    
    
    
    Bonds payable
    
    US$
    
    
    (52,381,924
    )
    
    
    (30,915,499
    )
    
    
    127,546,360Long-term notes payables
    
    US$
    
    
    (6,802,258
    )
    
    
    (2,842,223
    )
    
    
    5,972,670Accounts payable
    
    US$
    
    
    (1,005,570
    )
    
    
    361,815
    
    
    
    (173,051
    )Other long-term liabilities
    
    US$
    
    
    (21,971,746
    )
    
    
    (6,754,257
    )
    
    
    9,769,670Amounts payable to related Companies
    
    US$
    
    
    
    
    
    
    
    
    
    
    1,952,176Forwards
    
    US$
    
    
    
    
    
    
    
    
    
    
    (20,634,645
    )Subtotal foreign exchange gain (loss)
    
    
    
    
    
    
    (128,465,689
    )
    
    
    (69,276,560
    )
    
    
    245,746,708Net charges to income
    
    
    
    
    
    
    (14,649,888
    )
    
    
    (445,425
    )
    
    
    8,955,964
 F-71




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 24. Extraordinary loss: The Company recorded an extraordinary loss of ThCh$11,039,393 in the year
ended December 31, 2002 related to a tax affecting its Colombian subsidiary
that was introduced by the Columbian government to support state security. 25. Bond issuance costs: The costs related to the registration and issuance of bonds of Endesa-Chile
incurred during the years ended December 31, 2001, 2002 and 2003 are as
follows: As of December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Stamp taxes
    
    
    1,518,027
    
    
    
    1,463,307
    
    
    
    2,176,804Commissions
    
    
    215,848
    
    
    
    755,595
    
    
    
    2,595,871Consulting fees
    
    
    
    
    
    
    1,725,416
    
    
    
    853,328Insurance
    
    
    
    
    
    
    7,307,869
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    55,390Total
    
    
    1,733,875
    
    
    
    11,252,187
    
    
    
    5,681,393
 Bond issuance costs are included in Other Assets and are amortized over the
life of the bonds, on a straight-line basis, which does not differ
significantly from the effective interest method. 26. Other cash-flow items: Cash flows related to financing activities as of December 31, 2003 are as
follows: As of December31, 2003ThCh$Fees related to issuance of bonds
    
    
    17,228,721Forward contracts
    
    
    26,076,179Siemens A.G. Alemania
    
    
    4,555,075Loan from J.P. Morgan
    
    
    2,341,379Other
    
    
    5,364,373Total cash-outflow
    
    
    55,565,727
 Cash flows related to investing activities as of December 31, 2003 are as
follows: As of December31, 2003ThCh$Receipt of loans given to
Infraestructura group
    
    
    47,899,341Other
    
    
    1,888,996Total cash-inflow
    
    
    49,788,337
 F-72




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 27. Financial derivatives: As of December 31, 2003 the Company and its subsidiaries held the following
financial derivative contracts with financial institutions with the objective
of decreasing exposure to interest rates and foreign currency risk: As of December 31, 2003Nominal
    
    Period
    
    
    
    
    
    
    
    Initial hedged
    
    Closing hedgedType
    
    amount
    
    of
    
    
    
    Sales\
    
    Hedged
    
    amount
    
    amount(1)
    
    US$
    
    maturity
    
    Item
    
    Purchase
    
    Item
    
    ThCh$
    
    ThCh$FR
    
    
    17,000,000
    
    
    1st Quarter 04
    
    Exchange rate
    
    P
    
    Bonds
    
    
    10,094,600
    
    
    
    10,094,600FR
    
    
    17,000,000
    
    
    1st Quarter 04
    
    Exchange rate
    
    P
    
    Bonds
    
    
    10,094,600
    
    
    
    10,094,600FR
    
    
    20,000,000
    
    
    1st Quarter 04
    
    Exchange rate
    
    P
    
    Bonds
    
    
    11,876,000
    
    
    
    11,876,000FR
    
    
    17,000,000
    
    
    1st Quarter 04
    
    Exchange rate
    
    S
    
    Bonds
    
    
    10,094,600
    
    
    
    10,094,600FR
    
    
    17,000,000
    
    
    1st Quarter 04
    
    Exchange rate
    
    S
    
    Bonds
    
    
    10,094,600
    
    
    
    10,094,600FR
    
    
    20,000,000
    
    
    1st Quarter 04
    
    Exchange rate
    
    S
    
    Bonds
    
    
    11,876,000
    
    
    
    11,876,000FR
    
    
    14,000,000
    
    
    1st Quarter 04
    
    Exchange rate
    
    P
    
    Bonds
    
    
    8,313,200
    
    
    
    8,313,200FR
    
    
    5,000,000
    
    
    2nd Quarter 04
    
    Exchange rate
    
    P
    
    Bank Obligations
    
    
    2,969,000
    
    
    
    2,969,000FR
    
    
    76,000,000
    
    
    1st Quarter 04
    
    Exchange rate
    
    P
    
    Bank Obligations
    
    
    45,128,800
    
    
    
    45,128,800EO
    
    
    11,800,000
    
    
    3rd Quarter 04
    
    Interest rate
    
    P
    
    Bank Obligations
    
    
    7,006,840
    
    
    
    7,006,840EO
    
    
    150,000,000
    
    
    1st Quarter 06
    
    Interest rate
    
    P/S
    
    Bank Obligations
    
    
    89,070,000
    
    
    
    89,070,000EO
    
    
    200,000,000
    
    
    2nd Quarter 06
    
    Interest rate
    
    P/S
    
    Bank Obligations
    
    
    118,760,000
    
    
    
    118,760,000EO
    
    
    50,000,000
    
    
    3rd Quarter 04
    
    Interest rate
    
    P/S
    
    Bank Obligations
    
    
    29,690,000
    
    
    
    29,690,000EO
    
    
    50,000,000
    
    
    2nd  Quarter 04
    
    Interest rate
    
    P/S
    
    Bank Obligations
    
    
    29,690,000
    
    
    
    29,690,000EO
    
    
    75,000,000
    
    
    3rd Quarter 04
    
    Interest rate
    
    P/S
    
    Bank Obligations
    
    
    44,535,000
    
    
    
    44,535,000S
    
    
    175,000,000
    
    
    2nd  Quarter 08
    
    Interest rate
    
    P
    
    Bank Obligations
    
    
    103,915,000
    
    
    
    103,915,000S
    
    
    94,470,311
    
    
    3rd Quarter 06
    
    Exchange rate
    
    P
    
    Bonds
    
    
    66,384,753
    
    
    
    66,384,753S
    
    
    94,470,311
    
    
    3rd Quarter 06
    
    Exchange rate
    
    P
    
    Bonds
    
    
    1,689,160
    
    
    
    1,689,160S
    
    
    50,000,000
    
    
    3rd Quarter 06
    
    Exchange rate
    
    S
    
    Bonds
    
    
    35,135,243
    
    
    
    35,135,243S
    
    
    50,000,000
    
    
    3rd Quarter 06
    
    Exchange rate
    
    S
    
    Bonds
    
    
    307,398
    
    
    
    307,398
 FR = Forward, EO = European Option, S = Swap F-73




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 28. Commitments and contingencies: The detail of liens and guaranties granted by the Company and its subsidiaries
as of December 31, 2003 is as follows: Liens held by third parties: As of December 31, 2003Book value of liened assets and schedule to be releasedGuarantee
    
    Subsidiary
    
    2004
    
    2005-2007
    
    After 2007
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Banco del Estado de Chile
    
    Pehuenche S.A.
    
    
    3,867
    
    
    
    
    
    
    
    
    
    
    
    3,867Arriendo Maq. y Const. Talca
    
    Pehuenche S.A.
    
    
    2,519
    
    
    
    
    
    
    
    
    
    
    
    2,519Director Aduana de Chile
    
    Pangue S.A.
    
    
    53,442
    
    
    
    
    
    
    
    
    
    
    
    53,442Bancos Acreedores
    
    Pangue S.A.
    
    
    3,149,680
    
    
    
    5,317,963
    
    
    
    5,883,301
    
    
    
    14,350,944Mitsubishi Corp.
    
    San Isidro S.A.
    
    
    
    
    
    
    
    
    
    
    33,809,253
    
    
    
    33,809,253Crédito Sindicado Citibank N.A.
    
    Pehuenche S.A.,
Pangue S.A , Celta S.A.
    
    
    
    
    
    
    168,639,200
    
    
    
    
    
    
    
    168,639,200Banco Estado
    
    Tunel el Melon S.A.
    
    
    
    
    
    
    
    
    
    
    5,729,877
    
    
    
    5,729,877Soc. de Energia de la Republica
    
    Endesa Argentina
S.A.,Argentina
    
    Central Costanera S.A.
    
    
    
    
    
    
    
    
    
    
    11,686,578
    
    
    
    11,686,578Mitsubishi
    
    Central Costanera S.A.
    
    
    
    
    
    
    
    
    
    
    12,624,188
    
    
    
    12,624,188Banco Santander Central Hispano
    
    Conosur S.A.
    
    
    
    
    
    
    
    
    
    
    90,033,203
    
    
    
    90,033,203J.P. Morgans and ING Barings
    
    Central Costanera S.A.
    
    
    
    
    
    
    
    
    
    
    60,567,600
    
    
    
    60,567,600Various creditors
    
    Endesa-Chile S.A.
    
    
    
    
    
    
    
    
    
    
    1,309,333
    
    
    
    1,309,333Total
    
    
    
    
    3,209,508
    
    
    
    173,957,163
    
    
    
    221,643,333
    
    
    
    398,810,004
 Guarantees of subsidiary obligations (i): As of December 31, 2003Balance payable of related debtGuarantee
    
    Subsidiary
    
    2004
    
    2005-2007
    
    After 2007
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$J.P. Morgan Chase Bank
    
    Endesa Chile Internacional
    
    
    
    
    
    
    90,673,260
    
    
    
    
    
    
    
    90,673,260Mitsubishi Corp.
    
    Compañía Eléctrica San Isidro S.A.
    
    
    
    
    
    
    
    
    
    
    33,809,252
    
    
    
    33,809,252Banco Español de Crédito
    
    Compañía Eléctrica Tarapacá S.A.
    
    
    
    
    
    
    
    
    
    
    22,023,058
    
    
    
    22,023,058ABN Amro Bank
    
    Compañía Eléctrica Tarapacá S.A.
    
    
    1,758,906
    
    
    
    
    
    
    
    
    
    
    
    1,758,906Banco Santander Central
Hispano
    
    Compañía Eléctrica Conosur S.A.
    
    
    
    
    
    
    
    
    
    
    90,033,203
    
    
    
    90,033,203Total
    
    
    
    
    1,758,906
    
    
    
    90,673,260
    
    
    
    145,865,513
    
    
    
    238,297,679
 (i) These obligations are recorded in Note 15. The guarantees in this table
were provided by the Company (the Guarantor) to a third party creditor that
had entered into a new obligation with a subsidiary of the Company (the
Subsidiary Debtor). If the Subsidiary Debtor is unable to meet the
requirements of the related obligation, the Guarantor will be required to make
future payments on behalf of the Subsidiary Debtor up to the remaining amount
payable. F-74




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 28. Commitments and contingencies, continued:  Litigation and other legal actions:The Company is party to various lawsuits arising in the ordinary course
of its business. Management considers it unlikely that any losses
associated with the pending lawsuits described below will significantly
affect the Company or it subsidiaries results of operations, financial
position and cash flows, although no assurance can be given to such
effect. Accordingly, the Company has established a provision of ThCh$
4,098,842 for these lawsuits, which Management considers to be adequate.
Management does not believe that it is reasonably possible that the
Company will incur losses in excess of the established provision.The following is a detail of pending lawsuits that have been filed
against the Company, its subsidiaries and equity method investees. The
lawsuits are detailed by Company and the descriptions provide the court
of law overseeing the lawsuit, a legal reference number, a general
description of the lawsuit, the process status of the lawsuit and the
amounts involved in the lawsuit. The most relevant cases are detailed as
follows: Endesa-Chile  i.
    
    Court: Supreme Court of Argentina
Process number: 2753-4000/97
Cause: Dirección Provincial de Rentas, Provincia de Neuquén
versus TGN (Transportadora de Gas del Norte S.A.). Resolution
regarding Stamp Tax sum that eventually should be paid jointly by
TGN and Endesa-Chile.
Process status: TGN requested a precursory measure before the
Supreme Court of Argentina to suspend the proceeding filed by the
Province of Neuquen, which was accepted. Therefore the
administrative complaint proceeding remains pending.
Amounts involved: $Arg 13,943,572 (Includes tax, interest and fines).ii.
    
    Court: Arbitration Court
Process number: N/A
Cause: On December 27, 2001, Empresa Nacional de Electricidad S.A. was
notified of an arbitration to resolve controversies related to
insurance policy No. 96.676, issued by Compañía de Seguros Generales
Consorcio Allianz, currently AGF/Allianz Chile Compañía de Seguros
Generales S.A., to cover Endesa-Chile related to all risks, civil
liability and anticipated loss of benefits for the construction of the
Ralco Hydroelectric Plant. The suit is directly related to the Ralco
Project Cofferdam loss, which occurred on May 27, 2001. The plantiff
claims that Endesa did not inform about certain risks when the policy
was being agreed to.
Process status: Endesa replied to the complaint sustaining that
the plaintiff is distorting the facts, omitting information that was
provided by Endesa-Chile, altering the risks covered by the contract
and is unaware of the stipulations in the policy; that the flood that
affected the Cofferdam was an insurable risk, included in the policy,
and therefore it should be rejected since it has no foundation in fact
or in law.
Amounts involved: No amounts presently involved. If the suit
were resolved in favor of AGF/ Allianz Chile, it is estimated that
Endesa-Chile would lose approximately US$11 million. F-75




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 28. Commitments and contingencies, continued:  iii.
    
    Court: Arbitration Court
Process number: N/A
Cause: Arbitration to resolve discrepancies over additional tolls
charged to Endesa-Chile by HQI Transelec Chile S.A. (Transelec) for
the use of Transelec  ́s tranmission lines to transport electricity to
the following clients of Endesa-Chile: Codelco Salvador, CMP (Compañia
Minera de Pacifico), Emelat and Eso La Silla. Endesa-Chile maintains
that their usage of these lines is included in a service contract
between Transelec and Endesa-Chile, and therefore the additional tolls
are not justified.
Process status: On July 30, 2003, the court reached a verdict in favor
of Endesa-Chile. Transelec appealed the decisión by presenting a
Complaint Recourse. The court upheld the previous arbitration
decision.
Amounts involved: Transelec was originally asking for ThCh$ 3,617,831
(ThUS$4,956) from Endesa-Chile, however, Transelecs appeal was
rejected.iv.
    
    Court: Abritration Court
Process number: N/A
Cause: Arbitration to resolve charges alleging breach of contract and
compulsory enforcement of that contract brought against Endesa-Chile
by Empresa Eléctrica Capullo S.A. (Capullo) relating to some energy
sales contracts entered into by the aforementioned parties.
Process status: The discussion period has ended and each party
presented the arbitrator with their proposed solutions, which are
currently being considered by the arbitrator. The parties are
awaiting an additional reconciliatory meeting that is to be called by
the arbitrator.
Amounts involved: Capullo is seeking ThCh$ 1,413,909 from
Endesa-Chile.v.
    
    Court: Arbitration Court
Process number: N/A
Cause: On October 28, 1996, Endesa-Chile entered into a contract with
Minera Los Pelambre (Los Pelambres) to supply energy to the mine,
which included the construction of a new transmission line. Also
included in this contract was a clause giving Los Pelambres the option
to purchase the transmission line constructed by Endesa-Chile. Los
Pelambres exercised the purchase option and is now suing Endesa-Chile
with claims that the purchased transmission lines do not meet design
and conditions specifications found in the contract.
Process status: The discussion period has ended. A reconciliatory
hearing took place, however the parties reached no agreement. Court
is currently accepting evidence from both parties.
Amounts involved: Los Pelambres is seeking a total of ThUS$ 29,238 to
cover repairs and the opportunity cost of decreasing their equity to
buy equipment that was in conditions other than those stipulated in
the purchase option contract.vi.
    
    Court: 24th Civil Tribunal of Santiago
Process number: 3622-2003
Cause: Endesa-Chile, among others, was party to a criminal suit
brought against Francisco Javier Errázuriz Talavera, Francisco Javier
Errázuriz Ovalle and Matías Errázuriz Ovalle in 1998, which was later
dismissed. Presently, the three aforementioned men have brought a
suit against Endesa-Chile and the other parties involved in the
original criminal suit seeking restitution for damages related to the
accusations of criminal wrongdoing.
Process status: All parties have been notified of the suit. Endesa
responded to the claims. A reconciliatory hearing has been called,
pending official notification of all parties.
Amounts involved: The plaintiffs are seeking a total amount of ThCh$
1,400,000. F-76




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Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 28. Commitments and contingencies, continued:  vii.
    
    Court: 8th Civil Tribunal of Santiago
Process number: 129-2003
Cause: Lawsuit brought against Endesa S.A., Celta S.A. and Terminal
Marítimo Minera Patache S.A. by Sociedad Punta de Lobos S.A. regarding
the rejection of its offer for the concession to operate the Minera
Patache sea terminal, which Punta de Lobos S.A. considers a breach of
contract. Endesa S.A. maintains that no such contractual obligations
regarding the concession exist.Process status: On June 19, 2003, the plaintiff secured from the
Tribunal a declaration that, as a precautionary measure, prohibited
any action or execution of contracts with respect Puerto Patache. On
July 14, 2003, the Tribunal clarified that the June 19 precautionary
measure was not meant to impede the tranfer of Puerto Patache. Punta
de Lobos appealed this decision. The discussion and evidence
gathering periods have concluded. On November 6, 2003, the Tribunal
summoned the parties to a sentencing hearing.
Amounts involved : Undeterminedviii.
    
    Court: 21st Civil Tribunal of Santiago
Process number: 553-2003
Plaintiff: Sociedad Punta de Lobos S.A.
Defendant: Chilean Treasury
Cause: The plaintiff requests that decree 139 is lifted. This
decree extended of Endesas Marine Concession for shipping salt via
Puerto Patache, which was one of the conditions established in the
promise of sale that Endesa and Celta signed with Terminal Marítimo
Puerto Patache S.A.
Process Status: The plaintiff obtained a precautionary measure for
immediate suspension of the decree. The tribunal accepted
Endesa-Chile as a participant in the suit. The discussion period
has ended. Presently, Endesa is seeking dismissal of the
precautionary measure.
Amounts involved: UndeterminedThe Company is involved in other minor lawsuits that amount in
aggregate to ThCh $2,500,013 as of December 31, 2003 (ThCh$ 1,914,034
in 2002). F-77




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Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 28. Commitments and contingencies, continued:  Pehuenche S.A.  i.
    
    Court: 20th Civil Courthouse of Santiago
Process number: 5.863-2001
Cause: Lawsuit by Empresa Eléctrica Pehuenche S.A. versus Empresa
Eléctrica Colbún S.A. for services rendered by Pehuenche S.A. to
Colbún S.A. during the last drought period. Colbún S.A. responded
with a countersuit against Pehuenche S.A. seeking payment for losses
from April and May 2001 related to the sentence dictated by the
Appeals Court of Talca that was later reversed by the Supreme Court.
Process status: Case is awaiting sentencing.
Amounts involved: Pehuenche S.A. is seeking US$ 7 million in capital
and interest and Colbún S.A. is seeking US$ 2 million.ii.
    
    Court: 24th Civil Court of Santiago
Process number: 3908-99
Cause: Pehuenche filed an ordinary public law motion to vacate against
Sociedad Austral de Electricidad.
Process status: Sentence was passed on December 10, 2002. Pehuenche
has appealed the verdict and is awaiting the decision of the Appeals
Court of Santiago.
Amounts involved: Undeterminediii.
    
    Court: 17th Civil Court of Santiago
Process number: 3940-99
Cause: Pehuenche filed an ordinary public law motion to vacate
against Chilectra S.A.
Process status: Summoned to hear sentence.
Amounts involved: Undeterminediv.
    
    Court: 20th Civil Court of Santiago
Process number: 4005-99
Cause: Pehuenche presented an ordinary public law motion to vacate
against Empresa Eléctrica Atacama
Process status: Pending sentencing.
Amounts involved: Undeterminedv.
    
    Court: Santiago Court of Appeals.
Process number: 6515-99
Cause: Failure of CDEC-SIC to provide timely information to the CNE.
Resolution 1,557 dated October 1, 1999. The State Defense Council
made itself a party to the case.
Process status: Pending hearing. CDEC-SIC report ordered again.
Amounts involved: Five fines for a total of 1,610 Units of Tax
Measurement (UTM) or ThCh$47,316.vi.
    
    Court : 5th Civil Court of Santiago
Process number : 2272-99
Cause : Resolution 631 dated April 27, 1999, for not establishing
Dispatch Center before January 1, 1999.
Process status : Judgment passed, pending notification of sentence to parties.
Amounts involved : Fine of 500 UTM (ThCh$14,695) F-78




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Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 28. Commitments and contingencies, continued:  vii.
    
    Court : 16th Civil Court of Santiago
Process number : 4164-97
Cause : Resolution 856 dated October 16, 1997, due to blackout on May
11, 1997.
Process status : Rejected recourse.
Amounts involved : Fine of 450 UTM (ThCh$13,225)viii.
    
    Court : 16th Civil Court of Santiago
Process number : 1928-98
Cause : Resolution 331 dated May 8, 1998, due to blackout on October
13, 1997.
Process status : Rejected recourse. Appeal prepared, awaiting
reopening of file.
Amounts involved : Fine of 300 UTM (ThCh$8,817)ix.
    
    Administrative tribunal: Superintendency of Energy and
Fuels
Process number : N/A
Cause : Resolution 805 dated May 2, 2000 due to blackout on July 14,
1999.
Process status : Pending resolution.
Amounts involved : Fine of 400 UTA (US$219,618)x.
    
    Administrative tribunal: Superintendency of Energy and
Fuels
Process number: N/A
Cause: Resolution 1.429 dated August 14, 2003 due to blackout on
September 23, 2002.
Process status: Pending resolution.
Amounts involved: Fine of 1,500 UTA (US$823,569)xi.
    
    Court: 3rd Local Police Court of Santiago
Process number: 50.419-AGO
Cause: SERNAC versus Pehuenche, claim for lack of electrical
supply. Court ruled in favor of Pehuenche and SERNAC appealed. The
appeal was granted and the case was reheard in the 3rd Local Police
Court of Santiago.
Process status: Pending decision of 3rd Local Police Court of
Santiago.
Amounts involved: Undetermined  Pangue S.A.Endesa-Chile is seeking recourse related to the following fines imposed
by the Superintendency of Electricity and Fuel:  i.
    
    Court : Santiago Court of Appeals
Process number : 1294-99
Cause : Resolution 415 dated March 12, 1999 for not complying
with Article 9 of Decree 640 related to rationing by informing the
Superintendency of normal consumption of Pangues customers. Pangue
made itself a party before the Court of Appeals. A motion to vacate
was filed before the Supreme Court.
Process status : Pending hearing
Amounts involved : Fine of 10 UTM (ThCh$294) F-79




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Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 28. Commitments and contingencies, continued:  ii.
    
    Court : 1st Civil Court of Santiago
Process number : 2273-99
Cause : Resolution No. 631 dated April 27, 1999 for infraction of
Article 183 of the Regulations by not establishing the independent
Dispatch and Control Center.
Process status : On June 16, 2002, the suit was rejected and the judge
ordered a fine to be paid. Pending official notification of sentence.
Amounts involved : Fine 500 UTM (ThCh$14,695)iii.
    
    Court : 23rd Civil Court of Santiago
Process number : 4293-97
Cause : Resolution No. 856 dated October 16, 1997 for blackout on May
10, 1997.
Process status : On May 31, 1999, judgment was passed ordering fine to
be paid. Appeal made on November 29, 1999 and is pending hearing.
Amounts involved : Fine of 450 UTM (ThCh$13,225)iv.
    
    Court : 23rd Civil Court of Santiago
Process number : 1910-98
Cause : Resolution No. 331 dated May 8, 1998 for blackout on October
13, 1997.
Process status : On July 30, 1999, judgment was passed ordering fine
to be paid. Appeal has been filed and is pending hearing.
Amounts involved : Fine of 500 UTM (ThCh$14,695)v.
    
    Administrative tribunal: Superintendency of Energy and
Fuels
Process number : N/A
Cause : Motion to set aside filed before the SEC against SEC
Resolution No. 740 dated April 26, 2000 which fined Pangue for
blackout on July 14, 1999.
Process status : Pending resolution
Amounts involved : Fine of 300 UTA (ThCh$105,800)vi.
    
    Administrative tribunal: Superintendency of Energy and Fuels
Process number : N/A
Cause: Motion to set aside filed before the SEC against SEC Resokution
No. 1432 dated August 14, 2003 which fined Pangue for blackout on
September 23, 2002.
Process status: Pending resolution
Amounts involved: Fine of 1,000 UTA(US$ 356,880)  Other lawsuits involving Pangue:  i.
    
    Court : 18th Civil Court of Santiago
Process number : 3886-99
Cause : Pangue against Chilectra. Lawsuit to annul obligation to
pay compensation to regulated price users derived from electricity
rationing decree No. 287 issued by the Chilean Ministry of Economy.
Process status : Case is awaiting sentencing. At the current status
of the process and with the available information, it is impossible
to foresee the outcome of the lawsuit
Amounts involved : Undetermined F-80




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Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 28. Commitments and contingencies, continued:  ii.
    
    There are 37 administrative objections presented by Pangue
S.A. before the Gobernación Provincial de Malleco to the
corresponding requests of various individuals to regularize rights
to water use in the Commune of Lonquimay.iii.
    
    Petitioner: Municipality of Hualqui, VIII Region
Appeal against: Empresa Eléctrica Pangue S.A.
Contents of the Lawsuit: Ilustre Municipalidad de Hualqui filed a
constitutional protection complaint, against Pangue, claiming
illegal and arbitrary omission causing damages and devastation to
the population living on the shores of the Bio Bio River, in the
community of Hualqui, due to opening of the floodgates without prior
notice, during the winter of 2001, because the river rose due to
rainfall.
Amounts involved: Undetermined
Process Status: The Court of Appeals rejected the motion. The
petitioner filed an appeal with the Supreme Court. The Supreme
Court upheld the decision of the Court of Concepcíon, concluding the
case in favor of Pangue.iv.
    
    Petitioner: Carlos Castillo Osorio
Appeal against: Empresa Eléctrica Pangue S.A.
Recourse: The inhabitants of Hualqui filed a protection recourse
against Pangue S.A., maintaining that Pangue has systematically
flooded their land, due to mishandling of the dams floodgates.
Pangue alleges no wrongdoing and estimates that the recourse will be
rejected.
Process Status: In process.v.
    
    Petitioner: Hualqui Neighborhood Association
Appeal against: Empresa Eléctrica Pangue S.A.
Recourse: The Hualqui Neighborhood Association filed a protection
recourse against Pangue in the Court of Concepcíon, alleging illegal
and arbitrary handling of the dam  ́s floodgates. Pangue responded,
maintaining no wrongdoing.
Process Status: In process.vi.
    
    Court: 29th Civil Tribune of Santiago
Process number: 4.663-2003
Petitioner: Juan Francisco Aranguiz Córdoba, et al. (minority
shareholders and former employees of Empresa Eléctrica Pangue)
Against: Asesorias e Inversiones Ilihue S.A., Bancard S.A., Empresa
Eléctrica Pangue S.A., Elesur S.A. Servicios Financieros S.A. y José
Cox Donoso.
Recourse: Annulment of plaintiffs stock in Pangue sold to Ilihue
and Bancard. Plaintiffs claim that they were coerced into selling
their stock and demand the return of their stock and restitution.
Process Status: Pangue was officially notified of the lawsuit on
November 19, 2003, and answered accordingly. F-81




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Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 28. Commitments and contingencies, continued:  vii.
    
    Court: 7th Civil Tribune of Santiago
Process number: 8895-2003
Petitioner: Juan Francisco Aranguiz Córdoba, et al. (minority
shareholders and former employees of Empresa Eléctrica Pangue)
Against: Empresa Eléctrica Pangue S.A., Empresa Nacional de
Electricidad S.A.
Recourse: Annulment of a contract allowing Endesa S.A. to voluntary
use of water rights owned by Pangue signed on September 25, 2000,
which the plaintiffs claim caused their stock, or stock they claim
to have owned during the signing of the contract but which is in
question as detailed in the aforementioned lawsuit brought by the
same plaintiffs, to decrease in value. They are seeking
US$4,424,555 to compensate the stocks decrease in value and
US$1,742,211 in dividends they did not receive while they did not
have legal possession of the contested stock.
Process Status: Pangue was officially notified of the lawsuit on
December 31, 2003. However, because the notification was carried
out improperly, a request for annulment of the notification has been
presented to the court and is awaiting resolution.viii.
    
    Court: 2nd Civil Tribune of Concepción
Process number: 6693-2003
Petitioner: Municipality of Hualqui
Against: Empresa Eléctrica Pangue S.A.
Recourse: The Municipality of Hualqui seeks repair and monetary
compensation for environmental damage caused by the operation of the
Pangue power plant during 2001 and 2002. The plaintiff is
specifically demanding construction of a containment wall,
obligatory notification when Pangue opens its floodgates, and
damages of ThCh$ 1,000,000.
Process Status: Conciliatory hearings are currently taking place.  San Isidro S.A.  i.
    
    Court : 7th Civil Court of Santiago
Process number : 2195-99
Cause : Resolution No. 628 dated April 27, 1999 for infraction of
Article 183 of Supreme Decree 327, issued by the Chilean Ministry of
Economy, by not establishing the independent Dispatch and Control
Center before January 1, 1999.
Process status : The parties have been summoned to the reading of the
sentence.
Amounts involved : Fine 500 UTM (ThCh$14,695)ii.
    
    Administrative tribunal : Superintendency of Energy and
Fuels
Process number : N/A
Cause : Resolution No. 719 dated April 24, 2000 due to blackout
on July 14, 1999.
Process status : Pending administrative resolution
Amounts involved : Fine 150 UTA (ThCh$52,900)iii.
    
    Administrative tribunal: Superintendency of Energy and Fuels
Process number: N/A
Cause: Motion to set aside filed before the SEC against SEC Resolution
No. 1432 dated August 14, 2003 which fined San Isidro for blackout on
September 23, 2002.
Process status: Pending resolution
Amounts involved: Fine of 500 UTA (ThCh$ 176,330) F-82




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Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 28. Commitments and contingencies, continued:  iv.
    
    File No. 2753-4000/97
Cause: Resolution regarding Stamp Tax (Includes taxes, interest and
fines), amount that eventually must be paid by Tranportadora de Gas
del Norte (TGN) and Endesa, according to gas transport contracts
signed by both companies on October 17, 1995 and February 20, 1998,
which was notified on March 27, 2001. Reconsideration will be
requested. TGN filed a precautionary measure with the Supreme Court
of Argentina to stop the procedure initiated by the Province of
Neuquén, which was accepted, and in consequence, the administrative
claim proceeding is currently pending.
Amounts involved: Arg$ 13,943,573v.
    
    File No. 2753-4000/97
Cause: On June 12, 2003, arbitration proceeding filed against San
Isidrio and Endesa-Chile by Minera Los Pelambres clamining breach of
contract for energy and power supply contract originally signed by
Endesa-Chile with Pelambres on October 28, 1996 and which on January
26, 2000, Endesa-Chile turned over to San Isidro, leaving its
subsidiary responsible for the obligations arising from the
contract. Charges allege interruptions and unavailability of
electricity during 2001 and 2002, that, according to the terms of
contract, are penalized with fines, which San Isidro has refused to
pay.
Process Status: Currently in evidence presenting stage.
Amounts involved: US$ 2,677,241 plus the readjustment established in
the contract and common interest up to the date of the effective
payment.
Outcome: Undetermined  Compañía Eléctrica de Tarapacá S.A. (Celta)  i.
    
    Administrative tribunal : Superintendency of Energy and Fuels
Process number : N/A
Cause : Charges against the company per Official Letter 4966 of
August 3, 2000 for SING blackout on September 23, 1999.
Process status : Pending resolution
Amounts involved : Undeterminedii.
    
    Court : 20th Civil Court of Santiago
Process number : 2760-2000
Cause : Verification of Credit in Inmobiliaria La Cascada Agreement.
Process status : Report No. 1 was received from the Liquidating
Commission. A first distribution of funds from the sale of goods took
place, Celta received ThCh$ 60,558.
Amounts involved : ThCh$ 203,718iii.
    
    Court : 30th Civil Court of Santiago
Process number: 4061-2002
Cause : Lawsuit for annulment and other actions filed by Sociedad
Punta de Lobos S.A. (Punta de Lobos) against Endesa-Chile, Celta and
the Chilean Government. The complaint requests that any attempted
assignment, transfer, or any legal action presented by Endesa-Chile to
Celta be rejected with respect to the marine concession granted to
Endesa-Chile in the Punta Patache sector. It also requests that the
concession be taken away from Endesa-Chile due to alleged violations
of the laws that regulate marine concessions, and that all assets
constructed on the concession lands be converted F-83




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Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 28. Commitments and contingencies, continued:  to property of the Government. Endesa-Chile contends that the
plaintiff lacks a legal interest in its claim due to the fact that it
is not a party to the concession contract
Process status: On August 28, 2002 the Tribunal declared as a
precautionary measure the prohibition to take action or execute
contracts in respect to the marine concession granted to Endesa-Chile
and in respect to the real estate which by nature composes or forms
part of that concession. Both parties appealed and the Appeals Court
decided to hear the case, which is entering the evidence presenting
stage.
Amounts involved: Undeterminediv.
    
    Court : 12th Civil Court of Santiago
Process number : 5237-2002
Cause : Lawsuit against Empresa Eléctrica del Norte Grande S.A.
(Edelnor, including Celta) for reimbursement of compensation paid by
the electrical distributors Empresa Eléctrica de Arica S.A., Empresa
Eléctrica de Iquique S.A. and Empresa Eléctrica de Antofagasta S.A.,
to their customers due to the blackout on July 25, 1999 of the Sistema
Interconectado del Norte Grande (SING). The complaint is directed
against Edelnor, Electroandina, Norgener, AES Gener and Celta to
jointly reimburse the electrical distributors.
Process status : The discussion period has ended and the parties are
now presenting evidence.
Amounts involved : ThCh$ 64,269v.
    
    Court : 8th Civil Court of Santiago
Process number : 129-2003
Cause : Lawsuit brought against Endesa S.A., Celta S.A. and Terminal
Marítimo Minera Patache S.A. by Sociedad Punta de Lobos S.A. regarding
the rejection of its offer for the concession to operate the Minera
Patache sea terminal, which Punta de Lobos S.A. considers a breach of
contract. Endesa S.A. maintains that no such contractual obligations
regarding the concession exist.
Process status : Tribunal declared as a precautionary measure the
prohibition to take action or execute contracts with respect to Puerto
Patache. Tribunal called the parties to the sentencing hearing.
Amounts involved : Undeterminedvi.
    
    Plaintiff : Sociedad Punta de Lobos S.A.
Defendant: Chilean Treasury
Cause: The plaintiff requests that decree 139 is lifted. This
decree accepted extension of Endesas Marine Concession for shipping
salt via Puerto Patache, which was one of the conditions established
in the promise of sale that Endesa and Celta signed with Terminal
Marítimo Puerto Patache S.A.
Process Status: The plaintiff obtained a precautionary measure for
immediate suspension of the decree. The tribunal accepted
Endesa-Chile as a participant in the suit. Endesa is seeking
dismissal of the precautionary measure.
Amounts involved: Undetermined F-84




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Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  28.
    
    Commitments and contingencies, continued:Hidroelectrica El Chocon S.A.On December 28, 2000 the Federal Public Revenues Administration  General
Tax Services (FPRA-GTS) notified Hidroelectrica El Chocon S.A. that it owed
ThCh$352,055 of taxes related to failure to withhold income tax on certain
payments made abroad for a bank loan obtained in 1994. It was also
determined that Hidroelectrica El Chocon S.A. must pay ThCh$799,868 for
related accrued interest calculated as of December 20, 2000.
Hidroelectrica El Chocon S.A. did not make these payments as it considered
them relating to foreign source income and therefore not subject to taxes.
Hidroelectrica El Chocon S.A. entered a plea in which it objected to
payment of the taxes. FPRA-GTS has also fined Hidroelectrica El Chocon
S.A. ThCh$246,438 which Hidroelectrica El Chocon S.A appealed on February
20, 2001.On December 28, 2000 Hidroelectrica El Chocon S.A. was notified that it
owed accrued interest related to value-added-tax for the period from
December 1993 to July 1995 amounting to ThCh$159,302 as of December 11,
2000, as well as an imposed fine of ThCh$210,111. On February 20, 2001
Hidroelectrica El Chocon S.A. filed an appeal with the courts under the
premise that Chilean law does not require payment of fines, including
accrued interests, for obligations or infractions committed before July 31,
1995.On June 26, 2000, Hidroelectrica El Chocon S.A. was notified of a lawsuit
for interest to be paid related to royalties, initially amounting to
ThCh$315,757. Additionally, on September 27, 2000, the Company was
notified of a new complaint from the province of Neuquén against the State
and hydroelectric generators of Comahue to obtain royalties earned on
accumulated funds in the Salex Account. The complaint does not state the
precise amount or date as of which the sums claimed are considered as owed,
but seeks charges from each generator equal to 12% of the funds contributed
to the account.On December 28, 2001 Hidroelectrica El Chocon S.A. received notification
from the Provincial Revenue Services of Buenos Aires that it owed
ThCh$347,567 for tax on gross income for the fiscal periods from February
1995 to December 1998 and that the fine was 10% of the allegedly unpaid
amount. On January 15, 2002, Hidroelectrica El Chocon S.A. filed an appeal
citing erroneous computation of the amount owed and other reasons as to why
the taxes were not applicable.Hidroinvest S.A.On December 27, 2000 Hidroinvest S.A. was notified that it owed tax of
ThCh$782,157 for gains realized in 1993 on the difference between the
acquisition cost and transfer price of bonds, accrued interest of
ThCh$1,682,419 and related fines of ThCh$547,510. On February 19, 2001,
Hidroinvest S.A. filed an appeal to the notice. On September 12, 2002, as
a precautionary procedure, a lien was placed on Hidroinvest S.A.s assets
and the Company appealed on November 25, 2002. In its final decision on
July 10, 2003, the National Government Court confirmed the precautionary
lien and notified the Company on December 29, 2003. F-85




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Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  28.
    
    Commitments and contingencies, continued:Central Costanera S.A.Central Costanera S.A. has a debt obligation corresponding to an
agreement related to Work Order No. 4322 (the Agreement). Central
Costanera S.A. has fixed the obligation at Arg $1 equal to one US$1 in
accordance with applicable laws, maintaining the original interest rate
of the obligation. However, certain laws have exempted certain
obligations from this fixed exchange rate, and should the Secretary of
Energy rule that the obligations of Central Costanera S.A be exempted,
an appeal would be filed, which the Company believes would be decided
in its favor. As of September 30, 2003, Central Costanera S.A. would
to have to pay an additional ThCh$16,986,929 in the event of an
unfavorable ruling. To date, the Secretary of Energy has presented no
complaint against payments made by Central Costanera S.A. at the 1 US$
to 1 Arg$ exchange rate.Edegel S.A.Court : Peruvian Tax Administration Superindendent (SUNAT)Process number : N/ACause : From November 2000 to October 2001, the Peruvian tax authority,
the National Superintendency of Tax Administration (SUNAT) audited the
income taxes and general sales taxes of Edegel S.A. (Edegel) from 1996 to
1999. As a result of the audits, in December 2001, SUNAT imposed back
taxes and related fines of ThUS$85,747 (ThCh$56,676,278). However,
Edegel S.A. appealed and on July 9, 2003 SUNAT issued a new resolution
totaling US$160 million.Process status : As of August 1, 2003, Edegel is appealing. As of
December 31, 2003 Management established a provision of US$ 16.5
million (US$16.1 million in 2002) to cover the
portions of its appeal that it believed would not be decided in its
favor. On April 28 and November 14 of 2003, under the advice of its
legal advisors, Edegel withdrew the aforementioned portions of its
appeal and paid SUNAT US$6,056,000 and US$ 14,290,000, respectively,
for back taxes, fines and interest.  i
    Lawsuits have been filed by ESSALUD for payment of contributions
amounting to ThCh$3,055,250 (US$4.21 million). Management and their
external legal advisors believe that a favorable resolution is
probable, therefore no related provision has been made as of December
31, 2003 and 2002.ii
    Claims have been filed against Talleres Mayopampa S.A.
amounting to ThCh$421,687 (ThUS$581). The subsidiary has filed the
corresponding countersuits and appeals, which are pending resolution
by the Tax Court. In the opinion of Management and external legal
counsel, these actions neither independently nor jointly will have a
significant adverse effect on the financial position, results of
operations or liquidity of Edegel S.A.iii
    A lawsuit has been filed by Edegel S.A.s workers union, which
seeks an increase in revenue sharing from the current 5%, as required
by law, to 10%, which would mean doubling the payments already made in
1994, 1995 and 1996, meaning additional aggregate payments of
ThCh$3,387,291 (ThUS$4,667 historic) plus interest. The court ruled
on the case, declaring the grounds of the suit to be unfounded,
however, the decision was appealed and is now awaiting new sentencing.
Management and their external legal advisors believe that a favorable
resolution is probable, therefore no related provision has been made
as of December 31, 2003 and 2002. F-86




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Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  28.
    
    Commitments and contingencies, continued:Central Cachoeira DouradaIn April 2003, Companhia Elétrica do Estado de
Goiás S.A. (CELG),
the only client of our Brazilian subsidiary, Cachoeira Dourada,
obtained an interim order that allowed CELG to suspend payments in
respect to a firm contract for long-term purchase of energy it has with
Cachoeira Dourada. On July 4, 2003, the Court presiding over this
dispute determined that CELG had to make payments to Cachoeira Dourada
until the final resolution of the litigation with price ranges inferior
to those of R$61.63 per MWh, an amount foreseen under the current
conditions of the firm purchase contract. Cachoeira Dourada appealed
this decision.On July 23, 2003, the Regional Federal Court of the 1st Region has
decided in favor of Cachoeira Dourada finding that CELG must pay all
the amount owed. Despite appeals that provoked reconsideration of the
decision, on July 29,2003, the decision was upheld. A conciliatory
hearing was held on September 4, 2003 but no agreement was reached. On
December 19, 2003, the Court accepted petitions for a provisional
measure requiring CELG to place in the hands of the Court cash for the
difference between the value paid to Cachoeira Dourada and the
stipulated contractual value to be held throughout the length of the
litigation in order to guarantee payment in case of a favorable ruling
for Cachoeira Dourada. On December 23, 2003, CELG asked the Court to
reconsider its decision and on December 26, 2003, the Court agreed,
accepting fixed assets instead of cash to guarantee payment.Compañía de Interconección Energética (CIEN)In January 2003, Companhia Paranaense de Energía
- COPEL (Copel)
suspended its payments to Companhia de Interconexão Energética
(CIEN), related to a contract signed between the two parties for
purchase of energy and power, signed in 1999. In addition CIEN sells
energy to another three Brazilian companies. Copel cited the economic
and financial imbalance of the 1999 contracts as the reason for its
violation. In addition Copel has requested a review of the previously
agreed upon prices.After extensive negotiations, on August 18, 2003, CIEN and COPEL
reached and signed an agreement. Principally, the agreement detailed
modifications that the parties will make to the original energy
contracts, including changes to the amounts of contracted energy, the
expiration date of the contracts, ownership of certain property
necessary for the transfer of energy between the two parties, the
frequency of payment and new price adjustment conditions.The contract modifications were signed in December 2003 and COPEL paid
CIEN 203 million Brasilian Reales.Emgesa S.A.Emgesa S.A. E.S.P., Empresa de Energía de Bogotá S.A. E.S.P. and the
CAR are faced with an environmental contingency for supposed
damage produced in the Muña reservior. The plaintiffs are initially
seeking ThCh$890,700,000. Management and their legal advisors consider
that the maximum loss in the case of an unfavorable decision would be
ThCh$35,564,000, between the three aforementioned entities. However,
according to Emgesa S.A.s legal advisors, an unfavorable decision is
unlikely. F-87




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  28.
    
    Commitments and contingencies, continued: Restrictions: Endesa-Chile Consolidated The Company is in compliance with all financial ratios and covenants as of
December 31, 2003, detailed as follows: Endesa-Chile (Individual Legal Entity) On a consolidated basis, the Company must comply with financial covenants and
requirements derived from loan agreements with financial institutions. Some
of the more restrictive covenants are summarized as follows:  -
    
    Endesas ratio of debt to cash flows for four quarters and of its Chilean subsidiaries does not exceed 9.50;-
    
    The ratio of consolidated debt to EBITDA for four consolidated quarters, does not exceed 6.75;-
    
    The ratio of Endesa-Chile and its Chilean subsidiaries cash flows to financial expenses for four quarters, no less than
1.50;-
    
    The consolidated debt to shareholders equity plus minority interest does not exceed 115%;-
    
    No less than 50% of the total consolidated assets of Endesa-Chile must be dedicated to electric generation, transmission
and commercialization activities;-
    
    Minimum shareholders equity at least equal to UF 45,000,000. Pehuenche S.A. The Santander Investment Bank Ltd. and the Chase Manhattan Bank N.A., in
relation to loans granted to Pehuenche, impose obligations and restrictions
on Pehuenche S.A., some of which are of a financial nature, such as:
long-term financial liabilities not exceeding 1.5 times the shareholders
equity, and a minimum company equity of UF 9,500,000. Pangue S.A The following is a summary of the main obligations, which Empresa Eléctrica
Pangue S.A. must comply with as per agreements with financial institutions:  -
    
    Maintain creditors duly informed regarding its financial situation,-
    
    Different conditions with the objective of guaranteeing a healthy
financial situation. Thus, the institutions have defined certain
indexes such as restrictions for the payment of dividends and
indebtedness, and acceleration clauses. In regard to the long-term
debt limit for loans in cash, for these events, the limit is 2.0 times
shareholders equity,-
    
    All assets must be insured. F-88




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  28.
    
    Commitments and contingencies, continued: Central Costanera S.A. In virtue of the arrangement in Annex VI-A of the Concurso Público
Internacional para la Venta de las Acciones de Central Costanera Sociedad
Anónima (International Public Tender for the Sale of Shares of Central
Costanera Sociedad Anonymous), the domain of Central Costanera S.A.s land
was transferred subject to the condition that it used as the location for an
electric power plant for a term of twenty five years as of the date of
possession. If under any circumstance whatsoever the land ceases to be used for that
purpose during the indicated period, its domain shall be considered revoked
due to this cause, returning such title effective immediately, and as a
matter of law, to SEGBA S.A. or, as applicable, to the National State. The most significant requirements in respect to financial covenants are those
contained in the Syndicated loan, the Agent of which is Bank of America, and
in the bilateral with JP Morgan, which are the following:  -
    
    The long-term debt with third parties cannot exceed US$347 million; short term debt of less
than 30 days cannot exceed US$10 million,-
    
    Clauses that restrict change of control;-
    
    Clauses that restrict payments to shareholders, including subordination of the related debt. Edegel S.A.A. Financial indicators originated by Bonds Program and Short-term instruments:  -
    
    Net Shareholders Equity must not be less than Soles 2,400 million, inflation-indexed
(Restriction First Bonds Program),-
    
    Debt to equity ratio no greater than 1.5 (Restriction Second Bonds Program),-
    
    EBITDA for the period to interest expense for subsequent period no less than 4.5 to 1.5,-
    
    Financial Debt no greater than 3.0 to 1.0,-
    
    Total liabilities to Total equity, no greater than 0.55 to 1.0 Betania Covenants include limitations on the payment of related debt and limitations
on change in control and the following financial ratios:  -
    
    EBITDA to Senior Financial Debt no less than 1.4.-
    
    Cash Flows before Dividend Payments to Senior Financial Debt no less than 1.3.-
    
    Shareholders Equity to Senior Debt no less than 5. Cross-Default Provisions: As is customary for certain credit and capital market debt facilities, a
substantial portion of Endesa-Chiles financial indebtedness is subject to
cross-default provisions. Certain events including payment defaults and
bankruptcy by Endesa-Chile or any of its subsidiaries, left uncured over time
(in those specific provisions which allow for a cure period), could result in
a cross-default at the Endesa-Chile level and if a cross-default were to
occur, approximately 66% of Endesa-Chiles consolidated liabilities would
eventually become due and payable. F-89




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 28. Commitments and contingencies, continued: There are no longer debt covenants that specify the acceleration of maturities,
if the Companys risk-rating falls below investment-grade. Pre-Payment Provisions: The US$ 743 million syndicated loan signed during May 2003 specifies that
cash obtained from the sale of Company assets, capital increases, new debt
issuances, and at least 75% of excess annual cash is to be used to pre-pay
the syndicated loan. Excess annual cash-flows, in general, is defined as cash
in excess of what the Company needs to conduct its operations as defined in
the loan agreement.  29.
    
    Surities obtained from third parties: Endesa-Chile (Individual Legal Entity) The Company has received guaranteed performance bonds from contractors and
third parties to guarantee performance and construction (mainly the Ralco
Project) in the amount of ThCh$ 19,465,542 as of
December 31, 2003 (ThCh$ 25,047,366 in 2002). Compañía Eléctrica de Tarapaca S.A. The Company has received documents in guarantee amounting to ThCh$287,026 as
of December 31, 2003 (ThCh$289,896 in 2002) Enigesa S.A. The Company has received documents in guarantee amounting to ThCh$45,811 as
of December 31, 2003 (ThCh$36,244 in 2002). Pangue S.A. The Company has received documents in guarantee amounting to ThCh$9,827 as of
December 31, 2003 (ThCh$8,968 in 2002). San Isidro S.A. The Company has received documents in guarantee amounting to ThCh$1,389,669 as
of December 31, 2003 (ThCh$4,723,754 in 2002). F-90




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  30.
    
    Foreign currencies: As of December 31, 2002 and 2003, foreign currency denominated assets and
liabilities are as follows:  a.
    
    Current assets As of December 31,2002
    
    2003Account
    
    Currency
    
    ThCh$
    
    ThCh$Cash
    
    Ch$
    
    
    874,421
    
    
    
    388,873US$
    
    
    1,078,278
    
    
    
    411,163$ Col
    
    
    3,378,870
    
    
    
    1,493,654Soles
    
    
    40,836
    
    
    
    82,505$ Arg
    
    
    1,954,244
    
    
    
    2,848,023Reales
    
    
    198,713
    
    
    
    284,266Time deposits
    
    US$
    
    
    62,090,972
    
    
    
    130,458,164$ Col
    
    
    4,847,625
    
    
    
    3,965,802Soles
    
    
    4,698,880
    
    
    
    1,748,487$ Arg
    
    
    5,474,391
    
    
    
    3,670,910Reales
    
    
    13,860,033
    
    
    
    15,354,320Accounts receivables, net
    
    Ch$
    
    
    41,929,459
    
    
    
    33,557,765US$
    
    
    4,499,627
    
    
    
    4,667,456$ Col
    
    
    18,642,799
    
    
    
    18,863,244Soles
    
    
    3,413,686
    
    
    
    3,857,616$ Arg
    
    
    11,329,650
    
    
    
    14,278,515Reales
    
    
    9,321,864
    
    
    
    24,304,234Notes receivable
    
    Ch$
    
    
    48,469
    
    
    
    UF
    
    
    
    
    
    
    586,400US$
    
    
    972,087
    
    
    
    535,013Other receivables
    
    UF
    
    
    58,223
    
    
    
    39,577,645Ch$
    
    
    5,884,821
    
    
    
    3,845,703US$
    
    
    1,682,465
    
    
    
    637,333$ Col
    
    
    382,001
    
    
    
    1,899,567Soles
    
    
    8,193,747
    
    
    
    3,838,499$ Arg
    
    
    29,657
    
    
    
    26,127Reales
    
    
    699,613
    
    
    
    117,627U.C.
    
    
    1,171,184
    
    
    
    1,007,085Amounts due from related companies
    
    Ch$
    
    
    10,736,551
    
    
    
    14,711,385US$
    
    
    192,474,745
    
    
    
    1,904,970$ Col
    
    
    15,388,568
    
    
    
    19,683,776Soles
    
    
    2,611,419
    
    
    
    2,071,971$ Arg
    
    
    488,115
    
    
    
    5,058,905Reales
    
    
    
    
    
    
    2,767,858
 F-91




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  30.
    
    Foreign currencies, continued:a.
    
    Current assets, continued: As of December 31,2002
    
    2003Account
    
    Currency
    
    ThCh$
    
    ThCh$Inventory, net
    
    Ch$
    
    
    3,307,084
    
    
    
    4,336,097US$
    
    
    1,971,988
    
    
    
    1,603,260$ Col
    
    
    1,403,689
    
    
    
    896,044Soles
    
    
    3,829,747
    
    
    
    2,969,898Reales
    
    
    
    
    
    
    33,253Income taxes recoverable
    
    Ch$
    
    
    13,432,957
    
    
    
    9,860,611US$
    
    
    
    
    
    
    1,438,777$ Col
    
    
    131
    
    
    
    $ Arg
    
    
    10,747,377
    
    
    
    2,958,352Prepayments
    
    Ch$
    
    
    387,694
    
    
    
    495,244US$
    
    
    2,595,712
    
    
    
    1,494,553$ Col
    
    
    47,902
    
    
    
    54,630Soles
    
    
    197,023
    
    
    
    163,356$ Arg
    
    
    441,721
    
    
    
    463,164Reales
    
    
    6,253
    
    
    
    19,002Deferred tax
    
    Ch$
    
    
    3,294,847
    
    
    
    863,526$ Col
    
    
    
    
    
    
    376,469Other current assets
    
    UF
    
    
    
    
    
    
    625,704Ch$
    
    
    37,951,625
    
    
    
    350,386US$
    
    
    38,516,988
    
    
    
    3,449,204$ Col
    
    
    897,084
    
    
    
    235$ Arg
    
    
    133,914
    
    
    
    25,851Reales
    
    
    
    
    
    
    1,879,579Total current assets
    
    
    
    
    547,619,749
    
    
    
    392,862,056
 F-92




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  30.
    
    Foreign currencies, continued:b.
    
    Current liabilities Within 90 daysas of December 31, 2002
    
    as of December 31, 2003Average
    
    
    
    
    
    AverageAccount
    
    Currency
    
    Amount
    
    Rate
    
    Amount
    
    RateThCh$
    
    
    
    
    
    ThCh$Short-term due to banks and financial institutions
    
    Ch$
    
    
    23,803,070
    
    
    
    1.08
    %
    
    
    2,378,693
    
    
    
    3.00
    %US$
    
    
    13,757,466
    
    
    
    5.04
    %
    
    
    12,580,250
    
    
    
    5.70
    %$Col
    
    
    7,678,924
    
    
    
    6.20
    %
    
    
    24,600,540
    
    
    
    6.81
    %Soles
    
    
    22,233,872
    
    
    
    6.20
    %
    
    
    14,987,354
    
    
    
    6.81
    %Current portion of long-term debt due to banks and financial institutions
    
    UF
    
    
    
    
    
    
    
    
    
    
    1,365,649
    
    
    
    9.00
    %US$
    
    
    201,735,426
    
    
    
    3.62
    %
    
    
    20,445,776
    
    
    
    4.87
    %Euro
    
    
    
    
    
    
    
    
    
    
    Yen
    
    
    
    
    
    
    
    
    
    
    $Arg
    
    
    1,377,088
    
    
    
    1.75
    %
    
    
    933,182
    
    
    
    1.75
    %Reales
    
    
    
    
    
    
    
    
    
    
    1,498,751
    
    
    
    17.50
    %U.P.
    
    
    
    
    
    
    
    
    
    
    
    $Col
    
    
    
    
    
    
    
    
    
    
    859,950
    
    
    
    12.55
    %£
    
    
    
    
    
    
    
    
    
    
    
    Notes payable
    
    Soles
    
    
    103,985
    
    
    
    4.50
    %
    
    
    Current portion of long term bonds payable
    
    UF
    
    
    
    
    
    
    
    
    
    
    US$
    
    
    
    
    
    
    
    
    
    
    886,243
    
    
    
    7.50
    %Euro
    
    
    
    
    
    
    
    
    
    
    $Col
    
    
    
    
    
    
    
    
    
    
    6,820,980
    
    
    
    10.50
    %Soles
    
    
    
    
    
    
    
    
    
    
    5,525,967
    
    
    
    6.00
    %Current portion of long term Payables
    
    
    US$
    
    
    
    30,053,579
    
    
    
    9.00
    %
    
    
    7,977,202
    
    
    
    7.44
    %Ch$
    
    
    658,044
    
    
    
    
    
    
    
    870,528Reales
    
    
    2,663
    
    
    
    
    
    
    
    Soles
    
    
    73,048
    
    
    
    
    
    
    
    63,939$Arg
    
    
    785
    
    
    
    
    
    
    
    731Dividends payable
    
    Ch$
    
    
    34,601,911
    
    
    
    
    
    
    
    35,558,894US$
    
    
    8,428,853
    
    
    
    
    
    
    
    2,622$Col
    
    
    4,534,476
    
    
    
    
    
    
    
    4,815,409Soles
    
    
    5,489,421
    
    
    
    
    
    
    
    3,360,076$Arg
    
    
    3,131,783
    
    
    
    
    
    
    
    8,227,903Reales
    
    
    11,073,623
    
    
    
    
    
    
    
    6,593,594Miscellaneous payables
    
    Ch$
    
    
    6,887,992
    
    
    
    
    
    
    
    1,041,110US$
    
    
    2,072,736
    
    
    
    
    
    
    
    11,633$Col
    
    
    7,210,058
    
    
    
    
    
    
    
    2,954,155Soles
    
    
    2,460,569
    
    
    
    
    
    
    
    2,783,101Reales
    
    
    379,511
    
    
    
    
    
    
    
    776,097Amounts payable to related companies
    
    US$
    
    
    4,034
    
    
    
    
    
    
    
    Ch$
    
    
    1,778,566
    
    
    
    
    
    
    
    50,164,101Reales
    
    
    
    
    
    
    
    
    
    
    1,015,503$Col
    
    
    20,336,811
    
    
    
    
    
    
    
    71,789,306Soles
    
    
    7,224
    
    
    
    
    
    
    
    37,263$Arg
    
    
    882,442
    
    
    
    
    
    
    
    569,799
   [Continued from above table, first column(s) repeated] 91 days to 1 yearas of December 31, 2002
    as of December 31, 2003Average
    
    
    
    
    
    AverageAccount
    
    Currency
    
    Amount
    
    Rate
    
    Amount
    
    RateThCh$
    
    
    
    
    
    ThCh$Short-term due to banks and financial institutions
    
    Ch$
    
    
    2,369,665
    
    
    
    1.08
    %
    
    
    US$
    
    
    40,715,710
    
    
    
    5.04
    %
    
    
    $Col
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    
    
    
    
    
    
    
    
    Current portion of long-term debt due to banks and financial institutions
    
    UF
    
    
    1,391,523
    
    
    
    9.00
    %
    
    
    US$
    
    
    55,580,331
    
    
    
    3.62
    %
    
    
    69,125,165
    
    
    
    4.87
    %Euro
    
    
    4,719,782
    
    
    
    3.79
    %
    
    
    123,767
    
    
    
    1.50
    %Yen
    
    
    470,177
    
    
    
    0.89
    %
    
    
    424,533
    
    
    
    0.89
    %$Arg
    
    
    662,488
    
    
    
    1.75
    %
    
    
    898,948
    
    
    
    1.75
    %Reales
    
    
    1,246,967
    
    
    
    4.75
    %
    
    
    U.P.
    
    
    
    1,207,721
    
    
    
    5.32
    %
    
    
    1,117,055
    
    
    
    4.48
    %$Col
    
    
    
    
    
    
    
    
    
    
    £
    
    
    461,251
    
    
    
    4.81
    %
    
    
    412,346
    
    
    
    4.63
    %Notes payable
    
    Soles
    
    
    7,538,861
    
    
    
    4.50
    %
    
    
    Current portion of long term bonds payable
    
    UF
    
    
    8,376,934
    
    
    
    6.29
    %
    
    
    7,359,819
    
    
    
    6.00
    %US$
    
    
    
    155,210,318
    
    
    
    8.04
    %
    
    
    36,966,398
    
    
    
    7.50
    %Euro
    
    
    306,778,275
    
    
    
    3.34
    %
    
    
    $Col
    
    
    13,636,984
    
    
    
    12.54
    %
    
    
    Soles
    
    
    7,656,820
    
    
    
    8.00
    %
    
    
    Current portion of long term Payables
    
    US$
    
    
    11,991,624
    
    
    
    9.00
    %
    
    
    13,456,661
    
    
    
    7.44
    %Ch$
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    
    
    
    
    
    
    
    
    $Arg
    
    
    
    
    
    
    
    
    
    
    Dividends payable
    
    Ch$
    
    
    18,986
    
    
    
    
    
    
    
    US$
    
    
    
    74,468$Col
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    
    
    
    
    
    
    
    
    $Arg
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    
    
    
    
    
    
    
    
    Miscellaneous payables
    
    Ch$
    
    
    91,973
    
    
    
    
    
    
    
    5,498,770US$
    
    
    
    8,656,968
    
    
    
    
    
    
    
    $Col
    
    
    11,451,858
    
    
    
    
    
    
    
    Soles
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    
    
    
    
    
    
    
    
    Amounts payable to related companies
    
    
    US$
    
    
    
    
    
    
    
    
    
    
    
    Ch$
    
    
    29,749,071
    
    
    
    
    
    
    
    Reales
    
    
    
    
    
    
    
    
    
    
    $Col
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    
    
    
    
    
    
    
    
    $Arg
    
    
    
    
    
    
    
    
    
    
    
 F-93




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  30.
    
    Foreign currencies, continued:b.
    
    Current liabilities, continued Scheduled MaturitiesWithin 90 daysas of December 31, 2002
    
    as of December 31, 2003Average
    
    
    
    
    
    AverageAmount
    
    Rate
    
    Amount
    
    RateAccrued expenses
    
    UF
    
    
    
    
    
    
    
    
    
    
    29,361Ch$
    
    
    5,666,179
    
    
    
    
    
    
    
    60,128US$
    
    
    88,435
    
    
    
    
    
    
    
    1,024$Col
    
    
    11,081,455
    
    
    
    
    
    
    
    3,489,763Soles
    
    
    216,028
    
    
    
    
    
    
    
    191,037$Arg
    
    
    396,540
    
    
    
    
    
    
    
    741,061Reales
    
    
    81,797
    
    
    
    
    
    
    
    86,695Withholdings
    
    Ch$
    
    
    2,344,632
    
    
    
    
    
    
    
    2,317,869$Col
    
    
    479,752
    
    
    
    
    
    
    
    546,890Soles
    
    
    1,675,592
    
    
    
    
    
    
    
    2,175,406$Arg
    
    
    2,002,023
    
    
    
    
    
    
    
    2,182,132Reales
    
    
    2,582
    
    
    
    
    
    
    
    13,922Income tax payables
    
    $Col
    
    
    1,268,940
    
    
    
    
    
    
    
    127,398Soles
    
    
    690
    
    
    
    
    
    
    
    19,326$Arg
    
    
    578,452
    
    
    
    
    
    
    
    Reales
    
    
    
    
    
    
    
    
    
    
    2,443,487Ch$
    
    
    650,009
    
    
    
    
    
    
    
    9,695Other current liabilities
    
    Ch$
    
    
    196,592
    
    
    
    
    
    
    
    US$
    
    
    
    10,609,444
    
    
    
    2.70
    %
    
    
    568,247$Arg
    
    
    21,774
    
    
    
    
    
    
    
    92,039Reales
    
    
    
    
    
    
    
    
    
    
    112,822Total current liabilities per currency
    
    UF
    
    
    
    
    
    
    
    
    
    
    1,395,010Ch$
    
    
    76,586,995
    
    
    
    
    
    
    
    92,401,018US$
    
    
    
    266,749,973
    
    
    
    
    
    
    
    42,472,997Euro
    
    
    
    
    
    
    
    
    
    
    Yes
    
    
    
    
    
    
    
    
    
    
    $Col
    
    
    52,590,416
    
    
    
    
    
    
    
    116,004,391Soles
    
    
    32,260,429
    
    
    
    
    
    
    
    29,143,469$Arg
    
    
    8,390,887
    
    
    
    
    
    
    
    12,746,847Reales
    
    
    11,540,176
    
    
    
    
    
    
    
    12,540,871U.P.
    
    
    
    
    
    
    
    
    
    
    
    £
    
    
    
    
    
    
    
    
    
    
    
    Total current liabilities
    
    
    
    
    
    
    448,118,876
    
    
    
    
    
    
    
    306,704,603
   [Continued from above table, first column(s) repeated] Scheduled Maturities91 days to 1 yearas of December 31, 2002
    
    as of December 31, 2003Average
    
    
    
    
    
    AverageAmount
    
    Rate
    
    Amount
    
    RateAccrued expenses
    
    UF
    
    
    
    
    
    
    
    
    
    
    Ch$
    
    
    19,129,412
    
    
    
    
    
    
    
    14,777,377US$
    
    
    
    
    
    
    
    
    
    
    
    $Col
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    2,250,372
    
    
    
    
    
    
    
    2,474,566$Arg
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    
    
    
    
    
    
    
    
    10,837Withholdings
    
    Ch$
    
    
    
    
    
    
    
    
    
    
    157,420$Col
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    
    
    
    
    
    
    
    
    $Arg
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    
    
    
    
    
    
    
    
    Income tax payables
    
    $Col
    
    
    
    
    
    
    
    
    
    
    1,043,476Soles
    
    
    2,664,820
    
    
    
    
    
    
    
    2,934,142$Arg
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    
    
    
    
    
    
    
    
    Ch$
    
    
    105,645
    
    
    
    
    
    
    
    283,988Other current liabilities
    
    Ch$
    
    
    2,927,569
    
    
    
    
    
    
    
    313,261US$
    
    
    
    290,853
    
    
    
    
    
    
    
    1,205,885
    
    
    
    2.16
    %$Arg
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    
    
    
    
    
    
    
    
    Total current liabilities per currency
    
    UF
    
    
    9,768,457
    
    
    
    
    
    
    
    7,359,819Ch$
    
    
    54,392,321
    
    
    
    
    
    
    
    21,030,816US$
    
    
    
    272,520,272
    
    
    
    
    
    
    
    120,754,109Euro
    
    
    311,498,057
    
    
    
    
    
    
    
    123,767Yes
    
    
    470,177
    
    
    
    
    
    
    
    424,533$Col
    
    
    25,088,842
    
    
    
    
    
    
    
    1,043,476Soles
    
    
    20,110,873
    
    
    
    
    
    
    
    5,408,708$Arg
    
    
    662,488
    
    
    
    
    
    
    
    898,948Reales
    
    
    1,246,967
    
    
    
    
    
    
    
    10,837U.P.
    
    
    
    1,207,721
    
    
    
    
    
    
    
    1,117,055£
    
    
    
    461,251
    
    
    
    
    
    
    
    412,346Total current liabilities
    
    
    
    
    
    
    697,427,426
    
    
    
    
    
    
    
    158,584,414
 F-94




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  30.
    
    Foreign currencies, continued:e.
    
    Long-term liabilities, December 31, 2002 Scheduled maturity1 to 3 years
    
    3 to 5 yearsAverage
    
    
    
    
    
    AverageAccount
    
    Currency
    
    Amount
    
    Rate
    
    Amount
    
    RateThCh$
    
    
    
    
    
    ThCh$Due to banks and financial institutions
    
    UF
    
    
    2,790,408
    
    
    
    9.00
    %
    
    
    2,966,355
    
    
    
    9.00
    %US$
    
    
    
    498,973,895
    
    
    
    3.50
    %
    
    
    91,596,974
    
    
    
    3.50
    %Yen
    
    
    933,276
    
    
    
    0.89
    %
    
    
    Euro
    
    
    248,420
    
    
    
    4.13
    %
    
    
    $Arg
    
    
    3,723,912
    
    
    
    1.75
    %
    
    
    1,861,962
    
    
    
    1.75
    %Reales
    
    
    
    
    
    
    
    
    
    
    U.P.
    
    
    
    1,201,425
    
    
    
    5.32
    %
    
    
    Pounds
    
    
    886,725
    
    
    
    4.81
    %
    
    
    Bonds payable
    
    UF
    
    
    
    
    
    
    
    
    
    
    101,469,367
    
    
    
    6.20
    %US$
    
    
    
    145,159,220
    
    
    
    8.44
    %
    
    
    333,866,206
    
    
    
    8.50
    %$Col
    
    
    33,505,610
    
    
    
    14.35
    %
    
    
    Soles
    
    
    6,196,324
    
    
    
    6.00
    %
    
    
    Notes payable
    
    
    US$
    
    
    
    44,904,268
    
    
    
    7.30
    %
    
    
    42,289,050
    
    
    
    7.30
    %$Arg
    
    
    
    
    
    
    
    
    
    
    Miscellaneous
    
    UF
    
    
    
    
    
    
    
    
    
    
    Ch$
    
    
    2,145,457
    
    
    
    
    
    
    
    US$
    
    
    
    7,211,100
    
    
    
    
    
    
    
    Amounts payable to related companies
    
    
    US$
    
    
    
    49,150,295
    
    
    
    8.35
    %
    
    
    Accrued expenses
    
    UF
    
    
    
    
    
    
    
    
    
    
    57,854Ch$
    
    
    1,482,818
    
    
    
    
    
    
    
    1,238,873US$
    
    
    
    3,769,628
    
    
    
    
    
    
    
    $Col
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    1,276,294
    
    
    
    
    
    
    
    848,162Deferred tax
    
    Ch$
    
    
    3,558,385
    
    
    
    
    
    
    
    2,018,992Soles
    
    
    
    
    
    
    
    
    
    
    35,781,487$Arg
    
    
    199,151
    
    
    
    
    
    
    
    132,767Other long-term liabilities
    
    Ch$
    
    
    707,166
    
    
    
    
    
    
    
    12,892,440Total long-term liabilities per currency
    
    UF
    
    
    2,790,408
    
    
    
    
    
    
    
    104,493,576Ch$
    
    
    7,893,826
    
    
    
    
    
    
    
    16,150,305US$
    
    
    
    749,168,406
    
    
    
    
    
    
    
    467,752,230Euro
    
    
    248,420
    
    
    
    
    
    
    
    Yen
    
    
    933,276
    
    
    
    
    
    
    
    $Col
    
    
    33,505,610
    
    
    
    
    
    
    
    Soles
    
    
    6,196,324
    
    
    
    
    
    
    
    35,781,487$Arg
    
    
    3,923,063
    
    
    
    
    
    
    
    1,994,729Reales
    
    
    1,276,294
    
    
    
    
    
    
    
    848,162U.P.
    
    
    
    1,201,425
    
    
    
    
    
    
    
    Pounds
    
    
    886,725
    
    
    
    
    
    
    
    Total long-term liabilities
    
    
    
    
    
    
    808,023,777
    
    
    
    
    
    
    
    627,020,489
   [Continued from above table, first column(s) repeated] Scheduled maturity5 to 10 years
    
    More than 10 yearsAverage
    
    
    
    
    
    AverageAccount
    
    Currency
    
    Amount
    
    Rate
    
    Amount
    
    RateThCh$
    
    
    
    
    
    ThCh$Due to banks and financial institutions
    
    UF
    
    
    
    
    
    
    
    
    
    
    US$
    
    
    
    46,028,122
    
    
    
    3.50
    %
    
    
    4,595,191
    
    
    
    3.50
    %Yen
    
    
    
    
    
    
    
    
    
    
    Euro
    
    
    
    
    
    
    
    
    
    
    $Arg
    
    
    6,504,434
    
    
    
    1.75
    %
    
    
    Reales
    
    
    7,509,509
    
    
    
    9.24
    %
    
    
    U.P.
    
    
    
    
    
    
    
    
    
    
    
    Pounds
    
    
    
    
    
    
    
    
    
    
    Bonds payable
    
    UF
    
    
    20,029,882
    
    
    
    6.29
    %
    
    
    118,645,595
    
    
    
    5.80
    %US$
    
    
    
    290,318,440
    
    
    
    8.50
    %
    
    
    338,436,544
    
    
    
    7.96
    %$Col
    
    
    78,759,079
    
    
    
    14.00
    %
    
    
    Soles
    
    
    
    
    
    
    
    
    
    
    Notes payable
    
    
    US$
    
    
    
    60,063,668
    
    
    
    7.30
    %
    
    
    $Arg
    
    
    
    
    
    
    
    
    
    
    Miscellaneous
    
    UF
    
    
    
    
    
    
    
    
    
    
    163,399Ch$
    
    
    
    
    
    
    
    
    
    
    32,906US$
    
    
    
    10,640,919
    
    
    
    
    
    
    
    Amounts payable to related companies
    
    
    US$
    
    
    
    
    
    
    
    
    
    
    
    Accrued expenses
    
    UF
    
    
    
    
    
    
    
    
    
    
    Ch$
    
    
    2,970,254
    
    
    
    
    
    
    
    2,521,167US$
    
    
    
    
    
    
    
    
    
    
    
    $Col
    
    
    
    
    
    
    
    
    
    
    20,491,401Reales
    
    
    2,120,404
    
    
    
    
    
    
    
    2,829,794Deferred tax
    
    Ch$
    
    
    7,896,206
    
    
    
    
    
    
    
    16,372,134Soles
    
    
    
    
    
    
    
    
    
    
    $Arg
    
    
    597,452
    
    
    
    
    
    
    
    Other long-term liabilities
    
    Ch$
    
    
    1,860,558
    
    
    
    
    
    
    
    11,310,568Total long-term liabilities per currency
    
    UF
    
    
    20,029,882
    
    
    
    
    
    
    
    118,808,994Ch$
    
    
    12,727,018
    
    
    
    
    
    
    
    30,236,775US$
    
    
    
    407,051,149
    
    
    
    
    
    
    
    343,031,735Euro
    
    
    
    
    
    
    
    
    
    
    Yen
    
    
    
    
    
    
    
    
    
    
    $Col
    
    
    78,759,079
    
    
    
    
    
    
    
    20,491,401Soles
    
    
    
    
    
    
    
    
    
    
    $Arg
    
    
    7,101,886
    
    
    
    
    
    
    
    Reales
    
    
    9,629,913
    
    
    
    
    
    
    
    2,829,794U.P.
    
    
    
    
    
    
    
    
    
    
    
    Pounds
    
    
    
    
    
    
    
    
    
    
    Total long-term liabilities
    
    
    
    
    
    
    535,298,927
    
    
    
    
    
    
    
    515,398,699
 F-95




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  30.
    
    Foreign currencies, continued:f.
    
    Long-term liabilities, December 31, 2003 Schedule Maturities1 to 3 years
    
    3 to 5 yearsAverage
    
    
    
    
    
    AverageAccount
    
    Currency
    
    Amount
    
    Rate
    
    Amount
    
    RateThCh$
    
    
    
    
    
    ThCh$Due to banks and financial institutions
    
    UF
    
    
    3,090,540
    
    
    
    9.00
    %
    
    
    1,273,686
    
    
    
    9.00
    %US$
    
    
    166,816,115
    
    
    
    5.00
    %
    
    
    130,430,256
    
    
    
    5.00
    %Euro
    
    
    121,738
    
    
    
    3.00
    %
    
    
    Yen
    
    
    422,438
    
    
    
    0.89
    %
    
    
    $Arg.
    
    
    3,595,794
    
    
    
    1.75
    %
    
    
    1,797,897
    
    
    
    1.75
    %$Col
    
    
    
    
    
    
    
    
    
    
    37,403,850
    
    
    
    12.55
    %Reales
    
    
    1,783,205
    
    
    
    19.00
    %
    
    
    2,121,553
    
    
    
    17.50
    %£
    
    
    402,154
    
    
    
    4.63
    %
    
    
    Bonds payable
    
    UF
    
    
    5,179,498
    
    
    
    6.00
    %
    
    
    107,351,387
    
    
    
    6.00
    %US$
    
    
    118,760,000
    
    
    
    7.50
    %
    
    
    35,628,000
    
    
    
    7.50
    %$Col
    
    
    102,995,204
    
    
    
    10.50
    %
    
    
    Soles
    
    
    42,855,081
    
    
    
    4.75
    %
    
    
    Notes payable
    
    US$
    
    
    40,470,881
    
    
    
    7.42
    %
    
    
    48,220,374
    
    
    
    7.42
    %Miscellaneous
    
    UF
    
    
    
    
    
    
    
    
    
    
    Ch$
    
    
    713,639
    
    
    
    
    
    
    
    US$
    
    
    5,226,699
    
    
    
    
    
    
    
    Amounts payable to
Related companies
    
    US$
    
    
    84,320
    
    
    
    
    
    
    
    Accrued expenses
    
    Ch$
    
    
    509,272
    
    
    
    
    
    
    
    526,844US$
    
    
    
    
    
    
    
    
    
    
    2,971,683$Col
    
    
    20,701,649
    
    
    
    
    
    
    
    308,776Reales
    
    
    7,639,831
    
    
    
    
    
    
    
    Deferred tax
    
    Ch$
    
    
    6,848,980
    
    
    
    
    
    
    
    5,297,636Soles
    
    
    1,783,854
    
    
    
    
    
    
    
    Other long-term liabilities
    
    Ch$
    
    
    437,403
    
    
    
    
    
    
    
    376,301US$
    
    
    3,373,982
    
    
    
    
    
    
    
    5,155,183Soles
    
    
    97
    
    
    
    
    
    
    
    Total long-term liabilities per currency
    
    UF
    
    
    8,270,038
    
    
    
    
    
    
    
    108,625,073Ch$
    
    
    8,509,294
    
    
    
    
    
    
    
    6,200,781US$
    
    
    334,731,997
    
    
    
    
    
    
    
    222,405,496Euro
    
    
    121,738
    
    
    
    
    
    
    
    Yen
    
    
    422,438
    
    
    
    
    
    
    
    $Col
    
    
    123,696,853
    
    
    
    
    
    
    
    37,712,626Soles
    
    
    44,639,032
    
    
    
    
    
    
    
    $Arg
    
    
    3,595,794
    
    
    
    
    
    
    
    1,797,897Reales
    
    
    9,423,036
    
    
    
    
    
    
    
    2,121,553£
    
    
    402,154
    
    
    
    
    
    
    
    Total long-term liabilities
    
    
    
    
    
    
    533,812,374
    
    
    
    
    
    
    
    378,863,426
   [Continued from above table, first column(s) repeated] Schedule Maturities5 to 10 years
    
    More than 10 yearsAverage
    
    
    
    
    
    AverageAccount
    
    Currency
    
    Amount
    
    Rate
    
    Amount
    
    RateThCh$
    
    
    
    
    
    ThCh$Due to banks and financial institutions
    
    UF
    
    
    
    
    
    
    
    
    
    
    US$
    
    
    21,909,531
    
    
    
    5.00
    %
    
    
    2,473,322
    
    
    
    5.00
    %Euro
    
    
    
    
    
    
    
    
    
    
    Yen
    
    
    
    
    
    
    
    
    
    
    $Arg.
    
    
    6,292,887
    
    
    
    1.75
    %
    
    
    $Col
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    2,989,260
    
    
    
    17.50
    %
    
    
    £
    
    
    
    
    
    
    
    
    
    
    Bonds payable
    
    UF
    
    
    93,349,526
    
    
    
    6.00
    %
    
    
    74,041,920
    
    
    
    6.00
    %US$
    
    
    475,040,000
    
    
    
    8.13
    %
    
    
    633,167,159
    
    
    
    7.77
    %$Col
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    
    
    
    
    
    
    
    
    Notes payable
    
    US$
    
    
    31,840,790
    
    
    
    7.42
    %
    
    
    Miscellaneous
    
    UF
    
    
    
    
    
    
    
    
    
    
    163,434Ch$
    
    
    
    
    
    
    
    
    
    
    US$
    
    
    
    
    
    
    
    
    
    
    8,905,744Amounts payable to
Related companies
    
    US$
    
    
    
    
    
    
    
    
    
    
    Accrued expenses
    
    Ch$
    
    
    1,167,785
    
    
    
    
    
    
    
    4,209,444US$
    
    
    
    
    
    
    
    
    
    
    $Col
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    
    
    
    
    
    
    
    
    Deferred tax
    
    Ch$
    
    
    7,639,144
    
    
    
    
    
    
    
    12,732,991Soles
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    Ch$
    
    
    484,415
    
    
    
    
    
    
    
    551,621US$
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    
    
    
    
    
    
    
    
    Total long-term liabilities per currency
    
    UF
    
    
    93,349,526
    
    
    
    
    
    
    
    74,205,354Ch$
    
    
    9,291,344
    
    
    
    
    
    
    
    17,494,056US$
    
    
    528,790,321
    
    
    
    
    
    
    
    644,546,225Euro
    
    
    
    
    
    
    
    
    
    
    Yen
    
    
    
    
    
    
    
    
    
    
    $Col
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    
    
    
    
    
    
    
    
    $Arg
    
    
    6,292,887
    
    
    
    
    
    
    
    Reales
    
    
    2,989,260
    
    
    
    
    
    
    
    £
    
    
    
    
    
    
    
    
    
    
    Total long-term liabilities
    
    
    
    
    
    
    640,713,338
    
    
    
    
    
    
    
    736,245,635
 F-96




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  31.
    
    Sanctions: The Company and its directors have not been the subject of sanctions by the
SVS nor by any other administrative authorities.  32.
    
    Subsequent events:  (i)
    
    Deficit of Natural Gas in Argentina The electricity system in Chile and Argentina partially depends on natural gas
produced in Argentina. The increase in demand, low prices and lack of
investment in new production and transportation capacity of natural gas in
Argentina is producing, during 2004, deficits and natural gas supply cuts to
Chile. The Argentine government published through an energy bulletin on March
26, 2004 Resolution 265 of the Secretary of Energy, which calls for limiting
the exportation of natural gas to Chile, which will directly affect the
Companys thermoelectric power plants San Isidro and Taltal, which have a total
installed capacity of 370 MW and 240 MW, respectively. The San Isidro plant has non-cancelable natural gas supply contracts covering
the total installed capacity needs of the power plant. The San Isidro plant
has the capability to operate with diesel. The Taltal plant has non-cancelable natural gas supply contracts covering
approximately 50% of its daily consumption needs. The Taltal plant does not
have the capability of operating with alternative fuel. As of the date of these financial statements the Company has not experienced
natural gas supply problems in the San Isidro or Taltal plant. The Companys equity method investee Gas Atacama Generación Ltda. has take or
pay contracts with Argentine suppliers of natural gas that operate in the
Sistema Interconectado del Norte Grande (SING), and during 2004 has
experienced reductions in the supply of natural gas of 40% and up to 60%, from
prior year. Gas Atacama Generación Ltda. has had to buy some energy at the
spot rates, which has affected its margins, but Management is unable to
determine the effect this could have on their net results from operations
during 2004. F-97




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  33.
    
    Environment: During the year ended December 31, 2002 and 2003, the Company and its
domestic and foreign subsidiaries made expenditures in the amount of ThCh$
3,824,743 and ThCh$12,145,906, respectively, related to environmental
activities corresponding primarily to the following: Operating expenses during the years ended December 31, 2002 and 2003,
included costs of studies, monitoring, follow-up, and laboratory analysis
which amounted to ThCh$ 326,621 and ThCh$ 379,802, respectively, and costs
related to Environment Law No. 99 in Colombia and ISO 14.001 certification at
Central Costanera and El Chocón, which amounted to ThCh$ 693,313 and
ThCh$5,846,374, respectively. The Company capitalizes expenditures related to environmental activities as
part of property, plant and equipment, when those expenditures are deemed to
provide additional future economic benefit. During the years ended December
31, 2002 and 2003 capitalized environmental expenditures amounted to ThCh$
2,804,808, and ThCh$ 5,919,370, respectively, and primarily relate to the
following activities:  
    
    Central Ralco environment program
    
    Implementation of the environmental management system and its ISO 14.001 certification at
the San Isidro, Central Tarapaca Rapel, Pehuenche, Loma Alta and Curilinque power plants
    
    Construction of reservoirs (Emgesa)
    
    Constructions of emergency drainage pools in Central Rapel, Los Molles and Sauzal. F-98




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles: Chilean GAAP varies in certain important respects from US GAAP. Such
differences involve certain methods for measuring the amounts shown in the
financial statements. I. Differences in Measurement Methods The principal differences between Chilean GAAP and US GAAP are described below
together with an explanation, where appropriate, of the method used in the
determination of the adjustments that affect net income and total shareholders
equity. References below to SFAS are to Statements of Financial Accounting
Standards issued by the Financial Accounting Standards Board in the United
States.  a)
    
    Inflation accounting The cumulative inflation rate in Chile as measured by the Consumer Price Index
for the three-years ended December 31, 2003 was approximately 7.25%. Pursuant
to Chilean GAAP, the Companys financial statements recognize certain effects
of inflation. The inclusion of price-level adjustments in the accompanying
consolidated financial statements is considered appropriate under the prolonged
inflationary conditions affecting the Chilean economy even though the
cumulative inflation rate for the last three years does not exceed 100%. As
allowed pursuant to Form 20-F the reconciliation included herein of
consolidated net income, comprehensive income and shareholders equity, as
determined in accordance with US GAAP, does not include adjustments to
eliminate the effect of inflation accounting under Chilean GAAP.  b)
    
    Reversal of revaluation of property, plant and equipment 
 In accordance with standards issued by the SVS, certain property, plant and
equipment are recorded in the financial statements at amounts determined in
accordance with a technical appraisal. The difference between the carrying
value and the revalued amount is included in shareholders equity, beginning in
1989, in Other reserves, and is subject to adjustments for price-level
restatement and depreciation. Revaluation of property, plant and equipment is
an accounting principle not generally accepted under US GAAP, therefore, the
effects of the reversal of this revaluation, as well as of the related
accumulated depreciation and depreciation expense are included in
paragraph (w) below. 
  c)
    
    Deferred income taxes Under Chilean GAAP, until December 31, 1999, deferred income taxes were
recorded based on non-recurring timing differences between the recognition of
income and expense items for financial statement and tax purposes.
Accordingly, there was an orientation toward the income statement focusing on
differences in the timing of recognition of revenues and expenses in pre-tax
accounting income and taxable income. At the time, Chilean GAAP also permitted
not providing for deferred income taxes where a deferred tax asset or liability
was either offsetting or not expected to be realized. Starting January 1, 2000, the Company recorded income taxes in accordance with
Technical Bulletin No. 60 and its related amendments issued by the Chilean
Association of Accountants, recognizing, using the liability method, the
deferred tax effects of temporary differences between the financial and tax
values of assets and liabilities. As a transitional provision, a contra
(referred to as complementary) asset or liability has been recorded
offsetting the effects of the deferred tax assets and liabilities not recorded
prior to January 1, 2000. Such complementary asset or liability is being
amortized to income over the estimated average reversal periods corresponding
to the underlying temporary differences to which the deferred tax asset or
liability relates. F-99




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued: Under US GAAP, companies must account for deferred taxes in accordance with
SFAS 109, which requires an asset and liability approach for financial
accounting and reporting of income taxes, under the following basic principles:  (i)
    
    A deferred tax liability or asset is recognized for the
estimated future tax effects attributable to temporary
differences and tax loss carryforwards.(ii)
    
    The measurement of deferred tax liabilities and assets
is based on the provisions of the enacted tax law. The effects
of future changes in tax laws or rates are not anticipated.(iii)
    
    The measurement of deferred tax assets are reduced by
a valuation allowance, if based on the weight of available
evidence, it is more likely than not that some portion of the
deferred tax assets will not be realized. Temporary differences are defined as any difference between the financial
reporting basis and the tax basis of an asset and liability that at some future
date will reverse, thereby resulting in taxable income or expense. Temporary
differences ordinarily become taxable or deductible when the related asset is
recovered or the related liability is settled. A deferred tax liability or
asset represents the amount of taxes payable or refundable in future years as a
result of temporary differences at the end of the current year. Prior to January 1, 2000, the principal effect on the Company due to the
difference in the accounting for deferred income taxes between Chilean and US
GAAP relates to the treatment of temporary differences arising from provisions,
net operating loss-carryforwards and accelerated depreciation methods. In
subsequent years the principal differences relate to:  (i)
    
    The reversal of the complementary assets and
liabilities recorded as a transitional provision for unrecorded
deferred taxes as of January 1, 2000 and their corresponding
amortization into income, and(ii)
    
    Accounting for deferred tax differences related to US
GAAP adjustments. The effect of these differences on the net income and shareholders equity of
the Company is included in paragraph (w) below.  d)
    
    Staff severance indemnities As described in Note 2 p), under the Companys employment contracts, it has
committed to provide a lump sum payment to each employee at the end of their
employment, whether due to death, termination, resignation or retirement. Those
obligations are calculated based on the present value of the liability
determined at each year-end based on the current salary and average service
life of each employee. The Company, and certain of its subsidiaries, used a
real discount rate of 9.5% for the years ended December 31, 2001, 2002 and
2003, and assumed an average service life which varies based upon years of
service with the Company. The value of the obligation is calculated based on an
average estimated employment span of 35 years for employees with 15 years or
more and includes 75% of the benefit related to employees with less than the
required 15 years, as stipulated in the collective bargaining agreements. The
real annual discount rate does not include a projection of inflation and,
accordingly, future salary increases are also excluded from the calculation of
the obligation, because all such future increases are expected to approximate
the increase in inflation over a long-term period. Under US GAAP EITF 88-1 severance indemnities described above may be recorded
based on the vested benefits to which the employees are entitled if their
employment terminated immediately (settlement basis). The effects on the
short-term and long-term liability of accounting for staff severance
indemnities under US GAAP have been presented in paragraph (w) below. F-100




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued:e)
    
    Pension and post-retirement benefits The Company has obligations related to complementary pension plan benefits and
other post-retirement benefits as stipulated in collective bargaining
agreements. Under Chilean GAAP post-retirement employee benefits have been
accounted for in accordance with the respective employee collective bargaining
agreement, based on the actuarially determined projected benefit obligation
using a discount rate of 9.5%. Under US GAAP, post-retirement employee
benefits have been accounted for in accordance with SFAS 87 Employers
Accounting for Pensions and SFAS 106 Employers Accounting for Postretirement
Benefits Other Than Pensions. The primary difference between Chilean GAAP and
US GAAP results from using a discount rate for US GAAP based on high-quality
fixed-income investments currently available and expected to be available
during the period to maturity of the benefits obligations, which was 6.0% for
the years ended December 31, 2002 and 2003, versus, as required under Chilean
GAAP, using a discount rate based on the Companys cost to borrow. The effects
on the short-term and long-term liability of accounting for post-retirement
benefits under US GAAP have been presented in paragraph (w) below.  f)
    
    Investments in related companies Under Chilean GAAP, when an investment accounted for by the equity method is
acquired, the proportionate net book value of the investee company is recorded
as an investment and the difference between the cost of investment and the
proportionate net book value of the investee is recorded as goodwill. The
goodwill is then amortized to income over a maximum period of twenty years. The
investment account is adjusted to recognize the investors share of the
earnings or losses of the investee determined under Chilean GAAP subsequent to
the date of the purchase. Under US GAAP, in accordance with Accounting Principles Board Opinion No. 18,
the Equity Method for accounting for Investment in Common Stock (APB No.
18), the carrying amount of an investment accounted for under the equity
method is initially recorded at cost and shown as a single amount in the
balance sheet of the investor. It is adjusted to recognize the investors share
of the earnings or losses of the investee determined under US GAAP subsequent
to the date of investment. The investment reflects adjustments similar to those
made in preparing consolidated financial statements, including adjustments to
eliminate inter-company gains and losses and to account for the differences, if
any, between the investors cost and the underlying equity in net assets of the
investee at the date of investment. The investment is also adjusted to reflect
the investors share of change in the investee capital accounts. The Companys equity share of the effect of the adjustments from Chilean GAAP
to US GAAP of equity accounted investees is included in paragraph (w) below.
The principal US GAAP adjustments affecting the Companys equity investees are
as follows:  (i)
    
    The elimination of capitalized foreign currency
exchange differences.(ii)
    
    The recording of deferred taxes in accordance with SFAS 109.(iii)
    
    The recording of derivative instruments in accordance with SFAS 133.(iv)
    
    The deferred income tax effects of adjustments (i) and (iii).  g)
    
    Goodwill(i)
    
    Under Chilean GAAP, assets acquired and liabilities assumed are recorded
at their carrying value, and the excess of the purchase price over the
carrying value are recorded as goodwill. Circular No. 1358, dated
December 3, 1997 issued by the SVS, extended the maximum amortization
period of goodwill to 20 years from the previous 10 years. F-101




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted Accounting
Principles, continued:Under US GAAP, assets acquired and liabilities assumed are recorded at
their estimated fair values, and the excess of the purchase price over the
estimated fair value of the net identifiable assets and liabilities
acquired are recorded as goodwill. Prior to July 1, 2001 under US GAAP, the
Company amortized goodwill on a straight-line basis over the estimated
useful lives of the assets, ranging from 20 to 40 years.(ii)
    
    Under Chilean GAAP, the Company evaluates the carrying amount of goodwill
for impairment. The Company determines the impairment losses using a
discounted cash flow approach and recent comparable transactions in the
market. In order to estimate recoverable value, the Company makes
assumptions about future events that are highly uncertain at the time of
estimation. The results of this analysis showed no impairment of goodwill
for the years ended December 31, 2001 and 2003.The results of this analysis performed in 2002 showed that under Chilean
GAAP the goodwill and related negative goodwill related to investments in
Argentina and Brazil were impaired because estimated future discounted cash
flows were not sufficient to recover goodwill and negative goodwill. The
impairment reflected the decline in the Companys revenues and forecasted
cash flows in their Argentina and Brazilian subsidiaries and the increase
in inflation and interest rates and decreasing expectations of the
currencies in Argentina and Brazil. During 2002, under Chilean GAAP, the
Company recorded a net charge related to its investments in Central
Costanera S.A., Hidroeléctrica El Chocón S.A., Hidroinvest S.A., Lajas
Inversora S.A. and Compañía Hidroeléctrica Caehoeira Dourada S.A. in the
amount of ThCh$ 107,899,090 to write-off all amounts of goodwill.In accordance with US GAAP, the Company adopted SFAS 142 Goodwill and
Other Intangible Assets, as of January 1, 2002. SFAS 142 applies to all
goodwill and identified intangible assets acquired in a business
combination. Under the new standard, all goodwill, including that acquired
before initial application of the standard, and indefinite-lived intangible
assets are not amortized, but must be tested for impairment at least
annually. Previously, the Company evaluated the carrying amount of
goodwill, in relation to the operating performance and future undiscounted
cash flows of the underlying business. The transitional impairment test
required by the standard, which was performed during the first half of 2002
indicated that none of the Companys goodwill was impaired. However, based
on subsequent testing of the Companys investments in Argentina and Brazil
performed as of December 31, 2002, it was determined that these investments
were impaired. Under US GAAP Endesa-Chile has recognized an impairment of
goodwill of ThCh$133,069,444 net of tax of ThCh$0 and net of minority
interest of ThCh$7,763,315. The goodwill impairment of ThCh$140,832,759 was
associated with goodwill related to investments in Argentina and Brazil.
The following effects are included in the net income and shareholders
equity reconciliation to US GAAP under paragraph (w) below:  (a)
    
    differences in the amount of the impairment under
US GAAP related to basis differences in the original
determination and subsequent amortization methodology between
Chilean GAAP and US GAAP;(b)
    
    the reversal of negative goodwill impairment under
Chilean GAAP, as under US GAAP negative goodwill is treated as
an adjustment to the net book value of the related fixed assets
to their fair value;(c)
    
    the reversal of goodwill amortization recorded
under Chilean GAAP. F-102




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued:The following table details what per share earnings and loss amounts
calculated under US GAAP would have been for the year ended December 31,
2001, excluding goodwill amortization expense. The Company reported no
extraordinary items under US GAAP for the year ended December 31, 2001. Year EndedDecember 31,2001
    
    Per shareThCh$
    
    Ch$Loss from continuing operations before
cumulative effect of changes in
accounting principles and discontinued
operations as reported
    
    
    (1,885,356
    )
    
    
    (0.23
    )Add back: Goodwill amortization
    
    
    11,234,531
    
    
    
    1.37Net income from continuing operations
before cumulative effect of changes in
accounting principles, discontinued
operations and goodwill amortization
    
    
    9,349,175
    
    
    
    1.14Cumulative effect of changes in
accounting principles, net of taxes and
minority interest
    
    
    32,654,708
    
    
    
    3.98Net income before discontinued
operations and goodwill amortization,
net of taxes and minority interest
    
    
    42,003,883
    
    
    
    5.12Income from discontinued operations,
net of taxes and minority interest
    
    
    478,917
    
    
    
    0.06Net income before goodwill amortization
    
    
    42,482,800
    
    
    
    5.18
  A summary of the changes in the Companys goodwill under US GAAP during the
years ended December 31, 2002 and 2003, by country of operation is as
follows: Goodwill under US GAAPCumulativeJanuary 1,
    
    
    
    
    
    Translation
    
    
    
    
    
    December 31,2002
    
    Acquisitions
    
    Adjustment
    
    Impairment
    
    2002ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Chile
    
    
    1,503,078
    
    
    
    3,304,022
    
    
    
    
    
    
    
    
    
    
    
    4,807,100Argentina
    
    
    35,927,356
    
    
    
    
    
    
    
    2,353,292
    
    
    
    (38,280,648
    )
    
    
    Brazil
    
    
    96,247,755
    
    
    
    
    
    
    
    6,304,356
    
    
    
    (102,552,111
    )
    
    
    Peru
    
    
    20,161,849
    
    
    
    
    
    
    
    1,320,524
    
    
    
    
    
    
    
    21,482,373Colombia
    
    
    27,445,762
    
    
    
    
    
    
    
    1,797,137
    
    
    
    
    
    
    
    29,242,899Total
    
    
    181,285,800
    
    
    
    3,304,022
    
    
    
    11,775,309
    
    
    
    (140,832,759
    )
    
    
    55,532,372
 Goodwill under US GAAPCumulativeJanuary 1,
    
    
    
    
    
    Translation
    
    
    
    
    
    December 31,2003
    
    Acquisitions
    
    Adjustment
    
    Impairment
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Chile
    
    
    4,807,100
    
    
    
    74,637
    
    
    
    
    
    
    
    
    
    
    
    4,881,737Peru
    
    
    21,482,373
    
    
    
    
    
    
    
    (3,906,379
    )
    
    
    
    
    
    
    17,575,994Colombia
    
    
    29,242,899
    
    
    
    
    
    
    
    (5,318,371
    )
    
    
    
    
    
    
    23,924,528Total
    
    
    55,532,372
    
    
    
    74,637
    
    
    
    (9,224,750
    )
    
    
    
    
    
    
    46,382,259
 F-103




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued:h)
    
    Negative goodwill Under Chilean GAAP, the excess of the carrying value of the assets assumed in a
business combination over the purchase price is recorded as negative goodwill.
Circular No. 1358, dated December 3, 1997 issued by the SVS, extended the
maximum amortization period of negative goodwill to 20 years from the previous
5 years. Under US GAAP, the fair values of the assets acquired less the fair
values of the liabilities assumed in excess of the purchase price is allocated
proportionately to reduce the values assigned to non-current assets. If the
allocation reduces the non-current assets to zero, the remainder of the excess
is recorded as an extraordinary gain to income. Adjustments related to
negative goodwill necessary to conform the consolidated financial statements to
US GAAP are included in paragraph (w) below and are as follows:  h-1:
    
    The reversal of negative goodwill write-offs described in
paragraph (g) above, which did not meet the US GAAP impairment
criteria for long-lived assets under SFAS 144 described above and
the reversal of negative goodwill amortization recorded under
Chilean GAAP;h-2:
    
    The effects of reducing depreciation expense, due to the
proportionate allocation of the excess purchase price to property,
plant and equipment.  i)
    
    Capitalized exchange differences In accordance with Chilean GAAP, the Company has capitalized both interest on
debt directly related to property, plant and equipment under construction as
well as finance costs corresponding to exchange differences generated by the
loans associated with such assets. The capitalization of interest costs
associated with projects under construction is optional when incurred on debt
that is not directly related to such projects. Under US 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. In addition, under US GAAP, foreign
translation exchange differences may not be capitalized. The adjustment to
reverse out the foreign currency translation adjustments relating to the loans
financing the constructions in progress is shown in paragraph (w) below as
follows:  i-1: Adjustment to net income related to foreign exchange differences;i-2: Adjustment to depreciation of property, plant and equipment.  j)
    
    Accumulated deficit during the development stage Under Chilean GAAP, the net losses incurred during the development stage of
subsidiary companies are recorded directly in the parent companys equity.
Under US GAAP, such results of operations of all controlled subsidiaries must
be included in the consolidated statement of income. The effects are included
in paragraph (w) below.  k)
    
    Minimum dividend As required by the Chilean Companies Act, unless otherwise decided by the
unanimous vote of the holders of issued and subscribed shares, the Company must
distribute a cash dividend in an amount equal to at least 30% of its net income
for each year as determined in accordance with Chilean GAAP, unless and except
to the extent the Company has unabsorbed prior year losses. Net income related
to the amortization of negative goodwill can only be distributed as an
additional dividend by the approval of the shareholders, and accordingly, is
not included in the calculation of the minimum dividend to be distributed.
Since the payment of the 30% dividend out of each years income is required by
Chilean law, an accrual has been made in the reconciliation in paragraph (w)
below to reflect the unrecorded dividend liability, whenever and to the extent
the recorded interim dividends do not reach the 30% minimum dividend. F-104




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued:l)
    
    Capitalized general and administrative expenses Until 1993 under Chilean GAAP, Endesa-Chile capitalized a portion of its
administrative and selling expenses as part of the cost of
constructions-in-progress because a substantial portion of the efforts of
management were involved in the administration of major projects. Under US
GAAP, general and administrative expenses are charged to expense unless they
can be directly identified with the supervision of the constructions of
specific projects. Under Chilean GAAP the Company has also capitalized other
administrative expenses into other long-term assets, which under US GAAP would
not be allowed. The effects of eliminating capitalized general and
administrative expenses are detailed in paragraph (w) below as follows:  l-1:
    
    The elimination of the capitalized administrative and selling
expenses from property, plant and equipment and the effect on
depreciation expense for the year;l-2:
    
    The elimination of the capitalized administrative and selling
expenses from other assets and the effect on income for the year. The effects of eliminating capitalized general and administrative expenses for
US GAAP purposes are shown under paragraph (w) below.  m)
    
    Involuntary employee termination benefits Under Chilean GAAP, the Argentine subsidiaries, Central Costanera S.A. and
Hidroelectricidad, recorded an accrual of certain involuntary employees
termination benefits related to the restructuring plan announced in 1997.
Since that date employees have continued to be made redundant pursuant to this
plan. Additionally, during 2003 the Company increased the amount of the accrual
recorded under Chilean GAAP. In accordance with US GAAP, in order to recognize
a liability at the balance sheet date for the cost to terminate employees
involuntarily, there must have been a plan that specifically includes
notification of such employees prior to the balance sheet date. As of December
31, 2002 and 2003, this requirement had not been met. The effect of
eliminating the accrued liability recognized is presented in
paragraph (w)
below.  n)
    
    Adjustment in selling price of investment Under Chilean GAAP, pursuant to the share transaction contract entered into in
1995 between Endesa-Chile and Endesa Overseas Co. with Enersis International
Limited, Chilectra S.A. and Chilectra International Limited, Endesa Argentina
recognized income related to an adjustment of the share purchase price. Under
U.S. GAAP, the contingent price adjustment would be considered a part of the
purchase price, and would therefore be offset against the amount of goodwill
that was originally determined. As described in paragraph (g), the Company
determined goodwill amounts recorded in investments in Argentina was impaired
as of January 1, 2002, thus the adjustment in selling price of investment is a
basis difference between Chilean and U.S. GAAP that will be eliminated after
the impairment charge is recorded. The effects of the adjustments to conform
to U.S. GAAP are included under paragraph (w) below. F-105




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued:o)
    
    Translation of financial statements of investments outside of Chile Under Chilean GAAP, in accordance with Technical Bulletin 64 (BT 64) the
financial statements of foreign subsidiaries that operate in countries exposed
to significant risks (unstable countries), and that are not considered to be
an extension of the parent companys operations, are remeasured into US
dollars. The Companys foreign subsidiaries in Argentina, Peru, Brazil, and
Colombia all meet the criteria of foreign subsidiaries that operate in
countries exposed to significant risks under BT 64, and are remeasured into US
dollars. The Company has remeasured its foreign subsidiaries into US dollars
under this requirement as follows:  
    
    Monetary assets and liabilities are translated at year-end rates of
exchange between the US dollar and the local currency;
    
    All non-monetary assets and liabilities and shareholders equity are
translated at historical rates of exchange between the US dollar and
the local currency;
    
    Income and expense accounts are translated at average rates of
exchange between the US dollar and local currency;
    
    The effects of any exchange rate fluctuations between the local
currency and the US dollar are included in the results of operations
for the period. Under BT 64, the investment in the foreign subsidiary is price-level restated,
the effects of which are reflected in income, while the effects of the foreign
exchange gains or losses between the Chilean Peso and the US Dollar on the
foreign investment measured in US dollars, are reflected in equity in the
account Cumulative Translation Adjustment which amounted to a net gain of
ThCh$ 12,007,543 and ThCh$ 9,407,177, and a net loss of ThCh$ 30,479,394 for
the years ended December 31, 2001, 2002 and 2003, respectively. In the opinion of the Company, the foreign currency translation procedures
described above are part of the comprehensive basis of preparation of
price-level adjusted financial statements required by Chilean GAAP. Inclusion
of inflation and translation effects in the financial statements is considered
appropriate under the inflationary conditions that have historically affected
the Chilean economy, and accordingly, are not eliminated in the reconciliation
to US GAAP as permitted by Form 20-F.  p)
    
    Derivative instruments The Company engages in derivative activity for hedging purposes. These
derivatives are considered accounting hedges under Chilean GAAP. Under
Chilean GAAP the accounting treatment of hedging activity is similar to the
accounting treatment of fair value hedges and cash flow hedges under SFAS 133.
The documentation and hedge effectiveness requirements under Chilean GAAP
though are not as burdensome as under SFAS 133. Under SFAS 133 to qualify for
hedge accounting strict requirements need to be met, including hedge
documentation and effectiveness tests. The Company does not have the
documentation and hedge effectiveness requirements to qualify for hedge
accounting. Therefore, all derivative instruments have been accounted at fair
value with changes in fair value recognized in earnings for US GAAP purposes. The Company has designated under Chilean GAAP certain non-derivative financial
instruments as hedges of the foreign currency exposure of net investments in
foreign operations. The gain or loss on the non-derivative financial
instrument that is designated as a hedge is reported as a translation
adjustment to the extent it is effective as a hedge, any ineffectiveness is
recorded in earnings. This accounting treatment is consistent with SFAS 133. SFAS 133 also requires that certain embedded derivatives be separated and
reported on the balance sheet at fair value and be subject to the same rules as
other derivative instruments. Current Chilean accounting rules do not F-106




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued: consider the existence of derivative instruments embedded in other contracts
and therefore they are not reflected in the financial statements under Chilean
GAAP. The effect of adopting SFAS 133 as of January 1, 2001, resulted in a cumulative
effect on net income of ThCh$ 32,654,708, which is presented net of deferred
taxes of ThCh$ 41,804,538 and minority interest under the caption Cumulative
effect of changes in accounting principles. The effects of the adjustment
with respect to financial derivatives, commodity derivatives, and embedded
derivatives for the years ended December 31, 2002 and 2003 is included in the
net income and shareholders equity reconciliation to US GAAP under paragraph
(w) below.  q)
    
    Reorganization of subsidiaries This adjustment corresponds to the reorganization of the Companys subsidiaries
Central Costanera and Central Buenos Aires (CBA) during 2001, in which Central
Costanera acquired the minority interest in CBA from third parties and
exchanged shares with Endesa Argentina. Under Chilean GAAP, the Company
recorded the transactions under the pooling method, using the book values of
the net assets acquired under merger accounting. Under US GAAP the exchange of shares between entities under common control is
recorded at book values. However, to the extent that shares in CBA were
acquired from third parties, the identifiable assets acquired and liabilities
assumed are recorded at fair value using purchase accounting together with the
shares issued by the subsidiary Central Costanera. The difference in fixed
asset basis between Chile and US GAAP results in a greater depreciation expense
to be recorded under US GAAP over the remaining estimated useful life of 20
years. The effect of this adjustment is included in the net income and
shareholders equity reconciliation to US GAAP under paragraph (w) below.  r)
    
    Assets held for sale Under Chilean GAAP the Company records divestitures of investments or assets in
the year in which they occur. Under US GAAP, in accordance with SFAS 144,
long-lived assets for which there is a plan to sell the assets within the
following year, shall be disclosed separately from the Companys other assets,
provided all the criteria are met. Additionally, long-lived assets classified
as held for sale must be measured at the lower of their carrying amount or fair
value less cost to sell. Long-lived assets shall not be depreciated while they
are classified as held for sale, while interest and other expenses attributable
to the liabilities of a disposal group classified as held for sale shall
continue to be accrued. The Companys Board of Directors approved a plan to sell a number of the
Companys assets during October 2002. The following assets to be sold met the
definition of segments, reporting units or long-lived assets held for sale:  
    
    Central Canutillar power plant
    
    Gas Atacama transmission lines
    
    CELTA transmission lines
    
    Infrastructura Dos Mil S.A.  The Company evaluated the carrying values of all assets held for sale,
recording a loss to the extent that the assets fair value less cost to sell
was lower than the carrying value of the assets. Additionally, the Company
ceased recording depreciation expense once the assets met the qualification
criteria of held for sale, which varied from October to December 2002. The
effect of these adjustments is included in the net income and shareholders
equity reconciliation to US GAAP under paragraph (w) below. F-107




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued:s)
    
    Elimination of discontinued operations Under Chilean GAAP, no restatement to the financial statement information
presented in previous years is required after a divestiture has occurred.
Under US GAAP, in accordance with SFAS 144, the discontinued operations of a
component must be retroactively separated from the continuing operations of an
entity, when the operations and cash flows of a component will be eliminated
from the ongoing operations of an entity as a result of a disposal or a sale
transaction, and the entity will not have any significant continuing
involvement in the operations of the component after the disposal transaction. The Company evaluated whether any of the assets held for sale met either
criteria, noting that the transmission lines and power plant are not
components, as they are included as a part of larger cash flow generating
groups, and the operations of these assets cannot be separated from their
respective groups. Additionally, Endesa-Chile plans to continue generating
revenues from Canutillar through a purchase power agreement, management
agreement, and a transmission leasing arrangement with the future buyer.
Infrastructura Dos Mil S.A. met the conditions for discontinued operations
because it had distinct and separable financial results from operations and
cash flows. As a result of the disposal, the results of operations of the
reporting unit have been eliminated from the ongoing operations of
Endesa-Chile, as Endesa-Chile will not have any continuing involvement in the
operations of Infrastructura Dos Mil S.A. after it is sold. The effect of
restating discontinued operations is included in the net income reconciliation
to US GAAP, net of tax expenses of ThCh$ 611,188, ThCh$ 982,180 and ThCh$
36,732 in the years ended December 31, 2001, 2002 and 2003, respectively, and
net of minority interest of ThCh$ 404,192, ThCh$ 165,184 and ThCh$ 0 in the
years ended December 31, 2001, 2002 and 2003, respectively,
under paragraph (w)
below.  t)
    
    Accounting for asset retirement obligations In June 2001 the FASB issued Statement of Financial Accounting Standard No. 143
(SFAS), Accounting for Asset Retirement Obligations, which addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The Company adopted SFAS 143 effective January 1, 2003. This standard
requires that the Company record the fair value of the legal obligation it has
to make certain environmental restorations upon closure of the mine site. The
fair value of the liability is estimated by discounting the future estimated
expenditures related to the restoration. The Company then measures changes in
the liability due to passage of time by applying an interest method of
allocation to the amount of the liability at the beginning of the period. The
interest rate used to measure that change is the credit-adjusted risk-free rate
that existed when the liability, or portion thereof, was initially measured.
That amount is recognized as an increase in the carrying amount of the
liability and the expense is classified as an operating item in the statement
of income, referred to as accretion expense. At the same time the standard
requires the Company to capitalize the new costs arising as the result of
additional liabilities incurred, such as the activation of a new generation
facility, and subsequently allocate that asset retirement cost to expense over
the life of the plant based on the useful life of the plant. The accumulated
effect of adopting SFAS 143 as of January 1, 2003 is presented in paragraph (w)
below, net of taxes of ThCh$ 160,902 and minority interest of ThCh$ 116,391.
The effects on US GAAP income and Shareholders equity are shown in paragraph
(w) below as follows:  t-1: The effects of amortizing the deferred costs of the
asset retirement obligation are reflected as depreciation
expense;t-2: The effects of remeasuring the liability due to the
passage of time is reflected as accretion expense. The Company has legal obligations to retire its generation plants and make
certain environmental restorations in the future upon closure or abandonment.
As described above the Company began accounting for these obligations as of
January 1, 2003. The following table shows the pro-forma reconciliation of the
liability for the year ended December 31, 2001 and 2002 had the Company
recorded it retroactively and shows the reconciliation of the liability for the
year ended December 31, 2003 as recorded by the Company: Pro-forma
    
    Pro-forma(Unaudited)
    
    (Unaudited)2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Balance as of January 1,
    
    
    348,919
    
    
    
    422,995
    
    
    
    493,518Cumulative translation adjustment
    
    
    35,930
    
    
    
    27,432
    
    
    
    (89,753
    )Liabilities incurred in the year
    
    
    
    
    
    
    
    
    
    
    Accretion expense
    
    
    38,146
    
    
    
    43,091
    
    
    
    38,358Balance as of December 31
    
    
    422,995
    
    
    
    493,518
    
    
    
    442,123
 The following shows the pro-forma effects of the change in accounting
principles described above on US GAAP net income for the year ended December
31, 2001 and 2002 had the accounting principles been applied retroactively: Pro-forma
    
    Pro-forma(unaudited)
    
    (unaudited)2001
    
    2002ThCh$
    
    ThCh$Net income as reported for the year ended December 31,
    
    
    31,248,269
    
    
    
    (75,619,828
    )Effect in income of recording asset retirement obligation
    
    
    (38,452
    )
    
    
    (43,462
    )Deferred tax effect of the changes in accounting principles
    
    
    12,881
    
    
    
    14,560Effect of minority interest
    
    
    15,879
    
    
    
    17,948Pro-forma net income for the year ended December 31,
    
    
    31,238,577
    
    
    
    (75,630,782
    )Pro-forma earnings per share amounts
    
    
    3.81
    
    
    
    (9.22
    )
  u)
    
    Effects of minority interest on the US GAAP adjustments The Company calculated effects of the participation of the non-controlling
shareholders, referred to as minority interest, related to adjustments in the
subsidiaries in which it is not the sole shareholder.  v)
    
    Accounting for the Impairment or Disposal of Long-Lived Assets In accordance with SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company evaluates the carrying amount of property,
plant and equipment and other long-lived assets, in relation to the operating
performance and future undiscounted cash flows of the underlying business.
This standard requires that an impairment loss be recognized in the event that
facts and circumstances indicate that the carrying amount of an asset may not
be fully recoverable, when compared to the estimated future undiscounted cash
flows. Impairment is recorded based on estimates of future discounted cash
flows, as compared to current carrying amounts. For the years ended December
31, 2001, 2002, and 2003 no additional amounts were recorded for impairment
under US GAAP. F-108




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted
Accounting Principles, continued:  w)
    
    Effects of conforming to US GAAP: The reconciliation of reported net income required to conform to US GAAP is
as follows: Years Ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Net income (loss) in accordance with Chilean GAAP
    
    
    72,881,617
    
    
    
    (9,412,247
    )
    
    
    78,130,912Reversal of revaluation of Property, plant and equipment (paragraph b)
    
    
    990,829
    
    
    
    2,513,422
    
    
    
    756,629Amortization of intangibles
    
    
    60,913
    
    
    
    
    
    
    
    Deferred income taxes (paragraph c)
    
    
    (16,682,762
    )
    
    
    (3,378,395
    )
    
    
    51,748,434Staff severance indemnities (paragraph d)
    
    
    (32,611
    )
    
    
    (122,187
    )
    
    
    115,159Pension and post-retirement benefits (paragraph e)
    
    
    
    
    
    
    844,983
    
    
    
    (1,199,647
    )Investments in related companies (paragraph f)
    
    
    (5,717,667
    )
    
    
    21,069,544
    
    
    
    27,823,610Goodwill (paragraph g)
    
    
    (2,883,343
    )
    
    
    (31,312,903
    )
    
    
    1,618,188Negative goodwill (paragraph h):h-1: Amortization of negative goodwill
    
    
    (46,370,207
    )
    
    
    (86,777,337
    )
    
    
    (15,589,551
    )h-2: Depreciation of Property, plant and equipment
    
    
    16,542,149
    
    
    
    15,276,648
    
    
    
    2,437,770Capitalized exchange differences (paragraph i):i-1: Foreign exchange differences
    
    
    (13,819,655
    )
    
    
    (10,022,038
    )
    
    
    29,270,000i-2: Depreciation of Property, plant and equipment
    
    
    69,636
    
    
    
    254,070
    
    
    
    69,288Accumulated deficit during the development stage (paragraph j)
    
    
    (81,527
    )
    
    
    (8,047,837
    )
    
    
    75,847Capitalized general and administrative expenses (paragraph l):l-1: Depreciation of Property, plant and equipment
    
    
    249,071
    
    
    
    1,764,567
    
    
    
    (414,056
    )l-2: Other operating results
    
    
    (377,308
    )
    
    
    200,964
    
    
    
    (1,838,088
    )Involuntary employee termination benefits (paragraph m)
    
    
    (8,885
    )
    
    
    (350,560
    )
    
    
    11,876Adjustment in selling price of investment (paragraph n)
    
    
    (77,194
    )
    
    
    4,536,226
    
    
    
    Derivative instruments (paragraph p)Operating
    
    
    11,089,531
    
    
    
    39,039,732
    
    
    
    (171,240,557
    )Non-operating
    
    
    350,732
    
    
    
    (13,107,634
    )
    
    
    8,796,094Reorganization of subsidiaries (paragraph q)
    
    
    
    
    
    
    (322,979
    )
    
    
    (264,242
    )Assets held for sale (paragraph r)
    
    
    
    
    
    
    (896,113
    )
    
    
    896,113Elimination of discontinued operations (paragraph s)
    
    
    (603,741
    )
    
    
    (250,256
    )
    
    
    (493,614
    )Accounting
for asset retirement obligations (paragraph t)t-1:
Depreciation expense
    
    
    
    
    
    
    
    
    
    
    (310
    )t-2:
Accretion expense
    
    
    
    
    
    
    
    
    
    
    (38,358
    )Effects of
minority interest on the US GAAP adjustments (paragraph u)
    
    
    (17,464,934
    )
    
    
    2,602,459
    
    
    
    62,069,199Income (loss) from continuing operations in accordance with US GAAP before cumulative
effect of changes in accounting principles and discontinued operations
    
    
    (1,885,356
    )
    
    
    (75,897,871
    )
    
    
    72,740,696Cumulative effect of changes in accounting principles, net of taxes and minority interest
    
    
    32,654,708
    
    
    
    
    
    
    
    (121,054
    )Income (loss) from continuing operations in accordance with US GAAP before discontinued
operations
    
    
    30,769,352
    
    
    
    (75,897,871
    )
    
    
    72,619,642Income from discontinued operations, net of taxes and minority interest
(paragraph s)
    
    
    478,917
    
    
    
    278,043
    
    
    
    115,216Net income (loss) in accordance with US GAAP
    
    
    31,248,269
    
    
    
    (75,619,828
    )
    
    
    72,734,858Other comprehensive income (loss):Cumulative translation adjustment determined under Chilean GAAP, net of income tax of
ThCh$0
    
    
    3,065,971
    
    
    
    9,173,574
    
    
    
    (30,479,392
    )Cumulative translation adjustment related to US GAAP adjustments, net of income tax of
ThCh$0
    
    
    (12,575,880
    )
    
    
    (6,605,632
    )
    
    
    39,978,381Comprehensive income (loss) in accordance with US GAAP
    
    
    21,738,360
    
    
    
    (73,051,886
    )
    
    
    82,233,847
 F-109




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted
Accounting Principles, continued: The reconciliation to conform shareholders equity amounts to US GAAP is as
follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Shareholders equity in accordance with Chilean GAAP
    
    
    1,444,941,673
    
    
    
    1,492,669,040Reversal of revaluation of Property, plant and equipment (paragraph b):Property, plant and equipment
    
    
    (12,254,875
    )
    
    
    (10,748,222
    )Accumulated depreciation
    
    
    5,600,811
    
    
    
    4,850,788Deferred income taxes (paragraph c)
    
    
    (97,231,749
    )
    
    
    (40,941,215
    )Staff severance indemnities (paragraph d):Short-term
    
    
    (161,911
    )
    
    
    (64,523
    )Long-term
    
    
    (2,305,261
    )
    
    
    (2,287,490
    )Pension and post-retirement benefits (paragraph e):Short-term
    
    
    (194,798
    )
    
    
    (211,023
    )Long-term
    
    
    1,039,781
    
    
    
    (442,182
    )Investments in related companies (paragraph f)
    
    
    4,329,102
    
    
    
    31,365,625Goodwill (paragraph g):Goodwill
    
    
    25,305,501
    
    
    
    21,072,355Accumulated amortization
    
    
    2,015,751
    
    
    
    3,156,645Negative goodwill (paragraph h):h-1: Negative goodwill
    
    
    406,046,831
    
    
    
    352,062,279h-1 Accumulated amortization of negative goodwill
    
    
    (313,404,439
    )
    
    
    (274,633,097
    )h-2: Property, plant and equipment
    
    
    (611,307,442
    )
    
    
    (528,424,852
    )h-2: Accumulated depreciation of Property, plant and equipment
    
    
    113,171,231
    
    
    
    106,345,153Capitalized exchange differences (paragraph i):Property, plant and equipment
    
    
    (45,742,441
    )
    
    
    (14,932,221
    )Accumulated depreciation of Property, plant and equipment
    
    
    508,145
    
    
    
    485,020Minimum dividend (paragraph k)
    
    
    
    
    
    
    (23,566,494
    )Capitalized general and administrative expenses (paragraph l):l-1: Property, plant and equipment
    
    
    (31,826,637
    )
    
    
    (30,399,880
    )l-1: Accumulated depreciation of Property, plant and equipment
    
    
    8,977,060
    
    
    
    8,036,851l-2: Other assets
    
    
    (3,082,713
    )
    
    
    (3,932,856
    )Involuntary employee termination benefits (paragraph m)
    
    
    93,627
    
    
    
    88,476Derivative instruments (paragraph p)
    
    
    191,204,633
    
    
    
    (10,018,088
    )Reorganization of subsidiaries (paragraph q)
    
    
    6,130,801
    
    
    
    4,751,588Assets held for sale (paragraph r)
    
    
    (896,113
    )
    
    
    Elimination of discontinued operations (paragraph s)
    
    
    732,011
    
    
    
    Accounting for asset retirement obligations (paragraph t)
    
    
    
    
    
    
    (431,624
    )Effects of
minority interest on the US GAAP adjustments (paragraph u)
    
    
    (26,950,486
    )
    
    
    39,555,393Shareholders equity in accordance with US GAAP
    
    
    1,064,738,093
    
    
    
    1,123,405,446
 F-110




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##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted
Accounting Principles, continued: The changes in shareholders equity in US GAAP as of each year-end are as
follows: As of December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Shareholders equity in accordance with US GAAP  January 1,
    
    
    1,117,742,952
    
    
    
    1,137,556,376
    
    
    
    1,064,738,093Dividends paid during the year
    
    
    (8,190,994
    )
    
    
    (7,786,744
    )
    
    
    Reversal of dividends payable as of previous balance sheet date
    
    
    8,229,369
    
    
    
    8,020,347
    
    
    
    Minimum dividend (paragraph k)
    
    
    (8,020,347
    )
    
    
    
    
    
    
    (23,566,494
    )Cumulative translation adjustment
    
    
    (9,509,909
    )
    
    
    2,567,942
    
    
    
    9,498,989Reorganization of subsidiaries (paragraph q)
    
    
    6,057,036
    
    
    
    
    
    
    
    Net income (loss) in accordance with US GAAP for the year
    
    
    31,248,269
    
    
    
    (75,619,828
    )
    
    
    72,734,858Shareholders equity in accordance with US GAAP  December 31,
    
    
    1,137,556,376
    
    
    
    1,064,738,093
    
    
    
    1,123,405,446
 F-111




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting
Principles, continued: II. Additional Disclosure Requirements: a) Goodwill and negative goodwill: The following is an analysis of goodwill and negative goodwill, determined on a
Chilean GAAP basis, as of December 31, 2002 and 2003, respectively: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Goodwill
    
    
    189,043,830
    
    
    
    155,297,860Less: Accumulated amortization
    
    
    (160,832,710
    )
    
    
    (133,144,601
    )Goodwill, net
    
    
    28,211,120
    
    
    
    22,153,259Negative goodwill
    
    
    406,046,831
    
    
    
    352,062,279Less: Accumulated amortization
    
    
    (313,404,439
    )
    
    
    (274,633,097
    )Negative goodwill, net
    
    
    92,642,392
    
    
    
    77,429,182
 b) Basic and diluted earnings per share: Year ended December 31,2001
    
    2002
    
    2003Ch$
    
    Ch$
    
    Ch$Chilean GAAP (loss) earnings per share (1)
    
    
    8.89
    
    
    
    (1.15
    )
    
    
    9.53US GAAP (loss) earnings per share (1):US GAAP (loss) earnings per share from continuing
operations before cumulative effect of changes in
accounting principles and discontinued operations
    
    
    (0.23
    )
    
    
    (9.25
    )
    
    
    8.87Cumulative effect of changes in accounting principles
    
    
    3.98
    
    
    
    
    
    
    
    (0.01
    )US GAAP (loss) earnings per share before
discontinued operations
    
    
    3.75
    
    
    
    (9.25
    )
    
    
    8.86US GAAP (loss) earnings per share from discontinued
operations
    
    
    0.06
    
    
    
    0.03
    
    
    
    0.01US GAAP (loss) earnings per share
    
    
    3.81
    
    
    
    (9.22
    )
    
    
    8.87Weighted average number of common shares outstanding
(000s)
    
    
    8,201,755
    
    
    
    8,201,755
    
    
    
    8,201,755
  (1)
    
    There are no requirements to provide earnings per share disclosures under
Chilean GAAP. The earnings per share figures disclosed above for both US
GAAP and Chilean GAAP purposes have been calculated by dividing the
respective earnings (loss) amounts in accordance with US GAAP and Chilean
GAAP, respectively, by the weighted average number of common shares
outstanding during the year. The Company has not issued convertible debt
or equity securities nor does it have other common stock equivalent
securities outstanding. Consequently, there are no potentially dilutive
effects on the earnings per share of the Company. F-112




---



##### Table of Contents



Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting
Principles, continued: c) Income taxes: The (provision) benefit for income taxes (charged)/credited to the results of
operations determined in accordance with US GAAP is as follows: 2001Chile
    
    Argentina
    
    BrazilThCh$
    
    ThCh$
    
    ThCh$Income tax provision under Chilean GAAP:Current income tax as determined under Chilean
GAAP
    
    
    4,782,803
    
    
    
    (3,763,361
    )
    
    
    (3,403,271
    )Deferred income taxes as determined under
Chilean GAAP
    
    
    (6,437,485
    )
    
    
    (356,547
    )
    
    
    (7,029
    )Total income tax provision under Chilean GAAP
    
    
    (1,654,682
    )
    
    
    (4,119,908
    )
    
    
    (3,410,300
    )US GAAP adjustments
    
    
    (5,274,102
    )
    
    
    (5,656,987
    )
    
    
    650,279US GAAP reclassifications (1)
    
    
    403,149
    
    
    
    
    
    
    
    Total income tax provision under US GAAP
    
    
    (6,525,635
    )
    
    
    (9,776,895
    )
    
    
    (2,760,021
    )Income tax related to cumulative change in
accounting principles
    
    
    1,829,297
    
    
    
    (42,427,573
    )
    
    
    Total income tax under US GAAP
    
    
    (4,696,338
    )
    
    
    (52,204,468
    )
    
    
    (2,760,021
    )
    2001Peru
    
    Colombia
    
    TotalThCh$
    
    ThCh$
    
    ThCh$Income tax provision under Chilean GAAP:Current income tax as determined under Chilean
GAAP
    
    
    (8,293,486
    )
    
    
    (17,728,634
    )
    
    
    (28,405,949
    )Deferred income taxes as determined under
Chilean GAAP
    
    
    (5,104,004
    )
    
    
    
    
    
    
    (11,905,065
    )Total income tax provision under Chilean GAAP.
    
    
    (13,397,490
    )
    
    
    (17,728,634
    )
    
    
    (40,311,014
    )US GAAP adjustments
    
    
    (3,701,311
    )
    
    
    (2,700,641
    )
    
    
    (16,682,762
    )US GAAP reclassifications (1)
    
    
    
    
    
    
    
    
    
    
    403,149Total income tax provision under US GAAP
    
    
    (17,098,801
    )
    
    
    (20,429,275
    )
    
    
    (56,590,627
    )Income tax related to cumulative change in
accounting principles
    
    
    (34,151
    )
    
    
    (1,172,111
    )
    
    
    (41,804,538
    )Total income tax under US GAAP
    
    
    (17,132,952
    )
    
    
    (21,601,386
    )
    
    
    (98,395,165
    )
 2002Chile
    
    Argentina
    
    BrazilThCh$
    
    ThCh$
    
    ThCh$Income tax provision under Chilean GAAP:Current income tax as determined under Chilean
GAAP
    
    
    456,829
    
    
    
    (258,986
    )
    
    
    (2,606,488
    )Deferred income taxes as determined under
Chilean GAAP
    
    
    (13,896,191
    )
    
    
    
    
    
    
    Total income tax provision under Chilean GAAP.
    
    
    (13,439,362
    )
    
    
    (258,986
    )
    
    
    (2,606,488
    )US GAAP adjustments:Deferred tax effect of applying SFAS 109
    
    
    (2,646,292
    )
    
    
    3,108,606
    
    
    
    (1,488,608
    )Deferred tax effect of adjustment to US GAAP
    
    
    10,023,227
    
    
    
    (8,231,938
    )
    
    
    198Total US GAAP adjustments
    
    
    7,376,935
    
    
    
    (5,123,332
    )
    
    
    (1,488,410
    )US GAAP reclassifications (1)
    
    
    296,480
    
    
    
    
    
    
    
    Total income tax provision under US GAAP
    
    
    (5,765,947
    )
    
    
    (5,382,318
    )
    
    
    (4,094,898
    )
 [Continued from above table, first column(s) repeated]
 2002Peru
    
    Colombia
    
    TotalThCh$
    
    ThCh$
    
    ThCh$Income tax provision under Chilean GAAP:Current income tax as determined under Chilean
GAAP
    
    
    (12,650,537
    )
    
    
    (25,136,255
    )
    
    
    (40,195,437
    )Deferred income taxes as determined under
Chilean GAAP
    
    
    (18,434,571
    )
    
    
    1,191,517
    
    
    
    (31,139,245
    )Total income tax provision under Chilean GAAP.
    
    
    (31,085,108
    )
    
    
    (23,944,738
    )
    
    
    (71,334,682
    )US GAAP adjustments:Deferred tax effect of applying SFAS 109
    
    
    (18,472,135
    )
    
    
    (3,482,585
    )
    
    
    (22,981,014
    )Deferred tax effect of adjustment to US GAAP
    
    
    19,823,402
    
    
    
    (2,012,270
    )
    
    
    19,602,619Total US GAAP adjustments
    
    
    1,351,267
    
    
    
    (5,494,855
    )
    
    
    (3,378,395
    )US GAAP reclassifications (1)
    
    
    
    
    
    
    (11,039,393
    )
    
    
    (10,742,913
    )Total income tax provision under US GAAP
    
    
    (29,733,841
    )
    
    
    (40,478,986
    )
    
    
    (85,455,990
    )
 F-113
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting
Principles, continued: 2003Chile
    
    Argentina
    
    BrazilThCh$
    
    ThCh$
    
    ThCh$Income tax provision under Chilean GAAP:Current income tax as determined under Chilean GAAP
    
    
    (6,723,662
    )
    
    
    
    
    
    
    (2,284,349
    )Deferred income taxes as determined under Chilean
GAAP
    
    
    (5,430,348
    )
    
    
    33,105,537
    
    
    
    Total income tax provision under Chilean GAAP
    
    
    (12,154,010
    )
    
    
    33,105,537
    
    
    
    (2,284,349
    )US GAAP adjustments:Deferred tax effect of applying SFAS 109
    
    
    5,870,011
    
    
    
    (1,803,964
    )
    
    
    5,746,250Deferred tax effect of adjustment to US GAAP
    
    
    (1,847,310
    )
    
    
    57,146,422
    
    
    
    Total US GAAP adjustments
    
    
    4,022,701
    
    
    
    55,342,458
    
    
    
    5,746,250US GAAP reclassifications (1)
    
    
    97,540
    
    
    
    
    
    
    
    Total income tax provision under US GAAP
    
    
    (8,033,769
    )
    
    
    88,447,995
    
    
    
    3,461,901Income tax
related to cumulative change in accounting principles
    
    
    
    
    
    
    
    
    
    
    Total Income
tax under US GAAP
    
    
    (8,033,769
    )
    
    
    88,447,995
    
    
    
    3,461,901
   [Continued from above table, first column(s) repeated] 2003Peru
    
    Colombia
    
    TotalThCh$
    
    ThCh$
    
    ThCh$Income tax provision under Chilean GAAP:Current income tax as determined under Chilean GAAP
    
    
    (14,646,012
    )
    
    
    (26,432,413
    )
    
    
    (50,086,436
    )Deferred income taxes as determined under Chilean
GAAP
    
    
    (5,239,390
    )
    
    
    272,554
    
    
    
    22,708,353Total income tax provision under Chilean GAAP
    
    
    (19,885,402
    )
    
    
    (26,159,859
    )
    
    
    (27,378,083
    )US GAAP adjustments:Deferred tax effect of applying SFAS 109
    
    
    5,488,257
    
    
    
    
    
    
    
    15,300,554Deferred tax effect of adjustment to US GAAP
    
    
    (18,791,041
    )
    
    
    (60,191
    )
    
    
    36,447,880Total US GAAP adjustments
    
    
    (13,302,784
    )
    
    
    (60,191
    )
    
    
    51,748,434US GAAP reclassifications (1)
    
    
    
    
    
    
    
    
    
    
    97,540Total income tax provision under US GAAP
    
    
    (33,188,186
    )
    
    
    (26,220,050
    )
    
    
    24,467,891Income tax
related to cumulative change in accounting principles
    
    
    131,640
    
    
    
    
    
    
    
    131,640Total Income
tax under US GAAP
    
    
    (33,056,546
    )
    
    
    (26,220,050
    )
    
    
    24,559,531
 (1) US GAAP reclassifications are tax related expenses that under Chilean GAAP
are classified as non-operating expenses, but under US GAAP would be classified
as income taxes, and are composed of the following items: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Income tax on discontinued operations
    
    
    403,149
    
    
    
    296,480
    
    
    
    97,540Colombia State Security Tax recorded
as extraordinary loss under Chilean
GAAP
    
    
    
    
    
    
    (11,039,393
    )
    
    
    Net income (charge)/credit
    
    
    403,149
    
    
    
    (10,742,913
    )
    
    
    97,540
 F-114
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted
Accounting Principles, continued: Deferred tax assets and liabilities in accordance with US GAAP as of each
balance sheet date are as follows: 2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Short-term
    
    Long-term
    
    Short-term
    
    Long-termDeferred income tax assetsProperty, plant and equipment
    
    
    
    
    
    
    27,616,347
    
    
    
    
    
    
    
    142,538,127Severance indemnities
    
    
    
    
    
    
    419,419
    
    
    
    
    
    
    
    368,875Prepaid income
    
    
    100,963
    
    
    
    1,383,656
    
    
    
    42,276
    
    
    
    1,070,102Finance costs
    
    
    
    
    
    
    118,204
    
    
    
    
    
    
    
    Derivative contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,300,931Vacation accrual
    
    
    327,336
    
    
    
    
    
    
    
    352,168
    
    
    
    Tax losses (1)
    
    
    
    
    
    
    61,626,381
    
    
    
    
    
    
    
    74,428,141Contingencies
    
    
    2,352,011
    
    
    
    1,378
    
    
    
    1,304,390
    
    
    
    Forward contracts and swaps
    
    
    354,326
    
    
    
    236,516
    
    
    
    
    
    
    
    305,207Leasing receivables
    
    
    
    
    
    
    2,324,725
    
    
    
    
    
    
    
    Allowance for doubtful accounts
    
    
    
    
    
    
    49,608
    
    
    
    37,154
    
    
    
    49,334Salaries for constrution-in-progress
    
    
    
    
    
    
    9,605,349
    
    
    
    
    
    
    
    Provision for employee obligations
    
    
    
    
    
    
    920,309
    
    
    
    
    
    
    
    1,031,431Other
    
    
    194,458
    
    
    
    1,179,853
    
    
    
    501,167
    
    
    
    2,411,279Valuation allowance
    
    
    
    
    
    
    (4,450,256
    )
    
    
    
    
    
    
    (5,956,825
    )Total deferred income tax assets
    
    
    3,329,094
    
    
    
    101,031,489
    
    
    
    2,237,155
    
    
    
    217,546,602Deferred income tax liabilitiesProperty, plant and equipment
    
    
    (34,247
    )
    
    
    (162,433,797
    )
    
    
    (32,065
    )
    
    
    (261,519,431
    )Severance indemnities
    
    
    
    
    
    
    (334,864
    )
    
    
    
    
    
    
    (524,885
    )Finance costs
    
    
    
    
    
    
    (13,893,414
    )
    
    
    
    
    
    
    (10,638,763
    )Derivative contracts
    
    
    
    
    
    
    (69,931,365
    )
    
    
    (965,095
    )
    
    
    Capitalized interest on construction
    
    
    
    
    
    
    (4,912,067
    )
    
    
    
    
    
    
    (4,550,251
    )Capitalized cost of studies
    
    
    
    
    
    
    (8,052,280
    )
    
    
    
    
    
    
    (7,980,878
    )Capitalized spare parts used
    
    
    
    
    
    
    (1,097,152
    )
    
    
    
    
    
    
    (3,716,538
    )Bonds discount
    
    
    
    
    
    
    (236,988
    )
    
    
    
    
    
    
    (567,008
    )El Chocón investments
    
    
    
    
    
    
    (2,926,769
    )
    
    
    
    
    
    
    (2,725,964
    )Other
    
    
    
    
    
    
    (1,001,116
    )
    
    
    
    
    
    
    (566,704
    )Total deferred income tax
liabilities
    
    
    (34,247
    )
    
    
    (264,819,812
    )
    
    
    (997,160
    )
    
    
    (292,790,422
    )Net deferred tax balance
    
    
    3,294,847
    
    
    
    (163,788,323
    )
    
    
    1,239,995
    
    
    
    (75,243,820
    )
  (1)
    
    Accumulated tax losses by country as of December 31, 2003, are as
follows: December 31, 2003Amount
    
    Year of expirationThCh$Chile
    
    
    177,622,296
    
    
    Do not expireArgentina (1)
    
    
    100,020,081
    
    
    
    2007Colombia (1)
    
    
    70,611,333
    
    
    
    2007Total
    
    
    348,253,710
 (1) All tax losses were created in 2002 and all of them expire in 2007. F-115
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting
Principles, continued: Tax losses applied against taxable income in the years ended December 31,
2001, 2002 and 2003 are as follows: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Chile
    
    
    20,661,658
    
    
    
    27,088,432
    
    
    
    79,644,268Argentina
    
    
    11,899
    
    
    
    
    
    
    
    322,151Colombia
    
    
    
    
    
    
    
    
    
    
    367,424,729Total
    
    
    20,673,557
    
    
    
    27,088,432
    
    
    
    447,391,148
 F-116
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted
Accounting Principles, continued: A reconciliation of the Chilean Statutory income tax rate to the Companys
effective tax rate on net income calculated in accordance with US GAAP is as
follows: 2001Chile
    
    Argentina
    
    PeruThCh$
    
    ThCh$
    
    ThCh$Statutory US GAAP (15%)
    
    
    (12,166,783
    )
    
    
    (23,198,627
    )
    
    
    (7,834,306
    )Effect of difference in foreign tax rates
    
    
    
    
    
    
    (30,931,502
    )
    
    
    (7,834,306
    )Increase (decrease) in rates resulting from:Price-level restatement not accepted for
tax purposes
    
    
    (8,230,472
    )
    
    
    476,112
    
    
    
    477,541Non-deductible items
    
    
    23,116,931
    
    
    
    47,051,411
    
    
    
    3,227,044Non-taxable items
    
    
    
    
    
    
    
    
    
    
    (5,134,774
    )Other
    
    
    
    
    
    
    (3,174,289
    )
    
    
    Effects of rate change
    
    
    (9,648,460
    )
    
    
    
    
    
    
    US GAAP reclassifications (1)
    
    
    403,149
    
    
    
    
    
    
    
    Total income tax provision under US GAAP
    
    
    (6,525,635
    )
    
    
    (5,656,985
    )
    
    
    (17,098,801
    )Income tax related to cumulative change in
accounting principles
    
    
    1,829,297
    
    
    
    (42,427,573
    )
    
    
    (34,151
    )Total income tax under US GAAP
    
    
    (4,696,338
    )
    
    
    (52,204,468
    )
    
    
    (17,132,952
    )
   [Continued from above table, first column(s) repeated] 2001Brazil
    
    Colombia
    
    TotalThCh$
    
    ThCh$
    
    ThCh$Statutory US GAAP (15%)
    
    
    (2,327,783
    )
    
    
    (3,474,328
    )
    
    
    (49,001,827
    )Effect of difference in foreign tax rates
    
    
    (3,103,710
    )
    
    
    (4,632,438
    )
    
    
    (46,501,956
    )Increase (decrease) in rates resulting from:Price-level restatement not accepted for
tax purposes
    
    
    1,166,548
    
    
    
    (15,126,317
    )
    
    
    (21,236,588
    )Non-deductible items
    
    
    (241,291
    )
    
    
    2,803,808
    
    
    
    75,957,903Non-taxable items
    
    
    1,746,215
    
    
    
    
    
    
    
    (3,388,559
    )Other
    
    
    
    
    
    
    
    
    
    
    (3,174,289
    )Effects of rate change
    
    
    
    
    
    
    
    
    
    
    (9,648,460
    )US GAAP reclassifications (1)
    
    
    
    
    
    
    
    
    
    
    403,149Total income tax provision under US GAAP
    
    
    (2,760,021
    )
    
    
    (20,429,275
    )
    
    
    (56,590,627
    )Income tax related to cumulative change in
accounting principles
    
    
    
    
    
    
    (1,172,111
    )
    
    
    (41,804,538
    )Total income tax under US GAAP
    
    
    (2,760,021
    )
    
    
    (21,601,386
    )
    
    
    (98,395,165
    )
 F-117
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued: 2002Chile
    
    Argentina
    
    Peru
    
    Brazil
    
    Colombia
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Statutory US GAAP (16%)
    
    
    (5,709,350
    )
    
    
    (4,172,766
    )
    
    
    (8,006,143
    )
    
    
    21,435,982
    
    
    
    (18,261,924
    )
    
    
    (14,714,201
    )Effect of difference in foreign tax rates
    
    
    
    
    
    
    (4,955,159
    )
    
    
    (8,756,719
    )
    
    
    (1,642,416
    )
    
    
    (6,601,163
    )
    
    
    (21,955,457
    )Increase (decrease) in rates resulting from:Price-level restatement not accepted for
tax purposes
    
    
    (6,294,937
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (672,329
    )
    
    
    (6,967,266
    )Non-deductible items
    
    
    2,977,964
    
    
    
    14,293,118
    
    
    
    (7,474,501
    )
    
    
    
    
    
    
    1,278,318
    
    
    
    11,074,899Non-taxable items
    
    
    1,281,471
    
    
    
    (10,855,521
    )
    
    
    (7,031,874
    )
    
    
    (23,888,464
    )
    
    
    (3,734,679
    )
    
    
    (44,229,067
    )Prior years income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    514,748
    
    
    
    514,748Others
    
    
    1,682,425
    
    
    
    308,010
    
    
    
    1,535,396
    
    
    
    
    
    
    
    (1,962,564
    )
    
    
    1,563,267US GAAP reclassifications (1)
    
    
    296,480
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,039,393
    )
    
    
    (10,742,913
    )Total income tax provision under US GAAP
    
    
    (5,765,947
    )
    
    
    (5,382,318
    )
    
    
    (29,733,841
    )
    
    
    (4,094,898
    )
    
    
    (40,478,986
    )
    
    
    (85,455,990
    )
 F-118
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued: 2003Chile
    
    Argentina
    
    Peru
    
    Brazil
    
    Colombia
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Statutory US GAAP (16.5%)
    
    
    (38,720,416
    )
    
    
    22,967,832
    
    
    
    (8,967,051
    )
    
    
    (1,091,856
    )
    
    
    (4,797,571
    )
    
    
    (30,609,062
    )Effect of difference in foreign tax rates
    
    
    
    
    
    
    25,751,811
    
    
    
    (9,238,779
    )
    
    
    4,553,757
    
    
    
    (6,396,762
    )
    
    
    14,670,027Increase (decrease) in rates resulting from:Price-level restatement not accepted for
tax purposes
    
    
    7,822,643
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (146,194
    )
    
    
    7,676,449Non-deductible items
    
    
    (12,479,759
    )
    
    
    (2,310,618
    )
    
    
    (18,659,498
    )
    
    
    
    
    
    
    (21,329,468
    )
    
    
    (54,779,343
    )Non-taxable items
    
    
    21,941,298
    
    
    
    
    
    
    
    5,162,000
    
    
    
    
    
    
    
    11,367,663
    
    
    
    38,470,961Prior years income tax
    
    
    14,518,514
    
    
    
    42,364,101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,882,615Other
    
    
    (1,213,589
    )
    
    
    (325,131
    )
    
    
    (1,484,858
    )
    
    
    
    
    
    
    (4,917,718
    )
    
    
    (7,941,296
    )US GAAP reclassifications (1)
    
    
    97,540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,540Tax benefit (expense) at effective tax rate
    
    
    (8,033,769
    )
    
    
    88,447,995
    
    
    
    (33,188,186
    )
    
    
    3,461,901
    
    
    
    (26,220,050
    )
    
    
    24,467,891Income tax
related to cumulative change in accounting principles
    
    
    
    
    
    
    
    
    
    
    131,640
    
    
    
    
    
    
    
    
    
    
    
    131,640Total income
tax under US GAAP
    
    
    (8,033,769
    )
    
    
    88,447,995
    
    
    
    (33,056,546
    )
    
    
    3,461,901
    
    
    
    (26,220,050
    )
    
    
    24,599,531
 (1) US GAAP reclassifications are tax related expenses that under Chilean GAAP
are classified as non-operating expenses, but under US GAAP would be classified
as income taxes, and are composed of the following items: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Income tax on discontinued operations
    
    
    403,149
    
    
    
    296,480
    
    
    
    97,540Colombia State Security Tax recorded
as extraordinary loss under Chilean
GAAP
    
    
    
    
    
    
    (11,039,393
    )
    
    
    Net income (charge)/credit
    
    
    403,149
    
    
    
    (10,742,913
    )
    
    
    97,540
 F-119
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued:  d)
    
    Segment disclosure The Company is primarily engaged in the generation of electricity in Chile,
Argentina, Brazil, Colombia and Peru. The Company provides these and other
services through two business segments:  
    
    Electricity  
    
    Public works and concessions As the Companys public works and concessions segment does not meet any of the
quantitative thresholds for separate disclosure, the Company has not included
quantitative disclosures by operating segment. The methods of revenue recognition by segment are as follows:  
    
    Electricity Revenue is recognized when energy and power output is delivered and capacity is
provided at rates specified under contract terms or prevailing market rates.  
    
    Public works and concessions Revenue is recognized as services are provided. A summary of activities presented in accordance with Chilean GAAP by
geographic area is as follows: Revenues
    
    Long-lived assetsYear ended December 31,
    
    As of December 31,2001
    
    2002
    
    2003
    
    2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Chile
    
    
    425,217,491
    
    
    
    447,893,989
    
    
    
    458,360,164
    
    
    
    2,293,122,359
    
    
    
    2,216,875,650
    
    
    
    1,845,361,068Argentina
    
    
    230,260,248
    
    
    
    99,136,695
    
    
    
    102,536,480
    
    
    
    737,243,424
    
    
    
    703,818,667
    
    
    
    545,445,047Brazil
    
    
    67,939,485
    
    
    
    51,918,302
    
    
    
    30,792,093
    
    
    
    533,194,386
    
    
    
    486,330,583
    
    
    
    381,436,930Colombia
    
    
    222,512,563
    
    
    
    229,786,319
    
    
    
    216,853,979
    
    
    
    1,577,592,578
    
    
    
    1,755,914,678
    
    
    
    1,464,479,695Peru
    
    
    109,802,326
    
    
    
    118,744,838
    
    
    
    111,738,682
    
    
    
    751,890,713
    
    
    
    785,017,312
    
    
    
    631,474,511Total
    
    
    1,055,732,113
    
    
    
    947,480,143
    
    
    
    920,281,398
    
    
    
    5,893,043,460
    
    
    
    5,947,956,890
    
    
    
    4,868,197,251
  e)
    
    Concentration of risk: The Company does not believe that it is exposed to any unusual credit risk from
any single financial institution. The Companys debtors are dependent on the
economy in Latin America, which could make them vulnerable to downturns in the
economic activity in the countries in which the Company operates. No single customer accounted for more than 10% of revenues for the years ending
December 31, 2001, 2002 and 2003. F-120
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued:  f)
    
    Schedule of debt maturity: Following is a schedule of debt maturity in each of the next five years and
thereafter: As of December 31,2003ThCh$2004
    
    
    301,484,3002005
    
    
    138,535,5782006
    
    
    329,965,3022007
    
    
    208,554,3972008
    
    
    349,929,414Thereafter
    
    
    1,158,230,684Total
    
    
    2,486,699,675
  g)
    
    Disclosure regarding interest capitalization under US GAAP: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Interest cost incurred
    
    
    261,938,794
    
    
    
    220,328,590
    
    
    
    204,136,170Interest capitalized
    
    
    10,811,838
    
    
    
    35,525,782
    
    
    
    8,424,000
 F-121
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted Accounting
Principles, continued:  h)
    
    Cash flow information The statement of cash flows under Chile GAAP differs in certain respects from
the presentation of a statement of cash flows under US GAAP as follows: Year ended December 31,2001
    
    2002
    
    2003ThCh$Restated (seeNote 2 r)
    
    ThCh$
    
    ThCh$Cash provided by operating activities under Chilean GAAP
    
    
    259,262,732
    
    
    
    355,730,731
    
    
    
    280,072,307Development stage companies
    
    
    59,201
    
    
    
    (25,736
    )
    
    
    104,999Cash provided by operating activities under US GAAP
    
    
    259,321,933
    
    
    
    355,704,995
    
    
    
    280,177,306Cash used in financing activities under Chilean GAAP and US GAAP
    
    
    (195,692,660
    )
    
    
    (221,161,631
    )
    
    
    (320,914,687
    )Cash provided by (used in) investing activities under Chilean GAAP
    
    
    (2,612,915
    )
    
    
    (114,522,729
    )
    
    
    111,617,036Development stage companies
    
    
    (27,931
    )
    
    
    
    
    
    
    Cash provided by (used in) investing activities under US GAAP
    
    
    (2,640,846
    )
    
    
    (114,522,729
    )
    
    
    111,617,036
 Cash and cash equivalents includes all highly liquid debt instruments purchased
with a maturity of three months or less: As of December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Cash
    
    
    5,074,480
    
    
    
    7,525,362
    
    
    
    5,508,484Time and legal deposits
    
    
    89,841,562
    
    
    
    116,568,272
    
    
    
    156,946,516Marketable securities
    
    
    
    
    
    
    
    
    
    
    1,191,678Total cash and cash equivalents under Chilean GAAP
    
    
    94,916,042
    
    
    
    124,093,634
    
    
    
    163,646,678Cash and cash equivalents held by development stage companies
    
    
    70,049
    
    
    
    44,313
    
    
    
    149,312Total cash and cash equivalents under US GAAP
    
    
    94,986,091
    
    
    
    124,137,947
    
    
    
    163,795,990
 Additional disclosures required under US GAAP are as follows: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Interest paid during the year
    
    
    214,806,249
    
    
    
    199,964,127
    
    
    
    197,469,560Income taxes paid during the year
    
    
    69,206,295
    
    
    
    108,950,436
    
    
    
    100,346,126
 F-122
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued:  i)
    
    Disclosures about fair value of financial instruments The following methods and assumptions were used to estimate the fair value of
each class of financial instruments as of December 31, 2002 and 2003 for which
it is practicable to estimate that value:  
    
    Cash The fair value of the Companys cash is equal to its carrying value.  
    
    Time deposits and marketable securities The fair value of time deposits approximates carrying value due to the
relatively short-term nature.  
    
    Long-term accounts receivable The fair value of long-term accounts receivable was estimated using the
interest rates that are currently offered for loans with similar terms and
remaining maturities.  
    
    Long-term debt The fair value of long-term debt was based on rates currently available to the
Company for debt with similar terms and remaining maturities.  
    
    Derivative instruments Estimates of fair values of derivative instruments for which no quoted prices
or secondary market exists have been made using valuation techniques such as
forward pricing models, present value of estimated future cash flows, and other
modeling techniques. These estimates of fair value include assumptions made by
the Company about market variables that may change in the future. Changes in
assumptions could have a significant impact on the estimate of fair values
disclosed. As a result such fair value amounts are subject to significant
volatility and are highly dependent on the quality of the assumptions used. F-123
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued: The estimated fair values of the Companys financial instruments compared to US
GAAP carrying amounts are as follows: As of December 31,2002
    
    2003Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Cash
    
    
    7,525,362
    
    
    
    7,525,362
    
    
    
    5,508,484
    
    
    
    5,508,484Time deposits
    
    
    90,971,901
    
    
    
    90,971,901
    
    
    
    155,197,683
    
    
    
    155,197,683Marketable securities
    
    
    4,870
    
    
    
    4,870
    
    
    
    1,191,678
    
    
    
    1,191,678Current receivables, net
    
    
    89,137,085
    
    
    
    89,137,085
    
    
    
    99,528,830
    
    
    
    99,528,830Notes receivables, net
    
    
    1,020,556
    
    
    
    1,020,556
    
    
    
    1,121,413
    
    
    
    1,121,413Other receivables, net
    
    
    18,101,711
    
    
    
    18,101,711
    
    
    
    50,949,586
    
    
    
    50,949,586Amounts due from related companies
    
    
    221,699,398
    
    
    
    221,699,398
    
    
    
    46,198,865
    
    
    
    46,198,865Long term receivables
    
    
    19,349,010
    
    
    
    19,349,010
    
    
    
    16,676,098
    
    
    
    16,676,098Long term amounts due from related
companies
    
    
    907,111
    
    
    
    907,111
    
    
    
    128,779,149
    
    
    
    128,779,149Derivative contracts
    
    
    232,943,028
    
    
    
    232,943,028
    
    
    
    47,465,595
    
    
    
    47,465,595Accounts payable
    
    
    (67,353,521
    )
    
    
    (67,353,521
    )
    
    
    (58,558,498
    )
    
    
    (58,558,498
    )Dividends payable
    
    
    (734,540
    )
    
    
    (734,540
    )
    
    
    (935,198
    )
    
    
    (935,198
    )Short term amounts payables to
related companies
    
    
    (52,758,148
    )
    
    
    (52,758,148
    )
    
    
    (123,575,972
    )
    
    
    (123,575,972
    )Debt, notes payable and bonds payable
    
    
    (3,204,222,702
    )
    
    
    (3,248,925,001
    )
    
    
    (2,422,569,275
    )
    
    
    (2,569,568,238
    )Long term accounts payable to
related companies
    
    
    (49,150,295
    )
    
    
    (49,150,295
    )
    
    
    (84,320
    )
    
    
    (84,320
    )Derivative contracts
    
    
    (16,559,911
    )
    
    
    (16,559,911
    )
    
    
    (57,687,327
    )
    
    
    (57,687,327
    )
 F-124
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  34.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles, continued:  j)
    
    Derivative instruments The Company is exposed to the impact of market fluctuations in the price of
electricity, natural gas, petroleum, coal, and other energy-related products,
interest rates, and foreign exchange rates. The Company has policies and
procedures in place to manage the risks associated with these market
fluctuations on a global basis through strategic contract selection, fixed-rate
and variable-rate portfolio targets, net investment hedges, and financial
derivatives. The Company does not have the appropriate hedge documentation in
place, as mandated by SFAS 133, to designate derivative contracts as cash flow
hedges or as fair value hedges, therefore, all derivative contracts that do not
qualify under the normal purchase and sale exemption are accounted at fair
value with changes in fair value recognized in earnings, with the exception of
net investment hedges. The Company has a number of contracts denominated in US dollars or with
indexation features linked to the US dollar. According to SFAS 133, a contract
with payments not expressed in the local or functional currency of any
substantial party to the contract may be excluded from the normal purchase and
sale exception or may be considered to have an embedded derivative that
requires bifurcation. For purposes of evaluating the functional currency of
the Companys subsidiaries in Argentina, Peru, Brazil, and Colombia, the
Company applied BT 64, consistent with the methodology described in paragraph I
(p), thus the functional currency of these subsidiaries was considered to be
the US dollar as these subsidiaries financial statements were re-measured into
US dollars because they are foreign subsidiaries that operate in countries
exposed to significant risks as determined under BT 64. The following is a summary of the Companys adjustments in consolidated
companies to other assets and liabilities related to the fair values for all
identified derivative contracts as of December 31, 2002 and 2003. As of December 31,2002
    
    2003ThCh$
    
    ThCh$Commodity derivatives - assets
    
    
    220,658,802
    
    
    
    35,876,702Commodity derivatives - liabilities
    
    
    
    
    
    
    (41,540,058
    )Embedded derivatives - assets
    
    
    812,915
    
    
    
    7,539,547Embedded derivatives - liabilities
    
    
    (13,144,867
    )
    
    
    (8,972,097
    )Financial derivatives - assets
    
    
    (13,707,173
    )
    
    
    4,049,346Financial derivatives - liabilities
    
    
    (3,415,044
    )
    
    
    (6,971,528
    )Total
derivative adjustment (paragraph I p)
    
    
    191,204,633
    
    
    
    (10,018,088
    )Effects of
minority interest (paragraph I u)
    
    
    (71,524,583
    )
    
    
    770,410Deferred tax effects (paragraph I c)
    
    
    (72,376,420
    )
    
    
    1,300,931Net effect of adjustment
    
    
    47,303,630
    
    
    
    (7,946,747
    )
 F-125
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting Principles, continued: Commodity derivatives The Company has generation and distribution commodity contracts that meet the
definition of a derivative under SFAS 133 and are required to be accounted for
at fair value. These derivative contracts were evaluated for qualification
under the normal purchase and sale exception. A number of contracts could not
qualify under such exemption because they had prices tied to an unrelated
underlying such as a local and/or foreign inflationary index. The Company has commodity contracts that are unique, due to their long-term
nature and complexity. In establishing the fair value of contracts management
makes assumptions using available market data and pricing models. Factors such
as commodity price risk and credit risk of counter-parties are also included in
the fair value calculation. Inputs to pricing models include estimated forward
prices of electricity and natural gas, interest rates, foreign exchange rates,
inflation indices, transmission costs, and others. These inputs become more
difficult to predict and the estimates are less precise, the further out in
time these estimates are made. As a result, fair values are highly sensitive
to the assumptions being used. The Companys Argentine generation entities have access to the Brazilian energy
market through an interconnection system between the two markets. In order to
calculate the fair values of the electricity purchase and sale contracts
related to this interconnection business, the Argentine electricity forward
prices were used as a benchmark for all contracts included in this portfolio.
The Company considers the Argentine prices to be the correct benchmark to
calculate the fair value of the interconnection contracts because the Company
does not have concessions to sell the Argentine generated energy in the
Brazilian spot or forward market to any parties other than those currently
contracted. Therefore the Company views the interconnection as an extension of
the Argentine market. Such values are included in the reconciliation to US
GAAP in paragraph I (w). Embedded Derivative Contracts The Company enters into certain contracts that have embedded features that
require bifurcation and fair value accounting with changes in fair value
recorded in earnings, as mandated by SFAS 133. Embedded derivatives that were
held as of December 31, 2002 and 2003 corresponded to foreign currency and
indexation features embedded in leases and service type contracts. Financial Derivatives Changes in interest rates expose the Company to risk as a result of its
portfolio of fixed-rate and variable-rate debt. The Company manages interest
rate risk exposure on a global basis by limiting its variable-rate and
fixed-rate exposures to certain variable/fixed mixes set by the risk management
policy. The Company manages interest rate risk through the use of interest
rate swaps, collars and cross-currency swaps. F-126
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting Principles, continued: Net Investment Hedges The Company is also exposed to foreign currency risk arising from long-term
debt denominated in foreign currencies, the majority of which is the US dollar.
This risk is mitigated partially as a substantial portion of the Companys
revenue is either directly or indirectly linked to the US dollar.
Additionally, the Company has designated certain non-derivative instruments as
hedges of net investments in foreign operations. The accounting treatment for
such operations is the same under Chilean GAAP and US GAAP (see Note 10 (e) and
Note 20 (e)(1) for further detail). The changes in the cumulative translation
adjustment are presented net of foreign currency gains or losses of debt
designated as hedges of foreign net investments. Gains and (losses) related to
debt designated as hedges of ThCh$ (112,580,768), ThCh$ (73,383,562) and ThCh$
101,002,461 were included in the cumulative translation adjustment for the
years ended December 31, 2001, 2002 and 2003. The Company also uses short duration forward foreign currency contracts, swaps,
and cross-currency swaps, where possible, to manage its risk related to foreign
currency fluctuations. k) Reclassifications under US GAAP Certain reclassifications would be made to the Chilean GAAP income statement in
order to present Chilean GAAP amounts in accordance with presentation
requirements under US GAAP. Amortization of negative goodwill, amortization of
goodwill, and certain other non-operating income and expense, would be included
in operating income under US GAAP. Recoverable taxes included in other
non-operating revenues would be recorded as part of income taxes under US GAAP.
Equity participation in income or losses of related companies included in
non-operating income would be presented after income taxes and minority
interest in accordance with US GAAP. Income from discontinued operations would
be presented after income from continuing operations under US GAAP. Additionally, the extraordinary loss recognized under Chilean GAAP in 2002
would be reclassified to income taxes as the Colombian democracy tax does not
meet the definition of extraordinary in accordance with US GAAP. Under Chilean
GAAP a company is permitted to classify as extraordinary any items that are
considered unusual in their nature or infrequent in occurrence. US GAAP is
much more stringent than Chilean GAAP in allowing items to be considered
extraordinary and the extraordinary loss recognized under Chilean GAAP in 2002
would be reclassified to income taxes as the Colombian democracy tax does not
meet the definition of extraordinary in accordance with US GAAP. In 2001, the gain from the repurchase of the Yankee bonds by the Company was
included in non-operating income under Chilean GAAP. Under US GAAP, SFAS 4,
Reporting Gains and Losses from Extinguishment of Debt (SFAS 4), required
that gains and losses from extinguishment of debt be aggregated and, if
material, classified as an extraordinary item, net of related income tax
effects. Therefore, in 2001 the gain had been recorded under US GAAP as an
extraordinary gain, net of income taxes. However, in April 2002, SFAS 4 was
rescinded by SFAS 145, Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145),
which requires any gain or loss on extinguishment of debt that was classified
as an extraordinary item in prior periods that does not meet the general
criteria in US GAAP for classification as an extraordinary item be reclassified
into income from continuing operations. The Company adopted SFAS 145 as of
December 31, 2002, and this difference in 2001 between Chilean and US GAAP has
now appropriately been eliminated in the 2002 and 2003 presentation. F-127
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting Principles, continued:  (i)
    
    The most significant reclassifications from other operating income
under Chilean GAAP to operating income under US GAAP are
presented as follow: Years ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Other operating income under Chilean GAAP
    
    
    56,375,185
    
    
    
    103,509,288
    
    
    
    44,573,304Gain on sale of fixed assets
    
    
    5,390,717
    
    
    
    2,614,687
    
    
    
    1,660,252Energy and power settlement
    
    
    6,552,026
    
    
    
    12,621,854
    
    
    
    2,414,983Incorporation of fourth line Camahue
    
    
    415,466
    
    
    
    340,825
    
    
    
    Indemnities and commissions
    
    
    
    
    
    
    642,526
    
    
    
    2,284,552Generator security foundation
    
    
    
    
    
    
    2,143,232
    
    
    
    Price adjustment on sales of Transelec shares
    
    
    3,194,957
    
    
    
    
    
    
    
    Recovery of expenses and clients portfolio
    
    
    
    
    
    
    
    
    
    
    11,653,011Gains on service and other contracts
    
    
    
    
    
    
    
    
    
    
    955,086Gains on sales of other assets
    
    
    
    
    
    
    
    
    
    
    4,982Total reclassifications
    
    
    15,553,166
    
    
    
    18,363,124
    
    
    
    18,972,866Total other operating income as classified under US GAAP but
calculated in accordance with Chilean GAAP
    
    
    40,822,019
    
    
    
    85,146,164
    
    
    
    25,600,438
  (ii)
    
    The most significant reclassifications from other operating expenses
under Chilean GAAP to operating expenses under US GAAP are presented as
follow: Years ended December 31,2001
    
    2002
    
    2003Other operating expenses under Chilean GAAP
    
    
    59,085,663
    
    
    
    117,738,968
    
    
    
    60,062,123Loss on sale of fixed assets
    
    
    635,781
    
    
    
    1,899,776
    
    
    
    7,675,879Retirement benefits and severance indemnities
    
    
    793,099
    
    
    
    1,531,708
    
    
    
    1,252,100Board of directors compensation
    
    
    229,003
    
    
    
    219,494
    
    
    
    241,941Contingencies and litigation
    
    
    4,872,161
    
    
    
    12,206,892
    
    
    
    6,469,786Intangible amortization and other deferred expenses
    
    
    403,259
    
    
    
    1,446,722
    
    
    
    Energy and power settlement
    
    
    9,206,006
    
    
    
    17,621,748
    
    
    
    2,676,757Write-off Los Pelambres
    
    
    1,296,782
    
    
    
    
    
    
    
    Indemnity Unelco
    
    
    521,846
    
    
    
    
    
    
    
    Turbine relocation
    
    
    481,376
    
    
    
    
    
    
    
    Recalculation of pension liabilities
    
    
    
    
    
    
    
    
    
    
    583,751Costs of sales of materials and fixed assets
    
    
    
    
    
    
    
    
    
    
    417,349Loss on sales of other assets
    
    
    
    
    
    
    
    
    
    
    404,469Provision for obsolescence of work-in-progress
    
    
    
    
    
    
    46,775,052
    
    
    
    Provision for obsolescence of fixed assets
    
    
    
    
    
    
    
    
    
    
    10,453,663Provision for obsolescence of inventory
    
    
    
    
    
    
    
    
    
    
    366,654Total reclassifications
    
    
    18,439,313
    
    
    
    81,701,392
    
    
    
    30,542,349Total other operating expenses as classified under US GAAP but
calculated in accordance with Chilean GAAP
    
    
    40,646,350
    
    
    
    36,037,576
    
    
    
    29,519,774
 F-128
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting Principles, continued:  (iii)
    
    The income statement reclassifications under Chilean GAAP to US GAAP
presentation are as follows: Year ended December 31, 2001IncomeStatement
    
    Amortization
    
    
    
    
    
    Non-under Chilean
    
    of negative
    
    Amortization
    
    operatingGAAP
    
    goodwill
    
    of goodwill
    
    income (1)ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Sales
    
    
    1,055,732,113
    
    
    
    
    
    
    
    
    
    
    
    Other operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,553,166Costs of sales
    
    
    (669,233,875
    )
    
    
    46,370,207
    
    
    
    
    
    
    
    Gross profit
    
    
    386,498,238
    
    
    
    
    
    
    
    
    
    
    
    Administrative and selling expenses
    
    
    (35,043,324
    )
    
    
    
    
    
    
    (8,351,188
    )
    
    
    Operating income
    
    
    351,454,914
    
    
    
    
    
    
    
    
    
    
    
    Non-operating income and expenses, net
    
    
    (250,276,481
    )
    
    
    
    
    
    
    8,351,188
    
    
    
    (15,553,166
    )Income taxes
    
    
    (40,311,014
    )
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    (34,356,009
    )
    
    
    
    
    
    
    
    
    
    
    Equity participation in income of
related companies, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of negative goodwill
    
    
    46,370,207
    
    
    
    (46,370,207
    )
    
    
    
    
    
    
    Income from continuing operations
    
    
    72,881,617
    
    
    
    
    
    
    
    
    
    
    
    Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    72,881,617
    
    
    
    
    
    
    
    
    
    
    
    
   [Continued from above table, first column(s) repeated] Year ended December 31, 2001IncomeStatementNon-
    
    
    
    
    
    
    
    
    
    presentedoperating
    
    Equity
    
    Discontinued
    
    under USexpenses (2)
    
    investees
    
    operations
    
    GAAPThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Sales
    
    
    
    
    
    
    
    
    
    
    (20,351,624
    )
    
    
    1,035,380,489Other operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,553,166Costs of sales
    
    
    
    
    
    
    
    
    
    
    10,562,356
    
    
    
    (612,301,312
    )Gross profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    438,632,343Administrative and selling expenses
    
    
    (18,439,313
    )
    
    
    
    
    
    
    (1,304,346
    )
    
    
    (60,529,479
    )Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    378,102,864Non-operating income and expenses, net
    
    
    18,439,313
    
    
    
    10,024,084
    
    
    
    7,073,841
    
    
    
    (221,941,221
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    403,149
    
    
    
    (39,907,865
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    404,192
    
    
    
    (33,951,817
    )Equity participation in income of
related companies, net
    
    
    
    
    
    
    (10,024,084
    )
    
    
    
    
    
    
    (10,024,084
    )Amortization of negative goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    (603,740
    )
    
    
    72,277,877Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    603,740
    
    
    
    603,740Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,881,617
 (1) For details see Note
34 II k) (i)
(2) For details see Note 34 II k) (ii) F-129
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting Principles, continued: Year ended December 31, 2002IncomeStatementunder
    
    Amortization
    
    
    
    
    
    Non-
    
    Non-Chilean
    
    of negative
    
    Amortization
    
    operating
    
    operatingGAAP
    
    goodwill
    
    of goodwill
    
    income (1)
    
    expenses (2)ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Sales
    
    
    947,480,143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,363,124
    
    
    
    Costs of sales
    
    
    (561,141,752
    )
    
    
    86,777,337
    
    
    
    
    
    
    
    
    
    
    
    Gross profit
    
    
    386,338,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Administrative and selling expenses
    
    
    (36,651,655
    )
    
    
    
    
    
    
    (109,647,318
    )
    
    
    
    
    
    
    (81,701,392
    )Operating income
    
    
    349,686,736
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-operating income and expenses, net
    
    
    (316,559,168
    )
    
    
    
    
    
    
    109,647,318
    
    
    
    (18,363,124
    )
    
    
    81,701,392Income taxes
    
    
    (71,334,682
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Extraordinary items
    
    
    (11,039,393
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    (46,943,077
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity participation in income of
related companies, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of negative goodwill
    
    
    86,777,337
    
    
    
    (86,777,337
    )
    
    
    
    
    
    
    
    
    
    
    Income from continuing operations
    
    
    (9,412,247
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    (9,412,247
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 [Continued from above table, first column(s) repeated] Year ended December 31, 2002IncomeStatementExtra-
    
    
    
    
    
    presentedEquity
    
    ordinary
    
    Discontinued
    
    under USinvestees
    
    items
    
    operations
    
    GAAPThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Sales
    
    
    
    
    
    
    
    
    
    
    (20,404,026
    )
    
    
    927,076,117Other operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,363,124Costs of sales
    
    
    
    
    
    
    
    
    
    
    10,793,360
    
    
    
    (463,571,055
    )Gross profit
    
    
    
    
    
    
    
    
    
    
    (9,610,666
    )
    
    
    481,868,186Administrative and selling expenses
    
    
    
    
    
    
    
    
    
    
    1,322,734
    
    
    
    (226,677,631
    )Operating income
    
    
    
    
    
    
    
    
    
    
    (8,287,932
    )
    
    
    255,190,555Non-operating income and expenses, net
    
    
    (8,656,202
    )
    
    
    
    
    
    
    7,576,012
    
    
    
    (144,653,772
    )Income taxes
    
    
    
    
    
    
    (11,039,393
    )
    
    
    296,480
    
    
    
    (82,077,595
    )Extraordinary items
    
    
    
    
    
    
    11,039,393
    
    
    
    
    
    
    
    Minority interest
    
    
    
    
    
    
    
    
    
    
    165,184
    
    
    
    (46,777,893
    )Equity participation in income of
related companies, net
    
    
    8,656,202
    
    
    
    
    
    
    
    
    
    
    
    8,656,202Amortization of negative goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    (250,256
    )
    
    
    (9,662,503
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    250,256
    
    
    
    250,256Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,412,247
    )
 (1) For details see Note
34 II k) (i)
(2) For details see Note 34 II k) (ii) F-130
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting Principles, continued: Year ended December 31, 2003IncomeStatementunder
    
    Amortization
    
    
    
    
    
    Non-Chilean
    
    of negative
    
    Amortization
    
    operatingGAAP
    
    goodwill
    
    of goodwill
    
    income (1)ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Sales
    
    
    920,281,398
    
    
    
    
    
    
    
    
    
    
    
    Other operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,972,866Costs of sales
    
    
    (550,446,696
    )
    
    
    15,589,551
    
    
    
    
    
    
    
    Gross profit
    
    
    369,834,702
    
    
    
    
    
    
    
    
    
    
    
    Administrative and selling expenses
    
    
    (31,323,805
    )
    
    
    
    
    
    
    (1,543,104
    )
    
    
    Operating income
    
    
    338,510,897
    
    
    
    
    
    
    
    
    
    
    
    Non-operating income and expenses, net
    
    
    (179,005,009
    )
    
    
    
    
    
    
    1,543,104
    
    
    
    (18,972,866
    )Income taxes
    
    
    (27,378,083
    )
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    (69,586,444
    )
    
    
    
    
    
    
    
    
    
    
    Equity participation in income of
related companies, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of negative goodwill
    
    
    15,589,551
    
    
    
    (15,589,551
    )
    
    
    
    
    
    
    Income from continuing operations
    
    
    78,130,912
    
    
    
    
    
    
    
    
    
    
    
    Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    78,130,912
    
    
    
    
    
    
    
    
    
    
    
    
   [Continued from above table, first column(s) repeated] Year ended December 31, 2003IncomeStatementNon-
    
    
    
    
    
    
    
    
    
    presentedoperating
    
    Equity
    
    Discontinued
    
    under USexpenses (2)
    
    investees
    
    operations
    
    GAAPThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    920,281,398Other operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,972,866Costs of sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (534,857,145
    )Gross profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    404,397,119Administrative and selling expenses
    
    
    (30,542,349
    )
    
    
    
    
    
    
    
    
    
    
    (63,409,258
    )Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    340,987,861Non-operating income and expenses, net
    
    
    30,542,349
    
    
    
    (17,369,712
    )
    
    
    (591,154
    )
    
    
    (183,853,288
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    97,540
    
    
    
    (27,280,543
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,586,444
    )Equity participation in income of
related companies, net
    
    
    
    
    
    
    17,369,712
    
    
    
    
    
    
    
    17,369,712Amortization of negative goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,637,298Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    493,614
    
    
    
    493,614Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,130,912
 (1)   For
details see Note 34 II K)(i) (2)   For
details see Note 34(II)K(ii) F-131
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting Principles, continued:  (iv)
    
    The condensed consolidated statements of income for the years ended
December 31 under US GAAP and classified in accordance with US GAAP are
presented as follows: 2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Sales
    
    
    1,035,434,218
    
    
    
    927,456,440
    
    
    
    920,796,891Other operating income
    
    
    15,553,166
    
    
    
    18,363,124
    
    
    
    18,972,866Costs of sales
    
    
    (630,235,305
    )
    
    
    (501,820,921
    )
    
    
    (718,764,505
    )Administrative and selling expenses
    
    
    (63,639,673
    )
    
    
    (252,434,147
    )
    
    
    (64,536,592
    )Operating income
    
    
    357,112,406
    
    
    
    191,564,496
    
    
    
    156,468,660Non-operating income and expenses, net
    
    
    (235,248,633
    )
    
    
    (167,556,689
    )
    
    
    (145,871,932
    )Income taxes
    
    
    (56,590,627
    )
    
    
    (85,455,990
    )
    
    
    24,467,891Minority interest
    
    
    (51,416,751
    )
    
    
    (44,175,434
    )
    
    
    (7,517,245
    )Equity participation in income of related companies, net
    
    
    (15,741,751
    )
    
    
    29,725,746
    
    
    
    45,193,322Income from continuing operations
    
    
    (1,885,356
    )
    
    
    (75,897,871
    )
    
    
    72,740,696Cumulative effect of change in accounting principle
    
    
    32,654,708
    
    
    
    
    
    
    
    (121,054
    )Income from discontinued operations
    
    
    478,917
    
    
    
    278,043
    
    
    
    115,216Net income
    
    
    31,248,269
    
    
    
    (75,619,828
    )
    
    
    72,734,858Other comprehensive income (loss):Cumulative translation adjustment
    
    
    (9,509,909
    )
    
    
    2,567,942
    
    
    
    9,498,989Comprehensive income (loss)
    
    
    21,738,360
    
    
    
    (73,051,886
    )
    
    
    82,233,847
 F-132
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting Principles, continued:  (v)
    
    Certain reclassifications would be made to the Chilean GAAP balance
sheet in order to present Chilean GAAP amounts in accordance with
presentation requirements under US GAAP. Deferred taxes from depreciation
differences that are recorded as short-term under Chilean GAAP would be
recorded as long-term under US GAAP. Debt discounts are included in other
assets in Chilean GAAP while the discount would be offset against the debt
under US GAAP. The amounts receivable and payable related to financial
derivatives have been recorded in the balance sheet at their gross
amounts, whereas, these amounts would have been recorded at their net
amounts by financial institution under US GAAP, provided the contracts
have net settlement provisions. Negative goodwill would be presented as a
deduction to property, plant, and equipment instead of a separate
line-item in other assets. Investments in companies in the development
stage would be consolidated under US GAAP, as opposed to being presented
as equity method investees, under Chile GAAP. As of December 31, 2002,
the non current assets and long-term liabilities of the assets held for
sale would be reclassified to current assets and current liabilities,
respectively. The assets held for sale were Infrastructura 2000, Central
Canutillar, and the CELTA transmission lines, all of which met asset held
for sale criteria as of December 31, 2002. As a result of the refinancing
after December 31, 2002 but prior to the issuance of the financial
statements, a reclassification of ThCh$ 208,129,457 from current to
long-term debt due to banks and financial institutions reflects the
renegotiated maturity dates as of December 31, 2002.The following are summarized balance sheets of the Company using a US GAAP
presentation and amounts determined in accordance with US GAAP: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Current assets
    
    
    864,170,545
    
    
    
    392,231,238Property, plant, and equipment
    
    
    7,460,311,575
    
    
    
    6,661,118,210Accumulated depreciation of property,
plant and equipment
    
    
    (2,618,552,323
    )
    
    
    (2,453,169,347
    )Property, plant, and equipment, net
    
    
    4,841,759,252
    
    
    
    4,207,948,863Goodwill
    
    
    214,349,331
    
    
    
    176,370,215Accumulated amortization of goodwill
    
    
    (158,816,959
    )
    
    
    (129,987,956
    )Goodwill, net
    
    
    55,532,372
    
    
    
    46,382,259Other assets
    
    
    559,091,279
    
    
    
    508,193,553Total assets
    
    
    6,320,553,448
    
    
    
    5,154,755,913Current liabilities
    
    
    1,016,942,497
    
    
    
    488,255,697Long-term liabilities
    
    
    2,698,708,829
    
    
    
    2,364,907,153Minority interest
    
    
    1,540,164,029
    
    
    
    1,178,187,617Shareholders equity
    
    
    1,064,738,093
    
    
    
    1,123,405,446Total liabilities and shareholders equity
    
    
    6,320,553,448
    
    
    
    5,154,755,913
 F-133
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting Principles, continued: l)  Employee Benefit Plans Endesa-Chile and its subsidiaries sponsor various benefit plans for its current
and retired employees. A description of such benefits follows: Severance indemnities The provision for severance indemnities, included in the account Accrued
expenses short and long-term is calculated in accordance with the policy set
forth in Note 2 (p), using the current salary levels of all employees covered
under the severance indemnities agreement, an assumed discount rate of 9.5% for
the year ended December 31, 2001 and an assumed discount rate of 6.0% for the
years ended December 31, 2002 and 2003, and an estimated average service period
based on the years of services for the Company. Benefits for Retired Personnel Other benefits provided to certain retired personnel of Endesa-Chile include
electrical service rate subsidies, additional medical insurance and additional
post-retirement benefits. Descriptions of these benefits for retired
personnel are as follows: i)  Electrical rate service This benefit is extended only to certain retired personnel of Endesa-Chile.
These electric rate subsidies result in the eligible retired employees paying a
percentage of their total monthly electricity costs, with Endesa-Chile paying
the difference. ii)  Medical benefits This benefit provides supplementary health insurance, which covers a portion of
health benefits not covered under the institutional health benefits maintained
by employees of Endesa-Chile. This benefit expires at the time of death of the
pensioner. iii)  Supplementary pension benefits Eligible employees are able to receive a monthly amount designed to cover a
portion of the difference between their salary at the point of retirement and
the theoretical pension that would have been received had the employee reached
the legal retirement age of the Institución de Previsión Social(Institute of
Social Welfare). This benefit expires upon the death of the pensioner for the
Endesa-Chile employee, however, continues to cover the surviving-spouse in the
case of employees of the subsidiary Endesa-Chile. iv)  Workers compensation benefits Employees that were entitled to Workers compensation insurance in prior years
for work related accidents receive benefits from the Company as such insurance
has expired. This benefit continues at the time of death of the pensioner, to
cover the surviving-spouse. The Company has recognized liabilities related to complementary pension plan
benefits and other post-retirement benefits as stipulated in collective
bargaining agreements. Under US GAAP pension and post-retirement employee F-134
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted
Accounting Principles, continued: benefits have been accounted for in accordance with SFAS 87 and SFAS 106, with
inclusion of prior-period amounts in current years income as the amounts are
not considered significant to the overall financial statement presentation.
The effects of accounting for post-retirement benefits under US GAAP have been
presented in paragraph I (v), above. The following data are presented in
accordance with US GAAP for the Companys post-retirement benefit plans. Pension Benefits
    
    Other Benefits2002
    
    2003
    
    2002
    
    2003Changes in benefit (obligations)
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Obligations as of January 1
    
    
    (16,457,068
    )
    
    
    (16,742,595
    )
    
    
    (2,724,740
    )
    
    
    (8,302,802
    )Foreign exchange effect
    
    
    1,446,032
    
    
    
    2,882,340
    
    
    
    
    
    
    
    546,929Net periodic expense
    
    
    (3,166,148
    )
    
    
    (4,634,144
    )
    
    
    (6,421,503
    )
    
    
    (1,315,259
    )Benefits paid
    
    
    1,434,589
    
    
    
    1,398,677
    
    
    
    843,441
    
    
    
    1,179,865Company contributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations as of December 31
    
    
    (16,742,595
    )
    
    
    (17,095,722
    )
    
    
    (8,302,802
    )
    
    
    (7,891,267
    )Funded Status of the PlansProjected Benefit Obligation
    
    
    (16,742,595
    )
    
    
    (17,095,722
    )
    
    
    (8,302,802
    )
    
    
    (7,891,267
    )Fair value of plan assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Funded status
    
    
    (16,742,595
    )
    
    
    (17,095,722
    )
    
    
    (8,302,802
    )
    
    
    (7,891,267
    )Unrecognized prior service
obligation
    
    
    
    
    
    
    
    
    
    
    971,466
    
    
    
    485,975Unrecognized net loss
    
    
    849,966
    
    
    
    437,254
    
    
    
    104,229
    
    
    
    53,923Net liability recorded under
US GAAP
    
    
    (15,892,629
    )
    
    
    (16,658,468
    )
    
    
    (7,227,107
    )
    
    
    (7,351,369
    )
 Pension Benefits
    
    Other Benefits2001
    
    2002
    
    2003
    
    2001
    
    2002
    
    2003Assumptions as of December 31
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Weighted-average discount rate
    
    
    15.5
    %
    
    
    13.5
    %
    
    
    12.7
    %
    
    
    9.5
    %
    
    
    9.2
    %
    
    
    8.7
    %Weighted-average salary
increase
    
    
    10.2
    %
    
    
    8.3
    %
    
    
    7.5
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AWeighted-average return on
plan assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Components of net periodicBenefits expensesService cost
    
    
    (611,793
    )
    
    
    (162,955
    )
    
    
    (120,870
    )
    
    
    319,625
    
    
    
    (5,734,031
    )
    
    
    (72,527
    )Interest cost
    
    
    (4,343,558
    )
    
    
    (2,221,454
    )
    
    
    (1,775,737
    )
    
    
    (466,900
    )
    
    
    (243,640
    )
    
    
    (390,255
    )Expected return on assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization gain (loss)
    
    
    2,451,335
    
    
    
    (781,739
    )
    
    
    (2,737,537
    )
    
    
    
    
    
    
    
    
    
    
    (351,347
    )Amortization of prior service
obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (427,029
    )
    
    
    (443,832
    )
    
    
    (501,130
    )Net periodic expenses
    
    
    (2,504,016
    )
    
    
    (3,166,148
    )
    
    
    (4,634,144
    )
    
    
    (574,304
    )
    
    
    (6,421,503
    )
    
    
    (1,315,259
    )
 F-135
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting
Principles, continued: The following is a schedule of the estimated pay-out of pension benefits in
each of the next five years: As of December 31,2003ThCh$2004
    
    
    75,3062005
    
    
    77,3512006
    
    
    79,3292007
    
    
    81,3672008
    
    
    83,465Total
    
    
    396,818
 m) Comprehensive income (loss) In accordance with US GAAP, the Company reports a measure of all changes in
shareholders equity that result from transactions and other economic events of
the period other than transactions with owners (comprehensive income).
Comprehensive income is the total of net income and other non-owner equity
transactions that result in changes in net shareholders equity. The following represents accumulated other comprehensive income balances as of
December 31, 2001, 2002 and 2003 (in thousands of constant Chilean pesos as of
December 31, 2003). 2001Effect of US GAAPChilean GAAP
    
    adjustments on
    
    Accumulatedcumulative
    
    cumulative
    
    Othertranslation
    
    translation
    
    Comprehensiveadjustment
    
    adjustment
    
    Income (Loss)Beginning balance
    
    
    4,178,978
    
    
    
    (11,424,343
    )
    
    
    (7,245,365
    )Credit (charge) for the period
    
    
    3,065,971
    
    
    
    (12,575,880
    )
    
    
    (9,509,909
    )Ending balance
    
    
    7,244,949
    
    
    
    (24,000,223
    )
    
    
    (16,755,274
    )
 2002Effect of US GAAPChilean GAAP
    
    adjustments on
    
    Accumulatedcumulative
    
    cumulative
    
    Othertranslation
    
    translation
    
    Comprehensiveadjustment
    
    adjustment
    
    Income (Loss)Beginning balance
    
    
    7,244,949
    
    
    
    (24,000,223
    )
    
    
    (16,755,274
    )Credit (charge) for the period
    
    
    9,173,574
    
    
    
    (6,605,632
    )
    
    
    2,567,942Ending balance
    
    
    16,418,523
    
    
    
    (30,605,855
    )
    
    
    (14,187,332
    )
 F-136
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted
Accounting Principles, continued: 2003Effect of US GAAPChilean GAAP
    
    adjustments on
    
    Accumulatedcumulative
    
    cumulative
    
    Othertranslation
    
    translation
    
    Comprehensiveadjustment
    
    adjustment
    
    Income (Loss)Beginning balance
    
    
    16,418,523
    
    
    
    (30,605,855
    )
    
    
    (14,187,332
    )Credit (charge) for the period
    
    
    (30,479,392
    )
    
    
    39,978,381
    
    
    
    9,498,989Ending balance
    
    
    (14,060,869
    )
    
    
    9,372,526
    
    
    
    (4,688,343
    )
 n) Discontinued operations In October of 2001, the FASB issued SFAS 144, which is effective for fiscal
years beginning after December 15, 2001. SFAS 144 establishes accounting and
reporting standards for the impairment and disposal of long-lived assets and
discontinued operations. The application of this statement resulted in the
classification, and separate financial presentation of certain entities as
discontinued operations, the results of which are not included in continuing
operations. There was no impairment of assets related to discontinued
operations, as their fair value exceeded their carrying value. Fair values used
in these calculations have been determined by using the estimated sales prices. In 2002 the Company committed plans to dispose the 60% equity participation it
held in the consolidated subsidiary Infraestructura 2000 S.A. It was accounted
for as discontinued operations in accordance with SFAS 144 and, accordingly,
amounts in reconciliation of net income to US GAAP and the additional
disclosure notes required under US GAAP for all periods shown, reflect
discontinued operations accounting. The major classes of discontinued consolidated assets, consolidated liabilities
and minority interest included in the Chilean GAAP Endesa-Chile consolidated
Balance Sheet as of December 31, 2002 are as follows: As of December 31,2002ThCh$Assets:Cash
    
    
    191,966Accounts receivable, net
    
    
    14,917,106Other current assets
    
    
    35,708,670Property, plant and equipment, net
    
    
    170,181,293Intangibles
    
    
    34,764Other assets
    
    
    18,236,278Total assets of discontinued operations
    
    
    239,270,077Liabilities:Current liabilities
    
    
    74,919,888Long term liabilities
    
    
    98,127,832Income taxes payable (including deferred)
    
    
    843,429Minority interest
    
    
    736,427Total liabilities and minority interest of discontinued operations
    
    
    174,627,576
 Infraestructura 2000 S.A. was sold in June 2003. F-137
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting
Principles, continued: The major classes of consolidated revenues and expenses related to
Infraestructura 2000 S.A. included in the Chilean GAAP Endesa-Chile
consolidated Income Statement are as follows: Year Ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Sales
    
    
    20,150,123
    
    
    
    20,202,007
    
    
    
    Costs of sales
    
    
    (10,457,778
    )
    
    
    (9,961,732
    )
    
    
    Gross profit
    
    
    9,692,345
    
    
    
    10,240,275
    
    
    
    Administrative and selling expenses
    
    
    (1,291,432
    )
    
    
    (1,309,638
    )
    
    
    Operating income
    
    
    8,400,913
    
    
    
    8,930,637
    
    
    
    Non operating (loss) income (1)
    
    
    (7,003,803
    )
    
    
    (7,501,002
    )
    
    
    591,154Income before taxes and minority interest.
    
    
    1,397,110
    
    
    
    1,429,635
    
    
    
    591,154Income tax (1)
    
    
    (605,137
    )
    
    
    (972,455
    )
    
    
    (97,540
    )Minority interest
    
    
    (317,798
    )
    
    
    (181,890
    )
    
    
    Net income for the year
    
    
    474,175
    
    
    
    275,290
    
    
    
    493,614
  (1)
    
    Infraestructura 2000 S.A. was sold in June 2003. Under Chilean GAAP
Infraestructura 2000 S.A. was not consolidated as of January 1, 2003. The
non-operating income of ThCh$591,154 recorded under Chilean GAAP
represents the gain recorded on the sale and the net result from
operations of Infraestructura 2000 S.A. from January 1, 2003 to the date
of sale.o)
    
    Intangible assets The Companys intangible assets were ThCh$ 32,330,456 and ThCh$ 28,259,184 and
related accumulated amortization was ThCh$ 5,402,732 and ThCh$ 7,321,147 as of
December 31, 2002 and 2003, respectively. All of the Companys intangible
assets are subject to amortization and there is no difference between Chilean
and US GAAP in their basis. The Company expects to amortize approximately
ThCh$ 5,599,640, ThCh$ 5,125,859, ThCh$ 4,050,173, ThCh$ 2,037,596 and ThCh$
1,652,146 of intangible assets in 2004, 2005, 2006, 2007 and 2008,
respectively. F-138
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted
Accounting Principles, continued: p) Investments in related companies The following tables show combined summarized financial information prepared in
accordance with Chilean GAAP of the related companies accounted for using the
equity method for the purpose of complying with disclosure requirement for
significant equity investees. All amounts are in thousands of constant Chilean
pesos of December 31, 2003 purchasing power. The condensed information shown here has been combined from Compañia de
Interconexión Energética S.A., Comercializadora de Energía del Mercosur S.A.,
Gas Atacama Generación Ltda., Gasoducto Atacama Argentina Ltda. and Gasoducto
Atacama Chile Ltda. individual financial statements prepared in accordance with
Chilean GAAP for the years ended December 31, 2001 and 2002. In 2003 a new
equity method investee, Inversiones Gas Atacama Holding Limitada was created
and shares of the last three companies were given to it as a contribution in
kind (see note 10 (d)). Thus the information as of and for the year ended
December 31, 2003 was combined from Compañia de Interconexión Energética S.A.,
Comercializadora de Energía del Mercosur S.A. and Inversiones Gas Atacama
Holding Limitada. For the overall effect on the financial statements of
Endesa-Chile of the application of US GAAP to the financial statements of these
companies, see paragraph I (w) above. 2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Current assets
    
    
    115,505,643
    
    
    
    157,658,292
    
    
    
    166,383,452Non-current assets
    
    
    899,437,945
    
    
    
    954,319,030
    
    
    
    814,385,879Total assets
    
    
    1,014,943,588
    
    
    
    1,111,977,322
    
    
    
    980,769,331Current liabilities
    
    
    91,579,378
    
    
    
    141,531,381
    
    
    
    340,748,240Non-current liabilities
    
    
    619,597,727
    
    
    
    650,250,135
    
    
    
    345,317,976Total liabilities
    
    
    711,177,105
    
    
    
    791,781,516
    
    
    
    686,066,216Net sales
    
    
    191,070,522
    
    
    
    273,194,513
    
    
    
    238,215,319Gross profit
    
    
    15,650,898
    
    
    
    73,490,096
    
    
    
    94,706,009Net income (loss)
    
    
    (23,016,215
    )
    
    
    14,578,425
    
    
    
    25,639,350Endesa-Chiles
participation in net
income
    
    
    (10,741,965
    )
    
    
    6,576,692
    
    
    
    11,513,941
 No discontinued operations are included in equity method investees. The Company is required to present separately the Chilean GAAP audited
financial statements together with a reconciliation to US GAAP of Compañia de Interconexión Energética S.A. and
Comercializadora de Energía del Mercosur S.A. as of December 31, 2002 and 2003
and for the years then ended as these companies met the definition of
a significant subsidiary under Rule 1-02(w) of
Regulation S-X as of December 31, 2002 and 2003. Those
financial statements also include comparative unaudited financial
statements for the year ended December 31, 2001. F-139
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting
Principles, continued: q) Restrictions which limit the payment of dividends by the registrant As stated in Note 28, the Company has subsidiaries that must abide by certain
financial ratios and covenants that require minimum equity levels or that
contain other characteristics that restrict the transfer of assets to the
parent company. The amounts of Endesa-Chiles proportionate share of restricted net
assets in consolidated subsidiaries as of December 31, 2003 are as follows: Proportionate Share ofRestricted NetSubsidiary
    
    AssetsThCh$Pangue S.A.
    
    
    34,497,783Pehuenche S.A.
    
    
    148,925,610Edegel S.A.
    
    
    170,029,459Central Costanera S.A.
    
    
    73,864,861Central Hidroeléctrica Betania S.A.
    
    
    155,285,419582,603,132
 The amount of consolidated retained earnings which represents undistributed
earnings of investees accounted for under the equity method as of December 31,
2003 is ThCh$ 54,276,089. r) Recent accounting pronouncements i) Consolidation of Variable Interest Entities In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities-an interpretation of ARB 51, to expand upon and
strengthen existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and activities of
another entity. Many variable interest entities have commonly been referred to
as special-purpose entities or off-balance sheet structures, but the guidance
applies to a larger population of entities. In general, a variable interest
entity is a corporation, partnership, trust, or any other legal structure used
for business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. The Company must
apply Interpretation No. 46 to variable interest entities created after January
31, 2003 in the first fiscal year or interim period beginning after December
15, 2003. The Company assessed that it is not a primary beneficiary of any
Variable Interest Entity created after January 31, 2003 and is assessing the
impact of the Interpretation in relation to business relationships created
before January 31, 2003. The Company currently does not expect the adoption of
the interpretation to have a material impact on the Companys results of
operation or financial position. F-140
    Table of Contents  Endesa-Chile and Subsidiaries
Notes to the Audited Consolidated Financial Statements
Translation of financial statements originally issued in Spanish
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) 34. Differences between Chilean and United States Generally Accepted Accounting
Principles, continued: (ii) Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity In May 2003 the FASB issued SFAS 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. The FASB originally
decided that SFAS 150 should be:  -
    
    effective upon issuance for new contracts entered into
after May 31, 2003, and-
    
    effective for any pre-existing contracts that remain
outstanding at the beginning of the first interim period
beginning after June 15, 2003. Subsequently, the FASB made significant changes with regards to effective date
and transition provisions for public companies, pursuant to FASB Staff Position
No. 150-3. The FASB agreed to:  -
    
    Defer for an indefinite period the application of both
the measurement and recognition guidance in SFAS 150 to non
controlling interests that are classified as equity in the
financial statements of the subsidiary but would be classified as
a liability in the parents financial statements under SFAS 150;-
    
    Defer the application of the measurement guidance in
SFAS 150 to mandatory redeemable non-controlling interests that
are not within the scope of the deferral described in the
preceding section that were issued on or before November 5, 2003;-
    
    For mandatory redeemable non-controlling interest of a
subsidiary acquired subsequent to November 5, 2003, all of the
requirements of SFAS 150, including the measurement guidance in
paragraph 22 of SFAS 150, should be followed. The adoption of the provisions required under SFAS 150 as of December 31, 2003
had no impact on the presentation of the Companys financial statements and the
Company does not expect SFAS 150 to have a material impact on its statement of
financial position or result from operations upon adoption of the deferred
provisions. (iii) Accounting for Derivatives In October 2002, the EITF reached a final consensus on EITF Issue No. 02-03.
Primarily, the final consensus provided for (1) the rescission of the consensus
reached on EITF Issue No. 98-10, (2) the reporting of gains and losses on all
derivative instruments considered to be held for trading purposes to be shown
on a net basis in the income statement, and (3) gains and losses on
non-derivative energy trading contracts to be similarly presented on a gross or
net basis, in connection with the guidance in EITF Issue No. 99-19, Reporting
Revenue Gross as a Principal versus Net as an Agent. The Company adopted EITF Issue No. 02-03, as of January 1, 2003, and the
adoption of this consensus did not have a material impact on the Companys
consolidated results of operations, cash flows or financial position. F-141
    Table of Contents  Schedule I
Endesa-Chile Individual Condensed Financial Statements
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated) Schedule I - Condensed financial information of Empresa Nacional de
Electricidad S.A. (Endesa Individual)  1.
    
    Condensed balance sheets of Endesa Individual under US GAAP as of
December 31, 2002 and 2003 are as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Current assets
    
    
    158,621,128
    
    
    
    152,078,143Property, plant, and equipment
    
    
    2,115,682,843
    
    
    
    2,013,519,832Accumulated depreciation of property,
plant and equipment
    
    
    (1,020,869,165
    )
    
    
    (995,010,454
    )Property, plant, and equipment, net
    
    
    1,094,813,678
    
    
    
    1,018,509,378Other assets
    
    
    1,708,229,730
    
    
    
    2,049,173,985Total assets
    
    
    2,961,664,536
    
    
    
    3,219,761,506Current liabilities
    
    
    85,980,258
    
    
    
    255,182,761Long-term liabilities
    
    
    1,810,946,185
    
    
    
    1,841,173,299Shareholders equity
    
    
    1,064,738,093
    
    
    
    1,123,405,446Total liabilities and shareholders equity
    
    
    2,961,664,536
    
    
    
    3,219,761,506
  2.
    
    Condensed income statements of Endesa Individual under US GAAP for the
years ended December 31, 2001, 2002 and 2003 are as follows: 2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Sales
    
    
    306,144,256
    
    
    
    323,811,324
    
    
    
    351,782,228Other operating income
    
    
    9,740,972
    
    
    
    6,559,816
    
    
    
    3,785,537Costs of sales
    
    
    (251,300,953
    )
    
    
    (252,831,640
    )
    
    
    (292,163,417
    )Administrative and selling expenses
    
    
    (13,257,392
    )
    
    
    (32,302,170
    )
    
    
    (36,003,235
    )Operating income
    
    
    51,326,883
    
    
    
    45,237,330
    
    
    
    27,401,113Non-operating income and expenses, net
    
    
    (151,299,555
    )
    
    
    (171,113,527
    )
    
    
    71,646,568Income taxes
    
    
    1,594,861

    
    
    
    944,740
    
    
    
    16,758,323Equity participation in income of related companies, net
    
    
    117,430,770
    
    
    
    49,311,629
    
    
    
    (43,071,146
    )Income from before cumulative effect of change in
accounting principle
    
    
    19,052,959
    
    
    
    (75,619,828
    )
    
    
    72,734,858Cumulative effect of change in accounting principle
    
    
    12,195,310
    
    
    
    
    
    
    
    Net income
    
    
    31,248,269
    
    
    
    (75,619,828
    )
    
    
    72,734,858Other comprehensive income (loss):Cumulative translation adjustment
    
    
    (9,509,909
    )
    
    
    2,567,942
    
    
    
    9,498,989Comprehensive income (loss)
    
    
    21,738,360
    
    
    
    (73,051,886
    )
    
    
    82,233,847
 G-1
    Table of Contents  Schedule I
Endesa-Chile Individual Condensed Financial Statements
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  3.
    
    Condensed cash-flow statements of Endesa Individual under US GAAP for
the years ended December 31, 2001, 2002 and 2003 are as follows: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Net cash provided by operating activities
    
    
    86,662,448
    
    
    
    84,597,454
    
    
    
    62,349,932Cash flows from financing activities:Proceeds from the issuance of debt
    
    
    26,477,161
    
    
    
    89,834,196
    
    
    
    36,656,036Proceeds from bond issuances
    
    
    126,885,339
    
    
    
    
    
    
    
    546,989,751Proceeds from loans obtained from related companies
    
    
    548,709,532
    
    
    
    129,787,941
    
    
    
    Other sources of financing
    
    
    26,211,396
    
    
    
    3,259,831
    
    
    
    Dividends paid
    
    
    (8,387,578
    )
    
    
    (7,866,793
    )
    
    
    Payment of debt
    
    
    (127,739,206
    )
    
    
    (41,796,681
    )
    
    
    (398,609,649
    )Payment of bonds
    
    
    (93,573,109
    )
    
    
    (2,066,187
    )
    
    
    (2,223,007
    )Payment of loans obtained from related companies
    
    
    (550,327,075
    )
    
    
    (157,133,704
    )
    
    
    (108,611,468
    )Payment of bond issuance costs
    
    
    
    
    
    
    
    
    
    
    (5,681,393
    )Other disbursements for financing
    
    
    
    
    
    
    
    
    
    
    (29,041,043
    )Net cash provided by (used in) financing activities
    
    
    (51,743,540
    )
    
    
    14,018,603
    
    
    
    39,479,227Cash flows from investing activities:Proceeds from sales of property, plant and equipment
    
    
    16,447,999
    
    
    
    17,566,809
    
    
    
    132,239,012Payments received on loans to related companies
    
    
    107,638,377
    
    
    
    280,442,253
    
    
    
    83,649,279Other receipts from investments
    
    
    
    
    
    
    
    
    
    
    116,417,545Additions to property, plant and equipment
    
    
    (36,756,971
    )
    
    
    (125,661,535
    )
    
    
    (109,094,285
    )Long-term investments
    
    
    (40,281,730
    )
    
    
    (5,048,883
    )
    
    
    (2,962,448
    )Other loans granted to related companies
    
    
    (82,748,373
    )
    
    
    (265,258,122
    )
    
    
    (251,291,094
    )Other investment disbursements
    
    
    
    
    
    
    (20,657
    )
    
    
    (67,288,078
    )Net cash provided used in investing activities
    
    
    (35,700,698
    )
    
    
    (97,980,135
    )
    
    
    (98,330,069
    )Net cash flow for the year
    
    
    (781,790
    )
    
    
    635,992
    
    
    
    3,499,090Effect of price-level restatement on cash and cash equivalents
    
    
    122,543
    
    
    
    (68,782
    )
    
    
    215,507Net (decrease) increase in cash and cash equivalents
    
    
    (659,247
    )
    
    
    567,140
    
    
    
    3,714,597Cash and cash equivalents beginning of year
    
    
    1,364,751
    
    
    
    705,504
    
    
    
    1,272,644Cash and cash equivalents end of year
    
    
    705,504
    
    
    
    1,272,644
    
    
    
    4,987,241
 G-2
    Table of Contents  Schedule I
Endesa-Chile Individual Condensed Financial Statements
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  3.
    
    The following table presents Endesa Individuals long-term debt owed to
banks and other financial institutions as of December 31, 2002 and 2003: As of DecemberAs of December 31, 2003
    
    31, 2002After 1 year
    
    After 2 years

    
    After 3 years
    
    After 5 years
    
    
    
    
    
    Total long-
    
    Annual
    
    Total long-but within
    
    but within
    
    but within
    
    but within
    
    After 10
    
    term
    
    interest
    
    termCurrency
    
    2 years
    
    3 years
    
    5 years
    
    10 years
    
    years
    
    portion
    
    rate
    
    liabilitiesFinancial institution
    
    
    
    
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    %
    
    ThCh$Banco Nationale de Paris
    
    US$
    
    
    9,378,499
    
    
    
    8,779,095
    
    
    
    17,558,190
    
    
    
    4,389,548
    
    
    
    
    
    
    
    40,105,332
    
    
    
    4.66
    
    
    
    59,750,972Societe Generale
    
    US$
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,391,828The Bank of Tokio - Mitsubishi
    
    US$
    
    
    5,697,501
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,697,501
    
    
    
    2.00
    
    
    
    13,928,001The Bank of Tokio - Mitsubishi
    
    Yen
    
    
    422,438
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    422,438
    
    
    
    0.89
    
    
    
    933,276The Bank of Tokio - Mitsubishi
    
    Euro
    
    
    121,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,738
    
    
    
    3.00
    
    
    
    248,420The Bank of Tokio - Mitsubishi
    
    Other
    
    
    402,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    402,154
    
    
    
    4.63
    
    
    
    886,725IRF
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,201,425Export Development Corp.Loan
    
    US$
    
    
    828,805
    
    
    
    828,805
    
    
    
    1,657,610
    
    
    
    4,144,025
    
    
    
    828,802
    
    
    
    8,288,047
    
    
    
    2.11
    
    
    
    10,966,828Banque Nationale de París
    
    US$
    
    
    1,928,644
    
    
    
    1,928,644
    
    
    
    3,857,288
    
    
    
    4,664,497
    
    
    
    1,644,520
    
    
    
    14,023,593
    
    
    
    5.28
    
    
    
    16,342,684Banco Bilbao Vizcaya Argentaria
S.A.
    
    US$
    
    
    1,484,025
    
    
    
    2,968,050
    
    
    
    4,452,075
    
    
    
    
    
    
    
    
    
    
    
    8,904,150
    
    
    
    4.16Banco Santander CentralS.A.
    
    US$
    
    
    7,310,509
    
    
    
    14,621,019
    
    
    
    21,931,528
    
    
    
    
    
    
    
    
    
    
    
    43,863,056
    
    
    
    4.16Citibank N.A.
    
    US$
    
    
    2,431,215
    
    
    
    4,862,430
    
    
    
    7,293,645
    
    
    
    
    
    
    
    
    
    
    
    14,587,290
    
    
    
    4.16Dresdner Bank Luxembourg S.A.
    
    US$
    
    
    1,484,025
    
    
    
    2,968,050
    
    
    
    4,452,075
    
    
    
    
    
    
    
    
    
    
    
    8,904,150
    
    
    
    4.16
    
    
    
    HSBC Bank plc, Spanish Branch
    
    US$
    
    
    1,781,954
    
    
    
    3,563,908
    
    
    
    5,345,862
    
    
    
    
    
    
    
    
    
    
    
    10,691,724
    
    
    
    4.16
    
    
    
    San Paolo IMI S.p.A.
    
    US$
    
    
    1,703,256
    
    
    
    3,406,512
    
    
    
    5,109,768
    
    
    
    
    
    
    
    
    
    
    
    10,219,536
    
    
    
    4.16
    
    
    
    BNP Paribas, Spanish Branch
    
    US$
    
    
    1,484,025
    
    
    
    2,968,050
    
    
    
    4,452,075
    
    
    
    
    
    
    
    
    
    
    
    8,904,150
    
    
    
    4.16
    
    
    
    Deutsche Bank AG, New York
Branch
    
    US$
    
    
    1,484,025
    
    
    
    2,968,050
    
    
    
    4,452,075
    
    
    
    
    
    
    
    
    
    
    
    8,904,150
    
    
    
    4.16
    
    
    
    Landesbank
Rheinland-Pfalz-Girozentrale
    
    US$
    
    
    463,758
    
    
    
    927,516
    
    
    
    1,391,274
    
    
    
    
    
    
    
    
    
    
    
    2,782,548
    
    
    
    4.16
    
    
    
    Credit Lyonnais, New York Branch
    
    US$
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    
    
    
    ING Bank N.V., Curcao Branch
    
    US$
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    
    
    
    The Bank of Tokyo-Mitsubishi,
Ltd.N.Y.Branch
    
    US$
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    
    
    
    WestLB AG, New York Branch
    
    US$
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    
    
    
    Banco Popular Español S.A.
    
    US$
    
    
    663,314
    
    
    
    1,326,628
    
    
    
    1,989,942
    
    
    
    
    
    
    
    
    
    
    
    3,979,884
    
    
    
    4.16
    
    
    
    Bayerische Hypo-und Vereinsbank
AG, IBF Branch
    
    US$
    
    
    281,065
    
    
    
    562,131
    
    
    
    843,196
    
    
    
    
    
    
    
    
    
    
    
    1,686,392
    
    
    
    4.16
    
    
    
    Bayerische Landesbank, IBF
Branch
    
    US$
    
    
    281,065
    
    
    
    562,131
    
    
    
    843,196
    
    
    
    
    
    
    
    
    
    
    
    1,686,392
    
    
    
    4.16
    
    
    
    Banco de Sabadell, SA
    
    US$
    
    
    188,314
    
    
    
    376,628
    
    
    
    564,942
    
    
    
    
    
    
    
    
    
    
    
    1,129,884
    
    
    
    4.16
    
    
    
    Israel Discount Bank of New York
    
    US$
    
    
    151,775
    
    
    
    303,551
    
    
    
    455,326
    
    
    
    
    
    
    
    
    
    
    
    910,652
    
    
    
    4.16
    
    
    
    Banca Intesa, S.p.A., London
Branch
    
    US$
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    
    
    
    Banco Español de Crédito
    
    US$
    
    
    472,190
    
    
    
    944,380
    
    
    
    1,416,570
    
    
    
    
    
    
    
    
    
    
    
    2,833,140
    
    
    
    4.16
    
    
    
    Mizuho Corporate Bank, Ltd.
    
    US$
    
    
    379,438
    
    
    
    758,876
    
    
    
    1,138,314
    
    
    
    
    
    
    
    
    
    
    
    2,276,628
    
    
    
    4.16
    
    
    
    Landesbank Baden-Wurttemberg
    
    US$
    
    
    379,438
    
    
    
    758,876
    
    
    
    1,138,314
    
    
    
    
    
    
    
    
    
    
    
    2,276,628
    
    
    
    4.16
    
    
    
    Royal Bank of Canada Europe
Limited
    
    US$
    
    
    947,192
    
    
    
    1,894,381
    
    
    
    2,841,573
    
    
    
    
    
    
    
    
    
    
    
    5,683,146
    
    
    
    4.16
    
    
    
    Total
    
    
    
    
    
    
    46,886,312
    
    
    
    67,749,611
    
    
    
    107,392,688
    
    
    
    13,198,070
    
    
    
    2,473,322
    
    
    
    237,700,003
    
    
    
    
    
    
    
    105,650,159
 G-3
    Table of Contents  Schedule I
Endesa-Chile Individual Condensed Financial Statements
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  4.
    
    The following table presents bonds payable as of December 31, 2002 and
2003: Face value
    
    
    
    
    
    Interest
    
    
    
    
    
    Par value as of December 31,Series
    
    outstanding
    
    Currency
    
    Rate
    
    Maturity
    
    2002
    
    2003%
    
    
    
    
    
    ThCh$
    
    ThCh$1
    
    
    230,000,000
    
    
    US$
    
    
    7.88
    
    
    
    02/01/2027
    
    
    
    5,477,493
    
    
    
    4,481,3342
    
    
    220,000,000
    
    
    US$
    
    
    7.33
    
    
    
    02/01/2037
    
    
    
    4,873,420
    
    
    
    3,987,1213
    
    
    200,000,000
    
    
    US$
    
    
    8.13
    
    
    
    02/01/2097
    
    
    
    4,914,246
    
    
    
    4,020,5221
    
    
    400,000,000
    
    
    US$
    
    
    7.75
    
    
    
    07/15/2008
    
    
    
    10,312,351
    
    
    
    8,436,9081
    
    
    400,000,000
    
    
    US$
    
    
    8.50
    
    
    
    04/01/2009
    
    
    
    6,169,267
    
    
    
    5,047,300C-2 , D-1, D-2
    
    
    1,251,257
    
    
    UF
    
    
    6.80
    
    
    
    11/01/2010
    
    
    
    2,473,129
    
    
    
    2,600,930E-1, E-2
    
    
    6,000,000
    
    
    UF
    
    
    6.20
    
    
    
    08/01/2006
    
    
    
    2,581,888
    
    
    
    2,583,176F
    
    
    1,500,000
    
    
    UF
    
    
    6.20
    
    
    
    08/01/2022
    
    
    
    645,472
    
    
    
    645,794144A
    
    
    400,000,000
    
    
    US$
    
    
    8.35
    
    
    
    08/01/2013
    
    
    
    
    
    
    
    8,649,357144A
    
    
    200,000,000
    
    
    US$
    
    
    8.63
    
    
    
    08/01/2015
    
    
    
    
    
    
    
    4,467,626G
    
    
    4,000,000
    
    
    UF
    
    
    4.80
    
    
    
    10/15/2010
    
    
    
    
    
    
    
    668,867H
    
    
    4,000,000
    
    
    UF
    
    
    6.20
    
    
    
    10/15/2008
    
    
    
    
    
    
    
    861,052Total current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,447,266
    
    
    
    46,449,9871
    
    
    230,000,000
    
    
    US$
    
    
    7.88
    
    
    
    02/01/2027
    
    
    
    166,933,103
    
    
    
    136,574,0002
    
    
    220,000,000
    
    
    US$
    
    
    7.33
    
    
    
    02/01/2037
    
    
    
    159,675,142
    
    
    
    130,636,0003
    
    
    200,000,000
    
    
    US$
    
    
    8.13
    
    
    
    02/01/2097
    
    
    
    145,159,220
    
    
    
    118,760,0001
    
    
    400,000,000
    
    
    US$
    
    
    7.75
    
    
    
    07/15/2008
    
    
    
    290,318,440
    
    
    
    237,520,0001
    
    
    400,000,000
    
    
    US$
    
    
    8.50
    
    
    
    04/01/2009
    
    
    
    290,318,440
    
    
    
    237,520,000C-2, D-1, D-2
    
    
    1,251,257
    
    
    UF
    
    
    6.80
    
    
    
    11/01/2010
    
    
    
    20,029,882
    
    
    
    17,662,331E-1, E-2
    
    
    6,000,000
    
    
    UF
    
    
    6.20
    
    
    
    08/01/2006
    
    
    
    101,469,367
    
    
    
    101,520,000F
    
    
    1,500,000
    
    
    UF
    
    
    6.20
    
    
    
    08/01/2022
    
    
    
    25,367,342
    
    
    
    25,380,000144A
    
    
    400,000,000
    
    
    US$
    
    
    8.35
    
    
    
    08/01/2013
    
    
    
    
    
    
    
    237,520,000144A
    
    
    200,000,000
    
    
    US$
    
    
    8.63
    
    
    
    08/01/2015
    
    
    
    
    
    
    
    118,760,000G
    
    
    4,000,000
    
    
    UF
    
    
    4.80
    
    
    
    10/15/2010
    
    
    
    
    
    
    
    67,680,000H
    
    
    4,000,000
    
    
    UF
    
    
    6.20
    
    
    
    10/15/2008
    
    
    
    
    
    
    
    67,680,000Total long-term
portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,199,270,936
    
    
    
    1,497,212,331
 5. The following table presents a schedule of debt maturity in each of the
next five years and thereafter as of December 31, 2003: As of December 31,2003ThCh$2004
    
    
    228,149,4782005
    
    
    20,696,0842006
    
    
    110,830,2732007
    
    
    109,452,6872008
    
    
    326,070,086Thereafter
    
    
    1,053,672,549Total
    
    
    1,848,871,157
 G-4
    Table of Contents  Schedule I
Endesa-Chile Individual Condensed Financial Statements
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)  6.
    
    The following table presents the dividends received by Endesa Individual
in the years ended December 31, 2001, 2002 and 2003: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Dividends received
    
    
    23,282,745
    
    
    
    23,539,871
    
    
    
    70,720,687
 G-5
    Table of Contents  CIEN  COMPANHIA DE INTERCONEXÃO ENERGÉTICA BALANCE SHEETS AS OF DECEMBER 31, 2003 AND 2002
(In thousands of US dollars) ASSETS
    
    2003
    
    2002(Consolidated)CURRENT ASSETSCash and cash equivalents
    
    
    4,816
    
    
    
    245Short-term financial investments
    
    
    39,135
    
    
    
    17,250Accounts receivable  dealers
    
    
    83,203
    
    
    
    64,039Other accounts receivable
    
    
    2,541
    
    
    
    2,408Accounts receivable from related parties
    
    
    26,233
    
    
    
    403Recoverable taxes
    
    
    20,897
    
    
    
    7,704Prepaid expenses
    
    
    31
    
    
    
    6Other
    
    
    3,023
    
    
    
    3,004Total current assets
    
    
    179,879
    
    
    
    95,059PROPERTY, PLANT AND EQUIPMENTLand
    
    
    5,819
    
    
    
    5,819Transmission lines, machinery and equipment
    
    
    560,762
    
    
    
    460,519Other
    
    
    82,346
    
    
    
    17,364Subtotal
    
    
    648,927
    
    
    
    483,702Accumulated depreciation
    
    
    (49,365
    )
    
    
    (22,141
    )Total property, plant and equipment, net
    
    
    599,562
    
    
    
    461,561OTHER ASSETSInvestments in wholly-owned subsidiaries
    
    
    
    
    
    
    14,554Long-term accounts receivable  dealers
    
    
    65,416
    
    
    
    Accounts receivable from related parties
    
    
    
    
    
    
    41,312Deferred income and social contribution taxes
    
    
    
    
    
    
    9,840Other
    
    
    25,344
    
    
    
    22,354Total other assets
    
    
    90,760
    
    
    
    88,060TOTAL ASSETS
    
    
    870,201
    
    
    
    644,680
 (continues) H-1
    Table of Contents  CIEN  COMPANHIA DE INTERCONEXÃO ENERGÉTICA BALANCE SHEETS AS OF DECEMBER 31, 2003 AND 2002
(In thousands of US dollars) LIABILITIES AND SHAREHOLDERS' EQUITY
    
    2003
    
    2002(Consolidated)CURRENT LIABILITIESLoans and financing
    
    
    371,254
    
    
    
    45,198Dividends payable
    
    
    940
    
    
    
    Accounts payable to related parties
    
    
    87,798
    
    
    
    67,100Accounts payable to third parties
    
    
    27,482
    
    
    
    18,968Other liabilities
    
    
    868
    
    
    
    Provisions
    
    
    1,594
    
    
    
    118Withholding taxes and others
    
    
    209
    
    
    
    Taxes and social contributions
    
    
    43,212
    
    
    
    13,039Total current liabilities
    
    
    533,357
    
    
    
    144,423NON-CURRENT LIABILITIESLoans and financing
    
    
    
    
    
    
    335,017Provisions
    
    
    116,521
    
    
    
    580Deferred income tax
    
    
    15,074
    
    
    
    Total non-current liabilities
    
    
    131,595
    
    
    
    335,597664,952
    
    
    
    480,020SHAREHOLDERS EQUITYPaid-in capital
    
    
    194,633
    
    
    
    194,633Accumulated deficit (pre-operating period)
    
    
    (24,648
    )
    
    
    (24,648
    )Total capital and reserves
    
    
    169,985
    
    
    
    169,985Retained earnings (accumulated deficit):Accumulated deficit
    
    
    (5,325
    )
    
    
    (27,685
    )Net income for the year
    
    
    41,695
    
    
    
    22,360Proposed dividends
    
    
    (1,106
    )
    
    
    Total retained earnings (accumulated deficit)
    
    
    35,264
    
    
    
    (5,325
    )Total shareholders equity
    
    
    205,249
    
    
    
    164,660TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    
    870,201
    
    
    
    644,680
 The accompanying notes are an integral part of these financial statements. H-2
    Table of Contents  CIEN  COMPANHIA DE INTERCONEXÃO ENERGÉTICA STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands of US dollars) 2003
    
    2002
    
    2001(Consolidated)
    
    
    
    
    
    (Unaudited)OPERATING REVENUES AND COSTSSales of electric energy and capacity to third parties
    
    
    295,914
    
    
    
    232,344
    
    
    
    156,595Sales of electric energy and capacity to related parties
    
    
    85,341
    
    
    
    168
    
    
    
    Total operating revenues
    
    
    381,255
    
    
    
    232,512
    
    
    
    156,595OPERATING COSTSVariable costsElectric energy acquired from related parties
    
    
    (110,595
    )
    
    
    (113,307
    )
    
    
    (142,478
    )Electric energy acquired from third parties
    
    
    (61,658
    )
    
    
    (17,900
    )
    
    
    Consumable materials
    
    
    (53
    )
    
    
    (38
    )
    
    
    Electric energy transportation
    
    
    (7,328
    )
    
    
    (1,154
    )
    
    
    Other variable costs with third parties
    
    
    (17,748
    )
    
    
    (9,338
    )
    
    
    (5,488
    )Fixed costsPersonnel costs
    
    
    (576
    )
    
    
    (513
    )
    
    
    (548
    )Depreciation
    
    
    (18,649
    )
    
    
    (11,727
    )
    
    
    (9,208
    )Amortization
    
    
    (540
    )
    
    
    (2,151
    )
    
    
    (3,516
    )Third-party services (operation and maintenance costs)
    
    
    (3,604
    )
    
    
    (3,450
    )
    
    
    (3,280
    )Total operating costs
    
    
    (220,751
    )
    
    
    (159,578
    )
    
    
    (164,518
    )OPERATING MARGIN
    
    
    160,504
    
    
    
    72,934
    
    
    
    (7,923
    )ADMINISTRATION AND SALES EXPENSESGeneral expenses and third parties administration services
    
    
    (3,112
    )
    
    
    (961
    )
    
    
    (2,484
    )Personnel costs
    
    
    (2,908
    )
    
    
    (2,243
    )
    
    
    (1,214
    )Bad debt provision
    
    
    (17
    )
    
    
    
    
    
    
    Depreciation
    
    
    (23
    )
    
    
    (10
    )
    
    
    (103
    )Total administration and sales expenses
    
    
    (6,060
    )
    
    
    (3,214
    )
    
    
    (3,801
    )OPERATING RESULTS
    
    
    154,444
    
    
    
    69,720
    
    
    
    (11,724
    )NON-OPERATING RESULTSFinancial revenues from related parties
    
    
    
    
    
    
    2,687
    
    
    
    2,925Financial revenues from third parties
    
    
    6,115
    
    
    
    12,265
    
    
    
    4,897Equity in income (losses) of wholly-owned subsidiaries
    
    
    
    
    
    
    (7,873
    )
    
    
    1,208Other non-operating revenues from third parties
    
    
    31,746
    
    
    
    204
    
    
    
    120Financial expenses  third parties
    
    
    (34,734
    )
    
    
    (14,152
    )
    
    
    (10,300
    )Other non-operating expenses  third parties
    
    
    (57,326
    )
    
    
    (41,050
    )
    
    
    (19,514
    )Total non-operating results
    
    
    (54,199
    )
    
    
    (47,919
    )
    
    
    (20,664
    )INCOME (LOSS) FOR THE YEAR BEFORE TAXES
    
    
    100,245
    
    
    
    21,801
    
    
    
    (32,388
    )INCOME TAX AND SOCIAL CONTRIBUTION
    
    
    (58,550
    )
    
    
    559
    
    
    
    13,189NET INCOME (LOSS)
    
    
    41,695
    
    
    
    22,360
    
    
    
    (19,199
    )
 The accompanying notes are an integral part of these financial statements. H-3
    Table of Contents  CIEN  COMPANHIA DE INTERCONEXÃO ENERGÉTICA STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands of US dollars) 2003
    
    2002
    
    2001(Consolidated)
    
    
    
    
    
    (Unaudited)CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    
    41,695
    
    
    
    22,360
    
    
    
    (19,199
    )Depreciation
    
    
    18,672
    
    
    
    11,737
    
    
    
    9,316Amortization
    
    
    540
    
    
    
    2,151
    
    
    
    3,516Equity in income (losses) of wholly-owned subsidiaries
    
    
    
    
    
    
    7,873
    
    
    
    Translation gain or loss
    
    
    (5,643
    )
    
    
    51,694
    
    
    
    10,595Other revenues and expenses that do not represent cash
    
    
    
    
    
    
    (18,444
    )
    
    
    (4,527
    )Decrease (increase) in assets that affect the cash flows:Accounts receivable  dealers
    
    
    (67,982
    )
    
    
    (25,325
    )
    
    
    (16,731
    )Accounts receivable from related parties
    
    
    (25,830
    )
    
    
    (383
    )
    
    
    (29
    )Other
    
    
    (13,237
    )
    
    
    (5,670
    )
    
    
    (33,901
    )Increase (decrease) in liabilities that affect the cash flows:Loans and financing
    
    
    3,072
    
    
    
    9,532
    
    
    
    20,698Dividends payable
    
    
    940
    
    
    
    
    
    
    
    Accounts payable
    
    
    6,284
    
    
    
    32,806
    
    
    
    (12,088
    )Accounts payable to related parties
    
    
    20,698
    
    
    
    963
    
    
    
    Provisions
    
    
    131,015
    
    
    
    30
    
    
    
    (137
    )Other
    
    
    23,682
    
    
    
    12,486
    
    
    
    1,974Net cash provided by (used in) operating activities
    
    
    133,906
    
    
    
    101,810
    
    
    
    (40,518
    )CASH FLOWS FROM FINANCING ACTIVITIESLoans and financing from third parties
    
    
    (46,349
    )
    
    
    66,750
    
    
    
    282,050Loans and financing from related parties
    
    
    
    
    
    
    3,000
    
    
    
    98,947Payments of loans and financing to third parties
    
    
    
    
    
    
    (68,759
    )
    
    
    (17,496
    )Payments of loans and financing to related parties
    
    
    
    
    
    
    
    
    
    
    (137,677
    )Other
    
    
    10,931
    
    
    
    (16,272
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (35,418
    )
    
    
    (15,281
    )
    
    
    225,824CASH FLOWS FROM INVESTING ACTIVITIESAdditions to property, plant and equipment
    
    
    (75,600
    )
    
    
    (99,730
    )
    
    
    (161,968
    )Investment in wholly-owned subsidiary
    
    
    
    
    
    
    (15,000
    )
    
    
    Loan to related parties
    
    
    
    
    
    
    14,246
    
    
    
    (35,876
    )Other investments
    
    
    
    
    
    
    25,397
    
    
    
    Net cash used in investing activities
    
    
    (75,600
    )
    
    
    (75,087
    )
    
    
    (197,844
    )NET CASH FLOW FOR THE YEAR
    
    
    22,888
    
    
    
    11,442
    
    
    
    (12,538
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    17,495
    
    
    
    6,053
    
    
    
    18,591CASH OF NEWLY CONSOLIDATED ENTITIES 1/1/03 (See note 9)
    
    
    3,548
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS ON A CONSOLIDATED BASIS
    
    
    21,043
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS, END OF YEAR
    
    
    43,931
    
    
    
    17,495
    
    
    
    6,053
 The accompanying notes are an integral part of these financial statements. H-4
    Table of Contents  CIEN  COMPANHIA DE INTERCONEXÃO ENERGÉTICA NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS
ENDED DECEMBER 31, 2003 and 2002
(In thousands of U.S. dollars, unless otherwise indicated)  1.
    
    OPERATING CONTEXTCIEN is engaged in the transmission and commercialization of electricity,
including activities of importation and exportation, implementing the
necessary services for the realization of this objective.The Company obtained authorization to exploit the Brazil-Argentina
interconnection project, which involves the purchase of capacity and
electricity imported from Argentina through an international bid initiated
by Centrais Elétricas do Brasil S.A.  Eletrobrás,
through its subsidiaries Centrais Elétricas do Sul do Brasil S.A.  Eletrosul and Furnas Centrais
Elétricas S.A.. The Company was granted a concession to construct an
electricity transmission line between the substation Rincón de Santa Maria
(Argentina) and Itá (Brazil), of approximately 507 kilometers, and to
annually import 1,000 MW of electric energy from Argentina, for a 20 year
period.On May 5, 1998, CIEN executed contracts for the sale of electric energy to
Eletrosul (300 MW annually) and Furnas (700 MW annually) for term of the
above mentioned concession period. As a result of a corporate restructuring,
Eletrosul incorporated Tractebel Energia S.A.  Tractebel, which assumed the
above contract. On December 13, 1999, CIEN executed two take or pay
contracts for the sale of electric energy to COPEL  Companhia Paranaense de
Energia (800 MW annually) for the concession period. To meet the
requirements under the contracts with COPEL, CIEN constructed a second
transmission line, with 488.7 kilometers and a capacity of 1,050 MW. On
December 31, 2002, CIEN executed a contract for the sale of electric energy
to Companhia de Eletricidade do Rio de Janeiro  CERJ (200 MW annually) for
the concession period. On December 10, 2003 the contracts with COPEL were
amended to modify the volume of energy from 800 MW to 400 MW and reduce the
contract term to end in 2015 (see note 4).2.
    
    SIGNIFICANT ACCOUNTING PRACTICES  a)
    
    GeneralThe financial statements of the Company have been prepared in accordance
with generally accepted accounting principles in Chile and the
regulations established by the SVS (collectively Chilean GAAP), and
the specific corporate regulations of Law No. 18,046, related to the
formation, registration and liquidation of Chilean corporations, among
others. Certain amounts in the prior years financial statements have
been reclassified to conform to the current years presentation. H-5
    Table of Contents  CIEN  Companhia de Interconexão Energética  The preparation of financial statements in conformity with Chilean GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, 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 year.
Actual results could differ from those estimates.In certain cases generally accepted accounting principles in Chile
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.b)
    
    Financial yearsThese financial statements relate to the years ended December 31, 2003
and 2002.c)
    
    Translation basis  c.1.
    
    Purpose of financial statementsThese financial statements have been prepared in accordance with
Technical Bulletin No. 64 established by the Colegio de Contadores
de Chile A.G.c.2.
    
    Translation into US DollarsThe Company maintains its accounting records in Reais, the currency
of the country in which the Company is incorporated and operates,
according to accounting practices adopted in Brazil.The assets and liabilities as of December 31, 2003 and 2002, and
the income for the years then ended have been translated from Reais
into dollars using the translation methodology applicable to
investments in countries with unstable currencies and are not
considered an extension of the operations of the investing Company,
as described in Technical Bulletin No. 64, summarized as follows:  c.2.1.
    
    Non monetary assets and liabilitiesThe non monetary assets and liabilities and the shareholders
equity are expressed in historic US dollars, translating the
Reais of each transaction into US dollars, using the
historical exchange rate in effect at the date of the
transaction. H-6
    Table of Contents  CIEN  Companhia de Interconexão Energética  c.2.2.
    
    Monetary assets and liabilitiesThe monetary assets and liabilities have been translated into
US dollars at the exchange rate prevailing at year end,
applicable to remittances abroad.The exchange rate in effect at December 31, 2003 was US$1 =
R$2.8892 (US$1 = R$3.5333 in 2002).c.2.3.
    
    Income statement accountsThe income statement accounts  except for those that are
determined at historical amounts  were translated using a
monthly average exchange rate.The resulting translation gain or loss is recorded in
non-operating income (expense) in the income statement.  d)
    
    Short-term investmentsThe short-term investments are comprised of short-term funds and fixed
income securities. These investments are stated at cost plus interest
earned through to the balance sheet date and do not exceed market value.e)
    
    InvestmentsInvestments in related parties in which the Company has significant
influence or are part of our shareholders consolidated group are
accounted for by the equity method. Other investments are presented at
acquisition cost.f)
    
    Property, plant and equipmentProperty, plant and equipment are recorded at cost of acquisition and/or
construction, including the interest and financing related to financing
the construction in progress during the construction of the projects
CIEN I and CIEN II.Depreciation is calculated by the straight-line method using rates
defined by the Brazilian National Agency of Electric Energy (ANEEL),
which takes into account the useful life of the assets used in the
electric sector in Brazil.g)
    
    Government severance indemnity fund for employeesUnder Brazilian labor legislation, the Company is required to make
monthly contributions of 8% on payroll expense to the Government though
a financial institution. Such amount can be with drawn by the employee
when dismissed or to purchase house.h)
    
    Loans and financingAre adjusted for monetary and exchange variation, plus accrued interest
up to the balance sheet date. H-7
    Table of Contents  CIEN  Companhia de Interconexão Energética  i)
    
    Income tax and social taxes contributionsIncome tax payables and social taxes contributions due are recorded as
liabilities, net of prepayments and other credits as incurred.Current income tax provision is calculated based on the taxable income,
at the current statutory rates of 15% plus an additional of 10% applied
to the taxable income that exceeds the amount of R$240,000.00 per year.The social security contribution rate is 9% calculated of taxable
income.j)
    
    Deferred income and social contribution taxesIn accordance with the Technical Bulletin No. 60 from Colegio de
Contadores de Chile A.G. and Circulars Nos. 1466 and 1560 of
Superintendencia de Valores e Seguros (SVS) of Chile, the Company has
recorded on the statements of income the effects of deferred income and
social contribution taxes related to temporary differences, tax loss
carryforwards and other events that generate differences between the
book basis and tax basis, in accordance with the rates in force on the
estimated year of its reversal.k)
    
    Accumulated deficit (pre-operating costs)Represents the expenses incurred, net of the financial revenues, during
the pre-operating period ended June 21, 2000 related to the first
transmission line construction project, upon the Companys
incorporation, which in accordance with Chilean GAAP are recognized
directly as reduction of equity.l)
    
    Operating revenuesRevenue consists of revenue for the supply of electric power, among
which is included energy supplied and unbilled at each year-end, valued
at the selling price using the current rates which has been included in
revenue from operations. The unbilled amount is presented in current
assets as accounts receivable and the corresponding cost is included in
cost of operations.m)
    
    Provision for contingenciesProvisions for loss contingencies are recorded at amounts estimated by
the Companys management based on advice of external legal counsel to
cover probable losses.n)
    
    Vacation accrualThe Company has recorded a vacation accrual incurred up to the balance
sheet date, according to the Technical Bulletin No. 47 of Colegio de
Contadores de Chile A.G. H-8
    Table of Contents  CIEN  Companhia de Interconexão Energética  o)
    
    Cash flowsThe statements of cash flows have been prepared in accordance with the
indirect method.Investments considered as cash equivalents, as indicated in point 6.2 of
Technical Bulletin No.50 issued by the Chilean Association of
Accountants, include time deposits, investments in fixed income
securities classified as marketable securities, repurchase agreements
classified as other current assets, and other cash balances classified
as other accounts receivable with maturities less than 90 days.For classification purposes, cash flows from operations include
collections from clients and payments to suppliers, payroll costs and
taxes.p)
    
    ReclassificationsThe Company has made a reclassification of part of its loans from loans
and financing in the long-term to accounts payable to related parties in
the current liabilities in the amount US$40,614 as of December 31, 2002,
to conform to the 2003 presentation. 2002Balance sheet reclassificationLong-term loans and financing
    
    
    (40,614
    )Short-term related party liabilities
    
    
    40,614
  q)
    
    Change in accounting principlesThere were no changes in accounting principles during the years ended
December 31, 2003 and 2002 that would affect the comparison with the
prior year financial statements.  3.
    
    SHORT-TERM FINANCIAL INVESTMENTSThe amounts related to short-term financial investments are as follows: Financial institution
    
    Annual rate
    
    Instrument
    
    2003
    
    2002Mellon Brascan Bank
    
    
    24
    %
    
    Variable Income Investment Funds
    
    
    15,936
    
    
    
    14,318Banco Votorantim
    
    
    25.49
    %
    
    Certificate of Bank Deposit - CDB
    
    
    
    
    
    
    2,932Banco Santander
    
    
    18.14
    %
    
    Fixed Income Investment Funds
    
    
    19,087
    
    
    
    Banco Santander
    
    
    16.86
    %
    
    Certificate of Bank Deposit - CDB
    
    
    2,923
    
    
    
    Bradesco
    
    
    16.49
    %
    
    Certificate of Bank Deposit - CDB
    
    
    988
    
    
    
    Others
    
    
    
    
    
    
    
    
    201
    
    
    
    Total
    
    
    
    
    
    
    
    
    39,135
    
    
    
    17,250
 H-9
    Table of Contents  CIEN  Companhia de Interconexão Energética  4.
    
    ACCOUNTS RECEIVABLE  DEALERSThe amounts related to accounts receivable  dealers are as follow: OverdueUndue and overdue
    
    from 90 daysuntil 90 days
    
    to 1 year
    
    Total short-term
    
    Total long-term2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002COPEL Distribuição S.A.
    
    
    50,552
    
    
    
    31,823
    
    
    
    
    
    
    
    
    
    
    
    50,552
    
    
    
    31,823
    
    
    
    65,416
    
    
    
    Furnas Centrais Elétricas S.A.
    
    
    14,429
    
    
    
    12,801
    
    
    
    877
    
    
    
    
    
    
    
    15,306
    
    
    
    12,801
    
    
    
    
    
    
    
    Tractebel Energia S.A.
    
    
    6,244
    
    
    
    7,487
    
    
    
    2,940
    
    
    
    
    
    
    
    9,184
    
    
    
    7,487
    
    
    
    
    
    
    
    Mercado Atacadista de Energia
- MAE
    
    
    
    
    
    
    11,928
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,928
    
    
    
    
    
    
    
    Dona Francisca Energética S.A.
    
    
    77
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    7,835
    
    
    
    
    
    
    
    226
    
    
    
    
    
    
    
    8.061
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    79,137
    
    
    
    64,039
    
    
    
    4,066
    
    
    
    
    
    
    
    83.203
    
    
    
    64,039
    
    
    
    65,416
    
    
    
    
  On December 10, 2003 the COPEL contracts were amended to reduce the minimum
volume of energy under the take or pay contract from 800 MW to 400 MW
effective August 18, 2003 and reduce the term of the contract to 2015, among
other modifications. The effects of this modification are reflected in the
financial statements as of December 31, 2003. The agreement provided the
outstanding balances from 2002 and energy billed from January through May
2003 will be received in 60 monthly installments, which includes price-level
adjustments, included in short and long-term accounts receivable-dealer.
COPEL has been making the monthly payments under the refinancing agreement
of the receivables.5.
    
    OTHER ACCOUNTS RECEIVABLEThe amounts related to other accounts receivable are as follows: 2003
    
    2002Dona Francisca Energética S.A.
    
    
    557
    
    
    
    1,087ABB Ltda.
    
    
    1,006
    
    
    
    Advances to lawyers
    
    
    798
    
    
    
    Enertrade Comércio de Energia S.A.
    
    
    
    
    
    
    312Advances to personnel
    
    
    21
    
    
    
    60Other
    
    
    159
    
    
    
    949Total
    
    
    2,541
    
    
    
    2,408
 H-10
    Table of Contents  CIEN  Companhia de Interconexão Energética  6.
    
    ACCOUNTS RECEIVABLE FROM AND PAYABLE TO RELATED PARTIESThe transaction and balances detailed below correspond to entities that are
subsidiaries of Endesa-Spain, CIENs ultimate parent company. StatementAssets
    
    of incomeRevenueShort-term
    
    Long-term
    
    effects
    
    Transactions2003
    
    2003
    
    2003CERJ  Cia. de Eletricidade do Rio de Janeiro S.A.
    
    
    21,347
    
    
    
    
    
    
    
    61,780
    
    
    Energy supplyCOELCE  Cia. Energética do Ceará
    
    
    4,475
    
    
    
    
    
    
    
    23,536
    
    
    Energy supplyCEMSA  Comercializadora del Mercorsur S.A.
    
    
    258
    
    
    
    
    
    
    
    40
    
    
    Energy supplyCentral Geradora Termelétrica Fortaleza
    
    
    130
    
    
    
    
    
    
    
    129
    
    
    Rendering of servicesIngendesa Brasil Ltda.
    
    
    23
    
    
    
    
    
    
    
    
    
    
    Rendering of servicesTotal
    
    
    26,233
    
    
    
    
    
    
    
    87,344
 StatementAssets
    
    of incomeRevenueShort-term
    
    Long-term
    
    effects
    
    Transactions2002
    
    2002
    
    2002CTM  Compañía de Transmisión del Mercosur S.A.
    
    
    
    
    
    
    33,468
    
    
    
    907
    
    
    Loan contractTESA  Transportadora de Energía S.A.
    
    
    
    
    
    
    7,039
    
    
    
    1,730
    
    
    Loan contractCTM  Compañía de Transmisión del Mercosur S.A.
    
    
    
    
    
    
    805
    
    
    
    50
    
    
    Credit assignmentCERJ  Cia. de Eletricidade do Rio de Janeiro S.A.
    
    
    173
    
    
    
    
    
    
    
    168
    
    
    Energy supplyCEMSA  Comercializadora del Mercorsur S.A.
    
    
    211
    
    
    
    
    
    
    
    
    
    
    Energy supplyIngendesa Brasil Ltda.
    
    
    19
    
    
    
    
    
    
    
    
    
    
    Rendering of servicesTotal
    
    
    403
    
    
    
    41,312
    
    
    
    2,855
 StatementLiabilities
    
    of incomeShort-term
    
    Effect - charges
    
    Transactions2003
    
    2003CEMSA  Comercializadora del Mercorsur S.A.
    
    
    25,555
    
    
    
    (87,948
    )
    
    Energy supplyCentral Costanera S.A.
    
    
    4,303
    
    
    
    (36,123
    )
    
    Energy supplyEndesa Internacional S.A.
    
    
    57,917
    
    
    
    (4,453
    )
    
    FinancingIngendesa Brasil Ltda.
    
    
    23
    
    
    
    (23
    )
    
    ProvisionTotal
    
    
    87,798
    
    
    
    (128,547
    )
 StatementLiabilities
    
    of incomeShort-term
    
    Effect - charges
    
    Transactions2002
    
    2002CEMSA  Comercializadora del Mercorsur S.A.
    
    
    8,062
    
    
    
    (74,259
    )
    
    Energy supplyCentral Costanera S.A
    
    
    2,899
    
    
    
    (39,048
    )
    
    Energy supplyEndesa Internacional S.A.
    
    
    56,139
    
    
    
    (2,406
    )
    
    FinancingTotal
    
    
    67,100
    
    
    
    (115,713
    )
  The account payable to Endesa International S.A. refers to a loan payable in
US dollars, obtained for the acquisition of machinery and equipment and the
completion of the construction of the second transmission line. Such
transaction was carried out under market conditions, at the annual average
rate of 5.56%.Transactions with related parties are carried out under market conditions
applicable to similar transactions with third parties. H-11
    Table of Contents  CIEN  Companhia de Interconexão Energética  7.
    
    TAXES AND SOCIAL CONTRIBUTIONS PAYABLE AND DEFERRED INCOME AND SOCIAL
CONTRIBUTION TAXESThe income tax and social contribution as of December 31, 2003 and 2002 are
as follows: 2003
    
    2002Income tax
    
    
    27,088
    
    
    
    3,422Social contribution
    
    
    9,501
    
    
    
    1,374Tax for social security financing (COFINS)
    
    
    4,492
    
    
    
    6,375Social integration program (PIS)
    
    
    2,081
    
    
    
    1,837Other
    
    
    50
    
    
    
    31Total
    
    
    43,212
    
    
    
    13,039
  Technical Bulletins (TB) Nos. 60 and 61 of the Colegio de Contadores de
Chile A.G. established that companies must record deferred income and social
contribution taxes related to temporary differences, tax loss carryforwards
and other events that generate differences between the book basis and tax
basis of assets and liabilities. Additionally, Circular No. 1,466 of
Superintendencia de Valores e Seguros (SVS) of Chile, requires that, as from
January 1, 2000, companies apply TB Nos. 60 and 61. Concept
    
    2003
    
    2002Temporary differencesExchange variations
    
    
    29,955
    
    
    
    Provisions (Drawback)
    
    
    (14,881
    )
    
    
    Tax loss carryforwards
    
    
    
    
    
    
    (9,840
    )Total
    
    
    15,074
    
    
    
    (9,840
    )
  The net deferred income tax as of December 31, 2003 was a liability of
US$15,074 and as of December 31, 2002 was an asset of US$9,840, originated
from exchange variations and tax loss carryforwards generated prior to 2002,
recorded based on TB Nos. 60 and 61.The income tax expense for 2003 charged to the statement of income is
detailed below: 2003
    
    2002
    
    2001Current income and social contribution taxes
    
    
    (43,150
    )
    
    
    (6,039
    )

    
    
    Effects of deferred income and social contribution taxes
    
    
    (15,400
    )
    
    
    6,598
    

    
    
    13,189Total
    
    
    (58,550
    )
    
    
    559
    

    
    
    13,189
 H-12
    Table of Contents  CIEN  Companhia de Interconexão Energética  8.
    
    PROPERTY, PLANT AND EQUIPMENTThe amounts related to property, plant and equipment for the years ended
December 31, 2002 and 2003 are as follows: December 31, 2003Cost
    
    Depreciation
    
    NetLand
    
    
    5,819
    
    
    
    
    
    
    
    5,819Buildings and constructions
    
    
    16,542
    
    
    
    (907
    )
    
    
    15,635Transmission lines/machinery and equipment
    
    
    544,220
    
    
    
    (48,421
    )
    
    
    495,799Total
    
    
    560,762
    
    
    
    (49,328
    )
    
    
    511,434Construction in progress
    
    
    10,148
    
    
    
    
    
    
    
    10,148Other property, plant and equipment (Note 13)
    
    
    72,198
    
    
    
    (37
    )
    
    
    72,161Total other property, plant and equipment
    
    
    82,346
    
    
    
    (37
    )
    
    
    82,309Total property, plant and equipment
    
    
    648,927
    
    
    
    (49,365
    )
    
    
    599,562
 December 31, 2002Cost
    
    Depreciation
    
    NetLand
    
    
    5,819
    
    
    
    
    
    
    
    5,819Buildings and constructions
    
    
    4,554
    
    
    
    (195
    )
    
    
    4,359Transmission lines/machinery and equipment
    
    
    455,965
    
    
    
    (21,929
    )
    
    
    434,036Total
    
    
    460,519
    
    
    
    (22,124
    )
    
    
    438,395Construction in progress
    
    
    17,254
    
    
    
    
    
    
    
    17,254Other property, plant and equipment
    
    
    110
    
    
    
    (17
    )
    
    
    93Total other property, plant and equipment
    
    
    17,364
    
    
    
    (17
    )
    
    
    17,347Total property, plant and equipment
    
    
    483,702
    
    
    
    (22,141
    )
    
    
    461,561
  The depreciation expense, which affects operating costs in
2003, 2002, and 2001
amounts to US$18,672, US$11,737, and 9,341 respectively.The Companys property, plant and equipment comprise the two transmission
lines, with 350 kilometers in Brazil, and a capacity of 1,050 MW each. Such
lines have a connection with the transmission lines from Argentina, in the
south of Brazil. The lines started their operations in June 2000 and August
2002, respectively.As of December 31, 2003, the Company had property damage insurance and loss
of profit insurance, which Companys Management considers to be sufficient
to cover material losses. H-13
    Table of Contents  CIEN  Companhia de Interconexão Energética  9.
    
    INVESTMENTS IN WHOLLY-OWNED SUBSIDIARIESThe Companys two majority owned subsidiaries were considered development
stage entities until December 31, 2002. Consequently, under Chilean GAAP,
the losses incurred during the development stage of subsidiary companies
were recorded directly in the companys equity, without being required to be
consolidated. Capitalparticipation%
    
    December 31, 2002EquityAsset
    
    pick-upCTM  Compañía de Transmisión del Mercosur S.A.
    
    
    99.99
    
    
    
    10,093
    
    
    
    (3,049
    )TESA  Transportadora de Energía S.A.
    
    
    100.00
    
    
    
    4,461
    
    
    
    (4,824
    )Total
    
    
    
    
    
    
    14,554
    
    
    
    (7,873
    )
  The equity on CTM and TESA includes the cannon adjustment (the main income
of these companies), that restore the economic and financial equilibrium due
to the depreciation of the Argentinean peso in relation to the dollar,
occurred in 2002.Beginning on January 1, 2003 the Company consolidated its two subsidiaries
as they no longer qualified as development stages entities under Chilean
GAAP.The total net assets incorporated to the consolidation as of January 1, 2003
for the newly consolidated subsidiaries was as follows: As of January 1, 2003Cash and cash equivalents
    
    
    3,313Short-term investments
    
    
    235Short-term receivables
    
    
    14,030Long-term receivables
    
    
    (38,611
    )Fixed assets
    
    
    81,073Other non current assets
    
    
    4,081Short-term loan and financing
    
    
    (4,203
    )Other current liabilities
    
    
    (11,273
    )Long-term loan financing
    
    
    (34,091
    )Other non-current liabilities
Total newly consolidated net assets
    
    
    14,554
 H-14
    Table of Contents  CIEN  Companhia de Interconexão Energética  10.
    
    OTHER ASSETSOther assets refer to prepaid financial charges related to financing and
loans in foreign currency, which are being appropriated to expense on a
straight line basis in accordance with the duration of the contracts. 2003
    
    2002Short-term:Prepaid financial chargesAgent participation
    
    
    71
    
    
    
    71Insurance premiums
    
    
    2,915
    
    
    
    2,915Other
    
    
    37
    
    
    
    18Total short-term
    
    
    3,023
    
    
    
    3,004Long-term:Prepaid financial chargesAgent participation
    
    
    490
    
    
    
    566Insurance premiums
    
    
    18,878
    
    
    
    21,788Other
    
    
    5,976
    
    
    
    Total long-term
    
    
    25,344
    
    
    
    22,354
  11.
    
    LOANS AND FINANCINGCorrespond to local and foreign currency loans, as follows: December 31, 2003Annual
    
    Short-term
    
    MaturityCreditors
    
    Currency
    
    Rates
    
    Principal
    
    Interest
    
    Total
    
    dateSantander Central Hispano  EKN
    
    US$
    
    7.79%
    
    
    40,447
    
    
    
    385
    
    
    
    40,832
    
    
    
    03.11.2010BID  tranche A
    
    US$
    
    7.06%
    
    
    64,095
    
    
    
    350
    
    
    
    64,445
    
    
    
    05.15.2013BID  tranche B
    
    US$
    
    Libor + 1.25%
    
    
    140,623
    
    
    
    394
    
    
    
    141,017
    
    
    
    05.15.2011Santander Central Hispano  KFW
    
    US$
    
    5.17%
    
    
    124,168
    
    
    
    792
    
    
    
    124,960
    
    
    
    05.15.2012Total
    
    
    
    
    
    
    369,333
    
    
    
    1,921
    
    
    
    371,254
 December 31, 2002Short-term
    
    Long-Annual
    
    
    
    term
    
    MaturityCreditors
    
    Currency
    
    Rates
    
    Principal
    
    Interest
    
    Total
    
    Principal
    
    dateSantander Central
Hispano  EKN
    
    US$
    
    7.79%
    
    
    6,741
    
    
    
    470
    
    
    
    7,211
    
    
    
    40,448
    
    
    
    03.11.10BID  tranche A
    
    US$
    
    7.06%
    
    
    4,455
    
    
    
    423
    
    
    
    4,878
    
    
    
    42,318
    
    
    
    05.15.13BID  tranche B
    
    US$
    
    Libor + 1.25%
    
    
    17,078
    
    
    
    494
    
    
    
    17,572
    
    
    
    128,083
    
    
    
    05.15.11Santander Central
Hispano  KFW
    
    US$
    
    5.17%
    
    
    14,608
    
    
    
    929
    
    
    
    15,537
    
    
    
    124,168
    
    
    
    05.15.12Total
    
    
    
    
    
    
    42,882
    
    
    
    2,316
    
    
    
    45,198
    
    
    
    335,017
  The Company entered into foreign currency loans to finance the construction
of the transmission lines and acquisition of the related equipment and is
collateralized by these assets and by receivables generated from the
project.The fluctuation of the US dollar against the Brazilian Reais during 2003 was
negative by 18.23% (in 2002 was positive by 52.27%). H-15
    Table of Contents  CIEN  Companhia de Interconexão Energética  As part of the contractual conditions of the loans signed by the Company and
its subsidiaries with IDB, KFW, Santander and Credit Agricole Indosuez -
CAI, the Company and the subsidiary TESA assumed several obligations (covenants). On July 28,
2003, the Company received a notification from the Collateral Agent
according to which such obligations had not been complied with. On December
31, 2003, the Company received a waiver from the representative of all the
banks, approving the Companys request dated August 28, 2003. The above
mentioned waiver temporarily cured the Companys default situation, since
the conditions are scheduled to be complied with according to specific
deadlines that are started in the financing documents originally signed.
Also the Company understands that all the requirements of the waiver will be
complied within the deadlines. If the conditions are not met on the
established deadlines and the collateral agent considers that the adverse
situation is irreversible, the banks may require the acceleration of the
loan maturities.In addition, with respect to these loans, there is a commitment assumed by
the Company, according to which the indebtedness incurred in the normal
course of operations should not exceed US$1 million. In May 2003, the
Company advised the Collateral agent that it had not complied with this
obligation and requested a waiver. At that time, the Collateral Agent did
not formally reply to the Companys request and/or commented on this matter
in his notification mentioned above (August 28, 2003 or in the December 31,
2003 waiver). The Companys management understands that absence of a formal
pronouncement of the banks constitutes an implicit representation that the
Company had not defaulted in relation to this obligation, including as of
December 31, 2003. However, according to Chilean accounting principles,
considering that the default situation allows the banks to require the
acceleration of the repayments, and also considering the Company may request
additional time for solving the default, the Company reclassified its
indebtedness with these banks from long-term to current liabilities.The negative working capital presented in the statement of financial
position as of December 31, 2003 was significantly affected by the
reclassification of loans as mentioned in the preceding paragraph. These
loans are guaranteed by Endesa International, as subsidiary of our ultimate
parent company Endesa-Spain. Consequently, continuity of the Company
operations is not affected by our negative operating cash flows.12.
    
    ACCOUNTS PAYABLE TO THIRD PARTIESAt December 31, 2003 and 2002, the amounts related to accounts payable are
as follows: 2003
    
    2002Dona Francisca Energética S.A.
    
    
    2,190
    
    
    
    6,254Mercado Atacadista de Energia  MAE
    
    
    12,758
    
    
    
    8,931Cost for the use of the transmission system
    
    
    1,881
    
    
    
    978ABB Ltda.
    
    
    8,131
    
    
    
    1,142Petrobras Distribuidora
    
    
    2,282
    
    
    
    Others
    
    
    240
    
    
    
    1,663Total
    
    
    27,482
    
    
    
    18,968
 H-16
    Table of Contents  CIEN  Companhia de Interconexão Energética  13.
    
    PROVISIONS 2003
    
    2002Short-term
    
    Long-term
    
    Short-term
    
    Long-termProvision for employees vacation
    
    
    199
    
    
    
    
    
    
    
    118
    
    
    
    Drawback provision
    
    
    
    
    
    
    112,467
    
    
    
    
    
    
    
    Provision for contingencies
    
    
    1,395
    
    
    
    4,054
    
    
    
    
    
    
    
    580Total
    
    
    1,594
    
    
    
    116,521
    
    
    
    118
    
    
    
    580
  The Company has imported equipment for projects (phases CIEN I and CIEN II)
based on a special tax incentive regime (drawback), which means that the
Company is exempt from the Import Tax and IPI (excise tax). In addition, the
Company obtained a suspension of the ICMS tax levied by the state of Rio de
Janeiro on imported equipment. In spite of the above, the Foreign Trade
Department (DECEX), in charge of the tax incentive, annulled the exemption
for the Companys importations after March 31, 2001. CIEN obtained a court
injunction and claimed an extension of the exemption until March 31, 2003
(awaiting the pronouncement of the foreign Trade Secretariat on the effects
of the administrative action submitted by CIEN). As the court injunction was
obtained, the drawback regime was considered as extended up to March 31,
2003. However, after the pronouncement of the Foreign Trade Secretariat, the
judge declared the process as ended without examining its merits.Based on the recent opinions of its legal counsel and taxes consultants,
the Company decided to accrual the taxes adjusted up to December 31, 2003,
as follows: 2003Principal
    
    
    75,310Interest/monetary restatement
    
    
    37,157Total
    
    
    112,467
  14.
    
    SHAREHOLDERS EQUITY Paid-in
    
    Deficit for the
    
    Retained earningscapital
    
    pre-operating period
    
    (accumulated deficit)
    
    TotalBalance as of January 1, 2002
    
    
    194,633
    
    
    
    
    
    
    
    (27,685
    )
    
    
    166,948Deficit for the pre-operating period (Note 2k)
    
    
    
    
    
    
    (24,648
    )
    
    
    
    
    
    
    (24,648
    )Net income for the year
    
    
    
    
    
    
    
    
    
    
    22,360
    
    
    
    22,360Balance as of December 31, 2002
    
    
    194,633
    
    
    
    (24,648
    )
    
    
    (5,325
    )
    
    
    164,660Dividends
    
    
    
    
    
    
    
    
    
    
    (1,106
    )
    
    
    (1,106
    )Net income for the year
    
    
    
    
    
    
    
    
    
    
    41,695
    
    
    
    41,695Balance as of December 31, 2003
    
    
    194,633
    
    
    
    (24,648
    )
    
    
    35,264
    
    
    
    205,249
 H-17
    Table of Contents  CIEN  Companhia de Interconexão Energética  a.
    
    Dividends:The preferred shareholders (PN) have the right to receive a fixed annual
dividend, not cumulative, equal to 10% of the preferred paid-in capital,
if there are enough funds from the net income for the year. The common
shareholders (ON), after the deductions established in paragraph 24 of
the Companys by-laws, will receive minimum dividend equal to 25% of net
income for each year, adjusted in accordance with Law 6,404/76 and Law
10,303/01, from which the fixed dividends paid to the preferred
shareholders (PN) will be deducted.b.
    
    Deficit for the pre-operating subsidiaries and the company for the
period ended December 31, 2002: Deficit for theEntity
    
    pre-operating period2002
    
    AccumulatedSubsidiaries:CTM  Compañía de Transmisión del Mercosur S.A.
    
    
    2,661
    
    
    
    2,661TESA  Transportadora de Energía S.A.
    
    
    5,715
    
    
    
    5,715Total subsidiaries
    
    
    8,376
    
    
    
    8,376CIEN  Companhia de Interconexão Energética
    
    
    16,272
    
    
    
    16,272Total deficit for the pre-operating period
    
    
    24,648
    
    
    
    24,648
  15.
    
    OTHER NON-OPERATING REVENUES (EXPENSES)As of December 31, 2003 and 2002, the composition of other non-operating
revenues (expenses) is as follows: 2003
    
    2002Other non-operating revenues:Test energy of 2000 invoiced in 2003
    
    
    8,119
    
    
    
    Swap
    
    
    
    
    
    
    204Total
    
    
    8,119
    
    
    
    204Translation currency effect  Technical Bulletin no. 64
    
    
    23,627
    
    
    
    Total other non-operating revenues
    
    
    31,746
    
    
    
    204Other non-operating expenses:Bank expenses and fines
    
    
    (44,474
    )
    
    
    (4,780
    )Commission over loans with related parties
    
    
    (4,284
    )
    
    
    Contribution over financial disbursing (CPMF) and other
    
    
    (5,225
    )
    
    
    (4,211
    )Effects on MAE liquidations
    
    
    (1,326
    )
    
    
    Adjustment of the fixed asset translation into historical U.S. dollar
    
    
    
    
    
    
    (6,600
    )Other expenses
    
    
    (2,017
    )
    
    
    Total
    
    
    (57,326
    )
    
    
    (15,591
    )Translation currency effects  Technical Bulletin No. 64
    
    
    
    
    
    
    (25,459
    )Total
    
    
    (57,326
    )
    
    
    (41,050
    )
 H-18
    Table of Contents  CIEN  Companhia de Interconexão Energética  16.
    
    CONTINGENCIESThe Company has recorded a provision for contingencies amounting to
US$117,916 in 2003 as described in Note 13 (US$580 in 2002).17.
    
    GUARANTEESEndesa International S.A., our parent company is the guarantor of the loans
and financing obtained from the International Development Bank (IDB) and
KFW, until the financial institutions notification (Note 11).18.
    
    LOCAL AND FOREIGN CURRENCY  
    
    Assets Currency
    
    2003
    
    2002Current assetsAccounts receivable from related parties
    
    U.S. dollars
    
    
    258
    
    
    
    211Financial charges paid in advance
    
    U.S. dollars
    
    
    2,986
    
    
    
    2,986Total U.S. dollars
    
    
    3,244
    
    
    
    3,197Other
    
    Reais
    
    
    176,635
    
    
    
    91,862Total current assets
    
    
    
    
    179,879
    
    
    
    95,059Fixed assets
    
    Reais
    
    
    599,562
    
    
    
    461,561Other assetsInvestment in wholly-owned subsidiaries
    
    U.S. dollars
    
    
    
    
    
    
    14,554Accounts payable to related parties
    
    U.S. dollars
    
    
    
    
    
    
    41,312Financial charges paid in advance
    
    U.S. dollars
    
    
    19,368
    
    
    
    22,354Total U.S. dollars
    
    
    19,368
    
    
    
    78,220Other
    
    Reais
    
    
    72,392
    
    
    
    9,840Total other assets
    
    
    
    
    90,760
    
    
    
    88,060
  
    
    Current liabilities Currency
    
    2003From 90 daysTotal
    
    Until 90 days
    
    to 1 yearAnnual
    
    
    
    
    
    Annualrate
    
    
    
    
    
    rateCurrent liabilitiesLoans and financing
    
    U.S. dollars
    
    
    371,254
    
    
    
    
    
    
    
    4.46
    %
    
    
    371,254
    
    
    
    4.46
    %Accounts payable to
related parties
    
    U.S. dollars
    
    
    87,798
    
    
    
    29,882
    
    
    
    4.46
    %
    
    
    57,916
    
    
    
    4.46
    %Accounts payable
    
    U.S. dollars
    
    
    7,405
    
    
    
    
    
    
    
    
    
    
    
    7,405Total U.S. dollars
    
    
    466,457
    
    
    
    29,882
    
    
    
    
    
    
    
    402,259Accounts payable
    
    Reais
    
    
    20,077
    
    
    
    20,077
    
    
    
    
    
    
    
    Other
    
    Reais
    
    
    46,823
    
    
    
    46,823
    
    
    
    
    
    
    
    Total Reais
    
    
    66,900
    
    
    
    66,900
    
    
    
    
    
    
    
    Total current liabilities
    
    
    
    
    533,357
    
    
    
    96,782
    
    
    
    
    
    
    
    402,259
 H-19
    Table of Contents  CIEN  Companhia de Interconexão Energética Currency
    
    2002From 90 daysTotal
    
    Until 90 days
    
    to 1 yearAnnual
    
    
    
    
    
    Annualrate
    
    
    
    
    
    rateCurrent liabilitiesLoans and financing
    
    U.S. dollars
    
    
    45,198
    
    
    
    
    
    
    
    5.56
    %
    
    
    45,198
    
    
    
    5.56
    %Accounts payable to
related parties
    
    U.S. dollars
    
    
    67,100
    
    
    
    10,961
    
    
    
    5.56
    %
    
    
    56,139
    
    
    
    5.56
    %Accounts payable
    
    U.S. dollars
    
    
    1,142
    
    
    
    1,142
    
    
    
    
    
    
    
    Total U.S. dollars
    
    
    113,440
    
    
    
    12,103
    
    
    
    
    
    
    
    101,337Accounts payable
    
    Reais
    
    
    17,826
    
    
    
    2,641
    
    
    
    
    
    
    
    15,185Other
    
    Reais
    
    
    13,157
    
    
    
    13,157
    
    
    
    
    
    
    
    Total Reais
    
    
    30,983
    
    
    
    15,798
    
    
    
    
    
    
    
    15,185Total current liabilities
    
    
    
    
    144,423
    
    
    
    27,901
    
    
    
    
    
    
    
    116,522
  
    
    Non-current liabilities 2003From
    
    FromTotal
    
    1 to 3 years
    
    3 to 5 yearsNon-current liabilitiesLoans and financing
    
    Reais
    
    
    34,316
    
    
    
    
    
    
    
    34,316Provisions
    
    Reais
    
    
    116,521
    
    
    
    4,054
    
    
    
    112,467Deferred income tax
    
    Reais
    
    
    15,074
    
    
    
    
    
    
    
    15,074Total Reais
    
    
    165,911
    
    
    
    4,054
    
    
    
    161,857Total non-current liabilities
    
    
    
    
    165,911
    
    
    
    4,054
    
    
    
    161,857
 2002Total
    
    From 1 to 3 years
    
    From 3 to 5 years
    
    From 5 to 10 years
    
    More than 10 yearsAnnual rate
    
    
    
    
    
    Annual rate
    
    
    
    
    
    Annual rate
    
    
    
    
    
    Annual rateNon-current liabilitiesLoans and
financing
    
    U.S. dollars
    
    
    335,017
    
    
    
    85,767
    
    
    
    6.87
    %
    
    
    85,767
    
    
    
    6.87
    %
    
    
    158,549
    
    
    
    6.87
    %
    
    
    4,934
    
    
    
    6.87
    %Total U.S. dollars
    
    
    335,017
    
    
    
    85,767
    
    
    
    
    
    
    
    85,767
    
    
    
    
    
    
    
    158,549
    
    
    
    
    
    
    
    4,934Provisions
    
    Reais
    
    
    580
    
    
    
    580Total Reais
    
    
    580
    
    
    
    580Total non-current
liabilities
    
    
    
    
    335,597
    
    
    
    86,347
    
    
    
    
    
    
    
    85,767
    
    
    
    
    
    
    
    158,549
    
    
    
    
    
    
    
    4,934
  19.
    
    SANCTIONSAs of December 31, 2003 and 2002, there are no sanctions against the Company
or its directors or managers. H-20
    Table of Contents  CIEN  Companhia de Interconexão Energética  20.
    
    WHOLESALE ELECTRIC POWER MARKET (MAE) Accounts
    
    AccountsAccounts receivable and payable to MAE
    
    receivable
    
    payable
    
    NetBalance as of December 31, 2002
    
    
    11,928
    
    
    
    (15,185
    )
    
    
    (3,257
    )Open balance of 2002, received in 2003
    
    
    (11,928
    )
    
    
    
    
    
    
    (11,928
    )Open balance of 2002, paid in 2003
    
    
    
    
    
    
    15,185
    
    
    
    15,185Estimated provision  November
    
    
    
    
    
    
    (7,470
    )
    
    
    (7,470
    )Accrual based on estimates  December
    
    
    
    
    
    
    (5,288
    )
    
    
    (5,288
    )Balance as of December 31, 2003
    
    
    
    
    
    
    (12,758
    )
    
    
    (12,758
    )
  21.
    
    SUBSEQUENT EVENTSThere are no known subsequent events to the financial statements date that
could significantly impact on those financial statements.22.
    
    ENVIRONMENT (UNAUDITED)On March 07, 2002, IBAMA issued a license of operation No. 196/2002,
allowing CIEN to operate the interconnection system Brazil-Argentina II,
including the second converter station of Garabí, the transmission line of
Garabí-Itá II and the enlargement of the substation of Itá (Bay 2) during
four (4) years.In May 2003, the Company updated its Plan of Environment Management (PGA)
for the operation stage, integrating the interconnection systems
(Brazil-Argentina I and II). This third revision of the Brazilian PGA was
submitted for BID ratification, which was sent together with the PGAs of the
operation stage of each one of the Argentina interval (PGA CTM and PGA
TESA).Since August 2002, the specific field campaigns for the management of
accidental impacts on the fauna have started. The information obtained
through the campaigns and field observations will be consolidated together
with the forms according to the impacts on fauna, completed by the operation
and maintenance teams during the year.In October 2003, the Company renewed at the State Secretariat of Environment
(SEMA/RS) the license for the activities of intervention in the native
vegetation, related to the maintenance of the Transmission Lines, Garabi-Itá
I and II. These credentials were renewed with the Forests and Protected
Areas Department (DEFAP) of SEMA/RS and are effective for one year until
October 31, 2004. H-21
    Table of Contents  CIEN  Companhia de Interconexão Energética  23.
    
    PRINCIPAL DIFFERENCES BETWEEN CHILEAN GAAP AND US GAAPChilean GAAP varies in certain important respects from U.S. GAAP. Such
differences involve certain methods for measuring the amounts shown in the
financial statements.The principal differences between Chilean GAAP and U.S. GAAP are described
below together with an explanation, where appropriate, of the method used in
the determination of the adjustments that affect net income and total
stockholders equity. References below to SFAS are to Statements of
Financial Accounting Standards issued by the Financial Accounting Standards
Board in the United States.The effects of these differences on the Companys shareholders equity as of
December 31, 2003 and 2002 and net income for the three years then ended are
summarized below: 2003
    
    2002
    
    2001Shareholders
    
    
    
    
    
    Shareholders
    
    
    
    Net (loss)equity
    
    Net income
    
    equity
    
    Net income
    
    un-auditedChilean GAAP
    
    
    205,249
    
    
    
    41,695
    
    
    
    164,660
    
    
    
    22,360
    
    
    
    (19,199
    )Accounting for derivative instruments (a)
    
    
    81,123
    
    
    
    150,208
    
    
    
    (69,085
    )
    
    
    6,712
    
    
    
    (75,719
    )Capitalization of interest on financing (b)
    
    
    (1,130
    )
    
    
    57
    
    
    
    (1,187
    )
    
    
    7,091
    
    
    
    8,278Deferred tax on losses carryforwards (c)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,189
    
    
    
    (13,189
    )Accumulated deficit development stage (d)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,027
    )
    
    
    Tax effects on GAAP differences (e)
    
    
    (27,198
    )
    
    
    (51,090
    )
    
    
    23,892
    
    
    
    2,127
    
    
    
    28,586US GAAP
    
    
    258,044
    
    
    
    140,870
    
    
    
    118,280
    
    
    
    45,452
    
    
    
    (87,877
    )
  Under Chilean GAAP, in accordance with Technical Bulletin 64 (B.T. 64) the
financial statements of foreign subsidiaries that operate in countries
exposed to significant risks (unstable countries), and that are not
considered to be an extension of the parent companys operations, are
remeasured into US dollars. The Company and its foreign subsidiaries in
Argentina all meet the criteria of foreign subsidiaries that operate in
countries exposed to significant risks under BT 64 and are remeasured into
US dollars.  
    
    Monetary assets and liabilities are translated at year-end rates of
exchange between the US dollar and the local currency.
    
    All non-monetary assets and liabilities and shareholders equity
are translated at historical rates of exchange between the US dollar
and the local currency.
    
    Income and expense accounts are translated at average rates of
exchange between the US dollar and local currency.
    
    The effects of any exchange rate fluctuations between the local
currency and the US dollar are included in the results of operations
for the period.  As discussed in Note 2c, the foreign exchange currency translation
procedures defined by Technical Bulletin 64 are part of the comprehensive
basis of preparation of price-level adjusted financial statements required
by Chilean GAAP. Inclusion of inflation, if applicable, and translation
effects in the financial statements is considered appropriate under the
inflationary conditions that have historically affected the economy, and
accordingly, are not eliminated in the reconciliation to U.S. GAAP. H-22
    Table of Contents  CIEN  Companhia de Interconexão Energética  a.
    
    Accounting for derivative instrumentsCurrent Chilean accounting rules do not consider the existence of
derivative instruments embedded in other contracts or the consideration
of non-financial instrument contracts as derivatives and therefore they
are not reflected in the financial statements.Certain Companys generation and distribution commodity contracts could
be seen as contracts that meet the definition of a derivative under SFAS
No. 133 and would be required to be accounted for at fair value. These
conditions are (i) have an underlying, which is the market price of
power at the delivery location and a notional amount specified in the
contract; (ii) have no initial payment on entering into the contract;
and (iii) have a net settlement provision or have the characteristic of
net settlement because power is readily convertible to cash, as it is
both fungible and actively traded in the country of generation or
country of distribution.The Company assessed that its commodity contracts that are requirements
contracts do no meet the above definition because the contracts do not
have notional amounts, as they only have maximum amounts or no specified
amounts, and do not include an implicit or explicit minimum amount in a
settlement or a default clause. A requirements contract allows the
purchaser to use as many units of power as required to satisfy its
actual needs for power during the period of the contract, and the party
is not permitted to buy more than its actual needs.The Company concluded that all of its power is readily convertible to
cash as energy is actively traded, or the Company has access, to markets
where energy is actively traded. However, only certain participants
have access to the energy markets, thus determination as to whether
energy could be considered readily convertible to cash was analyzed on a
country by country basis. The Company has also concluded that
multiple-delivery long-term power contracts meet the net settlement
characteristic. Management multiple-delivery long-term power contracts
are readily convertible to cash because the Company operates in
countries with active spot markets, that although they contain varying
levels of liquidity, can rapidly absorb the contracts quantities at
each delivery date without significantly affecting the price, and thus
meet the definition of net settlement, consequently these contracts are
accounted for as derivatives that under SFAS No.133.Because both the purchases and sales interconnection contracts are for
periods up to 20 years in complex markets, where no similar term forward
market information is available, the Company has estimated such values
based on the best information available, including using modeling and
other valuation techniques. The Company has recorded the best estimate
of fair value, however with different assumptions such as interest
rates, inflation rates, exchange rates, electricity rates, and increases
in cost trends, materially different fair values could result. As a
result such estimates are highly volatile and dependent upon the
assumptions used. H-23
    Table of Contents  CIEN  Companhia de Interconexão Energética  b.
    
    Capitalization of interest on financingInterest on loans and financing of work in progress was accounted for in
fixed assets during the construction of projects CIEN I and CIEN II. For
US GAAP the interest capitalized in excess of amounts qualified for
interest capitalization was reversed in accordance with Statement of
Financial Accounting Standards No. 34 (SFAS 34).The Chilean GAAP determines that the totality of the interest on loans
and financing of fixed assets acquisition or construction has to be
accounted for in fixed assets. As determined in SFAS 34, the amount
capitalized in an accounting period shall be determined by applying an
interest rate to the average amount of accumulated expenditures for the
asset during the period.c.
    
    Deferred taxes on losses carryforwardsIn 2001 the Company recorded a valuation allowance for deferred taxes on
losses carryforwards for US GAAP, which was reversed in 2002.d.
    
    Accumulated deficit during the development stageUnder Chilean GAAP, the losses incurred during the development stage is
recorded directly in the parent companys equity. Under US GAAP, such
costs must be charged to income as incurred.e.
    
    Tax effects on GAAP differencesRefers to effects of income and social contribution taxes on the Chilean
to US GAAP differences.  Disclosures about Fair Value of Financial InstrumentsThe following methods and assumptions were used to estimate the fair value
of each class of financial instruments as of December 31, 2002 and 2003 for
which it is practicable to estimate that value:  
    
    CashThe fair value of the Companys cash is equal to its carrying value.
    
    Time depositsThe fair value of time deposits approximates carrying value due to the relatively short-term nature.
    
    Marketable securitiesThe fair value of marketable securities is based on quoted market prices
of the mutual money market funds held and approximates carrying value. H-24
    Table of Contents  CIEN  Companhia de Interconexão Energética  
    
    Long-term accounts receivableThe fair value of long-term accounts receivable was estimated using the
interest rates that are currently offered for loans with similar terms
and remaining maturities.
    
    Long-term debtThe fair value of long-term debt was based on rates currently available
to the Company for debt with similar terms and remaining maturities.  The estimated fair values of the Companys financial instruments compared to
Chilean GAAP carrying amounts are as follows: December 31, 2003
    
    December 31, 2002Carrying value
    
    Fair value
    
    Carrying value
    
    Fair valueCash
    
    
    4,816
    
    
    
    4,816
    
    
    
    245
    
    
    
    245Time deposits
    
    
    39,135
    
    
    
    39,135
    
    
    
    17,250
    
    
    
    17,250Accounts Receivables
    
    
    83,203
    
    
    
    83,203
    
    
    
    64,039
    
    
    
    64,039Long-term receivables
    
    
    65,416
    
    
    
    65,416
    
    
    
    41,312
    
    
    
    41,312Long-term debt
    
    
    34,316
    
    
    
    34,316
    
    
    
    335,017
    
    
    
    335,017
 H-25
    Table of Contents  [DELOITTE LOGO]  Deloitte & Co. S.R.L.Florida 234-Piso 5°Buenos Aires C1005AAFArgentinaTel: (54) 11-4320-2700Fax: (54) 11-4320-8081www.deloitte.com REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM To the President and the Board of Directors of
Comercializadora de Energía del Mercosur S.A.
(CEMSA) We have audited the accompanying balance sheets
of Comercializadora de Energía del Mercosur S.A.
(CEMSA) as of December 31, 2002 and 2003, and
the related statements of operations and of cash flows for the
years then ended. These financial statements are the
responsibility of the Companys Management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(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, based on our audits, the
financial statements referred to above present fairly, in all
material respects, the financial position of Comercializadora
de Energía del Mercosur S.A. (CEMSA) as of
December 31, 2002 and 2003, and the results of its
operations and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in
Chile. Accounting principles generally accepted in Chile
vary in certain significant respects from accounting principles
generally accepted in the United States of America. Information
relating to the nature and effect of such differences is
presented in Note 15 to the financial statements. Our audit also comprehended the translation of
constant Chilean Peso amounts into U.S. dollar amounts and,
in our opinion, such translation has been made in conformity
with the basis stated in Note 2(b). Such U.S. dollar
amounts are presented solely for the convenience of readers in
the United States of America. Buenos Aires, January 22, 2004, except for
Note 15 for which the date is April 30, 2004. DELOITTE & Co. S.R.L. /s/ Carlos A. Lloveras CARLOS A. LLOVERAS(Partner) Member of                         
Deloitte Touche Tohmatsu H-26    Table of Contents  COMERCIALIZADORA DE ENERGIA DEL MERCOSUR S.A.
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 31,2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThUS$ASSETSCURRENT ASSETS:Cash
    
    
    7,090,949
    
    
    
    6,744,646
    
    
    
    11,358Time deposits
    
    
    50,668
    
    
    
    48,019
    
    
    
    81Accounts receivable, net
    
    
    885,948
    
    
    
    333,868
    
    
    
    562Amounts due from related companies (note 5.a)
    
    
    6,023,164
    
    
    
    14,582,996
    
    
    
    24,559Income taxes and V.A.T. recoverable
    
    
    1,665,772
    
    
    
    1,436,545
    
    
    
    2,419Other current assets (note 6)
    
    
    5,111,629
    
    
    
    2,821,754
    
    
    
    4,753Total current assets
    
    
    20,828,130
    
    
    
    25,967,828
    
    
    
    43,732PROPERTY, PLANT AND EQUIPMENT:Equipment and others (note 7)
    
    
    231,112
    
    
    
    297,443
    
    
    
    501Accumulated depreciation (note 7)
    
    
    (84,053
    )
    
    
    (119,794
    )
    
    
    (202
    )Total property, plant and equipment, net
    
    
    147,059
    
    
    
    177,649
    
    
    
    299TOTAL ASSETS
    
    
    20,975,189
    
    
    
    26,145,477
    
    
    
    44,031LIABILITIES
AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    
    4,829,161
    
    
    
    7,891,500
    
    
    
    13,290Amounts payable to related companies (note 5.b)
    
    
    5,948,601
    
    
    
    9,476,842
    
    
    
    15,960Withholdings
    
    
    133,080
    
    
    
    80,873
    
    
    
    136Income taxes payable (note 8)
    
    
    2,315,279
    
    
    
    873,212
    
    
    
    1,471Other current liabilities
    
    
    58,893
    
    
    
    114,291
    
    
    
    192Total current liabilities
    
    
    13,285,014
    
    
    
    18,436,718
    
    
    
    31,049SHAREHOLDERS EQUITY:Paid-in capital, no par value
    
    
    10,169,855
    
    
    
    8,320,326
    
    
    
    14,012Other reserves
    
    
    46,540
    
    
    
    38,074
    
    
    
    64Retained earnings
    
    
    895,650
    
    
    
    (2,005,331
    )
    
    
    (3,377
    )Net income (loss) for the year
    
    
    (3,421,870
    )
    
    
    1,355,690
    
    
    
    2,283Total
shareholders equity
    
    
    7,690,175
    
    
    
    7,708,759
    
    
    
    12,982TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    20,975,189
    
    
    
    26,145,477
    
    
    
    44,031
 The accompanying notes are an integral part of these financial statements. H-27
    Table of Contents  COMERCIALIZADORA DE ENERGIA DEL MERCOSUR S.A.
STATEMENTS OF OPERATIONS (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 31,2001(un-audited)
    
    2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThUS$OPERATING INCOME:SALES
    
    
    944,851
    
    
    
    2,809,318
    
    
    
    3,514,138
    
    
    
    5,918ADMINISTRATIVE AND SELLING EXPENSES
    
    
    (1,617,723
    )
    
    
    (871,871
    )
    
    
    (1,091,909
    )
    
    
    (1,839
    )OPERATING (LOSS) INCOME
    
    
    (672,872
    )
    
    
    1,937,447
    
    
    
    2,422,229
    
    
    
    4,079NON-OPERATING INCOME AND EXPENSE:Interest income
    
    
    739,793
    
    
    
    3,648,957Other non-operating income (note 10.a)
    
    
    61,060
    
    
    
    5,568
    
    
    
    218,800
    
    
    
    369Interest expense
    
    
    
    
    
    
    
    
    
    
    (277,362
    )
    
    
    (467
    )Other non-operating expenses (note 10.b)
    
    
    (75,628
    )
    
    
    (6,695,123
    )
    
    
    (7,903
    )
    
    
    (14
    )NON-OPERATING INCOME (EXPENSE), NET
    
    
    725,225
    
    
    
    (3,040,598
    )
    
    
    (66,465
    )
    
    
    (112
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    52,353
    
    
    
    (1,103,151
    )
    
    
    2,355,764
    
    
    
    3,967INCOME TAXES
    
    
    (18,320
    )
    
    
    (2,318,719
    )
    
    
    (1,000,074
    )
    
    
    (1,684
    )NET INCOME (LOSS) FOR THE YEAR
    
    
    34,033
    
    
    
    (3,421,870
    )
    
    
    1,355,690
    
    
    
    2,283
 The accompanying notes are an integral part of these financial statements. H-28
    Table of Contents  COMERCIALIZADORA DE ENERGIA DEL MERCOSUR S.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003 and thousands of US dollars) Net incomePaid-in
    
    Other
    
    Retained
    
    (loss) forcapital
    
    reserves
    
    earnings
    
    the year
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$As of January 1, 2001 (1)
    
    
    8,037,983
    
    
    
    11,626
    
    
    
    704,388
    
    
    
    
    
    
    
    8,753,997Transfer of prior year income to
retained earnings (1)
    
    
    
    
    
    
    23,443
    
    
    
    (23,443
    )Cumulative translation adjustment under Chilean GAAP
    
    
    1,136,934
    
    
    
    1,645
    
    
    
    99,631
    
    
    
    
    
    
    
    1,238,210Net income for the year (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,724
    
    
    
    32,724As of December 31, 2001 (1)
    
    
    9,174,917
    
    
    
    36,714
    
    
    
    780,576
    
    
    
    32,724
    
    
    
    10,024,931As of December 31, 2001 (1)(2)
    
    
    9,541,914
    
    
    
    38,184
    
    
    
    811,798
    
    
    
    34,033
    
    
    
    10,425,929As of January 1, 2002
    
    
    9,174,917
    
    
    
    36,714
    
    
    
    780,576
    
    
    
    32,724
    
    
    
    10,024,931Transfer of prior year income to retained earnings
    
    
    
    
    
    
    5,786
    
    
    
    26,938
    
    
    
    (32,724
    )Cumulative translation adjustment under Chilean GAAP
    
    
    894,246
    
    
    
    3,579
    
    
    
    79,269
    
    
    
    
    
    
    
    977,094Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,387,990
    )
    
    
    (3,387,990
    )As of December 31, 2002
    
    
    10,069,163
    
    
    
    46,079
    
    
    
    886,783
    
    
    
    (3,387,990
    )
    
    
    7,614,035As of December 31, 2002 (2)
    
    
    10,169,855
    
    
    
    46,540
    
    
    
    895,650
    
    
    
    (3,421,870
    )
    
    
    7,690,175As of January 1, 2003
    
    
    10,069,163
    
    
    
    46,079
    
    
    
    886,783
    
    
    
    (3,387,990
    )
    
    
    7,614,035Capital increase
    
    
    
    
    
    
    
    
    
    
    (3,387,990
    )
    
    
    3,387,990Cumulative translation adjustment under Chilean GAAP
    
    
    (1,748,837
    )
    
    
    (8,005
    )
    
    
    495,876
    
    
    
    
    
    
    
    (1,260,966
    )Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,355,690
    
    
    
    1,355,690As of December 31, 2003
    
    
    8,320,326
    
    
    
    38,074
    
    
    
    (2,005,331
    )
    
    
    1,355,690
    
    
    
    7,708,759As of December 31, 2003 (3)
    
    
    14,012
    
    
    
    64
    
    
    
    (3,377
    )
    
    
    2,283
    
    
    
    12,982
   (1)
    
    Un-audited(2)
    
    Restated in thousands of constant Chilean pesos as of December 31, 2003.(3)
    
    Presented in thousands of US$ at the exchange rate as of December 31, 2003 of Ch$593.8 for US$1 The accompanying notes are an integral part of these consolidated financial statements H-29
    Table of Contents  COMERCIALIZADORA DE ENERGIA DEL MERCOSUR S.A.
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) As of December 31,2001(un-audited)
    
    2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThUS$Net income (loss) for the year
    
    
    34,033
    
    
    
    (3,421,870
    )
    
    
    1,355,690
    
    
    
    2,283Charges (credits) to income (loss) which do not
represent cash flows:Depreciation
    
    
    25,369
    
    
    
    41,604
    
    
    
    51,027
    
    
    
    60Exchange difference, net
    
    
    962,812
    
    
    
    257,775
    
    
    
    (112,017
    )
    
    
    (163
    )Changes in assets which affect cash flows:Decrease in trade receivables
    
    
    6,755,155
    
    
    
    807,526
    
    
    
    552,080
    
    
    
    930Increase in due from related companies
    
    
    (4,173,873
    )
    
    
    (1,849,291
    )
    
    
    (8,559,832
    )
    
    
    (14,415
    )Decrease (increase) in other assets
    
    
    5,995,679
    
    
    
    (4,041,158
    )
    
    
    2,519,103
    
    
    
    4,242Changes in liabilities which affect cash flows:(Decrease) increase in accounts payable associated with
operating results
    
    
    (5,607,809
    )
    
    
    8,156,179
    
    
    
    6,590,580
    
    
    
    11,099Increase (decrease) in other accounts payable associated
    
    
    12,241
    
    
    
    2,444,581
    
    
    
    (1,438,876
    )
    
    
    (2,423
    )Net cash flows provided by operating activities
    
    
    4,003,607
    
    
    
    2,395,346
    
    
    
    957,755
    
    
    
    1,613CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property, plant and equipment
    
    
    (80,752
    )
    
    
    (110,737
    )
    
    
    (66,332
    )
    
    
    (112
    )Net cash used in investing activities
    
    
    (80,752
    )
    
    
    (110,737
    )
    
    
    (66,332
    )
    
    
    (112
    )POSITIVE NET CASH FLOW FOR THE YEAR
    
    
    3,922,855
    
    
    
    2,284,609
    
    
    
    891,423
    
    
    
    1,501EFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH
EQUIVALENTS
    
    
    62,306
    
    
    
    431,352
    
    
    
    (1,240,375
    )
    
    
    (2,090
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    3,985,161
    
    
    
    2,715,961
    
    
    
    (348,952
    )
    
    
    (589
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
    
    
    440,495
    
    
    
    4,425,656
    
    
    
    7,141,617
    
    
    
    12,027CASH AND CASH EQUIVALENTS AT END OF THE YEAR
    
    
    4,425,656
    
    
    
    7,141,617
    
    
    
    6,792,665
    
    
    
    11,438
 The accompanying notes are an integral part of these financial statements. H-30
    Table of Contents  COMERCIALIZADORA DE ENERGIA DEL MERCOSUR S.A.
NOTES TO THE FINANCIAL STATEMENTS
As of and for the years ended December 31, 2003 and 2002 (Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003)  Note 1.
    
    Description of Business The Company was constituted to trade in the wholesale electric market, on its
own account and/or by mandate and/or on behalf third parties and/or associated
to third parties, within the Mercosur. On April 8, 2002, the General Ordinary and Extraordinary Shareholders Meeting
enlarge the main business to natural gas commercialization, on its own account
and/or by mandate and/or on behalf third parties and/or associated to third
parties, on the same countries. The Company obtained the corresponding
authorization as an energy broker from the Energy Department and the Enargas
(natural gas regulatory agency). According to Resolution No. 613 of December 9, 1998, the Company obtained the
authorization of the Energy Department to export 500 MW of firm capacity and
associated energy to the Federal Republic of Brazil, during 20 years as from
the starting date of commercial operations of the International Interconnection
Transmission System. The buyer is Companhia de Interconexão Energética (CIEN), which demand comes
from an International Bid promoted by the Federal Republic of Brazil, which
this Company was awarded. To comply with the export before mentioned, the Company, together with Central
Costanera S.A., initiated the First International Transmission Interconnection
of high capacity between the region systems, in order to export capacity and
energy from Argentina. As a consequence of that, the Company entered into agreements with Compañía de
Transmisión del Mercosur S.A. for the construction, operation and maintenance
of the international enlargement of the International Interconnection System
from the Transforming Station (TS) Rincón de Santa María to the TS Garabí, in
Argentine territory; and of the national enlargement, constituted by other
works in Rincón de Santa María Substation. Both enlargements have the respective Convenience and Public Necessity
Certificates issued by the Electricity Regulatory National Entity (ENRE), which
also approved the plan of the corresponding Line. The International Interconnection System started the commercial operations on
June 21, 2000. On December 20, 2000, by Resolution No. 263/00, the Energy Department granted
to the Company the export license for another 1,000 MW of firm capacity and
associated energy to the Federal Republic of Brazil, for the customer Companhia
de Interconexão Energética. To comply with this new commitment, the Company entered into agreements with
Transportadora de Energía S.A. for the construction, operation and maintenance
of the international enlargement of the International Interconnection System
from the TS Rincón de Santa María to the TS Garabí, in Argentine territory; and
of the national enlargement, constituted by other works in Rincón de Santa
María Substation. Both enlargements have the respective Convenience and Public Necessity
Certificates issued by the Electricity Regulatory National Entity (ENRE), which
also approved the plan of the corresponding Line. H-31
    Table of Contents  This second system started the commercial operations, reduced to 420 MW, on May
1, 2002, and fully on August 1, 2002. By Resolution No. 365/01 of November 15, 2001, the Company received from the
Energy Department export licenses for other additional 50 MW through the First
International Interconnection for a 20 year-period, and by Resolution No.
607/02 of August 8, 2002 other 50 MW through the Second International
Interconnection for the same period. During 2003, the Company obtained from the Energy Department the export
licenses No. 76, 77 and 78/03 of January 24, 2003, to export 338 MW of firm
capacity and associated energy to the Republic of Uruguay, for a two
year-period beginning on February 1, 2003. Additionally, the Company carries out commercial operations in the domestic
market, by its own and on behalf third parties, in this last case backing with
agreements with wholesale electric market generators, which support the
commercialization agreements entered into with large customers and
distributors. Likewise, the possibility to export firm capacity and associated energy to
Chile, is being analyzing by the Company.  Note 2.
    
    Summary of Significant Accounting Policies  a)
    
    General The financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in Chile and the regulations
established by the Chilean Superintendence of Securities and Insurance  SVS
(collectively Chilean GAAP). The preparation of financial statements in conformity with Chilean GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, 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 year. Actual results
could differ from those estimates. These financial statements have been translated from Argentine pesos to US
dollars, and, later translated to Chilean pesos, starting from the accounting
records of the Company, kept in pesos (Argentine currency) in conformity with
Argentine legislation, except by the elimination of certain items such as the
inflation adjustment. For this purpose, the Company followed the methodology of
conversion described in the Technical Bulletin No. 64 (BT No. 64) issued by the
Chilean Accountants Association, for investments in non-stable countries and
that are not considered as an extension of the holding Company operations. Additionally, certain valuation adjustments have been made to adequate the
balances in Argentine currency to accounting principles generally accepted in
Chile, that include the effect of the monetary correction in conformity with
Technical Bulletin No. 13 of the Chilean Accountants Association. The exchange rate as of December 31, 2002 and 2003 was 718.61 Chilean pesos and
593.80 Chilean pesos, respectively, per each US dollar. Likewise, the consumer
prices index issued by the National Statistics Institute of Chile was 3% and 1%
for the years ended on December 31, 2002 and 2003, respectively. H-32
    Table of Contents  b)
    
    Years covered These financial statements reflect the Companys financial position as of
December 31, 2002 and 2003, and the results of its operations and its cash
flows for years ended December 31, 2001 (un-audited), 2002 and 2003.  c)
    
    Constant currency restatement Comparative financial statements For comparative purposes, the 2001 (un-audited) and 2002 financial statements
and the amounts disclosed in the related Notes have been restated in terms of
Chilean pesos of December 31, 2003, purchasing power. Convenience translation to U.S. dollars The financial statements are stated in Chilean pesos. The translation of
Chilean pesos into US dollars are included solely for the convenience of the
reader, using the observed exchange rate reported by the Chilean Central Bank
as of December 31, 2003 of Ch$ 593.80 to US$ 1.00. The convenience
translations should not be construed as representations that the Chilean peso
amounts have been, could have been, or could in the future be, converted into
US dollars at this or any other rate of exchange.  d)
    
    Time deposits Time deposits are presented at original placement plus accrued interest, as
applicable.  e)
    
    Property, plant and equipment Property, plant and equipment are valued at the acquisition cost, that include
all significant costs necessary to put these assets in a position to be used in
the Companys business, including financial costs related to construction work
carried out over a considerable length. In accordance with Chilean GAAP, the Company has evaluated the recoverability
of its assets. It is the Companys policy, when evidence exists of an other
than temporary impairment of fixed assets, such that the Companys operations
are not expected to produce sufficient net cash flows, to recover all fixed
asset costs, including depreciation, the book values of those assets must be
reduced to their net realizable values with a charge to non-operating expenses.
The Company has not identified impairments in the net book values of its
property, plant and equipment.  f)
    
    Depreciation Depreciation expense is calculated on the revalued balances using the
straight-line method over the estimated useful lives of the assets.  g)
    
    Revenue recognition Revenue consists of revenue for electric power sales on its own name and the
net revenues from sales of electric power on behalf third parties. Revenue is
recognized when energy and power is provided at rates specified under contract
terms. H-33
    Table of Contents  h)
    
    Income tax and deferred income taxes The Company determines income tax applying the current legal tax rate of 35% to
the tax income of the year, considering the timing differences between the
accounting values and the tax values of assets and liabilities, as well as
unused tax losses or tax credits subject to deduction of future tax income
whenever it becomes probable. In addition, the Company determines the minimum deemed income tax by applying a
1% rate on the assets at year-end. This tax is a complement of income tax. The
Companys tax obligation will be the highest of both taxes. Nevertheless,
should the minimum deemed income tax exceeds during a fiscal year the amount of
income tax, such excess can be computed as payment to account of any surplus of
income tax over the minimum deemed income tax that could occur in any of the
next ten fiscal years.  i)
    
    Statements of cash flows The Statements of Cash Flows have been prepared in accordance with the indirect
method. Investments considered as cash equivalents, include time deposits with
maturities less than 90 days. For classification purposes, cash flows from operations include collections
from clients and payments to suppliers, payroll and taxes.  Note 3.
    
    Change in Accounting Principles There were no changes in accounting principles during the years ended December
31, 2001 (un-audited), 2002 and 2003 that would affect the comparison with the
prior year financial statements.  Note 4.
    
    Accounts, Notes and Other Receivables Current accounts, amounts due from related companies and other receivables as
of each December 31, are as follows: As of December 31,Account
    
    Under 90 days
    
    91 days to 1 year
    
    Current2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Accounts receivable
    
    
    885,948
    
    
    
    333,868
    
    
    
    
    
    
    
    
    
    
    
    885,948
    
    
    
    333,868Amounts due from
related companies
    
    
    6,023,164
    
    
    
    13,417,590
    
    
    
    
    
    
    
    1,165,406
    
    
    
    6,023,164
    
    
    
    14,582,996Income taxes and
V.A.T. recoverable
    
    
    
    
    
    
    
    
    
    
    1,667,071
    
    
    
    1,437,799
    
    
    
    1,665,772
    
    
    
    1,436,545Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,574,884
    
    
    
    16,353,409
 H-34
    Table of Contents  Note 5.
    
    Transactions with Related Companies The balances of accounts receivable and payable are as follows at December 31,
2002 and 2003:  (a)
    
    Notes and accounts receivable due from related companies: As of December 31,Current
    
    Long term2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Companhia de Interconexão Energética
    
    
    6,023,164
    
    
    
    14,582,996
    
    
    
    
    
    
    
    
  (b)
    
    Notes and accounts payable due to related companies: As of December 31,Current
    
    Long term2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Central Costanera S.A.
    
    
    4,811,274
    
    
    
    5,017,515Hidroeléctrica El Chocón S.A.
    
    
    3
    
    
    
    Compañía de Transmisión del
Mercosur S.A.
    
    
    108,225
    
    
    
    1,004,665Transportadora de Energía S.A.
    
    
    198,432
    
    
    
    2,539,013Central Dock Sud S.A.
    
    
    830,667
    
    
    
    915,649Total
    
    
    5,948,601
    
    
    
    9,476,842
    
    
    
    
    
    
    
    
  Note 6.
    
    Other Current Assets Other current assets are as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Time deposits in guarantee to third parties
    
    
    5,091,183
    
    
    
    2,790,809Others
    
    
    20,446
    
    
    
    30,9455,111,629
    
    
    
    2,821,754
 H-35
    Table of Contents  Note 7.
    
    Property, Plant and Equipment The composition of property, plant and equipment is as follows: As of December 31,Useful live2002
    
    2003
    
    rangeThCh$
    
    ThCh$
    
    YearsFurniture and fixtures, tools, and computing equipment
    
    
    93,918
    
    
    
    101,313
    
    
    3 - 5Vehicles
    
    
    82,540
    
    
    
    82,339
    
    
    5Other assets
    
    
    54,654
    
    
    
    113,791
    
    
    5Subtotal property plant and equipment
    
    
    231,112
    
    
    
    297,443Accumulated depreciation at beginning of year
    
    
    (42,449
    )
    
    
    (68,767
    )Depreciation of the year
    
    
    (41,604
    )
    
    
    (51,027
    )Accumulated depreciation at end of year
    
    
    (84,053
    )
    
    
    (119,794
    )Total property, plant and equipment, net
    
    
    147,059
    
    
    
    177,649
  Note 8.
    
    Income taxes payable  a)
    
    Income taxes payable as of each year-end are as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Income tax provision  current
    
    
    2,315,279
    
    
    
    873,212Recoverable tax credits
    
    
    
    
    
    
    2,315,279
    
    
    
    873,212
  b)
    
    The net effect of recording taxes resulted in a net charge to income of
ThCh$ (18,320), ThCh$ (2,318,719) and ThCh$ (1,000,074) during the years
ended December 31, 2001 (un-audited), 2002 and 2003, respectively.  Note 9.
    
    Shareholders Equity  (a)
    
    Dividends During the years ended December 31, 2001 (un-audited), 2002 and 2003 the
Company has not paid dividends  (b)
    
    Number of shares As of December 31, 2002 and 2003 the number of shares authorized, issued and
outstanding was 14,012,000 all of which have voting rights. H-36
    Table of Contents  (c)
    
    Subscribed and paid-in capital is as follows: As of December 31, 2003Shares
    
    ThCh$As of December 31, 2002
    
    
    14,012,000
    
    
    
    10,169,855Exchange rate conversion difference
    
    
    
    
    
    
    (1,849,529
    )As of December 31, 2003
    
    
    14,012,000
    
    
    
    8,320,326
  (d)
    
    Other reserves Other reserves are composed by the legal reserve, constituted in accordance
with the Argentine Corporations Law and the articles of incorporation, by the
5% of the net income for the year, after prior year adjustments if any, until
such reserve equals 20% of the capital.  Note 10.
    
    Other Income and Expenses  a.
    
    The detail of other non-operating income is as follows: As of December 31,2001(un-audited)
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Effect of application of BT 64
    
    
    
    
    
    
    
    
    
    
    218,800Others
    
    
    61,060
    
    
    
    5,56861,060
    
    
    
    5,568
    
    
    
    218,800
  b.
    
    Other non-operating expenses are as follows: As of December 31,2001(un-audited)
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Effect of application of BT 64
    
    
    75,628
    
    
    
    6,695,123Others
    
    
    
    
    
    
    
    
    
    
    7,90375,628
    
    
    
    6,695,123
    
    
    
    7,903
 H-37
    Table of Contents  Note 11.
    
    Commitments and Contingencies The Company is subject to
certain guarantee obligations assigned by the related companies
Companhia de Interconexão Energética (CIEN), Compañía de Transmisión del
Mercosur S.A. (CTM) and Transportadora de Energía S.A. (TESA) (the Project
Companies) to Banco Santander Central Hispano (Collateral Agent) and other
financial institutions, emerging from the corresponding agreements subscribed
between the Company and the Project Companies, the Company becomes engaged to
pay all payments related to such agreements to the Collateral Agent. Likewise,
the Collateral Agent could exercise all the rights that the Project Companies
are entitled to, through a reliable notification to the Company. As a
consequence, the Collateral Agent and the Project Companies authorize the
Company and this accepts to comply with such notification terms. On the other hand, the Company recognizes that any action to: (i) cancel or
extinguish any of the assigned agreements; (ii) materially modify any assigned
rights; (iii) sell, give up or dispose, total o partially any of the assigned
rights; or (iv) take any action on the assigned right that could affect the
Collateral Agent rights or interest, will be subject to the previous approval
of the Collateral Agent.  Note 12.
    
    Foreign Currencies As of December 31, 2002 and 2003, foreign currency denominated assets and
liabilities are as follows: As of December 31,2002
    
    2003Account
    
    Currency
    
    ThCh$
    
    ThCh$(a) Current assetsCash
    
    US$
    
    
    6,593,249
    
    
    
    6,150,549Argentine Peso
    
    
    497,700
    
    
    
    594,097Time deposits
    
    Argentine Peso
    
    
    50,668
    
    
    
    48,019Accounts receivable, net
    
    Argentine Peso
    
    
    885,948
    
    
    
    333,868Amounts due from related companies
    
    US$
    
    
    6,023,164
    
    
    
    14,582,996Income taxes and V.A.T. recoverable
    
    Argentine Peso
    
    
    1,665,772
    
    
    
    1,436,545Other current assets
    
    US$
    
    
    5,091,181
    
    
    
    2,790,809Argentine Peso
    
    
    20,448
    
    
    
    30,945Total current assets
    
    
    
    
    20,828,130
    
    
    
    25,967,828(b) Property, plant and equipmentEquipment and others
    
    US$
    
    
    231,112
    
    
    
    297,443Accumulated depreciation
    
    US$
    
    
    (84,053
    )
    
    
    (119,794
    )Total Property, plant and equipment, net
    
    
    
    
    147,059
    
    
    
    177,649(c) Total assetsTotal assets by currency
    
    US$
    
    
    17,854,653
    
    
    
    23,702,003Argentine Peso
    
    
    3,120,536
    
    
    
    2,443,474Total assets
    
    
    
    
    20,975,189
    
    
    
    26,145,477
 H-38
    Table of Contents  As of December 31,2002
    
    2003Account
    
    Currency
    
    ThCh$
    
    ThCh$(d) Current liabilitiesAccounts payable
    
    US$
    
    
    902,183
    
    
    
    420,802Argentine Peso
    
    
    3,926,978
    
    
    
    7,470,698Amounts payable to related companies
    
    US$
    
    
    5,948,601
    
    
    
    9,476,842Withholdings
    
    Argentine Peso
    
    
    133,080
    
    
    
    80,873Income taxes payable
    
    Argentine Peso
    
    
    2,315,279
    
    
    
    873,212Other current liabilities
    
    Argentine Peso
    
    
    58,893
    
    
    
    114,291Total current liabilities and total liabilities
    
    
    
    
    13,285,014
    
    
    
    18,436,718(e) Total liabilitiesTotal liabilities by currency
    
    US$
    
    
    6,850,784
    
    
    
    9,897,644Argentine Peso
    
    
    6,434,230
    
    
    
    8,539,074Total liabilities
    
    
    
    
    13,285,014
    
    
    
    18,436,718
  Note 13.
    
    Power sale contracts to Brazil On June 21, 2000 the Company started operations through an export of 500 MW of
capacity and associated energy to Brazil, in agreement with the contract
subscribed with CIEN. To comply with this obligation, the Company signed
several contracts with Central Piedra Buena S.A. and Central Costanera S.A. for
the provision of 250 MW of capacity plus the associated energy, for each one.
According to these contracts, the Company operated as an agent on behalf of the
generators, and from 2002, on a small portion, on its own name. For a term of
20 years, the generators transferred the commercialization of two 250 MW blocks
of the total production of capacity and associated energy, of the plants
located in Bahia Blanca and Buenos Aires City, respectively, for supplying to
CIEN; on the other hand, the Company will reimburse to Central Piedra Buena
S.A. and Central Costanera S.A. the amounts collected from CIEN. During 2001, the Company signed a contract with CIEN to provide other
additional 50 MW of capacity plus the associated energy. To comply with this
obligation, the Company signed an agreement of commercialization of generation
with Centrales Térmicas del Noroeste S.A., which started on December 1, 2001. On December 20, 2000, by Resolution No. 263/00 of the Energy Department, an
export license was granted to the Company for other additional 1000 MW of
capacity and associated energy to be exported to the Federal Republic of
Brazil, as from the start of the Second Transport of Electrical Energy System
of International Interconnection, do it on August 1, 2002, being CIEN the
customer. To comply with this obligation the Company signed several contracts
with different energy generators companies. With respect to the above-mentioned commercialization agreements, on June 4,
2003, CEMSA informed to the generators that CIEN, its client in Brazil, was
unable to comply with the agreements to purchase installed capacity and energy
for 800 MW, of a total of 1,000 MW, corresponding to the Second Interconnection
between Argentina and Brazil, as its client, Companhia Paranaense de Energia
(COPEL) had ceased complying with the payments under such contract.
Consequently, CIEN informed CEMSA that it will only make partial payments of
the contracts included in the Second Interconnection amounting to 20% of the
total (share of the contracts not signed with COPEL). Therefore, CEMSA informed
to the generators that it will only make partial payments of the Second
Interconnection agreements in identical percentages. H-39
    Table of Contents  Analyzed this situation and after a negotiation process, the Company agreed
several modifications of the current agreements related to prices, volumes of
capacity and associated energy and terms, and also incorporating new generators
to the operation. Likewise, as a consequence of
the partial payments for the operations from
April to October 2003, the Company agreed that the remaining debt will be
repaid in 12 monthly equal and consecutive installments  denominated in US
dollars  starting in January 2004.  Note 14.
    
    The Argentine economic context The Argentine Republic is undergoing the effects of an unfavorable economic
environment, characterized by several indicators such as an important level of
foreign debt, the crisis of its financial system, a country risk at
unprecedented levels and an economic recession that lasted over four years.
This situation has resulted in a dramatic decrease on the demand of goods and
services and a relevant increase of the unemployment ratio. Also, the capacity
of the National Government to meet its obligations and the access to credit
lines has been affected by these adverse circumstances. In order to face this crisis, as from December 2001, the National Government
has issued several measures mainly related to the restriction on the free
disposition of funds deposited with Banks and the transfer of foreign currency
abroad. As from January 2002, several laws, decrees and regulations implying a
deep change to the former economic model, have been announced. One of the most
relevant measures was the implementation of the variable exchange rate, which
resulted in a significant devaluation during the first quarter of 2002; the
pesification (on the basis of a 1 peso = 1 US$ rate) of the prices of certain
assets and liabilities denominated in foreign currency maintained in Argentine
and the consequent increase of the internal prices. As from the enactment of Law No. 25,561 (Public Emergency Law and Modification
of the Exchange System), the adjustments in terms of US dollars or other
foreign currencies and other indexing mechanisms included in contracts with the
Federal Administration, are suspended. The prices and rates at that date were
converted into pesos at the exchange rate $ 1 to US$ 1. Also, the National
Government is authorized to renegotiate such contracts. Debts denominated in US dollars held with the Argentine financial system as
well as the obligations denominated in such currency and out off the financial
system, that were agreed under Argentine laws whichever its the source and
nature, existing from the enactment of Law No. 25,561, were converted at a 1 $
= 1 US$ rate plus the reference stabilization coefficient (CER) adjustment,
published by the Central Bank of the Republic of Argentina (BCRA) and applied
from February 2002 and its based on the evolution of the consumer prices. For
the particular case of US dollar denominated debts held with the Argentine
financial system, in addition to the above-mentioned coefficient, a rate its
applied that will not be able to surpass the maximum rate established by the
Argentine Central Bank (BCRA). The future evolution of the Argentine economic crisis could demand
modifications of the measures adopted by the National Government or additional
regulations.  Note 15.
    
    Differences between Chilean and United States Generally Accepted
Accounting Principles Chilean GAAP varies in certain important respects from U.S. GAAP. Such
differences involve certain methods for measuring the amounts shown in the
financial statements. H-40
    Table of Contents  Differences in Measurement Methods The principal differences between Chilean GAAP and U.S. GAAP are described
below together with an explanation, where appropriate, of the method used in
the determination of the adjustments that affect net income and total
stockholders equity. References below to SFAS are to Statements of Financial
Accounting Standards issued by the Financial Accounting Standards Board in the
United States.  (a)
    
    Inflation accounting The cumulative inflation rate in Chile as measured by the consumer price index
for the three-year period ended December 31, 2003 was approximately 7.3%.
Pursuant to Chilean GAAP, the Companys financial statements recognize certain
effects of inflation. The inclusion of price-level adjustments in the
accompanying financial statements is considered appropriate under the prolonged
inflationary conditions affecting the Chilean economy even though the
cumulative inflation rate for the last three years does not exceed 100%. As
allowed pursuant to Form-20-F the reconciliation included herein of net income
and shareholders equity, as determined in accordance with U.S. GAAP, excludes
adjustments attributable to the effect of differences between the accounting
for inflation under Chilean GAAP versus U.S. GAAP.  (b)
    
    Disclosures about fair value of financial instruments The following methods and assumptions were used to estimate the fair value of
each class of financial instruments as of December 31, 2002 and 2003 for which
it is practicable to estimate that value:  
    
    Cash The fair value of the Companys cash is equal to its carrying value.  
    
    Time deposits The fair value of time deposits approximates carrying value due to the
relatively short-term nature. The estimated fair values of the Companys financial instruments compared to
Chilean GAAP carrying amounts are as follows: 2002
    
    2003Carrying amount
    
    Fair value
    
    Carrying amount
    
    Fair valueThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Cash
    
    
    7,090,949
    
    
    
    7,090,949
    
    
    
    6,744,646
    
    
    
    6,744,646Time deposits
    
    
    50,668
    
    
    
    50,668
    
    
    
    48,019
    
    
    
    48,019Accounts receivable, net
    
    
    885,948
    
    
    
    885,948
    
    
    
    333,868
    
    
    
    333,868Amounts due from related companies
    
    
    6,023,164
    
    
    
    6,023,164
    
    
    
    14,582,996
    
    
    
    14,582,996Income taxes and V.A.T. recoverable
    
    
    1,665,772
    
    
    
    1,665,772
    
    
    
    1,436,545
    
    
    
    1,436,545Other current assets
    
    
    5,111,629
    
    
    
    5,111,629
    
    
    
    2,821,754
    
    
    
    2,821,754Accounts payable
    
    
    4,829,161
    
    
    
    4,829,161
    
    
    
    7,891,500
    
    
    
    7,891,500Amounts payable to related companies
    
    
    5,948,601
    
    
    
    5,948,601
    
    
    
    9,476,842
    
    
    
    9,476,842Withholdings
    
    
    133,080
    
    
    
    133,080
    
    
    
    80,873
    
    
    
    80,873Income taxes payable
    
    
    2,315,279
    
    
    
    2,315,279
    
    
    
    873,212
    
    
    
    873,212Other current liabilities
    
    
    58,893
    
    
    
    58,893
    
    
    
    114,291
    
    
    
    114,291Derivative contracts
    
    
    76,559,841
    
    
    
    76,559,841
    
    
    
    68,882,340
    
    
    
    68,882,340
 H-41
    Table of Contents  (c)
    
    Derivative instruments Current Chilean accounting
rules do not consider the existence of derivative instruments
embedded in other contracts or the consideration of non-financial
instrument contracts as derivatives and therefore they are not
reflected in the financial statements. Certain Company's generation
and distribution commodity contracts could be seen as contracts that
meet the definition of a derivative under SFAS No. 133 and would
be required to be accounted for at fair value. These conditions are
(i) have an underlying, which is the market price of power at
the delivery location and a notional amount specified in the
contract; (ii) have no initial payment on entering into the
contract; and (iii) have a net settlement provision or have the
characteristic of net settlement because power is readily convertible
to cash, as it is both fungible and actively traded in the country of
generation or country of distribution. The interconnection line was established to sell energy generated in Argentina
in the Brazilian market, as the Brazilian energy market heavily relies on
hydro-electric generation and has historically had significant problems with
meeting its energy needs economically due to lack of rainfall. In order to
calculate the fair values of the purchase and sale contracts related to the
energy to be sold in the Brazilian market, the Argentine market prices were
used. The Company considers the Argentine prices to be the correct benchmark to
value the fair value of the interconnection contracts because the Company does
not have concessions to sell the Argentine generated energy in the Brazilian
market to any parties other than those currently contracted. Therefore the
Company views the interconnection as an extension of the Argentine market and
as a more appropriate measure of the fair value of energy. Because both the purchases and sales interconnection contracts are for periods
up to 20 years in complex markets, where no similar term forward market
information is available, the Company has estimated such values based on the
best information available, including using modeling and other valuation
techniques. The Company has recorded the best estimate of fair value, however
with different assumptions such as interest rates, inflation rates, exchange
rates, electricity rates, and increases in cost trends, materially different
fair values could result. As a result such estimates are highly volatile and
dependent upon the assumptions used. The assumption to measure the fair value
of these interconnection related contracts using the Argentine market prices
may have a significant effect on the Companys net income and shareholders
equity.  (d)
    
    Effect of conforming to U.S. GAAP The reconciliation of reported net income (loss) required to conform to U.S.
GAAP is as follows: As of December 31,2001(un-audited)
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Net income (loss) in accordance with Chilean GAAP
    
    
    34,033
    
    
    
    (3,421,870
    )
    
    
    1,355,690Derivative instruments
    
    
    11,936,801
    
    
    
    64,603,094
    
    
    
    5,619,606Deferred tax effects on the U.S. GAAP adjustments
    
    
    (4,177,880
    )
    
    
    (22,611,083
    )
    
    
    (1,966,862
    )Net (loss) income in accordance with U.S. GAAP
    
    
    7,792,954
    
    
    
    38,570,141
    
    
    
    5,008,434Other comprehensive income (loss):Cumulative translation adjustment related to U.S
GAAP adjustments
    
    
    4,149,896
    
    
    
    508,366
    
    
    
    (9,140,758
    )Cumulative translation adjustment under Chilean
GAAP
    
    
    (1,238,210
    )
    
    
    (977,094
    )
    
    
    1,260,966Comprehensive (loss) income in accordance with
U.S.GAAP
    
    
    10,704,640
    
    
    
    38,101,413
    
    
    
    (2,871,358
    )
 H-42
    Table of Contents  The reconciliation to conform shareholders equity amounts to U.S. GAAP is as
follows: As of December 31,2001(un-audited)
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Shareholders equity in accordance with Chilean
GAAP
    
    
    10,425,929
    
    
    
    7,690,175
    
    
    
    7,708,759Derivative
instruments(c)
    
    
    11,936,801
    
    
    
    77,325,439
    
    
    
    68,882,340Deferred tax effects on the U.S. GAAP adjustments
    
    
    (4,177,880
    )
    
    
    (27,063,903
    )
    
    
    (24,108,819
    )Shareholders equity in accordance with U.S. GAAP
    
    
    18,184,850
    
    
    
    57,951,711
    
    
    
    52,482,280
  (e)
    
    Recently issued Accounting Pronouncements In October 2002, the EITF reached a final consensus on EITF Issue No. 02-03.
Primarily, the final consensus provided for (1) the rescission of the consensus
reached on EITF Issue No. 98-10, (2) the reporting of gains and losses on all
derivative instruments considered to be held for trading purposes to be shown
on a net basis in the income statement, and (3) gains and losses on
non-derivative energy trading contracts to be similarly presented on a gross or
net basis, in connection with the guidance in EITF Issue No. 99-19, Reporting
Revenue Gross as a Principal versus Net as an Agent. The Company adopted the
EITF Issue No. 02-03, as of January 1, 2003; the adoption of this consensus did
not have a material impact on the Companys results of operations, cash flows
or financial position. SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities.In April 2003, the FASB issued SFAS No. 149, which amends and
clarifies financial accounting and reporting for derivative instruments and for
hedging activities, including the qualifications for the normal purchases and
normal sales exception, under SFAS No. 133. The amendment reflects decisions
made by the FASB and the DIG process in connection with issues raised about the
application of SFAS No. 133. Generally, the provisions of SFAS No. 149 are to
be applied prospectively for contracts entered into or modified after June 30,
2003 and for hedging relationships designated after June 30, 2003. SFAS No. 149
provisions that resulted from the DIG process that became effective in quarters
beginning before June 15, 2003 continue to be applied based upon their original
effective dates. The Company adopted the provisions of SFAS No. 149 on July 1,
2003. Contracts that were being accounted for under the normal purchases and
normal sales exception under SFAS No. 133 as of June 30, 2003 will continue to
be accounted for under such exception, including following any modifications to
these contracts, as long as the requirements for applying the normal purchases
and normal sales exception are met. As a result, this issue did not have a
material impact on the Companys results of operations, cash flows or financial
position. On June 25, 2003, the FASB cleared the guidance contained in DIG Issue C20,
Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely
Related in Paragraph 10(b) regarding Contracts with a Price Adjustment
Feature. DIG Issue C20, which applies only to the guidance in paragraph 10(b)
of FASB No. 133 and not in reference to embedded derivatives, describes
circumstances in which the underlying in a price adjustment clause incorporated
into a contract that otherwise satisfies the requirements for the normal
purchases and normal sales exception would be considered to be not clearly and
closely related to the asset being sold or purchased. The guidance in DIG
Issue C20 was effective for the Company on July 1, 2003. The Companys review
of existing contracts designated as normal purchases and normal sales under
FASB No. 133 yielded no instances where an embedded price adjustment clause was
not clearly and closely related to the contracts underlying. H-43
    Table of Contents  As a result, this issue did not have a material impact on the Companys results
of operations, cash flows or financial position. 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 broaden
the scope of arrangements accounted for as leases. 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. The consensus will be 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
under historical accounting. The adoption of EITF Issue No. 01-08 would not
have a material effect on the Companys 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 was
effective for transactions or arrangements entered into after December 31,
2003. The adoption of EITF Issue No. 03-11 would not have a material effect on
the Companys results of operations, cash flows or financial position. H-44